Summary of Contents - … 01, 2014 · Advantages of a Living Trust ... Advertising ... Surrogate

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Table of Contents See also Summary of Contents on the previous page.

Chapter One

Section One:

Key Elements of a Complete Estate Plan Overview ....................................................... 1

Alison T. Smith, Esquire

I. Initial Considerations ............................................................................................. 3

A. Lifetime Planning ............................................................................................ 3

B. Wills ................................................................................................................. 3

C. Use of Living Trusts ........................................................................................ 3

1. What a Living Trust Can Accomplish ...................................................... 3

a. Consolidation of Assets ....................................................................... 3

b. Planning for Incapacity ...................................................................... 3

2. Advantages of a Living Trust ................................................................... 4

a. Avoidance of Probate .......................................................................... 4

b. Ancillary Probate ................................................................................ 4

c. Privacy ................................................................................................ 5

3. Administration of the Trust During the Life of the Grantor .................. 5

a. Retention of Control ........................................................................... 5

b. Income Tax ......................................................................................... 5

c. EIN ...................................................................................................... 5

4. Uniform Trust Act .................................................................................... 5

a. Notice to Beneficiaries ........................................................................ 5

b. Advertising ......................................................................................... 6

c. Contesting the Trust .......................................................................... 6

d. Creditors ............................................................................................. 6

5. Disadvantages .......................................................................................... 6

a. Initial Expense ................................................................................... 6

b. Lack of Implementation ..................................................................... 7

6. Execution .................................................................................................. 7

a. Self-Proving ........................................................................................ 7

b. Schedule of Assets .............................................................................. 7

7. Funding .................................................................................................... 7

a. Use of Conveyance Tools .................................................................... 7

b. Funding through the Trust as Beneficiary ........................................ 7

c. Other Funding Instruments ............................................................... 8

i. Partnership Interests ..................................................................... 8

ii. Closely Held Stock .......................................................................... 8

II. Non-Tax Planning and Drafting Issues Relating to Spouses ................................ 8

A. Same-Sex Marriage ......................................................................................... 8

B. Post-Nuptial and Pre-Nuptial Agreements .................................................... 8

C. Elective Share .................................................................................................. 8

1. Property Subject to Election .................................................................... 8

2. Conveyance ............................................................................................... 9

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3. Power to Withdraw ................................................................................... 9

4. Property Not Subject to Election ............................................................. 9

5. Disclaimer/Charge .................................................................................. 10

6. Time Limit for Making Election ............................................................ 10

III. Planning and Drafting Issue Relating to Non-Spouse Beneficiaries .................. 10

A. Planning for Younger Beneficiaries .............................................................. 10

1. Spendthrift Trusts .................................................................................. 10

a. Spendthrift Clause ........................................................................... 10

b. Spendthrift Exceptions ..................................................................... 11

2. Uniform Transfers to Minors ................................................................. 12

3. Section 529 Plans ................................................................................... 12

a. 5 Year Gift Election .......................................................................... 12

b. Income Tax Deferral ......................................................................... 12

c. Qualified Education Expenses ......................................................... 12

4. Appointment of Fiduciaries for Minor Beneficiaries ............................. 13

B. Planning for Disabled Beneficiaries .............................................................. 13

1. Special Needs Trusts .............................................................................. 13

2. Appointment of Fiduciaries .................................................................... 13

C. Planning for charitable Beneficiaries ........................................................... 13

IV. Planning and Drafting Issues Related to Special Types of Assets ...................... 14

A. Planning for Business Owners ...................................................................... 14

B. Tangible Personal Property ........................................................................... 14

1. Tax Consequences .................................................................................. 14

2. Packing and Shipping ............................................................................ 14

V. Appointment of Fiduciaries and Fiduciary Powers ............................................. 15

A. Appointment of Fiduciaries ........................................................................... 15

1. Executor .................................................................................................. 15

2. Trustee .................................................................................................... 15

3. Guardian ................................................................................................. 15

4. Fiduciary Powers .................................................................................... 15

a. Power to Apportion Receipts and Disbursements

between Income and Principal ......................................................... 15

b. Power to Expend or Apply for a Beneficiary's Benefit ..................... 15

c. Provision with Tax Reminder to the Representative

of the Will of a Married Testator ...................................................... 15

d. Other Fiduciary Powers ................................................................... 16

e. Limitations on Trust Powers ............................................................ 16

VI. Miscellaneous ........................................................................................................ 16

A. Advancements and Satisfactions .................................................................. 16

1. Advancement Provisions ........................................................................ 16

2. Loans Forgiven at Death ........................................................................ 16

B. Simultaneous Death/Common Disaster ........................................................ 16

1. Presumption of Survivorship ................................................................. 16

2. Specified Survival Period of the Bequeath ............................................ 17

3. Reverse Presumption ............................................................................. 17

C. Tax Clause ..................................................................................................... 17

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VII. Overview of Other Distribution Methods ............................................................. 17

