HOLDING BUSINESS INTERESTS IN TRUSTS First Run Broadcast: June 21, :00 p.m. E.T./12:00 p.m. C.T./11:00 a.m. M.T./10:00 a.m. P.T.

Transcription

1 HOLDING BUSINESS INTERESTS IN TRUSTS First Run Broadcast: June 21, :00 p.m. E.T./12:00 p.m. C.T./11:00 a.m. M.T./10:00 a.m. P.T. (60 minutes) There are tax and other benefits to holding a closely-held company or other business interests in trusts, but there are also substantial risks and planning complexity. Holding an operating business in a trust requires reconciling the diversification goals and deliberate speed of fiduciaries with the need for concentrated assets and speed of business managers. Holding a minority stake in a company requires the trustee to effectively assert the governance and other rights of the minority stake. Holding real estate or nontraditional assets involve substantial issues of liquidity and proper fiduciary and income tax administration. This program will provide you with a real world guide placing business interests in a trust. Benefits and drawbacks of placing business interests in trusts The multifaceted dilemma of operating companies in trusts concentrated assets, speed, decision-making, etc. Counseling clients about the right trust for different asset classes Dilemma of concentrated assets and the fiduciary duty to diversify Preserving S Corp status or other tax benefits in trust Business succession planning for family businesses Managing minority stakes in operating companies or assets Financial and tax administration traps Speakers: Missia H. Vaselaney is a partner in the Cleveland office of Taft, Stettinius & Hollister, LLP, where her practice focuses on estate planning for individuals and businesses. She also represents clients before federal and state taxing authorities. Ms. Vaselaney is a member of the American Institute of Certified Public Accountants and has been a member of the Steering Committee for AICPA s National Advanced Estate Planning Conference since Ms. Vaselaney received her B.A. from the University of Dayton and her J.D. from the Cleveland-Marshall College of Law. Michael Sneeringer an attorney in the Naples, Florida office of Porter Wright Morris & Arthur LLP, where his practice focuses on trust and estate planning, probate administration, asset protection planning, and tax law. He has served as vice chair of the asset protection planning committee of the ABA s Real Property, Trust and Estate Section and is an official reporter of the Heckerling Institute. Mr. Sneeringer received his B.A. from Washington & Jefferson College, his J.D., cum laude, St. Thomas University School of Law, and his LL.M. from the University of Miami School of Law.

2 VT Bar Association Continuing Legal Education Registration Form Please complete all of the requested information, print this application, and fax with credit info or mail it with payment to: Vermont Bar Association, PO Box 100, Montpelier, VT Fax: (802) PLEASE USE ONE REGISTRATION FORM PER PERSON. First Name Middle Initial Last Name Firm/Organization Address City State ZIP Code Phone # Fax # Address Holding Business Interests in Trusts Teleseminar June 21, :00PM 2:00PM 1.0 MCLE GENERAL CREDITS VBA Members $75 Non-VBA Members $115 NO REFUNDS AFTER June 14, 2018 PAYMENT METHOD: Check enclosed (made payable to Vermont Bar Association) Amount: Credit Card (American Express, Discover, Visa or Mastercard) Credit Card # Exp. Date Cardholder:

3 Vermont Bar Association CERTIFICATE OF ATTENDANCE Please note: This form is for your records in the event you are audited Sponsor: Vermont Bar Association Date: June 21, 2018 Seminar Title: Location: Credits: Program Minutes: Holding Business Interests in Trusts Teleseminar - LIVE 1.0 MCLE General Credit 60 General Luncheon addresses, business meetings, receptions are not to be included in the computation of credit. This form denotes full attendance. If you arrive late or leave prior to the program ending time, it is your responsibility to adjust CLE hours accordingly.

4 Holding Business Interests in Trusts Presented by: Missia H. Vaselaney Taft Stettinius & Hollister LLP Direct Dial: (216) & Michael A. Sneeringer Porter Wright Morris & Arthur LLP Direct Dial: (239)

5 Introduction

6 Topics What trust is best to hold a family-held operating business? Type of trustees individual or institution best for a family business Trust provisions defining the relationship between trustee and business managers Risk and liability issues when holding a concentrated position in a family business Succession planning issues managing the family dynamic, non-family management Proper accounting of receipts and disbursements

7 What trust is best to hold a family-held operating business

8 Choosing the right trust Revocable Trust Irrevocable Trust Grantor Retained Annuity Trust ( GRAT ) Self-settled domestic asset protection trust Foreign trust odoes the business receive a specific designation: made in America or female owned oany regulatory considerations?

