Case Summaries

The IRS has announced on its website that for estate tax returns (Forms 706) filed on or after June 1, 2015 that account transcripts will substitute for an estate closing letter.  Registered tax professionals that use the Transcript Delivery System (TDS) can use the TDS as can authorized representatives that use Form 4506-T, and requests will be honored if a Form 2848 (Power of Attorney) or Form 8821 (Tax Information Authorization) is on file with the IRS.  The IRS provided instructions and noted that Transaction Code 421 on the website will indicate that the Form 706 has been accepted as filed or that the exam is complete.  IRS also noted that a transcript can be requested by fax or by mail via Form 4506-T to be mailed to the preparer's address.  Certain items are necessary to document that the preparer has the authority to receive the transcripts - letters testamentary (or equivalent), Form 56 (Notice Concerning Fiduciary Relationship), Form 2848 and any other documentation that authorizes the party to receive the information.  The IRS noted that its decision whether or not to audit any particular Form 706 is usually made four to six months after the Form 706 is filed, and that the transcript should not be requested until after that time period has passed.  IRS Webpage, "Transcripts in Lieu of Estate Closing Letters," (Dec. 4, 2015).


The decedent died in early 2014 survived by three children.  Seven months after their mother's death, a daughter filed a petition for issuance of letters of administration (for which no statute of limitations applied) claiming that her mother died intestate and the value of her estate was approximately $250,000.  A brother objected, asserting that his sister's petition was basically a claim against the estate that was barred by the 6-month nonclaim statute of limitations contained in Kan. Stat. Ann. Sec. 59-2239.  The brother also asserted that the mother's estate did not have any substantial assets because the mother's real estate had been deeded to him before death and the remaining bank accounts had passed to him via payable-on-death designations established before death, and the remaining tangible personal property had been split between the three children.  The trial court denied the daughter's petitioner largely on the basis of its finding that the estate did not have any substantial assets.  On appeal, the court reversed.  The appellate court noted that the daughter's action was one seeking authority to marshal the estate's assets, if any, which did not trigger the nonclaim statute.  Furthermore, by waiting more than six months to file her petition, the daughter eliminated the need to notify creditors as well as the chance for creditors to file a claim against the estate.  The court also noted that the brother's claims could not be verified unless an administrator was appointed.  A dissenting opinion confused the need to administer the estate to verify the brother's claims (for which no statute of limitations applies) with a claim against the estate (for which the 6-month statute would apply) and asserted that there were no substantial assets in the estate.  In re Estate of Brenner, No. 113,288, 2015 Kan. App. LEXIS 81 (Kan. Ct. App. Nov. 20, 2015). 


The decedent’ died in early 2012 and shortly thereafter, the estate filed the decedent’s 2011 individual income tax return which showed a tax liability of $495,096 and total tax payments of $924,411 which resulted in an overpayment of $429,315 for 2011.  According to the return, $25,000 was to be applied to the decedent’s estimated 2012 taxes with the balance of $404,315 to be refunded to the decedent’s estate.  On Form 706, the estate did not include the value of the tax refund in the gross estate or the value of the $14,126 individual income tax refund for 2012.  The IRS claimed that the individual income tax refunds should have been included in the gross estate value based on I.R.C. Sec. 2033, and assessed a deficiency of estate tax of $146,454.  The estate claimed that under state (KY) law, the refunds were not in existence as of the date the estate tax was due and was, therefore, only a mere possibility or expectancy and that no property interest existed until the time the IRS determined entitlement to the refund.  The court agreed with the IRS on the basis that I.R.C. Sec. 6402(c) specifies that, absent an offsetting liability, the IRS “shall” refund overpaid taxes to the taxpayer.  As such, the refund was not merely an expectancy but was estate property.  Estate of Badgett v. Comr., T.C. Memo. 2015-226.  


After nearly 40 years of marriage, the wife filed a dissolution action against the husband. During the parties’ marriage, the wife’s mother had given her and the husband title to a farm. During the pendency of the divorce, the wife asked the husband to transfer ownership of the farm to her via quitclaim deed. He complied with her request, but later sought to claim a portion of the property as marital property. He argued that the wife had committed fraud by falsely promising to attend counseling in exchange for the deed. He also argued that because of their confidential relationship, she had unduly influenced him to deed the property to her. The trial court ruled that the transfer of the farm from the husband to the wife was a gift, and the appellate court affirmed. Accordingly, the court classified the farm as the wife’s separate property. The appellate court did remand the case, however, for reconsideration as to whether the husband’s contribution to the separate property during the marriage should have resulted in his receiving a larger share of the marital estate.  Draper v. Draper, No. E2014-02224-COA-R3-CV, 2015 Tenn. App. LEXIS 905 (Tenn. Ct. App. Nov. 12, 2015).


The settlors created a dynasty trust in 1993 with terms authorizing the trustee to make charitable distributions out of the trust's gross income at the trustee's discretion.  The trust wholly owned a single-member LLC and in 2004, the LLC donated properties that it had purchased to three charities.  Each property had a fair market value that exceeded basis.  The LLC received the funds to buy the properties from a limited partnership's distribution to the trust in which the trust was a 99 percent limited partner.  The limited partnership owned and operated most of the Hobby-Lobby stores in the U.S.  The IRS claimed that the trust could not take a charitable deduction equal to the full fair market value, but should be limited to the trust's basis in each property.  The trust claimed a charitable deduction in excess of $20 million on Form 1041 for 2004, and later filed an amended Form 1041 increasing the claimed charitable deduction to just shy of $30 million, and seeking a tax refund of over $3 million.  The IRS denied the refund, claiming that the charitable deduction was limited to cost basis.  The trust paid the deficiency and sued for a refund.  On the trust's motion for summary judgment, the parties agreed that the donated properties were acquired by the trust with funds coming from gross income from a pre-2004 tax year.  Thus, according to the trust, I.R.C. Sec. 642(c)(1) allowed the charitable deduction to be computed based on the donated property's fair market value.  The court agreed, noting that I.R.C. Sec. 642(c)(1) allowed a deduction without limitation contrary to the basis limitation contained in I.R.C. Sec. 170, and that charitable deduction provisions are to be construed liberally in the taxpayer's favor.  The court noted that the donated properties were all acquired with distributions from the limited partnership to the trust, and each distribution was part of the LLC's gross income for the year of distribution.  Thus, the donated properties were clearly bought with funds traceable to the trust's gross income and were donated under the terms of the trust.  The court noted that the IRS admitted that there was no caselaw or other substantial authority that supported the government's position.    The court granted summary judgment for the trust.  Green v. United States, No. CIV-13-1237-D, 2015 U.S. Dist. LEXIS 151539 (W.D. Okla. Nov. 4, 2015). 


The decedent worked with his father and brother in a family business operated in the corporate form that was created in 1959.  When the corporation was formed, the father contributed more capital that the others, but each of them were listed as registered owners of one-third of the corporate stock.  A family dispute arose and the decedent sought to cash-out his stock interest.  However, his father refused noting the disproportionate contributions and claiming that a portion of the decedent’s stock was being held in an oral trust for the benefit of the decedent’s children.  The dispute ended up in litigation ultimately resulting in a family settlement agreement in 1972 under which the decedent transferred one-third of his stock interest to a trust for his children with the balance being redeemed for $5 million.  No gift tax return was filed at the time on the belief that the transfer of shares to the trust was not a gift.  The IRS claimed otherwise, asserting that the transfer to the trust was a gift that was not entered into in the normal course of business for full and adequate consideration because the decedent’s children paid nothing for it.  The Tax Court, in a full T.C. opinion, disagreed with the IRS.  The court noted that the transfer did occur in the ordinary course of business for full and adequate consideration in money or money’s worth required by Treas. Reg. §25.2512-8.  The consideration, the court determined, was the recognition of the other shareholders that the decedent owned outright the other two-thirds of the stock interest being disputed.  Thus, the decedent did not make a taxable gift, and the estate was not liable for a gift tax deficiency of $737,625 plus $368,813 for fraud, $36,881 for negligence and $184,406 for failure to timely file a gift tax return.  Redstone v. Comr., 145 T.C. No. 11 (2015).


