Porzio's Wealth Preservation Symposium Slide Deck

WELCOME TO PORZIO’S WEALTH PRESERVATION SYMPOSIUM January 29, 2025

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The New Administration: Anything can Happen!

Maria F. Galante, Esq. Ryann M. Siclari, Esq.

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Maria F. Galante, Esq. Counsel MFGalante@pbnlaw.com

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Ryann M. Siclari, Esq. Principal RMSiclari@pbnlaw.com

Inauguration 2.0 • Donald J. Trump inaugurated (again) on January 20, 2025

• January 20, 2017 – 45th • 9 days ago – 47th • Fun Fact: Grover Cleveland was only other President to serve nonconsecutive terms 22nd and 24th President of the USA

How Does this Impact Wealth Preservation?

Wealth Preservation Team Attorneys

Policy Change Tools • (Slight) Republican Majority • Executive Orders • Close to 100 signed day 1 • Department of Government Efficiency (DOGE) • Elon Musk to Lead • “Maximize governmental efficiency” • Will make recommendations

Proposed Tax/Investing Policy Changes

Please download and install the Slido app on all computers you use

The Standard Deduction for 2025 is $15,000 for a single person and $30,000 for a Married Couple.

What percentage of filers use the standard deduction vs. itemized deductions?

ⓘ Start presenting to display the poll results on this slide.

Corporation and Businesses Tax Policies • Extending/ making permanent many of the temporary provisions of the Tax Cuts and Jobs Acts of 2017 (TCJA) - currently set to expire by the end of 2025.

• TCJA Section 199A deduction through Pass-Through Entities: made permanent and proposed to continue.

• Reduction Corporate Income Tax: New administration has proposed a reduction of the corporate income tax from 21% to 20% to encourage businesses to be more competitive internationally.

• Lower income tax for U.S. Manufacturers: For U.S. companies that manufacture their products in the U.S., the new administration is proposing a tax cut down to 15%, to incentivize job creation and competition.

Tax Cuts and Jobs Act (TCJA) • Proposed Changes to Individual Taxpayers: ❑ Lower individual tax brackets to be made permanent ❑ High Standard Deduction and elimination of personal exemption to be made permanent ❑ SALT cap ($10,000 or $5,000) could be outright removed or substantially increased (current proposal to $20,000) ❑ Child Tax Credit would increase to $5,000 ❑ The estate tax exemption for 2025 is $13,990,000.

Additional Tax Proposals

• Eliminating taxes on tips and overtime pay • Eliminating taxes on Social Security • Tax Credits for Family Caregivers • Reducing Capital Gains Tax rates

Regulatory Policy Changes

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In discussions about financial regulation, President Donald Trump proposed a plan related to the Federal Deposit Insurance Corporation (FDIC). What was the primary focus of this plan?

ⓘ Start presenting to display the poll results on this slide.

Regulatory Policy Changes • Renewed Trade Policies • Tariff Escalation (China, Mexico, Canada) • Deregulation Financial Regulators • Potential Deregulation Effect on Banks

• Likely Actions After Inauguration • Cryptocurrency – SEC • Environmental Regulation • Roll back green regulations • Roll back electric vehicle regulations

Deregulation Financial Regulators Potential Deregulation effect on Banks: • Large banks to be positively impacted with less regulatory requirements • Basel III Endgame rules (global capital standards) key sections may be repealed completely, which will benefit large banks (over $100bn in assets).

• Consolidation of financial institutions may be seen more favorably under new regulators.

• Potential rollback of M&A review provisions (recently heightened by the FDIC and OCC) for mergers resulting in a banking institution with more than $100bn.

Deregulation Financial Regulators Cryptocurrencies • During his campaign, Trump promised to turn the U.S. into the "crypto capital of the planet".

• Trump administration expected to select regulators and policymakers that are friendlier to crypto trading and cryptocurrencies.

• First crypto and artificial intelligence czar-David Sacks- was named to create friendlier policies to both sectors.

• U.S. bitcoin strategic reserve? - Trump has promised to used seized cryptocurrency to fund the U.S. crypto stockpile (expected to be approximately 200,000 bitcoin tokens), but crypto investors and lawmakers are proposing the creating of a strategic reserve.

Government Benefits/Healthcare Policy Changes

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In Trump’s previous administration, what changes to Medicaid did he focus on?

ⓘ Start presenting to display the poll results on this slide.

Government Benefits/Healthcare Policy Changes • Repeal Affordable Care Act (ACA) • Privatize Medicare • State-Level Control of Reproductive Health

• Prescription Drug Costs • Privatize Veteran’s Healthcare

Conclusion • The new administration under President Donald J. Trump is expected to bring significant changes in tax policy, deregulation, and government benefits.

• The Wealth Preservation Team is prepared to navigate these changes and provide expert guidance in estate planning, taxation, elder and disability law, and other financial matters.

Questions?

Strategic Planning for Special Circumstances

Crystal West Edwards, Esq. Kaitlin Hackett, Esq.

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Crystal West Edwards, Esq. Principal CWEdwards@pbnlaw.com

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Kaitlin Hackett, Esq. Associate khackett@pbnlaw.com

Agenda • Minors

• Spendthrifts • Beneficiaries with Disabilities • Aging Adults

Minors

Minors

If You Have Minor Children...

• Guardians •

Trusts for Children ❑Guardians in a Will • ❑Single or Separate Temporary Guardian Shares Trusts forTrusts children • ❑Lifetime • Age Restricted Trusts

PorzioPlanning.com

Spendthrifts

Spendthrifts • Identification of propensity to overspend/make impulsive financial decisions • Establish a lifetime trust for creditor protection • Appoint responsible Trustee(s) • Trustee has sole discretion to make distributions • No general power of appointment given to the beneficiary

Beneficiaries with Disabilities

Beneficiaries with Disabilities • Guardianship • • •

Guardian of the Person Guardian of the Property Plenary Guardian

• Special Needs Trusts • First-Party Special Needs Trusts • Third-Party Special Needs Trusts/Supplemental Benefits Trusts

• Awareness of Government Benefits Programs • Medicaid • NJ Division of Developmental Disabilities

Aging Adults

Average Costs of Long -Term Care • Skilled Nursing – $13,080 per month in NJ (Private Room, 2025) • Assisted Living – $7,400 per month in NJ (2024)

Paying for Long -Term Care

Concerned for Long-Term Care Costs...

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Medicare

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Private pay

• •

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Medicare Long-Term Care Insurance ❑Private Pay ❑Long-Term Care Insurance Medicaid ❑Medicaid Asset Protection Planning ❑Asset Protection Plan ❑

Beware of the 5-year lookback

PorzioPlanning.com

Planning Tips Beware of Beneficiary Designations and Joint Accounts • Payable on death (POD) • Transfer on death (TOD) • In trust for (ITF)

• Retirement Accounts (IRAs/401Ks) • Person with disabilities should not be named as beneficiary and should not be a Crummey power holder in a life insurance trust

Questions?

Practical Considerations for Counseling Clients on Potential Probate Litigation Rahil Darbar, Esq. Joseph G. Dolan, Esq.

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Rahil Darbar, Esq. Counsel RDArbar@pbnlaw.com

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Joseph G. Dolan, Esq. Principal JGDolan@pbnlaw.com

The Unique Nature Of Probate Litigation • “It’s not business, it’s personal”

• “It’s not about the money” • Strained Relationships develop over time

The Therapist-Litigator Dynamic The Therapist’s Role

• The importance of empathy • Allow the client to vent • Have a crisp and clear understanding of the family relationships and dynamics at play

The Therapist-Litigator Dynamic (continued)

The Litigator’s Role • • • • •

Who, what, when, where, how approach is critical Identify helpful fact witnesses Identify adversarial fact witnesses Identify helpful written communications Identify problematic written communications •

•

Will the adversarial fact witnesses and problematic written communications sink your case?

