Monday, December 1, 2008

FDIC (and other) Federal Insurance Coverage For Bank Deposit Accounts

If your experience has been like mine, you have received inquiries recently about "how safe" deposit accounts are.  The FDIC rules for banks, the NCUA rules for Credit Unions and the FSLIC rules for Federal Savings and Loans, are essentially identical. 

Generally, a depositor is covered up to $100,000 per institution for regular deposits and an additional $250,000 for IRA's, Keoghs, TSA's and self-directed 401(k) accounts.  Joint accounts are covered up to $100,000 for each joint account holder.  Co-owners must have signed the signature card, must be individuals, and must have equal rights to withdraw funds from the account.  If account-holders have more than one account at a bank, they are aggregated, not to exceed to the limits above.

Coverage for Trust accounts is not measured by the account holder.  Instead, Trust accounts are covered up to $100,000 per beneficiary, even if they do not have a current right to receive or withdraw from the account.  "Trust Accounts" include Revocable Living Trusts, "T.O.D." and "P.O.D." accounts (irrevocable trusts have different rules).   Beneficiaries must be "qualified" (spouse, child, grandchild--including step child--, siblings and parents).  They must be the beneficiary who will receive upon the death of the grantor/owner (i.e., if a trust says to 2 children and grandchildren are named as contingent beneficiaries, the grandchildren are not counted).  But if the trust says to spouse for life, then to my children, the spouse and children count.

Examples:  Joint Trust with Husband and Wife as grantors and 2 children.  The account could be covered up to $400,000 ($100,000 for each owner under the ownership rules above and $100,000 for each child).  The same would be true for a joint account with husband and wife naming 2 children as P.O.D. beneficiaries.

A/B Trust where each spouse has their own trust naming surviving spouse as life income beneficiary and 2 children as residuary beneficiaries.  The Grantor/owner is covered for $100,000 under owner rules above.  The Spouse and 2 children are covered under beneficiary rules.  Each trust gets $300,000 coverage for a total of $600,000.

These rules do not make complete sense to me, and my own advice to clients is to think about the reality of the situation.  What guarantee is there that the FDIC will have the money to pay out these amounts?  Does it make sense, in spite of these coverage limits, to "diversify" anyway?

This Newsletter is intended to be informational, only and does not constitute legal advice.  If you have questions, concerns or comments, please contact me at:, or by Telephone at 989-652-9923.

Andy Richards


Friday, August 1, 2008

“Farm Bill” Creates a Short, but Wide Open “Window”

Conservation Easements create an opportunity for a landowner to own and use their land, pass them to successive generations, and realize substantial tax benefits.

Traditionally, the Federal Tax Code has allowed deductions for the value of a “Qualified Conservation Easement”, for Income and Estate Taxes.  These provisions apply to any landowner who creates an easement for permissible conservation purposes, as defined by the code and regulations.  A “Qualified Conservation Easement” must be a permanent restriction on land, generally limiting its use to conservation (open space, wetlands, nature preserves, etc.), agriculture or historic preservation purposes.  The easement itself must be donated to either a unit of government or a qualified charitable organization (often, a Land Trust).  But the landowner continues to own and use the land.

The value of the easement, is eligible for a charitable deduction.  The deduction may be taken in the year of the donation, and any unused amounts carried forward for additional years.  Traditionally, this carry-forward has been limited to 5 years, and, because land is a capital asset, the amount of the deduction has been limited to 30% of a taxpayer's adjusted gross income.

The 2008 Farm Bill dramatically changes this, but only for a short time!  "Qualified Farmers and Ranchers" may now deduct up to 100 percent of their Adjusted Gross Income, and may carry forward the unused deduction for 15 years.  Unfortunately, this very favorable provision applies only to donations made before January 1, 2010.  A "Qualified" Farmer or Rancher is one whose gross income from Farming is more than 50% of his total gross income in the year of the contribution.

There is good news for other landowners, too (subject to the January 1, 2010 deadline).  Now other donors of  “Qualified Conservation Easements” may deduct up to 50% of their adjusted gross income and may carry unused deductions forward for 15 years.

