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  1. 1. CHAPTER 48 Estate Planning Click your mouse anywhere on the screen to advance the text in each slide. After the starburst appears, click a blue triangle to move to the next slide or previous slide .
  2. 2. Quote of the Day <ul><li>“ BEQUEATH, v.t. To generously give to another that which can no longer be denied to somebody.” </li></ul><ul><li>Ambrose Bierce, </li></ul><ul><li>American writer, </li></ul><ul><li>“ Enlarged Devil’s Dictionary” </li></ul>
  3. 3. Definitions <ul><li>Estate Planning -- giving away property after (or in anticipation of) death </li></ul><ul><li>Estate – the legal entity that holds title to assets after the owner dies </li></ul><ul><li>Decedent – the person who died </li></ul><ul><li>Testator – person who has signed a valid will (Testatrix is used for a female) </li></ul><ul><li>Intestate – to die without a will </li></ul>
  4. 4. More Definitions <ul><li>Heir – a person who inherits from a decedent who died intestate ( Devisee is the correct term for someone who inherits through a will, though “heir” is often used for either situation.) </li></ul><ul><li>Probate – the process of carrying out the terms of the will </li></ul><ul><li>Executor or Executrix – personal representative chosen by the decedent to carry out the will (executrix is female) </li></ul>
  5. 5. And MORE Definitions <ul><li>Administrator or Administratrix – personal representative appointed by the court to oversee the probate process (administratrix is the female) </li></ul><ul><li>Grantor or Settlor – someone who creates a trust </li></ul><ul><li>Donor – someone who makes a gift or creates a trust </li></ul>
  6. 6. Purpose <ul><li>Estate planning has two primary goals: </li></ul><ul><ul><li>to ensure that property is distributed as the owner desires </li></ul></ul><ul><ul><li>to minimize estate taxes </li></ul></ul><ul><li>There are essentially four ways to distribute your assets: </li></ul><ul><ul><li>Gifts </li></ul></ul><ul><ul><li>Through a will </li></ul></ul><ul><ul><li>Through intestacy </li></ul></ul><ul><ul><li>Through a trust </li></ul></ul>
  7. 7. Gifts <ul><li>Gifts offer these advantages: </li></ul><ul><ul><li>Gifts can be used to reduce estate taxes </li></ul></ul><ul><ul><li>Gifts are not taxable to the recipient </li></ul></ul><ul><ul><li>Gifts create pleasure </li></ul></ul><ul><li>Gifts also have disadvantages: </li></ul><ul><ul><li>The donor loses control </li></ul></ul><ul><ul><li>Gifts are irrevocable (with some exceptions) </li></ul></ul>
  8. 8. Wills <ul><li>A will is a legal document that disposes of the testator’s property after death. </li></ul><ul><li>Generally speaking, a person may leave his assets to whomever he wants. </li></ul><ul><li>Requirements for a Valid Will </li></ul><ul><ul><li>Legal Age – typically age 18. </li></ul></ul><ul><ul><li>Testamentary Capacity – competent and of sound mind. </li></ul></ul><ul><ul><li>No Undue Influence – extreme power to force someone to do something beyond their desire. </li></ul></ul>
  9. 9. Legal Technicalities <ul><li>Must be written, signed and witnessed. A witness may not inherit anything. </li></ul><ul><li>Holographic Will </li></ul><ul><ul><li>Handwritten and signed by the testator, but not witnessed; in about 30 states, this is accepted if the decedent knew (or expected) he was about to die. </li></ul></ul><ul><li>Nuncupative Will </li></ul><ul><ul><li>Oral will just before dying; valid if decedent knows he is dying, and three witnesses are aware that they are hearing a will. </li></ul></ul>
  10. 10. Distributing Assets <ul><li>Spouse’s Share </li></ul><ul><ul><li>In community property states, this is half. In other states, it is usually 33% - 50%. </li></ul></ul><ul><ul><li>Under the Uniform Probate Code, the surviving spouse is given the greater of: $50,000 or a percentage (increases with the number of years of the marriage.) </li></ul></ul><ul><li>Children’s Share </li></ul><ul><ul><li>Parents are not required to leave assets to their children. But... </li></ul></ul><ul><ul><li>The law presumes that a pretermitted child (not mentioned in a will) is left out by mistake. </li></ul></ul>
  11. 11. Per stirpes vs. Per capita <ul><li>Per stirpes – each branch of the family receives an equal amount, so if a child dies before the parent, his heirs split his share. </li></ul><ul><li>Per capita – each heir receives an equal amount -- total inheritance is divided equally among living children and grandchildren, for example. </li></ul>
  12. 12. Amending a Will <ul><li>A testator can generally revoke or alter a will at any time prior to death. </li></ul><ul><li>Codicil – an amendment added to a will to change specific terms of the will; must meet all the requirements of a will. </li></ul><ul><li>A will is automatically revoked if a change in family situation, such as marriage or divorce, was not provided for in the will. </li></ul>
  13. 13. Contractual Wills <ul><li>A testator cannot revoke a contractual will, that is, a will that was signed as part of an agreement with another person. </li></ul><ul><li>Under the UPC, a reciprocal will can be revoked unless it specifically states that it cannot be, or unless the testator signs a separate contract promising not to revoke it. </li></ul>
  14. 14. Rules of Intestacy
  15. 15. Simultaneous Deaths <ul><li>The UPC (and many state laws) provides that when two people who would inherit from each other die simultaneously (or within 120 hours), both are deemed to have been the last to die. </li></ul><ul><li>This provision allows the decedent’s assets to be passed to their second-in-line without first going to the other (simultaneous) decedent’s estate. </li></ul>
  16. 16. Power of Attorney <ul><li>A durable power of attorney is a document that allows you to empower another person to conduct legal business on your behalf. </li></ul><ul><ul><li>An immediate power takes effect when signed. </li></ul></ul><ul><ul><li>A springing power takes effect at some time in the future. </li></ul></ul>
  17. 17. Probate <ul><li>Once a testator dies, the executor takes over: The executor must: </li></ul><ul><ul><li>Admit the will to probate. </li></ul></ul><ul><ul><li>Send notices. </li></ul></ul><ul><ul><li>Gather assets. </li></ul></ul><ul><ul><li>Manage assets. </li></ul></ul><ul><ul><li>Pay debts and expenses. </li></ul></ul><ul><ul><li>Pay taxes and file estate tax returns. </li></ul></ul><ul><ul><li>Distribute assets. </li></ul></ul>
  18. 18. Property Not Transferred by Will <ul><li>A will does not control the distribution of: </li></ul><ul><ul><li>joint property, </li></ul></ul><ul><ul><li>retirement benefits, or </li></ul></ul><ul><ul><li>life insurance. </li></ul></ul>
  19. 19. Anatomical Gifts <ul><li>The Uniform Anatomical Gift Act (UAGA) allows an individual to indicate her desire to be a donor either by putting a provision in her will or by signing an organ donation card in the presence of two witnesses. </li></ul>Click here to see a sample organ donation card.
