May 2011

IN THIS ISSUE:

News, Articles, and Updates for the Estate Planner

See updates and article references involving charitable trusts and donations; elder law, estate and gift taxes, estate and trust administration/probate; estate planning; generation-skipping transfer tax; health care; retirement; small and mid-size law firm practice; special needs trusts/ guardianships, and trusts.

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NEWS, ARTICLES, AND UPDATESFor The Estate Planner

Charitable Trusts and Donations

ARTICLESEstates Can Qualify for an Income Tax Charitable Deduction. Michael L. Van Cise.

(Estate Planning, May, 2011). Westlaw: 38 ESTPLN 32.

Prevent Overvaluation of Charitable Intellectual Property Donations or Incentivize Such Donations? John K. Woo. (University of Pennsylvania Journal of Business Law, Winter 2011). Westlaw: 13 U. Pa. J. Bus. L. 527; Web: University of Pennsylvania Journal of Business Law (when available).

IRS DECISIONS, REGULATIONS, AND GUIDANCEIRS. Section 170 - Charitable, etc., Contributions and Gifts. The IRS concluded that a

donor who failed to obtain a contemporaneous written acknowledgment for contributions of $250 or more under I.R.C. § 170(f)(8)(A) does not meet the substantiation requirements of § 170(f)(8) if the donee subsequently files an amended Form 990 for the year of contribution for purposes of attaching a statement to the Form 990 that includes the information required by § 170(f)(8)(B). Westlaw: CCA 201120022, 2011 WL 1908778 (May 23, 2011); Web: CCA 201120022, IRS Written Determinations (May 20, 2011).

IRS. Section 170 - Charitable, etc., Contributions and Gifts. The IRS concluded that taxpayers must comply with I.R.C. § 170(f)(8)(A) in order to be allowed a charitable deduction since the Service has never implemented § 170(f)(8)(D) as an alternative to taxpayers obtaining a contemporaneous written acknowledgment in accordance with § 170(f)(8)(A). Westlaw: CCA 201120027, 2011 WL 1908783 (May 23, 2011); Web: CCA 201120027, IRS Written Determinations (May 20, 2011).

LEGISLATIONMissouri. Missouri Family Trust Revisions. Missouri has passed legislation that

revises the provisions establishing the Missouri Family Trust and its Board of Trustees, a non-profit organization established for the purpose of administering special needs trusts. Special needs trusts are trusts designed specifically for individuals with disabilities that, if established as prescribed by law, do not affect an individual's eligibility for various public assistance programs such as Medicaid services. Among many other changes, the act requires the Board to establish a charitable trust account for the benefit of individuals with disabilities. The Board is to accept contributions to the trust at the termination of trust accounts and other contributions from donors. The Board must determine the amount of income and principal of the charitable trust to be used to provide benefits for individuals with disabilities. Benefits provided may only be those that do not have a negative effect on the individual's public assistance benefits. The act also makes changes by: (1) Definitions and intent. amending the declaration of policy and intent; adding the words “beneficiary”, “co-trustee”, “Missouri family trust”, “remainder beneficiary”, and “restricted account” as

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well as adding to the definitions of “board of trustees”, “disability”, and “trustees”; (2) Trust administration fees. Adding a provision that the Board may establish and collect fees for administering trust accounts; (3) Types of accounts and trusts. Repealing sections 402.210 to 402.225 and enacting sections 402.201 to 402.208 in their place. The new sections break up the establishment of various types of accounts under the Missouri Family Trust into trust accounts, restricted trust accounts and the charitable trust. These accounts are maintained in trust as separate accounts, but may be pooled for purposes of investment and management. In addition, the act names the two types of trust accounts ("First party trust accounts" and "Third party trust accounts" ), prescribing the duties, restrictions, distribution of assets and procedures for such accounts: (a) “First party trust accounts,” which are accounts to which the assets of a beneficiary are contributed and administered in trust for the benefit of the beneficiary. Either the beneficiary, parent, grandparent or legal guardian of the beneficiary, or a court is to be the settlor of the account. At the death of the beneficiary, the Board is to provide notice that the trust has terminated to each state, in addition to the State of Missouri, of which the Board has knowledge that such state has provided Medicaid services to the individual. This act prescribes the procedures for distributing the assets, including to any of the states with claims on the proceeds; (b) “Third party trust accounts” are accounts to which any person as settlor, except a beneficiary or beneficiary's spouse, may contribute assets in the trust to the Board of Trustees for the benefit of the beneficiary. At the death of the beneficiary, the Board is to determine the principal balance of the account and after payment of expenses of the beneficiary as the Board may authorize and all fees and expenses of the Board, and will distribute to the persons, entities, or organizations designated by the settlor as remainder beneficiaries. Under both first party and third party trusts, the settlor of the account may designate a co-trustee to act together with the Board of Trustees acting in its capacity as trustee. This act revises current law by providing that if the Board determines, in its good faith judgment, that a co-trustee has breached his or her fiduciary duties, then the Board may by written notice to such co-trustee, remove him or her and appoint a successor co-trustee or serve as the sole trustee. (c) Revocable Trust Accounts. If authorized by the settlor in the trust documents, the settlor or the co-trustee of a revocable trust account, upon written notice to the board and with the board's consent, may withdraw such part of the trust account as the settlor or co-trustee may determine. There are restrictions as to the amount that may be withdrawn. The settlor and co-trustee under the same conditions may also revoke and terminate the trust account. Upon receipt of such notice of termination or revocation, the board shall promptly determine the principal balance of the trust account and follow the prescribed procedure for distribution of the assets. (e) Restricted Trust Accounts. Any person with the consent of the Board may establish a restricted account within the charitable trust and may determine, with the consent of the Board, the class of individuals eligible to be recipients of funds from the restricted accounts, so long as such individuals meet the definition for disabled under this act. (2011 Missouri Senate Bill No. 70, Missouri Ninety-Sixth General Assembly, First Regular Session; Title: Modifies Provisions Relating To The Missouri Family Trust, VERSION: Enrolled). Westlaw: 2011 MO S.B. 70 (NS); Web: Missouri Legislature.

