Case Summaries

The defendant, an Iowa attorney, represented an Iowa client with a net worth of $4 million who was charged with murder.  Within days of the charge, the defendant began drafting real estate documents transferring the accused's real estate into revocable trusts and to other persons outright.  The accused shortly thereafter informed defendant that they had found a buyer for a significant amount of land the accused owned.  The buyer was an irrevocable trust that the defendant claimed he did not draft.  The irrevocable trust named as trustee a distant cousin of the accused that resided in Tennessee and listed as an address a P.O. Box in California (facts which the court did not disclose, but were revealed at the underlying trial court action in this case).  The trust contained language acknowledging a writ of attachment in the pending lawsuit against the accused.  The defendant drafted a memorandum of contract of sale of the land to the trust.  The accused was ultimately convicted of voluntary manslaughter and a later civil trial resulted in a judgment against the accused/convicted of $5.7 million.  The decedent's widow filed a disciplinary complaint against the defendant for transferring assets to the irrevocable trust to defraud creditors.  The Grievance Commission of the Iowa Bar publicly reprimanded the defendant.  On appeal, the Court reversed and dismissed the complaint on the basis that it was not obvious to the defendant that the conveyances were fraudulent.  The Court reached this conclusion in spite of the extremely unusual nature of the trust where the trustee was an out-of-state individual and the trust address was listed as a P.O. Box in California.  The Court was persuaded that the defendant could have reasonably believed that the reason for the trust's creation was to consolidate the accused's property under "one tent" to allow the accused's wife to more easily manage farming operations.  Iowa Supreme Court Attorney Discipline Board v. Ouderkirk, No. 13-1124, 2014 Iowa Sup. LEXIS 33 (Iowa Sup. Ct. Mar. 28, 2014).

The IRS sought to collect estate taxes.  The estate had made a protective election preserving the estate's ability to make an installment payment election under I.R.C. Sec. 6166 if the estate were later determined to be eligible to make the election.  About four years later, IRS issued a Notice of Deficiency and the estate moved for a redetermination of tax.  The court entered a stipulated decision for a deficiency which IRS assessed in April of 2005.  In late 2006, the IRS issued a final notice to levy and notice for hearing.  In early 2007, the estate requested a due process hearing and IRS responded to that request in May of 2008.  The estate argued that the collection of the original tax assessment was barred by the statute of limitations.  The court noted that a 10-year  statute of limitations for collection of estate taxes applied under I.R.C. Sec. 6502(a).  The estate claimed that the IRS action was filed more than 10 years after the date of the original assessment.  The IRS claimed that additional tolling was available under I.R.C. Sec. 6166 and 6503(d) which would extend the statute of limitations.  The court noted that the estate did not receive an extension of time to pay tax, but had merely made a protective election which did not extend the statute.  United States v. Baileys, No. 8:13-cv-966-JLS (CWx), 2014 U.S. Dist. LEXIS 67822 (C.D. Cal. Mar. 25, 2014).

The IRS was asked to rule on whether particular rights associated with a marital trust set up via an antenuptial agreement was a contingency under I.R.C. Sec. 2056(b)(1) that negated the martial deduction for distributions to the trust.  The IRS determined that the right of the spouse to elect an amount to fund the marital trust was not a contingency because of trust language that gave the spouse beneficial enjoyment of marital trust assets.  IRS also determined that the spouse had a qualifying income interest for life in the LLC units.  Priv. Ltr. Rul. 201410011 (Nov. 9, 2013).

In this case, the decedent instructed his bank to transfer several million dollars worth of securities from his account to an account in his wife's name.  The transfers were made in stages, with some of them occurring after the decedent died.  The state probate court held that the decedent's death ended the agency relationship between the decedent and the bank and that the investment securities transferred post-death were ineffective and those securities were in the decedent's gross estate.  On appeal, the state appellate court affirmed.  However, on further review by the state Supreme Court, the appellate court's opinion was reversed.  Under the state (SC) version of Article 8 of the Uniform Commercial Code (Investment Securities) the Court determined that the South Carolina Code Sec. 36-8-101 transformed the decedent's instructions to transfer the securities into an "entitlement order" under which the bank was mandated to transfer the securities at the time the decedent made the order.  As such, the decedent's subsequent death was immaterial as to the transfers and none of the securities were included in the decedent's estate.  In re Estate of Rider, 756 S.E. 2d 136 (S.C. 2014). 

