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: – 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.”
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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
“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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The Washington Report: Business Uses Edition
“A rabbi trust is a vehicle that provides for such informal funding without running afoul of tax or ERISA compliance issues resulting from “funded” NQDC plan benefits. This article addresses key questions to consider when adopting a rabbi trust, including (i) whether the rabbi trust should be irrevocable; (ii) even if irrevocable, when can assets revert to the employer; (iii) should the rabbi trust include enhanced protections upon the employer’s change in control; (iv) what kind of investments should the rabbi trust hold and what kind of control over those investments should the employer retain; and (v) can the rabbi trust hold employer stock?”
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“Life insurance continues to play a vital role in legacy planning because of its unique value proposition – a source of income tax efficient liquidity, efficient wealth transfer on a multi-generational basis, a mortality hedge, a non-correlated asset class, and strong internal rates of return relative to the current stock market. Nonetheless, advisors should evaluate how higher rates and a volatile market may impact the performance of both new and existing life insurance funding approaches.”
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“The IRS, clearly interested in intergenerational private split-dollar, attempted to secure a third victory. After Morrissette and Cahill, it looked like intergenerational split-dollar was trending the way of the dinosaurs. Then in Estate of Marion Levine, the Tax Court not only resurrected intergenerational split-dollar life insurance planning, but it also offered a roadmap for successfully structuring traditional private split-dollar plans as well.”
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