National Association of Estate Planners and Councils

December, 2014 Newsletter
Provided by Leimberg Information Services

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2014 year-end Planning Guide by UBS's Advanced Planning Group

“As 2014 draws to a close, clients are gearing up to meet with their advisors, accountants, and attorneys to reflect on the events of the past year, and to confirm that they have made the most of all available tax savings and investment strategies. It is also a time to turn a thoughtful eye toward 2015 and beyond.

Given this year of significant market growth and recent volatility, a well-rounded strategy carefully considers portfolio fluctuations and the attendant tax and planning implications. On the estate planning front, 2014 brought little change in federal tax legislation.

Nevertheless, the end of the year is a good time to revisit whether specific strategies make sense for your current situation. Has anything changed since your last review? It is important to ensure that your investment and estate planning continue to reflect your current goals and circumstances.”


We close the week with the “2014 year-end Planning Guide” that was recently released by UBS’s Advanced Planning Group.

The Advanced Planning Group of UBS provides comprehensive planning advice and education to ultra high net worth individuals and families.  The team consists of professionals with advanced degrees, extensive planning experience and various areas of expertise.  Through our publications, the Advanced Planning Group features the intellectual capital of UBS in wealth planning, estate tax, and philanthropy and evaluates how changes in the legislative and tax landscape might impact our clients' planning.

Richard Scarpelli
Erin Wilms
Jay Allen
Ann Bjerke
Jeff Brooks
Terence D. Condren
Joyce Crivellari
David Leibell
Stephen Liss
Terri Lyders
Judith D. Martinez
Emily Brunner
Steven Goldman
Robert Iverson
Patricia Morris McMillan
Brandon P. Smith 

Here is their commentary: 


Estate and financial planners are speaking with clients about year-end tax-reductions strategies. This newsletter details potential ideas to consider in tax and investment planning, estate and charitable planning, and retirement planning when engaging in those discussions.


As 2014 draws to a close, clients are gearing up to meet with their advisors, accountants, and attorneys to reflect on the events of the past year, and to confirm that they have made the most of all available tax savings and investment strategies. It is also a time to turn a thoughtful eye toward 2015 and beyond.

Given this year of significant market growth and recent volatility, a well-rounded strategy carefully considers portfolio fluctuations and the attendant tax and planning implications. On the estate planning front, 2014 brought little change in federal tax legislation. Nevertheless, the end of the year is a good time to revisit whether specific strategies make sense for your current situation. Has anything changed since your last review? It is important to ensure that your investment and estate planning continue to reflect your current goals and circumstances.

With this in mind, we hope you will use this information as a reminder to implement strategies you have already embraced, and as a source of new ideas that may prove suitable for your circumstances. 


Legislation watch: estate planning strategies under attack in President Obama’s recent budget proposals

The Administration’s 2015 budget contained several proposals addressing estate and gift tax planning that were carried over from the 2014 proposals. As in 2014, the proposals have no direct impact on the legislative process, but they lay out the President’s priorities and highlight issues that continue to be watched. Taxpayers considering any of the strategies discussed below should continue to monitor legislative developments that may ultimately impact the use and effectiveness of these strategies.

Gift/sale to an intentionally defective grantor trust. Many irrevocable trusts created during life are structured as “grantor trusts,” meaning that the trust is ignored for income tax purposes and the grantor continues to report all items of income and deduction related to the trust on his or her individual income tax return. This allows the trust principal to grow more rapidly since trust principal is not consumed to pay income taxes. Although this is in effect an additional gift to the trust each year, it is not treated as such for tax purposes. Taxpayers often make an initial gift to the trust and then leverage that gift through a sale of additional assets to the trust in exchange for a promissory note. The goal is to allow appreciation on the transferred assets to accrue to the benefit of trust beneficiaries (e.g., descendants) without additional transfer tax.

