Private Letter Rulings 201310002-201310006 (March 8, 2013)

Favorable “DING Trust” Letter Rulings; Confirmation of IRS’s Position That Settlor’s Retention of Testamentary Power of Appointment Does Not

Necessarily Cause Full Transfer to Trust to be Incomplete Gift

By Steve R. Akers

Contents

Synopsis .................................................................................................................................... 1 Background ............................................................................................................................... 2 Private Letter Rulings 201310002-201310006 Analysis ......................................................... 3

Synopsis “Delaware Incomplete Non-Grantor” Trusts (commonly referred to as “DING Trusts”) are trusts used to avoid state income tax by having the trust sitused in a jurisdiction that will not tax the accumulated income and capital gains in a non-grantor trust. (However, the state income tax savings will have to balanced against the higher federal income tax rates and the 3.8% Medicare tax that applies to undistributed trust income over the low threshold of $11,950 if the settlor would not have been subject to those taxes if the trust had not been created.) No DING Trust rulings have been issued for five years. The status of DING trust rulings has been in doubt for several reasons, but apparently the IRS is now comfortable issuing rulings, at least with for trusts structured like the one in PLRs 201310002-201310006. While these identical rulings are favorable, they do confirm the position suggested in CCA 201208026 that a settlor’s retention of a testamentary power of appointment over a trust does not render the full transfer to the trust as an incomplete gift. The rulings all involve identical fact situations. Grantor created an irrevocable trust of which Grantor and his issue were discretionary beneficiaries. There was a corporate trustee, who was required to distribute income or principal at the direction of a distribution committee or

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principal upon direction from Grantor. The distribution committee consists of Grantor and each of his four sons. There must always be at least two “eligible Individuals” serving as distribution committee members. Three alternative methods are provided for distribution directions: (1) Grantor consent power-distribute income or principal upon direction of a majority of the distribution committee members with the written consent of Grantor; (2) Unanimous member power-distribute income or principal upon direction by all distribution committee members other than Grantor; and (3) Grantor’s sole power-distribute principal to any of Grantor’s issue (not to Grantor, and not income) upon direction from Grantor as Grantor deems advisable in a nonfiduciary capacity to provide for the health, maintenance, support and education of his issue. Distributions can be directed in an unequal manner among potential beneficiaries. The IRS gave four favorable rulings. (1) The trust is not a grantor trust. (2) The transfer to the trust is an incomplete gift by Grantor (for various reasons listed in the ruling). (3) A direction by distribution committee members to make distributions to Grantor is not a completed gift by the committee members (because it is merely treated as a return of Grantor’s property). (4) A direction by distribution committee members to make distributions to persons other than Grantor is not a completed gift by the committee members because the distribution power is held jointly by persons having interests that are adverse to each other. The IRS did not explain its reasoning in any depth with respect to various issues. For example, the IRS did provide any explanation at all as how it resolved questions that it had raised in a release in 2007 about how Revenue Rulings 76-503 and 77-158 might apply to these types of trusts. Accordingly, persons creating DING Trusts will likely want to obtain their own private letter rulings before making any significant transfers to the trusts.

Background “Delaware Incomplete Non-Grantor” Trusts are trusts used to avoid state income tax by having the trust sitused in a jurisdiction that will not tax the accumulated and capital gains income in a non-grantor trust. (Income of a grantor trust would presumably be subject to tax in the state of the grantor’s residence.) The trust is merely designed to avoid state income tax, and the donor most certainly does not want to risk having to pay federal gift taxes (at a 40% rate) to have an argument of avoiding state income taxes at a much lower rate.

The DING trust typically allows a distribution committee to make distributions to the beneficiaries, including the grantor. The distribution committee typically consists of several beneficiaries other than the grantor. The trust avoids grantor trust treatment under §674 by requiring the consent of an adverse party to all distributions during the grantor’s lifetime. The grantor retains a testamentary limited power of appointment. Various rulings have ruled that the transfer to the trust is an incomplete gift for gift tax purposes, and some have also ruled that the distribution committee members do not have gift tax consequences. E.g., PLRs 200148028, 200247013, 200502014, 200612002, 200637025, 200647001, 200715005. No DING Trust rulings have been issued for five years. The status of DING Trust rulings has been in doubt for several reasons. a. Gift tax consequences for distribution committee members. IR-2007-127 (July 9, 2007)

announced that the IRS was reconsidering its position in these rulings with respect to the gift tax consequences of trust committee members. The IRS expressed concern that the prior letter rulings may be inconsistent with Revenue Ruling 76-503 and Revenue Ruling 77-158. The IRS announcement says that those Revenue Rulings indicate that

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“because the committee members are replaced if they resign or die, they would be treated as possessing general powers of appointment over the trust corpus.” The ABA Real Property Trusts and Estate Law Section submitted comments to the IRS on September 26, 2007. The letter was prepared by prominent members of the estate planning bar, including Jonathan Blattmachr, Prof. Mitchell Gans, Carlyn McCaffrey, Diana Zeydel, and others. The letter concludes that the DING PLRs are not inconsistent with Rev. Ruls. 76-503 and 77-158 (or 79-63). The letter points out various distinctions, and that the co-powerholders in the DING rulings situations have considerably more adversity to each other than the co-powerholders in the revenue rulings. It also points out that the regulation at issue does not necessarily require succession to a power on the powerholder’s death to create adversity; it merely gives that as an additional way that a co-holder of a power can be deemed to be adverse if his only interest in the trust is as a co-holder of a power. In addition, it reasons that no one can have a general power of appointment over property the transfer of which is incomplete (addressing a revenue ruling, a case and several PLRs that might arguably be inconsistent with that proposition). As a corollary to this argument, the letter states that if the original donor has not made a gift to a beneficiary, the beneficiary should not be able to make a gift back to the donor by agreeing to a distribution to the grantor.

b. Incomplete gift treatment for grantor. CCA 201208026 concluded that retained testamentary powers of appointment over a trust under which the grantors were not beneficiaries cause the remainder interest to be an incomplete gift, but concluded that the testamentary powers of appointment relate only to the remainder interest. During the grantors’ lifetimes, they had no ability to keep the trustee from making distributions among the potential trust beneficiaries — which might potentially include all of the trust assets. Therefore, the CCA reasoned that the gift was complete as to the “beneficial term interest” that existed before the grantors’ deaths — but was an incomplete gift as to the remainder interest. (Reg. §25.2511-2(b) states that if the donor is the discretionary income beneficiary, a retained testamentary power of appointment causes the transfer to the trust to be an incomplete gift.) The issue then became to determine the relative values of the term interest (a completed gift) and the remainder interest (an incomplete gift). The CCA reasoned that §2702 applied, and because the retained interest (i.e., the interest passing to “applicable family members”) was not a qualified interest, it had to be valued at zero under §2702. Therefore, the completed gift of the term interest was the full value transferred to the trust. CCA 201208026 raised concerns that merely reserving a testamentary limited power of appointment in the grantor may be insufficient by itself to cause the transfer to a DING trust to be an incomplete gift by the grantor.

Private Letter Rulings 201310002-201310006 Analysis PLRs 201310002-201310006, issued March 8, 2013, address the grantor trust and gift tax issues for DING trusts.

The trusts are believed to be Nevada DING trusts (though the rulings do not state explicitly that they are Nevada trusts) Based on local law limitations, it is clear that this cannot be a Delaware trust, as discussed in paragraph b.(1) below regarding Grantor’s sole power over principal.

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The rulings all involve identical fact situations, and the rulings are identical (except that PLR 201310003 inadvertently [apparently] deleted a phrase in the paragraph about Grantor’s Consent Power in the discussion of Rulings 2 and 3).

a. Basic Facts. Grantor created an irrevocable trust of which Grantor and his issue were discretionary beneficiaries. There was a corporate trustee, who was required to distribute income or principal at the direction of a distribution committee or principal upon direction from Grantor. The distribution committee consists of Grantor and each of his four sons. Three alternative methods are provided for distribution directions: (1) Grantor consent power-distribute income or principal upon direction of a majority of the distribution committee members with the written consent of Grantor; (2) Unanimous member power-distribute income or principal upon direction by all distribution committee members other than Grantor; and (3) Grantor’s sole power-distribute principal to any of Grantor’s issue (not to Grantor, and not income) upon direction from Grantor as Grantor deems advisable in a nonfiduciary capacity to provide for the health, maintenance, support and education of his issue. Distributions can be directed in an unequal manner among potential beneficiaries.

There must always be two “eligible Individuals” (defined) serving as distribution committee members. “A vacancy on the Distribution Committee” must be filled by the eldest of Grantor’s adult issue other than then serving members of the committee (with alternate successors if there are no such surviving adult issue). (The rulings do not clarify whether this is interpreted to mean that a vacancy occurs when any member ceases to serve or only when there are less than two members serving. Some commentators say that a distribution committee member is not replaced unless there is only one remaining committee member, and that this provision may be important in resolving the IRS’s concern that prior DING rulings may be inconsistent with Rev. Ruls. 76-503 and 77-158. Under this reasoning, it is not clear whether the distribution committee members would have a general power of appointment once the committee has been reduced to only two individuals. See Bill Lipkind on PLR 201310002: DING Redux, Leimberg Est. Pl. Email Newsletter #2076 (March 12, 2013).) The distribution committee ceases to exist upon Grantor’s death. There is a decanting power, authorizing the distribution committee to distribute assets to qualified trusts. Grantor has a testamentary power of appointment to appoint the assets to any persons or entities other than Grantor’s estate, creditors, or creditors of the estate. In default of exercise of the power appointment, the assets will pass to the issue of Grantor’s deceased father.

b. Rulings. The IRS gave four important rulings. (1) Non-Grantor Trust. The trust is not a grantor trust. Without any explanatory

analysis, the ruling merely concludes that §§673, 674, 676, and 677 do not apply. Whether §675 applies is a question of fact to be determined when federal income tax returns of the parties are filed. Section 678 does not apply because no beneficiary can unilaterally vest trust income or corpus in himself.

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Section 674(a) provides that a grantor is treated as the owner of any portion of a trust for which the beneficial enjoyment of corpus or income is subject to a power of disposition, exercisable by the grantor or a non-adverse party, or both, without the approval or consent of any adverse party. Similarly, §§676(a) and 677(a) provides that a grantor is treated as the owner of a trust subject to certain other powers that can be exercised without the approval of an adverse party. Section 672(a) provides that for purposes of the grantor trust rules, the term “adverse party” means any person having a substantial beneficial interest in the trust which would be adversely affected by the exercise or nonexercise of the power which he possesses respecting the trust. With respect to the grantor consent power and unanimous member power, distributions can be made only with the consent of an adverse party. (The rulings do not specifically reason that the distribution committee members are adverse to the grantor for this income tax purpose, but that must be the basis of the rulings’ conclusion. Observe that the rulings conclude that the distribution committee members are NOT adverse to Grantor for gift tax purposes, as discussed in the discussion below regarding the impact of Grantor’s consent power on the issue of whether the transfer to the trusts is an incomplete gift by Grantor.)

With respect to the “Grantor’s sole power” alternative, the grantor has the power to distribute principal (not income) in a nonfiduciary capacity (the nonfiduciary capacity element is important as a basis for finding that the transfer to the trust is not a completed gift by Grantor, as explained below), §674(b)(5)(A) has an exception for the power to distribute corpus that is limited by reasonably definite standard.

(2) Incomplete Gift by Grantor. The rulings give four reasons that Grantor does not make a completed gift upon creation of the trust. • Grantor’s consent power. Under Reg. §25.2511-2(b) a gift is complete if the

donor “has so part with dominion and control as to leave him in no power to change its disposition.” Grantor’s consent power is deemed to be such a power over disposition (which makes the gift incomplete), because a donor is considered as having a power exercisable in conjunction with someone else as long as the other person does not have a substantial adverse interest in the disposition of the transferred property. Reg. § 25.2511-2(e). The rulings conclude that the other distribution committee members do not have interests adverse to Grantor for this purpose. Reg. §25.2511-2(e) does not define “substantial adverse interest,” but Reg. §25.2514-3(b)(2) states that a “taker in default of appointment under a power has an interest which is adverse to an exercise of the power.” The ruling gives no explanation as to why the four sons are not deemed to be “takers in default” if a distribution is not made. (Perhaps it is because of Grantor’s retained testamentary limited power of appointment, so that none of the four sons could be assured of receiving any undistributed trust assets, but the rulings do not discuss that reasoning.) The next two sentences of Reg. §25.2514-3(b)(2) state:

“A coholder of the power has no adverse interest merely because of his joint possession of the power nor merely because he is a

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permissible appointee under a power. However, a coholder of a power is considered as having an adverse interest where he may possess the power after the possessor’s death and may exercise it at that time in favor of himself, his estate, his creditors, or the creditors of his estate.”

