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California Estate Planning

Get the most current, detailed coverage available on issues pertinent to today's California estate planning practice.

Get the most current, detailed coverage available on issues pertinent to today's California estate planning practice.

  • Nonprobate and nontrust transfers
  • Wills and revocable trusts
  • Estate and gift and GST taxes
  • Marital deduction planning and income tax basis planning
  • Real property tax planning
  • Taxing income of estates and trusts
  • Valuation freeze techniques and asset protection
  • Life insurance, annuities, employee benefits and IRAs
  • Charitable giving
  • Health care decisions and Medi-Cal planning
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Get the most current, detailed coverage available on issues pertinent to today's California estate planning practice.

  • Nonprobate and nontrust transfers
  • Wills and revocable trusts
  • Estate and gift and GST taxes
  • Marital deduction planning and income tax basis planning
  • Real property tax planning
  • Taxing income of estates and trusts
  • Valuation freeze techniques and asset protection
  • Life insurance, annuities, employee benefits and IRAs
  • Charitable giving
  • Health care decisions and Medi-Cal planning

1

Overview of Estate Planning Practice

Richard S. Kinyon

Genevieve M. Moore

  • I.  ESTATE PLANNING PROCESS  1.1
    • A.  Challenges of Estate Planning  1.2
    • B.  Consequences of Failure to Plan; Intestacy as Default Estate Plan  1.3
    • C.  Benefits and Objectives of Estate Planning  1.4
      • 1.  Planning for Personal and Family Needs  1.5
      • 2.  Minimizing Expense and Taxation  1.6
      • 3.  Planning for Postmortem Asset Management  1.7
    • D.  Implementing Estate Plan  1.8
      • 1.  Wills and Revocable Trust Transfer Arrangements  1.9
      • 2.  Incapacity Arrangements  1.10
      • 3.  Transfers at Death and Continuing Arrangements Concerning Trusts  1.11
  • II.  ROLE OF ATTORNEY  1.12
    • A.  Legal Expertise; Attention to Detail  1.13
    • B.  Ethical Standards  1.14
    • C.  Interpersonal Skills  1.15
    • D.  Practical Experience  1.16
    • E.  Objectivity  1.17
  • III.  STEP-BY-STEP PROCEDURE FOR DEVELOPING AN ESTATE PLAN AND PUTTING IT IN PLACE  1.18
    • A.  Step One: Initial Contact  1.19
    • B.  Step Two: Conflict Search  1.20
    • C.  Step Three: First Written Communication  1.21
      • 1.  Initial/Engagement Letter  1.22
      • 2.  Questionnaire  1.23
      • 3.  Educational Materials  1.24
    • D.  Step Four: Initial Meeting  1.25
      • 1.  Finalizing Engagement  1.26
      • 2.  Eliciting Additional Information  1.27
      • 3.  Determining the Best Way to Update Existing Estate Plan  1.28
      • 4.  Assessing Client’s Competence and the Possibility of Fraud or Undue Influence  1.29
      • 5.  Further Education  1.30
      • 6.  Establishing a Timetable  1.31
    • E.  Step Five: Formulating a Plan  1.32
    • F.  Step Six: Typical Documents  1.33
      • 1.  Will  1.34
      • 2.  Revocable Trust  1.35
      • 3.  Beneficiary Designations for Retirement Plans, Life Insurance Policies, and POD Accounts  1.36
      • 4.  Durable Power of Attorney for Financial Management and Personal Care Decisions  1.37
      • 5.  Advance Health Care Directive  1.38
      • 6.  Agreement Between Spouses or Registered Domestic Partners Regarding Separate or Community Character of Property  1.39
      • 7.  Business Succession Documents  1.40
      • 8.  Irrevocable Trusts  1.41
      • 9.  College Education Financing Arrangements  1.42
    • G.  Step Seven: Producing and Transmitting Documents  1.43
      • 1.  Drafting Issues  1.44
      • 2.  Production Issues  1.45
      • 3.  Further Explanation of Draft Documents  1.46
      • 4.  Documenting Unusual Decisions or Specific Situations  1.47
      • 5.  Delay Issues  1.48
    • H.  Step Eight: Executing Documents  1.49
    • I.  Step Nine: Processing Documents, Transferring Title to Assets, and Other Implementation Tasks  1.50
    • J.  Step Ten: Final Communication to Client  1.51
      • 1.  Safekeeping Original Documents and Copies  1.52
      • 2.  Directions About Title Transfers  1.53
      • 3.  Recommendations to Client for Future Review  1.54
      • 4.  Income Tax Deduction for Attorney Fees  1.55
      • 5.  Terminating Engagement  1.56
  • IV.  CONTACTING CLIENT AFTER ESTATE PLAN IS IN PLACE  1.57
  • V.  OFFICE MANAGEMENT PROCEDURES  1.58
    • A.  Calendaring Deadlines  1.59
    • B.  Docket Control  1.60
  • VI.  POSTDEATH EVENTS  1.61
  • VII.  FORMS: CLIENT LETTERS AND QUESTIONNAIRES
    • A.  Form: Initial/Engagement Letter for Use With Married Couple  1.62
    • B.  Form: Schedules of Assets and Liabilities  1.63
    • C.  Questionnaire: Personal and Family Information of Married Clients  1.64
    • D.  Form: Transmittal Letter for Drafts of Documents to Married Clients  1.65
    • E.  Form: Instructions to Married Clients for Signing Documents  1.66
    • F.  Form: Transmittal of Executed Documents Letter to Married Clients  1.67
  • VIII.  DIAGRAM: TYPICAL ESTATE PLAN FOR MARRIED COUPLE WITH ISSUE  1.68

2

Ethical Considerations

Susan T. House

  • I.  APPLICABLE RULES
    • A.  Where to Find Rules Governing Ethics  2.1
    • B.  Rules That Apply to Estate Planner  2.2
    • C.  Consequences of Violating Rules  2.3
      • 1.  Malpractice Liability  2.3A
      • 2.  Practical Consequences  2.3B
    • D.  Overview of Estate Planning Problem Areas  2.4
      • 1.  Representing Mentally Impaired Client  2.5
      • 2.  Potential Conflicts of Interest and Confidentiality Breaches  2.6
      • 3.  Benefiting From Client’s Estate Plan  2.7
    • E.  Effect of Circular 230  2.7A
      • 1.  Tax Return Preparation  2.7B
      • 2.  Rendering Written Advice  2.7C
      • 3.  Taking Frivolous Positions  2.7D
  • II.  CONFIDENTIALITY
    • A.  Duty to Maintain Client Confidences  2.8
    • B.  Third Party Agents and Family Members  2.9
    • C.  Current or Former Clients  2.10
    • D.  Multiple Representation  2.11
    • E.  Ethical Duty Compared With Evidence Code Privilege  2.12
    • F.  IRS Demands for Information  2.13
  • III.  CONFLICTS OF INTEREST
    • A.  Duty to Avoid Representing Conflicting Interests  2.14
    • B.  Hidden Conflicts in Estate Planning Practice  2.15
    • C.  Existing Client  2.16
    • D.  Former Client  2.17
    • E.  Multiple Clients  2.18
    • F.  Conflicts Between Attorney’s Interest and Client’s Interest
      • 1.  Adverse Business Interests  2.19
      • 2.  Attorney Selling Financial Products  2.20
      • 3.  Attorney as Fiduciary for Client  2.21
      • 4.  Attorney as Beneficiary of Client’s Estate  2.22
      • 5.  Fees  2.23
  • IV.  WHO IS THE CLIENT?
    • A.  Importance of Identifying Client  2.24
    • B.  Dealing With Multiple Representation  2.25
      • 1.  Joint Representation  2.26
      • 2.  Separate Representation  2.27
      • 3.  Dealing With Adverse Interests  2.27A
  • V.  SCOPE OF REPRESENTATION
    • A.  Importance of Defining Scope of Representation  2.28
      • 1.  What Hat Is the Client Wearing?  2.29
      • 2.  What Services Are Expected?  2.30
      • 3.  Certificate of Independent Review  2.31
    • B.  When Does Representation Terminate?  2.32
  • VI.  CLIENT WITH DIMINISHED MENTAL CAPACITY
    • A.  Estate Planner’s Dilemma  2.33
    • B.  Estate Planning Documents  2.34
    • C.  Protecting Client With Diminished Capacity from Elder Abuse or Other Harm  2.35
      • 1.  California Authority  2.36
      • 2.  National Authority  2.37

3

Property Transfer Obstacles

Jeffrey A. Dennis-Strathmeyer

  • I.  ESTATE PLANNING AS TRANSFER PLANNING  3.1
  • II.  OVERVIEW OF TRANSFER PLANNING OBSTACLES  3.2
    • A.  Client Attitudes  3.3
    • B.  Cost Challenges  3.4
    • C.  Lack of Future Supervision  3.5
    • D.  Predators  3.6
  • III.  COMMON RESTRICTIONS ON PROPERTY TRANSFERS
    • A.  Overview of Transfer Restrictions  3.7
    • B.  Legal Inability to Transfer Property  3.8
      • 1.  Lack of Compliance With Execution and Delivery Formalities
        • a.  Formalities Imposed by Statute  3.9
        • b.  Formalities Imposed by Documents  3.10
        • c.  Express Statement Requirements  3.11
      • 2.  Insufficient Capacity  3.12
      • 3.  Undue Influence
        • a.  Undue Influence Defined as "Excessive Persuasion"  3.13
        • b.  Presumption of Undue Influence  3.13A
        • c.  Detecting Undue Influence  3.13B
        • d.  Proving Undue Influence  3.13C
      • 4.  Fraud, Duress, Menace, and Mistake  3.14
    • C.  Prior Agreement Restricting Transfer  3.14A
    • D.  Spendthrift Clauses  3.15
    • E.  Limitations on Transferring Pension Plans  3.16
    • F.  Restrictions on Nonpublicly Traded Business Interests  3.17
    • G.  Other Restrictions on Transfers  3.18
  • IV.  RESTRICTIONS DUE TO TAX CONSIDERATIONS  3.19
    • A.  Gift Tax  3.20
    • B.  Estate Tax
      • 1.  Marital Deduction  3.21
      • 2.  Charitable Deduction  3.22
      • 3.  Benefits for Small Businesses  3.23
      • 4.  Valuation  3.24
    • C.  Income Taxes  3.25
    • D.  Property Taxes  3.26
  • V.  OBSTACLES RESULTING FROM TRANSFEREE CIRCUMSTANCES
    • A.  Transfers to Young Transferees  3.27
    • B.  Transfers for Incapacitated Persons  3.28
  • VI.  MULTIPLE JURISDICTION ISSUES
    • A.  Unexpected Restraints on Alienation  3.29
    • B.  Conflicting Tax Claims or Systems  3.30
    • C.  Burdens of Tax Avoidance Laws  3.31
  • VII.  COLLATERAL CONSEQUENCES OF PROPERTY TRANSFERS
    • A.  Public Benefit Consequences  3.32
    • B.  Asset Protection  3.33

4

Additional Property Transfer Obstacles for Married Persons and Registered Domestic Partners

Robert E. Temmerman, Jr.

Sondra J. Allphin

Patricia A. Cain

  • I.  PROPERTY TRANSFER OBSTACLES FOR SPOUSES  4.1
  • II.  WHO IS A SPOUSE?
    • A.  Opposite-Sex and Same-Sex Spouse  4.2
    • B.  Registered Domestic Partners (RDPs) Not Recognized as Spouses Under Federal Law  4.3
    • C.  Putative Spouses  4.4
    • D.  Separated Spouses  4.4A
  • III.  SPOUSAL CONSENT REQUIRED FOR GIFTS OF COMMUNITY PROPERTY  4.5
    • A.  Exceptions to Spousal Consent  4.6
    • B.  Effect of Gift Without Consent
      • 1.  Gift Voidable by Nonconsenting Spouse  4.7
      • 2.  Gifts to Minors  4.8
      • 3.  Breach of Spousal Fiduciary Duties  4.9
      • 4.  Survival of Right to Set Aside Gift  4.10
  • IV.  SPOUSAL CONSENT TO NAME BENEFICIARIES OF NONPROBATE COMMUNITY PROPERTY  4.11
    • A.  Nonprobate Transfer Statutes  4.12
      • 1.  Spousal Consent Required for Nonprobate Transfers  4.13
      • 2.  Effect of Beneficiary Nomination Without Consent  4.14
      • 3.  Effect of Subsequent Modification  4.15
      • 4.  Examples of Subsequent Modification  4.16
    • B.  Retirement Plans and ERISA
      • 1.  Antialienation Provision  4.17
      • 2.  Federal Preemption  4.18
  • V.  ESTATE PLANNING FOR MARRIED PERSONS AND FAMILY PROTECTION STATUTES  4.19
    • A.  Family Allowances  4.20
      • 1.  Planning to Avoid Family Allowance  4.21
      • 2.  Family Allowances and Revocable Trusts  4.22
    • B.  Probate Homesteads
      • 1.  How Probate Homestead Arises  4.23
      • 2.  Planning to Overcome Probate Homestead  4.24
    • C.  Small Estate Set Aside to Surviving Spouse or Minor Children  4.25
    • D.  Setting Aside Exempt Property to Surviving Spouse or Minor Children  4.26
  • VI.  OMITTED SPOUSES AND CHILDREN  4.27
    • A.  Statutory Share of Spouse  4.28
      • 1.  Exceptions to Statutory Share  4.29
      • 2.  Effect of Omitted Spouse Statutes on Estate Planning  4.30
    • B.  Omitted Children  4.31
  • VII.  QUASI-COMMUNITY PROPERTY  4.32
    • A.  Family Code Definition  4.33
    • B.  Probate Code Definition  4.34
      • 1.  Surviving Spouse’s Right in Deceased Spouse’s Quasi-Community Property  4.35
      • 2.  Limited Restoration Right of Surviving Spouse  4.36
    • C.  Planning Considerations
      • 1.  Obtain Consent of Spouse Before Making Lifetime Gifts  4.37
      • 2.  Waiver of Restoration Right if Charitable Remainder Trust Funded With Quasi-Community Property  4.38
      • 3.  Allocate Forced Share in A-B-C Trust Scenario  4.39
  • VIII.  TRANSMUTATION  4.40
    • A.  Estate Planning Use of Transmutation  4.41
    • B.  Transmutation Cannot Be Limited to Estate Planning  4.42
    • C.  Inadvertent Transmutation and Legislative Fix  4.43
    • D.  Requirements for Valid Transmutation  4.44
      • 1.  Express Declaration Requirement  4.45
        • a.  Court Decisions Interpreting Express Declaration Requirement  4.46
        • b.  Exceptions to Statute of Frauds May Not Apply to Express Declaration Requirement  4.47
        • c.  Express Declaration Requirement Not Always Applicable  4.48
      • 2.  Presumption of Undue Influence in Transactions Between Spouses  4.49
        • a.  Any Advantage or Unfair Advantage?  4.50
        • b.  Waiver of Spousal Fiduciary Duty?  4.51
        • c.  Rebutting the Presumption of Undue Influence  4.52
        • d.  Standard of Proof: Unclear  4.53
      • 3.  Valid Transmutation May Not Waive Fam C §2640 Right to Reimbursement  4.54
    • E.  Drafting Transmutation Agreements  4.55
  • IX.  ESTATE PLANNING FOR CLIENT IN PROCESS OF DISSOLVING MARRIAGE  4.56
    • A.  Actions Prohibited Entirely  4.57
    • B.  Actions Prohibited Without Prior Written Consent  4.58
    • C.  Actions Permitted With Prior Notice  4.59
    • D.  Actions Permitted Without Notice  4.60
  • X.   TRANSITIONAL ESTATE PLANNING ISSUES FOR SAME-SEX MARRIED COUPLES  4.61
    • A.  Social Security Administration  4.62
    • B.  IRAs  4.63
    • C.  ERISA-Protected Retirement Plans  4.64
    • D.  Federal Retirement Plans  4.65
    • E.  IRS Position: Statute of Limitation Applies; Recalculation of Exclusion Amount Allowed  4.66
  • XI.  ESTATE PLANNING FOR REGISTERED DOMESTIC PARTNERS (RDPs)
    • A.  Tension Between California Domestic Partner Rights and Responsibilities Act (DPRRA) and Rule of Federal Nonrecognition  4.67
      • 1.  Federal Recognition of RDP Community Property Rights  4.68
      • 2.  Possible Challenges to Federal Nonrecognition Rule of RDPs  4.69
      • 3.  Social Security Administration  4.70
    • B.  RDP’s Consent to Name Beneficiaries of Nonprobate Community Property  4.71
      • 1.  Nonprobate Transfer Statutes Apply to RDPs  4.72
      • 2.  Special Issues With Retirement Plans for RDPs  4.73
    • C.  Quasi-Community Property Acquisition by RDPs  4.74
    • D.  Transmutation by RDPs
      • 1.  Advantages of Transmutation by RDPs  4.75
      • 2.  Disadvantages of Transmutations by RDPs  4.76
    • E.  Who Qualifies as RDP?   4.77
    • F.  Retroactive Application of DPRRA  4.78

5

Wills

Donald R. Travers

  • I.  TESTAMENTARY DEVICES
    • A.  Role of Wills in Estate Planning  5.1
    • B.  Testamentary Terminology  5.2
    • C.  Rules of Construction
      • 1.  When Intention of Testator Unclear  5.3
        • a.  Interpretation That Prevents Intestacy  5.3A
        • b.  Devises to Former Spouse Revoked  5.3B
      • 2.  Incorporation by Reference  5.4
      • 3.  Doctrine of Facts of Independent Significance  5.5
    • D.  Disposition of Tangible Personal Property by Writing; Potential Problems  5.5A
      • 1.  Problems With Disposition of Property by Writing  5.5B
      • 2.  Caution Advised in Providing for Disposition of Property by Writing  5.5C
  • II.  TYPES OR KINDS OF WILLS  5.6
    • A.  Witnessed Will
      • 1.  Testator’s Signature  5.7
      • 2.  Number and Signatures of Witnesses  5.8
      • 3.  Who May Be Witness  5.9
        • a.  Interested Witnesses  5.10
        • b.  Attorney or Hospital Staff as Witness  5.11
    • B.  Holographic Will  5.12
    • C.  Statutory Will  5.13
    • D.  Uniform International Will  5.14
  • III.  WHAT DOES AND DOES NOT PASS UNDER A WILL
    • A.  When Will May Be Ineffective  5.15
    • B.  Community Property  5.16
      • 1.  Testamentary Dispositions  5.16A
      • 2.  Nontestamentary Dispositions  5.16B
  • IV.  CONFLICT OF LAWS  5.17
    • A.  Validity  5.18
    • B.  Equitable Conversion  5.19
    • C.  Interpretation  5.20
    • D.  Advising Client With Out-of-State Property  5.21
  • V.  ADMINISTRATION OF DECEDENT’S ESTATE  5.22
    • A.  Small Estate Administration  5.23
      • 1.  Collection of Small Estates by Affidavit  5.24
      • 2.  Real Property  5.25
      • 3.  Small Estate Set-Aside  5.26
      • 4.  Passage of Property to Surviving Spouse Without Administration  5.27
      • 5.  Determination or Confirmation of Property Passing or Belonging to Surviving Spouse or Registered Domestic Partner  5.28
      • 6.  Cost of Procedures  5.29
    • B.  Probate Administration  5.30
    • C.  Problems With Dispositions
      • 1.  Types of Gifts  5.31
      • 2.  Abatement  5.32
      • 3.  Ademption  5.33
      • 4.  Exoneration  5.34
      • 5.  Gifts to Drafters  5.35
  • VI.  COMMON DRAFTING ISSUES  5.36
    • A.  Definition of Intended Beneficiaries  5.37
    • B.  Survivorship and Alternate Disposition  5.38
    • C.  Gift to Minors  5.39
    • D.  Testator’s Attempt to Dispose of Property That Does Not Belong to Him or Her  5.40
    • E.  Powers of Appointment  5.41
    • F.  Possible Death of Beneficiaries  5.42
    • G.  Residuary Clause  5.43
    • H.  Anti-Lapse Statute  5.44
    • I.  Possible Changes in Assets  5.45
    • J.  Digital Assets  5.45A
    • K.  Individual Retirement Accounts  5.46
    • L.  Tax Apportionment  5.47
    • M.  Distribution Formulas for Class Gifts  5.48
    • N.  Choice of Law Provision  5.49
    • O.  Disinheritance  5.50
    • P.  Perpetuities Savings Clause  5.51
    • Q.  Debts of Beneficiaries  5.52
    • R.  Contracts to Make Will  5.53
  • VII.  FORM: SIMPLE (NONTRUST) WILL
    • A.  Form: Title; Testator’s Declaration  5.54
    • B.  Form: Introductory Provisions: Spouse, Children, Definition of Children, and Community Property  5.55
    • C.  Form: Gifts of Money and Property  5.56
    • D.  Form: Gift of Residue  5.57
    • E.  Form: Executor and Bond  5.58
    • F.  Form: Powers of Executor  5.59
    • G.  Form: Guardians of Person and Estate  5.60
    • H.  Form: Funeral Instructions  5.61
    • I.  Form: Concluding Provisions: Gifts to Minors, Choice of Law, Payment of Taxes, Interest, Survivorship, and No-Contest Clauses  5.62
    • J.  Form: Execution and Attestation Clauses  5.63

6

Revocable Trusts

Kenneth G. Petrulis

  • I.  INTRODUCTION TO REVOCABLE TRUSTS  6.1
  • II.  ADVANTAGES AND DISADVANTAGES  6.2
    • A.  Advantages of Revocable Trust
      • 1.  Probate Avoidance  6.3
      • 2.  Ease of Management  6.4
    • B.  Disadvantages of Revocable Trust  6.5
  • III.  REVOCABLE TRUST AS ALTERNATIVE TO OTHER DEVICES
    • A.  Substitute for Durable Power of Attorney  6.6
    • B.  Substitute for Conservatorship  6.7
    • C.  Will Substitute  6.8
    • D.  Substitute for Beneficiary Designation or Deed  6.9
  • IV.  LEGAL REQUIREMENTS FOR TRUSTS
    • A.  Elements of Trust  6.10
    • B.  Trust Creation  6.11
    • C.  Administration of Trust
      • 1.  By Settlor/Trustee  6.12
      • 2.  By Third Party Trustee  6.13
  • V.  COMMON DRAFTING ISSUES
    • A.  Community Property and Separate Property  6.14
    • B.  Joint Trust Provisions  6.15
    • C.  Joint Tenancy Property  6.16
    • D.  Amendments  6.17
    • E.  Gifts During Settlor’s Lifetime  6.18
    • F.  Incapacity  6.19
    • G.  Spendthrift Provisions  6.20
    • H.  No-Contest Clauses  6.21
      • 1.  Enforceability of No-Contest Clauses  6.21A
      • 2.  Effectiveness of No-Contest Clauses  6.21B
      • 3.  Relevance of Former No-Contest Statutes  6.21C
    • I.  Definition of Issue  6.22
    • J.  Contingencies  6.23
    • K.  Special Needs  6.24
    • L.  Support, Maintenance, and Other Discretionary Distribution Powers  6.25
    • M.  Savings Clauses and Savings Statutes  6.26
    • N.  Payment of Taxes  6.27
    • O.  Choice of Law/Situs  6.28
  • VI.  CHOICE OF TRUSTEE  6.29
    • A.  Settlor as Trustee  6.30
    • B.  Third Party as Trustee  6.31
      • 1.  Sources of Third Party Trustees
        • a.  Family Members  6.32
        • b.  Corporate Trustees  6.33
        • c.  Private Professional Fiduciaries  6.34
        • d.  Trusted Professional Acquaintances  6.35
      • 2.  Special and Independent Trustees  6.36
      • 3.  Trust Protector  6.37
    • C.  Co-Trustees
      • 1.  Unanimous Consent  6.38
      • 2.  Ethical Issues in Representing Co-Trustees  6.39
    • D.  Successor Trustees
      • 1.  Providing for Successor Trustees  6.40
      • 2.  Attorney-Client Privilege for Successor Trustees  6.40A
  • VII.  TRUST FUNDING
    • A.  Pourover Will  6.41
    • B.  Standard Funding Procedures
      • 1.  Tangible Personal Effects and Untitled Property  6.42
      • 2.  Deposit Accounts  6.43
      • 3.  Securities  6.44
      • 4.  Real Property  6.45
      • 5.  Partnership Interests  6.46
    • C.  Alternative Funding Procedures
      • 1.  Professional Practices  6.47
      • 2.  General Assignment  6.48
      • 3.  The Heggstad Solution  6.49
  • VIII.  THIRD PARTY RIGHTS
    • A.  Beneficiaries
      • 1.  Vested and Contingent Interests  6.50
      • 2.  Beneficiaries’ Rights During Settlor’s Lifetime  6.51
      • 3.  Beneficiaries’ Rights After Settlor’s Death  6.52
    • B.  Creditors  6.53
  • IX.  TAXATION ISSUES
    • A.  Trust Tax Returns  6.54
    • B.  Taxation of Trust Income  6.55
    • C.  Estate and Gift Taxes  6.56
    • D.  Generation-Skipping Transfer Tax  6.57
  • X.  MANAGEMENT OF TRUST ASSETS
    • A.  Settlor as Trustee  6.58
    • B.  Third Party Trustee  6.59
      • 1.  Uniform Prudent Investor Act  6.60
      • 2.  Uniform Principal and Income Act  6.61
  • XI.  CONSTRUCTION OF TRUST INSTRUMENTS AND TERMS  6.62
  • XII.  TERMINATION OF REVOCABLE TRUSTS
    • A.  By Withdrawal/Distribution  6.63
    • B.  Distribution Provisions at Death (Administrative Trust)  6.63A
    • C.  Distribution Provisions of Trusts for Married Couples  6.64
      • 1.  Marital Trusts  6.65
      • 2.  Bypass Trusts  6.66
      • 3.  Distributions on Death of Second Spouse  6.67
    • D.  Express Revocation  6.68
    • E.  Revocation by Surviving Settlor  6.69

