Educational Alerts

Educational Alerts are written on topics that effect various aspects of estate planning and the laws that govern it. They are usually published and posted to this site at the end of each month. Occasionally newsworthy events will initiate the release of additional alerts at the time the news breaks. The purpose of an Estate Planning Update is to bring important information to the financial advisors in the community. Our hope is that this information better equips you to assist your clients.

REGISTER TO VIEW eALERTS ARCHIVE

The Behlmann Law Firm, LP releases important estate planning and related articles on a regular basis. Please take a moment to register to receive full access to our Educational Alerts and FYIs.

CLICK TO REGISTER

- OR -

Enter the password that was given to you:

Turbulent Economic Times Can Lead to Estate Planning Opportunities

This article examines several ways to take advantage of the current economic conditions, from an estate planning perspective. Historically low interest rates combined with depressed asset values make many strategies more effective. The article explains how these challenging economic times can work to your client's benefit.

IRS Issues Favorable Grantor Retained Annuity Trust Ruling

This alert examines the use of Grantor Retained Annuity Trusts or "GRATs." Specifically, the article examines a recent private letter ruling which approved the use of a "substitution of assets" clause in the trust. GRATs can be an effective way to freeze the transfer tax value of assets and get appreciation of the assets out of the taxable estate without using gift tax exemption.

Recent Law Changes of Note to Financial Professionals

This Alert examines changes the recent expansion of FDIC insurance coverage and how it applies to accounts in revocable trusts. The Alert also examines how the extension of the allowance of the IRA “charitable rollover” can help your client achieve their philanthropic and tax goals.

News of Financial Crisis Brings Concerns Regarding Protection of Financial Accounts

Our alert of a few months months ago examined protection under FDIC. This alert examines protection for brokerage accounts under the SIPC and ways to expand that protection.

New Case Demonstrates the Importance of Professionally Drafted Buy-Sell Agreement

This article looks at a business arrangement between two friends and the importance of a well-drafted buy/sell agreement between them.

Recent News of Bank Failures Gives Rise in Concern Regarding Security of Bank Deposits -- Ownership of Bank Accounts in a Revocable Living Trust Can Help

Several financial institutions have failed recently. Trusts can provide expanded FDIC protection for bank accounts. This Alert explains how to calculate FDIC protection.

Tax Court Unanimously Validates Formula Clause

The Alert examines a powerful planning tool, valuation clauses, the use of which was recently approved by the Tax Court.

Estate Planning Update

The Alert examines legislation pending in Congress which would extend 2009's $3.5 million applicable exclusion. The Alert goes on to discuss how the Service is handling estate and gift tax audits.

To download the referenced report Description and Analysis of Alternative Wealth Transfer Tax System, use the link below.

Description and Analysis of Alternative Wealth Transfer Tax System Report: http://www.house.gov/jct/x-22-08.pdf

Tax Court Issues Favorable Family Limited Partnership Ruling!

In a recent decision, the Tax Court sided with the taxpayer in a case involving a Family Limited Liability Company and a transfer near death.

Two Rulings of Interest on Retirement Assets PLR 200807025 and PLR 200811028

This Alert examines several private letter rulings in which the Service examines the complicated area of beneficiary designations for qualified plans and IRAs.

Congress Passes Economic Stimulus Package - Future of the Estate Tax Will Not Likely Be Resolved Until After the Presidential Elections

This month's alert highlights the recently enacted Economic Stimulus Act. The Alert covers the rebate provisions for individuals as well as the incentives for small business owners and closes with a comment that is unlikely we will see any "fix" of the current estate tax regime until after the election of a new President.

Retirement Asset Update - Non-Spousal Rollovers

The Alert examines two issues. First, it examines Congress' attempt to mandate allowing non-spousal rollovers and how the IRS continues to interpret the law to allow but not mandate such non-spousal rollovers. Second, it examines how new "wash sale" rules do not allow you to get the benefit of a loss if you sell an asset and then quickly re-purchase it in your IRA.

2008: The Calm Before the Storm

The article examines the upcoming uncertainties and scheduled changes in the laws concerning estate and gift taxation.

