14a Estate Planning

Estate planning

process of accumulation, management, conservation, and transfer of wealth considering legal, tax, and personal objectives

Goal of estate planning

is the effective and efficient transfer of assets

• effective - transfer occurs when a persons assets are transferred to the person or institution intended by that person

  • fulfill clients property transfer wishes

  • guardianship of children or others

  • liquidity at death

  • healthcare decision

• efficient - transfer occurs when transfer cost are minimized

  • minimize transfer taxes, cost, net assets to heirs

Client/planner relationship

• clients often don’t consider talking to a financial planner about their estate

Will

• gives the testator (will maker) the opportunity to control the distribution of his property at death, thus avoid his states intestacy (aka dying without a will) laws

  • die without will = intestate

  • die with will = testator

• may be amended or revoked by the testator at any time prior to his death

• the will is the voice of the decedent (person of deceased)

Types of Wills

• only requirements necessary

  • will must be in writing

  • will must be signed and its logical by the testator

• 3 basic forms

  • statutory - professionally drafted by attorney

  • holographic - handwritten (not typed)

  • nuncupative - oral or dying declarations

Power of Attorney

legal document that authorizes a trusted person to act on ones behalf

General Power of Attorney

• Person who is given the power of attorney will be able to act in the principal’s place as though he is the principal.

Limited Power of Attorney

• Gives the agent very specific, detailed powers.

Health Care Directives

• durable power

  • make health decisions on behalf of principal who is unable to make them - durable beyond capacity

• living will

  • document expressing an individuals last wishes regarding sustainment of life

• do not resuscitate order (DNR)

  • principal wish to avoid having CPR performed if their heart stops beating

Ownership & transfer of property

• real property

  • includes land and personal attachments (house)

• tangible personal property

  • property that is not realty and has physical substance (car, jewelry)

• intangible person property

  • not real property and is without physical substance (bank accounts, stocks)

Gross v Probate

• Gross estate

  • includes everything, for tax purposes

• Probate

  • only the things that go through court for inheritance

  • does not get passes automatically to heirs

  • no joint owners or named beneficiaries

Fee Simple

complete ownership of one individual who posses all ownership

included in gross & probate

Tenancy in Common (TIC)

an interest in property held by two or more unrelated persons with unequal shares

included in gross & probate

Joint Tenancy (JTWROS)

is an interest in property held by two or more unrelated persons called joint tenants with equal shares

• included in gross (FMV x %)

• not included in probate bc passes automatically

Tenancy by entirety (TE)

joint tenancy for husband and wife

• included in gross 50% of FMV

• not included in probate bc passes automatically

Community Property

married couples own equal interest during marriage

• property acquired before marriage or property gifted during marriage remains separate

• separate property commingled during marriage can become community