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Finance 553

Finance 553. Estate Planning Case. Estate Planning Case. What are the key first steps in financial planning Know your clients and their goals (dreams) Family members Family history Determine current financial status Assets (balance sheet)

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Finance 553

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  1. Finance 553 Estate Planning Case

  2. Estate Planning Case • What are the key first steps in financial planning • Know your clients and their goals (dreams) • Family members • Family history • Determine current financial status • Assets (balance sheet) • Income stream – current and future (income statement), • Current Insurance status on property & casualty, health, disability, long-term care, and life • Current Legal Documents -- Wills, Trusts, Powers of Attorney, Health Directives, etc.

  3. Estate Planning Case • Facts: • Married Couple – Gail and Tony • Gail good health and age ??? • Tony, poor health (recent heart attack) and age ??? • Are either of their parents living? • What are the health histories of their parents? • With Children • Five children (four with spouses) and one single • 14 grandchildren with one in serious physical disability • Where are they domiciled (community property state)?

  4. Estate Planning Case • Besides the current listed assets (page 587) and Will of Tony (page 586) what do we need to know? • First and foremost – age of Tony and Gail, why? • Second, what insurance contracts do they own concerning the business, health care, long-term health care, life, property and casualty (to make sure assets are protected) and social security status (Old Age, Survivorship and Disability Insurance – OASDI), Why? • Third, are they the beneficiaries of any trusts or potential estate of living parents or other relatives? Why? • What are their current relationships with all potential heirs that could contest Tony’s will? Are there any heirs that Tony (and Gail) want to skip or disclaim? Why?

  5. Estate Planning Case • The Estate Planning Case Exercise • Calculate the Gift Tax and any Generation Skipping Taxes to Phillip on January 1, 2008 • Table top of page 589 – GSTT with result of $219,000 • Table bottom of page 589 – Gift Tax with result of $753.420 • Calculate the annual exclusion and gift tax on gifts to children on January 2, 2008 • Table top of page 590 – Gift Tax with result of $423,000 • Calculate the annual exclusion and gift tax on gifts to children on January 1, 2012 • Table bottom of page 590 – Gift Tax with result of $0 • Calculate Probate Estate if Tony dies on July 31, 2014 • Table top of page 591 – Total in Probate Estate is $4,368,047

  6. Estate Planning Case • The Estate Planning Case Exercise – continued • Calculate Estate Tax Due from Tony’s estate • Table on page 592 with information from Table on page 591 on the unlimited marital deduction to Gail • With unlimited marital deduction and charity deductions no estate taxes due at this time • Gail’s estate will carry tax burden of Tony’s estate based on what remains when Gail passes. • While Tony was alive – how would you transfer business to Hari and Shami? • Direct sale and implications? • Installment sale to Hari and “gift” to Shami? • Does this impact the distribution of the estate to other heirs?

  7. Estate Planning Case • What changes would you recommend to Tony and Gail today for their estate planning? • Trusts? • Living Trust for probate assets? • Irrevocable Life Insurance Trust (ILIT)? • A-B By Pass Trust (passing on of one time exclusion)? • Qualified Personal Residence Trust? • Grantor Retained Annuity Trust? • Asset beneficiaries -- Naming beneficiaries of deferred tax account? • Review of all current legal documents for state of domicile • Reviewing of gift passing laws that avoid gift tax • Example, pay medical bills of Phillip directly to provider • Other?

  8. Estate Planning Case • Last Thoughts on the Case? • What additional information would help before making recommendations? • What are desires of the spouse (her will for example)? • What assets are important to family members? • What is Gail’s income stream source after Tony dies? • What if Gail passes before Tony, does that unlikely event pose problems with estate and exemptions? • What is Tony’s current relationship with the business (is he a key person or has he stopped working)? • What relationship does Gary (Tony’s friend) and executor of the estate have with the beneficiaries? Can Gary perform functions of executor (duty of loyalty and care – Prudent Man Rule)? And does Gary know he is the executor and have access to all necessary documents? • Questions?

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