Heckerling
Institute 2003
Reports from the event, as posted to the ABA-PTL List Serve |
Report #4 - Wed. a.m. 1/8/03
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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.
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.
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REPORT NO. 4 - Wednesday 1/8/3
Worth the Effort Even Beyond the Grave - an Update of Post-mortem
Tax Planning Strategies
Steve R. Akers 1/8/3
The emphasis of the presentation was on current events - Steve has
a 145 page outline and did not try to cover any significant portion
of his materials.
Effect of 2% floor on miscellaneous itemized deductions - §67.
Scott case issued in 2002 was a Virginia case. The
case held that because in Virginia a fiduciary could be protected
by investing in certain statutorily approved investments, that there
is no reason to hire an outside advisor. As such, in Virginia,
any such expense would be subject to §67. There is still uncertainty
in this area.
Steve discussed the new §645 regs. These were also discussed
by Carlyn on Monday. He pointed out many of the differences
between the proposed regs discussed in his materials, and the final
regs.
Alternate valuation date - dealing with assets in a poor economy.
Remember to consider an election under §2032. Also, consider
making sufficient disclaimers or reducing the QTIP election to cause
a small amount of tax to be payable. Remember the issue is
different than several years ago because the estate may pay some
tax now that would not be due at all if the estate tax is repealed.
Deduction of Administrative expenses attributable to QTIP trust
or other non-probate assets. The Grant case (2d Cir,
2002) was discussed regarding the disallowance of administration
expenses and personal representative fees on the decedent’s estate
tax return. Although the case seems to say these were not
deductible due to the fact that the majority of the estate was in
a revocable trust (11000 of 876000), the facts actually indicate
that many of the expenses were not deductible anyway, i.e. expenses
in selling the residence when the estate had adequate cash to pay
the estate taxes. Also, the Maryland statutes limit the amount
of both PR and trustee fees, and those charged substantially exceeded
that amount.
Valuation of disputed claims in an estate. The cases continue
to hold that post death events are not to be considered in determining
the deduction - it is to be determined at the moment of death.
Steve discussed the holding in the O’Neal case. The
11th Circuit held that the IRS cannot even admit
into evidence the fact that the claim was settled for 1/17th of
the amount claimed on the 706. A significant factor is that
the IRS did not put on its own expert in determining the value of
this claim, even though the parties had been ordered to put on evidence
of their positions.
Transfer of an interest in a QTIP trust. This issue arises
when the surviving spouse wants the QTIP assets to go to the children
without waiting for his/her death. If they disclaim this extra
amount in the decedent’s estate there will be estate tax.
An alternative is to leave the assets outright to or in a QTIP trust
for the surviving spouse, who can assign an interest in the property
or trust. This should not be a prearranged event. However,
it uses the applicable exclusion amount of the surviving spouse
rather than causing tax in the decedent’s estate. A proposed reg
was issued this year explaining the tax effects assigning an interest
in a QTIP - Prop. Reg. §25.2511-2.
Steve discussed the valuation issues regarding funding a marital
deduction with assets subject to discounts, where the estate had
control of such assets. The cases governing this issue are
Chenowith, Bellinger, Disanto, etc. Possible
methods suggested for avoiding the problem: Fund the marital bequest
with a note, have someone purchase the minority interest from the
estate within the first six months and elect the alternate valuation
date, fund using a defined value formula conveyance or make these
marital gifts during lifetime.
======================================
From the Far Bank of the River Styx: Post-mortem Estate Planning
with Limited Partnerships
Dan Markstein
1/8/3
Holding or investing in Limited Partnerships by Fiduciaries.
Bogart on Trusts states that retention of such an interest,
without express authority in the governing instrument, could expose
the fiduciary to liability. This is enforced by a similar
ruling by the U.S. Comptroller of the Currency. There are
examples of language authorizing the investment in or retention
of an LP interest in the materials.
There are funding problems associated with LP interests. The
estate must engage an appraiser to determine the discounts, not
only for the estate tax return but also for the funding of the trusts.
Dan also further discussed the Chenoweth problem discussed
by Steve Akers. This should usually not be a problem unless
the discount on an interest used for funding is greater than that
used for the entire interest on the estate tax return.
There are also potential problems with funding a trust with a limited
partnership interest. One of these is reporting income from
the partnership on the trust return where the cash distribution
is less than the income. If the trust has to distribute all
income, then it may not have enough cash left to pay the tax on
the excess income it did not receive. An alternative is to
sell the partnership interest for a note. The value of the
note must be equal to the value of the interest sold. The
materials set out different statutes, regs and cases on valuing
a note. (See, Harper 83 TCM 1641 (2002) discounting
a third-party secured note by 12% for estate tax purposes)
Failure to do so may constitute a gift.
Another issue discussed is whether Regulation U issued by the Federal
Reserve applies to the grant of a security interest in the limited
partnership interest that is sold? Although staff opinions
indicate that this is not true, there does not seem to be solid
authority.
Solutions:
Do
not secure the note with the security interest (the LP)
Enhance
the note - maybe with a guarantee by some of the beneficiaries.
Get
a letter of credit
(This is a complex issue covering about 15 pages in the materials
- get and read the materials)
Paying the estate tax. Dan does not like borrowing from the
LP interest - it goes against the argument that the interest is
illiquid used in the appraisal for the discount.
Possibility
of elections under 6161 and 6166
Borrow
from a bank - without using the LP as security
Variable
rate demand note
He closed by discussing the post-mortem creation of a partnership.
Funding of the marital and by-pass trusts should be completed before
the creation of a partnership to avoid a reverse Chenoweth
type problem. Another question is whether there is a 2519
issue if a QTIP trust is involved in the formation, but FSA 199920016
says not.
__________________________________________
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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