Wills, Trusts & Estates Prof Blog

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

Wednesday, September 19, 2018

No-Contest Clause Upheld by the Wyoming Supreme Court With No Probable Cause Exception

WritingwillA no-contest clause essentially makes all gifts under the will or trust conditional upon not challenging the document, and the practice of including one is becoming increasingly popular in American society. Blended families may have a higher chance of disagreements and squabbles over inheritances, as beneficiaries may have varying levels of gifts.

Trust and estate litigation is frequently driven by emotion, and often times the beneficiary’s complaints are not rational, thus corresponding litigation can severely tap into the estate's assets and funds. This is what the settlor is typically trying to avoid by the use of a co-contest clause. The Wyoming Supreme Court recently held in EGW and AW v. First Federal Savings Bank of Sheridan, 413 P.3d 106 (Wyo. 2018) that a no-contest does not violate public policy in Wyoming. 

The Court ruled that a “testator has the right to grant bequests subject to any lawful conditions he or she may select.” In the opinion, the Court explains that the ability to relinquish a person's property in the way they so choose is a strongly held right, and one that is backed by the full power of the law. The Court also found that even with challenge is in good faith and with probable the no-contest clause is still enforceable. Many states allow challenges made with probable cause to be brought in spite of a no-contest clause, a principal that is set forth in § 3-905 of the Uniform Probate Code, but Wyoming did not adopt that section of the Code.

See Carol Warnick, No-Contest Clause Upheld by the Wyoming Supreme Court With No Probable Cause Exception, Fiduciary Law Blog, September 12, 2018.

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

September 19, 2018 in Current Events, Estate Planning - Generally, New Cases, Trusts, Wills | Permalink | Comments (0)

Section 199A — Qualified Business Income Deduction Including Highlights of Proposed Regulations

TaxreformSteve R. Akers recently published a summary of Section 199A entitled, Section 199A — Qualified Business Income Deduction Including Highlights of Proposed Regulations, Bessemer Trust, September 11, 2018. Provided below is an abstract of the summary.

Section 199A is an important provision in the 2017 Tax Act, permitting a 20% deduction for qualified business income from proprietorships or passthrough entities, subject to complicated limitations. Proposed regulations were issued on August 8, 2018 (184 pages of preamble and regulations!) for Sections 199A and 643(f) (regarding the multiple trust rule).

The proposed regulations provide substantial additions for administering the statutory provisions (some of which ar taxpayer-friendly and some of which are not). A few highlights include:

  • Exceptions for "self-rental" property (as to the trade or business requirement) and for management companies (as to the W-2 limitation);
  • Prohibitions on "cracking and packing" strategies (regarding limitations on the deduction for "specified service trades or businesses"); and
  • Anti-abuse rules for trusts owning business interests

September 19, 2018 in Articles, Current Affairs, Estate Planning - Generally, New Legislation, Trusts | Permalink | Comments (0)

Tuesday, September 18, 2018

Judge Rules Hawaiian Princess Unfit to Manage $215m Trust

Hawaii-county-mapThe last "princess" Hawaii, a descendant of the Hawaiian royal family that was overthrown in 1893, has been found to not possess sufficient capacity to manage her $215 trust. Abigail Kawānanakoa, 92, is also the great-granddaughter of James Campbell, a sugar plantation owner that was one of Hawaii's largest landowners, and whom Kawānanakoa inherited much of her fortune from.

Kawānanakoa was known locally to be quiet and private, but also would lend a hand to many in need by paying people's bills and mortgages. In 2001, the heiress also established a $100m trust aimed at supporting Native Hawaiian language, culture, art, education, health and housing. “At the moment, she is a benefactor for the Hawaiian people,” said Lilikalā Kame’eleihiwa, director and professor at the University of Hawaii’s Center for Hawaiian Studies and a board member for Kawānanakoa’s trust.

But Kawānanakoa had a stroke last year and allegedly began to act "out of character." She married her girlfriend of over two decades, Veronica Gail Worth, and fired her attorney, Jim Wright after he claimed she was no longer able to serve as a trustee. Kawānanakoa hired new representative, Michael Lilly, and told a judge in Honolulu that she desired to remove Wright and appoint new trustees, including her wife.

