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.”
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…)
Today and tomorrow, the U.S. Supreme Court will be hearing oral arguments in two cases that could change the scope of marriage in the United States. Today, the Court is hearing oral arguments in Hollingsworth v. Perry, and tomorrow, the Court will be hearing oral arguments in the case of United States v. Windsor.
The cases contain a myriad of questions, but if the Court decides to get past the procedural questions and issue rulings on the substance, significant changes could be in store regarding the Defense of Marriage Act (“DOMA”) and the federal treatment of same-sex marriages. For a discussion of all of the various constitutional issues the Court may address in these cases, see Erwin Chemerinsky’s article, “Chemerinsky: Same-sex marriage battle goes before the Supreme Court“. (more…)
Time to get into the weeds on the scope of a trustee‘s powers. There are basically two sources of power for a trustee – the trust instrument and state law. Where those two intersect, overlap, conflict, or diverge is where you will likely find the bulk of fiduciary litigation about trustee powers. (more…)
Written with assistance from our Spring Extern Debra Faulkner
When the American Taxpayer Relief Act was enacted in early January, for many Americans, it all but eliminated the concern over the estate and gift taxes by making the $5,000,000 exemption (indexed for inflation) permanent. While the new law provides clarity and a sense of permanency, beware of becoming too complacent: 21 states and the District of Columbia still have estate or inheritance taxes. Two states – Maryland and New Jersey – have both.
The state estate and inheritance tax legislation, much like the federal estate tax legislation, has been notoriously volatile. In 2001, all 50 states had some form of death-time transfer tax, either an estate or an inheritance tax. In 2013, only 21 states have an estate or inheritance tax and in two of those states – Delaware and Tennessee – the taxes are set to expire. The exemption rate, like the questionable persistence of the estate tax itself, is uncertain and subject to constant fluctuation. Illinois, for example, has changed its estate tax exemption three times in as many years. While many states, like Illinois, Maine, and Tennessee, have scheduled exemption increases, Connecticut lowered its estate tax exemption in 2011 from $3,500,000 to $2 million. The current state estate tax exemptions range from $675,000 in New Jersey to $5,250,000 (the federal estate tax exemption) in Delaware, Hawaii, and North Carolina. The corresponding estate tax rates range from less than 1% up to 16%.
Unlike an estate tax, which is levied upon the estate of an individual after death, an inheritance tax is a tax levied upon heirs that inherit property. Inheritance tax rates vary widely based upon the heir’s relationship to the decedent. For example, in Indiana, a spouse or charity is not subject to any tax on inherited property but a friend must pay a 10-15% inheritance tax on the value of property received that exceeds $100. In Maryland, lineal descendants take property free of tax, while property passing to other individuals is subject to a 10% tax. The inheritance tax rates range from 0% for certain classes of heirs (such as spouses) to 20% for non-relatives in some states. Like the estate tax, the inheritance tax changes frequently. Of the six states with the tax, two states – Tennessee and Indiana – have already enacted legislation to phase-out the tax. According to current law, Tennessee will no longer have an inheritance tax in 2016, and Indiana’s tax is set to be repealed entirely in 2022.
While the ever-changing nature of the estate and inheritance taxes undoubtedly concerns residents of the 21 tax-levying states, residents of other states may also be on the hook for these taxes. Property located within an estate tax-levying state is subject to the tax, even if the owner of the property lived and died elsewhere. Similarly, inheritance tax may be owed by heirs who receive property from a decedent who lived in a state with inheritance tax. The perpetual unpredictability of these taxes underscores the importance of regular estate planning reviews.
For more information on state inheritance and estate taxes, see the links below to the applicable statutes.
*Nebraska has inheritance taxes, but unlike other states, the tax is collected at the county level.
When it comes to so-called ‘rejected’ adopted children, many of us are most familiar with the outrage in 2010 when a Tennessee woman sent her adopted son back to Russia on a one-way flight after claiming the 7-year-old had bouts of violence. But what about the inheritance rights of these adopted children? Do they have any? (more…)
It is no secret that when it comes to inheriting money, people have been known to dream up some creative schemes to get rich. Recently, however, an Illinois Appellate Court nixed the idea that marrying a man and persuading him to adopt—at the age of 94—your 50-plus year-old children could be a successful means to that end.
In November, the court in Dixon v. Weitekamp-Diller held that to allow the four adult adoptees, at least one of whom was a grandmother, to inherit under several trusts created to benefit descendants of the settlor would be to give judicial approval to an act of “subterfuge.” Where an adult adoption is undertaken solely to make the adoptee an heir or a beneficiary of a trust, the court ruled, the adoptee will not be permitted to inherit.
At issue in the case were three trusts created by ancestors of William Hughes Diller, Jr. (“Hughes”). Under the terms of each trust, upon the death of Hughes, the trust corpus was to be distributed, in part, to Hughes’ children. If Hughes died without any children, the shares of the trusts for his children would instead be distributed to the children of his two sisters. Hughes had no biological children of his own. At his death, his only purported children were the four daughters of Barbara Weitekamp (“Barbara”), who Hughes married in 2004, when he was 87 years old and she was 71 years old. In 2010, at the age of 94, Hughes adopted Barbara’s daughter Judith, then 55 years old. The next year, he adopted Barbara’s three other daughters, Brenda, Margaret, and Susan, all of whom were also in their 50s. At the time of the latter three adoptions, Hughes was in an assisted living facility. He died just two months after those adoptions were completed.
