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Educational Alerts
Educational Alerts are written on topics that effect various aspects of estate planning and the laws that govern it. They are usually published and posted to this site at the end of each month. Occasionally newsworthy events will initiate the release of additional alerts at the time the news breaks. The purpose of an Estate Planning Update is to bring important information to the financial advisors in the community. Our hope is that this information better equips you to assist your clients.

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Tax Court Unanimously Validates Formula Clause
The Alert examines a powerful planning tool, valuation clauses, the use of which was recently approved by the Tax Court.

Estate Planning Update
The Alert examines legislation pending in Congress which would extend 2009's $3.5 million applicable exclusion. The Alert goes on to discuss how the Service is handling estate and gift tax audits.

To download the referenced report Description and Analysis of Alternative Wealth Transfer Tax System, use the link below.

Description and Analysis of Alternative Wealth Transfer Tax System Report: http://www.house.gov/jct/x-22-08.pdf

Tax Court Issues Favorable Family Limited Partnership Ruling!
In a recent decision, the Tax Court sided with the taxpayer in a case involving a Family Limited Liability Company and a transfer near death.

Two Rulings of Interest on Retirement Assets PLR 200807025 and PLR 200811028
This Alert examines several private letter rulings in which the Service examines the complicated area of beneficiary designations for qualified plans and IRAs.

Congress Passes Economic Stimulus Package - Future of the Estate Tax Will Not Likely Be Resolved Until After the Presidential Elections
This month's alert highlights the recently enacted Economic Stimulus Act. The Alert covers the rebate provisions for individuals as well as the incentives for small business owners and closes with a comment that is unlikely we will see any "fix" of the current estate tax regime until after the election of a new President.

Retirement Asset Update - Non-Spousal Rollovers
The Alert examines two issues. First, it examines Congress' attempt to mandate allowing non-spousal rollovers and how the IRS continues to interpret the law to allow but not mandate such non-spousal rollovers. Second, it examines how new "wash sale" rules do not allow you to get the benefit of a loss if you sell an asset and then quickly re-purchase it in your IRA.

2008: The Calm Before the Storm
The article examines the upcoming uncertainties and scheduled changes in the laws concerning estate and gift taxation.

The Estate That Would Not Die
The recent litigation surrounding the publicity rights of the remainder beneficiary of the estate of Marilyn Monroe illustrates some of the problems with probate administrations and how a trust can help avoid some of these entanglements.

Court Approved Reformation Fails to Gain Approval from the Internal Revenue Service
The article looks at a recent reversal by the IRS on the issue of allowing non-spousal rollovers of retirement plans into IRAs. Then the article examines one private letter ruling in which the IRS did not allow the mistaken omission of a contingent beneficiary to be corrected. The primary beneficiary had predeceased. The result was that the assets in the retirement plan had to be withdrawn more quickly, thus depriving the beneficiary of the full extent of the tax deferral which would have been allowed had the contingent beneficiary been named.

Charitable in Death: Will Leona Helmsley's Testamentary CRTs Qualify for an Estate Tax Charitable Deduction?
This article examines Leona Helmsley's Will and the Trusts which it creates. It examines some of the oddities involved, including gifts to her dog and the disinheriting of some grandchildren.

Court Upholds Trust Nominee Clause and Finds No Revocation Where the Formalities of Revocation and Amendment Were Not Followed by the Surviving Trustor
During the course of a long marriage, George and Barbara Heaps executed a joint revocable living trust with both spouses acting as co-trustees. It provided that the trust would split into two trusts, a “family trust” and a “marital trust,” after the death of the first of them. The surviving spouse would act as co-trustee over the “family trust” with George and Barbara’s son and son-in-law. The surviving spouse would serve as the sole trustee over the “marital trust.”

Disclaimer Proves Fatal to Estate Plan
Mr. Katz executed a will in 1991 that called for the creation of a "pecuniary credit shelter trust" equal to the amount of the "aggregate federal estate tax exemption equivalent." The will language further provided that the credit shelter trust "shall not be reduced on account of any disclaimer by my wife." Finally, another provision in the will stated conflicting provision in this will, "if my wife disclaims any interest in any portion of the property otherwise passing outright to her under this Article of my will, such portion shall be added to the [credit shelter] trust." The purpose of the credit shelter trust created under Mr. Katz's will was to place an amount equal to the amount that can pass free of estate tax into trust so that it would eventually pass to his children without being subject to estate taxes in his wife's estate.

Bank and Trust Officer Held Liable for Estate Tax
Learn the facts as well as lessons that should be learned from the case of Hatleberg v. Norwest Bank Wisconsin, 678 N.W.2d 302 (Wis. App. 2/24/2004)

Internal Revenue Service - 1, Taxpayers - 1, Third Set Remains to be Played!!!
On September 1, 2004, the long awaited decision of the Third Circuit on the Thompson FLP case was released (Turner v. Comm’r., 94 AFTR.2d 2004-5764 (3rd Cir. 2004), aff’g Thompson v. Comm’r., TC Memo 2002-246 (The case was appealed by Mr. Thompson’s executor, Betsy Turner, and thus the name change). Encouraged by the Fifth Circuit’s favorable decision in the Kimbell case (reported in our May 2004 Fax Alert), many estate planning attorneys were hoping for another taxpayer victory. But that was not to be with Thompson, as the Third Circuit upheld the Tax Court’s decision in favor of the Internal Revenue Service. The score is now tied while estate planners wait for the decision in the appeal of another important FLP case, Strangi v. Comm’r., to emerge from the Fifth Circuit.