6A

Irrevocable Trusts

CEB Staff

  • I.  INTRODUCTION  6A.1
    • A.  Types of Irrevocable Trusts  6A.2
    • B.  Relationship Between Revocable and Irrevocable Trusts  6A.3
  • II.  OBJECTIVES IN CREATING IRREVOCABLE TRUSTS  6A.4
    • A.  Reconciling Beneficiary Needs With Management Concerns  6A.5
    • B.  Obtaining Tax Savings
      • 1.  Transfer Tax Savings  6A.6
      • 2.  Income Tax Savings  6A.7
    • C.  Asset Protection  6A.8
  • III.  BASIC TAX PRINCIPLES
    • A.  Estate Tax Principles  6A.9
    • B.  Gift Tax Principles  6A.10
    • C.  Income Tax Principles  6A.11
  • IV.  TRUST PLANNING
    • A.  Permanent Trusts Distinguished From Other Trusts  6A.12
    • B.  Balancing Personal and Tax Objectives  6A.13
    • C.  Purposes Served by Permanent Trusts  6A.14
      • 1.  Reducing Settlor’s Estate Tax  6A.15
      • 2.  Postponing Beneficiaries’ Estate Tax  6A.16
      • 3.  Planning for Generation-Skipping Transfer Tax  6A.17
      • 4.  Reducing Settlor’s Income Tax  6A.18
      • 5.  Achieving Grantor Trust Status  6A.19
    • D.  Avoiding Reciprocal Trusts  6A.20
    • E.  Support of Dependents and Payment of Legal Obligations  6A.21
      • 1.  Support of Minor Children  6A.22
      • 2.  Payment of Education Expenses  6A.23
      • 3.  Support of Parents and Adult Children  6A.24
    • F.  Flexibility Versus Control  6A.25
    • G.  Single Versus Multiple Trusts  6A.26
      • 1.  Considerations Favoring One Trust  6A.27
      • 2.  Considerations Favoring Multiple Trusts  6A.28
  • V.  STRUCTURING TRUST INSTRUMENT  6A.29
    • A.  The Audience  6A.30
    • B.  Required Formalities  6A.31
    • C.  Clauses Mandated by Tax Laws  6A.32
    • D.  Narrow Focus—Comparison With Revocable Trusts  6A.33
    • E.  Sensitive Powers  6A.34
    • F.  California Trust Law  6A.35

7

Nonprobate and Nontrust Transfers at Death

Sandra J. Chan

  • I.  INTRODUCTION TO NONPROBATE AND NONTRUST PROPERTY TRANSFERS  7.1
  • II.  ASSETS PASSING TO SURVIVING SPOUSE OR REGISTERED DOMESTIC PARTNER
    • A.  Election to Receive Property Without Probate Administration  7.2
    • B.  Spousal or Domestic Partner Property Petition  7.3
    • C.  Formal Administration of Part of Estate  7.4
    • D.  Other Special Statutory Procedures Available to Surviving Spouse or Domestic Partner  7.5
  • III.  TRANSFERS OF SMALL ESTATE ASSETS
    • A.  “Small Estates” Defined  7.6
    • B.  Personal Property Transfers  7.7
    • C.  Real Property Transfers  7.8
    • D.  Motor Vehicles, Mobilehomes, and Other State-Registered Property Transfers
      • 1.  Vehicles and Other Property Subject to Transfer  7.9
      • 2.  Property Owned in Joint Tenancy  7.10
      • 3.  Transfer to Beneficiary or Heir  7.11
  • IV.  NONPROBATE TRANSFERS OF COMMUNITY PROPERTY
    • A.  General Principles  7.12
    • B.  Written Consent of Surviving Spouse or Domestic Partner to Transfer of Community Property  7.13
    • C.  Consent Not a Transmutation  7.14
    • D.  Consent to Modification of Provision for Nonprobate Transfer  7.15
    • E.  Revocability of Spouse or Partner’s Consent  7.16
    • F.  Nonprobate Transfer of Quasi-Community Property  7.17
    • G.  Nonprobate Transfer to Former Spouse or Domestic Partner  7.18
  • V.  JOINT TENANCY PROPERTY
    • A.  Overview of Joint Tenancy  7.19
    • B.  Tax Aspects of Joint Tenancy
      • 1.  Effect of ATRA-2012 and Tax Cuts and Jobs Act (Pub L 115-97, 131 Stat 2054)  7.20
      • 2.  Gift Tax on Creation  7.21
      • 3.  Gift Tax on Termination  7.22
      • 4.  Estate Tax  7.23
      • 5.  GST Tax  7.24
      • 6.  Income Tax  7.25
      • 7.  Income Tax Basis at Joint Tenant’s Death  7.26
      • 8.  Community Property Versus Joint Tenancy; Effect on Basis  7.27
    • C.  Nontax Considerations
      • 1.  Advantages of Joint Tenancy  7.28
      • 2.  Disadvantages of Joint Tenancy  7.29
  • VI.  COMMUNITY PROPERTY WITH RIGHT OF SURVIVORSHIP
    • A.  Advantages of Community Property With Right of Survivorship  7.30
    • B.  Disadvantages of Community Property With Right of Survivorship  7.31
  • VII.  REVOCABLE TRANSFER ON DEATH (TOD) DEEDS  7.31A
    • A.  Execution and Revocation of TOD Deeds  7.31B
    • B.  Effect of TOD Deed During Transferor’s Life  7.31C
    • C.  Effectuation of TOD Deed on Transferor’s Death; Transferee’s Liability  7.31D
    • D.  Tax Aspects of Revocable TOD Deeds
      • 1.  Gift Tax Aspects of Revocable TOD Deeds  7.31E
      • 2.  Estate Tax Aspects of Revocable TOD Deeds  7.31F
      • 3.  GST Tax Aspects of Revocable TOD Deeds  7.31G
  • VIII.  MULTIPLE-PARTY ACCOUNTS; TRANSFER ON DEATH SECURITIES
    • A.  Party’s Interest in Account  7.32
    • B.  Use of Community Funds by One Spouse for Multiple-Party Account With Third Party  7.32A
    • C.  Use of Multiple-Party Accounts in Estate Planning  7.33
    • D.  Types of Joint Accounts  7.34
    • E.  “Pay on Death” Property  7.35
    • F.  Totten Trust Accounts  7.36
    • G.  Transfer on Death Securities  7.37
    • H.  Tax Aspects of Multiple-Party Accounts
      • 1.  Gift Tax Aspects of Multiple-Party Accounts  7.38
      • 2.  Estate Tax Aspects of Multiple-Party Accounts  7.39
      • 3.  GST Tax Aspects of Multiple-Party Accounts  7.40

8

Noncharitable Inter Vivos (Lifetime) Gifts

Marshal A. Oldman

  • I.  OVERVIEW OF INTER VIVOS GIFTS  8.1
    • A.  Tax Considerations for Inter Vivos Gifts
      • 1.  Tax Advantages of Lifetime Gifts  8.2
      • 2.  Tax Disadvantages of Lifetime Gifts  8.3
    • B.  Nontax Considerations for Inter Vivos Gifts
      • 1.  Present Transfer of Property  8.4
      • 2.  Financial Circumstances of Donor  8.5
      • 3.  Age of Donor  8.6
      • 4.  Donee Considerations  8.7
  • II.  REQUIREMENTS FOR VALID GIFTS
    • A.  Formal Requirements and Problems
      • 1.  Elements of Valid Gift  8.8
      • 2.  Transfer Without Change of Possession  8.9
      • 3.  Transfer by Deed or Other Instrument  8.10
      • 4.  Transfer of Untitled Property  8.11
      • 5.  Gift in View of Impending Death  8.12
      • 6.  Gift in Contemplation of Marriage  8.13
      • 7.  Community Property Consent  8.14
      • 8.  Transfers in Fraud of Creditors  8.15
      • 9.  Transfer to Drafter or Other Prohibited Transferee  8.16
    • B.  Competence and Freedom From Undue Influence  8.17
    • C.  Substituted Judgment  8.18
  • III.  TYPES OF GIFTS  8.19
    • A.  Outright Gifts  8.20
    • B.  Gifts in Trust  8.21
      • 1.  Tax Aspects  8.22
      • 2.  Nontax Aspects  8.23
    • C.  Gifts Benefiting Minors  8.24
      • 1.  Formal Guardianships  8.25
      • 2.  Gifts Under California Uniform Transfers to Minors Act (CUTMA)  8.26
      • 3.  Crummey Trusts  8.27
      • 4.  Section 2503(c) Trusts  8.28
      • 5.  Sprinkling Trusts  8.29
      • 6.  State Tuition Programs  8.30
    • D.  Pseudo-Gifts
      • 1.  Totten Trusts  8.31
      • 2.  Joint Financial Institution Accounts  8.32
      • 3.  Indirect Gifts
        • a.  Bargain Sales  8.33
        • b.  Below-Market Interest Rate Transactions  8.34
      • 4.  Cancellation of Indebtedness  8.35
    • E.  Interspousal Gifts  8.36
    • F.  Generation-Skipping Gifts  8.37

9

Powers of Appointment

Richard Aiello

  • I.  PURPOSES OF POWER OF APPOINTMENT  9.1
    • A.  Basic Rules  9.2
    • B.  Powers Created On or Before October 21, 1942  9.3
    • C.  Retained Powers Excluded  9.4
    • D.  Probate Code Definitions  9.5
  • II.  GENERAL POWER OF APPOINTMENT  9.6
    • A.  Power to Appoint to Creditors  9.7
    • B.  Power to Discharge Support Obligation  9.8
      • 1.  Effect of Statutory Saving Provision  9.9
      • 2.  Power Over Property Held as Custodian  9.10
    • C.  Power to Remove Trustee  9.11
    • D.  Power Held Jointly With Nonadverse Party  9.12
  • III.  NONGENERAL POWERS
    • A.  Power Limited by Ascertainable Standard  9.13
      • 1.  Words Not Permitted in Limited Power  9.14
      • 2.  Trustee Powers Limited by Statute  9.15
    • B.  Power Jointly Held With Creator  9.16
    • C.  Power Jointly Held With Adverse Party  9.17
      • 1.  Substantial: Not Insignificant Actuarially  9.18
      • 2.  Adverse: Vested Default Beneficiary  9.19
        • a.  Merely Permissible Beneficiary Not Adverse  9.20
        • b.  Other Beneficiaries Who Are Not Adverse  9.21
    • D.  Merely Administrative Powers  9.22
      • 1.  Power to Allocate Between Principal and Income  9.23
      • 2.  Avoiding Inadvertent General Powers  9.24
  • IV.  ESTATE AND GIFT TAXATION OF POWERS  9.25
    • A.  Possession of Power Sufficient  9.26
    • B.  Release or Lapse of Power  9.27
      • 1.  Lapse by Incompetent Holder  9.28
      • 2.  Exception for “5 or 5” Powers  9.29
    • C.  Treatment of Limited Powers Distinguished  9.30
      • 1.  Gift of Income Interest  9.31
      • 2.  Delaware Tax Trap  9.32
    • D.  Disclaimers of Powers  9.33
  • V.  INCOME TAXATION OF POWERS  9.34
    • A.  Inconsistent Treatment of Powers  9.35
    • B.  Treatment of Lapsed Powers  9.36
  • VI.  DRAFTING CONSIDERATIONS—POWERS
    • A.  Probate Code Requirements  9.37
    • B.  Procedures for Exercise  9.38
      • 1.  Require Specific Reference to Power  9.39
      • 2.  Must Be in Writing, Signed, and Dated  9.40
      • 3.  Specify by Will or Other Than by Will  9.41
      • 4.  Witnesses or Acknowledgment  9.42
      • 5.  Must Deliver Exercise to Trustee  9.43
      • 6.  Consent of Another Required for Exercise  9.44
      • 7.  May Disregard Exercise Without Capacity  9.45
    • C.  Power Effective During Life and at Death  9.46
    • D.  General or Limited Power Intended  9.47
    • E.  Outright Disposition or Continuing Trust  9.48
    • F.  Exclusion of Permissible Appointees  9.48A
    • G.  Limitations on Power to Benefit Spouse  9.49
  • VII.  DRAFTING EXERCISE DOCUMENTS
    • A.  Repeat Granting Clauses  9.50
    • B.  Ensure Desired Exercise Is Authorized  9.51
    • C.  Ensure Required Consent  9.52
    • D.  Specify Survival Requirements  9.53
    • E.  Include No-Contest Clause  9.54
    • F.  Condition Exercise on Disclaimer  9.55
    • G.  Execute and Implement Related Documents  9.56
    • H.  Exercise Power Completely  9.57
    • I.  Distinguish Property Subject to Power From Powerholder’s Own Property  9.58

10

Estate and Gift Taxes

Beth L. Kramer

Lisa K. Y. Nakahara

  • I.  INTRODUCTION TO TRANSFER TAXES  10.1
    • A.  Brief History of Estate and Gift Taxes  10.2
      • 1.  Unified Estate and Gift Tax System  10.3
      • 2.  Estate Tax Repeal in 2010  10.4
      • 3.  Portability of Applicable Exclusion Amount  10.4A
      • 4.  Sunset of EGTRRA-2001 in 2013  10.5
      • 5.  Tax Cuts and Jobs Act in 2017  10.5A
      • 6.  Table: Maximum Rates and Applicable Exclusion Amounts  10.6
    • B.  Tax Advantages of Lifetime Gifts  10.7
    • C.  Calculating Estate and Gift Taxes  10.8
      • 1.  Estate Tax  10.9
      • 2.  Gift Tax  10.10
      • 3.  Sample Estate and Gift Tax Calculations  10.11
  • II.  ESTATE TAX
    • A.  Scope of Tax  10.12
    • B.  Property Included in Gross Estate  10.13
      • 1.  Property in Which Decedent Had an Interest (IRC §2033)  10.14
      • 2.  Gifts Made Within 3 Years Before Death (IRC §2035)  10.15
      • 3.  Transfers With Retained Life Estate (IRC §2036)  10.16
        • a.  Right to Income, Possession, or Enjoyment  10.17
          • (1)  Reciprocal Trusts  10.18
          • (2)  Right to Occupy Residence  10.19
        • b.  Right to Designate Possession or Enjoyment  10.20
        • c.  Retained Voting Rights in Controlled Corporation  10.21
      • 4.  Transfers Taking Effect at Death (IRC §2037)  10.22
      • 5.  Revocable Transfers (IRC §2038)  10.23
        • a.  Trustee Powers Included  10.24
        • b.  Exception for Certain Limited Powers  10.25
        • c.  Comparison of IRC §2036 With IRC §2038  10.26
      • 6.  Annuities (IRC §2039)  10.27
      • 7.  Joint Interests (IRC §2040)  10.28
      • 8.  Powers of Appointment (IRC §2041)  10.29
      • 9.  Proceeds of Life Insurance (IRC §2042)  10.30
      • 10.  Transfers for Insufficient Consideration (IRC §2043)  10.31
      • 11.  Certain Property for Which Marital Deduction Was Previously Allowed (IRC §2044)  10.32
    • C.  Qualified Conservation Easement Exclusion  10.33
    • D.  Valuation of Property in Gross Estate  10.34
      • 1.  Alternate Valuation Date Election  10.35
      • 2.  Fair Market Value  10.36
        • a.  Household and Personal Effects  10.37
        • b.  Real Property  10.38
          • (1)  Effect of Conservation Easements  10.39
          • (2)  Discounts for Fractional Interests  10.40
        • c.  Stocks and Bonds  10.41
        • d.  Business Interests  10.42
        • e.  Promissory Notes  10.43
        • f.  Commercial Annuities and Insurance  10.44
        • g.  Noncommercial Annuities, Life Estates, Terms of Years, Remainders, and Reversionary Interests  10.45
      • 3.  Special Use Valuation (IRC §2032A)  10.46
    • E.  Deductions From Gross Estate  10.47
      • 1.  Expenses, Indebtedness, and Taxes (IRC §2053)  10.48
        • a.  Funeral Expenses  10.49
        • b.  Administration Expenses  10.50
        • c.  Claims Against Estate  10.51
        • d.  Unpaid Mortgages or Property Indebtedness  10.52
        • e.  Other Administrative Expenses  10.53
        • f.  Interest on Graegin Loans  10.53A
      • 2.  Losses (IRC §2054)  10.54
      • 3.  Charitable Deduction (IRC §2055)  10.55
      • 4.  Marital Deduction (IRC §2056)  10.56
      • 5.  Qualified Family-Owned Business Interest (QFOBI) Deduction (Former IRC §2057)  10.57
      • 6.  Deduction for State Death Taxes Paid (IRC §2058)  10.58
    • F.  Estate Tax Credits  10.59
      • 1.  State Death Tax Credit (IRC §2011)  10.60
      • 2.  Credit for Gift Tax Paid (IRC §2012)  10.61
      • 3.  Credit for Tax on Prior Transfers (IRC §2013)  10.62
      • 4.  Credit for Foreign Death Taxes (IRC §2014)  10.63
      • 5.  Credit for Death Taxes on Remainders (IRC §2015)  10.64
      • 6.  Recovery of Taxes Claimed as Credits (IRC §2016)  10.65
    • G.  Filing Estate Tax Return  10.66
      • 1.  Filing Estate Tax Return to Elect Portability  10.66A
      • 2.  Extension of Time to File  10.67
      • 3.  Late-Filing Penalty  10.68
    • H.  Payment of Estate Tax  10.69
      • 1.  Extension of Time for Payment  10.70
      • 2.  Installment Payments for All Taxpayers  10.71
      • 3.  Installment Payments for Closely Held Business Interests  10.72
        • a.  Interest on Deferred Payments  10.73
        • b.  Acceleration of Deferred Tax  10.74
        • c.  Security for Payment of Deferred Tax  10.74A
      • 4.  Planning for Liquidity to Pay Tax  10.75
        • a.  Insurance  10.76
        • b.  Redemption Agreements  10.77
        • c.  Buy-Sell Agreements  10.78
    • I.  Apportionment of Estate Tax  10.78A
  • III.  GIFT TAX
    • A.  Introduction  10.79
    • B.  Transfers Subject to Gift Tax  10.80
      • 1.  Below-Market Interest Rate Loans  10.81
        • a.  Demand Loans  10.82
        • b.  Term Loans  10.83
        • c.  Exceptions to Gift Loan Treatment  10.84
      • 2.  Exercise or Release of General Power of Appointment (IRC §2514)  10.85
      • 3.  Payment of Generation-Skipping Transfer (GST) Tax (IRC §2515)  10.86
      • 4.  Discharge of Indebtedness  10.87
      • 5.  Transfers to and From Corporations and Partnerships  10.88
      • 6.  Payment for Services to Third Party  10.89
      • 7.  Joint Bank Accounts  10.90
      • 8.  Creation of Joint Tenancy in Real Property  10.90A
      • 9.  Community Property Life Insurance Proceeds  10.91
    • C.  Completed Gifts  10.92
      • 1.  Gifts With Retained Powers  10.93
      • 2.  Transfer by Minor or Incompetent  10.94
    • D.  Transfer Incident to Divorce (IRC §2516)  10.95
    • E.  Annual Exclusion Gifts (IRC §2503(b))  10.96
      • 1.  Present Interest Requirement  10.97
      • 2.  No Limit on Number of Transferees  10.98
        • a.  Reciprocal Transaction Doctrine  10.99
        • b.  Intermediaries Disregarded  10.100
      • 3.  Trusts Qualifying for Annual Exclusion Gifts  10.101
        • a.  Income Trust  10.102
        • b.  Minor’s Trust  10.103
        • c.  Crummey Trust  10.104
          • (1)  Requirements for Exercise of Withdrawal Power  10.105
            • (a)  Actual Notice  10.106
            • (b)  Reasonable Time to Exercise  10.107
          • (2)  Avoiding Tax Consequences of Excess Lapses  10.108
            • (a)  Special Powers of Appointment  10.109
            • (b)  Hanging Powers  10.110
          • (3)  Multiple Crummey Powers  10.111
          • (4)  Naked Crummey Powers  10.112
      • 4.  Gifts Made Close to Death  10.113
      • 5.  Gifts to Qualified Tuition Programs  10.114
    • F.  Exclusion for Education and Medical Expenses  10.115
      • 1.  “Education Expenses” Defined  10.116
      • 2.  “Medical Expenses” Defined  10.117
    • G.  Exclusion for Loans of Works of Art  10.118
    • H.  Marital Deduction (IRC §2523)  10.119
    • I.  Charitable Deduction (IRC §2522)  10.120
    • J.  Split-Gift Election (IRC §2513)  10.121
    • K.  Qualified Disclaimers  10.122
    • L.  Valuation of Gifts  10.123
    • M.  Filing Gift Tax Return  10.124
      • 1.  Extension of Time to File  10.125
      • 2.  Late-Filing Penalty  10.126
      • 3.  Effect of Filing Gift Tax Return  10.127
    • N.  Payment of Gift Tax  10.128

11

Generation-Skipping Transfer Tax

Kim Marois

  • I.  CONCEPTUAL OVERVIEW
    • A.  Purpose of Tax  11.1
    • B.  Second Tax on Same Transfer  11.2
    • C.  Timing of Tax  11.3
    • D.  Taxable Events  11.4
    • E.  Tax Rates  11.5
    • F.  Tax on Direct Skips  11.6
      • 1.  Inter Vivos Gift  11.7
      • 2.  Transfer at Death  11.8
    • G.  Tax on Taxable Distribution or Termination  11.9
      • 1.  Inter Vivos Gift to Trust  11.10
      • 2.  Transfer at Death to Trust  11.11
  • II.  TAX CALCULATION AND EXEMPTIONS
    • A.  Tax Calculation Formula  11.12
    • B.  The GST Exemption  11.13
    • C.  Overview of GST Exemption Allocation Rules  11.14
    • D.  Allocating Exemption to Lifetime Direct Skips  11.15
    • E.  Allocating Exemption to Other Lifetime Transfers  11.16
      • 1.  Automatic Allocation to Indirect Skips  11.17
      • 2.  Timely Allocations—General Rule  11.18
      • 3.  Timely Retroactive Allocations  11.19
      • 4.  Late Allocations on Form 709  11.20
      • 5.  Late Allocations to Lifetime Transfers Using Form 706  11.21
      • 6.  Default Allocation to Lifetime Transfers  11.22
      • 7.  Estate Tax Inclusion Period (ETIP) Exception to General Rules  11.23
        • a.  ETIP Defined  11.24
        • b.  Effect of ETIP  11.25
    • F.  Allocating Exemption to Property Included in Gross Estate  11.26
    • G.  Relief Provisions  11.27
  • III.  OTHER IMPORTANT CONCEPTS
    • A.  Changing Inclusion Ratios  11.28
    • B.  Limited Gift Tax Annual Exclusion  11.29
    • C.  Educational and Medical Expenses Exclusion  11.30
    • D.  Broad Definition of “Trust”  11.31
    • E.  Identifying the GST Tax Transferor  11.32
    • F.  Generation Assignments  11.33
    • G.  Multiple Skips  11.34
    • H.  Grandfathered Transfers  11.35
      • 1.  Exercise, Release, or Lapse of General Power of Appointment  11.36
      • 2.  Transactions Not Involving General Power  11.37
        • a.  Exercise of Discretionary Trustee Powers  11.38
        • b.  Settlements of Bona Fide Controversies  11.39
        • c.  Changes Resulting From Judicial Construction or Reformation  11.40
        • d.  Other Changes  11.41
    • I.  “Present Interest” Rule  11.42
  • IV.  SEPARATE TRUST AND VALUATION PROBLEMS
    • A.  Need for Separate Trusts  11.43
    • B.  Separating Transfers at Death  11.44
    • C.  Separate Share for Pecuniary Amount  11.45
    • D.  Separating and Valuing Pecuniary Gifts  11.46
    • E.  Separate Trusts Established (or Severed) at Death  11.47
    • F.  Appropriate Interest  11.48
    • G.  Trust Severance Provisions  11.49
  • V.  GST TAX STRATEGIES
    • A.  Fundamental Strategies  11.50
    • B.  Reverse QTIP Election Strategy  11.51
    • C.  Effect of Reverse QTIP Election  11.52
    • D.  Separating Reverse QTIP Trust  11.53
    • E.  Discretionary Reverse QTIP Trust  11.54
    • F.  Form: Establishment of Separate Trusts  11.55
    • G.  Mandatory Reverse QTIP Trust  11.56
    • H.  Shifting Estate Tax Burden  11.57
    • I.  Form: Estate Tax Apportionment  11.58
  • VI.  ADDITIONAL STRATEGIES
    • A.  Cutting Off Nonexempt Transfers  11.59
    • B.  Tax Apportionment  11.60
    • C.  Completing Schedule R  11.61
    • D.  Sensitive Beneficiary Checklists  11.62
    • E.  Effect of Portability on GST Planning  11.63

