Transcript Chartered Retirement Planning CounselorSM Professional

CERTIFIED FINANCIAL PLANNER CERTIFICATION
PROFESSIONAL EDUCATION PROGRAM
Estate Planning
Module 8
Estate Planning for
Special Situations:
Incapacity, Family
Arrangements &
Selecting Fiduciaries
©2013, College for Financial Planning, all rights reserved.
Learning Objectives
8–1 Identify the characteristics or the advantages and disadvantages of
specific estate planning techniques for managing an incompetent
person’s personal and financial affairs.
8–2 Identify the characteristics or the advantages and disadvantages of
specific estate planning techniques used to provide for an
incompetent person’s medical and end-of-life needs.
8–3 Explain the estate planning issues associated with selected variations
in traditional family arrangements or the advantages and
disadvantages of specific estate planning techniques in addressing
such issues.
8–4 Explain the estate planning issues associated with cohabitation or
nontraditional family arrangements or the advantages and
disadvantages of specific estate planning techniques in addressing
such issues.
8–5 Identify factors that should be considered when selecting a fiduciary
such as a trustee, guardian, conservator, or personal representative.
8-2
Questions to Get Us Warmed Up
8-3
Learning Objectives
8–1 Identify the characteristics or the advantages and disadvantages of
specific estate planning techniques for managing an incompetent
person’s personal and financial affairs.
8–2 Identify the characteristics or the advantages and disadvantages of
specific estate planning techniques used to provide for an
incompetent person’s medical and end-of-life needs.
8–3 Explain the estate planning issues associated with selected variations
in traditional family arrangements or the advantages and
disadvantages of specific estate planning techniques in addressing
such issues.
8–4 Explain the estate planning issues associated with cohabitation or
nontraditional family arrangements or the advantages and
disadvantages of specific estate planning techniques in addressing
such issues.
8–5 Identify factors that should be considered when selecting a fiduciary
such as a trustee, guardian, conservator, or personal representative.
8-4
Incompetency Planning
Planning Techniques
for a Non-Minor’s
Financial Affairs
• joint convenience checking
account
• durable power of attorney
• funded revocable living
trust
• contingent (standby)
revocable trust plus a
springing durable
power of attorney
• special needs trust
8-5
Incompetency Planning
Joint Convenience
Checking Account
• Additional cosigner is placed on
account to help depositor pay bills.
•
State law may specifically authorize
such accounts without giving new
cosigner a right of survivorship in
account or power to use funds for own
benefit.
•
Only original depositor is taxed on
account income .
•
No gift tax unless new cosigner uses
funds for own benefit.
•
Account balance at death included in
depositor’s gross estate.
•
Account balance disposed of by will or
intestacy laws if no right of
survivorship in new cosigner.
8-6
Incompetency Planning
Durable Power of Attorney
• execution of document by a
competent person granting authority
to another to perform stated acts on
behalf of the principal; document is
revocable while principal is
competent
• authority granted may be limited or
general
• authority of attorney-in-fact will
survive incompetency of principal,
but not principal’s death
• authority of attorney-in-fact may be
immediate or springing
8-7
Video
• Play Video
• Hercules Power
•
•
of Attorney
1:05 minutes
Play video from
Video Layout
Text chat or
other questions
8-8
Incompetency Planning
Funded Revocable Living Trust
• revocable trust is created by competent grantor
• trust is funded with grantor’s property
• grantor is often named as initial trustee
• trust contains provisions for operation prior to grantor’s
incompetency, and different provisions for operation after
grantor becomes incompetent; trust remains revocable
during incompetency to prevent completed gift and possible
gift tax
• trust must state how grantor can be found incompetent
• grantor ceases to be trustee when he or she becomes
incompetent
8-9
Incompetency Planning
Contingent (Standby) Trust
With Springing Durable
Power of Attorney
• grantor simultaneously executes
revocable living trust and springing
durable power of attorney
• trust is not funded unless and until
grantor becomes incompetent
• trust and springing durable power of
attorney must contain provisions stating
conditions under which grantor will be
deemed to be incompetent
8-10
Incompetency Planning
Special Needs Trust
Support/Supplemental Needs Trust
• grantor executes and funds irrevocable trust
for the benefit of someone else dependent on
the grantor (children or elderly parents)
• grantor is planning for continued care of such
dependents if grantor becomes incompetent
• discretionary distributions to prevent loss of
government benefits (Medicaid, SSI, SSDI)
• funding of trust will subject grantor to gift tax
• whether income is taxed to grantor and
whether trust assets are included in grantor’s
gross estate will depend on whether grantor
has retained certain powers over or interests
in trust assets (such as a right of reversion)
8-11
Incompetency Planning
Planning for Medical
Decisions
• living will
• do not resuscitate (DNR)
orders
• appointing another person:
o proxy appointment
o durable power of attorney
for health care (DPOAHC)
o general durable power of
attorney
8-12
Incompetency Planning
Medical Decisions
Living Wills
• Must be executed in accord with
•
•
•
•
state law while patient still
competent.
