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Estate Planning for Dummies


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Table of Contents

Introduction 1

Who Needs This Book 1

How to Use This Book 2

How This Book is Organized 2

Part I: Estate Planning Fundamentals 2

Part II: Where There's a Will, There's a Way 3

Part III: Matters of Trust 4

Part IV: Life, Death, and Taxes 4

Part V: Estate Planning for Family Businesses 5

Part VI: Crafting a Comprehensive Estate Plan 5

Part VII: The Part of Tens 6

Icons Used in This Book 6

Part I: Estate Planning Fundamentals 7 Chapter 1: Congratulations: You Have an Estate! 9

What Is an Estate? 10

The basics: Definitions and terminology 10

Property types 13

Types of property interest 14

Why You Need to Plan Your Estate 17

Why Your Estate-Planning Goals Are Different from Your Neighbors' 19

Why Estate-Planning Lingo Is Not Really a Foreign Language 21

The Critical Path Method to Planning Your Estate 22

Getting Help with Your Estate Planning 24

How to make sure your team of advisers is "FAIL" safe 25

Working with Certified Financial Planners (CFPs) and other financial planning professionals 26

Knowing what to expect from your accountant for your estate planning 28

Your insurance agent and your estate 28

Working with your attorney 29

Chapter 2: Bean Counting - Figuring Out What You're Worth 31

Calculating the Value of Your Real Property 32

Your home on the range 32

That timeshare in Timbuktu and other hideaways 33

Your investments as a landlord 33

Your real estate partnerships 33

Calculating the Value of Everything Else: Your Personal Property 34

Tangible personal property - items you can touch 34

Intangible personal property - bank accounts, stocks and bonds 36

Dead Reckoning: Subtracting Your Debts from Your Assets 37

Giving Gifts Throughout Your Life to Reduce Your Estate's Value 38

Calculating Adjustments in Your Estate's Value Due to Life Changes 39

Part II: Where There's a Will, There's a Way 41 Chapter 3: Understanding the Basics of Wills 43

Planning for Your Will 44

Getting to Know the Different Types of Wills 45

Simple wills 46

Other types of wills 47

Choosing Your Will's Contents 48

Opening clauses 49

Giving clauses 49

Ending clauses 54

Safeguarding Your Will 54

Changing, Amending, and Revoking Your Will 55

Why you may need to change your will when something happens 56

Ways to change your will 57

Protecting Your Loved Ones from Your Unloved Ones 58

Figuring Out Your Will Status 59

Testacy: When you've nailed everything down 59

Intestacy: When you die with zero "willpower" 60

Partial intestacy: When the vultures start circling 61

Chapter 4: Tied Hands and Helping Hands: What You Can and Can't Do with Your Will 63