A. Joint Ownership ............................................................................................ 17

B. Beneficiary Designation ................................................................................ 17

C. Intestacy and Rules of Intestate Succession ................................................. 18

1. Share of Surviving Spouse ..................................................................... 18

2. Share of Persons Other than Surviving Spouse .................................... 18

D. Testacy – Rules of Interpretation .................................................................. 20

1. Time for Ascertaining Class ................................................................... 20

2. Meaning of “Die without Issue” and Similar Phrases ........................... 20

3. Anti-Lapse Statute ................................................................................. 20

4. Lapses ..................................................................................................... 20

5. Modification by Circumstances .............................................................. 21

a. Divorce .............................................................................................. 21

b. Marriage .......................................................................................... 21

c. Birth or Adoption .............................................................................. 21

d. Slayers .............................................................................................. 21

e. Other Provisions and Conveyances .................................................. 21

i. Beneficiary Designations ............................................................. 21

ii. Forfeiture ...................................................................................... 22

Appendix A: Sample Will Forms ............................................................................ 23

Submitted by: Alison T. Smith, Esquire

Appendix B: Sample Will Clauses ......................................................................... 43

Submitted by: Alison T. Smith, Esquire

Chapter One

Section Two:

Charitable Gift Planning .................................................................................................... 55

Originally Authored in 2013 by: Kathryn H. Crary, Esquire

Submitted by: John R. Owen, Esquire and Alison T. Smith, Esquire

Income Tax Deduction for Charitable Gifts ....................................................... 57

I. Introduction .......................................................................................................... 57

A. Giving to Charity ........................................................................................... 57

B. Limitation on Monetary Contributions to Charity ....................................... 57

C. 30% Sub-Limits ............................................................................................. 57

1. I.R.C. § 170(b)(1)(B) ................................................................................ 57

2. I.R.C. § 170(b)(1)(C) ................................................................................ 57

D. Special Rules for Contribution of Vehicles and Intellectual Property ......... 57

E. Contributions of Life Insurance .................................................................... 57

1. Tax Deductions ....................................................................................... 57

2. Donor’s Income Tax for Charitable Deductions ..................................... 58

F. Appraisal Rules ............................................................................................. 58

G. Substantiation Requirements ....................................................................... 58

H. Properly Planned and Structured Charitable Giving ................................... 58

Planned Giving Techniques ................................................................................... 58

I. Charitable Remainder Trust ................................................................................ 58

A. Commonly Used Planned Giving Vehicle ..................................................... 58

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B. How It Works ................................................................................................. 58

C. The Tax Reform Act of 1969 .......................................................................... 58

D. Payment Requirements ................................................................................. 58

E. Taxing of CRT Beneficiaries .......................................................................... 58

F. Trust Created After July 28, 1997 ................................................................ 59

G. Charitable Deduction Tax for a Charitable Remainder Trust ..................... 59

1. Charitable Remainder Annuity Trust ................................................... 59

2. Charitable Remainder Unitrust............................................................. 60

H. The Charitable Income and Gift Tax Deduction for

a Donor Who Makes a Lifetime Gift to a CRT .............................................. 62

1. Determination of the Applicable Rate ................................................... 62

2. Placing Insurance on the Donor’s Life as a Planning Tool.................... 62

II. Charitable Gift Annuities ..................................................................................... 62

A. In Simple Terms ............................................................................................ 62

B. Maximum Recommended Annuity Rates...................................................... 62

C. Charitable Deduction .................................................................................... 62

D. Regulation of Gift Annuities ........................................................................ 62

E. Selecting a Charity ........................................................................................ 62

F. Gift Annuity ................................................................................................... 63

III. Pooled Income Funds ............................................................................................ 63

A. Definition of a Pooled Income Trust .............................................................. 63

B. Operation of a Pooled Income Trust .............................................................. 63

C. Death of the Beneficiary or Beneficiaries ..................................................... 63

D. Tax Deductions .............................................................................................. 63

E. The Fund Need Not Be a Trust Under Law ................................................. 63

1. Administration ....................................................................................... 63

2. Small Contributions ............................................................................... 63

3. Last Minute Charitable Gifts ................................................................. 63

4. Appreciated Property ............................................................................. 63

F. Smaller Donors .............................................................................................. 64

IV. Charitable Lead Trust .......................................................................................... 64

A. Definition of Charitable Lead Trust.............................................................. 64

B. Split Interest Trust ........................................................................................ 64

C. Entire Income Interest .................................................................................. 64

D. Requirements in a CLT for Annuity or Unitrust Amounts .......................... 64

E. Present Value of the Remainder Interest ..................................................... 64

F. A CLT is Not Tax Exempt ............................................................................. 64

G. Main Types of CLT ........................................................................................ 64

1. Grantor CLT ........................................................................................... 64

2. Nongrantor CLT ..................................................................................... 65

H. Charitable Income Tax Deduction ................................................................ 65

I. Gift Tax .......................................................................................................... 66

