HUSC 3366 Chapter 14 Part II Estate Planning

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Fundamentals of Family Financial Planning Course PowerPoint Lecture

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HUSC 3366 Chapter 14 Part II Estate Planning

  1. 1. Chapter 14 1- Department of Human Sciences University of Arkansas at Pine Bluff
  2. 2. <ul><li>Objective 3: </li></ul><ul><li>Analyze the personal and legal aspects of estate planning </li></ul>1- Department of Human Sciences University of Arkansas at Pine Bluff
  3. 3. <ul><li>Your estate consist of everything you own. </li></ul><ul><li>It will become important to you as you grow older to think about: </li></ul><ul><ul><li>What will happen to your assets after you die </li></ul></ul><ul><ul><li>How do you want to pass your wealth to your loved ones. </li></ul></ul>1- Department of Human Sciences University of Arkansas at Pine Bluff
  4. 4. <ul><li>Who wants to think about their death? </li></ul><ul><li>Intend to organize things but you don’t. </li></ul><ul><li>Bereaved family may have to deal with strangers. </li></ul><ul><li>Plan your estate while you are in good health. </li></ul>1- Department of Human Sciences University of Arkansas at Pine Bluff
  5. 5. <ul><li>Your estate consists of everything you own. </li></ul><ul><li>Estate planning is not just for wealthy and elderly people. </li></ul><ul><li>Build your estate through savings, investments, & insurance. </li></ul><ul><li>Transfer your estate as you wish at death. </li></ul><ul><li>If married, include spouse and children in estate planning process. </li></ul><ul><li>If unmarried, make sure beneficiaries have information about your estate that they will need. </li></ul>1- Department of Human Sciences University of Arkansas at Pine Bluff
  6. 6. <ul><li>Birth and marriage certificates. </li></ul><ul><li>Social Security documents. </li></ul><ul><li>Military service records. </li></ul><ul><li>Insurance policies. </li></ul><ul><li>Transfer records of joint bank accounts. </li></ul><ul><li>Safe-deposit box records. </li></ul><ul><li>Registration of automobiles. </li></ul><ul><li>Title to stock and bond certificates. </li></ul><ul><li>Legal name changes. </li></ul>1- Department of Human Sciences University of Arkansas at Pine Bluff
  7. 7. <ul><li>Many people give little or no thought to putting their personal and financial affairs in order for their families that survive them. </li></ul><ul><li>Demands of daily living can keep people from thinking about death. </li></ul><ul><li>Plan while you are in good health. </li></ul><ul><li>Estate planning is especially important for nontraditional households. </li></ul>(continued) 1- Department of Human Sciences University of Arkansas at Pine Bluff
  8. 8. <ul><li>Objective 4: </li></ul><ul><li>Distinguish among various types of wills and trusts </li></ul>1- Department of Human Sciences University of Arkansas at Pine Bluff
  9. 9. <ul><li>Review and update your will on a regular basis, especially if you have major life changes. </li></ul><ul><li>Name an executor for your estate. </li></ul><ul><li>Create and review trusts. </li></ul><ul><li>Prepare a letter of last instructions. </li></ul><ul><li>Organize current financial records and documents, and let family members know where they are. </li></ul><ul><li>See the estate planning checklist in your text. </li></ul>1- Department of Human Sciences University of Arkansas at Pine Bluff
  10. 10. <ul><li>A will is the legal declaration of a person’s mind as to the disposition of his or her property after death. </li></ul><ul><li>Transfers property according to your wishes at death. </li></ul><ul><li>State law determines distribution of assets if you die intestate. </li></ul><ul><li>Marriage and divorce affect your will. </li></ul><ul><ul><li>Review your will with an attorney. </li></ul></ul><ul><ul><li>Marriage may revoke your will. </li></ul></ul><ul><li>Legal costs of a will vary. A standard will costs between $200-$350. </li></ul>1- Department of Human Sciences University of Arkansas at Pine Bluff
  11. 11. <ul><li>A simple will leaves everything to your spouse. </li></ul><ul><li>A traditional marital share will leaves half to spouse, half to children or heirs. Avoid probate. </li></ul><ul><li>An exemption trust will passes to your spouse except for an amount equal to the exemption, which passes into a trust. The trust can provide a lifelong income. </li></ul><ul><li>A stated dollar amount will. </li></ul><ul><ul><li>Should use percentages, not actual dollar amounts. </li></ul></ul>1- Department of Human Sciences University of Arkansas at Pine Bluff
