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THE CHOICE IS NOW YOURS

THE CHOICE IS NOW YOURS

October 6, 2016

Authored by: Kathy Sherby and Charles Lin

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

The Four Corners Of The Trust Instrument Get Tighter

September 28, 2016

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When a court is called upon to decide a trust dispute, it starts by looking at the intent of the settlor.  Invariably there is some statement about the court being bound by the “four corners” of the trust.  Only if the language within the trust instrument is ambiguous can the court then look at evidence outside of the trust instrument.  Just how serious are Georgia‘s appellate courts when it comes to sticking to the language in the trust instrument? In Jackson v. Nowland, the Georgia Court of Appeals refused to look at outside evidence that created a pretty clear ambiguity with the trust termination language.

The trust at issue contained a provision that the trust would continue during the settlor’s life and until her youngest named family members had reached the age of 27.  Pretty easy,

Trust Instrument Can’t Completely Insulate Trustee From Liability

September 2, 2016

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Settlors often want to give their trustees peace of mind that they can administer the trust without a court looking over their shoulder and second-guessing every act they take.  So, estate planners will often put a broad exculpatory clause in the trust instrument to relieve the trustee from liability for certain actions in administering the trust.  But, just as we have seen in other jurisdictions, in In re Scott David Hurwich 1986 Irrevocable Trust, the Court of Appeals of Indiana recognized that there is a limit as to how far the relief from liability can extend.

A settlor/beneficiary of a trust sued the trustee, alleging mismanagement of trust assets, commingling trust assets with the trustee’s own funds, conversion of trust assets, waste of trust

WHAT CAN YOUR SPOUSE REACH IN A DIVORCE?

WHAT CAN YOUR SPOUSE REACH IN A DIVORCE?

August 15, 2016

Authored by: Stacie J. Rottenstreich and Edward Peck

 

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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.

Filing Trust Modification As Public Record Started Statute Of Limitations

December 23, 2015

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Fiduciaries should always be thinking of ways to get the statute of limitations started.  Why have a claim hanging over your head for many years, when you can take actions that shorten the time in which a claim may be brought against you?  Typically, we think of getting that time running in terms of sending regular account statements to the trust beneficiaries.  In Domino v. Braswell, the Court of Appeals of Mississippi got us thinking about another way to start the clock running:  by publicly recording documents.

A grantor, the trustees, and the beneficiaries of a trust modified the trust to correct a clerical error.  The trust modification was filed as a public record in 1997.  After the grantor died, in 2013, a complaint was

How Property Was Titled Did Not Control Disposition Of Asset

December 9, 2015

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A deed transfers a lake cottage to a revocable living trust.  Title to the cottage is still in the name of that trust when the grantors die.  The cottage gets distributed according to the terms of that trust, right?  According to the Wisconsin Court of Appeals in Simon v. Sheedy, maybe not.  It depends whether someone can show that the grantors wanted the asset disposed of in another way.

Patrick and Margaret Sheedy created a revocable living trust in 1995.  They deeded their lake cottage along with some other properties to that trust.  Under the terms of the 1995 trust, the cottage would essentially end up being jointly owned by the Sheedys’ children.  In 2004, Patrick and Margaret created another revocable trust, the terms of which were different from the 1995 trust.  In particular, the cottage was to be

Failure To Fulfill Trust Requirements As Grounds For Trust Termination

November 11, 2015

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Trust instruments occasionally permit the trustees – sometimes with or without the beneficiaries’ consent – to terminate the trust early under certain circumstances.  Why continue a trust or be forced to go into court when, for example, its purpose has been fulfilled?  The Elaine Radlick-Trupp Revocable Trust gave the trustees broad authority to terminate the trust.  The trustees could discontinue the trust when they determined discontinuance to be justified, when it was not economically sound to continue, or when they determined that termination was in the best interests of the beneficiaries because of unforeseen circumstances.  In the Michigan case of Trupp v. Naughton (unpublished), several of the co-trustees of the trust may have inadvertently triggered the termination provision through their actions.

The trust contained two real properties and we will focus on

Calling Captain Obvious?

Calling Captain Obvious?

November 5, 2015

Authored by: Kathy Sherby and Stephanie Moll

 

ThinkstockPhotos-97430231

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

Federal Courts Don’t Want To Hear Your Domestic Disputes Involving Trusts

October 29, 2015

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There may be good strategic reasons to get a trust litigation case into federal court, especially if you’re the trustee.  But, just because you meet the diversity jurisdiction requirements to get the case into federal court doesn’t mean the federal court will hear the case.  The court may still find that an exception to otherwise perfectly good diversity jurisdiction exists.  While we more regularly see federal courts invoke the probate exception to diversity jurisdiction in fiduciary litigation cases, in McCavey v. McCavey-Barnett (unpublished), a federal appellate court affirmed a Georgia district court’s decision to not hear a trust dispute based on the domestic relations exception to diversity jurisdiction.

The case that the federal court declined to hear involved allegations concerning an inter vivos family trust.  A husband and wife deeded a

When Can A Trust Be Reformed To Add Remainder Beneficiaries?

August 26, 2015

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We’ve looked at a lot of cases where courts have permitted trust reformation or modification.  In many of these cases, trusts had been modified to avoid unintended or adverse tax consequences, to fix a scrivener’s error, or to tweak some administrative provision.  A Florida appellate court’s ruling in Megiel-Rollo v. Megiel causes us to add another potential circumstance to that list: adding remainder beneficiaries.  Adding beneficiaries gets to the core of a trust’s dispositive provisions, so let’s turn briefly to the unique circumstances underlying this decision.

The grantor created a revocable trust naming herself as trustee and beneficiary during her life.  Upon her death, the grantor’s assets were to be “divided between the Beneficiaries as tenants in common in proportion to their respective interests as

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