Tuesday, July 30, 2013

SCUBATaxpayers/insureds are often surprised when they are taxed on the value of an old policy that was underwater, when it was transferred to them, causing them to assume that the policy had no value for the government to tax. Here again, the taxpayers in Schwab v. Commissioner (9th Cir. 2013), were surprised that they had recognized taxable income on the distribution to them of life insurance policies from their non-qualified plan, which had surrender charges that exceed their cash value.

Michael and Kathryn, a married couple, were employees of Angels and Cowboys, Inc., which sponsored a non-qualified multi-employer welfare benefit plan that was administered by a third party. Each of them caused the plan to purchase, with a single premium, a variable universal life insurance policy with a three-year no lapse guarantee. Just prior to the end of the three year no lapse period, due to a change in requirements for such an employee benefit plan, the plan terminated and the life insurance policies were distributed to Michael and Kathryn. However, the policies were both subject to substantial surrender charges at the time of the distribution that exceeded the policy cash value, so that nothing would be paid to either of them on a cancellation or lapse of the policy. At the time of the distribution, Michael’s policy would lapse in 54 days and Kathryn’s policy would lapse in 24 days unless each continued to pay the premiums due on the policies. $108,031 in premiums would need to be paid on Kathryn’s policy to keep it from lapsing, so she elected to let it lapse, and received nothing on the policy. Michael elected to pay premiums on his policy for a time to keep it in force. (more…)

Tuesday, July 30, 2013

A recent Private Letter Ruling (PLR 201320009) issued by the Internal Revenue Service (IRS) blessed a conversion of a grandfathered Trust to a unitrust determination of income, as not causing any loss of the Trust’s generation-skipping transfer (GST) tax grandfathered protection, and not resulting in a gift or in the recognition of any gain. Here, the trust in question had been held for the benefit of the Settlor’s son, but the son had since died and the trust was now held for the benefit of three grandchildren. No additions had been made after September 25, 1985. However, the trust determined the income to be distributed to the grandchildren under the traditional method, with interest and dividends constituting trust income.

Long after the trust became irrevocable as a result of the death of the Settlor, the state in which the trust was being administered enacted legislation authorizing the conversion to a unitrust determination of income. The trustee determined that such a conversion was in the best interest of the grandchildren and sought to convert the trust to a unitrust. The state statute required that the grandchildren, who were all legally competent to act on their own behalf, to consent to the unitrust conversion. The trustee sought and the IRS ruled that the conversion did not cause a loss of the trust’s grandfathered status as exempt from GST tax, did not cause any beneficiary to be deemed to have made a taxable gift, and did not cause the trust or any beneficiary to realize capital gain so long as the trustee strictly adhered to the requirements of the new state statute in completing the conversion. (more…)

Monday, July 29, 2013

baby-cambridge-1-660On July 22, 2013, the question everyone wanted answered, boy or girl, was answered when Catherine, Duchess of Cambridge, gave birth to the royal baby, a baby boy, who is now third in line to the throne, after his grandfather, Prince Charles, and his father, Prince William.

On July 24, the next question everyone wanted answered, what’s his name, was answered with the announcement that the baby prince’s name is George Alexander Louis, and that he will be known as Prince George of Cambridge.

Now, the question that we’re sure is burning in everyone’s mind is, are Will’s and Kate’s estate planning documents up-to-date so that Prince George will be properly taken care of in the event something happens to his parents? (more…)

Friday, July 26, 2013

The 7520 rate for August 2013 is set to jump from 1.40% to 2.0%.

The entire Revenue Ruling can be found here.


Tuesday, July 16, 2013

Private Client Partner Renee Gabbard participated in the attached presentation on Trust Alternatives to Prenuptial Agreements.  We are pleased to provide you with the audio of this presentation through the link below.


Friday, July 12, 2013

With guest co-blogger, Washington University School of Law student and Bryan Cave summer intern, Mike Gallagher.

As is the case for everyone (and as we previously discussed in our prior post, Rock, Paper, Scissors: Life Insurance Beneficiary Designation Beats Will), based on the United States Supreme Court decision in Hillman v. Maretta, if you are a federal employee, you should carefully consider who is listed as beneficiary of your life insurance policy. In Hillman, the Court favored Warren Hillman’s ex-wife, Judy Maretta, over his widow, Jacqueline Hillman, and not because the former was more deserving or the marriage to the latter was overly capricious. $124,558 of life insurance benefits accrued to the ex-wife because the husband neglected to send the federal government’s Office of Personnel Management the necessary documentation to change his beneficiary designation before his death. (more…)

Wednesday, July 10, 2013


The terms of James Gandolfini’s December 2012 Last Will and Testament were made public last week when it was filed in New York County Surrogate’s Court. There are a series of specific bequests to his teenage son by his first marriage and some friends and relatives, but the bulk of his probate assets is disposed of as his “residuary estate” and is divided among his sisters, his wife and his baby daughter.

