Let’s say you’re charitably inclined but have concerns about maintaining a sufficient amount of income to meet your current needs. The good news is that there’s a trust for that: a charitable remainder trust (CRT). This type of trust allows you to support your favorite charity while potentially boosting cash flow, shrinking the size of your taxable estate, and reducing or deferring income taxes.
A CRT in action
You contribute stock or other assets to an irrevocable trust that provides you — and, if you desire, your spouse — with an income stream for life or for a term of up to 20 years. (You can name a noncharitable beneficiary other than yourself or your spouse, but there may be gift tax implications.) At the end of the trust term, the remaining trust assets are distributed to one or more charities you’ve selected.
When you fund the trust, you can claim a charitable income tax deduction equal to the present value of the remainder interest (subject to applicable limits on charitable deductions). Your annual payouts from the trust can be based on a fixed percentage of the trust’s initial value — known as a charitable remainder annuity trust (CRAT). Or they can be based on a fixed percentage of the trust’s value recalculated annually — known as a charitable remainder unitrust (CRUT).
CRUTs vs. CRATs
Generally, CRUTs are preferable for two reasons. First, the annual revaluation of the trust assets allows payouts to increase if the trust assets grow, which can allow your income stream to keep up with inflation. Second, you can make additional contributions to CRUTs, but not to CRATs.
The fixed percentage — called the unitrust amount — can range from 5% to 50%. A higher rate increases the income stream, but it also reduces the value of the remainder interest and, therefore, the charitable deduction. Also, to pass muster with the IRS, the present value of the remainder interest must be at least 10% of the initial value of the trust assets.
The determination of whether the remainder interest meets the 10% requirement is made at the time the assets are transferred — it’s an actuarial calculation based on the trust’s terms. If the ultimate distribution to charity is less than 10% of the amount transferred, there’s no adverse tax impact related to the contribution.
Seek advice before acting
CRTs require careful planning and solid investment guidance to ensure that they meet your needs. Before taking action, discuss your options with us.
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Traditional and Roth IRAs can be powerful estate planning tools. With a “self-directed” IRA, you may be able to amp up the benefits of these tools by enabling them to hold nontraditional investments that offer potentially greater returns. However, self-directed IRAs present pitfalls that can lead to unfavorable tax consequences. Consequently, you need to handle these vehicles with care.
Estate planning benefits
IRAs are designed primarily as retirement-saving tools, but if you don’t need the funds for retirement, they can provide a tax-advantaged source of wealth for your family. For example, if you name your spouse as beneficiary, your spouse can roll the funds over into his or her own IRA after you die, enabling the funds to continue growing on a tax-deferred basis.
If you name someone other than your spouse as beneficiary, that person will have to begin taking distributions.
Advantages of self-directed IRAs
A self-directed IRA is simply an IRA that gives you complete control over investment decisions. Traditional IRAs typically offer a selection of stocks, bonds and mutual funds. Self-directed IRAs (available at certain financial institutions) offer greater diversification and potentially higher returns by permitting you to select virtually any type of investment.
Self-directed IRAs offer the same estate planning benefits as traditional IRAs, but they allow you to transfer many types of assets to your heirs in a tax-advantaged manner. Self-directed Roth IRAs are particularly powerful estate planning tools, because they offer tax-free investment growth.
Avoiding the pitfalls
To avoid pitfalls that can lead to unwanted tax consequences, caution is required when using self-directed IRAs. The most dangerous traps are the prohibited transaction rules. These rules are designed to limit dealings between an IRA and “disqualified persons,” including account holders, certain members of account holders’ families, and businesses controlled by account holders or their families.
Among other things, disqualified persons may not sell property or lend money to the IRA, buy property from the IRA, provide goods or services to the IRA, guarantee a loan to the IRA, pledge IRA assets as security for a loan, receive compensation from the IRA or personally use IRA assets.
The penalty for engaging in a prohibited transaction is severe: The IRA is disqualified and all of its assets are deemed to have been distributed on the first day of the year in which the transaction takes place, subject to income taxes and, potentially, penalties. This makes it virtually impossible to manage a business, real estate or other investments held in a self-directed IRA. So, unless you’re prepared to accept a purely passive role with respect to the IRA’s assets, this strategy isn’t for you.
Proceed with caution
If you’re considering a self-directed IRA, contact us to determine whether this vehicle is right for you. Consider the types of assets in which you’d like to invest and carefully weigh the potential benefits against the risks.
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Traditionally, trusts used in estate planning contain “Crummey” withdrawal powers to ensure that contributions qualify for the annual gift tax exclusion. Today, the exclusion allows you to give up to $15,000 per year ($30,000 for married couples) to any number of recipients.
Now that the gift and estate tax exemption has reached an inflation-adjusted $11.4 million, fewer people have to worry about gift and estate taxes. But, for many affluent people, the annual exclusion continues to be an important estate planning strategy. Thus, Crummey powers continue to be relevant.
Reasons to make annual exclusion gifts
Despite the record-high exemption, there are two important reasons to make annual exclusion gifts. First, if your wealth exceeds the exemption amount, an annual gifting program can reduce or even eliminate your liability for gift and estate taxes.
Second, even if your wealth is well within the exemption, annual gifting guarantees that the amounts you give are permanently removed from your taxable estate. If you rely on the exemption, keep in mind that there’s no guarantee that Congress won’t reduce the amount in the future, exposing your estate to tax liability.
Crummey powers explained
The annual exclusion is available only for gifts of “present interests.” But a contribution to a trust is, by definition, a gift of a future interest. To get around this obstacle, trusts typically provide beneficiaries with Crummey withdrawal powers. By giving them the right to withdraw trust contributions for a limited period of time (usually 30 to 60 days), it’s possible to convert a future interest into a present interest, even if the withdrawal rights are never exercised.