Be deliberately repetitive in your discussions with the client when fact gathering. The “third” or “fourth” time’s a charm

Undue Influence Claims •

Most commonly litigated probate claims

•

New Jersey courts recognize a presumption of undue influence if two factors are present: (1) existence of a confidential relationship between the testator and the person alleged to have exerted undue influence; and (2) suspicious circumstances

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If the will benefits one who stood in a confidential relationship to the testator and if there are “suspicious” circumstances, the burden shifts to the party who stood in that relationship to the testator to rebut the presumption, by a “preponderance of the evidence” or in certain circumstances, by “clear and convincing evidence”

What is a confidential relationship?

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Relationship of trust or dependence

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It includes relationships that are familial, fiduciary, principal/agent, and medical/spiritual

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More complicated in “familial relationships”, where trust and confidence exists naturally.

•

Court found a confidential relationship existed between father and son where the father was elderly, weak, and physically dependent on him and provided his son joint power on his bank accounts – In re Fulper, 99 N.J. Eq. 293, 314 (N.J. Prerog Ct. 1926)

•

No confidential relationship existed between a mother and son, because the mother understood the nature and object of her bounty at the time she deeded real property to her son while retaining a life estate – Andrade v. Andrade, No. C-189-17 (N.J. Super. Ct. Ch. Div. Dec. 11, 2018).

What are Suspicious Circumstances?

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Drastic changes in testamentary plan

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Person committing the undue influence is the sole beneficiary

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The beneficiary participates in the preparation of the will or trust

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The execution of the will is concealed

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Lack of independent counsel

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Unexplained hostility by testator to other family members he/she had affection for in the past

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THE SUSPICIOUS CIRCUMSTANCES NEED ONLY BE “SLIGHT”

Rebutting A Presumption Of Undue Influence •

Generally, the proponent of the will must produce evidence to offset the effect of the showing of undue influence by a preponderance of the evidence. In other words, the proponent must show the will is “more likely than not” NOT the product of undue influence.

•

The burden is raised to a “clear and convincing standard” when there are strong policy considerations at play.

For example, if there exists a professional conflict of interest on the part of an attorney, coupled with confidential relationships between a testator and the beneficiary. Haynes v.

First Nat’l State Bank of New Jersey, 87 N.J. 163 (1981).

A Presumption of Undue Influence Is Not Enough to Succeed On Such Claims •

Simply establishing a presumption of undue influence DOES NOT mean your undue influence claim will ultimately be successful

•

You must scrutinize the contrary evidence presented at the pleading stage: •

Certifications Presented by Uninterested Fact Witnesses

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Written Communications by the Testator

•

Records of the Relevant Financial Institutions

Overheard At Southgate •

“I will delay my retirement by 3-5 years to pay your legal fees, but I will not let my sister get my mother’s house. It is not what she wanted.”

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“My sister was mean to me my whole childhood. She’s not going to get away with it now.”

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“His children will not get a dime from me. I don’t care if we have to litigate for a decade.”

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“Her sister is a horrible human being. She’s not going to screw up what I am entitled to as a widowed husband.”

Settlement Or Trial?

•

“Denial ain’t just a river in Africa” – Know the relevant facts, documents, and law as early as possible when evaluating probate litigation claims.

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If you haven’t found a “smoking gun” it probably doesn’t exist

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Evaluate the claim in writing to your client every time there is a major development

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Prepare an Outcome Spreadsheet that accounts for the (1) Estate’s Current Distributable Balance, (2) Adjusted Net Estate if you settle, (3) Adjusted Net Estate if you go to trial, (4) Estimate of Attorney’s Fees on both sides

The Burdens Of Direct/Cross Examination • Prepare the client for the trials and tribulations of providing direct testimony and being cross-examined • Be prepared for surprises and testimony from your client or other witnesses that contradicts a prior sworn affidavit or deposition testimony

Evaluations During Trial •

“Victory has a hundred fathers and defeat is an orphan”

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Pre-trial evaluations of your success at trial can change very quickly once testimony is presented and cross-examinations are completed

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You must keep your client updated during trial of the likelihood of success and any damaging developments

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Providing a written evaluation/update to the client during trial is critical

Reimbursement of Attorneys’ Fees from the Estate •

Where the litigation involves a “fund in court,” such as an estate or trust, R. 4:42-9(a)(2) allows the court to pay legal fees and costs out of the fund in court. “Fund in court” is a term “intended to embrace certain situations in which equitable allowances should be made and can be made consistently with the policy of the rule that each litigant shall bear his own costs”. Sunset Beach Amusement Corp. v.

Belk, 33 N.J. 162, 168 (1960). Such situations include where the litigation protects the trust or estate or to further the administration of a trust or estate – i.e., to aid in creating, preserving, or protecting the fund. Sarner v. Sarner, 38 N.J. 463, 467 (1962).

•

A fee award is denied if the party seeking the award was merely advancing his own interests. In re Estate of Balgar, 399 N.J. Super.

426 (Law Div. 2007).

•

Bulger involved multiple proceedings among five children of the decedent. One dispute pertained to transferring substantial assets of the decedent into joint bank accounts, which would pass on the decedent’s death, by law, to the defendant rather than each child equally. The joint accounts dispute was tried in 2005 and the attorney representing the defendant eventually made a fee application.

The trial court rejected the attorney’s fee application. First, the Court noted that the joint accounts litigation was “purely about recovery of inter vivos transfers. It was not about whether probate would be granted or refused." Id. at 434. The services rendered by the attorney to the defendant served only one purpose – i.e., to allow defendant to retain the inter vivos transfers. Id. Accordingly, the trial court determined that the payment of the legal fees was not proper in the context of a “probate action” under R. 4:42-9(a)(3).

Appellate Standards To Keep In Mind •

The New Jersey Appellate Division will defer to the factual findings of the trial courts on issues of testamentary capacity and undue influence with regard to wills. In re Will of Liebl, 260 N.J. Super. 519, 523 (App. Div. 1992).

•

Trial courts are given significant weight on these issues because they assess the testimony firsthand and can make credibility determinations that the Appellate Division cannot.

•

A trial court’s findings of fact should only be disturbed when “they are so manifestly unsupported or inconsistent with the competent, reasonably credible evidence as to offend the interests of justice.” Liebl, supra, N.J. Super. at 524.

Questions?

When Uncle Sam is Your Pen Pal

Daniel S. Makoski, Esq.

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Daniel S. Makoski, Esq. Counsel DSMakoski@pbnlaw.com

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How Do I Know the IRS is Looking for Me? • You will receive a Letter or Notice in the mail

• THE IRS DOES NOT CALL TAXPAYERS ON THE PHONE AND ASK THEM TO PAY THEIR TAX LIABILITY VIA GIFT CARD • The IRS will also not park a black SUV at the end of your street to surveil you

How Do I Know the IRS is Looking for Me? • Letter of Intent to Examine

• Notice of Intent to Lien (this is not great) • Notice of Intent to Levy (this is bad) • Notice of Determination (this is potentially very bad) • This establishes US Tax Court jurisdiction for non-tax deficiency issues

• Notice of Deficiency (this is potentially very bad) • This establishes US Tax Court Jurisdiction for tax deficiencies

The IRS has found me, now what?

