Wills and Estate Planning

What are the requirements to make a will?

1.) You must be at least 18 years of age 2.) You must be of sound mind (testamentary capacity)

Why do people use trusts?

1.) avoid probate 2.) are more difficult to challenge 3.) can reduce estate taxes 4.) allow for professional management 5.) provide for confidentiality 6.) provide for a child with special needs 7.) hold money until a child reaches maturity 8.) ensure that children from a previous marriage will receive some inheritance

Why estate plan?

1.) direct what happens to your property at the time of death 2.) help family or friends 3.) support causes that are important to you 4.) take care of responsibilities 5.) provide guidance in matters that are important to you and that you have knowledge about (i.e. who will be guardian of children)

What are the Non-probate assets?

1.) joint ownership- property in more than one person's name 2.) insurance policies- pay a sum of money to beneficiary upon insured's death 3.) retirement plans- payments made to individuals as result of deceased's employment gifts, and trusts

What are the roles of the executor?

1.) sending copies of will to beneficiaries, publishing death notices 2.) paying necessary taxes, paying off debts 3.) managing estate and distributing assets 4.) reporting final finances to court

When do you need a will?

a dependent individual ( special needs, children under 18, an elderly parent) that is reliant on you for care property that is not co-owned preference for handling your pets after your death assets that will be distributed

Individual Trust

also known as qualified terminable interest property (QTIP-trust) gives individual establishing the trust the ability to direct income from trust to his or her spouse over spouse's life and then at spouse's death choose to whom the assets go

Beneficiary

an individual who is willed your property

Gift Tax

as of 2014, permitted to give $14,000 per year tax free to as many different people as you like gifts apply to each spouse separately (each could give $14,000) gift tax and estate tax work together=unified tax credit

Tenancy by entirety

assets/ownership transfers to surviving spouse automatically if both agree, limited to married couples

Codicil

attachment to a will that alters or amends a portion of it

Medical Power of Attorney

authorizes an agent to make medical decisions for the principal, can include life support decisions

Revocation

cancelling an entire existing will

What is the disadvantage(s) of probate?

cost and speed (1 to 8 percent of value)

Probate

court process for validating a will and distributing the assets of an estate

Second step of probate__________.

courts appoint executor, usually designated in the will (receives a fee 2 to 5 percent of the value of the estate)

Personal Representative

person(s) who is/are legally responsible for managing the property in the estate until it is passed on to the heirs and seeing that the decedent's wishes are carried out

Revocable Living Trust

place the assets into the trust while you're alive and you can withdraw the finds from the trust later if you wish; maintain power have access to them, receive income from them, and can use them no tax advantages, don't reduce estate taxes avoid probate, ensure privacy a will does not afford assets cannot be used as collateral for loan

HIPPA (Privacy rule)

provides federal protections for personal health information held by covered entities and gives patients an array of rights with respect to that information permits disclosure of personal health information needed for patient care and other important purposes Security Rule specifies administrative, physical, and technical safeguards for entities to use

Once the assets have been distributed and taxes paid,___________.

report is filed with court and estate is closed

What is a holographic will?

signature and material portions of the document must be in testator's handwriting * does not have to be witnessed

Living Will

state your wishes regarding medical treatment in the event of a terminal illness or injury, include health care proxy ( someone to make health care decisions should you become unable to)

What happens if you do not have a will?

the court may appoint an executor/ personal representative that you do not want to handle your estate

Family Trust

trust established to transfer assets to your children, while allowing the surviving spouse access to funds in the trust if necessary. upon death of the surviving spouse, the remaining funds in the trust are distributed to children tax free originally it was set up for couples to use estate tax exemption of first spouse to die, to keep value of assets out of taxable estate

Testamentary trusts

trusts created by wills

Living Trust

trusts into which assets are placed while the grantor is alive two types: revocable and irrevocable

Tenancy in common (joint)

two or more individuals share ownership of assets, when one owner dies, that owner's share becomes part of the deceased's estate and is distributed according to deceased's will, other joint owner doesn't receive ownership shares unless will states expressed

All federal estate taxes can be avoided through the use of the __________.

unlimited marital deduction

What is the exception to the gift tax rule?

