1. Discuss the importance and goals of estate planning. Explain why estates ofte

Question

1. Discuss the importance and goals of estate planning. Explain why estates often break up. Distinguish between the probate estate and the gross estate. 2. Briefly describe the steps involved in the estate planning process. 3. Discuss the reasons estate planners cite for making lifetime gifts. How and in what ways might gift giving help reduce estate shrinkage? 4. Explain the general nature of the federal estate tax. How does the unified tax credit affect the amount of estate tax owed? 5. Explain the general procedure used to calculate the federal estate tax due.

Explanation / Answer

1.Discuss the importance and goals of estate planning. Explain why estates often break up. Distinguish between the probate estate and the gross estate.

Estate planning is referred to as the organized approach to managing the accumulated assets of a person in the interest of the intended beneficiaries. Wealth may be accumulated with a specific purpose, which may be passing the same to their heirs, for charity, or for any other intended purpose. Without formal structures that ensure that these purposes are met, there could be disputes, conflicting claims, legal battles, avoidable taxes and unstructured pay-offs that may not be in the best interest of the beneficiaries. Estate planning covers the structural, financial, legal and tax aspects of managing wealth in the interest of the intended beneficiaries. The term ‘estate’ includes all assets and liabilities belonging to a person at the time of their death. This may include assets as well as claims a deceased is entitled to receive or pay. The term estate is used for assets whose legal owner has deceased, but have not been passed on to the beneficiaries and other claimants. Once transferred, the estate becomes the assets of the beneficiary who has received the legal ownership. Estate can also be passed on to a trust and managed by trustees, in which case ownership is with a distinct entity, but periodical benefits from the estate is passed on to beneficiaries.

Difference between Probate Estate and Gross Estate

Probate estate refers to assets which pass to your beneficiaries though a Will. This includes assets that were in the sole name of the deceased, or made payable to the estate of the deceased. The probate estate does not include assets owned jointly with rights of survivorship, payable-on-death accounts, or other assets with named beneficiaries.

A person’s Gross estate is property held in the deceased person’s name ether jointly or solely. However, it may also include ownership interests in trusts, partnerships, and jointly owned property. For example, gross estate may include: Real estate; Personal property which may include the clothing, furniture, jewelry etc.; Financial Accounts which may include your bank account and stock broking & demat account; Life insurance; Annuity contracts; etc.

2.Briefly describe the steps involved in the estate planning process.

Estate planning involves the following 3 broad set of activities or rather 3 main steps:

· First is identifying the beneficiaries and their claim to the estate. This may be done through a comprehensive documentation such as the legal Will or nomination.

· Secondly creating tax-efficient structures such as trusts to manage the estate and make periodic payouts to beneficiaries.

· Thirdly, creating organizational structures including trustees, executors, guardians, power of attorney to perform identified functions in administering, protecting and managing the estate.

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