Presenting a live 90-minute webinar with interactive Q&A Estate Planning Update for 2013 Leveraging Fiscal Cliff Legislation for Asset Protection Planning and Gifting Opportunities WEDNESDAY, FEBRUARY 6, 2013 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Kyle A. Krasa, Attorney, KRASA LAW , Pacific Grove, Calif. Scott K. Tippett, Attorney, The Tippett Law Firm , Oak Ridge, N.C. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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Estate Planning Update for 2013 Presented by Kyle A. Krasa, Esq. and Scott K. Tippett, Esq. Strafford Publications February 6, 2013 KRASA LAW www.krasalaw.com 5
Kyle A. Krasa, Esq. KRASA LAW • Focuses on estate planning, asset protection, probate and estate administration, and Medicaid Planning. • Certified by the State Bar of California Board of Specialization as a Legal Specialist in Estate Planning, Trust, & Probate Law. • 704-D Forest Avenue, Pacific Grove, CA 93950; 831-920-0205; kyle@krasalaw.com KRASA LAW www.krasalaw.com 6
Scott K. Tippett, Esq. The Tippett Law Firm • Focuses on wealth law, as a comprehensive and integrated approach to domestic and international estate planning, asset protection planning, business matters, and tax issues. • Principal author of the North Carolina Wealth Law Counselor and the Wealth Lawyer legal blogs. • 7 Corporate Center Court, Bldg. B, Greensboro, NC 27408; 336-749-7979; skt@sktlaw.com KRASA LAW www.krasalaw.com 7
Fiscal Cliff Legislation as it Relates to Estate Planning • Formally known as the “American Taxpayer Relief Act.” • 40% maximum rate for estate, gift and GST taxes. • $5.12 million unified exemption indexed for inflation (expected by the federal government to rise to approximately $5.25 million in 2013). • Stepped-up basis. KRASA LAW www.krasalaw.com 8
Fiscal Cliff Legislation as it Relates to Estate Planning • State estate tax deductibility. • Spousal portability. • Technical provisions of the 2001 Tax Act relating to the allocation of GST exemption, the inclusion ratio, conservation easements and the extension of time to pay estate taxes under section 6166 would be made permanent. KRASA LAW www.krasalaw.com 9
Is This Good or Bad for Estate Planning Attorneys? • Higher Exemption makes planning for the estate tax unnecessary for the vast majority of families. • Higher Exemption reduces the need for common “advanced planning” techniques such as fractional gifting, QPRT’s , ILIT’s , and CRT’s. • Lack of motivation for clients to get their estate planning completed or updated? KRASA LAW www.krasalaw.com 10
It’s a Good Thing . . . • Most clients are not motivated by the estate tax. • Clients are motivated by a general desire to “get their affairs in order,” making sure that their wishes are carried out upon incapacity or death, making sure their loved ones are “taken care of,” and making it as efficient and inexpensive as possible. KRASA LAW www.krasalaw.com 11
It’s a Good Thing . . . • While elimination or mitigation of the estate tax is certainly part of the overall goal, it’s simply one piece. • Clients will be happy their plans are simpler. • No need to let the estate tax tail wag the estate planning dog. • Higher exemption and permanent portability frees up estate planning. KRASA LAW www.krasalaw.com 12
Impact on A/B Planning • For generations, the cornerstone of estate planning for married couples. • Three reasons to do an A/B or A/B/C trust: – (1) Estate tax purposes: preserving the deceased spouse’s estate tax exemption. – (2) “Control issues”: preventing the surviving spouse from disinheriting the children in favor of the tennis instructor or the belly dancer. – (3) Possible creditor protection for surviving spouse. KRASA LAW www.krasalaw.com 13
Impact on A/B Planning • Higher exemption combined with permanent portability eliminates the need for an A/B or A/B/C Trust for estate tax planning purposes for the vast majority of families. • Simplifies the ongoing trust administration upon the death of the first spouse: – No need to file fiduciary tax returns. – No issues with funding the Bypass trust with non- ideal assets such as the personal residence. KRASA LAW www.krasalaw.com 14
Impact on A/B Planning • Simplifies the ongoing trust administration upon the death of the first spouse (continued ): – The entire trust is still revocable / amendable after the first spouse dies (good and bad, depending upon the circumstances). – More in line with the expectations of the client – “Everything stays the same.” • Still only file personal tax returns, use SSN as Tax ID Number, all the same “rules.” KRASA LAW www.krasalaw.com 15
Impact on A/B Planning • Reduces the liability for the surviving spouse in administering / spending the trust assets. • Surviving spouse has greater power over remainder beneficiaries: carrots and sticks to influence behavior. • Reduces malpractice exposure on the part of the drafting attorney and the attorney who handles the trust administration upon the death of the first spouse. KRASA LAW www.krasalaw.com 16
Impact on A/B Planning • Unless there are “control issues” or creditor protection issues, consider drafting A trusts or disclaimer trusts instead of A/B trusts when the estate is lower than one spouse’s exemption. – Discussion with clients, focused on the non-estate tax reasons to execute an A/B trust. KRASA LAW www.krasalaw.com 17
Non Tax Reasons for an A/B Trust • “Control Issues” – Prevent the surviving spouse from excluding some or all of the previously agreed upon beneficiaries. – “Remarriage provisions” to protect the remainder beneficiaries'’ interest in the Bypass Trust from the surviving spouse’s new spouse. • Remarriage eliminates surviving spouse’s access to the Bypass Trust. • Remarriage eliminates surviving spouse’s access to the Bypass Trust unless a pre-nuptial agreement is signed. KRASA LAW www.krasalaw.com 18
Non Tax Reasons for an A/B Trust • Creditor Protection – Can structure the Bypass Trust to give the surviving spouse a degree of creditor protection. • Surviving spouse as sole trustee of the Bypass Trust. • Surviving spouse as co-trustee of the Bypass Trust. • Distribution Trustee. • HEMS standard. • Fully discretionary standard. • “Hybrid” standard. KRASA LAW www.krasalaw.com 19
Impact on A/B Planning • An “A Trust”: – Does not have any provision for the split into two or more sub-trusts upon the death of the first spouse. – The trust simply continues as a “pass - through” revocable grantor trust for the benefit of – and under total control by – the surviving spouse. – All assets will be part of surviving spouse’s estate upon his/her death. KRASA LAW www.krasalaw.com 20
Impact on A/B Planning • A “Disclaimer Trust”: – Upon the death of the first spouse, all of the assets will be titled to an “A Trust” (commonly known as a “survivor’s trust”) except that any asset the surviving spouse disclaims within nine months of the first spouse’s date of death will be funneled to a “B Trust” (commonly known as a “bypass trust”). – Gives the surviving spouse the option to keep the trust as an “A Trust” or to split it into an “A Trust” and “B Trust.” KRASA LAW www.krasalaw.com 21
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