Heckerling 2001 - Complete Reports

As we did in January of the last four years, and again with the permission of the University of Miami School of Law Center for Continuing Legal Education, we will be posting to this list
throughout the coming weeks highlights of the proceedings of the 35th Annual Philip E. Heckerling Institute on Estate Planning that is being held January 8-12, 2001 at the Fontainebleau Hilton Resort and Towers in Miami Beach, Florida.

Our on-site local reporters there in Miami this year will include:

Steve Leimberg Esq. of Bryn Mawr, PA - leimberg@home.com
Bruce Stone Esq. of Miami, FL - Brucestone@aol.com
Eugene Zuspann Esq. of Denver, CO - ezuspann@zuspann.com
Julia Fisher Esq. of Philadelphia, PA - JuliaFisher@ewgf.com
Alan Rothschild Jr. Esq. of Columbus, GA - ar@hatcherstubbs.com
Joe Hodges Esq. of Denver, CO - jghodges@jghlaw.com

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Again this year a complete listing of the proceedings and speakers is
available on the Institute's Web site. The new URL for that site is
<http://www.law.miami.edu/heckerling>
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Again this year a complete listing of the proceedings and speakers is available on the Institute's Web site. The new URL for that site is http://www.law.miami.edu/heckerling For those of you without access to the Web, here are the core parts of the schedule:

The "Miami Institute" is widely recognized as the premier estate planning program in the country. It is designed for sophisticated attorneys, trust officers, accountants, insurance and financial planners who, through years of experience and practice, are familiar with the principles of estate planning. The Institute offers something of interest to every member of the estate planning team.

A recent developments panel on Monday afternoon, featuring three of the nation's foremost estate planning experts, will guide you through the year's developments on the tax front. The same distinguished panel will be joined the next morning by a speaker from the Internal Revenue Service for the first of two question and answer sessions.

Tuesday's program features the beginning of our general session lectures. The lectures provide in-depth analysis of topics of timely interest to experienced estate planners, and are presented by some of the nation's leading authorities.

On Wednesday and Thursday afternoons, the Institute offers a wide variety of workshops and panel discussions, including case studies that will illustrate and provide practical guidance on how to implement sophisticated estate planning techniques. In addition, there will be a repeat Special Session entitled "2001: A Tech Odyssey" covering all aspects of conducting an automated trusts and estates law practice in the 21st Century. All Institute registrants are invited to complete the Survey that has been posted on the Web for this Session before arriving in Miami. The URL is http://members.iex.net/~jghodges/miami2001.html.

Finally, this year's Institute once again includes our popular Fundamentals Program. The first two fundamentals sessions will provide a thorough review of two topics central to the estate planning process: planning for qualified retirement plan benefits and IRAs, and the use of GRATs, GRUTs and QPRTs. The final session differs from our traditional offerings by examining the income tax principles applicable to family limited partnerships - a topic of increasing importance to estate planners.

Because of the scope and quality of its educational programming, the Institute has grown to be the largest meeting of estate planning professionals in the country, with a record number of over 2,500 individuals from around the nation in attendance last year. As our regular attendees know, this concentration of talent has led the Institute to have some of the better characteristics of a national convention of estate planners. The weeklong program provides the opportunity to exchange ideas, to network, and to review the latest in technology, products, and services displayed by over 100 vendors in an exhibit hall dedicated entirely to the estate planning industry. We invite those of you who have never attended our program, or who have been absent in recent years, to join us in Miami Beach January 8 - 12, 2001, to take advantage of this unique event.

D. Keith Bilter, Esq.
Friedman, Olive, McCubbin, Spalding, Bilter, Roosevelt & Montgomery, P.C.
San Francisco, California

Jonathan G. Blattmachr, Esq.
Milbank, Tweed, Hadley & McCloy LLP
New York, New York

Beverly R. Budin, Esq.
Ballard Spahr Andrews & Ingersoll, LLP
Philadelphia, Pennsylvania

J. Donald Cairns, Esq.
Spieth, Bell, McCurdy & Newell, L.P.A.
Cleveland, Ohio

Dominic J. Campisi, Esq.
Evans, Latham, Harris and Campisi
San Francisco, California

Julia B. Fisher, Esq.
Erskine, Wolfson, Gibbon & Fisher, P.C.
Philadelphia, Pennsylvania

Leslie C. Giordani, Esq.
Giordani, Schurig, Beckett & Tackett, LLP
Austin, Texas

Joseph G. Gorman, Jr., Esq.
Sheppard, Mullin, Richter & Hampton LLP
Los Angeles, California

