On The Cover
Victoriana: Perhaps because of Charles Dickens’ immortal tale about Tiny Tim and Scrooge, Christmas is forever associated with images of Victorian England. So, this December, we couldn’t resist featuring Sophie Anderson’s masterpiece, “No Walk Today,” a painting billed as an iconic representation of Victorian childhood. Sotheby’s sold the piece this fall for US $1,555,517 at a London auction, along with other works from Sir David and Lady Scott’s collection of Victorian genre art.
Proceeds from the sale—US $6,879,340 in total—went to benefit The Finnis Scott Foundation: a charity supporting horticulture, plant sciences, garden history, art and art history.
Sir David, a career diplomat, and his second wife, Valerie Finnis, a well-known alpine gardener and garden photographer, lived in the Dower house at Bougthon in Northamptonshire, where they developed one of the most highly regarded plantsman’s gardens in England. Sir David died at age 99 in 1986 and left his art collection to Lady Scott. On her death in 2006, it was her wish that the collection be sold and the proceeds go to charity.
Other pieces sold in the auction included:
• p. 22—Thomas Edward Roberts’ “The Discovery” sold for
US $82,792.
• p. 44—“The Squire and the Gamekeeper,” an oil on canvas attributed to James Lobley, sold for US $82,792.
• p. 48—Sir John Everett Millais’ “My First Sermon” sold for US $100,744.
• p. 55—“The Proposal” by William Powell Frith, sold for US $149,729; that’s twice its high estimate of US $74,935.
BRIEFING
12/ Tax Law Update
David A. Handler, partner, and Alison E. Lothes, associate, in the Chicago office of Kirkland & Ellis LLP, report on:
•Inflation adjustments for 2009—See the numbers for the annual gift exclusion, gifts to non-citizen spouses, taxes on trusts and estates income, valuation of qualified real property in a decedent’s gross estate, and interest on a certain portion of the estate tax payable in installments.
• Estate of Wendell Hester—The U.S. Court of Appeals for the Fourth Circuit finds misappropriated assets are to be included in the misappropriator’s gross estate.
• In re Bernard L. Bilski—The U.S. Court of Appeals for the Federal District rejects a patent for hedging against commodity prices.
David T. Leibell and Daniel L. Daniels, partners in the Stamford, Conn., office of Wiggin and Dana LLP, report that, in Notice 2008-99, the Internal Revenue Service identified as a “transaction of interest” a certain type of arrangement that sells both the income and remainder interests in a charitable remainder trust to a third party.
Features
Estate Planning & Taxation
By M. Katharine Davidson
Laugh if you must, but trust funds for pets are serious business. The majority of states allow enforceable trust funds for animals. So it makes sense, when planning clients’ estates, to ask if they have someone who’ll care for their pets. If they don’t, they may want to provide for the animals. Here’s how to help.
M. Katharine Davidson is a partner at Dreier Stein Kahan Browne Woods George LLP in Santa Monica, Calif.
24/ The Net Gift Strategy: Good for a Bear Market
By David A. Handler
Most donors would balk at the idea of intentionally paying gift taxes. But sometimes it makes a lot of sense, particularly these days. Show your clients (especially the older, unmarried ones) how financed net gifts can transfer more wealth than a traditional sale to grantor trust. With a financed net gift, clients give away their stock and their heirs pay the tax—just like at death, but at a lower tax rate. The bonus: there’s a reduced investment risk, a lower tax bill, and the heirs don’t have to wait to get the money.
David A. Handler is a partner in the Chicago office of Kirkland & Ellis LLP.
By David L. Weinreb & Warren Litman
Yes, sometimes it makes sense to pay gift tax, especially when the alternative is a bigger estate tax. But there’s yet another option, particularly if your client has liquid assets and at least several years to engage in wealth transfer. The strategy: rolling short-term grantor retained annuity trusts (GRATs). Follow the authors’ analysis showing that, over the long haul, a rolling short-term GRAT strategy beats paying gift tax in all market scenarios.
David L. Weinreb is a director and Warren Litman is a senior quantitative analyst in the Wealth Management Group at Bernstein Global Wealth Management in New York.
By Scott Andrew Bowman
The U.S. Supreme Court declined to hear Jelke, which leaves practitioners with a split among the circuits and the lingering question: What is the proper way to discount the value of stock in a closely held C corporation to reflect the future income tax liability on the corporation’s unrealized built-in gains (BIGs)? Some thoughts.
Scott Andrew Bowman is an associate at Withers Bergman LLP in New Haven, Conn.
Investments
By Christopher G. Didier & Brian L. Beaulieu
Financial advisors also need to get true diversification religion. They should be balancing not just the portfolio in front of them, but all of a client’s holdings—including his business—and build a comprehensively diversified investment strategy. The question is, of course, how exactly should they go about that? A guide.
Christopher G. Didier is a managing director and senior investment consultant at the Milwaukee office of Robert W. Baird & Co. Brian L. Beaulieu is executive director for the Concord, N.H.-based Trend Research.
FIDUCIARY PROFESSIONS
By Robert N. Gordon & Kirk Hoopingarner
Most fiduciaries sell an estate’s stock as soon as possible after death. But there is a way to guarantee that the estate won’t suffer if the stock price drops. Indeed, fiduciaries can help estates profit whether stock values drop or rise between date of death and the alternate valuation date.
Robert N. Gordon is the president of Twenty-First Securities Corporation in New York City. Kirk Hoopingarner is a partner at Wildman, Harrold, Allen & Dixon LLP in Chicago.
By Steven B. Gorin
Trustees of mandatory income trusts have been given a present. The law commissioners have devised an amendment to Section 505 of the Uniform Principal and Income Act so that it’s clear fiduciaries are authorized to pay a trust’s income tax—even if it means there’ll be no distributions to unhappy beneficiaries. Author Steven B. Gorin recommends all states adopt this fix ASAP.
Steven B. Gorin is a partner in the private client practice group of Thompson Coburn LLP in St. Louis.
By Shari A. Levitan & Howard J. Castleman
The wonderful power to adjust bestowed upon trustees by the Uniform Principal and Income Act (UPIA) has a dark side: lawsuits filed by beneficiaries unhappy with the results of those decisions. Most states’ UPIA statutes are rather new, so the potential for challenge has not yet been realized. But today’s difficult economic climate greatly increases the risk that there will be litigation.
Shari A. Levitan is the chair of Holland & Knight LLP’s Private Wealth Services-New England and Howard J. Castleman is a litigation partner for the firm. Both are based in Boston.
RETIREMENT BENEFITS
62/ The Feds Must Stop Hounding the Elderly
By Michael J. Jones
It’s time to change who’s responsible for making required minimum distributions. Let’s stop expecting the elderly, who too often suffer from ever-diminishing capacity, to initiate RMDs, then, if they forget, hit them with 50 percent penalties—plus interest!
Michael J. Jones is a partner in Monterey, Calif.’s Thompson Jones LLP.
