by Robert Bloink, Esq. and Prof. William H. Byrnes

If you are considering transitioning your book of business to a new firm, maintaining the confidentiality of client information should be your overarching concern. Navigating a move without triggering a lawsuit can be challenging, but there is a protocol that provides advisors with a best practices guide when moving between firms.

In 2004, three wirehouses—Citigroup Global Markets, Inc. (Smith Barney), Merrill Lynch, and USB Financial Services, Inc.—created the Protocol for Broker Recruiting (the Protocol). The Protocol’s primary purpose is to safeguard clients’ privacy and flexibility when choosing Registered Representatives (RRs)—especially RRs who are switching firms. By reducing litigation over RRs transitioning to new firms, the high costs associated with competitive recruiting efforts can be minimized and client information can remain protected.

The following is a list of some of do’s and don’ts set forth by the Protocol:

Do:

(1) Submit a written letter of resignation to your local branch manager. This letter should include a specification of the client information you are taking with you;

(2) Take certain information about your existing clients with you—including names, phone numbers, home, and email addresses, and client account titles;

(3) Use good faith when compiling your list of clients; and

(4) Consult with an attorney who can address any unanswered questions you may have.

Don’t:

(1) Forget to provide your local branch manager with your written resignation letter and customer information letter simultaneously;

(2) Take prohibited information about your existing clients with you, such as Social Security numbers or account numbers;

(3) Make copies of confidential client information to take with you before you leave;

(4) Take information about clients you did not service;

(5) Give yourself too much leniency when creating your list of clients, especially accounts shared with others; and

(6) Pre-solicit accounts before you resign. RRs can solicit existing customers only after they have completely transitioned to their new firm.

Approximately 465 small and large firms have joined the Protocol since it was formed. Due to its success, the Securities Industry and Financial Markets Association (SIFMA) will begin taking on administrative tasks associated with the Protocol beginning May 17. This includes maintaining the Protocol’s list of signatories, issuing member updates, and providing prospective members with information about joining the Protocol. Firms interested in joining are required to fill out a two-page application before becoming a signatory to the Protocol.

If an RR follows the Protocol when switching between signatory firms, neither the RR nor the new firm will have any monetary or other liability resulting from the transition. But if RRs are transitioning to firms that are not members of the Protocol, the Protocol’s rules and protections will be inapplicable. In those cases, however, the Protocol can still provide a valuable guide that can minimize disputes.

Robert Bloink, JD, LLM and William H. Byrnes, JD, LLM

Flexibility is not a dominant selling point of Irrevocable Life Insurance Trusts (ILITs)—or the life insurance policies that inhabit them. ILITs usually serve a single purpose, for instance providing a liquid fund to pay estate taxes, but a little creativity and flexibility can go a long way with clients who are on the fence. A recent IRS ruling (Rev. Rul. 2011-28, 2011-49 IRB 830) provides a path for at least one type of ILIT flexibility.

Substitution Power

There are not a lot of places to work flexibility into the structure of an irrevocable trust; too much flexibility and the value of the trust’s assets will be included in the grantor’s estate. But one area where flexibility can be introduced is in a power of substitution retained by the grantor.

In Revenue Ruling 2008-22, the IRS came to the general conclusion that a grantor’s substitution power will not cause trust assets to be included in the grantor’s estate. Rev. Rul. 2011-28 extends Rev. Rul. 2008-22 to include a substitution power over a life insurance policy held in an irrevocable life insurance trust.

Conditions on Substitution

In both Rev. Rul. 2011-28 and 2008-22, the non-inclusion rule is subject to two conditions:

1. The trustee must have a fiduciary obligation to determine that the property acquired by the grantor and the substituted property are actually equivalent in value.
2. The grantor’s “substitution power cannot be exercised in a manner that can shift benefits among the trust beneficiaries.”

The Ruling clears a path for replacing policies in an ILIT without disturbing your client’s estate plan. Outdated, expensive policies no longer have to be an expensive irrevocable mistake. You have an opportunity to put the right policy in place for your client, even where their policy is locked up in an ILIT.

