Recognizing the Need to Engage in Estate

Planning

Presented by Anita Purewal CPA MSBA

Who Needs Estate Planning? 2014 Estate Tax Exemption:

• $5,340,000 /Individual• $10,680,000/Couple

2014 Annual Gift Exemption $14,000

Only the 0.14% of all estates in 2013 will owe tax

Estate tax 40% (lower than income at the highest brackets for fed & CA)

You Need Estate Planning All Estate Plans should:

– Designate someone to:• Manage your assets• Make health care and personal care decisions for you if you ever

become unable to do so for yourself.

Small Estates– Address WHO

• Maximize Basis Step-up – Who will pay Income tax

Large Estates– Address WHO & HOW to:

• Minimize Transfer Taxes (Gift, Estate & GST)• Preserving assets for beneficiaries

Estate Planning Affirms Your Intent & Powers Estate planning is the process of legally

structuring the future disposition of your estate. Through estate planning, YOU may determine:

• Whom do I want to receive my assets—and when?

• Who should manage those assets if I cannot—either during my lifetime or after my death?

• Who should make decisions on my behalf concerning my care and welfare if I become unable to care for myself?

• What do I want done with my remains after I die and where would I want them buried, scattered or otherwise laid to rest?

What is an Estate?

Estate = Net Worth– ALL Assets at Fair Market Value • Real Property, Life Insurance Proceeds, Personal

Property, Investments, Retirement Accounts, Payments due to you

– Less Liabilities (Secured & Unsecured)– Less Funeral Expenses, Medical Bills, Estate

Administration Expenses

No Estate Plan

Intestate– Requires Probate Court (8-10 Months)– Assets Pass to legal heirs under statute:• Community Property to Surviving Spouse• Separate Property

– ½ to Surviving Spouse & ½ to Sole Child– 1/3 to Surviving Spouse & 2/3 to Surviving

Children/Descendants (Grandchildren etc.)

Intestate Estates - Probate

Probate: Court Supervised Process to transfer title of Assets– No Privacy

• Probate Records are open to the public

– Probate Fees (Statutory) For Executor & Attorney EACH• 4% of the first $100,000 $4,000 x 2 = $8,000• 3% of the next $100,000 $7,000 x 2 = $14,000• 2% of the next $800,000 $23,000 x 2 = $46,000• 1% of the next $9,000,000 $113,000 x 2 = $226,000

Intestate Estates – Probate (cont.)

Probate Avoidance– Assets with Designated Beneficiaries:• Retirement Plan Accounts• Pay on Death Assets (i.e. U.S. Bonds)• Transfer on Death Assets (i.e. Securities Accounts)• Life Insurance Proceeds• Assets held by Trusts• Assets titled WROS

– Joint Tenancy WROS– Community Property WROS

Intestate Estates - SuccessionIf you die with: here’s what happens:

• children but no spouse, parents, or siblings • children inherit everything

• spouse but no children, parents, or siblings • spouse inherits everything

• parents but no children, spouse, or siblings • parents inherit everything

• siblings but no children, spouse, or parents • siblings inherit everything

a spouse and children • spouse inherits all of your community property and 1/2 or 1/3 of your separate property

• children inherit 1/2 or 2/3 of your separate property

a spouse and parents • spouse inherits all of your community property and 1/2 of your separate property

• parents inherit 1/2 of your separate property

a spouse and siblings, but no parents • spouse inherits all of your community property and 1/2 of your separate property

• siblings inherit 1/2 of your separate property

Estate Planning – Beyond the Financial

Essential Basic Documents:– Will• state who you want to inherit your property and name a

guardian to care for your young children should something happen to you and the other parent (avoids court appointed guardian)

– Advance Health Care Directive• can protect you if you become unable to make medical

decisions for yourself. Health care directives include a health care declaration ("living will") and a power of attorney for health care, which gives someone you choose the power to make decisions if you can't

Estate Planning – Beyond the Financial (cont.)

Essential Basic Documents (Cont.):– Durable POA• financial power of attorney for finances, you can give a

trusted person authority to handle your finances and property if you become incapacitated and unable to handle your own affairs.

– Trust• hold your property in a living trust, your survivors

won't have to go through probate court, a time-consuming and expensive process.

Trusts Inter-Vivos – Created & funded during the settelors life

– may or may not be in the estate (Revocable/Irrevocable)– Latin for “among the living”

Testamentary – Came into existence at passing of settelor – included in the estate

Revocable– included in the estate

Irrevocable – settelor can’t revoke– Not included in the estate– Creditor Protection from Settelor’s Creditors

Tax– Trusts are at the highest marginal Individual tax Bracket at only $11,950 of Taxable

Income (Fed)– California – better trust brackets & no Estate Tax

Contact InfoAnita Purewal, CPA MSBAGALLINA LLP925 Highland Pointe Drive, #450Roseville, CA 95678(916) 784-7800Email: apurewal@gallina.com

“I want to leave my children enough that they feel they can do anything, but not so much that they do nothing.” ~ Warren Buffet

“Never say you know a man until you have divided an inheritance with him.”  ~ Johann Kaspar Lavater

“I would as soon leave my son a curse as the almighty dollar.”  ~ Andrew Carnegie