September & October 2012

UGLIEST 20 I 2 GIFT PLAN
Summary: “Ugliest 2012 Gift Plan.” Just like RipIey’s days barely makes vinegar. your house into an LLC and
Believe it or Not! where “Truth is stranger than fiction,” I Have Documents Notarized continuing to live there with-
this plan was real. Fortunately the taxpayer appears to in Different States: You sign out paying rcnt will sink the
have been saved from disaster, but their “plan” is a great documents in State A, but your plan faster than you can say
checklist of everything you 1 want to do iii your 2012 lawyer has a notary in State B “Supercalifragilisticexpialido
gift plan. Space limitations have forced us to leave off notarize key transfer docu- cious.” Reichardt v. Commr.
other winning facts! It’s best to plan, work with a coordi- ments. Hmmm, absent a little Well, a residence used by
nated team of experienced planners: attorney, CPA, “Beam me up, Scotty” trans- your family member free of
wealth manager, etc. to minimize the likelihood of pi’ob- porter action, that just isn’t rent might differ from the
lems. 2012 planning has complex nuances. possible. The IRS or a creditor facts in the Reichardt case
I Form a New LLC: This client had a limited liability might challenge the validity of since it’s not you, but free
company (LLC) that had been around for years, yet the the document and the entire family use of personal prop-
advisers set up a brand new LLC to use for the gifts. If transaction. Estate of Senda. erty will torpedo the LLC too.
you don’t have an LLC (or other suitable entity) and us- I Put Personal Use Assets in I Have Lots of Back and
ing an entity makes sense in your transaction, then set- the LLC: If an LLC is sup- Forth Unsubstantiated Loans:
ting up a new one is the only alternative. Setting up a new posed to be respected as a le- Undocumented loans between
entity instead of using an existing entity will only gitimate business and invest- the LLC and its members and
heighten tax and asset protection risks. While the old and ment entity, it should not own other family entities might be
cold entity might have an established business purpose, personal use assets. Putting iC‘mm’miec1 cm page 3;
will the newly formed entity? Elsie J. Church v. US. Gifts
of non-controlling interests in LLCs can qualify for
valuation discounts (i.e., the value of a 20% interest in
the LLC is less than 20% of the value of the underlying H M G l
assets). )While 20% of an LLC is worth something less
than 20% of say the securities portfolio the LLC owns,
securities are worth their actual value. The LLC interest S””‘”““”«”‘_ E”°‘”-“””° ‘S f”“””g “P the p°te“””‘l.f°” *1 Io93 30″“
may be discounted because a 20% owner cannot comm] about i.l’l{-“ll’I’l-[]ol”lill’lC(! ot mak- life expectancy.’ What is
the vote, distributions, etc. Using a long existing LLC, in ‘”3 _b’t3 gm” ‘f‘ 20} 2′ but ‘ht? realty” ht5’3955i1t’.” to flsftlth h‘
the View of some advisers, may he more Seen“; If you critical question for many’, is nancial resources until the
have an asset like an operating business or rental pmp_ how much can you realistically secon_tl of you dies (if you ai’e
erty you certainly want it held in its own LLC to protect aftortl to gift without _!l.’0[l2ll'(l- married or h_a-ve a partner)?
your other assets from a potential lawsuit that the bush iaing your own finaiieial seeu- The prerequisite for those
mass or rental pmperty might create But if you have an rity? What sosnie advisers aye wealthy enough to plan, but
existing investment LLC, setting up a duplicative new proposing as conservative not_so wealthy that what re-
One will only increase the costs, tax risks, and com])lexity_ may preclutle planning. ‘Many mains will assuredly-cover all
