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Estate planning

What it is & why it matters

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Myths about estate planning

It’s only for old rich people

I’m too young to think about that

It takes too long

Lawyer fees are too expensive

I have a Will—I’m good

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Don’t leave life’s most important decisions to the state

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of Americans don’t have a will or trust

63%

of Americans have �out of date documents

8%

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Estate plans gone wrong

Michael Jackson

Robin Williams

This lady

Michael Jackson — Despite having a cadre of lawyers, his estate plan was riddled with flaws. He had an estate plan, but no one working on that plan put any of his property into the Trust! His assets were not in trust, which triggered probate – freezing his assets and delaying the distribution of his estate for year – Not to mention the cost!

Robin Williams — He left an estate plan, but it did not include a contest provision, which would have stated anyone who contested the will would risk his or her entire inheritance. The result is an estate hung up in litigation due to lawsuits.

Neglecting to Update Your Beneficiaries Following Big Life Changes�I’ll tell a story and you can pretend it’s one of my clients but I wouldn’t let this happen so it’s clealry fictional

“One of my clients found herself in a huge mess after her husband passed away unexpectedly—before updating anything related to his estate.

This meant that major assets, like his life insurance policy and some savings bonds, still listed his first wife as the beneficiary. As a result, his ex got to keep all the money.

Even worse, because there was no updated will, and he didn’t have children, [the rest of] his estate was automatically split between my client and her mother-in-law—and they don’t get along. She even had to buy the house from her mother-in-law just to keep living there!

People mistakenly think that once their first will is signed, they’re done with it forever—but that’s not the case. Instead, you should review it every five to six years to make sure nothing in your life that has any bearing on your estate has changed.”

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Agenda

1

Estate Planning

2

3

4

5

Essential Documents

Revocable Living Trust

Estate Taxes & Probate

Your Estate Plan

Today’s

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Estate Planning

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What is estate planning?

Estate planning is a way to ensure that your assets are distributed according to your wishes after you die or become incapacitated, and that your loved ones won’t have to face complications or conflicts.

Revocable Trust

Last Will and Testament

Financial Powers of Attorney

Healthcare Power of Attorney

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Probate

Time consuming

Expensive

Delays in disbursement of your estate

Completely avoidable

The legal procedure where assets are formally passed to beneficiaries

Probate is something I don’t think a lot of people understand unless they’ve been through it. It’s a huge motivator to clean your estate planning room.

Probate is the legal procedure where assets are formally passed to beneficiaries upon death.

It is a Formal Legal Process – a function of state law and varies from state to state,
It is Overseen by the Court
Ensures That Your Last Wishes Are Carried Out and
Your Assets Distributed Per the Instructions in Your Will

Probate comes from the latin word meaning “to prove”. A will must be presented to the probate court and proven to be valid. In addition to “proving the will” the probate process also includes

Officially confirming the executor or personal representative named in the will or appointing a representative if necessary
Notifying the court of a deceased person’s death and informing all involved parties
Paying the deceased person’s debts and taxes
Preparing a final accounting for the court
Distributing the remainder of the deceased’s property to their heirs
Closing the estate

Even if you have a relatively simple estate, probate can eat up time and resources that not only delay your loved ones’ receipt of your assets but can also cause great stress in the months or even years it can take to settle an estate.

After a death in the family, the last thing anyone wants to do is sit through meetings with attorneys and court proceedings for months on end. And remember, all of this happens publicly as the probate process is a public proceeding.

Moreover, all of that legal wrangling costs money, which cuts into the value of probate property, even up to 10%—which means your loved ones won’t ever receive it.

Living trusts were invented to let people make an end-run around probate. The advantage of holding your valuable property in trust is that after your death, the trust property is not part of your probate estate. (It is, however, counted as part of your estate for federal estate tax purposes. Don’t worry – they’ll get their share always) Anyway…in establishing a trust, the trustee -- not you as an individual -- owns the trust property. After your death, the trustee can easily and quickly transfer the trust property to the family or friends you left it to, without probate. You specify in the trust document, which is similar to a will, who you want to inherit the property.