The Obama administration’s proposed changes to the grantor trust rules, initially set out in 2014, were significant, and they have been carried forward to 2015. If adopted, any assets sold to an intentionally defective grantor trust (including all future appreciation and income thereon), less the consideration received by the grantor, would be includible in the grantor’s estate (or deemed a gift where assets are distributed to a trust beneficiary, or if grantor trust status ceases). All transfer taxes would be payable by the trust. The proposal would apply to any trusts that engage in a described transaction after the enactment date, so this strategy is still possible for now, but may not be in the future. The 2015 proposal does clarify that any irrevocable trust that holds only life insurance on the life of the grantor and/or the grantor’s spouse (and no significant other assets) would not be affected by this proposal.

Multi-generational trusts. Wealthy families often take advantage of the GST exemption by establishing long-term multi-generational trusts, referred to as “dynasty trusts.” If properly structured, this type of trust avoids gift and estate tax at each generation and can continue for the benefit of multiple generations. A number of states now permit trusts to last for hundreds of years, and some even permit perpetual trusts that can theoretically last forever.

Once again, the Administration has proposed to limit the duration of dynasty trusts. While any trust created before the law is enacted would maintain its GST exemption, any GST exemption allocated to a new trust, or to additions made to an existing trust, would expire 90 years from the allocation. This proposal makes the creation of a dynasty trust even more urgent for clients interested in multi-generational planning. By making a gift of your $5.34 million gift exemption (or what remains of it) to a multi-generational trust in 2014, and allocating your GST exemption to that trust, you can protect the trust assets against federal transfer tax for generations to come.

Grantor Retained Annuity Trusts (GRATs). The Grantor Retained Annuity Trust (GRAT) is a widely used technique that continues to be scrutinized. Typically, a grantor creates a GRAT by transferring assets to an irrevocable trust for the benefit of children and retains an annuity interest for a term of years. The transfer is considered a gift to the children equal to the fair market value of the transferred property, less the value of the grantor’s retained annuity at the time the GRAT is funded. At the end of the GRAT term, any assets remaining in the GRAT pass to the children free of transfer tax. If the grantor dies during the GRAT term, some or all of the GRAT assets are includible in the grantor’s estate for tax purposes. Many GRATs are structured to have a short (e.g., two-year) term and to be “zeroed out,” which means that the value of the retained annuity is set to equal the value of the property transferred, resulting in no gift when the GRAT is established. The short term increases the possibility that the grantor will outlive the term (if not, many of the GRAT’s intended benefits are lost).

The Obama administration’s 2014 and 2015 proposals include restrictions on the ability to use certain short-term GRATs in the future. The proposal would require: 1) a 10-year minimum term for GRATs; 2) a remainder interest, valued at inception, to be greater than zero—thereby eliminating the use of “zeroed-out” GRATs (i.e., ones that do not generate a taxable gift); and 3) other limitations to address payment structures and terms that the IRS believes to unfairly limit potential transfer tax payable.

Family limited partnerships. If appropriate, consider discussing with your attorney or tax advisor whether to establish a family limited partnership or family limited liability company. Families set up these types of entities in order to provide for the consolidation of investments, centralization and succession of management, protection of assets from claims of creditors, and transfer of wealth to family members. In addition, families often include these entities as part of their wealth transfer planning, since the value of an interest in such an entity for gift tax purposes often is reduced (as compared to the value of its underlying assets) due to restrictions on the ownership of the interest.

In prior years, the Obama administration proposed limits on the availability of valuation discounts for transfers made between related parties by ignoring certain restrictions. It did not do so in the 2014 and 2015 budget proposals. Despite the lack of attention to this strategy in the budget proposal, there continues to be some level of speculation that the IRS intends to use its regulatory authority to implement similar limitations, although there is nothing concrete pending at the moment. Consequently, you may consider making transfers of interests in family-owned entities sooner rather than later, while appropriate valuation discounts still may apply. Note that the value of interests in assets like these should be determined by a qualified appraiser after consideration of all relevant factors.