  20. 20. Advance Directives Ruling <ul><li>The Supreme Court ruled that family members can choose to discontinue treatment for an incompetent person if there is evidence the patient would have made that choice herself. </li></ul><ul><li>Assisted suicide, the administration of a lethal substance or prescription of a fatal dose of drugs by a physician, is illegal in almost every state. </li></ul>
  21. 21. Advance Directives Practice <ul><li>Living wills or advance directives are documents which direct medical personnel to withhold extreme lifesaving measures in cases where recovery is unlikely. </li></ul><ul><li>A health care proxy is a person appointed in a living will to make health care decisions for an incompetent patient. </li></ul>
  22. 22. Trusts <ul><li>A trust is an entity that separates legal and beneficial ownership. </li></ul><ul><ul><li>The grantor creates and funds the trust, the trustee manages the assets, and the beneficiary receives the financial proceeds. </li></ul></ul><ul><ul><li>The trustee technically owns the property, but must use it for the benefit of the beneficiary. </li></ul></ul><ul><li>A grantor can create a trust during her lifetime or after death through her will. </li></ul>
  23. 23. Requirements to Create Trust <ul><li>Legal capacity – legal age and sound mind </li></ul><ul><li>Trustee – must appoint trustee, but it can be yourself </li></ul><ul><li>Beneficiary – must specify (either by name or by class – “all living children of…”) </li></ul><ul><li>Trust Property – must transfer specific assets to the trust, though amount may be small and added to later </li></ul>
  24. 24. Advantages <ul><li>Control – trust document can specify how the money is to be used. </li></ul><ul><li>Children – protect children’s assets. </li></ul><ul><li>Tax Savings – minimize estate taxes. </li></ul><ul><li>Privacy – documents are not available to the public; probated wills are. </li></ul><ul><li>Accessibility – trusts do not have to go through probate, so heirs have quicker access to pre-existing trust funds. </li></ul>
  25. 25. Types of Trusts <ul><li>Also known as an inter vivos trust, a living trust is established while the grantor is still alive. </li></ul><ul><li>A testamentary trust is created by a will. </li></ul><ul><li>A charitable trust is created to carry out a charitable purpose. </li></ul><ul><li>A spendthrift trust prevents creditors from attaching a beneficiary’s interest in the trust. </li></ul>
  26. 26. Types of Trusts (cont'd) <ul><li>A totten trust is a bank account held by the grantor “in trust” for someone else. </li></ul><ul><li>A resulting trust is created when a trust ends before its assets are exhausted. Assets are returned to the grantor. </li></ul><ul><li>If someone wrongfully obtains ownership of property, he is deemed to be holding that property in constructive trust for the real owner. </li></ul>
  27. 27. Trust Administration <ul><li>In carrying out the terms of the trust, the trustees have a fiduciary duty to the beneficiary. </li></ul><ul><ul><li>Duty of Loyalty </li></ul></ul><ul><ul><li>Duty of Care </li></ul></ul>
  28. 28. Termination <ul><li>A trust ends upon the occurrence of any of these events: </li></ul><ul><ul><li>On the date indicated by the grantor. </li></ul></ul><ul><ul><li>If the trustee is revocable, when revoked by the grantor. </li></ul></ul><ul><ul><li>When the purpose of the trust has been fulfilled. </li></ul></ul><ul><li>The Rule Against Perpetuities specifies that a trust must end within 21 years after the death of some named person who is alive when the trust is created. </li></ul>
  29. 29. “ Reasonable people can disagree about almost every issue -- to whom property should be left, whether a living will is a good idea, the appropriateness of a trust… but these are important issues to think about… and decide.”
  30. 30. Link to the Internet <ul><li>Clicking on the orange button below will link you to the website for this book. (You must first have an active link to the internet on this computer.) </li></ul><ul><li>Once there, click: </li></ul><ul><ul><li>Online Study Guide, then </li></ul></ul><ul><ul><li>Your choice of a chapter, then </li></ul></ul><ul><ul><li>Practice, then </li></ul></ul><ul><ul><li>Internet Applications </li></ul></ul><ul><li>You should then see web links related to that chapter. </li></ul>Click here! Click above to return to the slide show.