Case Summaries
This case points out the perils of not dividing a revocable trust upon a spouse's death and not limiting distributions to the surviving spouse to an ascertainable standard when required to do so. The spouse's revocable living trust contained approximately $2.1 million worth of assets at the time the spouse died in 1998 at a time when the federal estate tax exemption was $600,000. The trust specified that the assets of the trust were be divided into a pecuniary marital trust and a residuary credit shelter trust. This was not done by the husband as the executor. In addition, the marital trust was to be divided into GSTT exempt and non-exempt trusts. The surviving spouse (decedent herein) had a limited power of appointment over principal from the credit shelter trust to appoint principal to his children, grandchildren or charity. Decedent made over $1 million in withdrawals from the revocable living trust principal for chartable distributions and claimed charitable deductions on personal return. The decedent also withdrew other funds for distribution to his children and grandchildren. At the valuation date for the trust after decedent's death in 2008 (when the exemption was $2 million), the revocable living trust contained over $1 million in assets. The estate took the position that all withdrawals had been from the marital trust (which were subject to an ascertainable standard) such that the decedent's gross estate value was zero. IRS claimed that withdrawn amounts were attributable to the credit shelter trust and where included in decedent's gross estate or, in the alternative, were pro rata withdrawals, and asserted an estate tax deficiency of $482,050.80. The Tax Court determined that charitable gifts were from the credit shelter trust via the decedent's limited power of appointment and the other distributions were from the marital trust as discretionary distributions, and rejected the estate's argument that Treas. Reg. 20.2044-1(d)(3) applied. The court also determined that decedent's limited power of appointment to appoint to charity from the credit shelter trust was exercisable during life. The court also noted that distributions from principal could only come from the marital trust. The value of the decedent's gross estate was determined by subtracting all personal withdrawals from value of remaining trust assets. Estate of Olsen v. Comr., T.C. Memo. 2014-58.
Plaintiffs filed a legal malpractice against defendants, an attorney and his firm, arguing that defendants negligently misrepresented tax consequences of using a trust in an estate plan, failed to use proper estate planning methods to avoid or minimize estate tax, and negligently drafted a power of attorney. The plaintiffs were children of a decedent who had employed defendants to implement his estate plan. The trial court dismissed the action on the grounds that the two-year statute of limitations had run. On appeal, the court affirmed. The court found that under the repose provision of 735 ILCS 5/13-214.3(d), the plaintiffs had two years from the date of decedent’s death to file their malpractice action. They did not file it until 3.5 years after his death. Another claim for aiding and abetting breach of fiduciary duty was properly dismissed under 735 ILCS 5/13-214.3(b), which required the plaintiffs to bring their action within two years of discovering their injury. Voga v. Nash, 2014 Ill. App. Unpub. LEXIS 684 (Ill. App. April 1, 2014).
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).
Decedent and spouse founded mail-order horticulture business. Years earlier, the couple sold their stock to the company's ESOP with the company financing the purchase by borrowing $70 million including the trustee of the ESOP. Decedent's spouse contributed his sale proceeds to a revocable trust that split into three marital trusts on his death. The ESOP beneficiaries eventually sued and the horticulture business then filed bankruptcy. While the lawsuit was pending, the decedent died and the marital trusts were valued in the decedent's estate at over $50 million. The estate claimed a deduction for the pending litigation of just under $15 million. The estate claimed discounts for litigation hazards, and lack of marketability (because the ESOP trustee froze the decedent from withdrawing principal). IRS asserted an estate tax deficiency. The Tax Court denied the discount for litigation hazards and also for lack of marketability. On appeal, the court affirmed. The pending litigation's impact on value as of the date of the decedent's death was not ascertainable with reasonable certainty. Marital trusts included in decedent's estate. Estate of Foster v. Comr., No. 11-73400, 2014 U.S. App. LEXIS 5563 (9th Cir. Mar. 26, 2014), aff'g., T.C. Memo. 2011-95.
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).
This is another case that points out that an executor has personal liability for unpaid federal estate tax when the estate assets are distributed before the estate tax is paid in full. I.R.C. Sec. 7402 controls and the executor was personally liable for $526,506.50 in delinquent federal estate tax and penalties - the amount of distribution at the time of the decedent's death. United States v. Whisenhunt, et al., No. 3:12-CV-0614-B, 2014 U.S. Dist. LEXIS 38969 (N.D. Tex. 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).
