Embed Size (px)
Citation preview
©2013, College for Financial Planning, all rights reserved.
Module 11Estate Planning
Chartered Retirement Planning CounselorSM Professional Designation Program
Learning Objectives
11–1: Identify the objectives of estate planning.
11–2: Explain the use of wills and will substitutes for transferring property.
11–3: Describe the federal taxes involved in estate transfer and the concepts of applicable credit amount and applicable exclusion amount.
11–4: Explain the federal tax rules that apply to property transfers through gifts.
11–5: Explain the federal tax rules that apply to property transfers at death.
11–6: Explain how clients can use the marital deduction and bypass planning, trusts, and charitable deductions to meet their estate planning objectives.
11–7: Describe various approaches that small-business owners can use to transfer ownership.
11-2
Questions to Get Us Warmed Up
11-3
Learning Objectives
11–1: Identify the objectives of estate planning.
11–2: Explain the use of wills and will substitutes for transferring property.
11–3: Describe the federal taxes involved in estate transfer and the concepts of applicable credit amount and applicable exclusion amount.
11–4: Explain the federal tax rules that apply to property transfers through gifts.
11–5: Explain the federal tax rules that apply to property transfers at death.
11–6: Explain how clients can use the marital deduction and bypass planning, trusts, and charitable deductions to meet their estate planning objectives.
11–7: Describe various approaches that small-business owners can use to transfer ownership.
11-4
Estate Planning Objectives
• Provide for the financial needs of survivors
• Proper distribution of assets at death
• Protection of assets from the claims of creditors
• Avoid probate when appropriate
• Provide for possible incapacity
• Minimize death taxes
• Provide for orderly transfer of a business
11-5
Characteristics of Different Forms of Concurrent Ownership of Property
Form of Property Ownership
Maximum # of Owners+
Identity of Owners
Right to Transfer During Life
Right to transfer at Death
Deemed Ownership %
Tenancy in Common
Unlimited Anyone Owned interest only; no consent of co-owners required
Owned interest only; by will or intestacy (probate)
As stated in title; if not stated, equal ownership is presumed
Joint Tenancy with Right of Survivorship
Unlimited Anyone Owned interest only; no consent of co-owners required (except possibly for spouses)
By right of survivorship only; surviving owners split interest equally (will substitute)
Equal for all owners regardless of contribution to purchase unless otherwise stated
Tenancy by the Entirety
Two Husband and wife only
Owned interest only; consent of spouse required
By right of survivorship only (will substitute)
Equal for both spouses regardless of contribution to purchase
Community Property
Two Husband and wife only
State laws differ; usually owned interest only; consent of spouse usually required for real estate
Owned interest only; by will or intestacy (probate)
Equal for both spouses regardless of contribution to purchase
11-6
Learning Objectives
11–1: Identify the objectives of estate planning.
11–2: Explain the use of wills and will substitutes for transferring property.
11–3: Describe the federal taxes involved in estate transfer and the concepts of applicable credit amount and applicable exclusion amount.
11–4: Explain the federal tax rules that apply to property transfers through gifts.
11–5: Explain the federal tax rules that apply to property transfers at death.
11–6: Explain how clients can use the marital deduction and bypass planning, trusts, and charitable deductions to meet their estate planning objectives.
11–7: Describe various approaches that small-business owners can use to transfer ownership.
11-7
Will Substitutes: Types
Right of survivorship• Joint tenancy
• Tenancy by the entirety
Contract/beneficiary designation• Insurance
• IRAs/pension benefits
• Inter vivos trusts
• Payable on death (P.O.D.) accounts
• Totten trusts
• Transfer on death (T.O.D.) securities accounts
• Government savings bonds
11-8
Estate Property Distribution
Probate affects only the distribution of property.
Taxation of estate property (whether distributed through probate or outside probate) is an entirely different matter.
11-9
Learning Objectives
11–1: Identify the objectives of estate planning.
11–2: Explain the use of wills and will substitutes for transferring property.
11–3: Describe the federal taxes involved in estate transfer and the concepts of applicable credit amount and applicable exclusion amount.
11–4: Explain the federal tax rules that apply to property transfers through gifts.
11–5: Explain the federal tax rules that apply to property transfers at death.
11–6: Explain how clients can use the marital deduction and bypass planning, trusts, and charitable deductions to meet their estate planning objectives.
11–7: Describe various approaches that small-business owners can use to transfer ownership.
11-10
Estate Transfer Expenses: Estate Taxes
• Gross estate
• Deductionso Funeral and administrative expenseso Debtso Uninsured theft and casualty losseso Unlimited marital deductiono Unlimited charitable deductiono State death taxes actually paid
• Taxable estate
• Adjusted Taxable Gifts
• Estate tax base
• Creditso Gift tax payableo Applicable credit amount
11-11
Estate Transfer Expenses: Gift Tax
• Exempt transferso Medicalo Tuition
• Annual exclusiono Present interesto Amount
• Gift splitting (spouses only)
• Unlimited charitable deduction
• Unlimited marital deduction
• Cumulative calculation
• Applicable credit amount11-12
Gift & Estate Taxation Principles
11-13
Estate Tax
Gross estate components
• Property:o interests owned at deatho interests transferred during life with strings
attachedo over which decedent held a general power of
appointmento included in the probate estateo that passes at death by will substitute
• Survivorship benefits from a decedent’s IRAs, qualified retirement plans, and annuities
11-14
Estate Tax
Property interests transferred during life withstrings attached (and not released more thanthree years prior to death)Retained right to
• use the transferred property
• income from the transferred property
• amend or revoke disposition of the transferred property
• reacquire the transferred property
• determine beneficial enjoyment by others
11-15
Estate Tax: Three-Year Inclusionary Rule
Requires
• Inclusion of property in gross estate when decedent has surrendered, within three years of death, a retained right in previously transferred property that would have required inclusion had the retained right been held at death.