Go to Advisor’s Journal for a complete discussion regarding ILIT replacement policies.

The IRS took the unusual step of permitting a taxpayer to undo a lump-sum distribution from an IRA and avoid the 10 percent penalty for early distributions. The taxpayer, a minor, asked the IRS to allow her to fund an inherited IRA with the previously dispersed funds. Surprisingly, the IRS agreed, and permitted the taxpayer to avoid any income tax or penalties associated with the initial distribution.

IRA Stretch Planning

Unfortunately, the IRS does not reach that kind of ruling very often, so it is essential for us to understand the mechanics of stretch IRA planning. Poor planning can obliterate the value of an IRA, reducing the potential gift by 50 percent or more.

The most important point to remember in IRA planning is that, if a nonspouse beneficiary rolls an inherited IRA into an IRA held solely in the beneficiary’s name, the entire amount of the rollover is counted as a distribution and taxed to the beneficiary. Fortunately, there are other options for dealing with inherited IRAs.

For previous coverage of IRAs in Advisor’s Journal, see When Do IRAs and Annuities Mix? (CC 11-206).

For in-depth analysis of IRA distribution taxation, see Advisor’s Main Library: C2—Taxation Of Distributions.

Why is this Topic Important to Wealth Managers? Provides a view with respect to revocable trust concepts and estate planning. Presents identifying factors of the trust, what it’s commonly used for, as well as some of the benefits and detriments of its implementation.

This week has mainly discussed the use of trusts with characteristics of complete transfers by grantors. This edition will explore the revocable nature of trusts and how they are applicable to estate planning.

The main difference between a revocable trust and one that is not is that “the settlor reserves the right to terminate the trust and recover the trust property and any undistributed income.” [1] “The creation of a revocable living trust involves either the transfer of property to one or more trustees or the settlor’s declaration that he holds the property in trust for himself and that upon his death the property is to be held for other beneficiaries.” [2]

The revocable trust is frequently used “in estate planning, especially where a person wishes to relinquish title to property but to retain a right to reclaim it later should economic need arise.” [3] It allows for the “the swift and efficacious transfer of the grantor`s property to trust beneficiaries.”

One benefit of this arrangement is that revocable trusts avoid probate—“Upon the death of the grantor, assets that are owned by the trust, rather than by the decedent, will not be subject to the probate process.” Secondly, assets in a living trust are afforded “extra protection [because]…the trustee can be given the power to withhold distributions” along with spendthrift provisions enacted by state legislators.

However, the revocable trust income is taxed to the grantor[4], “and the trust assets will be included in his gross estate upon his death.”[5] In other words, the “decedent’s gross estate includes the value of any interest in property transferred by the decedent whether in trust or otherwise, if the enjoyment of the property transferred was subject to any change at the date of the decedent’s death through the exercise by him of a power to alter, amend, revoke or terminate.” [6]

The artificial construction of the law holds that “although the grantor has relinquished title to the trust property, trust income will still be taxed to him, and the trust property will be subject to estate tax.”  [7] Even though,  “a revocable trust yields no income tax advantages during the settlor’s lifetime, significant income tax savings may be realized after his death if the trustee is given discretionary powers in the payment of income and principal.” [8]

[2] Bogert.  The Law Of Trusts And Trustees § 233 (2010).  Westlaw.

[3] AUS MAIN Libraries. 21 Trusts Guardianships, and Minors, A-Trust Terms –Use in Estate Plans, Subsection 8. “The Living Trust In Family Settlements”. Last Accessed 9/19/2010.

[4] Bogert § 233 citing, 26 U.S.C. § 676.

[5] Bogert § 233  citing 26 U.S.C. § 2038; Desmond, 116 Trusts & Est. 218 (1977).

[6] 34A Am. Jur. 2d Federal Taxation ¶ 143,402

[7] AUS Main Libraries Section 21.

[8] Bogert § 233

Robert Bloink, JD, LLM and William H. Byrnes, JD, LLM

We’ve all heard ad infinitum about the Bush tax cuts expiring on January 1, 2013, but there are numerous tax breaks expiring after this year that could have a drastic effect on our clients.  Dozens of deductions will no longer be available as of January 1, 2012.  Some of the expiring deductions include the following.