Texas. Disclosure of Certain Information Regarding Certain Charitable Organizations, Trusts, Private Foundations, and Grant-making Organizations. Texas has passed legislation limiting the disclosure of certain information regarding certain charitable organizations, trusts, private foundations, and grant-making organizations. The law prevents a governmental entity from requiring that a charitable organization, private foundation trust, split interest trust, or private foundation to disclose the race, religion, gender, national origin, socioeconomic status, age, ethnicity, disability, marital status, sexual orientation, or political party registration of various specified persons involved with these organizations and trusts. (2011 Texas House Bill No. 3573, Texas Eighty-Second Legislature; Title:

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Relating To Limiting The Disclosure Of Certain Information Regarding Certain Charitable Organizations, Trusts, Private Foundations, And Grant-Making Organizations., VERSION: Enrolled). Westlaw: 2011 TX H.B. 3573 (NS); Web: Texas Legislature.

Texas. Travis County Concurrent Jurisdiction In Fiduciary Breach of Duty of Charitable Trusts. Texas has passed legislation that relating to jurisdiction in certain proceedings brought by the attorney general with respect to charitable trusts. The law added that a statutory probate court of Travis County has concurrent jurisdiction with any other court on which jurisdiction is conferred by Section 4A of the Texas Probate Code in a proceeding brought by the attorney general alleging breach of a fiduciary duty with respect to a charitable trust created by a will that has been admitted to probate. (2011 Texas Senate Bill No. 587, Texas Eighty-Second Legislature; Title: Relating To Jurisdiction In Certain Proceedings Brought By The Attorney General With Respect To Charitable Trusts., VERSION: Enrolled). Westlaw: 2011 TX S.B. 587 (NS); Web: Texas Legislature.

Elder Law

ARTICLESChapter 64: Assisting Victims Of Elder Financial Abuse In Recovering Their

Judgment Awards. Ekaterina Deaver. (McGeorge Law Review, 2011). Westlaw: 42 McGeorge L. Rev. 531; Web: McGeorge Law Review (when available).

Protecting Mom and Dad. Lawyers Take Different Approaches to Elder Law. (Oregon State Bar Bulletin, May, 2011). Westlaw: 71-MAY Or. St. B. Bull. 19; Web: Oregon State Bar Bulletin.

LEGISLATIONIllinois. Domestic Living Situation Under Elder Abuse and Neglect Act. Illinois has

passed legislation that amends the Elder Abuse and Neglect Act. The act redefines “domestic living situation” to mean a residence where the eligible adult at the time of the report lives alone or with his or her family or a caregiver, or others, or a board and care home or other community-based unlicensed facility, with certain exceptions (rather than a residence where the eligible adult lives alone or with his or her family or a caregiver, or others, or a board and care home or other community-based unlicensed facility, with certain exceptions). (2011 Illinois House Bill No. 2020, Illinois Ninety-Seventh General Assembly - First Regular Session; Title: Elder Abuse&Neglect-Definition, VERSION: Enrolled). Westlaw: 2011 IL H.B. 2020 (NS).Web: Illinois Legislature.

Maine. Designation of Third Party For Notification Insurance Policy Cancellation. Maine has passed legislation permitting senior citizens to designate a 3rd party to receive notice of cancellation of insurance policies. (2011 Maine Senate Paper No. 93, Maine One Hundred Twenty-Fifth Legislature - First Regular Session; Title: An Act To Permit Senior Citizens To Designate A 3rd Party To Receive Notice Of Cancellation Of Insurance Policies, (Ld 313), VERSION: Adopted). 2011 ME S.P. 93 (NS).

Texas. Convictions Barring Employment at or by Certain Facilities Serving the Elderly or Persons with Disabilities. Texas has passed legislation that relating to the convictions barring employment at or by certain facilities serving the elderly or persons with disabilities. The law adds to the list of disqualifying convictions an offense under Section 36.06, Penal Code (obstruction or retaliation); and under Sections 42.09 and 42.092, Penal Code (making clear that cruelty to either livestock or nonlivestock animals is a disqualifying conviction). (2011 Texas House Bill No. 2609, Texas Eighty-Second Legislature; Title: Relating To Convictions Barring Employment At Or By Certain Facilities Serving The Elderly Or Persons With Disabilities., VERSION: Enrolled). Westlaw: 2011 TX H.B. 2609 (NS);

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Web: Texas Legislature.

Vermont. Hospice and Palliative Care; DNR orders. Vermont has passed legislation that requires the use of a standard form for out-of-hospital do-not-resuscitate (DNR) orders; require the department of health to create a standard identifier for individuals who have an out-of-hospital DNR order; require that the department of disabilities, aging, and independent living (DAIL) revise its policies to allow individuals enrolled in hospice to enroll in choices for care; create a group to study expanding hospice access and benefits; and require continued medical education on hospice and palliative care for physicians. (2011 Vermont House Bill No. 201, Vermont 2011-2012 Legislative Session; Title: An Act Relating To Hospice And Palliative Care, VERSION: Enrolled). Westlaw: 2011 VT H.B. 201 (NS); Web: Vermont Legislature.