Tax planning strategies

Net gains and losses. Examine your 2014 short-term gains and losses and long-term gains and losses and determine your capital gains and loss carryforwards to ensure that you are aligning them to the greatest extent possible. Note that you may be able to use up to $3,000 of net capital losses to offset ordinary income for 2014 as well.

Harvest tax losses. Traditionally, investors consider selling assets in taxable (i.e., nonretirement) accounts that have losses at the end of the year. Capital losses are first used to offset capital gains, and, as described above, if capital losses exceed capital gains, they can offset up to $3,000 of other income. Note that if you sell securities for purposes of recognizing a loss, you cannot immediately repurchase the same security to reestablish your market position and still deduct the loss (see discussion below on the “wash sale” rule).

Review deductions. Review with your advisors whether accelerating deductions into 2014, or postponing them to 2015, makes the most sense. Accelerating deductions may result in less tax payable this year; however, you should also analyze whether you would benefit from deferring those deductions to future years when income tax rates could be higher. Payments of deductible expenses such as unreimbursed medical expenses and property taxes can be easily moved to accommodate timing issues.

Mutual fund capital gain distribution estimates. Each year, mutual funds are required to distribute 98.2% of their net capital gains in order to avoid an excise tax. Mutual funds generally post their distribution estimates beginning in October. Once you have reviewed this information, you should estimate your potential tax liability associated with your mutual fund holdings to determine if you should consider offsetting a capital gain with losses or, alternatively, selling the shares in advance of the distribution. In addition, you may wish to postpone the purchase of a mutual fund’s shares immediately before it distributes a substantial capital gain.

Roth IRA conversion. Discuss with your Financial Advisor whether it makes sense to convert a traditional IRA to a Roth IRA. A 2010 change in the law eliminated the income limit for converting to a Roth IRA, making this strategy available to high-income taxpayers. When you convert to a Roth IRA, the converted amount of your traditional IRA will be taxed as ordinary income in the conversion year at the income tax rates in effect on the conversion date. A Roth IRA can offer significant benefits, most notably tax-free growth of assets, tax-free distributions, and no required minimum distributions (RMDS) during the original account holder’s lifetime.

If you convert to a Roth IRA in 2014, you can recharacterize it back to a traditional IRA until October 15, 2015. This gives you time to monitor market conditions, and make a decision to undo the Roth conversion if the account value decreases significantly from the time of conversion, thereby avoiding the recognition of income tax based on the higher value of the account on the date the conversion was made. This flexibility can be enhanced further by segregating the Roth IRA into separate accounts invested in non correlated asset classes. You can then base your decision to recharacterize the conversion on the performance of the particular asset class, rather than the performance of one diversified Roth IRA account.

Assess alternative minimum tax (AMT) liability. Review your circumstances with your tax advisor to see where you stand for 2014 relative to the AMT. The AMT imposes a minimum tax rate over certain taxable income thresholds. The exemption amounts for this year are $52,800 for individuals and $82,100 for married couples filing jointly, but note that these exemptions begin to phase out when alternative minimum taxable income reaches $117,300 for individuals and $156,500 for married couples filing jointly. If you are subject to AMT and you have the ability to defer income from 2014 to get below the threshold, consider deferring if you may not be subject to AMT in 2015. If you are not subject to AMT, consider accelerating the types of income (e.g., exercising incentive stock options) that would have negative AMT consequences. Also consider accelerating deductions (e.g., property tax payments) that would not provide an equivalent tax benefit in a year in which you were subject to AMT. In short, any analysis of the merits of accelerating or deferring income or gains should take potential AMT liability into account.

Corporate tax inversions. A corporate inversion occurs when a U.S. corporation merges with a foreign corporation, after which the foreign corporation owns the U.S. corporation. While every transaction is different, the U.S. shareholders of a corporation that inverts are generally deemed to have sold their shares as a result of the inversion and must recognize any associated capital gain (but not loss). If you own shares of a corporation that has announced plans to invert, but has not yet obtained shareholder approval, there are two courses of action to consider.

