estate tax repeal - benefit or death trap?

GIFT, ESTATE & TRUST (GET) PLANNING PRODUCTS AND SERVICES

San Francisco & Walnut Creek Principals Meeting

By Brent D. Rose, M.P.Acc.(Tax), J.D.

February 11, 2010

©2006 Stonefield Josephson, Inc. 2

Our Mission is to

• Develop and Implement an• Effective Plan for Clients to• Provide them with “Peace of Mind” by• Understanding and Effectively Utilizing the• GET Tools and Techniques that will• Protect them and their Loved Ones• And Achieve their Objectives


Objectives of an Effective GET Plan

•Allow Control of Business and Property - While Alive and Well to Meet Living Needs

•Facilitate Care for Them and Loved Ones

- When Retired or if Disabled or Die Prematurely

•Give What they Have to Whom they Want, When they Want, and How they Want•At the Lowest Reasonable Cost to

them as well as those they Love

©2006 Stonefield Josephson, Inc

How to Effectively Accomplish Objectives

. 4

Charity

Gifting

Business/Invest

Disposition Planning

Planning for Disability

Meeting Living Needs


REASONS TO PLAN

•Gives “Peace of Mind”

•Proper planning eases emotional and financial burden

•Allows influence over family, friends or social causes

•Reduce Taxes

•Protect Assets and Business


BASIC COMPONENTS OF AN EFFECTIVE PLAN

•Advanced Health Care Directive

•HIPAA Release (Health Insurance Portability and Accountability Act)

•Living Trust

•Will

•Power Of Attorney


Sam & Jane

Revocable Trust

Sam & JaneTrustees

All Income for Sam & JaneBeneficiaries

All Principalfor Sam & JaneBeneficiaries

Sam

Dies


Revocable TrustJane is Trustee

All Incomefor Jane

Beneficiary

All Principalfor Jane

Beneficiary

Jane is IncapacitatedS

am D

ies


Jane is Incapacitated

Irrevocable Trust during IncapacitySuccessor Trustee

Income forJane

Beneficiary

Principal forJane

Beneficiary

Jane Dies


Trust Becomes Irrevocable and later Terminates with

Principal and Income Distributed to

Designated Beneficiaries

Beni OneAdult

without TrustBeni Two

Disabled Adultwith Special Needs Trust

Beni ThreeMinor

Stays in Trust to Designated Age(s)

Jane Dies


ESTATE TAXES

WHEN NET WORTH IS LARGE ENOUGH

TO NEED ESTATE TAX PLANNING

Federal Exemption Amounts

. 11

2010 Unlimited, for now

2006 to 2008 $2,000,000

2009 $3,500,000

2011 $1,000,000


ESTATE TAXES

WHEN NET WORTH IS LARGE ENOUGH

TO NEED ESTATE TAX PLANNING

Federal Maximum Rates

. 12

2010 $0, for now

2006 46%

2007 to 2009 45%

2011 55%


UNLIMITED MARITAL DEDUCTION

ALL PROPERTY PASSING TO A SURVIVING SPOUSE

IS DEDUCTIBLE FOR FEDERAL ESTATE TAXES,

INCLUDING PROPERTY PASSING TO A LIVING TRUST

FOR THE SOLE BENEFIT OF THE SURVIVING SPOUSE

WHILE THEY ARE ALIVE


INEFFECTIVE USE OF TAX EXEMPTION

Sam’s & Jane’s • Net Worth• $4,000,000• No Trust• Sam Died

All to JaneAfter Marital Deduction

No Estate Tax


INEFFECTIVE USE OF TAX EXEMPTION

. 15

Jane’s • Net Worth• $4,000,000• No Trust

• Died in 2009

After $3.5M Exemption

$500k Taxed at 45%= Net to Heirs of

$3,775,000


EFFECTIVE USE OF TAX EXEMPTION

Sam’s & Jane’s • Net Worth• $7,000,000• All in Trust

• Sam Died in 2009

$3.5M toBypass Trust(Exemption)

No Estate Tax

$3.5M to Survivor Trust

Marital DeductionNo Estate Tax


EFFECTIVE USE OF TAX EXEMPTION

. 17

Jane’s • Net Worth• $3,500,000

• All in Survivor Trust• Died later in 2009

After $3.5M Exemption, No Estate Tax

Added to Bypass Trust


LONG TERM USE OF TAX EXEMPTION

$7M

($3.5M x 2)

Dynasty Trust

Using Both

Estate and GST

Exemptions

Long-Term Growth

Free of Estate and

Generation-skipping Taxes

(GST) for H.E.M. & S.

and Free from Creditors

Benefit of Heirs until

Exhausted or

R.A.P. limit


CAN YOU OR CLIENTS AFFORD TO WAIT?