(decedent owned mineral interests which were distributed equally to two brothers with one brother's share reduced to one-fourth after brother's ex-wife received 50 percent of his 50 percent share; the brother owning a one-fourth mineral interest failed to file federal income tax returns for 1997 and 1999-2005 and IRS filed notices of federal tax liens (NFTLs) in the spring of 2005 for tax years 1997-2002 and another NFTL for the same years in September of 2006; on Oct. 6, 2006, the brother with the 1/4 mineral interest transferred his mineral interest to a trust; IRS moved to foreclose its liens; court determined that IRS had priority over royalties from brother's mineral interest with respect to those royalties for which the IRS liens were perfected before the brother's transfer of his mineral interest to the trust; with respect to the IRS lien filed in 2008, lien did not attach to brother's mineral interest because it had been transferred to the trust and lien only attached to brother's 45 percent interest in the trust, but not the trust's share of mineral interest royalties; IRS did not allege that transfer to trust was a fraudulent transfer)

(decedent owned a 23.44 percent interest in a C corporation that functioned as a family personal holding company that was founded by her father; corporation held publicly-traded, dividend-producing stock and distributed all dividends, but sold nothing; stock had substantial built-in capital gain (BIG), and liquidation of corporation would trigger 39 percent capital gains tax rate (combined state and federal); issue before court was whether decedent's stock to be valued based on potential income stream derived from current investment strategy or via net asset value of stocks; either valuation approach to be combined with valuation discounts to reflect minority interest, lack of marketability and BIG tax; CPA valued decedent's interest via capitalization-of-dividends method, and produced draft report; report never finalized and decedent's interest reported on Form 706 at value of $3.15 million; IRS claims correct value is almost twice as much as reported value; after getting deficiency notice from IRS, estate hires expert appraiser; estate did not act with reasonable cause and in good faith in using unsigned draft report prepared by estate's CPA as basis for 706 value; CPA not a certified appraiser; estate later pushed for $5 million value at trial)   

(a father and mother executed revocable living trusts under which they each left their estates to the survivor, for life,  with the remainder to the following: 70 percent to their son, 20 percent to their daughter, and 10 percent to their granddaughter; the mother survived the father, and she modified her trust to leave 70 percent of the residuary to the daughter, 20 percent to the son, and 10 percent to the granddaughter;  the son filed a petition to have the mother removed as trustee of the father’s trust, and, while the action was pending, the mother died, leaving the son as the successor trustee of both trusts; the son filed a second petition alleging that he had reached a settlement agreement with his mother before her death in which she revoked the amended trust and reinstated the original one; the trial court rejected the son’s petition, finding that the settlement agreement was not enforceable because it was not signed; on appeal, the court affirmed, ruling that the modified trust was not revoked; the court also ruled that the mother clearly intended her beneficiaries to take outright and free of a lifetime trust, even though “for lifetime” language was used).    

(decedent was survived by her husband and four children, two of whom were also the children of her ex-husband; the decedent’s ex-husband’s business partner and significant other was appointed as the personal representative (PR) of the decedent’s estate; her holographic will, which split her property evenly amongst her husband and four children, was probated; the PR sold some of the decedent’s real property in a private sale to the decedent’s ex-husband; she also paid the ex-husband $22,448 to repair, clean, and transport personal property that was auctioned for $28,016.50; the husband filed a petition to surcharge the PR for committing fraud and damaging the estate; the trial court found that the PR did not breach her fiduciary duty in disposing of the estate’s property;  on appeal, the court ruled that sufficient evidence supported the trial court’s decision that the PR did not breach her fiduciary duties with respect to selling the estate's personal property and paying the ex-husband’s bill; testimony established that the personal property was in poor condition; there was no testimony to support the allegation that the amount paid to the ex-husband was excessive, given the amount of work required).

