Wills, Trusts & Estates Prof Blog

Happy New Year

As you are probably aware, this blog attempts to serve as a central site to locate and explore comprehensive materials to enhance your teaching of courses that address intestate succession, wills, trusts, estate administration, non-probate assets, planning for disability, and other matters pertaining to estate planning. A wide range of materials are presented including reference, practical, academic, scholarly, pedestrian, historical, current, etc.

I encourage you to make suggestions and recommendations for materials to be included on this blog. Unless otherwise requested, I will acknowledge your contribution in my blog entry.

Also, have you recently:

• published a book or article?
• made an interesting presentation?
• received a noteworthy appointment?
• accepted a position at a different school (permanent or visiting)?

If yes, please consider submitting a summary of the book, article, activity, etc. and I will be post it to this blog. I am sure your colleagues would be interested -- I know I am!!

Best wishes for 2012,

Gerry

P.S. For my non-law professor readers, I also encourage you to submit items which you think may be of interest to blog readers. Your support, input, and readership are greatly apppreciated!!

Pros of Intentionally Defective Grantor Trusts

Many planners will advise wealthy clients to set up an irrevocable life insurance trust (ILIT). But with this plan, the clients have to gift money in premiums to an ILIT and pay gift-taxes on that money or use their lifetime gift tax exemption.

A way to obtain life insurance without worrying about taxable gifts is to use an intentionally defective grantor trust (IDGT). Essentially, these IDGTs create a family bank for heirs that would be funded when the clients die. Many clients set these up to be a lending source for the whole family in the future.   

For an example that further explains IDGTs, please visit the following article: 

See Roccy DeFrancesco, Using IDGTs to Create the Family Bank Through the Tax Favorable purchase of Life Insurance, Family Bank, Nov. 2, 2011.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this article to my attention. 

Survey Reveals Estate-Planners are Concerned But Optimistic

Wealth Counsel and Trusts & Estates recently conducted a survey to discover how estate-planning professionals view the nation’s economy and the partisan gridlock on Capitol Hill. Respondents included estate-planning attorneys, certified public accountants, certified financial planners, registered reps, and insurance professionals.  The survey revealed that estate-planners are not optimistic about the nation’s economy, but the majority of the estate-planners are still optimistic about the future of their practices and careers. Some of the data revealed in the survey is below:

• One in five respondents reported that many of their clients have gone out of business.
• Forty percent of respondents stated that business clients have postponed the hiring of new employees.
•  Fifteen percent of married clients have an average net worth of $5 million or more, and 23% had an average net worth of less than $500,000.
• Only 29% of baby boomers are adequately prepared for retirement.
• Ninety-one percent of respondents believe the budget deficit will necessitate future tax increases.
• Seventy-one percent of respondents believe outsourced jobs need to return to the U.S.
• Thirty-eight percent of respondents have clients who have expressed concern and panic due to the decrease in their real estate assets.
• Thirty-five percent of respondents had clients who had lost a home or business as a result of foreclosure.
• Seventy-three percent of respondents believe that financial illiteracy of American consumers played a role in the subprime mortgage crises.
• Forty-three percent of respondents have witnessed a revenue decline or no change in revenue, but 89% expect to see their practice grow over the next five years.

See Matthew T. McClintock and Jonathan A. Mintz, Estate-Planning Professionals: Concerned Yet Optimistic, Trusts & Estates, Nov. 23, 2011.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this article to my attention.

Fourth Annual Estate Planning & Community Property Law Journal Seminar

The Estate Planning & Community Property Law Journal at Texas Tech University School of Law will host the Fourth Annual Estate Planning & Community Property Law Journal Seminar on February 24, 2012. Attendees will receive 5.57 CLE or CPE hours and 1 ethics hour. A description of the seminar and a list of the speakers and their topics are below:

• Once-in-a-lifetime chance to learn from top estate planning professionals nationwide
• Speakers also include leading Texas practitioners, nationally recognized professors, and student editors from the Estate Planning & Community Property Law Journal
• This is an invaluable opportunity to network with professionals within the estate planning community Reservation includes a subscription to the Estate Planning & Community Property Law Journal

Speakers Include:

