JK Lasser′s New Rules for Estate, Retirement, and Tax Planning

STEWART H. WELCH III, AEP, CFP(R), is a nationally recognized financial advisor who has served as Chair of the Disciplinary and Ethics Commission and as a member of the Board of Directors of the Certified Financial Planner Board of Standards, Inc. HAROLD I. APOLINSKY, ESQ., EPLS, is a board-certified estate-planning attorney with the law firm Sirote & Permutt, PC in Birmingham, Alabama. He previously taught estate planning at the Cumberland School of Law and the University of Alabama Law School. J. WINSTON BUSBY, ESQ, LLM, is an attorney at Sirote & Permutt, PC, focusing on tax and estate planning, income taxation of trusts and estates, succession planning, charitable giving techniques, and tax-exempt entities. J.K. Lasser Practical Guides for All Your Financial Needs Please visit our Web site at www.jklasser.com

Acknowledgments xi Introduction xv 1. American Taxpayer Relief Act of 2012 1 Marginal Ordinary Income Tax Rates 2 Capital Gains Tax Rates and Qualified Dividends 2 Educational Provisions 2 Business and Corporate Tax Relief 5 Estate, Gift, and Generation-Skipping Transfers 5 The 3.8 Percent Tax on Net Investment Income 10 2. Estate Planning 13 What Is Estate Planning? 13 The Benefits of Estate Planning 14 The Nightmares of Poor Planning 16 The Myths of Estate Planning 17 Guidelines for Successful Estate Planning 18 3. The Estate Tax System 21 Determining Your Estate Net Worth 21 Understanding the Estate Tax System 21 Your Estate Tax Picture 26 Your Future Estate 30 Overview of Estate-Planning Strategies 30 4. Investment Strategies for Maximizing Estate Growth 33 Growth Strategy with a Safety Net(R) 34 Prioritizing Your Investment Dollars 38 Retirement Planning: Choosing the Best Investment Environments 39 Some Final Thoughts on Investing 48 5. Retirement Planning: Living Your Dream 49 Your Retirement Requirements 49 Best Retirement Strategies 58 Reverse Mortgages 65 Social Security Strategies 68 Customizing Your Health Care Plan 73 6. You Don t Have a Will? Big Trouble! 77 Property Transfers at Death 78 Transfers via Probate 78 Direct Transfers by Title 81 Other Methods of Property Ownership 85 Choosing the Best Methods of Ownership 86 Setting Estate-Planning Goals 87 7. Where There s a Will, There s Your Way! 89 What Is a Will? 89 Types of Wills 89 Advantages and Disadvantages of Wills 91 Intelligent Decisions Concerning Your Will s Basic Provisions 93 Executing Your Will 105 Where to Store Your Will 105 Other Important Documents 106 Working with Your Attorney 111 When to Review Your Estate Plan 114 8. Using Trusts in Your Estate Plan 117 The Credit Shelter Trust Will 118 Disclaimers 122 Marital Trusts 123 Spendthrift Trust 127 Standby Trust 128 Other Trusts 128 9. Understanding the Living Trust 129 Advantages of Living Trusts 129 Disadvantages of Living Trusts 131 How a Living Trust Operates 132 Transferring Property into Your Living Trust 134 Types of Property Likely to Be Transferred 137 Living Trust Myths 139 Transacting Business with Your Trust 140 10. Using Insurance in Your Estate Plan 143 Life Insurance 143 Using Life Insurance to Replace Income 146 How Much Life Insurance Do You Need? 147 What Type of Life Insurance Is Best for You? 149 Insurance on a Homemaker 149 Insurance on Adult Children 150 How to Get the Best Deal on Term Life Insurance 150 Insurance Warnings! 150 Using Life Insurance for Estate Liquidity 151 How Much Is Enough? 152 What Type of Life Insurance Is Best for Estate Liquidity? 152 The Irrevocable Life Insurance Trust 154 Getting Your Life Insurance into Your Trust 155 Using Life Insurance to Leverage Your Estate 157 About Your Cash Values 159 Long-Term Care Insurance 161 11. Smart Strategies for Gifting Assets to Family Members 165 The Annual Gift Tax Exclusion 165 Unintended Gifts 166 Filing a Gift Tax Return 167 The Lifetime Applicable Exclusion Amount 168 Outright Gifts 168 When the Donee Is a Minor 170 Other Tax-Free Gifts 178 Family Gifts Utilizing Trusts 178 Grantor Retained Annuity Trust 178 Grantor Retained Unitrust 180 Qualified Personal Residence Trust 180 Taking Advantage of Generation-Skipping Transfers 184 Sales to Family Members 186 Loans to Family Members 188 Sales to Intentionally Defective Grantor Trusts 189 The Legacy Trust 190 12. Strategic Planning with Charities 199 Outright Gifts to Charities 200 Testamentary Gifts to Charities 202 Gifts Using Charitable Trusts 202 Using Your Charitable Trust for Retirement Planning 205 The Private Foundation 208 13. Family Limited Partnerships 213 General Structure of the Family Limited Partnership 213 Family Limited Partnership Rules 218 14. Succession Planning for the Family Business or Farm 225 Special Estate Tax Benefits for Farmers and Closely Held Business Owners 227 Valuing Your Business or Farm 228 Succession or Sale? 229 Succession Planning: Keeping the Family Business in the Family 229 Maximizing Your Business s Value through a Sale 230 Structuring Your Buy-Sell Agreement 232 Types of Buy-Sell Agreements 232 Funding the Buy-Sell Agreement 233 One Final Strategy The Employee Stock Ownership Plan 234 15. Asset Protection Strategies 237 The Concept of Fraudulent Transfers 238 A Word about Jointly Held Property 241 Retirement Plans 241 Life Insurance 242 Using Trusts to Protect Assets 243 Using Limited Liability Entities to Protect Assets 245 Use of Multiple Limited Liability Entities 247 Foreign Asset Protection Trusts 248 Domestic Asset Protection Trusts 250 16. Personal Business Planning Issues 253 Choosing the Right Entity for Your Business 253 Closing Thoughts 263 Importance of a Business Plan 265 Epilogue Dealing with Parents and Their Money 269 Appendix A Professional Advisers 271 Appendix B Estate Planning Terms 275 Appendix C IRS Life Expectancy Table 281 Index 285