Wills, Trusts & Estates Prof Blog

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

A Member of the Law Professor Blogs Network

Friday, September 19, 2014

EU Finds Spain's Taxes Discriminatory

EU Court

The European Court of Justice recently ruled that Spanish authorities cannot charge different rates of inheritance tax for residents and non-residents.  In Spain, there are a complex range of tax relief options that can reduce the tax to zero for residents, however, these have previously been unavailable to non-residents.

 Non-residents who have been discriminated against by paying more tax than Spaniards for inheritances or gifts of property will likely be owed a refund of the difference.  The verdict earlier this month could open the floodgate to thousands of people reclaiming their tax.  Thus far, the Spanish authorities have not responded to the ruling.  Spain has six months to change its laws, which should come by January 2016.   

The reason for the decision rested on the notion that charging other members of the EU different rates to Spanish residents went against the spirit of the European union.  The court said the Spanish legislation was discriminatory and there was no reason why inheritance tax should be charged at a higher rate for non-Spaniards than for Spaniards. 

See Liz Phillips, EU Court Rules Against Spain Over Discriminatory Tax Rules, The Telegraph, Sept. 18, 2014.

September 19, 2014 in Estate Planning - Generally, Gift Tax, New Cases, Travel | Permalink | Comments (0) | TrackBack (0)

Tuesday, September 16, 2014

Article on Frank Aragona Trust v. Commissioner

TrustDana M. Foley & William I. Sanderson recently published an article entitled, Frank Aragona Trust v. Commissioner: A Road Map to What Really Matters for Material Participation of Trusts, 28 Probate & Property No. 5 (Sept. & Oct. 2014).  Provided below is an excerpt from the introduction of the article:

Just weeks before the first income tax returns were filed, reporting income subject to the new 3.8% net investment income tax (the “NII Tax”), the Tax Court issued the much anticipated decision in Frank Aragona Trust v. Commissioner, 142 T.C. No. 9 (Mar. 27, 2014) (“Aragona Trust”). This regular published opinion followed a trial before the Hon. Richard T. Morrison and was issued 15 months after the NII Tax came into effect under IRC § 1411.

September 16, 2014 in Articles, Estate Planning - Generally, Income Tax, New Cases, Non-Probate Assets, Trusts | Permalink | Comments (0) | TrackBack (0)

Monday, September 15, 2014

Article on Inherited IRAs

IRALester B. Law & Bryan D. Austin recently published an article entitled, Inherited IRAs: Tragedy or Planning Opportunity—Clark v. Rameker, 28 Probate & Property No. 5 (Sept. & Oct. 2014).  Provided below is an excerpt from the article:

In Clark v. Rameker, 573 U.S. __ (2014) (No. 13-299), the Supreme Court unanimously held inherited IRAs are not exempted “retirement accoutns” under the federal Bankruptcy Code. This article summarizes the facts, outlines the judicial history, examines the rationale, and provides some insights into planning for IRAs in light of the new case.

    Like many cases, Clark is akin to a theatrical production.

        Act I—The Creation and Inheritance

Scene I—The Creation

The curtain rises.

    It is the new millennium and Ruth Heffron (Ruth) visits her financial advisor to establish a Traditional IRA, naming her daughter, Heidi Heffron-Clark (Heidi), as the beneficiary. Though uncertain, the audience believes that the IRA was probably rolled over from Ruth’s deferred compensation account (for example, her 401k).

September 15, 2014 in Articles, Estate Planning - Generally, New Cases, Non-Probate Assets | Permalink | Comments (0) | TrackBack (0)

Sunday, September 14, 2014

Importance of Preserving Wealth for Future Generations


In a recent case from the United States Bankruptcy Court, we are reminded why an individual should consider keeping assets in trust for his or her beneficiaries in addition to the importance of wealth preservation for future generations.  In In Re: Castellano, 2014 WL 3881338 (Bankr. N.D. Ill. Aug. 6, 2014), the debtor was the beneficiary for a trust established by her mother.  The terms of the trust provided that upon the settlor’s death, the trust assets would be split equally among the settlor’s four children, one of whom was the debtor.  However, the trust contained a spendthrift clause, stating that if, “all or any part of the income or principal of the Trust might fail to be enjoyed by a beneficiary or might vest in or be enjoyed by some other person, then the interest of that beneficiary shall immediately terminate.” 

During the administration of the Settlor’s estate, the debtor filed for bankruptcy and sent a letter advising the Trustee of their obligation to invoke the spendthrift provision.  The Trustee agreed and held the debtor’s share in trust rather than making an outright distribution. 

