Tips for Using GRATs Prior to the Effective Date for 2704 Proposed Regulations

In early August the Treasury Department issued proposed regulations that eliminate or restrict valuation discounts on family owned business under Internal Revenue Code Section 2704. While the regulations will go into public hearing at the beginning of December, it is important to consider the potential impact for family business owners now. government_law_buildings

The potential loss of discounts could be devastating for estate planning purposes. One of the planning techniques to consider in light of this is the Grantor Retained Annuity Trusts, also referred to as a GRAT. A low interest rate environment would increase the probability of success for a GRAT. Currently the 1.4% rate is a low threshold to exceed and makes GRATs useful from that perspective. It is possible, however, that a new administration will pass new tax legislation.

It is also possible there will be a loss of discounts after the year’s end or shortly thereafter when the regulations are anticipated to become effective. GRATs take assets remaining at the end of a trust term to the remainder beneficiaries. This will be the excess of the appreciation of any assets given to the GRAT assets over an annuity of payment includes a return of the principle value of the gift. The appreciation over this hurdle amount is transferred free of gift tax. In order to learn more about how this might impact you, consult with an experienced New Jersey estate and asset protection planning attorney today.


Family Business: Steps to a Viable Succession Plan For Your Family Business (Part 2)

There is no doubt that working in a family business can be rewarding, but it might also come with some challenges. With regard to succession planning in particular, here are some of the top tips you need to consider when multiple relatives are coming to the same table on a family business.

Family Business: Steps to a Viable Succession Plan For Your Family Business (Part 2)
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  • Make clear goals and objectives. Getting everyone on the same page with where the business “is” and where it’s “headed” is not easy, but you can bring things full circle by thinking about common goals and visions.
  • Create a process for making decisions: Don’t rely on the way you have always done it as a family. You may need more formal structure and written explanations of how decisions are to be made. Don’t forget to factor in your methods for resolving disputes. This can save you time and hassle in the future.
  • Generate a comprehensive succession plan that determines active and non-active roles for family members, establishes successors, and determine if additional support for that successor will be required from other family members. Documenting everyone’s role makes it easier.
  • Have both a business and owner estate plan. Don’t forget one or the other, as they are both important in a family business. Think about minimizing taxes and protecting assets together.
  • Determine the most appropriate avenue for transition. There are numerous options for buyouts or agreements, and this is something you definitely want to discuss with an attorney.

To learn more about how we can help clients with proper succession planning for a family business, call us at 732-521-9455 or send an email to

Steps to a Viable Succession Plan For Your Family Business (Part 1)

Are you planning to keep the Family Business “in the family”? Did you know that family businesses now make up as much as 50 percent of the gross domestic product of the entire country? We’re not just talking about small storefronts or website companies, either. Over one-third of Fortune 500 companies are controlled by families in some sense. It’s critical that as a small business owner, you plan ahead for the future with a succession plan. Here are some of the most common issues facing small business owners with a family connection.

Steps to a Viable Succession Plan For Your Family Business (Part 1)
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  • Align your family interests: As members begin to retire or hand off control to other generations, the interest alignment of these individuals becomes all the more important.
  • Generational transitions: Think about the future, because only one third of all family businesses actually end up passing the business on to the second generation. You might want to have alternative plans.
  • Interfamily disputes have the potential to dominate family-owned businesses especially when perception of needs is not lined up between key players. This becomes even more complicated when there is a death or divorce involved.
  • Retirement income: A buyout agreement doesn’t have to be complex, but it is harder to do with a family business because retiring individuals might be more focused on a balance sheet rather than an earnings capitalization model.
  • Estate and inheritance issues: While individual planning is important, there should also be plans in place that relate to the business.

All of these issues are just a sample of concerns for those involved in a family business. Contact our office today to learn more about our Business Succession Planning practice. Email or contact us via phone at 732-521-9455 to get started.

Durable Powers of Attorney and FBAR

A new reference guide from the IRS has some guidelines for Reports of Foreign Bank and Financial Accounts (FBAR). There are several issues highlighted in the reference guide that give cause for concern (or for a call to your business planning and tax strategy specialist), but one to note is with regard to durable powers of attorney.

Durable Powers of Attorney and FBAR
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Durable powers of attorney are a foundation in a great deal of estate planning, especially when it comes to business owners who either want to preserve their legacy or protect the business and/or a partner in the event of an incapacity. Most of these powers of attorney stipulate authority to sign on behalf of the principal for bank accounts belonging to that individual.

An evaluation of the new Reference Guide reveals that under the description of signature authority, individuals named in those powers of attorney may be at risk for penalties related to foreign accounts of the individual issuing the power and those individuals may inherit responsibility for FBAR filing.

