Report No. 13 (Wed. 1/16 and Thu. 1/17)
As we have done in January for the last eleven years, and again with the
permission of the University of Miami School of Law Center for Continuing
Legal Education, we will be posting daily Reports to this list containing
highlights of the proceedings of the 42nd Annual Philip E. Heckerling
Institute on Estate Planning that is being held January 14-18, 2008 at the
Orlando World Center Marriott Resort and Convention Center in Orlando,
Florida, a new venue for the Institute starting in 2007. A complete listing
of the proceedings will be published here and is also available on the
Institute's Web site at http://www.law.miami.edu/heckerling.
We also will be posting the full text of each of these 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. 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.
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This Report covers two Wednesday and one Thursday Special Sessions, Retire
from Closely-Held Business and Technology Update. We anticipate that the
next Report will cover more of the Thursday sessions and the Wednesday ever
popular Q&A session. Stay tuned.
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Special Session I-D - All I Want When I Retire Is the Money -- But How Do I
Get It From the Closely-Held Business?
Wednesday, January 16, 2008
Presenter: Donald Jansen
Reporter: Gene Zuspann
Don first finished several items in his materials that he did not have time
to cover on Tuesday.
ERISA pensions plans only apply to employees. Therefore, partners are not
covered. However, a non-partner key employee would be covered. Also, 409A
does also cover contract labor. S-Corps and C-Corps are subject to ERISA.
Issue: a retiring professional receives a buyout that includes a percentage
of the receivables to be collected. This is a common provision. The law
is not clear whether this is deferred compensation. You should consider
qualifying under 409A because often this is not hard.
S-corp with an ESOP. You must be careful if you have a deferred comp
plan. Failure to meet 409A could trigger excise taxes, loss of the ESOP
qualification and also loss of the S-Corp status.
There are two approaches that are not deferred comp. These have some
current tax negatives.
Section 162 executive bonus plans use a whole life or universal life policy
and a heavy buildup of cash value. The tax negative is that the employee
pays tax on all or a part of the premiums. Some companies gross up the
taxable amount so that the employee does not have any cost out-of-pocket.
A variation for key employees is a restricted access bonus plan. This plan
contains a rider on the policy that the employee cannot access the policy
without the employer's consent.
A tax deferred annuity is also an alternative. An employee must own the
policy because there is no tax free buildup for a corporation or a
partnership. The employee pays tax on the entire premium payment and the
employer deducts the premium when paid. Arguably, ERISA does not apply
because there is no deferred comp.
Don then went to his case study. He considered several alternatives where
the parents wish to retire in 10 years, along with a son involved in the
business whom they wish to have the business, and a daughter with no
interest in being involved in the business. The business has two related
divisions, so they hired a non-related friend to manage one of the
divisions and she is critical to the operation of that division and to the
overall health of the company.
A number of alternatives were suggested, both by Don and by the audience.
You could use the excess money in the business to redeem the parents'
stock. However, the company would not receive any deduction for purchase
of the stock, and the parents could no longer be involved in the business
without having dividend treatment on the payments under IRC 302.
The best deferred comp plan for mom and pop - a salary continuation
agreement at the same rate currently being paid. The problem is that this
alternative is awfully expensive and there is a problem with potential
creditors if the son cannot manage the business. The parents have no
security if the business fails and the payments are ordinary income. A
salary continuation plan is a defined benefit plan.
Other alternatives: key person insurance and a tax deferred annuity. A big
problem for the company is that this is a big burden on the company to
perform. They should consider a defined benefit plan. It would be funded
with mutual funds chosen by mom and pop or the key employee. There is no
deferred comp problem because the funds belong to the company. However,
neither mom or pop or the key employee have any security because the money
remains in the company.
Always consider a mix of plans - do not put all the eggs in one
basket. The company can do a deferred comp plan along with an annuity or
insurance plan.
For the key employee, they can consider a phantom stock plan, restricted to
some date or time. It would be tied to the growth of the company. The
disadvantage is that phantom stock is ordinary income when paid to the
employee. A problem with a phantom stock plan is that it is subject to the
creditors of the company and valuation may be a problem. However, an
appraisal may only be needed at the time of the buyout because the key
employee knows or should know about the growth of the business and the
financial affairs. The plan could contain a substantial risk of forfeiture
and vesting, if the parties believe this is necessary.
A stock appreciation plan could also be used. The employee only receives
the growth from a point in time. The problem is that you probably need an
appraisal each time that stock is given. This plan is not as good as a
phantom stock plan.
The easiest way is a plain vanilla defined contribution plan. Each party
probably contributes some money to the plan.
