A Bi-Monthly Electronic Publication for Section
Members
February 2009
A Bi-Monthly Electronic Publication for Section Members
February 2009
Section News
Technology and Law Practice Management
Be sure to join us for the 20th Annual Spring Symposia in
Don't Miss TECHSHOW 2009!
Washington D.C., from April 30-May 1. For more information,
The RPTE Section is a program promoter of ABA
click here.
TECHSHOW 2009, a 3-day technology-related
The RPTE Section's Community Outreach Program (COP) in
Chicago is underway. This 12-week program started
February 11 and is open to members of all minority bar
associations. Click here to learn more.
Participate in Section groups and committees for
opportunities to work on legislative issues, collaborate with
your colleagues across the country and participate in free
conference calls. Click here for more.
seminar hosted by ABA's Law Practice Management
Section. Check it out at www.techshow.com and
get a special registration discount by using the
RPTE program promoter code EP922. Find out
more about this year's ABA TECHSHOW.
CLE Spotlight
Trust and Estate CLE
Feuds and Flashpoints: Detecting and Defusing
Join us in New York City for the Skills Training for Estate
Potential Estate Litigation
Planners CLE Program, July 13-17. This very popular
Webcast/ Teleconference
program sells out quickly, so early registration is advised. To
Date: Tuesday, March 3, 2009
view the brochure, click here.
Time: 1:00 P.M. - 2:30 P.M. Eastern
Trust and Estate News
Real Property News
Real Property CLE
Dilemmas Dealing with Deposits, Disbursements,
Escrows, and Exchange Funds
Trust and Estate News
New Year Brings Changes in Estate Tax and
Webcast/ Teleconference
Date: Monday, February 23, 2009
Time: 1:00 P.M. - 3:00 P.M. Eastern
Group & Committee News
Generation-Skipping Transfer Tax
Richard S. Franklin
Pending Legislation To Change The Federal Transfer
Taxes
James V. Roberts
Determining the Income Tax Basis of Property
Gratuitously Transferred to Grantor Trusts
Volunteer to Update the RPTE Disaster
Assistance Webpage
Margery J. Schneider
Emerging Issues and Specialty Leases Committee
Estate of Thelma G. Hurford, T.C. Memo 2008-278; Tax
Court Rejects Private Annuity Transaction and Creation
This "Committee Spotlight" section of the eReport
of FLP Under Section 2036
highlights a group or committee and provides
Steve Akers
volunteer opportunities for practicing lawyers.
Become more involved in RPTE today.
Heckerling Musings 2009
Steve Akers condenses the latest Heckerling Institute
proceedings into one easy-to-read and well organized article.
A must read for all estate planners. Click here to read the
article.
REAL PROPERTY
Commercial Real Estate Transactions Group
The Commercial Real Estate Transactions Group
has a number of ongoing activities, including a
Reports from Heckerling
focusing on the ongoing real estate crisis that is
The 43rd Annual Philip E. Heckerling Institute on Estate
starting to spread into the commercial market.
Planning was held January 12-16, 2009. The Section's on-
View the Group's activities here.
site reporters posted summaries of the sessions to the ABAPTL discussion list and the RPTE website, and they may be
accessed here.
TRUST AND ESTATE
Income and Transfer Tax Planning Group
The Income and Transfer Tax Planning Group has a
Charitable Highlights from 2008
variety of Group conference calls scheduled during
Stephanie (Stevie) Casteel
2009 and will sponsor many presentations at the
Stevie Casteel summarizes the major developments
2009 Spring Symposia. Find out more here.
concerning charitable organizations and charitable giving,
from the beginning of 2009 through the present.
International Tax Planning Committee
The committee has undertaken several important
New York State Department of Taxation and Finance,
comment projects and is actively working with both
Advisory Opinion on the New York estate taxation of
the ABA Tax Section and the AICPA on issues of
non-resident owned S Corporations and single member
vital importance to our members. Click here for
LLCs which own New York Real Estate
more.
Robert D. Steele
Young Lawyers Network
Real Property News
Fellows
Become involved in the substantive work of the
RPTE Section by applying for the 9th Annual
Fellows Program.
Your Tenant Has Filed Bankruptcy--Now What?
Randy P. Orlik and Susan S. Davis
The news is full of bankruptcies by national retailers. Small
stores are also being affected by the current economic
crunch. Randy Orlik and Susan Davis provide an overview of
steps to take when a tenant files a bankruptcy proceeding.
Title Insurer Not Liable for Acts of Agent at Closing in
Absence of Closing Protection Letter
John C. Murray
A closing protection letter is a standard item on a lender's
checklist, but it may not protect against everything a lender
assumes it will cover. Jack Murray covers a recent case
highlighting the benefits and limits of closing protection
letters.
How to Create a Green Community
Amy Bray
In her article, Amy Bray discusses how to create eco-friendly
CCRs for planned communities.
Ohio Foreclosure Cases: Lenders Beware– The Ripple
Continues
Gretchen D. Jeffries and Michael J. Ball
See the latest installment from Gretchen Jeffries and Michael
Law Students
Writing Contest
Let the 2009 Student Writing Contest be your
opportunity for recognition.
Check Out Changes to the RPTE Law Student
Webpage
Be sure to check out the RPTE law student web
page, which is being updated with new student
information and resources by the Section's 20082009 Law Student Division liaisons, Ben Martie and
Tyler Pitrat.
And, join the discussion on the RPTE law student
message board...
Ask how others are enjoying their first year (and
later years) of law school. Find out about career
opportunities in the fields of real property and trust
and estate law. Discover insights on working for a
big or small firm or being a solo practitioner. Ask
questions, discuss your concerns and offer support
to other students on a number of issues. The
message board is new!
Ball in their ongoing reports on cases and legislative efforts
affecting the proof required of foreclosing lenders.
Join a Committee Today!
RPTE members can join a group or committee (or several)
online at www.abanet.org/rpte/join. For questions regarding
membership, contact the Section at (312)988-5651 or email
Bunny Lee at leeb@staff.abanet.org.
Would you like to write an
article for the eReport?
If you have something to say, and would like your article
considered for the eReport, simply email Susan Talley, Editor, at
stalley@stonepigman.com for further details.
New Book from RPTE
From Handshake to Closing: The Role of the Commercial Real Estate Lawyer
Sidney G. Saltz
From Handshake to Closing is an invaluable and practical mentoring guide intended to
bridge the gap between the way law firms train young lawyers today, often thrusting
upon them complicated matters and asking them to learn through trial and error rather
than through observation. It teaches real estate lawyers to avoid pitfalls that can kill the
deal, and serves as a valuable refresher for more experienced attorneys. Suggestions on
how to handle various stages of a deal, the history of the practice, and ample examples
are provided. Click here to learn more...
FOR OFFLINE READING:
- PDF version - print the whole issue
- PDF of Trust and Estate articles only
- PDF of Real Property articles only
About RPTE eReport
The RPTE eREPORT is the bi-monthly electronic publication of the Real Property, Trust and Estate Law Section. It includes
practical information for lawyers working in the real property and estate planning fields, together with news on Section
activities and upcoming events. RPTE eREPORT also provides resources for young lawyers and law students to succeed in
the practice of law. For further information on RPTE eREPORT or to submit an article for publication, please contact:
Susan Talley (Editor) at stalley@stonepigman.com; Cheryl Kelly (Real Property Editor) at CKELLY@thompsoncoburn.com;
Robert Steele (Trust and Estate Editor) at steele@whafh.com; or Michael Goler (Managing Editor Emeritus) at
Goler@MillerGolerFaeges.com. We welcome your suggestions and submissions.
The materials contained herein represent the opinions of the authors and editors and should not be construed to be those
of either the American Bar Association or The Section of Real Property, Trust and Estate Law unless adopted pursuant to
the bylaws of the Association. Nothing contained herein is to be considered as the rendering of legal advice for specific
cases and readers are responsible for obtaining such advice from their own legal counsel. These materials and any forms
and agreements herein are intended for educational and informational purposes only. The authors and other contributors
to RPTE eREPORT are solely responsible for the content of their submissions, including the accuracy of citations to legal
resource materials.
20th Annual Spring Symposia
ABA Section of Real Property, Trust & Estate Law
Washington, D.C.
April 30-May 1, 2009
The Fairmont & Park Hyatt
WELCOME
Stay In Touch and
Stay Current!
Maximize the benefits you receive from the dollars you invest
in your continuing education. Join us at the ABA Section
of Real Property, Trust and Estate Law’s 20th Annual Spring
Symposia in Washington, D.C. April 30 – May 1, 2009, to:
• Learn from the nation’s leading experts in a small group
setting, and exchange ideas with practitioners from
around the country through our unique group roundtable
programs.
• Hear from Washington insiders on the latest legislative,
judicial and regulatory developments.
• Discover practical solutions to the significant real estate
issues of the day including: “green construction” and
litigating claims under the Interstate Land Sales Full
Disclosure Act.
• Listen to leading industry speakers discuss today’s most
important estate planning techniques including: planning
in economically turbulent times, the use of grantor trusts,
and the latest on FLPs.
• Enjoy social events that will expand your network
of valuable professional contacts.
Register on-line today at www.abanet.org/RPTE/2009.
“The 2009 Annual Symposia offer the unique opportunity
among seminars provided thoughout the year to hear some
of the top national experts (including a Tax Court judge and
officials from United States government agencies), and to
participate in “roundtable” discussions affording the
opportunity to engage in dialogue with attorneys across
the country regarding practical planning issues that are
important to your practice.”
Steve R. Akers
Chair
ABA Section of Real Property, Trust and Estate Law
SPRING SYMPOSIA NETWORKING
EVENTS & MEETING HIGHLIGHTS
THURSDAY, APRIL 30, 2009
FRIDAY, MAY 1, 2009
Beginning 7:00 a.m.
Beginning 7:00 a.m.
Hospitality Area
Hospitality Area
A continental breakfast and afternoon break will
be available for all meeting registrants.
A continental breakfast and afternoon break will
be available for all meeting registrants.
12:00 p.m. – 1:30 p.m.
7:00 a.m. – 8:30 a.m.
Real Property Luncheon
Diversity Breakfast and CLE Program:
“Eliminating Bias in the Profession –
Why Aren’t Law Firms and Corporate Law
Departments Achieving Greater Success?”
COST:
$40
12:00 p.m. – 1:30 p.m.
“Hot Topics for Estate Planners”
COST:
SPEAKERS:
Catherine V. Hughes, Office of Tax Policy, U.S. Treasury,
Washington, D.C.
Dennis I. Belcher, McGuire Woods LLP, Richmond, VA
Howard M. Zaritsky, Consulting Counsel, Rapidan, VA
SPONSORED BY:
5:30 p.m. – 6:30 p.m.
Complimentary Sponsor Reception
LOCATION:
7:00 p.m. – 10:00 p.m.
Symposia Reception
COST:
12:15 p.m. – 1:30 p.m.
Section of Real Property Trust and Estate
Law Group and Committee Lunches
COST:
$15
Open to all attendees, tables will be set up for
each Group to provide a forum for discussion
of timely issues vital to real property and trust
and estate practitioners. This is an excellent
opportunity to network with colleagues.
Sponsorship Area
All meeting attendees are invited to mingle and
network with sponsors in the sponsorship area
immediately after the CLE programming. Please
come to thank and support the Section’s
sponsors.
LOCATION:
SPEAKERS:
Donise E. Brown, Starbucks Coffee Company, Hollywood, FL
Sandra S. Yamate, Discovery Services LLC, Chicago, IL
$40
Beginning at 6:30 p.m.
Dine-A-Round
New member? Young lawyer? Just want to have
some fun? Enjoy fabulous dining options and
night-life with the Young Lawyer Network while in
beautiful D.C. The YLN will coordinate your evening
at fine or casual dining spots near the hotels.
Newseum
$25
Join Section Chair Steve Akers in kicking off the
20th Annual Spring Symposia at DC’s newest,
most exciting museum. Enjoy your time in
Washington, D.C. with a networking opportunity
to meet old and new friends alike at this
meeting highlight.
SPONSORED BY:
The Section of Real Property,
Trust and Estate Law would like
to recognize HFBE for sponsoring
a leadership activity.
MEET OUR SYMPOSIA
SPONSORS
Visit the expo near the meeting registration area
and learn more about the companies that
sponsor the Symposia and the services they
provide. Their support is very valuable to us and
we encourage you to take advantage of their
2
presence at the program.
Register on-line today at www.abanet.org/RPTE/2009
SPRING SYMPOSIA GENERAL INFORMATION
SCHEDULE AT-A-GLANCE
SPRING SYMPOSIA
For more detailed information on these events, please visit the corresponding page number(s).
Wednesday, April 29th, 2009
1:00 p.m. – 5:00 p.m.
Registration
Thursday, April 30th, 2009
7:00 a.m. – 5:00 p.m.
Registration
7:00 a.m. – 5:00 p.m.
Hospitality Area
Page 2
8:00 a.m. – 5:15 p.m.
Real Property CLE Programming
Page 5, 10
8:30 a.m. – 5:15 p.m.
Trust and Estate CLE Programming
Page 4, 6
8:30 a.m. – 10:00 a.m.
Spouse/Guest Breakfast
11:45 a.m. – 1:30 p.m.
Real Property Luncheon
Page 5
12:00 p.m. – 1:30 p.m.
Trust and Estate Hot Topics Luncheon
Page 7
5:30 p.m. – 6:30 p.m.
Complimentary Sponsor Reception
Page 2
7:00 p.m. – 10:00 p.m.
Symposia Reception – Newseum
Page 2
Friday, May 1st, 2009
3
7:00 a.m. – 5:00 p.m.
Registration
7:00 a.m. – 5:00 p.m.
Hospitality Area
Page 2
7:00 a.m. – 8:30 a.m.
Diversity Breakfast and CLE Program
Page 2
9:00 a.m. – 4:00 p.m.
Real Property CLE Programming
Page 5, 12
8:30 a.m. – 10:00 a.m.
Spouse/Guest Breakfast
8:45 a.m. – 5:00 p.m.
Trust and Estate CLE Programming
Page 4, 8
12:15 p.m. – 1:30 p.m.
Trust and Estate Group and Committee Lunches
Page 2, 4
12:30 p.m. – 1:30 p.m.
Real Property Group and Committee Lunches
Page 2, 5
6:30 p.m.
Dine-A-Round
Page 2
SPRING SYMPOSIA GENERAL INFORMATION
CLE PROGRAMS AT-A-GLANCE
TRUST & ESTATE SYMPOSIUM
TRUST & ESTATE SYMPOSIUM | Thursday, April 30th, 2009
8:30 a.m. – 11:45 a.m.
Income and Transfer Tax Group Program
8:30-10:00 Trust and Estate Income and Transfer Tax
Hot Topics Roundtable
10:15-11:00 Issuance of IRS Guidance and Evaluation
of Taxpayers’ Comments
11:00-11:45 Powers of Appointment: Special GST Tax Drafting
and Exercise Issues
8:30 a.m. – 10:00 a.m.
A Non-Tax Cornucopia
10:15 a.m. – 11:45 a.m.
Top Ten Tips Every Estate Planner Needs to Know about Special
Needs Trusts
10:15 a.m. – 11:45 a.m.
Practical Guide for Dealing with Employee Benefits Issues in
Challenging Economic Times
Noon – 1:30 p.m.
Hot Topics Luncheon
2:00 p.m. – 5:15 p.m.
Business Planning Group Program
2:00 – 2:45 Use of Defined Value Clauses (and Alternatives) in Transfers
of Closely-Held Business Interests
2:45 – 3:30 Conversion of Business Entities into Limited Liability
Companies
3:45 – 5:15 Planning for Liquidity in Estate Holding Closely-Held
Business Interests
2:00 p.m. – 3:30 p.m.
Last Beneficiary Standing: Identifying the Proper Parties in Breach
of Fiduciary Duty Cases
3:45 p.m. – 5:15 p.m.
New Developments: Charitable Remainder Trusts in the New
Economic Environment
TRUST & ESTATE SYMPOSIUM | Friday, May 1st, 2009
7:00 a.m. – 8:30 a.m.
Diversity Breakfast: Eliminating Bias in the Profession — Why Aren’t Law
Firms and Corporate Law Departments Achieving Greater Success?
8:45 a.m. – 9:45 a.m.
The Rest of the Story: Income Tax Issues Related to Transfer Tax
Planning with Grantor and Non-Grantor Trusts
8:45 a.m. – 9:45 a.m.
Estate Planning in Economically Turbulent Times
10:00 a.m. – 12:00 p.m.
Practice Made Perfect: Lessons from the Tax Court Judiciary, the IRS
and Private Practice
10:00 a.m. – 11:00 a.m.
Which “Post Death” Events are Ignored Under § 2032, But Considered
Under § 2053?
11:00 a.m. – 12:00 p.m.
Hiding Your Stuff in Plain Sight (Without Trusts)
12:15 p.m. – 1:30 p.m.*
Group and Committee Lunches
1:45 p.m. – 2:45 p.m.
Estate Planning for Owners of Retirement Plan Accounts
(Including IRAs)
1:45 p.m. – 2:45 p.m.
Hot Topics in Uniform Laws
1:45 p.m. – 2:45 p.m.
FLP’s Are Alive and Well (if done right!)
3:00 p.m. – 4:00 p.m.
Black, White & Grae(gin): Borrowing to Pay Estate Taxes
3:00 p.m. – 4:00 p.m.
Anatomy of an LLC Operating Agreement
4:00 p.m. – 5:00 p.m.
Ethical Considerations for Trustees and Their Advisors
*Not for CLE Credit
Program descriptions begin on Page 6.
4
Register on-line today at www.abanet.org/RPTE/2009
SPRING SYMPOSIA GENERAL INFORMATION
CLE PROGRAMS AT-A-GLANCE
REAL PROPERTY SYMPOSIUM
REAL PROPERTY SYMPOSIUM | Thursday, April 30th, 2009
8:00 a.m – 9:45 a.m.
Aftershocks: Reverberations of the Economic Downturn on Commercial
Real Estate Finance
8:00 a.m – 9:45 a.m.
The Real Estate Market’s Impact on Valuation Disputes
10:00 a.m – 11:45 a.m.
The Current Deluge: Tenant and Landlord Bankruptcies
10:00 a.m – 11:45 a.m.
Hot Topics in Global Real Estate Investing: Credit Squeeze, Entity
and Structuring
10:00 – 11:00 The Global Financial Crisis: Impact on International
Investments in Real Estate
11:00 – 11:45 LLCs and Land Trusts: Entity Choices for Global Real
Estate Equity Investing
11:45 a.m. – 1:30 p.m.*
Real Property Luncheon
1:30 p.m. – 3:15 p.m.
Financial Tsunami: How the Economic Crisis May Affect the Ability to
Put a Roof Over Our Heads
1:30 p.m. – 3:15 p.m.
Subprime Mortgage Meltdown: Turning Down the Heat
3:30 p.m. – 5:15 p.m.
HUD Speaks: The New RESPA and Other Matters of Interest on
Federal Real Estate Regulation
3:30 p.m. – 5:15 p.m.
Key Transaction Concerns in Today’s Challenging Real Estate Environment
REAL PROPERTY SYMPOSIUM | Friday, May 1st, 2009
7:00 a.m. – 8:30 a.m.
Diversity Breakfast: Eliminating Bias in the Profession – Why Aren’t Law
Firms and Corporate Law Departments Achieving Greater Success
9:00 a.m. – 10:00 a.m.
Putting the “Ease” in Sublease Consents
9:00 a.m. – 10:00 a.m.
Recent Developments: Law Professors’ Report
10:10 a.m. – 11:10 a.m.
Lease Remedies: What Remedies Do You Have and How Much
Can You Recover?
10:10 a.m. – 11:10 a.m.
Toward an Emerging Consensus in Real Estate Legal Opinion Practice
11:20 a.m. – 12:20 p.m.
Medical Office Leases: Understanding the Regulatory Requirements
Behind the Lease Terms
11:20 a.m. – 12:20 p.m.
Ethics From Both Sides of the Pond: A Look At How the U.S. and the U.K.
Differ On Conflicts Issues
12:30 p.m. – 1:30 p.m.*
Group and Committee Lunches
1:45 p.m. – 2:45 p.m.
Green Construction: What Is It and What Does It Cost?
1:45 p.m. – 2:45 p.m.
Hot Topics in Uniform Laws
3:00 p.m. – 4:00 p.m.
Innovative Approaches to Workforce Housing in a Difficult Economy
3:00 p.m. – 4:00 p.m.
The Land Sales Battle: Sellers and Purchasers War Over the Interstate
Land Sales Full Disclosure Act
*Not for CLE Credit
Program descriptions begin on Page 10.
5
TRUST & ESTATE SYMPOSIUM
THURSDAY, APRIL 30, 2009
Group Programs
Group programs are CLE accredited programs
presented in a roundtable format, designed to
foster interaction among practitioners. These
programs will feature hot topic and current
development discussions led by experts in the
field. The open format is designed to provide
attendees with the opportunity to ask questions
and share experiences with practitioners
throughout the country. The programs will also
provide information on committee activities and
on how to participate in ongoing projects.
8:30 a.m. – 11:45 a.m.
Income and Transfer Tax Planning
Group Program
Trust & Estate Income & Transfer Tax
Hot Topics Roundtable
(8:30 a.m. – 10:00 a.m.)
Recent developments, including:
• "Post-death events" and alternate valuation of
estates
• Post-Knight fiduciary income tax deductions
• Private trust company guidance and its general
application
• International estate planning under new
administration
• Reporting for offshore investments
PROGRAM AND GROUP CHAIR: Ed M. Manigault, JPMorgan
Private Bank, Atlanta, GA
MODERATOR: Barbara A. Sloan, McLaughlin & Stern LLP,
New York, NY
SPEAKERS:
Leigh-Alexandra Basha, Holland & Knight LLP, McLean, VA
Carol A. Cantrell, Briggs & Veselka Co., Houston, TX
Rana H. Salti, Kinship Trust Company, LLC, Chicago, IL
Martin M. Shenkman, Martin M. Shenkman, PC, Paramus, NJ
Michael A. Spielman, Ernst & Young LLP, Cleveland, OH
Issuance of IRS Guidance and Evaluation
of Taxpayers’ Comments
(10:15 a.m. – 11:00 a.m.)
Insight into Treasury’s process for development
of IRS guidance.
PROGRAM AND GROUP CHAIR: Ed M. Manigault, JPMorgan
Private Bank, Atlanta, GA
SPEAKER:
Catherine V. Hughes, Office of Tax Policy, U.S. Treasury,
Washington, DC
Register on-line today at www.abanet.org/RPTE/2009
Powers of Appointment: Special GST Tax
Drafting and Exercise Issues
(11:00 a.m. – 11:45 a.m.)
PROGRAM AND GROUP CHAIR: Ed
M. Manigault, JPMorgan
Private Bank, Atlanta, GA
SPEAKERS:
Amy E. Heller, Weil, Gotshal & Manges LLP, New York, NY
Melissa Langa, Bove & Langa, PC, Boston, MA
8:30 a.m. – 10:00 a.m.
Non-Tax Estate Planning
Considerations Group Program
A Non-Tax Cornucopia
• Ethical issues in estate administration
• Conflicts among co-fiduciaries and between
executors and beneficiaries
• Professional responsibility issues affecting
asset protection planners
• Reports on new uniform laws, including
Uniform Probate Code amendments
• Latest developments on document assembly
software
PROGRAM AND GROUP CHAIR: Richard W. Nenno,
Wilmington Trust Company, Wilmington, DE
SPEAKERS:
Prof. Thomas P. Gallanis, University of Minnesota Law
School, Minneapolis, MN
Prof. William P. LaPiana, New York Law School,
New York, NY
John C. McCaffrey, NYU School of Law Graduate Tax
Program, New York, NY
Richard W. Nenno, Wilmington Trust Company,
Wilmington, DE
Mary P. O’Reilly, Fulbright & Jaworski LLP, New York, NY
Karin C. Prangley, Krasnow Saunders Cornblath, LLP,
Chicago, IL
David J. Slenn, Porter Wright Morris & Arthur LLP,
Naples, FL
Laura M. Twomey, Fulbright & Jaworski LLP, New York, NY
6
TRUST & ESTATE SYMPOSIUM
10:15 a.m. – 11:45 a.m.
Noon – 1:30 p.m.
Employee Benefit Plans and
Other Compensation Arrangements
Group Program
Trust & Estate Luncheon
“Hot Topics for Estate Planners”
Practical Guide for Dealing with
Employee Benefits Issues in
Challenging Economic Times
• Employee benefits in economic downturn
• Pension plans in bankruptcy
• PBGC issues
• Consequences of underfunding in pension
plans
• Monitoring investment options offered under
401(k) plans
• Fiduciary concerns including possible loss of
ERISA Section 404(c) protection and special
considerations involving employer stock
investments
• Implications for health and other welfare
benefits
• Illiquid real estate investments
• Vulnerability of plan sponsors to litigation
SPEAKERS:
Dennis I. Belcher, McGuire Woods LLP, Richmond, VA
Catherine V. Hughes, Office of Tax Policy, U.S. Treasury,
Washington, DC
Howard M. Zaritsky, Consulting Counsel, Rapidan, VA
2:00 p.m. – 3:30 p.m.
Litigation, Ethics and Malpractice Group
Program
Last Beneficiary Standing:
Identifying the Proper Parties in
Breach of Fiduciary Duty Cases
• Rights and obligations of successor fiduciaries
• Potential liability for failure to pursue claims
• Related limitations periods for asserting claims
• Enforceability of exculpatory clauses
• Attorney-client privilege issues
PROGRAM AND GROUP CHAIR: Robert N. Sacks, Sacks Glazier
Franklin & Lodise, Los Angeles, CA
SPEAKERS:
PROGRAM AND GROUP CHAIR:
Michael Macris, Cahill Gordon
& Reindel LLP, New York, NY
SPEAKERS:
Harold J. Ashner, Keightley & Ashner LLP, Washington, DC
Robert N. Eccles, O’Melveny & Meyers LLP,
Washington, DC
Cynthia Marcotte Stamer, Glast Phillips & Murray PC,
Dallas, TX
10:15 a.m. – 11:45 a.m.
