Wills, Trusts & Estates Prof Blog

June 12: Paralegal eLearning Session on Specific Assets in Planning and Administration

On June 12, the ABA Section of Real Property, Trust & Estate Law and the ABA Standing Committee on Paralegals is hosting a 60-minute webinar session on specific assets in planning and administration.  This session is part of the Paralegal eLearning Program I have previously discussed. Paralegals, legal support staff, young lawyers, legal educators, and students are all encouraged to attend.

Please click here for more information or click here to register.

Gandhi Memorabilia Collection Sold at Auction

Over 50 items of Mahatma Gandhi memorabilia were recently sold by Mullock’s, a British auction house in Ludlow, Shropshire. 

Among the most valuable items sold were Gandhi’s last will and testament and the size eight sandals he wore in the 1920s.  Other items sold include a shawl hand-woven by Gandhi, a British Parliament paper declaring him a terrorist, his rice bowl, his bed linen, his prayer beads, and three carved wise monkeys.  A Gandhi blood sample failed to sell, because it did not meet the 10,000-pound reserve price.

In 1924, Gandhi gave many of these items to a close friend whose family kept them until deciding to sell.  In response to numerous Gandhi auctions over the past decade, the Indian government continues to claim it should have the right of first refusal on these national treasures.

See Leon Watson, Mahatma Gandhi’s Last Will and Testament and the Iconic Sandals He Wore in the 1920s Sell at Auction, Daily Mail, May 21, 2013.

Charitable Lead Trust - A Tool That Would Benefit From Low Interest Rates

Interest rates are at an all time low. This is good news for charitable donors who are hoping to give assets to their beneficiaries without having to worry about federal estate or generation transfer taxes. Recently, the IRS released a 1.2% interest rate for June. As a result, charitable lead trusts are effecient to give more money to future generations free from transfer tax. People interested in using a charitable lead trust should speak to an advisor and act quickly for the low interest rate benefit.

See Kim Civins, Interest Rates Indicate A Great Time For Charitable Lead Trusts, Bryan Cave Charity Law, May 21, 2013.

Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.

People Who Acquire Sudden Wealth Are More Susceptible To Fraud

The most recent Estate Analyst newsletter, highlights the different hurdles of planning for new stars, and athletes. More often than not new superstars can make the worst choices for themselves by spending too much, exposing themselves to court claims, and trusting people who are only interested in their money. Both new and old celebrities would benefit from talking to an estate planner and financial advisor.

Estate planning experts say a celebrity that has come to sudden wealth is more vulnerable to fraud by their followers or advisors because of peer pressure and misplaced trust. The experts contrast new celebrities with self-made entrepreneurs who gradually acquire wealth and are usually fiscally conservative and tend to be more disciplined about planning for the future. The newsletter distinguishes estate planning strategies suggesting to athletes it is a good idea to get life insurance. Estate planners remind everyone that even though it is easy to spend money, it is crucial to set aside some funds just in case.

 See Robert L. Moshman, Superstar Estates Fleeting Fame, Enduring Security, The Estate Analyst (May 2013).

New Hampshire Register of Probate Fights to Keep his Duties From Being Eliminated

After being elected last November as the Hillsborough County Register of Probate, Joseph Kelly Levasseur learned that his new executive position has been virtually eliminated by a 2011 statewide reorganization of the judicial system.

Levasseur, an alderman-at-large and private practice attorney, has filed a petition for writ of prohibition with the New Hampshire Supreme Court, claiming the reorganization of his position is unconstitutional because it allows an un-elected person to perform the duties of Register of Probate. 

In 2011, the Probate Court, District Court, and Family Court were consolidated into the Circuit Court in order to eliminate a host of salaried positions.  Levasseur was aware of this consolidation when he ran for the position, but he had no idea the position no longer had a desk, an office, or any real duties.  Robert Rivard, the previous Register of Probate, believes the neutralization of the position was not just about saving money, but also a power grab by judges who would rather appoint their own Register to oversee the probate division of the Circuit Court.

See Dave Solomon, Hillsborough County Register of Probate Feels Job Is Gutted, Files Petition with Court, New Hampshire Union Leader, May 20, 2013.

Designated Beneficiaries of IRAs and See-Through Trusts

In a recent private letter ruling, the IRS provided some guidance on what constitutes a designated beneficiary and what determines the applicable distribution period of an IRA.

