Thursday, May 30, 2013

The U.S. Tax Court recently amended Tax Court Rule 70(c)(4). It now specifically recognizes that the Limitations on Discovery set forth in Tax Court Rule 70(c)(3) does apply to draft reports of any expert witness in a Tax Court case.

Whenever a taxpayer or the government expects to call an expert witness in a Tax Court case, the direct testimony of the expert witness is to be submitted to the Tax Court in written form. This change in Rule 70 now expressly treats the work preliminary to the final report that is filed with the court as having been prepared in anticipation of litigation. Consequently, the drafts of that final report is not subject to discovery.

In addition to this change in Rule 70, the new Rule 70 protects from discovery communication with a non-testifying expert witness, unless the party seeking such discovery can establish “exceptional circumstances” such that it is not practical for the party seeking the discovery to obtain such information.

Further, Rule 70 now protects from discovery communication between a party’s counsel and the testifying expert, except to the extent the communications deal with (1) the expert’s compensation, (2) the facts and data provided by counsel that the expert used to form his opinion, and (3) assumptions provided by counsel that the expert relied on in forming his opinion.

It will be important to keep these new rules in mind when dealing with the expert witness.

Friday, May 24, 2013


Originally posted on our sister blog,

Previously, I blogged about the low interest rate environment and how that results in a great opportunity for a donor with charitable objectives who also wishes to pass assets to the next generation free of federal estate or generation-skipping transfer tax. To read that posting about Charitable Lead Trusts, click here. Well, rates have continued to stay at historic lows.  The IRS just announced the rates available for June of 1.2%.  These low rates mean that it’s easier then ever for these trusts to be productive to pass even more cash to lower generations free of transfer tax. So, if you think that the trust’s investment strategy could beat the IRS-decreed rate of 1.2%, while also benefiting charity, June is the time.

For an overview regarding the basics of lifetime CLTs, see A Primer on Lifetime Charitable Lead Trusts.

Thursday, May 23, 2013

In the past, the Service has indicated informally that an affirmative direction in a trust that is named as the beneficiary of an IRA would not be respected to limit the consideration of other beneficiaries named in other sections of the trust, but that a negative direction would work. Thus, if the trust created Trust A, Trust B and Trust C after the settlor’s death, and specified that the IRA was to be an asset of Trust A, the Service still required a review of all the beneficiaries of Trust B and Trust C, but if the trust specified that the IRA could not be used to fund Trust B or Trust C, the beneficiaries of those trusts would not be considered in determining whether the trust was a “see through” trust and the measuring life for purposes of the required minimum distributions. However, in PLR 201241017, the Service appears to respect just such an affirmative direction.

In this private letter ruling, the decedent named his revocable trust, Trust T, as beneficiary of his IRA. After the decedent’s death, the trustee set up an inherited IRA in the decedent’s name for the benefit of Trust T. Under the provisions of Trust T, the trust was divided into “IRA Trust Property” and “Remaining Trust Property”, with the IRA Trust Property directed to be distributed to nine individuals. (more…)

Tuesday, May 21, 2013

Originally posted on our sister blog,

Last week, the United States Supreme Court issued its opinion in Bullock v. BankChampaign, N.A., which addressed the circumstances in which a breach of fiduciary duty judgment can be discharged in bankruptcy proceedings.  Specifically, the Court resolved a deeply fractured Circuit split on the scope of the term “defalcation” within Section 523(a)(4) of the Federal Bankruptcy Code.  That Section of the Bankruptcy Code provides that an individual cannot obtain bankruptcy discharge “for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny.”  For years, the lower courts had struggled with what, exactly, “defalcation” means.  Wonder no longer because the Supreme Court has defined it. (more…)

Friday, May 17, 2013

The 7520 rate for June 2013 remains at 1.20%.

The Federal Interest Rates for June can be found here.

Thursday, May 16, 2013

decanterEffective January 1, 2013, Illinois statute authorizes “decanting” of irrevocable trusts. What is decanting, you ask? Isn’t that something you do with a bottle of wine? Yes, it is, and just like you decant wine from one bottle into a new container to remove sediment and to allow the wine to breathe, when you decant a trust, you pour the trust assets from one trust into another trust, allowing flexibility in the terms of an otherwise irrevocable trust.