It’s unclear whether a lack of knowledge argument will be applicable in such a scenario, so it’s in the best interest of named parties to be aware of their rights and responsibilities. Since that’s not always possible or reasonable, an estate planning specialist can discuss options directly with the individual creating the durable power of attorney.

To learn more about asset protection, business planning, and risk mitigation, contact us today by phone at 732-521-9455.

What About Blended Families?

Planning for blended families presents particular challenges when it comes to ensuring your wishes are carried out. While every situation is unique, here are a few common problems and ways to address them.

Blended Families
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Let’s say you want to disinherit your ex-spouse. At the very least, make sure you have replaced him or her as the named beneficiary of your retirement plans and other assets. You should also consider a Long-Term Discretionary Trust (LTD Trust) to administer your children’s inheritance, with a party of your choosing serving as trustee. In this way, even if your children reside with your ex-spouse, your trustee will control the inheritance through the LTD Trust and ensure it is used only for your children. Should one of your children predecease your ex-spouse, the inheritance would remain
in your LTD Trust for your grandchildren and, if there are none, for your surviving children or other beneficiaries of your own choosing.

Another useful trust is called a Qualified Terminable Interest Property Trust (QTIP Trust). It can protect your new spouse by providing income and even principal for life. It can also protect your new spouse’s inheritance in the event of a subsequent remarriage and divorce. And, upon the death of your new spouse, the QTIP Trust assets may pass to the LTD Trust you established for your own children.

To learn more about the unique planning problems associated with blended families, and how we can help address your particular concerns and goals, please contact us for a consultation.

The Entrepreneur’s Dilemma: Success Tips For Passing The Family Business On To Children

Owning and operating your own business is an exciting venture, but it can present you with challenges when you are unwilling or unable to continue managing the business. If you are considering passing the company on to your children or grandchildren, make sure you put some time into the planning process so that the transition is as smooth as possible.
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Start Early

The best recommendation for succession planning is to start five years in advance of when you might need an exit strategy. Many people make the mistake of assuming that they will only need to consider this need later in life. With rising numbers of people impacted by a disability, succession planning is something you should consider early. Getting the planning done well in advance gives you room to alter your plan if needed. Throughout this process, keep your family members engaged in the conversation so that relevant individuals understand their role.

Consider Options

While you have many options as a business owner, you should consider the talent of your children and grandchildren in order to decide how they might fit into the bigger picture. It’s critical that you are realistic about this decision. While it’s important for whoever takes over for you to have the passion and interest in running the business, you should also evaluate business skill and potential in making your decision. If you have several children, it may not be feasible for them to each own an equal portion of the company. In this circumstance, you should plan to transfer the whole business to a child who wants to follow you as the owner. Other assets can then be transferred to other children. This may be the most effective move for your business and future family harmony, too.

Plan For Existing Employees

Unless you are the sole person managing a company, it’s likely you have a team behind you. Make sure you have considered what will happen to these employees after you go as well. Will then be incorporated into the transition phase? Are there key employees who could help your children understand the big picture and smaller operational issues as well? Remember that in the event of a major disruption in a company such as the departure of a longtime leader, key employees may not want to stay. Having a conversation with them about your succession plans, as well as providing incentives for them to stay, may be in your best interest. Keeping valuable and knowledgeable employees on the team after you leave will make the transition easier for all and is less likely to cause financial issues for your business.

Train and Document

Once you have decided the best approach for your planning, train those individuals that will play a role at the time of your departure. Keep them clued in to vital issues. Remember that it’s much easier to update your succession planning once it has been documented. Working with an experience estate planning attorney will give you confidence and peace of mind about your decision.

One Family’s Quest to Pass on the Business

For families that own small businesses, one vital part of estate planning is succession planning. Through succession planning, a business owner plans for the future of his or her business. A recent article discusses how Charlie Luck IV is planning to keep family-owned firm, Luck Stone, in the family.

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At only 53, Luck is in no hurry to pass the business on to his heirs. However, in planning ahead, Luck shows the forethought that all small business owners should have when it comes to succession planning. Luck is already considering which, if any, of his three children display the responsibility and interest necessary to run the business.

Although Luck’s biggest goal is to keep the business in the family, he knows that it will only work if he selects the right successor. As Luck explained, “One of the worst things in the world you can do is put any person in a company role, family or non-family, that does not align with who they are, with their skill set and their capacity…that is unethical.”

Statistics are not on the side of family businesses. Only three percent of family businesses in the same position as Luck Stone – moving from generation three to generation four – survive the transition.

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