The Bankruptcy Court held that the debtor effectively transferred the assets into a self-settled trust in an attempt to shield the debtor’s assets from creditors.  Consequently, the Bankruptcy Court brought the trust assets into the debtor’s bankruptcy estate, therefore eradicating most of the debtor’s inheritance. 

See Joshua Goldglantz, A Bankrupt Inheritance, Berger Singerman, Sept. 10, 2014.

September 14, 2014 in Estate Administration, Estate Planning - Generally, New Cases, Trusts | Permalink | Comments (0) | TrackBack (0)

Wednesday, September 10, 2014

Judge Gives Nine Year Sentence for Insider Trading


On Monday, Judge Paul Gardephe handed down one of the longest prison sentences for insider trading.  Mathew Martoma, the portfolio manager who worked for an affiliate of Steve Cohen’s SAC Capital Advisors hedge fund firm, was found guilty of obtaining material non-public information about the development of an Alzheimer’s drug from a doctor and trading the information to make more than $200 million in profits.  The judge sentenced Martoma to nine years and ordered that he pay back the $9 million he received in bonuses for himself. 

The evidence accrued against Martoma was large, including the testimony of an 81-year-old doctor.  Although some lawyers and reporters were baffled by Martoma’s decision not to settle the case, some suggest his ability to obtain a good settlement was hindered after it was discovered he had been expelled from Harvard Law School for doctoring his transcript to make up better grades. 

See Nathan Vardi, Mathew Martoma Sentenced to Nine Years For Insider Trading, Forbes, Sept. 8, 2014.

September 10, 2014 in Estate Planning - Generally, Malpractice, New Cases, Professional Responsibility | Permalink | Comments (0) | TrackBack (0)

New Case: Gossett v. Back


GavelKatie Gosset, acting as attorney-in-fact for her mother Lola Chenoweth, used her power of attorney to transfer her mother’s home to herself about two weeks before her mother died. Gosset was named in Chenoweth’s will as independent executrix of her mother’s estate. Gosset’s biological daughter Kimberly Back, challenged the transfer of property and Gosset’s position as executrix since the only way for the estate to challenge the transfer would be for Gosset to bring the challenge against her own interest. Back was named as an alternative independent executrix under Chenoweth’s will and claimed that she had been legally adopted by Chenoweth, which entitled her to a share under the will. Back’s arguments were successful in probate court and she was named as independent executrix due to Gosset being deemed unsuitable for the position. Gosset appealed the decision, but the Dallas Court of Appeals affirmed the probate court in Gossett v. Back.

See J. Michael Young, Court Finds Designated Executor Unsuitable, Texas Probate Litigation, Aug. 26, 2014.

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

September 10, 2014 in Estate Administration, Estate Planning - Generally, New Cases | Permalink | Comments (0) | TrackBack (0)

Tuesday, September 9, 2014

Same-Sex Marriage Bans Struck Down by 7th Circuit

RingsAs I have previously discussed, the 7th U.S. Circuit Court of Appeals heard oral arguments the last week of August on the constitutionality of Wisconsin’s and Indiana’s same-sex marriage bans. Nine days after hearing oral arguments, the court held in Wolf v. Walker that the bans violate equal protection. The court’s ruling was written by Judge Richard Posner. The same outcome has been reached in cases regarding state same-sex marriage bans in the 4th and 10th Circuits.

See Martha Neil, With 'Eye-Popping Speed,' 7th Circuit Strikes 2 States' Same-Sex Marriage Bans 9 Days After Argument, ABA Journal, Sept. 4, 2014.

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

September 9, 2014 in Current Affairs, Current Events, Estate Planning - Generally, New Cases | Permalink | Comments (0) | TrackBack (0)

Friday, September 5, 2014

Understanding IRAs and Trusts


The recent Supreme Court decision Clark v. Rameker has regenerated the debate as to whether it is better to inherit IRA assets in a trust than to receive them outright.  Because of this case, some advisers are encouraging clients to establish new trusts.  However, clients must keep in mind that these trusts generate fees and can make estate planning with IRAs more complicated.  Thus, it is vital to understand what you would be getting into. 

While Clark  is a case that will affect very few people, there are issues to consider.  A trust can protect the IRA assets from other creditors, most commonly a divorcing spouse.  Also consider a trust if you want to control cash flow to heirs that might be regarded as spendthrifts. 

