Why YOU should have a BDIT

Ian 1As a business owner, does anything sound better than having your business protected from creditors and having it grow completely outside of your estate while still having full control over it? The Beneficiary Defective Inheritor’s Trust (the “BDIT”) technique allows all of that. Essentially, a trust beneficiary, the business owner, YOU, can grow your business in a trust established for you by someone else.

The biggest advantage of this strategy is that the BDIT will be for the benefit of the business owner and will be completely discretionary, so there will be no problem getting money out of the company if needed. Some other benefits of this trust are that the beneficiary/business owner has significant control over the trust property and it is a grantor trust with respect to the beneficiary, so that will further remove assets from the beneficiary’s estate while the assets grow tax free. One other advantage is that a BDIT is more flexible than a defective grantor trust as far as changing beneficiaries of the trust, so it might be a good option if a parent is not sure if their child can handle a business or a similar situation.

The mechanics of the BDIT are as follows:

  1. A Parent (or other third party, hereinafter the “Parent”) forms the trust (in a favorable jurisdiction for asset protection) for the benefit of the business owner;
  2.  The Parent contributes $5,000 cash to the trust and allocates $5,000 of GST exemption to it;
  3.  The Parent grants the beneficiary a Crummey power of withdrawal over the $5,000 for 30 days and it lapses;
  4.  The Parent retains no powers that could trigger the grantor trust rules for the Parent;
  5.  The Parent grants full discretion over distributions of income and principal to a third-party trustee;
  6.  The child is granted the power to remove and replace the independent trustee with another independent trustee;
  7.  The Parent grants a broad special power of appointment to the child, exercisable during life or at death;
  8.  The beneficiary will be the Investment Trustee and control all managerial decisions; and
  9.  A formula clause will be used to shift any unintended gifted assets to a non-GST tax exempt BDIT.

However, because the BDIT is a very complex strategy, it must be documented, implemented, and administered very carefully.  If all the proper procedures are followed, this transaction is legitimate despite the IRS not liking it.  Anyone with a growing business should look into a BDIT

For more information regarding this or any other estate planning concern, please visit the Hoffman & Associates website at www.hoffmanestatelaw.com, call us at 404-255-7400 or send us an email.

Hoffman & Associates, Proud Sponsor of the Footprints for the Future 5K

footprints for the future 5kTeam Hoffman & Associates Running for Education in Sandy Springs

Hoffman & Associates (H&A) was a proud sponsor and supporter of the recent Footprints for the Future 5K held on Saturday November 8, 2014. Runners took to the streets in Sandy Springs hoping to make a difference in the lives of students in the 11 public schools in their district.

This inaugural race, organized by the Sandy Springs Education Force (SSEF), helped raise awareness and funds to support their mission of inspiring and supporting all Sandy Springs public school students to graduate and pursue productive lives beyond high school.  According to Joe Nagel, Partner at H&A and co-chair of the event, “I believe in education and in the great work that SSEF is doing in our community.” Joe, whose mother was an educator in Atlanta for many years,  is proud to be involved and making a difference in the lives of so many students.

Several staff members of H&A also participated in the race including Trish Kennedy, Mary Daugherty, Kim Hoipkemier, and Carolina Gomez.

About Sandy Springs Education Force:
In an effort to support Sandy Springs public schools and students, SSEF actively engages the resources of civic leaders, community stakeholders, and businesses to deliver supplemental programs and services in eleven public schools.  For more information about SSEF, please visit their website at www.sandyspringseducationforce.org

About Hoffman & Associates:
Hoffman & Associates, a boutique law firm established in 1991, specializes in high-end estate planning, tax planning and business law. Expertise in these areas comes from a dedicated staff of both attorneys and CPAs delivering personalized service and sound financial guidance.   Hoffman & Associates prides itself in having a standalone tax practice and attorneys licensed in Georgia, Florida, North Carolina and Tennessee. For more information about H&A please visit our website at www.hoffmanestatelaw.com

Can You Afford To Ignore Your Business Exit?

Mike HoffmanHere’s another excellent article written by Denis M. Brown from Pace Capital Resources, LLC.  It is from The Exit Planning Review newsletter, issue 282, dated June 8, 2014.  Can You Afford To Ignore Your Business Exit?

Sincerely,

Mike

 

For more information regarding this or any other business planning concern, please visit the Hoffman & Associates website at www.hoffmanestatelaw.com, call us at 404-255-7400 or send us an email.

In accordance with IRS Circular 230, this article is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose. The information contained herein is provided “as is” for general guidance on matters of interest only. Hoffman & Associates, Attorneys-at-Law, LLC is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. Before making any decision or taking any action, you should consult a competent professional advisor.

