ALI-ABA Topical Courses Marital Deduction & Credit Shelter Trusts: Planning Techniques for Drafting in Changing Times November 2, 2009 Video Webcast PROGRAM FACULTY PARTICIPANTS FACULTY BIOGRAPHIES STUDY MATERIALS TABLE OF CONTENTS Page ix 1. Special Offer 1 2. Drafting Marital Deduction and Credit Shelter Trusts For the 3 Dysfunctional Family: What's a Practitioner To Do? (With Drafting Examples) By Glen A. Yale Identifying Family Disfunction 8 Blended Family 9 Selecting The Appropriate Marital Deduction Funding Formula For Blended And/Or Dysfunctional Families 13 Family That Does Not Generally Like One Another 13 Children - favored and disfavored 24 Grandchildren - favored and disfavored 30 Substance Abuse Problems 32 Appendix 1 - Smaple Drafting Language for a Pure Fractional Marital Deduction Funding Formula 38 Appendix 2 - Summary Of Marital Deduction Funding Formulas And Methods (With Checklist And Chart) 39 Appendix 3 - Omnibus Trustee Power To Withhold Distributions To a Trust Beneficiary 49 Planning and Administering for the Dysfunctional Family: Ohio Supplement 52 3. Advanced Planning Issues for Marital Deduction and Credit Shelter Trusts 59 (With Drafting Examples) By Lauren J. Wolven Silver Spoon Kids Trust Provisions 61 State QTIP Issues 71 Non-Citizen Spouses 74 Unitrusts vs. Standard Income/Principal Trusts 89 Exhibit A - Further Reading On Transitioning Wealth 95 Exhibit B - GST/State Marital Trusts/Clayton QTIP Plan 96 vii xi xiii
Exhibit C - Sample State QTIP Trust That Is Carved Out Of The Family (Credit Shelter) Trust 97 Exhibit D - Suggested Language Of Rev. Proc. 96-54 101 Exhibit E - Sample QDOT Language 103 4. Funding and Administration Issues with Marital Deduction and Credit 105 Shelter Trusts (With Sample Drafting Language) By Julius H. Giarmarco Using QTIP Trusts To Capture Minority Interest Discounts 108 Minority Discounts, Control Premiums, And The Marital Deduction 110 Trigger IRC Section 2519 And Pay Gift Tax 113 Investing QTIP Assets In A Family LLC Or Family Limited Partnership 114 Funding Credit-Shelter Trusts With Life Insurance 120 Post 1984 Alimony Trusts 122 5. Fixing Broken Marital Deduction and Credit Shelter Trusts (With 127 Drafting Examples) By Domingo P. Such, III Saving the Marital Deduction 129 Correcting QTIP Elections 132 Utilizing Disclaimers to Fund Credit Shelter Trust 135 Correcting GST Elections Qualified Trust Severance Rules 142 Adjustment of Principal and Income 155 Conversion to a Unitrust 158 Decanting 160 viii
ALI-ABA Topical Courses Marital Deduction & Credit Shelter Trusts: Planning Techniques for Drafting in Changing Times Sebastian V. Grassi, Jr., Chair & Planner Julius Giarmarco, Moderator Monday, November 2, 2009 Video Webcast All times Eastern Standard 12:00 12:05 Introduction 12:05 12:50 Drafting Marital Deduction and Credit Shelter Trusts For The Dysfunctional Family: What s A Practitioner To Do? (With Drafting Examples) (Glen A. Yale) Identifying Family Dysfunction Blended and Non-Blended Family Issues Selecting The Appropriate Marital Deduction Funding Formula For Blended and/or Dysfunctional Families Fiduciary Appointment Issues In Blended and/or Dysfunctional Families Dealing With A Beneficiary s Substance Abuse Problems 12:50 1:00 Panel Discussion 1:00 1:45 Advanced Planning Issues for Marital Deduction and Credit Shelter Trusts (With Drafting Examples) (Lauren J. Wolven) Silver Spoon Kids Trust Provisions State QTIP Issues Clayton QTIPs Non-citizen Spouse Issues Unitrusts vs. Standard Income/Principal Trusts 1:45 1:50 Panel Discussion 1:50 2:00 Discussion of Audience Questions 2:00 2:20 BREAK 2:20 3:00 Funding and Administration Issues with Marital Deduction and Credit Shelter Trusts (With Sample Drafting Language) (Julius H. Giarmarco) Using QTIP Trusts to Capture Minority Interest Discounts Control Premiums, Minority Discounts and the Marital Deduction Triggering IRC section 2519 and Paying the Gift Tax Investing QTIP Assets in a Family LLC or Family Limited Partnership Funding Credit Shelter Trusts with Life Insurance Alimony Trusts ix
