The Cummings & Cummings Law Journal

Understand What a Settlor-Directed Trust Actually Is A settlor-directed trust is a trust in which the settlor reserves or formally designates the power to direct investments, while a separate trustee handles administrative functions such as custody, compliance, accounting, and distributions. In many jurisdictions, this is enabled by a directed trust statute that bifurcates fiduciary responsibility

What Defines an Independent Board Chair in Practice An Independent Board Chair is more than a title and more than an exercise in box-checking. At its core, independence means the Chair has no material relationship with the company other than service on the board, is not a current or former member of management, and is

Understanding the Cold Comfort Letter in the Context of Tax A cold comfort letter is an attestation delivered by an independent registered public accounting firm to underwriters or initial purchasers in connection with a securities offering. Although it is not a tax opinion and does not opine on the issuer’s tax positions, the engagement and

Understanding the Role of Boilerplate Clauses in Modern Contracts Boilerplate clauses are standardized provisions that appear in most agreements, often at the end, covering topics such as governing law, notices, assignment, and dispute resolution. Although they can appear generic, these clauses allocate risk, determine remedies, and control the procedural rules that apply if a dispute

Understanding Capital Maintenance Agreements in Regulated Industries A capital maintenance agreement is a legally binding commitment by a parent company to ensure that a subsidiary maintains minimum financial resources, typically framed around net worth, risk-based capital, or other solvency measures. In regulated industries such as banking, insurance, broker-dealers, utilities, and healthcare, supervisors often expect formal,

Understanding the Purpose and Forms of Sunset Provisions In practice, a “sunset” provision in a shareholder agreement is a negotiated mechanism that terminates or scales back specified rights after a defined period or upon achievement of measurable business milestones. Common examples include the automatic expiration of super-voting rights after an initial public offering, the phase-out

Understanding What Qualifies as a Capital Loss for a C Corporation Capital losses in a C corporation arise from the sale or exchange of capital assets for less than their adjusted basis. While this definition appears straightforward, the characterization of an asset as “capital” is not always intuitive. Corporate portfolios often include marketable securities, partnership

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