Rather than treating this as merely a possible method of showing adversity, the rulings reason that continued holding of the power after the “possessor’s death is a prerequisite to showing adversity by the coholder of a power:

“Under §25.2514-3(b)(2), a coholder of a power is only considered as having an adverse interest where he may possess the power after the possessor’s death and may exercise it at that time in favor of himself, his estate, his creditors, or the creditors of his estate. In this case, the Distribution Committee ceases to exist upon Grantor’s death. Accordingly, the Distribution Committee members do not have interests adverse to Grantor under §25.2514-3(b)(2) and for purposes of §25.2511-2(e).” (Emphasis added).

The comments submitted to the IRS by the ABA Real Property Trusts and Estate Law Section on September 26, 2007 take the position that the regulation does not necessarily require succession to a power on the power holder’s death to create adversity, but merely gives that as an additional way that a coholder of the power can be deemed to be adverse if his only interest in the trust is as a coholder of the power. In any event, the rulings conclude that Grantor’s consent power (i.e., the ability to join with the other distribution committee members in making distributions by consenting to distributions that a majority of the distribution committee members want to make) “causes the transfer of property to Trust to be wholly incomplete for federal gift tax purposes.”

• Grantor’s sole power over principal. Grantor’s sole power to make distributions (for health, maintenance, support or education) causes the transfer property to the trust to be “wholly incomplete” for federal gift tax purposes. The rulings do not specifically discuss how this provision cause the transfer to be “wholly incomplete” even though it is only a power over principal and not income. The rulings do not discuss regulations providing that a transfer will not be incomplete for gift tax purposes if the donor has a power to change beneficial interest but the power is held in a fiduciary capacity and is subject to a “fixed and ascertainable standard.” Reg. §§25.2511-2(c) & 25.2511-2(g). In this situation, however, Grantor’s authority to direct distributions was held in a nonfiduciary capacity. Interestingly, the IRS treats whether a grantor holds a substitution power in a nonfiduciary capacity for purposes of §675(4)(C) as a question of fact to be determined in each year for income tax purposes. The IRS gave no analysis of whether Grantor actually held the power in a nonfiduciary capacity as a factual matter. Grantor’s sole power over principal in effect gives Grantor a lifetime power of appointment. CCA 201208026, discussed immediately below, held that a mere testamentary power of appointment caused the trust to be incomplete only as to the remainder interest. A lifetime power of appointment in effect

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would cause the transfer to be incomplete as to the term interest as well prior to the termination of the trust. However, if including this provision is essential to cause incomplete gift treatment, the plan could not be used in states such as Delaware that do not permit the grantor to retain a lifetime power of appointment in order for a self-settled trust to be protected from claims of the grantor’s creditors (and if the grantor’s creditors can reach the trust, it would be a grantor trust). See Delaware Qualified Dispositions in Trust Act §§3570(11)b.2 & 3571.

• Grantor’s testamentary limited power of appointment. The rulings reiterate the limitation under CCA 201208026 on incompleteness by retaining a testamentary limited power of appointment. The rulings state that the testamentary power of appointment causes “a retention of dominion and control over the remainder,” and concludes that the retention of the testamentary power causes the transfer of property to the trust to be incomplete “with respect to the remainder” for federal gift tax purposes. Accordingly, retaining a testamentary limited power of appointment would not, under the reasoning of these rulings or CCA 201208026, cause a transfer to be incomplete as to the term interest prior to the termination of the trust.

• Unanimous member power does not remove Grantor’s dominion and control. Grantor retains dominion and control over the income and principal until the distribution committee members exercise their unanimous member power. Therefore the existence of the unanimous member power does not remove Grantor’s ability to shift beneficial interests under the other two alternatives for giving distribution directions to the trustee (thereby causing the gift upon transfer property to the trust to be incomplete).

(3) No Completed Gift by Distribution Committee Members Upon Making Distribution to Grantor. The rulings reason very simply that “[a]ny distribution from Trust to Grantor is merely a return of Grantor’s property. Therefore, we conclude that any distribution of property by the Distribution Committee from Trust to Grantor will not be a completed gift subject to federal gift tax, by any member of the Distribution Committee.” (This adopts the reasoning of the comments from the ABA Real Property Trusts and Estate Law Section submitted on September 26, 2007.)

(4) No Completed Gift by Distribution Committee Members Upon Making Distribution to Another Person Other Than Grantor. The issue is whether distribution committee members have general powers of appointment; if so, the exercise or release of a general power of appointment is treated as a transfer by the individual possessing the power under §2514(b). The rulings conclude that the distribution committee members do not have general powers of appointment. Distribution committee members can participate in distribution decisions under the (1) Grantor’s consent power, or (2) Unanimous member power. • With respect to the Grantor’s consent power, §2514(c)(3)(A) provides that if

the power is exercisable only in conjunction with the creator of the power, it is not deemed a general power of appointment.

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• With respect to the unanimous member powers, §2514(c)(3)(B) provides that a power is not a general power of appointment if it can be exercised only “in conjunction with a person having a substantial interest in the property subject to the power, which is adverse to exercise of the power in favor of the possessor.” The rulings rely on the statement in the regulations quoted above about the coholder of a power having an adverse interest if the coholder may exercise the power after the possessor’s death in favor of himself, his estate, his creditors, or the creditors of his estate. Reg. §25.2514-3(b)(2). That regulation goes on to provide an example:

“Thus, for example, if X, Y, and Z held a power jointly to appoint among a group of person which includes themselves and if on the death of X the power will pass to Y and Z jointly, then Y and Z are considered to have interests adverse to the exercise of the power in favor of X. Similarly, if on Y’s death the power will pass to Z, Z is considered to have an interest adverse to the exercise of the power in favor of Y.”

For example, under the facts of the rulings, if the distribution committee directs a distribution to Son 1, the sons are considered adverse to each other as to that decision, so the power to make a distribution, held jointly with the other sons, is not a general power of appointment. If a distribution committee member ceases to serve, the remaining distribution committee members continue to serve. Contrast the reasoning as to this issue with the reasoning regarding the issue of whether the “Grantor consent power” results in an incomplete gift by Grantor. For purposes of that issue, the sons were not considered to have an interest adverse to Grantor because their jointly held powers do not continue after Grantor’s death. However, as to the interests of the sons among themselves, a son’s jointly held power to make distributions does not cease to exist at the death of any of the other sons.

The IRS had expressed concern in IR-2007-127 that the prior favorable DING Trust letter rulings may be inconsistent with Revenue Ruling 76-503 and Revenue Ruling 77-158 because those rulings suggest that because distribution committee members are replaced if they resign or die, they would be treated as possessing general powers of appointment over the trust corpus. PLRs 201310002-201310006 do not give any indication whatsoever how the IRS resolved that issue, or whether particular attributes of the trusts involved in the rulings were central to the IRS’s favorable ruling as to this power of appointment issue.

(5) Miscellaneous Observations. The rulings make various miscellaneous observations in addition to the formal rulings described above. (a) The fair market value of the trust assets is includible in Grantor’s gross estate for federal estate tax purposes. (b) Any distribution to any beneficiary other than Grantor will be a gift by Grantor for federal gift tax purposes. (c) The rulings specifically decline to express an opinion about the effect of the decanting authority to make distributions to other trusts.

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Working and Lecturing on the Road By: Martin M. Shenkman, Esq.1

Charitable Calling Necessitates Lawyering on the Road Working on the road while traveling presents a host of challenges. While my story is a bit unique, it might have useful ideas for other practitioners. We formed a charity about 6 years ago (www.chronicillnessplanning.org) to educate attorneys, CPAs, financial planners, and other professional advisers on how they can help clients living with the challenges of chronic illness and disability. The catalyst for this endeavor began shortly after my wife was diagnosed with Multiple Sclerosis (“MS”) 6 ½ years ago. After addressing medical and personal issues, as an estate planner, it seemed appropriate to update our planning to address this life changing circumstance. Surprisingly, there was a paucity of relevant planning materials on planning for chronic illness generally, and almost nothing on the nuances of planning for specific diseases. I made it my personal mission to address that shortcoming by writing articles, creating webinars, and other materials, to help other advisers serve the nearly 130 million Americans living with chronic illness. Many of the resources I have developed appear on www.chronicillnessplanning.org. We will be re-launching the site in late 2013 and adding a wealth of additional materials in various formats. In addition, 4 books I have written on planning for chronic illness are available on www.demoshealth.com. 100% of all proceeds are donated to charity. In fact, we have raised or donated the funds necessary to facilitate the publishing of these books. As travel generally became more difficult for my wife, air travel was ruled out. Airport lines, time schedules, dealing with symptoms while traveling, etc., all made it too difficult to travel in this manner. Somehow, we stumbled into the world of RV travel, something law school did precious little to prepare me for. But that is another story. With an RV you carry along a New York City efficiency apartment wherever you go, so maintaining her required diet, rest when MS fatigue or other symptoms kick up, refrigeration for medications, and other issues can be controlled in a manner that other modes of travel simply do not permit. Specifically, we pull a 26’ Airstream trailer with a truck. For those unfamiliar, Airstreams are those iconic silver Twinkie shaped RV’s you see on the highways, the ones Matthew McConaughey is so often shown using. Combining our new mode of travel and charitable mission discussed above was natural. Our travels are now planned around speaking commitments. This summer, for example, we will be traveling to South Dakota, at the request of South Dakota Trust Company, who arranged for a presentation on planning for chronic illness to the local National Association of Estate Planners & Councils organization (“NAEPC”). NAEPC has been incredibly helpful in our charitable mission by

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encouraging councils all over the country to host our programs to build awareness of, and knowledge about, advising clients living with chronic illness (www.naepc.org). As the principal of a small estate planning boutique, traveling for extended periods of time outside the office made working from the road essential. Also, to fulfill our charitable mission, we need to address the logistics of presenting professional seminars in various venues. The technology and other steps we use to accomplish all of this is the subject of this article. Hurricane Sandy Hopefully, some of what I have done will prove instructive to others preparing for future disasters and emergencies, those who travel extensively, wish to work while on extended vacations or while in semi-retirement, or perhaps even those that prefer to relax on a boat while still practicing. This approach to practicing came in handy for me in an unexpected way. I used the gear described below to run my practice for almost 10 days in 2012 after Hurricane Sandy devastated the East cost. Working on the road for me might seem a bit out of the ordinary as you read about some of the steps I use, but after Hurricane Sandy, I assure you that the lessons should be taken to heart. Some of the same equipment, technology and steps facilitated my working for more than a week without power, or normal internet and phone channels, after the storm. Other steps we’ve taken to work on the road that were instrumental in our practice operating in the aftermath of Hurricane Sandy, as well as new steps we have and are implementing for both travel and general disaster-protection, are discussed below. General Comments

Redundancy There is considerable and intentional redundancy. We do not have the constraints of having to carry everything as you might if you travel by airplane, but we also face the significant additional challenges of varying electrical power and connectivity. Also, while “stuff happens” even in your office, the likelihood of something going wrong bouncing along highways for a month, and camping in state parks and other out-of-the-way locations, increases greatly. So we try to remember the Boy Scout Motto, “Be Prepared.” Depending on locale, it may be very difficult to replace something that breaks, so a “plan B” and, when feasible, a “plan C” is pursued. Finally, given the rigidity of speaking engagements and other commitments, coupled with the travel time to drive an RV from one place to the next, there is really very little time leeway to address a problem. Spending an extra day to replace some tech gear is not practical if we are due the next day in

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a city 400 miles away for a speech.