Bonus Depreciation

In an effort to stimulate business equipment purchases and stave off recession, Congress enacted “bonus depreciation” legislation in 2008 that allows a business to deduct up to 50 percent of the basis (generally, the purchase price) of certain property in the year the property is placed into service.  Due to the tenuous economic recovery, bonus depreciation was extended to the end of 2012.

Section 179 Expensing

Section 179 accelerated expensing limits will also ratchet down at the beginning of the year. Starting January 1, 2012, only $125,000 of expenses can be written off on qualified expenses of up to $250,000. In 2013 the expensing limit drops to $25,000.  Clients whose Section 179 deductions will be constrained by the 2012 limits should make their purchases now.

Conclusion

Your clients may assume that the tax deductions we’ve talked about here are set to expire with the Bush tax cuts. This may also be the case with the $5 million applicable estate and gift tax exclusion amount on January 1, 2013. But now may be the final time to take advantage of the deductions. With Congress looking to trim the fat anywhere possible, allowing tax deductions to expire is the easiest choice.

Go to Advisor’s Journal for a complete discussion on these deductions and other like Tax-Free Business Sale under Section 1202 and Charitable Contributions from an IRA.

Your questions and comments are always welcome. Please contact the Panel of Experts.

Copyright 2000-2011 by The National Underwriter Company. All Rights Reserved.

Why is this Topic Important to Financial Professionals? Provides a basis for creative ideas to share with clients to create an overall more efficient insurance management plan.  Offers examples of common alternative risk transfer techniques that are cost effective and generally easy to implement.  After all, the client is always interested in saving money.

One common use of alternative risk transfer is the use of deductibles in connection with decreasing overall business insurance expense.  The insured would simply consider raising the deductible amount which would in turn lower premium amount if the claims rate on the coverage is better than the insurance rate dedicates.[1] Generally, the likelihood of an event occurring is weighed against the nature and severity of loss to determine the retention a company chooses to endure.

A basic example is presented below:

Assume that that an insured has X number of workers compensation claims, where a developed loss picture is X, but no individual claim exceeds $200,000.  If the cost of the deductible is greater than $200,000 then the insured may consider raising a deductible – in other words, where the accidents may be commonplace but the cost is not significant.  The author of the above example notes, “the example depends on the risk, classifications, rates, and the developed standard premium, as well as the insured’s ability to engineer and contain losses.”[2]

Alternative example

Another slight variation of the above example, where the business retains the first layer of coverage, is whereby the business retains subsequent layers of risk, essentially creating a stop-gap or stop-loss arrangement.  This example assumes the client is “an asbestos removal contractor,” and the client has to “prove to a school district that [he has] $20 million of liability insurance limits.” Assume the client has “successfully negotiated a premium that reflects a $25,000 [premium] on the primary $5 million (per occurrence and aggregate) insured layer, but purchasing $14 million of annual aggregate limits in excess of the $5 million primary is prohibitively expensive.” [3]

A broker may suggest creating a layer of self-insurance by retaining some of the risk.  Assume, $5-20 million coverage layer will cost $150,000 annually, but insuring $5-15 million will only cost $80,000.  After determining the likelihood of a claim by the school district of over $15 million, the client discovers the risk is very unlikely to occur and wants to retain the risk in favor of reserving cash flow.

Alternatively, the client may want to consider retaining the $5-6 million dollar level risk as well, which would lower the overall premium, but expose the client to a greater likelihood of paying claims.  The client can negotiate with an “excess lines” insurer to insure from $5-20 million and act as a stop-loss or stop-gap with the insurance company as part of the insurance contract.

The contractor has successfully secured the insurance policy, with substantially less of a premium, to meet the school board’s requirements; however, the client has retained some risk involved with any actual asbestos claim costs.  Naturally, for purposes of securing the school board’s contract, the contractor’s balance sheet must be able to justify the retention of the risk.

Author: Benjamin S. Terner

[2] Id.

