Chapter 6 - Full Chapter 1

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Apr 3, 2024

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2/24/24, 1:31 PM Overview of Estate Planning Compilation https://onlinecampus.bu.edu/bbcswebdav/pid-10289638-dt-content-rid-67179008_1/courses/00cwr_metof106_o1/course/EP01_overvwEstatePlanni… 1/47 Overview of Estate Planning Compilation The following are all pages from this module linked as a single file suitable for printing or saving as a PDF for offline viewing. Please note that this compilation will not include popup pages. Animations, buttons, links, or images may not work.

2/24/24, 1:31 PM Overview of Estate Planning Compilation https://onlinecampus.bu.edu/bbcswebdav/pid-10289638-dt-content-rid-67179008_1/courses/00cwr_metof106_o1/course/EP01_overvwEstatePlanni… 2/47 Overview of Estate Planning Any property in which you have ownership or an interest constitutes your estate. Financial planning deals with the accumulation of wealth and preservation of your estate. Estate planning provides for personal protection and financial security for an individual and his or her family by providing for the care and support of surviving family members and others, planning for incapacity, and ensuring that estate assets are properly distributed upon death. However, all of this planning and saving may accomplish little if the estate is subject to significant legal costs, administrative expenses, and taxes, or is transferred to the wrong individuals. Knowledge of estate planning laws, estate planning techniques, and tax reduction strategies is critically important for financial planners who wish to assist their clients with their estate planning needs. To ensure that you have a solid understanding of the importance of estate planning and the steps involved in the estate planning process, the following lessons will be covered in this module: Introduction to Estate Planning Fiduciaries Overview of Trusts Overview of Transfer Tax Lesson Objectives The Overview of Estate Planning module will give you a broad overview of the concepts, terminology, process, techniques, and tools of estate planning. Upon completion of this module you should be able to: Explain the importance of estate planning Recognize how the process of estate planning is similar to the financial planning process Identify fiduciaries and their responsibilities Understand the basic elements of trusts, and Explain the transfer tax system and common goals for minimizing gift and estate taxes.

2/24/24, 1:31 PM Overview of Estate Planning Compilation https://onlinecampus.bu.edu/bbcswebdav/pid-10289638-dt-content-rid-67179008_1/courses/00cwr_metof106_o1/course/EP01_overvwEstatePlanni… 3/47 Introduction to Estate Planning Estate planning is a process which utilizes financial and legal tools, strategies and techniques to accomplish specific goals and common estate planning objectives that many people may have. For example, most people want their property interests passed to rightful beneficiaries at their deaths. They want to care for and provide financial support for themselves during their lifetime and their family in the event of incapacity and death. They may want to minimize transfer taxes and plan for the continuity of income, preserve their assets and protect them from creditors, and manage their assets through trusts in a tax-efficient manner. They may also wish to fulfill charitable objectives and plan for the disposition of their business at retirement, disability or death. All of these different estate planning objectives can be accomplished by an estate planning team which includes financial planners. A financial planner must coordinate his or her efforts with attorneys, trust officers, accountants, life insurance agents, and other advisors to help clients accomplish their financial and personal goals. To ensure that you have a solid introduction to estate planning, the following topics will be covered in this lesson: Reasons to Plan an Estate Reluctance to Plan an Estate Lifetime Planning Estate Planning Process Estate Planning Team Selecting an Attorney Estate Planning Documents Upon completion of this lesson, you should be able to: Describe the benefits of estate planning Understand the factors that contribute to a client's reluctance to plan his estate Associate estate planning with various stages of financial life cycle planning Identify common considerations that determine the selection of estate planning strategies, and Explain the role of the financial planners, attorneys, and other advisors in the estate planning process

