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A new IRS ruling is positive in that it gives the strongest green light to the concept of decanting a trust. However, a key component of the ruling (not imposing any taxes) relates to the similarity between the old and new trusts, so it remains to be seen how the IRS will treat a decanting in which the two trusts are markedly different. Also, don't expect a lot of future guidance from the IRS. Thus, this ruling may constitute practitioners guidance for a while. [ABSTRACT FROM AUTHOR]

We continue to monitor how the new tax law impacts estate planning. We look at the effect on overfunded trusts, irrevocable life insurance trusts, and irrevocable grantor trusts. [ABSTRACT FROM AUTHOR]

Illiquid estates and estate taxation are often what catapults estate planning clients into purchasing life insurance. The process should not be navigated without an expert in the various types of product and guidance on the most efficient way to finance it. But the need for advice does not stop there. In spite of the fact that irrevocable life insurance trusts have been used for decades, there remain serious traps in their construction and administration that will undermine achieving your clients' goals. [ABSTRACT FROM AUTHOR]

Irrevocable life insurance trusts (ILITs) have been a cornerstone of sophisticated estate liquidity and wealth management planning for over 40 years. State Uniform Prudent Investor Act (UPIA) provisions generally place fiduciary-level responsibilities on trustees--whether skilled or unskilled--yet there remains a "disconnect" between ILIT duties and trustee activities. This article explains how this disconnect can be resolved and the form this process should take to protect the interests of all ILIT parties. [ABSTRACT FROM AUTHOR]

History shows us that the law regarding federal transfer tax is ever changing. The economic fortunes of clients can be ever changing as well. In a time when the law and economy are increasingly volatile, providing clients with flexible plans that can adjust to future uncertainties is worthy advice. This article explores the drawbacks associated with traditional irrevocable life insurance trust planning, especially for couples considering the purchase of survivorship life insurance to provide liquidity for the survivor's estate. The purchase of Survivor Purchase Option riders, especially for the "mid-wealthy," is then analyzed, as a flexible alternative to survivorship life insurance which, when owned by an irrevocable trust, is a trapped asset unavailable to the surviving spouse who may face tough choices when his or her mate dies. [ABSTRACT FROM AUTHOR]

In this article both the nontax and tax considerations involved in selecting a family member to act as trustee of an irrevocable life insurance trust are explored. After comparing the relative nontax merits of using a family member trustee versus a professional trustee, the specific estate, gift, and income tax issues raised when the grantor, the grantor's spouse, or the grantor's children are named as trustees are addressed. [ABSTRACT FROM AUTHOR]

The beneficiary defective trust (BDT) is a trust typically established by a parent for the benefit of a child. The child is usually treated as the owner of the trust under Sec. 678 of the Internal Revenue Code, but the trust is not includible in the taxable estate of the child. The BDT can be used to own business investments that the child might otherwise own personally. If the BDT is structured properly, the business interests it owns will not be included in the taxable estate of the child, but the child will nonetheless, as a beneficiary of the BDT, enjoy the income and other economic benefits of the business interest. The BDT can also own life insurance on the life of the child. When so used, the BDT, especially one funded with income-producing assets, can avoid some of the disadvantages associated with the typical irrevocable life insurance trust. These disadvantages include the need to use Crummey withdrawal powers to shield insurance premium payments from gift tax. [ABSTRACT FROM AUTHOR]

Irrevocable life insurance trusts (ILITs) have been a significant planning tool for clients with taxable estates for many years. While the term "irrevocable" lends itself to an image of something that is rigid and final, with proper planning a great deal of flexibility can be incorporated into these trusts. This article will provide an overview of the traditional ILIT and will discuss potential planning opportunities that can provide clients access to trust assets, including those that hold second-to-die life insurance policies. [ABSTRACT FROM AUTHOR]

Private split dollar is an effective wealth transfer planning tool for high-net-worth individuals and couples. This article examines the efficiency of private split dollar and compares results with traditional and hybrid premium financing programs. In the context of this comparison, the two split-dollar methods primarily employed within the private arena between either a donor or a donor's business and an irrevocable life insurance trust (ILIT)—typically referred to as nonequity collateral assignment and loan regime—are examined. Many times during the course of a private split-dollar agreement the former can be exchanged for the latter, timing the transition or "switch" to afford the optimum benefit to the client. [ABSTRACT FROM AUTHOR]

Wealthy estate owners face a significant financial problem when planning to transfer their estates at death. That problem is a federal estate tax at a 45% rate and state death taxes that could raise the combined rate of estate taxation to more than 50%. Fortunately, an irrevocable life insurance trust (IL IT) funded with a survivorship insurance policy offers an actuarially leveraged income and estate tax-free method to provide the dollars to offset these taxes. [ABSTRACT FROM AUTHOR]