Costs and the Lawyer’s Perspective Everyone is cost conscious, and, if there are less costly ways to accomplish the same result, there is certainly no reason not to pursue the more economical approach. But, with the practice of law, the vital importance of being reachable and able to respond to emergencies, and even to be able to work while on the road, are essential to our being able to pursue our charitable endeavors. In the RV world, many people work or are retired and must manage their work or finances and other affairs from the road. So there are a host of useful products to facilitate working in such a manner. Many of these products are adaptable to boat use, or even disaster preparedness at home. Bear in mind that, as a practicing lawyer, the financial loss of losing a client, or not being able to handle a client matter, are more dramatic than the issues most others face. So, advice you solicit from vendors and others may not be optimal for you. Well meaning vendors will often suggest more cost efficient solutions, when, as a practicing attorney, the certainty of use is so critical that a more costly solution is really desirable. I have learned to ask more questions and explain our urgency to assure that the answers work for the practice of law.

Weight is a Consideration When traveling in more typical ways, say an airplane ride to an island vacation spot, weight is a major consideration. Many attorneys might opt for a small netbook or iPad to stay connected, or even just their smart phone. But, our charitable trips take us away from the office for time periods of up to a month, and aggregate periods of two months a year, so working while traveling is far more significant an issue than during a one week vacation. Weight is a huge factor in the RV world. There are strict limits on how much any truck can tow and how much weight can be packed into an RV. Exceeding those limits can be a recipe for disaster. The only really heavy items we carry are the generators, discussed below. Yes, the other equipment adds up too, but, overall, is not an issue for us. We have done the math and all the equipment we list is well within our ranges, but depending on what type of RV and tow vehicle used, it may not be true for others. Our trailer has a Net Carrying Capacity of almost 1,800 pounds, which provides adequate leeway.

Other Tidbits We do a few things that are helpful, that we suspect may be obvious to some, but are too important not to mention. To keep tax audits easier, and maintain the separateness of business and personal financial matters, we have separate business and personal checking accounts and credit cards. Almost everything we can, in both our personal lives and business, is on auto-pay. Whatever is not on

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auto-pay is billed automatically to our American Express card. This approach greatly reduces the number of bills that need to be tended to while traveling. We log every meeting into Microsoft Outlook, so if an issue arises as to whether a particular expense was business or personal, we have the records at hand. Recording all details from conference calls planned on the road, to meetings, and RV Park confirmation numbers in Microsoft Outlook, makes it incredibly easy to find whatever is needed while on a trip. Forming this habit makes demonstrating business purpose for appropriate expenses on a tax audit quite simple. Truck Power Sources While driving, charging electronic gear is basically limited to keeping smart phones, an iPad, navigation and mobile printer charged, which is all pretty simple using power cords and cigarette lighters. A car (well actually a truck) cigarette lighter socket splitter is an inexpensive and helpful way to charge or operate multiple devices at the same time. Splitters come in a wide variety of configurations of 2 or 3 sockets, and many even add one or two USB charger ports, which can be a great help. These are available from a wide variety of internet sites or electrical stores, like Radio Shack, and cost about $5 - $20. Although the truck cigarette lighter should suffice to power our gear while driving, in the event of a “what if,” we also travel with a charger that can be used to charge smart phones and other devices. This is discussed in greater detail below. RV Power Sources

Introduction The primary issue to address when on the road is power. While at home, charging a laptop is as simple as plugging the cord into the nearest outlet, while traveling, the challenges are much greater. And without power it is irrelevant how great the tech devices you have are, they will not work. Because of the risks of assuring adequate power in the many different situations that might arise, several options should be used, as described below. The much more complex challenge is assuring adequate power for your RV when camped, especially for an extended period, and especially if you are not in an RV park with an available electric hookup.

While Driving When we are driving, the trailer is connected to the truck, and the trailer batteries are charged. The 12-volt batteries in the trailer receive a constant charge from the tow vehicle’s generator or alternator, through the seven-way connector that is used to power the trailer lights and breaks en-route. However, this is only the excess power from the alternator. So, if you are running lights, charting a laptop (e.g. from a cigarette lighter) and other items, this power draw would reduce the amount of power available to charge batteries. Unless you are driving a

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reasonably long distance, say 4-6 hours, with few extra power draws, there may not be much of a charge added to the battery. Also, when stopped for any period of time, this connector must be removed to avoid draining the truck battery, unless the tow vehicle is wired to prevent this issue. More significantly, the level of charge is really pretty modest, so it should never really be relied upon. So, while this is a power source, it may be quite limited. All this, however, depends on what type of tow vehicle you are using. An SUV may have a smaller alternator than, for example, a heavy duty truck. So the latter may provide a more reasonable source to charge the house batteries than the former. For the 12-volt batteries to power tech gear, however, the power has to be converted to 110 AC. To use the RV batteries (called “house batteries” to distinguish them from the truck batteries), the power has to be changed to 110 AC. Our RV has an inverter that will automatically do this, and which feeds to several special outlets labeled 110 volt receptacle.

RV Park Power When you are booked at the Hilton, you simply plug your laptop and other devices into an outlet. With an RV, that simple task can be much more of a challenge. There are a number of different sources for electricity, and the steps and equipment involved vary for each. Bear in mind that to provide electricity to your gear, you have to generally first provide electricity to your RV. The RV electrical cord connects directly to the circuit breaker panel and is controlled by the main circuit breaker. The electrical power is distributed from the breaker panel to all the various power outlets in the RV, through one or more circuits. Each of these circuits is protected by a circuit breaker of its own. Extra circuit breakers and fuses should be carried as a back up. When in an RV park, a pedestal is typically provided with a 30 or 50 amp outlet. Depending on the amperage of your RV, you would seemingly just hook up a, perhaps, RV 30 Amp extension cord from the pedestal to your RV, go inside and plug in your laptop and be ready to work. While this might work, there are a host of other steps and issues to plan for. And planning is a requirement, because you cannot assume that supplies will be readily available. The configuration of the electrical outlet will vary depending on how many AMPs of service the particular pedestal was designed to provide. If, for example, the particular pedestal has a 50 AMP power plug and your RV requires a 30 AMP power source, you need an adapter power cord for a 50 AMP male plug to a 30 AMP female connector. If the pedestal has a 20 AMP power plug, you would require an adapter power cord for a 20 AMP male plug to a 30 AMP female connector. You would then plug the adapter into the pedestal and your RV power cord into the adapter. These cost about $10 and are available on any internet RV vendor website or dealer store, and it is prudent to carry whatever configurations you might need.

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Even if you are connected, there are several more steps to take to make sure that you do not fry your costly tech gadgets when you plug them in. When the connection is feasible with the appropriate adapters, the quality of the pedestal outlet cannot be assured. The mere fact that you can connect does not provide comfort that it is safe to plug your sensitive electronic equipment into the RV connected to the pedestal. RV campground electrical supply outlets must be wired to code when installed to pass inspection. In many parks, that may have been 20 or 30 years ago. As the receptacles wear out or break, they may be replaced or even upgraded, as needed. However, before they can be replaced, those responsible must be aware of the issue. If the facility is a state or other public park, funding may not be available for repairs. Even if repairs are made, there is no assurance that they were made correctly. Also, the electrical demands of the RV's in the park (25 years ago), is very different from the electrical requirements today. The park may have been wired to accommodate the electrical demands at the time and may be woefully inadequate by today’s standards. As guest RVs arrive and hook up to their sites, the line voltage of the RV park’s electrical system may begin to drop, especially in hot weather, when air conditioners are running. The opposite problem might also occur and has to be protected against as well. The transformer that supplies the RV park may have had the voltage turned up to counteract the drop at peak demand. If there are few RV's in the park, the voltage may be too high, also endangering your equipment. Two simple steps can be taken. First, use a polarity tester to confirm that the wiring in the pedestal is correct. This is also called a receptacle tester, and it can be used to identify wiring problems (e.g. a hot ground wire). These cost about $5 and are available from any electrical supply house, RV vendor, Home Depot and similar stores. These are also available to test ground-fault circuit interrupter (GFCI or often just GFI) outlets to assure that additional safety feature is functioning properly. These sell for about $10. GE Model 50957 is available in many electronic and home improvement stores. Second, use an A/C line voltage meter to be certain that the voltage is within an acceptable range. The voltage meter can be left plugged in so that you can monitor changes over time. It is not uncommon that if the RV park is quite hot, or very full, or especially both, that the draw on park electricity will be so great that the voltage will be too low to safely power equipment. These cost about $20 and are available from any electrical supply house, RV vendor, Home Depot and similar stores. An easy to read device is made by Technology Research Corp. and can simply be left plugged into an RV receptacle. If the needle is outside the green zone, you know you have an issue. These steps are perhaps the minimum that should be taken, with one of the following steps also recommended as prior line of defense. Those of us who like to wear a belt and suspenders use the polarity tester and voltage meter along with the next step discussed. Surge protectors can be used between the pedestal and the RV to avoid a power surge (e.g., from a lightening strike) from shorting out the RV wiring and your equipment. These are outdoor heavy duty surge protectors designed specifically

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for this purpose and should not be confused with the inexpensive in-door power strips most people commonly use in their offices. These are available from RV vendor websites and prices range from about $100 and up. While this can provide another layer of protection, there are better options. Power line monitors would be the next step up in terms of protection. They will serve as surge protectors, protect the RV from an improperly wired pedestal (see polarity tester above), and cut the power to the RV if the voltage should exceed safe limits. Some of these reset automatically when power is restored (so that your gear will continue to charge). They shut off power in the event of an open neutral, low (under 102 volts) and high (over 132 volts) voltage, or reverse polarity, to protect your RV and its electrical components from damage and fire. These are available from RV vendor websites and prices range from about $200+. The higher step of protection is to use a voltage regulator. Rather than interrupt power that is outside the acceptable range, they boost it to the minimum required level. These units continuously monitor line voltage conditions and use a special transformer to increase the incoming voltage to an acceptable level when incoming line voltage is low enough to cause damage to RV air conditioners, refrigerators and other electrical accessories. The units automatically switch between modes of operation. This can mean the difference of working uninterrupted during a summer heat wave, or losing power. For a 30 AMP model, these cost approximately $450 and are available from RV websites, the most popular being www.campingworld.com. A popular unit is manufactured by Technology Research Corp. Even with this equipment in place, you still use a voltage meter so you can monitor the adequacy of the voltage in the RV to protect your equipment. The range in which a voltage regulator can boost power is limited, and if it is beyond the unit’s range, you still need to take action to protect your equipment. There is another issue that should be considered, and that is that many RV’ers view voltage regulators as an “un-neighborly deed” in that they may draw from the power available to others. As a final precaution, we use a standard surge protector inside the RV and plug all sensitive electronic components into the surge protector, instead of directly into an outlet. Another practical step is to replace one of the RV receptacles with a duplex receptacle with USB charger ports. This makes it simple to charge smart phones and other devices with standard USB cables. Incidentally, when connected to an RV electrical source, the converter in the RV converts 110 AC power to 12 volt power to keep the two batteries charged. We have discussed elsewhere how, if no other power source is available, the 12-Volt DC battery power can be converted to 110 AC to power tech gear.

Creating Your Own Power While the above steps can assure safe RV park electric power to charge your laptop and other devices, they will not do much good if you are not in an RV park. Instances will arise where you have to create your own power. If you want to get off the beaten path, you will need more than a really long extension cord. There are three ways to accomplish this.

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When you drive the RV, driving will charge the RV batteries. This is really not practical to rely on as a source of electricity as it will not work if you are parked in a particular location for even a number of days. If you leave the trailer plugged in to the truck you use to tow it, it will drain the truck batter. The other two options, both of which we use, are solar power or generators.

Solar Power Solar power is incredibly easy, but far from a perfect, power source. A reasonable amount of sunlight and the right equipment will often do the trick. Solar panels mounted on the roof of an RV can recharge the RV’s batteries (called “house batteries”). The entire system is passive, requiring almost no effort (than perhaps occasionally cleaning off the solar panels). The solar panels generate direct current (DC) when exposed to sunlight, which charges the RV batteries. While this is a great step and can operate the lights and certain appliances, it will not power laptops and other tech devices, which operate on alternating current (AC). Using a DC to AC converter, called a power inverter, can transform DC battery power into AC power to charge tech devices. The more solar panels, the faster the house batteries will recharge. The more batteries, the longer your RV can run tech gear and other electric equipment “off grid.” The cost of a simple solar system can range from about $1,000 and up, depending on the configuration and other factors. Our trailer came with two solar panels. Our system is a Carmanah Technologies Corp. Solar Panel/Charger Controller/Display System.

