What is Estate Planning?

1. What is Estate Planning? 4695 CHABOT DRIVE, SUITE 200PLEASANTON, CA 94588 TEL: (925) 558-2710 FAX: (925) 558-2701 LUNGU@LUNGULAW.COM WWW.LUNGULAW.COM

2. Goals for Today Find out which documents are included in an estate plan Learn how all the documents work together Learn how to use trusts to avoid probate Learn how to use trusts to keep the court out of your family

3. What is Estate Planning? • Estate planning is the planning process of determining the distribution of your assets upon your death. • Planning also covers management of personal affairs in the event of incapacity.

4. What Estate Planning Does Maintain Control Over Your Person & Affairs Avoids Probate Protects Your Children Protects Assetsfrom Lawsuits, Creditors, & Divorces Protects Against Administrative Expense & Delay Incapacity Planning Avoids Estate Taxes

5. General DocumentsIn Estate Plan • Pour Over Will • Revocable (Living) Trust • Advance Health Care Directive • Durable Power of Attorney for Property • Guardianship Documents for Minor Children

6. Pour Over Will • States you are over 18 – age of capacity • States your understanding of what you have and who you want to give it to • Names beneficiaries and Executor • Specifies gifts • Has Pour Over Provision to Trust • Must go through Probate

7. Trust • Agreement between you as Trustee and Beneficiary during your lifetime, for your benefit now, and the benefit of beneficiaries later • Provides for distribution of funded assets • Avoids Probate Court • Can be used to avoid or minimize Estate Taxes

8. Advance Health Care Directive • Gives an agent ability to make health care decisions for you if you cannot because of incapacity or illness • Can ensure burial and other end of life decisions are carried out

9. Durable Power of Attorney Gives an agent the ability to ensure your financial concerns are taken care of in the event of your incapacity Avoids conservatorship

10. Other Estate Planning Documents and Their Use Guardianship Nominations – document that names your designated guardian to care for minor children Affidavit of Intent to Return Home – conforms to rules for Medi-Cal and reimbursement requirements

11. Your Planning Options • Will • Revocable Living Trust • Or Both?

12. Definition of a Will or Trust • Set of instructions that take effect upon your death - amendable Revocable Living Trust Will • Set of instructions to care for you and your family during your lifetime, in the event of incapacity, and at death - amendable

13. Similarities of Wills and Trusts Revocable Living Trust • Provides for distributing property at your death • Has no adverse lifetime income tax consequences Will • Provides for distributingproperty at your death • Has no adverse lifetime income tax consequences

14. Differences of Wills and Trusts Revocable Living Trust • Are effective immediately • Avoids probate • Trusts are private • Are good in every state - portable Will • Are only effective at death • Must go through probate • Expensive • Long process for heirs • Probates are public • Are good only in state of residence

15. Will Revocable Living Trust My Property Property in My Living Trust No Probate Probate Heirs Heirs

16. Why Use Both? Funding of Assets Will Estate Trust Estate

17. Why Use Both? What if… Will Estate Trust Estate Refinance your house And you forget to put the house back in trust And you die

18. Why Use Both? What if… Will Estate Trust Estate Transferred to Will Estate Judge grants an order to return back to trust

19. Why Use Both? What if… Will Estate Trust Estate Judge grants an order to return back to trust

20. What is Probate? Probate is the first step in the legal process of administering the estate of a deceased person, resolving all claims and distributing the deceased person's property under a will. Court decides the legal validity of a deceased person’s will and appoints the executor. Probate Court then distributes assets. If there is no will, it is called an intestacy probate.

