The Washington Report: – Wealth Transfer Edition
“From the Desk of an Estate Planning Attorney: Buy-Sell Planning Since Connelly – What are we doing now?” KEY TAKE-AWAYS: Post-Connelly, closely held business owners must carefully consider the practical and various tax issues associated with life insurance funded buy-sell structures.
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The Washington Report – Business Uses Edition
Given the potential for significant adverse tax results, compensatory split-dollar programs should be reviewed by a 409A tax expert for compliance. That review should occur not only when the program is first designed, but also any time the program is modified.
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The Washington Report: – Wealth Transfer Edition
“The purpose of this article is to remind clients that “in the midst of chaos, there is also opportunity.” Below are five estate planning opportunities, which if implemented now, can yield significant and lasting benefits.”
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The Washington Report: – Wealth Transfer Edition
“Given the rapidly evolving legislative landscape, advisors should get in front of clients now to create a plan on how to move forward if and when we start to see more certainty regarding upcoming tax law changes. For many clients, that planning should involve a review of business succession needs, as this is a largely underserved area of planning.”
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The Washington Report: – Wealth Transfer Edition
“The close of 2024 is the ideal time to initiate planning to maximize the remaining fruit of the TCJA, while beginning to position for a new, but familiar, landscape following the potential sunset. These approaches should work well regardless of the new tax environment. Clients looking for areas of impact should focus on (1) Roth conversions; (2) optimizing charitable deductions; and (3) acquiring life insurance.”
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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.”
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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.”
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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.”
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The Washington Report: – Wealth Transfer Edition
“Abusive taxpayer transactions simply continue to raise the ire of the IRS. Commonly seen as a very conservative planning technique, the Internal Revenue Service (“IRS”) has recently taken extreme positions to challenge the use of grantor retained annuity trusts (“GRATs”). The IRS in a recent CCA takes the position that by undervaluing the assets transferred to a GRAT, the GRAT annuity interest is not a “qualified interest,” and therefore the entire transfer is a taxable gift. The IRS finds that the transferred interest can be undervalued to such an extent that it ceases to be a qualified interest under IRC § 2702. While the CCA is not precedent, it is a clear indication of how the IRS may deal with perceived abusive (valuation) transactions. A softer touch could have permitted use of the self-adjustment regulations to correct the transaction. Instead, the IRS uses a hammer to address, in our view, bad taxpayer behavior. To avoid costly disputes with the IRS, when funding a GRAT or any irrevocable trust with hard-to-value assets, obtain a qualified appraisal as of the date of the transfer.”
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The Washington Report: – Wealth Transfer Edition
“As Congress and the Biden administration continue to consider the grantor trust rules, some practitioners have turned their attention to the little-used nongrantor irrevocable life insurance trust (“ILIT”) as a planning alternative. The ILIT, one of the most commonly used legacy management tools, is typically established as a grantor trust for income tax purposes for many reasons but the most important being the ability to use the trust income to pay life insurance premiums. The nongrantor ILIT is possible but not ideal. In most situations, the grantor ILIT will remain the preferred structure. However, it is possible to structure the ILIT as a grantor trust from the outset and allow for a future toggling-off of grantor trust status to manage possible changes in the law.”
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