On May 28, 2008, Governor Granholm signed into law the Personal Property Trust Perpetuities Act of 2008. In general, the Act makes the rule against perpetuities inapplicable to personal property held in trusts that were revocable on, or created after, May 28, 2008. Prior to the Act, trusts governed by Michigan law were generally limited to a duration of 90 years. Under the Act, trusts funded with personal property can have a perpetual term, thereby allowing Michigan residents to have "dynasty trusts".

The Act's general exemption from the rule against perpetuities does not pertain to real property held in trust and, therefore, such trusts will continue to be subject to the 90-year rule. However, if the real estate is owned by the trust through an entity (i.e., corporation, partnership, or LLC), as opposed to direct ownership, then the exception for real property does not apply and the trust can have a perpetual term.

For more information regarding this topic, please e-mail your requests to Julius H. Giarmarco, or call Julius at (248) 457- 7200.

THIS ARTICLE MAY NOT BE USED FOR PENALTY PROTECTION.

On October 3rd, President Bush signed into law the Emergency Economic Stabilization Act of 2008 (the "Act") primarily to ease the country's current credit crunch. In order to get enough votes from members of the House of Representatives, the Act had to contain numerous tax provisions, few of which affect estate planning by extending expired laws.

• The Act raised the FDIC and National Credit Union Share insurance fund deposit insurance limits to $250,000 per account from $100,000 per account until December 31, 2009.
• The Pension Protection Act of 2006 allowed taxpayers to make tax-free contributions from their IRAs to qualified charitable organizations. This tax benefit expired on December 31, 2007. The Act extended this provision through 2009, effective for distributions after December 31, 2007.
• The Act extended for two years, through 2009, a provision that encourages businesses to contribute computer equipment and software to elementary, secondary, and post-secondary schools by allowing an enhanced charitable income tax deduction for such contributions. The Act also extended a provision giving C corporations enhanced charitable income tax deductions for donations of books to schools, public libraries and literacy programs.
• The Pension Protection Act limited the amount of basis reduction in S corporation stock to the shareholder's pro rata share of the adjusted basis of property contributed by an S corporation to charity. This provision expired December 31, 2007. The Act extended it to the end of 2009.

For more information regarding this topic, please e-mail your requests to Thomas P. Cavanaugh, or call Tom at (248) 457- 7218.

THIS ARTICLE MAY NOT BE USED FOR PENALTY PROTECTION.

Private foundations are unmatched when it comes to donor control. Only private foundations afford the donor exclusive control over how assets are invested and how spent; over who the members of the board are and who the staff are.

Private foundations are also unmatched in the variety of ways they may persue their charitable purposes. In addition to grants to domestic charities, private foundations can grant to foreign charities. In addition to scholarships, private foundations can grant directly to individuals. Private foundations that would rather "self-fund" their own projects can do that too. They are called operating foundations and they bring even more advantages.

First, the more generous "public charity" charitable deduction rules apply to gifts to operating foundations. They do not apply to gifts to standard foundations. Second, operating foundations may receive and retain grants from standard foundations. Standard foundations may also receive but not retain such grants. Third, and maybe most relevant, operating foundations may receive "IRA charitable rollover" distributions. Standard foundations may not. Thus, an operating foundation should not be overlooked by those anticipating significant IRA charitable rollovers this year and next.

For more information regarding this topic, please e-mail your requests to Salvatore J. LaMendola, or call Sal at (248) 457-7204.

THIS ARTICLE MAY NOT BE USED FOR PENALTY PROTECTION.

When a person decides to purchase several millions of dollars of life insurance on his elderly mother with the "intention" of selling those policies to investors, risks to all parties involved abound. In particular, the risks are heightened when the potential purchasers of those policies are the insurance agent himself.

