U.S. Gross Domestic Product (GDP), which is the value of the production of all goods and services in the United States, adjusted for price changes, decreased at an annual rate of 0.7% in the first quarter. Previously, it was reported that the first quarter’s GDP increased 0.2%. This revision shows how factors such as a harsh winter, West Coast port issues, and a stronger dollar can affect the reading. The GDP numbers compare with a 2.2% increase in the fourth quarter of 2014. The Federal Reserve stated they believe this decline will only be temporary and they believe the overall economy is showing signs of continued strength going forward.
Chinese Market Falls 6.5% Thursday
Yesterday, U.S. investors awoke to find the Shanghai Composite had fallen 6.5% during the trading session. There were several factors that contributed to this drop. First, the People’s Bank of China (PBOC), China’s Central Bank, drained some liquidity out of the market. The actions by the PBOC caused traders to indiscriminately sell securities and brokers to tighten margin requirements, which compounded the trading loses. Finally, an asset manager sold off several state-owned banks, which made up a large part of the index. On the surface, none of these reasons are a justification for a 6.5% sell-off, meaning a lot of the selling was likely due to investors taking profits as they saw the market falling. As this continued, the selling compounded and the day’s close saw the composite down 6.5%. A sell-off based on small shifts in sentiment is somewhat typical for markets that have risen rapidly; the Shanghai Composite is up around 43% year-to-date. Corrections are seen as a sign of a healthy bull market, especially if the correction is swift and is used by investors sitting on the sidelines to put cash back into the market. It appears this is the case here, as the composite posted modest gains today. It is certainly something to keep a close watch on, however.
Fundamental Concepts in Estate Planning
Taking the steps to plan for the future of your estate can be one of the most important things you do. In fact, dividing and bequeathing your property is the very last official action you make in this world. To ensure that loved ones can make the most of what you are able to leave them, it is important that you understand some of the basic concepts of estate planning and consider how they might affect you.
Last Will and Testament
This is the most basic and essential aspect of estate planning. A will provides legal instructions for the division of property after the death of an individual. A person who has a valid will is known as the “testator”. The person instructed to carry out the will after the testator’s death is simply call an “executor.”
When a testator dies, his or her will must be checked for validity and its actions ratified as being legal. “Probate” is the process where a court looks over a will, deals with any conflicts and approves or carries out its requests. Probate can be formal or informal. Formal probate is done entirely by a probate court and can take from several months to a couple of years to complete. Informal probate occurs when a court gives approval for a legal representative to carry out the will and is often much faster than formal probate.
A person who dies without a will is referred to as dying “intestate.” If an individual dies intestate, state statutes and a court appointed administrator determine how to divide his or her estate. Unless agreements are made between the inheritors, intestate divisions are usually split between the surviving spouse and adult children.
While wills are the most essential part of estate planning, they are also the most basic. A standard will provides little flexibility for wealth distribution, does nothing in the event of testator incapacitation, is a matter of public record and is fully exposed to probate fees and taxation. Because of these short comings, many people choose to add other legal arrangements to their estate planning.
Living Wills and Powers of Attorney
A living will is a very simple document that is easy to overlook, but can be key to a family’s well-being. A living will provides instructions for medical care in the event the testator is incapacitated mentally or physically. Its goal is to not only ensure that a testator’s wishes are carried out, but also to alleviate his or her family from the responsibility of making a difficult decision.
Creating an authorization of power of attorney can be as important as a living will. If you are incapacitated mentally or physically the power of attorney allows an individual to take legal action in your place. It is particularly important for people who own joint property, bank accounts or businesses. If incapacitated without denoting power of attorney, an individual freezes all legal actions he or she would be involved with. While it is possible for someone to gain this legal power for an incapacitated adult, the court proceedings required can be extremely lengthy and costly.
A variety of trust options exist for individuals who want to exert more control over their property than a will allows. A “trust” is simply a legal entity created to hold property. An individual who creates a trust is called a “grantor.” Trusts are controlled by one or more “trustees” who operate them in the best way to help the predetermined “beneficiaries.”
The “living trust” is the most used trust for individual looking to pass their estate’s value to other people or charities. In a living trust, the grantor usually takes on the roles of both trustee and beneficiary initially; the grantor can control and benefit from his or her property even through it is owned by the trust. Upon his or her death, the grantor’s trust passes to a predetermined trustee who will manage and eventually distribute the trust assets to beneficiaries. The transactions of trusts are private and, unlike wills, not subject to public records or probate.
Trusts provide much more flexibility compared to wills. A detailed trust allows a grantor to put any number of restrictions and or amendments to the distribution of wealth. Additionally, if a person acting as trustee and beneficiary suddenly becomes incapacitated, the role of trustee can be passed on, while the original trustee still remains the beneficiary. In this way, a trust can provide for needs of the person who created it, even while he or she is unable to control it.
Who Owns What?
An important aspect of estate planning is determining the state of ownership of all property associated with the estate. Wills and probate only deal with the property officially belonging to the testator. Joint-ownership of property through marriage or another arrangement keeps property out of probate because it is already owned by another person.
Joint ownership, marital property or “life-tenant’ policies combine ownership of property so that a surviving partner gains full control after a death. It is important to know the details of ownership because it affects how property is handled after a death.
Filing for joint ownership seems like a great method to bypass probate and probate costs, but it comes with inherent risks. People added to a joint ownership account/property have as much legal control of the account/property as the original owner. Bank accounts can be accessed and emptied by either party. Similarly, property that is jointly owned often cannot be sold or altered without permission from both owners. Because of these risks, joint ownership titles should only be sought if both parties have similar plans for the future and trust each other implicitly.
Death and Taxes
While people make efforts to avoid probate costs and court fees for the estates they leave behind, taxation is a much more encompassing process. Probate only handles property that needs to be distributed by a will or intestate laws. Taxation looks at all property than an individual held at death and shortly beforehand. The taxable estate includes all property (owned outright and jointly), investments, recent donations, trusts and life insurance policies. While much of an estate can be declared either tax deferred or tax exempt if passed on to a spouse or charity, estate and gift taxes on inheritances can be extremely high. Local estate taxes can vary from state to state. Legal and financial advice should be sought to protect against any unexpected estate taxes.
Plan for the Future
Many people avoid estate planning because of the inconvenience, cost and/or the uncomfortable concept of their death. The simple fact is that death or serious accidents cannot be controlled; however, if the proper steps are taken, almost everything legally associated with an unfortunate event can be organized. A plan and proper legal arrangements keep unnecessary fees, taxes and court battles from plaguing a family after the death of a loved one.
This publication is provided as a service to our clients and associates of PFA solely for their own use and information. The material is derived from sources believed to be reliable but its accuracy and the opinions based thereon are not guaranteed and have not been verified. The content in this publication is for general information only and not intended to serve as individual investment advice. You should seek independent advice from a professional based on your individual circumstances.