Kathryn W. Miree, Esq.
Kathryn W. Miree & Associates, Inc.
Birmingham, Alabama

Professor Jeffrey N. Pennell
Emory University School of Law
Atlanta, Georgia

Susan Porter, Esq.
United States Trust Company of New York
New York, New York

James V. Quillinan, Esq.
California Trust & Estate Counselors, LLP
Mountain View, California

Edward S. Schlesinger, Esq.
Law Offices of Edward S. Schlesinger, P.C.
New York, New York

Pam H. Schneider, Esq.
Drinker, Biddle & Reath LLP
Philadelphia, Pennsylvania

OPTIONAL PRE-CONFERENCE FUNDAMENTALS PROGRAM
The Fundamentals of Estate Planning for Qualified Retirement Plan Benefits and IRAs: What to Do in Real Life.

Now That You Have Me Here, What Are We Going to Do? Meritorious and Occasionally Meretricious Planning for an Existing FLP.

The Pre-Owned IRA: Its Service Record, the Limited Warranty, and Your Possibilities for Resale.

Client Capacity, Estate Planning and Malpractice Traps (Representing the Mentally Impaired Client).

College Funding: New Kid on the Block (Qualified State Tuition Plan) Challenges Traditional Techniques (Crummey Trusts and Minor Trusts). And the Winner is…Beverly R. Budin

Flexibility or Contortion—Telling the Difference and Using One to Avoid the Other.

FUNDAMENTALS PROGRAM
GRATs, GRUTs and QPRTs (and Competing Techniques for Large Intrafamily Transfers).

I-A CASE STUDY The Conduct of Gift and Estate Tax Audits Involving Family Limited Partnerships.

I-B Drafting to Avoid the Shoals and Survive the Storms on the Long Cruise of a Twenty-First Century Estate Plan.

Funding Marital Deduction (and other) Bequests: Only the Questions Are Still the Same.

FUNDAMENTALS PROGRAM
Income Tax Principles Applicable to the Formation, Operation and Termination of Family Limited Partnerships.

III-A CASE STUDY Now That I Have Built It, How Do I Get Rid of It: Estate Planning for the Owners of the Closely Held Business.

III-C After the Ink Dries: Guiding Your Clients through Family Foundation Management.

IV-A CASE STUDY Inbound U.S. Tax Planning: Choosing the Best Investment Structures.

Ethics at the Edge: Sophisticated Estate Planning and Professional Responsibility.

One of the afternoon Special Sessions at the Miami Institute this year is entitled: 2001: A Tech Odyssey

It will be presented by attorneys Joseph G. Hodges, Jr. and Julia B. Fisher on Wednesday and Thursday afternoons (same session - repeated on two separate days).

As part of this presentation Joe and Julia have put together a 20-question on-line Survey about the sorts of technology all of us are using today in our professional practices and what we would like to know more about. The results of this Survey will be made available free of charge to all those who attend one of these two Special Sessions in Miami and eventually as part of these Reports.

The purpose of this message is to invite all practicing attorneys, CPAs and other allied professionals who may be receiving this message but who are not going to be able to attend the Miami Institute this coming year to feel free to take this Survey too. It only takes about 5 minutes on average to complete, so it is not time consuming or difficult to respond to. The more people who take the Survey, the more representative the results of the Survey will be, so don't miss your big chance to tell us all what software and technology products you like the best and to find out which ones are currently the most popular and why.

Due to time limitations and so the results of this Survey can be properly compiled and published during the Institute, the presenters ask that everyone respond to this Survey by no later than midnight on December 31, 2000 (that's New Years Eve for us young folks).

back to top

First, our super-sluth when it comes to the vendors and things technical, Reporter Gene Zuspann, has filed the following Report on his Monday visits to the Exhibit Hall:

As the size of the institute grows, so do the number of vendors. 99 vendors are now listed in the Registration list. There are multiple vendors in almost all categories.

The categories that are apparent are:

Administration support services such as deed preparation
Appraisal and valuation companies
Auction houses
Book and reference material sales
Missing person locators
Software sales - these include software for planning and administration.
Trust departments/companies and other companies managing assets

And now for some highlights:

Collaborate! is a web based company that allows all of the parties to the estate planning team and the client to work out an estate plan and the documents. Each participant loads documents and other information to the web site. The client determines which members of the team can see which parts of the information. For instance, the will, prepared and posted by the attorney, could be reviewed by the client, the client's tax advisor, but not the insurance agent. The goal is to speed up the process from the start to the finish of the EP engagement. Collaborate!'s site is supposed to be up in March at http://www.collaboratefinancial.com/

ProDoc is one of the popular document preparation system. The do forms for several practice areas in Texas and Florida and the Probate Court forms in Colorado. ProDoc uses a proprietary engine and most programming in the past has been by ProDoc. They are currently working on an update for all of Colorado's pending new Guardianship and Conservatorship forms now that the new Uniform Act became law there effective 1/1/01, and they just recently shipped their most recent update of all of the Colorado Probate Court forms for the new required caption format as of 1/1/01.

