Presentation on theme: "Objective 9 Be aware of the basic documents used in Estate Planning 9"— Presentation transcript:
1 Objective 9 Be aware of the basic documents used in Estate Planning 9 1Scope and characteristics of personal financial planningUnderstand “Cash Flow”Know how to prepare an initial Personal Budget EstimateKnow how to track Monthly Income, Taxes, LES & Other IncomeDeductions, Loan & Credit Balance Payments, and Monthly LivingExpensesKnow how much Savings you need to set conditions for informedInvestingBe familiar with Risk Management a.k.a InsuranceUnderstand the role of Credit and performance as a borrowerBe aware of the “Magic of Compound Interest” Rates of Return. . . financial objectives Financial Independence. . . “Set Conditions” for Future Classes on “Investments & Investing”23456789Be aware of the basic documents used in Estate Planning
2 You get . . . . . . before you’ve spent it ALL ?!? What Happens If . . .You get . . .Hit by LightningAbove GrassBelow Grass. . . before you’ve spentit ALL ?!?
3 Basic Documents Used in Estate Planning WillsSide Letters of InstructionPowers of attorney for PropertyDurable Powers of Attorney for Health CareLiving Wills or Advanced Medical DirectivesDo Not Resuscitate OrdersTrusts & Other Wealth Transfer DevicesFrom: “Estate Planning for Financial Planners,” Michael A. Dalton & Thomas P. Langdon, Money Education TM, 3d Ed, 2004; ISBN
4 Time Related to Estate Planning Documents Hit by LightningAbove GrassBelow GrassWillPower of AttorneyTrustLiving/Inter VivosTestamentaryXExecutor / AdministratorAgent / Attorney-in-factEnds at Death or RevocationTrusteeTrustee / Successor TrusteeProtects a minorHandicapped childFinancially inexperienced spouseSpendthriftDate DocumentSigned, Witnessed,& NotarizedSigned; Effective at DeathSigned; In Effect
5 Intestate ~ TestateTo die “intestate” is to die without a valid will or to diewith a will which does not dispose of all property.A decedent who has a valid will is said to die “testate.”Intestacy can occur because . . .A will was not written, orthe will fails to dispose of some property, or becausethe will is invalid.. . . but don’t worry if you die intestate, the State willdistribute your property to your heirs under the StateIntestate Succession Law.From: “Estate Planning for Financial Planners,” Michael A. Dalton & Thomas P. Langdon, Money Education TM, 3d Ed, 2004; ISBN
6 Extracts from a Sample State Intestate Succession Law ReviseSurviving spouseEntire estate if not survived by “issue” childrenIf “issue,” spouse get 1st $50,000 plus one half remainingOf the remaining, or the entire estate, if no issue . . .Decedent’s “issue”, taking by representation (per stirpes)Decedent’s parent or parents equallyIssue of decedent's parents, taking by representation. . . and more to follow
7 Will ~ Power of Attorney ~ Trust a legal document that provides the testator, or willmaker, the opportunity to control the distribution ofproperty, appoint an executor, and avoid the state’sintestacy law distribution scheme.Power of Attorneya legal document that authorizes an agent to act ona principal’s behalf.Trusta structure that vests legal title (the legal interest) toassets in one party, the trustee, who manages thoseassets for the benefit of the beneficiaries (who hold theequitable title) of the trust.From: “Estate Planning for Financial Planners,” Michael A. Dalton & Thomas P. Langdon, Money Education TM, 3d Ed, 2004; ISBN
8 Tell Me About Trusts & Probate Again ? ReviseTell Me About Trusts & Probate Again ?Life InsuranceAnnuitiesPOD AccountsTOD AccountsQual Rtmt PlansIRAs / SEPsContracts withNamed BeneficiariesProperty Titled withSurvivorship FeaturesProperty Already Titledinto TrustsAll OtherPropertyTransfers to NamedBeneficiary viaState Contract LawTransfers to Survivorsvia State Titling LawTransfers According toYour Trust Provisions viaState Trust LawTransfers to Legateesand Heirs viaProbateJTWROSTenancy by theEntiretyHome?Bank/Credit UnionAccounts?Investments?To Probatefor RetitlingTestate (Will) &Intestate Assets3 PanelCreditFrom: “Estate Planning for Financial Planners,” Michael A. Dalton & Thomas P. Langdon, Money Education TM, 3d Ed, 2004; ISBN
9 Structure of a Trust Grantor Trustee Beneficiaries Corpus ≈ Principal TransfersAssetsTrusteeIncomeCorpusBeneficiariesTrustee takes legal titleto trust assets andmanages the assetsfor the benefit ofthe beneficiaries,eventually paying outincome and corpusto beneficiariesIncome beneficiariesreceive income duringthe term of the trustRemainderbeneficiaries receivecorpus upontermination of the trustCorpus ≈ Principal
10 Types & Uses of Trusts Living Trust (Revocable) Used to manage assets. Protects in emergencies,such as medical. Avoids publicity and probate.Property is included in the gross estate of the grantor.Irrevocable Trust(Inter Vivos)Used to make gifts. Grantor relinquishes control ofassets. Assets not included in gross estate of grantor.TestamentaryTrustCreated by the will. Property is included in the grossestate and does not avoid probate. Used to manageassets of heirs.Trust for MinorsManages assets for minors. May shift income taxburden to lower-bracket taxpayer.Irrevocable LifeInsuranceTrust (ILIT)Irrevocable. Usually created during lifetime, used tohold an insurance policy, and thus remove the proceedsfrom the insured’s gross estate. Usually providesincome to the spouse, and corpus to children.
11 The Unified Gift and Estate Transfer Tax System “Application” Trusts used to reduce “transfer” taxes stemming from . . .The Unified Gift and Estate Transfer Tax SystemCredit Equivalency Trust (B Trust – B stands for “bypassing the spousesestate”2007Estate & GSTDeathtime TransferExemption$2 MillionPower of Appointment Trust (POA)Qualified Terminal Interest Property TrustCharitable Remainder Trust (CRTs)2007Highest Estate &Gift Tax Rates45%Charitable Lead Trust (CLTs)
12 Estate Planning . . . The process of accumulating, managing, conserving, and transferring family wealth . . .considering legal, tax, and personal objectives. . . It’s financial planning in anticipation of yourtragic and untimely demise.Goal: the efficient and effective transfer of assets. . . effective: to the person or institution intended. . . efficient: minimum transfer costs[ in terms of estate and gift taxes ]From: “Estate Planning for Financial Planners,” Michael A. Dalton & Thomas P. Langdon, Money Education TM, 3d Ed, 2004; ISBN
13 Living & Testamentary Trusts Revocable Living TrustLiving & Testamentary Trustsa revocable trust that is managed by the grantor and is for the benefit of the grantor during his lifetime. The property transferred to the trust avoids the individual’s probate estate but is included in the individual’s gross estate.Revocable Trusta trust created where the grantor of the trust retains the right to revoke the trust at any time prior to his incapacity or death.Irrevocable Trust used for Estate & Gift Tax Planningtrust created by a grantor that cannot be revoked. The grantorcannot take back property that was transferred to the trust.For this reason, the property is excluded from his gross estateTestamentary TrustA trust created at the death of the grantor. The grantor’s will generally includes all trust provisions.From: “Estate Planning for Financial Planners,” Michael A. Dalton & Thomas P. Langdon, Money Education TM, 3d Ed, 2004; ISBN