2010 PRING S

Trusts & Estates Section

Spring 2010 Newsletter

A PUBLICATION OF THE BOSTON BAR ASSOCIATION TRUSTS & ESTATES SECTION

SPRING 2010 1 Trusts & Estates Section Co-chairs Proposed Change to Massachusetts Basis Rules to Address 2010 Changes in Federal Anne Marie Towle Athena Capital Advisors [email protected] Estate Tax Laws Kenneth P. Brier, Esq., Brier & Geurden LLP Andrew D. Rothstein, Esq., Goulston & Storrs

As things stand now, there is some concern income tax on pre-death capital gains on the among that as a result of the change in federal inherited appreciated property when they sell it. basis rules for 2010, and no corresponding Massachusetts change, a substantial, hidden In effect, under the current Massachusetts tax Massachusetts tax problem has arisen for rules assets that historically were subject to only successors to decedents’ property. one level of tax will now be subject to two levels of tax. When the federal government decided to reduce and repeal the federal estate tax beginning in Consider, for example, the impact of inheriting 2002, it planned to offset some expected revenue a Beacon Hill row house valued at $10 million loss by (i) eliminating the portion of the estate at the decedent’s date of death but purchased tax revenue it effectively shared with the states for a tenth of that amount in the 1960s. Under via the state death tax credit and (ii) eliminating the rules that existed last year, the heirs would Peter Shapland in 2010 the so-called “step-up” in basis, which have paid roughly $1,067,600 of Massachusetts Day Pitney LLP established date-of-death (or 6-month alternate) estate tax and inherited the house with a basis [email protected] valuations for all inherited property. equal to the date-of-death (or alternate) value, so if they sold it for its date of death value the Under this plan the estate of a 2010 decedent day after the decedent died, there would be no Inside this Issue would pay no federal estate tax, but the Massachusetts capital gains tax. Under the decedent’s heirs would be responsible for rules that exist in 2010, the heirs would still pay Page 3 Proposed Change to Massachusetts Basis Rules to Address 2010 paying income tax on pre-death capital gains on roughly $1,067,600 of Massachusetts estate tax Changes in Federal Estate Tax Laws inherited appreciated property when they sell it. and inherit the house with a basis equal to what By Kenneth P. Brier and Andrew D. Rothstein To some, this seemed like an acceptable tradeoff the decedent paid for it in the 1960s, so that if – capital gains taxes on pre-death gains in lieu of the heirs sell the property for its date of death Page 5 Abandoning Domicile in Massachusetts: Attention to Details Plus a much higher estate taxes. value the day after the decedent dies, there “Gut Check” would be a 5.3% Massachusetts capital gains tax By Melvin A. Warshaw In response to the changes to the federal estate on $9,000,000 of gain resulting in $477,000 of tax system, effective for decedents dying after extra tax. Page 8 Transfers of Limited Partnership Interests Fail to Qualify for Annual December 31, 2002 Massachusetts enacted The concerns laid out above are based on a Gift Tax Exclusion – Analysis and Practical Insights its own estate tax. The Department of Revenue technical, but we think inescapable, reading of By Christopher D. Perry and Bradley Van Buren indicated that the tax was enacted in order the applicable tax statutes. Page 9 Death and (Estate) Taxes: Don’t Wait for Congress to Act – Start Your to preserve the revenue the Commonwealth Massachusetts has its own tax basis rules set Planning Now received before the 2002 federal estate tax changes. However, at that time Massachusetts forth in chapter 62, §6F. These rules interrelate By Amiel Z. Weinstock did not make any changes to its rules relative to heavily with the federal basis rules, but are Page 13 Upcoming Section Events the basis of property inherited from a decedent. independent of them. Section 6F(b)(2)(C) As a result, it appears that decedents dying generally applies IRC §1014(b) (step-up in basis Page 14 Introducing the 2010-2011 Trusts & Estates Steering Committee in Massachusetts in 2010 will be subject to at death) to property acquired from a decedent. Massachusetts estate tax on their assets and the The reference to section 1014(b) of the Code, decedent’s heirs will be responsible for paying however, must be read in conjunction with the Page 16 Section Leadership

