Chapter 16

In-Class Notes

Background on Wills• Reasons for having a will

• Ensures that your estate is distributed in the manner you desire and to the beneficiaries you specify

• Allows you to appoint a guardian for minor children

• Provides control over the distribution of any inheritance to minor children and other heirs

• Creating a valid will• Must usually be at least the age of majority (18 or 19)• Must be mentally competent• Must not be subject to undue influence

• Common types of wills• English form, notarial, holograph

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Key Components of a Will• Testator identification• Revocation of previous wills• Appointment of executor (personal representative)• Appointment of guardian for minor children• Authorization to pay debts• Authorization to make bequests• Distribution of residue• Administration of the estate• Liability• Signatures• Letter of last instruction

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Estate Taxes• At death a deceased taxpayer is deemed to have

disposed of his or her assets

• Spousal rollover a mechanism that can be used to delay the payment of tax

• Determination of tax payable based on:• Fair market value (FMV) minus acquisition cost

• Optional tax returns• Rights or things

• Business income from a partnership or proprietorship

• Income from a testamentary trust

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Trusts and Contributions• Trust: a legal document in which one person, the

settlor, transfers assets to a trustee, who manages them for designated beneficiaries

• Types of trusts• Inter vivos trust (revocable or irrevocable)

• Testamentary trust• Contributions to charitable organizations• Tax benefit is greater in the year of death and in the

year preceding death than it is under other circumstances

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Other Aspects of Estate Planning• Living will: A simple legal document in which

individuals specify their preferences if they become mentally or physically disabled

• Limited (non-continuing) power of attorney• General power of attorney• Enduring (continuing) power of attorney• Durable power of attorney for health care

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