Financial Planning Assignment Chapter 15

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Rafay Ahmed Chapter 15 20 – Mar - 23 Answer 1) People planning is deciding who to give which asset. All heirs are not equal and giving the same thing or dollars to each heir is not necessarily treating each “equally.” One kid may really appreciate and enjoy antiques; another could care less about them. People planning is taking into consideration the personality and desires of each heir in deciding which property to give the heir. Also, be aware about the heir’s plans for the asset. If they plan to sell the asset, understand that the basis of property sold is a carryover basis [same basis as donor has] if received by gift. If inherited, the basis will be the fair market value as of date of death of decedent. Substantial difference in tax able gain may occur. Among the possible objectives to consider are: providing financial security for spouse and children (adequate funds to maintain lifestyle, for college education, etc.), arranging for professional management of assets if necessary, naming guardians for minor children, arranging for transfer of business ownership interests, providing for dependent parents or other relatives, arranging to shut down social media accounts and files, and disposing of assets equitably. Answer 2) Both Zoe and William should have wills. One major reason is that they need to name the guardian for their children in the event they die in a common accident. Further, Zoe should also have a will to protect the family when she dies. True, if William predeceases her, the house passes to her through joint tenancy and the insurance proceeds pass to her by contract (assuming that she is the named beneficiary), but then she needs to plan for the disposition of assets at her death. If she and William were to die as a result of the same accident and it was determined that William died first, she would inherit the life insurance proceeds and all other assets. But since she also dies, then the state laws will determine how the property will pass and the courts will appoint guardians for the children and for the property going to the children (minors have a Preserving Your Estate Page 1
Rafay Ahmed Chapter 15 20 – Mar - 23 limited right to receive property outright). With a will, she can express her wishes in these matters as well as specify who should receive any personal property. Both Zoe and William should review their wills on a regular basis to make sure they continue to reflect their wishes. [An additional point you could make: They should also consider more life insurance, particularly on Zoe. They both work outside of the home, and in the absence of one of their incomes, the survivor’s earnings may be insufficient to support their mortgage payments, provide a college education for the children, and possibly pay for some additional child care costs while the children are young.] Answer 4) Ethical wills are personal statements of values, blessings, life’s lessons, and hopes and dreams for the future. They are informal documents that are usually added to formal wills and read at the same time. They offer a way to share your morals, business ethics, life experiences, family stories and history, and more with future generations. They can take various forms, such as handwritten letters or journals, personal essays written on a computer, or even a digitally recorded discourse to be shared on DVD or audiotape. Most people will favor digitally recording their statements. It is their last chance to be on the screen. Of course, you have to have recording equipment such as a camera or your cell phone. Answer 5) An executor, sometimes called the decedent’s personal representative, must collect the decedent’s assets, pay debts or provide for payment of debts that are not currently due, and distribute any remaining assets to the person entitled to them by will or by the intestate succession law of the appropriate state. Because of the importance of the estate administration Preserving Your Estate Page 2
Rafay Ahmed Chapter 15 20 – Mar - 23 process, you should select executors who are not only familiar with testator’s affairs but also can effectively handle the responsibilities of being an executor. Many would argue that the executor should be a bank trust department or a professional such as a lawyer. The amount of detail work to be done can be a problem for a relative with little experience in such matters. But typically, relatives will do the work for less money than lawyers and trust departments. Answer 6) Trusts are very useful to provide professional management of property for the benefit of another. Elijah and Mila have a small estate. Their primary concern will be taking care of their children in case of death of one or both. A testamentary trust could be designed to set aside funds for the kids’ college education. The trust could be funded with the vacation home at the beach with the expectation that the trust would sell the property to provide funds for education expenses. It may be useful to put the house in a trust with the guardian as the trustee to be used to care for the kids. The guardian could sell the house if not needed as a living place for the kids. Also, a separate testamentary trust could be established to hold the antique property until Mila’s child is 18 (the age of majority) and the jewelry for Elijah’s kids until they are both 18. At that time, the property could be turned over to the children with a letter of instruction urging each child to keep the property in the family. The trusts would not be established if the children are through college and the age of majority at the time of the Elijah’s and Mila’s deaths. Preserving Your Estate Page 3
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