Elder Law, Disability Planning
and Bioethics Group Program
Top Ten Tips Every Estate
Planner Needs to Know About
Special Needs Trusts
• Crucial differences between self-settled and
third party SNTs
• Critical considerations in preparing estate
plans for clients with disabled children
• Consideration of administration of estates or
trusts to prevent beneficiaries from losing
disability or Medicaid benefits
PROGRAM CHAIR: Richard E. Davis, Krugliak, Wilkins,
Griffiths & Dougherty Co., LPA, Canton, OH
GROUP CHAIR: Karen Boxx, University of Washington School
of Law, Seattle, WA
SPEAKERS:
Katherine N. Barr, Sirote & Permutt PC, Birmingham, AL
Richard E. Davis, Krugliak, Wilkins, Griffiths & Dougherty
Co., LPA, Canton, OH
Kristen M. Lewis, Smith, Gambrell & Russell, LLP,
Atlanta, GA
7
Daniel B. Herbert, Manning & Marder, Kass, Ellrod, Ramirez
LLP, Los Angeles, CA
Anthony R. La Ratta, Archer & Greiner, PC, Haddonfield, NJ
Kevin Parker, Snell & Wilmer LLP, Phoenix, AZ
2:00 p.m. – 5:15 p.m.
Business Planning Group
PROGRAM AND GROUP CHAIR: James
D. Spratt, Jr., King &
Spalding LLP, Atlanta, GA
Use of Defined Value Clauses
(and Alternatives) in Transfers
of Closely-Held Business Interests
(2:00 p.m. - 2:45 p.m)
• Transfers by gift or sale of interests in closelyheld businesses
• How to use defined value clauses and
alternative techniques to reduce gift
tax exposure
SPEAKERS:
Stephen T. Dyer, Baker Botts, LLP, Houston, TX
Daniel McCarthy, The Blum Firm PC, Fort Worth, TX
TRUST & ESTATE SYMPOSIUM
Conversion of Business Entities
into Limited Liability Companies
(2:45 p.m. - 3:30 p.m.)
• Limited liability companies versus corporations
taxed under subchapter C or subchapter S
• Flexible governance structure without
triggering adverse tax consequences
SPEAKERS:
William S. Forsberg, Leonard, Street and Deinard,
Minneapolis, MN
James D. Spratt, Jr., King & Spalding LLP, Atlanta, GA
Douglas W. Stein, Smith, Gambrell & Russell, Atlanta, GA
Planning for Liquidity in Estates Holding
Closely-Held Business Interests
(3:45 p.m. - 5:00 p.m.)
• Planning for liquidity to pay estate taxes and expenses of
administration
• Lifetime and post-mortem techniques to provide funds or
financing
• Life insurance, split dollar funding arrangements, Graegin
loans, Section 6166 deferral
SPEAKERS:
Hugh F. Drake, Brown Hay & Stephens LLP, Springfield, IL
Joshua E. Husbands, Holland & Knight, Portland, OR
Edward F. Koren, Holland & Knight, Tampa, FL
Lisa M. Rico, McCarter & English, Boston, MA
3:45 p.m. – 5:15 p.m.
Charitable Planning and Exempt
Organization Group Program
New Developments: Charitable
Remainder Trusts in the New
Economic Environment
• Regulatory developments
• Form 990 for new charitable entities
• New charitable gift substantiation
requirements
• “Sick” CRTs and exit strategies
• CRT planning in the new tax and economic
environment
PROGRAM CHAIR: Mary Lee Turk, McDermott Will & Emery,
Chicago, IL
GROUP CHAIR: Carol Kroch, Wilmington Trust Company,
Wilmington, DE
SPEAKERS:
Grace Allison, The Northern Trust Company, Chicago, IL
Stephanie Casteel, King & Spalding LLP, Atlanta, GA
Julie K. Kwon, Stanford University, Office of Development,
Stanford, CA
Ramsay H. Slugg, U.S. Trust- Bank of America Private
Wealth Management, Fort Worth, TX
Elaine Waterhouse Wilson, Quarles & Brady LLP,
Chicago, IL
FRIDAY, MAY 1, 2009
PODIUM LECTURES AND PANEL
DISCUSSIONS
7:00 a.m. – 8:30 a.m.
Diversity Breakfast: Eliminating Bias in
the Profession - Why Aren’t Law Firms
and Corporate Law Departments
Achieving Greater Success
(Elimination of Bias, Ethics and
Professionalism CLE credit requested)
PROGRAM CHAIR: Marie
A. Moore, Sher Garner Cahill
Richter Klein & Hilbert, New Orleans, LA
SPEAKERS:
Donise E. Brown, Starbucks Coffee Company, Hollywood, FL
Sandra S. Yamate, Discovery Services LLC, Chicago, IL
8:45 a.m. – 9:45 a.m.
Estate Planning in Economically
Turbulent Times
SPEAKER:
Jonathan Blattmachr, Milbank, Tweed, Hadley & McCloy
LLP, New York, NY
8:45 a.m. – 9:45 a.m.
The Rest of the Story: Income Tax Issues
Related to Transfer Tax Planning with
Grantor and Non-Grantor Trusts
• Fiduciary tax issues related to sales to
defective grantor trusts, insurance trusts,
QPRTs, and other trusts
PROGRAM CHAIR: Ed M. Manigault, JPMorgan Chase Bank,
Atlanta, GA
SPEAKERS:
T. Randolph Harris, McLaughlin & Stern, LLP, New York, NY
Mary Ann Mancini, Bryan Cave LLP, Washington, DC
10:00 a.m. – 11:00 a.m.
Which “Post Death” Events are
Ignored Under § 2032, But Considered
Under § 2053?
• Restrictions that constitute post-death events
under the alternate valuation
• “Post-death events” v. “market conditions”
under § 2032
• Valuation of an entity while ignoring
post-death events under § 2032
• Related party claims against the estate under
§ 2053
• Contested and contingent claims under § 2053
• Future payments and present value concepts
under Sec. § 2053
PROGRAM CHAIR AND SPEAKER: Carol A. Cantrell, Briggs
& Veselka Co., Houston, TX
SPEAKER:
William S. Forsberg, Leonard, Street and Deinard,
Minneapolis, MN
8
Register on-line today at www.abanet.org/RPTE/2009
TRUST & ESTATE SYMPOSIUM
10:00 a.m. – 12:00 p.m.
SPEAKERS:
Practice Made Perfect: Lessons from
the Tax Court Judiciary, the IRS,
and Private Practice
Prof. Steven J. Eagle, George Mason University School
of Law, Arlington, VA
Prof. T.P. Gallanis, University of Minnesota Law School,
Minneapolis, MN
David S. Neufeld, Law Office of David S. Neufeld,
Iselin, NJ
• Procedures of the Tax Court
• Judges’ perspectives on gift and estate
tax matters
• IRS views on tax litigation positions
• Litigator’s tips from the trenches
PROGRAM CHAIR AND MODERATOR: Stephanie Loomis-Price,
Baker Botts LLP, Houston, TX
SPEAKERS:
Charles E. Hodges III, Chamberlain Hrdlicka, Atlanta, GA
Tax Court Judicial Representatives (TBA)
IRS Official (TBA)
11:00 a.m. – 12:00 p.m.
Hiding Your Stuff in Plain Sight
(Without Trusts)
• “Unbundling” valuable assets into separate
fire-walled entities using sales and tax-free
reorganizations
PROGRAM CHAIR AND SPEAKER: Christopher M. Riser, Riser
Adkisson LLP, Athens, GA
1:45 p.m. – 2:45 p.m.
FLP’s Are Alive and Well (if done right!)
SPEAKER:
Louis A. Mezzulo, Luce Forward, Rancho Santa Fe, CA
1:45 p.m. – 2:45 p.m.
Estate Planning for Owners of Retirement
Plan Accounts (Including IRAs)
• Drafting of documents to govern distributions
of assets from IRAs and qualified retirement
plans
• Traps in drafting marital trusts or charitable
bequests
• Practical issues when assets are payable to
trusts
• Sample forms
• Technical tax issues
PROGRAM CHAIR: Steven B. Gorin, Thompson Coburn LLP,
St. Louis, MO
SPEAKERS:
Steven B. Gorin, Thompson Coburn LLP, St. Louis, MO
Christopher R. Hoyt, University of Missouri School of Law,
Kansas City, MO
Harvey B. Wallace II, Berry Moorman PC, Detroit, MI
1:45 p.m. – 2:45 p.m.
Hot Topics in Uniform Laws
• Real Property Transfer on Death Act
• Insurable Interests Relating to Trusts Act
• Partition of Tenancy in Common Real
Property Act
PROGRAM CHAIR: Kieran P. Marion, NCCUSL, Chicago, IL
9
3:00 p.m. – 4:00 p.m.
Anatomy of an LLC Operating
Agreement
• Which type of operating agreement is
appropriate
• Different forms of operating agreements
• Basics of LLC operating agreements
PROGRAM CHAIR: James D. Spratt, King and Spalding LLP,
Atlanta, GA
SPEAKERS:
Richard E. Barnes, Elliott, Blackburn, Barnes & Gooding,
P.C., Valdosta, GA
Cynthia A. Duncan, King & Spalding LLP, Atlanta, GA
Marianne E. Kayan, Buchanan, Ingersoll & Rooney, PC,
Washington, DC
3:00 p.m. – 4:00 p.m.
Black, White, and Grae(gin): Borrowing
to Pay Estate Taxes
• Financing and funding
• Liability and litigation
• Death and deductions
• Use and usury
• Administration and audit
• Regulations and re-financing
PROGRAM CHAIR AND MODERATOR: Charles E. Hodges III,
Chamberlain Hrdlicka, Atlanta, GA
SPEAKERS:
Paul S. Lee, Bernstein Global Wealth Management,
New York, NY
Stephanie Loomis-Price, Baker Botts, LLP, Houston, TX
Janine A. Racanelli, JPMorgan Chase Bank, New York, NY
4:00 p.m. – 5:00 p.m.
Ethical Considerations for Trustees
and Their Advisors
• Minimizing trustee liability
• Balancing different interests of income and
remainder beneficiaries with respect to
distributions, investment choices, the power
to adjust/unitrust regimes, and tax elections
• Conflicts
• Trustee’s reliance on instrument provisions to
obviate fiduciary duties
PROGRAM CHAIR: Mary P. O’Reilly, Fulbright & Jaworski LLP,
New York, NY
SPEAKER:
Sharon L. Klein, Fiduciary Trust Company International,
New York, NY
REAL PROPERTY SYMPOSIUM
THURSDAY, APRIL 30, 2009
Group Programs
Group programs are CLE accredited programs
designed to foster interaction among
practitioners. These programs will feature hot
topic and current development discussions led
by experts in the field. The programs will also
provide information on committee activities and
on how to participate in ongoing projects.
8:00 a.m. – 9:45 a.m.
Real Estate Financing Group Program
The Real Estate Market’s Impact on
Valuation Disputes
The impact of the current real estate market
upon:
• Valuation litigation, such as property
tax appeals
• Condemnation, including legal strategy,
valuation factors to watch, accounting issues,
and environmental concerns
PROGRAM CHAIR: David C. Wilkes, Huff Wilkes & Cavallaro,
LLP, Tarrytown, NY
GROUP CHAIR: Laurel E. Lockett, Carlton Fields PA,
Tampa, FL
SPEAKERS:
Stanley Fineman, Wilkes Artis, Washington, DC
Peter F. Korpacz, Korpacz Realty Advisors, Mount Airy, MD
Laurel Lockett, Carlton Fields PA, Tampa, FL
Joseph T. Waldo, Waldo and Lyle, PC, Norfolk, VA
8:00 a.m. – 9:45 a.m.
Land Use and Environmental
Group Program
Aftershocks: Reverberations of the
Economic Downturn on Commercial
Real Estate Finance
• Government support of the credit markets,
including Fannie Mae and Freddie Mac, the
Emergency Economic Stabilization Act and
actions taken by Treasury
• Current issues in documentation of commercial
loans including LIBOR provisions, market reset
terms and commitment enforcement
• Update on current issues in foreclosure and
bankruptcy law
PROGRAM AND GROUP CHAIR: John P. McNearney, Husch
Blackwell Sanders, LLP, St. Louis, MO
SPEAKERS:
Katie Graves, Internal Revenue Service, Office of
Chief Counsel, Washington, DC
Cynthia Hajost, Ballard Spahr, Washington, DC
Diana Imholtz, Financial Institutions and Products,
Washington, DC
Cheryl Kelly, Thompson Coburn, St. Louis, MO
John P. McNearney, Husch Blackwell Sanders, LLP,
St. Louis, MO
James Wilson, Buist Moore, Charleston, SC
10:00 a.m. - 11:45 a.m.
Special Investors and Investment Structure
Group Program
Hot Topics in Global Real Estate
Investing: Credit Squeeze, Entity
and Structuring
The Global Financial CrisisImpact on International Investments
in Real Estate
(10:00 a.m. – 11:00 a.m.)
PROGRAM AND GROUP CHAIR: Kenneth
C. Wright, Baker
& Hostetler LLP, Orlando, FL
SPEAKERS:
Michael Hirschfeld, Dechert LLP, New York, NY
Michael Humphrey, New York, NY
John Hutmacher, Blake Cassels & Graydon LLP, Toronto,
Canada
Steve Linde, Cohen & Perfetto LLP, New York, NY
Jin Liu, Carlton Fields PA, St. Petersburg, FL
Luis Moreno, Haynes & Boone, Mexico City, Mexico
Mark Stone, Holland & Knight, New York, NY
10
Register on-line today at www.abanet.org/RPTE/2009
REAL PROPERTY SYMPOSIUM
LLCs and Land Trusts: Entity
Choices for Global Real Estate
Equity Investing
(11:00 a.m. - 11:45 a.m.)
PROGRAM AND GROUP CHAIR:
Kenneth C. Wright, Baker &
Hostetler LLP, Orlando, FL
SPEAKERS:
Robert C. Anderson, Holland & Hart LLP, Las Vegas, NV
Michael Hirschfeld, Dechert LLP, New York, NY
Wilhelmina F. Kightlinger, Stewart Title Guaranty Company,
Tampa, FL
Andrew M. O'Malley, Carey, O'Malley, Whitaker & Mueller, PA,
Tampa, FL
Julie C. Panaro, Richards, Layton & Finger, PA,
Wilmington, DE
Dr. Jurgen van Kann, Fried, Frank, Harris, Shriver
& Jacobson LLP, Frankfurt am Main, Germany
10:00 a.m. – 11:45 a.m.
Leasing Group Program
The Current Deluge: Tenant
and Landlord Bankruptcies
• Tenants in trouble - avoiding bankruptcy; Chapter
11 or Chapter 7; DIP financing
• Landlords in trouble - projects in bankruptcy;
rights of tenants; maximizing bankruptcy claims
PROGRAM AND GROUP CHAIR: Sidney G. Saltz, Holland & Knight
LLP, Chicago, IL
SPEAKERS:
Stephen A. Bogorad, Holland & Knight LLP,
Washington, DC
Jo-Ann Marzullo, Postenak, Blankstein & Lund LLP
Boston, MA
Tara Scanlon, Holland & Knight LLP, Washington, DC
1:30 p.m. – 3:15 p.m.
Residential, Multi-Family and Special Use
Group Program
1:30 p.m. – 3:15 p.m.
Practice Management Group
Subprime Mortgage Meltdown:
Turning Down the Heat
• Fraudulent mortgage transactions - what they
are, how to recognize them, and what to do
about them
• Ethical considerations in workout negotiations what a lawyer can and can’t say
• Where to turn - assisting borrowers in residential
foreclosures
PROGRAM AND GROUP CHAIR: James Geoffrey Durham,
University of Dayton School of Law, Dayton, OH
SPEAKERS:
William Freivogel, Chicago, IL
Eric M. Mathis, Butzel Long, Detroit, MI
David A. Sprentall, Snell & Wilmer LLP, Phoenix, AZ
3:30 p.m. – 5:15 p.m.
Commercial Real Estate Transactions
Group Program
Key Transactional Concerns
in Today’s Challenging Real Estate
Environment
• Title insurance issues
• Required due diligence
• Broker issues and “short sales”
• Creditors, debtors, and insurance policies
PROGRAM AND GROUP CHAIR: Norman M. Arnell, Stinson
Morrison Hecker LLP, Kansas City, MO
SPEAKERS:
Dean N. Alterman, Alterman Law Office, Portland, OR
Alan D. Keiser, LandAmerica Financial Group Inc.,
Philadelphia, PA
Tanya Marsh, Frost Brown Todd, Indianapolis, IN
Nelse Thompson Schreck, Rodey Dickason, Sloan Arkin
& Rubb, PA, Albuquerque, NM
Financial Tsunami: How the Economic
Crisis May Affect the Ability to Put a Roof
Over Our Heads
3:30 p.m. – 5:15 p.m.
• The impact of the “credit crunch” in the public
financing sector on the senior/assisted living
market
• Drowning in the sea of foreclosures on single
family housing
• Losing the shelter previously provided to
affordable housing by tax syndication of LIHTCs
PROGRAM AND GROUP CHAIR: Marjorie R. Bardwell, Chicago
Title Insurance, Chicago, IL
HUD Speaks: The New RESPA
and Other Matters of Interest
on Federal Real Estate Regulation
SPEAKERS:
Sanjeev Jaipuriar, Enterprise Community Development, Inc.,
Columbus, MD
Paula Sherman, Loss Mitigation Expert Housing Opportunities
Made Equal (“HOME”), Richmond, VA
11
Hospitality, Community Recreation and
Common Interest Developments Group
Hear directly from HUD regarding its insight on
the much anticipated mortgage reforms and how
HUD envisions its new role in the wake of the
cataclysmic economic events of 2008.
• RESPA: new rules and compliance cases
• Interstate land sale enforcement
• HUD’s emerging role in the new economy
PROGRAM AND GROUP CHAIR: Julius J. Zschau, Pennington
Moore et al, Clearwater, FL
SPEAKERS:
Ivy M. Jackson, U.S. Department of Housing and Urban
Development, Washington, DC
Peter S. Race, U.S. Department of Housing and Urban
Development, Washington, DC
Samuel B. Rothman, Carmel & Carmel, PC, Washington, DC
REAL PROPERTY SYMPOSIUM
FRIDAY, MAY 1, 2009
PODIUM LECTURES AND PANEL
DISCUSSIONS
7:00 a.m. – 8:30 a.m.
Diversity Breakfast: Eliminating Bias in
the Profession – Why Aren’t Law Firms
and Corporate Law Departments
Achieving Greater Success
(Elimination of Bias, Ethics and
Professionalism CLE credit requested)
Marie A. Moore, Sher Garner Cahill
Richter Klein & Hilbert LLC, New Orleans, LA
PROGRAM CHAIR:
SPEAKERS:
Donise E. Brown, Starbucks Coffee Company, Hollywood, FL
Sandra S. Yamate, Discovery Services LLC, Chicago, IL
9:00 a.m. – 10:00 a.m.
Putting the “Ease” in Sublease Consents
• When and under what conditions may a
landlord withhold consent to a sublease
• How landlords, tenants and subtenants should
negotiate the consent document
PROGRAM CHAIR: Ruth A. Schoenmeyer, Jenner & Block LLP,
Chicago, IL
SPEAKERS:
Tami P. Daniel, Whiteford, Taylor & Preston LLP,
Baltimore, MD
Janet Jackim, Stinson Morrison Hecker LLP, Phoenix, AZ
Sidney G. Saltz, Holland & Knight LLP, Chicago, IL
Ruth Schoenmeyer, Jenner & Block LLP, Chicago, IL
9:00 a.m. – 10:00 a.m.
Recent Real Property Developments: Law
Professors’ Report
PROGRAM CHAIR:
John V. Orth, University of North Carolina,
Chapel Hill, NC
SPEAKERS:
Carol N. Brown, University of North Carolina,
Chapel Hill, NC
John Fee, J. Reuben Clark Law School, Brigham Young
University, Provo, UT
Paula A. Franzese, Seton Hall School of Law, Newark, NJ
Jerome M. Organ, University of Saint Thomas,
Minneapolis, MN
John V. Orth, University of North Carolina, Chapel Hill, NC
PROGRAM CHAIR: Kenneth
M. Jacobson, Katten Muchin
Rosenman LLP, Chicago, IL
SPEAKERS:
Kenneth M. Jacobson, Katten Muchin Rosenman LLP,
Chicago, IL
David L. Miller, Pillsbury Winthrop Shaw Pittman LLP,
McLean, VA
Robert Thompson, Sheppard Mullin Richter & Hampton LLP,
San Francisco, CA
10:10 a.m. – 11:10 a.m.
Lease Remedies: What Remedies Do You
Have and How Much Can You Recover?
• Standard remedies set out in leases
• Bankruptcy, jurisdictional and other potential
limitations on available remedies
• Potential damages
• Possible credit enhancements
PROGRAM CHAIR: Marie A. Moore, Sher Garner Cahill
Richter Klein & Hilbert, LLC, New Orleans, LA
SPEAKERS:
10:10 a.m. – 11:10 a.m.
Toward An Emerging Consensus
in Real Estate Legal Opinion Practice
• Contrast reliance on customary practice to
support use of abbreviated forms of opinions
with the use of more inclusive forms of legal
opinions suggested by some bar reports and
a negotiated “private ordering” approach.
• Can the development of an annotated legal
opinion form play a role in the development
of a national consensus on real estate legal
opinions?
Register on-line today at www.abanet.org/RPTE/2009
Richard M. Frome, Law Offices of Richard M. Frome,
New York, NY
Alan K. Mills, Barnes & Thornburg L, Indianapolis, IN
Marie A. Moore, Sher Garner Cahill Richter Klein & Hilbert,
LLC, New Orleans, LA
12
REAL PROPERTY SYMPOSIUM
11:20 a.m. – 12:20 p.m.
Ethics From Both Sides of the Pond:
A Look At How the U.S. and the U.K.
Differ On Conflicts Issues
Back by popular demand, Mike Rubin will
proceed at his usual fast-paced speed to explore
how conflicts issues affecting real estate
practitioners differ between the U.S., the U.K.
and other Commonwealth countries.
PROGRAM CHAIR AND SPEAKER: Michael H. Rubin,
McGlinchey Stafford, PLLC, Baton Rouge, LA
11:20 a.m. – 12:20 p.m.
Medical Office Leases: Understanding
the Regulatory Requirements Behind
the Lease Terms
• Overview of Stark and Anti-Kickback laws
affecting healthcare leasing arrangements
• Use restrictions - religious and ethical
• Directives and other use restrictions in
medical office leases
• HIPAA compliance
• Environmental concerns
• Tax exempt entities
• Unique healthcare leasing arrangements what is a timeshare space lease?
PROGRAM CHAIR: Richard M. Frome, New York, NY
SPEAKERS:
Mariea R. Cromer, Providence Hospital,
Washington, DC
Andrew Dick, Hall, Render, Killian, Heath & Lyman, PC,
Indianapolis, IN
1:45 p.m. – 2:45 p.m.
Hot Topics in Uniform Laws
• Real Property Transfer on Death Act
• Insurable Interests Relating to Trusts Act
• Partition of Tenancy in Common Real
Property Act
PROGRAM CHAIR: Kieran P. Marion, NCCUSL, Chicago, IL
SPEAKERS:
Prof. Steven J. Eagle, George Mason University School
of Law, Arlington, VA
Prof. T.P. Gallanis, University of Minnesota Law School,
Minneapolis, MN
David S. Neufeld, Law Office of David S. Neufeld,
Iselin, NJ
1:45 p.m. – 2:45 p.m.
Green Construction: What Is It And
What Does It Cost?
• Practical information to appropriately advise
your clients on green constructions issues
• Survey of the various types and levels of
“green” certifications
• How to best incorporate the appropriate
certification requirements and specifications
• Economic issues associated with going green
13
PROGRAM CHAIR: George
J. Meyer, Carlton Fields PA,
Tampa, FL
SPEAKERS:
Sean Cahill, Louis Dreyfus Property Group, Washington, DC
Michael Callahan, Stinson, Morrison, Hecker LLP,
Kansas City, MO
Ekaterina (Katya) Gill, Hyundai Motor Manufacturing
Alabama, LLC, Montgomery, AL
Jeffrey S. Lesk, Nixon Peabody LLP, Washington, DC
3:00 p.m. – 4:00 p.m.
Innovative Approaches to Workforce
Housing in a Difficult Economy
• Encouraging, planning and developing
workforce housing
• Public and private perspectives
PROGRAM CHAIR: Ray H. Allen, Carlton Fields, PA, Tampa, FL
SPEAKERS:
Ray H. Allen, Carlton Fields, PA, Tampa, FL
Richard M. Price, Nixon Peabody LLP, Washington, DC
3:00 p.m. – 4:00 p.m.
The Land Sales Battle: Sellers and
Purchasers War Over the Interstate Land
Sales Full Disclosure Act
As the economy has worsened, a tremendous
number of claims to rescind purchase contracts
have been filed in connection with the Interstate
Land Sales Full Disclosure Act and its
exemptions from registration. This seminar will
review the evolving case law throughout the
country, analyze the challenges of litigating
claims under the Act, and discuss the drafting of
documents in this unpredictable environment.
PROGRAM CHAIR: Christopher W. Smart, Carlton Fields, PA,
Tampa, FL
SPEAKERS:
Kathryn H. Christian, Carlton Fields, PA, Tampa, FL
Marc DeCandia, Ballard Spahr, Bethesda, MD
Rebecca Anderson Fischer, Sherman & Howard LLC,
Denver, CO
Richard C. Linquanti, Carlton Fields, PA, Tampa, FL
SPRING SYMPOSIA
GENERAL INFORMATION
Symposia Registration Fee
The registration fee ($625 general attendee,
$575 ABA member, $525 RPTE member) allows
registrants to attend all programs and meetings.
In addition, the fee includes one CD or flash
drive containing all CLE program materials,
continental breakfast on Thursday and Friday,
and coffee breaks.
A $100 additional fee will entitle your
spouse/guest to attend the Symposia reception
and two breakfasts. (Children under the age of
12 may attend these functions free of charge).
Registering Online
Register online at www.abanet.org/rpte/2009.
Members will need their ABA ID number,
located on your ABA membership card or on the
mailing label above your name on this brochure.
Non-ABA Members can now register online
establishing an ABA account. Join the Section
of Real Property, Trust and Estate Law to take
advantage of the discounted member rates.
Please contact (800) 285-2221 for help with
the on-line system.
On-Site Registration
Special Discounted Rates
On-Site registration will take place at the
Fairmont Hotel during the following hours:
• Law Students – No Charge
Program materials are available for $75.
