Martin M. Shenkman, CPA, MBA, PFS, AEP, jDYOUR PLANNING TEAMSummary: Fostering a coordinated financial and estate
planning team is one of the most important steps that you
can take to assure that your planning is properly handled.
My apologies if some portions of this article ruffle feathers,
but that’s far better than the adverse consequences that
can happen when yourteam is not coordinated. Some of
the most significant planning opportunities, and some of
the most costly planning problems, don’t fall squarely
within the purview of your attorney, CPA, wealth manager,
or tmst officer, but rather in the less well demarcated
overlap between the various disciplines. Remember those
Venn Diagrams from grade school with the three overlap-
ping circles? The point where the three circles intersect,
the issues of tax, law, and finance that draw on your CPA,
attorney and financial planner, often is the sweet spot. In
most cases you r lawyer cannot advise you how to optimal-
ly operate a trust without consideration of which assets
are held by the trust. That’s an asset “location” (not alloca-
tion) decision. And if your attorney and financial adviser
try the task alone, without the insight of your CPA on in-
come tax considerations, they’ll miss the mark. Remember
how mom always told you that “two heads are better than
one?” Well they are, and three and four heads on a plan-
ning team are exponentially better still. There is another
important reason for coordinating your tea m: checks and
balances. Some advisers are incompetent, and a few are
downright scoundrels. So insisting on coordinating the
team will protect your financial and legal affairs. No advis-
er can know everything, not even the top in their field. So
coordinating you r team will permit other advisers to over-
lap and help compensate for an adviser that lacks the skill
or insight to address a specific issue. When the team func-
tions well, everyone watches your back and you benefit.
So if a coordinated planning team is the cat’s meow, why
doesn’t it always happen?

El It Costs Too Much: Number 1 on the Letterman top 10
list of why advisory teams don’t function properly is a
classic case of “penny wise and pound foolish.” The bene-
fits of a coordinated team will almost assuredly outweigh
the costs, often dramatically so. People worry that it will
cost too much. “If my CPA talks to my attorney they’ll
both bill me!” True. But if they both talk your planning

might actually work. The better answer is to minimize
the costs of the team functioning, not avoid it. Permit

advisers to interact directly
without your involvement.
They can talk more openly,
and use technical jargon that
will expedite the process. The
cost of copying other advisers
on emails is negligible.

El Emperor’s New Clothes:
Many folks think they have a
“team” because they have a
CPA, an attorney and a finan-
cial adviser. The emperor may
have had pants, a shirt and
underwear in his dresser
drawer, but he was still au nat-
ural. The fact that you have
the component parts is good,
but unless they operate as a
team, you’re missing out. You

VOLUME 8, ISSUE 3
May-June 2oI3

I) [i I‘ I)

as the client have to authorize
and direct your advisers to
communicate. Many advisers
are reluctant to reach out to
other team members because
they’ve been chastised by cli-
ents in the past for doing
what they know is right.

El Adviser Arrogance: Coordi-
nation often doesn’t happen
because of adviser arrogance.
The attorney assumes that he
or she knows everything nec-
essary to create a plan and

irrevocable trust and doesn’t
communicate with your CPA.

But after the 2012 tax act, for

most taxpayers the income
(Continued on page 2)

CHECKLIST: NEW TAX WORLD

Summary: After the 2012 tax
act most folks will never face a
federal estate tax. If you’re a
married couple under the
$10.5M wealth level, or a single
individual under $5.25M (and
those amounts will be adjusted
upward for inflation in future
yea rs), then what do you do
with existing planning? In some
cases you might just be best off
eliminating planning that was
done previously, but in most
cases you can retool prior plan-
ning to make it work better
under the new tax rules. Before
zapping Consider the following:

V Family Limited Partnership

QFLPQ or Limited Liability
Company gLLC;: Many of

these entities, holding family
investment assets, were
formed to take advantage of
discounts that would reduce
estate taxes. Now, however, if
your estate is not likely to be
subject to an estate tax, you
might not see the point of
keeping that FLP/LLC
around and paying annual
fees to your CPA for the in-
come tax return, legal fees,
complexity and more. But
before you zap that FLP/LLC
consider how you can still
benefit. The entity might
provide valuable asset protec-
tion. In most states if you own
only a portion of the interests
in the entity it can be quite

difficult for a claimant to re-
(Continued on page 3)