(Chicago lawyers formed investment partnership and entered into contract with bank that held title to farmland in an "Illinois Land Trust"; partnership held only personal property interest and entered into crop-share lease with farmer; farmer signed-up for federal farm program benefits and local FSA office ultimately determined that partnership not eligible for share of benefits commensurate with lease because bank held legal title to land and not partnership; administrative appeals agreed with FSA's determination; on appeal, trial court affirmed on basis of definition of "owner" contained in 7 C.F.R. Sec. 718.2 and that no IL courts had ever held that a land trust beneficiary is a "legal owner"; court also rejected partnership's argument that FSA had allowed beneficiary of deed of trust to qualify as an "owner" insomuch as FSA position was not arbitrary and capricious).
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).
(defendant was appointed as co-executor of a decedent's estate; decedent died in 2004, but had not filed federal income tax returns for 1997 and 2000-2003; in 2005, decedent's estate filed returns on decedent's behalf for years in which returns had not been filed; IRS asserted deficiency of $276,908 against the estate; in early 2006, law firm representing estate was notified of outstanding tax liability; law firm reported to probate court distributions to executors of $470,963 and that estate had insufficient assets to pay outstanding tax liability; court determined that co-executors personally liable for unpaid tax debt via 31 U.S.C. Sec. 3713; co- executors knew of tax liability before distributing estate assets that rendered the estate unable to pay tax debt; court found no merit in defendant's claim of reliance on erroneous advice from law firm representing estate because defendant had actual knowledge of tax debt; summary judgment for IRS).
(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 was firefighter who died in line of duty and trial court determined that decedent's surviving "spouse" was not legal beneficiary of decedent's estate because "spouse" was born a male and, therefore, was not legally married to decedent under state law at time of decedent's death; surviving "spouse" had male genitalia and was diagnosed at age 18 with "gender dysphoria" and placed on feminizing hormone therapy and continued living as a female; surviving "spouse" change name to female name at age 21 and was issued amended birth certificate and obtained KS driver's license which was used to obtain TX driver's license which was then used to obtain TX marriage license at age 33; after wedding, surviving "spouse" underwent "genital reassignment" surgery which reassembled male genitalia into female; two years later, decedent died; decedent's mother and ex-wife sued seeking declaration that marriage was void; trial court granted summary judgment for mother and ex-wife; on appeal, court reversed on basis that genuine issue of material fact remained regarding surviving "spouse's" gender which requires expert testimony to resolve).
(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)
(petitioner and respondent were the two children of the decedent; respondent was the executor of the decedent’s estate; both respondent and petitioner were granted a life estate in the decedent’s property, with the remainder to their children; at the time of decedent’s death, petitioner had three children, and respondent had none; the decedent owned a 78-acre farm at her death, but she owned few non-real estate resources to maintain the farming operation; pursuant to a clause in the will granting him permission to sell the decedent’s property without a court order, the respondent sold the farm for $561,600; the petitioner asked the court to remove the respondent as executor, arguing that he sold the farm “to get cash” and that he lacked such authority; in affirming the lower court’s order denying relief to the petitioner, the court found that the trial court did not commit manifest error; the debts and the farm expenses of the estate exceeded the value of the non-real estate property; the will granted the executor the power to sell property without a court order; the executor had received the advice of counsel that he did not need to obtain the consent of the legatees; there was no allegation that the respondent misappropriated funds for personal use).
(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).
(a client engaged an attorney to draft a security agreement for loans she made to her son; although the attorney drafted the agreement, the client did not provide him with an equipment list, and he did not file a financing statement; after the son declared bankruptcy, the client sued the attorney for malpractice for failing to file the financing statement; the circuit court granted summary judgment to the attorney, finding that he owed no duty to the client to file the statement; on appeal, the court disagreed that the duty question could be decided on summary judgment; nonetheless, the court affirmed the judgment on the grounds that the client suffered no damage and that she filed her claim outside of the three-year limitations period for a legal malpractice claim; the client succeeded in recovering from the son’s bankruptcy estate more than the appraised value of the collateral she claimed was jeopardized by the attorney’s alleged negligence).
