Post on 21-Sep-2020
transcript
9/14/2017
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Estate Planning & Charitable Giving: Peanut Butter Meets Jelly
BY BRIAN Y. CHOU, ESQ
Barbara
Age 85 Net worth: $2m
House: $1m
IRA: $500K
Brokerage Acct: $500K
Daughter is trustee of her trust Wants to leave a charitable bequest to her Alma
Mater but doesn’t trust daughter to make the distribution
What to do?
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Today’s Goal
To build a better understanding of how charitable giving and estate planning intersect
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Why do we give?
Gifts with benefits … why donors give …
Makes us feel good, duh Tax benefits (income tax, estate tax, capital
gains) Build a legacy Build goodwill or good PR Create a lifetime income stream (retirement
planning) Teach or support our children
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How do donors give?
Present day gifts – covered in prior session Testamentary gifts
Will Trust Beneficiary Designation – IRAs, 401Ks and other
qualified retirement accounts
Split Interest Gifts – to be covered in afternoon session Charitable Gift Annuity Charitable Remainder Trust Charitable Lead Trust
Professionals in the Estate Planning Process
Financial Advisor CPA Estate Attorney Insurance
Professional Professional
Fiduciary Planned Giving
Representative
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WHAT IS AN ESTATE?
WHY DO ESTATE PLANNING?
After Death Control Who Receives Assets
Pay Minimum Legal Fees, Taxes
At Incapacity Control Assets, Medical Decisions
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ELVIS PRESLEY
Gross Estate $ 10,165,434
Debts 3,878,539
Administrative, Legal
& Executor Fees 1,961,128
Estate Taxes 3,339,520
To Heirs $ 986,247
COMMON ESTATE PLANS
Will Doing Nothing Joint Ownership
Giving Away Assets Beneficiary TransfersRevocable Living Trust
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PLAN #1: DOING NOTHING At Death
Probate
Assets Distributed by State Law
At Incapacity Court Controls
Assets
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WHAT ISPROBATE?
Legal Process Will Validated
Debts Paid
Assets Distributed According To Will
Only Legal Way to Change Title
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PROBATE ILLUSTRATION
Assets Titled in Just Your Name Go Through Probate
PROBATEFEES
HEIRS
TAXES
PROBATE
HOME& OTHER
PROPERTY
HEIRLOOMS
STOCKS
INVESTMENTS
John SmithPay to_____________ $ _______
CHECKING ACCOUNT
BONDS
California Probate Statutory Fees
Estate Value Statutory Fee$100,000 $8,000$300,000 $18,000$500,000 $26,000$800,000 $38,000$1,000,000 $46,000$2,000,000 $66,000
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PROBATE TAKES TIME 9 Months - 2 Years
PROBATE IS PUBLIC No Privacy Easy to Contest
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PROBATE PROCESS HAS CONTROL How Your Will Is Interpreted Cost Time Privacy
PLAN #2: WILL
Expresses Your Wishes
Only Controls Assets Titled In Your Name
Enforced By Probate Court
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WILLS & INCAPACITY
Will Is No Help
Court Process
Durable Power of Attorney
PLAN #3: JOINT OWNERSHIP
Surviving joint owner has full ownership
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TOM & ANNJoint
Owners
TOM DIESANN INHERITSTOM’S SHARE
ANN DIES
ANN’S HEIRSINHERIT
NO PROBATE PROBATE
ANN MARRIESDAN
ANN DIES DAN INHERITSANN’S SHARE
TOM’S & ANN’SCHILDREN
DISINHERITED
DAN & ANNJoint
Owners
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JOINT OWNERSHIP SUMMARY
1. Only Postpones Probate2. Unintentional Disinheriting3. Incapacity = Court Interference4. Difficult To Remove Co-Owner5. Lawsuits6. Debts/Tax Problems
PLAN #4: GIVINGAWAY ASSETS You Lose Control
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STEPPED-UP
BASIS
Selling Price $ 250,000
Basis - 20,000
Gain $ 230,000
Capital Gains Tax $ 34,500
Lifetime Gifts(Your Basis)
Selling Price $ 250,000 $ 250,000
Basis ‐ 20,000 ‐ 250,000
Gain $ 230,000 $ 0
Capital Gains Tax $ 34,500 $ 0
Lifetime Gifts(Your Basis)
Transfers At Death(New, Stepped‐Up Basis)
STEPPED-UP
BASIS
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Keeping Control with aREVOCABLE LIVING TRUST
CHANGE TITLES TOYOUR LIVING TRUST
HOME& OTHER
PROPERTY
HEIRLOOMS
STOCKS
INVESTMENTS
John SmithPay to_____________ $ _______
CHECKING ACCOUNT
BONDS
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YOU KEEP CONTROL Buy/Sell Assets as
Before Change/Cancel
Any Time Trust Contains Your
Instructions
GRANTOR(You)
TRUSTEE
Creates &Controls Trust
Manages Trust
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GRANTOR(You)
TRUSTEE
SUCCESSORTRUSTEE(s)
BENEFICIARIES
Creates &Controls Trust
Manages Trust
Steps in for Trustee
Receive AssetsWhen You Die
Choosing the Right Decision-Makers
Friend or family member Professional Fiduciary Corporate Trustee
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YOU CONTROL INHERITANCE
All At Once
Installments
Income Only
WILLS & MINOR CHILDREN
Court
Appoints Guardian
Controls Finances
Child Inherits All At Legal Age
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Special Needs
Supplemental Income
Minors
Protect from Creditors/Predators
YOU CONTROLINHERITANCE
LIFETIME BENEFITS TRUST
Generation Skipping Trust Protects Child from Creditors
Protects Child from a Divorce Keeps Assets Separate
Estate Tax Reduction Assets Will Not Be Subject to Child’s Estate Tax
You determine at what age your child will inherit!
