Report Part 19 (Tue. 1/15 & Fri. 1/18)
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.
===========================================================
This Report covers the Friday morning regular session entitled Charitable
Contribution Tax Strategies: Avoiding Near-Death Tax Consequences and Bad
Heir Days and the Tuesday afternoon regular session entitled The ABC's of
529 Savings Accounts Aren't So Simple. The next Report will cover another
Thursday afternoon Special Session on Succession Plans and the Friday
morning Wrap Up session.
===================================================================
CHARITABLE CONTRIBUTION TAX STRATEGIES: AVOIDING NEAR-DEATH TAX EXPERIENCES
AND BAD HEIR DAYS
Friday, January 18, 2008
Presenter: Conrad Teitell
Reporter: Jason Havens
This session opened with Mr. Teitell's preliminary discussion of the
dynamics within the Senate Finance Committee. He mentioned Senator Baucus'
agreement to hold hearings on 11/14/2007 and then a bill/vote before the
Easter recess (4/2008).
Mr. Teitell then covered portions of the substance of his outline. He used
the so-called "Queen of Mean," Leona Helmsley, who died with $5 billion, as
a case study to illustrate the charitable gift planning
rules. Incidentally, Mr. Teitell thinks the press treated Ms. Helmsley
unfairly because nearly all of her estate went to charity ... with "asset
protection" structured for her dog by keeping Trouble's $12 million in
trust! (Mr. Teitell's ever-present humor was sprinkled throughout his
presentation.)
Mr. Teitell covered several points illustrating the charitable remainder
trust (CRT) rules (in the order presented in his outline, although not
numbered to follow the outline):
A. Qualified contingency: Mr. Teitell noted the 5% CRUT for Ms.
Helmsley's two grandchildren. The requirement is that if each of them does
not visit their father's grave at least once per year (e.g., his date of
death), the respective interest will be interest terminated. This
qualified contingency is okay so long as the charitable interest is not
reduced.
B. 10% minimum remainder interest (MRI): CRT term = maximum of 20 years.
Ms. Helmsley's will said okay if disqualified by MRI. If you want to
override the MRI rule, you must so state in the document. General rule: 90
days to reform MRI. "Draconian" IRS Letter Ruling 200414011 to illustrate
MRI rule.
C. Reformation of CRTs and failure to do so within 90 days after filing
date (with extensions) of estate tax return: "'Hail Mary' pass"? Argue
scrivener's error (multiple examples by Mr. Teitell) and generally must
involve attorney general (AG) (a.k.a., "aspiring governor"!).
D. Diversification of investments and trustee's "prudent person/man" rule:
Two cases involving errors (last nine mos): Heirs of P & G and heirs of
Eli Lilly. Each trust said no diversification necessary. One court held
okay, and the other court held must diversify regardless of
waiver/provision. Lesson: DIVERSIFY as soon as possible!
(There was a side joke here about "paranotaries" who parachute down and hit
the ground stamping!)
E. CRUT and wealth replacement life insurance: Malpractice case in MI
Supreme Court re: AmEx advisors and implementation of CRT and ILIT/wealth
replacement. Lady "left the earth" (not simply left home) without issuance
of life insurance policy. Dismissed because son lacked standing. Morale:
Get insurance before signing CRT documents.
F. Marital deduction (citizen spouses): You want to make sure that you
also qualify for the marital deduction because own rules for CRTs, CGAs,
remainder interests in residences/farms, etc. Rule for CRAT/CRUT: For
marital, can only be one beneficiary (spouse) -- add a child and flunk even
though you obtain the charitable deduction. However, you could use a
QTIP/CRUT combo: Pay the spouse QTIP amount for her life and even add
invasion of principal (because even though flunk charitable, all marital
deduction). Then on her (surviving spouse's) death, charitable deduction
based on son's age at that time.
G. Termination of CRTs: Whether you can terminate into private foundation
(PF) v. public charity (briefly mentioned).
Mr. Teitell's closing: Ignorance of the law is no excuse ... not to practice!
Mr. Teitell's outline covers numerous other "hot topics" regarding
charitable gift planning and exempt organizations.
===========================================================
The ABCs of 529 Savings Accounts Aren't So Simple
Tuesday, January 15, 2008
Presenter: Susan Bart
Co-Reporters: Mike Stiff and Carol Sobczak
Ms. Bart's materials consisted of a detailed 67 page outline and a summary
spreadsheet showing the creditor protection afforded to 529 savings
accounts in the various states.
Ms. Bart began her presentation with some statistics about higher education
and its costs. A high school dropout will earn on average approximately
$23,400 annually or $1.2 million over his or her lifetime. A bachelor
degree more than doubles those amounts, a doctorate triples those amounts,
and a professional degree nearly quadruples those amounts to approximately
$100,000 annually and $4.4 million in lifetime earnings. It appears
education does pay and is one of the most beneficial gifts that one can
give to younger generations. The price of education is approximately
$17,336 per year at a public university and approximately $35,374 per year
at a private university. The average time to complete a degree is 6.2
years at a public university and 5.3 years at a private university. The
average increase in tuition prices is 7.1% at a public university and 5.6%
at a private university. Therefore, although the cost of a private school
is nearly double the cost of a public school, the difference is somewhat
diminished by the shorter average period to complete the degree and the
lower annual inflation rate. However, it still results in several hundred
thousand dollars needed in the future to provide a public or private
college education for young children or grandchildren.
