a practical guide to estate planning in...

A Practical Guide to Estate Planning in Massachusetts

Table of Contents

Chapter 1 PRACTICAL STEPS IN HANDLING AN ESTATE PLANNING MATTER

LOUISE F. HERMAN, ESQ. Steffensen, Herman & Doggett, LLC, Boston ALAN NOVICK, ESQ. Novick Law Office, New Bedford and Naples, Florida

§ 1.1 INITIAL CLIENT CONTACT

§ 1.2 THE FIRST MEETING

§ 1.2.1 Information-Gathering and the Questionnaire

§ 1.2.2 Discussion and Explanation of an Appropriate Plan

§ 1.2.3 Fees and Billing Practice

§ 1.2.4 Disclosures About Confidentiality and Potential Conflicts

§ 1.2.5 Special Family Situations

§ 1.2.6 Choice of Fiduciaries

§ 1.3 ENGAGEMENT LETTERS

§ 1.4 PLANNING AND DRAFTING

§ 1.4.1 Designing the Overall Plan

§ 1.4.2 Drafting

§ 1.4.3 Sending Drafts to Clients

§ 1.5 EXECUTION AND FOLLOW-UP

§ 1.5.1 The Formalities of Execution

§ 1.5.2 Questions of Competency

§ 1.5.3 Safeguarding the Original Instruments

§ 1.5.4 Sending the Bill

§ 1.5.5 Follow-Up Matters

EXHIBIT 1A—Estate Planning Questionnaire

EXHIBIT 1B—Sample Correspondence

Formal Engagement Letter

Engagement Letter (Short Form, Personalized)

Meeting Summary and Recommendations

Letter Explaining Drafts

Follow-Up Letter and Reminder

Letter Enclosing Copies and Bill

Sample Bill

Initial Fee Quote

Final Bill (Sample)

Chapter 2 ESTATE, GIFT AND GENERATION-SKIPPING TRANSFER TAXES

ROBERT P. GOLDMAN, ESQ. (Estate Taxes) Goulston & Storrs, PC, Boston PATRICIA M. ANNINO, ESQ. (Federal Gift Tax) Prince, Lobel & Tye, LLP, Boston MEREDETH A. BEERS, ESQ. (Generation-Skipping Transfer Tax) Holland & Knight, LLP, Boston HELEN H. STEWART, ESQ. (1996) (Generation-Skipping Transfer Tax) Law Offices of Helen H. Stewart

§ 2.1 FEDERAL ESTATE TAX

§ 2.1.1 In General

§ 2.1.2 Unified Credit

§ 2.1.3 Tax Rates

§ 2.1.4 State Death Tax Credit

§ 2.1.5 Marital Deduction

§ 2.1.6 Tax—Inefficient Estate Plan

§ 2.1.7 Tax—Efficient Estate Plan

§ 2.1.8 Alternative Tax—Efficient Plan Using Disclaimer

§ 2.1.9 Alternative Tax—Efficient Plan Using Partial QTIP Election

§ 2.1.10 Establishing the Marital and Credit Shelter Shares

(a) Pecuniary Marital Amount Followed by Residuary Credit Shelter Share

(b) Pecuniary Credit Shelter Amount Followed by Residuary Marital Share

(c) Fractional Credit Shelter and Marital Shares

(d) Effect of State Death Tax Credit

(e) A Few Pros and Cons

(f) Valuation of Assets When Funding Shares

§ 2.2 MASSACHUSETTS ESTATE TAX

§ 2.2.1 Deaths Prior to January 1, 1993

§ 2.2.2 Increased Exemption for Deaths After 1992

§ 2.2.3 Increased Marital Deduction for Deaths On or After July 1, 1994

§ 2.2.4 Planning for the Massachusetts Estate Tax—Deaths Before January 1, 1997

§ 2.2.5 The Massachusetts Sponge Tax

§ 2.2.6 Planning for the Sponge Tax

§ 2.3 THE FEDERAL GIFT TAX: THE BASIC RULES

§ 2.3.1 Gifting Advantages and Disadvantages

§ 2.3.2 Overview of the Factors to Consider When Gifting

§ 2.3.3 Introduction to the Federal Gift Tax

(a) Indirect Transfers

(b) Net Gifts and Gifts on the Condition that the Donee Pays the Gift Tax

(c) Interest-Free Loans

§ 2.3.4 Gifts Made Within Three Years of Death (I.R.C. § 2035)

§ 2.3.5 Transfers Within Three Years of Death—The Gift Tax and Gift Tax Credit

§ 2.3.6 Gifts and Income Tax Basis

(a) Incomplete Transfers (I.R.C. §§ 2036-2038)

§ 2.3.7 Life Insurance—Gift Tax Consequences

§ 2.3.8 Time of the Gift

§ 2.3.9 Valuation of the Gift

§ 2.3.10 The Valuation Discounts

(a) The Gift Tax and the Statute of Limitations

§ 2.3.11 Exclusions and Deductions from the Gift Tax

(a) The Annual Exclusion

(b) Annual Exclusion—Gifts Under the Uniform Transfers to Minors Act

(c) Annual Exclusion—Section 2503(c) Trusts to Benefit a Minor Beneficiary

(d) Annual Exclusion—Long-Term Crummey Trust

(e) Annual Exclusion—Irrevocable Life Insurance Trusts

(f) Gift Tax Issues Related to Irrevocable Trusts

(g) The Exclusion for Education and Medical Expenses

(h) Marital Deductions—Gifts to a Citizen Spouse

(i) The Marital Deduction—Gifts to a Noncitizen Spouse

(j) Split Gifts Between Husband and Wife

§ 2.3.12 Liability for the Gift Tax

§ 2.3.13 The Gift Tax Return

§ 2.3.14 The Gift Tax and Declaratory Judgments

§ 2.4 GENERATION-SKIPPING TRANSFER TAX: FUNDAMENTAL CONCEPTS

§ 2.4.1 Policy and Design of the Tax

§ 2.4.2 Effective Dates

§ 2.4.3 Basic Rules and Definitions

(a) Transferor

(b) Skip Person

(c) Interest

(d) Three Types of Skips

(e) The $1 Million GST Exemption

(f) Computing the GST Tax

§ 2.4.4 Planning Concepts

(a) Avoid an Inclusion Ratio Other than Zero or One

(b) Sample Trust Division Authority

(c) Planning Opportunities of the QTIP Trust

(d) GST Tax and Gift Tax Exclusions

§ 2.4.5 When Not to Worry About the GST Tax

§ 2.4.6 Conclusion

§ 2.5 DEFENSIVE GENERATION-SKIPPING TRANSFER TAX PLANNING: DRAFTING WILLS AND TRUSTS FOR CLIENTS WHO DO NOT INTEND TO SKIP GENERATIONS

§ 2.5.1 Introduction

§ 2.5.2 Will Clauses

(a) Tax Apportionment

(b) GST Exemption Allocation

(c) Miscellaneous

§ 2.5.3 Trust Clauses

(a) All Purpose, Self-Contained Severance Authority

(b) Administrative Powers

(c) Rule Against Perpetuities

EXHIBIT 2A—Generation-Skipping Transfer Tax: Questions and Answers for Spotting Potential Skips

Chapter 3, Part I THE BASIC STRUCTURE OF THE WILL

JEFFREY W. ROBERTS, ESQ. Robinson, Donovan, Madden & Barry, PC, Springfield

§ 3.1 INTRODUCTION

§ 3.2 STATUTORY REQUIREMENTS

§ 3.2.1 Written, Oral and Holographic Wills

§ 3.2.2 Revocation of Prior Wills

§ 3.2.3 Qualifications of Witnesses

§ 3.2.4 Self-Proving Affidavit

§ 3.3 RELATIONSHIP TO NONPROBATE ASSETS

§ 3.3.1 Taxable Estate Versus Probate Estate

§ 3.3.2 Joint Property

(a) Client as Possible Survivor

(b) Right of Survivorship Disputes

(c) Set-Off Against Share of Estate

§ 3.3.3 Life Insurance, Annuities and Employee Benefits

§ 3.4 DRAFTING THE SIMPLE WILL

§ 3.4.1 Publication and Prior Will Revocation Clause

§ 3.4.2 Contemplation of Marriage

§ 3.4.3 Executor

(a) Designation and Qualification

(b) Bond and Surety

(c) Temporary Executor

(d) Powers of Executor

§ 3.4.4 Funeral and Other Arrangements

§ 3.4.5 Presumption of Survivorship and Requirement of Survival Period

§ 3.4.6 Appointment of Guardian or UTMA Custodian

§ 3.4.7 Specific Bequests

(a) Tangible Personal Property

(b) Memorandums

(c) Real Estate

(d) Bequests of Securities, Stock Splits and Dividends, Mutual Funds and Accounts