I Transfer assets into the LLC 2 Davs before Making clients are being misatlvisetl in Lutsure coslts, are pro_iii::tions.
W Say you want to put assets into an LLC and then 1′”: name oi “ii, Ilium‘-‘V ome P anners mg t mg-
gift non-controlling LLC interests to trusts. Those non- v,“$i‘;°’;””t””’]] “}’l_?”’*”h’ ghst that .”oh_ “huh the hum‘
controlling interests should be valued at a discount from El are a o your per- hers” assuming “‘3″.” 1°“
the underlying asset value (see above). However, if you 50”] goals? Yo“ cannot make g”°“’”‘ rates to be
plop assets into the just prior to the the 3. reasonable decision ‘Without “con§e[‘”ati”c-” But is
will say that the gift was really of the underlying assets ‘Ming 3“ the Cards 011 the ta- really the right answer? Using
and that the LLC aacnvelopcvv holding those gifts should ble. ls assuring maximum re- a consistent low investment
he dismgm.ded_ Shepherd ,._ Chmn poof! Your hoped for sources for what hopefully will return may even understate
discount disappears. Just like a fine wine, assets must be ht’-‘ “13”.” remaining 3″”~’3″5 9f 3’0″” ltehfhrmtthct if titer“ is 3
a],hrhhriatch.. aged to develop the discount hhuqueh Two retirement key? What are your market drop in early years of
ages and health status? What rfomrmwd onimge 3iVOLUME 7’. ISSUE 5 PRACTICAL PLANNER PAGE2
UGLlEST 20 I 2 GIFT PLAN
(‘Confii’:iiecJ’_fi’onz page H out a formal appraisal of the LLC business formality of a bank account.
rech.ar.acteri:r.ed as equity, compensa- interests is certainly inadvisable. how can the LLC pay its own bills?
tion, gift transfers, etc. depending on While in the recent Wandry case the How can it possibly look real?
the circumstances. Miller v. Comr. An appraisal was completed after the I Don”t Use a Defined Value Clause:
excessive amount of undocumented gift the transfer documents clearly In the wake of the Wandry case,
loans might jeopardize the LLC. limited the dollar amount specified some advisers are suggesting a more
I Leave the Donor Cash Poor: If and there was a commitment to ob- frequent use of a defined value clause
you-‘re left with inadequate assets after tain a qualified appraisal. Winging it that establishes a gift of an intended
the transfers to the LLC and trust to just isn’t sensible and gives no pro-
support yourself, the transfers could tection in the event of an audit.
be deemed a fraudulent conveyance I Don’t Sign Appropriate Post Gift 2012 Estate pialn.g1;l3_x
indicating that the LLC is not valid as Documentation: If you gift away
you would have to be able to retrieve 80% of an LLC, there should be a ‘ new
cash from it to live. In our worst case post-gift operating agreement signed 200 page book by Shenliman,
scenario the taxpayer was left with a by all the owners and confirming the B1111111111111111111111 1111111111111
mere $3,500 in cash in his name. That ownership percentages. In this worst
fact alone would likely torpedo the gift case scenario nothing was done for available as an e-boak on
plan. Estate of Harper; Estate of more than a year after the assign-
Reichardt; Estate of Schauerhamer. ments were executed. No current www’amamn’com fm $3935‘
I Don”t Get an Appraisal: Four operating agreement.
months after the purported transac- I Be Sure the Donor Didn’t Under- dollar value of LLC int.erests rather
tion was completed the lawyer wrote stand the Transaction: The IRS has than a percentage of LLC interests.
the clients suggesting they obtain an taken a liking to asking taxpayers to When gifts are made of hard to value
appraisal of the LLC interests given. explain the transactions they were assets, like LLC interests that may be
