Case Studies and Articles

Estate planning malpractice issues – Vaughn W. Henry & Associates

Estate planning malpractice issues – Vaughn W. Henry & Associates

Once again estate tax relief is being discussed in Congress, one of the unforeseen consequences is that for many people, already reluctant to solve estate planning problems, this gives them just another excuse to procrastinate.  While 95 % of families aren’t faced with a federal estate tax problem, there are still many reasons to design a business succession strategy or complete an estate plan to preserve the security, control and value of their estate.  For any family that pays unwanted estate taxes, either their advisors were unskilled or the parents were negligently oblivious to the information provided by numerous print articles, books, news reports, seminars and advice from their professional counselors.  What brings this comment to the forefront?  Lately I’ve been receiving inquiries from litigation firms seeking referrals to heirs of families that have paid estate taxes and lost businesses or farms.  The obvious conclusion is there are disgruntled heirs out there who feel that their cut of the estate was diminished in some way because dad’s advisors somehow “fumbled the ball”.   After the dust from the great tobacco lawsuit war settles, the next target may be providers of estate planning solutions that didn’t work as the heirs expected.  Who’s on the hook?  Attorneys, trust officers, accountants, financial and gift planners and life insurance agents all provide estate-planning advice; a lot has backfired.  I expect some are now concerned about heirs looking to correct errors of omission and commission when the tax bill comes due.

  • Clients create tax neutral living trusts believing they’ve solved tax problems and/or never bother to re-title their assets and properly fund the trust.
  • Clients maintain joint ownership of significant assets when provisions should be made to preserve the clients’ exemptions (the applicable exclusion is $675,000 per person this year- 2000) or the will passes significant property back to the surviving spouse after ownership was previously split for tax purposes.
  • Advisors fail to use ways to make gifts to heirs of assets by using tax-free annual exclusions.
  • Advisors fail to test their client’s tolerance for charity.
  • Advisors don’t “freeze, squeeze, stuff and spread” assets.
  • Failure to make use of special tax elections like special use valuations or alternate valuation dates.
  • Improper beneficiary designations for retirement plans and insurance have come back to haunt blended families when benefits are incorrectly paid to ex-spouses or unforeseen heirs.
  • Owning insurance that improperly winds up being counted in the taxable estate can expose heirs to unnecessary tax.  Incorrect use of irrevocable life insurance trusts.
  • The estate plan didn’t provide for adequate liquidity and didn’t preserve or stabilize the value of the family business.

The amazing thing about estate taxes is that so few semi-affluent families take a proactive role to effectively and legally avoid them.  Too many wealthy families don’t know that estate taxes are voluntary and, with a suitable plan, may be eliminated.  In a study of affluent business owners, the financial survey firm of Russ Prince & Associates, found that only 15.3% of heirs felt that estate taxes were going to be a significant problem in their own family’s business succession plans.  After those businesses failed, a follow up study of the same heirs who mistakenly thought taxes weren’t going to be an issue, 97.1% felt the founders’ own negligence in their estate and business planning contributed to the failure.  Now there’s an attitude that can be tweaked enough to shift blame to a target more accessible and financially better off than dad.  The damages are easy to assess; after all, the tax bill is an obvious place to start.  Since tax planners tend not to want to drag out litigation for fear of disrupting an ongoing business that depends on advisors keeping a low profile, they may be real targets of opportunity for unhappy family heirs.

The percentage of families with investable assets in excess of $1 million continues to rise and clusters of wealth exist in places where advisors still fail to provide appropriate advice.  What does this mean for planners and their clients?  More consideration should be given to creating teams of specialists who can craft a plan that meets the family’s need for liquidity, tax reduction, control and security.   Unfortunately, there are professional advisors who don’t feel a responsibility to save taxes or preserve an estate.  It’s not uncommon to hear “the kids inherited more than they deserved” or “it’s not my job to cut a tax bill” or “the client never asked me about taxes, they only wanted a simple will”.  Many commentators feel that an advisor has an ethical duty to present a range of options to a client that includes tax reduction and a discussion of family values an estate plan propagates.  One might contrast this situation with a patient going to a physician about a head cold, and the examining doctor observes a large irregular and discolored mole.  The patient didn’t ask the physician about skin cancer, but the doctor has a duty to pursue the diagnosis and treatment, not wave it off and later claim in a malpractice trial that the deceased patient never asked him to do anything about an obvious problem.  There should be no more excuses about clients not asking about whether or not tax saving techniques were available, clients generally don’t have enough background to judge what’s appropriate for their situation.  After all, they chose an experienced professional advisor instead of a cookie cutter approach that assumes one size fits all; clients should have a family friendly plan crafted to meet their unique needs for flexibility.  Professional tax and legal advisors should make a greater effort to educate their clients and help them understand the problem and provide solutions that meet all of their clients’ concerns.

Case Studies and Articles

Life Estates (Estate Planning Tools That Pay Off Now) – Vaughn Henry & Associates

Life Estates (Estate Planning Tools That Pay Off Now) – Vaughn Henry & Associates

Estate Planning Tools That Pay Off Now

Vaughn W. Henry

Did you know, you don’t have to be filthy rich (or even have a taxable estate) to make use of some advanced estate planning maneuvers? One estate-planning tool an older client may use is a “life estate” arrangement with a local charity. This allows the donor to transfer a partial interest in a personal residence, vacation home or farm to a charitable organization and still retain the right to live there for either a stated number of years or through a specified lifetime. The advantage of such a contractual agreement is that the donor does not give up cash, income or lifestyle but still receives a charitable income tax deduction. This has real appeal to a donor whose estate isn’t large enough to be taxed at the federal level, but who still pays income taxes and could make use of the deductions. For those with taxable estates, a bequest that creates a charitable deduction might be helpful, but since most estates aren’t taxed, an income tax deduction from a deferred gift at fair market value is almost always useful.

Keep something while you’re giving it away.

So who might make use of such a life estate?

  • donors who want to benefit a charitable cause but who are unable to make current cash contributions
  • donors without heirs or those who don’t plan to pass a family home or farm to heirs
  • donors who have a close relationship to a charity, especially if the nonprofit has plans to expand physical plant facilities or programs and the real estate fits into their expansion plans
  • donors who would like for the nonprofit organization to have the property without restrictions or legal battles with uncooperative heirs in the future

What are the down sides to such gifts?

  • It is an irrevocable gift to charity and if the donor’s financial or health situation changes, that asset is no longer available to convert to cash.
  • The property becomes hard to sell or lease because the charity owns a remainder interest.
  • The donor usually is responsible for paying maintenance, taxes and insurance.
  • The donor may become disabled and be compelled to move into assisted care housing. Without any prior planning, what happens to the property?
  • The charity has to agree to take the property, no guarantees today in light of zoning, environmental restrictions and management concerns.

A good case study of the technique involves Elizabeth Hopper (72) who owns a retirement home in Florida. The house sits next to a local church she attends when visiting, and she has become active in the congregation. Since her husband passed away three years ago, she makes less use of the residence since it takes too much effort to close up and reopen the house. It was a popular place for her family to gather during the winter holidays, but the $120,000 house is not used enough to fully justify the expense. Possessing a lot of sentimental value, she’s unwilling to give it up completely now. The church would like to acquire the house as a residence for their staff, but is unable to purchase the real estate outright. Since the resort community continues to grow, it looks like the house will probably become more valuable, but her estate is modest and an outright bequest to the church will not solve planning problems. On the other hand, the church endowment committee has offered her a life estate in her residence if she passes the house to their organization at her death. In the meantime, she’s entitled to an income tax deduction of $66,676. The tax deductions would be available for her use over six years and she feels this will free up other income and still allow her the right to continue using the house as she wishes during her lifetime. After Mrs. Hopper passes away, the church acquires the property and may use it as needed without the outlay of additional funds. For some donors, this is as close as it gets to having your cake and eating it too.