Other tax benefits from Conservation Easements still remain.  A deduction from Federal Estate Taxes may be taken (even on easements created post mortem, by an estate or heirs).  The easement, itself, should also reduce the value of the property for real property tax purposes (A 2006 Michigan State Tax Commission letter in fact, directs assessors to take this into consideration).  And, there is currently pending Michigan Legislation which would allow a tax credit of up to $10,000 for a donated conservation easement.

This Newsletter is intended to be informational, only and does not constitute legal advice.  If you have questions, concerns or comments, please contact me at:, or by Telephone at 989-652-9923.

Andy Richards


Thursday, May 1, 2008

Michigan’s New Position on The Professional Corporation Act - "The Fix" - Part II

What does the Miller decision mean to your clients and what can be done to “fix” the problem? 

The case raises practical concerns.  Who must now incorporate under the Michigan Professional Corporation Act?  What existing corporations may be deemed to be improperly incorporated?

The Bureau’s current policy is that if the entity does not involve a traditional “learned profession,” and was incorporated prior to the court ruling in May of 2007, they will not require the entity to take any corrective action.

New entities are less clear.  Entities listed under the Professional Service Corporation Act, under the Michigan Public Health Code and those services referenced as "professional" under the Michigan Occupational Code, must now incorporate under the Professional Service Corporation Act.  Occupations which are and which are currently not included, can be found at

Occupations which may surprise, include Funeral Director, Mortician, Real Estate Appraiser, Real Estate Brokers and Salespersons.  Notably (and perplexing to me) is the list of not included occupations including Insurance Agents, Insurance Counselors, Investment Advisors and Mortgage Brokers.  It is unclear to me how these services are less professional and personal in nature than those included!

It should be noted that there is pending “corrective” legislation in the Michigan Legislature.  It appears, however, that the legislature will wait until the case, currently on appeal in the Michigan Supreme Court, is finally decided, before acting.

Some advisors are concerned that third party litigants may attempt to use the Miller decision as a basis to “pierce the corporate veil” and find personal liability.  One possible “fix” that has been suggested is for the corporate entity to form a subsidiary Limited Liability Company (LLC) and move its operations into the LLC.  At this time, there has not been a court ruling regarding the improper organization of an LLC.  Currently, an LLC is not subject to the Miller ruling (note that in “companion” litigation--Allstate v A & A Medical Transportation Services, Inc., in an unpublished opinion the court “sidestepped” the LLC issue when raised by the insurer).  Again, the bureau’s official policy is that the Miller decision does not apply to LLC formation.

Obviously, “do not try this at home” is applicable here.

This Newsletter is intended to be informational, only and does not constitute legal advice.  If you have questions, concerns or comments, please contact me at:, or by Telephone at 989-652-9923.

Andy Richards


Michigan’s New Position on The Professional Corporation Act - Who must be Incorporated as A Professional Corporation - Part I

In what many believe to be an unfortunate trend by insurers to avoid payment for services otherwise properly and reasonably delivered, a Michigan Insurer sought to avoid payment to a provider of Physical Therapy Services under Michigan’s “No-Fault” insurance statute [Miller v Allstate, 275 Mich App 649 (2007)].  Claiming that the provider was “improperly incorporated” under the Michigan Business Corporation Act, the insurer argued that the provider was not entitled to payment.

What is important to advisors is that the case raised the question whether a particular occupation may incorporate only under the Michigan Professional Corporation Act.  This law essentially provides that certain “professional services” are so personal in nature that the professionals will not be allowed to shield themselves from liability for negligence in the provision of such services by incorporating.  The Professional Corporation Act allows them to take advantage of other corporate “advantages,” but limits the corporate protections. Traditionally, based on a 1968 Attorney General Opinion, this limitation was restricted to “Learned Professions.”  The list was relatively short, including doctors, dentists, lawyers, accountants, etc.

The Michigan Court of Appeals did not decide the real issue brought before them:  whether the payments were proper.  Instead, they “remanded” the case for consideration of other issues under the “No-Fault” statute.  In fact, they decided that it was unnecessary to determine whether the PT service was “properly incorporated.”