LawOnTheWeb.com has just developed and released a new project between Natalie Choate and Jonathan Blattmachr. They are offering several new products,including BenDesi, to assist estate planners in planning for their clients' retirement benefits, and Distribuguide which explains what options are available under the minimum distribution rules for distribution of a decedent's retirement benefits. More information is available at www.LawOnTheWeb.com http://www.lawontheweb.com . Rumor has it an Elder Law system is also under development at this time.

ProBATE Software, from Greeley Colorado has a fully integrated estate and trust administration package. The package includes programs for estate planning calculations and presentations, Forms 706, 709 and 1041, and trust accounting, plus a new NAPTA Web link. This suite of programs is a competetor to Zane & Associates, Lackner 6-in-1, TeDec and West Group. Lee Zane, Vince Lackner and West Group are also exhibiting, although Tedar Brooks is just finishing his windows product and it is only available thru their TeDec web site. Faster Systems is also here exhibiting its Faster fiduciary accounting package this year.

Most of the regulars are also here, including:

Nicole Splitter, with U.S. Trust, with their new EPLAN Software. This was reviewed in the October, 2000 issue of Estate Planning Magazine.

EVP valuation systems, which has just released the CapWatch product. This can downloaded from their Web site and is included in the current version of the EVP product. We'll report on some of the other valuation companies later.

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Next, and as an add on to the above re LawOnTheWeb, Reporter Gene Zuspann also reports the following about Natalie Choate's Monday morning three-hour "Fundamentals" program:

I attended the Monday morning presentation by Natalie Choate on "The fundamental of Estate Planning for Qualified Retirement Plan Benefits and IRAs: What to do in real life."

As normal, the materials are quite extensive - 93 pages of materials with another 27 pages of appendices. Two sections of the materials - Understanding the Minimum Distribution Rules and Case studies are from her book "Life and Death Planning for Retirement Benefits." The other two sections were written just for this institute. There were a large number of attendees at this presentation, even though it is supposedly a fundamentals program, so the interest in the program was quite high.

Her first topic was "Ten Things that make Planning for Retirement Benefits Different from Estate Planning for Other Assets." This one of the new topics not in her book. She said that this follows the "Dummies" how to books, however, it actually consisted of 16 so she stuck 6 topics in other #10 - Special Planning Opportunities. She started the presentation with a caveat: Never be in business with your spouse.

In the first part of the session - from 9:00 to 10:30 - she covered the differences in Section I of her outline and the general rules. She
extensively discussed the Minimum Distribution Rules for the various possible scenarios, i.e. participant alone, participant and spouse, participant and non-spouse individual, etc. She also covered the Required beginning Date rules.

One recommedation: where the younger generation beneficiaries are already wealthy, and do not need the money, and the client is not using the money in the IRA, leave it to a foundation and avoid both the death taxes and the income taxes.

After the break, she covered several of her 26 case studies. She finished with the results of a survey of the methods used by a number of the experts in the area in planning for distributions from large plans. These include:

-Use fixed term for both the spouse and the participant. This method ensures certainty regardless of the timing and order of death between the spouse. However, this feels this may be a disservice to the client, especially if the actual life expectancy of the client and spouse are considered. Taking into account the family history of the client, and the fact that non-smoking, well educated persons in good health will often outlive the tables, there may be better methods. Several alternatives are:

-Use recalculation of lives on the spouses and a charitable remainder trust as a contingent beneficiary.

-Use the split method - a fixed term on the participant and recalculate the spouse.

-Hedge your bets under Notice 88-38. Split the money into 3 IRAs and use a different option on each of the IRAs. When the client is ready to take money out each year, evaluate which IRA would be best to deplete. This gives the client the flexibility to choose the best alternative taking into account the facts and circumstances at the time of the withdrawal during each year in the future.

All in all, a very good presentation. As always, her presentation included some good humor and kept the audience interested.

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Third, Reporter Steve Leimberg has filed the following Report regarding Jonathan Blattmachr's portion of the Monday afternoon "Recent Developments" presentation.

