With research and drafting assistance provided by our extern from Washington University School of Law, Rachael Lynch.
As we discussed in our prior post, Review of Income Tax Deduction Rules for Charitable Gifts, an income tax deduction up to fifty percent (50%) of the taxpayer’s adjusted gross income is allowed for gifts to public charities of non-capital gain property and up to thirty percent (30%) for gifts of capital gain property. These same contribution limits apply to gifts to supporting organizations.
What is a supporting organization? Supporting organizations are described in Section 509(a)(3) of the Internal Revenue Code as charities that carry out their exempt purposes by supporting other public charities. A supporting organization generally warrants public charity status because it has a relationship with its supported organization sufficient to ensure that the supported organization is effectively supervising or paying particular attention to the operations of the supporting organization. (more…)
With drafting assistance provided by our extern from Washington University School of Law, Rachael Lynch.
According to the Columbia Daily Tribune, effective immediately, same-sex marriages will be recognized in Boone County, Missouri for purposes of collecting unclaimed property. This means that same-sex spouses legally married in a state other than Missouri (Missouri’s Constitution currently bans same-sex marriage) may have a right to some of the almost $68,000 held by the county. Boone County Treasurer, Nicole Galloway, announced that this transition was merely an extension of the full-faith and credit that her office gives to legal documents from every state (and follows Missouri Governor Jay Nixon’s executive order that Missouri would recognize jointly filed income tax returns from legally-married same sex couples who file jointly for federal purposes).
Originally posted on bryancavefiduciarylitigation.com
In In re Alice J. Welch Revocable Living Trust (Vandenbrook v. Welch), a Wisconsin appellate court was required to interpret a provision in a trust instrument on how trust assets would be valued for purposes of distribution. The trust instrument provided different distribution schemes, depending on whether a certain value exceeded $5 million. So, the first question for the court was whether the value of these assets exceeded $5 million. Let’s take a look at the differing interpretations and why trust language can’t be read in isolation.
One party, Jon Welch, claimed that the $5 million cut-off point for distributing the estate was the “adjusted gross estate as finally determined for federal tax purposes.” He claimed that the trial court erred in deciding that the value was less than $5 million because it removed certain assets and loans from the total estate value. He further argued that, under federal tax law, those items were included in the estate’s value, which would make the estate exceed $5 million.
The trustee, on the other hand, claimed that Welch’s reading of the trust instrument was incomplete. The trustee claimed that the $5 million cut-off was not set directly at the final adjusted gross value of the estate as determined for tax purposes. Instead, the trust instrument contained provisions first disposing of the decedent’s tangible assets, and then also forgiving loans that the decedent made to some beneficiaries. Then, for purposes of distributing the remainder of the estate, the distribution scheme refers to the first $5 million of value above and beyond the value of the tangible property and loans. In other words, the calculation to be made was adjusted gross value, minus the tangible property and forgiven loans. Thus, while the gross value of the estate might exceed $5 million, the value for distribution purposes would be under $5 million. (more…)
Originally posted on bryancavefiduciarylitigation.com
When it comes to will execution, sometimes the belt and suspenders approach may be well advised. But, other times, less is more. Like, perhaps, when it comes to the number of witnesses. When state law requires that you only need a set number of witnesses to a will, the Court of Appeals of Tennessee’s opinion in the will contest case of Estate of Woolverton shows us the potential problems that may arise when you bring in extra, unnecessary witnesses.
In Tennessee, the execution of a will requires only two witnesses. Three witnesses, however, signed the will of Dennis R. Woolverton. At a hearing on the will contest, only two of the three witnesses and a notary public testified about the signatures on the purported will. The trial court held that the document was the decedent’s validly executed will and admitted it to probate. (more…)
Maintaining property in a family for generations to come can be tricky. As the parties in Hoefer v. Musser found out, the intention of a decedent speaks volumes and can overcome procedural deficiencies such as an improper recording of a warranty deed. In Hoefer, the Missouri Court of Appeals (Southern Division) recently held in favor of a decedent’s wishes to keep a farm in his family for “generations and generations.” See Hoefer v. Musser, No. SD 32576, 2013 WL 6800823 (Mo. App. S.D. Dec. 23, 2013).
In Hoefer, the decedent’s nephew (Hoefer) was appointed as successor trustee to decedent’s irrevocable trust—the “Vineyard Dwain Hoefer Trust,” created during Hoefer’s lifetime. Musser, the decedent’s niece, was appointed as personal representative to Hoefer’s estate. The trust’s only asset was the decedent’s farm, which he intended to keep in his family for as long as possible by granting the farm to Hoefer until his death, then to Matthew Hoefer until his death, then to Matthew Hoefer’s living children or lawful heirs.
After executing the trust documents and warranty deed transferring ownership of the farm to the trust, the decedent’s attorney gave him the original copies of the documents and instructed him to record both the trust and warranty deed. Approximately three months after execution of the trust, Musser called Hoefer to indicate that the trust had not yet been recorded. Hoefer recorded the trust shortly thereafter.
