The Estate Planner - Thomson Reuters



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|September 2011 | | |

|IN THIS ISSUE: | |The Estate Planner Archive |

| | | |

|News, Articles, and Updates for the Estate Planner | |Cowles Resources |

|See updates and article references involving charitable trusts and donations;| |Order Cowles and Supplies |

|elder law; estate and gift taxes; estate and trust administration--probate; | |Cowles Members Only |

|estate planning; generation-skipping transfer tax; health care; interest; | |Westlaw |

|small and mid-size law firm practice; special needs trusts; guardianships; | | |

|trusts; and wills | |Contact Us |

| | |E-Mail the Editor |

| | | |

|Cowles Tech Tip | |Other Resources |

|Version 2011-2 of Trust Plus redesigned the Client area, adding new features | |Other Reference Material |

|and capturing additional client information. Screens are bigger, and the list| |Other Newsletters |

|of clients is sortable by the client's first or last name, the spouse's name,| | |

|the file number, or the date created. This Tech Tip discusses the new tab | | |

|for children, allowing you to record information for the client's children. | | |

|See all articles in this issue |

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|NEWS, ARTICLES, AND UPDATES |

|For The Estate Planner |

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|Charitable Trusts and Donations |

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|ARTICLES |

|The Life Span of a Private Foundation: Perpetual or Limited? Richard L. Fox and Dorian Bon. (Estate Planning, September, 2011). |

|Westlaw: 38 ESTPLN 19. |

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|OTHER |

|U.S. District Court. Federal Court Dismisses Breach of Charitable Trust Claim. On September 8, the U.S. District Court for the |

|Northern District of Ohio granted the Cleveland Clinic Foundation’s motion to dismiss the City of Cleveland and Mayor Frank G. |

|Jackson’s action against the foundation for breach of contract and breach of charitable trust claims. The city sought to compel |

|the foundation to continue operating one of its regional hospitals, alleging they violated Title VI, 42 U.S.C. § 2000d, breached |

|charitable trust obligations, and breached tax-exempt bond contracts through its decision to close Huron Hospital. The court |

|found that the city failed to support its claim that a charitable trust exists requiring the foundation to keep the hospital |

|open, and “would in any event lack standing to enforce such a charitable trust.” Westlaw: Jackson v. Cleveland Clinic |

|Foundation, N.D. Ohio, No. 1:11-cv-01334-SO, 2011 WL 4007732 (September 8, 2011); Web: Information about this case is available |

|on the U.S. Court's PACER system. A subscription to PACER is required. |

|U.S. Tax Court. Court Rules on Charitable Contribution and Business Deductions. On September 1, the U.S. Tax Court determined |

|that Albert Fernandez, a self-employed, licensed clinical social worker and psychotherapist, was not entitled to a charitable |

|contribution deduction in excess of the amount allowed by the Internal Revenue Service on his 2005 federal income tax return |

|because he failed to produce any documents that substantiated the additional contributions he claimed in accordance with the |

|requirements of I.R.C. § 170. The court also disallowed several business expense deductions in excess of amounts allowed by the |

|Service as Fernandez failed to present sufficient evidence substantiating the deductions, but did allow a certain amount for some|

|of the deductions that the court determined to be reasonable. Finally, the court concluded that Fernandez failed to establish |

|reasonable cause for his failure to timely file and pay taxes, and there ruled him liable for the additions to tax under IRC § |

|6651(a)(1), IRC § 6651(a)(2), and IRC §6654 assessed by the Service. Westlaw: Fernandez v. Commissioner, T.C., No. 21646-08, T.C.|

|Memo. 2011-216, 2011 WL 3856849 (September 1, 2011); Web: Fernandez v. Commissioner, T.C., No. 21646-08, T.C. Memo. 2011-216 |

|(September 1, 2011). |

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|Elder Law |

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|LEGISLATION |

|California. Elder Abuse; Identity Theft. California has passed legislation relating to identity theft provisions of the elder |

|abuse statute. The legislation provides that a caretaker of an elder or dependent adult, or a person who knows or reasonably |

|should know that the victim is an elder or dependent adult, who violates specified identity theft provisions with respect to the |

|victim's property or personal identifying information is subject to a fine not exceeding $2,500, or by imprisonment in the county|

|jail not exceeding one year, or by both that fine or imprisonment, or alternatively by a fine not exceeding $10,000, or by |

|imprisonment in a state prison for 2, 3, or 4 years, or by both that fine and imprisonment, if the value of the assets taken is |

|of a value exceeding $950. (2011 California Assembly Bill No. 332, California 2011-2012 Regular Session; Title: Elder Abuse.; |

|VERSION: Enrolled; September 08, 2011). Westlaw: 2011 CA A.B. 332 (NS); Web: California Legislature. |

|California. Extension of Mandated Reporting of Financial Abuse of Elders and Dependent Adults. California has passed legislation |

|that to amend and repeal provisions related to elder and dependent adult abuse. The existing Elder Abuse and Dependent Adult |

|Civil Protection Act (which establishes procedures for the reporting, investigation, and prosecution of elder and dependent adult|

|abuse) include provisions which require mandated reporters (such as care custodians of elder or dependent adults and local law |

|enforcement agencies) to report suspected financial abuse. The failure to make such reports is subject to a civil penalty. The |

|legislation extends these provisions indefinitely (without a fixed date), which would have expire on January 1, 2013. The |

|legislation also incorporates additional changes in Section 15630.1 of the Welfare and Institutions Code, proposed by SB 718 |

