Transcript Chartered Retirement Planning CounselorSM Professional

Welcome
©2013, College for Financial Planning, all rights reserved.
Expectations of Students
• Commitment of time and energy
• Read the assignments prior to class
• This course will help you:
o pass the CFP® Certification Examination
o better serve your clients/
grow your business
o be successful on the
College’s end-ofcourse examination
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CERTIFIED FINANCIAL PLANNER CERTIFICATION
PROFESSIONAL EDUCATION PROGRAM
Estate Planning
Module 1
Estate Planning Process &
Goals
©2013, College for Financial Planning, all rights reserved.
Learning Objectives
1–1 Identify the nature of estate planning, basic estate planning definitions,
and the nontax characteristics of property interests and forms of property
ownership.
1–2 Analyze a situation to identify advantages or disadvantages of a form of
property interest or ownership.
1–3 Evaluate a situation to select the most appropriate form of property
interest or ownership.
1–4 Analyze a situation to determine whether a specific property interest is
community or separate property.
1–5 Identify common estate planning goals and methods commonly used to
achieve them.
1–6 Analyze a situation to identify estate planning mistakes, pitfalls, and
weaknesses, and actions that can be taken to avoid such problems.
1–7 Describe the basic tasks in the estate planning process.
1–8 Identify the roles of the members of the estate planning team and the
activities that constitute the practice of law.
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Questions to Get Us Warmed Up
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Learning Objectives
1–1 Identify the nature of estate planning, basic estate planning definitions,
and the nontax characteristics of property interests and forms of property
ownership.
1–2 Analyze a situation to identify advantages or disadvantages of a form of
property interest or ownership.
1–3 Evaluate a situation to select the most appropriate form of property
interest or ownership.
1–4 Analyze a situation to determine whether a specific property interest is
community or separate property.
1–5 Identify common estate planning goals and methods commonly used to
achieve them.
1–6 Analyze a situation to identify estate planning mistakes, pitfalls, and
weaknesses, and actions that can be taken to avoid such problems.
1–7 Describe the basic tasks in the estate planning process.
1–8 Identify the roles of the members of the estate planning team and the
activities that constitute the practice of law.
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Recommendations
& selections
Consequences &
conclusions
Facts & information
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Types of Property
• Real Property
• Tangible Personal
•
Property
Intangible Personal
Property
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Forms of Property Interests
Interests restricted by use
• Legal interests or title
• Beneficial or equitable
interests or title
o Present interest
o Future interest
Interests restricted by time
• Life estate
• Term certain
Interests restricted by
certainty of occurrence
• Vested interest
• Contingent interest
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Forms of Property Interests
Powers of Appointment Terms
Parties
Actions
donor (creator)
exercise
holder (donee)
permissible appointees
appointee
release
lapse
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Forms of Property Interests
General Powers of Appointment
Holder can appoint one or more of the following
parties
• Holder, holder’s creditors, holder’s estate, or creditors of
the holder’s estate; and
Exercise of the power is not subject to
• ascertainable standard such as health, education,
•
maintenance, or support (HEMS); or
prior consent of the creator (donor) or
a party with an interest adverse to
that of the holder.
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Forms of Property Interests
Special (Limited) Powers of Appointment
Holder cannot appoint any of the following
parties:
• holder, holder’s creditors, holder’s estate, creditors of
the holder’s estate; or
Holder can appoint one or more of these parties, but
exercise must be pursuant to
• ascertainable standard such as health,
education, maintenance, or support (HEMS); or
• prior consent of the creator (donor) or
a party with an interest adverse to
that of the holder.
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Question 1
Which one of the following statements regarding
powers of appointment is correct?
a. A general power of appointment gives the
holder authority to manage all of the donor’s
property.
b. A power of appointment exercisable in favor of
the holder for his health, education, and
comfort is a special power.
c. A power of appointment,
Recommendations &
whether general or special,
selections
can be exercised, released,
Consequences &
conclusions
or allowed to lapse by
the holder.
Facts & information
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Question 2
Mary Ellsworth has established and funded an irrevocable
trust for the benefit of her family.
She gave her husband, Tim, who is one of the income
beneficiaries, “the right to demand that the trustee distribute
no more than the greater of $5,000 or 5% of the value of
the trust assets to any trust beneficiary during the last three
months of any calendar year.
Which one of the following statements is correct?
a. Mary has given Tim a special power of appointment.
b. Mary has given Tim a general power of appointment.
c. If Tim has not demanded that the trustee distribute any
of the trust assets by December 31 of any year, he will be
deemed to have released his power of appointment.
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Question 3
Which one of the following individuals is the
holder of a “legal” interest?
a. the income beneficiary of a trust
b. the trustee of a trust
c. the remainder beneficiary of a trust
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Learning Objectives
1–1 Identify the nature of estate planning, basic estate planning definitions,
and the nontax characteristics of property interests and forms of property
ownership.
1–2 Analyze a situation to identify advantages or disadvantages of a form of
property interest or ownership.