[3] “The Corridor Self-Insured Retention.”  Donald J. Riggin.  http://www.irmi.com/expert/articles/2010/riggin05-risk-finance-captives.aspx.  May 2010.  Last Accessed 8/31/2010.

Employees are often the key to a business’s success. A top performing sales person, for example, may generate millions for a business and have access to sensitive customer lists. Retaining these employees is essential, but what can your business clients offer their key employees who already have everything? They’re already set up with a pension or profit sharing plan and supplemental nonqualified deferred compensation. They draw an impressive salary and have the best health insurance money can buy. How about offering them a plan that promises to pay their families a portion of the key employee’s salary for a period of time, say ten years? And how much more attractive is the plan if it’s receivable by the employee’s family estate tax free?

Under a DBO Plan an employer promises to make a payment, or payments, to the employee’s named beneficiaries if the employee dies while employed by, or retired from, the company. Payments to beneficiaries may be made as a one-time payment or as periodic payments. A lump sum payment may be calculated as a multiple of the employee’s annual salary (e.g. six times the employee’s annual salary). In contrast, a periodic payment obligation may be calculated as a percentage of salary and may continue for a definite period of time (e.g. an obligation to pay beneficiaries 75 percent of the employee’s salary for ten years after the employee dies.

DBO Plans are typically funded with a life insurance policy. The policy is owned by the company and the company is named beneficiary.

After the employee dies, the policy death benefit is paid to the company. Generally, the death benefit is received by the company income tax free. The company will either pay the amount of the benefits to the employee’s beneficiaries from the policy’s death benefit or invest the cash in a tax-free investment that will generate income sufficient to pay the periodic benefit.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For coverage of key employee life insurance in Advisor’s Journal, see The Key Employee Insurance Story (CC 10-34).

For in-depth analysis of another key employee benefit, the Section 162 Plan, see Advisor’s Main Library: C—Executive Bonus – I.R.C §162 Plan.

Author: George Mentz

Global  Job Tools and Technology

If you are  one of the millions of  Americans that is out of work right now, then you are probably wondering how to secure a good job or a better job in these difficult times.  Further, it is time to think outside of the box and to think BIG.    With over 7 billion people on this planet, this means that the United States of America is just one small group of consumers within a growing global marketplace

With regard to stakeholders and economics, all firms must have profits so they can pay their employees, reward the risk-taking owners and investors,  grow and innovate,  and contribute to local communities with charity.   We are a global economy, and  at this time the international demographics and consumption are changing very quickly.  As for consumers, we have 1 billion people in India, more than a billion in China, about a billion in Arabia, a huge emerging market in Africa, another  billion or so consumers in greater Asia which includes Malaysia and Indonesia, and then there are the nations of Europe and the Eastern-European nations. Similarly, there are 20 Latin nations south of the USA.

As an example of 21st century sales at a local level, I recently walked into a local used bookstore and asked the owner who their customers were.  She replied that 95% of her customers were outside of the city with many out of the country.  I was in shock and this information speaks volumes about  this global web economy.  Whether she was using EBay or other online tools to sell, her small-town antique and vintage books were available to a global marketplace which  included people who really wanted what she was selling.   Moreover, these buyers were willing to pay top dollar.

Using this tiny case study as an example, we see that utilizing the web to promote your company or resume is the number one way to secure new jobs or new business.  This is real-time global marketing that works for you 24 hours a day and seven days a week for the end user who now searches for products and services using their home computer or phone.

As individuals and businesses, how do we optimize opportunities around the world?    For starters, there are various ways to promote yourself and your brand.  Accordingly, if you are not on the Internet actively promoting your brand through websites and social media, then you have already put yourself into  a 21st century disadvantage.

Virtual Resume Marketing Basics

To begin your self-promotion, the  first way to improve your opportunities or  get a better job is to digitally customize  your highest attributes and credentials on your resume for the types of positions that you seek.  The  second method  is to take those attributes and credentials and brand them to the public using various websites, social media, email and other.  The key here is to make sure that interested searchers and parties know about your capabilities and your business excellence.  Further, you must make sure that your Internet presence portrays you in the highest light and in the highest truth.  In the end, it is helping those who are seeking professionals like you.  This takes skill, effort, and creativity.

