Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

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Tuesday, January 27, 2015

Article on Split-Interest Charitable Trusts

John StrohmeyerJohn R. Strohmeyer (Porter Hedges LLP) recently published an article entitled, Split-Interest Charitable Trusts, 29 Probate & Property No. 1 (January/February 2015).  Provided below is an excerpt from the article:

Generally, the Internal Revenue Code (the "Code") does not allow a charitable deduction for a gift of a partial interest in property. But the Code allows donors to create split-interest trusts to make a gift of a partial interest in property in trust and receive the IRC § 170(c) charitable deduction. If the donor wants to retain a present interest in property and make a gift of a future interest in property to an organization eligible to receive charitable donations under IRC § 170 ("an IRC § 170(c) organization"), the donor can create a charitable remainder trust (CRT). Alternatively, if the donor wants to make a gift of a present interest in property to an IRC § 170(c) organization, with the donor retaining a remainder interest in the property, the donor can create a charitable lead trust (CLT).

January 27, 2015 in Articles, Trusts | Permalink | Comments (1) | TrackBack (0)

Monday, January 26, 2015

Article on Planning for a Digital Legacy

WirelessSasha A. Klein (Bessemer Trust) and Mark R. Parthemer (Bessemer Trust) recently published an article entitled, Planning for a Digital Legacy, 29 Probate & Property No. 1 (January/February 2015).  Provided below is the introduction to the article:

Every 60 seconds over 168 million e-mails are sent, 695,000 Facebook status updates are posted, 100 people join LinkedIn, 320 new Twitter accounts are created, 600 digital videos are added to YouTube, and 6,600 photos are added to Flickr.

Digital assets are part of our everyday lives and are here to stay. Recent studies have found that among Americans, 85% of adults and 95% of teenagers use the Internet. Of those Americans, 80% of them (more than 120 million) engage in social media such as Facebook, LinkedIn, or Twitter, which is more than 25% of all time spent on-line. More than 50% of American seniors are on-line. And a surprising 92% of children under the age of two have a digital presence.

The world of digital assets is broad, but planning for these assets is often overlooked. Further, digital assets have growning quickly, and perhaps too quickly because, unfortunately, the existing state and federal laws on digital assets are underdeveloped. Moreover, on-line service providers each have their own terms of service (TOS) agreements, and these agreements are not uniform. With the rapid growth of digital assets, lack of current legal guidance, and inconsistent service agreements, it is important for your clients to be aware of potential issues that can arise over their digital assets and plan accordingly. As a trusted and well-informed advisor, you should be well positioned to explore these issues with your clients and help them create an effective solution.

January 26, 2015 in Articles, Estate Planning - Generally, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Sunday, January 25, 2015

Article on RPTE's In-Person and Virtual Offerings

MeetDavid J. Dietrich (Dietrich & Associates, Billings, Montana) recently published an article entitled, RPTE's In-Person and Virtual Offerings Enhance "Flyover State" Lawyers' Trusts and Estates Transition and Career, 29 Probate & Property No. 1 (January/February 2015).  Provided below is an excerpt from the article:

As a small firm lawyer from Montana, the in-person and virtual offerings of the RPTE Section of the ABA have greatly enhanced my trusts and estates law career since I became active 15 years ago. RPTE currently consists of nearly 22,000 domestic and international lawyers, paralegals, real estate and financial service professionals, and legal educators; it is command central for our two disciplines in estate planning and real estate law in the entire 400,000 lawyer ABA. My focus in this article is on the Trust and Estate Division of the Section.

January 25, 2015 in Articles, Estate Planning - Generally | Permalink | Comments (0) | TrackBack (0)

Saturday, January 24, 2015

Article on Building Your Practice and Developing Skills Locally and Nationally

Jason HavensJason E. Havens (Senior counsel in the Jacksonville and Tallahassee, Florida, offices of Holland & Knight) recently published an article entitled, Building Your Practice and Developing Skills Locally and Nationally, 29 Probate & Property No. 1 (January/February 2015).  Provided below is an excerpt from the article:

The now ubiquitous phrase "all politics is local" might be adapted to proclaim that "all estate and tax planning is local." To be sure, the ABA and specifically our RPTE Section provide opportunities to interact with and work alongside attorneys across the country, learn via superb educational programming, and participate in and hopefully lead substantive or other committees. Through local estate planning councils, such as those affiliated with NAEPC, however, you can meet and work with other trust and estate attorneys whom you will likely see more often in your practice. If you are a younger or transitioning practitioner, those other local attorneys will probably evaluate you for purposes of your Martindale-Hubbell rating and also might serve as references for your board certification application.