Under IRC § 401(a)(9)(E), a “designated beneficiary” is any individual designated as a beneficiary by the employee, or IRA holder.  Trusts can not be designated beneficiaries, only individuals.  However, a beneficiary of a trust can be a designated beneficiary under an IRA if the trust is a “see-through trust.” 

Under Treas. Regs. § 1.401(a)(9)-4, the four requirements of a see-though trust are that: “(1) the trust is valid under state law or would be, but for the fact there’s no corpus; (2) the trust is irrevocable or will, by its terms, become irrevocable on the death of the employee; (3) the beneficiaries of the trust who are beneficiaries with respect to the trust's interest in the employee's benefit plan are identifiable from the trust instrument; and (4) relevant documentation has been timely provided to the plan administrator.”

If these four requirements are met, the designated beneficiary of the IRA will be the trust beneficiary with the shortest life expectancy.  This life expectancy should be used to determine the applicable distribution period.

See Dawn S. Markowitz, See-Through Trusts and IRAs, Wealth Management, May 21, 2013.

IRS Addresses Income Tax Basis Increases for Assets Held in Grantor Trusts

In a recent private letter ruling, the IRS found assets in a foreign grantor trust received an income tax basis increase upon the death of the grantor. 

The non-citizen grantor created a foreign grantor trust funded with shares of non-U.S. corporations.  The trust provided that, upon the grantor’s death, its assets would be distributed to the grantor’s children who were U.S. taxpayers.  This trust property was not subject to the U.S. estate tax, but did “receive a fair market value income tax basis under IRC Section 1014(b)(1).”

The IRS would probably not agree that a wholly domestic grantor trust would receive such a basis increase upon the death of the grantor.

See Loeb & Loeb LLP, Private Letter Ruling Suggests That Assets Held in a Grantor Trust and Not Included in Grantor’s Estate May Nevertheless Receive a Basis Increase, Lexology, May 20, 2013.

Korea Court Puts End to Hyundai’s Job Inheritance Practices

The Ulsan district court recently nullified a clause in Hyundai Motor’s collective bargaining agreement requiring “management to hire a relative of an employee who dies or retires due to an industrial accident, regardless of whether they have the required job skills."  

The case arose after the family of a Hyundai worker who had died a job-related death demanded the automaker hire one of the victim’s children pursuant to the collective bargaining agreement.  Although the court ruled that the family was entitled to receive 56 million in compensation, the court dismissed the claim to a job at Hyundai, stating it was merely “an attempt by union workers to create a secret path to employment for their children.” 

This ruling casts doubt on the validity of another clause in Hyundai’s collective bargaining agreement, which favors children of retired or long-serving employees in the recruitment process. 

Although these unfair hiring practices go “against the notion of social justice,” many Korean companies still adhere to them due to pressure from powerful unions.

See [Editorial] Job Inheritance, The Korea Herald, May 20, 2013.

Court Dismissed Request To Split Billion Dollar Charity Fund

William Davidson, 86, passed away in 2009. He was the owner of NBA basketball team, Detroit Pistons. A conflict has arisen in deciding who is best suited in enacting Mr. Davidson's dream of supporting local charities and Jewish causes. Foundation president, and Mr. Davidson's son- in- law sought to split up the one billion dollar fund. A judge in Michigan court held that its court did not have jurisdiction to divide the one billion dollar fund.

See Detroit Donor's Heirs Split Over $1-Billion Foundation, The Chronicle Philosophy, May 21, 2013.

Michael Jackson 60 Minutes Exclusive Details

As I have previously discussed, 60 Minutes had an exclusive on Michael Jackson’s estate. The Michael Jackson brand is making more money now that any single artist has made in the past four years. However, it has not been easy. After Jackson died he left over half a billion dollars in debt. He spent most of the money on Neverland, antiques, maintenance, and his entourage. Jackson was borrowing against his assets and used his music catalogues as collateral. Jackson first purchased Sly & the Family Stone catalog, and a few other classic rock catalogues. Then Jackson became part owner of ATV Music by the Beatles. It cost him $47.5 million dollars for 50% of the catalogue. When Jackson died, he had borrowed over $380 million dollars against his music assets.

Since Jackson’s death, his belongings are being sorted and stored in warehouses. The executor’s team found personal videos of Jackson preparing for his last tour in his belongings. Using those compilations, producers made a movie called “This is It.“ To date the movie has brought in $500 million dollars. In Vegas, Cirque du Soleil is working on a new production called Michael Jackson One which highlights classic Jackson choreography. There have been many frivolous claims filed against Michael’s estate and his team of executors has to defend each one. 

