Estate Planning An Introduction v1 · Presented by Deborah A. Stokes, CPA, CSEP Brenda E. Curtis,...
Transcript of Estate Planning An Introduction v1 · Presented by Deborah A. Stokes, CPA, CSEP Brenda E. Curtis,...
Presented by
Deborah A. Stokes, CPA, CSEPBrenda E. Curtis, CPA, MST, CSEP
& Irene R. Walsh, EA
Presented by
Deborah A. Stokes, CPA, CSEPBrenda E. Curtis, CPA, MST, CSEP
& Irene R. Walsh, EA
Estate Planning ‐An IntroductionEstate Planning ‐An Introduction
The Tale of Two Estates – Estate 1The Tale of Two Estates – Estate 1
• Joe – 70 year old Widower –VA resident
• Gross estate $4.5M
• Had a Will & Trust Agreement – all assets were titled to his trust – no probate
• Gifted his property in DC to his children to avoid a DC estate tax return – the property was worth $750K at the time of the gift, worth $1.1M at death
The Tale of Two Estates – Estate 2 The Tale of Two Estates – Estate 2
• Jane, 65 year old Widow –VA resident
• Gross estate $4M
• No Estate Planning
• All assets were subject to probate – paid over $4,000 in probate fees
• No Federal Estate tax return required, but owned property in MD – owed estate tax
• Reasons you should have an Estate Plan
• Types of taxes associated with Gifts & Estates
• Essential Estate Planning Documents
• Basic Estate Planning Strategies
Estate Planning TopicsEstate Planning Topics
Who Needs an Estate PlanWho Needs an Estate Plan
• Married couples
• Single adults
• Parents with minor children
• Older people
• Younger people
• Wealthy people and those who are not wealthy
Reasons for Estate PlanningReasons for Estate Planning
• Minimize/eliminate estate taxes
• Avoid probate
• Ensures property passes to the people/organization you want
• Control of Assets in case of incapacity
• Make estate administration easier for family members
Minimizing/Eliminating Estate TaxesMinimizing/Eliminating Estate Taxes
• Emphasis is placed on reducing the size of the estate at date of death by gifting in the most efficient manner before death
• Using estate planning techniques you can transfer more wealth out of your estate using appropriate discounts
• With the proper planning you can transfer more assets to your grandchildren without paying GST tax
What is Probate? What is Probate?
• Executor/Executrix/Personal Representative (MD) –appointed by the will to administer an estate
• Administrator appointed by the court to administer an estate
• Commissioner of Accounts (VA) /Register of Wills (MD/DC) – oversees the administration of the estate
• Probate Estate different from Estate for Estate Tax purposes
Probate AssetsProbate Assets
• Bank Account/Brokerage Accounts
• Stock
• Business Interests
• Life Insurance with the estate as beneficiary (or no beneficiary)
• IRA accounts with the estate as beneficiary (or no beneficiary)
• Personal Property
Non‐Probate AssetsNon‐Probate Assets
• Life Insurance with a designated beneficiary
• IRA accounts with a designated beneficiary
• Transfer/Pay on Death (TOD/POD) accounts
• Accounts titled Joint with Right of Survivorship (JWROS)
• Information is made public
• Costly, depending on the size of the estate
• Court oversees administration
Probate – Reasons to Avoid ItProbate – Reasons to Avoid It
Ways to Avoid ProbateWays to Avoid Probate
• Give away all your assets before death
• Title all your assets joint with right of survivorship
• Set up a revocable (living) trust and title all your assets in the trust’s name
TrustsTrusts
• A Revocable Living Trust is set up prior to death. Assets are transferred into the Trust, thereby avoiding probate
• Trust under the Will is set up under the Will and the Will controls the Trust. Assets are not transferred to the Trust until after death ‐ probate is not avoided
Smooth Transfer of AssetsSmooth Transfer of Assets
• Your estate plan will ensure your assets go to the person/people that you want them to go to
• If you want some or all of your assets to go to charity, that wish can be part of your estate plan
IncapacitationIncapacitation
• Estate Planning includes documents that help with control of your assets in the event you become incapacitated– Power of Attorney– Revocable Living Trust
Making It Easier on Family MembersMaking It Easier on Family Members
• A good estate plan avoids probate so your family does not have to deal with the court
• A good estate plan maps out your wishes –no guessing involved. It can be as detailed as you want
Death/Transfer TaxesDeath/Transfer Taxes
• Gift Tax
• Estate Tax – Federal & State
• Inheritance Tax
• Generation Skipping Transfer Tax (GST)
• Probate Tax
• Estate (Fiduciary) Income Tax
Gift TaxGift Tax
• Tax on the transfer of assets during a person’s lifetime
• Tax rate is the same as the estate tax rate
• Lifetime exemption of $5,340,000 (for 2014), whatever is not used during lifetime is used at death
• 2014 rate is 40%
• The tax on the net value of the assets held by a decedent at date of death
Estate TaxEstate Tax
Estate Tax Exemptions & RatesEstate Tax Exemptions & Rates
