Wills, Trusts & Estates Prof Blog

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

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Wednesday, August 20, 2014

Article on Bankruptcy Law and Retirement Assets

Supreme court

Albert Feuer (Law Offices of Albert Feuer) recently published an article entitled, The Supreme Court Disregards ERISA and Goes Farther Astray in Applying Bankruptcy Law to Retirement Assets, 33 Tax Management Weekly Report 995 (July 2014). Provided below is the abstract from SSRN:

The Supreme Court decided in Clark v. Remaker, 573 U. S. (Slip Opinion No. 13-299, June 12, 2014) the extent of the bankruptcy exemption for “Retirement funds to the extent that those funds are in a fund or account that is exempt from taxation under section 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986.” This bankruptcy fund exemption applies whether the debtor chooses to use the federal or state law bankruptcy exemptions. 

The Court decided that the bankruptcy fund exemption did not apply to the beneficiaries of an individual retirement account (“IRA”), although the Court appeared to suggest that a spousal beneficiary may obtain the protection to the extent those benefits become part of the surviving spouse’s individual IRA. The Court’s implicit addition of the phrase “debtor’s created” at the start of the exemption is based on its unexamined assumption that otherwise the phrase, “Retirement funds to the extent that those funds are in,” would be rendered “superfluous.” 

The Court asserted that three factors showed that an IRA beneficiary has no interest in retirement funds: (1) IRA beneficiaries, unlike the initial owners, may not make contribution to IRAs, although this is not true after owners attain the age of 70½, so perhaps no IRA owners over the age of 70½ are entitled to the bankruptcy exemption; (2) IRA beneficiaries, unlike the initial owners, must begin taking distributions regardless of their retirement, although IRA owners may take distributions regardless of their retirement, so perhaps no IRA owners are entitled to the bankruptcy exemption; and (3) IRA beneficiaries, unlike the initial owners, may obtain their benefits without incurring a tax penalty prior to attaining the age of 59½, so perhaps no IRA owners over age 59½ are entitled to the bankruptcy exemption. 

Under the Court’s analysis beneficiaries of the tax qualified plans subject to the provision, i.e., those plans that are not ERISA pension plans with broad coverage (another section, which the Court ignored, protects a debtor’s interest in such ERISA plans), are not eligible for the bankruptcy fund exemption because they are subject to the three above conditions. As with IRAs, it is not clear whether spousal beneficiaries may obtain the protection to the extent those benefits become part of the surviving spouse’s individual IRA. 

The phrase “retirement funds to the extent that those funds are in” has a significance without the addition of any words that is consistent with the legislative history of the phrase, the other bankruptcy provisions, and ERISA. In particular the coverage of the exemption section is limited to (1) the tax-qualified plans that meet the definition of ERISA pension plans without its exclusions, such as those for government or church plans, (2) IRA assets, other than those derived from tax-qualified plans that do not meet the first criterion. Under this analysis the bankruptcy fund protection would be available to the participants and beneficiaries of such non-ERISA pension plans. The bankruptcy exemption for benefit payments and benefit funds associated with an ERISA pension plan with broad coverage that the Supreme Court approved in Patterson v. Shumate, 504 U.S. 753 (1992), also applies to participants and beneficiaries who are both protected by ERISA.

August 20, 2014 in Articles, Estate Planning - Generally, New Cases, Non-Probate Assets | Permalink | Comments (0) | TrackBack (0)

Protecting Inheritances in Divorce


When Karen’s grandfather passed away, Karen inherited a substantial amount of money.  Yet during Karen’s divorce, her husband threatened to take half of her inheritance. 

Because Karen’s story resonates for many individuals going through divorce, it is important to know how to protect gifts and inheritances. 

Firstly, it noteworthy to mention that whether a particular asset can be divided as part of a divorce settlement depends on how it is classified: separate property or marital property.  State laws governing property differ in details.  Generally speaking, separate property includes inheritance received by either spouse.  Yet the critical consideration is whether the separate property has been comingled with marital assets.  If Karen deposited the inheritance into a joint bank account or used it towards a purchase in both their names, the inheritance will most likely be deemed marital property, and is now subject to division. 

Gifts to either spouse from a third party are also considered separate property.  Like inheritances, caution against comingling still applies.  In some divorces, one spouse will claim money received was a gift and the other spouse will claim it was a loan.  To avoid any contentious disputes, if you receive or make a gift, draw up paperwork indicating specifically to whom the gift is being made, and there is no expectation of repayment.

