By Wendy M.
Greenberg, Esq., Morrison & Foerster LLP
We have previously discussed in
this space the possible tax traps related to clients' gifts and bequests to
their employees. This article continues
in that vein to provide some practical options specifically for clients who
would like to provide retirement benefits to their domestic employees. Keep in mind, of course, that any of the
discussed options may result in taxable income to the employee.
retirement benefit plans under the Employee Retirement Income Security Act
(ERISA) generally are not available for employers of domestic employees. This results from that fact that a domestic employee
does not work for the purpose of production of income for his or her employer,
and thus the employee's wages and any contributions made to a retirement plan
on his or her behalf would not be tax deductible to the employer. However, one formal retirement benefit plan
that is available for contributions by the employer of a domestic employee is a
Simple IRA. The basic features of a
Simple IRA are as follows:
Inter Vivos Charitable
The employer could establish a
charitable remainder trust (also known as a CRT) for his or her employee's
benefit upon the employee's retirement, the basic features of which are as
Combined Lifetime and
After the employee retires, the
employer could simply continue to pay his or her salary, as a gift.
The employer could purchase a
lifetime annuity for his or her employee from an insurance company. This would be
a taxable gift upon purchase. The
advantage here is ease of administration (i.e.,
the insurance company would handle administration, rather than the employer or
the trustee), but the purchase price will reflect this, along with a profit
margin for the insurance company.
The option the employer chooses
will depend on a number of factors (most importantly, the age of the employee
and the generosity of the employer), and of course the options may be combined
as convenient to suit any particular circumstance.
Morrison & Foerster's
Trusts and Estates group provides sophisticated planning and administration
services to a broad variety of clients.
If you would like additional information or assistance, please contact Patrick McCabe at (415) 268-6926 or
© Copyright 2012 Morrison &
Foerster LLP. This article is published
with permission of Morrison & Foerster LLP.
Further duplication without the permission of Morrison & Foerster LLP
is prohibited. All rights reserved. The views expressed in this article are those
of the authors only, are intended to be general in nature, and are not
attributable to Morrison & Foerster LLP or any of its clients. The information provided herein may not be
applicable in all situations and should not be acted upon without specific
legal advice based on particular situations.
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