For additional information, the web-site case studies, software and articles on estate and gift planning tools.

The income tax deduction may need to be offset by depreciation or depletion if the transferred asset’s value would be impacted by a limited useful life. IRC §170(f)(4) and Treas. Reg. §1.170A-12.

Case Studies and Articles

Using an ESOP and a CRT to Preserve Family Wealth

Using an ESOP and a CRT to Preserve Family Wealth



 Using an ESOP with a CRT to Preserve Family Wealth

One of the most difficult tasks an entrepreneurial business founder must face is getting out of a family run enterprise, especially when there are no heirs involved in management. To create liquidity, one of the most creative tools available is the “chesop”. Actually, this technique is an employee stock ownership plan (ESOP) with an IRC §664 Trust (CRUT) designed to minimize tax liabilities on the transaction. Whether the non-income producing employer’s stock or, more commonly, the reinvested proceeds under the §1042 roll-over provisions are transferred directly to the CRUT, the effect is the same.

  • More income
  • Lower taxes
  • More assets to heirs
  • Family Control of “social capital” for community resource

Ken Wiggins (63 widower) owns an automobile dealership and wants to create liquidity and slow down. He has been active as a volunteer at the local hospital since his wife of 38 years passed away, and prefers to continue community service during his retirement. His two daughters are already well provided for through his wife’s trust and he is faced with a business that requires more time and patience than he is willing to provide. His advisors suggested that his management staff and long term employees might be better able to continue operating the dealership profitably, and an ESOP would be an effective tool to transfer the business ownership. In order to qualify for tax deferral, Mr. Wiggins must put at least 30% of his corporate stock into the ESOP, but then he has up to 15 months to reinvest the proceeds into other qualified replacement property and postpone any recognition of his capital gain. While the original basis and tax liability remain, he would have a more diversified portfolio with which he could make cost-effective retirement planning decisions. Knowing full well, on exchanged stock, there will be some stocks that perform poorly, but when sold would trigger the deferred capital gains tax, he needs further alternatives to better manage his $4 million estate. By selecting those under performing assets to be sold, and contributing this stock to a §664 Charitable Remainder Uni-Trust, the repositioned asset is now capable of producing a stream of retirement income. One advantage of this technique is that instead of creating a taxable liability, there is an income tax deduction that may be used to offset the redemption of his other qualified §1042 stocks*. Besides producing more income, the remainder interest serves to create a family philanthropic fund that his daughters and grandchildren will oversee. For further information on this or other case studies, contact our office


Sell Business – Pay Tax

ESOP – §664 Trust

Fair Market Value of Stock Contributed to ESOP



Less Adjusted Cost Basis


Gain on Sale


Capital Gains Tax at 30% (federal and state)


Capital Controlled – Available to be Reinvested @ 8%



Annual Return from 8% Income Fund


Avg. Annual Return 6% Payout §664 Trust with 8% Portfolio 


Avg. After-tax Cash Flow From Repositioned Assets



Taxes Saved – Deduction of $1,031,425 @ 42.6% Tax Rate 


Total After-tax Cash Flow and Tax Savings After 22 Years



After Estate Taxes, Asset Value Owned by Mr. Wiggins’ Heirs



Transferred to Wiggins’ Family Fund / Community Foundation



* The IRS has released a private letter ruling permitting §1042 “ESOP replacement stock” to be transferred to a §664 CRT and avoid immediate capital gains recognition. See PLR 9715040 (January 15, 1997). The seller may reinvest ESOP proceeds in “qualified replacement property” sec. 1042(c)(4) and that includes most publicly traded stock.

Henry & Associates

Case Studies and Articles

Is Your House in Order? – Henry & Associates

Is Your House in Order? – Henry & Associates

Is Your House in Order?

The latest version of tax relief and simplification (186 pages of new Code in EGTRRA 2001) does offer some fleeting relief for a few smaller estates, but it also increases the risk that a surviving spouse may be accidentally disinherited.  For those using a “formula clause” to fully fund a credit shelter trust or a generation skipping trust, beware that rising exemptions may cause problems.  The use of tax saving clauses in a will or trust is designed to pass assets to family without unnecessary tax, but extra caution is now warranted.  If your plan hasn’t been reviewed this year and you have assets that approach the level for a federal estate tax liability, get yourself to a tax lawyer’s office and see what needs to be done.

Unexpected consequences of tax law changes, and this tax law change was significant, often create ripple effects that weren’t planned.  As Congress starts taking away the states’ ability to piggyback on the federal tax, what many tax commentators expect to see is a return to the bad old days where every state taxing body had their own version of an estate or inheritance tax pop back into place to replace lost revenues.  This tax relief package is likely to create several new problems, and because the target is continually moving, the planning is more difficult, not less.

This is no time for hide ‘n seek.

While tax planning is often considered one of the principal reasons for planning, there are other important considerations for those left behind.  A good estate plan addresses their needs for organization, closure and security.  If you’ve ever misplaced car keys or a wallet, you can think back to what it was that you were doing when you last had them in your hands.  Imagine instead your heirs frantically poring over files, pawing through desk drawers and searching the wastebasket for receipts in order to find answers after someone has passed away.  Important documents need to be organized and easily found, and that doesn’t necessarily mean using a lockbox at the bank.  In fact, your Will and burial instructions are better stored some place easily reached by family or legal advisors, as safety-deposit boxes are often inaccessible after a death.

With all of the turmoil associated with the September 11th tragedy, it has made many people realize that there’s little certainty in life.  In an effort to help family survivors avoid the confusion and distress associated with the passing of family members, now is a good time to review your planning options and documents.

Here’s a document checklist that may be helpful as you get your affairs in order:

  (1)    Birth certificates


(2)    Life insurance policies  (have you checked to see if beneficiary designations current and accurate?)

(3)    Identify other insurance policies (disability, affinity programs, health, property & casualty, annuity contracts)

(4)    Stock and bond holdings, consolidated investment account statements

(5)    Powers of attorney for health care and property, and any living will documents.  While not helpful after death, they are extremely important if there is a disability or incompetence.

(6)    Mortgage documents

(7)    Deeds, including cemetery plots

(8)    Bank account information, checkbooks, passbook savings, account statements

(9)    Leases

(10)    Your will and codicils (have you identified guardians for minors and elderly parents?)

(11)    Trust documents and amendments (have you properly titled property in the name of the trust?)

(12)    Partnership agreements and recent appraisals

(13)    Pension, profit-sharing, IRA and other retirement plans  (have you checked if beneficiary designations are current, now that new rules apply to changing distributions and modifying beneficiaries, they need to be reviewed)

(14)    Marriage certificate and any court documents dealing with a name change or adoption proceedings


(15)    Marriage contracts (pre-nuptial and post-nuptial)

(16)    Divorce or separation agreements

(17)    Employment contracts, deferred compensation or “golden parachutes/handcuffs” type agreements

(18)    Corporate or partnership buy-sell agreements, business continuity planning documents

(19)    Any life income arrangements (commercial immediate annuities, charitable trusts, life estates)

(19)    Social Security card

(20)    Veteran’s benefits updated and military discharge paperwork, e.g., DD-214

(21)    Funeral arrangements and burial instructions

(22)    Directions for pet care

(23)    Recent income and gift tax returns

(24)    Inventory of capital assets (real estate, stock, investments, collectibles, etc.) with purchase price, history of acquisition, improvements and tax basis (which will be extremely important if the tax law continues unchanged)

(25)   Organ donation instructions

Vaughn W. Henry

© 2001

Springfield, Illinois

Case Studies and Articles

Gift & Estate Planning Services – Vaughn Henry & Associates

Gift & Estate Planning Services – Vaughn Henry & Associates


Gift & Estate Planning Services


Estate planning services and wealth conservation programs for individuals of high net worth and closely-held business owners.

