Wills, Trusts & Estates Prof Blog

Article: The Next Step for Tax Policy Equity

Albert Feuer recently published an article entitled, The Next Step for Tax Policy Equity, Wills, Trusts, & Estates Law ejournal (2021). Provided below is the abstract to the Article:

In September, the House of Representatives Ways and Means Committee released proposals requiring many employers without retirement plans to establish and automatically enroll employees in IRAs or simple 401(k) plans or in IRAs with the default contributions going to Roth IRAs. The proposals would also require a person whose employee benefit plans, Roth IRAs, and traditional IRAs have an aggregate balance greater than $10 million to withdraw at least 50% of the excess balance. Broadening those proposals to require Roth IRAs to comply with the same required minimum distribution (RMD) rules that now govern employee benefit plans and traditional IRAs, would better implement the common-sense policy of using tax incentives to encourage adequate retirement savings by focusing on retirement savings.

Roth IRAs and their participants are subject to the same RMD rules after the death of the IRA participant and the participant’s spouse, if any, as traditional IRAs and tax-advantaged pension and profit-sharing plans, including their Roth designated accounts,. Roth IRAs and their participants should also be subject to the same RMD rules during the life of the IRA participant and the IRA participant’s spouse, if any. An IRA violating those rules would lose its tax exemption, and a person failing to take a timely RMD would be subject to a 50% excise tax.

Subjecting Roth IRA participants to both the excess benefit distribution and the RMD rules would better limit the retirement tax incentives to retirement savings. Those with Mega-IRAs, such as Mr. Thiel’s multi-billion Roth IRA, could continue to receive tax incentives for reasonable-sized retirement accounts, but the tax incentives on any excess balances would be dramatically reduced. Participants with Roth or IRA accounts of any size would similarly be required to withdraw significant funds distributed during the expected life of the participant and the participant’s spouse, if any. This would permit Congress to adopt more equitable policies, such as making more funds available to encourage adequate retirement savings, such as increasing the matching savings credits to low-income tax payers who make contributions to tax-favored retirement plans above the Ways and Means proposed amount.

Releases and Family Settlement Agreements in Trust & Estate Litigation

Settlement agreements can be beneficial to all parties. Settlement agreements can "help reduce litigation costs, facilitate dispute resolution, [and] guide the parties to a common understanding." 

Although settlement agreements can be beneficial, they do not come without risk. "In Austin Trust Co. v. Houren an agreement contained language in a release that barred the parties from bringing future claims." 

Below is a brief background on the case: 

Following the death of their father, the beneficiaries of an estate realized that their distributions would be delayed until a federal estate tax return had been filed. Seeking to speed up the distribution process, the beneficiaries entered into a family settlement agreement (“FSA”) with all interested parties. The FSA was negotiated by the parties, who acknowledged that they were either represented by counsel, or consciously chose not to be represented by counsel.

The FSA contained a release that, among other things, released all claims for breach of fiduciary duty. The exact language in the agreement releases read as follows: “any and all liability arising from any and all Claims,” including “claims of any form of sole contributory, concurrent, gross, or other negligence, undue influence, duress, breach of fiduciary duty, or other misconduct” and defined “covered activities” to include “(1) the formation, operation, management, or administration of the Estate,…or the Trusts, (2) the distribution of any property or asset of or by…the Estate,…or the Trusts, (3) any actions taken (or not taken) in reliance upon this Agreement or the facts listed in Article I,” (4) “any Claims related to, based upon, or made evident in the Disclosures,” and (5) “any Claims related to, based upon, or made evident in the facts set forth in Article I.”

The FSA was signed on June 10, 2015. In early 2016, the executor of the estate filed the federal estate tax return, which did not list an alleged $37 million debt as either an asset or a liability. Austin Trust sent a demand letter seeking repayment of the alleged debt, which the executor rejected. Austin Trust claimed a breach of fiduciary duty, and the executor asserted that this duty had been released. The trial court agreed, and an appeal followed.

In Austin Co., the court had to determine whether the release agreement was valid before it addressed whether the executor breached a fiduciary duty. The court listed six factors that it considered in deciding whether to affirm the settlement agreement. The court determined that the release was valid and did not have to decide whether a fiduciary duty was breached. 

