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Estate Planning 101
- 1. Sun City West, AZ Estate Planning 101 Law Office of Dennis Caufield, LLC
- 2. “ What is an “Estate?” Insurance Policies Cash Stocks Jewelry IRA’s Investments Your Home Income Properties Automobiles Antiques Bonds &
- 4. When Should You Plan Your Estate? Today Mental Incapacity Catastrophic Illness Death Your Planning Opportunity Living Trust Will Living Will Powers of Attorney
- 9. #1 Mistake Failing to Address Health Care Decisions
- 10. Online Storage of Healthcare Documents Free Service Offered by the Arizona Secretary of State Visit www.azsos.gov/adv_dir
- 11. #2 Mistake Failing to Plan for HIPAA (Access to Medical Records)
- 12. #3 Mistake No plan to control financial & property matters during incapacity
- 13. No Wealth Transfer Strategy #4 Mistake
- 15. #5 Mistake Failure to Understand & Plan For Death Taxes
- 16. Federal Estate Tax YEAR EXCL. AMT. TOP TAX RATE 2001 $675,000 55% 2002-2003 $1,000,000 49-50% 2004-2005 $1,500,000 47-48% 2006-2008 $2,000,000 45-46% 2009 $3,500,000 45% 2010 Full Repeal N/A 2011-2012 $5,000,000 35% 2013 $1,000,000 55%
- 17. #6 Mistake Thinking Children – Minor And Adult – Don’t Need Inheritance Protection
- 19. #7 Mistake Failing to Transfer “ Values”
- 20. #8 Mistake Not Preserving Tax Deferral Benefits of Retirement Plans
- 21. HUGE LOSS When Your IRA is Cashed-out Early and Spent! Assumes $100,000 at age 40 earning 6% and Child fully withdraws and must pay the tax due A difference of over $ 400,000 on a $100,000 IRA!
- 22. Still a BIG LOSS When Your IRA is Cashed-out Early and Invested! Assumes $100,000 at age 40 earning 6% and Child fully withdraws and must pay the tax due A difference of over $ 300,000 on a $100,000 IRA!
- 23. #9 Mistake Failing to Organize and Consolidate
- 24. #10 Mistake In 2nd marriages, failing to protect your spouse, and your kids
- 25. #11 Mistake Failing to Plan for Tangible Personal Property
- 26. #12 Mistake Failing to Name a Guardian for Minor or Incapacitated Children
- 27. #13 Mistake Believing Estate Planning is a “One-Time Event”
- 28. Where Do You Go From Here?
Hinweis der Redaktion
- Thank you for taking the time to view this presentation! This slide show is adapted from my seminar, Estate Planning 101. If you would like to participate in a more comprehensive learning opportunity, you may R.S.V.P. to attend the Estate Planning 101 seminar free of charge on the first Wednesday of each month at my Sun City West office. 70% of Americans have no Will or Trust; sometimes the consequences of inaction are tragic as I will illustrate within.
- What is an estate? Your estate is everything you own. For most people, when they start adding it up it is more than they think. It includes all of your assets, including life insurance policies, retirement accounts and personal property.
- Before we begin I would like you to keep in mind three basic keys to estate planning: Maintaining control during incapacity, quick and cost effective wealth transfer at death, and protecting beneficiaries from themselves and others.
- These are the stages of life and estate planning documents that can protect you during those various stages. The best time to plan your estate is now , while you are competent to plan for yourself. With Estate Planning, there is no second chance. Once you are incapacitated, that window for planning is forever closed. None of us likes to think about our own mortality or the possibility of becoming incapacitated. And that's exactly why so many families are caught off guard and unprepared when incapacity or death strikes. If someone needs to manage your affairs after you are incapacitated, the failure to have proper estate planning will require that someone apply to the Court to appoint a conservator and/or guardian. These proceedings will generally cost more than $5,000 and could result in a stranger managing your affairs.
- The 2 main forms of estate planning are a Will-based plan or a Trust-based plan. Joint ownership and beneficiary designations are often used with less success.