Successful farm or business owners and professionals should learn what the IRS doesn’t want you to know about your pension and personal wealth.

  • Regain Control of Your Personal Wealth

  • Zero Estate Tax Planning Resources to Maximize and Protect Your Wealth
  • Equitable Business and Family Succession Solutions
  • New Charitable Trust Planning Strategies for Donors and Philanthropies
  • Workshops and Private Seminars for Charities and Business Planning Organizations
  • Free Preliminary Estate and Charitable Remainder Trust Computerized Evaluations

Tax, Legislation and Money Links – Bookmark here for updated links

imageAnalytical Perspectives .. Main Budget Document

9/11/2001 Tax Relief Bill for WTC Survivors and Summary

imageCenter on Budget and Policy Priorities

imageCommittee on Ways and Means

imageCommon Capitol Questions

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imageWriting Congress

imageYear End Estate Planning Options

imageOff-shore and Asset Protection Trusts

imageInternational TrustsIRS Newsletter on Sham Trusts

imageTrusts and Remarriages

imageEstate Planning Needs Vary

imageWarren Gorham & Lamont Tax Information Links

imageMaximizing Family Wealth and Control

imageEstate Planning Information on Disinheriting the IRS – New legislation EGTRRA 2001

imageDownloadable FTP Powerpoint Presentation on the Family Limited Partnership or Plain File

imageKPMG Estate Tax Commentary on the 1997 TRA 1997

imageFinancial Times Internet Site

imageS & P 500 Index Bars

imageBloomberg Business Site – Market Updates

imageSummary of Estate Tax Changes – July 1997

imageState by State Tax Information

imageWills on the Web. Why probate might not be a good idea.

imageAvoid Family Disputes With a Buy-SellimageNest Egg

imageUniversity of Southern California Prospect Research

imageRoth IRA Comparison Calculator

imageRoth IRA and Estate Planning – Brentmark

imageIRS Forms Download Site

imageERISA, Divorce and Estate Planning by Noel Ice

imageJuly 1997 – Taxpayer Relief Act

imageForbes on Taxes

imageJacobs Report on Asset Protection – Family Limited Partnership (FLP) Articles

imageMel Abraham’s – New Decisions Bring New Life to Family Limited Partnerships

imageBusiness Valuation Specialist

imageEstate Planning Links

imageNational Network Site

imageMaximizing the Control of Family Wealth See how families of wealth pass it down.

imageEstate Tax Information Site

imageIdentity Theft in the Workplace


Legal Tax Avoidance – Remember, Estate Taxes Are Voluntary

‘I live in Alexandria. Virginia. Near the Supreme Court chambers is a toll bridge across the Potomac. When in a rush, I pay the dollar toll and get home early. However, I usually drive outside the downtown section of the city and cross the Potomac on a free bridge. This bridge was placed outside the downtown Washington, D.C. area to serve a useful social service, getting drivers to drive the extra mile and help alleviate congestion during the rush hour.

If I went over the toll bridge and through the barrier without paying the toll, I would be committing tax evasion. If, however, I drive the extra mile and drive outside the city of Washington to the free bridge, I am using a legitimate, logical and suitable method of tax avoidance, and I am performing a useful social service by doing so.

For my tax evasion, I should be punished. For my tax avoidance, I should be commended. The tragedy of life today is that so few people know that the free bridge even exists.’

Justice Louis P. Brandeis



FOR YOUR OWN CRT SCENARIO or try your own at Donor Direct. Please note — there’s much more to estate and charitable planning than simply running software calculations, but it does give you a chance to see how the calculations affect some of the design considerations. This is not “do it yourself brain surgery”. Is a CRUT superior to a CRAT? Which type of CRUT is best used with which assets? Although it may be counter-intuitive, sometimes a lower payout CRUT makes more sense and pays more total income to beneficiaries. Why? When to use a CLUT vs. CLAT and the traps in each lead trust. Which tools work best in which planning scenarios? Check with our office for solutions to this alphabet soup of planned giving tools.

© Henry & Associates 2001

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Case Studies and Articles

Defuse Your Ticking Tax Time Bomb – Vaughn Henry & Associates

You can make more money by saving taxes than you can by trying to make more money.

Understand why you should not own your own life insurance and how the voluntary nature of estate taxes and capital gains taxes can be controlled.

  • Avoid the 12 worst estate planning errors
  • Learn how the IRS can pay for your life insurance needs
  • Create a family fund that will be exempt from estate taxes forever
  • How the wealthiest U.S.families create and preserve their wealth
  • Reposition growth assets to income assets without income tax penalties

Will Rogers on Death and Taxes

‘The difference between death and taxes is death doesn’t get worse every time Congress meets.’

Will Rogers on a Balanced Budget

‘Alexander Hamilton started the U.S. Treasury with nothing — and that was the closest our country has ever been to being even.’

Defuse Your Ticking Tax Time Bomb

Legitimate planning tools allow wealthy individuals to pack more assets into gifts and transfers to heirs. Understand how these tools are used to maintain control, while passing down the future tax liabilities. Use your pension, IRA and qualified retirement funds more efficiently, and avoid capital punishment at death by avoiding taxes that reduce your savings by 80%. See how traps force families to sell ongoing businesses and income producing properties in a garage sale environment; recognize that control is better than ownership.

Could your estate withstand a 5,500 point drop in the Dow? It’s going to happen at death. Instead, create a perpetual private family bank to fund activities forever sheltered from estate taxes.

Financial and Planning Links

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Estate Planning and Planned Giving Books


Henry & Associates’ Planning Articles

Getting Out of Your Business  
Will Your Family Business Survive to the Next Generation?Now that you have it, how do you keep it?Exiting Your Business Maximize income and value tax efficiently
Freeze and Squeeze how to compress an estate and pass down your businessWhat is a CLAT – ForbesNewsday article on charitable planning
Rev. Proc. 2001-59 12/7/01 New GST and Annual Exclusion LimitsHas Estate Tax Repeal Really Changed Anything?Have You Put Your House in Order? a checklist for planning
When Payouts Won’t Payoff What’s the best way to choose a CRT/CLT payout?Just How Forgiving Will Those Heirs Be? Liability Concerns for PlannersIntegrating Your Estate Plan – How to Get Your Advisors on Track
Team Building and Expanding Your Practice A CCH Journal of Practical Estate Planning ArticleFinding (or Being) a Good Advisor Private Wealth Advisor Vol. 3, No. 6 – London, UKTake Charge – Avoid Planning Pitfalls Basic Estate Planning How-To’s
Tax Efficient Charitable GivingYear End Estate Planning OptionsPowerful Uses of the Charitable Remainder Trust Ways to Retain control of family wealth and influence.
Estate Planning Software and InformationEstate Planning ProcessesFamily Estate Planning Philosophies
Putting a Lid on Your EstateCharitable Roll-OversCharitable Lead Trusts and the Jackie Onassis Estate
Zero Estate Tax PlansEstablishing Your Estate Planning GoalsKeeping It In The Family
The Flexibility of the NIMCRUTPension Traps for the Well-HeeledTax Advantaged Corporate Stock Redemptions
Professional Planned Giving ResourcesYours, Mine and Ours Remarriages and Estate Planning NeedsEstate Planning Needs Vary
A Partnership From Hell (Continuity Planning)Making a Plan to Deal With Moving Goalposts IDIT/IRD and EGTRRAStarting the Process – Developing the best approach to clients
Choices, it’s all about choices helping clients find their way.Checklists for the elder client an initial outline for organizing your estate planning concernsInherited Wealth