The son also has issues. His problem is that, if the business goes south,
there may be no ability to fund these costs. A possibility for the son is
an executive bonus plan or annuity. Don would probably not do a defined
benefit plan because he will receive the stock anyway and the parents would
not bring any action to collect the money.
Don discussed a problem with an S-corp with an ESOP. If the synthetic
equity (which includes the options, warrants, restricted stock and any
deferred compensation) plus the allocable portion of the ESOP stock exceeds
10%, then the shareholder/employee becomes a disqualified person. If this
happens, then no portion fo the ESOP assets attributable to the S-corp
securities may accrue for that person's benefit during a non-allocation
year. The company must always "run the numbers."
What if they set up a 401(k) plan? If the parents can afford to fully
defer the maximum amount allowed under a 401(k) plan, this would allow a
buildup of $20,500 per person per year (both mom and pop are over
50). They could also pair this plan with a non-qualified plan (called a
401(k) wrap plan) if they can afford to defer more.
After a question from the audience - How can I learn more? - Don suggested
the BNA portfolios, and books by Tompson Publishing and Lou Mezullo's book
published by the ABA.
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Special Session 2-E and 4-D - Technology Update - Time Travels Fast
Wednesday, January 16, 2008
Presenters: Joseph Hodges and Roger Shumaker
Reporter: Gene Zuspann
Every two or three years, Joe Hodges and Roger Shumaker do a program on
what is new or hot in technology for the trust and estate practitioner. The
last update was in 2005. After a brief history of the personal computer
(Joe admitted that he still has an old fully functioning IBM DOS 8086
machine) they started by reviewing changes in products during the last few
years.
The first big change was the purchase of the West Publishing EPS line of
products by Tompson Publishing. These were the old Shephard programs done
by Mark Gillett that included the 706, 709, 1041 and estate accounting
programs. Tompson also purchased the ProBATE software programs that
prepared the same tax returns, an estate accounting program and estate
planning programs. At the time of the purchases, many users were told that
these products would continue to be supported by Tompson and would be
integrated into existing lines of software. This did not happen and these
programs were abandoned by Tompson. As a result, many users abandoned the
Tompson programs.
A number of other programs are no longer produced. These include TrustWise
Gifting Module, Charitable Quick Plan and Advanced and Financial Planning
Solutions and many others.
Several products that do still exist have been acquired from the original
owers: zCalc and Cowles Trust Plus; MMR Software, the maker of EE bond, and
Brentmark software, which was sold and then repurchased.
A new program is GEMS, a re-emergence of the Shephard programs, by Mark
Gillett. The suite includes a 706, 709 and an estate accounting
program. It is bundled, meaning that you purchase all three
modules. Tedec is another estate accounting program that is about to start
advertising its new and significantly improved version in Probate magazine
(the RPPT magazine). Each of these now have interfaces with tax programs
to allow the user to export the information into a 1041 program. Vince
Lackner's 6 in 1 system also still produces a 1041 program but this program
is produced by Vince's team.
Wealth Transfer Planning is now running on the HotDocs platform and
continues to mature through the efforts of Jonathan Blattmachr and Michael
Grahame. Bob Wilkin's Drafting Wills and Trust Agreements is still
produced by West Group and is now using the GhostFill assembly
platform. It has a new author since Bob retired. It continues to add new
forms and materials. Tom Begley added an Elder Law and Estate Planning
System that will now be marketed by Wealth Transfer Planning and he is
marketing his estate planning system in HotDocs through Estate Planning
Systems. Lew Diamond continues to work on the Wealth Counsel programs which
is also adding a new Elder Law module. Lawgic based in Florida was also
demonstrated using their Florida Wills system. WTP, Wealth Counsel and
Lawgic were reviewed by Jason Havens in his technology column in a recent
issue of Probate magazine.
For more and better information on what's happening in the exhibition hall,
please read Jason's reviews - he has spent many hours talking with the
vendors to find out what is new.
Roger and Joe included a chart of all of the Trusts and Estates Law
practice software known to them, along with the website, phone number and
publisher. The list is a great resource for anyone looking for software
and they request that anyone with knowledge of other software contact them
so they can maintain this list.
Joe and Roger then started a short demo and comparison of several of the
programs. They did not have the time to show all (or even many) of the
programs, so they showed a few screens for several of the programs to give
the audience an idea of the look and feel of these programs. All in all,
the screens the user sees are maturing and becoming much easier to
use. Also, both of them included a set of screen shots of various programs
in their materials.
They started by showing the zCalc screens and then switched bank and forth
to the Brentmark Estate Planning Tools, also marketed by Leimberg.com as
Number Cruncher. These are collections of short programs to do quick
calculations for numerous functions. Others programs that can do some of
the same things are Tiger Tables and the Intuitive Estate Planner.