2 SPRING 2010 SPRING 2010 3 Proposed Change to Massachusetts Basis Rules to Address 2010 Changes...

defi nition for “Code” for purposes of chapter 62, disconnect creates a serious trap for so-called Abandoning Domicile in Massachusetts: as set forth in §1(c). With exceptions for certain pourover trusts containing a “pecuniary” subtrust Code sections not relevant here, that defi nition funding formula. Such a funding formula, though Attention to Details Plus a “Gut Check” provides that “Code” means the Internal Revenue offering several advantages, has always imposed Code of the United States, as amended on the potential of triggering of the recognition of Melvin A. Warshaw, Esq., Financial Architects Partners January 1, 2005 and in effect for the taxable year. gain upon funding. That problem has typically “Code” therefore would include IRC §1014(f), been manageable to the extent persons enacted in 2001 under EGTRRA, which provides administering the trust are dealing only with post- Two recent Massachusetts Appellate Tax Board The taxpayer in Cotter failed to timely change that §1014 shall not apply to decedents dying mortem gains. It is a lot more serious to deal with (ATB) decisions, Cotter (Docket No. C293719, his address to Florida on key fi nancial accounts, after December 31, 2009. So there is no longer gains accrued over the decedent’s lifetime and January 15, 2010) and Swartz (Docket No. including his bank accounts, life insurance any general Massachusetts basis step-up (or not reduced by the federal allocation of increased C287671, March 31, 2010) confi rm that policies and even the mortgage account for his step-down) for property acquired from decedents. basis. lawyers and other advisors must pro-actively Florida condominium. Most unfortunate was supervise a taxpayer’s attempt to abandon the taxpayer’s written statement on November In the absence of any general basis step-up, it Our proposal is simply to maintain the section domicile in Massachusetts. Checklists are a 1, 2003, made to a Florida casino, that his seems that a successor’s initial Massachusetts 1014 basis step-up rules this year and thereafter. good fi rst step to guide a taxpayer because address for income tax purposes was his basis would be determined under §6F(b)(2)(B), Those rules have commonly been thought of as the devil is in the details, but the taxpayer’s Massachusetts home. Not surprisingly, the ATB related to property whose federal basis is “fair play” in mitigating the potential for double lawyer or other advisor should also do a “gut concluded that, “the fact that [taxpayer] did determined in whole or in part by application taxation in the face of an estate tax. Given the check” to determine whether the taxpayer’s not change his address on these accounts… of the basis of prior property. That provision Commonwealth’s continuation of its estate tax projected lifestyle in the new state is compatible established that the [taxpayer] was more provides that the Massachusetts initial basis in the face of the apparently temporary federal with abandoning domicile in Massachusetts. interested in making a superfi cial show to shall be the initial federal basis of the acquired repeal, a continuation of the basis step-up rules property (or its Massachusetts basis, if different), can be viewed as both consistent and fair. Our Ultimately, the taxpayer’s intent will be establish the appearance of domicile…rather if there was no federal gain or loss with respect proposal is to state explicitly that IRC §1014(f) discerned from his or her everyday activities than genuinely changing his domicile to to the transaction (presumably the transaction is not to be given any effect for Massachusetts before and after “abandoning” domicile in Florida.” In Swartz, the former CEO of by which the property was acquired). Under purposes, thereby reading IRC §1014 back Massachusetts, not merely how many “to dos” Timberland and his wife were found not to have §6F(c), Massachusetts initial basis is thereafter into the law. Consistent with that approach, on a domicile checklist are checked off. abandoned their Massachusetts domicile as of adjusted by applying the same adjustments as the proposal also confi rms that the federal the dates of two large sales of Timberland stock are made to the federal basis after the initial $1.3/3 million additional basis allocations The fact patterns in both cases are somewhat in late 2004. This resulted in a large capital basis as determined, with certain exceptions. under IRC §1022(b) and (c) are not to apply for similar. A longtime Massachusetts resident gain tax liability for the taxpayers.1 Among the exceptions, pointedly, “[t]here shall Massachusetts purposes. taxpayer creates a successful local business, be disregarded any federal adjustment resulting and then buys and maintains a home in In Swartz, the ATB found substantial evidence of from provisions of the Code that were not One could conceive of an alternative whereby Florida in addition to maintaining a home in the taxpayers’ family ties to Massachusetts (two applicable in determining Massachusetts gross Massachusetts simply conforms its determination Massachusetts. The resident retains close of their three children lived in Massachusetts, income at the time such federal adjustments of basis in property acquired from decedents family ties in Massachusetts, and also retains as did all of their grandchildren). The taxpayers’ were made....” Since the allocation of additional to the federal basis this year and thereafter. basis under IRC §1022 (applicable for 2010) is This approach would provide the benefi t of business and investment connections to testimony before the ATB was that on October not an item in determining Massachusetts gross avoiding the need, both for taxpayers and the Massachusetts. In both Cotter and Swartz, 13, 2004 – two weeks before the very two income, it does not seem that it can be a basis DOR, to track divergent federal and state tax the ministerial acts of changing voting, vehicle signifi cant sales of Timberland stock at adjustment for Massachusetts tax purposes. In basis. However, we think that such divergent registration and other legal documents to the issue – the taxpayers purchased a Brookline the absence of a legislative fi x, it seems that all bases will be relatively uncommon, except for new state were found to have been inconsistent condominium “to be closer to their children who Massachusetts property acquired from decedents wealthier decedents for whom the $1.3/3 million with abandoning domicile in Massachusetts. lived in Boston and Newton.”2 On the same day will be acquired with a carryover basis, without additional federal basis step-up might not be The Massachusetts Department of Revenue that the taxpayers purchased their Brookline any further adjustment. suffi cient to raise their bases to date-of-death (DOR) used these inconsistencies as evidence condominium they fi led Declarations of Domicile fair market values, and we think that the estates that the taxpayers had failed to sever material declaring their Delray Beach, Florida home to The lack of any Massachusetts basis step-up of such wealthier decedents are the ones which connections with the Commonwealth and, be their principal residence. Unfortunately, would create serious complications for any commonly will be equipped to track separate therefore, had not abandoned domicile in the deed for the purchase of the Brookline taxpayer acquiring property from a decedent federal and Massachusetts bases. We think Massachusetts. The ATB agreed with the DOR in condominium, executed on October 13, 2004, this year or thereafter. . Without any basis that fairness considerations therefore should both cases and found that the taxpayers were listed the taxpayers as being “of Marblehead, step-up, Massachusetts basis would be lower prevail over these limited concerns about added than federal, and Massachusetts gains would administrative burdens. residents of Massachusetts for state income tax 1 ATB 2010-62. be commensurately higher. Moreover, this purposes. 2 ATB 2010-256.

