3 8 2011 Estate Planning Power Point
- 1. Estate Planning How to Transfer wealth to next GenerationMilton P. Buffington, J.D. Saeid B. Amini, JD, Ph.D.,MBA 3/9/2011, Tower Club, Vienna, VA
- 2. Wealth Transfer & Estate PlanningWealth transfer is the process of moving assets between generations. It includes a number of activities: . estate planning. estate document preparation. implementation and monitoring Wealth transfer planning normally happens in phases and evolves over time.
- 3. Estate PlanningWho needs it?No matter your net worth, it’s important to have a basic estate plan in placeWhen should it be done? During life but can be set up to be effective at death
- 4. Possible Goals of an Estate PlanProvide for you during the balance of your lifeProvide for support and security of your spouseProvide for support and security of children (minor, adult)Education for children, grandchildrenProtect family business
- 5. Possible Goals of an Estate PlancontinuedAssure that assets are distributed per your wish Make final charitable giftsMinimize death taxes, federal estate taxes, state inheritance and estate taxesMinimize or avoid probate expenses after deathCreditor protection
- 6. Deterrents for Estate PlanningUpfront costs associated with establishing a planFailure to see immediate need or advantageEmotional impact of confronting death Time required for establishing a planLack of knowledge about tools for Estate PlanningWant to Keep your assets unknown to others
- 7. What happens without AN estate plan?Without a will; State statute will provide a will – intestateHigh Cost of probateHigher taxes and Estate Settlement Costs could take away a significant portion of the estateYou will leave your surviving spouse and children vulnerable, and with less assets
- 8. There are number of techniques that may be utilized in estate planning to reduce or eliminate federal estate tax: . Unlimited marital deduction. Gifting . Life insurance. Last will and testament. TrustsEstate planning tools
- 9. TrustAtrust is a relationship whereby property (including real, tangible and intangible) is managed by one person (or persons, or organizations) for the benefit of another.
- 10. A trust is created by a settlor, who entrusts some or all of their property to people of their choice (the trustees).
- 11. The trustees hold legal title to the trust property (or trust corpus), but they are obliged to hold the property for the benefit of one or more individuals or organizations (the beneficiary).
- 12. The trustees owe a fiduciary duty to the beneficiaries, who are the "beneficial" owners of the trust property.
- 13. The trust is governed by the terms of the trust documentTwo Broad Types of TrustsLiving trust (Inter vivos Trust)A trust that one creates while he/she is alive
- 14. Atrust that comes into existence immediatelyTestamentary Trust (Will Trust)Atrust which arises upon the death of the testator, it is specified in the will
- 15. A will may contain more than one testamentary trust, and may address all or any portion of the estate.With a living trust, the grantor transfers assets into the trust during life
- 16. The grantor can also be the trustee
- 17. If the grantor becomes incapacitated, a successor trustee, named in a will or living will, takes over and manages the grantor's financial affairs
- 18. Property held in a living trust does not normally go through probate1. Living trust
- 19. Two Major Types of Living trustRevocable Living" Trust - created during the lifetime of a grantor that can be;altered
- 20. changed
- 21. modified, Or
- 22. revoked Irrevocable Trust - A Trust that cannot be altered, changed, modified or revoked after its creation (absent extreme extenuating circumstances). Once a grantor transfers property to an irrevocable Trust, the grantor can no longer take the property back from the Trust Express and Implied TrustsExpress Trusts - are those specifically created by the grantor under a Trust agreement or declaration of Trust. Implied Trusts - arise from particular facts and circumstances in which courts determine that although there was not any formal declaration of a Trust, there was an intention on the part of the property owner that the property be used for a particular purpose or go to a particular person. For example, if a neighbor asks you to take care of her car for her when she is on vacation, and never returns, there was an implied Trust, as she was not making you a gift of the car.
- 23. Court Imposed TrustsConstructive Trust - An implied Trust established by operation of law. Resulting Trust - A Trust that arises from, or is created by operation of law, when the legal title to property is transferred, but the beneficial interest is to be enjoyed by someone other than the person who got the legal title.
- 24. Other Useful TrustsSpendthrift Trust - A Trust that is established for a beneficiary which does not allow the beneficiary to sell or pledge away his or her interests in the Trust. A spendthrift Trust is beyond the reach of the beneficiaries creditors, until such time as the Trust property is distributed out of the Trust and placed in the hands of the beneficiary.