A trust had been created for the benefit of the taxpayer's husband and his children from a prior marriage before the taxpayer was born.  The trust specified that the taxpayer would receive half of the current income during her husband's life and all of the income if he pre-deceased her until the death of the husband and his two siblings.  A second trust established before the taxpayer's marriage to the husband paid the taxpayer a fixed annuity with staged principal distributions upon the taxpayer reaching various ages so long as the taxpayer and the husband were co-habituating.  Upon marriage the taxpayer's trust interest would end unless she disclaimed her interest in the first trust with the remainder being split among the husband's grandchildren or descendants.  The taxpayer knew nothing about the second trust until after it was established and proposed to disclaim her interest in the first trust within nine months of the marriage to her husband.  The IRS allowed the disclaimer because it was within reasonable time after she obtained knowledge of her interest according to Treas. Reg. Sec. 25. 2511-1(c), and the disclaimer would not be treated as a taxable gift.  The IRS noted that the trust involved was created before 1977 under a different set of rules than now apply.  Priv. Ltr. Rul. 201540006 (Jun. 11, 2015). 


The decedent died in 1990 and an estate tax return was timely filed by the extended due date with an election to pay the tax in installments via I.R.C. Sec. 6166.  The IRS assessed the reported estate tax of $270,737 and the tentative Sec. 6166 deferred tax billing account was established.  The estate paid $70,00 of estate tax, and later voluntarily paid another $115,000 in estate tax.  In 1994, the IRS issued a deficiency notice asserting that additional estate tax of almost $700,000 was due based largely on valuation increases of inherited property.  The estate voluntarily paid another $42,480 in estate tax, and filed a petition in Tax Court challenging the IRS assessment of additional tax.  The estate distributed property to all beneficiaries except the one who inherited the property that had the valuation increases.  In 1995, the executor filed an inventory with the probate court listing $443,916 of estate assets.  In 1996, the estate's assets were distributed and an accounting was filed showing that the estate had zero assets.  In 2001, the IRS assessed a deficiency of $247, 714 based on a Tax Court opinion issued in late 2000 in the matter.  With interest, the deficiency was $518,451.   In late 2001, the IRS sent a statement of tax due to the estate showing a tax due of $619,794 with the estate having 10 days to pay this amount.  The estate did not respond and the IRS, in 2002, issued a notice and demand for payment of $839,897, stating that the I.R.C. Sec. 6166 installment agreement was in default due to non-payment and the account was in danger of being accelerated making the full account balance due immediately and noting that to avoid acceleration the amount due was due by Sept. 30, 2002.  The estate did not respond.  Meanwhile, the estate had never made installment payments on the estate tax under the I.R.C. Sec. 6166 election.  In 2009, the executor filed  a report with the probate court reporting zero assets in the estate and requesting that the estate be closed.  In late 2012, the IRS filed notices of federal tax liens against the estate in jurisdictions where all real estate assets were located, and in 2013 sued to collect the unpaid tax liability.  The trial court held that the I.R.C. Sec. 6166 election was terminated on the acceleration date specified in the notice and demand for payment for past-due amounts - Sept. 30, 2002 - which triggered the running of the 10-year statute of limitations for IRS to collect tax under I.R.C. Sec. 6502(a).  The IRS had argued that the statute had been suspended under I.R.C. Sec. 6503.  The court noted that I.R.C. Sec. 6166(g)(3) says that the 10-year limitations period begins when the estate fails to pay any principal or interest under the installment agreement, or the IRS serves a notice and demand for taxes due.  On appeal, the court affirmed.  The 2002 notice gave notice that the installment election had been terminated unless the estate made payment.  The IRS filed suit outside the 10-year statute.  The court noted that after the executor had distributed all of the  estate assets, there were no assets under the control of the probate court and from that time on the suspension of the statute of limitations was lifted because normal IRS collection procedures would have then been available against the assets that had been distributed.  But, IRS took no action.  United States v. Godley, No. 3:13-cv-549-RJC-DCK, 2015 U.S. Dist. LEXIS 132671 (W.D. N.C. Sept. 30, 2015). 


This case was originally filed in 1997, and this is the second opinion of the state (UT) Supreme Court in the matter.  The father of the siblings involved in the case was diagnosed with cancer in 1966 and deeded his farm to his oldest son in early 1967 in an attempt to impoverish himself so that he could qualify for public assistance benefits to pay for his cancer treatments.  In 1993, the siblings learned that the eldest son considered the farm to be exclusively his when he conveyed a portion of the farm to a third party.  The eldest son sued in 1997 to quiet title and establish himself as the rightful owner of the farm.  The siblings counterclaimed and requested that they be named equal beneficiaries of a trust that their father intended.  The trial court, in the initial action, imposed a constructive trust on the farm, and the UT Supreme Court affirmed.  Rawlings v. Rawlings, 240 P.3d 754 (Utah 2010).  On remand, the eldest son claimed that the constructive trust should be in the form of an equitable lien and not a possessory interest in the farm or any other property.  The trial court disagreed and divided the property among the siblings.  The court also determined that the eldest son was a "conscious wrongdoer" and that any profits from the trust property be included in the trust res.  The court also permitted additional discovery on the issue of what properties should be included in the trust.  The eldest son didn't respond and the siblings moved to compel.  The eldest son was non-responsive and the trial court entered default judgment against him.  On further review, the UT Supreme Court affirmed.  The order of a constructive trust was appropriate to remedy the finding of unjust enrichment and it cannot be converted into an equitable lien.  The farm was equally divided among the children.  Rawlings v. Rawlings, No. 20130744, 2015 Utah LEXIS 265 (Utah Sept. 22, 2015). 


The petitioner gifted cash and marketable securities to her three daughters on the condition (pursuant to written net gift agreement) that the daughters pay any related gift tax and pay any related estate tax on the gifted property if the petitioner died within three years of gifts.  The petitioner deducted the value of the daughters' agreement to be liable for gift or estate tax from value of gifts and IRS claimed the gift tax was understated by almost $2 million.  Each daughter and the petitioner were represented by separate counsel and an appraisal was undertaken using mortality tables to compute the petitioner's life expectancy which impacted values as reported on Form 709.  The IRS' primary argument was that the daughters' assumption of potential estate tax liability under I.R.C. Sec. 2035(b) did not increase petitioner's estate and, as such, did not amount to consideration in money or money's worth as defined by I.R.C. Sec. 2512(b) in exchange for gifted property.  The court determined that the primary question was whether the petitioner received any determinable amount in money or money's worth when the daughters agreed to pay the tax liability.  The court held that the petitioner did receive determinable value as to the gift tax.  Likewise, the court held that the assumption of potential estate tax liability may have sufficient value to reduce the petitioner's gift tax liability.  The court determined that it was immaterial that it was an intrafamily deal at issue because all persons were represented by separate counsel.  However, the court determined that fact issues remained for trial on the assumption of estate tax issue. Steinberg v. Comr., 141 T.C. No. 8 (2013).  In the subsequent opinion on the estate tax issue, the court held that the fair market value of the gifted property for gift tax purposes was reduced by the value of the daughters' assumption of the potential I.R.C. Sec. 2035(b) estate tax liability.  Steinberg v. Comr., 145 T.C. No. 7 (2015). 