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EXPENSES THAT REDUCE YOUR ESTATE
ESTATETAXES
PROBATEINCOMETAXES
Estate Taxes: As if Death & Taxes Weren’t Fun Enough Individually, Let’s Combine Them
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What is it?
A tax on your stuff when you die The more you have, the more you have to pay This is in addition to income tax
Historical RatesYear Exemption Amount Top Rate1916 $50,000 10%1980 $161,000 70%2001 (EGTRRA) $675,000 55%2002 $1,000,000 50%2004 $1,500,000 48%2006 $2,000,000 46%2009 $3,500,000 45%2010 Unlimited 0%Kick the Can $5,000,000 35%Fiscal Cliff $1,000,000 55%
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Life After the Fiscal Cliff
Estate Tax Exemption is permanent at $5,250,000 indexed for inflation
Estate Tax Rate raised from 35% to 40% Portability
Portability
Double your pleasure – protect twice as much Need to file Estate Tax Return to claim No Liz Taylors – You can’t harvest DSUEAs For middle class estates, consider converting an
AB or ABC Trust to a flexible AB Trust.
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Gifting Opportunities
Gift tax lifetime exemption also made permanent at $5,250,000 (indexed for inflation)
Raised from $1,000,000 New Annual Gift Tax Exclusion: $14,000 More room to gift assets to move future
appreciation out of your estate
Estate Taxes and Charity
Charitable deduction for estate taxes –testamentary gifts
No limit on estate tax deduction Defined Value Clause
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BOB & SUE$7,000,000
INCOME,PRINCIPALIF NEEDED
BOB’S TRUST$3,500,000
BENEFICIARIES$3,500,000
BENEFICIARIES$3,500,000
SUE’S TRUST$3,500,000
IRREVOCABLE
AB Disclaimer Trusts
FOR MEDICAL DECISIONS
Advance Health Care Directive
Who decides for you when you can’t?
Do you want to be kept alive on life support?
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HIPAA
Health Insurance Portability and Accountability Act
New law that came into effect in 2004
Regulates Medical Privacy
Severe Penalties for Doctors that violate law.
Makes it tough for your Trustee to do his/her job
Need to create a “HIPAA Waiver” for loved ones
Overview: Components of a Basic Estate Plan
Revocable Living Trust Pour-Over Will Durable Power of Attorney Advance Health Care Directive HIPAA Waiver Transfer Documents (Deeds for Real Estate,
Assignment of Other Assets)
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Advanced Planning: Irrevocable v. Revocable
Gifts Present day gifts
Life Estates
Conditional gifts
Trusts ILITs
GRATs
QPRTs
IDGTs
Charitable Split Interest Trusts
Professionals in the Estate Planning Process
Financial Advisor CPA Estate Attorney Insurance
Professional Professional
Fiduciary Planned Giving
Representative
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Post-Death Administration
Decision-Maker must: Gather, account for, and safeguard the assets
Determine the value of the assets
Notify the beneficiaries
Pay expenses & taxes
Manage the assets
Carry out the terms of the trust
Usually involves the help of a number of professionals
Types of Testamentary Gifts
Specific Gift of Property Pecuniary Gift of $$ Amount Residual Gift Contingent Gift Discretionary Gift
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IRA Distributions
Generally, gotta recognize income and offset with charitable deduction
IRAs or Roth IRA Limited to $100K per year
Donor must be > 70&1/2
Directly to charity outright
May be used to satisfy the RMD requirement
Beneficiary Designations
Tax deferred retirement plans (IRAs, 401Ks, 403Bs, etc …) Good place to give to charity – tax free
Do not name “my estate” or “my living trust” generally
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What Can Donors Give?
The Importance of a Gift Acceptance Policy
Sets expectations for donors and fundraisers Increases transparency May create opportunities for strategic planning
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Professionals Working Together to Serve the Donor
Getting Involved
Join a local Trust Counsel Do outreach to local professional groups, like
CalCPA Reach out to existing donors or board members
who happen to be related professionals. Build relationships with these related professionals
so you have them as both resources and referral sources
Educate them on the importance of getting donors connected with the charity while they are alive to maximize their legacy and their enjoyment of their testamentary gift
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So What About Barbara?
Age 85 Net worth: $2m
House: $1m
IRA: $500K
Brokerage Acct: $500K
Daughter is trustee of her trust Wants to leave a charitable bequest to her Alma
Mater but doesn’t trust daughter to make the distribution
What to do?
I like to talk! Please Introduce Me To …
Charities that are looking to do outreach to their donors or prospective donors
Professional groups that are looking for public speakers for their meetings
Donors with charitable intent
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Fin