Friday, November 21, 2014

stk119517rkeSeveral non-community property states have recently enacted statutes authorizing the creation of a joint trust by spouses that would be treated as entireties property, protected from the creditors of either spouse during their joint lifetimes, but would split into a separate Family Trust and Survivor’s Trust when one of them died. The question many estate planning lawyers have raised is whether the Family Trust would be includible in the survivor’s estate for Federal estate tax purposes when the survivor died. This question has now been answered at least as to one taxpayer in a private letter ruling, PLR 201429009 (released 7/18/2014).

In this private letter ruling, a Husband and Wife created a joint revocable trust. During their lives, they contributed their joint property to the trust and the trust provided that each of them held an undivided one-half beneficial interest in the trust as tenants in common and not as joint tenants.

On the death of Wife, the trustee was to divide the joint trust into a Family Trust with Wife’s trust assets and a Survivor’s Trust with Husband’s trust assets. Husband could amend and revoke the Survivor’s Trust, and on the death of Husband, he had a general power of appointment over the Survivor’s Trust. (more…)

Friday, November 21, 2014

The 7520 rate for December has decreased to 2.0%.

The December 2014 Applicable Federal Interest Rates can be found here.

Tuesday, November 18, 2014

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U.S. News and Best Lawyers have joined to rank more than 12,000 firms in the U.S. in 120 practice areas in 174 metropolitan areas and 8 states.

Bryan Cave’s Trust and Estates Practice Group (“Private Client CSG”) received National First Tier Ranking and the Atlanta, Kansas City, Orange County, and St. Louis offices all received First Tier Rankings in metropolitan cities.

Congratulations to the Private Client Group!

The 2015 report of more than 12,000 firms by practice area is based on a rigorous evaluation process that includes the collection of client and lawyer evaluations, peer review from leading attorneys in their field and review of additional information provided by law firms as part of the formal submission process. Results were combined into an overall “Best Law Firms” score for each firm.

Monday, November 17, 2014

97733572In two substantially identical private letter rulings, PLR 201423009 (released 6/6/2014) and PLR 201426005 (released 6/27/2014), the taxpayers requested guidance as to the impact of a sale of a survivor life policy from a grantor trust where both insureds are the grantors to a grantor trust where only one of the insureds is the grantor.

The proceeds of a life insurance policy are free from income taxation in the hands of the recipient after the death of the insured(s), unless during the life of the insured(s) there was a transfer of an interest in the policy for valuable consideration. However, the transfer for value rule does not apply in two circumstances set out in § 101(a)(2)(A) and (B).

1. As provided in § 101(a)(2)(A), the transfer for value rule will not apply where the basis in the policy for purposes of determining gain or loss in the hands of the transferee is the same as the basis in the policy for purposes of determining gain or loss in the hands of the transferor. (more…)

Wednesday, November 12, 2014

513104781Just as Mr. Dabney learned in our prior post, Dennis Bohner learned about the Plan Document Rule in Bohner v. Commissioner. Here Bohner participated in the Civil Service Retirement System as a government employee. When he retired, he received correspondence that he could increase the amount of his retirement annuity if he sent the plan administrator $17,832, which he did.

However, since Bohner did not have that cash available in any other account, he withdrew $5,000 from his IRA and borrowed the balance of the funds to make that payment. He then withdrew an additional amount from his IRA to pay back the borrowed funds. Like Dabney, Bohner ignored the Form 1099-R and did not report these withdrawals on his income tax return and treated them as rollovers from his IRA to his qualified plan. The IRS did not agree that these were rollover contributions and assessed a deficiency. (more…)

Friday, November 7, 2014

81178323The provisions of IRC § 408 do permit investment of IRA assets in any kind of asset other than those specifically prohibited, such as life insurance and collectibles. Therefore, it was somewhat reasonable for Guy Dabney to conclude that he could invest his IRA account assets in real estate. However, the Tax Court in Dabney v. Commissioner took Mr. Dabney to task for failing to follow the terms of the IRA Account Agreement that governed his IRA.