See Michael Jackson's Lucrative Legacy, CBS News, May 19, 2013.

Administrative Costs Exceed Half Of Multi- Million Dollar Estate

After six years of legal battles in Pennsylvania, the estates of Peter Karoly and his wife Lauren Angstadt have racked up $3.74 million dollars in administrative fees. As a result, there is only 3 million left to distribute in the estates. There are reports that the fees may be contested. Karoly and Angstadt were killed in a plane crash. They left a dental and law practice. The court appointed a retired judge to administer the complicated assets. Karoly’s sisters are accusing their brother of forging the wills that were turned into the probate court. Federal Grand Jury agreed with the sisters and indicted attorney John Karoly Jr. 

See Susan Riley Yates, In Karoly Will Dispute, Millions In Administrative Expenses, The Morning Call, May 21, 2013.

New Gift Tax In Minnesota

Recently, the Minnesota Legislature passed a new tax bill that the governor is expected to approve. The bill will be adding a new state gift tax. If signed by the governor the new law will take effect on July 1, 2013. The law requires a 10% tax on gifts worth $1 million dollars over a person’s lifetime. The new law is stricter that the current Federal exclusions. Some Federal exclusions are not exempted from the state tax. When a Minnesota resident or non-resident dies all of the lifetime gifts will be assessed for gift tax purposes. Clients who wish to give a gift should consult with a financial advisor to understand the different tax implications. 

See Michelle L. Rehbein, Minnesota Legislature Adds New State Gift Tax And Expands Estate Tax Provisions For Nonresidents, Radio.com, May 17, 2013.

Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.

Fresno State Receives Lion’s Share of Marion Kremen’s Estate

After a court battle over Marion Kremen’s estate, Fresno State will be receiving about $2.17 million to give scholarships to students considering a career as a guidance counselor. 

Marion Kremen’s husband was a faculty member at Fresno State for over 25 years and was the founder of the university’s school counselor-education program.  After his death in 1995, Marion Kremen pledged her entire estate to Fresno State in her 2001 will. However, before Marion’s death on June 15, she had changed her will multiple times to include gifts to her north Fresno retirement home, San Joaquin gardens. 

Although Fresno State did receive the bulk of the estate, San Joaquin gardens received about $232,000 as well as all of her personal belongings.

See Pablo Lopez, Marion Kremen’s Assets go to Fresno State, San Joaquin Gardens, Fresno Bee, May 17, 2013.

UK Supreme Court Clarifies Grounds for Setting Aside Trustee Decisions

The United Kingdom Supreme Court has clarified in a historic judgment that a court may set aside trustee decisions under the principle of the Hastings-Bass rule or, alternatively, under the equitable remedy of mistake.  This judgment covers the cases of Futter v. HMRC and Pitt v. HMRC, both of which involve trustees seeking to set aside trustee decsions.

The Hastings-Bass rule “has been used by trustees to undo decisions which have led to unexpected, adverse tax consequences.”  The Supreme Court judgment provided circumstances clarifying how the rule operates.  If trustees act outside of their powers or commit a fraud within their powers, the trustee decision is void.  If the trustees consider all relevant factors or act on legal advice leading to a failure to consider all relevant factors, then a court cannot intervene.  However, if a trustee fails to consider all relevant factors and this is serious enough to constitute a breach of duty, the trustee decision is voidable at the court’s discretion.

In order to set aside a trustee decision on the ground of mistake, the trustee must establish that the mistake concerned the legal nature of the transaction and that it would be unconscionable to leave the mistake uncorrected.

This judgment serves to limit the scope of the Hastings-Bass rule while relaxing the requirements of the remedy of mistake.

See United Kingdom Supreme Court Rules on Setting Aside Trustee Decisions, Dentons, May 16, 2013.

Cross-Border Marriages Are Rising Along with Legal Hassles

In 2010, nearly five million Americans were married to someone born in a different country, a rising trend also found in a number of other countries.

International tax and estate planning issues coincide with this trend.  Some common issues include increased taxes, different tax rules, restrictions on property ownership, and inheritance cuts. 

One of the biggest issues in America is the unlimited marital-deduction privilege, which allows U.S. citizen spouses to transfer each other money tax-free.  However, if a spouse is a citizen of another country, this could trigger a steep federal estate tax, which in some cases can reach nearly 40 percent.

Cross-border couples must also be aware of the increased difficulties that arise upon divorce, including the enforcement of child custody and calculating the correct tax deductions for spousal and child support.

