Tax Planning Advice: Following the Rules on Entities—Martin Shenkman

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.