• First-Time Minority Bar Association Members –
No Charge
Program materials are available for $75.
• First-time attendee: $350
Materials are included in registration fee.
• Early Bird Rate – Section members save $40
by registering before March 20, 2009.
Ticketed Events
• Symposia Reception – $25
• Trust and Estate Hot Topics Luncheon – $40
• Real Property Luncheon – $40
• Group and Committee Luncheon – $15
WEDNESDAY
April 29, 2009
1:00 p.m. – 5:00 p.m.
THURSDAY
April 30, 2009
7:00 a.m. – 5:00 p.m.
FRIDAY
May 1, 2009
7:00 a.m. – 5:00 p.m.
PLEASE NOTE: On-site registration will
include an additional $50 administrative fee.
For information regarding registration, please
contact the Section office at (312) 988-5683.
Cancellation Policy
Requests for refunds must be made in writing
and faxed to Hillary Clark (312) 988-5262
by March 20, 2009. There will be a $75
administrative fee deducted from the refund.
The Section will gladly accept substitute
registrants for cancellations received after
March 20, 2009; however, refunds will not
be given after that date.
14
Register on-line today at www.abanet.org/RPTE/2009
SPRING SYMPOSIA
GENERAL INFORMATION
Program Materials and
Teleconferences
In the event that you are unable to attend the
symposia, a CD or flash drive of the program
materials is available for $75. CD’s or flash
drives can be purchased through the online
registration system, www.abanet.org/rpte/2009
by choosing the Materials Only option.
You may also register at an additional charge
for the Trust and Estates Hot Topics
teleconference on Thursday April 30th
at 12pm EST at www.abanet.org/rpte/2009.
Airline Information
The ABA offers discounted airfares on selected
airlines. Contact Orbitz for Business, the ABA’s
official travel management company at
1-877-222-4185 or visit the ABA travel website
at http://www.abanet.org/travel/onlinetravel.html
Hotel Reservations
All Symposia meetings and events will take
place at the Fairmont Hotel, 2401 M. Street,
Washington D.C. 20037 and the Park Hyatt
Washington D.C., 1201 24th St. NW,
Washington D.C. 20037. These hotels are
located directly across the street from each
other. A block of sleeping rooms has been
reserved at both hotels for Thursday,
April 30, 2009 through Sunday, May 3, 2009
at a group rate of $319 per night at the Fairmont
and $339 per night at the Park Hyatt for a single
or double room. The group rates are guaranteed
until 5:00 p.m. CST, Tuesday April 14, 2009.
Reservations received after 5 p.m. on
April 14, 2009 will be based on availability.
Be sure to mention that you are attending the
ABA Section of Real Property Trust and Estate
Law Symposia when making your hotel
reservations.
For reservations call:
Fairmont Hotel – (800) 257-7544
Park Hyatt – (202) 789-1234
15
Services for the Disabled
If services for the disabled are required, please
contact the Section Office at (312) 988-5683 by
March 20, 2009.
Continuing Legal Education Credit
Accreditation has been requested for this
program from every state with mandatory
continuing legal education (MCLE) requirements
for lawyers. Please be aware that each state has
its own rules and regulations, including its own
definition of “CLE.” Attorneys seeking to obtain
MCLE credit in Pennsylvania are required to pay
state accreditation fees directly to the
Pennsylvania CLE Board (PACLE) and pick
up a Pennsylvania registration form at the
meeting. Certificates of Attendance will be
available at the conclusion of the program for
both attendees and speakers. Please call
(800) 285-2221, two to three weeks prior to the
Symposia with questions pertaining to the
number of credit hours granted by each state.
Conference Attire
Business casual is recommended for Symposia
attendees.
To Reach Us Through The Web
For more information on the Spring Symposia
and to register online, log on to the RPTE web
site at http://www.abanet.org/rpte/2009.
THE SECTION OF REAL PROPERTY,
TRUST & ESTATE LAW
Thank you to the Division CLE
Committees with a special
thank you to the 2008 Spring
Symposia Education Planning
Committee.
DIVISION SUBCOMMITTEE
CHAIRS
Jo-Ann M. Marzullo (RP)
Posternak Blankstein & Lund LLP
Boston, MA
Section Officers
2008-2009
Victoria Windell (TE)
Foster Kelly PA
Charlotte, NC
CHAIR
Steve R. Akers
Bessemer Trust
Dallas, TX
DIVISION SUBCOMMITTEE
VICE-CHAIRS
CHAIR-ELECT
Roger D. Winston
Ballard Spahr Andrews
& Ingersoll LLP
Bethesda, MD
VICE CHAIR – REAL PROPERTY
DIVISION
Andrew F. Palmieri
Vorys Sater Seymour
and Pease LLP
Alexandria, VA
VICE CHAIR – TRUST & ESTATE
DIVISION
Alan F. Rothschild, Jr.
Hatcher Stubbs Land Hollis &
Rothschild
Columbus, GA
FINANCE AND CORPORATE
SPONSORSHIP OFFICER
Gideon Rothschild
Moses & Singer LLP
New York, NY
SECRETARY
Susan G. Talley
Stone Pigman Walther Wittman
New Orleans, LA
Aen Walker Webster (TE)
Buchanan Ingersoll PC
Washington DC
Stephanie Loomis-Price (TE)
Baker Botts LLP
Houston, TX
Sandra Porter (RP)
Carlton Fields PA
Tampa, FL
Bruce A. Tannahill (TE)
Western Reserve Life
Assurance Co.
St. Petersburg, FL
James C. Wine (RP)
Nyemaster Law Firm
Des Moines, IA
CLE Program Coordinator
James Geoffrey Durham (RP)
University of Dayton School of Law
Dayton, OH
Stephanie Loomis-Price (TE)
Baker Botts LLP
Houston, TX
Aen W. Webster (TE)
Buchanan Ingersoll & Rooney PC
Washington, D.C.
Corporate Sponsorship
Committee
Continuing Legal
Education Committee
Chairs and Vice-Chairs
Jo Ann Engelhardt, Co-Vice-Chair
Bessemer Trust
Palm Beach, FL
CHAIR
Roger D. Winston
Ballard Spahr Andrews
& Ingersoll LLP
Bethesda, MD
Dennis M. Horn, Co-Vice-Chair
Holland & Knight LLP
Washington, D.C.
CO-VICE CHAIRS
Marc S. Bekerman (TE)
New York Law School
New York, NY
Elizabeth C. Lee (RP)
Womble Carlyle Sandridge & Rice,
PLLC
Washington, DC
Andrew F. Palmieri (RP)
Vorys Sater Seymour
& Pease LLP
Alexandria, VA
Alan F. Rothschild, Jr. (TE)
Hatcher Stubbs Land Hollis &
Rothschild
Columbus, GA
Alan D. Keiser, Co-Chair
LandAmerica Commercial Services
Philadelphia, PA
Gideon Rothschild, Co-Chair
Moses & Singer LLP
New York, NY
Members
Donna G. Barwick
BNY Mellon Wealth Management
Atlanta, GA
Leigh-Alexandra Basha
Holland & Knight LLP
McLean, VA
David L. Campbell
Campbell & Cobbe
Dallas, TX
Stephanie B. Casteel
King & Spalding LLP
Atlanta, GA
Register on-line today at www.abanet.org/RPTE/2009
Morton Fisher
Ballard Spahr Andrews
& Ingersoll, LLP
Baltimore, MD
Charles E. Hodges
Chamberlain Hrdlicka
Atlanta, GA
Elizabeth C. Lee
Womble Carlyle Sandridge & Rice
PLLC
Washington, D.C
Edward M. Manigault
JPMorgan Chase Bank
Atlanta, GA
Martin P. Miner
Holland & Knight LLP
New York, NY
Susan Porter
U.S. Trust, Bank of America Private
Wealth Management
New York, NY
Richard S. Rivitz
Kahn Kleinman A Legal Professional
Assoc.
Cleveland, OH
Phyllis M. Rubenstein
LeClairRyan
Richmond, VA
Robert N. Sacks
Sacks Glazier Franklin
& Lodise
Los Angeles, CA
Lee Sher
Sher Garner Cahill Richter Klein &
Hilbert, L.L.C.
New Orleans, LA
Aen W. Webster (TE)
Buchanan Ingersoll & Rooney PC
Washington, D.C.
ABA Section Staff
DIRECTOR
Robin K. Roy
ASSOCIATE DIRECTOR
Mary Ann Peter
MARKETING,
COMMUNICATIONS
& MEMBERSHIP DIRECTOR
Cynthia Dickmann
ASSOCIATE DIRECTOR –
TELECONFERENCE UNIT
Antonette Smith
MARKETING
& COMMUNICATIONS
MANAGER
Amanda S. Pauli
TECHNOLOGY SPECIALIST
Adam Bielawski
COMMITTEES COORDINATOR
Bunny R. Lee
MEETINGS REGISTRAR
Hillary Clark
16
Reap the Many Benefits of Being a
Real Property, Trust & Estate Law
(RPTE) Member . . .
Group or Committee Participation – Get Involved!
Join a Group or Committee and collaborate with colleagues across the country via ABA and Section
meetings, committee conference calls and listserv discussions.
• Choose from a wide variety of groups and committees covering the most
important areas of Trust and Estate and Real Property practice
• Work on legislative issues for a particular law specialty on a national and/or state level
• Join free member conference calls about current issues affecting your practice
• Find out the latest case law legislative and regulatory developments
• Discover practical planning, drafting, and business development strategies
• Prepare comments to the government on current policy and pending legislation
in your area of expertise
• Get Published! Group and committee work provides much of the basis for the Section’s
high quality educational programs, and content for the Section’s publications
Continuing Legal Education
Easily fulfill your mandatory CLE requirements by attending CLE programs face-to-face at
conferences, or by participating in low cost CLE programs by telephone at your desk.
Up-to-date Practice Information
Tap into a wealth of industry information, and practical tips and tools for your practice via the
Section’s publications:
• RPTE eReport – A bi-monthly electronic publication featuring Section events and activities,
news articles and resources for young lawyers and law students
• Probate & Property – The Section’s bi-monthly flagship magazine providing lawyers with
practical information on real property and trust and estate planning
• Real Property, Trust and Estate Law Journal – A quarterly journal providing in-depth articles
of interest to real property and trust and estate law lawyers
• Real Estate Quarterly Reports – A summary and commentary on prominent real estate
law cases
Be sure to take advantage of all RPTE member benefits. Stay in touch
and stay current! See our website at www.abanet.org/rpte for more
Section information and practice resources.
Join the RPTE Section at www.abanet.org/RPTE
17
SPONSORS
The Section acknowledges the generous support of our
sponsors for their involvement in this year’s Spring Symposia.
SILVER SPONSORS
BRONZE SPONSORS
Ballard Spahr Andrews & Ingersoll LLP
BCG Valuations
BNY Mellon Wealth Management
The Bryn Mawr Trust Company of Delaware
Christiana Bank & Trust Company
Coventry
Doyle New York
Empire Valuation Consultants LLC
HUB Private Client Advisers
Sotheby’s
South Dakota Trust Company LLC
LAW FIRM SPONSOR
Holland & Knight LLP
Katten Muchin Rosenman LLP
McGuireWoods LLP
Taft Stettinius & Hollister LLP
Womble Carlyle Sandridge & Rice, PLLC
Z
Winter 2009
Chicago Community
Outreach Program
A Real Estate Law Educational Program
Presented by….
The American Bar Association’s Section of Real Property,
Trust and Estate Law in conjunction with:
The Arab-American Bar Association
Asian American Bar Association
Black Women Lawyers Association of Greater Chicago, Inc.
Chinese American Bar Association
Cook County Bar Association
Hispanic Lawyers Association of Illinois
Indian American Bar Association of Chicago
Korean American Bar Association
Lesbian and Gay Bar Association of Chicago
and Puerto Rican Bar Association
REAL
PROPERTY
SECTION OF
TRUST &
ESTATE LAW
Your Source for Success
Winter 2009
Z
Chicago Community Outreach Program
A Real Estate Law Educational Program
Where
Time
Dates
American Bar Association
321 North Clark Street
Chicago, IL 60654
6 – 8pm
Program held on the following
Wednesday nights:
February 11, 18 and 25
March 4, 11, 18 and 25
April 1, 15, 22 and 29
May 6
Written course materials will be provided and CLE credit is available.
Cost
$24.00
($1.00 per CLE credit hour)
The course is designed for beginning/intermediate
real estate practitioners, and will be taught based on
the following curriculum:
DEVELOPMENT OF A MIXED-USE OFFICE AND RETAIL PROJECT
Factual situation: Your client has located a downtown Chicago parcel which it wishes to acquire. The client
proposes to construct a mixed-use office, garage and retail facility on the site. The client has not decided
whether to seek a joint venture partner to provide capital and/or other resources for the project. The client also
has not decided whether it should hold the improved property as a long-term investment, or sell all or a portion
of it to an institutional investor after it is built and leased. You have been asked to represent the client in all
aspects of the development.
Course Outline:
Week 1:The economics of real estate development—the goals and objectives of the real estate developer
(speaker will be a developer)
Week 2:Negotiating the Contract on behalf of the Buyer
Week 3: Due diligence, title and survey
Week 4: Entity formation and joint venture issues
Week 5:Retail and office leasing-creating the lease forms; negotiating the leases
Week 6: Governmental benefits, zoning and approvals
Week 7: Permanent Financing - Institutional loans and conduit loans
Week 8: Construction Financing
Week 9: Construction Issues; construction draw process; liens
Week 10: Design and construction documents
Week 11:Issues of ownership; real estate taxes; property management; special circumstances
Week 12:The ethics of documenting and negotiating commercial real estate transactions
Space is Limited!
Please contact Hillary Clark at (312) 988-5683 or clarkh@staff.abanet.org
for registration forms and additional information
This course is subject to cancellation or change without notice
American Bar Association
Section of Real Propert y, Trust and Estate Law
Chicago Community Outreach Program
A Real Estate Law Educational Program
Registration form
Name
Firm
Address
City
State
Zip
Email
Please mark all that apply
Must be a member of a Minority Bar to participate in this program
n ABA member
If applicable, list member ID number
n Real Property, Trust and Estate Law member
n Minority Bar member Bar Association (please indicate bar name)
Registration fee | $24 for the twelve-week program, payable in advance
Credit card information:
n Visa
n MasterCard
n American Express
Card number
Expiration date Security code
Signature
If mailing a check, please make payable to the American Bar Association
Please return to the attention of: Hillary Clark
ABA, Section of RPTE
321 N. Clark Street
Chicago, IL 60654
clarkh@staff.abanet.org
Phone: (312) 988-5683
Fax: (312) 988-5262
REAL
PROPERTY
SECTION OF
TRUST &
ESTATE LAW
Your Source for Success
REAL
PROPERTY
ABA
SECTION OF
Regist
ratio
Deadli n
ne
July 3,
2009!
TRUST &
ESTATE LAW
Skills Training for Estate Planners
C L E P ro g r a m
July 13 – 17, 2009
The ideal program for lawyers with less than five years
of Estate Planning practice
This CLE program is sponsored by the American Bar Association, Section of Real Property,
Trust and Estate Law will be held at the New York Law School in New York City. This is a very
popular annual estate planning program with limited space - early registration is advised!
Who should attend
Program Location
Program co-chairs
New estate planners – both young
attorneys, new in the profession, and
attorneys seeking to make a transition
from another area of law.
New York Law School,
57 Worth Street,
New York, NY
10013-2960
Steve R Akers, Bessemer Trust, Dallas, TX
FIRST TIME OPTIONAL PRE-PROGRAM
INSTITUTE – Sunday, July 12, 2009
Review of the basics of estate tax, gift tax, GST tax and income
taxation of trusts and estates. A must for attendees who need, or
want, a refresher in these vital areas. Basic Fundamentals and Substantive
Skills Development
n Marital deduction basics, including analysis of how much to
use the use of disclaimers or partial QTIP elections, funding and
fiduciary administration problems
n Charitable deduction planning including use of computer software
n Analyzing inter vivos gifting, both basic and sophisticated transactions such as GRATs and QPRTs, including an analysis of
when such techniques make sense
n Life insurance planning, particularly with respect to irrevocable insurance trusts and the practical aspects of product selection, premium
financing, and due diligence along with GST considerations
n Deferred compensation and employee benefits, including beneficiary designation alternatives and drafting such designations
n Practical tips on planning with the generation-skipping transfer tax
n Preparing flexible trusts with an eye to the future
Technical Skills Development
n Client interviewing - with the “substantive” side (what information to obtain) coming as an ancillary element to learning the
skills involved
n Tax compliance: hands-on manual preparation to learn how the
tax law works and how software can produce errors
n Fiduciary administration and accounting and the tax aspects of
postmortem and other fiduciary administration
n Valuation in practice, including how to select valuation experts
and analyze their work
n Exposure to software programs and web sites that assist in the
analysis of estate assets and facilitate construction of planning
models
William P. LaPiana, Professor of Wills, Trusts, and Estates
and Director of Estate Planning, Graduate Tax Program
New York Law School, NYC, NY
Developing Ethical Attitudes
Ethics instruction in practical settings, particularly including
representations of spouses and fiduciaries. Tuition
$1595.00 - includes all instruction and materials; continental
breakfasts, lunches each day and dinner on Thursday night. (There
are a limited number of spaces available to full time government
employees at $925.00.) Financial scholarship applications are
available for this program. To request an application or receive additional information, contact Hillary Clark clarkh@staff.abanet.org.
Accommodations
A block of rooms has been secured at the Millenium Hilton (55
Church St., New York, NY) at the rate of $289. Please call the
Hilton directly at 212/693-2001 or 888-273-0734 for reservations. Be sure to reference the ABA Real Property Trust and
Estate Law Skills Training Program to secure a room at the discounted rate. The deadline for hotel reservations is June 22, 2009.
A list of other hotels is available upon request.
CLE requested: 38 to 39 Total
60-minute hours of instruction
Space is limited for this program!
To register, email clarkh@staff.abanet.org. The registration deadline is July 3, 2009. Please contact
Hillary Clark at 312/988-5683 with any questions.
Cancellation Policy
Refund requests for this program must be made in writing and
received via fax (312/988-5262) in our office by July 6, 2009. There will be a $425 administration fee deducted from the
refund. The Section will gladly accept substitutions for cancellations received after July 6th; however, refunds will not be
given after that date.
American Bar Association | Section of Real Property, Trust and Estate Law
Skills Training for Estate Planners
C L E P ro g r a m
July 13-17, 2009 | New York Law School - New York City, NY
Registration form
(Please print, complete and fax to 312/988-5262 or email to clarkh@staff.abanet.org)
Name
Firm
Address
City
State
Zip
Phone
Email
Registration Pre-requisite
Over time we have had registrants who were either too well qualified or not qualified enough to benefit from the course.
Please complete the following survey with your registration. After review of the survey, your registration will be completed or
returned.
Tuition
Includes instruction and materials, continental breakfast, lunch and networking breaks each day;
and dinner Thursday night
n $1,595.00 General Registration Rate (Includes Sunday Pre-Program Institute)
n $925.00 Government Rate (we have a limited number of slots for full-time government employees)
METHOD OF PAYMENT
n Check made payable to American Bar Association
Credit card information:
n Visa
n MasterCard
n American Express
Card number
Expiration date Security code
Signature
Please return to the attention of:
Hillary Clark, ABA, Section of RPTE
321 N. Clark Street, Chicago, IL 60654
clarkh@staff.abanet.org
Phone: (312) 988-5683 | Fax: (312) 988-5262
REAL
PROPERTY
SECTION OF
TRUST &
ESTATE LAW
Your Source for Success
Skills Training for Estate Planners
C L E P ro g r a m
Pre-Enrollment Survey
To help us anticipate your learning needs and background
Name
1. Are you a licensed attorney? n Yes
n No If so, year of law school graduation
2. Number of years: In Law Practice
In Estate Planning Practice
If you are not in private law practice please articulate your situation
(e.g., practicing CPA; returning from raising a child; bank trust officer; financial planner; etc.):
3. How many professionals are there in your practice setting?
4. How many of those colleagues practice Estate Planning or related work?
5. How much of your time do you currently devote to
estate planning?
%
probate/trust administration?
%
probate/trust litigation
%
Please list other areas in which you do/will practice
6. What % of your expected client base do you estimate has a
$3.5 million estate?
%
7. Which of the following law school courses have you taken?
n Wealth Transfer Tax (Estate & Gift Tax) n Income Tax n Trusts & Estates
n Estate Planning
n Subchapter J
8. In 2007-2008, approximately how many of the following did you personally draft:
Wills or trusts with tax planning (e.g. marital/charitable deduction) provisions
Approximately how many were
ILITs
IDGTs
QPRTs
GRATs
CRTs
CLTs
Crummey trusts
Wills or trusts without tax planning provisions
9. In 2007-2008, approximately how many of the following did you personally create:
FLPs/LLCs
Buy-Sell Agreements
Marital property agreements
10. In 2007-2008, approximately how many of the following did you personally prepare/engage in
706
709
1041
Probate administration
Trust administration
Prior CLE relevant to Estate Planning (where/what/when)
PROGRAM ENVIRONMENT
Do you have any special dietary requirements?
Do you have any physical restrictions that a traditional classroom environment will not accommodate? n Yes
Please indicate the best way for us to communicate with you (if e-mail, be sure to include your e-mail address):
How did you learn about this program?
Please Return This Form With Your Registration — fax 312/988-5262
n No
A Bi-Monthly Electronic Publication for Section
Members
Trust and Estate News
February 2009
New Year Brings Changes in Estate Tax and Generation-Skipping Transfer Tax
By Richard S. Franklin 1
Beginning January 1, 2009, the estate and GST exemptions are increased to $3.5 million, a 75%
increase over last year’s $2 million exemptions. As a result, the number of federal estate tax
returns that need to be filed will drop significantly. The Tax Policy Center estimates that about
17,550 taxable returns were filed in 2008, while only about 6,200 are expected to be filed in
2009. The IRS estimated that 17,416 taxable returns were filed in 2007. Of those, 9,892 were
for gross estates less than $3.5 million. 2
A married couple with a combined estate of $7 million or less should now be able to pass the
entire amount to family members with no federal estate tax being imposed. To ensure that your
clients’ estate plans take full advantage of both spouses’ $3.5 million federal estate tax
exemption consider:
Funding the Family Trust. Ensure that the asset allocation between the spouses is sufficient to
allow the “Family Trust” or credit shelter trust of the first spouse to die to be fully funded,
preferably without using retirement accounts or other items of income in respect of a decedent.
If possible, ensure that both spouses have $3.5 million of assets in their respective names or
revocable trusts available to fund the Family Trust. If one spouse’s assets are insufficient,
consider making gifts from the wealthier spouse (being mindful however of marital law issues)
or dividing jointly owned property (being mindful that severing a tenancy by the entirety may be
poor planning for asset protection purposes). Another possibility is for the wealthier spouse to
create an inter vivos marital trust (QTIP trust) for his or her spouse and make the QTIP election.
Upon the donee spouse’s death, the QTIP trust will be included in the donee spouse’s estate
under IRC section 2044 and thereby be available to use the donee spouse’s estate tax exemption.
If a client’s current will or revocable trust states that the Family Trust is to be funded with a
specific amount, such as $2 million, consider updating the provision to reflect the new exemption
amount of $3.5 million. If a QTIP trust has been previously established by the wealthier spouse
with $2 million or less, consider increasing the funding to $3.5 million.
If the Family Trust is to be funded using a formula clause, check the will/revocable trust to
ensure that the surviving spouse will be comfortable with the terms of the Family Trust now that
a greater proportion of the estate will pass to the Family Trust rather than the Marital Trust. The
terms of the Family Trust and its control by the appointed trustee could be skewed toward or
away from the surviving spouse, and in some cases the surviving spouse may have been
completely omitted as a beneficiary. For example, ten years ago in 1999, the estate tax
exemption was $650,000. At that time, a couple may have reasonably concluded that the Family
Trust should benefit just the descendants, since the amount over $650,000 would solely benefit
the surviving spouse. However, now diverting a much greater amount - $3.5 million - away
from the surviving spouse may not be appropriate.
State Estate Tax Considerations. Many states such as California, Texas, and Virginia do not
impose a separate estate tax, but about 15 states, including the District of Columbia, Maryland,
and New York, do impose their own estate tax and allow only a $1 million estate tax exemption.
In Maryland, the personal representative of the first spouse to die may qualify a portion of the
Marital Trust for the Maryland estate tax marital deduction, but not the federal estate tax
deduction. This state-only QTIP allows the full federal estate tax exemption of $3.5 million of
each spouse to be used, while deferring all Maryland estate taxes until the surviving spouse’s
death. The primary reason articulated for using the state-only QTIP is that the surviving spouse
may leave the jurisdiction and thereby permanently avoid the state estate tax. However, if
complete avoidance of the state death tax is not assured by a change in domicile or otherwise,
there are reasons why a state-only QTIP may not be a good idea, including that (1) the lower
brackets of the state estate tax table are not used in both estates; (2) when the surviving spouse
dies, no federal death tax deduction is available with respect to state death taxes paid on the
state-only QTIP; 3 (3) all income of the state-only QTIP trust must be paid to the surviving
spouse, the trust cannot have other beneficiaries, and any income paid and not spent or given
away would be taxable in the surviving spouse’s estate; and (4) there is likely to be less creditor
protection compared to a discretionary Family Trust. The chart below illustrates that the stateonly QTIP may increase the overall tax liability.
Comparison of Electing or Not Electing the Maryland State-Only QTIP
Year of Deaths
Federal Applicable Exemption
Maryland Exemption
Growth Rate
2009
3,500,000
1,000,000
0.00%
Plan #1 - Pay State Death Taxes on Full
Family Trust Upon 1st Spouse's Death
1st Spouse's Death
Value of Estate
Value of Family Trust
Value of Federal & MD QTIP
Federal Estate Taxes
Maryland Estate Taxes*
Total Taxes on 1st Death
2nd Spouse's Death
Value of Federal & MD QTIP
Federal Estate Taxes
Maryland Estate Taxes
Total Taxes on 2nd Death
Total Estate Taxes 1st and 2nd Deaths
Savings of Plan #1 over Plan #2**
7,000,000
3,270,800
3,500,000
229,200
229,200
3,500,000
229,200
229,200
Plan #2 - Pay No State Death Taxes Upon 1st
Spouse's Death
1st Spouse's Death
Value of Estate
Value of Family Trust
Value MD QTIP
Value of Federal & MD QTIP
Federal Estate Taxes
Maryland Estate Taxes
Total Taxes on 1st Death
2nd Spouse's Death
Value of MD QTIP
Value of Federal & MD QTIP
Federal Estate Taxes
Maryland Estate Taxes
Total Taxes on 2nd Death
458,400 Total Estate Taxes 1st and 2nd Deaths
7,000,000
1,000,000
2,500,000
3,500,000
-
2,500,000
3,500,000
510,800
510,800
510,800
52,400
Notes:
*Assumes the taxes are charged to the Family Trust. If taxes are charged to the Marital Trust, thereby allowing
the full $3.5 million to fund the Family Trust, the taxes would increase to $254,910.