Generators While solar panels and RV park electricity will often solve the electricity needs, as is clear from the preceding discussions, they are not always sufficient. The final backstop is to carry a generator. Gas generators have come a long way in terms of fuel efficiency and noise reduction. Many incorporate technological advances so that the electricity is stable and clean, and safe to use to power even sensitive tech devices. Perhaps the most popular is the Honda EU2000 (2000 Surge Watts, 1600 Rated Watts) which is incredibly simple to use, and durable. If you are not running air-conditioning or a microwave, heavy power drains, but simply lights, fans, small appliances, and charging your tech gear (1/4 load), the EU2000 can run for 9.6 hours on a single 1.1 gallon tank of gasoline. The unit costs about $1,000 and is widely available. While one generator is more than sufficient for running tech gear, lights and a host of electric needs, we carry two, with the second being the Honda companion EU2000i. This can be run in parallel with the EU2000 to double the capacity and assure the ability to run air-conditioning and the microwave. Generators are available from a host of RV, hardware and other websites. We found great prices and service from Wise Sales (www.wisesales.com).

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Communications Once you have power, the next challenge is to connect your devices. While driving, I rely on my smart phones. When stopped, we can connect to the internet using WiFi at an RV park, or through access points we bring. These are all discussed below. I’ve also opted to hedge my bets on coverage areas. While it appears that Verizon and AT&T seem to have the most coverage of any carriers, for cell and data, their coverage is never as consistent as any carrier coverage maps imply. So, using two different top national carriers has proven very helpful. There have been long stretches of driving where one carrier, but not the other, has had service. Fortunately, there have been few areas and only limited time where no service from either was available, and those tended to be roads through mountainous areas. Smart Phones I carry both an Android and iPhone, each of which is synced with my office Microsoft Outlook, so it is fully updated in real time for all email, calendar and contact changes, etc., by the Microsoft Office Exchange server. Carrying complete duplicate smart phones certainly seems excessive, but assuring access to essential data on the road is crucial. If a smart phone were to break, or be lost shortly after the start of a trip, obtaining a replacement and coordinating having my office computer consultant re-sync it to our network would be a daunting task. Traveling for weeks out of the office without regular and immediate access to email, calendar and contact data would be unthinkable, from a practice perspective. The time lost, and the potential collateral damage from missed conference calls or emails, would be substantial. The cost of duplication seems a small investment to minimize the potential risks. Having both an iPhone and Android has actually proven quite interesting. I find, for example, reading and responding to emails much easier on the Android, sending texts and taking pictures much easier on the iPhone. To avoid confusion, the only phone number I have given out is the Android, so I tend to receive all calls on that device. Siri on the iPhone is an incredible help, so I find myself using the iPhone for hands free commands while driving. Siri lets you use your voice to send messages, schedule meetings, place phone calls, and more. General applications (“apps”) can also be a help, some of which are discussed below:

• Coverage?: This app overlays all cellular networks, 3G, 4G, LTE for Verizon, T-Mobile, AT&T, etc. at a cost of $2.99. You can download the coverage for a local area that is stored on your device so, if you are having coverage issues, you can look at the map to see where coverage is.

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• PrintShare: This app provides a mobile printing solution that facilitates wirelessly printing documents, letters, etc., from Microsoft Office: Word, Excel, Powerpoint; PDF and text files, from Smartphone device memory. When combined with a small inexpensive mobile printer with a battery, I can print a vital document anywhere. In a pinch, if a letter or short agreement has to be reviewed on an urgent basis, my wife can print it while we are driving from my smartphone to the mobile printer. At the next gas station I can review the document in hard copy and call the office with comments. Sometimes, reviewing a complex clause for a trust, or a sensitive letter, it is just essential to see it in hard copy. This makes it practical, quick and simple. The emergency can be dealt with and we can be back on the road with little time lost. This Android app sells for $12.95 and can be found at https://play.google.com/store/apps/details?id=com.dynamixsoftware.printershare&hl=en .

• Mydlink: This app can be used to access remote cameras at home or office to visually assure that everything is in order while traveling. The D-Link Day/Night Network Cloud Camera (DCS-932L) is simple to install. There are both Android and Apple iPhone apps, so we can check anytime and anywhere. The peace of mind is well worth the cost and effort. The price is about $100 (http://www.dlink.com/us/en/home-solutions/view/network-cameras/dcs-932l-day-night-cloud-camera).

• Findmyiphone: If we misplace our iPhone, or iPad, the Find My iPhone app enables us to use another iOS device to find that lost device and protect our data. We have installed the free app on each others iOS devices. Find My iPhone will help locate the missing device on a map, play a sound, display a message, remotely lock our device, or erase the data on it. This app is free and can be found at https://itunes.apple.com/us/app/find-my-iphone/id376101648?mt=8 .

• GeniusScan: This is an iPhone app that uses the camera to scan documents in case you do not have a scanner readily available. In a pinch, at a meeting you can scan a document in this way. You can then export the document as a PDF.

• Voicemail Transcription. Voicemail transcription uses advanced technology to convert voicemail to text and deliver it via email and/or text message format to a phone number, such as the cellular telephone from which voice mail is forwarded to the service provider. The service delivers your transcribed voicemail, along with an audio file of the original message, to your mobile phone, PDA and/or email account. The cost for this services ranges from a per message fee of 35 cents, to a flat monthly fee of about $30 for unlimited messages, depending on providers. We are now implementing this to make it easier to deal with voicemail generally, but especially while traveling. See www.PhoneTag.com.

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RV or travel specific Apps are also helpful. Consider the following:

• GasBuddy: This is a great travel Android app that helps you find gas stations, and for us, to determine in advance which have diesel. It also helps you identify the least costly fuel in the area. www.gasbuddy.com.

• Weather: There are scores of weather apps available. Needless to say, when traveling it is helpful to plan ahead, especially when driving through a bad weather front. We use The Weather Channel app. Another app which appears more robust is WeatherBug Elite for $1.99. It can identify bad weather fronts approaching your GPS location.

• Google Maps: Great on the road for directions, an overhead view of a new area, etc.

• Allstays: This is a camp and RV app for $9.95 that shows you all camp grounds, Wal-Mart’s and service centers.

• Truckster: This app lists all truck stops by state, highway or exit. When driving an RV, especially if the RV or truck (tow vehicle) uses diesel, it can be helpful to identify gas stations that physically accommodate an RV (most regular gas stations are not a comfortable or even practical fit). The cost is $2.99.

Ancillary equipment can also be useful with the smart phones, such as:

• Power: We carry an inexpensive splitter to expand the truck cigarette lighter to charge more gear, as discussed above. We also carry, “just in case,” an external battery charging device, or power pack as they are sometimes called. There are a wide variety of these from Duracell, PowerGen, Mophie Juice Pack, iGo, and others. While prices vary considerably, the better quality ones seem to be available for under $100. We use iSound (www.isound.net).

• Bluetooth: For hands free I have found Jabra Freeway, a Bluetooth in-car (well in-truck!) speakerphone far superior to Bluetooth earpieces. It even works reasonably efficiently with Siri voice activated commands on the iPhone. It also has a hands free virtual assistant, Voice Assist. It can also connect to two devices, so I set it up to operate both my iPhone and Android.

• Wired Earpiece: Since anything can go wrong, a lower tech plug in earpiece is always carried along as a backup, just in case the blue tooth device proves inoperable.

Internet Access

• Smart Phone: While the smart phones permit internet searches and have a wide variety of functionality for drafting and reviewing documents, writing memorandum, and other actions that are essential parts of my practice, I find them impractical. However, the advances in smart phone technology

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make these an incredible tool to search for any range of issues on line, to provide an alternate or backup navigation as we drive, and more. Several of the apps discussed below are a great help.

• Tethering: Tethering, a technique in which a smart phone is used as a wireless modem to provide internet access for a laptop or other device, entails connecting the smart phone to the laptop and using the phone's internet connection to provide wireless connectivity to the computer. These connections are generally slower than Wi-Fi connections, so instead I opted for a portable hotspot. Also, since most carriers sell data plans, the incremental monthly cost of adding another device is quite modest for the benefit of better connectivity. The use of the hotspot also adds additional redundancy, “just in case.”

• Public Wifi: Most RV parks, many restaurants and other public places, now offer free public hotspots. While, for a limited number of uses, this might be adequate, the lack of security raises a host of issues that make it imprudent for most practice matters.

• Booster for Public Wifi: Even if a public WiFi may suffice for certain uses, the problem often is the strength of the signal. For example, in many RV parks, the public WiFi may be hardly usable more than a short distance from the park office. Installation of a WiFi booster can enhance that signal and make it practical to use public WiFi far more frequently. See, for example, http://www.landandseawifi.com/. However, the security issues raised for the practice of law make this approach, for most internet needs, impractical.

• RV Wifi: Another approach, and the one I have primarily relied upon, is to install a router in the RV with a roof mount antenna and booster. This permits internet access similar to a private hotspot, with the security and a number of significant advantages. Having a roof antenna not only can obtain a better signal than the internal antenna in a typical hotspot, but, more importantly, it avoids the considerable interference the shell of the RV creates. An amplifier can be added as well to further enhance the signal. While the components of this can be purchased separately, they can be purchased as a package from Singlepoint WiFi In Motion. Their newest systems include a Sierra Wireless router with an embedded SIM card from a selection of several major phone companies. Since our hotspot was with AT&T, I chose a Verizon SIM, our second carrier, to, again, create redundancy as with our smart phones, and to give options, since service varies. This new approach of a built in card, a machine to machine format, improves the connectivity compared to the prior system, which required physically plugging a 3G stick into a router. This system can run, perhaps, 20 devices. The company has proven incredibly helpful with tech support in the few situations when an issue arose. That responsiveness justified the incremental cost of buying a complete system. You can secure your WiFi network through a variety of encryption

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options (WEP, WPA, WPA2 and WPA3). See www.wifiinmotion.com or www.yoursinglepoint.com/rv.

• Satellite Internet Access: This is supposedly the most assured means of internet access on the road, especially if you spend considerable time off road. Since all of our trips center on presentations to professional groups or consumer groups, we are usually in range of moderate size cities, RV parks or comparable areas, so we have opted for the less costly system described in the preceding section. As 3G and 4G services continue to expand, it will hopefully be less likely to need satellite access. However, for the discussion to be complete, it is important to note this option. Satellite providers claim that you can have assured internet access, even in the most remote back roads. A satellite dish can be mounted to the roof of your RV, or some have free standing tripods you can point at the direction of the signal. With a satellite system, you would add a modem and a router. The cost is more substantial depending on the system and plan. Prices can range from several thousand to over $10,000, and separate data plans, perhaps $30/month. Since phone carriers are providing bundled plans, this would be an incremental cost, more than the hotspot or built in SIM card described above.

When All Efforts Fail “Stuff happens,” no matter how many precautions are taken. Things can and will go wrong. Layers of back up plans are critical. If all my internet devices somehow fail, I can find a public WiFi system and use my laptop to securely access emails directly via a back up email provider we use, Appriver, which provides a webmail service. The company refers to this service as an Email Continuity Service, which gives me access to email even when our server goes offline. I can log into my email via Outlook Web Access and view and respond to the last 30 days of messages, as well as any new messages received. Once service is restored, any messages received during the outage are automatically sent to my regular email in-box. This is the same approach that I used when our office electricity, internet and server were out for 10 days as a result of Hurricane Sandy. If both laptops are also down, Appriver can be accessed from a public computer, such as in a library or other facility. http://www.appriver.com/services/email-continuity/. If there is no possible internet access, by having all client files on the laptop I travel with, I can always continue to work completely offline. Laptop While some claim that they can work efficiently on an iPad or netbook, I find it frustrating and, instead, prefer to tote a laptop. A regular keyboard, for me at least, is necessary for serious work. As with everything else, we carry a second laptop for my wife to use if I’m working, and to serve as a backup.

