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- J.K. Lasser's Small Business Taxes by Barbara Weltman
- J.K. Lasser's 1001 Deductions and Tax Breaks by Barbara Weltman
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Fifth Edition
Cover design: Wiley
Copyright © 2014 by Stewart H. Welch III, Harold I. Apolinsky, and J. Winston Busby.
All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
The Fourth Edition of Estate and Tax Planning was published by John Wiley & Sons, Inc. in 2012.
Published simultaneously in Canada.
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Library of Congress Cataloging-in-Publication Data:
ISBN 9781118929995 (Paperback)
ISBN 9781118930014 (ePDF)
ISBN 9781118930007 (ebk)
It would not have been possible to write a book of this magnitude without the support, assistance, and encouragement of our law firm, Sirote & Permutt. Winston and I owe a special thank you to the 13 other members of our Estate and Probate Department: Katherine N. Barr, Emilee Hellums, Elizabeth Hutchins, Shirley Justice, Leigh Kaylor, Melinda Mathews, Sandy Mullins, Howard Neiswender, Tanya Shunnara, Craig Stephens, Peter Wright, John Baggette, and George Gaston—bright and gifted lawyers who believe in top-quality legal care, outstanding service to clients, and innovation.
We are all constantly seeking and studying new estate-planning ideas to help clients not only accumulate wealth but keep wealth within their families. I want to acknowledge the encouragement of my wife, Marissa Levine Apolinsky, who exhibited unlimited patience as I spent time writing, as well as the years of encouragement from my children, Steve Apolinsky, Felice Apolinsky, and Craig Apolinsky, who convinced me that with hard work and determination nothing was impossible to achieve. Finally, without the help of our loyal assistants, Marsha Self and Reva Ramey, the demanding publishing deadlines could never have been met. The most fun for me has been to work with Stewart Welch, a most gifted individual and innovative financial adviser.
I would like to thank my wife, Casey Busby, who provided me with uninterrupted nights and weekends to work on this book while she managed the rigors of tax season as a CPA. Juggling my absence to work on this book and the long hours required of tax accountants between January 1 and April 15 while we awaited the birth of our first child required significant support and patience from my loving wife, and I thank her for it.
I am extremely grateful to and humbled each day by the chance to learn from and work with Harold Apolinsky, John Baggette, Katherine Barr, George Gaston, Emilee Hellums, Wes Hill Elizabeth Hutchins, Shirley Justice, Leigh Kaylor, Melinda Mathews, Sandy Mullins, Howard Neiswender, Tanya Shunnara, Craig Stephens, and Peter Wright.
I would also like to sincerely thank Harold Apolinsky and Stewart Welch III for providing me with the opportunity to be a coauthor of the fifth edition. Additionally, I would like to thank Craig Stephens, a coauthor of the previous editions of this book, for graciously allowing me the opportunity to be a part of this edition in his place while continuing to provide guidance and support throughout the process. I could not have completed this project without the tireless work and dedication of my assistant, Reva Ramey—thank you.
This book would have never happened without help and moral support from many people. First and foremost, I want to thank my coauthors, Harold Apolinsky and Winston Busby. Harold is not only a true scholar but a true gentleman as well. He has been generous with both his time and his talents over the 30-plus years we have known each other and worked together to benefit clients. Thanks, Harold. I also want to thank Winston Busby for his insightful contributions to this revision. Winston is a rising star in the legal profession and has been a pleasure to work with on this project.
As most of you are aware, insurance can be a very confusing product to understand. Babs Hart specializes in long-term care insurance, and her input regarding that section of the text was invaluable. She also provided technical research regarding the life insurance products discussed in this book.
I also want to thank John West, CPA, a partner with the accounting firm of Sellers, Richardson, Holman and West, LLP, in Birmingham, Alabama. Whenever I get stuck on a complex tax question or calculation, John is the person I turn to for quick, accurate answers.
