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Finance 553

Finance 553. Estate Planning. Estate Planning Introduction. Financial Planning (FIN 551 – 552 – 553) Managing the Wealth of a Client Wealth Accumulation CFPs – Portfolio Management Wealth Protection Insurance Agents – Policies Wealth Distribution Lawyers – Estate Planning

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Finance 553

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  1. Finance 553 Estate Planning

  2. Estate Planning Introduction • Financial Planning (FIN 551 – 552 – 553) • Managing the Wealth of a Client • Wealth Accumulation • CFPs – Portfolio Management • Wealth Protection • Insurance Agents – Policies • Wealth Distribution • Lawyers – Estate Planning • FIN 553 Part One – Estate Planning

  3. Estate Planning Introduction • Learning Objectives • Define Estate Planning • List Goals of Estate Planning • List Risks (Failure to Plan) • Determine Who Needs Estate Planning • List the steps in Estate Planning • Name the Professionals Involved in Estate Planning • Describe Unauthorized Practice of Law • What are the issues, concerns, or potential problems for a financial planner?

  4. Estate Planning Introduction • Definition of Estate Planning • The plan that distributes the assets of the individual prior to and at death such that they match the wishes of the deceased and • Provisions are made for needed liquidity needs at death • Funds available to family/heirs • Funds available for funeral costs • Funds available for medical costs • Follow healthcare instructions of individual • Advance directives such as feeding tubes, assisted breathing, extending life treatments, etc. • Children (minors) are provided proper support • Children are placed in custody of individuals at choosing of client • Protection of assets distributed to children

  5. Estate Planning Introduction • Estate Planning Defined - Continued • Planning ahead of a clients death to distribute wealth with consideration of legal, tax and personal issues. • Effective transfer (assets transferred to desired individual or institution) • Efficient transfer (minimizes taxes and transfer costs) • Timely transfer (avoid delays in distribution)

  6. Estate Planning Introduction • Goals in Estate Planning • Fulfill Client’s Wishes • Documents Legal and Appropriate for Client’s Wishes • What are some of the basic wishes a client makes in an estate plan? • Directs named assets to specific person or charity • Directs documents to be completed to set up future needs distributions • Directs terms for distribution of un-named assets • Healthcare instructions or individual that has power to make decisions • Funeral instructions • Others?

  7. Estate Planning Introduction • Risks of Failing to Do an Estate Plan • No Will • Die intestate and Laws of State determine heirs • No Will • Court determines child care • No Will • Allocation of assets to minimize taxes not guaranteed • No Will • Contested estate could delay distribution of assets • No Will • Financial burdens for family while assets in probate • No Health Directive • Medical care costs could wipe out assets • Prolong life past desire of individual

  8. Estate Planning Introduction • Who Needs Estate Planning • Everyone who • Has minor children • Has assets that would need distribution at death • Spouse will get title to many assets but not all • More on this in later chapters • Has health issues or specific desires on health care • Has a preference on funeral and burial desires • What could happen without plan • Guardianship of Children to inappropriate adult • Poorly titled asset does not go to “rightful” for person • Much of wealth lost to transfer costs and taxes • Major delay in distribution as estate is contested

  9. Estate Planning Introduction • What Can Estate Planning Do? • Preplanning of asset distribution can lower taxes • Giving specific assets that have a stepped up basis to a charity avoids taxes – example share of stock • Charities are not-for-profit so it is a tax free-distribution • ByPass-Trust allows maximum tax deductions for married couple • Separate assets at death of first spouse • Allows surviving spouse access to assets and tax deduction • Power of Attorney • Allows designated individual to act in the interest of the individual while still alive but incapacitated so estate is maintained and does not lose value • Other ?

  10. Estate Planning Introduction • The Six Steps in Estate Planning • 1. Establish the Client/Planner Relationship • Division of Tasks – Lawyer leads in Estate Planning • Legal documents can require lawyer • 2. Collect Information • Financial Statements, Tax Filings, Asset Titles, Etc. • Family and Family Histories (health of parents, children with special needs, etc.) • Insurance policies • Legal documents (Powers of Attorney, Health Directives, Wills, Trusts, etc.) • Other items such as prior gifting, annuity contracts, lawsuits pending, etc. • 3. Determine Clients Financial Status • Examine assets, cash flow, liabilities, insurance coverage, future liabilities (children’s education for example) and living standard • Analyze information

  11. Estate Planning Introduction • 4. Develop a Comprehensive Estate Plan • Match the comprehensive plan to the desires and the financial status of the client • Goals of client should be realistic • Plan should support a realistic outcome • Plan should provide for potential contingencies • 5. Implement the plan • Usually plan has some immediate steps or short term goals that put client on a “successful” path • 6. Set Specific Review Periods for Plan • Circumstances change overtime and plan must be adjusted to meet the changes that alter the outlook

  12. Estate Planning Introduction • The Financial Planning Team • Typically three to four professionals • Certified Financial Planner, Insurance Agent, Estate Lawyer • Could also include broker or other financial professional • Initial planning usually with CFP and • CFP serves as the professional with the overview of the entire plan • Recommends other professionals • Insurance Agent • Reviews insurance needs and policies that support the plan • Life insurance, long-term care, property and liability insurance • Estate Lawyer • Legal documents (wills, trusts, healthcare directives, power of attorney) • Files proper papers with court for estate distribution

  13. Estate Planning Introduction • Problems with seeking advice and instructions from non qualified individuals • Unauthorized Practice of Law • States have laws that license the practice of law and estate planning is included in these laws • Advice from unauthorized individual may not be bad advice but your recourse may be limited • If you are providing the advice and not authorized your liability could be significant • Documents prepared may not be accepted by the court • Other issues with non-professional advice?

  14. Estate Planning Introduction • What are the implications for Financial Planning? • Estate Planning is an essential part of the financial plan and a poor estate plan can hurt clients • Clients need to have thorough evaluation of current financial status and see that it matches their personal goals • Legal documents provide insurance against decisions that are in conflict with desires of client • Wealth management served with good estate plan • Other issues?

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