Wills, Trusts & Estates Prof Blog

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

A Member of the Law Professor Blogs Network

Saturday, October 25, 2014

Trust Reformation


In Private Letter Ruling 201442046 (Oct. 17, 2014), the Internal Revenue Service held that a reformation of a trust to correct scrivener’s errors triggered remainder interests to be completed gifts and consequently, a trust’s assets would not be included in a grantor’s gross estate upon his death.  Furthermore, the reformation would not cause any current or future beneficiaries to make a gift to any other trust beneficiaries.

Grantor and his wife met with an attorney to discuss estate planning for their four children.  The couple decided to use grantor retained annuity trusts (GRATs), including a 4-year term GRAT and a 15-year term GRAT.  To grantor established both GRATS by making gifts of stock to each GRAT.  Under the 4-year GRAT, the grantor would receive an annuity for 4-years, and the remaining assets would pass to a Children’s Trust.  The second GRAT was similar, but after the 15 years, the Children’s Trust would be the remainder beneficiary. 

The grantor subsequently hired an accountant to prepare Form 709 and report the date of transfers to the GRATs.  The accountant notified the grantor that the Children’s Trust contained language making the Trust revocable by the grantor, thereby defeating the grantor’s intent in creating the GRATs. 

The grantor retained a second attorney to reform the Trust under state law and filed a petition in state court to request reformation of the Trust to correct mistakes under scrivener’s errors.  The court approved the petition and ordered the reformation should be effective. 

See Dawn S. Markowitz, State Court Trust Reformation, Wealth Management, Oct. 22, 2014.

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

October 25, 2014 in Estate Planning - Generally, New Cases, Trusts | Permalink | Comments (0) | TrackBack (0)

Friday, October 24, 2014

Michigan's Cottage Transfer Statute Broadened

LawA new law in Michigan has expanded the state's law on from to whom can a cottage transfer occur without the property taxes being uncapped. The statute was signed into law on October 9, 2014, and not only expands the list of individuals that are considered a transferee, but also added trusts and inheritance vehicles, such as a will or through intestacy, to the definition of a transferor. The new law will be in effect in 2015 and will apply to transfers made on December 31, 2014 or later.

See Christopher J. Caldwell, Laura E. Radle, New Law Effective in 2015 is an Important Win for Cottage Owners, JD Supra, Oct. 23, 2014.

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

October 24, 2014 in Estate Planning - Generally, New Legislation, Trusts, Wills | Permalink | Comments (0) | TrackBack (0)

Thursday, October 23, 2014

CLE on Using Technology to Meet the Challenges of Today's Trust & Estate Practice

CLEThe American Law Institute Continuing Legal Education (ALI CLE) is presenting a CLE entitled, Using Technology to Meet the Challenges of Today's Trust & Estate Practice, Wednesday November 12, 2014, 12:30 – 2:00pm Eastern, online and by phone. Here is why you should attend:

The complexity of an estate planning practice places great demands on your time and your intellect. What are some of the best technological tools that estate planners can use today?

Technology offers time saving benefits of not repeating mindlessly similar computations, and prevents math errors. Join Fellows of the American College of Trust and Estate Counsel for a scintillating discussion of the latest developments in technology for estate planning.

Faculty will discuss:

  • the great and not so great of Document Assembly Engine (DAE) solutions
  • suggested sites for commercial spreadsheets and information on preparing your own
  • tips for producing client diagrams and flowcharts
  • iPad and iPhone apps for trust and estate practitioners
  • free web site resources from The American College of Trust and Estate Counsel (ACTEC) and the ABA Real Property, Probate and Trust Law (RPTE) Section
  • research and other resources on the Internet for trust and estate practitioners

October 23, 2014 in Conferences & CLE, Estate Planning - Generally, Technology, Trusts, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Wednesday, October 22, 2014

Avoid These Estate Planning Errors


While many people fail to plan for death, even those who make the effort to plan their estates often neglect to follow through or update their plans as changes occur in their lives.  So that your estate plan may remain a valuable asset for you and your heirs, avoid these common mistakes:

