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ESTATE PLANNING FOR YOUNG COUPLES

IT IS SIMPLIER THAN YOU THINKOr How Most Of The 99% Plan

“Always go to other’s funerals. Otherwise whey will not come to yours.” Yogi Berra

A.A. Stephen McDanielStephen McDaniel

Wyatt Tarrant & Combs LLPWyatt Tarrant & Combs LLP

• Planning For Death– Where Will The Money Come From To Replace

You• Planning For Disability

– When You Can No Longer Be In Control Because Of Illness Or Accident

• Asset Protection– For You And The Kids

• Advanced Tax Planning (Not For Today)– For The Top 1% 2

WHAT IS ESTATE PLANNING?

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THE DEFINITION OF THE DEFINITION OF ESTATE PLANNINGESTATE PLANNING

Estate Planner: Someone Who Solves A Problem You Did Not Know You Had In A Way You Don’t Understand

OREstate Planner: Someone Who Shares Creative

Ideas Conveyed In A Way That You Can Understand

• My Wife Made Me Come!

• But For The Rest Of You…if You Do Have A Will

• Family Circumstances Change

• Tax Law Changes

• You Did Not Do It Correctly The First Time

• But Let’s First See What We Do Not Know

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“I ALREADY HAVE A WILL.”So Why Am I Here?

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PLANNING PLANNING CONSIDERATIONSCONSIDERATIONS

• WHEN DO YOU PLAN TO DIE?

• WHAT WILL THE LAW BE THEN?

• WHAT WILL YOUR ASSETS BE WORTH?

• PLAN NOW AND DIE LATER?

• PLAN LATER BUT DIE NOW?

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THINGS YOU MUST KNOW THINGS YOU MUST KNOW BEFORE WE FINISH BEFORE WE FINISH

• How Property Passes At Death

• How Is Property Taxed At Death

• What Do Wills Do And Not Do

• Powers Of Attorney

• Living Wills

• Insurance

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HOW ASSETS PASSHOW ASSETS PASS AT DEATH AT DEATH

• JOINT OWNERSHIP - With Right of Survivorship

• BENEFICIARY DESIGNATION

–Life Insurance, Retirement Plans

• TRUST - Revocable vs. Irrevocable

• PROBATE - Will vs. Intestacy

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PROPER OWNERSHIP OF ASSETS

• Do You Understand Joint Ownership?– Assets Jointly Held Pass To The Surviving Owner– They Are NOT Directed By Your Will

• Joint Ownership With Wrong People!– They “Borrow” It – They Don’t Share It With The Siblings

– Joint Ownership With A Minor Child!

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PROPER BENEFICIARY DESIGNATIONS

• You Assume The Beneficiary Will Share With The Children Or Siblings– They Generally Don’t!

• Who Did You Name? Do You Recall?

• The Beneficiary Is Deceased

• The Beneficiary Is A Minor• The Beneficiary Isn’t A Beneficiary Anymore

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DO YOU KNOW WHAT A DO YOU KNOW WHAT A

TRUST IS?TRUST IS?

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KEY TRUST TERMSKEY TRUST TERMS

• Trust Document Considerations– Distribution of Income

– Distribution of Principal– Termination and Distribution to Beneficiaries

Grantor Trustee

Beneficiary

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TESTAMENTARY TRUSTTESTAMENTARY TRUST

WILL

TRUST

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LIVING TRUSTLIVING TRUST

ASSETS ARE PLACED INTO TRUST DURING LIFE TO ASSETS ARE PLACED INTO TRUST DURING LIFE TO BE ADMINISTERED BY YOUBE ADMINISTERED BY YOU

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WHY WE USE TRUSTS

• To Provide For Beneficiaries Where Outright Distributions Of Assets Are Not Advisable

• To Shelter Assets From Beneficiaries Who Are Not Capable Of Managing The Assets For Themselves

• To Protect The Assets From A Spouse Of A Beneficiary In Divorce

• To Protect Assets From Creditors• To Assure That The Next Generation Will Receive At

Least A Part Of The Inheritance

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DISTRIBUTION BY WILLDISTRIBUTION BY WILL

ProbateAsse t s Heirs

• It Is A Document Executed In Accordance With State Law That Disposes Of Your Estate Assets– That Are NOT Jointly Held With Right Of Survivorship

– That Are NOT Payable By Beneficiary Designation• It Must Comply With State Law

– Attested Will• Two Disinterested Witnesses• Who Saw You Sign And Saw Each Other Sign

– Holographic Will• Entirely Handwritten And Signed By You

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WHAT IS A WILL?

• You Must Be At Least 18

• You Must Be Competent– Who Says?

• You Cannot Be Under Undue Influence Or Duress– When Influence Is “Undue” Is The Issue

• You Must Execute The Document As Required By State Law

WHO CAN EXECUTE A WILL?

