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Trustees and Personal Representatives Left Holding the Liability Bag

When is a transferee of a decedent’s assets not a transferee subject to liability under §6324(a)(2) of the Code? The U.S. District Court of Utah’s answer to that question in United States v. Johnson, 109 AFTR 2d 2012-2253 (DC UT, 5/23/2012) was surprising when it held that the trust beneficiaries who had received the outright distribution of all of the assets of the decedent’s trust, subject to a Distribution Agreement that each beneficiary would be responsible for the payment of any unpaid estate tax, were not transferees subject to transferee liability for the estate tax under §6324(a)(2).

This case came before the Court in a motion to dismiss for failure to state a claim upon which relief can be granted. The defendants in this case consisted of the four residuary trust beneficiaries

Revenue Procedure 2012-41 Sets 2013 Annual Exclusion Gift Amounts

The IRS recently released Rev. Proc. 2012-41, which, in part, announces the inflation adjusted figures for annual exclusion gifts in 2013.

According to the Revenue Procedure, “For calendar year 2013, the first $14,000 of gifts to any person (other than gifts of future interests in property) are not included in the total amount of taxable gifts under § 2503 made during that year.”

In addition, for those with a non-citizen spouse, “For calendar year 2013, the first $143,000 of gifts to a spouse who is not a citizen of the United States (other than gifts of future interests in property) are not included in the total amount of taxable gifts under §§ 2503 and 2523(i)(2) made during that year.”

New Draft Form 709 and Instructions for 2012 Gifts

In late September, the Service posted on the IRS website the new Draft Form 709 for reporting 2012 gifts and Draft Instructions for the Form 709.  This new form has also been updated to address the deceased spousal unused exclusion (“DSUE”).  A new Line 19 has been added to Part 1 – General Information, asking whether the taxpayer has applied DSUE from a deceased spouse on this or any other Form 709.  If so, the taxpayer is directed to complete a new Schedule C to determine the available DSUE, which is then included on Line 7 of Part 2 – Tax Computation as part of the maximum applicable credit amount.  The Generation-Skipping Transfer Tax computation is now on Schedule D.

It is important to note the caution at the beginning of these drafts:

“This is an early release draft of an IRS tax form, instructions, or publication, which

IRS Posts Final Form 706 and Instructions

Update: The IRS has now posted the final Instructions for the Form 706 for decedents dying in 2012, which can be found here.

The IRS has posted the final Form 706 for decedents dying in 2012, which can be found here.  However, final Instructions have not yet been posted.  Our discussion of the current Draft Instructions can be found here, but until the final Instructions have been released, they cannot be relied upon.

Virginia Enacts Domestic Asset Protection Trust Legislation

On July 1, 2012 Virginia became the 13th state to permit a settlor to establish an irrevocable trust where the settlor is a beneficiary and can still receive spendthrift protection against the claims of the settlor’s creditors. SB 11, which was signed by Governor Bob McDonnell on April 4, 2012, expanded the number of types of permissible trusts in Virginia and added new Virginia Code Sections 55-545.03:2 and 55-545.03:3 to permit self-settled domestic asset protection trusts. The legislation is effective for trusts created on and after July 1, 2012.

Generally, a settlor establishes an irrevocable trust to minimize the settlor’s taxable estate and/or protect the settlor’s assets from claims from the settlor’s creditors. However, only under very rare occasions can the settlor be the beneficiary of the irrevocable trust. These rare occasions and lack of control make irrevocable trusts less attractive to most potential settlors. Virginia’s new law makes it

IRS Releases New Private Letter Ruling Relating to Gift and Generation-Skipping Transfer Taxes

With guest co-blogger, Washington University School of Law student, Anne Jump.

The IRS recently released Private Letter Ruling 201233008 (the “PLR”), in which the IRS ruled that a proposed partial termination and modification of a trust pursuant to state law will not (1) cause the trust to be includible in the grantor’s estate under Internal Revenue Code sections 2036 or 2038, (2) result in a transfer by settlor of trust assets pursuant to Code section 2501, and (3) will not cause the trust to lose its exempt status for purposes of chapter 13 of the Code.

The Uniform Trust Code (UTC) provides that an irrevocable noncharitable inter vivos trust may be modified or terminated upon consent of the settlor and all of the beneficiaries. U.T.C. § 411(a). From the facts set forth in the PLR, the proposed partial termination and modification of the trust at issue was likely being

Summary of New Provisions in IRS Draft Instructions for Form 706 for Decedents Dying in 2012

As we told you last week, the IRS recently released Draft Instructions for Form 706 for decedents dying in 2012, which can be found here. If you don’t feel like reading all 52 pages yourself, here are some of the highlights:

• The new Form 706 includes a new Part 6—Portability of Deceased Spousal Unused Exclusion (DSUE). This new Part 6 allows the taxpayer to (1) opt out of electing to transfer the decedent’s DSUE to his or her surviving spouse, (2) calculate the amount of DSUE that can be transferred to the surviving spouse if so elected, and/or (3) account for any DSUE amount received by the decedent from his or her predeceased spouse.

IRS Releases Revised Instructions for Form 706

September 20, 2012

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The IRS has released Draft Instructions for Form 706 for the estates of decedents dying in 2012.

Just as we cautioned when we announced the IRS Release of the Draft 706, it is important to note the caution at the beginning of the draft:

“This is an early release draft of an IRS tax form, instructions, or publication, which the IRS is providing for your information as a courtesy.  Do not file draft forms.  Also, do not rely on draft instructions and publications for filing.”

IRS Releases New Draft Form 706 for 2012 Decedents

August 18, 2012

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The IRS has released a new draft Form 706 for estates of decedents dying in 2012.   It is important to note the IRS’ caution at the beginning of the draft Form:

“This is an early release draft of an IRS tax form, instructions, or publication, which the IRS is providing for your information as a courtesy. Do no file draft forms. Also, do not rely on draft instructions and publications for filing. ”

 

Georgia Will And Revocable Trust Were Invalid Products Of Undue Influence

From BryanCaveFiduciaryLitigation.com

Let’s just jump right into this one: in 2010, a Houston County, Georgia jury declared that a Will and a Revocable Trust executed by Thomas Hines, Sr., in 2002 were invalid, as they were the product of undue influence.

In Davison v. Hines, the Georgia Supreme Court affirmed the jury verdict.  The reason we just jumped right into the discussion of this case is because undue influence cases are fact-intensive.  So, let’s look at the facts that supported the verdict.

– Thomas’s 2001 will left the bulk of his estate to his wife for her life, and upon her death, divided the estate equally between his sons.  Thomas’s 2002 will, however, gave Steve Davison and his wife, Deborah, control over Thomas’s assets and estate.  Deborah was a granddaughter of Thomas.

– In December 2001, although Thomas didn’t want to move from his home,