The Estate Planner

July 2011

IN THIS ISSUE:

News, Articles, and Updates for the Estate Planner
See updates and article references involving charitable trusts and donations; elder law, estate and gift taxes, estate and trust administration/probate; estate planning; health care; retirement; same-sex marriages; civil unions; domestic partnerships; small and mid-size law firm practice; special needs trusts/ guardianships, trusts; and wills.
Cowles TechTip
A new Register Report has been added to Trust Accounting in TrusTerminator that now contains detailed information about all financial activity (transactions and transfers) entered into Trust Accounting Maintenance that occurs within the assets titled in the name of the revocable trust over a selected period of time, organized by asset. This Tech Tip takes you through it. / The Estate Planner Archive
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NEWS, ARTICLES, AND UPDATES
For The Estate Planner
Charitable Trusts and Donations
IRS DECISIONS, REGULATIONS, AND GUIDANCE
IRS.Section 2055 - Transfer for Public, Charitable, and Religious Uses (Deductible v. Not Deductible). The IRS concluded that the judicial reformation of a trust created by the decedent-grantor’s trust to pay for a relative’s lifetime health care costs and burial expenses in order to conform to the requirements for a charitable remainder annuity trust under IRC § 664(d)(1) constitutes a qualified reformation within the meaning of § 2055(e)(3), and that an estate tax charitable deduction is allowable under § 2055(a) for the present value of the charitable remainder interest, as determined under Treas. Reg. § 20.2055-2(f)(2)(i). Westlaw: PLR 201125007, 2011 WL 2508987 (June 24, 2011); Web: PLR 201125007, IRS Written Determinations (June 24, 2011).
LEGISLATION
California.Powers of Attorney.California has passed legislation relating to powers of attorney. The act has provisions to (1) apply the attorney-in-fact provisions to a statutory form power of attorney, except for those providing to the attorney-in-fact general authority and powers by reference to other laws; (2) revise certain powers that require express authority in the power of attorney for their exercise by the attorney-in-fact, specifying that an attorney-in-fact may modify, revoke, or terminate a trust in whole or in part, but only as provided in the trust instrument, and that the attorney-in-fact may reject, disclaim, release, or consent to a reduction or modification of a share in, or payment from, an estate, trust, or other fund; (3) change the statutory form power of attorney to notify the principal that it does not include all of the powers available under law for an attorney-in-fact and would revise the agent's power under a statutory form power of attorney with regard to insurance, annuity, and retirement plan transactions and estate, trust, and other beneficiary transactions; and (4) specify that the power of an agent under a statutory form power of attorney with respect to personal and family maintenance is not dependent on any other authority to make gifts on the principal's behalf and is not limited by any other limitation applicable to the agent's authority to make gifts on the principal's behalf.(2011 California Assembly Bill No. 1082, California 2011-2012 Regular Session; Title: Powers Of Attorney: Statutory Form Power Of Attorney., VERSION: Enrolled). Westlaw: 2011 CA A.B. 1082 (NS); Web: California Legislature.
OTHER
U.S. Tax Court. Court Denies Charitable Deduction for Contribution of Land Conservation Easement. On June 29, the U.S. Tax Court denied a couple a $1,870,000 charitable contribution deduction for contribution of a land conservation easement to Mercer County, New Jersey. The IRS asserted that E. Bruce and Denise A. Agness Didonato did not substantiate the contribution claimed on their 2004 income tax return because they failed to obtain a contemporaneous written acknowledgment of the donated property as required by IRC § 170(f)(8), and did not attach to their return a completed appraisal summary (Form 8283) as required by Treas. Reg. § 1.170A-13(c)(2)(i)(B). The court agreed, even though the couple argued that they did substantiate the charitable contribution claiming the settlement agreement between Mr. DiDonato and the county qualifies as a contemporaneous written acknowledgment under § 170(f)(8), and the Form 8283, which they attached to their 2004 return, substantially complied with the requirements of § 1.170A-13(c)(2)(i)(B). Westlaw: DiDonato v. Commissioner, T.C., No. 10801-09, T.C. Memo. 2011-153, 2011 WL 2558639 (June 29, 2011); Web: DiDonato v. Commissioner, T.C., No. 10801-09, T.C. Memo. 2011-153, 6/29/11).
Elder Law
ARTICLES
A Prayer, a Hug and a Martini. Dealing with the Realities of Aging.Charles Fahey. (New York State Bar Journal, July/August, 2011). Westlaw: 83-AUG N.Y. St. B.J. 10; Web: New York State Bar Journal.
Your Money and Your Life; Who Do You Trust? Ira Salzman. (New York State Bar Journal, July/August, 2011). Westlaw: 83-AUG N.Y. St. B.J. 24.
