The subject of captive insurance companies (CICs) and tax law violations has been the topic of much discussion over the past year. Matters such as Phoenix 2010 Revocable Trust v. Artex Risk Solutions, Inc., and similar class actions have brought this issue to the forefront of the industry’s mind. But while the discussion regarding CICs and IRS compliance (or lack thereof) grows more cacophonous, a less raucous discussion is taking place regarding compliance, entity governance and the risk of running afoul of state captive insurance regulators, should they choose to increase their scrutiny or impose new rules. Ironically, even as the country is moving in the direction of anti-regulation, recent developments in the risk reduction group (RRG) market are causing regulators to increase their vigilance.
The Demise of Spirit Commercial Auto Risk Retention GroupIn early 2019, a Nevada court placed Spirit Commercial Auto Risk Retention Group into permanent receivership, citing insolvency and hazardous financial conditions. Industry experts have called the demise of Spirit a potential “black eye on our industry,” particularly in the eyes of regulators. This could easily invite increased scrutiny and cause unease in the marketplace. It may also discourage states from licensing new risk retention and captive insurance entities. The issues with Spirit and other RRG failures could also trigger greater scrutiny from the National Association of Insurance Commissioners (NAIC). The NAIC previously worked with the states to adopt a universal set of regulations addressing issues of potentially improper relationships between entity directors and managers or vendors. The regulations also sought to limit material relationships with service providers such as management, legal advisors, auditors and anyone else providing professional services for a fee.
Complying with CIC Regulatory & Governance RequirementsIn addition to complying with the regulatory requirements of the domicile, CICs are typically subject to some level and type of corporate governance, depending on the unique circumstances of the entity. At minimum, a CIC’s board of directors has a duty to ensure that the entity remains compliant and manages risk in such as way that the company delivers good financial results. Staying on the good side of state regulators is also important. It’s also critical that the board faithfully represents the interest of shareholders. It is doubtful that the board of Spirit Commercial Auto RRG was upholding their duty of care, based on the eventual outcome.
What This Means for CIC Transaction ParticipantsToday, this discussion might have no direct repercussions on captive transaction participants. However, should regulatory scrutiny increase, RRGs and CICs may be forced to further embrace best practices of governance and compliance. Fortunately, most CICs are doing the right things to distribute risk and provide the intended benefits. Those that are not may be forced to take action that ultimately results in higher administrative and operational costs. It may also mean less freedom to engage in the activities that make CIC transactions attractive to participants. Just as tax compliance issues can pose a threat to individuals involved in CIC transactions — along with their lawyers, accountants and wealth managers — unsuspecting individuals may find themselves embroiled in a messy legal matter if promoters and captive managers fail to exercise the proper operational diligence. If you or your clients are involved in a captive insurance company transaction that you suspect may be cause for concern, contact Cantley Dietrich today to learn more.
With estate planning, it is important to take steps to prevent potential legal challenges to your will and any trusts you have set up. But what if you find yourself on the other side of the equation, considering whether you should contest the estate of another? Determining whether to move forward with a legal challenge to a family member’s estate can present an agonizing dilemma. However, if you believe that you have a valid reason to contest, an experienced probate lawyer can help you sort out the facts and determine the best course of action.
When Would You Consider Contesting a Will or Trust?In some cases, challenging a will or trust legally is the right choice. One of the most common reasons that people file legal action in this case is that they suspect someone previously exerted undue influence on the decedent. This, unfortunately, is not uncommon, particularly if the deceased suffered from dementia or caretaker abuse. This scenario may provide the basis for a challenge based on the decedent’s lack of mental capacity. You might also consider mounting a legal challenge if a trustee or executor fails to uphold their fiduciary duty or if the original documentation was improper in some way.
When Should You Not Contest a Trust or Will?Are there times when you should not contest a trust or will? Ultimately, you must make that decision based on the advice of your attorney. However, some trusts and wills are drawn up with a no-contest clause, which effectively bars the contestor from their benefits, should the legal action ultimately prove unsuccessful. Although that should not automatically discourage you from considering a legal challenge, it is important to realize what you have at stake. Another consideration involves the importance of your relationship with loved ones. Would legal action substantially damage your relationship with other involved family members? If so, you should weigh the pros and cons of the situation carefully before moving forward.