Roger showed several screens in the BNA Estate Planner. He said this
product has matured and has been around for a long time (he started using
it in DOS). It is a very powerful estate planning tool. He generally uses
it to do quick calculations of various estate planning scenarios, but
demonstrated that the program allows the user to input as much detail as
desired. The program inputs the data into the same schedules used on a 706.
Joe showed the ViewPlan product, now marketed by CCH. This program was
originally designed by Ralph Gano Miller to demonstrate the effect of
different plans on estate tax liability using charts. Joe still uses this
program to create a quick demonstration for clients. As with the other
estate planning programs, it has become much more robust and can do a
variety of calculations. CCH markets a standard version and an advanced
version.
Finally Roger showed the IEP (Intuitive Estate Planner) program. This
program is marketed by Tompson. Don Kelly, a Denver estate planning
attorney, is the author. This program is the most complex and robust of
the estate planning programs. Although the program is very complex and
allows the user to input as much detail as desired, it can also be used for
many simple tasks without extensive data entry. Joe showed the list of the
numerous slide shows that come with the program that the attorney can use
to educate the client or group presentations.
They quickly covered a number of other programs. They did not have time to
demonstrate the depth of the programs. The ones that they covered were:
Quickview, by Dan Evans and Steve Leimberg. The purpose of the program is
to allow the user to input a minimum amount of data to produce charts for
the client presentation.
Tiger Tables for quick calculations.
GEMS. This is a very well received, robust set of programs (discussed
above) to produce 706's, 709's and estate accounting. It integrates with
EVP to do security valuations and also exports to a 1041 program.
Roger reviewed Estate Works. This is an information management system for
the estate that allows the user to track estates information and to
generate a number of letters to be sent to clients. Joe pointed out that
this is an ASP system (web based) that keeps all of the information in the
company's computers. This may or may not be acceptable to the attorney.
Joe said this is the only vendor that he knows who is using an ASP model at
this time.
TeDec. This estate accounting program went through a major update last
fall. The program seems to have more depth than some of the other programs.
Document assembly programs:
Wealth Transfer Planning. This program has reached a new level of
maturity. It includes substantial educational information. Roger said
that "it is like having Jonathan [Blattmachr] at your shoulder." It
generates numerous memos that can be sent to clients and has videos
explaining different plans that can be loaded from the web and displayed on
your computer.
Lawgic continues to expand. It has state specific documents for several
states. Holland and Knight have used the platform to create a document
assembly system that is state specific and the authors are nationally known
in the estate planning arena. At the moment, Joe said they have documents
for Florida, New York, California, Georgia and Maryland but are working on
others.
Finally, after a question for the audience about cost, they discussed the
alternative of having a programmer create a system your own forms. Roger's
firm did just this. If a firm feels that they have to use their own forms,
they feel the cost will be between $30,000 and $50,000.
Finally, Joe showed the Kleinrock federal tax expert research software,
after which Roger showed the new Dream Planner software. In the charitable
planning area mention was made of Brentmark's Charitable Financial Planner
and Crescendo Lite. Brentmark also has a newly renamed renamed Retirement
Planner software program.
Since Joe's screen shots did not make it into the proceedings books and
were not delivered in time to be handed out at the first Special Session,
those of you who did not get those can contact the Institute and request
that they be sent to you. Either call 305-284-4762 or e-mail "Hill Chad"
.
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THE REPORTERS
Our on-site local reporters who are present in Orlando this year are Gene
Zuspann Esq. of Zuspann & Zuspann in Denver, Colorado; Joanne Hindel Esq.
of Fifth Third Bank in Cleveland, Ohio; Jason Havens Esq. of Howard, Mobley
& Havens PLLC in Florida and Tennessee; Kimon Karas Esq. of McCarthy,
Lebit, Crystal and Liffman Co., LPA in Cleveland, Ohio; Bruce Stone Esq. of
Goldman, Felcoski & Stone, PA in Coral Gables, Florida; Craig Dreyer Esq.
of McDonald Hopkins LLC in Cleveland, Ohio; Carol Sobczak Esq. of The Law
Offices of Carol A. Sobczak in St. Helena, California; Ronda Martinez Esq.
of Fifth Third Bank in Southfield, Michigan; and Mike Stiff Esq. of
Hutchins & Stiff LLC in Denver, Colorado. The editor again this year will
be Joseph G. Hodges Jr. Esq, a solo practitioner in Denver, Colorado, who
also is the Chief Moderator of the ABA-PTL List.
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GENERAL INFORMATION ABOUT INSTITUTE:
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
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