4 SPRING 2010 SPRING 2010 5 Abandoning Domicile in Massachusetts: Attention to Details Plus a “Gut Check” Abandoning Domicile in Massachusetts: Attention to Details Plus a “Gut Check”

Massachusetts” not of Delray Beach, Florida. One takeaway from Swartz is that a taxpayer’s • Ensure that immediately following the The lawyer must apply a common sense gradual multi-year change of domicile may be change of domicile the address on all approach in these types of situations. In the The taxpayers in Swartz were not issued Florida very diffi cult to sustain. The ATB will scrutinize credit card, bank, brokerage statements eyes of the DOR, developing a large circle drivers’ licenses until two months after the year over year activities in Massachusetts and and life insurance policies is changed of new friends in the new state or becoming signifi cant sales of Timberland stock. While Mr. elsewhere to determine whether there has been to the new address (and have new bank heavily involved in civic or charitable causes Swartz registered to vote in Florida two weeks a meaningful shift in the level of the taxpayer’s checks printed listing the new address); in the new state are vital objective factors before the stock sales in question, his wife did activities from Massachusetts to the new • Maintain all primary bank accounts in that will support a determination that the not register to vote in Florida until fi ve weeks state. A clear, easy to observe change in the the new state, and limit the number and taxpayer has abandoned his or her domicile after the stock sales. In fact, shortly after the taxpayer’s year over year activities is preferable. size of bank accounts in Massachusetts; in Massachusetts. When a taxpayer performs stock sales in question Mrs. Swartz voted in • Join clubs (as a resident member) meaningful activities in the new state and the November 2004 presidential election by Advisors must ask themselves where the and engage in meaningful civic and consistently complies with almost all of the “to means of an absentee ballot in Marblehead. center of the taxpayer’s physical, business, social activities in the new state, and do’s” on a domicile checklist immediately after The statement from Mr. Swartz from the Boca social, civic and family activities will be? Here resign or change membership status in a move to the new state, the ATB is prepared West Golf Club in Florida was addressed to him are some practical steps (but by no means clubs or charitable activities located in to fi nd that such a taxpayer has successfully at his Marblehead home, as were Mr. Swartz’s a complete list of the) actions that must be Massachusetts to non-resident or part- abandoned domicile in Massachusetts. Visa credit card statements and the couple’s carefully undertaken and documented by a time status; and American Express credit card statements. The Massachusetts resident to demonstrate a clear • Maintain a daily calendar during the tax 2004 Palm Beach County, Florida real estate intent to abandon domicile in Massachusetts year to confi rm one’s whereabouts, and tax bill for the couple’s Del Ray Beach home and establish domicile elsewhere: ensure that telephone and credit card was also addressed to their Marblehead home. • File a declaration of domicile with the statements are consistent. While the couple engaged a Florida law fi rm to applicable circuit court located in the prepare estate planning documents refl ecting new state, and release any homestead For a taxpayer who maintains a home in a Florida domicile, these documents were of record on Massachusetts property; Massachusetts, the taxpayer has the burden executed in Florida six months after the stock • File for homestead protection in the new to prove that he or she has spent more than sales in question. state; 183 days outside of Massachusetts and that • Register to vote and actually vote he or she has established a domicile outside The ATB in Swartz found that the taxpayers’ (preferably in person) in the new the Commonwealth. The DOR considers a efforts to refl ect a change of domicile to state, and notify the town clerk to taxpayer’s legal residence for tax purposes Florida were “merely ministerial acts which remove oneself from the voting roles in to be Massachusetts, even if the taxpayer is were not even effective until after the sales Massachusetts; domiciled in another state, if that taxpayer of Timberland stock; moreover, [taxpayers] • Register all motor vehicles in the new maintains a “permanent place of abode” in continued to use their Marblehead home on state (be careful about boats that Massachusetts and spends more than 183 important documents and fi les,”3 after their remain registered in Massachusetts; days (including partial days) in Massachusetts purported change of domicile. consider renting a boat); during a calendar year. Credit card statements, • Obtain a driver’s license in the telephone logs and toll transponders may be The ATB in Swartz stated that “the [taxpayers] new state, and then destroy the very helpful to demonstrate the taxpayer’s failed to meet their burden of proving that Massachusetts license; physical presence outside Massachusetts. their social, civic or other ties to Florida were • Notify the US Passport Offi ce of the new stronger during the tax year at issue than in address, requesting a new passport be The ATB has acknowledged that retaining previous years… there was no meaningful issued listing the new address in the some minimal ties to Massachusetts does not change in [the taxpayers’] activities between new state; preclude a determination of domicile outside of those prior tax years and the tax year at issue • Arrange to execute new estate plan Massachusetts. The ATB does not require that except for [the taxpayers’] recognition of the documents prepared by a lawyer a taxpayer sever all links to Massachusetts, signifi cant capital gains and the purchase of licensed to practice in the new state, such as never visiting family members living in another Massachusetts residence.”4 and execute those new legal documents Massachusetts or seeking medical treatment in 3 ATB 2010-270. in the new state immediately after Massachusetts. 4 ATB 2010-270. moving there;

