Wills, Trusts & Estates Prof Blog

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

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Saturday, August 9, 2014

Life Insurance Taxes

Life Insurance

Taxpayers are recurrently surprised by the fact that the ownership or receipt of a life insurance policy can result in taxable income.  This was the case in Gluckman v. Commissioner, No. 13-761 (2d Cir. Nov. 22, 2013), where taxpayers maintained that the distribution of the life insurance policies to them on their employer’s withdrawal from a non-qualified plan should not be subject to tax. 

The Court rejected the Gluckman’s argument that the policies were subject to a sizeable risk of forfeiture.  Just because the Gluckmans chose to transfer the policies into a new non-qualified plan does not repudiate the fact that the Gluckmans had control of the disposition of the policies during the tax years, and therefore, were subject to income tax on the value of such assets. 

See Kathy Sherby and Stephanie Moll, Valuation of Life Insurance is Not Always the Issue, Mondaq, July 7, 2014.

August 9, 2014 in Estate Planning - Generally, Income Tax, New Cases, Non-Probate Assets | Permalink | Comments (0) | TrackBack (0)

Friday, August 8, 2014

Trust Assignment Nullified

Anti SymbolFred L. Houston created a spendthrift trust in 2006. Houston received both income and principal payments from the trust during his life, and set up the trust to vest in his heirs. While Houston was still living the trustee, Ms. Williams, carried out a sneaky plan in which the royalty interest in a lease was assigned by Houston to the Noble House, and Williams received 50% of the interest. At Houton’s death, this deal was the source of a lawsuit with the executor challenging the deal as an absolute nullity, and Williams and the president of Nobel House defending the assignment.

In J-W Operating Co. v. Olsen, the executor’s argument won and the assignments were ruled absolute nullities based on public policy. The Louisiana court reasoned that the assignment was not within the intent of the settler as expressed in the trust document.

See Charles Sartain & Brooke Sizer, Treachery of the Untrustworthy Trustee, JD Supra, August, 6, 2014.

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

August 8, 2014 in Estate Administration, Estate Planning - Generally, New Cases, Professional Responsibility, Trusts | Permalink | Comments (0) | TrackBack (0)

Thursday, August 7, 2014

Florida Ban on Marriage Unconstitutional

Gay marriage

On Tuesday, Palm Beach Circuit Court Judge Diana Lewis, Probate Division, ruled that Florida law prohibiting same-sex marriage was unconstitutional under the United States Constitution and United States v. Windsor

In Estate of Bangor, the Court held that Frank Bangor’s same sex spouse, W. Jason Simpson, was eligible to be the personal representative of a Florida ancillary probate estate.  Because Florida law limits who can be appointed personal representative of a Florida probate estate to persons related by blood or marriage, Mr. Simpson could only be the representative if he was married to Mr. Bangor.  Although Mr. Bangor and Mr. Simpson were married in Delaware in 2013, Florida law contains prohibitions on any recognition of same sex marriage.  Thus, under Florida law, Mr. Bangor and Mr. Simpson were not legally married.

Judge Diana Lewis relied on the Windsor decision, holding that the Federal Defense of Marriage act was unconstitutional.  Given that Florida’s ban must also then be unconstitutional, the Full Faith and Credit Clause would require Florida’s recognition of the same sex marriage. 

See Jeffrey Skatoff, Florida Judge Diana Lewis: Same Sex Marriage Ban Unconstitutional, Clark Skatoff, Aug. 5, 2014.

August 7, 2014 in Current Affairs, Estate Planning - Generally, New Cases | Permalink | Comments (0) | TrackBack (0)

Tuesday, August 5, 2014

Brother's Fraud Damages Cut in Half

Wyly

A lawyer for the U.S. Securities and exchange Commission has said that Samuel and the estate of Charles Wyly ought to pay as much as &750 million for using a web of offshore trusts to illegally hide stock holdings and evade trading limits. 

The commission cut the demand for damages in half after U.S. District Judge Shira Scheindlin had rejected an earlier request for $1.41 billion. 

The brothers, who were founders of Michaels Stores, perpetrated a fraud that earned them at least $550 million in illegal profit over 13 years, jurors in Manhattan federal court found thirteen months ago.  A second trial will begin to resolve how much Samuel and the estate of his brother Charles, who died in a car accident three years ago, have to pay in fines and disgorgement.  “The defendants knew they were doing something wrong and something quite risky.” 

See Patricia Hurtado, SEC Cuts Wylys’ Damages Demand by Half to $750 Million, Bloomberg, Aug. 4, 2014.

August 5, 2014 in Estate Administration, Estate Planning - Generally, New Cases | Permalink | Comments (0) | TrackBack (0)

Sixth Circuit Rules on When One Trust Can be Subject of Multiple Lawsuits

GavelsThe strategy of bringing multiple lawsuits against a fiduciary in multiple courts simultaneously is a common strategy, but often unsuccessful when the subject of the suit is a trust. The United States Sixth Circuit Court of Appeals recently ruled on whether this strategy can used in trust administration cases.

In Cartwright v. Garner, the court held that if the case is regarding trust administration then the first court to the case gets it, but if the case is a tort case involving a trustee then the strategy of multiple court lawsuits may be used.

See Luke Lantta, Multiple Simultaneous Suits Over the Same Trust?, Bryan Cave, July 31, 2014.