(decedent bequeathed his personal property to his wife, the stepmother of his son, “to be hers to use and enjoy for and during the term of her natural lifetime”; the will provided that at the death of the wife, “all that remains of my estate” was to be divided amongst his son’s children; the wife survived the decedent by 16 years; after the wife's death, the grandchildren sought to recover the value of a $100,800.79 bank account that existed at the time of the death of the decedent; the wife's argued that she was entitled to consume the personal property during her lifetime, and the trial court agreed; in reversing that portion of the order, the court found that in Illinois, a life estate in personal property did not grant the life tenant the right to consume the corpus of the property; rather, the wife was entitled only to receive income from the principal; to grant to a life tenant the right to invade and consume the principal, a testator had to grant such a right in explicit language).

(a decedent and his wife signed a trust, which was named “revocable” less than one year before his death; the trust named his wife, the stepmother of his daughters, as the successor trustee; his daughters were named as beneficiaries after his wife’s death; after the decedent passed away, the stepmother amended the trust to eliminate the decedent’s daughters as beneficiaries; one daughter filed an action against the stepmother, seeking to have the trust declared irrevocable; the trial court heard much testimony regarding the capacity of the decedent and his intentions; the trial court denied the daughter’s request, ruling that the decedent did not suffer from diminished capacity and that the trust could not be declared irrevocable due to scrivener’s error, misunderstanding, overreaching, or undue influence; the appellate court affirmed, finding that the daughter had failed to meet the high standard of showing that the trial court’s findings were “clearly erroneous”).

(a late physician’s father was named as the beneficiary of his daughter’s $300,000 life insurance policy, even though that policy was also pledged as collateral for a business loan; after the daughter’s death, the father failed in his effort to force the bank to recover its lien from other pledged assets; the father then filed a claim against the estate to impose a claim on the estate assets as a claim in subrogation of the banks’ rights; the father settled his claim with the estate through an agreed judgment making him an unsecured creditor of the estate; years later, when the estate was insolvent and he had collected nothing, the father filed an action against the estate’s executrix, alleging that she breached fiduciary, statutory, and common law duties owed to him; in granting summary judgment to the executrix, the court ruled that she did not, under Texas law, owe a duty of care to the father, who was merely an unsecured creditor; any fiduciary duty was owed to the heirs and legatees, not to the creditors of the estate).

(plaintiff filed class action against defendant claiming that defendant’s pension plan violated ERISA as being underfunded in violation of Employment Retirement Income Security Act (ERISA); ERISA exempts “church plans” which are plans established by employees of a church, a church  or convention or association of churches; while defendant conceded it is not a church, it claimed that 1980 amendment provided that a plan could be a church plan if the plan is maintained by tax-exempt non-profit entity controlled by or associated with church or convention or association of churches; defendant is tax-exempt associated with Roman Catholic Church; court determined that “church plan” must be a plan established by a church or convention of churches and not a church-affiliated organization; plaintiff is a healthcare organization and not a church; IRS private letter rulings purportedly supporting plaintiff’s position only applicable to person or entity requesting ruling and not entitled to judicial deference). 

Here, the surviving spouse of a farmer placed the farm into a revocable trust which named her as trustee and specified that the trust assets were for her use and benefit during her life with the assets then passing to the couple's children.  The surviving spouse sold the farm to the on-farm child who had farmed with his father at a discounted per-acre price which equaled the price at which a tract had been sold to a daughter, but the daughter (now acting as successor trustee) objected to the sale and refused to honor the purchase agreement.  The on-farm child sued for specific performance.  The appellate court determined that the surviving spouse was competent, the selling price was adequate and no undue influence was present, but also held that the on-farm heir breached a fiduciary duty by participating in the sale.  On further review, the state (IN) Supreme Court determined (in accordance with Sec. 603 of Uniform Trust Code (UTC)) that a trustee's duties are only owed to the settlor while the trust is revocable and that state law mirrored the UTC.  Thus, the surviving spouse's ability to amend or revoke the trust displaced any implied duty owed to beneficiaries and the surviving spouse could sell the farm to the on-farm heir at a price below market value.  The purchase agreement did not constitute an amendment to the trust due to lack of governing trust language, and the surviving spouse signed the purchase agreement as trustee rather than as settlor.  The on-farm child was entitled to specific performance.  Fulp v. Gilliland, 998 N.E.2d 204 (Ind. 2013).