Letter of Intent To Examine

Notice of Intent to Lien

Notice of Intent to Levy

Fairly common for low level issues • Review of Earned Income Credit • Review of Income reported by third parties but not included on return • Deductions taken without submitted support

This is often the first notice a taxpayer will receive • Informs the taxpayer that the IRS believes they owe a tax liability, and the Service is asserting a lien to protect its interest • This is not the taking of money or other assets • Very often issued for failure to pay on self-assessed amounts

The IRS has assessed a tax due and the Taxpayer either failed to take any action or agreed to the amount owed

• This is the taking of money or other assets

The IRS has found me, now what?

Administrative relief to have the actions of the examination level agent reviewed by an Appeals Officer.

If not, file a Collection Due Process claim

The proposed action is stopped pending the appeal, but all statutes of limitation are tolled.

If Appeals Officer finds no problems with the examination level agent, then Notice of Intent and Notice of Levy have similar solutions

Were all of the Taxpayer’s rights adhered to before actually liening or levying?

Ask for a Notice of Determination (only if you are prepared to go to tax court)

Is the amount claimed by the IRS actually owed?

If yes, then what steps should be taken?

Is the amount claimed an amount the Client can pay

The IRS has found me, now what?

Notice of Determination This establishes US Tax Court jurisdiction for items other than tax liability Did the IRS violate your rights with respect to a lien or levy?

Typically, if an Appeals Officer found that your rights were not violated, they will issue a Notice of Determination. The taxpayer has 30 days to appeal to the US Tax Court

The IRS has found me, now what?

Notice of Deficiency

This establishes US Tax Court Jurisdiction for deficiencies in taxes

• 90 days to respond from the date of the Notice, NOT from the date the notice is received • The Notice will indicate the last date for a response in bold on the top right corner • The notice will identify every issue which the Service contends creates a deficiency • Interest will not be included on the Notice, but it will still be accruing • IRS must send it to the Taxpayer, Certified Mail/RRR or Registered Mail

Types of Controversies

Don’t Owe the Money

Can’t Pay the Money

Don’t Want to Pay the Money

• Innocent Spouse • Who qualifies: • IRS Form 8857 • Administrative Relief Only • Provide an explanation • US Tax Court • If a Notice of Deficiency has been issued, this might be your only option • IRS is taking between 60 and 90 days to respond to Form 8857

The Calculation is Wrong

It Wasn’t Me

Don’t Owe the Money

• IRS is applying ordinary income rates to capital gains • IRS is discounting basis • Very common • IRS is excluding deductions • The IRS has the burden of proving income, the taxpayer has the burden of proving deductions

• Only taxes that were due more than 3 years prior to petition • Return was filed at least 2 years prior to Bankruptcy Petition • At least 240 days from the last assessment

Beyond the Assessment Period

Discharged in Bankruptcy

Don’t Owe the Money

• The IRS only has 10 years from Assessment to Collect taxes • Self Assessment occurs on April 15 of the year following the tax year, or on the actual date the return is filed if after April 15.

Can’t Pay the Money Almost always an administrative resolution • •

Offer in Compromise

•

•

What is an OIC? • Can result in lump sum or 5 fixed period of time payments for pennies on the dollar Who is eligible for an OIC? • There must be doubt as to collectability; or • For effective tax administration • Anyone can be eligible for OIC, but to some extent it is formulaic What forms do you use?

• Form 433 (multiple versions) • Supported by 3 months of financial statements (credit cards, bank accounts, etc.)

• 433-A (OIC) Minimum Offer • This is a combination of all assets/liabilities plus projected future income

Can’t Pay the Money

Can’t Pay the Money Form 656 This is the actual offer, but is based on the information on the 433-A (OIC) or 433-B (OIC)

Reason for Offer is the most important section, and the main section where creativity and judgment come into play

Don’t Want to Pay the Money

All things considered; the IRS is a large collection agency with the power of the Federal Government behind it.

Interest begins to accrue on the date the return was due (w/o consideration of any extensions).

Interest is generally nonnegotiable. It is a statutory requirement, not discretionary.

Best case is to eliminate penalties or deficiency to reduce interest

Penalties can be negotiated

IRC 6651 Late Payment Need to show a reasonable cause for late payment

IRC 6662 Understatement of tax Was there a reason for the underpayment?

Don’t Want to Pay the Money

All things considered; the IRS is a large collection agency with the power of the Federal Government behind it.

If the IRS believes you have enough assets to satisfy the liability within 10 years of assessment, the Service will start with a lien, then a levy

If a levy doesn’t satisfy the amount owed, the Service can seek foreclosure of your home, vehicle, other assets and as the 10-year mark approaches the IRS will become more aggressive.

The Service is permitted to contact friends, family, co-workers/employers if they believe you are hiding assets

Knowingly making false statements to an IRS agent is a criminal offense; your friends and family have no incentive to lie on your behalf

State Taxes

• State Tax Authorities will typically piggyback the IRS examination • If an expense was disallowed by the IRS, the State will almost always seek to disallow the same item.

• The reverse is rarely true.

• New Jersey will attempt to avoid negotiating any amounts due. Once they have assessed an amount owed, they are unlikely to reduce that amount • New York will almost always recalculate your return based on the IRS changes, New York rarely has additional changes.

Questions?

A FLING Only New Jersey Will Hate

John M. Elias, Esq.

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John M. Elias, Esq. Principal JMElias@pbnlaw.com

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Agenda • Introduction • Overview • Domicile • New Jersey Residency • State Income Taxes • Audit Issues: Resident vs. Non-Resident • Florida Homestead Exemption • Suggested Steps to Establish Florida Domicile • Changing Domicile Checklist • Conclusion

Overview • Residency in Florida • No specific rules for establishing residency • Residency is linked to a specific purpose or need • Tax Purposes • Considered a resident when your true, fixed, and permanent home is in Florida • Declaration of Domicile • Signifies intent to establish domicile • Only the starting point in the process • Changing Domicile • Steps involved in changing domicile from New Jersey to Florida

Domicile •

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Definition of Domicile •

Permanent home of a person

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Place intended to return after absence

Importance of Domicile •

Key in determining resident and nonresident status

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Only one domicile despite multiple residences

Changing Domicile to Florida •

Break domicile with New Jersey

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Establish physical presence in Florida

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Demonstrate intent to remain indefinitely

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Maintaining Records

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Continuity of Domicile

New Jersey Residency •

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New Jersey Resident Taxpayer Definition •

Domiciled in New Jersey

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Maintains a permanent place of abode in New Jersey and spends over 183 days in the state

Non-Resident Taxation •

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Permanent Place of Abode •

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Residence permanently maintained, regardless of ownership

New Jersey Residency for Trusts •

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Taxed on New Jersey source income

Grantor Trust: Grantor is taxpayer of trust income

New Jersey Resident Trust Criteria

Definition Of Resident Taxpayer • Definition of Resident Taxpayer • Domiciled in New Jersey • Not domiciled but maintains a permanent place of abode in New Jersey

• Spends over 183 days in New Jersey • Non-Residents • Taxed on New Jersey source income • Criteria for Non-Residency • Does not maintain a permanent home in the state • Spends less than 30 days in the state • Permanent Place of Abode • Residence permanently maintained, regardless of ownership

New Jersey Residency For Trusts •

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•

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Types of Irrevocable Trusts •

Grantor Trust: Taxpayer is the grantor, not necessarily a beneficiary

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Non-Grantor Trust: Trust itself is the taxpayer

New Jersey Resident Trust Criteria •

Property of a person domiciled in NJ at the time of transfer

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Trust must file NJ-1041 if gross income exceeds $10,000

Exemptions from NJ Tax

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No tangible assets in NJ

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No income from NJ sources

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No trustees or executors in NJ

Filing Requirements

State Income Taxes •

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New Jersey State Income Tax •

Rates up to 8.97% on income over $500,000

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10.75% rate on income above $1 million starting 2021

