June Estate Plan Monthly: News, Views, and Strategies –  Business Sale, Investment Co 351, Profits Interest, Drafting for Addiction, and More

(1) What if a client is in some phase of selling their business? How far can that process have progressed before the sales price becomes the transfer tax value? The program discusses the “sale continuum” and the risk that planning may be foreclosed once a transaction progresses too far toward a binding sale. Creating and funding charitable remainder trusts or other transfer strategies before a definitive letter of intent or substantial negotiations are documented is preferable. (2) How can the use of profits interests, particularly waterfall structures, be designed to potentially avoid immediate income recognition? What of Code Section 83 and gift tax consequences? How does a profits interest contrast with transfers to grantor trusts via gift or sale? (3) Section 721/351 “investment company” rules are a trap for the unwary. Although PLR 202622001 concluded that a contribution of assets did not constitute diversification under Treas. Reg. §1.351‑1(c)(1)(i), the risks remain. What corrective strategies, such as special allocations, opting out of Subchapter K, or rescission within the same taxable year, might be used?  (4) For a client with addiction or mental health issues what drafting enhancements to revocable trusts, including co‑trustee arrangements with unanimous action requirements, trust protector removal powers, and non‑adverse party consent provisions to mitigate abuse or behavioral risks. (5) Terminal illness planning should consider POLST/MOLST) and detailed basis planning strategies, including Section 1014 step‑up planning and the limitations imposed by Section 1014(e)’s one‑year rule. Other trust structures may be designed to preserve basis adjustment opportunities.

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Speakers: Martin Shenkman, Esq. and Alan Gassman, Esq.