Essential Legal Concepts with Tax Analysis By Danny C. Santucci The author is not engaged by this text, any accompanying electronic media, or lecture in the rendering of legal, tax, accounting, or similar professional services. While the legal, tax and accounting issues discussed in this material have been reviewed with sources believed to be reliable, concepts discussed can be affected by changes in the law or in the interpretation of such laws since this text was printed. For that reason, the accuracy and completeness of this information and the author's opinions based thereon cannot be guaranteed. In addition, state or local tax laws and procedural rules may have a material impact on the general discussion. As a result, the strategies sug- gested may not be suitable for every individual. Before taking any action, all refer- ences and citations should be checked and updated accordingly. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert advice is required, the services of a com- petent professional person should be sought. —-From a Declaration of Principles jointly adopted by a committee of the American Bar Association and a Committee of Publishers and Associations. Copyright February 2020 Danny Santucci
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Essential Legal Concepts with Tax Analysis
ByDanny C. Santucci
The author is not engaged by this text, any accompanying electronic media, or lecture in the rendering of legal, tax, accounting, or similar professional services. While the legal, tax and accounting issues discussed in this material have been reviewed with sources believed to be reliable, concepts discussed can be affected by changes in the law or in the interpretation of such laws since this text was printed. For that reason, the accuracy and completeness of this information and the author's opinions based thereon cannot be guaranteed. In addition, state or local tax laws and procedural rules may have a material impact on the general discussion. As a result, the strategies sug-gested may not be suitable for every individual. Before taking any action, all refer-ences and citations should be checked and updated accordingly.
This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert advice is required, the services of a com-petent professional person should be sought.
—-From a Declaration of Principles jointly adopted by a committee of the American Bar Association and a Committee of Publishers and Associations.
Copyright February 2020 Danny Santucci
i
TABLE OF CONTENTS CHAPTER 1 - ASSET PROTECTION .........................................................1-1
Why Asset Protection? ............................................................................................................................... 1-2Situations That Create Danger .............................................................................................................. 1-4Sources of Lawsuits .............................................................................................................................. 1-4Types of Liability ................................................................................................................................. 1-8Basic Protection Concepts .................................................................................................................... 1-8
Types of Creditors ...................................................................................................................................... 1-12Evading Creditors ................................................................................................................................. 1-16
Asset Protection Aspects of Common Entities ........................................................................................... 1-32Individual Ownership ........................................................................................................................... 1-32
Sole Proprietorship ........................................................................................................................ 1-33Corporate .............................................................................................................................................. 1-33
C Corporation ................................................................................................................................ 1-34No Pass-Through ..................................................................................................................... 1-35
The S Corporation - §1361 ............................................................................................................ 1-35Trusts .................................................................................................................................................... 1-38
Types of Trusts .............................................................................................................................. 1-38Revocable Trust ....................................................................................................................... 1-39
Family Trusts ........................................................................................................................... 1-44Medicaid Trust ......................................................................................................................... 1-45Grantor Retained Income Trust ............................................................................................... 1-45
Co-Tenancy .......................................................................................................................................... 1-45Tenancy in Common ..................................................................................................................... 1-45
Joint Tenancy with Right of Survivorship ..................................................................................... 1-47Equal Percentages .................................................................................................................... 1-47
Tenants by the Entirety .................................................................................................................. 1-47Right of Partition ........................................................................................................................... 1-48
Limited Liability Company .................................................................................................................. 1-50Retirement Plan .................................................................................................................................... 1-50
Retirement Fund Protection in Bankruptcy ................................................................................... 1-51Custodianship ....................................................................................................................................... 1-51Estate .................................................................................................................................................... 1-52
Uniform Premarital Act - The California Example ....................................................................... 1-53Permitted Items of Agreement ................................................................................................. 1-54Unenforceable Items ................................................................................................................ 1-54
Retirement Equity Act of 1984 ...................................................................................................... 1-54Benefits of a Premarital Agreement .............................................................................................. 1-55
Payment Must Be In Cash ....................................................................................................... 2-6Payments to a Third Party ................................................................................................... 2-6
Written Requests, Consents, or Ratifications .................................................................. 2-7Payments for Family Residence .......................................................................................... 2-9
Taxpayer-Owned Home .................................................................................................. 2-9Spouse-Owned Home ...................................................................................................... 2-10Jointly-Owned Home ...................................................................................................... 2-10Rent On Property Owned by a Third Party ..................................................................... 2-11
Payments for Life Insurance ................................................................................................ 2-11Contingent Interest .......................................................................................................... 2-12
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Voluntary Payments ............................................................................................................ 2-12Payments to Remarried Spouse ........................................................................................... 2-13
Designating Payments as Not Alimony ................................................................................... 2-13Members of Different Households ........................................................................................... 2-15
Exception ............................................................................................................................. 2-15Termination at Death ............................................................................................................... 2-15
