Basic Financial Planning for Newlyweds




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Step 8: Have an Attorney Draft Certain Essential Documents


Your Initial Financial Plan:


Have You Read...

Plan Now or Pay Later: Judge Jane's No Nonsense Guide to Estate Planning

Too little, too late! Everyone regrets missing the boat now and then. But when it comes to estate planning, too little, too late means less—often a lot less—for your heirs. That's where this straightforward, easy-to-use guide comes in. Judge Jane Lucal meshes her years of experience as a probate judge with sound financial planning concepts. Having seen every mistake imaginable firsthand in the courtroom, she helps families anticipate the pitfalls of estate planning and capitalize on the slew of techniques that can maximize the transfer of wealth from generation to generation.   

To order this book from Barnes&, click on Plan Now or Pay Later


Are You a Do-It-Your-Selfer?

Thanks to the Internet, do-it-your-selfers can now find plenty of information on-line that enables them to do almost anything on their own.  If you'd like to save some legal fees, take a look at the wills and living wills available at

Looking For a CPA, Lawyer or Financial Advisor who has worked with lots of other newlyweds and is familiar with the issues that affect you?  



Reward Yourselves

You Did It!!

Competing all eight steps is not easy. You deserve to take a little vacation. 

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What Legal Documents Do Most Couples Need?

  1. A Durable Power of Attorney

  2. A Living Will

  3. 2 Wills, especially if you have substantial assets or a specific plan as to how you want your assets disbursed.

Contact an attorney to help you with these items!! 

  • Durable Power of Attorney:  These allow your spouse (or another person) to make financial decisions on your behalf in the event you become mentally or physically unable to do so.

  • Living Will:  These allow your spouse (or any other person) to make medical related decisions on your behalf in the event you become incapacitated.

  • 2 Wills:  Most everyone knows what a will is.  There are many advantages to having a separate will drawn up for each spouse.  If the attorney doesn't recommend separate wills for you and your spouse, seek the advice of another attorney.

Good News for People Who Live Beyond 2001

Effective for 2002, the estate tax rates will decrease, and the amount exempt from tax will increase over the next ten years, according to the following schedule:


Exemption Amount

Top Tax Rate


$1 million



$1 million



   $1.5 million



   $1.5 million



$2 million



$2 million



   $3.5 million



Estate tax repealed

It should be noted that even though all of the law's provisions are not fully phased in until 2010, the Act contains a sunset provision rescinding the entire law in 2011 unless a future Congress acts to extend it.

The Basics of Basic Estate Planning

Just as most people have at least a basic understanding of income taxes, it is fair to say that most people lack a basic understanding of estate planning. What people find to be most surprising about the estate tax system is that, upon the death of an individual, the government can take as much as 55% of that person's wealth in the form of estate taxes. (I guess they figure a dead person can't complain too much about paying taxes.) You don't even need to be that wealthy to find yourself in the 40% marginal estate tax rate. When you factor in your home, retirement plans, and life insurance, the fair market value of all of your assets that will be taxed upon your death probably add up to more than you think.

How does the estate tax system work?

Anyone who dies during 2001, the first $675,000 of their assets will not be subject to estate taxes. If a person's assets exceed that threshold, the excess is taxed at the following rates:


Taxable Estate

Marginal Estate Tax Rate

Up to $750,000


$750,001 to $1,000,000


$1,000,001 to $1,250,000


$1,250,001 to $1,500,000


$1,500,001 to $2,000,000


$2,000,001 to $2,500,001


$2,500,001 to $3,000,000


$3,000,001 to $10,000,000



For Example:

Assume an unmarried individual dies with the following assets:

  1. A home worth $250,000 with a mortgage of $100,000

  2. Retirement accounts and IRAs worth $300,000

  3. Non-retirement savings worth $50,000

  4. Life insurance with a death benefit of $500,000

The total taxable estate for this individual will be worth $1,000,000 and the estate taxes on $1,000,000 will equal $125,250!! ([750,000 - 675,000]*.37 + [1,000,000 - 750,000]*.39).

What if you are married?

If you are married, the rules allow you, upon your death, to transfer everything to your spouse estate tax free. Known as the marital deduction, this is a nice short-term solution, as the surviving spouse can take ownership of all of the assets without paying any estate taxes to the federal government.

Taking advantage of the marital deduction, however, could cause the estate of the surviving spouse to be hit with a huge estate tax bill. For example, assume a married couple who owns the following assets:

  1. A primary residence worth $250,000 with a mortgage of $100,000

  2. Each spouse has retirement accounts worth $300,000

  3. Total non-retirement savings worth $100,000

  4. Each spouse has life insurance with a death benefit of $250,000

When the first spouse dies, all of the assets transfer to the second spouse. When the second spouse dies, the taxable estate is worth $1,350,000 and the estate will be subject to estate taxes of $270,750. ([750,000 - 675,000]*.37 + [1,000,000 - 750,000]*.39 + [1,250,000 - 1,000,000] * .41 + [1,350,000 - 1,250,000]*.43) By taking advantage of the marital deduction, the spouse that died first did not benefit from the $675,000 exclusion available to him.

What can be done to minimize the estate taxes?

One of the principles of basic estate planning is to make sure that each spouse takes maximum advantage of the $675,000 exclusion. To minimize the estate taxes that will be paid upon the death of you (and your spouse), there are three steps that you need to take.

  1. If you are married, you and your spouse must each have your own will. As part of the will, trusts should be established and funded upon your death.

  2. If you are married, you might benefit by not holding certain of your assets jointly. Instead, each asset should be held by either you or your spouse. (Holding assets jointly will make them unavailable to fund the trusts upon your death.)

  3. If you hold significant life insurance, the insurance should be owned by an irrevocable trust with the beneficiary of the life insurance being the trust. (Insurance held in an irrevocable trust avoids being part of your taxable estate.)

Let's work through another example. This time, assume the married couple has two assets: stock in Company A worth $675,000, and stock in Company B worth $675,000. Earlier this year, this couple met with capable estate planning attorneys, had two wills drafted, and changed the ownership of Company A to the husband's name and Company B to the wife's name.

Two weeks after all the documents were properly executed, the husband died. Instead of having the stock of Company A go to his wife via the marital deduction, the will instructed that the stock be used to fund a trust. If necessary, the wife can use the income and assets of the trust to maintain her lifestyle, but otherwise, the trust will stay intact and will go to the husband's heirs upon the death of the spouse. Since the amount that funded the trust was worth $675,000, the husband's estate was not subject to any estate taxes.

Two weeks after the husband dies, the wife unfortunately dies as well. As instructed by her will, the stock of Company B passes to her heirs. Since the value of the stock is only $675,000, there are no federal estate taxes to pay. In addition, the stock of Company A, which is in the trust, also passes to the heirs estate tax free. By having two wills, and making sure that no assets are held jointly, a married couple with assets of $1,350,000 (in 2001) can avoid paying any estate taxes. If you look at the earlier example in which the couple took advantage of the marital deduction, the estate of a couple with assets of $1,350,000 (in 2001) who did no estate planning ended up paying $270,750 in estate taxes.


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