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TRUSTS & ESTATES, WILLS, AND TAX LAW UPDATE

ESTATE PLANNING: Lifetime Gifts of Closely Held Business Stock to Family Members

Posted by D. Bradley Pettit on Thu, Dec 13, 2018 @ 12:12 PM

Brad Pettit—Senior Attorney, National Legal Research Group

 

         "Rather than disposing of stock in a closely held business (by sale or corporate reorganization) at retirement the retiree may decide to transfer all or a portion of the stock by gifts to various family members." Streng & Davis, Tax Planning for Retirement ¶ 7.05[1] (Thomson Reuters Tax & Acct’g 2018).  Three important objectives can be achieved by making gifts of closely held business stock to family members:

 

It eliminates the stock's dividend income from the gross income and the estate of the retiree/donor

 

It removes the value of the stock from the retiree/donor's estate for federal estate tax purposes upon the retiree's death

 

It solidifies the interests of the family members receiving the stock as officers of the closely held corporation, enabling them access to corporate executive compensation arrangements and other benefits.

 

Id.

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Topics: estate planning, Brad Pettit, closely held business stock, estate tax liability

Succession to the Estate of Charles Manson

Posted by James P. Witt on Mon, Nov 26, 2018 @ 11:11 AM

Jim Witt—Senior Attorney, National Legal Research Group

            In 1971, Charles Manson (“Manson”), the leader of the Manson Family cult, was convicted of first-degree murder and conspiracy to commit murder for the deaths of nine people in July and August 1969. He was originally sentenced to death, but his sentence was commuted to life with the possibility of parole after the suspension of the death penalty under both California and federal law (California's adoption in 1978 of a death penalty that qualified under federal guidelines and the sentence of life imprisonment with no possibility of parole could not be applied retroactively to Manson). After 46 years of incarceration, Manson died on November 19, 2017 of acute cardiac arrest, respiratory failure, and colon cancer. What has ensued, however, is an estate proceeding that has been complicated by a number of factors:

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Topics: estates, Jim Witt, Charles Manson, succession, last domiciliary

TAX: Sales and Use Tax—The End of the “Physical Presence” Test

Posted by D. Bradley Pettit on Wed, Oct 17, 2018 @ 12:10 PM

Brad Pettit, Senior Attorney, National Legal Research Group

            On January 12, 2018, in South Dakota v. Wayfair, Inc., 138 S. Ct. 735 (2018) (Mem.), the United States Supreme Court granted a petition for writ of certiorari with respect to the decision by the Supreme Court of South Dakota in State v. Wayfair Inc., 2017 SD 56, 901 N.W.2d 754, holding that a state statute that requires Internet sellers with no physical presence in the state to collect and remit sales tax violated the dormant Commerce Clause of the U.S. Constitution.

            In reaching this decision, the Supreme Court of South Dakota had relied on the prior rulings from the United States Supreme Court in National Bellas Hess, Inc. v. Department of Revenue, 386 U.S. 753 (1967), and Quill Corp. v. North Dakota, 504 U.S. 298 (1992), holding that the Commerce Clause of the federal Constitution prohibits a state from requiring an out-of-state seller to collect and remit sales or use tax with respect to mail-order and similar sales and shipments of merchandise to in-state purchasers unless the former has a "physical presence" in the taxing state.

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Topics: sales and use tax, physical presence in taxing state, Internet sellers, Commerce Clause

ESTATES: Removal of an Executor or Trustee

Posted by D. Bradley Pettit on Fri, Feb 16, 2018 @ 16:02 PM

     The general rule is that a probate or surrogate's court may revoke letters of administration that were granted to an executor or personal representative if there is demonstrated friction, hostility or antagonism between the appointed fiduciary and beneficiaries of a decedent's estate, but only if the enmity between the fiduciary and the beneficiaries threatens to interfere with the administration of the estate.  In re Estate of Brown, 2016 N.Y. Slip Op. 02691, 138 A.D.3d 1191, 29 N.Y.S.3d 630 (3d Dep't 2016).  In other words, neither a conflict of interest nor hostility between an executor or trustee and the beneficiaries of an estate or trust provide the basis for removing a trustee or personal representative unless the administration of the trust or estate has been adversely affected.  In re Gerald L. Pollack Trust, 309 Mich. App. 125, 867 N.W.2d 884 (2015); In re Estate of Robb, 21 Neb. App. 429, 839 N.W.2d 368 (2013) (when executor of estate has a personal interest in administration of estate and in disposition of estate property and circumstances reveal that those conflicting interests are preventing executor from performing fiduciary duties in impartial manner, then executor should be removed).