(e) Ademption

(f) Income Tax

(g) Pecuniary Bequests

(h) Abatement

§ 3.4.8 Residuary Bequests

(a) Effect on Powers of Appointment

(b) Per Capita Versus Representation

(c) Formula Distribution

(d) Pour-Over Clause

(e) Testamentary Trust

§ 3.4.9 Omitted Issue

§ 3.4.10 Guardian Ad Litem Clause

§ 3.4.11 "Children" Versus "Issue"

§ 3.4.12 Lapses

§ 3.5 SPECIAL ISSUES

§ 3.5.1 In Terrorem Clause

§ 3.5.2 Adopted Persons

§ 3.5.3 Tax Clauses and Apportionment

§ 3.5.4 Statutory Will (G.L. c. 191B)

Chapter 3, Part II NONPROBATE TRANSFERS

EVELYN V. MORENO, ESQ. Hutchins, Wheeler & Dittmar, PC, Boston

§ 3.6 GENERAL OVERVIEW

§ 3.7 ADVANTAGES OF NONPROBATE TRANSFERS

§ 3.8 DISADVANTAGES OF NONPROBATE TRANSFERS

§ 3.9 COORDINATION OF THE DISPOSITION OF PROBATE AND NONPROBATE ASSETS

§ 3.10 JOINT TENANCIES

§ 3.10.1 Tenancy by the Entirety

§ 3.10.2 Joint Tenancy with Right of Survivorship

§ 3.11 TAX ASPECTS

§ 3.11.1 Estate Tax

§ 3.12 NONSPOUSE JOINT OWNERS

§ 3.13 LIFE INSURANCE

§ 3.13.1 Beneficiary Designations

§ 3.14 RETIREMENT PLANS

§ 3.15 LIFE ESTATES AND REMAINDERS

§ 3.16 POWERS OF APPOINTMENT

§ 3.17 INTER VIVOS TRUSTS

Chapter 3, Part III REVOCABLE INTER VIVOS TRUSTS

JON E. STEFFENSEN, ESQ. Steffensen, Herman & Doggett, LLC, Boston THOMAS E. BATOR, ESQ. (1996) Pratt & Bator LLP, Boston

§ 3.18 INITIAL MATTERS

§ 3.18.1 Power to Amend

§ 3.18.2 Funding

§ 3.19 PURPOSES

§ 3.19.1 Estate Planning

(a) Avoiding Probate

(b) Privacy

(c) Probate Account Allowance Avoidance

(d) Amendment Simplicity

(e) Guardianship-Conservatorship Substitute

§ 3.19.2 Asset Management

§ 3.19.3 Creditor Protection

§ 3.20 TAX EFFECTS OF REVOCABLE TRUSTS

§ 3.20.1 Income Taxes

§ 3.20.2 Gift Taxes

§ 3.20.3 Estate Taxes

§ 3.21 TRUST PROVISION SPECIFICS

§ 3.21.1 Separate Shares Versus Spray Trust

(a) Separate Share Trusts

(b) Spray Trust

(c) Blend

§ 3.21.2 Mandatory or Discretionary Distributions

§ 3.21.3 Other Considerations

§ 3.22 ADMINISTRATIVE PROVISIONS AND POWERS

§ 3.22.1 Investments

§ 3.22.2 Diversification

§ 3.22.3 Portfolio as a Whole

§ 3.22.4 Illiquid Assets

§ 3.22.5 Power to Lease

§ 3.22.6 Power to Allocate Between Income and Principal

§ 3.22.7 Power to Borrow

§ 3.22.8 Power to Lend

§ 3.22.9 Power to Distribute to a Minor

§ 3.22.10 Power to Terminate a Trust

§ 3.22.11 Power of Sale

§ 3.22.12 Power to Resign

§ 3.22.13 Statutory Optional Fiduciary Powers

§ 3.23 GENERAL ADMINISTRATION ISSUES

§ 3.23.1 Accounting

§ 3.23.2 Tax Clauses

§ 3.23.3 Certificate of Trustee

§ 3.23.4 Spendthrift Clause

§ 3.23.5 Duration of Trust

§ 3.24 INTERTRUSTEE PROVISIONS

§ 3.24.1 Majority or Unanimity

§ 3.24.2 Delegation

§ 3.25 TRUSTEE EXCULPATION

§ 3.25.1 Exemption from Bond

§ 3.25.2 Environmental Issues

§ 3.26 CHOICE OF TRUSTEE

§ 3.26.1 Family Member Trustees

§ 3.26.2 Professional Trustees

§ 3.26.3 Tax Considerations

§ 3.26.4 Discretionary Powers Causing Transfer Tax

§ 3.26.5 Ascertainable Standard

§ 3.26.6 Disinterested Trustee Provisions

§ 3.26.7 Power to Remove Independent Trustee

§ 3.26.8 Appoint Donor

§ 3.26.9 Power to Appoint Independent Trustee

§ 3.26.10 Massachusetts Removal

§ 3.26.11 Trustee Succession

§ 3.26.12 Fees

§ 3.27 DEFINITIONS APPLICABLE TO REVOCABLE INTER VIVOS TRUSTS

EXHIBIT 3A—Marital Deduction/Generation-Skipping Trust

Chapter 3, Part IV POUR-OVER WILLS

JANET WILSON MOORE, ESQ. Mirick, O'Connell, DeMallie & Lougee, Worcester

§ 3.28 GENERAL OBSERVATIONS

§ 3.29 THE PURPOSE OF THE POUR-OVER WILL

§ 3.30 VALIDITY OF THE POUR-OVER WILL

§ 3.31 REQUIREMENTS OF POUR-OVER PROVISIONS

§ 3.32 TREATMENT OF ASSETS UNDER POUR-OVER PROVISIONS

§ 3.33 PRACTICAL REASONS TO USE POUR-OVER WILLS

§ 3.34 PROBLEMS RELATED TO POUR-OVER WILLS

§ 3.34.1 Allowance of Accounts

§ 3.35 COORDINATION OF TAX CLAUSES

§ 3.36 Further Sources

EXHIBIT 3B—Pour-Over Will Provision: Pour-Over Residue to Own Trust

EXHIBIT 3C—Pour-Over Will Provision: Residue to Other Person's Trust

Chapter 3, Part V RED FLAGS TO CONSIDER WHEN DRAFTING ESTATE PLANS

WILLIAM N. FRIEDLER, ESQ. Gordon & Friedler, P.A., Boston

§ 3.37 INTRODUCTION

§ 3.38 PARTICULAR CAUSES FOR CONCERN

§ 3.38.1 Clients with Assets Above the Available Unified Credit Equivalent or Likely to Appreciate Above the Unified Credit Equivalent

(a) General Power of Appointment Trust

(b) Qualified Terminable Interest Property (QTIP) Trust (I.R.C. § 2056(b)(7))

(c) Irrevocable Life Insurance Trusts

(d) Qualified Personal Residence Trust (QPRT)

(e) Qualified Domestic Trusts (QDOTs)

