The following is a text version of a booklet entitled "Ask your CFP® Professional about Estate Planning" Copyright 1996 (ICFP), Reproduced with the kind permission of the Institute of Certified Financial Planners (Now the Financial Planning Association) ********************************** June 13, 2002 The Democrat-led U.S. Senate have just blocked a bid by Republicans to permanently repeal estate taxes. Nine Democrats backed the proposal and two Republicans voted against it. Democratic alternatives that would have exempted the vast majority of small businesses and farms from inheritance taxes while maintaining taxes for the wealthiest estates also failed in procedural votes. Republicans argued that taxing the legacy that business owners and farmers leave their children was "immoral." They wanted to make permanent a provision in last year's $1.35 trillion 10-year tax cut that phases out estate taxes by 2010. It's time to speak with your CFP® Professional to learn more about the impact this decision will have on your estate. It's also time to review and update your estate plan! ********************************* Why Do I need an Estate Plan? I don't have an Estate. Anyone who owns assets has an estate. With increased life insurance, increased home values, the effects of inflation, and larger retirement accounts, many have larger estates than they realize. Furthermore, Congress continues to target estates as a source of revenue. You may not need complicated trusts or a sophisticated gifting program, but you should develop an estate plan to ensure that your current and future assets will be distributed to your beneficiaries with maximum ease and minimum cost. Remember, if you haven't prepared your own estate plan, then your state will dictate a plan for you when you die.......one that you and your beneficiaries may not like. What's involved in Estate Planning? In a nutshell it involves the consideration of: Wills, Powers of Attorney, Medical Powers of Attorney & Living Wills. The designated beneficiaries for any 401(k) plans, individual retirement plans,pension plans, insurance policies, annuities and other investments Trusts during lifetime or upon death How assets are titled Insurance needs Net Worth Estate Taxes What will an estate plan do for me? A tailored, well prepared estate plan can accomplish several things: Direct the distribution of your estate after your death, according to your wishes. Minimize state and federal estate taxes. Ensure that your estate will have sufficient cash to pay any taxes the estate may owe. Avoid Probate. Some estates can be tied up in court and their assets eaten away by taxes and legal fees. Minimize the emotional as well as financial burden on your estate's beneficiaries. Where do I start? Begin the estate planning process by determining your net worth. Your net worth statement, sometimes called a balance sheet, is a snapshot of the current financial health of your estate: the total value of all the assets you own and in whose name, plus all that is owed to you, minus all your debts. Once you know what assets and liabilities you have, you can start to design an appropriate estate plan. Because estate planning can be complex, no one boilerplate plan fits all estates. How important is the issue of ownership in an estate plan? Ownership of property is an overlooked estate planning issue. For example, couples commonly have joint tenancy, or joint ownership of their assets. This allows the assets to bypass the sometimes costly and slow probate process. But joint tenancy is not always the most appropriate or cost effective form of ownership when it comes to distributing estate assets upon death. Ownership may be an issue even if you're single if you share ownership with a relative or friend. Your CFP® professional and an estate planning attorney can review the ownership of your assets to determine the best ownership form. I'm still young. Do I really need a will? Absolutely. As many as 70% of Americans don't have wills, yet a will is critical regardless of your age or the size of your estate. A will specifies who receives what assets when you die. If you have young children, a will can set up a trust for them and designate a guardian. Dying without a will, known as dying "intestate", means the state will dictate how your assets are distributed. For example, you may want all of your assets to go to your spouse, but if you don't have a will the state may decide that half goes to your spouse and half to your children (who may not be old enough or mature enough to handle it), or half to your parents if you have no children. Dying without a will can also increase the cost and the time for legally distributing your estate (known as probate). Update your will regularly. A will drafted before 1981 is out of date because of major tax law changes since then. Your personal circumstances may have changed or your net worth may have increased or decreased, warranting revisions in your will. A will alone may not minimize estate taxes or provide other important components. What are a power of attorney, a medical power of attorney and a living will? A power of attorney is a legal document that allows you to designate a representative to perform certain duties for you in the event you can't. If you become incapacitated or ill, for example, the representative could write checks or make legal decisions on your behalf. A medical power of attorney (sometimes called a health care proxy) gives a designated representative the power to make medical decisions for you (to continue or not to continue life support, for example). A living will is a statement of your personal wishes as to what life sustaining medical treatment you want or don't want, should you become terminally ill. These three tools can be vital in the administration and preservation of your estate, and most adults, regardless of age, should have all three. Do I need a trust? There are dozens of types of trusts, and each has advantages and disadvantages. A bypass or charitable remainder trust can provide income during a lifetime and save estate taxes upon death. A Q-Tip (qualified terminable interest property) trust can be useful for providing income to a second spouse but bequeathing the assets themselves to children from