First, you may wish to gift shares of stock to family members who pay capital gains tax at a lower rate than you do. Assuming you are a top bracket taxpayer, transferring shares to a family member whose taxable income is less than $457,600 in 2014 (including the gain recognized on the gifted shares) should mean tax from the inversion gain will be subject to a lower federal tax rate than your own. The larger the gap between your effective capital gains tax rate and that of your family member, the greater the benefit from this approach. State tax rates must be considered as well since they can make this gap wider or narrower. Second, you may wish to donate the stock to charity, thereby obtaining a charitable deduction for the fair market value of the shares and avoiding the recognition of the capital gain altogether.

To best position yourself to take advantage of either of these approaches, you should act before shareholders approve the inversion. Once shareholders approve the corporate action, under the “assignment of income” theory, the IRS would most likely argue that you have effectively recognized income from the deemed stock sale despite the transfer of shares. In many instances, therefore, charitable gifts will need to be made to an organization that exists or can be formed quickly. A public charity or existing private foundation would work well, while many individuals will choose to open a donor advised fund (DAF) account.

Year-end distributions from non-grantor trusts. Trustees of irrevocable trusts taxed as complex trusts should consider making income distributions to trust beneficiaries who are in lower income tax brackets. This can be particularly beneficial in light of the compressed income tax brackets applicable to trusts, and the lower threshold at which the 3.8% Medicare surtax applies to trusts. Depending on the terms of the trust agreement and applicable state law, it may also be beneficial to distribute capital gain income to beneficiaries in lower income tax brackets. Note that trustees may be able to take advantage of the “65-day rule” that allows a trustee to elect to treat a distribution made during the first 65 days of 2015 to be treated as if made on the last day of 2014. Obviously, trustees must consider the goals and objectives of the trust before making any tax-motivated distributions to beneficiaries.

Bonus depreciation. The tax break allowing taxpayers to deduct a bonus depreciation amount of the depreciable basis of certain tangible property, over and above regular depreciation, expired on December 31, 2013. This bonus allowance permitted businesses to write off their costs more quickly—the benefit was 50% bonus depreciation for qualified property placed in service in 2013. In addition, businesses could accelerate some AMT credits in lieu of bonus depreciation for 2013. As of this writing, Congress has not passed legislation to extend this tax break. Both houses of Congress have addressed the issue in legislation, and although the House version was approved there, the Senate bill did not make it to the floor for a vote.

Investment planning

Concentrated stock positions. With capital gain tax rates and the net investment income surtax, the tax cost of diversifying out of a particular position has increased. Investors with concentrated positions may also have concerns regarding liquidity, cash flow, volatility, and more. Your Financial Advisor can help you consider strategies to minimize the tax impact of diversification or hedge against the downside of continued concentration. Consider whether systematic sales, equity collars, exchange funds, prepaid variable forwards, gifts to charity, or charitable remainder trusts (discussed further in the charitable planning section) make sense in your situation, and whether it would be helpful to implement any of these strategies before year-end.

Wash sale rule. In general, the “wash sale” rule prohibits you from recognizing losses if you purchase substantially identical stock or securities within 30 days before or after the sale. If you don’t want to wait 31 days to buy the same stock or security, you may consider replacing the investment you sold at a loss with an exchange traded fund (ETF) tied to the company’s industry or sector. In this way, the ETF effectively serves as a temporary approximate proxy for individual stock holdings, and still enables you to recognize the loss on your original position. You can also replace actively managed mutual fund shares sold at a loss with an ETF, but if you plan to substitute one ETF for another, make sure the funds track different indices to avoid triggering the wash sale rules.

Dates to note

November 28: Since the last trading day of the year is December 31, November 28 is the last day to “double up” for 2014. The actual date is November 30, but that’s a Sunday, so the last trading day is November 28. Doubling up on a security means that you buy a second lot of a security in the same amount of shares as the original holding, thereby allowing you to recognize a loss in 2014 by selling on December 31 without missing any potential appreciation during the wash sale period. Note: undertaking this strategy will result in holding two times the level of stock during the “doubling up” period. During this time, you would be exposed to twice the gains or losses in the stock.