(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).
(plaintiff, the husband of the decedent, sought to renounce the will of his deceased spouse; defendant, the decedent’s son and the executor of her estate, filed a petition to disallow the renunciation on the grounds that it was untimely; the circuit court ruled in favor of the defendant; on appeal, the plaintiff argued that the circuit court should have applied equitable estoppel and equitable tolling to excuse the late filing; in affirming the circuit court’s judgment, the court found that no facts warranted the application of equitable estoppel or equitable tolling; the plaintiff and decedent had agreed that their assets would pass to their respective children; the plaintiff knew in advance that he was not a beneficiary of his wife’s estate or family trust; there was no evidence that the defendant had misled the plaintiff or that he had prevented the plaintiff from filing his petition in a timely manner; one judge dissented, arguing that the estate’s lawyer, who had lulled the plaintiff into inaction, was working under an undisclosed conflict of interest).
(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).
(IRS provides automatic extension of time through December 31, 2014, for decedents' estates without filing requirement to elect portability of deceased spouse's unused exclusion amount for benefit of surviving spouse; relief applicable to estates of decedents dying from January 1, 2011 through December 31, 2013; relief applicable to same-gender "marriages" in states where such unions recognized legally or are allowed; extension is applicable to estate that has already filed a timely estate tax return irrespective of whether portability election made; no application to deadline for filing refund claim for gift or estate taxes paid by surviving spouse or executor because portability election not made; no provision made for non-executor surviving spouse to make election - choice remains with executor; to make election, return for year of death should be used with notation in red made at top as follows: "Portability Election Based on Rev. Proc. 2014-18").
(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”).
(an adopted daughter contested the application to probate her father's will on the ground that a nephew had unduly influenced him; the trial court granted a partial no-evidence summary judgment motion in favor of the nephew, and the daughter filed an accelerated permissive appeal from the order pursuant to Tex. Civ. Prac. & Rem. Code § 51.014(d); in dismissing the appeal, the court found that it lacked jurisdiction because the requirements of § 51.014(d) were not met; whether undue influence was exerted was an ultimate question of fact for the fact-finder; no controlling question of law was at issue).
(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).
(decedent, before death, bought life insurance policy for $12,000 with proceeds assigned to create irrevocable trust; trustee was to pay funeral expenses if bill presented within 45 days of death; one month later, decedent gave son over $4,000 and applied for Medicaid benefits the following months; state Medicaid agency determined that funds used to purchase policy was uncompensated transfer and imposed a disqualification period penalty; court rejected argument that transfers were for funeral expenses and were, therefore, exempt because no burial contracts existed in accordance with 305 IL Comp. Stat. Ann Sec. 5/3-1.2 and because the trusts were structured such that trust funds could pass to decedent's children rather than being used to pay funeral expenses).
(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).
(Medicaid case focuses on definition of "estate" under state law for purposes of Medicaid lien; married couple owned home in tenants-by-entirety; husband resided in nursing home and received Medicaid benefits; upon wife's subsequent death, state placed lien on marital home to recover Medicaid benefits paid to pre-deceased husband; estate argued that definition of "estate" did not include tenancy-by-entirety property for purposes of Medicaid recovery; court noted that state had adopted definition of "estate" that included non-probate assets; court upheld validity of lien on basis that definition of "estate" contained in Wyo. Stat. Ann. 42-4-206 was expansive and reached any type of non-probate survivorship interest).
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).
(defendant received gift of land with stipulation that defendant could develop land for “agricultural, academic, research and development, delivery of health and medical care and services, or related purposes” or that the defendant’s proposed “mixed-use” research park would use land entirely for such purposes; plaintiffs, family members of deceased donor, argued that defendant’s plans for land violated terms of agreement due to scale, density and lessor/lessee structure of defendant’s plans; court determined that donor agreement not ambiguous and extrinsic evidence need not be considered; defendant’s plans for land permissible under donor agreement).
(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 died intestate survived by four children and was the owner of a large farming operation; the four children were the original personal representatives until disputes caused the trial court to appoint an independent personal representative; in reversing in part the trial court’s approval of the final accounting, the court found that stock still owned by the estate eight years after the death of the decedent should have been valued at the date of distribution, not the date of death; trial court improperly approved a partial distribution of dividends to one of the heirs because there was no valid agreement (1) set out in writing, (2) signed by all heirs, and (3) submitted to the court for approval; trial court improperly allowed estate to reimburse heirs, not partnership owned by several heirs, for administrative fees partnership paid on behalf of the estate).