3:00 3:45 Fixing Broken Marital Deduction and Credit Shelters Trusts (With Drafting Examples) (Domingo P. Such III) Saving the Marital Deduction Correcting QTIP Elections Utilizing Disclaimers To Fund Credit Shelter Trusts Correcting GST Elections (Divisions and Qualified Severances) Principal and Income Adjustments Unitrust Conversions Decanting Trust Property 3:45 3:50 Panel Discussion 3:50-4:00 Discussion of Audience Questions 4:00 Adjournment x
ALI-ABA Topical Courses Marital Deduction & Credit Shelter Trusts: Planning Techniques for Drafting in Changing Times Monday, November 2, 2009 Video Webcast CHAIR AND PLANNER Sebastian V. Grassi Jr., Esquire Grassi & Toering, PLC Attorneys and Counselors 888 West Big Beaver, Suite 750 Troy, MI 48084-4745 FACULTY Julius H. Giarmarco, Esquire Giarmarco, Mullins & Horton, P.C. 101 W. Big Beaver Road Tenth Floor Columbia Center Troy, MI 48084-5280 Lauren J. Wolven, Esquire Horwood Marcus & Berk, Chtd. 180 North LaSalle Street #3700 Chicago, IL 60601 Domingo P. Such, III, Esquire McDermott Will & Emery LLP 227 W. Monroe Street Chicago, IL 60606 Glen A. Yale, Esquire Stumpf Farrimond, P.C. 112 E. Pecan Street, # 700 San Antonio, TX 78205 xi
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Biography of Sebastian V. Grassi, Jr. Sebastian V. Grassi, Jr. of Grassi & Toering, PLC, located in the Detroit suburb of Troy, Michigan, is a member of the Christian Legal Society, where he served on its national board of directors. Listed in The Best Lawyers in America, and in Michigan Super Lawyers, Sebastian is a Fellow of the American College of Trust and Estate Counsel ( ACTEC ), and has served as a member of the Michigan Probate and Estate Planning Council. The Council advises the Michigan legislature on changes in probate and trust law. Sebastian s practice emphasizes business law, business succession planning, estate planning and probate (including estate planning for special needs families), special tax counsel to trustees and executors concerning complex tax issues, and related real estate matters. Sebastian has written several chapters in books published by CCH, and Matthew Bender. Sebastian has also published over 105 articles on business law, estate planning, estate planning for special needs families, and tax matters in Probate & Property; ACTEC Journal; Estate Planning; Journal of Practical Estate Planning; The Journal of Taxation; The Journal of Taxation of Estates and Trusts; Michigan Bar Journal; Michigan Probate & Estate Planning Journal; Michigan Tax Lawyer; Probate Practice Reporter; Tax Management Estates, Gifts and Trusts Journal; Wealth Strategies Journal; Practical Tax Strategies; The Practical Lawyer; The Practical Tax Lawyer; and Tax Ideas. Sebastian is also a winner of the American Bar Association s Probate & Property Probate & Trust Excellence in Writing Award for Best Practical Use Article. Sebastian is a frequent lecturer for the State Bar of Michigan's Institute of Continuing Legal Education. He also serves on the Institute's Estate Planning Advisory Board, and has served on the Estate Planning Advisory Board of the American Law Institute - American Bar Association ( ALI-ABA ). Sebastian has lived in China, and lectured at the Electronics Industry Management College, Beijing, Peoples Republic of China. Elsewhere, Sebastian has lectured at various ACTEC meetings, various Financial and Estate Planning Councils, various Probate and Estate Planning Bar Associations, The Washington, D.C. Estate Planning Council, The Michigan Probate Registers Annual Conference, The Annual Great Plains Federal Tax Institute, The Annual Minnesota Probate and Trust Law Section Conference, The Annual Notre Dame Tax and Estate Planning Institute, The National College of Probate Judges, the ALI-ABA, the Heckerling Estate Planning Institute as well as at the University of Michigan Law School. Sebastian is the author of four books on estate planning and tax matters: A Practical Guide To Estate Planning For a Family With a Special Needs Child (www.aliaba.org/aliaba/bk68), A Practical Guide to Drafting Irrevocable Life Insurance Trusts (With Sample Forms and Checklists) - Second Edition (www.ali-aba.org/aliaba/bk45), A xiii