Georgia Education Expense Tax Credit – Do Not Wait, Apply for Approval Now

Mary 1The Georgia Department of Revenue has already approved 50% of the $58M education expense tax credits allowed for 2014.  Last year all of the credit cap was approved by May 9, 2013.  It is expected that the entire 2014 credit cap will be met by the end of January 2014.

This tax credit is for contributions made to Georgia Student Scholarship Organizations.  These organizations provide scholarships for students to attend primary and secondary private schools.  The contribution is deductible on your individual federal income tax return as a charitable contribution, and a dollar for dollar tax credit is allowed to offset your Georgia income tax.  Taxpayers must apply for pre-approval in order to participate in this program.  Once the annual credit cap is met, no additional applications are approved.

For more information regarding this or any other tax planning concern, please visit the Hoffman & Associates website at www.hoffmanestatelaw.com, call us at 404-255-7400 or send us an email.

In accordance with IRS Circular 230, this article is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose. The information contained herein is provided “as is” for general guidance on matters of interest only. Hoffman & Associates, Attorneys-at-Law, LLC is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. Before making any decision or taking any action, you should consult a competent professional advisor.

Legal Matters in Starting Your Business

Mike_Hoffman_17Join Mike Hoffman in this 74 minute audio as he hosts the 11th session of the 24 hour MBA in discussing how to get your business off the ground.  There are many different legal options in starting a business, and in this audio session, you will understand the best way to start your business and keep it successful for future generations.  24hrmba-11.mp3

 

Obamacare Delay of Employer Mandate Provisions

Have over 50 employees and worried about providing healthcare by 2014?  You’ll have some extra time.

Last Tuesday, the Obama administration announced that it will delay implementation of the employer mandate provisions of the Affordable Care Act (the “ACA”, also known as “Obamacare”) until January 1, 2015.

The requirement would have required any employer with more than 50 employees to provide health insurance with a minimum level of benefits to all of its employees by January 1, 2014 or face a penalty of $2,000 per employee.  The Administration announced the delay because of the complexity of the law.

“We have heard concerns about the complexity of the requirements and the need for more time to implement them effectively,” Treasury Assistant Secretary Mark Mazur said in a blog post. “We have listened to your feedback and we are taking action.”

 

If you are concerned about implementation of the ACA and would like assistance with planning for it, please contact us at (404) 255-7400 or email us.

In accordance with IRS Circular 230, this article is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose. The information contained herein is provided “as is” for general guidance on matters of interest only. Hoffman & Associates, Attorneys-at-Law, LLC is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. Before making any decision or taking any action, you should consult a competent professional advisor.

 

 

Musings From The CEO (Summer 2013)

Late last year many of our clients were scurrying around to do some last minute gifting.  The fear was that the $5,000,000 gift and estate tax exemption would fall back to $1,000,000; therefore, the opportunity to remove a significant amount of wealth from their taxable estates (and the future appreciation on such property) would be lost forever.  Ironically, or typically, after the 12th hour (at approximately 2 a.m. on the morning of January 1, 2013), Congress passed a new tax law making the $5,000,000 exemption permanent and increasing the tax rate from 35% to “only” 40% (as opposed to the anticipated 55%).  Congratulations to those who completed these estate planning maneuvers, as their families will benefit for generations to come from their, albeit maybe last minute, action.

Under the heading “here we go again”, on April 10th, the Obama Administration published their annual wish list of 2014 revenue proposals.  Several of the provisions related to estate planning, including, are you ready for this, changing the estate and generation skipping transfer tax exemptions back down to $3,500,000, and the gift tax exemption to $1,000,000!  The proposal includes another increase in the tax rate to 45%.  Additionally, the Obama Administration proposes to limit and curtail the use of GRATs (Grantor Retained Annuity Trusts), the technique of gifting or selling assets to a grantor trust, limiting the duration of exemption from generation skipping transfer tax to 90 years (as opposed to unlimited dynasty trusts in some parts of the country), and requiring the reporting to the IRS of purchases of life insurance in excess of $500,000.  As President Reagan said so succinctly, “There you go again!”.

One message is clear.  For those of you that embarked on significant estate planning back in 2012 and prior, congratulations.  For those of you who did not, and who need it, giddy-up!

Enough about estate planning.  The American Taxpayer Relief Act of 2012 (which became law on January 2, 2013), and the Patient Protection and Affordable Care Act of 2010 (“Obamacare”) both become effective in 2013. Therefore, we will be spending a lot more time doing income tax planning.  The classic strategies of maximizing your deductions, reducing ordinary income, trying to achieve long term capital gains versus ordinary income, accumulating tax exempt income, deferring taxes and offsetting income with losses all need to be reviewed and expanded.

