C HAPTER 19

1. CHAPTER19 Estate Planning Personal Finance 6e Kapoor Dlabay Hughes 19-1

2. What is Estate Planning? • Your estate consists of everything you own. • An estate plan is how you set up to administer and distribute your property during your life (gifts) or after your death. • Estate planning is not just for the wealthy. • Estate planning includes both building your estate, and also transferring your estate upon your death. 19-2

3. What is Estate Planning? (continued) • Most people give little or no thought to putting their personal and financial affairs in order for their families that survive them. • Naming a guardian. • Distribution of personal belongings. • Demands of daily living can keeppeople from thinking about death. • Plan while you are in good health. • Estate planning is especially important for nontraditional households. 19-3

4. What Estate Planning Involves • Review and update your will on a regular basis, especially if you get married, divorced, or move to another state. • Name an executor for your estate. • Create and review trusts. • Prepare a letter of last instructions. • Organize current financial records and documents, and let family members know where they are. 19-4

5. Important Documents for Which Proof will be Needed • Social Security documents. • Veteran documents. • Insurance policies. • Transfer records of joint bank accounts. • Safe-deposit box records. • Registration of automobiles. • Title to stock and bond certificates. 19-5

6. Wills • A will is the legal declaration of a person’s mind as to the disposition of his or her property after death. • Marriage and divorce affect your will. • Review your will with an attorney. • Marriage may revoke your will. • Legal costs to prepare a will vary with how complex it is. A standard will costs between $200-$500 dollars. 19-6

7. Types of Wills • Simple or an “I love you” will leaves everything to your spouse. • Traditional marital share willleaves half to spouse, half tochildren of your issue or heirs. • Exemption trust will. • Stated dollar amount will. • May be better to use percentages than actual dollar amounts. 19-7

8. Formats of Wills • Holographic will • A hand-written will you prepare yourself. • May not be legal in some states. • Formal will. • Can be prepared by an attorney. • Can be typed or on a preprinted form. • Names beneficiaries. • Must be signed & have two witnesses. • Statutory will. • A type of formal will done on a preprinted form. • May be invalid if you change preprinted wording. • May not reflect current law. 19-8

9. Intestate and Probate • Intestate. • Means you die without a will. • The state distributes your assets. • May mean the state will decide ona guardian for your children. • Very complicated if you also have a “blended” family. • Probate. • Probate court generally validates wills and make sure your debts are paid. 19-9

10. Choosing an Executor • Find out if an executor is willing to accept this major responsibility. • Find out if he/she is capable. • If you don’t nameone the court will. 19-10

11. Responsibilities of an Executor • Take control of assets of the estate. • File an inventory of assets and liabilitieswith the court. • Sell assets if necessary to pay liabilities. • Distribute assets, based on the instructions in the will. • Make a final accounting to the court. 19-11

12. Selecting a Guardian • Even if you don’t have a lot of assets, if you have children you need a will to name their guardian. • A guardian assumes the responsibility for providing the children with personal care and managing the estate for them. • Be sure the person would be willing to raise them. • See if their values and child rearing practices match yours. 19-12

13. Altering or Rewriting Your Will • Add a codicil. • A document that modifies provisions in an existing will. • Rewrite your will if there are major changes. • Divorce or remarriage. • Move to another state. • Add children or stepchildren. • If your assets change a great deal. 19-13

14. Prenuptial Agreement • Waive rights to each other’s property that was acquired beforethe marriage. • Agree on asettlement if youshould divorce. 19-14

15. A Living Will • Provides for your wishes to be followed if you become so physically or mentally disabled that you are unable to act on your own behalf. • Discuss your living will with those close to you, and your family doctor. • Sign and date it before two witnesses. • Give copies to those close to you. • Requires careful thought. 19-15

16. Power of Attorney • Power of attorney. • Legal document authorizing someone to act on your behalf. • Can be limited or gives a great deal of power. • Durable power of attorney for health care • If you are unable to make decisions regarding your health care this authorizes someone to do it for you. 19-16

17. Letter of Last Instruction • Not legally enforceable. • Provides heirs with information. • Should include... • Your funeral preferences. • Names of people you want notified. • Location of safe deposit box. • Assets and debts. • Social Security number. • Who gets personal effects. 19-17

18. What is a Trust? • A trust is a legal arrangement through which a trustee holds your assets for your benefit or that of your beneficiaries. • Takes care of or manages your property. • Distribute your assets to your heirs from the trust after you die according to your will. • All assets are taken out of your name and put in the name of the trust. • Benefits of trusts: Reduce estate taxes, avoid probate, free you from managing assets, and provide income for a surviving spouse. 19-18

19. Credit-shelter trust. Disclaimer trust. Marital-deduction trust. Living or Inter vivos trust. Self-declaration trust. Testamentary trust. Grantor-retained annuity trust. Life insurance trust. Charitable remainder trust. Qualified personal residence trust. Generation-skipping trust. Spendthrift trust. Types of Trusts 19-19

20. Make an Inventory of Your Estate • Bank accounts, CDs, money market. • Stocks, bonds and mutual funds. • Life insurance, employee benefits and annuities. • Your home and any other real estate. • Business interests. • Money due you. • Interests and trusts. • Antiques, art, collections, cars. 19-20

21. Federal and State Estate Taxes • Federal estate tax. • Estate and trust federal income taxes. • State inheritance tax. • Gift tax. • Tax avoidance and evasion. • Charitable bequests. • Calculating tax. • Probate and administration costs. • Paying tax owed. 19-21