Chapter 15 Personal Finance

 Wills  Estate – all assets minus debts at the time of death.  Estate Planning – preparing a plan for transferring assets at the time of your death.  Will – legal document that tells how you want your estate to be distributed after your death. Executor – carries out the transfer of your estate when you die. Simple will – short legal document that lists the people you want to inherit and what you want each to receive.

 Wills (cont.)  You must have 2 witnesses to your will (they can’t be in the will).  Holographic will – handwritten, not recommended.  Inestate – when a person dies w/out a will. Example of inestate distribution on p  Codicil – legal changes to a will. Must be done by an attorney.

 Power of Attorney  Legal document authorizing someone to act on your behalf.  Limited – lasts 30 days to a year or pertains only to a particular transaction.  General – authorizes that person to make decisions for you.

 Trusts  Legal document in which an individual (the trustor) gives someone else (the trustee) control or property, for ultimate distribution to another person (the beneficiary).  Provides for heirs who might not be able to effectively manage assets for themselves.  Minimizes inheritance or estate taxes.  Trustee may be a financial institution or a person.

 Trusts (cont.)  Inter vivos (living trust) – exists during the life of the trustor.  Testamentary trust (trust will) – takes effect upon the death of the trustor. Useful if your beneficiaries are minor children or if you wish to avoid high taxes on your estate.  Probate is a court-supervised process of paying your debts and distributing your property to your heirs.

 Joint Ownership  Two or more people own an undivided interest in a property.  Joint tenants w/ right of survivorship – ownership is split for estate tax purposes. When one spouse dies, the other automatically becomes the sole owner.  Joint tenants w/out right of survivorship – when one person dies, the property passes to his or her heirs.

 Federal Estate Taxes  Estate tax – tax on property (must meet the minimum dollar amount) transferred by deceased people to their heirs. Deducted from value of the estate.  If you plan well, you can avoid estate taxes.  If you transfer property to a spouse or a charity, you will not need to pay estate taxes.

 State Inheritance Taxes  Tax on an heir who receives property from a deceased person’s estate.  The heirs pay this, not the estate.

 Federal Gift Taxes  Life estate – pass title to an heir, but you may live on the premises for as long as you live.  Gift tax – tax on a gift of money or property. Paid by the giver. You may give up to $13,000 (per person in 2009) year w/out having to pay a gift tax. Gifts to a spouse or charity are exempt.

 Federal/State Income Taxes  The heirs must pay income tax for the deceased based on what they earned the year prior to their death.  A tax return must be filed before the estate can be distributed to the heirs.

 Personal Retirement Accounts  Individual Retirement Accounts (IRAs) Retirement savings plan. Pre-tax investment You may contribute more if you aren’t covered by an employer pension plan. Early withdrawals are subject to a 10% penalty.

 Types of Personal Retirement Accounts  Traditional IRA – contribution can be deducted from your taxable income. Pay taxes when you retire and start collecting benefits.  Roth IRA – taxes contributions, but not money withdrawn at retirement. Tax is paid on your income before you contribute. Never have to pay any other taxes on it.  Education IRA – for higher education costs. Can set up if you have children under age 18. Withdrawals aren’t taxable.

 Annuities Purchased from insurance companies. Provides regular payments – usually for retirement.

 Defined-Benefit Plans  Known as a pension plan.  At retirement age, employees receive monthly payments.  Employer makes the entire contribution.  You must be vested in the plan to receive it if you leave the company.  If you leave the company, you must roll it into an IRA or cash it out.

 An employee is vested when they are able to keep the money that the employer contributed to their retirement account if they leave the job. Example, Varies from employer to employer. # of Years% of employer contributed funds the employee may take with them when they leave the job 120% 240% 360% 480% 5100%

 Defined-Contribution Plans (Employee- sponsored plan where employees may choose to contribute also)  401(K) Plans For companies that operate for a profit. Employees choose the % of salary they want to contribute. Employers may match some or all of the employee contribution.

 Defined-Contribution Plans (cont.)  403(b) Plans Similar to 401K, but is for not-for- profits. Schools, tax-exempt organizations, & government units. Earnings are tax-deferred and early withdrawal penalties apply.

 Social Security Benefits  You are eligible after retirement if you contributed during your work years.  Your benefit is based on your earnings and contributions to social security.  If you were married for 10 years or more, you may be entitled to receive social security benefits based on your spouse’s income.

 Social Security Benefits  Maximum social security retirement benefits are available at age 65*. Age at which you will be eligible for Social Security will be higher  Currently, people may receive reduced benefits starting at age 62.  Most or all of your social security income will be taxable. *will continue to change over time

 Military Benefits  Retired military receive pensions after 20 years of active duty.  Pensions are payable regardless of other sources of income.  Subject to income taxes.  Veterans may also get other benefits like low-interest mortgages, special college financing, and low rate insurance policies.

 A reverse mortgage is a loan against the equity in the borrower’s home in which the lender makes tax-free monthly payments to the borrower.  Your lender pays you.  Must be repaid, with interest, when you sell your home, reach the end of the loan, or die.

 Become an expert & prepare to inform the class on your topic.  Create a PowerPoint or a Prezi. (5-6 minutes)  Create a visual that helps reinforce your topic.  Use all work time productively. This is part of your grade.  Be kind to all members of your group. Include all members in decisions. All members must contribute to the project.  Practice your presentation before the day you give it.  Note cards & a visual are required elements.  Work days: last Friday, today, & tomorrow.  Due date: Friday, November 16 th at the start of class.  Chapter 15 open-note test on Wednesday, November 21 st  Take notes during other group’s presentations. A note outline is available on my website.  Cite sources using MLA on each slide and works cited page. Minimum of 4 sources including textbook.  Turn in research the day you present

 Your visual must be:  Informative  Creative  Relevant  Attractive  Enhance your presentations  Ideas:  Painting  Sculpture  Poster  Video  Song (not a visual, I know)  Storyboard

 Power of Attorney, DNR  Trusts  Reverse Mortgage  Individual retirement plan (IRA)  Estate & inheritance tax  Wills & estates  Defined contribution plans (401k & 403b)  Defined benefits plans (pensions plans)  Social Security  Medicare & Medicaid  Other approved topic