Consummating a S5 million gift with- involved in. If the taxpayer had no discounted, especially when the LLC
clue as to what deal was done, how or owns minority interests in other enti-
D111111111111 1° R1111d11_11_ e1_a11e11111 e111111111111111111111e why, you may as well 11]ust start pray- ties that hold hard to “l-‘.‘rlill1(’.’ real ee-
reeeeeeee, eeeurete iefeeeefiee hewevee eeete mg that the taxpayer is not ques- tate assets. and when you re pushing
5pacelimjtafion51 and other factor51 there is no tioned the OI‘ the ]}i2lfl Wi” ll[) to the “DC Of ffllll‘
assurance thatevery item can be relied upon. Facts assu redly flop. gift exemption, some type of safety
and nirnuniéiannes. including but n°iiin1iied_ i°_ I Use Effective Dates and No Real valve, like a Wandry defined value
d’fi°’°”°°S ‘”.Siai.°ia“’f” may iiiakethe ai’i’i’°at’°” °fa Execution Date: Proper execution of clause should at a minimum be eon-
general planning ideain Practical Planner, 1 . . 1 1.
ieeeereeeete in eeer eireemeteeeee This newsletter documents to assure their EffE(‘:tl- e- sidered.
does not provide estate planning, tax or other legal “C55 i5 imlmrtant Pmlier dating of I
advice. lfsuch services are required you should seek documents to assure that the se- Balance Sheet: If you want to con-
Prnfessinnni guidance The Author. Pubiisnnrand quence of events occurred as appro- vince the IRS that the LLC is, in the
NAEEC d° ”°t. hai’°i’E.’i”i’ti’ f°’.“”i’ ‘°55 ‘ii ‘iama9° priate, and that there was sufficient words of Dr. Phil, the “real deal” you
resulting from information contained herein. This . 1 . 1 1 1 1 1. 1
i”.::f.’:::::::::s:.:.’:* :1.‘:f‘.’.!i‘.:‘.f.‘.°::I.‘i.“.?.’..::.’.‘f.“*:.:$’::L“:t.’;.“
NYCRR 1200. ‘ ‘E -‘ ‘ ‘ -‘ -‘ -‘= ‘ ~’ ‘ -‘s
frames might be) is vital. If your at- lutely don’t want to show your pro-
Rei-‘iew-‘ Andrew Wnife, CPA. 58¢ torney prepares key documents rata share of underlying LLC assets
ms circular 230 Lege111d1 No 11111111111311.1111 11111111111e11 signed listing an effectne date, but on youi balance sheet. That is tanta-
herein was intended erweeen to be “See and cannot not a date of your actual signing, you mount to corroborating to the IRS
be uSed1 for the purpose ofauoiding U131 fede,a.1 State can’t demonstrate what time frames that there should be no discounts
orlocal tax penalfies_ Pracfical Planner was notwritten existed i)(‘.’t‘l’lr'(‘.’Ell Steps, DI‘ the Order in because the gift W.’:lS Di’ lllld(’.’l‘i]i’ing
in SUPPOFWIB Pnnnniinn. manning. Or 1’Bno1’nmBnda- which steps actually occurred. assets, not discountable LLC mem-
ii°” °f 3″?’ iaii Piaiining ‘W993’ °i’ a°ii°”- I Pav Personal Expenses from the bership interests.
Peeeehe1_enee1_m1eon1 Preeecel Planner is published £:1Pay-‘ing personal expenses from I No Documentation of Capacit.v:
bi_mont[-M by Law Made Easy pl-3351 LLo1 p101 Box 21 ftlmliji’ Entity‘ IS (‘.olltl‘fll’11_-‘ to l'(‘.’S[)(‘.'(‘It- 5(l% Of those (}‘l'(‘.’l‘ 35 i’l.’il”C some Cog-
13001 Tenafiy1 New Jersey O?6?0_ Informafion; news tilt} Blltitf ft)!‘ till and legal [)lll’- fliti‘l'(‘.’ il’l’I]}.‘r1il’l‘l’I(‘.’llt. If ‘1’oll1l'(! El dol‘lol’
[email protected]. orcall 888-LAW-EASY. poses. If past practices were lax, in her late 8os counsel should at least
11111111119111 S111111111111_@21112 111111 Made E1111 111e1111 clean t1hem up before any transfers. corroborate that you have adequ ate
LLo1 A” 11ge1e11e1e111ed_ N11 11111 ofthis 1111111111a11.1111 I Don t Qpen an LLC Bank Ac- capacity to sign the gift documents.
may be reproduced, stored, u” transmitted without jm” “ti w’tho”t the fundamental PPVOLUME 7. ISSUE 5 pgacricat PLANNER PAGE3
CHECKLlST: How MUCH CAN You GIFT?

