On the Cover:
In honor of tax season, we present Andrea Mantegna’s “Descent into Limbo,” painted circa 1492. This work of art, tempera and gold on panel, is the last known signed painting by Mantegna left in private hands. This January, Sotheby’s sold it for a whopping $28,568,000 to an anonymous buyer.
The masterpiece, of which a detail is shown on the cover, depicts Christ, seen from behind, pulling a prophet from limbo. “By hiding the face of the protagonist in the composition, Mantegna has brilliantly forced the viewer into the same viewpoint as Christ,” says Christopher Apostle, senior VP and director of the Old Masters Painting department at Sotheby’s. Prophets from the Old Testament and Adam and Eve are arranged to the left and right of the composition. —Alex McGrath
Editor’s Briefing
14 Updating Our Look
Trusts & Estates gets a news section, executive summaries and modern graphics.
14 For the Love of Fairness
Responsible Wealth, a group of wealthy people dedicated to reducing economic inequities in the U.S., holds a pep rally in Seattle.
16 Pray for the Rich
At last count, 57 percent of Americans’ charitable giving went to religious causes. But stats crunched for T&E show a disparity among the classes.
18 Alternative Investments
That’s where the wealthy have a lot of money, according to a survey by Family Office Exchange.
18 Tax Law
Updates from David A. Handler of Kirkland & Ellis. features
Estate Planning & Taxation
20 GST Exemption/9100 Relief
By Lloyd Leva Plaine
This article discusses the procedures for obtaining a private-letter ruling from the Internal Revenue Service granting an extension of time to make a timely GST exemption allocation under Internal Revenue Code Sections 2642(g)(1) and 2632. The rules relating to the GST tax and the allocation of GST exemption are complex. Forms on which the GST exemption is allocated are not user-friendly. Many errors have been made. And missed or erroneous allocations create significant potential GST tax liability and can lead to lawsuits.
Lloyd Leva Plaine discusses the regulatory requirements necessary for an extension and reviews private-letter rulings to show circumstances under which extensions have been granted.
–Lloyd Leva Plaine is a partner in charge of the individual tax-planning practice group at Sutherland Asbill & Brennan LLP. She advises clients on transfer-tax minimization and estate planning as well as lifetime gifts, insurance and charitable giving. She currently serves on the American Bar Association Tax Section Council.
27 Plan Around Possible Repeal
By Pamela R. Champine
With the possibility of estate-tax repeal looming, clients may be tempted to postpone estate planning and lifetime gifts. But techniques tat involve little or no taxable gifts provide the opportunity to secure substantial savings for clients who die in any year the estate tax is in effect.
Pamela R. Champine discusses three such techniques—GRATs, private annuities and IDIGTs. The strategies all involve arbitraging actual and assumed rates of return on investments to value transferred assets. And they all may provide the client with an income stream for a fixed period. Still, they differ in important ways, which Champine lays out so you can pick the best method for your client.
–Pamela R. Champine is an associate professor of law at the New York Law School, where she teaches property and wills, trusts and future-interests law. She is a former secretary to Manhattan Surrogate Eve Preminger and specializes in weaknesses in wills law that create opportunities for discrimination.
High-Net-Worth Families
34 Kidnapping Risk
By Susan Hansen
The recent kidnapping of hedge-fund manager Edward Lampert is a fresh reminder that kidnapping remains a threat for high-net-worth individuals. Not every multimillionaire needs kidnapping insurance, but those who travel or work in certain areas overseas face a higher risk—and that risk has been steadily growing. Those traveling to hot-spots in Latin America and Asia should consider buying coverage.
Susan Hansen speaks to kidnapping and insurance experts to identify high-risk regions and types of coverage available.
–Susan Hansen is a former editor and writer for American Lawyer and Inc. magazines. She lives in New York.
38 Fear Factor
By Russ Alan Prince and Paul M. Viollis Sr.
A Trusts & Estates exclusive: Many of us are anxious these days, what with the constant terrorist threat. But the wealthy have added concerns about their personal safety.
A survey of 253 high-net-worth individuals found they believe their wealth makes them targets. And they are most anxious, respectively, about being burglarized, getting kidnapped and having their identity stolen. Prince and Viollis also uncover what the wealthy are doing about these threats.
–Russ Alan Prince is president of the market research and consulting firm Prince & Associates in Shelton, Conn.
–Paul M. Viollis Sr. is managing director and practice leader for Citigate Global Intelligence & Security in New York.
Philanthropy
40 Earmarking Charitable Gifts?
By Conrad Teitell
If your client is considering earmarking a charitable gift for an individual, stop him. An otherwise deductible payment to a qualified charity isn’t deductible if the gift is earmarked for a particular individual (and determining that is a question of fact, says Conrad Teitell). Earmarking will cause the donor to lose the income tax deduction and also could subject him to federal—and possibly even state—gift taxes on transfers to individuals.
Taking the reader on a tour of rulings, Teitell arrives at a bright-line test for you to consider: The charity must have full control of the donated funds and discretion as to their use, and the donor must intend to benefit the charity and not an individual. In other words, it all boils down to the issue of control—and don’t even think about trying to fool the IRS, which has proven in the past it can see through thinly veiled attempts to earmark to individuals.