12

Income Tax Basis

Monica Dell’Osso

  • I.  RELEVANCE OF INCOME TAX BASIS  12.1
  • II.  BASIS RULES FOR TRANSFERS AT DEATH
    • A.  Federal Basis Provisions
      • 1.  Basis Adjustment to Fair Market Value at Date of Death  12.2
      • 2.  Basis Consistency Requirement  12.2A
      • 3.  Basis Reporting Requirements  12.2B
    • B.  Exceptions to Basis Adjustment Rule  12.3
      • 1.  Income in Respect of Decedent  12.4
      • 2.  Appreciated Property Acquired by Decedent by Gift Within 1 Year of Death  12.5
    • C.  California Basis Provisions  12.6
    • D.  Application of Basis Rule to Particular Forms of Ownership
      • 1.  Joint Tenancy  12.7
      • 2.  Community Property  12.8
      • 3.  Community Property With Right of Survivorship  12.9
      • 4.  Tenancy in Common  12.10
      • 5.  Separate Property  12.11
      • 6.  Planning Considerations  12.12
  • III.  BASIS RULES FOR TRANSFERS DURING LIFETIME
    • A.  Federal Provisions
      • 1.  General Rule of Carryover Basis  12.13
      • 2.  Increase in Basis for Gift Tax Paid  12.14
      • 3.  Part Gift/Part Sale  12.15
    • B.  California Provisions  12.16
    • C.  Planning Considerations  12.17
  • IV.  BASIS RULES FOR DECEDENTS DYING IN 2010
    • A.  Modified Carryover Basis in 2010  12.18
    • B.  Increases to Basis on Death in 2010  12.19
      • 1.  Basis Increase of $1.3 Million  12.20
      • 2.  Spousal Basis Increase of $3 Million  12.21
      • 3.  Executor Discretion  12.22
      • 4.  Property Eligible for Increases to Basis  12.23
        • a.  Property Acquired From Decedent  12.24
        • b.  Property Owned by Decedent  12.25
      • 5.  Property Ineligible for Increases to Basis  12.26
      • 6.  Treatment of Liabilities in Computing Gain and Basis  12.27
      • 7.  Reporting Requirements  12.28

13

Taxing Income of Estates and Trusts

Theodore E. Calleton

Jeffrey C. De Francisco

  • I.  CONDUIT PRINCIPLE AND EXCEPTIONS  13.1
  • II.  ESTATES AND NONGRANTOR TRUSTS
    • A.  Taxable Income  13.2
      • 1.  Unearned Income Medicare Contribution Tax  13.2A
      • 2.  Net Investment Income  13.2B
    • B.  Federal Tax Rates  13.3
    • C.  Estimated Tax  13.3A
      • 1.  Required Annual Payment Method  13.3B
      • 2.  Annualized Method  13.3C
      • 3.  Allocation of Estimated Tax Payments  13.3D
    • D.  Deductions  13.4
      • 1.  Deduction in Lieu of Personal Exemption  13.5
      • 2.  Losses  13.6
      • 3.  Depreciation, Depletion, and Amortization  13.7
        • a.  Estates  13.8
        • b.  Trusts  13.9
        • c.  Allocation Among Beneficiaries  13.10
      • 4.  Charitable Deduction  13.11
        • a.  Contributions of Gross Income  13.11A
        • b.  Set Asides  13.11B
        • c.  Adjustments to Charitable Deduction  13.12
        • d.  Charitable Deduction for Income in Respect of Decedent  13.13
        • e.  Charitable Deduction for Capital Gains  13.14
      • 5.  Limits to Deductions  13.15
        • a.  Casualty Losses  13.16
        • b.  Miscellaneous Itemized Deductions  13.17
        • c.  Table: Miscellaneous Itemized Deductions  13.17A
        • d.  Certain Deductions Disallowed  13.18
        • e.  Passive Activity Rules  13.19
        • f.  Alternative Minimum Tax  13.20
      • 6.  Qualified Business Income Deduction  13.20A
    • E.  Distributable Net Income (DNI)  13.21
      • 1.  Computation of DNI  13.22
      • 2.  Capital Gains and Losses in DNI  13.23
        • a.  Limited Inclusion of Capital Gains  13.24
        • b.  Capital Losses  13.25
      • 3.  Tax-Exempt Income in DNI  13.26
      • 4.  Allocation of Expenses to DNI  13.27
      • 5.  Separate Shares  13.28
        • a.  Separate Share Rule  13.29
        • b.  Application of Separate Share Rule  13.30
    • F.  Taxation of Distributions
      • 1.  Taxable Distributions  13.31
        • a.  Who Is a Beneficiary  13.32
        • b.  Death of Beneficiary or Termination of Trust  13.33
        • c.  Decanting  13.33A
      • 2.  Simple Trusts
        • a.  Definition of Simple Trust  13.34
        • b.  Trust’s Deduction  13.35
        • c.  Beneficiary’s Inclusion  13.36
        • d.  Character of Distributions  13.37
        • e.  Allocation of Deductions  13.38
      • 3.  Estates and Complex Trusts
        • a.  Complex Trust Defined  13.39
        • b.  Estate’s or Trust’s Deduction  13.40
        • c.  Beneficiary’s Inclusion  13.41
        • d.  Character of Distributions  13.42
        • e.  Tier System  13.43
          • (1)  First-Tier Distributions  13.44
          • (2)  Second-Tier Distributions  13.45
          • (3)  The Intermediate Tier  13.46
          • (4)  The Variable Tier  13.47
    • G.  Special Applications
      • 1.  Specific Gifts
        • a.  Taxation of Income from Gifts  13.48
        • b.  Specific Gifts Defined  13.49
        • c.  Three-Installment Rule  13.50
      • 2.  Distributions in Kind  13.51
        • a.  Distribution of Appreciated Property  13.52
        • b.  Distribution of Depreciated Property  13.53
      • 3.  Property Representing IRD  13.54
      • 4.  Interest or Income on Gifts  13.55
        • a.  Interest on Pecuniary Devises  13.56
        • b.  Income Generated by Specific Devises  13.57
      • 5.  Family Support Payments
        • a.  Widow’s Allowance  13.58
        • b.  Alimony-Type Payments  13.59
        • c.  Payments to Minor Children  13.60
      • 6.  Taxable Year of Inclusion
        • a.  Fiscal Year/Tax Year  13.61
        • b.  Deduction and Inclusion of Distributions  13.62
        • c.  Different Tax Years  13.63
      • 7.  Terminating the Estate or Trust
        • a.  Final Year  13.64
        • b.  Excess Losses and Deductions  13.65
  • III.  TAXATION OF GRANTOR TRUSTS  13.66
    • A.  Definitions  13.67
      • 1.  Grantor  13.68
        • a.  Foreign Grantors  13.69
        • b.  Spousal Attribution  13.70
      • 2.  Income  13.71
      • 3.  Adverse Party  13.72
        • a.  Possession of Beneficial Interest  13.73
        • b.  Substantial Adversity  13.74
      • 4.  Nonadverse Party  13.75
      • 5.  Related or Subordinate Party  13.76
    • B.  Grantor Treatment—The Prism of Section 671  13.77
      • 1.  Ownership of Trust Portions  13.78
        • a.  Ownership of Entire Trust  13.79
        • b.  Ownership of Specific Trust Property and Its Income  13.80
        • c.  Ownership of Fractional or Dollar Amount of Trust  13.81
        • d.  Ownership of Entire Ordinary Income or Corpus Only  13.82
        • e.  Ownership of Dollar Amount or Fractional Share of Income  13.83
        • f.  Ownership During Limited Period  13.84
      • 2.  Termination of Grantor Status
        • a.  Termination by Renunciation  13.85
        • b.  Termination by Death  13.86
    • C.  Grantor Trusts as Independent Tax Entities  13.87
      • 1.  Revocable Trusts  13.88
      • 2.  Irrevocable Trusts  13.89
      • 3.  Partial Grantor Status  13.90
      • 4.  Conditions Precedent  13.91
    • D.  Substantive Grantor Trust Rules
      • 1.  Reversionary Interests  13.92
      • 2.  Power to Control Beneficial Enjoyment  13.93
        • a.  Powers Exercisable by Any Person  13.94
          • (1)  Power to Apply Income to Support of Dependent  13.95
          • (2)  Deferred Power to Affect Beneficial Enjoyment  13.96
          • (3)  Testamentary Powers  13.97
          • (4)  Power to Allocate Among Charitable Beneficiaries  13.98
          • (5)  Power to Distribute Corpus  13.99
            • (a)  Governed by Definite Standard  13.100
              • (i)  Distributee Must Be Beneficiary  13.101
              • (ii)  No Power to Add Beneficiaries  13.102
            • (b)  Power to Advance Corpus to Income Beneficiary  13.103
          • (6)  Power to Withhold Income Temporarily  13.104
            • (a)  Payment to Beneficiary, Estate, or Appointees Under Broad Power of Appointment  13.105
            • (b)  Payment to Beneficiary, Appointees, or Designated Alternative Takers  13.106
            • (c)  Payment to Current Income Beneficiaries in Specified Shares  13.107
          • (7)  Power to Withhold Income During Disability  13.108
          • (8)  Power to Allocate Between Corpus and Income  13.109
        • b.  Powers Exercisable by Independent Trustee  13.110
          • (1)  Permissible Holders  13.111
          • (2)  Permissible Distributions  13.112
        • c.  Powers Exercisable by Trustee Other Than Grantor or Spouse  13.113
        • d.  Further Limitation—Removal of Trustee  13.114
      • 3.  Administrative Powers  13.115
        • a.  Power to Deal With Assets for Less Than Adequate and Full Consideration  13.116
        • b.  Power to Borrow  13.117
          • (1)  Restrictions on Power to Borrow  13.118
          • (2)  Restrictions on Actual Borrowing  13.119
        • c.  General Powers of Administration  13.120
        • d.  Power to Revoke  13.121
      • 4.  Income for Benefit of Grantor  13.122
        • a.  Direct Distribution to Grantor or Spouse  13.123
        • b.  Distributions for Benefit of Grantor or Spouse  13.124
          • (1)  Net Gifts  13.125
          • (2)  Accumulation for Future Distribution to Grantor or Spouse  13.126
          • (3)  Payment of Life Insurance Premiums  13.127
          • (4)  Use of Income for Support of Dependents  13.128
      • 5.  Persons Other Than Grantor Treated as Owner  13.129
        • a.  Right to Take Corpus or Income  13.130
          • (1)  Sole Right to Exercise  13.131
          • (2)  Ascertainable Standard  13.132
        • b.  Obligations of Support  13.133
        • c.  Transfers With Retained Control  13.134
    • E.  Intentionally Defective Trusts  13.135
      • 1.  Reversionary Interests  13.136
      • 2.  Powers to Control Beneficial Enjoyment  13.137
        • a.  Testamentary Powers  13.138
        • b.  Power to Distribute Corpus According to a Defined Standard  13.139
        • c.  Power to Withhold Income Temporarily  13.140
      • 3.  Powers Exercisable by Independent Trustee  13.141
      • 4.  Power to Allocate If Limited by Ascertainable Standard  13.142
      • 5.  Power to Add Beneficiaries  13.143
      • 6.  Administrative Powers
        • a.  Powers to Self-Deal and Borrow  13.144
        • b.  Holding General Powers of Administration  13.145
      • 7.  Power to Revoke  13.146
      • 8.  Power to Distribute Income  13.147
      • 9.  Ownership by Person Other Than Grantor  13.147A
      • 10.  Toggling Grantor Trust Status  13.147B
  • IV.  SPECIAL TRUSTS
    • A.  Charitable Remainder Trusts  13.148
      • 1.  Excise Tax on Prohibited Transactions  13.149
      • 2.  Unrelated Business Taxable Income  13.150
      • 3.  Taxation of Recipients  13.151
      • 4.  Sale of CRT Interest  13.151A
    • B.  S Corporation Trusts
      • 1.  Qualified Subchapter S Trusts (QSSTs)  13.152
        • a.  Income Taxation of Trust and Beneficiary  13.153
        • b.  QSST Election  13.154
      • 2.  ESBTs  13.155
    • C.  Foreign Trusts  13.156
      • 1.  Inbound Trusts
        • a.  Foreign Grantor Trusts  13.157
        • b.  Nongrantor Foreign Trusts
          • (1)  Taxation of Trust  13.158
          • (2)  Taxation of Beneficiary  13.159
          • (3)  Throwback Tax  13.159A
      • 2.  Outbound Trusts  13.160
    • D.  Qualified Revocable Trusts: IRC §645 Election for “Administrative Trust”  13.160A
      • 1.  Benefits of Taxation as Estate  13.160B
      • 2.  When Election May Be Inappropriate  13.160C
      • 3.  Making the IRC §645 Election  13.160D
      • 4.  Termination of IRC §645 Election  13.160E
  • V.  CALIFORNIA FIDUCIARY INCOME TAX  13.161
    • A.  Taxable Income  13.162
      • 1.  Taxation of Decedents’ Estates  13.163
      • 2.  Taxation of Trusts  13.164
        • a.  Qualified Revocable Trusts  13.164A
        • b.  When Trust Has Resident and Nonresident Trustees or Beneficiaries  13.164B
      • 3.  Beneficiaries Taxed on Distributions  13.165
      • 4.  Throwback Rules  13.166
    • B.  California Tax Rates  13.167
      • 1.  Table: Regular Tax Rates  13.168
      • 2.  Alternative Minimum Tax  13.169
    • C.  California Estimated Tax  13.170
    • D.  Filing Requirements  13.171
    • E.  Withholding on Nonresident Beneficiary Distributions  13.171A
    • F.  Fiscal Year  13.172
    • G.  Fiduciary Liability  13.173
    • H.  Tax Credits  13.174

14

State Death Taxes

James R. Birnberg

  • I.  CALIFORNIA ESTATE TAX
    • A.  Maximum Estate Tax Amount  14.1
    • B.  Federal State Death Tax Credit  14.2
    • C.  Generation-Skipping Transfer Tax Credit  14.3
    • D.  Repeal of State Death Tax Credit Made Permanent by ATRA-2012  14.4
    • E.  Calculating State Death Tax Credit
      • 1.  Table: Maximum State Death Tax Credit  14.5
      • 2.  Other Federal Estate Tax Credits  14.6
    • F.  California Estate Tax Return  14.7
    • G.  Former California Inheritance Tax  14.8
  • II.  MULTIPLE-JURISDICTIONAL ISSUES  14.9
    • A.  Multiple Claims to Property  14.10
      • 1.  Situs of Assets  14.11
      • 2.  Proration Among States  14.12
      • 3.  Location of Property for Non-U.S. Decedents  14.13
    • B.  Multiple Claims of Domicile  14.14
      • 1.  “Domicile” Contrasted With “Residence”  14.15
      • 2.  Planning for Clients With Multiple Domiciles  14.16
    • C.  Decoupled States  14.17
      • 1.  Table: Effective Tax Rate in Decoupled States  14.18
      • 2.  Table: Hypothetical Decoupled State  14.19
      • 3.  Table: Decoupling Status of States and District of Columbia  14.20

15

California Real Property Tax

Frayda L. Bruton

  • I.  REAL PROPERTY TRANSFER PLANNING  15.1
  • II.  FUNDAMENTAL CONCEPTS  15.2
    • A.  Change in Ownership  15.3
    • B.  Excluded Transfers  15.4
  • III.  TRUST TRANSFERS  15.5
    • A.  Revocable Trusts  15.6
    • B.  Irrevocable Trusts  15.7
      • 1.  Charitable Trusts  15.8
      • 2.  Personal Residence Trusts  15.9
  • IV.  JOINT TENANCY TRANSFERS  15.10
  • V.  INTERSPOUSAL AND DOMESTIC PARTNER OR COTENANT TRANSFERS  15.11
    • A.  Transfers Through Medium of Trust  15.12
    • B.  Effect of “5 or 5” Power  15.13
    • C.  Cotenant Transfers  15.13A
  • VI.  PARENT-CHILD AND GRANDPARENT-GRANDCHILD TRANSFERS  15.14
    • A.  Exclusion Applies Only to “Undivided Interests” in Real Property  15.15
    • B.  Nonprorata Allocation of Property  15.16
    • C.  Step Transaction Doctrine Disregarded  15.17
    • D.  Transfers to Grandchildren  15.18
    • E.  Application to Typical Family Revocable Trust  15.19
  • VII.  LEGAL ENTITY TRANSFERS  15.20
    • A.  Transfers of Interests in Legal Entities  15.21
    • B.  Change in Control  15.21A
    • C.  Cumulative Transfers  15.22
  • VIII.  BASE-YEAR-VALUE TRANSFERS  15.23
  • IX.  DISCLAIMERS OF PROPERTY INTERESTS  15.24
  • X.  REPORTING REQUIREMENTS  15.25
    • A.  Transfers on Death  15.26
    • B.  Statute of Limitations  15.27

16

Basic International and Noncitizen Transactions

Maria E. Núñez

Max Riederer von Paar

  • I.  INTERNATIONAL ISSUES ENCOUNTERED BY ESTATE PLANNING PRACTITIONERS
    • A.  Scope of Chapter  16.1
    • B.  Tax Cuts and Jobs Act of 2017  16.1A
    • C.  Increasing Globalization  16.2
    • D.  Due Diligence  16.3
    • E.  Risk Minimization  16.4
    • F.  Understanding Defined Terms  16.5
  • II.  CLIENT IS NOT UNITED STATES CITIZEN  16.6
    • A.  Determining Residence for Income Tax Purposes  16.7
      • 1.  Green Card Test  16.8
      • 2.  Substantial Presence Test  16.9
        • a.  Closer Connection Exception  16.9A
        • b.  Tax Treaty Exception: Tie-Breaker Rule  16.9B
    • B.  Income Taxation of United States and Non–United States Persons  16.10
      • 1.  Determination of United States Source Income  16.11
      • 2.  Taxation of United States Source Income  16.12
      • 3.  Income Effectively Connected With United States Trade or Business  16.13
      • 4.  Taxation of United States Trade or Business Income  16.14
    • C.  Determining Residence for Transfer Tax Purposes  16.15
      • 1.  Domicile Defined as Residence With No Definite Intention of Moving  16.15A
      • 2.  Facts and Circumstances the IRS Considers to Determine Domicile  16.15B
    • D.  Transfer Taxation of Nonresidents  16.16
      • 1.  Table: United States Situs Assets  16.17
      • 2.  Estate Tax–Exempt Assets  16.18
      • 3.  Transfers With Retained Interests  16.19
      • 4.  Tables: Effect of Transfer Tax Treaties  16.19A
  • III.  CLIENT IS CITIZEN OF UNITED STATES AND OTHER COUNTRIES
    • A.  Client Is United States Resident  16.20
    • B.  Client Is Non–United States Resident  16.21
  • IV.  CLIENT WANTS TO MAKE TRANSFERS TO NON–UNITED STATES CITIZEN SPOUSE OR CLIENT IS NON–UNITED STATES CITIZEN SURVIVING SPOUSE  16.22
    • A.  Inter Vivos Transfers
      • 1.  Annual Exclusion  16.23
      • 2.  Inadvertent Transfers  16.24
    • B.  Testamentary Transfers
      • 1.  Transfers to Non–United States Citizen Spouses  16.25
      • 2.  Marital Deduction Requirements if Surviving Spouse Is Not United States Citizen  16.26
      • 3.  Qualifying Almost Qualified Transfers  16.27
      • 4.  Surviving Spouse Becomes United States Citizen  16.28
      • 5.  Outright Transfers to Spouse  16.29
        • a.  Qualified Domestic Trust (QDOT) Options  16.30
        • b.  Qualifying Property  16.31
        • c.  Nonassignable Annuities  16.32
      • 6.  Transfers in Trust
        • a.  Trusts Revocable by Spouse  16.33
        • b.  Irrevocable Trusts  16.34
        • c.  Deadline for Making QDOT Election  16.35
    • C.  Requirements for QDOTs  16.36
    • D.  Taxation of QDOTs  16.37
      • 1.  Taxable Events  16.38
      • 2.  Distributions Not Subject to Tax  16.39
    • E.  Practical Considerations  16.40
    • F.  Marital Deduction Tax Treaty Variations  16.40A
    • G.  Foreign Community Property  16.40B
  • V.  CLIENT HAS FOREIGN RELATIVES FROM WHOM GIFTS/BEQUESTS ARE EXPECTED
    • A.  Tax Consequences  16.41
    • B.  Reporting Requirements  16.42
      • 1.  Reporting Thresholds  16.43
      • 2.  Procedural Requirements  16.44
      • 3.  Penalties for Failure to Report  16.45
    • C.  Practical Issues  16.46
  • VI.  CLIENT HAS NON–UNITED STATES CHILDREN  16.47
  • VII.  CLIENT HAS CONNECTIONS WITH FOREIGN TRUST OR ACCOUNT  16.48
    • A.  Determining Whether Trust Is Foreign or Domestic  16.49
      • 1.  Court Test  16.50
        • a.  Safe Harbor for Court Test  16.51
        • b.  Trusts That Satisfy Court Test  16.52
        • c.  Automatic Migration Rule for Court Test  16.53
      • 2.  Control Test  16.54
        • a.  Safe Harbor for Control Test  16.55
        • b.  Twelve-Month Grace Period After Inadvertent Change in Trust Residence  16.56
        • c.  Automatic Migration Rule for Control Test  16.57
    • B.  Client Establishes Foreign Trust or Makes Transfers to Foreign Trust  16.58
      • 1.  Grantor Trust Rules of IRC §679  16.59
        • a.  Preimmigration Trusts  16.60
        • b.  Outbound Migration of Trusts  16.61
        • c.  Certain Loans or Uncompensated Use of Trust Property  16.61A
      • 2.  Recognition of Gain on Transfer of Assets to Foreign Trust  16.62
      • 3.  Annual Reporting Required in Case of Foreign Trust With United States Grantor  16.63
        • a.  Appointment of United States Agent  16.64
        • b.  Owner Reporting Requirements  16.65
      • 4.  Reporting Establishment of and Transfers to Foreign Trust  16.66
        • a.  Reportable Event  16.67
        • b.  Gratuitous Transfer  16.68
          • (1)  Transfer for Fair Market Value  16.69
          • (2)  Qualified Obligation  16.70
          • (3)  Related Person  16.71
        • c.  Responsible Party  16.72
    • C.  Client Receives Distributions From Foreign Trust  16.73
      • 1.  Distributions From Foreign Trust  16.74
      • 2.  Distributions Through Intermediaries  16.75
      • 3.  Information Required for Proper Characterization of Distributions  16.76
        • a.  Default Treatment  16.77
        • b.  Accumulation Distribution Treatment  16.78
      • 4.  Filing Requirements  16.79
    • D.  Determining Whether Foreign Trust Is Grantor Trust or Nongrantor Trust  16.80
      • 1.  Exception Applicable to Certain Revocable Trusts  16.81
      • 2.  Exception Applicable to Certain Irrevocable Trusts  16.82
      • 3.  Exception Applicable to Certain Compensatory Trusts  16.83
    • E.  Penalties for Failure to Comply With Foreign Trust Reporting Obligations  16.84
    • F.  Reporting of Foreign Bank Accounts—FBAR Compliance (FinCEN Form 114)  16.84A
      • 1.  Who Must File FBAR  16.84B
      • 2.  When FBAR Filing Requirement Applies to Foreign Account  16.84C
      • 3.  FBAR Financial Interest  16.84D
      • 4.  Table: Penalties for Nonfiling FBAR  16.84E
    • G.  Reporting of Foreign Assets: FATCA Disclosure Rules (IRS Form 8938)  16.84F
      • 1.  Who Must File IRS Form 8938  16.84G
      • 2.  Specified Foreign Financial Assets  16.84H
      • 3.  Reporting Thresholds  16.84I
        • a.  Taxpayers Living in United States  16.84J
        • b.  Taxpayers Living Abroad  16.84K
      • 4.  Penalties for Nonfiling Under FATCA (IRS Form 8939)  16.84L
  • VIII.  UNITED STATES CLIENT IS LEAVING UNITED STATES
    • A.  Expatriation Regime  16.85
    • B.  Individuals Subject to Expatriation Regime  16.86
    • C.  Definition of United States Citizen and Long-Term Resident  16.87
      • 1.  Definition of United States Citizen  16.87A
      • 2.  Definition of Long-Term Resident  16.87B
    • D.  Exceptions to Expatriation Regime  16.88
    • E.  Timing of Expatriation  16.89
      • 1.  Loss of Citizenship  16.89A
      • 2.  Termination of Residency  16.89B
    • F.  “Mark-to-Market” Approach for Expatriates  16.90
    • G.  Gift and Estate Taxes for Expatriates’ Transfers  16.90A
      • 1.  Covered Gift or Bequest  16.90B
      • 2.  Covered Expatriate  16.90C
      • 3.  Other Topics Covered by Proposed Regulations  16.90D
  • IX.  CLIENT HAS FOREIGN ASSETS  16.91
    • A.  Coordination of Estate Plan  16.92
    • B.  Recognition of Trusts  16.93
    • C.  Situs Wills/Testamentary Documents  16.94
    • D.  Qualifying Transfers of Foreign Assets for United States Tax Benefits  16.95
    • E.  Foreign Tax Issues  16.96
    • F.  Forced Heirship Laws  16.97
    • G.  Association of Competent Local Counsel [Deleted]  16.98
  • X.  CLIENT IS NON–UNITED STATES PERSON WITH UNITED STATES ASSETS  16.99
  • XI.  CLIENT HOLDS ASSETS OF FOREIGN DECEDENT  16.100
    • A.  United States Executor Defined  16.101
    • B.  Statutory Executor Defined  16.102
    • C.  Filing Requirements and Payment of Tax  16.103
    • D.  Personal Liability of Statutory Executor  16.104
    • E.  Avoiding Liability  16.105
  • XII.  OTHER ISSUES ENCOUNTERED BY INTERNATIONAL ESTATE PLANNING PRACTITIONERS  16.106

