ESTATE PLANNING. Eileen St. Pierre, Ph.D., CFA, CFP® Personal Finance Specialist Oklahoma State University. Estate Planning . The role of taxes Wills Trusts Revocable living trusts Irrevocable trusts Other ways to leave assets outside of a will Other legal documents . The Role of Taxes.
ESTATE PLANNING Eileen St. Pierre, Ph.D., CFA, CFP® Personal Finance Specialist Oklahoma State University
Estate Planning The role of taxes Wills Trusts Revocable living trusts Irrevocable trusts Other ways to leave assets outside of a will Other legal documents
The Role of Taxes Federal Estate Tax 0% in 2010 Back in 2011, varies from year to year If estate > $1 million, see your tax advisor OK has no state estate tax Gifts Family, friends, charities See your tax advisor to see if you need to pay gift tax or file a gift tax return
Wills Must have mental and legal capacity Free of undue influence, fraud, and duress Not just a document that lets you state whom you want to get your assets and property Name personal representative (executor) Name guardians for your minor children Complete Family Inventory Handout List of usernames and passwords Safe deposit box key Types of wills Must go through probate process to be considered legally valid
Probate Your property is legally transferred to other parties Public process that involves Proving the will is valid Notifying creditors and potential heirs Resolving contests to the will Time consuming 6 weeks to many years Ancillary Probate Real property held outside state of residence
Probate Costs According to NAFEP, can cost between 4% and 10% of your estate (national) Some fees set by law, others you can negotiate Some states eliminate or reduce probate process for small estates “Summary Administration” in Oklahoma: Expedited probate process for estates less than $150,000 If your probate estate is greater than $150,000, you may want to consider transferring assets out of your estate to make it eligible for Summary Administration.
Trusts Legal agreement between the grantor and the trustee for the benefit of a third party, the beneficiary Flexible, varied, and complex Customize to fit your situation Cost more than a will $1600 to $3000, or more if trust is complex Assets you want protected must be retitled in the name of the trust May still need a “pour-over” will to include any assets or property not included in the trust
Why a Trust? High net worth Sizable amount of your assets is in real estate or a business Leave estate to heirs in a way that is not directly and immediately payable to them upon your death Support surviving spouse, but also want to make sure remainder of your estate goes to your chosen heirs after spouse dies. Maximize estate-tax exemptions Provide for a disabled relative
Trust Advantages Can put conditions on how and when your assets are distributed after your death Reduce estate and gift taxes Efficient distribution of assets Avoid the cost, delay and publicity of probate court Better protect assets from creditors and lawsuits Harder to challenge than wills
Revocable vs. Irrevocable Trusts Revocable Living Trust Irrevocable Trust Trust cannot be changed until the terms completed Legal entity Independent trustee (pay management fee about 0.75% to 1.25% of assets managed) All property in trust is transferred out of your taxable estate Reduces estate tax liability Use to avoid Medicaid spend-down provisions (5-year “look back”) Better protection from creditors and lawsuits Trust files its own tax returns Income does not appear on your tax return Lose control over assets in trust “Will Substitute” Right to change or cancel at any time before death Retain control of assets in trust You are the grantor, trustee (usually), and beneficiary Since you have “beneficial interest” harder to shield assets from creditors and lawsuits Income appears on your tax returns Not a tax avoidance technique – assets included in your taxable estate At your death, trust has instructions on how to manage and distribute assets in trust
Regardless of the type of trust, make sure your assets have been properly transferred to the trust and retitled!
Life Insurance Tax-free to beneficiaries Uses Final expenses Large debts (mortgage) College funds Fund a trust OCES Fact Sheet T-4156 Life Insurance
Other Ways to Leave Assets Outside of a Will Property held in joint tenancy with right of survivorship House, Bank and Investment accounts Before surviving spouse dies, need to retitle assets and/or place in a trust to avoid probate Oklahoma allows TOD deeds for real property.
Other Ways to Leave Assets Outside of a Will Name beneficiaries to certain types of accounts Life insurance Annuities Retirement Plans Brokerage accounts (TOD) Bank accounts (POD) Keep beneficiaries up-to-date!!
Other Legal Documents Advanced Health Care Directive: Living Will Health Care Proxy Organ Donation General Provisions For this document to be valid, must have it completed before disability, incompetence or incapacity.
Wrapping Up Don’t forget the evaluation form! List of Resources eXtension.org (2008). Prepare Your Estate Plan lesson at http://www.extension.org/pages/Prepare_Your_Estate_Plan St. Pierre, E. (2012). Wills and Trusts. Stillwater, Oklahoma: Oklahoma Cooperative Extension Fact Sheet T-4155. Available at http://pods.dasnr.okstate.edu/docushare/dsweb/Get/Document-7078/T-4155web.pdf St. Pierre, E. (2011). Life Insurance. Stillwater, Oklahoma: Oklahoma Cooperative Extension Fact Sheet T-4156. Available at http://pods.dasnr.okstate.edu/docushare/dsweb/Get/Document-7781/T-4156web.pdf