§ 3.38.2 Charitable Trusts

§ 3.38.3 Estate Planning for Unmarried Couples

§ 3.38.4 Clients with Disabilities or In Need of Medicaid Planning

§ 3.38.5 Ineffective Use of Disclaimers

§ 3.38.6 Environmental Issues

§ 3.38.7 Failure to Identify a Conflict of Interest

§ 3.39 POSSIBLE TRAPS CAUSED BY INSUFFICIENT TIME TO PLAN

§ 3.39.1 Clients Who Are Dying

§ 3.39.2 Rushed Clients: The Vacation Scenario

§ 3.40 OTHER TRAPS

§ 3.40.1 Failure to Reposition Ownership of Assets Once the Plan Has Been Drafted

§ 3.40.2 Inappropriate IRA and Qualified Beneficiary Designations

§ 3.41 FEES, ENGAGEMENTS LETTERS, NONENGAGEMENT LETTERS

§ 3.41.1 Attorney Fees

§ 3.41.2 Nonengagement Letters

§ 3.41.3 More About Fees

§ 3.42 CONCLUSION

Chapter 4 MARITAL DEDUCTION PLANNING AND DRAFTING TECHNIQUES

JON E. STEFFENSEN, ESQ. Steffensen, Herman & Doggett LLC, Boston

§ 4.1 THE DUAL PURPOSES OF EFFECTIVEMARITAL DEDUCTION PLANNING

§ 4.1.1 Prominence of Trusts in Marital Deduction Planning

§ 4.1.2 Marital Deduction Fundamentals

(a) Federal Estate Tax Marital Deduction

(b) The Old Massachusetts Estate Tax Marital Deduction and the New Massachusetts Sponge Tax

(c) The Marital Deduction as a Tax Deferral Device

(d) How Assets May Be Transferred from the Decedent Spouse to the Surviving Spouse and Qualifyfor the Estate Tax Marital Deduction

(e) Marital Deduction Power of Appointment Trust (I.R.C. § 2056(b)(5))

(f) QTIP Trust (I.R.C. § 2056(b)(7))

(g) Tax Shelter Planning: The Exemption Amount/ Tax Shelter Trust

§ 4.1.3 Tax Deferral and Avoidance in Marital Deduction and Exemption Amount/Tax Shelter Planning:An Illustration

(a) Tax Deferral Alone: The Simple I-Love-You Will

(b) Deferral and Avoidance: Using Trust and Pour-Over Wills

§ 4.1.4 Planning for Effective Utilization of a Credit Shelter Trust Regardless of the Spouses' Order of Death

§ 4.1.5 Optimizing Use of the Marital Deduction and the Federal Exemption Amount

(a) A Two-Component Approach: Optimum Federal Marital Deduction Lead Amount with a Residuary Exemption Amount/Tax Shelter Trust

(b) Federal Exemption Lead Amount Trustwith Residuary Marital Deduction Trust

(c) The Single QTIP Trust with Second Look Opportunity: Establishment of Spray Family Trust

(d) The QTIP Election

§ 4.2 SINGLE QTIP TRUST WHEN DECEDENT'SSHARE OF REAL ESTATE CAN SERVE AS TAX SHELTER PROPERTY

§ 4.3 MARITAL DEDUCTION PLANNING WITH A NON-U.S. CITIZEN SPOUSE

§ 4.3.1 QDOT Defined

§ 4.3.2 The QDOT Election

§ 4.3.3 The Section 2056A Tax

§ 4.3.4 Calculation of the Section 2056A Tax

§ 4.3.5 Special Requirements to Ensure Collection of the Section 2056A Tax

(a) QDOT in Excess of $2 Million

(b) QDOT of $2 Million or Less

(c) Additional Governing Instrument Requirement

§ 4.3.6 Sample Language for a QDOT

Chapter 5, Part I LIFETIME TRANSFERS IN GENERAL

CAROL A. ANTHONY, ESQ. Formerly BankBoston, Boston

§ 5.1 INTRODUCTION

§ 5.2 TYPES OF LIFETIME TRANSFERS

§ 5.2.1 Outright Gifts

§ 5.2.2 Gifts Under the Massachusetts Uniform Transfers to Minors Act (UTMA)

§ 5.2.3 Gifts in Trust

§ 5.3 DISADVANTAGES OF LIFETIME TRANSFERS

§ 5.4 GIFT TAX

§ 5.4.1 Present Interest Gifts

§ 5.4.2 Gift-Splitting with Spouse

§ 5.4.3 Gift Tax Marital Deduction

(a) In General

(b) Noncitizen Spouse

§ 5.5 GENERATION-SKIPPING TRANSFER TAX (GST TAX)

§ 5.5.1 In General

§ 5.5.2 Types of Generation-Skipping Gifts

§ 5.5.3 Determining the Generation-Skipping Transfer Tax Rate

§ 5.6 VALUATION OF LIFETIME TRANSFERS

§ 5.7 SPECIAL CIRCUMSTANCES

§ 5.7.1 Below-Market Loans Between Family Members

§ 5.7.2 Forgiveness of Indebtedness

§ 5.8 MASSACHUSETTS ESTATE AND GIFT TAX

§ 5.9 TRANSFER TAX ADVANTAGES OF GIFTS VERSUS TRANSFERS AT DEATH

§ 5.9.1 Sheltering Subsequent Appreciation from Estate Tax

§ 5.9.2 "Tax Exclusive" Nature of Gift Tax

§ 5.10 GIFTS IN TRUST

§ 5.10.1 In General

§ 5.10.2 Controlling the Donee's Use of Gifted Property

§ 5.10.3 Placing Assets Beyond the Reach of Grantor's Creditors

§ 5.10.4 Defeating Claims of Surviving Spouse

§ 5.10.5 Preservation of Assets—Qualifying for Public Assistance Programs

§ 5.11 GIFT AND ESTATE TAX CONSIDERATIONSFOR GIFTS IN TRUST


§ 5.11.2 Inclusion of Trust Property in Grantor's Gross Estate

§ 5.11.3 Specific Drafting Issues for Irrevocable Trusts—Avoiding Inclusion in the Grantor's Estate

(a) Grantor as Trustee

(b) Income to Discharge the Grantor's Support Obligations

(c) Payment of Grantor's Debts and Taxesfrom Trust Property

(d) Grantor's Power to Remove Trustee

§ 5.11.4 Trust Beneficiaries—Gift and Estate Tax Consequences of General Power to Appoint Trust Property

§ 5.12 GENERATION-SKIPPING TRANSFER TAX CONSIDERATIONS FOR GIFTS IN TRUST


§ 5.12.2 Direct Skips

§ 5.12.3 Taxable Terminations

§ 5.12.4 Taxable Distributions

§ 5.12.5 Multiple Skips

§ 5.13 INCOME TAX CONSIDERATIONSFOR IRREVOCABLE TRUSTS


§ 5.13.2 Grantor Trust Rules

§ 5.13.3 Specific Drafting Issues for Irrevocable Trusts—Avoiding Treatment as a Grantor Trust

(a) Grantor as Trustee

(b) Powers of Administration Exercisedin a Nonfiduciary Capacity

§ 5.14 INTER VIVOS QTIP TRUST


§ 5.14.2 Grantor Having an Interest

§ 5.14.3 Generation-Skipping Transfer Tax—Reverse QTIP Election

§ 5.14.4 Nontax Reasons for Establishing Inter Vivos QTIP Trusts

(a) Advantages of Inter Vivos QTIP Trusts over Outright Gifts

(b) Advantages of Inter Vivos QTIP Trustsover QTIP Trusts Taking Effect at Death

§ 5.15 GRITs, GRATs, GRUTs AND QPRTs


§ 5.15.2 Benefits and Risks

§ 5.15.3 When to Use

§ 5.15.4 Meeting the Requirements of I.R.C. § 2702

Chapter 5, Part II GIFTS TO CHILDREN—OUTRIGHT AND IN TRUST

JANET WILSON MOORE, ESQ. Mirick, O'Connell, DeMallie & Lougee, Worcester


§ 5.17 REASONS TO MAKE GIFTS TO MINORS

§ 5.17.1 Tax Savings

(a) Section 2503 Exclusion

(b) Avoiding the Generation-Skipping Transfer Tax

(c) Income Tax Savings

§ 5.17.2 To Provide Support for the Minor Child

§ 5.17.3 Other Reasons to Make Gifts to Minors

§ 5.18 REASONS FOR NOT MAKING GIFTS TO MINORS

§ 5.18.1 Loss of Control by the Donor

§ 5.18.2 Lost Income on the Asset and Reduced Size of Estate

§ 5.18.3 Carryover Basis Applies

§ 5.18.4 Other Reasons Not to Make Gifts

§ 5.19 ELEMENTS OF GIFT GIVING TO MINORS

§ 5.20 TYPES OF TRANSFERS TO MINORS

§ 5.20.1 Outright Gifts

§ 5.20.2 Transfers Under the Uniform Transfers to Minors Act (UTMA)