Washington. Elder and Vulnerable Adult Referral Agencies. Washington has passed legislation relating to elder placement referrals. The act adds a new chapter to Title 18 RCW, prescribing requirements and penalties for elder and vulnerable adult referral agencies, which the act defines as businesses or persons who receive (1) a fee from or on behalf of a vulnerable adult seeking a referral to care services or supportive housing, or (2) a fee from a care services provider or supportive housing provider because of any referral provided to or on behalf of a vulnerable adult. (2011 Washington House Bill No. 1494, Washington Sixty-Second Legislature - 2011 Regular Session; Title: Concerning Elder Placement Referrals. Revised For 1st Substitute: Concerning Vulnerable Adult Referral Agencies., VERSION: Adopted). Westlaw: 2011 WA H.B. 1494 (NS); Web: Washington Legislature.

Washington. Implementation of Guardianship Task Force Report. Washington has passed legislation implementing recommendations from the Washington State Bar Association Elder Law Section's Executive Committee Report of the Guardianship Task Force (see task force report). The task force recommended that courts should actively monitor guardianship cases; reliable, statewide guardianship information should be available; training should be required for lay guardians; the Office of Public Guardianship should be supported and expanded; and adequate public funding should be allocated to the guardianship system. The governor vetoed section 11 of the act, which implemented a fee schedule for filing of reports under RCW 11.92.040(2), citing opposition of the judiciary branch to fee (but support of the act generally), but with the expectation that the agencies of the judicial branch will implement the requirements of the bill with appropriated resources. (2011 Washington House Bill No. 1053, Washington Sixty-Second Legislature - 2011 Regular Session; Title: Implementing Recommendations From The Washington State Bar Association Elder Law Section's Executive Committee Report Of The Guardianship Task Force., VERSION: Adopted). Westlaw: 2011 WA H.B. 1053 (NS); Web: Washington Legislature.

Estate and Gift Taxes

ARTICLESForeign Investment in U.S. Real Property: Navigating Through the Income, Estate, and Gift Tax Traps. Datan Dorot. (Florida Bar Journal, May, 2011). Westlaw: 85-MAY Fla. B.J. 52; Web: Florida Bar Journal.

Implementing the Estate and Gift Tax Changes Before 2013's Sunset. Susan A. Berson. (Journal of the Kansas Bar Association, April, 2011). Westlaw: 80-APR J. Kan. B.A. 24.

IRS DECISIONS, REGULATIONS, AND GUIDANCEIRS. IRS Confirms Gift Tax Examinations of Donors Contributing to Section 501(c)

(4) Organizations. On May 13, in an email to Bureau of National Affairs, Inc. (BNA), the

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Internal Revenue Service confirmed that it is examining donations paid to Section 501(c)(4) organizations to determine whether federal gift tax should have been paid by donors on the contributions. According to BNA, the email stated, “The IRS has opened examinations of five donors who had not filed gift tax returns to determine if the donations were taxable gifts and if a gift tax return should have been filed.” BNA reported that historically some attorneys advised clients to make donations to 501(c)(4) “social welfare” organizations as the contributions routinely were not subject to the gift tax. Westlaw: 094 DER G-1, 2011, 2011 WL 1821198 (May 16, 2011).

IRS. Estate Tax Filing Statistics Released. Earlier this month, the IRS released new data on estate tax filings. According to the report the number of estate tax returns filed decreased from more than 108,000 in 2001 to fewer than 34,000 in 2009, due primarily to the increases in the filing threshold from $675,000 for 2001 deaths to $3.5 million for 2009 deaths. The Services also reported that less than half of the estates filing in 2009 owed estate tax after deducting marital and charitable bequests, and expenses and debts of the estate, but those estates that did owe estate tax had a combined obligation of nearly $21 billion. Westlaw: 094 DER G-8, 2011, 2011 WL 1821236 (May 16, 2011); Web: Snapshot of Estate Tax Statistics, IRS SOI Tax Stats - Estate Tax Statistics (May 2011).

IRS. Section 2511 - Transfers in General (Gift v. Not a Gift). The IRS ruled the fair market value exchange involving commercial properties held jointly by a marital trust and the decedent’s two children from a prior marriage or trusts for their benefit in a court-ordered mediation settlement were the result of arms-length negotiations between the parties, and therefore the resulting transfers were made for adequate and full consideration in money or money's worth and would not be subject to the gift tax. The Service also determined that, since the surviving spouse continued to possess a qualifying income interest for life in the Marital trust with undiminished rights to income upon the conclusion of the FMV exchanges, the sale and purchase of various assets held by the Marital Trust and related equalizing payments pursuant to the Agreement, would not be treated as a disposition of a qualifying income interest for life under I.R.C. § 2519, and therefore § 2207A(b) would not apply. Westlaw: PLR 201119003, 2011 WL 1824507 (May 13, 2011); Web: PLR 201119003, IRS Written Determinations (May 13, 2011).

IRS. Section 2044 - Certain Property for Which Marital Deduction Was Previously Allowed. The IRS ruled that a division of qualified terminable interest property marital trust created by decedent’s will into two trusts pursuant to the terms of Agreement will not disqualify the resulting marital trusts as QTIP trusts under I.R.C. § 2056(b)(7). However, renunciation of the spouse’s interest in one of the trusts resulting in distribution of the interest to remainder trusts for the benefit of the decedent’s children, will be a gift of her income interest in the affected trust under § 2511, and a gift of all the property owned by the trust, other than her qualifying income interest in the trust, under § 2519. Westlaw: PLR 201119004, 2011 WL 1824508 (May 13, 2011); Web: PLR 201119004, IRS Written Determinations (May 13, 2011).