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The main laptop which I use has a back up macro and has all office client files. This approach facilitates working from the road if there is no internet access (or to work more quickly, if the internet speed is to slow). During Hurricane Sandy, when our office was down for more than a week, having this access to client files proved invaluable and was the key to keeping staff working. Software For the Road

Introduction So now that you are powered and connected to the internet, how do you work? There are a host of options, but my primary approach is to work through my office desktop so that I have full access to all current client files, and any work is saved within the regular office protocols. This assures any work in process is readily available to others in the office, is backed up with the various back up procedures we have, etc. Also, working on my desktop through the internet encourages recording time in our billing system, etc. While some firms have migrated to the cloud, we have not yet done so for a host of reasons, but mostly out of concern for speed and reliability. We are currently investigating cloud based client portals to hold electronic copies of all signed client documents. The goal is to enable any client, or client advisers that the client authorizes, to access copies of all their key legal documents. Once that system is functional, it will afford us another alternative to accessing client documents while traveling. We are looking at a system from www.sumitas.com. While there is little doubt that, in the not-too-distant future, we will migrate fully to a cloud based system, in the meantime, working on the road largely consists of accessing my office desktop.

Connectivity

• Virtual Private Network (VPN): VPN extends my office network, which includes all software, resources, document management, etc. via remote-access to my laptop through the internet. Security is provided by authentication, and the use of encryption techniques to prevent disclosure of private information.

• Third Party Providers: There are a host of products that can provide this service, join.me, logmein, GoToMyPC and others. I have used GoToMyPC for many years, and continue to do so. Although a VPN is available to access my office desktop via the internet from the road, I still continue to use GoToMyPC, perhaps because I have used it for so long, and it is so familiar and easy. This is an incredibly powerful and practical tool. Our laptop needs nothing on it since all the work is completed at our office, safe and secure. Citrix has GoToMyPC applications to work on my office PC from our iPad or iPhone, as well. With GoToMyPC, I can cut and paste across computers, print to remote printers, etc. If I work offline, when an internet connection is later available, I use that feature to transfer the work to the office so that it is backed up as part of the regular office

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backup protocols. One of the steps I have found helpful to facilitate this procedure is that I have set up a folder on my laptop entitled “Transfer to Office” onto which I save any offline work so it is easy to spot and transfer to the appropriate location on the office network.

• Web Meetings: With increasing frequency, meetings to review drafts of documents, and to follow up on certain planning, or to coordinate planning with a clients advisory team (accountant, insurance consultant, etc.) are handled via web meetings. The convenience and cost savings have been a great motivator for clients. While we anticipated that older clients that might be less computer savvy would be uncomfortable with this progress, that is not always proving the case. A few months ago, a client in his 80s had me hold on the phone while his 8 year old grandson helped him get online for the web meeting! For clients facing significant disability or health challenges, web based meetings are vital and liberating. This is in fact one of the many messages we convey to the attorneys and other advisers we lecture to – using technology can greatly enhance the service for those living with chronic illness, and create greater protections for them. When on the road for extended charitable speaking tours, web meetings are a great way to continue to be in touch with clients and to hold staff meetings as well. We opted to use Citrix’s GoToMeeting web conferencing software because its interface is very similar to GoToMyPC which I have used for so many years. The software, and its ease of use, make it an invaluable, simple and cost-effective tool to facilitate collaboration on the road. While GoToMeeting has webcam functionality we don’t use it all the time. For those unfamiliar with this type of product, clients receive an email, click on a link and join the “meeting.” I can then share my desktop, review documents, present and modify schematics as we discuss them, and more. While GoToMeeting offers a free voice over internet protocol (VOIP) option, we have found that using the telephone line they provide provides better sound quality.

• Webinar Hosting: Integral to my practice’s marketing, as well my desire to offer clients ongoing useful current information, is presenting webinars. In the context of our charitable endeavors, we have created a number of webinars on a range of topics related to estate and financial planning for those living with chronic illness. We record these webinars and host them on my charity website, www.chronicillnessplanning.org, or, when appropriate, on www.laweasy.com, a free legal website I host. Again, as with the web based meeting offerings, I have found the familiarity of the Citrix product easy to use and their offerings quite robust. They have a registration function that permits me to gather relevant data on participants to grow our email list for my firm newsletter and future webinar announcements. There are also polling questions available for use to gain more specific feedback. Recording webinars is incredibly easy. Their pricing is also very favorable with a flat fee for unlimited use, which makes

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it incredibly inexpensive if webinars are conducted regularly. They also package the service with GoToMeeting to make their offering even more enticing.

Other Communication

• Data Transmission: Yousendit and Dropbox provide the ability to transfer large files without using internet, which can be too slow. This service permits me to transfer large data files from on the road. In particular, if we have videos or podcasts of our seminars and want to upload them to our websites while on the road, we can transfer the files to our webmaster in this way.

• Facsimiles: Despite the prevalence of email communication, having the ability to correspond via facsimile remains a staple in many law practices and certainly for many clients. While the number of facsimiles we receive has dwindled precipitously in recent years, there is an occasional facsimile that is received. The most significant issue in a small practice is addressing facsimiles while traveling. Staff would have to physically retrieve the facsimile, scan it, and then email it to me to address on the road. Instead, converting to an electronic facsimile service allows the office, as well as me personally, to receive every facsimile. Electronic facsimile services offer the opportunity for clients to send you a facsimile in the customary way and for us to receive a digital copy of the facsimile directly to our email. With a smart phone, it is quite simple to review the facsimile if it is not long and in all events to forward the electronic version of the facsimile to whoever should act on it. This makes it easier to receive and respond to a facsimile anytime and anywhere. Also, as we learned with Hurricane Sandy, this makes the receipt of facsimiles independent of electrical and power connections in our office. www.efax.com.

Miscellaneous • Laptop Locator: Given the amount of sensitive data on my laptop, I have

installed LoJack to track, manage, secure and recover the laptop if it is ever lost. The price is under $50. http://www.lojack.com/Laptops.

• Encryption: As noted above, my primary travel laptop has a backup of all client files, so encryption, in addition to LoJac, is an important safety step. We use PGP, which is now called Symantec Drive Encryption, on some computers. http://buy.symantec.com/estore/clp/smb_d4v2_9p9s_pgpencryption1_default. However, on new computers we have been using SecureDocs. http://info.securedocs.com/ . As an attorney, or for anyone that has sensitive client data, encryption is essential. A screen lock feature might also be helpful to use.

• Spam Protection: Because all emails are forwarded to my smart phones or accessed using GoToMyPC on my desktop, the spam and other

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protection is provided on our network. We use AppRiver to filter spam and viruses. http://www.appriver.com/services/.

Backup

Introduction Backing up data is critical, as everyone knows. Traveling for extended periods of time raises a number of issues because back up of both work and personal files must be addressed, as well as new information obtained while on the road. I have opted to have personal data and practice data generally backed up in different ways to keep them separate.

Backup Options

• On Line Data Backup: There are a host of providers that, for modest fees, will back up data over the internet from laptops. Carbonite, Mozy, and SugarSync are but of few of them. We have opted to use Sugarsync for our personal data. Their costs are competitive, and their service has been excellent. The very few times we have had questions or issues, they have responded quickly, professionally and accurately with a human voice on their help line. SugarSync continuously syncs and backs up files from our laptop, wherever we are, to a secure personal cloud. It is comforting to see the SugarSync icon appear next to newly added files assuring that they have specifically been backed up. We can edit files on our laptop while it is offline, such as when we are in an area that has no internet connectivity, and SugarSync automatically syncs the changes the next time our we are online. If our computer is damaged or lost, it should be relatively simple to restore files. While, thankfully, we have not had that issue, we have had to use Sugarsync to obtain an earlier version of a document that was inadvertently changed or deleted. With an app from SugarSync, we can access data from our smart phone, but have not chosen to do that yet. Sugarsync costs about $100/year for 100GB of data storage. www.sugarsync.com.

• Image backup of Laptop: While the online backup solutions can back up in real time all data, and some even offer a mirror backup solution, we create a mirror image of our laptops quarterly using the built in Lenovo application on our laptop. Perhaps a belt and suspenders, but an extra comfort in any event. The image back up is a duplicate of the programs and operating systems on the laptop, not only the data. In that way, if the computer itself were lost or damaged, the mirror back up can be used to restore the entire laptop, and then data from SugarSync could be used to update the data to the most current. Image-based backup is a backup process for a computer or virtual machine (VM) that creates a copy of the operating system (OS) and all the data associated with it, including the system state and application configurations. The backup is saved as a single file that is called an image. We use Mozy Pro as a separate back

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up for our office. In addition to daily internet back ups, each day’s data is backed up to a tape drive, and the tapes are stored off site and are certain ones are archived. The entire system is also backed up to a Buffalo Terra station daily, as well. The approach used is why, on the road, I endeavor to work on line at the office so that any work is secured through the above backup systems.

• Thumb Drives: I carry several thumb drives with the power points for all the speeches that will be presented on a particular trip. If I were to use it for work, backup off line encryption should be addressed. For example, if I am working off line, rather than through the internet to my office computer, it might also be worth saving work on a thumb drive as a precaution until able to transfer the files from my laptop back to the office, where they are backed up using all the office protocols.

Office Equipment

Introduction In order to be prepared for a host of potential work related issues, and to process documentation from the various seminars given, a number of additional items of equipment are also taken along on our trips. While some of the items could be combined into all-in-one equipment, as noted above, we prefer the redundancy and use of independent items.

Scanner For some of the seminars we present we scan and email professional credit materials and email them back. If we have a meeting it is a great way to get the materials back to the office. Since we have mail forwarded to us enroute we use the scanner to save and act on mail we open. We use the Fujitsu ScanSnap S1500. Even though it is a bit bulky it’s easy to use, relatively quick and very reliable. Price $479.99.

Mobile Printer As mentioned above, we carry a small, Bluetooth, battery printer. The HP Officejet 100 Mobile Printer retails for approximately $200.00 from Staples.

Card Scan With the seminars and programs we give when traveling, there are always a significant number of business cards. We use Cardscan to scan business cards. The unit is quite small and incredibly easy to operate. I then transfer the data file using GoToMyPC to my office and update the Outlook database at the office. This is an incredibly accurate and efficient way to incorporate new contact data on the road into our contact data base . CardScan Executive Business Card Scanner v9. Model: 1760686 retails for approximately $250.00.

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Seminars and Charitable Programs Seminars are a focal point of our trips. Some are done for professional organizations that have any necessary equipment. Other organizations, such as the charities, have little or no equipment for a presentation. The solution is to carry with us whatever we might need for a presentation. I carry an Epson MovieMate 60 Portable Projector, for projecting PowerPoint presentations (available on www.amazon.com). To advance PowerPoint slides, I carry a clicker so that I do not have to stand at a podium during the presentation. Given the personal nature of the program, being able to interact with the audience is important. I use Wireless Computing’s RF-100 presentation remote. http://www.wireless-computing.com/products/wireless-presentation-remote-rf-100/. A screen has also been necessary for many presentations. There are a host of good options available online. I carry an Epson Duet 80-Inch Dual Aspect Ratio Projection Screen, which retails for approximately $120.00. My Low Tech Binder While many techno-gadgets are great practical tools to help facilitate working on the road, there are some simple, low tech techniques that, over the many months of long speaking tours, I have discovered can be helpful. The most important non-tech tool which I find indispensible is my trip loose-leaf binder. I prepare one for every trip as soon as I start planning. I save in the binder copies of emails to people important to the trip, such as someone who may host a seminar, notes on repairs or work I might have done on the trip, maps of the areas we are visiting, hard copies of places along the way we might stop to see, hard copies of confirmations from RV parks, notes on speeches, and more. Basically, anything relevant to the trip is saved. Before we leave on the trip, I organize the binder chronologically and discard anything that is no longer relevant. This, too, is a helpful step because I will often find important information that may not have made it to our electronic calendar. When pulling into an RV park, especially late at night, it is often helpful to have the email confirmation to speed registration. When I get the binder organized by day I print out my work calendar for each day and add it at the front of each day’s documents. That serves as an easy reminder if I have a lecture, personal commitment, or phone call scheduled for that particular day. While all the electronic calendars are great, it is much easier when planning a day’s drive to have a single calendar page to take notes on for that day. If a matter comes up during that day, again, there is one page where it all gets noted to make any follow up easier. Conclusion Traveling, practicing law, volunteering and RV’ing all certainly can mesh quite well. But, having the right technology and equipment can really make it all

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incredibly more efficient and easier. All technology, however, needs to be maintained, updated, and tested regularly. We have a computer consultant update and review the status of every computer, our network and office backup systems quarterly. As Benjamin Franklin said “An ounce of prevention is worth a pound of cure.” And, to think, he did not even have a laptop to worry about. Technology is constantly evolving and changing. It is critical that a user keep up to date and informed. Hopefully, some of the things that have worked for us will give others some practical ideas as well. 1 Martin M. Shenkman, CPA, MBA, PFS, AEP, JD, is an estate planner in New York City and Paramus, NJ. He is Co-Chair of the Emotional and Psychological Issues in Estate Planning Committee, and former Co-Vice Chair of the Diversity Committee. The author gratefully acknowledges the input from Luis Leon, President of Microtask Consulting in Teaneck, New Jersey; Rich Luhr, Airstream Life Magazine, Tuscon, AZ; and, Larry Woodruff of LaGrange, Ohio. Email him at shenkman@shenkmanlaw.com.

