Originally posted on bryancavefiduciarylitigation.com
Testators may want to keep careful track of who has copies of their will and where those copies are. If only a copy of a will – and not the original – is found, it may raise a question about whether the testator destroyed the original in an attempt to revoke it. Such was the argument made by the caveators in Johnson v. Fitzgerald. Let’s see why the Georgia Supreme Court felt like a copy was good enough to admit to probate in solemn form.
The executor of an estate offered a copy of a will for probate in solemn form, requesting that it be admitted to probate upon proper proof. The original could not be found. The testator’s heirs at law filed a caveat alleging that the will had been revoked by the testator’s destruction of it.
Under Georgia law, if the original of a will cannot be found for probate, there is a presumption that the testator intended to revoke the will. But this presumption can be overcome if a copy is established by a preponderance of the evidence to be a true copy of the original and if it is established by a preponderance of the evidence that the testator did not intend to revoke the will. Here, there was “ample evidence” that the testator intended for provisions in his will to continue in force.
Under the propounded will, $50,000 was bequeathed to a church for the use of its cemetery fund, $50,000 was bequeathed to an individual, and the will named a trust which benefited a foundation as the residuary beneficiary. The Georgia Supreme Court highlighted the following evidence that supported a conclusion that the testator did not intend to revoke the will:
- The testator executed a document guiding the trust referenced in the will, and he later amended the trust;
- In discussions with his attorney about the trust amendment, the testator understood that his assets had grown to a point that the church named as the primary beneficiary of the trust might not have need for the full amount, and he wanted to give the trustees of the trust the flexibility to fund charitable contributions from the money that would pour over from the estate to the trust;
- The testator told the pastor of the church that he was leaving money for the cemetery fund in his will;
- The testator expressed disdain for what he considered his relatives’ greed, stating that he did not wish for them to have his money; and
- Prior wills were consistent with the propounded will insofar as they left money for the cemetery fund and excluded the caveators.
Originally posted on bryancavefiduciarylitigation.com
Individual trustees who must administer real property often attempt to save the trust money by personally making certain improvements, repairs, or maintenance to the property. They then charge the trust for the work they performed. As the Nebraska Court of Appeals points out in In re Estate of Robb, however, these acts – however well-intentioned – may be self-dealing and can put the trustee in a position of a conflict of interest, which can warrant removal from that fiduciary position.
When Mason D. Robb died, his son, Theodore, became the personal representative of his estate and the trustee of the inter vivos Mason D. Robb Revocable Living Trust. The trust contained three pieces of real estate.
Under the terms of the trust, the trustee was to hold and use the trust property to pay administrative costs and the debts of the settlor and for the benefit of the Mason D. Robb QTIP Family Trust. The trust directed the trustee to separate the funds in the family trust into two equal shares: one for Theodore’s benefit and one for the benefit of his sister, Linda. Theodore’s share was to be delivered to him outright while Linda’s share was to be held in trust. Linda was also entitled to income distributions from her share of the family trust. (more…)
Once again, the Internal Revenue Service reminds us in PLR 201330011 that a distribution from an IRA to a residuary beneficiary will not result in recognition of IRD (also known as income in respect of a decedent) to the estate or trust, as only the residuary beneficiary will recognize the IRD.
Here the Decedent’s Estate was the beneficiary of the Decedent’s IRA. Under the provisions of the Decedent’s Will, his Estate poured over to his Revocable Trust on his death. His Revocable Trust provided that each of two Charities were to receive a percentage of the residue of his Trust, and further provided that the Trustee could satisfy this percentage gift in cash or in kind and also could allocate different assets to different residuary beneficiaries in satisfaction of their percentage interest in the trust residue.
Of course, the IRA constitutes income in respect of a decedent (IRD), and pursuant to IRC § 691 (a)(2) and Reg. § 1.691(a)-4(b)(2), the transfer of an item of IRD by an estate, such as by satisfying an obligation of the estate, will cause the estate to recognize the IRD, but if the estate transmits the item of IRD to a specific legatee of the item of IRD or to a residuary beneficiary (emphasis added), only the legatee or the residuary beneficiary will recognize the IRD. (more…)
The terms of James Gandolfini’s December 2012 Last Will and Testament were made public last week when it was filed in New York County Surrogate’s Court. There are a series of specific bequests to his teenage son by his first marriage and some friends and relatives, but the bulk of his probate assets is disposed of as his “residuary estate” and is divided among his sisters, his wife and his baby daughter.