6 SPRING 2010 SPRING 2010 7 Transfers of Limited Partnership Interests Fail to Qualify for Annual Gift Tax Exclusion

from realizing a substantial economic trusts and other leveraged-gifting Transfers of Limited Partnership benefi t (i.e., the LLC could pay the child strategies. The use of one or more of with non-negotiable promissory notes these leveraged-gifting strategies will Interests Fail to Qualify for Annual Gift payable over a period of time not to likely permit the taxpayer to immediately exceed 15 years). transfer a greater limited partnership Tax Exclusion – Analysis and Practical ownership interest than otherwise would It appears from this line of cases that the be available with annual exclusion gifting Insights valuation discount and the annual exclusion may at potentially its lowest value and subject be mutually exclusive when the donor makes to considerably favorable interest rates, Christopher D. Perry, Esq., Northern Trust Bank, FSB gifts of partnership interests to their children. with little or no gift tax cost. By slowly Bradley Van Buren, Esq., Holland & Knight LLP Can a partnership be structured in such a way making incremental annual exclusion to enable the donor to take advantage of both gifts over time, the taxpayer may lose the valuation discounts and annual exclusions? opportunity to leverage the gift through Since the Tax Court decided Hackl in 2002, for lack of control and lack of marketability of Perhaps, but it appears to be a very fi ne line, and low interest rates and current low values. estate planners have worried that making gifts the transferred partnership interest, stating on attempting to do so may undermine some of the • The Administration’s “Green Book” of limited partnership interests may entitle their gift tax returns that the investments were taxpayer’s larger estate planning and corporate proposal to limit certain valuation the donor to a valuation discount or a gift tax “illiquid.” The IRS stipulated that the fair market governance goals. discounts on intra-family transfers annual exclusion—depending on the terms of values of the gifts were correctly reported. The could also be a reason for taxpayers to the partnership agreement—but not both. See very factors that contributed to the IRS upholding For example, if the operating agreement directs accelerate their valuation discount gifting Hackl v. Commissioner, 118 T.C. 279 (2002), the valuation discounts appear to have resulted the partnership to exercise its right of fi rst refusal strategies. affd. 335 F.3d 664 (7th Cir. 2003). Two recent in a fi nding that the donees did not possess a by redeeming the donee with cash, the taxpayer • The appraisal needed to support a decisions raise more concern for estate planners “present interest” under Treas. Regs 25.2503- will have lost an important factor contributing to valuation discount can be costly. For in this area. See Price v. Commissioner, T.C. 3(b). the valuation discount, and will have relinquished entities holding truly diffi cult to value Memo 2010-2 (January 4, 2010); Fisher v. United an important level of corporate control. Similarly, assets, such as private equity, it may States, 105 AFTR2d 2010-1347 (March 11, In Fisher v. U.S., the District Court for the if the operating agreement requires the not be worth the cost associated with 2010). Southern District of Indiana ruled against the partnership to make distributions to the limited appraising the entity if the ultimate taxpayers on a summary judgment motion partners of earnings and profi ts, or even to make estate planning benefi t is limited to the In Price v. Commissioner, the annual gift tax regarding whether the taxpayers’ transfers of LLC distributions for the payment of income taxes relatively small annual exclusion amount. exclusion was held not to apply to the donors’ units to their seven children qualifi ed as present attributable to the limited partners’ interests Further, depending on the number of transfers of limited partnership units to their interests for the gift tax annual exclusion. The in the partnership, the valuation discount may annual exclusion donees available to the children. Following Hackl v. Commissioner, the District Court held: be reduced. Furthermore, the distribution taxpayer, the recurring appraisal cost Tax Court held that the donees possessed a requirement may hinder the partnership’s overall generally required for an annual exclusion “future interest” in the transferred property under • the right to receive distributions upon a investment and business purposes. gifting program focused on the transfer IRC §2503(b), focusing on: sale of a capital asset was contingent of limited partnership interests may be upon several factors, one being the Taking a step back from the Price and Fisher overly burdensome. • the inability of the donees to transfer general manager’s determination to decisions, it may be that the number of taxpayers their partnership interests without the make a distribution from the LLC (the who are simply making annual exclusion gifts In light of the Hackl, Price and Fisher decisions, written consent of all the partners, general manager also being the donor of of limited partnership interests and claiming there is reason to be concerned that transferors • the inability of the donees to withdraw the LLC units); a valuation discount is on the decline for the who make gifts of limited partnership interest their capital accounts, • the right to use the land on Lake following reasons: to children may not be able to claim both a • the fact that there was no time limit on Michigan held in the LLC was a valuation discount and the gift tax annual the partnership’s exercise of its right of “possessory benefi t,” not a substantial • In an environment of low interest rates exclusion. In any event, there may be better ways fi rst refusal, and present economic benefi t (i.e., the right to and depressed equity values, taxpayers to make leveraged gifts in this environment of low • the fact that there was no immediate use the land did not enable the donees to may want to take advantage of estate- interest rates and depressed equity values. guaranteed cash fl ow to the donees. convert the interest to cash); freeze opportunities by implementing • the right of fi rst refusal to the LLC was a transfer techniques, such as GRATs, The taxpayers claimed “substantial discounts” contingency that hindered the children sales to intentionally defective grantor

