Articles

Volume 34 Number 6 Thursday, November 12, 2009

Can Beneficiary Happiness and Trusts Coexist? A Discussion of Intent vs. Application

by Christopher P. Cline, Esq. Wells Fargo Bank, N.A. Portland, Oregon

Trusts have been with us a very long time, and are ubiquitous in the estate planning world. But, as with any technique that has become standard operating procedure, some of the first principles tend to become glossed over. Grantors seem to accept the recommendations of professionals without much question, the drafting lawyers seem to lapse into drafting “default” mode too often, corporate trust officers seem to administer them by internal checklist rather than according to the trust's original purpose.

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Don't Overlook the Benefits — Tax and Otherwise — of Private Operating Foundations

by Thomas J. Ellwanger, Esq. Tampa, Florida and Alan S. Gassman, Esq. Gassman, Bates & Associates, P.A. Clearwater, Florida

Affluent and charitably-inclined clients wanting to use an entity to carry out their private philanthropic plans have traditionally relied on private foundations. Since the foundation rules were tightened up in 1969, most clients have opted for foundations which are “non-operating”; that is, foundations which do not carry out charitable work directly, but which rely instead on making grants to other charities which actually conduct charitable operations.

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Leading Practitioner Commentary

No Income on Using IRA to Satisfy Pecuniary Bequest

by Steven B. Gorin, Esq. Thompson Coburn LLP St. Louis, Missouri

In Private Letter Ruling 200940031, a retirement plan was payable to the participant's revocable trust. The trust provided for a pecuniary formula bequest to the marital trust, with the residue to the credit shelter. The surviving spouse had the right to withdraw all of the assets of the marital trust.

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Shifting Future Appreciation of Marketable Securities from a Corporation Using a Partnership Drop-Down

Private Letter Ruling 200934013 illustrates how to shift marketable securities using a partnership drop-down. A family-owned S corporation (“Corp”) owned 100% of the membership interests in LLC, which was disregarded as an entity separate from Corp for federal tax purposes. LLC's operations consist solely of investing in a diversified portfolio of passive investment assets, including hedge funds, mutual funds, and private equity funds. LLC has no outstanding liabilities. Shareholder A and Corp reached an agreement pursuant to which Shareholder A was admitted as a new member of LLC. Specifically, Shareholder A contributed cash to LLC in exchange for a newly issued, non-voting, preferred interest in LLC. The terms and pricing of the preferred interest were based on an independent appraiser's determination of market rate terms for similar equity investments.

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