Weekly Assignment 4

Chaitanya Choudhary
FIN405
Dr. Howard Lee

Probate-
The process of settling a decedent's estate under court supervision is known as probate.
Some property interests avoid the probate procedure, while some assets owned at death are
subject to it. Because probate is an additional expense to the estate, financial planners must
be aware of which assets may be subject to probate when their clients pass away.
The particular requirements and timelines for probate can vary based on where the decedent
lived and where their assets are located because state-by-state probate laws and processes
vary.
Example-
After Maria's passing, her estate underwent probate in order to divide her assets in
accordance with her will. Her executor listed her assets, settled her debts, and dispersed the
remaining assets to her beneficiaries in a petition submitted to the probate court.

Beneficiary Designation-

An official document known as a beneficiary designation designates who is to receive

specific assets, such as life insurance policies, retirement accounts, or bank accounts, upon
the death of the account owner. The account owner can make sure that their assets are
dispersed in accordance with their intentions without going through probate by completing a
beneficiary designation.
Example- Samantha has a life insurance policy through her employer. She filled out a
beneficiary designation form, designating her sister as the contingent beneficiary and her
husband Tom as the primary beneficiary. The life insurance proceeds were handed
immediately to Tom after Samantha passed away, skipping the probate process.

Pour Over Will-

A revocable living trust is frequently combined with a pour-over will in legal documents. It
stipulates that upon the grantor's death, all assets not transferred during their lifetime into
the trust shall be "poured over" into the trust so that they may be dispersed in accordance
with the conditions of the trust.

Revocable Trust-
An individual (the grantor) can transfer their assets into a trust that is run by a trustee for the
benefit of the designated beneficiaries under a revocable trust. The trust can still be changed
or revoked by the grantor while they are still alive. The trust's assets are transferred to the
beneficiaries in accordance with its conditions after the grantor passes away.
Example-
Jane, a retiree, wants to avoid probate so that her assets are divided after her death in
accordance with her desires. She establishes a revocable trust, places her assets in it, and
names her son as the trust's beneficiary. The assets in the trust will go to Jane's son after
her passing, and she retains the right to change or cancel it as necessary during her lifetime.

Testamentary Trust-
A trust established in a will that takes effect after the testator's passing is known as a
testamentary trust. The assets from the testator's estate are used to fund the trust, which is
then overseen by a trustee on behalf of the designated beneficiaries.
Example-
Mark has two children and wants to make sure that his estate is properly divided to them
after his passing. He makes a testamentary trust for his children and incorporates it in his
will. After Mark passes away, the trust will be funded with his assets and overseen by a
trustee until his kids are of a particular age. The remainder of the Trust Property shall be
paid to the Children upon their attainment of such age as provided in the Trust.

Intestate-
Intestate refers to the situation where a person dies without a valid will.
Example-
Without a will, John, a single man, passes away unexpectedly. His estate is consequently
governed by the intestacy rules, which specify how his assets will be dispersed. John's
assets will be distributed in accordance with state law without a will to direct the process,
which usually entails transferring a portion of the estate to the surviving spouse and children,
if any, or to other family members if there are no surviving spouse or children.

Dower-
A widow's legal entitlement to a share of her late husband's property or assets is referred to
as dower. Dower is meant to safeguard and assist a widow financially in the event of her
husband's passing. Nonetheless, regardless of whether her husband left a will or not, dower
normally entitles a widow to a piece of his inheritance. The specifics of dower rules differ by
state and area.
Example
Mary's husband passes away, leaving a sizable estate. Mary is entitled to a piece of her
husband's inheritance under the dower laws, even though he didn't leave a will. Depending
on the state's rules and the particulars of the case, the dower's exact amount and conditions
may change.

Homestead-
A primary dwelling is protected under the law from creditors and specific legal procedures,
such as bankruptcy or a forced sale, under the notion of homestead. The purpose of
homestead protection is to give homeowners a sense of stability and financial security by
enabling them to maintain their primary dwelling in the event of financial hardship or legal
issues.
Example-
After her husband's death, Mary inherits their family home. Under homestead laws, Mary is
entitled to certain protections for the property, which may include exemptions from property
taxes, creditor protections, or other measures designed to ensure that she can keep the
home as her primary residence. These protections help to provide Mary with financial
stability and security, even in the face of potential legal challenges or financial difficulties.

