November 23, 2017 RE: Thursgiving Day


Issues With Retirement Plans-Contingent Beneficiaries Count for Required Minimum Distribution Purposes by Chris Denicolo

What If A Client Only Wants Their Children to Serve as Co-Trustees of a Trust and Something May Go Wrong? by Alan Gassman

Your Refresher on the Statute of Frauds  by Alan Gassman and Seaver Brown 

Richard Connolly’s World 

What You Should Consider When Converting a Regular Corporation to an LLC by Alan Gassman 

Taking Great Care of Your Parents as Beneficiaries by Alan Gassman 

A Disposition to Parents with Caring: a Forethought by Alan Gassman 

Employer Identification Number Form Advice by Tina Arvin 

Humor! (Or Lack Thereof!)

We thank the dozens of people whose efforts make the Thursday Report possible every week, and the handful of people who read it.

We welcome questions, comments, suggestions and compliments, whether true or not.

Quote of the Week

“Thanksgiving is an emotional time. People travel thousands of miles to be with people they see only once a year. And then discover once a year is way too often.”

 —Johnny Carson


Thanksgiving Day is a national holiday celebrated in Canada, the United States, some of the Caribbean islands, and Liberia. It began as a day of giving thanks for the blessing of the harvest and of the preceding year. Similarly named festival holidays occur in Germany and Japan. Thanksgiving is celebrated on the second Monday of October in Canada and on the fourth Thursday of November in the United States, and around the same part of the year in other places. Although Thanksgiving has historical roots in religious and cultural traditions, it has long been celebrated as a secular holiday as well.


Issues With Retirement Plans-Contingent Beneficiaries Count for Required Minimum Distribution Purposes

by Chris Denicolo

Many planners employ the use of Accumulation Trusts to receive retirement plan benefits after the death of the retirement Plan Participant or IRA owner.  An Accumulation Trust is a type of trust to which retirement benefits can be payable, and the life expectancy of the oldest beneficiary of the trust will be used for determining the Required Minimum Distribution payout that will apply after the death of the Plan Participant.

The benefits of an Accumulation Trust are that the trustees of the trust can accumulate distributions from the retirement plan, and is not required to make distributions out of the trust  to one or more beneficiaries.  The downside to an Accumulation Trust is that all beneficiaries of the trust, including contingent beneficiaries, count for the purposes of determining the distribution period over which Required Minimum Distributions must be paid after the Plan Participant’s death.

Therefore, a trust that names an older beneficiary as a contingent beneficiary of the retirement plan benefits will cause such older beneficiary’s life expectancy to be taken into account notwithstanding the remoteness of the contingency which would cause the older beneficiary’s interest to become vested.

Even contingent distribution provisions that would only apply if no named beneficiary under an Accumulation Trust survives could conceivably be problematic, although there is support for the proposition that having applicable intestacy rules apply will be safe.  However, when read literally, the rules may require use of the life expectancy of any individual who would inherit under the intestacy statute.

This issue has been addressed by several commentators.  For example, Marcia Chadwick Holt, in her book entitled Estate Planning for Retirement indicates as follows:

“Identifiable beneficiaries exclude an individual to whom [retirement benefits pass] under applicable intestate state law unless such individual is designated as provided above.”

The IRS does not recognize that state law provides for contingent beneficiaries – including escheat to the state – when a trust has no named beneficiaries.  The IRS is fixated on whom you actually name as beneficiaries.  The current PLRs do not require that you take into a continent beneficiary that might take under state law.

Further, Private Letter Ruling 201320021 held that an IRA owner’s child was the only Designated Beneficiary under her IRA despite the fact that, if the child died with no descendants and did not exercise his power of appointment, the IRA would pass to the IRA owner’s mother or brother under applicable state intestacy laws.

