Beneficiary Planning GA Forum

Report
Planning for Blended Families
Presented to:
Presented by:
WealthCounsel, LLC
Georgia Forum
Lewis W. Dymond
WealthCounsel, LLC
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Planning for Beneficiaries
• The “Tail” that Should Wag the Dog.
• Proper WealthCounseling.
– It is a process;
– It is not a transaction.
– It involves not only your clients;
– It involves those your clients love the most;
– And it can influence many generations.
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Planning for Beneficiaries
• Definition of WealthCounseling.
– Control my property while I’m alive and well;
– Provide for myself and my loved ones if I
become incapacitated;
– Give what I have;
• To whom I want;
• The way I want; and
• When I want.
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Planning for Beneficiaries
• Proper WealthCounseling.
• Care for loved ones as if you were still
there:
– With your resources;
– With your love;
– With your wisdom.
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Planning for Beneficiaries
• The WealthCounseling Process.
– Education.
– Design.
– Drafting documents.
– Implementation.
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Planning for Blended Families
• Importance of Initial Meeting and
Information Gathering are increased
dramatically.
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Planning for Blended Families
• Initial (Education) Meeting.
– Who needs to be educated?
– Levels of communication.
•
•
•
•
Black.
Blue.
Red.
Green.
– SPIN.
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Specifically examines selling high-value products and services.
Planning for Blended Families
• Variety pack of blended families.
– Length of marriage.
– Clients’ ages and age differences
– His; hers and ours.
– Children’s ages.
– Children’s ages at time of marriage.
– Values of separate and joint property.
– Incomes and income capabilities.
– Insurance and insurability.
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Planning for Blended Families
• Who do you represent?
– Both parties.
•
•
•
•
Conflict of interest?
Advise of right to separate counsel.
Waiver.
Conflict may become apparent during planning.
– One party.
• Other party represented.
• Other party not represented.
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Planning for Blended Families
• Information Gathering.
– Asset information:
•
•
•
•
•
Separate property.
Joint property.
Does titling confirm this?
Existing insurance.
Existing retirement plans.
– Existing estate plan.
– Existing prenuptial or postnuptial agreements.
– Divorce agreement.
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Planning for Blended Families
• Review of existing prenuptial or
postnuptial agreements.
– What does it say?
• Define separate property.
• Define rights at time of death.
• Define rights in case of divorce.
– What do clients think it says?
– Is it valid?
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Planning for Blended Families
• Validity of existing prenuptial or postnuptial
agreements in Georgia.
– No Georgia statute enacted with regard to
prenuptial agreements.
– Georgia has long held that prenuptial agreements
settling property rights at death are valid.
• Made in contemplation and as inducement to marriage.
• Division or transfer only to occur if the parties remain
married to death.
• Death focused instead of divorce-focused.
• Nally v. Nally 74 Ga. 669 (1885).
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Planning for Blended Families
• Validity of existing prenuptial or postnuptial
agreements in Georgia.
– Prior to 1982 Georgia courts deemed prenuptial
agreements dealing with divorce contrary to
public policy.
• Scherer v. Scherer, 249 Ga. 635, 292 SE2nd 662
(1982).
• Mallen v. Mallen 622 S.E.2d 812 (Ga. 2005).
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Planning for Blended Families
• Designing, drafting and executing a
postnuptial agreement in connection with
estate planning.
– Need for separate counsel?
• If includes what happens in case of divorce?
• If only covers property rights at death?
– Agreement that asset transfers are for
controlling property at death and not in the
event marriage terminates other than by death.
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Planning for Blended Families
• The Design Meeting.
– The design options for a blended family are far
greater than for a first marriage family.
– Increases the importance of the initial meeting.
– You need to be ready with solutions rather than
options.
– Family meetings.
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Planning for Blended Families
• Drafting the Revocable Living Trust.
– Individual trusts.
– Joint pour-over trust.
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Planning for Beneficiaries
Using WealthDocx – Blended Families
Assuming separate distribution plans use individual trusts.
