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Estate Plans That Work

Estate Plans That Work. Tennessee Office 207 Mockingbird Lane Suite 402 Johnson City, TN 37604. South Florida Office 3020 NE 32 Ave. Suite 302 Fort Lauderdale, FL 33308. North Florida Office 1200 Plantation Island Dr. Suite 220 St. Augustine, FL 32080. Florida Keys Office

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Estate Plans That Work

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  1. Estate Plans That Work Tennessee Office 207 Mockingbird Lane Suite 402 Johnson City, TN 37604 South Florida Office 3020 NE 32 Ave. Suite 302 Fort Lauderdale, FL 33308 North Florida Office 1200 Plantation Island Dr. Suite 220 St. Augustine, FL 32080 Florida Keys Office 1010 Kennedy Dr. Suite 201 Key West, FL 33040 SERVING CLIENTS IN: AVENTURA • BOCA RATON • BRISTOL • CHATTANOOGA • CLEARWATER • CORAL GABLES • DAYTONA BEACH • DEL RAY BEACH • FERNANDINA BEACH • FORT LAUDERDALE • FORT MYERS • GAINESVILLE • JACKSONVILLE • JOHNSON CITY • KEY LARGO • KEY WEST • KINGSPORT • KNOXVILLE • MARATHON • MIAMI • MORRISTOWN • NAPLES • OCALA • ORLANDO • PALM BEACH • PALM BEACH GARDENS • PALM COAST • PONTE VEDRA • PORT CHARLOTTE • SARASOTA • ST AUGUSTINE • ST PETERSBURG • STUART • TAMPA • VENICE • WEST PALM BEACH • WINTER PARK • OTHER MARKETS IN THE EASTERN UNITED STATES • EUROPE • ASIA www.taflaw.com Updated 1/15/2007

  2. The Andersen FirmA Professional Corporation IRS Circular 230 disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Updated 1/15/2007

  3. “Imagine your life has ended and you’re looking down from your cloud at your loved ones. Everything you’re looking at tells you your estate plan is working perfectly, exactly as you planned it . . . . . .WHAT do you see? A Question: Updated 1/15/2007

  4. If what you see is what you wanted to happen then what you have is an . Estate Plan That Works In Reality Most Estate Plans . Don’t Work Updated 1/15/2007

  5. It helps to get past the various “smoke screens”: • Wills vs. Trusts • Avoid Probate / Save Taxes • Hourly vs. Fix Fee Billing “PTA”: Philosophy / Technical Basics / Application Updated 1/15/2007

  6. I. “Philosophy” of an Estate Plan That Works Updated 1/15/2007

  7. Definition 1. I want to my property while I am alive and well; 2. Plan for my loved ones and me in case I become 3. Give I want, I want, I want, I want; 4. All at a fully disclosed and controlled to me and those I love. Control A. The of an estate plan that works: Disabled What To Whom When The Way Cost Updated 1/15/2007

  8. B. A new for an estate plan that works: Paradigm “Paradigm” Shifts: • 1492, Columbus and a flat earth The “Traditional” Planning Paradigm: Planning Priorities: 1. 2. 3. 4. 5. Save Taxes / Avoid Probate Protect Wealth Enhance Wealth The Family Client / Spouse Updated 1/15/2007

  9. The “New Paradigm” Planning Pyramid: End of Philosophy . . . Taxes / Probate 5. 4. 3. 2. 1. Protecting Wealth Enhancing Wealth Family / Beneficiaries Client / Spouse Updated 1/15/2007

  10. So, let’s add a small dose of (semi) “Technical” to understand the TIP of the Pyramid so we can then concentrate on ME and MY FAMILY Updated 1/15/2007

  11. II. Technical basics of an Estate Plan That Works Updated 1/15/2007

  12. A. Taxes “TRANSFER” Tax System . . . • GIFT Tax: up to 45% • Each individual can give up to $ • To any other individual • In any without paying gift tax • $ lifetime exemption • Unlimited Marital Deduction 12,000 Year 1,000,000 Updated 1/15/2007

  13. 2. ESTATE Tax: Up to 45% • The “Coupon” amount: $ • Two Rules: • Expiration Date: “Choose it or Lose it!” • Non-Transferable • Unlimited Marital Deduction 2,000,000 Updated 1/15/2007

  14. 3. GENERATION SKIPPING Tax: up to 45% • Skip One Generation • The “Coupon” Amount: $ • The Unlimited Marital Deduction 2,000,000 Updated 1/15/2007

  15. The Tennessee Inheritance Tax Gap Federal Estate Tax Coupon Tennessee Inheritance Tax Coupon • In 2009, the Federal Coupon will be $3,500,000, but the Tennessee coupon will only be $1,000,000. • In 2010, the Federal Estate Tax will disappear for 1 year, but Tennessee will continue to tax estates of over $1,000,000. Updated 1/15/2007

  16. Tennessee Transfer Tax System • 1. GIFT Tax: • Each individual can give up to $12,000 to any direct relative, or • $5,000 to the 1st person and $3,000 to any person thereafter, In any year • Without paying State gift tax • 2. ESTATE Tax: • The ­TN “Coupon” amount: $1,000,000 →Expiration Date – “Choose It or Loose It” →Non-Transferable →Unlimited Marital Deduction →Counseling will be needed to help plan for the • Coupon changes • →Designed to pay least possible “death” taxes Updated 1/15/2007

