estate planning an introduction v1 · presented by deborah a. stokes, cpa, csep brenda e. curtis,...
TRANSCRIPT
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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
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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
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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
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• 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
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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
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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
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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
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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
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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
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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)
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• Information is made public
• Costly, depending on the size of the estate
• Court oversees administration
Probate – Reasons to Avoid ItProbate – Reasons to Avoid It
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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
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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
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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
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IncapacitationIncapacitation
• Estate Planning includes documents that help with control of your assets in the event you become incapacitated– Power of Attorney– Revocable Living Trust
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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
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Death/Transfer TaxesDeath/Transfer Taxes
• Gift Tax
• Estate Tax – Federal & State
• Inheritance Tax
• Generation Skipping Transfer Tax (GST)
• Probate Tax
• Estate (Fiduciary) Income Tax
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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%
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• The tax on the net value of the assets held by a decedent at date of death
Estate TaxEstate Tax
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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%
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PortabilityPortability
For 2011 & Forward
Allows the unused exemption on the first to die to be used by the second to die
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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
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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
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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)
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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)
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• 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.)
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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%
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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
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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
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Essential Estate Planning DocumentsEssential Estate Planning Documents
• Power of Attorney
• Medical Directive/HIPAA Form
• Will
• Revocable (Living) Trust
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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
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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
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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
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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
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Basic Estate Planning StrategiesBasic Estate Planning Strategies
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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)
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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
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Six Steps for Estate Planning Six Steps for Estate Planning
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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