The Estate That Would Not Die

The recent litigation surrounding the publicity rights of the remainder beneficiary of the estate of Marilyn Monroe illustrates some of the problems with probate administrations and how a trust can help avoid some of these entanglements.

Court Approved Reformation Fails to Gain Approval from the Internal Revenue Service

The article looks at a recent reversal by the IRS on the issue of allowing non-spousal rollovers of retirement plans into IRAs. Then the article examines one private letter ruling in which the IRS did not allow the mistaken omission of a contingent beneficiary to be corrected. The primary beneficiary had predeceased. The result was that the assets in the retirement plan had to be withdrawn more quickly, thus depriving the beneficiary of the full extent of the tax deferral which would have been allowed had the contingent beneficiary been named.

Charitable in Death: Will Leona Helmsley's Testamentary CRTs Qualify for an Estate Tax Charitable Deduction?

This article examines Leona Helmsley's Will and the Trusts which it creates. It examines some of the oddities involved, including gifts to her dog and the disinheriting of some grandchildren.

IRS Rules That Tuition Paid for Special Needs Child is a Deductible Medical Expense

The Alert examines a recent private letter ruling which allowed the taxpayer to deduct school tuition for a special needs child as a medical expense.

Court Reformation of Irrevocable Trust Does Not Cause Trust Assets to be Included in Grantor's Estate

This month's Alert discusses PLR 200730015, which dealt with the judicial reformation of an irrevocable trust and an IRS finding that the changes to the trust did not cause inclusion of the irrevocable trust in the trustor's estate. Often, trustors want to change the terms of their irrevocable life insurance trust, irrevocable trust for gifting to children and/or grandchildren or other irrevocable trusts for advanced estate planning purposes. Depending on whether the trust is a grantor trust or not, this may involve substituting the old trust for a new one, or a judicial reformation, as is the subject of this month's Alert.

Planning for Retirement Assets Requires Special Care--Bad Advice by Financial Planners Causes Tax Penalty to Client

This alert examines a new private letter ruling in which the taxpayer accidentally triggered penalties. The penalties occurred due to a violation of the rules for the "series of substantially equal periodic payments" exception for distributions prior to age 59 1/2.

IRS Uses Payment of Estate Tax to Win Family Limited Partnership Case

This article examines the Tax Court case of Estate of Erickson v. Commissioner. In this case, the IRS prevailed, including a Family Limited Partnership in the estate of the decedent under Section 2036. Various factors led to this defeat for the taxpayer, including the fact that the partnership was used to pay estate taxes, at least indirectly.

Drafting Spousal Trusts to Reduce Estate Taxes

This article examines various strategies using a marital trust and bypass trust. It also looks at using a marital trust to preserve assets of the pre-deceasing spouse in a second marriage situation.

Technical Amendment to Deficit Reduction Act of 2005 Causes Immediate Annuities to Further Lose Their Luster for Medicaid Planning Purposes

This article examines technical corrections to the DRA. The article sets forth that while the technical corrections made annuities less attractive, they are still a viable option in Medicaid planning. It offers examples of how one might structure an annuity differently to avoid rule changes from the technical corrections to the DRA.

IRS Offers Favorable Rulings Regarding Transfers of Life Insurance Policies to an Irrevocable Life Insurance Trust

The article looks at two recent revenue rulings which confirm that transfers of life insurance policies to ILITS that are grantor trusts do not run afoul of the "transfer for value rule."

IRS Disappoints With Guidance for Rollovers of Inherited Company Plans

The article examines Notice 2007-7 which undermined the non-spousal rollover provisions of Retirement Protection Act of 2006.

Lame Duck Congress Passes Last Minute Tax Act

The Alert discusses the Tax Relief and Health Care Act of 2006. It lists the various provisions and highlights the most important one: the modification of the rules of Unrelated Business Taxable Income for a CRT. If a CRT had UBTI prior to the act, it lost tax exempt status. Beginning January 1, 2007, it does not lose tax exempt status, but faces an excise tax equal to 100% of the UBTI. This is often better and can make contributing business assets to a CRT more attractive.