(decedent established IRA account and named spouse as primary beneficiary and couple’s revocable trust as contingent beneficiary; under amended trust language, upon death of surviving spouse, $100,000 to be distributed to church; decedent changed contingent beneficiaries numerous times; spouse died and charitable trust named primary beneficiary; ultimately, decedent designated payouts to go directly to named charities rather than through trust and single charity named as beneficiary – Univ. of Ariz. Foundation for Breast Cancer Research; church received $100,000 and claimed entitlement to IRA proceeds in addition; trial court determined that Foundation was sole beneficiary; on appeal, court affirmed based on evidence that decedent did not want church to be IRA beneficiary). 

(decedent was minority member of LLC; LLC owned rented commercial building in New York City and executor valued decedent’s interest in LLC at $1.78 million; IRS determined deficiency of $309,000 based on reduction of minority and lack of marketability discount; executor attaches new appraisal to petition rather than obtaining expert witness testimony due to fee dispute with expert; court noted that petitioner did not qualify expert nor satisfy preconditions to receiving opinion evidence; appraisal not in evidence and court need not consider expert’s opinion). 

(relatives named in residuary clause of husband’s will filed an action seeking to reopen husband’s estate, which was closed 18 years earlier after full distribution to wife; relatives, who had not received formal notice of the probate proceedings  argued that pursuant to Iowa Code §633.489’s “for any other proper cause appearing to the court” clause no statute of limitations barred their action; in reversing the lower courts’ decisions reopening the case, the Iowa Supreme Court ruled that §633.488, which had a five-year statute of limitations, applied to the action because it applied to actions disputing the distribution of an estate, whereas §633.489 applied to actions disputing the administration of an estate; the Court stated that, if interpreted too broadly, §633. 489’s “other proper cause” clause would subsume §633.488’s five-year statute of  limitations; the court also relied on the fact that §633.488, unlike §633.489, specifically applied to persons not receiving notice of a final accounting). 

(son was appointed trustee of deceased father's trust and personal representative of his estate; son received a $50,000 deathbed transfer from his father which he failed to deposit in the trust account; son also commingled trust property with personal property, and failed to make any distributions to daughter, an income beneficiary under the trust; at the request of the daughter, the trial court removed son from his role as personal representative and trustee; on appeal, the court affirmed, rejecting the son’s argument that the trial court should have used a less intrusive method, such as appointing a special administrator to merely limit son’s role; Neb. Rev. Stat. § 30-3862(b) allowed removal where a trustee “committed a serious breach of trust”; son’s interests irreconcilably conflicted with the interests of the estate and trust, and appointing a special administrator  would not have alleviated the problem). 

(decedent was grantor and sole beneficiary of annuity trust, and served as co-trustee with some of her children; decedent held 50 percent of trust's voting rights; decedent transferred two rental properties to trust in return for 180-month annuity that were subject to mortgages; trust paid mortgages, but did non assume mortgages; trust language allowed trust income in excess of periodic payment to be distributed to decedent or be accumulated in trust; upon later of end of term or decedent's death; trust to pass to decedent's surviving children or grandchildren; decedent, as trustee, managed properties after transfer; decedent filed Form 709 reporting transfer of properties with portion of value retained; decedent also trustee as sole beneficiary of "residence trust" with trust terms giving decedent right to use trust property as personal residence and right to receive income from trust; Form 709 filed reporting transfer of residence and reporting portion retained; decedent later amended trust and upon decedent's death, residence transferred to charitable remainder trust at decedent's prior direction; decedent's Form 706 excluded properties from estate and claimed charitable deduction; IRS argued for estate inclusion of properties transferred to annuity trust via I.R.C. Sec. 2036(a); court agreed with IRS; annuity trusts not sufficiently similar to FLPs such that Estate of Bongard v. Comr., 124 T.C. 95 (2005) inapplicable; not sufficient non-tax reasons for transfer present; full value of residence included in decedent's estate under I.R.C. Sec. 2036(a); estate not entitled to charitable deduction because term of residence trust ended before decedent's death and should have been distributed under terms of trust to children and grandchildren rather than as directed by will). 

