Presentation on theme: "Chapter 15 Personal Finance. Wills Estate – all assets minus debts at the time of death. Estate Planning – preparing a plan for transferring assets."— Presentation transcript:
Chapter 15 Personal Finance
Wills Estate – all assets minus debts at the time of death. Estate Planning – preparing a plan for transferring assets at the time of your death. Will – legal document that tells how you want your estate to be distributed after your death. Executor – carries out the transfer of your estate when you die. Simple will – short legal document that lists the people you want to inherit and what you want each to receive.
Wills (cont.) You must have 2 witnesses to your will (they can’t be in the will). Holographic will – handwritten, not recommended. Inestate – when a person dies w/out a will. Example of inestate distribution on p Codicil – legal changes to a will. Must be done by an attorney.
Power of Attorney Legal document authorizing someone to act on your behalf. Limited – lasts 30 days to a year or pertains only to a particular transaction. General – authorizes that person to make decisions for you.
Trusts Legal document in which an individual (the trustor) gives someone else (the trustee) control or property, for ultimate distribution to another person (the beneficiary). Provides for heirs who might not be able to effectively manage assets for themselves. Minimizes inheritance or estate taxes. Trustee may be a financial institution or a person.
Trusts (cont.) Inter vivos (living trust) – exists during the life of the trustor. Testamentary trust (trust will) – takes effect upon the death of the trustor. Useful if your beneficiaries are minor children or if you wish to avoid high taxes on your estate. Probate is a court-supervised process of paying your debts and distributing your property to your heirs.
Joint Ownership Two or more people own an undivided interest in a property. Joint tenants w/ right of survivorship – ownership is split for estate tax purposes. When one spouse dies, the other automatically becomes the sole owner. Joint tenants w/out right of survivorship – when one person dies, the property passes to his or her heirs.
Federal Estate Taxes Estate tax – tax on property (must meet the minimum dollar amount) transferred by deceased people to their heirs. Deducted from value of the estate. If you plan well, you can avoid estate taxes. If you transfer property to a spouse or a charity, you will not need to pay estate taxes.
State Inheritance Taxes Tax on an heir who receives property from a deceased person’s estate. The heirs pay this, not the estate.
Federal Gift Taxes Life estate – pass title to an heir, but you may live on the premises for as long as you live. Gift tax – tax on a gift of money or property. Paid by the giver. You may give up to $13,000 (per person in 2009) year w/out having to pay a gift tax. Gifts to a spouse or charity are exempt.
Federal/State Income Taxes The heirs must pay income tax for the deceased based on what they earned the year prior to their death. A tax return must be filed before the estate can be distributed to the heirs.
Personal Retirement Accounts Individual Retirement Accounts (IRAs) Retirement savings plan. Pre-tax investment You may contribute more if you aren’t covered by an employer pension plan. Early withdrawals are subject to a 10% penalty.
Types of Personal Retirement Accounts Traditional IRA – contribution can be deducted from your taxable income. Pay taxes when you retire and start collecting benefits. Roth IRA – taxes contributions, but not money withdrawn at retirement. Tax is paid on your income before you contribute. Never have to pay any other taxes on it. Education IRA – for higher education costs. Can set up if you have children under age 18. Withdrawals aren’t taxable.
Annuities Purchased from insurance companies. Provides regular payments – usually for retirement.
Defined-Benefit Plans Known as a pension plan. At retirement age, employees receive monthly payments. Employer makes the entire contribution. You must be vested in the plan to receive it if you leave the company. If you leave the company, you must roll it into an IRA or cash it out.
An employee is vested when they are able to keep the money that the employer contributed to their retirement account if they leave the job. Example, Varies from employer to employer. # of Years% of employer contributed funds the employee may take with them when they leave the job 120% 240% 360% 480% 5100%
Defined-Contribution Plans (Employee- sponsored plan where employees may choose to contribute also) 401(K) Plans For companies that operate for a profit. Employees choose the % of salary they want to contribute. Employers may match some or all of the employee contribution.
Defined-Contribution Plans (cont.) 403(b) Plans Similar to 401K, but is for not-for- profits. Schools, tax-exempt organizations, & government units. Earnings are tax-deferred and early withdrawal penalties apply.
Social Security Benefits You are eligible after retirement if you contributed during your work years. Your benefit is based on your earnings and contributions to social security. If you were married for 10 years or more, you may be entitled to receive social security benefits based on your spouse’s income.
Social Security Benefits Maximum social security retirement benefits are available at age 65*. Age at which you will be eligible for Social Security will be higher Currently, people may receive reduced benefits starting at age 62. Most or all of your social security income will be taxable. *will continue to change over time
Military Benefits Retired military receive pensions after 20 years of active duty. Pensions are payable regardless of other sources of income. Subject to income taxes. Veterans may also get other benefits like low-interest mortgages, special college financing, and low rate insurance policies.
A reverse mortgage is a loan against the equity in the borrower’s home in which the lender makes tax-free monthly payments to the borrower. Your lender pays you. Must be repaid, with interest, when you sell your home, reach the end of the loan, or die.
Become an expert & prepare to inform the class on your topic. Create a PowerPoint or a Prezi. (5-6 minutes) Create a visual that helps reinforce your topic. Use all work time productively. This is part of your grade. Be kind to all members of your group. Include all members in decisions. All members must contribute to the project. Practice your presentation before the day you give it. Note cards & a visual are required elements. Work days: last Friday, today, & tomorrow. Due date: Friday, November 16 th at the start of class. Chapter 15 open-note test on Wednesday, November 21 st Take notes during other group’s presentations. A note outline is available on my website. Cite sources using MLA on each slide and works cited page. Minimum of 4 sources including textbook. Turn in research the day you present
Your visual must be: Informative Creative Relevant Attractive Enhance your presentations Ideas: Painting Sculpture Poster Video Song (not a visual, I know) Storyboard
Power of Attorney, DNR Trusts Reverse Mortgage Individual retirement plan (IRA) Estate & inheritance tax Wills & estates Defined contribution plans (401k & 403b) Defined benefits plans (pensions plans) Social Security Medicare & Medicaid Other approved topic