IRS Finds Pecuniary Gift of IRA to Charity is Taxable

The Alert examines ILM 200644020 which involved an IRA payable to a trust. The trust used the assets to pay pecuniary bequests to charities. The Service held that, under the Kenan rule, there was a sale or exchange, and thus the trust recognized the income on the asset. Further, the trust did not get a charitable deduction. The Alert states that careful planning could have avoided this outcome.

IRS Curtails Use of Private Annuities for Income Tax Purposes

The article examines the IRS' recent issuance of proposed regulations cracking down on Private Annuity Trusts used for income tax avoidance. The article looks at why PATs are still a viable tool in estate planning.

Fifth Circuit Reverses Tax Court in McCord: Gifting Using Formula Clauses

The article examines the appeal of the McCord decision, in which the Fifth Circuit reversed the Tax Court decision and allowed formula value clauses. The decision allows you to tie the amount of the gift to the value of the underlying asset, such as an FLP interest. So, it could say, I give $1 million worth of my FLP to my children and the amount over that to charity.

Three Planning Gems Contained in The Pension Protection Act of 2006

The alert examines significant aspects of the Pension Protection Act of 2006 and briefly examines recent failed attempts at estate tax repeal.

Recent IRS Ruling Spawns Retirement Planning Strategy

The article examines a PLR in which the taxpayer got approval to treat a (d)(4)(A) Special Needs Trust as a "conduit" trust rather than an "accumulation" trust for purposes of minimum required distributions. In other words, they were allowed to ignore remainder beneficiaries and use the primary beneficiary's life expectancy to calculate required distributions.

Creating a Trust to Protect from Future Unknown Creditors is a Fraudulent Transfer in Washington

This month's alert reviews United States v. Townley, a case in which a District Court in Washington held that the creation and transfer of assets to an irrevocable trust was a fraudulent transfer with respect to future creditors. The IRS was not a foreseen future creditor at the time the trust was created, but the trustors testified that one of the primary reasons the trust was established was concerns about liability associated with a different identified potential future creditor.

Congress Passes Income Tax Bill - Estate Tax Repeal is Up Next The Internal Revenue Service Again Approves Spousal General Power of Appointment Planning Strategy

This article contains an update on The Tax Increase Prevention and Reconciliation Act of 2005, comments from leading Senators on the potential of estate tax repeal in the coming months, and a commentary on the third in the series of PLRs dealing with granting a testamentary general power of appointment over a surviving spouse's assets in order to more fully utilize the deceased spouse's applicable exclusion amount.

Proper Drafting of Trust Protects Trust Assets from Creditors, Including the Internal Revenue Service

This article examines recent IRS guidance concerning the ability of the IRS to attach a beneficiary's interest in a trust. The article provides options for greater creditor protection by not using typical HEMS language.

IRS Issues Favorable Life Insurance Private Letter Ruling

This month's Alert covers a PLR in which the IRS approves a transfer of life insurance policies from one Irrevocable Life Insurance Trust structured as a grantor trust for income tax purposes to another Irrevocable Life Insurance Trust structured as a grantor trust. The Alert explains how this planning strategy avoids recognition of gain, the transfer for value rule and the three year rule. Call our office if you have clients with insurance trusts that might need to be re-thought.

Window of Opportunity for Medicaid Planning

This Alert informs advisors of the window of opportunity that still exists for planning for Medicaid eligibility under the old law, and encourages them to take action while planning under the old Medicaid law still exists. The Alert also briefly reviews once again the changes that are brought about by the Deficit Reduction Act of 2005.

Passage of the Deficit Reduction Act Will Not Mean the End of Medicaid Planning

On February, 8, 2006, the President signed into law the Deficit Reduction Act of 2005 (“the Act”). There have already been challenges to the Act but it appears it will be valid law. When the Senate and the House of Representatives voted in favor of passing the Act, many people were predicting the end of Medicaid planning.

Fate of Some Forms of Medicaid Planning in Jeopardy as Planners Await Final Vote on Budget Package from Congress

A look at the current status of the Budget Reconciliation that will enact punitive new transfer rules for gifts in connection with Medicaid planning, as well as other substantive changes. Because of some last minute maneuverings of the Senate Democrats, the Bill will need to win another majority vote by the House before it becomes law. The proposed changes will significantly impact Medicaid planning opportunities in many circumstances, so it is imperative that all Medicaid plans be reviewed in light of the contents of the Bill.