Practical Guide to Drafting Marital Deduction Trusts (With Sample Forms and Checklists) (www.ali-aba.org/aliaba/bk36), and A Practical Guide to Drafting Irrevocable Life Insurance Trusts (With Checklists and Sample Forms). All are published by the ALI-ABA, (800) 253-6397. He is also the author of Understanding Your Eternal Estate Plan (www.probateandtrusts.com/eternal). Sebastian and his wife, Elizabeth, have three children, Laura, Stephen, and Carolyn. Laura is an adult special needs child with cerebral palsy. Sebastian and Elizabeth are lifetime members of The ARC of Oakland County, Inc. (www.thearcoakland.org). Sebastian can be reached at www.probateandtrusts.com, svgjr@aol.com, or (248) 269-2020. Julius H. Giarmarco Julius H. Giarmarco is a partner in Giarmarco, Mullins & Horton, PC in Troy, Michigan, and is the chair of the firm's Trusts and Estates Practice Group. Julius primary practice areas include estate planning, business succession planning, wealth transfer planning, and life insurance applications. Julius is a former instructor in both the Chartered Life Underwriter (CLU) and Certified Financial Planner (CFP) programs. He also lectures frequently on a national basis, including speeches before the American Law Institute - American Bar Association (ALI- ABA), the International Forum, the Association for Advanced Life Underwriting (AALU), Million Dollar Round Table (MDRT), the Financial Planning Association, and numerous life insurance companies, brokerage firms and trade associations. Julius has published a number of articles on estate planning appearing in professional journals such as the Estates, Gifts and Trusts Journal (BNA), The Practical Tax Lawyer (ALI-ABA), the Journal of Practical Estate Planning (CCH), the Michigan Bar Journal, and Advisor Today magazine. Julius is also the author of the nationally acclaimed brochure, The Five Levels of Estate Planning, and is a featured columnist on estate planning topics for producersweb.com. He is the author of the chapters on succession planning in Advising Closely Held Businesses in Michigan and The Michigan Business Formbook published by the Institute of Continuing Legal Education (ICLE). Julius is also a major contributing author to two ALI- ABA books on estate planning, A Practical Guide to Drafting Irrevocable Life Insurance Trusts (With Checklists and Sample Forms) - Second Edition (http://www.ali-aba.org/aliaba/bk45), and A Practical Guide to Drafting Marital Deduction Trusts (With Checklists and Sample Forms) (http://www.aliaba.org/aliaba/bk36). Julius has also been selected by his peers as a Michigan "Super Lawyer" in estate planning. xiv
Domingo P. Such, III Domingo P. Such, III is a partner in the Private Client Department of McDermott Will & Emery LLP's Chicago office. He concentrates in estate planning and administration as well as corporate executive compensation and ownership work, which provides him with particularly broad legal perspectives in counseling family-owned and/or privately-held businesses and family members. Domingo s experience includes estate, tax and business planning, executive compensation planning for private and public companies, charitable and probate administration as well as corporate transactions, including structuring, negotiating, and documenting corporate formation, corporate governance, due diligence, mergers, acquisitions, and securities issuance. Domingo has published articles in the Trusts & Estates magazine, Distribution Advisor (a panel publication of Aspen Publishers), CCH Incorporated Journal of Practice Estate Planning and Journal of Retirement Planning, and in publications for the Family Firm Institute and has been quoted in various national publications. Domingo has served as a director of multiple family companies and not-for-profit corporations, is a member of the Professional Advisory Committee of the Chicago Community Trust, Loyola University Medical Center, the Body of Knowledge Committee of the Board of Directors of the Family Firm Institute and active with Loyola University Chicago Family Business Center. He is on the faculty for the Family Firm Institute and lectures for classes at the Loyola University of Chicago School of Law and Graduate School of Business. He is a past Chairman and a former legislative liaison for the Chicago Bar Association (CBA) Trust Law Committee, a past Chairman of the CBA Probate Practice Committee and a Member of the American Bar Association, the Asian American Bar Association and the Chicago Estate Planning Council. Domingo lectures nationally on estate and business planning and represents