Following Hoefer’s recording of the trust, the farm house burned down–resulting in a total loss of the property. Less than a year after the farm’s destruction, Hoefer, with the decedent’s permission, built a house on the farm. Not long after Hoefer built the house on the farm, the decedent passed away. Musser, in her capacity as personal representative of the decedent’s estate, instituted a probate action and listed the farm land as an asset of the estate.
Hoefer moved to quiet title, or in the alternative, unjust enrichment for the cost of the improvements done on the farm. Hoefer argued that the decedent had let him build the home on the farm because it was Hoefer’s property. Musser argued that the decedent never recorded the warranty deed, and therefore the transfer of the farm as an asset to the trust never occurred.
After a bench trial, the trial court ruled in favor of Hoefer, finding that the intentions of the decedent pointed his desire to keep the farm in his family. Hoefer provided evidence and witness testimony regarding the decedent’s actions and intentions. For example, witnesses testified that decedent had offered the farm to other members of his family and even Musser herself, who all declined, before the decedent granted the property to Hoefer.
Although the decedent’s intentions were a substantial focus of the trial court’s ruling, the crux of the case came down to a procedural aspect: the decedent’s failure to record the warranty deed transferring the farm to the trust. Musser presented evidence that although she was present for the execution of the trust, she did not see the warranty deed in the papers given to the decedent for him to record. Furthermore, the original warranty deed had been given to the decedent with instructions on how to record, and was presumed to have been lost in the fire that destroyed the farm. The parties did not contest that the warranty deed had in fact, never been recorded.
After the trial court ruled in Hoefer’s favor, Musser appealed, arguing that the farm was never properly transferred to the trust in that the deed delivering title to the trust was not accepted by the grantee nor recorded. The Missouri Court of appeals was bound to uphold the trial court’s ruling unless there existed no substantial evidence to support judgment, the judgment was against the weight of the evidence, or the trial court erroneously declared or applied the law.
A deed must be delivered for it to operate as a transfer of ownership of land because the delivery gives the instrument force and effect. Rhodes v. Hunt, 913 S.W.2d 894, 900 (Mo. App. S.D. 1995). Here, the burden of showing that the deed was not delivered was upon Musser, as the party contesting its delivery. The Missouri Court of Appeals looked at case law precedent holding that although recording creates a presumption of delivery, it does not operate as delivery of the deed. In fact, delivery may be made even though the grantor remained in possession of the deed. O’Mohundro v. Mattingly, 353 S.W.2D 786, 792 (Mo. 1962).
The court also looked to precedent that held that the failure to record a deed conveying title to property to a trust does not affect the validity of the trust. Newtom v. Winsatt, 791 S.2.2d 823, 829 (Mo.App.S.D. 1990). Under Newton, the Court found substantial evidence for the trial court to find an effective delivery and acceptance of the warranty deed.
Finding that it was undisputed that the decedent intended to keep the farm in his family, and that he intended to convey the farm by warranty deed to the trust, the Court of Appeals upheld the trial court’s decision. In doing so, the Court deferred to the trial court’s credibility determinations, and the weight given by the trial court to witness testimony.
Although certain technical requirements were lacking in Hoefer’s case, the overwhelming evidence of decedent’s intentions to maintain the farm in his family for “generations and generations” ultimately prevailed.
The use by the founders of Facebook and Twitter of grantor retained annuity trusts (“GRATs”) to reduce estate taxes has been widely publicized. What many founders and entrepreneurs may not realize, however, is that the same techniques may be appropriate for companies with more modest growth potential and that considering the use of a GRAT at an early stage may be advantageous. GRATs have been discussed previously on the blog here.
In essence, a GRAT is a method to “freeze” the value of an asset at a particular point in time so that the future appreciation of that asset’s value escapes estate tax. A grantor contributes assets to a GRAT in exchange for the right to receive fixed annual payments from the GRAT for a number of years (not for life). The amount of each annual payment includes a return of a portion of the principal amount contributed plus an amount of interest (at a minimum rate required by the Internal Revenue Service). If the sum of the annual payments from the GRAT equal the original principal (valued at the time of the transfer to the GRAT) plus the aforementioned minimum interest, the GRAT is referred to as a “Zeroed Out” GRAT and there is no gift made when the asset is transferred to the GRAT. After the final annual payment is made to the grantor, all assets remaining in the GRAT are transferable to the beneficiaries of the GRAT (children, not grandchildren) without the payment of gift taxes and are not considered part of the grantor’s taxable estate (if he or she survives the term of the GRAT). (more…)
The 7520 rate for March 2014 has decreased to 2.2%.
The March 2014 Applicable Federal Interest Rates can be found here.