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WRITINGS INTENDED AS WILLS: UNEXECUTED COPY OF A WILL

The appellate court in New Jersey recently continued the interesting evolution of the concept of writings intended as wills in New Jersey. Modeled after UPC 2-503 (“Harmless Error”), N.J.SA. §3B:3-2c permits the use of extrinsic evidence to establish that a document that does not comply with testamentary formalities can still constitute a valid will, including writings intended as wills and portions of the document that are not in the testator’s handwriting.

In the case of Estate of Richard D. Ehrlich, 427 N.J. Super. 64, 47 A.3d 12 (App. Div. 2012), the Appellate Division upheld the probate of a copy of an unsigned document as a valid writing intended as a will. Facts

Decedent Richard Ehrlich was a trust and estate attorney for over 50 years. He

died on September 21, 2009. His only next of kin (his heirs) were his deceased brother’s three children -- Todd and Jonathan Ehrlich, and Pamela Venuto.

The material facts were undisputed. The decedent had not seen or had any

contact with Todd or Pamela in over 20 years, but he did maintain a relationship with Jonathan. In fact, the decedent told his closest friends that Jonathan was the person to contact if he became ill or died, and that Jonathan was the person to whom the decedent would leave his estate.

Jonathan learned of his uncle's death nearly two months after the passing.

Jonathan then located a copy of a purported will in a drawer near the rear entrance of the decedent's home.

Jonathan filed a verified complaint seeking to have the document admitted to

probate. His siblings, Todd and Pamela, objected. The document proffered by Jonathan was described by the Appellate Division as follows:

[It] is a copy of a detailed fourteen-page document entitled “Last Will and Testament.” It was typed on traditional legal paper with Richard Ehrlich’s name and law office address printed in the margin of each page. The document does not contain the signature of decedent or any witnesses. It does, however, include, in decedent's own handwriting, a notation at the right-hand corner of the cover page: “Original mailed to H. W. Van Sciver, 5/20/2000[.]” The document names Harry W. Van Sciver as Executor of the purported Will and Jonathan as contingent Executor. Van Sciver was also named Trustee, along with Jonathan and Michelle Tarter as contingent Trustees. Van Sciver predeceased the decedent and the original of the document was never returned.

Id. at 68.

The purported will provided: $50,000 to Pamela; $75,000 to Todd; 25% of the residue to a trust for the benefit of a friend, Kathryn Harris; and 75% of the residue to Jonathan.

It was “undisputed that the document was prepared by the decedent and just

before he was to undergo life-threatening surgery.” Id. at 68. On the same date as the proffered will -- May 20, 2000 – the decedent also executed a Power of Attorney and living will, “both witnessed by the same individual, who was the Burlington County Surrogate. As with the purported Will, these other documents were typed on traditional legal paper with Richard Ehrlich's name and law office address printed in the margin of each page.” Id. at 69.

The evidence established that, years after drafting these documents, the

decedent acknowledged to others that he had a will and wished to delete the bequest to his former friend, Kathryn Harris. Nevertheless, no later will was ever found. Analysis

After discovery, the parties cross-moved for summary judgment. The trial court

granted Jonathan's motion and admitted the document to probate. The court reasoned: First, since Mr. [Richard] Ehrlich prepared the document, there can be no doubt that he viewed it. Secondly, while he did not formally execute the copy, his hand written notations at the top of the first page, effectively demonstrating that the original was mailed to his executor on the same day that he executed his power of attorney and his health directive is clear and convincing evidence of his "final assent" that he intended the original document to constitute his last will and testament as required both by N.J.S.A. 3B:3-3 and [In re Probate of Will and Codicil of Macool, 416 N.J. Super. 298, 310 (App. Div. 2010)].

Id. at 69.

The Appellate Division articulated the issue as “whether the unexecuted copy of a purportedly executed original document sufficiently represents decedent's final testamentary intent to be admitted into probate under” N.J.S.A. § 3B:3-3. Id. at 69-70.

Citing to the legislative history of that statute, and In re Probate of Will and

Codicil of Macool, 416 N.J. Super. 298, 311 (App. Div. 2010), the Appellate Division continued:

Thus, N.J.S.A. 3B:3-3, in addressing a form of testamentary document not executed in compliance with N.J.S.A. 3B:3-2, represents a relaxation of the rules regarding formal execution of Wills so as to effectuate the intent of the testator. This legislative

leeway happens to be consonant with “a court's duty in probate matters . . . ‘to ascertain and give effect to the probable intention of the testator.’” Macool, supra, 416 N.J. Super. at 307 (quoting Fidelity Union Trust v. Robert, 36 N.J. 561, 564 (1962)) (internal citations and quotation marks omitted in original). As such, Section 3 dispenses with the requirement that the proposed document be executed or otherwise signed in some fashion by the testator. Macool, supra, 416 N.J. Super. at 311.

The court explained N.J.S.A. § 3B:3-3 “places on the proponent of the defective instrument the burden of proving by clear and convincing evidence that the document was in fact reviewed by the testator, expresses his or her testamentary intent, and was thereafter assented to by the testator.” Id. at 74.

The Appellate Division then noted that the decedent undeniably prepared and reviewed the challenged document. In disposing of his entire estate and making specific bequests, the purported will both contains a level of formality and expresses sufficient testamentary intent. As the motion judge noted, in its form, the document "is clearly a professionally prepared will and complete in every respect except for a date and its execution.” Moreover, as the only living relative with whom decedent had any meaningful relationship, Jonathan, who was to receive the bulk of his uncle's estate under the purported will, was the natural object of decedent's bounty. Id. at 74.

The court then turned to whether the decedent “gave his final assent” to the document:

Clearly, decedent's handwritten notation on its cover page evidencing that the original was sent to the executor and trustee named in that very document demonstrates an intent that the document serve as its title indicates -- the "Last Will and Testament" of Richard Ehrlich. In fact, the very same day he sent the original of his Will to his executor, decedent executed a power of attorney and health care directive, both witnessed by the same individual. As the General Equity judge noted, "[e]ven if the original for some reason was not signed by him, through some oversight or negligence his dated notation that he mailed the original to his executor is clearly his written assent of his intention that the document was his Last Will and Testament."

Id. at 74.

The appellate court also noted that, as late as 2008, the decedent “repeatedly orally acknowledged and confirmed the dispositionary contents therein to those closest to him in life.” Id. at 74-75.

The court further concluded that the fact that the document was only a copy of

the original sent to the decedent's executor was not dispositive, since N.J.S.A. § 3B:3-3 does not require that the document be an original. The court determined that the evidence was compelling as to the testamentary sufficiency of the document, so as to

rebut any presumption of revocation or destruction due to the absence of the original. Id. at 76.

One of the most intriguing aspects of the Ehrlich decision is the dissent by the Honorable Stephen Skillman, J.A.D. (retired and temporarily assigned on recall). He concluded, “I do not believe that N.J.S.A. § 3B:3-3 can be reasonably construed to authorize the admission to probate of an unexecuted will.” Id. at 78. In other words, Judge Skillman found that the statute authorized the admission to probate of a defectively executed will, and not an unexecuted will. However, Judge Skillman was also on the three-judge panel that decided the appeal in Macool – and reached a different conclusion in dicta.

In Ehrlich, Judge Skillman relied on the legislative history of N.J.S.A. § 3B:3-3

and national standards under the Uniform Probate Code. He explained, “Although I was on the panel that decided Macool, upon further reflection I have concluded that that opinion gives too expansive an interpretation to N.J.S.A. § 3B:3-3; specifically, I disagree with the dictum that seems to indicate a draft will that has not been either signed by the decedent or attested to by any witnesses can be admitted to probate, provided the putative testator gave his or her ‘final assent’ to the proposed will.”

Judge Skillman stated that the proper standards for the case at bar were those

dealing with lost wills. He would have remanded the matter for proceedings under those standards. Id. at 83-84.

Meanwhile, the majority opinion addressed Judge Skillman’s dissent as follows:

Our dissenting colleague, who participated in Macool, retreats from its holding and now discerns a specific requirement in Section 3 that the document be signed and acknowledged before a court may even move to the next step and decide whether there is clear and convincing evidence that the decedent intended the document to be his Will, and therefore excuse any deficiencies therein. We find no basis for such a constrictive construction in the plain language of the provision, which in clear contrast to Section 2, expressly contemplates an unexecuted Will within its scope. Otherwise what is the point of the exception?

Id. at 72.

The holding in Ehrlich demonstrates that the erosion of the requirements of testamentary formalities continues, and even unsigned wills may be probated. The concept of writings intended as wills can be expected to continue to evolve – and provide fertile ground for estate litigation – in those cases involving non-traditional testamentary “documents.”

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Unintended Consequences: 2703(a)(2) and Undivided Interests in Art

(Estate of Elkins, Jr.)1

By Lance S. Hall, ASA2

James Elkins died owning undivided interests in 64 works of art ranging from 50 percent to 73.055 percent. The works of art were subject to a Cotenants Agreement which stated that the works of art “may only be sold with the unanimous consent of all the Cotenants.” Prior to any discounts, the works of art had stipulated values of $35,180,650. The Estate’s tax return applied a 44.75 percent discounts as determined by Deloitte LLP.

The Experts

At trial, the Estate introduced three experts. Deloitte did not testify at trial. The first expert, David Nash (whose background included 35 years at Sotheby’s and a stint with the IRS Art Advisory Panel) testified that undivided interests in 5 works of art should have discounts “between 50% and 80%”; undivided interests in 19 works of art should have discounts “of approximately 80-90% of the pro rata value”; and undivided interests in 40 works of art “would demand a discount of approximately 95% of the pro rata value.”

The second expert was a Texas attorney, William Miller, who had experience in “a number of partition actions.” Mr. Miller testified regarding the difficulty of partitioning property in Texas, the enforceability of the Cotenants Agreement, and the cost to go through a partition action.

The third expert, Mark Mitchell, was a valuation expert from Clothier & Head, P.S. Mr. Mitchell used a “rate of return” analysis and concluded that undivided interests in two works of art should have a discount of 51.7 percent; another two undivided interests should have a discount of 65.8 percent; another two undivided interests should have a discount of 71.7 percent, undivided interests in 19 works of art should have a discount of 71.1 percent, and the remaining undivided interests should have a discount of 79.7 percent.

The IRS called two experts. Karen Hanus-McManus, an associate appraiser, “testified that the market for modern and contemporary art operates on two levels: the primary market, created by the artist or his or her agents, and the secondary market, controlled by art galleries and dealers and auction houses.” She further testified that “there is no established marketplace for sale of a partial interest in a work of art.”

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John Hill, a New York attorney, also testified for the IRS regarding sale restrictions contained in the Cotenant Agreement. He determined that the Cotenant Agreement restrictions “are not comparable to similar arrangements entered into by persons in arms length art market transactions.”

No IRS expert was introduced to determine a discount.

