JULY 2007

JULY 2007

We’re having a heat wave! Scorching prices—that’s what we see in Mark Rothko’s “White Center (Yellow, Pink and Lavender on Rose.)” It went for $72.8 million—the highest price of any contemporary work of art sold at auction. On May 15, 2007, at Sotheby’s “Contemporary Art Evening Sale” in New York, an anonymous collector outbid over the telephone four others competing for this piece from the collection of David and Peggy Rockefeller. Measuring 81 inches by 55 1/2 inches, the oil on canvas was among the largest of 16 works that Rothko painted during 1950, one of his most prolific years. The Rockefellers have said that they would donate the proceeds of the sale to charity.

Christie’s “Post-War and Contemporary Art Evening Sale” in New York on May 16, 2007, was also hot. Featured in this issue:

  • Andy Warhol’s “Green Car Crash” broke a world record for the artist when it fetched $71.72 million.


How the Harvard CRT Technique Works

Harvard‘s experts and advisors respond to the March 2007 charitable giving column by clarifying how the university endowment investments work.


Tax Law Update

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

  • Fractional interest in artwork discounted for cost to partition—A ruling by the U.S. District Court for the Northern District of California in Robert Grove Stone v. United States suggests that discounts for partial interests in personal property may be quite limited. An alternative worth considering is holding title to such jointly owned property in an entity such as an limited liability company (LLC) or limited partnership.
  • Section 2039 will not apply to retained annuity interests—On June 6, 2007, the Internal Revenue Service issued proposed regulations REG-119097-05 providing guidance on the portion of a trust that will be includible in a grantor’s gross estate under Internal Revenue Code Sections 2036 and 2039, if the grantor has retained use of property in a trust or the right to an annuity, unitrust, or other income payment from the trust.

A “Sarbanes-Oxley” For Charities

David T. Leibell and Daniel L. Daniels, partners in the Stamford, Conn., office of Cummings & Lockwood LLC, report on the Internal Revenue Service recent release of a redesigned Form 990, Return of Organizations Exempt from Income Tax. The proposed form would greatly increase reporting and disclosure requirements for not-for-profits.



Planning for Clients With Multiple Sclerosis

By Marvin M. Shenkman

About eight months ago, reports Martin M. Shenkman, his wife was diagnosed with multiple sclerosis. After learning about the disease (so that he and his wife could make informed decisions about treatment, lifestyle and other such critical issues), Shenkman thought hard about its impact on estate planning. The on-again-off-again nature of many forms of MS, like Crohn’s and ulcerative colitis, create unique legal challenges. Yet Shenkman notes: many practitioners assume that all chronic illnesses are the same from a planning perspective. Not only are there dramatic differences between illnesses, but also the course of each disease can vary substantially—and so too must the planning.

Martin M. Shenkman is a partner at Martin M. Shenkman, P.C., in Teaneck, N.J., the author of several books, including The Complete Book of Trusts (John Wiley & Sons, Inc., 2002) and co-author of Living Wills & Health Care Proxies: Assuring That Your End-of-Life Decisions Are Respected (New York: Law Made Easy Press, LLC, 2004).


Alternative Investments: Perils for IRA Trustees

By David Sennett

Trustees of individual retirement accounts have increasingly seen participants turning to alternative investments in their accounts. In many cases, the IRA trustee can acquire these assets only upon the participant’s direction. This arrangement, known as a self-directed IRA, leaves the trustee operating as a custodian with no discretion to manage the account’s assets. Before a trustee accepts such an account, however, there are tax and administrative issues to clear up with the participant. And while the account is being managed, there are strict rules to follow.

David Sennett is an independent fiduciary risk consultant in Delray Beach, Fla., specializing in IRA administration and investment management. He previously served as a fiduciary risk consultant for IRA administration in Wachovia Bank’s trust department.


Charitable Deductions For Non-Grantor Trusts

By Laura H. Peebles

The general tax rule is that trusts compute their income and deductions as if they were individuals. Probably the most significant exception is the charitable deduction: The rules are so different for trusts that it may be easier to forget everything you know about individual income tax rules and start from scratch. Grantors of grantor trusts deduct the contributions made by the trust as if the grantor had made them personally. But for non-grantor trusts, it’s a whole different ballgame.

Laura H. Peebles is director of Deloitte Tax LLP in Washington and an advisor on Trusts & Estates’ advisory committee.

Transfers Between Private Foundations

By Jeffrey D. Haskell and Amanda Adams

At some point in the life of a private foundation (PF), it may be advantageous to transfer most or all of its assets to one or more other PFs. The most common reasons are to enable a PF’s board members with incompatible objectives to pursue their interests independently, and to achieve administrative efficiencies and a possible reduction in operating expenses by changing the PF’s structure (trust vs. corporation) or domicile. The IRS requires a PF to comply with a multitude of constraints on its activities to maintain its tax-exempt status as an IRC Section 501(c)(3) organization. It’s therefore unsurprising that a significant transfer of assets between PFs—referred to as a “507(b)(2) transfer”—also has complex rules.

Jeffrey D. Haskell is senior vice president of tax and legal affairs at Foundation Source in Fairfield, Conn.

Amanda Adams is tax manager of Blazek & Vetterling LLP in Houston.


A Call to Mediate

By Kenneth J. Peace

There will be a dramatic increase in the volume and complexity of trusts-and-estates disputes in the near future, warns author Kenneth J. Peace. That’s why, he says, it’s time to embrace mediation as an alternative to formal litigation in probate and fiduciary matters. Peace calls on all trusts-and-estates practitioners to learn more about mediation—then actively steer clients in that direction.

Kenneth J. Peace is head of the litigation group at Braun Siler Kruzel PC in Scottsdale, Ariz. He is past chairman of the Trust and Estate Section of the Colorado Bar Association, a fellow of the American College of Trust and Estate Counsel and column editor of the Estate and Trust Forum of the Colorado Lawyer. He has lectured on trusts and estates at the University of Denver Law School.

Constructive Trusts

By David W. Kirch

Probate litigation has changed drastically in the last several decades, particularly as nonprobate transfers have become an increasingly important way of moving assets from one generation to the next. For such transfers involving wrongdoing, though, traditional arguments of lack of intent to make a gift, lack of capacity and undue influence are—by themselves—not always enough to get the job done. It may be particularly appropriate and also useful to assert constructive trust claims.

David W. Kirch is the founder of the Law Office of David Kirch in Aurora, Colo. and a fellow of the American College of Trust and Estate Counsel.


Justice in Hawaii?

By Alexander A. Bove, Jr.

Alexander A. Bove Jr. was curious: whatever happened to efforts to hold accountable the culprits who looted the mult-billion dollar trust set up by a Hawaiian princess? So he telephoned Samuel P. King, a senior federal district court judge, and Randall W. Roth, a University of Hawaii law school professor—co-authors of the book Broken Trust, the expose that set the wheels of justice in motion. What they told him, Bove says, “is shocking.”

Alexander A. Bove, Jr. is the principal at Bove & Langa, P.C. in Boston, and an internationally known lecturer and author. His published works include The Complete Book of Wills, Estates & Trusts (New York: Henry Holt and Company, Inc., 2005). Bove was admitted to practice as a solicitor of the Supreme Court of England and Wales and for more than 18 years was an adjunct professor of law at Boston University Law School in its graduate tax program. He is an advisor on Trusts & Estates’ estate planning & taxation committee and a frequent contributor to the magazine.

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