LIFE and ESTATE PLANNING

In a Nutshell

Tredway Lumsdaine & Doyle LLPMonica Goel, Partner

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WHAT IS AN ESTATE?

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PensionPlan

IRAs

LifeInsurance

BankAccounts

RealEstate

BusinessInterests

OtherAssets

Stocks

Home

ProfitSharing

Plan

ESTATE PLAN COMPONENTS

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WHY PLAN?

After Death• Control Who Receives Assets• Pay Minimum Legal Fees, Taxes

During Life• Control Assets, Medical Decisions in

Event of Incapacity.4

COMMON ESTATE PLANS

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PLAN # 1 WHAT IS A WILL

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WILLS AND INCAPACITY

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WILLS AND DURABLE POWER OF ATTORNEY

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Advanced Health Care Directive

It’s estimated that four out of five Americans do not have a living will or any other written health care or end-of-life directive to help their families make decisions for them if they become incapacitated. Health care and end-of-life advance planning, if done right, accomplishes four things:

Ensures that the person you want to speak for you has the legal authority to do so

Helps ensure that your wishes about your health care are known and respected

Avoids unnecessary, intrusive, and costly medical treatment at the point you not longer want it

Reduces the suffering experienced by your loved ones, because they will have your guidance

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PLAN #2 DOING NOTHING

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PLAN #3 JOINT TENANCY

1. Only Postpones Probate2. Unintentional Disinheriting3. Incapacity = Court Interference4. Difficult To Remove Co-Owner5. Lawsuits6. Debts/Tax Problems

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PLAN #4 GIVING AWAY YOUR ASSETS

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PLAN #5 BENEFICIARY TRANSFER

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PLAN #6 REVOCABLE LIVING TRUST

Avoids Probate at DeathPrevents Court Control of Assets at IncapacityProvides Maximum PrivacyQuick Distribution of Assets to BeneficiariesAssets Can Stay in TrustPrevents Unintentional DisinheritingReduces or Eliminates Estate Taxes

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YOU KEEP CONTROLBuy/Sell Assets as BeforeChange/Cancel Any TimeTrust Contains Your Instructions

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SIX STEP PLAN OF ACTION

1. Inventory Assets/Debts

2. Write Down Your Objectives. Before and After You Die.

3. Select a Professional to Help

4. Have Legal Documents Prepared

5. Put Plan into Action

6. Review and Change As Needed

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18

0

10

20

30

40

50

60

20122013

15%

39%

15%

20%

0%

3.8%

35%

55%

35%

39%

2013 Tax Rates are Going Up!

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Gift Tax: $5,120,000 - $1,000,000

Estate Tax: $5,120,000 - $1,000,000

Generation Skipping Transfer Tax (GST):

$5,120,000 - $1,000,000

2013 Exemptions are going down

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Current No Agreement Obama Romney

Income 35% 39.6% 39.6% 28%

Capital Gains 15% 20% 20% 15%

Dividends 15% 39.6% 39.6% 15%

Estate & Gift

Exemption $5.12 mil $1 mil $3.5 mil $0

Rate 35% 55% 45% 0%

Health Care Surtax on Investments

0 3.8% 3.8% 0%

Potential Tax Ranges for Higher-Income Individuals

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2012 Gift to Children$10 million gift $0 tax

Resulting in $10M net of TaxesExclusion $5,120,000 each for Mom & Dad

“The Cinderella Gift”

Disappears at Midnight December 31, 2012

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2013 Gift to Children$10 Million Gift $3.6M paid in taxes

Resulting in $6.4M net of TaxesExclusion $1,000,000 each for Mom & Dad

Your Opportunity to make “The Cinderella Gift” disappears on 1/1/2013

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The Window for Planning is Closing

Utilize the following Wealth Transfer

Concepts:• Freeze

• Squeeze• Burn

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“Freeze”

2012 2022 $-

$5,000,000.00

$10,000,000.00

$15,000,000.00

$20,000,000.00

$25,000,000.00

• Freeze Value of estate at Current Lower level

• Values are at historic lows• Shift Appreciation to children and

avoid tax on appreciation

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SqueezeApplication of FLP Discounts, Minority Interest,

Lack of Marketability,

Assets Transferred Worth $10M

Apply Discount to Value of 35%

Taxable Value of Gift is only $6.5M

$3.5M Disappears from the Tax System

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Burn

Estate Depletion due to grantor trust statusParents Pay Income tax on Children’s Trust

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Which Wealth Transfer Strategy is Right for You?

1. Value of Estate2. Type of Assets3. Cash Flow Needs4. Next Generation Candidates

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Basic Planning- • Marital Split Trust (i.e. A/B Trust)• Annual Exclusion Gifts • Section 529 College Funds• Insurance

Wealth Transfer Techniques

GiftsOutrightDiscounted Gifts Using Entities

Family Limited Partnership

Family Limited Liability Company

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Wealth Transfer Techniques

• Gifts In Trust• Dynasty Trust• Irrevocable Life Insurance Trust• Qualified Personal Residence Trust• Grantor Retained Annuity Trust

Wealth Transfer Techniques

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GiftingIllustration

2012 Fair Market Value of LLC Interests

owned by Client:

$5,882,000 Value of 100% interest discounted

due to lack of control & lack of marketability

Smith Family Investments, LLCValue of 10% after discounting:

$700,000

2012Value after discounting:

$4,000,000“SQUEEZE”

49% of 1900 Main Street, LLC

49% of 100 Smith Street LLC

John Trust:9.8% Main Street; 9.8% of

Smith Street

Jim Trust:9.8% Main Street; 9.8% of

Smith Street

Jacob Trust:9.8% Main Street; 9.8% of

Smith Street

Jenny Trust:9.8% Main Street; 9.8% of

Smith Street

Jessie Trust:9.8% Main Street; 9.8% of

Smith Street

49% of Main Street, LLC and 49% of 100 Smith Street, LLC to

Grandchildrens Trusts

• Appreciation accrues in Grandchildrens Trust. • 49% of income transferred to trusts;• Each trust can pay its own taxes on income, or Grandparent’s estate can pay taxes on behalf of trust,

resulting in an even greater estate tax benefit. See slide to follow. • Client remains majority owner of each entity with control.

Management of Family LLC

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Dad51%

GrandchildTrust49%

Grandchild’s Trust

Dad provides instructions to Trust on how and when distributions are madeTo Trustee

49% of income Colorado and California properties distributed to Grandchildren’s Trust

Dad’s Estate

51% of income from Colorado and California properties distributed to Dad

• Manager: Dad• Responsible for all decisions regarding LLC• Manager can only be removed by majority vote

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2032

$24,000,000

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Retirement and Legacy Arrangement

• Create an Irrevocable Life Insurance Trust (ILIT) to purchase and own a cash value life insurance policy on your life (e.g., a NYLIC Custom Whole Life Insurance Policy)

• Lend cash to the ILIT in exchange for an interest bearing note.• The trustee of the ILIT utilizes the cash to pay premiums on the life

insurance policy.• During your retirement, Trustee supplements your retirement income by

making payments on the promissory note to you.• At death, if structured properly, you leave an income and estate tax free and

asset protected legacy pursuant to the terms of the trust for the beneficiaries of the ILIT in an amount equal to the life insurance policy’s death benefit proceeds less any outstanding premium loans and accrued interest.

The Time to Act is Now Don’t Wait Until December!

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Schedule your FREE initial consultation today!

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Monica Goel, PartnerTredway Lumsdaine & Doyle LLP

8141 E. 2nd Street, Suite 500Downey, CA 90241

562-923-0971

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