Substitute Payments............................................................................................................. 2-16Child Support ........................................................................................................................... 2-17
Past Due Child & Spousal Support Payments ..................................................................... 2-17Joint Return Prohibited ............................................................................................................ 2-18Minimum Term Rule for 1985 & 1986 Instruments ................................................................ 2-18
Exception ............................................................................................................................. 2-19Instruments Executed Before 1985 - A Historical Perspective ..................................................... 2-19
Old Requirements - Long, Long Ago in a Galaxy Far Away .................................................. 2-19Periodic Payments ............................................................................................................... 2-19
Exception for Installment Payments ................................................................................ 2-20Mixed Payments .............................................................................................................. 2-21
Marital or Family Relationship ............................................................................................ 2-22Property Settlement ......................................................................................................... 2-22
Child Support ...................................................................................................................... 2-22Tax Treatment of Alimony ................................................................................................................... 2-25
Instruments Executed Before 2019 ................................................................................................ 2-25Alimony Paid - Deductible ...................................................................................................... 2-25Reporting Alimony Received - Income ................................................................................... 2-25
Alimony as Compensation .................................................................................................. 2-26Recapture of Alimony for Type A & B Agreements ............................................................... 2-26
Exceptions to Recapture ...................................................................................................... 2-26Including the Recapture in Income ...................................................................................... 2-27Deducting the Recapture ..................................................................................................... 2-27TRA ‘84 Recapture - 1985 & 1986 Instruments .................................................................. 2-27TRA ‘86 Recapture - After 1986 Instruments ..................................................................... 2-28Exceptions ........................................................................................................................... 2-30Computation ........................................................................................................................ 2-30
Alimony Substitution Trusts & Annuities ............................................................................... 2-33Advantages of Alimony Trust ............................................................................................. 2-34Disadvantages of Alimony Trust ......................................................................................... 2-35
Annuities .................................................................................................................................. 2-35Alimony Paid by an Estate ....................................................................................................... 2-35
Instruments Executed After 2018 ................................................................................................. 2-35Child Support ............................................................................................................................................. 2-36
Contingency Relating To the Child ...................................................................................................... 2-36Clearly Associated With a Contingency ............................................................................................... 2-37
Heller Case .................................................................................................................................... 2-37Rebuttable Presumptions ...................................................................................................................... 2-38
Means Testing ...................................................................................................................................... 3-2Median State Income Test ............................................................................................................. 3-2Means Test .................................................................................................................................... 3-2
Credit Counseling ................................................................................................................................. 3-2Tax Law Changes ................................................................................................................................. 3-2
Chapter 13 "Superdischarge" ......................................................................................................... 3-3Subordination Of Ad Valorem Tax Liens ..................................................................................... 3-3Interest on Tax Claims ................................................................................................................... 3-3Tax Returns ................................................................................................................................... 3-3
Suspension of Statute of Limitation ......................................................................................... 3-13Immediate Assessment ............................................................................................................ 3-14
Levy ............................................................................................................................................... 3-14Tax Court ....................................................................................................................................... 3-15
Trust Fund Taxes ........................................................................................................................... 3-16Allocation of Tax Payments .......................................................................................................... 3-16
Tax Liens ................................................................................................................................. 3-29Individual Bankruptcy Estate ............................................................................................................... 3-29
Separate Entity .............................................................................................................................. 3-29Tax Attribute Carryovers ............................................................................................................... 3-30
Termination of the Estate ......................................................................................................... 3-31Filing Requirements ...................................................................................................................... 3-31
Disclosure of Return Information ............................................................................................ 3-32Taxable Income ............................................................................................................................. 3-33
Taxable Year ............................................................................................................................ 3-33Gross Income ........................................................................................................................... 3-33Deductions & Credits .............................................................................................................. 3-34Administrative Expenses ......................................................................................................... 3-34Net Operating Loss Carryback................................................................................................. 3-35Transfers to Debtor .................................................................................................................. 3-35Partnership & S Corporation Interests ..................................................................................... 3-35Request for Prompt Determination of Liability ....................................................................... 3-35Tax Liability ............................................................................................................................ 3-36
Individual Debtor .................................................................................................................................. 3-36Tax Year Election .......................................................................................................................... 3-36
