Chapter 15 Personal Finance. Wills Estate – all assets minus debts at the time of death. Estate Planning – preparing a plan for transferring assets.

Chapter 15Personal Finance

Wills Estate – all assets minus debts at the

time of death. Estate Planning – preparing a plan for

transferring assets at the time of your death.

Will – legal document that tells how you want your estate to be distributed after your death.

Executor – carries out the transfer of your estate when you die.

Simple will – short legal document that lists the people you want to inherit and what you want each to receive.

Wills (cont.) You must have 2 witnesses to

your will (they can’t be in the will).

Holographic will – handwritten, not recommended.

Inestate – when a person dies w/out a will.

Example of inestate distribution on p. 413.

Codicil – legal changes to a will. Must be done by an attorney.

Power of Attorney Legal document authorizing someone to

act on your behalf. Limited – lasts 30 days to a year or

pertains only to a particular transaction. General – authorizes that person to

make decisions for you.

Trusts Legal document in which an individual

(the trustor) gives someone else (the trustee) control or property, for ultimate distribution to another person (the beneficiary).

Provides for heirs who might not be able to effectively manage assets for themselves.

Minimizes inheritance or estate taxes. Trustee may be a financial institution or

a person.

Trusts (cont.) Inter vivos (living trust) – exists during the

life of the trustor. Testamentary trust (trust will) – takes

effect upon the death of the trustor. Useful if your beneficiaries are minor children or if you wish to avoid high taxes on your estate.

Probate is a court-supervised process of paying your debts and distributing your property to your heirs.

Joint Ownership Two or more people own an undivided

interest in a property. Joint tenants w/ right of

survivorship – ownership is split 50-50 for estate tax purposes. When one spouse dies, the other automatically becomes the sole owner.

Joint tenants w/out right of survivorship – when one person dies, the property passes to his or her heirs.

Federal Estate Taxes Estate tax – tax on property (must

meet the minimum dollar amount) transferred by deceased people to their heirs. Deducted from value of the estate.

If you plan well, you can avoid estate taxes.

If you transfer property to a spouse or a charity, you will not need to pay estate

taxes.

State Inheritance Taxes Tax on an heir who receives property

from a deceased person’s estate. The heirs pay this, not the estate.

Federal Gift Taxes Life estate – pass title to an heir, but

you may live on the premises for as long as you live.

Gift tax – tax on a gift of money or property. Paid by the giver.

You may give up to $13,000 (per person in 2009) year w/out having to pay a gift tax.

Gifts to a spouse or charity are exempt.

Federal/State Income Taxes The heirs must pay income tax for the

deceased based on what they earned the year prior to their death.

A tax return must be filed before the

estate can be distributed to the heirs.

Personal Retirement Accounts Individual Retirement Accounts

(IRAs) Retirement savings plan. Pre-tax investment You may contribute more if you

aren’t covered by an employer pension plan.

Early withdrawals are subject to a 10% penalty.

Types of Personal Retirement Accounts

Traditional IRA – contribution can be deducted from your taxable income.

Pay taxes when you retire and start collecting benefits.

Roth IRA – taxes contributions, but not money withdrawn at retirement.

Tax is paid on your income before you contribute. Never have to pay any other taxes on it.

Education IRA – for higher education costs. Can set up if you have children under age 18. Withdrawals aren’t taxable.

Annuities Purchased from insurance

companies. Provides regular payments –

usually for retirement.

Defined-Benefit Plans Known as a pension plan. At retirement age, employees receive

monthly payments. Employer makes the entire

contribution. You must be vested in the plan to

receive it if you leave the company. If you leave the company, you must roll

it into an IRA or cash it out.

An employee is vested when they are able to keep the money that the employer contributed to their retirement account if they leave the job.

Example, Varies from employer to employer.

# of Years % of employer contributed funds the employee may take with them when they leave the job

1 20%

2 40%

3 60%

4 80%

5 100%

Defined-Contribution Plans (Employee-sponsored plan where employees may choose to contribute also)

401(K) Plans For companies that operate for a

profit. Employees choose the % of

salary they want to contribute. Employers may match some or

all of the employee contribution.

Defined-Contribution Plans (cont.) 403(b) Plans

Similar to 401K, but is for not-for-profits.

Schools, tax-exempt organizations, & government units.

Earnings are tax-deferred and early withdrawal penalties apply.

Social Security Benefits You are eligible after retirement

if you contributed during your work years.

Your benefit is based on your earnings and contributions to social security.

If you were married for 10 years or more, you may be entitled to receive social security benefits based on your spouse’s income.

Social Security BenefitsMaximum social security retirement

benefits are available at age 65*. Age at which you will be eligible for Social Security will be higher

Currently, people may receive reduced benefits starting at age 62.

Most or all of your social security income will be taxable.

*will continue to change over time

Military Benefits Retired military receive pensions after

20 years of active duty. Pensions are payable regardless of other

sources of income. Subject to income taxes. Veterans may also get other benefits

like low-interest mortgages, special college financing, and low rate insurance policies.

A reverse mortgage is a loan against the equity in the borrower’s home in which the lender makes tax-free monthly payments to the borrower. Your lender pays you. Must be repaid, with interest, when you sell your home, reach the end of the loan, or die.

Become an expert & prepare to inform the class on your topic. Create a PowerPoint or a Prezi. (5-6 minutes) Create a visual that helps reinforce your topic.

Use all work time productively. This is part of your grade. Be kind to all members of your group. Include all members in

decisions. All members must contribute to the project. Practice your presentation before the day you give it. Note cards & a visual are required elements. Work days: last Friday , today, & tomorrow. Due date: Friday, November 16th at the start of class. Chapter 15 open-note test on Wednesday, November 21st Take notes during other group’s presentations. A note outline is

available on my website. Cite sources using MLA on each slide and works cited page.

Minimum of 4 sources including textbook. Turn in research the day you present

Your visual must be: Informative Creative Relevant Attractive Enhance your

presentations

Ideas: Painting Sculpture Poster Video Song (not a visual, I

know) Storyboard

Power of Attorney, DNR

Trusts Reverse Mortgage Individual retirement

plan (IRA) Estate & inheritance

tax

Wills & estates Defined contribution

plans (401k & 403b) Defined benefits

plans (pensions plans)

Social Security Medicare & Medicaid Other approved topic