December 31: Last day to sell a security in 2014 for a loss.

February 2: If you sold a security for a loss on December 31 without previously “doubling up,” you must wait until February 2, 2015 or later to repurchase the same or substantially similar security in order to avoid the wash sale rule. Note that the 30 day wash sale window closes on Saturday, January 31, but the first trading day is Monday February 2.

Securities-backed lending. Interest rates are currently at historically low levels, and are also low relative to current investment returns. Taxpayers with short-term cash requirements frequently borrow to satisfy their need for cash. Establishing a credit line before it’s needed allows for immediate reaction to investment opportunities, as well as planned (such as taxes) and unplanned liabilities. Moreover, borrowing against eligible securities in a portfolio provides access to needed funds without having to sell your assets and disturb a long-term financial strategy. Fourth quarter estimated tax payments are due on January 15, 2015, so this is a good time to revisit your credit line needs.

Portfolio review. The end of the year is an excellent time to reevaluate the goals of your portfolio, the risk level you are comfortable with, and the liquidity events that are going to influence the next 2, 5, or 10+ years of your financial life. The volatility of the past several years and the prospects of tomorrow may give you pause, and it is important for you to discuss these concerns with your Financial Advisor. Reassessing your portfolio may not only provide you with peace of mind, but can be quite valuable in terms of identifying the most appropriate tax planning techniques to utilize.

Estate planning

Use your gift tax exemption to make substantial lifetime gifts. You may want to consider utilizing a substantial portion (or even all) of your gift tax exemption by making a gift to your family members or others. Such a gift could remove the value of the gifted asset, plus future appreciation, from your estate. Also, if exemptions later decrease (as proposed in President Obama’s fiscal year 2015 budget), gifts that were already made might be excluded from estate tax liability calculations.

Annual exclusion gifts. Make annual exclusion gifts on or before December 31st each year. Each person may make annual gifts that are free of gift tax, in an amount up to $14,000 ($28,000 for a married couple) to an unlimited number of individuals. If you are making such gifts to an irrevocable life insurance trust to pay insurance premiums, proper documentation is required for you to obtain annual exclusion treatment. Specifically, the trustee must ensure that trust beneficiaries receive withdrawal notices, which are commonly known as Crummey letters. Your legal advisors can help you with this process.

Fund education through 529 plans. Consider funding 529 plans by December 31 to apply 2014 annual gift tax exclusion treatment to the contributions. You can “front-load” 529 plans by making five years’ worth of annual exclusion gifts to a 529 plan. In 2014, you could transfer $70,000 ($140,000 for a married couple) to a 529 plan without generating gift tax or using up any of your gift tax exemption.

Establishing and funding IRAs for the next generation. Help your child or grandchild get an early start on saving for retirement. Consider making a gift of up to $5,500 to either a traditional or Roth IRA for your children or grandchildren who are not funding their own IRAs, but have enough earned income to do so. Contributions to IRAs for your family members are taxable gifts and should be coordinated with other gifts you make. Also note, while IRA contributions for the 2014 tax year may be made until April 15, 2015, if you want to use your 2014 annual gift exclusion to make an IRA gift/contribution, the gift must be completed by December 31, 2014.

End-of-year family meeting. Family meetings can help you coordinate with respect to financial and other matters, and are a valuable learning tool for children and descendants to understand the benefits and burdens of wealth. As the end of the year approaches, consider arranging a family meeting to discuss investments, planning, philanthropy, and more. 

Charitable planning

Charitable income tax deduction. In order to obtain an income tax charitable deduction for 2014, gifts must be made by December 31. If the gift consists of property that will require an appraisal (generally required for gifts of property with a value in excess of $5,000, other than publicly traded stock), you should start the process as soon as possible. Bear in mind that it may take several weeks for a transfer of stock via physical stock certificate or stock power to be completed.

