Dr. Rhoades FIN 445 Estate Planning (Protecting Your Own Assets in the…
FIN 445 Estate Planning
So You Want to Own A Business. Or, As An Employee, What Obligations Do You Possess When You Depart A Business?
Choice of business entity (non-tax issues)
limited liability company
Protecting the Intellectual Property of the Business (or, as a Departing Employee, Escaping with It): As Applied to Brokers and Investment Advisers
How to retain employees (financial advisors) so that they don't depart your business. Ideas? Track to ownership? Training? ESOP? Forfeitable deferred compensation? Promissory notes for payments made to employees or for costs of training?
What departing employees should do, before they depart a firm, if they want to take clients/customers with them.
The availability of injunctive relief.
What information can be taken by a departing employee? What is the effect of the "brokerage protocal"?
WHO OWNS THE CLIENT / CUSTOMER?
"Adequate consideration" for a new employment agreement
Trade secret protection covenants
Choice of tax treatment for the entity
Why real estate should be held in an FLP or LLC taxed as a partnership.
The new 20% exclusion of certain business income for pass-through entities
Publicly-traded vs. closely held businesses
Sole proprietor (Schedule C of 1040)
Key employee life insurance
Planning for Business Succession
Buy-sell agreements between individual firms (sole proprietorships or closely held corporations or LLCs with one owner)
Different methods to establish the value of a departing owner's interest in the business.
Who owns the life insurance policy, and who is the beneficiary?
What type of life insurance should be purchased?
Planning for the death of a co-owner
Planning for the incapacity of a co-owner
Partnership agreements and shareholder agreements and LLC operating agreements: planning to restrict the sale of shares/units of ownership to others
What happens upon death of a general partner?
What happens upon death of a sole proprietor?
Protecting Your Own Assets in the Event of a Lawsuit (Judgment) or Marital Dissolution
Why moving to certain states might be advantageous for those seeking greater asset protection. (The case of O.J. Simpson)
What is bankruptcy? Ch. 7 vs. Ch. 13: who gets to choose? Are all of your (listed) debts discharged during bankruptcy? Can your mortgage or car loan be "reaffirmed" during bankruptcy?
Can creditors force you into bankruptcy?
Other exempt assets under state law
Asking your (parents) to not leave your inheritance outright
Foreign Asset Protection Trusts
Domestic Asset Protection Trusts
Limited Partnerships, Limited Liability Companies: The Charging Order; Effectiveness
Prenuptial and postnuptial agreements
State exemptions for non-qualified annuities and/or their proceeds
Exempt assets under federal law: QRPs and rollover IRAs
State exemptions for life insurance cash value and/or its proceeds
Assets exempt under federal law to a limit: contributory IRAs
Tax issues when an estate plan "matures"
What are the most commonly utilized estate, gift, and GST tax planning techniques utilized today?
Family Limited Partnerships (discount valuation gifts and bequests)
Lifetime annual gift tax exclusion use, via gifts to "Crummey Trusts"
QTIP trusts - when the Family Trust is not enough, and you want to provide for a surviving 2nd marriage spouse during her/his lifetime; use of the spouse's estate tax exemption when she/he subsequently dies
Setting up ownership of new assets (buildings that are leased to a business, new lines of the business, new businesses) in the names of heirs (or in irrevocable trusts created for the benefit of heirs)
"Family Trust" (credit shelter trust, or applicable exclusion amount trust") - and how flexibility can be built in to provide for future changes in estate tax law
Irrevocable life insurance trust
Charitable lead trust
Charitable remainder trust
What is the Kentucky (state) estate and gift tax look like? When is a return required? What about other states?
Are tax-deferred accounts, such as traditional IRAs, qualified retirement plans (non-Roth), and non-qualified annuities, subject to taxation for both income tax purposes and federal estate tax purposes?
What is the federal estate tax? What is the present amount of the estate tax exemption? Might the exemption amount go higher or lower in the future? What is the rate of federal estate tax when assets exist over the exemption amount?
When does the federal estate tax, if due, required to be paid? What is Form 706 (U.S. estate tax return) and who prepares it? How much does it cost?
On what assets are federal estate taxes levied?
How and when are publicly traded stocks, bonds, and mutual funds valued? Who does this?
What is the "alternate valuation date" and when can it be utilized?
Life insurance death benefits?
Assets located outside the United States?
How are business interests valued?
What is the unlimited charitable deduction?
What is the unlimited marital deduction?
What is the income tax return for an estate or trust (Form 1041)?
What is the federal gift tax? How can gifts be made without paying federal gift taxes?
Use of the unified credit (i.e., applicable exclusion amount) during lifetime, when gift tax exemptions / exclusions / deductions don't otherwise exist.
When is a U.S. gift tax return (Form 709) required?
gifts to government institutions
gifts to charity
marital deduction gifts
529 accounts and the annual gift tax exclusion
annual gift tax exclusion
direct payment of tuition / educational expenses
gifts directly to health care providers
Who files the decedent's last income tax return (Final 1040)? Who pays any tax that is due?
Who notified social security, and pension providers, when someone dies?
Planning for Your Assets and Finances at the End of Your Lifetime
Should you leave assets outright to heirs, or "in trust" for them?
What are the duties of the trustee of a trust that is "irrevocable"?
Duty to receive only reasonable compensation (or as trust states, or limits). What is "reasonable"?
What is a "trust protector" (as to removal/replacement of the trustee)?
