Annual Review


Annual Meeting a Must: Everyone needs to have an annual estate, financial, tax and planning review. Everyone. You go to your internist for a physical once a year, your dentist twice a year, well you need to see your estate planner at least once a year as well. If your investment adviser meets annually to review your investment performance, you're on the right path but you still have more to do. Even if your wealth manager has an attorney and CPA on staff, you must still meet your advisers as well. You want the independence, and you need to maintain the relationships and contacts so if an emergency arises your advisers are familiar with your circumstances. There are always loose ends. New issues arise. An annual review will catch many of these and solve problems before they become serious. A well orchestrated annual review will solidify your understanding of your overall plan. It will make the complexity far more manageable. The first comprehensive meeting will be a bit complicated, but future meetings will become progressively more efficient and beneficial. While the steps differ significantly depending on your personal situation, here's some of what could be accomplished:

Coordinate Advisers: You need to make sure all the components of your planning are coordinated. This requires many disciplines and professionals.  Depending on your circumstances any or all of the following advisers may be involved: accountant, investment manager, life insurance agent, property and casualty insurance agent, corporate attorney, estate planning attorney, pension consultant, and so on. While an annual family board meeting with key family and advisers is the optimal approach, in many cases the cost or difficulty of coordinating it are too great. It might suffice for some of your professionals to participate for a short period by conference call. Example: Meet with your estate planner and investment adviser and call in to your accountant, and insurance consultants. This latter approach is easy to coordinate and modest in cost, but significant in benefit. By assuring each adviser has communicated with your other key advisers your planning will be coordinated and each adviser will have an opportunity to request documents they need for their files. Often, creative ideas are presented from the interaction of your various advisers that would not have otherwise occurred. Example: instead of using 2 year rolling GRATs for estate tax minimization as proposed by your wealth manager, you opt for the gift of LLC interests to a longer term GRAT to preserve asset protection issues your estate planner was aware of.

Crummey Powers: When gifts are made to a trust, a notice must be signed by the beneficiaries acknowledging that they were afforded the opportunity to demand the gift money from the trust. These notices are essential so that gifts to trusts will qualify for the annual gift tax exclusion $12,000/donee. Gifts to trusts can be reviewed and all Crummey powers prepared and signed at your annual meeting. If all signers aren't present, those that are can sign, and someone can be designated to obtain the remaining signatures.

Minutes: Every family and closely held business entity can have a formal meeting as part of your family annual meeting. Minutes can be prepared and signed for each corporation, even LLCs. As part of signing minutes other business entity matters can be reviewed to be certain that they are addressed. Example: Your family LLC leases real estate to your family manufacturing business. Verify that the lease is still valid, if not renew it. Confirm that the rent is arm's length, or designate someone to obtain a report of an independent broker as to the fair rent. Annual minutes and other formalities support the validity of your entities in the event of an IRS or creditor challenge. If you have both a corporate and estate planning attorney, coordinate who is responsible for which actions. You can coordinate your business annual meeting to proceed or follow your personal/family annual meeting to make the process as efficient as possible.

Gifts: As plans become more complex, it becomes more important to track all gifts to your various trusts, 529 Plans, etc. to determine whether you've exceeded the $12,000/donee annual gift tax exclusion. An annual meeting is an ideal time to confirm current year gifts, plan next year's gifts, and decide with your advisers whether a gift tax return should be filed.

Investments: Review investment policy statements for each entity and investor. If you have a family FLP it should have a separate investment policy statement documenting its investment goals. Reviewing these goals also is an ideal time to call your accountant to be certain that your wealth manager has the correct information and assumptions as to the tax status of each entity, trust and family member for whom they are investing. Review the allocation of assets as between the various entities. Example: Assets more likely to appreciate might best be held in a by pass trust, and assets generating income in a marital or QTIP trust. However, if all the various trusts consolidate assets into a single LLC for investment efficiency the investment planning for that LLC should address the needs of the underlying trusts.

Notes and Loans: Be sure any intra-family loans are supported by written loan agreements and adhere to all formalities of repayment. If there are covenants, the lender should confirm that they are being met.

Retirement Plans: If your plan received an IRS determination letter confirming tax exemption, this should serve to insulate  your plan in the event of bankruptcy. At your annual meeting review that you have a copy of the plan's determination letter. Review and coordinate beneficiary designations and be certain that they are current.

Life Insurance Trusts (ILIT): Verify that the ILIT bank account is in the correct name and tax identification number, be certain that the insurance policies intended to be held by the trust are in fact held by the trust, obtain an in force illustration of the policy and have the insurance agent review it. Verify the economic status of the insurance company.

Property and Casualty Coverage (P&C): To often P&C is ignored in planning. If your estate planner and accountant restructured assets as a result of a gift program, formation of a new trust, or LLC, P&C coverage must be reviewed to be certain that the correct owners for each asset are listed, that the risks are properly addressed, and so on. Trustees may need to be named insured. In some cases coverage that is no longer needed can be dropped for significant savings. Obtain a summary of all coverage in advance of the meeting.

Trust Administration: In the first year you become a trustee you should review the terms of the trust with an estate planner and list the responsibilities you have and  key steps you need to take. At least annually, thereafter you should review the operations of the trust to be certain you are complying with the terms of the trust. Crummey powers and investment issues are noted above, but there are other matters as well. Call your accountant to be certain that the correct positions are being taken on the trust's income tax return. Review distribution matters with your investment adviser. Discuss communications with trust beneficiaries. A report to beneficiaries can be developed at your annual meeting. If a particular trust is intended to be taxed as a grantor trust (you as the grantor pay income tax) the mechanisms used to create grantor trust status should be reviewed and perhaps used. Example: If  you are in part relying on the fact that the trust can use income to pay for insurance on your life, have the trust buy a small policy to implement that power.

Buy-Sell Agreements: A common technique for many closely held businesses is to set an agreed or stated value that will govern any buyouts of the business. Most of these have sunsets so that if the figures are not revised periodically the buy-out defaults to some type of formula instead. An annual meeting is an excellent opportunity to update and sign a new Certificate of Stated Value. Call the business insurance agent to verify the performance and adequacy of the insurance coverage for the buy out.

Conclusion: Many steps can be taken at an annual meeting depending on your personal planning situation. Failing to have a regular meeting and following up on all the administrative details will almost assure the failure of your planning.

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