Thursday, October 6, 2016

Rev. Proc. 2016-49

The recent issuance of Rev. Proc. 2016-49, which modifies and supersedes Rev. Proc. 2001-38, now puts the taxpayer in the driver’s seat. Recall that in Rev. Proc. 2001-38, the Service was providing relief for the surviving spouse when an unnecessary QTIP election was made, by treating such a QTIP election as though it had not been made. Practitioners began to question whether Rev. Proc. 2001-38 would render a QTIP election a nullity when made in order to qualify for a state marital deduction where such an election was not needed to reduce the Federal estate tax liability to zero. Then when portability came into the picture, the enhanced concern about basis adjustment at death drove practitioners to want to make a QTIP election even though not needed to reduce the estate tax liability, to permit the surviving spouse to make larger gifts that would not be subject to gift tax or solely to obtain a basis adjustment at death. Yet in view of Rev. Proc. 2001-38, it was not clear whether a QTIP election that did not result in a reduction in estate tax was viable.

Now the Service has solved this dilemma with Rev. Proc. 2016-49. A QTIP election will only be void if ALL of the following are satisfied:

  1. The estate did not exceed the applicable exclusion amount in any event so that a QTIP election would not reduce the estate tax liability.
  2. No portability election was effectively made, either because not actually made or because of a late filed return.
  3. The taxpayer notifies the IRS on a supplemental return that such a QTIP election previously made should be treated as void.
  4. The taxpayer provides sufficient evidence, which could consist of the return on which the
    unnecessary QTIP election was made, that the QTIP election was not needed to reduce the estate tax liability to zero based on the values as finally determined for estate tax purposes.

A QTIP election will not be treated as void where ANY of the following are true:

  1. A partial QTIP election was required to eliminate estate tax and the executor made a
    larger QTIP election than was necessary to reduce the estate tax liability to zero.
  2. The QTIP election was stated as a formula designed to reduce the estate tax liability to zero.
  3. The executor made a protection QTIP election.
  4. The executory made a portability election.

The taxpayer did not request that the QTIP election be treated as void and follow the procedure for having the election treated as void.

Monday, August 15, 2016

 

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In the recent decision, Pfannenstiehl v. Pfannenstiehl, the Massachusetts Judicial Supreme Court overruled the appeals court decision and concluded that assets held in a discretionary trust created by a third party, where the husband is but one potential beneficiary of the trust, is not a marital asset to be divided on divorce. (more…)

Thursday, November 5, 2015

 

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With some minor exceptions, the facts are the same in PLR 201525002& PLR 201525003. In these PLRs, the Grantor transferred funds to an irrevocable trust for the Grantor’s own benefit and the benefit of several charities. In each case, the trust was created in a state other than the state of residence of the Grantor. In addition to the Trustee, each trust had an Investment Advisor, a Distribution Advisor, a Charity Distribution Advisor and a Trust Protector, none of whom were trust beneficiaries, except that the Charity Distribution Advisor was the Grantor’s spouse who was a potential appointee.

The Distribution Advisor had the power to direct the Trustee as to whether to make Quarterly Distributions, Support Distributions and Special Contingent Distributions to the Grantor, and also had the power to direct the Trustee as to whether to make Quarterly Distributions to the charities.

The Grantor had a limited testamentary power to appoint the trust among her spouse and charities.

The Investment Advisor had the power to direct the Trustee as to trust investments. (more…)

Tuesday, May 26, 2015

statuteoflibertyThe New York State legislature is considering becoming a directed trust state. In a directed trust, the trustee is allowed to act under the advice or direction of someone else, an advisor or protector, who could make decisions regarding investments, distributions or other trust matters. Earlier this year, the New York State Senate referred a bill to its Judiciary Committee which would expressly allow grantors to establish directed trusts in New York State and sets out general parameters for such trusts. (more…)

Thursday, September 25, 2014

Originally posted on BryanCaveFiduciaryLitigation.com

A recent case from Connecticut, Tyler v. Tyler, involved a claim to modify a trust based on undue influence. Few details are provided in the opinion about the requested modification but it is a curious claim. If undue influence is exerted over the grantor, then isn’t the contested trust or amendment invalid? Why or how should a trust that is the product of undue influence be modified to reflect the true intent of the grantor? (more…)

Monday, June 23, 2014

176961933Another 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…)

Monday, June 16, 2014

453118507Last 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…)

Monday, June 9, 2014

451594605In 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…)

Tuesday, February 18, 2014

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…)

Thursday, January 2, 2014

The Missouri Court of Appeals recently issued an opinion in Robert T. McLean Irrevocable Trust v. Ponder,[1] a case involving the question of whether a Trust Protector could be held liable in not exercising the right to remove and replace the Trustees of a special needs Trust.

The Robert T. McLean Irrevocable Trust (the “Trust”) was created with settlement proceeds from Robert McLean’s (“Robert”) personal injury case.  Ponder was appointed “Trust Protector” of the Trust with the right to remove the Trustee and appoint a successor Trustee.  The Trust Protector was also given the right to appoint a successor Trust Protector and to resign as Trust Protector.  The Trust also provided that the “Trust Protector’s authority was conferred in a fiduciary capacity” and that the Trust Protector was not liable for any actions taken “in good faith.”  The Trust did not provide Ponder with any power or duty to supervise the Trustees or direct their activities.

(more…)