–Conrad Teitell has been a contributing editor for Trusts & Estates since 1980. An expert on charitable giving, he is a member of the Stamford, Conn.-based Cummings & Lockwood, author of the treatise Philanthropy & Taxation and a fellow of The American College of Trust and Estate Counsel.
44 CRTs and Difficult Assets
By David T. Leibell and Daniel L. Daniels
Traditionally, charitable remainder trusts (CRTs) have been funded primarily with publicly traded securities. That’s changing. With stock market declines and the introduction of the Flip Charitable Remainder Unitrust, more CRTs are being funded with “difficult assets” such as real estate, closely held business interests and tangible personal property.
These assets are difficult because they can create unanticipated tax problems that rarely arise for trusts funded with cash or marketable securities—including onerous private-foundation excise taxes, reduction or denial of the expected charitable deduction, gift tax and even full taxation of the gain on the property used to fund the trust. Find out how to avoid these problems.
–David T. Leibell is a principal in Cummings & Lockwood’s private-clients and charitable-planning group. He lectures frequently on charitable and estate planning.
–Daniel L. Daniels heads the firm’s private-clients group. He serves on the Estates and Probate Executive Committee of the Connecticut Bar Association.
Committee Report
Elder Care
50 Housing for Seniors
By Michael Gilfix
Even though the affluent can afford to stay at home when they are elderly and infirm, it may not be in their best interest. For people who are more social and like stimulation, home care can be isolating and limiting. Life-care communities (LCCs) offer retirees a richer environment and a higher level of care; both can enhance long-term health.
So Michael Gilfix argues. To help those whose clients are interested in moving to an LCC, Gilfix provides insight into the reality behind the glossy ads. He reviews the legal, financial and contractual issues that require attention before clients pay entrance fees that can run as high as $1.9 million and commit to spending as much as $100,000 a year for as long as residency continues.
–Michael Gilfix is a principal in the Palo Alto law firm of Gilfix & La Poll, Associates. He is a fellow and co-founder of the National Academy of Elder Law Attorneys.
54 LTCI Lexicon
By Bernard A. Krooks
Advisors should be familiar with the various types of long-term-care insurance policies available now. Problem is, the policies continue to evolve and lack standardization, so comparing them is difficult. That’s why it’s essential to learn the terms that frequently appear in LTCI contracts and a few guiding principles.
Bernard A. Krooks describes some of the pitfalls of buying LTCI insurance for the relatively young and explains everything from ADLs to spousal discounts to waiver of premiums.
–Bernard A. Krooks is the managing partner of Littman Krooks LLP, which has offices in New York City and White Plains, N.Y. He is the president of the National Academy of Elder Law Attorneys and a member of the executive committee of the Elder Law Section of the New York State Bar Association.
57 Who Needs LTCI?
By Vincent J. Russo
Statistics show that 60 percent of Americans will need long-term care at some point in their lives. For anyone between ages 65 and 80, the odds are 1 in 4 that he will need long-term care. For people over 80, the odds are 1 in 2. Meanwhile, costs are increasing at an alarming rate. The upshot: Most people, even the very wealthy, should buy long-term-care insurance as a hedge. Still, some people are better candidates for this insurance than others.
The author explains when to purchase LTCI and provides some general plan outlines.
–Vincent J. Russo is managing shareholder of the law firm Vincent J. Russo & Associates, P.C., of Westbury and Islandia, N.Y. He is a founding member and past chair of the Elder Law Section of the New York State Bar Association and is co-author of the book New York Elder Law Practice. He currently serves as an officer of The Theresa Alessandra Russo Foundation.
Perspectives
Fiduciaries
60 Beware the Unitrust Conversion
By James P. Teufel
A recent private-letter ruling deemed a conversion to a unitrust a taxable event. If this were the general rule, then few would convert. The Internal Revenue Service has been made aware of this ruling and that there’s little guidance on the matter. But there’s no guarantee the Service will speak on the topic anytime soon.
James P. Teufel discusses the advantages of the unitrust and describes the uncertainty surrounding taxation on conversion.
–James P. Teufel is a vice president for The Northern Trust Company, Chicago, and a trust counsel in the Tax General Division of the Personal Fiduciary Services Group. Before joining Northern Trust in 1998, he was an associate at the law firm Chapman and Cutler.
Insurance
64 Split-Dollar Interruptus
By Charles L. Ratner
The success of collateral-assignment split dollar always hinged on two points: First, a certain interpretation of the tax law had to prevail. Second, the product had to perform as illustrated. We know about the tax law. What about the product?
For reasons ranging from product structure and performance to clients just not doing what they said they would, Internal Revenue Service Notice 2001-10 found many collateral-assignment plans way behind in delivering their illustrated benefits. But these plans generally had time to recover. IRS Notice 2002-8 changed all that. Now collateral-assignment arrangements are in a race against the clock, and their positive-income and gift-tax leverage may be at risk.
Charles L. Ratner says there’s been enough conceptual talk about split dollar. It’s time for insurance companies, agents and advisors to talk turkey about what to do in real situations, with real products. There’s a lot to be done by the IRS’s year-end deadline.
–Charles L. Ratner is the national director of personal insurance counseling for Ernst & Young and a managing director of The Ernst & Young Center for Family Wealth Planning. He is a contributing editor for the American Bar Association’s Insurance Counselor Series.