(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).
(Medicaid case; non-institutionalized (community) spouse purchased an annuity before institutionalized spouse determined to be eligible for Medicaid; institutionalized spouse entered nursing home in 2005 and couple used personal funds to pay nursing home bill for four years; community spouse then purchased annuity using his personal IRA funds; annuity guaranteed monthly payments of $1,728.42 to community spouse for almost 10 years - the community spouse's actuarial life expectancy; upon community spouse's death, institutionalized spouse was first contingent beneficiary and state Medicaid agency was remainder beneficiary to extent of Medicaid benefits paid to institutionalized spouse; court noted that federal Medicaid law specified that annuity is not asset of community spouse if purchased with retirement plan funds and state is named as beneficiary; annuity was actuarially sound and was for community spouse's sole benefit).
(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).
(case involves issue of whether trust protector liable for not replacing existing trustee of special needs trust (SNT); trust protector had right to remove trustee and appoint successor trustee and would not be liable for any actions taken in "good faith"; trust did not contain provisions giving protector power or duty to supervise trustees or direct trustee actions; initial trustee resigned and successor appointed until resignation two years later; successor trustee appointed and then protector resigned; trust assets declined in value substantially (with the slide beginning before protector resigned) and suit brought against protector and parties that had served as trustee on claim that fiduciary duties had been breached and conduct had been in "bad faith"; trial court granted protector's motion for summary judgment, but appellate court reversed on basis that fact issues remained; on remand, trial court determined that trust limited protector's power to trustee removal and that protector had no obligation to monitor trustee's actions; trial court granted directed verdict for protector; on appeal, court affirmed on basis of lack of evidence of loss of trust value due to protector's conduct or lack thereof; trust protector only has authority granted in trust instrument and trust did not state that protector was a fiduciary).
(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).
(petitioners were two children of 1994 decedent and were beneficiaries of residuary testamentary trust that received most of decedent’s estate, including 13/16 interest in cattle ranch; ranch value reported on estate tax return at substantially below FMV in accordance with I.R.C. Sec. 2032A; petitioners signed consent agreement (one via guardian ad litem) agreeing to personal liability for any additional taxes imposed as result of sale of elected property or cessation of qualified use; IRS disputed reported value but matter settled; years later, trust sold easement on ranch restricting development; gain on sale of easement reported with reference to Sec. 2032A value and K-1s issued showing proceeds had been distributed to beneficiaries; beneficiaries did not report gain as reflected on K-1s and then asserted that ranch undervalued on estate tax return and that gain reportable should be reduced by using FMV tax basis; court determined that Sec. 2032A value pegs basis via I.R.C. Sec. 1014(a)(3); court upheld consent agreement; accuracy-related penalty imposed because advice sought only after petitioners failed to report any gain).
(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).
(legal malpractice case against lawyer who drafted will that contained reference to separate written memorandum in which decedent was to list specific bequests of tangible personal property; attorney gave decedent separate written memorandum form; decedent did not sign the form or have it witnessed and attorney never saw form after giving it to decedent; post-death, decedent's heirs and estate entered into settlement declaring that form was invalid and heirs sued attorney for malpractice; trial court ruled for attorney on basis that he did not owe unknown beneficiaries any duty; appellate court reversed on basis that attorney owed duty to unknown, intended beneficiaries because he provided her with the separate written memorandum and knew decedent intended to benefit third parties by means of the form).
(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).
(trial court improperly entered summary judgment in favor of estate in action seeking to quiet title to certain property in favor of the estate; a niece and her husband moved onto her uncle’s farm to take care of her uncle in his last days; the niece alleged that the uncle intended to leave the farm to her and her husband if they would pay $100,000; subsequent to this alleged promise, the uncle amended his trust twice and then passed away; in the final amendment the trust provided for a $150,000 distribution to the niece for the purpose of purchasing a house; however, the trust was to retain an interest in the house, to the extent that the niece used trust funds to purchase the property; the niece received a $150,000 distribution, purchased a $342,000 house, and failed to grant the trust any interest in the property; in reversing summary judgment for the estate, the court found that there was a genuine issue of material fact as to whether the payment to the niece was, as she contended, made in settlement of her claims against the estate or, as the estate contended, a distribution in accordance with the terms of the trust).