• Inclusion of life insurance death benefit when insured and owner of policy transfers ownership within three years of death.
11-16
Learning Objectives
11–1: Identify the objectives of estate planning.
11–2: Explain the use of wills and will substitutes for transferring property.
11–3: Describe the federal taxes involved in estate transfer and the concepts of applicable credit amount and applicable exclusion amount.
11–4: Explain the federal tax rules that apply to property transfers through gifts.
11–5: Explain the federal tax rules that apply to property transfers at death.
11–6: Explain how clients can use the marital deduction and bypass planning, trusts, and charitable deductions to meet their estate planning objectives.
11–7: Describe various approaches that small-business owners can use to transfer ownership.
11-17
Estate Transfer Tools: Trust Types
• Marital Deduction trust• Bypass trust• Contingent (standby) trust• Grantor retained interest trust• Charitable remainder trust• Charitable lead trust• Disclaimer trust• Irrevocable life
insurance trust• Spendthrift trust• Pourover trust
11-18
Marital Deduction Trusts
Purpose• Allow spouse of grantor
to receive income• Allow grantor to receive
marital deduction
Types• Power of appointment
trust• Qualified terminable
interest property (QTIP) trust with an election
• Estate trust11-19
Learning Objectives
11–1: Identify the objectives of estate planning.
11–2: Explain the use of wills and will substitutes for transferring property.
11–3: Describe the federal taxes involved in estate transfer and the concepts of applicable credit amount and applicable exclusion amount.
11–4: Explain the federal tax rules that apply to property transfers through gifts.
11–5: Explain the federal tax rules that apply to property transfers at death.
11–6: Explain how clients can use the marital deduction and bypass planning, trusts, and charitable deductions to meet their estate planning objectives.
11–7: Describe various approaches that small-business owners can use to transfer ownership.
11-20
Business Succession Planning
Possible transfer techniques• Outright gifts• Installment sales• Private annuity
transactions• QTIP trust• Buy-sell agreements
o Cross purchaseo Entity redemption
11-21
Business Forms
Family limited partnerships (FLP)• Pass through for income
tax purposes• General partnership
interesto Unlimited liabilityo Control of business
• Limited partnership interesto Limited liabilityo No control over
business decisions
11-22
Business Forms
Limited liability company (LLC)• Pass through for income tax purposes• All members have limited liability• All members equal in management
unless agreement says otherwise
11-23
Learning Objectives
• Appendix B: Incapacity Planning as it relates to Estate Planning
11-24
Incapacity Planning
Property management• Conservator (guardian of
property)
• Durable power of attorney
• Revocable living trust
• Contingent (standby) trust
Medical care• Living will
• Durable power of attorney for health care (medical proxy)
11-25
Medicaid Planning: Qualification Tests
• Medicalo Over age 65o Blind, oro Disabledo Activities of daily
living (ADL)o Need for supervision
• Incomeo 300% of the maximum
SSI benefit • Resource
o $2,000 (may vary by state)11-26
Medicaid Planning: Exempt Resources
• Primary residence ($500,000)o spouse or dependent continues to
resideo applicant or spouse intends to return
• Personal property • Vehicles • Life insurance • Annuities
(actuarially sound and immediate)• Burial insurance
11-27
Maximum value limits are imposed by state law in most categories, although amounts vary by state.
Medicaid Planning
Transfer of assets to become eligible
• Five-year lookback period for income or resources that were transferred for less than FMV
• Transfers result in period of ineligibility measured by the amount of the transfer divided by the average monthly cost of nursing home care as of the application date in the region in which application is made
• Ineligibility begins at the later of the first day of the month in which the transfer was made, or the first day the applicant is receiving services in a nursing home and the applicant is eligible for Medicaid but for the transfer
11-28
Question 1
Which of the following should not be addressed in incapacity planning?
a. decisions on personal careb. decisions regarding health carec. decisions regarding marital statusd. decisions regarding management of finances
and property
11-29
Question 2
Which of the following statements regarding property owned as community property is not correct?
a. The property may be owned only by a husband and wife in most community property states.
b. How property is titled determines whether property is considered to be community property.
c. Property inherited by one spouse during the marriage is not considered to be community property.
d. Each owner has equal ownership rights to the property.
11-30
Question 3
Robert made a gift to John of property worth $50 for which he had paid $75 two years ago. One year after the gift, John sold the property for $45. Which one of the following amounts represents John’s basis in the property to compute his gain or loss?
a. $45b. $50c. $75d. None of the above.
11-31
Question 4
Which of the following is not a possible subtraction from total gifts for the year?
a. charitable deductionb. annual exclusionc. unused applicable credit amountd. marital deduction
11-32
Question 5
Which of the following statements regarding living revocable trusts is not correct?
a. They will not save the grantor any income or estate taxes.
b. Assets owned by the trust at the grantor’s death will avoid probate.
c. They are often used for incapacity planning.d. The grantor cannot act as trustee of his or
her revocable living trust.
11-33
©2013, College for Financial Planning, all rights reserved.
Module 11End of Slides
Chartered Retirement Planning CounselorSM Professional Designation Program