Be sure to obtain a proper receipt for any gifts in excess of $250 before filing your tax return, even if the donation was made to your own private foundation. Such a receipt must be in writing, state the amount donated, describe any non-cash donations, and indicate the value of any goods or services provided by the charity as consideration for the donation. A mere canceled check does not meet these requirements. Several court cases in recent years have denied taxpayers a charitable deduction for failing to strictly comply with these substantiation requirements.

IRA distributions donated to charity. Since 2006, individuals over age 70½ have been permitted to exclude from income up to $100,000 of their required minimum distribution where the RMD is made payable to a qualified charity. This provision has been periodically extended by Congress, but as of this writing has not been extended for the 2014 tax year. Legislation before the midterm elections appears highly unlikely. Historically, private foundations and donor advised funds were not included in the definition of qualified charity, while most public charities were considered qualified. Those rules are not expected to change if this provision is extended again. If you are interested in making a charitable gift and are over age 70½, you may wish to delay taking your RMD until it is clear whether or not the provision will be reinstated.

Selecting assets to give to charity. To avoid capital gains taxes and the 3.8% surtax on net investment income, you may want to consider giving appreciated property to charity (as opposed to selling the property, recognizing the gain, and contributing cash to charity). You get an income tax deduction equal to the fair market value of the property (subject to AGI limitations), and the charity can sell the property and pay no capital gain tax because it is a tax-exempt entity. It is critical that the appreciated property qualify as long-term capital gain property (held for more than one year); otherwise, your deduction will be limited to your basis in the property. Your deduction will also be limited to your basis if you contribute real estate or nonmarketable appreciated property (such as shares in a privately held company) to a private foundation (as opposed to a public charity), even if the property qualifies for long-term capital gain treatment.

Donor advised funds. You may want to consider establishing a donor advised fund. Transferring assets to a donor advised fund can allow you to receive an immediate charitable income tax deduction (at the maximum amount allowed for gifts to public charities), while affording you time to decide on the ultimate charitable beneficiaries.

Private foundations. Managers of private foundations may wish to discuss the following ideas with their tax advisors to optimize the efficiency of the foundation:

In order to minimize the 1% – 2% excise tax on net investment income, consider making grants of low-basis stock in lieu of selling the stock to raise cash for the grants, which could trigger gains.

Consider offsetting gains with losses. Private foundations cannot carry forward capital losses. If your foundation has significant losses, it can sell securities that have appreciated, recognize the gain and buy the securities back in order to establish a higher basis in the assets. The wash sale rule does not apply here because the foundation is recognizing a gain (not triggering a loss).

Note that each year, approximately 5% of the value of a foundation’s net investment assets for the prior year must be distributed for charitable and administrative purposes. Accordingly, foundation managers should determine liquidity needs to meet the payout requirements.

Consider making a “conduit election,” so contributions to the foundation can be treated as though made to a public charity for income tax purposes. This can be useful if the foundation will distribute all of the contributions it receives early in the year following contribution, and the type or amount of your donation is such that your income tax deduction would be limited by the more restrictive private foundation rules.

Consider granting to a donor advised fund if you run out of time and cannot decide which charities should receive some or all of the 5% grant requirement.

Charitable remainder trust planning. If you have a concentrated position in one or more appreciated securities and are concerned about the tax bite associated with selling the appreciated securities in order to diversify, consider establishing a charitable remainder trust (CRT) and contributing the appreciated securities to it. Because a CRT is a tax-exempt entity, the trustee can sell the assets without paying any capital gains tax. You are entitled to receive an income stream each year of at least 5% of the trust assets. Although the trust is tax-exempt, the payments you receive will be taxable to you upon receipt. Nonetheless, this can defer the associated capital gains (possibly indefinitely, depending on the trust’s other income). At the end of the trust term (either your lifetime or a term of years not to exceed 20), the trust assets will pass to one or more charitable organizations designated by you. You will also be entitled to an income tax charitable deduction when you establish the trust for the present value of the charitable beneficiaries’ remainder interest.

