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REPORT NO. 4A - The Vendors and Other
Techie News
This report is a supplement to Report
#4 that was sent out on Saturday,
1/12/01, as we have a couple of corrections
we need to make in the
information that is in Report #4
and a few additional tidbits of
information to pass along.
FIRST, with regard to WealthCounsel
and their special offer, which is good
for the rest of this month, we had
the pricing information wrong. The
information below is official from
their CEO, Lew Dymond.
The special offer pricing is $3,500
for the initial cost ($3,900 after the
special offer pricing ends) plus
$350 a month, which is the continuing
monthly fee. The continuing monthly
fee can be paid $3,000 in advance each
year, for which the user receives
a $500 discount. Also, and as was noted
in Report #4, the initial fee and
monthly maintenance can be paid for in a
variety of ways, which are (a) $0
down plus $575 per month for 24 months
(that's a total of $13,800), or (b)
$1,500 down plus $575 per month for 12
months (that's a total of $8,400),
or (c) $3,500 down plus $350 per month
for 12 months (that's a total of
$7,700), or (d) a one-time payment up
front of $7,000, and all PROVIDED
you mention that you heard about this
offer on the ABA-PTL list (or, for
those of you from Colorado, the CBA-TES
list). Otherwise, and after 12/31/01
for all other customers, the total
minimum initial cost has been increased
to $8,150, with the monthly fee
being $390.
SECOND, with regard to Schumacher
& Co. [technically Schumacher Publishing,
Inc.], we incorrectly listed the
URL for their Web site as -
www.estplanning.com. Actually, that
URL belongs to the 6 lawyer San
Antonio, Texas law firm of Bayern
& Aycock. The correct URL for Schumacher
is www.estateplanning.com. This Company,
which used to be owned and managed
by Jim and Vickie Schumacher, is
now being run exclusively by Vickie, who
was in Miami with her tech people
taking orders for their books, pamphlets
and lawyer Web sites.
The consumer side of their Web site
lists links to such things as their own
Directory of estate planning lawyers
and related financial planners and
service providers with user-posted
(presumably unsolicited) 1 to 10 ratings
and client reviews (we couldn't find
any negative ones) of some of these
lawyers, along with links to the
CLE content and articles many of these
lawyers have either written or placed
on their Web sites, a schedule of
client seminars across the country,
information about the 5th Edition of
their best-selling book, Understanding
Living Trusts, and an order form for
all of their books, Mini-Reports
and Financial Organizer.
The professionals side of their Web
site lists links to such things as
pamphlets and PowerPoint presentations,
Internet content (including how
they can build a site for you [for
$1,900 plus an $89 per month hosting fee
for the Full Edition] or add their
educational content to your existing
site, resources for such professionals,
access to their professional
Directory where you can add your
own name or firm listing for free, and a
direct link to the International
Genealogical Search Inc.
THIRD, for those of you who might
be wondering if that special LISI
Newsletters pricing offer from Leimberg
& LeClair is really worth it, below
is the full text of a sample issue.
>>>>>>>>
Steve Leimberg's Estate Planning
Newsletter
Subject:PLR 200150020 Beware of Jointly-Held
Powers Over Trusts
LISI Commentator Jerry Kasner uses
PLR 200150020 to illustrate a "trap for the
unwary" in drafting or recommending
trust provisions which give individuals who
may not even be named as beneficiaries
of the trust a power to determine who
receives distributions from the trust.
Jerry warns that such powers could
be classified as fatal general powers of
appointment.
KEEP READING IF:
You plan estates or review or draft
wills and trusts
You advise clients who wish to structure
multi-generational trusts
for their
descendants, and seek to give younger
generation family members control
over the
distributions.
BUT FIRST, A LISI LawThreads®
ALERT:
IRS RULING APPROVES CRT TO CGA EXCHANGE:
A discussion on the GIFT-PL list
analyzes PLR 200152018 which approved
a taxpayer's exchange of a life interest
in a charitable remainder trust for
a gift annuity issued by the same
charity.
Our LawThreads review also links
to a couple of articles on the Web discussing
the ruling.
