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Probate September 2005.Indd Probate and Trust Law Section Newsletter No. 112 Published by the Section on Probate and Trust Law of The Philadelphia Bar Association August 2005 Have a restful and rein- vigorating summer – we’ll see you Report of the Chair in the fall! By JULIA B. FISHER The Probate Section – as usual through our hard-working and amazingly productive committees – has had a number of opportunities so far this year to respond to “late breaking” developments that impact all of its members. In late December of 2004, the Treasury published sweeping revisions to the Circular 230 regulations that establish standards of practice for tax pro- Inside this fessionals. The changes, for the most part, became effective on June 20, 2005. The Education Committee worked with the Tax Section on very short notice to Issue........ prepare an outstanding April 19 presentation on “Giving Tax Advice after June 20: Can You Comply with Circular 230?” Comment Letter to the IRS.....................2 On April 18, 2005 the IRS released Revenue Procedure 2005-24 which imposes new rules and requirements for charitable remainder trusts created after June 28, 2005. The Legislative Committee leaped into action and prepared a Section Events comment letter to the Service – you can find a copy of their work in this issue Calendar.......................3 of the newsletter. In addition, the Committee will consider a legislative solution to the issues the Revenue Procedure creates for Pennsylvania practitioners. The Family Office Phenomenon................4 Another project in which members of the Section are participating is the recently launched Philadelphia Register of Wills’ website and computerization project. The project is intended to provide, among numerous other things, for Pennsylvania electronic filing, the prospect of using .pdf fill-in forms, and the possibility of Impressionists short certificates issued upon probate. All of these are very exciting and much Surge on the Art desired applications of technology to our area of practice. Market.........................5 Save the date! The Probate Section’s Annual Meeting will be held on December 13, 2005. The program for this year’s annual meeting promises to be Tax Update..................6 an interesting and topical subject – “What is Family? New Issues Confronting the Estate Planner in the 21st Century”. The panel will address the many ways Ethics Column...........20 parent/child and spousal relationships are formed today and what this means to the estate planner. Our speakers include Susan N. Gary, Associate Professor, University of Oregon Law School; Nancy J. Knauer, Peter J. Liacouras Professor New Bankruptcy Act of Law, James E. Beasley School of Law of Temple University and Marilyn C. Extends Broad Sanborne, Ballard Spahr Andrews & Ingersoll LLP. Creditor Protection to Retirement Plans...21 Probate and Trust Law Section Newsletter No. 112 1 Comment Letter to the IRS July 13, 2005 Public Accounts (AICPA) and by the a different jurisdiction which did American Counsel on Gift Annuities not provide for a spousal election The Honorable Mark W. Everson (ACGA) concerning this revenue or which provided for a waiver in a Commissioner procedure. We agree with both or- form insufficient to satisfy Pennsyl- Internal Revenue Service ganizations that the issues they raise vania law. Courier’s Desk are of very real concern to attorneys 1111 Constitution Avenue, NW whose practice includes the creation of Although one of the alter- Washington, DC 20044 charitable remainder trusts. In addition natives suggested by the revenue to agreeing with the concerns of these procedure is to have Pennsylvania Re: Rev. Proc. 2005-24 Re- organizations, we would like to com- law changed to exclude charitable garding Guidance on Spousal ment more specifically on the impact remainder trusts from the assets Election Rights and Charitable of Rev. Proc. 2005-24 on Pennsylvania subject to election by the surviving Remainder Unitrusts under residents. spouse, this would be directly con- IRC Section 664 trary to the public policy of Penn- Pennsylvania is one of the sylvania as reflected in its current Dear Commissioner Everson: states whose legislature has chosen elective share statute. For example, to permit a surviving spouse to elect if the statute were to be so changed, I am writing on behalf of the against the will of a deceased spouse a Pennsylvania resident could disin- Legislative Committee of the Probate and receive a share of the decedent’s herit his or her spouse by transferring Section of the Philadelphia Bar As- estate regardless of the terms of the his or her entire estate to an inter sociation to comment on Rev. Proc. will. The elective right extends to a vivos charitable remainder trust, 2005-24. This revenue procedure conveyance by the deceased spouse retain the annuity or unitrust pay- concerns the tax consequences to the during his or her lifetime (whether ment for life, and have the property grantor of a charitable remainder an- before or