The IRS’s Arguments

The IRS argued that Section 2703(a)(2) applied stating:

In view of the irrefutable evidence that the only way to sell a fractional interest in artwork is by selling the entire art by agreement or through a partition action filed with the court, the only apparent reason for including the restriction on sale language in the Cotenants' Agreement and the Art Lease Agreement * * * was to reduce the value of Decedent's retained fractional interests in the Artwork as part of a plan to make a testamentary transfer of his remaining interests in the Artwork to his children at a reduced transfer tax rate -- a purpose which section 2703 was specifically intended to prevent.

The IRS also argued that the regulations in Section 20.2031-1(b), Estate Tax Regs., require an “‘item of property includable in the decedent’s gross estate, which is generally obtained by the public in the retail market’, must be valued at ‘the price at which the item or a comparable item would be sold at retail.’” Moreover, since there is no market for undivided interests in art, the only available market is the retail market and “no fractional interest discounts are warranted.”

Further, the IRS believed “that a determination that a discount is appropriate in valuing decedent's fractional interests in the art would be inconsistent with the Commissioner's longstanding position that fractional interests in art are not discounted for purposes of valuing charitable contributions thereof under section 170.”

The Estate’s Arguments

The Estate refuted the IRS’s contention that Section 2703(a)(2) applied in that the Cotenant Agreement “does not restrict the sale of a cotenant's or coowner's fractional interest in the work, and it is decedent's fractional interests in the cotenant art, not the art itself, that must be valued for Federal estate tax purposes.”

The Court’s Analysis and Conclusion

Quoting the Stone case,3 the Elkins Court dismissed the IRS’s argument that Section 20.2031-1(b), Estate Tax Regs., require the undivided interest to be valued on an undiscounted pro rata basis. The Elkins Court also rejected the argument that since the

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IRS does not require discounts for charitable contributions of undivided interests, then no discounts should be allowed in an estate tax context. The Elkins Court concluded, “[t]here is no bar, as a matter of law, to an appropriate discount from pro rata fair market value in valuing, for estate tax purposes, decedent's undivided fractional interests in the art.”

The Court’s analysis then focused on Section 2703.

Section 2703 states -

(a) General rule:

For purposes of this subtitle, the value of any property shall be determined without regard to -

(1) any option, agreement, or other right to acquire or use the property at a price less than the fair market value of the property (without regard to such option, agreement, or right), or

(2) any restriction on the right to sell or use such property.

(b) Exceptions:

Subsection (a) shall not apply to any option, agreement, right, or restriction which meets each of the following requirements:

(1) It is a bona fide business arrangement.

(2) It is not a device to transfer such property to members of the decedent's family for less than full and adequate consideration in money or money's worth.

(3) Its terms are comparable to similar arrangements entered into by persons in an arms' length transaction.

The Elkins Court postulated, “[t]he only question is whether the property to be valued, for estate or gift tax purposes, is subject to a restriction on sale or use.” In disregarding the Cotenant Agreement, the Court states “[w]hether paragraph 7 of the cotenants' agreement is a restriction on decedent's right to sell the cotenant art or is a restriction on his right to use the cotenant art is not important. It is clear that, pursuant to paragraph 7 of the cotenants' agreement, decedent, in effect, waived his right to institute a partition action, and, in so doing, he relinquished an important use of his fractional interests in the cotenant art.” As a result, the Court held “that section 2703(a)(2) is applicable to the restriction, in paragraph 7 of the cotenants' agreement, on sales of cotenant art.”

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Oddly, the Elkins Court then focused on the Elkins children as possible buyers of the hypothetical willing buyer’s undivided interests. The Court criticized the Estate’s experts stating that they failed “to consider not only the Elkins children's opposition to selling any of the art but also their ownership position vis-a-vis that of the hypothetical willing buyer and the impact that the 73.055-26.945 or 50-50 ownership split would have on the negotiations between seller and buyer. ... [T]he hypothetical buyer would be in an excellent position to persuade the Elkins children, who, together, had the financial wherewithal to do so, to buy the buyer's interest in any or all of the works, thereby enabling them to continue to maintain absolute ownership and possession of the art.” Further, “the Elkins children's strong desire to retain possession of the art in place would motivate them to purchase the hypothetical buyer's interests, most likely in each case for an amount equal or close to the undiscounted fair market value of the interest. It defies logic to assume that, as 27% or 50% owners and possessors of the art, the Elkins children would spend millions of dollars to retain their status as such, perhaps as defendants in multiple partition actions that could drag on for many years, when they would be able to acquire 100% ownership and possession of the art, which, after all, is what they really want.”

As a result of the Court’s speculation, it concluded that “given their undisputed financial resources to do so, [the Elkins children] would be willing to spend even more to acquire decedent's fractional interests therein and thereby preserve for themselves 100% ownership and possession of the art.” Therefore, “we conclude that a nominal discount from full pro rata fair market value is appropriate.”

However, because there are some uncertainties, “[w]e believe that a 10% discount would enable a hypothetical buyer to assure himself or herself of a reasonable profit on a resale of those interests to the Elkins children.

Comments

The Elkins Court’s wild speculation regarding how the Elkins children would be the buyers of the hypothetical willing buyer’s undivided interest and who would also be willing to pay full price (even though hypothetical willing buyer could not sell it to anyone else for that amount) is a trip into the Land of Oz. Why would a buyer pay substantially more than what the seller could get anywhere else? The seller has very little bargaining power.

Moreover, it is axiomatic that the larger the number of undivided interest owners, the more issues of contention that can arise. Art, at its most fundamental nature, appeals to different people, differently. Art is an emotional purchase. Emotion often trumps reason. With 64 pieces of art, one child may favor one piece over another piece. One child may support the sale of some of the art, but the art that that child would want to

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sell would certainly be different than another child’s choice. Also, one child may favor buying at a discount another’s undivided interest, while a different child may favor a full purchase price. To believe that all three children will come to unanimity to purchase the hypothetical buyer’s undivided interests at full value is absurd, otherwise, why the need for the Cotenant Agreement requiring unanimity if the children would always act unanimously?

Additionally, as the art is largely non-income producing, the potential for disputes increases. Finally, how a reasonable person can conclude that a 10 percent discount provides “a reasonable profit on resale” seems wildly off-base, especially given that an investment in 100 percent of a work of art has a 32-percent probability of losing money if sold within three years.4

No hypothetical buyer would ever believe that the children would automatically buy the undivided interests at full value. Yet, a 10-percent discount suggests two unrealistic conclusions: first, that such a sale is very, very likely to happen and, second, the sale will occur very soon after the valuation date. The greater evidence is that the price would be significantly lower than a mere 10-percent discount, and the time it takes to negotiate a sale of interests in all 64 works of art that the hypothetical willing buyer and all three children can all agree on will, more likely than not, be greater than one year.

Generally speaking, “[t]he willing buyer and the willing seller are hypothetical persons, instead of specific individuals or entities, and the characteristics of these hypothetical persons are not necessarily the same as the personal characteristics of the actual seller or a particular buyer.”5 In focusing on the Elkins children as the most likely buyers, has the Elkins Court improperly focused on a “particular buyer” instead of a hypothetical buyer?

Regarding, Section 2703, if the resale restriction in a co-tenancy agreement can be ignored under Section 2703, can a similar restriction contained within a partnership agreement also be ignored? Is the definition of “property” in Section 2703 the interest, with all its commensurate rights, preferences and privileges, or is it the unrestricted underlying property without such restrictions?

1 140 T.C. No. 5 (March 11, 2013) 2 Mr. Hall is a Managing Director of FMV Opinions, Inc., a national valuation and investment banking firm with offices in New York, San Francisco, Irvine, Chicago, and Dallas. Mr. Hall heads up FMV’s estate and gift tax valuation practice. He may be reached at lhall@fmv.com. Additional information regarding FMV Opinions, Inc. can be accessed at www.fmv.com. 3 99 A.F.T.R.2d (RIA) 2007-2992 (N.D. Cal. 2007) 4 Richard Bernstein, Karl Pinkernell, “A simple risk reduction tool: time,” Merrill Lynch (July 17, 2006) 5 Cloutier v. Commissioner, T.C. Memo 1996-49 (February 13, 1996)

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HIGHLIGHTS AND PITFALLS FOR NON-US CITIZEN SURVIVING SPOUSES —THE

ESTATE TAX MARITAL DEDUCTION AND THE DILEMMAS OF PORTABILITY

Ashley A. Weyenberg1

INTRODUCTION2 The US subjects US citizen and US resident decedents (“US Decedents”) to estate tax on their worldwide assets. 3 In 2013, US Decedents are entitled to an estate tax exemption of $5,250,000 (as indexed for inflation) to reduce their taxable estates on which tax is imposed at graduated rates with a top tax rate of 40%.4 However, the US only exposes non-US resident and non-US citizen decedents (“Non-US Decedents”) to estate tax on their US situs property to the extent the combined value exceeds the applicable $60,000 exemption equivalent (equal to a $13,000 unified credit), which is not annually adjusted for inflation.5 The estate tax exemption available to a Non-US decedent may be increased through application of an estate tax treaty in force. That said, the total value of a decedent’s assets exceeding such applicable exemption amount is subject to the same graduated rates as US Decedents. US estate tax law permits various deductions to either offset or defer a decedent’s estate tax liability. One deduction particularly relevant to this discussion is the marital deduction. Generally, the marital deduction permits the deferral of estate tax at the first spouse’s death, postponing it until the death of the surviving spouse. Various rules govern the application and method of qualifying for the marital deduction depending on the citizenship of the surviving spouse, not the decedent. Specifically, a decedent can receive an unlimited marital deduction for bequests to a US citizen spouse (“US Spouse”).6 The law limits the applicability of the marital deduction to a decedent who transfers assets to a non-US citizen spouse (“Non-US Spouse”). However, a special marital trust called a qualified domestic trust (“QDOT”) allows for a modified unlimited deferral of the estate tax at the first spouse’s death.7 To maximize the benefit of the exemption amount of US Decedents and some Non-US Decedents (being those who take a certain treaty position, as discussed below), Congress passed legislation permanently allowing portability of any unused estate tax exemption amounts of a first-to-die spouse.8

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PORTABILITY Generally Portability generally permits a surviving spouse to use the most recent deceased spouse’s unused exemption (“DSUE”),9 effectively avoiding any waste of a first-to-die spouse’s remaining exemption.10 In order to take advantage of this taxpayer-friendly provision, a decedent’s estate representative must make a timely and proper portability election. A major focus of US estate tax planning for married couples is to make certain that each spouse fully utilizes his or her own estate tax exemption, because full utilization of both exemptions allows a married couple to double the amount that they pass free of estate tax. Portability allows for this full use of the estate tax exemption without the need to utilize trusts or other tax planning techniques on the first spouse’s death—although engaging in such planning provides additional advantages. Portability is not available to all decedents though. The rules governing portability determine the availability of a portability election based on the citizenship of the decedent spouse. US citizens and US residents The estate representative of a US Decedent may elect portability, thereby passing the decedent’s DSUE amount to his/her surviving spouse. Non-US citizens and non-US residents However, the estate representative of a Non-US Decedent is not generally permitted to make a portability election in favor of a surviving spouse, unless otherwise provided by a treaty. 11 As stated above, the unified credit of a Non-US Decedent is $13,000 ($60,000 exemption). 12 This credit amount is determined under a different Code provision than that applicable to a US Decedent. The DSUE is provided by and calculated according to the Code provision applicable to US Decedents, and Non-US Decedents are not permitted to transfer or use DSUE amounts.13 However, the existence of a tax treaty may cause a different result. In certain cases where a Non-US Decedent’s estate representative is able to take a treaty position, the Non-US Decedent’s unified credit amount may increase. This occurs in 7 of the 15 US estate tax treaties currently in force.14 This language is also in the Belgium-US treaty, which remains in proposed form.15 These treaties each generally provide that a Non-US Decedent shall be allowed a unified credit equal to the greater of: (1) $13,000; and (2) the amount that bears the same ratio to a US Decedent’s section 2010(c) credit amount as the value of the Non-US Decedent’s gross estate situated in the US bears to the value of the Non-US Decedent’s total gross estate wherever situated.