HECKERLING INSTITUTE REPORTS BEGIN:
As in past years, Moderator Joe Hodges and
his volunteer reporters attending
the 2002 University of Miami Philip E.
Heckerling Institute on Estate Planning
will post brief summaries of the
proceedings. LISI's LawThreads review
will serve as a link to the reports
in the
list archives and also to the Reports
as posted on the Web pages of the ABA
Real
Property, Probate and Trust Law Section.
To read these and other recent
LawThreads items, log into LISI at
http://www.leimbergservices.com,
then
click on
the blue LawThreads tab under Special
Services.
Remember that LawThreads also provides
an easy way to sign up for ABA and other
practical, highly informative, and
well-run discussion groups. Once you are
logged into LISI at http://www.leimbergservices.com
, click on the blue
LawThreads tab at the top right hand
side of the page. Then click on List
Resources. Scroll down and you’ll
find an easy way to sign up for one or more
professional discussion groups.
NOW BACK TO JERRY KASNER’S CAUTIONARY
TALE:
EXECUTIVE SUMMARY:
At some date prior to January 1,
1977, the decedent created a trust for his
grandchildren and their descendants.
The trust gave his two children the joint
power to "close the class"
of grandchildren who would be eligible
beneficiaries.
(This is legal jargon which means
that the children can exercise their power to
provide that any grandchildren born
after a certain date are not eligible
beneficiaries.) The children now
propose to release that joint power, and are
concerned that such a release will
be a taxable gift by them. The IRS ruled it
would not be so long as joint power
holders have interests which are
adverse to
each other, they do not have general
powers of appointment, and the release of
the joint non general power has no
gift tax consequences.
FACTS
The decedent created an irrevocable
trust. Only his grandchildren and their
descendants were named as beneficiaries.
He gave his two children a power,
which they could only exercise jointly while
both are alive, to close the class,
in which case grandchildren born after the
date that power is exercised would
not be beneficiaries. If one child dies, the
survivor can exercise the power to
close the class.
THE PLOT THICKENS:
However, there are no grandchildren,
nor descendants of
grandchildren! If the
children exercised their joint power
now, who would get the assets in the
trust?
Under the trust terms, it will terminate
on the death of the last child, and be
distributed to the descendants of
the decedent who created the
trust. Outside of
a small interest which might pass
to a cousin, it appears the trust would be
distributed to the grantor’s children,
or surviving child, who are not even
named
beneficiaries, but who are the lineal
descendants of the decedent.
IS THIS A GENERAL POWER OF APPOINTMENT?
So if the children exercise their
joint power to close the class, then the
trust
will be distributed to the descendants
of the decedent. In effect, the
children
could exercise their joint power
and the trust assets would be
distributed - to
them! Since the effect of their joint
power is to permit them to direct
distribution of the assets to themselves,
it would appear to be a general power
of appointment over the trust. And
if they release that power, that release
would itself be a taxable gift.
However, as the ruling points out,
Code Sections 2041(b)(1)(C)(ii) and
2514(c)(3)(B) provide that for gift
and estate tax purposes, a jointly held
power
is not deemed to be a general power
of appointment so long as the joint owners
must agree on the exercise, and each
has a substantial interest in the trust
property which could be defeated
by the exercise of the power.
THE ADVERSE INTEREST ARGUMENT:
The taxpayers argued, and the IRS
agreed, that under the terms of the joint
power, if one child died, the other
child could exercise the power and direct
distribution of all or most of the
trust to himself. Since either child might
survive, each child has a chance
of getting all of the trust. This creates an
adverse interest. Therefore, the
joint power is not a general power of
appointment so long as both are alive.
The release of a non-general power of
appointment has no gift tax consequences,
and that is the effect of the ruling.
Note the cousin who had a possible
interest in the trust was permitted to
disclaim that interest within 9 months
of the date he became aware of the trust
interest. Since the trust was created
prior to January 1, 1977, IRC §2518
would
not apply which means the 9 month
disclaimer period starts with the date the
disclaimant first becomes aware of
the interest in the trust, not the date of
transfer to the trust under IRC §2518.