The tax clause of his Will directs that all estate taxes are to be paid from his residuary estate. What does that mean to his beneficiaries? And what does that mean to the IRS and to the NYS Department of Taxation and Finance? Only the 20% of the estate that passes to James Gandolfini’s widow will qualify for the Federal and NYS estate tax marital deduction. (For a more detailed discussion of the federal marital deduction, see our prior post in anticipation of a ruling in the recently decided Windsor case, Will SCOTUS Eviscerate DOMA? What Effects Could That Have on Tax Planning?)  As a result, his estate could be subject to taxes at a combined rate of about 50% over his unused lifetime exemption, which is $1M for NYS and $5.25M for the IRS.

It is rumored that Mr. Gandolfini’s estate is worth approximately $70M. The total estate tax due is likely be over $25M and will be due a mere nine months after Mr. Gandolfini’s untimely death. In all likelihood, assets will need to be sold to generate liquidity to meet this estate tax bill. (more…)

Monday, July 8, 2013

ACA Compliance Group
St. Louis Skyline

ACA Compliance Group, Bryan Cave, ExamFX and Global Relay Present 
St. Louis Compliance Workshop for Broker-Dealers and Investment Advisers – July 24, 2013

July 24, 2013

1:00 p.m. – 4:00 p.m.
Cocktail Reception
Immediately Following

Bryan Cave
One Metropolitan Square
211 N. Broadway
St. Louis, MO 63102-2750

By July 17, 2013

ACA may provide information about roundtable attendees (name, company name, provided address, phone, and email information) to our event co-sponsors. However, you may opt out of this information sharing if you prefer (see instructions following registration).

Twitter  LinkedIn

Register NOW for a complimentary workshop designed to assist broker-dealer and investment adviser compliance professionals in dealing with current tough regulatory challenges. Our industry-knowledgeable speakers and panelists from Global Relay, ExamFX, Bryan Cave, ACA and the industry will discuss topics relevant to regulatory requirements.

Meeting Agenda

Registration 1:00 p.m.
Broker-Dealer Session 1:30 p.m.
Investment Adviser Session 2:20 p.m.
Regulatory Exams and Hot Topics 3:10 p.m.
Cocktail Reception 4:00 p.m.

CLE credit has been applied for in Missouri.

If you would like to ask a question anonymously, please submit it prior to the meeting. We will respond to it during the roundtable.

Please contact Dee Stafford at dstafford@acacompliancegroup.comwith any questions.


Event Sponsors

Monday, July 8, 2013

The FATCA regime takes effect 1st January 2014. Click here for a copy of our bulletin on FATCA issues relevant to foreign private trusts and private investment companies together with a copy of the latest draft Form W-8BEN-E.

Monday, July 1, 2013

When the Fifth Circuit, in a case of first impression for that circuit and all of its sister circuit, last year ruled in In re Chilton, 11-40377, 2012 WL 762924 (5th Cir. Mar. 12, 2012) that inherited IRAs constituted retirement funds within the “plain meaning” of §522 of the Bankruptcy Code and were thus exempt from the bankruptcy estate, under § 522(d)(12) (the federal exemptions), many thought the issue was settled. This was especially so because the Fifth Circuit ruling was the last (or so we all thought) in a long line of cases that ruled the same way after the enactment of the 2005 Bankruptcy Act. The Seventh Circuit in Rameker v. Clark, Nos. 12-1241 & 12-1255, United States Court of Appeals (7th Cir. 2013), on April 23, 2013, however, disagreed with the Fifth Circuit and agreed with the argument made by bankruptcy trustees in this case, and in numerous other cases, that on the death of the IRA owner, even though the inherited IRA was still exempt from immediate taxation, the inherited IRA ceases to be “retirement funds” and does not represent retirement funds in the hands of the beneficiary. Consequently, the inherited IRA ceased to have the protection afforded to IRAs under § 522(b)(3)(C) and (d)(12) of the Bankruptcy Code.  For a summary of prior cases, see our post from last year: “Are Inherited IRAs Protected in Bankruptcy?”

In Clark, the debtor, Heidi Heffron-Clark, had inherited the IRA worth approximately $300,000 from her mother, Ruth Heffron, in 2000 and Heidi had been taking required minimum distributions from the inherited IRA since that time. Heidi and her husband filed bankruptcy in Wisconsin in 2010. Wisconsin is not an opt out state, permitting debtors to elect to use either the Wisconsin exemptions or the Federal exemptions. Heidi elected to use Wisconsin exemptions and claimed that the inherited IRA was an exempt asset under the Wisconsin exemptions and under 11 U.S.C. § 522(b)(3)(C), the Federal exemption applicable when state exemptions are applicable. (more…)