The GST exemption is now $3,500,000, but the gift tax exemption is just $1,000,000. Is it possible to take advantage of the full $3,500,000 GST exemption without paying gift taxes?

One way to do so is to transfer assets to a zeroed-out GRAT. The remainder beneficiary of the GRAT would be a dynasty trust. Because of the so-called ETIP (estate tax inclusion period) rules, the grantor cannot allocate GST exemption until the end of the GRAT term. But, this does permit the use of GST exemption without making a taxable gift.

Another technique is for a married person to make a gift to an inter vivos QTIP trust (with GST provisions for the couple's descendants upon the death of the surviving spouse). The grantor-spouse would make the reverse QTIP election (so that the grantor-spouse is treated as the sole transferor to the trust for GST purposes). The grantor-spouse can then allocate GST exemption to the trust without paying any current gift taxes (because of the unlimited gift tax marital deduction). However, it is not clear whether gift splitting is possible with an inter vivos QTIP trust.

Finally, it is possible to make a late GST allocation to existing trusts (for gifts made before 2008). The allocation will be based on values at the time of allocation (which might be desirable after the market meltdown).

For more information regarding this topic, please e-mail your requests to Julius H. Giarmarco, or call Julius at (248) 457-7200.

The Worker, Retiree, and Employer Recovery Act of 2008 ("WRERA") suspended required minimum distributions ("RMDs") for 2009. (See our December 2008 Monthly E-Update and our Winter 2009 Quarterly Newsletter for more details.) This is generally good news for retirement plan owners. But, for those who may be lured into skipping their 2009 SEPP or who inherited in 2008 and may be lured into putting off all further action until 2010, the WRERA hiatus could spell disaster.

WRERA did not suspend the deadline for establishing separate accounts. The deadline is still December 31, 2009 for those who inherited in 2008. Missing the deadline means RMDs will be calculated using the life expectancy of the oldest beneficiary. This could result in decades of lost tax deferral for grandchildren who were named co-beneficiaries with their parents.

WRERA also did not suspend the deadline for "finalizing" beneficiaries. For those who inherited in 2008, the deadline is still September 30, 2009. Missing this deadline could mean application of the "no designated beneficiary" rules, which could result in application of the "5-year-rule" if charities were named co-beneficiaries and establishing separate accounts would be of no avail.

Finally, WRERA did not suspend the substantially equal periodic payment ("SEPP") requirements. If a SEPP is missed this year, the penalty on pre-age 59 1/2 distributions must be paid on all distributions taken, plus interest. Stopping payment is a prohibited modification that retroactively revokes the exception to the 10% penalty.

For more information regarding this topic, please e-mail your requests to Salvatore J. LaMendola, or call Sal at (248) 457-7204.

Washington State has become the first state in the nation to require life insurance companies to advise seniors that they may choose to sell their policies instead of letting them lapse or of surrendering them. This strong consumer protection measure was part of a new state law to regulate life settlements in the state, thus protecting the property rights of life insurance policyowners in Washington. The measure, sponsored by Senator Jean Berkey (Olympia), Chair of the Financial Institutions, Housing & Insurance Committee, was signed into law by Governor Christine Gregoire on Thursday, April 16, 2009. The legislation was supported by the American Council of Life Insurers (ACLI), the National Association of Insurance and Financial Advisors (NAIFA), as well as individual life insurance and life settlement companies.

Washington Insurance Commissioner Mike Kreidler, in a letter encouraging the Governor to sign the bill, cited the notable consumer protection policy that "[l]ife insurance companies are required to disclose information about life settlements to policyowners, so that consumers are provided fair and reliable information to use when making decisions regarding the disposition of their life insurance policies". Life settlements pay seniors an average of 300-500% more than the cash surrender value of a policy. Since almost 9 of 10 life insurance policies issued are lapsed or are surrendered, according to a leading international actuarial firm, life settlements are a valuable option for seniors.

As seniors face losses in income and value because of declines in stocks and home prices, many are not able to maintain their life policies. Other states are considering action similar to Washington's. In Indiana and Kentucky, legislators and regulators are looking into allegations that insurers are actively impairing policyowners from pursuing life settlements, including issuing false information about life settlements and barring life agents from advising and assisting policyowners with life settlements.

For more information regarding this topic, please e-mail your requests to Randall A. Denha, or call Randy at (248) 457-7205.

While cheaper than permanent life insurance, term life insurance policies have some down side. While having the lowest out-of-pocket outlay of any individual life insurance product, in order to reap a benefit from the policy, the insured must die while the policy is in force. Term premiums are inexpensively priced, because the insured is not expected to die during the term period.

Another disadvantage of term life insurance is that, if the premium is not paid by the end of the 31-day grace period, the policy lapses. Thus, if the insured dies before the policy is reinstated, there is no death benefit.

Return of Premium ("ROP") term life insurance has recently been revived by a number of insurance companies to solve these disadvantages. ROP term takes a basic term policy and adds a rider, for an additional premium, guaranteeing a 100% tax-free return of all money spent at the end of the term.

Depending upon the insurance company, guaranteed cash values start to accumulate following the first 4 to 6 years following the policy's issuance. For example, under a typical 30-year ROP term policy, the cash available to the insured would approximate 50% of the premiums paid by the end of the 20th year and 100% of the premiums paid by the 30th year. With some carriers, if a premium is not paid by the 31-day grace period, an automatic premium loan will be made - assuming sufficient cash value exists in the policy. This automatic loan avoids a lapse of the policy, keeping 100% of the death benefit in force. Other carriers apply the cash values to buy reduced paid-up insurance to age 95, if a payment is missed. Obviously, such features are not available with basic term insurance, which has no cash value.

The availability to convert an ROP term policy into a permanent policy, without having to go through underwriting, is available. In the event of a conversion, cash values accumulated in the ROP policy can be applied to the new permanent policy. By way of comparison, a 41-year-old male, preferred underwriting risk, can buy a 25-year term policy at an annual premium of $1,930.00. If he outlives the term, he would have spent $34,750.00 in premiums and received nothing in return. Alternatively, this same individual could purchase a 25-year ROP policy at an annual premium of $2,685.00. If he outlived the term of the ROP policy, he would be entitled to a return of $67,125.00.

In addition to allaying the concerns regarding the disadvantages of term insurance, an ROP policy can also provide the advantage of supplementing retirement benefits to the policy owner/insured at the end of the term period. These same individuals seeking to enhance their retirement benefits may also have concerns about the seemingly imminent substantial reduction in Social Security payments years from now. ROP term should find its nitch among those policyholders who did not possess the wherewithal or the desire to pay whole life insurance premiums.

From a business planning viewpoint, ROP policies will have their place for funding key-person and buy-sell agreements. ROP policies offer the ability to recapture the insurance cost, tax free, either to supplement deferred compensation for the insured's employees or to assist in the funding of a lifetime buy-out.

For more information regarding this topic, please e-mail your requests to Thomas P. Cavanaugh, or call Tom at (248) 457-7218.

	Annual	Semi-Annual	Quarterly	Monthly
Short Term AFRs (Term 3 Years or Less)	0.76%	0.76%	0.76%	0.76%
Mid Term AFRs (Term More Than 3 Years and 9 Years or Less)	2.05%	2.04%	2.03%	2.03%
Long Term AFRs (Term More Than 9 Years)	3.58%	3.55%	3.53%	3.52%
Section 7520 Rate	2.4%