Gray Divorce and Remarriage. Willard H. DaSilva, Steven J. Eisman. (New York State Bar Journal, July/August, 2011). Westlaw: 83-AUG N.Y. St. B.J. 26.
BLOGS AND WEBSITES
AARP Public Policy Institute. The Employment Situation, June 2011: Dismal Job Newsfor Older Workers. Sara E. Rix. Web: AARP
AARP Public Policy Institute. Rx Price Watch Report, July 2011: Trends in Retail Prices of Generic Prescription Drugs Widely Used by Medicare Beneficiaries 2005 to 2009. Stephen W. Schondelmeyer, Leigh Purvis.Web: AARP
AARP Public Policy Institute. Valuing the Invaluable: 2011 Update - The Growing Contributions and Costs of Family Caregiving. Lynn Feinberg, Susan C. Reinhard, Ari Houser, and Rita Choula. Web: AARP
LEGISLATION
Connecticut. Fraudulently or Maliciously Reporting Elder Abuse. Connecticut has passed legislation that makes it a class D felony to report elder abuse fraudulently or maliciously and to require a person making a report of abuse of an elderly person previously investigated by the Department of Social Services to provide evidence as to the potential abuse. (2011 Connecticut Senate Bill No. 365, Connecticut General Assembly - January Session, 2011; Title: An Act Concerning Investigations By Protective Services For The Elderly.; VERSION: Adopted; July 13, 2011). Westlaw: 2011 CT S.B. 365 (NS); Web: Connecticut Legislature.
Estate and Gift Taxes
IRS DECISIONS, REGULATIONS, AND GUIDANCE
IRS. Section 2518 - Disclaimers. The IRS concluded that a disclaimer of the balance of decedent’s retirement accounts payable to his surviving spouse, executed by the administrator of his now-deceased surviving spouse’s estate, satisfies the requirements for making a qualified disclaimer under IRC § 2518, but the required minimum distributions that were automatically deposited into a bank account held jointly in the names of decedent and his now-deceased spouse with rights of survivorship, after his death are deemed accepted by the spouse under §§ 2518(b)(3) and 25.2518-2(d), even though such amounts remained in the account from the date of distribution until the date of the disclaimer. Westlaw: PLR 201125009, 2011 WL 2508990 (June 24, 2011); Web: PLR 201125009, IRS Written Determinations (June 24, 2011).
LEGISLATION
Delaware. Fiduciary and Trust Provisions Changes. Delaware has passed legislation affecting retirement and estate planning. Among other things, the act (1) exempt life insurance contracts and annuity contracts from execution or attachment process to the same extent as retirement plan assets; (2) clarifies the meaning of the term “wilful misconduct” as used in Chapter 33 of Title 12 and governing instruments; (3) clarifies that valuation of a trust asset may be an investment decision as defined in Section 3313(d); (4) clarifies that tenancy by the entireties property conveyed in trust by a husband and wife may retain its character as such even if the husband and wife convey their respective interests in the property to different trusts; (5) revises Section 3335 in light of the enactment of a federal estate tax generally applicable to decedents dying during 2010 unless the decedent's fiduciaries elect out of the application of the tax; (6) reorganizes Section 3528 for clarity and clarifies how the statute applies to an open class of beneficiaries; (7) clarifies the standard of care applicable to a trustee when exercising the authority granted pursuant to Section 3528 and clarifies when that authority is available to a trustee; (8) addresses the procedure for providing information about trusts to various persons; (9) clarifies existing law regarding the application of Section 3546 to both revocable and irrevocable trusts; (10) clarifies who may represent a minor under Delaware's virtual representation statute in cases where one parent has sole custody of the minor; (11)clarifies current law regarding the permissibility of making a qualified disposition in trust to a trust having multiple co-trustees provided that at least one of the co-trustees is a “qualified trustee” within the meaning of the Qualified Dispositions in Trust Act; (12)clarifies the nature of one type of claim excluded from the scope of the protection generally afforded against creditor claims by the Qualified Dispositions in Trust Act; (13)clarifies the rules regarding the payment of attorney's fees from trusts governed by the Qualified Dispositions in Trust Act and includes a provision for trusts governed by the Qualified Dispositions in Trust Act comparable to the provision for revocable trusts appearing in Section 4 of the Act; (14) clarifies that Delaware's virtual representation statute (12 Del. C. 3547) applies to consents, releases and ratifications pursuant to Section 3588; (15) revises the provisions of the Delaware Uniform Principal and Income Act regarding the circumstances in which a trustee may rely upon a statement about the source or character of a distribution from an entity; (16) places a duty to make property productive of income upon the trustee in certain circumstances while preserving the income beneficiary’s right described in the current version of Section 61-413; (17) clarifies the provisions of current law which state categorically that a trust has an insurable interest in the life of the person who creates the trust; and (18) clarifies current law regarding how the Delaware rule against perpetuities for real property held in trust applies in cases where an indirect interest in real property is held by a trust through the trust’s ownership of an interest in an entity that in turn owns an interest in real property. (2011 Delaware Senate Bill 83, Delaware One Hundred Forty-Sixth General Assembly - First Regular Session; Title: An Act To Amend Titles 10, 12, 18 And 25 Of The Delaware Code Relating To Judicial Procedure, Fiduciary Relations, Insurance And Property.; VERSION: Adopted; July 13, 2011). Westlaw: 2011 DE S.B. 83 (NS); Web: Delaware Legislature.