Lessons You Can Apply in Your Own Estate PlanningReflect on the reasons you are considering legal action and put that knowledge to work in your own estate-planning activities. By working closely with your attorney, you can build in provisions to help prevent improper actions by trustees and executors. You can also proactively establish protections that minimize the risk of anyone exerting undue influence over you in the future. Most highly compensated individuals and business owners know they must plan for their eventual death. What they may overlook is the potential that they could become incapacitated or lose their mental faculties prior to death. By planning for these and other contingencies, you can minimize the chance that someone may consider legally contesting your trust or will. Contact Cantley Dietrich today to learn more, or to schedule a consultation with an asset-protection and estate-planning attorney.
Estate planning — particularly for highly compensated individuals and business owners — is often perceived as a complex process of entities, legal documents and tax law compliance. But we often forget how important the human aspects of estate planning can be. When you seek out the assistance of a tax and estate planning attorney, choose a law firm that recognizes that wealth transfer and estate planning can have a profound effect on you, your family and your designated heirs.
Unintended Consequences of Estate PlanningWhen determining how your accumulated wealth and assets will be distributed — either during your lifetime or upon your passing — you must think about how it will affect your loved ones. One of the most common challenges is infighting among family members, especially if someone feels slighted. Another common problem occurs when one or more beneficiaries fails to make good choices about their lifestyle or behavior once they get their hands on their newfound wealth.
Strategies for Overcoming These ChallengesAlthough no single strategy is effective in all cases, you have many options for structuring the way assets are transferred to beneficiaries. You can set up specialized trusts that designate distributions for specific purposes, such as university tuition, buying a home, etc. This is where your estate planner can help guide you toward strategies that will provide the maximum benefit to your heirs while helping you achieve your wealth preservation goals. Finding the right balance between your desire to protect your assets and put them to the best possible use in the future is the key to keeping the human aspects of estate planning a central part of the process.
The How and Why of Estate PlanningYou trust your lawyer to recommend the best ways to legally minimize your tax burden and preserve your assets. But it will be up to you to identify the reasons you choose to distribute your estate the way you do. Keep in mind how your decisions will affect your loved ones’ future, and communicate with beneficiaries and heirs during the planning process as much as possible. This allows them to ask questions and understand your vision for their future. It helps avoid potentially unpleasant surprises down the road as well, which often come at a highly emotional time in their lives — upon the incapacitation or passing of a beloved family member. Cantley Dietrich specializes in complex estate plans, wills, trusts and asset protection for business owners and highly compensated individuals. Contact us today to schedule a consultation to ask questions and discuss your thoughts on estate planning.
When you’re creating asset protection strategies, you must consider the possibility of divorce and how it can affect your financial health. In matters of the heart, no one ever wants to think about the worst-case scenario. Unfortunately, the odds are not in your favor, so it pays to be prepared. This is especially important for business owners and high-income earners. Unless you want the courts to decide how to divvy up your hard-earned wealth, you need to implement comprehensive strategies to preserve your assets.
Protect Assets before an Impending DivorceIf you are planning to file or you know the other side is, it may not be too late to take action to protect your assets. Asset preservation vehicles such as domestic and offshore trusts, single-purpose entities and even mortgage loans can contribute to an effective — and legal — asset protection plan. Consult an attorney who specializes in estate planning and wealth preservation before taking any action, however, because your assets will come under intense scrutiny as the divorce progresses. If you don’t keep everything legal and above-board, you could end up losing even more than you would have if you’d done nothing to protect yourself.
Act Quickly if You Get Served by SurpriseHopefully you’ll never have to deal with the unexpected service of a divorce action, but it happens every day. If you find yourself caught unawares, it’s critical that you contact an asset protection lawyer as quickly as possible. Depending on where you live, the court could freeze your assets immediately. In that case, you must determine whether you have the legal right to remove half of any joint accounts. An attorney can help you set up new accounts and protect yourself from any additional debt your soon-to-be-ex-spouse may try to rack up. You may not be as clear-headed as usual during this stressful time, so let your legal advisor help you do what you can to preserve your assets.
Implement Proactive Divorce Asset Protection StrategiesThe specific strategies you choose will depend on your portfolio of assets as well as your relationship status. The state in which you live also matters, specifically with regard to how its laws allocate property to divorcing spouses. Tax attorneys can recommend asset protection strategies based on these and other factors to create a plan tailored to your specific needs. If you’re planning a wedding, your attorney will likely broach the subject of a prenuptial agreement, which can be a touchy subject for many couples. If you’re already married without a prenup, you may want to explore the possibility of a postnuptial agreement. This may require some delicate negotiations with your spouse, but once in place, such as agreement can go a long way toward protecting your assets. The asset protection specialists at Cantley Dietrich understand the importance of preserving your wealth no matter what events transpire in your life. We work closely with you to develop strategies that work for all involved parties and allow you to resolve property disputes quickly while minimizing losses to the assets you’ve worked hard to accumulate. Contact us today to learn more about how a divorce affects your asset protection strategies. NOTE: This article is for informational purposes only and should not be construed as providing legal advice. Use of this site does not create an attorney-client relationship. Contact an attorney to obtain legal advice.
