Report No. 3 (Tue. 1/15)
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 the Business Succession session that was presented on
Tuesday morning and Jason Havens first report from the Exhibit Hall. The
next Reports will cover more of the Tuesday sessions and some more of Jason
Havens' reports from the Exhibit Hall.
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A News Item: To anyone who is attending the Heckerling Institute this year
in Orlando, please note that there will be a demonstration of Lawgic,
Lawgic's new TemplatesPlus, and its integration with EstateWorks tomorrow
(Wed.), January 16, 2008 at 3:30 PM EST in front of the two booths in the
vendor hall. Our techie reporter Jason Havens will be attending as
well. Please join us at the 3:30 PM break if interested.
A correction: The date of the Recent Developments Report #2 should have
been Monday, January 14, 2008 (not 2007). The developments themselves were
for the most part all in 2007.
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Business Succession or Business Cessation? Passing The Tourch
Without Dousing the Flame
Tuesday, January 15, 2008
Presenter: Charles Clary Redd
Reporter: Carol Sobczak
This excellent presentation focused on the NON-TAX aspects of
business succession planning. This topic is very important to estate
planners since roughly 90% of American businesses are family-owned, but only
30% survive to the second generation, and only 15% survive to the third.
Businesses do not fail because a tax strategy fails, but because of non-tax
issues such as family discord and lack of planning.
Every business needs to have a BUSINESS SUCCESSION PLAN providing
for the orderly transfer of the business to successor owners, including
current operational needs and future goals such as who will CONTROL the
business, who will MANAGE or run the business, and HOW and WHEN the transfer
or transition will occur.
Even if a business owner has the best estate planning in the world,
he should also have a business plan. Business plans differ from estate
plans in that they focus on the one asset the business and how it will
continue and survive in its current form and in the hands of its successors.
The following are considerations in drafting such plans.
Be aware of the players, including the OWNER, whose concerns include
control, income, and his own mortality, the OWNER'S SPOUSE, who may or may
not be involved in the business, but whose concerns are vital to the plan,
and the OWNER'S CHILDREN, who may be active in the business ("insiders") or
not active in the business ("outsiders"). Their concerns and goals may be
quite different, and can lead to major conflicts.
The owner may wish to dispose of the business during his lifetime by
sale or gift to his children. A sale may be more appropriate where the
owner would like some security in retirement, or where the business is a
large part of his estate and not all of his children are insider. A sale
may also be to third parties, such a key employees or even competitors.
When making gifts, consideration should be given as to whether to
give VALUE or CONTROL or both. If the owner is not willing to part with
control, a recapitalization may be warranted to create voting and non-voting
stock. Gift-giving also has estate planning advantages, since lifetime
gifts can reduce the value of the owner's gross estate by removing assets
and appreciation, and may be leveraged if the gifts qualify for discounts
for fractional interests or lack of marketability. WARNING some gifts of
closely-held stock may not qualify for the annual exclusion if they do not
produce income. (See Hackl v. Comm'r, 335 F.3d 664 (7th Cir 2003).
Conflicts are inevitable between insiders and outsiders. Outsiders
may believe insiders' compensation is excessive and outsiders are not being
treated equally. They may question business decisions, especially capital
expenditures. Insiders may believe they are working too hard, deserve more,
and that the outsiders are always asking for a greater return.
Conflicts may also develop between the insiders themselves, so it is
important to decide who will be "the boss" and how the business will be
conducted.
There are four options in disposing of the business to children at
death:
1. Transfer business equally to ALL children. Simple but can be
disastrous.
2. Transfer business to insiders; make equalizing distributions to
outsiders; transfer any excess equally among children. Problems what is
"equal value," what if there are not enough equalizing assets?
3. Transfer business to insiders and make compensating transfers of
other assets to outsiders. No need to be equal, but the concept may not be
OK with owners.
4. Transfer business equally to all children and provide for redemption
provisions in buy-sell agreement or other documents.
Make sure the business has management documents and a buy-sell agreement.
It is wise to use trusts, but consider how to allocate the business
interests among trusts at first death, at second death; who are the
beneficiaries; who are the trustees; what are the dipositive provisions;
what are the prospects for growth, and what are the tax issues (such as
qualification for marital deduction).
