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THE RETIREMENT PLANNING PROCESS. Life Cycles Creation Accumulation Conservation Distribution 30-40 years 10 years 2 hours.

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Presentation on theme: "THE RETIREMENT PLANNING PROCESS. Life Cycles Creation Accumulation Conservation Distribution 30-40 years 10 years 2 hours."— Presentation transcript:


2 Life Cycles Creation Accumulation Conservation Distribution 30-40 years 10 years 2 hours

3 THOUGHTFUL PLANNING MAKES ALL THE DIFFERENCE For our peace of mind For our families To ensure that we decide where our property will go

4 Who should be involved If married, both spouses need to be involved. The life expectancy for the average American man is around 76 years while the life expectancy for the average American woman is around 81 years. That means the average woman can expect to be on her own for four to five years in retirement. Both spouses need to be active in the retirement process.

5 The Retirement Planning Process Step One: What are your goals? Step Two: What will you need? Step Three: What will you have? Step Four: Reality check? Step Five: Staying on track When will you retire? When will you retire?

6 The retirement Planning Process Step Two: What will you need? Questions to ask How much will you spend? For many, expenses are less in retirement. What will inflation be? How long will you live?

7 The Retirement Planning Process Step Three: What will you have? List your retirement income sources. Pastor Pension + Social Security + + Personal Resources

8 Step Three: What will you have? What Personal Resources do you have? Other retirement assets? Spouse’s retirement assets? Spouses pension? Equity in personal residence? Rental Real Estate? Other ?

9 Reality Check Step Four: How do your Goals and Income sources compare? Example $28,000 Is there a gap? $22,000

10 What can I do if there is a gap? If my income is less than my expenses? What can I do? Spend less in retirement Retire later Save more Work part time Combination of above Spend less in retirement Retire later Save more Work part time Combination of above

11 Step Five: How to stay on track Monitor expenses annually Monitor your asset values Review your goals Perform an annual reality check

12 Wills and Estate Planning

13 Goals of Estate Planning While an estate plan can't pass on our memories and experiences, it can help us pass on our assets in a way that reflects our values and dreams.

14 According to a 2011 Forbes magazine survey, nearly 65% of Americans do not have a valid will.

15 WHY DO WE WAIT? Some of us believe we do not have enough money to worry about or we think creating a will is too expensive. Perhaps we have willed everything to our spouse. What happens in the case of an accident and something happens to both spouses at the same time?

16 Family Goals Retirement Income—having a sustainable plan for you and spouse. Pass on Property Transfer Values Our legacy is more than the assets or property we give

17 Estate Planning—4 Part Process Part 1: Control your property while you are alive Part 2: Take care of yourself and loved ones (possibility of disability) Part 3: Give assets to whom you want, the way you want, when you want Part 4: Tax Minimization

18 Avoiding the Potholes Estate Journey Probate Estate Tax Accidental Disinheritance Capital Gains Taxes

19 Probate Can be costly It is public It usually can be avoided with proper planning Beneficiary Designation of Insurance policies, IRA’s, retirement plans, and checking and savings account.

20 $14,000 per Year, per Individual $5,250,000 Gift Exemption Unlimited Transfer Between Spouses Unlimited Charitable Exemption Lifetime Gifts 2013 Remember—Tax Rules Change all the time

21 $5,250,000 Gift Exemption Lifetime Gifts Once in your lifetime there is a gift exemption per person. This is in addition to the annual exclusion, but you must remember that the gift exemption is a cumulative total that may be used only once either during life or at death. For example, if a person gives his or her annual exclusion amount and then gives another $200,000 this year, only part of the exemption equivalent remains available for transfers at death or $5,050,000 left.

22 Taxation in 2013 Income tax brackets 10% to 39.6% Capital Gains 15%, 20% 0-15% tax brackets- capital gain tax is 0% Gift Taxes 40% Over the exclusion amount Estate Taxes 40% Over exclusion amount Generation Skipping 40% Can be minimized or avoided, t alk to your attorney

23 2013 Capital Gain Income limits for Capital Gains for those in the lower two income tax brackets Good News For CG Tax Rate Singles Married Head of Household 0 % up to $36,200 up to $72,850 up to $48,600 15% $36,250-400K $72,850 to 450K If concerned about the tax consequence of selling appreciated assets talk with your financial advisor first to see what best fits your needs

24 Spouse Selects Advisors Full Control of Assets Personal Assets – Simple Transfer Avoid Trust and Accounting Fees Spouse Can Give or Bequeath Assets transferred outright qualify for marital deduction Since it qualifies for marital deduction there is no estate tax

25 Accidental Disinheritance This is when you intended to leave property to an heir, but your heir does not receive anything. Example : failing to update your will after a major change in your life or your family. (Always update your will after a marriage, divorce, or death in the family. Another common cause of accidental disinheritance is something known as “stepparent succession”. Example Leaving everything to second spouse. If you had children by first marriage and second spouse dies, if not stated otherwise, property could pass to spouse’s heirs.