Apply only when patient is terminally
ill and incapable of giving informed
consent to medical treatment.
State law may limit procedures
that can be addressed.
Contents of living will must be
communicated to medical
services provider.
Effectiveness may vary from
state to state.
8-13
Incompetency Planning
Medical Decisions
Durable Power of Attorney for Health Care
(DPOAHC)
• While competent, patient appoints another to make
medical decisions on patient’s behalf.
• May be allowed under either state statute or common
law.
• Document must be executed according to formalities
required by law.
• Patient does not have to be in terminal or comatose
condition; patient must simply be incapable of giving
informed consent.
8-14
Incompetency Planning
Medical Decisions
Do Not Resuscitate (DNR) Orders
• May be a specific state statute that must be followed; if
•
•
•
no state statute, each hospital may have its own
protocol.
Allows patient, while competent, to make decision to
refuse emergency resuscitation for pulmonary failure.
Patient’s living will may be used
as DNR order in some states.
Order must be communicated
to medical services
provider.
8-15
Medicaid Planning
Qualification Tests
• Medical
•
•
o over age 65
o blind, or
o Disabled
o Activities of daily living (ADL)
o Need for supervision
Income
o 300% of the maximum SSI benefit
Resource
o $2,000 (may vary by state)
8-16
Medicaid Planning
Exempt Resources
• Primary Residence ($500,000 base amount; indexed)
o spouse or dependent continues to reside
o applicant or spouse intends to return
• Personal Property
• Vehicles
• Life Insurance
• Annuities (actuarially sound and immediate)
• Burial Insurance
• Note: Maximum value limits are imposed by state law
in most categories; amounts vary by state.
8-17
Medicaid Planning
Transfer of Assets to Become Eligible
• 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 the first day
of the month in which the transfer was made,
or the first day the applicant is receiving
services in a nursing home and the
applicant is eligible for Medicaid
but for the transfer
8-18
Medicaid Planning
Exempt Transfers
• between spouses
• to a Medicaid exempt trust
• transfer of a home to
•
o 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
• 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
8-19
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.
8-20
Trusts Used in Medicaid Planning
Special Needs Trust or a Disability Trust
 contains the 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
 state will receive amounts remaining in the trust upon death of applicant
“Miller Trust” or a “Utah Gap Trust”
 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
 state receives all amounts remaining in the trust upon death of applicant
“Pooled Trust”
contains the 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
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8-21
Question 1
Which one of the following statements
regarding a conservatorship is not true?
a. The conservator is subject to the jurisdiction
of a court.
b. The conservator has authority to decide
where the ward will live.
c. The conservator may have to
post a bond.
d. The conservator will likely
have to file reports with a court.
8-22
Question 2
All of the following are parties that may be
involved in a court-ordered guardianship except
a. a ward or protected person.
b. a guardian or
conservator.
c. a trustee.
d. the state.
8-23
Question 3
All of the following are techniques commonly
used to preplan for management of a nonminor’s assets except
a. a funded revocable living trust.
b. a living will.
c. a durable power of attorney.
8-24
Question 4
Which one of the following statements
regarding powers of attorney is incorrect?
a. The authority of the attorney-in-fact will
survive the principal’s incompetency.
b. Actions taken by the attorney-in-fact
pursuant to the terms of the instrument
creating the power are legally binding on the
principal.
c. The authority of the attorney-in-fact can
vest immediately, upon execution of the
power of attorney, or it may not vest until
certain circumstances occur.
8-25
Question 5
Which one of the following statements regarding
durable powers of attorney for health care
(DPOAHC) is incorrect?
a. The decisions of the attorney-in-fact must be
followed by health care providers even if such
decisions differ from those expressed by the
principal while competent.
b. The authority of the attorney-in-fact can be
exercised even when the principal is not in a
terminal or chronic condition.
c. The attorney-in-fact may be authorized to do
more than simply make decisions regarding
medical treatment.
8-26
Question 6
Suppose a patient has not made his or her wishes
regarding medical treatment known before he or she is
no longer capable of giving informed consent to receive
or withhold medical treatment.
Which one of the following statements is not correct?
a. State statutes may authorize someone to make
medical decisions for the patient.
b. State statutes require all medical decisions to be
made by the patient’s doctor.
c. If someone other than the patient’s doctor makes
decisions, they must be made according to what the
patient would have desired.
8-27
Question 7
Living wills are usually applicable only when the
declarant is in a terminal or similar condition.