Retirement Planning Articles

New IRA Distribution Rules A Simple Explanation from Professor Christopher HoytLiving With a Market DeclineMinimum Distribution Planning for IRA and Retirement Plans also, see new regs
New Life Expectancy Tables for MRD Calculations IRS Publ. 590IRS 2002 – 2003 Priority Guidance Plan What’s on the HorizonEight Myths About Retirement Planning
New MRD RegulationsRequired Distributions from Retirement PlansPlain English Analysis of the Retroactive New Distribution Regs.
Equal Employment Opportunity CommissionSocial Security COLA 2002MRD Calculator
BBC Life expectancy calculatorMSN Life Expectancy CalculatorLongevity Game
CPI Inflation Calculator or CPISEP Information from CCH 
Birthdate Database or People SearchCalculatorMonte Carlo Calculator for Retirement Planning
Protecting Retirement Plan AssetsEstate Planning with Deferred Compensation and IRA’sAmerican Employee Rights
Barry Picker’s Articles on Estate and Retirement PlanningEconomic IndicatorsData Library on Economic Subjects

Estate Planning Legislation & Commentary

The American Jobs Creation Act of 2004New 2004 Tax Act AnalysisTax Changes in 2004 Summarized
States Decoupling from the Federal Estate TaxKETRA 2005 JCT Releases Technical Explanation of Katrina Emergency Tax Relief Act of 200550 State Model UPL Statutes
JJ MacNab’s Tables Comparing HR 8’s Proposal of Eliminating the Estate Tax with Current System What does the loss in “step-up” in basis really mean?Description and Analysis of Present Law and Proposals Relating to Federal Estate and Gift Taxation. (2001)The Economics of the Estate Tax
IRS Attack on the FLP – HacklSearchabe database for tax court opinionsRamesh Ponnuru on the Estate Tax Repeal
Premack on 1999 Estate Tax RepealThe Case for Repealing the Estate TaxCenter for Budget and Public Policy on Estate Tax Repeal
Online Source for IRS Revenue RulingsStates Are Decoupling from the Federal Estate Tax CutProfessional IRS Resources
REPEALING THE ESTATE TAX WOULD REDUCE CHARITABLE GIVINGEstate Tax Affects Few Family BusinessesAbusive Tax Schemes – IRS
Joint CommitteeWays and Means for Tax LegislationTax Links’ IRS Revenue Rulings and search at Tax Links – Find a Revenue Ruling
Searchable Code of Federal Regulations and IRS CODEUS House of Representatives CodeInternational Law Resources

Practical Articles and Links

Even celebrities with advisors are voluntary taxpayers. Peter Jennings’ Estate  
The Virtues and Values of an Ethical WillEthical WillsDiscussing Finances with Aging Parents
Definition of InheritanceEstate Planning TopicsLegal Documents Among the 50+ Population
Organ Donor InformationState Specific Advance DirectivesThe 5 Wishes – Aging With Dignity
Medical Directive FormsCaring ConnectionsFlorida Catholic Conference of Bishops’ Declaration on Life and Death
ABA Directory
Tax Forms – Super FormsPlanning for Unmarried Older Couples
Elder LawMichael Schwartz’ Compendium of Elder Abuse LawAdvance Directive
Helping People Meet Aging-Related Legal and Care ChallengesPARTNERSHIP FOR CARING: America’s Voices for the Dying Health Care POA samplesLiving Wills – state by state
10 Legal Myths About Advance Medical DirectivesWhen a simple will is not the wayCompassion & Choices, End of Life Choices
Trustmakers – Asset ProtectionNigerian ScamsAsset Planning for Physicians and Fraudulent Transfer and Asset Protection and Scams
Scammers and Concepts to AvoidOffshore AlertsDiscussion Board on Asset Protection
Stupid Private Annuity Tricks  
End of Life Issues, state specific living wills and DPA informationSteps You Must Take When Someone DiesElders and the Law
Tissue Donation information Living Bank, Houston, TexasHarvard Brain Tissue Resource Center, BostonForensic Anthropology Center, Univ.of Tenn, Knoxville
Laboratory of Human Osteology, Maxwell Museum of Anthropology, AlbuquerqueList of body donation programs in the United StatesBody Donation forms: University of North Texas
University of Texas – HoustonUniversity of Texas – Southwestern 
Fraudulent Transfers, UFTA, Case StudiesQDOT PlanningIncome Tax Treaties
What Canadians Should Know about US Transfer TaxesDeloitte & Touche Taxation of Foreign NationalsInland Revenue for UK Residents
Canadian Estate Tax IssuesPrice Waterhouse Memo on Canadian Estate PlanningCanadian “Snowbirds” and Taxes
Canadian Estate Tax IssuesIslamic LawLaws Affecting Inheritance for Muslims
Halachic Aspects of Estate PlanningIslamic Forms and Documents Affecting Estate PlanningIslamic Sharia Law and Calculator
Estate (and GST) Tax ReturnInstructions for IRS Form 706Fidelity Estate Tax Calculator
< a>Smart Money Estate Tax CalculatorTax Calculators
Estate Tax Calculator Asset BasedHugh’s Estate Tax CalculatorRowbotham Estate Tax Calculator
Hugh’s on-line calculatorsTimeValue: Extensive calculators and IRS extension forms and Tax, Salary and Compensation CalculatorsFinancial Calclators
 Benefits of an Insurance Trust (ILIT)AFR (applicable federal rates) Archive
Irrevocable Life Insurance Trusts – Lawrence Lipoff, CPA CEBSAvoiding Estate Tax for Farm OwnersInheriting Farmland?
The Succession QuestionCCH Business Owner’s Toolkit ArticleSuccessful Business Transitions
Fiduciary Duty of Trustee to Utilize Alternative Risk Management TechniquesHIPPA Privacy and HealthcareLiving Trusts: Fact or Fiction
Living Trust Offers: How to Make Sure They’re Trust-WorthyNow You Have a Trust Good intro to trust activities, stressing AZ revocable trusts, but it is worth a read.Drafting Irrevocable Life Insurance Trusts
Beneficiaries of Estates and TrustsIRA Planning in EstatesFTC Privacy Legislation
Myth of a Living TrustMel Abraham’s – New Decisions Bring New Life to Family Limited PartnershipsKove & Kosakow, LLC – Several articles on FLPs
UNIFORM LIMITED PARTNERSHIP ACT (2001) NCCUSLEstates Involving the United States and SwitzerlandArticles on Insurance and Trust Planning (especially on the new split dollar rules) from Michael Weinberg JD
Oshins’ Article on Inheritor’s TrustsSteve OshinsUnmarried Couples and Estate Planning ConcernsInformation on a state by state basis for divorce planning
Business Valuation ServicesBusiness Valuations – CPA oversteps experienceShould Annuities Be In IRAs? William Reichenstein
Successful family businesses follow simple guidelines by Brian Van WinkleWhat to do when a bond holder diesNolo Press
Ten Things Your Estate Planner Won’t Tell YouUTMA and UGMA Gifts for Minors 
Tax Secrets of the Wealthy: Relying on an estate planning myth – a sure-fire way to enrich the IRSBusiness Week on IRC 6166 Inheriting a Business Just Got HarderPlanning to Keep the IRS Out of Your Heirs’ Hair
Basics of Estate Taxation with emphasis on IN Inheritance TaxBasics of Estate Taxation IIBasics of Estate Taxation III
Unintended Consequences Of Old WillsWSJ on Charitable Uses of InsuranceWSJ on Director’s Insurance
College CostsTrends in College PricingCompare State §529 Plans
Internet Guide to Section 529 Plans (Qualified State Tuition Programs)College Savings Plans NetworkCollege Aid Resource Centre

