Accounting
Trusts that could help wealthy clients’ estate plans
The end of
A charitable remainder unitrust or annuity trust could help inherited individual retirement account heirs push back the additional income
Two of the strategies for the consideration of financial advisors, tax professionals and their clients come with especially timely components. Implementation of the
“Every client is going to have different preferences and priorities. When I talk to clients about their financial planning, we want to make sure that they have enough assets to support their lifestyles and potential changes to their lifestyles over time,” White said in an interview. “When they pass, they’ll have to make some choices there as to how their estate is structured.”
READ MORE:
White’s
“Establishing frameworks for managing family assets and making financial decisions is essential in generational estate planning,” White wrote. “This may involve creating family constitutions, establishing family offices and
For some wealthier clients, the influx of their deceased parent’s IRA may loom large in their overall taxes. Assigning an IRA to a charitable remainder unitrust or a charitable remainder annuity trust with the heir as the beneficiary would remove the applicability of the new 10-year rule and delay that income for as much as 25 or 35 years, according to White. Clients with heavy holdings of highly appreciated stock could use these trusts as a means of spreading out their capital gains over a longer time span, too.
The clients can decide how much of the trust will transfer to the charity of their choice and the amount that will go to their heir. The annuity version provides fixed distributions, while the unitrust enables additional contributions after setting up the trust and payments based on an annual revaluation of the assets. IRS rules state that the trusts have to remove between 5% and 50% of the assets each year.
Savings “from a tax-planning standpoint” stem from “being able to spread that out over multiple decades versus 10 years,” which is especially handy for clients in the top brackets during prime earning years, White said. “They don’t want to take the IRA distribution over the last 10 years of their working careers. They would rather delay it.”
READ MORE:
Clients receiving qualified small business stock could use a non-grantor trust that, unlike a grantor entity, gets its own exclusion from capital gains taxes, White noted.
The trusts bring protection from lawsuits and creditors, with a “simple version” that is “required to distribute all annual income to beneficiaries, must retain trust principal and cannot make gifts to charitable organizations” or a “complex” type that “may accumulate income, distribute trust principal and make charitable gifts,” he wrote in the guide. The client who set up the trust gives up control of the assets to an independent trustee, but the entity represents an irrevocable, finished transfer outside of their estate that becomes a separate taxpayer.
For younger holders of startup company stock as founders or early employees or other clients “who are concerned around the future growth in their estate,” a grantor retained annuity trust can remove the appreciation from the equation, White noted.
The short-term entities of two to four years return the contributed assets plus interest to most grantors who can then forward them into a new grantor retained annuity trust. The appreciation flows to the trust’s beneficiary, who can keep those assets in another trust. In the process, the grantor avoids using any portion of their lifetime exemption for gift and estate taxes.
In thinking through the many available strategies, advisors and their clients must decide how much their households will need for the day-to-day and foreseeable future, the extent they expect beneficiaries to find their own sources of income when they grow into adulthood and the level of charitable giving they would like to set aside to chosen causes, according to White.
Each topic and strategy evokes specific questions about their goals and the particular requirements for the underlying trust entity. For example, the grantor retained annuity trust entails legal expenses and repeated valuations that add up — except when compared to the price of a 40% tax haircut on the largest estates, White said.
“There are some costs, certainly, to each time you set up these GRATs,” he said. “The math pencils out pretty well when you consider the long-term benefits for clients and their families.”
The Governmental Accounting Standards Board issued guidance today that will require separate disclosures for certain types of capital assets for the purposes of note disclosures.
GASB Statement No. 104,
The statement requires certain types of assets to be disclosed separately in the note disclosures about capital assets. The intent is to allow users to make better informed decisions and to evaluate accountability. The requirements are effective for fiscal years beginning after June 15, 2025, and all reporting periods thereafter, though earlier application is encouraged.
The guidance requires separate disclosures for four types of capital assets:
- Lease assets reported under Statement 87, by major class of underlying asset;
- Intangible right-to-use assets recognized by an operator under Statement 94, by major class of underlying asset;
- Subscription assets reported under Statement 96; and,
- Intangible assets other than those listed in items 1-3, by major class of asset.
Under the guidance, a capital asset is a capital asset held for sale if the government has decided to pursue the sale of the asset, and it is probable the sale will be finalized within a year of the financial statement date. A government should disclose the historical cost and accumulated depreciation of capital assets held for sale, by major class of asset.
BRIAN BOUMAN MEMORY CREATIO
Suha Uddin was hired as a tax partner at RRBB Advisors, Somerset.
Sax, Paterson, announced that its annual run/walk event SAX 4 Miler, supporting the Child Life Department at St. Joseph’s Children’s Hospital in Paterson, has achieved $1 million in total funds raised since its inception in 2012.
Withum, Princeton, rolled out a new outsourcing service offering as part of its sustainability and ESG practice designed to help companies comply with the European Corporate Sustainability Reporting Directive, the mandate requires reporting of detailed sustainability performance as it pertains to the European Sustainability Reporting Standards , effective January 2023.
Top 25 Firm Armanino LLP has taken on a strategic minority investment from private equity firm Further Global Capital Management.
The deal, which closed today, is the latest in the series of investments by private equity in large accounting firms that began in 2021 — but with a key difference, Armanino CEO Matt Armanino told Accounting Today.
“What’s maybe the punchline here — what’s really unique, I think — is that we wanted to focus on a minority investment that allowed us to retain not just operational control of the business, but ownership control of the business,” he said. “Those are some of the guiding principles that we’ve been thinking about over the last number of years, and we felt like if we could accomplish those things strategically with the right partner, it would really be just a home run, and that’s where we think we’ve landed.”