r(.‘ommaadfi-om page M gifts, deflecting any fraudulent con- tions ignoring the nature of the

y’our projections. It might also so veyance claims by creditors (e.g., you donee trusts is not conservative but
understate the anticipated return gave away so much as to render dangerous!

that it will preclude you from really yourself insolvent), rebutting an IRS v’ The core of the above decision
achieving _vour gift and other goals. challenge that you had to have an must he a budget urn] fir.-aueiu] plan
More sophisticated simulation mod- understanding with the donee’s to that assures that bath of you retain
els may better help you gain a level give your money back since you resources you need for _r-our future,
of comfort, and delineate a more ro- failed to retain sufficient assets, all from whatever sources, Intelligent
bust gift plan. while assuring your financial secu- financial planning must ie-ad the as.
V‘ wh“t°“”‘ 1“’°-tcctions 3”’ done’ me 1‘it}”- What tiltllrfltich ma)’ tttihit’-‘W 21″ tate plan. You cannot gift completely
expectancy has been increasing, fu- the“? 30313? Perhfills mfldel 3 result away assets that the financial plan
ture inflation rates are difficult to that gt“-‘S 3’0“ *1″ 390/3 l31‘ob3bilit.Vot shows are essential for your financial
predict, and possible health issues tichit”-‘ting Fo”? financial goti]S- T118″ needs. You can gift away assets to
and the state of government and in- gift sufficient funds into :1 self settled your children or trusts for them that
su rance programs to offset health trust (dflmestic 35-Sttt lmttt’-‘t5tioFl trust the financial plan demonstrates you
care costs are a significant uncer- 01’ DAPT) to aSSlll’t! :1 much higher will never need. Some amount of
tainty. And since you’ve lived l”‘ot”1h“tt.‘.” Utflchtt-“’t”ii.”0“1’tt”flU’ wealth, perhaps unlikely to be
through the Great Recession invest- ‘Still 303151 The 010055 0″ol’th=1tC=ll1 needed by you, but which might be
ment risk must be a worry. But using he gl°’I!fl to 21 (l,-‘llastic trust tl1=lt_.”oll needed b_v you, could be gifted in a
worst case scenario projections won’t are not 21 bencfiCifll’_” ot- Milking llfl- manner that permits you access to it
protect you tiny better than going on reasonably “conservative” projec- ssiust in case» you should need it_ pp
a diet and using “very low” calorie

estimates for the food you eat. It

would be a fun diet but not ver_v pro- REC ENT D EVE Lo p M ENT5

ductive.

1:‘ Some planners suggest running
illustrations out to age 100 years; I Hug Your Appraiser: The Court denied a real estate developer’s charitable
others suggest that if there is longev- contribution deduction for S18.5M of real estate donated to a charitable re-

ity in your family, run it out to 120. mainder unitrust (CRUT) because he did his own appraisals and failed to sat-
One well known planner suggests: isfy the substantiation requirements. Mohamed, TC Memo 2012-152. Lot’s of
“…run to some age that you think is folks making donations or gifts get cheap on the appraisals. This case is a pain-
well beyond the point you will actu- ful lesson that a good appraisal may well prove money well spent.

ally live to, and show a high inflation I Madoff: Losing money to Madoff was devastating, but having an estate tax
rate and a low rate of return.” That assessed on assets that really didn’t exist is beyond reason. A recent NJ tax-
may eliminate any incentive to make payer victory, by David Edelblum, Esq., protected taxpayer’s rights to avoid
gifts when you can and should. lm- this painful result. The decision validates that tax laws, to be given efficac_v,
portantl_v it ignores the tremendous must reflect common sense and be equitable. The court recognized that the
flexibility that trust drafting can pro- estate tax can only be imposed ifthere is wealth transferred based on economic
vide. You might make a gift to a self reality, and not based on fictitious brokerage statements that perpetuated the
settled trust of which you, your underlying Ponzi scheme. Most importantly, the court looked to Federal tax
spouse, and all descendants are bene- principles and stated that events that come to light after date of death but that
ficiaries. This way you can receive impact on the true value at death must be taken into account. Thanks to David
distributions if needed. Your spouse Edelblum, Esq. Feingold & Edelblum, LLC, Hackensack, NJ.