I am so fortunate to be surrounded by a group of highly talented professional advisers who each helped me with research for this book project. Greg Weyandt, MPA, CPA, is a member (partner) of our firm and the chief operating officer, chief financial officer, and chief compliance officer of both of our financial advisory companies. Greg runs the day-to-day operations with near flawlessness, which allowed me to concentrate on this project. Hugh Smith, CPA, CFP®, CFA, is a member at The Welch Group and the chief investment officer for both companies and is one the brightest tax, market analyst, and financial planning experts I know. Michael Wagner, CPA, CFP®, and Kimberly Reynolds, MS, CFP®, are members at The Welch Group and are among the most all-around talented advisers in the field of financial planning. The Welch Group advisers Foster Hyde, MS, CFP®, and Beth Moody, MS, CFP®, are rising stars at our firm and not only help prepare, but also help run our client meetings. Woodard Peay, CFP®, MBA, is the lead member of our sister firm, Fee-Only Planning Professionals, LLC. Woodard is a seasoned professional in financial planning who also knows what it takes to run a successful business. Joining Woodard are advisers Marshall Clay, Esq., CFP®, and Callie Jowers, CFP®. Marshall graduated from West Point Academy, served our country as a commissioned officer for seven years, then graduated from Cumberland Law School before joining us. Callie graduated magna cum laude in Family Financial Planning & Counseling from the University of Alabama.
Our adviser team is supported by an incredible administrative team that includes Roxie Jones, Ramona Boehm, Wendy Weber, Jeff Davenport, Kristi Hoffman, Kelly DeRoy, Melissa Erikson, and Andrea Messick. Writing a book revision and meeting promised deadlines is as time consuming as it is intellectually stimulating, and the price charged is often paid by family members. I offer a special thanks to my wife, Kathie, for her patience related to this and my many other endeavors. I also have two wonderful sisters, Jean Watson and Babs Hart, who have always been cheerleaders for all my endeavors.
Perhaps the single most influential person in my life is my father, Stewart H. Welch Jr. At age 95 he is still conjuring up new financial and tax strategies for us “less seasoned” advisers to consider. He truly is a remarkable person!
There is no way to express how grateful I am for the wonderful clients I have the pleasure of serving. Each, in their own way, has contributed to my own learning and therefore to this book.
Harold, Winston, and I feel very fortunate to have the opportunity to work with the prestigious publishing house of John Wiley & Sons, Inc., a traditional “blueblood” firm whose roots can be traced back to 1807. We could not mention John Wiley & Sons, Inc., without thanking “our Wiley team”: Senior Editor Laura Gachko, Editorial Program Coordinator Tula Batanchiev, and Judy Howarth.
Much of the world we find ourselves in today is defined by chaos, complexity, and a constant state of change. The IRS tax code and accompanying regulations currently runs about 40,000 pages! And then there are our elected representatives in Congress who feel it's their mandate to constantly change laws and regulations. The financial markets today are complex and, in many ways, globally intertwined, making it impossible to predict how events in one part of the world may affect markets in other parts of the world. It's no wonder that so many people simply throw their hands up and focus on trying to pay their bills rather than planning for long-term events like estate, retirement, and tax planning.
I own two fee-only investment management and financial advisory firms serving clients throughout the United States. Harold Apolinsky is one of the country's most respected estate tax lawyers. He has testified before Congress and spent innumerable hours in Washington lobbying influential senators and representatives, working hard to make our estate tax laws less complicated and more fair. Winston Busby, one of Harold's protégés, is a highly intelligent and resourceful young estate-planning attorney. Together, our combined experience helping families plan their financial futures exceeds 90 years. We have had the opportunity to work with many affluent individuals and families throughout the United States. The common characteristic that we find among them is that they take pride in both their financial success and in their ability to handle their finances. This book was not written just for the affluent but also for the many people who want to become affluent.
What does it take? Although you may already have accumulated a sizable estate and feel comfortable handling your investments, chances are there's a lot more you could do in the area of estate, retirement, and tax planning. This is the reason we wrote this book. The purpose of J.K. Lasser's New Rules for Estate, Retirement, and Tax Planning, Fifth Edition, is to make certain that you have taken steps to make sure your finances are in order and that you have a specific strategy in place. Whether you are a wealthy Baby Boomer (or not so wealthy) or a Millennial (or a generation in between) who just wants to know the basics of writing a will, how much you should be saving for retirement, or how best to cut your income taxes, this book offers valuable strategies you can use today and in the future.
As you read this book, we encourage you to keep your parents' situation in mind because some of the more advanced strategies may be more appropriate for them than for yourself. You may want to discuss these issues with them or lend this book to them. After all, you should all share the goal of maximizing the amount of money that you can transfer to your heirs and charitable organizations.
The book begins with an overview of the most important aspects of the 2012 Tax Relief Act. You will be able to use this chapter as a reference tool for reviewing significant estate and income tax laws affecting you.
