Unit 8, part 1
Estate 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 University
Adapted 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 WILL
It includes:
analysis of family situation
examination of how property is owned
whom you want to get your “stuff”
review of the family insurance program
consider gifts during life, may benefit
both giver and recipient
possible 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 retirement
To treat all children equitably (or equally?)
To maintain the continuity of the business
To help son/daughter get started in business
To minimize estate taxes / settlement costs
To 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 Expenses
3. Settlement costs:
court costs, administrator’s/executor’s fees,
bond costs, attorney’s fees, etc.
4. Taxes
federal income tax, state income tax, federal
estate tax, state estate tax, gift taxes
Types of Property
Transfers
Sale
Gift
Laws of intestate succession
Surviving spouse-
Tenancy by the entirety
Joint 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 Parent(s) Surviving
First $50,000 of personal
All real and personal property
property to the Spouse, then:
goes to Spouse
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 Two or more Children or
their descendants
First $30,000 of personal First $30,000 of personal
property to Spouse, then: property to Spouse, then:
1/2 of all remaining property 1/3 of all remaining
to Spouse property to Spouse
1/2 of all remaining property 2/3 of all remaining
to Child or Descendant property to Children or
Descendants
Who Does Get Your
Property WITHOUT a Will?
If you are Single or widowed
Children or their Parents surviving, but
descendants surviving no Children or their
descendants surviving
All real and personal
property to Children or All real and personal
their descendants property to Parent(s)
Who Does Get Your
Property WITHOUT a Will?
If you are Single or widowed
Brother(s) or Sister(s), No Children or their Descendants,
No Parents, No Brother(s) or
but no Children or their Sister(s) or their Descendants
descendants or surviving
Parent(s) surviving
1/2 to Paternal Grandparents,
All real and personal but if not surviving, then to
property to Brother(s) Paternal Uncles, Aunts, and their
and Sister(s) or their Descendants, and
Descendants 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 Ownership
Simplest form of ownership
One 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 Estate
Life tenant
Remaindermen
Usually all in is your Federal
Estate
Types of Ownership
Consecutive Ownership
Life Estate
Life 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 Concurrent
Tenancy 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 Concurrent
Tenancy 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
Survivorship
Two or more persons may own property in this
manner
Bank accounts, CDs, Stocks, Bonds are types of
property owned in this manner
Real property CAN be owned like this
Assumption that the entire amount of the
value is in your Federal Estate except as
proven otherwise
WILLS
With 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 will
You can name the executor (trix)
You can name the guardian for minors
You can create a trust
You MAY prevent family disputes
You 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 Gifts
A transfer without adequate
consideration
Annual 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 deduction
Donor is liable for gift taxes
Gift is NOT income to the recipient
(earnings are!)
Basis in gift property transfers
Advantages of Lifetime
Gifts
May reduce federal/state estate taxes
Reduces settlement costs
May ease income tax problems by having
earnings taxed in a lower tax bracket
Can transfer an ongoing business
Can move rapidly appreciation property
out of your estate
Benefit 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 transfer
Income tax disadvantage
gift tax on fair market value (FMV)
donor’s basis transfers
special use valuation is not available
Where Do I Start?
Start talking to each other!
Mom, Dad, Son, Daughter,
Friends
Extension agents
Set some GOALS!
Seek professional help!
Attorney
Banker/trust officer
CPA/tax man
Insurance 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 2nd
5. 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 conditions
Acquisition/distribution of property,
inheritances, job change, retirements,
changes in titles of property
Change in the Laws
State probate law, federal/state income tax
law, federal/state estate tax law