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

Do you want to withdraw cash from your closely held corporation at a low tax cost? The easiest way is to distribute cash as a dividend. However, a dividend distribution isn’t tax-efficient, since it’s taxable to you to the extent of your corporation’s “earnings and profits.” But it’s not deductible by the corporation.
Different approaches
Fortunately, there are several alternative methods that may allow you to withdraw cash from a corporation while avoiding dividend treatment. Here are five ideas:
1. Capital repayments. To the extent that you’ve capitalized the corporation with debt, including amounts that you’ve advanced to the business, the corporation can repay the debt without the repayment being treated as a dividend. Additionally, interest paid on the debt can be deducted by the corporation. This assumes that the debt has been properly documented with terms that characterize debt and that the corporation doesn’t have an excessively high debt-to-equity ratio. If not, the “debt” repayment may be taxed as a dividend. If you make cash contributions to the corporation in the future, consider structuring them as debt to facilitate later withdrawals on a tax-advantaged basis.
2. Salary. Reasonable compensation that you, or family members, receive for services rendered to the corporation is deductible by the business. However, it’s also taxable to the recipient. The same rule applies to any compensation (in the form of rent) that you receive from the corporation for the use of property. In either case, the amount of compensation must be reasonable in relation to the services rendered or the value of the property provided. If it’s excessive, the excess will be nondeductible and treated as a corporate distribution.
3. Loans. You may withdraw cash from the corporation tax-free by borrowing money from it. However, to avoid having the loan characterized as a corporate distribution, it should be properly documented in a loan agreement or a note and be made on terms that are comparable to those on which an unrelated third party would lend money to you. This should include a provision for interest and principal. All interest and principal payments should be made when required under the loan terms. Also, consider the effect of the corporation’s receipt of interest income.
4. Fringe benefits. Consider obtaining the equivalent of a cash withdrawal in fringe benefits that are deductible by the corporation and not taxable to you. Examples are life insurance, certain medical benefits, disability insurance and dependent care. Most of these benefits are tax-free only if provided on a nondiscriminatory basis to other employees of the corporation. You can also establish a salary reduction plan that allows you (and other employees) to take a portion of your compensation as nontaxable benefits, rather than as taxable compensation.
5. Property sales. You can withdraw cash from the corporation by selling property to it. However, certain sales should be avoided. For example, you shouldn’t sell property to a more than 50% owned corporation at a loss, since the loss will be disallowed. And you shouldn’t sell depreciable property to a more than 50% owned corporation at a gain, since the gain will be treated as ordinary income, rather than capital gain. A sale should be on terms that are comparable to those on which an unrelated third party would purchase the property. You may need to obtain an independent appraisal to establish the property’s value.
Minimize taxes
If you’re interested in discussing any of these ideas, contact us. We can help you get the maximum out of your corporation at the minimum tax cost.
© 2019

Many not-for-profit organizations use fundraising methods that cross state boundaries. If your nonprofit is one of them, it may need to register in multiple jurisdictions. But keep in mind that registration requirements vary — sometimes dramatically — from state to state. So be sure to determine your obligations before you invest time and money in registering.
The critical activity
How do you know if your nonprofit needs to register in other states? The critical activity is soliciting donations, not receiving them.So if your charity receives occasional contributions from out-of-state donors, you may not need to register in those states if you never asked for the contributions.However, email and text blasts and social media appeals are likely to be considered multistate solicitations.
Even so, a handful of state don’t require certain nonprofits to register. For example, they may exempt houses of worship as well as nonprofits with total annual income under certain thresholds. Other states may require charities to register but exempt them annual filing. All of the states have varying rules, income thresholds, exceptions, registration fees and fines for violations. Even the agencies that regulate charities differ by state.
No easy way
Unfortunately, there isn’t a simple way to register with every state. Most states require you to complete a general information form and submit it with:
Your last financial statement,
A list of officers and directors,
A copy of your originating document, and
Your IRS-issued tax-exempt determination letter.
Registration fees range from $0 to $2,000.
First-time registrants can use a Unified Registration Statement in most states. However, even those states mandate that annual renewals and reports be submitted using individual state forms.
Possible consequences
If your nonprofit fails to register in states where it raises funds, the consequences can be severe.Your organization, officers and board members could face civil and criminal penalties. Your charity might lose its ability to solicit funds in certain states or even lose its tax-exempt status with the IRS. Nonprofits must alsolist the states where they’re registered on their Form 990s.
For some nonprofits — particularly smaller organizations — cross-state registration requirements and potential penalties may lead them to limit fundraising to their own states. Contact us for help determining your registration obligations.
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