Upcoming Estate Tax Reform May Bring Changes

This provides a look at proposed estate tax reform and how it may affect planning.

Katrina Emergency Tax Relief Act Offers Short-term Charitable Tax Planning Opportunity - But Be Careful!!

The article examines the charitable planning aspects of the hurricane Katrina legislation. It provides a strategy for charitable gifting of retirement plan assets.

Enrollment Period for Medicare Part D on the Horizon

This article gives a brief explanation of Medicare Part D, the new prescription drug plan. Seniors will begin receiving information about this plan between mid-October and year-end.

Potential Changes to Medicaid Laws May Warrant Taking Action Now

This article addresses many of the proposals being set forth by the Department of Health and Human Services Commission and the National Governor's Association for Medicaid Reform. Many of these proposals will change the manner in which Medicaid planning will be done in the future and how your clients may want to accelerate their planning before any changes are made.

Fifth Circuit Releases Long Awaited Strangi Opinion

This month's alert highlights the findings of the Strangi 4 FLP case. This is the second appeal to the 5th Circuit. The opinion is a partial victory for the IRS, but the key points of the case are the issues regarding implied agreements (and use of FLP assets to pay estate administration expenses, debts of the decedent and estate taxes) and what is business and non-business purposes are sufficient to meet the "bona fide transfer for fair value" exceptio under IRC 2036.

2036 Is Not Just for Family Limited Partnerships

In past alerts we have informed you how the IRS has had successes in using IRC § 2036 to pull back transferred partnership assets into the estate of a decedent, thwarting the taxpayer's plans to obtain a discount. These victories have emboldened the IRS to apply the requirements of IRC § 2036 against other types of intra-family transfers.

Taxpayers Using FLPs Continue to Trip Over Section 2036

The article examines three new FLP cases in which the Service was victorious. It stresses the need for clients to have their FLP agreements and practices reviewed.

Chances for Repeal of the Estate Tax Lessen -- Congress May Settle for Permanent Increase in Exemption Amount

The article examines pending legislation concerning potential repeal of the estate tax. It discusses the more likely outcome of an increase of the applicable exclusion amount. It concludes that the need for estate planning will remain greater than ever for non-tax reasons.

Taxpayers Fight and Win State Estate Tax Battles

In 2001, the federal government passed the Economic Growth and Tax Reform Reconciliation Act of 2001 (“EGTRRA”). One of the provisions of EGTRRA was the gradual reduction and then elimination (in 2004) of the state death tax credit on the federal estate tax return. About three-quarters of the states limited the amount of the death taxes they received to the amount of the state death credit. With the reduction in the credit, these “pick-up” states started to see their tax revenues decline and as a result about one-third of them “decoupled” from the federal system. The decoupling states implemented their own estate tax regime based on federal law that was in existence prior to EGTRRA. In some circumstances this resulted in taxpayers paying a higher combined federal and state estate tax than they would have paid under the law before the enactment of EGTRRA, even though EGTRRA was heavily promoted as a tax reduction.

Joint Committee on Taxation Proposes Tax Law Changes Effecting Estate Planning

On January 27, 2005, the Congressional Joint Committee on Taxation (JCT) released a 435 page report entitled "JCS-02-05 Options to Improve Tax Compliance and Reform Tax Expenditures." Assuming that the estate tax is not repealed, the following proposals contained in the JCT report may be enacted in order to tighten up several estate planning strategies the IRS has viewed as abusive.

Court Upholds Trust Nominee Clause and Finds No Revocation Where the Formalities of Revocation and Amendment Were Not Followed by the Surviving Trustor

During the course of a long marriage, George and Barbara Heaps executed a joint revocable living trust with both spouses acting as co-trustees. It provided that the trust would split into two trusts, a “family trust” and a “marital trust,” after the death of the first of them. The surviving spouse would act as co-trustee over the “family trust” with George and Barbara’s son and son-in-law. The surviving spouse would serve as the sole trustee over the “marital trust.”

