David Neufeld, an estate planning and tax attorney in Princeton, NJ, explains the various practical uses of trusts, including how trusts can be used for asset protection, federal and state estate tax mitigation and ensuring that the right people receive assets, in an interview reported in UBS' online Insights Magazine in an article titled "Use a Trust for the Things You Care About."
I'll be speaking at the "Private Placement Life Insurance and Variable Annuities Forum 2016" in Boston May 17 & 18. If you're interested you can use my 15% speaker discount code FKN2476EMSPKLI or click here: http://www.ppliconference.com/FKN2476EMSPKLI
Let me know that you're going.
I was again honored with an invitation to discuss tax law matters on Kurtis Baker's radio program, this time to discuss the issues surrounding the ownership of accounts and assets outside the US. Kurt is the principal at Certified Financial Wealth and Investments in Princeton NJ.
Listen here: http://rockwebsystems.com/1077Thebronc/MYF_092015.mp3.
David Neufeld (R) with Kurtis Baker
On September 18, 2015 I had the honor of speaking about the intricacies of captive insurance companies on a panel in Chicago at the annual Joint meeting of the American Bar Association's Tax Section and RPTE Section. The panel included former IRS Commissioner Steven Miller, Jay Adkisson and panel chair David Slenn, all deeply involved with the cutting edge issues surrounding captives. The audience came away with new insights as this quickly evolving field develops.
(L-R) Dave Slenn, David Neufeld, Steven Miller, Jay Adkisson
My latest article from the June 20, 2015 issue of Tax Notes Magazine--Webber: Are Insurance Dedicated Funds Superfluous? is now available on my website. The Webber case favorably cites an earlier article I published in Tax Notes in 2003, also on my website, and hints in dicta that the Court might find that section 817(h) has superseded the IRS' requirements for insurance dedicated funds. But let's not get too excited; it is only dicta and that issue was not before this court. Nevertheless this is the most direct and most authoritative indication that my 2003 thesis seems to have been on the right track.
Citing to an article I published in 2003,* Judge Lauber of the US Tax Court in Webber v. Commissioner, 144 T.C. No. 17 (June 30, 2015) found that the taxpayer, the owner through a grantor trust of private placement life insurance policies, was taxable on all income earned by the policies because he exercised too much control over the investments owned within the policies.
While an important case given the rarity of guidance in this area, it is also a fairly obvious result. There are two types of investor control:
(1) one is the type of direct control over the investment assets and decisions exercised by Mr. Webber,
(2) the other derives from an interpretation of more oblique factors (such as whether the underlying investment funds are publicly available) that may or may not indicate investor control and, depending on who you believe, may be largely supplanted by section 817(h).
In finding that Mr. Webber made the investment decisions that should have been reserved to the investment manager employed by the insurance company--the first test recited above--the Court held that the taxpayer was clearly in violation of the investor control doctrine. Judge Lauber called this “the bedrock ‘investor control’ principles enunciated in Revenue Ruling 77-85.” No surprise there; the fact that the case was litigated is more surprising.
What was not at issue in this case and was not addressed, except in footnote 19, where my article was cited, was the second type of investor control and the type I have written about repeatedly. While neither adopting nor rejecting the rationale in the article, Judge Lauber’s dicta lends support to my conclusion by stating that “the section 817(h) diversification standards may supersede some aspects of the pre-1984 revenue rulings that discuss publicly available investments held by segregated asset accounts.”
Whether the IRS' rulings delineating the second type of investor control has survived enactment of section 817(h) still awaits a case addressing that issue.
*David S. Neufeld, "The 'Keyport Ruling' and the Investor Control Rule: Might Makes Right?," 98 Tax Notes 403, 405 (2003) available in the Articles page
I was honored to be asked by Kurt Baker of Certified Wealth Management & Investment LLC (www.cwmi.us) here in Princeton, NJ to appear on his weekly radio program broadcast/webcast/podcast on 107.7 FM "The Bronc"...Master Your Finances. For the entire hour we spoke about the issues that folks have when they have homes in multiple states and want to be sure that the state with the lowest tax cost is considered their tax residence. The recording of the interview is here.
On May 29, 2015, the New York State Department of Taxation and Finance issued an Advisory Opinion that a membership interest in a single-member LLC (SMLLC) which is disregarded for income tax purposes is not “intangible property” for New York State estate tax purposes. Thus the New York real estate (in this case a condominium) owned by the SMLLC will be included in a of New York State estate of the non-resident decedent who was the LLC member.