New Jersey Transfer Inheritance Tax •

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New Jersey Estate Tax •

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Rates up to 16% for non-spouse, non-lineal relatives No estate tax, but not officially repealed

Florida Taxes •

No state income tax

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No estate tax

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No inheritance tax

New Jersey Income Tax • State Income Tax Rates • 8.97% on income exceeding $500,000

• 10.75% on income above $1 million starting 2021 • Transfer Inheritance Tax • Rates up to 16% for non-spouse, non-lineal relatives • Estate Tax • No estate tax, but not officially repealed

Florida Income Tax • No State Income Tax • Residents are not required to pay state income tax • No Estate Tax • Florida does not impose a tax on estates • No Inheritance Tax • Beneficiaries do not pay inheritance tax

Audit Issues: Resident Vs. Non -resident •

Primary Factors for Domicile Determination •

State issuing driver's license and car registration

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Where the bulk of your mail is delivered

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Where you are registered to vote

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Secondary Factors for Domicile Determination

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Employer's identification of home address

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Other secondary factors considered if primary factors are unclear

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Audit Issues: Resident vs. Non-Resident

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183 Day Rule for Residency

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Documentation and Proof

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Time Spent in Florida

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Legitimate Reasons for Keeping NJ Residence

Residency Audit Program • Taxation Differences Between New Jersey and Florida •

Significant planning opportunities for individuals with connections to these states

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Many individuals attempt to change domicile from New Jersey for tax savings

• New Jersey's Residency Audit Program •

Significant resources devoted to auditing residency claims

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First nonresident return closely scrutinized, especially with substantial federal taxable income

• Defending Change of Domicile •

Taxpayers must be prepared to defend their change in domicile

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Maintaining a second home in New Jersey increases audit chances

• Proving Non-Residency •

Taxpayer must prove non-residency if maintaining a residence in New Jersey

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Must show

183 Day Rule •

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Counting Days in New Jersey •

Partial days count as full days

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Example: Arriving at 10:00 P.M. on Friday and leaving at 10:00 A.M. on Sunday counts as three days

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Days for medical reasons and hospitalization do not count

Maintaining Records •

Keep a log of dates visiting New Jersey

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Save cell phone bills, credit card statements, bank statements, airline tickets, and EZ Pass records

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Produce records during a Residency Audit

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Moving Belongings

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Estate Planning Documents

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Determining Domicile

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Time Spent in Florida

Factors In Domicile Analysis •

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Primary Factors for Domicile Determination •

Driver's license and car registration state

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Primary mail delivery location

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Voter registration location

Secondary Factors for Domicile Determination •

Employer's identification of home address

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Other secondary factors considered only if primary factors are unclear

Maintaining a Residence in New Jersey •

Reasons for keeping a residence

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Documenting reasons in case of audit

Other Primary Factors •

Active business involvement

Florida Homestead Exemption • Eligibility for Homestead Exemption •

Property must be owned and used as a permanent residence

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Can also be the permanent residence of a dependent

• Exemption Amounts

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Up to $50,000 total exemption

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First $25,000 applies to all property taxes, including school district taxes

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Additional exemption up to $25,000 applies to assessed value between $50,000 and $75,000

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Additional exemption applies only to non-school taxes

• Legal Reference •

See section 196.031, Florida Statutes

• Further Information •

Refer to Property Tax Exemption for Homestead Property for additional details

Suggested Steps To Establish Florida Domicile • File a Florida Declaration of Domicile • Obtain a Florida driver's license • File a Florida Homestead Application • Update automobile registration to Florida

• Register to vote in Florida • Update Wills, Trusts, and legal documents • Change location of safe deposit boxes to Florida • Update registrations and licenses for auto, boat, firearm, etc.

• Manage telephone, cable, and utility services • Involve in Florida organizations • Change country club and social memberships to Florida • Affiliate with Florida religious, civic, and professional organizations

Filing Declaration Of Domicile • File a Florida Declaration of Domicile • Submit to the Clerk of the Circuit Court

• File in the Florida County where you will reside • Define your residence and intent • Declare your permanent and principal home • State that you are a bona fide resident of Florida

Obtaining Florida Driver ’s License • Obtain a Florida Driver's License

• Visit the DMV to apply for a new license • Provide necessary documentation • Cancel your New Jersey Driver's License • Turn in your non-Florida driver's license at the DMV

• Comply with Florida law requirements

Filing Homestead Application •

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•

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Application Deadline •

File before January 1

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Submit to county's Property Appraiser's Office

Proof of Real Estate Ownership •

Deed or co-op proprietary lease

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Property tax bill

Proof of Permanent Florida Residence

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Florida driver's license or ID card

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Florida voter registration or Declaration of Domicile

Required Information for Application •

Current employers of all owners

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Addresses on last I.R.S. income tax return

Updating Registrations And Records •

Update Automobile Registration •

Register your vehicle in Florida

• Change Address for Financial Correspondence • Register to Vote in Florida • Update Legal Documents • Change Location of Safe Deposit Boxes • Update Various Registrations

• Manage Utility Services • Involve in Florida Organizations • Change Club Memberships • Affiliate with Florida Organizations • Update Employment Records

Changing Domicile Checklist •

Official Records •

Auto registrations, birth certificates, and driver’s license

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Financial Records

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Legal Records

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Utility Records

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Insurance Records

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Membership Records

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Employment Records

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Medical Records

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Tax Records

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Miscellaneous Records

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Other Important Data

Official Records •

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•

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Auto and Boat Registrations •

Reregister auto in FL

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Register boat in FL

Personal Records •

Move birth and death certificates to FL

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Move children’s birth and baptismal records to FL

Professional and Legal Records

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Change address on professional licenses and registrations to FL

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Move original deeds to FL location

Government and Military Records •

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Obtain FL driver’s license

Healthcare and Social Security

Financial Records • Certificates of Deposit • Charge Accounts

• Checking Account Records • Credit Cards • Custody Management Accounts • Estate Records • Investment Management Accounts

• Loans (Payable and Receivable) • Money Market Funds • Mutual Funds • Partnership Records • Registered Security Records

Legal Records • Auto Leases • Closing Statements

• Corporate Records • Will • Revocable Trust • Living Will • Deeds

• Limited Partnership Certificates • Mortgages • Partnership Records • Past Litigation • Pending Litigation

Utility Records • Cable Television •

Change address to FL

• Electricity •

Change address to FL

• Garbage Collection •

Change address to FL

• Heating Fuels •

Change address to FL

• Sewer Rents •

Change address to FL

• Telephone • Water

Insurance Records •

Insurance Records •

Premium Notices - change address to FL

•

Accident

•

Annuity payments

•

Auto

•

Casualty

•

Disability

•

Health

•

Life

•

Malpractice

•

Title

•

Umbrella coverage

Membership Records •

Airline Travel Club Cards • Change address to FL

•

Alumni Directory Listings

• Change address to FL •

Boards of Directors • Change address to FL

•

Charitable Organizations

•

Fraternal Organizations

•

Lodges

•

Political Party

•

Private Clubs

•

Religious Affiliation

Employment Records •

•

Employment Documentation •

Business cards

•

Commission statements

•

Employment contracts

•

Employment identification cards

Payroll and Tax Records •

Payroll records

•

Local withholding taxes

•

State disability records

•

Worker’s compensation records

•

Benefit and Insurance Records

•

Other Employment Records

Tax Records •

Tax Returns Filed • Federal income • Local income

• Personal property • Real estate tax • School tax • State capital gain tax • State gift

