Basic Estate Planning

Emerson Process ManagementEmerson Process Management
8100 West Florissant Avenue8100 West Florissant Avenue
St. Louis, Missouri 63136St. Louis, Missouri 63136
ESTATE PLANNING PRESENTATION
May 22, 2008
1460573
Kimberly B. McDermott
Lewis, Rice & Fingersh, L.C.
(314) 444-7833
kmcdermott@lewisrice.com

Overview
Introduction
Lifetime Planning
Wills
Revocable (Living) Trusts
Transfer Tax Planning
LEWIS, RICELEWIS, RICE
& FINGERSH,& FINGERSH,
L.C.L.C.

Introduction
Three primary goals of estate planning:
Direct how assets will be distributed at death.
Reduce or eliminate transfer taxes and probate costs.
“Piece of Mind” – Review every 3 to 5 years and major
life events (three “phases” of estate planning).
Transfer Taxes:
Gift Taxes
Estate Taxes
Generation-Skipping Transfer Taxes
L.C.L.C.

Introduction
Assets pass to beneficiaries at death by various
methods:
• Joint Property -- passes to surviving joint tenant
• Contract (IRA, pension plans, life insurance, annuities, etc.)
• Custodianship or nonprobate transfer (pay on death [POD],
transfer of death [TOD] registration and beneficiary deed)
• Intestacy (without a Will, probate administration and bond
required)
• Will (probate administration required)
• Trust Agreement (no need to probate, no court supervision)
L.C.L.C.

It is important that all your assets be integrated into
your estate plan. Consider beneficiary designations
on life insurance, IRAs and other death benefits.
Prepare and consider the following:
• Summarize all your assets (life insurance, stocks, bonds,
CDs, bank accounts, real estate, etc.). In whose name or
names are the assets held?
• Upon your death, who do you want to appoint as the
Executor and Trustee? What about successor Executors and
Trustees?
• Do you wish to leave assets outright or in trust?
• If you have minor children, who do you want to name as
guardian?
Introduction
L.C.L.C.

Lifetime Planning
Durable Power of Attorney.
Health Care Authorization, Declaration (or
Living Will) and Power of Attorney.
L.C.L.C.

Lifetime Planning
Durable Power of Attorney:
Grants to another (“attorney-in-fact”) power to
execute and carry out certain financial activities
(sign checks, collect income, make
withdrawals, sell or purchase assets, borrow
money, sign tax returns, etc.).
Durable means that it survives the incapacity of
the principal.
Review named attorney-in-fact and successors.
L.C.L.C.

Lifetime Planning
Health Care Authorization, Declaration and Power of
Attorney:
Decision to forego life-sustaining treatment if:
• Principal shall sustain substantial and irreversible loss of
mental capacity, and
• Principal is unable to eat and drink without medical assistance
and is highly unlikely to regain that ability or principal has an
incurable or irreversible condition which is likely to cause
death within a relatively short time.
Grants to another (“attorney-in-fact”) power to make health and
personal care decisions.
Health Insurance Portability and Accountability Act (“HIPAA”)
Review named attorney-in-fact and successors.
Final Arrangements.
L.C.L.C.

Wills
You should write your own Will and not have
Missouri write it for you.
Missouri Intestacy Statute:
Assume Husband dies, survived by Wife and:
• parents and no children: W gets entire estate
• children (of H and W): W gets $20,000 and 1/2 of
balance, children get other 1/2
• children (of H’s previous marriage): W gets 1/2 and
children get 1/2
L.C.L.C.

Wills
Your Will allows you to name your:
• Executor: Person or bank who collects your assets upon your
death, pays claims and taxes and distributes remaining assets
to your beneficiaries.
• Guardian: Person who is authorized to make decisions
concerning the personal welfare (such as consent to medical
procedures) of your children under age 18.
• Trustee: Person or bank authorized to make investment
decisions concerning your assets and distribute assets to
beneficiaries in accordance with the trust provisions of your
Will.
• Review successor Executors, Guardians and Trustees.
L.C.L.C.