wealthy families and individuals concerning significant and complex estates and trusts. He advises on gift, estate and generation skipping transfer tax planning; charitable giving; corporate and tax issues affecting closely held businesses, their owners and families; and planning for succession of ownership during life and at death. In January 2007, Worth magazine selected Domingo as one of the nation s top 100 estate planning attorneys in the United States. He has earned his Certificate in Family Business Advising and has been elected to the Leading Lawyers Network of Illinois by Law Bulletin Publishing Company as well as selected as one of Illinois Super Lawyers by Law & Politics (each honor is given to only the top 5% of all attorneys licensed in Illinois). In June 2007, Domingo was awarded an AV Peer Review Rating by LexisNexis Martindale-Hubbell. The Rating reflects his expertise, experience, integrity and overall professional excellence. Domingo was selected for the 2008 62nd Edition of Who s Who in America. xv
Lauren J. Wolven Lauren J. Wolven is a partner in the Wealth Protection Group of the Chicago law firm Horwood Marcus & Berk Chtd. She concentrates her practice on estate planning, wealth protection, estate and trust administration, tax and succession planning for privately held businesses, and trust and estate litigation. Prior to rejoining Horwood Marcus & Berk in 2009, Lauren spent two years as the regional head of trust and wealth advisory services for a financial services institution. Lauren has become known as a frequent lecturer and author on a variety of estate planning and trust administration topics. She is the co-author of two BNA portfolios, including Managing Litigation Risks of Fiduciaries, part of BNA s Tax Management Portfolio series. Lauren also has been published in the ACTEC Journal and in Estate Planning, among others. Her speaking engagements have included presentations for ALI-ABA, the American Bar Association Section of Real Property, Probate and Trust Law, the Illinois Institute for Continuing Legal Education, the Chicago Bar Association, and the Duke Estate Planning Conference. Lauren is on the Board of Directors of the Illinois Institute for Continuing Legal Education and the Board of Directors of the Chicago Estate Planning Council. She has served several terms on the Executive Committee of the Chicago Bar Association Trust Law Committee, and she is active with the American Heart Association s Greater Midwest Affiliate. Lauren received her B.A. in Spanish with high honors from Indiana University, where she was a Wells Scholar and was elected to Phi Beta Kappa. Lauren received her J.D. magna cum laude from the University of Illinois College of Law. She is admitted to practice law in Illinois. Glen A. Yale Glen A. Yale is a shareholder in the San Antonio, Texas office of the law firm of Stumpf Farrimond, PC. Prior to joining the firm, Mr. Yale was Senior Counsel with Holland & Knight, and prior to that he was a shareholder in a San Antonio law firm where he practiced for nearly 22 years. Before entering private practice, Mr. Yale served as a Captain in the U.S. Army Judge Advocate General's Corps. He is a fellow of the American College of Trust and Estate Council, a member of the American Bar Association, as well as the sections of Real Property, Probate and Trust Law, Law Practice Management and Taxation. He is a member of the State Bar of Texas and its sections of Taxation and Real Property, Probate and Trust Law. Mr. Yale is a member of the San Antonio Bar Association, the San Antonio Estate Planners Council and the San Antonio Planned Giving Association. He has been listed in Best Lawyers in America since 1995, and was selected as a Texas Super Lawyer in each year since 2003. In the community, Mr. Yale is on the local Advisory Board of The Salvation Army. At the University of Miami School of Law Heckerling Estate Planning Institute in 2008, Mr. xvi
