On The Cover
Let the sun shine! Norwegian artist Edvard Munch is best known for “The Scream,” that angst-filled painting of a bald man in blue on a bridge with his hands over his ears and his mouth wide open in a scream. The sky above him is a terrifying blood-red and orange. Well, low and behold, there’s another, sunny Munch: His happily colored “Girls on a Bridge,” painted in 1902, sold for almost $31 million at Sotheby’s impressionist auction, held May 7 in New York. Although Munch was influenced by post-impressionists stylistically, he considered himself a symbolist rather than an impressionist; that is, he was more interested in conveying a state of mind than external reality. The state of mind conveyed by “Girls on a Bridge” suits us just fine at the start of summer. (Cover Image: Courtesy of Sotheby’s)
David A. Handler, partner, and Alison E. Lothes, associate, in the Chicago office of Kirkland & Ellis LLP, report on:
• Revenue Ruling 2008-22, 2008-16 IRB 796—grantor’s power to substitute property may not require inclusion of the property in the grantor’s gross estate. • NPRM REG-112196-07—proposed regulations regarding the use of alternate valuation date.
David T. Leibell and Daniel L. Daniels, partners in the Stamford, Conn., office of Wiggin and Dana LLP, report:
Private Letter Ruling 200819006 reminds planners to be careful when electing small business trusts (ESBTs) hold S corporation stock. The taxpayer in this case was fortunate. Unless practitioners pay attention to whether trusts qualify for the ESBT election, their clients may not be so lucky. And, given that the consequence of failing to qualify as an ESBT is dire—the corporation loses its S status—every planner working with S corporations and trusts should examine this ruling.
Estate Planning & Taxation
By Steven J. Oshins & Kristen E. Simmons
A innovative hedging technique takes the mortality risk out of estate planning. Estate planners often recommend life insurance as a hedging tool, because it’s the ideal solution for handling mortality risk. But what if life insurance is unavailable because the proposed insured is either too old or too unhealthy to qualify for a reasonably priced policy? What if a person wants to reduce the insurance need by handling part of the mortality risk with an advanced estate-planning strategy that leverages the assets removed from the taxable estate without a mortality risk? Such individuals should consider a SCIN-GRAT, which combines a self-cancelling installment note (SCIN) with a grantor retained annuity trust (GRAT). Steven J. Oshins and Kristen E. Simmons are members of the Law Offices of Oshins & Associates, LLC in Las Vegas.
By Celia R. Clark
The senior trust helps clients ensure that they can maintain control over their assets now, yet still protect themselves and their loved ones from being unduly influenced later when they become vulnerable. The trust becomes irrevocable and requires a trustee to join in decisions after the grantor experiences what he defines in advance as an “irrevocability event” (death of a spouse, disability). Celia R. Clark is the managing partner of The Law Offices of Celia R. Clark PLLC in New York City.
By Laura H. Peebles
A seasoned professional shares—so that younger practitioners might learn and peers can smile at common experiences. Author Laura H. Peebles notes and explains what she calls the “universal truths of our profession,” including “Lesson 1: The donor’s charitable intent determines whether a gift is made. Tax benefits, however, influence what is given, when and how to fulfill that intent. The planner rarely has influence over the type of charity the client supports, but has great opportunities to make that support more effective through his knowledge and advice.” And, “Lesson 2: Know your client’s personality and history. No matter how good a fit there seems to be with all the puzzle pieces—the potential donor, charity, asset and technique—a donor’s personality traits and habits can disrupt the best-laid plan.” Laura H. Peebles is a director at Deloitte Tax, LLP in Washington.
By Mark E. Powell
If your client understood what it really means to run his own private foundation, would he do it anyway? After unwinding a number of private foundations, author Mark E. Powell identified the questions one needs to ask and information one needs to provide so that clients and their advisors can be more certain about whether a private foundation is the right choice. Explore his questions and explanations with your clients. Sometimes, a donor-advised fund is the better route. Mark E. Powell is a partner in Irvine, Calif.’s Albrecht & Barney.
By Kim Wright-Violich & Christopher W. Geison
Even the best relationships sour. And, too often with a private foundation, clients didn’t fully understand what was involved in running such an organization before getting in to it. But there’s no need to fret. After you’ve helped identify what went wrong, there are five relatively easy steps to help the client get out of a bad relationship with his private foundation. And authors Kim Wright-Violich and Christopher W. Geison walk you through them. Kim Wright-Violich is president and Christopher W. Geison is director of Schwab Charitable in San Francisco.
By Karen H. Putnam
It’s a complicated question, whether to pay directors of family foundations or not. Yet, if you’ve resolved that dilemma and decide the answer is, “Yes,” there comes what can be an even more complicated question: “How much?” The Internal Revenue Service and others provide general guidance—but no specifics. And the pressure is on because whatever is decided will be made public. Plus, recent attention to scandals at private foundations has made the public and lawmakers more sensitive to potential abuses. So here’s the guidance and some considerations for thoughtful individuals to ponder before embarking on compensation for directors. Karen H. Putnam is the director of Philanthropic and Family Wealth Stewardship Services at Bessemer Trust in New York. She is also a member of the Trusts & Estates philanthropy committee.
Estate Planning & Taxation
By Roy M. Adams
One of the deans of the estate-planning world, Roy M. Adams, draws our attention to a recent U.S. Supreme Court decision—Boulware. In this unanimous decision, the justices not only endorsed a bold declaration of taxpayer rights issued more than 70 years ago by the famed Judge Learned Hand, but also actually went so far as to say there was “no doubt” that Hand was correct. This is significant because scholars and others have voiced doubt about it for all these decades. This ruling, says Adams, is blockbuster. But with this blessing comes great responsibility. Once a taxpayer has committed himself to a course of action, he cannot enjoy the benefits of an alternative course, says the high court. Adams explains just how harsh that reality can be by looking at a Seventh Circuit case, Lurie. The bottom line, warns Adams: Practitioners really must know all the facts of the estates they are planning for, fully understand the plans they are advising, and understand what the consequences of those plans might be. Roy M. Adams is the managing member of Roy M. Adams & Associates PLLC, a partner of Constantine Cannon LLP in New York.