Unit 10 - Financial Planning for special circumstances Flashcards Preview

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Flashcards in Unit 10 - Financial Planning for special circumstances Deck (14):

List the tax considerations resulting from Divorce

  1. Qualifying alimony is tax deductible by the payor and taxable to the recipient.
  2. Child support is neither tax deductible by the payor nor taxable income to the payee
  3. A property settlement is considered to be a non taxable exchange between the divorcing spouses
  4. Generally the dependency exemption for incom tax purposes is awared to the parent who has custodiy of the children for the greater part of the calendar year. 
  5. Qualified Domestic relations orders (QDRO) should be used to divide qualified retirement plan assets amon the spouses at the time of divorce.  Assets may be transferred from one spouse to the other without any immediate tax consequences.


Describe a living will

Drafted by an individual is in full capacity giving personal directions to a physician regarding health care in the even of being severlyh disabled or suffering from a terminal illness


Describe a Durable Power of attorney for health care

document authorizing someone else to make medical decisions on the principals behalf.  The power takes effect whenever the principal cannot give informed consent to a medical decision an not just in the vbent that the principal has a terminal illness.


Describe a Revocable Living trust

Has many uses but one of its most prevalent is the appointment of a successor trustee to take over the clients property management in the event that he is no longer able to do so


Describe a Durable power of attorney for property

Concerns an incapacited persons property, rather than personal care.  May be springing or non springing.


Springing power of attorney vs. Non sprining power of attorney.

Springing power of attorney becomes effective only upon the principals legal incapacity.

Non Springing power of attorney becomes effective upon the date of execution of the power.



What are the differences between a Durable POA and a non Durable POA?

A Durable POA survives the principals incapacity, a non durable POA ceases when the principal's incapacity begins.


Describe a 72(t) distribution

Prior to age 59 1/2 withdrawing the retitrement funds in substantially equal payment over the participants life expentancy. 

Avoids the 10% early withdrawal penalty.


Describe COBRA Benefits

Continuing with cover under the former employers group plan for 18 months


Describe a special needs trust?

Permits individuals who mee the Social Security disability definition to maintain eligibility for certain public benefits such as medicaid while at the same time preserving private assets to provide for services not available via public programs.


Describe the 4 types of Special needs trusts

  1. Settlement/Litigation special needs trust - Established with the proceeds obtained on behalf of a disabled individual from a personal injury action.
  2. Pooled Special Needs trust - Uses pooled assets for investment purposes and preserves Medicaid benefits for disabled individuals over age 65 whose own assets are used to fund the trust.
  3. Third Party special needs trust - Created by interested third parties to benefit a disabled individual.
  4. Family SNT - Used in traditional estate planning for familes with disabled individuals.


Lottery winning considerations

The winner who is given the option of recieving either a lump sum or an annuity must include the full value of the annuity in income immediatley if she takes the proceeds over time.  With one exception.

If the state allows it, under this option if the annuity payout is at least 10 years, they are taxable as recieved rather than all at once.


Describe Compensatory damages

Damages arising out of a personal injury lawsuit considered only to make the injured party whole.

Income tax free to the injured party.

If damages are recieved due to age, sex or or racial descrimination cases are generally taxable.


Describe punitive damages

Damages arising out of a persoanl injury lawsuit that are intended to punish the tortfeaser fo there acts.

Generally taxable

One notabale exception, if the damages are awarded as a result of a wrongful death suit by the plaintiff and if state law permits, these damages are income tax free.