V. Alternative Planning Options .............................................................................. 66

A. Private Foundations ...................................................................................... 66

1. Tax Benefits to the Donor ...................................................................... 66

2. I.R.C. § 501(c)(3) Organizations ............................................................. 66

3. Features of a Private Foundation .......................................................... 66

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4. Excise Taxes ........................................................................................... 66

5. Family Charitable Foundations ............................................................. 67

6. Paperwork for Establishing a Family Foundation ................................ 67

7. Considerations for Forming a Family Foundation ................................ 67

8. Many Donors Choose to Create Their Own Family Foundation ........... 67

B. Donor-Advised Fund ...................................................................................... 67

1. Definition of Donor-Advised Fund ......................................................... 67

2. Establishing a Donor-Advised Fund ...................................................... 68

3. Donor-Advised Funds Established in a Community Foundation ......... 68

C. Supporting Organizations ............................................................................. 68

1 Definition ................................................................................................ 68

2. Purpose of Supporting Organization ..................................................... 68

3. Four Tests to Qualify as a Valid Supporting Organization .................. 68

a. Relationship Test .............................................................................. 68

b. Organizational Test .......................................................................... 69

c. Operational Test ............................................................................... 69

d. Disqualified Person Test .................................................................. 69

4. Separate Family Foundation as a Supporting Organization ................ 70

5. Supporting Organizations – Usefulness ................................................ 70

Appendix A: Jack Owen’s Tax-Exempt Alert January 2014 – Perspective

on 2014 for Tax-Exempt Organizations and Their Supporters ........................ 71

John R. Owen, Esquire

Appendix B: PowerPoint: Key Elements of an Estate Plan ................................ 77

John R. Owen, Esquire

Chapter One

Section Three:

Lifetime Planning .............................................................................................................. 105

J. William Widing, III, Esquire

I. Goals of this Outline ........................................................................................... 107

II. Lifetime Planning Issues – Overview ................................................................ 107

A. Incapacity .................................................................................................... 107

B. Relationship Planning ................................................................................. 107

III. Planning for Incapacity ...................................................................................... 107

A. Legal Definition of Incapacity ..................................................................... 107

B. Dealing with Incapacity that Occurs Prior to Planning ............................. 107

1. Formal Planning .................................................................................. 107

2. Statutory Guardianship ....................................................................... 108

a. Statutory Law ................................................................................. 108

b. Types of Guardians ......................................................................... 108

c. Petition to Orphans’ Court Division ............................................... 108

d. Guardianship Powers ..................................................................... 108

e. Burdens ........................................................................................... 108

C. Planning for Incapacity before It Happens – Financial Decisions ............. 109

1. Agent..................................................................................................... 109

2. Governing Statutory Law..................................................................... 109

3. Statutory Short Form Powers .............................................................. 109

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4. Effective Date ....................................................................................... 109

5. Current Issues ...................................................................................... 109

6. Document Terms .................................................................................. 109

D. Planning for Incapacity before it Happens – Medical Decisions ................ 110

1. Agent..................................................................................................... 110


3. Statutory Powers .................................................................................. 110

4. Document Terms .................................................................................. 110

E. Planning for Incapacity before it Happens – End of Life Decisions ........... 110

1. Surrogate .............................................................................................. 110


3. Document Terms .................................................................................. 110

IV. Relationship Planning ........................................................................................ 110

A. Cohabitation ................................................................................................ 110

1. In Pennsylvania .................................................................................... 110


3. Planning Response ............................................................................... 110

4. Document Terms .................................................................................. 110

B. Marital Issues .............................................................................................. 110

1. Rights as a Result of Marriage ............................................................ 110

a. Right to Inherit ............................................................................... 110

b. Right to Property and Income ........................................................ 110

c. Contract .......................................................................................... 111


a. In Pennsylvania .............................................................................. 111

b. Other States .................................................................................... 111

3. Planning after the Marriage – Post Nuptial Agreement ..................... 111

a. Waiver of Existing Marital Rights ................................................. 111

b. Most Common Use .......................................................................... 111

c. Governing Statutory Law ............................................................... 111

d. Document Terms ............................................................................ 111

V. List of Appendices ............................................................................................... 111

Appendix A: General Durable Power of Attorney Example ............................. 113

Submitted by: J. William Widing, III, Esquire

Appendix B: Durable Health Care Power of

Attorney and Declaration Example ..................................................................... 125


Appendix C: Cohabitation Agreement Example ................................................ 131


Appendix D: Postnuptial Contract to Make a Will Example .......................... 141


Chapter One

Section Four:

Estate Planning with Special Needs Trusts ................................................................. 155


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I. Outline’s Overall Goal ........................................................................................ 157

II. Summary Overview of Special Needs Trusts ..................................................... 157

A. Self-Funded SNT (“Payback Trust”) ........................................................... 157

B. Self-Funded Pooled Trust ............................................................................ 157

C. Third-Party Funded..................................................................................... 158

III. Planning Where the Beneficiary has Special Needs .......................................... 158

A. Goal .............................................................................................................. 158

