Wealth Management

Estate

Everything you own

Will

Says who gets your stuff. Testate means you died with one; intestate means you died without one, and state law decides.

Probate

The court process that checks the will, pays debts and moves property into heirs' names. It's slow, costly and public, so people try to avoid it.

Gross estate vs. probate estate

The gross estate is everything counted for estate tax; the probate estate is only what goes through court. They're different numbers.

Executor vs. administrator

An executor is named in the will; an administrator is appointed by the court when there's no will.

The four ways to avoid probate

A named beneficiary (life insurance, IRA), a survivorship title (JTWROS), a POD or TOD account, or a trust.

Ownership types

Sole (all yours), tenancy in common (your share goes to whoever you choose), JTWROS (passes to the co-owner automatically), tenancy by the entirety (JTWROS for married couples only), community property (married couples in 9 states).

Basis and step up

Basis is what you paid. When someone inherits, their basis resets to the value at death, so less tax is owed when they sell.

Trusts

A trustee holds assets for a beneficiary. Revocable trusts can be changed; irrevocable trusts can't.

Fiduciary

A duty to act in the client's best interest

The 7 goals clients plan for

Capital accumulation, Investment and property management, Tax planning, Education, Retirement, Protection against risks, and Estate planning

Capital accumulation

build savings (emergency fund of 3 to 12 months)

Investment and property management

Grow and manage what you have

Tax planning

Legally reduce taxes. Avoidance is legal; evasion is illegal.

Education

Pay for School

Retirement

Don’t outlive your money

Protection against risks

Insurance for death, disability, illness

Estate planning

Pass on wealth at death

The 6 step planning process

Establish the client relationship, Gather data, Determine financial status, Develop the plan, Implement it, and Monitor it.

The three environments

Institutional, economic, and tax.

Institution

The organizations that hold and manage money

Economic

Forces in the economy

Tax

Tax laws, which change often

The 6 basic documents estate planning

Will, Side letter of instruction, Power of attorney (POA), Health care POA, Living will, and DNR order.

Will

Says who gets your property and names an executor and guardian

Side letter of instruction

Funeral wishes, who gets personal items. Not legally binding.

Power of attorney (POA)

Lets someone act for you financially. Durable = survives your incapacity

Health care POA

Lets someone make medical decisions for you. Names a surrogate decision maker.

Living will

Your wishes about life support. Does not transfer property.

DNR order

Don't resuscitate

Executor

Named in the will, gets letters testamentary

Administrator

Appointed by the court, gets letters of administration, usually posts a surety bond

Heir

Inherits by state law

Legatee

Inherits under a will

Devisee

Inherits real estate under a will

Ademption

The asset is gone

Abatement

Not enough money to pay all the gifts

Ancillary probate

A second probate in another state where the person owned real estate

Probate advantages

Clean title, creditors paid in order, court protects heirs. Disadvantages: slow, costly, public, ancillary probate.

Types

Holographic (handwritten), nuncupative (oral), statutory (follows state law, attorney drafted)

Formal will

Two witnesses, neither of whom is a beneficiary

Codicil

Amends a will; getting married can revoke one

Testate / intestate; escheat

No will and no heirs, so the state gets it

Per stirpes

A deceased child's share goes down to their kids

Per capita

Split equally among living beneficiaries

Grantor

Creates it

Trustee

Manages it

Beneficiary

Benefits

Revocable

Changeable, avoids probate, does not reduce estate tax

Irrevocable

Not changeable, avoids probate, does reduce estate tax.

Testamentary Trust

Is created by a will at death

Living (inter vivos) Trust

Created during life

Principal

Gives the power

Agent (attorney in fact)

Receives it

Durable

Survives incapacity

Springings

Starts only when an event happens.

Competent Principal

Can revoke any POA at any time

Fiduciary 3 parts

Loyalty, care, and following instructions

Ethics themes

Competence, confidentiality, conflicts of interest, compensation disclosure, professional conduct, and compliance.

Investment Advisers Act of 1940

Defines who counts as an investment adviser and regulates how advisers act and are paid

Dodd Frank (2010)

Made after financial crisis protects consumers and make the financial system safer.

Types of Property

Realty (land and anything attached), tangible personal (movable), intangible personal (stocks, patents), and digital assets.

9 community property states

AZ, CA, ID, LA, NV, NM, TX, WA, WI

Legal ownership

Title, held by the trustee

Equitable ownership

the benefits, held by the beneficiary

Life estate

Use of property for life

Remainderman

Gets property after

Types of Wills

Simple, traditional marital share, exemption trust, and stated dollar amount.

Will Format

Holographic (your hand writing), Formal (with attorney, signed before 2 non beneficiaries) , and statutory (preprinted form follows state law).

Simple

Everything to the spouse

Traditional Marital Share

Half to the spouse, half to the children.

Exemption trust

Everything to the spouse except the exemption amount, which goes into a trust.

Stated dollar amount

A set dollar amount to the spouse.

JTWROS between non spouses

Gift happens immediately. Mom pays all $300,000 for a house and titles it JTWROS with her son. Each now owns 50%, so Mom gave him $150,000 on the day of titling.

Rule 2, spouses: no gift

Gifts between spouses are covered by the unlimited marital deduction, so unequal contributions between spouses don't matter.

Rule 3, joint bank accounts: the gift happens at withdrawal.

Gift happens when the other person withdraws money for their own use. The same rule applies to Series H savings bonds.

Rule 4, tenancy in common:

If ownership shares don't match what each person paid, the difference is a gift.

Executor Action

Find, pay, file, give, and close.

Find

Locate will, gather inventory and all assets.

Pay

Pay debts, expenses and taxes. Sell assets if needed to cover them.

File

File the tax returns

Give

Distribute what is left according to the will.

Close

Give a final accounting to the court.

Four tax forms

1040, 1041, 706, and 709.

1040

Decedent's final personal income tax return

1041

Estate's income tax return, for income earned after death

706

Estate tax return

709

Gift tax return