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Essential Documents

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Powers of Attorney

Finance

Health Care | Living Will

Authority to act on your behalf for financial transactions

Authority to make medical decision for you if you are incapacitated

Powers of attorney

Powers of Attorney assign someone to assist you with your finances and/or medical directives should you become incapacitated or otherwise unable to do so yourself

Name a Financial Power of Attorney

Your financial power of attorney gives your agent full legal authority to manage your financial affairs and all assets not owned by your revocable living trust (your successor trustee has the authority to manage assets owned by your trust).

Why a Financial Power of Attorney?

If something unthinkable happened to you that prevented you from making an urgent financial choice for yourself, your Financial Power of Attorney gives your agent the power to make those decisions for you. Whether it’s due to an accident or sudden illness, the last thing you want is for your long-term financial future to be at risk because of a (hopefully) temporary setback. With a financial POA, your agent can keep everything moving smoothly with your money.

You also want to name a Healthcare Power of Attorney and have a clear Healthcare Directive

Your Healthcare Power of Attorney document appoints the person you want to make healthcare decisions for you should you be unable to do so for yourself. Your Healthcare Directive is a state-specific document that gives both your physician and the agent named in your Healthcare Power of Attorney details on the kinds of medical treatment you desire.

Why a Healthcare Power of Attorney?

If you fail to appoint a healthcare agent while you are able, the probate court must appoint a conservator to make healthcare decisions on your behalf.

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Will

Executor

Distribution of your belongings

Distribution of your assets

Named guardian for minors

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Revocable living trust

Trustee

Successor Trustee

Distribution of your assets

What is a Revocable Living Trust?

A revocable living trust is also known as an inter vivos trust. Inter vivos is latin for 'between the living' indicating that your trust was created during your lifetime. Revocable means that the trust can be changed or revoked during your lifetime. Your trust creates a legal entity to which you transfer ownership of your assets. It empowers you to manage your assets during your lifetime and contains the details for how your assets are to be distributed at your death.

Why a Revocable Living Trust?

A revocable living trust permits you to avoid probate proceedings that would be required if you distributed assets via a will. If your assets are owned by your trust then upon your death your successor trustee is empowered to manage or distribute assets without the need of a court order. In addition, assuming no one contests your estate, as soon as all outstanding tax matters are resolved and creditors paid, assets may be distributed to your beneficiaries.

Let’s take a closer look at a revocable living trust.

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Benefits of

a Living Trust

Avoid Probate (saves time and money)

Generally considered more difficult to attack in court

Provides Privacy

Trustee

The person who manages the living trust. Successor trustee manages the trust after you are gone.

Beneficiary

The person who receives benefits from the living trust.

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Your Estate Plan

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What documents do you need?

Powers of Attorney

Financial

Healthcare

Anyone over 18

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What documents do you need?

Powers of Attorney

Financial

Healthcare

Anyone over 18

Last Will & Testament

Anyone with minor children

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What documents do you need?

Powers of Attorney

Financial

Healthcare

Anyone over 18

Last Will & Testament

Anyone with minor children

Revocable Living Trust

Most people who own real estate will benefit from having a revocable living trust

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Essential Language Includes:

Qualify for medicaid and medicare

Manage digital assets

Contest clause (if contested and lost, they lose their inheritance)

Sprinkling provisions for minor beneficiaries

Ability to modify trust situs

Avoid minimum distribution penalties on qualified plan assets

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Summary

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Estate planning just got easy

Smart, attorney-backed software and legally sound documents.

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How do Estate Taxes Work?

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Living Trust and Taxes….

A living trust does not typically provide any tax advantages. Its primary purpose is to keep your property out of probate.

The current thresholds required to trigger a federal estate tax are very high, but these numbers can change. There are ways for a married couple's Living Trust to haven a much higher threshold before triggering estate taxes. Few individuals have significant enough wealth to worry about triggering a federal estate tax liability upon their death.

When needed, we can create Provisions designed to help avoid double taxation.

Some states also impose estate taxes on property transferred because of death.

