Personal Finance Chapter 14

Irrevocable Trust:

Is one that cannot be changed or ended

Estate Planning:

The process of creating a detailed plan for managing your assets so that you can make the most of them while youre alive and ensure that theyre distributed wisely after your death

intestate:

You die without a valid will

Annuity:

contract that could provide retirement income for a st number of years or for life

Formal Will:

prepared with the help of an attorney

Education IRA:

-Contributions do not reduce current taxes -accumulates earnings tax free -you can contribute up to $2,00 per year per child under age 18

True facts on the rules of Roth IRA:

-Earning accumulate tax free -contributions are not tax deductible -5 yrs after establishing the account, you can withdraw tax-free distributions if you are at least age 59.5 -You can make contribution after age 70.5

Types of Wills:

-Simple Will -Traditional Martial Share Will -Exemption Trust Will -Stated amount wills

Codicil:

A document that explains, adds, or deletes provisions in your existing will

Holographic Will:

A handwritten will that you prepare yourself

Gift Tax:

A tax on the privilege of making gifts to others

Estate tax:

Federal tax colleted on the value of a person's property at the time of his or her death

-Defined- benefit Plan -Defined contribution plan:

-Specifies the benefits you'll receive at retirement age based on total earnings; Employer provides the funding;difficult to transfer assets when changing employers -employer and employee provide funding;easy to transfer assets when changing employer

Regular IRA:

-contribute up to 5000 to at traditional IRA -distribution are taxable -The contributions could be tax deductible -You can contribute up to 6000 to a traditional IRA if you are over age 50

Benefits of establishing a trust:

-ensuring your property serves a desired purpose after your death -avoiding probate court -providing income to beneficiaries -providing for the payment of estate taxes -reducing estate taxes

2 Components of estate planning:

1. build your estate through various strategies and secondly to ensure that your estate will be distributed at death according to your wishes

Individual Retirement Account IRA:

A special account in which the employee sets aside a portion of his or her income; taxes are not paid on the principal or interest until money is withdrawn from the account

Vesting:

An employee's right to at least a portion of the benefits accrued under an employer pension plan, even if the employee leaves the company before retiring

Rules of SEP-IRA:

IRA funded by the employer Contributions are tax deductible each employee sets up an IRA with a bank or brokerage house

Trusts:

Legal arrangement through which ones assets are held by a trustee

Living Will:

a document in which you state whether you want to be kept alive by artificial means if you become terminally ill and unable to make such a decision

Defined-contribution:

a plan profit sharing, money purchase, Keogh, 401K that provides an individual account or each participant

Defined-Contribution Plan/Individual Account Plan:

a profit sharing, money purchase, Keogh, or a 401K that provides an individual account for each participant

Types of complications that can occur as beneficiaries gather important estate documents include:

emotionally painful delays delay in receiving funds irretrievable loss of some funds

Letter of last instruction:

is not legally binding but it can provide your heirs with important information; should contain your wishes for your funeral arrangements as well as the names of the people who are to be informed of your death

Power of attorney:

legal document that authorizes someone to act on your behalf

Revocable trust:

one in which you have the right to end the trust or change its terms during your lifetime

401 K plan:

plan under which employees can defer current taxation on a portion of their salary

Statutory Will:

prepared on a preprinted form, available from lawyers, stores, and internet sites

The building of an estate is done through:

savings, insurance, investments

Will:

the legal document that specified how you want your property to be distributed after your death

To reduce your tax liability:

you need to reduce the size of the estate while youre alive by giving away your portions of it as gifts

Inheritance taxes:

your heirs pay a tax for the right to acquire the property that they have inherited a tax collected on the property left by a person in his or her will