2012 Field Guide ix TABLE OF CONTENTS Introduction... 1 ESTATE PLANNING Table Of Contents... 3 Planning Pointers... 5 Charts Estate Planning Matrix... 8 The Estate Funnel... 10 Human Life Value... 14 Federal Estate Tax... 18 Simple Will... 22 Trust Will... 24 Revocable Living Trust... 28 Pour-Over Will... 32 QTIP Trust... 34 Generation-Skipping Transfers... 38 Installment Sale & Private Annuity... 42 Gifts & Split-Gifts... 46 Life Insurance Trust... 50 Charitable Remainder Trust... 54 Grantor Retained Annuity Trust (GRAT)... 58 Private Split-Dollar... 62 Intentionally Defective Trust... 66 Life Insurance As Property... 70 Life Insurance Products... 74 Discounted Dollars... 78 References Checklist Of Documents... 82 Gift Tax Calculation Steps... 83 Estate Tax Calculation Steps... 83 History Of The Federal Estate Tax... 84 Typical Estate Debts, Costs, and Taxes... 85 State Exemptions For Life Insurance... 85 Federal Credit States... 86 Community Property States... 86 State Inheritance & Estate Taxes... 87 Inflation Adjuster... 88 Ownership And Beneficiary Arrangements... 89 Survivor Checklist... 90 Evaluating The Risk Of Death... One Individual... 91 Two Individuals... 92
x 2012 Field Guide Facts About... Fathers... 93 Mothers... 93 Children... 93 The Value Of An Education... 94 Funerals... 94 The Cost Of Child Care... 95 The Value Of A Homemaker... 95 Human Life Value In The Courtroom... 96 College Costs Projected... 97 Human Life Value... 98 Trusts And Their Uses... 99 Degrees Of Kindred... 100 Intestate s Will... 101 State Laws On Intestate Succession... 102 BUSINESS PLANNING Table Of Contents... 111 Planning Pointers... 113 Charts Development Cycle Of A Business... 116 Disposition Of A Business Interest... 118 Business Valuation... 122 Entity Purchase Agreement... 126 Cross Purchase Agreement... 130 Trusteed Cross Purchase Agreement... 134 Wait And See Buy/Sell Agreement... 138 Key Person Buy-Out Agreement... 142 Partial Stock Redemption... 146 Reverse Section 303... 150 Key Person Insurance... 154 Reverse Key Person Insurance... 158 Family Limited Partnership... 162 Recapitalization... 166 Attribution... 170 References Business Comparison... 176 Odds of Death Before Age 65... 179 Odds of Death Within 10 And 20 Years... 180 Key Person Valuation Formulas... 181 Cost of Borrowed Dollars Corporate... 182 Cost of Borrowed Dollars Individual... 183 Interest Rates... 184 Financial Ratios... 185 Contested Business Valuations... 186
2012 Field Guide xi Buy/Sell Agreements Help Fix The Value... 192 Comparison Cross Purchase & Entity Purchase... 193 Comparison Cross Purchase & Trusteed Cross Purchase... 194 EMPLOYEE BENEFITS Table Of Contents... 195 Planning Pointers... 197 Charts Taxation Of Employee Benefits... 200 Group Insurance... 202 Salary Allotment... 206 Executive Equity... 210 Restrictive Bonus Plan... 214 Split-Dollar Insurance... 218 Split-Dollar Funding Cross Purchase... 222 Split-Dollar Funding Life Insurance Trust... 226 Survivor Income... 230 Deferred Compensation... 234 Disability The Living Death... 238 Disability Income Plan... 242 Health Reimbursement Arrangements... 246 Health Savings Accounts... 250 Long-Term Care... 254 Tax-Favored Retirement Plans... 258 401(k) Plan... 262 403(b) Plans... 266 412(i) Plans... 270 457 Plans... 274 Pension Maximization... 278 Deferred Annuity... 282 References Employee Benefit Checklist... 286 Employee Benefit Statistics... 295 Employer/Employee Split-Dollar Plans... 296 Split-Dollar Applicable Code Sections... 299 Comparison Split-Dollar & Executive Equity... 300 Comparison Split-Dollar & Deferred Compensation... 301 Annuity Matrix... 302 Qualified Plans Checklist... 303 401(k) Plan Designs... 304 Employee Benefit Limits... 306 The IRA Spectrum... 307 Which IRA Roth or Traditional?... 308 Educational Tax Incentives... 310 Historical Increases Of Social Security Taxes... 311
