DEEP DIVE

Preparing for
the Inevitable

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Course: Preparing for the Inevitable: How to Simplify Your Finances for Your Family
When You’re Gone

What if you could make the financial aspect of passing away a relief instead of a worry?

Learn how to set up your financial affairs so they are clean, easy and stress free for
those you leave behind.

WealthAbility™ does not provide tax, legal or accounting advice. The materials provided
have been prepared for informational purposes only, and are not intended to provide
tax, legal or accounting advice. The materials may or may not reflect the most current
legislative or regulatory requirements or the requirements of specific industries or of
states. These materials are not tax advice and are not intended or written to be used,
and cannot be used, for purposes of avoiding tax penalties that may be imposed on any
taxpayer. Readers should consult their own tax, legal and accounting advisors before
applying the laws to their particular situations or engaging in any transaction.

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Table of Contents

WONDERFUL THINGS HAPPEN WITH ESTATE PLANNING ................................1

3 TIPS FOR A SUCCESSFUL ESTATE PLAN ......................................................2

Tip #1: Make Decisions Early ..................................................................2

Tip #2: Retain Flexibility and Control ......................................................2

Tip #3: Create Clarity .............................................................................2

BASIC ESTATE PLANNING DOCUMENTS ..................................................................2

Document #1: Will .........................................................................................2

Document #2: Living Trust .............................................................................3

Document #3: Medical Documents ......................................................4

ADDITIONAL ESTATE PLANNING TOOLS .................................................................5

Tool #1: Insurance ........................................................................................5

Tool #2: Irrevocable Life Insurance Trust ......................................................5

Tool #3: Trusts ........................................................................................6

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WONDERFUL THINGS HAPPEN WITH ESTATE PLANNING

The purpose of estate planning is to ensure your financial affairs are handled easily in
the event that you become incapacitated or upon your death. Estate planning allows
you the opportunity to manage your wealth both during life and after death.

Estate planning involves providing for the well-being and continued care for those you
leave behind. Whether you are concerned about leaving a handicapped dependent, a
minor child, or a cherished pet, estate planning involves creating solutions that help
protect those who must carry on without you.

Most likely, you want your loved ones to avoid the heavy burden of complications that
can arise when you pass away. You also want to minimize any state or federal tax and
any attorney’s fees and courts costs.

When you prepare your family in advance for what will happen when you pass away, it
will make the process much more comfortable for them. When proper estate planning is
not done, your loved ones are left to make difficult decisions without your input and may
not have the proper funds to maintain their lifestyle.

With estate planning, you are in control. You design your estate plan to pass assets to
whom you want, in the way you want, and when you want.

Keep in mind that state law varies so estate planning varies by state. The information
shared here is general information to provide you with a basic understanding. Always
discuss the details with your estate planning attorney.

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 3 TIPS FOR A SUCCESSFUL ESTATE PLAN

To make your estate planning successful, keep these tips in mind.

Tip #1: Make Decisions Early

One of the first things to do is to make decisions now. The sooner you prepare the
financial aspects of your estate, the better off you and your family will be.

By making decisions early, your family does not have to make the decisions during a
time of grief and without your input. The decisions to make are who will your assets go
to, in what amount and when.

Tip #2: Retain Flexibility and Control

When you plan early, it is imperative that there is flexibility in your plan because you
don’t know what the future holds. To do this, you want to remain in control of your
assets. Keep flexibility in mind as you make your decisions.

Tip #3: Create Clarity

Now is the time to create clarity. Be clear about what your intentions are. Sharing your
intentions with your loved ones helps to create clarity.

BASIC ESTATE PLANNING DOCUMENTS

In order to put your estate plan in place, there are documents you will need drawn up by
your attorney. Documents communicate your plan and have legal authority. An estate
plan can involve many different documents. We will cover the most common here.

Document #1: Will

Generally, a will is a set of written instructions drawn under legal formalities that
appoints a guardian for your minor children and directs how your property will be
disposed of upon death. It instructs exactly where and to whom you want your assets
distributed when you die.

The main purpose of a will is to dispose of property at death, although there are other
methods in which you can also accomplish this. However, a will is the only way to

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 appoint a guardian for your minor children.

Probate is a word you hear a lot during someone’s death. Probate is a judicial process
whereby the will of a deceased person is presented to a court and an executor or
administrator is appointed to carry out the will’s instructions. It is the legal process of
passing ownership of assets from a deceased person to others.

Wills can become public documents. Usually, a will’s contents are not made public
while you are alive. At the time of your death, as part of the probate process, a will has
to be filed with the local court and its contents made part of the public record where
everyone has access to its content. Not only is the will made public, all assets and
debts are also made public including how the assets and debts will be distributed. The
idea of having all your assets on display and visible is highly risky considering there are
those who might see it who might have the wrong intentions.

Will planning is only a part of the bigger picture in estate planning and should never be
the sole document in the estate planning process.

Document #2: Living Trust

The process of probate can be time consuming, expensive and can be contested. For
these reasons, one of the goals of estate planning is to avoid having your assets go
through probate. One of the most popular ways to do this is with a living trust.

One of the goals of having a living trust is to title your assets to the trust. Then when
you pass away, the assets are not in your personal name so they do not go through
probate.

When you form the trust, you:

Name the beneficiaries.

