RPPT Bulletin, December 2003
The RPPT Bulletin is emailed out on a bi-monthly basis to all Section members to keep members up-to-date on the activities of the Section.
FINAL SPLIT-DOLLAR REGULATIONS ISSUED
After receiving joint comments (apparently the first time that has occurred) from RPPT and Taxation Sections regarding Notice 2002-8 and the Proposed Regulations that followed, the IRS issued final Regulations governing split-dollar arrangements entered into after September 17, 2003. With some modification and amplification that responded to the second set of comments from the two Sections, the tax treatment of these arrangements will hereafter be determined by the ownership of the policy. This is a complete reversal of prior law, which disregarded the ownership of the policy and treated identically both collateral split-dollar (in which the employee or donee owned the policy) and endorsement split-dollar (in which the employer or the donor owned the policy) plans. In both instances, the amount of compensation or gift was measured by the economic benefit deemed provided to the employee or donee, measured by the term cost of the life insurance coverage for the year in question.
Under the new regime imposed by the Regulations, if the owner is the employee or donee, I.R.C. § 7872 (dealing with below-market loans) will control the relationship. The employee or donee will receive a benefit measured by the current cost of the foregone interest. If, on the other hand, the employer or donor owns the policy, the old economic benefit regime will apply and the term cost will be the measure of the benefit. The person named as the policy owner generally is considered the owner of the contract, with some exceptions. One exception is the IRS' favorable response to the Section comments to Notice 2002-8. Thus, even if the employee or donee is listed as the owner on the policy, if the employee's benefit is limited to only annual death benefit coverage (the entire cash value is pledged to the employer), the employer is deemed the owner. In other words, this deemed ownership rule provides an election for the parties. They can treat the arrangement as debt controlled by §7872, or they can elect to treat the arrangement under the economic benefit regime. Parties should consider which method provides better results and for how long.
As noted, the new Regulations apply to arrangements entered into September 18, 2003, and thereafter. It also will apply to older arrangements preceding the effective date if there has been a material modification of the arrangement after September 17, 2003.
Existing split-dollar arrangements-whether collateral split-dollar or endorsement-will continue to be taxed under the economic benefit doctrine, unless the parties terminate the agreement by December 31, 2003, or elect to be taxed as a below-market interest loan in the case of a collateral split-dollar. The amount to be considered as the transmitted economic benefit to the employee or donee typically will be the term cost of the life insurance protection.
Further information can be found in the Split-Dollar/Estate Planning Package (TO3SDEA), available at www.abanet.org/cle/catalog .
UPDATE ON STATE ADOPTION OF MJP REFORMS
The ABA's revision of Model Rule 5.5 on multi-jurisdictional practice, and the related amendments to Model Rule 8.5 on disciplinary authority in cases involving cross-border practice, have now been adopted in form identical to or substantially similar to the 2002 model rule revisions in the highest courts of six states: Colorado, Delaware, Nevada, New Jersey, North Carolina and South Dakota. Recommendations to adopt the model rule revisions in form identical or substantially similar to the 2002 model rule revisions are pending in the highest courts of 12 states: California, Georgia, Illinois, Indiana, Louisiana, Minnesota, Montana, New York, North Dakota, Oregon, Pennsylvania and South Carolina. MJP Study Committees in five other states have recommended adoption of rules identical or similar to the 2002 model rules (Arizona, Connecticut, Florida, Maryland and Michigan). Twenty-seven (27) other jurisdictions have created study committees to consider the 2002 model rule revisions.
Many of the States, however, have not yet considered or adopted the proposed ABA Model Rule for Temporary Practices by Foreign Lawyers. Help is needed to advocate adoption of the 2002 model rules revisions, including those that would permit temporary practice by foreign attorneys. An MJP Advocacy Association has been formed for this purpose; the web site is www.multijurisdictionpractice.org . For a complete description of the status of state action on the Model Rules (including links to specific State statutes), please visit www.abanet.org/cpr/jclr/jclr_home.html .
