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Assuming that owners name is the beneficial owner of dynasty trust/owners name then I believe that owners name is considered to own 37.04% of the company. For HCE determination, attribution under §318 a child (both minor and adult) are deemed to own the stock of their parent. Thus by attribution the daughter is deemed to also own 37.04%. The results would be different for §1563 and Controlled Group determinations.

A document should never allow a participant to elect a distribution based on a prior valuation date, that's just asking for this trouble.

Bill Presson is correct. Negotiate a share class without revenue sharing.

Effective for plan years beginning 2024, this also was changed by Section 315 of SECURE 2.0.

A lot of good suggestions above, Peter. In addition, I would probably try talking to the employee to at least get the story of why the decedent wanted to leave the account to him or her. If it is plausible that the employee knew the deceased, it seems quite possible that the deceased, having no one else to leave his or her account to, left it to this individual. Perhaps the employee visited the deceased in the hospital? You might also see whether the hospital or hospice where the individual died (most likely; some people die in their homes) has a signature on a consent/admission form. If the ages and work histories indicate that the deceased is unlikely to have known the employee, and especially if the employee would have known of the death (e.g., working in HR), and if the employee has not been with the employer long so has no history of trust, I would question more deeply.

There is no magic here. Generally, a Solo K is a 401(k) plan where the only employees that are eligible are the owner(s) and spouses (Note: This is not like stock attribution where other certain family members are considered HCEs). The terms of the plan dictate the eligibility and entry date provisions. Typically, the existing plan would be amended prior to other employees meeting eligibility. We alway mentor our clients to set up the plan assuming other employees may become eligible. We do this even when the employer states "we will never hire any employees" or " no one will ever work over 1,000 hours. There is no downside to setting up the plan in that manner, Experience and qualified plan wisdom prevails.

It's possible that even if there was a taxable distribution to the participant, the estate could be permitted to roll it over on behalf of the decedent. See the following case (kind of old but maybe still valid). https://cite.case.law/pdf/5871695/Gunther v. United States, 573 F. Supp. 126 (1982).pdf

That might be true for state law in MD but for purposes of federal tax law I would take the position this distribution is done. In tax law there is a concept known as "constructive receipt". The wife had control of the check even if for a short period. She had constructive receipt. I am confident the IRS would say the late wife had a taxable distribution. Most of the time once the check is mailed constructive receipt has happened. That is why a check mailed on 12/30 but not received say until 1/3 the following year is on the 1099 for the year mailed. The only question would be is if the husband can roll it over to an inherited IRA or not and I can't cite anything one way or another.

First, any person who is not an owner and is an independent contractor providing service to the business(es) is not an employee and cannot be covered under a plan sponsored by either business (other than a nonqualified plan). Any plans, whether defined benefit, profit sharing and/or 401(k) will have to satisfy coverage (and unless a safe harbor of some sort) and nondiscrimination. There are a plethora of design options, but if they want the simplest likely most efficient arrangement then a safe harbor 401(k) was likely the best option. However, having just terminated a 401(k) last year I believe they need to wait a year to adopt a new one. As long as non-owner employee is eligible and there are no other contributions then there should be very little administrative burden for the owners - timely remitting contributions and signing annual 5500 filings. If owners want more than salary deferrals and safe harbor (whichever type), then there are more design options that bring more complexity and the potential for nondiscrimination testing. If they are satisfied with the lower SIMPLE contributions, that is certainly an option as well.

truphao made an important distinction which I believe is frequently lost on DB plan practitioners. A plan is required to define a normal retirement age, which is important for certain calculations under sec. 411 and other requirements under sec. 401. Reg. 1.401(a)-1 offers some guidelines for selecting a normal retirement age. When doing funding calculations, an actuary has to make an assumption about when a participant will commence benefits. 1.430(d)-1(f)(3) requires that actuarial assumptions, other than those specified in law, must be reasonable and must offer the actuary's best estimate of expected experience under the plan. Nowhere in that section or any other is there a requirement that the actuary assume that a participant will retire on the plan's normal retirement date. Indeed, if it would not be reasonable to assume that the participant will retire on the plan's normal retirement date, then the actuary may not make that assumption.

Ha, maybe hide behind the Plan Administrator's right to call for an interim valuation during 2022 anyway. With such a large asset drop it might have been prudent to re-value the account balances ahead of a large distribution, such that the guy was only going to end up with 80k anyway.

I don't know about you all but I find these discussions much more interesting and enriching compared to the "what compensation do I use to calculate the safe harbor contribution?" questions that make me feel like we're doing someone else's job of basic training their staff.

Or, the agent doesn't understand the technical details. Possible that the policy had the cash value "stripped out" by the Trustee via a maximum loan, and deposited this into the annuity, leaving only the value of the Taxable Term Cost in the life policy, which was then distributed to the participant. No taxable distribution if the only value in the policy represents previously taxed TTC. Not saying this is what happened - only that it could have happened this way. Caveat - I have blessedly had nothing to do with life insurance in plans for well over a decade, so either things could have changed or my memory could be faulty. P.S. - I'm also making an assumption this participant is not self employed or an unincorporated partner...

Or as Danny Glover lamented in Lethal Weapon, "I'm getting too old for this s _ _ _ !"