Week 11 - Relationships & Estate Planning Flashcards
Describe what a marginal tax rate is?
The tax rate you are charged on your last dollar of income
T/F A deduction is more valuable than a credit
False; a credit is generally more valuable than a deduction. Deductions reduce your taxable income while credits directly reduce the amount of tax you owe
Should married partners both get some ‘wants’ money that they can spend as they want without answering to the other partner?
Yes
What are five ways you should handle money in relationships?
- Discuss money expectations
- Don’t bring money into arguments about other things
- Check your credit reports together twice a year
- Both partners should have a credit card in their own name
- Even when money is pooled, give each other some “free” money to spend as he or she likes
(T/F) California is not a community property state
False
What does it mean to be a community property state?
- money you earn after getting married is community property
- money you had before that you keep completely separate remains separate property (as do its earnings)
- inheritances are separate property unless you mix it with community funds
What is the happiness-income paradox?
Happiness varies directly with income but over time happiness does not increase when a country’s income increases.
Applies to time series of at least 10 years
(T/F) Negative economic growth reduces happiness more than positive growth increases it
True
Does high income improve the evaluation of life but not emotional well-being?
Yes
How can you reframe estate planning?
A way to provide from your loved ones from beyond
A final act of grace
What are the 4 ways your assets can transfer?
- By beneficiary
- By law
- By trust
- By probate (via will)
What are beneficiary forms?
Decides where your money goes if you die
Can split it several ways, designated by percentage
If you don’t fill this out, money goes according to state law.
Verify yearly!
What are the “Big 4” Legal Documents?
- Last Will and Testament (Will)
- Power of Attorney (POA)
- Health Care Proxy
- Advance Directive / Living Will
What is your will?
- where your real property goes after you die
- custodial agreement if you have children
- very important when you have kids
- wills have executor / executrix assigned. you can be this for your parents
What is it called if you die without a will?
You die “intestate”
What is the Power of Attorney document?
A very powerful doc that lets someone act as if they are you.
Can open accounts, take loans, move money
Should only give this if you need to and always limit the scope
What is a health care proxy?
You designate someone to make medical decisions for you
What is an advance directive / living will?
What you want done medically if you are incapacitated
What are the types of trust?
- revocable living trust
- spendthrift trust
- charitable trust / charitable remainder trust
- testamentary trust
- special needs trust
What is the purpose of a trust?
Trusts avoid probate and provide privacy.
They help when you reach a certain asset or complexity level or are looking for specific tax benefits
What are the terms of a trust?
- Grantor: the person whose assets are being protected (person making trust)
- trustee: individual designated to manage trust and make decisions
- beneficiary: the recipient of the trust money
- The same person can fill all three roles
(T/F) Trusts cannot be oversold by estate planning attorneys
False
How can you reduce risk in marriage financially?
Keep accounts before marriage separate from money after marriage
ex: open a new Roth IRA after getting married
(T/F) 401(k) money is “safer” from creditors than IRA money
True
What is an advanced health care directive?
Every adult needs one. Allows you to decide what medical treatments you want and can donate your organs.
For making choices when you can’t convey them
What is a revokable living trust?
This makes management of your assets easier if you become incapacitated
- Avoids probate
- Transfer legal ownership of your property to the trust
- Revokable
- Costs several hundreds to set up
What is fiduciary responsibility?
When you are legally obligated to put a client’s best interests before your own
- fee only vs fee based advisors (fee only don’t get paid by comission)
What are questions to ask a financial advisor?
- Are you a fiduciary?
- How are you being paid?
- Ask to commit in writing to acting as a fiduciary
- Provide written list of fees, commissions, or other benefits
- Can I negotiate a lower fee?
- Are you a registered investment advisor?
(T/F) Everyone with a job and a retirement plan should hire a personal financial advisor.
False
What are common ways for financial advisors to be compensated?
- An annual percentage of the client’s assets under management
- By the hour or a flat fee for specific services
- Commissions
(T/F) Typical annual financial advisor fees when charged as a percentage of assets under management may exceed what you are earning in a savings account.
True
As discussed in the video “Questions to Ask Financial Advisors,” the most important question to ask a financial advisor is?
Are you a fiduciary?
(T/F) Before calling oneself a financial advisor, one has to pass five exams and be designated by the Federal Government as a “Certified Financial Advisor.”
False
Psychologists find that when people are in a good mood their decision making is…
more spontaneous
