Transcript Registered ParaplannerSM Professional Education Program

Foundations In Financial PlanningSM Professional
Education Program
Module 10
Estate Planning
©2012, College for Financial Planning, all rights reserved.
Learning Objectives
10–1: Define terms relating to estate planning.
10–2: Identify techniques to facilitate estate
transfers.
10–3: Identify expenses associated with estate
transfers and techniques to reduce such
expenses.
10–4: Identify techniques to plan for incapacity.
5-2
Questions To Get Us Warmed Up
10-3
Basic Terminology
•
•
•
•
•
Estate
Estate planning
Property interest
Real property
Personal property
o tangible
o intangible
• Taxes
o estate
o inheritance
• Stepped-up basis
•
•
•
•
•
•
•
•
Will
Decedent
Beneficiary
Testate vs. intestate
Probate
Executor vs.
administrator
Personal
representative
Will substitutes
10-4
Estate Property Distribution
Estate
At death, an estate is created.
Property is then distributed
either:
Through probate via:
Outside probate via:
• Will
• State intestacy laws
• Trusts
• Right of survivorship
• Beneficiary designation
Note that probate affects only the distribution of property; taxation of estate property
(whether distributed through probate or outside probate) is an entirely different matter.
10-5
Wills: Strengths
• Direct distribution of assets to specified beneficiaries in
•
•
•
•
proper form and amount
Nominate a personal representative
Nominate a guardian for minor children
Reduce estate tax by making transfers that qualify for
the marital and charitable deductions
Revocable until death
10-6
Wills: Weaknesses
• Statutory rights that take priority
•
•
o homestead, personal property, and family
allowances
o spousal right to elect against the will
o limit on amount that can go to charity
May be interpreted differently in another state
Does not affect property held in will substitute
form
10-7
Intestate Succession Statutes
• Only specified blood relatives usually inherit.
• If decedent was survived by a spouse and
•
•
•
children, these will inherit to the exclusion of
other relatives.
Surviving spouse may inherit entire intestate
estate if decedent had no surviving children, or
if the decedent’s surviving children are the only
surviving children of the surviving spouse.
Cannot give income to one heir
and remainder to another.
Estate tax planning is not possible.
10-8
Estate Transfer Tools
• Probate
•
o wills
o intestacy statutes
Will substitutes
o property ownership
• joint tenancy with right of survivorship
• tenancy by the entirety
o transfers by contract (beneficiary
designation)
10-9
Will Substitutes Using Beneficiary Designations
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•
•
•
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•
Life insurance
Payable on death (P.O.D.) designations
Transfer on death (T.O.D.) designations
Inter vivos trusts
Employee benefit plans
IRAs
10-10
Estate Transfer Tools: Trusts
• Elements
o grantor, trustor,
settlor
o trustee
o beneficiary
o corpus, res, principal
o fiduciary relationship
• Categories
o
o
o
o
inter vivos
testamentary
revocable
irrevocable
• Roles
o management of
assets
o accumulate income
o allow enjoyment of
assets by different
beneficiaries at
different times
o asset protection
o tax savings
o combine
administration of
assets
o avoid probate
10-11
Types of Trusts
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•
•
•
•
•
•
Bypass trust
Contingent (standby) trust
Section 2503(c) minor’s trust
Grantor retained interest trust
o GRIT
o GRAT
o GRUT
o QPRT
Irrevocable life insurance trust (ILIT)
Marital deduction trust
Pourover trust
10-12
Estate Transfer Tools: Gifts
• Outright gift
• Custodial account
•
o (UTMA/UGMA)
o Section 529 Plan
o Coverdell Education Savings Account
(Education IRA)
Gift in trust
10-13
Estate Transfer Expenses
• Gift tax
o
o
o
o
annual exclusion
($13,000)
gift splitting
unlimited charitable
deduction
unlimited marital
deduction
• Generation-skipping
transfer tax
o
o
o
exemption (same amount
as estate tax applicable
exclusion amount)
skip person
highest estate tax rate
• Estate tax
o
o
o
o
gross estate
applicable credit amount
unlimited marital
deduction
unlimited charitable
deduction
10-14
Federal Transfer Tax Exemptions & Credits, 1987–2012
Gift Tax
1987-1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Estate Tax
Exclusion
Amount*
$600,000
$625,000
$650,000
$675,000
Credit
Amount**
$192,800
$202,050
$211,300
$220,550
Exclusion
Amount*
$600,000
$625,000
$650,000
$675,000
Credit
Amount**
$192,800
$202,050
$211,300
$220,550
$1,000,000
$345,800
$1,000,000
$345,800
$1,500,000
$555,800
GSTT Exemption
$1,000,000
$1,000,000
$1,010,000
$1,030,000
$1,060,000
$1,100,000
$1,120,000
$1,500,000
$2,000,000
$780,800
$2,000,000
$3,500,000
$5,000,000**
*
$5,000,000
$5,120,000
$1,455,800
$1,730,800***
$3,500,000
$5,000,000***
$1,000,000
$330,800
$5,000,000
$5,120,000
$1,730,800
$1,772,800
*Formerly known as the *“exemption equivalent” and **“unified credit”
$1,730,800
$1,772,800
$5,000,000
$5,120,000
***In 2010, EGTRRA repealed the Estate and GST Taxes, but not the Gift Tax; TRA 201 reinstated estate and GSTT at amounts shown
11-15
Unified Federal Estate & Gift Tax Rates
If the amount is:
Over Col.
(A)
0
$10,000
20,000
40,000
60,000
80,000
100,000
150,000
250,000
500,000
But not over Col.
(B)
$10,000
20,000
40,000
60,000
80,000
100,000
150,000
250,000
500,000
…..
