AARP JK Lasser's New Rules for Estate and Tax Planning E-Book

Stewart H. Welch

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 520

Veröffentlichungsjahr: 2012

Beschreibung

AARP Digital Editions offer you practical tips, proven solutions, and expert guidance. A complete guide to planning an estate under today's tax rules When it comes to an estate (no matter how big or small it may be) nothing should be left to chance. Proper planning is necessary to protect both your assets and your heirs. Estate Planning Law Specialists Harold Apolinsky and Craig Stephens and expert financial planner Stewart Welch III know this better than anyone else, and in the revised and updated edition of J.K. Lasser's New Rules for Estate and Tax Planning, they offer valuable advice and solid strategies to help you plan your estate under today's tax rules as well as preserve your wealth. Packed with up-to-the-minute facts, this practical resource covers a wealth of important issues. * Reveals how new legislation will impact inheritances and trusts and offers guidance for estate and generation-skipping tax planning * Explains the role of wills, executors, and trusts and shows how to treat charitable contributions * Outlines the do's and don'ts of gifting and explains life insurance and retirement planning * Filled with in-depth insights and expert advice, this book will show how to efficiently arrange your estate today so that you can leave more to those you care about tomorrow.

Leseprobe

MAKING YOUR MONEY WORK FOR YOU

Maybe you’re thinking it’s time to review your investment strategy and make the most of the money you have today. Maybe you’ve already built a financially successful retirement egg and want to protect what you’ve built. Or maybe you need to bulk up your earnings to ensure your family’s future.

Welcome to money for grown-ups. Where do you turn for credible information?

Dedicated to helping you protect your assets, stretch your dollars, and bolster your longterm security, AARP can offer you powerful solutions. Whatever your strategy for managing money, we’ve got suggestions that will help – from saving money on that next big purchase to planning your charitable giving. If you’re taking your job to the next level or building up a second career, we’ve got strategies that will help you make your mark.

You may think your money — or your financial advisor — should be working harder for you. You may be watching market trends and seeing new opportunities. And, of course, you want to protect yourself and your loved ones from scams and data breaches. We can give you the support you need.

And turn to us for fun, too. (Is it time for that car, that trip, that weekend home you’ve always wanted?) Because that, too, is what this time of your life is about.

AARP is a nonprofit, nonpartisan membership organization that helps people 50 and older improve their lives. For more than 50 years, AARP has been serving our members and society by creating positive social change. AARP’s mission is to enhance the quality of life for all as we age; lead positive social change; and deliver value to members through information, service and advocacy. This information in this book is for educational purposes and does not constitute financial advice.

Contents

New Cover

Original Cover

Letter

Series

Title Page

Copyright

Acknowledgments

Harold Apolinsky, Esq., Estate Tax Law Specialist

Craig Stephens, Esq.

Stewart Welch III, Accredited Estate Planner, Certified Financial Planner™

Introduction

Chapter 1: Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010

Marginal Ordinary Income Tax Rates

Capital Gains Tax Rates

Educational Provisions

Business and Corporate Tax Relief

Estate, Gift, and Generation-Skipping Transfers

Chapter 2: Estate Planning

What Is Estate Planning?

The Benefits of Estate Planning

The Nightmares of Poor Planning

The Myths of Estate Planning

Guidelines for Successful Estate Planning

Chapter 3: The Estate Tax System

Determining Your Estate Net Worth

Understanding the Estate Tax System

Your Estate Tax Picture

Your Future Estate

Overview of Estate Planning Strategies

Chapter 4: Investment Strategies for Maximizing Estate Growth

Growth Strategy with a Safety Net®

Prioritizing Your Investment Dollars

Retirement Planning: Choosing the Best Investment Environments

Some Final Thoughts on Investing

Chapter 5: Retire with Dignity

Your Retirement Requirements

Chapter 6: You Don't Have a Will? Big Trouble!

Property Transfers at Death

Transfers via Probate

Direct Transfers by Title

Other Methods of Property Ownership

Choosing the Best Methods of Ownership

Setting Estate Planning Goals

Chapter 7: Where There's a Will, There's Your Way!

What Is a Will?