The federal exemptions have been quite high in the recent past, so regular middle class families likely won’t trigger taxes at the federal estate tax level. If your state has estate tax and the state threshold is lower than the federal one, there may be some provisions to consider there

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What is an Irrevocable Trust?

Quick aside to address revocable vs irrevocable trusts

A trust is considered revocable if the grantor can modify or dissolve it during their lifetime. The grantor usually acts as the trustee of their revocable trust during their lifetime. Since there is no change in the grantor’s beneficial enjoyment or legal access to assets placed in a revocable trust, there are no income tax advantages or protection from legitimate creditors resulting from creating a revocable trust.

An irrevocable trust is just the opposite. The grantor relinquishes all control over the trust after it is created and funded with property and/or money. This can be preferable for tax purposes and protection from creditors. The grantor cannot legally act as the trustee and can never take property or money back unless they name themself as a beneficiary and sets terms for distributions as part of the terms contained in the original trust document.

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Step-up in Basis

A step up in basis is when
An asset that’s inherited is worth more when the original owner dies than when they bought it
The tax code permits adjusting the cost basis to the higher value, reducing potential capital gains taxes upon selling it
This provision applies to heirs, not solely surviving spouses
Community property states have a dual step-up benefit with jointly owned community property assets
so let’s say your grandma purchased a house for $20k and your mom inherited. At the time of

The heir automatically receives the step up in basis even if they choose not to sell an inherited property or asset. They won’t pay capital gains taxes as long as they own the assets.

It can be passed down over generations, receiving a step-up in basis with each inhereitance.

This is one way to build generational wealth without leaving behind a giant tax bill.

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Step-up in Basis

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Step-up in Basis

Exclusions

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What if you move to another state?

Implications for Revocable Trusts and Last Will and Testament

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Personal Letter of Direction

Detailed Instructions for distributing your personal property upon your death

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Beneficiary Designation

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Beneficiary Distribution Designation

Per Stirpes vs Per Capita

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Beneficiary Distribution Designation

Per Stirpes vs Per Capita

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Age-Based Distributions

AGE	Distribution Percentage
20	25
30	25
40	50

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Behavior-Based Distributions

Drug addiction free
Alcohol addiction free
Gambling addiction free

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Debt Forgiveness

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Remaining Legal Heirs

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Beneficiary Sub-Trust

A Revocable Living Trust may contain sub-trusts which come into being upon the happening of an event. For example the Trust may state, “Upon my death, if my spouse survives me, my estate will be divided into a Marital Trust and a Bypass Trust.” The Trust may go on to state, “If my spouse has predeceased me, my Trust property shall be divided into equal trust shares to my beneficiaries.” The Marital Trust, the Bypass Trust and the trusts for the beneficiaries are all sub-trusts that may be contained in the Grantor’s Revocable Living Trust.

When a beneficiary sub-trust is created, the primary beneficiaries of the trust have their inheritance share held in a "sub-trust" instead of receiving it outright when the Grantors of the trust pass away. This can be a good option for individuals who are concerned about the beneficiaries, particularly when their beneficiaries are their married children, commingling their inheritance with their spouse or partner. This may also provide an additional layer of protection from creditors.

The beneficiary's share can be distributed to the sub-trust according to the terms of the trust and can be held in trust and overseen by the Successor Trustee until the beneficiary reaches a certain age. The grantor will specify this age when creating their Revocable Trust documents.

A sub-trust allows the Grantor(s) to choose to either 1) give the beneficiary the option to create a sub-trust to hold their inheritance or take their distribution in full, or 2) establish a sub-trust that the Successor Trustee oversees until the beneficiary reaches a certain age and becomes the trustee of the sub-trust.