|(relating to the means of reporting; enrolled version passed 9/1/2011), to be operative only if SB 718 and this bill are both |

|chaptered and become effective on or before January 1, 2012, and this bill is chaptered last. (2011 California Senate Bill No. |

|33, California 2011-2012 Regular Session; Title: Elder And Dependent Adult Abuse.; VERSION: Enrolled; September 01, 2011). |

|Westlaw: 2011 CA S.B. 33 (NS); Web: California Legislature. |

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|Estate and Gift Taxes |

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|ARTICLES |

|Basis Harvesting. Terence S. Nunan. (Probate and Property, September/October, 2011). Westlaw: 25-OCT Prob. & Prop. 54; Web: |

|Probate and Property (ABA Members only). |

|Flexible Family Trusts: Planning Under TRA 2010 to Obtain Flexibility but Avoid a Tax Disaster. Mark R. Parthemer. (Probate and |

|Property, September/October, 2011). Westlaw: 25-OCT Prob. & Prop. 34; Web: Probate and Property (ABA Members only). |

|Unplugging Great-Grandpa: Curious Consequences of the Current Estate Tax Regime. Alan S. Gassman and Christopher J. Denicolo. |

|(Estate Planning, September, 2011). Westlaw: 38 ESTPLN 39. |

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|IRS DECISIONS, REGULATIONS, AND GUIDANCE |

|IRS. IRS Announces Relief for Large Estates of 2010 Decedents. In IR-2011-91 published on September 13, the IRS announced that |

|estates of people who died in 2010 will have until early next year to file various required returns and pay any estate taxes due,|

|and certain beneficiaries of these estates will receive penalty relief on their 2010 federal income tax returns. The relief is |

|designed to give 2010 estates subject to the estate tax or carryover basis regimes additional time to comply with the tax law |

|changes enacted in late 2010. The announcement also said that the carryover basis form, Form 8939, will be released this fall and|

|noted that the revised versions of the estate tax forms have been posted on the IRS website at . Westlaw: IR-2011-91, 2011|

|WL 4042769 (September 13, 2011); Web: IR-2011-91, IRS Newsroom (September 13, 2011). |

|IRS. IRS Issues Notice on Due Dates for Filing Various Estate Tax Returns and Penalty Relief for Beneficiaries of 2010 Estates. |

|On September 13, the IRS issued Notice 2011-76, which provides that both an automatic six-month extension of time to file Form |

|706 or Form 706-NA and a six-month extension of time to pay the estate tax will be granted to executors of 2010 estates who file |

|Form 4768 by the due date for filing the returns; substantiation for the extension of time to pay is not required although |

|interest will accrue on any liability from the due date of the return, excluding extensions. The Notice also changed the due date|

|for filing Form 8939 from November 15, 2011, to January 17, 2012. In addition, penalty relief is provided to a beneficiary who |

|has filed their 2010 income tax return reporting the disposition of property acquired from a 2010 estate, and later must amend |

|the return and owe additional tax due to a change in the property’s basis or other pertinent information based upon the estate’s |

|application of I.R.C. § 1022; taxpayer should write across the top of the amended return “IR Notice 2011-76” to alert the IRS |

|that the he or she meets the requirements for reasonable cause to waive any penalty. Westlaw: IRS Notice 2011-76, 2011 WL 4042772|

|(September 13, 2011); Web: IRS Notice 2011-76, IRS Advanced Notices (September 13, 2011). |

|IRS. Treasury Guidance Plan includes Several Gift, Estate and Trust Projects. On September 2, the Department of the Treasury and |

|Internal Revenue Service issued its 2011-2012 Priority Guidance Plan which contains 317 projects that the offices intend to |

|actively work on from July 2011 through June 2012. The 17 projects in the plan related to gifts, estates and trusts include |

|regulations under I.R.C. §67 regarding miscellaneous itemized deductions of trusts and estates, guidance on portability of the |

|unified credit between spouses under IRC §2010(c), and final regulations under IRC §2036 regarding graduated grantor retained |

|annuity trusts. Additional projects in the estate and trust arena include final regulations under IRC §642(c) concerning the |

|ordering rules for charitable payments made by a charitable lead trust, and guidance concerning adjustments to sample charitable |

|remainder trust forms under §664. Westlaw: 2011 WL 3872310 (September 6, 2011); Web: 2011-2012 Priority Guidance Plan, IRS |

|Priority Guidance Plans (September 2, 2011). |

|IRS. IRS Re-Proposes Guidance on Estate/Trust Expenses Subject to Two Percent Floor. On September 7, the IRS withdrew proposed |

|regulations published on July 27, 2007 (REG-128224-06, 2007-36 IRB 551) providing guidance on which costs incurred by estates or |

|non-grantor trusts are subject to the 2-percent floor for miscellaneous itemized deductions under I.R.C. § 67(a), and issued new |

|proposed regulations providing guidance on this question along with a notice of a public hearing. The new proposed regs do not |

|require the allocation described in the 2007 guidance which said that if an expense “could” be incurred by an individual it was |

|subject to the 2 percent floor; rather they apply the Supreme Court’s interpretation of IRC § 67(e) in Knight v. Commissioner, |

|552 U.S. 181 (2008), which held that the deductibility of an expense under IRC § 67(e)(1) depends on whether the cost is |

|“commonly,” or “customarily” incurred when such property is held by an individual investor. The new proposed regs also say that |

|if an investment advisory fee exceeds the fee generally charged to an individual investor and is attributable to an unusual |

|investment objective of the trust or estate or “to a specialized balancing of the interests of various parties such that a |

