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H. Grace Kim and Aen W. Webster practice with Buchanan Ingersoll PC in Washington, D.C. Howard M. Zaritsky is a retired estate planning and administration attorney.
A Practical Guide to Buy-Sell Agreements
By Stephen R. Akers and Myron E. Sildon
ALI-ABA (Philadelphia, Pa., 2002, hardbound, 352 pp.), $99.
Reviewed by H. Grace Kim
In A Practical Guide to Buy-Sell Agreements, a work co-sponsored by ALI-ABA and the ABA Sections of Taxation and Real Property Probate and Trust Law, Stephen R. Akers and Myron E. Sildon provide comprehensive coverage of buy-sell agreements, including planning techniques for the family business, the different kinds of buy-sell agreements, transfer restrictions, valuation, funding, and payment methods. The comprehensive coverage includes (but is not limited to) discussions of corporate, commercial, partnership, limited liability company, and tax law; ethical considerations; and practical points. For example, the authors devote a significant portion of the book to special tax considerations that may arise in the context of buy-sell agreements, such as the application of Section 83, concerning property transferred in connection with the performance of services; S corporation provisions involving shareholder eligibility, computation of pass- through amounts, the effects of life insurance received by an S corporation, and maintaining one class of stock; the rules concerning split dollar life insurance (a moving target); corporate dividend versus exchange treatment; and estate tax provisions, such as the valuation provisions under Section 2703(a). Especially helpful are the “Practical Pointers” found throughout the book. Finally, the last chapter consists of sample provisions for buy-sell agreements and certain related documents.
Because the authors focus on providing comprehensive coverage, in-depth analysis is not a feature of this work. Rather, each discussion proceeds in a matter-of-fact fashion, and every chapter is packed with practical information, just as the book’s title promises. Nonetheless, the book satisfies those who crave in-depth discussion, via footnote references to excellent articles and treatises.
At the end of the first chapter of the book, the authors state that motivating business owners to start the business succession planning process can be very difficult. They add: “The most important element of all of the steps in the business succession planning process is to act.” With a guide such as this, the business succession planning process should be much facilitated.
Fiduciary Accounting and Trust Administration Guide
By David M. English and Robert Whitman
ALI/ABA (Philadelphia, Pa., 2002, softbound, 424 pp.), $89.
Reviewed by Aen W. Webster
“Show money in, money out—and be sure to track income and principal separately.” All too often that is the extent of the guidance for trusts and estates professionals in the art and science of preparing court and in-house accountings. Although these accounts are relied on for many purposes beyond the obvious need to meet local court requirements, many practitioners learn as they go: from a form, or from a helpful Register’s office, or even from a software program. Fiduciary Accounting and Trust Administration Guide goes a long way to fill the gaps that can be created from such a haphazard education and provides a much-needed addition to the professional literature.
Enlarging upon the 1984 ALI-ABA Fiduciary Accounting Guide by Robert Whitman, Norman H. Brown, and Lawrence J. Kramer, from which its first eight chapters are derived, this new book by Robert Whitman and David M. English combines practical guidance and lucid explanations of the underpinnings of fiduciary accounting and fiduciary relations generally, with helpful information regarding the broader concerns at work in trust and estate administration. Readers seeking help with guardianship and conservatorship (or committee) accountings will be glad to know that these estates are included.
Even though both authors are professors, they have provided a hands-on manual that should be of great benefit in practice. With special attention to principal and income rules, the Uniform Trust Act, and prudent investor rules (including modern investment theory), the authors do a superb job of setting the stage. This is a useful introduction as well as a road map to conduct the business of trusts and estates, from inception through distributions and closing. Chapters on audit are particularly helpful.
The helpful appendices include a model account for each of an executor and trustee and a survey of available software.
The authors are attentive to the important threads of fiduciary relations and professional ethics that run throughout the life of a trust or estate and include a chapter on dealing with third parties. But the reader seeking help with the arcane or sophisticated problems that can arise in practice or in the zones where two or more regimes of rules collide will have to wait for future volumes.
A Practical Guide to Drafting Irrevocable Life Insurance Trusts
By Sebastian V. Grassi Jr.
ALI-ABA (Philadelphia, Pa., 2003, hardbound, 390 pp.), $139.
Reviewed by Howard M. Zaritsky
Sebastian V. Grassi Jr.’s new volume, A Practical Guide to Drafting Irrevocable Life Insurance Trusts, offers practitioners a fine comprehensive discussion of the advantages, disadvantages, and strategies behind the irrevocable life insurance trust.
Irrevocable life insurance trusts have long been one of the fundamental estate planning tools, supplying much-needed liquidity to pay estate taxes and provide for the insured’s family. This importance has not been diminished by recent changes in the estate tax law. As Mr. Grassi notes, “the uncertainty surrounding the permanency of the repeal of federal estate taxes and generation-skipping transfer (GST) taxes . . . underscores . . . the need for clients with estates greater than $1 million to consider the use of an ILIT as a means of holding life insurance and removing it from inclusion in their gross estate.”
