The Cummings & Cummings Law Journal

Understanding the Dynasty Trust: Purpose, Scope, and Misconceptions A dynasty trust is a long-term, multi-generational trust designed to preserve and grow family wealth while minimizing transfer taxes, protecting assets from creditors and divorcing spouses, and maintaining governance over distributions. Properly structured, it can last for many generations, depending on the governing state’s rule against perpetuities

Understanding Warrants as Incentive Instruments Warrants are contractual rights to purchase equity at a specified price during a defined period. In an incentive context, they are frequently offered to employees, consultants, advisors, and strategic partners to align interests with long-term enterprise value creation. While laypersons often assume warrants are interchangeable with stock options, they differ

Understanding Net Operating Losses Within a Grantor Trust Framework Net operating losses represent a taxpayer’s excess of allowable deductions over gross income within a taxable year. In plain terms, an NOL arises when business or certain investment losses eclipse taxable income, yielding a carryforward that may reduce future taxable income. Under current law, most post-2017

Understanding the Cross-Purchase Structure and Why an Insurance Trust Owns the Policy A cross-purchase agreement is a buy-sell arrangement under which the business owners agree that, upon a triggering event such as death, disability, or retirement, the surviving owners will purchase the departing owner’s interest. Using an irrevocable life insurance trust to own the life

Understanding Bulk Sales and the Risk of Successor Liability A bulk sale transaction generally involves the transfer of a substantial portion or all of a business’s assets outside the ordinary course of business. Buyers often assume that an asset purchase shields them from the seller’s liabilities. That is an oversimplification. Under multiple legal doctrines, including

Defining a Non-Shareholder Capital Contribution At its core, a non-shareholder capital contribution is a transfer of money or property to a corporation by a party other than a shareholder, with the intent to benefit or stabilize the corporation’s capital structure rather than to pay for goods or services. Common real-world examples include cash grants from

Why Single-Member LLCs Appear Attractive in 1031 Exchanges, and Why That Assumption Is Often Wrong Many real estate investors assume that using a single-member limited liability company (SMLLC) as an accommodator in a section 1031 like-kind exchange is a simple, flexible, and tax-transparent solution. The assumption typically rests on the SMLLC’s disregarded entity status for

Understanding What “Material Participation” Means in the Private Equity Context In federal tax parlance, “material participation” is a term of art grounded in section 469 and its regulations, not a casual descriptor of involvement. In the private equity context, it ties directly to whether income and losses from the fund and certain portfolio company investments

Understand the Two Governing Regimes: Economic Benefit Versus Loan Every split-dollar life insurance arrangement must be structured within one of two tax regimes: the economic benefit regime under Treasury Regulation section 1.61-22 or the loan regime under section 7872 and its related regulations. Selecting the appropriate regime is the foundational decision that drives ownership, cash

Understanding the Reverse Morris Trust Structure A Reverse Morris Trust is a tax-sensitive divestiture technique that allows a parent corporation to separate a business on a tax-free basis, followed by a merger of that business with a strategic buyer. In very general terms, the parent first conducts a tax-free separation of the business under Section

What Is a “Deemed Distribution” From a CFC and Why It Surprises U.S. Shareholders A deemed distribution from a Controlled Foreign Corporation (CFC) is an inclusion of income to a U.S. shareholder without the receipt of actual cash. The most common sources are Subpart F inclusions, Global Intangible Low-Taxed Income (GILTI), and certain investments in

Understand What a Forced Liquidation Provision Actually Does A forced liquidation provision in an operating agreement is more than a simple instruction to sell assets. Properly implemented, it reallocates authority, establishes a process, and compels the manager or members to convert company property into cash and wind down obligations. It is a governance trigger with

Understand Who May Claim the Foreign Income Tax Credit as a Corporate Shareholder For U.S. corporate shareholders, the foreign income tax credit is a cornerstone mechanism to mitigate double taxation of foreign-source income. Corporations that directly earn income abroad or that are U.S. shareholders of controlled foreign corporations often face foreign tax assessments that may

Overview: Why the Distinction Between a Merger of Equals and a Traditional Merger Matters A merger of equals and a traditional merger may look similar to the uninitiated, but they entail materially different legal, tax, governance, and integration consequences. The language used in press releases often obscures these differences, and the market’s shorthand can mislead

Establishing a Bona Fide Business Purpose To legally deduct travel expenses, the journey must be undertaken primarily for a bona fide business purpose. The Internal Revenue Service evaluates objective facts such as meeting agendas, customer appointments, trade show schedules, and the substance of your itinerary. Simply bringing business cards or taking a single client call

Why Board Observer Rights Create Unique Legal Exposure Board observer rights seem innocuous at first glance: a non-voting attendee sits in the boardroom to monitor governance and protect an investor’s interests. In practice, overbroad observer rights routinely open a company and its investors to legal exposure that can exceed the risks associated with a voting

Understanding Non-Grantor Irrevocable Trusts for Legacy Assets A non-grantor irrevocable trust is a distinct legal and tax entity designed to hold and steward assets for beneficiaries over multiple generations. Unlike a grantor trust, the non-grantor structure generally causes the trust itself—or in some cases its beneficiaries—to bear the income tax burden on trust earnings rather

Understanding Earn-Outs Tied to Performance Milestones Earn-out provisions tie a portion of the purchase price to the acquired business’s post-closing performance, typically measured by revenue, EBITDA, customer retention, or product launch milestones. While earn-outs can bridge valuation gaps and align incentives, they also create significant tax complexity. The tax character, timing, and reporting of each

Understanding Pre-Contribution Gain in Partnerships and Why “Withdrawing It” Is Not Straightforward Pre-contribution gain arises when a partner contributes property to a partnership with a fair market value that exceeds its tax basis. The built-in appreciation does not vanish at contribution. Instead, under Section 704(c), the pre-contribution gain must be specially allocated to the contributing

Property Damage Proceeds Are Usually Taxable, But Basis and Timing Drive the Result When a business receives an insurance payout for damaged or destroyed property—machinery, inventory, buildings, or tenant improvements—the instinct is to treat the funds as non-taxable “reimbursements.” That is a common misconception. In general, property insurance proceeds are taxable to the extent they