Estate Planning
Mark Ricklefs CLU ChFC CFP
Caveat
• This presentation is for informational purposes only. The
speaker appearing at this meeting is solely responsible for
the content of the presentation and may not necessarily
represent the opinion of the presenter. The presenter is
not in the business of giving tax, legal or accounting
advice. Attendees should consult with their own
professional advisors to determine the appropriateness of
any course of action. Mark Ricklefs is an Investment
Advisor Representative offering securities and investment
advisory services through Ameritas Investment Corp.
(AIC). The opinions and concepts discussed in this
presentation are for CE purposes only and are not
necessarily those of AIC.
The presenter is not in the business of giving tax, legal, or accounting advice. Please consult your personal advisors.
Avoiding Probate
• The definition of probate is the legal process of
validating a will before a judge.
• A revocable living trust is created during the grantor’s
lifetime and can be altered, amended, or revoked by
the grantor during the grantor’s life.
• A revocable living trust is created so that some estate
tax issues may be addressed at the grantor’s death.
• When the grantor dies, the trust either becomes
irrevocable or terminated, and the trust property is
distributed, either immediately or in the future,
according to the trust agreement.
The presenter is not in the business of giving tax, legal, or accounting advice. Please consult your personal advisors.
Benefits of a Revocable Living Trust
• Probate on assets are avoided when transferred
into the trust during the grantor’s life.
• The trust’s assets are managed if the grantor
becomes incapacitated.
• Life insurance benefits are received on grantor’s
life when grantor dies.
• The disposition of trusts assets are controlled.
• The terms of the grantor’s disposition of property
or private are kept.
The presenter is not in the business of giving tax, legal, or accounting advice. Please consult your personal advisors.
How is a Revocable Living Trust
Funded?
• Transfer assets when the trust is established
• Name the trust as a beneficiary of financial
instrument.
• Arrange to transfer assets later
The presenter is not in the business of giving tax, legal, or accounting advice. Please consult your personal advisors.
How Does it Work?
• An attorney prepares the trust agreement to
meet the grantor’s desires.
• The agreement specifies who will receive
payments, what amounts, and for how long.
• The trust will specify when the agreement will
terminate.
• It may be amended.
• The trust can be inactive during the lifetime of
the grantor and become active upon the grantor’s
death.
The presenter is not in the business of giving tax, legal, or accounting advice. Please consult your personal advisors.
What are Disadvantages?
• No federal income tax or estate tax benefits
apply.
• A trust can be more expensive to establish
than a will.
• Trust assets are subject to claims of the
estate’s creditors when the grantor dies.
The presenter is not in the business of giving tax, legal, or accounting advice. Please consult your personal advisors.
Summary
• A revocable living trust is an efficient way to
obtain professional asset management,
bypass probate process, and create efficient
estate distribution– all in a single document.
The presenter is not in the business of giving tax, legal, or accounting advice. Please consult your personal advisors.
Minimizing Transfer Taxes
• When an individual dies federal estate tax is a
key factor to consider when transferring
property.
• The exclusion amount for 2011 was $5M, 2012
is $5.12 M.
• If there is no strategy in place to minimize
estate taxes, much of an individual’s assets
can end up in the hands of the government.
The presenter is not in the business of giving tax, legal, or accounting advice. Please consult your personal advisors.
Lifetime Gift Strategy
• Giving gifts during the taxpayer’s lifetime
helps reduce the size of the estate remaining
when the owner dies.
• In 2012, a taxpayer may give up to
$13,000/person.
• Married couples are allowed to gift-split.
The presenter is not in the business of giving tax, legal, or accounting advice. Please consult your personal advisors.
Unused Spousal exclusion
• A transfer between spouses is not subject to
taxation, whether during the lifetime of the
owner or after death.
The presenter is not in the business of giving tax, legal, or accounting advice. Please consult your personal advisors.
The Trust Strategy
• Provide lifetime gifts through an irrevocable
life insurance trust
• The taxpayer transfers up the maximum taxfree gift amount multiplied by the number of
beneficiaries with present interests, each year
to the trust.
• The trust holds and invests the proceeds for
the benefit of trust beneficiaries.
The presenter is not in the business of giving tax, legal, or accounting advice. Please consult your personal advisors.
Other Strategies
• A private annuity involves two generations. The older
person exchanges an asset for an annuity of equal
value to be paid by the younger person.
• An installment sale – an asset is sold in exchange for a
promissory note from the younger person.
• Charitable giving – provides a way for the donor to
meet philanthropic goals and purposefully reduce the
size of his or her estate.
• A life income gift – a type of charitable gift that both
creates a tax deduction for the donor and provides an
annuity to one or more non-charitable beneficiaries.
The presenter is not in the business of giving tax, legal, or accounting advice. Please consult your personal advisors.
Summary
• All plans to minimize transfer taxes require
careful preparation and assistance of tax
advisors to be certain desired results are
achieved.
The presenter is not in the business of giving tax, legal, or accounting advice. Please consult your personal advisors.
Bypass (Credit Shelter) Trust
• A bypass trust is used by married couples to
minimize federal estate taxes, by fully utilizing
the estate tax exemptions of both spouses.
• A bypass trust can also provide asset
protection and preserve estate assets for
children and grandchildren, and provide
income for someone other than the spouse.
The presenter is not in the business of giving tax, legal, or accounting advice. Please consult your personal advisors.
The Process
• When the first spouse dies, the estate is divided into
two parts.