The tax clause of his Will directs that all estate taxes are to be paid from his residuary estate. What does that mean to his beneficiaries? And what does that mean to the IRS and to the NYS Department of Taxation and Finance? Only the 20% of the estate that passes to James Gandolfini’s widow will qualify for the Federal and NYS estate tax marital deduction. (For a more detailed discussion of the federal marital deduction, see our prior post in anticipation of a ruling in the recently decided Windsor case, Will SCOTUS Eviscerate DOMA? What Effects Could That Have on Tax Planning?) As a result, his estate could be subject to taxes at a combined rate of about 50% over his unused lifetime exemption, which is $1M for NYS and $5.25M for the IRS.
It is rumored that Mr. Gandolfini’s estate is worth approximately $70M. The total estate tax due is likely be over $25M and will be due a mere nine months after Mr. Gandolfini’s untimely death. In all likelihood, assets will need to be sold to generate liquidity to meet this estate tax bill. (more…)
The Bankruptcy Court for the Western District of Washington has now joined other states in invalidating transfers to a self-settled trust on a variety of grounds in the latest asset protection self settled trust case, In re Huber, 2012 Bankr. LEXIS 2038 (May 17, 2013). The Trustee in this case successfully obtained a summary judgment invalidating Donald Huber’s transfers to the Donald Huber Family Trust made shortly before he filed bankruptcy, on the grounds that: (1) the Trust was invalid under applicable state law, (2) Huber’s transfers were fraudulent under § 548 (e)(1) of the Bankruptcy Code, and (3) Huber’s transfers were fraudulent transfers under the Washington State Fraudulent Transfers Act.
Donald Huber was a real estate developer who had been involved with real estate development in the State of Washington for over 40 years. He resided in Washington, his principal place of business was Washington, and almost all of his assets were located in Washington. In 2008, due to the economic downturn, particularly in the real estate market, Huber sought to raise additional cash for his business, but was unsuccessful in that endeavor. He fell behind in most of his loans and by mid 2008 most of his creditors were threatening foreclosure and litigation. (more…)
What is the extent of the settlor’s intent required to find that a transfer to an irrevocable asset protection trust is a transfer in fraud of creditors? If the trustee has been directed to pay the settlor’s current creditors, is that sufficient to negate a finding that the transfer to the trust was a fraudulent transfer? That was what the Court was called on to decide in United States v. Spencer, 2012 U.S. Dist. LEXIS 142195 (October 2, 2012).
In this case, Anthony Spencer (“Spencer”) pleaded guilty to 37 criminal tax offenses and was sentenced to 63 months in the Federal penitentiary. Just before Spencer’s report date, the IRS sent him the “Tax Examination Changes” showing tax due of just under $500,000. Shortly thereafter and just before he began serving his sentence, Spencer received a $600,000 divorce settlement payment from his former wife, which he placed in an account titled jointly with his accountant and co-defendant in this case, Patrick Walters (“Walters”). Walters then used $495,000 from this account to create and fund the Spencer Irrevocable Trust (“Trust”), of which Walters was serving as sole Trustee. Spencer provided Walters with written instructions regarding the Trust administration, directing Walters as Trustee “to take my entire worth and invest, then reinvest it, and do this over and over till you either make me enough to pay the IRS or lose it all trying.” The Trust instrument designated Spencer as the beneficiary, to receive the residue of the Trust once the income tax liability had been paid, with the payment to be made in four years. (more…)
This morning, in a landmark ruling for gay rights, the Supreme Court of the United States struck down the Defense of Marriage Act (DOMA), on Fifth Amendment Equal Protection grounds, in the case of U.S. v. Windsor (570 U.S. ______ (2013)). DOMA is the 1996 federal statute preventing federal recognition of same-sex marriages.
