Wills, Trusts & Estates Prof Blog

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

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Monday, January 26, 2015

IRS Allowed Division of IRA

IRAA recent private letter ruling addressed the consequences of a trustee dividing an IRA into separate IRAs for each of five beneficiaries.

In Private Letter Ruling 201503024, the IRS held that the division was permissible, the trustee-to-trustee transfers on behalf of the beneficiaries did not constitute a taxable distribution or attempted rollover, the IRAs retained their qualified status, and the five beneficiaries may still use the life expectancy of the oldest beneficiary for RMDs.

See Dawn S. Markowitz, Trustee's Actions Regarding Beneficiary IRAs, Wealth Management, Jan. 22, 2015.

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

January 26, 2015 in Estate Planning - Generally, New Cases, Non-Probate Assets, Trusts | Permalink | Comments (0) | TrackBack (0)

Friday, January 23, 2015

Tax Court Holds Payments to Egg Donors Are Taxable Income

Egg donation

Many women who are actively trying to become pregnant are unable to do so; fortunately, there is no shortage of available alternatives for these women.  Often, however, these are typically intrusive and expensive.  One option is “egg donation,” whereby a female donor is supplied with hormones that increase her egg production.  The eggs are subsequently removed, fertilized in a laboratory, and ultimately implanted in the intended recipient. 

The term “donation” is somewhat of a misnomer, as the donor is typically compensated.  This has led to a tax conundrum: do the amounts received by the donor in exchange for her eggs constitute taxable income?  The Tax Court recently held in Perez v. Commissioner, 144 T.C. 4, (2015) that amounts received by a donor represented taxable compensation income.

Nichelle Perez, contracted with several donor companies to sell her eggs to women who struggled to conceive on their own.  Perez was compensated, not for selling her eggs, but for her physical pain and suffering during the egg donation process.  Perez argued that the $20,000 she earned from the contracts was not taxable income.  The Tax Court concluded that because the pain and injuries she would incur were anticipated and consensual, was within the scope of the medical procedures to which she consented contractually.  The payments were to compensate her for services rendered, thus, the amounts paid to her represented taxable income. 

See Tony Nitti, New Ruling: IRS Can Tax Payments To Egg Donors As Income, Forbes, Jan. 22, 2015.

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

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)

Tuesday, January 20, 2015

Court Holds Nursing Home Must Forego Arbitration

Gavel 3

In Bair v. Manor Care of Elizabethtown, PA, LLC, 2015 Pa. Super. 9 (2015), the Pennsylvania Superior Court held that a nursing home arbitration agreement was not enforceable when the facility did not sign the agreement. 

Sylvia Bair commenced an action for wrongful death and survival in Lancaster County as executor of the estate of Martha Edwards against Manor Care, alleging that neglect and abuse of Ms. Edwards by Manor Care led to her death. 

Manor Care sought to have the case referred to arbitration pursuant to an agreement executed by Ms. Bair on behalf of Ms. Edwards upon her admission to Manor Care.  However, no Manor Care representative signed the agreement.  Thus, the trial court overruled Manor Care’s preliminary objections, permitting the litigation to move forward in the state court.  Manor Care subsequently appealed to Pennsylvania Superior Court. 

The Superior Court found that by failing to affix its signature, Manor Care did not consent to arbitrate, as there was no mutual assent.  Ultimately, it found that the nursing home could not enforce the arbitration agreement. 

See Danielle Dietrich, Pennsylvania Nursing Home That Failed To Sign Arbitration Agreement Cannot Seek To Enforce Agreement, JD Supra Business Advisor, Jan. 19, 2015.

January 20, 2015 in Disability Planning - Health Care, Estate Planning - Generally, New Cases | Permalink | Comments (0) | TrackBack (0)

Monday, January 19, 2015

Wyly Widow Facing $280 Million Tax Bill, Says IRS

Gavel2Caroline Dee Wyly, the widow of Charles Wyly, filed a motion in December in a Texas bankruptcy court for a ruling on the estate of Charles Wyly's tax liability.  Last year, Wyly's estate was ordered to pay $64 million in disgorgement for an offshore trust scheme that he and his brother were found to be involved in. The IRS has argued to the bankruptcy court that the motion cannot be granted because the court lacks jurisdiction over the estate in the case, and also noted that Caroline Dee Wyly's currently outstanding tax bill is over $280 million.

See Jimmy Hoover, IRS Says Wyly Widow's Tax Liability Will Far Surpass $280M, Law 360, Jan. 14, 2015.

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

January 19, 2015 in Estate Administration, New Cases, Trusts | Permalink | Comments (0) | TrackBack (0)

Saturday, January 17, 2015

Supreme Court Agrees to Decide On Gay Marriage

Supreme court gay marriage

On Friday the Supreme Court agreed to decide whether all 50 states must allow gay and lesbian couples to marry. 

