Dear Cyndy,

Thank you for your letter. I'll address your concerns
sequentially.

1) My lawsuit against Mass Eye and Ear Infirmary taught me the
invaluable lesson that the law cannot be taken literally, but
that the courts will interpret the law more or less unpredictably
to suit political purposes, a fact which becomes glaringly 
apparent in Supreme Court decisions. Consequently the value 
of litigation is not entirely in obtaining a favorable judgment.
Litigation alters the relationship between the litigants. In the
case mentioned, the Infirmary gave me what I had asked for,
even though Judge Garrity and the Appeals Court validated the
forgery and dismissed the case. Though technically I lost,
practically I won. Had the Infirmary continued to try to force
me to endorse surgical operations I deemed harmful to the patient,
I would have filed another lawsuit. They blinked. It's possible
that Nantucket similarly has had its fill of litigation with me,
even if I don't win the case. If I live long enough, we'll find out.

2) Klemens is studying for his specialty board re-examination in
Internal Medicine, for a certification which is required for his
hospital appointment, but not for his medical license. Certificates
issued prior to a certain date, exactly which I don't know - are
"grandfathered" and do not need to be renewed. That's my situation
with ophthalmology. Specialty board certifications are distinct from
the Massachusetts State Board of Medicine requirements for 100 hours
continuing medical education every two years at license renewal time,
requirements which both Klemens and I have to fulfill. He does so by
attending numerous staff conferences at the hospital where he is a
"full professor".  I've fulfilled my requirements by "passing" the
Internet examinations of which I've sent you copies.

3) Of course it would be foolish of me, not being a lawyer, to give
legal advice especially on a subject as recondite as estate taxation.
However it's of some value to me to think about the questions which
your comments on your own estate tax predicament raised in my mind.
I'll share with you the questions. If and when you come up with answers,
please share them with me. But remember: The danger to your economic
wellbeing of lawyers is almost as great as the danger that physicians
pose to your health.

What if? What if husband (H) and wife (W) have three children, two
daughters-in-law and three grandchildren to whom they wish to leave
their estate valued at 3 million dollars. What if although subsequent
to the impending elections, the estate tax exemption is set at 3.5 million
dollars, following catastrophic unemployment in 2011 and 2012, a congress
is elected which reinstates a combined estate-gift tax exemption of only
1 million dollars. Meanwhile the annual gift tax exclusion remains at
$13000. What if H and W each acting independently, on December 1, 2010,
present as a gift to each of their seven intended beneficiaries a promissory
note for $13000 due in one year, i.e. on December 1, 2011. What if,
at that time, H and W discharge their obligations by replacing the
promissory note which has become due, with a promissory note of the
same face value due a year hence, December 1, 2012 and in addition make
another gift of a $13000 promissory note also due in 2012, and what if
each of them independently continue this process annually until the year
that they die.  Each has a life expectancy of 18 years. Each of them dies,
and the executor of each now holds promissory notes worth
7*18*13000 = $1638000. $1638000 that has become a liability of 
each decedent's Estate, which because of real estate inflation now has
a gross value of $2000000, but because of the liabilities of the
promissory notes, has a net, taxable value of only $362000,
well below the 1 million dollar exlusion.  Moreover, what if each of the
decedents has left a will specifying that only the non-taxable portion of 
his or her estate is to be distributed to the beneficiaries,  but that
any potentially taxable portion - that in excess of 1 million dollars,
is to be given to a tax exempt Charitable Family Trust for the promotion,
let us say of physics research or chamber music performances or other
charitable projects in which family members who will be the Trustees
of the Charitable Trust will be interested. The family member beneficiaries
could continue to make creative and constructive use of the family funds,
albeit not for their own benefit, - but for the benefit of the public.
The estate would owe no taxes, the executor would not legally be required
to file an estate tax return.  These circumstances would create a situation
where if the terms of the will were not set aside by the courts, the
consequences if any, of a government audit might require additional sums
to be funnelled into the family trust, but would not lead to the
collection of estate taxes.  Would the IRS want to spend significant
resources on an audit which would under no circumstances be productive
of tax revenue? (Analogous strategies are common in business to frustrate
hostile takeovers of a corporation.) The executor's problem with such a
strategy is the uncertainty. If he fails to file a return on the premise
that the estate is non-taxable, he risks the possibility that the
promissory notes with which the estate was depleted and was made
non-taxable would be condemned as a sham, and that the establishment
of a charitable trust to soak up any hypothetically otherwise taxable
estate might be adjudged void as being against public policy.
The consequence is that the government would make an example of this
estate by confiscating it in its entirety. The IRS decision would be
appealed to tax court, to the federal appeals court and perhaps ultimately
to the Supreme Court, - and surprise! surprise! Justices Roberts, Alito,
Scalia and Thomas might be sympathetic. But think of the uncertainty and
the legal costs for someone not in the do-it-yourself league. On the other
hand, to file an estate tax return in the context of a claim that
no estate tax is due, is to express uncertainty and to ask for an audit.
It's like having to decide, when the bear rears up on her hind legs
ready to embrace you in her claws, whether to roll over and play dead,
hoping she'll lose interest, or to climb the nearest spruce, hoping that
your climbing is better than hers. It's so far as I'm concerned, a tossup.
For my own purposes, I expect to do extensive legal research on these
issues in the coming months, subject to the caveat that past decisions
are forever being overturned. I consider the governmental agencies and
its courts as unpredictable as the hungry bears I learned to avoid hiking
in Banff and Jasper National Parks. It's important to keep your wits
about you and to remember that the veneer of reason, fairness and
justice is so thin as to be at times invisible. Therefore, as St. Paul
said: The just shall live by faith. If the bear is hungry enough,
arguing with him or her won't protect you from being torn apart.

Another interesting strategy I've heard about that's hypothetically
useful for transferring real estate assets not presently being 
used by the donor, is to securitize the real estate by placing it
in a trust the beneficiaries of which receive transferable shares of
beneficial interest. E.g.: a tract of real estate worth 1 million
dollars might be securitized into 100 shares of beneficial interest
with a nominal value of $10000 each. However, because these shares
individually would not be marketable they would be discounted for
gift tax purposes, by perhaps 50 percent for unmarketability and
for representing a minority interest. Thus, assuming that W gave to H
fifty shares of her real estate, both H and W could transfers each
year, 2.6 shares of beneficial interest to each of the seven
beneficiaries, an aggregate transfer by H and W of  2 x 2.6 x 7 = 36.4
shares per year, with the consequence that hypothetically in 3 years
the entire tract might have been transferred gift-tax free.
Hypothetical is the appropriate term, because the IRS and the
courts are unpredictable. (The transfer of assets such as a
private residence which the donor continued to use would be
deemed an "incomplete" gift, which would be included in the
donor's taxable estate.)

I think you'll agree that that's enough "What if" for now.
My best to yourself and Ned.
Jochen