Estate Planning Chapter 14

Considerations Client Data Federal and State Gift and Estate Taxes Estate Administration Expenses Forced Liquidation Termination of Employment

Documentation Wills Trusts Power of Attorney Living Will Life Insurance –Periodic review is recommended in the event of a change in life circumstances

Tax Considerations Marital Deduction –An unlimited amount of the decedent’s gross estate that may be given to the surviving spouse without being subject to taxes being levied against the estate

Bypass Trust A portion of the deceased spouse’s estate that passes to a trust rather than directly to the surviving spouse Usually the surviving spouse is given a life estate in the trust Also called an A-B trust, credit shelter trust, residuary trust, or family trust

Charitable Deduction A gift or trust made for religious, scientific, charitable, literary, or educational purposes for which the taxpayer can claim an income tax deduction

Tax Savings Devices That Reduce the Gross Estate Gifts Made During the Donor’s Life Powers of Appointment Trusts That Qualify for the Marital Deduction Life Insurance

Power of Appointment Created in a will or trust and gives a person the authority to select the person who is to receive and enjoy an estate, or an income therefrom, or receive a trust fund after the donee's death

QTIP Trust A trust that will qualify for the marital deduction, in which the surviving spouse receives all of the income for life but is not given a general power of appointment

Types of Life Insurance Whole Life –Pays the contract amount upon the policyholder’s death –Builds cash value over time Term Life –Pays the contract amount upon the policyholder’s death within a given time –Builds no cash value –Generally renewable from term to term

Types of Life Insurance Universal Life –Covers a specific period and builds cash value for the policyholder over that time –Emphasizes the separation of the portion of the premium used to cover the insurance protection from the portion of the premium allocated to an investment that is used to build the policy's cash value

Life Insurance Trust A trust that cannot be revoked or amended once established by a settlor, who assigns the ownership of a new or existing life insurance policy on the settlor’s life The settlor contributes money annually to the trust to pay the premiums Policy proceeds are payable to the trust on the death of the settlor

Postmortem Estate Planning Estate planning that occurs after the death of the testator or settlor Used for tax-savings purposes –Disclaimer: Allows a beneficiary or heir to refuse a gift by will, trust, or inheritance without any adverse tax consequences