Structured settlements--and the annuities used to fund them--have long been used to assure tax-free payments to the victims of catastrophic injuries while transferring the liability for payment from one party (the defendant) to another (the life carrier's assignment company). In recent years there has been expanded use of structured settlements into other areas such as employment cases and business disputes. These "nonqualified" structures have given rise to new markets for structured settlements altogether. The "structured sale" is a concept that will be of interest to any financial adviser with clients who may be seeking tax deferral in selling a capital asset. This technique combines the installment sale rules covered by IRC Sec. 453 with structured settlement methodologies to create a way for the seller of property to combine the tax deferral of the installment sale with the safety of payments backed by a high-quality annuity. [ABSTRACT FROM AUTHOR]

During estate and retirement planning for wealthy individuals and families, planners should consider the appropriate method of addressing assets within a qualified plan or individual retirement account. As such assets are subject to income taxes, they are considered income in respect to decedent following IRC Sec. 691, and they are considered part of the taxable estate for estate tax purposes. One approach to addressing these assets is to leverage the asset through the purchase of life insurance within a qualified plan. The policy can be purchased or distributed from the plan at a later date with the subsequent ownership of the policy by an irrevocable life insurance trust, family limited partnership, or limited liability company. This article addresses when this strategy is appropriate and the technical aspects of the transactions involved. [ABSTRACT FROM AUTHOR]

The article discusses estate planning, in light of the tax relief provisions of the 2001 Tax Act. There are tactics that financial advisers can employ to protect clients from against elective share claims and plan for individuals who are divorced or in blended families. A example of estate litigation contains the complex issues of loans advanced to family members and a limited partnership document, which uses up resources and can fuel family discord. The "right of election laws" do vary from one state to another, but with the exception of Georgia and the District of Columbia, all states stop married people from disinheriting the surviving spouse. The life insurance trust financed with a cash value life insurance policy is recommended.

Typical buy-sell planning often exacerbates closely held business owners' estate tax problems. Introducing some basic estate planning concepts into the process can alleviate many of these concerns. Rather than utilizing the typical structure wherein the intended stock purchaser owns life insurance on the insured, this article recommends two planning techniques involving the use of an irrevocable trust as applicant and owner of the life insurance policy. One technique focuses on a key-employee buy-out situation, and the other on a cross-purchase arrangement. [ABSTRACT FROM AUTHOR]

This article discusses planning strategies to be considered to avoid the contemplation-of-death rule without triggering adverse income tax results under transfer-for-value rules when life insurance policies are transferred to an irrevocable life insurance trust (ILIT), either from the insured or from another ILIT with defective or flawed provisions. The article also summarizes the interests and powers that a person may have in a trust owning a life insurance policy on such person's life without causing inclusion of the proceeds in the insured's estate under the incidents-of-ownership rule. Consideration is also given to practical drafting strategies, including possible savings clauses, and a comparison of the use of single-life versus last-to-die policies. [ABSTRACT FROM AUTHOR]

This article examines income, girl, and estate tax issues that commonly arise in the drafting of irrevocable life insurance trusts and suggests creative options planners should consider. Provisions before trust division date (including the structuring of withdrawal powers), provisions concerning trust division date, and provisions effective after trust division date are explored, with specific suggestions for drafting in light of the legal analyses presented. Practical design strategies are also discussed. [ABSTRACT FROM AUTHOR]

The generation-skipping tax consequences of irrevocable life insurance trusts are easily overlooked. Fortunately, planners have a number of techniques that can enable ILITs to be an effective generation-skipping planning device. This article describes these techniques, including a new approach developed by the author that he refers to as a Split Dollar Withdrawal Power. [ABSTRACT FROM AUTHOR]

For high net-worth clients, the gift tax consequences of funding an irrevocable life insurance trust (ILIT) can be a significant hurdle w proper estate planning. Few estate planning concepts offer the advantage of a Cristofani trust. A Cristofani trust allows an insured to maximize the number of annual exclusions without compromising testamentary wishes. In most cases, a Cristofani trust is simply an ILIT that terminates when the insured dies and the death benefit passes to the insured's children — unless the children predecease the insured. If the insured's children predecease the insured, grandchildren inherit the trust assets. [ABSTRACT FROM AUTHOR]

The primary advantage of split-dollar life insurance is that the annual gift is reduced to the cost of pure life insurance coverage. The primary disadvantage is that as the insured ages, the term cost increases substantially. Good planning dictates that the estate owner consider a viable exit strategy before the term cost becomes burdensome. Any exit strategy must focus on the most economical method to accumulate sufficient cash to fund an eventual policy rollout. A deferred gift, such as a qualified personal residence trust (QPRT), used in conjunction with an intentionally defective (grantor) irrevocable life insurance trust (ILIT), can provide an attractive solution. [ABSTRACT FROM AUTHOR]

The article examines the impact of changes in holdings of social security and private pension annuities on the level of non-pension wealth. A life-cycle model of wealth accumulation where there is social security and private pensions is developed and used to determine how non-pension net worth is affected by pension wealth. The life-cycle model hypothesizes that there is a nonlinear relationship in the age of the ratio of net worth and permanent income but there is a discrepancy in the rate of wealth decumulation in old age that the life-cycle model does not predict.

