Today’s Lecture #22Managing Life and Health Risks

Financial Impact ofDeathDisabilityRetirement

Estate PlanningWillsTrustsGuardiansFederal Estate Taxes

What is the Financial Impact of the Death of a:

Wage Earning Adult

Married

Single With Dependents

Single With No Dependents

Non Wage Earning Adult

Married

Single With Dependents

Single With No Dependents

Child

Financial Impact of Disability

Ability to Earn Income May Cease (as in death)

Living Expenses Continue (may increase)

Exposure for Single Adults Without Dependents

Financial Impact of Retirement

What Happens to Income

What Happens to Expenses

Which Expenses Decline

Which Expenses Increase

Estate Planning

The Need for a Will

What happens if someone dies intestate

Examples of problems with wills

The Need to Appoint a Guardian for Minors

Estate Planning - Continued

TrustsTestamentaryInter VivosFamily Incentive Trusts

Life InsuranceProvides cash for estate expenses and taxesProceeds included in your estate if you own the policyProbate costs can be avoided by naming a beneficiary

Federal Estate Taxes (Simplified Version)

Gross Estate

- Allowable Deductions

- Charitable Gifts

- Marital Deduction

+ Adjusted Taxable Gifts

= Tax Computation Base

Federal Estate Taxes (Simplified Version)

Use Table A—Unified Rate Schedule for given Tax Computation Base to determine Tentative Federal Estate TaxAssuming NO state estate taxes, prior estate or gift taxes or foreign death taxes: Tentative Federal Estate Tax- Unified Credit ($780,800 for 2006 - 2008)= Federal Estate Tax Due

Federal Estate Tax Example

A businesswoman with a gross estate of $3,050,000 dies early in 2007, leaving everything to her husband. Funeral expenses and the expense of administering her estate are $50,000. She has no debts, adjusted taxable gifts, state estate taxes, etc.

Her husband owns assets of $1,050,000 separately.

Her Estate Taxes

Gross Estate 3,050,000

Allowable Deductions 50,000

Marital Deduction 3,000,000

Tax Computation Base 0

Tentative Federal Estate Tax 0

Unified Credit 780,800

Federal Estate Tax Due 0

Federal Estate Tax Example

Assume her husband dies later in 2007, leaving the estate to their children. The other assumptions are the same as with her death.

His Estate Taxes

Gross Estate (3,000,000+1,050,000) 4,050,000Allowable Deductions 50,000Marital Deduction 0Tax Computation Base 4,000,000Tentative Federal Estate Tax 1,680,800Unified Credit 780,800 Federal Estate Tax Due 900,000

Federal Estate Tax Example

This was a $ 900,000 mistake. She should have left $1,000,000 to her husband and $2,000,000 to a testamentary trust with the income to her husband and, at his death, the principal to the children.

Her Estate Taxes - Revised

Gross Estate 3,050,000Allowable Deductions 50,000Marital Deduction 1,000,000Tax Computation Base 2,000,000Tentative Federal Estate Tax 780,800 Unified Credit 780,800 Federal Estate Tax Due 0

His Estate Taxes - Revised

Gross Estate (1,000,000+1,050,000) 2,050,000

Allowable Deductions 50,000

Marital Deduction 0

Tax Computation Base 2,000,000

Tentative Federal Estate Tax 780,800

Unified Credit 780,800

Federal Estate Tax Due 0