revocable vs. irrevocable trust and tax planning

REVOCABLE vs. IRREVOCABLE REVOCABLE vs. IRREVOCABLE TRUST and TAX PLANNINGTRUST and TAX PLANNING

J. Wesley SmithJ. Wesley SmithPrincipalPrincipal

Phone: (925) 944-9700Phone: (925) 944-9700Fax: (925) 944-9701Fax: (925) 944-9701

Email:wsmith@bpbsllp.comEmail:wsmith@bpbsllp.com

After graduating from the University of California, After graduating from the University of California, Davis (BA, 1990), Mr. Smith attended the University of Davis (BA, 1990), Mr. Smith attended the University of the Pacific McGeorge School of Law with concentration the Pacific McGeorge School of Law with concentration in Business and Estate Planning. He graduated with in Business and Estate Planning. He graduated with distinction in 1994 and was awarded the American distinction in 1994 and was awarded the American Jurisprudence Award in Business Planning and Jurisprudence Award in Business Planning and Development. Mr. Smith was admitted to the California Development. Mr. Smith was admitted to the California Bar in 1994 and is admitted to practice in federal Bar in 1994 and is admitted to practice in federal courts.courts.

Mr. Smith is a business, estate and real estate Mr. Smith is a business, estate and real estate attorney whose practice includes:attorney whose practice includes:

• • Business, estate, probate and real estate litigationBusiness, estate, probate and real estate litigation• • Trust estate and tax planning, business planning and Trust estate and tax planning, business planning and

family succession planning.family succession planning.• • General counsel to high net worth clients concerning General counsel to high net worth clients concerning

family succession planning including serving clients family succession planning including serving clients as "Family Office" CEO.as "Family Office" CEO.

• • Business and corporate transactions including entity Business and corporate transactions including entity formation and operation, business transactions, mergers formation and operation, business transactions, mergers and acquisitions and other business reorganizations. and acquisitions and other business reorganizations.

• • Real estate transactions and counsel including commercial Real estate transactions and counsel including commercial and residential purchase and sales, leases and options.and residential purchase and sales, leases and options.

• • Trust, estate and probate administrationTrust, estate and probate administration

Mr. Smith also serves as a mediator in disputes Mr. Smith also serves as a mediator in disputes involving trusts and estates, business, real estate and involving trusts and estates, business, real estate and corporate matters.corporate matters.

Membership:Membership:• • Business, Trust and Estates, Probate and Real Estate Business, Trust and Estates, Probate and Real Estate

Sections of the Contra Costa County Bar AssociationSections of the Contra Costa County Bar Association• • Solano County Bar AssociationSolano County Bar Association• • American Bar AssociationAmerican Bar Association• • State Bar of CaliforniaState Bar of California

Education:Education:• • McGeorge School of Law, University of the McGeorge School of Law, University of the

PacificPacific• • University of California, DavisUniversity of California, Davis

Practice Areas:Practice Areas:• • Asset ProtectionAsset Protection• • Business DisputesBusiness Disputes• • Business Transfers and CombinationsBusiness Transfers and Combinations• • Charitable GivingCharitable Giving• • Commercial TransactionsCommercial Transactions• • ConservatorshipsConservatorships• • Financial InstitutionsFinancial Institutions• • Formation and GovernanceFormation and Governance• • Health Care DirectivesHealth Care Directives• • Ownership of Real PropertyOwnership of Real Property• • Powers of AttorneyPowers of Attorney• • Pre and Post-Marital AgreementsPre and Post-Marital Agreements• • ProbateProbate• • Real Estate DisputesReal Estate Disputes• • Special Needs TrustsSpecial Needs Trusts• • Succession PlanningSuccession Planning• • Tax PlanningTax Planning• • Trust AdministrationTrust Administration• • Will Contests and Trust DisputesWill Contests and Trust Disputes• • Wills and TrustsWills and Trusts

REVOCABLE PLANNINGREVOCABLE PLANNING

INCLUDED IN GROSS ESTATEINCLUDED IN GROSS ESTATE

GENERALLY FAMILY ESTATE PLANNINGGENERALLY FAMILY ESTATE PLANNING

GRANTOR GENERALLY RETAINS CONTROL OF GRANTOR GENERALLY RETAINS CONTROL OF ASSETSASSETS

ESTATE PLANNING AFTERESTATE PLANNING AFTER

THE 2013 TAX REFORM THE 2013 TAX REFORM

ACTACT Estate Tax v. Estate Tax v. Income TaxIncome Tax

DOES THE ACT DOES THE ACT

KILL A/B/CKILL A/B/C

PLANNING?PLANNING?

