2014 Field Guide vii 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
viii 2014 Field Guide Ownership And Beneficiary Arrangements... 89 Survivor Checklist... 90 Evaluating The Risk Of Death... One Individual... 91 Two Individuals... 92 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
2014 Field Guide ix 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 Financial Ratios... 182 Contested Business Valuations... 183 Buy/Sell Agreements Help Fix The Value... 189 Comparison Cross Purchase & Entity Purchase... 190 Comparison Cross Purchase & Trusteed Cross Purchase... 191 EMPLOYEE BENEFITS Table Of Contents... 193 Planning Pointers... 195 Charts Taxation Of Employee Benefits... 198 Group Insurance... 200 Salary Allotment... 204 Executive Equity... 208 Restrictive Bonus Plan... 212 Split-Dollar Insurance... 216 Split-Dollar Funding Cross Purchase... 220 Split-Dollar Funding Life Insurance Trust... 224 Survivor Income... 228 Deferred Compensation... 232 Disability The Living Death... 236 Disability Income Plan... 240 Health Reimbursement Arrangements... 244 Health Savings Accounts... 248 Long-Term Care... 252 Tax-Favored Retirement Plans... 256 401(k) Plan... 260 403(b) Plans... 264 412(i) Plans... 268 457 Plans... 272 Pension Maximization... 276 Deferred Annuity... 280
x 2014 Field Guide References Employee Benefit Checklist... 284 Employee Benefit Statistics... 293 Employer/Employee Split-Dollar Plans... 294 Split-Dollar Applicable Code Sections... 297 Comparison Split-Dollar & Executive Equity... 298 Comparison Split-Dollar & Deferred Compensation... 299 Annuity Matrix... 300 Qualified Plans Checklist... 301 401(k) Plan Designs... 303 Employee Benefit Limits... 304 The IRA Spectrum... 305 Which IRA Roth or Traditional?... 306 Educational Tax Incentives... 308 Historical Increases Of Social Security Taxes... 309 Social Security Payroll Taxes... 310 Social Security Retirement Benefits When To Take... 311 Consumer Price Index... 312 Projected Earnings... 313 Penalty Of Waiting... 314 Early Saver vs. Late Saver... 315 Dollar Cost Averaging... 316 How Money Grows... 317 How Money Goes... 318 Medical Expense Programs... 319 Disability Statistics... 320 Disability Income Tax Considerations... 321 Facts About... Long-Term Care... 322 Retirement... 322 APPENDIX Table Of Contents... 323 Quotable Quotes... 324 Terms & Concepts Accelerated Death Benefit... 341 Accounting For Business Life Insurance... 342
2014 Field Guide xi Accumulated Earnings Tax... 344 Age-Weighted Profit Sharing Plan... 345 Annual Exclusion Gifts... 346 Asset Protection... 347 Bank Owned Life Insurance (BOLI)... 348 Book Value... 349 Business Overhead Expense Insurance... 350 Cafeteria Plans... 351 Capital Gains... 352 Captive Insurance Arrangements... 354 Cash Balance Pension Plan... 356 Charitable Gift Annuity... 357 Charitable Gifts Of Life Insurance... 358 Charitable Trusts... 359 Charity As Designated Beneficiary Of Retirement Plan... 360 Children's Life Insurance... 362 College Education Funding... 363 Common Disaster Clause... 366 Community Property... 367 Company Owned Life Insurance (COLI)... 369 Constructive Receipt... 372 Contingent Ownership... 373 Controlling Stockholder... 374 Corporate Alternative Minimum Tax... 375 Coverdell Education Savings Account... 378 Critical Illness Insurance... 379 Crummey Powers... 380 Death Benefit Only Plan... 381 Decanting... 382 Decoupling Of State Death Taxes... 383 Deemed IRA... 384 Deferral of Estate Tax... 385 Defined Benefit Pension Plan... 386 Defined Contribution Health Plan... 387 Disability Buy-Out Insurance... 388 Disability Income Taxation... 390 Disability Under Social Security... 391 Disclaimer... 392
xii 2014 Field Guide Divorce and Life Insurance... 393 Domestic Partners... 394 Domicile... 397 Durable Power Of Attorney... 398 Dynasty Trust... 399 Employer Owned Life Insurance (EOLI)... 400 Employee Stock Ownership Plan (ESOP)... 403 Equity Split-Dollar... 405 Equity-Indexed Products... 409 ERISA... 411 Estate Equalization... 413 Estate Freezes... 414 Estate Taxation Of Life Insurance... 416 Fair Market Value... 418 Family Holding Company... 419 Fiduciary... 420 Financial Underwriting... 421 First-To-Die Life Insurance... 422 Funeral Trusts... 423 Golden Parachute Rules... 424 Grantor Trust Rules... 425 GRITs, GRUTs, And GRATs... 426 Group Carve Out... 427 Guaranteed Minimum Withdrawal Benefit... 428 Guaranteed Purchase Option... 429 Health Care Power Of Attorney... 430 Incentive Stock Option... 431 Incentive Trust... 432 Income In Respect Of A Decedent... 433 Individual 401(k) Plan... 434 Individual Retirement Arrangements (IRAs)... 435 Installment Sale... 436 Insurable Interest... 437 Interest Adjusted Net Cost... 438 Interest Deduction... 439 Interest-Free Loans... 440 IRA Distribution Planning... 441 Legal Expense Benefit... 444 Leveraged Benefit... 445