|reasonable comparison with individual investors would be improper”, that excess is not subject to the 2-percent floor. Westlaw: |

|REG-128224-06, 76 FR 55322-01, 2011 WL 3895884 (September 7, 2011); Web: REG-128224-06, 76 FR 55322-01 (September 7, 2011). |

|IRS. Final Form 706 Released for 2010 Estates. On September 3, the IRS released a final 2010 Form 706, United States Estate (and |

|Generation-Skipping Transfer) Tax Return, to be filed for decedents dying in 2010. However, instructions to the form have not yet|

|been released. Form 706 is one of two forms that will be used by estates in 2010 when choosing between the modified carryover |

|basis regime and the estate tax, for property transferred from a decedent in 2010. Westlaw: 2011 WL 3894213 (September 7, 2011); |

|Web: Form 706, IRS Index of Publications (September 8, 2011). |

| |

|LEGISLATION |

|North Carolina. State Revenue Agency Announces Revival of Estate Tax. On September 1, the North Carolina Department of Revenue |

|announced that the state’s estate tax is reinstated effective for individuals dying on or after January 1, 2011, if a federal |

|estate tax return is required, as a result of the revival of the federal estate tax under the 2010 Tax Relief Act (Pub. L. No. |

|111-312). North Carolina statute G.S. 105-32.2(a) imposes an estate tax on a decedent’s estate when a federal estate tax is |

|imposed and the decedent was either a resident of North Carolina or was a nonresident who owned real property in North Carolina |

|or personal property that has a tax situs in the state. According to the Department, although there is no North Carolina estate |

|tax return filed for 2010 decedents, state law conforms to the exclusion amounts and gives those estates that chose to pay |

|federal estate tax and receive the stepped-up basis in property passing through the estate the stepped-up basis for North |

|Carolina purposes. Westlaw: 2011 WL 3840187 (September 1, 2011); Web: Estate Tax Update, North Carolina Department of Revenue Hot|

|Topics (September 1, 2011). |

|Rhode Island. State Tax Division Announces New State Estate Tax Extension Form. Last month, the Rhode Island Division of Taxation|

|announced the creation of the state’s own form for requesting an extension for estate tax purposes. Form RI-4768, Application for|

|Automatic 6 Month Extension of Time to File Rhode Island Estate Tax, allows executors to fill in the fields online, then print |

|out the form for filing with the Division. Prior to release of the new form, estates requesting filing extensions for Rhode |

|Island estate tax purposes had to file copies of the federal extension request or send a letter requesting an extension to the |

|Division. Westlaw: 2011 WL 3856803 (September 2, 2011); Web: Form RI-4768, Rhode Island Division of Taxation (August 2011). |

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|OTHER |

|AICPA. AICPA Issues Comments on Recent IRS Guidance on Carryover Basis Regime. On September 7, the AICPA sent a letter to IRS |

|Commissioner, Douglas Shulman, commenting on Notice 2011-66, which provides guidance on electing into the carryover basis |

|treatment under I.R.C. § 1022 for estates of decedents who died in 2010 and also provides rules applicable to generation-skipping|

|transfers in 2010. The letter expressed concern over the lack of finality regarding basis of assets determined under IRC § 1022 |

|since guidance allows the recipient's basis in an asset to be subject to adjustment upon the IRS’s examination of any tax return |

|reporting a value dependent upon the property's basis, and suggested that, barring fraud or willful attempt to evade tax, a |

|standard period apply for the IRS to challenge taxpayer’s basis, such as three years after the date Form 8939 is filed. In |

|addition, the letter brought to the Service’s attention urgent AMT issues, and requested clarification on whether a basis |

|increase must be allocated for both regular tax and AMT purposes, potentially resulting in assets having different basis for AMT |

|purposes, and guidance on how carryovers/unrealized losses for AMT purposes should be treated. Westlaw: 2011 WL 3973149 |

|(September 7, 2011); Web: AICPA Comments on Notice 2011-66 on Carryover Basis Guidance, Comment Letter (September 7, 2011). |

|ACTEC. ACTEC Members Examine Rules for Electing Carryover Basis Regime. In a September 8 webcast co-sponsored by the American Law|

|Institute -American Bar Association and ACTEC examining the carryover basis guidance provided by recently issued Notice 2011-66 |

|and Rev. Proc. 2011-41, Diana Zeydel, chair of The American College of Trust and Estate Counsel estate and gift tax committee, |

|told listeners the rules for electing to use the carryover basis regime for decedents who died in 2010 are “complicated and very |

|tricky” when trying to determine whether the estate tax regime or carryover basis regime is going to work best for the taxpayer. |

|She noted that the guidance “is helpful but does not provide as many safe harbors as we were hoping for,” explaining that “estate|

|practitioners had hoped that the guidance would provide some safe harbors on whether fair market value or basis was lower for |

|property being transferred from the estate of a person who died in 2010.” Released on Aug. 5, Notice 2011-66 addresses procedures|

|for 2010 estates to elect into the carryover basis rules in I.R.C. § 1022 and how a donor may elect out of the automatic |

|allocation of the GST tax exemption to direct skips occurring during 2010, and Rev. Proc. 2011-41 provides optional safe harbor |

|guidance to 2010 estates that electing the carryover basis regime. Westlaw: 2011 WL 3943312 (September 9, 2011). |

|Kentucky. Kentucky Appeals Court Reverses Estate Tax Ruling Relating to Trustee’s Payment of Death Taxes. On September 2, 2011, |

|in an unpublished opinion, the Kentucky Court of Appeals reversed the circuit court’s decision granting summary judgment to PNC |