• If You Die Without A Will, Assets Pass Equally To Spouse And Kids, But Spouse Gets At Least 1/3

• The Judge Decides Who Gets Custody Of Minor Kids And Their Money– A Guardian Is Named Who Hires An Attorney– Guardian Posts A Bond– Guardian Reports To Court Each Year To Account– Prior To 18 Judge Determines What Money Is Spent

On The Child

• Minor Kid Gets Inheritance Outright At 18!18

THE FREE TENNESSE WILL If You Don’t Have One

• Simple Will – No Trusts: Outright To Spouse If Surviving Otherwise To Children

• Simple Will – Trust For Kids: Outright To Spouse If Surviving, Otherwise Into Trust For Children

• Tax Planning Will – Multiple Trusts To Save Death Taxes For The Top 1% to 10%

• Revocable Living Trust – Avoids Probate

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BASIC TYPES OF DOCUMENTS

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ESTATE

SPOUSE

No No TaxTax

CHILDREN

Taxed

THE TYPICAL PLANTHE TYPICAL PLAN

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• ALL ASSETS PASS TO SPOUSE• IT IS SIMPLE• NO ESTATE TAX AT FIRST DEATH• NO PROTECTION FROM A FUTURE

SPOUSE OR CREDITORS• MAXIMUM ESTATE TAX AT DEATH

OF SURVIVING SPOUSE• SURVIVING SPOUSE IS FREE TO

CHANGE THE PLAN

THE TYPICAL PLANTHE TYPICAL PLANTHE SIMPLE WILLTHE SIMPLE WILL

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PLANNING PLANNING CONSIDERATIONSCONSIDERATIONS

Probate

TIME MONEY

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How Assets AreHow Assets AreTaxed At DeathTaxed At Death

Federal Estate TaxFederal Estate Tax

State Inheritance TaxState Inheritance Tax

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TYPES OF PROPERTY TYPES OF PROPERTY SUBJECT TO DEATH TAXSUBJECT TO DEATH TAX

EVERYTHING YOU OWN

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UNLIMITED MARITAL UNLIMITED MARITAL DEDUCTION - 1982DEDUCTION - 1982

NO TAX

IF PAID TO SPOUSE REGARDLESS OF AMOUNT

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FEDERAL ESTATE TAX FEDERAL ESTATE TAX EXEMPTIONEXEMPTION

• Each Spouse Has a $5.25 Million Exemption

• It can be transferred from one spouse to the other

• Tax Rate: 40%

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FEDERAL ESTATE TAXFEDERAL ESTATE TAX How Will it Change? How Will it Change?

We Don’t Know!We Don’t Know!• Proposals Before Congress

– Total Repeal - Unlikely– Modified Exemptions to:

• $1,000,000

• $ 3,500,000• $15,000,000

– Tax Rates between 15% and 45%

• Nothing Will likely Happen

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TENNESSEE TENNESSEE INHERITANCE TAX INHERITANCE TAX

EXEMPTIONEXEMPTION

• 2013 - $1,250,000

• 2014 - $2,000,000

• 2015 - $5,000,000

• 2016 – REPEAL

Tax Rate 9 ½ %

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CONTINGENT CONTINGENT TRUSTSTRUSTS

A.A. Stephen McDanielStephen McDaniel

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ESTATE

TO SPOUSE

No Tax

TO TRUST FOR CHILDREN

Taxed

CONTINGENT TRUSTCONTINGENT TRUST

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TESTAMENTARY TRUSTTESTAMENTARY TRUST

WILL

TRUST

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• ALL ASSETS PASS TO SPOUSE

• IT IS SIMPLE AT FIRST DEATH

• NO DEATH TAX AT FIRST DEATH

• TRUST FOR CHILDREN IS CREATED IF BOTH PARENTS ARE DECEASED

• POSSIBLE DEATH TAX AT DEATH OF SURVIVING SPOUSE

• YOU NAME A GUARDIAN FOR MINOR CHILDREN

CONTINGENT TRUSTCONTINGENT TRUST

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ISSUES TO RESOLVEISSUES TO RESOLVE

• EXECUTOR (SPOUSE) & ALTERNATE

• TRUSTEE & ALTERNATE

• GUARDIAN & ALTERNATE

• SPECIAL PROVISIONS FOR CHILDREN

• TERMINATION OF TRUST - AGE?

• CONTINGENT DISTRIBUTION

• In Addition To Standard Language For “Health, Education, And Support…”

• Consider Adding The Following:– Drug And Alcohol Abuse Provisions– Education Goals Provisions– Will Contest Provisions

– Retirement Benefits Provisions– Statement Of Philosophy– Ability To Convert To Special Needs Trust

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TRUST PROVISIONS TO CONSDER

• It Is Common To Create Trusts For Young Children

• Mainly Protecting Them From Themselves

• These Trusts Also Protects From Lawsuits Against The Kids, And Divorce And Creditors Of The Kids

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ASSET PROTECTION FORYOUNG CHILDREN

• Instead Of Terminating Trust At Age 35, Allow The Child To Become The Trustee At Age 35

• Run The Trust For The Life Of The Child• The Child Will Have Access To Income And

Principal For Health Support And Care

• The Child Can Direct Assets To Grandchildren• The Trust Is Protected From

– Creditors

– Spouses In Divorce– Death Tax

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ASSET PROTECTION FOR OLDER CHILDREN

• A Special Needs Child May Be Eligible For Government Benefits Like Medicaid & SSI

• Problem: Trust Or Other Assets Disqualify Them From Benefits

• Solution: Special Needs Trusts Preserves Benefits And Provides A Way To Maximize Gov’t Benefits

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CARE OF DISABLED CHILDREN

• Estate & Trust Litigation Has Increased

25% A Year Over The Last 5 Years

• Don’t Create A DocumentThat Leads To A Fight!

