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abmessen

  1. 1. Chapter 20 Estate Planning
  2. 2. Chapter Objectives <ul><li>Explain the use of a will </li></ul><ul><li>Describe estate taxes </li></ul><ul><li>Explain the use of trusts, gifts, and contributions </li></ul><ul><li>Introduce other aspects of estate planning </li></ul>
  3. 3. Purpose of a Will <ul><li>Estate: the assets of a deceased person after all debts are paid </li></ul><ul><li>Estate planning: the act of planning for how your wealth will be allocated on or before your death </li></ul>
  4. 4. Purpose of a Will <ul><li>Will: a legal request for how your estate should be distributed upon your death. If can also identify a preferred guardian for any surviving children </li></ul>
  5. 5. Purpose of a Will <ul><li>Reasons for having a will </li></ul><ul><ul><li>Ensures that your estate is distributed as you desire </li></ul></ul><ul><ul><li>Beneficiaries (heirs): the persons specified in a will to receive a part of an estate </li></ul></ul><ul><ul><li>Intestate: the condition of dying without a will </li></ul></ul><ul><ul><ul><li>Court appoints an administrator who may not make the decisions you preferred </li></ul></ul></ul>
  6. 6. Purpose of a Will <ul><li>Creating a valid will </li></ul><ul><ul><li>Minimum age — 18 or 21 </li></ul></ul><ul><ul><li>Mentally competent </li></ul></ul><ul><ul><li>Not under undue influence of others </li></ul></ul><ul><ul><li>Must be signed and dated </li></ul></ul><ul><ul><li>2 or 3 witnesses who are not beneficiaries </li></ul></ul><ul><ul><li>Attorney recommended </li></ul></ul>
  7. 7. Purpose of a Will <ul><li>Common types of wills </li></ul><ul><ul><li>Simple will: a will suitable for smaller estates that specifies that the entire estate be distributed to the person’s spouse </li></ul></ul><ul><ul><li>Traditional marital share will: a will suitable for larger estates, valued at $675,000 or more) that distributes half of the estate to the spouse and all the other half to any children or to a trust </li></ul></ul>
  8. 8. Purpose of a Will <ul><li>Key components of a will </li></ul><ul><ul><li>Distribution of the estate </li></ul></ul><ul><ul><ul><li>Details the the distribution to the heirs, usually by percentage </li></ul></ul></ul><ul><ul><li>Executor (personal representative): the designated in a will to execute your instructions regarding the distribution of your assets </li></ul></ul><ul><ul><ul><li>Collects debts owed to the estate, pays debts owed by estate, and distributes proceeds of the estate </li></ul></ul></ul>
  9. 9. Purpose of a Will <ul><ul><li>Guardian </li></ul></ul><ul><ul><ul><li>Parents should name a person to be responsible for caring for any dependent children </li></ul></ul></ul><ul><ul><li>Signature </li></ul></ul><ul><ul><ul><li>Validates will </li></ul></ul></ul><ul><ul><li>Letter of last instruction </li></ul></ul><ul><ul><ul><li>Describes your wishes regarding funeral arrangements and tells the location of any key financial documents </li></ul></ul></ul>
  10. 10. Financial Planning Online: Quiz for Preparing Your Own Will <ul><li>Go to: http://moneycentral.msn.com/articles/retire/will/tlwillq.asp </li></ul><ul><li>This Web site provides a quiz that indicates your ability to create your own will. </li></ul>
  11. 11. Purpose of a Will Exhibit 20.1: A Sample Will
  12. 12. Purpose of a Will Exhibit 20.1: A Sample Will
  13. 13. Purpose of a Will <ul><li>Focus on Ethics: Undue influence on wills </li></ul><ul><ul><li>Wills can be created under duress or from undue influence </li></ul></ul><ul><ul><li>Consider creating a will without consulting potential beneficiaries </li></ul></ul><ul><ul><li>A financial planner can assist you </li></ul></ul>
  14. 14. Purpose of a Will <ul><li>Changing your will </li></ul><ul><ul><li>May be necessary if you move to a state with different laws or if you marry or divorce </li></ul></ul><ul><ul><li>Major changes may require a new will </li></ul></ul><ul><ul><li>Codicil: a document that specifies changes in an existing will </li></ul></ul><ul><ul><ul><li>Appropriate for minor revisions </li></ul></ul></ul>
  15. 15. Purpose of a Will <ul><li>Executing the will during probate </li></ul><ul><ul><li>Probate: a legal process that declares a will valid and ensures the orderly distribution of assets </li></ul></ul><ul><ul><li>Executor files forms in probate court, provides a copy of the will, a list of assets and liabilities of deceased, pays debts and sells necessary assets </li></ul></ul><ul><ul><ul><li>Typically opens a bank account for this purpose </li></ul></ul></ul>