As a note, an Internet resume is designed somewhat different than a normal resume .  This is because an Internet resume is more of a niche curriculum vitae that targets various types of work.  Typically, your specializations are the way that you will help other companies and other people increase productivity.  In this economy, they way to get paid your highest value is to convey the impression of increase to the other party.  This means that you make sure people understand your worth and why you are indispensible and cost-effective.   Often, it takes time and some writing to clarify the ways in which you can help others improve efficiency, effectiveness and their profits.  Time is money, and if you have the ability to save time for companies and executives, you also become a very important part of their profit center.

Selling your resume, expertise and your products & services to the global marketplace is the best way in which your company will continue to prosper in the future.  Let’s face it, the world has been competing for the American consumers’ dollars for many years. With that being said, this era could be your opportunity to provide excellence to as many customers as possible both in the USA and abroad.  Thus, you need not depend solely on your city, state, province, or region because there are seekers of your wares around the world.  If  you are trying to get a job, you are technically representing your own company, and  you must sell and promote your brand and your name to others who are willing to pay you for your services.  Not only should you sell yourself, your degree, education, or experience, but you must do this with digital-tactics. This means that you must use the most prolific and most searched keywords and key-phrases on your websites, social media and resume.  You do this because if people are searching for a certain product or skill, hopefully your resume and website will contain the correct “search terms” in the correct language to reel in your searcher.  Searchers include:  potential clients, HR executives, recruiters, headhunters, and dealmakers.

Out and In Sourcing – Local and Global

In  theory, there are two simple ways to succeed in the United States.  One  is providing local services that can NOT be outsourced on the ground,  and the other is to is to provide services globally to any customer that is willing to pay.   What is an example of a service that can be outsourced? How about:  home healthcare, electricians, fast food, coffee houses, plumbers, construction, home repair,   or even a local licensed lawyer would be an example.   Keep in mind that many professions can be outsourced. Even professions that people thought were safe are now being partially outsourced.  Examples are  partially outsourced work education, training, accounting or engineering.

Remember some professions that  were traditionally outsourced are moving back to the United States. A  lot of this has to do with technology, software, and robotics where the technology does the work in the United States and the individual worker in the United States controls or maintains the systems so it continues to perform an excellent way.  In essence, this puts thousands of people offshore out of work.  Thus, there is an ebb and flow between what can be done offshore and what can be performed effectively onshore.  To put outsourcing in reverse, many companies are now in-sourcing.  This means that a company like JetBlue or United Airlines may not fire an employee who wants to raise kids at home and the corporation may prefer to keep a 10 year veteran on staff and simply let him work from home and care for kids. Why?  This person has skills and knowledge that is hard to let go and that employee can perform customer service from home very effectively without a commute.

Reviewing Applicants for Jobs – Types of Resumes

In  my time as a hiring and screening representative for major company, I saw hundreds of superb resumes which also show a 21st century shift in appearance.  From my experience, there are two types of resumes now in the United States. The first is a resume of an individual who works for one company loyally who has one job. To be honest, many companies do not allow workers to engage in any outside activities or jobs.    However, this loyal person may be interested in obtaining a new job or work with a different company.

The second type of resume are individuals who I would call multi-preneurs, and these are individuals who typically work for themselves and provide services or products to  several companies in the United States and outside of the country as well.  These people are typically well  credentialed and have expertise in one or several areas that can help companies be productive.  These professionals prefer to work for themselves and not put all their eggs in one basket.  As independent contractors, tax law is also allowing many of them to take larger deductions for health and other office expenses.

Because the present economy is one of the nastiest challenges that we have had in the last hundred years,  there will be vast opportunity in the middle of this chaos;  however, many people may not be able to adapt quickly. Thus, the hustlers will adapt and win in this global market, and those who do not take action may stagnate for months if not years.  However, there is light at the end of the tunnel. If we can target certain jobs and continue to promote ourselves using these Internet secrets, the opportunities will be much larger and abundant.

Now back to the Virtual Resume .

