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

Download Estate Planning - Personal Financial Planning - Lecture Slides and more Slides Finance in PDF only on Docsity! Estate Planning Docsity.com 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 Docsity.com 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 Docsity.com 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 Docsity.com 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 Docsity.com 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. Docsity.com 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. Docsity.com 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. Docsity.com 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 Docsity.com 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 Docsity.com 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 Docsity.com 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. Docsity.com 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 Docsity.com Components of a Will Direction of Payments • This clause directs the estate to make certain payments of expenses. LG 2 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. Docsity.com 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 Docsity.com Components of a Will Trust Clause • Directs the Executor to establish a trust on behalf of any minor who inherits under the will. LG 2 Docsity.com Components of a Will Execution and Attestation Clause • Every will should be in writing and signed by the testator at its end as a precaution against fraud. • Many lawyers suggest that the testator also initial each page after the last line or sign in a corner of each page. LG 2 Docsity.com Requirements for a Valid Will Mental Capacity • This means: 1. You know what a will is and are aware that you are making and signing one. 2. Understand your relationship with persons for whom you would normally provide, such as a spouse or children. 3. Understand what you own. 4. Are able to decide how to distribute your property and have knowledge of the persons who would generally be expected to receive the estate (even though the testator is not required to leave anything to them) Docsity.com Setting Aside a Will • Or nullifying a will • Requires the person contesting the will to provide clear and convincing proof of the deceased’s mental incapacity at the time of writing the will. Docsity.com Requirements for a Valid Will Freedom of Choice • You must not be under the undue influence of another person. • Types of undue influence include: – Threats – Misrepresentations – Inordinate flattery – Physical or mental coercion employed to destroy your freedom of choice Docsity.com Revoking the Will By the Testator • Wills may be revoked either by the testator or automatically by law. • Testator may: – Making a later valid will that expressly revokes prior wills; – Making a codicil or declaration in writing that expressly revokes all earlier wills; – Physically mutilating, burning, tearing or defacing the will with the intention of revoking it. Docsity.com Revoking the Will By Law • Wills may be revoked either by the testator or automatically by law. • Depending on the province the law may automatically modify the will under circumstances for example: – Divorce – Marriage – Birth or adoption Docsity.com Safeguarding the Will • Should be a located in a safe place this known and accessible to the named executor with copies in a safe, accessible location. – Safety deposit box – Lawyer Docsity.com Administration of an Estate • Court oversees probate process— the liquidation of deceased’s estate. • The executor you named in your will (or court-appointed administrator if you died intestate) acts as your personal representative. • Executor inventories your assets, pays your debts and taxes (both income and estate), and distributes remaining assets according to your will. LG 2 Docsity.com Other Estate Planning Documents Power of Attorney • If you are incapacitated by serious illness or injury, POA allows you to name as your agent the person you consider best suited to take over your financial affairs. Docsity.com Other Estate Planning Documents Living Will or Power of Attorney for Healthcare • States precisely the treatments that you want and to what degree you wish them continued. Docsity.com the TRUSTEE who holds and administers the property for the benefit of $ The GRANTOR transfers property to Docsity.com the BENEFICIARIES (which may include the grantor). the TRUSTEE who holds and administers the property for the benefit of $ The GRANTOR transfers property to Docsity.com Purposes of Trusts: • Possible income tax savings for those in higher tax brackets. • Possible estate tax savings; if trust is irrevocable, value of trust property is removed from grantor’s estate. • Manage and conserve property on behalf of beneficiaries over a long period of time. Docsity.com Gifts and Taxes A gift is made when property is transferred without full consideration in money or money’s worth to another, and the donor relinquishes control over the property. LG 5 Docsity.com Gifts and Taxes • There is no gift tax in Canada • However, if the gift is a transfer of assets other than cash, there will be a disposition which may need to be included in taxable income. • In addition, if the recipient is your spouse or a minor, any income earned on the gift will be attributed back to you for tax purposes. • You can gift assets to adults without the income on those assets being attributed back to you; however, you may be exposed to income tax on the appreciated value of those assets. LG 5 Docsity.com In summary you … • Learned to describe the role of estate planning in personal financial planning and identify the seven steps involved in the process. • Learned to recognize the importance of preparing a will and other documents to protect you and your estate. • Know how your assets are taxed at death. • Know how trusts may be used to achieve estate planning objectives. • Know how gifts and life insurance are used in estate planning. Summary Docsity.com Appendices 1. Key Terms and Definitions Docsity.com 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 Docsity.com Definitions Estate Planning • The process of developing a plan to administer and distribute your assets on death in a manner consistent with your wishes and the needs of your survivors, while minimizing taxes. Terms Docsity.com Definitions Will • A written and legally enforceable document that expresses how a person’s property should be distributed on his or her death. • It is also used to name a personal representative to guide the disposition of the estate and to name a guardian for persons and property. Terms Docsity.com Definitions Intestacy • The situation that exists when a person dies without a valid will. Terms Docsity.com Definitions Testator • A person whose will directs the disposition of property at his or her death. Terms Docsity.com Definitions Probate process • The court-supervised process of estate liquidation that occurs when a person dies; it consists of collecting money owed the decedent, paying his or her debts, and distributing the remaining assets to the appropriate individuals and organizations. Terms Docsity.com Definitions Executor – The personal representative of an estate designated in the decedent’s will. Terms Docsity.com Definitions Administrator – The personal representative of the estate appointed by the court if the decedent died intestate (without a valid will) Terms Docsity.com Definitions Power of attorney for healthcare – A written power of attorney authorizing an individual (an agent) to make healthcare decisions on behalf of the principal during such times, either temporarily or permanently, when the principal is unable to make such decisions. Terms Docsity.com Definitions Joint tenancy – A type of ownership by two or more parties, with the survivor(s) continuing to hold all such property on the death of one or more of the tenants. – Each joint tenant can unilaterally sever the tenancy. Terms Docsity.com Definitions Right of survivorship – The right of surviving joint owners of property to receive title to the deceased joint owner’s interest in the property. Terms Docsity.com Definitions Trust – A legal relationship created when one party, the grantor, transfers property to a second party, the trustee, for the benefit of third parties, the beneficiaries, who may or may not include the grantor. Terms Docsity.com Definitions Grantor – A person who creates a trust and whose property is transferred into it; also called settlor, trustor, or creator. Terms Docsity.com Definitions Trustee – An organization or individual selected by the grantor to manage and conserve property placed in trust for the benefit of the beneficiaries. Terms Docsity.com Definitions Revocable living trust – A trust in which the grantor reserves the right to revoke the trust and regain trust property. Terms Docsity.com Definitions Irrevocable living trust – A trust in which the grantor relinquishes the title to the property placed in it and gives up the right to revoke or terminate the trust. Terms Docsity.com Definitions Alter ego trust – An inter vivos trust created by an individual over 65 to hold property. – Assets may be rolled over tax-free to the trust. Terms Docsity.com Definitions Spousal trust – A trust created by an individual for the benefit of their spouse; assets may be rolled over tax-free to the trust. Terms Docsity.com Definitions Family trust – A trust created by an individual for the benefit of the member of a family. Terms Docsity.com