Disclaimer Proves Fatal to Estate Plan

Mr. Katz executed a will in 1991 that called for the creation of a "pecuniary credit shelter trust" equal to the amount of the "aggregate federal estate tax exemption equivalent." The will language further provided that the credit shelter trust "shall not be reduced on account of any disclaimer by my wife." Finally, another provision in the will stated conflicting provision in this will, "if my wife disclaims any interest in any portion of the property otherwise passing outright to her under this Article of my will, such portion shall be added to the [credit shelter] trust." The purpose of the credit shelter trust created under Mr. Katz's will was to place an amount equal to the amount that can pass free of estate tax into trust so that it would eventually pass to his children without being subject to estate taxes in his wife's estate.

President Signs the Working Families Tax Relief Act and the American Jobs Creation Act

President Bush signed into law the Working Families Tax Relief Act of 2004. It provides for approximately $146 billion in tax breaks aimed primarily at middle-income taxpayers and businesses of all sizes.

Bank and Trust Officer Held Liable for Estate Tax

Learn the facts as well as lessons that should be learned from the case of Hatleberg v. Norwest Bank Wisconsin, 678 N.W.2d 302 (Wis. App. 2/24/2004)

Internal Revenue Service - 1, Taxpayers - 1, Third Set Remains to be Played!!!

On September 1, 2004, the long awaited decision of the Third Circuit on the Thompson FLP case was released (Turner v. Comm’r., 94 AFTR.2d 2004-5764 (3rd Cir. 2004), aff’g Thompson v. Comm’r., TC Memo 2002-246 (The case was appealed by Mr. Thompson’s executor, Betsy Turner, and thus the name change). Encouraged by the Fifth Circuit’s favorable decision in the Kimbell case (reported in our May 2004 Fax Alert), many estate planning attorneys were hoping for another taxpayer victory. But that was not to be with Thompson, as the Third Circuit upheld the Tax Court’s decision in favor of the Internal Revenue Service. The score is now tied while estate planners wait for the decision in the appeal of another important FLP case, Strangi v. Comm’r., to emerge from the Fifth Circuit.

IRS Scores Family Limited Partnership Victory

In a new case, the IRS has had new success in attacking FLPs using Section 2703.

IRS Blesses Planning With Grantor Trusts In Revenue Ruling 2004-64

The IRS, with its release of Revenue Ruling 2004-64, has given its approval to the use of grantor trusts as an income and estate planning strategy and it has removed any confusion as to whether the trust must contain a provision for the reimbursement of income taxes paid by the grantor.

Mistake in Preparing Estate Tax Return Costs Taxpayer:IRS Provides No Relief

The facts in PLR 200422050 are as follows: a decedent’s will left her estate in trust for the benefit of her husband. The trust provided that the husband was to receive all income from the trust and he could compel the trustee to make trust assets productive. As a result of these provisions, the trust would qualify for the federal estate tax marital deduction under IRC § 2056 as a qualified terminable interest property (“QTIP”) trust if the executor made an election under IRC § 2056(b)(7).

IRS Suffers Big Blow in Fifth Circuit Reversal of the District Court Holding on Kimbell FLP Case

On May 20, 2004, the Fifth Circuit Court of Appeals reversed the grant of summary judgment for the government in the U.S. District Court case of Kimbell v. United States, 244 F. Supp.2d 700, 91 AFTR.2d 2003-585 (N.D. TX 5/14/2003).

Failure to Qualify for Marital Deduction Can Cost Hundreds of Thousands

The amount that can be given at death free of estate taxes in 2004 is $1.5 million. With proper planning, a married couple can double that amount to $3 million. Where an estate is greater than $3 million, the estate tax on the excess can be deferred until the death of the surviving spouse, but only if proper planning is put in place. This is because of the unlimited federal estate tax marital deduction. Where the first spouse to die wants to control where the excess assets go after the death of the surviving spouse (by giving the surviving spouse only a life estate in the excess assets), a special kind of trust, known as a Qualified Terminable Interest Property Trust (or QTIP Trust) must be used.