**If the value of the 1st spouse's estate were $10 million, the savings of Plan #1 over Plan #2 would be $113,200.
Unfortunately, clients in DC and New York are generally limited to either funding the Family
Trust with $1 million and wasting $2.5 million of the federal estate tax exemption, or fully
funding the federal estate tax exemption at $3.5 million and paying DC or New York estate taxes
on $2.5 million upon the first spouse’s death. 4 Prior to the increased federal exemption, the DC
or New York estate tax under this latter alternative would have been about $100,000 on the $1
million of federal estate tax exemption exceeding the DC or New York $1 million estate tax
exemption. In 2009, the DC and New York estate tax will be about $229,000 on the $2.5 million
of federal estate tax exemption exceeding the $1 million DC or NY estate tax exemption.
Incurring some state estate taxes upon the first spouse’s death in exchange for fully utilizing the
2
401093948v2
federal exemption may provide overall estate tax savings when considering the aggregate taxes
payable for both spouses. 5
Increased GST Exemption. The additional $1.5 million of GST exemption now available may
be useful if a client has previously established an irrevocable life insurance trust, dynasty trust,
GRAT remainder trust, or other similar types of irrevocable trusts. If such trust is partially
exempt from the GST tax or if it includes two subtrusts, one exempt from the GST tax and one
subject to it, the additional GST exemption can now be allocated to the partial inclusion ratio
trust or nonexempt trust, thereby making it or some portion of it exempt from GST tax. This
would be a so-called “late” allocation of GST exemption. 6
For a client who is not likely to use his or her GST exemption during lifetime, ensure that the
testamentary provisions in the will/revocable trust, when appropriate, are properly structured to
use the exemption. There could be situations in which a testamentary provision provides for a
fixed amount to be set aside in a GST trust, rather than using a formula based on the then GST
exemption available. Consideration should be given to adjusting these clauses for the increased
exemption.
Opportune Time for Estate Planning. A combination of factors may make this the opportune
time to transfer assets to family members. First, recessionary pressures have driven down stock
prices and the values of most companies, and volatility in the stock market means that equity
interests in private companies may be subject to greater discounts for lack of marketability.
Therefore, this is the time to freeze values for gift and estate tax purposes. Second, historically
low interest rates are available, thereby (i) increasing the leverage of GRATs and CLATs, (ii)
reducing the financing costs of sales and loans, and (iii) making it advantageous to refinance
existing notes. Third, Congress is considering legislation that would, among other changes, limit
the use of minority interest discounts for lack of control in valuing business interests transferred
between family members. The potential loss of this discount would effectively increase federal
gift and estate tax burdens.
1
Richard S. Franklin is a partner at Pillsbury Winthrop Shaw Pittman, LLP, in McLean, Virginia. Richard is
a vice-chair of the RPTE’s Estate & Gift Tax committee and a fellow in the American College of Trust and Estate
Counsel.
2
The IRS statistics are available at: http://www.irs.gov/taxstats/indtaxstats/article/0,,id=96442,00.html.
3
The federal estate tax deduction under IRC section 2058 for death taxes paid to a state is not applicable to
taxes with respect to property not included within the federal gross estate. Some estate tax attorneys may have
thought that the higher brackets of the state death tax table applicable to the state-only QTIP when the surviving
spouse dies would be offset by the federal deduction for state death taxes – not so!
4
One partial solution is to consider funding the Family Trust with the $1 million gift tax exemption amount
before the first spouse’s death (but giving due consideration to income tax basis and market risks associated with
gifts) as most states do not have a gift tax working in coordination with their estate tax. This allows the funding of
the Family Trust with $2 million with no state estate tax (i.e., $1 million during lifetime that escapes state tax
because there is no state gift tax and $1 million upon death because of the state estate tax exemption of $1 million).
State estate tax would apply on the remaining $1.5 million of the federal exemption upon the first spouse’s death.
5
DecoupleCruncher may be useful in modeling scenarios and can be obtained from
http://www.leimberg.com/.
6
For the rules governing the late allocation of GST exemption see the regulations under IRC sections 2632
and 2642. A qualified severance may also be advisable.
3
401093948v2
PENDING LEGISLATION TO CHANGE THE FEDERAL TRANSFER TAXES
By
James V. Roberts, Esq.
Glast, Phillips & Murray, P.C.
Currently, there appear to be four bills pending in Congress to deal with
changes to the federal transfer taxes. Two of them, H.R. 96 and H.R. 173,
appear to be focused on issues related to farmland. Another, H.R. 533, aims to
repeal the estate tax entirely. But another has drawn more attention because it
appears to dovetail with the announced intentions of newly elected President
Obama.
That bill is H.R. 436 introduced by Representative Pomeroy [North
Dakota] on January 9, 2009. The bill does 6 major things, most of which have to
do with modifications of the Economic Growth and Tax Relief Reconciliation Act
of 2001 (“EGTRRA”):
1.
Repeal is Repealed: Title V of EGTRRA, and particularly Subtitle A
(included as part of the appendix), provided for the repeal of the estate and
generation skipping tax rules for decedents dying December 31, 2009. That
provision is to be repealed, and thus estate and GST taxes would continue to be
imposed.
2.
Carryover Basis is Carted Out: The carryover basis rules would not
apply at death, and the provisions of Section 1014 (change in basis at death)
would continue to apply. Subtitle E of Title V of EGTRRA provided for carryover
basis for assets in the estates of decedents dying after December 31, 2009. This
new bill would repeal that section.
3.
Unified Rate and Credit: One of the big things EGTRRA did was to
disconnect or “un-unify” the unified credit for estate and gift taxes, providing for
different “applicable exclusion” amounts and rates. Under this bill, subsections
(d) and (e) of section 511 of EGTRRA are repealed. In effect, that would re-unify
the estate and gift tax rates and provide for a single credit to applied to both.
4.
New Fixed Applicable Exclusion Amount and Rate: All transfer
taxes would again have a unified “exemption” of $3,500,000 and a unified tax
rate of 45%. The new bill would fix the applicable exclusion about at $3,500,000
and the rate for amounts in excess of that at 45%. The wording of the bill will
have to be fixed because it seems to try to alter the first sentence of section
2010(c). But in doing so, it cuts the sentence off and makes it nonsensical. But
enough is there to make clear the author’s intent.
5.
Modification of the Surtax Rate and Amount: The surtax rate for
estates over $10 million would still be 5% but the maximum amount of the
addition would be increased. Currently, the amount of the surtax is capped at the
difference between tax at the maximum rate less tax computed at the graduated
rate structure. The bill would provide a cap equal to “the sum of the applicable
credit amount under section 2010(c) and $119,200.” That would appear to be
$1,455,800 + $119,200 = $1,575,000.
6.
Valuation Rules for Transfers of Entities with Passive Assets:
Valuation discounts for entities, such as family limited partnerships, would be lost
to the extent those entities have “passive” assets (as defined in the bill). And
lack of control would no longer be considered in many cases.
These provisions are an obvious attempt to attack discounts in family
limited partnerships and similar entities. The bill eliminates discounts for entities
to the extent to which the entity owns “passive” assets. The mechanical
application of the statute requires that the passive assets be treated as though
they are owned, and transferred, directly by the transferor; and the entity is then
valued as though it did not own the passive assets.
Passive assets are defined to include cash, cash equivalents, corporate
stock, ownership interests in other kinds of entities, debt instruments, trading
devices (options, forward and future contracts, notional principal contracts and
derivatives), foreign currency, interests in REITs and RICs, publically traded
partnerships, precious metals, annuities, real property (with exceptions), assets
which pay royalties (other than patents and trademarks), commodities,
collectibles and “any other asset specified in regulations prescribed by the
Secretary.”
Pass-through rules add to the above by saying that if the entity in which an
interest is transferred in turns owns at least a 10-percent of another entity, then
the assets of the subsidiary entity are treated as though they are owned by the
entity being transferred, up to the percentage of ownership. In other words, if A
transfers an interest in FLP to B, and FLP owns a 10% interest in BigCo which
owns $100 in assets, $10 of BigCo’s assets will be treated as though the FLP
owned them directly.
And finally, discounts for lack of control are eliminated entirely if the
interest is not actively traded and the transferor and members of the family (as
defined under section 2032A(e)(2)) have control of the entity. It is interesting to
note that the definition of family members referred to is very restricted, and so a
wide variety of people normally considered family members in common parlance
are not included in the foregoing, such as aunts and uncles.
Currently, the bill is sitting in the House Ways and Means Committee. No
action has been taken as of the writing of this note.
APPENDIX
Selected Sections of the Economic Growth and Tax Relief Reconciliation Act of 2001
(“EGTRRA”)
These provisions are reproduced in the order in which they are referred to in HR
436. The result is that the last section copied herein is out of order from the text of
EGTRRA.
TITLE V--ESTATE, GIFT, AND GENERATION-SKIPPING TRANSFER TAX PROVISIONS
Subtitle A--Repeal of Estate and Generation-Skipping Transfer Taxes
SEC. 501. REPEAL OF ESTATE AND GENERATION-SKIPPING TRANSFER TAXES.
(a) ESTATE TAX REPEAL- Subchapter C of chapter 11 of subtitle B (relating to miscellaneous)
is amended by adding at the end the following new section:
`SEC. 2210. TERMINATION.
`(a) IN GENERAL- Except as provided in subsection (b), this chapter shall not apply to the estates
of decedents dying after December 31, 2009.
`(b) CERTAIN DISTRIBUTIONS FROM QUALIFIED DOMESTIC TRUSTS- In applying
section 2056A with respect to the surviving spouse of a decedent dying before January 1, 2010-`(1) section 2056A(b)(1)(A) shall not apply to distributions made after December 31,
2020, and
`(2) section 2056A(b)(1)(B) shall not apply after December 31, 2009.'.
(b) GENERATION-SKIPPING TRANSFER TAX REPEAL- Subchapter G of chapter 13 of
subtitle B (relating to administration) is amended by adding at the end the following new section:
`SEC. 2664. TERMINATION.
`This chapter shall not apply to generation-skipping transfers after December 31, 2009.'.
(c) CONFORMING AMENDMENTS(1) The table of sections for subchapter C of chapter 11 is amended by adding at the end
the following new item:
`Sec. 2210. Termination.'.
(2) The table of sections for subchapter G of chapter 13 is amended by adding at the end
the following new item:
`Sec. 2664. Termination.'.
(d) EFFECTIVE DATE- The amendments made by this section shall apply to the estates of
decedents dying, and generation-skipping transfers, after December 31, 2009.
***
Subtitle E--Carryover Basis at Death; Other Changes Taking Effect With Repeal
SEC. 541. TERMINATION OF STEP-UP IN BASIS AT DEATH.
Section 1014 (relating to basis of property acquired from a decedent) is amended by adding at the
end the following new subsection:
`(f) TERMINATION- This section shall not apply with respect to decedents dying after December
31, 2009.'.
SEC. 542. TREATMENT OF PROPERTY ACQUIRED FROM A DECEDENT DYING AFTER
DECEMBER 31, 2009.
(a) GENERAL RULE- Part II of subchapter O of chapter 1 (relating to basis rules of general
application) is amended by inserting after section 1021 the following new section:
`SEC. 1022. TREATMENT OF PROPERTY ACQUIRED FROM A DECEDENT DYING AFTER
DECEMBER 31, 2009.
`(a) IN GENERAL- Except as otherwise provided in this section-`(1) property acquired from a decedent dying after December 31, 2009, shall be treated
for purposes of this subtitle as transferred by gift, and
`(2) the basis of the person acquiring property from such a decedent shall be the lesser of`(A) the adjusted basis of the decedent, or
`(B) the fair market value of the property at the date of the decedent's death.
`(b) BASIS INCREASE FOR CERTAIN PROPERTY`(1) IN GENERAL- In the case of property to which this subsection applies, the basis of
such property under subsection (a) shall be increased by its basis increase under this
subsection.
`(2) BASIS INCREASE- For purposes of this subsection-`(A) IN GENERAL- The basis increase under this subsection for any property is
the portion of the aggregate basis increase which is allocated to the property
pursuant to this section.
`(B) AGGREGATE BASIS INCREASE- In the case of any estate, the aggregate
basis increase under this subsection is $1,300,000.
`(C) LIMIT INCREASED BY UNUSED BUILT-IN LOSSES AND LOSS
CARRYOVERS- The limitation under subparagraph (B) shall be increased by-`(i) the sum of the amount of any capital loss carryover under section
1212(b), and the amount of any net operating loss carryover under
section 172, which would (but for the decedent's death) be carried from
the decedent's last taxable year to a later taxable year of the decedent,
plus
`(ii) the sum of the amount of any losses that would have been
allowable under section 165 if the property acquired from the decedent
had been sold at fair market value immediately before the decedent's
death.
`(3) DECEDENT NONRESIDENTS WHO ARE NOT CITIZENS OF THE UNITED
STATES- In the case of a decedent nonresident not a citizen of the United States-`(A) paragraph (2)(B) shall be applied by substituting `$60,000' for `$1,300,000',
and
`(B) paragraph (2)(C) shall not apply.
`(c) ADDITIONAL BASIS INCREASE FOR PROPERTY ACQUIRED BY SURVIVING
SPOUSE`(1) IN GENERAL- In the case of property to which this subsection applies and which is
qualified spousal property, the basis of such property under subsection (a) (as increased
under subsection (b)) shall be increased by its spousal property basis increase.
`(2) SPOUSAL PROPERTY BASIS INCREASE- For purposes of this subsection-`(A) IN GENERAL- The spousal property basis increase for property referred to
in paragraph (1) is the portion of the aggregate spousal property basis increase
which is allocated to the property pursuant to this section.
`(B) AGGREGATE SPOUSAL PROPERTY BASIS INCREASE- In the case of
any estate, the aggregate spousal property basis increase is $3,000,000.
`(3) QUALIFIED SPOUSAL PROPERTY- For purposes of this subsection, the term
`qualified spousal property' means-`(A) outright transfer property, and
`(B) qualified terminable interest property.
`(4) OUTRIGHT TRANSFER PROPERTY- For purposes of this subsection-`(A) IN GENERAL- The term `outright transfer property' means any interest in
property acquired from the decedent by the decedent's surviving spouse.
`(B) EXCEPTION- Subparagraph (A) shall not apply where, on the lapse of
time, on the occurrence of an event or contingency, or on the failure of an event
or contingency to occur, an interest passing to the surviving spouse will
terminate or fail-`(i)(I) if an interest in such property passes or has passed (for less than
an adequate and full consideration in money or money's worth) from
the decedent to any person other than such surviving spouse (or the
estate of such spouse), and
`(II) if by reason of such passing such person (or his heirs or assigns)
may possess or enjoy any part of such property after such termination
or failure of the interest so passing to the surviving spouse, or
`(ii) if such interest is to be acquired for the surviving spouse, pursuant
to directions of the decedent, by his executor or by the trustee of a trust.
For purposes of this subparagraph, an interest shall not be considered as an
interest which will terminate or fail merely because it is the ownership of a
bond, note, or similar contractual obligation, the discharge of which would not
have the effect of an annuity for life or for a term.
`(C) INTEREST OF SPOUSE CONDITIONAL ON SURVIVAL FOR
LIMITED PERIOD- For purposes of this paragraph, an interest passing to the
surviving spouse shall not be considered as an interest which will terminate or
fail on the death of such spouse if-`(i) such death will cause a termination or failure of such interest only if
it occurs within a period not exceeding 6 months after the decedent's
death, or only if it occurs as a result of a common disaster resulting in
the death of the decedent and the surviving spouse, or only if it occurs
in the case of either such event, and
`(ii) such termination or failure does not in fact occur.
`(5) QUALIFIED TERMINABLE INTEREST PROPERTY- For purposes of this
subsection-`(A) IN GENERAL- The term `qualified terminable interest property' means
property-`(i) which passes from the decedent, and
`(ii) in which the surviving spouse has a qualifying income interest for
life.
`(B) QUALIFYING INCOME INTEREST FOR LIFE- The surviving spouse
has a qualifying income interest for life if-`(i) the surviving spouse is entitled to all the income from the property,
payable annually or at more frequent intervals, or has a usufruct interest
for life in the property, and
`(ii) no person has a power to appoint any part of the property to any
person other than the surviving spouse.
Clause (ii) shall not apply to a power exercisable only at or after the death of the
surviving spouse. To the extent provided in regulations, an annuity shall be
treated in a manner similar to an income interest in property (regardless of
whether the property from which the annuity is payable can be separately
identified).
`(C) PROPERTY INCLUDES INTEREST THEREIN- The term `property'
includes an interest in property.
`(D) SPECIFIC PORTION TREATED AS SEPARATE PROPERTY- A
specific portion of property shall be treated as separate property. For purposes of
the preceding sentence, the term `specific portion' only includes a portion
determined on a fractional or percentage basis.
`(d) DEFINITIONS AND SPECIAL RULES FOR APPLICATION OF SUBSECTIONS (b) AND
(c)`(1) PROPERTY TO WHICH SUBSECTIONS (b) AND (c) APPLY`(A) IN GENERAL- The basis of property acquired from a decedent may be
increased under subsection (b) or (c) only if the property was owned by the
decedent at the time of death.
`(B) RULES RELATING TO OWNERSHIP`(i) JOINTLY HELD PROPERTY- In the case of property which was
owned by the decedent and another person as joint tenants with right of
survivorship or tenants by the entirety-`(I) if the only such other person is the surviving spouse, the
decedent shall be treated as the owner of only 50 percent of
the property,
`(II) in any case (to which subclause (I) does not apply) in
which the decedent furnished consideration for the acquisition
of the property, the decedent shall be treated as the owner to
the extent of the portion of the property which is proportionate
to such consideration, and
`(III) in any case (to which subclause (I) does not apply) in
which the property has been acquired by gift, bequest, devise,
or inheritance by the decedent and any other person as joint
tenants with right of survivorship and their interests are not
otherwise specified or fixed by law, the decedent shall be
treated as the owner to the extent of the value of a fractional
part to be determined by dividing the value of the property by
the number of joint tenants with right of survivorship.
`(ii) REVOCABLE TRUSTS- The decedent shall be treated as owning
property transferred by the decedent during life to a qualified revocable
trust (as defined in section 645(b)(1)).
`(iii) POWERS OF APPOINTMENT- The decedent shall not be treated
as owning any property by reason of holding a power of appointment
with respect to such property.
`(iv) COMMUNITY PROPERTY- Property which represents the
surviving spouse's one-half share of community property held by the
decedent and the surviving spouse under the community property laws
of any State or possession of the United States or any foreign country
shall be treated for purposes of this section as owned by, and acquired
from, the decedent if at least one-half of the whole of the community
interest in such property is treated as owned by, and acquired from, the
decedent without regard to this clause.
`(C) PROPERTY ACQUIRED BY DECEDENT BY GIFT WITHIN 3 YEARS
OF DEATH`(i) IN GENERAL- Subsections (b) and (c) shall not apply to property
acquired by the decedent by gift or by inter vivos transfer for less than
adequate and full consideration in money or money's worth during the
3-year period ending on the date of the decedent's death.
`(ii) EXCEPTION FOR CERTAIN GIFTS FROM SPOUSE- Clause (i)
shall not apply to property acquired by the decedent from the
decedent's spouse unless, during such 3-year period, such spouse
acquired the property in whole or in part by gift or by inter vivos
transfer for less than adequate and full consideration in money or
money's worth.
`(D) STOCK OF CERTAIN ENTITIES- Subsections (b) and (c) shall not apply
to-`(i) stock or securities of a foreign personal holding company,
`(ii) stock of a DISC or former DISC,
`(iii) stock of a foreign investment company, or
`(iv) stock of a passive foreign investment company unless such
company is a qualified electing fund (as defined in section 1295) with
respect to the decedent.
`(2) FAIR MARKET VALUE LIMITATION- The adjustments under subsections (b) and
(c) shall not increase the basis of any interest in property acquired from the decedent
above its fair market value in the hands of the decedent as of the date of the decedent's
death.
`(3) ALLOCATION RULES`(A) IN GENERAL- The executor shall allocate the adjustments under
subsections (b) and (c) on the return required by section 6018.
`(B) CHANGES IN ALLOCATION- Any allocation made pursuant to
subparagraph (A) may be changed only as provided by the Secretary.
`(4) INFLATION ADJUSTMENT OF BASIS ADJUSTMENT AMOUNTS`(A) IN GENERAL- In the case of decedents dying in a calendar year after
2010, the $1,300,000, $60,000, and $3,000,000 dollar amounts in subsections
(b) and (c)(2)(B) shall each be increased by an amount equal to the product of-`(i) such dollar amount, and
`(ii) the cost-of-living adjustment determined under section 1(f)(3) for
such calendar year, determined by substituting `2009' for `1992' in
subparagraph (B) thereof.
`(B) ROUNDING- If any increase determined under subparagraph (A) is not a
multiple of-`(i) $100,000 in the case of the $1,300,000 amount,
`(ii) $5,000 in the case of the $60,000 amount, and
`(iii) $250,000 in the case of the $3,000,000 amount,
such increase shall be rounded to the next lowest multiple thereof.
`(e) PROPERTY ACQUIRED FROM THE DECEDENT- For purposes of this section, the
following property shall be considered to have been acquired from the decedent:
`(1) Property acquired by bequest, devise, or inheritance, or by the decedent's estate from
the decedent.
`(2) Property transferred by the decedent during his lifetime-`(A) to a qualified revocable trust (as defined in section 645(b)(1)), or
`(B) to any other trust with respect to which the decedent reserved the right to
make any change in the enjoyment thereof through the exercise of a power to
alter, amend, or terminate the trust.
`(3) Any other property passing from the decedent by reason of death to the extent that
such property passed without consideration.
`(f) COORDINATION WITH SECTION 691- This section shall not apply to property which
constitutes a right to receive an item of income in respect of a decedent under section 691.
`(g) CERTAIN LIABILITIES DISREGARDED`(1) IN GENERAL- In determining whether gain is recognized on the acquisition of
property-`(A) from a decedent by a decedent's estate or any beneficiary other than a taxexempt beneficiary, and
`(B) from the decedent's estate by any beneficiary other than a tax-exempt
beneficiary,
and in determining the adjusted basis of such property, liabilities in excess of basis shall
be disregarded.
`(2) TAX-EXEMPT BENEFICIARY- For purposes of paragraph (1), the term `taxexempt beneficiary' means-`(A) the United States, any State or political subdivision thereof, any possession
of the United States, any Indian tribal government (within the meaning of
section 7871), or any agency or instrumentality of any of the foregoing,
`(B) an organization (other than a cooperative described in section 521) which is
exempt from tax imposed by chapter 1,
`(C) any foreign person or entity (within the meaning of section 168(h)(2)), and
`(D) to the extent provided in regulations, any person to whom property is
transferred for the principal purpose of tax avoidance.
`(h) REGULATIONS- The Secretary shall prescribe such regulations as may be necessary to carry
out the purposes of this section.'.
(b) INFORMATION RETURNS, ETC(1) LARGE TRANSFERS AT DEATH- So much of subpart C of part II of subchapter A
of chapter 61 as precedes section 6019 is amended to read as follows:
***
TITLE IX--COMPLIANCE WITH CONGRESSIONAL BUDGET ACT
SEC. 901. SUNSET OF PROVISIONS OF ACT.
(a) IN GENERAL- All provisions of, and amendments made by, this Act shall not apply-(1) to taxable, plan, or limitation years beginning after December 31, 2010, or
(2) in the case of title V, to estates of decedents dying, gifts made, or generation skipping
transfers, after December 31, 2010.
(b) APPLICATION OF CERTAIN LAWS- The Internal Revenue Code of 1986 and the Employee
Retirement Income Security Act of 1974 shall be applied and administered to years, estates, gifts,
and transfers described in subsection (a) as if the provisions and amendments described in
subsection (a) had never been enacted.
***
Subtitle B--Reductions of Estate and Gift Tax Rates
SEC. 511. ADDITIONAL REDUCTIONS OF ESTATE AND GIFT TAX RATES.
***
(d) MAXIMUM GIFT TAX RATE REDUCED TO MAXIMUM INDIVIDUAL RATE AFTER
2009- Subsection (a) of section 2502 (relating to rate of tax) is amended to read as follows:
`(a) COMPUTATION OF TAX`(1) IN GENERAL- The tax imposed by section 2501 for each calendar year shall be an
amount equal to the excess of-`(A) a tentative tax, computed under paragraph (2), on the aggregate sum of the
taxable gifts for such calendar year and for each of the preceding calendar
periods, over
`(B) a tentative tax, computed under paragraph (2), on the aggregate sum of the
taxable gifts for each of the preceding calendar periods.
`(2) RATE SCHEDULE`If the amount with respect to which the tentative tax to be computed is:
The tentative tax is:
Not over $10,000
18% of such amount.
Over $10,000 but not over $20,000
$1,800, plus 20% of the excess over $10,000.
Over $20,000 but not over $40,000
$3,800, plus 22% of the excess over $20,000.
Over $40,000 but not over $60,000
$8,200, plus 24% of the excess over $40,000.
Over $60,000 but not over $80,000
$13,000, plus 26% of the excess over $60,000.
Over $80,000 but not over $100,000
$18,200, plus 28% of the excess over $80,000.
Over $100,000 but not over $150,000
$23,800, plus 30% of the excess over $100,000.
Over $150,000 but not over $250,000
$38,800, plus 32% of the excess over $150,000.
Over $250,000 but not over $500,000
$70,800, plus 34% of the excess over $250,000.
Over $500,000
$155,800, plus 35% of the excess over $500,000.'.
