Heckerling Institute Report
Report #7 - Ethics and MDP / Entities
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The following is Report #7 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 Bruce Ross' "Ethics and MDP" presentation and Lou
Mezzullo's "Entities" presentation, both of which were given on
Tuesday, January 11th.
This report was filed by on-site reporter, Alan F.Rothschild, Jr. Alan is the
current Chairman of the K-2 Technology and Economics Committee of the Probate Division of
the ABA Real Property, Probate and Trust Law Section.
Law & Ethics -- Bruce Ross
Bruce, a Los Angeles practitioner and well-known expert on the rules of professional
conduct in the area of trust and estates, provided a national update on legal malpractice
in estate planning and administration since his 1994 Heckerling (28th Institute)
presentation.
Bruce began by noting the inherit conflicts and confidentiality concerns regularly faced
by practitioners. He noted that the rules of professional conduct are not well
designed for this area of practice, nonetheless, the rules are being used increasingly in
civil litigation to impose liability on attorneys.
In most jurisdictions, Ross pointed out that the elements of a malpractice claim are:
Attorney is under an obligation to use the skill, prudence and diligence as other
members of the profession; the attorney has breached this duty; there is proximate cause
between the attorney's negligence and an injury; and there is damage to the
"client". Other theories of recovery include breach of fiduciary duty,
negligent misrepresentation and fraud.
Bruce spent a significant amount of his program discussing recent cases on the issue of
standing or privity. He noted that in the estate planning area, a majority of the
jurisdictions hold that the beneficiaries of a defectively drafted instrument should be
considered as "indirect" clients for purposes of establishing standing. In
the estate administration area, however, most states still apply the privity rule to bar
malpractice actions by a disgruntled trust or estate beneficiary against the attorney for
the fiduciary.
Because of the growing use of the rules of professional conduct in legal malpractice
claims, Ross urged the attendees to obtain ACTEC's Commentaries (Third Edition) and their
Engagement Letters: A Guide to Practitioners from the ACTEC Foundation (a non-profit
organization), both of which are available at a reasonable charge from ACTEC via their Web
site at http://www.actec.org.
Choice of Family Business Entity for Estate Planning Purposes -- Lou Mezzullo
Lou provided a fast-paced update on selecting the best family business vehicle based
on a number of income tax, estate tax and family planning factors. The backbone
of his paper can also be found in BNA's Family Limited Partnerships and Limited Liability
Companies portfolio (#812) and RPPT's An Estate Planner's Guide to Family Business
Entities, both of which Lou authored.
Selection of Entity arises in three situations -- 1. establishment of a new venture,
2. Outside developments (changes in law or nature of business), and 3.
Changes in owner's personal circumstances. Tax issues which can impact entity
selection include treatment of earnings and losses, the value of an interest in the entity
for transfer tax purposes, and the entity's ability to combine with other entities or to
break up without taxable gain.
Mezzullo also emphasized the importance of state law in selecting the appropriate entity.
He noted there were lots of choices available to the practitioner today -- good
news because of the choices available, but bad news for the challenges to the planner who
tries to stay current on each one.
The factors Lou reviewed included: (Nontax) Limited Liability, Retention of Control,
Continuity of Life, Restrictions on Transferability, One Business Entity, Restrictions on
Voting and Management Rights, Protecting Assets from Liability Exposure, Protecting Assets
from Creditors, Simple and Inexpensive Formation, Dealing with Recalcitrant Family
Members, and (Tax) Partnership Tax Treatment, No Restrictions on Ownership, No
Restrictions on Capital Structure, Tax-Free Formation, Tax-Free Contributions, Tax-Free
Withdrawals, Adjustment to Basis, Discounts and Premiums and Self-Employment Income
Tax.
After analyzing these tax and non-tax factors, Lou clearly indicated his preference for
LLC's as the easiest, most flexible family business vehicle in most circumstances. A
FLP with a limited liability general partner was a close second.
That's it for Report #7.
_________________________________
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.
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