Annies Project Education for Farm Women a 501c3 organization Estate Planning Part Three Transferring Assets Use of Trusts DPA Long Term Care Insurance Homework Review Did you look at your net worth statement ID: 648163
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Slide1
Annie’s Project – Education for Farm Women
Annie’s Project – Education for Farm Women
a 501(c)(3) organization.Slide2
Estate Planning Part Three
Transferring Assets
Use of Trusts
DPA
Long Term Care InsuranceSlide3
Homework Review
Did you look at your net worth statement?
Did you look at the trend in net worth?
How are your assets balanced out between farm
and
non-farm assets?
What are sources of retirement cash flow? Slide4
Methods to Transfer
Contract
Life Insurance, Annuity
Transfer prior to death
Complete severance
Retained rights
Tenants in Common – goes to heirs
Joint Tenancy (rights of survivorship)
Ownership vests to survivors
Probate
Will
State lawSlide5
Your Farm Business
Good Will?
Land
Buildings
Bushes
Fruit
Trees
Perennial Plants
Machinery
Breeding
Livestock
Inventory
-Crops
- Supplies
- Market LivestockSlide6
Land
Buildings
Bushes
Fruit
Trees
Perennial Plants
Machinery
Breeding
Livestock
Inventory
-Crops
- Supplies
- Market Livestock
Parent Business
New Business
Cash Rent
Cash Rent
“Rent to Own”
Installment Sale
Sell in parent business name? Gift?
Cash Rent
$00.00
Operating
BusinessSlide7
Basic Estate Planning for Everyone
Reduce the number of times assets can be taxed
Income
and estate taxes
Review how property is owned
Check and update wills
Durable Power of Attorney
Durable Power of Attorney for Health Care
Patient Advocate FormSlide8
Taxable Estate Less Than $5.45 Million
Sales
and leases of business property
Perhaps some bargain sales and gifts
Insurance for risk
Trust
Management needs
Disability
Elderly years
Dependent ChildrenSlide9
Taxable Estate $5.45 to $10.9 Million
All previously listed
Split estate to capture both $5 million exemptions
Separate Sole Proprietor ownership
Tenancy in Common
Trust for splitting the estate and management
Bargain sales and giftsSlide10
Taxable Estate Over $10.9 Million
All of the above
Gifts become more important tool
Insurance to pay the tax
Charitable contributions
Get
income-producing
assets to heirs
Bargain sales and gifts
Use Special Use Valuation 2032A
Don’t worry about itSlide11
Liquidity
Cash
Life Insurance
15-year
installment payments if qualified
BorrowingSlide12
Terminology of Trusts
Property Corpus:
The assets that are held in trust (also called trust res, trust
assets
, principal, or trust estate
)
Trustee:
Holds title to trust property; manages the trust
propertySlide13
Terminology of Trusts cont’d
Beneficiary
:
Person or institution for whose benefit trustee owns and manages the trust property
Document (Trust
Instrument
):
Document that embodies the terms of the
trust
Donor (Settlor/Grantor):
Person who funds the trustSlide14
Advantages of Trusts
Can separate assets from beneficiaries;
i.e
.
separate
management
from
benefits
Utilize professional management of investments
Avoid
probate or minimize probate costsProvide for guardianship requirements of
transfers to minors or incapacitated persons
Increase privacy in property transfers
Guard against will contestsSave estate tax, in certain
cases (split assets)Slide15
Types of Trusts
Intervivos
(Living trust): established during life.
Revocable - can be changed.
Irrevocable – cannot be changed.
Testa
mentary
: established at time of
death
.
Pour-over trusts are established by a will.Charitable Remainder TrustLife Insurance TrustSlide16
Types of Trusts
Generation
Skipping Trust
Remember:
Trust may be joint (one trust for both spouses) or separate.
A joint trust may become two
trusts
at the death of one.
All trusts become irrevocable upon the death of the settlor.Slide17
Intervivos Revocable Trust
Avoids probate of trust assets:
Assets not required to go through probate process so transfer may be quicker after death.
Generally costs more to create than a will, but avoids probate costs.
Commonly used to avoid probate in another state where property is held. Slide18
Intervivos Revocable
Trust
cont’d
Property remains part of taxable estate for
calculation of federal
estate tax:
Does not reduce the value of estate for estate tax planning.
Heirs do receive step-up in basis because of retained control.
Spouses can use their own individual unified credit.Slide19
Intervivos Revocable
Trust
cont’d
Can
be fully funded at creation, at a set later
date
or subject to pour-over provisions of
will
.