Where a SMLLC is disregarded for Federal income tax purposes, it is treated as owned by the individual owner. However, where a SMLLC makes an election to be treated as a corporation, rather than being treated as a disregarded entity, such ownership interest would then be considered intangible property for New York State estate tax purposes and excluded from the estate of a non-resident. (TSB-A-15(1)M)
As the author of Nevis’ limited liability company law in 1995 it is gratifying that it has long been highly regarded as the standard among LLC laws, blazing new trails that other jurisdictions, even in the US, took years to follow. Even as the years have passed and other jurisdictions enacted similar laws, the Nevis LLC continued at the forefront. But with external legal developments, no law can go without a face lift to avoid looking old and irrelevant.
On May 27, 2015 the Nevis Assembly enacted the Nevis Limited Liability Company (Amendment) Ordinance, 2015, based on a draft I provided at the request of the Nevis government, with the help of Jan Dash, a lawyer in Nevis with Liburd & Dash. Along with several important as well as housekeeping provisions, principal among the provisions as enacted are updated judgment creditor, including charging order, provisions and a new fraudulent transfer section. It is effective July 1, 2015. An unofficial version appears at the top of this blog. This was one of three ordinances passed that day; the others are amendments to Nevis international corporation law and to its international trust law.
Section 43 contains the provisions addressing the rights of a judgment creditor. This is commonly referred to in the US as a charging order provision, although it goes further than simply charging orders. In 1995 this was a state-of-the-art provision limiting the ability of certain creditors of limited liability company members from obtaining rights to property of the limited liability company. The NLLCO is one of the few (and certainly one of the first) to provide that this charging order provision is the sole remedy available to the creditor. Over the years issues have developed concerning how this provision works in the context of foreclosure and other equitable remedies and single member LLCs, among others.
The section is completely revised; the changes are as follows:
New Section 43A deals with fraudulent conveyance issues as they relate to transfers to an LLC, i.e. the ability of creditors of a member to recover a claim against such member from property contributed to the company; this is derived from §24 of Nevis’ international trust law (the Nevis International Exempt Trust Ordinance). This essentially provides that the creditor must prove beyond a reasonable doubt that such transfer was intended to defraud the creditor and that the member was thereby rendered insolvent, considering all of his assets including the full fair market value of the LLC interest. The claim must be made within a two year window.
What is not in the amended law is as important as what is included. The draft amendments included provisions that would have permitted Nevis LLCs to have series, making what is already a primary offshore entity law even more formidable. In addition, the Nevis government has draft amendments to its insurance laws permitting cell captives. These series provisions were excluded as were the cell captive amendments to Nevis’ insurance laws at the same time as other jurisdictions have seen value in enacting such provisions.
2015 Proposed Reg: Estate Tax Basis Rule From 2010 Has Far Reaching Income Tax Consequences Well Into the Future
An estate tax rule that income tax practitioners NEED to know…
The IRS just released proposed regulations implementing the modified carry over basis rules for decedents that died in 2010. If you think this is narrow and limited, you may be right in some sense, but every asset that passed during 2010 under these rules will be affected for many years to come.
In 2010 the estate tax went away. But with the 2010 Tax Act (the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Public Law 111-312 (TRUIRJCA)) (we’re just going with the 2010 Tax Act since I cannot with a straight face use the term TRUIRJCA) it came back. That 2010 Act retroactively reinstated the estate tax, except for those lucky souls dying in 2010.
With an estate tax, as before 2009 and since 2011, the basis of property passing from a decedent is stepped up or down, as the case may be, to the fair market value. However, with the 2010 Act things got more complicated: the executor of the estate of a decedent who died in 2010 was permitted to elect a modified carry over basis (the Section 1022 Election). Under these rules the basis of property in the hands of a person acquiring the property from that decedent is treated as having been transferred by gift. Thus if the decedent's adjusted basis is less than or equal to the property's fair market value (FMV) determined as of the decedent's date of death, the recipient's basis is the adjusted basis of the decedent (i.e. the lower of the two). If the decedent's adjusted basis is greater than that FMV, the recipient's basis is limited to that FMV (i.e. again, the lower of the two). In the former case, where the decedent’s
CLICK "READ MORE" TO THE RIGHT FOR THE LIST OF AFFECTED SECTIONS