See Jeff Landers, Divorcing Women: Here’s How to Protect Your Inheritances and Gifts, Forbes, Aug. 19, 2014.   

August 20, 2014 in Estate Planning - Generally, Non-Probate Assets | Permalink | Comments (0) | TrackBack (0)

What Robin Williams’ Estate Plan Did Right

Robin_WilliamsRobin Williams’ did not have a simple family situation, and his three marriages and children from two of them could not have made his estate planning process easy. However, Williams' seemed to have made the best of his complicated situation. While his life and accomplishments are headline news after his death, his estate planning decisions are not. At least not as much as those of other high profile celebrities', such as Philip Seymour Hoffman, and not as detailed. By relying on trusts instead of a will, Williams has ensured privacy for his family and immediate support for his children since they will not have to navigate the probate process.

See Stephen Lacey, Celebrity Tragedies Shine a Bright Light on Estate Planning, Florida Today, Aug. 18, 2014.

August 20, 2014 in Current Affairs, Estate Planning - Generally, Film, Non-Probate Assets, Trusts, Wills | Permalink | Comments (0) | TrackBack (0)

Widow of Former Navy Seal Sues Estate Planning Attorney

Gavel3Taya Kyle, the widow of former Navy Seal and American Sniper author, Chris Kyle, is suing her estate planning attorney. The suit was filed in Dallas County last week. Kyle claims that her attorney and trustee of her family trust, Christopher Kirkpatrick, acted negligently with regards to the services he provided her and her late husband. Kyle also alleges that Kirkpatrick failed to inform her that he had a conflict of interest, which was an impediment to his representation of her and her husband. The estate of Chris Kyle is also a plaintiff in the lawsuit.

See David Lee, ‘American Sniper’s’ Widow Sues Her Attorney, Courthouse News Service, Aug. 18, 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 20, 2014 in Estate Planning - Generally, New Cases, Non-Probate Assets, Professional Responsibility, Trusts | Permalink | Comments (0) | TrackBack (0)

Article on The Donald Sterling Case and Mental Capacity

SterlingLara Zeigler (Fiduciary Counsel) recently published an article entitled,The Donald Sterling Case and Mental Capacity, Of Minds and Money, Summer 2014. Provided below is the introduction to the article:

Rochelle (“Shelly”) Sterling, wife of Los Angeles real estate mogul and billionare Donald Sterling, made headlines in May when she argued to a probate court that her husband was mentally incapacitated—a charge he vehemently denied. The court’s decision had great implications for the Los Angeles Clippers, a 44-year-old professional basketball franchise held in a revocable trust for which both the Sterlings were co-trustees.

The ensuing legal battle brought to light an important question all wealthy individuals should address: What happens when you lose capacity to make sound decisions regarding your wealth? In this estate planning update, we explore the legal nuances of mental capacity through the lens of the Sterling case and offer practical tips on how to establish a clear plan in the event one’s cognitive abilities decline.

August 20, 2014 in Articles, Disability Planning - Health Care, Disability Planning - Property Management, Estate Planning - Generally, Non-Probate Assets, Trusts | Permalink | Comments (0) | TrackBack (0)

Tuesday, August 19, 2014

Church Accuses JPMorgan of Mismanagement of Trust Funds

ChurchChrist Church Cathedral is suing JPMorgan Chase for self-dealing and mismanaging trust funds. JP Morgan resigned as trustee last December. The church became the beneficiary of the trusts after wealthy humanitarian Eli Lilly, Jr. died in 1997, leaving a large donation to the church in the form of the trusts. The church is alleging that JPMorgan lost $13million of trust funds by making investment decisions that benefited the bank.

See Maria Vultaggio, Christ Church Vs. JPMorgan: Bank Allegedly Mismanaged Millions, International Business Times, Aug. 13, 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 19, 2014 in Non-Probate Assets, Trusts | Permalink | Comments (0) | TrackBack (0)

Why Retirees Are Not Buying Annuities

Question3Annuities can be a beneficial retirement planning tool for avoiding the problem of the retiree running out of savings during retirement. However, annuities are not the focus for many senior citizens. Here are eight reasons annuities may be being underutilized.

