■ Deteriorating Competency: Standard planning is set up and fully fund a revocable trust to manage assets. Consider also setting up a small balance checking account, with an attached credit/debit card, in your own name and outside the trust. If checks are inappropriately written, or the card is lost or stolen, trust assets can't be reached. This can preserve independence while protecting almost all assets.
■ Annual Meetings versus Consents: Closely held businesses commonly sign unanimous consents in lieu of formal meetings. Consider instead an in-person annual meeting and signed minutes as taxing authorities can be hyper-sensitive about formalities for businesses owned by related parties. A meeting may be viewed as more formal even though annual written consents clearly indicate action by the various entities and are signed by their shareholders/directors.
■ Disability Income Replacement Insurance versus Disability Buyout Insurance: Many lay people are aware of the latter and some--as well as some lawyers-- may confuse it with the former. Disability income insurance replaces your earnings if lost due to disability. Disability buyout insurance can be used to fund the repurchase of your equity in a closely held business if you’re disabled. Many closely held businesses purchase life insurance to fund death buyouts, but far fewer address disability insurance to fund a buyout if an equity owner is disabled. Proper planning requires addressing both needs. Thanks Stuart L. Pachman, Esq. of Brach Eichler, Roseland, NJ.
■ Gift tax returns don’t get enough respect. Evaluate whether you should file to elect out of 2009 GST automatic allocation rules. Also, consider filing every year and reporting and disclosing Crummey (annual demand notices). Few CPAs encourage this but it is a great way to run the statute of limitations on Crummey powers. Although nearly ubiquitous in trust planning (most insurance trusts have them) their common usage should not mask the complexity and audit risk they create. To meet the adequate disclosure rules the trust will have to be disclosed to the IRS, crummy powers attached, and perhaps more. Check with your CPA.■ Lost Wallet. A prior Potpourri snippet suggested that if your wallet is lost or stolen you should report it to the IRS. The reader called the appropriate IRS office and they required a form to be filled out for someone who is a victim of identity theft. For the next 3 years your returns are flagged and your 1040 will be delayed as a human has to look at your taxes rather than a computer. The reader felt this was a bit much to endure. As with all planning, you have to weigh the pros and cons.
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