- A Will-based plan passes your assets to your beneficiaries via a Will. A Will is effective only upon your death. Like a Trust-based plan, a Will-based plan includes a Financial Power of Attorney, Healthcare Power of Attorney, Living Will and HIPAA Authorization. The primary drawback to a Will is that it does not avoid Probate . While the Probate process is not as costly in Arizona as some other states like California, it still has significant drawbacks. Unlike a Trust, a Will does not avoid the hassles of Court oversight, filing fees, time delay and the loss of privacy as a Will becomes a public document and meanders through the probate process.
- This is the technical definition. But, I promised you no legalese and just plain English.
- A Trust is a receptacle, illustrated here by this bucket, which has instructions for the management and distribution of the assets that you place in the bucket. There are 3 main parties to a Trust. Ordinarily during your lifetime, prior to incapacity, the Grantor(s) will serve in all 3 of these roles. Grantor - Creator of the Trust. With the aid of an attorney, sets the instructions as to what can be done with assets in the Trust. The Grantor retains the right to amend or revoke the Trust. Trustee- T he person who manages the property in the Trust. Beneficiary - The person who receives the benefit of the property held in the Trust. The Grantor will name the people or institutions who will serve as successor Trustees and successor Beneficiaries. This allows for a smooth transition of estate management upon death or incapacity. Next, I will present 13 mistakes commonly found in Estate Planning.
- The reality is that 85% of deaths occur in hospitals and nursing homes. Prudent planning addresses the possibility that healthcare decisions affecting your life may one day need to be made by others. A Health Care Power of Attorney will name the person and successors that you want to carry out your wishes. In Arizona, you should also have mental healthcare powers incorporated into this document. A Living Will gives your instructions as to the level of treatment you want in various crisis healthcare scenarios. While planning is important to ensure that your wishes are carried out, another important benefit is that healthcare planning is a gift to your loved ones. Perhaps the person making the decisions on your behalf is not sure what you would have wanted and is burdened with tremendous guilt and stress regarding the decision. Maybe family remembers will not agree as to the decision, leaving your fate in limbo while the disagreement causes a family split and possible legal action. Indeed, healthcare planning is a gift to your loved ones that ensures that your health crisis or passing is not coupled with other unnecessary hardships.
- How do I register my Healthcare Power of Attorney and Living Will with the Arizona Secretary of State? This free service provides ready access to your healthcare documents for convenience and in times of emergency when these documents could not otherwise be readily accessed. Simply complete the Arizona Secretary of State’s “Registration Agreement” and mail that completed document along with a copy of your Healthcare Power of Attorney and Living Will to the address on the form. After approximately 3 weeks, you will receive a wallet-sized membership card with a user name and password that will enable access to your healthcare documents. For more information, please contact the Arizona Secretary of State at 602.542.6187 or www.azsos.gov .
- Changes in law that have arisen as part of the Health Insurance Portability and Accountability Act restrict access to your medical records and information to your loved ones and all others absent your specific consent. Make sure that you have executed a HIPAA authorization granting your loved ones the ability to have access to your health care providers.
- Recently, I was contacted by a woman who wanted to know how her Mom could transfer real estate owned by her Mom and Dad as Community Property. She advised me that her Dad was incapacitated and had never done any estate planning. I had to give her the unfortunate news that a Court proceeding would be necessary to transfer the property. It would cost thousands of dollars, and the Court would appoint a Conservator and retain ongoing oversight of his financial affairs. Now that her Dad was incapacitated, he had missed the window of opportunity to make an estate plan that would have put him in control of his own affairs. Proper estate planning allows you to make the decision as to who will manage your affairs when you are incapacitated, free from Court intervention and Court costs. Furthermore, you can create legal documents, such as a Revocable Living Trust and a Financial Power of Attorney, that leave binding instructions to those who will manage your assets.
- Many people have either no wealth transfer strategy, or they have a hodgepodge, disjointed plan that passes some assets via beneficiary designations, joint tenancy and only limited assets via the will or trust. The titling of assets is of vital importance. For example, a widowed Mom had a Will that left everything equally to all 3 of her children. However, she had 1 large bank account that she titled as a joint account with her oldest son. Upon her death, that account passed to the oldest son. Only the balance of the inheritance (that was not passed by means of a joint account or beneficiary designation) passed in equal shares to the 3 children. This resulted in lingering hard feelings among the children as to whether or not it was Mom’s true intention to leave that account solely to the oldest son. A good plan integrates planning for all of your assets in a concerted plan. This ensures that distributions are made in the amounts and manner that you intend.