Making Your Peace with Statutes That Affect Your Will 64

Identifying Statutes that Your Will Can Change 64

Abatement - there's not enough in the cupboard for everyone 65

Ademption - some property is missing 67

Antilapse - someone dies before you do 68

Divorce - high noon at Splitsville 68

Simultaneous death - sorry, but we have to talk about it 69

Living (and Dying) with the Laws that Your Will Can't Change 70

Community property 71

Spousal elective shares 72

Homestead allowance - keeping a house for kiddies and spouse 73

Homestead exemption - how the law protects your house from your creditors 74

Exempt property - how the law protects your personal property from creditors 74

Family allowance - drawing from your estate to protect your family 75

Oops! Taking care of VIPs who aren't in the will 76

Chapter 5: Probate: Top of the Ninth for Your Estate 77

Probing Probate: What You Should Know 77

The probate process 78

Some complicating factors to the probate process 81

Knowing the Good, the Bad, and the Ugly of Probate 82

Probate: The good side 83

Probate: The bad and downright ugly side 84

Streamlining the Probate Process 86

Appointing Your Person In Charge 86

Identifying your personal representative's role 87

Deciding who's eligible to be your personal representative 90

Avoiding the pitfalls 91

Paying your personal representative 92

Thinking Things Through When Someone Asks You To Be a Personal Rep 93

Chapter 6: Dodging Probate: Saving Time and Money with a Will Substitute 95

Understanding Will Substitutes 95

Sorting through the List of Will Substitutes 97

Figuring out joint tenancy 97

Setting up a living trust 102

Focusing on the costs of living trusts 107

Identifying Some Less Common but Worthy Will Substitutes 108

Tenancy by the entirety - the spouse's option 108

Joint tenancy bank accounts 109

Savings bonds 109

PODs - payable on death accounts 110

Deeds 111

IRAs and your other retirement accounts 111

Part III: Matters of Trust 113 Chapter 7: Understanding Trusts 115

Defining Trusts, Avoiding Hype 115

Shazam! An oversimplified definition of trusts 116

Adding a bit of complexity with an ingredient list 116

Adding some lawyer talk to the definition 117

Attaching all the bells and whistles to a trust 118

Trust Power - Making Your Beneficiaries Smile 120

Avoiding taxes 121

Avoiding probate 121

Protecting your estate (and your beneficiary's or beneficiaries' estate) 122

Providing funds for educational purposes 122

Benefiting charities and institutions 123

Sorting Out Trusts - from Here to Eternity 123

Trusts for when you're alive versus when you're gone 123

Changing your mind: Revocable and irrevocable trusts 127

Chapter 8: Trusts You May Want to Trust - or Not 129

Saying "I Do" to a Marriage-Oriented Trust 129

Marital deduction and QTIP trusts 130

Bypass trusts 131

Considering Charitable Trusts 132

Charitable lead trust - everything has its limits! 132

Charitable remainder trust 133

Protecting Your Estate With Protective Trusts 134

Spendthrift trusts - "you get it when I say so!" 134

Supplemental needs and special needs trusts - keep the "recovery agents" away 134

Educational trusts - "you're going to use it only for school!" 136

Minor's trusts - "I'm thinking about your future!" 136

GRAT, GRUT, GRIT: Chewing over the Grantor-Retained Trusts 137

Sidestepping Estate Taxes with an Irrevocable Life Insurance Trust 138

Chapter 9: Working a Trust Into Your Estate Plan 141

Linking Your Estate-Related Tax Planning with Your Trust Planning 142

Looking at Your Goals and Objectives for Setting up Trusts 142

Deciding What Property to Place in Trust 144

Linking Your Estate-Planning and Trust Goals with Specific Property 144

Stepping Back and Comparing Both Trust and Nontrust Options 145

Weighing Trust Tradeoffs 146

Finalizing Your Choices - Dotting I's and Crossing T's 148

Part IV: Life, Death, and Taxes 149 Chapter 10: Preparing for the Tug of War with the Taxman 151

Navigating through the Bermuda Triangle of Federal Taxes 151

The gift tax 152

The generation skipping transfer tax, or GSTT 153

The estate (death) tax 153

Deciphering State Inheritance and Estate Taxes 154

Protecting Your Property (Including Home Sweet Home!) from the Estate Recovery Act 156

Chapter 11: The Gift Tax: Isn't Giving a Gift Enough? 159

Giving a Gift: The Basics 160

There are gifts - and there are taxable gifts 160

Not all gifts are taxable 162

Looking Inside Three Common Gift Tax Situations 164

Example No 1: $5,000 to darling daughter 164

Example No 2: $5,000 each to all three adorable kids 164

Example No 3: $21,000 to the fairest of them all 165

Entering the Twilight Zone of Credits and Exclusions 166

Hold on - more complications ahead! 167

Smoothing over the 2004 wrinkle 168

Gift Splitting 170

Valuing Gifts 171

Fair market value 171

Filing Gift Tax Forms 175

Chapter 12: Skipping Around the Generation Skipping Transfer Tax 177

The GSTT: A Parable 177

Taking Comfort from the Exemption: A Cool Million and Rising 179

Playing Hopscotch: Understanding Generation-Skipping Transfers 180

Knowing the rules for skipping generations (so you don't break 'em) 181

Clarifying the generations and confusing complications 182

Making Sense of GSTT Tax Rates 183

Looking Deeper into Generation-Skipping Transfers and the GSTT 184

Scanning over the skip types 184

Direct skips 185

Indirect skips 185

Chapter 13: Paying or Not Paying the Death Tax: That's the Question 187

Discovering Federal Estate Tax Basics 187

Figuring out how the federal estate tax works 188

Using your exemption to sidestep the government 188

Looking at federal estate rates (specifically the highest rates) 191

Tracking a moving target 192

Digging Down to the Bottom Line 192

Figuring out your gross estate's value 193

Calculating deductions from your gross estate 194

Going for extra credit 198

Choosing How to Pay Estate Taxes 198

Filing the Estate Tax Return 199

Stepping Up to the Plate and Filling the Bases (Basis) 199

Chapter 14: Planning to Minimize All Your Estate-Related Taxes 201

Figuring Out Where You Are Today 201

Determining your estate's value 202

Totaling your gifts to date 202

Checking the tax tables 203

Looking out for tax traps 204

Fortune Telling: Picturing the Future as Best You Can 205

Predicting the future 206

Looking at several scenarios for the federal estate tax 207

Blending your present strategies into the future 209

Considering the impact of death, divorce, and other bum breaks 210

Carefully comparing, then betting the house and rolling the dice 210

Hmmm Deciding on Strategies and Tradeoffs 211

Gifting versus leaving property as part of your estate 212

Imagining the ups and downs of leaving your estate to your spouse 214

Avoiding estate taxes on your ife insurance proceeds 215

Using gifts below the exclusion amount 215

Double dipping on tax savings from charitable gifts 215

Putting Together a Comprehensive Estate-Related Tax Plan 216

Fixing the holes 216

Starting on that gift giving 216

Setting up trusts if necessary 217

Planning ahead for property transfers upon your death 217

Part V: Estate Planning for Family Businesses 219 Chapter 15: Grasping the Basics of Estate Planning for Family Businesses 221