LEGISLATIONNevada. Apportionment of Federal Transfer Taxes. Nevada has passed legislation

revising provisions governing the apportionment of federal transfer taxes upon the death of a person. Under state law, upon the death of a person, if the person's estate is insufficient to pay all federal gift taxes or federal generation-skipping transfer taxes due, the unpaid tax must be paid on a pro rata basis by those persons receiving the transfers which triggered the tax in the proportion that the value of the property, interest or benefit of each such person bears to the total value of the property subject to the federal tax, unless the donor or decedent provided otherwise in writing. (NRS 150.400). The act provides that such provisions must not be construed to allow the apportionment or enforcement of the

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collection of any tax to the extent such tax has not been paid and the collection thereof is no longer enforceable under applicable federal law; and that a recipient of a transfer is not required to pay tax in an amount that exceeds the value of the property received by the recipient or the maximum amount payable by the recipient under federal law, whichever is less. (2011 Nevada Assembly Bill No. 348, Nevada Seventy-Sixth Regular Session; Title: Revises Provisions Governing The Apportionment Of Federal Transfer Taxes Upon The Death Of A Person. (Bdr 12-569), VERSION: Adopted). Westlaw: 2011 NV A.B. 348 (NS); Web: Nevada Legislature.

Colorado. Colorado Uniform Estate Tax Apportionment Act. Colorado has passed the Colorado Uniform Estate Tax Apportionment Act. The act addresses definitions; rules for apportionment by will or other dispositive instrument; statutory apportionment of estate taxes (to extent not in such dispositive instruments); credits and deferrals of estate taxes; insulated property and advancement of tax; apportionment and recapture of special elective benefits; securing payment of estate tax from property in possession of fiduciary; collection of estate tax by fiduciary; right of reimbursement; actions to determine or enforce the act; and rules of construction. (2011 Colorado Senate Bill No. 165, Colorado First Regular Session of the Sixty-Eighth General Assembly; Title: Co Uniform Estate Tax Apportionment Act, VERSION: Enrolled). Westlaw: 2011 CO S.B. 165 (NS); Web: Colorado Legislature.

Florida. Period of Exemption from Filing Estates Tax and Generation-skipping Transfers Tax Returns. Florida has passed legislation that, among other things, extends the period of exemption under certain circumstances from filing of returns with respect to tax on estates of decedents or tax on generation-skipping transfers. The provision is retroactively effective to January 1, 2011, and does not apply to the estates of decedents dying after the end of 2012. (2011 Florida House Bill No. 641, Florida One Hundred Thirteenth Regular Session; Title: Tax Administration, VERSION: Enrolled). Westlaw: 2011 FL H.B. 641 (NS); Web: Florida Legislature.

OTHERCongress. Senate Finance Committee Issues Letter to IRS on Gift Tax Enforcement

on Donations to 501(c)(4) Organizations. On May 18, Senate Finance Committee members sent a letter to the IRS expressing concern over the recent gift tax enforcement activities taken by the Service individuals who have made donations to “social welfare” groups organized as Section 501(c)(4) tax exempt organizations. The members argued that “[t]he applicability of gift taxes to 501(c)(4) contributions is ambiguous,” and noted that the contributions were not made for tax planning or estate tax avoidance purposes. Further, members noted that the pattern of nonenforcement by the IRS on these types of donations over a period of nearly three decades raised concerns over the timing of the enforcement actions given the adverse impact that enforcement may have on the exercise of constitutionally protected rights by of “chilling” political speech. Westlaw: Senate Finance Committee Republicans' Letter to IRS on Gift Tax Enforcement, Political Influence, 2011 WL 1881517 (May 19, 2011): Web: Senators Letter to IRS, U.S. Senate Committee on Finance (May 18, 2011).

ABA. Treasury Attorney-Advisor Says Treasury Determining How to Handle NOL for 2010 Decedent’s Electing Carryover Basis. On May 6, Cathy Hughes, Treasury estate and gift tax attorney-adviser told an estate tax panel at the May meeting of the American Bar Association Section of Taxation that one of the issues facing the Treasury Department in finalizing guidance for estates electing into the carryover basis regime for decedent’s dying in 2010 is how to handle net operating losses in relation to the increase in basis. Hughes acknowledged that many questions have arisen on how to make the tax code Section 1022 election to have carryover basis apply instead of the estate tax. Estates of decedent’s dying in 2010 that elect the modified carryover basis are allowed a $1.3 million increase (plus an additional $3 million for surviving spouse) in decedent’s basis which can be

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allocated among assets by the executor, increased by (1) the amount of any capital loss carryover, and NOL carryover which would, but for the decedent's death, be carried from the last tax year to a later tax year of the decedent, plus (2) the sum of the amount of certain types of losses that would have been allowable to the decedent, if the property acquired from the decedent had been sold at fair market value immediately before the decedent's death. Westlaw: 090 DER G-7, 2011, 2011 WL 1747526 (May 10, 2011).

Estate and Trust Administration; Probate

ARTICLESPunitive Damages Against Fiduciaries, Probate Cases, and Equitable Relief. John

Pankauski, Laurence A. Steckman, Robert E. Conner. (Probate and Property, May/June, 2011). Westlaw: 25-JUN Prob. & Prop. 43; Web: Probate and Property (RPTE members).

