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TRUSTS & ESTATES, WILLS, AND TAX LAW UPDATE

GIFTS: Beneficiaries/Disqualification to Take/Ingratitude

Posted by Matthew T. McDavitt on Thu, May 6, 2021 @ 12:05 PM

Matt McDavitt—Senior Attorney, National Legal Research Group

            It is well-settled that in most states, completed inter vivos gifts are deemed irrevocable, even in circumstances where the donor’s relationship with the donee later deteriorates or the purpose of the gift dissipates. “Many gifts are made for reasons that sour with the passage of time. Unfortunately, gift law does not allow a donor to recover/revoke an inter vivos gift simply because his or her reasons for giving it have soured.” Dayal v. Lakshmipathy, 2020-Ohio-5441, ¶ 37, 163 N.E.3d 683 (quotation formatting and citations omitted). However, Louisiana has a unique statute that allows completed lifetime gifts to be revoked upon proper facts showing “ingratitude” to the donor, either through attempted murder or through cruel treatment, where an action is brought within a year of the injurious act or imputed knowledge of such.

Revocation on account of ingratitude may take place only in the following cases:

  • If the donee has attempted to take the life of the donor; or
  • If he has been guilty towards him of cruel treatment, crimes, or grievous injuries.
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Topics: Matthew T. McDavitt, inter vivos gifts, ingratitude, Louisiana revocation

Taxation of Early Withdrawal from Retirement Account; COVID Exception

Posted by D. Bradley Pettit on Tue, Mar 16, 2021 @ 10:03 AM

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.

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Topics: D. Bradley Pettit, early distribution of retirement funds, exceptions to additional 10% tax, COVID exception, qualified retirement account

ESTATES: Multiple Wills—Reconciliation—Choice of Personal Representative

Posted by James P. Witt on Wed, Feb 17, 2021 @ 11:02 AM

Jim Witt—Senior Attorney, National Legal Research Group

            Once in a while, the estate planning steps taken by a decedent make you wonder if he or she was intentionally leaving a mess. When Aretha Franklin, the Queen of Soul, died as a result of pancreatic cancer at age 76 on August 16, 2018, no will was filed. Her family believed that she died intestate. If that had been the case, her net estate would have simply been divided under Michigan law into four equal shares, one for each of her sons, Clarence, Edward, Ted, and Kecalf. In May 2019, however, the family discovered three wills written by Franklin, two from 2010 were found in a locked cabinet, and one from 2014 was found in a spiral notebook left under a couch cushion. The wills seemed fairly evenhanded as among the four sons, but there were questions raised as to the documents' validity by a number of contradictory provisions and the problem with deciphering some of the writing, not to mention numerous underlinings, strikeouts, and marginal notes; much of the writing seemed to be in a stream of consciousness mode.

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Topics: James P. Witt, estate planning, multiple wills, reconciliation, personal representative

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

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