1. Planning for Retirement Personal Finance Chapter 15.1

2. Defining Your Retirement Needs  You need between 60 and 80 percent of your before-retirement salary to live comfortably.  Some retirees use the equity (home value minus the mortgage balance) in their homes as income.  Reverse mortgage is a loan against the equity in a borrower’s home.  Heirs are people who receive property from someone who has died.

3. Estate Planning Tools Will – legal document that tells how you want your estate to be distributed after your death.  The person who makes a will is called a testator.  Simple will – short document that lists the people you want to inherit and what you want each to receive.  Holographic will – a will written in a person’s own handwriting. Valid in 19 states, must be witnessed.  When people die without a will, they are said to be intestate. The state divides the estate.

4. Estate Planning Tools  Codicil – official changes to a will.  A power of attorney is a legal document authorizing someone to act on your behalf.  A trust is a legal document in which an individual (the trustor) gives someone else (the trustee) control of property, for ultimate distribution to another person (the beneficiary).

5. Estate Planning Tools Types of trusts Inter vivos (living trust) – trustor is alive Testamentary (trust will) – trustor is deceased A trust serves two purposes: Trusts provide for beneficiaries that may not be able to effectively manage assets for themselves. A trust can minimize inheritance or estate taxes and avoid probate (court- supervised distribution)

6. Taxation of Estates  Estate taxes are levied by the federal government as a tax on property transferred from deceased people to their heirs. The tax is deducted from the amount of the estate and the heirs receive the balance. ($3.5 million minimum to be responsible for this tax)  Inheritance taxes are levied by state governments as a tax on property transferred from deceased people to their heirs. After the heirs receive the property, they must pay the tax.

7. Taxation of Estates  A gift tax is a tax on a gift of money or property. This tax is paid by the giver, not the receiver, of the gift.  You can give up to $11,000 per person per year without having to pay a gift tax.