1. WEALTH CARE KIT
SM
Estate Planning
A website built by the National Endowment for Financial Education dedicated to your financial well-being.

2. W E A LT H C A R E K I T: E s t a t e P l a n n i n g
You may not own weigh any potential difficulties. between spouses is that assets
a 50-room,
Estate planning can: automatically pass to the surviving
• Ensure that your estate will be spouse outside of probate. But this
100 acre estate,
distributed according to your arrangement may not always be the
wishes. wisest one, depending on your
but you have
• Minimize taxes and expenses desires or the family’s needs. In
associated with that distribution. some cases, it can result in
an estate
• Provide adequate financial unnecessary taxation, for example,
resources to pay for any estate taxes or prevent other persons (such as a
nonetheless.
without forcing the sale of assets. friend or child) from receiving
• Minimize or eliminate probate. desired assets. A financial planner
• Provide for the financial support or estate planning expert can help
And it is probably larger than you and guardianship of your children. you choose the best way to title
realize. An estate incorporates • Minimize or eliminate potential your assets.
everything you own. Your home, family conflicts over your
possessions. Once you’ve identified ownership
cars, jewelry, and other tangible of your assets and liabilities,
possessions probably come to mind • Organize the distribution of your
estate to make it emotionally and determine to whom you want to
first. But an estate also may include distribute your assets—from stocks
insurance policies, savings and financially easier on your heirs.
• Provide for effective management and bonds to your golf clubs. Don’t
checking accounts, a small business, overlook designating primary and
and retirement funds. of the estate.
• Outline your preferred treatment contingent beneficiaries for IRAs
You also have an estate plan, should you become physically or and qualified retirement accounts,
whether you realize it or not. The mentally incapacitated. such as 401(k), profit sharing, and
question is, do you have a planned • Ensure the successful transfer pension plans.
estate? Are your financial and of a closely held business interest. A useful document to include is a
personal interests organized so letter of instructions. It’s not a legal
that, upon your death, your wishes DETERMINING THE VALUE document, but it provides the
will be met with a minimum of OF YOUR ESTATE executor of your estate with
inconvenience and expense to your Before you can effectively plan your information and instructions about
estate and family? Or, because of the estate, you have to determine what’s your personal and financial matters.
failure to plan, will the state dictate in it. Your net estate is a snapshot of It lists the location of financial
the distribution of your assets? the current financial health of your accounts and important papers,
estate: your total assets minus your potential death benefits, funeral
Be aware that an estate plan
liabilities. The checklist of assets instructions, assets and liabilities,
involves more than just writing a
and liabilities on page 4 should give and so on. The letter can help family
will. A will is an important estate
you a good start. Gathering and members at a time of great stress.
planning document. Yet a simple
organizing your financial records
will under which you leave every-
thing to your spouse may actually
will save you time and money when EVERYONE NEEDS A WILL
you consult with a professional While a will may not provide
end up costing you unnecessary
advisor. sufficient estate planning, it
estate taxes.
certainly is a document that most
Beyond determining what assets you adults should have. If you die
People are understandably
have, it’s important to determine without a will—known as dying
reluctant to plan their estate.
how the assets are owned. People “intestate”— the distribution of
Estate planning is complex and
frequently overlook the issue of assets may go against your wishes.
time consuming, and it means
asset ownership. In marriages, Yet 50 percent of Americans die
confronting the inevitability of
many assets often are owned jointly without a will.
death and potential family conflicts.
with right of survivorship. One
But the benefits of planning far out- A will directs which assets you want
advantage of this arrangement distributed to whom. If you want a
1 © 2001, 2005, 2009
National Endowment for Financial Education