(a) Advantages of UTMA Accounts

(b) Disadvantages of UTMA Accounts

§ 5.21 TRANSFERS TO TRUSTS IN GENERAL

§ 5.21.1 The Section 2503(c) Trust

(a) Minority Distribution

(b) Termination at Age 21

(c) Distribution at Death

(d) Advantages of the Section 2503(c) Trust

(e) Disadvantages of the Section 2503(c) Trust

(f) Who Should Serve as Trustee

§ 5.21.2 The Crummey Trust

EXHIBIT 5A—Section 2503(c) Trust

EXHIBIT 5B—Sample Crummey Trust

Chapter 6 CHARITABLE GIVING OUTRIGHT AND IN TRUST

MEREDETH A. BEERS, ESQ. Holland & Knight, LLP, Boston MARK M. CHRISTOPHER, ESQ. Testa, Hurwitz & Thibeault, LLP, Boston

§ 6.1 OUTRIGHT CHARITABLE GIFTS

§ 6.1.1 Charitable Contribution Defined

(a) Donative Intent

(b) Permissible Donee

§ 6.1.2 The Federal Income Tax Charitable Deduction

§ 6.1.3 Deduction Limitations

(a) 50 Percent Limitation

(b) 30 Percent Limitation

(c) 20 Percent Limitation

(d) Interaction Among 50 Percent, 30 Percent and 20 Percent Limitations

(e) Charitable Donations of Tangible Personal Property: Related Use Versus Unrelated Use

(f) Charitable Contributions of Appreciated Property

(g) Itemized Deduction Reduction

§ 6.1.4 Charitable Deduction Under the Alternative Minimum Tax

§ 6.1.5 Gift Tax Charitable Deduction

§ 6.1.6 Estate Tax Charitable Deduction

§ 6.1.7 Reporting Requirements

§ 6.1.8 Determining Value of Contribution

(a) Definition of Value

(b) Assets for Which a Market Exists

(c) Appraisals

§ 6.1.9 Timing of Deduction

(a) Pledges

(b) Mail Box Rule

(c) Securities

(d) Assignment of Income

§ 6.2 GIFTS OF SPECIFIC TYPES OF PROPERTY—SPECIAL CONSIDERATIONS

§ 6.2.1 Appreciated Property

§ 6.2.2 Securities

(a) Charitable Stock Bailout or Gift of Closely Held Stock Followed by Redemption

(b) Gifts of S-Corporation Stock

§ 6.2.3 Real Estate Subject to a Mortgage

§ 6.2.4 Conservation Easements

§ 6.2.5 Works of Art Created by Donor

§ 6.2.6 Inventions

§ 6.2.7 Undivided Interests in Tangible Personal Property

§ 6.2.8 Remainder Interest in Tangible Personal Property

§ 6.2.9 Life Insurance

(a) Procedure

(b) Income Tax Deduction

(c) Estate Tax Consideration

(d) Term Life Insurance

(e) Gift of Premium Payments

§ 6.2.10 Bargain Sales

§ 6.2.11 Qualified Plan Benefits

(a) Advantages of Charitable Contributionfrom Qualified Plan Benefits

(b) Mechanics

§ 6.3 OUTRIGHT GIFTS WITH TRUST-LIKE CHARACTERISTICS

§ 6.3.1 Gifts to Community Foundations

(a) Advantages and Disadvantages

(b) Tax Consequences

§ 6.3.2 Charitable Gift Fund

§ 6.3.3 Charitable Gift Annuity

(a) Valuation of the Deduction

(b) Gift Tax Consequences

(c) Estate Tax Consequences

(d) Income Tax Beneficiaries

(e) Deferred Gift Annuity

§ 6.3.4 Pooled Income Funds

(a) Advantages and Disadvantages

(b) Gift Tax Consequences

(c) Estate Tax Consequences

(d) Income Tax Deduction

(e) Taxation of Pooled Income Funds

§ 6.4 CHARITABLE GIVING USING SPLIT-INTEREST TRUSTS

§ 6.4.1 Basic Requirements of Charitable Remainder Trusts Term and Payout

§ 6.4.2 Additional Requirements of Charitable Remainder Trusts

(a) Subsequent Contributions

(b) Prorating Payments

(c) Incorrect Valuation

(d) Powers over Distribution

(e) Testamentary Charitable Trusts and Payment

(f) Private Foundation Restrictions

(g) Contingent Interests

(h) Remainderpersons

(i) Investment Restrictions

(j) Trust Amendment

(k) State Law

(l) Prohibited Payments

(m) The Five Percent Exhaustion Test

(n) Requirements Added in 1997

§ 6.4.3 Tax Consequences of Charitable Remainder Trusts

§ 6.4.4 Valuation of Remainder Interests

§ 6.4.5 The Donor's Income Tax Deduction

§ 6.4.6 The Donor's Gift and Estate Tax Deductions

§ 6.4.7 Income Taxation of the Trust

§ 6.4.8 Income Taxation of the Beneficiaries—The Tier System

§ 6.4.9 Planning Opportunities with Charitable Remainder Trusts

(a) Deferring or Avoiding Gain and Increasing Yield

(b) Combining Charitable Remainder Trustswith Irrevocable Life Insurance Trusts

(c) Funding a Charitable Remainder Trustwith Life Insurance

(d) Funding a Charitable Remainder Trustwith an IRA

(e) Retirement Planning with a NIM CRUT

§ 6.4.10 Accelerated Charitable Remainder Trusts

§ 6.4.11 "Flip" Charitable Remainder Unitrusts

§ 6.4.12 Basic Requirements of Charitable Lead Trusts

(a) Tax Consequences of Charitable Lead Trusts

(b) Limitations on Charitable Lead Trusts

§ 6.4.13 Gifts of Other Remainder Interests

(a) Qualified Terminable Interest Property Trust with Charitable Remainder

(b) Remainder Interest in Personal Residenceor Farm

§ 6.4.14 Private Foundations

EXHIBIT 6A—IRS Revenue Procedures Issuing Sample CRT Forms

Chapter 7, Part I ESTATE AND BUSINESS PLANNING CONSIDERATIONS: AN OVERVIEW

RALPH J. ROTMAN, CLU, ChFC Atlantic Benefit Group, Boston JEFFREY D. THIELMAN, ESQ. (1996) Formerly at Northwestern Mutual Life, Boston

§ 7.1 INTRODUCTION

§ 7.1.1 Educating the Client: How Will Estate Taxes Be Paid?