Links & Resources

FindLaw Estate Tax, Probate and Legal Search InformationAdam Kirwin’s Links and Legal SearchLegal Website Links and Resources (excellent introduction)
Legal Directory and ResourceSangamon Valley Estate Planning Council 
ACTEC Legal Site “What’s New” (good resource)Michigan ICLE Site on Estate Tax, Probate and Internet ResourcesRBG Certified Public Accountants and Consultants
Tax Analysts – Research ServicesFinancial Planning InteractiveDennis Kennedy’s Estate Planning
Some excellent articles from the HSW Law FirmDuty to Diversify? trust investmentsThe Alaska Dynasty Trust
Dynasty Trusts  
GPO GateThe JuristLaw Library Resource Exchange
Federal Web LocatorRominger’s Legal (Search State by State)Library of Congress on Illinois Laws
Center for Information Law and PolicyWest’s Legal DirectoryLexis-Nexis Research
Katsuey’s Legal GatewayThomas Legislative InformationLegal Research
Lyo’s Work in Progress (Many Types of Law)Cornell University’s Supreme Court OpinionsPrairie Law
Kimes International Law DirectoryFederal Courts FinderFarislaw
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Means To A Better End: A Report On Dying In America Today A seminal look at how people die in AmericaLiving Well At The End Of Life issues affecting end-of-life care.Handbook for Mortals: Guidance for People Facing Serious Illness, by Joanne Lynne and Joan Harrold (Oxford University Press)
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GAO Report on Offshore Trusts, Tax Scams and SchemesCorporation Sole Scam pitching a charity as a tax dodgeSection 508 of the IRC referred to by Corporation Sole promoters
Quatloos – exposing shams and tax scams and frauds IRS Bulletin 2004-71 – New Numbers for 2005
The Morning After: Tax Planning for Lottery WinnersLottery Players and Winners: Estate Planning for the Optimistic and the Lucky.”But for Rotten Luck Some People Would Have No Luck at All – Malpractice in Lotto Winnings
Proactive and holistic planning servicesChoosing a Life Insurance Beneficiary: The ‘Natural’ Choice Is Not Always BestimageEstate Planning for Non-Human Family Members
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Life and Health Insurance Foundation for EducationNational Underwriter’s Publications, Archives and ArticlesReference Tables after EGTRRA 2001


FOR YOUR OWN CRT SCENARIO or try your own at Donor Direct. Please note — there’s much more to estate and charitable planning than simply running software calculations, but it does give you a chance to see how the calculations affect some of the design considerations. This is not “do it yourself brain surgery”. Is a CRUT superior to a CRAT? Which type of CRUT is best used with which assets? Although it may be counter-intuitive, sometimes a lower payout CRUT makes more sense and pays more total income to beneficiaries. Why? When to use a CLUT vs. CLAT and the traps in each lead trust. Which tools work best in which planning scenarios? Check with our office for solutions to this alphabet soup of planned giving tools.

‘Over and over again, the courts have said there is nothing sinister in so arranging one’s affairs as to keep taxes as low as possible. Everybody does so, rich and poor, and all do right, for nobody owes any duty to pay more tax than the law demands. Taxes are enforced exactions, not voluntary contributions.’

Judge Learned Hand


New Estate Tax Schedule

Your Planning Just Got Harder

Economic Growth and Tax Relief Reconciliation Act of 2001

“The Government Keeps Moving the Goal Posts”

Gift Tax Exemption goes to $1,000,000, but no longer linked or “unified” with estate taxEstate and Generation Skipping Tax (GST) rates and scheduled implementation linkedSunset provision may complicate planning
YearExclusionTop Rates
“Sunset” provision kicks in 1/1/2011$1,000,00055%
Final bill (291 pages) HR 1836Plain text (258 pages) HR 1836JCT (15 pages) Summary
No step up in basis for all inherited assets, new and complicated rules will come into place. Within the unlimited marital deduction, any step-up is soon to be limited to $3,000,000 passing from decedent to spouse.Allows a new basis for $1,300,000 of property inherited from the decedent, but no step-down or step up beyond the $1.3 million. NY Times Article June 14 Lawyers and Accountants Expect Windfall From Estate Tax RepealCCH Tax Briefing changes presented to planners with EGTRRA 2001 (HR 1836 is now Public Law 107-16) and a Deloitte & Touche Review and an Aspen Publishing Review and the charitable planning implications from Caplin Drysdale of EGTRRA 2001
State death tax credit will be reduced by 25% in 2002, 50% in 2003, 75% in 2004, repealed in 2005, and replaced instead with a deduction for state death taxes paidThe gift tax is not repealed and is no longer linked to the estate tax. The gift tax exclusion amount will remain at $1,000,000 from 2002 onward.No QFOBI (section 2057) after 2004
IRS Withholding Calculator after EGTRRA 2001Tax Reform Article from the ABA-PTLExtensive Estate Planning, Elder Law & Tax Links
Estate Tax Reform Facts (as presented by this lobbying group)Reforming the Estate TaxEstate Tax and Revenue

VWH W. Henry

Henry & Associates

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Last Updated: May 16, 2006

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Case Studies and Articles

New Estate Tax Tables Under EGTRRA 2001 – Vaughn Henry & Associates

New Estate Tax Tables Under EGTRRA 2001 – Vaughn Henry & Associates


Estate Planning Resources

Estate Tax Information

in 2001

The Taxable EstateFederal Estate Tax
FromToBase Rate PlusTax on the Excess of
$ 0$ 10,00018%$ 0
10,00020,000$ 1,800 + 20%10,000
20,00040,0003,800 + 22%20,000
40,00060,0008,200 + 24%40,000
60,00080,00013,000 + 26%60,000
80,000100,00018,200 + 28%80,000
100,000150,00023,800 + 30%100,000
150,000250,00038,800 + 32%150,000
250,000500,00070,800 + 34%250,000
500,000750,000155,800 + 37%500,000
750,0001,000,000248,300 + 39%750,000
1,000,0001,250,000345,800 + 41%1,000,000
1,250,0001,500,000448,300 + 43%1,250,000
1,500,0002,000,000555,800 + 45%1,500,000
2,000,0002,500,000780,800 + 49%2,000,000
2,500,0003,000,0001,025,800 + 53%2,500,000
3,000,00010,000,0001,290,800 + 55%3,000,000
10,000,00017,184,0005,140,800 + 60%10,000,000
17,184,000On up9,451,200 + 55%17,184,000

About the “Repeal”:  The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA 2001), was signed into law by President Bush on June 7, 2001; it “repeals” the estate tax for one year in 2010.  Given the “sunset provisons” as required under the Byrd Rule, the 2001 federal estate tax rules will be reinstated in 2011, but with just a $1 million exemption equivalent (as originally scheduled under TRA 1997). Some of the more cynical planners have called this new tax law the “Assisted Suicide Act of 2010” when referring to the single year’s true tax relief, although during 2010 the assets inherited lose their “step-up” at death for many families. Consult with your tax and legal advisors to best plan for ways to minimize unnecessary tax and uncertainty.

PhilanthroCalc for the WebCONTACT US FOR A FREE PRELIMINARY CASE STUDY FOR YOUR OWN CRT SCENARIO or try your own at Donor Direct. Please note — there’s much more to estate and charitable planning than simply running software calculations, but it does give you a chance to see how the calculations affect some of the design considerations. This is not “do it yourself brain surgery”. When is a CRUT superior to a CRAT? Which type of CRT is best used with which assets? Although it may be counter-intuitive, sometimes a lower payout CRUT makes more sense and pays more total income to beneficiaries. Why? When to use a CLUT vs. CLAT and the traps in each lead trust. Which tools work best in which planning scenarios? Check with our office for solutions to this alphabet soup of planned giving tools.

VWH W. Henry

Henry & Associates

PhilanthroCalc for the WebCONTACT US FOR A FREE PRELIMINARY CASE STUDY FOR YOUR OWN CRT SCENARIO or try your own at Donor Direct. Please note — there’s more to estate and charitable planning than simply running calculations, but it does give you a chance to see how the calculations affect some of the design considerations. Which tools work best in which planning scenarios? Check with our office for creative solutions.