Annualizing Taxable Income ................................................................................................... 3-37Making the Election ................................................................................................................. 3-37Later Bankruptcy of Spouse .................................................................................................... 3-38Election Considerations ........................................................................................................... 3-39
Transfers between Debtor & Estate ............................................................................................... 3-39Net Operating Loss Carryback Limitation .................................................................................... 3-39
Partnership Bankruptcy ........................................................................................................................ 3-39No Separate Estate ......................................................................................................................... 3-40Discharge of Debts ........................................................................................................................ 3-40
Uniform Premarital Act - The California Example .............................................................................. 4-3Permitted Items of Agreement ....................................................................................................... 4-3Unenforceable Items ...................................................................................................................... 4-5
Retirement Equity Act of 1984 ................................................................................................ 4-5Benefits of a Premarital Agreement ...................................................................................................... 4-6
Section 1041 ......................................................................................................................................... 4-7Application of §1041 ............................................................................................................................ 4-7
Mandatory Scope ........................................................................................................................... 4-8Property vs. Income ....................................................................................................................... 4-11
Imputed Interest ................................................................................................................... 4-13Incident to Divorce ............................................................................................................................... 4-15
Related To Termination ................................................................................................................. 4-16Rebuttable Presumption ........................................................................................................... 4-16
Divorce or Separation Instrument .................................................................................................. 4-17Transfers in Trust.................................................................................................................................. 4-17Third Party Transfers ............................................................................................................................ 4-18Property Basis ....................................................................................................................................... 4-19
Gift Variation ................................................................................................................................ 4-20Passive Activity Loss Property ...................................................................................................... 4-20Property Transferred In Trust ........................................................................................................ 4-21Basis in U.S. Savings Bonds ......................................................................................................... 4-21Negotiated Property Divisions ....................................................................................................... 4-21Adjudicated Property Divisions ..................................................................................................... 4-21
Caselaw .................................................................................................................................... 4-22General Rule - Immediate & Specific ........................................................................................... 4-22
Liabilities .............................................................................................................................................. 4-23Holding Period ...................................................................................................................................... 4-23Notice & Record Keeping .................................................................................................................... 4-23
Purchases Between Spouses ....................................................................................................................... 4-26Residence .............................................................................................................................................. 4-26
Home Mortgage Interest ................................................................................................................ 4-26Deferral & Exclusion of Gain ........................................................................................................ 4-27
Business & Investment Property .......................................................................................................... 4-27Recapture ....................................................................................................................................... 4-27Section 1031 Exchange ................................................................................................................. 4-28Installment Sale of Assets ............................................................................................................. 4-29
Qualified Domestic Relations Order ............................................................................................. 4-35Taxation of Distributions ............................................................................................................... 4-37Deferred v. Present Division of Benefits ....................................................................................... 4-37
Divorce Distributions .......................................................................................................... 4-39Amounts Not Rolled Over ................................................................................................... 4-39
Military & Civil Service Pensions ................................................................................................. 4-40
Allowance of Deduction................................................................................................................ 5-10Limitation on Accrual Deduction .................................................................................................. 5-10Employment Contracts .................................................................................................................. 5-13
Scope of Examination ........................................................................................................................... 5-13Factors .................................................................................................................................................. 5-13
Employee’s Qualifications ............................................................................................................ 5-13Size of the Business ....................................................................................................................... 5-13Employee’s Compensation History ............................................................................................... 5-13
Services Performed by the Employee ............................................................................................ 5-14Past Service ................................................................................................................................... 5-14Reasonable Dividends ................................................................................................................... 5-14
Cost of Living Adjustment Using Dollar Bend Points ........................................................ 5-23Adjustment for Retirement Date .......................................................................................... 5-24
Early Retirement ............................................................................................................. 5-24Effect of Late Retirement ................................................................................................ 5-25
Earnings Reduction Formula ............................................................................................... 5-26Annual Report of Earnings .............................................................................................. 5-26Special Monthly Rule ...................................................................................................... 5-27
