Heckerling
Institute 2003
Reports from the event, as posted to the ABA-PTL List Serve |
Report #2 - Recent Developments
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As we have done in January for the last six 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 week
highlights of the proceedings of the 37th Annual Philip E. Heckerling
Institute on Estate Planning that is being held January 6-10, 2003
at the
Fontainebleau Hilton Resort and Towers in Miami Beach, Florida.
Our on-site local reporters there in Miami this year will be identified
as
their reports are received and published:
We also will be posting the full text of this year's Reports on
the ABA
RPPT Section's Web site, as we have since the 2000 Institute. Those
Reports can be found at URL
http://www.abanet.org/rppt/meetings_cle/heckerling/home.html. In
addition,
each Report can also be accessed at any time from the ABA-PTL Discussion
List's Web-based Archive at URL http://mail.abanet.org/archives/aba-ptl.html.
A complete listing of the proceedings and speakers is available
on the
Institute's Web site.
The URL for that site is http://www.law.miami.edu/heckerling.
===================================================
REPORT NO. 2 - Monday, January 6, 2003 - Recent Developments
The following report has been filed by on-site reporter Eugene
Zuspann II
Esq. of Denver, Colorado regarding the following:
Recent Developments in Estate, Gift and Income Taxation –
2002
Parts One and Two
Carlyn S. McCaffrey
Dan T. Hastings
Howard M. Zaritsky
Materials by Richard B. Covey and Dan T. Hastings
Howard Zaritsky started with an analysis of the estate tax atmosphere
in
Washington (DC) and now feels that there is at least a 50% chance
in the
next few years that Congress will repeal the estate tax.
He discussed the regs on Split dollar arrangements. He feels that
the
final regs will adopt most of the proposed regs. They will affect
any
arrangement other than those with no equity component. He is not
recommending any split dollar arrangements until the regs are finalized
other than those without an equity component. Also, he discussed
the
corporate Responsibility Act of 2002 that states that a public company
may
not extend credit to any executive officer or director and the penalties
and fines associated with this Act.
Dan Hastings - revisited the revised Uniform Principal and Income
Act and
the states adopting unitrust alternatives. He indicated the hardest
thing
is to keep up with the different states. There currently seem to
be 12
states that now have or are considering unitrust statutes.
He also discussed the proposed regs under §643 and the fact
that they have
not yet been adopted as final. The effective date will be the first
year
after the regs become effective. The main issue is whether a state’s
unitrust statute will be within the ambit of the proposed (or final)
regs.
This causes a problem in the estate tax area. A trust which in
grandfathered from GST tax will lose its protection if a modification
proscribed by the GST modification regulations occurs. Income accumulated
under a pre-existing power is grandfathered because the accumulation
is not
a constructive addition, but a modification that adds or enhances
a power
to accumulate income would be a proscribed modification because
it could
increase the property passing to a lower generation. Both the power
to
adjust from income to principal and the conversion to a unitrust
could
result in such an increase, unless the trustee already has the power
to
accumulate income. He is recommending that no adjustments be made
until
after the regs become final.
Next discussed were CRT’s
Atkinson case appeal. A CRT was adopted. The instrument was
proper but the provisions of the trust were not followed. The payments
as
provided were not paid. The court held that failure to comply mandated
a
complete denial of the charitable deduction.
Carlyn -
Final regs under §645 (election to treat trust as part of an
estate) were issued. This is not in the materials because it was
issued
shortly before X-mas [PDF link to the same is in the ABA-PTL
Archives). These include changes to the definitions of a QRT (qualified
revocable trust), the election, TIN and filing requirements and
others. Carlyn pointed out problems with the comments (but not with
the
regs) in the definition of a QRT where the grantor is incapacitated.
She
also discussed those trusts where the grantor is living abroad,
and several
other aspects of the comments. See T.D. 9032 in the Dec 24, 2002.
Federal
Register.
She discussed the Cottage Savings case and PLR 2002231011 and
the
realization of gain or loss on exchange of property interests under
§1001. In this ruling a dispute arose to the administration
of a
trust. The trust provided that the grandson was to receive an annuity
for
life with the remainder to charities. The dispute was settled with
the
charities receiving an amount now with the remaining assets remaining
in
trust. Payments will be made the grandson with the remainder pursuant
to a
general power of appointment in the grandson.. The issue in the
ruling is
whether any party would have taxable income. Anything not appointed
would
go to his descendants. The ruling held that this was a disposition
of his
interest in the trust because his entitlements are different than
those he
currently possesses. Also, any basis assigned to his interest is
disregarded and the gain will be long term capital gain.
Dan Hastings - joint spousal revocable trusts. Two rulings denying
the
step-up in basis for the property of the surviving spouse were issued.
The
authority cited by the rulings is §1014(e). There are two articles
on this
topic in 2002 - one in Probate and Property by Howard Zaritsky and
one in
Estate Planning by Cason. Dan now feels that in certain circumstances,
the
use of this technique may have a chance of success with no downside
potential.
Carlyn discussed the final regs on ESBTs issued this year. She
discussed a
number of provisions in the final regs. The regulations prevent
the use of
currently exercisable powers of appointment. There is not a lot
that can
be done. The regs require a permanent release of this power of
appointment. Also, the final regs permit a grantor trust to elect
to be an
ESBT.
Dan Hastings - valuation cases.
Trusts owning stock will not be aggregated to determine control
unless the
decedent has a general power of appointment. A GPOA will be construed
as
ownership.
In the Estate of Dunn, the issue is the amount of the discount
for built-in
capital gains, or more precisely, how much of a discount should
be allowed
for the tax on such gains. The Tax Court held that some discount
less than
100% rather than 100% of the tax is correct. The Fifth Circuit held
that a
discount of 100% of the tax on the built-in gains was appropriate.
Howard discussing FLP’s.
Appeal of Strangi to the Fifth Circuit. The appeals court supported
the
Tax Court on all issues except 2036, which it remanded to the Tax
Court to
determine whether 2036 is applicable. Howard believes that this
issue is
the most relevant attack by the Service and that will be the only
one that
the Service may win in future cases.
To support the operation of an FLP, minimum documentation should
be
maintained. This includes Minute book.
__________________________________________
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
Web site: www.law.miami.edu/heckerling
E-mail: heckerling@law.miami.edu
===========================================
Headquarters Hotel - Fontainebleau Hilton
4441 Collins Avenue
Miami Beach, FL 33140
Telephone (305) 538-2000, FAX (305) 674-4607
==================================================
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.lexisnexis.com/productsandservices.
The text of these proceedings is also available on CD ROM from
Authority On-Demand by LexisNexis Matthew Bender. For further
information, contact your sales representative, or call (800) 833-
9844, or fax (518) 487-3584, or go to http://www.bender.com,
or write to Matthew Bender & Co., Inc., Attn: Order Fulfillment
Dept.,
1275 Broadway, Albany, NY 12204.
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