Who should be the successor Trustee? Family member? Friend? CPA? Attorney? Bank or trust company?
Is an attorney needed for proper trust administration?
The "sole interests" fiduciary standard of conduct applicable to trusts, generally
Duty to keep trust assets segregated, and avoid self-dealing
Filing tax returns
Duty to undertake distributions in accordance with the terms of the trust
What is the "prudent investor rule"? What does it require? Can it ever be ignored? Can it be modified by the terms of a trust?
A person who cannot "handle" (properly invest) large sums of money
A person who is very "giving" toward others
A person with a drug or alcohol dependency
A person who is or may become incapacitated soon
A person in a high-risk profession
A person having marital difficulties
To a person, who dies before distribution from the estate occurs - what happens?
Under age 30, generally
Last Will and Testaments
What is a "no contest" clause in a will? Is it effective?
Are wills often challenged? On what grounds?
What is a UTMA clause in a will? How does it work? What benefits does it possess?
What is a "testamentary trust"?
How can probate be avoided? Should it be avoided?
What is "probate" of a will? What are the steps of the probate proceeding?
How much does probate cost? What is an "Executor"/"Executrix"/"Personal Representative"? Is probate judicially supervised? Must an attorney be involved for probate to occur?
What is it?
Why is it important to have a "self-proven" will?
What parts of the LWT exist?
Must it be witnessed?
How is it modified (what is a "codicil"?), revoked, or replaced?
Should you possess a "Living Trust"? What is it?
If a Living Trust is the beneficiary of a qualified retirement plan (QRP) or traditional or Roth IRA, what special provisions are required to ensure "stretched-out" distribution treatment under the tax law? Is stretched-out distribution tax treatment for QRPs and IRAs likely to change?
Does a Living Trust protect the grantor (settlor, or trustor) from liability claims?
Can a Living Trust be the "beneficiary" of an account or insurance?
Benefits vs. Limitations
How is a Living Trust "funded" during one's lifetime?
Does it always avoid probate?
What are the different types of joint ownership? What happens upon your death in each type of joint ownership situation?
Tenancy by the entireties
Joint tenants with rights of survivorship
What happens to custodial accounts upon the end of lifetime of the custodian?
Uniform Transfers to Minors Accounts (and the older form, Uniform Gifts to Minors Accounts)
529 College Savings Accounts
What are beneficiary designations? How are they undertaken? For what types of assets can beneficiary designations be undertaken? What is the tax consequence to the recipient for the receipt of each of these types of assets? How do the recipients of these accounts claim them, and what is the role of a financial advisor in this process?
"Pay-On-Death" (POD) and "Transfer-on-Death" (TOD) accounts
"In Trust For" (ITF) (aka "Totten Trust" accounts)
Nonqualified deferred compensation plans
Qualified retirement plans (QRPs) (401k, 403b, 457, ESOPs, etc.) and traditional and Roth IRAs
Can a charity, or government, be the beneficiary?
How are RMDs for an inherited IRA computed after someone passes away? Are they automatically computed by the account custodian (bank or brokerage firm)?
Planning for Your Assets and Finances Upon Incapacity
The impact of "elder abuse" statutes
Making the report
Do the statutes force you to violate client confidentiality?
What do such statutes require?
What are they?
Why might a revocable inter vivos trust ("Living Trust") be utilized to handle some of your assets, if you become incapacitated? If you are the initial trustee of your trust, who should be your successor trustee? What triggers succession of authority to the successor trustee? Is there any judicial oversight of how Living Trust assets are administered by your successor trustee?
If you are incapacitated, and a financial decision is needed, or someone needs to pay your bills or sell your assets or arrange (on your behalf) to provide for you from a financial perspective, what happens if you have no legal documents? What is "guardianship"? What are the steps involved in establishing guardianship"? How much does guardianship cost? Should guardianship be avoided?
What is a "Durable Power of Attorney"? Does it avoid guardianship all the time? What risks exist in signing this form? Can it be revoked - and if so, how? Will it be honored always? What does it say? Who can you appoint as your "attorney-in-fact" or "agent" under your DPOA? Are DPOAs abused?
If you are traveling, or if your child is away (such as at a school in another city or on an long field trip) how can you provide for someone to make health care decisions for your child?
Planning for Risks Arising from Poor Health
How does one donate their organs? Are there any risks to this? Are there any costs to this? What procedures or forms exist? Can anyone (regardless of age or health) donate their organs? Should we encourage organ donation to occur?
Who will make decisions about your health care, if you cannot?
What are "advance health care directives"?
Medical Order for Scope of Treatment (MOST) form (and the similar POST forms)
"Do Not Resuscitate" Orders
What do medical providers have to do if a DNRO has not been entered?
DNROs at home
Durable Power of Attorney for Health Care
Living Will (see discussion below)
Designation of Health Care Surrogate
What happens if no legal documents are in place? What is a "health care proxy" and what powers do they have, or not have?
When do you no longer desire "life-prolonging" medical procedures? How do you want to be treated and cared for near the end of your life?
Does your state of residence have its own "Living Will" form? Are there better forms out there, such as the "Five Wishes" living will document?
What is a "living will"? Why is it necessary? What happens if you don't have a "living will" - is it still possible to withhold life-prolonging procedures?
Can you (legally) commit suicide if you want to? Can a physician assist you in doing this?
Does the "State" have the right to mandate that your health care be continued?