 


The decedent executed a will in 1992 that left his multi-million dollar estate, after payment of debts and taxes, to his wife if she survived him.  If she did not survive the decedent, the will specified that the decedent’s estate was to be equally divided between his two granddaughters in trust for any of the two granddaughters that had not reached age 30 at the date of the decedent’s death and outright to any of the two granddaughters that had reached age 30 at the time of the decedent’s death.  If the decedent’s wife pre-deceased him, then the share passing to any of the granddaughters that also predeceased him would pass to that granddaughter’s children or the surviving granddaughter if there were no surviving children.  If the spouse and granddaughters did not survive and there were no surviving great grandchildren, the decedent’s estate was to pass to a specifically identified veterinarian.  The will did not mention the decedent’s son.  At the time of the decedent’s death, only the granddaughters survived, and they were both over age 30.  Within two weeks of the decedent’s death, the executor filed a petition to probate the will and start estate administration.  Interested parties were provided copies of the will and publication of notice to creditors was made in accordance with state (KS) law.  At the subsequent hearing, the magistrate judge admitted the will to probate.  The son did not attend the hearing.  About six weeks later, the son filed a petition to set aside the order admitting the will to probate, and a year later the trial court rejected the son’s petition, except that the court found that the will was not self-proving and that no evidence had been submitted from the will’s witnesses.  Thus, the magistrate’s order was set aside and a new hearing scheduled.  The subsequent hearing resulted in the will being admitted to probate.  A trial ensued on the son’s challenges to the will, resulting in the court finding that the will was valid and that the property should be distributed to the granddaughters.  On appeal, the court affirmed.  The court rejected the son’s claim that the will failed because it didn’t describe how the estate should be distributed to the granddaughters and, thus, the bequest failed resulting in an intestate estate that passed entirely to him.  The bequest was neither conditional nor unenforceable.  The court also rejected the son’s claim that a 1997 will superseded the 1992 will.  However, the court determined that argument was sheer speculation and that the existence of a 1997 was not proven.  In addition, even if such a will existed, it would not automatically revoke the 1992 will.  The son’s procedural attacks on the validity of the will also failed.  The court held that the lack of obtaining an order from the trial court confirming the initial hearing date was not fatal and that filing the petition to probate the will was sufficient to avoid the six-month time bar.  While the filing of the affidavit of service did not occur until after the hearing to probate the will, such late filing, the court held, does not operate to bar the will from admission to probate.  The son received actual notice of the hearing.  Accordingly, upheld the trial court’s order admitting the will to probate and the ordering of the distribution of the estate to the granddaughters.  In re Estate of Rickabaugh, No. 111,389, 2015 Kan. App. LEXIS 61 (Kan. Ct. App. Sept. 11, 2015).


The petitioners, a married couple, established an irrevocable family trust and transferred property worth $3.262 million to the trust.  The trust named 60 beneficiaries, primarily family members.  The trust language required the trustees to notify all beneficiaries of their right to demand withdrawal of trust funds within 30 days o receiving notice and directed the trustee to make distributions upon receipt of a timely exercised demand notice.  In addition, the trust allowed the trustee to make distributions for the health, education, maintenance or general support of any beneficiary or family member.  The trust also specified that a beneficiary would forfeit trust rights upon opposing distribution decisions of the trustees.  On separate gift tax returns for 2007 the petitioners each claimed annual gift tax exclusion of $12,000 (the maximums per done for 2007) for each of the 60 beneficiaries - $720,000 per spouse.  The IRS denied the exclusions on the basis that the gifts were not present interests because the trustees might refuse to honor a withdrawal demand and have the demand submitted to an arbitration panel (as established in the trust), and the beneficiaries would not seek to enforce their rights in court due to the trust language causing forfeiture if they challenged trustee decisions.  As such, the IRS held that the withdrawal rights of the beneficiaries was illusory and the gifts were not of present interests.  The Court disagreed with the IRS noting that merely seeking arbitration when a trustee breached fiduciary duties by refusing a demand notice did not make the gifts of future interests.  The court also held that the trust forfeiture language only applied to discretionary distributions and did not apply to mandatory withdrawal distributions.  In subsequent litigation, the Tax Court held that the IRS position was sufficiently justified to defeat the petitioners' claim for attorney fees.  Mikel v. Comr., T.C. Memo. 2015-64.  The subsequent litigation involving the fee issue is Mikel v. Comr., T.C. Memo. 2015-173.


The IRS, with this private letter ruling, granted a surviving spouse (as executor) the right to make a late portability election for the amount of the deceased spouse's unused exclusion amount (DSUEA).  The IRS determined that it had discretion to allow a late election in this situation because the estate was not required to file Form 706.  The IRS has no discretion to allow a late election when the due date is set by statute as it is, for example, for estates that have a filing requirement due to being a taxable estate.  The IRS also noted that if it is later determined that the estate exceeded the amount required to file an estate tax return that portability would not be allowed because the IRS, in that situation, would be unable to grant relief.  Priv. Ltr. Rul. 201536005 (Jun. 4, 2015).


I.R.C. Sec. 6501(c)(9) says that if a gift tax return is required to be filed and is not filed, the IRS can collect the gift tax (with interest) at any time - the statute of limitations never runs.  In this matter, the taxpayer Filed Form 709 to report the transfer of partnership interests in two partnerships.  The Form 709 did not identify one of the partnerships involved and did not adequately describe the method used to determine the fair market value of both partnership interests.  Also, the employer identification number (EIN) used on both Form 709 and the valuation of gifts statement attached to the Form 709 was missing a digit.  The IRS noted that the appraisals valued the land held by each partnership rather than the value of the partnership interests that were transferred.  In addition, the Form 709 used incorrect, abbreviated names for the partnerships.  Based on these facts, the IRS determined that the gifts had not been adequately disclosed for failure to sufficiently describe the transferred property.  F.A.A. 20152201F (May 29, 2015).     


The decedent made taxable gifts during life, but failed to pay the associated gift tax.  Upon death, the estate did not pay the gift tax either.  The IRS claimed that the donees of the gifts owed the gift tax and interest on the gifts.  The donees argued that the interest on the gift tax was limited to the value of the gift to any particular done under I.R.C. Sec. 6324(b).  The court agreed that the interest on the gift cannot exceed the amount of the gift.  United States v. Marshall, No. 12-20804, 2015 U.S. App. LEXIS14584 (5th Cir. Aug. 19, 2015), aff'g in part and rev'g in part, In re Marshall, 721 F.3d 1032 (9th Cir. 2013) and withdrawing 771 F.3d 854 (5th Cir. 2014).


I.R.C. Sec. 6035 was added to the Code by the Surface Transportation and Veterans Health Care Improvement Act of 2015 (STVHCIA).  Section 6035 specifies that a decedent's estate that is required to file Form 706 after July 31, 2015, must provide basis information to the IRS and estate beneficiaries by the earlier of 30 days after the date Form 706 was required to be filed (including extensions, if granted) or 30 days after the actual date of filing of Form 706  However, the STVHCIA allowed IRS to move the filing deadline forward and the IRS did move the date forward to February 29, 2016 for statements that would be due before that date under the 30-day rule contained in the STVHCIA.  IRS stated that executors and other persons are not to file or furnish basis information statements until the IRS issues forms or additional guidance.  Relatedly, the STVCIA modifies I.R.C. Sec. 1014(f) to require beneficiaries to limit basis claimed on inherited property to either the value of the property as finally determined for federal estate tax purposes, or the value reported to the IRS and beneficiary under I.R.C. Sec. 6035.  I.R.S. Notice 2015-57. 

