Today’s Lecture #22
Managing Life and Health Risks
Financial Impact of
Death
Disability
Retirement
Estate Planning
Wills
Trusts
Guardians
Federal Estate Taxes
What is the Financial Impact of
the Death of a:
Wage Earning Adult
Married
Single With Dependents
Single With No Dependents
Non Wage Earning Adult
Married
Single With Dependents
Single With No Dependents
Child
Financial Impact of Disability
Ability to Earn Income May Cease (as in
death)
Living Expenses Continue (may increase)
Exposure for Single Adults Without
Dependents
Financial Impact of Retirement
What Happens to Income
What Happens to Expenses
Which Expenses Decline
Which Expenses Increase
Estate Planning
The Need for a Will
What happens if someone dies intestate
Examples of problems with wills
The Need to Appoint a Guardian for Minors
Estate Planning - Continued
Trusts
Testamentary
Inter Vivos
Family Incentive Trusts
Life Insurance
Provides cash for estate expenses and taxes
Proceeds included in your estate if you own
the policy
Probate costs can be avoided by naming a
beneficiary
Federal Estate Taxes
(Simplified Version)
Gross Estate
- Allowable Deductions
- Charitable Gifts
- Marital Deduction
+ Adjusted Taxable Gifts
= Tax Computation Base
Federal Estate Taxes
(Simplified Version)
Use Table A—Unified Rate Schedule for given
Tax Computation Base to determine Tentative
Federal Estate Tax
Assuming NO state estate taxes, prior estate or
gift taxes or foreign death taxes:
Tentative Federal Estate Tax
- Unified Credit ($780,800 for 2006 - 2008)
= Federal Estate Tax Due
Federal Estate Tax Example
A businesswoman with a gross estate of
$3,050,000 dies early in 2007, leaving
everything to her husband. Funeral expenses
and the expense of administering her estate
are $50,000. She has no debts, adjusted
taxable gifts, state estate taxes, etc.
Her husband owns assets of $1,050,000
separately.
Her Estate Taxes
Gross Estate
Allowable Deductions
Marital Deduction
Tax Computation Base
Tentative Federal Estate Tax
Unified Credit
Federal Estate Tax Due
3,050,000
50,000
3,000,000
0
0
780,800
0
Federal Estate Tax Example
Assume her husband dies later in 2007,
leaving the estate to their children. The other
assumptions are the same as with her death.
His Estate Taxes
Gross Estate (3,000,000+1,050,000) 4,050,000
Allowable Deductions
50,000
Marital Deduction
0
Tax Computation Base
4,000,000
Tentative Federal Estate Tax
1,680,800
Unified Credit
780,800
Federal Estate Tax Due
900,000
Federal Estate Tax Example
This was a $ 900,000 mistake. She should
have left $1,000,000 to her husband and
$2,000,000 to a testamentary trust with the
income to her husband and, at his death, the
principal to the children.
Her Estate Taxes - Revised
Gross Estate
Allowable Deductions
Marital Deduction
Tax Computation Base
Tentative Federal Estate Tax
Unified Credit
Federal Estate Tax Due
3,050,000
50,000
1,000,000
2,000,000
780,800
780,800
0
His Estate Taxes - Revised
Gross Estate (1,000,000+1,050,000)
Allowable Deductions
Marital Deduction
Tax Computation Base
Tentative Federal Estate Tax
Unified Credit
Federal Estate Tax Due
2,050,000
50,000
0
2,000,000
780,800
780,800
0