after the marriage) in which pass to charity on his or her death. nuity trust or a charitable remainder principal could have been used for the The public policy of Pennsylvania unitrust where the surviving spouse benefit of the deceased spouse. Since has consistently prohibited a spouse of the grantor has the right under ap- an inter vivos charitable remainder from disinheriting his or her spouse plicable state law to receive a share trust created by the deceased spouse in a situation where the deceased of the assets of the trust by electing to would be such a conveyance, we be- spouse has retained such an inter- receive a share of the grantor’s estate lieve that Rev. Proc. 2005-24 would est in an inter vivos trust created in the event of the grantor’s death. require a waiver by the spouse of a during the lifetime of the deceased Pennsylvania grantor of the spouse’s spouse. If the charitable remainder right to elect against the grantor’s trust is to receive its anticipated tax charitable remainder trust in order to Recommendation: treatment, the revenue procedure have the charitable remainder trust provides a special waiver provision qualify as such for tax purposes. Rev. Proc. 2005-24 pro- requiring the non-grantor spouse vides a safe harbor for charitable to waive his or her elective right to Although obtaining such a remainder trusts in existence before share in the income or principal of the waiver may not be difficult in many June 28, 2005, which would cause charitable remainder trust upon the cases, it is evident that there may be them to be disqualified for tax pur- death of the grantor. Failure to waive very common situations in which it poses only if the surviving spouse such right would cause the charitable will be difficult to do so or, worse, actually elects against the trust and remainder trust not to qualify as a where the waiver will not be obtained the election requires some or all of charitable remainder trust under §664 for readily anticipated reasons of in- the trust assets to be paid to the sur- of the Internal Revenue Code. advertence. As an example, a waiver viving spouse rather than charity. would be required at the time a married I understand you have grantor changes his or her residence to We recommend that this received extensive comments from Pennsylvania in the case of a grantor approach should be adopted for all the American Institute of Certified who established a charitable trust in continued on Page 3 Probate and Trust Law Section Newsletter No. 112 2 Comment Letter to the IRS, continued JOIN A charitable remainder trusts, regard- charity rather than the surviving less of when they are created. The spouse should still qualify for the es- COMMITTEE possible right of election against tate tax charitable deduction so that the such assets should not disqualify charitable deduction would be reduced the trust for favorable tax treatment. by the value of the assets passing to The Sectionʼs Com- However, if the surviving spouse the surviving spouse. If the charitable mittees depend on the actually elects against the estate of remainder trust continues for the life of steady flow of people, a deceased spouse and the assets a successor beneficiary, the estate tax of the deceased spouse’s charitable charitable deduction for the continu- energy and ideas. remainder trust are responsible for ing charitable remainder trust should Join one! the payment of any part or all of such be reduced to take into account the elective share, then the charitable amount that passed to the surviving Fill in the form below remainder trust would be disqualified spouse from the charitable remainder and send it to the Sec- for an income tax deduction so as to trust at the grantor’s death. tion Chair: include in the final income tax return of the deceased spouse any income We welcome the opportunity tax charitable deduction allowed to to discuss our comments with you or Julia B. Fisher, Chair the decedent when the trust was cre- others at the IRS and the Treasury ated. Department. JPMorgan Private Bank Discussions among experi- Sincerely yours, One Liberty Place enced practitioners across the coun- try strongly suggest that instances of Robert I. Friedman 47th Floor spousal elections against charitable Chair, Legislative Committee 1650 Market Street trusts are very few and far between, The Philadelphia Bar while the potential negative impact Association Philadelphia, PA of the revenue procedure on other- 19103 wise properly drawn and adminis- (215) 640-3520 tered charitable trusts, which are in fact providing the charitable benefits julia. intended, will be disproportionately b.fisher@jpmorgan. severe. Our recommendation is in- com tended to preserve the integrity of Section Events the charitable deduction where chari- CALENDAR table trusts operate as intended and to Name: preserve the integrity of the tax law where charitable benefits are actually Probate Section Annual Meeting – compromised by a claim against the December 13, 2005 Address: charitable trust.
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