  • Thinking the state will handle everything. It is a common misconception to think that trusts are for the wealthy and you have covered your bases with a will.  However, with a will, your estate may have to go through a public probate process and can be expensive.  If you have a trust, it eliminates the probate process for assets and ensures privacy.
  • Your work is done after a trust is created. Many people forget to fund their revocable trust.  The trust does not exist unless it holds assets. 
  • Settling and forgetting. This means that clients will often set up their estate planning documents and rarely look at them again.  Life changes and your needs, as well as your children’s, may be different.  Thus, updating a will is crucial.
  • Your assets will follow your trust or will. Beneficiary forms govern retirement accounts and insurance policies; the assets do not flow through your trust or will.  Whomever you designated as your beneficiary will get the money when you die.
  • Not considering your children’s needs. Each child can be different, and there may be times to treat them differently when it comes to disbursing their inheritance.

See Barry Glassman, Trust Bust: Steer Clear of the 8 Biggest Estate-Planning Mistakes, CNBC, Oct. 22, 2014.

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

October 22, 2014 in Estate Administration, Estate Planning - Generally, Non-Probate Assets, Trusts, Wills | Permalink | Comments (0) | TrackBack (0)

Paying For Elder Care

Medicare tax

The federal health insurance program for Americans over the age of 65 does not cover everything.  For example, long-term custodial care to assist with “activities of daily living,” which might include bathing, dressing, and eating, is not covered.

As many older people will eventually need such care, their families must find a way to pay for it.  Unfortunately, it is not cheap.  Privately purchased long-term care insurance is one way to handle some of these costs, though it is expensive.  Another solution is applying for Medicaid, a joint federal and state program.  In order to qualify, an elderly person must have total “countable assets” under a certain amount.  There are legal strategies that can help older people qualify for Medicaid, and below are a few options to look into:

  • Asset Protection Trusts. A properly established irrevocable trust is one way to shelter assets so they do not affect Medicare eligibility. 
  • Private Annuities. If a person needs to apply for Medicaid before the five-year look-back period expires, it is possible to preserve a portion of assets using a properly drafted private annuity or promissory note.
  • Personal Care Agreements. A lump sum paid to a caregiver for future services can do a number of things including: reduce the size of the estate so the person will be eligible for Medicaid, and purchase care beyond what Medicare provides. 
  • Spousal Refusal. Transferring assets from one spouse to another is not penalized under Medicaid.  However, the well spouse is legally obligated to provide for the other spouse’s care, and their collective assets will be considered for Medicaid eligibility purposes.  If the well spouse signs a spousal refusal, they effectively renounce that responsibility, making the other spouse immediately eligible for Medicaid.

See Greg Daugherty, Top 5 Strategies to Pay for Elder Care, Investopedia, Oct. 21, 2014.

October 22, 2014 in Elder Law, Estate Planning - Generally, Trusts | Permalink | Comments (0) | TrackBack (0)

Benefits of a Gun Trust

GunsThe National Firearms Act of 1934 (NFA) regulates the transfer and ownership of some categories of firearms. Even if state law allows for ownership or use of a firearm that's covered by the NFA, the process for getting approval is complicated and the requirement of a certification letter from local law enforcement can make it nearly impossible to get approval to purchase a heavily regulated gun that falls within the scope of the NFA. One possible solution is a gun trust. The requirements for a gun trust holding a NFA regulated firearm are very different and may be easier to meet. Thus, a gun trust may assist with purchase and ownership, compliance with relevant laws, and aiding in the process of passing a firearm through the generations.

See Matthew W. Thompson, What in the World is a 'Gun Trust' and Why Might I Want One?, WRAL Tech Wire, Oct. 15, 2014.

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

October 22, 2014 in Estate Planning - Generally, Non-Probate Assets, Trusts | Permalink | Comments (0) | TrackBack (0)

Tuesday, October 21, 2014

Minor Beneficiary May Disclaim Without Gift Tax

 TaxesIn a recent Private Letter Ruling, a taxpayer who is a beneficiary of two trust that were created prior to taxpayer's birth may severe her interest in discretionary payments and contingent beneficial interest. The minor beneficiary intended to to disclaim any right to beneficial interest within nine months of the age of majority, and the IRS concluded in Private Letter Ruling 2014400071 that as long as all other applicable laws are followed the disclaimer may successfully be made without creating federal gift tax liability.