Option 1 gives the beneficiary the choice to either receive their inheritance outright upon the passing of the Grantor(s) or to hold their inheritance in a sub-trust so that they can control when distributions are made to them over time.
Option 2 sets a specific age at which the beneficiary can become the Trustee of their own sub-trust. Prior to the beneficiary reaching that age, the Successor Trustee will be the Trustee of the sub-trust and the assets will be kept separate from the marital assets of the beneficiary. The Successor Trustee will oversee the distributions for that beneficiary. Once the beneficiary reaches the age specified, he/she can then take over their own sub-trust's management. If circumstances have changed or the beneficiary simply wishes to receive the rest of their share outright, they can do so once they are the trustee of their own sub-trust. Or they can choose to continue to have their assets held in the sub-trust and distribute out their inheritance whenever and however much they want. Once they are the trustee of their own sub-trust, they have total control over the assets in the sub-trust.
Sub-trusts are only set up for the primary beneficiaries named in the document. However, age-based distributions can still be set up for the alternate or contingent beneficiaries, should they end up inheriting due to the death of a primary beneficiary.
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Pet Provisions

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Life Estates: Powers vs No Powers

Life estates are a unique legal arrangement that grants an individual the right to reside in and use a property during their lifetime.

The nuances come in with regard to the powers associated with the individual and property rights.

These powers can vary widely, encompassing a spectrum of rights that dictate the extent to which the individual can control and manage the property. At one end of the spectrum, full powers empower the life estate holder with the authority to make decisions such as selling the property. Conversely, having no powers means a lack of authority to sell or make significant decisions regarding the property.

If the beneficiaries have no powers, title doesn’t vest to another person until an action occurs – either death or sale of the property. Thus, the property can be pursued by claims fo the owner of the property

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Funding your Trust

This one is huge

Now that you have a shell of a trust – the structure is in place. You actually have to fund your trust.

What does funding a trust even mean?

Funding your trust is the process of transferring your assets from you to your trust. To do this, you officially change the titles of your assets from your individual name (or joint names, if married) to the name of your trust. You may also change the beneficiary or contingent beneficiary designations to your trust.

Why is funding your trust so important?

If you have signed your living trust document, but haven’t changed titles and beneficiary designations, you will not avoid probate. Your living trust can only control the assets you put into it. You may have a great trust, but until you fund it (transfer your assets to it by changing titles), it doesn’t control anything. If your goal in having a living trust is to avoid probate at death and court intervention at incapacity, then you must fund it now, while you are able to do so.

What happens if I forget to transfer an asset?

Along with your trust, your estate plan will include a “Pour-Over will” that acts like a safety net. When you die, the will “catches” any forgotten asset and sends it to your trust. The asset will probably go through probate first, but then it can be distributed according to the instructions in your trust.

This is generally something that attorney charge extra to do. They create the structure then put their hand out to assist with funding it

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Which assets should I put in my trust?

What actually goes in your trust?

Generally, assets you want in your trust include real estate, bank/saving accounts, investments, business interests and notes payable to you. You will also want to change most beneficiary or contingent beneficiary designations to your trust so those assets will flow into your trust and be part of your overall plan.

What about my IRA and other tax-deferred accounts?

Do not change the ownership of these to your living trust. You can name your trust as the beneficiary, but be sure to consider all your options, which could include your spouse; children, grandchildren or other individuals; a trust; a charity; or a combination of these. Who you name as beneficiary will determine the amount of tax-deferred growth that can continue on this money after you die.

Most married couples name their spouse as beneficiary because 1) the money will be available to provide for the surviving spouse and 2) the spousal rollover option can provide for many more years of tax-deferred growth. (After you die, your spouse can “roll over” your tax-deferred account into his/her own IRA and name a new beneficiary, preferably someone much younger, as your children and/or grandchildren would be.) A non-spouse beneficiary can also inherit a tax-deferred plan and roll it into an IRA to continue the tax-deferred growth, but only a spouse can name additional beneficiaries.

Of course, any time you name an individual as beneficiary, after you die, the beneficiary can do whatever he or she wants with this money, including cashing out the account and destroying your carefully made plans for long-term, tax-deferred growth. The money could also be available to creditors, spouses and ex-spouses, and there is the risk of court interference at incapacity.

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How do I transfer Real Estate into my trust?

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What about assets with named beneficiaries?

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How do I transfer financial assets?

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Can I update my trust if anything changes?

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Plan Your Estate Today

WealthBattle.com/Estate

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Plan Your Estate Today

WealthBattle.com/Estate