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

Stewart H. Welch

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Serie: J.K. Lasser
• Sprache: Englisch
• Veröffentlichungsjahr: 2014

Seitenzahl: 584

Beschreibung

Current, relevant estate, retirement and tax planning strategieswith expert insight and advice JK Lasser's New Rules for Estate, Retirement and TaxPlanning is the authoritative guide to estate, retirement andtax planning, fully updated to reflect new changes and legalupdates. Written by some of the most recognized experts in thefield, this book offers useful planning advice for people ofvarious ages and income levels, including information on retirementplanning, trusts, charitable contributions, gifts, life insurance,and wills. In this guide, you'll find up-to-the-minute facts,valuable insight, and solid strategies to help you preserve yourwealth and plan your estate under current tax rules. The helpfulcompanion website provides spreadsheets, tools, and additionalreading to help you get organized, while the book's expert guidanceprovides the background information you need to prepareproperly. Estate planning is a complex topic, made even more complex byconstantly changing laws. Failing to plan properly can result inyour loved ones losing out on much of your hard-earned assets, andresearching the topic on your own can be a minefield ofassumptions, misunderstandings, and potential legal consequences.New Rules for Estate, Retirement and Tax Planning helps yousidestep the confusion, distilling the information down to what'srelevant and current. This practical resource covers a wealth ofimportant issues, including: * Estate planning, taxation, and investing for maximumgrowth * The role of wills, executors, and trusts, and how to treatcharitable contributions * Life insurance, retirement planning, Social Security claimingstrategies and the do's and don'ts of gifting * Business planning, including succession, asset protection, andfamily limited partnerships You've worked hard your entire life. You managed to accumulateassets. New Rules for Estate, Retirement and Tax Planningwill help you maximize the transfer of your assets to the peopleand charities you love rather than the federal government in theform of taxes.

Leseprobe

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J.K. LASSER'STM

NEW RULES FOR ESTATE, RETIREMENT, AND TAX PLANNING

Fifth Edition

Stewart H. Welch III, AEP, CFP®

Harold I. Apolinsky, ESQ., EPLS

J. Winston Busby, ESQ., LLM

Cover design: Wiley

Copyright © 2014 by Stewart H. Welch III, Harold I. Apolinsky, and J. Winston Busby. All rights reserved.

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

The Fourth Edition of Estate and Tax Planning was published by John Wiley & Sons, Inc. in 2012.

Published simultaneously in Canada.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, [phone], fax [phone], or on the Web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, [phone], fax [phone], or online at www.wiley.com/go/permissions.

Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

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Library of Congress Cataloging-in-Publication Data:

ISBN 9781118929995 (Paperback) ISBN 9781118930014 (ePDF) ISBN 9781118930007 (ebk)

CONTENTS

Acknowledgments

Harold Apolinsky, Esq., Estate Tax Law Specialist

J. Winston Busby, Esq., LLM

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

Introduction

Chapter 1: American Taxpayer Relief Act of 2012

Marginal Ordinary Income Tax Rates

Capital Gains Tax Rates and Qualified Dividends

Educational Provisions

Business and Corporate Tax Relief

Estate, Gift, and Generation-Skipping Transfers

The 3.8 Percent Tax on Net Investment Income

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: Retirement Planning: Living Your Dream:

How Much Is Enough?

Your Retirement Requirements

Best Retirement Strategies

Reverse Mortgages

Social Security Strategies

Customizing Your Health Care Plan

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

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 Advisers

Appendix B: Estate Planning Terms

Appendix C: IRS Life Expectancy Table

Index

End User License Agreement

List of Tables

Chapter 1

Table 1.1

Table 1.2

Chapter 3

Table 3.1

Table 3.2

Table 3.3

Table 3.4

Worksheet 3.1

Worksheet 3.2

Worksheet 3.3

Chapter 4

Table 4.1

Table 4.2

Table 4.3

Table 4.4

Table 4.5

Table 4.6

Chapter 5

Table 5.1

Table 5.2

Table 5.3

Table 5.4

Table 5.5

Table 5.6

Worksheet 5.7

Chapter 7

Worksheet 7.1

Worksheet 7.2

Worksheet 7.3

Chapter 10

Table 10.1

Table 10.2

Worksheet 10.1

Chapter 11

Table 11.1

Table 11.2

Chapter 12

Table 12.1

List of Illustrations

Chapter 4

Figure 4.1 Growth Strategy with a Safety Net

®

Chapter 8

Figure 8.1 Simple Will

Figure 8.2 Credit Shelter Trust Will

Figure 8.3 Simple Will with Disclaimer Credit Shelter Trust Option

Figure 8.4 Two-Trust Will Utilizing a General Power of Appointment Trust and a Credit Shelter Trust

