Estate Planning - Personal Financial Planning - Lecture Slides, Slides of Finance

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Estate Planning

Agenda

• Review of learning goals
• Key chapter terms and definitions
• Principles of estate planning
• Wills, powers of attorney and living wills
• Death, taxes and trusts
• Gifts and taxes
• Summary
• Internet links and on-line resources

Agenda

Chapter 13 - Learning Goals

LG 1 - Describe the role of estate planning in personal financial planning and identify the seven steps involved in the process. LG 2 - Recognize the importance of preparing a will and other documents to protect you and your estate. LG 3 - Explain how your assets are taxed at death. LG 4 - Explain how trusts are used in estate planning. LG 5 - Explain how gifts and life insurance are used in estate planning.

LearningGoals

Key Chapter Terms and Definitions

• Estate Planning
• Probate fees
• Probate estate
• Will
• Intestacy
• Testator
• Codicil
• Letter of last instructions
• Probate process
• Executor
• Administrator
• Power of attorney
• Living will
• Power of attorney for health care
• Joint tenancy
• Right of survivorship
• Tenancy in common
  • Community property
  • Trust
  • Grantor
  • Trustee
  • Beneficiaries
  • Inter vivos trust
  • Revocable living trust
  • Irrevocable living trust
  • Alter ego trust
  • Joint partner trust
  • Testamentary trust
  • Spousal trust
  • Family trust

Terms

What is Estate Planning?

Developing plans and taking actions

during your lifetime to accumulate,

preserve, and distribute your wealth upon

your death according to your wishes,

while minimizing taxes and transfer costs.

LG 1

Estate Planning Includes...

• Accumulating enough capital to
  • Meet education and special family needs.
  • Provide for family members in event of death of head of household.
  • Provide for yourself and your family in the event of long- term disability.
• Having plans in place to manage your affairs
  • If you become disabled.
  • If you are unable to make medical decisions for yourself.

LG 1

Principles of Estate Planning

Who Needs Estate Planning?

• Have dependents.
• Have a spouse who cannot or does not want to handle finances.
• Have loved ones of any age with special needs.
• Have property you would like to keep in the family.
• Have debts or own your own business.
• Have assets worth more than exclusion amount.

LG 1

Principles of Estate Planning

How Can An Estate Plan Break Down?

• Excessive transfer costs
• Lack of liquidity
• Improper disposition of assets
• Inadequate income at retirement
• Inadequate income, if disabled
• Inadequate income for family at estate owner’s death
• Insufficient capital
• Special problems
  • A family member with a serious illness or physical or emotion problems
  • Children of a prior marriage
  • Beneficiaries with extraordinary needs or who can’t be trusted to hand estate matters.

LG 1

Principles of Estate Planning

People planning and asset planning

There are two main areas of estate planning:

• People planning
  • Anticipating the psychological and financial needs of those people you love
  • Providing enough capital or income to ensure continuation of their way of life.
• Asset planning
  • Inventorying assets both financial and tangible and anticipating the costs of winding up the estate and whether the structure of the estate is efficient from a tax perspective as well as from a liquidity perspective.

LG 1

Principles of Estate Planning

What is Your Estate? Probate Estate?

Your property

(whatever you own when you die)

LG 1 (^) Your

Estate

Probate estate – consists of the real and personal property you own in your own name that can be transferred at death according to the terms of a will, or according to intestate laws if you have no valid will. Non-probate estate – consists of the real and personal property you own in joint tenancy that is automatically transferred upon your death and does not form a part of the probate estate.

Property Not Passing to the Estate

Joint Tenancy

• Some property owned during a person's lifetime does not pass to a person's estate.
• One example is property held as joint tenants. Co-owners may hold property either as joint tenants or as tenants in common. In a joint tenancy, the interest goes to the survivor or survivors. Only in a tenancy in common does an interest pass to the deceased person's estate. Some property owned during a person's lifetime does not pass to a person's estate. One example is property held as joint tenants. Co-owners may hold property either as joint tenants or as tenants in common. In a joint tenancy, the interest goes to the survivor or survivors. Only in a tenancy in common does an interest pass to the deceased person's estate.

Property Not Passing to the Estate

Benefits under and Insurance Policy

• Some property owned during a person's

lifetime does not pass to a person's

estate.

• Also not included in a person's estate are

benefits under an insurance policy or

pension plan which has a designated

beneficiary other than the estate.

The Estate Planning Process

1. Assess family situation and set estate planning goals.
2. Gather comprehensive and accurate data.
3. List assets and determine value of estate.
4. Designate beneficiaries of estate’s assets.
5. Estimate estate transfer costs.
6. Formulate and implement your plan.
7. Review periodically and revise as necessary.

LG 1

Wills

A will is a written, legal declaration of a person's wishes concerning the disposition of his/her property upon death.

Jane Doe, being of sound LG 2 mind...

Absence of a Valid Will

Intestacy

• Your province’s laws of intestate succession will determine how your property passes.
• The statutes set out preferred classes of survivors in the following general order: 1. Spouse 2. Children 3. Other offspring (grandchildren or great-grandchildren)
• If the foregoing exist, more distant relatives receive nothing.
• If no spouse, children or other offspring survive, the deceased parents, brothers and sisters receive a share.

LG 2

Absence of a Valid Will

Intestacy - consequences

• The person who dies intestate forfeits:
  • Right to name a personal representative to guide disposition of the estate
  • The right to name a guardian for persons and property.
• Absence of a will may increase estate shrinkage

through income taxes and probate fees.

LG 2

Preparing the Will

• Provides a plan for distributing assets in accordance with testator’s wishes, needs of the beneficiaries, and federal and provincial dispositive and tax laws.
• Considers changes in family circumstances that might occur after its execution.
• Is unambiguous and complete in describing testator’s desires.

LG 2

Components of a Will

• Introductory clause
• Revocation statement
• Appointment clause
• Direction of payments
• Disposition of property
• Common disaster or simultaneous death clause
• Power clause
• Trust clause
• Execution and Attestation Clause

LG 2

Components of a Will

Introductory Clause

• A preamble stating testator’s name and LG 2 residence.

Components of a Will

Revocation Clause

• A clause that nullified old and forgotten wills and codicils.

LG 2

I HEREBY REVOKE all former wills and other testamentary dispositions formerly made by me heretofore and I DECLARE this to be and to contain my Last Will and Testament.

Components of a Will

Appointment Clause

• This clause names the executor and an alternative in the event that the initial representative cannot serve.

LG 2

Components of a Will

Direction of Payments

• This clause directs the estate to make certain LG 2 payments of expenses.

I GIVE, DEVISE AND BEQUEATH all of my property, both real, personal and mixed to my Executrix hereinbefore named upon the following trusts: a. To pay all of my just debts, funeral and testamentary expenses as soon as conveniently may be after my decease.

Components of a Will

Disposition of Property

• Direct the executor to transfer property to the

LG 2 named beneficiaries

Components of a Will

Common Disaster Clause

• This clause describes what happens in the event of simultaneous death of a spouse.
• Other types of clauses are similarly designed to avoid double probate of the same assets – duplication of administrative and probate costs.

LG 2

Components of a Will

Power Clause

• This clause provides the Executor with the power to manage the estate without the requirement of approval from the courts or heirs.

LG 2