Personalized Benefit Estimate ....................................................................................................... 5-27Impact of Private Pension .............................................................................................................. 5-27
Direct Deposit ....................................................................................................................................... 5-27Social Security’s Payroll Tax or FICA - §3111 & §3121 ..................................................................... 5-29
Medicare ..................................................................................................................................................... 5-35Who Is Eligible For Hospital Insurance (Part A)? ................................................................................ 5-35Who Can Get Medical Insurance (Part B)? .......................................................................................... 5-36Prescription Drug Coverage (Part D) .................................................................................................... 5-36How Do You Get Medicare? ................................................................................................................ 5-37What Does Medicare Pay For? ............................................................................................................. 5-37What Medicare Does Not Pay For? ...................................................................................................... 5-37Medigap Insurance ............................................................................................................................... 5-37
Categories of C Corporations ........................................................................................................ 6-4Personal Holding Company - §541 .......................................................................................... 6-4
Regular C Corporation............................................................................................................. 6-5No Pass-Through ................................................................................................................. 6-5Getting Money Out of the C Corporation ............................................................................ 6-6Passive Loss Restrictions .................................................................................................... 6-8Partnership vs. Corporation ................................................................................................. 6-10
Personal Service Corporation - §269A .................................................................................... 6-11S Corporation - §1361 ................................................................................................................... 6-11
Allocation of Income & Deduction .......................................................................................... 6-25Partnership Recapitalization .......................................................................................................... 6-25
Two Class Format .................................................................................................................... 6-25Valuation ............................................................................................................................. 6-25
Family Partnership Requirements ............................................................................................ 6-28Recognizing a Partner .......................................................................................................... 6-29
Control ............................................................................................................................ 6-29Transferability ................................................................................................................. 6-29
Donee as a Partner ............................................................................................................... 6-30Trusts as Partners ................................................................................................................. 6-30Minor as a Partner ............................................................................................................... 6-31Purchased Interests .............................................................................................................. 6-31Capital Interest in the Partnership ....................................................................................... 6-32Capital as a Material Income-Producing Item ..................................................................... 6-32
Source of Capital ............................................................................................................. 6-32Family Partnerships Not Within §704(e) ............................................................................. 6-32Real Estate Family Partnerships .......................................................................................... 6-33Business Family Partnerships .............................................................................................. 6-33Structuring the Family Partnership ...................................................................................... 6-33
Substantial Economic Effect Rules .......................................................................................... 6-36Discharge of Indebtedness Income .......................................................................................... 6-36
Suggested Uses .............................................................................................................................. 6-36Professional Firms ................................................................................................................... 6-36Joint Ventures .......................................................................................................................... 6-37Substitute for Family Limited Partnership ............................................................................... 6-37
Retirement Plan .................................................................................................................................... 6-37Employer Costs ............................................................................................................................. 6-38Profit-Sharing Plan ........................................................................................................................ 6-40Money Purchase Pension Plan ....................................................................................................... 6-40Defined Benefit Pension Plan ........................................................................................................ 6-40
Community Property Gift Danger ........................................................................................... 7-8Life Insurance Trust .............................................................................................................................. 7-8
No Gain on Sale ............................................................................................................................ 7-23Estate Tax Valuation ..................................................................................................................... 7-23
Using the Buy-Sell Agreement to Set Value ........................................................................... 7-24Buy-Sell Agreements - §2703..................................................................................................7-24
Rates - §1 .............................................................................................................................................. 8-228% Rate Group ................................................................................................................................... 8-325% Rate Group - Unrecaptured §1250 Gain ....................................................................................... 8-3
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15% (or sometimes 20%) Rate Group - Adjusted Net Capital Gain ..................................................... 8-5Tax on Net Investment Income - §1411 ............................................................................................... 8-6Former 18% & 8% Rate Group (Repealed) .......................................................................................... 8-6
Deemed Sale Election (Repealed) ................................................................................................. 8-6AMT ..................................................................................................................................................... 8-7
Small Business Stock .................................................................................................................... 8-7Netting of Capital Gains & Losses ....................................................................................................... 8-7Analysis ................................................................................................................................................ 8-8
Home Sales - §121 ..................................................................................................................................... 8-10Two-Year Ownership & Use Requirements ......................................................................................... 8-10