Largely as a consequence of the Supreme Court’s failure to act in October, the number of states allowing same-sex marriage has since grown to 36, and more than 70 percent of Americans live in places where gay couples can marry. 

The Court said it would hear two and a half hours of argument in the last week of April.  The first 90 minutes will be appropriated to the question of whether the Constitution requires states “to license a marriage between two people of the same sex.”  The last hour will address whether states must “recognize a marriage between two people of the same sex when their marriage was lawfully licensed and performed out of state.” 

Many observers believe the Court will establish a nationwide constitutional right to same sex-marriage.  However, the Court often navigates with caution in this area. 

See Adam Liptak, Supreme Court to Decide Whether Gays Nationwide Can Marry, The New York Times, Jan. 16, 2015.

January 17, 2015 in Current Affairs, Current Events, Estate Planning - Generally, New Cases | Permalink | Comments (0) | TrackBack (0)

Saturday, January 10, 2015

Court Allows Trust Reformation


In O’Connell v. Houser, the Supreme Judicial Court of Massachusetts allowed a reformation of a trust to conform to the settlor’s intent and tax objectives. 

Two trusts were created in the George Houser Trust, one for George’s wife Mary, and another for power of appointment over the marital trust.  The trust contained a termination provision that established the measuring lives as “Donor’s issue by blood.”

After executing the GST tax, Mary established the Mary Houser Trust, which had a termination provision that established the measuring lives as “all of the Donor’s issue.’  The couple’s planning objectives were stymied by excluding “by blood” from the termination provision.  Omission of these words decoupled Mary’s estate plan from her husband’s and frustrated their planning objectives.  Thus, the court allowed the reformation of the trust to include the measuring lives of Mary’s blood issue. 

See Aryane Garansi, O’Connell v. Houser Allows Reformation of Trust, Wealth Strategies Journal, Jan. 9, 2015.

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

January 10, 2015 in Estate Planning - Generally, New Cases, Trusts | Permalink | Comments (0) | TrackBack (0)

Friday, January 9, 2015

Susan Powell Estate Appeal Tossed By Court

Susan powell

I have previously discussed the ongoing estate battle involving the missing Utah mother, Susan Cox Powell.  In a recent ruling, the Utah Court of Appeals dismissed an appeal from Josh Powell’s mother and sister, which challenged the district judge’s decision to award control of the estate to Susan’s father.  The appeals court said that nothing has been settled in a lower court, therefore, it would not consider the case. 

See Ben Winslow, Appeals Court Tosses Susan Powell Estate Battle, Fox 13, Jan. 8, 2014.

January 9, 2015 in Current Affairs, Estate Administration, Estate Planning - Generally, New Cases | Permalink | Comments (0) | TrackBack (0)

Thursday, January 8, 2015

Philip Morris Loses Appeal


Philip Morris USA lost an appeal of a $4.93 million award to the widow of a man who said he would not have started smoking when he was 13 years in the 1960s if he was aware it caused cancer. 

The Second Court of Appeals rejected Philip Morris’ claim that jurors should not have heard the widow's late husband, David Mulholland's, assertion because it was contradicted by another recorded statement he made—that he “never really looked” at the warnings once they did start appearing on cigarette packages. 

The case is among thousands filed by smokers and their surviving family members accusing Philip Morris and other cigarette makers of hiding scientific evidence of the dangers of smoking for decades as customers became addicted.  The industry reached a $206 billion settlement with 46 states in 1998, but individual lawsuits persist. 

See Erik Larson, Philip Morris USA Loses Appeal of Widows Label Warning Win, Bloomberg, Jan. 7, 2015.

January 8, 2015 in Current Affairs, Estate Planning - Generally, New Cases | Permalink | Comments (0) | TrackBack (0)

LLC Operating Agreement Directs Inheritance Outside of Probate

GavelA recent Florida appellate ruling recognized the use of provisions in a LLC operating agreement to specify the Membership Interests beneficiaries and avoid probate. The operating agreement for an LLC included restrictions on whom membership interest could be transferred to, and directed that upon the death of a member, the interests would "immediately vest in the deceased Member’s then living children and issue of any deceased child per stirpes," unless the interests was otherwise directed to an allowed recipient through the decedent's will. After the death of one member, his "pour over" will directed his assets into a trust, which directed that some LLC income go to his girlfriend.

In Blechman v. Estate of Blechman, a Florida appeals court, applying New Jersey law, held that the contractual operating agreement acted to direct the inheritance of the decedent's interest in the LLC completely outside of probate, and since the decedent's testamentary gift to the girlfriend was not allowed under the operating agreement, the agreement directed the LLC Membership Interests to go to his children.

See Jeffrey Skatoff, Membership Interest in LLC Passes Outside of Probate Estate, Clark Skatoff, Jan. 7, 2014.

January 8, 2015 in Estate Planning - Generally, New Cases, Non-Probate Assets, Trusts | Permalink | Comments (0) | TrackBack (0)