There are several ways to market yourself.  The first is by sending your resume to the name and e-mail addresses of people who are looking for employees or filling certain positions. Since email boxes can be full, it is always good to add their name and your name to the subject line.  As Dale Carnegie said, the name of a person is always music to their ears.  The  second  way to create a resume account is through job networks such as Monster.com or  LinkedIn.com.   The professional network called LinkedIn.com  will actually allow you to create a public profile and resume which is a great way to include a link in your emails for others to see your resume, photo and credentials along with a method for others to connect to you.  The  third is through pure social networks like Facebook.  All of these social networks are ways to build alliances, communication, create friendships or even to  request recommendations.  The  fourth would be using your local knowledge and targeting a local company for employment. The key here is to use word-of-mouth, ask questions, join local associations,  and calling companies by phone.

Every city and town has small offices or boutique firms that may be looking for assistance in the area of customer service, relationship management, or sales or even information technology.  If you want to stay local, you may need to knock on doors until you find the company or person who needs help.  Every  company is in the business of selling, and without marketing and sales, no one will be able to learn about or see what a company has to offer.  It is this reason that companies will always be hiring because they must keep selling to new customers and managing existing relationships.

Online Resume Branding Tips

These rules also applies to your resume and your name brand. Here are some tips for every person out there looking for work.  First, have somebody review your resume who understands the type of work you’re looking for.  Then, make sure that you have this updated resume available on your website, on job search engines and in social networks. Be sure an create a special email address just for your job searches.  In this way, you protect your private account from spam.   Next, make sure you have an updated photograph of yourself that is of good quality.

Be sure that your resume includes all of the skills, degrees, credentials,  training or any other education or experience that you have.  Many people seem to omit relevant skills when they apply for jobs.   An example of that would be a language skill, global selling skill, Internet skills, or  short training course that you may have taken in areas including: compliance, ethics, service, safety, sexual harassment, or sales.  All of these short-term training courses or certificates can add great weight to your resume.

Also, we must know all we can about the companies that we want to work for.  We must further be prepared to answer questions about our strengths weaknesses and ability to provide service for the new company or team that you intend to work for. If you get an interview, you may need to sit down with several people in a department to be interviewed. Thus, the more you are prepared, the better.

Make  sure that your Internet brand and reputation is prolific on the Internet.  If you put your biographical information on all the top social networks you will probably create 2 to 3 search engine pages of links that relate to your resume and image.  These links should  bolster your best qualities. Then, begin targeting your jobs, opening job search accounts and uploading your resume.  There are several  top  job search engines such as:  Monster.com,  Yahoo Jobs, Careerbuilder.com, or Dice.com

To secure the best jobs with the best wages and benefits, we must be able to show how we are better than the rest of the applicants in myriad of ways in which can improve the capacity of the employer.  To do this, we must also find out what the employer is looking for and tailor ourselves for the position that we desire.

Many times, we may need to hone our skills and credentials toward the position that we desire.   This may require reading, learning, achieving licenses, diplomas, professional designations,  or more.  With the fast changing technology, many of us are required to know how to use various software, platforms, or technological methodologies.  With that being said, you may need to have 3 or 4 types of resumes where one specific resume is for sales and the other is for management and so forth.

Jobs and Economic Going Forward

In sum, we all must make the best of ourselves as individuals and invariably it benefits the employer, the organization, and even the community.  We must be willing to promote ourselves with integrity and honesty, but also aggressively.  By doing so, we can find great full time or even part time work.  In this fast-paced economy, we must be nimble and this agility includes communication by phone, email, web, and face-to-face.  Even if we are entrepreneurs or self-employed, we are still working for our clients and customers.

Well this troubling economy improve? Of course it will, and there are millions of jobs available online right now around the world.  This economic situation reminds me of the years when American manufacturing  and mechanics retooled for the “information technology era” that began over 25 years ago.   It may take several years for the world to transcend the global financial crisis but cycles always come and go.    I believe that we are in a process of retooling again, but we must all be mindful of the importance of learning new strategies and tools to serve and contribute on a global scale even more effectively.