1. Threshold Determination ..................................................................... 158

B. Planning Options/Points to Discuss with Clients ....................................... 159

1. “Honorary Trust” .................................................................................. 159

2. Lang Standards for Third Party Funded Trust ................................... 159

a. Type ................................................................................................ 159

b. Key Features ................................................................................... 159

c. Planning Drafting Issues ............................................................... 159

d. Federal Income Tax Classifications ............................................... 161

e. Model Language ............................................................................. 161

f. Reformation of Existing Third-Party Funded Trust ...................... 161

g. IRA Issues ....................................................................................... 161

C. Special, Non-Financial Planning Issue - Personal Care

Issues for Parents of Special Needs Children ............................................. 161

1. Before Majority ..................................................................................... 161

2. After Majority ....................................................................................... 161

3. Formal Guardianship ........................................................................... 161

4. Securing Formal Authority .................................................................. 162

a. From the Child ............................................................................... 162

b. From the Court ............................................................................... 162

IV. Planning for the Special Needs Client with

His or Her Own Financial Resources. ................................................................ 163

A. Goal .............................................................................................................. 163

1. Threshold Determination ..................................................................... 163

B. Choice of Trust: Payback or Pooled? ........................................................... 163

C. Pooled Trust: Planning/Drafting Issues ...................................................... 163

D. Payback Trust: Planning/Drafting Issues ................................................... 163

1. Planning Techniques ............................................................................ 163

a. Beneficiary ...................................................................................... 163

b. Distributions ................................................................................... 163

c. Federal Income Tax Classification ................................................. 163

d. Form ................................................................................................ 163

e. One-Off Needs................................................................................. 164

f. Trustee Selection ............................................................................ 164

V. Securing DPW Recognition of SNT’s Status as an Unavailable Resource ........ 164

A. Lang Trusts ................................................................................................. 164

B. Payback or Pooled Trusts ............................................................................ 164

1. Payback Trust ...................................................................................... 165

2. Pooled Trust ......................................................................................... 165

VI. Issues Where SNT Needs to Satisfy Other Regulatory Rules ........................... 165

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A. Social Security ............................................................................................. 165

B. Section 8 ....................................................................................................... 165

Appendix A: Lang Trust Provisions (Will) Example ......................................... 167

Submitted by: J. William Widing, III, Esquire

Appendix B: Master Trust Agreement with Joinder Agreement Examples .. 171


Appendix C: Special Needs Trust Example ........................................................ 193


Chapter One

Section Five:

Estate Planning for Same Sex Couples ......................................................................... 209


I. Outline’s Overall Goal ........................................................................................ 211

II. Planning for Same Sex Couples: Introductory Point ......................................... 211

A. Overview ...................................................................................................... 211

1. Determination of PA Citizen’s Sex ....................................................... 211

2. The Current Legal Landscape for Same Sex Marriage ....................... 212

a. Validity of Same Sex Marriage [as of 3/01/14] ............................... 212

3. Continuation of Problems for PASSC in Financial

and Personal Estate Planning ............................................................. 212

a. Transfer Taxes – Federal ............................................................... 212

b. PA Inheritance Tax ........................................................................ 213

c. Income Taxes .................................................................................. 213

d. Property Law Protection for Spouse in Event of Death/Divorce ... 213

e. Deference in Healthcare Decisions ................................................ 214

B. Planning for Unmarried Partners Domiciled in Pennsylvania

Not Legally Married in Another State ........................................................ 214

1. Counseling Issues ................................................................................. 214

a. Who is Your Client? ........................................................................ 214

b. Threshold Questions ....................................................................... 214

c. Define Planning Goals .................................................................... 214

d. Implement Planning Goals ............................................................. 215

C. Planning for Unmarried Partners Domiciled in Pennsylvania

Previously Legally Married in Another State ............................................. 219

1. Dual Status ........................................................................................... 219

2. Current (3/10/14) List of States that

Recognize Same Sex Marriage ............................................................. 220

3. Immediate Action – Federal Income Tax Issues ................................. 220

4. Estate Planning Issues......................................................................... 221

a. State Law Property and Inheritance Tax ...................................... 221

b. Federal and Estate and Gift Tax.................................................... 221

c. Social Security Benefits .................................................................. 221

d. ERISA Benefits/IRA Benefits ......................................................... 221

e. News on Relevant Federal Websites .............................................. 222

f. Divorce ............................................................................................ 222

g. Challenges to Pennsylvania’s DOMA ............................................ 222

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h. Marriage Licenses Granted by Montgomery

County Register of Wills ................................................................. 222

i. Wealthy PASSC .............................................................................. 222

j. Referring to Parties in Documents ................................................. 222

Chapter Two:

Tax Consequences .............................................................................................................. 223

Richard R. Tarantine, Esquire

I. Overview of Federal Estate Tax ......................................................................... 225

A. Taxable Estate ............................................................................................. 225

1. Federal Estate Tax ............................................................................... 225

2. “Gross Estate” for Federal Estate Tax Purposes ................................. 225