Case Studies and Articles

Has Estate Tax Repeal Really Changed Anything? – Henry & Associates

Has Estate Tax Repeal Really Changed Anything? – Henry & Associates

The Real World After “Repeal”

Be careful of what you wish for, or it might come true.  For those business owners and farmers who lobbied for estate tax repeal, look at the mess you’ve got now.  Congress, in its infinite wisdom, put into place the latest version of estate tax relief and saddled the taxpayer with an enormous problem.  In general, the new law does raise the amount of property that will be exempt from estate tax and does lower the tax rate.  And if dad is fortunate enough to pass away in 2010, his family’s assets will pass without any estate tax, but there may be a new income tax on inherited assets when the heirs sell them at dad’s tax basis.  The cruel joke is that the tax repeal evaporates on January 1, 2011 and we are magically transported back to the tax laws that currently govern our planning.  Some planners have taken to calling this bill the “Throw Mama from the Train Act of 2001” as they reference the cynical approach that many heirs may fantasize over to avoid taxes.  Even Jane Bryant Quinn noted, “In 2010, ailing parents will keep their bedroom doors locked when their children are in the house.  It’s going to be a great year to die.”  (Newsweek 6/11/2001)

Beside the classic timing problem of death, which should never be influenced by tax savings, this new law may also affect planning by discouraging transfers to surviving spouses, it may negatively affect the use of some charitable trusts and it provides a disincentive to make gifts to family members.

Economic Growth and Tax Relief Reconciliation Act of 2001

What’s this mean to business owners concerned about practical applications?  It means there will be more uncertainty and more expense since any strategy will have to reflect the concerns of either owing no tax or having to plan for the tax being palmed off on the taxpayer by a Congress that leaves the legislation alone or tinkers with it again and reintroduces us to a tax when revenue shortfalls become apparent.  Since the existing tax has been with us since 1916, and there have been inheritance taxes in one form or another going back to the earliest days of the republic, don’t hold your breath expecting real relief any time soon.


New Estate Tax Schedule

Economic Growth and Tax Relief Reconciliation Act of 2001

Gift Tax Exemption goes to $1,000,000, but no longer linked or “unified” with estate tax Estate and Generation Skipping Tax (GST) rates and scheduled implementation linked Sunset provision may complicate planning
Year Exclusion Top Rates
2002 $1,000,000 50%
2003 $1,000,000 49%
2004 $1,500,000 48%
2005 $1,500,000 47%
2006 $2,000,000 46%
2007 $2,000,000 45%
2008 $2,000,000 45%
2009 $3,500,000 45%
2010 N/A Repealed
“Sunset” provision kicks in 1/1/2011 $1,000,000 50%
Final bill (291 pages) HR 1836 Plain text (258 pages) HR 1836 JCT (15 pages) Summary
No step up in basis for all inherited assets, new and complicated rules will come into place. Within the unlimited marital deduction, any step-up is soon to be limited to $3,000,000 passing from decedent to spouse. Allows a new basis for $1,300,000 of property inherited from the decedent, but no step-down or step up beyond the $1.3 million CCH Tax Briefing changes presented to planners with EGTRRA 2001 (HR 1836 is now Public Law 107-16) and a Deloitte & Touche Review and a Aspen Publishing Review of EGTRRA 2001
State death tax credit will be reduced by 25% in 2002, 50% in 2003, 75% in 2004, repealed in 2005, and replaced instead with a deduction for state death taxes paid The gift tax is not repealed and is no longer linked to the estate tax. The gift tax exclusion amount will remain at $1,000,000 from 2002 onward. No QFOBI (section 2057) after 2004

Why does tax simplification complicate things?

The biggest disservice politicians and lobbyists have done is to imply that tax repeal means that planning won’t be necessary, and that’s just plain silly.  Clients are already skittish about planning their estates and any excuse to avoid those hard decisions is welcome as they continue postponing important planning.  It’s understandable that the topic might be unpleasant since it reeks of death or disability and potential family discord. However, a proactive view is what’s needed, if unnecessary income and estate taxes are to be legally avoided.

Work for lawyers and accountants as financial advisers may double or triple.

Without revisions, existing estate plans could cause families to pay taxes unnecessarily because the estate tax repeal was not coordinated with other tax laws, widows may be left with far less than they expected, children and grandchildren may be stuck with huge tax bills that could have been avoided.  Some lawyers predict more litigation over which heirs will receive tax-favored assets, even in families whose members have worked together to build and preserve their wealth.  “They should have called the tax cut the Estate Tax Lawyers Full Employment Act of 2001,” said Jonathan G. Blattmachr, the estate tax expert at Milbank, Tweed, Hadley & McCloy in New York. Other tax lawyers nationwide closely follow the insights of Mr. Blattmachr, who advises many of the wealthiest families in America.

(June 14, 2001 NY Times)

In the course of presenting seminars across the country, one of the principal reasons people attend is to learn how to avoid those feared and hated taxes.  The reality is that few people actually pay a federal estate tax, and with some planning, even fewer would need to worry about them at all.  The problem is that when clients hear the word “repeal”, they assume that well-intentioned politicians have eliminated their need for planning; and that’s far from the truth.  Anyone with a farm, business or significant assets has more to worry about than just taxes, even avoidable ones.  The farm or business owner has to worry about preserving the value of the business, creating a plan of action to address succession, training family or key employees to carry on whether or not death, disability or retirement pops up on the horizon.  Estate planning more properly has to do with maintaining control and providing flexible options, making sure that assets are protected and passed down when, where and how to heirs in an organized fashion all the while limiting the unnecessary expenses.  Don’t let the tax tail wag the dog.

Should your family have a tax-planning problem, these changes will require you to seek more sophisticated assistance.  The old rules and standards may now no longer apply.  For example, it was a given that depleting the estate and shrinking its size was a great planning technique.  Now that the gift tax and the estate tax are no longer linked, it becomes more of a balancing act.  In addition, there are new concerns about advising clients to gift assets from modest sized estates when by retaining them the heirs could inherit with a “step up” in basis, as compared to gifts made at the owner’s tax basis.  Of course, this all depends on whether Congress can be trusted to extend the “repeal” beyond 2010, in which case, no one can plan effectively when the target keeps moving.  This means that any tax planning needs to be reviewed annually and your advisors need to be current because there are a lot of traps for the unwary built into this legislation.  Remember:

  • There will be expenses associated with death.
  • The more money you have, the greater the expenses.
  • The best way to protect from financial uncertainty is to be prepared, organized, liquid and flexible.
  • Wish for good luck, you’ll need it.