Figure 8.5 Two-Trust Will Utilizing a QTIP Trust and a Credit Shelter Trust

Chapter 10

Figure 10.1 Millhouse Estate Plan without Irrevocable Life Insurance Trust

Figure 10.2 Millhouse Estate Plan with Irrevocable Life Insurance Trust

Guide

Cover

Table of Contents

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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. Winston and I owe a special thank you to the 13 other members of our Estate and Probate Department: Katherine N. Barr, Emilee Hellums, Elizabeth Hutchins, Shirley Justice, Leigh Kaylor, Melinda Mathews, Sandy Mullins, Howard Neiswender, Tanya Shunnara, Craig Stephens, Peter Wright, 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, as well as 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 Reva Ramey, 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 adviser.

J. Winston Busby, Esq., LLM

I would like to thank my wife, Casey Busby, who provided me with uninterrupted nights and weekends to work on this book while she managed the rigors of tax season as a CPA. Juggling my absence to work on this book and the long hours required of tax accountants between January 1 and April 15 while we awaited the birth of our first child required significant support and patience from my loving wife, and I thank her for it.

I am extremely grateful to and humbled each day by the chance to learn from and work with Harold Apolinsky, John Baggette, Katherine Barr, George Gaston, Emilee Hellums, Wes Hill Elizabeth Hutchins, Shirley Justice, Leigh Kaylor, Melinda Mathews, Sandy Mullins, Howard Neiswender, Tanya Shunnara, Craig Stephens, and Peter Wright.

I would also like to sincerely thank Harold Apolinsky and Stewart Welch III for providing me with the opportunity to be a coauthor of the fifth edition. Additionally, I would like to thank Craig Stephens, a coauthor of the previous editions of this book, for graciously allowing me the opportunity to be a part of this edition in his place while continuing to provide guidance and support throughout the process. I could not have completed this project without the tireless work and dedication of my assistant, Reva Ramey—thank you.

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 Winston Busby. Harold is not only a true scholar but a true gentleman as well. He has been generous with both his time and his talents over the 30-plus years we have known each other and worked together to benefit clients. Thanks, Harold. I also want to thank Winston Busby for his insightful contributions to this revision. Winston is a rising star in the legal profession and has been a pleasure to work with on this project.

As most of you are aware, insurance can be a very confusing product to understand. Babs Hart specializes in long-term care insurance, and her input regarding that section of the text was invaluable. She also provided technical research regarding the life insurance products discussed in this book.

I also want to thank John West, CPA, a partner with the accounting firm of Sellers, Richardson, Holman and West, LLP, in Birmingham, Alabama. Whenever I get stuck on a complex tax question or calculation, John is the person I turn to for quick, accurate answers.

I am so fortunate to be surrounded by a group of highly talented professional advisers who each helped me with research for this book project. Greg Weyandt, MPA, CPA, is a member (partner) of our firm and the chief operating officer, chief financial officer, and chief compliance officer of both of our financial advisory companies. Greg runs the day-to-day operations with near flawlessness, which allowed me to concentrate on this project. Hugh Smith, CPA, CFP®, CFA, is a member at The Welch Group and the chief investment officer for both companies and is one the brightest tax, market analyst, and financial planning experts I know. Michael Wagner, CPA, CFP®, and Kimberly Reynolds, MS, CFP®, are members at The Welch Group and are among the most all-around talented advisers in the field of financial planning. The Welch Group advisers Foster Hyde, MS, CFP®, and Beth Moody, MS, CFP®, are rising stars at our firm and not only help prepare, but also help run our client meetings. Woodard Peay, CFP®, MBA, is the lead member of our sister firm, Fee-Only Planning Professionals, LLC. Woodard is a seasoned professional in financial planning who also knows what it takes to run a successful business. Joining Woodard are advisers Marshall Clay, Esq., CFP®, and Callie Jowers, CFP®. Marshall graduated from West Point Academy, served our country as a commissioned officer for seven years, then graduated from Cumberland Law School before joining us. Callie graduated magna cum laude in Family Financial Planning & Counseling from the University of Alabama.