For Crummey powers to work, the trust must give beneficiaries real withdrawal rights. Generally, that means you can’t have an agreement with your beneficiaries — expressed or implied — that they won’t exercise their withdrawal rights (although it’s permissible to discuss with them the advantages of keeping assets in the trust).
It also means that the trust should contain sufficient liquid assets so that beneficiaries can exercise their withdrawal rights if they choose to.
Notifying beneficiaries of withdrawal rights is critical
The IRS has long taken the position that a trust contribution isn’t a present-interest gift — and, therefore, is ineligible for the annual exclusion — unless beneficiaries receive actual notice of their withdrawal rights and a “reasonable opportunity” to exercise those rights. To avoid an IRS challenge, it’s prudent to provide beneficiaries with written notice of their withdrawal rights, preferably via certified mail.
There’s no specific requirement regarding the amount of time that constitutes a “reasonable opportunity.” The IRS has indicated in private rulings, however, that 30 days is sufficient, while three days isn’t. Common practice is to give beneficiaries between 30 and 60 days to exercise their withdrawal rights.
If you wish to make annual exclusion gifts to a trust, be sure the trust provides the beneficiaries with Crummey withdrawal powers. Contact us with questions.
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Merging with, or acquiring, another company is one of the best ways to grow rapidly. You might be able to significantly boost revenue, literally overnight, by acquiring another business. In contrast, achieving a comparable rate of growth organically — by increasing sales of existing products and services or adding new product and service lines — can take years.
There are, of course, multiple factors to consider before making such a move. But your primary evaluative objective is to weigh the potential advantages against the risks.
Does it make sense?
On the plus side, an acquisition might enable your company to expand into new geographic areas and new customer segments more quickly and easily. You can do this via a horizontal acquisition (acquiring another company that’s similar to yours) or a vertical acquisition (acquiring another company along your supply chain).
There are also some potential drawbacks to completing a merger or acquisition. It’s a costly process from both financial and time-commitment perspectives. In a worst-case scenario, an ill-advised merger or acquisition could spell doom for a business that overextends itself financially or overreaches its functional capabilities.
Thus, you should determine how much the transaction will cost and how it will be financed before beginning the M&A process. Also try to get an idea of how much time you and your key managers will have to spend on M&A-related tasks in the coming months — and how this could impact your existing operations.
You’ll also want to ensure that the cultures of the two merging businesses will be compatible. Mismatched corporate cultures have been the main cause of numerous failed mergers, including some high-profile megamergers. You’ll need to plan carefully for how two divergent cultures will be blended together.
Can you reduce the risks?
The best way to reduce the risk involved in buying another business is to perform solid due diligence on your acquisition target. Your objective should be to confirm claims made by the seller about the company’s financial condition, clients, contracts, employees and management team.
The most important step in M&A due diligence is a careful examination of the company’s financial statements — specifically, the income statement, cash flow statement and balance sheet. Also scrutinize the existing client base and client contracts (if any exist) because projected future earnings and cash flow will largely hinge on these.
Finally, try to get a good feel for the knowledge, skills and experience possessed by the company’s employees and key managers. In some circumstances, you might consider offering key executives ownership shares if they’ll commit to staying with the company for a certain length of time after the merger.
Who can help?
The decision to merge with another business or acquire another company is rarely an easy one. We can help you perform the financial analyses and project the tax implications of any prospective deal to bring the idea better into focus.
© 2019

You’d be hard pressed to find a business today that doesn’t have laptop computers listed among its assets. Large companies have hundreds of them; midsize ones issue them to managers to facilitate mobility; and many small businesses rely on them as primary computing devices.
Now, in and of itself, a laptop may seem harmless. But they literally hold a clear and present danger to companies: their batteries. Poorly maintained or damaged batteries can catch fire — putting any people and property nearby in serious risk. Faulty batteries can also hamper the device’s functionality, shorten its lifespan and put critical data at risk, inhibiting employees’ productivity and lowering morale.
Best practices
To help guard against the possibility that one of your company’s laptops might incur battery-related damage, follow these best practices:
Require the use of only compatible computer batteries or chargers.
If you maintain an inventory of loose batteries, keep them away from metal objects, such as small tools, coins, keys or jewelry.
Educate employees to, perhaps ironically, not use their computers on their laps or on any other soft surface (such as a bed or sofa) that could restrict airflow.
Teach employees to never place any heavy objects on their laptops that could crush, puncture or place a high degree of pressure on the battery.
Provide training on the proper transportation of laptops to prevent bumping the computers into objects or dropping them on hard surfaces.
Instruct users to never put a laptop in an area that could get very hot, such as the hood or dashboard of a vehicle, or a desk in a warm room directly exposed to sunlight.
Explain to employees how to safeguard their laptops from moisture and, if a computer does get wet, to bring it in for maintenance immediately because, even after drying, batteries or circuitry could slowly corrode and pose a safety hazard.
Ultimately, workers need to follow battery usage, storage and charging guidelines found in the user’s guide of their respective laptops.
Manufacturer info
Laptop battery manufacturers are a key resource in staying safe. Remind staff that they shouldn’t use batteries subject to recall while awaiting a replacement battery pack from the manufacturer. Employees should use the AC adapter power cord to power their laptops in the meantime.
If you’re unsure about the compatibility of any of your company’s laptops and batteries, or you suspect one of your units may have been damaged, contact the manufacturer to determine whether you’re at greater risk for a battery-related mishap. In fact, you might want to contact the manufacturer anyway just to get the latest on safety concerns about laptop batteries.
Critical assets
Laptops, and computing devices in general, represent a substantial cost outlay for virtually every size and type of business. We can help you set a reasonable purchasing budget and better track and manage the maintenance costs of these critical assets.
© 2019