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

Estate Planning for the Modern Age Carruthers & Roth, P.A. 1

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

Estate Planning for the Modern Age Carruthers & Roth, P.A. 2

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

• fficially 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

• r both partners

Estate Planning for the Modern Age Carruthers & Roth, P.A. 3

Modern Families

5

 Estate planning concerns for blended families:

B l i t f hild d t /

 Balancing support for children and partner/spouse  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  2nd 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

Estate Planning for the Modern Age Carruthers & Roth, P.A. 4

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

Estate Planning for the Modern Age Carruthers & Roth, P.A. 5

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

Estate Planning for the Modern Age Carruthers & Roth, P.A. 6

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.

Estate Planning for the Modern Age Carruthers & Roth, P.A. 7

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.

Estate Planning for the Modern Age Carruthers & Roth, P.A. 8

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

Estate Planning for the Modern Age Carruthers & Roth, P.A. 9

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:

id i i ll d h i h

 Fiduciaries generally do not have access rights  Need for digital asset inventory