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© 2007 ME™ (Your Money Education Resource™) Estate Planning for Financial Planners Chapter 1: Introduction to Estate Planning
2 © 2007 ME™ (Your Money Education Resource™) Updated on 12/12/06 Estate Planning Definitions Estate planning: The process of accumulation, management, conservation, and transfer of wealth considering legal, tax, and personal objectives. Decedent – A deceased person. Heirs – People who inherit under state laws. Legatees – People who inherit under the will. Donor – Person who gives a gift. Donee – Person who received the gift.
3 © 2007 ME™ (Your Money Education Resource™) Updated on 12/12/06 Goal of Estate Planning Effective Transfers Decedent’s assets are transferred based on his wishes. Efficient Transfers Transfer costs are minimized. Minimize transfer taxes. Gift Tax GST Tax Estate Tax State Inheritance Tax
4 © 2007 ME™ (Your Money Education Resource™) Updated on 12/12/06 Common Goals and Objectives (2 of 3) Minimize transfer costs. Lawyers’ fees Accountants’ fees Cost of documents Court fees Maximize net assets to heirs. Exhibit 2.4: Generally taxes and transfer costs will consume at least 30% of an estate
5 © 2007 ME™ (Your Money Education Resource™) Updated on 12/12/06 Common Goals and Objectives (3 of 3) Provide liquidity at death, which is needed for last medical, taxes, and burial costs. Fulfill client’s health care wishes.
6 © 2007 ME™ (Your Money Education Resource™) Updated on 12/12/06 Impediments to Reaching Goals Unwillingness to face mortality. Procrastination. Current good health. Cost. Lack of knowledge. Unaware of value of assets.
7 © 2007 ME™ (Your Money Education Resource™) Updated on 12/12/06 Risks in Failing to Plan Client’s property transfer wishes go unfulfilled. Transfer taxes are excessive. Transfer costs are excessive. Client’s family is not properly provided for financially. Insufficient liquidity to cover client’s debts, taxes, and costs at death.
8 © 2007 ME™ (Your Money Education Resource™) Updated on 12/12/06 Who Needs Estate Planning? Karen is married with 4 children. Donna is married with no children. Bill is single with 3 cats. Kali is single with no pets or children.
9 © 2007 ME™ (Your Money Education Resource™) Updated on 12/12/06 Why the Interest in Estate Planning? Federal Transfer Tax – 40% in 2014 People have an interest in directing their assets at their death.
10 © 2007 ME™ (Your Money Education Resource™) Updated on 12/12/06 The Six Basic Steps in Estate Planning 1.Establish the Client/Planner Relationship. 2.Gather client information and establish objectives. 3.Determine the client’s financial status. 4.Develop a comprehensive plan. 5.Implement the plan. 6.Review and update plan when necessary.
11 © 2007 ME™ (Your Money Education Resource™) Updated on 12/12/06 Establish the Client/Planner Relationship Talk to your existing clients. Estate planning is not required! Many clients won’t do it unless they are encouraged. Detail your services. Send an Engagement Letter. Explain how you will be paid
12 © 2007 ME™ (Your Money Education Resource™) Updated on 12/12/06 Collecting Client Information Current financial statements Family information List of assets and liabilities Copies of policies (i.e., medical, disability, & life) Annuity contracts Wills and trusts Identification of POA and GPOA Previously filed returns (i.e., income & gift tax) Assets transferred to loved ones Other pertinent information
13 © 2007 ME™ (Your Money Education Resource™) Updated on 12/12/06 Determine the Client’s Transfer Objectives Common Transfer Objectives Transfer property to desired beneficiaries Minimize taxes, maximize assets to heirs Avoid probate process Use lifetime transfers – gifts Meet liquidity needs at death Plan for children Plan for incapacity of transferor Provide for needs of surviving spouse Fulfill charitable intentions of transferor
14 © 2007 ME™ (Your Money Education Resource™) Updated on 12/12/06 The Estate Planning Team Attorney CPA Insurance Professional Financial Planner (Team Captain)
15 © 2007 ME™ (Your Money Education Resource™) Updated on 12/12/06 The Unauthorized Practice of Law Certain activities are clearly reserved for attorneys (drafting legal documents). Must be licensed attorney in jurisdiction where practice is occurring. Planner should refer client to licensed attorney for legal advice.
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