 


The petitioner, a lawyer who practiced tax law, donated a permanent conservation easement on 80 percent of a 74-acre parcel to a qualified land trust.  The land was subject to a mortgage at the time of the donation and the mortgage was not subordinated until two years after the petitioner received a statutory notice of deficiency from the  IRS.  The petitioner argued that the state (ID) Uniform Conservation Easement Act protected the charitable use of the property, but the Tax Court noted that the Act would have only protected whatever interest remained after the lender was satisfied.  The Tax Court noted that the subordination agreement had to be in place at the time of the grant of the conservation easement.  The Tax Court upheld the imposition of a negligence penalty.  The appellate court affirmed.  The court held that Treas. Reg. Sec. 1.170A-14(g)(2) clearly required the subordination agreement to be in place at the time of the easement grant for the donor to claim a tax deduction for the value of the contributed easement.  The court noted that an easement cannot be deemed to be "in perpetuity" if it is subject to extinguishment at essentially any time by a mortgage holder who was not party to or aware of the agreement between the taxpayer and the donee.  Minnick, et al. v. Comr., No. 13-73234, 2015 U.S. App. LEXIS 14097 (9th Cir. Aug. 12, 2015), affn'g., T.C. Memo. 2012-345.     


The decedent created two irrevocable charitable remainder trusts during his life, one for each of his sons.  The decedent was the income beneficiary during his life, with each son then being the beneficiary of that son's trust.  The amount paid to the decedent during life and each son after the decedent's death, was the lesser of the net trust accounting income for the tax year or 11% of the net value of the trust assets for trust one or 10% for trust two.  If trust income exceeded the fixed percentage for that trust, the trustee was directed to make additional distributions to make up for prior years when the trust income was insufficient to satisfy a distribution of the fixed percentage for that particular trust (hence, the trusts were a "net income with makeup charitable remainder unitrust" - NIMCRUT).  The payout period was the latter of 20 years from the time of creation of the trusts or the date of death of the last beneficiary to die.  The decedent died about one year after creating the trusts, and his estate reduced the taxable value of the estate by the amount it deemed to be charitable (note - the estate did not claim a charitable deduction).  The IRS denied the deduction because the trusts did not satisfy the requirement that the value of the charitable remainder interest be at least 10% of the net fair market value of the property contributed to the trust on the date of the contribution as required by I.R.C. Sec. 664(d)(2)(D).  The estate claimed that it was entitled to a charitable deduction under I.R.C. Sec. 664(e) because the distributions were to be determined according to the applicable I.R.C. Sec. 7520 rate so long as the rate is above 5%.   The court determined that I.R.C. Sec. 664(e) was ambiguous, but that the legislative history supported the IRS position that the value of a remainder interest in a NIMCRUT is to be based on the fixed percentage stated in the trust instrument.  As such, the trusts failed the 10% test.  The court also noted that the IRS regulations on the matter were not helpful.  Schaefer v. Comr., 145 T.C. No. 4 (2015).   


The decedent prepared a holographic will leaving all of his property to his wife and a dollar to his brother.  The will specified that if the decedent and his wife were to die at the same time, the decedent's property was to pass equally to two charities.  In the simultaneous death situation, all other persons were specifically disinherited.  However, the decedent's wife pre-deceased the decedent, 18 years after the decedent had executed his will.  The decedent died six years later at the age of 96 without amending his will.  The decedent did not remarry and died childless.  The children of a sister of the decedent and the charities battled over the distribution of the estate.  The court rejected its decision in a comparable 1964 case where it categorically barred extrinsic evidence concerning the decedent's intent.  The court determined that such a rule no longer conformed with "modern" probate and interpretation of wills.  The court held that such evidence is allowed if clear and convincing evidence shows that the will contains a mistake in the expression of the testator's intent at the time the will was drafted and also establishes the testator's specific intent.  The court remanded the case to the trial court for consideration of extrinsic evidence.  Estate of Duke v. Jewish National Fund, et al., No. S199435, 2015 Cal. LEXIS 5119 (Cal. Sup. Ct. Jul. 27, 2015).  


The decedent's estate held three tracts of land that were part of five contiguous parcels.  If the tracts could be combined, they could be developed.  But, without that combining, it was not economically feasible to develop the tracts.  There current zoning was for agricultural use.  The other two parcels were owned by an entity that the decedent owned 28 percent of.  The IRS took the position that the estate's land value should be its value reflecting its develop potential on the basis that it was likely that the properties could be combined such that a willing buyer would value the property at its developmental potential value.  The Tax Court determined that federal law governed the valuation issue and rejected the IRS position.  The IRS failed to show that there was a reasonable probability that the tracts could be combined in the near future, and that the presumption was with the estate that the decedent was using the land for its highest and best use at the time of death.  The court noted that the argument that the land would be worth more if the tracts were combined was not a relevant fact in determining if assembling the tracts together would occur.  The court also rejected the IRS argument that the estate's minority interest in the entity and relationships with the other owners required combination of the tracts.  There was no evidence that the decedent's estate controlled the entity.  Estate of Pulling v. Comr., T.C. Memo. 2015-134.


The decedent married his wife in 1955, had four children together, but later divorced in 1978.  Under the marital separation agreement, the decedent agreed to leave one-half of his eventual estate equally to the children.  The decedent remarried in 1979 and later executed a will and trust.  Under the trust terms, sufficient funds were to be set aside to buy an annuity that would pay the ex-wife $3,000 monthly.  The balance of the trust assets were to pass to the children, with six percent passing to each of three daughters and 16 percent to the son and the balance to the surviving spouse.  After the decedent's death, the children waived all potential claims they might have against the estate.  As a result, each daughter received approximately $3.5 million and the son received $9.5 million.  The estate claimed a deduction of $14 million for the payments to the children under I.R.C. Sec. 2053(a)(3).  The IRS denied the deduction in full and the estate filed a Tax Court petition.  Before trial, the IRS agreed to allow 52.5 percent of the $14 million deduction and informed the Tax Court.  Some of the children then sued the estate for fraudulent procurement of their waiver.  The estate settled by paying each child at issue an additional $1.45 million.   The decedent's estate then sought to set aside the settlement agreement based on mutual mistake of fact or because the IRS knew that at least one child was going to sue the estate before the Tax Court was advised of the settlement.  The Tax Court refused to set aside the settlement agreement between the parties.  On appeal, the court held that the estate could not set aside the settlement agreement on the grounds of mutual mistake because the doctrine didn't apply.  The estate simply failed to see that any of the children would sue the estate.  Also, the court held that the allegation that the IRS didn't reveal a statement by one of the children indicating the child would sue was not a misrepresentation that would allow the estate to set aside the settlement.   The settlement established the amount of the deduction.  Billhartz v. Comr., No. 14-1216, 2015 U.S. App. LEXIS 12730 (7th Cir. Jul. 23, 2015).    


In this case, the parents had three children and 138 acres of farmland along with various farm property and four certificates of deposit (CD) at a local bank worth $160,000.  They also transferred the farmland to the son, and executed wills that left the farm equipment to the son and other property to the daughters.  Mom died in early 2011, and Dad and the son went to the bank and executed documents indicating that the son was being added as a joint co-owner on each CD.  Dad died in mid-2013 and the bank filed a petition for guidance on distribution of the CDs.  The court determined that the CDs belonged to the son as the surviving joint tenant.  The sisters appealed attacking the process that was utilized to add their brother as joint co-owner on the accounts such that the accounts should be determined to be assets of their father's estate that would pass as part of the residuary of the estate.  The appellate court affirmed on the basis that the daughters lacked clear and convincing evidence of a different intent of their father other than to add their brother as a joint co-owner.  That was the requirement under the state (IN) probate code.  In re Estate of Herin, No. 39A-5-1411-ES-537, 2015 Ind. App. LEXIS 491 (Ind. Ct. App. Jun. 29, 2015).  