  12. 12. <ul><li>Holographic will </li></ul><ul><ul><li>A will that you write, date and sign, entirely in your handwriting. </li></ul></ul><ul><ul><li>May not be recognized in some states. </li></ul></ul><ul><li>Formal will. </li></ul><ul><ul><li>Usually prepared with attorney’s assistance. </li></ul></ul><ul><ul><li>You must sign & have two witnesses, neither of whom can be beneficiaries (people named to receive property. </li></ul></ul><ul><ul><li>Statutory will: type of formal will on a pre-printed form. Has rigid provisions, may be not meet current laws, and may be invalid if you change provisions. </li></ul></ul>1- Department of Human Sciences University of Arkansas at Pine Bluff
  13. 13. <ul><li>Intestate. </li></ul><ul><ul><li>Means you die without a will. </li></ul></ul><ul><ul><li>The state distributes your assets. </li></ul></ul><ul><ul><li>May mean the state will decide on a guardian for your children. </li></ul></ul><ul><ul><li>Very complicated if you also have a “blended” family. </li></ul></ul><ul><li>Probate. </li></ul><ul><ul><li>Probate court generally validates wills and makes sure your debts are paid. </li></ul></ul><ul><ul><li>It is expensive, lengthy, and public. </li></ul></ul>1- Department of Human Sciences University of Arkansas at Pine Bluff
  14. 14. <ul><li>This person follows your instructions. </li></ul><ul><li>Find out if the person is willing to accept this major responsibility. </li></ul><ul><li>Find out if he or she is capable of the complicated tasks involved. </li></ul><ul><li>Person could be a family member, friend, attorney, accountant, or a bank representative. </li></ul><ul><li>If you don’t name one the court will. </li></ul><ul><li>Executor’s fees are set by state law. </li></ul>1- Department of Human Sciences University of Arkansas at Pine Bluff
  15. 15. <ul><li>Take control of assets of the estate. </li></ul><ul><li>File an inventory of assets and liabilities with the court. </li></ul><ul><li>Liquidate assets if necessary to pay claims. </li></ul><ul><li>Distribute assets, based on the instructions in the will. </li></ul><ul><li>Make a final accounting to the court. </li></ul>1- Department of Human Sciences University of Arkansas at Pine Bluff
  16. 16. <ul><li>If you have children, you need a will to name their guardian and/or trustee. </li></ul><ul><li>A guardian assumes the responsibility for providing the children with personal care and managing the estate for them. </li></ul><ul><li>Trustee will manage property for benefit of children. </li></ul><ul><li>Be sure the person would be willing to raise them and that their values match yours. </li></ul>1- Department of Human Sciences University of Arkansas at Pine Bluff
  17. 17. <ul><li>Add a codicil. </li></ul><ul><ul><li>A document that explains, adds or deletes provisions in your existing will. Consider a new will if making major changes. </li></ul></ul><ul><li>Review your will if there are major changes. </li></ul><ul><ul><li>If you have sold property mentioned in the will. </li></ul></ul><ul><ul><li>If the size and composition of your estate have changed. </li></ul></ul><ul><ul><li>If you have married, divorced or remarried. </li></ul></ul><ul><ul><li>If new potential heirs have died or been born. </li></ul></ul>1- Department of Human Sciences University of Arkansas at Pine Bluff
  18. 18. <ul><li>Agreed upon prior to marriage. </li></ul><ul><li>Often waive a right to receive property under the other’s will of under state law. </li></ul><ul><li>You agree on a settlement if you should divorce. </li></ul><ul><li>Consult an attorney. </li></ul>1- Department of Human Sciences University of Arkansas at Pine Bluff
  19. 19. <ul><li>Not a substitute for a traditional will. </li></ul><ul><li>Provides for your wishes to be followed if you become so physically or mentally disabled that you are unable to act on your own behalf. </li></ul><ul><li>Discuss your living will with those close to you, and your family doctor. </li></ul><ul><li>Sign and date it before two witnesses. </li></ul><ul><li>Give copies to those close to you. </li></ul>1- Department of Human Sciences University of Arkansas at Pine Bluff
  20. 20. <ul><li>New type of will that is a way to pass on emotional and spiritual wealth to your heirs. </li></ul><ul><li>It is not a legally binding document. </li></ul><ul><li>A way to pass on your values and beliefs. </li></ul><ul><li>Share lessons you’ve learned in life. </li></ul><ul><li>Address any regrets. </li></ul><ul><li>Requires self-examination. </li></ul><ul><li>Writer and recipients say the results are an invaluable legacy. </li></ul>1- Department of Human Sciences University of Arkansas at Pine Bluff
  21. 21. <ul><li>Power of attorney. </li></ul><ul><ul><li>Legal document authorizing someone to act on your behalf. </li></ul></ul><ul><ul><li>Can be limited or gives a great deal of power. </li></ul></ul><ul><li>Durable power of attorney for health care </li></ul><ul><ul><li>If you are unable to make decisions regarding your health care this authorizes someone to do it for you. </li></ul></ul>1- Department of Human Sciences University of Arkansas at Pine Bluff