UNAUTHORIZED PRACTICE OF LAW: Georgia Supreme Court Rules That Only Licensed Georgia Lawyers May Close A Real Estate Transaction
In an opinion issued November 10, 2003, the Georgia Supreme Court rejected arguments from the U.S. Department of Justice, the Federal Trade Commission and national trade organizations and ruled that it is the unauthorized practice of law for someone other than a duly-licensed Georgia attorney to close a real estate transaction or to prepare or facilitate the execution of a deed for the benefit of a seller, borrower or lender. The Georgia ruling parallels similar holdings of the South Carolina high court and a lower court in Massachusetts. The Kentucky Supreme Court, however, recently found that a closing conducted by a layperson was not the unauthorized practice of law. Section members Roger Winston , Sidney Saltz , Alan Rothschild and Kathleen Martin are monitoring unauthorized practice of law ("UPL") developments. For reports, statutes and case law concerning developments in the UPL arena, please visit www.abanet.org/rppt/upl
CHANGE IN ANNUAL MEETING FORMAT: SHIFT TO FALL CLE MEETING
To ensure greater availability of real estate, probate and estate planning programs, the Section is shifting CLE programs from the Annual Meeting to a stand-alone CLE meeting in the fall of each year. In 2004, this meeting will be held September 30-October 2 in Boston, Massachusetts. A full compliment of CLE programs, similar in scope to that available at our Section's Spring CLE Meeting, will be available at the Fall CLE meeting. Additionally, because the Section is collaborating with the Tax Section of the ABA in planning the meeting, our Section members will be able to attend all of the Tax Section CLE programming as well. So…..think BOSTON! And, by the way, if you would like to combine your CLE credit with a fall foliage tour, be certain to book early for your New England stay.
2004 SPRING CLE MEETING AND SYMPOSIA
Mark your calendars for the Spring Symposia that will be held at the Hyatt Regency in Seattle, May 12-14, 2004. Both the real estate and probate and trust divisions have prepared a dynamic lineup of exclusive CLE programs. Watch for online program brochures on the Section's web site in January.
REAL PROPERTY UNIFORM LAWS COMMITTEE (A-5)
Under the leadership of Michael Buseck and Neal Kling , the Real Property Division Uniform Laws Committee (A-5) monitors the status of uniform acts under consideration by the National Conference of Commissioners on Uniform State Laws ("NCCUSL") that are of interest to real property attorneys. For a list of such acts, and useful links to other relevant web sites, please visit the Committee's web page at www.abanet.org/rppt/cmtes/rp/a5/home.html .
BIOETHICS AND MOLD SYMPOSIA PLANNED FOR NOVEMBER 11, 2004
The Probate and Trust Division, under the leadership of David English and Becky Morgan , is planning a Symposium in Bioethics to be held on November 11, 2004, to examine legislative and case law developments in the right-to-die arena, ethical issues associated with medical advances in reproductive technology and organ donation initiatives. Watch the Section's web site for more information about the Symposium, and visit the Bioethics Committee's web page, www.abanet.org/rppt/cmtes/pt/e4/home.html , for more information on these and similar issues.
Additionally, the Real Property Division is planning a special continuing legal education program on real estate-related mold and mildew issues that will be held on the same day. The program will address the legal and scientific developments in this area, with a segment devoted to mold and mildew issues peculiar to common interest communities. More information on the program will be posted on the Section's web site. Visit the Environmental Committee's web site, www.abanet.org/rppt/cmtes/rp/c4/home.html , for an extensive list of resources and information about particular contaminants, government programs concerning the same, past CLE programs sponsored by the committee and a categorized list of links relating to environmental and land use law.
SECTION PRO BONO ACTIVITIES
Please visit the Pro Bono (B-4) Committee web page, www.abanet.org/rppt/cmtes/rp/b4/home.html , to learn more about the Committee's Habitat for Humanity Project, new Predatory Lending Program and PATH Project. To join the Pro Bono Committee, or to assist with any of these fantastic programs, please contact Carol Ann Martinelli at email@example.com .
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