Defining "Family Business" 221

Making the Critical Estate-Related Decisions Upfront 223

Choosing to stay or go 223

Adjusting the family business ownership picture 224

Deciding on your succession plan's details 226

How the Form of Business Ownership Affects Your Estate 227

Sole ownership - everything is mine! 227

Partnership - we're in the business together 229

Corporation - limiting my liability 230

Limited partnership - a mix of corporation and partnership 231

Limited liability company - the new kid on the block 232

Calculating the Value of Your Family Business 233

Book value 234

Discounted cash flow 234

Sales multiple 234

Liquidation value 234

Getting to the bottom line - with expert help 235

Dealing with Business Evolution - Stuff Darwin Never Imagined 236

Chapter 16: Transferring Ownership and Paying Estate Taxes in a Family Business 239

Exploring the Ins and Outs of Buy-Sell Agreements 240

Looking at a typical buy-sell agreement 241

Funding the buy-sell agreement 242

Selecting the right form of buy-sell agreement 243

Thinking through your buy-sell choices 246

Transferring Ownership to a Family Member 247

Identifying Estate Tax Considerations for Family Businesses 248

Watching as the family-owned business exemption sunsets 250

Doing it Moe's way: Spread out! 251

Valuing real estate for estate tax purposes 251

Shopping for more discounts at the family-business store 252

Part VI: Crafting a Comprehensive Estate Plan 255 Chapter 17: Factoring Insurance into Your Estate Plan 257

Using Insurance to Protect Your Assets 258

Protecting what you've already got 259

Insuring the future: Protecting what you hope to acquire 260

Shielding the gifts you hope to leave behind 261

Sorting Out the Kinds of Coverage You Need 263

Life insurance 264

Health insurance 266

Disability income insurance 267

Long-term care insurance 269

Automobile insurance 269

Homeowner's or renter's insurance 270

Umbrella liability insurance 270

Looking Closer at Life Insurance 271

Whole life insurance 271

Term insurance - no cash value while you're alive 272

Business-provided life insurance 273

Understanding Life Insurance Tax Implications 274

Asking the Right Estate-Related Questions About Insurance 276

Chapter 18: Connecting Your Retirement Funds to Your Estate Plans 279

Deciding What Your Nest Eggs Are Really For 280

Strategy No 1: Satisfy your needs and plop the leftovers away 281

Strategy No 2: Walk the balance beam between retirement needs and estate plans 281

Linking Retirement and Estate Planning: A Tough Job, But You Can Do It 282

Tapping into a traditional pension plan 282

Managing your IRA accounts 286

Estate planning for 401(k) and similar plans 288

Social Security and your estate planning 289

Chapter 19: Estate Planning in Exceptional Situations 295

Working a Divorce into the Plan 296

Divvying up the stuff - and ignoring the estate plan? 296

Considering children and divorce 301

Planning for Unmarried Relationships 304

Untangling the Complexities of Guardianship and Your Estate 305

Guardianship for your children 306

Guardianship for yourself 307

Doomsday Stuff: Factoring Incompetence and Death into Your Plan 307

A durable power of attorney - your personal representative while you're alive 308

The living will - giving directions when you can't communicate 309

Realizing why the court appoints a guardian when you're incompetent 310

Taking Care of Fluffy, Spot, and Bootsie 312

Part VII: The Part of Tens 315 Chapter 20: Ten Questions to Get You Rolling on Your Estate Plan 317

Why Do I Even Need an Estate Plan? 317

If I Need an Estate Plan, Why Doesn't Everyone Have One? 318

What Are My Top Three Estate-Planning Goals? 318

Whom Do I Want to Take Care Of? 319

What's the Best Way to Protect My Children? 319

How Much Help Do I Need? 320

What's My Budget for Estate Planning? 320

Does My Attorney Have the Right Experience? 320

Who Are My Confidants about These Plans? 321

How Do I Know I Can Do My Estate Plan? 321

Chapter 21: Avoiding Ten Common Mistakes and Problems in Your Will 323

Forgetting to Review Your Will Annually 323

Forgetting to Include a Residuary ("Leftovers") Clause 324

Forgetting the "Just in Case" Contingencies 324

Sticking With Your Personal Representative When You Really Need a Substitute 325

Forgetting About All Those Pesky Statutes that Affect Wills 325

Getting Too Precise in Your Will 326

Using Your Beneficiaries as Will Witnesses 326

Failing to Factor in the Personal Side 327

Keeping Important Information From Your Attorney 327

Rushing Through Your Will 328

Chapter 22: Ten Estate-Planning Resources on the Internet 329

Smartmoney com 330

Estateretirementplanning com 330

Estateplanning com 330

Savewealth com 330

Moneycentral msn com 331

Estateplanforyou com 331

Law freeadvice com 331

Actec org 332

Nolo com 332

Nafep com 332

Index 333

About the Author

N. Brian Caverly, Esq., is an attorney-at-law emphasizing estate planning and elder law. Jordan S. Simon is Vice President of Asset Management at Venture West, a Tucson-based investment firm.

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