Why is this Topic Important to Financial Professionals? This article will examine factors that either increase or decrease the desirability of any one of the fifty states in regards to the formation of a corporation.  Clients want a business climate that is economically efficient.  A financial professional should be able to provide clients at least a cursory explanation of the company law and tax differences among the states.

Considerations regarding which state for incorporation will best meet a client’s scenario include, non-exclusively -

• convenience of incorporation
• costs of incorporation
• annual fees
• annual filing requirements
• management and shareholder liability laws and
• taxes.

Of these, most clients focus on the state income tax aspects.  While it may not be the decisive factor in a client’s choice of location of a business, or residence, or both, it will certainly be one of the important factors to be weighed.  Thus, a financial professional should at least be able to generally discuss the impact of tax on a business amongst the states before referring in a team specialist in this area.

In the Tax Foundation’s 2010 State Business Tax Climate Index it ranks the 50 states according to a matrix which includes corporate and personal income taxes, sales tax, property tax, and unemployment tax rates.[1] The study noted different businesses’ and economists’ perspectives regarding the impact of these taxes on a business.  By example, the well known economist Timothy Bartik has proposed that high property taxes, because they are paid annually by a business regardless of its profit or loss situation, have the strongest negative effect on business nationwide.

The Winning States

According to the study, the top ten business friendliest tax environments are: (1) South Dakota, (2) Wyoming, (3) Alaska, (4) Nevada, (5) Florida (6) Montana, (7) New Hampshire, (8) Delaware, (9) Nevada, (10) Utah.  These states provide the best business environment given all the factors evaluated by the Foundation.

The study notes an analysis by economists Leslie Papke and J.A. Papke which found that, “consistently high business taxes can represent a hindrance to the location of industry.”   Another analysis cited in the study, also by Timothy Bartik, “provides strong evidence that taxes negatively impact business start-ups.”   The study gives one example of how favorable business climates may be negatively affected by new taxes.  For example, Kentucky, the study notes “rose through the ranks faster than any other state this year, up 14 spots from 34th best in the 2009 Index to 20th this year.”  What is interesting however is that Kentucky had no significant state tax changes.  Rather, as the study notes, “sometimes standing fast is a virtue.”  The author attributes the rise in ranks to the changes in the other states.   “Many economically damaging changes were enacted in other states that previously ranked better than Kentucky.”

The Losing States

The Foundation found that two of the three largest populous states ranked two of the worst three for their “Business Climate Index”, unsurprisingly California and New York.  The other bottom states include New Jersey, Michigan, Minnesota, Rohde Island, Vermont, Maryland and Ohio.

To provide an example of just how high the combination of state and local personal income tax rate that may be applied to a client may be, the study noted that persons living in Manhattan, New York pay the highest state and personal local income tax combination in the country 12.62%!  This figure does not include the other state and local taxes mentioned previously such as property and sales tax, nor does it take into account federal income tax, much less that often overlooked taxes of excise and gasoline.

For a detailed analysis of the tax and non-tax Advantages of a Close Corporation see AdvisorFX Main Library Section 14. Close Corporations G—Professional And Executive Corporations

by Robert Bloink, Esq. and Prof. William H. Byrnes

Trusts offer your clients asset protection and tax benefits, giving them the power to say how and when their cash and property are distributed. They also offer a mechanism for putting the decision-making process in the hands of someone other than the grantor—the power of appointment (POA).

But for all their flexibility POAs also have the tendency to throw estate plans off track, resulting in unplanned-for tax liability and unforeseen results.

Although a person who has a general power of appointment over property is not said to own the property, if he dies holding the POA, his gross estate can include the value of that property. And that is where the dispute in Estate of Chancellor v. Comm’r, T.C. Memo 2011-172 (2011) begins.

A “general power of appointment” is a broad-based POA that gives a person the right to direct a distribution of property to himself, “his estate, his creditors, or the creditors of his estate.”

The Tax Code includes in a decedent’s estate the value of property over which a decedent held a POA, because holding a general POA over trust corpus is essentially equivalent to owning the property outright.

For a complete discussion of POA’s and Estate of Chancellor v. Comm’r, T.C. Memo 2011-172 (2011) go to Advisor’s Journal.