The judge on Monday removed Wright as trustee, but appointed First Hawaiian Bank in his place. He said that he believed Kawānanakoa was able to decide that she wanted a trustee replaced, but that it was more complicated to appoint someone new, and that he didn’t find her capable of managing her financial assets.

See Breena Kerr, Judge Rules Hawaiian Princess Unfit to Manage $215m Trust, The Guardian, September 15, 2018.

Special thanks to Joel C. Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.

September 18, 2018 in Current Events, Estate Administration, Estate Planning - Generally, New Cases, Trusts | Permalink | Comments (0)

Monday, September 17, 2018

CLE on Using Trusts and LLC Together in Estate Planning

CLEThe National Business Institute is holding a live video webcast entitled, Using Trusts and LLC Together in Estate Planning, on Tuesday, October 30, 2018, at 9:00 a.m. - 4:00 p.m. Central. Provided below is a description of the event:

Program Description

Enhancing Your Estate Plans by Combining Top Techniques

Make the best use of the two most effective and versatile estate planning instruments: trusts and LLCs. This practical legal guide will help you determine the best course of action for each client's unique situation, and implement your plan impeccably. Register today!

  • Stay up to date on the tax rules governing the participation of trusts in a business.
  • Ensure the transfer of an LLC into a trust goes off without a hitch.
  • Get the best prevention and resolution techniques for disputes most likely to arise.

Who Should Attend

This legal guide is designed for attorneys. It will also benefit accountants, estate planners, trust officers, business owners, and paralegals.

Course Content

  1. Material Participation by Trusts: Complying with the Tax Rules
  2. Using Asset Protection Trusts and LLCs Together
  3. The Intentionally Defective Grantor Trusts (IDGTs) and LLCs
  4. Transferring an LLC to a Trust (with Sample Documents)
  5. Trustees and Other LLC Members: Duties, Powers, and Decision-Making
  6. What to Do When the Trust Terms Conflict with the Interests of the LLC Members
  7. Transfers and Dissolution Issues
  8. Legal Ethics

Continuing Education Credit

Continuing Legal Education

Credit Hrs State
CLE 6.00 -  AK*
CLE 6.00 -  AL*
CLE 6.00 -  AR*
CLE 6.00 -  AZ*
CLE 6.00 -  CA*
CLE 7.00 -  CO*
CLE 6.00 -  CT*
CLE 6.00 -  DE*
CLE 7.00 -  FL*
CLE 6.00 -  GA*
CLE 6.00 -  HI*
CLE 6.00 -  IA*
CLE 6.00 -  ID*
CLE 6.00 -  IL*
CLE 6.00 -  IN*
CLE 7.00 -  KS*
CLE 6.00 -  KY*
CLE 6.00 -  LA*
CLE 6.00 -  ME*
CLE 6.00 -  MN*
CLE 7.20 -  MO*
CLE 6.00 -  MP
CLE 6.00 -  MS*
CLE 6.00 -  MT*
CLE 6.00 -  NC*
CLE 6.00 -  ND*
CLE 6.00 -  NE*
CLE 6.00 -  NH*
CLE 7.20 -  NJ*
CLE 6.00 -  NM*
CLE 6.00 -  NV*
CLE 7.00 -  NY*
CLE 6.00 -  OH*
CLE 7.00 -  OK*
CLE 6.00 -  OR*
CLE 6.00 -  PA*
CLE 7.00 -  RI*
CLE 6.00 -  SC*
CLE 6.00 -  TN*
CLE 6.00 -  TX*
CLE 6.00 -  UT*
CLE 6.00 -  VA*
CLE 6.00 -  VT*
CLE 6.00 -  WA*
CLE 7.00 -  WI*
CLE 7.20 -  WV*
CLE 6.00 -  WY*

Continuing Professional Education for Accountants

Credit Hrs State
CPE for Accountants 7.00 -  AZ
CPE for Accountants 7.00 -  NY*
CPE for Accountants 7.00 -  WA
CPE for Accountants 7.00 -  WI

 * denotes specialty credits

September 17, 2018 in Conferences & CLE, Estate Administration, Estate Planning - Generally, Income Tax, New Legislation, Trusts | Permalink | Comments (0)

Marital Trust Division Deemed a Non-Recognition Event, but Tax Implications Abound

IrsThe Internal Revenue Service released Private Ruling 201834011 on August 24, 2018, in which the IRS ruled that the proposed division of a marital trust into two separate trusts (Trust 1 and Trust 2, for simplicity) would neither trigger income or capital gain recognition nor preclude either trust from qualifying for treatment as qualified terminable interest property trusts, known as a QTIP trust.

