April 2008

A summary of articles appearing in the April 2008 issue of Trusts and Estates magazines.

On The Cover

Alexej von Jawlensky’s 1910 oil painting “Schokko Mit Tellerhut” (“Schokko with Wide-Brimmed Hat”) says “springtime” to us. To the art world, it says “mega bucks.” The work set a record price for the artist by selling for a whopping $19.021 million at Sotheby’s “Impressionist and Modern Art Evening Sale” on Feb. 5, 2008, in London. According to Sotheby’s, a European private collector was the winning bidder.

Jawlensky, an expressionist painter, the son of aristocrats, was born in 1864 in Russia. He died in 1941 in Germany, where he made his fame.

It was in 1896 when Jawlensky was in his early thirties that he moved from Moscow to Munich. In Germany, he met the famous Russian painter Wassily Kandinsky. Kandinsky, Jawlensky and others formed the “Munich New Artist’s Association” to study painting and show art in alternative venues. Their first exhibition in 1909 met with overwhelming negative press. Their second included works by Pablo Picasso and Georges Braque. Their third led the group to split into factions.

Also featured in this issue:

• p. 36—Edgar Degas’ circa 1896 painting “Danseuse rajustant sa sandale” sold for about $9.775 million. (Images: Courtesy of Sotheby’s)


12/ Tax Law Update

David A. Handler, partner in the Chicago office of Kirkland & Ellis LLP, reports on:

• Notice 2008-32—The Internal Revenue Service issues interim guidance to address the treatment of a bundled fiduciary fee. Final regs won’t be issued before the due date for filing 2007 income tax returns and will apply only prospectively.

• Citizens for Tax Justice Study—Group finds that estate tax repeal is costly and benefits few.

• IRS announces it won’t acquiesce in Kohler—In Action on Decision (AOD) 2008-1, the Service puts taxpayers on notice that the Kohler issues are not decided for all time.

• Tincy Anthony v. United States—Fifth Circuit finds Internal Revenue Code Section 7520 tables were properly used to value annuity.

14/ Say Hello to the L3C

David T. Leibell & Daniel L. Daniels, partners in the Stamford, Conn., office of Wiggin and Dana LLP, report that several states are on the verge of inaugurating a new type of low-profit entity, the L3C, that could make it possible for many foundations to practice venture philanthropy.


Estate Planning & Taxation

18/ Sharing Exemptions? Not So Fast . . . By Charles A. Redd

Private letter rulings seemed to suggest less wealthy spouses’ estate tax applicable exclusion amounts could be used even if those spouses died first and hadn’t received lifetime transfers from their wealthier spouses. Estate of Lee strongly suggests otherwise. The Tax Court found that a bequest to a predeceased spouse does not qualify for the estate tax marital deduction. Surely the court’s reasoning also applies in the gift tax marital deduction context. And that would mean practitioners would be wise to stick to the tried-and-true mechanisms for using the applicable exclusion amounts. Charles A. Redd is a partner in the office of Sonnenschein Nath & Rosenthal LLP in St. Louis.

25/ Engagement Letters By Anne-Marie Rhodes

The use of engagement letters in estate planning is a relatively new phenomenon. For generations, a simple handshake between lawyer and client sufficed. In the last generation, however, the trend has gone from a few to majority of estate-planning lawyers using them. Expect the practice to spread. And that’s a good thing, says author Anne-Marie Rhodes, who provides a sample engagement letter. Anne-Marie Rhodes is a professor at Loyola University Chicago School of Law. She is also counsel in Reed Smith’s Chicago office.

Elder Law


31/ A Geriatric Specialist’s Perspective By Sanford I. Finkel

As the elderly population expands, controls more assets, and suffers from dementing illnesses, we can expect to see more wills contested. Arm yourself by working with geriatric specialists. Here’s how they can help.

32/ An Elder Law Attorney’s Perspective By Michael A. Gilfix

Michael A. Gilfix explains when he does and does not use geriatric specialists at his law firm specializing in aging issues.

Dr. Sanford I. Finkel is a professor of clinical psychiatry at the University of Chicago Medical School. He chairs the International Psychogeriatric Association Task Force on Testamentary Capacity and Undue Influence, and founded the American Association for Geriatric Psychiatry. Finkel has served as a consultant for about 70 will contests and prospective will contests in the past two decades.

Michael A. Gilfix is a principal at Gilfix & La Poll Associates in Palo Alto, Calif. He is a fellow and a co-founder of the National Academy of Elder Law Attorneys (NAELA) and a certified legal specialist in estate planning, trust and probate law.


39/ Passing Down the Foundation By Bonnie B. Hartley & Michael T. Hartley

Some wealth owners set up charitable foundations to keep their families together after mom and dad pass away. Unfortunately, these entities often exacerbate, even create family problems. Goal-setting, planning and implementation are key. Here’s how to put the pieces together to make these elements work—for all involved. A case study.

Bonnie B. Hartley is president of Transition Dynamics Inc., a consulting firm specializing in business, family and organizational transitions, in Venice, Fla.

Michael T. Hartley is the chairman and chief executive officer of Dale K. Ehrhart Inc., an asset management firm, also in Venice, Fla. He is a founding member of the Institute of Philanthropy, a charity watchdog service aimed at helping donors make informed giving decisions, and works with the Sudden Money Institute, a resource center for new wealth recipients and their advisors.


International Law

44/ When Foreign Trusts Own Foreign Companies By Elyse G. Kirschner

Tax professionals increasingly are providing advice for clients who are U.S. beneficiaries of foreign trusts. These clients may be subject to tax on income earned by, or from controlled foreign corporations (CFCs) and passive foreign investment companies (PFICs) whose shares are held in trust. Advisors may want to help such clients avoid the imposition of tax on their U.S. beneficiaries under these regimes by restructuring the foreign trusts or the trusts’ holdings of foreign corporations to the fullest extent possible. Unfortunately, there’s a lack of guidance about the application to foreign trusts of the indirect and constructive stock ownership rules under the CFC and/or PFIC regimes. This is less of a problem when a foreign trust is a grantor trust, but a more significant problem for discretionary foreign non-grantor trusts. Here’s what you need to know to get started.

Elyse G. Kirschner is counsel at Weil, Gotshal & Manges LLP in New York.

53/ When Foreign Trusts Are Non-Grantor By Amy P. Jetel

It’s essential that advisors understand and know how to plan around the throwback tax, which is imposed on distributions of accumulated income to the U.S. beneficiaries of foreign non-grantor trusts. It can really throw advisors and their clients for a loop. Of course, if you can’t avoid the throwback tax, you’re going to have to know how to calculate it. And advisors must be aware of the U.S. tax reporting requirements related to foreign non-grantor trusts.

Amy P. Jetel is an associate at Giordani Schurig Beckett Tackett LLP in Austin, Texas.

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