It is not clear whether the court believed the adoption of four adults at Hughes’ advanced age of 94 was alone sufficient to find that the adoptions were acts of “subterfuge.” (more…)
In 2012, the federal estate and gift tax exemption, which is the amount a person can give in life or pass at death before having to pay estate and gift tax, was $5,120,000 per individual. As the infamous “fiscal cliff” approached, the federal exemption was set to drop back to $1,000,000 per individual on January 1, 2013 if Congress did not pass new tax legislation. At that time, most commentators believed that Congress would compromise by lowering the exemption to $3,500,000, which was part of the Obama Administration’s tax plan.
Based on these assumptions, many clients entered into gifting plans in 2012, the primary goal of which was to use as much of the $5,120,000 exemption, or combined exemption of $10,240,000 for married couples, as possible before it was lost. Many married couples who could not give $10,240,00, transferred assets to a single spouse to allow that spouse to give close to or all of the spouse’s $5,120,000 exemption. This strategy would reduce the couples’ total estate and gift tax exposure if the exemption was reduced.
When someone passes away, usually their next of kin, agent or fiduciary will begin to compile a list of the decedent’s assets. Rarely will such a list include the decedent’s frequent flyer miles. However, depending upon how many miles have been accrued during the decedent’s life, frequent flyer miles can be worth hundreds, maybe even thousands, of dollars. In such cases, heirs or beneficiaries of the decedent’s estate may wish to benefit from the value the decedent has amassed in frequent flyer miles.
Most airlines allow for mileage transfer among the living, but it is usually an expensive task to accomplish, often accompanied by fees and yearly limits. The transferability of frequent flyer miles upon death is no more simple. Susan Stellin, the author of a New York Times article entitled “The Afterlife of Your Frequent Flyer Miles,” stated “I asked six airlines if they allow transfers of frequent flyer miles after a member’s death and got a straight answer from only four.”
Most airline loyalty program policies claim that points accumulated are the property of the issuing company, giving them complete discretion as to how they are handled in the case of death. For example, United’s Mileage Plus policy states: “[a]ccrued mileage and certificates do not constitute property of the member. Neither accrued mileage nor certificates are transferable (i) upon death, (ii) as part of a domestic relations matter, or (iii) otherwise by operation of law.” Southwest Airlines has a strict policy that they do not transfer RapidRewards points once a member dies.
Such policy provisions, therefore, appear to provide that miles cannot be bequeathed to, or inherited from, another person. Nevertheless, the formal policy found in an airline’s terms and conditions can vary considerably from what the airline’s customer service center will offer. Policies differ from practices, so begin by calling the program’s service center to determine whether the miles can in fact be transferred or inherited.
For example, the terms and conditions of American’s Aadvantage program and Delta’s SkyMiles program provide that accrued mileage and award certificates are not transferrable at death. Both airlines’ customer service departments, however, provide exception procedures. According to its website, American Airlines has the discretion to credit accrued mileage to persons specifically identified in court-approved wills upon receipt of documentation satisfactory to American Airlines and upon payment of any applicable fees. Delta also allows for the Administrator or Executor of the Member’s Estate to request, via affidavit accompanied by a death certificate, to reinstate and transfer the Miles from the deceased Member’s account to one or more members’ accounts.
Getting Around Transferring Miles
In most cases, it is not the miles, but the award tickets the miles can purchase, that are important. Fortunately, it is not difficult to have an award ticket issued in the name of a friend or family member. Susan Stellin also suggests that “[o]ne way you can make things easier on your heirs is to leave a list of your frequent flier account numbers and passwords.” Doing this allows your loved ones to use your miles to issue tickets to themselves without having the hassle of fees and paperwork.
Updating Your Will
Last, do not leave it to the airlines’ “sole discretion” to honor your wishes. People who have significant frequent flier miles should consider designating who gets their miles in a Will. Questions have been raised concerning the taxability of frequent flyer miles, but according to Announcement 2002-18, the IRS has not pursued a tax enforcement program with respect to promotional benefits such a frequent flyer miles. Therefore, there is likely no negative consequence to adding frequent flyer miles to your estate plan.
The Illinois Appellate Court in In re Estate of Doman issued a ruling on October 11, 2012 that once more clarifies why it is important to have a Will and, depending on circumstances, potentially a revocable trust. (See our prior posts on Why Do I Need a Will? (Part 1 and Part 2) and Why Do I Need a Trust?)
Trial Court Proceedings:
In the Doman case, Sara and Mark Doman were in the home stretch of their divorce when Mark died on July 4, 2011. On June 10, the trial court had issued a written dissolution judgment and reserved ruling on the ancillary issues, with a status hearing set for July 11. Sara’s attorney called the court on July 5 to inform the trial court of Mark’s death and the trial court entered a docket entry that stated, “Cause set for 7/11/11 is vacated. Cause is dismissed.”
Probate Court Proceedings:
On September 28, 2011, Sara filed a petition in the probate court stating that their divorce proceedings were dismissed and that she was Mark’s surviving spouse and seeking appointment as administrator of Mark’s estate. Sara’s daughter, Aimee (who was a child of Sara’s from a prior marriage whom Mark had legally adopted), filed a counter argument on October 13, arguing that the trial court’s June dissolution judgment on grounds only was a final judgment.
The probate court found the July 5 order only dismissed the ancillary issues, not the dissolution itself, and therefore, Sara was not Mark’s heir, appointing Aimee and her sister Bethany (also adopted by Mark) as co-administrators of Mark’s estate. Sara appealed. (more…)