A Chronology of EGTRRA 2001 by Professor Robert LeClair


New 10% income tax bracket created; effective January 1, 2001

Tax rates fall by 1% effective July 1, 2001: 27%; 30%; 35%; 38.6%

Child credit increases from $500 to $600

Refund checks of $300 to $600 mailed to taxpayers


Estate tax exemption increases to $1,000,000; top rate = 50%

Education IRA contribution increases to $2,000

Traditional or Roth IRA contribution increases to $3,000

50-plus “Catch-up” IRA contribution is $500

401(k) maximum contribution increases to $11,000

50-plus “Catch-up” 401(k) contribution is $1,000

SIMPLE IRA/401(k) contributions increase to $7,000


Estate tax exemption is $1,000,000; top rate = 49%

50-plus “Catch-up” IRA contribution is $500

401(k) maximum contribution increases to $12,000

50-plus “Catch-up” 401(k) contribution is $2,000

SIMPLE IRA/401(k) contributions increase to $8,000


Estate tax exemption is $1,500,000; top rate = 48%

Tax rates fall by 1%: 26%; 29%; 34%; 37.6%

50-plus “Catch-up” IRA contribution is $500

401(k) maximum contribution increases to $13,000

50-plus “Catch-up” 401(k) contribution is $3,000

SIMPLE IRA/401(k) contributions increase to $9,000


Estate tax exemption is $1,500,000; top rate = 47%

Child credit increases to $700

Traditional or Roth IRA contribution increases to $4,000

50-plus “Catch-up” IRA contribution is $500

401(k) maximum contribution increases to $14,000

50-plus “Catch-up” 401(k) contribution is $4,000

SIMPLE IRA/401(k) contributions increase to $10,000

Married deduction increases to 174% of single deduction


Estate tax exemption is $2,000,000; top rate = 46%

Tax rates fall again: 25%; 28%; 33%; 35%

50-plus “Catch-up” IRA contribution is $1,000

401(k) maximum contribution increases to $15,000

50-plus “Catch-up” 401(k) contribution is $5,000

Married deduction increases to 184% of single deduction


Estate tax exemption is $2,000,000; top rate = 45%

50-plus “Catch-up” IRA contribution is $1,000

Married deduction increases to 187% of single deduction


Estate tax exemption is $2,000,000; top rate = 45%

Traditional or Roth IRA contribution increases to $5,000

50-plus “Catch-up” IRA contribution is $1,000

Married deduction increases to 190% of single deduction


Estate tax exemption is $3,500,000; top rate = 45%

Child credit increases to $800

Married deduction increases to 200% of single deduction


Estate tax is repealed

Child credit increases to $1,000


All of the above provisions are technically considered temporary under the Congressional Budget Act of 1974.  They will expire after December 31, 2010, unless Congress reenacts them

© 2001 – Leimberg — subscribe for newsletters and expert commentary


PhilanthroCalc for the WebCONTACT US FOR A FREE PRELIMINARY CASE STUDY FOR YOUR OWN CRT SCENARIO or try your own at Donor Direct. Please note — there’s more to estate and charitable planning than simply running calculations, but it does give you a chance to see how the calculations affect some of the design considerations. Which tools work best in which planning scenarios? Check with our office for solutions.

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Case Studies and Articles

Who Owns This Donor Anyway? A Presentation to the 14th Annual NCPG Conference by Ashton & Henry

Who Owns This Donor Anyway? A Presentation to the 14th Annual NCPG Conference by Ashton & Henry

Who Owns This Donor Anyway:

Does Fighting Behind the Scenes Doom the Gift?

Vaughn W. Henry and Debra Ashton

A preview of an NCPG Presentation at the 14th National Conference on Planned Giving in Indianapolis, IN

I. Introduction:  Commercial Professionals and Planned Giving Officers are often at odds with each other, leaving the donor caught in the middle. The challenge in today’s estate planning environment is to find ways to put round pegs and round holes together, and match up client/donor needs, advisor skills and demonstrated charitable intent.

Individuals who may be approaching the estate planning or gift planning process from a one-sided perspective generally have self-serving interests that must be balanced in order for the donor to achieve his or her true objectives.

A charity appeals to the emotional needs of the donor, suggesting creative gift-planning strategies that, one hopes, will serve both the charity and the donor. A commercial professional appeals to the pragmatic and practical needs of the client suggesting strategies that achieve tax-related goals, often without the driving force of the emotion that would link these goals to philanthropy.

In all of these dealings, the element of control shifts from the charity to one or more commercial planners, or to other family members, and can create a sense of confusion, lack of clarity, and, ultimately, indecision.

Who owns this donor anyway? Perceptions, lack of communication, and distrust abound between charities and their donors’ advisors, between family members and charities, between donors and charities. Somehow, in the midst of much chaos, philanthropy is alive and well. However, some gifts being proposed and implemented are wrong for the donor. Some gifts that ought to be happening are aborted or languish indefinitely.

This is not to say that donors/clients are free from some of the blame. Reluctant clients might start the planning process with appeals to their tax averse nature, but without being motivated to finish by emotional or values driven needs, the construction of an elegant plan gets stuck on the drawing board. Procrastination abounds for many reasons including lack of knowledge, too much information to process, fear of making errors, and simply the discomfort about dealing with death. So, too, latent donors start a gift planning process with appeals to their emotional nature, but without early involvement by their financial advisors, they find themselves being advised against the charitable plan, much to the chagrin of the charity.

This brainstorming session examines some of the considerations and perceptions affecting the gift planning profession both from the perspective of the charity and from the perspective of the commercial planner. Each side perceives problems or concerns with the other. Many of these are legitimate, on both sides. Nonetheless, the frustrations being felt across the industry cannot be eliminated until the charities and the commercial professionals understand and appreciate the underlying reasons for these frustrations, take responsibility for their own faults, errors, and self-serving interests, and adopt a more comprehensive approach.

Following are a series of opposing viewpoints that we will discuss during this session.

II. Considerations and viewpoints

A. Competency

1. Commercial planners find charity representatives often inexperienced in dealing with sophisticated estate planning techniques. Many planned giving officers have little or no tax experience before taking their position with the charity or are promoted from within the organization from such departments as annual giving or major gifts. Also they too often have little knowledge or understanding of an entrepreneurial business owner’s concerns and the capitalist systems workings.

2. Planned giving officers find commercial professionals often inexperienced in dealing with sophisticated charitable giving vehicles. Many commercial professionals who are advising the charity’s donors are general practitioners who have never specialized in charitable giving tax law, and thus, are ill-equipped to advise their clients properly on planned giving options.

B. Drafting

1. Commercial planners are often asked by their clients for blanket approval of boilerplate documents provided by the charity when these documents may not provide the full range of options available. The boilerplate documents are grossly inadequate to serve the best interests of the client. In addition, the planned giving officer is guilty of the unauthorized practice of law.

2. Planned giving officers, wishing to facilitate the gift process and to help the donor avoid excessive legal expenses, provide to their donors, sample documents that have been approved by both their legal counsel and their fiduciary trustee. In the vast majority of cases, there is no need for the donor to pay his or her own attorney to reinvent the wheel at a very steep hourly rate. The donor’s attorney should be willing to review the charity’s sample documents without feeling put off.

C. Continuity

1. Commercial planners who are committed to helping their clients do the right thing are often frustrated by the fact that planned giving officers stay only a short time at any one charity before moving on for a higher-paying position somewhere else. The lack of continuity and stability among fund raising professionals gives rise to a general distrust of all fund raisers. The constant job changing does a disservice to clients who come to trust the fund raiser as well as doing a disservice to the charity. In addition, planned giving officers often take the hit-and-run approach to donors. After getting the gift, the planned giving officer has little time for stewardship leaving the donor feeling used and abused.

2. Planned giving officers, as a general rule, are extremely committed to their donors and to their institutions. Nonetheless, the structure and culture within a fund raising operation proves limiting in terms of advancement. Once hired in good faith, a planned giving officer is trapped in a noncompetitive environment that rewards its employees with cost-of-living increases at best, provides inadequate budgets to accomplish unreasonable fund raising goals, and changes job responsibilities without notice. Such conditions are not conducive to longevity.

D. Orientation

1. Commercial planners are accustomed to working with clients who have a high net worth, complicated business considerations and multi-faceted concerns while the planned giving officers have never experienced the challenge of running a business or dealing with the economic factors involved in making decisions about significant assets. Commercial planners often find the approach of a fund raiser one dimensional. If there is not a gift, there is no reason to suggest other non-charitable planning strategies to help the potential donor.

2. Planned giving officers spend years working with a donor, involving the donor in the work of the charity, and building a relationship with the donor. Over a long period of time, the donor develops an emotional commitment to assist the charity with a significant gift. Unfortunately, as so often happens, the donor’s advisor, who is critical to the process, cannot believe the donor wants to be charitable, throws up objections to the plan, and eventually kills the gift. Commercial professionals approach a charitable gift as merely a tax-driven solution without considering the emotional benefits the donor seeks. They have little or no commitment to a charitable outcome.