COMMENT:
Clearly, this is an unusual fact
pattern. But the issue of joint powers does
come up in practice. Some years ago,
the author was consulting with an
attorney
who had been asked to review a multi-million
dollar trust created years
before in
which the five children of the grantor
who were the income beneficiaries could
jointly agree to invade the trust
for their own benefit. They were clearly
adverse to each other, since any
exercise of that power in favor of one would
reduce or eliminate the interests
of the others, and at the death of a
child, the
remaining children could exercise
the power. At the termination of the
trust, it
would pass to their issue. It was
clear that the intention here was that the
trust would skip the generation of
the children, and that the attorney who
drafted the trust assured the parties
that this would be the case. No problem,
right?
Guess what? Four of the five had
died. This left the sole remaining child
with
a general power of appointment over
the entire trust. Fortunately for the
heirs
of the attorney who drafted the trust,
he had died some years before, and could
not be sued.
DON’T RELY ON ADVERSE INTEREST!
I feel the adverse interest rule
that applies to joint powers should never be
relied upon to avoid general powers
of appointment. Further, it is
important to
remember that the mere fact a certain
individual is not named as the
beneficiary
of a trust does not mean he or she
could not have a general power of
appointment
over it. The most common example
is where the person named as trustee has the
power to make trust distributions
to satisfy his or her own legal obligations,
including the obligation to support
dependents. That is why many states have
adopted statutes which prohibit a
trustee from making such distributions.
Be careful out there!
HOPE THIS HELPS YOU HELP OTHERS!
Jerry Kasner
Edited by Steve Leimberg for Steve
Leimberg’s Estate Planning Newsletter
Copyright 2002 LISI http://www.leimbergservices.com"
target="_blank">http://www.leimbergservices.com
FORGET YOUR PASSWORD?
If you ever forget your username and
password, just click on
http://www.leimbergservices.com
Look at the bottom left hand side of our
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page. Click
on the grey box that says: CLICK IF YOU FORGOT PASSWORD. Follow
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and we’ll e-mail it to you almost instantly.
CITES:
PLR 200150020 ; IRC §2514, §2041 IRC §2041(b)(1)(C)(ii), §2514(c)(3)(B),
IRC
§2518. See also the just released book, Tools and Techniques
of Estate
Planning
(800 543 0874).
HELP US HELP OTHERS! TELL A FRIEND ABOUT OUR NEWSLETTERS.
JUST GO TO: http://leimbergservices.com/tellafriend3.cfm
>>>>>>>>>>>>
FOURTH, Corel reports in its January
2002 eNewsletter [Vol. III, Issue 4]
that the following is NEW with WordPerfect:
Explore the Resource section of WordPerfect.com
The WordPerfect.com Resource section
includes a collection of informative
WordPerfect Office 2002 White Papers,
the latest downloads and a listing of
useful Web links. Check back to this
page regularly for the latest updates.
The direct URL to this section is (you
need to put the whole URL in your
browser Address window):
http://www3.corel.com/cgi-bin/gx.cgi/AppLogic+FTContentServer?pagename=Corel
/Product/Highlight&id=CC1MSNDMYJC&highlight=documentation
FIFTH (AND LAST), here from the Weinberg Group is a sample of
one of their
Current Developments e-mails, this one dealing with the Split-Dollar
IRS
Notice 2002-8 that was issued on 1/3/02:
>>>>>>>>>>>>
Dear Current Developments Subscriber,
As you are probably aware, on January 3, 2002, the Treasury and
IRS
issued Notice 2002-8, the long-awaited new rules for taxing split-dollar
life
insurance. This new Notice radically changes the tax treatment
of
split-dollar for the future, subject to some very important transitional
"grandfather" rules. On January 7th, AALU issued Washington Report
No. 02-1 analyzing the new rules in detail. Rather than repeat
that analysis,
attached is the AALU Washington Report in its entirety. [Ed:
This
attachment is not attached to this Report]
The new Notice will have to be studied in the days ahead to fully
understand
its ramifications. In addition, the IRS solicits written comments
on the
Notice by April 28, 2002. After that, proposed regulations will
be issued,
comments will be solicited on the proposed regs., and then final
regulations
will be adopted. This process will take some time, and, obviously,
the
final rules on split-dollar may differ markedly from those of
the Notice.
