BBA Event Recap: Trust Accountings and Terminations: Identifying Options and Addressing Risks

Program Title: Trust Accountings and Terminations: Identifying Options and Addressing Risks

Program Date: Wednesday, February 24, 2016

Panelists: Jennifer Locke, Esq. of Goodwin Procter LLP

Program Sponsor: Peter M. Shapland of Day Pitney LLP and Stacy K. Mullaney of Fiduciary Trust, co-Chairs of the Trust Administration Committee

Materials:  Because of file size, the handouts are broken into the following four parts:

Part 1

Part 2

Part 3

Part 4

Summary of Program Topic: The program explored various methods to render trust accounts, including final accounts. The discussion included accounting requirements for testamentary trusts, accounting clauses in trust instruments, options under the MUPC and MUTC, and managing risks in rendering final accounts.  The panelist reviewed the trustee’s options to render accounts and ways to minimize the trustee’s liability upon termination of a trust.

Practice Fundamentals Series: Basic Estate Planning Documents II: Revocable Trust

Program Date: Wednesday, March 2, 2016

Panelists: Courtney N. Carr, Esq. and Jessica L. Lambert, Esq. both of Choate, Hall & Stewart LLP

Program Chairs: Anne L. Warren of Brown Brothers Harriman & Co.,   Tamara Lauterbach Sturges of Egleson & Sturges, LLC, and Heidi Seely of Rackemann, Sawyer & Brewster, P.C.

Materials: Click HERE for the panelists’ materials:

Program Topic:  The Panelists reviewed the key components of revocable trusts, including funding formulas, marital provisions, possible trust structures for children and other beneficiaries, and trustee provisions.  They also provided drafting suggestions and advice on avoiding certain pitfalls when advising clients about establishing revocable trusts.

Practice Fundamentals Series: Intro to Gift Tax Return Preparation

Program Date: Wednesday, February 3, 2016

Panelists: Ruth Matson, Esq. of Bove & Langa, P.C. and Karen L. McKenna, Esq. of Tarlow, Breed, Hart & Rodgers, P.C.

Program Chairs: Anne L. Warren of Brown Brothers Harriman & Co.,   Tamara Lauterbach Sturges of Egleson & Sturges, LLC, and Heidi Seely of Rackemann, Sawyer & Brewster, P.C.

Materials: Click on each of the following links for the panelists’ materials:

Presentation Outline

TAB A-SAMPLE 709

TAB B-709 Instructions

TAB C-Sample GST Allocation

TAB D-QPRT Adequate Disclosure Example

TAB E-Late GST Allocation Example

Program Topic: The speakers provided an overview of the federal gift tax return (Form 709).  This form is used to report and pay tax on lifetime gifts and is an integral part of the estate planning process.  The presentation covered the general purposes and structure of the form, as well as provided tips for preparing it.

Court Rejects Income-Only Trust Created by MassHealth Applicant

In a poorly-reasoned and somewhat murky decision, a Superior Court judge in Daley v. Sudders (Civil Action No. 15–CV–0188–D.Dec. 24, 2015) extends the Doherty decision to reject the MassHealth application of a man who, with his wife, placed his Worcester condominium into an irrevocable trust for long-term care planning purposes. To learn more about this case and its implications for life estate trusts, click HERE.

Estate of Purdue v. Commissioner

By, Caleb S. Sainsbury, Esq. of Morgan, Lewis & Bockius LLP

Citation: 145 T.C. Memo. 2015-249 (December 28, 2015)

Overview: This case addresses (1) whether the decedent retained an interest under §2036 of assets transferred to an FLP; (2) whether gifts of FLP interests qualify for the annual exclusion; and (3) whether interest on a loan to the estate to pay estate taxes may be deducted.

Summary of Facts: In 1995, the estate planning lawyer for Mr. and Mrs. Purdue advised them to establish an FLP and various trusts.  In 2000, the Purdues acted on this advice and contributed $22 million of marketable securities, an interest in a commercial building worth $900,000, a $375,000 promissory note from one of their children and an $865,523 certificate of deposit in exchange for all of the FLP membership interests.  The final agreement listed the following six reasons for establishing the FLP: to (1) consolidate the management and control of the property and improve efficiency in managing the property; (2) avoid fractured ownership; (3) keep ownership of the assets within the extended family; (4) protect assets from unknown creditors; (5) provide flexibility and management of assets not available through other business entities; and (6) promote the education and communication among extended family with respect to financial matters.

In addition, prior to the execution of the FLP, the estate planning attorney sent a memorandum to the Purdues summarizing five advantages of the structure. These advantages were (1) limited liability; (2) pass through income taxation; (3) minimum formalities; (4) appropriate entity for owning real estate; and (5) tax savings.

Prior to signing the documents, the Purdues had experienced some health issues. Mrs. Purdue had become semi-invalid due to a leg injury.  She had also experienced stroke-like symptoms in October 2000, but did not have residual neurological impairment.  Mr. Purdue was physically healthy at the time of the signing, but did experience symptoms of Alzheimer’s disease and was subsequently diagnosed with that disease.

Mr. Purdue died unexpectedly in August 2001 and his estate passed to a family trust and two QTIP trusts. From 2002 through 2007, Mrs. Purdue made gifts of the FLP membership interests to an irrevocable trust with beneficiary withdrawal rights.  The trust made approximately $1.95 million of distributions to the children from 2001 to 2007, with the majority of the cash coming from the FLP interests contributed to the trust.

