Howard’s Inner Circle, No. 21: Being Proactive When There is Uncertainty

A number of speakers at the UJA Federation of New York 41st Annual Sidney Kess New York Tax & Financial Planning Conference urged attorneys, CPAs, and financial planners attending to encourage their clients to review their wills. There was concern that the federal estate tax repeal for 2010 could have a devastating impact on the distribution of property if they died in 2010.

A particularly expressed concern were those wills with formula clauses that assumed the existence of an estate tax. Martin Shenkman with Martin M. Shenkman, P.C. in Teaneck, NJ indicated that relying upon a state-enacted stop-gap law that assumes an estate tax of a certain date for purposes of a formula clause might not work as it could result in the disposition not intended by the actual formula clause in the will.

I believe it was Daniel Daniels of Wiggin and Dana LLP in Stanford, Conn. who opined if a change in a will is needed, a deficient formula clause might be replaced with a bequest to a giant QTIP trust providing flexibility to deal postmortem with the estate tax uncertainty. This is especially true if the estate tax is imposed retroactively to individuals dying towards the end of 2010.

Shenkman also pointed out how the estate tax repeal discourages charitable bequests in a will since there is no estate tax charitable deduction to utilize. He offered a number of alternatives which would result in a deduction for income tax purposes. He also added that similar logic would apply upon reinstatement of an estate tax if the estate is under the estate tax exclusion amount.

Also in dealing with uncertainty, Steven Siegel of the Siegel Group in Morristown, NJ recommends including alternative dispositions when drafting, as this allows for the greater effective utilization of disclaimers to accomplish a desired result despite the uncertainty.

It is extremely unfortunate that the Congress that enacted the “Economic Growth and Tax Relief Reconciliation Act” and subsequent Congresses, especially and including this one, created and continue to perpetuate this uncertainty. In 2001, while I was editor-in- chief of Practical Accountant, I mentioned in a cover story on this subject that a practitioner observed tongue-in-cheek, “Some advisors are having clients sign a living will where the plug will get pulled five minutes before the end of 2010.” My fear is this Congress will take no action in 2010 and a plug might be pulled or someone might commit suicide just before 2010 ends so the death occurs before the estate tax is reinstated.
© 2010
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The above may be reproduced in full if that fact is stated and Howard Wolosky is credited as the author.

Howard’s Inner Circle, No. 20: Seeking Clarity

Not having a job doesn’t mean you’re not working. Much of my efforts are focused on “staying in the present.” I’m finding that it is particularly difficult. So, as I often do, I turned to a self-help book. The right one is easy to find at a library, bookstore, or online by simply looking at some titles. Publishers of self-help books are adept at reeling you in that way.

Arriving in Your Own Door--108 Lessons in Mindfulness by Jon Kabat-Zinn is the one I picked to read and the following is helping me to stay in the present:

“When you are taking a shower, check and see if you are in the shower. You may already be at a meeting at work. Maybe the whole meeting is in the shower with you.”

“Our thoughts may have a degree of relevance and accuracy at times, but often they are at least somewhat distorted by our self-centered and self-serving inclinations, our ambitions, our aversions, and our overriding tendency to ignore or be deluded by both.”

““The intention would be to see things as they actually are, not as we would like them to be or fear them to be, or only what we are socially conditioned to see or feel.”

© 2010
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The above may be reproduced in full if that fact is stated and Howard Wolosky at http://howardwolosky.blogspot.com is credited as the author.

Howard’s Inner Circle, No. 19: Did You Ever Notice?

The older you get the more you understand that what is right is subjective.

If you tell someone to do many things at least one won’t be done, but if you ask only for only one thing, it will be done.

Lately popularity governs what is “news.”

Control shouldn’t always be gained, but is often better given up.

A blind spot is hard to see even when someone points it out to you.

Today we have almost unlimited tools to create and inhabit a manufactured reality.

How hard it is not to leave footprints?

Howard’s Inner Circle, No. 18: The Subjective Forms of Succession Planning

When I was editor-in-chief at Practical Accountant, I was always intrigued by succession planning at accounting firms.

It seemed to be missing at most small ones. Probably because most practitioners viewed the practices as totally identified with themselves and were busy attending to business. At best, a few had practice continuation agreements with other firms in the case of death or disability.

In the case of the medium-sized firms, especially where the founders were still in control, it seemed like there was an enforced belief that further succession planning wasn’t tolerated or needed. The founders assumed, when they retire shortly, the firm would last long enough to make the payouts under the partnership agreement.

The larger regional firms paid the most attention. I was impressed when there was a smooth transition and the managing partner handed the baton over to a named successor over a stated extended transition period. Then, there were the knockouts of the long-term managing partner closely identified with past successes but seen as an obstacle by rainmaking partners to a needed new direction. My favorite was where the very successful, political savvy managing partner closely guarded his or her power and so ensured he or she had no successor at the firm. Those firms often ended up being acquired by an even larger firm or consolidator.

Perhaps I was so intrigued because I didn’t really understand how subjective succession planning is. Rather than looking at it from the prospective of ensuring the future survival of a firm, my starting point should have been to better understand the individuals, the size of the firm, and the firm’s power players’ interests as they would more likely determine the favored succession plan.