9 Important Trust Provisions Ability to hold S corporation stock Ability to deal with closely held businesses Ability to keep closely held business stock or interests in difference to state prudent investor laws (diversification versus retention of asset) Investment provisions

10 Important Trust Provisions Rule against perpetuities Grantor trust status Duties to remainder beneficiaries? Providing information to beneficiaries: oduty to inform? oduty to account?

11 Type of trustees individual or institution best for a family business

12 Individual Trustees Sophistication of individual? C-Suite Executive? Team of Trustees? Conflicts of interest? Duties to vet candidates?

13 Institutional Trustees Banks Dedicated trust companies that do not custody assets Specific examples Common problems ofiduciary wants to sell asset ochoosing the right fiduciary who will keep the business intact oconflicts of interest

14 Trust provisions defining the relationship between trustee and business managers

15 Trustees versus Business Managers What powers should the trustees not have? What powers should the business managers not have? Who chooses trust investments? Who interacts with beneficiaries? Who is in charge of filing taxes?

16 Trustees versus Business Managers What type of non-disclosure agreements may be put in place? Non-compete agreements Privacy concerns Capital calls by business versus beneficiary liquidity concerns

17 Risk and liability issues when holding a concentrated position in a family business

18 Risk and Liability Issues Comingling business assets with investment assets Use of business property for non-business purposes (e.g., letting business officers have access to business automobiles) Adequate umbrella liability insurance ofor business (e.g., torts on business property) ofor fiduciaries (e.g., slander and libel toward other companies or board members)

19 Risk and Liability Issues Sale of Business ofiduciary duty to non-family shareholders ofamily shareholders desire to sell and get out of business State Prudent Investor Laws ohow do Ohio and Florida compare with other states? owhat do states like South Dakota and Nevada do where domestic asset protection trusts are highly advertised?

20 Succession planning issues managing the family dynamic, non-family management

21 Succession Planning Issues Succession of Trustee owho should appoint? omajority? Unanimity? Tiebreaker? Succession of Family Beneficiaries opowers of appointment in this type of trust? ocreating subtrusts for specific family member beneficiaries? oallowing general powers of appointment for GST purposes?

22 Proper accounting of receipts and disbursements

23 Accounting If the closely-held business is operated as a sole proprietorship, the Trustee shall treat the business as a separate entity from other trust assets and shall account for the business interest in accordance with standard accounting practices. Trustee/Business Trustee shall receive reasonable compensation for the services which are provided, payable equally from trust income and trust principal

24 Accounting Uniform Principal and Income Act Considerations: oif a trustee who conducts a business or other activity determines that it is in the best interest of all the beneficiaries to account separately for the business or activity instead of accounting for it as part of the trust's general accounting records, trustee may maintain separate accounting records oa trustee who accounts separately may determine the extent to which its net cash receipts must be retained for working capital, the acquisition or replacement of fixed assets, and other reasonably foreseeable needs of the business or activity...

25 Additional Concerns Net Investment Income Tax ( NIIT ) o3.8 percent tax on: ointerest, dividends, annuities, royalties, rents and certain passive activity income ( specified income ) oincome from trading in financial instruments and income from passive activities within the meaning of 469( covered income ) onet gain from dispositions of property that produce specified income or covered income ( covered gain )

26 Additional Concerns NIIT continued: otreas. Reg (b)(1)(v) specifically excludes trusts that are treated as owned by a grantor under from the imposition of NIIT othis does not mean that defective grantor trusts are exempt from NIIT. Instead, for purposes of calculating the net investment income for a defective grantor trust, the income, deduction or credits of the trust are attributed directly to the person treated as the owner of the trust under the grantor trust rules

27 Thank you! Presented by: Missia H. Vaselaney Taft Stettinius & Hollister LLP 200 Public Square, Suite 3500 Cleveland, Ohio Direct Dial: (216) & Michael A. Sneeringer Porter Wright Morris & Arthur LLP 9132 Strada Place, 3 rd Floor Naples, Florida Direct Dial: (239) msneeringer@porterwright.com