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Planning for Beneficiaries
Using WealthDocx – Blended Families
If significant community property use Individual Trusts AND Joint
Pour-over Trust
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Planning for Beneficiaries
Using WealthDocx – Blended Families
If significant community property use Individual
Trusts AND Joint Pour-over Trust
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DIAGRAM OF TWO GRANTOR ESTATE PLAN WITH
SEPARATE LIVING TRUSTS
GRANTORS
ASSETS OF GRANTORS
JOINT REVOCABLE LIVING TRUST
HUSBAND’S
SHARE OF ASSETS
HUSBAND’S
LIVING TRUST
HUSBAND’S
ESTATE TAX
EXEMPTION AMOUNT
HUSBAND’S
FAMILY
TRUST
WIFE’S
SHARE OF ASSETS
WIFE’S
LIVING TRUST
BALANCE OF
HUSBAND’S
ASSETS
HUSBAND’S
MARITAL
TRUST
Division into separate share
trusts for husband’s descendants
Division into separate share
trusts for wife’s descendants
Planning for Blended Families
• Importance of including statement of the
Grantor’s purpose or intent.
– Reflect the client’s hopes, fears, dreams and
values.
– Assistance to the Trustee, even if the beneficiary
serves as his or her own Trustee.
– It is the client’s trust.
– Comment to Uniform Trust Code Section 801
“This section confirms that a primary duty of a trustee is
to follow the terms and purposes of the trust and to do
so in good faith. Only if the terms of a trust are silent or
for some reason invalid on a particular issue does this
Code govern the trustee’s duties.”
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Planning for Blended Families
• Importance of including statement of the
Grantor’s purpose or intent.
• Drafting Guidelines - Precatory or Directive.
– Flexibility.
– Asset Protection.
– Certainty.
– Corporate, family member or beneficiary as
Trustee.
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Planning for Blended Families
• Importance of including statement of the
Grantor’s purpose or intent.
• Drafting Guidelines - Suggestions.
– While the guidelines are intended to express
the client’s hopes, fears and dreams, the client
will need help in drafting their guidelines.
– Practice drafting guidelines to cover different
situations.
– Easier to edit than draft.
– Keep your drafted guidelines in mind while in
the design phase with client.
– WealthCounsel Knowledge Base as a starting
point.
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Planning for Blended Families
• Importance of including statement of the
Grantor’s purpose or intent.
• Guidelines – WealthCounsel Knowledge Base.
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Planning for Blended Families
• Importance of including statement of the
Grantor’s purpose or intent.
• Guidelines – WealthCounsel Knowledge Base.
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Planning for Blended Families
• Importance of including statement of the
Grantor’s purpose or intent.
• Guidelines – WealthCounsel Knowledge Base.
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Planning for Blended Families
Using the WealthCounsel Knowledge Base.
– Contains sample language shared by
WealthCounsel principals and members.
– Not reviewed, edited or approved by
WealthCounsel.
– Some of these documents reflect a strong
religious influence. WealthCounsel does not
promote one set of religious values over other
religious or even non-religious values.
WealthCounsel welcomes all viewpoints. No
matter your religious views, these documents are
intended to provide help to all members.
– We appreciate you sharing your language.
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Planning for Blended Families
• Providing for spouse vs. providing for
children.
– Family dynamics.
– RLT formula options.
– Life insurance.
– Retirement plans.
– Gifting trusts.
– QPRTs.
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Planning for Beneficiaries
Using WealthDocx – Blended Families
Providing for the Surviving Spouse – Formula options
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Planning for Beneficiaries
Using WealthDocx – Blended Families
Providing for the Surviving Spouse – Formula options
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Planning for Beneficiaries
Using WealthDocx – Blended Families
Providing for the Surviving Spouse – Distribution options:
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Planning for Beneficiaries
Using WealthDocx – Blended Families
Providing for the Surviving Spouse – Designing the
QTIP Trust:
• Income only.
• Principal distributions?
• Consider Total Return (Unitrust) option when
selecting income only?
• $5K or 5% withdrawal power?
• Testamentary Power of Appointment:
• None or limited to descendants.
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Planning for Beneficiaries
Using WealthDocx – Blended Families
Providing for the Surviving Spouse – Designing the
Family (Bypass/Credit Shelter) Trust:
• Consider straight to residuary beneficiaries?
• Income only?
• Principal distributions?
• Consider Total Return (Unitrust) option when
selecting income only?
• $5K or 5% withdrawal power?
• Testamentary Power of Appointment:
• None or limited to descendants.
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Planning for Beneficiaries
Using WealthDocx – Residuary Beneficiaries
– GSTT Provisions.
