estate tax repeal - benefit or death trap?
DESCRIPTION
Effective Planning with Estate Tax Repeal and Why your Plan Needs to be Reviewed Now!TRANSCRIPT
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
©2006 Stonefield Josephson, Inc. 3
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
©2006 Stonefield Josephson, Inc. 5
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
©2006 Stonefield Josephson, Inc. 6
BASIC COMPONENTS OF AN EFFECTIVE PLAN
•Advanced Health Care Directive
•HIPAA Release (Health Insurance Portability and Accountability Act)
•Living Trust
•Will
•Power Of Attorney
©2006 Stonefield Josephson, Inc. 7
Sam & Jane
Revocable Trust
Sam & JaneTrustees
All Income for Sam & JaneBeneficiaries
All Principalfor Sam & JaneBeneficiaries
Sam
Dies
©2006 Stonefield Josephson, Inc. 8
Revocable TrustJane is Trustee
All Incomefor Jane
Beneficiary
All Principalfor Jane
Beneficiary
Jane is IncapacitatedS
am D
ies
©2006 Stonefield Josephson, Inc. 9
Jane is Incapacitated
Irrevocable Trust during IncapacitySuccessor Trustee
Income forJane
Beneficiary
Principal forJane
Beneficiary
Jane Dies
©2006 Stonefield Josephson, Inc. 10
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
©2006 Stonefield Josephson, Inc
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
©2006 Stonefield Josephson, Inc
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%
©2006 Stonefield Josephson, Inc. 13
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
©2006 Stonefield Josephson, Inc. 14
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
©2006 Stonefield Josephson, Inc
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
©2006 Stonefield Josephson, Inc. 16
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
©2006 Stonefield Josephson, Inc
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
©2006 Stonefield Josephson, Inc. 18
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
©2006 Stonefield Josephson, Inc. 19
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%
©2006 Stonefield Josephson, Inc
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
©2006 Stonefield Josephson, Inc. 21
WHY PLANS NEED TO BE REVIEWED NOW!
Sam’s & Jane’s • Net Worth• $2,000,000• All in Trust
• Sam Dies in 2010
$0 to KidsBypass Trust(Exemption)
No Estate Tax
$2M to Survivor Trust
Marital DeductionNo Estate Tax
©2006 Stonefield Josephson, Inc
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
©2006 Stonefield Josephson, Inc. 23
CARRYOVER BASIS – POTENTIAL TAX TRAP
Sam’s & Jane’s • Net Worth• $7,000,000• All in Trust
• Sam Dies in 2010
$1.3M toBypass Trust(“Step-up”)
No Tax
$5.7M to Survivor Trust
- $3M “step-up”No Tax
©2006 Stonefield Josephson, Inc
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
©2006 Stonefield Josephson, Inc. 25
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
©2006 Stonefield Josephson, Inc. 26
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
©2006 Stonefield Josephson, Inc
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
©2006 Stonefield Josephson, Inc. 28
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)
www.sjaccounting.com