Heckerling Institute Report
Report #2 - Opening Session/CLE from 1/10
Back
to Heckerling Table of Contents
The following is Report #2 from our on-site
reporters regarding some of the highlights from the events and presentations that are
taking place at the 34th Annual Philip E. Heckerling Institute on Estate Planning that is
being held January 10-14, 1999 at the Fontainebleau Hilton in Miami Beach, Florida.
This Report covers the Recent Developments opening session and other CLE sessions that
were held on Monday, January 10th.
This report was filed by on-site reporter, and Miami resident, Bruce Stone. Bruce is
also a member of the Institute's Advisory Committee.
The University of Miami Heckerling Estate Planning Institute convened on Monday afternoon,
January 10th, at the Fontainebleau Hotel in Miami Beach. Over 2,600 registrants
enjoyed 80 degree weather with sunny skies and an emerald green ocean - a stark contrast
to last year's inhospitable weather.
Continuing with last year's success, the Institute got off to a good start Monday morning
with a Fundamentals basic track course on the Fundamentals of Using Life Insurance in
Estate Planning. It was presented by Lawrence Brody and Donald Jansen and was very
well attended, but not by this reporter.
Institute Director, Tina Portuondo of the University of Miami, officially convened
the 34th Institute in the afternoon. After introductory remarks, she announced that
Dick Covey has decided to retire from his current developments duties, which he has
delivered each year since 1962 when the Institute was founded. Tina said that Dick
had graciously agreed to participate as part of a recent events panel discussion this year
to ease the transition. She presented Dick with a gift and thanked him for his many
years of service.
Dick Covey then spoke, telling the audience how Phil Heckerling had talked him into
being a part of the conference two years before the Institute was even founded. He
said that after all these years, it was simply time to let someone else carry on the
tradition. He said that this year's presentation will be his last. He made it
clear that although he is retiring from the Institute, he is not retiring from the
practice of law. Dick brought his standing ovation to an end with a loud and falsely
gruff "sit down!" And with that, the current developments discussion
began.
Dick touched on a variety of topics, including Revenue Ruling 2000-2. He stated that
this ruling was no surprise, because the section 2056 regulations have long equated a
withdrawal right with the right to income for marital deduction purposes.
He then touched on cases in the 5th and 9th Circuits which he said have now laid to rest
any question on how to determine the amount that can be deducted under section 2053 for
claims that are contingent on the date of death - present fair market value concepts are
to be used, without looking back to see how much was actually paid out after the date of
death.
He next reviewed the legislative history of the GST effective date rules governing general
power of appointment marital deduction trusts that were created before the effective date
of the GST tax. If a spouse dies before the effective date, leaving a general power
trust, and the surviving spouse dies after the effective date, is the general power of
trust grandfathered from the GST tax? Does it matter if the surviving spouse
exercises or doesn't exercise the power of appointment? These questions deliberately
were not answered when the original legislation was drafted. Based on the cases thus
far, the critical factor seems to be whether the trust property remains in trust after the
surviving spouse's death (in which event, caselaw indicates the trust is not
grandfathered), or whether the assets are distributed outright upon the surviving spouse's
death (in which event distributions to skip persons are exempt from GST tax because of
grandfathering).
Dick then reviewed cases involving estate tax apportionment, which he described as the
most frequent type of litigation in all of trusts and estates. He described the 8th
Circuit Patterson case as reaching a result favorable for the taxpayer, but on bad
law analysis. He also remarked that his review of tax litigation in general has led
him to the conclusion that taxpayers are generally more successful if they do not proceed
to Tax Court, but instead pursue other avenues of appeal or relief, because of shifting
burdens of proof.
Dick then noted that no new rulings have been issued by the Service on split dollar
arrangements in over two months. Dick believes that a significant policy change must
be in the works, and that this was probably triggered by the charitable split dollar
situation.
Dick next reported that a ruling request is now pending on the effects of an assignment by
the remainder beneficiary of the remainder interest in a zeroed-out CLAT to a GST trust.
He said to look for a ruling in 60 to 90 days. He also reported that there
are two cases pending that attack the validity of example 5 in the GRAT regulations, and
there may well be an answer to that issue in the next year.
Dick then said that his analysis of the Hubert regulations requires new thinking on the
question of which marital formula is best: pecuniary marital, pecuniary credit shelter, or
a fractional split? He believes that taxpayers are no worse off under any one of
these three than before the Hubert regulations were made final, but that perhaps pecuniary
marital formulas may have more advantage than before.
He next commented on the estate separate share regulation project, noting that the purpose
of the separate share rule for estates is one of fairness - to prevent a beneficiary from
being taxed on income that really can't be fairly attributed to his or her share.
The proposed regulations at first drew much adverse comment, because they indicated that
the practice of return preparers for trusts for the last 50 years has been wrong (if the
theory of the proposed regulations were to be applied retroactively). To defuse some
of this criticism, the Service has made it clear that the regulations will be applied
prospectively only. In essence, a separate share in an estate will exist at the
earliest moment when it can be reasonably determined by the executor under known facts
that a separate economic interest in the estate exists.
