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WHAT DO YOU MEAN THE TRUST IS NOT ASSET PROTECTED?

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In a recent bankruptcy case, Richard Lewiston unsuccessfully attempted to shelter his assets in the Lois and Richard Lewiston Living Trust (the “Trust”) from inclusion in his bankruptcy estate based on the Trust’s spendthrift provision. Here, the bankruptcy court looked to Michigan state law in applying the provisions of the Bankruptcy Code and concluded the Trust property was part of Lewiston’s bankruptcy estate.

A Mistake, Yes, But Fixable

A Mistake, Yes, But Fixable

October 19, 2015

Authored by: Kathy Sherby and Stephanie Moll

With drafting assistance from our Washington University School of Law extern, Alexander Fersa.

ThinkstockPhotos-488003222PLR 201536002 is a reminder that the Treasury Regs (specifically Treas. Reg. § 301.9100-3) offer relief to correct certain failures to make regulatory elections. Here, the decedent’s trust created Trust A and Trust B. Trust B provided for all income to be paid to the surviving spouse, so that Trust B otherwise qualified for the qualified terminable interest property (QTIP) election (if you need a refresher on what type of trusts qualify for the gift and estate tax marital deduction, click here). However, the attorney who prepared and timely filed the estate tax return failed to make the QTIP election for Trust B.

A QTIP election is to be made on the estate tax return and once made,

In California, Unambiguous Wills May Now Be Reformed

With drafting assistance from our Washington University School of Law extern, Alexander Fersa.

It seems the California Supreme Court agrees with Cole Porter that “times have changed.”

Abrogating 50 years of binding case law, in In re estate of Duke, the California Supreme Court elected to treat wills the same as trusts are treated under the Uniform Trust Code by allowing courts to look to extrinsic evidence when determining the intent of the testator. The Court concluded that an unambiguous will may be reformed if clear and convincing evidence establishes (1) that the will contains a mistake in the expression of the testator’s intent at the time the will was drafted and (2) the testator’s actual specific intent at the time the will was drafted.

The Court determined that there is no justification for a categorical bar on reformation of unambiguous wills so long as the reformation is supported by

Nontaxable IRA Transfers to Eligible Charities Extended – Less Than Two Weeks Left!

On Dec. 16, 2014, Congress passed the “Tax Increase Prevention Act of 2014, (“TIPA”, or “the Act”), which the President has now signed into law. The Act extends a host of individual tax provisions, including non-taxable IRA transfers to eligible charities.

Taxpayers who are age 70 ½ or older can make tax-free direct distributions to a charity from an Individual Retirement Account (IRA) of up to $100,000 per year.  These distributions aren’t subject to the charitable contribution percentage limits since they are neither included in gross income nor claimed as a deduction on the taxpayer’s return.  Under pre-Act law, these rules didn’t apply to distributions made in tax years beginning after Dec. 31, 2013.  TIPA retroactively extends this provision for one year so that it’s available for charitable IRA transfers made in tax years beginning before Jan. 1, 2015.  Therefore, there are less than two weeks to complete a charitable IRA

Good Faith & Probable Cause Defeat Forfeiture Under No Contest Clause

177855670When a will contains a so-called no contest clause or in terrorem clause that would cause a beneficiary to lose his or her interest in the deceased’s estate in the event the beneficiary contests the validity of the will, the court is often called upon to determine whether to enforce the forfeiture against the beneficiary if he or she loses the will contest. Just such an issue faced the Mississippi Supreme Court in Parker v. Benoist.

In this case, Bronwyn Benoist Parker (“Parker”) filed a will contest, contesting the validity of her father’s 2010 will. The 2010 will changed the disposition of the father’s estate from an equal division between Parker and her brother, William Benoist (“Benoist”), to a disposition where Benoist received a significantly greater portion of their father’s estate and Parker

IRS Rules on Estate Tax Treatment of Joint Trust Created in Non-Community Property State

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

Transfer for Value Rules on the Sale of a Survivor Life Policy

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

They Still Haven’t Learned…The Terms of the Plan Control

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

When Will They Learn? The Terms of the Plan Control

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

Kids Are Going to Do What Kids Are Going to Do…and the Trust Protector May Not Have the Power to Stop Them

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

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