The Treasury, Department of Labor, and IRS announced new rules that: (1) remove an obstacle to the use of tax-favored retirement funds, such as those held in IRAs to purchase "longevity" annuities; (2) make it easier for defined-benefit pension plans to offer participants both annuities and lump-sum payments, rather than an either/or option; (3) clarify that lump-sum 401(k) payments can be transferred to the employer's pension plan (if one exists and permits the transfer) to generate an annuity from the plan; and (4) outline how the spousal protection rules apply to 401(k) plan participants who choose deferred annuities from the plan. [ABSTRACT FROM AUTHOR]

Estate liquidity solutions that will work best for those clients facing uncertain estate liquidity needs are those that provide the client with flexibility. These include disclaimer testamentary trusts, family limited partnerships (for business owners), irrevocable life insurance trusts that allow distributions to the spouse of the insured, whole life insurance with term riders that allow conversions to whole life with a new term rider, and term insurance that includes guaranteed purchase options. [ABSTRACT FROM AUTHOR]

The article presents three case studies involving extremely poor outcomes in financial planning. In one instance a retired couple was beguiled into purchasing life insurance whose premiums exceeded their combined annual retirement income. In another, a well-educated immigrant couple were advised to participate in a tax-avoidance strategy that ultimately made them subject to millions of dollars in penalties, taxes, and interest. A third case involved maladministration of an insurance trust that resulted in drastically reduced benefits.

The aim of annual reports is to give shareholders and other interested people information about a company's activities and financial performance. The Social Security and National Insurance Trust (SSNIT) of Ghana churns out annual reports on yearly basis. But some of the annual reports are likely to be more difficult to understand than others and may not be effective if the reader is unable to completely comprehend the contents. Yet, nothing is known about the readability of annual reports produced by SSNIT. Hence, this paper attempts to evaluate the readability of annual reports of SSNIT and establish the trend in readability, covering a period of years (from 2011 to 2015). SMOG readability index was used to compute readability scores and descriptive statistics and ANOVA were used to analyse the data. The results indicate that the annual reports of SSNIT were generally very difficult to comprehend. In addition, the study showed that the readability level of all annual reports was similar. The trend indicates a deterioration in readability of the annual reports over the five-year period. The researcher recommends that authors of the report use plain language to enhance ease in the understanding of the reports. [ABSTRACT FROM AUTHOR]

This paper deals with life care annuities, i.e. bundled products comprising a life annuity and long-term care insurance. It aims to assess the cost of converting retirement benefit into a life care annuity with graded benefits using a pre-existing public pay-as-you-go pension scheme. With this objective in mind, we present an actuarial method based on array calculus for valuing this type of life care annuity. The health dynamics of the annuitant rely on a reversible illness-death multistate framework. The paper contains a numerical example in which mortality and disability assumptions are based on data from the USA and Australia, although this should be viewed simply as an illustration. In addition, in order to check the coherence of these data, we compute life expectancy for both healthy and dependent persons, and then for dependent persons in each of the states of dependence. The effect of ruling out the recovery assumption on the annuity's cost is also assessed. The analysis provides valuable insights into how much it would cost to introduce these annuities and enables us to make some policy recommendations to help ensure that this combined pension scheme has a good actuarial design. [ABSTRACT FROM AUTHOR]

The combination of a charitable remainder trust (CRT) and an asset replacement insurance trust can be an advantageous planning technique. The case study presented in this article helps to illustrate the benefits involved. The three types of CRTs used by the author to analyze the case example are charitable remainder unitrust, charitable remainder annuity trust and the net income makeup charitable remainder trust. The case study presented the dilemma encountered by two people who purchased an asset several years ago which would possibly lose its value due to taxes if they decide to sell it. What the author suggested was that they should transfer the asset to a specially designed trust before it is sold. The trust will help to convert this low-yielding, highly appreciated non-diversified asset into a high-quality diversified investment without paying the capital gains tax.

The article discusses the plans to unify two insurance trusts, namely American Veterinary Medical Association (AVMA) Life and AVMA Professional Liability Insurance Trust (PLIT) under an umbrella trust. According to the chief executive officers (CEOs) of both the trusts, Libby Wallace and Dr. Andrew Clark, this unification will make the trusts more user-friendly for policyholders.

