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Heckerling Musings 2016 and Current Developments Click here to view Issue 23 Heckerling Musings 2016 and Current Developments February 2016 Steve R. Akers Senior Fiduciary Counsel — Southwest Region, Bessemer Trust 300 Crescent Court, Suite 800 Dallas, TX 75201 214-981-9407 [email protected] www.bessemer.com Table of Contents _Toc442962126 Introduction ................................................................................................................................ 1 1. Summary of Top Developments in 2015 ........................................................................... 1 2. Legislative Developments ................................................................................................. 2 3. Basis Consistency and Reporting Requirements ............................................................... 9 4. Treasury-IRS Priority Guidance Plan and Miscellaneous Guidance From IRS ....................17 5. Overview of Estate Planning Practice Trends in the Current Environment .......................30 6. Advising Clients in Changing Times; Planning For Flexibility .............................................37 7. Selecting Trustees and Structuring Trust Powers to Avoid a Tax Catastrophe..................42 8. IRS’s Radar Screen ..........................................................................................................44 9. Defined Value Clauses and Savings Clauses ....................................................................51 10. Assets in LLC Not Included in Estate Under §2036; Gifts of LLC Interests Qualify for Annual Exclusion; Interest on Loan from Beneficiaries to Pay Estate Tax is Deductible, Estate of Purdue v. Commisisoner ...................................................................................54 11. Sale to Grantor Trust Transaction Under Attack, Estate of Donald Woelbing v. Commissioner and Estate of Marion Woelbing v. Commissioner .....................................60 12. Self-Canceling Installment Notes (SCINs); CCA 201330033 and Estate of William Davidson ..........................................................................................................................64 13. Portability .........................................................................................................................68 14. Basis Adjustment Flexibility Planning ...............................................................................71 15. Private Derivatives—Thinking Outside the Box ................................................................75 16. Rejuvenating Stale Irrevocable Trusts Through Trust-to-Trust Transfers; “Fixing Broken Trusts” .............................................................................................................................79 17. Creative Planing Strategies with Lifetime QTIP Trusts .....................................................93 18. Diminished Capacity Concerns (Including Planning for Possible Future Diminished Capacity of Client) ..........................................................................................................104 19. Representing Aging Clients ............................................................................................ 110 20. Valuation—Family Aggregation, Estate of Pulling v. Commissioner ...............................112 21. Settlement Agreement Did Not Result in Taxable Gift, Estate of Edward Redstone v. Commissioner; Voluntary Transfer by Brother on Same Terms But Not Under Settlement Agreement Did Result in Gift, Sumner Redstone v. Commissioner ................................113 22. Charitable Set-Aside Deduction, Estate of Belmont v. Commissioner and Estate of DiMarco v. Commissioner ..............................................................................................119 www.bessemer.com/advisor i 23. Trust Income Tax Charitable Deduction for Distribution of Asset With Unrealized Appreciation to Charity, Green v. United States .............................................................122 24. Preparing for the IRS’s Request for Documents; Privilege; Work Product ...................... 123 25. Decanting; Uniform Trust Decanting Act ........................................................................126 26. Digital Assets; Revised Uniform Fiduciary Access to Digital Assets Act ......................... 127 27. Unbundling Requirements for Expenses of Trusts and Estates, Final Regulations to §67(e) .......................................................................................................................................130 28. Distribution Planning New Paradigms ............................................................................132 29. Material Participation by Trusts ......................................................................................134 30. Do Not Concede That Annual Exclusion is Lost If Crummey Notices Not Given Timely . 137 31. Forgiving Debt; Income Tax Consequences ................................................................... 138 32. Gift Splitting If Donee-Spouse Is Potential Beneficiary ...................................................138 33. Observations About U.S. Supreme Court .......................................................................139 34. “Net Net Gifts” Recognized—Steinberg v. Commissioner .............................................142 35. Impact of Arbitration or “In Terrorem” Provisions in Crummey Trusts—Mikel v. Commissioner ................................................................................................................144 36. State Income Taxation of Trusts .....................................................................................145 37. Overview of Significant Fiduciary Law Cases in 2015 .....................................................146 38. Interesting Quotations ....................................................................................................155 Appendix A .............................................................................................................................160 Copyright © 2016. Bessemer Trust Company, N.A. All rights reserved. February 16, 2016 Important Information Regarding This Summary This summary is for your general information. The discussion of any estate planning alternatives and other observations herein are not intended as legal or tax advice and do not take into account the particular estate planning objectives, financial situation or needs of individual clients. This summary is based upon information obtained from various sources that Bessemer believes to be reliable, but Bessemer makes no representation or warranty with respect to the accuracy or completeness of such information. Views expressed herein are current only as of the date indicated, and are subject to change without notice. Forecasts may not be realized due to a variety of factors, including changes in law, regulation, interest rates, and inflation. www.bessemer.com/advisor ii Introduction The 50th Annual Philip E. Heckerling Institute on Estate Planning was held in Orlando during the week of January 11, 2016. I have summarized some of my observations from the week, as well as other observations about various current developments and interesting estate planning issues. My goal is not to provide a general summary of the presentations. The summaries provided on the American Bar Association Real Property, Trust & Estate Law Section website, which are prepared by a number of reporters, and coordinated by Joe Hodges, do an excellent job of that. In addition, Martin Shenkman provides a detailed outline summary of each of the presentations, which is available on the Leimberg Information Services materials. Rather, this is a summary of observations of selected items during the week as well as a discussion of other items. I sometimes identify speakers, but often do not (some topics are discussed by various speakers). I take no credit for any of the outstanding ideas discussed at the Institute — I am instead relaying the ideas of others that were discussed during the week. 1. Summary of Top Developments in 2015 2015 was a busy year in the estate planning world. Economic conditions led to some of the activity, including (1) low interest rates (which are very helpful for various transfer planning strategies), and (2) volatility in the financial markets. Clients are interested in preserving assets and exploiting (or capitalizing on) anticipated upswings in the market. A growing emphasis on income tax planning continues in light of the small difference in the income and transfer tax rates. For the bulk of the U.S. population, the $5 million indexed estate, gift, and GST exemptions have made the transfer tax largely irrelevant. Ron Aucutt (Washington D.C.), provides the following as his “top ten” list of the major developments in the estate planning world in 2015: (1) IRS attacks on sales to grantor trusts (including the Davidson and Woelbing cases), the Administration’s budget proposals, new IRS priority guidance plan proposals (that have the effect of attacking various aspects of sale to grantor trust transactions), and the anticipated issuance of new regulations under §2704 (admittedly, that is several top items all thrown into the “number one” category); (2) Political climate in Washington (new leadership in the House of Representatives appears to have allowed some element of compromise, including the passage of various permanent “tax extenders”); (3) Consistency of basis legislation; (4) Same-sex marriage recognized as a constitutionally protected right
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