Estate Plans That Work

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It\'s not about the "documents", it\'s about results! This workshop describes what separates an estate plan that addresses personal and tax planning goals, versus the traditional estate "plan" that is little more than "word processing".

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  • Overhead #1 - The Truth About Estate Planning May I have your permission to be blunt?
  • Estate Plans That Work

    1. 1. ESTATE PLANS THAT WORK  Presented by Richard J. Shapiro, J.D. Mindy Menke, J.D. Blustein, Shapiro, Rich & Barone, LLP 90 Crystal Run Rd., Suite 409 Middletown, New York 10941 (845) 692-0011
    2. 2. ESTATE PLANS THAT WORK  <ul><ul><ul><li>A question: “Imagine your life has ended and you’re looking down from your cloud at your loved ones. Everything you’re looking at tells you your estate plan is working perfectly , exactly as you planned it…………… WHAT do you see ?” </li></ul></ul></ul>
    3. 3. ESTATE PLANS THAT WORK  Actually, MOST estate plans ____ ____!!
    4. 4. ESTATE PLANS THAT WORK  ESTATE PLANS THAT WORK  Actually, MOST estate plans Don’t Work !!
    5. 5. ESTATE PLANS THAT WORK  It helps to get past the various “smoke screens”:  Wills vs. Trusts  Avoid Probate / Save Taxes  Etc…..
    6. 6. ESTATE PLANS THAT WORK  “ PTA”
    7. 7. ESTATE PLANS THAT WORK  “ PTA” <ul><li>Philosophy </li></ul><ul><li>Technical Basics </li></ul><ul><li>Application </li></ul>
    8. 8. “ PHILOSOPHY ” of an Estate Plan That Works A. THE DEFINITION OF AN ESTATE PLAN THAT WORKS <ul><ul><ul><li>1. I want to control my property while I am alive and well </li></ul></ul></ul><ul><ul><ul><li>2. Plan for my loved ones and me in case I become disabled </li></ul></ul></ul><ul><ul><ul><li>3. Give what I want, when I want, to whom I want, the way I want; </li></ul></ul></ul><ul><ul><ul><li>4. All at fully disclosed and controlled costs to me and those I love. </li></ul></ul></ul>
    9. 9. “ PHILOSOPHY ” of an Estate Plan That Works The “New Paradigm” Planning Pyramid : 1 _________________ 2 _____________ 3 _________ 4 _______ 5 ____
    10. 10. “ PHILOSOPHY ” of an Estate Plan That Works The “New Paradigm” Planning Pyramid : 1 ME! And SPOUSE 2 MY FAMILY 3 Asset Pro 4 Grow $ 5 Taxes
    11. 11. ESTATE PLANS THAT WORK  <ul><ul><ul><li>So, let’s add a small dose of (semi-) “Technical” discussion to understand the TIP of the Pyramid so we can then concentrate on ME and MY FAMILY !!!! </li></ul></ul></ul>
    12. 12. “ TECHNICAL” basics of an ESTATE PLAN THAT WORKS <ul><li>“ TRANSFER” Tax System… </li></ul><ul><ul><ul><li>First GIFT Tax: </li></ul></ul></ul><ul><ul><ul><ul><li> Each individual can give up to </li></ul></ul></ul></ul><ul><ul><ul><ul><li>$ __________ </li></ul></ul></ul></ul><ul><ul><ul><ul><li> To any other individual </li></ul></ul></ul></ul><ul><li> In any _________ </li></ul><ul><li>Without paying gift tax </li></ul>