Tacking of Prior Holding Period ................................................................................................... 8-11Prorata Exception .......................................................................................................................... 8-11Limitations on Exclusion ............................................................................................................... 8-13
Installment Method .................................................................................................................................... 8-15Requirements ........................................................................................................................................ 8-15Formula ................................................................................................................................................ 8-15Definitions ............................................................................................................................................ 8-16Mortgage in Excess of Basis ................................................................................................................. 8-17
Recapture .............................................................................................................................................. 8-18Related Party Resale Rule .................................................................................................................... 8-19
Related Persons ............................................................................................................................. 8-19Exceptions ..................................................................................................................................... 8-19Depreciable Property ..................................................................................................................... 8-19
Contingent Payments or Price .............................................................................................................. 8-19Installment Sales Revision Act of 1980 ......................................................................................... 8-20
Contingent Payment Sale ......................................................................................................... 8-20Maximum Selling Price Transactions ............................................................................................ 8-20
Recomputation ......................................................................................................................... 8-20Fixed Payment Term Transactions ................................................................................................ 8-21
Losses ...................................................................................................................................... 8-21Transactions with Neither Maximum Selling nor Fixed Payment Term ....................................... 8-22
Special Rules ................................................................................................................................. 8-23Qualification ............................................................................................................................ 8-23
Repeal of Installment Treatment for Dealer Dispositions ............................................................. 8-26Definition ................................................................................................................................. 8-26Residential Lot & Timeshare Exception .................................................................................. 8-26Interest Computation ............................................................................................................... 8-26Qualification ............................................................................................................................ 8-26
Installment Obligations in Excess of $5 Million ........................................................................... 8-26Computation of Interest ........................................................................................................... 8-27Definitions ............................................................................................................................... 8-27
Pledging ......................................................................................................................................... 8-27Disposition of Installment Obligations ................................................................................................. 8-27
Gain or Loss .................................................................................................................................. 8-27Exceptions ............................................................................................................................... 8-28
Imputed Interest & OID ........................................................................................................................ 8-28Complexity .................................................................................................................................... 8-28
Sale at a Loss ........................................................................................................................... 8-28Section 483 - Imputed Interest ....................................................................................................... 8-29
Computation of OID ................................................................................................................ 8-30Personal Use Property - Buyer’s Deduction of Imputed Interest................................................... 8-31
Section 1031 “Like Kind” Exchanges ........................................................................................................ 8-33Exchange Advantage ............................................................................................................................ 8-33Importance of Deferral ......................................................................................................................... 8-33Three Elements ..................................................................................................................................... 8-33
Rules of Boot ........................................................................................................................... 8-38Related Party Exchanges ...................................................................................................................... 8-40
Definition of Related Party ............................................................................................................ 8-40Exceptions to the Two Year Rule .................................................................................................. 8-41Contractual Protection ................................................................................................................... 8-41Transactions Between a Partner & Partnership ............................................................................. 8-42
Foreign Real Property Exchanges ........................................................................................................ 8-42Qualified §1031 Exchange of Personal Property Repealed .................................................................. 8-44
Requirements for Personal Property - Prior to 2018 ...................................................................... 8-44Like-Kind or Like-Class .......................................................................................................... 8-45
Like-Kind Personal Property - Identical .............................................................................. 8-45Like Class Personal Property - General Asset or Product Class .......................................... 8-45
Five, Four, Then Six Digit Product Classes .................................................................... 8-46Other Personal Property ...................................................................................................... 8-49
Identification & Exchange Periods .......................................................................................... 8-50Application of §7503 ........................................................................................................... 8-50
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Method of Identification .......................................................................................................... 8-51Property Description ............................................................................................................ 8-51
Disqualified Person ......................................................................................................... 8-56Who Is An Agent? ........................................................................................................... 8-56
Restrictions On Rights to Money & Other Property - “g(6)” Limitations ........................... 8-59Outside Transfers of Money or Other Property ............................................................... 8-60
Exchanges of Partnership Interests ................................................................................................ 8-62Effective Date of Partnership Provisions ................................................................................. 8-62
Nonrecourse Indebtedness ............................................................................................................. 8-66Recourse Indebtedness .................................................................................................................. 8-67Reporting ....................................................................................................................................... 8-68Form 1099A .................................................................................................................................. 8-69Timing & Character of Gain or Loss ............................................................................................. 8-70