Six issues were raised in the ruling, with each issue regarding different tax implications. Issues included whether IRC Section 2044(a) would cause the value of the surviving spouse’s deemed Section 2519 (remainder interest) gift of Trust 1’s remainder to be included in surviving spouse’s gross estate, whether the surviving spouse’s non-qualified disclaimer of all beneficial interests in Trust 1 (Renunciation) would trigger another deemed IRC Section 2519 gift from her with respect to Trust 2’s remainder, and whether the Renunciation would cause the surviving spouse’s interest in Trust 2 to be valued at zero under IRC Section 2702.

The ruling explained that IRC Section 2044(a) would not trigger because of the language of Section 2044(b), thus allowing the income interest property to not be a part of the surviving spouse if it was deemed a Section Section 2519 gift. The ruling held in the fourth and fifth issue that the Renunciation would not cause the surviving spouse’s continuing interest in Trust 2 to be valued at zero under Section 2702 because the two Resulting Trusts were to be analyzed as truly separate trusts.

See Stephen J. Putnoki-Higgins, Marital Trust Division Deemed a Non-Recognition Event, but Tax Implications Abound, Wealth Management, September 12, 2018.

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

September 17, 2018 in Current Events, Estate Planning - Generally, Income Tax, New Legislation, Trusts | Permalink | Comments (0)

Tuesday, September 11, 2018

Article on The Law and Economics of Environmental, Social, and Governance Investing by a Fiduciary

TrusteesMax M. Schanzenbach & Robert H. Sitkoff recently published an Article entitled, The Law and Economics of Environmental, Social, and Governance Investing by a Fiduciary, Wills, Trusts, & Estates Law eJournal (2018). Provided below is an abstract of the Article.

The use of environmental, social, and governance (ESG) factors in investing is increasingly common and widely encouraged by investment professionals and non-government organizations. However, trustees and other fiduciary investors in the United States, who manage trillions of dollars, have raised concerns that using ESG factors violates the fiduciary duty of loyalty. Under the “sole interest rule” of trust fiduciary law, a trustee or other investment fiduciary must consider only the interests of the beneficiary. Accordingly, a fiduciary’s use of ESG factors, if motivated by the fiduciary’s own sense of ethics or to obtain collateral benefits for third parties, violates the duty of loyalty. On the other hand, some academics and investment professionals have argued that ESG investing can provide superior risk-adjusted returns. On this basis, some have even argued that ESG investing is required by the fiduciary duty of care. Against this backdrop of uncertainty, this paper examines the law and economics of ESG investing by a fiduciary. We differentiate “collateral benefits” ESG from “risk-return” ESG, and we provide a balanced assessment of the theory and evidence from financial economics about the possibility of persistent, enhanced returns from risk-return ESG.

We show that ESG investing is permissible under trust fiduciary law only if two conditions are satisfied: (1) the fiduciary believes in good faith that ESG investing will benefit the beneficiary directly by improving risk-adjusted return, and (2) the fiduciary’s exclusive motive for ESG investing is to obtain this direct benefit. We reject the claim that the law imposes any specific investment strategy on fiduciary investors, ESG or otherwise. We also consider how the law should assess ESG investing by a fiduciary if authorized by the terms of a trust or a beneficiary or if it would be consistent with a charity’s purpose, clarifying such cases by asking whether a distribution would have been permissible under similar circumstances.

September 11, 2018 in Articles, Current Affairs, Estate Administration, Estate Planning - Generally, Trusts | Permalink | Comments (0)

Monday, September 10, 2018

Top 10 Estate Planning Mistakes We See and How to Avoid Them

Top10The authors decided to explain 10 estate planning mistakes instead of focusing on one. Explaining each mistake facially rather than diving in depth may make it easier for many to distinguish the errors they are making in their own estate plans.