17

Marital Deduction Planning

Joel A. Levine

  • I.  INTRODUCTION TO MARITAL DEDUCTION PLANNING  17.1
    • A.  Marital Deduction Terminology  17.2
    • B.  Brief History of Marital Deduction  17.3
      • 1.  Effect of EGTRRA-2001 as Amended  17.4
      • 2.  Impact of Changes to Marital Deduction  17.5
    • C.  Marital Deduction Requirements  17.6
      • 1.  Citizenship of Spouses  17.7
      • 2.  Definition of “Surviving Spouse”  17.8
      • 3.  “Passing” Requirement  17.9
      • 4.  Transferred Property Must Be “Deductible Interests”  17.10
        • a.  Prohibition of Funding With Nondeductible Interests  17.11
        • b.  Terminable Interest Rule  17.12
          • (1)  Deductible Terminable Interests  17.13
          • (2)  Six-Month Survival Period  17.14
    • D.  Value of Marital Deduction  17.15
      • 1.  Obligation to Transfer Property to Third Party  17.16
      • 2.  Payment of Expenses  17.17
    • E.  Interspousal Lifetime Gifts  17.18
  • II.  QUALIFYING TRUSTS  17.19
    • A.  Life Income/GPA Trust  17.20
      • 1.  Power Exercisable in Favor of Surviving Spouse’s Estate During Life or at Death  17.21
      • 2.  Advantages Under EGTRRA-2001  17.22
    • B.  QTIP Trust  17.23
      • 1.  Qualifying Income Interest for Life  17.24
        • a.  Termination on Remarriage  17.25
        • b.  Postdeath Reformation  17.26
      • 2.  Making QTIP Election  17.27
      • 3.  Advantages of QTIP Trust  17.28
        • a.  Control of Disposition by Deceased Spouse  17.29
        • b.  Postmortem Planning With QTIP Trust  17.30
          • (1)  Using Partial QTIP Election With IRC §2013 Prior Transfer Property (PTP) Credit  17.31
          • (2)  Using QTIP Election to Obtain Step-Up in Basis  17.32
        • c.  Reverse QTIP Election  17.33
      • 4.  Discretionary Trustee Powers With QTIP Trusts  17.34
    • C.  Life Insurance and Annuity/GPA Trust  17.35
    • D.  Qualified Charitable Remainder Trust  17.36
    • E.  Estate Trust  17.37
  • III.  ELEMENTS OF ZERO-TAX FORMULA  17.38
    • A.  Unified Credit  17.39
    • B.  State Death Tax Credit  17.40
    • C.  IRC §2013 Prior Transfer Property (PTP) Credit  17.41
    • D.  Administration Expenses and Nondeductible Debts  17.42
    • E.  Estate Tax Payments  17.43
    • F.  Other Credits and Deductions  17.44
  • IV.  PECUNIARY AND FRACTIONAL SHARE FORMULAS  17.45
    • A.  Pecuniary Formulas  17.46
      • 1.  Pecuniary Marital/Residuary Credit Shelter  17.47
      • 2.  Pecuniary Credit Shelter/Residuary Marital  17.48
    • B.  Fractional Share Formulas  17.49
    • C.  Funding of Marital and Credit Shelter Shares  17.50
    • D.  Considerations in Choosing Formula  17.51
      • 1.  Shifting Appreciation and Depreciation Using Pecuniary Formula With True Worth Funding  17.52
      • 2.  Income Tax Consequences of Pecuniary Formulas  17.53
      • 3.  Using Fractional Share Formula With Prorata Funding  17.54
      • 4.  Allocation of Income Earned During Administration  17.55
  • V.  ESTATE PLANNING PRINCIPLES
    • A.  Tax-Efficient Versus Tax-Driven Estate Planning  17.56
    • B.  The Married Couple’s General Plan  17.57
    • C.  Planning for the Unknown—The Flexibility Principle  17.58
  • VI.  MARITAL DEDUCTION PLANNING FOR SMALL, MEDIUM, AND LARGE ESTATES  17.59
    • A.  Small Estate: Marital Estate Less Than Applicable Exclusion Amount  17.60
    • B.  Medium Estate: Marital Estate Greater Than Deceased Spouse’s Applicable Exclusion Amount and Less Than Both Spouses’ Applicable Exclusion Amounts  17.61
      • 1.  Estate Planning Using Spousal Credit Shelter Trust  17.62
      • 2.  Allocation of GST Exemption  17.63
      • 3.  Carryover Basis Considerations [Deleted]  17.64
    • C.  Large Estates: Marital Estate in Excess of Both Spouses’ Applicable Exclusion Amounts  17.65
  • VII.  ADDITIONAL ESTATE PLANNING DEVICES
    • A.  Use of Entities as Trust Substitutes  17.66
    • B.  Family (Spousal) Allowance  17.67
  • VIII.  MARITAL DEDUCTION PLANNING FOR SPECIAL ASSETS AND CLAIMS AGAINST ASSETS  17.68
    • A.  Dispositions Required by Law or Contract  17.69
      • 1.  Foreign Assets  17.70
      • 2.  Transfers Under Dissolution Agreements  17.71
    • B.  Income in Respect of Decedent (IRD)  17.72
    • C.  Life Insurance  17.73
  • IX.  PLANNING FOR NONCITIZEN SPOUSE  17.74
    • A.  Purpose of QDOT  17.75
    • B.  QDOT Requirements  17.76
    • C.  Taxation of QDOT  17.77
    • D.  Alternatives to QDOT Established by Deceased Spouse  17.78

17A

Family Investment Companies

Richard S. Kinyon

  • I.  USE OF FAMILY INVESTMENT COMPANIES IN ESTATE PLANNING  17A.1
  • II.  NONTAX ESTATE PLANNING OBJECTIVES OF FAMILY INVESTMENT COMPANIES
    • A.  Consolidate and Preserve Investment Assets Owned by Family Members and Trusts  17A.2
      • 1.  Better Diversification of Investments  17A.3
      • 2.  Higher Quality Investment Counsel and/or Lower Fees  17A.4
      • 3.  Access to Investment Opportunities  17A.5
    • B.  Investment and Distribution Policy Designed to Provide Growth in Both Income and Principal  17A.6
  • III.  TYPES OF INVESTMENT ENTITIES OR ARRANGEMENTS AND SPECIAL TAX AND ESTATE PLANNING PROVISIONS
    • A.  Form of Entity or Arrangement
      • 1.  Limited Partnership  17A.7
      • 2.  Limited Liability Company  17A.8
      • 3.  Tenancy in Common  17A.9
    • B.  Estate Planning Provisions  17A.10
      • 1.  Required Annual Distributions of Hypothetical Trust Net Income and Tax Liability  17A.11
      • 2.  Typical Restrictions on Voluntary and Involuntary Transfers of Interests in Company to Nonfamily Members or Trusts  17A.12
      • 3.  Annual Appraisals of Company and Mandatory Annual Accountings to Owners  17A.13
      • 4.  Right of Successors in Interest to Redeem Portion of Deceased Owner’s Interest in Company to Provide Funds to Pay Estate Taxes Attributable to That Interest  17A.14
      • 5.  Termination Within Specified Period After Death of Senior Family Member  17A.15
  • IV.  ADDITIONAL CONSIDERATIONS FOR FAMILY INVESTMENT COMPANIES
    • A.  Partnership Tax Provisions  17A.16
    • B.  California Real Property Tax Considerations  17A.17
    • C.  Annual Tax and Fee on LLCs Doing Business in California  17A.18
    • D.  Investment of Additional Funds; Admission of New Owners  17A.19
  • V.  TAX AND OTHER ESTATE PLANNING ADVANTAGES OF FAMILY INVESTMENT COMPANIES
    • A.  Substantial Minority-Interest and Lack-of-Marketability Discounts Should Be Available for Estate and Gift Tax Purposes  17A.20
    • B.  “Crummey” and Other Trusts May Be Unnecessary in Many Situations  17A.21
    • C.  Some Protection of Investment Assets From Partners’ Creditors and Predators Is Provided  17A.22
    • D.  Family Investment Company Can Enhance Advantages of Dynasty and Charitable Lead Annuity Trusts  17A.23
      • 1.  Leveraged, Intentionally Defective Grantor GST-Exempt Dynasty Trust
        • a.  Bargain Installment Sale to Dynasty Trust  17A.24
        • b.  Private Annuity Alternative  17A.24A
      • 2.  Charitable Lead Annuity Trust (CLAT)  17A.25
      • 3.  Tax Treatment on Spouses’ Deaths  17A.25A
  • VI.  TRANSACTIONS BETWEEN FAMILY INVESTMENT COMPANIES AND FAMILY MEMBERS, TRUSTS, AND BUSINESSES
    • A.  Loans Can Be Made to Family Members, Trusts, and Businesses  17A.26
    • B.  Equity Investments Can Be Made in Family Businesses  17A.27
    • C.  Businesses and Leased Commercial or Residential Real Estate  17A.28

18

Business Entity Valuation Planning Strategies

Steven Murray Goldberg

  • I.  INTRODUCTION TO VALUATION PLANNING
    • A.  Overview of Family Business Entities  18.1
    • B.  Popularity of Limited Partnerships and Limited Liability Companies  18.2
    • C.  Typical Planning Situations and Concerns  18.3
    • D.  Ethical Considerations: Conflicts and Competence  18.4
  • II.  CHOICE OF ENTITY AND FORMATION ISSUES  18.5
    • A.  Limited Partnerships  18.6
      • 1.  Choice of General Partner  18.7
      • 2.  Requirement of Two or More Persons  18.8
    • B.  Limited Liability Companies  18.9
    • C.  Corporations  18.10
    • D.  Choosing Entity
      • 1.  Corporation versus FLP or FLLC  18.11
      • 2.  FLP versus FLLC  18.12
    • E.  Choosing Assets  18.13
  • III.  ESTATE AND GIFT TAXES
    • A.  Valuation Discounts  18.14
      • 1.  Lack of Marketability  18.15
      • 2.  Lack of Control  18.16
      • 3.  Mathematics of Discounts  18.17
      • 4.  Income Tax Consequences  18.18
    • B.  Valuation Premiums  18.19
      • 1.  Control Premium  18.20
      • 2.  Swing Vote Premium  18.21
    • C.  IRC Chapter 14 Valuation Rules: IRC §§2701–2704
      • 1.  Introduction to Special Valuation Rules  18.22
        • a.  IRC §2701  18.23
        • b.  IRC §2702  18.24
        • c.  IRC §2703  18.25
        • d.  IRC §2704  18.26
          • (1)  IRC §2704(a)  18.27
          • (2)  IRC §2704(b)  18.28
          • (3)  Proposed Regulations Under IRC 2704 [Deleted]  18.28A
          • (4)  Dissolution  18.29
      • 2.  IRS Attacks on Valuation Discounts  18.30
      • 3.  Court Responses to IRS Arguments  18.31
        • a.  IRC §2704(b) Argument  18.32
        • b.  Lack of Economic Substance Argument  18.33
        • c.  IRC §2703 Argument  18.34
        • d.  Lost Value Argument  18.35
        • e.  Family Attribution  18.36
      • 4.  IRS Litigation Victories Using IRC §2036(a)  18.37
        • a.  Application of IRC §2036(a)(1)–(2)  18.37A
        • b.  Significant Nontax or Business Purpose  18.37B
        • c.  Other Strategies to Avoid IRC §2036(a)  18.37C
        • d.  Application of Step-Transaction Doctrine  18.37D
      • 5.  Planning Responses to IRC §2036(a) Attacks  18.37E
    • D.  Appraisals
      • 1.  Documenting Discount  18.38
      • 2.  Contents of Appraisal  18.39
      • 3.  Adequate Disclosure Requirement for Gift Tax Return  18.40
    • E.  Circular 230  18.40A
  • IV.  STRUCTURING AND FORMING THE FAMILY BUSINESS ENTITY  18.41
    • A.  Business Purpose  18.42
      • 1.  Centralized Management and Control  18.43
      • 2.  Pooling of Assets  18.44
      • 3.  Investment Training  18.45
      • 4.  Family Values and Bonding  18.46
      • 5.  Family Businesses  18.47
      • 6.  Limited Liability  18.48
      • 7.  Asset Protection  18.49
    • B.  California Law
      • 1.  Restrictions on Liquidation Rights  18.50
      • 2.  Restrictions on Transfers  18.51
      • 3.  Real Property Tax  18.52
      • 4.  Other Substantive Law Considerations  18.53
    • C.  Family Business Entity Formation Combined With Other Estate Planning Techniques  18.54

19

Use of Life Insurance in Estate Planning

Jon J. Gallo

  • I.  THE BASICS
    • A.  Purposes of Life Insurance in Estate Planning  19.1
    • B.  Planning Goals and Techniques  19.1A
    • C.  Example: Effect of Life Insurance on Estate Beneficiary  19.1B
  • II.  SELECTING APPROPRIATE INSURANCE PRODUCT
    • A.  Role of Attorney
      • 1.  Reviewing Carriers and Policies  19.2
      • 2.  Amount of Coverage  19.2A
    • B.  Role of Life Insurance Professionals  19.3
    • C.  Types of Insurance Products  19.4
      • 1.  Term Insurance  19.5
        • a.  Renewable Term  19.6
        • b.  Level Term  19.7
        • c.  Decreasing Term  19.8
        • d.  Modified Term  19.9
      • 2.  Permanent Insurance
        • a.  Premiums for Permanent Insurance  19.10
        • b.  Cash Value  19.10A
        • c.  Limited-Pay Insurance  19.11
        • d.  Current Assumption (Interest-Sensitive) Insurance  19.12
        • e.  Blended Whole Life/Term Insurance  19.13
        • f.  Joint Lives Life Insurance  19.14
        • g.  Universal Life Insurance  19.15
        • h.  Variable Life Insurance  19.16
        • i.  Variable/Universal Life  19.17
        • j.  Modified Endowment Contract (MEC)  19.17A
      • 3.  Life Insurance Illustration
        • a.  Definition of Life Insurance Illustration  19.18
        • b.  Reviewing Life Insurance Illustrations  19.18A
        • c.  Questions to Ask Regarding Term Insurance  19.19
        • d.  Questions to Ask Regarding Permanent Insurance  19.20
      • 4.  Risk Factors  19.21
        • a.  Mortality Risk  19.22
        • b.  Investment Risk  19.23
        • c.  Lapse Risk  19.24
        • d.  Company Expense Risk  19.25
    • D.  Selecting Insurance Company
      • 1.  Insurance Company Rating Services and Reports  19.26
      • 2.  Reviewing Rating Reports  19.27
  • III.  FEDERAL TAXATION OF LIFE INSURANCE  19.28
    • A.  Estate Taxation of Life Insurance  19.29
      • 1.  Proceeds Payable to Estate  19.30
      • 2.  Incidents of Ownership  19.31
        • a.  Attribution When Insured Is Trustee  19.31A
        • b.  Attribution When Settlor Retains Asset Substitution Power  19.31B
        • c.  Attribution When Settlor Has Trustee Removal Power  19.32
        • d.  Attribution When Policy Is Owned by Corporation or Partnership   19.33
      • 3.  Transfers Within 3 Years of Death
        • a.  Inclusion of Policy Proceeds in Decedent’s Estate  19.34
        • b.  Payment of Premiums Is Not a Transfer  19.35
        • c.  Applying for Insurance Policy  19.36
      • 4.  Marital Deduction for Settlement Option Payments  19.37
      • 5.  Inclusion in Noninsured Owner’s Estate  19.38
    • B.  Gift Taxation of Life Insurance
      • 1.  Valuation of Gratuitous Transfer of Life Insurance Policy  19.39
      • 2.  Payment of Premiums  19.40
      • 3.  Effect of Secondary Market on Gift Tax Value  19.41
      • 4.  Compare to Valuation for Compensation Purposes  19.41A
    • C.  Income Taxation of Life Insurance Proceeds
      • 1.  General Rule: Nontaxable  19.42
      • 2.  Employer-Owned Life Insurance (EOLI) Contracts  19.42A
      • 3.  Exception to General Rule: Transfer-for-Value Rule  19.43
      • 4.  Exceptions to Transfer-for-Value Rule
        • a.  Transfers With Carryover Basis  19.44
        • b.  Transfers to Insured, Partner, Partnership, or Certain Corporations  19.45
        • c.  Exchange of Policies Between Grantor Trusts  19.45A
        • d.  Viatical Settlements  19.46
      • 5.  Settlement Option Consequences  19.47
      • 6.  Surrender of Insurance Policy  19.48
      • 7.  Exchange of Insurance Policies  19.49
  • IV.  LIFE INSURANCE TRUST
    • A.  Purposes of Irrevocable Life Insurance Trust (ILIT)  19.50
      • 1.  Insurable Interest Problem  19.50A
      • 2.  Avoiding Estate Tax Inclusion Without ILIT  19.50B
    • B.  Definition of ILIT  19.51
    • C.  Formation of ILIT and Payment of Insurance Premiums  19.52
    • D.  ILIT Settlor  19.53
    • E.  ILIT Trustee  19.54
    • F.  Reciprocal Trust Doctrine  19.55
    • G.  Acquiring Insurance Policy for ILIT  19.56
    • H.  Income Taxation of ILIT  19.57
    • I.  Crummey Withdrawal Power  19.58
      • 1.  Must Cash Be Kept During Withdrawal Period?  19.59
      • 2.  Term and Group-Term Insurance  19.60
      • 3.  Powers of Appointment  19.61
      • 4.  Crummey Withdrawal Power as General Power of Appointment  19.62
      • 5.  Tax Consequences While Crummey Withdrawal Power Is Outstanding
        • a.  Gift Tax Consequences  19.63
        • b.  Estate and Generation-Skipping Transfer (GST) Tax Consequences  19.64
        • c.  Income Tax Consequences  19.65
      • 6.  Tax Consequences on Lapse of Crummey Withdrawal Power
        • a.  Lapses and Releases: 5 or 5 Safe Harbor  19.66
        • b.  Gift and GST Tax Consequences  19.67
        • c.  Estate Tax Consequences  19.68
        • d.  Income Tax Consequences  19.69
    • J.  Generation-Skipping Insurance Trust
      • 1.  GST Tax and GST Exemption  19.70
      • 2.  Use of GST Exemption With ILIT  19.71
      • 3.  How to Avoid Taxable Releases  19.72
        • a.  Limit Maximum Withdrawal Amount to 5 or 5 Amount  19.73
        • b.  Use of Hanging Power  19.74
      • 4.  Allocating GST Exemption to ILIT
        • a.  In General  19.75
        • b.  Deemed Allocations  19.76
        • c.  Estate Tax Inclusion Period (ETIP)  19.77
  • V.  SPLIT-DOLLAR LIFE INSURANCE
    • A.  The Basics  19.78
    • B.  Private Split-Dollar Arrangement  19.79
    • C.  The Split  19.80
      • 1.  Splitting Premium  19.81
      • 2.  Splitting Death Benefit  19.82
    • D.  Documenting Split-Dollar Arrangement  19.83
    • E.  Income Tax Consequences of Split-Dollar Plans  19.84
    • F.  Gift Tax Consequences of Split-Dollar Plans  19.85
    • G.  Estate Tax Consequences of Split-Dollar Plans  19.86
    • H.  Terminating Plan  19.87
      • 1.  Exit Strategies  19.87A
      • 2.  Rollout Issues  19.87B
  • VI.  PLANNING WITH LIFE INSURANCE
    • A.  Life Insurance and Charitable Giving
      • 1.  Gifts of Life Insurance to Charity  19.88
      • 2.  Using ILIT as Wealth Replacement Trust  19.89
    • B.  Life Insurance Partnership  19.90

20

Annuities

Richard Burger

  • I.  ANNUITY CONTRACT
    • A.  Definition of Annuity  20.1
    • B.  Types of Commercial Annuities  20.2
    • C.  Parties to Annuity Contract  20.3
  • II.  DEFERRED ANNUITIES
    • A.  Characteristics of Deferred Annuities  20.4
    • B.  Phases of Deferred Annuities  20.5
      • 1.  Accumulation Phase  20.6
      • 2.  Annuitization Phase  20.7
    • C.  Contract Made Before August 14, 1982  20.7A
  • III.  TAXATION OF ANNUITIES
    • A.  Estate Taxation of Annuities  20.8
    • B.  Income Taxation of Annuities
      • 1.  Gross Income and Recovery of Basis  20.9
        • a.  Recovery of Basis With Fixed Annuities: Exclusion Ratio  20.10
          • (1)  “Expected Return”  20.11
          • (2)  “Investment in the Contract”  20.12
        • b.  Recovery of Basis From Variable Annuities  20.13
        • c.  Death Before All Basis Has Been Recovered  20.14
      • 2.  Natural Person Requirement  20.15
        • a.  Exception for Entity as Agent: Trusts as Owners  20.16
        • b.  Other Exceptions to Natural Person Rule  20.17
      • 3.  Death of Owner and “Forced Distributions”   20.18
        • a.  Exception for “Designated Beneficiary”  20.19
        • b.  Exception When Surviving Spouse Is Beneficiary  20.20
        • c.  No “Designated Beneficiary Trusts”  20.21
        • d.  Restricted Beneficiary Designation  20.21A
      • 4.  Constructive Receipt  20.22
      • 5.  Surrender of Annuity Contract  20.23
      • 6.  Gift of Annuity Contract  20.24
      • 7.  Basis, IRD, and IRC §691(c) Deduction  20.25
      • 8.  Exchange of Contracts  20.26
  • IV.  ANNUITIES IN QUALIFIED RETIREMENT PLANS AND IRAS  20.27
    • A.  Section 403(b) Annuities  20.28
    • B.  IRAs (Individual Retirement Annuities)  20.29
    • C.  Conversion of IRA to Roth IRA  20.29A
  • V.  PRIVATE ANNUITIES
    • A.  The Appeal of Private Annuities  20.30
    • B.  Analyzing Private Annuities  20.31
      • 1.  Income Taxation of Unsecured Private Annuities  20.32
      • 2.  Income Taxation of Secured Private Annuities  20.33
      • 3.  Interest Rates and Tables  20.34
      • 4.  New Basis  20.35
      • 5.  When Private Annuities Are Most Effective  20.36
    • C.  Using Private Annuity as Business Succession Planning Strategy  20.36A
  • VI.  CHARITABLE GIFT ANNUITIES  20.37
  • VII.  ANNUITIES AND MEDI-CAL  20.38
    • A.  Deferred Annuities  20.39
    • B.  Immediate Annuities  20.40
    • C.  Effect of Proposed California Regulations  20.41