• State income •

Resident Tax Filing Status • Local income

•

Nonresident Tax Filing Status

Miscellaneous Records • Address Change for Billing •

Update billing address to FL

• Service and Subscription Records •

Answering service

•

Book club subscriptions

•

Magazine subscriptions

•

Newspaper delivery

•

Record club subscriptions

• Permits and Licenses • Personal and Business Correspondence • Financial and Expense Records • Miscellaneous Records

Other Important Data •

•

•

•

Registering Vehicles in FL •

Aircraft

•

Autos

•

Boats

Insurance and Cemetery Plots •

Casualty insurance adviser - consider local advisor

•

Cemetery plots – consider obtaining in FL

Notifying Close Contacts

•

Close friends – send change of address information

•

Relatives – Send change of address

Moving Personal Items •

Heirlooms and mementos – move to FL

Medical Records • Dentists • Engage in FL • Hospital Admission Records

• Maintained for patient care • Pharmacy Records • Select FL pharmacy • Physicians

• Engage in FL • Physiotherapists • Engage in FL

Conclusion •

Reporting New Jersey Source Income •

•

Addressing New Jersey Residency Audit •

•

Must be reported to New Jersey regardless of residency

Easier if you can prove sale or preparation to sell New Jersey residence

Time Spent Outside New Jersey •

Can be in Florida or elsewhere

•

Key is not being in New Jersey more than 183 days a year

Questions?

Don’t Fall Off the Tax Cliff

(or How to Face the Cliff with a Bungee Cord)

I. Richard Ploss, Esq.

Presenter

I. Richard Ploss, Esq. Counsel IRPloss@pbnlaw.com

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Introduction • The Tax Cuts and Jobs Act of 2017 ("TCJA") has been the law of the land for Federal Estate and Gift Taxation since January 1, 2018.

• Consistent with previous tax law changes, the TCJA carries with it an expiration date. That date is December 31, 2025.

• Now that 2025 has finally arrived, questions exist as to what will happen once the clock strikes 12 on New Years 2026. Will there be a cliff that all our clients will fall from at that time? More importantly, what should we be advising our clients to do?

• As a good Sherpa, I will try to navigate you through the peaks of this mountain so that you can help your clients.

Overview of the Presentation - Part I - Examine the Consequences of the Potential Sunset of the TCJA and its implications (including portability)

- Part II - Examine Potential Strategies For Calendar Year 2025 to consider for repeal - Part III - What Will Happen to the Future of the Federal Exclusion Amount

- Part IV - Recommendations For This Year (and Perhaps Beyond) - Part V - Questions (if time permits)

Part I- Implications of the Possible Sunset of the TCJA • On January 1, 2026, the TCJA is scheduled to "sunset" and we are due to "snap back" to the law in effect in December 2017.

• The Basic Exclusion Amount will decrease from $13,990,000 to approximately $7,500,000 as the law will revert to what was in effect at that time.

• The GSTT Exemption will also decrease to approximately $7,500,000 as well.

• The Estate/Gift Tax Rate and the GSTT Tax Rate will remain fixed at 40%.

The Impact of Portability • Introduction To the Vocabulary: • Basic Exclusion Amount is an individual's statutory Estate/Gift Tax Exemption Amount as provided under the Internal Revenue Code (currently $13,990,000 in 2025).

• Deceased Spouse Unused Exclusion ("DSUE") Amount (applies to Married Couples) is the amount of Basic Exclusion Amount the first to die spouse did not fully utilize for lifetime gifts or death transfers.

• Applicable Exclusion Amount = Basic Exclusion Amount + DSUE.

• Portability Concept Explained: For married couples who so elect, a spouse's DSUE may be ported to a surviving spouse by the filing of an IRS Form 706 (Estate Tax Return).

• Please note that a taxpayer's GSTT Exemption may never be ported from the decedent spouse to a surviving spouse (USE IT OR LOSE IT).

The Impact of Portability (cont.)

• Once it is claimed, the DSUE will remain fixed (it will neither increase nor decrease due to the passage of time).

• Taxable Gifts made by a surviving spouse with ported DSUE will be applied first against the DSUE and only after the DSUE has been exhausted against the surviving spouse's Basic Exclusion Amount.

Clawback

Points To Remember • Pre-2026 Taxable Gifts Will Reduce a Taxpayer's Basic Exclusion Amount.

• However, if a taxpayer utilizes (exhausts) his/her entire Basic Exclusion Amount on Pre -J taxable gifts, there will be no clawback of any taxable gifts that were in excess of the reduced Basic Exclusion Amount.

▪

If client makes gifts of $13,990,000 before January 1, 2026 and the Basic Exclusion Amount is reduced to $7,500,000 on January 1, 2026, the excess amount of $6,490,000 will not be clawed back.

• However, failed IRC Chapter 14 taxable gifts that are made before January 1, 2026 will be clawed back.

▪ Thus, a taxable gift made to a QPRT or GRAT in 2026 where the Donor dies after January 1, 2027 but before the expiration of the Donor's retained interest term, will not result in the Donor's Executor being able to restore the full amount to the Donor's Exclusion Amount.

Part II- Stratgies For Avoiding the Cliff

What Strategies Should We Consider • No one strategy will provide clients with the "silver bullet" that will solve all their estate planning issues with the potential cliff.

• Instead, each of the following strategies should be evaluated based on the factors enumerated in the preceding slide.

• As advisors, it is up to us to empower our clients to feel that they are in control. By laying options and risks, we fulfill that strategy.∫

Part I- The Client Assessment • Looking At the Numbers • Client Current Net Worth ($15 million) • Client Future Spending • Monte Carlo Analysis • What is the Client's (or Clients') Remaining Exemption Amount?

• Client Emotional Personality Assessment • Client Comfort With Transferring Assets

Strategy #1- The Gift to the Descendants • This can take the form of an outright transfer to the descendants or a transfer to one or more irrevocable trusts that can be structured as "Dynasty Trusts".

• This will generally result in a 1:1 dollar utilization of a Client's Total Exclusion Amount as well as GSTT Exemption.

• If a trust is used as the vehicle, this technique can also be further enhanced by structuring it as a "Defective Grantor Trust" (more on this below).

• Key issue is whether the client can afford to part with the assets

Strategy #2- Sale To Defective Grantor Trust • Basic Review of Grantor Trust Rules • What Is a Defective Grantor Trust?

• Irrevocable Trust • Grantor retains certain powers or rights over trust income and principal or when transacting with the trust, which result in all items of trust income and deductions being taxed to the Grantor.

• "Defective" in that transfers to the trust are completed gifts for Gift and Estate Tax purposes but the transfers are incomplete for income tax purposes.

Strategy #2- Sale To Defective Grantor Trust (cont.)

• Powers/Rights That Confer Defective Grantor Trust Status ▪ Swap Power ▪ Power to Borrow Against Trust Assets Without Giving Adequate Security

• Implementing The Strategy ▪ Donor makes taxable gift to Defective Trust (20% of asset purchase price).

▪ The Donor sells assets to the Defective Trust in exchange for a note bearing interest at a proper interest rate. (Usually using the rates published monthly by the Treasury).

▪ Taxable Gift complete. No income tax consequences.

▪ Income Tax Basis should be high with enough cash flow to service the note.

Strategy #3- The Promissory Gift Note • Parent and Child enter into a contract transaction under which: ▪ Child promises to refrain from a specific activity (e.g., no drinking on New Years Eve) or engage in a specific activity (e.g., reading a Psalm from the Holy Bible either monthly or one time per year).

▪ Parent issues promissory note to pay the Child (note could be for $13,990,000) with interest-only payment provisions with a due date on the note equal to the Parent's life expectancy. The note must be enforceable under state law.

• Parent has made a taxable gift to the Child (probably in the amount of $13,990,000) which exhausts the Basic Exclusion Amount.