• The allowable estate tax exemption is placed in the
bypass trust ($5.12 M in 2012).
• The amount placed in the bypass trust avoids estate tax
up to the exemption allowed in the year of the first
spouse’s death.
• The other part of the estate may pass directly to the
surviving spouse or be placed in a marital trust and
held for the spouse’s benefit.
• The surviving spouse may receive income for life from
the bypass trust.
The presenter is not in the business of giving tax, legal, or accounting advice. Please consult your personal advisors.
The Process
• In addition to receiving income, the surviving spouse may
have certain rights to the principal including the right to
withdraw principal for health, education, support and
maintenance needs, to exercise a limited power of
appointment.
• Despite these rights to income and principal, the assets of
the bypass trust are not included in the surviving spouse’s
gross estate at his or her death.
• When the second spouse dies, the bypass trust may either
terminate or continue.
• Any assets owned by the surviving spouse outside the
bypass trust will be included in the spouse’s estate at his or
her death and subject to the federal estate tax.
The presenter is not in the business of giving tax, legal, or accounting advice. Please consult your personal advisors.
Spousal Portability
• The estate of the first spouse to die can
transfer the unused exclusion amount to the
surviving spouse.
• A new aspect of the estate tax law provides a
way to use both spouses’ estate tax exemption
without a trust. There are additional benefits
for a bypass trust besides utilizing estate tax
exemptions for both spouses.
The presenter is not in the business of giving tax, legal, or accounting advice. Please consult your personal advisors.
Additional Uses
• Bypass trusts can also be set up to provide income for
others. A trust may be payable to a children or
grandchildren.
• Regardless of who is the primary beneficiary or
beneficiaries of the bypass trust, the same rules apply.
The remaining trust assets at the primary beneficiary’s
death won’t be included in his or her gross estate.
• Bypass trusts may be set up with terms that suit a
particular individual’s needs.
• Bypass trusts can offer asset protection in certain
cases.
The presenter is not in the business of giving tax, legal, or accounting advice. Please consult your personal advisors.
Summary
• It is vital to consider carefully the tax consequences of any
customization of a bypass trust.
- A portion of the decedent’s estate up to the applicable
estate tax exclusion for the year of death can be placed in
the bypass trust.
- The remainder of the estate is given to the surviving spouse
or placed in a martial trust.
- Income and/or principal from the bypass trust can be paid
to the spouse during his or her lifetime.
- At the surviving spouse’s death, the beneficiaries receive
the property from both trusts, but the property in the
bypass trust is not included in the surviving spouse’s gross
estate.
The presenter is not in the business of giving tax, legal, or accounting advice. Please consult your personal advisors.
Marital Deduction/QTIP
• The marital deduction allows property to be
transferred either during life or at death between
spouses, without triggering either the federal estate
tax or federal gift tax.
• Spouses must be legally married, the spouse receiving
the transfer must be a U.S. citizen, and the property
transferred to the spouse can’t be an interest in
property that can expire after the passage of time, or
the occurrence or non-occurrence of an event.
• Qualified terminable interest property (QTIP) is allowed
as a certain type of “terminable interest”.
The presenter is not in the business of giving tax, legal, or accounting advice. Please consult your personal advisors.
QTIP Exception
• QTIP is property in a decedent’s estate that,
even though it’s a terminable interest, can still
qualify for the estate tax marital deduction.
• The term also includes property given to a
spouse during life that qualifies for the gift tax
marital deduction, even though it’s subject to
similar restrictions.
• The executor must make an election to treat
the trust as a QTIP trust.
The presenter is not in the business of giving tax, legal, or accounting advice. Please consult your personal advisors.
The Process
• The will of the first spouse to die directs that
certain property be placed in a QTIP trust.
• The executor elects whether to qualify the
property for the marital deductions in the
deceased spouse’s estate.
• No one can have a power to appoint any part
of the property to anyone other than the
surviving spouse.
The presenter is not in the business of giving tax, legal, or accounting advice. Please consult your personal advisors.
The Process
• All of the trust income must be paid to the
surviving spouse no less frequently than
annually for the spouse’s life.
• The surviving spouse has the right to force
conversion of nonproductive property into
productive property.
• When the surviving spouse dies, the trust
principal passes to beneficiaries designated by
the first spouse.
The presenter is not in the business of giving tax, legal, or accounting advice. Please consult your personal advisors.
The Tax Picture
• At the first spouse’s death, the marital
deduction may be claimed even though the
transfer is a terminable interest.
• At the second spouse’s subsequent death, the
transfer will be included in the gross estate,
even though the spouse had no ownership or
interest over the property.
The presenter is not in the business of giving tax, legal, or accounting advice. Please consult your personal advisors.
Benefits
• Flexibility in estate arrangements
• Lifetime income for surviving spouse
• Placing restrictions while still claiming the marital
deduction
• The chance to decide whether to leave property
outright to a surviving spouse
• Children of prior marriage will be assured that
property will eventually be passed
• Remarriage questions
The presenter is not in the business of giving tax, legal, or accounting advice. Please consult your personal advisors.
Summary
• A QTIP trust provides a way to take full
advantage of the federal gift and estate tax
marital deduction at the same time it helps an
estate owner assure that his or her
objectives—reducing taxes, assuring income
to survivors, securing professional property
management and other objectives will
become a reality.
The presenter is not in the business of giving tax, legal, or accounting advice. Please consult your personal advisors.