  • Joint Accounts.
    • The presumption of a joint account is that the funds will belong to the other owner once the first owner passes away, which may have not been their intent. A power of attorney registered for the account is a more viable option.
  • I Love You Wills.
    • Though the gift and estate exemption is portable, the generation skipping transfer (GST) tax is not, and the spouse that inherits all of the deceased's assets may not be able to transfer assets tax free to the next generation.
  • Receiving an Inheritance Outright.
    • Inheriting through a trust may be able to solve a slew of issues, from benefit qualifications to creditors.
  • Failing to Update Beneficiary Designations.
    • For assets that do not pass through a will or trust, updating beneficiary designations are a must. Change occur in a lifetime, and the designations have the ability to reflect that.
  • Naming an Estate as Beneficiary of an IRA or Qualified Retirement Plan Benefit.
    • A preference is to generally afford clients this flexibility by naming a revocable trust as beneficiary instead.
  • Failing to Title Out of State Real Estate to a Revocable Trust.
    • An ancillary probate can be avoided in the other state if the real estate is owned by a client’s revocable trust, rather than in the client’s name.
  • Not Considering a Roth IRA Conversion.
    • If an individual does not plan to use all of the funds in their IRA, converting to a Roth IRA can be beneficial to pass on to heirs and compound their funds tax-free.
  • Delaying Large Charitable Gifts Until Death.
    • It is usually better for clients to make significant gifts to charity during their lifetimes rather than wait until their deaths.
  • Gifting Highly Appreciated Assets During Lifetime.
    • This can avoid the step-up basis for capital gains for heirs or beneficiaries.
  • Failure to Create an Estate Plan.
    • This is the number one mistake, and truly everybody needs an estate plan.

See Rebecca Rosenberger Smolen and Amy Neifeld Shkedy, Top 10 Estate Planning Mistakes We See and How to Avoid Them, The Legal Intelligencer, September 4, 2018.

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

September 10, 2018 in Current Affairs, Estate Administration, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Trusts, Wills | Permalink | Comments (0)

How Three Families are Using the New $11 Million Estate and Gift Tax Break

Tax actThe Tax Cuts and Jobs Act (TCJA) doubled the gift and estate tax exemption, giving those that needed it another $11 million to transfer tax free to the next generation or beyond. There are several different scenarios that can be benefited by the increase, as evidence by these examples:

  • For those that have yet to use any of their gift tax exemptions, it means they have the full $11 million (or $22 million or a married couple). But that doesn't necessarily mean that they have to use all of it.
  • Christen Douglas, an estate lawyer with McDermott Will & Emery in New York, created a new trust for them where an individual trustee (a family member) has discretion over trust payouts. “The new exemption is really making people revisit their estate plans and think about what they can improve upon."
  • IA widow is using the new exemption to transfer $11 million worth of commercial real estate via an installment sale into a dynasty trust for her five grandchildren and their offspring. The trust doesn’t include her two daughters as beneficiaries; they’re already well-taken care of.

See Ashlea Ebeling, How Three Families are Using the New $11 Million Estate and Gift Tax Break, Forbes, August 31, 2018.

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

Special thanks to Joel C. Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.

September 10, 2018 in Current Affairs, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, New Legislation, Trusts | Permalink | Comments (0)

Friday, September 7, 2018

CLE on IRA Distributions in Estate Planning: Trusts as Beneficiaries

CLEThe National Business Institute is holding a teleconference entitled, IRA Distributions in Estate Planning: Trusts as Beneficiaries, on Wednesday, September 26, 2018, at Central: 10:00 AM - 11:30 AM. Provided below is a description of the event:

Program Description

Make the Best Use of IRAs in Estate Planning

Help your clients maximize the benefit of IRAs with a practical guide to distributions to trusts. Get solutions to new and common problems and learn why and how to structure an IRA trust to comply with minimum distribution rules in the most tax-efficient manner. Register today!

  • Clarify required minimum distribution requirements and find the best ways to comply.
  • Determine whether conduit or accumulation trust is best for specific situations.
  • Find out how to resolve multiple beneficiary challenges with multiple trusts.

Who Should Attend

This legal guide is designed for attorneys. It will also benefit accountants, CPAs, trust officers, and paralegals looking to increase their knowledge of IRA rollover techniques.