- 25. Tax By-Pass Trust - A type of Trust that is created to allow one spouse to leave money to the other, while limiting the amount of Federal Estate tax bite that would be payable on the death of the second spouse. Totten Trust - A Trust that is created during the lifetime of the grantor by depositing money into an account at a financial institution in his or her name as the Trustee for another. This is a type of revocable Trust in which the gift is not completed until the grantor's death, or an unequivocal act reflecting the gift during the grantor's lifetime. Other Useful Trustscontinued
- 26. Asset Protection Trust - A Trust that is designed to protect a person's assets from claims of future creditors – usually established in foreign countries.
- 27. Charitable Trust - Typically charitable Trusts are established as part of an estate plan to lower or avoid imposition of Federal (and some states') estate and gift taxes.
- 28. Special Needs Trust - A Trust that is established for a person who receives government benefits so as not to disqualify the beneficiary from such government benefits. Other Trusts
- 29. Other TrustscontinuedOrdinarily when a person is receiving government benefits, an inheritance or receipt of a gift could reduce or eliminate the person's eligibility for such benefits. By establishing a Trust which provides for luxuries or other benefits which otherwise could not be obtained by the beneficiary, the beneficiary can obtain the benefits from the Trust without defeating his/her eligibility for government benefits. Often a Special Needs Trust includes a trigger which terminates the Trust in the event that it could be used to make the beneficiary ineligible for government benefits.
- 30. 2. Testamentary Trust (Will trust) -causamortisMost commonly used trusts
- 31. Established by the terms of a will
- 32. Revocable when the testator is alive
- 33. Irrevocable after the death of the testator It is useful if the testator wishes to set aside funds for the education of children who are minors or have just reached the age of majority. The trust is placed in the hands of a trustee, who may be an individual or a bank trust department.Life Insurance Trust. You create a life insurance trust so that the trust — and not you — owns your life insurance policies.
- 34. Trust for Children. Should you and your spouse both die, a testamentary trust can hold your assets for your children until they reach a certain age. If your children are minors, such a trust avoids the need for a court to appoint a guardian or conservator for your children’s inherited property.
- 35. Bypass (Family) or Credit Shelter Trust. You can use a bypass trust to minimize the tax on your surviving spouse’s estate, leaving more for your children. Common Types of Testamentary Trusts
- 36. Common Types of Testamentary Trusts continuedMarital Trust. A well-constructed marital trust lets you provide lifetime support to your spouse without leaving your assets directly to him or her. Property in the marital trust qualifies for the estate-tax marital deduction. Marital trusts are often used with bypass trusts in an estate planning arrangement known as the two-trust estate plan.
- 37. Qualified Terminable Interest Property (QTIP) Trust. A QTIP trust is a type of marital trust that gives you complete control — through your trust agreement — over who will receive the trust property at your surviving spouse’s death. Other Benefits of Testamentary trusts Design flexibility. You can set up your trust with as much flexibility as you wish. You can limit the power of trustee, beneficiaries and even creditors.
- 38. Longevity. A testamentary trust can be set up to benefit several generations of beneficiaries.
- 39. Future cost savings. Your testamentary trust may reduce future probate expenses and federal estate taxes that might otherwise be incurred by your beneficiaries’ estates.
- 40. Professional asset management. If you wish, you can name someone with professional asset management and investment experience to act as trustee or co-trustee. Choosing the Right TrusteeA trust is only as effective as the trustee you select to administer it. A well-qualified trustee is someone who has the knowledge and experience necessary to perform all the duties associated with managing and distributing trust assets — duties such as: Safeguarding the trust’s investment assets
- 41. Maintaining accurate records of all trust transactions
- 42. Distributing trust income and principal according to the directions in your will Choosing the Right TrusteecontinuedProviding information to your beneficiaries concerning the trust
- 43. Handling day-to-day financial matters for beneficiaries
- 44. Reporting to the probate court, when necessary
- 45. Providing detailed statements of account and tax reports to the trust’s beneficiaries
- 46. Filing the trust’s income-tax returns Questions?Thank you for your timeMilton P. Buffington, J.D. 202-256-1700Saeid B. Amini, JD, Ph.D., MBA202-306-9444Address:730 2th Street, NW, Suite OneWashington DC 20037