Here's to the Lossers! That's a line from an "Old Blue Eyes" tune. Jonathan Blattmachr and Professor Mitchell Gans put a new twist on it - just when it appeared everything that could be said about the subject already had. I'm referring of course to the subject of Wealth Transfer Tax Repeal. Jonathan and Mitchell's perspective, presented as part of the Recent Developments opening segment at the 35th Annual Heckerling Institute makes the following interesting points that perhaps many folks missed in the crunch
of the sound bites on both sides of this important issue:

The proposal to repeal the estate tax can't be justified on the basis of a slowing economy (even assuming fiscal stimulus is both a necessary and effective tool to warm up a cooling economy) since it would do nothing to produce an immediate tax savings for taxpayers with a propensity to consume most, if not all, of their tax savings.

Repeal goes beyond merely the estate tax. Its triple whammy would include the gift and GST as well. And coupled with a proposed significant reduction in income tax rates, the result is likely to produce four major losers: (1) the life insurance community, (2) charities, (3) spouses, and (4) states.Life insurance companies would be hurt because of what is called "adverse selection". In other words those who perceived they no longer needed insurance because of a repeal - but who were healthy - would drop their
coverage - while those who were sick would retain the coverage - thus taking away from the insurers the (already counted upon) advantage of a pool of healthy insureds who continue to pay premiums. (On the other hand, Jonathan mentioned that, the enhanced relative advantage of the tax-free build up inside the policy would encourage high-net worth high income individuals to retain or purchase cash value life insurance and to some degree, counterbalance the policies lapsed because of repeal).

Charities would be hurt - badly - because both estate tax and income tax incentives would be removed. With a reduced income tax furthering the loss of incentive to make charitable gifts, direct bequests at death as well as lifetime giving will likely diminish. Worse yet, according to Jonathan, charities would have to depend on the federal and state governments to make up some of the difference. He fears this would result not only in shortfalls in operating revenues but more importantly in an expanded role of the government(s) in "picking winners". In other words he worries that philanthropy may become controlled by governments to the point of being "rampantly politicized". And of course, with respect to religious charities, direct governmental financial assistance is probably
unconstitutional.

Spouses will lose because the state legislated protection for surviving spouses which provides a minimum share of a deceased spouse's estate (e.g. right of election ) serves as a protection only to the extent there's something to share (typically 1/3) IN THE ESTATE. Without a gift tax, it will be easy (and less expensive) for a moneyed spouse to give away assets and thwart the intention of protective state laws.

Of the three major loses, states would suffer most. As a recent Tax Analysts article suggests, states stand to lose a lot of money - year after year. Jonathan estimated over $100 billion over the next 10 years would be lost. He noted that it may be politically impossible for the states to adopt independent estate tax systems to make up the loss and few would have easy mechanisms to replace the revenue lost if the states could no longer impose a death tax equal to the state death tax credit (which EVERY state currently does).

Perhaps the most interesting part of the Blattmachr/Gans commentary, the impact of the repeal of the gift tax, has been the least commented on by other authorities - and may prove to be the most important issue of all - because of its implications on both federal and state income taxes - and because of the significant increase in the real cost of repeal. Think about the following:

First, it would be easy - without a gift tax - for a taxpayer in one state to shift income to a trusted relative in another state, one with no or a lower state (and/or local) income tax - and at some "old and cold" date - that trusted relative gives the income producing property back. Likewise, a gift tax free gift of appreciated property to a lower bracket relative - say a daughter - or retired parent - who sells the property and pays a much lower tax than the donor would have paid - followed by a conservative period of time - followed by a gift back to the donor of the net proceeds.

Second, trusts - deliberately created in states which do not impose a state income tax on trust income(such as Alaska, Delaware, Florida, Nevada, South Dakota, Texas, Wyoming, or Washington) could be "packed" with income producing assets to eliminate state income taxes.

As Jonathan put it, "Little tricks" will be developed to minimize income tax on the return of that money to the grantor. So just as taxpayers will try to avoid federal income tax once the barrier of gift tax is removed, so will they try to reduce their state income tax
through various income shifting methods. Jonathan pointed out that this potential to "GAME THE SYSTEM" will be difficult to police or to create laws that would prevent or minimize the loss of either state death or income tax revenue.

The conclusion of the Blattmachr/Gans Heckerling Current Events commentary is that the loopholes and deficiencies inherent in current law can - and should - be fixed. But they feel "repeal would be the wrong remedy." They suggest instead a substantial upward revision in the size of the exemption or exemption equivalent available to all taxpayers and a significant increase in the size of the GST exemption.