Less than Less than $10,000,000$10,000,000

More than More than $10,000,000$10,000,000

THE 2013 ACT AND ESTATE THE 2013 ACT AND ESTATE AND GIFT TAX LAWSAND GIFT TAX LAWS

ESTATE TAX EXEMPTIONESTATE TAX EXEMPTION

RATERATE

GIFT TAX LAWSGIFT TAX LAWS

GIFT AND ESTATE TAX LAWGIFT AND ESTATE TAX LAW

Annual ExclusionAnnual Exclusion

Marital DeductionMarital Deduction

Education/MedicalEducation/Medical

TAXING TRANSFERS OF WEALTH

COMMON GIFT TAX EXCLUSIONS

GIFT/ESTATE TAX GIFT/ESTATE TAX EXCLUSIONEXCLUSION

Unified Credit Unified Credit

ExemptionExemption

Marital DeductionMarital Deduction

PortabilityPortability

INCOME TAX LAWINCOME TAX LAW

Step-up in tax basis on Step-up in tax basis on ““ownedowned”” assets at death of first spouseassets at death of first spouse

Double step-up in tax basis Double step-up in tax basis upon death of second spouse upon death of second spouse with proper planningwith proper planning ““OwnedOwned”” assets are those that are assets are those that are includible in a decedentincludible in a decedent’’s gross s gross estate for tax purposesestate for tax purposes

PLANNING AFTERPLANNING AFTER2013 ACT2013 ACT

FOCUS SHIFTS FOR ESTATES UNDER FOCUS SHIFTS FOR ESTATES UNDER

$10 MILLION FROM ESTATE TAX TO $10 MILLION FROM ESTATE TAX TO

INCOME TAX PLANNINGINCOME TAX PLANNING

ESTATES UNDER $10 ESTATES UNDER $10 MILLIONMILLION

SINGLE TRUSTSSINGLE TRUSTS DISCLAIMER TRUSTS (A PLAN)DISCLAIMER TRUSTS (A PLAN)

TWO TRUSTSTWO TRUSTS SURVIVOR’S & MARITAL TRUST (A/C SURVIVOR’S & MARITAL TRUST (A/C PLAN)PLAN)

INCOME TAX FOCUSINCOME TAX FOCUS

Survivor’s

Gross Estate

Marital

THE A/C PLANPortability of Marital Deduction

TRUSTHusband Wife

Revocable Irrevocable

1/2 CP1/1 SP

1/2 CP1/1 SP

1. Step-Up basis on CP2. File 706 & elect portability

1. Step-Up basis on CP2. File 706 & elect portability

2nd Step-Up basis on Survivor’s/Marital Trust

2nd Step-Up basis on Survivor’s/Marital Trust

Children

Survivor’s

Gross Estate

THE A PLAN

TRUSTHusband Wife

Revocable Irrevocable

1/2 CP1/1 SP

1/2 CP1/1 SP

1. Step-Up basis on CP2. File 706 & elect portability

1. Step-Up basis on CP2. File 706 & elect portability

2nd Step-Up basis on Survivor’s Trust only!

2nd Step-Up basis on Survivor’s Trust only!

Children

Disclaimer Trust

9 month deadline!

9 month deadline!

ESTATES OVER $10 ESTATES OVER $10 MILLIONMILLION

CONTINUED FOCUS ON ESTATE TAX SYSTEMCONTINUED FOCUS ON ESTATE TAX SYSTEM

A/B PLANNINGA/B PLANNING

A/B/C PLANNINGA/B/C PLANNING

NO SECOND STEP-UP ON BASIS (B Trust)NO SECOND STEP-UP ON BASIS (B Trust)

Survivor’s Trust A Marital Trust C Bypass Trust B

Survivor’s Estate

IRS 2nd Death

Children

A/B/C PLAN

FAMILY TRUSTHusband Wife

Revocable Trusts Irrevocable

Trusts

1/1 SP1/2 CP

1/1 SP1/2 CP

1st Death

NEW TAX ACT NEW TAX ACT PLANNING OPPORTUNITIESPLANNING OPPORTUNITIESIrrevocable PlanningIrrevocable Planning

BUSINESSESBUSINESSES

REAL ESTATEREAL ESTATE

LIFE INSURANCELIFE INSURANCE

FINANCIAL ACCOUNTSFINANCIAL ACCOUNTS

IRREVOCABLE PLANNINGIRREVOCABLE PLANNING

EXCLUDED FROM GROSS ESTATEEXCLUDED FROM GROSS ESTATE

GENERALLY LESS CONTROL OVER ASSETSGENERALLY LESS CONTROL OVER ASSETS

ESTATE TAX PLANNINGESTATE TAX PLANNING

IRREVOCABLE TRUSTSIRREVOCABLE TRUSTS

ILIT/SLAT – Irrevocable Life Insurance TrustsILIT/SLAT – Irrevocable Life Insurance Trusts

QPRT – Qualified Personal Residence (or QPRT – Qualified Personal Residence (or second home) Trustsecond home) Trust

Dynasty/GST Trusts and GST ExemptionDynasty/GST Trusts and GST Exemption Multi-generational planningMulti-generational planning

Charitable TrustsCharitable Trusts

IDGT – “Intentionally Defective Grantor Trusts”IDGT – “Intentionally Defective Grantor Trusts” Children’s TrustsChildren’s Trusts

OUR CLIENTSOUR CLIENTS

Business OwnersBusiness Owners

Real Estate InvestorsReal Estate Investors

High Net Worth IndividualsHigh Net Worth Individuals

Life Insurance PortfoliosLife Insurance Portfolios

ProfessionalsProfessionals

Clients Requiring General Estate Clients Requiring General Estate

PlansPlans

PRACTICE AREASPRACTICE AREAS BusinessBusiness

Real EstateReal Estate

Wealth Succession and EstateWealth Succession and Estate

TaxTax

EmploymentEmployment

Business, Real Estate, Estate and Business, Real Estate, Estate and

Commercial LitigationCommercial Litigation