Fundamentals of Estate Planning (Lesson 1) Flashcards
What is the broad definition of estate planning
- defined as the process of accumulation, management, conservation, and transfer of wealth considering legal, tax, and personal objectives
What is an effective transfer
- occurs when a persons assets are transferred to the person or institution intended by that person
What is a efficient transfer
- occurs when transfer costs are minimized consistent with the greatest assurance of effectiveness
What are some risks in failing to plan an estate
- clients property transfer wishes go unfulfilled
- transfer taxes are excessive
- transfer costs are excessive
- clients family no properly provided for financially
- insufficient liquidity to cover clients debts, taxes, and costs at death
What are the seven basic steps of the estate planning process
- understanding the clients current circumstances
- identify and select goals
- analyze their current path and any potential alternatives
- develop a comprehensive plan of transfers consistent with all information and objectives
- present your recommendation to the client
- implement the estate plan
- monitor/review the estate plan periodically and update the plan when necessary
What is a will
- is a legal document that provides the testator the opportunity to control the distribution of his property at death and thus avoid their state intestacy laws
What is dying testate mean
- dying with a valid will
What does dying intestate mean
- dying without a valid will
What is a partially intestate mean
- dying with a will that does not dispose of all property
How is real property distribubted
- based on the laws of the state in which the property is actually located
- ancillary probate will be required
What is a holographic will
- handwritten by the testator and include the material provisions of a will
- must be dated and signed by the testator but most states doe not require a witness
- valid in most states
What is a nuncupative will
- oral
- dying declarations made before a sufficient number of witnesses
- some states only allow tangible property to pass this way and dollar amount may be limited
- not valid in most states
What is a statutory will
- drawn by an attorney and comply with the statutes for wills of the domiciliary state
- must be typed, signed (usually a witness is required), and be signed by the witness
What are reciprocal wills
- two individuals will execute identical wills that leave all assets to the other person
What is a bequest clause of a will
- directs the distribution of specific property, whether cash, tangible personal property, or real estate
What is a residuary clause of a will
- directs the transfer of the balance of any assets not previously distributed to particular individuals or to charitable institutions through a bequest clause
- without a residuary clause a probate estate may have intestate assets which will pass under the laws of intestacy
What is a guardianship clause of a will
- allows the testator to identify the best person to raise any minor children or legal dependents
What is an attestation clause of a will
- a witness clause
- a provision at the end of the will that is signed by at least two qualified witnesses who authenticate the document is the testators will bearing the testators signature and that the testator was competent and not under any kind of duress at the time the will was executed
What is a self proving clause of a will
- involves the notary signing a declaration that he witnessed the testator and witness sign the will
What is a simultaneous death clause of a will
- establishes a presumption regarding which individuals died first in the event that both individuals die in the same event
What is a survivorship clause of a will
- is an alternative to and generally eliminates the need for a simultaneous death clause
- requires the beneficiary must actually survive the decedent for a specific period of time to receive the identified inheritance or bequest
What is a disclaimer clause of a will
- functions to remind any heirs that they can disclaim a bequest while still allowing the testator to direct the distribution of disclaimed property
What are the requirements of a disclaimer to be valid
- the disclaiming party cannot benefit from the property
- nor direct any future interest in the property
- disclaiming party must disclaim the property within nine months of the decedents date of death
- the disclaimer must be in writing
What is a contingent legatee clause of a will
- may use one of two methods, per capita or per stirpes, to determine how the proceeds will be divided with relation to the deceased heirs and their descendants
What is per stirpes
- by representation or by the roots
- directs that the grandchildren stand in for their deceased parent and get that share to split among themselves
What is per capita
- equal shares based upon the number of living beneficiaries
- heirs of the same generation get an equal share if they are the only heirs
What is per capita at each generation
- heirs of the same generation always get an equal share
- typically one of the more preferred methods of leaving assets to heirs
What is no contest clause of a will
- called an in terrorem clause
- attempts to discourage disappointed heirs from contesting the will by substantially decreasing or eliminating a bequest to them if they file a formal, legal contest to the will
What is a codicil
- supplement to a will
- may be executed like a statutory will, which must be signed, properly witnessed, and notarized as discussed previously
What is a side instruction letter of a will
- details the testators wishes regarding the disposition of specific tangible possessions as well as funeral and burial wishes
- exists separately from the will
What is a power of attorney
- is a legal document that authorizes a trusted person to act on ones behalf
- gives the right to one person, the attorney in fact, to act in the place of the other person, the principal
What is a general power of attorney
- is the broadest power a person can give another
- person will be able to act in the principals place as though he is the principal
- GPOA can be revoked by the principal by giving notice usually with a revocation form, to the agent and is automatically revoked at the principals death
How can a GPOA be revoked
- by the principal giving notice usually with a revocation form, to the agent, and is automatically revoked at the principals death
What happens if the agent of a POA dies before the principal and is holding a GPOA over assets of the principal
- the agents gross estate will include the FMV of the principals assets over which the agent held the power of appointment regardless of whether the power has been invoked
What is a Power of Attorney
- a power usually included in a trust or power of attorney allowing the power holder to direct assets to another
What is a limited power of attorney
- referred to as a special power of attorney gives the agent very specific detailed powers
- powers may be extremely narrow only authorizing the agent to act on a specific matter
What is a durable power of attorney
- the agents power does not expire upon the principals incapacity or disability but rather expires only at the principals death
What is a springing power of attorney
- the agents power springs into existence upon some defined event or determination
- in this case even though the principal has signed the power of attorney the agent cannot exercise the powers granted to him until the specific event occurs