Be certain to specifically allow the trustee to hold assets without
diversification. In Uniform Prudent Investor Act jurisdictions, this is
vital because a mere boilerplate authorization is not sufficient to override
the duty to diversify. See Fifth Third Bank v.. Virstar Bank, No.
C-050518, 2006 WL 2520329 (Ohio App, 1st Dist, Sept 1, 2006).
Redd's Four General Principles:
1. Keep outsiders out.
2. Give up the idea of equalization among children.
3. Life insurance may work to fund purchase, compensate outsiders, etc.
4. Use trusts liberally and extensively.
FINIS
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The Vendors - Report #1
Reporter: Jason Havens
This year, we are trying to present topical compilations to report
interesting developments in the technology/vendor area. The first topic
this year is drafting systems. Follow-up comments might be included in
reports later in the week (probably in a final technology/vendor report).
As always, you should check pricing and other details directly with the
vendor. All pricing is based on a single-user annual license unless
otherwise noted. Before you purchase a drafting system, you should always
seriously consider a demonstration/trial to determine if you like the
system.
DRAFTING SYSTEMS
As usual, the Institute offers an array of expert drafting systems for
estate planning lawyers. Here is a summary of the initial round of visits
to these booths.
(1) Estate Planning System (EPS) (http://estateplanningsystem.com) by Thomas
Begley, Jr.:
This system seems to be a new offering. EPS is focused on "Middle Class
Estate Planning" according to its literature. The HotDocs-based system
appears to include a relatively wide range of documents that the user may
assemble, including dynasty trusts, incentive trusts, charitable trusts, and
more. A complete list is available on their website:
http://estateplanningsystem.com/document.php. The system also touts its
"Decision Trees" to guide the user in creating a will (or "simple" will), a
conduit trust (for use with retirement assets), CRTs, a GRAT, an ILIT, a
QPRT, and a third-party special needs trust. The EPS seems to follow the
general WealthCounsel approach in that the drafting system, initial
training, webinars, technical support, and software updates.
Based on the Institute pricing sheet, the "full-blown" package #1 costs
$2,800; the second costs $1997; and the third costs $1497.
(2) Lawgic (http://www.lawgic.com) by Holland & Knight:
Lawgic has added extensive updates to its Florida Wills & Trusts title due
to the implementation of the Florida Trust Code (based on the UTC). Lawgic
also updated its California Wills & Trusts title, which is now being
maintained by Holland & Knight.
Lawgic is offering a new set of templates that make using Lawgic -- drafting
-- much simpler.
Lastly, Lawgic now has a link to EstateWorks. By using the link (which
produces an XML file), you can save time by importing Lawgic answers into
EstateWorks.
(3) WealthDocs (http://www.wealthcounsel.com) by WealthCounsel (WC):
The WC staff has also updated WealthDocs to accommodate the adoption of the
UTC (or a modified version) in numerous states. Other minor updates are
listed in a PDF file that summarizes them:
http://www.wealthcounsel.com/productdescriptions/wealthdocsupdate.pdf.
(4) Wealth Transfer Planning (WTP) (http://www.ilsdocs.com) by Jonathan
Blattmachr & Michael Graham:
The WTP team has added several new options, including the "Extra Crummey
Trust" and the new "Essentials" version of WTP's will, revocable trust,
joint revocable trust, and ILIT. The Essentials version forms have shorter
interviews and are designed for non-taxable estates. WTP also includes
seven more sets of state-specific forms for durable and health care powers
of attorney, a buy-sell agreement, and an LLC operating agreement form.
There are now two versions of WTP: a standard version ($4,195) and a
professional version ($5,445). The primary difference between the two
versions is access to unlimited and content support and also additional
Internet-based training. (All of this was previously sold separately as
"premium support" based on this reporter's recollection.)
For those using or considering TimeMatters, WTP now integrates with that
Lexis-owned practice management system.
Finally, the WTP folks are also hosting an upcoming "boot camp" in Orlando.
If you are interested in a recent, complete review of the latter three major
drafting systems, please see this reporter's November/December 2007 column
in Probate & Property:
http://www.abanet.org/rpte/mo/premium-rp/publications/magazine/2007/nd/TechnologyProbate.shtml
(HTML only -- PDF available for ABA members).
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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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Headquarters Hotel - Orlando World Center Marriott
8701 World Center Drive
Orlando, FL 32821
Telephone (407) 239-4200, FAX (407) 238-8777
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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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