See Debra Doyle, Disclaimers of Distribution Rights Aren't Transfer to Gift Tax, Wealth Management, Oct. 10, 2014.

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

October 21, 2014 in Estate Planning - Generally, Gift Tax, New Cases, Trusts | Permalink | Comments (0) | TrackBack (0)

Saturday, October 18, 2014

New Case: In re Theresa Houlahan Trust

TrustLimitations does not begin to run even though trust property consists only of a claim against the trustee. The Supreme Court of New Hampshire reversed the grant of summary judgment for a successor trustee in an action alleging that the predecessor trustee violated his fiduciary duty by transferring all of the property of Trust 1 of which he was a trustee to Trust 2 of which he was settlor and trustee. The trial court granted the successor trustee’s motion for summary judgment on the ground that the action was barred by the statute of limitations which requires actions against a trustee for breach of trust be brought within three years of the termination of the beneficiary’s interest in the trust.

In re Theresa Houlahan Trust, citing Restatement (Third) of Trusts § 2, comment i and the Reporter’s Notes, the court held that Trust 1 did not cease to exist when all of its property was transferred to Trust 2 because Trust 1 held a chose in action against the trustee. The court remanded the case for trial on the remaining issues of both fact and law.

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

October 18, 2014 in Estate Planning - Generally, New Cases, Non-Probate Assets, Trusts | Permalink | Comments (1) | TrackBack (0)

Friday, October 17, 2014

Warring Over Wills


Leo Tolstoy once wrote, “Happy families are all alike; every unhappy family is unhappy in its own way.”  Yet when it comes to wills and estates, the woes may echo one another. 

Although these battles are the exception rather than the rule, how do you avoid family warring?  Some experts say there is no “one-size-fits all approach” that will ensure harmony when you die.  “Things like family trusts, putting business assets in different companies and having an up-to-date will are very important because if you don’t do those things you can leave a real mess behind which can be very expensive to sort out and money can go to people who you may not have wanted to benefit.”

If property has been gifted before death, it cannot be the subject of dispute.  Thus, when sizeable assets are at stake, a lot of planning is needed.  A discretionary trust may be an ideal mechanism to facilitate this change if it is set up properly. In establishing a trust, one must anticipate where control of the business will lie, and put that in a letter of wishes.  “This generally isn’t a legally binding document, it’s generally informal … in conjunction with a well structured trust, a letter of wishes can be a very useful thing to guide all those who are involved, including family members.”  This may not be a remedy to keep relatives from going head to head, however, consulting your family and communicating your wishes to them before you die can help forestall any problems. 

See Hamish Fletcher, Families at War: When Wills Go Sour, The New Zealand Herald, Oct. 17, 2014.

October 17, 2014 in Estate Administration, Estate Planning - Generally, Trusts, Wills | Permalink | Comments (0) | TrackBack (0)

Trustee Ratifying Invalid Action Not Enough

AntiA co-trustee cannot ratify an action by the other co-trustee that violates terms of the trust. Beneficiary was co-trustee of a trust with a corporate co-trustee and the trust terms required that no trustee who was also a beneficiary may exercise any powers of the trustees for his or her own direct or indirect benefit, and whenever “participating in income or principal of a beneficiary who is also a trustee is being considered” decisions must be made solely by the corporate co-trustee. The individual co-trustee entered into a 1031 like-kind exchange with himself. The corporate co-trustee ratified the transaction. Another beneficiary brought an action alleging that the individual co-trustee had violated his fiduciary duties by engaging in the 1031 exchange. After a bench trial, the court found that the co-trustee had not violated his fiduciary duty.

In re Estate of Foiles, on appeal, the Colorado intermediate appellate court reversed and remanded, holding that in the absence of a trust term allowing a co-trustee to ratify otherwise invalid actions of a trustee, ratification can come only from all of the beneficiaries.

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

October 17, 2014 in Estate Planning - Generally, New Cases, Non-Probate Assets, Trusts | Permalink | Comments (0) | TrackBack (0)