|Bank, trustee of a trust created under decedent Raphael Avellar’s trust for the benefit of his sister upon his death, in a case |

|relating to the interpretation of provisions of the Avellar’s trust and will relating to payment of federal estate and state |

|inheritance taxes following his after the circuit court held that Avellar’s will mandated the payment of federal estate and state|

|inheritance taxes from money used to fund the sister’s trust. Four contingent beneficiaries under the sister’s trust argued that|

|the taxes should not have been taken from the trust’s funds, while the trustee contended that it had no choice but to pay the |

|taxes the way it did pursuant to the terms of the will. After reviewing the facts, the appeals court concluded that the circuit |

|court erred as a matter of law in finding that the trustee's actions with regard to the payment of the death taxes were mandatory|

|rather than discretionary and reversed the summary judgment. Westlaw: Blanton v. PNC Bank NA, Ky. Ct. App., No. |

|2010-CA-001142-MR, 2011 WL 3862788 (September 2, 2011); Web: Blanton v. PNC Bank NA, Ky. Ct. App., No. 2010-CA-001142-MR |

|(September 2, 2011). |

|U.S. Tax Court. U.S. Tax Court Rejects IRS Argument that Proceeds from Sale of Annuities was Actually Income. On August 29, the |

|U.S. Tax Court determined that former Enron Corp. CEO Kenneth L. Lay, deceased, and his surviving spouse, had not received income|

|as a result of the sale of two annuity contracts to Enron in 2001 as part of an incentive agreement to abandon his plans for |

|retirement after the sudden resignation of his replacement six months after Lay had retired. The IRS argued that the Lays did not|

|sell the annuity contracts, rather receiving the $10 million as an employee cash bonus includable in income for the 2001 taxable |

|year and assessed a deficiency of $3,910,000. The court however, disagreed, noting that the annuities transaction was “well |

|documented, and all actions of the parties to the transaction reflect that Enron purchased the annuity contracts for $10 |

|million.” Westlaw: Estate of Lay v. Commissioner, T.C., No. 15732-09, T.C. Memo. 2011-208, 2011 WL 3798532 (August 29, 2011); |

|Web: Estate of Lay v. Commissioner, T.C., No. 15732-09, T.C. Memo. 2011-208, (August 29, 2011). |

|U.S. Tax Court. Tax Court Finds Value of Property Transferred to FLP Includible in Decedent’s Gross Estate. On August 30, the |

|U.S. Tax Court held that $4.3 million in property the decedent, Clyde W. Turner, Sr., transferred to a family limited |

|partnership, Turner & Co., prior to his death in exchange for a 0.5-percent general partnership interest and a 49.5-percent |

|limited partnership interest is included in his gross estate under I.R.C. § 2036(a), with the included amount to be valued at the|

|fair market value of the assets as of the date of death. After reviewing the facts the court concluded that the transfer was not |

|a bona fide sale for adequate and full consideration as it was not motivated by a legitimate and significant nontax purpose, and |

|that Clyde Sr. retained the right to possess and enjoy the transferred property, as well as the right to designate which person |

|or persons would enjoy the transferred property, by both express and implied agreement. The court also found that premium |

|payments the decedent made prior to his death for life insurance policies held by an irrevocable life insurance trust created by |

|the decedent during life were gifts of present interests in property to the trust beneficiaries and that the IRS must disregard |

|the purported gifts of limited partnership interests in Turner &Co. in calculating Clyde Sr.'s adjusted taxable gifts in order to|

|prevent double inclusion of the value of the property transferred to Turner & Co. for transfer tax purposes. Westlaw: Estate of |

|Turner v. Commissioner, T.C., No. 18911-08, T.C. Memo. 2011-209, (August 30, 2011); Web: Estate of Turner v. Commissioner, T.C., |

|No. 18911-08, T.C. Memo. 2011-209 (August 30, 2011). |

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|Estate and Trust Administration; Probate |

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|LEGISLATION |

|California. Summons Where a Person Files an Objection to the Probate of a Will. California has passed legislation that makes |

|changes to its probate law. Among other things, the act provides that the provisions which authorize a clerk to issue a summons |

|are applicable when a person files an objection to the probate of a will; includes a conservator of a person or estate appointed |

|in accordance with specified provisions in the list of persons who, if a decedent has not otherwise given directions, has the |

|right to control the disposition of the remains of the deceased person vests; and make other technical changes. (2011 California |

|Senate Bill No. 647, California 2011-2012 Regular Session; Title: Civil Law: Omnibus Bill.; VERSION: Adopted; September 20, |

|2011). Westlaw: 2011 CA S.B. 647 (NS); Web: California Legislature. |

|Ohio. Changes to Probate Code. Ohio has passed legislation which makes amendments to the Probate Code. The act makes numerous |

|changes, including addressing (1) probate court jurisdiction and procedure (replaces "stenographers" and "stenographic reporters"|

|with "court reporters" and replaces "referee" with "magistrate" in the Probate Code); (2) appointment, powers, and duties of |

|executors and administrators (limitation for granting original administration; release from administration; payment of wages of |

|deceased employee without administration; letters testamentary; application for appointment; minority of executor; special |

|administrator; administrator de bonis non; powers during will contest; limitations; collection of assets; new administrator; fees|

|of executor or administrator; public sale of personal property; distribution after settlement; certificate of transfer of real |

|property; apportionment of taxes; inventory--appraisal of property); (3) fiduciaries (residence qualifications of guardian; |

|notice of hearing on fiduciary's account investment authority; prohibited transactions--penalties and exception; mortgage of real|