§ 7.2 LIFE INSURANCE CONTRACT

§ 7.3 TYPES OF LIFE INSURANCE

§ 7.3.1 Term Insurance

§ 7.3.2 Whole Life Insurance

(a) Limited-Pay Whole Life Insurance

(b) Variable Life Insurance

(c) Universal Life Insurance

(d) Survivorship Life Insurance

§ 7.3.3 Endowment Insurance

§ 7.4 INSURING THE CLIENT: DIFFERENT OPTIONS, DIFFERENT POLICIES

§ 7.5 POLICY OWNERSHIP AND BENEFICIARIES

§ 7.6 LIFE INSURANCE CONSIDERATIONS FOR PRIVATELY HELD BUSINESSES

§ 7.7 SELECTING THE RIGHT INSURANCECOMPANY: THE USE OF RATINGS

§ 7.7.1 A.M. Best

§ 7.7.2 Moody's

§ 7.7.3 Standard & Poor's

§ 7.7.4 Duff & Phelps

§ 7.8 OTHER FACTORS AFFECTING THE SELECTION OF AN INSURANCE COMPANY

§ 7.9 ILLUSTRATIONS

§ 7.10 THE ROLE OF THE LIFE INSURANCE AGENT

EXHIBIT 7A—Unilateral Buy-Out Agreement

EXHIBIT 7B—Split-Dollar Insurance Agreement

Chapter 7, Part II FEDERAL ESTATE, GIFT AND GENERATION-SKIPPING TAXATION OF LIFE INSURANCE

RICHARD P. BREED, III, ESQ. ROBERT L. ARONE, ESQ. Tarlow, Breed, Hart, Murphy & Rodgers, P.C.


§ 7.12 FEDERAL GIFT TAX TREATMENT

§ 7.12.1 Direct Transfers of Policy

§ 7.12.2 Transfers in Trust

§ 7.12.3 Indirect Transfers

(a) Payment of Premiums

(b) Group Term Insurance

(c) Third-Party-Owned Split-Dollar Insurance

(d) Other Indirect Transfers

§ 7.12.4 Valuation of Gifts of Life Insurance

(a) Newly Issued Policies

(b) Single Premium Policies—Paid-Up Policies

(c) Other Cash Value Policies

(d) Group Term Policies

(e) Split-Dollar Policies

(f) Special Circumstances—Irreplaceable Policies

(g) Effect of Policy Loans

(h) Availability of Annual Exclusion (I.R.C. § 2503(b))

§ 7.12.5 Outright Transfers

§ 7.12.6 Gifts in Trust

§ 7.12.7 Potential Problems in Transferring Life Insurance

§ 7.13 ESTATE TAX CONSEQUENCESOF LIFE INSURANCE

§ 7.13.1 Proceeds of Life Insurance (I.R.C. § 2042)

(a) Proceeds Receivable by the Executor

(b) Proceeds Receivable by Other Beneficiaries

§ 7.13.2 The "Incidents of Ownership" Test

(a) Right to Select Payment Mode to Beneficiary

(b) Cancellation of Policy

(c) Changes of Beneficiaries

(d) Policy Loans

(e) Right to Purchase Policy

(f) Premium Payments and Dividends

(g) Reversionary Interests

(h) Incidents of Ownership Exercisable Jointly

(i) Incidents of Ownership Held by a Corporation or Partnership

(j) Split-Dollar Insurance and ControllingShareholder

(k) Incidents of Ownership Held in a Fiduciary Capacity

§ 7.13.3 Transfers Within Three Years of Death (I.R.C. § 2035)

§ 7.13.4 Constructive or "Beamed" Transfers

§ 7.13.5 Corporate-Owned Life Insurance

§ 7.13.6 Decedent's Interest in Policy on Another's Life (I.R.C. § 2033)

§ 7.13.7 Transfers with Retained Life Estate (I.R.C. § 2036)

§ 7.13.8 Estate Tax Marital Deduction (I.R.C. § 2056)

§ 7.13.9 Importance of Form of Benefit Payable to Surviving Spouse

§ 7.13.10 Liability of Life Insurance Beneficiaries (I.R.C. § 2206)

§ 7.14 GENERATION-SKIPPING TRANSFER TAX CONSEQUENCES

§ 7.14.1 Types of Generation-Skipping Transfers

(a) Direct Skip

(b) Taxable Termination

(c) Taxable Distribution

§ 7.14.2 Computation of GST Tax

§ 7.14.3 The $1 Million GST Exemption

§ 7.14.4 The $2 Million Gallo Exemption

§ 7.14.5 The Inclusion Ratio

§ 7.14.6 Nontaxable Gifts

§ 7.14.7 Additions to Existing Trust

§ 7.14.8 Life Insurance Treated as a Trust

Chapter 7, Part III THE PURPOSES OF LIFE INSURANCE

RICHARD P. BREED, III, ESQ. ROBERT L. ARONE, ESQ. Tarlow, Breed, Hart, Murphy & Rodgers, P.C.

§ 7.15 IN GENERAL

§ 7.16 SPECIFIC USES OF LIFE INSURANCE

§ 7.16.1 Family Protection and Income Security

§ 7.16.2 Liquidity

§ 7.16.3 Business Succession and Other Uses

(a) Equalization Among Beneficiaries

(b) Funding a Buyout Agreement

(c) Keyperson Insurance

(d) Executive Benefits

§ 7.16.4 Insurance as Investment Vehicle

§ 7.16.5 Life Insurance as "Wealth Replacement"

§ 7.17 TYPES OF INSURANCE PRODUCTS

§ 7.18 CREDITOR RIGHTS AND LIFE INSURANCE

§ 7.18.1 Statutory Protection

(a) General Laws c. 175, §§ 125, 126

(b) General Laws c. 175, § 119A

(c) General Laws c. 175, §§ 132C, 135

§ 7.18.2 Insurance Trusts

Chapter 7, Part IV IRREVOCABLE LIFE INSURANCE TRUSTS

WILLIAM D. KIRCHICK, ESQ. Bingham Dana, LLP, Boston


§ 7.20 ESTATE PLANNING CONSIDERATIONS

§ 7.21 ESTATE TAX CONSIDERATIONS

§ 7.21.1 Proceeds "Receivable by the Executor" or to Benefit the Insured's Estate

§ 7.21.2 "Incidents of Ownership" Causing Inclusion

§ 7.21.3 Transfers in Contemplation of Death (I.R.C. § 2035)

§ 7.21.4 The Reciprocal Trust Doctrine

§ 7.22 GIFT TAX CONSIDERATIONS

§ 7.22.1 Valuing Gifts of Policies

§ 7.22.2 Gifts of Premiums

§ 7.22.3 Present Interest Versus Future Interest Gifts

§ 7.23 THE ILIT—DRAFTING CONSIDERATIONS

§ 7.23.1 Qualifying Transfers to the ILIT as Gifts of a Present Interest

§ 7.23.2 Avoiding Gift Tax Consequences to Lapse of Right of Withdrawal

§ 7.23.3 Planning for I.R.C. § 2035(d)—The "Gifts Within Three Years of Death" Rule

§ 7.23.4 Guarding Against Inclusion in the Insured's Estate Under Provisions Other than I.R.C. § 2035

§ 7.23.5 Adding Flexibility to "Irrevocable" Nature of ILIT

§ 7.24 INCOME TAX CONSIDERATIONS

§ 7.24.1 ILIT as Grantor Trust

§ 7.24.2 Income Tax Consequences—Criteria Applied

§ 7.25 GENERATION-SKIPPING TRANSFER TAX (CODE CHAPTER 13) CONSIDERATIONS

§ 7.25.1 Identifying the Transferor

§ 7.25.2 GSTs and Annual Exclusions

§ 7.25.3 Giving Crummey Power to a Spouse

§ 7.25.4 Other Considerations When Allocating GST Exemptions

(a) Whole Life Policies

(b) Term Policies

(c) Split-Dollar Policies

(d) "Hybrid" Insurance Trusts

(e) Section 2035 and GST Exemptions

§ 7.26 SURVIVORSHIP POLICIES—SPECIAL CONSIDERATIONS

§ 7.26.1 Avoid Incidents of Ownership in "Other" Spouse

§ 7.26.2 Avoid Economic Benefits in "Other" Spouse

§ 7.26.3 Do Not Name "Other" Spouse as Trustee

§ 7.26.4 Avoid a Reversionary Interest in "Other" Spouse

Chapter 7, Part V FAMILY AND CLOSELY HELD BUSINESS ASPECTS OF LIFE INSURANCE: A SUMMARY

ALAN S. NOVICK, ESQ. Novick Law Offices New Bedford and Naples, Florida

§ 7.27 FAMILY ASPECTS OF LIFE INSURANCE

§ 7.27.1 The First Life Insurance Plan

§ 7.27.2 The Need for Insurance

§ 7.27.3 Initial Considerations

(a) Supply Definitions to Clients

(b) Gather Information on the Family

§ 7.27.4 Estate Taxes for Family Insurance Policies

§ 7.27.5 Avoiding Estate Taxes and the Three-Year Rule

§ 7.27.6 Using Life Insurance Proceeds to Pay Estate Taxes

§ 7.27.7 Policies for Estates in Excess of the Current Unified Credit Equivalent Amount