The decedent's surviving spouse found a copy of the decedent's will on his desk among his papers.  The original could not be found and the attorney that drafted the will had died several years earlier.  Two nephews of the decedent petitioner the court for formal probate of the copy of the will and the surviving spouse petitioned the court for an informal intestate probate.  The trial court held that the nephews had overcome the presumption that the original was revoked.  Both of the nephews had a close relationship with the decedent and helped him with farming and farmland was left to them under the terms of the will.  The surviving spouse did not know about the existence of the will.  On appeal, the court affirmed.  Estate of Deutsch, 2015 S.D. LEXIS 81 (S.D. Sup. Ct. Jun. 17, 2015). 


In this case, a married couple executed a transfer-on-death (TOD) deed naming the husband's daughter and her husband as beneficiaries of a farm that the husband owned.  The farm was owned solely by the husband even though the TOD recited that both the husband and wife owned the farm.  An initial draft of the TOD gave the wife a life estate in the farm upon the husband's death when the TOD would become effective to transfer the farm.  A subsequent version (the version at issue) eliminated the life estate in favor or an oral understanding that the wife could live on the farm as long as she desired.  The husband died the sole owner of the farm, and the surviving wife claimed that the TOD was ineffective because it stated that both the husband and wife owned the farm.  The wife also attempted to revoke the TOD after her husband's death.  The trial court held that the wife had no marital interest in the farm and that the TOD was effective to transfer the farm to the husband's daughter and her husband.  The trial court also determined that the TOD designation was not the result of undue influence and that reformation to grant the wife a life estate was not warranted by the evidence.  The trial court denied reconsideration.  On appeal, the court affirmed.  It was sufficient that the actual owner of the farm was named as an owner of the farm and the TOD was not invalidated simply because it also said that other people had an ownership interest in the farm. The court also determined that the evidence did not support an undue influence claim, and that the wife had no ability to revoke the TOD.  The evidence also did not support a reformation of the TOD designation.  Sarow v. Vike, No. 2014AP1476, 2015 Wisc. App. LEXIS 427 (Wisc. Ct. App. Jun. 11, 2015).


The decedent had four children and gave one daughter a power of attorney and established a joint checking account with another the daughter.  Two other children alleged that the decedent’s funds had been misappropriated and two daughters had received almost $300,000 combined. A forensic CPA was not able to determine if the transfers were appropriate or reasonable.   On an action for the removal of the personal representative, the trial court determined that there could not be any undue influence if the principal is lucid.  On appeal, the court reversed.  The court stated that, under state (ND) law, the trial court was to determine whether the two daughters assumed a confidential relationship with the decedent and, if so, a presumption of undue influence would apply as to any and all benefits the daughters obtained on account of that relationship.  In re Estate of Bartelson, No. 20140244, 2015 N.E. LEXIS 157 (N.D. Sup. Ct. Jun. 11, 2015).


In this case, the son had farmed with his father for 25 years until the father's death.  The father's will left one-half of the farm personal property to the son with the other half passing to the son's three non-farm siblings.  The will also left the farmland to the four children equally with the son having a right of first refusal with respect to any sale of the farmland.  The son filed a claim in the probate estate that he was entitled to all of the farmland based on an oral promise from his parents and that he had detrimentally relied on that promise.  The trial court denied the claim and the son appealed.  On appeal, the court affirmed on the basis that the evidence failed to establish a clear and definite promise that the son would receive the farmland without paying for it.  The court also held that the evidence failed to support the son's claim that he was entitled to be reimbursed for funds he spent on machinery and buildings over the prior 25 years.  In re Estate of Beitz, No. 14-1492, 2015 Iowa App. LEXIS 519 (Iowa Ct. App. Jun. 10, 2015).


Iowa HF 661, effective July 1, 2016, instead of repealing the inheritance tax, the Bill specifies that a step grandchild is exempt from Iowa inheritance tax rather than being subjected to the tax along with siblings, nieces and nephews and unrelated persons.  In addition, the Bill allows a surviving spouse to relinquish the elective share amount of a deceased spouse's estate upon being notified of the rights being relinquished.   


The petitioner used funds in his IRA to start a business via an LLC.  The initial capital contribution to the LLC was $319,000 of the petitioner's IRA funds.  The IRA was created after the LLC with funds from the petitioner's 401(k) with a prior employer.  The LLC was created and the petitioner directed the IRA custodian to acquire LLC shares, reporting the transactions (there were two of them) as non-taxable rollover contributions with the IRA now owning LLC interests.  The LLC employed the petitioner as its general manager, and also employed the petitioner's spouse and children.  The LLC paid a salary to the petitioner for his services as general manager.  The IRS asserted a tax deficiency of $135,936 plus an accuracy-related penalty of over $26,000.  The Tax Court agreed with the IRS, holding that the payment of a salary and the directing of compensation from the LLC violated I.R.C. Sec. 4975(c)(1)(D) and I.R.C. Sec. 4975(c)(1)(E) as a prohibited transaction.  On appeal, the court affirmed.  The payment of salary amounted to an indirect transfer of the petitioner's income and assets of his IRA for his own benefit and indirectly dealt with the income and assets for his own interest or his own account in a prohibited manner.  As a result, the IRA was terminated with the entire amount taxable income, plus penalties.  Ellis v. Comr., No. 14-1310, 2015 U.S. App. LEXIS 9380 (8th Cir. Jun. 5, 2015), aff'g., T.C. Memo. 2013-245.


The debtor, an LLC, bought about four aces of real estate.  The LLC was owned 50/50 by a husband and his wife, and the husband was a co-debtor on numerous LLC debts.  The husband's self-directed IRA also participated in a partnership with the LLC.  Pursuant to an agreement, the IRA made a cash contribution of just over $40,000 and a non-cash contribution of the real estate valued at $122,830.  The LLC's sole obligation was a cash contribution of $163,354.49, the amount of the IRA's cash and non-cash contribution values, to be made at an unspecified construction date.  The day after forming the partnership, the husband directed the IRA to sell off $123,000 of assets.  The purchase of the four acres occurred simultaneously.  Later, the partnership paid expenses of over $40,000 and the LLC filed bankruptcy claiming the IRA and the husband as unsecured parties.  The partnership was not listed.   The bankruptcy trustee objected to the IRA being treated as exempt, and the court agreed, finding that the IRA had engaged in numerous prohibited transactions, including serving as a lending source for the purchase and development of the real estate, which terminated the tax-exempt status of the IRA.  In re Kellerman, No. 4:09-bk-13935, 2015 Bankr. LEXIS 1740 (Bankr. E.D. Ark. May 26, 2015).

 


This case is a qualified title action involving title to farmland.  The plaintiff conveyed various tracts of farmland to his father with the deeds to the tracts containing an option agreement that reserved to the plaintiff an option to buy the tracts "when the grantee no longer farms the land or decides to sell it or upon his death."  The value of the land upon exercise of the option was to be set at the lands' agricultural value.  While still farming, the father gifted the tracts to his four children equally.  Thus, none of the option-triggering events occurred.  Ten years later the father died and the plaintiff attempted to exercise the options.  The trial court held that the father's gift of the tracts eliminated the possibility of the plaintiff from exercising the options and, therefore, terminated them.   The court also cited other reasons the options were invalid.  On appeal, the court reversed, finding that the options "ran with the land."  A dissenting justice pointed out the absurdity of the majority's opinion.  The dissent pointed out that the trial court noted that the option agreements clearly set forth the three possible events that could trigger the options, and that if the plaintiff wished to exercise the options upon his father making a gift he should have included that language in the options that he drafted.  The dissent opined that the court should have given deference to the trial court as the fact finder in the matter that the option did not run with the land.  Kasben v. Kasben, et al., No. 314851, 2015 Mich. App. LEXIS 1056 (Mich. Ct. App. May 19, 2015).     


