Heckerling
Institute 2003
Reports from the event, as posted to the ABA-PTL List Serve |
Report #3 - Tues. a.m. 1/7/03
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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. 3 - Tuesday, January 7, 2003
The following report has been filed by on-site reporter Eugene
Zuspann II
Esq. of Denver, Colorado regarding the following:
Adventures in Life Insurance! (And You Thought It Would Be Boring)
Jonathan G. Blattmachr
This presentation covered how to obtain income tax "deductions"
for term
premiums paid, how to avoid GST tax for a life insurance trust without
using GST tax exemption, how to double the power of Crummey withdrawal
rights, and how to plan with split-dollar life insurance.
About 80% of states completely exempt life insurance proceeds from
creditors claims.
Jonathan first discussed the types of life insurance. His conclusion
-
there is only one real type of life insurance and that is term insurance.
Life insurance is the only investment that has tax free compounding
(as
opposed to tax deferred compounding). This is even true in muni
bonds
because the issuer does not pay a rate comparable to a taxable investment,
i.e. the bond has a lower rate.
Jonathan draws life insurance trusts so that the entire gift lapses
in the
year of the gift and the beneficiaries have the right to withdraw
their
prorata share in excess of the 5 and 5 power. This allows the transferor
for generation skipping purposes to change to the children. The
Code
provides that each child’s shares will be considered a separate
trust. This allows the trust to qualify for gst exemption. Jonathan
calls
this technique cascading Crummy powers.
A problem with the above scenario is that, except in 4 or 5 states,
this
trust may be subject to the claims of creditors. Texas has acknowledged
the problem and changed the law to exclude annual exclusion gifts
from
creditor claims.
Next he discussed §264 of the Code stating that life insurance
premiums are
not deductible.
He discussed the benefit of preloading a life insurance policy
so that the
excess cash in the purchase will, with the tax free earnings, pay
for the
policy over the desired term. His example had the insured funding
the
policy with $54,000 so that, with the earnings, the policy would
pay the
$91,000 premiums on a 20 year term policy at which time the insured,
Jonathan, would let the policy lapse.
PLR 9636033
Avoiding the 3 year rule under §2035. There is an exception
for a full and
adequate sale of the policy. This can be done by making sure the
life
insurance trust is a grantor trust, and sell the policy for the
interpolated terminal reserve to the trust.
PLR 9413045
Turning the Tables: When Do the IRS Actuarial Tables Not Apply?
Lawrence P. Katzenstein
This presentation examined when departures from the IRS actuarial
tables
are permitted or required, including situations of under-productive
property and increased risk of mortality, and will consider the
implications of recent decisions permitting departures from the
tables in
valuing the right to receive state lottery payments.
The purpose of this presentation is to analyze when the actuarial
tables do
not or should not apply.
An example when the tables are not used are simultaneous deaths.
They also
do not apply to retirement plans as “those sections [of the
Code] have
their own separate, prescribed rules for determining actuarial
values.” There are also exceptions provided in the regulations.
See
Reg. Section 1.7520-3(a). Most of these deal with different authority
provided by other sections of the Code.
The statutory authority for the tables is under IRC §7520.
Larry discussed
the ability of the service to ignore the tables. The Service has
tried to
bootstrap Revenue Rulings, rather than regulations, to set doctrine
for
ignoring the tables. He does not believe this is correct, and that
the
Service must use the tables in any case in which the regulations
do not
provide an exception
One exception in which the regs are totally silent is the creditworthiness
of the payor in an annuity situation, i.e. an annuity from Enron.
Another
area is that of trust exhaustion. The materials cite Estate of Benjamin
Shapiro, which is a 2013 credit case. In this case, the Service
argued
that the trust would be exhausted within 4 years. The Tax Court
held that
the tables must be used. The regulations were changed, but Larry
still
believes the regulations are wrong. The regs conclude that if the
trust
will be exhausted, the gift to the remainder beneficiaries will
go up, but
the value of the gift should go down. Larry concludes that the correct
answer is to take into account the life expectancy of the beneficiary
and
the payment to the beneficiary, capped by the amount going into
the trust.
Another situation is that of underproductive property. If the property
in
the trust does not produce income, i.e. closely held stock paying
no
dividends in which the beneficiary does not have the right to make
the
property productive, then the tables may not be used. Larry pointed
out
the O’Reilly case in the Eighth Circuit holding that the tables
could not
be used where the dividend rate was far less than the 10% interest
rate
assumed by the tables. This is a pre-7520 regulation case.
The next situation that has little litigation or ruling activity
is when
the mortality tables cannot be used because of the physical condition
of
the measuring life. The regs provide that if the individual is known
to be
terminally ill, the tables will not apply. The regs do provide a
rebuttable presumption that the tables may be used if the person
survives
for 18 months.
Another problem area is where the decedent has won the lottery
but dies
before receiving full payment. There are a number of cases that
hold that
the estate does not have to use the tables. This departure from
the tables
is surprising and the practitioner needs to read the cases if the
issue
presents itself.
__________________________________________
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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