For high income taxpayers, up to 80% of itemized deductions can be lost.  For high income taxpayers, tax rates will exceed 39.6%, and combined with state income taxes could easily exceed 50%.  For high income taxpayers, dividend and capital gains rates increased 1/3 from 15% to 20%.  For high income taxpayers, the personal exemptions will be phased out and there will be a Medicare surtax on investment income of 3.8% and on earned income of .9%.

Income taxes have taken a sharp increase, deductions are being reduced, and the level of your adjusted gross income is critical to proper planning.  Be prepared to immerse yourself into these new income tax matters between now and the end of the year. For a lot of us, the tax savings or costs will be very significant.

 

For more information regarding estate planning, business law or tax controversy and compliance, please visit the Hoffman & Associates website at www.hoffmanestatelaw.com or call us at 404-255-7400.

 

In accordance with IRS Circular 230, this article is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose. The information contained herein is provided “as is” for general guidance on matters of interest only. Hoffman & Associates, Attorneys-at-Law, LLC is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. Before making any decision or taking any action, you should consult a competent professional advisor.

Georgia Private School Tax Credit – Time Is Running Out!

Time is running out for one of the easiest ways to save on your state and federal income taxes!  The Georgia Private School Tax Credit law is very close to hitting its maximum funding, so don’t get locked out!  Out of $58 million approved for this program, less than $4 million in contributions may be remaining.

Direct your Georgia income tax dollars to private elementary and high schools (receive dollar for dollar tax credit for amounts contributed to charity) and still get a federal tax deduction to save more tax.  If you itemize, this is a win-win situation.

Georgia Statute 48-7-29.16 establishes an income tax credit for taxpayer funds used to support a qualifying student scholarship organization.    Two examples are the Georgia GOAL Scholarship Program for 107 of Georgia’s private schools and the GRACE Scholar program for Catholic Schools in Georgia.  A full listing of all student scholarship organizations can be found at the Georgia Department of Education’s website at http://www.doe.k12.ga.us/External-Affairs-and-Policy/Policy/Documents/SSO%20List.pdf

Participants can give up to $1,000 per individual or $2,500 for married taxpayers filing a joint return.   For each dollar given, Participants will get a dollar of credit against their Georgia income taxes.  In addition, Participant’s, depending on their circumstances (whether they itemize or are subject to the AMT), may be entitled to take federal charitable deduction for the contribution.     For example, if a Participant contributes $1,000, she will get a $1,000 credit against her Georgia taxes and possibly a $1,000 charitable deduction for federal income tax purposes.

There is virtually no downside to taking this credit.  The Georgia credit allows you to simply redirect taxes you would otherwise pay to a scholarship program of your choice.  The federal charitable contribution deduction may reduce your federal taxes.  This is a no lose proposition.

To take advantage, Participants must fill out Georgia Department of Revenue Form IT-QEE-TP1 (see https://etax.dor.ga.gov/inctax/2011_forms/TSD_HB-1133_FORM_IT-QEE-TP1.pdf) and submit it AS SOON AS POSSIBLE (in order to assure that you will receive your confirmation back from the State of Georgia timely).    The participant should receive a confirmation that their contribution has been accepted.  Once received, the confirmation should be sent along with a check for the contribution amount to the scholarship program of the Participant’s choice.

The form takes about ten minutes to fill out.  For more information or for assistance please contact Joe Nagel in our office at 404-255-7400 or visit our website at www.hoffmanestatelw.com.  This is a tax benefit that seems “too good to be true” but it works!

In accordance with IRS Circular 230, this article is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose. The information contained herein is provided “as is” for general guidance on matters of interest only. Hoffman & Associates, Attorneys-at-Law, LLC is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. Before making any decision or taking any action, you should consult a competent professional advisor.

The Life Insurance Question

As Estate Planners, we often get asked about life insurance.  Do I need it?  How much should I buy?  Should I buy term or permanent coverage?  Which is better:  whole life, variable life or universal life?  Life Insurance is valuable for many reasons, and in our practice, we very often see it used (and recommend it!) for liquidity purposes in taxable estates, for buy-sell arrangements in closely held entities, for funding the education of future generations, equalization of inheritances, or simply income for the surviving family members.  You should have a trusted insurance professional in your team of advisors to ensure your particular situation is adequately addressed.  Gary Bottoms, CLU, ChFC of The Bottoms Group, LLC provides us with a helpful analysis of term insurance versus the various forms of permanent insurance.  We have included his article here as an excellent resource and starting point for answering your life insurance questions.  Give us a call to see where life insurance fits into your estate plan.