Family Allowance-
During the probate process, a family allowance is a sort of financial assistance given to the
surviving spouse and minor children of a deceased person to assist in covering their living
expenses and other charges. The size and conditions of the family allowance may differ by
state or jurisdiction, but generally speaking, it is meant to give the remaining family members
some level of stability and assistance immediately following the decedent's passing.

Usually provided from the decedent's estate, the family allowance may require judicial
authorization. It is intended to assist in paying for necessities like housing, food, and utilities,
as well as any other costs associated with the rearing and care of minor children.

Elective share statue-

An elective share statute is a law that provides surviving spouses with the right to receive a
certain percentage of their deceased spouse's estate, regardless of the terms of the
deceased spouse's will.
Example-
An elective share statute can override a spouse's will, giving the surviving spouse a right to a
percentage of the deceased spouse's estate. For example, if John's will left only a small
amount to his wife Jane, but their state's elective share statute entitled her to a larger share,
she could claim it.

Totten trusts, payable-on-death (POD), and transfer-on-death (TOD) accounts

Account types such as Totten trusts, payable-on-death (POD), and transfer-on-death (TOD)
accounts all let account holders name beneficiaries who will inherit the account's assets after
their passing.

In a Totten trust, the account holder deposits money into a bank account and names a
beneficiary to receive the money in the event of the account holder's passing. The account
holder may take money out of the account or alter the beneficiary designation whenever they
choose up until that point.

A bank account that is payable-on-death (POD) is one in which the account holder names a
beneficiary to receive the assets of the account in the event of his or her passing.The
beneficiary designation may be changed at any moment, and the account holder retains
complete control of the account throughout their lifetime.

Similar to a POD account, a transfer-on-death (TOD) account deals with non-bank assets
like securities or investment accounts. The account holder names a beneficiary who will
receive the assets once they pass away, but the beneficiary is not entitled to them until the
account holder dies. During their lifetime, the account holder retains complete control over
the assets and is always free to change the beneficiary designation.

These kinds of accounts enable people to keep their assets out of probate and can offer a
quick manner to transfer assets to a named beneficiary after death.
Here are some examples from real life for each:

John places money in a bank account and names his kid as the beneficiary under the Totten
Trust. If John passes away, the funds automatically pass to his son without going through
probate.
Sarah opens a savings account with her bank and names her sister as the beneficiary of a
payable-on-death (POD) account. If Sarah passes away, the funds in the account
automatically transfer to her sister without going through probate.

Bob has a brokerage account that is set up as a transfer-on-death (TOD) account, with his
daughter listed as the beneficiary. If Bob passes away, the assets in the account
automatically pass to his daughter without going through probate.

Prenuptial Agreement and Postnuptial Agreement-

A prenuptial agreement, or prenup, is a binding contract signed by two individuals prior to

marriage that specifies how their property, debts, and assets would be distributed in the
event of divorce or death. A prenuptial agreement serves to clarify and safeguard both
spouses' rights in the case of a possible divorce and to avert disagreements or litigation over
property split.

Similar to a prenuptial agreement, a postnuptial agreement (also known as a postnup) is

signed after the couple has already been married. A postnuptial agreement, like a prenuptial
agreement, spells out how the couple's property, debts, and assets will be split in the case of
divorce or death.

Example- Prenuptial Agreement: Sarah and John make the decision before getting hitched
that whatever property they each possessed before the union will remain separate and not
be subject to distribution in the event of a divorce. Also, they consent to giving up any
spousal support rights.

Postnuptial Agreement: Following several years of marriage, Bob and Jane choose to draft a
postnup that specifies how their assets will be distributed in the event of a divorce. If they
cannot agree on who will keep the house, they agree to sell it and divide the money after
splitting their assets and debts equally.