Year Exemption Maximum Rate
2013 $ 5,250,000 40%
2014 $ 5,340,000 40%
2015 $ 5,430,000 40%
PortabilityPortability
For 2011 & Forward
Allows the unused exemption on the first to die to be used by the second to die
Portability – 706 FiledPortability – 706 Filed
Husband dies 2013 (Exemption $5.25M)Exemption used: $1,500,000Unused exemption: $3,750,000
Wife dies 2014 (Exemption $5.34M)Wife’s estate: $10,000,000Less her exemption: $5,340,000Less husband’s unused exemption: $3,750,000Taxable estate: $910,000
Tax $364,000
Husband dies 2013 (Exemption $5.25M)Exemption used: $1,500,000Unused exemption: $3,750,000
Wife dies 2014 (Exemption $5.34M)Wife’s estate: $10,000,000Less her exemption: $5,340,000Less husband’s unused exemption: $0Taxable estate: $4,660,000
Tax $1,864,000
No Portability – 706 Not FiledNo Portability – 706 Not Filed
Inheritance TaxInheritance Tax
• A tax assessed on the right to inherit property from a decedent
• Assessed at the state level (only assessed by some states)
Generation‐Skipping Transfer TaxGeneration‐Skipping Transfer Tax
• The tax on the value of assets transferred to a “skip” person
• Imposed on gifts in addition to normal gift and estate taxes
• Skip persons are 2 generations or more below the donor (i.e., grandchild, great‐grandchild, great‐niece or great‐nephew)
• A non‐related person would be considered a skip person if they are 371/2 years or more younger than the donor
GST Tax (cont.)GST Tax (cont.)
GST Tax Exemptions & RatesGST Tax Exemptions & Rates
Year Exemption Maximum Rate
2013 $ 5,250,000 40%
2014 $ 5,340,000 40%
2015 $ 5,430,000 40%
Probate TaxProbate Tax
• Assessed by a county or city
• Fees include court filing fees, inventory fees and accounting fees
• Tax is paid on assets passing by Will or in the case of intestacy (no will), by state law
Estate Income TaxEstate Income Tax
• The tax on the income earned from the assets of a decedent during the period beginning with his/her death and ending on the end of the tax year
• Generally, filed annually as long as the estate is opened
• Must file a return if the income is $600 or more or the estate has a non‐resident alien beneficiary
Essential Estate Planning DocumentsEssential Estate Planning Documents
• Power of Attorney
• Medical Directive/HIPAA Form
• Will
• Revocable (Living) Trust
Power of AttorneyPower of Attorney
• Gives authorization to your representative to act on your behalf
• May need specific authorization for specific acts such as the sale of assets or gifting of assets
• Power of attorney ceases upon the death of either person
Medical Directive/HIPAA FormMedical Directive/HIPAA Form
• Medical directive allows someone else to make decisions involving your health during your incapacitation
• Outlines what your wishes are in certain circumstances – for example, what type of measures you want taken to revive you
• HIPAA Form deals with the privacy of your medical information. Can be used to allow information to be shared with certain people
WillWill
• Directs the transfer of assets to individuals/charities
• Can direct the assets to go to a pre‐established trust (known as a “pour‐over” will)
• Can be used to identify your wishes for the guardianship of your minor children
• Can be used to outline your wishes for a funeral
Revocable (Living) TrustRevocable (Living) Trust
• Used to avoid the probate process
• Assets are titled in the trust’s name, but still belong to the Grantor. Trust assets are included in the Grantor’s estate
• Can be revoked up until the Grantor’s death
• Becomes irrevocable upon the Grantor’s death
• Upon death it functions like a Will by directing the transfer of assets
Basic Estate Planning StrategiesBasic Estate Planning Strategies
Basic Estate Planning StrategiesBasic Estate Planning Strategies
• Plan to eliminate probate by using a Trust and/or POD or joint accounts
• Annual gifting of $14,000 to each donee from each donor each year (subject to increases)
• In addition, gifts over and above the $14,000 per person for educational and medical expenses are not subject to gift taxes as long as they are paid directly to the institution/medical provider
• Unlimited marital deduction for transfers of property to U.S. citizen spouse (limited to $145,000 per year to non‐citizen spouse)
Gifting of Unified CreditGifting of Unified Credit
• You may make gifts of up to $5,340,000 before death (not including the annual $14,000 exclusion)
– Advantages: Get assets out of your estate before they appreciate in value, transfer income‐producing assets to an adult child who is in a lower income‐tax bracket
– Disadvantages: loss of control of assets, no step up in basis at time of death
Six Steps for Estate Planning Six Steps for Estate Planning
Contact InformationContact Information
Debbie Stokes, CPA, CSEP ‐ [email protected](703) 642‐2700 ext 226
Brenda Curtis, CPA, CSEP ‐[email protected](703) 642‐2700 ext 252
Irene Walsh, EA – [email protected](703) 642‐2700 ext 266