See Neil Parmar, A Global Love Affair, The Wall Street Journal, May 21, 2013.

The New Illinois Decanting Statute

Illinois recently enacted Section 16.4 of the Trust and Trustees Act, otherwise known as the Decanting Statute.  Decanting allows for flexibility in the terms of an irrevocable trust by permitting trustees to distribute trust assets from one trust into another.

The Illinois Decanting Statute will apply “to all trusts in existence or created after the effective date of the new Act, January 1, 2013.”  Trustees can decant into a new trust without the consent of the settlor, the court, or any of the beneficiaries, as long as the trustees and one beneficiary give notice to all other beneficiaries and none of the notified beneficiaries object within 60 days.

The Illinois Decanting Statute forbids certain purposes including the reduction of distributions after they have already come into effect, the exoneration of trustees that have failed to exercise reasonable care, the elimination of provisions that remove the trustee, and the modification of perpetuities provisions.  Trustees are also subject to certain limitations when decanting if they do not have absolute discretion over the trust.

See Stephanie Moll & Steve Dawson, How is an Illinois Trust Now Like a Fine Wine?  It Can Be Decanted:  A Summary of the New Illinois Decanting Statute, Bryan Cave Private Client Blog, May 16, 2013.

Sibling Rivalry Over Dad's Millions

Recently in the UK, a sibling rivalry has arisen over the distribution of Antony Lambton’s multi-million pound estate. Ned Lambton, son of Antony, has been arguing with three of his five siblings about their inheritance from his deceased father. British law states that the oldest son receives the entire estate. However, the three sisters are trying to apply Italian law because Antony lived there for over 30 years. Ned has been in negotiations with his three sisters and is trying to settle the claim for one million pounds each. Moreover, he has also has issued a writ to ask the court not to apply foreign statutes. Ned’s lawyers claim that Antony left his estate to his son because he had already maintained and supported his daughters while he was alive. 

See Michael Brown, Sisters of the Earl of Durham Launch Court Action Over Inheritance, The Journal, May 20, 2013.

Farmers Focus On Estate Planning For Future Farming Operations

There is a need for farmers to pay closer attention to estate planning if they want to pass on their farming operations. In the past, farmers have avoided planning their estates because of the many complicated hurdles of the tax code, and the difficulty in determining if the farming operations will actually continue after their death. Additionally, farmers typically reinvest profits into their farming operation causing the farmer's assets to be the farming operations. This would not be a problem unless there is a need for cash flow. This problem may arise when a person involved in the farming operation wants to sell their position. Even though the operator may want to purchase the sellers position, he may be limited because his assets have been put back into the farming operation. As a result of these problems, American Farmland Trust has held classes and published training materials to aid farmers to create an estate plan for their future farming operations. 

See Christopher Doering, As Farmers Age, Planning For The Future Of Their Business Grows, USA Today, May 19, 2013.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

Setting Goals For Philanthropic Giving and Estate Planning

Estate Planners should know what goal their client is trying to achieve and what estate planning tools will best accomplish these goals. Some of the more useful tools for providing income are the charitable remainder trust and a gift annuity. People who are planning to leave part of their estate to charity and part for their families should be aware that a balance between the two is possible, but each person’s situation is unique. For some families it is a tradition to include philanthropic trusts or donations to charity in their estate. A client should remain flexible because philanthropic advising changes over time. These changes can affect a client’s goal. Therefore, it is up to the financial advisor to use the best estate planning tools to reach their clients goals. 

See Rob Shapiro and Cameron Casey, Experts Reflect On Personal Aspects of Philanthropic and Estate Planning, Harvard Alumni, May 13, 2013.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

Seventh Circuit Halts The Protection Of Inherited Retirement Plans

As I have previously discussed, recently the Seventh Circuit Court of Appeals held that funds within an IRA are not necessarily retirement funds so the funds could not be shielded from creditors.The laws protect retirement funds so long as they are in a tax-exempt account. The law does not define “retirement fund” so the court was able to interpret the word claiming that funds that reach the hands of a beneficiary are no longer considered retirement funds. Because of this interpretation, the court limited the definition of “retirement funds.” The court reasoned that if it chooses to exempt those funds it would allow assets being used for current consumption to be guarded against creditors. Additionally, an inherited IRA is different than other retirement tools because the money in the inherited IRA cannot stay in the IRA until retirement.

See Edwin Morrow III, Clark-Seventh Circuit Case Questions Inherited Retirement Plan Protection In Bankruptcy, The Journal, May 21, 2013.

Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.