8 SPRING 2010 SPRING 2010 9 Death and (Estate) Taxes: Don’t Wait for Congress to Act – Start Your Planning Now

Planning Opportunities But even if we look to the other extreme, a world Death and (Estate) Taxes: Don’t Wait for Estate planning clients can be broadly classifi ed in which there is no estate tax, all clients need into two types, those whose focus is wealth to consider how they intend to transfer their Congress to Act – Start Your Planning Now preservation and those whose focus is wealth wealth to their children and/or more remote Amiel Z. Weinstock, Esq., K&L Gates LLP transfer. The classifi cation (which may change descendants. Will an outright distribution over time) depends on many factors, including in accordance with the laws of intestacy current net wealth, age, family demographics suffi ce? Most likely not. So a simple estate Back in 1789, Benjamin Franklin wrote that But summer is almost upon us and Congress and health, and spending habits. For example, plan directing the disposition of wealth over “in this world nothing is certain but death and has still not taken any concrete measures to a husband and wife in their mid-50s, in good time (and perhaps in different proportions) is taxes”. This timeless adage rings true even address the estate tax issue. Prom is over and health, with three kids, having $10,000,000 needed. Does the client have minor children? today, and is especially relevant in light of the our date is not showing up. The Democrats of net wealth, are most likely in wealth Have they thought about guardianship issues? uncertainty surrounding the future of the estate and Republicans cannot agree on the time of preservation mode – they help their children as Do any of the children have “special needs” for tax. day, and now they are faced with a confi rmation needed, are looking to retire in the near future which they are entitled to government benefi ts? hearing to replace Justice Stevens. Surely and want to have plenty of liquid net wealth Are they adequately insured in the event that Last year, many (if not most) estate planning the estate tax will again be relegated to the available for their expected 30+ remaining death occurs when (if) the estate tax exemption practitioners (myself included) predicted that by backseat. Both parties will blame each other years. Take the same net wealth held by an is low? the end of the year Congress would have acted for failing to reach a compromise and each will 85 year old widow and the client is probably in to preserve the estate and generation-skipping point to their respective 2009 proposals as wealth transfer mode – her reasonable care Even if estate tax planning is not high on the list transfer tax regime in the same basic form that being the “right” answer. In fact, I suspect that and comfort could be more than adequately of concerns for clients in wealth preservation existed in 2009 (including a $3,500,000 estate many in Congress will be pleased that no deal managed with half of those assets, life mode, estate planning is important for so many tax exemption, 45% tax rate and basis step-up has been struck and will be happy to see the expectancy is relatively short and she has no other reasons, most of which can be addressed provisions). We all talked to our clients and estate tax regime revert to pre-EGTRRA levels major expenses on the horizon. without waiting for Congress to tell us how much assured them that their planning was not for on January 1, 2011 (when a lower estate tax money they will let us save. nothing, that Congress would do the right thing exemption and higher rates will mean more tax Regardless of what type of client you are and eliminate all the impending uncertainty. revenue), the result of which will be an increase working with, effective planning strategies are B. Wealth Transfer But alas, December 31, 2009 came and went in revenue for the Federal government. available in spite of the uncertainty in the estate Clients in the wealth transfer category are and we were left standing in the doorway of planning laws. typically those who can “afford” to part with 2010 like a high school senior abandoned by a So where does that leave us as practitioners? some portion of their net wealth without prom date. What do we tell our clients today? A. Wealth Preservation impacting the way they live their lives. Transfers We tell them that nothing is certain but death While timing and amount are uncertain, we can can include outright gifts of cash or other Despite Congress’ failure to act, many of and taxes and to stop sitting around waiting for reasonably anticipate that there will be some liquid assets, as well as transfers of interests those same practitioners held on tightly to the Congress to do something. We are all going to estate tax exemption amount fi xed by Congress. in intangible assets like real estate and/or belief that Congress would act in early 2010 die one day, and there will be a tax impact at As I mentioned above, if Congress does not act corporate entities (like partnerships, LLCs or and make any necessary changes retroactive death – whether some form of transfer tax (i.e., in 2010, the law will revert to the pre-EGTRRA corporations). Alternatively, more creative to January 1, 2010. We believed, perhaps gift, estate or generation-skipping) or income laws with a $1,000,000 exemption and a 55% strategies can be used to both maximize the naively, that the estate tax was important to tax. Be proactive about the many opportunities tax rate. At those levels, even modestly wealthy transfer of wealth and limit access to the our government, that it would be pushed to the that exist today to accomplish effective estate clients need to think about how they are going transferred funds by the recipients thereof. front of the line ahead of such issues like the planning, notwithstanding the uncertainty of to account for the estate tax impact. If the economy and healthcare reform. The sharpest the laws. Remember, estate planning is only exemption goes back to $3,500,000 (or more), The same issues raised above apply to clients minds in our fi eld were out there discussing the partially about estate taxes and transfers at there will be less of an impact on our sample in wealth transfer mode. They too should be constitutional issues of a retroactive change in death. It is also about effi cient wealth transfer clients above, but only if proper planning is concerned with how and when their assets are the tax law, analyzing the impact of the carry- and asset protection through the use of trusts, done to make sure they maximize their use of transferred to subsequent generations (whether over basis rules and instructing everyone to income tax planning and charitable goals the exemption (for example, by balancing the or not reduced by taxes). In some respects scrutinize their existing plans to make sure that and about transfers made during lifetime to assets between husband and wife)5. these issues are magnifi ed because the dollars a formula clause that has worked for decades enhance the lives of children and grandchildren. are bigger (i.e., more money for that perpetually didn’t suddenly distort all of the existing 5 Note that “portability” of the estate tax exemption amounts has been raised as indebted child who at age 55 still can’t hold a planning. part of a compromise solution to the estate tax uncertainty. Portability might obviate the need for job, or for the 18 year old high school dropout balancing assets between spouses, but the details of its application are uncertain at this time.

