Estate Planning for Young Couples by A. Stephen McDaniel

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ESTATE PLANNING FOR
YOUNG COUPLES
IT IS SIMPLIER THAN YOU THINK
Or How Most Of The 99% Plan
“Always go to other’s funerals. Otherwise whey will not come to yours.”
Yogi Berra
A.A. Stephen McDanielStephen McDaniel
Wyatt Tarrant & Combs LLPWyatt Tarrant & Combs LLP

2. • Planning For Death
– Where Will The Money Come From To Replace
You
• Planning For Disability
– When You Can No Longer Be In Control
Because Of Illness Or Accident
• Asset Protection
– For You And The Kids
• Advanced Tax Planning (Not For Today)
– For The Top 1% 2
WHAT IS ESTATE
PLANNING?

3. 3
THE DEFINITION OFTHE DEFINITION OF
ESTATE PLANNINGESTATE PLANNING
Estate Planner: Someone Who Solves A
Problem You Did Not Know You Had In A
Way You Don’t Understand
OR
Estate Planner: Someone Who Shares Creative
Ideas Conveyed In A Way That You Can
Understand

4. • My Wife Made Me Come!
• But For The Rest Of You…if You Do Have A Will
• Family Circumstances Change
• Tax Law Changes
• You Did Not Do It Correctly The First Time
• But Let’s First See What We Do Not Know
4
“I ALREADY HAVE A WILL.”
So Why Am I Here?

5. 5
PLANNINGPLANNING
CONSIDERATIONSCONSIDERATIONS
• WHEN DO YOU PLAN TO DIE?
• WHAT WILL THE LAW BE THEN?
• WHAT WILL YOUR ASSETS BE
WORTH?
• PLAN NOW AND DIE LATER?
• PLAN LATER BUT DIE NOW?

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THINGS YOU MUST KNOWTHINGS YOU MUST KNOW
BEFORE WE FINISHBEFORE WE FINISH
• How Property Passes At Death
• How Is Property Taxed At Death
• What Do Wills Do And Not Do
• Powers Of Attorney
• Living Wills
• Insurance

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HOW ASSETS PASSHOW ASSETS PASS
AT DEATHAT DEATH
• JOINT OWNERSHIP - With Right
of Survivorship
• BENEFICIARY DESIGNATION
–Life Insurance, Retirement Plans
• TRUST - Revocable vs. Irrevocable
• PROBATE - Will vs. Intestacy

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PROPER OWNERSHIP
OF ASSETS
• Do You Understand Joint Ownership?
– Assets Jointly Held Pass To The Surviving Owner
– They Are NOT Directed By Your Will
• Joint Ownership With Wrong People!
– They “Borrow” It
– They Don’t Share It With The Siblings
– Joint Ownership With A Minor Child!

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PROPER BENEFICIARY
DESIGNATIONS
• You Assume The Beneficiary Will Share
With The Children Or Siblings
– They Generally Don’t!
• Who Did You Name? Do You Recall?
• The Beneficiary Is Deceased
• The Beneficiary Is A Minor
• The Beneficiary Isn’t A Beneficiary Anymore

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DO YOU KNOW WHAT ADO YOU KNOW WHAT A
TRUST IS?TRUST IS?

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KEY TRUST TERMSKEY TRUST TERMS
• Trust Document Considerations
– Distribution of Income
– Distribution of Principal
– Termination and Distribution to Beneficiaries
Grantor Trustee
Beneficiary

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TESTAMENTARY TRUSTTESTAMENTARY TRUST
WILL
TRUST

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LIVING TRUSTLIVING TRUST
ASSETS ARE PLACED INTO TRUST DURING LIFE TOASSETS ARE PLACED INTO TRUST DURING LIFE TO
BE ADMINISTERED BY YOUBE ADMINISTERED BY YOU