True
False
8-28
Question 8
All of the following are ways that a person who desires
to preplan for medical decisions can appoint someone
to make medical decisions for him or her in the event
he or she becomes incompetent except
a. appoint a health care proxy in a document allowed
by state law.
b. appoint a health care proxy in an independent
durable power of attorney for health care document.
c. appoint a health care proxy in a durable power of
attorney that gives the attorney-in-fact authority to
make medical decisions.
d. appoint a health care proxy in a last will and
testament.
8-29
Learning Objectives
8–1 Identify the characteristics or the advantages and disadvantages of
specific estate planning techniques for managing an incompetent
person’s personal and financial affairs.
8–2 Identify the characteristics or the advantages and disadvantages of
specific estate planning techniques used to provide for an
incompetent person’s medical and end-of-life needs.
8–3 Explain the estate planning issues associated with selected variations
in traditional family arrangements or the advantages and
disadvantages of specific estate planning techniques in addressing
such issues.
8–4 Explain the estate planning issues associated with cohabitation or
nontraditional family arrangements or the advantages and
disadvantages of specific estate planning techniques in addressing
such issues.
8–5 Identify factors that should be considered when selecting a fiduciary
such as a trustee, guardian, conservator, or personal representative.
8-30
Variations of Traditional Families
Documents to be reviewed during a divorce:
• will
• trusts (revocable or irrevocable)
• financial powers of attorney
• medical powers of attorney
• property titled in joint tenancy with right of survivorship
• beneficiary designations
on: life insurance, IRAs,
pensions, annuities,
bank and brokerage
accounts
8-31
Variations of Traditional Families
Protecting rights to another person’s pension
benefits:
• former spouse, child, or other dependent of the plan
participant can secure a qualified domestic relations order
(QDRO)
• QDRO requires state court to find and order that receipt of
all or part of participant’s plan benefits is necessary to secure
his obligation to pay child support, alimony, or marital
property rights
• distributions are subject to
income tax; if distributed
to a spouse or former
spouse, benefits may
be rolled over
8-32
Variations of Traditional Families
QDRO Content
• specifies alternate payee’s interest in plan benefits
• cannot require provision of benefit or option not allowed
by the plan, including acceleration of benefits
• alternate payee’s interest may be
o distributed directly to the alternate payee
o distributed to an IRA owned
by the alternate payee
o segregated until plan
participant reaches
retirement age, then
distributed in
periodic payments
8-33
Variations of Traditional Families
Alien Spouses
When the taxpayer (donor/decedent) spouse is:
• a resident alien: property subject to transfer tax by a
U.S. citizen is also subject to transfer tax
• a nonresident alien: only transfers of real and tangible
personal property situated in the U.S. are subject to
transfer tax
When the recipient (donee/beneficiary) spouse is:
• a resident alien or a nonresident alien: the unlimited
marital deduction is unavailable, but a
“super” annual gift tax exclusion is
available for lifetime gifts of a present
nonterminable interest
8-34
Variations of Traditional Families
Alien Spouses
Estate Tax Deductions
• if a death time transfer is to an alien spouse, unlimited
marital deduction is unavailable unless property is
placed in a qualified domestic trust (QDT or QDOT)
• charitable deduction—not available if decedent was a
nonresident alien unless transfer is to a domestic entity
or for use in the U.S., or allowed by tax treaty
• credit amount—$13,000 if decedent was a nonresident
alien; $46,800 maximum if
decedent was a citizen of a U.S.
possession
8-35
Variations of Traditional Families
Alien Spouses
QDOT (or QDT) Requirements
• Trust must be either a power of appointment, QTIP,
CRAT, CRUT, or estate trust.
• Trust instrument must require that
o At least one trustee be a U.S. citizen or corporation.
o Distribution of corpus cannot be made unless a U.S.
Trustee has the right to withhold federal estate tax.
• The decedent’s personal representative elects QDOT
treatment on the federal estate tax return.
• When alien spouse dies or trust ceases to
meet QDOT requirements, estate tax is
also imposed and collected.
8-36
Variations of Traditional Families
Alien Spouses
Super Annual Exclusion for Gifts to an Alien Spouse
• amount—$100,000 (indexed)
• requirements:
o must be a completed gift of a present interest
o gift must not be of a terminable interest
Other Gift Tax Deductions
• gift splitting—not allowed if either spouse is a nonresident alien
• annual exclusion—available to nonresident alien donor under same
rules as for a U.S. citizen
• charitable gift tax deduction—available
only for transfers to a domestic entity or
for use in the U.S.