(a) The A-B Trust for Married Couples

(b) The Irrevocable (Crummey) Insurance Trust

§ 7.27.8 Pitfalls and Traps When Transferring Policies: The Three-Year Rule

§ 7.27.9 Making Lifetime Gifts of Insurance Policies

§ 7.27.10 Crummey Trusts

§ 7.27.11 Withdrawal Rights Since Crummey

§ 7.27.12 Notices to Beneficiaries of Crummey Trusts

(a) Withdrawal Periods

(b) Lapses

(c) Minor Beneficiaries

§ 7.28 BUSINESS ASPECTS OF LIFE INSURANCE

§ 7.28.1 Split-Dollar Insurance

(a) Endorsement Method

(b) Collateral Assignment Method

§ 7.28.2 Exiting from Split Dollar Insurance Plans

(a) Time To Get Out

(b) Time To Plan

§ 7.29 COMBINING THE FAMILY AND BUSINESSUSES OF LIFE INSURANCE

Exhibit 7C&34; Crummey Instructions and Notice

Chapter 8 DURABLE POWERS OF ATTORNEY AND HEALTH CARE PROXIES

VICKI L. SHEMIN, ESQ. Wellesley, MA

§ 8.1 SUMMARY OF FORMS OF ADVANCE MEDICAL DIRECTIVES

§ 8.1.1 Living Wills

§ 8.1.2 Durable Powers of Attorney for Health Care

§ 8.1.3 Health Care Proxy

§ 8.2 DURABLE POWER OF ATTORNEY (DPOA)

§ 8.2.1 Uniform DPOA Act in Effect (G.L. c. 201B)

§ 8.2.2 What Can the Agent Do Once Empowered?

§ 8.2.3 Who Can Execute a Power of Attorney?

§ 8.2.4 Holding Property Jointly

§ 8.2.5 Tailoring a DPOA

§ 8.2.6 Agent's Authority to Act with a Court-Appointed Guardian

§ 8.2.7 Protecting Third Parties

(a) "Staleness" Problem Origins

(b) Special Problems Banks Face with DPOA

§ 8.2.8 Revocability of the DPOA

§ 8.3 EXECUTING A VALID HEALTH CARE PROXY

§ 8.3.1 Essential Procedural and Substantive Requirements

§ 8.3.2 The Principal

§ 8.3.3 Empowering the Agent

§ 8.3.4 Principals with Mental Illness or Developmental Disability

§ 8.3.5 Notice Requirements Regarding Principal's Incapacity

§ 8.3.6 If the Principal Objects to the Agent's Directive

§ 8.3.7 If the Principal Regains Capacity

§ 8.3.8 The Agent

§ 8.3.9 The Alternate Agent

§ 8.3.10 Agent's Authority

§ 8.4 DECISIONMAKING

§ 8.4.1 Legal Standards Guiding the Agent's Decisionmaking

§ 8.4.2 Principal's Wishes Unknown

§ 8.4.3 Extent of Agent's Authority

§ 8.4.4 Revocation of Proxy

§ 8.4.5 Liability of the Agent and Health Care Provider

§ 8.4.6 Protecting the Principal

§ 8.4.7 Disputed Health Care Proxy

§ 8.4.8 Incompetent or Incapacitated Patients Without Health Care Proxy

§ 8.4.9 Conscience Clauses

§ 8.4.10 Drafting the Health Care Proxy: Is Less Better than More?

§ 8.4.11 Practical Drafting Advice

§ 8.4.12 Conclusion

EXHIBIT 8A—Living Will

EXHIBIT 8B—Power of Attorney

EXHIBIT 8C—Health Care Proxy

EXHIBIT 8D—Health Care Proxy

EXHIBIT 8E—Health Care Proxy Checklist

CHAPTER 9 ESTATE PLANNING FOR RETIREMENT BENEFITS

ROBERT G. HOLDWAY, ESQ. Fiduciary Trust Company, Boston

§ 9.1 INTRODUCTION

§ 9.2 COMMON TYPES OF RETIREMENT PLANS

§ 9.2.1 Defined Benefit Plans

§ 9.2.2 Defined Contribution Plan

(a) Profit-Sharing Plans

(b) Money Purchase Pension Plans

(c) 401(k) Plans

(d) Employee Stock Ownership Plans

§ 9.2.3 Keough Plans

§ 9.2.4 Spousal Rights

§ 9.2.5 Nonqualified Deferred Compensation Plans

§ 9.2.6 Individual Retirement Accounts

§ 9.2.7 Roth IRAs

§ 9.3 INCOME TAX TREATMENTOF DISTRIBUTIONS

§ 9.3.1 Distributions of Employer Securities

§ 9.3.2 Rollovers

§ 9.3.3 Penalty Tax on Early Distributions

§ 9.3.4 Lump-Sum Distributions

§ 9.4 ESTATE TAX TREATMENT OF QUALIFIED PLAN BENEFITS AND IRAs

§ 9.4.1 Marital Deduction

§ 9.4.2 Funding the Unified Credit Exclusion Amount

§ 9.5 MINIMUM DISTRIBUTION RULES

§ 9.5.1 Distributions During the Owner's Lifetime

§ 9.5.2 Distributions to Beneficiaries After the Owner's Death

(a) Death Before the Required Beginning Date

(b) Death After the Required Beginning Date

(c) Spousal Rollovers

§ 9.5.3 Recalculation of Life Expectancies

§ 9.5.4 Naming a Trust as Beneficiary

§ 9.6 CHARITABLE GIVING WITH RETIREMENTASSETS

EXHIBIT 9A—SAMPLE BASIC BENEFICIARYDESIGNATION

Chapter 10 BASIC STRATEGIES TO PRESERVE AND PROTECT THE FAMILY BUSINESS

JUDITH A. SAXE, ESQ. Ernst & Young LLP, Boston

LISA M. RICO, ESQ. Gadsby & Hannah LLP, Boston MORRIS N. ROBINSON, ESQ. (1996) Robinson, Karp & Davis, P.C., Wellesley


§ 10.1.1 Definition of Terms

§ 10.2 considerations for the CLOSELY HELD BUSINESS owner planning for DISABILITY, RETIREMENT OR DEATH

§ 10.2.1 Balancing Family Harmony Against Marketplace Demands

§ 10.2.2 Educating and Training a New Generation of Owner-Managers

§ 10.2.3 Providing Control Over Critically Important Business Resources

§ 10.2.4 Avoiding Interference from Nonoperating Owners

§ 10.3 TECHNIQUES FOR PASSING CLOSELYHELD BUSINESS INTERESTS TO THE NEXT GENERATION


(a) Life Insurance

(b) Long-Term Leases of Business-Related Assets

(c) Mandatory Buyout of Nonoperating Children

(d) Options to Purchase Interests of Nonoperating Children

(e) Creation of Two Classes of Stock¾ Voting and Nonvoting

§ 10.4 RESTRICTING TRANSFER OF INTERESTSIN CLOSELY HELD BUSINESSES

§ 10.4.1 Importance of Restricting Transfers of Interests in Closely Held Businesses

(a) Rights of First Refusal

(b) Options to Purchase

§ 10.4.2 Creation of Transfer Restrictions

§ 10.5 USING BUY-SELL AND CROSS-PURCHASE AGREEMENTS TO RESTRICT OWNERSHIP, OBTAIN LIQUIDITY AND FIX ESTATE TAX VALUES

§ 10.5.1 The Benefits of Buy-Sell Agreements

(a) Sellers Are Able to Convert Their Business Interests Into Cash

(b) Sellers Receive a Fair Price for Their Business Interests

(c) Continuity of Management Is Planned for and Ownership of Business Interest Is Appropriately Restricted