21

Employee Benefits and IRAs

CEB Staff

  • I.  OVERVIEW OF RETIREMENT BENEFITS
    • A.  Plan Benefits and Limitations  21.1
    • B.  Types of Plans  21.2
    • C.  Benefits of Tax Deferral  21.3
  • II.  CONTRIBUTION LIMITATIONS  21.4
    • A.  IRC §§401(k), 403(b), 457, and SEP Plans  21.5
    • B.  SIMPLE Plans  21.6
    • C.  Traditional IRAs  21.7
    • D.  Roth IRAs  21.8
    • E.  HSAs and Archer MSAs  21.8A
  • III.  RETIREMENT PLAN DISTRIBUTIONS  21.9
    • A.  Forms of Distributions
      • 1.  Qualified Plan Retirement Distributions  21.10
      • 2.  QDRO Distributions to Former Spouse  21.11
      • 3.  Rollovers to Traditional IRAs and Other Plans  21.12
        • a.  Creditor Rights Issues  21.13
        • b.  Marital Property Issues  21.14
      • 4.  Rollovers Out of Traditional IRAs  21.15
      • 5.  Roth IRA Conversions
        • a.  Assessing Desirability  21.16
        • b.  Requirements for Conversion  21.17
        • c.  Correcting a Failed Conversion [Deleted]  21.18
      • 6.  Other IRA Withdrawals  21.19
    • B.  Taxation of Distributions
      • 1.  General Rule of Annuity Taxation  21.20
      • 2.  Taxation of Roth IRA Distributions  21.21
      • 3.  Income in Respect of a Decedent (IRD)  21.22
      • 4.  Grandfathered Special Rules for Lump-Sum Distributions
        • a.  Overview of Tax Calculation  21.23
        • b.  Comparison With IRA Rollover Alternative  21.24
      • 5.  Early Distribution Penalty  21.25
    • C.  Minimum Distribution Requirements
      • 1.  Failure to Distribute Penalty  21.26
      • 2.  Minimum Distributions: Basic Statutory Requirements  21.27
      • 3.  Implementation in Regulations  21.28
        • a.  Tables: Distributions During the Employee’s Lifetime  21.29
        • b.  Postdeath Minimum Distributions—Designated Beneficiary Concept  21.30
        • c.  Table: Postdeath Distributions: Employee Survives Required Beginning Date (RBD)  21.31
        • d.  Postdeath Distributions: Employee Fails to Survive Required Beginning Date (RBD)  21.32
    • D.  Minimum Distributions Versus Annuities  21.33
  • IV.  TRANSFERRING RETIREMENT BENEFITS
    • A.  Spousal Protection Limitations  21.34
    • B.  Community Property Issues  21.35
    • C.  Estate and Gift Tax
      • 1.  Inclusion and Exclusions  21.36
      • 2.  Marital Deduction Issues  21.37
      • 3.  Charitable Deduction  21.38
  • V.  LARGE IRA BASIC STRATEGY  21.39
    • A.  The Large IRA Problem  21.40
    • B.  Importance of Naming Designated Beneficiary  21.41
    • C.  Beneficiary Designation Options  21.42
      • 1.  The Spouse  21.43
      • 2.  The Revocable Trust  21.44
      • 3.  The Marital Deduction Trust  21.45
      • 4.  Credit Shelter (Bypass) Trusts  21.46
      • 5.  Multiple Beneficiaries  21.47
      • 6.  Charity and Charitable Remainder Trusts  21.48
    • D.  Converting IRA to Roth IRA Before Death  21.49
  • VI.  PARTICULAR FACT PATTERNS  21.50
    • A.  Client Wants Surviving Spouse to Benefit from Plan Without Restriction  21.51
    • B.  Client Wants Surviving Spouse to Benefit but Does Not Want Surviving Spouse to Control Plan  21.52
      • 1.  Naming Subtrust as Beneficiary of Plan  21.53
      • 2.  Additional Considerations in Naming Subtrust as Beneficiary of Plan  21.54
    • C.  Client Wants Non-Spouse Beneficiary to Benefit from Plan Without Restriction  21.55
    • D.  Client Wants Non-Spouse Beneficiary to Benefit but Does Not Want Beneficiary to Control Plan  21.56
      • 1.  Naming Trust as Beneficiary of Plan  21.57
      • 2.  Additional Considerations in Naming Trust  21.58
      • 3.  Trusteed IRA Account  21.58A
    • E.  Client Wants Multiple Beneficiaries to Benefit from Plan Without Restriction  21.59
    • F.  Client Wants Multiple Beneficiaries to Benefit but Does Not Want Them to Control Plan  21.60
    • G.  Plan Must Go Into Client’s Revocable Trust  21.61
    • H.  Client Wants Charity to Benefit from Plan  21.62
      • 1.  Naming Charity as Beneficiary of Plan  21.63
      • 2.  Naming Trust as Beneficiary of Plan and Naming Charity as Beneficiary of Trust  21.64
      • 3.  Naming Charitable Remainder Trust as Beneficiary of Plan  21.65

21A

IRC §529 College Savings Accounts and Coverdell Education Savings Accounts

Genevieve M. Moore

  • I.  IRC §529 COLLEGE SAVINGS ACCOUNTS
    • A.  Paying for Higher Education
      • 1.  Costs of Higher Education  21A.1
      • 2.  Available Payment Options for Education  21A.2
      • 3.  Benefits of College Savings Accounts  21A.3
    • B.  SELECTING COLLEGE SAVINGS ACCOUNTS
      • 1.  Two Types of Qualified Tuition Programs  21A.4
        • a.  Prepaid Tuition Plans  21A.5
        • b.  College Savings Accounts  21A.6
      • 2.  Wide Variety Among College Savings Account Programs  21A.7
      • 3.  General Operation of College Savings Accounts  21A.8
      • 4.  California’s College Savings Account Program  21A.9
    • C.  REQUIREMENTS AND MECHANICS
      • 1.  Account Owner  21A.10
        • a.  Custodial Accounts  21A.11
        • b.  Trust Ownership  21A.12
      • 2.  Designated Beneficiary  21A.13
      • 3.  Cash Contributions Only  21A.14
      • 4.  Contribution Limits  21A.15
      • 5.  Limited Investment Direction  21A.16
      • 6.  Qualified Higher Education Expenses  21A.17
      • 7.  Nonqualified Distributions  21A.18
      • 8.  Changing Beneficiary  21A.19
      • 9.  Rollover to Another College Savings Account Program  21A.20
      • 10.  Methods of Distribution  21A.21
      • 11.  Reporting Requirements  21A.22
      • 12.  No Pledging of Interest  21A.23
      • 13.  Advance Notice of Proposed Rulemaking  21A.23A
    • D.  TAX CONSIDERATIONS
      • 1.  Federal Income Tax Treatment
        • a.  Contributions  21A.24
        • b.  Earnings Within the Account  21A.25
        • c.  Distributions  21A.26
        • d.  Change of Beneficiary; Rollover of Account  21A.27
        • e.  No Income Limitations  21A.28
        • f.  Support Test for Dependent  21A.29
      • 2.  State Income Tax Treatment  21A.30
        • a.  Contributions  21A.31
        • b.  Distributions  21A.32
      • 3.  Estate Tax Treatment
        • a.  Contributor  21A.33
        • b.  Beneficiary  21A.34
      • 4.  Gift Tax Treatment
        • a.  Contributor  21A.35
          • (1)  Front Loading  21A.36
          • (2)  Gift-Splitting  21A.37
        • b.  Change of Beneficiary  21A.38
      • 5.  Generation-Skipping Transfer (GST) Tax Treatment
        • a.  Contributor  21A.39
        • b.  Beneficiary  21A.40
    • E.  OTHER CONSIDERATIONS
      • 1.  Fees and Costs  21A.41
      • 2.  Impact on Financial Aid  21A.42
      • 3.  Creditor Issues  21A.43
      • 4.  Succession of Ownership Issues  21A.44
      • 5.  Community Property Issues  21A.45
      • 6.  Checklist  21A.46
  • II.  COVERDELL EDUCATION SAVINGS ACCOUNTS
    • A.  Introduction to Coverdell Education Savings Accounts (Coverdell ESAs)  21A.47
    • B.  Differences Between Coverdell ESAs and College Savings Accounts  21A.48
      • 1.  Investment Options  21A.49
      • 2.  Qualified Education Expenses  21A.50
      • 3.  No Reacquisition by Contributor  21A.51
      • 4.  Income Limitations  21A.52
      • 5.  Age Limitations  21A.53
      • 6.  Financial Aid  21A.54
    • C.  Coordination With College Savings Accounts  21A.55
    • D.  Transfer Tax Treatment of Coverdell ESAs  21A.56
    • E.  Comparison With Roth IRAs  21A.57
    • F.  Comparison With Achieving a Better Life Experience (ABLE) Accounts  21A.58

22

Executive Compensation and Stock Options

Robert J. Lowe

  • I.  INTRODUCTION  22.1
  • II.  OVERVIEW
    • A.  Types of Compensation  22.2
    • B.  Tax Consequences to Employee of Receiving Various Forms of Compensation  22.3
    • C.  Tax Consequences to Employer of Compensating Employees  22.4
    • D.  Employer’s Withholding and Reporting Requirements  22.5
    • E.  Employee Versus Independent Contractor  22.6
  • III.  EQUITY-BASED COMPENSATION  22.7
    • A.  Restricted Stock  22.8
      • 1.  Restrictions That Never Lapse  22.9
      • 2.  Tax Consequences to Employee of Receiving Restricted Stock  22.10
      • 3.  Tax Consequences to Employer of Granting Restricted Stock  22.11
    • B.  Section 83(b) Election  22.12
      • 1.  Tax Consequences of Making Election  22.13
      • 2.  Strategies for 83(b) Election  22.14
      • 3.  Procedure for Making Election  22.15
    • C.  Nonqualified Stock Options (NQSOs)  22.16
      • 1.  Tax Consequences of Receiving and Exercising NQSOs  22.17
      • 2.  Employer’s Reporting and Withholding Obligations  22.18
      • 3.  Using Previously Owned Company Shares to Pay Exercise Price  22.19
      • 4.  Tax Consequences of Paying Exercise Price by Reducing Number of Shares to Be Received on Exercise  22.20
      • 5.  Advantages and Disadvantages of Granting NQSOs Compared With Restricted Stock  22.21
    • D.  Incentive Stock Options (ISOs)  22.22
      • 1.  Qualifying as ISO  22.23
      • 2.  Limit on Value of Shares  22.24
      • 3.  Tax Consequences of ISO  22.25
      • 4.  Holding Period Requirement  22.26
    • E.  Employee Stock Purchase Plans (ESPPs)  22.27
      • 1.  Qualifying as ESPP  22.28
      • 2.  Tax Consequences of ESPP  22.29
  • IV.  EQUITY IN LIMITED LIABILITY COMPANIES AND PARTNERSHIPS  22.30
    • A.  Tax Consequences of Receiving Capital Interest in LLC or Partnership for Services  22.31
    • B.  Tax Consequences of Receiving Profits Interest in LLC or Partnership for Services  22.32
    • C.  Options on Profits Interests and Capital Interests  22.33
  • V.  ALTERNATIVE FORMS OF EQUITY COMPENSATION
    • A.  Stock Appreciation Rights (SARs)  22.34
    • B.  Phantom Stock  22.35
  • VI.  GOLDEN PARACHUTES  22.36

23

Charitable Giving

Michael Burnstein

  • I.  OVERVIEW OF CHARITABLE TRANSFER PLANNING
    • A.  Scope of Chapter  23.1
    • B.  Governing Statutes  23.2
  • II.  INCOME TAX CHARITABLE CONTRIBUTION DEDUCTION
    • A.  Allowable Income Tax Deduction  23.3
    • B.  Qualified Recipients: IRC §170(c)  23.4
      • 1.  Relationship Between §170(c) and §501(c)(3)  23.5
      • 2.  Categories of Charitable Organizations  23.6
        • a.  Private Foundations  23.7
        • b.  Public Charities  23.8
        • c.  Private Operating Foundations  23.9
    • C.  Situations in Which Deduction Is Reduced or Eliminated  23.10
      • 1.  Quid Pro Quo Contributions  23.11
        • a.  Raffle Tickets  23.12
        • b.  Auction Items  23.13
        • c.  Charity Event Tickets  23.14
        • d.  Athletic Seating Rights  23.14A
      • 2.  Gifts Made Directly to Foreign Charities  23.15
      • 3.  Contributions Subject to Conditions  23.16
      • 4.  Partial Interests  23.17
      • 5.  Contributions of Services  23.18
      • 6.  Earmarked Contributions  23.19
      • 7.  Contributions of Qualified Vehicles  23.20
      • 8.  Contributions to Donor-Advised Funds  23.21
      • 9.  Contributions of Clothing or Household Items  23.21A
    • D.  Determining Tax Year When Contribution Is Deductible  23.22
    • E.  Reduction From Fair Market Value: IRC §170(e)  23.23
      • 1.  Reduction for Ordinary Income and Short-Term Capital Gain Property  23.24
      • 2.  Reduction for Long-Term Capital Gain Property  23.25
        • a.  Contribution of Tangible Personal Property  23.26
          • (1)  Unrelated Use  23.27
          • (2)  Sale by Donee  23.28
        • b.  Contribution to Private Foundation  23.29
          • (1)  Exception for Contribution to §170(b)(1)(F) Foundations  23.30
          • (2)  Exception for Contribution of Qualified Appreciated Stock  23.31
        • c.  Contribution of Certain Intellectual Property  23.32
        • d.  Contribution of Taxidermy Property  23.33
      • 3.  Special Inventory Reduction Rule: IRC §170(e)(3)  23.34
        • a.  Application to Research Property: IRC §170(e)(4)  23.35
        • b.  Application to Computer Technology: IRC §170(e)(6) [Deleted]  23.36
    • F.  Limitations Based on Contribution Base  23.37
      • 1.  Contributions to Organizations Listed in IRC §170(b)(1)(A)  23.38
        • a.  Contributions Subject to 50 Percent Limitation  23.39
        • b.  Contributions Subject to 60 Percent Limit  23.39A
        • c.  Contributions Subject to 30 Percent Limitation  23.40
      • 2.  Contributions to Organizations Not Listed in §170(b)(1)(A)  23.41
      • 3.  Special Rule for Conservation Easements  23.42
      • 4.  Interaction of Percentage Limitations  23.43
      • 5.  Carryover of Excess Contributions  23.44
    • G.  General Limitations on Itemized Deductions: IRC §68 Suspended  23.45
    • H.  Substantiation Requirements  23.46
      • 1.  Contributions of Less Than $250  23.47
      • 2.  Contributions of $250 or More  23.48
      • 3.  Contributions of More Than $500  23.49
      • 4.  Contributions of More Than $5000  23.50
        • a.  Qualified Appraisal  23.51
        • b.  Qualified Appraiser  23.52
          • (1)  Required Declarations  23.53
          • (2)  Disqualified Persons  23.54
        • c.  Appraisal Summary  23.55
      • 5.  Contributions of More Than $500,000  23.56
      • 6.  Contributions of Securities  23.57
      • 7.  Contributions of Art  23.58
    • I.  Encumbered Property  23.59
    • J.  Bargain Sales  23.60
    • K.  Individual Retirement Account Distributions  23.60A
  • III.  ESTATE TAX CHARITABLE CONTRIBUTION DEDUCTION
    • A.  Allowable Estate Tax Deduction  23.61
    • B.  Qualified Recipients: IRC §2055(a)  23.62
    • C.  Provisions Applicable to Both IRC §2055 and IRC §170  23.63
      • 1.  Quid Pro Quo Contributions  23.64
      • 2.  Contributions Subject to Conditions  23.65
      • 3.  Partial Interests  23.66
      • 4.  Earmarked Contributions  23.67
      • 5.  Contributions to Donor-Advised Funds  23.68
    • D.  Provisions of IRC §2055 Not Similar to IRC §170  23.69
      • 1.  No Maximum Estate Tax Deduction  23.70
      • 2.  No Reduction for Income or Capital Gain Potential  23.71
      • 3.  Not Limited to Domestic Charities  23.72
      • 4.  No Distinction Between Private Foundations and Other Charities  23.73
      • 5.  No Distinction Between Gifts “To” and “For the Use of” Charities  23.74
      • 6.  Artwork and Copyright Treated as Separate Property  23.75
    • E.  Considerations Unique to the Estate Tax  23.76
      • 1.  Disclaimer Resulting in Charitable Contribution  23.77
      • 2.  Fiduciary Discretion and Charitable Contributions  23.78
      • 3.  Estate Taxes Payable From Charitable Gift  23.79
      • 4.  Charitable Remainder Interest in QTIP Trust  23.80
      • 5.  Powers of Appointment  23.81
      • 6.  Retirement Plans and Charitable Giving  23.82
  • IV.  GIFT TAX CHARITABLE CONTRIBUTION DEDUCTION  23.83
  • V.  SPLIT-INTEREST CHARITABLE GIFTS  23.84
    • A.  Charitable Remainder Trusts  23.85
    • B.  Charitable Lead Trusts  23.86
    • C.  Remainder Interest in Personal Residence or Farm  23.87
    • D.  Contributions of Undivided Interests  23.88
      • 1.  Property Other Than Tangible Personal Property  23.89
      • 2.  Tangible Personal Property  23.90
    • E.  Pooled Income Funds  23.91
    • F.  Charitable Gift Annuities  23.92
    • G.  Conservation Contributions  23.93
      • 1.  Income Tax Deduction  23.94
        • a.  Qualified Real Property Interest  23.95
        • b.  Qualified Organization  23.96
        • c.  Conservation Purpose  23.97
      • 2.  Estate and Gift Tax Deduction  23.98
      • 3.  Estate Tax Exclusion  23.99
        • a.  Land Subject to Qualified Conservation Easement  23.100
        • b.  Calculation of Exclusion Amount  23.101
        • c.  Postmortem Imposition  23.102
  • VI.  CHARITABLE GIVING VEHICLES  23.103
    • A.  Private Foundations  23.104
      • 1.  Advantages of Private Foundations  23.105
      • 2.  Disadvantages of Private Foundations  23.106
    • B.  Donor-Advised Funds  23.107
    • C.  Supporting Organizations  23.108

23A

Charitable Lead Trusts

Jeffrey A. Dennis-Strathmeyer

  • I.  INTRODUCTION  23A.1
    • A.  When CLT May Be Appropriate  23A.2
    • B.  When to Use Nongrantor CLATs  23A.3
  • II.  TAX CONSIDERATIONS
    • A.  Grantor’s Income Tax Deduction for Contribution  23A.4
    • B.  Trust’s Income Tax Deduction  23A.5
    • C.  Estate Tax Deduction  23A.6
    • D.  Gift Tax Deduction  23A.7
    • E.  Generation-Skipping Transfer Tax
      • 1.  Normal Inclusion Ratio Calculation  23A.8
      • 2.  Special CLT Inclusion Ratio Rules  23A.9
        • a.  Example of Annuity Inclusion Rules  23A.10
        • b.  Implications of Annuity Inclusion Rules  23A.11
  • III.  SELECTION OF CLAT TRUSTEE  23A.12
  • IV.  CLAT DRAFTING REQUIREMENTS  23A.13
    • A.  Guaranteed Annuity Interest  23A.14
    • B.  Private Foundation Prohibitions  23A.15
      • 1.  Charitable Deduction Savings Clause  23A.16
  • V.  AVOIDING GRANTOR TRUST STATUS  23A.17
  • VI.  NONQUALIFIED CHARITABLE LEAD TRUSTS  23A.18

24

Charitable Remainder Trusts

Erik Dryburgh

  • I.  BASIC FEATURES OF CHARITABLE REMAINDER TRUST  24.1
  • II.  EVALUATING USE OF CHARITABLE REMAINDER TRUST
    • A.  When to Recommend Charitable Remainder Trust
      • 1.  Charitable Intent  24.2
      • 2.  Appreciated Assets  24.3
      • 3.  Other Reasons  24.4
    • B.  Disadvantages of Charitable Remainder Trust
      • 1.  Irrevocability  24.5
      • 2.  Lack of Liquidity  24.6
      • 3.  Difficulties of Administration  24.7
      • 4.  Compliance With Private Foundation Rules  24.8
        • a.  Self-Dealing Rules  24.9
        • b.  Taxable Expenditures  24.10
    • C.  Termination of Charitable Remainder Trust
      • 1.  Termination by Gift  24.10A
      • 2.  Termination in Favor of Income and Remainder Beneficiaries  24.10B
      • 3.  Division of Charitable Remainder Trust  24.10C
      • 4.  Abuse of Termination Procedure  24.10D
      • 5.  Partial Termination of Charitable Remainder Annuity Trust  24.10E
  • III.  EVALUATING FINANCIAL IMPACT TO CLIENT  24.11
  • IV.  DESIGNING CHARITABLE REMAINDER TRUSTS  24.12
    • A.  Types of Trusts
      • 1.  Charitable Remainder Annuity Trust  24.13
      • 2.  Charitable Remainder Unitrust
        • a.  Standard Unitrust  24.14
        • b.  Net Income Unitrust
          • (1)  Definition of Net Income Unitrust  24.15
          • (2)  Determination of Income  24.16
          • (3)  Use as Retirement Vehicle  24.17
        • c.  Comparison of Standard Unitrust and Net Income Unitrust  24.18
        • d.  Flip Unitrust  24.19
    • B.  Considerations in Selecting Payout Rate  24.20
    • C.  Selecting Income Beneficiaries  24.21
    • D.  Selecting Charitable Beneficiaries  24.22
    • E.  Selecting Trustee  24.23
  • V.  FUNDING CHARITABLE REMAINDER TRUSTS  24.24
    • A.  Acceleration of Income  24.25
    • B.  Assignment of Income  24.26
    • C.  Trade or Business Issues  24.27
    • D.  Encumbered Property  24.28

24A

Noncharitable Unitrusts

Seth M. Skootsky

Diana M. Hastings

  • I.  MODERN USES OF UNITRUSTS  24A.1
    • A.  Unitrusts as Total Return Trusts  24A.2
    • B.  Effect of IRS Income Regulations  24A.3
    • C.  Other Uses of Noncharitable Unitrusts  24A.4
  • II.  CALIFORNIA UNITRUST STATUTE  24A.5
    • A.  Alternative Definition of Net Income  24A.6
    • B.  Comparison of Adjustment Power and Noncharitable Unitrust  24A.7
    • C.  Drafted Unitrust Versus Converted Unitrust  24A.8
  • III.  TRUSTEE POWER TO CONVERT ON NOTICE OF CONVERSION  24A.9
    • A.  Notice Requirements  24A.10
    • B.  Additional Requirements for Converted Unitrust  24A.11
      • 1.  Adjustments to Unitrust Amount  24A.12
      • 2.  Income Taxation of Unitrust Amount  24A.13
    • C.  No Conversion of Drafted Unitrust or Annuity Trust  24A.14
    • D.  Provisions Protecting Against Adverse Tax Consequences of Conversion  24A.15
    • E.  Additional Provisions Affecting Conversion Powers Held by Tax-Sensitive Trustees  24A.16
    • F.  Nonliability of Trustee of Converted Unitrust  24A.17
  • IV.  CONVERSION WITH CONSENT OF BENEFICIARIES  24A.18
  • V.  CONVERSION BY COURT ORDER  24A.19
  • VI.  RECONVERSION OF CONVERTED UNITRUST  24A.20
  • VII.  RETROACTIVITY OF UNITRUST CONVERSION  24A.21
    • A.  Considerations Favoring Retroactivity  24A.22
    • B.  Extent of Retroactivity Allowed  24A.23

