Emerson Process Management 8100 West Florissant Avenue St. Louis, Missouri 63136 ESTATE PLANNING...

Emerson Process ManagementEmerson Process Management

8100 West Florissant Avenue8100 West Florissant Avenue

St. Louis, Missouri 63136St. Louis, Missouri 63136

ESTATE PLANNING PRESENTATIONMay 22, 2008

1460573

Kimberly B. McDermott

Lewis, Rice & Fingersh, L.C.(314) 444-7833

[email protected]

Overview

Introduction Lifetime Planning Wills Revocable (Living) Trusts Transfer Tax Planning

LEWIS, LEWIS, RICE & 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



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)



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?

IntroductionLEWIS, LEWIS, RICE & RICE &


Lifetime Planning

Durable Power of Attorney.

Health Care Authorization, Declaration (or Living Will) and Power of Attorney.



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.



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.



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



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.



Revocable (Living) Trusts

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.



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.

Revocable (Living) TrustsLEWIS, LEWIS, RICE & RICE &


Transfer Tax Planning Gift Tax Exclusions

Annual Exclusion ($12,000 per individual per donee) Tuition Medical Expenses



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$

Transfer Tax Planning 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



Transfer Tax Planning 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



Transfer Tax Planning

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



Transfer Tax Planning 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




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




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



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



Emerson Process Management 8100 West Florissant Avenue St. Louis, Missouri 63136 ESTATE PLANNING...

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