Strategy #4- The Spousal Lifetime Access Trust ("SLAT") • This is perhaps the most popular planning technique for the past several years (some commentators call it the "Slatateria").

• As the name implies, this works well in the case of spousal planning.

• Basic Mechanics: ▪ Irrevocable Defective Grantor Trust ▪ For benefit of Spouse (and potentially children) ▪ Transfer to the trust full Basic Exclusion Amount ($13,990,000) reduced by prior year adjusted taxable gifts

• Grantor Trust Rules Apply During the Trust Creator's Lifetime

Strategy #4- The SLAT (cont.)

• Key Consideration When Using the Spousal Lifetime Access Trust: o The "Reciprocal Trust Doctrine" is the biggest landmine (Estate of Grace) when both spouses are creating SLAT's. o Avoiding Reciprocal Trust Doctrine ▪ Difference in trust agreement dispositive provisions ▪ Different Trustees ▪ Best not to fund both trusts at the same time.

o A SLAT Wrinkle (the Grantor's Repurchase of SLAT Assets)

Strategy #5- Spousal Release of QTIP Interest • If the stars align, this can be an effective way for a surviving spouse to utilize his/her remaining expiring Basic Exclusion Amount.

• The Technique relies on IRC Section 2519 of the Code, which specifically states that if a surviving spouse releases any portion (emphasis added) of his/her income interest in a QTIP Trust (for which the Federal Estate Tax Marital Deduction has been elected), the Spouse will be deemed to have made a taxable gift equal to the full fair market value of the trust.

• This can be a very valuable technique for gifting without the spouse losing the benefits of the QTIP.

Strategy # 5- QTIP Release (cont.)

• Issues To Consider: o Does a Spendthrift Clause in the governing instrument prohibit a spouse from exercising a release over the QTIP? o Because the Spouse will be deemed to have made a taxable gift, there will not be any basis step-up of the underlying assets.

o Be careful of the "retained string" estate tax inclusion in the surviving spouse's estate. Consider dividing the QTIP trust into two separate trusts and have the spouse release his/her interest in all the income in one of the two trusts.

Some Other Points To Consider • Do not forget the impact of the income tax of gifted assets! o No income tax basis step-up on gifted assets while assets transferred at death do receive a basis step-up. o Holding period for STCG vs. LTCG on underlying assets (gifted asset tax basis will tack to donor's holding period while all assets transferred on death are treated as LTCG property). o Also, consider the income.

Prophesizing the Future

What is the Fate of the TCJA Estate/Gift Tax Provisions?

• There is a high likelihood that the Estate, Gift and GSTT Exemptions will be extended.

• Based on past experiences, we will not see this relief until the fourth quarter of 2025 (December 31st).

Impact on Estates: More estates will be subject to federal estate tax.

What Should You Advise Your Clients To Do? • Clients should continue with their annual gifting plans (e.g., annual exclusion gifts, 529 Plans and direct payment of tuition or medical expenses for the benefit of a donee).

• High Net Worth Individuals should immediately create an Irrevocable Defective Grantor Trust but hold off on funding the same until Congress acts (or does not act).

Action Steps Key Points

Review Estate Plans: Urge clients to review and update their estate plans.

Stay Informed: Keep abreast of legislative changes that may affect estate taxes.

Schedule a meeting with your estate planning attorney.

Consult Professionals: Importance of working with tax advisors and estate planners.

Consider making lifetime gifts and establishing trusts.

Conclusion Summary:

- Recap the importance of proactive planning.

Call to Action:

- Encourage clients to act now to take advantage of current exemptions.

Questions?

Beyond Ownership: Strategic Succession Planning for Closely Held Businesses Sameer A. Prasla, Esq. Deirdre R. Wheatley-Liss, Esq.

Presenters A person in a suit and tie

A person in a black suit

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Sameer A. Prasla, Esq. Associate SAPrasla@pbnlaw.com

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Deirdre R. Wheatley-Liss, Esq. Principal DRWheatleyliss@pbnlaw.com

Introduction to Succession Planning

Overview of succession planning and its critical importance for closely held businesses.

Highlight the unique challenges, including complex asset structures, family dynamics, and potential conflicts.

Brief introduction to the four main paths: - Co-owner purchase - Family transfer - Employee transfer - Thrid-party sale Bonus - purpose trust.

Introduction to Succession Planning ‒ Intentional, proactive approach. ‒ Key Objectives: • Minimize disruptions during leadership changes.

• Protect family wealth and legacy.

• Ensure alignment with long-term business goals.

‒ Importance of Starting Early: • Provides time for training and mentoring successors.

• Mitigates risks associated with sudden leadership changes.

- Key Numbers: 70%, 12%, 3%

Unique Challenges for Closely Held Businesses Diverse Ownership Structures • Complex decisionmaking due to multiple stakeholders.

• Difficulty aligning goals among family members or co-owners.

Family Dynamics and Emotional Attachments

Financial and Operational Risks of Poor Planning

• Personal relationships can complicate business decisions.

• Resistance to leadership changes due to sentimental ties.

• Tax Burdens: Up to 40% of estate value can be lost to taxes without proper planning.

• Business Disruption: 60% of businesses without a succession plan fail within two years of leadership loss.

Lack of Preparedness • Only 30% of closely held businesses have a documented succession plan.

• Creates uncertainty for employees, clients, and stakeholders.

Introducing the Four Traditional Succession Paths Co-Owner Purchase Agreement to sell to existing owners.

Family Transfers Passing the business to the next generation or other family members.

Employee Buyouts Transitioning Ownership to employees through mechanism like ESOPs (Employee Stock Ownership Plans) or management buyouts.

Third-Party Sales Selling the business to an external buyer, such as a competitor or private equity firm.

Co-Owner Buy -Sell Agreement • Pros: • • • •

Maintains business continuity with a familiar leader.

Reduces transition risk for employees and clients, as well as the owners family.

Allows for structured buyouts (installments, seller financing).

Faster, lower-cost alternative to external sales.

• Cons: • • • •

Co-owner must secure funding or financing.

Potential valuation disputes and negotiation challenges.

Seller may need to stay involved post-sale.

Governance issues if multiple owners disagree.

• Considerations: • • • •

Buy-sell agreement should define terms, valuation, and exit strategy.

Explore funding mechanisms (loans, seller financing, retained earnings).

Plan for tax implications and structuring to optimize outcomes.

Address management transition and operational continuity.

Family Transfer • Pros: ‒ Maintains family control and legacy, instilling generational values. ‒ Emotional satisfaction in preserving the founder’s vision. ‒ Lower transition costs compared to external sales.

• Cons: ‒ Risk of family disputes over leadership and ownership roles. ‒ Difficulty ensuring heirs are competent and willing to lead. ‒ Uneven financial expectations amount family members may create tension.

• Considerations: ‒ Train and mentor the next generation in management and governance skills. ‒ Use legal structures such as family trusts or buy-sell agreements to clarify ownership and roles. ‒ Establish clear goals for continuity and fairness (e.g., equalizing inheritance for non-business heirs).

Employee Transfer (e.g., ESOPs, management buyouts) • Pros: ‒ Employees are often highly motivated to preserve the business’s success. ‒ Ensures continuity in culture, operations, and customer relationships. ‒ Provides a structured exit strategy for owners while rewarding loyal employees.

• Cons: ‒ Financing the transaction can be complex, requiring significant upfront planning. ‒ Employees may lack the management or leadership experience needed to sustain growth. ‒ Transitioning ownership may still require the seller’s involvement for a period.

• Considerations: ‒ Structure the deal through ESOPs or seller financing to support employee ownership. ‒ Retain key employees by offering transitional support and training. ‒ Develop a succession team to ensure a smooth leadership handoff and continued success.