Therefore, what I would like to do here is make some preliminary
observations about Notice 2002-8.
1. The most important date for the moment is Jan. 28, 2002.
Split-dollar arrangements entered into before Jan. 28th are entitled
to the
limited grandfather protection provided for existing plans under
the
Notice's "safe harbor" rules. Thus, there remains a very limited
period(less than three weeks) to implement new split-dollar plans
that will
have the same grandfathering provided for existing plans.
2. Existing split-dollar plans (pre-Jan. 28th plans) may continue
in
split-dollar mode and terminate before January 1, 2004, and the
employee
will not be taxed on then existing policy equity, i.e., on cash
surrender
value received in excess of basis. I think this grandfather provision
will
be meaningful for "matured" split-dollar plans, meaning plans
near or at the
time of rollout. However, for "unmatured" plans, where substantial
future
premium payments are yet to be made, I don't think it will be
meaningful in
most situations to be able to terminate the plan without adverse
tax
consequences.
3. Alternatively, for existing split dollar plans (pre-Jan. 28th
plans),
the plan may continue in split-dollar mode until 2004. Then,
for all
periods beginning on or after Jan. 1, 2004, the plan must be
converted to a
loan from employer to employee in order to avoid taxation of
employee equity
upon later termination of the plan. (It's not clear whether "all
periods
beginning on or after Jan. 1, 2004" refers to January 1, 2004,
employer or
employee taxable years beginning on or after that date, or the
policy year
that begins on or after that date.) All pre-2004 employer outlays
for
premiums must be picked up as the beginning loan balance, and
subsequent
premiums paid by the employer will be treated as additional loans.
Presumably, the loan may be either interest-free and taxed as
a
"below-market" loan under IRC sec. 7872, or interest-bearing
and taxed under
the usual tax rules without the complexities of sec. 7872.
(Interest-bearing loans at the appropriate AFR are not taxed
under the
imputed interest rules of sec. 7872.) I believe this will be
the
grandfather clause most used by existing split-dollar plans as
a practical
matter. Questions remain to be answered, such as the effect of
the
different tax treatment between demand and term loans, the applicability
of
the Original Issue Discount (OID) rules, etc. These, as well
as other
possible issues, are identified in the Conclusion of the AALU
Washington
Report.
4. As indicated previously, new split-dollar plans entered into
before Jan. 28, 2002, can be treated as existing plans and entitled
to the
grandfather protection offered existing plans. In my opinion,
implementing
a new plan before Jan. 28th will provide maximum future flexibility
and
preserve the most favorable options for the plan. To enter into
a new
split-dollar plan means clients and their advisers must move
very quickly to
comply with the Jan. 28th deadline. A logical question is what
does
"entered into" mean?" The Notice does not address this question.
In my
opinion, it means that the ILIT (or other entity that is to own
the policy)
must be in place, the policy must be issued and paid for, the
split-dollar
agreement and the collateral assignment must be signed (and,
hopefully, the
collateral assignment filed with the insurance company), all
before Jan. 28,
2002! This is a tall order, and in many cases the Jan. 28th deadline
will
not be met.
5. For all existing plans (including new plans entered into
before
Jan. 28th ), I would be very cautious about amending the terms
of the plan
if you want to preserve the limited grandfather protection provided
by the
Notice. In effect, we have been given a two-year grace period
by the
Treasury and IRS to figure out what to do with existing plans.
Unfortunately, complete grandfathering of existing plans was
not
forthcoming, although the insurance industry, and particularly
AALU, worked
very hard for that result.