1–3 Evaluate a situation to select the most appropriate form of property
interest or ownership.
1–4 Analyze a situation to determine whether a specific property interest is
community or separate property.
1–5 Identify common estate planning goals and methods commonly used to
achieve them.
1–6 Analyze a situation to identify estate planning mistakes, pitfalls, and
weaknesses, and actions that can be taken to avoid such problems.
1–7 Describe the basic tasks in the estate planning process.
1–8 Identify the roles of the members of the estate planning team and the
activities that constitute the practice of law.
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Characteristics of Forms of Property Ownership
Sole Ownership
• Absolute ownership
(also known as fee
simple title); control by
one individual during life
and at death
• No survivorship rights;
thus, probate is needed
to transfer
• All income reportable by
sole owner
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Characteristics of Forms of Property Ownership
Joint Tenancy with
Right of Survivorship
(JTWROS)
• Two or more owners of undivided
interest; equal interests presumed
unless otherwise stated
• Survivorship feature at death
• Income split equally among all
tenants if ownership is equal
• Excluded from probate estate
• Consent of other tenants
not usually required for
transfer of one tenant’s
interest
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Characteristics of Forms of Property Ownership
Tenancy in Common (TIC)
• Fractional undivided interest owned by unlimited
number of tenants; interests can be equal but also
can be unequal
• Division of income according to respective interests
• No survivorship rights; thus, probate is needed
to transfer at death
• Unlimited alienation
rights during lifetime
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Characteristics of Forms of Property Ownership
Tenancy by the Entirety (TBE)
• Only tenants are husband and wife
• Equal undivided interests
• Survivorship feature at death
• Excluded from probate estate
• Must have consent of spouse
to terminate or alienate
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Characteristics of Forms of Property Ownership
Traditional Community Property (CP)
• Each spouse has vested one-half interest in
most property acquired during marriage
regardless of title
• No survivorship rights; thus,
probate is needed to transfer
at death
• Consent of other spouse
may be required for one
spouse to transfer
interest
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Community Property Interests
• Income earned by spouses during
•
•
•
marriage
Property stipulated by nuptial
agreement
Appreciation on separate property
due to contributions of nonowner
spouse
Separate assets commingled with
community assets to the point that
it can no longer be determined
which are separate and which are
community assets
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Noncommunity Property Interests
• income earned by spouses prior to marriage
• interest earned on separate property of one
•
•
•
spouse
property received as gift by one spouse and not
co-mingled
property inherited by one spouse
and not co-mingled
property acquired
during marriage and
classified as separate
pursuant to a
spousal agreement
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Estate Planning Implications for Migratory Couples
Moving from Community Property to
Common-Law State
• character of property acquired by husband and
wife living in community property state is not
changed when they move to a common law
state
• benefits of stepped-up basis in both
halves of property are lost if
property is divided
• record keeping is important
to verify community nature
of assets
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Estate Planning Implications for Migratory Couples
Moving from Common Law to Community
Property State
• Character of property acquired by husband and wife
living in common-law state is not changed when they
move to community property state
• Quasi-community property right: provides
each spouse a vested right to one-half
interest in marital property acquired in
common law state if it would have been
community property—had it first been
purchased in community property state
(recognized only in Wisconsin,
Washington, California, Idaho, and
Arizona)
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Question 4
Which one of the following statements regarding Henry
White, who recently married for the first time, is
correct?
a. In a community property state, Henry’s spouse is
deemed to have a vested 50% interest in all of the
property Henry owned at the time of the marriage.
b. In a community property state, Henry’s earnings
from his job subsequent to the date of his marriage
will be considered community property.
c. In a traditional community property state, any
property Henry owns at death will go to his spouse
by right of survivorship.
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Question 5
Which one of the following statements regarding
different forms of property co-ownership is correct?
a. Joint tenancy with right of survivorship (JTWROS),
tenancy by the entirety (TBE), and traditional
community property (CP) are all forms of coownership that can be used by a husband and wife.
b. JTWROS, TBE, and CP are all forms of co-ownership
that do not require a probate proceeding when one
tenant dies.
c. JTWROS, TBE, and tenancy in common are all forms
of co-ownership that require the consent of other
co-owners before an owner can sell his or her
interest in the asset.
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Question 6
If the proceeds from the sale of a community
property home in a community property state
are reinvested in a new home in a common law
state, the new home will be considered to be
community property.
True
False
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Question 7
Bill Jenkins owns a vacation home in another state. Bill
wants to include his new wife, Edna, on the title to the
vacation home. His primary concern is to avoid probate
without making it possible for Edna to dispose of the
property prior to his death without his consent.
Which one of the following statements concerning the
most appropriate form of titling and the rationale is
correct?
a. Tenancy by the entirety will prevent lifetime
disposition without Bill’s consent.
b. Tenancy in common with Edna will eliminate the
need for ancillary probate.
c. Sole ownership enables Bill to leave the home to
Edna outside of probate.