Charitable contributions are a powerful tool for making positive changes in the world. For highly compensated individuals and business owners, the benefits of your financial donations can extend even further. Tax laws provide the opportunity for you to reduce your tax burden by making qualified donations. In many cases, the more you give, the better it is for your financial health. If you aren’t already putting your money to its best use helping others, perhaps these reasons will help change your mind.
No. 1: Charitable Monetary Contributions Are More Important than EverRecent changes to the tax laws raised the financial benefit threshold for charitable giving for cash contributions. Because it’s become harder to financially benefit from giving, fewer taxpayers are making donations this year. And that’s bad news for those with the greatest needs. Choosing the causes that mean the most to you will make your gifts even more meaningful. Knowing that you’re making a difference can provide intangible personal benefits that stick around long after the tax advantages.
No. 2: You Can Preserve Your Assets While Making Charitable ContributionsCharitable donations are best when made for altruistic reasons — and you always have the option of not claiming your contributions on your taxes. However, the tax advantages you can achieve from charitable giving are significant — significant enough, in fact, that it may encourage you to give more than ever. One of the ways to maximize the impact of your contributions is through a donor-advised fund. A donor-advised fund allows you to take a tax deduction the same year as you give to the fund. You then pick the charitable groups or organizations that you want your donation to benefit in the future. Your tax attorney can help you explore this and other options to determine what is right for you.
No. 3: You Can Contribute Assets as Charitable DonationsYour charitable acts are not limited to purely financial donations. Besides cash, did you know that you also have the option of donating other appreciated assets? In fact, you can donate assets ranging from real property and stocks to artwork and collectibles as non-cash, charitable contributions. For high net-worth individuals, this can be an effective way to make a positive difference in the world while also reaping the financial benefits. If you can help a cause you’re passionate about while mitigating your tax burden, you may want to give as freely as you can. The tax lawyers at Cantley Dietrich understand the importance of balancing philanthropy with sound asset protection strategies. Fortunately, these priorities are not at odds with one another — just the opposite, in fact. We are able to discuss a variety of charitable giving strategies that provide philanthropic benefits as well as potentially significant financial advantages. Contact us today to learn more about how you can incorporate charitable contributions into your asset management and estate-planning strategies. NOTE: This article is for informational purposes only and should not be construed as providing legal advice. Use of this site does not create an attorney-client relationship. Contact an attorney to obtain legal advice.
As 2018 winds down, the 2019 tax deadlines loom large. Minding these deadlines is the best way to avoid penalties and stay off the IRS’s radar. The dates that matter for your filings vary based on whether you are:
- An individual filer
- A business owner
- A self-employed person
- An employer
2019 Individual Tax DeadlinesIndividual tax filing deadlines are fairly straightforward. If you pay quarterly taxes, the 2019 deadlines are:
- Jan. 15 (4Q18)
- April 15 (1Q19)
- June 15 (2Q19)
- Sept. 15 (3Q19)
2019 Business & Self-Employed Tax DeadlinesSmall businesses and self-employed individuals potentially have many deadlines in 2019, depending on how you file and how much income you have. Some highlights include:
- W2s & 1099s — These forms must be issued by Jan. 31 for most employees/recipients and reported to the IRS at the same time.
- Payroll taxes — All withheld employee income taxes, Medicare and Social Security taxes must be deposited by the 15th day of each month if you follow the monthly deposit rule. If you must deposit semi-weekly, deposits are due by Wednesday for payroll issued the previous Wednesday through Friday and Friday for payroll issued the previous Saturday through Tuesday. Form 941 filings are due on the last day of January, April, July and October for the prior quarter.
- FUTA taxes — Deposits must be made by the last day of the month after quarter’s end. Form 940 filings are due Jan. 31.
In advanced estate planning, tax advisors help high-net-worth clients identify the most effective strategies and tools for transferring their assets. Sometimes called inheritance planning or complex estate planning, this process helps to secure your loved ones’ future and ensures that your wishes become reality at (and before) the end of your life. But estate planning also has another purpose: wealth preservation. In other words, an advanced estate-planning specialist can help you achieve your goals for asset distribution while ensuring that you legally preserve as much of your wealth as possible. So how does a will — a last will and testament, that is — fit into this process? Wills are an interesting topic. You know you need one. But what might you not know about wills?