3. “
W E A LT H C A R E K I T: E s t a t e P l a n n i n g
portion of your estate to go to a “No problem,” you say confidently.
specific charity, but you die without “My estate won’t be worth close to
a will designating that charity, your $1.5 million!”
wish won’t be fulfilled. A will also
can direct what assets are to be used ONE OF THE BIG Don’t be too sure. With appreciated
to pay for taxes and final expenses, home values, sizable retirement
ADVANTAGES OF TRUSTS
plans, and the death benefits of life
name guardians for your children
and personal representatives
(executors) for your estate, and
establish trusts for dependents.
It’s critical to have a valid, up-to-
date will. Estate planning laws and
personal circumstances and desires
IS THAT THEY CAN BE
TAILORED TO MEET
SPECIFIC ESTATE
PLANNING NEEDS.
“ insurance policies, you may be
closer to that threshold than you
realize. Furthermore, your estate
will likely grow in value over time,
perhaps eventually passing
the threshold.
change. Review your will if you Space prevents an exhaustive
haven’t done so lately, especially if list of strategies for reducing or
the will was written before 1982 eliminating potential estate taxes,
(due to tax law changes). Also, what representative will act on your
behalf. Powers of attorney can but a few to consider are:
a will can and cannot do and how to • Gifting present interest property
execute a valid will varies from state be either broad or limited, and for
an indefinite or specific length of during your lifetime (up to
to state, so if you have recently $11,000 a year per recipient free
moved, the will should be reviewed time. In some cases, you may want
to consider a living trust instead of tax, $22,000 jointly with the
by an experienced local attorney. consent of your spouse); these
of, or in addition to, a durable
Choose the executor of your estate power. amounts are indexed for inflation,
carefully. Typically, a friend or but will only increase in $1,000
relative may be fine. But the execu- A living will is a statement of your increments, and thus may not
tor has important financial and personal wishes as to what life- change every year
personal duties to carry out, sustaining medical treatment you • Paying for medical services or
including collecting and reviewing want or don’t want should you college tuition directly to the
all financial records, seeing that become comatose and terminally ill. institution for the recipient
probate forms are filed, preparing Along with a living will, a medical • Donating to charities (unlimited)
estate and income tax returns, and durable power of attorney and/or a • Establishing an irrevocable
distributing assets according to health-care proxy add additional trust for appreciating assets or
your wishes. Naming someone security. These documents life insurance
who is trustworthy and competent designate a representative to make • Funding a 529 plan for
is essential. medical decisions on your behalf. college savings
OTHER IMPORTANT ESTATE AND GIFT TAXES TRUSTS
DOCUMENTS Now that you’ve determined your Although many estates don’t need
Besides a will, you should have at estate’s value and arranged for the trusts, trusts can benefit more
least these other basic estate preparation of your will and other estates than you might think. A
planning documents: a durable important estate planning docu- trust is a legal arrangement in
power of attorney, a living will, ments, let’s turn our attention to the which a person (the grantor)
and a medical durable power of subject of estate taxes. transfers the ownership of assets
attorney and/or a health-care proxy. (real property, money, insurance,
In 2005, you can own an estate with etc.) to another person, persons, or
These tools can be vital in adminis- a value of up to $1.5 million and owe
tering and preserving your estate. organization (trustee) to hold for
no estate taxes at death. In 2006, the benefit of the grantor’s named
Some of this terminology varies the estate tax exemption jumps to
from state to state. beneficiaries.
$2 million and increases to $3.5
A durable power of attorney is a million by 2009. Any portion of There are many types of trusts, but,
legal document ensuring that if you your taxable estate above this in general, a trust can be operative
can no longer manage your financial threshold is taxed at a minimum of while the grantor is alive (a living
and personal affairs, a designated 45 percent to the maximum of 47 trust or inter vivos trust) or
percent for 2005 (the rate declines becomes operative at death
until 2010). (testamentary trust).
2 © 2001, 2005, 2009
National Endowment for Financial Education

4. W E A LT H C A R E K I T: E s t a t e P l a n n i n g
A living trust can be revocable reaches a certain age. Other uses for PROFESSIONAL ADVICE
or irrevocable. A revocable trust trusts include: Trusts are complex creations, and
allows the grantor to retain total • If you have a disabled child, or they can be expensive to establish
control of the trust assets. This children of different economic and maintain. An attorney
doesn’t provide income or estate circumstances, a trust can be should be involved to ensure that
tax advantages, but it can reduce established to enable the trustee the trust is properly established and
probate costs, avoid publicity, and to distribute trust assets according managed to avoid any legal or tax
maintain some control of the assets to the needs of the beneficiaries. complications.
even after death.
• A trust can ensure that your Choosing an individual or a
Under an irrevocable trust, assets are professionally corporation to act as a trustee is
the grantor or creator of the trust managed should you become an important consideration.
gives up permanent control of the incapable of managing your Beyond the issues of trust and
assets transferred to the trust. own affairs. competence one applies when
This type of trust not only reduces selecting the executor of a will, for
probate costs, but may protect the • Insurance trusts can be set up to example, a trustee may need to
assets from creditors and usually keep insurance proceeds out of administer the trust well into the
results in estate tax savings if it’s the grantor’s estate. future. Depending on the size,
structured properly. • Trusts can be good vehicles for complexity, and objectives of the
making substantial donations to trust, you may want to consider a
One of the big advantages of
charitable organizations. bank trust department or other
trusts is that they can be tailored to
professional organization to handle
“
meet specific estate planning needs. • In cases of remarriage and/or the administration.
For instance, while a simple will stepchildren, a trust can be set
gives assets outright to beneficiaries, up to ensure that the children of So whether you have a modest
a trust can specify conditions about your first marriage inherit some or a sizable estate, whether you are
how and when the assets are to be or all of your estate upon the young or old, begin an estate plan
distributed. The trust document death of your second spouse. today. It may be the best gift you
might instruct that a child not can leave your heirs.
receive the assets until he or she
ONE OF THE BIG
ADVANTAGES OF TRUSTS
IS THAT THEY CAN BE
TAILORED TO MEET
SPECIFIC ESTATE
PLANNING NEEDS.
“
3 © 2001, 2005, 2009
National Endowment for Financial Education

