Golf Conversation – Front 9

Summary:

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. 

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