3. Deductions and the Taxable Estate ..................................................... 225

4. Tentative Tax ....................................................................................... 225

5. Credits against Tax .............................................................................. 226

6. Tax Relief, Unemployment Insurance Reauthorization,

and Job Creation Act of 2010 ............................................................... 226

7. Portability ............................................................................................. 226

8. Credit for Property Previously Taxed .................................................. 227

9. Requirements for Filing Return and Paying Tax ................................ 227

10. Filing of 706 .......................................................................................... 227

B. Tax Rates ..................................................................................................... 227

C. Federal Tax Exemption ............................................................................... 228

D. Portability .................................................................................................... 228

1. Basic Exclusion Amount (BEA) ........................................................... 229

2. Deceased Spousal Unused Exclusion Amount (DSUEA) .................... 229

E. Requirements of Portability ........................................................................ 229

1. Availability ........................................................................................... 229

2. Applicability ......................................................................................... 229

3. Requirements of the Executor of the Predeceased Spouse .................. 229

4. Last Deceased Spouse .......................................................................... 229

5. Portability Applied to Gifts .................................................................. 230

F. Use of Credit Shelter/Exemption Trusts ..................................................... 230

G. Revenue Procedure 2014-18 ........................................................................ 230

II. Lists of the States that Collect an Estate and/or

Inheritance Tax as of January 01, 2014 ............................................................. 232

III. Introduction to Pennsylvania Inheritance Taxes .............................................. 233

A. History ......................................................................................................... 233

B. Nature of Taxes ........................................................................................... 233

C. Who Must File ............................................................................................. 233

1. The Personal Representative of the Estate of the Decedent ............... 233

2. When the Transferee Must File a Return............................................ 233

D. When Must Returns Be Filed and Tax Paid ............................................... 233

E. Payment of Inheritance Tax ........................................................................ 234

F. Discount for Prompt Payment ..................................................................... 234

G. Property Subject to Tax ............................................................................... 234

1. List of Transfer by Decedents Specifically Subject to Tax .................. 234

a. Transfers by Will or Intestacy of a Resident Decedent ................. 234

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b. Property or Estate of a Non-Resident Decedent ............................ 235

2. Inter Vivos Transfers ........................................................................... 235

a. Definition ........................................................................................ 235

b. Transfer Effective at Death ............................................................ 235

c. Transfer with Reserved Life Estate ............................................... 235

d. Transferee Promises to Make Payments to,

or for the Benefit of, the Transferor ............................................... 235

e. Revocable Transfers ....................................................................... 236

f. Joint Property ................................................................................. 236

g. Employment Benefits ..................................................................... 236

H. Exempt Property ......................................................................................... 237

1. Tenancy by Entireties Property ........................................................... 237

2. Transfers to Domestic Governments ................................................... 237

3. Transfers to Charitable, Fraternal Organizations

and Veterans Organizations ................................................................ 237

4. Life Insurance ...................................................................................... 237

5. Intangible Personal Property of Nonresidents .................................... 237

6. Advancements ...................................................................................... 237

7. Real Estate and Intangible Personal Property Located Outside

of Pennsylvania Owned by Pennsylvania Resident ............................ 237

8. Power of which Decedent had A General or

Limited Power of Appointment ............................................................ 237

9. Social Security and Similar Government Death Benefits ................... 237

10. Certain Pension, Stock Bonus, Profit-Sharing

and Other Retirement Plans ................................................................ 237

11. Trusts and Similar Arrangements for Spouses ................................... 238

12. Farms and Agricultural Property ........................................................ 238

13. Family Business Exemption ................................................................ 239

14. Definition of QFOBI ............................................................................. 239

15. Definition of QT .................................................................................... 240

I. Deductions ................................................................................................... 240

1. The Inheritance Tax Statute ................................................................ 240

2. All Reasonable Expensive Expenses of Administering the Decedent's

Estate and Assets in the Decedent’s Taxable Estate .......................... 241

3. Funeral and Burial Expenses .............................................................. 241

4. Family Exemption ................................................................................ 242

5. Taxes ..................................................................................................... 242

6. Decedent’s Liabilities ........................................................................... 242

7. Deductions Not Allowed ....................................................................... 242

J. Pennsylvania Inheritance Tax Rates .......................................................... 242

1. Charitable Beneficiaries ....................................................................... 242

2. Surviving Spouses ................................................................................ 243

3. Minor Children ..................................................................................... 243

4. Lineal Rate ........................................................................................... 243

5. Sibling Rate .......................................................................................... 243

6. Everyone Else ....................................................................................... 243

IV. Significant Income Tax Changes for Individuals, Estate and Trusts

for Tax Years Beginning After December 31, 2012............................................ 243

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A. Changes under American Taxpayer Relief Act of 2012 .............................. 243

