Estate Planning 101

1. Estate Planning 101 Presented by: Daniela Lungu Attorney at Law

2. What is Estate Planning? • Estate planning is the process of determining the distribution of your assets upon your death. • Planning also covers management of personal affairs in the event of incapacity.

3. Maintain Control Over Your Person & Affairs What Estate Planning Does Reduce Income Taxes Protect your children Protect Your Assetsfrom Lawsuits Creditors, and Divorces Protect Against Administrative Expense & Delay Save Estate Taxes Save Gift Taxes Incapacity Planning

4. Why People Avoid Getting an Estate Plan? • Cost • Fear • Lack of understanding of benefits of EP • Want to initiate probate proceedings at death • Think their estate is too small to support the expense of planning

5. General Documents In Estate Plan • Pour Over Will • Includes beneficiaries, guardianship nominations, gifts, named executor • Revocable (Living) Trust • contract for distribution of funded assets • Advance Health Care Directive • Durable Power of Attorney for Property

6. Your Planning Options • Will or Revocable Living Trust • General Durable Power of Attorney • Advance Health Care Directive

7. What if You Do Nothing? • At Incapacity: • Guardianship/Conservatorship • Court controls assets • Brain dead on life support • At Death: • Court proceeding to determine who will be guardian for minor children • Assets distributed according to state law - intestacy • Failure to do advanced planning for larger estates: • Family money goes to taxes instead of heirs • Kids blow inheritance • Control issues and fighting among family members left behind

8. Will or Revocable Living Trust? • Revocable Living Trust Set of instructions to care for you and your family during your lifetime, in the event of incapacity, and at death - amendable • Will Set of instructions that take effect upon your death

9. WILL REVOCABLE LIVING TRUST My Property Property in My Living Trust Probate (No Probate) Heirs Heirs

10. Comparison of Wills and Trusts Wills Revocable Living Trusts SIMILARITIES Provides for distributing Provides for distributing property at your death property at your death Can be used to plan for Can be used to plan for death tax death tax Has no adverse lifetime Has no adverse lifetime income tax consequences income tax consequences

11. Comparison of Wills and Trusts Wills Revocable Living Trusts DIFFERENCES Are only effective at death Are effective immediately Must go through probate Avoid probate • 10-30% gross loss of estate • Long process for heirs Are public Offer privacy Are not viable interstate Are good in every state planning tools General power of attorney to Incapacity Trustee has address incapacity legal title and makes decisions directed by you

12. Who Needs a Trust? • “Everybody!” • Typically any individual with real property • Any individual with assets valued at over $200,000 • Those individuals that wish to spare their beneficiaries the burden and cost of probate • Those individuals who have specific distribution desires post death

13. Two Fundamental Rules • Unlimited Marital Deduction • ANY amounts passing to a spouse (or a qualifying trust for spouse) avoid estate taxes on the first death • The tax is assessed upon the death of the surviving spouse • Applicable Exclusion (Coupon) Amount • The dollar value of assets that one can leave to non spouse beneficiaries without incurring any estate taxes.

14. Presented By: Uncle Sam Estate Tax Coupon For $2,000,000* This coupon allows you to leave assets and wealth, up to the face amount of the coupon, to someone besides your spouse, free of estate taxes. This coupon is non-transferable and must be redeemed at the time of your death. *Increasing to $3.5MM in 2009.

15. How to Preserve $4,000,000 Estate Tax Free for your Heirs?? Use a Family Trust! Let’s use our IRS “Coupon” - The Applicable Exclusion Amount!

16. How to Waste Your Estate Tax “Coupon”?? HusbandWifeTotal Assets: $2,000,000 $2,000,000 =$4,000,000 Husband dies, leaves all to wife. Wife Husband $2,000,000 $2,000,000 $2,000,000 $4,000,000 Less One Coupon $2,000,000 Tax Cost: $900,000

17. How NOT to Waste Your Estate Tax “Coupon” Wife Husband Income and other benefits to wife for her lifetime $2,000,000 of Property to Family trust Wife Assets in estate- $2,000,000 Less Wife’s coupon $2,000,000 Tax = 0 To Children at Wife’s Death

18. Does this Apply to Me? • Assets Included in Definition of Estate • Real Property • Life Insurance Policies • Checking, Savings, Annuity or other Liquid Accounts • Business Interests • Retirement and Pension Plans • All Personal Property

19. Other Estate Planning Documents and Their Use • Advance Health Care Directive – gives an agent ability to make health care decisions for you if you cannot because of incapacity or illness; can ensure burial and other end of life decisions are carried out • Durable Power of Attorney – gives an agent the ability to ensure your financial concerns are taken care of in the event of your incapacity

20. Real Life Examples • Elvis – estate lost $10 million due to no planning • James Brown – heirs still fighting over estate because he had no trust; no advance health care directive cause burial to be delayed • Anna Nicole Smith – burial delayed due to no planning; died with will only so probate • Terry Schiavo – no planning led to her being on life support for over 13 years • Leona Helmsley – put only 12 mil in trust for dog Trouble, rest of her billions have to be probated

21. Questions? Daniela Lungu, Attorney at Law Estates and Trusts and Business Planning (510) 917-4002 lungu@lungulaw.com www.lungulaw.com