Estate Planning Basics

Section 3 Lesson 1: Estate Planning Basics

• A will is a legal document outlining how a person’s assets are distributed after death.
• An executor is the person named in a will responsible for managing the deceased's estate.
• A guardian is appointed to care for minor children or incapacitated adults.
• An heir is someone legally entitled to inherit property from a deceased person, typically a family member.
• Intestate refers to dying without a will, in which case the distribution of assets is determined by state law.
• A prenuptial agreement is a contract between two people before marriage that outlines the division of assets in case of divorce or death.
• Community property is property acquired during a marriage that is owned equally by both spouses in some states.
• A trust is a legal arrangement where assets are held by one party (trustee) for the benefit of another (beneficiary).
• A grantor establishes a trust by transferring assets into it, while a trustee manages the trust assets according to the trust's terms.
• A revocable living trust allows the grantor to modify or terminate the trust during their lifetime, while an irrevocable living trust generally cannot be altered once established.
• An irrevocable charitable remainder trust (CRT) is a trust that provides income to a beneficiary for a set period, with the remainder going to a charity.
• A testamentary trust is created through a will and only comes into effect after the grantor’s death.
• An estate tax is a federal tax imposed on the transfer of a deceased person's assets to their heirs, if the estate value exceeds a certain threshold.
• The estate tax exemption is the threshold amount under which an estate is not subject to federal estate taxes eg $12.92 million per individual in 2023
• Estate tax exemption portability allows a surviving spouse to use any unused portion of the deceased spouse's estate tax exemption.
• The annual gift tax exclusion is the amount one individual can gift to another each year without incurring gift tax eg $17,000 per individual in 2023
• A state estate tax is imposed by some states on the transfer of assets from a deceased person’s estate.
• Estate taxes do not apply to surviving spouses due to the unlimited marital deduction.
• An inheritance tax is a state tax imposed on the beneficiaries who inherit assets from an estate.
• State estate tax or inheritance taxes are sometimes called "death taxes".
• An advance directive is a legal document that allows individuals to specify their healthcare wishes if they become incapacitated.
• The 3 types of advance directives are a living will, durable power of attorney for healthcare, and healthcare proxy.
• A healthcare proxy is a legal document that designates someone to make healthcare decisions on your behalf if you are unable to do so.
• A durable power of attorney remains in effect if the person becomes incapacitated, while a limited power of attorney is only valid for specific actions or time periods.

Section 3 Lesson 2: Retirement Plans

• ERISA (Employee Retirement Income Security Act) is a federal law that sets minimum standards for most voluntarily established retirement and health plans in private industry to provide protection for individuals in these plans.
• A defined contribution plan is a retirement plan where the employee and/or employer contribute to an individual account, and the retirement benefit depends on the account's investment performance.
• In a defined contribution plan, the employee often makes the investment decisions, though some plans may offer managed options.
• A contributory plan involves contributions from both the employer and employee, while a non-contributory plan only involves employer contributions.
• A self-directed plan allows participants to choose from a wider range of investment options beyond those typically offered in a standard retirement plan.
• Vesting is the process by which an employee gains non forfeitable rights to employer-contributed benefits.
• Graduated vesting is a vesting schedule where employees gradually gain ownership of employer contributions over time.
• Cliff vesting is a vesting schedule where employees become fully vested after a specific period of service, such as three years.
• Portability refers to the ability to transfer retirement savings from one retirement plan to another, usually when changing jobs.
• Matching contributions are employer contributions that match a percentage of the employee's contributions up to a certain limit.
• Automatic escalation is a feature in some retirement plans where the contribution rate automatically increases over time.
• A 401(k) is a retirement savings plan sponsored by a for-profit employer, a 403(b) is for non-profit and government employees, and a 457 is a deferred compensation plan for highly compensated employees of state and local governments and some non-profits.
• A SIMPLE IRA (Savings Incentive Match Plan for Employees) is a retirement plan for small businesses that offers simplified administration.
• A Keogh plan is a retirement plan for self-employed individuals and unincorporated businesses.
• A catch-up provision allows individuals age 50 and over to make additional contributions to their retirement plans beyond the regular limits.
• The 3 options for a 401(k) when changing employers are: leave the money in the current plan (if allowed), roll the money into a new employer's plan, or roll the money into an IRA.
• A rollover is the process of moving retirement savings from one retirement account to another, typically without incurring taxes or penalties.
• The one rollover rule restricts individuals to one rollover from an IRA to another IRA within a 12-month period to avoid taxes and penalties.
• A defined benefit plan is a retirement plan where employees receive a set monthly payment during retirement, the amount is typically based on salary and years of service.
• In a defined benefit plan, the employer makes the contribution and investment decisions.
• A survivor benefit is a benefit paid to the spouse or other beneficiary of a deceased participant in a retirement plan.
• A Traditional IRA is a retirement account where contributions may be tax-deductible and earnings grow tax-deferred, while a Roth IRA involves after-tax contributions, but earnings and withdrawals are tax-free in retirement.
• RMD (Required Minimum Distribution) is the amount that must be withdrawn annually from certain retirement accounts starting at a specified age.
• A Spousal IRA is a retirement account established for a non-working spouse, allowing contributions based on the working spouse's income.
• Three retirement plans for self-employed individuals are SEP IRA, SIMPLE IRA, and Keogh plan, each with specific requirements regarding contributions and eligibility.
• Tax-deferred growth means that investment earnings are not taxed until they are withdrawn in retirement.
• The crossover point is the point at which the tax benefits of a traditional IRA are outweighed by the tax-free benefits of a Roth IRA, or vice versa, depending on individual circumstances and tax rates.
• Early withdrawals are withdrawals taken from retirement accounts before the age of 59 1/2 and may be subject to penalties and taxes
• Four things that happen for early withdrawals are, potential 10% penalty, taxed as ordinary income, reduces the amount available for retirement, and may trigger state penalties.
• Five reasons for penalty-free withdrawals include, death, disability, qualified medical expenses, qualified higher education expenses, and first home purchase (up to $10,000).
• An annuity is a contract with an insurance company that provides a stream of income, typically during retirement.
• A deferred annuity's payments begin at a future date, while an immediate annuity's payments start soon after the annuity is purchased.
• A fixed annuity provides a guaranteed rate of return, while a variable annuity's return depends on the performance of underlying investments.
• A lifecycle creep refers to the gradual shift in investment strategy to become more conservative as one gets closer to retirement.
• Three pitfalls when saving for retirement are: not starting early enough, not saving enough, and investing too conservatively.
• RMDs typically start at age 73.
• FICA (Federal Insurance Contributions Act) taxes include Social Security and Medicare taxes, which are paid by both employers and employees.
• Medicare taxes fund the Medicare program, which provides health insurance for individuals 65 and older and those with certain disabilities.
• Social Security credits are earned based on annual income and are used to determine eligibility for Social Security retirement, disability, and survivor benefits.
• 40 credits are required to receive social security benefits.
• Fully insured means a worker has earned enough credits to be eligible for retirement benefits, currently insured means having earned at least 6 credits in the last 13 calendar quarters, transitionally insured refers to those who require fewer credits based on year of birth, and not insured means a worker has not earned enough credits.
• Full retirement age for social security is 67 for those born in 1960 or later, and retiring earlier results in reduced benefits.
• The replacement ratio is the percentage of pre-retirement income that is replaced by retirement income sources. It's calculated as retirement income divided by pre-retirement income.

