retirement: the big three for your consideration thursday, september 20, 2007
TRANSCRIPT
Retirement:The Big Three for Your
ConsiderationThursday, September 20, 2007
Disclaimers!• Under requirements imposed by the IRS, we inform you that, if any advice
concerning one or more U.S. federal tax issues is contained in this communication (including any attachments), such advice was not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any transaction or tax-related matter addressed herein.
• And, the information discussed in this seminar today should not be construed or taken as legal advice, nor should it be construed, taken, or used as legal advice or counsel. As each person’s need for legal advice or counsel must be based on his or her unique set of circumstances, you are urged to consult the attorney, CPA, CFP, or other professional advisor of your choice to render such legal or other professional financial and tax advice based on your unique circumstances.
• Any opinions expressed are the speaker’s, not those of ETSU or affiliated organizations.
An Overviewof
THE BIG THREE
1. Last Will and Testament/Revocable Living Trust
2. Powers of Attorney
3. The Advance Directive (“Living Will”)
Estate DistributionOnly Three Places
Family Charity Government
Two Concepts to Know
1. The Probate Estate
2. The Federal Gross Estate
Asset Ownership1. Individually
2. Tenants in Common3. Tenants with Rights of Survivorship
4. Tenants by the Entirities5. Community Property
6. Transfer on Death (T.O.D.)
A Probate Estate is…
• The Estate for distribution purposes, and
• Property passed by will or intestacy laws.
Why Probate?• To settle the Decedent’s debts and to
resolve claims against the estate
• To establish title to the assets owned at death
May I title property to avoid probate?
• Property owned by joint tenants with right of survivorship
• Property owned by tenants by the entirety
• Life insurance proceeds payable at death to a named beneficiary
• Does avoidance of probate equal avoidance of taxes? No!
So, what’s in the Federal Gross Estate?
• Property (real and personal) owned by the Decedent at death
• Incidents of ownership • Life insurance death benefits• Certain gifts• Business-related interests
Do I really, really need a Will?
• Maybe not---if you like the state’s “one-size fits all” plan for you (and everyone else) under the intestacy laws
• I don’t have any heirs at law, so I’m comfortable with the state of Tennessee receiving my estate (escheats)
• I’m OK with the judicial system choosing the guardians for my minor children
• Well, I’ve titled my assets to avoid probate, haven’t I?
• Yes, if I want to remember charitable organizations
Advantages of a Will
• You may generally control the disposition of your assets at death to heirs (spouse, children, grandchildren, charities, friends)
• You may choose your Executor• You may choose a Guardian for minor children• Pass along your legacy, your values• Effective stewardship, effective tax planning• Peace of Mind
Requirements for a Valid Will
• Yes, in Tennessee, you can handwrite you own Will (a holographic Will)
• If typed, then two witnesses or Attestation Clause (self-proving)
• Disposing memory/capacity• Was not made under duress or undue influence• Signed by the Testator (if typewritten, in the
presence of witnesses and notary if Attestation Clause utilized)
FAQs regarding Wills• Can I use a form at the Stationery store?• Where should I keep my executed Will? What if my
Executor cannot find my Will?• What if I want to change or update my Will?• Can’t I just verbally tell a trusted person prior to my
death how I want my property to be disbursed?• Does the lawyer really invite the beneficiaries to gather
to read the Will? • Should I do a separate letter to my executor or others
(location of my Will, burial instructions, e.g.)• How may I disinherit my spouse and my children? Can I
really leave a bequest to my dog?
Why We Don’t Make Wills
• Busy with Life?• Too Little Property?• Too Expensive?• Don’t Like Legal Documents?• Unable to Know Future?• Don’t Plan to Die?
The Revocable Living Trust: Who needs a Will?
• The advantages of the RLT include privacy as you don’t have to probate the RLT
• You may serve as your own Trustee• Disadvantages to consider include “re-
titling assets,” higher initial costs, and may/probably still need a Will for property not included in the Living Trust
Tax Patriot
“I'm proud to be paying taxes in the United States. The only thing is --I could be just as proudfor half the money.”
- Arthur Godfrey
Taxes At Bedtime
“And now I lay me down to sleep. I pray the Lord my soul to take.If the tax-collector hasn't got it before I wake.”
- Ogden Nash
Estate and Gift Tax Rates and Exemptions
Year Top Estate Tax Rate Estate Tax Exemption Top Gift Tax Rate Gift Tax Exemption
2002 50% $1 million 50% $1 million
2003 49% $1 million 49% $1 million
2004 48% $1.5 million 48% $1 million
2005 47% $1.5 million 47% $1 million
2006 46% $2 million 46% $1 million
2007 45% $2 million 45% $1 million
2008 45% $2 million 45% $1 million
2009 45% $3.5 million 45% $1 million
2010 0% Repealed 35% $1 million
2011* 55% $1 million 35% $1 million
* Estate tax reform of 2001 sunsets in 2011. At that time the law reverts back to rules in place in 2001.
Who me? Why should I worry about taxes?
• Rule #1: Remember, look at the Federal Gross Estate, not the Probate Estate.
• Rule #2: Effective planning can maximize the use of the Marital Deduction with Credit Shelter/Bypass Trust arrangements
• Rule #3 Consider using IRAs/Retirement accounts for charitable bequests
• Rule #4 Don’t forget the Tennessee inheritance tax!• Rule #5 Life Insurance can increase the value of your
estate if owned by the Decedent• Rule #6 Consider giving assets away to children,
grandchildren, others with the $12,000 yearly exclusion from gift tax
Before we leave Wills/Living Trusts…
• QTIP Trusts---Second spouse, children from first marriage
• Be careful of the “I Love You—All to Spouse Will” as you may forfeit your federal exemption and create a taxable estate when the surviving spouse dies
• Charitable Remainder Trusts/Wealth Replacement CRTs
• Charitable Gift Annuities
Powers of Attorney—Financial
• Durable General Financial Power of Attorney
• Enables the holder of the power to act in your stead for financial matters
• “Durable” means the power is not affected by the principal’s subsequent incapacity
• If the principal so chooses, the power can be effective upon disability or incapacity
• Can nominate a Conservator
Powers of Attorney-Healthcare
• Tennessee law provides for Durable Powers of Attorney for Healthcare
• Recent changes in Tennessee law allows execution of the HC Power of Attorney attested only by a notary public or observed by two witnesses (at least one witness not related to the principal, or not a beneficiary to principal’s future estate)
The Advanced Directive
• The “Tennessee Health Care Decisions Act” encompasses:
*Appointment of Health Care Agent *Advance Care Plan *Physician Order for Scope of Treatment *Appointment of Surrogate
For more information, please contact:
• ETSU University Advancement
PO Box 70721
Johnson City, TN 37614
423.439.5352
THANK YOU! Happy Planning!