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Headlines, Deadlines, and Gossip: Wealth planning news you can use

Wealth Strategists Jeff Brooks and Ben Rizzuto discuss recent news and developments that can help facilitate wealth planning conversations between financial professionals and their clients.

Jeffrey R. Brooks, JD

Jeffrey R. Brooks, JD

Senior Wealth Strategist

Ben Rizzuto, CFP®, CRPS®

Ben Rizzuto, CFP®, CRPS®

Wealth Strategist

Jul 1, 2024
5 minute read

Key takeaways:

  • Headline: A rare instance of the Supreme Court weighing in on an estate valuation case serves as a reminder for business owner clients to review their business succession plans.
  • Deadlines: Estimated quarterly tax payments for self-employed workers are due September 16, and certain businesses must disclose their beneficiary owner information to the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) by January 1, 2025.
  • Gossip: Comments from the late O.J. Simpson’s attorney reinforce an executor’s intended role in estate planning.

As Wealth Strategists, we’ve found that many of our conversations stem from three things: headlines, deadlines, and gossip. As an advisor, many of your wealth planning conversations with clients may touch on these topics as well.

In this quarterly article series, we’ll highlight recent headlines, timely deadlines, and relevant gossip to help you stay abreast of what’s new and trending in the wealth management space.

Headline: Connelly Estate v. Internal Revenue Service

It is extremely rare that the United States Supreme Court is called upon to weigh in on an estate valuation issue. It is even rarer that they accept such cases for review, but that is just what happened in Connelly v. U.S.

In the Connelly case, two brothers and owners of a roofing business in St. Louis, MO, engaged in some common business succession-planning practices. Their plan included an agreement that, in the event of the death of one of the brothers, the company would purchase the shares of stock owned by the decedent, making the surviving brother the sole owner of the company. The company took out life insurance policies on each of the brothers to fund the required purchase.

When one of the Connelly brothers passed away in 2013, the company collected the $3.5 million in insurance proceeds and used the funds to purchase the company shares from the deceased brother’s family. An estate tax return was later filed by the executor of the deceased brother’s estate.

As a refresher, estate tax is based on the value of the assets (in this case, company stock) owned by the decedent at death. When completing the return form, the company took the position that the value of the insurance proceeds was offset by the company’s obligation to purchase the shares from the decedent. The IRS audited the return and disagreed, arguing that the value of the company should include the life insurance proceeds. This disagreement could not be settled, and a lawsuit was filed.

At both the district court and appellate court level, the IRS won. The U.S. Supreme Court agreed with the decisions of the lower courts, and the IRS increased the value of the company stock shares owned by the decedent and, as a result, increased the amount of estate tax due.

Advisors of clients who are business owners should make note of two important takeaways from this case: One, clients with existing business succession plans in place should review them with their attorneys, and two, clients who own businesses and do not have business succession plans in place should work with their attorneys to develop one.

Deadlines: Self-employed Q3 estimated income tax payment and FinCEN registration

Self-employed workers are expected to make estimated quarterly tax payments. The payment for the third quarter of 2024 is due September 16 and applies to income earned April 1 through May 31.

The Corporate Transparency Act of 2019 (CTA) requires that certain U.S. and foreign business entities disclose information regarding their beneficial owners and persons who register or form them with the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN).

The deadline for companies created or registered before the effective date to file their beneficiary owner information is January 1, 2025. Those companies created or registered on or after January 1, 2024, and before January 1, 2025, have 90 days to meet their reporting obligation.

Advisor/client takeaway: Advisors should encourage clients who are self-employed and those who own businesses to seek tax and legal advice to ensure compliance with these upcoming deadlines.

Gossip: O.J. Simpson and the role of an executor

Orenthal James Simpson (known to most as O.J.) passed away in Las Vegas on April 10, 2024. Mr. Simpson led an eventful life, filled with as much success as controversy. Though he was found criminally not guilty for the death of his ex-wife Nicole Brown Simpson and her friend Ronald Goldman, he was found financially liable for those deaths in a civil wrongful death lawsuit and ordered to pay $33.5 million to the Ronald Goldman family in 1996. When interest on the unpaid judgment is added, that amount balloons to over $100 million today.

Shortly after his death, Mr. Simpson’s last will and testament was filed with the court in Clark County, NV.  His longtime attorney Malcolm LaVergne was named to serve as executor of the estate. Mr. LaVergne was quoted as saying that he would fight the Goldman family for any claims for settlement money, adding: “It is my hope that the Goldmans get zero, nothing.”

Just a few days later, in an interview with another reporter, Mr. LaVergne took a step back and acknowledged the harshness and impropriety of his remarks.

Mr. LaVergne apparently came to realize that the role of an executor is not to be an advocate, but rather an administrator. The purpose of a probate estate is to one: gather assets, two: pay final obligations, and three: distribute remaining assets as directed in a will or by state law. Additionally, if valid claims against the estate are presented and properly proved, it is the job of the executor to see that they are paid.

In any case, it’s important to remember that the job of executor is just that: A job! Even professional lawyers don’t always know the many legal and administrative rules that apply in the administration of a decedent’s estate. Clients should keep this in mind when selecting executors, successor trustees, and agents for their estate.

If you have questions on the headlines, deadlines, and gossip presented here, or on other wealth planning topics, feel free to reach out our Wealth Strategist Group or your Janus Henderson representative.