On The Cover
Last Hurrah? The global financial crisis has taken its toll on the art world, but not before one last record-setting auction. On Nov. 3, 2008, Sotheby’s kicked off the fall art auction season with its “Impressionist and Modern Art Evening Sale.” Kazimir Malevich’s 1916 “Suprematist Composition” sold for $60,002,500—a record for the artist at auction and for any Russian work sold at auction. The subsequent two months of slowing sales and sagging prices suggest the economic crisis has spread to the art world, with sales of impressionist, modern and contemporary works falling well below previous levels. Just one week after Sotheby’s Nov. 3, 2008, auction, a Francis Bacon portrait estimated to take in some $40 million failed to sell at all.
Another piece in the Sotheby’s Nov. 3 auction included:
• p. 41—Edvard Munch’s “Vampire,” set a record for the artist at auction, selling for U.S. $38,162,500.
10/ IRAs and the AVM
By Natalie B. Choate
IRAs have been around for 35 years, yet there’s still no official guidance from the Internal Revenue Service regarding how to apply the alternate valuation method to such accounts. That’s a real dilemma now for executors preparing estate tax returns for clients who died last year owning substantial securities portfolios inside IRAs. How to proceed? Author Natalie B. Choate lays out the options. Natalie B. Choate is an attorney with Nutter McClennen & Fish, LLP, in Boston, and a contributing editor to Trusts & Estates. She is the author of Life and Death Planning for Retirement Benefits, Ataxplan Publications (www.ataxplan.com/thebooks/books_main.cfm).
15/ Treacherous Waters
By Christopher R. Hoyt
There are two new obstacles to paying a charitable bequest with income in respect of a decedent (IRD). A recent Internal Revenue Service memo says a trust can’t claim a charitable income tax deduction after it receives IRD and distributes the amounts to charities. Add insult to injury—a proposed Treasury regulation would make it so that whenever an instrument like a trust specifies that IRD be used for an income tax deduction, there must be an economic effect independent of income tax consequences. How to cope. Christopher R. Hoyt is a professor of law at University of Missouri (Kansas City) School of Law and a member of the Trusts & Estates advisory committee on retirement benefits.
Where We Are Now In . . .
20/ Estate Planning & Taxation:Welcome to Your Nightmare
By Roy M. Adams
Is the new political regime akin to Robin Hood—intent on robbing the wealthy—by any tax means necessary? Roy M. Adams certainly thinks so. Roy M. Adams is a partner in the New York-based firm of Adams & Matz LLP, associated with Constantine Cannon LLP. He is also chair of the Trusts & Estates advisory board.
21/ Valuations: Time To Gift Low
By Radd L. Riebe
The big news: after years of Internal Revenue Code Section 2036 losses by taxpayers, disputed discounts finally held. The bigger news: illliquidity took front and center stage as the market meltdown provided taxpayers with evidence that “lack of marketability discounts” are real. The biggest news: with asset values down and all agreeing that the estate tax won’t be repealed, the taxable gift is getting pulled out from the bottom of the estate planners tool box, dusted off and used—a lot.
Radd L. Riebe is a managing director of the Valuation & Financial Opinions Group at Stout Risius Ross, Inc. in Cleveland. He’s also chair of the Trusts & Estates advisory committee on valuations.
23/ Investments: Let’s Get It Right
By Michael E. Lewitt
It’s not too late to get this nation back on track. Some recommendations for the new president. Meanwhile, individual investors can make money in a limited number of asset classes—but they certainly should concentrate on preserving capital until the storm passes. Michael E. Lewitt is the president of Harch Capital Management, LLC in Boca Raton, Fla. He’s also a member of the Trusts & Estates advisory committee on investments.
30/ Fiduciary Professions: Who’ll Be Left Standing?
By Elizabeth Bloomer Nesvold
One day, author Elizabeth Bloomer Nesvold’s husband, a newly minted partner at Bear Stearns, came home and said, “Honey, I think my firm is going banktrupt.” Read Nesvold’s first-hand understanding of how savvy investment advisors (those who were so good at ensuring their clients were diversified) could suffer huge loses when Bear and Lehman failed, why the giant firms fell—and what we can expect the future on the Street to look like. Elizabeth Bloomer Nesvold is managing partner of Silver Lane Advisors in New York.
