Remarks on Jonathan I. Charney

I have been asked to speak for 10 to 15 minutes about a very dear friend and colleague of 25 years, Jon Charney, specifically about his contribution to Vanderbilt Law School. It is difficult to encapsulate any professor\u27s contribution over the course of 30 years in mere minutes. This is especially difficult in Jon Charney\u27s case, because in my opinion, Jon made an extraordinary, extensive, and enduring contribution that has earned him a place in the pantheon, among the giants in the history of this Law School. This might seem an odd assertion to those who were acquainted with Jon. He never held a high administrative position to the best of my knowledge. He was not one to constantly prowl the halls engaged in all the give and take of daily life at an academic institution. In fact, more often than not he was away from the Law School. What he was doing while away, however, says a lot about what he uniquely contributed

In Search of a Unifying Principle for Article V of the Uniform Trust Code: A Response to Professor Danforth

Professor Robert Danforth\u27s exploration of spendthrift trusts in Article Five of the UTC and the Future of Creditors \u27Rights in Trusts is a superb piece of work. Professor Danforth analyzes with considerable acuity the ins and outs of the specific rights creditors and beneficiaries of trusts have under the Uniform Trust Code (UTC). His article clearly represents the most detailed analysis of the new Code\u27s approach to spendthrift trusts. Professor Danforth is determined to establish that Article V is not as creditor-friendly as its critics claim.2 His article is essentially an apologia, coupled with some proposed modifications so as to leave no doubt about this. However, in his zeal to defend Article V and refute the contention that it is too creditor-friendly, Professor Danforth strikingly ignores its manifold shortcomings. Article V is a missed opportunity to legislate a coherent theory of creditor rights and spendthrift protections. As drafted, it is a disappointing amalgam of often contradictory, formalistic rules

Myth of Ownership / Myth of Government

Indisputably, the lives of all individuals, now and throughout history, have not been commensurate in every respect. No individual has the most of everything at all times - net worth, love, happiness, security, companionship, fame, food, land, grandchildren, or whatever else he or she values.1 Nevertheless, a utopian strain in intellectual thought, emanating as the Enlightenment afterglow,2 continues to place its faith in the public construction of an ersatz equality that has never existed naturally.3 The Myth of Ownership, a recent book by two New York University law/philosophy professors, Liam Murphy and Thomas Nagel, is a striking exemplar of this dogged faith in the government\u27s ability to eradicate inequality ... As Murphy and Nagel powerfully demonstrate, many of the dominant concerns of taxation, such as vertical and horizontal equity and the debate over income versus consumption tax, diminish in importance or even vanish when the focus turns to first principles. The proposed policy solutions, which are the result of so much intellectual effort and discourse, are in a sense beside the point. Thus, a high level of awareness that tax policy cannot and does not advance in a vacuum would serve tax scholars well. To the extent that The Myth of Ownership stimulates discussion of the underlying values taxation serves, it will prove a positive contribution, notwithstanding the authors\u27 unfortunate failure to make the case for their own first principles

Strange Bedfellows

With the maximum rate of federal income tax at 39.6 percent, the Medicare surtax on investment income of 3.8 percent, and some state income tax rates exceeding 9 percent, taxpayers in the highest brackets have been seeking to develop strategies to lessen the tax burden. One strategy that has been receiving increased attention is the use of a highly specialized trust known as the NING, a Nevada incomplete gift nongrantor trust, which eliminates state income taxation of investment income altogether without generating additional federal income or transfer taxes. A major obstacle standing in the way of accomplishing this objective, however, are the laws of a number of high-tax states. These laws assert taxing jurisdiction over trusts created by grantors who were resident in the state when the trust was created, even if the grantor has long since departed the state or if the trust has been continuously administered from out of state. Other high-tax states claim jurisdiction to tax the trust as long as there is a beneficiary resident in the state at the time that the income is being accumulated out-of-state or at the time a distribution is made. One state, New York, simply outlaws the NING technique. In order to overcome these state laws, tax planners have found an unlikely ally federal constitutional law. This Article explores whether and how the Federal Constitution can be used to avoid state income taxation. As it makes clear, interpretations of the Federal Commerce and Due Process Clauses, though developed in other contexts, are proving to be powerful tools in neutralizing state jurisdiction to tax high-bracket taxpayers with substantial investment income and an out-of-state trust such as a NING

Multijurisdictional Estates and Article II of the Uniform Probate Code

The prefatory note to the 1990 revisions of article II of the Uniform Probate Code ( UPC ) indicates that the changes wrought are a response to several developments since the promulgation of the UPC in 1969. The prefatory note emphasizes the decline of formalism, the proliferation of will substitutes, the multiple-marriage society, and the rise of the partnership/marital sharing theory as stimulative of the revisions introduced. The theme of this article is that one other crucial development has been essentially ignored. No serious attempt has yet been made by the drafters to address the immensely complex yet commonplace issues associated with, and being generated by, the unprecedented geographic mobility of individuals and their ability, in a world of rapid communications and decreasing constraints on investment, to own property in more than one jurisdiction. While the UPC is a masterful work of law reform, the issues raised by the increasingly peripatetic nature of individuals and their capital requires the most careful attention. If the UPC is to be fully relevant in the future in facilitating the proper disposition of and determination of rights in property, it must take a more active role in the burgeoning effort to provide a viable legal framework for multi-jurisdictional wealth transfer

