Author’s Note: While medical practices generally are not considered to have goodwill, a dental practice can be distinguished and may have goodwill.

© 2010 Parsonage Vandenack Williams LLC

  For more information, contact info@pvwlaw.com

 The value of all property that is subject to a general power of appointment exercisable by the decedent will be included in the decedent’s estate pursuant to § 2041.  A general power of appointment means a power that is exercisable in favor of the decedent, his estate, his creditors or the creditors of his estate.  The term includes all powers that are, in substance and effect, powers of appointment, regardless of the nomenclature used in creating the power and regardless of local property law connotations.  A power to consume, invade, or appropriate income or corpus, or both, for the benefit of the decedent which is limited by an ascertainable standard relating to the health, education, support, or maintenance of the decedent is, by reason of § 2041(b)(1)(A), not a general power of appointment.  A power is limited by such a standard if the extent of the holder’s duty to exercise and not to exercise the power is reasonably measurable in terms of his needs for health, education, or support (or any combination of them).  As used in this subparagraph, the words “support” and “maintenance” are synonymous and their meaning is not limited to the bare necessities of life.  A power to use property for the comfort, welfare, or happiness of the holder of the power is not limited by the requisite standard.  Examples of powers which are limited by the requisite standard are powers exercisable for the holder’s “support,” “support in reasonable comfort,” “maintenance in health and reasonable comfort,” “support in his accustomed manner of living,” “education, including college and professional education,” “health,” and “medical, dental, hospital and nursing expenses and expenses of invalidism.” In determining whether a power is limited by an ascertainable standard, it is immaterial whether the beneficiary is required to exhaust his other income before the power can be exercised.

 If the power of appointment may be exercised by the decedent only in conjunction with (1) the creator of the power, or (2) a person who has a substantial interest in the property that is subject to the power and such interest is adverse to an exercise of the power in favor of the decedent, the power is not considered to be a general power of appointment.

 The following powers are defined by Regs. § 20.2041-1 as not constituting a power of appointment for § 2041 purposes:

 The power to amend only the administrative provisions of the trust, which cannot substantially affect the beneficial enjoyment of the trust property or income;

1. The power of management, investment, custody of assets, or the power to allocate receipts and disbursements as between income and principal, exercisable in a fiduciary capacity where the holder has no power to enlarge or shift any of the beneficial interests except as an incidental consequence of the discharge of the fiduciary duties; and
2. The right of a beneficiary of a trust to assent to a periodic accounting, thereby relieving the trustee from further accountability, as long as such does not consist of any power to enlarge or shift the beneficial interest.

The common element in each of the above is that the power cannot be used to enlarge or shift any of the beneficial interests. Thus, powers that may be thought of as administrative in nature will not result in estate tax inclusion under § 2041.

© 2009 Parsonage Vandenack Williams LLC

For more information, contact info@pvwlaw.com

The Internal Revenue Code normally requires individuals over age 70 ½ with retirement accounts to make MRDs annually based on the size of the account balance at the beginning of the year and the age of the account holder (or the account beneficiaries in some cases). The new law suspends the MRD requirement for 2009. The law attempts to avoid the significant depletion of account assets that may result if MRDs were required following significant market losses in 2008 and allows the funds to be kept in the account and possibly recover some losses. This waiver is available to all defined contribution plans, including 401(k), 403(b), 457(b) and Individual Retirement Accounts (IRAs) regardless of the total account balance. The new law does not affect 2008 MRD requirements regardless of whether the distribution is made in 2009 for tax year 2008.

The new law also makes numerous technical corrections to the Pension Protection Act of 2006. The most significant is that, for tax years beginning after 2009, plan sponsors must offer non-spouse beneficiaries a rollover option. This gives much-needed flexibility to those who inherit retirement plan accounts from someone other than their spouse.