a previous marriage. Trusts can provide control of the assets that you don't have with outright gifting, such as specifying that your child can't use the money until a particular age. Professional management of trust assets can relieve trust beneficiaries of that burden. You can use certain types of trusts to avoid probate costs and escape the reach of creditors. Despite their advantages, trusts aren't needed in many estates. Living trusts, for example, are widely hyped and oversold, and, in many instances, provide little or no value for the average estate. For example, although they can avoid probate, living trusts don't avoid estate taxes. Trusts can be expensive to establish and manage. Trustees have to be chosen carefully, especially if they are relatives or close friends who may not be financial experts. Trust assets can be mismanaged or intentionally abused. In many cases, you're giving up permanent control of assets. Your CFP® professional and attorney can advise you if a particular type of trust would benefit your estate. I have a small Estate. Do I need to worry about estate taxes? Currently the first $1,000,000.00 in estate assets is free of federal estate and gift taxes (though not necessarily free of state taxes). However, beyond $1,000,000.00, assets are taxed at a minimum of 37%, rising to a whopping 50%. (Current as of 2002. These figures will increase annually until the estate tax disappears in 2010. HOWEVER, the estate tax may reappear in 2011 unless Congress acts, so plan sensibly!!) You may not have a $1,000,000.00 estate right now, but the accumulation over a lifetime of a home, insurance, investments, and retirement plans could push the value of your estate beyond the threshold. How can I reduce my estate taxes? Before you start worrying about saving estate taxes, you and your CFP® professional need to determine how much money you'll need to live on during retirement. Even if your estate already exceeds the $1,000,000.00 threshold, you probably will spend down some or much of its assets to see you through your retirement years. People need a comfortable financial cushion in light of increasing longevity, higher medical costs, and long term inflation. If estate taxes remain an issue after you've determined the minimum amount of resources you need for retirement, then you might consider Gifting currently $11,000.00 annually ($22,000.00 if you and your spouse gift jointly) to each beneficiary free of gift tax. (This numbers will be adjusted for inflation in the future) Removing the value of insurance from your estate. Donating assets to charity. Setting up a bypass trust (also called a credit shelter trust) if you're married. What about the use of insurance in an estate plan? Insurance can play an important role in estate planning. Auto, home, and liability insurance protect against losses of property in your estate. Life insurance can provide surviving family members with cash for living expenses and for expenses associated with the death. Life insurance proceeds can be used to pay estate taxes if the estate doesn't have sufficient liquid assets available, though this mainly is needed for joint estates valued at over $ 2 million currently (using a bypass trust, gifting etc. can usually cover the first $ 2 million.) Estates whose principal asset is a small business often need life insurance for co-owners to buy out the deceased's estate or for the deceased to provide an equitable share to heirs who won't be involved in running the business. Issues of ownership, the type of policy (such as the popular "survivorship life" policy), and the use of insurance trusts make this complicated area. Life insurance can cause unwanted estate tax consequences if it is not carefully structured. Do I need to update my plan once it is in place? Yes. Estates change over time. Typically, the value of your estate grows, perhaps pushing you into a higher estate tax bracket. You may have become divorced, or one of your heirs has died, or a host of other changes may have occurred since the plan was first put into place. Shouldn't I use an estate planning lawyer instead of a CFP® professional? Estate planning lawyers provide an invaluable service helping people carry out their estate plans, using their training and legal expertise to set up trusts or draft wills. A CFP® professional often does the ground work and coordinates your estate plan with the other aspects of your overall financial picture, such as investments, retirement planning, and saving for your children's education. The CFP® professional will bring in other professional experts, such as an estate planning lawyer or accountant, when needed. How do I know a CFP® professional is qualified to help me? Not everyone who calls themselves a financial planner is a CFP® professional. To obtain the CFP® license, a person must study and demonstrate competency in six areas vital to comprehensive financial planning, including insurance, retirement, investments, tax, and estate planning by successfully completing a 10 hour comprehensive examination. In addition, CFP® Professionals voluntarily submit to a written code of ethics and must complete 30 hours of continuing education each two years. The emphasis of the CFP® educational program is on the interrelatedness of the financial areas and the need for an objective analysis of a client's circumstances and goals. The CFP® professional must also meet educational, work experience, and ethical standards to maintain the right to use the CFP® marks in public practice. for a glossary of common estate planning terms For Information concerning "Revocable Living Trusts", a powerful estate planning tool.

Nigel B. Taylor, CFP¨ is a Registered Representative of and offers securities products & services through Royal Alliance Associates, Inc. Member FINRA/SIPC, a registered Broker-Dealer. In this regard, this communication is strictly intended for individuals residing in the states of California and Nevada. No offers may be made or accepted from any resident outside the specific state(s) referenced. Separately, Taylor & Associates is a CA Registered Investment Adviser CFP®, CERTIFIED FINANCIAL PLANNER™ and the CFP® flame logo are federally registered services marks of the CFP board of Standards, Inc. CO.