• Professor Ira Mark Bloom (Justice David Josiah Brewer Distinguished Professor of Law, Albany Law School): Powers of Appointment Under the Restatement (Third) of Property (Wills and Other Donative Transfers)
• Professor Jeffrey N. Pennell (Richard H. Clark Professor of Law, Emory University School of Law): A Prescient Look at the Future of Estate Planning
• William D. Pargaman: (Texas practitioner, Brown McCarroll, L.L.P. Texas Board of Legal Specialization, certified specialist in Estate Planning and Probate Law): What Has The Legislature Done To Us Now? (Don’t Worry – It’s Not Too Bad!)
• Professor Gerry W. Beyer: (Governor Preston E. Smith Regents Professor of Law, Texas Tech University School of Law): Morals from the Courthouse: A Study of Recent Texas Cases Impacting the Wills, Probate, and Trust Practice
• Mike V. Bourland (Texas practitioner, Bourland, Wall & Wenzel, P.C.) and Dustin G. Willey (Texas practitioner, Bourland, Wall & Wenzel, P.C.): Estate and Income Tax Planning with Mineral Interests

For a pdf. version of the Seminar's brochure and registration form, click here: Download 2012 Brochure and Form

 

Planning for Wealthy Immigrant Clients

When working with wealthy immigrants as a financial planner, planners should realize that they should be providing “family-style” attention. You have to meet your clients in person because they are more inclined to give money to people they know. One planner attends client family weddings and parties to know his clients more intimately.

Many immigrant clients do not want to declare everything that they own, so they do not get the maximum tax deductions that they could. When clients come in with this mindset, it is helpful to point out the section of the U.S. Code that makes lying to the government a punishable offense.

Another wrinkle with immigrant clients is that some of them will want their wealth to be managed according to their religion. Many mainstream investments may be in violation of Islamic precepts or other religious beliefs, so one planner considers this wealth management to be “challenging and interesting.”

Since many clients will still have strong connections with their home countries, planners should become skilled with cross-border estate planning and rules for charitable giving overseas.

Karen E. Klein, Financial Planning, American-Style, Financial Planning Magazine, Nov. 1. 2011.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this article to my attention. 

Note on LLC and Cannon v. Bertrand

Jonathan J. Rose (J.D. Candidate, LSU Paul M. Hebert Law Center) recently published his note entitled Time For a New Plan: The LLC is a Better Option For Estate Planning After Cannon v. Bertrand, 71 La. L. Rev. 1029 (2011). The introduction from the note is below:

As the old saying goes, the only two things certain in life are death and taxes. But individuals can never be certain about the tax consequences that accompany death. The desire to reduce tax liability upon death and subsequently increase the value of assets transferred to surviving family members leads many people to actively manage their estates. Active management reduces the uncertainty associated with the taxes levied on a decedent's estate.

There are several useful methods available to reduce estate tax liability, including the family limited partnership. Individuals transfer assets to the family limited partnership in exchange for interest in the partnership.¹ The value, and resulting tax liability, for the partnership interest is generally lower than the aggregate value of the assets valued separately because the IRS permits the application of discounts to business interests to reflect lack of control, illiquidity, and lack of marketability.² Maximizing the amount of discounts applied to assets in the estate is a major goal of estate plans.³ Although death and taxes are certainties, discounts can be used to decrease the tax consequences of death.</p>

The value of these partnership interests is largely dependant on the rights held by the owner under state law.⁴ Louisiana partnership law states that a partner ceases to be a member of the partnership at death, and at death, the partner's successors are entitled to the value of his former share.⁵ State courts have determined the appropriate method for assigning value to the shares. Prior to the recent Louisiana Supreme Court decision in Cannon v. Bertrand,⁶ the court determined that fair market value *1030 was the proper valuation method.⁷ Under this method, family estate plans were still able to utilize the partnership as a means of achieving value-reducing discounts. The Cannon court, however, deviated from the manner in which partnerships were valued in prior partnership valuation cases.⁸ The type of valuation used by the court in Cannon increases the potential judicial award for the interest of a withdrawing partner.⁹ This decision is also likely to increase the value of a deceased partner's former interest for estate tax purposes.¹⁰ The potential increase in value of partnership interests makes the family limited partnership a less attractive option for estate planning.¹¹

The limited liability company (LLC) is a more effective estate tax planning tool post-Cannon.¹² Although the extent to which Cannon will affect future partnership valuation is uncertain, the probable result is a higher valuation placed on partnership interests.¹³ However, the law on LLC interest valuation after death is different from the law for standard partnerships.¹⁴ This difference makes the Cannon decision inapplicable to LLC valuation upon death, meaning Louisiana LLC interests will still be eligible for the valuation discounts that are desirable in estate planning. The uncertainty surrounding partnership valuation post-Cannon can be avoided through the use of LLCs in estate planning.