(d) Value of Business Interests Is Fixed for Both Estate Planning and Estate Tax Purposes

(e) Ownership is Restricted to the Present Circle of Owner-Managers

§ 10.5.2 Fixing the Estate Tax Value of Closely Held Businesses Using Buy-Sell Agreements

(a) Agreement Provides for Ascertainable Sale Price

(b) Agreement Restricts Sales After the Seller's Death

(c) Agreement Restricts Sales at the Contract Price During the Seller's Lifetime

(d) Agreement Is Not a Device to Transfer Business Interests for Inadequate Consideration

(e) Agreement Is Comparable to Similar Arm's-Length Arrangements

§ 10.5.3 Comparison of Cross-Purchase and Entity Purchase Agreements

(a) Tax Basis to Remaining Business Owners

(b) Tax Treatment of Payments Received by Seller

(c) Using Life Insurance to Fund Buy-SellAgreements

§ 10.5.4 Methods for Determining the Purchase Price Under Buy-Sell Agreements

(a) Book Value

(b) Agreed Value

(c) Appraised Value

(d) Earnings-Based Formula Value

(e) Combination of Methods

§ 10.5.5 Payment Terms Commonly Used in Buy-Sell Agreements

§ 10.5.6 S-Corporation Considerations in Drafting Buy-Sell Agreements

(a) General Rules

(b) S-Corporation Rules' Limitations on Use of Trusts

§ 10.6 MINIMIZING VALUATION OF INTERESTS IN CLOSELY HELD BUSINESSES FOR ESTATE TAX PURPOSES

§ 10.6.1 Types of Discounts

§ 10.6.2 Discount Strategies

§ 10.7 Deduction available for qualified family-owned businesses (i.r.c. § 2057)

§ 10.8 CONFLICTS OF INTEREST

Chapter 11 MEDICAID AND CREDITOR PROTECTION TRUSTS

JOHN J. BOWE, ESQ. John J. Bowe, Attorney at Law, P.C., Norwell, Wellesley & Easton

§ 11.1 FRAUDULENT TRANSFER ACT


§ 11.1.2 Medicaid Protection

§ 11.2 PROTECTION FOR SETTLORSOF REVOCABLE (SELF-SETTLED) TRUSTS



§ 11.3 PROTECTION FOR SETTLORS OF IRREVOCABLE (SELF-SETTLED) TRUSTS



§ 11.3.3 Tax Issues

§ 11.4 PROTECTION FOR IRREVOCABLE TRUSTS CREATED (SETTLED) BY A THIRD PARTY



§ 11.5 FOREIGN TRUSTS



§ 11.6 ALTERNATIVES TO THE IRREVOCABLETRUST FOR CREDITOR AND MEDICAID PROTECTION



§ 11.6.3 Tax Issues

§ 11.7 CRIMINAL PENALTY ADVISING CLIENTS TO DISPOSE OF ASSETS TO BECOME ELIGIBLE FOR MEDICAID

Chapter 12 MARITAL AGREEMENTS

MARY H. SCHMIDT, ESQ. Packenham, Schmidt & Federico, P.C., Boston DAVID A. SCHWARTZ, ESQ. Newton, MA


§ 12.2 USE OF MARITAL AGREEMENTS

§ 12.2.1 Prenuptial Agreements

(a) Definition

(b) Purposes

(c) Impact on Estate Planning

§ 12.2.2 Separation Agreements

(a) Definition

(b) Purposes

§ 12.2.3 Cohabitation Agreements

§ 12.3 ENFORCEABILITY

§ 12.3.1 Prenuptial Agreements

§ 12.3.2 Separation Agreements

(a) Merger

(b) Incorporation

(c) Survival

§ 12.3.3 Cohabitation Agreements

§ 12.4 MARITAL AGREEMENTS AND ESTATEPLANNERS

§ 12.5 FEDERAL ENTITLEMENTS

§ 12.5.1 Social Security

(a) During Marriage

(b) After Divorce

(c) After Death

§ 12.5.2 ERISA

(a) Spousal Waiver

(b) Qualified Domestic Relations Orders

(c) Nonqualified Retirement Plans

§ 12.5.3 Military and Other Plans

(a) Military Plans and Divorce

(b) State and Local Government and Tax-Exempt Organization Plans and Divorce

(c) Federal Employee Retirement Plans and Divorce

§ 12.5.4 Continuation of Health Insurance Coverage Under the Comprehensive Omnibus Reconciliation Act(I.R.C. § 4980B)

§ 12.5.5 Federal Income Tax Filing Status

§ 12.5.6 Federal Gift, Estate and Generation-Skipping Transfer Taxes

(a) In Prenuptial Agreements

(b) In Separation Agreements

§ 12.6 STATE SPOUSAL ENTITLEMENTS

§ 12.6.1 Medical Insurance

§ 12.6.2 Separate Support

§ 12.6.3 Alimony and Property Division

(a) Alimony

(b) Property Division

§ 12.6.4 Child Support

§ 12.6.5 Tenancy by the Entirety

§ 12.6.6 Homestead

§ 12.6.7 Waiver of Will (G.L. c. 191, § 15)

(a) Prenuptial Agreements

(b) Separation Agreements

§ 12.6.8 Surviving Spouse's Allowance (G.L. c. 196, §§ 1, 2)

§ 12.6.9 The Right to Serve as Administrator (G.L. c. 193, § 1)

§ 12.6.10 Intestacy (G.L. c. 190, §§ 1, 2)

(a) Prenuptial Agreements

(b) Separation Agreements

§ 12.6.11 Wrongful Death (G.L. c. 229, § 2)

§ 12.6.12 Revocation of Will in Event of Marriage and Effect of Divorce on Will Provisions for Spouse (G.L. c. 191, § 9)

EXHIBIT 12A¾ Premarital Agreement Checklist

EXHIBIT 12B¾ Separation Agreement Checklist

Chapter 13, Part I INTRODUCTION TO POSTMORTEM ESTATE PLANNING

ERIC P. HAYES, ESQ. State Street Bank Global Advisors, Boston

§ 13.1 OBJECTIVE OF POSTMORTEM ESTATE PLANNING

§ 13.2 THE DECEDENT'S FINAL INCOME TAX RETURN

§ 13.2.1 Who Is Responsible for the Decedent's Final Income Tax Return?

§ 13.2.2 Threshold Filing Requirements

§ 13.2.3 Who Signs the Return?

§ 13.2.4 Where Is the Return Filed?