Course Content

  • Clark v. Rameker Decision on Inherited IRAs and its Implications for Non-Bankruptcy Cases
  • Setting the Life Expectancy for Distributions From the Inherited IRA - Key Beneficiary Designation Considerations
  • Other IRA Rollover Rules and Tactics
  • Complying with IRA Required Minimum Distribution Rules
  • Choosing Between Distributions to Persons vs. Trusts
  • Qualifying a Trust as a Beneficiary
  • Fixing Problems Caused by Using a Generic Trust Not Specifically Designed for the IRA Stretch
  • Choosing Between a Conduit and an Accumulative IRA Trust: What Fits Your Client's Situation Better?
  • Using Separate Trusts for Multiple Beneficiaries
  • Recent IRA Guidance on Inherited IRAs

Continuing Education Credit

Continuing Legal Education

Credit Hrs State
CLE 1.50 -  AK
CLE 1.50 -  AL
CLE 1.50 -  AR
CLE 1.50 -  AZ
CLE 1.50 -  CA*
CLE 2.00 -  CO
CLE 1.50 -  CT
CLE 1.50 -  DE
CLE 2.00 -  FL*
CLE 1.50 -  GA
CLE 1.50 -  HI
CLE 1.50 -  IA
CLE 1.50 -  ID
CLE 1.50 -  IL
CLE 1.50 -  IN
CLE 1.50 -  KS
CLE 1.50 -  KY
CLE 1.50 -  LA*
CLE 1.50 -  ME
CLE 1.50 -  MN
CLE 1.80 -  MO
CLE 1.50 -  MP
CLE 1.50 -  MS
CLE 1.50 -  MT
CLE 1.50 -  NC*
CLE 1.50 -  ND
CLE 1.50 -  NE
CLE 1.50 -  NH
CLE 1.80 -  NJ
CLE 1.50 -  NM
CLE 1.50 -  NV
CLE 1.50 -  NY*
CLE 1.50 -  OH
CLE 2.00 -  OK
CLE 1.50 -  OR
CLE 1.50 -  PA
CLE 1.50 -  RI
CLE 1.50 -  SC
CLE 1.50 -  TN
CLE 1.50 -  TX*
CLE 1.50 -  UT
CLE 1.50 -  VA
CLE 1.50 -  VT
CLE 1.50 -  WA
CLE 1.50 -  WI
CLE 1.80 -  WV
CLE 1.50 -  WY

Continuing Professional Education for Accountants

Credit Hrs State
CPE for Accountants 1.50 -  AZ
CPE for Accountants 1.50 -  NY*
CPE for Accountants 1.50 -  WA
CPE for Accountants 1.00 -  WI

National Association of State Boards of Accountancy – CPE for Accountants/NASBA: 1.50 *

* denotes specialty credits

September 7, 2018 in Conferences & CLE, Estate Administration, Estate Planning - Generally, Trusts | Permalink | Comments (0)

Article on The Use and Abuse of Governing-Law Clauses in Trusts: What Should the New Restatement Say?

TrustThomas P. Gallanis recently published an Article entitled, The Use and Abuse of Governing-Law Clauses in Trusts: What Should the New Restatement Say?, 103 Iowa L. Rev. 1711-1727 (2018). Provided below is an abstract of the Article:

This Essay offers a novel solution to a thorny problem at the intersection of trust law and the conflict of laws: When should the settlor be able to choose a governing law other than the law of the jurisdiction with the most significant relationship to the trust? The law of the conflict of laws gives effect to a governing-law clause in a trust instrument except when contrary to the “strong public policy” of the jurisdiction with the most significant relationship to the matter at issue. But what is “strong public policy”? The answer should not depend on the size of the Chancellor's foot. This Essay proposes, instead, that the answer should incorporate the well-established distinction between the default rules of trust law, which aim to effectuate the intention of the typical settlor but yield to a particular settlor's contrary intention, and the mandatory rules of trust law, which apply without regard to intention for reasons of overriding public policy. This Essay proposes that a governing-law clause in a trust instrument should be effective unless contrary to the mandatory law of the jurisdiction with the most significant relationship to the matter at issue. The Essay urges the adoption of this approach by the Restatement (Third) of the Conflict of Laws, which is currently in the process of being drafted.

September 7, 2018 in Articles, Current Events, Estate Planning - Generally, Trusts | Permalink | Comments (0)