A Practical Guide to Drafting Irrevocable Life Insurance Trusts addresses this subject with excellent detail and thoroughness. Various chapters examine the income, gift, estate, and GST tax problems that these trusts can face. Of special interest, in this regard, are especially fine discussions of:
• the grantor trust status of irrevocable life insurance trusts and the implication of this status on the income tax treatment of life insurance proceeds paid to such trusts, in light of the transfer-for-value rule (Section 101(a)(2));
• the valuation of life insurance policies for gift tax purposes, and the often-overlooked impact of the health of the insured and the age of the policy;
• the tax treatment of Crummey powers, including the difficult ancillary income, gift, and estate tax problems that these annual exclusion provisions can create; and
• how and when GST exemption should be allocated to a transfer to an irrevocable life insurance trust, with a good discussion of how the new GST tax rules adopted as part of the 2001 Tax Act complicate this decision.
A Practical Guide to Drafting Irrevocable Life Insurance Trusts also includes a perceptive discussion of both the tax and nontax benefits of irrevocable life insurance trusts. This discussion addresses both the tax advantages, which are often well-understood by practitioners, as well as such nontax issues as how the irrevocable life insurance trust can be used to provide important incentives for beneficiaries and how the assets of an irrevocable life insurance trust can be best insulated from the claims of the beneficiaries’ creditors and spouses. Mr. Grassi clearly understands that the growth of the estate tax exemption and the possibility of the ultimate repeal of the estate tax make these nontax issues especially important in a modern estate planning practice.
The inclusion of extensive checklists and sample documents is one of the finest features of this treatise. These, alone, would justify adding it to one’s library. Particularly admirable is the thorough planning checklist (Chapter 9), which addresses in detail the key issues that must always be considered in drafting an irrevocable life insurance trust. This checklist includes a number of points that can sometimes be overlooked, such as reminders on how to avoid creating reciprocal irrevocable life insurance trusts, reciprocal Crummey powers, or even reciprocal powers of appointment, the breadth of powers that one should grant the trustee, and the special issues raised by second-to-die life insurance policies.
The administration checklist (Chapter 11) may actually be more important than the drafting checklist, however. The IRS has lately attacked many estate planning techniques by challenging how they have been administered, rather than how they were drafted. The IRS seems not to have started challenging irrevocable life insurance trusts on this basis yet, but Mr. Grassi wisely focuses on this issue and provides a checklist to help avoid future difficulties in the administration of these trusts.
Those who think that they already know all there is to know about irrevocable life insurance trusts should read Chapter 13 of A Practical Guide, regarding advanced techniques with these trusts. Few practitioners have carefully considered the interaction of the use of these trusts together with qualified personal residence trusts, grantor retained annuity trusts, or beneficiary-controlled trusts. Even fewer practitioners have considered the impact of funding irrevocable life insurance trusts with tax-deferred annuities, municipal bonds, individual retirement accounts, or charitable remainder trusts. Mr. Grassi provides a good discussion of these issues.
The book includes several sample forms for both irrevocable life insurance trusts and a memorandum to the client explaining the trust, the reasons for the trust, and the client’s responsibilities in the administration of the trust. The book also includes several sample forms of GST Exemption Allocation Notices, which a grantor may need to attach to gift tax returns to allocate GST exemption to transfers to the trust. The samples even include an election out of the automatic allocation of GST exemption, and an election to have an irrevocable life insurance trust treated as a GST trust, so that the automatic allocation rules will apply. All of these forms are well-drafted and thought out, as one would expect from the rest of the text.
The book is accompanied by a complete version on a CD-ROM. This is particularly useful, because numerous “Practice Points” are linked to the sample forms.
A Practical Guide to Drafting Irrevocable Life Insurance Trusts is not the only book on the use of irrevocable life insurance trusts in estate planning, but it should be a welcome and useful addition to the library of any serious estate planning practitioner.
To encourage readers to write articles for the magazine and to assist Section committees in planning their publication projects, Probate & Property has adopted the following editorial theme calendar. Each issue will include one or two property articles and one or two probate and trust articles related to the issue’s themes. Other articles of general interest will also be included.
Publication deadlines require that articles editors receive article drafts several months before publication. The magazine’s memorandum for authors gives more details on the format, length, and style of the articles. The memorandum may be obtained by contacting the managing editor or at www.abanet.org/rppt/memorandum.html.
Readers are invited to submit articles for consideration, both on the listed themes and on other topics.
Real Estate Financing
Charitable Planning/Nonprofit Organizations
Article submission deadline: May 3, 2004
Land Use/Growth Management
Sophisticated Planning Techniques
Article submission deadline: July 1, 2004
Leasing and Property Management
Basic Estate Planning
Article submission deadline: September 1, 2004
Exotic Real Estate and Affordable Housing
Estate and Trust Administration
Article submission deadline: November 1, 2004
Employee Benefits and Retirement Benefits Planning
Article submission deadline: January 3, 2005
Article submission deadline: March 1, 2005
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