Upon the decedent's death, his ex-wife received approximately $5.4 million of his $7.7 million estate consisting largely of non-probate assets including life insurance deferred compensation/commission plan accounts, IRA account, Sec. 401(k) account and an annuity.  The estate executor mistakenly excluded the non-probate assets from the taxable value of the estate and claimed that the estate was insolvent and that no estate tax was due.  After negotiating with the IRS, the executor agreed to pay $1.2 million in estate tax plus accrued interest of $145,425.  Under the terms of the decedent's will, a tax apportionment clause spread the estate tax liability among the assets that generated estate tax liability.  Because the amount passing to the ex-wife was not covered by the marital deduction, the ex-wife, according to the apportionment clause, bore approximately 70 percent of the estate tax liability.  Upon declining to pay, the executor sued the ex-wife and the court ruled for the executor on the ex-wife's proportionate share of estate tax but not for pre-judgment interest and attorney fees.  The court also determined that $1 million passing to the ex-wife was on account of the divorce settlement between the couple and was a debt of the estate which dropped the overall estate tax bill by almost $500,000 and reduced the ex-wife's tax liability proportionately.  As to the insurance policies, the court determined that they were included in the decedent's estate because the decedent had reviewed them shortly before death and he retained the right to change beneficiaries at the time of death.  Thus, the ex-wife was liable for estate tax attributable to the policies in a proportionate amount under I.R.C. Sec. 2206.  Smoot v. Smoot, No. CV 213-040, 2015 U.S. Dist. LEXIS 46572 (S.D. Ga. Mar. 31, 2015).  


A brother and sister, residents of Arkansas, were battling each other over who was responsible for paying an estate tax liability exceeding $2 million of their mother's estate.  The plaintiff was executor of the estate and the defendant was the trustee of the decedent's trust and received life insurance proceeds as a trust asset.  The plaintiff asked the defendant to disburse trust funds such that the estate tax liability triggered by the insurance could be paid.  The defendant refused, and the plaintiff sued in federal court to force the defendant to disburse trust funds.  The court ruled for the defendant, holding that the Code does not create a claim for the decedent's estate until the taxes are paid.  I.R.C. Sec. 2206 specifies that unless the decedent directs otherwise by will, if any part of the gross estate on which tax has been paid consists of proceeds of policies of insurance on the decedent's life receivable by a beneficiary other than the executor, the executor can recover from the beneficiary the portion of the total tax paid as the proceeds of the policies bear to the taxable estate.  No other direction was provided in the decedent's will.  Thus, the court lacked jurisdiction until the federal estate tax is paid.  The matter belonged in state court.  Manley v. DeVazier, No. 2:15-cv-54-DPM, 2015 U.S. Dist. LEXIS 58782 (E.D. Ark. May 5, 2015).     


The plaintiff had been the decedent’s long-term farm tenant on land the decedent solely owned and on another tract that the decedent owned with the decedent’s sister as tenants in common.  In 2007, the plaintiff and the decedent entered into buyout agreement under which the plaintiff would buy both tracts upon the decedent’s death with proceeds from an insurance policy that the plaintiff obtained on the decedent’s life.  The plaintiff and the decedent were unrelated.  The agreement was signed by the plaintiff, the decedent and the decedent’s sister by the decedent under a power of attorney (which all parties agreed the decedent had no such authority).  The decedent died in 2012 after the plaintiff had paid $170,000 in insurance premiums.  The policy proceeds of $500,000 were paid to the plaintiff and he tendered that amount the decedent’s personal representative.  The personal representative refused to convey the farmland to the plaintiff on the grounds that the buyout agreement was void because the plaintiff lacked an insurable interest in the decedent’s life.  The trial court held that the buyout agreement could not be specifically performed because there was no way to apportion the purchase price between the decedent’s interest and his sister’s interest, and that the plaintiff’s damage claim was time barred.  The court ruled that the estate had no standing to raise the defense of lack of insurable interest.   On appeal, the court declared the buyout agreement void on public policy grounds for lack of an insurable interest.  The court also agreed that the damage claim was time-barred.  Johnson v. Nelson, 290 Neb. 703 (2015).


The decedent died, survived by her three children and a grandchild.  Her daughter was appointed by the will as the estate’s personal representative.  Under the will, the residuary of the estate passed to her children.  The residuary estate included a quarter section of farmland and a farmstead.  At the time of death, the land was leased to a son under a one-year lease.  After death, the daughter entered into a lease contract with an option to buy with the tenant-son.  The lease provided for an annual rent payment of $9,350 and an option to buy the farmland at its appraised value of $248,222.  The other son claimed ownership of land under a contract for deed with the decedent.  The trial court dismissed the son’s action for specific performance, and the land was ultimately sold to the tenant-son for market value.  The daughter moved to dismiss her brother’s appeal on the basis that it was moot.  On appeal, the court determined that the daughter had the authority to lease and subsequently sell the farmland to the tenant-son if she was acting reasonably of the benefit of interested persons.  On that issue, the court held that the trial court had not provided supporting evidence to back its determination that the daughter was acting reasonably.  Thus, the court reversed and remanded the case for further proceedings as to whether the daughter was acting reasonably for the benefit of interested persons.  In re Estate of Johnson, No. 20140173, 2015 N.D. LEXIS 109 (N.D. Sup. Ct. May 1, 2015).   


The decedent, shortly before death, executed a will that revoked his prior will.  The last will completely changed  the disposition of the decedent’s estate by leaving the decedent’s farm to his daughter in contrast the prior wills that had benefitted the decedent’s son that had worked on the farm for his entire life.  The daughter offered the last will for probate.  The probate court determined that, based on the evidence, the daughter had unduly influenced the will and had not offered it for probate in good faith.  On appeal, the court affirmed.  The court found it persuasive that the last will deviated from the disposition pattern of prior will that had benefitted the son, that testimony showed that the decedent’s state of mind and physical and mental condition was poor and that the circumstances surrounding the drafting and execution of the will compelled a conclusion of undue influence.  As a result the, the trial court’s determination was upheld.  In re Estate of Hanson, No. 11-13-00113-CV, 2015 Tex. App. LEXIS 4400 (Tex. Ct. App. Apr. 30, 2015).


The plaintiffs were lesbians that were married under Massachusetts law.  They later moved to Florida, a state that, based on the health, safety and welfare of its citizens, enacted a statutory provision barring homosexuals from marrying each other.  Florida also does not recognize as valid homosexual marriages entered into in any other state or other jurisdiction.  One of the couple sought a divorce and the trial court refused to grant it because Florida did not recognize homosexual marriage.  On appeal, the court reversed.  The court specifically noted that granting the divorce would further Florida’s public policy to “prevent, eliminate, discourage or otherwise preclude” homosexual marriage in Florida by reducing the number of such marriages in Florida.  Refusing to grant the divorce, the court noted, would not further Florida’s legitimate public policy of not recognizing homosexual marriage.  Brandon-Thomas v. Brandon-Thomas, No. 2D14-761, 2015 Fla. App. LEXIS 6051 (Fla. Ct. App. Apr. 24, 2015).


The decedent was diagnosed with terminal cancer on May 19, 2011 and began hospice care on June 3, 2011.  On June 1, the decedent executed a health care power of attorney and a power of attorney for his property.  He executed a will on June 13.  He died on June 24, 2011.  The will’s validity was contested on the bases of undue influence and lack of testamentary capacity.  The jury heard testimony from the decedent’s friends, business associates, the lawyer that drafted the will and others, and returned a verdict that invalidated the will on lack of testamentary capacity grounds.  The attorney testified that he had no concerns about the decedent’s soundness of mind.  The decedent’s friends, however, contradicted the lawyer’s testimony.  The jury found the testimony of the friends more credible.  A judgment notwithstanding the verdict was sought or, in the alternative, a new trial, but the trial court denied the motion.  On appeal, the court affirmed.  In re Estate of Schutzbach, No. 4-14-0600, 2015 Ill. App. Unpub. LEXIS 801 (Ill. Ct. App. Apr. 10, 2015). 