Under DOMA, marriage is defined for federal purposes as a union between one man and one woman. Such definition determined who was covered by more than 1,100 federal laws, programs and benefits, including Social Security survivor benefits, immigration rights and family leave, as well as federal tax benefits, including, as was the issue in Windsor, the unlimited federal estate tax marital deduction. Under the law, gay couples who are legally married in a state (or foreign country) that allows same-sex marriage, were not considered married in the eyes of the federal government and were ineligible for the federal benefits that come with marriage.
The Supreme Court issued a 5-4 ruling written by Justice Anthony Kennedy.
For our prior blog posts regarding the history of this case, see When a Woman Loves a Woman: Another Federal Judge Strikes Down DOMA.
We will provide you with a more in-depth look at the Supreme Court’s holding after we have a chance to review and analyze the entire opinion.
In a case of first impression, the Illinois Supreme Court has ruled in Rush University Medical Center v. Sessions, 2012 WL 4127261 (Ill., Sept. 20, 2012), that a self settled spendthrift trust is void as to the settlor’s creditors, so that Rush University Medical Center (“Rush”) was entitled to recover the unfulfilled pledge made by the settlor from the trust assets after the death of the settlor. The question of the relationship between a state’s law regarding self settled spendthrift trusts and its Fraudulent Transfers Act is again examined by this Court, but with a different twist than with the Kilker court.
Here, Robert Sessions (“Sessions”), created the Sessions Family Trust (“Trust”) in the Cook Islands in 1994, and transferred to the trust, among other property, certain real property located in Illinois, which at the time of his death had a value of about $2.7 Million. The Trust authorized distributions from income and principal to Sessions on a broad standard, named Sessions as Trust Protector, authorized him to change beneficiaries by Will, and contained a spendthrift provision prohibiting the payment of his creditors or the creditors of his estate. (more…)
Is the transfer of assets to a revocable trust by a terminally-ill settlor a fraudulent transfer or a constructively fraudulent transfer under the District of Columbia Uniform Fraudulent Transfer Act (DC-UFTA)? Can a bank that is a decedent’s creditor enjoin the decedent’s widow or other trust beneficiary from selling assets she received from the decedent? Can a decedent’s creditor collect a decedent’s debt from the decedent’s widow and beneficiary of the decedent’s revocable trust? These are among the issues the Federal District Court in the District of Columbia decided in TD Bank, N.A. v. Pearl, 891 F. Supp. 2d 103 (D.D.C., Sept 19, 2012). What is amazing is that this case was filed, given the outcome and the somewhat humorous dress-down the Court gave the bank.
In September of 2010, Mr. Pearl’s company borrowed $17.5 Million in an unsecured loan from TD Bank, N.A. (“Bank”), and Mr. Pearl guaranteed the loan. About a year after the loan was closed, Mr. Pearl was diagnosed with late stage lung cancer, causing Mr. Pearl to get his affairs in order, which included the creation of a revocable trust, with his wife as the beneficiary, funded with his interest in the company. At the same time, Mr. Pearl sought to restructure the loan with the Bank. The opinion reflects that the terms of the loan restructuring were finally agreed to and the new loan was closed with Mr. Pearl about 9 days after he died (although this may have been a typo in the opinion). In the paperwork documenting the loan restructuring, Mr. Pearl represented and warranted that “he had good and marketable title to all of his assets.” (more…)
The California Court of Appeals in Kilker v. Stillman, 2012 WL 5902348 (Cal. App. 4 Dist., Unpublished), Nov. 26, 2012, found that a fraudulent transfer had occurred when a California resident created an asset protection trust in Nevada, even though the trust was created several years prior to the litigation giving rise to the judgment creditor.
Here, the defendant, Frank Stillman (“Stillman”), a soil engineer, created the Walla Walla Group Trust in 2004 and funded the Trust with virtually all of his assets, for “asset protection” at a time when he had no known current creditors, “because soil engineers are frequently sued.” The initial trustee of the trust was the Nevada accountant who helped Stillman set up the trust, but Stillman had removed the initial trustee and replaced him with a trusted employee. Even though Stillman was not the Trustee, he managed all of the trust assets, which he used to pay his own personal expenses even though Stillman’s brother was the named beneficiary of the Trust. Thus, notwithstanding the actual provisions of the Trust, Stillman handled the Trust as if it were his alter ego. (more…)