• Punish Those Who Do Fight

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REMEMBER: ESTATES MAKE PEOPLE CRAZY

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LIVING WILL LIVING WILL REQUIREMENTS FOR USEREQUIREMENTS FOR USE

• Document Conforms to State Law

• Terminal Condition

• No Expectation of Recovery

• Death Will Result Regardless of Treatment

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LIVING WILL LIVING WILL DIRECTIONS GIVENDIRECTIONS GIVEN

• Medical Care Shall Be Withheld or Withdrawn

• Medication Given Only to Alleviate Pain and Provide Comfort

• Artificial Feedings?

• Life Will Not Be Artificially Prolonged

• Donation of Organs

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DURABLE POWER OF ATTORNEY DURABLE POWER OF ATTORNEY DECISIONS TO BE MADEDECISIONS TO BE MADE

• Who Should Be Named Attorney In Fact?

• When Is Document Effective? Immediately Or When Your Doctor Says You Are No Longer Competent

• What Powers Are Given? Limited Or Unlimited

• Life Insurance (More Later)

• Home Health Care Insurance

• Liability Insurance: Get $2M Umbrella Insurance.– Make Sure All Properties Listed On Umbrella

Policy

• Earthquake Insurance - Memphis42

INSURANCEBE PROPERLY INSURED

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MY BIGGEST ESTATE ISSUE: INSUFFICIENT ASSETS TO

MEET FAMILY NEEDS

• Support of a Spouse (In the Standard of Living SHE Deserves)

• Support and Education of Children

• How Long Do You Plan to Be Dead?

• How Many Years Do You Plan To Be Dead?

• What Are The Family Financial Needs?– Current– Future

• How Long Will They Need The Money?

• Get More Than You Need But Not More Than You Can Afford

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LIFE INSURANCE How Much Do you Need?

• Term Life

– Annual Renewal Term– Specific Term (E.G. 20 Year Term)

• Whole Life– Participating Vs. Non-participating

• Universal Life

– Buy Term & Invest The Difference In The Ins. Co.• Variable Life

– Buy Term Invest The Difference In Stocks

Note: All of this is a gross oversimplification

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LIFE INSURANCEWhat Type?

• Buy It From The Internet! No

• Buy It From Your Plumber Who Sells It On The Side! No

• Buy It From A Professional– CLU– CHFC– CFP

• Buy It From A Strong Company– That Will Still Be There When You Die

Note: All of this is a gross oversimplification

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LIFE INSURANCEWhere to Get it?

• Problem: Medical Providers Are Reluctant To Give Medical Information Once The Child Is 18

• Fines, Lawsuits, Divorced Parents, Etc.

• Solution: Adult Children Should Sign Medical Power Of Attorney Naming Their Parents

• A Durable Power Of Attorney For Health Care Is A Good Idea Too

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ONE LAST COMMENTHealth Care of Adult Children

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ADVANTAGES OF AADVANTAGES OF APLANNED ESTATEPLANNED ESTATE

• Double the Amount That Can Pass Tax Free (Sometimes Eliminate all Tax)

• You Select the People to Administer Your Estate

• Reduce Administration Expenses

• Speed Up The Estate Administration

• Eliminate Probate

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ADVANTAGES OF AADVANTAGES OF APLANNED ESTATEPLANNED ESTATE

• Protect Assets from Claims of a Future Spouse

• Protect Assets From Claims of a Current Spouse

• Protect Assets from Claims of Creditors

• Plan for Contingent Distributions – What If a Child Should Predecease you?

• Pay Lower Legal and Accounting Fees at Death

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WHICH WAY IS BEST?WHICH WAY IS BEST?

– Each family is unique

– Assets are different– Ownership is different– Children are different– Mine, yours, ours– Family goals vary

– Age is a factor– Health concerns differ– AVOID ONE SIZE

FITS ALL PLANS!

W I l l

Living Trust

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DON’T DON’T

DODO

NOTHINGNOTHING

A. STEPHEN MCDANIELA. STEPHEN MCDANIEL

Senior Attorney – Wyatt Tarrant & Combs LLP 200 Attorneys – 27 Estate Attorneys Memphis Attorneys:

• 5 Certified Estate Planning Specialists In Memphis Office (Only 7 In Memphis)• 2 CPAs• 2 LLMs in Tax

Former Attorney With IRS Estate & Gift Tax Division UM Law School Adjunct Professor

Estate Planning, Trust Law, Estate Tax, Insurance Law Named Twice by Worth Magazine as top 100 Estate Planning Attorney In U.S. Past President of National Association of Estate Planners

200 Councils and 20,000 members Past President of Estate law Specialist Board

Administers ABA approved Board Certification of Estate Planning Attorneys

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I’M OUT OF HERE