Bryan Health March 27, 2014 Wills, Trusts and Fiduciary Administration (and Other Life and Death Issues)

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1 CLINE WILLIAMS WRIGHT JOHNSON & OLDFATHER, L.L.P. ATTORNEYS AT LAW ESTABLISHED 1857 Bryan Health March 27, 2014 Wills, Trusts and Fiduciary Administration (and Other Life and Death Issues) Presented by: Don R. Janssen Kara J. Ronnau

2 DISCLAIMER: The purpose of this outline is to generally inform and not to specifically advise. You should not make legally significant decisions without advice from competent legal counsel. Estate counseling is based upon the application of state and federal laws to unique facts. Presentations and materials cannot consider all factors which impact on estate counseling in individual cases.

3 Basic Understanding of Estate Counseling Entire process of arranging your assets (and other affairs), both during your life and after your death, in a way that maximizes your objectives after consideration of various contingencies, legal obstacles and tax consequences

4 Basic Estate Counseling Issues Providing for estate owner s security while living (e.g., living trust) Providing for welfare of surviving spouse after death of estate owner Insuring desired disposition of property Continuation of family business, e.g., family farming or ranching operation Tax and cost planning

5 Basic Estate Counseling Issues, cont. Establish guardianships, conservatorships or trusts for minor children Planning for death (artificial life support; anatomical gift and burial instructions)

6 Common Estate Counseling Documents: Will Trust Durable Power of Attorney Living Will/Health Care Power of Attorney

7 Basic Terms Probate Intestacy Fiduciaries Personal Representative, trustee, guardian, conservator, attorney-infact

8 Probate Purposes of Probate Court costs and probate fees Estate Administration Collection of Property by Affidavit Marital and Family Rights

9 Estate Counseling Devices Asset Ownership Single name, tenancy in common, joint tenancy, payable on death accounts, trusts, legal life estates, life insurance, qualified retirement plans, corporate entities

10 Estate Counseling Devices Balancing Estates Between Spouses Dividing assets between spouses may be advisable for estate tax purposes No gift tax or income tax consequences for transfers between spouses

11 Will a written plan for disposition of property after death Dispose of tangible personal property Nominate guardians, conservators, and fiduciaries Tax payment and apportionment Requirements of a valid Will

12 Types of Wills Simple Will Complex Will Pourover Will Mutual or Joint Will Holographic Will

13 Nomination of Fiduciaries Personal Representative File Will for probate, collect and preserve assets, pay claims, make tax elections, file tax returns, distribute assets, and close estate Trustee Manage, invest and distribute assets as directed by Trust

14 Durable Powers of Attorney Grants a person the power to act on behalf of Principal Can be general or limited Durable means the power extends beyond the incapacity of the Principal and can avoid the need for conservator in some cases Can provide for funding of trusts in the event of the principal s incapacity

15 Living Wills Expression of wishes regarding artificial life support Can be combined with a durable power of attorney for health care decisions May include provisions regarding organ donation May include burial instructions and funeral arrangements

16 Trust An arrangement where one person transfers legal title to property to another person or entity who then manages the property for the benefit of one or more other people

17 Trust Provides for the appointment of Trustee Describes the time for establishing and terminating trust Names beneficiaries and determines their rights to the property Specifies trustee s discretion over income and principal

18 Trust, continued Gives trustee the power to act as needed to invest, manage and distribute the property Courts have jurisdiction over trust issues, but there is no ongoing trust supervision

19 Why a trust? Consolidate assets post-death through insurance and retirement plan beneficiary designations Provide asset management assistance Avoid probate and save estate settlement costs Mechanism to save on transfer taxes

20 Types of Trusts Revocable living trusts Irrevocable trusts Irrevocable Life Insurance Trusts (ILIT), trusts for minors, tax savings trusts Charitable Trusts Charitable remainder trusts, charitable lead trusts, perpetual charitable trust or private family foundation

21 Revocable Living Trusts Operative during grantor s life Used by grantor for asset management Income and principal paid according to Grantor s discretion Usually continues after death Can be used to avoid probate Used in conjunction with pourover will

22 Irrevocable Life Insurance Trusts (ILIT) A trust designed to remove proceeds of life insurance from the insured s estate for estate tax purposes

23 Trust for Minors A trust used to facilitate gifting to young beneficiaries for education assistance or other purposes

24 Tax Savings Trusts Irrevocable trusts can be used as various complex estate planning tools such as Grantor Retained Annuity Trusts (GRATs), Intentionally Defective Grantor Trusts (IDGTs) or Qualified Personal Residence Trusts (QPRTs)

25 Charitable Giving Income tax laws include incentives for individuals to make charitable contributions in the form of deductions against taxable income

26 Charitable Giving, Cont. An income tax deduction is allowed for contributions made to charitable organizations, which include: Churches Government organizations 501(c)(3) organizations

27 Charitable Remainder Trusts Charitable Remainder Annuity Trust Donor retains right to a periodic annuity payment of a fixed amount Annuity payment is a fixed dollar amount that does not change over the life of the trust At the end of the trust term, the property passes to charity One time contribution

28 Charitable Remainder Trusts Charitable Remainder Unitrust Donor retains right to a periodic payment based on a fixed percentage of the value of the trust assets Unitrust payments vary in amount from year to year as the value of the trust changes At the end of the Unitrust term, the property remaining passes to the designated charity Additional contributions are permitted

29 Charitable Lead Trust The charity is gifted an income interest in a trust with the remainder interest passing to individuals Fixed annuity amount or percentage

30 Estate, Inheritance and Gift Taxes Federal and State Estate Taxes All property owned by the decedent at death, either individually or jointly Property transferred by the decedent during lifetime if any retained interest (i.e., revocable trust property) Retirement plan assets Life insurance proceeds if payable to estate or if decedent owned the policy

31 Estate, Inheritance and Gift Taxes Tax is based upon fair market value of property at death An unlimited marital deduction is permitted for property passing from decedent s estate to surviving spouse

32 Estate, Inheritance and Gift Taxes, cont. Unified credit against estate tax is available to each decedent 2014 the credit shelters the first $5.34 million of value of each person s lifetime gifts and estate at death The tax rate on property over this unified credit shelter amount is currently 40%

33 Estate, Inheritance and Gift Taxes, cont. Portability a surviving spouse is able to also utilize any portion of a deceased spouse s credit shelter which was not used when the first spouse died In order to obtain this benefit a federal estate tax return must be filed when the first spouse dies

34 Nebraska Inheritance Tax Paid to county where decedent resided or where real property located Based upon value transferred to another upon death Tax rate and exemption allowed depends on relationship Exemptions are relatively small Payable in most estates unlike federal tax

35 Federal Gift Taxes Based on fair market value of lifetime transfer of property to another Exclusions: 2014 annual present interest exclusion of $14,000 for each recipient (indexed for inflation in $1,000 increments) Gifts to minors Temporary withdrawal rights ( Crummey powers )

36 Deductions from Gift Tax Unlimited marital deduction for lifetime gifts between spouses and for certain transfers in trust for a spouse (QTIPS) Charitable contributions to approved charitable, religious or non-profits Unified credit for estate taxes

37 Conclusion Estate counseling provides peace of mind Laws benefit only those who use them to their advantage Review your estate plan periodically

38 Questions?