Category Archives: Blog

The Washington Report: – Wealth Transfer Edition

“All trust jurisdictions are not created equal. Choosing the jurisdiction with the best laws for the successful family is critical. In this modern, mobile world, the residence of the settlor, beneficiaries, and fiduciaries must be monitored and managed to avoid unintended consequences.  Successful families, no matter their location, are beginning to think nationally when deciding where to establish their irrevocable trusts.”   

To read the full report, click here.

The Washington Report: – Business Edition

“The Court removed from the taxpayer’s arsenal of arguments the theory that a redemption obligation necessarily reduces the net value of a corporation. But even before the Court’s decision, many advisors had been hesitant to rely on that theory because of its flawed logic. Taxpayers still have multiple avenues available for structuring redemption agreements funded with life insurance. Given the Connelly decision, it is highly recommended that taxpayers review their sale and redemption agreements to determine what changes, if any, should be made in light of the Court’s decision.” 

To read the full report, click here.

“The Court’s little-noticed decision in Connelly v. United States, issued in June, throws a wrench into a common succession strategy for many closely held firms with more than one owner. In this strategy, a company buys life insurance on its owners so that when one dies, there’s cash to repurchase his or her stock.  The goal is for the insurance payment to be tax-free and for the company to avoid the burden of funding a share repurchase from operating profits. In Connelly, however, the court ruled that the strategy didn’t provide the expected benefits.  As a result, the owner’s estate owed nearly $900,000 more in estate tax….”The bottom line: For many closely held business owners, dealing with the Connelly decision requires help from advisers aware of both income- and estate-tax consequences. This advice won’t come cheap and could suck energy away from running the business.  That’s an aggravation—but it’s not as big a pain as a surprise estate-tax bill.” 

The full article can be found by clicking here.

“High-end business partnerships like hedge funds and wealthy individuals such as real estate investors have inappropriately used labyrinthine structures to shield tens of billions of dollars from taxation, Treasury Department officials said Monday as they vowed to crack down on the practice. They announced several steps to address a tax planning strategy known as basis shifting, in which complex business partnerships can move assets from one entity to another on paper for no reason other than to avoid taxes.”

The Washington Post article which can be found by clicking here.

“While a very important tool, premium financed arrangements should be carefully evaluated and actively managed post implementation. Since the success of the arrangement is based on a positive economic arbitrage, advisors should carefully evaluate and stress test (i) fluctuations in interest rates; (ii) fluctuations in the insured’s portfolio; (iii) the parties assigned to monitor performance; (iv) exit strategies; and (v) tax implications.”

To read the full report, click here.

 The Washington Report: – Wealth Transfer Edition

“The IRS continues its attack on valuations, and there’s no end in sight.  The U.S. Tax Court recently issued its decision in Estate of Cecil v. Commissioner. The decision is important because it contributes to the discussion whether tax affecting is necessary and/or appropriate when valuing an S corporation. Additionally, the decision reveals the zeal with which the IRS is pursuing wealthy taxpayers on valuation matters and highlights the importance of deep expertise needed for successful business succession planning and using reliable appraisals. Taxpayers with successful family-owned businesses who desire to retain ownership of the business within the family are well advised to engage advisors well versed in business succession planning.  Reliable appraisals matter.”

To read the full report, click here.

From the New York Times, “The High Stakes of Low Quality” by Yvon Chouinard, founder and former owner of Patagonia at https://www.nytimes.com/2023/11/23/opinion/patagonia-environnment-fast-fashion.html

• “I know firsthand the high stakes of low quality. When I started forging climbing equipment and selling it out of the back of my car in the 1950s, I was my own best customer. My dirtbag climber buddies and I wanted stronger pitons and sturdier carabiners to support us as we hung thousands of feet above the Yosemite Valley floor. If the metal were too soft or a joint too weak, the resulting fall would have killed me or one of my friends.  I wanted to stay alive, so I chose quality at every turn, creating products that were simple, versatile and made with the lightest, strongest materials I could find.”
• “People ask me how it has managed to stick around so long when the average life span of a corporation is less than 20 years. I tell them it’s been our unrelenting focus on quality, which includes making things that last and that cause the least amount of harm to our planet.” Quality is smart business. Even during economic downturns, people don’t stop spending. In our experience, instead of wanting more, they value better. Consumers should demand — and companies should deliver — products that are more durable, multifunctional and, crucially, socially and environmentally responsible.”

How does this relate to your practice and the clients you serve?  Do you believe that it’s better to do excellent planning and provide flawless implementation upfront, rather than to try to unwind poor planning and flawed implementation down the road?  The cost for working with the cheapest, least experienced, and perhaps, ethically-challenged professional can be prohibitively and dangerously high.

Reading the WSJ article below made me wonder how the facts represented impact the planning we do for our older clients.  There are so many issues that depend on our understanding of aging and longevity.

The WSJ article which can be found by clicking here.

What is usually referred to as life expectancy typically means life expectancy at birth: how long a hypothetical newborn would live if current age-specific death rates prevailed through her entire life. For older individuals, we care more about how long someone their age can expect to live, which can be calculated with the Actuaries Longevity Illustrator.  Geriatricians are increasingly seeking ways to measure not just how many years someone will live but how many healthy years, sometimes called healthspan. The evidence for Trump and Biden is favorable. The University of Connecticut’s Healthy Life Expectancy Calculator suggests (again, based on what’s publicly known) that Trump and Biden are likely to not only be alive, but in good health, for at least 10 years. 

Regular drinking of two or more drinks, three or more times a week, shortens life expectancy by about seven years. Both Trump and Biden are teetotalers, in addition to being nonsmokers.  “Those are two of the biggest killers right there,” said Bradley Willcox, a professor and research director at the Department of Geriatric Medicine at the University of Hawaii.  Biden and Trump are each highly educated at a time when the life-expectancy gap between the educated and uneducated has been growing. They are wealthy, also a strong predictor of longer life. They receive excellent healthcare.  Median life expectancy is just that, the middle. Nonsmokers and nondrinkers, who are educated, wealthy and have long-lived parents and good medical care, are generally going to outlast the median quite a bit, which is why many people are not only reaching their 80s but continuing to thrive.  “Many people who are 80 years old now have more in common with people a couple generations ago who were 60,” said Willcox.

Putting together all the known data, Olshansky estimates that Trump and Biden would likely have at least an 80% chance of completing their terms in good health, far better than voters think.

The Washington Report: – Wealth Transfer Edition

“Taxpayers should exercise caution in implementing ING trusts, particularly in light of California’s new law, which is effective retroactively.  While the ING trust remains a viable wealth preservation strategy in many states, it is unclear how long this will continue.  Taxpayers who implement this strategy are well advised to craft an exit strategy as well.”

Click here to read the full report.

The Washington Report: – Wealth Transfer Edition

“Valuation appears to be trending within the Internal Revenue Service (“IRS”) these days: insurance policy valuations, CCAs regarding GRATs, charitable planning targeted, and now the Connelly case.  The U.S. Court of Appeals for the Eight Circuit found that the value of life insurance proceeds funding a redemption buy-sell agreement should be included in the value of a closely-held business for estate tax purposes, changing conventional thinking.  Business owners should consider a cadence of regularly reviewing their buy-sell agreements. These are living, breathing documents. If their buy-sell agreement happens to be a redemption agreement, the economics should be reviewed assuming the same treatment as the Connelly case. It may be that these buy-sell agreements are woefully underfunded, triggering an audit of their life insurance plans. And if the owner has an agreement in place, they should follow it to the letter, not set-it-and-forget-it.”

To read the full report, click here.