" Three Year Rule": life insurance policy is given away within 3 years of the owner's death, it is included in the estate for tax purposes= better to do it sooner insurance and employee retirement plans pass through probate, someone other than owner of policy will receive benefits

Joint Tenancy with the Right of Survivorship

two or more individuals share the ownership of assets, usually in a joint account at a bank or a brokerage firm when one joint owner dies, the ownership passes directly to the surviving owners, bypassing will

What is the advantage(s) of probate?

validate the will, to allow for challenges and make sure it is the last will of the deceased orderly distribution of assets challenges to be settled

The first step in the probate process is the __________.

validation of the will; once the court is satisfied that the will is valid, the process of distributing assets begins

Guardian

who will care for any of your children under the age of 18 and manage their property

What are the requirements for testamentary capacity?

1.) understands the nature and extent of his/her property 2.) understands the effect of the testamentary disposition 3.) knows the natural objects of his/her bounty 4.) the will represents his/her wishes

Six documents in a complete estate plan

1.) will 2.) living will 3.) durable power of attorney 4.) medical power of attorney 5.) letter of last instruction 6.) trusts * starting costs $500-1,000 for basic documents

Inheritance Tax- Unified Tax Credit- Estate Tax (Death Tax)

5.43 million exempt from tax anything over is taxed at 40%

The Giving Pledge

Bill/ Melinda Gates, Warren Buffet concept- not club/foundation those of massive great wealth, give at least 1/2 to philanthropic gifts interested in international

DNR

Do Not Resuscitate

Writing Wills

Introductory Statement Payment of Debt and Taxes Clause Disposition of property Clause Appointment Clause (executor, guardian) Common Disasters Clause Attestation and Witness Clause one in three wills are challenged Must be mentally competent, not under the influence, and conform to laws of the state, signed

What are the two principles associated with this chapter?

Principle 7; Protect Yourself Against Major Catastrophes ( goal is to keep taxes at minimum) Principle 4: Taxes Affect Personal Finance Decisions (use of wills, gifts, and trusts)

What is the Estate Planning Process?

Step 1: Determine the value of your estate (assets) by looking at your personal balance sheet (what you own subtracted from what you owe= net worth) include death benefits with retirement plan or insurance plan all to determine how much tax to anticipate Step 2: Choose Your Heirs and decide what they receive: determine needs of dependents and their potential heirs Step 3: Determine the cash needs of your estate: uncovered medical costs, funeral expenses, legal fees, outstanding debt and estate/inheritance taxes paid HAVE ENOUGH LIQUID ASSETS (treasury bills, stocks, bonds) costs approximately $15,000 or 4% of estate Step 4: Select and implement your estate planning techniques : 1) will, 2) durable power of attorney, 3) joint ownership, 4) trusts, 5) life insurance and gifts

What are the five wishes?

directives to instruct family and caretakers about handling of your end of life issues: 1.) person I want to make health care decisions for me 2.) kind of medical treatment I want or don't want 3.) how comfortable I want to be 4.) how I want people to treat me 5.) what I want my loved ones to know

What are the requirements of a will?

document must be in writing and signed by the testator or in testator's name by someone else at their direction and in his/her conscious state either: signed by two witnesses to the testator's signing or to the testator's acknowledgement of his signature of of the will or: acknowledgement by the testator before a notary public or other individual authorized by law to take acknowledgements

Durable Power of Attorney

document that provides for someone to act on your behalf in the event that you become mentally incapacitated separate from will, activated when you are alive

Unified Tax Credit

estate and gift tax credit that, in 2014, allows the first 5.34 million of an estate and lifetime gifts (beyond the annual gift tax exclusions) to be passed on tax free above this, you will pay taxes at 40%, unused amounts will go to surviving spouse

How to reduce one's estate?

gift tax- cash stock, share in a property valued at first $14,000 tax free each year, avoid probate unlimited payments for education or medial bills directly to education or medical institution once you give away gifts, they are no longer your assets

Intestate

having died without a valid will

Testate

having made and left a valid will

Testament

legal document disposing of one's property

Trusts

legal entity that holds and manages an asset for another person created when individual called grantor, transfers property to a trustee which can be an individual, an investment firm, or a bank, for the benefit of one or more people, the beneficiaries

Executor

legal responsibility is to carry out the estate fulfilling the wishes of the individual also called a "personal representative" or "agent"

Irrevocable living trust

permanent: it can't be changed or altered once it's been established because you no longer hold title to the assets in the trust, it becomes a separate legal entity any price appreciation on an asset in trust not considered part of your estate, no estate taxes are imposed income from assets can be directed to beneficiary, result in tax savings also passes probate

Attorney

person legally appointed or empowered to act for another

Testator

person who makes a will