RPPT Bulletin

February 2006

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Please send your comments about this issue to: rppt-comments@mail.abanet.org

The RPPT Bulletin is emailed out on a bi-monthly basis to all Section members to keep you up-to-date on the activities of the Section.


Special Focus:
Real Property Practice Management Group:

The Real Property Division's Practice Management Group is comprised of four committees which focus primarily on issues related to the business of the real estate practice. These committees are among the most active in the Section, providing CLE programs for every Section symposium. The upcoming San Diego meeting is a case in point. The Law Office Economics, Technology and Practice Methods Committee will present a program on disaster planning, something every law practice needs to be aware of and, since Katrina, a particularly hot button for lawyers. The Pro Bono Committee will present a program on predatory lending and issues lawyers need to know, both to properly advise their clients and to protect themselves. And, as at all section CLE programs, the Group will present a series of topics of interest to every practice, this time a discussion of technology issues which can trip up your practice and challenge your understanding of how to deal with ethical issues which are more prominent when viewed through the technology prism. As important as these CLE programs are, the Pro Bono Committee also continues to pursue its on-going (now 5 years and still strong) program of providing legal assistance to Habitat for Humanity affiliates in all 50 states, through a subcommittee of almost 250 section lawyers. Finally, our Committees regularly provide articles for E-DIRT, the Real Property Division's on-line publication, and provide our section members with advice on a wide variety of technology issues of practical use in their day-to-day practices.

The Committees in our Practice Management Group would welcome your participation in any of our projects. If you are interested in getting involved, please visit our web pages. You can reach any of our four Committees through the Group page, at http://www.abanet.org/rppt/cmtes/rp/b_group/home.html. There you will find links to each committee, along with email links to each Committee’s chair and vice-chair. Considering the focus of this Group, you will certainly find something on our webpage of interest to you and of value to your practice.


Practice Alert:
Twenty-Five States Now Have Rules Permitting Multijurisdictional Practice ("MJP"):

 As of October 4, 2005, twenty-five states have adopted rules that are identical or very similar to ABA Model Rule 5.5, which permits lawyers licensed in other jurisdictions to practice law on a temporary basis in the state (Arizona, Arkansas, California, Colorado, Delaware, Florida, Georgia, Idaho, Indiana, Iowa, Louisiana, Maryland, Minnesota, Missouri, Nebraska, Nevada, New Jersey, New Mexico, North Carolina, North Dakota, Oregon, Pennsylvania, South Carolina, South Dakota, and Utah). The bar associations in six other states have recommendations before their states' highest courts to adopt rules that are identical or similar to Model Rule 5.5 ( Illinois, Michigan, Montana, New Hampshire, New York and Washington). Four other jurisdictions' MJP Study Committees have recommended adoption of rules identical or similar to Model Rule 5.5 (District of Columbia, Ohio, Vermont, Wisconsin and Wyoming), but the Connecticut Bar rejected such a proposal by the Connecticut MJP Study Committee and the Oklahoma Bar formed a Task Force which took no action. All the remaining states have created committees to study the ABA's proposed model rules. For a more detailed analysis of the states' implementation of Model Rule 5.5, and the related proposals on choice of law for disciplinary authority, pro hoc vice admissions, admission by motion, foreign legal consultants and temporary practice by foreign lawyers, please see http://www.abanet.org/cpr/jclr/5_5_quick_guide.pdf.


  Section Establishes a Task Force on the American Indian Probate Reform Act:

 The American Indian Probate Reform Act (the "Act") becomes effective June 20, 2006, and implicates estate planning for property owned by American Indians. The Act restricts passage of trust and restricted lands and personal propertyheld in IIM accounts. It also encourages the Tribal Governments to develop probate codes.

 The Section's Task Force on the American Indian Probate Reform Act will prepare informational material regarding the Act. Because the Bureau of Indian Affairs no longer assists in the preparation of wills for clients owning trust and restricted lands and IIM accounts, estate planning lawyers will need to step in and fill this void. The Act allows for the possibility of purchase of trust and restricted lands, as well as for the devise of such lands. The Task Force will focus on the development of material to assist in the negotiation and preparation of the purchase of trust and restricted lands, and in the preparation of estate planning documents for clients owning an interest in trust and restricted lands and IIM accounts.


Ethics Update:
Pennsylvania Becomes Fifth State to Require a Lawyer to Tell Clients if the Lawyer does not Have Malpractice Insurance:

 On December 30, 2005 the Pennsylvania Supreme Court adopted a rule requiring a lawyer who does not carry a minimum level of malpractice insurance (at least $100,000 per occurrence and $300,000 total coverage with a "commercially reasonable deductible") to reveal that to the lawyer's clients. According to a survey compiled by the ABA's Standing Committee on Client Protection, five states now have amended their ethics rules to require a lawyer to disclose directly to the lawyer's clients whether the lawyer maintains a minimum level of malpractice coverage (Alaska, New Hampshire, Ohio, Pennsylvania and South Dakota), and the Utah State Bar Commission is considering asking that state's supreme court to adopt such a rule. Oregon remains the only state that requires a lawyer to carry malpractice insurance. Eleven other states require a lawyer to reveal whether the lawyer maintains professional liability insurance in the lawyer's annual bar registration statement ( Arizona, Delaware, Illinois, Kansas, Michigan, Nebraska, Nevada, New Mexico, North Carolina, Virginia, and West Virginia). The Committee's survey indicates that at least six other states currently are considering whether to adopt a rule on insurance disclosure ( Arkansas, California, Kentucky, Massachusetts, Minnesota, and Washington). The ABA's list of jurisdictions with insurance disclosure rules is available at http://www.abanet.org/cpr/clientpro/malprac_disc_chart.pdf.


