Golf Conversation – Front 9


So you're spending a lot of time on the golf course? What you really want are some great fairway conversation tips. You want something that will impress your foursome as you walk each of the 18 holes. Try the following to excite your buddies.

Hole #1

As soon as you finish singing "Auld Lang Syne" convert your IRA to a Roth. The income limits that prevent you from having the conversion disappear in 2010.  The IRA pundits will tell you conversion will prove a winner for most folks that can pay the tax due on conversion with non-IRA funds. Considering that income tax rates will rise in the future, it's a slam dunk.  But just like with the ShamWow! commercial, there may be a "Special Double Offer!"  If your state protects Roth IRAs from creditors conversion could give you an asset protection benefit -- Wow! Send the IRS cash that is exposed to creditors to pay the tax due (e.g., the cash outside your IRA you'll use to pay the IRS for taxes due on the conversion). Even the most tenacious plaintiff's attorney isn't likely to chase the IRS if they can avoid it. Meanwhile you'll enhance the real value of what is in your IRA by transmuting pre-tax dollars into whole after tax dollars. 


New Jersey, as an example, provides in NJSA 25:2-1 25:2-1 the following as to IRAs: 


Conveyances of personal property in trust for use of persons making them void as to creditors; exemptions, definition 25:2-1.  Conveyances of personal property in trust for use of persons making them void as to creditors.  a.  Except as provided in subsection b. of this section, every deed of gift and every conveyance, transfer and assignment of goods, chattels or things in action, made in trust for the use of the person making the same, shall be void as against creditors.


b. Notwithstanding the provisions of any other law to the contrary, any property held in a qualifying trust and any distributions from a qualifying trust, regardless of the distribution plan elected for the qualifying trust, shall be exempt from all claims of creditors and shall be excluded from an estate in bankruptcy, except that:


(1) no exemption shall be allowed for any preferences or fraudulent conveyances made in violation of the "Uniform Fraudulent Transfer Act," R.S.25:2-20 et seq., or any other State or federal law;


(2) no qualifying trust shall be exempt from the claims under any order for child support or spousal support or of an alternate payee under a qualified domestic relations order.  However, the interest of any alternate payee under a qualified domestic relations order is exempt from all claims of any creditor of the alternate payee. As used in this paragraph, the terms "alternate payee" and "qualified domestic relations order" have the meanings ascribed to them in section 414(p) of the federal Internal Revenue Code of 1986 (26 U.S.C. s.414(p)); and


(3) no qualifying trust shall be exempt from any punitive damages awarded in a civil action arising from manslaughter or murder.


For purposes of this section, a "qualifying trust" means a trust created or qualified and maintained pursuant to federal law, including, but not limited to, section 401, 403, 408, 408A, 409, 529 or 530 of the federal Internal Revenue Code of 1986 (26 U.S.C. s.401, 403, 408, 408A, 409, 529 or 530).


Amended 1993, c.177; 2001, c.153.


Hole #2

Think lease options. In recent years, when every property owner assumed values were increasing at 20% a year (more if the property was in hot spots like Florida or Las Vegas) so why give a lease option to a tenant. Now, if you're negotiating a lease, try to get a credit for rent towards a future purchase. In a soft market more landlords might consent to crediting say 20% of rent to a future purchase just to get a property leased. You might even be able to negotiate a lock-in value for the purchase price, perhaps at current value if you buy in a year, or say 105% of current value if you buy after 1 year but by the second anniversary, etc. For a financially strapped tenant a lease option is a great idea. This is a buyer/renter's market so use these approaches to get a great deal for down the road when you will be more financially able to consummate a purchase.


Hole #3

Anyone who recently lost a spouse/partner should not make any significant decisions for say 3-6 months unless there is a real time deadline. You need time to adapt and gain perspective. The vultures circle pretty quickly looking to sell everything from high commissioned annuities to your IRA to the Brooklyn Bridge. But it can be tough to tell people, especially your brother-in-law "no". So don't say no, tell them: "Call my lawyer he/she is handling those matters." If the pitchman actually calls your lawyer they're probably for real. Few if any will. In 15 years of offering to field such calls for free we're still waiting for the first call!

Hole #4

The State of New York requires LLC's, upon formation or authorization to do business in NY, to be published in local newspapers. Then a Certificate of Publication has to be filed with the State of NY. Section 206(a) of New York LLC Law. Many folks still ignore these requirements. If within 120 days after formation, proof of such publication has not been filed with the department of state, "the authority of such limited liability company to carry on, conduct or transact any business in this state shall be suspended, effective as of the expiration of such 120 day period." Whoa, that's serious.