Third-Party Sale • Pros: ‒ Potential for the highest valuation, especially with strategic buyers. ‒ Provides a clean break for the seller, freeing up time and resources. ‒ Broad market interest allows for negotiation of favorable terms.

• Cons: ‒ Loss of family legacy and potential disruption to employees and culture. ‒ Risk of reduced customer/client trust during and after the transition. ‒ The due diligence process can be time-consuming and intrusive.

• Considerations: ‒ Prepare the business for sale by optimizing operations, financials, and valuations. ‒ Vet buyers to ensure cultural alignment and protect employees. ‒ Explore tax-efficient sale structures to minimize capital gains and maximize net proceeds.

Path 4: Purpose Trusts as a Business Succession Tool • Pros: • • •

Preserves the business's mission, values, and long-term independence.

Ensures continuity in leadership and decision-making without pressure from external shareholders.

Provides a structured exit strategy that aligns with the company’s purpose rather than purely financial interests.

• Cons: • • •

Requires careful legal structuring and governance to ensure compliance and sustainability.

The absence of traditional owners may create challenges in accessing capital or making major strategic decisions.

Trust administration can be complex and requires an independent trustee or oversight mechanism.

• Considerations: • • •

Establish a governance structure that aligns business operations with the trust’s mission.

Designate a board or independent trustees to oversee decision-making and ensure fiduciary responsibility.

Balance financial sustainability with purpose-driven goals to maintain long-term success.

Legal and Tax Structuring for Effective Transitions

Legal Instruments

Fundamental Legal Structures: ‒ Voting and Non-Voting Structure: • • •

Centralize control while effectively transferring wealth.

Class A and Class B in an LLC / FLP Corporation – Non-Voting Shares (S); Preferred Shares (C)

- Trusts: • •

Use irrevocable trusts to reduce estate taxes and provide ongoing management.

Purpose Trust to control legacy.

Legal Instruments Cont.

• Practical Tips: ‒ Draft, sign, and maintian Buy-Sell Agreements to ensure smooth ownership transitions. ‒ Utilize separate Durable Powers of Attorney to manage business decisions in case of incapacitation. ‒ Consider a Board of Directors structure for Trustees / Attorney-inFact. ‒ Life Insuarnce for liquidity. ‒ Proper Agreements to document business assets and liabiliites (customer and vendor contracts, employment agreements, IP protection).

Tax and Planning Considerations

Strategies to Minimize Liabilities:

Importance of Proactive Planning:

• Gifting shares to family members using annual exclusions and lifetime exemptions.

• Utilizing stepped-up basis rules to reduce capital gains taxes during intergenerational transfers.

• Leveraging installment sales to defer capital gains and provide tax-efficient cash flow.

• Section 1066 tax installment payment.

• Sudden death of owner = Sudden death of business.

• Misalignment desire to purchase / ability to purchase.

• Company owned life insurance increases the company value for estate tax purposes.

• Engaging a complete advisor team in developing a sucession plan.

Balancing Interests & Building Flexibility

Balancing Goals:

Flexibility for Change:

Financial, personal, and philanthropic goals integrated into the succession plan.

How to accommodate life events and evolving family/business dynamics.

Case Studies

Case Study 1: Successful Family Transfer Scenario: The Johnson family owned a manufacturing business that had been thriving for over 40 years. As the founder, Mr. Johnson, approached retirement, he realized his three children had differing visions for the business. To prevent future conflicts, Mr. Johnson implemented a structured succession plan: • He created a family governance framework, including a family council and formalized decision-making processes.

• Each child participated in leadership training and was mentored by senior executives to build their skills.

• Roles and responsibilities were clearly defined, and a buy-sell agreement was put in place to address future ownership transitions.

Case Study 1: Successful Family Transfer Continued Outcome: By involving his children early and prioritizing governance and training, the business seamlessly transitioned to the next generation, continuing its growth and preserving family harmony.

Key Takeaways: • Start planning early to allow time for mentorship and leadership development.

• Involve family members in governance discussions to ensure alignment and clarity.

Case Study 2: Challenging Third -Party Sale Scenario: A retail business owned by the Smith family was sold to a private equity firm after the founder retired unexpectedly. The sale was rushed, and the buyer’s focus on immediate profitability led to drastic operational changes.

• Long-standing employees were replaced with outsourced staff, disrupting the company culture.

• Customer trust waned as service equality declined, leading to a significant drop in revenue.

• Former employees publicly criticized the changes, damaging the business’s reputation.

Case Study 2: Challenging Third-Party Sale Continued Outcome: Without proper vetting and preparation, the business struggled to retain its identity, and the family regretted the sale.

Key Takeaways: • Vet buyers thoroughly to ensure they align with the business’s values and culture.

• Negotiate terms that protect employees and maintain customer trust during transitions.

Checklist: 7 Key Steps for Succession Success Start Early: Engage stakeholders and outline goals well in advance.

Conduct a Business Assessment: Identify strengths, weaknesses, and areas to optimize before transition.

Choose the Right Path: Evaluate family transfers, employee buyouts, or third-party sales based on business and personal objectives.

Prepare Legal and Tax Strategies: Use tools like trusts, wills, and FLPs to minimize liabilities and ensure smooth transitions.

Communicate and Review Regularly: Hold regular meetings and update plans to reflect evolving circumstances.

Communicate and Review Regularly: Hold regular meetings and update plans to reflect evolving circumstances.

Build in Flexibility: Be prepared for changes in goals, relationships, business sucesss, new opportunities, legal and tax changes.

References 1. Survival Rates of Family Business ‒ Only 30% of family-owned businesses transition to the second generation, 12% to the third, and 3% to the fourth.

Source: Leadership Lessons from Great Family Businesses. (Leadership Lessons from Great Family Businesses).

2. Employee Ownership Benefits ‒ ESOPs increase productivity by 25% and are 50% less likely to go bankrupt.

Source: National Center for Employee Ownership (NCEO). (Research on Employee Ownership)

3. Valuations in Third-Party Sales ‒ Optimizing financials before a sale results in 10–20% higher valuations.

Source: Borgman Capital. (How to Maximize Business Value Before a Sale | Key Steps for Business Owners — Borgman Capital)

4. Tax Strategies and Estate Planning ‒ Proper estate planning reduces probate costs by an average of 50%.

Source: Financial Strategists. (Standard Probate Fees | Factors and How to Minimize)

5. Importance of Succession Planning ‒ Two-thirds of family businesses lack a documented and communicated succession plan."

Source: Teamshares. (Succession planning statistics in 2024: preserving a legacy)

Questions?

We a l t h P r e s e r v a t i o n f o r H o l d e r s o f C r yp t o C u r r e n c y

Charles Edward Falk, LL.M., J.D.

Presenter Charles E. Falk, LL.M., J.D. Of Counsel CEFalk@pbnlaw.com

Overview Crypto Currency is widely held. While the Income Taxation of Crypto Currency is frequently discussed, the gift and estate taxation of Crypto Currency, including passing crypto to successive generations and charitable contributions of Crypto, are often unknown, misunderstood, or not appreciated.

Transfer tax planning must begin when Crypto is first acquired. Wills and Trusts must be updated. How should Crypto be held? The recent appreciation of Bitcoin is a good example of the need for Crypto owners to be proactive with their holdings. This session will discuss these and other issues.

An Introduction to Crypto Currency •

Somebody once described Crypto Currency (“Crypto”) as a combination of “Chasing the Wind” and Religion. There

is nothing supporting its value except a belief that it is valuable and that other holders will believe it has value. You have to have faith.

•

The first cryptocurrency was bitcoin, which was first released as open-source software in 2009. As of June 2023, there were more than 25,000 other cryptocurrencies in the marketplace, of which more than 40 had a market

capitalization exceeding $1 billion.