Synopsis: Scholars have proposed a federal inheritance tax as an alternative to the current federal transfer taxes, but that proposal is seriously flawed. In any inheritance tax model, scholars should expect to see significantly decreased compliance rates and increased administrative costs because, by focusing on the transferees instead of on the transferor, an inheritance tax would multiply the number of taxpayers subject to the tax. This Article reviews common characteristics of existing inheritance tax systems in the United States and internationally -- particularly in Europe. In addition, the Article analyzes the novel Comprehensive Inheritance Tax (CIT) proposal, which combines some elements of existing inheritance tax systems with some features of the current transfer tax system and delivers the CIT through the federal income tax system. [ABSTRACT FROM AUTHOR]

Longevity risk arising from uncertain mortality improvement is one of the major risks facing annuity providers and pension funds. In this article, we show how applying trend models from non-life claims reserving to age-period-cohort mortality trends provides new insight in estimating mortality improvement and quantifying its uncertainty. Age, period and cohort trends are modelled with distinct effects for each age, calendar year and birth year in a generalised linear models framework. The effects are distinct in the sense that they are not conjoined with age coefficients, borrowing from regression terminology, we denote them as main effects. Mortality models in this framework for age-period, age-cohort and age-period-cohort effects are assessed using national population mortality data from Norway and Australia to show the relative significance of cohort effects as compared to period effects. Results are compared with the traditional Lee–Carter model. The bilinear period effect in the Lee–Carter model is shown to resemble a main cohort effect in these trend models. However, the approach avoids the limitations of the Lee–Carter model when forecasting with the age-cohort trend model. [ABSTRACT FROM AUTHOR]

We analyse the impacts of changing employment patterns and pension reforms on the future level of public pensions across birth cohorts in Germany. The analysis is based on a microsimulation model and a rich data set that combines household survey data from the German Socio-Economic Panel Study (SOEP) and process-produced microdata from the German pension insurance. We account for cohort effects in individual employment and unemployment affecting earnings over the life cycle as well as the differential impact of recent pension reforms. For individuals born between 1937 and 1971, cohort effects vary greatly by region, gender and education, and strongly affect life cycle earnings profiles. The largest effects can be observed for younger cohorts in East Germany and for the low educated. Using simulated life cycle employment and income profiles, we project gross future pensions across cohorts taking into account changing demographics and recent pension reforms. Simulations show that pension levels for East German men and women will fall dramatically among younger birth cohorts, not only because of policy reforms but also due to higher cumulated unemployment. For West German men, the small reduction of average pension levels among younger birth cohorts is mainly driven by the impact of pension reforms, while future pension levels of West German women are increasing or stable due to rising labour market participation of younger birth cohorts. [ABSTRACT FROM AUTHOR]

Social Security benefits may be commenced at any time between ages 62 and 70. As individuals who claim later can, on average, expect to receive benefits for a shorter period, an actuarial adjustment is made to the monthly benefit to reflect the age at which benefits are claimed. We investigate the actuarial fairness of that adjustment in light of recent improvements in mortality and historically low interest rates. We show that delaying is actuarially advantageous for a large number of people, even for individuals with mortality rates that are twice the average. At real interest rates closer to their historical average, singles with mortality that is substantially greater than average do not benefit from delay, although primary earners with high mortality can still improve the present value of the household's benefits through delay. We also investigate the extent to which the actuarial advantage of delay has grown since the early 1960s, when the choice of when to claim first became available, and we decompose this growth into three effects: (1) the effect of changes in Social Security's rules, (2) the effect of changes in the real interest rate, and (3) the effect of changes in life expectancy. Finally, we quantify the extent to which the gains from delay can be expected to increase in the future as a result of mortality improvements. [ABSTRACT FROM AUTHOR]

In recent decades, employers have increasingly replaced defined benefit (DB) pensions with defined contribution (DC) retirement accounts for their employees. DB plans provide annuities, or lifetime benefits paid at regular intervals. The timing and amounts of DC distributions, however, may vary widely. Most surveys that provide data on the family income of the aged either collect no data on nonannuity retirement account distributions, or exclude such distributions from their summary measures of family income. We use Survey of Income and Program Participation (SIPP) data for 2009 to estimate the impact of including retirement account distributions on total family income calculations. We find that about one-fifth of aged families received distributions from retirement accounts in 2009. Measured mean income for those families would be about 15 percent higher and median income would be 18 percent higher if those distributions were included in the SIPP summary measure of family income. [ABSTRACT FROM AUTHOR]

The article presents an overview of a thorough examination on retirement income adequacy of retirees with immediate and longevity annuities. It analyzes three different aspects of risks which include investment income, longevity, and long-term risk for the retiree with information and probabilities on retirement and health care spendings. It also examines the influence of longevity annuities, an efficient form of insurance with lump sum premium and payout period that sets well into the future.