(e) TREATMENT OF CERTAIN TRANSFERS IN TRUST- Section 2511 (relating to transfers in
general) is amended by adding at the end the following new subsection:
`(c) TREATMENT OF CERTAIN TRANSFERS IN TRUST- Notwithstanding any other
provision of this section and except as provided in regulations, a transfer in trust shall be treated as
a taxable gift under section 2503, unless the trust is treated as wholly owned by the donor or the
donor's spouse under subpart E of part I of subchapter J of chapter 1.'.
(f) EFFECTIVE DATES(1) SUBSECTIONS (a) AND (b)- The amendments made by subsections (a) and (b) shall
apply to estates of decedents dying, and gifts made, after December 31, 2001.
(2) SUBSECTION (c)- The amendment made by subsection (c) shall apply to estates of
decedents dying, and gifts made, after December 31, 2002.
(3) SUBSECTIONS (d) AND (e)- The amendments made by subsections (d) and (e) shall
apply to gifts made after December 31, 2009.
Determining the Income Tax Basis of Property Gratuitously Transferred to Grantor Trusts
Margery J. Schneider, Esq.
i
In the current financial climate, where it is not uncommon that the fair market value of
assets held by a grantor trust has fallen below the grantor’s basis, the determination of the
income tax basis of property gratuitously transferred to grantor trusts has taken on renewed
importance. Specifically, the question is whether the grantor trust rules of I.R.C. §§ 671-679 (the
“grantor trust basis rules”) or the basis rules for gifts in I.R.C. § 1015 (a) and (b) (the “gift basis
rules”) are applicable. With the exception of Rothstein v. U.S., 735 F.2d 704 (2d Cir. 1984) and
Revenue Ruling 85-13, 1985-7 I.R.B. 28, 1985-1 C.B. 184, the I.R.S.’s response to Rothstein,
this question has received little attention since the 1940’s. This article presents a rationale for
the application of the grantor trust basis rules to the exclusion of the gift basis rules.
Example:
A simple example demonstrates how the application of the grantor trust basis rules differs
from that of the gift basis rules.
A owns property in which A’s basis is $50,000 (the Property). A is the Grantor of a
grantor trust (“GT”). A transfers the Property to the trustee of GT. The fair market
value of the Property at the time of the transfer is $30,000. One year later, the
property is distributed from GT to B, the remainder beneficiary of GT. B is unrelated to
A.
The following questions arise from the example:
(1) What is the basis of the Property in the hands of the trustee of GT?
(2) What is the basis of the Property in the hands of B?
The answer to the first question is uncontroversial. Because GT is a grantor trust, under
both the grantor trust basis rules and the gift basis rules the basis of the property in GT is
$50,000, the same as its basis in the hands of A.
The answer to the second question depends on whether the grantor trust basis rules or the
gift tax basis are utilized.
Grantor Trust Basis Rules. If the grantor trust basis rules apply, the basis of the property
in B’s hands is determined at the time it is distributed to B. At that time, for income tax
purposes, B’s basis in the Property is the same as A’s, or $50,000. The transfer from A to
B through GT is not treated as a gift from A to B for income tax purposes.
Gift Basis Rules. If the gift basis rules apply, the transfer from A to B would be treated
as a gift from A to B. B’s basis in the property would not be determined until B disposes
of the property. B’s basis would be $50,000 for purposes of determining gain and
$30,000 for purposes of determining loss. If B sells the property for $40,000, B would
realize neither gain nor loss.
1
Fundamental Principles of Grantor Trusts:
The analysis of the problem properly begins with a review of some of the fundamental
principles of the income taxation of grantor trusts:
1. Because the grantor has powers allowing him to exercise “dominion and control” over
the property in a grantor trust, the grantor is taxed as the owner of income accruing to the
trust. A beneficiary to whom such income may be distributed is not taxed. Treas. Reg.
§ 1.671-2(b).
2. The grantor of a grantor trust is treated as actual owner of the trust property for all
income tax purposes. Treas. Reg. § 1.671-2(c). In computing grantor’s tax liability, the
grantor “takes into account all items of income, deduction and credit … to which he
would have been entitled had the trust not been in existence during the period he is
treated as owner.” Treas. Reg. § 1.671-3(a)(1). ii
3. The grantor is treated as the owner of "any portion of a trust ... where at any time the
power to revest in the grantor title to such portion is exercisable by the grantor or a
nonadverse party, or both." I.R.C. § 676(a).
4. By attributing the income of a grantor trust to the grantor, the Code effectively disregards
the trust entity. Estate of O'Connor v. Commissioner, 69 T.C. 165, 174 (T.C. 1977).
5. A grantor is defined as a person who makes gratuitous transfers to a grantor trust. A
gratuitous transfer is any transfer other than a transfer for fair market value. A transfer is
for fair market value “only to the extent of the value of the property received from the
trust, services rendered by the trust, or the right to use property of the trust. Treas. Reg. §
1.671-2(e)(2)(ii). A person who creates a trust but makes no gratuitous transfers to the
trust is not treated as an owner of any portion of the trust. Treas. Reg. §1.671-2(e)(1).
6. The Treasury Regulations distinguish between the income taxation and the gift taxation
of transfers to grantor trusts. The transfer of property to a grantor trust may be
considered a gratuitous transfer without regard to whether the transfer is treated as a gift
for gift tax purposes. Treas. Reg. §1.671-2(e)(2)(i). iii The transfer of property from a
grantor to a grantor trust is not treated as a transfer of property by gift. I.R.C. § 2511(c).
I.R.C. § 2511 (c) provides that "a transfer in trust shall be treated as a transfer of property
by gift, unless the trust is treated as wholly owned by the donor or the donor's spouse
under [the grantor trust rules in Code Sections 671 to 679]" (emphasis added).
Principles of Taxation of Transfers to Grantor Trusts
The principles of the income taxation of transfers to grantor trusts are most clearly set
forth in Rev. Rul. 85-13, 1985-7 I.R.B. 28, 1985-1 C.B. 184, which holds that property
transferred gratuitously to a grantor trust retains the grantor’s cost basis. Rev. Rul. 85-13 was
issued by the I.R.S. in direct reaction to Rothstein v. U.S., 735 F.2d 704, which remains the only
2
unreversed case ruling that a grantor trust has a separate taxable existence, enabling a grantor to
receive a basis equal to the purchase price in stock he purchased from a grantor trust.
Rev. Rul. 85-13 states that a transaction such as an asset sale between the grantor and a
grantor trust cannot give rise to any taxable income because the transaction is treated as a
transfer between the grantor and him/herself. See generally Dobson v. Commr, 1 B.T.A. 1082
(1925); PLR 9230021; PLR 9535026; PLR 9525032; PLR 9519029; and PLR 9345035 (all
concluding that no gain or loss is realized on transfers by a grantor to a grantor trust and that
transfers are disregarded for income tax purposes). There is no change in the adjusted basis and
holding period of stock “sold” by a grantor to a grantor trust. PLR 9508007; PLR 9535026. See
also Rev. Rul. 88-103, 1988-2 C.B. 304 (grantor trust's purchase of replacement property can
qualify the individual's gain for nonrecognition treatment under I.R.C. § 1033) and Rev. Rul. 8761, 1987-2 C.B. 219 (transfer of appreciated property to foreign trust is not subject to the tax
under I.R.C. §1491 (1954) (repealed 1997) when grantor treated as the owner of the trust under
I.R.C. §§ 671-679).
Similarly, no gain or loss is realized on sales between trusts that are treated under the
grantor trust rules as owned by the same grantor. Rev. Rul. 2007-13, 2007-11 I.R.B. 684.
It follows, then, that property which had been gratuitously transferred to grantor trust can
take on a new basis for income tax purposes only at the time when the grantor gives up dominion
The
or control over the property, or when the property is no longer held by trust. iv
relinquishment of dominion and control can be a realization event for the grantor. For example,
if the property is sold, the gain on the sale is taxed to the grantor. Rev. Rul. 85-13. When the
property is no longer taxable to the grantor, it must assume a new basis in the hands of its current
owner. In the case of a gratuitous transfer, where there has been no sale, the property retains the
grantor’s basis in the hands of the new non-grantor owner. Here are some examples of when and
how the new basis is determined:
1. Change in status of the trust.
When the grantor of a trust renounces the power that causes the trust to be a
grantor trust, the grantor is deemed to have transferred the assets and liabilities in the trust
to the trust, for income tax purposes. The grantor has given up dominion and control, and
the trust is now a separate taxable entity. Madorin v. Commr., 84 T.C. 667 (1985). See
also Treas. Reg. 1.1001-2(c), Example 5 (1980), Rev. Rul. 77-402, 1977-2 C.B. 222 and
TAM 200011005, G.C.M. 37228 (Aug. 23, 1977). (Note that the transfer is deemed to
occur only for income tax purposes and does not result in a taxable gift to the trust.)
2. Distribution of property from an irrevocable grantor trust to a non-grantor beneficiary.
The basis of property distributed to a beneficiary is the grantor’s basis, rather than
the fair market value at the time of distribution. Newman v. Commr.., 4 T.C. 226 (1944)
(distribution from grantor trust to grantor’s child is not to be viewed as effecting a gift to the
child on the date of distribution). This holding was based on I.R.C. § 113(a) (3) (1938). v
Newman, whose explanation of the grantor trust basis rules remains the most expansive in
the case law, cites Regulations 103, sec. 19.113(a) (3) (1), which states that the grantor’s
basis “applies whether the property be in the hands of the trustee or the beneficiary and
3
whether prior to the termination of the trust and distribution of the property or thereafter.” 4
T.C. 228. The facts that the income of the trust may be taxable to the grantor and that the
gift is not complete for gift tax purposes does not enter into the determination of the proper
basis.
3. Transfer of appreciated property to a foreign trust.
The transfer of appreciated property to foreign trust results in deemed sale of property
for its fair market value. I.R.C. § 684; Treas. Reg. 1.684-2(e)(2), Example 1 (ii) and
Example 3 (ii).
4. Reversion of property to the hands of the grantor.
When property transferred to a grantor trust is reconveyed to the grantor under the
terms of the trust instrument at the termination of the trust, its basis for gain or loss is the
same as the cost basis of the property in the hands of the grantor upon the original
conveyance to the trust. Rev. Rul. 72-406, 1972-2 C.B. 462; Pierre S. DuPont v. Commr.,
18 B.T.A. 1028 (1930).
To be sure, these examples do not cover the universe of possible transfers from grantor
trusts to non-grantors. Nevertheless, they serve to confirm the nonrecognition treatment of
property gratuitously transferred to a grantor trust that is set forth in Rev. Rul. 85-13. They also
confirm that this treatment is consistent with the treatment of grantor trust basis questions since
the early decades of the twentieth century. Although the holding of Rothstein still stands in the
Second Circuit, it has been ignored by other circuits and sidestepped by the I.R.S.
i
ii
Note also that the income of a grantor trust is not taxed to the grantor if it is taxable to the grantor’s spouse under
IRC § 71 (alimony and separate maintenance) or IRC § 682 (income of estate or trust payable to spouse in case of
divorce or separate maintenance).
iii
The common law definition of a “gift” to a grantor trust is limited to gratuitous transfers to irrevocable trusts:
where the settlor of an irrevocable inter vivos trust reserves an interest in him/herself, the trust is not a “gift” for
income tax purposes, but where the settlor does not reserve any interest in him/herself, the trust is a “gift.” Russell
v. Bowers, 27 F. Supp. 13 (D.C. New York, 1939).
iv
This is consistent with the rules defining the time of a donee’s acquisition of gifted property in I.R.C. 1015. The
time of acquisition is defined as the date “when the donor relinquishes dominion over the property.” Treas. Reg.
§1.1015-1(c). The loss of dominion or control over property also determines the completion of a gift and the
donor’s concomitant liability for gift tax. A gift is completed “when the donor has so parted with dominion and
control as to leave him no power to change its disposition whether for his or her own benefit or for the benefit of
another.” Treas. Reg. §§ 25.2511-2(b); see also Burnet v. Guggenheim, 228 U.S. 280 (1933).
v
“Transfer in trust after December 31, 1920 – If the property was acquired after December 31, 1920, by a transfer in
trust (other than by a transfer in trust by a bequest or devise) the basis shall be the same as it would be in the hands
of the grantor, increased in the amount of gain or decreased in the amount of loss recognized to the grantor upon
such transfer under the law applicable to the year in which the transfer was made.”
4
Estate of Hurford, T.C. Memo 2008-278
Aggressive Private Annuity Sales of Interests in FLP Not Successful; Section 2036 Applied to
Creation of FLP
December 2008
Steve R. Akers
Bessemer Trust
300 Crescent Court, Suite 800
Dallas, Texas 75201
214-981-9407
akers@bessemer.com
Synopsis:
The Tax Court rejected an overly aggressive estate plan for a surviving wife who had been diagnosed with
stage three cancer. The plan involved the contribution of all assets owned by Wife (and even assets that
belonged to her predeceased husband’s estate) into FLPs, and selling the partnership interests to two of
her three children for private annuities (with the two children agreeing to share the eventual value with
her third child). Wife died only about 10 ½ months after the private annuity transaction. The estate was
worth $14 million when Husband died and Wife’s estate tax return several years later reported a total
gross estate of only $847,000. The court addressed (1) whether §2036 and §2035 applied to the creation
of the FLPs (to bring all of the contributed assets back into Wife’s estate without a discount) and (2)
whether the transfer of partnership interests to the children in return for a private annuity similarly
should be disregarded under §§2036 or 2038. The court concluded that the bona fide sale for full
consideration exception to §§2036 and 2038 did not apply to the creation of the partnership or the
private annuity transaction. Section 2036(a)(1) coupled with §2035 required the inclusion in Wife’s estate
of all assets that Wife contributed to the FLPs without a discount because there were various reasons to
believe that there was an implied agreement that Wife would continue to enjoy benefits of the contributed
assets. Furthermore, the assets would have been included in Wife’s estate because the private annuity
transaction did not pass muster under §2036 or §2038. In light of the extreme facts in the case, the IRS
alleged penalties, but the court held that the executor reasonably relied on professional advice and refused
to apply penalties.
Basic Facts:
1.
Husband died on April 8, 1999, owning assets worth about $14 million including (1) a portfolio
of stock and bonds, (2) real estate (farms and ranches and two residences), and (3) an interest in
the Hunt Oil Company phantom stock plan. His will left his estate to a bypass trust and a QTIP
trust. It is not clear when the trusts were funded, but the estate tax return for Husband’s estate
claimed a marital deduction for a lump sum amount — without itemizing what property was
included in that number.
2.
After Husband’s death, Wife met with her attorney (Sandy Bisignano, a respected estate planning
attorney in Dallas) to discuss the administration of Husband’s estate and her own estate planning
concerns. Mr. Bisignano “took a conservative and thoughtful approach” and recommended
outright cash gifts to her three children (Michael, David and Michelle) to utilize Wife’s gift tax
exemption amount, creating an FLP to hold the farm and ranch properties, and creating a second
FLP to own Wife’s financial assets.
3.
Wife and Michelle took detailed notes during all meetings, which were turned over to the IRS.
The court viewed Michelle’s actions as a “strong indicator of her honesty.”
4.
Wife was diagnosed with cancer in January, 2000, and cancer surgery confirmed that she had
stage three cancer. The surgery did not cure the disease but reduced the cancer’s size.
5.
One of the sons (Michael) looked for a new attorney, and eventually Wife selected an attorney
who apparently had a great “bedside manner.” Wife’s notes indicate that she “thought him one of
the most agreeable men (or, at least lawyers) that she had ever met.” [Perhaps that is faint praise;
in any event, the eventual result suggests this is not the primary factor one should use in selecting
an attorney.]
6.
The new attorney suggested a much more aggressive plan to transfer all of the assets of the Wife,
the Family Trust and the Marital Trust into three FLPs, one for each of the three groups of assets,
and then transferring all of these interests to the children in return for a private annuity for the
Bessemer Trust
1
balance of her lifetime. (Eventually, the interests were sold to just two of the children [Michael
and Michelle]. Because of some “personal problems” of David, Wife wanted to limit his control,
but trusted Michael and Michelle eventually to transfer to him his equal value. This ended up
causing significant legal issues, as discussed below.)
7.
The structure of each of the FLPs was similar. The general partner of each FLP was an LLC (a
separate LLC for each FLP) owned one-fourth each by Wife and the three children. The limited
partners of each of the three FLPs were Wife (48%), “Gary T. Hurford Trust” (48% — even
though this trust did not exist), and 1% each for the three children.
8.
The three FLPs were purportedly funded in March 2000. The opinion goes into great detail
describing the funding of the partnerships and pointing out the attorney’s “unsteady drafting
ability” and “sloppy … paperwork.” Among some of the problems: incorrect pagination on the
partnership agreements table of contents; granting partnership interests to a trust that did not
even exist; signature pages showing an incorrect entity as the general partner of two of the
partnerships; all assets of the Family Trust, Marital Trust and Husband’s estate investment
accounts were transferred to the investment FLP listing Wife as the “Primary Client;” delays in
providing documentation to Hunt Oil Company to support the transfer of the right to the
phantom stock plan until January 2001 (nine months after Wife sold her limited partnership
interests in return for the private annuity); mistakes in the deeds to the farm and ranch properties,
and delays in preparing deeds to some tracts until April 10, 2000 (after the private annuity sale).
Also, Wife was the sole signatory on the partnership accounts, and she made deposits to and
withdrawals (to pay Wife’s estimated income tax payments) from the accounts even after she had
sold the partnership interests to her children for the private annuity.
9.
The attorney designed the FLPs so that the children did not make any contributions, even though
they initially were each 1% limited partners. The plan was to show them as owning a 1%
ownership interest but a zero capital account. The attorney did this “to avoid gift taxes.”
10.
On April 5, 2000, about two weeks after the FLPs were purportedly funded, Wife signed
documents transferring a 96.25% interest in the three FLPs to Michael and Michelle for a private
annuity. How did Wife own a 96.25% interest to sell? The explanation was that Wife transferred
the Family Trust, Marital Trust and Estate assets to herself and contributed them to the FLPs.
(Even so, that would seem to leave her owning 96% of the limited partnership interests, not
96.25%.) The attorney attempted to value the partnership interests in order to determine the
appropriate monthly annuity amount (eventually determined to be $80,000 per month). The court
goes to lengths to point out the valuation mistakes made in valuing the assets in the partnerships
(as well as noting that the attorney merely estimated lack of control and marketability discounts).
The assets in all three of the partnerships were substantially undervalued.
11.
The $80,000 monthly payments were made to Wife by making a transfer directly from the
investment FLP’s account into Wife’s personal accounts. (Assets in the other two partnerships
were not used to make the private annuity payments.)
12.
Wife filed the estate tax return for Husband’s estate and filed income tax returns for all of the
various LLCs and FLPs. The court points out various discrepancies between the positions taken
on the returns and the actual facts. For example, the partnership and LLC returns showed the
three children as making substantial capital contributions (over $4 million) when they actually
made no capital contributions at all.
13.
Wife’s cancer never went into remission and she died on February 19, 2001 (about 10 ½ months
after entering into the private annuity sale).
Bessemer Trust
2
14.
Michael was the executor of Wife’s estate and he filed an estate tax return reporting total assets of
$846,666. He also filed a gift tax return reporting the direct cash gifts that she made in 2000.
The IRS asserted a $9.8 million deficiency and $2.0 million of penalties for Wife estate tax return
and an $8.3 million deficiency and $1.7 million penalty for Wife’s gift tax return.
Issues:
1.
2.
Are the assets contributed to the FLPs includable in Wife’s estate under §§ 2036(a)(1) and 2035
(to the extent that interests causing the inclusion of assets under §2036 were relinquished within
three years of death)?
a.
Were the transfers to the FLPs bona fides sales for full and adequate consideration?
b.
Did the decedent retain a beneficial enjoyment in the assets (triggering §2036(a)(1)) or
relinquish such an interest within three years of death (triggering §2035(a)). [The IRS
argued that §2036(a)(2) or §2038 applied to the creation of the FLPs, but the Tax Court
did not address that argument in light of the fact that it found §2036(a)(1) to apply. (See
footnote 21.)]
Were the limited partnership interests that were transferred in return for the private annuity
includable in Wife’s estate under §§2036(a)(1), 2036(a)(2) or 2038?
a.
Were the transfers in return for the private annuity bona fides sales for full and adequate
consideration?
b.
Did the decedent: retain a beneficial enjoyment in the assets (triggering §2036(a)(1));
retain the right to designate who could enjoy the transferred assets (triggering
§2036(a)(2)); or have the right to alter, amend, revoke or terminate the transfer (triggering
§2038)?
Holdings:
The court addressed these issues in reverse order.
1.
The transfers of limited partnership interests in return for the private annuity were includable
under §§2036(a)(1), 2036(a)(2), and 2038, and the bona fide sale for full consideration exception
did not apply.
2.
The assets transferred to the FLPs were includable in the estate under §2036(a)(1) and the bona
fide sale for full consideration exception did not apply.
3.
Even assets of the Husband’s bypass trust, which Wife purportedly transferred to herself from the
trust (albeit in violation of the standards stated in the trust) and contributed to the FLPs, were
included in Wife’s estate.
4.
Penalties were not applied because the estate relied on professional advice, and it reasonably relied
on that advice (in part because the prior attorney had also introduced the family to the concept of
family limited partnerships, albeit in a much more conservative manner).
Analysis:
1.
Private Annuity Transaction: Was the Transfer for the Private Annuity Bona Fide and For Full
Consideration?
a.
Bessemer Trust
Bona Fide: Disguised Gift or Sham. The court concluded that the transfer was not bona
fide but was a disguised gift or sham, pointing to two key facts. First, Wife transferred her
limited partnership interests to only two of her three children (because she was concerned
3
with giving David too much control over the assets), trusting them to ignore the
documents and instead carry out Wife’s true intentions to ultimately include David.
Second, the annuity payments came directly from assets transferred to the investment FLP;
the children did not use their own assets and collectively they could not have afforded to
pay $80,000 per month to wife. “What Thelma’s children did … was to hold the assets in
the exact same form that they were in before the private annuity and then slowly transfer
bits and pieces of them back to her, planning to divide what was left over (including a
share for David), after she died. Again, this makes the private annuity look much more
like a testamentary substitute than a bona fide sale.”
b.
Bona Fide: Arm’s Length Parties Test. A transaction need not be between strangers to be
bona fide, but “there must be some objective proof that the transaction would not
materially differ if the parties involved were negotiating at arms’ length.”
c.
Bona Fide: Transfer From Estate Assets Disregarding Formalities. The transfer of assets
from Husband’s estate to Wife and from Wife to the FLP, with the subsequent transfer of
the FLP interests in return for the private annuity is especially suspect as a bona fide sale.
The transfers from the estate disregarded formalities.
d.
Full Consideration: Depletion Approach; Partnerships Undervalued. The test stated by the
court adopts a depletion approach:
“‘[U]nless a transfer that depletes the transferor’s estate is joined with a transfer
that augments the estate by a commensurate (monetary) amount, there is no
“adequate and full consideration”’.”
The court detailed how the assets in each of the FLPs were substantially undervalued, so
the private annuity was not equal in value to the amount transferred. “It is on this point
that the private annuity is most vulnerable.” [The annuity amount was determined using
the Treasury actuarial tables for valuing annuities. The court addressed (in footnote 8)
that those tables cannot be used for an individual who has a terminal illness as described
in regulations, but the court did not address whether that limitation would apply on the
facts of this case.]
e.
2.
Summary: Exception Does Not Apply. Having determined that the bona fide sale for full
consideration exception in §§2036 and 2038 did not apply, the court then proceeded to
determine if the transfers in return for the private annuity violated the substantive
provisions of §2036 and §2038.
Private Annuity Transaction: Did Wife Retain a Prohibited Interest in the Transferred Property
Through the Private Annuity?
a.
Bessemer Trust
Section 2036(a)(1); Retained Beneficial Enjoyment of Transferred Assets. Section
2036(a)(1) applies if there was an express or implied agreement that the transferor retains
present economic benefits of the transferred property.
1.
Payments from transferred assets. The court emphasized that the annuity payments
were made to Wife with the “very assets she supposedly sold.” The payments came
directly from the investment FLP account, “meaning that she retained a present
economic benefit from her assets after she ‘sold’ them.”
2.
Continuing to treat transferred assets as her own. Wife continued to make deposits
into the FLP accounts, shifted assets between the accounts, withdrew money to pay
her income taxes, and otherwise treated them as if they were her own.
4
3.
b.
Control. Wife continued as president of the LLCs (which were the general
partners), remained a party to the farm leases held in a real estate partnership, and
had ongoing signature authority over the investment partnerships accounts.
Sections 2036(a)2) and 2038; Power to Designate Who Could Enjoy Assets and Power to
Alter and Amend. David was not included in the private annuity transaction; however,
Wife made clear to the other two children that while she did not want David to have
managerial signature rights, he was to receive one third of the property in the FLP’s. The
court viewed this as an exercise by Wife of the right to designate persons who possess or
enjoy the transferred property under §2036(a)(2) and as an exercise of the power to alter
or amend the transfer under §2038.
[It seems somewhat ironic that if Wife had included David directly in the private annuity
transaction, the court’s rationale to apply §2036(a)(2) or §2038 would not apply.
However, this fact anomaly is not determinative to the results, because the court held that
§2036(a)(1) applies, making it generally immaterial that §2036(a)(2) and §2038 also
applied, although this fact was also highlighted as one of the reasons for the conclusion
that the bona fide sale exception did not apply.]
3.
Transfer to FLPs: Does the Bona Fide Sale for Full Consideration Exception to Section 2036
Apply?
a.
Bona Fide: Absence of Legitimate and Significant Nontax Reason. The partnership
agreements listed 10 purposes (numbered incorrectly in the agreements). The estate relied
primarily on asset protection and asset management purposes. The court observed that
prior cases have rejected asset protection as a significant nontax purpose (citing Bongard,
Korby cases, and Rosen). The concluded that “placing the assets in FLPs provided no
greater protection than they had while held by the Family or Marital Trusts, or in
Thelma’s own name.” The court also rejected the asset management purpose, because the
partners’ relationship to the assets did not change after the formation of the partnership.
b.