The decedent hired the defendant to draft an amendment to the decedent's revocable living trust.  The amendment named the decedent's wife and children as beneficiaries.  However, after the decedent's death, two of the children as successor trustees petitioned the probate court to modify the trust amendment on the basis that it didn't carry out the decedent's wishes that the wife not be named as a beneficiary to the decedent's brokerage accounts as well as real and personal property.  The defendant admitted that the amendment did not conform to the decedent's wishes.  The trustees settled the probate court action with the decedent's wife, and sought to amend their complaint to add an allegation that the defendant owed the children a duty.  The trial court did not allow the complaint to be amended because the children lacked privity with the defendant as merely trust beneficiaries.  On appeal, the court reversed.  The court held that the defendant did owe a duty to beneficiaries such as the children at issue in the case that are all named beneficiaries in the trust amendment.  The court reasoned that doing so posed not risk that a random unnamed beneficiary would be making a claim against the defendant.  Paul v. Patton, No. H040646, 2015 Cal. App. LEXIS 304 (Cal. Ct. App. Apr. 9, 2015).


Before death, the decedent hired the defendant to draft a revocable trust and will as part of the decedent's estate plan.  Over time, the decedent had the defendant make several amendments to the documents to effectuate the decedent's intent.  One such amendment changed the trust to leave the decedent's residuary estate to his nieces and nephews rather than charity.  This trust amendment, however, was not signed into effect before the decedent's death.  The nieces and nephews sued the defendant for breach of contract with the decedent.  The trial court granted the defendant summary judgment on the basis that the heirs lack standing.  On review, the court reversed  on the basis that the heirs may have standing to pursue a breach of contract malpractice action against the defendant if they can show that they were intended beneficiaries.  The case was remanded.  Agnew v. Ross, No. 2195 EDA 2014, 2015 Pa. Super. LEXIS 33 (Feb 2, 2015), rev. den., Estate of Agnew, 2015 Pa. Super. LEXIS 158 (Pa. Super. Ct. Apr. 7, 2015).


The plaintiff transferred farmland to her son in 1988, reserving a life estate in the 266 acres which entitled her to the rental income of $5,332 annually from the property for her life.  In 1992, the son leased a portion of the farm (including some of the life estate property) to another farmer for $8,200 annual rent, with that rent amount going to the son.  The plaintiff had moved off of the farm by the time she applied for Medicaid in 2011.  The state (ND) Medicaid agency denied the application, claiming that she should be receiving a portion of the $8,200 annual rent.  Due to that, her countable assets exceeded the limit to qualify for Medicaid.  On appeal, the trial court affirmed the agency decision.  On further review, the appellate court affirmed.  While the plaintiff claimed that the rent amounted to an annual gift to the son, the court disagreed.  The court noted that if a gift was intended, the petitioner should have released the life estate and transferred title to the property to her son.  Bleick v. North Dakota Department of Human Services, 861 N.W.2d 138 (N.D. 2015).


A taxpayer created an irrevocable trust created a trust for himself, his spouse and his lineal descendants.  He later died, followed by his spouse.  A second taxpayer created a trust for himself and later amended it to have income paid equally to his children for life.  The second taxpayer later amended the trust to release his right to revoke.  A subsequent court order divided the second taxpayer's trust into two irrevocable equal trust for the benefit of the taxpayer's spouse and her descendants and one for the benefit of his son and his descendants.  The beneficiaries of one of the divided trusts and the taxpayer's trust were the same.  These trusts owned farmland, but the tracts owned by each trust was acquired at different times and some of the tracts were landlocked.  The trustees of the trusts want to sell the property in a coordinated sale to a limited partnership owned by a lineal descendant of each taxpayer.  The IRS determined that the sale would not trigger GSTT and would not be a taxable gift.  Priv. Ltr. Rul. 20151021 (Oct. 16, 2014).   


The settlor of an intervivos trust named herself as trustee and three other persons as successor trustees.  One of those successor trustees was the settlor's son.  Several years later, the settlor executed a general power of attorney (GPOA) in which she directed that the son was to be the executor of her estate and trust.  The settlor, as principal, and the son, as agent, signed the GPOA.  The legal question was whether the GPOA was sufficient to amend the trust.  The court held that it was because, in accordance with the trust language, the settlor reserved the right to amend the trust "by a duly executed written instrument...".  Strange v. Towns, 330 Ga. App. 876 (2015).   


In this case, an individual (as settlor) had an attorney establish a trust for her and wanted the attorney to name himself as trustee.  The trust contained three insurance policies on the settlor's life totaling about $8.5 million.  The policies were payable on death to the trustee for the benefit of the settlor's four daughters.  The trust said that the trustee had no duty to pay the insurance premiums, had no duty to notify the beneficiaries of nonpayment of the premiums and had no liability for any nonpayment. The trustee was required by the trust language, however, to provide annual reports to the beneficiaries.  The trustee executed all three insurance policy applications with each one identifying the trust as the policy owner.  On each policy application, the trustee gave the insurer a false trust address.  After paying premiums for two years, the policies lapsed for non-payment of premiums.  Neither the settlor, trustee nor beneficiaries received notice of the lapse until two years later - the notices of nonpayment were sent to the false address.  The settlor paid over $250,000 to an insurance agent who did not forward the payment to the insurers.  The daughters sued the trustee for breach of trustee duties and damages.  The trial court dismissed the case for failure to state a claim.  On further review, the court reversed.   The court determined that under Neb. Rev. Stat. Sec. 30-3805 the trustee's duty to act in good faith trumps the effect of any exculpatory term contained in the trust.  In addition, Neb. Rev. Stat. Sec. 30-3866 is required to administer the trust in good faith with its terms and purposes and the interests of the beneficiaries, and in accordance with the Code.  The trustee, under state law, is also required to keep the beneficiaries reasonably informed of the trust assets.  The court also determined that the trustee failed to adequately explain the trust's exculpatory language to the settlor.  Rafert v. Meyer, 859 N.W.2d 332, 290 Neb. 219 (2015).


The decedent's estate contained her Ohio residence, a California condominium in which her brother lived and a state teachers' retirement account.  The residuary of the decedent's left $50,000 to her brother that lived in the condominium with the balance of the residuary estate passing to charity.  The estate received a distribution from the retirement account of $243,463 and set aside $219,580 of it “permanently” for charity by placing it in an unsegregated checking account.  Under I.R.C. Sec. 642(c), an estate can claim a charitable deduction for an amount that is set aside for charity, but hasn't yet been paid if, under the terms of the governing instrument, the possibility that the amount set aside will not be devoted to the charitable purpose or use is so remote as to be negligible.  Treas. Reg. Sec. 1.642(c)-2-(d).  When the estate income tax Form 1041 was filed on July 17, 2008, the charitable gift had not been completed, but the estate claimed the charitable deduction on the estate's Form 1041.  The IRS denied the deduction.  The court noted that for the deduction to apply, the charitable distribution must come from the estate's gross income, must be made pursuant to the governing instrument, and must be set aside.  The court determined that the charitable amount did come from gross income (pension distribution which is IRD) and was made according to the decedent's will.  However, the decedent's brother refused to move out of the condominium and claimed that existence of a resulting trust.  In state court litigation, the brother prevailed, but also caused the estate's funds to deplete sufficiently such that the charitable bequest was never paid.  The court noted that the brother's legal claims were public at the time the 1041 was filed and he had refused a buy-out to move out of the condo and the charity had refused to trade the monetary bequest for a life estate/remainder arrangement in the condominium.  Apparently, the CPA in Ohio knew none of this at the time the 1041 was filed.  The estate claimed that the "unanticipated litigation costs" were unforeseeable but, based on the facts and circumstances at the time Form 1041 was filed, the court held that the "so remote as to be negligible" requirement was not satisfied and upheld the denial of the charitable deduction.  The funds had not been permanently set aside.   The charity ultimately did receive a bequest, although it was less than initially anticipated, and the estate did not get a charitable deduction.  Estate of Belmont v. Comr., 144 T.C. No. 6 (2015).