2/24/24, 1:31 PM Overview of Estate Planning Compilation https://onlinecampus.bu.edu/bbcswebdav/pid-10289638-dt-content-rid-67179008_1/courses/00cwr_metof106_o1/course/EP01_overvwEstatePlanni… 4/47 Reasons to Plan an Estate An estate is defined as the rights, titles, or interests that a person, living or deceased, has in property. The manner in which assets are owned determines how they will pass at death and to whom they will pass. Without proper planning, property could pass to the wrong person in the wrong manner. If someone dies without a will (intestate) the property will pass according to the state laws. A simple will is often executed to pass solely owned property to others, and this instrument, along with documents for incapacity planning purposes, may be all the legal documents that someone with a simple estate may need. However there are many different reasons to plan an estate, and people who own substantial assets may need more comprehensive planning. The following are some reasons why an individual should have an estate plan: To designate the person(s) who will manage affairs and assets in case of a legal incapacity or death To provide financial security and protection to family members. To control the passing of property interests to desired heirs. An estate plan can transfer particular assets to named beneficiaries, bequeath general legacies or sums of money to beneficiaries, and determine how and when the heirs may use the assets bequeathed to them. To provide a stream of income to the surviving spouse and minor children during the probate process. If an estate is properly planned, in most cases will contests and other intra-family disputes can be avoided. Trusts, guardianships, and conservatorships, all part of estate planning, can ensure that provisions have been made for minor children. Additionally, proper estate planning can ensure that family assets are preserved and managed for the benefit of the children and their needs, and for other heirs as well. To provide income in the event of a disability, or in other emergency situations. For example, a stream of income for the lifetime of the surviving spouse; provide for the payment of medical expenses or other debts; and provide for the benefit and welfare of any minor children or other family members. Estate planning can minimize the time and expenses associated with the probate process and reduce or even eliminate probate expenses through the proper titling of assets or trusts. Wealthier individuals may have additional tax and nontax reasons to obtain an estate plan: Proper estate planning can minimize, or in some cases eliminate, taxes such as income, estate, gift and generation skipping transfer taxes. By doing so, the client will be leaving a greater amount of property to their family members or other heirs.

2/24/24, 1:31 PM Overview of Estate Planning Compilation https://onlinecampus.bu.edu/bbcswebdav/pid-10289638-dt-content-rid-67179008_1/courses/00cwr_metof106_o1/course/EP01_overvwEstatePlanni… 5/47 If the client owns a business, proper estate planning can lay the foundation for a business succession plan or the sale of the company. Proper estate planning is necessary to guarantee that the person's estate is liquid to pay for post- mortem costs such as debts, estate administration fees and taxes. If the estate has insufficient liquidity, major illiquid assets such as real estate or assets that have sentimental value for family members may have to be sold to satisfy creditors, pay estate taxes, and pay for other administrative expenses. To achieve charitable objectives through tax-efficient measures To provide for professional management of property interests and investments through trusts To shift income to family members in a lower tax bracket Although people may share common estate planning goals, each person has distinctive financial, tax and personal circumstances that require a customized estate plan. Estate plans need to be designed with built in flexibility to accommodate changes if future circumstances, laws, and estate planning objectives change. There are many personal factors can affect an existing estate plan such as: Health Death or birth/adoption of family members Remarriage or divorce Financial factors that may impact an estate plan include: Acquisitions or loss of property Changes in property values Taxes Investment performance Inheritances Change in tax law Estate plans need to be reviewed every year or when personal or financial circumstances change to ensure that personal estate planning objectives continue to be met.

2/24/24, 1:31 PM Overview of Estate Planning Compilation https://onlinecampus.bu.edu/bbcswebdav/pid-10289638-dt-content-rid-67179008_1/courses/00cwr_metof106_o1/course/EP01_overvwEstatePlanni… 6/47 Reluctance to Plan an Estate There are several reasons why people may not have estate plans or may decide to delay engaging in the estate planning process. These reasons include: The need to accept mortality or the possibility of becoming incapacitated. The inevitability of death is something that people have not psychologically come to terms with. People assume that someone else will handle the distribution of their property after their death. Many people are aware of the potential for family problems resulting from their planning. For example, hurt feelings, will contests, family arguments over particular assets, and delays and disputes over estate distribution, executor's commissions and probate-related fees all have a detrimental effect on the planning of an estate. Many people are so involved with their families and business affairs that they do not give much thought to what will happen when they die. They may be aware of the need for estate planning, but they will "deal with it later". The process of estate planning requires a significant time commitment to implement. For example, you will need to decide upon the best people to fill fiduciary roles, the ultimate distribution of your property interests, how to plan for incapacity and end of life care, and which tools and planning techniques you should implement to minimize transfer taxes and accomplish estate planning goals. Time is also needed to meet with attorneys and other members of the estate planning team, and to implement the action items outlined in the final plan. There is an expense involved in visiting with an attorney and having documents drafted. For example, there are legal fees associated with the creation of trust documents, power of attorney documents, the will, and other legal documents. Many people are geographically mobile. Because of their frequent relocations, they do not think much about planning their estates. A person who lives in three or four states in a ten-year period may not have a concept of permanence. Since state laws may affect estate planning outcomes, people who move frequently may decide not to engage in planning until they move to a permanent location. Estate planning is a process that needs to be monitored and reviewed for changes in family circumstances and as tax laws change. These periodic reviews will require additional time and legal expenses which are needed to keep the estate plan current. The fear that they will be giving up control of their assets.

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