1. Bush-Era Individual Income Tax Rates .............................................. 243

2. New Top Tax Rate ................................................................................ 243

3. Income Tax Rate on Net Long-Term Capital

Gains and Qualified Dividends ............................................................ 244

4. Net Long-Term Capital Gains and Qualified Dividends of Individuals

and Estates and Trusts in the Top Income Tax Bracket ..................... 244

5. The Phase-Out of Itemized Deductions

for Higher-Income Individuals ............................................................. 244

6. The phase-out of Personal Exemptions and Dependency

Exemptions for Higher-Income Taxpayers .......................................... 245

B. Change under the Health Care and Education

Reconciliation Act of 2010 ........................................................................... 245

1. Medicare Contribution Tax .................................................................. 245

2. Net Investment Income ........................................................................ 246

3. Trade or Business ................................................................................. 246

4. “Net Investment Income” under Section 1411(c)(5) ............................ 246

5. Heighten Emphasis on the Tax Year Timing ...................................... 246

6. Greater Tax Saving Possibilities ......................................................... 247

7. Net Long-Term Capital Gain ............................................................... 247

8. Grantor Trusts for Income Tax Purposes ............................................ 247

9. Tax Timing Benefit .............................................................................. 247

10. Use of Other Tax Control Gifting Vehicles .......................................... 247

11. Benefit of the 65 Day Rule ................................................................... 247

C. Tax Rate Chart for Estates and Trusts....................................................... 248

D. Tax Rate Chart for Single Taxpayers ......................................................... 249

E. Tax Rate Chart for Married Individuals Filing

Joint Returns and Surviving Spouses ......................................................... 250

V. Traditional IRA vs. Roth IRA ............................................................................. 251

A. Roth IRA Conversion Rules ......................................................................... 251

B. No Income Cap to Convert Traditional IRA to Roth IRA ........................... 251

C. Roth IRA Conversion Taxes ........................................................................ 251

D. Why Convert to Roth IRA? .......................................................................... 251

E. 2014 Roth IRA Income Limits ..................................................................... 252

1. Those Married and Filing Jointly ........................................................ 252

2. Those Filing as Single or Head of Household ...................................... 252

F. 2014 Roth IRA Contribution Limits ............................................................ 253

G. 2014 Roth IRA Maximum Contribution ...................................................... 253

H. 2014 Roth IRA Phase Out Rules ................................................................. 253

I. 2014 Roth IRA Conversion Rules ................................................................ 254

J. 2014 Roth IRA Rollover Rules ..................................................................... 254

Appendix A: Relevant Tax Code Listing ............................................................. 255

Submitted by: Richard R. Tarantine, Esquire

Appendix B: Inheritance Tax Chart - 2014 ......................................................... 261


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Appendix C: PA Department of Revenue Informational Notice Inheritance

Tax 2012-01 – Inheritance Tax Exemptions for Agricultural Commodities,

Agricultural Conservation Easements, Agricultural Reserves,

Agricultural Use Property and Forest Reserves ................................................ 265


Appendix D: PA Department of Revenue - Schedule AU

Agricultural Use Exemptions – Form .................................................................. 269


Appendix E: PA Department of Revenue - Schedule C-SB

Small Business Exemption – Form ...................................................................... 273


Chapter Three:

Life Insurance Planning Today for Tomorrow ............................................................ 277

John Yocum

I. Life Insurance Can Be a Source of Funds .......................................................... 281

A. Income Replacement.................................................................................... 281

B. Final Expenses ............................................................................................ 281

C. Debt Repayment .......................................................................................... 281

D. Child Care .................................................................................................... 281

E. College and Educational Expenses ............................................................. 281

F. Charitable Contribution .............................................................................. 281

G. Business Continuation ................................................................................ 281

H. Wealth Transfer........................................................................................... 281

I. Estate Tax .................................................................................................... 281

II. Basic Life Insurance Terms ................................................................................ 281

A. Insured ......................................................................................................... 281

B. Premium ...................................................................................................... 281

C. Death Benefit ............................................................................................... 281

D. Policy Owner ................................................................................................ 281

E. Beneficiary ................................................................................................... 281

F. Cash Value ................................................................................................... 281

III. Life Insurance Options ....................................................................................... 282

A. Term Life Insurance .................................................................................... 283

1. Overview of Term Life Insurance ........................................................ 283

2. Common Term Life Insurance Options ............................................... 283

3 The Amount of Benefits ....................................................................... 283

B. Permanent Life Insurance........................................................................... 283

1. Overview of Permanent Life Insurance ............................................... 283

2. Common Types of Permanent Life Insurance ..................................... 283

a. Whole Life ....................................................................................... 283

b. Universal Life ................................................................................. 283

C. Comparing Basic Types of Life Insurance .................................................. 284

1. Chart of Comparisons .......................................................................... 284

D. Other Factors ............................................................................................... 284

1. Carrier Ratings..................................................................................... 284

2. Underwriting ........................................................................................ 284

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3. Riders .................................................................................................... 284