© 2010
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The above is from the newsletter, Howard’s Inner Circle, which periodically appears on the blog, “Instigator” at http://howardwolosky.blogspot.com/. It may be reproduced in full if that fact is stated and Howard Wolosky is credited as the author.

Howard’s Inner Circle, No. 17: Seeking Solutions

I loved doing mazes as a child and I thought I had an original approach to solving them. A couple of years ago I planned to use a maze as an opening exercise for conference attendees. After giving them time to solve the maze, I explained my theory which I had held onto for over forty years and no longer believe. You see, prior to my presentation, Justin, the art director of my company had looked at the maze and said the best way to solve that particular puzzle was neither from the start nor the finish, but to begin from the middle. He was right!

Howard’s Inner Circle, No. 16: Entries in My Black Book

Not sure all my readers know what a “little black book” is. Wiktionary defines the phase as “an address book, especially one in which the details of previous lovers are recorded.” Don’t think that applies to mine, a looseleaf binder with about 80 encased-in-plastic pages of quotes and paraphases from books I have read.

Periodically I reread my black book to see if what I captured still has value. Also, I revisit it when I feel out of kilter and want to achieve a better balance, or improve my interactions with others.

Here are five quotes that particularly caught my attention today:

“If I ask people what they think of me, they are usually polite. But if I ask them if they’d be willing to tell me what other people say about me, I give them the opportunity to say things without putting them in an awkward position of criticizing me to my face.”

“The word listen contains the same letters as the word silent for good reason.”

“You learn in life the only person you can correct and change is yourself.”

“The more innovative your ideas, the smaller the number of people who will understand it.”

“I know G-d will not give me anything I can’t handle. I just wish he didn’t trust me so much.

Maybe Wiktionary’s description as “an address book, especially one in which the details of previous lovers are recorded.” isn’t so far off. Without giving specific attribution, the five quotes are by Sam Horn, Katherine Hepburn, David Maister, Mother Teresa, and Harry Beckwith.

© 2010
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The above is from the newsletter, Howard’s Inner Circle, which periodically appears on the blog, “Instigator” at http://howardwolosky.blogspot.com/. It may be reproduced in full if that fact is stated and Howard Wolosky is credited as the author.

Howard’s Inner Circle, No. 15: Dramatic Changes in Tax Planning

I met Dean Zerbe a number of years ago when he became National Director in alliantgroup's Washington, D.C. office. He was formerly a Senior Tax Counsel on the Senate Finance Committee. I took a liking to him immediately and was lucky enough to hear him speak last week at a Firm of the Future free breakfast hosted by Philip Whitman of Whitman Business Advisors and Robert Fligel of RF Resources.

Dean Zerbe understands intimately the dynamics of tax legislation and is especially attuned to the changing winds in Washington. I like that his free newsletter is only sent out when he has something important to say. Most importantly he pulls no punches when he describes the factors and the players that influence tax legislation.

There were some keys points he made that morning indicating to me that accounting firms should be making changes in their approach to tax planning, and in identifying which clients and potential clients are impacted by tax legislation.

Tax legislations’ increased industry focus.--It was particularly evident in the recent health reform legislation according to Zerbe that taxes were imposed on industries or a tax benefit was given to an industry. Take the therapeutic credit/grant which is a limited $1 billon program which ends once that amount is allocated. Interestingly if a qualified company picked by the IRS can’t use the credit it gets a grant. Zerbe points out the IRS form for applying was expected to come out momentarily and there is a very limited time to file. He expects future tax legislation to continue to focus on specific industries as that is easier than changing tax rates in general. Another example of this continued type of focus is a controversial proposal trying to increase payroll taxes for S corporations where shareholders are professionals.

Taking the penalty.—Zerbe expects more companies to pay the penalty for not proving medical insurance benefits as that will result in a greater savings than continuing to pay the benefits. He predicts taking the penalty as increasingly being viewed as a viable option in other situations.

Choosing to pay the estate tax for those dying in 2010.--Zerbe predicts one option that Congress might select is allowing certain estates of those deceased in 2010 subject to carryover basis to pay an estate tax instead and get a stepped-up basis for the property. If this option is adopted or the carryover basis rules are left alone, there are significant fiduciary obligations for these executors and administrators and planning opportunities for the disposal of property with a carryover basis with regard to heirs.

Watch out for tax whistleblowers—According to Zerbe, underpayment of tax whistle blowing is on the increase such as the reporting of companies taking advantage of promoted tax shelters. With downsizing, a move to independent contractors, and the informality of e-mails, it should come as no surprise that a disgruntled ex-employee might seek a reward from IRS. What is fascinating is the number of law firms who are specializing in this. Just do a search on the Internet.

Highlight costs of compliance-- CPAs and the organizations representing them need to put a greater effort in convincing Congress to calculate the costs of compliance when a tax law change is proposed suggests Zerbe. The figures could be included in Congressional reports the same way the revenue impact of specific law changes are displayed.

© 2010
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The above is from the newsletter, Howard’s Inner Circle, which periodically appears on the blog, “Instigator” at http://howardwolosky.blogspot.com/. It may be reproduced in full if that fact is stated and Howard Wolosky is credited as the author.