26 Capital Gain IRS § 1014(a) is the general rule applied to property a beneficiary receives. The beneficiary receives the stepped up basis equals the fair market value of the property at the time the decedent dies. Example Decedent owns home they originally purchased for $40,000 Decedent bequeaths Property Fair market value at time of death is $200,000 Step up cost basis allowed In contrast, had Decedent given the home to Beneficiary before their death, Beneficiary would receive a carryover basis, which would be equal to the decedent’s original cost basis of $40,000.

27 Gross Estate Value What do I include in my Gross Estate Value? EVERYTHING Real Estate Securities Life Insurance Trusts Annuities Checking Accounts Savings Accounts

28 Taxable Estate Once you have accounted for the Gross Estate, certain deductions (and in special circumstances, reductions to value) are allowed in arriving at your Taxable Estate. These deductions may include mortgages and other debts, estate administration, expenses, property that passes to surviving spouses and qualified charities. Source: IRS website

29 Operation of Law Joint Tenancy Totten Trust Trusts Life Insurance Pension (Qualified) Plans Business Agreements (Contracts) * Governed by the laws of the state where property is located

30 Property Ownership Title to Property Joint Tenants Tenants in Common Community Property Who owns the property? What name(s) on the title? How is the property held?

31 Joint Tenants with right of Survivorship Any Number of Individuals Undivided Interest Interest Passes to Survivors Last survivor ends up owning the Property. Property title takes precedence over the will and the beneficiaries of the other party. Last survivor ends up owning the Property. Property title takes precedence over the will and the beneficiaries of the other party.

32 Potential Hazards... They Become Divorced Their Business Fails They Have Liability Claims They may precede you in death.... of Assigning Children as Joint Tenants

33 Tenancy In Common Any Number of Individuals Undivided Interest Interest Passes to Beneficiaries In the picture you see three people who all own one-third of a given property. If one of them should pass away, that person’s heirs or children could receive that one-third interest. Allows any number of individuals to own a partial or undivided interest in property.

34 Using a Totten Trust to Avoid Probate Such an account is really just a payable-on-death (POD) bank account that provides an easy way to transfer money at death without probate. To set up or turn an existing savings or check account into a POD account, complete the paperwork provided by the bank naming the POD beneficiary. The account does not belong to the beneficiary while you are alive. You are free to use the money or close the account (revocable).

35 Your Finances Real Estate Checking Accounts Savings Accounts Investment Accounts Personal Property Life Insurance Retirement Accounts Check for beneficiary designations and an alternate. Keep it current.

36 Transfers of Property Things Owned in Your Name Appoints Guardian For Minor Children or disabled family member TESTATE (With a Will)

37 Valid Will - Requirements Legal Age according to the state you live in Capacity - “Mentally Competent” Intent - Transfer Property Freedom from Fraud, Undue Influence, Duress, Coercion Oral will is not valid Proper Execution - Signatures, Witnesses Rules vary from State to State

38 Testate - With a Will YOU specify distribution YOU nominate guardian YOU nominate executor YOU can create trusts YOU can give to charity

39 Intestate - Without a Will May be COSTLY State LAW specifies distribution COURT selects guardian COURT selects administrator COURT determines special needs NO provision for charity Usually a much slower process Disadvantages

40 Contents of a Will Marital status Children How to pay debts Distribution of assets What to do with minor children If a prior marriage a copy of the dissolution of previous marriage Burial Plan Ever changing personal property This is not an all inclusive list

41 Family/Friends Charity Government Only Three Places Plan properly, maximize distribution to family and charity and minimize amount taken by the government.

42 Advisors CPA Attorney ( with a background in estate planning). Financial Planner Trust Officer or Broker Trusted Friend

43 Initial Contact Qualifications and Experience Fees and Billing Practice Efficient Use of Attorney’s Time Decision Making Process * Use an attorney with a background in estate planning

44 Plan ahead Put it in writing Make sure it is current Communicate your wishes to your family and your doctor(s) Make sure your loved ones know where your documents are kept Review often THOUGHTS OF THE DAY

45 Basic Tools for Estate Planning Will ( Appoint an executor of your will (administers estate after your death) Durable Power of Attorney ( Financial & Medical) The Power of Attorney can only act on your behalf while you are alive (a second Power of Attorney) Living Will (Health Care Directives) Review often—Have an alternate

46 The Living Will Conform to State Statutes Gives Specific Instructions Power of Attorney for Healthcare Properly Executed CHECKLIST

47 Five Wishes Meets the legal requirement for an advance directive in Montana and Wyoming. When completed it expresses how you want to be treated if you are unable to communicate your wishes.

48 5 WISHES The form designates someone to make health decision for you when you are not able to make them for yourself. Review page 10—it must be signed, and witnessed.

49 Address These Problems so your heirs don’t have to. Getting your property to the people you choose at the time you choose. Getting the right person to care for your minor children or disabled adult children Getting the right person to manage your estate Minimize or eliminate estate taxes Avoiding probate – it is public, can be time consuming and can be expensive.

50 A WONDERFUL GIFT Talk with your family and loved ones about your living will and your estate plans. Have written documents to ensure your choices and values are respected and followed. It is one of the most appreciated gifts that you can give to your family.

51 Title to Property is Important Make sure your will is updated and current? Estate Planning Reduces Taxes Talk with your family about your estate plan Enemy to effective planning is PROCRASTINATION

52 Remember to always consult your own financial and legal advisors

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