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WHY WE USE TRUSTS
• To Provide For Beneficiaries Where Outright
Distributions Of Assets Are Not Advisable
• To Shelter Assets From Beneficiaries Who Are Not
Capable Of Managing The Assets For Themselves
• To Protect The Assets From A Spouse Of A Beneficiary
In Divorce
• To Protect Assets From Creditors
• To Assure That The Next Generation Will Receive At
Least A Part Of The Inheritance

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DISTRIBUTION BY WILLDISTRIBUTION BY WILL
ProbateAssets Heirs

16. • It Is A Document Executed In Accordance With State Law That
Disposes Of Your Estate Assets
– That Are NOT Jointly Held With Right Of Survivorship
– That Are NOT Payable By Beneficiary Designation
• It Must Comply With State Law
– Attested Will
• Two Disinterested Witnesses
• Who Saw You Sign And Saw Each Other Sign
– Holographic Will
• Entirely Handwritten And Signed By You
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WHAT IS A WILL?

17. • You Must Be At Least 18
• You Must Be Competent
– Who Says?
• You Cannot Be Under Undue Influence Or
Duress
– When Influence Is “Undue” Is The Issue
• You Must Execute The Document As Required
By State Law
WHO CAN EXECUTE A WILL?

18. • If You Die Without A Will, Assets Pass Equally To
Spouse And Kids, But Spouse Gets At Least 1/3
• The Judge Decides Who Gets Custody Of Minor Kids
And Their Money
– A Guardian Is Named Who Hires An Attorney
– Guardian Posts A Bond
– Guardian Reports To Court Each Year To Account
– Prior To 18 Judge Determines What Money Is Spent
On The Child
• Minor Kid Gets Inheritance Outright At 18!
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THE FREE TENNESSE WILL
If You Don’t Have One

19. • Simple Will – No Trusts: Outright To Spouse If
Surviving Otherwise To Children
• Simple Will – Trust For Kids: Outright To
Spouse If Surviving, Otherwise Into Trust For
Children
• Tax Planning Will – Multiple Trusts To Save
Death Taxes For The Top 1% to 10%
• Revocable Living Trust – Avoids Probate
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BASIC TYPES OF DOCUMENTS

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ESTATE
SPOUSE
NoNo
TaxTax
CHILDREN
Taxed
THE TYPICAL PLANTHE TYPICAL PLAN

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• ALL ASSETS PASS TO SPOUSE
• IT IS SIMPLE
• NO ESTATE TAX AT FIRST DEATH
• NO PROTECTION FROM A FUTURE
SPOUSE OR CREDITORS
• MAXIMUM ESTATE TAX AT DEATH
OF SURVIVING SPOUSE
• SURVIVING SPOUSE IS FREE TO
CHANGE THE PLAN
THE TYPICAL PLANTHE TYPICAL PLAN
THE SIMPLE WILLTHE SIMPLE WILL

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PLANNINGPLANNING
CONSIDERATIONSCONSIDERATIONS
Probate
TIME MONEY

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How Assets AreHow Assets Are
Taxed At DeathTaxed At Death
Federal Estate TaxFederal Estate Tax
State Inheritance TaxState Inheritance Tax

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TYPES OF PROPERTYTYPES OF PROPERTY
SUBJECT TO DEATH TAXSUBJECT TO DEATH TAX
EVERYTHING YOU OWN

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UNLIMITED MARITALUNLIMITED MARITAL
DEDUCTION - 1982DEDUCTION - 1982
NO TAX
IF PAID TO SPOUSE
REGARDLESS OF AMOUNT

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FEDERAL ESTATE TAXFEDERAL ESTATE TAX
EXEMPTIONEXEMPTION
• Each Spouse Has a
$5.25 Million
Exemption
• It can be transferred
from one spouse to
the other
• Tax Rate: 40%

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FEDERAL ESTATE TAXFEDERAL ESTATE TAX
How Will it Change?How Will it Change?
We Don’t Know!We Don’t Know!
• Proposals Before Congress
– Total Repeal - Unlikely
– Modified Exemptions to:
• $1,000,000
• $ 3,500,000
• $15,000,000
– Tax Rates between 15% and 45%
• Nothing Will likely Happen