Next, you will need to assess the adequacy of your current estate plan. What is the value of your total estate? You will learn how to determine your estate net worth. This is vital because knowing its value will let you define the resources available to your family to provide for their income needs should you die prematurely. You will also be able to determine approximately how much in estate taxes your heirs might owe.
It is also important to assess whether you are on track toward retirement—are you accumulating enough investment assets to provide you with a worry-free retirement? Studies indicate that the average working American is saving less than one-third of what he or she needs to have enough assets to maintain the same lifestyle during retirement. In some cases, this shortfall will be made up from inheritances. If you find out that you're lagging behind, this book will help you figure out how much you need to be investing to get on track, and you'll learn how to devise an appropriate investment plan. Whether you are a pre-retiree (planning to retire within 10 years), already retired, or retirement is decades away, we outline the very best strategies for you to use to create your best retirement possible.
Another key aspect of estate planning is, of course, having a will. Research indicates that as many as 80 percent of adult Americans either don't have a will or their will is out of date. If you fall into this group, you should stop procrastinating. It really does matter if you die without a will! We'll outline the perils of dying without one. The resulting chaos will surprise you. You'll learn how to prepare yourself so that you can minimize the time and expense of working with an attorney.
The use of trusts is a vital part of most estate plans. You can use them to protect your children from themselves, to protect you from possible future creditors, or to save on income and estate taxes. These are powerful weapons in the war to protect your assets for yourself as well as future heirs. It is our experience that many people carry large amounts of life insurance, including their employer's group life. Utilizing some type of trust is often an invaluable estate-planning tool. You'll learn about the irrevocable life insurance trust, living trust, and other types of trusts. Be sure to read the section about the Legacy Trust: a concept you can use to create a financial safety net for future generations of family members (made famous by the Rockefellers and Kennedys).
Many of you face the difficult task of funding your children's education. You'll learn how to effectively use qualified tuition plans and education individual retirement accounts as well as custodial accounts and minors' trusts. You'll also learn about how grandparents can be willing partners in assisting with your children's educational expenses.
If you are interested in providing financial support to a religious organization, an educational institution, or a favorite charity, you'll gain insights on the best ways to maximize the effectiveness of your donations. Often, gifts to tax-exempt organizations can solve a financial dilemma such as how to convert low-basis non-income-producing property into income-producing property while avoiding a large tax bill.
Once you have accumulated enough assets for your retirement years, you may want to shift your focus to transfer strategies for your children and other heirs. We'll outline strategies that will allow you to transfer to heirs significant wealth at a fraction of its market value while maintaining control of your property.
People who own a family business or farm often face a perilous future; this is especially worrisome because many of these individuals desperately want to ensure that the business or farm remains in the family so that it can be continued by future generations of family members. Obstacles to this goal include estate taxes and lack of liquidity. The solution is a well-developed transition plan, which is also fully explained in this book.
In today's litigious society, many people fear the threat of a lawsuit that will result in financial ruin. Feeling helpless, we may cross our fingers and hope it does not happen to us. A preferable approach is to be proactive. If you consider yourself a likely target, you can do many things to protect your assets. Some solutions are as simple as transferring assets to a spouse who is less at risk. Other solutions include the use of trusts, family limited partnerships, and even more exotic options such as domestic or foreign asset protection trusts. For entrepreneurs, we extensively review the pros and cons of the various entity choices you have for operating your business.
As you develop and implement your estate, retirement, and tax plan, you'll almost certainly need the assistance of a qualified professional. Finding the right person, someone who is truly qualified, can be a daunting task. It is one of the reasons many people fail to plan at all. To help support you with this process, your coauthors will gladly help you find an adviser to assist you with your needs (Appendix A). In Appendix A we also offer tips on how to get the most out of your advisers while minimizing their fees.
Because the world around us is constantly changing and we want you to stay on top of these changes, it is our intention to develop and maintain a Web link with updates of important changes related to the content of this book as well as other topics we believe would be of concern to you. You can access this resource by visiting the Resource Center at www.welchgroup.com; click on “Links,” then “Estate Book Updates.”
As Americans, our limitations are constrained only by our own imagination, our willingness to take time to develop an appropriate strategy, and the self-discipline to execute our game plan. Picking up this book is an essential first step. Carefully reading it and implementing the strategies most appropriate to your situation will enable you to take a giant leap toward taking charge of your financial destiny. May God smile on your journey.
Stewart H. Welch III, CFP®
Accredited Estate Planner