E. Disclosure

1. Commercial professionals are being paid to watch out for their clients’ best interests. That includes presenting the risks, cautions, options, and appropriate disclaimers so as to ensure that the client knows the potential downside of a charitable plan or the options the charity neglected to discuss. Especially important is the fact that these plans are irrevocable. Often, the planned giving representative neglects to present the full picture to the donor or is overly optimistic about what the plan might accomplish. Thus, the commercial planner comes into the picture at the end of the process. Often, the commercial planner is put in a position to mob up after the planned giving officer and, in playing a devil’s advocate role, is perceived as the bad guy. Nonetheless, if the commercial professional approves a plan that has undisclosed consequences to the donor, the commercial professional who is highly regulated is exposed to malpractice or errors and omissions problems.

2. The planned giving officer is interested in providing the best possible plan that serves both the charity and the donor equally well. The charity’s relationship with the donor will continue for the life of the donor, and its best interests will be served when the donors are happy. While tax-related objectives can be achieved with a smart charitable gift, the donor’s primary motivation for the gift is emotional. Planned giving officers would love to involve the donor’s advisor(s) in the early stages of the process, but are frequently prevented from doing so because the donor does not want to incur legal expenses, the donor does not have an attorney experienced with charitable tax planning, or simply does not want the charity to know the full extent of his or her asset ownership.

F. Design

1. Commercial professionals prefer to give their clients as many options as possible. Donors change their minds about charitable plans for many reasons. For example, a donor may lose interest or become disenchanted with the charity’s mission or practices. The donor’s philanthropic interests may expand or mature over time. A charity might merge with another. Or, the donor may lose respect for charity representatives including fund raising staff, trustees, or the charity’s president or executive director. This is why it is always appropriate to reserve the right to change the charity when the gift method allows such flexibility. While the charitable gift transfer can be irrevocable, the charitable beneficiary need not be and should not be.

2. Planned giving officers frequently are working within the context of a capital campaign. Donors who have become involved and interested in the charity’s work appropriately wish to participate in the campaign. In this common context, the donor’s desire to be listed with other major benefactors requires an irrevocable gift to the charity. Otherwise, there can be no gift credit for the creation of a charitable plan. Within this context, if the donor reserves the right to change the charitable beneficiary, he or she cannot be deemed to have participated in the campaign. And, from the fund raiser’s perspective, there is no gift and the life blood and job security of the fund raiser is lost.

G. Conflict of Interest

1. Commercial professionals consider fund raisers to be extremely opportunistic. Fund raisers have quotas and goals to meet; therefore, they pressure donors to make gifts that may not be in the best interests of the donor or the donor’s family. Their entire approach is manipulative and they prey on people, especially on older individuals who are vulnerable to the lure of special attention, visits, or charity perks. Planned giving officers are simply interested in meeting a quota, regardless of how they achieve it.

2. Planned giving officers frequently are approached by donors to evaluate massive financial packets involving product-driven solutions provided by commercial professionals. The financial illustrations prepared by advisors are intimidating to donors who cannot possibly understand the breadth and meaning of what is being shown. There is usually a formula approach involving the purchase of life insurance, even when there is clearly no need for the purchase of this asset. When a financial professional depends solely on commissions, he or she proposes the kinds of plans and management options that provide commissions, management fees, or other bonus compensation. These commercial planners prey on vulnerable people, especially older people and widows who have no way of evaluating properly the unnecessarily complex plans being proposed.

III. Talking Points

A. Is it ever appropriate for a Planned Giving Officer to present a proposal without considering the donor’s complete financial plan?

B. What do Planned Giving Officers need to do to get a place at the table?

C. Under what conditions would a Commercial Planner recommend a gift that removes assets under management or that provides no billable hours?

D. What should a Planned Giving Officer do differently to gain greater trust from the Commercial Planner?

E. What can a Commercial Planner do to be more effective at approaching a fund raiser for referrals?

F. Under what conditions is it appropriate for a Planned Giving Officer to provide sample documents?

G. What does the client have to do to prove to the Commercial Planner that he or she has legitimate charitable interests?

H. How can a Planned Giving Officer avoid unauthorized practice of law when the position involves extremely complex areas of estate planning?

I. What should the Planned Giving Officer do when the donor does not want to pay for his own legal fees to get the charity’s proposal reviewed?

J. What do Commercial Planners recommend to young or inexperienced Planned Giving Officers so that the PGO’s will have credibility?

K. Is there a conflict of interest if the charity provides legal services?

Case Studies and Articles

Charitable Trusts After EGTRRA 2001

Charitable Trusts After EGTRRA 2001


Charitable Trusts After “EGTRRA 2001”

For the truly charitable client, nothing has changed, except there is a potential problem with some older estate plans that called for charitable bequests based on whatever was in excess of the decedent’s applicable exclusion amount. Of course, the same problem exists for surviving spouses who depend on marital trusts being properly funded after the largest amount possible passes to the family trust. In light of the increasing exemptions, some estates might find assets originally targeted as bequests being passed to non-charitable beneficiaries under language of an outdated will or trust. The old rule of wealth was to pick your parents wisely. However, under EGTRRA 2001, a new rule may evolve — time those deaths carefully. In the “best of all worlds”, schedule death between January 1st and December 31st of 2010. Why? The estate tax disappears for that one year and then reverts to the pre-2001 rules. Cynicism aside, this is a terrible way to plan for business continuity as uncertainty makes succession that much harder. Clients are going to find they need two plans, one to address a reintroduced tax and one for no tax. That complicates planning and increases costs. For those interested in controlling social capital, the use of charitable planning tools may offer some certainty. While non-grantor, non-reversionary charitable lead trusts might be less attractive to the “number crunchers” under the new laws, remainder trusts will see further use, especially since heirs may be inheriting assets that won’t step up in basis.

The classic use of a §664 charitable remainder unitrust (CRUT) still remains a tax advantaged planning strategy for families with closely held firms. While S Corporations may have their stock transferred outright to a charity and not lose the S election, it’s not an option for use in a remainder trust, so the C Corporation stock redemption is the only way to go with a CRT strategy.

Why use a CRUT? It allows for ongoing contributions of stock to continue limiting the estate size, while a CRAT offers only a one time contribution. Besides providing an immediate income tax deduction, it also reduces the size of the trustmaker’s taxable estate and funds the donor’s retirement income, all without triggering capital gains taxes when the stock is transferred.

The Problem

George Ross (67) is a typical owner, a self-acknowledged control freak; he plows everything back into the business and defers taking salary and benefits. He’s the kind of owner that follows his employees around turning off light switches to save on electricity and his whole life has been wrapped up in his business. With all of his estate tied up in illiquid company assets, he approaches retirement with a potential retained earnings problem (§531), a limited pension plan and heirs working their way up the management ladder as minority owners. If George depends solely on a buy-sell agreement funded with life insurance, his heirs (who may then develop their own estate tax problems) won’t get the business until he passes on and the insurance self-funds the stock redemption at death. However, the inflated value of the business is included is the estate, subject to tax. If George sells the business to his children, he stands to lose a significant portion of the proceeds to capital gains liabilities. If he tries to have the corporation redeem his stock without using the CRT option, then he may run afoul of the partial redemption rules (§317, §318, §302).

The Solution

As long as all the stockholders have the same offer to redeem shares at fair market value (Palmer v. Commissioner, 62 T.C. 684 – 1974), the (§4941) self-dealing restrictions won’t apply to the CRT. Once cash redeems George’s stock from the corporation (in some states a note works too) his stock is retired and the remaining stockholders will see their prorated ownership change. Properly done, the heirs will wind up as majority owners and dad’s remaining shares may qualify for additional contributions to his CRUT or be valued at a discount in his estate because of his minority position.

Hypothetical evaluations are provided as a professional courtesy to members of the estate planning community. Call for suggestions or seminar schedules on upcoming workshops for professional advisors, nonprofit development officers and charitable boards.



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