In Jefferson-Pilot Life Insurance v Marietta Campbell, et al, 2008 U.S. Dist. LEXIS 6151; Marietta Campbell Insurance Group, LLC v Jefferson-Pilot Life Insurance Company, 2007 U.S. Dist. LEXIS 79075(D)(N)(D), Oct. 24, 2007, Jefferson-Pilot refused to pay the death benefit from an insurance policy insuring the life of Marietta Campbell and payable to the Marietta Campbell Insurance Group, LLC. Jefferson-Pilot claimed that a material misrepresentation was made on the application for insurance on Marietta Campbell's life. Under North Dakota law, material misrepresentations are a valid basis for rescission.

In the spring of 2005, Marietta Campbell and her husband, Paul, along with their three sons, owned several businesses in North Dakota. Mr. and Mrs. Campbell's sons, Tom and Bill, were discussing life insurance with their long time friend, Clay Swanson. Clay arranged for the two of them to communicate with Michael J. Antonello, an insurance agent in Minnesota. Apparently, Antonello had previously assisted Clay and his brothers in obtaining life insurance policies on Clay's mother's life and then sold the policies to a limited liability company that Clay and his brothers had established with Antonello's assistance. Consequently, Tom Campbell began discussions with Antonello about obtaining life insurance on his mother.

Soon afterward, Antonello arranged for Mrs. Campbell to sign blank applications for insurance from five different insurance companies, including Jefferson-Pilot. Upon his receipt of these insurance applications, Antonello spoke with Tom and his mother to elicit the necessary information in order for him to complete the insurance applications. The Jefferson-Pilot application sought $3 million of life insurance coverage and listed Mrs. Campbell as the owner of the policy and her Estate as the sole beneficiary. Life insurance applications were submitted to Jefferson-Pilot, as well as four other carriers (AIG, Allianz, Hartford and Lincoln) at the same time.

When asked in Question 60 if there were any applications pending with any other life insurance company now, Antonello's assistant, Matthew Schafer, who completed the Jefferson-Pilot application after Mrs. Campbell signed it, checked the box "yes" and explained: "Also applied American General Life." Allianz, Hartford and Lincoln were not listed.

Life insurance policies were issued by each of these five companies for a total of $14 million in death benefits. Just as the Swansons had done, the Campbells established limited liability companies to fund and receive benefits from these five life insurance policies. Marietta Campbell Insurance Group, LLC (MCIG) was established to fund and benefit from Mrs. Campbell's Jefferson-Pilot and AIG policies. Initially, Mrs. Campbell was the sole member of MCIG.

On August 13, 2005, MCIG issued 4,950 shares to Tom and 4,950 shares to Clay, leaving Mrs. Campbell with only 100 shares. In exchange, Tom and Clay each agreed to contribute $276,870.00 to MCIG. Funds were contributed to MCIG and on September 2, 2005, Tom drafted a check from MCIG's bank account in the amount of $114,990.00 to pay the first Jefferson- Pilot life insurance premium.

Another LLC was established - Marietta Campbell and Associates (MCA) - in order to invest in Mrs. Campbell's Allianz, Hartford and Lincoln benefit policies. This occurred in August or September 2005. According to discovery in this case, Mrs. Campbell agreed to whatever her sons proposed and was only nominally involved in the decision making.

On April 2, 2006, Mrs. Campbell died suddenly from an intracerebral hematoma. To their dismay, the Campbells, Swansons and Antonello failed to designate MCIG and MCA as the beneficiaries of the respective life insurance policies those entities had funded. Apparently, the necessary paperwork was not submitted before Mrs. Campbell's sudden death. However, Antonello had in his file blank change of beneficiary forms that Mrs. Campbell had signed and dated on August 31, 2005.

After Mrs. Campbell's death, Antonello filled in the beneficiary designation form signed by her to reflect that MCIG would be the new beneficiary of the Jefferson-Pilot policy. Upon its receipt of the change of beneficiary form and unaware that Mrs. Campbell had died, a Jefferson-Pilot employee sent a fax to Mrs. Campbell notifying her that the date on the form was too old and that she needed to complete the field describing the new beneficiary's relationship to the insured. According to Court records, Antonello altered the form to falsely reflect that Mrs. Campbell signed it on March 30, 2006 and to falsely reflect that Mrs. Campbell owned 100% of MCIG.