     The mere fact that the personal representative of a decedent's estate is also a beneficiary thereof does not necessarily create a conflict of interest that would justify the removal of the personal representative as the fiduciary for the estate.  Gardiner v. Taufer, 2014 UT 56, 342 P.3d 269.  In order to justify removal of a personal representative who is also a beneficiary of an estate, the evidence must show that the personal representative committed some negligent act or mismanagement of the estate before a court can find a sufficient conflict of interest that is serious enough to justify removal of the estate fiduciary.  Id. ¶ 31, 342 P.3d at 279.

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Topics: executor of estate, hostility between trustee and beneficiary, motives and conflict of interest if trustee is a b, removal of executor or personal representative

TAX: U.S. Tax Court Quotes Show Business Celebrity

Posted by James P. Witt on Thu, Oct 26, 2017 @ 12:10 PM

Jim Witt, Senior Attorney, National Legal Research Group 

            It is not often, if ever, that the U.S. Tax Court quotes a show business celebrity in its opinions, but it did so in a summary opinion filed on August 16, 2017, in the case of Omoloh v. Commissioner, T.C. Summ. Op. 2017-64, 2017 WL 3530853. The case turned on whether the taxpayer, Wilfred Omoloh, was age 59½ at the time that he took a distribution from his individual retirement account ("IRA"). I.R.C. § 72(t) ("10-percent additional tax on early distributions from qualified retirement plans") provides in subsection that (1) if the taxpayer receives a distribution from a qualified retirement plan such as an IRA, the taxpayer's income tax liability for the year will be increased by an amount equal to 10% of the portion of the distribution includible in gross income. However, under subsection (2), the 10% penalty of subsection (1) shall not apply if the distribution is made on or after the date on which the taxpayer attains age 59½.

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Topics: tax law, IRA account, distribution, income tax liability, age and penalty

Creation/Timing of Self-Proving Affidavits

Posted by Matthew T. McDavitt on Fri, Sep 22, 2017 @ 11:09 AM

Matthew McDavitt, Senior Attorney, National Legal Research Group

            In the execution of wills, many testators utilize the optional execution of self-proving affidavits, where statutorily authorized, wherein the will execution witnesses sign a statement before an officer authorized to administer oaths affirming their observation of the testator's mental capacity and testamentary intent, as well as the signing of the will. A properly executed self-proving affidavit raises a legal presumption of due execution and eliminates the normal requirement mandating that witnesses to a will testify in court as to the authenticity of the will.

            In practice, self-proving affidavits are normally created contemporaneously with the execution of the will, and some states' statutes mandate such simultaneous affidavit execution. However, some state statutes expressly allow self-proving affidavits to be executed at any time after the observed will execution. Thus, for example, we see both simultaneous and postexecution self-proving affidavit execution mentioned in Michigan's statutory provision on the subject:

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Topics: trusts, self-proving affidavits, contemporaneous with will, timing

TAX:  Corporate Income Tax Reform

Posted by James P. Witt on Fri, Jun 9, 2017 @ 17:06 PM

The Lawletter Vol 42 No 4

Jim Witt, Senior Attorney, National Legal Research Group

     The one area of taxation that is recognized on both sides of the political aisle as badly needing reform is the federal corporate income tax. One fact that signals the need for reform is that the maximum tax rate for the ordinary income of U.S. corporations is at 35% on taxable income exceeding $10 million (Internal Revenue Code of 1986, § 11(b)(1)(D)), among the highest marginal rates in the world (e.g., Ireland 12.5%; Germany 29.65%). As a result, and as prominently reported in recent months, a number of U.S. corporations (notably Apple and Alphabet (Google)) have shifted the locus of intangible assets and/or corporate headquarters to countries with favorable tax rates (a procedure known as a "corporate inversion"). United States corporations are subject to federal income tax on their global profits, but by not repatriating their profits attributable to a foreign situs, those corporations avoid paying taxes by simply not bringing those profits back to the United States.