    13. 13. “ TECHNICAL” basics of an ESTATE PLAN THAT WORKS <ul><li>“ TRANSFER” Tax System… </li></ul><ul><ul><ul><li>First GIFT Tax: </li></ul></ul></ul><ul><ul><ul><ul><li> Each individual can give up to </li></ul></ul></ul></ul><ul><ul><ul><ul><li>$13,000 </li></ul></ul></ul></ul><ul><ul><ul><ul><li> To any other individual </li></ul></ul></ul></ul><ul><li> In any CALENDAR YEAR </li></ul><ul><li>Without paying gift tax </li></ul>
    14. 14. “ TECHNICAL” basics of an ESTATE PLAN THAT WORKS <ul><ul><ul><li>Second ESTATE Tax: </li></ul></ul></ul><ul><li> The “Coupon” amount: $__________ </li></ul><ul><li> Two Rules: </li></ul><ul><ul><ul><ul><ul><li>1) Expiration Date: “Choose it or Lose it!” </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>2) Non-Transferable </li></ul></ul></ul></ul></ul><ul><li>The Unlimited Marital Deduction </li></ul>“ TRANSFER” Tax System…
    15. 15. “ TECHNICAL” basics of an ESTATE PLAN THAT WORKS <ul><ul><ul><li>Second ESTATE Tax: </li></ul></ul></ul><ul><li> The “Coupon” amount: $3,500,000 </li></ul><ul><li> Two Rules: </li></ul><ul><ul><ul><ul><ul><li>1) Expiration Date: “Choose it or Lose it!” </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>2) Non-Transferable </li></ul></ul></ul></ul></ul><ul><li>The Unlimited Marital Deduction </li></ul>“ TRANSFER” Tax System…
    16. 16. “ TECHNICAL” basics of an ESTATE PLAN THAT WORKS <ul><ul><ul><li>The Law </li></ul></ul></ul><ul><li> The “Magic Rule”: </li></ul><ul><li>TITLE = RESULT !!!!!! </li></ul><ul><li>Think about the THREE WAYS you can own property at the time of your death…..and what happens in each case: </li></ul>
    17. 17. “ TECHNICAL” basics of an ESTATE PLAN THAT WORKS <ul><ul><ul><li>_______________ Name at Death= ____________ </li></ul></ul></ul><ul><ul><ul><li>**WITH or WITHOUT a WILL !!! </li></ul></ul></ul><ul><ul><ul><li>The 3 big complaints about PROBATE?? </li></ul></ul></ul><ul><ul><ul><ul><li>1. TIME: </li></ul></ul></ul></ul><ul><ul><ul><ul><li>2. COST: </li></ul></ul></ul></ul><ul><ul><ul><ul><li>3. PRIVACY: </li></ul></ul></ul></ul>
    18. 18. “ TECHNICAL” basics of an ESTATE PLAN THAT WORKS <ul><ul><ul><li>Individual Name at Death= Probate </li></ul></ul></ul><ul><ul><ul><li>**WITH or WITHOUT a WILL !!! </li></ul></ul></ul><ul><ul><ul><li>The 3 big complaints about PROBATE?? </li></ul></ul></ul><ul><ul><ul><ul><li>1. TIME: 6 weeks min/ avg 12-18 months </li></ul></ul></ul></ul><ul><ul><ul><ul><li>2. COST: Court Costs AND Atty.'s. Fees </li></ul></ul></ul></ul><ul><ul><ul><ul><li>3. PRIVACY: Public Record! </li></ul></ul></ul></ul>
    19. 19. <ul><ul><ul><li>_______ Title at death = Ownership passes _____________ to other Joint Owner(s) </li></ul></ul></ul><ul><ul><ul><li>This happens “by operation of Law.” In other words, </li></ul></ul></ul><ul><ul><ul><li>“ The Survivor WINS !!” </li></ul></ul></ul><ul><ul><ul><li>BUT….be aware of the many dangers of _____________ joint ownership as the “ ___________ ” of your estate plan!!! </li></ul></ul></ul>“ TECHNICAL” basics of an ESTATE PLAN THAT WORKS
    20. 20. <ul><ul><ul><li>Joint Title at death = Ownership passes Automatically to other Joint Owner(s) </li></ul></ul></ul><ul><ul><ul><li>This happens “by operation of Law.” In other words, </li></ul></ul></ul><ul><ul><ul><li>“ The Survivor WINS !!” </li></ul></ul></ul><ul><ul><ul><li>BUT….be aware of the many dangers of depending on joint ownership as the “Centerpiece” of your estate plan!!! </li></ul></ul></ul>“ TECHNICAL” basics of an ESTATE PLAN THAT WORKS