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Question 8
Placing property in tenancy by the entirety
allows the owner to achieve the goal of
maximizing premortem and postmortem
flexibility.
True
False
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Forms of Property Ownership: Sole Ownership
Advantages
• Owner has full lifetime and
testamentary control
• Owner entitled to all income from the
property
• Owner entitled to sole use and
enjoyment
Disadvantages
• Property must be probated at death
• Owner must report all income from
the property
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Forms of Property Ownership: Joint Tenancy with Right of Survivorship (JTWROS)
Advantages
• survivorship rights; probate avoided
• income splitting except for spouses
who file jointly
• can be used by any number of people
• right of lifetime disposition (except
some spouses)
Disadvantages
• possible mandatory equal ownership
• no disposition right at death
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Forms of Property Ownership: Tenancy in Common
Advantages
• income splitting possible
• allows ownership in unequal
proportions
• control of disposition at death and
during lifetime
• allows unlimited number of holders
Disadvantages
• must be probated at death
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Forms of Property Ownership: Tenancy by the Entirety
Advantages
• no lifetime disposition without consent
of spouse
• survivorship rights; probate is avoided
Disadvantages
• holder does not control disposition at
death
• restricted to spouses only
• no lifetime disposition without consent
of spouse
• mandatory equal ownership
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Forms of Property Ownership: Community Property
Advantages
• may be no right of lifetime disposition
• ownership not dependent upon title
• each spouse has vested one-half
interest
Disadvantages
•
•
•
•
restricted to spouses only
available in only a few states
mandatory equal ownership
must go through probate (unless
survivorship rights)
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Appropriate Forms of Property Interest
Manage property
for another
•
Vested legal interest
Allow person to use,
•
consume, or enjoy property
Vested beneficial or
equitable interest
Allow person to use,
consume, or enjoy
property immediately
•
Vested present
beneficial interest
•
Vested future
beneficial interest
Allow person to use,
consume, or enjoy
property in the future
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Appropriate Forms of Property Interest
Allow person to use,
consume, or enjoy
•
property at some point in
the future, but only for his
or her lifetime
Vested future
life estate
Allow person to use,
consume, or enjoy
property immediately, but
only for his or her lifetime
•
Vested present
life estate
•
Vested present,
term certain interest
Allow person to use,
consume, or enjoy
property immediately, but
only for 10 years
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Appropriate Forms of Property Interest
Allow person to use,
consume, or enjoy property
in the future, but only in
• Contingent, future,
sole interest
certain circumstances
Allow a person to take
title to property if he or she
needs it for purposes of
which the owner approves,
but the owner retains the
right to dispose of the
property if it is not needed
for such purposes
• Power of appointment
that allows holder to
appoint to himself or
others, but
only subject to an
ascertainable standard or
the consent of the creator
of the power
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Appropriate Forms of Property Ownership
More than two
owners
•
Tenancy in common (TIC);
joint tenancy with right of
survivorship (JTWROS)
Used exclusively by
spouses
•
Tenancy by the entirety (TBE);
community property (CP)
Avoid probate
•
JTWROS, TBE
•
Sole ownership (S), TIC,
JTWROS (possible exception
for spouses), CP (depending
on state and type of property)
Be able to control
lifetime disposition
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Appropriate Forms of Property Ownership
Be able to control
disposition at death
•
S, TIC, CP (except if CP is with
right of survivorship)
Have veto power over
lifetime disposition by
other co-owners
•
TBE (definitely), JTWROS, and
CP (possibly—in certain
situations) property (CP)
Ownership interests must
be equal
•
JTWROS (some states),
TBE, CP
•
TIC
Ownership interests can
be equal or unequal
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Question 9
Survivorship rights are a characteristic of the
tenancy by the entirety form of property
ownership.
True
False
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Functions of the Non-Attorney Estate Planner
• data gathering, including identifying client objectives
• identifying possible problems that may adversely affect
•
•
•
•
implementation of suggested
techniques
being aware of the availability, limitations,
and problem solving potential of estate
planning techniques
outlining alternative solutions to
general problem areas
cooperating with and coordinating
other professionals
monitoring implementation of the plan
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Question 10
Which one of the following is an incorrect
statement regarding the purpose of having an
estate planning team?
a. The team approach is necessary to ensure
professionalism and competence during each
stage of the estate planning process.
b. The team approach may be necessary to
accomplish all aspects of the estate plan in
the shortest possible time.
c. The team approach is required by the CFP
Board’s Code of Ethics and Professional
Responsibility.
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Question 11
Which one of the following actions would
probably not constitute the unauthorized
practice of law by a non-attorney financial
planner?
a. drafting a power of attorney for a client
b. advising a client to conduct business as a
partnership rather than a corporation
c. telling a client that property that is titled
in joint tenancy with right of survivorship
will pass outside of probate at his or her
death
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CERTIFIED FINANCIAL PLANNER CERTIFICATION
PROFESSIONAL EDUCATION PROGRAM
Estate Planning
Module 1
End of Slides
©2013, College for Financial Planning, all rights reserved.