|property; concealed or embezzled assets; appointment of trustee of funds of unknown or nonresident; action on bond; failure of |

|fiduciary to make payment or distribution); (4) wills (deposit of will; declaration of validity of will; production of will; |

|withholding of will; record of will destroyed; oral will); (5) presentation of certain claims (presentation of contingent claims;|

|proceedings by nonresident executor or administrator to bar creditors' claims; notice on marriage license of penalty for failure |

|to return certificate of solemnized marriage; failure of board of education or governing board to perform duties or fill vacancy;|

|lists of unclaimed costs--publication), and (6) other miscellaneous changes (replaces "petition" with "complaint" in specified |

|proceedings in the probate court.; replaces outdated terminology and makes numerous gender neutralizing; grammatical, and other |

|technical changes throughout the Probate Code; provides that the bill's provisions relating to decedents' estates apply to the |

|estates of decedents who die on or after the act's effective date). The state legislature's website contains a summary of the |

|act's provisions. Westlaw: 2011 OH S.B. 124 (NS); Web: Ohio Legislature (bill) (bill summary). |

| |

|Estate Planning (Generally) |

| |

|ARTICLES |

|New Fiduciary Decisions: the Continuing Saga of Joint Bank Accounts. Ronald R. Volkmer. (Estate Planning, September, 2011). |

|Westlaw: 38 ESTPLN 42. |

|Taking a Fresh Look at Lifetime Gift Planning Opportunities. Carol G. Kroch, Mary B. Hickok, Donna G. Barwick, and Donald P. |

|Dicarlo, Jr. (Estate Planning, September, 2011). Westlaw: 38 ESTPLN 03. |

|LEGISLATION |

|California. Priorities in Dispositions of Remains. California has passed legislation relating to disposition of remains. The act |

|amends existing law regarding the person or persons who, in an order of succession, have the right to control, and duty of |

|disposition of, the remains of a deceased person if other directions have not been given by the decedent. The act would amend the|

|order to provide that the designation of a person authorized to direct disposition (PADD) on a United States Department of |

|Defense Record of Emergency Data, DD Form 93, as that form exists on December 31, 2011, or its successor form if approved by the |

|State Registrar, will take first priority and be used to establish an agent who has the right and duty of disposition for a |

|decedent who died while on duty in any branch or component of the Armed Forces of the United States, as defined. (Existing law |

|gives first priority to an agent under a power of attorney for health care who has the right and duty of disposition.) However, |

|this provision will become operative only if the form and a specified federal statute are amended to allow a service member to |

|designate any person, regardless of the relationship of the designee to the decedent, as the agent who has the right of |

|disposition of a service member's remains. Other changes in the act are contingent on whether a companion act (SB 647, addressing|

|right to control disposition of remains, which this act amends) is passed and chaptered first (chaptered on 9/21/2011) and |

|becomes effective before 2012. (2011 California Assembly Bill No. 905, California 2011-2012 Regular Session; Title: Disposition |

|Of Remains: Authorized Agent.; VERSION: Adopted; September 26, 2011). Westlaw: 2011 CA A.B. 905 (NS); Web: California |

|Legislature. |

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|Generation-Skipping Transfer Tax |

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|IRS DECISIONS, REGULATIONS, AND GUIDANCE |

|IRS. Section 2642 - Inclusion Ratio. The IRS granted taxpayer a 120 extension to allocate taxpayer’s GST available exemption to |

|the following transfers: |

|A transfer to an irrevocable trust created for the benefit of taxpayer’s descendants after taxpayer and his spouse consented |

|under IRC § 2513 to treat taxpayer's transfers to the trust made in three separate years as made one-half by spouse but |

|taxpayer’s accountant failed to allocate each of their GST exemption to the transfer in year three. Westlaw: PLR 201137001, 2011 |

|WL 4133085 (September 16, 2011); Web: PLR 201137001, IRS Written Determinations (September 16, 2011). |

|A transfer of shares of stock to an irrevocable trust for the benefit of taxpayer’s son and his descendants after the attorney |

|preparing the Form 709 failed to include page four of the return, which reports the allocation of the GST exemption. Westlaw: PLR|

|201137009, 2011 WL 4133112 (September 16, 2011); Web: PLR 201137009, IRS Written Determinations (September 16, 2011). |

|IRS. Section 1001 - Determination of Amount of and Recognition of Gain or Loss. In a series of rulings, the IRS determined that |

|judicial construction of a trust’s spendthrift provision to allow proposed sales of remainder interests in the trust and the |

|proposed sales of the interests will not affect the trust’s GST exempt, will not result in any taxable gifts for the buyers or |

|sellers and will not give rise to a realization of income to the trust or any of the beneficiaries under I.R.C. § 61 or IRC § |

|1001; however, each seller will realize gain or loss from the sale of their remainder interest in an amount equal to the |

|difference between the amount realized over the his or her cost to acquire the remainder interest with realized gain recognized |

|pursuant to IRC § 1001(c) and loss realized subject to disallowance under IRC § 267(a)(1). Westlaw: PLR 201136011, 2011 WL |

|3973480; PLR 201136012, 2011 WL 3973481; PLR 201136013, 2011 WL 3973482 PLR 201136014, 2011 WL 3973483, PLR 201136015, 2011 WL |

|3973484, and PLR 201136016, 2011 WL 3973485 (September 9, 2011); Web: PLR 201136011, PLR 201136012, PLR 201136013, PLR 201136014,|

|PLR 201136015, and PLR 201136016, IRS Written Determinations (September 9, 2011). |

