1. Estate Planning

2.  Estate: the assets of a deceased person after all debts are paid  Estate planning: the act of planning for how your wealth will be allocated on or before your death  Will: a legal request for how your estate should be distributed upon your death. It can also identify a preferred guardian for any surviving children.

3.  Reasons for having a will  Ensures that your estate is distributed as you desire  Beneficiaries (heirs): the persons specified in a will to receive a part of an estate  Intestate: the condition of dying without a will ▪ Court appoints an administrator who may not make the decisions you preferred

4.  Creating a valid will  Minimum age—18 or 21  Mentally competent  Not under undue influence of others  Must be signed and dated  2 or 3 witnesses who are not beneficiaries  Attorney recommended

5.  Common types of wills  Simple will: a will suitable for smaller estates that specifies that the entire estate be distributed to the person’s spouse  Traditional marital share will: a will suitable for larger estates that distributes half of the estate to the spouse and all the other half to any children or to a trust

6.  Distribution of the estate ▪ Details the distribution to the heirs, usually by percentage  Executor (personal representative): the person designated in a will to execute your instructions regarding the distribution of your assets ▪ Collects debts owed to the estate, pays debts owed by estate, and distributes proceeds of the estate

7.  Guardian  Parents should name a person to be responsible for caring for any dependent children  Signature  Validates will  Letter of last instruction  Describes your wishes regarding funeral arrangements and tells the location of any key financial documents

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9.  Changing your will  May be necessary if you move to a state with different laws or if you marry or divorce  Major changes may require a new will  Codicil: a document that specifies changes in an existing will ▪ Appropriate for minor revisions

10.  Probate: a legal process that declares a will valid and ensures the orderly distribution of assets  An executor files forms in probate court, provides a copy of the will, a list of assets and liabilities of deceased, pays debts and sells necessary assets.  Typically opens a bank account for this purpose

11.  Without a surviving spouse, a large estate is subject to estate taxes.  Determining estate taxes  Value of estate is the value of all assets minus any liabilities minus funeral and administrative expenses.

12.  During 2004 and 2005, the first $1 million of an estate can be distributed to children or others tax-free.  Beyond this limit, the federal estate tax rates on the taxable part of the estate range from 45 and 48 percent. ▪ Tax Relief Act of 2001 gradually increases tax free limit while reducing maximum tax rate  Proper planning can reduce these taxes

13.  Other related taxes  Some states also impose taxes on estates  Valuing your estate to assess potential estate taxes  It is important to calculate the value of your estate periodically so that you can plan appropriately if your net worth exceeds the tax- free limit.

14.  These may help avoid estate taxes  Trust: a legal document in which one person transfers assets to another who manages them for designated beneficiaries  Grantor: the person who creates a trust  Trustee: the person or institution named in a trust to manage the trust assets for the beneficiaries

15.  Living trust: a trust in which you assign the management of your assets to a trustee while you are living ▪ Revocable living trust: a living trust that can be dissolved ▪ Irrevocable living trust: a living trust that cannot be changed, although it can provide income to the grantor

16.  Standard family trust (credit-shelter trust): a trust established for children in a family ▪ Testamentary trust: a trust created by a will  Gifts: a tax-free distribution of up to $11,000 per year from one person to another  Not subject to tax for the giver or the recipient  Contributions to charitable organizations  Not subject to estate taxes

17.  Living will: a legal document in which individuals specify their preferences if they become mentally or physically disabled  Power of attorney: a legal document granting a person the power to make specific decisions for you in the event that you are incapable

18.  Durable power of attorney for health care: a legal document granting a person the power to make specific health care decisions for you  Maintaining estate plan documents  Need to be kept in a safe, convenient place  Key individuals need to know where they are kept

19.  Key decisions about estate planning for your financial plan are:  Should you create a will?  How can you limit your estate taxes?  Should you create a living will or designate an individual to have power of attorney?

21.  Plans need flexibility;  Disclaimer trust planning allows a surviving spouse to decide if and how to fund trusts at the death of first spouse;  Powers of appointment allow surviving spouse to change disposition of trusts established at first spouse’s death.  Trust Protectors

22.  FLPs and the accompanying discounts are alive and well;  $13,000 annual gift exemption remains;  Can accelerate gifts using lifetime gift exclusion;

23.  Trust protects assets from  future “new” spouse,  creditors of surviving spouse  changes in tax laws.

24.  Protects assets from kids’ creditors;  Protects assets from kids’ soon to be ex- spouse;  Protects assets from kids’ dependencies and addictions;  Allows for Special Needs planning for kids and grandkids

25.  Number of people eligible for medical assistance programs continues to climb;  If assets are held by the individual, they must be spent down before eligible for assistance;  If assets are held in a Special Needs Trust, trust assets are exempt and protected

26.  Some states have “de-coupled” from the federal estate tax;  Minnesota has a $1,000,000 exemption;  Iowa and Nebraska have an inheritance tax.