That is it for Report No. 1. The full text of all the Reports will be posted on the ABA RPPT Web site at http://www.abanet.org/rppt beginning early next week.

REPORT NO. 2 - Tuesday, January 9, 2001

First, some quick additional news from the Exhibition Hall:

A. Lawgic has just made three significant announcements [www.lawgic.com]:

(1) The upcoming release of the Advanced Package for its Florida Wills & Trusts estate planning software package is expected to be available in February of 2001. The initial release of this Package will include Qualified Personal Residence Trusts (QPRTs), Grantor Retained Annuity Trusts (GRATs) and Intentionally Defective Grantor Trusts (IDITs). Charitable Trusts and Joint Trusts will be made available later in 2001. In addition the GRAT form currently is being modified to take into account the recent Tax Court Walton case.

(2) Later this year they will be releasing a new package called New York Wills & Trusts. This product will be authored by none other than Carlyn S. McGaffrey, a partner in the New York City law firm of Weil, Gotshal & Manges LLP, in conjunction with the authors of the Florida Wills & Trusts system, who are John Arthur Jones,, Edward F. Koren, Richard L. Stockton and Bruce Stone, all of whom are partners of Holland & Knight LLP. This product will include a fully searchable library, including selected Internal Revenue Code sections and cases.

(3) Versions of the Florida Wills & Trusts system modified for additional east coast state are planned for release later on. Those states include Virginia, Maryland, Georgia and the District of Columbia in late 2001 and Massachusetts in early 2002.

B. Power Presentations LLC (tm) of Mesa, Arizona is exhibiting ten separate estate planning PowerPoint Presentations that will retail for $399 each, or you can buy five of them for $1,749 or all ten of them for $2,499. Further information can be obtained from their Web site at www.power-presentations.net.

C. zCalc is exhibiting its popular zCalc Excel spreadsheet program which comes with the zCalc Tool Box that allows you to analyze various estate planning strategies and the zCalc Function Library that allows you to install over 100 custom functions into your Excel spreadsheets. You can download the program from their Web site at www.zcalc.com for $99.

D. WealthTec is exhibiting its WealthMaster (tm) financial and estate planning software, which combines enhanced versions of its two leading-edge products, AdvancePro Series (tm) and ProPrimerPro Series (tm). Your can download it for $1,095 or obtain it by mail on a CD for $1,195. Current modules include estate planning, qualified plans and IRAs, charitable planning and tax and financial planning. Further information can be obtained from their Web site at www.wealthtec.com.

E. ProDoc is now marketing Lipman's Wills and Trusts, which includes a wide spectrum of estate planning documents from the simple to the complex, including FLPs and dynasty ILITs and has been written to conform to state laws. For $95 per month, Florida residents can purchase their Plan D Estate Planning package, which includes the ProDoc document assembly engine, Lipman's Wills and Trusts, FLSSI Probate, FLISSI Guardianship and Small Estate Wills. Further information is available on their Web site at www.prodoc.com.

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Next, Reporter Gene Zuspann reports the following about Tuesday morning's Question & Answer Session One staring Jonathan G. Blattmachr, Carlyn S. McCaffrey, Frances Schafer and Pam H. Schneider:

Francis Schafer - Discussed the reorganization in the service effecting Estate and gift tax work.

Pam Schneider - She started by relaying that the Mellon Case discussed on Monday has been appealed. She then took up marital deduction questions. She addressed language that the trustee would distribute additional funds for the purpose of making "equal" gifts. Pam has language that the trustee has no right to verify use of the funds, and that the spouse can use the money for anything he or she wants to avoid the negative inference under 2056 that anyone other than the SS has a right to distributions. Planning for a QDOT can be done by the surviving spouse, post-mortem.

Carlyn McGaffrey discussed the new definition of a grantor in the 678 regs.

Jonathan Blattmachr responded to a number of questions came as a result of Natalie's presentation. Jonathan answered these with the caveat that any controversy should be referred to Natalie.

Q - is there a 691 problem with using a CRT as a remainder beneficiary. A problem exists if there are also human beneficiaries. The 5 year rule must be used if there any non-human beneficiaries. Fran said that one inquiry the service gets is that people want to pass thru the 691 deduction to the beneficiaries. Carlyn and Jonathan agreed that the use of a CRT is only used if you have no better alternative.

Fran commented that the IRS is trying to get a number of reg projects out in a hurry before the change in the administration so that someone familiar with the project can review it. Apparently, when the Clinton administration came in, some regs were pulled that had already gone to the Federal Register to be published and were again reviewed. Some projects are 643 Regs and 645 Regs. She also announced that Treasury has requested suggestions for any new projects that need to be done. The due date for submitting these is January 16.