January 24, 2015 in Articles, Estate Planning - Generally | Permalink | Comments (0) | TrackBack (0)

Friday, January 23, 2015

Article on Cavallaro v. Commissioner

Kerry Ryan

Kerry A. Ryan (Saint Louis University School of Law) recently published an article entitled, Merger is Indirect Gift in Cavallaro, Tax Notes, Vol. 146, No. 1 (2015).  Provided below is the article’s abstract from SSRN:

In Cavallaro v. Commissioner, the Tax Court held that a merger of two family-owned businesses resulted in a substantial taxable gift. The taxpayers avoided penalties by demonstrating that they relied in good faith on the mistaken advice of competent tax advisers.

January 23, 2015 in Articles, Estate Planning - Generally, Gift Tax, New Cases | Permalink | Comments (0) | TrackBack (0)

Article on Perpetuities and the Genius of a Free State

Joshua TateJoshua C. Tate (Associate Professor, SMU Dedman School of Law) recently published an article entitled, Perpetuities and the Genius of a Free State, 67 Vand. L. Rev. 1823 (2014), Commentary on Steven J. Horowitz & Robert H. Sitkoff, Unconstitutional Perpetual Trusts, 67 Vand. L. Rev. 1769 (2014). Provided below is the introduction of the article:

Legal history, like all history, is inevitably a speculative affair. No one can be sure what the editors of Justinian’s Digest might have excised from long-lost works of classical Roman law; nor can one know for certain what went through the minds of certain justices of the U.S. Supreme Court in the mid-twentieth century when they formed and reformed their views on Roosevelt’s New Deal. Of course, scholars can try to chip away at this uncertainty: great progress can be made through educated guesses and learned theories. But certainty about the past is reserved for those who lived in it.

What is true for history in general is true for the history of state constitutional prohibitions of perpetuities, and in particular for the curious prohibition in the 1776 North Carolina Constitution and Declaration of Rights. The North Carolina prohibition is particularly important because it came first, and its language influenced later state constitutions.2 As Horowitz and Sitkoff demonstrate in their Article, many good reasons can be offered for the provision.3 It is nevertheless a curious prohibition, because it is absent from the constitutions of the twelve other original states. Why did this provision emerge only in North Carolina, and not in Virginia, Massachusetts, Pennsylvania, or any of the other  “free states” that together rose up against their colonial masters?

This Comment will suggest a possible answer to that question. Although the problems with perpetuities were well known to learned inhabitants of all the newly independent American states, those problems were particularly salient in North Carolina in 1776 due to that colony’s unique history as a former proprietary colony. King Charles II created the original province of Carolina to reward eight men who had offered vital assistance while he was in exile.4 The decision by the heir of one of these original Lords Proprietors not to sell his share back to the British Crown gave rise to specific grievances in North Carolina—grievances that did not exist in the other twelve former colonies.5 Moreover, North Carolina was unique in witnessing a violent confrontation between the colonial authorities and backcountry farmers that stemmed, in part, from those grievances.6

The peculiar case of the Earl Granville and assorted problems in his Granville District shifted the problem of perpetuities from the periphery to the center of North Carolina politics in the late eighteenth century, and thus warranted an explicit mention of perpetuities in the 1776 North Carolina Constitution and Declaration of Rights. For the framers of that document, the social ills caused by tying up land indefinitely in the hands of the few were of paramount importance, and had to be addressed to build a successful coalition for independence. This Comment first discusses the political and social history of the province of North Carolina, focusing in particular on the Lords Proprietors and Earl Granville. The Comment then addresses how that history likely impacted the 1776 Constitution and Declaration of Rights, which created a conservative system of government despite radical instructions from some backcountry counties, and finally offers a few concluding thoughts about the aspirations of many North Carolina patriots at the dawn of independence.

January 23, 2015 in Articles, Estate Planning - Generally, Trusts | Permalink | Comments (0) | TrackBack (0)

Thursday, January 22, 2015

A Texas Notary's Guide to Estate Planning Documents

TexasI have recent posted on SSRN my article entitled A Texas Notary's Guide to Estate Planning DocumentsHere is the abstract of the article:

Estate planning documents, regardless of how well-drafted, must be properly executed to be effective.  Many of these documents require notarization.  Although practitioners may take notarization for granted, it is of paramount importance that the notarizations be done correctly or else the validity of the documents are jeopardized.  I have often been dazed and amazed by the lack of knowledge of some Texas notaries regarding the proper notarization of estate planning documents.  Recently, I was told by a notary that she never swears the testator or the witnesses when they sign the self-proving affidavit.  When I explained to the notary that this step was required, she told me that she had been doing it this way for over thirty years and was not going to change based on what I said.

It is my hope that you will share this article with the notaries in your office to help them perform notarizations that you would be proud to see posted on the Internet for all to see.