•

Since the 2024 Election, Bitcoin and other crypto currencies have soared in value. The closing value of Bitcoin on November 4, 2024 was almost $68,000. The closing price today is approximately $100,000.

An Introduction to Crypto Currency (Cont’d)

•

Some Crypto Investors have entered Hedging transactions to mitigate the downside risk in the volatile Crypto Market place. Hedging is a method of mitigating potential investment losses by entering a position expected to perform in the opposite direction of an existing position. The two most common Hedging strategies are futures and option contracts.

•

Crypto can be held directly, or indirectly (through ETFs such as Greyscale Bitcoin Trust). Most direct holdings are through Exchanges, such as Coinbase.

Income Taxation of Crypto Currency •

The Internal Revenue Service considers Crypto to be “property” and not “currency.” This is important because anytime Crypto is exchanged for any property, including other Crypto, it is treated as having been sold and gain or loss must be recognized.

•

If you received Crypto for property or services you must report it at its fair market value on the date of its receipt. This is usually your tax basis.

•

Crypto occupies a unique place in taxation. For federal income tax purposes Crypto is not a “security.” Although, for security law purposes the SEC treats some Crypto as a security which makes it subject to the regulation and enforcement by the SEC.

•

Since Crypto is not a security for federal income tax purposes, many tax law provisions that apply to securities do not apply to Crypto. For example, the “Wash Sale” rules that prohibit the deduction of losses for sales of securities if “substantially identical” stock or securities is acquired within 30 days before or after the stock or securities are sold for loss, do not apply to Crypto. Thus “loss harvesting” in Crypto can be done and an identical position reestablished immediately. However, the straddle rules limiting the deduction for sales of “actively traded personal property” do apply.

Income Taxation of Crypto Currency (Cont’d) •

On November 27, 2024, the Wall Street Journal had the following headline, “Bitcoin is Surging—and the IRS is Watching Closer than Ever.” The WSJ wrote in the article: o

In all of these cases, a warning is needed. The IRS is stepping up oversight, and any taxes owed will need to be paid. Tax audits and criminal cases are happening more often, and new rules starting next year mean the IRS will know even more about your crypto stash.

•

The IRS has been increasing disclosure on individual form 1040 and has used its subpoena power to obtain taxpayer records from crypto exchanges. It is important to give you tax preparer all of the information you have regarding your virtual currency transactions. Further, if your tax preparer is not experienced in filing returns with crypto information, it is important to have the assistance of someone who is

familiar with virtual currency.

•

In the first stand-alone case of tax fraud resulting from Crypto, Frank Ahlgren plead guilty for failing to accurately report his bitcoin gains and received a two-year prison sentence. Ahlgren was also ordered to pay tax restitution as a condition of supervised release that will follow his incarceration.

Gifting Crypto Currency •

The Gifting of Crypto present important issues. If the amount of the all gifts in any year exceed the annual exclusion (2025) of $19,000, a Federal Gift Tax return must be filed, although there may not be any gift tax due.

•

Any reportable gifts of Crypto must be accurately valued. Most appraisers are not qualified to value Crypto. It is important to seek out an appraiser who is familiar with valuing Crypto. All appropriate discounts should be taken in making the valuation.

Charitable Contribution of Crypto Currency •

The Charitable Contributions of Crypto impose strict compliance requirements. Like gifts of any other property, gifts of Crypto may require a “Qualified Appraisal” by a “Qualified Appraiser.” Finding a Qualified Appraiser of Crypto who meets the IRS standards is difficult.

•

There are strict time requirements for obtaining a Qualified Appraisal and receiving a contemporaneous acknowledgement (Two requirements when making charitable contributions of property).

Many taxpayers who have made contributions of property who have failed the strict

compliance requirements have lost their charitable contribution deduction. It is imperative that a taxpayer obtain the services of a knowledgeable person when making any charitable contributions of property, especially Crypto.

Crypto Currency in IRAs and Retirement Accounts •

The rise in the value of Bitcoin and other virtual currencies has led to retirement accounts and IRA accounts investing in Crypto.

The Department of Labor (“DOL”) previously warned retirement account holders about investing their retirement funds in crypto because of the volatility of Crypto. In Compliance Assistance Release No. 2022-01, released March 10, 2022, the Employee Benefits Security Administration (“EBSA”) of the Department of Labor reminded “plan fiduciaries” of their responsibility to monitor and exercise prudence in offering plan investments. The EBSA stated: o

Under ERISA, fiduciaries must act solely in the financial interests of plan participants and adhere to an exacting standard of professional care. Courts have commonly referred to these prudence and loyalty obligations as the “highest known to the law.” Fiduciaries who breach those duties are personally liable for any losses to the plan resulting from that breach. A

fiduciary’s consideration of whether to include an option for participants to invest in cryptocurrencies is subject to these exacting responsibilities.

Crypto Currency in IRAs and Retirement Accounts (Cont’d) •

On December 4, 2024, the U.S. Government Accountability Office (“GAO”) reiterated the warning by EBSA by reporting: o

Some 401(k) plans now offer the option to invest in crypto assets like bitcoin. While all investments have risks, our analysis shows that investment in selected crypto assets is uniquely volatile. The potential for high returns can come with considerably high risk.

•

The GAO further stated that the lack of comprehensive data limits their oversight, and that “401(k)

participants may assume greater responsibility when investing outside core investment options.” The GAO concluded, “As a result, certain crypto assets continue to trade in markets that do not have investor protections or comprehensive oversight.”

Crypto Currency in IRAs and Retirement Accounts (Cont’d) •

Thus, 401(k) account holders who invest in Crypto do so at their own risk, and the plan fiduciaries can be held liable for breach of fiduciary duty.

Crypto Currency in The Estate •

The Estate Tax is a tax on a decedent’s right to transfer property at his death. It consists of an accounting of everything the decedent owns or has certain interests in at the date of death or later valuation date.

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Like any other assets, Crypto assets must be properly valued at the date of death or later where appropriate. This

valuation must be done by someone who is familiar with valuing Crypto, taking into account all available discounts, etc.

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Depending on how the Crypto is held, finding, and valuing Crypto assets may be challenging. It is important that a decedent leave his passwords and other important information to his Executor. Passwords should never be left in

a will, since a will is a public document. When the accounts and passwords are not left by a decedent, the Crypto may never be recovered. History is replete with Crypto owners losing their Crypto because they can’t access their passwords. passwords.

It has been estimated that 20 percent or more of Crypto has been lost because of misplaced

Crypto Currency in The Estate (Cont’d) •

Crypto held through an ETF (Greyscale) or Coinbase account may be easier for an Executor to find.

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Query-If a decedent owned Crypto at his death but the Crypto cannot be accessed because the password or “key” is unknown, is the value of Crypto included in the decedent’s Federal Estate Tax Return?

Pig Butchering and Other Scams •

The Wall Street Journal recently devoted about two-thirds of a page on “Pig Butchering.” It coincided with IRS warnings about various Crypto scams. Among tax professionals these scams are well-known. Pig Butchering is more famous for its name, but variations of the scam are ubiquitous.

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The term “Pig Butchering” was born because many of the scammers operate in Southeast Asia. Typically, the scammers connect with someone on line, many times with a romantic pretense. The scammers promise large returns and convince their “Pig” to convert their money into crypto and transfer it into a fake investment app. The fake app then reports dramatic gains, and the Pig is encouraged to invest more money into the scam. When the Pig attempts to withdraw his money, the app disappears, or the scammers impose non-existent withholding taxes or additional fees. The old saying, “if it appears too good to be true, it usually is.”

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