Thursday, May 31, 2012

As we told you a couple of weeks ago, the Supreme Court issued a decision in Astrue v. Capato, ruling that Robert Capato’s posthumously-born twins were not entitled to receive Social Security survivors benefits as his children. Now that you’ve had a chance to read the case, we thought we’d delve a little more deeply into the Court’s ruling.

Karen Capato gave birth to twins eighteen months after her husband, Robert Capato died of esophageal cancer. Prior to undergoing treatment, Robert froze some of his sperm in case the chemotherapy rendered him sterile. Despite aggressive treatment, Robert died in March 2002, a resident of Florida. Shortly after his death, Karen began in vitro fertilization using Robert’s sperm and conceived, giving birth to twins in September 2003.

Karen attempted to claim survivors insurance benefits on behalf of the twins. The Social Security Administration (“SSA”) denied her application. (more…)

Monday, May 21, 2012

The U.S. Supreme Court today ruled in the case of Astrue v. Capato, No. 11-159, holding that children conceived after a parent’s death through the use of in vitro fertilization are not automatically entitled to survivor benefits under the Social Security law, depending, in part, on whether applicable state law would allow posthumously conceived children to inherit from a parent’s intestate estate (that is, who would inherit under state law if the parent does not have a Will).

New reproductive technology is changing the landscape of determining who qualifies as a child or descendant under the laws of inheritance.  For a more detailed explanation about how this evolving technology could affect your estate planning, see our blog post from September 6, 2011, How Reproductive Technology Can Affect Your Estate Plan in Unforeseen Ways.

Friday, May 18, 2012

The 7520 rate for June 2012 dropped to 1.2%.

The June 2012 Applicable Federal Rates can be found here.

Wednesday, May 16, 2012

As Facebook prepares to go public on Friday, many news articles, such as this Forbes article, have discussed the fact that Facebook co-founders Mark Zuckerberg and Dustin Moskovitz have funded annuity trusts, most likely Grantor Retained Annuity Trusts (GRATs), with Facebook stock.  This stock is set to increase exponentially in value with the IPO takes place on May 18.  If these annuity trusts are, in fact, GRATs, they may be transferring millions of dollars worth of Facebook stock to their beneficiaries, potentially free of any transfer tax.

For more information on the benefits of planning with Grantor Retained Annuity Trusts, see our September post by Justin Flach and Doug Stanley, GRAT Planning in a Down Market.

Friday, May 4, 2012

McLean V. Ponder, Cause No 36V010500665-01, Circuit Court of Butler County, Missouri, is a case that has been followed closely by practitioners across the country as the first case involving a claim filed by a trust beneficiary against the trust’s “trust protector.” After the plaintiff, Robert McLean, the trust beneficiary, had fully presented all of his evidence against Michael Ponder, the trust protector, during the jury trial last October, the trial court granted Ponder’s motion for directed verdict, taking the case away from the jury. Apparently, McLean had failed to prove the allegations in his petition that had previously garnered so much press as “bad facts” that had previously enabled the beneficiary to win a reversal of the summary judgment in favor of the trust protector and a remand to the trial court for trial.

This case involved a (d)(4)(a) type special needs trust created for Robert McLean with the settlement proceeds from his personal injury case, to protect those funds from having to be used to repay Medicaid for his medical benefits obtained after an accident rendered him a quadriplegic. Merrill Lynch Trust Company and David Potashnick were appointed to serve as the initial trustees, but both resigned within a month or so after the creation of the trust. Michael Ponder, who had been appointed as the “trust protector” for the trust with the authority to remove and replace the trustees, appointed Patrick Davis as successor trustee. Davis had represented McLean in the past and had referred McLean to Ponder to handle the personal injury case. Within 2 years after being appointed, Davis and Ponder resigned and a new trustee and trust protector were appointed. That newly appointed successor trustee, having served for less than a year, resigned and McLean’s mother was appointed to serve as successor trustee. (more…)

Tuesday, May 1, 2012

Whether post-death creditor protection is available to inherited IRAs under the 2005 Bankruptcy Act has been the subject of a number of cases decided in the last several years. The argument made by bankruptcy trustees is that, on the death of the IRA owner, the IRA ceases to be “retirement funds” as it is not the retirement funds of the beneficiary. Consequently, the bankruptcy trustees argue that the inherited IRA ceases to have the protection afforded to IRAs under the Bankruptcy Code.

In Re Stephenson, U.S. District Court, E.D. Mich., No. 4:11-cv-10848-MAG-MAR, December 12, 2011 is the latest in a long line of cases that have been decided in the last several years under the 2005 Bankruptcy Code. While the Bankruptcy Court in this case agreed with the Trustee that the inherited IRA was not exempt from the bankrupts’ estate, the District Court did not agree.

In this case, Janet Stephenson had inherited an IRA from her mother two years before filing bankruptcy. The Stephensons claimed an exemption for the IRA under the Federal Exemptions in § 552(d)(12), and the Trustee objected. In reviewing this bankruptcy case, the District Court first reiterated the two-prong test used in each of the cases previously decided under the 2005 Bankruptcy Code, whether the funds were “retirement funds” and whether the funds are exempt from taxation.

The Court reviewed all of the cases decided under the 2005 Bankruptcy Code: (more…)