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Mission: Possible–Saving Estate Taxes on Life Insurance

The trailers for the newest installment in the Mission: Impossible franchise, Mission: Impossible Rogue Nation, are being released and, as always when we see actors performing daredevil stunts, it makes us think about life insurance.  Hazard (I use the term loosely, in light of what these guys do) of the job, I guess.  So, once again, we thought we’d remind everyone about the use of life insurance trusts to reduce estate tax by re-posting the blog we wrote in after seeing his stunts for Ghost Protocol.

And, for your viewing pleasure, share another video of Mr. Cruise’s stunts.  (I’m starting to think Tom Cruise or Mission: Impossible should start sponsoring our blog!)

It’s true, it is possible to transfer life insurance proceeds to your beneficiaries without having to pay estate tax on those proceeds.  An insured can create an irrevocable trust that is designed to be the owner and beneficiary

Will New York State Join the List of Directed Trust States?

Will New York State Join the List of Directed Trust States?

May 26, 2015

Authored by: Stacie J. Rottenstreich and Karin Barkhorn

statuteoflibertyThe New York State legislature is considering becoming a directed trust state. In a directed trust, the trustee is allowed to act under the advice or direction of someone else, an advisor or protector, who could make decisions regarding investments, distributions or other trust matters. Earlier this year, the New York State Senate referred a bill to its Judiciary Committee which would expressly allow grantors to establish directed trusts in New York State and sets out general parameters for such trusts.

Does A Trustee’s Lawyer Owe A Fiduciary Duty To The Trust Beneficiaries?

May 20, 2015

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There is seemingly a line – at least under Florida law – that will not yet be crossed in the expanding world of third parties who purportedly owe duties to trust beneficiaries.  In Walther v. Kane (unpublished), the United States Court of Appeals for the Eleventh Circuit affirmed a federal district court’s ruling that, under Florida law, an attorney retained to represent only the trustee does not owe a fiduciary duty to the beneficiaries of the trust.  This decision stands in contrast to the trend in jurisdictions, including Florida, to chip away at the privity requirement when it comes to legal malpractice claims against estate planning attorneys.

Lawyers representing Florida trustees can rest a little easier for two reasons.  First, although unpublished, a federal appellate court has plainly found that no fiduciary duty is owed to trust beneficiaries by a lawyer

Actions Taken In Partnership May Affect Fitness To Serve As Trustee

April 29, 2015

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For how long estate planners have been using interconnections between trusts and family entities as estate planning techniques, only recently have appellate courts outside of New York started to tackle these issues in reported decisions.  In In re Estate of Stuchlik (as modified, in part, here), the Supreme Court of Nebraska addressed – but did not answer – a question left open by the Supreme Court of Georgia in Rollins v. Rollins: what’s the appropriate standard of care when a trust holds a controlling interest in a family entity?

Edward J. Stuchlik, Jr. and his wife, Margaret, had a pretty common estate plan.  They formed a limited partnership into which they conveyed all the farm real estate they owned.  Originally, Stuchlik and Margaret were the general partners and owners of 100 percent of the partnership interests.

Power Of Attorney Amended Revocable Trust

April 1, 2015

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Georgia makes it easy to amend a trust if the settlor expressly reserves such a power: it needs to be in writing and signed by the settlor.  In Strange v. Towns, the Georgia Court of Appeals showed us how leniently courts should interpret that power to amend.

Pauline Strange created an inter vivos trust naming herself as the initial trustee and three people, including her son Tony, as successor trustees.  Years later, Pauline executed a “General Durable Financial Power of Attorney,” and in the power of attorney Pauline stated that she wanted Tony to be the “executor” of her estate and the trust.  Pauline and Tony both signed the power of attorney.

This was good enough to amend Pauline’s trust because she reserved the right to amend in the trust instrument: “[t]he Settlor may at any time by duly executed

Treasury Green Book Proposal: Limit Duration of GST Tax Exemption

459482489The Treasury Green Book provides explanations of the President’s budget proposals.  One such proposal (remember…these are just proposals, not actual changes in the law) that may affect your estate planning is found on page 200 of the Green Book and is re-printed here for your convenience:

LIMIT DURATION OF GENERATION-SKIPPING TRANSFER (GST) TAX EXEMPTION

Current Law

GST tax is imposed on gifts and bequests to transferees who are two or more generations younger than the transferor. The GST tax was enacted to prevent the avoidance of estate and gift taxes through the use of a trust that gives successive life interests to multiple generations of beneficiaries. In such a trust, no estate tax would be incurred as beneficiaries died, because their

Beneficiary Ratification Of A Trustee’s Unauthorized Act

March 12, 2015

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The trustee-beneficiary relationship can be a little bit like a marriage, so perhaps it’s not surprising that the phrase “speak now or forever hold your peace” has meaning for both.  If a trustee commits a breach of trust, a beneficiary may expressly or impliedly demonstrate satisfaction with the wrongful act thereby preventing that beneficiary from later challenging the act.  In other words, the beneficiary may ratify the trustee’s wrongful or unauthorized act by expressly agreeing to it or by failing to object to it.  In order for a beneficiary to ratify a breach of fiduciary duty, typically there must be proof that the beneficiary had full knowledge of all material facts.  All the more reason for trustees to consider giving beneficiaries more information about the trust administration and the trustee’s actions.  If the beneficiary gets the material information and fails to speak up, then that

With No Contest Provision Lurking, Petition Was All Or Nothing

March 4, 2015

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The law generally disfavors in terrorem clauses, also known as no contest provisions, because they result in forfeitures.  Nevertheless, some people and practitioners like sticking them in governing instruments – sometimes out of habit, sometimes for good reason, and sometimes for not very good reasons at all.  Courts in numerous jurisdictions have chipped away at the enforceability of these clauses by, among other things, strictly construing them and creating a probable cause exception.  In In re Shaheen Trust, in a matter of first impression, an Arizona appellate court considered what happens when there is a no contest provision and a beneficiary brings a multi-count petition.  Must each count be successful or at least have probable cause to survive the in terrorem clause?

According to the Arizona appellate court, yes.  When a single petition alleges multiple challenges to a will or trust

Treasury Green Book Proposal: GRATs and Other Grantor Trusts

459482489

The Treasury Green Book provides explanations of the President’s budget proposals.  One such proposal (remember…these are just proposals, not actual changes in the law) that may affect your estate planning is found on page 197 of the Green Book and is re-printed here for your convenience:

MODIFY TRANSFER TAX RULES FOR GRANTOR RETAINED ANNUITY TRUSTS (GRATS) AND OTHER GRANTOR TRUSTS

Current Law

Section 2702 provides that, if an interest in a trust is transferred to a family member, any interest retained by the grantor is valued at zero for purposes of determining the transfer tax value of the gift to the family member(s). This rule does not apply if the retained interest is a “qualified interest.”

Differentiating Between Trustee-Level Acts And Corporate-Level Acts

February 11, 2015

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When trustees are put in control of family entities held in trust, it may pay to clearly differentiate the capacity in which the trustee takes an action.  Is the trustee taking a trustee-level action or is the trustee taking a corporate/partnership/entity-level action?

When we last looked at Rollins v. Rollins, the Georgia Supreme Court was holding that where, under the terms of a trust, a trustee is put in control of a corporate entity in which the trust owns a minority interest, the trustee should be held to a corporate level fiduciary standard when it comes to his or her corporate duties or actions.  The Georgia Supreme Court then remanded the case to the Georgia Court of Appeals for further consideration in light of that standard.

In the latest round of Rollins v. Rollins, the Georgia Court of Appeals considered the Georgia Supreme Court’s directives

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