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Top 10 Estate Planning Misconceptions Law Office of JANE FRANKEL SIMS LLC Estates & Trusts Introduction What is Estate Planning? Creation and Preservation of Wealth and Distribution to Heirs and Charities TOP 10 ESTATE PLANNING MISCONCEPTIONS 1. We own everything jointly, so we don’t need an estate plan. 2. All of my property will be distributed based on the terms of my will. 3. There’s no downside to adding a joint owner to my bank account and the deed to my house. 4. The beneficiary designations on my retirement accounts don’t matter as long as I have a will. 5. Only millionaires have estate issues. 6. Life insurance proceeds and retirement account assets are not taxed at death. 7. I’m too young to worry about estate planning. 8. I can download a perfectly good will from the internet. 9. Probate is an awful process that should be avoided at all costs. 10. Revocable living trusts help minimize estate tax. 1. We own everything jointly, so we don’t need an estate plan. 2. All of my property will be distributed based on the terms of my will. TITLES TRUMP WILLS: Your home represents most of your net worth and is titled jointly WROS with your second wife Your Will says “I give all of my assets to my children.” Result: everything goes to second wife How Property Transfers ●Property Titling ● Beneficiary Designations ● Wills ● Trusts ● Gifts 3. There’s no downside to adding a joint owner to my bank account and the deed to my house. The story of the dependable child and her forgotten siblings The gift and capital gains tax trap that the helpful title attorney didn’t mention 4. The beneficiary designations on my retirement accounts don’t matter as long as I have a will. BENEFICIARY DESIGNATIONS TRUMP WILLS TOO ●Pay careful attention to the beneficiaries you designate on your retirement plan assets and life insurance policies. ● Now that you have children, you may not want those assets to benefit your sister and brother (or your ex-spouse). ● Certain designations have adverse income tax consequences. 5. Only millionaires have estate issues. 6. Life insurance proceeds and retirement account assets are not taxed at death. ●You can pass $1 million free of estate tax in Maryland ● HOWEVER the value of your home, the proceeds of your life insurance policies and your retirement plan assets count towards that $1 million The following assets are subject to estate tax: •Equity in your home • Life insurance proceeds • IRA/401k accounts • Bank/brokerage accounts • Closely held businesses • Tangible personal property Estate Taxes •Tax, and tax again • Spousal exemption • Estate Tax Repeal – not likely and not in Maryland Federal Estate Tax Exemptions and Rates Year Exemption Tax Rate 2009 $3.5 million 45% 2010 Unlimited 0% 2011 ???? ???? Maryland: An Additional Layer of Estate Tax Year 2009 Federal Maryland Federal Maryland Exemption Exemption Tax Rate Tax Rate $3.5 million $1 million 45% 16% 2010 unlimited $1 million 0% 16% 2011 ???? $1 million ???? 16% 7. I’m too young to worry about estate planning. •Wills aren’t just for old people (i.e., appointment of guardians of minor children). • Everyone needs Powers of Attorney/Living Wills (remember Terri Schaivo). Powers of Attorney Durable Financial Power of Attorney Advance Directive •General • Appointment of Health Care Agent •Limited •Living Will 8. I can download a perfectly good will from the internet. “Why should I pay a lawyer?” Having your brother-in-law, a personal injury lawyer, draft your will is not a good idea due to the complexity of the estate tax and inheritance laws. Internet will programs do not address state-specific laws, detailed succession planning, family dynamics or practical considerations. 9. Probate is an awful process that should be avoided at all costs. 10. Revocable living trusts help minimize estate tax. Revocable Living Trusts What are they? How do they work? Myths about them REVOCABLE LIVING TRUSTS DO NOT AVOID ESTATE TAX ESTATE PLANNING TOOLS •Title Property Properly • Make Gifts – $13,000 per beneficiary per year ($26,000 if donor is married) • Update Beneficiary Designations • Execute Wills • Create Trusts Grantor Trustee Beneficiary Intervivos/Testamentary Bypass and Disclaimer Trusts & Wills •Don’t just leave it all to your spouse •Permit Segregation of Portion of Estate for Next Generation in order to Minimize Estate Tax •Automatic Creation of Credit Shelter Trust or Discretionary Creation of Disclaimer Trust Life Insurance Trusts •Many people own large term life insurance policies •Life insurance is subject to estate tax (but does not go through probate) •Benefits of a Life Insurance Trust •Proper administration of a Life Insurance Trust Still Having Estate Tax Issues? Family LLCs G Generation-Skipping Trusts Charitable Trusts The Estate Planning Process •Complete Estate Planning Questionnaire • Initial meeting with attorney • Draft estate planning documents • Review and revise drafts • Update titles and beneficiary designations • Final meeting with attorney to sign documents • Review and update estate plan every 3-5 years • Cost – Flat Fee Questions and Answers Jane Frankel Sims, Esquire Law Office of Jane Frankel Sims, LLC Bare Hills Corporate Center 1425 Clarkview Road, Suite 840 Baltimore, Maryland 21209 410.828.7775 p. 410.828.7779 f. [email protected]