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That Underwater Policy Does Not Have Any Value, Right?!

SCUBATaxpayers/insureds are often surprised when they are taxed on the value of an old policy that was underwater, when it was transferred to them, causing them to assume that the policy had no value for the government to tax. Here again, the taxpayers in Schwab v. Commissioner (9th Cir. 2013), were surprised that they had recognized taxable income on the distribution to them of life insurance policies from their non-qualified plan, which had surrender charges that exceed their cash value.

Michael and Kathryn, a married couple, were employees of Angels and Cowboys, Inc., which sponsored a non-qualified multi-employer welfare benefit plan that was administered by a third party. Each of them caused the plan to purchase, with a single premium, a variable universal life insurance policy with a three-year no lapse

IRS Rules that Conversion to Unitrust in Accordance with State Law Will Not Trigger Loss of Grandfathered Protection

A recent Private Letter Ruling (PLR 201320009) issued by the Internal Revenue Service (IRS) blessed a conversion of a grandfathered Trust to a unitrust determination of income, as not causing any loss of the Trust’s generation-skipping transfer (GST) tax grandfathered protection, and not resulting in a gift or in the recognition of any gain. Here, the trust in question had been held for the benefit of the Settlor’s son, but the son had since died and the trust was now held for the benefit of three grandchildren. No additions had been made after September 25, 1985. However, the trust determined the income to be distributed to the grandchildren under the traditional method, with interest and dividends constituting trust income.

Long after the trust became irrevocable as a result of the death of the Settlor, the state in which the trust was being administered enacted legislation authorizing the conversion to a

Employment Codicil To Will Did Not Provide For Lifetime Employment

July 30, 2013

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Consider a situation where a wealthy testator wants his son to be provided for but still also wants his son to develop a healthy work ethic.  Can the wealthy testator’s will ensure lifetime employment for a beneficiary?  Maybe, but probably not when that lifetime employment is with a company the officers and directors of which owe fiduciary duties to the corporation and its creditors.

Welcome Prince George of Cambridge—Is Your Parents’ Estate Planning Up to Date?

baby-cambridge-1-660On July 22, 2013, the question everyone wanted answered, boy or girl, was answered when Catherine, Duchess of Cambridge, gave birth to the royal baby, a baby boy, who is now third in line to the throne, after his grandfather, Prince Charles, and his father, Prince William.

On July 24, the next question everyone wanted answered, what’s his name, was answered with the announcement that the baby prince’s name is George Alexander Louis, and that he will be known as Prince George of Cambridge.

Now, the question that we’re sure is burning in everyone’s mind is, are Will’s and Kate’s estate planning documents up-to-date so that Prince George will be properly taken care of in the event something happens to his parents?

Personal Representative Of Estate Breached Fiduciary Duty By Flipping Property He Purchased From Estate

July 25, 2013

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Yes, executors sometimes purchase estate property.  But, when they do, they need to be awfully careful about breaching the fiduciary duties they owe the estate beneficiaries.  It’s common to see real property deeded in equal shares to siblings, and one sibling (who is also executor) purchases his or her other siblings’ interests for an emotional reason like owning the family farm.  If the executor knows something about the value of that property that the beneficiaries don’t know and intends to flip the property after acquiring the property in fee simple, that’s when problems can arise.

Georgia Supreme Court Addresses Numerous Fiduciary Litigation Topics In Will Contest Opinion

July 23, 2013

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Standing to caveat a will?  Check.  Undue influence?  Check.  Testamentary capacity?  Check.  Monomania?  Fraud?  Check and double check.  While the Georgia Supreme Court’s opinion in Odom v. Hughes didn’t break any new ground, it examined such a wide range of will contest topics that it’s definitely worth a read.  Without further ado . . .

No New York Inter Vivos Pet Trusts: but can you use a traditional trust to circumvent breed-specific laws?

July 17, 2013

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Nearly every state now provides for companion animal trusts, also known as pet trusts.  We think of pet trusts as being used to care for an animal that outlives its owner.   A recent case from the federal court in Connecticut, Mittasch v. Reviczky, however, raises the question of whether an inter vivos pet trust can be used as a way to circumvent breed-specific laws or evade so-called ‘disposal orders’ calling for the animal’s euthanization.  And the case addresses the more basic question of whether inter vivos pet trusts are even valid trusts, at least under New York law.

A ‘disposal order’ was issued for Stella Blue, a Rottweiler that “nipped” a police officer during a confrontation at the dog owner’s home.  Eight months after Stella Blue was seized, the owner created an animal trust under New York law, the property of which

Trust Alternatives to Prenuptial Agreements

July 16, 2013


Private Client Partner Renee Gabbard participated in the attached presentation on Trust Alternatives to Prenuptial Agreements.  We are pleased to provide you with the audio of this presentation through the link below.

FEGLIA: Wife Can’t Enjoy Fruits of Husband’s Labor

With guest co-blogger, Washington University School of Law student and Bryan Cave summer intern, Mike Gallagher.

As is the case for everyone (and as we previously discussed in our prior post, Rock, Paper, Scissors: Life Insurance Beneficiary Designation Beats Will), based on the United States Supreme Court decision in Hillman v. Maretta, if you are a federal employee, you should carefully consider who is listed as beneficiary of your life insurance policy. In Hillman, the Court favored Warren Hillman’s ex-wife, Judy Maretta, over his widow, Jacqueline Hillman, and not because the former was more deserving or the marriage to the latter was overly capricious. $124,558 of life insurance benefits accrued to the ex-wife because the husband neglected to send the federal government’s Office of Personnel Management the necessary documentation to change his beneficiary designation before his death.

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