LEGISLATIONNevada. Administration of Trusts and Estates; Nonprobate Transfers of Property to

Take Effect on the Death of the Owner of the Property. Nevada has passed legislation relating to the administration of trusts and estates. The act provides for exemption of certain trust property, interests or powers from execution and attachment; nonprobate transfers of property to take effect on the death of the owner of the property; establishing provisions relating to transfers of property which are found or presumed to be void and providing the effect of such transfers; providing for the independent administration of estates; and revising provisions concerning the administration of trusts and estates. (2011 Nevada Senate Bill No. 221, Nevada Seventy-Sixth Regular Session; Title: Makes Various Changes Relating To Trusts, Estates And Probate. (Bdr 2-78), VERSION: Enrolled). Westlaw: 2011 NV S.B. 221 (NS); Web: Nevada Legislature.

Texas. Probate Fee Exemption for Enforcement Officers, Firefighters, and Others Killed in the Line of Duty. Texas has passed legislation that giving a probate fee exemption for estates of certain law enforcement officers, firefighters, and others killed in the line of duty. Those eligible are the same as those listed in Section 615.003 of the Texas Government Code. (2011 Texas Senate Bill No. 543, Texas Eighty-Second Legislature; Title: Relating To A Probate Fee Exemption For Estates Of Certain Law Enforcement Officers, Firefighters, And Others Killed In The Line Of Duty., VERSION: Enrolled). Westlaw: 2011 TX S.B. 543 (NS); Web: Texas Legislature.

Texas. Nonsubstantive Revision of Texas Probate Code Provisions. Texas has passed legislation concerning the nonsubstantive revision of provisions of the Texas Probate Code relating to durable powers of attorney, guardianships, and other related proceedings and alternatives, and the redesignation of certain other provisions of the Texas Probate Code, including conforming amendments and repeals. (2011 Texas House Bill No. 2759, Texas Eighty-Second Legislature; Title: Relating To The Nonsubstantive Revision Of Provisions Of The Texas Probate Code Relating To Durable Powers Of Attorney, Guardianships, And Other Related Proceedings And Alternatives, And The Redesignation Of Certain Other Provisions Of The Texas Probate, VERSION: Enrolled). Westlaw: 2011 TX H.B. 2759 (NS); Web: Texas Legislature.

Illinois. Time Limitations on Claims Against Estate. Illinois has passed legislation that amends the Probate Act of 1975 by modifying a provision that states that all claims against an estate are barred 2 years after decedent's death, by adding an exception: if the estate is opened 21 months after the date of death or later, a claim must be filed not less than 6 months after the first notice is published or 3 months from the date of mailing or delivery of the required notice, whichever is later. (2011 Illinois House Bill No. 3478, Illinois

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Ninety-Seventh General Assembly - First Regular Session; Title: Civ Pro-Judgment-Revival, VERSION: Enrolled). Westlaw: 2011 IL H.B. 3478 (NS); Web: Illinois Legislature.

Estate Planning (Generally)

ARTICLESFamily Partnership Liquidation Presents Tax Issues. Eugene Pollingue and Pauline

W. Markey. (Estate Planning, May, 2011). Westlaw: 38 ESTPLN 25.

IRS Initiatives Make 'Hidden Income' Harder to Keep Secret. Kevin E. Packman. (Estate Planning, May, 2011). Westlaw: 38 ESTPLN 14.

Nevada Supreme Court Lets Donor-Advised Fund Ignore Donor's Advice. Richard L. Fox. (Estate Planning, May, 2011). Westlaw: 38 ESTPLN 9.

Personal Power Stops Second-Guessing of Trustee Decisions. Peter B. Tiernan. (Estate Planning, May, 2011). Westlaw: 38 ESTPLN 37.

A Rather Dark and Murky Crystal Ball. Howard M. Zaritsky. (Estate Planning, May, 2011). Westlaw: 38 ESTPLN 48.

Subsequent Remarriage Complicates Exclusion Amount Portability. Marvin D. Hills. (Estate Planning, May, 2011). Westlaw: 38 ESTPLN 3.

Generation-Skipping Transfer Tax

LEGISLATIONNevada. Apportionment of Federal Transfer Taxes. Nevada has passed legislation

revising provisions governing the apportionment of federal transfer taxes upon the death of a person. Under state law, upon the death of a person, if the person's estate is insufficient to pay all federal gift taxes or federal generation-skipping transfer taxes due, the unpaid tax must be paid on a pro rata basis by those persons receiving the transfers which triggered the tax in the proportion that the value of the property, interest or benefit of each such person bears to the total value of the property subject to the federal tax, unless the donor or decedent provided otherwise in writing. (NRS 150.400). The act provides that such provisions must not be construed to allow the apportionment or enforcement of the collection of any tax to the extent such tax has not been paid and the collection thereof is no longer enforceable under applicable federal law; and that a recipient of a transfer is not required to pay tax in an amount that exceeds the value of the property received by the recipient or the maximum amount payable by the recipient under federal law, whichever is less. (2011 Nevada Assembly Bill No. 348, Nevada Seventy-Sixth Regular Session; Title: Revises Provisions Governing The Apportionment Of Federal Transfer Taxes Upon The Death Of A Person. (Bdr 12-569), VERSION: Adopted). Westlaw: 2011 NV A.B. 348 (NS); Web: Nevada Legislature.

