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.