|IRS. Section 2041 - Powers of Appointment (Included v. Not Included in Gross Estate). The IRS concluded that the exercise by a |

|beneficiary of testamentary non-general powers of appointment over various trusts will not result in any property subject to the |

|powers of appointment being includible in the beneficiary’s estate under I.R.C. § 2041 and will not result in a transfer of |

|property that is subject to generation-skipping transfer tax or affect the property’s GST exempt status. Westlaw: PLR 201136017, |

|2011 WL 3973486 (September 9, 2011); Web: PLR 201136017, IRS Written Determinations (September 9, 2011). |

|IRS. Section 2631 - GST Exemption. The IRS granted a husband and wife each a 120 extension to allocate their respective available|

|GST exemption to their respective transfers to an irrevocable trust they created for the benefit of their children and each |

|child's issue after the attorney preparing the Forms 709 failed to properly allocate each of their available GST exemptions to |

|the transfers. Westlaw: PLR 201135024, 2011 WL 3870585 (September 2, 2011); Web: PLR 201135024, 2011 WL 3870585 (September 2, |

|2011). |

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|Health Care |

| |

|ARTICLES |

|Competitive Pricing and the Challenge of Cost Control in Medicare. (Journal of Health Politics, Policy & Law, August, 2011). |

|Westlaw: 36 J. Health Pol. Pol'y & L. 649. |

|Navigating HIPAA in Claims Litigation. Robert B. Miller, Tegan Schlatter. (GPSolo, September, 2011). Westlaw: 28 No. 6 GPSolo 26.|

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|Interest |

| |

|IRS DECISIONS, REGULATIONS, AND GUIDANCE |

|IRS: Federal Rates; Adjusted Federal Rates; Adjusted Federal Long-Term Rate and the Long-Term Exempt Rate. Rev. Rul. 2011-22 |

|provides various prescribed rates for federal tax purposes for October 2011. Westlaw: Rev. Rul. 2011-22, 2011 WL 4350009 |

|(September 19, 2011); Web: Rev. Rul. 2011-22; Index of Applicable Federal Rates (AFR) Rulings (September 19, 2011). |

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|Irrevocable Trusts--See Trusts (Generally) |

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|Probate--See Estate/Trust Administration and Probate |

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|Retirement |

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|ARTICLES |

|Penalty-Free Withdrawals from Retirement Accounts. Thomas J. Murphy. (Arizona Attorney, September, 2011). Westlaw: 48-SEP Ariz. |

|Att'y 38; Web: Arizona Attorney. |

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|IRS DECISIONS, REGULATIONS, AND GUIDANCE |

|IRS. Section 408 - Individual Retirement Accounts. The IRS granted taxpayers a 60-day extension to rollover distributions |

|individual retirement arrangements in the following: |

|Taxpayer asserts that his failure to accomplish a timely rollover was due to an error made by his financial advisor when the |

|advisor incorrectly deposited the distribution into a non-IRA account. Westlaw: PLR 201136029, 2011 WL 3973493 (September 9, |

|2011); Web: PLR 201136029, IRS Written Determination (September 9, 2011). |

|Taxpayer asserts that her failure to accomplish a timely rollover was due to errors made by her financial advisor when the |

|advisor incorrectly deposited the distribution into a non-IRA account. Westlaw: PLR 201136037, 2011 WL 3973501 (September 9, |

|2011): PLR 201136037, IRS Written Determination (September 9, 2011). |

|Taxpayer asserts that his failure to accomplish a timely rollover was due to an error made by his financial advisor after the |

|advisor admitted that he incorrectly advised that taxpayer that his IRA could be properly rolled over to a hedge fund managed by |

|advisor’s financial institution. Westlaw: PLR 201136038, 2011 WL 3973502 (September 9, 2011); PLR 201136038, IRS Written |

|Determination (September 9, 2011). |

|IRS. Section 408 - Individual Retirement Accounts. The IRS waived the 60-day rollover requirement for taxpayers’ distributions |

|from individual retirement arrangements in the following:. |

|Distribution received from an inherited annuity after surviving spouse asserts that her failure to accomplish a timely rollover |

|was due to errors made by her financial advisor and the custodial financial institution because of the institution’s erroneous |

|classification of the annuity as a regular, rather than a retirement investment. Westlaw: PLR 201135034, 2011 WL 3870593 |

|(September 2, 2011); Web: PLR 201135034, IRS Written Determinations (September 2, 2011). |

|Distributions received from husband’s and from wife’s IRAs after the couple assert that their failure to accomplish a timely |

|rollover was due to the wife being stricken with a debilitating medical condition and the necessity for the husband to serve as |

|primary caregiver during the rollover period. Westlaw: PLR 201135035, 2011 WL 3870594 (September 2, 2011); Web: PLR 201135035, |

|IRS Written Determinations (September 2, 2011). |

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|OTHER |

|U.S. District Court. Claims in Action Involving Retirement Plan Considered Abusive Tax Shelter Dismissed by Court. On August 29, |

|the U.S. District Court for the Northern District of Texas determined that psychologist Radha Bhatia and her husband cannot |

|continue with many of their claims against the companies that helped them establish an I.R.C. § 412(i) plan and purchase the |

|insurance policy to fund the plan, which was later determined to be an abusive tax shelter. The IRS has cautioned against the |

|potentially illegal use of I.R.C. § 412(i) plans, which are unique “defined benefit” retirement plans comprised entirely of |

|annuities or life insurance contracts that are utilized by small professional service companies, because the plans can |

|potentially serve as abusive tax shelters. The Court concluded the claims were barred by a release signed by the Bhatias when |

