ON THE COVER
We often highlight the acquisition of important artworks. But there’s also a dark side to owning glorious objects: They can be taken away. This month, we point to a major loss.
Two paintings by Pablo Picasso were stolen in February from the home of one of the artist’s granddaughters, Diana Widmaier-Picasso. According to police, the two oils, “Maya With Doll” and “Portrait of Jacqueline” were taken while Widmaier-Picasso and her mother, Maya, the subject of one of the portraits, slept. Maya is the daughter of the artist’s longtime mistress Marie-Thérèse Walter. The estimated value of the well-known works is almost $66 million.
“Maya With Doll” is featured on our cover. “Portrait of Jacqueline” can be found on page 60.
LETTERS TO THE EDITOR
Objections
Z. Christopher Mercer finds flaws with Lance Hall’s article that characterizes the restricted stock study, over the quantitative marketability discount model, as the preferred method for determining marketability discounts. Chris Ann Bachtel takes issue with I. Mark Cohen’s December 2006 article on individual trustees.
BRIEFING
Tax Law UpdateDavid A. Handler, partner in the Chicago office of Kirkland & Ellis LLP, reports:
- Estate tax reform proposals have resurfaced in Congress; and
- The Internal Revenue Service has suspended tax exemption letters for Type III supporting organizations seeking to become “functionally integrated” until it issues new guidance
Charitable Giving
David T. Leibell and Daniel L. Daniels of Cummings & Lockwood in Stamford, Conn., report that the IRS has:
- launched an online workshop to help charities maintain their tax-exempt status; and
- published a draft of commandments to guide charities in best practices for governance.
FEATURES
ESTATE PLANNING & TAXATION
IRS Okays Turning Total Return on Its Head
By Craig R. Hersch
Author Craig R. Hersch obtained a private letter ruling that permitted a client to have less money come to him as the income beneficiary from his deceased wife’s credit shelter trust, leaving more for the remaindermen, their children. In the rare instances when it’s useful to restrict mandatory income distribution that would otherwise augment a transfer tax liability situation and when state law authorizes a total return trust calculation that would result in smaller annual distributions, it’s good to know that this PLR exists.
Craig R. Hersch is a shareholder at Sheppard, Brett, Stewart, Hersch, Kinsey & Hill, P.A., in Fort Myers, Fla. He has extensive asset protection experience in assisting professionals with domestic and offshore strategies to protect their wealth. In addition to traditional estate planning, he sits on the board of directors of Investors’ Security Trust Company in Fort Myers, Fla.
Sidestepping 2035
By Lawrence I. Richman
Estate planners tend to be wary of both an insured’s sale of a life insurance policy to an irrevocable insurance trust established by the insured and the sale by an existing irrevocable insurance trust to a new irrevocable insurance trust. Problem is, if the client dies within three years of the transfer, the asset will be included in his estate. But a recent revenue ruling offers several precepts that practitioners can follow to enable these transactions—and avoid the three-year inclusion rule. A guide.
Lawrence I. Richman is a partner at Neal, Gerber & Eisenberg LLP in Chicago and chair of its private wealth services practice group. His practice involves advising entrepreneurs, tax-exempt organizations, fiduciaries and high-net-worth families on all facets of estate, gift and charitable planning. Mr. Richman has also served as chairman of the Trust Law Committee of the Chicago Bar Association
Dynasty Trusts: The Basics
By Daniel L. Daniels and David T. Leibell
A dynasty trust can offer significant benefits, but achieving those benefits isn’t easy. There are all sorts of legal hurdles. Nonetheless, this form of trust, if structured properly, can remove income and appreciation from the estate and gift tax system forever and grow income-tax-free. Another bonus: It can be designed so that the assets are shielded from claims of the beneficiaries. A primer.
Daniel L. Daniels is a partner at the Stamford, Conn., office of Cummings & Lockwood and chair of its private clients group. In addition to co-authoring a monthly column for Trusts & Estates, he has written many articles on estate and planning and is the author of the treatise, Settlement of Estates in Connecticut
David T. Leibell is a partner in the Stamford, Conn. office of Cummings & Lockwood LLC, practicing in its private clients group and charitable planning group. He writes a monthly column for Trusts & Estates and is the chair of T&E’s philanthropy committee.