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

August 5, 2014 in New Cases, Non-Probate Assets, Trusts | Permalink | Comments (0) | TrackBack (0)

Friday, August 1, 2014

CLE on Protection of IRA & Qualified Plan Asssets

CLE Photo

The American Bar Association section of Real Property, Trust and Estate Law is holding a CLE entitled, Protection of IRA & Qualified Plan Assets After Clark v. Rameker, on August 19, 2014 from 1:00 – 2:30 PM CT via webinar.  Here is why you should attend:

Retirement plan assets have become a major factor in the USA, amounting to approximately $23trillion as of December 31, 2013. Individual Retirement Accounts (IRA) were some $6.5trillion of that total, and have been looked upon as a tool for closing out many company and government sponsored retirement accounts. Many estate plans use IRA accounts as an integral part of succession planning.

On June 12, 2014 the U.S. Supreme Court unanimously ruled in Clark v. Rameker that an inherited IRA is not exempt from claims of creditors under the Bankruptcy Code provisions that generally exempt "retirement funds" from claims of creditors. The effects of this decision are complex and may reach beyond "inherited IRAs."  During this presentation our panel will discuss the ramifications of this decision and offer thoughts about the opinion and alternate techniques to protect inherited IRAs and other retirement benefits from creditors' claims.

August 1, 2014 in Conferences & CLE, Estate Planning - Generally, New Cases, Non-Probate Assets | Permalink | Comments (0) | TrackBack (0)

Thursday, July 31, 2014

Tax Court Issues Ruling Against IRA Owner

Gavel2

In Dabney v. Commissioner, a recent U.S. Tax Court case, the Court ruled against an IRA owner and regarded his IRA as distributed and taxable since the IRA owner failed to properly execute his intended self-directed IRA real estate investment. 

Rather than invest his IRA into real estate, Mr. Dabney dispersed his IRA and used the funds to buy real estate outside of his IRA.  Charles Schwab subsequently issued Mr. Dabney a 1099-R for that distribution, which Mr. Dabney contested, arguing that the funds were used to buy a property owned by his Schwab IRA.  Yet, the Court ruled against him because his funds were distributed outside of his Charles Schwab IRA and because his IRA funds and the real estate were not held by a self-directed IRA custodian that allowed for IRAs to own real estate.  The Court explained that an IRA can hold real estate, but that Charles Schwab’s policies did not allow for Mr. Dabney’s IRA to own real estate.

In order to properly execute a self-directed IRA investment into an asset such as real estate, the IRA owner needs to roll over or transfer their IRA funds first to a self-directed IRA custodian who allows the IRA to won real estate and then that self-directed IRA will take title and ownership to the IRA asset directly. 

See Mat Sorensen, Tax Court Rules Against IRA Owner Who Failed to Properly Make a Self-Directed IRA Real Estate Investment, The Self Directed IRA Handbook, July 29, 2014.

July 31, 2014 in Estate Planning - Generally, New Cases, Non-Probate Assets | Permalink | Comments (0) | TrackBack (0)

Jesse Ventura Wins Lawsuit Against the Estate of a Navy SEAL

Jesse VenturaJesse Ventura has won his lawsuit against the estate of a Navy SEAL. Ventura says that the man wrote a book that included a false story that he punched out Ventura for making a negative comment about the Navy SEALs. Ventura won a $1.8 million verdict, and is now the target of criticism due to concerns of how the wife and children of the deceased man will be provided for after such a large hit to the estate. However, Ventura, also a former Navy SEAL, maintains that this suit was about the truth and clearing his name from the allegation of treason.

See, Jesse Ventura: No Regret Over Suing Widow of Navy SEAL, CBS News, July 30, 2014.

July 31, 2014 in Current Affairs, Estate Planning - Generally, New Cases | Permalink | Comments (0) | TrackBack (0)

Wednesday, July 30, 2014

Inherited IRAs Protected by Some States

IRC

Some investors that are lucky enough to benefit from a nonspousal inherited IRA are better off living in some states than others.  Alaska, Arizona, Florida, Missouri, North Carolina, Ohio and Texas are the only states where nonspousal inherited IRAs are safe from trustees seeking assets in the settlement of bankruptcy cases. 

The recent Supreme Court decision in Clark v. Rameker has the most immediate impact on consumer debtors and on financial advisors who recommend IRAs as estate planning tools.  Lawyers involved in bankruptcy proceedings must decide whether to proceed under a state or federal exemption.  “ There are some states that do protect inherited IRAs so the fact that they are not protected under the federal exemption doesn’t mean that states can’t create their own.  States can create their own exemptions if there is a reason to.”

See Cyril Tuohy, Nonspousal Inherited IRA Assets Protected in 7 States, Insurance News Net, July 29, 2014.

July 30, 2014 in Estate Administration, Estate Planning - Generally, New Cases, Non-Probate Assets | Permalink | Comments (1) | TrackBack (0)

Wednesday, July 23, 2014

Long Running Breach of Trust Case Shows No Sign of Stopping

FloridaThe case is Siegel v. JP Morgan Chase Bank, and after passing the 10 year mark, it may be the longest running breach of trust suit Florida has ever seen. The case has seen multiple trials and appeals. Now, after JP Morgan Chase has emerged victorious in the latest trial in probate court, the case is headed to appellate court once again. The case involves the beneficiaries of the affluent art collector Dorothy Rautbord challenging distributions made from the trust by corporate trustee, JP Morgan Chase.

See Jeffrey Skatoff,  Breach of Trust Lawsuit in Florida Still Going Strong, Clark Skatoff, July 25, 2014.

July 23, 2014 in New Cases, Non-Probate Assets, Professional Responsibility, Trusts | Permalink | Comments (0) | TrackBack (0)