IRS Scores Family Limited Partnership Victory
In a new case, the IRS has had new success in attacking FLPs using Section 2703.

IRS Blesses Planning With Grantor Trusts In Revenue Ruling 2004-64
The IRS, with its release of Revenue Ruling 2004-64, has given its approval to the use of grantor trusts as an income and estate planning strategy and it has removed any confusion as to whether the trust must contain a provision for the reimbursement of income taxes paid by the grantor.

Mistake in Preparing Estate Tax Return Costs Taxpayer:IRS Provides No Relief
The facts in PLR 200422050 are as follows: a decedent’s will left her estate in trust for the benefit of her husband. The trust provided that the husband was to receive all income from the trust and he could compel the trustee to make trust assets productive. As a result of these provisions, the trust would qualify for the federal estate tax marital deduction under IRC § 2056 as a qualified terminable interest property (“QTIP”) trust if the executor made an election under IRC § 2056(b)(7).

IRS Suffers Big Blow in Fifth Circuit Reversal of the District Court Holding on Kimbell FLP Case
On May 20, 2004, the Fifth Circuit Court of Appeals reversed the grant of summary judgment for the government in the U.S. District Court case of Kimbell v. United States, 244 F. Supp.2d 700, 91 AFTR.2d 2003-585 (N.D. TX 5/14/2003).

Failure to Qualify for Marital Deduction Can Cost Hundreds of Thousands
The amount that can be given at death free of estate taxes in 2004 is $1.5 million. With proper planning, a married couple can double that amount to $3 million. Where an estate is greater than $3 million, the estate tax on the excess can be deferred until the death of the surviving spouse, but only if proper planning is put in place. This is because of the unlimited federal estate tax marital deduction. Where the first spouse to die wants to control where the excess assets go after the death of the surviving spouse (by giving the surviving spouse only a life estate in the excess assets), a special kind of trust, known as a Qualified Terminable Interest Property Trust (or QTIP Trust) must be used.

Friday the Thirteenth Bad Luck for Life Insurance in Section 412(i) Plans
Friday the Thirteenth was truly unlucky for certain life insurance arrangements, because the Treasury issued two Revenue Rulings, a Revenue Procedure, and a set of Proposed Treasury Regulations designed to eliminate perceived abuses in the use of life insurance in certain retirement plans described in Section 412(i). Note, however, that the scope of the guidance goes far beyond 412(i) plans - and even beyond retirement plans.

Ninth Circuit Court Affirms Asset Protection for Trust Beneficiary
One of the advantages of establishing trusts for beneficiaries as opposed to outright distributions is asset protection. In the case In re John and Holly Coumbe, Debtors, a Bankruptcy Trustee sought to include the assets of a testamentary trust created by the debtor’s mother in his Chapter 7 bankruptcy estate. The Court held the trust assets were unavailable to the debtors’ creditors.

Limited Liability Company Provides Answer to Trust Termination

It is becoming more common to leave assets at death in trust for children and other beneficiaries. In many instances, this strategy affords the beneficiaries protection from creditors and protection of their inheritances from divorcing spouses. When trust assets consist of business holdings, real estate or a diverse portfolio of securities, it also provides for centralized management and potential economies of scale.

Important Estate Planning Numbers for 2004
Starting in 2004, the estate tax and gift tax systems are no longer in pari materia. How will this affect your clients giving?

Distributions from Retirement Plans or Individual Retirement Accounts Can Reduce or Eliminate Estimated Tax Underpayment Penalties
Seniors and self-employed individuals often complain about having to make quarterly estimated income tax payments. Failure to make the payments can lead to underpayment penalties and interest (calculated using the federal short term rate plus an additional three percent) having to be paid on income taxes due.

HIPAA Protected Health Information Provisions Become Effective – Clients Need to Take Action Now
On April 14, 2003, the privacy provisions of the Health Insurance Portability and Accountability Act of 1996, Pub. L. 104-191, 45 CFR §§ 160–164, affectionately dubbed HIPAA, went into effect. The new regulations have caused much turmoil among "covered entities" (e.g., doctors, hospitals, nursing home facilities, and insurance companies), as they will now, for the first time, be subject to federally imposed sanctions and monetary fines for unauthorized disclosure of "private health information." The new law has caused many health care providers to clamp down on the release of medical records and other health care information to anyone other than the patient.

Ninth Circuit Includes Gift Tax Paid by Wife in Husband's Estate
The opinion in Brown v. United States, 91 AFTR.2d 2003-2085 (9th Cir. May 1, 2003) opens with the following truism: "The estate tax combines into one sad transaction the only two certainties in life." Brown is very important because it applies the step transaction doctrine to defeat an estate tax planning strategy between husband and wife.

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