© 2009 Parsonage Vandenack Williams LLC

For more information, contact info@pvwlaw.com

The Internal Revenue Code normally requires individuals over age 70 ½ with retirement accounts to make MRDs annually based on the size of the account balance at the beginning of the year and the age of the account holder (or the account beneficiaries in some cases). The new law suspends the MRD requirement for 2009. The law attempts to avoid the significant depletion of account assets that may result if MRDs were required following significant market losses in 2008 and allows the funds to be kept in the account and possibly recover some losses. This waiver is available to all defined contribution plans, including 401(k), 403(b), 457(b) and Individual Retirement Accounts (IRAs) regardless of the total account balance. The new law does not affect 2008 MRD requirements regardless of whether the distribution is made in 2009 for tax year 2008.

The new law also makes numerous technical corrections to the Pension Protection Act of 2006. The most significant is that, for tax years beginning after 2009, plan sponsors must offer non-spouse beneficiaries a rollover option. This gives much-needed flexibility to those who inherit retirement plan accounts from someone other than their spouse.

© 2009 Parsonage Vandenack Williams LLC

For more information, contact info@pvwlaw.com

http://www.pvwlaw.com/CM/Articles/American%20Recovery%20and%20Reinvestment%20Act%20of%202009%20(00085797).PDF

© 2009 Parsonage Vandenack Williams LLC

For more information, contact info@pvwlaw.com

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Under IRC § 2041(b), the term “general power of appointment” means a power which is exercisable in favor of the decedent, his estate, his creditors, or the creditors of his estate; except that– a power to consume, invade, or appropriate property for the benefit of the decedent which is limited by an ascertainable standard relating to the health, education, support, or maintenance of the decedent shall not be deemed a general power of appointment.

The value of all property that is subject to a <!–[if gte vml 1]> <![endif]–><!–[if !vml]–><!–[endif]–>general power of appointment<!–[if gte vml 1]> <![endif]–><!–[if !vml]–><!–[endif]–> exercisable by the decedent will be included in the decedent’s estate pursuant to § 2041. A <!–[if gte vml 1]> <![endif]–><!–[if !vml]–><!–[endif]–>general power of appointment<!–[if gte vml 1]> <![endif]–><!–[if !vml]–><!–[endif]–> means a power that is exercisable in favor of the decedent, his estate, his creditors or the creditors of his estate. The term includes all powers that are, in substance and effect, powers of appointment, regardless of the nomenclature used in creating the power and regardless of local property law connotations. A power to consume, invade, or appropriate income or corpus, or both, for the benefit of the decedent which is limited by an ascertainable standard relating to the health, education, support, or maintenance of the decedent is, by reason of § 2041(b)(1)(A), not a general power of appointment. A power is limited by such a standard if the extent of the holder’s duty to exercise and not to exercise the power is reasonably measurable in terms of his needs for health, education, or support (or any combination of them). As used in this subparagraph, the words “support” and “maintenance” are synonymous and their meaning is not limited to the bare necessities of life. A power to use property for the comfort, welfare, or happiness of the holder of the power is not limited by the requisite standard. Examples of powers which are limited by the requisite standard are powers exercisable for the holder’s “support,” “support in reasonable comfort,” “maintenance in health and reasonable comfort,” “support in his accustomed manner of living,” “education, including college and professional education,” “health,” and “medical, dental, hospital and nursing expenses and expenses of invalidism.” In determining whether a power is limited by an ascertainable standard, it is immaterial whether the beneficiary is required to exhaust his other income before the power can be exercised.

If the power of appointment may be exercised by the decedent only in conjunction with (1) the creator of the power, or (2) a person who has a substantial interest in the property that is subject to the power and such interest is adverse to an exercise of the power in favor of the decedent, the power is not considered to be a <!–[if gte vml 1]> <![endif]–><!–[if !vml]–><!–[endif]–>general power of appointment.