Bona Fide: Relevant Factors Recognized in Prior Cases. The court observed that “we have
developed in our case law a longer list of factors that, if present, will incline us to find that
the transferred property to a FLP was not motivated by legitimate and significant nontax
reason.” Factors listed by the court include:
•
•
•
•
•
Bessemer Trust
Financial dependence on distributions from the partnership (the decedent transferred
nearly all of her liquid assets to the partnership);
Commingling personal funds with the partnership (the decedent made personal
contributions to and withdrawals from the partnership accounts);
Delay or failure to transfer property to the partnership (many assets remained in the
individual and trust accounts for several months after the FLP were formed);
Old age or poor health;
Functioning business or meaningful economic activity (an investment manager, Chase,
made all investment decisions of the investment partnership; the only decision for the
phantom stock partnership was whether to hold or sell; and there was no management
of the real estate other than merely collecting rent). [Observe: The court did not
suggest that there must be a functioning business; “meaningful economic activity” is
sufficient.]
5
The court concluded that obtaining discounts was the only reason for creating the FLPs:
“This leaves only the Hurfords’ drive for a discount as a reason for creating the
FLPs. And we do find that their purpose was nothing more than allowing the
Hurfords to claim a discount… Michelle’s notes from one of the initial meetings
with Garza confirm this. She wrote, “have kids own 1% of everything to maximize
discount advantage.” We thus find that Thelma’s transfers to the FLPs were not
bona fide sales.”
c.
Full Consideration Test. The court observed the three-part test articulated in Bongard and
Kimbell: (1) partnership interests credited to partners are proportionate to the fair market
value of assets contributed by each partner; (2) assets contributed are properly credited to
capital accounts of the partners; and (3) on termination or dissolution of the partnership,
the partners are entitled to distributions equal to their respective capital accounts.
However, the court preferred the “short-hand” test described at another place in the
Bongard case: “All partners in each partnership received interests proportionate to the fair
market value of the assets they each transferred, and partnership legal formalities were
respected.”
The court emphasized that, in the unusual facts of this case, the 48% partnership interests
credited to Wife were far less than the proportionate fair market value of assets that she
contributed to the FLPs. That alone would seem sufficient to establish that the full
consideration test was not satisfied. However, the court went on to make the statement
that “[f]or a FLP to work, the minority interest holders must at a minimum receive their
interests either by gift or by contributing their own assets or services,” citing the
regulations under §704(e). The court suggested that requirement was not met because the
children contributed nothing to the partnership and Wife did not report the creation of the
partnership as an indirect gift to the children. [That analysis seems inapplicable. The court
relied on regulations dealing with recognizing allocations of income to donee partners
under the Section 704(e) “family partnership” limitations, which would seem to have no
relevance to whether the full consideration exception of §2036 applies.]
4.
FLPs: Did Wife Retain Present Economic Benefits From Property Transferred to FLPs in Violation
of §2036(a)(1)? The court pointed to three factors that prior cases have recognized as indicative of
an implied agreement of retained enjoyment:
•
•
•
Using FLP assets to pay personal expenses (Wife used partnership assets to pay some of her
expenses during the several weeks before the private annuity transfer);
Transferring nearly all assets to the FLP (Wife transferred nearly all of her property to the
FLPs); and
No change in relationship to assets after transfer to the FLP (annuity payments to Wife came
directly from assets that she contributed to the FLPs and Wife’s relationship to her assets did
not change after the transfer to the FLPs or the private annuity transaction).
The court observed that Wife transferred her limited partnership interests in the private annuity
transaction, and that she may have severed her ties to the FLP interest. However Section 2035(a)
requires estate inclusion of property that would have been included in the estate under §§ 2036,
2037, 2038, or 2042, but for the decedent having made a transfer of an interest in such property
within three years of death. Therefore, even aside from the private annuity transaction, assets that
Wife contributed to the partnership are included in her estate under §2036(a)(1) — by way of
§2035(a) — without a discount.
Bessemer Trust
6
5.
Family and Marital Trusts. The sad effect of this case is that even assets contributed to the Family
Trust from Husband’s estate are subject to estate taxation at Wife’s subsequent death. Wife’s
estate argued that the Family Trust imposed a “health, education, support or maintenance”
standard on distributions by Wife as trustee to herself, and that her purported transfer of Family
Trust assets to herself should be ignored. The court did not agree:
“But the Hurfords cannot qualify for the exception merely by stating it in the will and
avoiding it in practice. Thelma exercised a general power by “distributing” all of the
Family Trust to herself and “selling” those assets in the private-annuity agreement, and so
they became subject to her full control and individual ownership. Since Thelma used all
the Family Trust’s assets as her own in the private annuity, we disregard the fact that they
at one time could have been sheltered from any estate tax under the plan designed by [the
prior attorney].”
As to the Marital Trust, the court pointed out that there were many assets from Husband’s estate
that apparently were never transferred to the Marital Trust. The court noted that if it were to
construct an alternative approach for including the assets in Wife’s estate under §2044 as QTIP
property, other issues would arise. Was Wife’s “handling of that property… a conversion and
disposition of the QTIP property under sections 2511 and 2519.” (Footnote 24 highlights the
§2519 issue that is before the Tax Court in another case involving an investment by a Marital
Trust in an FLP: “For example, does a transfer of QTIP into a FLP terminate the qualified income
interest, that the Code requires Thelma to have from the time she receives the interest until death?
Sec. 2044; sec. 25.2519-1(f), Gift Tax Regs.”)
6.
Negligence Penalties: Reasonable Reliance on Advice of Professionals. The court first noted that
all parties agree that the actions of Wife’s executor (her son, Michael) are determinative — not the
actions of Wife. The negligence penalty can be rebutted by showing reasonable cause and good
faith. Cases have recognized that reliance on professional advice can establish reasonable cause if
three factors are present: (1) the advisor was a competent professional who had sufficient
expertise to justify reliance; (2) the taxpayer provided necessary and accurate information to the
advisor; and (3) the taxpayer actually relied in good faith on the advisor’s judgment. The advisor’s
recommendations, if successful, would have resulted in paying no estate taxes on an estate worth
$14 million at Husband’s death, and while one might question if Michael could reasonably rely
on this advice under a “too good to be true” concern, the court nevertheless found Michael’s
reliance on the attorney’s advice reasonable. The court interestingly pointed to the fact that the
prior estate planning attorney had previously introduced the family to the concept of using FLPs.
Michael is a child psychiatrist and not sophisticated in tax and business matters. Also, Michelle’s
notes of the various meetings “show constant questioning of their advisors about what was going
on and whether it would work.”
Observations:
1.
Application of §2036 to FLPs Not Surprising; Terrible Facts. The facts were rather ugly, and the
result of including the assets contributed to the FLPs in Wife’s estate under §2036 is not
surprising.
2.
Creditor Protection Not Sufficient; Operating Business Not Required to Satisfy “Bona Fide”
Exception to §2036. The opinion, like various prior opinions, concluded that the taxpayer did not
show that contributing assets to an FLP increased the protection from creditors’ claims, without
any analysis of the underlying substantive law. It is not unreasonable that a court would conclude
that asset protection is not a significant reason in a particular case, but to just state summarily
Bessemer Trust
7
that there are no asset protection advantages of contributing assets to FLPs ignores the growing
extensive body of discussion about the extent of creditor protection from FLPs and LLCs.
Some planners have been concerned that statements in some of the FLP cases requiring an active
“business purpose” might mean that some judges require that an FLP have an operating business
in order to be recognized for purposes of §2036. The opinion clarifies that an active business
operation is not required — there just must be “meaningful economic activity.”
3.
Dictum Regarding Section 2519 Issue If Marital Trust Invests in FLP. Another unrelated case
pending in the Tax Court (Estate of Samuel Black) addresses whether an investment by a Marital
Trust in an FLP constitutes a deemed disposition of the surviving spouse’s interest in the FLP
under §2519. Footnote 24 raises this issue, while noting that it does not apply in this case,
because the Marital Trust was found to have distributed its assets to Wife. It is certainly clear that
the Tax Court is aware of the issue.
4.
Structure of Awarding Partnership Interest But No Capital Account to Children Not
Recommended. The children did not make any contributions to the FLPs, even though they
initially were each 1% limited partners, but they were credited with a zero capital account. The
attorney designed the FLP structure in this manner “to avoid gift taxes.” This approach is not
recommended, and it raised various “red flags” to the court. For example, the court stated: “We
have found no legal authority for [the attorney’s] position that partners can have a partnership
interest with nothing more than a shuffle of paper.”
5.
Sections 2036(a)(2) and 2038 Considered for Private Annuity Transaction But Not for FLP
Contributions. There is an interesting difference in the court’s treatment of the §2036(a)(2) and
§2038 arguments by the IRS in the FLP vs. the private annuity analysis. The court did not address
the §2036(a)(2) and §2038 arguments by the IRS regarding the contribution of assets to the FLPs,
because it had held that §2036(a)(1) applied, so there was not need to address the other
arguments. However, the court did address §2036(a)(2) and 2038 as to the private annuity
transaction, even though it had already held that §2036(a)(1) applied to the private annuity
transaction.
6.
What Was the Added Impact of the Private Annuity Discussion? There were two major
transactions addressed by the court; whether §2036 should cause estate inclusion of all assets
contributed by Wife to the FLPs, and whether §2036 applied to cause estate inclusion of estate
assets sold to the children in the private annuity transaction. The court ultimately held that §2036
caused estate inclusion of all assets contributed to the FLPs. Even though the decedent arguably
relinquished any retained beneficial enjoyment (by selling the partnership interests in the private
annuity transaction), the court made clear that estate inclusion would still result under §2035
because the relinquishment occurred within three years of death. If the assets contributed to the
FLPs were included in Wife’s estate without a discount under §2036, what is the impact of the
extended discussion of the private annuity? The court seemed to acknowledge this in noting that
“[o]f course, [the assets contributed to the FLPs] are already included because of the problems
with the private annuity.” The FLP analysis seems very straightforward; does this mean that the
extended discussion of the private annuity transaction is unnecessary dictum?
Section 2035 has its own “bona fide sale for full consideration” exception (§2035(e)), but the
court did not address that exception. However, it clearly would hold that the exception did not
apply because it found that the assets transferred in return for the private annuity were
undervalued substantially, so there was not an “adequate and full consideration” when the limited
partnership interests were transferred in return for the private annuity.
Bessemer Trust
8
7.
Application of §2036 to Private Annuity Transaction. The Hurford case is consistent with other
cases that have applied §2036 to transfers of assets in return for a private annuity in certain
situations. The primary suspect transaction is one in which the annuity payments are made
directly with income or other portions of the transferred assets, and if the purchasers did not have
the ability to make the annuity payments apart from the assets that were sold to the purchasers in
the private annuity transaction. This is particularly sensitive for sales to a trust in return for a
private annuity, but has been applied to sales directly to individuals as well. E.g., Estate of Alma
W. Mitchell, T.C. Memo 1982-185 (§2036 applied where children had no financial ability to
make annuity payments and never intended to make annuity payments).
8.
Why Is the Value of the Private Annuity Not Allowed as a Consideration Offset Under §2043?
On the facts of this case, all of the FLP assets are included in the estate under the analysis dealing
with the contribution of assets to the FLP and the relinquishment of the beneficial interest within
three years other than for adequate and full consideration. However, if the case had just dealt
with the direct transfer of undervalued assets in return for a private annuity, and if the court
similarly found that the assets were included under §2036, it would be very important whether a
“consideration offset” reduction is allowed under §2043 for the value of the annuity. Section
2043 provides generally that if assets are included in an estate under §§2035-2038 or §2041, the
amount included in the estate is reduced by “the value of the consideration received therefore by
the decedent.” The purpose is to avoid double inclusion of the assets brought back into the estate
by reason of §§2035-2038 as well the consideration paid to the decedent in return for transferring
those assets.
That analysis would seem to apply to private annuity transactions. For example, under the facts of
this case, Wife transferred assets to her children in return for a private annuity from them. If
§2036 applies, are the value of the transferred assets at the date of death included in her estate,
but offset under §2043 by the value that she received (i.e., the value of the private annuity at the
time of the sale transaction) in return for transferring the assets to her children? While this issue
would seem to be important in any case involving the application of §2036 to a private annuity,
the private annuity cases involving §2036 rarely address §2043. The IRS has addressed the
application of §2043 in several private annuity cases. In Estate of Marie A. De Foucaucourt, 65
T.C. 485 (1974), the IRS position was to include the value of transferred property less the value of
periodic annuity payments actually received by the decedent. The taxpayer agreed with the IRS’s
position as to the application of §2043 and the court made no finding regarding the appropriate
application of §2043 to a private annuity.
The IRS continued that approach, of allowing an offset only for the value of annuity payments
actually received by the decedent, in Estate of Gordon B. McLendon. In the initial Tax Court case,
the court concluded that an offset should be allowed under §2043 only for the amount of annuity
payments actually made to the decedent. T.C. Memo 1993-459.
“Petitioner maintains that if section 2036(a) applies, then the estate is entitled to an offset
under section 2043(a) in the amount of the value of the annuity promised Gordon under
the private annuity agreement. Respondent determined that petitioner is entitled to an
offset for the $250,000 actually paid to Gordon on the date the private annuity agreement
was executed. The parties have not cited any case law in support of their respective
positions.
Section 2043(a) was first enacted into law as section 302(i) of the Revenue Act of 1926…
While we observed in Estate of Frothingham v. Commission, 60 T.C. 211, 216 (1973),
that legislative history on the provision is nonexistent, we nonetheless concluded that:
Bessemer Trust
9
It was plainly designed to deal with the situation where the decedent has received
some, but not ‘adequate and full’ consideration for the transfer. In providing that
there shall be included in the gross estate ‘only the excess of the fair market value
at the time of death of the property … over the value of the consideration received
therefore by the decedent” (emphasis supplied), Congress was obviously
attempting merely to provide a measure of relief from double taxation of the same
economic interest…
Consistent with the foregoing, we hold that section 2043(a) provides for an offset limited
to the $250,000 amount actually transferred to Gordon pursuant to the private annuity
agreement. We have already concluded that the annuity promised to Gordon in exchange
for the remainder interest was wholly illusory. It would defy logic to allow petitioner an
offset for such a meaningless promise. Further, such an offset would run contrary to the
policy underlying section 2043(a) — to provide a measure of relief from double taxation
of the same economic interest. Because the promised annuity payments were not intended
to make their way into Gordon’s gross estate, there is no risk that petitioner will be
subjected to double taxation on the value of the property in question.”
The Fifth Circuit remanded to the Tax Court for clarification as to how the court viewed the
valuation of the private annuity in light of Revenue Ruling 80-80. 77 F.3d 477. The Tax Court,
on remand, concluded that the Treasury actuarial tables should not be used to value the annuity
even though the requirements of Rev. Rul. 80-80 were satisfied. T.C. Memo 1996-307. The Fifth
Circuit subsequently held that the Tax Court was incorrect to ignore a Revenue Ruling when the
Commissioner was making an argument inconsistent with a Revenue Ruling, and reversed and
held for the estate. Because the assets were not brought back into the estate under §2036, the Fifth
Circuit did not address how §2043 would be applied — whether to the entire value of the annuity
at the time of the sale transaction or only to the amount of annuity payments actually made to the
decedent.
Finally, the IRS addressed the §2043 issue regarding private annuities in Estate of Rose
D’Ambrosio, 105 T.C. 252. The taxpayer sold a remainder interest in a trust in return for a
private annuity. The IRS initially included the full value of the trust assets less the annuity
payments received by the decedent. However, the IRS subsequently (before trial) conceded that
the maximum amount includable in the gross estate was the value of the trust assets less the
present value of the annuity at the time of the sale transaction.
Section 2043(a) itself makes reference to including the value “at the time of death” of property
that was transferred, but allowing an offset for “the value of consideration received” without
referring to “at the time of death” as to the consideration. It would seem that a strong argument
could be made that §2043 should apply, whenever §2036 is applied to property conveyed in
return for a private annuity, for the full value of the annuity at the time of the sale transaction.
However, a court might conclude that the private annuity has zero value if the facts indicate that
the buyers never intended to make the annuity payments (which was the result in Estate of
Musgrove, 76 AFTR2d 95-5276 (Fedl. Ct. Cl. 1995)). Query whether a court might reach that
same result if the facts reflected that the parties intended that the payments would be made solely
from assets that were transferred from the decedent in the private annuity transaction, and if the
buyers had no ability to make the payments independent of the transferred assets.
9.
Inclusion of Assets That Wife Transferred to Herself As Trustee of Family Trust in Violation of
Distribution Standards. The court refused to ignore the purported transfer of assets from the
Family Trust to Wife (by herself as trustee) because the distribution was not permitted under the
Bessemer Trust
10
stated distribution standards for the trust in Husband’s Will. The court stated that the
ascertainable standard exception in §2041 does not apply by merely stating it in the will and
avoiding it in practice. “Since Thelma used all the Family Trust’s assets as her own in the private
annuity, we disregard the fact that they at one time could have been sheltered from any estate
tax…”
Some cases and rulings have held that transfers made in violation of fiduciary duties would be
ignored for tax purposes. E.g., Estate of Vak, T.C. Memo 1991-503 (court did not recognize
purported cancellation of trust beneficial interest certificates by trustees where not authorized by
th
original trust agreement or amendment of trust), rev’d and remanded 973 F.2d 1409 (8 Cir.
1992) (agreeing with Tax Court as to this narrow issue in the case); Tech. Adv. Memo. 9337001
(unauthorized distributions from marital trust to persons other than surviving spouse not
recognized even though the spouse acquiesced to the improper distributions). Other cases have
concluded that a decedent retained control over trust assets despite trust provisions to the
contrary. E.g., Estate of Wedum, T.C. Memo 1989-184 (decedent retained dominion and control
over trust assets throughout his lifetime, thus causing estate inclusion, despite restrictions in the
trust agreements and despite the decedent’s purported resignation as trustee). Hurford was an
extreme situation in which the beneficiary-trustee distributed the entire trust to herself, apparently
in violation of the standards in the trust instrument. How would the court’s statement be applied
in less extreme situations? The potential ramifications of the court’s statements are rather scary
for the typical situation where beneficiaries serve as trustees. What if a surviving spouse serving as
trustee makes distributions of trust principal to herself when she is only authorized to make
discretionary distributions of income to herself? Would the amounts distributed to her
nevertheless be included in her estate even though trust beneficiaries would have a claim against
her estate for the violation of her fiduciary duty? Could the court’s reasoning be extended to hold
that a beneficiary-trustee has a general power of appointment over all of the trust assets if the
beneficiary has repeatedly made distributions beyond the ascertainable standards specified in the
instrument?
Copyright © 2008 Bessemer Trust Company, N.A. All rights reserved.
Bessemer Trust
11
Charitable Developments- 2008 in Review
Legislation
The Heartland, Habitat, Harvest and Horticulture Act of 2008, enacted on May 22,
2008, amends IRC section 170(b)(1)(E)(vi) to extend, through 12/31/09, incentives for
qualified conservation easements or other qualified conservation contributions.
On October 3, 2008, Congress passed the Emergency Economic Stabilization Act of
2008, which includes a provision extending for 2009 the ability of IRA owners age 70 ½
and older to make IRA distributions to qualified organizations of up to $100,000 per
year (H.R. 1424).
Under the Heartland Disaster Tax Relief Act (Pub. L. No. 110-343), a part of the
Emergency Economic Stabilization Act of 2008, an individual taxpayer who itemizes
deductions can choose to deduct qualifying cash contributions up to 100% of his or
her adjusted gross income, reduced by deductions for other charitable contributions.
Likewise, an electing corporation may deduct qualifying cash contributions up to 100%
of its taxable income, reduced by deductions for other charitable contributions. Cash
contributions qualify for this special treatment if they are made to a public charity for
disaster relief efforts related to certain areas of Arkansas, Illinois, Indiana, Iowa,
Missouri, Nebraska, or Wisconsin.
Regulations
Final regulations were released clarifying the substantive requirements for tax
exemption under IRC section 501(c)(3) and the relationship between IRC sections
501(c)(3) and 4958 and how the IRS will determine whether excess benefit transactions
penalized under section 4958 could jeopardize an organization’s tax-exempt status (T.D.
9390).
Treas. Reg. Sec. 1.664-1, which implements the statutory change providing that
charitable remainder trusts with unrelated business taxable income remain exempt
from federal income tax but are subject to a 100% excise tax on their unrelated business
taxable income, was finalized. The final regulations adopted the proposed regulations,
issued on March 7, 2008, without substantive change.
Final amendments were made to Treas. Reg. Sec. 20.2036-1 and Treas. Reg.
Sec.20.2039-1, which address the inclusion in a grantor’s gross estate of a charitable
remainder trust, pooled income fund or grantor retained trust.
Proposed regulations on supporting organizations were not issued in 2008, as initially
expected. The donor-advised fund study will be done subsequent to the issuance of the
proposed regulations.
Proposed regulations reflecting changes to gift substantiation rules contained in the
American Jobs Creation Act of 2004 and the Pension Protection Act of 2006 were issued
on August 7, 2008 (REG-140029-07). The regulations address cash, check or monetary
gifts, noncash contributions and the definitions of qualified appraiser and qualified
appraisal, the timing of appraisals, and deductions for used clothing and household items.
Notice 2006-96, 2006-46 IRB, issued on November 13, 2006 and addressing the
definition of qualified appraiser, remains effective until the issuance of final Treasury
Regulations.
Proposed regulations providing the income ordering rules for distributions to charity
were issued on June 18, 2008. Prop. Treas. Reg. Sec. 1.642(c)-3 and 1.643(a)-5.
The IRS issued proposed regulations that confirm the economic effect requirement of
existing regulations on the treatment of amounts paid to the charitable beneficiary of a
trust or estate under sections 642 and 643. (REG-101258-08, released on June 18, 2008).
Professor Christopher Hoyt points out that language typically used to ensure a 642(c)
deduction, such as “I instruct that all of my charitable gifts, bequests, and devises shall be
made, to the extent possible, from property that constitutes income in respect of a
decedent as that term is defined….” will no longer work. Instead, there must be an
economic effect.
Temporary regulations implementing the revised Form 990 and eliminating the
advance ruling period for publicly supported organizations were issued in September
2008 (REG-142333-07; T.D. 9423). The new regulations also change the public
support period for exempt organizations from four years to five and clarify that
support must be reported using the organization’s overall method of accounting.
Exempt organizations whose advance rulings expired on or after June 9, 2008 do not
need to file Form 8734 at the end of the advance ruling period.
The IRS issued temporary regulation 1.6033-6T implementing the e-Postcard (Form
990-N) filing requirement for small tax-exempt organizations (T.D.9366).
Revenue Rulings, Procedures and Notices
Rev. Rul. 2008-41 provides guidance for the division of a charitable remainder trust
pursuant to a divorce.
The IRS has announced that it will no longer rule on whether the early termination of a
CRT and a division of the trust assets between the noncharitable beneficiary and the
charitable remainder beneficiary based on the actuarial values of their interests will cause
the trust to lose its qualification as a CRT (Rev. Proc. 2008-3, §5.10 (area under study)).
The IRS released sample documents for charitable lead unitrusts, which complete the
forms for split-interest trusts. Rev. Procs. 2008-45, 2008-46.
Notice 2008-6, 2008-3 IRB, provides transitional relief and filing procedures for certain
charitable trusts that fail the responsiveness test for Type III supporting
organizations. The procedures are intended for (1) charitable trusts that received a
determination recognizing their tax-exempt status under 501(c)(3) and that met the
requirements of section 509(a)(3) until August 17, 2007, and (2) non-exempt charitable
trusts described in section 4947(a)(1) that are treated for certain purposes as organizations
described in section 501(c)(3) and that met the requirements of 509(a)(3) until August 17,
2007.
Notice 2008-49 implements a technical correction to the Pension Protection Act
regarding public disclosure of Form 990-T.
Notice 2008-99, issued on October 31, 2008, identifies as a "transaction of interest"
subject to disclosure and list maintenance requirements, a transaction involving the sale
of all interests of a charitable remainder trust.
The IRS issued Notice 2008-108, which sets forth a list of changes referred to in Rev.
Proc. 2007-44 pertaining to the statutory, regulatory, and guidance changes needed for
certain requests to the Service for opinion, advisory, and determination letters for the
12-month period beginning February 1, 2009.
Miscellaneous
The IRS mailing address for EO determinations has been changed. The new mailing
address is Internal Revenue Service, P.O. Pox 12192, Covington, KY 41012-0192.
Forms 1023, 1024, 8734 and 8718 should be mailed to this new address.
On May 12, 2008 (published in the Federal Register on May 14, 2008), comments were
requested on Rev. Proc. 2005-24 and Notice 2006-15 (spousal election for CRTs).
The IRS has extended the due date for responding to the university and college
compliance questionnaire to February 6, 2009.
The IRS issued Guide Sheets in 2008 on the following topics: IRC 509(a)(3) Supporting
Organizations, Type I and II, IRC 509(a)(3) Supporting Organizations, Type III, and
Donor Advised Funds.
Charitable Developments- 2009
Rev. Proc. 2009-2 outlines procedures for issuance of determination letters and
rulings on the tax-exempt status of organizations.
Rev. Proc 2009-4 contains revised procedures for the issuance of ruling letters,
information letters, etc. on matters related to code sections under the jurisdiction of the
Commissioner, Tax Exempt and Government Entities.
Rev. Proc. 2009-5 contains revised procedures for furnishing technical advice to area
managers and appeals offices by the Commissioner, Tax Exempt and Government
Entities regarding exempt organizations matters.
Rev. Proc. 2009-8 contains new user fees for exempt organizations matters.
Until a new Form 1023 is issued to comply with the regulations that eliminated the
advance ruling process, applicants should follow certain new instructions for completing
Part IX and Part X of Form 1023. The IRS posted these instructions in two notices on
its website in January.
The Texas Attorney General’s Office has rolled out a new online resource that allows
charitable donors to research how nonprofit organizations are spending their donor
dollars. Interested parties can log onto the website at www.texasattorneygeneral.gov and
click on the “Charity Search” function.