Pam discussed charitable issues. She clarified the Atkinson trust from yesterday. The trust was properly drafted but improperly administered. She also discussed the regs in 4940 and 4942 and the Ann Jackson case on 4942 (that a PF distribute 5% of its net assets each year).

Carlyn then discussed some GRAT questions: Now that example 5 has been declared invalid (if not appealed and reversed), zero-ed out GRATs should become much more popular. If clients have open years, they should file an amended gift tax return. (Fran said this seems appropriate because the Adequate Disclosure Rev Proc refers to an amended return). Carlyn and Jonathan suggested filing an amended return even though the statute of limitations has run to recapture the unified credit reported on the oldreturns. Pam believed that this could be avoided and corrected on a schedule explaining the change attached to the 706.

Jonathan then discussed Strangi, Knight and Shepherd. He does not believe that story is all in on gifts on formation. See the comments in the Monday proceedings. Pam and Carlyn are not sure there is that much of a problem but agree that since it is easily solved, why take the risk. Pam questioned what waiting period should be used. Jonathan said his clients like 10-15 minutes, he likes one year. Shepherd case - additions by moneyed partner - to avoid the problem, Jonathan creates a new partnership. Does a 5x5 power in itself, without being tied to the donation, entitle the donor to an annual exclusion? Carlyn said that the panel had debated this issue. They agreed that this should not be relied on to get the exclusion.

Pam discussed a CLT where children have a vested interested and they assign that interest to their children (the grantor's grandchildren). Fran said that timing of gift would be an issue. If done shortly after creation, the value of the gift by the children would be the value of the remainder at that time. Pam respectfully disagreed with this position. Carlyn hedges the bet by making a transfer by the children to a new trust that includes the grandchildren and the child's spouse (a non-skip person). There will still be GST if distributed later to the GC. However, this will avoid an acceleration of the GST tax.

Fran discussed ESBTs and the problems with distributions and from which portion of the trust the distribution would be treated - S-corp or non-S-corp portion. Looking for comments on proposed regs. Also, If an S-corp makes a charitable donation, the service will deem that the governing instrument (the trust) allows such deductions for the S-corp contributions and allow the fiduciary to deduct its share of the contribution on its return.

General Discussion - Client transfers an income or annuity interest to the spouse. Simultaneously, client sells remainder to her children. What are the tax consequences? Client gets a marital deduction. 2702 does not apply because T had to have retained an interest - this was simultaneous. Allows you to create an old style GRIT. The transaction must be simultaneous to avoid 2702. Fran thinks the service will try to figure out some way to keep this from working. Carlyn suggested that this is for the aggressive client, but the panel believes it works.

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Next, Reporter Gene Zuspann reports the following on Milford B. Hatcher's Tuesday morning session entitled "Planning for an Existing FLP":

Milford started with a show of hands to see how many people think that the death tax laws will be repealed. Most people do not think they will be repealed.

The first part of the presentation dealt with operational issues.

Clients must recognize the entity as separate and distinct from its partners. If clients run afoul of this rule, they are putting a bullseye on their chests. Examples

- pay personal expenses from the partnership

- put personal use property in the partnership and use it rent free

- deposit partnership income in the personal account of the general partner.

Milford set forth 3 morals:

-Practitioners must carefully explain to clients that there will be material operational differences.

-Transfers of personal use assets should, at a minimum, be accompanied by a lease and FMV rental payments, and if possible, be avoided altogether.

-a transfer of almost all of an individuals assets to an FLP may invite closer scrutiny by the IRS

Strangi and Knight courts were impressed that you "dot your i's and cross your t's."

Timing of the gifts are relevant. There should be a waiting period between formation and gift to avoid the Shepherd case. He uses one month, but there is nothing supporting this in the law.

Strangi and Knight are considered as taxpayer victories, however, the discounts allowed were lower than those previously allowed. This may be a case of bad facts make bad law. Milford believes that the battle is going to be in valuation.

There is no one method that is always right. He discussed (very broadly) the following:

Installment sales to grantor trusts:

- Advantages are low interest rates, use of a grantor trust - grantor pays tax but this is not a gift, and GST planning.

- Disadvantages are required "seed" gifts or guarantees, possible adverse income tax consequences at grantor's death, and higher valuation risks.

The Walton case has made him reconsider GRATs, especially where there are volatile assets.

He did not get to preferred partnerships other than that Milford regards this to be the best vehicle where the grantor has and wants a compulsion to control.

