On The Cover
While the economic news has been bad, you wouldn’t know it by looking at recent fine art auction sales. French artist Martial Raysse’s “Snack” (a concoction of oil, acrylic, collage, plastic, wood and other media on canvas with neon lettering) was expected to go for a million and a half US, but sold for over $2 million—$2,318,327, to be exact. And that pales in comparison to the gavel price of other art sold at that same auction, Sotheby’s July 1, 2008, London Contemporary Art extravaganza. For example:
• p. 20—Jean-Michel Basquiat’s 1982-1983 acrylic, oil stick and paper collage on canvas, “Untitled (Pecho/Oreja),” sold for US $10,144,240.
• p. 40—Francis Bacon’s 1967 “Study for Head of George Dyer,” an oil 14 by 12 inches, sold for a whopping US $27,473,048.
• p. 58—Richard Prince’s 93 by 56 inches “Overseas Nurse,” done in inkjet print and acrylic on canvas, went for US $8,467,258.
• p. 60—Yves Klein’s “Ant 131,” pigment in synthetic resin on paper laid on canvas, sold for US $8,355,460. It was expected to fetch only about US $2 million.
Briefing
12/ Tax Law Update
David A. Handler, partner in the Chicago office of Kirkland & Ellis LLP, reports:
• Provisions regarding tax character of distributions to charity must have a non-tax economic effect.
• Automatic extensions for trust, estate and partnership returns are reduced to five months.
• The Internal Revenue Service issued a private letter ruling approving the transfer of an IRA to a beneficiary’s trust.
• And the Service is claiming that there are no valuation discounts for restricted management accounts.
14/ U.S. Giving Rises—But Only Slightly
David T. Leibell and Daniel L. Daniels, partners in the Stamford, Conn., office of Wiggin and Dana, LLP, report on the Giving USA 2008 yearbook on philanthropy.
Carol A. Harrington and Ryan Harding, partners in the Chicago office of McDermott, Will & Emery LLP, report on the IRS’ proposed guidance for trust companies that are family-owned or controlled. The guidance, they say, is a good start—but leaves some critical questions unanswered.
Features
Estate Planning & Taxation
18/ Rolling Short-term GRATs Are (Almost) Always Best
By David L. Weinreb & Gregory D. Singer
Which is better and when: long-term grantor retained annuity trusts (GRATs) or rolling short-term GRATs? Using sophisticated quantitative modeling and capital markets forecasting, as well as analyzing all sorts of market conditions, authors David L. Weinreb and Gregory D. Singer claim to nail down the answer.
David L. Weinrebis a director in the Wealth Management Group at Bernstein Global Wealth Management in New York.
Gregory D. Singeris the director of research in the Wealth Management Group at Bernstein Global Wealth Management in New York.
By Michael S. Arlein & William H. Frazier
It’s time to remember the often overlooked net, net gift—a technique that can reduce the gift tax on lifetime transfers. The net, net gift is a variation on a traditional net gift. It requires the donee to assume liability not only for the gift tax attributable to the gift, but also for the contingent estate tax liability that arises under Internal Revenue Code Section 2035(b) if the donor dies within three years of making the gift.
Michael S. Arleinis a senior associate in the personal planning group at New York’s Patterson Belknap Webb & Tyler LLP.
William H. Frazieris the senior managing director at Howard Frazier Barker Elliott, Inc. in Dallas.
35/ Transferring Art When No Charity Is Involved
By Paul R. Comeau& Alexander M. Popovich
Income tax. Sales tax. Use tax. Sellers or transferors of artwork can get hit with tax bites from all ends. But there are exceptions to these tax requirements, and careful pre-disposition planning may reduce—or even eliminate—these bills.
Paul R. Comeauis the chairman of Hodgson Russ LLP in New York.
Alexander M. Popovichis a senior attorney in the trusts and estates practice group at Hodgson Russ LLP in New York.
Litigation
41/ An Ounce of Prevention
By Lisa M. Stern
No one likes a will contest. And even when everyone seems to get along, intra-family conflicts can develop and turn ugly if inheritances are involved. Author Lisa M. Stern lays out 10 techniques that may help avoid probate litigation and keep the peace.
Lisa M. Sternis an associate in the New York office of Proskauer Rose LLP.
Committee Report
High-Net-Worth Families & Family Offices
46/ U.S. Style Goes Global
By Anne Field
While the roots of the family office lie in Europe, it may be in the United States that it fully flowered. Now. European high-net-worth families with at least $100 million in assets are moving away from a long-time practice of using private off-shore family banks to handle investments and are creating their own professionally run family offices, instead. And it’s to U.S. best practices that they are turning for advice.
Anne Field is a journalist in Pelham, N.Y.
49/ Fostering Independence
By David Martin & Jennifer East
Knowledge and skill are among the best antidotes to dependence. But how can members of financial families acquire these precious assets? And how can we as family office executives and advisors assist? Perhaps the approach that one family takes will inspire others.
David Martin is a manager of a family office.
Jennifer East is a consultant to financial families.
By Anna Nichols
Business-owning families typically go through three stages regarding how they manage personal assets: from leaning on a trusted executive within the company, they next organize a formal department within the business to handle personal finances. Finally, they do what they should have done in the first place: separate the management of all personal matters from the company. Advisors can help move them along, or better yet, avoid stages one and two altogether.
Anna Nicholsis the director of research at the Chicago-based Family Office Exchange.
Perspectives
Litigation
By David W. Baer & S. Anne Johnson
Does the law ever preclude a will contest after a testator dies? One state appellate court says, “Yes.” This June, a California court broke ground in declaring an estate plan that’s approved by a substituted judgment order can’t be challenged after a testator dies. Beneficiaries are on notice: Speak now, or forever hold your peace.
David W. Baer chairs the trust and estate litigation group at San Francisco’s Hanson Bridgett.
S. Anne Johnson is a senior counsel in San Francisco’s Hanson Bridgett.
By Herbert E. Nass
Leona Helmsley’s bequest to her dog is reduced so that two disinherited grandchildren will get a few million.
Herbert E. Nass heads the New York City law firm of Herbert E. Nass & Associates.