    21. 21. “ TECHNICAL” basics of an ESTATE PLAN THAT WORKS <ul><ul><li>Title by ________ at death = _______ over how your assets pass </li></ul></ul><ul><ul><li>Familiar examples of Title by Contract = Beneficiary Designations for: </li></ul></ul><ul><li> Life Insurance </li></ul><ul><li> Annuties </li></ul><ul><li> IRA’s and 401-k’s </li></ul>
    22. 22. “ TECHNICAL” basics of an ESTATE PLAN THAT WORKS <ul><ul><li>Title by Contract at death = Control over how your assets pass </li></ul></ul><ul><ul><li>Familiar examples of Title by Contract = Beneficiary Designations for: </li></ul></ul><ul><li> Life Insurance </li></ul><ul><li> Annuties </li></ul><ul><li> IRA’s and 401-k’s </li></ul>
    23. 23. “ TECHNICAL” basics of an ESTATE PLAN THAT WORKS <ul><ul><ul><li>and…… </li></ul></ul></ul><ul><ul><ul><li> TRUSTS </li></ul></ul></ul><ul><li>Revocable  Trustmaker(s) </li></ul><ul><li>Living  Trustee(s) </li></ul><ul><li>Trust  Beneficiary(-ies) </li></ul>
    24. 24. “ TECHNICAL” basics of an ESTATE PLAN THAT WORKS <ul><ul><ul><li>1. The ______ Story: </li></ul></ul></ul><ul><li>First Step: ______ the “Bucket” </li></ul><ul><ul><ul><li>Second Step: ____ the “Bucket” </li></ul></ul></ul><ul><ul><ul><li>2. The __________ Story: </li></ul></ul></ul>
    25. 25. “ TECHNICAL” basics of an ESTATE PLAN THAT WORKS <ul><ul><ul><li>1. The Bucket Story: </li></ul></ul></ul><ul><li>First Step: Create the “Bucket” </li></ul><ul><ul><ul><li>Second Step: Fill the “Bucket” </li></ul></ul></ul><ul><ul><ul><li>2. The Babysitter Story: </li></ul></ul></ul>
    26. 26. “ TECHNICAL” basics of an ESTATE PLAN THAT WORKS A Key Distinction ____ __________ vs. __________
    27. 27. “ TECHNICAL” basics of an ESTATE PLAN THAT WORKS A Key Distinction WORD PROCESSING vs. COUNSELING
    28. 28. “ APPLICATION” of an ESTATE PLAN THAT WORKS Husband’s Wife’s Co-Trustees (Both Alive)
    29. 29. “ APPLICATION” of an ESTATE PLAN THAT WORKS
    30. 30. “ APPLICATION” of an ESTATE PLAN THAT WORKS <ul><li>(After 2 nd death) </li></ul><ul><ul><ul><li>B. Providing for my ________ and/or _____________ </li></ul></ul></ul><ul><li>The KEY question is “How much </li></ul><ul><ul><ul><li> </li></ul></ul></ul><ul><li> </li></ul><ul><li> </li></ul>
    31. 31. “ APPLICATION” of an ESTATE PLAN THAT WORKS <ul><li>(After 2 nd death) </li></ul><ul><ul><ul><li>B. Providing for my Children and/or Beneficiaries </li></ul></ul></ul><ul><li>The KEY question is “How much </li></ul><ul><ul><ul><li>· CONTROL__ </li></ul></ul></ul><ul><li>· ACCESS____ </li></ul><ul><li>· OWNERSHIP </li></ul>
    32. 32. “ APPLICATION” of an ESTATE PLAN THAT WORKS <ul><li>“ Outright” “In Trust” </li></ul><ul><li>Lump Phases Stages Lifetime Conserv. Sum Protective Lifetime </li></ul><ul><li>Trust Trust </li></ul><ul><ul><li>In trust for the beneficiary’s lifetime; income & principal in the Trustee’s discretion: </li></ul></ul><ul><ul><li>________ ________ </li></ul></ul><ul><ul><li>as Trustee as Trustee </li></ul></ul>