Trust agreement that holds assets during
lifetime and disposes of them at death.
Distributions:
During Grantor’s lifetime.
After Grantor’s death.
• Payment of taxes and expenses.
• Disposition of tangible personal property (“List”).
• Trusts for spouses, children or others.
L.C.L.C.

Use of “sprinkling” trusts upon death of surviving
spouse until all children have attained independence.
Parent substitute.
Establish lifetime trusts to hold the shares of your
children.
Advantages of lifetime trusts:
Creditor Protection
Control until specified age
Future transfer tax planning
Review to update due to repeal of rule against
perpetuities and uniform trust code, as well as
qualified plans, subchapter S corporation, etc.
L.C.L.C.

Gift Tax Exclusions
Annual Exclusion ($12,000 per individual per donee)
Tuition
Medical Expenses
L.C.L.C.
Unlimited Marital Deduction. There is no Federal Tax
on transfers between a Husband and Wife during lifetime or at
death. Husband and Wife must be legally married and the
recipient must be a U.S. citizen. Prior to 1983, there was a tax
on transfers between Husband and Wife. If your Will or Trust
was written before 1982, it should be updated.
Husband
$
WifeNo Taxes
$

Unified Transfer Tax Credit. The estate tax exemption is scheduled to
increase to $3,500,000 by the year 2009. The gift tax exemption remains
at $1,000,000.
AMOUNTS EXEMPT FROM FEDERAL ESTATE TAX
Year Federal Exemption
2008 2,000,000
2009 3,500,000
2010 Unlimited - Estate Tax Repealed
2011 1,000,000
L.C.L.C.

A Credit Shelter Trust (also known as Residuary Trust, B Trust or a
Unified Credit Trust) is usually established and funded at one’s death,
but can be created during lifetime. The trust can be held for the
benefit of the surviving spouse and, on his or her death, pass on to
children, grandchildren or others free from any estate tax.
Husband
$
$
WifeNo Taxes
$ Left to the Children or to a Credit Shelter Trust
First $2,000,000
No Tax
First $2,000,000
No Tax
L.C.L.C.

However, all too often only one $2,000,000 exemption is used. This
can be a $900,000 mistake if the family has $4,000,000 in total
assets.
H
$2,000,000
W
$2,000,000
How could you miss this exemption? By leaving all your assets
outright to your spouse.
Assume Husband and Wife each have $2,000,000
L.C.L.C.

Assume Husband dies first leaving all his assets to Wife by Will,
joint ownership, beneficiary designation or intestacy. There is no
estate tax due to the unlimited marital deduction.
H
Dies First
W
$4,000,000
$2,000,000
Assume Wife dies second and no appreciation of assets. The
estate taxes due 9 months after Wife’s death amount to $900,000.
Wife’s estate is in the 45% marginal estate tax bracket.
H
Dies First
W
$4,000,000
$2,000,000
($900,000) Estate Tax
($3,100,000) Net to Children
L.C.L.C.

H
Dies First
W
$2,000,000
What can be done:
Husband could leave $2,000,000 to a Credit Shelter Trust upon
his death instead of leaving $2,000,000 outright to Wife.
Credit Shelter Trust could distribute income and principal in
Trustees’ discretion to the spouse and descendants. Wife may be
sole Trustee or co-Trustee of Credit Shelter Trust.
Credit Shelter
$2,000,000
Income and
principal to W
and descendants
L.C.L.C.

H
Dies First
W
$2,000,000
In this fashion, both $2,000,000 exemptions of Husband and
Wife would be used. The estate tax savings is $900,000 and,
assuming no appreciation of the assets, $4,000,000 passes to
children free from any estate tax.
Credit Shelter
$2,000,000
$4,000,000 to Children
L.C.L.C.
Assets must be correctly titled and documents (Wills or Revocable
Trusts) must be drafted to establish Credit Shelter Trust. Each
spouse should have $2,000,000 in his or her separate name (or
Revocable Trust).

Insurance Trust
Charitable Trusts
Irrevocable Gift Trust (Dynasty Trust)
Qualified Personal Residence Trust
Family Limited Partnership
L.C.L.C.

Basic Estate Planning

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