VOLUME 8, ISSUE 3

PRACTICAL PLANN ER

PAGE 2

YOUR PLANNING TEAM

(Continuedfrom page 1)

tax is far more important than a feder-
al estate tax. Most attorneys simply
don’t have the income tax knowledge
CPAs have. And even of those attor-
neys that do, even fewer have the expe-
rience CPAs do preparing tax returns.
While some lawyers may look down on
tax return preparation as an inferior
tax “activity,” understanding how to
report a transaction is a critical part of
the planning process. This also works
in reverse with many CPAs presuming
that an attorney will add nothing to
the review of the gift or income tax
returns they prepare. For the first year
of a new entity or trust, or if the un-
derlying planning is quite novel or
complex, involving the attorney who
prepared the documents can be critical
to properly reporting the transaction.
Some large wealth advisers and insti-
tutional trustees have estate planners,
CPAs and other professionals on staff.
That can be a great backstop and sec-

Disclaimer to Readers: Practical Planner provides
reasonably accurate information, however, due to space
limitations, and other factors, there is no assurance that
every item can be relied upon. Facts and circumstances,
including but not limited to differences in state law, may
make the application of a general planning idea in
Practical Planner, inappropriate in your circumstances.
This newsletter does not provide estate planning, tax or
other legal advice. If such services are required you
should seek professional guidance. The Author,
publisher and NAEPC do not have liability for any loss or
damage resulting from information contained herein.
This newsletter constitutes attorney advertising 22
NYCRR 1200.

Review: Andrew Wolfe, CPA, Esq.

IRS Circular 230 Legend: No information contained
herein was intended or written to be used, and cannot

be used, for the purpose of avoiding US. federal, state
or local tax penalties. Practical Planner was not written
to support the promotion, marketing, or recommenda-
tion of any tax planning strategy or action.

Publisher Information: Practical Planner is published bi
-monthly by Law Made Easy Press, LLC, PO. Box 1300,
Tenafly, New Jersey 07670. Information: news
letter@shenkmanlaw.com, or call 888-LAW-EASY.

Copyright Statement: © 2013 Law Made Easy Press,
LLC. All rights reserved. No part of this publication may
be reproduced, stored, or transmitted without prior
written permission of Law Made Easy Press, LLC.

ond opinion for a plan, but too often
some in the wealth management
community view their internal staff
as all that is necessary to handle trust
administration or even planning.
That too is a mistake. A CPA, even if
less technically proficient than the
staff accountants at the trust compa-
ny, may have a decades long relation-
ship with your family and may better
understand your goals. Often, CPAs
and attorneys working “in the
trenches” have a different perspec-
tive then those working for a trust
company. So even if the wealth man-
agement firm’s staff has more tech-
nical knowledge, they won’t neces-
sarily have the same insight. Adviser
arrogance is easily resolved. You as
the client have to make it clear that
you expect a coordinated team effort.
When wealth advisers, CPAs and
attorneys work in concert the team
will play beautiful music.

Adviser Ignorance: Some advisers,
e.g. an adviser you may have out-
grown years ago, naysay anything a
new or more sophisticated adviser
recommends. Instead of admitting
ignorance or discomfort with a docu-
ment, plan or product, they simply
negate it. There are several ways to
assure that this common roadblock
doesn’t happen. Encourage advisers
to review planning as a team without
your involvement. An adviser who
doesn’t understand a technique will
be more willing to ask questions
freely if not embarrassed in front of
you. Welcome new ideas from your
team, and if another adviser shoots
an idea down, ask them to explain.
Adviser Control: The more one
adviser can control your planning,
the more they think they can gain
from your relationship. But their
gain is not necessarily your gain. If a
bank prepares income tax returns
for a trust, and provides estate plan-
ning services, that’s great if they
have the returns reviewed by your
CPA before filing, and the estate
planning recommendations vetted by
the team. If not, they may be seeking

to enhance the perceived importance
they have to you at the expense of the
rest of your advisers. Insist on full
cooperation that strengthens the
team, not one adviser’s position.
Adviser Greed: If a “financial plan-
ner” suggests you buy a product, but
recommends that you don’t need to