Section Comments on Revenue Procedure 2005-24 Persuade IRS to Indefinitely Suspend It:

 On February 3, 2006, (as this notice went to press), the IRS issued Notice 2006-15, which extended the grandfather date in Revenue Procedure 2005-24 until further notice, effectively withdrawing the Rev. Proc. The Service cited the claims by commentators, among whom RPPT and ACTEC members undoubtedly figured prominently, that it imposed an unjustifiable burden on the creation of charitable remainder trusts. It stated that they are "reconsidering the approach" of the Rev. Proc. and reconsidering adding "alternative safe harbor rules." Below is a description of the original Rev. Proc. and the RPPT Section comments on it.

Rev. Proc. 2005-24, issued on April 18, 2005, attempts to address a problem perceived by the Treasury with the intersection of the charitable deduction provided under §§170 and 2522 and a spouse's right of election under local law. Treasury believes potential spousal rights of election against otherwise valid charitable remainder annuity trusts or unitrusts (collectively, "CRTs") could divert assets for non-charitable purposes and therefore invalidate CRTs long after the grantors obtained tax deductions as well as favorable tax treatment for income earned by the CRTs.

The Rev. Proc., requires that any CRT created after June 28, 2005, must fit within a safe harbor described in the Rev. Proc. The safe harbor requires the grantor to obtain an irrevocable valid waiver from his or her spouse of "the right of election to whatever extent necessary to ensure that no part of the trust (other than the annuity or unitrust interest of which [the spouse] is the named recipient under the terms of the trust) may be used to satisfy the elective share." The waiver must be obtained at least 6 months after the due date of the Split-Interest Trust Information Return (Form 5227) for the year in which an election right becomes possibly relevant by 1) the creation of the trust, 2) the marriage of the grantor, 3) the date the grantor first becomes domiciled or resident in a jurisdiction whose law provides a right of election that could be satisfied from assets of the trust, or 4) the effective date of applicable state law creating a right of election. Any CRT that fails to meet the requirements of this safe harbor will fail to qualify as a CRT.

On January 6, 2006, the Real Property, Probate and Trust Law Section, submitted comments recommending the withdrawal of the Revenue Procedure, or alternatively, that an additional safe harbor be created for CRTs containing certain self-dealing notice provisions. The original letter can be accessed here: http://www.abanet.org/rppt/section_info/2005-24comments.pdf.

In its comments, the Section noted that there are other ways in which CRT assets could be diverted under state law for non-charitable purposes (such as to satisfy creditor claims), that the IRS analysis could be applied so that no CRTs are valid because of potential future claims and that the analysis is inconsistent with the law regarding charitable contributions subject to contingencies "so remote as to be negligible". The Section also pointed out that obtaining a valid waiver was unduly burdensome on grantors and trustees (if not impossible because of the uncertainty of what constitutes a valid waiver), the perceived threat was remote or nonexistent, the rules prohibiting self-dealing with private foundations already prevent a spouse from exercising the right of election, and, perhaps most ironically, that the Rev. Proc. does not address the impact of a future disqualification, and that it is possible that the grantor could be in a better position because the otherwise tiered gains could be trapped within the trust.

If the Service maintains the position set forth in the Rev. Proc., then CRTs might be valid when formed, generating a proper deduction, as well as a shield against taxation of the unrealized appreciation of contributed assets. If the CRT sells those assets and reports the gain on its return, the Statute of Limitations will begin to run on both the deduction and the capital gains. Since the Rev. Proc. cannot affect the Statute of Limitations, the Service has no remedy. While the CRT continues to make annual payments to the grantor, if events then transpire such that a waiver is required under the Rev. Proc. (the grantor establishes domicile in a jurisdiction that permits spousal election) and a waiver is not obtained, then the trust is no longer a valid CRT. The capital gains will be trapped within the CRT and the sole victims would be the charity and the Treasury, because the trust will be forced to pay income taxes to the detriment of the remainder and the Treasury has lost the opportunity to collect a tax. Moreover, if the grantor then dies, the Rev. Proc. provides the spouse with fodder for the argument that the CRT is not valid and therefore not a private foundation. The spouse can then elect against this trust free of the 205% penalty that would otherwise apply to an act of self-dealing with a private foundation.

The Section asked the Service to consider creating an alternate safe harbor. This alternate safe harbor would require the trustees of a CRT to inform any spouse of the CRT's creator who attempts to exercise a right of election against the CRT's property of the position of the Service that any payments from the CRT in satisfaction of such exercise would be subject to §4941 penalties on self-dealing and to give the Service notice before making a distribution to a disqualified person from a CRT.



 All teleconferences run from 1:00 PM to 2:30 PM Eastern Time

  • Real Property
    March 21 - A Survival Guide to Construction Projects
  • Estate Planning
    March 23
    - Estate Planning Tips & Traps after the Bankruptcy Abuse and Consumer Protection Act (BACPA)

For more information on upcoming Teleconferences, please visit www.abanet.org/rppt

Upcoming Meetings:

  •   Women in Law Leadership Academy

March 30-31, 2006
Chicago, IL

RPPT is a sponsor of this meeting. The program features keynote speakers:
Gloria Santona - Executive VP, General Counsel and Secretary of McDonald’s Corporation
Mary Cranston - Chair, Pillsbury Winthrop
For more information please visit, www.abanet.org/women/leadershipacademy.html


  • 17th Annual Spring Symposia

May 3-5, 2006

San Diego, CA

Please register online at www.abanet.org/rppt/2006