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Defalcation, Bankruptcy, And Fiduciary Litigation

May 20, 2013

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Last week, the United States Supreme Court issued its opinion in Bullock v. BankChampaign, N.A., which addressed the circumstances in which a breach of fiduciary duty judgment can be discharged in bankruptcy proceedings.  Specifically, the Court resolved a deeply fractured Circuit split on the scope of the term “defalcation” within Section 523(a)(4) of the Federal Bankruptcy Code.  That Section of the Bankruptcy Code provides that an individual cannot obtain bankruptcy discharge “for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny.”  For years, the lower courts had struggled with what, exactly, “defalcation” means.  Wonder no longer because the Supreme Court has defined it.

How is an Illinois Trust Now Like a Fine Wine? It Can Be Decanted: A Summary of the New Illinois Decanting Statute

decanterEffective January 1, 2013, Illinois statute authorizes “decanting” of irrevocable trusts. What is decanting, you ask? Isn’t that something you do with a bottle of wine? Yes, it is, and just like you decant wine from one bottle into a new container to remove sediment and to allow the wine to breathe, when you decant a trust, you pour the trust assets from one trust into another trust, allowing flexibility in the terms of an otherwise irrevocable trust.

Illinois recently enacted a new Section 16.4 of the Trust and Trustees Act, entitled “Distribution of trust principal in further trust” (the “Decanting Statute”). The Decanting Statute allows the trustees of an irrevocable trust (the first trust), acting pursuant to their fiduciary duty (and assuming certain conditions are met), to distribute all or part of

When The General Powers Granted To A Trustee Conflict With A Specific Trust Provision

From BryanCaveFiduciaryLitigation.com

Almost invariably, settlors give their trustees broad powers regarding trust property.  Often these broad powers include the power to convey and encumber trust property and the power to loan trust property.  But, sometimes, the settlor also gives the trustee specific instructions with respect to specific trust property.  In Hamel v. Hamel, the Kansas Supreme Court interpreted a trust instrument that gave the trustee broad general powers, but also specific directions regarding a specific piece of real property, and examined the interplay between the two provisions.

Arthur L. Hamel’s trust instrument gave the trustee broad authorization to control and administer trust property, including “the power to do all acts that might legally be done by an individual in absolute ownership and control of the property” and provided the trustee with “the power to lend money to . . . any beneficiary

Partner John Barrie in the 8th Circuit Appellate Practice Manual

May 10, 2013

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Partner John Barrie, resident in our DC and NY offices, co-authored a chapter on appeals of tax decisions in the 8th Circuit Appellate Practice Manual. The chapter discusses the procedures that apply to review of cases on appeal from the United States Tax Court. It includes an overview of the Tax Court and a discussion of the procedures for seeking review of its decisions. Other topics include special procedures governing venue for appeal, notice of appeal, response to notice of appeal, record on appeal, stay pending appeal and standards of review on appeal.

When The General Powers Granted To A Trustee Conflict With A Specific Trust Provision

May 10, 2013

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Almost invariably, settlors give their trustees broad powers regarding trust property.  Often these broad powers include the power to convey and encumber trust property and the power to loan trust property.  But, sometimes, the settlor also gives the trustee specific instructions with respect to specific trust property.  In Hamel v. Hamel, the Kansas Supreme Court interpreted a trust instrument that gave the trustee broad general powers, but also specific directions regarding a specific piece of real property, and examined the interplay between the two provisions.

Rock, Paper, Scissors: Life Insurance Beneficiary Designation Beats Will

The U.S. District Court in Minnesota, in Hall v. Metropolitan Life Insurance Company, D. Minn., No 0:11-cv-01269-DWF-LIB, 1/15/13, declined to give any effect to the fill in the blank form Will completed at the direction of Dennis Hall (the “Decedent”) by the Decedent’s daughter that attempted to dispose of the proceeds of the group term life insurance policy provided through the Decedent’s employment.

The Decedent had designated one of his four children as the beneficiary of his employer-provided life insurance policy in 1991. He then married Jane in 2001, but did not change the beneficiary of this life insurance policy. In early 2010, Decedent was diagnosed with cancer. Sometime after being diagnosed with cancer, Decedent notified his employer that he wanted to change his beneficiary, and his employer-provided him with a change of beneficiary form, but Decedent never returned the form to his employer.

Michigan Allows Guardians And Conservators To File Divorce Complaints On Behalf Of Their Wards

May 7, 2013

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Not surprisingly, in Estate of Burnett, the Michigan Court of Appeals reaffirmed that a guardian or conservator can file a complaint for divorce on behalf of the incapacitated spouse over whom the guardianship or conservatorship is placed.

For the family law readers out there, the other interesting question answered by the appellate court was that the trial court had jurisdiction to enter a judgment of divorce between married persons of the same sex even though Michigan’s state constitution prohibits recognition of a marriage entered into by two individuals of the same sex.  Click on the link above for more details.

You Can’t Hide From the IRS

The general rule is that an IRA is exempt from the claims of creditors. Indeed, the Federal Bankruptcy Code provides in Sections 522(b)(3)(C) and 522(d)(12) that a retirement plan, including an IRA and a Roth IRA, is an exempt asset in bankruptcy. However in Green v. Pershing L.L.C., N.D. Okla., No. 4:12-cv-00296-CVE-FHM, 10/22/12, the U.S. District Court for the Northern District of Oklahoma ruled that the plan sponsor was not liable for turning over Mr. Green’s entire IRA to the IRS in response to the Notice of Levy and demand the IRS served on Pershing L.L.C. (“Pershing”).

In this case, the IRS sent a Notice of Levy to Pershing attaching the IRA as property of Mark Green (“Green”) to satisfy the taxes owed by Green. When Pershing received the Notice of Levy, it sent a letter to Green asking that he notify the broker as to how he was planning

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