xii 2012 Field Guide Social Security Payroll Taxes... 312 Social Security Retirement Benefits When To Take... 313 Consumer Price Index... 314 Projected Earnings... 315 Penalty Of Waiting... 316 Early Saver vs. Late Saver... 317 Dollar Cost Averaging... 318 How Money Grows... 319 How Money Goes... 320 Medical Expense Programs... 321 Disability Statistics... 322 Disability Income Tax Considerations... 323 Facts About... Long-Term Care... 324 Retirement... 324 APPENDIX Table Of Contents... 325 Quotable Quotes... 326 Terms & Concepts Accelerated Death Benefit... 343 Accounting For Business Life Insurance... 344 Accumulated Earnings Tax... 346 Age-Weighted Profit Sharing Plan... 347 Asset Protection... 348 Bank Owned Life Insurance (BOLI)... 349 Book Value... 350 Business Overhead Expense Insurance... 351 Cafeteria Plans... 352 Capital Gains... 353 Cash Balance Pension Plan... 354 Charitable Gift Annuity... 355 Charitable Gifts Of Life Insurance... 356 Charitable Trusts... 357 Charity As Designated Beneficiary Of Retirement Plan... 358 Children s Life Insurance... 360 College Education Funding... 361 Common Disaster Clause... 364 Community Property... 365 Company Owned Life Insurance (COLI)... 367 Constructive Receipt... 370 Consumer-Directed Health Plans... 371 Contingent Ownership... 372 Controlling Stockholder... 373
2012 Field Guide xiii Corporate Alternative Minimum Tax... 374 Coverdell Education Savings Account... 377 Critical Illness Insurance... 378 Crummey Powers... 379 Death Benefit Only Plan... 380 Decanting... 381 Decoupling Of State Death Taxes... 382 Deemed IRA... 383 Deferral Of Estate Tax... 384 Defined Benefit Pension Plan... 385 Defined Contribution Health Plan... 386 Disability Buy-Out Insurance... 387 Disability Income Taxation... 388 Disability Under Social Security... 389 Disclaimer... 390 Divorce And Life Insurance... 391 Domestic Partners... 392 Domicile... 394 Durable Power Of Attorney... 395 Dynasty Trust... 396 Employee Stock Ownership Plan (ESOP)... 397 Enhanced Dollars... 399 Equity Split-Dollar... 400 Equity-Indexed Annuity... 404 ERISA... 406 Estate Freezes... 408 Estate Taxation Of Life Insurance... 410 Fair Market Value... 412 Family Holding Company... 413 Fiduciary... 414 Financial Underwriting... 415 First-To-Die Life Insurance... 416 Funeral Trusts... 417 Golden Parachute Rules... 418 Grantor Trust Rules... 419 GRITs, GRATs, And GRUTs... 420 Group Carve Out... 421 Guaranteed Minimum Withdrawal Benefit... 422 Guaranteed Purchase Option... 423 Health Care Power Of Attorney... 424 Incentive Stock Option... 425 Incentive Trust... 426 Income In Respect Of A Decedent... 427 Individual 401(k) Plan... 428 Individual Retirement Arrangements (IRAs)... 429