If the Private Letter Ruling and Marcia Chadwick Holt are correct, then the Accumulation Trust can provide that “if the Designated Beneficiary does not survive me, and does not leave descendants, then all remaining assets will be distributed based upon the intestacy rules of the State of ___________ that would apply to my estate if I died intestate” as opposed to “if none of my descendants survive then pay out right to the descendants of my grandparents, per stirpes.  The second alternative would cause the life expectancy of the oldest descendant of the Plan Participant’s grandparents to apply for Required Minimum Distribution purposes, even if the Plan Participant has surviving descendants.”

It would be safest, however, to limit the individuals who can inherit under the otherwise applicable intestacy laws to those who are younger than the Designated Beneficiary.  For example, the Accumulation Trust can provide that “if the Designated Beneficiary does not survive me and does not leave descendants, then all remaining assets will be distributed based upon the intestacy rules of the State of _______ that would apply to my estate if I died intestate, provided that any such heirs at law who are older than the Designated Beneficiary shall be considered to have died the day before the death of the Designated Beneficiary, which triggers application of such intestacy rules.”

As a further example, if the client wants to use “descendants of my grandparents” language, then the provision can be carved out to instead read “to the descendants of my grandparents, per stirpes, who are born after the date of birth of the Designated Beneficiary who is a beneficiary of any trust herein established which receives retirement plan benefits, any distributions therefrom, or the right to receive distributions therefrom.”

Planners can also draft the trust to allow for independent trust protectors or trustees the ability to modify the trust language on or before September 30th of the calendar year following the calendar year of the Plan Participant’s death.   While it is not clear whether any such modifications will be respected by the IRS, there may be further guidance between now and when a client a dies, so language that clearly points out the need for Trustees and Trust Protectors to address this issue without delay after the death of the IRA or pension holder/beneficiary can be important.

The Private Letter Ruling is not binding on the IRS except with respect to the taxpayer who requests it.  Therefore, other commentators think that it is best to take the more conservative approach of naming a contingent beneficiary who is now living that will receive the Retirement Plan outright and immediately after the death of one or more prior beneficiaries.  If there is a beneficiary that will receive the Retirement Plan outright and immediately after the death of one or more prior beneficiaries, then any subsequent beneficiary can be ignored as mere successor beneficiaries.   For example, the Accumulation Trust can provide that the Trust will be held for the client’s lineal descendants who are then living, provided that if the client has no lineal descendants upon his death, then the trust assets will be paid outright to his last living descendant’s issue.  Because the trust assets will be distributed outright and immediately to the Plan Participant’s grandchildren if his children predecease him, then all other successor beneficiaries can be ignored.  The above example will only work if the Plan Participant has grandchildren who are then living at the time of his death.

Another method used to deal with this contingent beneficiary issue under an Accumulation Trust is called the “circle trust”.   Under this method, the Accumulation Trust can provide that the Trust will be held for the lineal descendants of a Plan Participant who are then living, and upon the death of such lineal descendants, the trust assets shall be distributed outright to the issue of such lineal descendants, provided that if at any time during such lineal descendants’ life, they have no then living issue, then the trust shall terminate and all assets shall be distributed outright to the Plan Participant’s lineal descendants.  This language “closes the circle” of possible successor beneficiaries; therefore there are no potential successor beneficiaries that have to be counted in determining the applicable distribution period.



What If A Client Only Wants Their Children to Serve as Co-Trustees of a Trust and Something May Go Wrong?

By Alan Gassman


Often times clients are convinced that their children can be sole trustees or co-trustees of a trust, and we have no way of knowing if they will be trust worthy, responsible, or mis-led.

Sometimes clients are convinced that their children can serve as co-trustees with each other, as if they will not “rubber stamp” requests and mutually agree to act irresponsibly or to make mistakes.

Why not require individual trustees to at least confer with qualified legal and tax advisers annually?

The following language might be adapted for this:

6.03  Trusteeship After Division of Trust Into Separate Shares.

After my death and the division of Trust assets as described above, the following shall apply to any trust having more than $1,000,000 in assets:

After division of the Trust property into separate trusts for the Grantor’s children or other descendants, if  the Primary Beneficiary is a child of the Grantor’s, then the following shall apply:

Each of my children who is the beneficiary of a trust may serve as Co-Trustee of such trust with my other child or a licensed trust company, and may replace the acting Co-Trustee with my other child or a licensed trust company.

