1. Today’s Lecture #22 Managing Life and Health Risks Financial Impact of Death Disability Retirement Estate Planning Wills Trusts Guardians Federal Estate Taxes

2. What is the Financial Impact of the Death of a: Wage Earning Adult Married Single With Dependents Single With No Dependents Non Wage Earning Adult Married Single With Dependents Single With No Dependents Child

3. Financial Impact of Disability Ability to Earn Income May Cease (as in death) Living Expenses Continue (may increase) Exposure for Single Adults Without Dependents

4. Financial Impact of Retirement What Happens to Income What Happens to Expenses Which Expenses Decline Which Expenses Increase

5. Estate Planning The Need for a Will What happens if someone dies intestate Examples of problems with wills The Need to Appoint a Guardian for Minors

6. Estate Planning - Continued Trusts Testamentary Inter Vivos Family Incentive Trusts Life Insurance Provides cash for estate expenses and taxes Proceeds included in your estate if you own the policy Probate costs can be avoided by naming a beneficiary

7. Federal Estate Taxes (Simplified Version) Gross Estate -Allowable Deductions -Charitable Gifts -Marital Deduction +Adjusted Taxable Gifts =Tax Computation Base

8. Federal Estate Taxes (Simplified Version) Use Table A—Unified Rate Schedule for given Tax Computation Base to determine Tentative Federal Estate Tax Assuming NO state estate taxes, prior estate or gift taxes or foreign death taxes: Tentative Federal Estate Tax - Unified Credit ($780,800 for 2006 - 2008) = Federal Estate Tax Due

9. Federal Estate Tax Example A businesswoman with a gross estate of $3,050,000 dies early in 2007, leaving everything to her husband. Funeral expenses and the expense of administering her estate are $50,000. She has no debts, adjusted taxable gifts, state estate taxes, etc. Her husband owns assets of $1,050,000 separately.

10. Her Estate Taxes Gross Estate3,050,000 Allowable Deductions 50,000 Marital Deduction3,000,000 Tax Computation Base 0 Tentative Federal Estate Tax 0 Unified Credit 780,800 Federal Estate Tax Due 0

11. Federal Estate Tax Example Assume her husband dies later in 2007, leaving the estate to their children. The other assumptions are the same as with her death.

12. His Estate Taxes Gross Estate (3,000,000+1,050,000) 4,050,000 Allowable Deductions 50,000 Marital Deduction 0 Tax Computation Base 4,000,000 Tentative Federal Estate Tax 1,680,800 Unified Credit 780,800 Federal Estate Tax Due 900,000

13. Federal Estate Tax Example This was a $ 900,000 mistake. She should have left $1,000,000 to her husband and $2,000,000 to a testamentary trust with the income to her husband and, at his death, the principal to the children.

14. Her Estate Taxes - Revised Gross Estate 3,050,000 Allowable Deductions 50,000 Marital Deduction 1,000,000 Tax Computation Base 2,000,000 Tentative Federal Estate Tax 780,800 Unified Credit 780,800 Federal Estate Tax Due 0

15. His Estate Taxes - Revised Gross Estate (1,000,000+1,050,000) 2,050,000 Allowable Deductions 50,000 Marital Deduction 0 Tax Computation Base 2,000,000 Tentative Federal Estate Tax 780,800 Unified Credit 780,800 Federal Estate Tax Due 0