Our adviser team is supported by an incredible administrative team that includes Roxie Jones, Ramona Boehm, Wendy Weber, Jeff Davenport, Kristi Hoffman, Kelly DeRoy, Melissa Erikson, and Andrea Messick. Writing a book revision and meeting promised deadlines is as time consuming as it is intellectually stimulating, and the price charged is often paid by family members. I offer a special thanks to my wife, Kathie, for her patience related to this and my many other endeavors. I also have two wonderful sisters, Jean Watson and Babs Hart, who have always been cheerleaders for all my endeavors.

Perhaps the single most influential person in my life is my father, Stewart H. Welch Jr. At age 95 he is still conjuring up new financial and tax strategies for us “less seasoned” advisers to consider. He truly is a remarkable person!

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.

Harold, Winston, and I feel very fortunate to have the opportunity to work with the prestigious publishing house of John Wiley & Sons, Inc., a traditional “blueblood” firm whose roots can be traced back to 1807. We could not mention John Wiley & Sons, Inc., without thanking “our Wiley team”: Senior Editor Laura Gachko, Editorial Program Coordinator Tula Batanchiev, and Judy Howarth.

Introduction

Much of the world we find ourselves in today is defined by chaos, complexity, and a constant state of change. The IRS tax code and accompanying regulations currently runs about 40,000 pages! And then there are our elected representatives in Congress who feel it's their mandate to constantly change laws and regulations. The financial markets today are complex and, in many ways, globally intertwined, making it impossible to predict how events in one part of the world may affect markets in other parts of the world. It's no wonder that so many people simply throw their hands up and focus on trying to pay their bills rather than planning for long-term events like estate, retirement, and tax planning.

I own two fee-only investment management and financial advisory firms serving clients throughout the United States. Harold Apolinsky is one of the country's most respected estate tax lawyers. He has testified before Congress and spent innumerable hours in Washington lobbying influential senators and representatives, working hard to make our estate tax laws less complicated and more fair. Winston Busby, one of Harold's protégés, is a highly intelligent and resourceful young estate-planning attorney. Together, our combined experience helping families plan their financial futures exceeds 90 years. We have had the opportunity to work with many affluent individuals and families 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. This book was not written just for the affluent but also 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 there's a lot more you could do in the area of estate, retirement, and tax planning. This is the reason we wrote this book. The purpose of J.K. Lasser's New Rules for Estate, Retirement, and Tax Planning, Fifth Edition, is to make certain that you have taken steps to make sure your finances are in order and that you have a specific strategy in place. Whether you are a wealthy Baby Boomer (or not so wealthy) or a Millennial (or a generation in between) who just wants to know the basics of writing a will, how much you should be saving for retirement, or how best to cut your income taxes, 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 2012 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 some 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. Whether you are a pre-retiree (planning to retire within 10 years), already retired, or retirement is decades away, we outline the very best strategies for you to use to create your best retirement possible.

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. Be sure to read the section about the Legacy Trust: a concept you can use to create a financial safety net for future generations of family members (made famous by the Rockefellers and Kennedys).

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 will result 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, retirement, and tax 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 plan at all. To help support you with this process, your coauthors will gladly help you find an adviser to assist you with your needs (Appendix A). In Appendix A we also offer tips on how to get the most out of your advisers while minimizing their fees.

Because the world around us is constantly changing and we want you to stay on top of these changes, it is our intention to develop and maintain a Web link with updates of important changes related to the content of this book as well as other topics we believe would be of concern to you. You can access this resource by visiting the Resource Center at www.welchgroup.com; click on “Links,” then “Estate Book Updates.”

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®Accredited Estate Planner

CHAPTER 1American Taxpayer Relief Act of 2012

President Obama signed the American Taxpayer Relief Act of 2012 (2012 Tax Relief Act) on January 2, 2013, to avert the impending “Fiscal Cliff.” With the expiration of the American Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, many tax provisions originally enacted under the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) were set to expire on December 31, 2012. The 2012 Tax Relief Act prevented the increase of individual income tax rates for all taxpayers, continued favorable tax rates for net capital gains and qualified dividends, and prevented the basic exclusion amount for the estate, gift, and generation-skipping taxes from reverting to $1 million. Thus, the 2012 Tax Relief Act was a necessity and provided taxpayers with much needed stability, especially in the context of the estate, gift, and generation-skipping taxes.