  22. 22. <ul><li>Not legally enforceable. </li></ul><ul><li>Provides heirs with information. </li></ul><ul><li>Should include... </li></ul><ul><ul><li>Your funeral preferences. </li></ul></ul><ul><ul><li>Names of people you want notified of your death. </li></ul></ul><ul><ul><li>Location of bank accounts and safe deposit box. </li></ul></ul><ul><ul><li>Assets and debts. </li></ul></ul><ul><ul><li>Social Security number. </li></ul></ul><ul><ul><li>Who gets personal effects. </li></ul></ul>1- Department of Human Sciences University of Arkansas at Pine Bluff
  23. 23. <ul><li>A trust is a legal arrangement through which a trustee holds your assets for your benefit or that of your beneficiaries. </li></ul><ul><ul><li>Takes care of or manages your property. </li></ul></ul><ul><ul><li>Distribute your assets to your heirs from the trust according to your will. </li></ul></ul><ul><li>All assets are taken out of your name and put in the name of the trust. </li></ul><ul><li>Benefits of trusts: Reduce estate taxes, avoid probate, free you from managing assets, and provide income for a surviving spouse. </li></ul>1- Department of Human Sciences University of Arkansas at Pine Bluff
  24. 24. <ul><li>Trusts are either revocable or irrevocable. </li></ul><ul><ul><li>With a revocable trust you retain the right to end the trust or change its terms during your lifetime. </li></ul></ul><ul><ul><ul><li>May avoid the lengthy probate process. </li></ul></ul></ul><ul><ul><ul><li>Does not provide shelter from federal or state estate taxes. </li></ul></ul></ul><ul><ul><li>You can not change the terms or end an irrevocable trusts. </li></ul></ul><ul><ul><ul><li>For tax purposes the trust becomes a separate entity. </li></ul></ul></ul><ul><ul><ul><li>If a large estate, used to reduce estate taxes. </li></ul></ul></ul><ul><ul><ul><li>Avoids probate. </li></ul></ul></ul>1- Department of Human Sciences University of Arkansas at Pine Bluff
  25. 25. <ul><li>Credit-shelter -also called by-pass trust. </li></ul><ul><li>Disclaimer . </li></ul><ul><li>Living or Inter Vivos -establish while you are alive. </li></ul><ul><li>Testamentary -established by your will. </li></ul><ul><li>Charitable Remainder </li></ul><ul><li>Generation Skipping </li></ul><ul><li>Life insurance. </li></ul><ul><li>Grantor Retained Annuity Trust </li></ul><ul><li>Marital Deduction Trust </li></ul><ul><li>Self-Declaration Trust </li></ul><ul><li>Spendthrift </li></ul><ul><li>Charitable Lead </li></ul><ul><li>Qualified Personal Residence </li></ul>1- Department of Human Sciences University of Arkansas at Pine Bluff
  26. 26. <ul><li>Bank accounts, CDs, money market funds. </li></ul><ul><li>Stocks, bonds and mutual funds. </li></ul><ul><li>Life insurance, employee benefits and annuities. </li></ul><ul><li>Your home, any other real estate. </li></ul><ul><li>Business interests, farm assets. </li></ul><ul><li>Money owed to you. </li></ul><ul><li>Interests and trusts. </li></ul><ul><li>Antiques, art, jewelry,collections, cars, and personal effects. </li></ul>1- Department of Human Sciences University of Arkansas at Pine Bluff
  27. 27. <ul><li>Community property states-- half of the community assets are included in each spouse’s estate. Community property is any property that has been acquired by either spouses during the marriage, but not by gift, bequest or inheritance. </li></ul><ul><li>Spouses often own property as Joint Tenants With Right of Survivorship (JT/WROS). The property will automatically pass to your spouse upon your death, with no estate tax paid at the first death. It is paid when surviving spouse dies. </li></ul><ul><li>Life insurance proceeds are free from probate and income tax. </li></ul>1- Department of Human Sciences University of Arkansas at Pine Bluff
  28. 28. <ul><li>Federal estate tax. </li></ul><ul><li>Estate & trust federal income tax returns. </li></ul><ul><li>State inheritance tax. </li></ul><ul><li>Gift taxes. </li></ul><ul><li>Tax avoidance and evasion. </li></ul><ul><li>Charitable bequests. </li></ul><ul><li>Calculating tax, debts and liabilities. </li></ul><ul><li>Probate and administration costs. </li></ul><ul><li>Paying tax owed. </li></ul>1- Department of Human Sciences University of Arkansas at Pine Bluff
  29. 29. <ul><li>Do some online research on wills. Share your findings with the class. </li></ul><ul><li>Invite a lawyer who deals with wills and estates to class to share real world experiences. </li></ul>1- Department of Human Sciences University of Arkansas at Pine Bluff

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