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TRUSTS & ESTATES, WILLS, AND TAX LAW UPDATE

ESTATES: Can Legitimacy of a Putative Heir Be Challenged in an Intestacy Administration?

Posted by Matthew T. McDavitt on Thu, Oct 8, 2020 @ 11:10 AM

Matt McDavitt—Senior Attorney, National Legal Research Group

            When a person dies without a will, the decedent’s estate is passed via the statutory regime of intestate succession, representing the presumed intention of most people to gift their estate at death to their close heirs.

            A decedent’s intestate heirs encompass one’s closest blood relatives (plus more remote relatives via representation through deceased family members who have died leaving surviving issue), plus any children that were legally adopted by the decedent, or their issue. However, while it is common nowadays for out-of-wedlock children to petition estate administrations in order to prove their relation to a claimed deceased father, the related circumstance also arises where the paternity of a presumptive child of marriage is challenged.In such a situation, may the parties interested in the estate contest the legitimacy of presumptively marital children where there is evidence that such a child was not, in fact, a blood relative of the decedent, as in the case of marital infidelity?

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Topics: Matthew T. McDavitt, intestacy, estates, putative heir, presumption of legitimacy, clear and convincing evidence

Release of Trustee from Liability for Retaining an Investment

Posted by D. Bradley Pettit on Thu, Apr 2, 2020 @ 12:04 PM

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. M.L. Cross, Annotation, Construction and Effect of Instrument Authorizing or Directing Trustee or Executor to Retain Investments Received Under Such Instrument, 47 A.L.R.2d 187 (1956). But in a case where a trust instrument does not excuse the trustee from potential liability for retaining risky investments, such as an overconcentrated position in a particular stock or class of investments, is there anything that the trustee can do to avoid liability to a beneficiary who is exerting extreme pressure on him or her to retain a favored parcel of real estate, stock, or class of stocks?

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Topics: breach of fiduciary duty, trusts, written consent, D. Bradley Pettit, liability of trustee

WILLS: Succession to the Estate of French Rock Star Johnny Hallyday

Posted by James P. Witt on Fri, Aug 2, 2019 @ 11:08 AM

James Witt—Senior Attorney, National Legal Research Group

            Johnny Hallyday ("Johnny"), an iconic French rock star for six decades,  modeled himself on Elvis Presley and James Dean. He died on December 6, 2017, leaving an estate possibly worth over $100 million. Born Jean-Philippe Smet, he adopted the last name of an uncle and was survived by his fourth wife, Laeticia, whom he married in 1996 when she was 21. Johnny's first wife was Sylvie Vartan, who was one of a group of French popstars in the sixties known as the Yeh-Yeh Girls. He also had a liaison with French actress Nathalie Baye, with whom he had one of his two older children, Laura Smet. The other older child is David Hallyday. Two younger children were adopted from Vietnam by Johnny and Laeticia.

            A controversy arose concerning the proper jurisdiction over the estate. Johnny built a house in Los Angeles and spent a good portion of his last seven years in California, where he indulged his passion for motorcycles. He executed a will in California under which he left his entire estate to Laeticia, thereby disinheriting all of his children, apparently believing that his two older children were wealthy in their own right and that the younger ones would be well-provided for by Laeticia. Under California Probate Code § 21621, a parent may disinherit a child if that intention is manifested in the testamentary instrument. In February 2018, Laura Smet and David Hallyday commenced a suit in France seeking to annul the California will on the basis that under a regulation adopted by the European Union (effective August 2015), the law of succession that applies to a decedent's estate is the law of the country of the decedent's habitual residence.

