Personal Finance Chapter 15

Personal Finance Chapter 15 - baj01275_c15_404-431...

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15 PRESERVING YOUR ESTATE Keeping It All in the Family Starting Point Go to to assess your knowledge of estate planning. Determine where you need to concentrate your effort. What You’ll Learn in This Chapter Estate taxes Wills and estate planning Types of trusts After Studying This Chapter, You’ll Be Able To Identify the key elements of your estate plan Draw up, with an attorney’s help, a valid will to benefit your heirs Estimate the size of your estate and the taxes that would be owed upon your death Choose trusts, gifts, and charitable contributions to minimize estate taxes baj01275_c15_404-431 02/10/2007 00:09AM Page 404 EPG_Team-C 105:JWQD032:bajch15:
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15.1 WHAT IS ESTATE PLANNING? 405 INTRODUCTION This chapter is all about death and taxes—preparing for the first and avoiding the second. The failure to plan for what will happen upon your death can result in significant hardship, both personal and financial, for your survivors. Whether you consider these issues as they apply to someone else or in the context of your own estate plan, this chapter provides a roadmap for getting started by helping you understand the process and the legal rules. It begins with an overview of the estate-planning process, and then covers the key components of an estate plan. It then explains why everyone needs a will and how to make sure yours is legally valid. The last section of this chapter explains the current system of taxation and what you might expect in the future. 15.1 What Is Estate Planning? The objective of estate planning is to distribute your wealth according to your wishes after your death and to plan for the care of your dependents. In this context, your estate is your net worth at death—all your assets less all your debts, as defined in Chapter 2. Although federal estate taxes are gradually being phased out, the long-term status of these taxes is uncertain, and current law still imposes a hefty tax on larger estates. Thus, one of the additional objectives of estate planning is to avoid paying extra estate taxes. This section provides an overview of estate planning and why it should be a component of your finan- cial plan. 15.1.1 The Estate-Planning Process Estate planning is the process of developing a plan for what will happen to your wealth and your dependents when you die. It involves both financial and legal considerations , and it usually also requires the advice of a profes- sional, such as an estate lawyer or a financial professional. Nevertheless, you can save both time and money if you do some work before you seek profes- sional guidance. The purpose of this chapter is not to tell you everything there is to know about estate planning but rather to provide you with an understanding of the fundamentals so you can begin making important decisions. As with other ele- ments of financial planning, the estate-planning process requires that you first evaluate your financial situation. By estimating the value of your estate, you can
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Personal Finance Chapter 15 - baj01275_c15_404-431...

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