Gain ......................................................................................................................................... 8-71Loss .......................................................................................................................................... 8-71
Lender’s Tax Impact ...................................................................................................................... 8-72Foreclosure Sale ....................................................................................................................... 8-72
Mortgage Debt Relief Act of 2007 ....................................................................................................... 8-73Qualified Principal Residence Indebtedness ................................................................................. 8-73
Personal Property .................................................................................................................................. 8-75Non-Installment Method Sales ...................................................................................................... 8-75
Basis of Installment Obligation ............................................................................................... 8-75Gain or Loss on Repossession ................................................................................................. 8-78
Installment Method Sales .............................................................................................................. 8-78Basis of Installment Obligation ............................................................................................... 8-78Gain or Loss on Repossession ................................................................................................. 8-78
Basis of Repossessed Personal Property ........................................................................................ 8-79Bad Debt ........................................................................................................................................ 8-80
Real Property ........................................................................................................................................ 8-80Conditions ..................................................................................................................................... 8-80Figuring Gain on Repossession ..................................................................................................... 8-82
Limit on Taxable Gain ............................................................................................................. 8-82
Character of Gain ................................................................................................................ 8-84Basis of Repossessed Real Property ........................................................................................ 8-84Holding Period for Resales ...................................................................................................... 8-85
Seller’s Former Home Exception .................................................................................................. 8-87Involuntary Conversions ............................................................................................................................ 8-93
Condemnations ..................................................................................................................................... 8-93Threat of Condemnation ................................................................................................................ 8-93
Reports of Condemnation ........................................................................................................ 8-94Property Voluntarily Sold .............................................................................................................. 8-94Easements ...................................................................................................................................... 8-94Condemnation Award .................................................................................................................... 8-95
Amounts Withheld From Award ............................................................................................. 8-95Net Condemnation Award ....................................................................................................... 8-95Interest on Award .................................................................................................................... 8-95Payments to Relocate ............................................................................................................... 8-96
Severance Damages ....................................................................................................................... 8-96Treatment of Severance Damages ........................................................................................... 8-96
Expenses of Obtaining an Award .................................................................................................. 8-97Special Assessment Withheld from Award ................................................................................... 8-97Severance Damages Included in Award ........................................................................................ 8-98
Gain or Loss from Condemnations ....................................................................................................... 8-98How to Figure Gain or Loss .......................................................................................................... 8-98
Part Business or Part Rental ..................................................................................................... 8-98Postponement of Gain .......................................................................................................................... 8-99
Choosing to Postpone Gain ........................................................................................................... 8-99Cost Test ........................................................................................................................................ 8-100Replacement Period ....................................................................................................................... 8-100
Condemnation .......................................................................................................................... 8-100Replacement Property Acquired Before The Condemnation ................................................... 8-101Extension ................................................................................................................................. 8-101Time For Assessing a Deficiency ............................................................................................ 8-101
Related Party Rule ................................................................................................................................ 8-102
Designing Your Retirement .................................................................................................................. 9-2Sources of Retirement Income .............................................................................................................. 9-3
Profit-Sharing Plan .............................................................................................................. 9-3Money Purchase Pension Plan ............................................................................................. 9-3Stock Bonus Plan ................................................................................................................. 9-4Employee Stock Ownership Plan ........................................................................................ 9-4401(k) Plan .......................................................................................................................... 9-4
Defined Benefit ........................................................................................................................ 9-4Defined Benefit Pension ...................................................................................................... 9-4
Rollovers & Conversions ......................................................................................................... 9-13Rollover from Traditional IRA ............................................................................................ 9-13
Group Term Life Insurance - §79 ......................................................................................................... 9-27Dependent Care Assistance - §129 ....................................................................................................... 9-27
Amount of Assistance.................................................................................................................... 9-27Requirements ................................................................................................................................. 9-27Conflict with Dependent Care ....................................................................................................... 9-28
General Valuation Method ............................................................................................................ 9-33Annual Lease Value Method ......................................................................................................... 9-33