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Topics: corporate income, tax law, U.S. high rate on taxable income, location of corporate headquarters

TRUSTS: Charitable Trusts and Bankruptcy Proceedings

Posted by Matthew T. McDavitt on Mon, Mar 6, 2017 @ 17:03 PM

The Lawletter Vol 42 No 2

Matt McDavitt, Senior Attorney, National Legal Research Group

     Where testators or settlors create charitable gifts in trust for named institutional beneficiaries, when the contemplated distribution is ready to be made, sometimes it is found that the intended charity is involved in bankruptcy proceedings. Therefore, the question arises as to the proper disposition of such charitable gifts in trust to the bankrupt institutional beneficiaries.

     There is little law, even nationally, discussing the proper course of action in the event that a named charitable beneficiary is found to be in bankruptcy at the time of distribution. It is logical that a testator who makes a charitable gift would not want his or her gift to be subject to collection by the intended recipient institution's bankruptcy trustee, as such action would solely benefit the charity's creditors, rather than advancing the intended charitable purpose. There is at least one federal opinion interpreting and predicting state law on this point, holding that: (a) Under Massachusetts law as predicted by the First Circuit Court of Appeals, a charitable organization that has ceased to perform charitable work, and that is incapable of redirecting funds for charitable purposes, is ineligible to receive a charitable bequest or gift, absent a contrary provision in will or trust instrument; and (b) It is "difficult to imagine" that, absent special circumstances, a testator seeking to advance general charitable interests would ever intend her gift to be used for the benefit of creditors rather than to promote charitable purposes actually intended. In re Boston Reg’l Med. Ctr., Inc., 410 F.3d 100 (1st Cir. 2005).

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Topics: trusts, charitable trust, bankruptcy, proper disposition of gift

TAX: Legal Issues Arising from Tax-Related Identity Theft

Posted by Lee P. Dunham on Mon, Mar 6, 2017 @ 16:03 PM

The Lawletter Vol 42 No 2

Lee Dunham, Senior Attorney, National Legal Research Group

     Tax-related identity theft occurs when someone uses a taxpayer's stolen Social Security number to file a fraudulent refund. Often, the taxpayer is not aware of the identity theft until he or she files a valid tax return and is notified by the Internal Revenue Service ("IRS") that multiple returns have been filed in his or her name. Its incidence, like that of other forms of identity theft, has increased in recent years due to hacking and phishing scams that have enabled cybercriminals to obtain far-reaching access to taxpayers' personal data, including Social Security numbers.

     The schemes of the criminal defendants described in United States v. Philidor, 717 F.3d 883 (11th Cir. 2013), and United States v. Gonzalez, No. 13 CR 154 RWS, 2014 WL 316984, at *2 (S.D.N.Y. Jan. 27, 2014), are illustrative of the nature and scope of the problem.

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Topics: tax, identity theft, stolen Social Security number

ESTATES: The Inheritability of Digital Music Files

Posted by Matthew T. McDavitt on Thu, Dec 1, 2016 @ 09:12 AM

Matthew McDavitt, Senior Attorney, National Legal Research Group

     The average layperson might assume that digital music files (i.e., songs purchased from services such as iTunes and Amazon) can be passed by will or intestate succession. This is certainly true for music recorded onto physical media, such as CDs. However, the law currently treats digital files differently, given (a) the manner in which digital music is purchased, (b) the use of multiple digital files when accessing digital music files, and (c) the perishable nature of non-digital media.

     Because most consumers never read the "Terms & Conditions" agreements when purchasing digital music, they may be surprised to learn that when buying a song from iTunes or Amazon, the purchaser is not granted ownership of the downloaded song file, but merely acquires a non-transferable license to use the file on the purchaser’s device for the contract duration. Thus, by contract, such files cannot pass at the death of the purchaser, as the usage license is non-transferable to other persons.

     Digital music services have justified the new ownership regime based upon the manner in which digital music is accessed and played, as well as the non-perishability of digital files. Digital music providers argue that the digital file is necessarily "copied" each time it is accessed from the purchaser's device, the "cloud," or when streamed from the service-provider, so that the seller rightfully structures consumer access of the purchased music files as a personal, non-transferable license to access such usage "copies" during the term of the contract.

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Topics: estates, digital music files, Matthew T. McDavitt, usage license is nontransferable

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