Unit 8, part 1Estate Planning: What is it? What Happens When I die?Common Goals, And Other Things You Should Know!Chuck Moore, Department of Agricultural and Resource Economics, NC State UniversityAdapted for ARE 306

What is Estate Planning?

It IS:the orderly accumulation,the orderly conservation, and the orderly transfer of one’s property to the desired heirs

What is Estate Planning?

What it is NOT: only for “old” people only for the “rich” people

Its probably more important for the young family with small children, moderate investment, and sizable debt than for,

A person over 65, in retirement with grown children

Estate planning is more than making a WILLIt includes:

analysis of family situationexamination of how property is ownedwhom you want to get your “stuff”review of the family insurance programconsider gifts during life, may benefit

both giver and recipientpossible disposition of property by sale

during life for cash, installment sale, private annuity, part gift/part sale

Why Do I Need an Estate Plan?

Everyone already has one-- it’s up to you to improve one it!

To accomplish YOUR goals;To make sure what you want to

happen really does happen!Who will care for your minor children?Who will handle you affairs?Who will receive your property?

What are your Estate Planning Goals?

Some Common Family Goals:For you and your spouse to be financially

secure during retirementTo treat all children equitably (or equally?)To maintain the continuity of the businessTo help son/daughter get started in businessTo minimize estate taxes / settlement costsTo anticipate and plan for the cash needed

at estate settlement time

What cash is needed at settlement time?

Cash is needed for:1. Debts of the deceased:

existing debts, medical bills, etc.

2. Funeral Expenses3. Settlement costs:

court costs, administrator’s/executor’s fees, bond costs, attorney’s fees, etc.

4. Taxesfederal income tax, state income tax, federal

estate tax, state estate tax, gift taxes

Types of Property Transfers

SaleGiftLaws of intestate successionSurviving spouse-

Tenancy by the entiretyJoint tenancy with right of

survivorship

Who gets your Property if You Die Without A Will???

Relatives as distant as the sixth degree.

Who Does Get Your Property WITHOUT a Will?

If you are Married and survived by a spouse but no children or descendants of children surviving:

No Parent(s) Surviving

All real and personal property goes to Spouse

Parent(s) Surviving

First $50,000 of personal property to the Spouse, then: 1/2 of all remaining property

to the spouse 1/2 of all remaining property

to parent(s)

Who Does Get Your Property WITHOUT a Will?

If you are Married and Children or Descendants of children surviving:

One Child or Descendants

First $30,000 of personal property to Spouse, then:

1/2 of all remaining property to Spouse

1/2 of all remaining property to Child or Descendant

Two or more Children or their descendants

First $30,000 of personal property to Spouse, then:

1/3 of all remaining property to Spouse

2/3 of all remaining property to Children or Descendants

Who Does Get Your Property WITHOUT a Will?

If you are Single or widowed

Children or their descendants surviving

All real and personal property to Children or their descendants

Parents surviving, but no Children or their descendants surviving

All real and personal property to Parent(s)

Who Does Get Your Property WITHOUT a Will?

If you are Single or widowed Brother(s) or

Sister(s), but no Children or their descendants or Parent(s) surviving

All real and personal property to Brother(s) and Sister(s) or their Descendants

No Children or their Descendants, No Parents, No Brother(s) or Sister(s) or their Descendants surviving

1/2 to Paternal Grandparents, but if not surviving, then to Paternal Uncles, Aunts, and their Descendants, and

1/2 to Maternal Grandparents, but if not surviving, then to Maternal Uncles, Aunts, or their Descendants

Who Does Get Your Property WITHOUT a Will?

If there are no children, parents, grandparents, brothers, sisters, aunts, uncles, and no descendants of any of such persons, the estate goes to the State to be used to aid certain students who are residents of North Carolina and enrolled in public institutions of higher education in North Carolina.

How Do You Own Your Property??

It Does Make A Difference! Ownership Rights: Can you sell it?

Can you “will” it?Can you give it away?How much will be in your

estate at your death?