No. 1: Wills Are Only a Snapshot in TimeWhen you prepare a will, it reflects your personal, professional and financial status at that moment. If anything changes in your life — you get married or divorced, have a child, etc. — you must either revise your will or start anew.
No. 2: Addresses the Who and the What, but Not the HowYou can specify in your will what assets go to which heirs, but you cannot typically choose how they will be transferred. It’s safe to assume that the method of conveyance will be the one that can be taxed the most.
No. 3: Wills Become a Matter of the Public RecordUpon your death, your will becomes a matter of public record as soon as it’s filed for probate. This means that anyone can see who inherited what. Not only does this present a privacy concern, but it also creates risk for heirs who may become the target of financial predators.
No. 4: Wills Can Be Contested and Potentially Thrown OutNo matter what exclusionary verbiage you may insert, you will can be contested and thrown out by the court. In that case, your assets will be distributed based on your state’s laws for those who die intestate (without a will).
No. 5: Subsequent Wills & Codicils Can Come Back to Haunt YouAny disinherited person who was mentioned in a prior will or codicil (amendment to a will) is eligible to contest. The odds of them succeeding aren’t great, but it does happen. And even if they fail, the legal wrangling could become unpleasant for your family.
No. 6: Wills Do Not Supersede Titling & Beneficiary DesignationsInvestment and brokerage accounts, life insurance policies and similar artifacts all have designated beneficiaries – hopefully the beneficiaries you have designated. We have seen many cases where clients forgot to change beneficiary designations to the name of a second spouse—creating a multitude of financial problems, but none that a legal system can fix. Your will does not supersede those designations as they are a contract with the bank, insurance company, or brokerage. In many cases, your will also does not supersede the titling of real property.
No. 7: Wills Don’t Govern IncapacitationIf you become incapacitated and unable to make decisions, your will won’t help. The will only becomes effective at your passing. If you think there’s a chance you’ll spend some time getting older or are unlikely to die instantaneously, you’ll want to discuss a Durable Power of Attorney for financial matters. As a side note, your will is also not the right place to specify your wishes for your funeral and interment. It likely won’t be read until those events have already taken place. Maybe you knew some of these interesting facts but there’s a good chance that others gave you pause. There’s also a good chance that you may want to revisit your will and consider using other vehicles – trusts, for example – to achieve your goals. At Cantley Dietrich, our complex estate planning strategies are elegantly designed, to assist you in legally – and privately – accomplishing your goals for asset transfer and wealth preservation. Contact us today to learn more about how our advanced estate planning services can help you. NOTE: This article is for informational purposes only and should not be construed as providing legal advice. Use of this site does not create an attorney-client relationship. Contact an attorney to obtain legal advice.
Asset transfer is a straightforward process. However, for closely held business owners and highly compensated individuals, transferring assets can be a complex process. Without a formal estate and asset transfer plan, a large portion of your accumulated wealth could be lost to taxes. Worse, the assets you’ve worked your entire life to build may not end up where you envisioned them.
What Happens When You Have Not Made Provisions for Asset Transfer?A 2017 study conducted by RBC Wealth Management revealed some surprising statistics. Only 54 percent of high-net-worth individuals have a will. And although 26 percent of respondents have a full asset transfer plan in place, almost a third (32 percent) have taken no action for estate planning or wealth transfer. Should you die intestate (without a will or asset transfer provisions), your estate will transfer to your heirs through the probate process. What they do with what’s left — after estate taxes, probate fees, etc. — is their choice. You have no assurance that your legacy will endure or benefit those you envisioned it would. Will there be money to send your grandchildren to college? Will the charitable causes you care about see any benefit? Will your family members become embroiled in disputes over who gets which of your valuable (financial or sentimental) possessions? Do you trust the next generation of your family to manage your wealth? Are you willing to let the government take the maximum share possible?
The Importance of Having a Formal Asset Transfer PlanEven if your answer to the first question is a resounding “yes,” you likely do not want to diminish the value of your estate any more than necessary at the time of your passing. You must also consider the implications should you become incapacitated and unable to make your own decisions. In the RBC study, a full third of respondents with no wealth transfer plan in place admitted that they did not trust their children to preserve their wealth. And yet, they were ready to leave the fate of their accumulated wealth to chance. The complexity of family dynamics — and the likelihood that your family’s dynamics will change repeatedly over the years — requires that you not only establish a comprehensive estate and asset transfer plan, but that you update it regularly. The final bit of advice that emerged from the RBC study is the importance of financial literacy for young people. Start early in teaching the next generations about saving, giving and wealth preservation. Just because you aren’t confident in the next generation today doesn’t mean you can’t help them become more aware and responsible.
