basic estate planning
TRANSCRIPT
Sentinel Solutions530 Fifth Avenue11th FloorNew York, NY 10036212-536-6150cschneider@sentinelsolutions.comwww.sentinelsolutions.com
Basic Estate Planning
December 03, 2012Page 1 of 7, see disclaimer on final page
Estate Planning--An IntroductionBy definition, estate planning is a processdesigned to help you manage and preserveyour assets while you are alive, and toconserve and control their distribution afteryour death according to your goals andobjectives. But what estate planning means toyou specifically depends on who you are. Yourage, health, wealth, lifestyle, life stage, goals,and many other factors determine yourparticular estate planning needs. For example,you may have a small estate and may beconcerned only that certain people receiveparticular things. A simple will is probably allyou'll need. Or, you may have a large estate,and minimizing any potential estate tax impactis your foremost goal. Here, you'll need to usemore sophisticated techniques in your estateplan, such as a trust.
To help you understand what estate planningmeans to you, the following sections addresssome estate planning needs that are commonamong some very broad groups of individuals.Think of these suggestions as simply a pointin the right direction, and then seekprofessional advice to implement the right planfor you.
Over 18
Since incapacity can strike anyone at anytime,all adults over 18 should consider having:
• A durable power of attorney: Thisdocument lets you name someone tomanage your property for you in case youbecome incapacitated and cannot do so.
• An advanced medical directive: The threemain types of advanced medical directivesare (1) a living will, (2) a durable power ofattorney for health care (also known as ahealth-care proxy), and (3) a Do NotResuscitate order. Be aware that not allstates allow each kind of medical directive,so make sure you execute one that will beeffective for you.
Young and single
If you're young and single, you may not needmuch estate planning. But if you have somematerial possessions, you should at least writea will. If you don't, the wealth you leave behindif you die will likely go to your parents, andthat might not be what you would want. A willlets you leave your possessions to anyoneyou choose (e.g., your significant other,siblings, other relatives, or favorite charity).
Unmarried couples
You've committed to a life partner but aren'tlegally married. For you, a will is essential ifyou want your property to pass to your partnerat your death. Without a will, state law directsthat only your closest relatives will inherit yourproperty, and your partner may get nothing. Ifyou share certain property, such as a house orcar, you might consider owning the propertyas joint tenants with rights of survivorship.That way, when one of you dies, the jointlyheld property will pass to the surviving partnerautomatically.
Married couples
For many years, married couples had to docareful estate planning, such as the creationof a credit shelter trust, in order to takeadvantage of their combined federal estate taxexclusions. A new law passed in 2010 allowsthe executor of a deceased spouse's estate totransfer any unused estate tax exclusionamount to the surviving spouse without suchplanning. This provision is effective for estatesof decedents dying after December 31, 2010and before January 1, 2013.
You may be inclined to rely on theseportability rules for estate tax avoidance, usingoutright bequests to your spouse instead oftraditional trust planning. However, portabilityshould not be relied upon solely for utilizationof the first to die's estate tax exemption, and acredit shelter trust created at the first spouse'sdeath may still be advantageous for severalreasons:
• Portability may be lost if the survivingspouse remarries and is later widowedagain
• The trust can protect any appreciation ofassets from estate tax at the secondspouse's death
• The trust can provide protection of assetsfrom the reach of the surviving spouse'screditors
• Portability does not apply to thegeneration-skipping transfer (GST) tax, sothe trust may be needed to fully leveragethe GST exemptions of both spouses
• Portability will expire in 2013 unlessCongress enacts further legislation
Married couples where one spouse is not aU.S. citizen have special planning concerns.The marital deduction is not allowed if therecipient spouse is a non-citizen spouse (but a
By definition, estateplanning is a processdesigned to help youmanage and preserve yourassets while you are alive,and to conserve and controltheir distribution after yourdeath according to yourgoals and objectives.
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$139,000 annual exclusion, for 2012, isallowed). If certain requirements are met,however, a transfer to a qualified domestictrust (QDOT) will qualify for the maritaldeduction.