Part I of this Note discusses relevant partnership withdrawal law and the judicially crafted valuation method that existed prior to the Cannon decision, as well as relevant estate tax law. Part II presents and analyzes the Cannon decision. Part III explains the effects of state law on estate tax and examines the effects of Cannon on the valuation of partnership interests for estate tax purposes. Part IV discusses the family limited partnership and presents the limited liability company as a more effective estate planning alternative post-Cannon.

Forms For Purchase in 2012

The ALI-ABA has released its online forms library update for January 2012. The following forms will be available:

• Buy-Sell Agreements (includes checklist and sample agreements) - $39
• Getting the Family Business Ready to Sell - $39
• Buy-Sell Agreement - $19
• Mergers &Acquisitions of S Corporations: How to Structure the Deal - $39
• Sample Disability Guidelines for Clients with Pets - $19
• Marketing Brochure Sample for Pet Trusts - $19
• Pet Alert Card - $19
• Sample Comprehensive Pet Trust - $19

To purchase these agreements, you can visit the following link: ALI-ABA Forms 

Recreational Path is An Exempt Purpose

A private foundation built a path on an island that only had one paved road previously. The path was made to provide safe access for pedestrians and bicyclists to “private” portions of the island. The agent who examined the path thought that access was too limited. The National Office disagreed and said that the resident population of the island along with the population of the municipality that the island was a part of is a large enough community for the path to be considered as a benefit to the general public.

The recent technical advice memorandum based on the facts above states that a private foundation can keep its exempt status when it builds and maintained a recreational path limited to residents of the municipality.

See TAM 201151028 (Sept. 23, 2011); see also TAM 201151028 – Maintaining Recreational Path is an Exempt Purpose, CharitablePlanning.com, Dec. 27, 2011.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this article to my attention. 

Case Study on Purchasing Life Insurance

An overview of a case study provided by Peter C. Katt (life insurance provider and sole proprietor of Katt & Company, Kalamazoo, Michigan) is below. The case study is intended to help individuals understand issues they can use in their own life insurance purchases.

Doug (72) and Helen (71) considered purchasing $50 million of life insurance in 2007 and sought to purchase the life insurance and receive advice from the son of Doug’s long-ago college roommate, Marty. Marty suggested that the couple buy no-lapse UL policies with premiums guaranteed until Helen reached age 100. The premium amounts did not appeal to Doug and Helen, but Marty convinced the couple that they could reduce the amount of life insurance and premiums by selling them in the life settlement market. In 2011, Doug and Helen could not continue with their current premium burden, so they hired Katt. A list of a few of the problems surrounding the couple’s life insurance purchase is below:

• Marty was inexperienced and unable to put together this program. Clients should be very wary of buddy-buying.
• Clients should not buy life insurance amounts that border on or breach the client’s tolerance for premium amounts.
• Marty failed to consider other options of life insurance, instead focusing only on level death no-lapse UL with premium and death benefit guaranteed to age 100.
• In 2011, Doug and Helen reduced the amount of life insurance by $20 million (40%), and the policy has no surrender value because of surrender changes. Therefore, the possibility of selling off their policies was nonexistent because they were both in the same good health as they were at the time they purchased the policies in 2007.

See Peter C. Katt, Life Insurance Options, and What Lies in the Shadows, Journal of Financial Planning, Nov. 2011.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this article to my attention.

How the Model Rules of Professional Conduct Govern a Firm’s Website

David A. Grossbaum (Attorney, Boston, MA) gave a presentation on avoiding malpractice in the internet age during the National Academy of Elder Law Attorneys’ 2011 National Aging & Law Institute. Grossbaums’ lecture focused on helping attorneys avoid putting something on their websites or other electronic communication that could be the basis of a malpractice claim.

Model Rule 7.1 of the Rules of Professional Conduct states that an attorney must only put accurate information on the internet. Grossbaum suggested that attorney keep copies of different versions of the firm’s web site and to make sure that internet information is accompanied by the author’s contact information, date the information was last reviewed, and a disclaimer.

Model Rule 1.18 (Duties to Prospective Clients) may govern an attorney’s inquiry into a visitor of the firm’s web site. This rule arises when a person “discusses” the possibility of creating an attorney-client relationship with the attorney. The ABA has stated that a web site that invites visitors to submit information regarding a possible attorney-client relationship is a “discussion” as found in Rule 1.18. Graossbaum stressed the importance of using disclaimers on a firm’s website that inform visitors that any unsolicited information will not be kept confidential and that the firm retains the right to represent the visitor’s adversary. Grossbaum noted that “click-through” disclaimers help ensure that visitors are not misled while visiting the site or sending information.  

See Avoiding Malpractice in the Internet Age, ElderLawAnswers, Dec. 02, 2011.