Though settlement agreements can be beneficial, parties should exercise great caution and diligence before execution a settlement agreement. 

See Releases and Family Settlement Agreements in Trust & Estate Litigation, Freeman Law, 2021. 

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

Article: Flesh of My Flesh but Not My Heir: Unintended Disinheritance

Laura Padilla recently published an article entitled, Flesh of My Flesh but Not My Heir: Unintended Disinheritance , Wills, Trusts, & Estates Law ejournal (2021). Provided below is the abstract to the Article:

This article explores issues around property rights, biology and technology.

Article: Mandatory Share in Inheritance as An Institution for the Protection of the Rights of Family Members: The Experience of Russia and Foreign Countries

Aleksandra Fokina recently published an article entitled, Mandatory Share in Inheritance as An Institution for the Protection of the Rights of Family Members: The Experience of Russia and Foreign Countries, Wills, Trusts, & Estates Law ejournal (2021). Provided below is the abstract to the Article:

This study presents a comparative legal analysis of the institution of a mandatory share in inheritance in the law of Russia and some foreign countries according to three comparison criteria: the concept and legal definition; the size of the mandatory share and mandatory heirs; features of calculating the size of the mandatory share.

The relevance of the chosen topic is due to the fact that the similarities and differences established as a result of comparative legal analysis of the norms of inheritance law of Russia and foreign states of the legal regulation of the institution of mandatory share in inheritance allow us to re-evaluate the current regulation of mandatory share in inheritance in Russian law and use the experience of foreign countries for further improvement of Russian legislation on inheritance.

As a result of the conducted research, significant differences were established in the regulatory and legal regulation of the institution of a mandatory share in the inheritance, which can be used as part of the reform of the inheritance law of Russia.

Can Companies Force Themselves to Do Good?

With the use of perpetual-purpose trust, companies can "make the values of pro-social companies permanent." This is best explained through a beautiful example of a company doing good. 

Kate Emery, the founder of a successful digital-consulting firm was considering retirement and was weighing options for her company, The Walker Group. At the time, the Walker Group had nearly fifty employees and was bringing in around ten million dollars. If Emery were to sell the Company, she may have easily made a hundred million—or more. 

However, after a meaningful conversation, Emery decided to take the Walker Group in a new direction as she did not want to sell her company and jeopardize her lifework. Emery then revamped her already successful company by installing a new, yet unusual enterprise model. The Company began sharing a third of its distributed profits with employees and donating a third to nonprofits in Farmington, Connecticut where the Company was established. 

In 2018, Emery paired with the Purpose Foundation after she read about its new kind of corporate ownership structure. The foundation uses what is known as a perpetual-purpose trust which exists to fulfill some purpose, as opposed to providing for a human beneficiary. 

In a perpetual-purpose trust, the trust becomes the legal owner of the business, and the business owner now has "a fiduciary duty to fulfill its purposes, which might include sharing profits with workers, protecting the environment, and hiring the formerly incarcerated." These trusts can be used to prevent future owners from "discarding pro-social policies in favor of higher profits." 

With this type of corporate structure, companies can keep their goodwill intact—indefinitely.

See Nick Romeo, Can Companies Force Themselves to Do Good?, The New Yorker, January 10, 2022. 

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

Article: On Trusts, Angels, Morality and Fusion: Reply to My Critics

Irit Samet recently published an article entitled On Trusts, Angels, Morality and Fusion: Reply to My Critics, Wills, Trusts, & Estates Law ejournal (2021). Provided below is the abstract to the Article:

I am deeply grateful to the four commentators for engaging with my work in a deep and creative manner; tempting such outstanding scholars setting their inquisitive minds unto my work x is the best I could possibly ask for. Their thoughts set me unto new paths that correspond with the present book but move beyond it. There is no way I can do justice in this short piece to all the excellent points they raise in their critique. I therefore chose to write about four themes that recur in two or more of the papers: the place of the trust in my account of Equity, the extent to which equity sides with (moral) angles, whether the morality invoked by Equity is thick or thin, and the question to what extent Equity as it emerges from the book can be the subject of future fusion projects.