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speak to your other advisers, be like
Uncle Martin on My Favorite Mar-
tian and raise your antennae. The
stories of high commissioned prod-
ucts being sold when obviously inap-
propriate is legion. So too are the
incidences of advisers milking an
elderly or ailing client that is too fee-
ble to protect themselves. Did the
elderly person name their attorney as
sole executor because of a long term
relationship, or as a result of over-
reaching and manipulation? If any
adviser insists that a new plan or
major decision doesn’t need to be
discussed with your other advisers,
that is the sign that you must.
Compartmentalization: A common
occurrence is for clients to tell each
adviser something different. When
your advisers each openly share in-
formation, each is likely to be better
informed about your facts. Yes, more
cost, but your planning will improve.
Yes Men: Some folks just love to
hear what they want to hear. Some
advisers are only too happy to say
whatever those magic words are to
keep a client happy, on board, and
paying their bills. That destroys the
free flow of ideas from a team. En-
courage the free flow of ideas, espe-
cially dissenting ideas. The dissenting
opinion might just be the most valua-VOLUME 8, ISSUE 3

PRACTICAL PLANNER PAC-E3

CHECKLIST: NEW TAX WORLD

(Continued from page 1)

alize any benefit. In divorce, the
entity might avoid commingling im-
mune assets with marital assets and
protect a child who has received gifts
or inheritances outside of trust. If
you want to avoid basis minimizing
discounts have the partnership
agreement (LLC operating agree-
ment) revised to eliminate the re-
strictions that previously created
discounts. That way, on death, the
absence of discounts will mean a
greater step up in tax basis and lower
capital gains for your heirs. Be cau-
tious in the changes made to accom-
plish this as you don’t want to exces-
sively undermine the asset protection
the FLP/LLC provides while elimi-
nating the discounts. If you’ve giv-
en away interests in the FLP/LLC to
heirs, it may be possible to reinforce
or even create retained interests that

for estate tax purposes might bring
the entire FLP/LLC back into your

taxable estate for basis step up pur-
poses. That could be a better result
than liquidating since only your in-
terests would then get a basis step
up. Finally, so long as you meet the
tax rules of Code Section 704(e) you
can use the FLP/LLC to shift income

to lower bracket family members.
Bypass Trust: Many widows and

widowers had bypass trusts formed
when their spouse passed away.
These trusts may have made a lot of
sense at the time (and even until last
year when there was worry of the
estate exemption dropping to $1M),
but do they make sense now? Does
the cost of filing a tax return, dealing
with an attorney, and the complexity
still pay to keep? If you assuredly
won’t face a federal or state estate
tax, it may not. If the assets in the
bypass trust have appreciated (e.g.,
stocks held for years) your heirs
won’t receive a step up in income tax
basis on death to the fair value of
those assets. So they will face a larger
capital gains tax. That capital gains
tax may outweigh any state estate tax
your estate will bear. The trustee

the QPRT to save estate tax (but
watch out for state estate tax). If a
QPRT succeeds the house is outside
your estate which means no increase
in tax basis (the amount on which
gain or loss is calculated when heirs
sell after your death). That could be
costly. If you don’t face a large
enough estate tax the income tax cost
your heirs will face may outweigh the
estate tax savings (if any). Consider
unraveling the tax effects of the
QPRT (you probably cannot unravel
the QPRT since the trust is irrevoca-
ble). By holding a tax prohibited
“retained interest” you will cause
estate tax inclusion and provide your
heirs with a basis step up. Consider
signing a lifetime lease for $1 a year.
Watch trustee liability! 1??

might have authority to distribute
appreciated assets to the spouse, even
if the trust is not liquidated. El The
trust might be able to provide signifi-
cant income tax savings if all your
descendants are named beneficiaries
by distributing income each year to
the beneficiaries in the lowest income
tax brackets. In some cases, unless
the asset protection (lawsuit protec-
tion) benefits of the trust remain
meaningful, you might just want to
terminate the trust and distribute all

assets (if the trust terms permit this).
QPRTS: Qualified Personal Resi-

dence Trusts are special trusts to
which you may have given your
house to remove it from your estate
in a tax advantageous manner. If
you did this when the exemption was
much lower, you may no longer need

RECENT DEVELOPMENTS

Buy-sell Agreement: Every business should review their buy-sell agreement to
be sure it is current. Caution – the tax laws contain tough rules as to when a fami-
ly buy-sell will be respected for setting value for estate tax purposes. If you have
an old pre-October 8, 1990 buy-sell agreement you’ve never updated, be careful
that a change might subject that agreement to the stringent IRC Sec. 2703 rules
that it be comparable to arm’s length agreements between unrelated parties.
See PLR 201313001.