    33. 33. “ APPLICATION” of an ESTATE PLAN THAT WORKS <ul><li>“ Outright” “In Trust” </li></ul><ul><li>Lump Phases Stages Lifetime Conserv. Sum Protective Lifetime </li></ul><ul><li>Trust Trust </li></ul><ul><ul><li>In trust for the beneficiary’s lifetime; income & principal in the Trustee’s discretion: </li></ul></ul><ul><ul><li>CHILD 3rd Party </li></ul></ul><ul><ul><li>as Trustee as Trustee </li></ul></ul>
    34. 34. Creditor Protection for Beneficiaries <ul><li>CPLR § 5205(c)(1) – property held in trust is exempt from claims of trust beneficiary’s creditors so long as the beneficiary did not create or fund the trust </li></ul><ul><li>EPTL § 10-10.1 – allows trust beneficiary who is also trustee of their own trust share to make purely discretionary distributions from trust to him or herself </li></ul>
    35. 35. Creditor Protection for Beneficiaries <ul><li>New York law does not permit the creation of self-settled trusts that permit the trustmaker to have access to the trust assets and shield the assets from the trustmaker’s creditors. </li></ul><ul><li>Alaska, Delaware, Nevada and a few other states have enacted legislation for self –settled asset protection trusts </li></ul>
    36. 36. Medicaid Planning
    37. 37. <ul><li>Limits on resources </li></ul><ul><ul><li>Individual = $13,800 </li></ul></ul><ul><li>Limits on income </li></ul><ul><ul><li>Non-institutionalized </li></ul></ul><ul><ul><ul><li>Individual = $767/month </li></ul></ul></ul><ul><ul><li>Institutionalized individual = $50/month plus premiums for Medicare and Medicaid </li></ul></ul>Medicaid Financial Eligibility Requirements
    38. 38. Medicaid Financial Eligibility Requirements <ul><li>Community Spouse </li></ul><ul><ul><li>Maximum Resources = $109,560 </li></ul></ul><ul><ul><li>Maximum Income = $2,739 per month </li></ul></ul>
    39. 39. Deficit Reduction Act <ul><li>On February 8, 2006, President Bush signed into law the “Deficit Reduction Act” (DRA) </li></ul><ul><li>The DRA drastically change the qualification requirements for Medicaid Long-term coverage. </li></ul>
    40. 40. The Look Back Period
    41. 41. Look-Back Period for Asset Transfers <ul><ul><li>60-month look-back period for both outright transfers and transfers to certain trusts </li></ul></ul><ul><ul><li>Before the DRA, outright transfers were subject to a 36-month look-back period </li></ul></ul>
    42. 42. Irrevocable Trusts <ul><li>Irrevocable Trust cannot provide trustmaker access to principal, but can permit access to income </li></ul><ul><li>Under the DRA, funding an Irrevocable Trust today will “start the clock” running so that the five-year look back may expire </li></ul><ul><li>Better choice than outright gifts in most cases </li></ul>
    43. 43. IRT Trustmaker(s) Transfer $ + house? Subject to 5-year look back Trustees (often one or more children) Principal distributions to class of beneficiaries? INCOME NO PRINCIPAL C1 C2 Protective trust Protective trust Capital gains exemption preserved if house sold (Subject to limited power of appointment) Trustmakers may replace trustees (after 2 nd death) Powers of Appointment?
