revocable vs. irrevocable trust and tax planning
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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:[email protected]:[email protected]
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