Types of Ownership

Sole OwnershipSimplest form of ownershipOne person has all of the present and future power to use, control, sell or otherwise dispose of the property

Usually all is in your Federal Estate

Types of Ownership

Consecutive Ownership

Life EstateLife tenantRemaindermenUsually all in is your Federal Estate

Types of Ownership

Consecutive OwnershipLife EstateLife tenant

Has right to posses & use the property (collect income) for life

At death of life tenant, property passes to the remainderman

None of “life tenancy” in the Federal Estate of the life tenant

Types of Ownership

Ownership ConcurrentTenancy in Common

Two or more people own an undivided fractional interest in the property

May dispose of “your interest” w/o permission of others

Your fractional share is in your

Federal Estate

Types of Ownership

Ownership ConcurrentTenancy by the Entirety

This is essentially “right of survivorship” ownership between a husband and wife

This is the presumption in the NC law unless contrary intention is shown

One half the value is in your Federal Estate (not taxed! Marital Deduction)

Types of Ownership

Joint Tenancy with the Right of SurvivorshipTwo or more persons may own property

in this mannerBank accounts, CDs, Stocks, Bonds are

types of property owned in this mannerReal property CAN be owned like thisAssumption that the entire amount of the

value is in your Federal Estate except as proven otherwise

WILLSWith or without a will, THERE ARE THESE

CERTAINITES:

You ARE going to die!You can’t take anything with

you!Someone is going to get your

STUFF!

Wills:

A “will” is a legal instrument by which a person can provide for the distribution of their property after death.

Wills: Why have one?

Improve on the laws of intestate distribution

The cost of settlement is less with a willYou can name the executor (trix)You can name the guardian for minorsYou can create a trustYou MAY prevent family disputesYou can provide opportunity for FAIR

and EQUITABLE treatment of heirs

Formal requirements of a WILL in North Carolina

Testator must be of sound mind Testator must be at least 18 years old Testator must sign at the logical end Testator must not be acting fraudulently or under undue

influence Wills should be signed by at least two persons who

witnessed either the signing of the will or the testator’s acknowledgement of the signature

Holographic (hand written) wills are “legal,” they do not have to be signed by any witnesses, HOWEVER, Must be entirely written in decedent’s handwriting and

signed Must be found among decedent’s personal effects or person

entrusted with its safekeeping

“Self Proved” WILLS

This provision calls for:Sworn affidavits and notarization of

the testator’s signature and the witnesses’ signatures when they sign as witnesses

Can save time and money in settling the estate

Modifying Your Will

DON’T MAKE HANDWRITTEN CHANGES ON ORIGINAL WILL!!

Use either:A codicil-- changes that are executed

in the same manner as the original will(Signature/witnesses/selfproved/etc)

New Will-- merely have a new will drafted with the changes you desire

Lifetime GiftsA transfer without adequate

considerationAnnual Exclusion--$11,000 per donee

(Really only $10,500--$10,500 plus birthday present to be under the limit)

Split-gift: an election for husbands and wives- doubles annual exclusion ($22,000)

Lifetime Gifts, Con’d

Unlimited marital deductionDonor is liable for gift taxesGift is NOT income to the

recipient (earnings are!)Basis in gift property transfers

Advantages of Lifetime Gifts

May reduce federal/state estate taxesReduces settlement costsMay ease income tax problems by having

earnings taxed in a lower tax bracketCan transfer an ongoing businessCan move rapidly appreciation property out

of your estateBenefit family members and charitable

organizations while you can enjoy it

Disadvantages of Lifetime Gifts

Property given is NOT available to provide you income

You MUST give up control (all!)All property rights transferIncome tax disadvantage

gift tax on fair market value (FMV)donor’s basis transfersspecial use valuation is not available

Where Do I Start?Start talking to each other!

Mom, Dad, Son, Daughter, FriendsExtension agents

Set some GOALS!Seek professional help!

AttorneyBanker/trust officerCPA/tax manInsurance representative

Do Your Homework!Before you see your attorney/advisors:

1. List all property, and how the titles are held (debts too)

2. List all people who may have a right to inherit

3. Have an idea of how distribution should take place

4. Decide on guardian- 1st and 2nd5. Have an idea for the executor (trix), and

an alternate (individual or corporate)

PERIODIC REVIEW IS ESSENTIAL

Change in family relationships:Divorces, marriages, deaths, births, etc

Change in economic conditionsAcquisition/distribution of property,

inheritances, job change, retirements, changes in titles of property

Change in the LawsState probate law, federal/state income tax

law, federal/state estate tax law