Dick concluded his presentation with his observations about the overall state of the
transfer tax system. He said that estate and gift tax agents are down in numbers
about 30% from prior years. With the boom in wealth in the country, and the greatly
increased number of tax filings, things are getting sloppy in the government's tax
administration system. The system is not being administered with the same high level
of professional quality as in the past, both at local levels and in the national office.
Policies in the national office of the Service have become much more aggressive,
perhaps in response to aggressive behavior by taxpayers. In all, taxpayers are
faring better with the disorganization and lowered professionalism, but in the end, this
is not good for the rule of law.
Dick then bid the Institute and his many friends farewell.
Malcolm Moore then resumed the current developments presentation, observing that he
surely had the hardest act of anyone ever in the Institute to follow.
Mal led off with a discussion of the adequate disclosure regulations, which place new and
special emphasis on obtaining appraisals. The later regulations are much better than
the first proposed regulations were. Mal also pointed out some interesting anomalies
in running of the statute of limitations, depending upon whether a transaction is reported
as an incomplete gift versus a completed gift.
Mal then referred to various rulings which have allowed rollover treatment even if the
spouse is not directly named as the plan beneficiary. He also touched upon state
prepaid tuition plans. Then he discussed a TAM which ruled that the prepayment of tuition
made directly to a school (not involving a state prepaid tuition plan) was an exempt gift
under section 2503(e).
Mal next discussed the gift of a limited partnership interest as qualifying for the
present interest exclusion, as long as the general partner owes normal fiduciary duties to
the limited partners. He warned that caution should be exercised if restrictions
such as first refusal rights are layered into the partnership planning.
He then touched upon rulings that have allowed taxpayers to assert an income tax basis
different from the reported 706 values, and that have eased requirements on obtaining the
state death tax credit (by not requiring actual proof of payment).
Mal then briefly noted that joint purchases still have viability in residence purchases
for QPRTs.
Mal next discussed developments that show that marital savings clauses in documents really
do work.
Mal then pointed out a disturbing ruling, PLR 199903019, which incorporates income tax
concepts in denying qualified disclaimer treatment, if disclaimed property passes to a
private foundation that is controlled by related or subordinate parties, even though
the disclaiming party does not exercise control over the foundation.
He also discussed a ruling which allows a way to limit the gift tax consequences under
section 2519 when the surviving spouse assigns an interest in the QTIP trust.
1999-26019 approved a severance of a QTIP trust into separate trusts, followed by
assignment of an interest in one of the severed and separated trusts. Gift tax is
calculated only with reference to the separate trust that is assigned.
Stacy Eastland was the final Recent Developments lecturer of the day.
Stacy first discussed a large number of cases (all in the outline) that allowed or
disallowed valuation discounts. He suggested that in situations where there is a close
order of death between two persons, the beneficial interest of the second to die in the
estate of the first to die should be discounted, using lack of marketability concepts.
The right to receive the inheritance from the first estate is delayed, it is
subject to claims that could possibly spring up, and there is no ability to alienate or
sell the inheritance generally. Stacy said that his firm had been successful in
negotiating a 30% discount in exactly such a situation in audit proceedings with the
Service.
Stacy also commented on Nevada law being the most favorable of any jurisdiction he
has seen in terms of limiting the rights of nonvoting shares. He also discussed the Kerr
case, involving multiple partnerships and life insurance.
Now For Some Additional News From The Vendors:
1) The ABA Real Property, Probate and Trust Law Section has just posted on their new
Web site the schedule for its Spring CLE Symposium that is going to be held in late March
in Miami. The direct URL for this information is <http://www.abanet.org/rppt/meetings_cle/spring2000.html>.
2) EVP Estate Valuations & Pricing Systems, Inc. has just announced the availability
for free of their newest software release, CostBasis 2000. You can either download
it from their Web site at http://www.evpsys.com or by
calling them at (818) 313-6300.
3) TimeValue Software (not a vendor this year) has just announced a new area on their Web
site called www.taxpenalty.com. Using this Web site you can run a series of
alternate calculations and chose the lowest penalty results for Form 941 tax deposit
penalty cases. If they save you more than $500, they will charge you $49 for a
detailed report that is suitable to send to the IRS. Otherwise, if the savings is
$500 or less, you will get the report for free.
4) The IRS has just added a new interactive feature to its Web site entitled the
"Spousal Tax Relief Eligibility Explorer." This new tool will enable
taxpayers to learn if they qualify for either innocent spouse or injured spouse relief
from a joint tax liability with their current or former spouse by responding to a series
of yes/no questions. The IRS Web site is located at <http://www.irs.ustreas.gov/>.
1) Speaking of Banks representing states with no RAP, we are told that Citibank Trust
South Dakota also is exhibiting at the Institute again this year.
That's it for Report #2.
_________________________________
NOTICE: Although audio tapes of all of the substantive session at the Miami
Institute currently are only made available to Institute registrants for
purchase, the entire proceeding of the Institute are published annually by
Matthew Bender. The text of these proceedings is also available on CD ROM
from Authority by Matthew Bender. For further information, contact your
Matthew Bender sales representative, or call (800) 533-1637, or fax (800)
828-8341, or go to URL <http://www.bender.com/>, or
write to Matthew Bender &
Co., Inc., Attn: Fulfillment Dept., 1275 Broadway, Albany, NY 12204.
Back
to Heckerling Table of Contents
|
|
