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Introduction to Estate Planning, 2d ed.

Introduction to Estate Planning

A revision of the first edition, published in 1987, this text updates estate planning to include changes of the 1987 Revenue Act. It is designed for students preparing for careers in financial planning and for professionals in law or taxation who seek greater knowledge of how their disciplines affect estate planning. Others can benefit from studying this text: life insurance agents, accountants, and those in trust management, investment brokerage, and real estate. The general lay reader, however, may find the book too technical and written at a too advanced level for easy comprehension.

The book contains three parts: (1) an overview of estate planning, (2) a discussion of major estate planning concepts and applicable tax laws, and (3) planning techniques. A major strength of the treatment is that the author stresses the applicability of various concepts and tax rules to estate planning rather than giving too much detail or analysis of the concepts and rules themselves. In this way, the reader does not get bogged down in too much detail and can quickly see the significance of each concept for solving estate planning problems. Major points are well illustrated by short case situations and examples.

For example, in the discussion of intestacy (Chapter 4) the author answers such questions as how intestate estates are divided among heirs, the rights of surviving spouses, how common law rules of consanguinity are applied, the legal rights of ommitted, divorced, or disinherited spouses, and the interpretation of the rules in community property vs. non-community property states.

As another example of practical treatment is this text, in the discussion of what types of property are taxable, illustrations are given showing that a spouse's pension ceasing upon death is not taxable, but a pension payable under a joint and survivor annuity option would be subject to valuation and taxation at the death of one of the pension recipients.

The author reveals a thorough knowledge of the interaction of estate, gift, and federal income taxation as it affects estate planning. The reader will come away with an appreciation of how the income tax cost basis of property affects estate taxes and under what circumstances. The treatment even extends to the subject of how a recipient of a gift may use a "disclaimer" to renounce a gift and save estate taxes thereby. There is also a treatment of the "generation skipping transfer tax" and how this tax may be avoided or minimized.

The book contains reprints of major income and estate tax forms for use by serious students or professionals. Although this is useful for some, it appears to this reviewer that too much space is devoted to forms--space that could have been better used to analyze their major provisions. For example, Form 706, the general estate tax return, occupies 35 pages (pp 149-184), and the type is too fine for many to read it.

The chapters on federal estate and income taxes contain many useful ideas for estate planners. These include methods to reduce income taxes by obtaining a "stepped-up" basis for property, shifting income to a lower bracket taxpayer, use of the "trips up the rate ladder" technique, and deferring recognition of income.

An excellent discussion is presented of concepts of probate, use of living trusts, advantages and disadvantages of joint tenancy, and what type of "client" would probably benefit most from each type of estate transfer method. The text analyzes thoroughly the merital deduction, use of credit shelter bypass, use of the bypass trust, and how to arrange these instruments so as to minimize federal estate taxes and still provide a spouse with adequate income from the estate and give the spouse power to invade the principal of the trust without losing tax shelter. (Chapters 11 and 12).

A frequent rationale for the purchase of life insurance is to provide a fund to pay estate taxes. The author analyzes why such life insurance should be on a term basis and why neither spouse should be either the owner or beneficiary of the policy. If an irrevocable trust is used instead, all the advantages of liquidity are achieved without having the life insurance add to estate taxes or probate expense. (pp. 434-437). This reviewer suspects that such a technique is unknown or seldom used by most financial planners, or life insurance agents, even those who are professionally trained.

The inclusion of such standard features as a glossary, detailed index, end-of-chapter questions (an instructor's manual is available for classroom adopters) interest tables, federal income, estate, and gift tax rates, and annuity tables, make this book extra useful as a reference and as a college textbook.

Valuable as the book is, the reader should not expect to find in it the answers to all estate planning questions. Detailed treatment of many life insurance aspects of estate planning are omitted. How employer pensions should be integrated into an estate plan does not receive much analysis. The question of whether one should select a stright life annuity, rather than a joint and survivorship annuity, and purchase life insurance to give a spouse retirement protection, is not discussed.

In general this book is an up-to-date, readable, professional treatment of the subject. It should form part of the reference library of anyone concerned with estate planning.
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Copyright 1989 Gale, Cengage Learning. All rights reserved.

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Author:Greene, Mark R.
Publication:Journal of Risk and Insurance
Article Type:Book Review
Date:Dec 1, 1989
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