2014 Field Guide xiii Life Insurance Default Risk... 446 Life Insurance In Qualified Plans... 447 Life Insurance Premium Limitations... 449 Life Settlements... 451 Limited Liability Company... 453 Limited Liability Company (LLC) v. ILIT as Life Insurance Ownership Structure... 454 Living Will... 457 Long-Term Care Combination Products... 458 Long-Term Care Partnership Program... 460 Managed Care... 461 Marital Deduction... 462 Medicaid... 463 Medicaid Planning... 464 Medical Information Bureau... 465 Medicare... 466 Minimum Deposit Insurance... 470 Minors and IRAs... 471 Minors and Life Insurance... 472 Money Purchase Pension Plan... 473 Net Unrealized Appreciation... 474 NIMCRUT... 475 Noncitizen Estate Planning... 476 Nonqualified Executive Benefits... 477 Nonqualified Stock Options... 480 Oral Trust... 481 Partnerships... 482 Penalties - Estate And Gift Taxes... 485 Pension Benefit Guarantee Corporation (PBGC)... 486 Per Stirpes - Per Capita... 487 Personal Holding Company... 488 Pet Estate Planning... 489 Phantom Stock Plan... 490 Planned Giving... 491 Portability... 492 Post Mortem Planning... 493 Power Of Appointment... 494 Premium Financing... 495 Private Annuity... 496
xiv 2014 Field Guide Private Foundation... 497 Private Pension... 498 Probate... 499 Professional Corporation... 500 Profit Sharing Plan... 501 Prudent Investor Rule... 502 Qualified Conservation Easement... 503 Qualified Domestic Relations Order (QDRO)... 504 Qualified Domestic Trust... 505 Qualified Long-Term Care Insurance... 506 Qualified Personal Residence Trust... 507 Qualified Retirement Plans... 508 Qualified Small Business Stock... 509 Rabbi Trust... 510 Recessionary Estate Planning... 511 Reciprocal Trust Doctrine... 513 Reduced Valuation... 514 Reinsurance... 516 Remainder Interest Transaction (RIT)... 517 Retired Lives Reserves (RLR)... 518 Retirement Income Planning... 519 Reverse Mortgage... 521 Risks Types Of... 522 Roth 401(k)... 523 Roth IRA... 524 Roth IRA Conversion... 525 Rule Against Perpetuities... 527 S Corporation... 528 Savings/Thrift Plan... 531 Section 72(t) Calculation... 532 Section 303 And The Unlimited Marital Deduction... 533 Section 306 Stock... 534 Section 409A... 535 Section 529 Plans... 536 Secular Trust... 537 See-Through Trust... 538 Self-Cancelling Installment Notes (SCINs)... 539 Self-Employed Retirement Plans... 540 Self-Settled Trust... 541
2014 Field Guide xv SIMPLE Cafeteria Plans... 542 SIMPLE IRA Plans... 543 Simplified Employee Pension (SEP)... 544 Social Security Taxation Of Benefits... 545 Special Needs Planning... 546 Split-Dollar Rollout... 547 Spousal Access Trust (SLAT)... 548 Step Transaction Doctrine... 549 Stepped-Up Basis... 550 Stock Bonus Plan... 551 Stranger-Originated Life Insurance (STOLI)... 552 Structured Settlement... 553 Supplemental Executive Retirement Plan (SERP)... 554 Survivorship Life Insurance... 555 Target Benefit Plan... 556 Tax-Free Exchange... 557 Tax Law Sources... 558 Top-Hat Plan... 559 Total Return Unitrust... 560 Traditional IRA... 561 Transfer For Value... 562 Trust Protector... 564 Trusts For Minors... 565 Uniform Transfers/UG To Minors Acts... 566 Unreasonable Compensation... 567 Valuation of Life Insurance... 568 Variable Annuities... 569 Welfare Benefit Fund... 570 Tables Federal Income Tax Rates... 571 Federal Estate & Gift Tax Rates... 572 Lifetime RMD + Table I Rates... 573 Table 2001 Rates & P.S. 58 Rates... 574 Table 38 Rates... 575 Commissioners 1980 Standard Ordinary Mortality Table... 576 Commissioners 2001 Standard Ordinary Mortality Table... 577 Healthy Life Expectancy... 579
xvi 2014 Field Guide Longevity In Retirement... 580 Compound Interest & Future Value Of Money... 582 Compound Interest & Present Value Of Money... 583 Future Value Table One Dollar Principal... 584 Future Value Table One Dollar Per Annum... 585 Present Value Table One Dollar Due... 586 Present Value Table One Dollar Per Annum... 587 Amortization Table... 588 Insurance Company Ratings... 589 Industry Associations... 590 Cool Web Sites... 591 Code Crib Sheet... 592 Index... 599