Maine.Governor Signs Budget Containing Estate Tax Changes. On June 20, Maine Gov. Paul LePage (R) signed into law (P.L. Ch. 380) a two-year $6.1 billion budget that provides $150 million in tax relief, including reduced income, business, estate, and insurance taxes, reforms the state pension system, and makes changes to welfare programs. The law increases the estate tax exclusion from $1 million to $2 million for those dying after December 31, 2012 with a tax rate of 8 percent for estates of $2 million to $5 million, 10 percent for estates between $5 million and $8 million, and 12 percent for estates in excess of $8 million. Beginning January 1, 2012, the change provides conformance with federal law with respect to the treatment of Maine qualified terminable interest property for estates of decedents dying on or after that date. Westlaw: 2011 ME H.P. 778 (NS); Web: P.L. Ch. 380, Maine Legislature (June 20, 2011). [The act is very long; search for "estate tax" or other term within the results.]
Oregon.Inheritance Tax.Oregon has passed legislation relating to the inheritance tax. Among other things, the act defines the computation of the Oregon taxable estate; provides a tax table; provides that an executor may make separate elections for state estate tax purposes when the federal taxable estate is determined by making an election under IRC § 2031(c), 2032, 2032A, 2056 or 2056A (or another provision of the Internal Revenue Code), or if a federal estate tax return is not required; that these elections are irrevocable; requires the executor to explain, on the return, how the reported values were determined and attach copies of any appraisals; makes changes to the natural resource property credit allowed to an estate; specifies that an estate tax return is not required with respect to the estates of decedents who die on or after January 1, 2012, unless the value of the gross estate is $1 million or more; and defines the period that interest on overpayment of estate taxes is calculated.(2011 Oregon House Bill No. 2541, Oregon Seventy-Sixth Legislative Assembly; Title: Relating To Inheritance Tax; And Prescribing An Effective Date.; VERSION: Enrolled; June 23, 2011). Westlaw: 2011 OR H.B. 2541 (NS); Web: Oregon Legislature.
OTHER
U.S. Tax Court.Court Determines Value of Estate’s Interest in LLC. On June 29, the U.S. Tax Court determined that the fair market value of 3,970 membership interests in Paxton Media Group, LLC, a Kentucky limited liability company, included in the gross estate of Louise Paxton Gallagher was $32,601,640. At the time of Gallagher’s death, July 5, 2004, her gross estate included the 15 percent interest in the company's 26,439 outstanding units, which was valued on the estate’s Form 706 at a fair market value of $34,936,000 based upon a July 12, 2004 appraisal of the company's units by David Michael Paxton, PMG's president and chief executive officer. Upon audit, the IRS determined the fair market value to be $49,500,000 to which the estate appealed, obtaining an independent appraisal from Sheldrick, McGehee & Kohler, LLC, valuing the units at $26,606,940 as of the valuation date, but the Service confirmed its initial value. Westlaw: Gallagher v. Commissioner, T.C., No. 16853-08, T.C. Memo. 2011-148, 2011 WL 2548051 (June 28, 2011); Web: Gallagher v. Commissioner, T.C., No. 16853-08, T.C. Memo. 2011-148 (June 28, 2011).
U.S. Tax Court.CourtSustains Tax After Decedent Fails to File Income Tax Return for Two Years Prior to Death. The IRS determined a $93,144 deficiency in federal income tax against the late Marilyn Block for 2005, plus additions to tax under IRC §§ 6651(a)(1) and (2) and 6654(a) of $20,956.95, $14,902.72, and $3,736.07, respectively, after decedent failed to file income tax returns for 2004 and 2005 prior to passing away on December 3, 2006. Using information returns reported under the decedent’s Social Security number filed by payers to determine her income, the Service prepared a § 6020(b) substitute for return for 2005, which gave rise to the notice of deficiency. With the burden of proof on the income tax deficiency resting upon the estate under Rule 142, the estate offered no reasonable cause for failure to pay or file the returns and did not challenge the Service’s determination. Westlaw: Estate of Block v. Commissioner, T.C., No. 11392-09, T.C. Memo. 2011-145, 2011 WL 2528761 (June 27, 2011); Web: Estate of Block v. Commissioner, T.C., No. No. 11392-09, T.C. Memo. 2011-145 (June 27, 2011).