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Next, Reporter Gene Zuspann reports the following on Dennis I. Belcher's Tuesday morning session entitled "How to Tie a Tight Knot with Marital Agreements":

Dennis questioned why anyone prepares these documents. It is a lose-break even situation. The best scenario is that you never hear about the agreement after it is completed. If the matter goes to litigation, the attorney preparing the document will be a witness, and maybe, a defendant.

He first reviewed the issues. The first issue is what law will be applied to the agreement. It is best to be in a state that has adopted the Uniform Premarital Agreement Act. Agreements in these states are more likely to be enforceable. He then discussed the provisions of the Act.

The presentation and materials also addressed the requirements under ERISA.. The benefits may be waived by the spouse if all requirements are met, however the regs take the view that this can not be done in a premarital agreement because at that time, the person is not a spouse.

Dennis discussed a number of cases and the procedures that should be taken or followed in view of the same.

Next he covered planning for divorce and then planning for death. Some agreements do not provide for divorce, but almost every agreement covers death.

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Next, Reporter Gene Zuspann reports the following on Beverly R. Budin's Tuesday afternoon session entitled "College Funding: New Kid on the Block":

Beverly first set out the general history of QSTPs. Each state develops their own plan. For this reason, no 2 plans are alike. There are two kinds of plans - Prepaid Educational Assistance (where the donor purchases tuition credits) and Educational Savings accounts, where the money is typically invested in mutual funds.

The two parties to the plan are the person contributing the funds - the account owner - and the beneficiary of the plan - the designated beneficiary (DB). The account owner retains full control, including the right the terminate the plan and withdraw the funds. The DB has not control at all (and may have negative tax effects that he also cannot control).

There are several rules set out in IRC 529:

1. The contribution by the account owner must be in cash.

2. There will be a penalty (with few exceptions) if the distributions are not used for education expenses

3. The account owner may not direct investments (other than the initial investment in some states).

4. There can be no excess contributions.

5. The interest in the QSTP may not be pledged.

Since plans vary from state to state, a donor needs to investigate different plans to determine what is best for the donor's facts andcircumstances. Many states do not require the donor to be a resident, so this gives a lot of flexibility in selecting a plan. Beverly then summarized the various distribution alternatives and taxeffects of each. The discussion included various income and estate tax results for both the account owner and the designated beneficiary and the gift tax consequences for the donor.

Finally she concluded with some case studies to determine what clients are best suited to this strategy. The optimum client is one that is moderately wealthy, not making annual exclusion gifts already, wants to provide education funding for another, yet either needs or feels the need to have the right to reclaim the funds.

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That is it for Report No. 2. The full text of all the Reportswill be posted on the ABA RPPT Web site at www.abanet.org/rppt beginning early next week.

REPORT NO. 3 - Tuesday, January 9, 2001 and Wednesday, January 10, 2001

First, some quick additional news from the Exhibition Hall:

A. The Lackner Group's 6-in-1 Estates and Trusts Administration software. In late 2000 The Lackner Group demonstrated the new features of its 6-in-1 for Windows program throughout Pennsylvania. First, you are now allowed to work with the product as a basic, intermediate or advanced level, and move freely between these three levels. Second, their transaction classification or coding system has been greatly simplified by the use of filters keyed to the user level you choose. Third, they have installed a new search engine for easily finding their forms and documents and the coding system. Fourth, they have improved the way you enter sale transactions when there are multiple lots of a particular asset acquired on different dates and different prices, such as mutual funds with dividend reinvestment plans, including the ability to choose among various methods of identifying which shares you are selling.

For more information, go to www.lacknergroup.com.

B. Brentmark Software is exhibiting a whole host of software products this year, including Estate Planning Tools [$395], IRS Factors Calculator [$149], Charitable Financial Planner [$349], Estate Planning Quick View [$249], Wallace Securities Pricing CD-ROM [$99 for one year], PFP Notebook [$695], their new Savings Bond Toolkit program [$249 - it is being previewed as part of the Tech Odyssey 2001 Special Session presentation on Wednesday and Thursday], Pension and Roth IRA Analyzer [$449], Investment Scenario Generator [$299], Roth IRA Conversion Analyzer [$249], Goldberg Reports (on-line) [$199 per year], Pension Distribution Calculator [$149], Roth IRA Conversion Calculator [$49], and Minimum Distribution Calculator [$79].

For more information, go to www.brentmark.com or www.leimberg.com.