10 SPRING 2010 SPRING 2010 11 Death and (Estate) Taxes: Don’t Wait for Congress to Act – Start Your Planning Now

with a substance abuse problem). In other commercial real estate or fl ow through entities Upcoming Events respects the issues are less worrisome because like S corporations or partnerships). even if reduced by taxes there will still be ample Trusts & Estates Year in Review resources available for the family. No matter For those clients in the ultra high net worth what the concern, proper estate planning category (i.e., $50,000,000 or more in Wednesday, June 16, 2010 adds major value to the family for multiple liquid net wealth), private premium fi nancing 3:00 p.m. – 6:00 p.m. generations. arrangements with life insurance can also be very exciting because of the low interest rate Sponsored by: The Estate Planning Committee of the Trusts & Estates Section There are a variety of lifetime planning environment. An annual hit among estate planning practitioners, this seminar offers a rare opportunity to learn techniques that can be effective no matter about the year’s signifi cant developments in Massachusetts and federal laws that affect your estate what the estate tax exemption is (or even if the There is no reason for our clients to wait to planning practice. The panelists will cover new matters in tax law, case law and statutory develop- estate tax has been repealed in its entirety). employ these strategies. Nothing will be ments between June 2009 and June 2010 and will give a status update on legislation in the pipeline. For example, simple GRATs that are funded gained by waiting for a new estate tax law to It is one that you cannot afford to miss! with publicly traded stock are a very low risk be enacted by Congress. If anything, some of proposition6 with an extreme upside. Other these strategies may become less effective Specifi c Topics will include: than the cost associated with establishing the under a new law because of their well- • Review of signifi cant Massachusetts and federal caselaw affecting the estate planning area trust, the GRAT is a “heads I win, tails I don’t recognized effectiveness and appeal to the lose” structure. In other words, if the asset upper class. For example, there is a current • Review of Massachusetts and federal tax updates affecting estate planning contributed to the GRAT appreciates over the legislative proposal which will require GRATs • Overview of the new legislation in the pipeline term of the GRAT, most of that appreciation to have a minimum 10 year term7. Our clients will inure to the benefi t of the trust remainder should take advantage now of the strategies Panelists: benefi ciaries and will not be included in the that we know will work no matter what the Andrew D. Rothstein, Esq. grantor’s estate at death. If, on the other hand, estate tax law looks like in the future. Goulston & Storrs the asset contributed to the GRAT does not appreciate (or in fact depreciates), the GRAT Allison M. McCarthy, Esq. will terminate when the last annuity payment Estate planning can be a daunting task Riemer & Braunstein LLP is made to the grantor and the grantor will be for clients. Fear of the unknown and the Christopher Perry, Esq. in the same fi nancial position as if he/she had unwillingness to confront one’s mortality are simply held the asset in his/her portfolio for the high hurdles for many clients to clear. Throw Northern Trust duration of the GRAT. in the legislative uncertainty that we are Sara W. Condon, Esq. facing and our clients have all the excuses at Mintz Levin Cohn Ferris Glovsky and Popeo PC Another very effective technique that is their fi nger tips for pushing off much needed available to your clients is the sale of assets planning. Suma V. Nair, Esq. to an intentionally defective grantor trust. This Goulston & Storrs technique is a bit more complicated than a It is our job as advisors to explain to them the Matthew R. Hillery, Esq. GRAT, but with the right asset can have an even value of proper planning and to offer them Edwards, Angell, Palmer & Dodge LLP better upside. Like the GRAT, this strategy is opportunities to achieve their goals in a tax- a so-called “estate freeze” technique, the goal effi cient and coherent fashion. For all of our Susan L. Abbott, Esq. of which is to transfer all appreciation in value clients who have enough wealth to be worried Goodwin Procter LLP to the next generation without any transfer about the uncertainty of the estate tax, they Program Co-Chairs: taxes. Because of the extremely low interest have enough wealth to be doing something rate environment today, these sales are very about it right now. Leiha Macauley, Esq. effective with income producing property (like Day Pitney LLP