– Residuary Beneficiary options.
– Common Trust for descendants.
– Trust design for individual residuary beneficiaries.
• Distribution of Income (Unitrust or Total Return
Trust).
• Discretionary Distribution Standards.
• Discretionary Guidelines.
• Withdrawal Rights and Termination.
• Lifetime Power of Appointment.
• Testamentary Power of Appointment.
• Lapse Options.
• Distribution if Deceased.
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Planning for Beneficiaries
Using WealthDocx – GSTT Provisions.
– Explicit or Permissive.
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Planning for Beneficiaries
Using WealthDocx – GSTT Provisions
– Explicit:
• Used if you want to have a different distribution
pattern or design for the GSTT Exempt and NonExempt property.
• Exempt property has a
GSTT inclusion ratio = zero.
• Non-exempt property has a
GSTT inclusion ratio = 1.
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Planning for Beneficiaries
Using WealthDocx – GSTT Provisions
– Permissive:
• The Trustee has the authority to divide any trust into
Exempt and Non-Exempt shares.
• Exempt property has a GSTT inclusion ratio = zero.
• Non-exempt property has a
GSTT inclusion ration = 1.
• Each share will have the same terms.
• Use the “hybrid” power of appointment or the limited
power of appointment.
– If you use the limited power of appointment, the
authority to divide a trust into Exempt and Non-Exempt
shares, includes the authority to grant the beneficiary a
general power of appointment.
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Planning for Beneficiaries
*
If you include Trust Protector provisions, this power will be given to the Trust
Protector rather than to an Independent Trustee.
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Planning for Beneficiaries
Using WealthDocx – Residuary
Beneficiary options
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Planning for Beneficiaries
Using WealthDocx – Residuary
Beneficiary options
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Planning for Beneficiaries
Using WealthDocx – Common Trust
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Planning for Beneficiaries
Using WealthDocx – Common Trust
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Planning for Beneficiaries
Using WealthDocx – Common Trust
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Planning for Beneficiaries
Using WealthDocx – Trust Design
Descendants as Current Beneficiaries:
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Planning for Beneficiaries
Using WealthDocx – Trust Design
Distributions of Income – Income Options:
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Planning for Beneficiaries
Using WealthDocx – Trust Design
Discretionary Distributions:
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Planning for Beneficiaries
Using WealthDocx – Trust Design
Discretionary (Precatory) Guidelines:
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Planning for Beneficiaries
Using WealthDocx – Trust Design
Discretionary (Precatory) Guidelines:
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Planning for Beneficiaries
Using WealthDocx – Trust Design
Withdrawal Rights and Termination:
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Planning for Beneficiaries
Using WealthDocx – Trust Design
Lifetime Limited Power of Appointment:
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Planning for Beneficiaries
Using WealthDocx – Trust Design
Testamentary Power of Appointment:
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Planning for Beneficiaries
Using WealthDocx – Trust Design
Lapse Options – What happens to what is left?
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Planning for Beneficiaries
Using WealthDocx – Trust Design
Provisions for Afterborn or Adopted Children:
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Planning for Beneficiaries
Using WealthDocx – Trust Design
Provisions for Descendants of a Deceased Child:
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Planning for Beneficiaries
Using WealthDocx – Trust Design
Distribution if Deceased (Named beneficiaries only):
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Planning for Blended Families
• Case Study #1:
– Tom and Cindy Client, both 65 years of age.
– Married in 1977.
– Each has one adult son and one joint daughter
– Joint assets totaling $10M.
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Planning for Blended Families
• Case Study #2:
– Tom and Cindy Client, both 50 years of age.
– Married in 1995.
– Tom has one adult son and one daughter, 15.
– Cindy has one son in college, 20.
– Total net worth $1.3M.
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Planning for Blended Families
• Case Study #3:
– Tom Client, age 65 and Cindy Client, age 38.
– Married in 2005.
– Tom has three adult children.
– Cindy has one daughter, age 13.
– Total net worth $11.6M.
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Planning for Blended Families
• Case Study #4:
– Tom Client, age 65 and Cindy Client, age 38.
– Married in 2005.
– Tom has three adult children.
– Cindy has one daughter, age 13.
– Tom’s total net worth $60M.
– Cindy’s total net worth $2.5M.
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