Upon Mrs. Purdue’s death in 2007, a dispute arose among her children on whether the FLP should make a distribution to pay estate taxes. Because the FLP operating agreement required unanimous consent, this gridlock resulted in funds from the FLP not being available to pay the tax.  As such, some of the beneficiaries and the QTIP trusts loaned money to the estate to fund the estate tax payment.  The estate deducted the interest on the loan on the estate tax return.

Court Analysis:

  1. §2036 Issues

The IRS argued that Mrs. Purdue had a retained interest in all assets transferred to the FLP. However, the Court reasoned that §2036 did not apply with respect to the transfers to the FLP for the following reasons: (1) the record established legitimate and significant nontax reasons for creating the FLP, (2) the Purdues were not financially dependent on FLP distributions, (3) FLP funds and personal funds were not comingled, (4) the FLP maintained its own records and formalities were respected, (5) the assets were transferred to the FLP in a timely manner, and (6) the Purdues were in good enough health at the time of the transfers.

  1. Annual Exclusion

To qualify as a gift of a present interest in the context of FLP interests, the donees must have the use, possession or enjoyment of the FLP interests or the income from those interests. Although the donees could not transfer the FLP interests without the consent of all members, the Court reasoned that the donees did receive income from those interests and this satisfied the present interest requirement.  Therefore, the gifts did qualify for the annual exclusion.

  1. Deductibility of Interest

In order for the interest on a loan to the estate to be deductible on an estate tax return, the loan must be (i) bona fide, (ii) necessary and actually incurred in the estate administration and (iii) essential to the property settlement of the estate. See Treas. Reg. §20.2053-1(b)(2), §20.2053-3(a).  The Court reasoned that the loan was necessary because the FLP members could not agree on whether to make a distribution to pay the estate taxes.  Thus, the interest deduction was allowed.

Take Away Considerations:  This case provides a roadmap for highlighting factors resulting in a positive result for the client.  Particularly, advisors must take care to review the factors noted by the Court to avoid having the full value of assets transferred to an FLP included in the estate under §2036.

BBA Event Recap: Trusts & Estates Section Mid-Year Review

Program Title: Trusts & Estates Section Mid-Year Review

Program Date: Friday, January 22, 2016

Panelists: Melissa E. Sydney of Burns & Levinson LLP, Allison Whitmore of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., Christopher M. Falzone of Rockland Trust Company, and Valerie Sussman of Sullivan & Worcester LLP

Program Sponsor: Trusts & Estates Section

Materials:  To view the program materials, click HERE.

Summary of Program Topic: The Trusts and Estates Section Mid-Year Review covered recent federal and state case law, legislation and tax law matters. This year’s Mid-Year review included:

  • recent developments in Massachusetts case law, including a discussion of protecting trust assets from a divorcing spouse, income tax issues relating to trust situs and lessons on testamentary capacity
  • review status of pending legislation, including the pending Massachusetts estate tax bill
  • review final regulations on portability, proposed regulations under Code Section 2801, and discuss the Redstone and Obergefell cases.

BBA Event Recap: Maximizing Community Benefits

Program Title: Maximizing Community Benefits: Helping Clients Avoid Nursing Home Placement and Access Medicaid Coverage for Home Care and Assisted Living

Program Date: Tuesday, January 19, 2016

Panelists: Patricia C. D’Agostino of Margolis & Bloom

Program SponsorRebecca J. Benson of Margolis & Bloom and Gary Zalkin of Zalkin Law, co-Chairs of the Elder Law and Disability Planning Committee

Materials:  To view the program materials, click HERE.

Summary of Program Topic:  The state has rolled out several new programs to help keep elders and people with disabilities in the community, including the Home and Community Based Waiver (the “Frail Elder Waiver”), Adult Foster Care, Personal Care Attendant, Community Choices, Program for All Inclusive Care for the Elderly (“PACE”), and Senior Care Options (“SCO”). The clinical estate financial eligibility rules are complex and new programs are introduced often. A knowledgeable estate planner can help clients create eligibility, lengthen the life of their assets and remain at home for as long as possible.

Practice Fundamentals Series: Gift Planning Basics: Taxable Gifts – Definitions, Opportunities and Potential Pitfalls

Program Date: Wednesday, January 6, 2016

Panelist: Annette K. Eaton, Esq., Nixon Peabody LLP

Program Chairs: Anne L. Warren of Brown Brothers Harriman & Co.,   Tamara Lauterbach Sturges of Egleson & Sturges, LLC, and Heidi Seely of Rackemann, Sawyer & Brewster, P.C.

Materials: Click HERE for panelist’s handout.

Program Topic: The speaker provided an overview of common gifting strategies every estate planning practitioner should have in his or her toolkit.  Through case studies, the speaker reviewed: (i) annual exclusion gifting; (ii) gifting to minors; (iii) gifting fractional interests; (iv) GRATs; and (v) charitable gifting strategies.

BBA Event Recap: When A.R.T. is the Issue: The Impact of Assisted Reproductive Technologies on Estates and Probate

Program Title: When A.R.T. is the Issue: The Impact of Assisted Reproductive Technologies on Estates and Probate

Program Date: Tuesday, November 20, 2015

Panelists: Lisa M. Cukier, Esq. and David Raymon, Esq., both of Burns & Levinson LLP

Program SponsorsFamily Law Section, Health Law Section, Estate Planning Committee

Materials:  To view the program materials, click here.

Summary of Program Topic: The panelists discussed assisted reproductive technologies and its impact on estate planning, family law and probate.  During their presentation, the panelists reviewed statutes and case laws that control ownership of genetic material, what constitutes parentage and how to dispose of embryos in estate plans.