ESTATE PLANNING FOR THE ESTATE PLANNING FOR THE MODERN AGE J. - PDF document

Estate Planning for the Modern Age ESTATE PLANNING FOR THE ESTATE PLANNING FOR THE MODERN AGE J. Aaron Bennett Carruthers & Roth, P.A. Phone: 336-478-1105 E-mail: jab@crlaw.com Modern Day Trends 2  Families are more varied  Increasing life-expectancy and a greater emphasis on personal choice in making health- care decisions  Assets are more complicated  With increasing exemptions, less focus on federal estate tax with a greater focus on federal estate tax with a greater focus on income tax  Emergence of digital assets Carruthers & Roth, P.A. 1

Estate Planning for the Modern Age Modern Families 3  The “traditional family”  W ki  Working spouse  Non-working spouse  Two children  The “modern family” is more varied  Non-married couples  Blended families  Blended families  Divorced couples with children that do not officially marry  Senior couples that do not officially marry Modern Families 4  2010 U.S. Census Bureau:  Married households comprise 52%of U.S. households  50%of the children in the U.S. are in one or more blended families  38%of marriages in the U.S. are remarriages for one or both partners Carruthers & Roth, P.A. 2

Estate Planning for the Modern Age Modern Families 5  Estate planning concerns for blended families:  Balancing support for children and partner/spouse B l i t f hild d t /  Spouse's right to claim statutory share  Divorce  Choosing the right fiduciaries  Protecting young children  Caring for elderly parents  Planning for disability  Tax apportionment Modern Families 6  Example:  Jay is married to Gloria  2 nd marriage for both  Jay is 25 years older than Gloria  Jay owns & operates a successful closely-held business  Jay has two adult children (Mitchell & Claire) from a prior relationship  Gloria has one teenage child (Manny) from a prior relationship  Jay & Gloria have a newborn child (Joe)  Claire is married to Phil & has three children  Mitchell is married to Cameron & has one adopted child Carruthers & Roth, P.A. 3

Estate Planning for the Modern Age Modern Families 7  Jay’s estate planning concerns: y p g  How will Gloria and newborn be provided for?  Will closely-held business continue after Jay’s death?  Will Mitchell and/or Claire inherit at Jay’s death?  If a marital trust is established, who will serve as Trustee?  Estate tax apportionment Modern Families 8  QTIP / Marital Trust:  Inheritance held in a trust for surviving spouse’s lifetime, instead of outright  Who will be Trustee?  Mandatory income distribution  Marital deduction  Remaining trust property passes to person’s identified by g p p y p p y grantor’s at surviving spouse’s death  If spouse is not significantly older than the children, they might have to wait almost their entire lifetimes to inherit Carruthers & Roth, P.A. 4

Estate Planning for the Modern Age Modern Families 9  Divide estate between spouse and children: p  Will surviving spouse have enough to live on?  Consider spouse’s statutory share N.C.G.S. 30-3.1 et seq.  Are assets suitable for splitting?  Estate tax apportionment? Modern Families 10  Estate planning concerns of unmarried couples:  Asset title, survivorship, and payable on death designations  Beneficiary designations  No statutory requirement to leave property to an unmarried partner  No common law marriage in NC  No statutory share or spousal allowance  No Social Security Survivor benefits  No Social Security Survivor benefits  No spousal rollover of IRAs  Federal gift and estate tax consequences  No marital deduction Carruthers & Roth, P.A. 5

Estate Planning for the Modern Age Health Care Decision-making 11  Recent trends:  Aging population  Aging population  Greater likelihood of cognitive impairment  Greater focus on patient preferences in health care  Planning opportunities:  Health Care Power of Attorney  Advanced Directive for a Natural Death (“Living Will”) Will )  Do Not Resuscitate Order (“DNR”)  Medical Order for Scope of Treatment (“MOST”) Retirement Benefits 12  Qualified Retirement Plan Accounts & IRAs:  Increasingly large part of estate g y g p  Inadequate attention paid  Subject to estate and income taxes (except for Roth plans)  Minimum distribution requirements can frustrate estate planning goals  Spendthrift and creditor protection concerns p p  Special needs beneficiaries  Support for surviving spouse, versus retaining retirement benefits for children from a prior marriage. Carruthers & Roth, P.A. 6

Estate Planning for the Modern Age Retirement Benefits 13  Beneficiary designation on file controls, not the Will y g ,  Income tax considerations:  Owner die before or after Required Beginning Date?  Spouse beneficiary = spousal rollover  Non-spouse designated beneficiary = stretch distributions based on individual’s life expectancy  Specific trusts (conduit or see through trusts) = stretch  Specific trusts (conduit or see through trusts) stretch distributions over oldest trust beneficiary’s life expectancy  Estate, non-see through trusts or other non-individual beneficiaries  Must be fully distributed within 5 years Retirement Benefits 14  Conduit trust:  Conduit trust:  Trust requires the trustee to immediately distribute to the trust beneficiary any retirement benefit distributions.  No retirement benefit distributions can be accumulated in the trust.  Conduit trust beneficiary is considered the sole beneficiary for MRD purposes. y p p  Accumulation trust:  Unlike a conduit trust, the trustee has the discretion to accumulate some or all benefit distributions.  Remainder beneficiaries count for MRD purposes. Carruthers & Roth, P.A. 7

Estate Planning for the Modern Age Income Tax Focus 15  American Taxpayer Relief Act of 2012 (ATRA)  American Taxpayer Relief Act of 2012 (ATRA)  Set federal estate and gift tax exemptions at $5 million, indexed for inflation  $5.43 million for 2015; 5.45 million for 2016  40% maximum rate  At 3.5% inflation indexing, exemption would be $12.6 million in 2039  Portability of “Deceased Spousal Unused Exclusion Amount”  Income tax planning and basis preservation have become more important Income Tax Focus 16  Pre-ATRA:  Pre-ATRA:  During life, use the estate & gift tax exclusion  Step-up in basis at death was less important because of relatively low capital gain tax rates  Post-ATRA:  Income tax considerations can be more important than p transfer tax consequences  Capital gains rates for highest brackets:  Federal (20%) + Medicare surtax (3.8%) + NC (5.8%) = 28.5%  Consider keeping assets for a “step-up” in basis Carruthers & Roth, P.A. 8

Estate Planning for the Modern Age Income Tax Focus 17  Other considerations:  Other considerations:  Disparity of state income tax rates among family members  Unfavorable marginal income tax rates for trusts  Consider distributing income to beneficiaries to take advantage of potentially lower marginal brackets g p y g Digital Assets 18  Trends:  Trends:  Increased reliance on digital communications  Sentimental items and financial wealth are increasingly becoming digital  Fiduciary Access:  Fiduciaries generally do not have access rights id i i ll d h i h  Need for digital asset inventory Carruthers & Roth, P.A. 9