Notwithstanding the above, if and when my two children are the sole Trustees of any trust herein established, they shall retain an AV-rated board certified trust and estate lawyer to meet with such lawyer annually, and to receive a letter from such lawyer confirming that they have followed the advice thereof with respect to investments, distributions, accountings, and tax compliance.  No individual Trustee shall be qualified to serve unless such advice is being procured and followed on an annual basis.




Your Refresher on the Statute of Frauds   

By Alan Gassman and Seaver Brown


When does the signature of both parties need to be on a document,

or to make an oral agreement enforceable?

We can all become rusty on certain areas of law, including the “Statute of Frauds”, which was passed to prevent “fraud” by requiring that certain agreements be in writing and signed by each party.

For Florida, these are as follows:

  • An agreement for the sale of goods over $500
  • Sale of personal property over $5,000 (F.S. § 6771.206)
  • A promise to pay the debt of another person
  • An agreement made in consideration of marriage
  • A contract for the sale of land or any uncertain interest in or concerning land
  • Any lease for a period longer than one year
  • An agreement that is not to be performed within one year; and
  • A guarantee, warranty, or assurance of any health care provider as to the results of any medical, surgical, or diagnostic procedure performed by a licensed physician, osteopathic, chiropractor, podiatrist, or dentist.


Notwithstanding the above, emails exchanged between parties are considered signed writings, as long as the sender’s name is signed at the bottom, and are, therefore, given the full protection of the law. (F.S. § 668.004).

In addition, the following documents must be both witnessed and notarized to be effective:

  1. A deed of real estate
  2. A mortgage which becomes a lien upon real estate
  3. A Last Will and Testament
  4. A Revocable Trust, which is a testamentary instrument

Under Florida Law, oral agreements are generally enforceable, especially in situations where one of the parties has commenced performance of the agreement.  The oral agreement is still subject to the traditional requirements of Contract Law, requiring consideration and assent, to constitute itself as enforceable.

However, if the oral agreement falls within the aforementioned proscriptions, it is required to be in writing, and would be unenforceable, as a matter of law. Additionally, as a matter of practicality and prudence, agreements should still be established in writing, due to the difficulties of enforcing oral agreements.



Richard Connolly’s World

Insurance advisor Richard Connolly of Ward & Connolly in Columbus, Ohio often shares pertinent articles found in well-known publications such as The Wall Street Journal, Barron’s, and The New York Times. Each issue, we feature some of Richard’s recommendations with links to the articles.

The attached article from the November 17th edition of the Wall Street Journal says:

Lawmakers in the House of Representatives and Senate have separate tax-overhaul bills with a multitude of differences, but the similarities between them are a good indicator of what could actually pass.

Here are areas of overlap between the House and Senate tax bills for individual taxpayers.

ESTATE TAX. Both bills would double the current estate-tax exemption of $5 million per person, adjusted for inflation. The change would take effect for 2018, and the exemption would be $11.2 million per individual and $22.4 million per married couple.

To View the Full Article Click Here



What You Should Consider When Converting a Regular Corporation to an LLC

by Alan Gassman


Florida Statute, Section 607.1112 permits the conversion of a regular corporation to an LLC, and specifically provides that the LLC will be considered to be a continuation of the company, as to identity, contractual rights, assets, liabilities, and other characteristics.

Nevertheless, third parties, and some governmental agencies will not recognize or follow that statute.

Consider the following in determining whether to convert a regular corporation to an LLC or other entity.