  17. B. The LAW The “Magic Rule”: TITLE = RESULT!!! Think about the 3 WAYS you can own property at the time of your death … and what happens in each case Updated 1/15/2007

  18. Individual Probate • Title at death = • **WITH or WITHOUT A WILL!! The 3 Big complaints about PROBATE??? • A) Time: • B) Cost: • C) Privacy: 6 – 18 Months 4 – 7 % Public Record Updated 1/15/2007

  19. 2. Title at death = Ownership passes to other Joint Owner(s). Joint Automatically This happens “By operation of Law.” In other words “The Survivor WINS” BUT … be aware of the dangers of depending on joint ownership as the ” ” of an estate plan Centerpiece Updated 1/15/2007

  20. 3. Title byat death = over how your assets pass. Familiar examples of Title by Contract = Beneficiary Designations for: A) Life Insurance B) Annuities C) IRA’s and 401 – K’s Contract Control End of Technical Basics Updated 1/15/2007

  21. THREE ROLES Revocable Living Trust • Trustmaker(s) • Trustee(s) • Beneficiary(-ies) • The “ “ Story: • First Step the “Bucket” • Second Step the “Bucket” Bucket Create Fill 2. The “ ” Story: Babysitter * A Key Distinction: vs. Word Processing Counseling Updated 1/15/2007

  22. III. Application of an Estate Plan That Works Updated 1/15/2007

  23. A. Providing for my SPOUSE 5m $ Total Assets $ 2.5m $ 2.5m Husband’sWife’s Co- (Both Alive) Trustees • --------------------------------------------------------------------------------- (After 1st death) Surviving Spouse Beneficiary Trustee Marital Trust Family Trust (“A”) (“Credit Shelter,” “Bypass”, “B”) (After 2nd death)*Protections: (remarriage; creditors &“predators”) Health, Education & Maintenance 500k 2m $ $ No Tax upon first Death Updated 1/15/2007

  24. B. Providing for my and / or Children Beneficiaries • The KEY question is “How Much” • do you want to give your Children / Beneficiaries? Control Access Ownership Updated 1/15/2007

  25. Outright In Trust Conserv. Lifetime Trust Lump Sum Phases Stages Lifetime Protective Trust & 1/3 at 35 1/3 at 45 1/3 at 55 Kids House College $ Health, Education & Maintenance In trust for the beneficiary's lifetime; income & principal in the Trustees discretion: Brother’s Trust Sister’s Trust No Asset Protection $ $ Brother as Trustee and Beneficiary w/ Co-Trustee Sister as Beneficiary w /Third Party Trustee Updated 1/15/2007

  26. The Three & of EVERY Estate Plan: Phases Costs 1.The Upfront Phase: a) Documents . . . vs. . . b) Counseling and Design Updated 1/15/2007

  27. 2. The Updating Phase: (or failing to update!) • What Changes??? Life Law Lawyer a) How long (on average) do people go before updating their estate plans? yrs!! 19.2 90% b) How many Trust buckets are not fully funded?!!! Updated 1/15/2007

  28. 3. The Settlement Phase: Don’t fall for the “Magic Book” myth!! The CHALLENGE: takes responsibility for each phase & its cost and?? Who When Updated 1/15/2007

  29. IV. Advanced Planning Techniques Updated 1/15/2007

  30. Qualified Personal Residence Trust Tenants in Common Husband’s Wife’s 50% Gift to Trusts 50% Right to live in house for # of Years H’s QPRT W’s QPRT Value of Home + Appreciation out of Estate Home out of reach of creditors Current FMV of Home - Value of right to live in Home = Taxable Gift Updated 1/15/2007

  31. Buildup Equity Retirement Trust Spouses Lifetime Irrevocable Trust for Transfer into Trust Higher of $ or % of Trust Each Year Spouse Can Use Trust for Property in BERT: Protected from Passes Upon Death 5,000 5 Transfer Tax Free Needs Creditors Transfer Tax Free Updated 1/15/2007

  32. Slow and Steady Greater of $5,000 or 5% of Trust (assuming 2% inflation) Growth of BERT Assets 6%10% Year 5: $29,877 $33,578 Year 10: $69,858 $87,656 Year 20: $211,735 $372,824 Year 30: $634,456 $1,302,031 For Each BERT ! Updated 1/15/2007

  33. Growth of BERT Assets Super Charged Year 1 - $240,000 Gift Thereafter - $12,000 Gift Assuming 2% Interest 6%10% Year 5: $377,879 $448,884 Year 10: $586,741 $813,875 Year 20: $1,269,317 $2,383,485 Year 30: $2,541,699 $6,517,169 For each BERT! Updated 1/15/2007

  34. Limited Liability Company Family Run Company as Members Business • Contribute Assets to LLC • Assets LLC may NOT be Unprotected Inside Seized • Creditors can only get a which is the Right to the Member’s Charging Order • Share of Distributions • Creditor of LLC can only Sue the LLC Updated 1/15/2007

  35. Limited Liability Company • Less Than • Company's Value Asset Value Discounts: Most Protection Wyoming LLC: Lowest Valuation Lack of Marketability Minority Interest Updated 1/15/2007

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