34/ Family Offices: Shake Up!
By Kathryn McCarthy
The faltering economy is the death knell for struggling single (SFO) and multi-family offices (MFOs). But the overall number of SFOs and MFOs probably won’t decline, as financial families flee big institutions to create new SFOs and join the solid commercial MFOs. That’s all very well and fine. But maybe it’s time to think outside the box and consider structures like regional cooperatives.
Kathryn McCarthy is a New York-based independent consultant to wealthy families and family offices. She’s also a member of the Trusts & Estates advisory committee on high-net-worth families and family offices.
37/ Insurance: Climate Change
By Charles L. Ratner
Clients are aggressively reassessing their life insurance needs, whether those needs are for basic protection or estate preservation. Typically, they’re finding they need more life insurance, but they’re cautious in how much they want and can spend for coverage. Here’s how to help them. Charles L. Ratner is the Cleveland-based national director of personal insurance counseling for Ernst & Young LLP. He’s also vice-chair of the Trusts & Estates advisory board and chair of the committee on insurance.
42/ Philanthropy: Giving In Today’s Economy
By John J. Havens & Paul G. Schervish
“Hear ye, hear ye: There will not be a collapse of charitable giving in 2009!” So say these two authors, who expect to see relatively mild declines for 2008 and 2009. And if large gifts are already in the pipeline, those decreases could be delayed.
John J. Havens is a senior research associate and senior associate director at Boston College’s Center on Wealth and Philanthropy in Chestnut Hill, Mass.
Paul G. Schervish is the director of Boston College’s Center on Wealth and Philanthropy in Chestnut Hill, Mass., and a professor of sociology at Boston College.
46/ Retirement Benefits: Left Reeling
By Michael J. Jones
The past year was a mixed bag for retirees. Treasury was cruel, recommending increased vigilance to catch and fine those who forget to take their required minimum distributions (RMDs). But Congress was kind, cancelling RMDs for 2009. Meanwhile, long-awaited good news arrived for non-spouse beneficiaries: effective after Dec. 31, 2009, they’ll be able to make a direct rollover to an inherited IRA—with or without a retirement plan’s blessing.
Michael J. Jones is a partner in Monterey, Calif.’s Thompson Jones LLP. He’s also chair of the Trusts & Estates retirement benefits committee.
52/ International Law: The Rest of the World
By Barbara R. Hauser
Know what’s happening elsewhere. The biggest trends: trusts are gaining ground; family business succession advice is in high demand; family offices are increasing; and family mediation is becoming more important. Barbara R. Hauser is the director of Private Wealth Advisory for the Stanford Group (Suisse) AG in Zurich, Switzerland. She’s also a contributing editor to Trusts & Estates.
54/ Elder Law: The Good and the Very Bad
By Michael Gilfix & Bernard A. Krooks
Some good news for single-sex couples: Washington state extended 170 rights to them, including the right to treat the survivor of a domestic partnership the same as a survivor of a traditional marriage in the context of Medicaid estate recovery. But for most elderly, last year was dreadful: The cost of long term care insurance kept rising and there was an extension of ineligibility for state Medicaid when a person over 65-years-old transfers assets to a trust.
Michael Gilfix is a partner in the Palo Alto, Calif. firm of Gilfix & La Poll Associates LLP. He’s also a contributing editor for Trusts & Estates. Bernard A. Krooks is based in White Plains, N.Y. and New York City and is a partner in Littman Krooks LLP. He’s also a contributing editor for Trusts & Estates.
57/ Technology: Tech for Tough Times
By Donald H. Kelley
Odds are, you’re looking for ways to cut costs without sacrificing service. Luckily, last year produced exciting software and web-based applications and information resources that are likely to improve the efficiency of your trusts and estates practice.
Donald H. Kelley is of counsel at Kelley, Scritsmier & Byrne, P.C., in Highlands Ranch, Colo. He’s also the author of Trusts & Estates’ Technology Review e-newsletter. Available free online at www.trustsandestates.com in the Tech Center and by subscription.