The 529 savings plans provide a convenient vehicle to allow parents,
grandparents , and others to save for a beneficiary's future college
expenses. Currently 48 states and the District of Columbia have 529
savings plans. The funds in 529 savings accounts have grown from $200
million in 1998, to $2.6 billion in 2000, to over 52.2 billion in 2004, to
over $100 billion in 2007. There are currently over 7 million 529 savings
accounts in existence.
The advantages of 529 savings accounts include : (1) no income limits on
who may contribute; (2) earnings are exempt from federal income tax; (3)
may front-load with 5 years of annual exclusion gifts; (4) GST annual
exclusion available; (5) beneficiary has no control over funds ; (6)
beneficiary may be changed , with certain limitations ; (7) account owner
may reacquire the funds; (8) funds can be used for education costs not
included under Section 2503(e); (9) if properly structured, funds will not
count against student's financial aid; (10) benefits are available to
adults; (11) education credits still available; (12) state income tax
deduction may be available; (13) creditor protection may be available; and
(14) sunset of 2001 legislation was repealed by Pension Protection Act of 2006.
The disadvantages of 529 savings accounts include : (1) distribution
limitations (only for qualified higher education expenses); (2) excess
funds may be subject to undesirable tax consequences; (3) account
owner may reacquire funds; (4) investment options are limited; (5) donor
lacks complete investment control; (6) there are tax traps for the unwary;
(7) funds may be included in beneficiary's estate; and (8) uncertainty as
to how programs and rules will develop as final regs have not yet been issued.
Ms. Bart also discussed the rollover options and the mechanics of
beneficiary changes as well as the tax consequences. There generally are
no tax consequences from changing the beneficiary as long as (1) the new
beneficiary is a "member of the family" of the old beneficiary (NOT the
donor), and (2) the new beneficiary is assigned to the same generation as
(or a higher generation than) the old beneficiary for GST purposes. It is
important to note that "member of the family" includes first cousins. It
does not include a grandniece or grandnephew, the descendant of a stepchild
or a spouse's niece or nephew. The tax consequences if the new
beneficiary is not a member of the family or is assigned to a lower
generation for GST purposes , may include taxable gifts from either the
beneficiary or the account owner; also, the account owner may have to
include the earnings in his or her gross income and may be subject to
penalties.
Creditor protection is provided by federal law in the case of bankruptcy
under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005;
however, rules against fraudulent transfers still apply. Various
approaches have been taken by the states with respect to bankruptcy
protection. Each state's creditor protection statutes should be reviewed
due to the many differences in protection. As mentioned above, the
materials included a spreadsheet comparing the creditor protections
provided by each state.
While no federal income tax deduction is available for contributions, some
states provide income tax deductions for contributions, often subject to a
cap. In Illinois (like many other states), a state income tax deduction is
available, but only for contributions to an Illinois 529 plan by an
Illinois resident. A class action has been filed challenging the
constitutionality of this deduction. (Maryam Ahmad v. Illinois Dept of
Revenue, Circuit Court of Cook County, filed May 15, 2007.)
Creation of 529 plans is not limited to individuals. They can also be
created by entities, executors, trusts, and UTMA custodians. There are
important considerations to be made in choosing the account
owner. Planning also should consider what should occur if the initial
account owner dies or becomes incapacitated, and who the successor account
owner should be. Note that UGMA/UTMA statutes trump 529 statutes; e.g., a
custodian must always follow UGMA/UTMA rules for distribution and may not
change the beneficiary.
It also became clear that the flexibility provided by having many options
as to who can be the donor, the account owner and the beneficiary also
creates a plethora of special rules and traps for the unwary. Many
questions remain unanswered , and final regs have not yet been issued.
It also was noted that the donor does not have the option to prorate gifts
over a lesser number of years than 5. If a donor contributes $24,000, the
donor can not elect to prorate this amount over two years. If the 5-year
election is made, the donor will be treated as making a gift of $4,800 each
year.
The materials also provided a list of resources including
articles http://www.morningstaradvisors.com
, college cost calculators
http://www.savingforcollege.com comparisons
of 529 plans (<www.collegesavings.org and
other useful links.
The program was true to its title. The presentation and materials were
very educational in teaching the basics of 529 savings accounts, while also
exploring the more complex and technical issues that may surprise the
uninformed practitioner.
====================================================
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.
_________________________________________
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
===========================================
Headquarters Hotel - Orlando World Center Marriott
8701 World Center Drive
Orlando, FL 32821
Telephone (407) 239-4200, FAX (407) 238-8777
==================================================
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.
|