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TENNESSEETENNESSEE
INHERITANCE TAXINHERITANCE TAX
EXEMPTIONEXEMPTION
• 2013 - $1,250,000
• 2014 - $2,000,000
• 2015 - $5,000,000
• 2016 – REPEAL
Tax Rate 9 ½ %

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CONTINGENTCONTINGENT
TRUSTSTRUSTS
A.A. Stephen McDanielStephen McDaniel

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ESTATE
TO SPOUSE
No
Tax
TO TRUST FOR
CHILDREN
Taxed
CONTINGENT TRUSTCONTINGENT TRUST

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TESTAMENTARY TRUSTTESTAMENTARY TRUST
WILL
TRUST

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• ALL ASSETS PASS TO SPOUSE
• IT IS SIMPLE AT FIRST DEATH
• NO DEATH TAX AT FIRST DEATH
• TRUST FOR CHILDREN IS CREATED
IF BOTH PARENTS ARE DECEASED
• POSSIBLE DEATH TAX AT DEATH OF
SURVIVING SPOUSE
• YOU NAME A GUARDIAN FOR MINOR
CHILDREN
CONTINGENT TRUSTCONTINGENT TRUST

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ISSUES TO RESOLVEISSUES TO RESOLVE
• EXECUTOR (SPOUSE) & ALTERNATE
• TRUSTEE & ALTERNATE
• GUARDIAN & ALTERNATE
• SPECIAL PROVISIONS FOR CHILDREN
• TERMINATION OF TRUST - AGE?
• CONTINGENT DISTRIBUTION

34. • In Addition To Standard Language For “Health,
Education, And Support…”
• Consider Adding The Following:
– Drug And Alcohol Abuse Provisions
– Education Goals Provisions
– Will Contest Provisions
– Retirement Benefits Provisions
– Statement Of Philosophy
– Ability To Convert To Special Needs Trust
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TRUST PROVISIONS TO CONSDER

35. • It Is Common To Create Trusts For Young Children
• Mainly Protecting Them From Themselves
• These Trusts Also Protects From Lawsuits Against
The Kids, And Divorce And Creditors Of The Kids
35
ASSET PROTECTION FOR
YOUNG CHILDREN

36. • Instead Of Terminating Trust At Age 35, Allow
The Child To Become The Trustee At Age 35
• Run The Trust For The Life Of The Child
• The Child Will Have Access To Income And
Principal For Health Support And Care
• The Child Can Direct Assets To Grandchildren
• The Trust Is Protected From
– Creditors
– Spouses In Divorce
– Death Tax 36
ASSET PROTECTION FOR OLDER
CHILDREN

37. • A Special Needs Child May Be Eligible For
Government Benefits Like Medicaid & SSI
• Problem: Trust Or Other Assets Disqualify Them
From Benefits
• Solution: Special Needs Trusts Preserves Benefits
And Provides A Way To Maximize Gov’t
Benefits
37
CARE OF DISABLED CHILDREN

38. • Estate & Trust Litigation Has Increased
25% A Year Over The Last 5 Years
• Don’t Create A Document
That Leads To A Fight!
• Punish Those Who Do Fight
38
REMEMBER:
ESTATES MAKE PEOPLE CRAZY

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LIVING WILLLIVING WILL
REQUIREMENTS FOR USEREQUIREMENTS FOR USE
• Document Conforms to State Law
• Terminal Condition
• No Expectation of Recovery
• Death Will Result Regardless of Treatment

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LIVING WILLLIVING WILL
DIRECTIONS GIVENDIRECTIONS GIVEN
• Medical Care Shall Be Withheld or
Withdrawn
• Medication Given Only to Alleviate Pain
and Provide Comfort
• Artificial Feedings?
• Life Will Not Be Artificially Prolonged
• Donation of Organs

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DURABLE POWER OF ATTORNEYDURABLE POWER OF ATTORNEY
DECISIONS TO BE MADEDECISIONS TO BE MADE
• Who Should Be Named Attorney In Fact?
• When Is Document Effective? Immediately
Or When Your Doctor Says You Are No
Longer Competent
• What Powers Are Given? Limited Or
Unlimited