Friday the Thirteenth Bad Luck for Life Insurance in Section 412(i) Plans

Friday the Thirteenth was truly unlucky for certain life insurance arrangements, because the Treasury issued two Revenue Rulings, a Revenue Procedure, and a set of Proposed Treasury Regulations designed to eliminate perceived abuses in the use of life insurance in certain retirement plans described in Section 412(i). Note, however, that the scope of the guidance goes far beyond 412(i) plans - and even beyond retirement plans.

Ninth Circuit Court Affirms Asset Protection for Trust Beneficiary

One of the advantages of establishing trusts for beneficiaries as opposed to outright distributions is asset protection. In the case In re John and Holly Coumbe, Debtors, a Bankruptcy Trustee sought to include the assets of a testamentary trust created by the debtor’s mother in his Chapter 7 bankruptcy estate. The Court held the trust assets were unavailable to the debtors’ creditors.

FDIC Simplifies Trust Rules: Expanded Coverage Could Benefit Many Consumers

In 2003, the Federal Deposit Insurance Corporation ("FDIC") solicited comments to its two proposed alternatives for simplifying the rules for insuring bank accounts owned by trusts. After reviewing the comments it received, on January 13, 2004 the FDIC announced a new regulation for trust bank accounts.

Limited Liability Company Provides Answer to Trust Termination

It is becoming more common to leave assets at death in trust for children and other beneficiaries. In many instances, this strategy affords the beneficiaries protection from creditors and protection of their inheritances from divorcing spouses. When trust assets consist of business holdings, real estate or a diverse portfolio of securities, it also provides for centralized management and potential economies of scale.

Important Estate Planning Numbers for 2004

Starting in 2004, the estate tax and gift tax systems are no longer in pari materia. How will this affect your clients giving?

Circumstances Surrounding Drafting, Execution, and Administration of a Prenuptial Agreement Determine Its Effectiveness

The planning done before marriage is often as important as planning after marriage in assuring that a client’s estate planning wishes are carried out. Laws governing prenuptial agreements vary somewhat from state to state, but often the circumstances surrounding the drafting, execution, and administration of a prenuptial agreement are crucial to the effectiveness of the agreement.

Walking Through the "Basic" Estate Plan

Start your clients off with the very basics so that they appreciate the value of each planning strategy you employ.

Federal Tax Lien Trumps State Asset Protection Law

Approximately half the states provide that a married couple may take title to real property as tenants by the entireties. This type of ownership, while similar to joint tenancy, offers superior asset protection from many creditor's claims. The question of whether an IRS tax lien can attach to tenancy by entirety property was the subject of U.S. v. Craft, 122 S. Ct. 1414, 89 AFTR.2d 2002-2005 (2002).

Reformation of Trust Saves Estate Taxes

Joint trusts for married couples have been used in community property states for over a decade. There had been speculation by some attorneys regarding the effectiveness of joint trusts in common law states. However, concerns over recognition of joint trusts by the IRS have largely been put to rest by PLRs 200101021 and 200210051 (see our previous FaxAlert dated April 30, 2001 titled "Joint Trusts in Common Law States" for more on this subject).

Tricks and Traps Concerning Annuities

Because there are many tax traps concerning annuities, it is important for the financial advisor to know the treatment of annuities when advising clients.

IRS Scores Another Victory in Family Limited Partnership Case

On January 14, 2003, Judge Buchmeyer of the United States District Court for the Northern District of Texas decided in favor of the Internal Revenue Service in Kimbell v. United States of America, Civil Action No. 7:01-CV-0218-R, 2003 U.S. Dist. Lexis 523.

Services

Estate Planning Alerts for Advisors

Monthly Educational Alerts
Educational Alerts are written for advisors on topics that affect various aspects of estate planning and the laws that govern it. Read our latest Alert and request to be added to our email distribution list.
Educational FYIs
These recent developments and case studies address any aspect of the law that touches on estate planning. They offer an interesting perspective and/or warning. View our latest FYI or request to be added to our email distribution list.

Continuing Education Seminars

Upcoming CE Courses
Find out if an upcoming CE Course is scheduled in your area.
Private CE Courses
Email us to schedule a customized CE Course for your organization.

Lunch & Learn Meetings

Who Says There's No Free Lunch?
We frequently meet with professionals in our community to learn more about their businesses and our common goals. Email us to schedule a Lunch & Learn meeting today!