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Objective 9 Scope and characteristics of personal financial planning Understand Cash Flow Know how to prepare an initial Personal Budget Estimate Know.

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Presentation on theme: "Objective 9 Scope and characteristics of personal financial planning Understand Cash Flow Know how to prepare an initial Personal Budget Estimate Know."— Presentation transcript:

1 Objective 9 Scope and characteristics of personal financial planning Understand Cash Flow Know how to prepare an initial Personal Budget Estimate Know how to track Monthly Income, Taxes, LES & Other Income Deductions, Loan & Credit Balance Payments, and Monthly Living Expenses Know how much Savings you need... to set conditions for informed Investing Be familiar with Risk Management... a.k.a.... Insurance Understand the role of Credit and performance as a borrower Be aware of the Magic of Compound Interest... Rates of Return... financial objectives... Financial Independence... Set Conditions for Future Classes on Investments & Investing Be aware of the basic documents used in Estate Planning 9

2 Above GrassBelow Grass What Happens If... You get before youve spent it ALL ?!?

3 Basic Documents Used in Estate Planning Wills Side Letters of Instruction Powers of attorney for Property Durable Powers of Attorney for Health Care Living Wills or Advanced Medical Directives Do Not Resuscitate Orders Trusts & Other Wealth Transfer Devices From: Estate Planning for Financial Planners, Michael A. Dalton & Thomas P. Langdon, Money Education TM, 3d Ed, 2004; ISBN

4 Above GrassBelow Grass Will Power of Attorney Trust Living/Inter Vivos Testamentary Date Document Signed, Witnessed, & Notarized Executor / Administrator Agent / Attorney-in-fact Ends at Death or Revocation Trustee / Successor Trustee Trustee X Time Related to Estate Planning Documents Protects a minor Handicapped child Financially inexperienced spouse Spendthrift Signed; Effective at Death Signed; In Effect

5 Intestate ~ Testate To die intestate is to die without a valid will or to die with 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, or the will fails to dispose of some property, or because the will is invalid.... but dont worry... if you die intestate, the State will distribute your property to your heirs under the State Intestate 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 Surviving spouse Entire estate if not survived by issue... children If issue, spouse get 1st $50,000 plus one half remaining Of the remaining, or the entire estate, if no issue... Decedents issue, taking by representation (per stirpes) Decedents parent or parents equally Issue of decedent's parents, taking by representation... and more to follow Revise

7 a legal document that provides the testator, or will maker, the opportunity to control the distribution of property, appoint an executor, and avoid the states intestacy law distribution scheme. Will a legal document that authorizes an agent to act on a principals behalf. Power of Attorney a structure that vests legal title (the legal interest) to assets in one party, the trustee, who manages those assets for the benefit of the beneficiaries (who hold the equitable title) of the trust. Trust Will ~ Power of Attorney ~ Trust From: Estate Planning for Financial Planners, Michael A. Dalton & Thomas P. Langdon, Money Education TM, 3d Ed, 2004; ISBN

8 Contracts with Named Beneficiaries Property Titled with Survivorship Features Property Already Titled into Trusts All Other Property Transfers to Named Beneficiary via State Contract Law Transfers to Survivors via State Titling Law Transfers According to Your Trust Provisions via State Trust Law Transfers to Legatees and Heirs via Probate To Probate for Retitling Testate (Will) & Intestate Assets Life Insurance Annuities POD Accounts TOD Accounts Qual Rtmt Plans IRAs / SEPs JTWROS Tenancy by the Entirety Home? Bank/Credit Union Accounts? Investments? Tell Me About Trusts & Probate Again ? From: Estate Planning for Financial Planners, Michael A. Dalton & Thomas P. Langdon, Money Education TM, 3d Ed, 2004; ISBN Panel Credit Revise

9 GrantorTrusteeBeneficiaries Transfers Assets Income Corpus Trustee takes legal title to trust assets and manages the assets for the benefit of the beneficiaries, eventually paying out income and corpus to beneficiaries Income beneficiaries receive income during the term of the trust Remainder beneficiaries receive corpus upon termination of the trust Corpus Principal Structure of a Trust

10 Used to manage assets. Protects in emergencies, such as medical. Avoids publicity and probate. Property is included in the gross estate of the grantor. Living Trust (Revocable) Irrevocable Trust (Inter Vivos) Testamentary Trust Trust for Minors Irrevocable Life Insurance Trust (ILIT) Used to make gifts. Grantor relinquishes control of assets. Assets not included in gross estate of grantor. Created by the will. Property is included in the gross estate and does not avoid probate. Used to manage assets of heirs. Manages assets for minors. May shift income tax burden to lower-bracket taxpayer. Irrevocable. Usually created during lifetime, used to hold an insurance policy, and thus remove the proceeds from the insureds gross estate. Usually provides income to the spouse, and corpus to children. Types & Uses of Trusts

11 Application Trusts... used to reduce transfer taxes stemming from... Credit Equivalency Trust (B Trust – B stands for bypassing the spouses estate Power of Appointment Trust (POA) Qualified Terminal Interest Property Trust Charitable Remainder Trust (CRTs) The Unified Gift and Estate Transfer Tax System Charitable Lead Trust (CLTs) 2007 Estate & GST Deathtime Transfer Exemption $2 Million 2007 Highest Estate & Gift Tax Rates 45%

12 Estate Planning... The process of accumulating, managing, conserving, and transferring family wealth... considering legal, tax, and personal objectives... Its financial planning in anticipation of your tragic 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 a 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 individuals probate estate but is included in the individuals gross estate. trust created by a grantor that cannot be revoked. The grantor cannot take back property that was transferred to the trust. For this reason, the property is excluded from his gross estate Revocable Living Trust Irrevocable Trust... used for Estate & Gift Tax Planning a trust created where the grantor of the trust retains the right to revoke the trust at any time prior to his incapacity or death. Revocable Trust A trust created at the death of the grantor. The grantors will generally includes all trust provisions. Testamentary Trust From: Estate Planning for Financial Planners, Michael A. Dalton & Thomas P. Langdon, Money Education TM, 3d Ed, 2004; ISBN


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