C. Crescendo Interactive is also exhibiting a whole host of software and related products, including crescendo Lite [$150] and Pro [$995], Crescendo Plus for PowerPoint [$495], GiftLegacy.com Web site [$5,000 per ear], GiftLaw.com [FREE], Crescendo Presents [$150], Crescendo Estate [$300], and a series of planned giving and conference Videos [$59 each]. Of particular note is the PowerPoint client side show and program HELP screens that come with their own built-in audio explanations that are times to match the pace of the slide scripts. We suspect that soon everyone who is now offering PowerPoint or Presentation slide shows for sale will be adding automatic or user-defined audio features to their slide shows.

For more information, go to www.crescendosoft.com.

D. Cowles Legal Systems, Inc. has announced the availability of revocable trust, irrevocable trust, will and trust termination checklists free of charge to current Cowles software and system users via www.cowleslegal.com. Cowles Checklists are designed for use during the initial appointment, when information may be gathered, phrase selections made, and supporting documents and funding documents and correspondence selected, all while the client is available to provide detailed information. Using the checklist to draft during the initial appointment allows for specific fee quotes to be given at the end of the initial appointment and eliminates follow-up calls. At the end of the initial appointment, the checklist may be routed to an assistant for data entry and completion of the estate plan, so the drafter has the completed plan for review shortly after the initial appointment. The drafter may complete data entry, but with use of the checklist, data entry by the drafter is optional. A checklist approach to drafting protects the attorneys' time to allow more initial appointments to take place. Unlike other methods the checklist allows the drafter to make substantive drafting decisions while with the client, significantly enhancing the ability to make decisions based on perceptions of the client's needs and goals, which are most apparent during the appointment. The attorney can complete a thorough, personal and comprehensive initial appointment, allowing the client to see their expertise in the estate planning area, and allowing the attorney to truly listen to the client rather than focusing on what questions need to be asked. The checklist also serves as a receptacle for all pertinent information, and minimizes liability by insuring that all pertinent questions are asked and documented.

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Next, Reporter Julia Fisher reports the following about Dennis Belcher's presentation Tuesday morning entitled "How to Tie a Tight Knot with Marital Agreements and Mark Edwards' Tuesday afternoon presentation entitled "The Pre-Owned IRA":

Dennis Belcher based his talk and his materials on some recent experiences he has had both defending and attacking premarital agreements. Dennis made these points among many others:

1. Remember that a premarital agreement is a litigating document.

2. Remember that in the litigation of a premarital agreement it is the boilerplate that will make the difference.

3. Remember to a avoid a jury because juries don't like rich people.

4. Consider including provisions pertaining to divorce in the agreement; of the parties are young, consider a sunset provision if the marriage last for a number of years. Be familiar with the relevant divorce laws, or seek the input of someone who is familiar with those rules.

5. Retirement benefits provide a challenge, in that a waiver before the marriage is not effective for ERISA purposes. Consider attaching a signed consent to the agreement and appointing the other spouse as attorney in fact to sign the power.

6. While no state requires separate counsel for each party, it is advisable.

7. Be aware of the difference in the consideration rules under the Uniform Pre-Marital Act for pre and post marital agreements.

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Mark Edwards in his presentation entitled Pre-Owned IRAs covered the significance of satisfying the designated beneficiary rules when the spouse is not the primary beneficiary of the IRA to maximize the stretch-out over the life expectancies of the IRA beneficiaries. He also advised that the attorney should ensure that the client documents the method by which the required minimum distributions are calculated, as the custodian may or may not retain any paperwork evidencing the election. A customized beneficiary designation should be prepared and sent to the custodian, and the client should check regularly with the custodian (especially in this age of mergers of banks, etc.) that the current designation is on file.

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Next, Reporter Steve Leimberg, reports the following about the Tuesday morning session entitled "Client Capacity, Estate Planning and Malpractice Traps" that was presented by James V. Quillinan and John Becker.

James V. Quillinan, an estate planning attorney with California Trust & Estate Counselors, LLP, in Mountain View, California and John Becker, Ph.D., a neuropsychologist in Los Gatos, California, explored some of the ethical and practical issues pertaining to the representation of clients with marginal mental capacity. Here are some of their key points:

Capacity is a factual determination. --Focus on capacity - since if there is not sufficient capacity

- the documents are worthless.

--Most attorneys have little or no training in this area.

--When examining memory impairment, look at two elements: First, look at the person's ability to absorb and process "new" information. Second, look at his/her ability to recall and process previously learned information.

Can he/she go through a logical process of weighing options?

--A family doctor may consider a person "sharp as a tack" but that person may not have the ability to process new information.