Planning Potpourri


More Discounts:

How many discounts for lack of control (DLOC) are there? Many appraisals estimate discounts for lack of control based on data from public companies. But a non-controlling minority interest of a privately held company has a greater risk than a non-controlling minority interest in a public company and warrants a greater DLOC. As but one example, the public company has SEC and other governmental oversight, the private company does not.


Estate Expenses:

In most estates it takes some months before a will is admitted to probate, an estate tax identification number obtained and an estate checking account opened. It is common for a family member to advance expenses personally until that time. Rather than handling this in the typical haphazard uncorroborated manner, have the estate (even if signed initially by the executor named in the will waiting to be appointed) sign a loan agreement with the family member acknowledging the estate's liability to reimburse for expenses advanced to the estate. Since the amounts and timing are unknown, this can function akin to a line of credit, like a draw down construction loan. Prepare a schedule of the expenses with attached corroboration and treat each as a request for a further advance on the loan.


Beware of Reciprocal Trusts:

Dad sets up a trust naming Mom and kids as beneficiaries which owns $1M life insurance on Dad. Mom sets up a trust naming Dad and kids as beneficiaries which owns $1M life insurance on Mom. The trusts are substantially the same. The mirror image nature of the trusts could justify unwinding the two trusts as being economically equivalent to no trust having been established. U.S. v Grace, 395 U.S. 316 (1969). This would undermine the intended results. Efforts should be made to differentiate trusts established by spouses: different trustees, different assets (e.g., permanent insurance on husband, term in a different amount on wife), document different and independent planning objectives for each trust, different distribution standards, etc.. If existing trusts might face this issue consider taking corrective action at your annual trust review meeting. Have a trustee resign from one trust, use powers to appoint new trustees, contribute a different asset to one of the trusts, etc.

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