Tax on Col.
(A)
0
$1,800
3,800
8,200
13,000
18,200
23,800
38,800
70,800
155,800
Rate on
excess over
Col. (A)
18%
20%
22%
24%
26%
28%
30%
32%
34%
35%
11-16
Incapacity Planning
• Property management
•
o conservator (guardian of property)
o durable power of attorney
o revocable living trust
o contingent (standby) trust
Medical care
o living will
o durable power of attorney for health care
(medical proxy)
10-17
Medicaid Planning
• Qualification Tests
• Medical
•
•
o over age 65
o blind or disabled
o ADLs
o supervision
Income
o 300% of the maximum
SSI benefit
Resources
o $2,000
10-18
Medicaid Planning
• Exempt resources
• Primary residence ($500,000)
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•
•
•
•
o spouse or dependent continues to reside
o applicant or spouse intends to return
Personal property
Vehicles (state mandated maximum unless medically
necessary or for employment)
Life insurance (maximum limits determined by states)
Annuities (actuarially sound and immediate)
Burial insurance (maximum limits determined by states)
10-19
Medicaid Planning
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•
•
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Transfer of assets is to become eligible.
There is a five-year look back period for income or resources
that were transferred for less than FMV.
Transfers result in period of ineligibility measured by the
amount of the transfer divided by the average monthly cost
of
nursing home care in the region in which application is made
as of the application date.
Ineligibility begins at the later of
o the first day of the month in which the transfer was
made, or
o the first day the applicant is receiving services in a
nursing home and the applicant is eligible for Medicaid
but for the transfer.
10-20
Medicaid Planning
Exempt Transfers
• between spouses
• to a Medicaid exempt trust
• transfer of a home to
the applicant’s child who is blind, or permanently and totally disabled,
or to a sibling who has an equity interest in the home and who
resided in the home for at least one year immediately before the
applicant enters the nursing home; or
o a son or daughter who had resided in the home for at least two years
immediately before the applicant enters the nursing home and who
provided care that enabled the applicant to reside at home rather
than going to a nursing facility, which must be established by a
written statement from the applicant’s doctor
transfers to purchase an actuarially sound, irrevocable and non-assignable,
immediate annuity
o
•
•
transfers to purchase a life estate in another person’s home if the
purchaser actually lives in the home for one year after the purchase
10-21
Medicaid Planning
Medicaid Exempt Annuities
• The annuity must have been purchased from a life insurance
company or other commercial company.
• The annuity must begin payments immediately.
• The annuity must be designed to pay out completely during
the recipient’s life expectancy.
• The annuity must make substantially equal payments over
the life of the annuity.
• The annuity must name the state as the first death
beneficiary (at least up to the Medicaid benefits paid during
the recipient’s life) unless the recipient has a spouse or minor
or disabled child, when the spouse or child may be named
the first death beneficiary
with the state taking second position.
10-22
Medicaid Planning
Trusts
•
special needs trust, supplemental needs trust, or a disability trust
Contains assets of an individual who is disabled as defined in §1382c(a)(3) SSA
trust must be established for the benefit of the individual by a parent,
grandparent, or legal guardian of the applicant
o
state will receive amounts remaining in the trust upon death of applicant
“Miller trust” or a “Utah gap trust”
o
o
•
funded with pension, Social Security, and other income of the applicant
individual’s income exceeds the income cap, but does not exceed the average
cost of nursing home care in the applicable region
o
state receives all amounts remaining in the trust upon death of applicant
“pooled trust”
o
o
•
o
o
o
o
o
Contains assets of an individual who is disabled as defined in §1382c(a)(3) SSA
established and managed by a non-profit association
a separate account is maintained for each beneficiary of the trust
accounts are established solely for the benefit of a named individual by the
individual’s parent, grandparent, legal guardian, or by a court
at a beneficiary’s death, amounts remaining in his or her account are either
retained by the trust, or are paid to the state in an amount that does not
exceed the medical assistance paid for the benefit of the individual by the state
10-23
Question 1
Yolanda set up a trust that provides her daughter,
Diana, with mandatory income payments at least
annually, with the remainder to Diana’s only child,
Michael. The trust is managed by Quentin.
Quentin can be described as a
a. grantor.
b. fiduciary.
c. beneficiary.
d. testatrix.
10-24
Question 2
Which one of the following is a characteristic of
property owned as joint tenants with right of
survivorship (JTWROS)?
a. Each joint tenant has an equal and undivided
interest in the entire property unless otherwise
stated.
b. This form of property ownership can be used only by
a husband and wife.
c. Property held in this form must pass through
probate.
d. Property held in this form can be transferred by an
appropriate will provision.
10-25
Question 3
Which of the following are examples of
administrative expenses of a decedent’s estate?
I. legal fees
II. valuation expenses
III. charitable donations
IV. accounting fees
a. I and IV only
b. II and III only
c. I, II, and IV only
d. I, II, III, and IV
10-26
Question 4
Which one of the following statements is correct
regarding the estate tax charitable deduction?
a. It is limited in amount.
b. Property must be given to a qualified charity.
c. Property must be given in the form of a
charitable remainder trust.
10-27
Question 5
Which of the following statements regarding durable
powers of attorney are correct?
I. The agent’s authority does not cease when the
principal becomes incapacitated.
II. The agent’s authority may be immediate or springing.
III. It allows the competency hearing associated with a
conservatorship to be avoided.
IV. Some financial institutions may be hesitant to
recognize the agent’s authority.
a. I and III only
b. II and IV only
c. I, II, and IV only
d. I, II, III, and IV
10-28
Foundations In Financial PlanningSM Professional
Education Program
Module 10
End of Slides
©2012, College for Financial Planning, all rights reserved.