Section 3 Lesson 3: Financial Resources and Planning

• Finance/Money/Budgeting Websites:

  • Bankrate.com: Offers information on interest rates, personal finance, and financial tools.
  • Bureau of Labor Statistics: Provides data on employment, unemployment, and inflation.
  • Department of Labor: Sets standards for worker safety, wages, and benefits.
  • Dinkeytown.net: A local resource, details depend on the specific "Dinkeytown."
  • Federal Reserve Board: Oversees monetary policy and regulates banks.
  • Financial Calculators: Tools for estimating loan payments, retirement savings, and investment returns.
  • MSN Money Central: A website offering financial news, advice, and tools.
  • Moneychimp: Provides simple explanations of financial concepts and calculators.
  • Intuit’s Quicken: Personal finance software for budgeting, tracking expenses, and managing investments.
  • USA Today: A source for news, including financial news.
  • Yahoo Finance: Offers financial news, data, and analysis.

• Real Estate/Mortgage/Legal Websites:

  • Realtor: A website for finding real estate listings and connecting with real estate agents.
  • Department of Housing and Urban Development: Addresses housing needs and enforces fair housing laws.
  • Federal Housing Administration: Provides mortgage insurance to lenders.
  • FSBO: For Sale By Owner, a platform for buying and selling real estate without an agent.
  • Home Finder: A portal for searching real estate listings.
  • NOLO: Offers legal information and resources for consumers and small businesses.
  • Trulia: A real estate website offering listings, market trends, and neighborhood insights.
  • Veteran's Administration: Provides housing assistance and other benefits to veterans.
  • Zillow: A popular real estate marketplace with listings and home value estimates.
  • HomeSnap: A real estate app that allows users to take pictures of homes to find information about them.
  • Redfin: A real estate brokerage offering online listings, agent services, and technology tools.
  • SQFT: Provides information and tools related to real estate and home values.
  • Xome: An online real estate auction and sales platform.

• Car Shopping/Loan Rates Websites:

  • Bankrate auto app: Provides auto loan rates and tools for car shopping.
  • Virtual Wallet by PNC: Offers budgeting and banking tools.
  • Simple Loan Calculator: Calculates loan payments and interest.
  • LoanCalculator: Another tool for calculating loan payments.
  • iLoan: An online lending platform for various types of loans.
  • LeanBuddy: May refer to a personal finance or budgeting app.
  • DebtsMonitorFree: A service for tracking and managing debt.

• 5 Steps to Achieve Financial Success: Specific steps not detailed, but generally involve setting financial goals, budgeting, saving, investing, and managing debt.

• Practice Using the Financial Calculator from Social Security Administration: Refers to using the tools on the SSA website to estimate retirement benefits and plan for the future.