Types of Wills

Advantages and Disadvantages of Wills

Intelligent Decisions Concerning Your Will's Basic Provisions

Executing Your Will

Where to Store Your Will

Other Important Documents

Working with Your Attorney

When to Review Your Estate Plan

Chapter 8: Using Trusts in Your Estate Plan

The Credit Shelter Trust Will

Disclaimers

Marital Trusts

Spendthrift Trust

Standby Trust

Other Trusts

Chapter 9: Understanding the Living Trust

Advantages of Living Trusts

Disadvantages of Living Trusts

How a Living Trust Operates

Transferring Property into Your Living Trust

Types of Property Likely to Be Transferred

Living Trust Myths

Transacting Business with Your Trust

Chapter 10: Using Insurance in Your Estate Plan

Life Insurance

Using Life Insurance to Replace Income

How Much Life Insurance Do You Need?

What Type of Life Insurance Is Best for You?

Insurance on a Homemaker

Insurance on Adult Children

How to Get the Best Deal on Term Life Insurance

Insurance Warnings!

Using Life Insurance for Estate Liquidity

How Much Is Enough?

What Type of Life Insurance Is Best for Estate Liquidity?

The Irrevocable Life Insurance Trust

Getting Your Life Insurance into Your Trust

Using Life Insurance to Leverage Your Estate

About Your Cash Values

Long-Term Care Insurance

Chapter 11: Smart Strategies for Gifting Assets to Family Members

The Annual Gift Tax Exclusion

Unintended Gifts

Filing a Gift Tax Return

The Lifetime Applicable Exclusion Amount

Outright Gifts

When the Donee Is a Minor

Other Tax-Free Gifts

Family Gifts Utilizing Trusts

Grantor Retained Annuity Trust

Grantor Retained Unitrust

Qualified Personal Residence Trust

Taking Advantage of Generation-Skipping Transfers

Sales to Family Members

Loans to Family Members

Sales to Intentionally Defective Grantor Trusts (IDGT)

The Legacy Trust

Chapter 12: Strategic Planning with Charities

Outright Gifts to Charities

Testamentary Gifts to Charities

Gifts Using Charitable Trusts

Using Your Charitable Trust for Retirement Planning

The Private Foundation

Chapter 13: Family Limited Partnerships

General Structure of the Family Limited Partnership

Family Limited Partnership Rules

Chapter 14: Succession Planning for the Family Business or Farm

Special Estate Tax Benefits for Farmers and Closely Held Business Owners

Valuing Your Business or Farm

Succession or Sale?

Succession Planning: Keeping the Family Business in the Family

Maximizing Your Business's Value through a Sale

Structuring Your Buy-Sell Agreement

Types of Buy-Sell Agreements

Funding the Buy-Sell Agreement

One Final Strategy—The Employee Stock Ownership Plan

Chapter 15: Asset Protection Strategies

The Concept of Fraudulent Transfers

A Word about Jointly Held Property

Retirement Plans

Life Insurance

Using Trusts to Protect Assets

Using Limited Liability Entities to Protect Assets

Use of Multiple Limited Liability Entities

Foreign Asset Protection Trusts

Domestic Asset Protection Trusts

Chapter 16: Personal Business Planning Issues

Choosing the Right Entity for Your Business

Closing Thoughts

Importance of a Business Plan

Epilogue: Dealing with Parents and Their Money

Appendix A: Professional Advisors

Appendix B: Estate Planning Terms

Appendix C: IRS Life Expectancy Table

Index

Look for these and other titles from J.K. Lasser—Practical Guides for All Your Financial Needs

J.K. Lasser's Small Business Taxes by Barbara Weltman

J.K. Lasser's 1001 Deductions and Tax Breaks by Barbara Weltman

J.K. Lasser's Real Estate Tax Edge by Scott Estill and Stephanie Long

J.K. Lasser's The New Bankruptcy Law and You by Nathalie Martin and Stewart Paley

Copyright © 2012 by Harold Apolinsky, Stewart Welch, and Craig M. Stephens. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data

Welch, Stewart H. J.K. Lasser's new rules for estate and tax planning : keep more today, leave more to your heirs tomorrow / Stewart H. Welch, III, Harold I. Apolinsky, Craig Stephens. – 4th ed. p. cm. – (J.K. Lasser–practical guides for all your financial needs) Includes index. ISBN 978-1-118-11355-4 (pbk.); ISBN 978-1-118-16644-4 (ebk); ISBN 978-1-118-16645-1 (ebk); ISBN 978-1-118-16646-8 (ebk) 1. Inheritance and transfer tax–Law and legislation–United States. 2. Estate planning–United States. I. Apolinsky, Harold I. II. Stephens, Craig M. III. Title. IV. Title: New rules for estate and tax planning revised. KF6585.A66 2012 343.7305′3–dc23 2011029302