|they exchanged their policy after learning the plan was considered abusive, which the court determined to be valid despite the |

|plaintiffs’ claim that the release was procured by fraud, is unconscionable, or void against public policy. Westlaw: Bhatia v. |

|Dischino, N.D. Tex., No. 3:09-cv-01086-B-BD, 2011 WL 3820825 (August 29, 2011); Web: Bhatia v. Dischino, N.D. Tex., No. |

|3:09-cv-01086-B-BD (August 29, 2011). |

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|Small and Mid-Size Law Firm Practice |

| |

|ARTICLES |

|AIC Programs Go Online at West LegalEdcenter. Webinars Available From American Inns of Court. (Lawyer's PC, October 1, 2011). |

|Westlaw: 29 No. 1 Law. PC 4. |

|Browser Considerations. The Selection of a Web Browser Can Impact The Research Process for Legal Professionals. Karl Mattson. |

|(Lawyer's PC, October 1, 2011). Westlaw: 29 No. 1 Law. PC 7. |

|The Ethics of a Personal Connection to the Client. Lance E. Rothenberg. (GPSolo, September, 2011). Westlaw: 28 No. 6 GPSolo 40. |

|It's Three O'Clock in the Morning: Do You Know Where Your Data is? Jeffrey Allen. (GPSolo, September, 2011). Westlaw: 28 No. 6 |

|GPSolo 6. |

|Running a Social Network. Jonathan G. Stein. (GPSolo, September, 2011). Westlaw: 28 No. 6 GPSolo 48. |

|Proliferation of QR Codes. (Lawyer's PC, October 1, 2011). Westlaw: 29 No. 1 Law. PC 5. |

|Using Technology to Improve Client Service. Catherine Sanders Reach. (GPSolo, September, 2011). Westlaw: 28 No. 6 GPSolo 18. |

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|Special Needs Trusts; Guardianships |

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|LEGISLATION |

|Ohio. Changes to Probate Code. Ohio has passed legislation which makes amendments to the Probate Code. The act makes numerous |

|changes, including addressing (1) probate court jurisdiction and procedure (replaces "stenographers" and "stenographic reporters"|

|with "court reporters" and replaces "referee" with "magistrate" in the Probate Code); (2) appointment, powers, and duties of |

|executors and administrators (limitation for granting original administration; release from administration; payment of wages of |

|deceased employee without administration; letters testamentary; application for appointment; minority of executor; special |

|administrator; administrator de bonis non; powers during will contest; limitations; collection of assets; new administrator; fees|

|of executor or administrator; public sale of personal property; distribution after settlement; certificate of transfer of real |

|property; apportionment of taxes; inventory – appraisal of property); (3) fiduciaries (residence qualifications of guardian; |

|notice of hearing on fiduciary's account investment authority; prohibited transactions--penalties and exception; mortgage of real|

|property; concealed or embezzled assets; appointment of trustee of funds of unknown or nonresident; action on bond; failure of |

|fiduciary to make payment or distribution); (4) wills (deposit of will; declaration of validity of will; production of will; |

|withholding of will; record of will destroyed; oral will); (5) presentation of certain claims (presentation of contingent claims;|

|proceedings by nonresident executor or administrator to bar creditors' claims; notice on marriage license of penalty for failure |

|to return certificate of solemnized marriage; failure of board of education or governing board to perform duties or fill vacancy;|

|lists of unclaimed costs – publication), and (6) other miscellaneous changes (replaces "petition" with "complaint" in specified |

|proceedings in the probate court.; replaces outdated terminology and makes numerous gender neutralizing; grammatical, and other |

|technical changes throughout the Probate Code; provides that the bill's provisions relating to decedents' estates apply to the |

|estates of decedents who die on or after the act's effective date). The state legislature's website contains a summary of the |

|act's provisions. Westlaw: 2011 OH S.B. 124 (NS); Web: Ohio Legislature (bill) (bill summary). |

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|Trusts (Generally) |

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|ARTICLES |

|Choose from an Array of Invasion Standards When Drafting Trusts. Peter B. Tiernan. (Estate Planning, September, 2011). Westlaw: |

|38 ESTPLN 26. |

|Flexible Family Trusts: Planning Under TRA 2010 to Obtain Flexibility but Avoid a Tax Disaster. Mark R. Parthemer. (Probate and |

|Property, September/October, 2011). Westlaw: 25-OCT Prob. & Prop. 34; Web: Probate and Property (ABA Members only). |

|Proposed Changes to the Ohio Trust Code Affecting PSAs and Private Agreements. Joanne E. Hindel. (Ohio Probate Law Journal, |

|July/August 2011). Westlaw: 21 No. 6 Ohio Prob. L.J. 2. |

| |

|LEGISLATION |

|Illinois. Notary Public Act. Illinois has passed legislation that amends the Illinois Notary Public Act. The legislation changes |

|the definition of the term “financial institution” to include trust companies in the Notary Public Act. (2011 Illinois House Bill|

|No. 3041, Illinois Ninety-Seventh General Assembly - First Regular Session; Title: Notaries-Trust Companies; VERSION: Adopted; |

|August 23, 2011). Westlaw: 2011 IL H.B. 3041 (NS).Web: Illinois Legislature. |

| |

|OTHER |

|BNA. IRS Official Says Audits to Focus on High Income, High-Wealth Taxpayers with Reduced Tax Liability Due to |

|Flowthroughs/Trusts. Linda Franke, a senior level adviser with the Small Business/Self Employed Division told attendees of the |