The following powers are defined by Regs. § 20.2041-1 as not constituting a power of appointment for § 2041 purposes:

1. The power to amend only the administrative provisions of the trust, which cannot substantially affect the beneficial enjoyment of the trust property or income;
2. The power of management, investment, custody of assets, or the power to allocate receipts and disbursements as between income and principal, exercisable in a fiduciary capacity where the holder has no power to enlarge or shift any of the beneficial interests except as an incidental consequence of the discharge of the fiduciary duties; and
3. The right of a beneficiary of a trust to assent to a periodic accounting, thereby relieving the trustee from further accountability, as long as such does not consist of any power to enlarge or shift the beneficial interest.

The common element in each of the above is that the power cannot be used to enlarge or shift any of the beneficial interests. Thus, powers that may be thought of as administrative in nature will not result in estate tax inclusion under § 2041.

© 2009 Parsonage Vandenack Williams LLC

For more information, contact info@pvwlaw.com

The Supreme Court of the United States recently issued a decision in the case of Larue v. DeWolff, Boberg & Associates that could have a drastic impact on fiduciaries of qualified retirement plans subject to the Employee Retirement Income Security Act (ERISA). The case centered around a claim by the plaintiff, James Larue, who brought suit against his former employer seeking lost appreciation in his 401(k) defined contribution retirement account. Larue asserted that the failure by the administrators to implement his investment strategy amounted to a breach of fiduciary duty under ERISA and sought the alleged depletion as damages.  

The lower trial court and appellate court both ruled in favor of the former employer. However, on February 20, 2008, the Supreme Court, by a unanimous decision, held that ERISA does in fact “authorize recovery for fiduciary breaches that impair the value of plan assets in a participant’s individual account.” The result in Larue is a bit of a surprise to many in the retirement plan community. The surprise from the Larue decision was due in large part by the 1985 case of Massachusetts Mut. Life Ins. Co. v. Russell in which the Court held that the remedial provision involved in Larue provides a remedy only for an entire plan, not for individuals covered by the plan. However, the current Court distinguished Russell and Larue because Russell involved a defined benefit plan, whereas Larue involved a defined contribution plan. Reasoning for the distinction, the Court provided that “[f}or defined contribution plans, however, fiduciary misconduct need not threaten the solvency of the entire plan to reduce benefits below the amount that participants would otherwise receive.”

Despite the holding, the Court did not find in favor of Larue outright. Rather, the Court remanded the case for further determinations by the lower court. In addition, the Court added a qualification to the opinion in footnote 3 by providing “we do not decide whether petitioner made the alleged investment directions in accordance with the requirements specified by the Plan, whether he was required to exhaust remedies set forth in the Plan before seeking relief in federal court pursuant to ERISA, or whether he asserted his rights in a timely fashion.”

As a result of Larue, it is more important than ever to clearly articulate the requirements of a plan participant with regard to directing his or her account investments and require strict adherence to such requirements. Also, plan sponsors should maintain a thorough procedure to ensure that all participants’ investment directions are implemented as requested and within the time period specified by the plan and its supporting documents.

© 2009 Parsonage Vandenack Williams LLC

For more information, contact info@pvwlaw.com

http://www.pvwlaw.com/CM/Articles/Estate-Planning-Outline.pdf

© 2009 Parsonage Vandenack Williams LLC

For more information, contact info@pvwlaw.com

Reconsider fiduciary appointments.  Who is your personal representative?  If you have a trust, who have you named as trustee?  Are you completely confident in your appointments?  Consider naming co-fiduciaries, especially if you have individual appointees.  Review your documents to be sure there are provisions allowing beneficiaries to make appropriate changes in the event of mismanagement by a fiduciary or the failure of a bank named as trustee.