Married with children
If you're married and have children, you andyour spouse should each have your own will.For you, wills are vital because you can namea guardian for your minor children in case bothof you die simultaneously. If you fail to name aguardian in your will, a court may appointsomeone you might not have chosen.Furthermore, without a will, some statesdictate that at your death some of yourproperty goes to your children and not to yourspouse. If minor children inherit directly, thesurviving parent will need court permission tomanage the money for them. You may alsowant to consult an attorney about establishinga trust to manage your children's assets.
You may also need life insurance. Yoursurviving spouse may not be able to supportthe family on his or her own and may need toreplace your earnings to maintain the family.
Comfortable and lookingforward to retirement
You've accumulated some wealth and you'rethinking about retirement. Here's where estateplanning overlaps with retirement planning. It'sjust as important to plan to care for yourselfduring your retirement as it is to plan toprovide for your beneficiaries after your death.You should keep in mind that even thoughSocial Security may be around when youretire, those benefits alone may not provideenough income for your retirement years.Consider saving some of your accumulatedwealth using other retirement and deferredvehicles, such as an individual retirementaccount (IRA).
Wealthy and worried
Depending on the size of your estate, you mayneed to be concerned about estate taxes.
For 2012, $5,120,000 is effectively exemptfrom the federal gift and estate tax. Estatesover that amount may be subject to the tax ata top rate of 35 percent.
Similarly, there is another tax, called thegeneration-skipping transfer (GST) tax, that isimposed on transfers of wealth that are madeto grandchildren (and lower generations). For2012, the GST tax exemption is $5,120,000and the top tax rate is 35 percent.
Whether your estate will be subject to statedeath taxes depends on the size of yourestate and the tax laws in effect in the state inwhich you are domiciled.
The exemption amounts mentioned above areset to expire after 2012. Unless Congressenacts further legislation, in 2013, the gift andestate tax exemption will revert to $1 millionand the GST exemption will revert to $1million adjusted for inflation. Thus, if you havean estate valued in excess of $1 million, youmight want to consider some tax planningnow.
Elderly or ill
If you're elderly or ill, you'll want to write a willor update your existing one, consider arevocable living trust, and make sure you havea durable power of attorney and a health-caredirective. Talk with your family about yourwishes, and make sure they have copies ofyour important papers or know where to locatethem.
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Steps to Estate Planning Success
Estate Planning Pyramid
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Advantages of Trusts
Why you might considerdiscussing trusts with yourattorney
• Trusts may be used to minimize estatetaxes for married individuals withsubstantial assets.
• Trusts provide management assistance foryour heirs.*
• Contingent trusts for minors (which takeeffect in the event that both parents die)may be used to avoid the costs of having acourt-appointed guardian to manage yourchildren's assets.
• Properly funded trusts avoid many of theadministrative costs of probate (e.g.,attorney fees, document filing fees).
• Generally, revocable living trusts will keepthe distribution of your estate private.
• Trusts can be used to dispense income to
• Trusts can ensure that assets go to yourintended beneficiaries. For example, if youhave children from a prior marriage youcan make sure that they, as well as acurrent spouse, are provided for.
• Trusts can minimize income taxes byallowing the shifting of income amongbeneficiaries.
• Properly structured irrevocable lifeinsurance trusts can provide liquidity forestate settlement needs while removing thepolicy proceeds from estate taxation at thedeath of the insured.
*This is particularly important for minors andincapacitated adults who may need support,maintenance, and/or education over a longperiod of time, or for adults who have difficultymanaging money.
intermediate beneficiaries (e.g., children,elderly parents) before final propertydistribution.
Conducting a Periodic Review of Your Estate PlanWith your estate plan successfullyimplemented, one final but critical stepremains: carrying out a periodic review andupdate.
Imagine this: since you implemented yourestate plan five years ago, you got divorcedand remarried, sold your house and bought aboat to live on, sold your legal practice andinvested the money that provides you withenough income so you no longer have towork, and reconciled with your estrangeddaughter. This scenario may look more likefantasy than reality, but imagine how thesemajor changes over a five-year period mayaffect your estate. And that's withoutconsidering changes in tax laws, the stockmarket, the economic climate, or otherexternal factors. After all, if the only constantis change, it isn't unreasonable to speculatethat your wishes have changed, theadvantages you sought have eroded orvanished, or even that new opportunities nowexist that could offer a better value for yourestate. A periodic review can give you peaceof mind.