Charitable donations and the AMT. Taxpayers who are subject to the AMT in certain years but not others should consider whether a charitable deduction would be more valuable this year or next. Charitable deductions are permitted under the AMT regime, but they are generally less valuable at the top AMT tax rate of 28% than at the top regular income tax rate of 39.6%. Therefore, taxpayers who are not consistently subject to the AMT might consider delaying their donations. While tax planning does not generally drive charitable giving, it may be appropriate to consult your tax advisors to determine the potential tax consequences of making a donation in January 2015 instead of December 2014.

Qualified conservation property. A donor can take a charitable income tax deduction for the donation of “qualified conservation property” of up to 30% of AGI, subject to a five-year carryforward for any excess deductions. Typically, this donation takes the form of an easement that restricts future development, but the easement can permit farming, timber, harvesting or other uses of a rural nature to continue. The restrictions must generally be perpetual. An enhanced deduction of 50% of AGI (100% of AGI for farmers and ranchers), with a carryforward period of 15 years, expired on December 31, 2013. There is a remote possibility that the enhanced deduction could be resurrected and made retroactive to all of 2014.

Retirement planning

Maximize contributions to retirement accounts. Make 2014 contributions to Roth or traditional IRAs by April 15, 2015. The following chart summarizes the 2014 annual contribution limits to IRAs and retirement plans:

RMDs. For individuals over age 70½, required minimum distributions must generally be taken from IRAs and other retirement plans (e.g., profit sharing, 401(k), 403(b) and 457(b) plans) by December 31 (there are no required minimum distributions for Roth IRAs prior to the original accountholder’s death). The first RMD can be delayed until April 1 of the year following the year in which the taxpayer turns age 70½. Additionally, RMDs for employer-sponsored qualified retirement plans can be delayed if the taxpayer is still employed and the employer’s plan permits RMDs to begin at the later of age 70½ or retirement. If you have more than one IRA (of which you were the original account owner), you can take the RMDs for multiple IRAs from one account. The same holds true for 403(b) plans, but not for other types of employer-sponsored retirement plans, like 401(k) and 457(b) plans. However, if you inherited an IRA as a beneficiary, you have separate RMD requirements for the inherited IRA and cannot aggregate those distributions with your own IRA. Inherited IRAs require that the RMD for the year of death be distributed to you if the decedent did not take it, and subsequent years have a separate RMD calculation from your own IRAs.

Charitable distributions from IRAs. As described in the charitable planning section, if you are interested in making a charitable gift and are over age 70½, you may wish to delay taking your RMD until it is clear whether or not the provision allowing you to exclude from income up to $100,000 of an RMD made payable to a qualified charity is restored by Congress.

Split-funded defined benefit plans. A split-funded defined benefit plan (“SFDBP”) provides a business owner (family business, law practice, medical practice, etc.) who has a high income and cash flow, and who is already making maximum contributions to a qualified retirement plan such as a profit sharing plan or 401(k), the ability to make larger tax-deductible contributions. SFDBPs can be implemented even where there are existing 401(k) and profit sharing plans. The closer a business owner is to retirement, the larger the deductible contribution to the plan (annual deductions can exceed $100,000), making the plan attractive to the business owner as well as employees. All contributions to a SFDBP plan are made by the employer. SFDBPs usually invest in whole life insurance, as well as marketable securities such as stocks, bonds, and mutual funds. A SFDBP can help preserve the business owner’s financial independence in retirement as he or she will receive a lifetime retirement income. Also, upon retirement, the business owner may be able to withdraw his/her share of the plan and roll it over to a traditional IRA, subject to certain timing requirements and other restrictions. SFDBPs must be set up by December 31st of the year in which contributions are planned to be made, and funding must occur no later than the business owner’s tax filing date.