or partner might fund another non- nReimburse Taxes: Grantor trusts are popular especially for 2012 gifts. But if
reciprocal trust that names you and a grantor trust sells an asset at a large gain, you have to bear the tax. That ac-
descendants as beneficiaries. One of tually is the whole point, because that reduces your estate for estate tax pur-
the assets you might gift to the trust poses and creditor protection. The trustee can have the discretion to reimburse
might be a close business from which you for the taxes, and that discretion won’t cause the trust to be taxed in your
you will continue to draw a salary. estate if state law doesn’t result in that discretion making trust assets reachable
EK’tt=55i“’-‘].’ Wtlfit’-‘I”’titi“= fiflilnciilt by your creditors. Revenue Ruling 2004-64. NJ might be amending its law to
projections will be damaging to mak- permit reimbursement. Before running to create a trust in NJ, remember that
iug gifts, perhaps a more gephigti- Alaska, Delaware, Nevada and South Dakota lead the way in trust friendly
catcd approach can achieve more jurisdictions and there are better options to tax reimbursement. Instead have
objectives: facilitate maximizing the trust loan you funds to cover taxes. See NY EPTL 7-3.1(d). PPPRACTICAL PLANNER

First-Class Mail
NEWSLETTER USPostagcPaid
MARTIN M.SHENKMAN, PC H k R N]
PO Box I300, Tenafly, N] 07670 3‘ §”“5″°
Email: [email protected] Perm” No 1121
RETURN SERVICE REQUESTED

More Info:
°Publications: 2012 Estate Planning: Tax

Planning Steps to Take Now, new 200 page

book by Shenkman, Blattmachr and Keebler

available as an e-book on

www.amazon.com for $39.95. Written for

both the sophisticated client and profes-

sional adviser. Practical 2012 planning ad-

vice you need now.

°Seminars: 2012 International Symposium

“Multiple Sclerosis – Building Research Ac-

cess lnfrastructure Network,” Oct 4-6,

2012, Hartford CT. Call (860) 714-2947;

email [email protected] or visit

www.mandellmscenter.com.

Creative solution: that coordinate allyourplanning goals:
-Estate – To-x – Business – Persona} 5
3 Financial -Asset Pmtection
E/a‘rJJfa‘./.ffa‘./Mfa‘././.1‘./Jfa‘.I.fJ‘J.I./d‘¢‘././a‘a‘./Jfa‘.I./J./Md‘¢‘././a‘a‘././o‘a‘.f./.fJ.§
have an age based payout that is trig-
N I gered. For example, many old style
trusts have a mandate to pay income
beginning at age 18. UGMA accounts

Pet Planning: Take affirmative steps leave them money as an incentive to might end. If she has a job encourage
to protect your pet. Draft a letter of provide good care. Do you want to her to start an IRA and get a credit
instruction for whoever will step in to have the money and pet held in a trust card to build her own credit 1’ei:oi'(l.
help in an emergency: Save key pet so that someone has a fiduciary obli- Teach her how to get free credit re-
records electronically and inform gation for the care of the pets? State ports and monitor her status,
them where they are (vet records, laws differ and this may not be legal I Don’t Get Scammed: If you get an
licenses, vaccination records, etc.). in your state, and your state may put email fraud alert tlon’t eall the num-
Create a checklist of care that is ap- caps on how much you can give to her in the email, Instead eall the
propriate, a listing of likes and dis- such a trust. If you set money aside main number for your hank, or the
likes. Save this letter in the same elec- for care and it is not used, in the trust eretlit eard mnnher on the hack of
tronic folder and give a hard copy to you can mandate that it be given to an the eard and let them connect you to
those who will be responsible for your appropriate pet oriented charity. their fraud unit, If the email itself is
pets. Introduce the potential care tak- Make a non-legally binding request- a seam this will prevent you from
ers to your pets in advance and show excess funds be given to charity. getting a fake “frautl tlepartment”
them some of the important nuances I 18″‘ Birthday: If your kid recently numben pp
of care. Include in your durable turned 18 there are steps to take. Con-
power of attorney (pets are treated as sider transferring the car title to her, E E4
property under the law) authority but be there is adequate auto and $9 ‘-29,0
and direction to care for pets. In your excess liability coverage. She should 3 3; *3} 53
will you could bequeath vour pets to a sign a durable power of attorney and . fl”

n-
particular caregiver. Name succes- health proxy for emergencies. Even if – ,_ _ Cg
sors. Decide if you wish to leave she has negligible wealth a power of
money to the caretakers to defray the attorney can be important to help out. Pwm,-my 35 my

~i-°i- -a Ifh‘ ~ -fh‘ 5
costs 0 caring or your pets, an t ere are any trusts or er you‘ in-flag” Bflgy,-3,,
whether you want to do more and should review them and see if they
www.Iaweasy.com