1 / 26

Estate Planning

Estate Planning. Useful Terms. Estate: the assets of a deceased person after all debts are paid Estate planning: the act of planning for how your wealth will be allocated on or before your death

raymond-rice
Download Presentation

Estate Planning

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Estate Planning

  2. Useful Terms • Estate: the assets of a deceased person after all debts are paid • Estate planning: the act of planning for how your wealth will be allocated on or before your death • Will: a legal request for how your estate should be distributed upon your death. It can also identify a preferred guardian for any surviving children.

  3. Purpose of a Will • Reasons for having a will • Ensures that your estate is distributed as you desire • Beneficiaries (heirs): the persons specified in a will to receive a part of an estate • Intestate: the condition of dying without a will • Court appoints an administrator who may not make the decisions you preferred

  4. Purpose of a Will • Creating a valid will • Minimum age—18 or 21 • Mentally competent • Not under undue influence of others • Must be signed and dated • 2 or 3 witnesses who are not beneficiaries • Attorney recommended

  5. Types of Wills • Common types of wills • Simple will: a will suitable for smaller estates that specifies that the entire estate be distributed to the person’s spouse • Traditional marital share will: a will suitable for larger estates that distributes half of the estate to the spouse and all the other half to any children or to a trust

  6. Components of a Will • Distribution of the estate • Details the distribution to the heirs, usually by percentage • Executor (personal representative): the person designated in a will to execute your instructions regarding the distribution of your assets • Collects debts owed to the estate, pays debts owed by estate, and distributes proceeds of the estate

  7. Components of a Will • Guardian • Parents should name a person to be responsible for caring for any dependent children • Signature • Validates will • Letter of last instruction • Describes your wishes regarding funeral arrangements and tells the location of any key financial documents

  8. A Sample Will Source: http://tagprudence.com/yahoo_site_admin/assets/images/sampleWIllTear.29761401_std.jpg

  9. Changing Your Will • Changing your will • May be necessary if you move to a state with different laws or if you marry or divorce • Major changes may require a new will • Codicil: a document that specifies changes in an existing will • Appropriate for minor revisions

  10. Executing the Will During Probate • Probate: a legal process that declares a will valid and ensures the orderly distribution of assets • An executor files forms in probate court, provides a copy of the will, a list of assets and liabilities of deceased, pays debts and sells necessary assets. • Typically opens a bank account for this purpose

  11. Estate Taxes • Without a surviving spouse, a large estate is subject to estate taxes. • Determining estate taxes • Value of estate is the value of all assets minus any liabilities minus funeral and administrative expenses.

  12. Estate Taxes • During 2004 and 2005, the first $1 million of an estate can be distributed to children or others tax-free. • Beyond this limit, the federal estate tax rates on the taxable part of the estate range from 45 and 48 percent. • Tax Relief Act of 2001 gradually increases tax free limit while reducing maximum tax rate • Proper planning can reduce these taxes

  13. Estate Taxes • Other related taxes • Some states also impose taxes on estates • Valuing your estate to assess potential estate taxes • It is important to calculate the value of your estate periodically so that you can plan appropriately if your net worth exceeds the tax-free limit.

  14. Trusts, Gifts, and Contributions • These may help avoid estate taxes • Trust: a legal document in which one person transfers assets to another who manages them for designated beneficiaries • Grantor: the person who creates a trust • Trustee: the person or institution named in a trust to manage the trust assets for the beneficiaries

  15. Trusts, Gifts, and Contributions • Living trust: a trust in which you assign the management of your assets to a trustee while you are living • Revocable living trust: a living trust that can be dissolved • Irrevocable living trust: a living trust that cannot be changed, although it can provide income to the grantor

  16. Trusts, Gifts, and Contributions • Standard family trust (credit-shelter trust): a trust established for children in a family • Testamentary trust: a trust created by a will • Gifts: a tax-free distribution of up to $11,000 per year from one person to another • Not subject to tax for the giver or the recipient • Contributions to charitable organizations • Not subject to estate taxes

  17. Other Aspects of Estate Planning • Living will: a legal document in which individuals specify their preferences if they become mentally or physically disabled • Power of attorney: a legal document granting a person the power to make specific decisions for you in the event that you are incapable

  18. Other Aspects of Estate Planning • Durable power of attorney for health care: a legal document granting a person the power to make specific health care decisions for you • Maintaining estate plan documents • Need to be kept in a safe, convenient place • Key individuals need to know where they are kept

  19. How Estate Planning Fits within Your Financial Plan • Key decisions about estate planning for your financial plan are: • Should you create a will? • How can you limit your estate taxes? • Should you create a living will or designate an individual to have power of attorney?

  20. Estate Planning Decisions

  21. Estate Planning Guidelines • Plans need flexibility; • Disclaimer trust planning allows a surviving spouse to decide if and how to fund trusts at the death of first spouse; • Powers of appointment allow surviving spouse to change disposition of trusts established at first spouse’s death. • Trust Protectors

  22. Gifting • FLPs and the accompanying discounts are alive and well; • $13,000 annual gift exemption remains; • Can accelerate gifts using lifetime gift exclusion;

  23. Other Reasons to Plan • Trust protects assets from • future “new” spouse, • creditors of surviving spouse • changes in tax laws.

  24. Trusts for Kids • Protects assets from kids’ creditors; • Protects assets from kids’ soon to be ex-spouse; • Protects assets from kids’ dependencies and addictions; • Allows for Special Needs planning for kids and grandkids

  25. Special Needs Trusts • Number of people eligible for medical assistance programs continues to climb; • If assets are held by the individual, they must be spent down before eligible for assistance; • If assets are held in a Special Needs Trust, trust assets are exempt and protected

  26. State Estate Tax • Some states have “de-coupled” from the federal estate tax; • Minnesota has a $1,000,000 exemption; • Iowa and Nebraska have an inheritance tax.

More Related