News from Heckerling

Two Trusts & Estates board members share their observations

Heckerling 2011 in Orlando, Fla. is getting underway and we had the opportunity to sit down with two of our esteemed editorial advisory board members, who will be presenting at the conference.

Carlyn S. McCaffrey is partner at Weil, Gotshal & Manges and chair of its Estate Planning practice group. She is on the Estate Planning & Taxation committee for Trusts & Estates.
Turney P. Berry is a partner at Wyatt, Tarrant & Combs LLP where he chairs the Tax, Business & Personal Planning group. He is a member of the Estate Planning & Taxation committee for Trusts & Estates.

Carlyn S. McCaffrey
McCaffrey is speaking today, Jan. 11, on “Formulas to Protect Against Transfer Tax Risk.” She told us that her focus will be how the transfer tax risk of valuation uncertainty can be effectively eliminated by the use of formula clauses that define the amount of property being transferred. She hopes that planners will learn to use the formula clauses routinely in most cases when lifetime transfers of hard-to-value assets are being made.

McCaffrey predicts that taxpayers will be making substantial additional gifts over the next two years while the gift tax applicable exclusion amount remains at $5 million. So there will be many more instances in which a transferor should be using defined value formula clauses. McCaffrey said because the exemption was raised to $5 million, people will undoubtedly be making more lifetime gifts, creating more opportunities for planners to help structure those gifts.

McCaffrey is most enthusiastic about Michael J. Graetz’s presentation, “The Politics and Policy of the Estate Tax—Past, Present and Future,” which is the first of the Lloyd Leva Plaine distinguished lecture series, established in memory of the renowned estate planner and former Trusts & Estates board member who died last year. McCaffrey is working with the series organizers to raise money for a permanent endowment. McCaffrey expects the series to provide very important insights into the politics that have caused the transfer tax system to be shaped the way it is today.

The hottest topic this year at Heckerling, according to McCaffrey, will be the 2010 Act and the substantial changes it has made. For instance, she thinks portability is another big issue that many people are talking about, but it’s unclear how to advise your clients about it since it will be disappearing in two years.

Turney P. Berry

Berry will speak on Thursday, Jan. 13, on “The Whether, Why, Whom, What, and When of the Trustee’s Duty to Notify Beneficiaries.” Berry explained that a trustee’s obligations include notifying beneficiaries of the existence of a trust and their rights in connection with such trust. This can lead to complications if the grantor of a revocable trust changes the terms or beneficiaries of the trust. When does the trustee have the obligation to notify the beneficiary who is being removed? This issue came to a head in the Kentucky case JP Morgan Chase Bank, N.A. v. Longmeyer (275 S.W.3d 697 (Ky. 2009)). In that case, a widow’s caregiver authorized an attorney to alter a revocable trust to exclude certain charities. The trustee bank notified the charities of the change. The charities challenged the new estate plan alleging undue influence and their case was settled, but subsequently the attorney for the caregiver sued the trustee bank alleging breach of fiduciary duty on the bank’s part on the basis that the charities wouldn’t have discovered their ouster as beneficiaries had the bank kept quiet. The Kentucky Supreme Court, somewhat shockingly, ruled for the bank, holding that a trustee is obligated to notify the beneficiaries of a change in all situations and not only under suspicious circumstances. Subsequently, the Kentucky legislature passed a statute negating Longmeyer by saying that a trustee now has no obligation to the beneficiaries unless it determines the settlor is incapacitated.

Berry notes that very little case law exists on the issue of when a trustee is obligated to notify beneficiaries of changes. So, practitioners don’t have much guidance on this issue.

Berry is most excited to hear Carlyn McCaffrey’s presentation on formula clauses. He gives credit to McCaffrey for having done most of the comprehensive work on the topic and opening everyone’s mind to formula clauses. He’s used them successfully in his practice to equalize the amount of money in trusts for the benefit of grandchildren of various ages. By using formulas, he was easily able to level the amounts in a complicated situation and make everyone happy.

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