Illinois recently enacted a new Section 16.4 of the Trust and Trustees Act, entitled “Distribution of trust principal in further trust” (the “Decanting Statute”). The Decanting Statute allows the trustees of an irrevocable trust (the first trust), acting pursuant to their fiduciary duty (and assuming certain conditions are met), to distribute all or part of the existing trust to a different trust (the second trust).

Decanting When a Trustee Has Absolute Discretion

If the trustees have “absolute discretion” over the first trust, they are given broad discretion over the distribution to the new trust. (more…)

Monday, May 13, 2013


Almost invariably, settlors give their trustees broad powers regarding trust property.  Often these broad powers include the power to convey and encumber trust property and the power to loan trust property.  But, sometimes, the settlor also gives the trustee specific instructions with respect to specific trust property.  In Hamel v. Hamel, the Kansas Supreme Court interpreted a trust instrument that gave the trustee broad general powers, but also specific directions regarding a specific piece of real property, and examined the interplay between the two provisions.

Arthur L. Hamel’s trust instrument gave the trustee broad authorization to control and administer trust property, including “the power to do all acts that might legally be done by an individual in absolute ownership and control of the property” and provided the trustee with “the power to lend money to . . . any beneficiary under [the] Trust . . . as may be agreed upon between my Trustee and such parties, provided, however, that any such loan shall be adequately secured and shall bear a reasonable rate of interest.”  The trust also granted to the trustee “any power my Trustee needs to administer my Trust Estate, which is not hereinafter listed.”  This same paragraph provided the trustee with “the power respecting property in [the] Trust Estate that an absolute owner of such property would have.”


Friday, May 10, 2013

Partner John Barrie, resident in our DC and NY offices, co-authored a chapter on appeals of tax decisions in the 8th Circuit Appellate Practice Manual. The chapter discusses the procedures that apply to review of cases on appeal from the United States Tax Court. It includes an overview of the Tax Court and a discussion of the procedures for seeking review of its decisions. Other topics include special procedures governing venue for appeal, notice of appeal, response to notice of appeal, record on appeal, stay pending appeal and standards of review on appeal.

Thursday, May 9, 2013

The U.S. District Court in Minnesota, in Hall v. Metropolitan Life Insurance Company, D. Minn., No 0:11-cv-01269-DWF-LIB, 1/15/13, declined to give any effect to the fill in the blank form Will completed at the direction of Dennis Hall (the “Decedent”) by the Decedent’s daughter that attempted to dispose of the proceeds of the group term life insurance policy provided through the Decedent’s employment.

The Decedent had designated one of his four children as the beneficiary of his employer-provided life insurance policy in 1991. He then married Jane in 2001, but did not change the beneficiary of this life insurance policy. In early 2010, Decedent was diagnosed with cancer. Sometime after being diagnosed with cancer, Decedent notified his employer that he wanted to change his beneficiary, and his employer-provided him with a change of beneficiary form, but Decedent never returned the form to his employer. (more…)

Thursday, May 2, 2013

The general rule is that an IRA is exempt from the claims of creditors. Indeed, the Federal Bankruptcy Code provides in Sections 522(b)(3)(C) and 522(d)(12) that a retirement plan, including an IRA and a Roth IRA, is an exempt asset in bankruptcy. However in Green v. Pershing L.L.C., N.D. Okla., No. 4:12-cv-00296-CVE-FHM, 10/22/12, the U.S. District Court for the Northern District of Oklahoma ruled that the plan sponsor was not liable for turning over Mr. Green’s entire IRA to the IRS in response to the Notice of Levy and demand the IRS served on Pershing L.L.C. (“Pershing”).

In this case, the IRS sent a Notice of Levy to Pershing attaching the IRA as property of Mark Green (“Green”) to satisfy the taxes owed by Green. When Pershing received the Notice of Levy, it sent a letter to Green asking that he notify the broker as to how he was planning to satisfy his tax obligation and letting Green know that they were restricting his ability to withdraw funds from the account until the tax obligation was paid. Green apparently took no action and did not pay the tax obligation. Consequently, 4 months later, the IRS sent a Final Demand for Payment to Pershing, demanding that Pershing turn over the funds in the account and notifying Pershing that if they failed to do so, Pershing would be liable for penalties under IRC § 6332. Pershing again notified Green, and Green’s response was to demand that Pershing not forward any funds from his IRA to the IRS. Two weeks later, Pershing sent the IRS all of the funds in Green’s IRA, and notified Green that it had done so. (more…)