•Even a Non-taxable Estate with Probated Assets may

Cost You at least 6% (3% each for attorney and

personal representative, $60,000 for a $1M estate)

•Life Insurance may & Retirement Plan Taxed at 85%

•If SALY, every $ over $3.5M is Taxed at 45%

•If Fail to Plan before 2011, Exemption may be

only $1M and the Tax Rate as High as 55%


GET CHANGES DUE TO REPEAL IN 2010

• NO Estate or Generation-skipping Transfer (GST) Tax – unlimited amount to “dynasty” trust?

• Gift Tax Exemption (lifetime) remains at $1 Million but maximum rate drops from 45% to 35%

• Gift Tax Annual Exclusion remains at $13,000 per

• New Carryover Basis regime - $1.3 Million “step-up” plus $3 Million if to spouse (or effective trust)

. 20


WHY PLANS NEED TO BE REVIEWED NOW!


• Sam Dies in 2010

$0 to KidsBypass Trust(Exemption)

No Estate Tax

$2M to Survivor Trust

Marital DeductionNo Estate Tax


WHY PLANS NEED TO BE REVIEWED NOW!

. 22

Jane’s • Net Worth• $2,000,000• All in Trust• Dies in 2011

After $1M Exemption, $1M Taxed at 45%

= $1.55M ($2M - $450k)Net to Heirs


CARRYOVER BASIS – POTENTIAL TAX TRAP


• Sam Dies in 2010

$1.3M toBypass Trust(“Step-up”)

No Tax

$5.7M to Survivor Trust

- $3M “step-up”No Tax


CARRYOVER BASIS – POTENTIAL TAX TRAP

. 24

Jane’s • FMV Over Basis

• $2.7M ($5.7M - $3M)• No Appreciation• Sells in 2010

$2.7M Taxed at 25%(15% capital + 10% income)

= $675,000Taxes Due to Repeal


CARRYOVER BASIS – SINGLE OR SURVIVOR

Jane’s • Net Worth• $2,000,000• Dies in 2009• Property Sold

No Estate, Capital Gains or

Income Tax

Jane’s • Net Worth• $2,000,000

• Dies in 2010• Property Sold

After $1.3M “step-up” $700k Taxed at 25%

(15% capital + 10% income)= $175,000 Taxes


CAN YOU AFFORD TO WAIT FOR REVIEW?

•Even a Non-taxable Estate can result in nothing going to children from prior marriage or spouse

•Amount passing to spouse, even with trust, may be unnecessarily subject to Estate and GST taxes later

•Heirs, including spouse, may owe significant capital gains and income taxes if sell property worth more than the Carryover Basis “step-up” amounts

•Difficult, maybe impossible, to track old Basis


PLANNING – PROCESS AND DEVELOPMENT

•Planning is a Process, Not an Event

- Fact Finding, Analyzing, Recommending,

Implementing and Monitoring Process

•Plan will be Developed with Presumption

Will Not be Here Tomorrow

. 27


FINAL THOUGHTS !!!

•Most people Spend less Time on Planning

than they do Getting their Hair Cut

•“For my Tax Evasion I should be Punished, for my

Tax Avoidance I should be Commended. The Tragedy

is that so few people know the Free Bridge even exists.”- U. S. Supreme Court Justice Louis P. Brandeis

Question and answer

Brent D. Rose, M.P.Acc.(Tax), J.D.

949-428-3177 (ext 507)

[email protected]

www.sjaccounting.com

mailto:[email protected]

http://www.sjaccounting.com/

estate tax repeal - benefit or death trap?

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