Unit 8, part 1 Estate Planning: What is it? What Happens When I die? Common Goals, And Other Things You Should Know!

1
Unit 8, part 1Estate Planning What is it?
What Happens When I die?Common Goals, And
Other Things You Should Know!

• Chuck Moore, Department of Agricultural and
  Resource Economics, NC State University
• Adapted for ARE 306

2
What is Estate Planning?

• It IS
• the orderly accumulation,
• the orderly conservation, and
• the orderly transfer of ones property to the
  desired heirs

3
What is Estate Planning?

• What it is NOT
• only for old people
• only for the rich people
• Its probably more important for the young family
  with small children, moderate investment, and
  sizable debt than for,
• A person over 65, in retirement with grown
  children

4
Estate planning is more than making a WILL

• It includes
• analysis of family situation
• examination of how property is owned
• whom you want to get your stuff
• review of the family insurance program
• consider gifts during life, may benefit both
  giver and recipient
• possible disposition of property by sale during
  life for cash, installment sale, private
  annuity, part gift/part sale

5
Why Do I Need an Estate Plan?

• Everyone already has one--
• its up to you to improve one it!
• To accomplish YOUR goals
• To make sure what you want to happen really does
  happen!
• Who will care for your minor children?
• Who will handle you affairs?
• Who will receive your property?
  

6
What are your Estate Planning Goals?

• Some Common Family Goals
• For you and your spouse to be financially secure
  during retirement
• To treat all children equitably (or equally?)
• To maintain the continuity of the business
• To help son/daughter get started in business
• To minimize estate taxes / settlement costs
• To anticipate and plan for the cash needed at
  estate settlement time

7
What cash is needed at settlement time?

• Cash is needed for
• 1. Debts of the deceased
• existing debts, medical bills, etc.
• 2. Funeral Expenses
• 3. Settlement costs
• court costs, administrators/executors fees,
  bond costs, attorneys fees, etc.
• 4. Taxes
• federal income tax, state income tax, federal
  estate tax, state estate tax, gift taxes

8
Types of Property Transfers

• Sale
• Gift
• Laws of intestate succession
• Surviving spouse-
• Tenancy by the entirety
• Joint tenancy with right of survivorship

9
Who gets your Property if You Die Without A
Will???

• Relatives as distant as the sixth degree.

10
Who Does Get Your Property WITHOUT a Will?If
you are Married and survived by a spouse but no
children or descendants of children surviving

• No Parent(s) Surviving
• All real and personal property goes to Spouse

• Parent(s) Surviving
• First 50,000 of personal property to the Spouse,
  then
• 1/2 of all remaining property to the spouse
• 1/2 of all remaining property to parent(s)

11
Who Does Get Your Property WITHOUT a Will?If
you are Married and Children or Descendants of
children surviving

• One Child or Descendants
• First 30,000 of personal property to Spouse,
  then
• 1/2 of all remaining property to Spouse
• 1/2 of all remaining property to Child or
  Descendant

• Two or more Children or their descendants
• First 30,000 of personal property to Spouse,
  then
• 1/3 of all remaining property to Spouse
• 2/3 of all remaining property to Children or
  Descendants

12
Who Does Get Your Property WITHOUT a Will?If
you are Single or widowed

• Children or their descendants surviving
• All real and personal property to Children or
  their descendants

• Parents surviving, but no Children or their
  descendants surviving
• All real and personal property to Parent(s)

13
Who Does Get Your Property WITHOUT a Will?If
you are Single or widowed

• No Children or their Descendants, No Parents, No
  Brother(s) or Sister(s) or their Descendants
  surviving
• 1/2 to Paternal Grandparents, but if not
  surviving, then to Paternal Uncles, Aunts, and
  their Descendants, and
• 1/2 to Maternal Grandparents, but if not
  surviving, then to Maternal Uncles, Aunts, or
  their Descendants

• Brother(s) or Sister(s), but no Children or their
  descendants or Parent(s) surviving
• All real and personal property to Brother(s) and
  Sister(s) or their Descendants

14
Who Does Get Your Property WITHOUT a Will?

• If there are no children, parents, grandparents,
  brothers, sisters, aunts, uncles, and no
  descendants of any of such persons, the estate
  goes to the State to be used to aid certain
  students who are residents of North Carolina and
  enrolled in public institutions of higher
  education in North Carolina.

15
How Do You Own Your Property??

• It Does Make A Difference!
• Ownership Rights
• Can you sell it?
• Can you will it?
• Can you give it away?
• How much will be in your estate at your death?

