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ON THE COVER

September evokes a feeling of “return” for so many of us: Children return to school after a lazy summer; adults return to their fulltime job routines after two months of warm weather play. But few of us know the joy of “return” the heirs of Adele and Ferdinand Bloch-Bauer are experiencing: Five paintings by Gustav Klimt seized from their family by the Nazis during World War II were returned to them by the Austrian government this January. Four of these oils will be for sale by Christie’s New York this fall, including the 1912 portrait featured on our cover, “Adele Bloch-Bauer II.”

Adele’s husband Ferdinand Bloch-Bauer was a patron of the arts in turn-of-the-century Vienna, and an ardent supporter of Klimt—a founder of the Vienna Seccession. Adele modeled for Klimt twice in the early 1900s. She left five Klimt paintings (including her two portraits) in her will to the Austrian State gallery. But she died first and the paintings went to Ferdinand, who was forced to flee Nazi-occupied Austria and seek refuge in Prague. The Third Reich confiscated the five works of art.

Fast forward to Austria, 1998. Ferdinand and Adele’s descendants sought to reclaim the paintings. Six years ago, their case was heard by the U.S. Supreme Court, which ruled that the United States did in fact have jurisdiction over the matter. This January, a three-man Austrian arbitration panel applied Austria’s 1998 Art Restitution Act and unanimously ruled that the paintings be returned to the Bloch-Bauer heirs.

The five Klimt paintings were on display at the Los Angeles County Museum of Art until this June, when philanthropist Ronald S. Lauder bought the golden Adele Bloch-Bauer portrait for $135 million. All five paintings are on display again, this time until Sept. 19 at the Neue Galerie in New York. The Bloch-Bauer heirs plan to sell the remaining four paintings—worth an estimated $100 million–through Christie’s New York; it is not known whether they will be sold privately or auctioned off.

In addition to “Adele Bloch-Bauer II” on our cover, the returned Klimt painting featured in this issue is:

  • “Apple Tree I (Apfelbaum I),” a magnificent example of Klimt’s unique style of using gradation and shading to reveal one of his favorite subjects, a tree. Note: “Adele Bloch-Bauer I,” the portrait Lauder purchased, was on the cover of Trusts & Estates’ November 2003 issue along with a picture of Adele’s niece and heir, Maria Altman.

BRIEFING

Pension Protection Act

Bruce D. Steiner of Kleinberg, Kaplan, Wolff & Cohen, P.C in New York gives an overview of the groundbreaking Pension Protection Act of 2006 (PPA), which was recently signed into law. He notes the key provisions affecting inherited individual retirement accounts (IRAs), charitable IRA transfers, and company-owned life insurance policies.

Charitable Disincentives

David T. Leibell and Daniel L. Daniels, partners with Cummings & Lockwood in Stamford, Conn., warn that the provisions on charitable giving in the Pension Protection Act include sweeping reforms but very limited incentives for giving to charity. All charities should take note of these provisions, they say. For some, the PPA will mean a fundamental change in the way charities do business.

Tax Law Update

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

  • Private Letter Ruling 200626043—in which property qualified for a qualified personal residence trust (QPRT);
  • Internal Revenue Service Internal Legal Memorandum 200627023—in which there was no time bar to IRS security for Internal Revenue Code Section 6166 estate tax payments;
  • Chief Counsel Advice Memorandum 200628042—in which there were no reasonable cause exceptions for a late IRC Section 6166 election or payment; and
  • CCA 200628026 —in which a trust failed to qualify as a charitable remainder unitrust (CRUT).

CORRECTION

We misidentified author Kimberly Clouse in the August issue; but she got it right regarding the Securities and Exchange Commission’s next move in Goldstein.

FEATURES

ESTATE PLANNING & TAXATION

How to Undo An ILIT, If You Really Have To

By Charles L. Ratner

Is it a good idea to sell your life insurance policy? A life settlement provides liquidity, but there are a lot of issues to consider when making this decision. This article will help you figure out whether to sell. It also will help you navigate the life settlement process.

Charles L. Ratner is the national director of personal insurance counseling at Ernst & Young LLP in Cleveland. He also serves as both the vice-chair of the Trusts & Estates’ advisory board and as chair of the board’s committee on insurance.

INSURANCE

Sell Your Policy?

By Allen Goldstein, Leigh Harter and David Holaday

Is it a good idea to sell your life insurance policy? A life settlement provides liquidity, but there are a lot of issues to consider when making this decision. This article will help you figure out whether to sell. It also will help you navigate the life settlement process.

Allan Goldstein is chief executive officer, Leigh Harter is managing director, and David Holaday is an associate with the The Insurance Design Center, LLC, Deerfield, Ill.

FIDUCIARY PROFESSIONS

How to Fulfill Duties and Promote Good

By Marc J. Lane

Imagine the American Cancer Society having tobacco company stock in its portfolio. This is a fictitious example, but these kinds of things happen: An investor’s advisor, intent on maximizing profits, backs a company that contravenes the investor’s mission. The question is not only how to prevent such a sad absurdity, but also how to support companies that do right by the investors’ values—while still making money. The answer is socially responsible investing, and the trick is how to do it without violating legal or ethical rules governing fiduciaries. Here’s how it can be done.

Marc J. Lane is a principal with The Law Offices of Marc J. Lane, P.C., and Marc J. Lane Investment Management, Inc. in Chicago.

COMMITTEE REPORT

RETIREMENT BENEFITS

IRA Bequests to Charities

By Christopher R. Hoyt

If you are thinking about naming a trust with a charitable beneficiary as the recipient of some of your retirement assets, here is a word of advice: Don’t! With the important exception of a charitable remainder trust (CRT), such a trust can pose problems for the mandatory payouts from the retirement account as well as challenges for claiming charitable income tax deductions for the charitable gifts made by the trust. If a person would like to make a charitable bequest of some retirement assets, here’s the best way to accomplish that.

Christopher R. Hoyt is a professor at the University of Missouri-Kansas City Law School in Kansas City, Mo. He is also a member of the Trusts & Estates’ retirement benefits committee.

Coping With the IRA Raid

By Michael J. Jones

Inheritors of individual retirement accounts (IRAs) who don’t enjoy the tax-favored status of a surviving spouse can face steep income and estate tax bills. Many estate planners are aware of the tax raid that can fell large IRAs. It has become a tax planning article of faith that IRAs, especially large ones, are not worth much to those who inherit them. Life insurance is often proposed to fight the effects of the IRA tax raid problem. And it can be highly effective in that role. But this is no silver bullet. Estate planners and their clients also should consider how valuable stretching out IRAs can be.

Michael J. Jones is a principal with Thompson Jones LLP in Monterey, Calif. He also is the new chair of the Trusts & Estates’ retirement benefits planning committee.

PERSPECTIVES

INTERNATIONAL PLANNING

Double Standards

By Richard J. Hay

The OECD report reveals how transparent nations are in the face of international exchange of financial information for tax enforcement. Further complications arise when larger countries don’t practice what they preach. Read the hidden story behind the OECD report and learn about its unique impact on the global economy.

Richard J. Hay is a tax partner and the head of the Private Capital Group at Stikeman Elliott LLP in London.