- If you die without an estate plan, the State of Arizona has a plan for you : the intestacy laws of the state of Arizona. The Arizona intestacy laws pre-suppose that the person who died without an estate plan would choose relatives that are commonly chosen as heirs. These laws make no allowance for your unique circumstances. Additionally, they allow heirs to take outright ownership at age 18. The concern with outright distributions will be demonstrated later in this presentation.
- If your estate exceeds the federal exclusion amount, it is taxed at a very high rate as the following slide shows. Married couples can easily double their exclusion with the use of a credit shelter trust. Additionally, there are other trusts and planning techniques to further reduce estate taxes.
- The federal estate tax exclusion is now set at $5,000,000.00. As the chart above demonstrates the exclusion amount is not static, but subject to change. It has increased greatly over the last decade. The most recent legislation in December 2010 cover the years 2011 and 2012. However, the exclusion will revert to $1 million in 2013 without further legislation. It is likely that such a reversion will not take place, however, prudent planning will allow for flexibility to cover such a possibility. There is presently no Arizona estate tax.
- You can leave an inheritance directly to your Beneficiaries as an “outright distribution” or “in trust.” I don’t know about you, but if I had received a significant inheritance, outright with no strings attached at the age of 18, I would have been tempted to “invest” it in a Corvette and some other goodies. Instead of leaving an inheritance as an “outright distribution”, you can leave your inheritance “in trust” and protect it from being squandered not only by a naive 18 year-old, but also by adult children, who are spendthrifts, have addiction issues or are otherwise prone to invest it poorly. Furthermore, regardless of age, you will want to protect the inheritance from children’s divorces, lawsuits, bankruptcy, personal injury claims and scam artists. Passes inheritance to your children’s children, instead of your son-in-law or daughter-in-law If they don’t have children, can transfer to siblings first and nieces and nephews second. Protects inheritance from children’s divorces Protects inheritance from lawsuits, creditors (bankruptcy, personal injury claims, IRS, etc.) * Special Needs - All of my plans allow the Trustee (or Personal Representative for a Will-based plan) to take a second look prior distribution to determine if the heir is receiving or applying for governmental needs-based assistance. If so, the distribution is made to a Supplemental Needs Trust for the benefit of the Beneficiary to prevent the disqualification of the Beneficiary from any needs-based governmental assistance program.
- This further illustrates the “Outright Distribution” problem. What if your Beneficiary inherits $50,000, $500,000 or even $5 million outright? It will not be shielded from creditors, predators, lawsuits and even their own poor financial responsibility. You are rightly concerned about the impact the inheritance you leave will have on your Beneficiaries. You want it to be a blessing and not a curse, like it was for Barbara Hutton. News programs are chock full of stories of people whose lives turn tragic because they suddenly had vast resources without the ability to manage them. Whether it is merely a missed opportunity to use a modest inheritance to get a leg up in the world, or exploitation, or other problems that can occur, why not take advantage of the available tools to guard against this?
- What impact will you have on your Beneficiaries? At seminars, I usually present the following hypothetical. If someone gave you $X dollars (using your present net worth for X) with the stipulation that you had to give it all away in 30 days, how would you distribute those funds? I can always see the wheels spinning. It is opportunity to take an amount larger than they ever expended before to impact loved ones and favorite charities. What a great opportunity! Well, we are all going to have a similar opportunity on our passing. Sure, the amount may be more or less than it is now, but nonetheless it will still be a significant opportunity. Maybe you will leave it all to your spouse and then to your children. Maybe you will carve out 10% for your place of worship. Maybe you will leave more to your child caring for a medically needy child than you will to your child who has accumulated great wealth. The choices are endless. But, you have an opportunity to significantly impact the world around you. By being a good steward you can plan with a purpose and use your control to make a difference.
- If you have assets invested in Retirement plan, it is likely that one of the most important reasons for using that vehicle was to defer the payment of taxes. That tax deferment allows for significant growth. And that tax deferred growth need not end upon your death. Without proper planning, most of your retirement account could be subject to immediate taxation on your death. But, the longer your Beneficiaries can keep funds in an IRA after your death, the more wealth they can create! Your estate plan should consider the best ways to stretch your IRA for maximum tax deferral. A St and Alone IRA Trust can prevent the Beneficiary from cashing out the IRA and offers protection against creditors, predators, lawsuits and divorce.