Florida. Period of Exemption from Filing Estates Tax and Generation-skipping Transfers Tax Returns. Florida has passed legislation that, among other things, extends the period of exemption under certain circumstances from filing of returns with respect to tax on estates of decedents or tax on generation-skipping transfers. The provision is retroactively effective to January 1, 2011, and does not apply to the estates of decedents dying after the end of 2012. (2011 Florida House Bill No. 641, Florida One Hundred Thirteenth Regular Session; Title: Tax Administration, VERSION: Enrolled). Westlaw: 2011 FL H.B. 641 (NS); Web: Florida Legislature.

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Health Care

LEGISLATIONVermont. Hospice and Palliative Care; DNR orders. Vermont has passed

legislation that requires the use of a standard form for out-of-hospital do-not-resuscitate (DNR) orders; require the department of health to create a standard identifier for individuals who have an out-of-hospital DNR order; require that the department of disabilities, aging, and independent living (DAIL) revise its policies to allow individuals enrolled in hospice to enroll in choices for care; create a group to study expanding hospice access and benefits; and require continued medical education on hospice and palliative care for physicians. (2011 Vermont House Bill No. 201, Vermont 2011-2012 Legislative Session; Title: An Act Relating To Hospice And Palliative Care, VERSION: Enrolled). Westlaw: 2011 VT H.B. 201 (NS); Web: Vermont Legislature.

Interest

IRS DECISIONS, REGULATIONS, AND GUIDANCEIRS: Federal Rates; Adjusted Federal Rates; Adjusted Federal Long-Term Rate

and the Long-Term Exempt Rate. Rev. Rul. 2011-13 provides various prescribed rates for federal tax purposes for June 2011. Westlaw: Rev. Rul. 2011-13, 2011 WL 1886124 (May 19, 2011); Web: Rev. Rul. 2011-13; Index of Applicable Federal Rates (AFR) Rulings (May 19, 2011).

Irrevocable Trusts--See Trusts (Generally)

Probate--See Estate/Trust Administration and Probate

Retirement

IRS DECISIONS, REGULATIONS, AND GUIDANCEIRS. Section 408 - Individual Retirement Accounts. The IRS granted taxpayer a 60-

day extension to make a rollover contribution of a distribution from his IRA after taxpayer asserted that his failure to accomplish a timely was due to the misappropriation of funds by his financial advisor, who convicted in U.S. District Court on charges of mail fraud in connection with the theft of these and other funds. Westlaw: PLR 201119040, 2011 WL 1824498 (May 13, 2011); Web: PLR 201119040, IRS Written Determinations (May 13, 2011)

OTHERSSA. Social Security System Impacted by Weak 2010 Earnings. On May 16, the

Social Security Administration's chief actuary, Stephen C. Goss, informed attendees of The National Academy of Social Insurance’s seminar explaining the 2011 Social Security Trustees Report that lower-than-expected earnings by U.S. workers in 2010 had a negative impact on tax revenue coming into the system. According to the report to Congress, released May 13, the trust fund is projected to exhaust its assets in 2036 - one year earlier than projected last year. Goss also said that Social Security recipients can anticipate a cost-of-living adjustment in 2012, for the first time in three years. Westlaw: 096 DER G-6, 2011, 2011 WL 1854930 (May 18, 2011); Web: Social Security Finances: Findings of the 2011 Trustees Report , National

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Academy of Social Insurance (May 2011)Texas. State Bar Comments on Legislation Protecting Inherited IRAs from Creditor

Claims. On May 11, the State Bar of Texas Tax Section issued a letter to state lawmakers urging them to adopt proposed Texas legislation (S.B. 1810), with the bar’s suggested modifications, that would exempt inherited individual retirement accounts from creditor attempts to attach or seize retirement funds outside of a bankruptcy proceeding. The letter pointed out that Texas Property Code Section 42.0021 was amended to include IRAs as exempt, but that recent disputes have arisen over whether an “inherited IRA” is exempt the courts reaching mixed results. The tax section claimed that “wealthy or financially sophisticated individuals can protect inherited IRAs from creditors by retaining estate planning professionals to structure a trust as beneficiary of the account; less well-to-do or less well-advised individuals may instead be caught in a trap for the unwary created by the Jarboe case,” a Texas bankruptcy case that held than an inherited IRA was not exempt property under § 42.0021. Westlaw: 093 DER H-2, 2011, 2011 WL 1805179 (May 13, 2011); Web: Comments on S.B. 1810, Bureau of National Affairs, Inc. (May 11, 20100)

Small and Mid-Size Law Firm Practice

ARTICLESEstate Planning with Foreign Property. Vicki Levy Eskin, Bryan John Driscoll.

(GPSolo, April/May, 2011). Westlaw: 28 No. 3 GPSolo 42.

Expatriate Tax Issues. Dennis J. Jacknewitz. (GPSolo, April/May, 2011). Westlaw: 28 No. 3 GPSolo 38.

Plug Those Revenue Leaks! David Leffler. (GPSolo, April/May, 2011). Westlaw: 28 No. 3 GPSolo 56.

Special Needs Trusts; Guardianships

LEGISLATIONIndiana. Uniform Adult Guardianship and Protective Proceedings Jurisdiction Act.