25

Valuation Freeze Techniques

Jeffrey A. Dennis-Strathmeyer

  • I.  VALUATION FREEZE CONCEPT  25.1
    • A.  Outright Gift as Freeze Technique  25.2
    • B.  Avoiding Drawbacks of Outright Gift  25.3
  • II.  STATUTORY LIMITATIONS ON FREEZE TECHNIQUES  25.4
    • A.  IRC §7520  25.5
    • B.  Retained Interest Trust Limitations Under IRC §2702
      • 1.  Abuse Targeted by Statute  25.6
      • 2.  Provisions of Statute  25.7
      • 3.  Limitation of Statute to Family Members  25.8
      • 4.  Personal Residence Exception  25.9
      • 5.  Tangible Personal Property Exception  25.10
    • C.  Business Entity Freezes and IRC §2701  25.11
      • 1.  Perceived Evil  25.12
      • 2.  Basic Approach of IRC §2701  25.13
      • 3.  Circumstances Triggering IRC §2701  25.14
      • 4.  Initial Valuation and Elections  25.15
      • 5.  Exception: Qualified Payment  25.16
      • 6.  Exception: Election to Treat as Qualified Payment  25.17
      • 7.  Certain Liquidation, Put, Call, and Conversion Rights  25.18
      • 8.  Combinations of Distribution Rights and Other Rights  25.19
      • 9.  Minimum 10-Percent Value for Transferred Interest  25.20
    • D.  Avoiding Application of IRC §2701  25.21
    • E.  IRC 2704: Lapsed Voting Rights  25.21A
  • III.  GRANTOR RETAINED INCOME TRUSTS (GRITs)
    • A.  Overview of GRITs  25.22
    • B.  Valuation Benefits  25.23
    • C.  Drawbacks of GRITs  25.24
    • D.  Tables: Selecting Term of Retained Interest  25.25
    • E.  Calculating Value of Gift to Qualified Personal Residence Trust (QPRT)  25.26
  • IV.  GRITS FOR NONFAMILY MEMBERS
    • A.  Governing Instrument Requirements  25.27
    • B.  Asset Limitations  25.28
  • V.  RESIDENCE AND VACATION HOME TRUSTS FOR FAMILY MEMBERS
    • A.  QPRTs Versus Personal Residence Trusts  25.29
    • B.  QPRT Drafting  25.30
  • VI.  GRANTOR RETAINED ANNUITY TRUSTS (GRATs)
    • A.  Overview of GRATs  25.31
    • B.  Objective of GRAT  25.32
    • C.  Required GRAT Governing Instrument Provisions  25.33
    • D.  Funding a GRAT  25.34
    • E.  Calculating Value of GRAT Gift  25.35
    • F.  Rolling, Short-Term, Zeroed-Out GRATs  25.36
    • G.  Income Tax Considerations  25.37
    • H.  GRATs and Estate Tax  25.38
    • I.  Walton GRATs  25.39
    • J.  Walton GRATs and Marital Deduction  25.40
  • VII.  GRANTOR RETAINED UNITRUSTS (GRUTs)  25.41
  • VIII.  SALES TO GRANTOR TRUSTS
    • A.  Overview of Intentionally Defective Grantor Trusts (IDGTs)  25.42
    • B.  Income Tax Consequences of IDGTs  25.43
    • C.  Sale to Grantor Trust Versus GRAT  25.44

25A

Intrafamily Loans and Sales

Philip J. Hayes

Jerome M. Hesch

Peter S. Myers

  • I.  INTRODUCTION TO INTRAFAMILY LOANS AND SALES  25A.1
  • II.  INTRAFAMILY LOANS
    • A.  IRC §7872
      • 1.  General Application to Below-Market Interest Rate Loans  25A.2
        • a.  Types of Loans  25A.3
        • b.  Consequences of Below-Market Interest Rate Loans  25A.4
      • 2.  Treatment of Gift Loans  25A.5
    • B.  First Hurdle: Is “Loan” a Gift?
      • 1.  Bona Fide Loan Required  25A.6
        • a.  Determining Factors  25A.7
        • b.  Forgiveness of Intrafamily Note Payments  25A.8
        • c.  Renegotiation of Loan Terms  25A.9
      • 2.  Bad Debt Deduction When Borrower Defaults
        • a.  When Deduction Available  25A.10
        • b.  Bad Debt Deduction Limitation  25A.11
        • c.  Business Bad Debt  25A.12
        • d.  Distinguishing Business and Nonbusiness Bad Debt  25A.13
    • C.  Gift Loan: One Type of Loan Under IRC §7872  25A.14
    • D.  Avoiding Below-Market Gift Loan Status Under IRC §7872  25A.15
      • 1.  Determining and Calculating Applicable Federal Rate (AFR)  25A.16
      • 2.  Demand Gift Loan  25A.17
        • a.  Appropriate Term Rate for Demand Gift Loan  25A.18
        • b.  Variable Rate Demand Loan  25A.19
        • c.  Simplest Safe Harbor Demand Note  25A.20
      • 3.  Term Gift Loan  25A.21
    • E.  Exemptions From IRC §7872
      • 1.  De Minimis Exception  25A.22
      • 2.  Exception for Transactions Governed by IRC §§483 and 1274  25A.23
    • F.  Estate Tax Value of Promissory Note  25A.24
    • G.  Debt Forgiveness: Income Tax Consequences  25A.25
    • H.  Income Tax Consequences of Below-Market Gift Loan
      • 1.  Investment Income Limitation for Gift Loan  25A.26
      • 2.  Demand Gift Loan  25A.27
        • a.  Loan Outstanding for Entire Calendar Year  25A.28
        • b.  Loan Outstanding for Less Than Entire Calendar Year  25A.29
          • (1)  “Exact Method”  25A.30
          • (2)  “Approximate Method”  25A.31
        • c.  Demand Gift Loan With Fluctuating Loan Balance  25A.32
      • 3.  Term Gift Loan
        • a.  Tax Treatment  25A.33
        • b.  Reporting Requirements  25A.34
    • I.  Gift Tax Consequences of Below-Market Gift Loan
      • 1.  Demand Gift Loan  25A.35
      • 2.  Term Gift Loan  25A.36
        • a.  Amount of Gift  25A.37
        • b.  Timing of Gift  25A.38
  • III.  INTRAFAMILY SALES TRANSACTIONS
    • A.  Distinguished From Intrafamily Loans  25A.39
    • B.  What Minimum Interest Rate May Be Used?  25A.40
    • C.  What Maximum Interest Rate May Be Used in Related-Party Loan?  25A.41
    • D.  Interest Rate Safe Harbor for Installment Sales  25A.42
      • 1.  Qualified Debt Instruments  25A.43
      • 2.  Sale-Leaseback Transactions  25A.44
      • 3.  IRC §483  25A.45
      • 4.  Treasury Regulations and Proposed Regulations  25A.46
      • 5.  Case Law Integrating IRC §§483, 1274, and 7872
        • a.  Frazee and Antecedents  25A.47
        • b.  Frazee and Forward  25A.48
      • 6.  Future of Interest Rate Safe Harbor  25A.49
    • E.  Consequences of Using Inadequate Stated Interest: Either Imputed Interest or Original Issue Discount (OID)  25A.50
      • 1.  Timing of Recognition  25A.51
      • 2.  Imputing Additional Interest if Stated Interest Is Inadequate  25A.52

25B

Self-Canceling Installment Notes (SCINs)

Joel S. Weissler

  • I.  INTRODUCTION TO SELF-CANCELING INSTALLMENT NOTES (SCINS)  25B.1
  • II.  USE OF SCINS IN BUSINESS SUCCESSION PLANNING
    • A.  “Self-Canceling Installment Note” Defined  25B.2
    • B.  Tax and Nontax Goals in Using SCINs  25B.3
      • 1.  IRS Requirements for Recognition of SCINs  25B.4
      • 2.  Premium for Cancellation at Death  25B.5
      • 3.  Income Tax Recognition by Seller and Estate  25B.6
      • 4.  Gift Tax Consequences  25B.7
    • C.  Sales to Third Parties  25B.8
    • D.  Sales to Family Members and Insiders  25B.9
    • E.  Case Study: Sale to Family Members  25B.10

26

Asset Protection Considerations

Peter Spero

  • I.  ASSET PROTECTION IN ESTATE PLANNING  26.1
    • A.  Estate Planner’s Role in Asset Protection  26.2
    • B.  Duty to Engage in Asset Protection  26.3
    • C.  Avoiding Problems in Handling Asset Protection  26.4
  • II.  FRAUDULENT TRANSFER LAWS   26.5
    • A.  Actual Fraud  26.6
    • B.  Constructive Fraud  26.7
    • C.  Disclaimers Not Fraudulent Transfers  26.8
    • D.  Requirements for Disclaimers
      • 1.  Period for Disclaiming  26.9
      • 2.  Acceptance of Interest Not Allowed  26.10
      • 3.  Retention of Interest  26.11
      • 4.  Writing Required  26.12
      • 5.  No Disclaimers in Bankruptcy  26.13
  • III.  ASSET PROTECTION TRUSTS
    • A.  Types of Asset-Protection Trusts  26.14
      • 1.  Prohibition Against Self-Settled Trusts  26.15
        • a.  Availability of Trust Assets  26.16
        • b.  Exceptions to Prohibition  26.17
      • 2.  Spendthrift Trusts  26.18
      • 3.  Discretionary Trusts  26.19
      • 4.  Support Trusts  26.20
      • 5.   Personal Trusts  26.20A
      • 6.  Dynasty Trusts  26.21
      • 7.  Self-Settled Trusts Under Alaska- and Delaware-Type Statutes  26.22
        • a.  Limited Protection for Nondomiciled Settlors  26.23
        • b.  Self-Settled Trusts and Public Policy  26.24
        • c.  Creditor Collection of Trusts Assets  26.25
      • 8.  Foreign Asset–Protection Trusts  26.26
        • a.  United States Control Over Foreign Trusts  26.27
        • b.  Structure of Foreign Trusts  26.28
        • c.  Drafting Considerations  26.29
        • d.  Selection of Trustee  26.30
        • e.  Selection of Offshore Jurisdiction  26.31
        • f.  Recognition of Gain on Transfer to a Foreign Trust  26.32
        • g.  Reporting Requirements  26.33
    • B.  Scope of Asset Protection
      • 1.  Collection From Trusts Under California Law  26.34
      • 2.  Protection in Bankruptcy  26.35
      • 3.  Applicable Law
        • a.  Validity of Trust  26.36
        • b.  Interpretation and Construction of Trust  26.37
      • 4.  Loss of Protection Due to Excess Control  26.38
  • IV.  ASSETS EXEMPT FROM COLLECTION
    • A.  Retirement Plans
      • 1.  Federal Law  26.39
      • 2.  California Law  26.40
    • B.  Life Insurance  26.41
    • C.  Homestead Exemption  26.42
    • D.  Other California Exemptions  26.43
  • V.  PROTECTING MARITAL AND DOMESTIC PARTNERSHIP PROPERTY  26.44
    • A.  Types of Marital and Partnership Property  26.45
    • B.  Liability of Community Property  26.46
    • C.  Liability of Separate Property  26.47
    • D.  Marital and Partnership Agreements  26.48
      • 1.  Limitations to Marital and Partnership Property Agreements
        • a.  Employee Retirement Benefits  26.49
        • b.  Prospective Application Only  26.50
        • c.  Transmutation of Future Earnings  26.51
      • 2.  Premarital Versus Postnuptial Agreements  26.52
        • a.  Requirements for Premarital Agreements  26.53
        • b.  Requirements for Postnuptial Agreements  26.54
          • (1)  Avoiding Dual Representation  26.55
          • (2)  Dealing With Unrepresented Party  26.56
          • (3)  Form: One Party Unrepresented by Counsel  26.56A
      • 3.  Agreements That Encourage Dissolution  26.57
    • E.  Gifts Between Spouses and Domestic Partners  26.58
      • 1.  Relinquishing Possession  26.59
      • 2.  Publicizing the Gift  26.60
    • F.  Dissolution as an Asset-Protection Tool  26.61
      • 1.  Assignment of Debts in Dissolution  26.62
      • 2.  Right of Reimbursement Between Spouses and Domestic Partners  26.63
      • 3.  Dissolution and Fraudulent Transfers  26.64
  • VI.  PARTNERSHIPS AND LLCS  26.65
    • A.  Charging Order  26.66
    • B.  Bankruptcy Aspects  26.67
  • VII.  PREBANKRUPTCY PLANNING
    • A.  Conversion of Nonexempt Into Exempt Assets  26.68
    • B.  Continuation of Estate Planning  26.69
    • C.  Preserving Attorney-Client Privilege  26.70
    • D.  Moving to Another State  26.71

26A

Special Needs Trusts

Sterling L. Ross, Jr.

Ruth A. Phelps

  • I.  PURPOSE OF SPECIAL NEEDS TRUST (SNT)  26A.1
  • II.  TYPES OF SPECIAL NEEDS TRUSTS  26A.2
    • A.  Third Party SNT  26A.3
      • 1.  Inter Vivos SNT  26A.4
      • 2.  Testamentary SNT  26A.5
    • B.  First Party SNT  26A.6
      • 1.  Court-Established (d)(4)(A) SNT  26A.7
      • 2.  Noncourt-Approved (d)(4)(A) SNT  26A.8
      • 3.  Pooled Trust or (d)(4)(C) SNT  26A.9
  • III.  AVAILABLE PUBLIC BENEFITS
    • A.  Overview of SSI and Medi-Cal  26A.10
    • B.  SSI Benefits and Eligibility for Disabled and Aged Poor  26A.11
      • 1.  Limitation on Resources  26A.12
      • 2.  Benefits Reduced by Income  26A.13
      • 3.  Reduction for In-Kind Support and Maintenance  26A.14
    • C.  Medi-Cal Benefits  26A.15
      • 1.  Medi-Cal Eligibility Generally  26A.16
      • 2.  Recovery for Payments to Medi-Cal Recipients  26A.17
        • a.  Recovery Against Probate Estate  26A.18
        • b.  No Recovery From Estate of Surviving Spouse  26A.19
        • c.  No Recovery if Surviving Child Under 21, or Blind or Disabled Child  26A.19A
    • D.  Social Security and Medicare Distinguished From SSI and Medi-Cal  26A.20
  • IV.  SSI SPECIAL NEEDS TRUST RULES
    • A.  When Trust Assets Are Resources  26A.21
    • B.  Effect of Revocability  26A.22
    • C.  First Party Trust Rules  26A.23
    • D.  SSI Transfer Rules  26A.24
  • V.  MEDI-CAL SPECIAL NEEDS TRUST RULES
    • A.  Federal Medicaid Law  26A.25
    • B.  Medi-Cal Trust Regulations  26A.26
      • 1.  Medicaid Qualifying Trusts  26A.27
      • 2.  OBRA 1993 Trusts  26A.28
      • 3.  Medi-Cal Exempt Trusts  26A.29
    • C.  Medicaid Transfer Rules  26A.30
  • VI.  STATUTORY “SPENDTHRIFT” PROTECTION
    • A.  Liability of Trust for Reimbursement When Required by Statute  26A.31
    • B.  Exemption From Reimbursement Liability of Most Special Needs Trusts for Disabled  26A.32
  • VII.  DRAFTING CONSIDERATIONS
    • A.  Necessary and Recommended Clauses  26A.33
    • B.  Distribution Standard  26A.34
    • C.  Trust Advisory Committee  26A.35
    • D.  Requirement to Seek Public Benefits  26A.36
    • E.  Termination on Death of Beneficiary   26A.37
    • F.  Backstop Termination Clause  26A.38

27

Disclaimers: Predeath Planning

Jeffrey A. Dennis-Strathmeyer

  • I.  BASIC DEFINITION; APPLICABLE LAW  27.1
  • II.  CALIFORNIA LAW CONSEQUENCES OF DISCLAIMER  27.2
  • III.  FEDERAL TAX LAW CONSEQUENCES OF “QUALIFIED” DISCLAIMER  27.3
  • IV.  COMMON ESTATE PLANNING USES FOR DISCLAIMERS
    • A.  Solutions Available Without Pre-Transfer Planning  27.4
      • 1.  Salvaging Marital Deduction  27.5
      • 2.  Using GST Exemption  27.6
      • 3.  Accelerating Distributions to Remainder Beneficiaries  27.7
      • 4.  Fixing Unfair Distributions  27.8
      • 5.  Dead or Dying Beneficiary  27.9
      • 6.  Unexpected Creditor Problems  27.10
    • B.  Solutions Available by Design  27.11
  • V.  ANTICIPATING DISCLAIMER REQUIREMENTS  27.12
    • A.  Writing and Time Deadline  27.13
    • B.  No Acceptance  27.14
    • C.  Separate Interests and Severable Property  27.15
      • 1.  Undivided Portions  27.16
      • 2.  Severable Property  27.17
      • 3.  Trust Assets  27.18
      • 4.  Separate Interests  27.19
      • 5.  Disclaimers of Pecuniary Amounts  27.20
      • 6.  Powers of Appointment  27.21
    • D.  Passing Without Direction  27.22
    • E.  To Spouse or Person Other Than Disclaimant  27.23
  • VI.  TAX APPORTIONMENT PROBLEMS  27.24
  • VII.  SPOUSE DISCLAIMER TRUST AS ALTERNATIVE TO BYPASS TRUST
    • A.  Purpose of Disclaimer Trust  27.25
    • B.  Problems With Disclaimer Trusts  27.26
    • C.  Illustration of Potential Flexibility  27.27
  • VIII.  FACILITATING DISCLAIMERS BY MIDDLE-AGED CHILDREN  27.28
  • IX.  DISCLAIMERS IN FAVOR OF CHARITY  27.29

28

Power of Attorney for Financial Matters

Alan Leigh Armstrong

  • I.  PLANNING FOR INCAPACITY  28.1
    • A.  Incapacity Defined  28.2
    • B.  “Principal” and “Agent” Terminology  28.3
    • C.  Ethical Considerations  28.4
    • D.  Uses of Power of Attorney in Estate Planning  28.5
  • II.  POWERS OF ATTORNEY
    • A.  Scope of Powers of Attorney
      • 1.  General or Limited Power of Attorney  28.6
      • 2.  Durable or Nondurable Power of Attorney  28.7
      • 3.  Immediately Effective or Springing?  28.8
      • 4.  Determining Incapacity  28.9
      • 5.  Powers of Attorney for Members of the Military  28.9A
      • 6.  Coordinating Power of Attorney With Trust  28.9B
    • B.  Uses and Limitations
      • 1.  General Provisions  28.10
      • 2.  Powers That Must Be Specifically Granted  28.11
      • 3.  Powers That Should Be Specifically Granted  28.12
      • 4.  Nomination of Conservator  28.13
      • 5.  Attorney-in-Fact Is Not Attorney at Law  28.14
      • 6.  Jurisdictional Requirements  28.15
      • 7.  Court Proceedings Concerning Powers of Attorney  28.16
      • 8.  Termination of Power of Attorney
        • a.  Revocation  28.17
        • b.  Death of Principal  28.18
        • c.  Death, Resignation, or Incapacity of Agent  28.19
        • d.  Dissolution or Annulment  28.20
    • C.  Transacting Business as Agent  28.21
      • 1.  Working With Financial Institutions  28.22
      • 2.  Dealing With the Internal Revenue Service  28.23
      • 3.  Multiple Powers of Attorney  28.24
    • D.  The Agent
      • 1.  Selecting the Agent  28.25
      • 2.  Compensating the Agent  28.26
      • 3.  Monitoring the Agent  28.26A
    • E.  Power to Amend Trust  28.27
      • 1.  Form: Power to Amend Trust (For Inclusion in Power of Attorney)  28.28
      • 2.  Form: Power to Amend Trust (For Inclusion in Revocable Trust)  28.29
  • III.  CHECKLIST: ESTATE PLANNING–RELATED PROVISIONS IN FINANCIAL POWERS OF ATTORNEY  28.30

29

Health Care Decision Planning

Leah V. Granof

  • I.  FACILITATING ADVANCE HEALTH CARE DECISION PLANNING  29.1
  • II.  HEALTH CARE DECISIONS LAW
    • A.  Authority for Advance Health Care Decisions  29.2
    • B.  Definition of Health Care Decisions  29.3
    • C.  Definition of Advance Health Care Directive  29.4
    • D.  Directions for Future Health Care Decisions  29.5
    • E.  Powers and Limitations of Agent  29.6
    • F.  Duration of Health Care Power
      • 1.  Execution Before January 1, 1992  29.7
      • 2.  Execution On or After January 1, 1992  29.8
    • G.  Importance of Documentation for Particular Clients  29.9
    • H.  Out-of-State Documents  29.10
    • I.  Revocation of Health Care Power  29.11
    • J.  Form: Authorization for Release of Protected Health Information (“HIPAA Release”)  29.11A
  • III.  THE PLANNING PROCESS
    • A.  Attorney Checklist for Planning  29.12
    • B.  Threshold Concerns for Attorney
      • 1.  Capacity of Client  29.13
      • 2.  Ethics of Attorney  29.14
    • C.  Facilitating Client Decision-Making  29.15
    • D.  Selecting the Agent  29.16
      • 1.  Co-Agents  29.17
      • 2.  Alternate Agents  29.18
      • 3.  No Agent  29.19
      • 4.  Nomination of Conservator  29.20
  • IV.  CHOICE OF FORMS AND DRAFTING CONSIDERATIONS  29.21
    • A.  Statutory Form  29.22
    • B.  CMA Form or Other Published Forms  29.23
    • C.  Attorney-Drafted Forms  29.24
  • V.  EXECUTION REQUIREMENTS  29.25
    • A.  Witnessing Procedure  29.26
    • B.  Notarization and Digital Signature  29.27
    • C.  Execution in Skilled Nursing Facility  29.28
  • VI.  PROVISIONS FOR POSTDEATH POWERS  29.29
    • A.  Autopsy  29.30
    • B.  Disposition of Remains  29.31
    • C.  Anatomical Gifts  29.32
    • D.  Duty to Inform Individuals of Principal’s Death  29.32A
  • VII.  DO NOT RESUSCITATE (DNR) ORDERS AND PHYSICIAN ORDERS FOR LIFE-SUSTAINING TREATMENT (POLST)
    • A.  Request Regarding Resuscitative Measures  29.33
    • B.  DNR Order in Patient’s Home  29.34
    • C.  DNR Order in Skilled Nursing Facility (SNF)  29.35
    • D.  DNR Order in Assisted Living or Residential Care Facility  29.36
    • E.  Physician Orders for Life-Sustaining Treatment (POLST)  29.37
    • F.  End of Life Option Act  29.37A
  • VIII.  CHECKLISTS AND WORKSHEETS
    • A.  Checklist: Health Care Decision Planning  29.38
    • B.  Worksheet: Advance Health Care Planning  29.39
    • C.  Worksheet: Choosing a Health Care Agent  29.40

30

Transfers in Medi-Cal Planning

John Milgate

  • I.  INTRODUCTION TO MEDI-CAL PLANNING  30.1
    • A.  Medi-Cal Versus Medicare  30.2
    • B.  Transfers as Medi-Cal Planning  30.3
  • II.  CONSIDERATIONS FOR MEDI-CAL TRANSFERS
    • A.  Level of Care  30.4
    • B.  Client Expectations  30.5
      • 1.  Providing for Family  30.6
      • 2.  Care Objectives  30.7
      • 3.  Psychological Impacts  30.8
      • 4.  Future Support for Giver  30.9
      • 5.  Will Medi-Cal Remain Appropriate?  30.10
      • 6.  Property Tax Impact  30.11
      • 7.  Capital Gains Impact  30.12
      • 8.  Estate and Gift Tax Impact  30.13
    • C.  Are Transfers for Medi-Cal Purposes Ethical?  30.14
      • 1.  Parallels to Tax Planning  30.15
      • 2.  Public Policy and Medicare  30.16
    • D.  Will Client Lose More Than Is Gained by Transfer?  30.17
      • 1.  Independence and Autonomy  30.18
      • 2.  Freedom of Choice as to Care  30.19
    • E.  Are Transfers “Elder Abuse?”  30.20
  • III.  PURPOSE OF MEDI-CAL TRANSFERS  30.21
    • A.  Transfers to Gain Eligibility
      • 1.  Rationale Under Law  30.22
      • 2.  Eligibility for Married Client  30.23
        • a.  Community Spouse Resource Allowance  30.23A
        • b.  Spouse’s Fiduciary Duties  30.23B
      • 3.  Form: Spouse’s Fiduciary Duties  30.24
      • 4.  Dual Representation of Married Clients  30.24A
      • 5.  Eligibility for Single Client  30.25
      • 6.  Transfer Penalties: Effect on Long-Term Care Benefits  30.26
        • a.  Expressly Permitted Transfers  30.27
        • b.  Calculation of Period of Ineligibility  30.28
          • (1)  California Rules  30.29
          • (2)  Federal Rules  30.30
      • 7.  Transfers of Income  30.31
    • B.  Transfers to Maintain Eligibility  30.32
    • C.  Transfers to Reduce or Avoid State Recovery Claims  30.33
      • 1.  Amount of State Recovery Claim  30.33A
      • 2.  Timing of State Recovery Claim  30.33B
    • D.  Rationale in Social Context  30.34
    • E.  Exempt Versus Nonexempt Assets  30.35
    • F.  Transferring Community Property  30.36
  • IV.  TYPES OF TRANSFERS  30.37
    • A.  Outright Transfer of Entire Asset  30.38
    • B.  Transfers in Trust  30.39
    • C.  Transfers Subject to Contractual Rights  30.40
    • D.  Transfers of Less Than Entire Asset  30.41
  • V.  TRANSFERRING THE PROPERTY
    • A.  Who Is the Client?  30.42
    • B.  The Competent Giver  30.43
      • 1.  Establishing Competence  30.44
      • 2.  Independent Representation  30.45
    • C.  Dealing With Lack of Capacity  30.46
      • 1.  Powers of Attorney  30.47
      • 2.  Court Approval of Acts Under Power of Attorney  30.48
      • 3.  Community Property: Single Transaction  30.49
      • 4.  Substituted Judgment Petition: Separate Property  30.50
      • 5.  Complaint for Support  30.51
  • VI.  ADVANCE PLANNING FOR MEDI-CAL THROUGH POWERS OF ATTORNEY  30.52
    • A.  Client Expectations  30.53
    • B.  Identifying and Documenting Client Desires  30.54
    • C.  Power-of-Attorney Clauses  30.55
      • 1.  Form: Desire to Remain at Home  30.56
      • 2.  Form: Authorization of Medi-Cal Planning  30.57
      • 3.  Form: Transmutation of Property  30.58
      • 4.  Form: Implementation of Medi-Cal Planning If Estate Is Threatened  30.59
      • 5.  Form: Location of Care  30.60
    • D.  Future Representation of Agent  30.61
    • E.  Form: Sample Consent to Representation of Attorney-in-Fact  30.62

31

Disposition of Human Remains

Ruth E. Ratzlaff

  • I.  RIGHT TO CONTROL AND DUTY TO ARRANGE DISPOSITION OF REMAINS  31.1
  • II.  EXPRESSING DECEDENT’S PREFERENCE
    • A.  Oral Expression  31.2
    • B.  Written Expression  31.3
      • 1.  Testamentary Expression  31.4
      • 2.  Advance Health Care Directive  31.5
      • 3.  Contract With Funeral Home or Memorial Society  31.6
      • 4.  Other Written Expression  31.7
  • III.  ASPECTS OF DISPOSITION OF REMAINS
    • A.  Method of Disposition of Physical Remains  31.8
    • B.  Funeral or Memorial Service  31.9
    • C.  Location of Remains After Disposition  31.10
  • IV.  ENFORCEMENT OF EXPRESSED PREFERENCES
    • A.  Between Decedent and Survivors  31.11
    • B.  Against Service Providers  31.12
      • 1.  Form: Sample Petition to Compel Crematory to Honor Authority of Agent to Arrange for Disposal of Remains of Principal  31.13
      • 2.  Form: Sample Order Compelling Crematory to Honor Authority of Agent to Arrange for Disposal of Remains of Principal  31.14
    • C.  If No Preference Expressed  31.15
    • D.  In Cases of Homicide  31.15A
  • V.  FINANCIAL CONSIDERATIONS
    • A.  Deducting Funeral Expenses for Federal Estate Tax Purposes  31.16
    • B.  Allowing Funeral Expenses as Claim of Probate Estate  31.17
    • C.  Medi-Cal Limits on Funeral Expense Allowance  31.18

Selected Developments

May 2018 Update

The Tax Cuts and Jobs Act of 2017 (Pub L 115–97, 131 Stat 2054)

On December 22, 2017, Congress enacted Public Law 115-97, titled “An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018.” In this book, this legislation is referred to as the “Tax Cuts and Jobs Act (Pub L 115-97, 131 Stat 2054)” or “the Act.” Sections throughout the book affected by the Act have been revised.