Using required minimum distributions to fund insurance premiums to replace funds lost to estate taxes. Generally, you must begin taking RMDs from your IRA (other than a Roth IRA) or retirement plan no later than age 70½. Each RMD is treated as taxable income, except for any portion that can be received tax free (generally, those previously taxed). You may not need or want this distribution. Given that assets remaining in retirement accounts at death are subject to estate tax (and income tax, upon distribution to heirs), one way to address taxes due at the time of death is to use RMDs to fund a life insurance policy. Structured correctly, death benefit proceeds of a life insurance policy may not be included in your estate, and can be used to replace monies lost to income and estate taxes on IRAs and other assets. This strategy may save beneficiaries from unanticipated taxes by making use of RMDs from your retirement investments.

Annual reminders—the end of the year is a great time to review various aspects of your financial and estate plan.

Review your insurance portfolio with a qualified professional to determine whether or not your current life, long-term care, and liability insurance continue to efficiently meet your coverage needs.

Take a look at your will and/or revocable living trust to ensure that you remain comfortable with bequests and dispositions, executors, trustees, and guardians.

Review agents named under financial and medical powers of attorney to ensure they are still appropriate. Review living wills to ensure you are comfortable with the healthcare and end-of-life-related instructions therein.

Revisit your beneficiary designations for your insurance policies, as well as your retirement plans, to ensure the assets will pass according to your wishes. Likewise, evaluate the titling of your other assets to ensure they too are distributed according to your goals and objectives (and are coordinated with your estate plan). For example, consider – with your attorney—titling assets as “tenants in common” rather than “joint tenants with rights of survivorship” to ensure assets pass according to the terms of your wills and trusts rather than by operation of the titling itself.

Communicate the location and intention of your estate planning documents with the relevant parties. Documents should be placed somewhere safe and easily accessible by the individuals you have named to handle your affairs (e.g., executor, trustee, and agents under financial or medical powers of attorney). 

2014 year-end planning checklist

High income earners

   [ ]   Review your deductions from a timing perspective

   [ ] Analyze mutual fund capital gain distribution estimates

   [ ] Monitor AMT liability

   [ ] Consider a Roth IRA conversion

   [ ] Review liquidity available for estimated tax payments, if required


   [ ] Net short- and long-term gains and losses

   [ ] Time loss recognition, remaining aware of the wash sale rule

   [ ] Analyze concentrated stock positions to determine if diversification or hedging is desired

   [ ] Review portfolio for current risk level and circumstances

   [ ] Watch for any corporate inversions that may impact you

Wealth transferors

   [ ] Consider using $5.34 million gift tax exemption

   [ ] Make annual exclusion ($14,000) gifts, potentially to 529 plans

   [ ] Consider GRATS, family loans, trusts, and other opportune estate planning strategies

   [ ] Explore IRAs for the next generation, where applicable

   [ ] Consider whether year-end distributions from non-grantor trusts for tax planning purposes would be suitable


   [ ] Select optimal assets to give to charity

   [ ] Consider charitable vehicles such as donor advised funds or private foundations

   [ ] Consider tax efficient strategies for private foundation management

   [ ] Monitor the situation with regard to IRA distributions donated to charity

   [ ] Consider the impact of AMT on charitable donations

   [ ] Review optimal timing of charitable gifts, and appropriate action to ensure desired
deduction year

Business owners, employees and retirees

   [ ] Maximize contributions to retirement plans

   [ ] Withdraw RMDs, monitoring whether charitable distributions from IRAs become possible

   [ ] Explore split funded defined benefit plans

   [ ] Consider life insurance to protect against estate taxes due upon IRAs at death


   [ ] Review various types of insurance

   [ ] Go over estate planning documents, including powers of attorney and living wills

   [ ] Confirm beneficiary designations and asset titling

   [ ] Communicate location of important documents to appropriate individuals

   [ ] Be in touch with advisors regarding state tax planning




UBS Advanced Planning Group



LISI Estate Planning Newsletter #2255, (November 13, 2014) at  Copyright 2014 Leimberg Information Services, Inc. (LISI).  Reproduction in Any Form or Forwarding to Any Person Prohibited – Without Express Written Permission.

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