Objective 9 Be aware of the basic documents used in Estate Planning 9 1 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” 2 3 4 5 6 7 8 9 Be aware of the basic documents used in Estate Planning

You get . . . . . . before you’ve spent it ALL ?!? What Happens If . . . You get . . . Hit by Lightning Above Grass Below Grass . . . before you’ve spent it ALL ?!?

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 0-9748945-3-2

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

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 don’t 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 0-9748945-3-2

Extracts from a Sample State Intestate Succession Law Revise 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 . . . Decedent’s “issue”, taking by representation (per stirpes) Decedent’s parent or parents equally Issue of decedent's parents, taking by representation . . . and more to follow

Will ~ Power of Attorney ~ Trust a legal document that provides the testator, or will maker, the opportunity to control the distribution of property, appoint an executor, and avoid the state’s intestacy law distribution scheme. Power of Attorney a legal document that authorizes an agent to act on a principal’s behalf. Trust 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. From: “Estate Planning for Financial Planners,” Michael A. Dalton & Thomas P. Langdon, Money Education TM, 3d Ed, 2004; ISBN 0-9748945-3-2

Tell Me About Trusts & Probate Again ? Revise Tell Me About Trusts & Probate Again ? Life Insurance Annuities POD Accounts TOD Accounts Qual Rtmt Plans IRAs / SEPs 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 JTWROS Tenancy by the Entirety Home? Bank/Credit Union Accounts? Investments? To Probate for Retitling Testate (Will) & Intestate Assets 3 Panel Credit From: “Estate Planning for Financial Planners,” Michael A. Dalton & Thomas P. Langdon, Money Education TM, 3d Ed, 2004; ISBN 0-9748945-3-2

Structure of a Trust Grantor Trustee Beneficiaries Corpus ≈ Principal Transfers Assets Trustee Income Corpus Beneficiaries 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

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 of assets. Assets not included in gross estate of grantor. Testamentary Trust Created by the will. Property is included in the gross estate and does not avoid probate. Used to manage assets of heirs. Trust for Minors Manages assets for minors. May shift income tax burden to lower-bracket taxpayer. Irrevocable Life Insurance Trust (ILIT) Irrevocable. Usually created during lifetime, used to hold an insurance policy, and thus remove the proceeds from the insured’s gross estate. Usually provides income to the spouse, and corpus to children.

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

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 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 0-9748945-3-2

Living & Testamentary Trusts Revocable Living Trust 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 individual’s probate estate but is included in the individual’s gross estate. Revocable Trust 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. Irrevocable Trust . . . used for Estate & Gift Tax Planning 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 Testamentary Trust A 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 0-9748945-3-2