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GRAT Planning in a Down Market

GRAT Planning in a Down Market

September 30, 2011

Authored by: Justin Flach and Doug Stanley

As I walked into the office, I noticed that the market was already down 100 points today.  It’s been doing that a lot lately.  And then it goes back up a little.  And then back down.   While the market is busy doing gymnastics and we’re all concerned about our portfolios and retirement plans, the one thing that shouldn’t get lost in the haze of bad economic news is that now is a great time to do some estate planning.

Setting aside taxable gifts for the moment, let’s focus on a strategy that works best when assets have a built in potential to increase in value and interest rates are low: the grantor retained annuity trust, or a GRAT.

At its most basic level, a GRAT works like this: you give

Iowa Conservator Not Liable For Failing To Obtain Prior Court Approval Of Investments

September 28, 2011

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Iowa’s Code contains strict limitations on what acts a conservator can take without prior court approval.  For example, Iowa Code section 633.647 provides that “[c]onservators shall have the following powers subject to the approval of the court after hearing on such notice, if any, as the court may prescribe: . . . [t]o invest the funds belonging to the ward.”  (Emphasis added.)

On their face, these limitations seem like a lot of unnecessary hassle, increase the fees and expenses of conservatorships, and potentially cause the conservatorship estate to miss out on financial opportunities.  On the other hand, the statutory limitations would also seem to protect conservators who get the court’s blessing before taking any acts that might jeopardize the ward’s assets.

In In the Matter of the Conservatorship of Rose V. Alessio, the Iowa Supreme Court answered the question of what happens to a conservator who fails to get court approval before investing a

Trustee’s Son Owed Duty Of Care To Trust Beneficiary

September 26, 2011

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Sean Swendsen was a remainder beneficiary of the Richard Swendsen Trust.  Sean sued Richard Corey, the trustee of the Trust, alleging breach of trust and wrongful dissipation of trust assets.  Sean also sued Clayne Corey, who was Richard’s son, alleging claims that (1) Clayne acquired trust property with knowledge of a potential breach of trust by or conflict of interest on the part of the Trustee, and (2) Clayne committed trespass on trust property.

The question before the United States District Court for the District of Idaho in Swendsen v. Corey (2011 WL 4352363) was whether Clayne – a stranger to the trust – owed Sean a duty of care.  The court determined that Clayne did, in fact, owe Sean a duty of care concerning the trust even though Clayne was not a trustee or a beneficiary of the trust.

I am the parent of a child with special needs…

Should my relatives give money directly to my child with special needs?

No.  Family members and friends should be cautioned against gifting money or property, or leaving money or property in their wills directly to your child except in ways that do not result in a loss of eligibility for public benefits or liability for the cost of your child’s care.  If you desire, a special needs trust can be established during your lifetime to accept such gifts.  It would be prudent to have grandparents’ wills reviewed by an attorney familiar with special needs trusts to avoid bequests that will have unintended and unwanted consequences.  Further, neither you nor your relatives should establish any Uniform Transfer to Minors Act (UTMA) accounts for your child, as these accounts may disqualify your child for Supplemental Security Income (SSI) and Medicaid.

Illinois Federal Court Enforces Arbitration Provision In Account Agreement

September 21, 2011

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If you actually want to forego the courtroom and cast your lot with an arbitrator, incorporating an arbitration provision into your standard client contracts can be an effective tool because these provisions tend to be strictly enforced by courts.  It’s an example of where boilerplate may have some benefits.  Recently, in Hemenway v. Millennium Trust Company, LLC, the United States District Court for the Northern District of Illinois essentially terminated – at least least temporarily – a lawsuit against Millennium Trust Company by enforcing an arbitration agreement contained in a standard client contract.

Edward L. Hemenway”s Roth Individual Retirement Account Agreement and his Traditional Individual Retirement Account Custodial Agreement had an identical and standard arbitration provision which broadly encompassed “disputes between the parties.”

Nevertheless, Hemenway filed a lawsuit in federal court alleging that the money he contributed to his Roth and IRA accounts was lost, that Millennium Trust Company

IRS Announces October 2011 Interest Rates

September 20, 2011

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The October 2011 7520 Interest Rate dropped to 1.4%.

The October 2011 Applicable Federal Rates can be found here.

With interest rates dropping, October may be  a good month to consider refinancing existing promissory notes.  Consider contacting your attorney if you have any existing notes with high(er) interest rates.

Georgia Supreme Court Interprets “Per Stirpes” Language In Will

September 19, 2011

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Instead of making specific bequests of specific property to specific beneficiaries, testators often simply distribute their personal property “per stirpes” to a group of beneficiaries, such as their children or nephews and nieces.  In these circumstances, the executor is typically given discretion in how the property is divided so long as it is divided equally.  This distribution scheme is begging for a fight between siblings on who gets dad’s gun with the executor stuck in the middle.  Of course, conflict increases tenfold when the executor is one of the legatees who might receive the property.

In Stewart v. Ray, the Georgia Supreme Court had occasion to interpret language in a will that set up one of these distribution schemes and confirmed how we were all probably interpreting them anyway.

North Carolina Caveator Wins “Close” Undue Influence Case

September 16, 2011

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While it’s still rare for an undue influence case to make it to a jury, it seems that courts have been gradually loosening the requirements to allow more plaintiffs to present their cases to a jury.  Perhaps it’s simply a matter of numbers as more aging Baby Boomers are beginning to succumb to “old age and physical and mental weakness,” which opens the door to an undue influence claim.

Whatever the reasons, we are seeing more appellate decisions involving plaintiffs having won undue influence claims at the trial court level.  Earlier this month, in In the Matter of the Estate of Raney, the North Carolina Court of Appeals considered the appeal of a jury verdict in which a jury – after being presented with a lot of bad and good facts – concluded that the propounder of a will had exerted undue influence over the testatrix.  In light of these mixed

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