Acknowledgments

Harold Apolinsky, Esq., Estate Tax Law Specialist

It would not have been possible to write a book of this magnitude without the support, assistance, and encouragement of our law firm, Sirote & Permutt. We owe a special thank you to the 13 other members of our Estate and Probate Department: Katherine N. Barr, Elizabeth Hutchins, Shirley Justice, Leigh Kaylor, Melinda Mathews, Joel Mendler, Sandy Mullins, Tanya Shunnara, Melissa May, Peter Wright, Mike Thomas, John Baggette, and George Gaston—bright and gifted lawyers who believe in top-quality legal care, outstanding service to clients, and innovation.

We are all constantly seeking and studying new estate planning ideas to help clients not only accumulate wealth, but keep wealth within their families. I want to acknowledge the encouragement of my wife, Marissa Levine Apolinsky, who exhibited unlimited patience as I spent time writing. Also, the years of encouragement from my children, Steve Apolinsky, Felice Apolinsky, and Craig Apolinsky, who convinced me that with hard work and determination nothing was impossible to achieve. Finally, without the help of our loyal assistants, Marsha Self and Beverly Stradford, and our top estate planning associates Tanya Shunnara, Esq., and Melissa May, Esq., the demanding publishing deadlines could never have been met. The most fun for me has been to work with Stewart Welch, a most gifted individual and innovative financial advisor.

Craig Stephens, Esq.

I would like to thank my wife, Jenna S. Stephens, who provided me with uninterrupted time working on this book. Juggling this book revision, a blessed practice, teaching Estate Planning at Cumberland School of Law, and parenting two-year-old twins required significant support from my loving wife, and I thank her for it.

I would also like to thank Harold Apolinsky and Stewart Welch III for providing me with the opportunity to be a part of the fourth edition of this book and a coauthor of the fourth edition. I am fortunate to have worked with Harold and Stewart on many projects, and our collaborative efforts will hopefully lead many families to produce a lasting legacy for decades to come.

Stewart Welch III, Accredited Estate Planner, Certified Financial Planner

This book would have never happened without help and moral support from many people. First and foremost, I want to thank my coauthors, Harold Apolinsky and Craig Stephens. Harold is not only a true scholar but a true gentleman as well. He has been generous with both his time and his talents. Thanks, Harold. I also want to thank Craig Stephens for his insightful contributions to this revision. Craig is a rising star in the legal profession.

Bob Holman, CPA, is a senior partner with the accounting firm of Sellers, Richardson, Holman & West, LLP., in Birmingham, Alabama. I have had the distinct pleasure of working with Bob for more than two decades. He is unquestionably one of the brightest people I have ever met.

As most of you are aware, insurance can be a very confusing product to understand. I am fortunate to have had the assistance of two of the country's top insurance specialists. I would like to thank my father, Stewart H. Welch Jr., CLU, who has been a top professional in the business for more than 50 years. He never ceases to amaze me with his energy and creative ideas. I have truly been blessed to have had his guidance throughout my life. Babs Hart specializes in long-term care insurance, and her input regarding that section of the text was invaluable.

I could not have considered attempting this project without the assistance and moral support of my associates. Greg Weyandt, CPA, is a member and the Chief Operating Officer and Chief Compliance Officer of both of my financial advisory companies and runs the day-to-day operations with near flawlessness which allowed me to concentrate on this project. Michael Wagner, CPA, CFP® and Kimberly Reynolds, MS, CFP® are Senior Advisors at The Welch Group. Their expertise and diligence in preparing for our client meetings has made my life much easier and enjoyable. Their efforts are ably supported by Associate Advisor, Foster Hyde. Jeff Davenport, Wendy Weber, and Ramona Boehm can always be counted on to make certain our administration operations run smoothly. Roxie Jones is our receptionist and always makes everyone feel well taken care of. Woodard Peay, CFP®, MBA, is a member in Fee-Only Planning Professionals, LLC, a financial advisory firm in which I am the principal owner. Woodard is extraordinarily bright and a seasoned professional. I am grateful to Woodard and his key associates; Beth Moody, MS; and Melissa Erikson for running their company so well. I owe a special thanks to Hugh Smith, CPA, CFP®, CFA, for his expert support of this project. Hugh is a member at The Welch Group and the Chief Investment Officer for both companies.