    44. 44. “ APPLICATION” of an ESTATE PLAN THAT WORKS C. THE THREE ______ & _____ OF EVERY ESTATE PLAN: 1. ________ 2. ________ 3. ________
    45. 45. “ APPLICATION” of an ESTATE PLAN THAT WORKS THE THREE PHASES & COSTS OF EVERY ESTATE PLAN: 1. UPFRONT 2. UPDATING 3. SETTLEMENT
    46. 46. “ APPLICATION” of an ESTATE PLAN THAT WORKS <ul><ul><ul><li>1. The “ Upfront ” Phase: </li></ul></ul></ul><ul><ul><ul><ul><ul><li>a. Documents…. </li></ul></ul></ul></ul></ul><ul><ul><ul><li>vs….. </li></ul></ul></ul><ul><ul><ul><ul><ul><li>b. Counseling and Design </li></ul></ul></ul></ul></ul>
    47. 47. “ APPLICATION” of an ESTATE PLAN THAT WORKS <ul><ul><ul><li>2. The Updating Phase: (or failing to update!) </li></ul></ul></ul><ul><ul><ul><li>What changes??? </li></ul></ul></ul><ul><ul><ul><ul><li> </li></ul></ul></ul></ul><ul><li> </li></ul><ul><li> </li></ul><ul><ul><ul><li>How long (on average) do people go before updating their estate plans? </li></ul></ul></ul><ul><ul><ul><li>How many Trust “buckets” are not fully funded? </li></ul></ul></ul>
    48. 48. “ APPLICATION” of an ESTATE PLAN THAT WORKS <ul><ul><ul><li>2. The Updating Phase: (or failing to update!) </li></ul></ul></ul><ul><ul><ul><li>What changes??? </li></ul></ul></ul><ul><ul><ul><ul><li> LIFE </li></ul></ul></ul></ul><ul><li> LAW  </li></ul><ul><li> LAWYER  </li></ul><ul><ul><ul><li>How long (on average) do people go before updating their estate plans? 19.6 years </li></ul></ul></ul><ul><ul><ul><li>How many Trust “buckets” are not fully funded? 90% </li></ul></ul></ul>
    49. 49. “ APPLICATION” of an ESTATE PLAN THAT WORKS <ul><ul><ul><li>3.The Settlement Phase: </li></ul></ul></ul><ul><ul><ul><li>Don’t fall for the “Magic Book” myth!! </li></ul></ul></ul><ul><ul><ul><li> The CHALLENGE: WHO takes responsibility for each phase & its cost and WHEN ?? </li></ul></ul></ul>
    50. 50. “ APPLICATION” of an ESTATE PLAN THAT WORKS <ul><li>D. My Estate Planning Options </li></ul><ul><ul><ul><ul><ul><li>** Spectrum of PLANNING OPTIONS: </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li> </li></ul></ul></ul></ul></ul><ul><li>1. * % of American families have done NO planning!! </li></ul>
    51. 51. “ APPLICATION” of an ESTATE PLAN THAT WORKS <ul><li>D. My Estate Planning Options </li></ul><ul><ul><ul><ul><ul><li>** Spectrum of PLANNING OPTIONS: </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li> </li></ul></ul></ul></ul></ul><ul><li>1. * 75 % of American families have done NO planning!! </li></ul>
    52. 52. “ APPLICATION” of an ESTATE PLAN THAT WORKS <ul><li>4. THE THREE STEP STRATEGY™ PLAN </li></ul><ul><ul><ul><ul><ul><li>3 Step Strategy  </li></ul></ul></ul></ul></ul><ul><li>1.Work with a - oriented attorney. </li></ul><ul><li>2. Maintain a FORMAL program. </li></ul><ul><li>3. Assure controlled and fully disclosed ________ upon death. </li></ul>