Name the trustee and successor trustees
Identify how your assets will operate now and when you pass away

While you are alive, you are the trustee of the trust. The trustee controls the assets
in the trust. While you are alive, you can use the trust assets just as you would if you
owned the assets directly. When you pass, the successor trustee takes over. You
appoint the successor trustee when you form the trust. The successor trustee manages
the trust’s assets based on your wishes, which are part of the trust document you create
with your attorney.

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 Living trusts are flexible when you are alive, you can change anything you want. They
are not as flexible after you pass away.

To many, the living trust looks a lot like a will. It includes the details and instructions for
how you want your estate to be handled at your death. However, unlike a will, a properly
funded trust does not go through probate.

Document #3: Medical Documents

Medical documents communicate your intent regarding your medical treatments if you
are unable to communicate them yourself.

Living Will

A living will is a legal document that is used to make your wishes known regarding life
prolonging medical treatments. It can also be called an advance directive, health care
directive, or a physician’s directive.

It is important to have a living will as it informs your health care providers and your
family about your desires for medical treatment in the event you are not able to speak
for yourself.

Generally, a living will describes certain life prolonging treatments. You, the declarant,
indicate which treatments you do or do not want applied to you in the event you either
suffer from a terminal illness or are in a permanent vegetative state.

A living will does not become effective unless you are incapacitated. Until then, you will
be able to say what treatments you want or don’t want. It usually requires a certification
by your primary physician and confirmation by a secondary physician, that you are
either suffering from a terminal illness or permanently unconscious before it becomes
effective.

Health Care Power of Attorney

For situations where you are incapacitated and therefore not able to speak for yourself,
but your health is not so grim that your living will becomes effective, you should have a
health care power of attorney or health care alternative.

A health care power of attorney is a legal document that gives someone else the
authority to make health care decisions for you in the event you are incapacitated. The

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 person you designate to make health care decisions on your behalf is supposed to
consider what you would want, so be sure to talk with them about it. It may be a difficult
conversation, but you are asking someone to take on a great burden for you - letting him
or her know what you want, lessens that burden.

ADDITIONAL ESTATE PLANNING TOOLS

Tool #1: Insurance

Life insurance is an important tool in estate planning. The primary purpose of life
insurance in an estate plan is to provide liquidity (cash) to the estate and heirs.

Life insurance proceeds can be used for many different things including:

Paying off debts so your heirs are not responsible for them
Paying estate taxes
Buying out a deceased business partner
Providing funds for your heirs to maintain their accustomed lifestyle

The amount of life insurance purchased should be tailored to your goals.

Life insurance proceeds are not subject to income tax, however, they are subject to
estate tax. If you own a life insurance policy on yourself and you are the beneficiary,
all the life insurance proceeds will be included in your estate for federal estate tax
purposes.

See the Course Fast Facts for the current estate and gift tax exemptions.

In order to avoid federal estate tax, many people have the life insurance on their lives
owned by their spouses or others. Then upon the insured’s death, the policy proceeds
are paid to the beneficiary and are not included in the insured’s estate. One of the
challenges with this cross-ownership technique is that the insured loses control of the
life insurance policy.

An alternate option is to use an Irrevocable Life Insurance Trust

Tool #2: Irrevocable Life Insurance Trust

An Irrevocable Life Insurance Trust (ILIT) eliminates the estate tax on life insurance

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 proceeds by changing the owner from you to the ILIT.

You can use an ILIT to own life insurance policies that insure your life. By using an
ILIT, the insurance proceeds will not be subject to estate tax when you pass away. In
addition, if you plan for your spouse, the ILIT can keep the proceeds out of your spouse’s
estate as well.

The ILIT is used to own an insurance policy, whether it is purchased by the ILIT or given
to it. The ILIT, as its name implies, must be irrevocable. Once the trust is drafted and
signed, it cannot easily be changed, except by the courts and then only under very
special circumstances. If the ILIT is not irrevocable or if the insured retains direct
control over it, the insurance proceeds will be subject to estate tax.

It is vital to have good advice from an estate planning attorney on the front end.
Irrevocable is irrevocable and one small mistake in an ILIT, and all the tax benefits can
be lost.

Tool #3: Trusts

Trusts enable you to control your legacy after your pass away.

A trust is a type of legal entity, which is used to hold legal title to assets for the benefit
of one or more persons. Trusts enable people to pass title to their assets to others
either during lifetime or at death. When a person creates a trust and places assets in a
trust, the trust maker, in effect, makes a gift.

Trusts enable their makers to make gifts to their beneficiaries and allow the trust maker
to exercise significant control, on a prearranged basis, over the disposition of the trust
assets. In effect, trusts allow assets to pass to others with “strings attached.”

Common trusts include:

Children Trust
Special Needs Trust
Charitable Trust

A charitable trust can reduce your taxes now and create your legacy for the future. Plus,
the value in a charitable trust when you die is not taxable to your estate.

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 SUMMARY

No amount of estate planning will do you any good if no one knows about it. Be sure to
communicate your intentions with your loved ones and your team. Work with your estate
planning attorney to document and create your estate plan.

WealthAbility™ does not provide tax, legal or accounting advice. The materials provided
have been prepared for informational purposes only, and are not intended to provide
tax, legal or accounting advice. The materials may or may not reflect the most current
legislative or regulatory requirements or the requirements of specific industries or of
states. These materials are not tax advice and are not intended or written to be used,
and cannot be used, for purposes of avoiding tax penalties that may be imposed on any
taxpayer. Readers should consult their own tax, legal and accounting advisors before
applying the laws to their particular situations or engaging in any transaction.

© 2018 WealthAbility LLC

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