4. Tax Advantages .................................................................................... 284

Chapter Four:

Estate Planning for Retirement Assets ......................................................................... 287

Andrew J. Haas, Esquire

I. Background ......................................................................................................... 289

A. Public Policy ................................................................................................ 289

B. Advantages .................................................................................................. 289

II. Types of Retirement Accounts ............................................................................ 289

A. Qualified Plans ............................................................................................ 289

1. Defined Contribution Plans ................................................................. 289

a. Profit-Sharing Plans ....................................................................... 289

b. Money Purchase Pension Plan ....................................................... 289

c. Target Benefit Pension Plan .......................................................... 289

d. Stock Bonus Plan ............................................................................ 289

e. Employee Stock Ownership Plan ................................................... 289

f. 401(k) Plan ...................................................................................... 289

g. 403(b) Plan ...................................................................................... 290

2. Defined Benefit Plans .......................................................................... 290

a. Types ............................................................................................... 290

3. Keogh Plans .......................................................................................... 290

B. Individual Retirement Accounts ................................................................. 290

1. Maximum Individual Contribution for 2014 ....................................... 290

2. Contributions for Individuals Who have

a Workplace Retirement Account ........................................................ 290

3. Contributions for Married Individual Not Covered by a

Workplace Retirement Account and is Married to

Someone Who is Covered by Such Account ......................................... 291

4. Tax-Deferred Rollovers ........................................................................ 291

a. 60 Day Rollover .............................................................................. 291

b. Direct Rollover ................................................................................ 291

C. Simplified Employee Pension (“SEP”) Plan ................................................ 291

1. Maximum Employer Contribution in 2014 .......................................... 291

D. Roth IRAs..................................................................................................... 291

1. Maximum Individual Contribution in 2014......................................... 291

2. Contributions for Married Individual Not Covered by a

Workplace Retirement Account and is Married to

Someone Who is Covered by Such Account ......................................... 291

3. Inherited IRAs, SEP IRAs and SIMPLE IRAs .................................... 292

4. MRDs .................................................................................................... 292

5. Income limit for Eligibility to Convert ................................................. 292

E. Savings Incentive Match Plan for Employees (SIMPLE) Plan .................. 292

1. Contribution Limit in 2014 .................................................................. 292

F. Nonqualified Deferred Compensation Plan ................................................ 292

1. Supplemental Executive Retirement Plan .......................................... 292

2. Rabbi Trusts ......................................................................................... 292

III. Spousal Rights .................................................................................................... 292

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A. Certain Spousal Rights in Qualified Plans ................................................. 292

1. Survivorship Annuity ........................................................................... 293

2. Lump Sum Amount .............................................................................. 293

3. Survivorship Interests Waiver ............................................................. 293

4. Pre-Marital/Post-Nuptial Agreements................................................. 293

B. Federal Rights in IRA.................................................................................. 293

C. Annuity Start Date ...................................................................................... 293

1. Definition .............................................................................................. 293

2. Participant’s Death Prior to the Annuity Start Date .......................... 293

a. QPSA ............................................................................................... 293

3. Participant’s Death After Annuity Start Date .................................... 293

a. QJSA ............................................................................................... 293

4. Payment to Participant During Life .................................................... 294

D. Relevancy of Length of Marriage ................................................................ 294

E. Exceptions for Participants in Profit-Sharing Plan .................................... 294

1. Participant Exemptions from QPSA/QJSA Requirements.................. 294

F. Exceptions for Spousal Consent .................................................................. 294

1. Participant Waiver of Particular Benefit ............................................ 294

2. Requirements for Spousal Consent ...................................................... 294

IV. Taxation Issues ................................................................................................... 295

A. Federal Estate Taxes ................................................................................... 295

B. Pennsylvania Inheritance Taxes ................................................................. 295

C. Income Taxes ............................................................................................... 295

D. Income in Respect of a Decedent ................................................................. 295

V. Minimum Distribution Requirements ................................................................ 296

A. Minimum Distribution Rules ...................................................................... 296

B. Note .............................................................................................................. 296

C. Maximum Amount of Distribution .............................................................. 296

D. The Minimum Required Distribution (MRD) Rules ................................... 296

E. Required Beginning Date “RBD” ................................................................ 297

1. Definition .............................................................................................. 297

2. Timing .................................................................................................. 297

3. Significance .......................................................................................... 297

F. Calculation of MRD ..................................................................................... 297

G. Life Expectancies Used for MRDs ............................................................... 297

1. Tables in Use for this Purpose ............................................................. 297

2. Age Determination ............................................................................... 297

H. MRDs after Participant’s Death .................................................................. 298

1. RBD ...................................................................................................... 298

2. Participant’s Retirement Benefits ....................................................... 298

3. Designated Beneficiary ........................................................................ 298

4. MRDs in the Case of Death before the RBD ........................................ 298

5. MRDs in the Case of Death after the RBD .......................................... 299

6. Summary Chart .................................................................................... 300

7. Determining if the 5 Year Rule Applies............................................... 301

8. Spouse as Sole (100% Primary) Beneficiary ........................................ 301

9. Trusts for the Benefit of the Spouse .................................................... 303

10. Separate Account Rule ......................................................................... 304

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VI. Naming a Trust as Beneficiary of Retirement Assets ....................................... 304