U.S. Tax Court.Court Rules on Value of Limited Partnership Interest; Finds Estate not Liable for Penalty. On June 23, the U.S. Tax Court found that the value of a 41.128-percent limited partner interest in Giustina Land & Timber Co. Limited Partnership owned by Natale Giustina at the time of his death in 2005 is $27,454,115 and that the estate is not liable for the $2,531,501 accuracy-related penalty assessed by the IRS. In its opinion, the court noted that there were problems with both the estate’s calculation in valuing the interest at $12,995,000 and the IRS calculation in valuing the interest at $33,515,000. No penalty was imposed with respect to the underpayment as the court concluded that there was reasonable cause for the underpayment and that the estate acted in good faith when relying on the professional appraisal of decedent’s interest. Westlaw: Estate of Giustina v. Commissioner, T.C., No. 10983-09, T.C. Memo. 2011-141, 2011 WL 2468633 (June 23, 2011); Web: Estate of Giustina v. Commissioner, T.C., No. 10983-09, T.C. Memo. 2011-141 (June 23, 2011).
New York.New York State Bar Tax Section Comments on Form 8939 and 2010 GST Allocations. On June 22, the New York State Bar Association’s Tax Section sent a letter to IRS officials commenting on Draft Form 8939. Allocation of Increases in Basis for Property Acquired From a Decedent, and on reporting of certain generation-skipping transfers made in 2010. The letter includes requests for guidance as to whether appraisals will be required to be attached to the Form 8939 and whether de minimis rules requiring disclosure of only assets whose fair market value exceeds a certain threshold amount will apply, for inclusion of a mechanism for allocating a decedent's unused GST tax exemption for estates electing carryover basis so as to eliminate the need to file a Federal Form 706 in addition to a Form 8939 in order to accomplish the allocation, and for permission for the spousal basis increase to apply to assets sold during administration where sale proceeds will ultimately be received by the surviving spouse or in which the spouse will have a qualifying income interest for life. The letter also notes that clarification is needed with respect to whether an election out of automatic GST exemption allocation is required for 2010 GST transfers to which a zero percent tax rate applies and whether taxpayers who filed gift tax returns prior to April 18, 2011 may amend the returns. Westlaw: 2011 WL 2468667 (June 22, 2011); Web: Letter Re. Draft Form 8939, NYSBA Tax Section Reports (June 22, 2011).
Estate and Trust Administration; Probate
IRS DECISIONS, REGULATIONS, AND GUIDANCE
IRS. Section 408 - Individual Retirement Accounts. The IRS determined that an IRA payable to decedent’s estate due to lack of a named beneficiary, which by the state’s community property law entitles surviving spouse to one-half and the couple’s revocable trust as beneficiary of the will to the other half, will not be treated as the spouse’s inherited IRA under IRC § 408(d) since the spouse, as beneficiary of a marital trust containing the IRA and created by the revocable trust, is deemed payee and beneficiary of the IRA and she may roll over the proceeds into an IRA in her own name without including in gross income for federal income tax purposes any portion of the proceeds distributed from the IRA into her roll-over IRA. Westlaw: PLR 201125047, 2011 WL 2509013 (June 24, 2011); Web: PLR 201125047, IRS Written Determinations (June 24, 2011).
LEGISLATION
Connecticut. Probate Court Operations. Connecticut has passed legislation regarding probate court operations. The act includes provisions which (1) update provisions on the Regional Children's Probate Courts; (2) provide workers' compensation coverage for probate judges; (3) eliminate the panel for interdisciplinary teams in proceedings to determine an individual's ability to give informed consent to a sterilization procedure and allow professionals who have a personal working relationship with the respondent to appear on the interdisciplinary team; (4) establish a fee structure of twenty dollars per day when an individual copies probate court records with a hand-held scanner; (5) update statutory references to sections governing order of payment of claims; (6) update provisions concerning sealed and confidential records; (7) permit the Probate Court Administrator to establish a fee structure for electronic access to data processing systems in the probate courts; (8) conform statutory references concerning probate appeals; (9) clarify the powers of a probate court with respect to accountings, removal of a fiduciary of an inter vivos trust, and waiver of bond requirements for a successor fiduciary when bond is not required by the governing instrument; and (10) make technical and conforming changes. (2011 Connecticut House Bill No. 6438, Connecticut General Assembly - January Session, 2011; Title: An Act Concerning Probate Court Operations.; VERSION: Adopted; July 08, 2011). Westlaw: 2011 CT H.B. 6438 (NS); Web: Connecticut Legislature.