The plaintiff lived in her home unassisted until May of 2011, at which time a non-relative caregiver was hired to provide in-home care.  The hiring was done on an informal basis with no written contract.  Over the next 10 months, the plaintiff paid the caregiver approximately $19,000 via the liquidation and conversion to cash of some of the plaintiff's assets.  At the end of the 10-month period, the plaintiff entered a nursing home.  The plaintiff subsequently executed a written contract with a grandson to reimburse him $1,400 for mileage he incurred while managing the plaintiff's affairs.  Upon applying for Medicaid, the state (MI) Medicaid agency determined that the payments to the caregiver (among other transfers) were "divestments" resulting in a disqualification of Medicaid benefits for almost three months.  The plaintiff died before becoming eligible for Medicaid.  An administrative law judge upheld the agency's determination, but the trial court reversed on the basis that the regulation at issue only applied to up-front payments for services where an assessment of fair market value was not possible and because the care-giver was a non-relative.  On further review, the court reversed the trial court because the payments were not made pursuant to a written contract and were made without a doctor's recommendation as required by the regulation in order for the payment to not constitute a "divestment." Jensen v. Department of Human Services, No. 31908, 2015 Mich. App. LEXIS 315 (Mich. Ct. App. Feb. 19, 2015).   


The parties in this case were married for 35 years before divorcing.  The ex-husband was required to pay his ex-wife, under the marital separation agreement, $500 per month alimony until her remarriage or co-habitation with a male or death of either party.  Over six years later the ex-husband petitioned to terminate the alimony on the grounds that the ex-wife was cohabiting with a male.  At trial, the ex-wife conceded that a male had been living with her in her townhouse which consisted of two bedrooms and two and one-half baths.  The live-in paid the ex-wife $400 monthly rent.  The live-in had a separate mailbox from the ex-wife, and the rent amounts were deposited in the ex-wife's account.  The trial court determined that the live-in was cohabitating with the ex-wife and ordered that the alimony payments be terminated.  On appeal, the court reversed.  Even though the ex-wife loaned the live-in $15,000 to buy a car, went on a cruise with him,  and used the monthly rent checks to pay her expenses, the court determined that no supportive relationship existed between the ex-wife and the live-in.  The court determined that the live-in was merely a tenant or a "lodger" and not a cohabiter.  Atkinson v. Atkinson, No. 2D13-5815, 2015 Fla. App. LEXIS 1776 (Fla. Ct. App. Feb. 11, 2015). 


The decedent died in 2005 and had not filed returns for 2001-2004.  The returns were late-filed shortly before the decedent's death with the return for 2001 reporting an overpayment of nearly $50,000.  The estate sought to have the overpayment credited to the 2002 tax year.  The estate also claimed that the decedent had been diagnosed with Alzheimer's/dementia which prevented the decedent from timely filing the returns and, thus, was entitled to an extension of time to file the returns via I.R.C. Sec. 6511(h).  The IRS denied the refund claim and the estate sued.  The court denied the extension of time to file because the evidence showed that the decedent had lived alone, cared for himself, cooked his own meals, fed and clothed himself, and made a lot of money buying and selling securities and investing.  The decedent's primary care physician testified to the contrary, but had earlier written a report for the state Vehicle Administration that the decedent did not have dementia.  The court determined that the physician's earlier report was more credible and his testimony was not reliable.  Thus, I.R.C. Sec. 6511(h) did not apply and the estate could not apply the overpayment to the 2002 tax year.  Estate of Rubinstein v. United States, No. 09-291T, 2015 U.S. Claims LEXIS 41 (Fed. Cl. Jan. 29, 2015).


The decedent died in 2001 with a gross estate of  approximately $1.7 million and an estate tax return was filed reporting a net estate tax liability of $275,000.  The estate paid $123,000 and made an additional payment of $4,200 in 2009.  In 2008, the IRS entered into a settlement agreement with the estate for the outstanding estate tax liability whereby the estate tax would be paid in installments.  Ultimately, approximately $84,000 of estate tax, interest and penalties remained unpaid.  The IRS did not assess the failure to pay penalty of approximately $35,000 until early 2013 and the estate claimed that the penalty was time-barred via I.R.C. Sec. 6501(a) or 6502(a)(1).  The court determined that neither of those provisions applied and the assessment of the failure-to-pay penalty was not time barred.  The estate also claimed that the interest assessment was incorrectly calculated, but the court disagreed.  The court also determined that the beneficiaries of the estate were liable for the unpaid estate tax and rejected their arguments that the government should be equitably estopped from enforcing the judgment or that the government had violated their due process rights.  United States v. Estate of Hurd, No. CV12-7889-JGB (VBKx), 2015 U.S. Dist. LEXIS 3350 (C.D. Cal. Jan. 8, 2015).


The parties in this case were married in 1980.  In 1979, the husband purchased 98 acres on contract for approximately $1,400 per acre.  The tract contained the marital home and was paid off during the marriage.  The wife started a milking operation on the tract and generally conducted the farming operations along with the three children of the marriage.  The wife filed for divorce in 2011, and the trial court dissolved the marriage with the wife getting all of the farm real estate with making an "equalization payment" of $1,548,287 to the husband.  The husband appealed on the basis that the property distribution was inequitable to him arguing that he should either be a joint owner on the real estate or that is should be sold and the proceeds split, and claiming that there were valuation errors.  On appeal, the court affirmed.  The court noted the public policy of preserving family farming operations in the hands of the farming spouse.  Importantly, the Iowa Court of Appeals, contrary to a prior opinion of the Iowa Supreme Court, said that tax considerations surrounding the sale of the land were to be factored even if there was no order to sell the land.  In re Marriage of McDermott, 827 N.W.2d 671 (Iowa 2013).  The court also noted that it would not further the policy of preserving the farming operation if the husband were to be a joint owner of the land given his past history and relationship with the children and wife.  On the valuation issue, the court held that the husband did not properly preserve the issue.  The court also upheld the trial court's award of $10,000 of attorney fees.  In re Marriage of Simon, No. 14-0735, 2014 Iowa App. LEXIS 1256 (Iowa Ct. App. Dec. 24, 2014).         


An estate plan was established for the decedent which, upon the death of the decedent's surviving spouse, resulted in one-half of the trust property passing to the children of the surviving spouse and one-half passing to the decedent's brother.  Upon the brother's subsequent death, the trust specified that the one-half of the balance in the trust would pass to his child.  Had the brother not survived the decedent, one-quarter of the trust property would pass to the brother's child and one-quarter would pass to the child of a predeceased brother.  Given the fact that the brother outlived the decedent, the child of the predeceased brother received nothing.  However, two of the three trustees and the decedent's financial advisor testified that the trust did not carry out the decedent's desire to treat the children of the brothers equally.  The child of the predeceased brother sued to reform the trust, and the matter resulted in a settlement.  The child of the predeceased brother also brought a malpractice and breach of contract claim against the drafter of the trust.  The trial court dismissed the claim, but the state Supreme Court reversed, recognizing that a third-party beneficiary of an estate plan can sue the drafter in tort and contract when the drafting error "defeats or diminishes the client's intent."  Fabian v. Lindsey, No. 2012-213726, 2014 S.C. LEXIS 470 (S.C. Sup. Ct. Oct. 29, 2014).


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