© 2007 ME™ (Your Money Education Resource™) Estate Planning for Financial Planners Chapter 1: Introduction to Estate Planning

2 © 2007 ME™ (Your Money Education Resource™) Updated on 12/12/06 Estate Planning Definitions  Estate planning: The process of accumulation, management, conservation, and transfer of wealth considering legal, tax, and personal objectives. Decedent – A deceased person. Heirs – People who inherit under state laws. Legatees – People who inherit under the will. Donor – Person who gives a gift. Donee – Person who received the gift.

3 © 2007 ME™ (Your Money Education Resource™) Updated on 12/12/06 Goal of Estate Planning  Effective Transfers Decedent’s assets are transferred based on his wishes.  Efficient Transfers Transfer costs are minimized.  Minimize transfer taxes. Gift Tax GST Tax Estate Tax State Inheritance Tax

4 © 2007 ME™ (Your Money Education Resource™) Updated on 12/12/06 Common Goals and Objectives (2 of 3)  Minimize transfer costs. Lawyers’ fees Accountants’ fees Cost of documents Court fees  Maximize net assets to heirs. Exhibit 2.4: Generally taxes and transfer costs will consume at least 30% of an estate

5 © 2007 ME™ (Your Money Education Resource™) Updated on 12/12/06 Common Goals and Objectives (3 of 3)  Provide liquidity at death, which is needed for last medical, taxes, and burial costs.  Fulfill client’s health care wishes.

6 © 2007 ME™ (Your Money Education Resource™) Updated on 12/12/06 Impediments to Reaching Goals  Unwillingness to face mortality.  Procrastination.  Current good health.  Cost.  Lack of knowledge.  Unaware of value of assets.

7 © 2007 ME™ (Your Money Education Resource™) Updated on 12/12/06 Risks in Failing to Plan  Client’s property transfer wishes go unfulfilled.  Transfer taxes are excessive.  Transfer costs are excessive.  Client’s family is not properly provided for financially.  Insufficient liquidity to cover client’s debts, taxes, and costs at death.

8 © 2007 ME™ (Your Money Education Resource™) Updated on 12/12/06 Who Needs Estate Planning?  Karen is married with 4 children.  Donna is married with no children.  Bill is single with 3 cats.  Kali is single with no pets or children.

9 © 2007 ME™ (Your Money Education Resource™) Updated on 12/12/06 Why the Interest in Estate Planning?  Federal Transfer Tax – 40% in 2014  People have an interest in directing their assets at their death.

10 © 2007 ME™ (Your Money Education Resource™) Updated on 12/12/06 The Six Basic Steps in Estate Planning 1.Establish the Client/Planner Relationship. 2.Gather client information and establish objectives. 3.Determine the client’s financial status. 4.Develop a comprehensive plan. 5.Implement the plan. 6.Review and update plan when necessary.

11 © 2007 ME™ (Your Money Education Resource™) Updated on 12/12/06 Establish the Client/Planner Relationship  Talk to your existing clients. Estate planning is not required! Many clients won’t do it unless they are encouraged.  Detail your services.  Send an Engagement Letter. Explain how you will be paid

12 © 2007 ME™ (Your Money Education Resource™) Updated on 12/12/06 Collecting Client Information  Current financial statements  Family information  List of assets and liabilities  Copies of policies (i.e., medical, disability, & life)  Annuity contracts  Wills and trusts  Identification of POA and GPOA  Previously filed returns (i.e., income & gift tax)  Assets transferred to loved ones  Other pertinent information

13 © 2007 ME™ (Your Money Education Resource™) Updated on 12/12/06 Determine the Client’s Transfer Objectives  Common Transfer Objectives Transfer property to desired beneficiaries Minimize taxes, maximize assets to heirs Avoid probate process Use lifetime transfers – gifts Meet liquidity needs at death Plan for children Plan for incapacity of transferor Provide for needs of surviving spouse Fulfill charitable intentions of transferor

14 © 2007 ME™ (Your Money Education Resource™) Updated on 12/12/06 The Estate Planning Team  Attorney  CPA  Insurance Professional  Financial Planner (Team Captain)

15 © 2007 ME™ (Your Money Education Resource™) Updated on 12/12/06 The Unauthorized Practice of Law  Certain activities are clearly reserved for attorneys (drafting legal documents).  Must be licensed attorney in jurisdiction where practice is occurring.  Planner should refer client to licensed attorney for legal advice.