  16. 16. Estate Taxes <ul><li>Without a surviving spouse, a large estate is subject to estate taxes </li></ul><ul><li>Determining estate taxes </li></ul><ul><ul><li>Value of estate is the value of all assets minus any liabilities minus funeral and administrative expenses </li></ul></ul>
  17. 17. Estate Taxes <ul><ul><li>In 2001, estates with values over $675,000 are subject to federal taxes of 37% to 50% </li></ul></ul><ul><ul><ul><li>Tax Relief Act of 2001 gradually increases tax free limit while reducing maximum tax rate </li></ul></ul></ul><ul><ul><li>Proper planning can reduce these taxes </li></ul></ul>
  18. 18. Estate Taxes <ul><li>Other related taxes </li></ul><ul><ul><li>Some states also impose taxes on estates </li></ul></ul><ul><li>Valuing your estate to assess potential estate taxes </li></ul><ul><ul><li>It is important to calculate the value of your estate periodically so that you can plan appropriately if your net worth exceeds the tax-free limit </li></ul></ul>
  19. 19. Trusts, Gifts, and Contributions <ul><li>These may help avoid estate taxes </li></ul><ul><li>Trust: a legal document in which one person transfers assets to another who manages them for designated beneficiaries </li></ul><ul><ul><li>Grantor: the person who creates a trust </li></ul></ul><ul><ul><li>Trustee: the person or institution named in a trust to manage the trust assets for the beneficiaries </li></ul></ul>
  20. 20. Trusts, Gifts, and Contributions <ul><ul><li>Living trust: a trust in which you assign the management of your assets to a trustee while you are living </li></ul></ul><ul><ul><ul><li>Revocable living trust: a living trust that can be dissolved </li></ul></ul></ul><ul><ul><ul><li>Irrevocable living trust: a living trust that cannot be changes, although it can provide income to the grantor </li></ul></ul></ul>
  21. 21. Trusts, Gifts, and Contributions <ul><ul><li>Standard family trust (credit-shelter trust): a trust established for children in a family </li></ul></ul><ul><ul><ul><li>Testamentary trust: a trust created by a will </li></ul></ul></ul><ul><li>Gifts: a tax-free distribution of up to $10,000 per year from one person to another </li></ul><ul><ul><li>Not subject to tax for the giver or the recipient </li></ul></ul><ul><li>Contributions to charitable organizations </li></ul><ul><ul><li>Not subject to estate taxes </li></ul></ul>
  22. 22. Financial Planning Online: How to Build Your Estate Plan <ul><li>Go to: http://moneycentral.msn.com/retire/home/asp </li></ul><ul><li>Click on: Estate Planning </li></ul><ul><li>Click on: Plan Your Estate </li></ul><ul><li>This Web site provides step-by-step instructions for estate planning. </li></ul>
  23. 23. Other Aspects of Estate Planning <ul><li>Living will: a legal document in which individuals specify their preferences if they become mentally or physically disabled </li></ul><ul><li>Power of attorney: a legal document granting a person the power to make specific decisions for you in the event that you are incapable </li></ul>
  24. 24. Other Aspects of Estate Planning <ul><ul><li>Durable power of attorney for health care: a legal document granting a person the power to make specific health care decisions for you </li></ul></ul><ul><li>Maintaining estate plan documents </li></ul><ul><ul><li>Need to be kept in a safe, convenient place </li></ul></ul><ul><ul><li>Key individuals need to know where they are kept </li></ul></ul>
  25. 25. Financial Planning Online: Legal Advice on Estate Planning <ul><li>Go to: http://www.nolo.com </li></ul><ul><li>Click on: Estate Planning </li></ul><ul><li>This Web site provides a background on estate planning decisions and the terminology used in estate planning. </li></ul>
  26. 26. How Estate Planning Fits within Your Financial Plan <ul><li>Key decisions about estate planning for your financial plan are: </li></ul><ul><ul><li>Should you create a will? </li></ul></ul><ul><ul><li>How can you limit your estate taxes? </li></ul></ul><ul><ul><li>Should you create a living will or designate an individual to have power of attorney? </li></ul></ul>
  27. 27. Integrating Key Concepts
  28. 28. Integrating Key Concepts <ul><li>Part 1: Financial Planning Tools </li></ul><ul><li>Part 2: Liquidity Management </li></ul><ul><li>Part 3: Financing </li></ul><ul><li>Part 4: Protecting Your Assets and Income </li></ul><ul><li>Part 5: Investing </li></ul><ul><li>Part 6: Retirement and Estate Planning </li></ul><ul><ul><li>In Chapter 19 we learned about retirement planning </li></ul></ul><ul><ul><li>In Chapter 20 we learned about estate planning </li></ul></ul>

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