Consider being more specific in your directions to fiduciaries.  Fiduciaries are governed by a variety of rules regarding investment of assets and dealing with beneficiaries.  A fiduciary is required to invest and manage estate assets as a prudent investor would and to balance the interests of the beneficiaries.  You can and should provide specific directions to the fiduciaries if you desire special consideration be given to the needs of one beneficiary as compared to others.  If you own a closely held business and want your estate to be able to continue to won the business, add a direction to your documents specifying that the fiduciary do so.

Review dispositive schemes.  Your current scheme of asset distribution is likely based on the value of assets at the time you established the plan.  A change in value or structure of your estate impacts your ability to accomplish the goals of your estate plan.  Revisit your estate planning goals and establish a priority.  Then, review your estate plan structure to ensure that your goals will still be acheived.  Adjust your plan as necessary.  Typical goals may include providing for yourself and a spouse as long as either is living, for an ailing parent, for minor children, or for a disabled child.

Review gift plans.  If you are currently making gifts to reduce your estate as a tax planning strategy, consider whether such gift plan should be deferred, accelerated, or expanded.

Many proposals for the estate tax system are being bandied about.  We are unlikely to have certainty for many months.  At present, there remains the ability to make a lifetime transfer to your heirs up to one million dollars without estate tax consequenses.  To the extent you remain comfortable with making a significant gift, the present economy offers an opportunity to achieve such a gift while asset values are low.

If you have concerns about your estate sustaining a sufficient level of income for your needs following a downturn in value, consider discontinuing gifts for the present time.  Also consider a possible reallocation of gifts if one of your beneficiaries has been impacted by the economy more than others.

Be proactive.  As difficult as it may be to open your account statements, do so.  Be proactive in making appropriate revisions to your planning.

© 2009 Parsonage Vandenack Williams LLC

For more information, contact info@pvwlaw.com

The family foundation makes sense for a donor who plans to make significant charitable gifts to more than one charity, desires to create a permanent fund for charitable giving, and wants the donor’s family to be actively involved in the charitable giving process on an ongoing basis.

An important benefit of charitable giving is that the donor can obtain significant tax deductions related to the donations.   The tax savings opportunities include income and estate tax deductions.   To the extent that assets remain in the family foundation, growth on the assets is tax-free, which avoids capital gains and estate taxes.

There are different types of family foundations for tax purposes.   Contributions to a family foundation are generally deductible but there are various limitations on contributions to a family foundation that do not apply to other types of charitable gifts.  There are various distribution requirements and excise taxes that apply.  A donor considering a family foundation should be well advised of the achievable tax benefits of each type of family foundation. 

While tax benefits are important to most donors, the family foundation is most often chosen by those who are interested in the non-tax benefits of this charitable vehicle.  The family foundation offers many non-tax benefits that cannot be achieved with other charitable gift techniques.

Many donors establish a family foundation to encourage family involvement in charitable giving. A family foundation offers the opportunity for family members to work together to benefit charitable causes.  Often, foundations are set up so that family members meet to discuss management of foundation investments and desirable charitable gifts.  The foundation may help perpetuate the family unit by creating the opportunity for ongoing interaction of a positive nature.

A family foundation may bear the name of the donor or his or her family.  The family foundation then serves as an enduring memorial to the founder.   The philanthropic efforts of the founder can continue beyond his or her life.  

The family foundation offers ongoing control and flexibility.  The foundation board can monitor charities change charitable beneficiaries when doing so makes sense. 

Because there is significant expense and ongoing maintenance related to a family foundation, the foundation will make sense only for charitable donations of significant size.  There is no specific threshold as to the size of gift that makes sense.  Whether the approach makes sense for a particular donor depends on the overall facts of the donor’s estate and philanthropic desires.  The non-tax benefits must outweigh the ongoing cost and expense.

A family foundation is an excellent technique for achieving ongoing family involvement in the community.  A foundation may be funded during the life of a donor or upon the donor’s death.  The family foundation should be considered by any charitably inclined individual as part of the estate planning process.

© 2009 Parsonage Vandenack Williams LLC

For more information, contact info@pvwlaw.com