If the intended beneficiaries are minors, you are unable to leave property to them outright, therefore, you will have a choice between naming a custodian for the child who will inherit the IRA, or creating a trust for the benefit of minors, which will in turn be a beneficiary of the IRA.  With a trust you can limit their access to the money, which would otherwise come under their control when they reach the age of majority.  Depending upon the size of the IRA and how much money you want them to have at a young age, this is an option to contemplate. 

A trust with only one beneficiary could use that person’s life expectancy in calculating withdrawals.  In a trust with multiple beneficiaries, the trust would take withdrawals based on the life expectancy of the oldest beneficiary.  When naming multiple beneficiaries however, there is a risk of the stretch-out being shorter than desired, which could happen if there is one beneficiary who is significantly older than the others. 

If you decide to use an existing trust or create a standalone trust for the purpose, ensure you name it on the beneficiary-designation form.  Otherwise, it will not be considered the beneficiary of your IRA.  This last crucial step is a usual mistake. 

See Deborah L. Jacobs, IRAs and Trusts: What You Need to Know, Forbes, Sept. 4, 2014.

September 5, 2014 in Estate Planning - Generally, New Cases, Non-Probate Assets, Trusts | Permalink | Comments (0) | TrackBack (0)

Louisiana Judge Upholds Gay Marriage Ban

Louisiana statehouse

On Wednesday a federal judge in Louisianan upheld a state ban on same-sex marriage, writing that “any right to same-sex marriage is not yet so entrenched as to be fundamental,” and that gay marriage was “inconceivable until very recently.” 

In his ruling U.S. District Judge Martin Feldman stated that the regulation of marriage was left up to the states and the democratic process; that no fundamental right was being violated by the ban; and “[Louisiana] has a legitimate interest . . . whether obsolete in the opinion of some, or not, in the opinion of others . . . in linking children to an intact family formed by their two biological parents.”

This ruling runs counter to other federal decisions across the country in recent months.  Since the Supreme Court struck down a portion of the federal Defense of Marriage act last year, there have been a total of twenty-one consecutive federal court decisions finding that same-sex marriage bands were unconstitutional. 

The case, Robicheaux v. Caldwell, was brought by the Forum for Equality, a Louisiana based gay rights group, and seven same-sex couples seeking to have their marriages validated in the state. 

See Ryan J. Reilly, Louisiana Gay Marriage Ban Upheld By Federal Judge, Huffington Post, Sept. 3, 2014.

See also Campell Robertson, Federal Judge, Bucking Trend, Affirms Ban on Same-Sex Marriages in Louisiana, The New York Times, Sept. 3, 2014.

Special thanks to Laura Galvan (Attorney, San Antonio, Texas) for bringing this article to my attention.

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


September 5, 2014 in Current Affairs, Estate Planning - Generally, New Cases | Permalink | Comments (0) | TrackBack (0)

Wednesday, September 3, 2014

Homestead Exception Demystified


In the recent case, Friscia v. Friscia, the Florida probate court and the Florida Second District Court of Appeal encountered a situation involving a homestead, divorce, marital settlement agreement, a second spouse, and a life estate.  Needless to say, the issues were confusing.  However, the court was able to clearly reach a clear, articulable decision. 

In this case, the second wife Nora, is the surviving spouse of Vincent Friscia (Decedent), and the personal representative of the Decedent’s estate.  Robin Friscia is Decedent’s former wife and mother of Decedent’s two kids, Nicholas and Thomas.  When Decedent and former wife divorced in 2008, the couple entered into a marital settlement agreement (MSA) that was incorporated into a final judgment.  The MSA provided for the division of the marital home and granted the former wife exclusive use and possession of the home until the parties’ youngest child graduated from high school.  Because the marital home was to be listed for sale and the proceeds divided equally, the former wife also got the option to buy out the Decedent’s interest in the home.

Decedent died in 2011 while he was married to his second wife.  When he died, his son Nicholas was still in high school and living in the former marital home with the former wife.  Thomas subsequently asked the Florida probate court to determine the homestead status of the former marital home.  Thomas claimed the home was Decedent’s homestead, and the title to Decedent’s interest in the property went to Decedent’s sons and to the second wife.

Over the second wife’s objection, the Florida Probate court resolved that Decedent owned the marital home as a tenant in common with the former wife, and his interest was entitled to homestead protection.  Thus, the former wife and the second wife each owned a one half interest in the former marital home as tenants in common, with the second wife having a life estate.

See Anya Van Veen, Florida Homestead, Divorce, Second Spouses, and Life Estates, Clark Skatoff, Sept. 2, 2014.  

September 3, 2014 in Estate Administration, Estate Planning - Generally, New Cases | Permalink | Comments (0) | TrackBack (0)