42. • Life Insurance (More Later)
• Home Health Care Insurance
• Liability Insurance: Get $2M Umbrella
Insurance.
– Make Sure All Properties Listed On Umbrella
Policy
• Earthquake Insurance - Memphis
42
INSURANCE
BE PROPERLY INSURED

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MY BIGGEST ESTATE ISSUE:
INSUFFICIENT ASSETS TO
MEET FAMILY NEEDS
• Support of a Spouse (In the
Standard of Living SHE Deserves)
• Support and Education of Children
• How Long Do You Plan to Be Dead?

44. • How Many Years Do You Plan To Be Dead?
• What Are The Family Financial Needs?
– Current
– Future
• How Long Will They Need The Money?
• Get More Than You Need But Not More Than
You Can Afford
44
LIFE INSURANCE
How Much Do you Need?

45. • Term Life
– Annual Renewal Term
– Specific Term (E.G. 20 Year Term)
• Whole Life
– Participating Vs. Non-participating
• Universal Life
– Buy Term & Invest The Difference In The Ins. Co.
• Variable Life
– Buy Term Invest The Difference In Stocks
Note: All of this is a gross oversimplification
45
LIFE INSURANCE
What Type?

46. • Buy It From The Internet! No
• Buy It From Your Plumber Who Sells It On The
Side! No
• Buy It From A Professional
– CLU
– CHFC
– CFP
• Buy It From A Strong Company
– That Will Still Be There When You Die
Note: All of this is a gross oversimplification
46
LIFE INSURANCE
Where to Get it?

47. • Problem: Medical Providers Are Reluctant To Give
Medical Information Once The Child Is 18
• Fines, Lawsuits, Divorced Parents, Etc.
• Solution: Adult Children Should Sign Medical Power
Of Attorney Naming Their Parents
• A Durable Power Of Attorney For Health Care Is A
Good Idea Too
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ONE LAST COMMENT
Health Care of Adult Children

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ADVANTAGES OF AADVANTAGES OF A
PLANNED ESTATEPLANNED ESTATE
• Double the Amount That Can Pass Tax Free
(Sometimes Eliminate all Tax)
• You Select the People to Administer Your
Estate
• Reduce Administration Expenses
• Speed Up The Estate Administration
• Eliminate Probate

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ADVANTAGES OF AADVANTAGES OF A
PLANNED ESTATEPLANNED ESTATE
• Protect Assets from Claims of a Future Spouse
• Protect Assets From Claims of a Current Spouse
• Protect Assets from Claims of Creditors
• Plan for Contingent Distributions – What If a
Child Should Predecease you?
• Pay Lower Legal and Accounting Fees at Death

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WHICH WAY IS BEST?WHICH WAY IS BEST?
– Each family is unique
– Assets are different
– Ownership is different
– Children are different
– Mine, yours, ours
– Family goals vary
– Age is a factor
– Health concerns differ
– AVOID ONE SIZE
FITS ALL PLANS!
W I l l
Living Trust

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DON’TDON’T
DODO
NOTHINGNOTHING

52. A. STEPHEN MCDANIELA. STEPHEN MCDANIEL
 Senior Attorney – Wyatt Tarrant & Combs LLP
 200 Attorneys – 27 Estate Attorneys
 Memphis Attorneys:
• 5 Certified Estate Planning Specialists In Memphis Office (Only 7 In Memphis)
• 2 CPAs
• 2 LLMs in Tax
 Former Attorney With IRS Estate & Gift Tax Division
 UM Law School Adjunct Professor
 Estate Planning, Trust Law, Estate Tax, Insurance Law
 Named Twice by Worth Magazine as top 100 Estate Planning Attorney In U.S.
 Past President of National Association of Estate Planners
 200 Councils and 20,000 members
 Past President of Estate law Specialist Board
 Administers ABA approved Board Certification of Estate Planning Attorneys
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I’M OUT OF HERE