The Rise of the International Trust

With considerable acuity, Carlyn S. McCaffrey and Elyse G.Kirschner explore the maze created by the new Code and treasury regulation provisions. In addition to affording a fascinating roadmap through the maze, their article, Learning to Live with the New Foreign Nongrantor Trust Rules, demonstrates the difficulty of addressing legislatively the multitude of trust arrangements that can be devised in the struggle between grantors worldwide and the U.S. tax authorities. The article also exposes the inevitable generation of unintended consequences, including new loopholes, that are a product of such legislation. In a second tax article, Respect for Form as Substance in U.S. Taxation of International Trusts, Donald D. Kozusko and Stephen K. Vetter address the regulatory conundrum posed by enforcing hard-and-fast rules in the international trust context. They argue that, in the case of transfer taxation and trust income taxation, substance has often taken a back seat to form. Indeed, form is substance. This reality effects the choices that are routinely made between the utilization of one form of ownership over another. The Code very clearly details different tax consequences, depending on the choice of form made. In the case of international trusts, under the new tax regime, the jury is still out as to whether form will be submerged by broad doctrines of economic substance and step transactions, or whether form will still prove to be the substance of the law, more generally characterizing the U.S. taxation regime relating to foreign trusts. Ironically, as Kozusko and Vetter point out, the misplaced rigor of the Code\u27s entity attribution rules may actually subvert the substantive goals served by formalism. The last topic explored in this issue of the Journal is asset protection, especially in conjunction with the international trust. There are articles by leading proponents, including Gideon Rothschild, Daniel S. Rubin, and Jonathan G. Blattmachr, as well as by a leading critic, Eric Henzy, who successfully challenged an asset protection structure in the recent decision of In re Brooks. In addition, the transcript of a spirited Round table discussion reveals the views of Barry S. Engel, one of the originators of asset protection strategies in response to the tort liability crisis. As part of this Roundtable and in a separate article, David Aronofsky elucidates the efforts of Montana to become a bank secrecy center. Properly understood, the asset protection debate is about the use by a high net worth individual of the international trust in an offshore jurisdiction to counterbalance the risk of unbridled tort liability in the United States. A particularly striking aspect of the Symposium\u27s exploration of this issue is its consideration of the efforts of Alaska and several other jurisdictions within the United States to attract some of the capital administered offshore. An Alaskan asset protection trust seeks to afford the protections of an international trust but without the dangers perceived in placing capital in exotic jurisdictions offshore. However, the viability of the effort by Alaska and several other states may be hampered by certain constitutional constraints, most notably the Full Faith and Credit clause as applied within the United States. A Vanderbilt student and member of the Journal, Amy Lynn Wagenfeld, addresses and critiques this development

From De Facto to Statutory Exemption: An Analysis of the Evolution of Legislative Policy Regarding the Federal Taxation of Campaign Finance

This article first explores the development of the de facto system of tax exemption and identifies the tensions that led to its demise. The analysis then details the substitution of a statutory structure in place of the traditional informal arrangement and examines the potential present in that structure for substantial IRS interference in the political process

Symposium: The Role of Federal Law in Private Wealth Transfer

Property and inheritance are quintessential state matters. \u27 In fact, there is no federal intestacy law. There is no federal wills law. There is no federal trust law. And yet.... Increasingly, federal law impacts court decisions involving private wealth transfer. Increasingly, federal law is the central consideration in premortem and postmortem planning for private wealth transfer. Despite this, until recently, little scholarly attention has been paid to this phenomenon; the assumption regarding the centrality of state law, quoted above, having gone largely unquestioned. But now that the sleeping giant has awakened, the role that federal law plays in private wealth transfer requires serious and comprehensive academic consideration. This symposium issue of the Vanderbilt Law Review is intended to do just that. There are ten articles addressing various facets of the topic. These are set forth in the same order as the order of the presentations made by the distinguished authors at the symposium that took place at Vanderbilt Law School in Nashville, ennessee earlier this year. A number of the articles are followed by comments by other distinguished scholars, who not only address the particular article, but also use the comment as a platform to explore other aspects of the topic The old paradigm is dead. Private wealth transfer law is NOT just state law. Indeed, in some respects, it is now principally federal law. This increasing federalization and even dominance can be expected to continue apace. While the problems and consequences of federalization are not new to many other areas of law and have received considerable and serious scholarly attention, they are new to private wealth transfer. The way in which the state-federal balance is being struck, the consequences for private wealth transfer flowing from federal involvement, and the principles that should guide courts and legislators in determining the proper state-federal allocation, are all examined with considerable analytic care in these pages. Hopefully, this symposium issue will stimulate similar efforts in the future-all contributing to a better understanding of what the federal role is and what it ought to be in this historically state dominated area of law

Strange Bedfellows: The Federal Constitution, Out-of-State Nongrantor Accumulation Trusts, and the Complete Avoidance of State Income Taxation

With the maximum rate of federal income tax at 39.6 percent, the Medicare surtax on investment income of 3.8 percent, and some state income tax rates exceeding 9 percent, taxpayers in the highest brackets have been seeking to develop strategies to lessen the tax burden. One strategy that has been receiving increased attention is the use of a highly specialized trust known as the NING, a Nevada incomplete gift nongrantor trust, which eliminates state income taxation of investment income altogether without generating additional federal income or transfer taxes. A major obstacle standing in the way of accomplishing this objective, however, are the laws of a number of high-tax states. These laws assert taxing jurisdiction over trusts created by grantors who were resident in the state when the trust was created, even if the grantor has long since departed the state or if the trust has been continuously administered from out of state. Other high-tax states claim jurisdiction to tax the trust as long as there is a beneficiary resident in the state at the time that the income is being accumulated out-of-state or at the time a distribution is made. One state, New York, simply outlaws the NING technique. In order to overcome these state laws, tax planners have found an unlikely ally federal constitutional law. This article explores whether and how the Federal Constitution can be used to avoid state income taxation. As it makes clear, interpretations of the Federal Commerce and Due Process Clauses, though developed in other contexts, are proving to be powerful tools in neutralizing state jurisdiction to tax high-bracke