6. For plans entered into on or after Jan. 28, 2002, it looks
like
the plan can be designed in two mutually exclusive ways. The
plan can be
structured as an endorsement split-dollar plan, where the employer
owns the
policy and the death benefit is endorsed to the employee (or
his or her
ILIT). The consequence will be the familiar annual economic benefit
("term
cost") method of taxation. However, any rollout from policy values
to end
this continuing and increasing term cost will result in the entire
policy
equity being taxed at the time of rollout ( for income tax purposes
and also
for gift-tax purposes if the policy is owned by an ILIT). Consequently,
an
endorsement split-dollar plan is a plan without an exit strategy,
assuming
the coverage is to continue for life. In this connection, the
annual
economic benefit cost will be measured by the new Table 2001
rates, or some
other later-derived IRS term rates. However, existing insurance
company
alternative term rates can be used (apparently for the life of
the plan) if
the split-dollar plan (you guessed it) is entered into on or
before Jan. 28,
2002. Otherwise, after 2003, carrier alternative term rates must
meet tough
new standards applicable to commonly-sold term policies in order
for the
alternative rates to be used instead of the table rates (assuming
the IRS
doesn't do away with alternative term rates altogether).
7. Alternatively, for post- Jan. 28th plans under which the
employee or trust owns the policy, employer premium payments
will be treated
as loans, with the tax consequences discussed above. In other
words,
collateral-assignment split-dollar as we now know it will become
extinct.
However, there is a question in my mind of whether some more
favorable tax
regime may apply for the period between Jan. 28, 2002, and the
date final
regulations are adopted. AALU seems to assume not, but I'm not
so sure.
We'll have to wait and see whether there are different rules
during this
transitional period.
8. There are a host of other questions left unanswered by the
Notice. For example, the Notice states that the "same principles"
will
apply to split-dollar arrangements in non-employer/employee contexts,
including private split-dollar and corporation/shareholder split-dollar,
but
it doesn't elaborate. The Notice says nothing about reverse split
dollar,
although it permits the continuing use of actual PS 58 costs
to measure
annual economic benefit for split-dollar arrangements entered
into before
Jan. 28, 2002, where the agreement provides that such rates will
be used.
Insofar as survivorship term rates are concerned, the Notice
leaves it up to
taxpayers to figure it out, based on the Table 2001 individual
rates, for
split-dollar arrangements entered into before the date of "future
guidance"
(whatever that means),. Hopefully, insurance companies will help
us in
determining the survivorship term rates to be used before future
guidance.
9. As a practical matter, what are we doing at the present time
about split-dollar plans? First, we're attempting to implement
as many new
plans as possible before the Jan. 28, 2002 deadline. Second,
we're being
very careful not to disturb the grandfather protection of existing
plans.
Finally, we're developing models that are aimed at minimizing
income and
gift taxes in the future, both for existing plans and for new
plans.
10. A final caveat: the preceding comments are based on our
preliminary views of Notice 2002-8, compiled just a week after
the Notice
was issued. They reflect our own opinions, which may not turn
out to be
correct in all respects in light of later developments. I hope
you found
our comments useful.
Nothing contained in this communication is to be considered as
legal or tax
advice.
Michael D. Weinberg, JD, AEP
The Weinberg Group
4025 South Oneida Street, Denver, CO 80237
Tel: 303-692-9599 Fax: 303-753-9580
Email: mweinberg@theweinberggroup.com
Website: http://www.theweinberggroup.com
_________________________________________________
That is it for Report No. 4A. The
full text of all the Reports
will be posted on the ABA RPPT Web
site at
www.abanet.org/rppt.
======================================
MIAMI INSTITUTE GENERAL INFORMATION:
Inquiries/Registration:
Philip E. Heckerling Institute on
Estate Planning
University of Miami School of Law
Center for Continuing Legal Education
P.O. Box 248087
Coral Gables, FL 33124-8087
Telephone: 305-284-4762 / FAX: 305-284-6752
===========================================
Headquarters Hotel - Fontainebleau
Hilton, Miami Beach, FL
Telephone (305) 538-2000, FAX (305)
674-4607
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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 Lexis/Nexis.
For further information, go to
their Web site at http://www.lexis.com.
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.
______________________________________________________
Joseph G. Hodges Jr. Esq., Denver,
CO
ABA-PTL Discussion List Chief Moderator
jghodges@jghlaw.com
http://www.jghlaw.com
URL for ABA-PTL Web-based Archives:
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