FIDUCIARY PROFESSIONS
Deducting Fees for Investment Advice
By John M. Janiga and Louis S. Harrison
One of the most vexing issues in the federal income taxation of trusts over the last 15 years has been questions about the correct treatment of Internal Revenue Code Section 212 expenses. Are such expenses fully deductible in arriving at a trust’s taxable income? Or are they miscellaneous itemized deductions (MIDs) deductible only to the extent that they exceed 2 percent of a trust’s adjusted gross income (AGI)? The stakes can be high: If the trust has a large amount of investment advisory fees (IAFs), the loss of deduction for regular tax purposes can be substantial. The IRS’ position is that IAFs are not fully deductible, but instead are MIDs. Only one federal appeals court has disagreed. But even those courts that support the IRS’ stance offer differing rationales. It’s time for a higher authority to resolve the matter. Authors John M. Janiga and Louis S. Harrison analyze the case law and issues.
John M. Janiga is a professor at the School of Business Administration, Loyola University, in Chicago. His research interests are in both federal income taxation and federal transfer taxation. Janiga has published extensively in tax, trusts and estates, and probate journals, and is a member of the ABA, AAA, ATA, Illinois SBA and the Chicago Bar Association.
Louis S. Harrison is partner in Harrison & Held, LLC, in Chicago. He specializes in estate planning and litigation, post-mortem tax planning, charitable dispositions, and gifting strategies. He also provides tax planning for closely held companies. Mr. Harrison is the author of over 100 journal articles and is the co-author of two books, Sorting Out Life’s Complexities: What You Really Need to Know About Taxes, Wills, Trusts, Powers of Attorneys and Health Care Decisions and Illinois Estate Planning Forms and Commentary.”
COMMITTEE REPORT: RETIREMENT BENEFITS
A Great New Option: The Nonspousal Rollover
By Howard M. Esterces
There is an important new tax benefit: The Pension Protection Act made it so that a pension plan beneficiary who is not a spouse can make a tax-free rollover to an individual retirement account (IRA) and stretch out taxable distributions from it. Unfortunately, the law doesn’t mandate that plans offer this option and recent guidance from the IRS actually complicates the matter, making it less likely that they will. Still, the IRS also issued some clarifications and the smart banks, trust companies and financial firms should see that offering the nonspousal rollover is an excellent way to get new business.
Howard M. Esterces is a partner at Meltzer Lippe Goldstein & Breitstone, LLP in Mineola, N.Y. He conducts estate planning for a wide range of clients, including farmers, songwriters, medical and legal professionals, retirees, widows and widowers, corporate executives, closely held business owners, real estate investors, professors and clergy. He also specializes in succession planning for pension and IRA distributions, as well as business-succession planning.
To Convert Or Not to Convert?
By Vincent Travagliato, Nicholas Altieri, Ian Weinstock and Christopher Leung
In three years, taxpayers of all income levels will be able to convert a traditional individual retirement account (IRA) to a Roth IRA. But should they? The authors have devised a model and, under their assumptions, it seems that the answer is “Yes.” Of course, individual circumstances may vary that result.
Vincent Travagliato is the head of the estate planning strategy team and co-head of the quantitative strategies and analysis team for Morgan Stanley/Private Wealth Management Americas, in New York.
Nicholas Altieri is a senior member of the estate planning strategy team for Morgan Stanley/Private Wealth Management Americas, in New York.
Ian Weinstock is a Purchase, N.Y.-based executive director in the Morgan Stanley Law & Compliance Division.
Christopher Leung is an associate with Morgan Stanley/Private Wealth Management Americas, in New York.
PERSPECTIVES
The Gift of a Great BookBy Herbert E. Nass
Jim Stovall’s novella, The Ultimate Gift, is the inspirational story of the unusual instructions and bequest made by a deceased billionaire to his prodigal great nephew. Unfortunately, says Herbert E. Nass, the movie version—released last month—is a dud. It remains to be seen what comes of the movie tie-in products and philanthropy “movement.”
Herbert E. Nass is a partner at Herbert E. Nass & Associates in New York. He is the author of Wills of the Rich and Famous, published in 1991.