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Topics: wills, James P. Witt, succession, Johnny Hallyday, jurisdiction over estate

WILLS: Scope of Description "Personal Effects"

Posted by Matthew T. McDavitt on Wed, Jun 19, 2019 @ 12:06 PM

The Lawletter Vol 44 No 4

Matthew McDavitt—Senior Attorney, National Legal Research Group

            The phrase "personal effects" is a descriptor that commonly leads to litigation regarding its usual or intended scope. Unqualified, the word "effects" in a testamentary context generally denotes personal property of any description. Adler v. First-Citizens Bank & Trust Co., 4 N.C. App. 600, 603, 167 S.E.2d 441, 443 (1969). However, pairing the adjective "personal" with the noun "effects" expressly modifies and limits its scope:

The adjective "personal" would be unnecessary and useless if it did not restrict the meaning of "effects," which standing alone would have covered all personalty. . . . [T]he words "personal effects" . . . [usually] cover only those articles of tangible personal property that in their use or intended use had some intimate connection with the person of the testatrix.

Gaston v. Gaston, 320 Mass. 627, 628, 70 N.E.2d 527, 528 (1947).  Thus, "[t]he term 'personal effects' ordinarily does not include cash and property held for investment." Beasley v. Wells, 55 So. 3d 1179, 1185 (Ala. 2010); In re Estate of Stengel, 557 S.W.2d 255 (Mo. Ct. App. 1977) (the term "personal effects" meant tangible property worn or carried about the person or tangible property having some intimate relation to the person of the testatrix; the term did not include the bonds, stocks, savings and loan accounts, cash, coins, or currency).

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Topics: wills, Matthew T. McDavitt, intended scope, personal property not bequeathed, "personal effects"

ESTATES: Gifts Under a Power of Attorney

Posted by D. Bradley Pettit on Wed, Jun 19, 2019 @ 11:06 AM

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.

Unif. Power of Attorney Act § 217(b), U.LA. (Westlaw current through 2017 Annual Meeting of the National Conference of Commissioners on Uniform State Laws).

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Topics: estates, Uniform Power of Attorney Act, D. Bradley Pettit, personal liability, gifting authority

TAX: Minimum Contacts Necessary for Taxation of Trust

Posted by James P. Witt on Tue, Mar 26, 2019 @ 09:03 AM

Jim Witt—Senior Attorney, National Legal Research Group

            In Kimberley Rice Kaestner 1992 Family Trust v. North Carolina Department of Revenue, ___ N.C. App. ___, 789 S.E.2d 645, aff'd, ___ N.C. ___, 814 S.E.2d 43 (2018), cert. granted sub nom. North Carolina Department of Revenue v. Kimberley Rice Kaestner 1992 Family Trust, No. 18-457, 2019 WL 166876 (U.S. Jan. 11, 2019) the court addressed the issue of whether North Carolina's taxation under North Carolina General Statutes § 105-160.2 of the income accumulated by the trust in question met the minimum contacts requirement of the Due Process Clause of the Fourteenth Amendment to the U.S. Constitution, where the trust's only connection with North Carolina was the residence and domicile of the beneficiary.

            The Trust, the Kaestner 1992 Family Trust, was established by Joseph Lee Rice III, with William B. Matteson as trustee. The situs of the trust was New York. The primary beneficiaries of the trust were the settlor's descendants (none of whom lived in North Carolina at the time of the trust's creation). In 2002, the original trust was divided into three separate trusts: one for each of the settlor's children, with each trust named for a child. At that time, one of the children, Kimberley Rice Kaestner, the beneficiary of the plaintiff Kimberley Rice Kaestner 1992 Family Trust, was a resident and domiciliary of North Carolina. Neither the original trustee nor his successor was a resident of North Carolina.

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Topics: Due Process Clause, minimum contacts, taxation of trust income, beneficiary's residence, trust situs

TAX: Free Like-Kind Exchanges of Property

Posted by D. Bradley Pettit on Thu, Dec 27, 2018 @ 11:12 AM

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.

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Topics: IRC, Brad Pettit, tax, like-kind exchanges, nature or character of property, personal residence

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: Brad Pettit, estate planning, 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, last domiciliary, succession

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

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