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This is the 12th in a series of 23 tax tips that AdvisorOne is publishing on each business day in March as part of our Tax Planning Special Report (see our Special Report calendar for a more complete list of topics to be covered and experts who will deliver their insights).
Today’s tax tip comes from Martin Shenkman of Shenkman Law, with offices in New Jersey and New York. Shenkman is the author of 34 books, hundreds of magazine and journal articles, and received his undergraduate education from the Wharton School of the University of Pennsylvania, his MBA from the University of Michigan, and his JD from Fordham University.
The Tip: Going by the book on entities and their rules.
Does a client remember that each time he makes a gift to a Crummey trust, to notify beneficiaries of that trust of their right to withdraw assets, asks Shenkman (left)? Does a business owning client, operating as an S corporation, abide by the rule to make pro rata distributions to shareholders? Has he made a loan without formal documentation to back it up?
Shenkman warns that failure to follow the rules on any of these particular structures, and on a host of others, can open up a client to “potentially dire tax and legal consequences.” Moreover, if you’re providing comprehensive financial planning, such failures can affect more than simply an estate or tax plan.
He cites another example that he says “happens all the time.” A client who sets up an insurance trust to keep the proceeds of the policy protected relies on the insurance agent to transfer the policy’s proceeds to the trust, but the agent never does—“undermining asset protection, tax and personal goals.”
See our Tax Planning Special Report calendar for a list of future topics to be covered.