Wednesday, August 31, 2011
Myrick v. Moody Nat’l Bank, 336 S.W.3d 795 (Tex. App.—Houston [1st Dist.] 2011, no pet. h.).
Trustee entered into a lease extending beyond the termination of the trust. Beneficiary sued asserting that doing so was a breach of duty. The trial court found in favor of Trustee and Beneficiary appealed.
The appellate court affirmed. Section 113.011(b) of the Trust Code grants the trustee the authority to “execute a lease containing terms or options that extend beyond the duration of the trust” unless the trust instrument provides otherwise. See § 113.001. The court examined the trust instrument and found no provision which would limit Trustee’s ability to enter into a long-term lease. The court rejected Beneficiary’s argument that the requirement that Trustee distribute property to Beneficiary when the trust terminates operates to prohibit long-term leases. See § 112.052.
Moral: A settlor who wishes to prohibit long-term leases must expressly so provide in the trust instrument.
- Chief Counsel Advice 201047021 (Nov. 26, 2010). The IRS explained that an estate’s beneficiaries are not entitled to the estate’s loss carryovers.
- United States v. Kulhanek et al., 2010-2 USTC (Dec. 8, 2010). The U.S. District Court of the Western District of Pennsylvania held IRS action to recover estate taxes was timely.
- The IRS and the Office of Tax Policy released the Priority Guidance Plan for 2010-2011 (the Plan).
Wealth Strategies Journal recently published an article that uses case files to help explain the law of unintended consequences and how it pertains to drafting trusts and annuities. The law of unintended consequences is an adage that typically warns “that human conduct will produce at least one unintended consequence over a course of time and during a series of activities or transactions.” The first case mentioned in the article is below:
QUERY. When you "strap" your client behind the wheel of the next annuity contract, will you do so with the assurance of delivering a safe and rewarding driving experience?
CASE #1: Exit Ramps
The advisor matches the beneficiary appointments on the annuity with those listed in the trust; three sons - all with children of their own. What could go wrong?
One son (with two children) predeceases his father (annuity owner and annuitant) who subsequently dies.
Result. The two children were pleased to receive their father's share of his inheritance through the per stirpes distribution provisions of their grandfather's trust. Unfortunately, these same siblings came up $200,000 short of their total potential inheritance.
The reason. The default contingency provision of the annuity contract beneficiary form provided that in the event of a beneficiary's death, the surviving beneficiaries shall share equally in the death benefit. The shift from a "per stirpes" to "per capita" distribution format resulted in the disinheritance. Unintended? Presumably so. Unforeseeable? Presumably not.
QUERY. Should this occurrence give rise to a potential finding of fault attributable to some member(s) of the advisory community? If so, who are the possible suspects and under what circumstances might liability arise?
[Side Bar] Recall that every annuity transaction creates a "shift" of client assets. No assumption is made that the shift will prove beneficial or detrimental. However, advisors are encouraged to envision the road ahead and assess possible outcomes.
David F. Sterling (Wealth Strategies Journal), Annuities and the Law of Unintended Consequences: The Trusts and Estates Conundrum, Wealth Strategies Journal, Aug. 29, 2011.
Special thanks to Jim Hillhouse (WealthCounsel) for bringing this article to my attention.
Anderson-McQueen funeral home in St. Petersburg, Florida is now equipped with the first commercial “alkaline hydrolysis” unit. The unit dissolves a person’s body in a heated solution of potassium hydroxide pressurized to 10 atmospheres. Makers of the unit claim it is a green alternative to cremation because it uses a seventh of the energy and produces a third less greenhouse gas.
The funeral home could only install the unit after the Florida state legislature approved its use. Florida is now one of seven U.S. states that have legalized the use of alkaline hydrolysis as a means of corpse disposal.
See Neil Bowdler, New Body “Liquefaction” Unit Unveiled in Florida Funeral Home, BBC News, Aug. 30, 2011.
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When former rapper Tupac Shakur died in 1996, his body was cremated. Shakur’s former group, The Young Outlawz, recently affirmed rumors that they smoked Shakur’s cremated remains in marijuana cigarettes. The Young Outlawz claim they smoked the remains as per Shakur’s wishes stated in his song, Black Jesus.
See Peter C. Aitken, The Young Outlawz admit to smoking Tupac Shakur ashes mixed with marijuana in 1996, NY Daily News, Aug. 31, 2011.
Bruce Beeler was diagnosed with cancer and banked his sperm before undergoing chemotherapy treatments. Bruce died at age thirty-seven, before he and his wife, Patti, conceived any children. After her husband’s death, Patti used Bruce’s sperm to conceive her daughter Brynn (now eight) through in-vitro fertilization.