In this case, Dabney wanted to use his IRA assets to purchase a piece of undeveloped land in Utah that he considered to be priced below its fair market value. So he did what a lot of us do when we want to learn something new—he went to the Internet. Based on his Internet research, Dabney concluded that IRAs were permitted to invest in real property.

Dabney was smart enough to know that he should delve further in his research than just the Internet. Next, he contacted his CPA, who told him that he didn’t have any training in retirement account rules, but based on Dabney’s research confirmed that he could invest IRA assets in real property.

Here’s where Dabney went wrong, however. (more…)

Tuesday, November 4, 2014

180197523There is much confusion about what a trust protector can and cannot do with respect to a trust for which the trust protector is serving. First and foremost, the trust protector’s powers provided by state statute are often limited to the powers authorized in the trust instrument, as reflected by the Court in Schwartz v. Wellin, 2014 WL 1572767 (D.S.C., April 17, 2014).

Keith Wellin created the Wellin Family 2009 Irrevocable Trust (“Trust”), a dynasty trust for the benefit of his three children and their respective lineal descendants, with his children and the South Dakota Trust Company as the Trustees. After creating this Trust, Milton sold his interest in the Friendship Partners LP (“FLP”) to the Trust, taking back a promissory note for $50 Million. Apparently in 2013, a dispute arose between Keith and his children, when his daughter, Cynthia, as manager of the LLC that was the general partner of the FLP, proposed to sell all of the assets of the FLP, liquidate the FLP, set aside $50 Million to pay the promissory note and distribute the remaining $95 Million to the three children.

In order to prevent such actions, Keith appointed Schwartz as the Trust Protector. The same day, Schwartz amended the Trust to give the trust protector “the power to represent the Trust with respect to any litigation brought by or against the Trust if any Trustee is a party to such litigation”, and “to prosecute or defend such litigation for the protection of trust assets” (“Litigation Provision”). Schwartz also immediately removed the corporate trustee, and the individual Trustees completed the sales and distributions as proposed. The individual Trustees believed their actions were justified to avoid a $40 Million tax liability that would be incurred when Keith turned off the Trust’s grantor trust status. (more…)

Thursday, October 30, 2014

The IRS has released inflation-adjusted numbers for several estate and gift transfer tax items for 2015. The following items are included within this release:

• The “unified credit” or lifetime gift tax and estate tax exclusion will increase from $5,340,000 to $5,430,000 in 2015.

• The generation-skipping transfer tax exemption will also increase from $5,340,000 to $5,430,000 in 2015.

• The gift tax annual exclusion will not increase for 2015 and remains at $14,000.

• The gift tax annual exclusion for gifts to non-citizens spouses will increase from $145,000 to $147,000 for 2015.

Additional information on these and other inflation-adjusted numbers for 2015 can be found in Revenue Procedure 2014-61.

Thursday, October 30, 2014

82980840In the case, In re Indenture of Trust dated January 13, 1964, the Settlor’s grandson Milton learned that, just like on the playground, there are no take backs, even when the trust for his benefit contained a spendthrift provision that prohibited voluntary and involuntary transfer of his interest. As the blog, Dumb Little Man Tips for Life, describes the rule, “Once you give something, you can’t ask for it back. Whether it’s a physical gift, a gift of money, or a gift of time, asking for a takeback is pointless. It shows bad faith and makes you untrustworthy.”

While it may seem counter-intuitive to the purpose of a spendthrift provision, in certain circumstances, it may be desirable for a beneficiary of a spendthrift trust to make an assignment of his or her interest in the trust to accomplish other estate planning goals.

The trust at issue was created for the benefit of the Settlor’s three grandchildren, Milton, Steven and Carrie, and included a spendthrift provision prohibiting voluntary and involuntary transfer of a beneficiary’s interest in the trust. In 2000, Milton assigned his entire interest in the trust to his siblings, as trustees of a continuing trust for the benefit of their children, and the trustee distributed $75,000 to Milton in return for this assignment. (more…)

Wednesday, October 22, 2014

The 7520 rate for November is holding steady at 2.2%.

The November 2014 Applicable Federal Interest Rates can be found here.