7 6 The only risk is that the cost to prepare and fund the GRAT will exceed the If a grantor does not survive the term of a GRAT the entire value of the trust Dennis R. Delaney, Esq. performance of the stock placed in the GRAT. Note that GRATs funded with assets other than property (including all appreciation) will be included in the grantor’s estate at death. Thus, the Hemenway & Barnes LLP publicly traded stock are also very benefi cial but have higher costs to implement because of the longer the term of the GRAT, the greater the mortality risk. For younger clients this is not a

necessity to get a formal valuation of the asset at the time of contribution to the GRAT as well as signifi cant concern, but for clients who are older and/or who may have health issues, a short-term

on each annuity date. GRAT (i.e., for 2 years) is more appealing.

12 SPRING 2010 SPRING 2010 13 2010-2011 Trusts & Estates Steering Boston, MA 02110 Cohen & Oalican, LLP Term End Date: 08/31/12 (617) 345-4753 18 Tremont Street Ropes & Gray LLP Committee [email protected] Suite 903 One International Place Boston, MA 02108 Boston, MA 02110 Peter Shapland Wilmer Hale Allison McCarthy Kelly Aylward (617) 263-1035 (617) 951-7216 Section Co-Chair 60 State Street New Developments Estate Planning Fundamentals [email protected] [email protected] Term End Date: 08/31/11 Boston, MA 02109 Term End Date: 08/31/11 Term End Date: 08/31/11 Day Pitney LLP Riemer & Braunstein LLP Bove & Langa, P.C. Matt Marcus Colin Korzec One International Place, 17th (617) 526-6604 Three Center Plaza, 6th Floor 10 Tremont Street Elder Law & Disability Planning Ad Hoc Spousal Elective Share Floor brad.bedingfi eld@wilmerhale. Boston, MA 02108 Suite 600 Term End Date: 08/31/12 Term End Date: 08/31/11 Boston, MA 02110 com (617) 880-3453 Boston, MA 02108 Colucci Colucci Marcus & Flavin, U.S. Trust, Bank of America Pri- (617) 345-4766 [email protected] (617) 720-6040 P.C. vate Wealth Management [email protected] Nancy Dempze [email protected] 424 Adams Street 100 Federal Street Pro Bono Kristin Abati Milton, MA 02186 MA5-100-05-05 Christopher Perry Term End Date: 08/31/11 New Developments Scott Squillace [email protected] Boston, MA 02110 Section Co-Chair Hemenway & Barnes LLP Term End Date: 08/31/12 Estate Planning Fundamentals (617) 434-1806 Term End Date: 08/31/12 60 State Street Choate Hall & Stewart, LLP Term End Date: 08/31/12 Christine Keane [email protected] Northern Trust Boston, MA 02109 Two International Place Squillace & Associates, P.C. CLE One International Place, Suite (617) 557-9726 Boston, MA 02110 306 Dartmouth Street, Suite Term End Date: 08/31/11 Deborah Manus 1600 [email protected] (617) 248-5266 305 Nutter McClennen & Fish LLP Ad Hoc Spousal Elective Share Boston, MA 02110 [email protected] Boston, MA 02116 World Trade Center West Term End Date: 08/31/11 (617) 235-1835 Cameron Casey 617-716-0300 155 Seaport Boulevard Nutter McClennen & Fish LLP [email protected] Pro Bono Michelle B. Kalas [email protected] Boston, MA 02210 World Trade Center West Term End Date: 08/31/12 Liaison to the New Lawyers Sec- (617) 439-2496 155 Seaport Boulevard Matthew Hillery Ropes & Gray LLP tion Leiha Macauley [email protected] Boston, MA 02210 Public Policy One International Place Term End Date: 08/31/11 Estate Planning (617) 439-2637 Term End Date: 08/31/11 Boston, MA 02110 Prince Lobel Glovsky Tye Term End Date: 08/31/11 Andrew Rothstein [email protected] Edwards Angell Palmer & Dodge (617) 951-7987 100 Cambridge St., Suite 2200 Day Pitney LLP CLE LLP [email protected] Boston, MA 02114 One International Place Term End Date: 08/31/12 Susan Repetti 111 Huntington Avenue [email protected] 17th Floor Goulston & Storrs Tax Law Update Boston, MA 02199-7613 Adrienne Penta 617-456-8180 Boston, MA 02110 400 Atlantic Avenue Term End Date: 08/31/12 (617) 239-0289 Newsletter (617) 345-4602 Boston, MA 02110-3333 Nutter McClennen & Fish LLP [email protected] Term End Date: 08/31/11 Joshua Miller [email protected] (617) 574-4089 World Trade Center West Brown Brothers Harriman & Co. Fiduciary Litigation [email protected] 155 Seaport Boulevard Suma Nair 40 Water Street Term End Date: 08/31/10 Susan Abbott Boston, MA 02210 Public Policy Boston, MA 02109 Holland & Knight, LLP Estate Planning Melvin Warshaw (617) 439-2267 Term End Date: 08/31/11 (617) 772-6728 10 St. James Avenue Term End Date: 08/31/12 Ad Hoc Uniform Trust Code [email protected] Goulston & Storrs – A Profes- [email protected] 11th Floor Goodwin Procter LLP Term End Date: 08/31/11 sional Corporation Boston, MA 02116 Exchange Place Financial Architects Partners Sara Condon 400 Atlantic Avenue Kerry Spindler (617) 305-2056 53 State Street 800 Boylston Street Tax Law Update Boston, MA 02110-3333 Newsletter [email protected] Boston, MA 02109 Suite 3010 Term End Date: 08/31/12 (617) 574-7913 Term End Date: 08/31/12 (617) 570-1787 Boston, MA 02199 Mintz Levin Cohn Ferris Glovsky [email protected] Goulston & Storrs Mark Swirbalus [email protected] (617) 259-1900 & Popeo P.C. 400 Atlantic Avenue Fiduciary Litigation mwarshaw@fi arch.com One Financial Center Brad Bedingfi eld Boston, MA 02110-3333 Term End Date: 08/31/12 Steven Cohen Boston, MA 02111 Public Policy (617) 574-3504 Day Pitney LLP Elder Law & Disability Planning Marc Bloostein (617) 348-4408 Term End Date: 08/31/12 [email protected] One International Place Term End Date: 08/31/11 Ad Hoc Uniform Trust Code [email protected]