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The applicable credit for a US Decedent is comprised of the basic exclusion amount augmented by DSUE.16 As noted above, various treaties permit a Non-US Decedent to calculate the unified credit using a hybrid of the calculation applicable to a US Decedent. Through application of one of these 7 treaties, a Non-US Spouse may be able to include DSUE of a predeceased Non-US Spouse in his/her applicable credit if the estate representative files an estate tax return to elect portability. Such application would seem to permit alteration of the general rules limiting a Non-US Decedent to a $13,000 unified credit.17 QDOT PLANNING What is a QDOT? As previously discussed, no marital deduction is allowed to a decedent spouse’s estate for transfers to a Non-US Spouse, unless such property passes to a Non-US Spouse in a QDOT.18 Generally, a QDOT must comply with the following requirements:

a. The trust must be an “ordinary” trust b. Have at least one US (individual or corporate) trustee c. Prevent distributions unless a US trustee has the right to withhold tax imposed on

the distribution d. Maintain the trust under the laws of a US state or the District of Columbia e. The estate representative for the decedent must make an election to apply the

QDOT rules f. The trust must also otherwise qualify for the marital deduction under provisions of

Section 205619 Trust distributions, except for income and hardship disbursements made from a QDOT before the death of the Non-US Spouse will be subject to US estate tax—which is not the same as for qualified terminable interest property (“QTIP”) trust rules.20 In addition, the property remaining in the trust at the Non-US Spouse’s death will be subject to US estate tax at that time—which is in line with QTIP trust rules.21 Why use a QDOT? Aside from case-by-case reasons for creating a QDOT, such as asset titling and family dynamics, the main reason to use a QDOT is for marital deduction planning in order to defer estate taxes. However, in the scenarios relevant to this discussion, the US Decedent spouse will have enough exemption to cover his/her estate, as such electing QDOT status would not reduce the estate tax due. Said another way, electing QDOT trust status is unnecessary. With respect to property left to a QTIP trust for a US Spouse, an estate representative’s QTIP election triggering the marital deduction is voidable if it will not reduce the amount of estate tax liability to zero.22 No similar rule exists with respect to the making of a QDOT election.

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So even if a QDOT election is valid, why then elect portability for a QDOT? The benefit of electing portability in such a situation possibly results in various ways. First, such an election may defer (and depending on a Non-US Spouse’s domicile at death ultimately avoid) state death taxes. Second, a Non-US Spouse receives a benefit if he/she is permitted to use even a portion of DSUE to offset gift or estate tax liability. Third, payment of certain trust expenses and income taxes during a Non-US Spouse’s death using pre-estate tax funds likely provides economic savings to both the spouse and the trust. Application of DSUE to QDOT The amount of the US Deceased spouse's DSUE amount cannot be calculated until all of the assets of any QDOT created by that US Spouse have been subjected to US estate tax.23 As detailed further below, this generally means that a Non-US Spouse for whom a QDOT was created will be able to use the DSUE amount from the deceased spouse only against the surviving spouse's estate tax liability, and not against any gift tax liability, unless all QDOTs benefiting surviving spouse are terminated or if the surviving spouse has become a US citizen.24 THE PITFALLS: PORTABILITY AND QDOTS The proposed and temporary portability regulations raise questions in two main areas with respect to estates in which the first-to-die US Decedent leaves property to a Non-US spouse in a QDOT. First, the regulations provide that when property from a US Deceased Spouse’s estate passes to a QDOT, the Non-US Spouse’s ability to use any DSUE amount is suspended until the occurrence of the final QDOT distribution or other final event on which tax under Code Section 2056A is imposed (e.g., the Non-US Spouse’s death or the earlier termination of the QDOT during Non-US Spouse’s life).25 At that point, the DSUE amount is redetermined—potentially reducing the DSUE available to the Non-US Spouse. Second, the regulations separately provide for rules governing portability with respect to QDOTs and portability in all situations where there are multiple deceased spouses. As such, confusion as to the interplay of these rules exists. Potential waste of DSUE amount due to re-determination Practitioners will share two obvious concerns after reading the convoluted example in the proposed regulations dealing with DSUE redeterminations, which requires various assumptions: (1) the potentially disadvantageous recalculation of DSUE upon a QDOT taxable event and (2) the unfavorable restriction on a Non-US Spouse’s use of the DSUE.26

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The first concern is based merely on the fact that Non-US Spouses are potentially entitled to a lower DSUE amount than US Spouses. For a US Spouse, DSUE is calculated at the death of the first spouse and is not later redetermined upon the occurrence of any subsequent event. The DSUE amount transferred to a Non-US Spouse by way of a QDOT may remain equal to the DSUE amount calculated, but more likely it will diminish upon redetermination in subsequent years. This redetermination for Non-US Spouses is a matter of black letter law and like many others, not subject to alteration by Treasury. However unfair this seems, practitioners should be used to such reduced exemption amounts with respect to non-US citizen estate tax matters. The second concern though, is where practitioners should invest time grumbling. As currently interpreted, a Non-US Spouse is potentially penalized for making large gifts during life due to DSUE amounts remaining locked in a QDOT until final distribution/termination—often being the year of a Non-US Spouse’s death.27 Congress’ intended purpose for providing DSUE amounts though is to permit surviving spouses the ability to manage their gift and estate planning during life without waiting until their death. It seems the only way to ensure that purpose remains intact with respect to Non-US Spouses is for Treasury to provide regulations interpreting the statue in a way that permits a retroactive use. This would permit Non-US Spouses to use DSUE amounts to offset taxable gifts during life, i.e., made in remote years occurring after the first spouse’s death, but before (and including the year of) final QDOT distribution/termination. So, not only is a Non-US Spouse subject to a reduced DSUE based on the redetermination, he/she is subject to a potential a loss (read: waste) of the DSUE amount which a Non-US Spouse could have used to offset tax on certain lifetime gifts made in years prior DSUE being “unlocked”, i.e., after the occurrence of a final QDOT distribution/termination.28 Therefore, without further guidance a surviving spouse is not permitted to use DSUE amounts to offset tax on any lifetime gifts between the time of the first spouse’s death and the final QDOT distribution/termination, notwithstanding whether this gap is 1 year or 50+ years. Therefore, practitioners hope Treasury provides guidance ensuring the purpose of DSUE remains intact for Non-US Spouses. QDOTs and the Multiple Deceased Spouse Rules The regulations separately provide rules for portability with respect to QDOTs29 and portability in situations where a surviving spouse has multiple deceased spouses, but do not illustrate the results when integrated.30 The interplay of these rules introduces possible confusion due to the lack of precise guidance. To illustrate, consider the following example. Assume that all estate representatives of the decedents involved filed complete, correct and timely estate tax returns and elected portability and also that H1, H2 and H3 made no taxable gifts during their lifetime. H1 dies in early 2011 married to W, a resident non-citizen. Further, H1 had a gross estate of $3,000,000 and leaves $2,000,000 in a QDOT for W and remainder ($1,000,000) to their son. W marries H2 later in 2011. H2 then dies soon thereafter, leaving his entire

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$1 million estate to W outright. In 2011, soon after H2’s death W marries H3. Thereafter, W makes a taxable gift of $1,000,000 to S in 2011. Prior to making this gift she used $4,500,000 of her lifetime exemption. Wife dies in 2013 and the QDOT terminates. Under the regulations, it seems reasonable that W’s applicable credit amount would include $4 million of DSUE from H2 and nothing from H1. Even with the QDOT, because H1 is no longer W’s last deceased spouse, the DSUE amount from H1 is no longer available because of W’s marriage to H2 and H2’s subsequent death (leaving W with a $4 million of DSUE). Practitioners await confirmation of this conclusion from Treasury, along with illustrations detailing the combined QDOT and multiple spouse rules as to each of the following: (1) application to lifetime gifts of surviving spouse, i.e., W’s 2011 gift of $1,000,000 (correlating the issue of the potential waste of DSUE, above) and (2) calculation of DSUE at final QDOT distribution/termination, i.e., W’s 2013 death and redetermination of DSUE. PRACTICAL SUGGESTIONS While we wait for further regulatory guidance and clarification on these points, individuals who contemplate they may ultimately leave property to a Non-US Spouse and have their estate representative elect portability should consider additional, more traditional estate planning during life. This is true even if an individual contemplates the availability of a treaty-based return position for his/her estate. Such individuals may be well suited to investigate more effective assets allocations, property titling and tax minimization planning in the interim. To ensure such advice is tailored to an individual’s unique situations, he/she should seek independent and competent legal counsel. 1 Ashley A. Weyenberg, Ernst & Young LLP, National Tax Department, Personal Financial Services, Individual Global Tax Planning Group, Washington, DC. Email: ashley.weyenberg@ey.com 2 The author thanks both Justin Ransome a Partner in the National Tax Department of Ernst & Young LLP in Washington, DC, who is a part of the Personal Financial Services practice area and the Individual Global Tax Planning Group for his thoughtful suggestions during the review process and also Richard Franklin a member of McArthur Franklin PLLC in Washington, DC for suggesting the creation of this article. 3 Sections 2031, 2033 (2013) (all citations herein are to the Internal Revenue Code of 1986, as amended, and its Regulations); Reg. 20.0-1(b) 4 Section 2001(c). 5 Section 2102(a), (b)(1) (discussed further below). 6 Section 2056 (subject to certain restrictions, e.g., non-deductible terminable interest rule, etc.) Throughout this article you will notice the precise reference to the citizenship of either a decedent or surviving spouse. This is due to the fact that the applications of pertinent rules turn on the citizenship of one over the other. 7 Section 2056A. 8 American Taxpayer Relief Act of 2012, Title I (2013). 9 Section 2010(c)(4) (means the lesser of—(A) the basic exclusion amount or (B) the excess of—(i) the applicable exclusion amount of the last deceased spouse of such surviving spouse, over (ii) the amount with respect to which the tentative tax is determined under section 2010(b)(1) on the estate of such deceased spouse.). 10 Section 2010(c)(5)(A).

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11 Regs. 20.2010-2T(a)(5), 20.2010-3T(e) and 25.2505-2T(f). 12 Section 2102(b). 13 Reg. 20.2010-2T(a)(5) and -2T(e); T.D. 9593, No. 7. 14 Section 2102(b)(3)(A); Form 706-NA, Instructions (Rev. 2011) (increased unified credit in US bilateral estate tax treaties in force with Finland, France, Germany, Greece, Italy, Japan, Norway, and Switzerland and were included in Canada and Australia). Canada and Australia do not have an estate tax, but Form 706-NA in its current form permits pro-rata unified credit amounts to residents of those jurisdictions. Belgium-US bilateral estate tax treaty is in proposed form. 15 Belgium-United States Estate Tax Convention, Article IV (proposed). 16 Section 2010(c). 17 Reg. 20.2010-2T(a)(5) and -2T(e); T.D. 9593, No. 7-8. 18 Sections 2056(d)(1)(A), 2056(d)(2)(A); see Fung v. Comm’r, 117 T.C. 247, 253 (2001), aff’d 2003 US App LEXIS 4053 (9th Cir. 2003). 19 Section 2056A(a); Reg. 301.7701-4(a). 20 Section 2056A(b)(1)(A), (b)(3)(A), (B). 21 Sections 2056A(b)(1)(B), 2044. 22 Rev. Proc. 2001-38. 23 Reg. 20.2010-2T(c)(4). 24 Reg. 20.2010-3T(c)(2); Section 2056A(b)(12). 25 Regs. 20.2505-3T, -2T(d)(2) and 20.2010-2T(c)(4). 26 Reg. 25.2505-2T(d)(2)(ii); see also Reg. 20.2010-2T(c)(5)(ii), ex/3 (additional illustration of re-calculation of DSUE). 27 The Preamble to the Temporary Regulations indicate that there were several possibilities on how to approach the use of the DSUE amount in the Portability Regulations, and that the approach taken was to preserve the DSUE amount first for use against this QDOT tax liability–making the DSUE amount available to the surviving spouse if and only if there is excess exclusion remaining after the final redetermination. 28 Reg. 25.2505-2T(d)(2)(ii). 29 Regs. 20.2010-2T(c)(4) and (5), -3T(c)(2), 25.2505-2T(d)(2), -3T(c)(2). 30 Regs. 20.2010-3T(b), 25.2505-2T(c).