The Uniform Trust Code’s qualified-beneficiary concept confuses yet another court

In the matter of the Colecchia Family Trust, The litigation was focused on an irrevocable, income-only/use-only trust "under which the equitable property rights of remaindermen had vested ab initio." The Massachusetts Court of Appeals had to decide whether trustees were accountable to the remaindermen during the lifetimes of the current beneficiaries. The Court ultimately found that they were not. 

According to Charles E. Rounds, there are two major reasons why the Court made the wrong decisions: 

First, equitable non-possessory property rights in the remainder in corpus had vested ab initio. Second, the trustees had had a background overarching enforceable equitable duty to act in the interests of all beneficiaries, not just the current ones. See Massachusetts UTC §105(b)(2).

Apparently the Uniform Trust Code's qualified-beneficiary concept has been an issue for multiple courts, including the Appeals Court in Massachusetts. 

See Charles E. Rounds, Jr., The Uniform Trust Code’s qualified-beneficiary concept confuses yet another court, JD Supra, January 1, 2022. 

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

 

 

Article: The Irreducible Core of Trustee Duties in East Asian Trusts

Joyman Lee recently published an article entitled, The Irreducible Core of Trustee Duties in East Asian Trusts, Wills, Trusts, & Estates Law ejournal (2021). Provided below is the abstract to the Article:

This article examines the idea of the “irreducible core” of trustee duties in relation to East Asian trusts. Although the Japanese Trust Act of 2006 has designated many duties as non-core, the extent of reduction is far from certain. This is because regulatory law continues to apply, as well as the court’s policy interest in giving effect to the trust only where this is intended by the parties. The New Zealand Trust Act of 2019, which highlights the centrality of good faith rather than self-denial, clearly identifies the duties which stand at the core of the Japanese and Chinese trusts.

Intentionally Defective Grantor Trust: Income Tax Issues

With an Intentionally Defective Grantor Trust (IDGT) the settlor removes assets from the settlor's estate and moves them into the IDGT while retaining the income tax liability for the income generated by those assets. 

An IDGT "can be beneficial for transferring wealth and reducing estate taxes." By retaining "grantor powers," the settlor is treated as the owner of the trust assets for income tax purposes and is taxed as if the settlor received the trust income directly. 

These trusts are referred to as "'intentionally defective' because the settlor relinquishes ownership of the assets for estate tax purposes but remains the owner of the trust for income tax purposes." 

The primary benefit of the grantor trust status is that the trust assets can continue to appreciate without being depleted by income tax payments, which amounts to an additional transfer of wealth to the trust beneficiaries that is not subject to transfer tax (Rev. Ruling 2004-64). 

See Intentionally Defective Grantor Trust: Income Tax Issues, Wendel Rosen LLP, October 15, 2021. 

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

Article: Death of the Breadwinner and the Continuation of the Duty of Spousal Support: Discrepancies and Inequalities for Different Categories of Surviving Partners

Elsje Bonthuys recently published an article entitled, Death of the Breadwinner and the Continuation of the Duty of Spousal Support: Discrepancies and Inequalities for Different Categories of Surviving Partners, Wills, Trusts, & Estates Law ejournal (2021). Provided below is the abstract to the Article:

This note considers the extension of the duty of spousal support after the death of the breadwinner by comparing the rights of different categories of surviving maintenance claimants, who tend to be mostly women: widows of the deceased, unmarried intimate partners of the deceased and ex-wives and partners of the deceased. Financial support can be provided from the deceased estate in the form of a right to share in the joint matrimonial estate, a right to intestate succession, a right to claim from the estate in terms of the Maintenance of Surviving Spouses Act and a right to claim for loss of support from third parties who caused the death of the breadwinner. In comparing different categories of women, it emerges that the law disproportionately benefits widows over other partners, while the rights of ex-spouses are gradually reduced by the jurisprudence. There is also a discrepancy between rights to claim against deceased estates, which favour widows, on the one hand, and rights to claim against third parties, which are available to a far larger group of surviving maintenance claimants, on the other hand. The note analyses the gendered causes and consequences of these differences.