I feel very fortunate to have the opportunity to work with the prestigious publishing house of John Wiley & Sons, Inc., a traditional “blue blood” firm whose roots can be traced back to 1807. I could not mention John Wiley & Sons, Inc., without thanking Editorial Director Debra Englander, a longtime friend of mine who has become as much my sister as a trusted colleague.

Writing a book of this type is a full-time job in and of itself. Because running my company is also a full-time job, my family ends up paying a large price for my commitments. The biggest price by far was paid by my wife, Kathie. She endured many weeknights and most weekends alone while I spent much of my nonwork time writing. Throughout the entire time she remained very supportive, and I love her even more for it. I especially want to thank my mother, Sally Welch, for her constant prayers and support. She is a fine person who has been a guiding light all of my life. I also have two wonderful sisters, Jean Watson and Babs Hart, who have always been cheerleaders for all my endeavors.

There is no way to express how grateful I am for the wonderful clients I have the pleasure of serving. Each, in their own way, has contributed to my own learning and therefore to this book.

Finally, Harold, Craig, and I would like to thank two people for their special assistance with this book project. Kimberly Bernard is Development Editor at John Wiley & Sons, Inc. Kim helped keep this project on schedule and provided valuable assistance to the editing process.

In addition Professor Jeffrey A. Cooper is a professor of law at Quinnipiac University School of Law in Hamden, Connecticut. While using our book as a resource for his classes, Professor Cooper offered invaluable suggestions for improving the content for this revision.

Introduction

Writing a book of this magnitude requires a tremendous amount of time and emotional energy. I agreed to take on this project only under the condition that I could convince one of the country's best legal minds to join me as a coauthor. To my great delight, Harold Apolinsky agreed to my proposal. Harold is one of the country's most respected estate tax lawyers. He testified before Congress and spent innumerable hours in Washington lobbying influential senators and representatives. He served as general counsel for the American Family Business Institute. The American Family Business Institute is the premiere trade association educating members of Congress on the need for major reform of the estate tax. Dick Patten serves as the president and CEO of the American Family Business Institute in Washington, D.C. For more information, please visit www.nodeathtax.org. I am also delighted that Harold convinced his protégé, Craig Stephens to also coauthor this book. Craig is both highly intelligent and resourceful and has been a pleasure to work with on this project.

I own a fee-only wealth management firm serving a nationwide clientele, Harold is the senior tax and estate planning member of Sirote Permutt, one of Alabama's largest law firms along with Craig Stephens, who is a partner in the same law firm. Together, we have had the opportunity to work with many affluent individuals throughout the United States. The common characteristic that we find among them is that they take pride in both their financial success and in their ability to handle their finances. But this book was not written just for the affluent but for the many people who want to become affluent.

What does it take? Although you may already have accumulated a sizable estate and feel comfortable handling your investments, chances are you haven't paid sufficient attention to estate planning. This is the reason we wanted to write this book. The purpose of J.K. Lasser's New Rules for Estate and Tax Planning, Fourth Edition is to make certain that you have taken steps to make sure your estate is in order and that you have a specific strategy in place. Whether you are just getting your financial feet on the ground or you are a millionaire many times over, this book offers valuable strategies you can use today and in the future.

As you read this book, we encourage you to keep your parents' situation in mind because some of the more advanced strategies may be more appropriate for them than for yourself. You may want to discuss these issues with them or lend this book to them. After all, you should all share the goal of maximizing the amount of money that you can transfer to your heirs and charitable organizations.

The book begins with an overview of the most important aspects of the 2010 Tax Relief Act. You will be able to use this chapter as a reference tool for reviewing significant estate and income tax laws affecting you.

Next, you will need to assess the adequacy of your current estate plan. What is the value of your total estate? You will learn how to determine your estate net worth. This is vital because knowing its value will let you define the resources available to your family to provide for their income needs should you die prematurely. You will also be able to determine approximately how much in estate taxes your heirs might owe.

It is also important to assess whether you are on track toward retirement---are you accumulating enough investment assets to provide you with a worry-free retirement? Studies indicate that the average working American is saving less than one-third of what he or she needs to have enough assets to maintain the same lifestyle during retirement. In many cases, this shortfall will be made up from inheritances. If you find out that you're lagging behind, this book will help you figure out how much you need to be investing to get on track, and you'll learn how to devise an appropriate investment plan.