Computation ............................................................................................................................ 9-35Cents Per Mile Method .................................................................................................................. 9-35Commuting Value Method ............................................................................................................ 9-35
Application of §7872 and Rate Determinations ............................................................................ 9-37Summary ....................................................................................................................................... 9-37
Carryforward ................................................................................................................................. 9-40Renting Space to Employer ........................................................................................................... 9-40
Fringe Benefit Plans for S Corporations ............................................................................................... 9-40Insurance............................................................................................................................................... 9-41
Types of Wills ...................................................................................................................................... 11-3Title Implications .................................................................................................................................. 11-4
Individual ...................................................................................................................................... 11-5Joint Tenancy ................................................................................................................................ 11-5Tenants in Common ...................................................................................................................... 11-7
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Tenants by the Entirety .................................................................................................................. 11-8Community Property ..................................................................................................................... 11-8
Changes to a Will ................................................................................................................................. 11-9Advantages of a Will .................................................................................................................................. 11-9
CHAPTER 12 - Trusts ....................................................................................12-1What is a Trust? .......................................................................................................................................... 12-1Why a Trust? .............................................................................................................................................. 12-1Types of Trusts ........................................................................................................................................... 12-3
Reversion ....................................................................................................................................... 12-6Advantages of a Living Trust ........................................................................................................ 12-6Disadvantages ................................................................................................................................ 12-6Priority ........................................................................................................................................... 12-6
Pour-Over Will ........................................................................................................................ 12-7Trust Taxation ............................................................................................................................................ 12-7
Income Tax ........................................................................................................................................... 12-7Grantor Trusts - §671 to §678 ....................................................................................................... 12-7
Grantor Retained Income Trust ............................................................................................... 12-9Revocable Trusts Included in Estate - §646 & §2652(b)(1) .......................................................... 12-10
Election for Income Tax Purposes ........................................................................................... 12-10Irrevocable Trust Taxation ............................................................................................................ 12-11
Throwback Rules ..................................................................................................................... 12-12Capital Gains ................................................................................................................................. 12-12Deduction of Estate Planning Expenses ........................................................................................ 12-12Deductibility of Death Expenses ................................................................................................... 12-13
Gift Tax ................................................................................................................................................ 12-13Estate Tax ............................................................................................................................................. 12-13
“A-B” Format ................................................................................................................................ 12-18“A-B-C” (QTIP) Format ................................................................................................................ 12-21Valuation & Tax Basis .................................................................................................................. 12-21Alternate Valuation ....................................................................................................................... 12-23
Fundamental Provisions - Revocable Living Trust .................................................................................... 12-23Identification Clause ............................................................................................................................. 12-23Recital Clause ....................................................................................................................................... 12-23Property Transfer Clause ...................................................................................................................... 12-23Income & Principal Clause ................................................................................................................... 12-24Revocation & Amendment Clause ....................................................................................................... 12-24Trustee Clause ...................................................................................................................................... 12-24
Trustee’s Acceptance ..................................................................................................................... 12-24Choice of a Trustee ........................................................................................................................ 12-24Factors for Corporate Trustees ...................................................................................................... 12-25Factors for Individual Trustees ...................................................................................................... 12-25
After reading Chapter 1, participants will be able to: 1. Identify the goals and purposes of asset protection recognizing the objec-tions some people have about shielding assets from creditors by:
a. Citing reasons for asset protection and situations that can unexpected-ly put assets and financial security at stake;b. Specifying sources of lawsuits and the author's concept of exploding and imploding liability; and c. Determining asset protection using the primary concepts of insurance, asset placement, and statutory protections.
2. Recognize the importance of creditor types associated with asset protec-tion and fraudulent transfers. 3. Specify the fraudulent transfer laws and badges of fraud, define statutes of limitation, criminal penalties, and permissible asset transfers. 4. Identify the degree and necessity of asset protection using net worth and asset values under a balance sheet and the various ways that insurance and buy-sell agreements can offer asset protection. 5. Recognize the asset protection advantages and disadvantages of owner-ship formats and entities by:
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a. Determining the use of individual ownership and corporate ownership in an asset protection plan including the importance of S corporations and their estate tax planning advantages;b. Identifying testamentary trusts, living trusts, and subcategories of trusts recognizing their asset protection elements; c. Specifying the various types of co-tenancy, identifying their asset pro-tection dangers, and several types of partnerships citing their variation from limited liability companies; and d. Recognizing the unique asset protection qualities of retirement plans, custodianship, and estates as asset protection tools.