14 SPRING 2010 SPRING 2010 15 Section Leadership 2009-2010 Robert O’Regan Adrienne Penta Suma Nair Burns & Levinson LLP Brown Brothers Harriman & Co. Goulston & Storrs - A Section Co-Chairs Melvin Warshaw Estate Planning 125 Summer Street 40 Water Street Professional Corporation Financial Architects Partners Dennis Delaney Boston MA 02110 Boston MA 02109 400 Atlantic Ave Anne Marie Towle 800 Boylston Street Hemenway & Barnes LLP 617-345-3000 617-772-6728 Boston MA 02210-3333 Athena Capital Advisors LLC Suite 3010 60 State Street [email protected] [email protected] 617-574-7913 55 Old Bedford Rd Boston MA 02199 Boston MA 02109 [email protected] Lincoln MA 01773 617-259-2900 617-557-9722 New Developments Pro Bono 781-274-9300 mwarshaw@fi arch.com [email protected] [email protected] Allison McCarthy Kathryn Muldoon CLE Leiha Macauley Riemer & Braunstein LLP Goodwin Procter LLP Peter Shapland Day Pitney LLP Three Center Plaza Exchange Place Day Pitney LLP Christopher Perry One International Place 6th Floor 53 State Street One International Place Northern Trust 17th Floor Boston MA 02108 Boston MA 02109 17th Floor One International Place Boston, MA 02210 617-880-3453 617 -570-1588 Boston MA 02210 Suite 1600 617-345-4602 [email protected] [email protected] 617-345-4766 Boston MA 02110 [email protected] [email protected] 617-235-1835 Andrew Rothstein Nancy Dempze [email protected] Estate Planning Fundamentals Goulston & Storrs - A Hemenway & Barnes LLP Ad Hoc Spousal Elective Share Professional Corporation 60 State Street Christine Keane Cameron Casey 400 Atlantic Ave Boston MA 02109 Colin Korzec Nutter McClennen & Fish LLP Ropes & Gray LLP Boston MA 02210-3333 617-557-9726 U.S. Trust Company World Trade Center West One International Place 617-574-4089 [email protected] 225 Franklin Street 155 Seaport Boulevard Boston MA 02110-2624 [email protected] Boston MA 02110 Boston MA 02210 617-951-7987 Public Policy 617-897-3254 617-439-2496 [email protected] Newsletter [email protected] [email protected] Matthew Hillery Kelly Aylward Bradley Van Buren Edwards Angell Palmer & Dodge Deborah Manus Elder Law & Disability Planning Bove & Langa, P.C. Holland & Knight LLP LLP Nutter McClennen & Fish LLP 10 Tremont Street 10 St. James Avenue 111 Huntington Avenue World Trade Center West Ken Shulman Suite 600 11th Floor Boston MA 02199 155 Seaport Boulevard Day Pitney LLP Boston MA 02108 Boston MA 02116 617-239-0289 Boston MA 02210 One International Place 617-720-6040 617-305-2086 [email protected] 617-439-2000 17th Floor [email protected] [email protected] [email protected] Boston MA 02210 617-345-4789 Fiduciary Litigation Ad Hoc Uniform Trust Code [email protected] Joshua Miller Raymond Young Steven Cohen Holland & Knight LLP Young & Bayle Cohen & Oalican, LLP 10 St. James Avenue ARTICLES WANTED 101 Arch Street 18 Tremont Street 11th Floor Boston MA 02108 Suite 903 Boston MA 02116 You are all invited and encouraged to contribute an article on any subject of interest, particularly if 617-737-0404 Boston MA 02108 617-305-2056 you fi nd yourselves dealing with an unusual or undecided issue in Massachusetts. Please contact [email protected] 617-263-1035 [email protected] Adrienne M. Penta at [email protected] or Kerry Spindler at kspindler@goulstonstorrs. [email protected] com to pursue this further.