Deck 15: Preserving Your Estate

Question 1

Estate planning objectives. Generate a list of estate planning objectives that apply to your personal family situation. Be sure to consider the size of your potential estate as well as people planning and asset planning. Estate planning is not just about taxes.

Answer 1

Estate planning is the process of distributing and managing assets in such a manner to reduce the tax liabilities. The prime objective of estate planning is to minimize tax liability and maximize the value of assets transferred to the beneficiaries.
Objectives of estate planning:
The key objectives of estate planning are the following:
• To develop a plan to administer and distribution of assets to beneficiaries.
• To minimize the tax liability or transfer of assets.
• To maximize the amount of estate than passes to heirs and beneficiaries.
• To ensure proper and adequate amount of assets have been transferred to legal heirs.
• Estate planning should focus on the need and requirement of assets for each family member also.

Question 2

Importance of writing a will. Jerry and Candice Hogue are in their mid-30s and have two children, ages 8 and 5. They have combined annual income of $95,000 and own a house in joint tenancy with a market value of $310,000, on which they have a mortgage of $250,000. Jerry has $100,000 in group term life insurance and an individual universal life policy for $150,000. However, the Hogues haven't prepared their wills. Jerry plans to do one soon, but they think that Candice doesn't need one because the house is jointly owned. Explain why it's important for both Jerry and Candice to draft wills as soon as possible.

Answer 2

Estate planning is the process of distributing and managing assets in such a manner to reduce the tax liabilities. The prime objective of estate planning is to minimize tax liability and maximize the value of assets transferred to the beneficiaries. The key objectives of estate planning are the following:
• To develop a plan to administer and distribution of assets to beneficiaries.
• To minimize the tax liability or transfer of assets.
• To maximize the amount of estate than passes to heirs and beneficiaries.
• To ensure proper and adequate amount of assets have been transferred to legal heirs.
• Estate planning should focus on the need and requirement of assets for each family member also.
The estate planning is not complete without the preparation of sound will. A will is a document written by the person who wishes to distribute his properties after death. It is legal enforceable. The people who want to plan for his estate and prepare a will are known as testator. The combined annual income of J and C is $ 95000 and owns a house property worth $310000. They have life policy of $ 655000. However, their liability is worth $ 250000. The net assets available to the family are $ 405000. The preparation of will is necessary for the couple because it will ensure the proper distribution of assets among two children.

Question 3

Your best friend has asked you to be executor of his estate. What qualifications do you need, and would you accept the responsibility?

Answer 3

The executor is the legal representative of the decedent and takes care of the settlement process of the estate. The process involves realization of the assets, collection from banks and paying off the debt and distributing the balance as per the will. No qualification is required to be an executor, however and executor must be clearly aware of the affairs of the decedent and must be efficiently responsible to perform the job.The role of executor must be only accepted if the details of the affairs of your friend are known and that you will be in a position to perform the responsibilities of the settlement and give the required time. Based on the above criteria the role may be accepted.

Question 4

Will and last letter preparation. Prepare a basic will for yourself, using the guidelines presented in the text; also prepare your brief letter of last instructions. Note that it is wisest to use an attorney to finalize a will.

Question 5

Topics in an ethical will. State the topics you would cover in your ethical will. Would you consider recording it digitally?

Question 6

Trusts in estate planning. Preston Sauer, 48 and a widower, and Niki Lorenz, 44 and divorced, were married five years ago. They have children from their prior marriages, two children for Preston and one child for Niki. The couple's estate is valued at $1.4 million, including a house valued at $475,000, a vacation home in the mountains, investments, antique furniture that has been in Niki's family for many years, and jewelry belonging to Preston's first wife. Discuss how they could use trusts as part of their estate planning, and suggest some other ideas for them to consider when preparing their wills and related documents.

Question 7

Calculation of estate taxes. Use Worksheet 15.2. When Reuben Mosher died in 2015, he left an estate valued at $5,850,000. His trust directed distribution as follows: $20,000 to the local hospital, $160,000 to his alma mater, and the remainder to his three adult children. Death-related costs were $6,800 for funeral expenses, $40,000 paid to attorneys, $5,000 paid to accountants, and $30,000 paid to the trustee of his living trust. In addition, there were debts of $125,000. Use Exhibits 15.5 and 15.6 to calculate the federal estate tax due on his estate.

Question 8

Lifetime gifting strategy. Rosa Fuentes has accumulated substantial wealth and plans to gift some of her wealth to her son Marcos. She is considering two assets: a beach house, which cost $150,000 twenty years ago and now has a fair market value of $500,000; and shares in three mutual funds, which cost her $400,000 five years ago and now have a fair market value of $500,000. Prepare a memo advising Rosa which property to give to Marcos. In your memo, consider two scenarios: one where Marcos sells the property and one where he does not.

Question 9

Calculating federal transfer tax on estate. Henry died in 2015, leaving an estate of $23 million. Henry's wife died in 2010. In 2009, Henry gave his son property that resulted in a taxable gift of $3 million and upon which Henry paid $885,000 in transfer taxes. Henry had made no other taxable gifts during his life. His will provided a charitable bequest of $1 million to his church. Determine the federal transfer tax on Henry's estate.

Question 10

Recent estate tax developments and the need for estate planning. Summarize important recent legislation affecting estate taxes, and briefly describe the impact on estate planning. Explain why getting rid of the estate tax doesn't eliminate the need for estate planning.