Can be used to transfer management of
assets Can involve successor trustees to manage
assets before deathSlide20
Intervivos Irrevocable Trust
Can reduce value of taxable estate:
Common
tool for very
high-value estates
Transfers
subject to Gift Tax:
Over $14,000 (2016) per person reduces unified credit (value of $5,450,000) but appreciation occurs outside of estateSlide21
Intervivos Irrevocable Trust
If
grantor/settlor does not retain interest
in
income
or corpus of trust:
Trust must benefit others
Ex.
personal charitable foundation
No retention of life estate in
incomeEnjoyment by beneficiaries cannot be contingent on death of settlor – must be present interest (some room to plan for minors).Irrevocable transfer of property.Slide22
Charitable Remainder Uni-Trust
CRUT
Transfer property into trust irrevocably
Trust pays settlor income for life or term of
years
May provide for successor income beneficiaries
Remainder of trust goes to charities after
death of
settlor/successor beneficiary or after
term
of
yearsSlide23
CRUT cont’d
May
transfer appreciated property into CRUT
without
capital gain recognition
CRUT may sell appreciated property without recognizing capital gain
May receive charitable deduction
Payments may go to “
Crummey
Trust” to buy
life insuranceSlide24
Charitable Remainder Annuity Trust
CRAT
Transfer property into trust irrevocably
Trust
pays settlor income for life or term of
years
:
Relatively high rates of return on the full
amount
No recognition of capital
gainsSlide25
CRAT cont’d
Remainder
of trust goes to charities after
death
of settlor/successor beneficiary, or
after
term of years.
May receive charitable deduction.
Payments may go to “
Crummey Trust” to buy life insuranceSlide26
Universal vs Variable Life Insurance
Interest Accumulation
(Investments)
Premiums $$$$
Mortality
Administrative CostsSlide27
Providing for Long-Term Care
Adequate cash flow:
Significant
earnings
Sell
assets
Long-Term Care
Insurance
Medicaid:
Restrictions on
resourcesSlide28
Long Term Care Insurance (LTC)
Your odds are 33% that you will spend more
than
3
months in a nursing home (according to the
insurance
industry).
The very wealthy and very poor probably don’t
need
LTC insurance.
Studies suggests those with assets of more than $75,000 but less than $1 million may want to consider LTC in the Midwest. Numbers vary in
other regions.Slide29
Advance Directives
Durable power of attorney:
A
grant of authority to make financial decisions
and conduct business on your behalf if you become
incapacitated
.
Durable power of attorney for health care:
A
grant of authority to make
health-care decisions on your behalf if you are unable to make such decisions.Slide30
Durable Power of Attorney
DPA
Grant
of power to another to look after assets
and
manage
affairs
Anticipates possibility of
incompetence
Avoids
need for incompetency hearing or approval of guardianSlide31
Durable Power of Attorney
cont’d
Statute
defines powers (plenary – complete, unqualified):
Should also include express powers for tax returns, life insurance matters, making gifts, transferring property into
trust
Accessing safe deposit box, dealing with retirement plans and Social
Security
May be contingent or present:
Contingent: effective only upon
incompetencePresent: effective when executed and continues in spite of incompetenceSlide32
Durable Power of Attorney for Health Care
Allows you
to:
Choose a person (agent) to make health care decisions for you if you cannot speak
for
yourself
Communicate instructions about your health careSlide33
Durable Power of Attorney for Health Care
Your responsibilities:
Think about your values and
wishes
Choose someone you
trust
Choose an alternate
agent
Talk to family members and the agent concerning your
wishes
Complete, sign and make copies for the agent and family
membersSlide34
Durable Power of Attorney for Health Care
Agent responsibilities:
Understand your
wishes
Evaluate choices about your heath
care
Make decisions in accordance with your
wishes
Keep the original
documentSlide35
A Living Will
Becomes effective when death is the alternative to treatment and you are unable to make that decision.
Allows you to:
Direct physician to withhold or withdraw treatment that could prolong the dying processSlide36
A Living Will cont’d
Your responsibilities:
Clarify wishes with your family and with your physician
Complete the proper forms
Make copies for your family and physician
Doctor’s responsibility:
Follow your wishesSlide37
Questions
Who do you want to get into your safety deposit
box
? Is their name on the card?
Does your will/trust provide for designating
personal
items?
Where is your most recent will located?
Who needs to know your plan? Why?
Have you compiled all critical information in one
place? Who knows where it is? Slide38
Estate Planning Overview
Crucial estate planning steps:
Examination of how property is owned or held
Review of family insurance
program
Advisability of lifetime
gifting
Alternatives for disposing during life or after
death
Transferring the family
businessGet startedGet it writtenSlide39
Your Up-To-Date Estate Plan
Documents
Will
DPA
Property titled correctly
TOD/POD
Plans for non-titled property
Beneficiaries current – people tend to name
them and
forgetSlide40
Annie’s Project – Education for Farm Women
Annie’s Project – Education for Farm Women
a 501(c)(3) organization.