(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).
(decedent's estate satisfied requirements of I.R.C. Sec. 6166 and made election to pay estate tax in installments; estate failed to pay interest for 2010 and 2011 on deferred amounts of estate tax and IRS issued final notice and demand for payment; court determined that requirements of I.R.C. Sec. 6166(g)(3)(A) satisfied and election to pay estate tax via I.R.C. Sec. 6166 terminated as matter of law; unpaid portion of estate tax due on notice and demand). Annotation
(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 died intestate with IRA having no designated beneficiary and three intestate heirs; estate administrator sought ruling that division of IRA into separate IRAs for each intestate heir via trustee-to-trustee transfer would not be a "transfer" that would trigger IRD for the estate by virtue of I.R.C. Sec. 691(a)(2); IRS determined that probate estate not "designated beneficiary" under I.R.C. Sec. 401(a)(9)(B); consequently, IRAs distributable over five years and not over lifetime of each respective heir).
(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).
(decedent died, leaving a multi-billion dollar estate; the will provided for a specific bequest of annuity payments under two grantor-retained annuity trusts (GRAT) to a foundation; the residue of decedent’s estate was to be distributed to a pour-over trust, which was to be distributed to a QTIP family trust and to various family members; the spouse was the trustee of the family trust and a beneficiary of specifically bequeathed assets (SBA) pursuant to the terms of the family trust; the will and the trusts provided that transfer taxes were to be paid from property of the pour-over trust, other than the SBAs; overruling the spouse’s objections, the probate court ruled that if the assets in the pour-over trust, not including the SBAs, were insufficient to pay the transfer taxes, those taxes were to be paid from the SBAs before they were paid from the GRAT annuity payments; in vacating that portion of the probate court’s order, the appellate court ruled that the issue of priority as to tax apportionment was not ripe for adjudication; no tax had yet been assessed so an apportionment ruling was premature under MCL 700.3922(5)).
(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).
(plaintiff, tenant under crop-share lease with father, sued brothers and a corporation of one brother when parents conveyed two-thirds of leased land to one brother via contract and other third to same brother via gift; plaintiff claimed contract unconscionable, that contract constituted conversion of the land due to inadequate consideration, that brothers tortiously interfered with plaintiff’s business and inheritance, and intentionally or negligently inflicted emotional distress; trial court granted summary judgment for defendants; plaintiff’s unconscionability claim barred because plaintiff not party to contract and parents testified as to satisfaction with contract; conversion claim fails for same reason; no wrongful interference with plaintiff’s possessory interest and contract price irrelevant; tortious interference with contract claim fails due to lack of proof that defendants entered into purchase contract to buy land with purpose of interfering with plaintiff’s lease agreement; claim for tortious interference with bequest fails because due to lack of evidence that parents intended to leave farmland to plaintiff or that parents incompetent to amend will; no intentional infliction of emotional distress due to lack of evidence of invasion of legally protected interest of plaintiff by willful and malicious conduct).
(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).
(taxpayer transferred closely-held stock to grantor trust (GRAT) in exchange for SCINs in five sets of transfers; transferor died in year after transfers; SCINs to pay interest only during term of notes and entire principal to be repaid at maturity; third set of transfers involved face amount of notes approximately double appraised stock value to reflect possibility that transferor might die before expiration of note's term; fourth set face amount equal to appraised stock value but had higher interest rate; decedent never received any payments under notes before death; decedent diagnosed with terminal illness after transfers; executor valued notes on Form 709 using I.R.C. Sec. 7520 tables with result that there were no taxable gifts; IRS concluded that (1) if FMV of notes was less than FMV of stock, difference was a gift; (2) Section 7520 tables not appropriate for valuing notes, but willing buyer/willing seller test is; (3) no estate tax consequence associated with cancellation of notes due to self-cancelling feature in accordance with Estate of Moss v. Comr., 74 T.C. 1239 (1980) and Estate of Musgrove v. United States, 33 Fed. Cl. 657 (1995)).