In a rather bizarre turn of “jurisprudence” which bewilders most observers, they then proceeded into the murky waters (some believe they were clear until churned up by this decision) of corporation issues.

Two important new developments come from their opinion.  First, they ruled that a corporation that can be formed under the Professional Corporation Act cannot be formed under the general corporation act.  This is a significant departure from existing law and the way the Michigan Department of Labor and Economic Growth’s Corporations Division has historically treated incorporation.  They have announced that they will not accept for general incorporation, entities which can form under the Professional Corporation Act.  Second, the Court significantly expanded the range of occupations which are considered “professional service providers” under the Professional Service Corporation Act.

So what does this all mean to advisors and their clients?  Part 2 of this Article attempts to address that.

This Newsletter is intended to be informational, only and does not constitute legal advice.  If you have questions, concerns or comments, please contact me at:, or by Telephone at 989-652-9923.

Andy Richards


Friday, February 1, 2008

Dismaying New Rules for Employer-Owned Life Insurance

During the nearly 25 years I have practiced law in the area of Estate Planning and Business Succession Planning, No “technical” tax change has personally caused me more dismay or made less sense than Congress’ most recent blunt instrument approach to “fixing” a perceived abuse of life insurance policies.  New IRC §101(j), added by the Pension Protection Act in 2006, is ostensibly directed toward major public corporations’ practice of insuring virtually any employee (so-called “janitor insurance”).  It has, I believe, unfortunately unfair and far-reaching consequences for the 1000's of closely held business companies in the United States.

Ownership of life insurance on key participants has long been an important tool for funding Buy-Sell obligations.  In many cases, it is the only way a business can insure that upon the untimely death of a participant, his or her family will receive fair payment for the decedent’s interest in the business.

Like life insurance proceeds in the hands of individuals, the proceeds of such business-owned policies have always been income tax free under §101(a) of the IRC.  Now, Congress has set a major trap for the unwary!

New Section 101(j) reverses the time-honored rule that such proceeds are income tax free and replaces it, instead, with the presumption that the proceeds will be income taxable, unless the employer meets certain exceptions and new requirements created by the section.

Under §101(j), in order for such proceeds to be received by the business free of income tax, the insured employee must be (1) employed by the business during the 12 month period prior to death, or (2) a director or (3) a “highly compensated employee,” (4) or used to purchase an equity interest from the decedent’s family or estate.

It may seem that this will not be a problem in most cases.  However, the section additionally imposes Notice and Consent requirements, which require that the employer give written notice to the employee of the intent to obtain insurance, of the maximum face amount of the policy, and that the employer will be the owner and beneficiary of the policy--and which require that the employee sign a written consent to such insurance, before the issuance of the insurance contract.  It does not appear that the IRS would accept a confirmation of such intent at any time after the contract has been issued.  This seems to go far beyond addressing the problem it was intended to address.

When advising your clients regarding the purchase of “Buy-Sell” insurance policies, it will be important that all the advisors are aware of this issue and that the written consent and notice requirements are followed and well-documented.
This Newsletter is intended to be informational, only and does not constitute legal advice.  If you have questions, concerns or comments, please contact me at:, or by Telephone at 989-652-9923.

Andy Richards


About Issues For Advisors

About 3 years ago, I started publishing a Quarterly E-Newsletter targeted directly at professional colleagues and valued referral sources. The intent of the newsletter was to be a resource for professional advisors, including Accountants, Insurance Professionals, Financial Planners, Brokers, Bankers and Planned Giving professionals. The "Issues For Advisors," newsletters have 2 primary goals: (1) To provide timely, useful information about issues that are either of current significance, have caused a recent problem, or are of a recurring nature to our mutual clients, and (2) To keep the content brief (no more than a single page). It recently occurred to me that there is no "archive" where advisors can go to retrieve, or re-read prior Issues. Rather than "burying" them somewhere in the Smith Bovill website, I created an on-line Resource specifically dedicated to the Professional Advisors enumerated above. In addition to the "Issues For Advisors" Archive, Links to other resources (including, of course, the MICHIGAN ESTATE PLANNING BLOG and THE SMITH BOVILL LAW FIRM SITE), will be featured here.

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