On April 12, 2006, Jefferson-Pilot approved the updated change of beneficiary request which bore Mr. Antonello's edits. On May 1, 2006, Tom completed and submitted a form to Jefferson-Pilot reflecting that Mrs. Campbell had died and claimed death benefits for MCIG.

Since Mrs. Campbell died during the two year contestability period, Jefferson-Pilot performed an investigation to determine whether the insured provided accurate information on the application for insurance. During Jefferson-Pilot's investigation, the Minnesota Department of Commerce contacted Jefferson-Pilot and other life insurance companies regarding other instances in which Antonello knowingly submitted life insurance applications that did not disclose that the applicant had other pending applications. Consequently, the Jefferson-Pilot investigator assigned to the MCIG death claim, learned of Mrs. Campbell's Allianz, Hartford and Lincoln benefit life insurance policies.

On October 19, 2006, Jefferson-Pilot determined that had they known the total amount of insurance being applied for by Mrs. Campbell, they would have denied her coverage noting that there is no financial need for $14 million of life insurance coverage. Eight days later, an attorney in Jefferson-Pilot's legal department concluded that the misrepresentations were material and appeared to have been made with the intent to deceive, since most of the applications were taken on the same day. In a November 16, 2006 letter from Jefferson-Pilot, Tom was informed that the carrier was rescinding the life insurance policy issued to Mrs. Campbell.

On January 3, 2007, following extensive investigation and communication with the other relevant insurance carriers, Jefferson-Pilot terminated Antonello's contract "as a result of material misrepresentation on the applications regarding other insurance in force or pending at the time of application."

Lawsuits were filed and eventually MCIG and Tom Campbell filed a Motion for Summary Judgment seeking dismissal of the cases in their favor and seeking entry of an Order directing Jefferson-Pilot to pay the entire insurance proceeds to MCIG.

One of the issues contained in the Motion was whether or not a material misrepresentation had occurred. Tom and MCIG argued that there had not been a material misrepresentation in Question 60 of the application because there had not been any "pending" applications with any other insurance company (other than American General, which was disclosed). At the time the Jefferson-Pilot application was submitted to the carrier, Tom and MCIG argued that applications for insurance had not yet been submitted to Lincoln, Allianz and Hartford.

In its ruling, the Federal District Court in North Dakota held that Mrs. Campbell had a duty when she discovered facts that made portions of her application no longer true while the insurance company deliberates issuing insurance and that she should have made full disclosure of the newly discovered facts. In other words, Mrs. Campbell was required to update her answer to Question 60 of the Jefferson- Pilot application if the other life insurance applications became pending while Jefferson-Pilot was considering her application. The Court held that she had a duty of utmost good faith to disclose the Allianz, Hartford and Lincoln applications to Jefferson-Pilot. While other rulings were made, the end result of the Motion was that the Court did not dismiss Jefferson- Pilot's lawsuit and ruled a trial may be held as to who is entitled to the death benefit proceeds from the Jefferson-Pilot life insurance policy insuring Mrs. Campbell's life.

One of the points of this case is that all of the recent IOLI schemes have very consistent themes: They involve omissions, misrepresentations or insurance fraud on some level. These schemes also result in very expensive litigation to the participants. There are significant risks and dangers not only to clients in the marketplace, but also to financial and insurance advisors if they recommend and/or participate in IOLI transactions. The Marietta Campbell/Jefferson-Pilot case is another of an ever-growing litany of lawsuits involving investor owned life insurance arrangements.

For more information regarding this topic, please e-mail your requests to Thomas P. Cavanaugh, or call Tom at (248) 457- 7218.

THIS ARTICLE MAY NOT BE USED FOR PENALTY PROTECTION.

	Annual	Semi-Annual	Quarterly	Monthly
Short Term AFRs (Term 3 Years or Less)	1.63%	1.62%	1.62%	1.61%
Mid Term AFRs (Term More Than 3 Years and 9 Years or Less)	2.97%	2.95%	2.94%	2.93%
Long Term AFRs (Term More Than 9 Years)	4.24%	4.20%	4.18%	4.16%
Section 7520 Rate	3.6%