When should you conduct areview of your estate plan?
Every year for large estates
Those of you with large estates (i.e., morethan the federal or your state's exemption
amount, whichever is smaller) should reviewyour plan annually or at certain life events thatare suggested in the following paragraphs.Not a year goes by without significant changesin the tax laws. You need to stay on top ofthese to get the best results.
Every five years for small estates
Those of you with smaller estates (under theapplicable exclusion amount) need onlyreview every five years or following changes inyour life events. Your estate will not be asaffected by economic factors and changes inthe tax laws as a larger estate might be.However, your personal situation is bound tochange, and reviewing every five years willbring your plan up to date with your currentsituation.
Upon changes in estate valuation
If the value of your estate has changed morethan 20 percent over the last two years, youmay need to update your estate plan.
Upon economic changes
You need to review your estate plan if therehas been a change in the value of your assetsor your income level or requirements, or if youare retiring.
What is a trust?
A trust is a legal entity that iscreated for the purpose oftransferring property to atrustee for the benefit of a thirdperson (beneficiary). Thetrustee manages the propertyfor the beneficiary according tothe terms specified in the trust
With your estate plansuccessfully implemented,one final but critical stepremains: carrying out aperiodic review and update.
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Upon changes in occupation oremployment
If you or your spouse changed jobs, you mayneed to make revisions in your estate plan.
Upon changes in family situations
You need to update your plan if: (1) your (oryour children's or grandchildren's) maritalstatus has changed, (2) a child (or grandchild)has been born or adopted, (3) your spouse,child, or grandchild has died, (4) you or aclose family member has become ill orincapacitated, or (5) other individuals (e.g.,your parents) have become dependent onyou.
Upon changes in your closely heldbusiness interest
A review is in order if you have: (1) formed,purchased, or sold a closely held business, (2)reorganized or liquidated a closely heldbusiness, (3) instituted a pension plan, (4)executed a buy-sell agreement, (5) deferredcompensation, or (6) changed employeebenefits.
Upon changes in the estate plan
Of course, if you make a change in part ofyour estate plan (e.g., create a trust, executea codicil, etc.), you should review the estateplan as a whole to ensure that it remainscohesive and effective.
Upon major transactions
Be sure to check your plan if you have: (1)
Upon changes in insurance coverage
Making changes in your insurance coveragemay change your estate planning needs ormay make changes necessary. Therefore,inform your estate planning advisor if youmake any change to life insurance, healthinsurance, disability insurance, medicalinsurance, liability insurance, or beneficiarydesignations.
Upon death of trustee/executor/guardian
If a designated trustee, executor, or guardiandies or changes his or her mind about serving,you need to revise the parts of your estateplan affected (e.g., the trust agreement andyour will) to replace that individual.
Upon other important changes
None of us has a crystal ball. We can't think ofall the conditions that should prompt us toreview and revise our estate plans. Use yourcommon sense. Have your feelings aboutcharity changed? Has your son finally becomefinancially responsible? Has your spouse'shealth been declining? Are your childrenthrough college now? All you need to do isgive it a little thought from time to time, andtake action when necessary.
received a sizable inheritance, bequest, orsimilar disposition, (2) made or receivedsubstantial gifts, (3) borrowed or lentsubstantial amounts of money, (4) purchased,leased, or sold material assets or investments,(5) changed residences, (6) changedsignificant property ownership, or (7) becomeinvolved in a lawsuit.
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Disclosure Information -- Important -- Please Review
Sentinel Solutions530 Fifth Avenue
11th FloorNew York, NY 10036
December 03, 2012Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2012
Securities, Investment Advisory Services and Financial Planning Services through qualified RegisteredRepresentatives of
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Sentinel Solutions, Inc. is not an affiliate or subsidiary of MML Investors Services, LLC or its affiliatedcompanies.
Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. Theinformation presented here is not specific to any individual's personal circumstances.
To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot beused, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer shouldseek independent advice from a tax professional based on his or her individual circumstances.
These materials are provided for general information and educational purposes based upon publiclyavailable information from sources believed to be reliable—we cannot assure the accuracy or completenessof these materials. The information in these materials may change at any time and without notice.
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