Planning Potpourri

■ Copy Cat Danger: Photocopy machine lease expiring? How can you
be sure that electronic images of the confidential papers recently copied are
erased from the copier drives? Have the copier lease company confirm their
policies for handling the drives in writing and have your IT consultant confirm
that is adequate. Better approach – buy the drives from the company. The cost
is likely nominal. Then have your IT consultant destroy or erase them so you
have control over the process.

■ What’s Up Doc? Lawsuits, the possibility of a million dollar
estate tax exemption, your son-in-law, all have you up worrying at night? Do
you count defense attorneys leaping over a fence instead of sheep when trying
to fall asleep at night? Say you have an interest in the real estate management
company worth only $5 million in this market, but you’re confident in 10 years
it will be at $25 million. If you get hit by a bus Uncle Sam will walk with
nearly $12.5 million to pay towards the cash for clunkers debt. Say your mom
sets up a trust for your benefit and that is a grantor trust to you (you pay
tax on trust income, not mom, even though she set it up). In tax jargon the
trust is a beneficiary (you) defective (i.e., grantor) irrevocable trust, or a “BDIT.”
If you get hit by a bus or sued, the entire value is at risk. If you sell the
business to the BDIT for a note, no gain will be recognized for income tax
purposes. In 10 years the $20 million of appreciation will be outside the gift,
estate and GST tax systems and protected from claimants. Since you did not set
up the trust, you can be a beneficiary of the trust as well. For physicians
worried about malpractice claims, a BDIT can be the ideal approach to
protecting interests in say the real estate housing the practice, an equipment
leasing partnership and other assets ripe for sale to the trust.  Thanks to Robert G. Alexander, JD, LLM, Milwaukee, Wisconsin.

■ Revocable Trusts and Personal
Property. So you’ve
set up a revocable living trust to manage your assets and provide a structure
to protect you as your Parkinson’s disease or other health issues progresses,
or to avoid probate. You should also transfer ownership of personal property
(antiques, art, jewelry, etc.) to the trust so that these valuable assets will
also be protected. This transfer is often accomplished using a “bill of sale” to
transfer personal property to the trustee of the revocable trust. Compare the
property in the proposed bill of sale to the listed or scheduled property on
your homeowner’s insurance to verify that the ownership of all property is
transferred, and to assure that any valuable property transferred is also scheduled.
Be sure to notify your agent and insurance company of the re-titling to the
trust.

■S Corporations and
Payroll Tax.
We’ve been warning you that this is getting hotter for a while. Another case
that is a sign of things to come. The IRS challenged an S corporation that paid
its executive $24,000/year in salary and treated all other distributions as
dividends not subject to payroll taxes. Code Section 3111 imposes Social Security
taxes on wages paid to employees. No research was done to corroborate what a
fair wage would be and the executive’s living expenses exceeded the
$2,000/month salary. If you’ve been tax-naughty call your CPA and proactively
address it before the IRS assesses you the penalties the taxpayer got hit with
in this case.Watson v. U.S.,
(DC IA 05/27/2010) 105 AFTR 2d ¶ 2010–908; Rev Rul 74-44, 1974-1
CB 287.