Indiana has passed legislation that enacts the Uniform Adult Guardianship and Protective Proceedings Jurisdiction Act. The act (1) governs issues concerning original jurisdiction, registration, transfer, and out-of-state enforcement of guardianships and protective orders appointed or issued for adults; (2) specifies the notice requirements following court action on a petition to appoint a temporary guardian; (3) authorizes a parent of a minor or a guardian of a protected person to designate a standby guardian effective upon the death or incapacity of the parent or guardian; (4) specifies the information required in a declaration designating a standby guardian; (5) provides that the declaration is not binding upon the juvenile justice system with respect to the placement of a child who is subject to an allegation of abuse or neglect, an open child in need of services case, or an open delinquency case; (6) provides that the declaration is effective for 90 days unless the standby guardian files a petition for guardianship, in which case the declaration is effective until the court rules on the petition; and (7) provides that a delegation of parental powers by power of attorney is effective immediately. The act also makes conforming changes, including changing the duration of a temporary guardianship from 60 days to 90 days, and correcting a formula determining the amount of property interests that a joint holder may disclaim after the death of another joint owner if, during the deceased holder's lifetime, the deceased holder could have unilaterally regained a part of the jointly held property without the consent of any other holder. (2011 Indiana House Bill No. 1055, Indiana One Hundred Seventeenth General Assembly - First Regular Session; Title: Probate Matters., VERSION:

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Adopted). Westlaw: 2011 IN H.B. 1055 (NS); Web: Indiana Legislature.

Missouri. Missouri Family Trust Revisions. Missouri has passed legislation that revises the provisions establishing the Missouri Family Trust and its Board of Trustees, a non-profit organization established for the purpose of administering special needs trusts. Special needs trusts are trusts designed specifically for individuals with disabilities that, if established as prescribed by law, do not affect an individual's eligibility for various public assistance programs such as Medicaid services. This act revises current law by: (1) Definitions and intent. Amending the declaration of policy and intent; adding the words “beneficiary”, “co-trustee”, “Missouri family trust”, “remainder beneficiary”, and “restricted account” as well as adding to the definitions of “board of trustees”, “disability”, and “trustees”; (2) Trust administration fees. Adding a provision that the Board may establish and collect fees for administering trust accounts; (3) Types of accounts and trusts. Repealing sections 402.210 to 402.225 and enacting sections 402.201 to 402.208 in their place. The new sections break up the establishment of various types of accounts under the Missouri Family Trust into trust accounts, restricted trust accounts and the charitable trust. These accounts are maintained in trust as separate accounts, but may be pooled for purposes of investment and management. In addition, the act names the two types of trust accounts ("First party trust accounts" and "Third party trust accounts" ), prescribing the duties, restrictions, distribution of assets and procedures for such accounts: (a) “First party trust accounts,” which are accounts to which the assets of a beneficiary are contributed and administered in trust for the benefit of the beneficiary. Either the beneficiary, parent, grandparent or legal guardian of the beneficiary, or a court is to be the settlor of the account. At the death of the beneficiary, the Board is to provide notice that the trust has terminated to each state, in addition to the State of Missouri, of which the Board has knowledge that such state has provided Medicaid services to the individual. This act prescribes the procedures for distributing the assets, including to any of the states with claims on the proceeds; (b) “Third party trust accounts” are accounts to which any person as settlor, except a beneficiary or beneficiary's spouse, may contribute assets in the trust to the Board of Trustees for the benefit of the beneficiary. At the death of the beneficiary, the Board is to determine the principal balance of the account and after payment of expenses of the beneficiary as the Board may authorize and all fees and expenses of the Board, and will distribute to the persons, entities, or organizations designated by the settlor as remainder beneficiaries. Under both first party and third party trusts, the settlor of the account may designate a co-trustee to act together with the Board of Trustees acting in its capacity as trustee. This act revises current law by providing that if the Board determines, in its good faith judgment, that a co-trustee has breached his or her fiduciary duties, then the Board may by written notice to such co-trustee, remove him or her and appoint a successor co-trustee or serve as the sole trustee. (c) Revocable Trust Accounts. If authorized by the settlor in the trust documents, the settlor or the co-trustee of a revocable trust account, upon written notice to the board and with the board's consent, may withdraw such part of the trust account as the settlor or co-trustee may determine. There are restrictions as to the amount that may be withdrawn. The settlor and co-trustee under the same conditions may also revoke and terminate the trust account. Upon receipt of such notice of termination or revocation, the board shall promptly determine the principal balance of the trust account and follow the prescribed procedure for distribution of the assets. (d) Charitable Trust Account. The act requires the Board to establish a charitable trust account for the benefit of individuals with disabilities. The Board is to accept contributions to the trust at the termination of trust accounts and other contributions from donors. The Board must determine the amount of income and principal of the charitable trust to be used to provide benefits for individuals with disabilities. Benefits provided may only be those that do not have a negative effect on the individual's public assistance benefits. (e) Restricted Trust Accounts. Any person with the consent of the Board may establish a restricted account within the charitable trust and

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may determine, with the consent of the Board, the class of individuals eligible to be recipients of funds from the restricted accounts, so long as such individuals meet the definition for disabled under this act. (2011 Missouri Senate Bill No. 70, Missouri Ninety-Sixth General Assembly, First Regular Session; Title: Modifies Provisions Relating To The Missouri Family Trust, VERSION: Enrolled). Westlaw: 2011 MO S.B. 70 (NS); Web: Missouri Legislature.

Texas. Prospective Wards and Guardianship Services By State Department of Aging and Disability Services. Texas has passed legislation that relates to guardianships, including the assessment of prospective wards for, and the provision of, guardianship services by the Department of Aging and Disability Services. (2011 Texas Senate Bill No. 220, Texas Eighty-Second Legislature; Title: Relating To Guardianships, Including The Assessment Of Prospective Wards For, And The Provision Of, Guardianship Services By The Department Of Aging And Disability Services., VERSION: Enrolled). Westlaw: 2011 TX S.B. 220 (NS); Web: Texas Legislature.