Another key aspect of estate planning is, of course, having a will. Research indicates that as many as 80 percent of adult Americans either don't have a will or their will is out-of-date. If you fall into this group, you should stop procrastinating. It really does matter if you die without a will! We'll outline the perils of dying without one. The resulting chaos will surprise you. You'll learn how to prepare yourself so that you can minimize the time and expense of working with an attorney.

The use of trusts is a vital part of most estate plans. You can use them to protect your children from themselves, to protect you from possible future creditors, or to save on income and estate taxes. These are powerful weapons in the war to protect your assets for yourself as well as future heirs. It is our experience that many people carry large amounts of life insurance, including their employer's group life. Utilizing some type of trust is often an invaluable estate planning tool. You'll learn about the irrevocable life insurance trust, living trust, and other types of trusts.

Many of you face the difficult task of funding your children's education. You'll learn how to effectively use qualified tuition plans and education individual retirement accounts as well as custodial accounts and minors' trusts. You'll also learn about how grandparents can be willing partners in assisting with your children's educational expenses.

If you are interested in providing financial support to a religious organization, an educational institution, or a favorite charity, you'll gain insights on the best ways to maximize the effectiveness of your donations. Often, gifts to tax-exempt organizations can solve a financial dilemma such as how to convert low-basis non-income-producing property into income-producing property while avoiding a large tax bill.

Once you have accumulated enough assets for your retirement years, you may want to shift your focus to transfer strategies for your children and other heirs. We'll outline strategies that will allow you to transfer to heirs significant wealth at a fraction of its market value while maintaining control of your property.

People who own a family business or farm often face a perilous future; this is especially worrisome because many of these individuals desperately want to ensure that the business or farm remains in the family so that it can be continued by future generations of family members. Obstacles to this goal include estate taxes and lack of liquidity. The solution is a well-developed transition plan, which is also fully explained in this book.

In today's litigious society, many people fear the threat of a lawsuit that results in financial ruin. Feeling helpless, we may cross our fingers and hope it does not happen to us. A preferable approach is to be proactive. If you consider yourself a likely target, you can do many things to protect your assets. Some solutions are as simple as transferring assets to a spouse who is less at risk. Other solutions include the use of trusts, family limited partnerships, and even more exotic options such as domestic or foreign asset protection trusts. For entrepreneurs, we extensively review the pros and cons of the various entity choices you have for operating your business.

As you develop and implement your estate plan, you'll almost certainly need the assistance of a qualified professional. Finding the right person, someone who is truly qualified, can be a daunting task. It is one of the reasons many people fail to establish their estate plan. To help support you with this process your coauthors will gladly help you find an advisor to assist you with your needs. In Appendix A are tips on how to get the most out of your advisors while minimizing their fees.

As Americans, our limitations are constrained only by our own imagination, our willingness to take time to develop an appropriate strategy, and the self-discipline to execute our game plan. Picking up this book is an essential first step. Carefully reading it and implementing the strategies most appropriate to your situation will enable you to take a giant leap toward taking charge of your financial destiny. May God smile on your journey.

Stewart H. Welch III, CFP®, AEP

Chapter 1

Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010

President Obama signed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (2010 Tax Relief Act) on December 17, 2010. With many tax provisions originally enacted under The Economic Growth and Tax Relief Reconciliation Act of 2001 set to expire or already expired, the 2010 Tax Relief Act was a necessity. Taxpayers needed stability, and Congress reached a compromise tax legislation bill with the 2010 Tax Relief Act.

Like previous tax acts, unfortunately, the stability will be short lived. Most of the provisions in the 2010 Tax Relief Act will, once again, expire after December 31, 2012. Therefore, we can expect a new tax act to be discussed, negotiated, and enacted sometime in late 2012. In the meantime, taxpayers should become familiar with an overview of the 2010 Tax Relief Act and its effect on income tax provisions, business tax provisions, education incentives, and transfer tax provisions.

Without a new tax act in 2012, income tax rates will rise, estate tax rates will rise, gift tax rates will rise, and generation-skipping tax rates will rise. Undoubtedly, these potential tax increases will become the subject of the 2012 election season. In 2012, there will be a presidential election and many seats in Congress will be up for re-election. Therefore, we can expect great debate on the future of our tax system as we approach the end of 2012. This debate will lead to type of tax act that will likely be effective on January 1, 2013. Therefore, it will be important to remain in contact with your tax advisors to fully understand how the inevitable 2013 tax act will affect you. In the meantime, a short window exists for planning opportunities that will be discussed throughout this book.