New York State Department of Taxation and Finance Advisory Opinion on the
New York estate taxation of non-resident owned S Corporations and single
member LLCs which own New York Real Estate
Robert D. Steele
The New York State Department of Taxation and Finance issued an advisory
opinion on whether a non-resident decedent's interest in either an S corporation or a single
member LLC owning real property in the State of New York is considered an intangible asset
and therefore not included in the non-resident decedent's estate for New York estate tax
purposes, or whether the entities are considered New York property included in the non-resident
decedent’s New York Estate, TSB-A-08-(1)M, Estate Tax, October 24, 2008.
http://www.tax.state.ny.us/pdf/advisory_opinions/estate_&_gift/a08_1m.pdf
A non-New York domiciliary petitioned the state concerning the proposed
purchase of a condominium apartment. The petitioner was considering the purchase of a
condominium apartment either by a Florida S corporation or by a single member LLC. Under
Section 960(a) of the New York State Tax Law, the gross estate of a non-resident includes real
and tangible personal property having an actual situs in New York State, but does not include
intangible property.
The New York State counsel assumed that the petitioner’s S corporation referred
to a non-New York corporation that qualifies for and makes the election to be treated as an
S corporation under IRC section 1362(a). The opinion concluded that since “stock in an
S corporation is an intangible, that interest in property is not subject to the estate tax imposed on
the estate of a non-resident decedent under Tax Law section 960(a).” In so concluding it was
assumed that the S corporation is entitled to be recognized as a corporation for tax purposes. For
the S corporation to be so recognized, its purpose had to be the equivalent of business activity or
followed by the carrying on of business by the corporation. So, in holding that the interest in the
S corporation was an intangible, New York State determined that the corporation’s owning and
maintaining of the condominium is the required “equivalent of business activity.”
The Internal Revenue Code does not define a single member LLC. Usually, a
single member LLC is a disregarded entity. It is possible, however, to elect treatment as an
association under the “check-the-box” regulations. If this is elected, a single member LLC will
be treated as an association taxable as a corporation and therefore as a C corporation for income
tax purposes.
If a single member LLC is taxed as a C corporation, it will be recognized as a
corporation for the purposes of New York estate tax. Therefore, a condominium apartment in
New York owned by a non-resident decedent in a single member LLC which is treated as a
C corporation will be intangible property under the New York estate tax law and excluded from
the New York estate.
In sum, a non-resident decedent owning an S corporation which owns a
condominium will be deemed to be intangible property in the State of New York unless the
S corporation fails the business activity or carrying on of business test. A single member LLC
that has elected to be treated as an association under the check-the-box regulations also will be
treated as an intangible and, therefore, not subject to New York estate tax. A single member
LLC that has not so elected will be “disregarded” and subject to New York estate tax.
A Bi-Monthly Electronic Publication for Section
Members
Real Property News
February 2009
YOUR TENANT HAS FILED BANKRUPTCY – NOW WHAT?
By Randy P. Orlik and Susan S. Davis
A growing number of retail tenants are filing bankruptcy due to lingering
problems in the economy. This article provides an overview of some rights and remedies
available to both a landlord and a tenant when the tenant files bankruptcy. As an
illustrative example, assume that the tenant and landlord enter into a lease with rent due
on the 1st day of each month. The tenant misses two months of rent. The landlord serves
the tenant with a 3-day notice to pay rent or quit (or such other notice for non-payment of
rent as may be set forth in the lease). The tenant then files bankruptcy on the 15th day of
the third month.
1.
Automatic Stay.
When the tenant files bankruptcy, an automatic stay immediately goes into
effect. The automatic stay is a statutory injunction that prohibits actions by creditors,
landlords and others to obtain possession or control of the tenant’s property or to assert
claims against the tenant. In the above example, when the tenant files bankruptcy, the
landlord is automatically stayed from bringing an unlawful detainer action against the
tenant after the 3-day notice to pay rent or quit (or other default notice) has run.
2.
Post-Petition Rent.
If the tenant stays in possession of the leased premises after filing
bankruptcy, the tenant is required to pay post-petition rent to the landlord and to keep
those rent payments current as long as the tenant occupies the leased premises. Unpaid
pre-petition rent is classified as an unsecured claim which is paid with other unsecured
claims after secured and priority claims. Unpaid post-petition rent while the tenant
occupies the leased premises is entitled to be paid as an administrative claim before
general unsecured claims.
In the above example, whether the tenant’s obligation to pay post-petition
rent begins on the fifteenth day of the month in which the bankruptcy is filed or on the
first day of the following month depends on where the tenant files bankruptcy. Some
bankruptcy courts hold that rent due on the first day of the month is for the entire month.
If the tenant files bankruptcy on the fifteenth day of the month, the rent for the entire
month, including the remainder of the month after the tenant files, is considered prepetition rent. In these courts, in the above example, the tenant would owe three months
of unpaid pre-petition rent and would be required to pay post-petition rent commencing
the first day of the month following the month in which tenant files bankruptcy.
Other courts prorate the rent based on the bankruptcy filing date with the
tenant paying post-petition rent from the date the tenant files bankruptcy. In those courts,
in the above example, the tenant would owe two and one-half months of unpaid prepetition rent and would be required to pay post-petition rent commencing the fifteenth
day of the month in which tenant files bankruptcy.
If the tenant fails to pay post-petition rent or perform other lease
obligations on a timely basis, the landlord can file a motion with the bankruptcy court
seeking either relief from the automatic stay in order to evict the tenant or an order
compelling the tenant to pay such rent or reject the lease.
3.
Assumption/Rejection.
The tenant has two options in bankruptcy with respect to its lease:
assumption or rejection. Rejection is simply a breach of the lease. Assumption means
that the lease continues in full force and effect in accordance with its terms.
When the tenant rejects the lease, the tenant must vacate the premises and
turn over possession to the landlord. The landlord then has an unsecured claim in the
bankruptcy for the landlord’s damages caused by the tenant’s breach of the lease. This
claim is determined according to state law, subject to certain limits imposed by the
bankruptcy code. The bankruptcy code caps the landlord’s claim for breach of the lease
at an amount equal to the rent required to be paid under the lease for the greater of one
year or 15% of the remaining term of the lease, not to exceed three years.
So when a tenant files bankruptcy and rejects its lease, the landlord must
first determine its damages for breach of lease under state law. Once state law damages
are determined, the bankruptcy cap is applied. If the state law damages are less than the
bankruptcy cap, the landlord has a claim in the bankruptcy equal to its state law damages.
If the state law damages are greater than the bankruptcy cap, then the landlord has an
unsecured claim in the bankruptcy equal to the bankruptcy cap. The landlord is entitled
to add unpaid pre-petition rent and damages to its claim. The landlord also may have an
administrative claim for unpaid post-petition rent if the tenant remained in possession of
the lease premises post-petition without paying rent. In addition, the landlord’s claim
may be reduced by any security deposit held by the landlord.
A tenant assumes a lease if the tenant wants to remain in possession of the
leased premises or it wants to assign the lease to a new tenant. In order to assume the
lease, the tenant must cure all defaults under the lease (with certain non-monetary
exceptions). In addition to complying with the other terms of the lease, the tenant must
pay all pre-petition and post-petition rent owing under the lease to the landlord. In the
example above, the tenant would have to pay the unpaid pre-petition rent, as well as any
rent due post-petition, to the landlord in order to assume the lease.
4.
Assignment.
Even if the lease expressly provides that it cannot be assigned, the
bankruptcy code permits the tenant to assume the lease and assign it, provided that the
assignee provides adequate assurance that it can perform the terms of the lease after the
assignment. This situation usually arises when the rent is below market and the tenant
does not intend to continue to occupy the premises. In that situation, an assignee may
pay the tenant in order to take over the lease. A landlord can object to assignment on the
ground that the assignee is not creditworthy; however, such objections are typically
difficult to win.
5.
Use.
Shopping centers are given special treatment under the bankruptcy code
with respect to use restrictions. Use restrictions in a lease are honored, for the most part,
if the lease is in a shopping center. If the lease is not in a shopping center, generally
speaking, a use restriction will not be enforced by the bankruptcy court, absent
extraordinary circumstances.
6.
Time in Which to Assume or Reject.
Prior to the 2005 amendments to the bankruptcy code, a tenant in
bankruptcy had ninety days to decide whether to assume or reject a lease. This initial 90day period could be and routinely was extended by the bankruptcy court. There was no
limit on how many times an extension could be granted or how long the extensions could
last.
The 2005 amendments to the Bankruptcy Code imposed overall limits on
the time for a tenant to decide to assume or reject a lease. The tenant has an initial 120day period in which to decide to assume or reject the lease. This initial 120-day period
can be extended for up to another 90 days; however, no further extensions can be granted
without the express consent of the landlord. Unless the landlord consents, the tenant now
has a maximum of 210 days to assume or reject a lease. At the end of this 210 days, the
lease is deemed automatically rejected if it has not been assumed.
7.
Designation Rights.
Below market leases may be a valuable bankruptcy asset of the tenant. A
practice has evolved of tenants selling sell “designation rights” early in the bankruptcy
case. This practice allows a tenant to receive an early cash payment for its leases, rather
than waiting to receive payments as it assumes and assigns each lease.
Sales of designation rights generally occur with leases that the tenant no
longer intends to use in its operations or a part of a sale of all of the tenant’s assets. A
third party pays the tenant for the right to tell the tenant whether to assume or reject the
lease, and if a lease is assumed, to whom the lease is to be assigned. The purchaser of the
designation rights then receives whatever compensation the tenant would have received
upon the assumption and assignment of the lease. If an assignee is willing to pay money
in order to take over a below market rate lease, the purchaser of the designation rights
receives that payment instead of the tenant. The landlord retains its rights under the
bankruptcy code to object to any proposed assignee.
8.
Conclusion.
This articles discussed some of the basic bankruptcy principles applicable
to landlords and tenants when the tenant files bankruptcy. The rights and obligations of
landlords and tenants in bankruptcy are complex and are continuing to evolve after the
2005 amendments to the bankruptcy code.
This article was authored by Randy P. Orlik and Susan S. Davis of the
Financial Remedies/Insolvency Team of Cox, Castle & Nicholson LLP, which specializes
in bankruptcy and workout strategies. Mr. Orlik also specializes in commercial finance.
For more information about the topics addressed by this article, contact Mr. Orlik at
(310) 284-2229 or Ms. Davis at (310) 284-2282.
Title Insurer Not Liable for Acts of Agent at Closing in Absence of
Closing Protection Letter
By John C. Murray
© 2008
Introduction
Title agents are customarily authorized, through agency agreements, to sell policies
for one or more title insurance underwriters. These agency agreements normally provide
that the agent is an agent solely for the purpose of issuing title insurance commitments
and policies, and explicitly state that the agent is not the title company’s agent for the
purpose of conducting settlements or performing escrow services. Authorized title agents
also often act separately as the agent for the lender, buyer and/or seller, pursuant to
instructions from such "principals" (that only such principals can enforce), in connection
with the escrow closing of the transaction that is the subject of the title insurance. A
lender who also wants the title insurer to be responsible for the agent's acts in connection
with escrow closing activities and services must separately contract with the title insurer
for such additional protection by entering into an "insured closing letter" or "closing
protection letter” (“CPL”). CPLs have been available since the 1960s. They originally
were not title-industry approved forms but, rather, were forms requested by mortgage
lenders that were concerned they had no protection against unauthorized or fraudulent
actions, or failure to comply with the lender’s closing instructions, by the title company’s
approved closing agent or attorney. Lenders require CPLs because the agency-principal
relationship between a title underwriter and a policy-issuing agent or approved attorney is
limited to the issuance of a title-insurance policy, and such relationship does not extend
to escrow or closing functions. CPLs specifically apply to escrow closing activities and
services performed for title underwriters by approved attorneys or agents who are not
employees of the title companies; as a general rule they are not issued on behalf of
independent closers over whom the title company has no control. (An “Approved
Attorney” is defined in the standard forms of CPLs as “an attorney upon whose
certification of title the title insurance company issues title insurance”; an “Issuing
Agent” is defined as “an agent authorized to issue title insurance for the title insurance
company”). These letters are standardized indemnity agreements given to individually
named lenders and recite the specific conditions under, and the extent to which, title
insurers will accept liability for the acts or omissions of such parties.
The Pal Properties Case
The lack of a contractual relationship (absent a CPL) between the attorney-agent and
the title underwriter regarding escrow-closing functions, and thus the lack of
responsibility of the insurer with respect to such activities when conducted by the
6
Approved Attorney or Issuing Agent, is demonstrated in a recent Michigan case. In PAL
Properties LLC v. Ticor Title Ins. Co., Case No. 06-073149-CK, (Oakland County, Mich.
Circuit Court, June 4, 2007) (unreported), there was no closing protection letter (“CPL”)
issued to any party (it was a cash deal), and the issuing agent (acting in its separate
capacity as an escrow closer) absconded with or diverted funds from the closing intended
for a mortgage payoff. The Circuit Court, based on the language in the title commitment
and the agency contract, and the lack of a CPL, ruled in favor of the defendant title
company (“Ticor”). The plaintiff-purchaser argued that it should have the benefit of a
CPL, even though it was a cash transaction and no CPL was issued to any party.
Reasoning that because it was not Ticor’s fault that the funds weren’t used to pay off the
mortgage, and the escrow agent subsequently was cut off as an issuing agent by Ticor
(and subsequently went out of business), the court rejected the buyer’s claims of breach
of contract, fraud, agency liability, negligence, conversion, loss of profits, and fiduciary
duty. The plaintiffs appealed the Circuit Court’s decision to the Michigan Court of
Appeals. The appellant-purchaser’s brief (filed October 31, 2007) made the following
highly unusual (at least to the court and to title insurers) statement, at page 14:
Ticor wants this court to believe that it had no duty to
insure that its agent properly disbursed the funds.
However, it is of paramount importance that the Court
understands that the vast majority of mortgage transactions
are funded by commercial lenders. This is the realm in
which CPLs have developed. Lenders have vast amounts of
bargaining power and have therefore demanded these
letters to remove any ambiguities as to whose responsibility
it is in the event of an underwriter’s agent failure to
disburse. The real purpose of these letters is to make it
clear that underwriters, and not lenders are responsible,
and thus to avoid costly litigation on these disputes. Ticor
wants this court to believe that since [the appellant-buyer]
did not have a CPL, it is clear that Ticor is not responsible
for this loss. This is simply not true. This issue presents a
contingency that neither party contracted for, and is
therefore, subject to interpretation as to who should bear
the responsibility. The trial court committed reversible
error by not addressing these issues. (Emphasis in text.)
On December 9, 2008, the Michigan Court of Appeals affirmed the trial court’s
decision. See PAL Properties LLC v. Ticor Title Ins. Co., 2008 WL 5158894 (Mich.
App., Dec. 9, 2008). The appellate court noted that a title policy was never issued in this
matter and, and held that because only a title commitment was produced by Ticor and
only an actual title insurance policy provides insurance, the commitment did not serve to
impose a duty upon Ticor to protect the plaintiff from Consolidated’s actions. The court
noted that the contract entered into by the parties designated Ticor as principal and
Consolidated as its “issuing agent,” which limited the scope of Consolidated’s agency to
the purpose of issuing title insurance only. The court stated that “Plaintiff has provided
7
no authority suggesting that conducting a closing is an inextricable or necessary part of
transacting or promoting title insurance business.” Id. at *2. Also, according to the court:
Notably absent from the contract is any reference to
Consolidated attending closings or performing any duties at
closings for the benefit of Ticor. Nowhere in the document
does it indicate that Ticor dictated how Consolidated was to
proceed with any change.
Id. at *3. The court further noted that:
Ticor’s only recourse under the contract would be to
terminate the same. Ticor has no contractual right to take
over Consolidated’s business, to take control of the escrow
account, or to force Consolidated to take any action.
Id. The appellate court also rejected the plaintiff’s argument that Consolidated acted
as Ticor’s apparent agent for purposes of the closing, noting that Consolidated was the
only entity, other than the buyer and seller, to sign the closing statement and it alone
prepared the necessary closing documents (collecting a fee from the plaintiff) and
conducted the closing. The appellate court also noted that the plaintiff had no contact
with Ticor until several months after the closing. The court also dismissed the plaintiff’s
claim of negligent supervision, noting in particular that Ticor had the right, but not the
responsibility, to examine Consolidated’s records and that “Nothing in the title insurance
contract serves to impose a duty upon Ticor to protect plaintiff from Consolidated’s
actions.” Id. at *5. The court also rejected the plaintiff’s claim of fraud, because the
plaintiff “had not alleged that Ticor made any misrepresentation to it whatsoever, at any
time, with respect to the escrow monies or whether or not the mortgages would be paid
out of the escrow funds.” Id. at *6. Finally, the appellate court dismissed the plaintiff’s
claim that a material dispute existed with respect to whether Ticor breached the title
insurance policy, because even though one of the mortgages mentioned in the title
commitment was not discharged (albeit through no fault of the plaintiff), “no title
insurance policy, under which plaintiff could make a claim of loss, was issued.” Id. at *7.
The vast majority of existing case law supports the holding in the PAL Properties
case, but a few cases have held for the purchaser, even where no CPL had been issued.
See, e.g., Sears Mortgage Corp. v. Rose, 134 N.J. 326, 350-52 (1993). In this case, the
court held that the buyer's attorney, who acted as the closing agent and was an "approved
attorney" of the title company, was controlled to at least some extent by the title
company. The court found that because the attorney failed to remit funds deposited to pay
off a mortgage the title insurer would be responsible to the purchaser for the loss, even
though the buyer had retained the closing attorney and no CPL had been issued to either
the buyer or the lender. According to the court, “the title insurer had a duty either to give
[the borrower] . . . an opportunity to insure himself against the risk or, at the very least, to
inform him that he was not covered against such a risk.” Id. at 347.
8
See generally Joyce D. Palomar, TITLE INS. LAW 2-12 (1994) (“Underwriting and
agency agreements generally . . . limit the underwriter’s responsibility for agents’
activities as escrowees in real estate closings”); Richard J. Landau and Kristin M.
Tsangaris, The Mortgage Fraud Epidemic, S & P’s THE REVIEW OF BANKING AND
FINANCIAL SERVICES, Vol. 22 No.4, April 1, 2006 (“In the absence of an insured closing
letter . . . a majority of cases hold that . . . the title insurer has no liability for fraud or
other misconduct in connection with a closing”).
Conclusion
The CPL serves to extend the liability of the (presumably) large and creditworthy title
insurance company - which would otherwise be limited to the title insurance policy - to
cover certain “bad acts” of the company’s Issuing Agent or Approved Attorney. But this
additional protection, as specifically noted by the Michigan Appellate Court in the PAL
Properties case, must be separately and specifically requested from the title insurer, and
the scope of the coverage is defined solely by the contractual terms and provisions of the
CPL. Coverage under the CPL is also strictly limited to the parties designated therein,
and generally applies only with respect to the particular transaction for which the letter is
furnished. The ALTA has attempted to meet the needs of title insurance customers by
expanding the types of CPLs (the latest being the 2008 ALTA CPLs) to cover varying
factual situations and comply with state statutory and regulatory restrictions. It is
important for both the insured and the insurer to understand the legal (both case law and
statutory) and regulatory restrictions and limitations on the use of CPLs in certain
jurisdictions, and the nature and scope of the agency relationships that exist between title
insurance companies and their Issuing Agents and Approved Attorneys.
9
How To Create A Green Community
Amy Bray
Take eco-friendly building a step further.
for LEED Guideline certified buildings and developments.
Amy Bray
is part of the Commercial Real Estate and
Banking Group of Andersen, Tate & Carr, in
Atlanta. Ms. Bray focuses her practice on
community association law, specifically drafting
the governing documents for homeowners
associations, condominium associations, and
commercial associations, including mixed
use, "green," and age-restricted community
documents. Ms. Bray has extensive experience
in negotiating and resolving complex covenant
and easement issues in developments all over
Georgia and throughout the nation. In addition,
she has experience with green building issues in
both development and community association
contexts, including the drafting of documents
10
THESE DAYS, everything's going
green—and as the saying goes, it's not
easy being green. However, with a
little
planning,
both
new
developments and ones with existing
sets of covenants, conditions, and
restrictions ("CCRs") can be governed
in a manner that allows eco-friendly
products and practices.
Although builders see value in
constructing homes using sustainable
building
practices
and
LEED
Guidelines (and alternative green
standards), and as such trends are
gaining in vogue, there seems to be a lag in making sure
that the documents that set the ground rules in those
developments match, enhance, and preserve green ideals.
As well, in established developments, some owners
struggle with antiquated use restrictions that prohibit
environmentally friendly practices. Even in the
commercial context, developers and building owners
desire the efficiency and marketing benefits that green
building practices provide. As these trends continue to
develop, many attorneys are caught at a loss, failing to
consider the need to revisit their usual CCR forms.
HOW TO GO GREEN • Of course, when starting with
a brand new development the ability to change existing
forms is much easier. The greatest challenge is making
sure there is continuity among the actual improvements
and programs put in place, the marketing plans, and the
The Practical Real Estate Lawyer | 47
11
July 2008
48 | The Practical Real Estate Lawyer
require that clotheslines must be taken down when
not in use or may not be in continual use for more
than 10 to 12 hours at a time.
Permit owners to install solar panels, but retain
the right to review and designate locations through
the established architectural control process (if any)
and permit other "off-grid" power sources. Keep in
mind that in some areas local utilities offer rebates
to customers that generate their own electricity or
sell electricity generated at their homes back to the
utility. As energy costs skyrocket, these options will
look more appealing to owners, in both commercial
and residential contexts. Keeping around blanket
prohibitions on such options for generating power
will become more likely to cause owner
dissatisfaction and friction with association boards.
Allow, and even encourage, compost piles and
vegetable gardens in designated locations. Restrictions or guidelines allowing compost piles may include controls on locations, screening requirements,
or minimum standards for appearance or type of
compost system. For example, there are "minicomposters" on the market that are entirely selfcontained and take up little space. These composters would work well, if allowed, in developments
with homes where residents are in close proximity to their neighbors. Another consideration is
whether a self-contained composter is preferable
to an exposed compost pile in a development. A
truly forward-thinking association might provide a
community composting program as an additional
amenity, if space allows and if composters on
individual units are not a good idea. This type of
program will be discussed further below.
As water becomes more of a commodity in
some areas, restrictions that require owners with
sprinklers on their property to use a sprinkler timer
should be considered. Owners can also be required
to set an early morning time period for watering, in
order to minimize loss of water to evaporation.
Other potential restrictions, which may be too
extreme for some developments, include adding a
final CCRs. When drafting a new development's
CCRs, spend some time considering current trends
and draft in the flexibility to change restrictions
(or require re-evaluation with sunset provisions) to
ensure that the final product tracks current market
trends and can change as necessary.
In existing CCRs, the issue is complicated by
determining how an amendment can be adopted
and if the adoption of such an amendment is
possible as a practical matter. In representing an
association (or groups of owners) seeking to change
a set of existing CCRs, take into consideration
that the task is as much a public relations matter as
a legal one. A "green audit" may be necessary to
determine the changes that can be made to
accommodate current trends in eco-friendly and
energy efficient living, as well as ways to build in
flexibility to allow the development to more easily
adjust to the evolution of such trends. This
concept of a "green audit" can be used to give an
owners' committee or advisory group information
that would allow them to share potential changes
with other owners and give owners a say in the
extent of any proposed changes. Having an open
process of researching and crafting a final
amendment will give owners a feeling of "buying
in" to the final product and improve the chances of
the successful adoption of a proposed amendment.
Evaluate And Revise
"Stock" Use Restrictions
Most CCRs prohibit clotheslines, solar panels,
compost piles, and vegetable gardens; however, in
some cases these items may be permitted in limited
circumstances. All of these items are essential (and
in some cases easy to accomplish) components of
a green lifestyle and need to be accommodated in
the CCRs. When a particular use or practice would
potentially be objectionable, put controls into place
to neutralize the potential objection. Restrictions
can be revised to permit clotheslines with reasonable limits on when lines may be used. For example,
12
Green Communities I 49
prohibition on gas-powered leaf-blowers and lawn
mowers. Gas-powered leaf-blowers and mowers
produce air polluting emissions just like cars do
and they generate extensive noise pollution. If such
a restriction is adopted, a program such as having
community-shared electric mowers, as described
below, can make compliance easier.
Another potential use restriction change is the
modification of window covering restrictions that
permit only white or off-white window coverings.
Natural, neutral colors at windows would allow for
a wider array of eco-friendly window coverings,
while preserving a development-wide standard.
Traditional blinds are poor insulators and many are
made of polyvinyl chloride ("PVC") or petroleumbased synthetics. Shades and blinds made of fastgrowing bamboos and responsibly-harvested basswood are becoming popular but are generally not
white or off-white. These types of window coverings
come in natural, brown, and honey shades. Other
types of window coverings can be used that are
eco-friendly and comply with the standard white or
off-white requirement, such as roman shades, honeycomb shades, and lined drapes. These products
also provide extra insulation that traditional blinds
do not.
ing Council have now developed a pilot version of
a "LEED for Neighborhood Development Rating
System" (June 2007). This program, much like the
LEED rating system for buildings, sets an industry
standard with an objective set of criteria for determining just how extensively Smart Growth, new urbanism, and green building standards are applied
in a development. A development earns credits in
various categories of the LEED rating system and
requires incorporating environment-friendly restrictions in the set of covenants, conditions, and
restrictions that govern the development. These restrictions serve a variety of purposes, such as the
protection of steep slopes, limiting site disturbance
in perpetuity, preserving trees in perpetuity, incurporating on-site energy generation requirements,
and requiring adherence to light pollution standards. While an existing community may not be
able to achieve the standards this program sets out,
reviewing the LEED guidelines can provide invaluable assistance as a starting place for "green ideas."
If a client has a development and intends to
obtain a LEED certification it is important to ensure that the CCRs track, and carry forward, the
program requirements. For example, in the case
of a recent mixed-use condominium, we had to
deal with requiring recycling programs, assuring
adequate changing facilities were available for persons desiring to bike to work at the condominium,
and other issues, in order to assure that the initial
programs and uses were addressed in the condominium's governing documents.
Check The Various LEED Guidelines
The United States Green Building Council
first adopted the Leadership in Energy and Environmental Design ("LEED") Standard Version 1.0
in 1999 and has followed it with several new versions. The LEED program provides standards for
developing high-performance green building designs. There are LEED Standards for a variety of
projects, including" new construction, major renovations, homes, and retail. Some states and local
builder associations have also adopted their own
alternative standards, some modifying the LEED
standards for local conditions.