Most importantly, the Act doubles the basic exclusion amount for decedents dying, or gifts, made between January 1, 2018, through December 31, 2025. In 2018, the estate and gift tax exclusion amount and the GST exemption is $10 million per person and $20 million per married couple, indexed for inflation. IRC §2010(c)(3)(C). At the time of this writing, however, the IRS has not yet released inflation adjustments based on the Chained Consumer Price Index for all Urban Consumers (C-CPI-U), as required by the Act for many Internal Revenue Code sections. See Pub L 115-97, §1102, 131 Stat 2054. Commentators opine that the estate and gift tax exclusion amount will be $11.18 million and that the annual exclusion amount will remain at $15,000 as set forth in Rev Proc 2017–58, 2017–45 Int Rev Bull 489.

Chapter 2: Ethical Considerations

Probate Code §21380 has been amended to provide that the individual who transcribes or causes a donative instrument to be transcribed must have been in a fiduciary relationship with the transferor when the instrument was transcribed. In addition, the term “gift” has been replaced with the term “donative transfer” in the context of the presumption of fraud and undue influence under Prob C §§21360–21392. 2017 Stats, ch 56. See §2.22.

Chapter 4: Additional Property Transfer Obstacles for Married Persons and Registered Domestic Partners

In Irvin v Contra Costa County Employees’ Retirement Ass’n (2017) 13 CA5th 162, the court held that the plain meaning of the term “surviving spouse” included a legally separated spouse for purposes of county pension benefits under Govt C §31760.2 despite the definition of surviving spouse in Prob C §78(d), which expressly excludes legally separated spouses. See §4.4A.

In Yeh v Tai (2017) 18 CA5th 953, the court held that if a claim for violation of spousal fiduciary duty is brought on the death of a spouse, no limitations period applies except for laches under Fam C §1101(d)(2)–(3). See §4.7.

In In Brace v Speier (In re Brace) (BAP 9th Cir 2017) 566 BR 13, the court held that property acquired by spouses that, under applicable presumptions, appeared to be the separate property of both spouses (joint tenancy property) was community property as a result of failure to satisfy the “express declaration” requirement for a valid transmutation, to the detriment of both spouses. The court held that California’s community property presumption of Fam C §760 prevailed over Evid C §662 record title presumption. See §4.41. See also §26.48.

Chapter 5: Wills

In the will, the testator may allow (or prohibit) the disclosure of the testator’s digital assets, including electronic communications, to the testator’s personal representative or trustee, according to the Revised Uniform Fiduciary Access to Digital Assets Act (Prob C §§870–884) (RUFADAA) See §5.45A.

Chapter 6: Revocable Trusts

Fiduciary Trust Int’l v Klein (2017) 9 CA5th 1184 addresses the attorney-client privilege of a successor trustee. The court held that to claim the privilege personally, the predecessor trustee must have undergone some process, at the time of the communication, to distinguish between administrative and defensive communication. See §6.40A.

Probate Code §6300 has been amended to provide that a pourover will is valid if the trust is identified in the testator’s will and its terms are set forth within 60 days after execution of the testator’s will. 2017 Stats, chap 33. See §6.41.

In Carne v Worthington (2016) 246 CA4th 548, a California appellate court held that a trust which listed real property as an asset in the trust’s schedule of assets acted as an instrument of conveyance. See §6.49.

Probate Code §16502(d) has been amended to provide that an objection to the trustee’s proposed action must be made within 45 days of delivery or receipt of notice, or within a longer period specified in the notice (previously 45 days from the mailing of the notice). 2017 Stats, chap 319, §92. See §6.59.

Chapter 7: Nonprobate and Nontrust Transfers at Death

Estate of O’Connor (2017) 16 CA5th 159 confirmed that under Prob C §5302(a) a joint bank account belongs to surviving party at death as against the estate of the decedent unless there is clear and convincing evidence of a different intent. See §7.34.

Chapter 8: Noncharitable Inter Vivos (Lifetime) Gifts

For taxable years beginning after December 31, 2017, the unearned income of a child under age 19 (24 in the case of a dependent student) that is subject to the “kiddie tax,” is generally taxed at the rate applicable to trusts and estates (previously at the parent’s rate). See IRC §1(g), (j)(4). See §8.22.

Chapter 10: Estate and Gift Taxes

The basic exclusion amount, which was doubled by the Tax Cuts and Jobs Act (Pub L 115-97, 131 Stat 2054), is still indexed for cost of living changes but using a different index, the Chained Consumer Price Index for all Urban Consumers (C-CPI-U) that produces slower adjustments. While the basic exclusion amount increase sunsets after 2025, the use of the C-CPI-U does not sunset. Thus, starting January 1, 2026, the basic exclusion amount will be $5 million as adjusted by the C-CPI-U. See IRC §1(f)(3). See §§10.2, 10.3, 10.5A.

Estate of Minnie Lynn Sower (2017) 149 TC No. 11 illustrates a pitfall of electing portability. At the death of the surviving spouse, the IRS can examine the estate tax return and gifts made by the first deceased spouse to confirm or adjust the amount of the first decedent’s unused exemption that the surviving spouse may use. See §10.4A.

In Estate of Nancy H. Powell (2017) 148 TC No. 18, the Tax Court found the ability of a decedent who only held limited partnership interests to act with the other partners to dissolve the limited partnership was sufficient to cause inclusion of the transferred limited partnership property under IRC §2036(a)(2). See §10.20. See also §§10.15, 18.37A.

In Rev Proc 2017-34, 2017-26 Int Rev Bull 1282, the IRS provides a simplified method for making late portability election for estates not otherwise required to file return. See §10.66A.

A new section has been added to discuss the gift tax consequences of creating a joint tenancy in real property. See §10.90A.

In Estate of Sheldon C. Sommers (2017) 149 TC No. 8, the payment of estate tax from the marital share of the donor’s estate on gift tax paid on gifts made within 3 years of death resulted in a reduced marital deduction and the payment of additional estate tax. See §10.128.

Chapter 12: Income Tax Basis

In IRS Letter Ruling 201735015, the executors of a nonresident alien who died in 2010 were permitted to make a late election out of estate tax and apply the modified carryover basis. See §12.18. See also §16.16.

Chapter 13: Taxing Income of Estates and Trusts

The Tax Cuts and Jobs Act (Pub L 115–97, §11051, 131 Stat 2054) (the Act) made the following changes:

No deduction for casualty losses (losses suffered by reason of theft, fire, storm, shipwreck, or other casualty) is allowed for losses incurred in taxable years beginning after December 31, 2017, and ending before January 1, 2026, unless incurred in relation to a federally declared disaster. IRC§165(h)(5). See §13.16.

The Act eliminates miscellaneous itemized deductions subject to the 2 percent floor for taxable years after December 31, 2017, and before January 1, 2026. IRC §67(g). However, certain deductions that otherwise were not subject to the 2 percent floor because they were incurred in connection with the administration of the estate or trust which would not have been incurred if the property were not held in such trust or estate (e.g., executor fees or the cost of preparing an estate tax return) are still fully deductible. IRC §67(e). See §13.17. See also §1.55.

The Act introduces a new 20 percent deduction for qualified business income from pass-through entities. For tax years beginning after December 31, 2017, a trust or estate may deduct 20 percent of qualified business income shown on a K-1 from a partnership or S corporation owned by the trust or estate. IRC §199A. Such income is to be apportioned between the beneficiaries and the fiduciary (i.e., the trust or estate). See §13.20A.

The Act repeals IRC §682. Thus, if any alimony payments are made from a grantor trust according to a divorce or separation instrument entered into after December 31, 2018, or in effect before January 1, 2019, but modified after December 31, 2018, the trust should be treated as a grantor trust under IRC §677 and the income should be taxable to the grantor, to account for the repeal of §682. See §13.59.

Because net operating losses, capital losses, and excess deductions are miscellaneous itemized deductions subject to the 2-percent floor of IRC §67, beneficiaries of the trust or estate will not be able carry over such items for trusts and estates terminating after December 31, 2017. See . Thus, fiduciaries need to carefully plan the timing of income and deductions in a trust or estate that is preparing to terminate. Similarly, fiduciaries should be mindful of the fiscal year chosen by an estate or a qualified revocable trust that has elected under IRC §645 to be treated as an estate so as to minimize any net operating losses, capital losses, or excess deductions that will go unused on the termination of the trust or estate. See Practice Tip in §13.65.

In Green v U.S. (10th Cir 2018) 880 F3d 519, the 10th Circuit court held that the district court erred when it allowed a trust to deduct the fair market value of real property it donated to a charitable organization, instead of the trust’s adjusted basis in the donated property. See §§13.11, 13.14.

Chapter 16: Basic International and Noncitizen Transactions

Items of the Tax Cuts and Jobs Act that have an impact on international estate planning are discussed in new §16.1A.

In applying the “substantial presence test,” both the day of entry and the day of departure are included. Josi Angel Lujan, TC Memo 2000–365. See §16.9.

Chapter 17: Marital Deduction Planning

The uncertainty for estate planners has increased with the temporary $10 million exclusion amount (plus cost-of-living adjustments) in 2018 under the Tax Cuts and Jobs Act, which may revert to $5 million (plus cost-of-living adjustments) in 2026. The uncertainty is especially acute for spouses with a marital estate between $10 million and $20 million, which this chapter terms the “medium estate” (i.e., greater than deceased spouse’s applicable exclusion amount (AEA) and less than both spouses’ AEAs). Small estates (less than AEA) will never have an estate tax problem, and large estates (greater than both spouses’ AEAs) will always have an estate tax problem. Flexible planning strategies for medium estates are discussed in §§17.61–17.63.

Chapter 18: Business Entity Valuation Planning Strategies

Proposed 2016 regulations that virtually would have eliminated valuation discounts related to minority interests in family-owned business entities have been withdrawn in October 2017. See Withdrawal of Notice of Proposed Regulations, 82 Fed Reg 48779 (Oct. 20, 2017). See §18.1.

Increased estate and gift tax exemptions could make tax savings by means of valuation discounts illusory and, indeed, counterproductive if they result in a reduced income tax basis for business interests. See §§18.3, 18.18.

In Estate of Nancy H. Powell (2017) 148 TC No. 18, the Tax Court held that the ability of a limited partner to dissolve partnership, acting with other partners, was a right “to designate the persons who shall possess or enjoy” the cash and securities transferred to limited partnership “or the income therefrom,” within the meaning of IRC §2036(a)(2)). See §18.37A. See also §§10.15, 10.20.

In 926 North Ardmore Ave., LLC v County of Los Angeles (2017) 3 C5th 319, the court held that the documentary transfer tax may be assessed on a change in ownership of real property resulting from the transfer of entity interests. See §18.52.

Chapter 21A: IRC §529 College Savings Accounts and Coverdell Education Savings Accounts

The Tax Cuts and Jobs Act (Pub L 115-97, §11032, 131 Stat 2054) (the Act), allows amounts in College Savings Accounts to be used for qualified elementary and secondary school tuition and expenses of up to $10,000 per beneficiary per year. The Act states that “the term ‘qualified higher education expense’ shall include a reference to expenses for tuition in connection with enrollment or attendance at an elementary and secondary public, private, or religious school.” IRC §529(c)(7). Therefore, all references in chapter 21A to “qualified higher education expenses” and “College Savings Accounts” include certain qualified accounts and expenses for beneficiaries in grades K–12. New IRC §529(c)(7) and amended IRC §529(e)(3)(A) apply to distributions made after December 31, 2017. The $10,000 per student per year limitation does not apply to distributions for any postsecondary school expenses. See §§21A.1, 21A.17. See also §10.114.

The Act allows rolling over a College Savings Account to an ABLE account that exists for a special needs beneficiary, with no penalties. This opportunity may exist only until 2025. See IRC §529(c)(3)(C)(i)(III). See §21A.27.

Chapter 23: Charitable Giving

The Tax Cuts and Jobs Act of 2017 (Pub L 115–97, 131 Stat 2054) increased the limitation for cash charitable contributions to 60 percent of the individual’s contribution base. This special rule for cash contributions is effective for tax years after December 31, 2017, and will expire December 31, 2025. See §23.39A.

The Tax Act suspended the overall limitation on itemized deductions in IRC §68 for any taxable year beginning after December 31, 2017, and before January 1, 2026. IRC §68(f). See §23.45.

Chapter 29: Health Care Decision Planning

One court of appeals held that an attorney-in-fact under the statutory form power of attorney set forth in Prob C §4401 did not have authority under the Health Care Decisions Law (Prob C §§4600–4806) to admit a relative to a residential care facility for the elderly. Hutcheson v Eskaton FountainWood Lodge (2017) 17 CA5th 937. See §29.5. See also §29.6.

Chapter 31: Disposition of Human Remains

Alkaline hydrolisis (also called water cremation) will become available in 2020. See Health & S C §103055(a)(4) (effective January 1, 2017; operative July 1, 2020). Cremated remains and hydrolized human remains will be subject to the same Health and Safety Code requirements. See Stats 2017 ch 846. See §31.10.

About the Authors

RICHARD AIELLO is a sole practitioner in Concord. He received his A.B. degree in 1980 from the University of California, Berkeley, and his J.D. degree in 1983 from the University of California, Berkeley, School of Law. Mr. Aiello is certified as a specialist in Estate Planning, Trust and Probate Law by the State Bar of California Board of Legal Specialization. He is the author of Chapter 9 (Powers of Appointment).

SONDRA J. ALLPHIN was an attorney with the law firm of Temmerman, Cilley & Kohlmann, LLP, and is now a sole practitioner in San Jose. Her practice emphasizes estate planning, incapacity planning, and trust and decedent estate administration. She received her B.A. degree in psychology in 1982 from Salem State College and her J.D. degree in 2003 from Santa Clara University. Ms. Allphin is certified as a specialist in Estate Planning, Trust and Probate Law by the State Bar of California Board of Legal Specialization. She is a co-author of Chapter 4 (Additional Property Transfer Obstacles for Married Persons and Registered Domestic Partners).

ALAN LEIGH ARMSTRONG is a sole practitioner in Huntington Beach. His practice emphasizes estate planning, conservatorships, wills, and trusts. He received his B.A. degree in Physics in 1967 from the University of California, Riverside, and his J.D. degree in 1984 from Western State University. He is an Adjunct Professor of Law at Trinity Law School, where he teaches Wills, Trusts, and Estate Planning. He has been president of the West Orange County Bar Association and is a member of the Christian Legal Society and the Orange County Bar Association. Mr. Armstrong is the author of Chapter 28 (Power of Attorney for Financial Matters).

JAMES R. BIRNBERG is a partner in the firm of Oldman, Cooley, Sallus, Birnberg & Coleman LLP in Encino. He received his B.A. degree in history in 1961 from Pomona College and his M.A. degree in history in 1962 from Stanford University, where he was a Woodrow Wilson Scholar. Mr. Birnberg received his J.D. degree in 1965 from the University of California, Berkeley, School of Law. His practice focuses on estate planning; probate and trust administration; postmortem planning; death, gift, and fiduciary income taxation; and real property tax as it pertains to estate planning, probate, and trust administration. Prior to joining Loeb & Loeb in 1980, Mr. Birnberg was a staff attorney with the California State Controller’s Office, Inheritance and Gift Taxation Division. He is a Fellow of the American College of Trust and Estate Counsel and a past member of the Executive Committees of the Taxation Section and Trusts and Estates Section of the State Bar of California. Mr. Birnberg is the author of Chapter 14 (State Death Taxes).

FRAYDA L. BRUTON is a former member of California Trust and Estate Counselors LLP and is now a sole practitioner in Sacramento. She received her B.A. degree from Wayne State University and her J.D. degree in 1985 and her LL.M. degree in 1987 from McGeorge School of Law. Ms. Bruton is a Fellow of the American College of Trust and Estate Counsel and is a board-certified specialist in Estate Planning, Trust and Probate Law. She is a former member of the Executive Committee of the California State Bar Trusts and Estates Section and Vice-Chair of the Sacramento County Bar Probate and Estate Planning Section. Ms. Bruton is a frequent author and speaker on various estate planning topics, including ethics and change-in-ownership rules, and is a co-author of the original edition of Handling Postmortem Trust Administration: A Checklist (Cal CEB Action Guide), published in 1996. She is the author of Chapter 15 (California Real Property Tax).

RICHARD BURGER is a sole practitioner in Petaluma, specializing in estate planning and administration. He received his B.A. degree in 1979 from Sonoma State University and his J.D. degree in 1983 from the University of California, Berkeley, School of Law. Mr. Burger is certified as a specialist in Estate Planning, Trust and Probate Law by the State Bar of California Board of Legal Specialization. He is the author of Chapter 20 (Annuities).

MICHAEL BURNSTEIN is a former shareholder of Heller Ehrman and is now a partner of Schiff Hardin LLP in San Francisco, specializing in wealth management and tax-exempt organizations. He received his B.S. degree in 1992 and his J.D./M.B.A. degree in 1995 from St. John’s University, and his LL.M. degree in 2002 from New York University. Mr. Burnstein serves as an adjunct professor in the LL.M. (Taxation) program at Golden Gate University. He is the author of Chapter 23 (Charitable Giving).

PATRICIA A. CAIN is Inez Mabie Distinguished Professor of Law at Santa Clara University School of Law. She teaches courses in federal taxation, property, wills and trusts, and sexuality and the law. Most of her recent scholarship focuses on tax planning for same-sex couples. She has recently launched a blog called Same Sex Tax Law. She received her A.B. degree from Vassar College and her J.D. degree from the University of Georgia. Professor Cain began her law-teaching career in 1974 at the University of Texas, where she was a member of the faculty for 17 years. She then joined the law faculty at the University of Iowa, where she held the Aliber Family Chair in Law and served as Interim Provost of the University and later as Vice Provost. Professor Cain has been a member of the Santa Clara University School of Law faculty since 2007. She is the author of Rainbow Rights: The Role of Lawyers and Courts in the Lesbian and Gay Civil Rights Movement (2000) and Sexuality Law (2d ed 2009) (with Arthur S. Leonard). Professor Cain is a member of the American Law Institute and a fellow of the American College of Trust and Estate Counsel. She is a co-author of Chapter 4 (Additional Property Transfer Obstacles for Married Persons and Registered Domestic Partners).

THEODORE E. CALLETON is a partner of Calleton, Merritt, De Francisco & Bannon, LLP in Pasadena. He received his B.A. degree in 1956 from Yale University and his LL.B. degree in 1962 from Columbia University. Mr. Calleton has taught in the Masters programs at the University of Southern California and Golden Gate University and is currently an adjunct professor of law at Loyola Law School, Los Angeles. He has authored or coauthored various estate planning books and articles as well as Calleton’s Wills & Trusts, a computerized form drafting system. Mr. Calleton is a Fellow of the American College of Trust and Estate Counsel and an Academician of the International Academy of Estate and Trust Law. He is a former Chair of the Los Angeles County Bar Tax and Probate Sections and has served on the UCLA-CEB Estate Planning Institute Advisory Board since its inception. He received the Dana Latham Memorial Award from the Los Angeles County Bar Tax Section in 1996. He is a co-author of Chapter 13 (Taxing Income of Estates and Trusts).

SANDRA J. CHAN is a sole practitioner in Santa Barbara, specializing in estate planning, trusts, and probate law. Ms. Chan received her B.A. degree in 1976 from the University of California, Los Angeles, and her J.D. degree in 1979 from the University of California, Davis, School of Law. She is a Fellow of the American College of Trust and Estate Counsel. Ms. Chan is a former member of the Executive Committee of the Trusts and Estates Section of the State Bar of California and served as Editor of the Estate Planning Trust & Probate News (now the California Trusts and Estates Quarterly). She is the author of Chapter 7 (Nonprobate and Nontrust Transfers at Death).

JEFFREY C. DE FRANCISCO is a partner of Calleton, Merritt, De Francisco & Bannon, LLP, a boutique firm in Pasadena specializing in estate planning and estate and trust taxation and administration. He received his A.B. degree from Occidental College, his J.D. degree from Southwestern University School of Law, and his LL.M. degree (Taxation) from Loyola Law School, Los Angeles, where he is currently an adjunct professor in the LL.M. program. Mr. De Francisco has co-authored articles on estate planning and regularly lectures on the topic. He is a co-author of Chapter 13 (Taxing Income of Estates and Trusts).

MONICA DELL’OSSO is a partner in the firm of Burnham Brown in Oakland, where she heads the Trust and Estate Planning Practice Group. She received her B.A. degree in 1971 from St. Mary-of-the-Woods College, her J.D. degree in 1981 from the University of California, Berkeley, School of Law, and a Ph.D. degree in history in 1989 from the University of Virginia. Ms. Dell’Osso is a Fellow of the American College of Trust and Estate Counsel, and is a past chair of the Estate Planning, Trust, and Probate Law Section of the Alameda County Bar Association. She is a member of the Advisory Board of the UCLA-CEB Estate Planning Institute and a former member of the Executive Committee of the Trusts and Estates Section of the State Bar of California. Ms. Dell’Osso is certified as a specialist in Estate Planning, Trust and Probate Law by the State Bar of California Board of Legal Specialization. She is the author of Chapter 12 (Income Tax Basis).

JEFFREY A. DENNIS-STRATHMEYER practices law in Lafayette. He received his B.A. degree in 1967 from Stanford University and his J.D. degree in 1973 from the University of California, Davis, School of Law. He served as the legal editor of the CEB Estate Planning and California Probate Reporter from 1982 until 2012 and is certified as a specialist in Estate Planning, Trust and Probate Law by the State Bar of California Board of Legal Specialization. He is the author of more than 40 published articles and book chapters on estate planning topics, including Chapter 3 (Property Transfer Obstacles), Chapter 23A (Charitable Lead Trusts), Chapter 25 (Valuation Freeze Techniques), and Chapter 27 (Disclaimers: Predeath Planning).