• applicable credit amount—not available
to a nonresident alien donor
8-37
Nontraditional Family Arrangements
Planning issues to be addressed:
• clarifying ownership and responsibility for
obligations regarding property owned or purchased
• ensuring distribution of property at death to
nonrelatives
• eliminating or minimizing transfer
taxes without benefit of gift
splitting and the marital deduction
• allowing nonrelatives to have
control of medical and end-of-life
decisions
8-38
Nontraditional Family Arrangements
The Need for Planning
Distribution Purposes
• because intestacy laws favor only spouses and relatives
• available techniques
o bequests by will
o will substitutes such as P.O.D., and T.O.D.
designations and trusts
Taxation Purposes
• because of unavailability of
o gift splitting
o gift tax marital deduction
o estate tax marital deduction
8-39
Nontraditional Family Arrangements
Tax Planning Techniques
Lifetime strategies
• lifetime gifts to take advantage of the annual exclusion
and reduce the gross estate
• convert solely owned property to tenancy in common
Death-time strategies
• leave property to cohabitant
in will
• charitable bequests
• name cohabitant as
beneficiary of life insurance
8-40
Nontraditional Family Arrangements
Medical Treatment & Funeral Arrangements
Available Techniques
• living will regarding desired medical treatment
• durable power of attorney for health care; cohabitant
must be named as agent since laws favor relatives
• visitation during medical treatment; cohabitant must be
given this right as laws, or hospital protocols may
mention only relatives
• funeral arrangements and disposition
of remains; give cohabitant authority
to make decisions, or preplan
everything to avoid laws that give
authority only to relatives
8-41
Question 9
The alternate payee’s interest in retirement plan
benefits subject to a qualified domestic
relations order (QDRO) may be distributed in all
of the following ways except
a. directly to the alternate payee.
b. to an IRA owned by the alternate payee.
c. in periodic payments to the alternate
payee after the plan participant reaches
retirement age.
d. to another person instead of the alternate
payee.
8-42
Question 10
Which one of the following statements regarding planning for
adopted children is incorrect?
a. If the laws of intestate succession apply to the estate of
a person who adopted a child, the adopted child will
receive a share equal to that of the deceased parent’s
natural children.
b. In a step parent situation (where the step parent has not
adopted the step child) holding property in joint tenancy
with right of survivorship (JTWROS) between the
spouses is a good way to ensure that the child will not
be disinherited.
c. If an adopting parent’s spouse (who is not also a natural
parent of the adopted child) has not also adopted the
child, the adopting parent must take special care to
ensure that the adopted child is not disinherited.
8-43
Question 11
Which one of the following statements
regarding qualified domestic trusts (QDOTs or
QDTs) is incorrect?
a. The trust must be one that would qualify for
the marital deduction if the recipient spouse
were a U.S. citizen.
b. The trustee or trustees must all be U.S.
citizens or corporations.
c. The personal representative of the estate of
the first spouse to die must elect on the
estate tax return to have the trust treated as
a QDOT.
8-44
Question 12
Which one of the following statements
regarding alimony payments to a former spouse
is incorrect?
a. The payments are income to the former
spouse who receives them.
b. The payments are not deductible by the
former spouse who pays them.
c. If payments are made through an alimony
trust, the payments are income to the
former spouse who receives them.
8-45
Question 13
Which one of the following statements
regarding the super annual exclusion available
for gifts to a noncitizen spouse is incorrect?
a. It can exclude a base amount of $100,000
(indexed annually for inflation) of transfers
to an alien spouse every year.
b. It applies only to gifts of a present interest.
c. It applies to any gift made to an alien
spouse.
8-46
Question 14
All of the following are estate planning
strategies that are not available to unmarried
cohabitants except
a. gift splitting.
b. the marital deduction.
c. the charitable deduction.
d. making the QTIP election.
8-47
Question 15
Which one of the following statements regarding tax
planning techniques for unmarried cohabitants is
incorrect?
a. Converting solely owned property to tenancy in
common property between unmarried cohabitants
will ensure that the surviving cohabitant will
eventually own the entire property.
b. Outright transfers between unmarried cohabitants
entitle the donor to an annual exclusion.
c. Having life insurance death benefits available for
estate liquidity may be particularly important for
an unmarried cohabitant.
d. Unmarried cohabitants cannot split gifts.
8-48
Question 16
Which one of the following statements comparing the
use of an institution rather than a family member as a
fiduciary is incorrect?
a. An institutional fiduciary often will have greater
financial management expertise than will an
individual fiduciary.
b. An institutional fiduciary is likely to provide more
continuity of management than is an individual
fiduciary.
c. An institutional fiduciary is more likely than an
individual fiduciary to be familiar with the individual
beneficiaries involved and the desires of the testator
or grantor of the trust.
8-49
CERTIFIED FINANCIAL PLANNER CERTIFICATION
PROFESSIONAL EDUCATION PROGRAM
Estate Planning
Module 8
End of Slides
©2013, College for Financial Planning, all rights reserved.