 

Term vs Perm Insurance White Paper by Gary Bottoms

 

Article used with permission by Gary T. Bottoms, The Bottoms Group, LLC

 

For more information on estate planning, general business, and tax law, please visit the Hoffman & Associates website at www.hoffmanestatelaw.com or call us at 404-255-7400.

In accordance with IRS Circular 230, this article is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose. The information contained herein is provided “as is” for general guidance on matters of interest only. Hoffman & Associates, Attorneys-at-Law, LLC is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. Before making any decision or taking any action, you should consult a competent professional advisor.

 

Musings from the CEO (Spring 2013)

Estate Planning has evolved significantly over the last several years.  In recent months, we have seen the estate tax exemption become “permanent” at $5,250,000 per person, and it will continue to adjust with inflation.  We have also seen the lifetime gift tax exemption and generation-skipping transfer tax exemption be permanently increased to keep pace with the “new” estate tax exemption.  An obvious effect of this development is that a significant number of estates will be able to pass to the next generation without transfer taxes.  A married couple can now pass at least $10,500,000 of wealth to their children before their estates are hit with the still significant 40% tax rate.

Congress has also made “portability” permanent, which means that any unused exemption when the first spouse dies is carried over to the estate of the surviving spouse.  Prudent planning generally does not rely on portability, since it is sabotaged by the subsequent marriage of the surviving spouse and does not apply to generation-skipping transfer tax.

The focus of seasoned estate planning techniques will continue for the more wealthy.  Estate planning should become less costly and complicated for most Americans, however, Hoffman & Associates will still focus on a significant use of dynasty trusts for a plethora of reasons.  These include not only potential estate tax savings, but also income tax flexibility, asset protection from creditors, preservation of family wealth in the bloodline, protection from divorce, and simplifying probate.  Dynasty trusts, however, are under scrutiny and threat as the Obama Administration pushes its agenda.  While most states are extending the period of time that trusts can hold property, there are proposals to limit that duration for transfer tax (and other?) purposes.

Joe Nagel’s article in this Newsletter is a good reminder to us of the many reasons for estate planning, most of which are not focused on taxes.  We want to be good stewards of our assets.

At Hoffman & Associates our practice will continue to focus on estate planning techniques and working with clients to accomplish their estate planning objectives, with significant focus on succession planning for family businesses and asset protection.

We are seeing an increased focus on elder law matters.  As our client base gets older and the imminent demographics of the country are affected by the baby boomers and their parents, medical technology and a focus on general health issues constantly increase our life expectancies.

As income tax rates continue increasing, we are witnessing a rekindling of our clients’ focus on income tax planning.  This is “back to the basics” for a tax planning firm like Hoffman & Associates.  We continue to focus on important decisions about retirement plans, social security, tax deductions, and the tax sensitive nature of investments on behalf of our clients.

Kim Hoipkemier’s article this month highlights a focus area of Hoffman & Associates, namely, Estate Planning for Women.  Again, demographics, the economy, education and corporate America recognizes that women continue to live longer, earn more, and prosper, with the ever increasing responsibility to juggle and manage family and wealth.

Finally, at Hoffman & Associates we have begun a new area of service for our clients, as their situations demand new and flexible assistance to help them manage their daily financial lives.  The Hoffman Family Office (HFO) services include record keeping, bill paying, bookkeeping, budgeting, investment analysis, insurance analysis/shopping, and family philanthropy matters.  Whether it is the overwhelmed widow, the busy corporate executive, or the family that wants to responsibly out-source some of their financial tedium to their trusted advisors, we want to fill the vacuum by providing such help from the Firm they have trusted with so many other important areas of their planning and financial well-being.  Carolina Gomez of our office has been busy defining the areas where HFO can make a difference, and is ready to talk to you about any area you think HFO may be of assistance.

These are interesting times, and I choose to believe we are at the beginning of good times.  While we are clawing out of a recession, and Washington, DC has us constantly on pins and needles, the economy is generally getting better, unemployment is generally not increasing, and our clients generally are in an upswing in their attitudes and well-beings.  We want to be here for those who need assistance, whether it is planning for them or an elderly family member, assisting with the growth and success of their business, or simply to put their mind at ease that they have satisfactorily addressed planning considerations within their realm of influence.  Let us hear from you!

 

 

For more information regarding estate planning, business law or tax controversy and compliance, please visit the Hoffman & Associates website at www.hoffmanestatelaw.com or call us at 404-255-7400.

 

In accordance with IRS Circular 230, this article is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose. The information contained herein is provided “as is” for general guidance on matters of interest only. Hoffman & Associates, Attorneys-at-Law, LLC is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. Before making any decision or taking any action, you should consult a competent professional advisor.

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