  1. Whether the conversion may violate loan or other agreements with third parties that the company may have entered into.
  2. Whether the conversion will be considered to be a transfer of a licensed business or professional practice for purposes of state Department of Business Regulation rules.  For example, the Florida Department of Business Regulation has taken the position that the conversion of a construction firm from a regular corporation to an LLC constitutes a change of ownership, thus necessitating significant application and associated registration changes.
  3. If the company owns an airplane, the Federal Aviation Association may need to be notified to pre-approve the transition.
  4. Liability or casualty insurance policies may require notification of agencies and carriers.
  5. A fictitious name notice whereby the LLC is doing business under its previous name will be advisable if the previous name will be used, and some state laws prevent a limited liability company from using a fictitious name that would imply that it is a regular corporation.

Specifically, Florida Statute… prevents…

  1. The IRS and any state tax law authorities should be notified of the name change.
  2. If the entity is a medical practice, then Medicare and Medicaid should be informed, and will treat this as a name change.
  3. If the company owns real estate, copies of the Articles of Amendment should be filed in the county records to change the name of record for the company.

Consider the above list, and let us know what might come to mind for us to add for future applications.



Taking Great Care of Your Parents as Beneficiaries

by Alan Gassman


We have had several clients ask us about best practices to take care of their parents.  With the holidays upon us, we wanted to share these thoughts on including parents as beneficiaries.

You may also consider the following language, and we would appreciate input as to any improvements.

  1. Can the parents agree on where the assets under the trust will be devised after the second death, or will it be up to the surviving parents to have the only power of appointment?
  2. Will the power of appointment be limited?
  3. Will the parents be required to have one or more independent trustees, and the right to replace co-trustees or sole trustees?
  4. Can the trust convert to a “Special Needs Trust” if and when appropriate?
  5. Is there guidance as to whether the parents should be expected to maintain their present standards of living, or a higher standard of living if the child owning the trust has a higher standard?
  6. If the trust is to be funded directly by a life insurance policy, should there be language which provides “anything more than $________ in proceeds should pass instead to the trust for the surviving spouse/or children because it’s probably an accident”?
  7. In the event of a divorce should the trust divide into a separate trust for each spouse and will there be a tie breaker trustee if it stays together – “in the unlikelihood of a divorce between my parents the trust will be divided into two separate equal trusts on the date that the divorce decree is filed, and each parent will serve as co-trustee of the trust established for him or her with his or her choice of ______, ______, or a licensed trust company, and the power to replace the acting license trust company at any time and for any reason”.


If a deadlock occurs between my two parents and there is no other trustee serving that can break the deadlock then the first available in the order named of _____, _____, or _______ may serve as additional co-trustee in order to facilitate breaking the deadlock.  Any such individual may choose to serve for the sole and limited purpose of breaking the applicable deadlock and thus issuing such instructions as such tie breakers trustee and the ones parent who agrees with him or her will have applied.



A Disposition to Parents with Caring: a Forethought 

by Alan Gassman


(e)        Disposition to Parents.  I wish to benefit my parents, JANE SMITH and JAMES SMITH, by providing $2,000,000 to be invested conservatively for their health, education, maintenance, and support, and to enable my surviving parent to direct how the trust assets would pass on his or her death provided that my surviving parent may not direct that the assets pass to his or her creditors, his or her estate, or the creditors of his or her estate, nor shall my surviving parent have the power to direct that such assets pass to satisfy any legal obligation, including any support obligation of my surviving parent, and such power of direction shall be construed to be a limited Power of Appointment as defined in Sections 2041 and 2514 of the Code.

I intend to make the “Trust Established for JANE SMITH and JAMES SMITH under Section 4.01(e) of the RESTATED AND AMENDED TRUST AGREEMENT OF JULIE SMITH” as the beneficiary of one or more life insurance policies in order to accomplish this.  In the unlikely event that the death benefit under such policies exceeds $2,000,000, then, unless I have amended this Trust Agreement to provide for a greater disposition for them, any excess of life insurance proceeds or other assets that would pass into this Trust shall instead pass with the residuary as set forth in Section 4.02 below.