Patti filed for Social Security survivor benefits for Brynn shortly after Brynn’s birth, and the federal government denied the claim stating that Brynn did not qualify for benefits under Iowa law. Patti appealed the decision, and in 2009 a federal judge ruled that Brynn was eligible for over $150,000 in benefits. The Eighth Circuit Court of Appeals recently heard the case and overruled the federal judge’s ruling Monday, finding that the government had given a “reasonable” interpretation of Iowa’s law.
Interestingly, Brynn’s case caused Iowa to change its law regarding posthumously conceived children. The new law allows posthumously conceived children born two years after the deceased parent’s death to receive Social Security benefits and inheritance rights. Since the law is not retroactive, however, it does not apply to Brynn’s case.
See Iowa Girl Conceived After Father’s Death Not Entitled to Benefits, Appeals Court Rules, FoxNews, Aug. 30, 2011.
Special thanks to Adam J. Hirsch (William and Catherine VanDercreek Professor of Law, Florida State University College of Law) for bringing this to my attention.
Tuesday, August 30, 2011
Credit Union used a single contract to govern all of a customer’s accounts opened under the same membership number. The contract provided that any joint accounts opened under the contract would have rights of survivorship. After one party (husband) to a joint account died, Credit Union paid all funds in the account to the survivor (wife). Approximately one year later, Independent Executor claimed that the account lacked the survivorship feature because the specific account lacked its own survivorship agreement. Accordingly, the executor asserted that the estate was entitled to one-half of the account because the account contained community property. The trial court granted summary judgment in favor of Credit Union and Independent Executor appealed.
The appellate court affirmed. The court found that the language of the contract which both husband and wife signed governed all of the accounts they had in Credit Union whether they were open at the time they signed the agreement or thereafter.
Note: The court reached an issue which was not necessary to decide, that is, whether the account had the survivorship feature. Credit Union was entitled to pay any party to the joint account any part of or all of the funds in the account under Probate Code § 445. The court failed to distinguish between ownership of the funds in the account and the ability to withdraw those funds. Even if the account lack the survivorship feature, Credit Union had the authority to pay all funds in the account to the surviving joint party.
Moral: A financial institution may rely on one account contract to govern multiple accounts.
IRS Issued Five Rulings Regarding Gift, Income, and Generation-Skipping Tax Consequences When Transferring Trust Assets
Brian Spring (Associate Editor, Wealth Strategies Journal) recently posted on the five rulings the IRS issued in PLR 201134017. The post is below, in full:
The IRS has issued five rulings regarding a proposed transfer of assets from a trust, which is exempt from the generation-skipping tax, to a substantially similar trust.
Regarding the proposed transfer of assets, the IRS ruled that:
- the Receiving Trust would not lose its zero inclusion ration for generation-skipping tax purposes;
- a beneficiary's power to remove and replace special trustees are not general powers of appointment under sections 2041 and 2514;
- the transfer of assets to the Receiving Trust would not result in transfers of any beneficial interest that is subject to tax under section 2501;
- neither the beneficiaries nor the trusts would recognize gain or loss under section 61 or section 1001; and
- the holding period of the receiving trust in the assets transferred from Trust 1 will include the holding period of Trust 1 for each asset.
See Brian Spring (Associate Editor, Wealth Strategies Journal) PLR 201134017 on Income, Gift, and Generation-Skipping Tax Consequences of Trust Asset Transfers, Aug. 29, 2011.
Special thanks to Jim Hillhouse (WealthCounsel) for bringing this to my attention.
The Pistol Annies, a country music group, recently released a new album entitled Hell on Heels. The album contains a song called "Family Feud," which describes how a family probate feud can begin. The lyrics to the song are below:
Fine china stacked by the kitchen sink
Aunt Tammie's in there claiming all the diamond rings
Uncle Bobbs holding up the TV set
The only thing they are grieving over
Is what they ain't gonna get
She's only been in the ground a day or two
I'm glad Mama ain't around to watch this family fued
Great gran daddy's shotgun started it all
She wasn't even cold
Before they ripped it off the wall
Wanda's fighting Angie over antique quilts
Nobody even waited for the reading of the will
If Daddy was here he'd beat us black and blue
I'm glad mama ain't around to watch this family fued
I'm watching it all go down in shame
Wish the whole house would go up in flames
Who gives a damn about a cedar chest
When we just laid her soul to rest
She's only been in the ground a day or two
I'm glad Mama ain't around to watch this family fued
She's probably rolling over in her grave
'Cause the good lord giveth and the family taketh away
To listen to the song, please click here.
Special thanks to Clark Skatoff (attorney, Palm Beach Gardens, FL) for bringing this song to my attention.