January 22, 2015 in Articles, Estate Planning - Generally | Permalink | Comments (0) | TrackBack (0)

Article on Considering the Irrevocable Nongrantor Trust Technique

Alyssa DirussoAlyssa A. DiRusso (Whelan W. and Rosalie T. Palmer Professor of Law at Samford University’s Cumberland School of Law) recently published an article entitled, Pro and Con (Law): Considering the Irrevocable Nongrantor Trust Technique, 67 Vand. L. Rev. 1999 (2014), Commentary on Jeffrey Schoenblum, Strange Bedfellows: The Federal Constitution, Out-of-State Nongrantor Accumulation Trusts, and the Complete Avoidance of State Income Taxation, 67 Vand. L. Rev. 1945 (2014). Provided below is the introduction of the article:

Are INGs rightfully the next big thing? Professor Schoenblum presents an artful argument as to why an ING—an incomplete nongrantor trust sited in a state with favorable local tax laws—can produce significant income tax savings and should be defensible from a constitutional perspective.2 Diplomatic in tone, Professor Schoenblum describes the technique without expressly endorsing it.3 Should estate planners be following this trend, or walking away?

Given its docile position in Private Letter Ruling 2013-10-002,4 which sanctions the technique from a federal income tax and gift tax perspective, the IRS is seemingly not to be feared. The U.S. Treasury, after all, has economic incentives aligned with the taxpayer here. If a taxpayer avoids state income tax by use of a trust, and the corpus of that trust grows over time (including the forgone state tax), larger amounts of income will be subject to federal income tax at the trust level or upon distribution to beneficiaries. The taxpayer wins, the federal government wins, and the state loses.

The states, whose already-strapped budgets take another hit from this technique, have an incentive to fight. New York is fighting mad already. A recent Bloomberg news article reported that New York’s state tax commission, led by former Comptroller Carl McCall, was looking for solutions to stop the tax bleed.5 The article quotes a commission member, James Wetzler: “The only purpose of setting up these trusts, near as far as we can tell, is avoiding state tax . . . . I’m literally at a loss to understand why [the IRS] would issue these rulings.”6 These were the drum beats of tax war.7 New York recently responded aggressively to the technique by enacting a statute declaring an ING to be a grantor trust for state law purposes, even though an ING is a nongrantor trust for federal law purposes.8 Professor Schoenblum argues that this new statute is “purely an effort to staunch the loss of revenue resulting from the movement of capital to other states” that is incompatible with Due Process Clause and negative Commerce Clause jurisprudence—so the battle persists.9

Until the conflict is resolved, though, practitioners are well-advised to consider Professor Schoenblum’s diagnosis of the risks and rewards of the technique, contemplating not just tax consequences but the constitutional landscape that lets a hundred tax flowers bloom. In response to his article, I would like to make two major points. First, I offer a suggestion as to how to make the technique of using an ING work better. Second, I explain why it might be better if an ING didn’t work at all.

January 22, 2015 in Articles, Estate Planning - Generally, Trusts | Permalink | Comments (0) | TrackBack (0)

Wednesday, January 21, 2015

Article on The Federal Constitution, Out-of-State Nongrantor Accumulation Trusts, and the Complete Avoidance of State Income Taxation

Jeffrey SchoenblumJeffrey Schoenblum (Centennial Professor in Law, Vanderbilt University Law School) recently published an article entitled, Strange Bedfellows: The Federal Constitution, Out-of-State Nongrantor Accumulation Trusts, and the Complete Avoidance of State Income Taxation, 67 Vand. L. Rev. 1945 (2014). Provided below is the abstract from the article:

With the maximum rate of federal income tax at 39.6%, the Obamacare Tax adding another 3.8% tax, and some state income tax rates exceeding 9%, 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 undermine 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.

January 21, 2015 in Articles, Income Tax, Trusts | Permalink | Comments (0) | TrackBack (0)

Tuesday, January 20, 2015

Article on Testamentary Capacity of Minors

Mark Glover

Mark Glover (University of Wyoming College of Law) recently published an article entitled, Rethinking the Testamentary Capacity of Minors, 79 Mo. L. Rev. 69-118 (2014).  Provided below is the article’s abstract from SSRN:

Minors lack the legal capacity to execute wills. Subject to limited exceptions in some states, a will executed by a child is void. Because this testamentary age requirement conflicts with the primary objective of the law of wills, which is to allow decedents to freely choose how their estates will be distributed, this rule should be founded upon a coherent and compelling policy rationale. Nonetheless, it is not.

Three potential rationales might explain the testamentary incapacity of minors. First, the age requirement could represent a categorical capacity threshold that is aimed at protecting children from their immaturity and indiscretion. Second, the age requirement could be seen as a proxy for the minimum mental competency that the law requires of all testators. Finally, the age requirement could implement forced parental inheritance, under which the estates of minors are funneled into intestacy and are distributed to their parents.

This article explains how each of these potential rationales fails to adequately align with the mechanics of the current testamentary age requirement. The article ultimately calls for the elimination of the categorical age restriction on testamentary capacity. It also proposes additional reforms that would better serve the policy objectives of the testamentary age restriction but that would allow children to more frequently execute wills.

January 20, 2015 in Articles, Estate Planning - Generally, Wills | Permalink | Comments (0) | TrackBack (0)