(married couple sold rental real estate to son for $28,000 in return for promissory note in wife's name; note could not be sold or assigned; husband entered nursing home and made Medicaid application; state Medicaid agency determined that note was available resource and, as a result, husband ineligible for Medicaid benefits; trial court determined that note was an available resource on basis that promissory notes are available resources; appellate court reversed on basis that not assignable and could not be sold and could not, therefore, be converted to cash).

(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 gifted property if petitioner died within three years of gifts; petitioner deducted value of daughters' agreement to be liable for gift or estate tax from value of gifts and IRS claimed gift tax understated by almost $2 million; each daughter and petitioner represented by separate counsel and appraisal undertaken who used mortality tables to compute petitioner's life expectancy which impacted values as reported on Form 709; IRS primary argument was that 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; court determined that primary question was whether petitioner received any determinable amount in money or money's worth when daughters agreed to pay tax liability; court held the petitioner did receive determinable value as to the gift tax; likewise, assumption of potential estate tax liability may have sufficient value to reduce petitioner's gift tax liability; immaterial that intrafamily deal at issue because all persons represented by separate counsel; issue of fact remains for trial on assumption of estate tax issue). 

(eleven years before applying for Medicaid benefits, decedent and spouse created revocable trust and transferred marital home to trust; upon entering nursing home and applying for Medicaid, decedent removed home from trust and took title to home in her own name; the next day, decedent transferred house to her husband; defendant classified transfer as improper and assessed penalty; after decedent died, estate sued; trial court ruled for state; appellate court affirmed on basis that home was removed from available resources of institutionalized spouse and gave husband (community spouse) larger resource allowance; trust could have stayed in decedent's name after removal from trust without triggering penalty). 

(decedent's revocable trust funded a marital trust and credit shelter trust via fractional formula clause with no asset allocated to marital trust; Form 706, by error, included property funding credit shelter trust on Schedule M for which QTIP election made; later, different legal counsel discovered error and requested ruling on matter; IRS noted that Rev. Proc. 2001-38 treats as void any QTIP election to extent not necessary to reduce estate tax liability to zero; QTIP election, therefore, disregarded and assets of credit shelter trust not included in estate of surviving spouse; surviving spouse also not treated as transferor of assets in credit shelter trust for GSST purposes). 

(married couple owned farm and leased farmland to a son; son claimed the existence of an oral agreement that parents would compensate him for improvements as part of the price he would pay for eventual purchase of the farm; farm eventually sold to son at less than fair market value and son claimed he had made approximately $100,000 in improvements; parents then entered nursing home and resided their until their deaths; at time of their deaths approximately $93,000 remained in unpaid nursing home bills; nursing home sued to set aside transfer of farm as fraudulent conveyance; trial court set aside sale and held that son was personally responsible under state law for parents' unpaid nursing home bill; on appeal, court held that sale of farm was a fraudulent conveyance and remanded to trial court on issue of personal responsibility for debt of parents; appellate court determined that evidence was absence of oral agreement or of improvements to property, and that sale of farm made at time when parties reasonably believed that parents would need nursing home care; appellate court also held that trial court erred in holding son personally liable for parents' debt until determining liability of other parents' other children).

(two months before death, decedent executed will revoking prior will and giving entire estate to new executor rather than executor under prior will; decedent never married and had no children and not close to extended family; prior executor filed petition to contest and invalidate will on grounds of undue influence and tortious interference with testamentary expectancy; trial court granted motion to dismiss and prior executor later given leave to file amended petition; executor worked for prior executor as farmhand and prior executor claimed that executor made false statements about prior executor’s character to decedent; prior executor also claimed that executor sought advice from others concerning how to convince a person to change their will; court took allegation as true for purposes of motion to dismiss, and allegation led to inference that decedent influenced by executor’s misrepresentations; sufficient facts alleged to state claim of undue influence; appellate court reversed grant of motion to dismiss).