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Download Overview of Estate Planning Chapter 1 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company1 What is Estate Planning?

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  • Slide 1
  • Overview of Estate Planning Chapter 1 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company1 What is Estate Planning? Estate planning is the process of planning the accumulation, conservation, and distribution of an estate, in the manner that most effectively and efficiently accomplishes an individuals personal tax and non-tax objectives.
  • Slide 2
  • Overview of Estate Planning Chapter 1 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company2 Controlled Estate Planning A systematic process for uncovering problems and providing solutions in clients L.I.V.E.S.
  • Slide 3
  • Overview of Estate Planning Chapter 1 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company3 L.I.V.E.S.-Seven Major Areas of Estate Planning Lack of liquidity Improper disposition of assets Inflation-proof and diversify portfolio Inadequate income or capital at retirement, death or disability Value stabilization and maximization Excessive transfer costs Special problems
  • Slide 4
  • Overview of Estate Planning Chapter 1 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company4 Who Needs Estate Planning? Individuals with estate in excess of the unified credit exemption equivalent ($3.5 million in 2009; $5 million in 2010, 2011, and 2012, subject to potential for unlimited exemption for decedents dying in 2010 at election of executor) Individuals in combined state and federal income tax bracket in excess of 15% Nonresident aliens, resident aliens, aliens about to move to the U.S., individuals considering expatriation, and U.S. citizens with property interests in foreign countries
  • Slide 5
  • Overview of Estate Planning Chapter 1 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company 5 People with: Minor children Children, spouses or other dependents who are exceptionally artistic or intellectually gifted, and are expected to have their own wealth Children, spouses or other dependents who are emotionally or mentally challenged, emotionally disturbed, or physically handicapped Children, spouses or other dependents who cant or dont want to handle money, securities, or a business Who Needs Estate Planning? (contd)
  • Slide 6
  • Overview of Estate Planning Chapter 1 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company6 People with: Closely-held business interest Property in more than one state, or persons who move from state to state Charitable objectives Special property such as a fine art, coin, gun or stamp collection Pets that are particularly important to them Asset protection concerns of heirs Who Needs Estate Planning? (contd)
  • Slide 7
  • Overview of Estate Planning Chapter 1 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company7 The 10 Most Common Estate Planning Mistakes 1.Improper use of jointly-held property 2.Improperly arranged life insurance 3.Lack of liquidity 4.Choice of the wrong executor 5.Will errors 6.Leaving everything to your spouse 7.Improper disposition of assets 8.Failure to stabilize and maximize value 9.Lack of adequate records 10.Lack of a Master Strategy game plan
  • Slide 8
  • Overview of Estate Planning Chapter 1 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company8 Potential for both federal and state gift tax Possibility of double taxation For non-spouse tenants the entire joint asset is taxed in the first-to-die tenants estate, unless contribution can be proved Then the asset is taxed in the surviving tenants estate to the extent the surviving tenant did not consume or give away the asset Once property has passed to the survivor, provisions of the decedents will are ineffective Mistake 1: Improper Use of Jointly-Held Property
  • Slide 9
  • Overview of Estate Planning Chapter 1 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company9 Surviving tenant during life or at death can give property to whomever the survivor desires Joint property passes outside of the probate estate potentially leaving the decedents executor with a lack of adequate cash to pay estate taxes and other settlement expenses Mistake 1: Improper Use of Jointly-Held Property (contd)
  • Slide 10
  • Overview of Estate Planning Chapter 1 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company10 Avoiding Double Taxation Do not use JTWROS titling Include a credit equivalent bypass trust (CEBT) provision in will or trust document The provision allows the decedent to shelter an amount equal to the unified credit equivalent (up to $3.5 million in 2009, $5 million in 2010, 2011, and 2012) from federal estate tax, and Avoids taxation of this amount in the surviving spouses estate
  • Slide 11
  • Overview of Estate Planning Chapter 1 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company11 Credit Equivalent Bypass Trust Decedents Estate 2006 $4 million Tax Paid $0 Bypass B Trust $2 million Heirs Marital A Trust $2 million Spouses Estate Tax Paid (if any) Heirs Income for life
  • Slide 12
  • Overview of Estate Planning Chapter 1 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company12 Mistake 2: Improperly Arranged Life Insurance Proceeds payable to beneficiary at wrong time or in wrong manner Inadequate insurance on key person Family Breadwinner Corporation Rainmaker No contingent beneficiary named
  • Slide 13
  • Overview of Estate Planning Chapter 1 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company13 Mistake 2: Improperly Arranged Life Insurance (contd) Policy proceeds included in decedents estate Decedent owner and insured Decedent retained an interest in the policy Decedent transferred policy or policy interest within three years of death Triangulation Example: Wife-owner, Husband-insured, Child-beneficiary When husband dies, the policy proceeds will constitute an unintended gift from the wife to the child
  • Slide 14
  • Overview of Estate Planning Chapter 1 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company14 Corporation: Names someone other than itself as the beneficiary of insurance on the life of a key employee IRS will claim proceeds are not income tax free and should be treated as: Dividends if paid to or on behalf of a shareholder Compensation if paid to an employee who is not a shareholder Dividends for income tax purposes and also taxed as part of gross estate if insured owned more than 50% of the corporate stock Mistake 2: Improperly Arranged Life Insurance (contd)
  • Slide 15
  • Overview of Estate Planning Chapter 1 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company15 Mistake 2: Improperly Arranged Life Insurance (contd) Proceeds paid to insureds estate Subject to claims of insureds creditors Increased probate costs Transfer-for-value rule: When a life insurance policy is transferred for any kind of valuable consideration in money or moneys worth Proceeds may lose their income tax free status
  • Slide 16
  • Overview of Estate Planning Chapter 1 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company16 Mistake 2: Improperly Arranged Life Insurance (contd) Divorce: No income tax deduction for premium payments made by one spouse when the ex-spouse is named the irrevocable beneficiary of the policy under a divorce decree No alimony deductions are allowed for cash values in a life policy transferred to an ex-spouse under a divorce decree Remind recently divorced clients to review all life, health, and disability insurance coverage and beneficiary designations
  • Slide 17
  • Overview of Estate Planning Chapter 1 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company17 Mistake 2: Improperly Arranged Life Insurance (contd) Update beneficiary designation to reflect changes to estate planning documents if estate is beneficiary, manner in which money disbursed automatically updated as will changed If have revocable living trust, beneficiary designation may need updating if document is changed
  • Slide 18
  • Overview of Estate Planning Chapter 1 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company18 Mistake 3: Lack of Liquidity Key Questions: How do you know if your executor will have enough cash to pay taxes, expenses, and other settlement costs? Will your executor be forced to have a fire sale of your family business, income producing property, or most precious assets to cover these expenses within the time they are due?
  • Slide 19
  • Overview of Estate Planning Chapter 1 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company19 Mistake 3: Lack of Liquidity (contd) Cash Demands on the Executor of the Estate: Federal Estate Taxes (due nine months from the date of death) State Death Taxes Federal Income Taxes (including taxes on pension distributions known as IRD - income in respect of a decedent) State Income Taxes (including taxes on pension distributions) Probate and Administrative Costs
  • Slide 20
  • Overview of Estate Planning Chapter 1 Tools & Techniques of Estate Plann

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