The Lawletter Vol 46 No 2

Brad Pettit—Senior Attorney, National Legal Research Group

            A recent decision by the U.S. Tax Court serves as a reminder that if an individual elects to take funds from his or her tax-favored retirement account before he or she attains the age of 59½, the distribution from the account to him or her is not only subject to federal income tax, as are all distributions from retirement accounts, but is also subject to the 10% additional tax that is imposed upon early withdrawals from retirement accounts, such as individual retirement accounts ("IRAs"). In Lashua v. Commissioner, T.C. Memo. 2020-151, 2020 WL 6559172 (Nov. 9, 2020), the Tax Court reminded us that if we decide to withdraw funds from an otherwise tax-deferred retirement account before we reach the age of 59½, we should be prepared, under 26 U.S.C. § 61(a), to report the distribution as "gross income" on our individual or joint federal income tax return and, pursuant to 26 U.S.C. § 72(t)(1), to pay an "additional tax" equal to 10% of the funds that were withdrawn.

The Lawletter Vol 45 No 6

Brad Pettit—Senior Attorney, National Legal Research Group

            In a very recent ruling that was consistent with prior Virginia state court decisions that favor residential landlords in cases involving personal injury suits by tenants against landlords, a federal district court sitting in Virginia dismissed wrongful death and intentional infliction of emotional distress ("IIED") actions by the plaintiff, a mobile home owner, against a mobile home park lot owner that arose when a decaying tree fell on the plaintiff's mobile home and crushed her son to death. Darlington v. Harbour E. Vill. LLC, No. 3:20cv157-HEH, 2020 WL 3979664 (E.D. Va. July 14, 2020) (slip copy) (only the Westlaw citation is currently available), appeal filed (4th Cir. Aug. 11, 2020). Even though there was evidence that prior residents in the mobile home park had warned the lot owner at least three times about the decaying tree and the dangers that it posed, the Darlington court ruled that, in the absence of a statutory or common-law duty on the part of the mobile home park lot owner/lessor to the mobile homeowner/lot lessee to maintain a safe condition of the lot, the plaintiff could not bring a wrongful death claim against the lot lessor:

Brad Pettit, Senior Attorney, National Legal Research Group

   An unreported mid-level appellate decision by a Pennsylvania Superior Court illustrates that courts take a dim view to a residential landlord's attempt to defend against breach of covenant of quiet enjoyment and constructive conviction claims against him or her by a tenant by asserting that the parties' dispute stemmed from a good-faith mistake or misunderstanding. In Grodin v. Farr, No. 45 WDA 2019, 2020 WL 919200 (Pa. Super. Ct. Feb. 26, 2020) (nonprecedential decision), the court rejected a landlord's claim that he did not breach the covenant of quiet enjoyment or constructively evict his tenants by changing the locks on their unit because he mistakenly assumed that the tenants had received a key to the back door from the previous tenants and could still gain access to the leased premises.

The Lawletter Vol 45 No 2

Brad Pettit—Senior Attorney, National Legal Research Group

     It is not uncommon for trustees of trusts to encounter beneficiaries that pressure them into retaining a particular asset or investment even though the retention thereof might pose an unreasonable risk with respect to the performance of the overall portfolio and subject the trustee to potential liability to the beneficiaries for breach of the fiduciary duty to diversify the trust's investments. P.G. Guthrie, Annotation, Duty of Trustee to Diversify Investments, and Liability for Failure to Do So, 24 A.L.R.3d 730 (1969). In such a situation, the trust instrument itself may contain a provision that expressly or impliedly relieves the trustee from liability for retaining certain assets that might pose a risk to the performance of the overall trust portfolio.

The Lawletter Vol 44 No 4

Brad Pettit—Senior Attorney, National Legal Research Group

            The Uniform Power of Attorney Act ("UPAA") provides that

(b) Unless the power of attorney otherwise provides, language in a power of attorney granting general authority with respect to gifts authorizes the agent only to:

(1) make outright to, or for the benefit of, a person, a gift of any of the principal's property, including by the exercise of a presently exercisable general power of appointment held by the principal, in an amount per donee not to exceed the annual dollar limits of the federal gift tax exclusion under Internal Revenue Code Section 2503(b) . . . and

(2) consent, pursuant to Internal Revenue Code Section 2513, 26 U.S.C. Section 2513, [as amended,] to the splitting of a gift made by the principal's spouse in an amount per donee not to exceed the aggregate annual gift tax exclusions for both spouses.

The Lawletter Vol 43 No 8

Brad Pettit—Senior Attorney, National Legal Research Group

            The Internal Revenue Code provides generally that "[n]o gain or loss shall be recognized on the exchange of real property held for productive use in a trade or business or for investment if such real property is exchanged solely for real property of like kind which is to be held either for productive use in a trade or business or for investment," as long as the transaction does not involve an "exchange of real property held primarily for sale." 26 U.S.C. § 1031(a) (also includes Pub. L. Nos. 115-233 to 115-253, 115-255 to 115-269; Title 26 current through Pub. L No. 115-270). "As used in section 1031(a), the words 'like kind' have reference to the nature or character of the property and not to its grade or quality." 26 C.F.R. § 1.1031(a)-1(b). Thus, "[o]ne kind or class of property may not, under that section, be exchanged for property of a different kind or class." Id. For example, "[t]he fact that any real estate involved is improved or unimproved is not material, for that fact relates only to the grade or quality of the property and not to its kind or class." Id.

The Lawletter Vol 43 No 7

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.

The Lawletter Vol 43 No 5

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 U.S. 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.

The Lawletter Vol. 43 No. 2

Brad Pettit, Senior Attorney, National Legal Research Group

      A decision by the Supreme Court of Idaho illustrates the difficulties that a guest of a residential tenant may face when trying to hold the tenant's landlord liable for injuries sustained by the guest when the guest was bitten by the tenant's dog.  See Bright v. Maznik, 162 Idaho 311, 396 P.3d 1193 (2017).  In Bright, a guest of the tenants advanced several theories of liability in her suit against the tenants' landlords: negligence per se under Idaho's vicious dog statute, breach of duty to protect the guest from an animal known to have vicious tendencies, common law negligence, voluntary assumption of duty, and premises liability.  None of these claims were successful, primarily because the plaintiff failed to make the requisite factual showings that the landlords either "knew" about or "harbored" a vicious animal on the premises.

      For example, the Bright court found that the landlords could not be charged with "harboring" the tenants' dog on the property, as required under the vicious dog statute, regardless of whether the dog was actually "vicious."  162 Idaho 311, 396 P.3d at 1197.  The Bright court reasoned that, since the term "harbor," as it is used in the vicious dog statute, "contemplates protecting an animal, or undertaking to control its actions," the landlords could not be charged with negligence per se under the statute because there was no evidence in the record that the landlords "received clandestinely and concealed the [tenants'] dog" or "had an animal in [their] keeping."  Id. (citations therein omitted).

The Lawletter Vol 43 No 1

Brad Pettit, Senior Attorney, National Legal Research Group

      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.