SPIA Settlement Options Can Provide Guaranteed Income

IRS issued Final Regulations in April 2002 on required minimum distributions (RMD) from IRA accounts which are Defined Contribution accounts such as mutual funds, deferred annuities, and bank CDs.  You simply determine the account value from December 31st of the prior year and divide that amount by the annual attained age factor from the Uniform […]

IRA Conversion Rules: Using Tax-Free Life Insurance to Convert an IRA Into a Tax-Free Roth IRA

In 2010, the former $100,000 AGI limit to convert an IRA to a Roth IRA was permanently repealed.  No matter their age or income, anyone with an IRA has the option to convert it to a tax-free Roth IRA, at any time, as long as the income taxes on the conversion are paid.   Often, […]

Qualified Personal Residence Trusts Can Reduce Estate Taxes

The Qualified Personal Residence Trust (QPRT) has become a basic estate planning tool used by many estate planning attorneys as part of their standard package of estate planning documents.  It offers significant estate tax reduction if the estate owner(s) survive to the end of the term specified in the trust. Self Balancing Scooter Self Balancing […]

The 3 Year Rule of IRC Section 2035 when an ILIT Does Not Yet Exist

Often, a financial professional will be dealing with a wealthy client who needs life insurance to offset federal and state estate taxes. The common solution is typically a single life or survivorship life policy owned by an Irrevocable Life Insurance Trust (ILIT). Self Balancing Scooter Self Balancing Scooter Sale   Of course, the ILIT must […]

The New Cost Basis Reporting Law and Its Impact Estate Planning

On July 31, 2015, President Obama signed into law a bill passed by Congress for federal transportation funding. New IRC Section 6035 was quietly slipped into the transportation bill extension. IRC Section 6035 requires executors of estates to start providing cost basis reports to the IRS and beneficiaries of the deceased estate owner on new […]

Taxation of Policy Sales to Life Settlement Companies

When a life insurance policy is sold to a life settlement company, certain tax rules must be followed by the policy owner/seller. This taxation is governed by Rev. Rul. 2009-13 where IRS contrasted the taxation of a policy which has been surrendered with the taxation of a policy which has been sold to a settlement […]

Tracking Cost Basis & Gain for Annuity Transactions

Deferred annuities and single premium immediate annuities (SPIA) are great financial vehicles for either tax-deferred accumulation of a retirement fund or efficient distribution of principal and interest over life expectancy.  However, over the lifetime of the contract owner, financial and estate planning situations occur which require a transaction to be executed on an existing annuity […]

Family Limited Parterships vs. ILITs: Choosing Which Entity To Own Life Insurance

The popularity of the irrevocable life insurance trust is well documented. Billions of dollars have been gifted by estate owners to single life and survivorship life irrevocable trusts to help fund the payment of federal estate taxes. Yet, a number of disadvantages revolving around lack of flexibility and lack of control discourage the use of […]

Bankruptcy Protection for IRAs (YES) vs. Inherited IRAs (NO)

In 2005, President Bush signed into law the Bankruptcy Act of 2005. The Act extended significant bankruptcy protection to IRAs by exemption and exclusions of certain amounts from a bankruptcy estate.   Contributory IRAs and Rollovers / Direct Transfers from Employer Qualified Plans   The exemption for contributory IRAs is generally limited to an aggregate […]

Creating an Inherited IRA Legacy Plan with Life Insurance Funded by After-Tax Distributions

With the recovery of the equities markets after the economic downturn of 2008-2009, it is common for successful business owners, professionals, and other individuals to have more than $1,000,000 in their IRA account. Many of these IRA owners have multiple sources of income as they approach their retirement years. These sources could include continued earned income […]