The assets held under this Trust for my parents shall be titled to and managed by my parents, or one of them if the other is unable or unwilling to serve, with their choice of one or more of GEORGE JONES, MARY JONES, and/or a licensed trust company, and my parents shall have the power (acting jointly while both are alive, or exercisable by one of them if the other is not alive) to replace the acting non-parent Co-Trustee with one or more of GEORGE JONES, MARY JONES, and/or a licensed trust company, provided that at all times a Co-Trustee is serving with them.

The purpose of having a co-trusteeship is to help assure that noone would ever take advantage of my parents, and that they can have a person and/or institution well-versed in investments, decision-making, health insurance and benefit programs, and other financial, legal, and decision-making factors to assist and guide them.

I request that my parents would be permitted to retire in reasonable comfort so that expenditures may be the most that a reasonable trustee would permit, taking into consideration that remaining trust assets should be available for continuing support.  I also authorize the Trustees to invest in ways that may not be considered to be “conventional” by trust companies and under the “Prudent Investor Rule” because sometimes what the mainstream of society and professionals believe to be safe and appropriate has turned out in an opposite manner.

My parents may agree jointly as to how some or all of the Trust assets would pass after the death of the surviving parent, such as if both parents wish to assure that a certain percentage of assets remaining after the death of the survivor of them would go to a particular person or charity.

After the death of the surviving parent, to the extent that they have not otherwise directed how the Trust assets would pass by exercise of a Power of Appointment as above indicated, the remaining Trust assets shall pass directly into the SMITH  FAMILY TRUST (or to the SMITH Q-TIP TRUST if it has been funded, and there is good reason to allocate some or all of the Trust assets to such SMITH Q-TIP TRUST, as determined in the discretion of the Trustees) in the manner deemed most appropriate for tax and trust planning purposes by the acting Trustees, provided that such power may not be exercisable in favor of my parents individually, one or both of their estates, their creditors, or the creditors of either or both of their estates, and further provided that there is no limitation that would limit the exercise to descendants of any particular person or persons or that would prevent appointment in favor of any 501(c)(3) charity or charities shall apply.



Employer Identification Number Form Advice

by Tina Arvin


Clients often want to apply for their own Employer Identification Number (EIN) for new entities for the IRS, which can be sent by fax or mail..

In some cases the IRS response will be to send “requests for additional information”, and sometimes multiple responses are required and weeks can pass before the number is issued..

Recently, an IRS representative gave me several tips as to what the IRS is looking for on Forms SS-4 and 2848.  These are as follows::

  1. On the SS-4, the title of the “Authorized Person” (box 7a) and the title of the person signing is very important.  The IRS does not recognize the title Manager for an LLC.  They want the Member (not the Manager) provided at box 7a and that same Member to sign the SS-4.  One should also include the title “Member” after the name of the person or entity provided in box 7a.
  2. On the SS-4, if the Member at box 7a is another entity, one needs to provide a thorough description of who is signing the SS-4 to tie it back to that Member.  You can use the white space at the bottom of the SS-4 to type or write in a description.

For example, if the form has ABCD, LLC at box 1 on the SS-4, and XYXY, LLC at box 7a, the signature line description should say: JOHN SMITH, as Manager of XYXY, LLC, as sole Member of ABCD, LLC.

  1. On the 2848, an adviser cannot list his/her address as the address of the entity provided in box 1.  One must list the physical address of the entity provided in box 1 (Taxpayer Name and Address).
  2. Anytime one has to apply for an EIN via the fax system, you should include a copy of the filed Articles of Organization with the Forms SS-4 and 2848.  If the IRS representative who receives the SS-4 and 2848 has questions, they can often be answered by providing the filed Articles of Organization.

If you continue to receive “requests for additional information” from the IRS and all of the above was properly provided, the representative I spoke with yesterday suggested referring to the Internal Revenue Manual, Section which can be found online.  This Section provides the “minimum requirements” that an SS-4 must contain to be approved by the IRS for assigning an EIN. You can view this section by clicking HERE.


Humor! (Or lack thereof!)

In the News With Ron Ross