Free With Registration: Private Equity Carried Interests
David C. Jacobson, managing partner of the Law Offices of David C. Jacobson of counsel to Harras, Bloom & Archer, writes that, with a potential for valuation discounts due to the uncertainty of the income tax rates for it, the carried interest is more than ever an ideal candidate for estate planning transfers. Such planning, he says may provide the private equity fund manager the opportunity to effectively transfer wealth to younger generations at relatively low transfer tax cost.
Gary A. Phillips, a member in the New York office of Cole Schotz, writes that while traditional IRAs commonly are an integral part of a client's estate - thereby necessitating a working knowledge of the traditional IRA rules - Roth IRAs typically have fallen below the radar because most taxpayers who take the time and incur the expense of estate planning do not own Roth IRAs in their estates due to the relatively low income limits required to establish them. However, beginning Jan. 1, 2010, this changes as new rules take effect, permitting taxpayers to convert their traditional IRAs to Roth IRAs without any income limitations.
Promissory Notes and Medicaid Planning
Jennifer B. Cona, a partner with Genser Dubow Genser & Cona, writes: With the passage of the Deficit Reduction Act of 2005, the federal government sought to severely restrict Medicaid eligibility by radically changing the transfer of asset rules. More particularly, she says, the law was aimed at eliminating altogether transfer of asset strategies at the so-called "crisis" phase, that is, last-minute transfers of assets just prior to or immediately after placement in a long-term care facility, except where such planning is via a promissory note.
The Estate Tax Apportionment Clause: Friend Or Foe?
Terence E. Smolev, a partner at Forchelli, Curto, Deegan, Schwartz, Mineo, Cohn & Terrana, and Mary E. Mongioi, counsel to the firm, write: Taxes and the allocation of the burden to pay them can have a profound impact on the testamentary scheme contemplated by the testator. It is this possibility that should make even the most experienced draftsman amongst us sit up and take note before altering the statutory scheme and delegating the payment of tax to the residuary estate in a pro forma will clause. Such a provision was recently adjudicated in the Surrogate's Court, New York County, where, despite the existence of an apportionment clause which directed that all estate taxes be paid from estate assets as a debt of the decedent, the court found a creative way to shift the attendant tax burden to the non-probate beneficiary of a $3 million life insurance policy.
Taxing Income in Respect of a Decedent
Robert S. Barnett, a member of Capell Barnett Matalon and Schoenfeld, and Andreea Olteanu, an associate at the firm, write that under normal circumstances, assets includible in a decedent's taxable estate receive a "step-up" in basis to the fair market value as of the date of death. This "step-up" treatment is extremely valuable because it protects the estate and its beneficiaries from the tax double-sting. Items of income in respect of a decedent, however, are denied this favorable tax treatment, resulting in both income and estate taxation. By assigning IRD items to charitable beneficiaries, the negative effects of this unfavorable tax treatment are mitigated.
Sharon L. Klein, trust counsel and director of estate advisement for Fiduciary Trust Company International in New York, examines the critical importance of communication when serving in the trusted role of fiduciary and the unfortunate set of circumstances that can arise when a supposedly trusted family member or friend is appointed as trustee, but turns out not to be so trustworthy.
Fiduciary Investment in the Current Economy
Thomas J. Pauloski, a lawyer and national managing director of Bernstein Global Wealth Management, and Heather G. Tanguay, a certified financial planner and quantitative specialist at the firm, write that trust investing is largely a balancing exercise - not just between portfolio risk and return, but also between the interests of the current and remainder beneficiaries. But in today's market, the spread between yields on stocks and bonds remains low relative to historical averages. This suggests, perhaps, that trustees need not rely as heavily on bonds to generate current income or on exotic reformulations of trust distribution policy to promote fairness among all classes of beneficiaries.