16
Types of Ownership

• Sole Ownership
• Simplest form of ownership
• One person has all of the present and future
  power to use, control, sell or otherwise dispose
  of the property
• Usually all is in your Federal Estate

17
Types of Ownership

• Consecutive Ownership
• Life Estate
• Life tenant
• Remaindermen
• Usually all in is your Federal Estate

18
Types of Ownership

• Consecutive Ownership
• Life Estate
• Life tenant
• Has right to posses use the property (collect
  income) for life
• At death of life tenant, property passes to the
  remainderman
• None of life tenancy in the Federal Estate of
  the life tenant

19
Types of Ownership

• Ownership Concurrent
• Tenancy in Common
• Two or more people own an undivided fractional
  interest in the property
• May dispose of your interest w/o permission of
  others
• Your fractional share is in your Federal Estate

20
Types of Ownership

• Ownership Concurrent
• Tenancy by the Entirety
• This is essentially right of survivorship
  ownership between a husband and wife
• This is the presumption in the NC law unless
  contrary intention is shown
• One half the value is in your Federal Estate (not
  taxed! Marital Deduction)

21
Types of Ownership

• Joint Tenancy with the Right of Survivorship
• Two or more persons may own property in this
  manner
• Bank accounts, CDs, Stocks, Bonds are types of
  property owned in this manner
• Real property CAN be owned like this
• Assumption that the entire amount of the value is
  in your Federal Estate except as proven otherwise

22
WILLSWith or without a will, THERE ARE THESE
CERTAINITES

• You ARE going to die!
• You cant take anything with you!
• Someone is going to get your STUFF!

23
Wills A will is a legal instrument by which
a person can provide for the distribution of
their property after death.
24
Wills Why have one?

• Improve on the laws of intestate distribution
• The cost of settlement is less with a will
• You can name the executor (trix)
• You can name the guardian for minors
• You can create a trust
• You MAY prevent family disputes
• You can provide opportunity for FAIR and
  EQUITABLE treatment of heirs

25
Formal requirements of a WILL in North Carolina

• Testator must be of sound mind
• Testator must be at least 18 years old
• Testator must sign at the logical end
• Testator must not be acting fraudulently or under
  undue influence
• Wills should be signed by at least two persons
  who witnessed either the signing of the will or
  the testators acknowledgement of the signature
• Holographic (hand written) wills are legal,
  they do not have to be signed by any witnesses,
  HOWEVER,
• Must be entirely written in decedents
  handwriting and signed
• Must be found among decedents personal effects
  or person entrusted with its safekeeping

26
Self Proved WILLS

• This provision calls for
• Sworn affidavits and notarization of the
  testators signature and the witnesses
  signatures when they sign as witnesses
• Can save time and money in settling the estate

27
Modifying Your Will

• DONT MAKE HANDWRITTEN CHANGES ON ORIGINAL WILL!!
• Use either
• A codicil-- changes that are executed in the same
  manner as the original will
• (Signature/witnesses/selfproved/etc)
• New Will-- merely have a new will drafted with
  the changes you desire

28
Lifetime Gifts

• A transfer without adequate consideration
• Annual Exclusion--11,000 per donee (Really only
  10,500--10,500 plus birthday present to be
  under the limit)
• Split-gift an election for husbands and wives-
  doubles annual exclusion (22,000)

29
Lifetime Gifts, Cond

• Unlimited marital deduction
• Donor is liable for gift taxes
• Gift is NOT income to the recipient (earnings
  are!)
• Basis in gift property transfers

30
Advantages of Lifetime Gifts

• May reduce federal/state estate taxes
• Reduces settlement costs
• May ease income tax problems by having earnings
  taxed in a lower tax bracket
• Can transfer an ongoing business
• Can move rapidly appreciation property out of
  your estate
• Benefit family members and charitable
  organizations while you can enjoy it

31
Disadvantages of Lifetime Gifts

• Property given is NOT available to provide you
  income
• You MUST give up control (all!)
• All property rights transfer
• Income tax disadvantage
• gift tax on fair market value (FMV)
• donors basis transfers
• special use valuation is not available

32
Where Do I Start?

• Start talking to each other!
• Mom, Dad, Son, Daughter,
• Friends
• Extension agents
• Set some GOALS!
• Seek professional help!
• Attorney
• Banker/trust officer
• CPA/tax man
• Insurance representative

33
Do Your Homework!

• Before you see your attorney/advisors
• 1. List all property, and how the titles are
  held (debts too)
• 2. List all people who may have a right to
  inherit
• 3. Have an idea of how distribution should
  take place
• 4. Decide on guardian- 1st and 2nd
• 5. Have an idea for the executor (trix), and
  an alternate (individual or corporate)

34
PERIODIC REVIEW IS ESSENTIAL

• Change in family relationships
• Divorces, marriages, deaths, births, etc
• Change in economic conditions
• Acquisition/distribution of property,
  inheritances, job change, retirements, changes in
  titles of property
• Change in the Laws
• State probate law, federal/state income tax law,
  federal/state estate tax law