    53. 53. “ APPLICATION” of an ESTATE PLAN THAT WORKS <ul><li>4. THE THREE STEP STRATEGY™ PLAN </li></ul><ul><ul><ul><ul><ul><li>3 Step Strategy  </li></ul></ul></ul></ul></ul><ul><li>1.Work with a COUNSELING -oriented attorney. </li></ul><ul><li>2. Maintain a FORMAL UPDATING program. </li></ul><ul><li>3. Assure controlled and fully disclosed COSTS upon death. </li></ul>
    54. 54. The 3 Phases of an ESTATE PLAN THAT WORKS 1. Counseling and Design Phase 2. Updating Phase 3. Settlement Phase
    55. 55. 3 Step Strategy  <ul><li>Traditional Probate </li></ul><ul><ul><li>2.5 to 5% (New York) </li></ul></ul><ul><li>“ Standard” Living Trust Planning </li></ul><ul><ul><li>1.5 to 2.5% </li></ul></ul><ul><li>3-Step Model </li></ul><ul><ul><li>1.0 to 1.5% </li></ul></ul>
    56. 57. Fee Comparison <ul><li>John and Mary Sample </li></ul><ul><li>John - 60; Mary - 58 </li></ul><ul><li>2 children, 4 grandchildren </li></ul><ul><li>2009 Assets: home - $250,000; John’s IRA - $250,000; John’s Life Insurance - $250,000; Jointly owned mutual funds - $250,000 </li></ul><ul><li>Assume each spouse dies at age 80 </li></ul>
    57. 58. Fee Comparison <ul><li>Traditional Model </li></ul><ul><li>$650 (Will) </li></ul><ul><li>Funding -- None </li></ul><ul><li>Maintenance -- None </li></ul><ul><li>3-step Model </li></ul><ul><li>$5,000 design and counseling (additional charge for Medicaid Trust) </li></ul><ul><li>Funding --$750.00 </li></ul><ul><li>Maintenance -- $8,000 (estimated total payments over 22 years) </li></ul>
    58. 59. Fee Comparison <ul><li>John’s death in 2025 -- Samples’ total estate value is $3,869,000 (based on 7% annual growth) </li></ul><ul><li>John’s portion of estate is $2,500,000 </li></ul><ul><li>Mary’s death in 2027 -- her estate value is $1,567,000 (based on 7% growth) </li></ul>
    59. 60. Fee Comparison <ul><li>Traditional Model </li></ul><ul><li>Probate Fee at John’s Death: $62,500 (based on 2.5%) </li></ul><ul><li>Probate Fee at Mary’s Death: $39,175 (based on 2.5%) </li></ul><ul><li>3-step Model </li></ul><ul><li>Max. Administration Fee at John’s Death: $25,000 (based on 1% cap) </li></ul><ul><li>Max. Administration Fee at Mary’s Death: $13,290 (based on 1%) </li></ul>
    60. 61. Fee Comparison <ul><li>Traditional Model </li></ul><ul><li>Total Estate Planning Fee: $102,325 ($650 will fee plus $101,675 in probate attorneys fees ) </li></ul><ul><li>3-step Model </li></ul><ul><li>Total Estate Planning Fee: $52,040 ($5,000 design & counseling fee, $750 funding fee, $8,000 maintenance, $38,290 trust administration fees) </li></ul>
    61. 62. What’s next? <ul><li>Schedule Initial Meeting with Rich or Mindy </li></ul><ul><li>Planning Process: </li></ul><ul><ul><li>Design Meeting(s) </li></ul></ul><ul><ul><li>Delivery Meeting </li></ul></ul><ul><ul><li>Funding Meeting </li></ul></ul><ul><ul><li>Annual Maintenance </li></ul></ul><ul><ul><li>Settlement upon Disability or Death </li></ul></ul>
    62. 63. ESTATE PLANS THAT WORK  Presented by Richard J. Shapiro, J.D. Mindy Menke, J.D. Blustein, Shapiro, Rich & Barone, LLP 90 Crystal Run Rd., Suite 409 Middletown, New York 10941 (845) 692-0011

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