Fundamental Estate Planning Fall 2009

1. Fundamental Estate Planning Fall 2009

2. By: John P. Dedon Odin, Feldman & Pittleman, P.C. 9302 Lee Highway, Suite 1100 Fairfax, Virginia 22031 (703) 218-2131 John.Dedon@ofplaw.com

3. Personal Asset Accumulation Wages Qualified Plans Investment Income Inheritance

4. Death Can Be Unexpected

5. Proper Planning Will Allow You to . . . Give what you have, To whom you want, When you want, and In the way you want And Pay Less for: Court Costs Attorney’s fees Estate Taxes

6. We want to give our children enough . . . but we don’t want them to blow it!

7. Other Fundamental Planning Issues • Children from a previous marriage and second spouse • Children with special needs • Children with creditor, financial, or marital problems • Property in multi-states • Competency issues in future (parents) • Spouse who would need help managing and investing funds

8. Assets At Risk (4 Areas of Risk) Potential Creditors 35% Income Tax IRS Estate Tax (45% Federal) 3-6% Probate & Legal Expenses

9. 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 $ 1,000,000 $ 1,000,000 $ 1,500,000 $ 1,500,000 $ 2,000,000 $ 2,000,000 $ 2,000,000 $ 3,500,000 No estate tax* $ 1,000,000 Phase-in Schedule : Exemption Amount Year * Income Tax

10. If you think you know what you're worth . . . Think Again 50% 50%

11. Taxes are Due Nine Months After Your Death IRS MONTH 9

12. You have the option to plan your estate and avoid Death Taxes Death is Inevitable . . . IRS Estate Tax is Not!

13. Current Lifetime Gifting Rates $ 13,000 Annual Exclusion $1,000,000 : Life Time Gift

14. Probate Assets Pass According to Will or Intestacy Laws • Assets Passing Without a Will • Assets Passing With a Will

15. Probate Cost Time Delays Publicity Property In Multiple States

16. Benefits of Revocable Living Trusts Revocable Trust • Avoids Probate • Cost • Time Delays • Publicity • Problems with property in multiple states • Incapacity Planning • Estate Tax Planning • Bypass and Marital Trusts • GST Planning

17. BASIC PLANNING • Wills • Revocable Living Trusts • Advanced Medical Directives (Living Wills) • Powers of Attorney

18. Assets Passing at Death 1) Beneficiary Designations 2) Titling of Assets - Tenants In Common - Tenants By The Entirety (Assets Pass to Surviving Spouse) - Joint Tenants with Right of Survivorship (Assets Pass to Surviving Owner) 3) Probate 4) Revocable Living Trusts

19. Case Study Dad Mom Grandma 2 Children

20. Profile • Married • $2 Million + • Equity in real estate, retirement plans, other liquid assets, life insurance

21. Assets $ 800,000 $ 300,000 Retirement $ 450,000 $100,000 Liquid $ 900,000 Insurance $2,000,000 $250,000 Total $2,450,000 $350,000 $2,000,000 Grand Total = $4.8 million

22. Objectives • Provide for surviving spouse • Eliminate or avoid estate tax • Eliminate probate • Provide for children at second death • Provide for Mom

23. Solutions • Wills, Revocable Trusts with credit trust and marital trust for surviving spouse, Powers of Attorney and Medical Directives. • At second death, trusts for children, with distributions at ages 25, 30, and 35. • Special Needs Trust for Grandma.

24. Using Revocable Trust to Reduce Estate Tax Upon Husband’s Death $2,450,000 Wife’s Trust $350,000 Marital Trust $2 Million Joint Property Husband’s Trust < $3.5 Million Tax Free Marital Share: Assets > $3.5 Million Inheritance (Tax-Free) Bypass/Credit Trust (Husband’s Exemption $2,000,000) Spouse = Trustee and Beneficiary

25. Potential Titling Problems • Wife dies first, only $350,000 • Jointly held property • $1 million exemption amount in 2011?

26. Second Death Special Needs Trust $2 Million $$$ $2 Million 25 (1/3) 30 (1/2) 35 Balance Need Executor, Trustee, Guardian