ESTATE PLANNING
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7th Edition ESTATE PLANNING Michael A. Dalton | Thomas P. Langdon CHAPTER 1: INTRODUCTION TO ESTATE PLANNING © 2013 Money Education Estate Planning CH 1 | Introduction to Estate Planning Estate Planning Defined • The process of accumulation, management, conservation, and transfer of wealth considering legal, tax, and personal objectives. Estate Planning © 2013 Money Education CH 1 | Introduction to Estate Planning 2 Other Important Definitions • Decedent – A deceased person • Heirs – People who inherit under state intestacy laws • Legatees – People who inherit under a valid will • Donor – A person who gives a gift • Donee – A person who receives a gift Estate Planning © 2013 Money Education CH 1 | Introduction to Estate Planning 3 Goals of Estate Planning • Effective Transfers Decedent’s assets are transferred based on his wishes • Efficient Transfers Transfer costs are minimized Estate Planning © 2013 Money Education CH 1 | Introduction to Estate Planning 4 Common Goals and Objectives (1 of 3) • Fulfill the client’s transfer wishes • Minimize the transfer taxes including: Income Tax Issues (income and capital gains) Gift Tax GST Tax Estate Tax State Inheritance Tax Estate Planning © 2013 Money Education CH 1 | Introduction to Estate Planning 5 Common Goals and Objectives (2 of 3) • Minimize Transfer Costs Including: Lawyers’ Fees Accountants’ Fees Costs of Documents Court Fees Transfer Taxes • Maximize Net Assets to Heirs Estate Planning © 2013 Money Education CH 1 | Introduction to Estate Planning 6 Common Goals and Objectives (3 of 3) • Provide liquidity at death, which is needed to pay for last medical, taxes, and burial costs • Fulfill client’s health care wishes Estate Planning © 2013 Money Education CH 1 | Introduction to Estate Planning 7 Impediments to Achieving Estate Planning Goals • Unwillingness to face mortality • Procrastination • Current good health • Costs • Lack of knowledge • Lack of awareness of the value of assets Estate Planning © 2013 Money Education CH 1 | Introduction to Estate Planning 8 Consequences for Failing to Plan • Client’s property transfer objectives may go unfulfilled • Transfer taxes may be excessive • Other transfer costs may be excessive • Client’s family may not be properly provided for financially • There may be insufficient liquidity to cover client’s debts, taxes, and costs at death Estate Planning © 2013 Money Education CH 1 | Introduction to Estate Planning 9 Who Needs Estate Planning? • Karen is married with 4 children • Donna is married with no children • Bill is single with 3 cats • Kali is single with no pets or children Answer: All of these individuals need estate planning. Estate Planning © 2013 Money Education CH 1 | Introduction to Estate Planning 10 Why the Interest in Estate Planning? • Transfer Tax – Up to 35% in 2012 and 40% in 2013 and beyond • People have a keen interest in directing to whom their assets are left to at their death Estate Planning © 2013 Money Education CH 1 | Introduction to Estate Planning 11 Tools for Wealth Protection • There are many tools for protecting wealth and income. Some examples include: Insurance Products • Life, Health, Disability, Long-term Care, Property, and Liability Medicaid Social Security Benefits Estate Planning © 2013 Money Education CH 1 | Introduction to Estate Planning 12 The Six Basic Steps in the Estate Planning Process 1. Establish the client/planner relationship 2. Gather client information and establish objectives 3. Determine the client’s financial status 4. Develop a comprehensive plan 5. Implement the plan 6. Review and update plan when necessary Estate Planning © 2013 Money Education CH 1 | Introduction to Estate Planning 13 Establish the Client / Planner Relationship • Talk to your existing clients • Detail your services • Send an Engagement Letter Estate Planning © 2013 Money Education CH 1 | Introduction to Estate Planning 14 Collecting Client Information • Current financial statements • Family information • List of assets and liabilities • Copies of policies (i.e., medical, disability, and life) • Annuity contracts • Wills and trusts • Identification of POA and GPOA • Previously filed returns (i.e., income and gift tax) • Assets transferred to loved ones • Other pertinent information Estate Planning © 2013 Money Education CH 1 | Introduction to Estate Planning 15 Determining the Client’s Transfer Objectives • Common Transfer Objectives Transfer property to desired beneficiaries Minimize taxes, maximize assets to heirs Avoid probate process Use lifetime transfers – gifts Meet liquidity needs at death Plan for children Plan for incapacity of transferor Provide for needs of surviving spouse Fulfill charitable intentions of transferor Estate Planning © 2013 Money Education CH 1 | Introduction to Estate Planning 16 The Estate Planning Team • Attorney • CPA • CLU • ChFC • Financial Planner (Team Captain) Estate Planning © 2013 Money Education CH 1 | Introduction to Estate Planning 17 The Unauthorized Practice of Law • Certain activities are clearly reserved for licensed attorneys (such as drafting legal documents) • You must be a licensed attorney in the jurisdiction where the practice is occurring • A financial planner should refer client to licensed attorney for legal advice Estate Planning © 2013 Money Education CH 1 | Introduction to Estate Planning 18 ATRA 2012 • Made 2010 legislation permanent, including portability. • 2013 annual exclusion $14,000. • 2013 lifetime exemption $5,250,000. • Above $1,000,000 rate is 40%. Estate Planning © 2013 Money Education CH 1 | Introduction to Estate Planning 19 7th Edition ESTATE PLANNING Michael A. Dalton | Thomas P. Langdon Estate Planning © 2013 Money Education CH 1 | Introduction to Estate Planning