The Congress for New Urbanism, Natural Resources Defense Council, and the U.S. Green Build-
Make Design Guidelines
And Community-Specific Use
Restrictions Track Changing Technology
Architectural requirements need to be flexible
to accommodate changing technology, as well. Remember that what is considered great today may
change or be replaced tomorrow. When dealing
with specific items be sure to create a procedure
that allows changes to policies and guidelines with13
50 | The Practical Real Estate Lawyer
July 2008
out the need to obtain owner consents to amend a
recorded document. Creating a built-in sunset provision for guidelines or a mandatory review of the
guidelines after a specific period of time will also
enhance the CCRs and assist in tracking the evolution of products available to owners.
Such guidelines should specifically state that new
technologies and products that were not available
when the guidelines were initially adopted must be
given special consideration in connection with review of requests for approval. Variances should be
granted when new products are in harmony with
the intent of the guidelines and the then-current
appearance of the development. Considerations
for architectural guideline changes may include
such simple ideas as allowing awnings on homes, as
awnings can reduce demand for air conditioning.
Keep in mind that the market's evolution may include a return to items that merely fell out of fashion and not just the creation of new products.
For example, in some developments, decks must
be painted to match a home's trim colors. However, long-lasting engineered wood has come onto
the market after those guidelines initially came into
vogue. Painting this type of material may not be
recommended and may even void the manufacturer's warranty. If decks must be painted to match
trim, and there is no variance permitted or consideration given to the benefits of the new product,
there is a direct disincentive for owners to use the
preferable "green" material.
In developments where an association is responsible for maintenance of units or utilities are
master-metered, consider requiring programmable
thermostats in all units and advise associations to
teach unit owners how to use them. Require owners to plug air leaks around windows, doors, and
wall penetrations or make sure the association has
the authority to do so on behalf of owners.
With respect to landscaping, require use of native plants in landscaping, including wildflowers.
Use guidelines to minimize lawn areas and encour-
age tree planting. Of course, professional landscapers and arborists can provide valuable input when
drawing up reasonable landscape guidelines for a
development. The guidelines should encourage
or can even require xeriscaping (water conserving landscape design). Some areas of the country,
including my home state, are experiencing a significant, long-term drought and the popularity of
xeriscaping in such areas is increasing. Owners in a
development that embraces xeriscaping will benefit
from reduced watering and other landscape maintenance costs from the adoption of xeriscaping principles. A less stringent change to guidelines would
be a restriction on planting non-native plants.
Along similar lines, prohibit or limit the use of
industrial fertilizers and other synthetic lawn care
products, as these products can adversely affect the
ecosystem around the property where it is used.
Fertilizer contained in runoff has long caused problems in ponds, lakes, and other waterways. Prohibiting its use may actually save costs related to association expenses in the management of a pond or
lake that would otherwise be spent countering the
fertilizer's effect on the water (and its inhabitants).
Another idea is to make sure the guidelines allow driveways and other concrete slabs to be replaced by geoblock or other aesthetically pleasing
permeable surface. In many standard CCRs, such
materials are either not addressed or are implicitly
prohibited through the description of the materials
driveways, sidewalks, and patios can be made of.
Create Community-Wide
Programs And Services That
Carry Through Environmental Ideals
This is an area where leadership in an association makes "going green" a positive experience.
However, the framework for programs the association may want to establish, the creation of committees, and authority for their operation should be set
up in advance in the CCRs and related governing
documents. The association can adopt programs
14
Green Communities I 51
to accomplish green goals without needing to create restrictions and require punitive actions for the
failure to comply with those restrictions. Programs
should be simple and easy to accomplish, as the
people involved will be volunteers.
For example, a community composting program
or Christmas tree recycling program will require
some community involvement but has limited expense and effort. The composting program would
only require some space, a few stand alone trash
composters, and a few overseers who make sure
things go smoothly. Set up electronics recycling programs or computer donation programs to prevent
those toxic items from being improperly discarded.
A committee can be tasked with soliciting used
computer equipment and other electronics from
owners and donate them to charitable groups. The
net benefit is two-fold: helping the community and
preventing electronics from ending up in a landfill.
Set up a committee to place and maintain recycling containers in common areas to serve the
entire development. This is especially effective if
local garbage collection companies do not provide
recycling with their garbage collection services. In
the alternative, have a committee partner with local schools to have containers placed in the community in support of school recycling drives.
The association can adopt an internal policy to
use environmentally responsible cleaning materials in clubhouse and pool areas and use compact
fluorescent light bulbs. Power development lights
through solar panels where possible.
The association can buy an electric mower (or
two) for use in the development. Giving owners a
cleaner, quieter, easy alternative to gas mowers will
help minimize the use of gas mowers and will likely
be better received than an outright prohibition on
gas mowers.
A committee can also be formed to get in touch
with local farmers and farmers' markets to set up
a market day in the development. This promotes
the concept of buying local and can have a posi-
tive effect on the sense of "community" within the
development. If open to the public, such a market
can also enhance the public image of the development and assist in marketing property or bring in
additional traffic.
COUNSELING CLIENTS REGARDING
GREEN CHOICES • The key to representing
community associations has always been advocating for reasonableness. The problem is that one
person's idea of reasonable is not always the same
as everyone else's. This is especially true when it
comes to viewing a neighbor's yard, whether it contains a lush green lawn, a meadow of native wildflowers, or laundry drying on a clothesline.
Currently, a backlash against traditional association controls is growing against restrictions that
interfere with green living. Stories circulate about
fines for hanging out clothes on temporary clotheslines, growing lawns taller in drought conditions,
or replacing lawns with wildflowers. Compost piles
and vegetables gardens, too, are often the target of
enforcement actions.
One can go to the opposite extreme by prohibiting the use of chemical fertilizers, limiting lawn
size, or requiring the use of sustainable materials
on buildings. While, of course, it is a laudable goal
to want to require owners and occupants to adhere
to a high standard of environmental responsibility, it will be difficult to police and enforce. When
counseling clients as to what restrictions to loosen,
re-write, or adopt, keep in mind there are limits to
how much restrictiveness will be tolerated on either
side of the issue.
In many cases the choice may be easy, especially when developing a community from the start.
Practitioners and associations alike should keep the
restrictions easy and reasonable, with a focus on
easy-to-staff programs and easy-to-enforce restricttions (for example, instituting community recycling,
allowing clotheslines), while permitting (but not requiring) the more expensive or intensive aspects
15
July 2008
52 | The Practical Real Estate Lawyer
are ever-evolving. Even if the entire community
does not seek to adopt these ideals, the flexibility
to consider and permit uses and conditions that are
becoming more prevalent is key to satisfaction of
the community's residents.
If changes to existing CCRs are adopted, be
sure the intent behind the change is clear in your
amendment or other documents. It will give guidance to people who have to enforce the changes. After the people who adopted the changes are no longer managing the association, such a statement of
intent will let future purchasers in the development
know about the ideals behind die requirements.
of green living. If one of the greatest complaints
about traditional covenants is the rigidness that requires owners to stick to conventional restrictions
that prohibit eco-friendly practices, the response
should be to create flexibility that gives owners a
choice to adopt green practices and to guide them
toward reasonable and responsible practices for the
benefit of the community. Counsel your clients to
put effort into making sure any current owners or
potential owners know about unusual provisions
through marketing materials, sale contract provisions, and legally required disclosure documents.
This can help to ensure that people buying into the
development know the ground rules and are not
caught by surprise.
Another consideration is the benefit that owners
receive from adopting eco-friendly practices. These
days the benefits can exceed mere personal satisfaction: there are real dollars to be saved. Utility bills
can be cut and tax incentives gained, at both federal
and state levels. In addition, energy-saving homes
can gain added value. (See Solarizing Can Pay Off in
More Ways Than One, by Ginny Figlar and Mary Jo
Cameron, http://life.gaiam.com/gaiam/p/SolarizingCanPayOffinMoreWaysthanOne.html)
It is true that many people see clotheslines in use
outside a home as a detractor from the home's appearance. Others feel that a yard is only pretty and
well kept if the grass is green and kept short. And
few have considered solar cells aesthetically pleasing. Unfortunately, the reality is that prohibiting
clotheslines or solar panels and requiring vast expansive lawns are practices that are not appropriate
in a community that seeks to be environmentally
responsible and ignores the growing trend favoring
environmental responsibility in everyday choices.
Sustainable, eco-friendly practices and technology
CONCLUSION • Sometimes, these choices will
be made for your developments. Some states are
considering passing laws that give homeowners the
right to install solar panels (such as Hawaii) and
take other actions that are environmentally friendly (for example, Arizona and Florida). Counsel architectural modifications reviewers to consider the
benefits the owners seek when making a change.
Will denying the change prevent those owners from
reducing their monthly utility bills? Will it prevent
them from getting tax incentives? There may be
die savings of real dollars motivating the proposed
change. In addition, homes with solar power sources are better equipped to deal with natural disasters, such as Hurricane Katrina. Developments in
areas that face power outages due to storms should
see the value in encouraging, or at least allowing,
on-site power sources. People are making green
choices for any number of good reasons, and the
CCRs should have the flexibility to put those choices into practice, as long as the changes are right for
the owner, the development, and the association.
This article is reprinted with permission from the July 2008 issue of The Practical Real Estate Lawyer
magazine published by ALI-ABA. To learn more about The Practical Real Estate Lawyer and the
American Law Institute and American Bar Association please visit their website located at
http://www.ali-aba.org/index.cfm.
16
OHIO FORECLOSURE CASES:
LENDERS BEWARE – THE RIPPLE CONTINUES
By Gretchen D. Jeffries and Michael J. Ball
In previous articles appearing in the eReport, we discussed the two foreclosure cases from
the United States District Court for the Northern District of Ohio: In re Foreclosure Cases, 2007
WL 3232430 (N.D.Ohio, Oct. 31, 2007) and In re Foreclosure Actions, 2007 WL 4034554
(N.D.Ohio, Nov. 14, 2007) (collectively, the “Northern District Foreclosure Cases”) and the
influence of these decisions, including subsequent cases in the United States District Court for the
Southern District of Ohio, which followed the lead of the Northern District Foreclosure Cases. The
courts in these cases dismissed complaints to foreclose on mortgages because the plaintiff lender
failed to submit to the court a copy of the assignment of the note and mortgage evidencing the
plaintiff’s status as holder of the note and mortgagee under the mortgage at the time the foreclosure
complaint was filed. The previous articles also addressed the open issue of whether the Ohio state
courts would take the same position as the federal courts and require proof of ownership of the note
and mortgage at the time of the filing of the foreclosure complaint. The Ohio cases decided prior
to the Northern District Foreclosure Cases appeared to offer more latitude to foreclosing lenders
that did not attach assignment documents to the complaint, allowing, in some instances, for the
lender to submit a post-filing assignment to establish the plaintiff lender’s standing.
Despite these earlier cases, one recent case in the First Appellate District of Ohio indicates
that the tide is ebbing toward the federal cases, Wells Fargo Bank, N.A. v. Byrd, 2008-Ohio-4603
(Ohio App. 1 Dist., 2008). On January 23, 2007, Wells Fargo filed a foreclosure action claiming
that it was the holder of a promissory note and mortgage deed from Gloria and Ellsworth Byrd;
however, both the note and mortgage identified WMC Mortgage Corp. as the lender. Id at ¶2.
Attached to Wells Fargo’s motion for summary judgment was an assignment of the note and
mortgage dated March 2, 2007, acknowledging that WMC Mortgage Corp. had assigned the note
and mortgage to Wells Fargo. Id at ¶3. The trial court dismissed the case with prejudice and
ordered the law firm representing Wells Fargo to submit proof that its client is a real party in
interest at the time of the filing of any future foreclosure complaints. Id at ¶4. The appellate court
addressed the issue of whether a plaintiff lender, which is not a real party in interest when the suit
is filed, can later cure the defect by producing an after-acquired interest in the litigation. Id at ¶7.
Wells Fargo argued that in dismissing the case, the trial court misapplied Civ.R.17, which
provides:
Every action shall be prosecuted in the name of the real party in interest….No action shall
be dismissed on the ground that it is not prosecuted in the name of the real party in interest
until a reasonable time has been allowed after objection for ratification of commencement
of the action by, or joinder or substitution of, the real party in interest. Such ratification,
joinder, or substitution shall have the same effect as if the action had been commenced in
the name of the real party in interest.
Citing cases from the Eleventh and Twelfth Appellate District in Ohio, the appellate court
reasoned that Civ.R.17 is not applicable unless the plaintiff has standing to invoke the jurisdiction
of the court in the first place, either in an individual or representative capacity, with some real
interest in the subject matter. Id at ¶9. In other words, if the plaintiff lender does not have standing
to be in the courtroom, the plaintiff lender cannot avail itself of the right to Civ.R.17’s provision
allowing for “a reasonable time…after objection for ratification of commencement of the action by,
or joinder or substitution of, the real party in interest.” The appellate court held that “in a
foreclosure action, a bank that was not the mortgagee when suit was filed cannot cure its lack of
-17-
standing by subsequently obtaining an interest in the mortgage.” Id at ¶16. However, the appellate
court did find that the trial court was in error to dismiss the foreclosure action with prejudice. Id at
¶23. The appellate court further found that the trial court lacked authority to order the plaintiff
lender’s law firm, upon filing of future foreclosure complaints, to present additional documentation
demonstrating that its clients are the real party in interest. Id at ¶24.
In addition to dismissing cases in which plaintiff lenders have been sloppy in their record
keeping, courts and politicians inside and outside of Ohio have been profferring and promulgating
manners in which to deal with the “foreclosure crisis” clogging the court systems. In a previous
article, we discussed the order issued in Summit County, Ohio incorporating new procedures for
foreclosure cases, including the requirement of a “Certificate of Readiness,” which serves to
demonstrate that the plaintiff lender is the real party in interest and that the matter is ready to
proceed against all necessary parties.
Along this same line, Chief Judge Robert J. Morris, Jr. of the Sixth Judicial Circuit in and
for Pasco and Pinellas Counties, Florida recently issued Administrative Order No. 2008-081
regarding mortgage foreclosure actions. In the order, Chief Judge Morris admonishes attorneys for
their role in predicating the inefficiency associated with the ever-increasing volume of mortgage
foreclosure cases:
Frequently, attorneys who handle a large volume of mortgage foreclosure cases do not have
their pleadings in order or fail to appear at scheduled hearings, causing the court to
reschedule or delay hearings in mortgage foreclosure cases. The volume of the cases and
the resetting of these hearings results in difficulties scheduling these summary proceedings.
In light of the court’s finite resources, it is necessary to establish procedures for more
efficient handling of mortgage foreclosure cases.
Citing these problems as its basis, the order provides for additional procedural steps to be
taken in connection with a complaint to foreclose a mortgage by an institutional lender in Pasco
and Pinellas Counties, Florida. The additional steps include: (1) that a notice to homeowner and a
plaintiff/lender contact information sheet be submitted to the Clerk of Circuit Court with the initial
foreclosure filing; 1 (2) that prior to requesting a mortgage foreclosure summary judgment hearing
date, plaintiff’s attorney file with the Clerk a uniform certificate titled “Certification of Compliance
with Foreclosure Procedures”, which provides the attorney’s certification of the completion of
requisite actions and the dates upon which those actions were completed; and (3) delivery of a
foreclosure judgment packet 2 by plaintiff’s attorney to the presiding judge’s office at least 5
business days prior to the scheduled hearing date for the motion for summary judgment. Among
the items required to be submitted in the foreclosure judgment package is the original promissory
note.
Outside of the court system, politicians too are taking measures in reaction to the
“foreclosure crisis.” For example, the mayor of Providence, Rhode Island proposed a new
ordinance in December, 2008 affecting the statutory non-judicial residential mortgage foreclosure
process in the City of Providence. The new ordinance requires, among other things, the following:
(1) written notice from the lender to the City of lender’s intent to foreclose at the same time the
1
This requirement applies only to foreclosure on a homestead property.
The packet consists of the following items: (a) Proposed Uniform Final Judgment; (b) Original Promissory Note; (c)
Notice of Sale; (d) copy of Certification of Compliance with Foreclosure Procedures; and (e) copy of the Notice of
Hearing.
2
-18-
lender issues notice to the homeowner of the foreclosure action; (2) filing of the notice of intent by
the lender with the City Clerk/Recorder of Deeds; (3) a mandatory mediation conference between
the homeowner and lender; and (4) prior to the mediation, a loan counselor to be assigned to the
homeowner by a HUD-approved independent counseling agency. The ordinance provides for a
penalty of not less than $1,000 per offense.
Whether it is an unwillingness on the part of the courts to allow a plaintiff lender to skirt the
formal procedural requirements regarding assignment of notes and mortgages or additional
procedural requirements instigated by bureaucrats and judges alike, it is clear that foreclosing on
mortgages can no longer be a perfunctory function for lenders, at least for now and the foreseeable
future.
******************
Gretchen D. Jeffries is an associate in the Columbus office of Vorys, Sater, Seymour and Pease
LLP and a member of its commercial and real estate group. Ms. Jeffries is an articles editor for the
ABA RPPT E-Report and a graduate of The University of Texas School of Law. Michael J. Ball is
an associate in the Columbus office of Vorys, Sater, Seymour and Pease LLP and a graduate of the
University of Notre Dame Law School.
-19-
A Bi-Monthly Electronic Publication for Section Members
February 2009
Group and Committee News
ABA TECHSHOW 2009
The World's Premier Legal Technology Conference and Expo
Chicago, Illinois - April 2-4, 2009
The Real Property, Trust and Estate Law Section is a "Program Promoter" of ABA TECHSHOW 2009. The
RPTE website provides detailed conference information to encourage member attendance. This year, the
ABA TECHSHOW offers over 50 technology CLE programs and training sessions within 16 topical tracks,
including a special one-day track describing "a day in the life" of a practitioner as she or he uses
technology to enhance her or his substantive practice. The two-day expo will also include over 120
vendors displaying legal products and services. Registration for ABA TECHSHOW is now open. Use the
unique RPTE code EP922 to obtain a special discounted registration rate. Click here to view the CLE
programs and the interactive expo floor.
Section News
Technology
CLE
Groups & Committees
Young Lawyers
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A Bi-Monthly Electronic Publication for Section Members
February 2009
Committee Spotlight
"Committee Spotlight"
Emerging Issues and Specialty Leases Committee
Volunteer to Update the RPTE Disaster Assistance Webpage
The Emerging Issues and Specialty Leases Committee of the Real Property, Trust and Estate Law Section
is looking for volunteers to help update the RPTE Disaster Relief webpage. The goal of the webpage is to
provide current disaster relief information, including governmental and non-governmental sources of
short-term and long-term assistance. Only a few months old, the webpage project has a small
subcommittee working on better organizing the information online, and adding additional disaster relief
resources beyond hurricane relief. If you would like to volunteer to help with the webpage, please email
Richard Frome at rmf@rmfromelaw.com. To view the current webpage, please visit,
http://www.abanet.org/rpte/katrina/.
Section News
Technology
CLE
Groups & Committees
Young Lawyers
Law Students
A Bi-Monthly Electronic Publication for Section Members
February 2009
Group and Committee News
Commercial Real Estate Transactions Group
Ongoing Activities
The Commercial Real Estate Transactions Group (the "Group") includes the Design and Construction
Committee, chaired by George Meyer, which will present a free-standing program at the Washington
meeting on "Green Construction". This program may lend itself to an e-CLE presentation.
The Group CLE program at the Washington meeting will focus on discussions of issues brought to the fore
by the devastation in the real estate markets and new issues exposed in the wake of the fallout,
including:
Title insurance issues, led by Alan Keiser, Chair of the Title Insurance and Surveys Committee
Required due diligence, led by Dean Alterman, Chair of the Purchase and Sale Committee
Broker issues and "short sales", led by Nelse Schreck, Chair of the Brokers and Brokerage
Committee
How lenders obtain interests in insurance policies and the effects of foreclosure and of bankruptcy,
led by Tanya Marsh, Vice-Chair of the Property, Casualty and Non-Title Insurance Committee
The quarterly Group conference call for March will be led by Dean Alterman and the topic will be trends
in representations and warranties. This call will be held at 2:00 P.M. Eastern Time on March 11 and the
call-in number and password will be available ahead of time and posted on the Group's website. These
calls are scheduled for the second Wednesday of March, June, September and December, at the same
time of day, and are led by different committees each time.
Neil Kessler, Vice-Chair of the Group, will be handling its website and any information and questions may
be directed to him at neil.kessler@troutmansanders.com.
The only committee in the Group not mentioned above is Easements, Restrictions and Covenants, which
led a lively phone discussion in December on a recent decision dealing with the question of can a
restriction become obsolete over time.
There is a wide area of issues available in the Group and anyone can participate by helping with
presentations, articles, e-CLE programs or just being part of a committee, and all are welcome.
Section News Upcoming CLE Group and Committee News Young Lawyers Law Students
A Bi-Monthly Electronic Publication for Section Members
February 2009
Group and Committee News
The Income and Transfer Tax Planning Group
In 2009 the Income and Transfer Tax Planning Group will host four periodic conference calls to discuss
Group administrative matters, as well as substantive issues related to the five committees comprising the
Group: the Estate and Gift Tax; Generation Skipping Transfers; Individual and Fiduciary Income Tax;
International Tax Planning; and Tax Litigation and Controversy. The most recent call was sponsored on
January 22nd by the Estate and Gift Tax Committee and covered several topics, including the issue of
determining basis of assets in a grantor trust. (The Tax Litigation and Controversy committee sponsored a
conference call late in 2008 covering Graegin loans.) The Group's call on March 18 will focus on issues
relating to tax compliance, and will include an update on preparer penalties from Louis Mezzullo of Luce,
Forward, Hamilton & Scripps, and a review of the most common pitfalls in preparing gift tax returns from
Ronni G. Davidowitz of Katten Muchin Rosenman.
The Group also has a variety of offerings that will be presented at the Spring Symposia in Washington,
DC. The Individual and Fiduciary Income Tax Committee will present a panel discussion on "Which PostDeath Events are Ignored under Sec. 2032, But Considered Under Sec. 2053." The Tax Litigation and
Controversy Committee will present a program entitled "Practice Made Perfect: Lessons from the Tax
Court Judiciary, the IRS, and Private Practice" that will address procedures of the Tax Court, and judges'
perspectives on gift and estate tax matters, among other topics, as presented by Stephanie Loomis-Price,
Baker Botts, Charles E. Hodges II, Chamberlain Hrdlicka, and an IRS official and Tax Court representative.
In addition, the Group and its committees will sponsor a Group Roundtable at the Spring Symposia.
Presenters will include Catherine V. Hughes, Office of Tax Policy, U.S. Treasury, who will discuss a variety
of issues related to the process of issuing regulations. The Group will also cover special GST tax drafting
and exercise issues related to powers of appointment, and will address recent developments, including:
post-Knight fiduciary income tax deductions; the private trust company guidance and its general
application; international estate planning under new administration; and reporting for offshore
investments. Finally, the Group is the sponsor of a program entitled "The Rest of the Story: Income Tax
Issues Related to Transfer Tax Planning with Grantor and Non-Grantor Trusts" presented by T. Randolph
Harris, of McLaughlin & Stern, who will cover fiduciary tax issues related to sales to defective grantor
trusts, insurance trusts, QPRTs, and other trusts.
Section News Upcoming CLE Group and Committee News Young Lawyers Law Students
A Bi-Monthly Electronic Publication for Section Members
February 2009
Group and Committee News
International Tax Planning Committee
The International Tax Planning Committee is working with the Tax Section on submitting comments to the
IRS/Treasury on the new "Exit Tax" (IRC section 877A) and the new Successions Tax (IRC section 2801).
The committee will be presenting an update on hot international tax planning issues at the Spring
Symposium Group Roundtable on April 30, 2009. Finally, it is working with the AICPA task force on
developing Form 1041NR for US Taxpayers to report distributions/income from foreign trusts. (Currently,
no such form exists.) The Committee is also working with other AICPA task forces in order to better
represent the interests of practitioners and their clients on several fronts including ones on offshore
compliance and expatriation.
Section News Upcoming CLE Group and Committee News Young Lawyers Law Students
A Bi-Monthly Electronic Publication for Section Members
February 2009
Young Lawyers Network
2009 Fellows Program
The Fellows Program of the Real Property, Trust and Estate Law Section was designed to increase the
participation of young lawyers in Section activities. The goal of the program is to give young lawyers an
opportunity to become involved in the substantive work of the RPTE Section, while developing into future
leaders. The Fellows gain a considerable amount of knowledge about the work of the Section, as well as
the real property, trust and estate law practice.
The Fellowship appointment is for two years. To be considered for selection, a person (1) must have
practiced in the trusts and estates or real property area for at least one year (and be younger than 36
years of age or have been admitted to the bar less than 10 years) and (2) should have demonstrated
leadership at the state or local bar level or in the Young Lawyers Division of the ABA. As part of the
Section's commitment to diversity, one half of the Fellows selected will be minority applicants. Each
Fellow will receive an expense reimbursement budget and invitations to certain leadership events.
For a full description of the roles and responsibilities of a Fellow, please visit
www.abanet.org/rpte/fellows. Applications are due by June 19, 2009. Fellows will be notified of their
appointment by early July. If you have any questions, please feel free to contact Steve Gorin at 314-5526151 or by e-mail at sgorin@thompsoncoburn.com.
Section News Upcoming CLE Group and Committee News Young Lawyers Law Students
A Bi-Monthly Electronic Publication for Section Members
February 2009
Law Students
2009 Law Student Writing Contest
The Real Property Trust and Estate Law Section's 2009 Student Writing Contest is open to all law and
LL.M students currently attending an ABA-accredited law school. It is designed to encourage and reward
law student writing on real property, trust and estate law subjects of general and current interest.
Complete rules as well as the entry form are available online. For more information, please contact
Amanda Pauli at paulia@staff.abanet.org. The deadline for submitting essays is June 19, 2009.
The 2009 first place winner will receive $2,500 and a one year membership in the RPTE Section. The
winner will also receive free round trip airfare and weekend accommodations to attend the RPTE Fall
Leadership Meeting, November 19th – 22nd at the St. Regis Hotel in Dana Point, California (valued at
approximately $1,000). In addition, the first place winner's essay will be considered for publication in a
future issue of the Real Property, Trust and Estate Law Journal and will be announced in Probate &
Property, the Section magazine. Both the second and third place winners will be announced in Probate &
Property. The second place winner will receive $1,500, and the third place winner will receive $1,000.
Section News Upcoming CLE Group and Committee News Young Lawyers Law Students