§ 13.2.5 Due Date of the Decedent's Final Return

§ 13.2.6 Notice of Fiduciary Relationship

§ 13.2.7 Payment of Estimated Income Tax

§ 13.3 PREPARING THE RETURN

§ 13.3.1 Period Covered by the Decedent's Final Return

§ 13.3.2 Income Included on the Final Return

§ 13.3.3 Income in Respect of a Decedent

§ 13.3.4 Other Adjustments

§ 13.4 FILING A JOINT RETURN

§ 13.4.1 Requirements for Filing a Joint Return

§ 13.4.2 Issues to Consider When Filing a Joint Return

§ 13.5 PLANNING OPPORTUNITIES

§ 13.5.1 Election with Respect to U.S. Savings Bonds

§ 13.5.2 Medical Expenses

§ 13.5.3 Decedent's Capital Losses

§ 13.6 FIDUCIARY INCOME TAX

§ 13.7 POSTMORTEM FIDUCIARY INCOMETAX PLANNING

§ 13.7.1 Fiscal Year

§ 13.7.2 Trapping Distributions

§ 13.7.3 Deductibility of Administration Expenses

§ 13.7.4 Equitable Adjustments

§ 13.7.5 Election to Treat Revocable Trust as Part of Estate

§ 13.7.6 Sixty-Five Day Rule

§ 13.7.7 Separate Share Rule

§ 13.8 POSTMORTEM ESTATE TAX ELECTIONSAND GST TAX ELECTIONS

§ 13.8.1 Estate Tax Elections and GST Tax Elections

§ 13.8.2 QTIP Election

§ 13.8.3 Qualified Domestic Trust

§ 13.8.4 GST Tax Elections

§ 13.8.5 Alternate Valuation

§ 13.8.6 Special Use Valuation

§ 13.8.7 Partnership Election

§ 13.8.8 Qualified Conservation Easement Exclusion

§ 13.8.9 Qualified Family Owned Business Interest Deduction

Chapter 13, Part II THE DISCLAIMER AS A POSTMORTEM ESTATE PLANNING DEVICE

DEBORAH J. HALL, ESQ. Hemenway & Barnes, Boston


§ 13.10 DISCLAIMERS UNDER FEDERAL LAW

§ 13.10.1 Transfers Made Prior to January 1, 1977

§ 13.10.2 Transfers Made After December 31, 1976

§ 13.10.3 Five Requirements

(a) Irrevocable and Unconditional

(b) Written, Explicit and Signed

(c) Delivered Within Nine Months

(d) No Acceptance of Benefits

(e) Passes Without Direction on the Part of the Disclaimant

§ 13.10.4 Disclaimer of Less than an Entire Interest

(a) Severable Property

(b) Separate Interests

(c) Interests Held in Trust

(d) Specific Pecuniary Amount

§ 13.10.5 Disclaimer of Property and Powers by Fiduciaries

(a) Powers Held by All Trustees

(b) Beneficiary as Fiduciary

§ 13.10.6 Disclaimer of Qualified Plan Benefits

(a) Time for Disclaiming

(b) Spouse's Statutory Rights

(c) Minimum Required Distributions

§ 13.10.7 Inconsistencies Between State Law and I.R.C. § 2518

§ 13.11 ELEMENTS OF MASSACHUSETTSDISCLAIMER ACT

§ 13.11.1 Procedural Requirements

§ 13.11.2 Timeliness

§ 13.11.3 Disclaimers at Age 21

§ 13.11.4 Bar and Estoppel

§ 13.11.5 Rights of Fiduciaries to Disclaim

§ 13.11.6 Disposition of Disclaimed Property

§ 13.11.7 Disclaimer and Creditors

EXHIBIT 13A—Checklist for Disclaimers

EXHIBIT 13B—Disclaimer of Survivorship Interest in Joint Property and of Powers as Beneficiary and Trustee of Trust

EXHIBIT 13C—Disclaimer of an Interest in Real Estate

Chapter 13, Part III THE TAX ON PRIOR TRANSFERS CREDIT (I.R.C. § 2013)

GEORGE L. CUSHING, ESQ. Day, Berry & Howard, Boston

§ 13.12 IN GENERAL

§ 13.12.1 Use of Lower Bracket Tax Rates

§ 13.12.2 Section 2013 Credit for Tax on Prior Transfers (TPT Credit)

§ 13.13 THE OPERATION OF THE TPT CREDIT

§ 13.14 PLANNING FOR THE TPT CREDIT

§ 13.14.1 Economic Analysis

§ 13.14.2 Timing Issues

§ 13.14.3 Planning Considerations

(a) Predeath Planning

(b) Postmortem Planning

Chapter 13, Part IV STRATEGIES FOR PAYING THE ESTATE TAX THAT IS DUE

DEBORAH J. MANUS, ESQ. Nutter, McClennen & Fish, LLP, Boston SUSAN M. MILLER, ESQ. (1996) Prince, Lobel & Tye, Boston


§ 13.16 FEDERAL AND MASSACHUSETTS ESTATE TAX DUE DATES

§ 13.16.1 Basic Approaches to Alleviating Liquidity Problems

(a) Valuation of Business Assets

(b) Sale or Redemption of Business Assets

(c) Delaying the Tax Due Date

(d) Qualifying for the Deduction for Qualified Family-Owned Business Interests

§ 13.16.2 Consideration of the Approaches

§ 13.17 SECTION 303 REDEMPTION OF STOCK

§ 13.17.1 Executing the Provisions of a Buy-Sell Agreement Among Shareholders

§ 13.17.2 Executing the Provisions of a Buy-Sell Agreement Between the Deceased Shareholder and theCorporation

§ 13.17.3 Distribution in Redemption of Stock May Qualify as a Section 302 Redemption

§ 13.17.4 Safe Harbor for Estates

§ 13.17.5 The Tests of I.R.C. § 303

(a) Relationship of Stock to Decedent's Entire Gross Estate

(b) Limitation on Amount of Corporate Distribution Eligible for Section 303 Redemption Treatment

(c) Relationship of Redeeming Shareholderto Payment of Expenses

(d) Section 303 Redemption Timing Requirements

(e) Tax Consequences of Use of AppreciatedAssets to Effect Redemption

§ 13.17.6 Section 303 and the GST Tax

§ 13.17.7 Massachusetts Treatment of Section 303 Redemptions

§ 13.18 DEFERRING THE PAYMENT OF ESTATE TAXES (I.R.C. § 6166)

§ 13.18.1 Purpose and Effect of I.R.C. § 6166

(a) The Basic Rule of Section 6166

(b) The 35-Percent Test

§ 13.18.2 Amount of the Estate Tax that May Be Deferred

§ 13.18.3 Definitions of "Closely Held Business" for Purposes of I.R.C. § 6166

(a) The General Rule

(b) Passive Assets Excluded

§ 13.18.4 Interest on Deferred Estate Taxes

(a) The Two Percent Portion

(b) Interest on the Balance of the Tax

(c) Nondeductibility of Interest

§ 13.18.5 Technical Requirements for Making the Section 6166 Election to Defer Estate Taxes

§ 13.18.6 Acceleration of Payment of Deferred Estate Taxes

(a) Disposition of Interest in the Closely Held Business or Withdrawal of Funds from the Business

§ 13.18.7 Distribution of Insufficient Income by Estate May Cause Acceleration of Payment of Tax

§ 13.18.8 Effect of Failure to Pay Installments of Interest or Tax When Due

§ 13.18.9 Executor's Personal Liability for Payment of the Deferred Estate Tax

§ 13.18.10 Appealing Adverse Section 6166 Determinations

§ 13.18.11 GST Taxes and Section 6166 Deferral of Taxes

§ 13.18.12 Effect on the State Death Tax Credit (I.R.C. § 2011)

§ 13.19 COMPARISON OF I.R.C. §§ 303 AND 6166

§ 13.19.1 Applicability to a Given Estate

(a) Form of Organization

(b) Status of Decedent

§ 13.19.2 Mechanics of Application

§ 13.19.3 Extent of Application

§ 13.20 COORDINATION OF I.R.C. §§ 303, 6166

§ 13.21 MASSACHUSETTS RULES FOR CLOSELY HELD OR FAMILY-OWNED BUSINESSES

§ 13.22 The Deduction for Qualified Family-Owned Business Interests: I.R.C. § 2057

§ 13.22.1 Background

§ 13.22.2 The Basic Rule of Section 2057

§ 13.22.3 The Specifics of the Statutory Scheme

§ 13.22.4 What Is a Qualified Family-Owned Business Interest?

§ 13.22.5 The 50-Percent Test

§ 13.23 The "Keeping it in the Family" Tests (Material Participation and Qualified Heirs)

§ 13.24 The Amount of the Deduction

§ 13.24.1 Limitations

§ 13.24.2 Recapture Rules

§ 13.25 Issues and Planning Opportunities

§ 13.25.1 Partial Elections

§ 13.25.2 Valuation Discounts

§ 13.26 Making Maximum Useof the Deduction

§ 13.27 Correlation with I.R.C. § 6166

§ 13.28 DISCRETIONARY EXTENSION OF TIME FOR PAYMENT OF FEDERAL ESTATE TAX UNDER I.R.C. § 6161

§ 13.29 DEFERRAL OF MASSACHUSETTS ESTATE TAXES

a practical guide to estate planning in...

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