21. What is the Cost of Probate? Gross Asset Value of Entire Estate Minimum Statutory Probate Fees $22,000* $26,000* $36,000* $46,000* $66,000* $86,000* $106,000* *Fee is 0 if asset is in trust • $400,000 • $500,000 • $750,000 • $1,000,000 • $2,000,000 • $3,000,000 • $4,000,000

22. Why People Avoid Getting an Estate Plan? • Cost • Think their estate is too small to support the expense of planning • Want to initiate probate proceedings at death • Superstitious

23. What if You Do Nothing? • At Incapacity: • Guardianship/Conservatorship • Court controls assets • Brain dead on life support • At Death: • Court proceeding to determine who will be guardian for minor children • Assets distributed according to state law through probate - intestacy • Failure to do advanced planning for larger estates: • Family money goes to taxes instead of heirs – estate tax risk • Kids blow inheritance • Control issues and fighting among family members left behind

24. Who Needs a Trust? • “Everybody!” • Any individual with real property (home, land)– regardless of state • Any individual with assets valued at over $150,000 - gross • Those individuals that wish to spare their beneficiaries the burden and cost of probate • Those individuals who have specific distribution desires post death • Individuals with large estate tax risk

25. What is Estate Tax?Two Fundamental Rules • Unlimited Marital Deduction • ANY amounts passing to a spouse (or a qualifying trust for spouse) avoid estate taxes on the first death. • The tax, if any, is assessed upon the death of the surviving spouse. • Applicable Exclusion (Coupon) Amount • The dollar value of assets that one can leave to non spouse beneficiaries without incurring any estate taxes.

26. PRESENTED BY: UNCLE SAM Estate Tax Coupon For $5,340,000 This coupon allows you to leave assets and wealth, up to the face amount of the coupon, to someone besides your spouse, free of estate taxes. This coupon is non-transferable and must be redeemed at the time of your death.

27. How to Preserve over a $10,000,000 Estate Tax Free for your Heirs? Use a Family Trust! Let’s use our IRS “Coupon” - The Applicable Exclusion Amount

28. How to Waste Your Estate Tax “Coupon”? No Trust HusbandWifeTotal Assets: $5,340,000 $5,340,000 = $10,680,000 Husband dies, leaves all to wife. HUSBAND WIFE $5,340,000 $5,340,000 + $5,340,000 $10,680,000 Less One Coupon $5,340,000 Tax Cost: $2,136,000 (40% tax rate)

29. How NOT to Waste YourEstate Tax “Coupon” Using a Trust WIFE HUSBAND Husband dies & $5,340,000 of Assets go to Family Trust Income and other benefits to wife for her lifetime WIFE Assets in estate $5,340,000 Less Wife’s coupon - 5,340,000 Tax = 0 To Children at Wife’s Death

30. What is the ESTATE TAX “Coupon” Rate NOW? 2010 - $5,000,000 Coupon Amount 2012 - $5,125,000 Coupon Amount 2013 - $5,250,000 Coupon Amount 2014 - $5,340,000 Coupon Amount Remember that the top tax rate is 40% so your heirs potentially can lose almost half of every dollar that you do not specifically protect through trust planning

31. Does this Apply to Me? • Assets Included in Definition of “Estate” • Real Property in any state • Life Insurance Policies • Checking, Savings, Annuity or other Liquid Accounts • Business Interests – Sole Proprietor/Corp/LLC/Partnership • Retirement and Pension Plans • All Personal Property

32. Real Life Examples • Amy Winehouse – 27 year old singer with $5mm estate with no will – everything went to her parents – left out siblings (which was her expressed desire) • Terry Schiavo – no planning led to her being on life support for over 13 years • Leona Helmsley – put only $12 mm in trust for dog “Trouble,” rest of her billions had to be probated • J.S. – died in the middle of divorce with kids, estate left to husband • K.P. – no will so estate left to wife and two kids, although kids were already provided for before death • Busses can be dangerous

33. Questions? 4695 CHABOT DRIVE, SUITE 200PLEASANTON, CA 94588 TEL: (925) 558-2710 FAX: (925) 558-2701 LUNGU@LUNGULAW.COM WWW.LUNGULAW.COM