- Make sure your IRA Beneficiaries, particularly those lacking in financial discipline, don’t make this mistake and cash out the IRA at the first opportunity. The Child who cashed out the IRA Trust had to pay state and federal taxes and netted $65,000.00.
- Even if the Beneficiary cashes out the IRA and re-invests the proceeds, the impact of the payment of taxes is still significant.
- Even with an estate plan, it is important to be organized. Someday a successor Trustee or another person of your choosing will be taking over your affairs due to your death or incapacity. What will that person find? As to your estate plan, if done by my office, they will find an Estate Planning Portfolio as a repository for all your estate planning documents. Additionally, you are provided with an electronic copy of all the documents via a password protected CD. Additional CDs are provided to distribute according to your preference for a small fee. Your estate planning portfolio should contain a reference as to where your financial records are kept. You will need to also have a central repository for all of your assets, including your life insurance policies. Keep this list organized and periodically update it, so that your estate may enjoy a smooth transition.
- If you have children from a previous relationship, you may want to set up your estate plan to ensure that your children will receive their inheritance. In other words, you may want to ensure that if your spouse survives you and remarries, that any potential replacement spouse does not wind up with your children’s inheritance. How can you do this without impoverishing your current spouse? You can leave your share of the Community Property plus your Separate Property in a Trust that p rovides income and a certain portion of the principal to your spouse for life in accordance with his/her needs; and then income and/or principal goes to your children . There is a full spectrum in the range of control and access that you can give to your spouse.
- At your death you will undoubtedly own a certain amount of personal property. Tangible personal property includes: photos, jewelry, artwork, collectibles, furniture and motor vehicles. While some of these items will be of negligible value, others may be of significant value, and still others will be of great sentimental value to your loved ones. In order to keep family harmony, it may be advantageous to leave this property specifically to named individuals or entities. You can make these assignments in your Will or Trust. A better option is to execute a Personal Property Memorandum. Under Arizona law this can be done at any time (even after the Will or Trust is signed) as long as the document clearly identifies the tangible personal property, the person or entity to whom you are leaving it and you sign the document. Our office provides you these forms in your portfolio and on the CD so that you can make changes at any time as to your tangible personal property without incurring any further attorney expenses.
- Have you named a Guardian for your dependent children? If not, a Court proceeding may be initiated to appoint as Guardian a family member, a friend or “any person interested in the welfare” of the child. However, that may not be the person you would have chosen. You can be an optimist and hope that the person that you would have selected is appointed as Guardian. But, family members, friends, or “any person interested in the welfare” of the child, all with good intentions, may take opposing sides in Court with uncertain results. Fortunately, you have the available choice of taking control now and making an estate plan that names the person they want to serve as Guardian in your Will. Furthermore, when your child reaches the age of 18, he or she will have unfettered access to their inheritance. This poses significant problems as outlined in Mistake #5 above. Mistake #5 also addresses the need for a Supplemental Needs Trust to protect inheritances left to persons who are incapacitated.
- I am a firm believer that the client is entitled to an estate plan that is comprehensive and addresses as many contingencies as possible, so that the client’s plan will stand the test of time. However, a periodic review of your estate plan is essential as there may be changes in laws, your net worth and sometimes, the circumstances surrounding your beneficiaries’ needs or your fiduciary’s ability or suitability to serve. Additionally, over a long period of years, sometimes better methods of estate planning become available. I try to keep my clients abreast of the latest changes in estate planning law via an e-newsletter. Please feel free to sign up for the e-newsletter on this website.
- So now that you have more valuable information, where do you go from here? You could work with a counseling oriented attorney to establish your plan. Dennis Caufield’s practice is focused soley on Estate Planning and he offers a free initial consultation. What are you waiting for?
- There’s a reason why you are viewing this presentation. Consider scheduling a Free Consultation or reserving a space to attend the Free Estate Planning 101 Seminar. You have nothing to lose and very likely much to gain. Take control of your affairs and Plan Today for a Secure Tomorrow! Thank you for visiting the web site.