Yale presented a Fundamentals Program on preparing the Form 709 and in 2005 he presented a Fundamentals Program on preparing the Form 706. Mr. Yale represents high net worth individuals in estate planning, trusts and estates, probate litigation, charitable planning including private foundations, tax-exempt organizations, and marital property law matters. He is board certified in Estate Planning and Probate Law by the Texas Board of Legal Specialization. Mr. Yale has advised high net worth individuals, as well as those with more modest estates, on the federal estate and income tax aspects of their estate planning, as well as the important family considerations of whom will receive the property and in what form, outright or in trust. He has written extensively on preparing the Form 706, U.S. Estate Tax Return, and presented professional programs locally, state-wide, and nationally through Notre Dame Tax Institute and the University of Miami School of Law Heckerling Estate Planning Institute, the two largest professional estate planning programs in the country, and the Southern Federal Law Institute. Mr. Yale represents executors and trustees in administering estates and trusts, and in other estates he represents beneficiaries in enforcing their full rights to property in the estate or trust. As lead probate counsel in contested temporary administrations, guardianships, estate administrations, and will contests involving combined estates in excess of $500 million in value, Mr. Yale has litigated issues of testamentary capacity, fiduciary responsibility, marital property, undue influence, and will interpretation among others. Mr. Yale organizes public charitable organizations, as well as private foundations. He plans and drafts charitable remainder trusts and charitable lead trusts, and advises individuals on the tax aspects of significant charitable contributions and enforcing the donor's intent. Mr. Yale has advised individuals and organizations on their legal responsibilities and potential liabilities arising from the activities of nonprofit organizations in Texas. He has advised tax exempt organizations in reorganizations, such as mergers, and advised organizations, such as nursing homes, in separating activities that may give rise to liability from their assets and he has advised existing organizations contemplating creation of endowment funds how to protect newly raised funds from future liability. He has also advised on employee theft, governmental investigations, donor intent, federal income taxation and state franchise taxation, among other issues. Mr. Yale has advised charter schools on legal issues in their operations. Mr. Yale also advises on Texas marital property law, prepares both pre-marital and postmarital property agreements, and advises on marital property issues upon termination of marriage by death. He is also sought out for advice on marital property as it relates to asset protection. Mr. Yale received his B.A. from Wheaton College (III.) in 1975, graduating summa cum laude and earned his J.D. cum laude from Harvard Law School in 1978. xvii
PROFESSIONAL ACTIVITIES Shareholder, Stumpf Farrimond PC Board Certified in Estate Planning and Probate Law Fellow of the American College of Trust and Estate Counsel-Charitable Planning & Exempt Organizations, Asset Protection and Estate and Gift Tax Committee Member of the American Bar Association-Real Property, Probate, and Trust Law, Law Practice Management and Taxation Sections Member of the Texas State Bar-Taxation and Real Property, Probate and Trust Law Sections Member San Antonio Bar Association Member Christian Legal Society Member San Antonio Council on Planned Giving Member San Antonio Estate Planners Council Best Lawyers in America since 1995 Texas Super Lawyer since 2003 Advisory Board of The Salvation Army San Antonio Area Command LAW RELATED PUBLICATIONS Author/Speaker for Governance of Nonprofit Organizations Course 2008 Gift Acceptance Policies for Nonprofit Organizations: Issues in Formation and Maintenance Author/Speaker for Governance of Nonprofit Organizations Course 2007 Open Meetings, Act! Open Records, Act! Author/Speaker for Governance of Nonprofit Organizations Course 2006 New Business Organizations Code: Meetings of Nonprofit Corporation Directors and Members Author/Speaker for State Bar College Summer School 2006 Charitable Raffles: Your Ticket to a Winner! Author Am I Liable? Responsibilities and Liabilities in Texas Nonprofit Organizations (3 rd Edition) Author/Speaker for The Heckerling Institute on Estate Planning, Preparing and Filing the Form 709: Who, What, How, When and Where? xviii