Originally posted on bryancavefiduciarylitigation.com
When a trust instrument sets a time for termination of the trust, it terminates, right? Well, maybe not. According to the Kansas Court of Appeals in Lindholm v. Melland (2014 WL 278774) (unpublished), under certain circumstances a trust may continue in existence beyond a termination event. What happened here to keep the Francis G. Melland Trust going over a decade after it was supposed to terminate?
Francis G. Melland created an irrevocable trust for the benefit of his children, Hugh, Theodore, and Jenny. Francis’ wife, Sandra, was the original trustee, but she was later replaced by Hugh. By the terms of the trust instrument, the trust was to terminate when the youngest beneficiary reached the age of 40. That happened in 2002. But, in 2002, the trust was neither dissolved nor its assets distributed. Then, Hugh became the successor trustee in 2005 – three years after the trust was supposed to have terminated. And, the trust continued to function and enter into business dealings after 2002. (more…)
Many people in their 20s and 30s are more interested in checking off a bucket list than addressing important issues related to estate planning. Young professionals are already quite busy juggling all sorts of concerns – new jobs, new families, new home, adjusting to a new stage of life, but few include estate planning on this list. Despite the popular mantra from Ke$ha to “live like you’re going to die young”, few young adults actually anticipate the possibility of doing so. The following are a few simple steps to enable you to ease the burden on loved ones before life becomes even more complicated.
1. Who do you want to receive your stuff? Put it in writing.
Estate planning does not just involve mass amounts of money – we all have assets in some form, and they need to go somewhere when we die. Beyond real property, you have a lot of “stuff” – various bank accounts, furniture, life insurance policies, vehicles, hobby gear, jewelry, clothing, retirement accounts, pets… Without a valid will, all of your “stuff” will likely pass to the designated person under your state’s intestacy statute. If you don’t know who that may be, it’s worth finding out. For most unmarried individuals, their “stuff” will likely go to their parents, who probably won’t appreciate your snowboard as much as a good friend. Maybe you know someone could use your kitchen table, someone who your dog gets super excited to see when he/she comes over, or a roommate that you help accessorize every morning with your jewelry? Did you and brother draw straws over a piece of furniture you inherited? Take the opportunity to be thoughtful and generous towards others in your life by writing them into your will. (more…)
Recent news stories such as that of Marlise Muñoz in Texas and auto racing star Michael Schumacher serve as a reminder of the importance of discussing your wishes with others regarding end-of-life care. Select someone you trust to make those decisions on your behalf in case you become incapacitated, and sign the documents required to empower that person to act for you if necessary.
Most Americans say they want to die at home, surrounded by family and friends. But data from Medicare shows only about a third of elderly patients die this way. Taking a few small steps now can go a long way toward ensuring that your wishes are respected when the time comes.
You can start by talking to your family, your friends, and your doctors about your wishes in terms of death-delaying care in the event you are unable to make those decisions for yourself. Do you want “extraordinary” measures taken to prolong your life, such as major surgery or a mechanical respirator? What about artificial nutrition and hydration? Under what conditions? Is the cost of procedures to be taken into consideration? Do you wish to remain at home rather than be transferred to a hospital or nursing facility? Do you want to be an organ donor? Do you want to be buried or cremated? For help getting the conversation started, visit deathoverdinner.org. The website was launched last year for precisely this purpose. It provides invitation language, reading materials, conversation prompts, and hosting tips, among other things.
After you’ve shared your wishes with others, it’s important to select the person (or persons) you would like to have act on your behalf, if necessary. Typically referred to as an “agent,” a “health care surrogate,” or an “attorney-in-fact for health care decisions,” this person is authorized under an advance directive or a healthcare power of attorney to communicate with your physicians and make medical decisions for you if you are incapacitated. This should be someone you trust and who knows your wishes regarding medical treatment and end-of-life care and will be able to make decisions for you in accordance with those wishes. Typically you would designate only one person at a time to serve as your attorney-in-fact for health care decisions. However, you may be able to designate multiple individuals as your attorneys-in-fact for health care decisions. If more than one person is designated – my three children acting jointly, for example – consider whether any one or more of the persons designated may act alone, or if you want decisions made by majority rule. And be sure to appoint one or more successor attorney(s)-in-fact for health care decisions, to serve if your first choice is unable or unwilling to serve.
Put it in writing. According to the New York Times, only about 47% of Americans over age 40 have advance directives or living wills. State law governs what you will need in order to authorize another person to make medical decisions for you. Depending on your state, you may need what’s called an advance directive, a living will, and/or a healthcare power of attorney. A good resource for state forms and other information related to end-of-life issues is caringinfo.org. For questions regarding how to complete forms, you should consult your attorney.
Revisit and update your documents periodically. Have your wishes regarding medical treatment or end-of-life issues changed? Are the people you designated as your attorneys-in-fact and successors still aware of your wishes and able to act on your behalf? Have you moved to a new state? State requirements differ, so it’s important to sign documents that conform to your new home state’s specifications when you move.
Not surprisingly, doctors are more likely than the rest of us to have advance directives. This is one easy lesson in medicine that doesn’t require an M.D.