CURRENT ISSUES IN THE AREAS OF ESTATE, TAX
AND PERSONAL AND BUSINESS PLANNING
The information that follows summarizes some of the current issues in the areas of estate, tax and personal and business planning which may be of interest to you. Although this information is accurate and authoritative, it is general in nature and not intended to constitute specific professional advice. For professional advice or more specific information, please contact my office.
The Best Lawyers 2017 “Lawyer Of The Year”. I am proud to announce that I was selected as The Best Lawyers’ 2017 Evansville Trust and Estates “Lawyer of the Year,” after again being selected for inclusion in The Best Lawyers in America © 2017. Only a single attorney in each practice area in each community is honored as the “Lawyer of the Year.” I am one of only three Evansville attorneys listed in the Trust and Estates category of legal practice in the current edition of The Best Lawyers in America.
Another Tax Court Decision Involving Family Entities. In Estate of Holiday TCM 2016-51, the Tax Court held that marketable securities transferred to a family limited partnership were included in the transferor’s gross estate for federal estate tax purposes. In the July 2016 issue of this newsletter, another case was reported, Estate of Purdue, TCM 2015-249, in which the Tax Court rejected an attack by the IRS on a family limited liability company (LLC). The Estate of Purdue case provides a roadmap for implementing a plan involving the transfer of assets to a family entity as a means of making gifts, reducing the value of such gifts as well as the value of the assets transferred at death for both gift tax and estate tax purposes, and otherwise facilitating family planning. In Estate of Holiday, the court found that there was an implied agreement that the transferor retained the right to possession or enjoyment of the transferred property or the right to the income from the transferred property. The court did not find a legitimate and significant non-tax reason for transferring the assets to the partnership. The distinction between the two cases is not that one involved an LLC and the other a family limited partnership; rather, it was the nature of the assets transferred (in Estate of Holiday, it was primarily marketable securities), and the structure of the enterprise as well as the retained interest and control on the part of the transferor, that were decisive. Estate of Purdue also involved the transfer of a portfolio of marketable securities having a significant value, but there were other assets as well, and the various transactions were clean and well documented, the arrangements were in place over a number of years, and the court found that there were legitimate non-tax reasons in addition to the tax reasons for implementing the series of transactions. Readers may want to refer back to the July 2016 issue of this newsletter for additional comments concerning Estate of Purdue.
VA Pension Developments. I spoke recently at the 9th Annual Mid-America Institute on Aging sponsored by the University of Southern Indiana and Southwestern Indiana Regional Council on Aging, Inc. (SWIRCA & More) regarding VA pension developments. There is a lot of confusion and misinformation being disseminated about the VA pension rules and the supplemental benefit available for a home bound veteran or a veteran requiring aid and attendance. Readers may want to refer to my website, which in the “Articles and Links” section includes a copy of the materials that I presented at the institute titled “Veterans Administration Aid and Attendance Pension Developments.” There are numerous proposed changes in the VA pension rules that have been under consideration now for more than a year. These changes would impose a look-back period for transfers of assets and penalties disqualifying applicants for benefits as a result of improper transfers that occurred during the contemplated three year look-back period. On a more positive note, the proposed changes would increase the resource limitation that currently exists so that many more individuals and married couples may be entitled to a VA pension benefit even though their resources are significantly greater in value than the current VA pension rules would allow. The best guess for the effective date of the proposed changes will be 2017, but it is quite possible that implementation of the proposed changes will be delayed, or that the actual changes implemented will be different from those proposed, and it is also possible that the changes will not be implemented at all.
Business Succession (Cont’d). The last few issues of this newsletter have addressed certain concepts relating to business succession. Readers may want to review in particular the June 2016 and the July 2016 issues. In some family business enterprises, particularly those that are larger and more established, it may be an idea to consider adding one or more independent members to the board of directors to serve in addition to the family and other advisors. Adding independent directors can help the board to focus on non-family business issues as well as provide experience and leadership that may not be available within the family. In some larger family companies, an advisory committee might be added to provide counsel to the board of directors. In most family businesses, only family members will be involved in the management, in which event it may be a good idea to have experienced family advisors provide a background of experience that otherwise might not be available. If children are being brought into the business, it is obviously important that they develop experience and skills over time and that they earn the respect and confidence of other employees of the company. Open dialogue with all of the family members involved in the business enterprise is essential so that the next generation is aware of the ancestral generation’s plans for retiring from the business so that the next generation can transition effectively to more active leadership roles, as well as gain the additional training and experience that they will need in order to succeed in the management of the enterprise.
Be Careful With Inherited IRAs. It is very important for a beneficiary of an IRA following the death of the IRA holder to monitor the way that the benefits are paid. If the IRA provider distributes a check, the result will be a completed distribution, which will be fully taxable (although there are some steps that can be taken to circumvent that problem). Instead, if the beneficiary desires to “stretch out” the IRA payments, the beneficiary portion of the IRA benefit should be titled as an “inherited IRA.” There are different ways of reflecting that wording. An inherited IRA is not the same thing as a beneficiary’s own IRA; contributions cannot be made to that IRA. The beneficiary must then begin taking Minimum Required Distributions (RMD) based on the beneficiary’s life expectancy in the year following the IRA holder’s death. This approach can allow a lifetime of tax-deferred growth for the assets retained inside the IRA, although additional distributions can be taken by the beneficiary at any time. The beneficiary can, if he or she chooses, transfer the assets to a different IRA provider which is accomplished by a direct transfer of the assets.
Additional Information. Future issues of this Newsletter will address other issues of current interest. Please contact my office with any questions that you might have.