Despite the slowdown in the economy, Allgen Financial Services, Inc has experienced significant growth in client acquisition in the month of November. Allgen expects the same trend to continue in the month of December.
With many other financial institutions implementing downsizing plans, Allgen Financial Services, Inc. is well positioned to service individuals and businesses getting caught-up in the turmoil. As many financial advisors are getting transitioned, so are their clients. Allgen is able to provide these clients stability and personalized financial advice during a time wise counsel is necessary. This is the main reason for Allgen’s increase in business activity during a time when most financial institutions are struggling.
Another reason why Allgen is experieincing growth has to do with the market volitality. The more volital the financial markets are, the greater the need for direction, planning, and objective advice from industry professionals.
According to a study sponsored by U.S. Trust, owners of ultra-high-net-worth (UHNW) family businesses remain exposed to business succession, asset protection and estate planning issues.
“Owners of ultra-high-net-worth family businesses often have a team of advisors focusing on an array of needs such as wealth management, tax strategies and succession planning, without addressing the bigger picture,” said Chris Zander, managing director and head of the Multi-Family Office (MFO) Group at U.S. Trust. “Given the near-term and long-term complexities with managing a successful family business, it is crucial that these families think about the wealth tied to their business and their personal fortune in a holistic, strategic manner.”
The study revealed that while a large majority of owners of UHNW family businesses have wealth transfer plans in place, most of these plans - both professional and personal - have lapsed.
– While over three quarters (76%) of owners have succession plans, only 38 percent implement them, inadequately addressing issues of succession
– Most individuals with succession plans in place are not focusing on tax-mitigation issues (73%), even though nearly all participants (93%) report a desire to lower the tax burden associated with transferring the business
Asset Protection Strategies Missing
A significant portion of owners of UHNW family businesses desire to maintain control of the business and are concerned with protecting their wealth, yet fail to create asset protection plans, which provide wealth structuring strategies that maximize tax efficiencies and mitigate risk.
– Almost nine out of 10 (89%) business owners were “very” or “extremely concerned” about protecting the family’s wealth
– However, nearly three quarters (73%) of them do not have asset protection plans in place
“Most owners of ultra-high-net-worth family businesses don’t implement strategies for asset protection in large part because no one has educated them about such options,” Rosenthal noted.
Estate Plans Outdated
The treatment of estate planning mirrors that of succession planning, with the majority of owners creating estate plans without updating them often enough to keep them viable.
– Over three quarters (78%) of owners have personal estate plans; however, 89 percent have not updated them after a life-changing event such as marriage, birth or death rendering the plan obsolete
– More than half (54%) of participants lacking estate plans reported difficulty dealing with their own mortality, and one quarter (25%) cited a lack of time as reasons for not creating a plan
With the upcoming elections and the tax-fallout many professionals are expecting, and with the already-enacted estate and gift tax sunset approacing, updating and implementing business succession plans, personal estate plans, and asset protection plans take on a new significance.
For professional investment advice on this topic contact: Allgen Financial Services, Inc.
888.6ALLGEN (888) 625-5436
advisors@allgenfinancial.com www.allgenfinancial.com
When a decedent dies owning stock in a closely held corporation or partnership, the valuation of those shares is a perennial problem precisely because they are closely-held (i.e., there’s no ready market for the ownership interests). Since estate tax is ad valorem (based on the assets’ values), valuation usually impacts the ultimate estate tax liability significantly.
The IRS position on the estate taxable value of closely held business interests is generally that they should reflect the underlying assets’ values, i.e., the market value of the investments inside the entity. For example, a family limited partnership owning publicly traded stock should generally be valued at the market value of the publicly traded stock, as opposed some valuation reached by another valutaion approach (e.g., present value of future discounted cash flows, data from actual sales of comparable limited partnerships, etc.).
To date, the IRS has been generally unwilling to allow for the “built-in” capital gains tax on those underlying assets when computing the value of the interests in the closely held entity (sometimes referred to as “tax-effecting” the valuation). This is problematic when the entity holds highly appreciated assets which, if sold, would generate a significant capital gains tax.
A recent decision by the Eleventh Circuit (Alabama, Florida, Georgia) in Estate of Jelke v. Commissioner reversed the Tax Court and held that, when valuing a decedent’s stock in a closely held company, the estate is entitled to a discount for the company’s entire “built in” capital gains tax liability on its underlying investments. By following this rationale, the Eleventh Circuit observed that courts are not burdened with trying to predict when a decedent’s assets will be sold and the tax paid to arrive at the taxable value of the closely held business interests.
That decision by itself - that the built in capital gains tax potential is fully allowable in computing the value of the assets in the entity - is significant. Other courts (namely, the Tax Court) dealing with this issue have proposed speculative ways to discount the potential tax liability based on the present value of some expected future liquidation. In so doing, the discount for the tax is clearly less than the dollar-for-dollar approach in the Eleventh Circuit’s decision in Jelke.
NOTE: Query whether other circuits will follow the Eleventh Circuit on this issue. The Fifth Circuit (Texas, Louisiana, Mississippi) has an earlier court decision (Estate of Dunn) which was actually the first to emerge with a precise methodology re: the allowable reduction for built in capital gains taxes and how to calculate them for estate tax valuation purposes.
NOTE: Query how this result will bolster tax-effecting closely held business interests where the underlying assets themselves are not publicly traded and thus have no ready ascertainable fair market value (e.g., an operating business). That debate has been ongoing…
For professional investment advice on this topic contact: Allgen Financial Services, Inc.
888.6ALLGEN (888) 625-5436
advisors@allgenfinancial.com www.allgenfinancial.com
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