  1. Annuities are often not part of the planning discussion with advisers
  2. Fear drives sales, and living longer than expected is not as scary as death
  3. Many retirees do not think their odds are good for outliving their retirement
  4. The possibility of high returns from gambling in the stock market instead is tempting
  5. The lower monthly payouts for women are discouraging, even though women will likely collect more checks as they have a longer life expectancy
  6. The sticker shock for couples’ annuities can be discouraging if the benefits are not fully understood
  7. The desire to have more assets to pass to the next generation rather than invest it all in an annuity
  8. It is necessary, but unpleasant, to consider living in severe poverty in order to plan against it

See, Eight Reasons Retirees Don’t Buy Annuities, Forbes.

August 19, 2014 in Estate Planning - Generally, Non-Probate Assets | Permalink | Comments (0) | TrackBack (0)

Monday, August 18, 2014

New Book on South Dakota Trust Law

TrustLindquist & Vennum LLP has published the South Dakota Trust Law Deskbook, which provides specific guidance for South Dakota trust law. The deskbook provides relevant statutes and guidance on creating trusts in the trust favorable state of South Dakota. Provided below is a description of this helpful reference guide from the author’s website:

Lindquist & Vennum LLP is pleased to announce that the firm has published the first-ever South Dakota Trust Law Deskbook. This practice aid compiles selected South Dakota statutes and administrative rules relating to trust law and private trust companies. Topics include taxation, judicial remedies, uniform probate code, property, banks and banking, fiduciaries and trusts, and administrative rules. The deskbook is intended to be used as a statutory resource by wealth advisors, trust officers, attorneys, and family office professionals across the country.

South Dakota is nationally recognized by professional advisors, industry publications, and wealthy families as a top jurisdiction for trust situs considering the state’s favorable trust laws, legislative awareness, a responsive judiciary, and business-friendly regulatory climate. The state has no rule against perpetuities, no income tax, and expansive domestic asset protection trust laws applicable to all U.S. citizens, resident aliens, and non-resident aliens. The state also offers low capitalization requirements for trust companies and reasonable insurance rates. South Dakota’s judiciary is responsive and willing to accommodate trust and estate matters, including holding emergency hearings and permitting the immediate sealing of trusts for those seeking privacy.

“It’s no accident that South Dakota is the nation’s premier trust jurisdiction,” says Mavis Van Sambeek, co-editor of the book, Trust & Estates partner in the Lindquist Minneapolis office, and fellow in the American College of Trust & Estate Counsel. “The State Legislature and Governor’s Trust Law Task Force have spent considerable effort to develop a statutory environment that is friendly to family wealth. Our new deskbook at last combines these trust statutes into an easy-to-use format.” 

August 18, 2014 in Books, Books - For Practitioners, Non-Probate Assets, Trusts | Permalink | Comments (0) | TrackBack (0)

Friday, August 15, 2014

New Case: Ivie v. Smith


Valid beneficiary designations require contractual capacity.  In Ivie v. Smith, No. SC 93872, 2014 WL 3107448 (Mo. July 8, 2014), the Supreme Court of Missouri en banc held that Missouri’s Non Probate Transfer Law, which invalidates a beneficiary designation procured “by fraud, duress or undue influence,” does not abrogate the common law of contracts requiring contractual capacity to make a beneficiary designation.  This consequently affirmed the holding that the beneficiary designations in question were invalid. The holding abrogates In re Estate of Goldschmidt, 215 S.W.3d 215 (Mo. Ct. App. 2006), which held that the statute excluded incapacity as a means of voiding a beneficiary designation.

Special thanks to William LaPiana (Professor of Law, New York Law School) for bringing this case to my attention.

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

Six Ways to Avoid Accidental Inheritance by Minors

FamilyThe problem of minors being designated as the recipient of inherited property can happen by accident. While a court can fix this type of accidental inheritance problem through a guardian or by delaying the property distribution, this problem can be avoided by using estate planning tools to prevent an accidental inheritance of property by a minor. Here are six ways to avoid this type of problem:

  1. Include in the will that the executor can distribute the property left to minor to a custodian instead.
  2. Give the executor the ability to use the funds left to the minor for the benefit of the minor.
  3. Create a contingent trust that is effective only if a minor is left property.
  4. Don’t name current minors as beneficiaries for any accounts.
  5. Remember to name a successor owner and contingent successor owner, if allowed, for all college savings accounts.
  6. Create intervivos trusts with minors as the beneficiaries.

See Sandra W. Reed, Estate Planning and Minors, YourGlennRoseTX, Aug. 7, 2014.

August 15, 2014 in Estate Planning - Generally, Non-Probate Assets, Trusts, Wills | Permalink | Comments (0) | TrackBack (0)