Personal Finance Questions: Estate Planning

Question: What steps would you take in the estate planning process?
- Determine what your estate is worth.
- Choose your heirs, determine their needs, and decide what they receive.
- Determine the cash needs of the estate.
- Select and implement your estate planning techniques.

Question: Describe the typical funeral and administrative expenses
Typical funeral expenses include burial costs, a burial plot, and any cost of future care of the burial plot
- Typical estate administrative expenses consist of court costs, executor's fees, attorney's fees, accountant's fees, and appraiser's fees.

Question: How can you use the unlimited marital deduction to your advantage?
There is no limit to the size of transfers between spouses that can be made on a tax -free basis
- Also, there is no limit on the value of an estate that can be transferred to a spouse.
As a result, all federal taxes can be avoided
- But, if the estate is large, lots of planning needs to be done to prepare for when the second spouse dies to avoid or reduce the taxes.
In fact, using the unlimited marital deduction may incur more estate taxes, as opposed to sheltering part of the estate from taxation upon the death of the first spouse.
The unlimited marital deduction does not apply to non-citizen spouses
- Transfers to non-citizen spouses are limited to the estate and tax-free transfer exemption for the year
($5.34 million in 2014) With specialized estate planning, a trust can be used to reduce or avoid taxation on marital estate transfers to non-citizen spouses.

Question: Outline the steps in calculating estate taxes
- Calculate the value of the gross estate.
- Calculate the taxable estate.
- Calculate the gift-adjusted taxable estate.
- Calculate the estate taxes.

Question: What should you do once your will has been drawn up?
Signing the will in the presence of witnesses should follow drawing up a will
- Keep it stored in a safe place
- Periodically review and update it.

Question: Provide a description of the basic features and clauses found in a will - What might invalidate your will?
The introductory statement identifies that it is your will and revokes all prior wills
- You want to direct the payment of any debts, dying and funeral expenses, and taxes
- Allow for the disposition of money and property to those who should get it and in what amount
- Appoint the executor of the estate and the guardian of any children under age
- Identify which spouse is assumed to have died first in the event of a common disaster.
Date and validate the will by signing in the presence of two or more witnesses; that is, incorporate an attestation and witness clause.

A will could be invalidated under the following circumstances:
· evidence suggesting lack of mental competence when the will was written
· evidence of undue influence, or pressure, on the individual to write the will with certain provisions
· provisions in the will that do not comply with state law

Question: Give five good reasons to have a will
- to have control over the guardianship of your children and their property
- to take care of any children with special needs
- to transfer property that is not co-owned or in trusts according to your wishes
- to make special gifts and bequests and arrangements for pets
- to select an administrator of your choice who will execute the will according to your wishes

Question: Identify three advantages and three disadvantages of irrevocable living trusts.
Advantages of irrevocable living trusts include:
· Assets avoid probate.
· No estate taxes are imposed on appreciation of assets when you die.
· Income earned on assets can be directed to the beneficiary, which can result in tax savings if the beneficiary is in a lower tax bracket.

Disadvantages of irrevocable living trusts include:
· There is no control over assets in the trust
· Assets cannot be used for loan collateral.
· The cost of setting up the irrevocable trust may be more than the probate costs you are trying to avoid.

Question: Identify three advantages and three disadvantages of revocable living trusts.
Advantages of revocable living trusts include:
· Assets avoid probate.
· The grantor can alter the trust while living.
· Assets will be professionally managed by the trustee should you become incompetent.

Disadvantages of revocable living trusts include:
· There are no estate tax advantages.
· Assets in the trust are part of your, the grantor's, estate for tax purposes,.
· Assets cannot be used as collateral for a loan.

Question: Make a list of ways to avoid probate
- Establish joint ownership.
- Give gifts.
- Name beneficiaries in contracts.
- Establish a trust.

Question: List some common reasons people use trusts
Trusts avoid probate.
Compared to wills, trusts are much more difficult to challenge in court.
Trusts can reduce estate taxes.
Trusts allow for professional management.
Trusts provide for confidentiality.
Trusts can be used to provide for a child with special needs.
Trusts can be used to hold money until a child reaches maturity.
Trusts can ensure that children from a previous marriage will receive some inheritance.