As is common with CPA firms taking on private equity investment, Armanino LLP will restructure to an alternative practice structure, splitting into two independently owned and governed professional-services entities: Armanino LLP, a licensed CPA firm wholly owned by individual CPAs, will provide attest services to clients, and Armanino Advisory LLC, a consulting and advisory firm, will perform non-attest services.
Inside the deal
As have many large firms, Armanino LLP had been looking at private equity for some time.
“We’ve been analyzing the PE trend over the last few years and our discussions with Further Global actually began several years ago, and along the way we confirmed our initial inclination that Further Global would be a great partner for us,” CEO Armanino said.
“We had the opportunity to meet with dozens of leading private equity firms,” he explained. “Ultimately we concluded that Further Global would be the best partner for us based on their expertise in partnering with professional service businesses in particular, and our desire for a minority deal structure.”
Robert Mooring
While citing Further Global’s “deep domain expertise” in financial services and business services firms, Armanino noted that this would be the PE firm’s first foray into the accounting profession: “This is their first accounting firm deal, and I think they’re only focused on this one at this time.”
An employee-owned PE firm,
Guggenheim Securities LLC served as the financial advisor and sole private placement agent to Armanino LLP, while Hunton Andrews Kurth LLP acted as its legal counsel. Further Global was advised by Pointe Advisory, with Kirkland & Ellis as legal counsel.
“Armanino ranks as high as any CPA firm in the country with the private equity community,” commented Allan Koltin, CEO of Koltin Consulting Group, who has advised Armanino for over two decades. “Their deal with Further Global fit just like a glove. They will keep control and now have the capital structure to compete on the biggest of stages.”
Internally, the Armanino partner group was unanimous in its support for the deal — and in its insistence on only selling a minority stake.
“We’ve had transparent discussions at the leadership level around not only adding an outside investor, but we knew very early on that a minority investment was the best path forward for us, and we were very excited that there was unanimous support from the entire partnership group around that decision,” Armanino said. “This structure is also going to allow the long-term owners and partners of Armanino to maintain full control over our day-to-day operations, and the proud culture that we’ve built.”
“No other firm in the Top 25 has a structure like this, and I think that’s pretty significant,” he added.
Capital plans
The goal of the deal is to give Armanino the capital it needs to take itself to a new level of growth while also addressing some of the most pressing challenges in accounting: investing in technology, pursuing inorganic growth through M&A, and attracting and retaining talent.
The firm has always been tech-forward, and recently has been a major pioneer in artificial intelligence.
“The capital will enable us to fast-track our investments in advanced technology solutions, particularly AI,” said Matt Armanino. “We’ve seen growing desire from our clients to deploy real applications for AI solutions. And while we’ve been at the forefront of automation and AI since the early days, with the development of our AI Lab a few years ago, innovative AI-driven solutions that address our clients’ most urgent challenges remain a top priority for us.”
Beyond technology investments, the firm plans to continue its aggressive M&A strategy, which has brought on 19 acquisitions since 2019.
“Those transactions have allowed us to expand our capabilities and enter into new markets and drive greater value to our clients,” said Armanino. “And we think we can accelerate that now with this capital structure that we have.”
All that M&A has brought the firm a lot of fresh talent, but no firm these days has enough, and that’s a third purpose for the new capital.
“We think there remains a lot of ripe talent across the country out there,” he said. “I think the capital will support our efforts to attract, retain, develop and reward top talent by investing in people who drive our entrepreneurial spirit here at the firm.”
The deal will allow the firm to reward top talent, for instance through equity plans that allow them to extend the firm’s ownership culture beyond the partner group that it has traditionally been restricted to.
“In many cases, for our most senior employees today, there’s not a natural mechanism to align their effort to the success of the firm to the growth of our enterprise value and how that ultimately rewards them,” explained Armanino. “And we are very excited that we have new mechanisms, and plans in place, that are going to allow us to do that very well, and effectively push down the benefits of ownership and that ownership culture to our most senior employees.”
“Finally,” he added, “speaking to our innovative culture — and that’s a big part of our brand — the capital will empower us to say ‘Yes’ more frequently to great ideas, to entrepreneurial ideas and initiatives that truly make a difference for our clients and set us apart as a leader in this industry.”
U.S. budget deficit in fiscal 2024 swells to third-highest level on record
‘I retired earlier than planned’: I’m 69 and will have $6,000 a month in retirement income. The bulk of my $3.6 million is equities. Is that OK?
How the CEO of this upstart Nvidia rival hopes to seize on the lucrative market for AI chips
Are American progressives making themselves sad?
U.S. Beneficial Ownership Information Registry Now Accepting Reports
CPA licensure program off to ‘promising’ start
-
Personal Finance1 week agoInvestors face delays moving certain assets from TreasuryDirect
-
Stock News1 week agoBeleaguered Stellantis ousts CFO, other top execs in bid to ‘redouble’ its focus
-
Economics1 week agoProducer price index September 2024:
-
Economics1 week agoInflation rate at 2.4%, topping expectations
-
Economics1 week agoThe Democrats will struggle to retain the Senate
-
Economics1 week agoHurricane Milton inundates Florida
-
Stock News1 week agoTilray’s stock gains after earnings and upbeat outlook on cannabis legalization
-
Personal Finance1 week agoOzempic drives up health-care costs, whether you can get it or not