ERIK DRYBURGH is a member of Adler & Colvin in San Francisco, specializing in charitable giving, estate planning, and nonprofit organizations. He received his B.A. degree in 1977 from the University of Wisconsin-Madison and his J.D. degree in 1981 from the University of California, Berkeley, School of Law. Mr. Dryburgh is a member of the Board of Directors of the Northern California Planned Giving Council. He is the author of Chapter 24 (Charitable Remainder Trusts).

JON J. GALLO is a member of Greenberg Glusker Fields Claman & Machtinger LLP in Los Angeles. He received his B.A. degree in 1964 from Occidental College and his J.D. degree in 1967 from the University of California, Los Angeles, School of Law. He is a Fellow of the American College of Trust and Estate Counsel and an Academician of the International Academy of Estate and Trust Law. Mr. Gallo is the former chair of the UCLA-CEB Estate Planning Institute and the American Bar Association’s Committee on Life Insurance Planning. He is certified as a specialist in Estate Planning, Trust and Probate Law by the State Bar of California Board of Legal Specialization. He has authored more than 75 published articles, treatises, and monographs on all aspects of estate planning. He and his wife, Eileen Gallo, are coauthors of the book Silver Spoon Kids—a guide for educating the children of affluent parents about money. He is the author of Chapter 19 (Use of Life Insurance in Estate Planning).

STEVEN MURRAY GOLDBERG is a partner in the firm of Friedemann Goldberg LLP (formerly Friedemann O’Brien Goldberg & Zarian LLP) in Santa Rosa, specializing in estate planning, tax, trust and estate administration, and business law. He received his B.A. degree in 1979 from California State University, San Jose, and his J.D. degree in 1984 from the University of California, Berkeley, School of Law. He is a member of the Taxation and Trusts and Estates Sections of the California State Bar. Mr. Goldberg is certified as a specialist in Estate Planning, Trust and Probate Law by the State Bar of California Board of Legal Specialization. He is the author of Chapter 18 (Business Entity Valuation Planning Strategies).

LEAH V. GRANOF is in private practice in Encino. She concentrates her practice on legal problems of the elderly, clients facing long-term illness or disability, Medi-Cal asset preservation, and trust disputes. Ms. Granof received her undergraduate degree from the University of Southern California and her J.D. degree from the San Fernando Valley College of Law. She has served as member and advisor of the Executive Committee of the Trusts and Estates Section of the State Bar of California and has chaired its Incapacity Committee and Elder Law Subcommittee. Ms. Granof is a member of the National Academy of Elder Law Attorneys and the California Advocates for Nursing Home Reform (CANHR). She is founder and two-term past president of the Southern California Council of Elder Law Attorneys (SCCELA). Ms. Granof is a frequent lecturer for CEB, participates in attorney training seminars for CANHR, and speaks regularly at senior centers, nursing homes, caregiver centers, and to professional groups on government benefits and comprehensive planning for aging and incapacity. She is a three-time recipient of the State Bar Board of Governors Wiley W. Manuel Award for Pro Bono Legal Services. She is the author of Chapter 29 (Health Care Decision Planning).

DIANA M. HASTINGS is a partner in the San Francisco office of Withers Bergman LLP, specializing in estate planning, probate, and trust administration. She received her B.A. degree in 1979 from the University of Oregon, her M.B.A. degree in 1981 from George Washington University, and her J.D. degree in 1986 from Cornell University. Ms. Hastings is a Fellow of the American College of Trust and Estate Counsel (ACTEC) and a certified specialist in Estate Planning, Trust and Probate Law. She is a co-author of Chapter 24A (Noncharitable Unitrusts).

PHILIP J. HAYES, Principal and Fiduciary Counsel, Western Region, of Bessemer Trust, San Francisco, works with attorneys and other advisors to develop generational wealth transfer plans for Bessemer’s clients. Mr. Hayes received his B.A. in 1983 from the University of California, Los Angeles, and his J.D. in 1987 from the University of California, Hastings College of the Law. Before joining Bessemer in 2001, he practiced as an estate planning attorney in Pasadena and San Francisco. He is a member of the State Bar of California Trusts and Estates Section Executive Committee and a former editor of the California Trusts and Estates Quarterly. Mr. Hayes is a former co-vice chair of the Estate and Gift Tax Committee of the American Bar Association Real Property, Trusts and Estates Section, and former chair of the Bay Area Red Cross Planned Giving Professional Advisory Committee. He is a co-author of Chapter 25A (Intrafamily Loans and Sales).

JEROME M. HESCH practices law in Miami, Florida, and is a tax and estate planning consultant for lawyers throughout the country. He is also an adjunct professor of law at Florida International University and University of Miami law schools. Mr. Hesch received B.A. and M.B.A. degrees from the University of Michigan and his J.D. from the University of Buffalo Law School. He was with the Office of Chief Counsel of the IRS in Washington, D.C., from 1970 to 1975 and was a full-time law professor from 1975 to 1994. Mr. Hesch is a member of the American College of Trust and Estate Counsel (ACTEC), has published numerous articles and several BNA Tax Management Portfolios and has co-authored a law school casebook, Federal Income Taxation (4th ed 2010). He has appeared for groups such as the American Institute of Certified Public Accountants (AICPA), the University of Miami Heckerling Institute on Estate Planning, the University of Southern California Tax Institute, and the New York University Institute on Federal Taxation. He has participated in several bar association projects, such as the drafting committee for the Florida Revised Uniform Partnership Act, and he prepared the American Bar Association’s comments on the IRS’s proposed private annuity regulations. Mr. Hesch is a co-author of Chapter 25A (Intrafamily Loans and Sales).

SUSAN T. HOUSE is a member of the firm of Hahn & Hahn LLP in Pasadena. Her practice focuses on estate planning, conservatorships, and probate and trust administration. She received her A.B. degree in 1971 from Wellesley College and her J.D. degree in 1975 from the University of California, Los Angeles, School of Law. She has been a speaker at the USC Probate and Trust Conference, the USC Tax Institute, and the UCLA-CEB Estate Planning Institute, and is on the planning committee of the USC Tax Institute and the UCLA-CEB Estate Planning Institute. Ms. House was coauthor of the second edition of California Conservatorships and Guardianships (superseded by California Conservatorship Practice (Cal CEB) and California Guardianship Practice (Cal CEB Annual)) and is co-editor with Bruce S. Ross of The Guide to the California Rules of Professional Conduct for Estate Planning, Trust and Probate Counsel, published by the Trusts and Estates Section of the California State Bar. A Fellow of the American College of Probate Counsel, she is past California State Chair and is currently on the Board of Regents. Ms. House is certified as a specialist in Estate Planning, Trust and Probate Law by the State Bar of California Board of Legal Specialization. She is past Chair of the Trusts and Estates Section (formerly the Estate Planning, Trust & Probate Law Section) of the California State Bar, a member of the Executive Committee of that Section, and a former Editor of California Trusts & Estates Quarterly. She is the author of Chapter 2 (Ethical Considerations).

RICHARD S. KINYON was a partner in the San Francisco firm of Morrison & Foerster, LLP, and is now a partner of Shartsis Friese LLP, where he specializes in tax, estate planning, and estate and trust administration. He received his B.A. degree in 1961 and his LL.B. degree in 1965 from the University of Minnesota and was President of the Minnesota Law Review. He is a Fellow of the American College of Trust and Estate Counsel, an Academician of the International Academy of Estate and Trust Law, and a member of the American Law Institute. He is also a member of the Advisory Board of the UCLA-CEB Estate Planning Institute. Mr. Kinyon was a member of the Probate and Trust Law Committee of the State Bar of California (1974–1977), a member of the Board of Directors (1974–1981) and President (1980–1981) of the San Francisco Estate Planning Council, and Chair of the Trusts and Estates Section of the Bar Association of San Francisco (2001). Mr. Kinyon is certified as a specialist in Taxation Law by the State Bar of California Board of Legal Specialization. He is a co-author of Chapter 1 (Overview of Estate Planning Practice) and the author of Chapter 17A (Family Investment Companies).

BETH L. KRAMER received her B.S. and B.A. degrees in 1982 from the State University of New York at Binghamton and her J.D. degree (cum laude) in 1985 from Boston University School of Law. She is the founder of Kramer Law Group, with offices in San Francisco and San Rafael, specializing in estate planning, trusts, and probate law. She is a member of the Bar Association of San Francisco (President, Probate and Trust Law Section, 2000), the Marin County Bar Association (Section on Probate and Trust), American Bar Association (Sections on Taxation, Real Property and Probate), and the Estate Planning Councils in San Francisco and Marin County. Ms. Kramer is certified as a specialist in Estate Planning, Trust and Probate Law by the State Bar of California Board of Legal Specialization. She is a co-author of Chapter 10 (Estate and Gift Taxes).

JOEL A. LEVINE is a sole practitioner in Los Angeles, specializing in tax, estate planning, and business planning. He received his B.A. degree in 1969 from the University of California, Los Angeles, and his J.D. degree in 1972 from the University of California, Los Angeles, School of Law. He has been an adjunct professor of law at Whittier College of Law and a speaker for CEB programs. Mr. Levine is certified as a specialist in Taxation Law and Estate Planning, Trust and Probate Law by the State Bar of California Board of Legal Specialization. He is the author of Chapter 17 (Marital Deduction Planning).

ROBERT J. LOWE is a partner at Mitchell Silberberg & Knupp, Los Angeles, specializing in employee benefits and executive compensation. He received his B.A. degree in 1975 from the State University of New York at Binghamton and his J.D. degree in 1978 from the University of California, Berkeley, School of Law. He is the author of Chapter 22 (Executive Compensation and Stock Options).

KIM MAROIS is a principal with Clement, Fitzpatrick & Kenworthy, Inc., in Santa Rosa. Her practice focuses on estate planning, probate, trusts, and estates. She received her B.S. degree in 1972 from the University of California, Berkeley, and her J.D. degree in 1976 from the University of California, Hastings College of the Law. She is a member of the Bar Association of San Francisco (Co-Chair, Taxation Section, 1989), the Sonoma County Bar Association, and the State Bar of California (Taxation Section: Chair, Education Committee, 1982–1983; Member, Executive Committee, 1981–1984). Ms. Marois is a frequent lecturer on estate planning topics. She is the author of Chapter 11 (Generation-Skipping Transfer Tax).

JOHN MILGATE is in private practice in Walnut Creek, specializing in elder law. He received his B.A. degree in 1974 from Biola College and his J.D. degree in 1978 from Golden Gate University. He is certified as an Elder Law Attorney by the National Elder Law Foundation, as approved by the State Bar of California Board of Legal Specialization. He is the author of Chapter 30 (Transfers in Medi-Cal Planning).

GENEVIEVE M. MOORE was of counsel in the firm of Morrison & Foerster, LLP, in San Francisco, and is now a partner in the firm of Bancroft & McAllister, LLP, Larkspur. She represents individual clients in the areas of estate planning, estate and trust administration, estate and gift taxation, and charitable gift planning. Ms. Moore received her B.A. degree (magna cum laude) in 1981 from Dominican College of San Rafael and her J.D. degree in 1989 from the University of California, Hastings College of the Law. She is a member of the sections on estate planning, probate, trust, and taxation law of the American, California, District of Columbia, and San Francisco Bar Associations, and currently on the Board of the Trusts and Estates Section of the Bar Association of San Francisco. Ms. Moore is a writer and lecturer for CEB and for Leave A Legacy, a public awareness program of the Northern California Planned Giving Council. She is a co-author of Chapter 1 (Overview of Estate Planning Practice) and the author of Chapter 21A (IRC §529 College Savings Accounts).

PETER S. MYERS, a partner at Fox Rothschild LLP, San Francisco, is certified as a specialist in estate planning, trust, and probate law by the State Bar of California Board of Legal Specialization. He received his B.A. (cum laude) from American University and his J.D. from the University of California, Hastings College of the Law. He is content editor for Estate & Trust Education Resources, LLC, which develops the biennial preparation course for the examination to become a certified specialist in estate planning, trust, and probate law. Mr. Myers was named one of America’s Top 100 Attorneys by Worth magazine (2005 and 2006) and is a regular contributor to that magazine, authoring articles involving estate planning and family wealth succession. He has regularly been listed (from 2003 to 2010) as a SuperLawyer by San Francisco magazine. He was on the faculty at the University of California, Hastings College of the Law in the 1990s, is adjunct faculty for Golden Gate University, and teaches estate planning for financial advisers at the postgraduate level. Mr. Myers lectures frequently in the areas of high-net-worth planning and closely held business succession. He has served as an author of chapters in other CEB estate planning books and has co-authored books for other publishers in the areas of business succession, asset protection, and retirement planning. He is a co-author of Chapter 25A (Intrafamily Loans and Sales).

LISA K. Y. NAKAHARA is an associate with the Kramer Law Group, with offices in San Francisco and San Rafael, specializing in probate, trust administration, and estate planning. She received her B.A. degree (summa cum laude) in 1996 from Claremont McKenna College and her J.D. degree in 1999 from the University of California, Hastings College of the Law. She received a CALI Excellence for the Future Award in Estate Planning. Ms. Nakahara is a member of the Bar Association of San Francisco (Probate and Trust Section) and the Marin County Bar Association (Probate and Trust Section) and Hawaii State Bar Association. She is a co-author of Chapter 10 (Estate and Gift Taxes).

MARIA E. NÚÑEZ is a partner in the Palo Alto office of Baker & McKenzie, where she heads the Estate Planning and Tax Practice Group. She provides international tax and estate planning services to foreign and domestic clients of the firm and provides general estate planning services to the firm’s United States clients. Ms. Núñez received her B.S. degree (summa cum laude) in 1983 from San Diego State University and her J.D. degree (magna cum laude) in 1987 from the University of San Diego Law School. She lectures frequently to professional and nonprofessional groups on estate planning and tax issues. Ms. Núñez has also written articles for industry and trade publications. She is a co-author of Chapter 16 (Basic International and Noncitizen Transactions).

MARSHAL A. OLDMAN is a partner in the firm of Oldman Cooley Sallus Birnberg & Coleman in Encino. His practice focuses on probate administration and litigation and estate planning. Mr. Oldman received his B.A. degree in 1973 from the University of Southern California and his J.D. degree in 1976 from the University of California, Los Angeles, School of Law. He is past chair of the Trust and Estate Section of the Los Angeles County Bar Association and past president of the San Fernando Valley Bar Association. Mr. Oldman is a former Chair of the Executive Committee of the Trusts and Estates Section of the State Bar of California (2002–2003). He is the author of Chapter 8 (Noncharitable Inter Vivos (Lifetime) Gifts).

KENNETH G. PETRULIS is a member of Goodson, Wachtel & Petrulis in Los Angeles, specializing in estate planning, wills, trust law, probate, and conservatorships. He received his B.S. degree in 1967 from the Illinois Institute of Technology and his J.D. degree in 1973 from the University of Illinois. Mr. Petrulis is a Member of the Beverly Hills Bar Association (Section on Probate; Chair, Probate Legislative Committee). He is certified as a specialist in Estate Planning, Trust and Probate Law by the State Bar of California Board of Legal Specialization. He is the author of Chapter 6 (Revocable Trusts).

RUTH A. PHELPS is a partner with Phelps Law Group (formerly Phelps, Schwartz & Phelps) in Pasadena, specializing in elder law. She received her B.A. degree from Immaculate Heart College in Los Angeles, her J.D. degree from Loyola Law School in 1975, and her LL.M. in taxation from Loyola Law School in 2000. Mrs. Phelps is a certified elder law attorney and a certified specialist in Estate Planning, Trust and Probate Law. She is a co-author of Chapter 26A (Special Needs Trusts).

RUTH E. RATZLAFF is a sole practitioner in Fresno, specializing in elder law. She received her B.A. degree in 1972 from Fresno Pacific University and her J.D. degree in 1979 from Golden Gate University. She is certified as an Elder Law Attorney by the National Elder Law Foundation, as approved by the State Bar of California Board of Legal Specialization. She is the author of Chapter 31 (Disposition of Human Remains).

MAX RIEDERER VON PAAR is a partner with the law firm Rubin, Winston, Diercks, Harris & Cooke, LLP, in Washington, D.C. His practice focuses on assisting international clients in navigating various applicable legal and tax systems. He is a member of the District of Columbia, New York, and Virginia bars, and is admitted as Rechstanwalt in Germany. He received his law degree in 1992 from Freie Universität, Berlin, and his LL.M. degree in 1996 from George Washington University. Mr. Riederer serves as outside general counsel for the German Embassy and represents the Federal Republic of Germany and its entities as well as a number of large German nonprofit organizations. He is a co-author of Chapter 16 (Basic International and Noncitizen Transactions).

STERLING L. ROSS, JR., is a partner with the law firm Robb & Ross in Mill Valley. He received his B.A. degree in 1968 from Stanford University and his J.D. degree in 1971 from the University of Michigan. Mr. Ross is a certified specialist in Estate Planning, Trust, and Probate Law. He is a co-author of Chapter 26A (Special Needs Trusts).

SETH M. SKOOTSKY is a member of Skootsky & Der, LLP, in San Francisco. He received his B.A. degree in 1983 from the University of California, Berkeley, and his J.D. degree in 1988 from the University of California, Berkeley, School of Law. Mr. Skootsky is a certified specialist in Estate Planning, Trust and Probate Law and a member of the San Francisco Estate Planning Council. He is a co-author of Chapter 24A (Noncharitable Unitrusts).

PETER SPERO practices in Santa Monica and specializes in asset protection, pre-bankruptcy planning, tax, and estate planning law. He received his B.S. degree in 1970 from California State University, Los Angeles, his J.D. degree in 1973 from Southwestern University School of Law, and his LL.M. degree (Taxation) in 1976 from New York University. Mr. Spero has been certified as a specialist in Taxation Law by the State Bar of California Board of Legal Specialization. He is the author of Asset Protection: Legal Planning, Strategies and Forms (Warren, Gorham & Lamont, 2d ed 2002) as well as numerous articles. He is the author of Chapter 26 (Asset Protection Considerations).

ROBERT E. TEMMERMAN, JR., is managing partner in the law firm of Temmerman, Cilley & Kohlmann, LLP, in San Jose. His practice focuses on estate planning, trust administration, and fiduciary litigation. He received his B.A. degree in 1975 from Boston College and his J.D. degree in 1980 from Santa Clara University. Mr. Temmerman is a Fellow of the American College of Trust and Estate Counsel, a certified specialist in Estate Planning, Trust, and Probate Law and former Chair of the Executive Committee of the Trusts and Estates Section of the State Bar of California (1997–1998). He is a co-author of Chapter 4 (Additional Property Transfer Obstacles for Married Persons and Registered Domestic Partners).

DONALD R. TRAVERS is a retired sole practitioner in Paradise. He received his undergraduate degree in 1964 from California State University, Northridge, and his J.D. degree in 1974 from the University of LaVerne College of Law. Mr. Travers is certified as a specialist in Estate Planning, Trust and Probate Law by the State Bar of California Board of Legal Specialization, a past member of the Executive Committee of the Trusts and Estates Section of the State Bar of California, and a Fellow of the American College of Trust and Estate Counsel. He is the author of Chapter 5 (Wills).

JOEL S. WEISSLER is the founder of the Weissler Law Group in San Diego, which specializes in helping families build and protect wealth and prepare for and deal with life-cycle events. Mr. Weissler works extensively in the areas of interfamily wealth transfers, asset protection, estate planning (including business succession planning), and tax law. He received his B.A. from Metropolitan State University, his J.D. in 1989 from California Western School of Law, and an LL.M. (cum laude) from the University of San Diego School of Law. Mr. Weissler is certified as a specialist both in taxation law and in estate planning, trust and probate law by the State Bar of California Board of Legal Specialization. He is a member of the National Association of Elder Law Attorneys (NAELA), a member of WealthCounsel, LLC, and a charter member of both Elder Counsel and the Advisors Forum. He speaks and writes frequently on family wealth building and preservation, estate planning, and asset protection. Mr. Weissler is the author of Chapter 25B (Self-Canceling Installment Notes (SCINs)).

About the 2018 Update Authors

RICHARD AIELLO is the original author and continuing update author of Chapter 9 (Powers of Appointment). See his biography in the About the Authors section of this book.

ALAN LEIGH ARMSTRONG is the original author and continuing update author of Chapter 28 (Power of Attorney for Financial Matters). See his biography in the About the Authors section of this book.

FRAYDA L. BRUTON is the original author and continuing update author of Chapter 15 (California Real Property Tax). See her biography in the About the Authors section of this book.

PATRICIA A. CAIN is one of the original co-authors and the continuing update author of Chapter 4 (Additional Property Obstacles for Married Persons and Registered Domestic Partners). See her biography in the About the Authors section of this book.

SANDRA J. CHAN is the original author and continuing update author of Chapter 7 (Nonprobate and Nontrust Transfers at Death). See her biography in the About the Authors section of this book.

MATT CLAUSEN is an update author of Chapter 23 (Charitable Giving). Mr. Clausen is an associate with the firm of Adler & Colvin in San Francisco, providing legal services and support to the nonprofit and philanthropic sector. He received his B.A. degree from the University of British Columbia; his J.D. degree from the University of California, Davis, School of Law; and his LL.M. in Taxation from New York University. Mr. Clausen is a member of the Exempt Organizations Committee of the American Bar Association Tax Law Section.

ELI R. COFFINO is an update author of Chapter 10 (Estate and Gift Taxes). Mr. Coffino is an associate with the firm of Freeland Cooper & Foreman, LLP in San Francisco. He received his B.A. degree from the University of California, Los Angeles, and his J.D. degree from the Benjamin N. Cardozo School of Law, Yeshiva University, New York.

JEFFREY C. DE FRANCISCO is an original co-author and the continuing update author of Chapter 13 (Taxing Income of Estates and Trusts). See his biography in the About the Authors section of this book.

ERIK DRYBURGH is the original author and continuing update author of Chapter 24 (Charitable Remainder Trusts). See his biography in the About the Authors section of this book.

JENNIFER F. HUDSON is an update author of Chapter 6 (Revocable Trusts). Ms. Hudson is a principal in the firm of Goodson, Wachtel & Petrulis in Los Angeles, specializing in estate and trust litigation and administration, estate planning, and probate law. She received her B.A. from the University of California, Los Angeles, and her J.D. from University of Southern California Gould School of Law. She is a four-time recipient of Super Lawyer Rising Star Recognition (2009, 2015–2017). She is a member of the Los Angeles County Bar Association and the Beverly Hills Bar Association, Probate and Trust and Estate Planning Section.

BRIGIT KAVANAGH is an update author of Chapter 23 (Charitable Giving). Ms. Kavanagh is a partner in the firm of Kavanagh Rhomberg LLP in Belmont, providing legal services and support to the nonprofit and tax-exempt organizations and their charitable donors. She received her B.A. degree from the University of Virginia and her J.D. degree from Golden Gate University School of Law. Ms. Kavanagh participated in the Council on Foundations 2013 Family Philanthropy Conference and has spoken at the Northern California Planned Giving Council Annual Conference.

RICHARD S. KINYON is an original co-author of Chapter 1 (Overview of Estate Planning Practice) and the original author of Chapter 17A (Family Investment Companies) and the continuing update author for both chapters. See his biography in the About the Authors section of this book.

BETH L. KRAMER is the original author and continuing update author of Chapter 10 (Estate and Gift Taxes). See her biography in the About the Authors section of this book.

KIM MAROIS is the original author and continuing update author of Chapter 11 (Generation-Skipping Transfer Tax). See her biography in the About the Authors section of this book.

GENEVIEVE M. MOORE is the original author and continuing update author of Chapter 21A (IRC §529 College Savings Accounts and Coverdell Education Savings Accounts). See her biography in the About the Authors section of this book.

MARSHAL A. OLDMAN is the original author and continuing update author of Chapter 8 (Noncharitable Inter Vivos (Lifetime) Gifts). See his biography in the About the Authors section of this book.

KENNETH G. PETRULIS is the original author and continuing update author of Chapter 6 (Revocable Trusts). See his biography in the About the Authors section of this book.

RUTH A. PHELPS is an original co-author of Chapter 26A (Special Needs Trusts), and she is an update author of Chapter 30 (Transfers in Medi-Cal Planning). See her biography in the About the Authors section of this book.

MAX RIEDERER VON PAAR is a co-author and the continuing update author of Chapter 16 (Basic International and Noncitizen Transactions). See his biography in the About the Authors section of this book.

ROBERT E. TEMMERMAN, JR. is a co-author and continuing update author of Chapter 4 (Additional Property Transfer Obstacles for Married Persons and Registered Domestic Partners). See his biography in the About the Authors section of this book.

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