Originally posted on our sister blog, www.bryancavefiduciarylitigation.com
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…)
Effective 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…)
Part 3 of a 3 part series.
In a trilogy of new cases decided in the last couple of months, the courts in three states have addressed the issue of whether the trustee of a revocable trust has a duty to account to, and can be held liable to, the remainder beneficiaries of the trust, for a period during which the trust was revocable, after the death of the settlor. In reviewing the discussion of the courts in these three decisions, it is clear that, while a trust is revocable, the trustee has a duty only to the settlor, and that even after the death of the settlor when the interests of the remainder beneficiaries has vested, the trustee continues to have no duty to the remainder beneficiaries for any actions taken while the trust was revocable. In Part 1 of this series, we reviewed the case of Pennell v. Alverson and in Part 2 of this series, we reviewed the case of In re Estate of Giraldin; now, we turn to In the Matter of Trust # T-1 of Mary Faye Trimble.
In the latest case in this trilogy, the Iowa Supreme Court, in In the Matter of Trust # T-1 of Mary Faye Trimble, 2013 WL 275637 (Iowa, January 25, 2013), reviewed all the cases on this point, including the Giraldin case previously discussed, to conclude that the trustee had no duty to account to the remainder beneficiaries for the period during which the trust was revocable. (more…)
Part 2 of a 3 part series.
In a trilogy of new cases decided in the last couple of months, the courts in three states have addressed the issue of whether the trustee of a revocable trust has a duty to account to, and can be held liable to, the remainder beneficiaries of the trust after the death of the settlor, for a period during which the trust was revocable. In reviewing the discussion of the courts in these three decisions, it is clear that, while a trust is revocable, the trustee has a duty only to the settlor, and that even after the death of the settlor when the interests of the remainder beneficiaries has vested, the trustee continues to have no duty to the remainder beneficiaries for any actions taken while the trust was revocable. In this series of blogs, we review these cases. In Part 1 of this series, we reviewed the case of Pennell v. Alverson; now, we turn to In re Estate of Giraldin.
The Court in the Pennell case agreed that, to the extent that the remainder beneficiaries were raising issues concerning breaches of fiduciary duty to Cleo during her lifetime, the remainder beneficiaries have standing to pursue those claims.
This distinction was picked up and further refined in December of 2012 by the California Supreme Court in In re Estate of Giraldin, 150 Cal. Rptr. 3d, 290 P.3d 199 (Cal.2012), reversing the result in the decision of the Court of Appeals (199 Cal.App.4th 577 (2011). In that case, Bill Giraldin created a revocable trust in early 2002 and designated his son, Tim, to serve as the trustee. The trust provided that Bill was the only beneficiary during his lifetime, and in the event of Bill’s incapacity, the trustee was to make liberal distributions for Bill’s needs, and that “the rights of remainder beneficiaries shall be of no importance.” The trust also contained a provision that during Bill’s lifetime, “the trustee shall have no duty to provide any information regarding the trust to anyone other than [Bill].” (more…)
Part 1 of a 3 part series.
In a trilogy of new cases decided in the last couple of months, the courts in three states have addressed the issue of whether the trustee of a revocable trust has a duty to account to, and can be held liable to, the remainder beneficiaries of the trust after the death of the settlor, for a period during which the trust was revocable. In reviewing the discussion of the courts in these three decisions, it is clear that, while a trust is revocable, the trustee has a duty only to the settlor, and that even after the death of the settlor when the interests of the remainder beneficiaries has vested, the trustee continues to have no duty to the remainder beneficiaries for any actions taken while the trust was revocable. In this series of blogs, we will review these cases.
In the first of these three cases to be decided, in September of 2012, the Arizona Court, in Pennell v. Alverson, 2012 WL 4088679 (Ariz.App. Div 1, September 18, 2012) interpreted the revocable trust created by Cleo Hubbard (the “Cleo Trust”) during her lifetime under Michigan law, and held that Angella Alverson, one of Cleo’s daughters, as a co-Trustee and ultimately a sole Trustee, did not owe any fiduciary duty during Cleo’s lifetime to the remainder beneficiaries. In this family dispute brought by Angella’s sister and her children and one of Angella’s grandsons, the Court first found that under Michigan law, the duties of the trustee and the rights of the beneficiaries are governed solely by the terms of the trust. (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…)
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…)
What to do when you have no friends or family to whom to leave your estate? Why not do what Ray Fulk of Illinois did? Fulk had no family to which he wanted to leave his estate, so he executed a Will leaving $5,000 to his favorite charity, and the rest of his nearly $1,000,000 estate to his two favorite actors, Kevin Brophy (perhaps most famously known for his role in the 1977 television show, Lucan) and Peter Barton (who spent five years on The Young and the Restless in the 80s and 90s and starred in Linda Blair’s 1981 movie, Hell Night), whom he had never met. (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…)