George Washington University Estate Planning Essentials October 2, 2010 1

By: John P. Dedon Odin, Feldman & Pittleman, P.C.

9302 Lee Highway, Suite 1100 Fairfax, Virginia 22031 (703) 218-2131 [email protected]

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Personal Asset Accumulation

Wages Qualified Plans Investment Income Inheritance 3

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Proper Planning Will Allow You to . . .

Give what you have, To whom you want, When you want, and In the way you want And Pay Less for: Court Costs Attorney’s fees Estate Taxes 5

We want to give our children enough . . .

but we don’t want them to blow it!

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Other Fundamental Planning Issues • • • • • •

Children from a previous marriage and second spouse Children with special needs Children with creditor, financial, or marital problems Property in multi-states Competency issues in future (parents) Spouse who would need help managing and investing funds

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Assets At Risk (4 Areas of Risk) Potential Creditors 3-6% Probate & Legal Expenses 35% Income Tax Estate Tax (?)

IRS

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Phase-in Schedule :

Year

2002 2003 2004 2005 2006 2007 2008 2009 2010

2011 Exemption Amount

$ 1,000,000 $ 1,000,000 $ 1,500,000 $ 1,500,000 $ 2,000,000 $ 2,000,000 $ 2,000,000 $ 3,500,000 No estate tax*

$ 1,000,000

? - What will Congress do?

9 * Income Tax

50% 50%

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IRS

MONTH 9 11

You have the option to plan your estate and avoid Death Taxes Death is Inevitable . . .

Estate Tax is Not!

IRS

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Family

Estate Beneficiaries

IRS

GWU Charity

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Current Lifetime Gifting Rates

$ 13,000 Annual Exclusion $1,000,000 : Life Time Gift 14

Probate Assets Pass According to Will or Intestacy Laws

• • Assets Passing Without a Will Assets Passing With a Will 15

Probate

Cost Time Delays Publicity Property In Multiple States 16

Benefits of Revocable Living Trusts

I.

Avoids Probate

a. Cost b. Time Delays c. Publicity

Revocable Trust

d. Problems with property in multiple states

II. Incapacity Planning III. Estate Tax Planning

a. Bypass and Marital Trusts b. GST Planning 17

BASIC PLANNING

    Wills Revocable Living Trusts Advanced Medical Directives (Living Wills) Powers of Attorney 18

Assets Passing at Death

1) Beneficiary Designations 2) Titling of Assets - Tenants In Common Tenants By The Entirety (Assets Pass to Surviving Spouse) Joint Tenants with Right of Survivorship (Assets Pass to Surviving Owner) 3) Probate 4) Revocable Living Trusts 19

Mom

Case Study

Dad Grandma 2 Children 20

Profile

• • • Married $2 Million + Equity in real estate, retirement plans, other liquid assets, life insurance 21

Assets

$ 800,000 $ 300,000 Retirement Liquid Insurance Total $ 450,000 $100,000 $2,000,000 $2,450,000 $250,000 $350,000 Grand Total = $4.8 million $ 900,000 $2,000,000

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Objectives

• • • • • • Provide for surviving spouse Eliminate or avoid estate tax Eliminate probate Provide for children at second death Provide for Mom Charity 23

Solutions

• • • • Wills, Revocable Trusts with credit trust and marital trust for surviving spouse, Powers of Attorney and Medical Directives.

At second death, trusts for children, with distributions at ages 25, 30, and 35.

Special Needs Trust for Grandma.

Charitable Distribution 24

Using Revocable Trust to Reduce Estate Tax Upon Husband’s Death $2,450,000 Husband’s Trust Tax Free Marital Share: Assets > $3.5 Million Marital Trust < $3.5 Million Inheritance (Tax-Free) Wife’s Trust $350,000 $2 Million Joint Property Bypass/Credit Trust (Husband’s Exemption $3,500,000) Spouse = Trustee and Beneficiary 25

Second Death

$$$ Special Needs Trust $3.5 Million $3.5 Million 25 (1/3) 30 (1/2) 35 Balance Need Executor, Trustee, Guardian 26

Potential Titling Problems

• • Wife dies first, only $350,000 Jointly held property 27

Other Estate Tax Problems • $1 million exemption amount in 2011?

Charitable Planning As A Solution

• • • Distributions Charitable Remainder and Lead Trusts Life Estates 28