xiv 2012 Field Guide Installment Sale... 430 Insurable Interest... 431 Interest Adjusted Net Cost... 432 Interest Deduction... 433 Interest-Free Loans... 434 IRA Distribution Planning... 435 Legal Expense Benefit... 438 Leveraged Benefit... 439 Life Insurance Default Risk... 440 Life Insurance In Qualified Plans... 441 Life Insurance Premium Limitations... 443 Life Settlements... 445 Limited Liability Company... 447 Living Will... 448 Long-Term Care Combination Products... 449 Long-Term Care Partnership Program... 450 Managed Care... 451 Marital Deduction... 452 Medicaid... 453 Medicaid Planning... 454 Medical Information Bureau... 455 Medicare... 456 Minimum Deposit Insurance... 460 Minors And IRAs... 461 Minors And Life Insurance... 462 Money Purchase Pension Plan... 463 Net Unrealized Appreciation... 464 NIMCRUT... 465 Noncitizen Estate Planning... 466 Nonqualified Stock Options... 467 Partnerships... 468 Penalties Estate And Gift Taxes... 471 Pension Benefit Guaranty Corporation (PBGC)... 472 Pet Estate Planning... 473 Per Stirpes Per Capita... 474 Personal Holding Company... 475 Phantom Stock Plan... 476 Planned Giving... 477 Portability... 478 Post Mortem Planning... 479 Power Of Appointment... 480 Premium Financing... 481 Private Annuity... 482 Private Foundation... 483 Private Pension... 484
2012 Field Guide xv Probate... 485 Professional Corporation... 486 Profit Sharing Plan... 487 Prudent Investor Rule... 488 Qualified Conservation Easement... 489 Qualified Domestic Relations Order (QDRO)... 490 Qualified Domestic Trust... 491 Qualified Long-Term Care Insurance... 492 Qualified Personal Residence Trust... 493 Qualified Retirement Plans... 494 Qualified Small Business Stock... 495 Rabbi Trust... 496 Recessionary Estate Planning... 497 Reduced Valuation... 499 Reinsurance... 501 Remainder Interest Transaction (RIT)... 502 Retired Lives Reserves (RLR)... 503 Retirement Income Planning... 504 Reverse Mortgage... 506 Risks Types Of... 507 Roth 401(k)... 508 Roth IRA... 509 Roth IRA Conversion... 510 Rule Against Perpetuities... 512 S Corporation... 513 Savings/Thrift Plan... 516 Section 72(t) Calculation... 517 Section 303 And The Unlimited Marital Deduction... 518 Section 306 Stock... 519 Section 409A... 520 Section 529 Plans... 521 Secular Trust... 522 See-Through Trust... 523 Self-Cancelling Installment Notes (SCINs)... 524 Self-Employed Retirement Plans... 525 Self-Settled Trust... 526 SIMPLE Cafeteria Plans... 527 SIMPLE IRA Plans... 528 Simplified Employee Pension (SEP)... 529 Social Security Taxation Of Benefits... 530 Special Needs Planning... 531 Split-Dollar Rollout... 532 Step Transaction Doctrine... 533 Stepped-Up Basis... 534 Stock Bonus Plan... 535
xvi 2012 Field Guide Stranger-Originated Life Insurance (SOLI)... 536 Structured Settlement... 537 Supplemental Executive Retirement Plan (SERP)... 538 Survivorship Life Insurance... 539 Target Benefit Plan... 540 Tax-Free Exchange... 541 Tax Law Sources... 542 Total Return Unitrust... 543 Traditional IRA... 544 Transfer For Value... 545 Trust Protector... 547 Trusts For Minors... 548 Uniform Transfers/Uniform Gifts To Minors Acts... 549 Unreasonable Compensation... 550 Variable Annuities... 551 Welfare Benefit Fund... 552 Tables Federal Income Tax Rates... 553 Federal Estate & Gift Tax Rates... 554 Lifetime Required Minimum Distributions... 555 Table I Rates... 555 Table 2001 Rates... 556 P.S. No. 58 Rates... 556 Table 38... 557 Commissioners 1980 Mortality Table... 558 Commissioners 2001 Mortality Table... 559 Healthy Life Expectancy... 561 Longevity In Retirement... 562 Compound Interest & Future Value Of Money... 564 Compound Interest & Present Value Of Money... 565 Future Value Table One Dollar Principal... 566 Future Value Table One Dollar Per Annum... 567 Present Value Table One Dollar Due... 568 Present Value Table One Dollar Per Annum... 569 Amortization Table... 670 Insurance Company Ratings... 571 Industry Associations Conference Dates... 572 Cool Web Sites... 573 Code Crib Sheet... 574 Index... 581