Seek Asset Transfer Advice & Assistance from a Tax AttorneyTo create and maintain a comprehensive estate plan, you’ll need to have a team of trusted advisors. A key member of your team should be an experienced tax attorney. Your estate plan will likely include a will and various types of trusts, insurance policies and whatever other types of financial vehicles make sense for you. Your lawyer may also recommend a plan for transferring some portion of your assets during your lifetime, to help prevent unnecessary erosion of your wealth later. Your tax attorney will help ensure that your wealth transfer and estate plan complies with all applicable codes and laws. Keeping your financial planning activities legal and aboveboard will help prevent unnecessary taxation and IRS scrutiny. Cantley Dietrich assists business owners and highly compensated individuals with asset protection, wills, trusts and complex estate planning. Contact us today to schedule a consultation to discuss your asset transfer plans. NOTE: This article is for informational purposes only and should not be construed as providing legal advice. Use of this site does not create an attorney-client relationship. Contact an attorney to obtain legal advice.
Donor-advised funds, or DAFs, are becoming more popular with business owners and highly compensated individuals because of their many advantages. DAFs have been compared to a savings account dedicated to charitable contributions. Although that’s an overly simplified analogy, the concepts are not dissimilar. Although they have been around for decades, these philanthropic funds are more popular than ever, in large part because they provide a high degree of flexibility. DAFs also reward donors by providing significant tax advantages.
What Are Donor-Advised Funds?The basic definition of a donor-advised fund is an investment account used exclusively for making irrevocable charitable contributions. With a DAF, you can advise the fund’s managers about how to donate funds. Or, if you prefer, you can leave those decisions to the account’s sponsor. You can contribute cash to the fund as well as other valuable assets, including stocks and other securities, real estate, collectibles, cryptocurrency, shares of privately held corporations, etc. DAFs require a 501(c)(3) to act as their sponsoring organization. This can be a public charity, a community foundation or an investment firm. You can choose when the funds are donated and in what quantities. You can also leave some portion of the funds in the account and use investment strategies to grow the balance tax-free.
Philanthropic Advantages of Donor-Advised FundsDonor-advised funds provide substantial benefits for the charitable causes you care about most. You can direct your contribution to virtually any cause or organization that qualifies under the IRS rules for tax-exempt status. Compared to private foundations, DAFs offer the same primary benefit — deciding specifically how you want your contributions to be distributed — but without the time, administrative requirements or costs associated with a foundation. The fund’s sponsor manages the investments, grants and all administrative tasks, allowing the donor to devote their time and attention to the most important part: charitable giving. You can donate to an existing DAF. However, many business owners and high-net-worth individuals choose to set up their own funds with other family members or associates. You can establish a low contribution threshold to help introduce even the youngest family members to the importance of charitable giving.
Tax Advantages of Donor-Advised FundsYou can take advantage of the available income tax deductions for the year in which you contribute to a DAF and you can deduct the full market value of real estate and shares of closely held stock — subject to adjusted gross income (AGI) limits. You will incur no capital gains liability for any appreciated assets you contribute, and DAF contributions are not subject to estate taxation. Compared to contributions to a private foundation, AGI limits are essentially twice as high for DAFs. DAFs have no minimum annual grant requirement and they are not subject to excise taxes. The tax attorneys of Cantley Dietrich understand how important your charitable contributions are. You’ve worked hard for your money and you should be able to put it to work as you see fit. We can help you incorporate charitable giving as a part of your estate planning, tax planning and wealth preservation strategies. Contact us today to learn more about how donor-advised funds can assist you in this endeavor. NOTE: This article is for informational purposes only and should not be construed as providing legal advice. Use of this site does not create an attorney-client relationship. Contact an attorney to obtain legal advice.
Now that 2019 has arrived, your estate planning strategies need a rigorous review — and possibly some revisions and updating — before next year. If you’re like most highly compensated individuals and business owners, you haven’t revised your estate and overall tax planning significantly since the new tax laws passed in late 2017. This year, it’s time to prepare for what could happen when the 2020 election rolls around. Without a crystal ball, it’s impossible to know what may happen with tax laws. However, as with all financial matters, it’s important to prepare and protect your hard-earned assets.