A. Benefits ........................................................................................................ 304

1. Tax Reasons .......................................................................................... 304

2. Non-Tax Reasons .................................................................................. 304

B. Problems ...................................................................................................... 304

1. Beneficiary Must Be an Individual to be a Designated Beneficiary ... 304

2. Exception .............................................................................................. 304

C. Rules for Determining Designated Beneficiary

If Trust is Named as Beneficiary ................................................................ 304

1. See-Through Rule ................................................................................. 305

2. Four Requirements for See-Through Rule ........................................... 305

3. Contingent Beneficiary v. Successor Beneficiary

if the See-Through Rule is Applicable ................................................. 305

4. Conduit Trust ....................................................................................... 306

5. Accumulation Trust .............................................................................. 306

VII. Giving Retirement Plans to Charity .................................................................. 307

A. Qualified Plans and IRAs ............................................................................ 307

B. MRD Rules ................................................................................................... 307

Chapter Five:

Ethical Considerations ..................................................................................................... 309

Alison T. Smith, Esquire

I. Ethical Considerations ....................................................................................... 311

A Who is Your Client? ..................................................................................... 311

1. Identify the Client ................................................................................ 311

2. Conflicts of Interest .............................................................................. 311

a. Rule 1.7(a) ....................................................................................... 311

b. Rule 1.7(b) ....................................................................................... 311

c. Rule 1.9 ........................................................................................... 312

d. Attorneys Must Consult with Their About

Potential Conflicts of Interest ........................................................ 312

3. Communication .................................................................................... 312

a. Rule 1.4(a) ....................................................................................... 313

b. Rule 1.4(b) ....................................................................................... 313

4. Fiduciary Duties ................................................................................... 313

5. Breach of Fiduciary duty ...................................................................... 313

a. Rule 1.1 ........................................................................................... 313

b. Malpractice Claim .......................................................................... 313

6. Advising Beneficiaries .......................................................................... 314

a. Rule 4.3(a) ....................................................................................... 315

b. Rule 4.3(b) ....................................................................................... 315

c. Rule 4.3(c) ....................................................................................... 315

7. Will and Revocable Trust Contests ...................................................... 315

8. Surviving Spouse .................................................................................. 316

a. Estate Planning .............................................................................. 316

b. Elective Share ................................................................................. 316

c. Surviving Spouse as Co-Executor .................................................. 317

9. Internal Conflicts of Fiduciary ............................................................. 317

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10. Representation of Multiple Clients ...................................................... 317

a. Representing Multiple Family Members ....................................... 317

b. Disputes .......................................................................................... 318

c. Multiple Representation Agreements ............................................ 318

11. Waiver of Conflict of Interest ............................................................... 318

B. Confidentiality in Third Party Communications ........................................ 318

1. Confidentiality ...................................................................................... 318

2. Attorney-Client Privilege ..................................................................... 321

a. Statutory Provision ........................................................................ 321

b. Privileged Communication ............................................................. 321

C. Assessing the Client’s Capacity .................................................................. 321

1. Issues to Consider ................................................................................ 321

2. Lawyer as Witness ............................................................................... 322

a. Rule 3.7(a) ....................................................................................... 322

b. Rule 3.7(b) ....................................................................................... 323

3. Practical Considerations ...................................................................... 323

D. Avoiding Fraudulent Transfers ................................................................... 323

1. Power of Attorney/Guardianship ......................................................... 323

2. Limitations on Gifting .......................................................................... 324

a. Limited Gifts ................................................................................... 324

b. Unlimited Gifts ............................................................................... 324

c. Probative Intent.............................................................................. 325

d. Other Statutory Provisions ............................................................ 325

3. Beneficiary Change .............................................................................. 326

a. Power to Engage in Insurance Transactions ................................. 326

b. Power to Engage in Retirement Plan Transactions ...................... 326

4. Proposed Changes to Power of Attorney Act ....................................... 326

a. Execution ........................................................................................ 327

b. Gifts ................................................................................................ 327

c. Changes to Estate Plan .................................................................. 327

d. Enumerated Powers ....................................................................... 327

e. Gift Splitting and Gifts in Excess of Annual Exclusion ................ 328

f. Allegations of Abuse ....................................................................... 328

5. Developments in Case Law .................................................................. 328

a. Vine v. The Commonwealth of Pennsylvania

State Employees Retirement Board ................................................ 328

b. Advisory Committee on Decedents' Estates Laws of the Joint

State Government Commission’s Report: “Powers of Attorney

and Healthcare Decision-Making: Proposed Amendments

to the Probate, Estates, and Fiduciaries Code” ............................. 330