Another recent court decision has looked at the constitutionality of the State imposing state income tax on an irrevocable trust. Last year, the Court in McNeil v. Commonwealth of Pennsylvania held that Pennsylvania’s attempt to tax the McNeil trusts, whose connection to Pennsylvania was (1) the residency of the settlor at the time the trust was created and (2) the residency of the trust’s discretionary beneficiaries was an unconstitutional violation of the Commerce Clause of the United States Constitution. (more…)
Last week, we discussed the important issue that settlors, beneficiaries, and trustees of a trust should be thinking about—Do You Know Which States Are Trying to Tax Your Trust? Two states’ courts have recently looked at what constitutes sufficient minimum contacts to subject a trust to the State’s income tax laws. In this blog, we will discuss Illinois’ decision in Linn v. Dep’t of Revenue. Come back next week for our discussion of Pennsylvania’s decision in McNeil v. Commonwealth of Pennsylvania. (more…)
In an environment in which states are continuously searching for methods of increasing tax revenues, a major consideration for any settlor, beneficiary or trustee of a trust should be where the trust might be subject to income tax. The days of a trust being taxed in the state where it has its “principal place of administration” are quickly fading, as we enter into a new era in which states are increasing attempting to tax trusts with minimal contacts to the jurisdiction. (more…)
The New York Budget bill made changes not only in the estate tax arena, as previously reported on this blog, but also to the income taxation of certain trusts.
Under law prior to the passage of the Budget bill, a resident trust created by a New Yorker was entirely exempt from New York income tax if there was (i) no New York resident trustee, (ii) no assets located in New York and (iii) no New York source income. The new law, effective for calendar years beginning January 1, 2014, provides that a New York resident beneficiary receiving a distribution of income from a New York State resident trust which is exempt from New York State income tax, will be taxed on that “accumulated distribution”. The new accumulation distribution tax, will not apply if the accumulated income was earned before 2014 or if the trust itself is subject to New York State income tax or for periods before the beneficiary become a New York resident. This is also not applicable to grantor trusts, where the income of the trust is taxed to the grantor, rather than the trust or its beneficiaries. (more…)
As previously reported on this blog, Governor Cuomo and the New York State legislature, both Assembly and Senate, were busy at work on the budget which contained modifications for the trusts and estates arena. A bill has finally been passed, which looks different from some of the earlier proposals. The new bill impacts the estate and trust world as follows:
Basic Estate Tax Exclusion Amount increases are to be phased in as follows for New York residents or non-residents owning real property located in New York State during the period listed:
The term March Madness may take on new significance to New Yorkers this year. In addition to contributing to NCAA pools, New Yorkers should consider making gifts this month. Following up on prior blog post, New Yorkers may have a very small window of opportunity to take advantage of gifting significant sums of money prior to April 1, 2014. Currently New York State has no gift tax. New Yorkers can make gifts of any size to anyone without incurring any New York gift tax consequences at all. However, the gift and estate tax rules may change shortly. Governor Cuomo has proposed a change to New York’s estate and gift tax law that will require all taxable gifts made by a New York resident after March 31, 2014 to be included as part of the gross estate for purposes of calculating the New York estate tax. However, the proposal would not apply to gifts made prior to April 1, 2014. (more…)
Originally posted on bryancavefiduciarylitigation.com
Knowing when to initiate guardianship proceedings for a loved one can be a difficult and personal decision. When it comes to substance abuse, those proceedings can enter a grayer area than proceedings involving dementia, injury, or developmental disability. At what point is an addict or alcoholic incapacitated? What happens during moments of sobriety? In In re Guardianship of Esterly (unpublished), the Court of Appeals of Minnesota dealt with some of these difficult questions. (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).
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.
There is has been much talk recently about changing the New York State estate and gift tax structure. Currently, New York State estate tax is based on Federal law from 1998. New York State imposes a state estate tax on estates valued at $1M. Just this week Governor Cuomo proposed increasing the estate tax threshold from the current $1M to $5.25M and lowering the top estate tax rate to 10% over the next four years. His hope would be that beginning in 2019, the New York State estate tax exemption would equal the Federal exemption, which is indexed to inflation. This plan would ultimately exempt nearly 90% of estates from New York state estate tax and would eliminate any incentive for New Yorkers to move out of state and migrate to states with no estate tax imposed on its residents.