5. W E A LT H C A R E K I T: E s t a t e P l a n n i n g
ESTATE PLANNING CHECKLIST
To develop a comprehensive estate plan, you’ll need to gather a wide variety of data and make numerous decisions.
This checklist is provided to help you organize your thoughts and actions.
Yes No NA
J J J Do you have a current will? Do you need to change any named beneficiaries?
J J J Have you identified all of your assets and liabilities?
J J J Do you know your “basis” in these assets? (Generally, your basis is equal to what you paid
for an asset acquired through purchase.)
J J J Do you know the fair market value of each of these assets?
J J J Do you know how each of these assets is titled? Do you own them individually or as a
joint tenant or tenant-in-common with a spouse or other individual?
J J J Do you have copies of all life insurance policies? Do you know who the “owner,”
“insured,” and “beneficiary” of each of these policies is?
J J J Do you know how your bank accounts are titled? Do they have a
payable-on-death provision?
J J J Do you know what will happen to the assets in your retirement plan upon your death?
J J J Will payments to your surviving spouse continue after your death? To whom will any
remaining assets be distributed?
J J J Have you identified an appropriate guardian for any minor children? Have you discussed
your wishes with this individual, and has he or she agreed to serve as guardian?
J J J Have you identified an appropriate executor to administer your estate? If so, have you
discussed your wishes with this individual, and is he or she willing to serve as executor?
J J J Have you estimated your estate tax liability? Have you considered ways to reduce this
tax liability?
J J J Have you considered how your estate plan affects the estate of your surviving spouse and
the amount of estate tax he or she will owe upon death?
J J J Have you determined how any estate tax due will be paid? Will your estate have sufficient
liquidity, or will it be necessary to sell assets to pay the tax?
J J J Have you considered making lifetime gifts or setting up trusts during your lifetime as a
part of your overall estate plan?
J J J If you are the owner of a closely held business, have you considered what will happen to
the business after your death?
J J J Have you decided how you want your assets distributed upon your death?
J J J Have you decided whether you want to make specific bequests to certain beneficiaries,
and if so, what do you want to leave to whom?
J J J Have you decided to whom you want to leave the balance of your estate (the residual)
after any specific bequests have been made?
J J J Have you thought about how your estate plan will be affected if a named beneficiary dies
before you do? Who should get his or her share of your estate?
J J J Have you decided whether you would like any charitable donations to come out of
your estate?
4 © 2001, 2005, 2009
National Endowment for Financial Education

6. W E A LT H C A R E K I T: E s t a t e P l a n n i n g
ESTATE PLANNING CHECKLIST cont.
Yes No NA
J J J If your estate plan will include setting up trusts, either at the time of your death
(a testamentary trust) or during your lifetime, have you decided who will serve as trustee?
J J J What will his or her duties be?
J J J Have you decided whether you would like any charitable donations to come out of your estate?
J J J If your estate plan will include setting up trusts, either at the time of your death
(a testamentary trust) or during your lifetime, have you decided who will serve as trustee?
J J J What will his or her duties be?
J J J Have you decided the type of funeral arrangements you would like and what should
be done with your remains?
J J J Have you considered what you want to happen if you are terminally ill?
J J J Do you wish to have a “living will” or health-care proxy?
J J J Have you decided who should handle your affairs if you are incapacitated?
J J J Do you want a durable power of attorney?
National Endowment for Financial Education, all rights reserved. CFP and CERTIFIED FINANCIAL PLANNER are federally registered marks of the Certified Financial Planner Board of Standards, Inc.
5 © 2001, 2005, 2009
National Endowment for Financial Education