On The Cover
Europeans went on a summer shopping spree—not only in the United States, where the Euro stretched far because of a weak dollar, but also in the European auction houses. Sotheby’s week-long sale of Old Master Paintings in London this July realized a combined total of US $117.3 million, the second highest total for a series of Old Master sales at Sotheby’s, a 31 percent increase on the same week last year and an 87 percent increase on the July 2006 total. Auction records were broken for no fewer than 19 artists. Frans Hals “Portrait of Willem van Heythuysen” was the top-selling lot of the evening auction. It went for US $13,995,067, the second-highest price ever achieved for a work at auction by that artist. Hals was one of the greatest painters of the Dutch Golden Age (roughly the 17th century). Heythuysen was a Haarlem merchant. The painting was recently brought back into the public eye after nearly half a century in private hands.
Other top-selling works included:
• p. 44—“The Misers” by an unknown painter, a follower of Marinus van Reymerswaele, contradicted its namesake by selling for US $4,056,691; that’s 13 times the high estimate of US $294,637.
• p. 47—Pompeo Girolamo Batoni’s “Portrait of Count Kirill Grigorjewitsch Razumovsky” sold for US $2,541,924; that’s not a blockbuster piece, but we like the painting.
• p. 56— “A Family Concert on the Terrace of a Country House: A Self Portrait of the Artist with his Family” by David Teniers II sold for US $1,871,131.
David A. Handler, partner in the Chicago office of Kirkland & Ellis LLP, reports on:
• Private Letter Ruling 200832015—in which the Internal Revenue Service found that a beneficiary did not hold a general power of appointment.
• PLR 200832018—in which the IRS found disclaimers valid.
David T. Leibell and Daniel L. Daniels, partners in the Stamford, Conn. office of Wiggin and Dana LLP, report that in Revenue Procedure 2008-45, 2008-30 Internal Revenue Bulletin 224 and 2008-46, 2008-30 IRB 238—both issued July 24, 2008—the Internal Revenue Service has provided sample forms for creating both testamentary and inter vivos charitable lead unitrusts (CLUTs). These sample forms contain numerous helpful annotations and alternate provisions. If a CLUT is established with provisions substantially similar to those contained in the sample documents, the trust will be a “qualified” CLUT. And if a CLUT is qualified, the creator is assured of being entitled to a tax deduction for the value of the charity’s interest in the trust.
Estate Planning & Taxation
16/ Mysteries of the Blinking Trust
By Laura H. Peebles
During the life of a trust, its tax status may change from grantor to non-grantor, or vice versa. Whatever the cause, the result may be unexpected income tax consequences. In some cases, there is guidance to deal with the change. What may not be so obvious is the treatment of income from entities.
Laura H. Peebles is a director at Deloitte Tax, LLP, in Washington. She’s also a member of the Trusts & Estates advisory committee on Philanthropy.
22/ Breaking the PTC Logjam
By John P.C. Duncan & Michael R. Conway, Jr.
The logjam that for eight years has checked the pace of private trust company (PTC) creations will be dislodged when the Internal Revenue Service finalizes its proposed revenue ruling, perhaps as soon as the end of this year. Once it’s gone, expect a flood of PTC formations—propelled by pent-up demand among wealthy families who’ve waited for clarification of their federal tax implications. Exactly how many new PTCs will be created depends on whether the final revenue ruling fixes provisions that conflict with most, if not all, states’ entity laws and create new uncertainties.
John P.C. Duncan and Michael R. Conway, Jr. are managing directors of the Chicago-based Duncan Associates Attorneys & Counselors, P.C.
30/ Time to Rethink Portfolios and Distributions
By Douglas Moore
Many investment advisors expect returns on investments during the next 10 to 20 years to be harder to replicate than during the previous 10 to 20 years. At the same time, inflation will take its toll. And it’s widely expected that ordinary income and capital gains tax rates will increase sometime after this year. Clearly, it’s going to be a challenge to maintain trust portfolios and objectives. So here are some helpful suggestions on Monte Carlo simulations, adjusting for the inflation rates that will impact your clients, coping with alternative investments and more.
Douglas Moore is a managing director in the New York office of The Multi-Family Office Group at U.S. Trust, Bank of America Private Wealth Management. He’s also co-chair of the Trusts & Estates advisory committee on estate planning and taxation.
42/ Webcast Musings
By Marcia Chadwick Holt
A recent webcast in which a veteran Internal Revenue Service representative participated provided insight into issues in spousal rollovers, income in respect of a decedent (IRD), designated beneficiaries, reformation and non-spousal rollovers. The IRS representative will be retiring, probably late this year. So, while his statements may help us better understand some of the PLRs that have been issued, we don’t know what the future holds. Still, it was a good window into IRS thinking. The webcast discussion also led author Marcia Chadwick Holt to conclude that she and her fellow practitioners should ask the Service for certain revenue rulings to clear up some confusion.
Marcia Chadwick Holt is of-counsel with the Denver law firm of Davis Graham & Stubbs LLP. She’s also a member of the Trusts & Estates advisory committee on retirement benefits.
48/ When the Stretch Snaps: Computing Damages
By Michael J. Jones & Natalie B. Choate
The Internal Revenue Code’s minimum distribution rules generally require that retirement plan benefits be distributed in annual installments over the life expectancy of the participant’s designated beneficiary. Most advisors know that this post-death “life expectancy of the beneficiary” or so-called “stretch” payout of retirement benefits can be a valuable tax deferral option for the beneficiary, especially when that beneficiary is young. Unfortunately, the stretch payout option can easily be lost. Sometimes, loss of the stretch payout option is caused by the error of a professional advisor or financial institution. Here is an approach to measuring such damages that may prove useful to professionals facing this unpleasant situation.
Michael J. Jones is a partner in Monterey, Calif.’s Thompson Jones LLP and chairs the Trusts & Estates Retirement Benefits Committee. Natalie B. Choate is an attorney with Nutter McClennen & Fish LLP in Boston and is a contributing editor to Trusts & Estates.
54/ Ten Common Errors
By Bruce D. Steiner
For many clients, retirement benefits are their largest asset. For others, they are important even if not determinative. For all, the rules governing retirement benefits are complicated. There’s also a potential for tension between income tax planning and estate tax planning. So let’s at least be sure to avoid these 10 common errors when planning for retirement benefits. The first mistake, of course, is simply staying out of the retirement savings game. But then there are the less obvious errors.
Bruce D. Steiner is an attorney with Kleinberg, Kaplan, Wolff & Cohen, P.C. in New York City. He’s also a member of the Trusts & Estates Retirement Benefits Committee.
57/ Client Considering Using His IRA For an Unconventional Investment?
By Thomas C. Foster
Wealthy clients often ask advisors whether they should use their individual retirement accounts for unconventional investments. And now that the equity and debt markets have experienced significant volatility, clients may be even more interested in going beyond such common investments as publicly traded stocks and bonds, mutual funds and annuity contracts to venture into commercial or residential real estate, interests in closely held businesses, hedge funds, tangible personal property, etc. But on top of the normal risk/return/diversification analysis that advisors apply to all proposed investments, unconventional investments that will be held in IRAs must be evaluated considering certain additional criteria.
Thomas C. Foster is a director of McCandlish Holton, PC in Richmond, Va. He’s also a member of the Trusts & Estates Retirement Benefits Committee.