|American Law Institute-American Bar Association tax controversy conference that the IRS’s examination team will focus audits on |

|“individuals with an income of $250,000 or more and total positive income of at least $1 million,” according to a report issued |

|by The Bureau of National Affairs, Inc. The report noted that the Service will pay attention to individuals with wealth whose tax|

|liability is sizably reduced through the use of multiple entities, such as flowthrough entities, trusts, and similar entities. |

|The report said that the IRS will also “pay close attention to taxpayers with multiple years of nonfiling.” Westlaw: 2011 WL |

|4095499 (September 16, 2011). |

|DOJ. Court Bars Two L.A. Residents from Forming “Common-Law” Trusts. On September 9, the Department of Justice issued a new |

|release announcing that a civil injunction order has been signed by Judge Jacqueline H. Nguyen of the U.S. District Court for the|

|Central District of California after the court permanently barred Gwenn Wycoff and Frank Ozak, both of Los Angeles, from forming |

|“common-law” trusts for others. (United States v. Wycoff, C.D. Cal., No. 2:10-cv-05856-JHN-PLA, injunction filed 9/8/11). The |

|government’s complaint alleged that the two promised that forming the trusts could help them avoid paying taxes because they |

|would “own nothing” but “control everything”, and promoted the scheme through the publication “The Art of Passing the Buck”, a |

|website and personal appearances. The court, however, determined, in preliminarily enjoining the defendants in March 2011, that |

|the trusts are shams, which cost the government more than $1.1 million. Westlaw: 2011 WL 4016242 (September 13, 2011); Web: Two |

|Los Angeles Residents Permanently Barred by Federal Court from Forming Trusts for Taxpayers, Department of Justice Tax Division |

|News (September 8, 2011). |

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|Wills |

| |

|LEGISLATION |

|Ohio. Changes to Probate Code. Ohio has passed legislation which makes amendments to the Probate Code. The act makes numerous |

|changes, including addressing (1) wills (deposit of will; declaration of validity of will; production of will; withholding of |

|will; record of will destroyed; oral will); (2) probate court jurisdiction and procedure (replaces "stenographers" and |

|"stenographic reporters" with "court reporters" and replaces "referee" with "magistrate" in the Probate Code); (3) appointment, |

|powers, and duties of executors and administrators (limitation for granting original administration; release from administration;|

|payment of wages of deceased employee without administration; letters testamentary; application for appointment; minority of |

|executor; special administrator; administrator de bonis non; powers during will contest; limitations; collection of assets; new |

|administrator; fees of executor or administrator; public sale of personal property; distribution after settlement; certificate of|

|transfer of real property; apportionment of taxes; inventory – appraisal of property); (4) fiduciaries (residence qualifications |

|of guardian; notice of hearing on fiduciary's account investment authority; prohibited transactions--penalties and exception; |

|mortgage of real property; concealed or embezzled assets; appointment of trustee of funds of unknown or nonresident; action on |

|bond; failure of fiduciary to make payment or distribution); ; (5) presentation of certain claims (presentation of contingent |

|claims; proceedings by nonresident executor or administrator to bar creditors' claims; notice on marriage license of penalty for |

|failure to return certificate of solemnized marriage; failure of board of education or governing board to perform duties or fill |

|vacancy; lists of unclaimed costs – publication), and (6) other miscellaneous changes (replaces "petition" with "complaint" in |

|specified proceedings in the probate court.; replaces outdated terminology and makes numerous gender neutralizing; grammatical, |

|and other technical changes throughout the Probate Code; provides that the bill's provisions relating to decedents' estates apply|

|to the estates of decedents who die on or after the act's effective date). The state legislature's website contains a summary of |

|the act's provisions. Westlaw: 2011 OH S.B. 124 (NS); Web: Ohio Legislature (bill) (bill summary). |

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|See all articles in this issue |

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|[pic] |

|With version 2011-2, the Client area of Trust Plus has been redesigned adding new features and capturing additional client |

|information. The screens are bigger and the list of clients is now sortable by the client's first or last name, the spouse's |

|name, the file number, or the date created. |

|A new tab for children has been added to record information for the client's children. In addition to name and address |

|information, there is a drop down to designate whether the individual is a child of the client, the spouse or partner, or both |

|(joint). If the checkbox “Use Client’s Address” is selected, the client’s address will be automatically brought in so that |

|re-entry is not needed. |

|[pic] |

|On the beneficiary screens of Trust and Will Information, there is a new "Add Children" button to add the client's children as |

|beneficiaries, eliminating having to enter the information twice. |

|[pic] |

|Once the children have been brought into this screen, additional information may be required such as the relationship and |

|guardian information. Additional beneficiaries may also be added. Client and beneficiary information will be carried into the |

|trust or will as appropriate based on phrase selections. |

|If you have any questions on the Cowles software, support is just a phone call away using the following numbers: |

|License activations - Customer Technical Support, 1-800-366-1730 (option 1) |

|Questions about your West account or requests to add/remove Members Only or Listserve access - Customer Service, 1-800-366-1730 |

|(option 2) |

|Content questions and questions on how to use the software - Reference Attorneys, 1-800-277-9378 (option 3) |

|Technical software problems and questions (installation, networking, technical errors) - Customer Technical Support, |

|1-800-366-1730 (option 4) |

|Sales of supplies (Estate Organizer Binders, client booklets, etc.) - Inside Sales, 1-800-366-1730 (option 5) |

|To schedule training on using the software - Telephone Training, 1-800-328-0109 (option 1) |

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|Start of Tech Tip Article |

|See all articles in this issue |

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