Hole #5

Do your estate planning documents include incentive trusts? Lots of folks thought these were the cat's meow to motivate Junior to be productive and not become a trust fund baby. Some incentive trusts, for example, grant a beneficiary a distribution dollar for dollar to that beneficiary's earned income. Earn a dollar, get rewarded with a dollar. Smarter folks were aware that Forrest Gump trust planning, "Simple Is As Simple Does," never was the right approach. A common problem with incentive trusts is that if Junior became a porno king he'd get a big incentive trust distribution, but if he joined the Peace Corp. to save the world, he'd get a pittance. Well, in case you hadn't noticed we're in a recession. Junior may have been industrious but lost his job due to no fault of his own. So incentive trust fund kids are being hung out to try. Instead of their trusts helping them through the lean years, they're being told to beg elsewhere. Not a great result. Does it make any sense to limit distributions if the beneficiary lost her job because her employer declared bankruptcy? (What if she quit her job, not because she was retreating from the job, but because she was advancing her career in another direction?) The impact of the recession on a poorly drafted incentive trust could be disastrous to the intended beneficiary. If you set up an incentive trust, review it now with your advisers to see what can be done to infuse a bit of compassion and rationality into the distribution provisions.  Smarter folks, instead of memorializing incentive provisions in legal documents, explained in nonbinding personal letters how such wishes should be considered. These personal explanations should be reconsidered in light of current circumstances.

Hole #6 If you've used private financing (i.e., not bank financing, etc.) to fund premiums on a life insurance policies, there is one requirement that must be met that some practitioners have overlooked. Both parties to the insurance financing transaction (e.g., an insurance trust and perhaps yourself, your spouse or another family trust that is loaning funds) must add a signed statement with both of their income tax returns each time a loan is made. That often means every year since each payment towards a premium is treated as an additional loan. Section 1.7872-15(d) spells out the requirements and the form of the statement to be filed. Whether or not you thought the loan is covered by the split-dollar regulations the regulation is so broad that it probably is.  In fact, if you did a sale to a grantor trust (often called an IDIT or IDIGIT) for a note and that trust also purchased life insurance, it may fall under the spell of the split-dollar regulations. The positive to that is that you can guarantee loan treatment by following the procedure noted above. This little gem was recently overhead as small-talk by Richard Harris, BPN Montaigne LLC, entertaining other golfers on the green.

Hole #7

Compensation should be structured in a manner that motivates what is good for the business or professional practice. Too often compensation, as the result of interpersonal dynamics and firm politics, moves away from what is really in everyone's best interest. Example: A physician group compensates physician/partners based on tenure. The result likely encourages the partners to compete for time off, less call, and other perquisites. Often it is better for the practice and the partners to have a productivity based compensation structure that motivates everyone to contribute to practice profitability. Thanks to Gene Balliett, Balliett Financial Services, Inc., Winter Park, Florida.

Hole #8

Consider empowering beneficiaries. Everyone's heard stories of wayward trustees. But few people affirmatively empower beneficiaries to protect themselves. While the beneficiary's role has traditionally been viewed as passive, this is not required or necessarily advisable. The extent to which beneficiaries have a right to be informed of the financial transactions and other aspects of a trust will depend on both the trusts instrument and local law. While many grantors prefer to keep beneficiaries uninformed, that has two negative consequences. The beneficiaries lose out on the opportunity to enhance their financial acumen under the guidance of the trustee, and they have less or even no ability to monitor the trustee's performance and conduct. Beneficiaries, if reasonably empowered, can serve as a check and balance on the trustees.  Rather than relying on state law, and the governing law of a trust which can be changed in many instances, consider embodying in the trust agreement specific powers for the beneficiaries. For example, the trust could expressly state that the beneficiaries should be given a copy of the trust agreement, perhaps the investment policy statement, and possibly even periodic financial information. When setting up a trust, "She says, hey beneficiary, take a walk on the wild side….doo doo…." Trusts can get more wild and grant beneficiaries the power to even remove or replace a Trustee.

Hole #9

Horace Greeley famously advised "Go West, young man." But today he would have advised "Go South, retired person." So you "moved" south to Florida to escape Northern taxes perhaps more than Northern climes. You need to revise your will and other estate planning documents to reflect Florida law. Some of the changes to make include: ◙ An executor must be a Florida resident or have a certain degree of relationship to the testator. ◙ Tangible personal property (e.g., jewelry) can be disposed of pursuant to a separate writing signed by the testator and dated. ◙ A spendthrift clause is only valid if it restrains both voluntary and involuntary transfers. ◙ The executor can only sell real estate without a court order if the will expressly specifically grants such power. ◙ In terrorem clauses (you sue you lose your bequest) are not valid under Florida law. ◙ A Florida will executed in a different state is valid if executed in accordance with the laws of the state where executed. Thanks to Benjamin Shenkman, Esq. of Gonzalez & Shenkman, P.L., Wellington, Florida.


OK Paul, you'll have to wait until next month for nine more tidbits to get you through the back 9

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