Washington. Implementation of Guardianship Task Force Report. Washington has passed legislation implementing recommendations from the Washington State Bar Association Elder Law Section's Executive Committee Report of the Guardianship Task Force (see task force report). The task force recommended that courts should actively monitor guardianship cases; reliable, statewide guardianship information should be available; training should be required for lay guardians; the Office of Public Guardianship should be supported and expanded; and adequate public funding should be allocated to the guardianship system. The governor vetoed section 11 of the act, which implemented a fee schedule for filing of reports under RCW 11.92.040(2), citing opposition of the judiciary branch to fee (but support of the act generally), but with the expectation that the agencies of the judicial branch will implement the requirements of the bill with appropriated resources. (2011 Washington House Bill No. 1053, Washington Sixty-Second Legislature - 2011 Regular Session; Title: Implementing Recommendations From The Washington State Bar Association Elder Law Section's Executive Committee Report Of The Guardianship Task Force., VERSION: Adopted). Westlaw: 2011 WA H.B. 1053 (NS); Web: Washington Legislature.

Trusts (Generally)

ARTICLESCredit Shelter Trusts and Portability. Does One Exclude the Other? Marc S.

Bekerman. (Probate and Property, May/June, 2011). Westlaw: 25-JUN Prob. & Prop. 10.

IRS DECISIONS, REGULATIONS, AND GUIDANCEIRS. Section 663 - Special Rules Applicable to Sections 661 and 662. The IRS

ruled that shares of a trust created upon the death of the taxpayer that received S corporation stock are substantially separate and independent shares within the meaning of I.R.C. § 663(c) with each share treated as a separate trust for purposes of I.R.C. 1361(d), and that since all net income for each share is distributed currently to the applicable income beneficiary and each share is administered as a qualified subchapter S trust, each share will qualify as a QSST during the life of its beneficiary and the corporation’s S election will continue. Westlaw: PLR 201119005, 2011 WL 1824509 (May 13, 2011); Web: PLR 201119005, IRS Written Determinations (May 13, 2011).

OTHERABA. ABA Issues Comments to IRS on HIRE Act Provisions Involving Foreign

Trusts with U.S. Beneficiaries. On May 18, American Bar Association Section of Taxation sent a letter to the IRS commenting on five amendments made to section 679 as part of the

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Hiring Incentives to Restore Employment Act (Pub. L. No. 111-147, §§ 531-33, 124 Stat. 71) involving foreign trusts with U.S. beneficiaries. Among the comments was a request that the Service issue new regulations clarifying the scope and implementation of two new provisions, section 679(c)(6) and section 679(d), that significantly expand the scope of section 679 by requiring a U.S. Grantor to repay a loan of cash or marketable securities at a market rate of interest or pay for the use of any foreign trust property at fair market value, and requiring that a U.S. Grantor prove that a foreign trust has no U.S. beneficiary. The trust could be classified as a grantor trust, if it does not meet these requirements, resulting in severe tax implications. Westlaw: 2011 WL 1881507 (May 19, 2011); Web: Comments on the Provisions of the HIRE Act Regarding Foreign Trusts with U.S. Beneficiaries, ABA Section of Taxation (May 18, 2011)

U.S. District Court. Court Convicts Promoter of Abusive Trust Scheme. On May 12, the U.S. District Court for the Western District of Washington convicted Sharon D. Kukhahn, also known as Sharon Stephenson of tax charges related to her operation of businesses selling “tax decoding" and abusive trust schemes. (United States v. Kukhahn, W.D. Wash., No. 10-cr-05221-BHS, 5/12/11) According to the indictment Kukhahn was involved in promoting American Business, Estate and Tax Planning, which sold “pure equity trusts” and irrevocable “pure business trusts” that were intended to conceal client assets from IRS. More than 400 trust packages were sold to clients for $3,000 to $8,000, resulting in more than $7 million in unpaid taxes. Westlaw: 096 DER K-3, 2011, 2011 WL 1854956 (May 18, 2011); Web: United States v. Kukhahn, W.D. Wash., No. 10-cr-05221-BHS, 5/12/11) (Information about this case is available on the U.S. Court's PACER system. A subscription to PACER is required.)

U.S. Tax Court. Florida Stockbroker Liable for Millions in Tax and Penalties Resulting from Unreported Foreign and Domestic Trust Income. On May 16, the U.S. Tax Court found that Florida stockbroker, F. Jeffrey Rahall, was liable for $4.5 million in tax deficiencies and $3.4 million in penalties on unreported income, capital gains, and disallowed deductions for the 1999 through 2003 tax years. Between 1999 and 2003, Rahall received nearly $9.7 million in distributions from several domestic and foreign trusts set up by his father, broadcasting entrepreneur Farris E. Rahall, had more than $1.2 million in credit-card payments paid by one of the trusts on his behalf, deducted thousands of dollars as theft losses money transferred and purchases made for two female friends, and took more than $150,000 in business deductions related to FJR Investments Inc., an S corporation wholly owned by Rahall which conducted no identifiable business activities. In its opinion, the court stated, “Respondent has shown by clear and convincing evidence that petitioner intended to avoid taxes by concealing income in foreign accounts, deducting expenses he knew to be improper, and failing to comply with his reporting and documentation requirements.” Westlaw: Rahall v. C.I.R., T.C. Memo. 2011-101, 2011 WL 1848540, U.S.Tax Ct.,2011 (May 16, 2011); Web: Rahall v. Commissioner, T.C. No. 6028-06, T.C. Memo. 2011-101 (May 16, 2011).

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