dr. steven hays personal finance bkhs. explain the use of a will describe estate taxes explain...
TRANSCRIPT
Dr. Steven Hays
Personal Finance
BKHS
Explain the use of a will Describe estate taxes Explain the use of trusts, gifts,
and contributions Introduce other aspects of estate planning
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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
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Will: a legal request for how your estate should be distributed upon your death. If can also identify a preferred guardian for any surviving children
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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
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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
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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, valued at $675,000 or more) that distributes half of the estate to the spouse and all the other half to any children or to a trust
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Key components of a will◦ Distribution of the estate
Details the the distribution to the heirs, usually by percentage
◦ Executor (personal representative): the 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
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◦ 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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Go to: http://moneycentral.msn.com/articles/retire/will/tlwillq.asp
This Web site provides a quiz that indicates your ability to create your own will.
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Exhibit 20.1: A Sample Will
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Exhibit 20.1: A Sample Will
Focus on Ethics: Undue influence on wills◦ Wills can be created under duress or from undue
influence◦ Consider creating a will without consulting
potential beneficiaries◦ A financial planner can assist you
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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
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Executing the will during probate
◦ Probate: a legal process that declares a will valid and ensures the orderly distribution of assets
◦ 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
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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
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◦ In 2001, estates with values over $675,000 are subject to federal taxes of 37% to 50%
Tax Relief Act of 2001 gradually increases tax free limit while reducing maximum tax rate
◦ Proper planning can reduce these taxes
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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
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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
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◦ 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 changes, although it can provide income to the grantor
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◦ 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 $10,000 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
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Go to: http://moneycentral.msn.com/retire/home/asp
Click on: Estate Planning Click on: Plan Your Estate This Web site provides step-by-step
instructions for estate planning.
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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
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◦ 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
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Go to: http://www.nolo.com Click on: Estate Planning This Web site provides a background on
estate planning decisions and the terminology used in estate planning.
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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?
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