Is the 4% Rule Dead: Financial planners have used a 4% rule for years-if you
don’t spend more than 4% of your principal annually you’ll never run out of mon-
ey. So if you planned on retiring with $5M in savings you could safely spend 4%
$200,000/yea r. There’s a growing chorus expressing concern that in the current
market environment 4% may be too high. While rules of thumb are only as good
as the thumb you’re using, the bottom line is that caution is advisable. Everyone
should review their budget and financial plan at least annually to be sure they
remain on course. Many wealthy people view budgets as something for the pro-
leta riat. Not so. No matter how big your nest egg, there are limits to how much
you can spend. It is amazing how many people stress over how they’ll divide up
their estate, without first assuring they’ll have an estate at the end of the line.
See: “The 4 Percent Rule is Not Safe in a Low-Yield World,” by Michael Finke,
Wade Pfau and David Blanchett.

Can’t Always Use Your CPA as an Excuse: An estate’s CPA filed an extension for
the estate tax return and told the executor it was a 1 year extension when exten-
sions are really only for 6 months. The IRS zapped the estate and the Court would
not let the executor use the CPA’s bad advice as a get out of jail free card. That<‘s”s\‘\’\‘\\\\‘\\‘V\\’&\\\\\‘\’\‘\‘\‘\\‘\\‘\‘\\’&”s\‘\’\‘\\‘\\‘\\’\‘\’\‘\‘\”M’&\’\‘\’\‘\‘\‘\\

Creative solutions that coordinate all your planning goals.-
Estate – Tax – Business – Personal
-Financial -Asset Protection

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PRACTICAL PLANNER

NEWSLETTER

MARTIN M. SHENKMAN, PC
PO Box I300, Tenafly, N] 07670

Email: newsIetter@shenkmanIaw.com

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PLANNING POTPOURRI

El Disclaimer Tmsts are the Rage But
Should You Disclaim? A disclaimer by-

pass trust may become the most com-
mon estate tax planning approach (for
married couples in a first marriage)
with the new high $5M inflation ad-
justed exemption. You leave every-
thing outright to your spouse (great in
a 3″’ marriage or if your spouse is a
physician worried about malpractice
risks, but alas that is another story).
Then your su rviving spouse can dis-
claim (renounce) any portion of that
bequest which will then pass into a
bypass tmst which she/ he has access
to, but which won’t be included in her/
his estate. This is a great way to use
the benefits of hindsight to determine
if a bypass trust should be used and
how much to put into it. But in many
cases there is a better option. Most
bypass trusts are, and will likely re-
main, less than optimal vehicles. Most

are simply not drafted using modern
trust drafting techniques. Why settle
for a Big Mac if you can have a steak at
Ruth Chris steakhouse (I’m a vegetari-
an, but that sounded like a good analo-
gy)? Don’t disclaim (unless you’re im-
minently going to be sued). Accept the
inheritance and immediately set up a
modern, state of the art, irrevocable
trust and gift the assets you just inher-
ited (and more if you wish) to that
trust. The trust should be set up in one
of the trust favorable jurisdictions
(Alaska, Delaware, Nevada or South
Dakota). It should be a grantor trust
(you pay income tax on the trust earn-
ings to further reduce your taxable
estate). This also permits you to swap
assets, without paying capital gains
tax, to pull appreciation back into your
estate. That will get a step-up in tax
basis at death. The trust should be a
long term or perpetual trust so you can

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lock in the tax and asset protection
benefits for yourself and all your
heirs. You can be a beneficiary of the
trust which makes the trust a “self-
settled” trust. This does create some
risk, which you should evaluate with
your advisers. This approach may ena-
ble you to avoid multiple trusts (e.g. a
bypass trust and a marital trust from
your late spouse, and a trust for your
estate planning). If you live in a state
with an estate tax exemption lower
than the federal exemption amount
(e.g., NY, NJ) you can greatly enhance
the state estate tax savings with such
a plan (except in CT and MN which
have a gift tax, but even then it might
still be beneficial). Yes, these are

Practical legal
in plain English

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