Thursday, August 29, 2013

The IRS today announced that, in light of the Supreme Court’s decision in United States v. Windsor, all legal same-sex marriages will be recognized for federal tax purposes, regardless of whether the couple’s state of residence recognizes the marriage.

For the full announcement, click here.

Thursday, August 29, 2013

Originally posted on

Effective earlier this month, Delaware once again amended its trust statutes.  In what has become an (almost) annual ritual, Delaware has tweaked its trust statutes in an effort to make the state a more appealing jurisdiction for trust administration.  A full look at the law is here, but here are some of the highlights:

Children Born Out of Wedlock 

Section 1 of the Act amending the trust statutes cross-references the legitimation process elsewhere in the Delaware Code for purposes of intestate succession for persons born out of wedlock.

Definition of “Governing Instrument”

The definition of “governing instrument” now also expressly includes “any instrument that modifies a governing instrument or, in effect, alters the duties and powers of a fiduciary or other terms of a governing instrument.”

No Duty to Inquire to Satisfy Prudent Person Standard

The amendments clarify that a fiduciary has no duty to inquire as to the nature and extent of investments held by the fiduciary in an investment directed trust or an investment directed account within a trust for the fiduciary to satisfy the Code’s prudent person standard.

Governing Instrument May Override Trust Law

The amendments also clarify that a governing instrument may expand, restrict, eliminate, or otherwise vary ”provisions of general application to trusts and trust administration.”

Creditor Claims against Revocable Trusts

This section was tweaked to reflect Delaware’s recognition of same-sex marriages by changing references from “husband and wife” to “spouses.”  It also cleaned up some unnecessarily convoluted language regarding creditors’ remedies against spouses who have contributed property held as joint tenants to revocable trusts.

Appointment of Successor Trustee

The new laws provide a procedure for non-judicial appointment of successor trustees in certain situations:

If a trust has no serving trustee because of the death, incapacity or resignation of the last serving trustee of the trust, and if the provisions of the governing instrument do not include any provisions which can be effectively used to appoint a successor trustee, and if the only remaining dispositive provisions of the trust then require distribution of the remaining property of the trust to one or more beneficiaries (whether outright, or to one or more other trusts which do have a serving trustee), then the taking beneficiaries of the trust, by unanimous vote, may name a successor trustee of the trust without the approval of the Court of Chancery.  For purposes of the preceding sentence, the person entitled to vote with respect to a beneficiary which is another trust which has a serving trustee is the trustee or trustees of such trust.

Claims Against Revocable Trusts

The following language was added to address claims against revocable trusts:

Following the death of the trustor of a trust that was revocable immediately prior to the trustor’s death, all claims against the trust that, but for any applicable period of limitations, could have been brought against the trustor’s estate, whether due or to become due, absolute or contingent, liquidated or unliquidated, founded on contract, tort or other legal basis, if not barred earlier by other statute of limitations, are barred against the trust when and to the same extent barred against the trustor’s estate by any applicable statute of limitations or statute of repose on claims against the estate including any such statute of limitations or repose enacted by jurisdictions other than this State.

Failure to Exercise Decanting Power

Absent willful misconduct, no trustee or adviser has a duty to exercise the power to decant.

Virtual Representation

Virtual representation may be available if there are no “material conflicts of interest” between the person doing the representing and the person being represented.  The statute now includes three situations in which a material conflict of interest is presumed:

1. a situation in which the representative would, as a result of the judicial proceeding or nonjudicial matter, be appointed to a fiduciary or nonfiduciary office or role relating to the trust unless the representative presently serves in a fiduciary or nonfiduciary office or role relating to the trust and will not receive greater authority, broader discretion, or increased protection by reason of the new appointment;

2. a situation in which the representative currently holds a fiduciary or nonfiduciary office or role relating to the trust and, as a result of the judicial proceeding or nonjudicial matter, will receive greater authority, broader discretion, or increased protection by reason of the judicial proceeding or nonjudicial matter; and

3. a situation in which the representative has any other actual or potential conflict of interest with the represented beneficiaries with respect to the particular question or dispute, including but not limited to a conflict resulting from a differing investment horizon or an interest in present income over capital growth.

Non-Judicial Settlement Agreements

Delaware has now adopted language similar to the UTC’s non-judicial settlement language:

§ 3338.  Non judicial Settlements Agreements.

(a) For purposes of this section, “interested persons” means persons whose consent would be required in order to achieve a binding settlement were the settlement to be approved by the Court of Chancery.

(b) Except as otherwise provided in subsection (c), interested persons may enter into a binding nonjudicial settlement agreement with respect to any matter involving a trust (other than a trust described in § 3541 of this title).

(c) A nonjudicial settlement agreement is valid only to the extent it does not violate a material purpose of the trust and includes terms and conditions that could be properly approved by the Court of Chancery under this title or other applicable law.

(d) Matters that may be resolved by a nonjudicial settlement agreement include:

(1) the interpretation or construction of the terms of the trust;

(2) the approval of a trustee’s report or accounting;

(3) the direction to a trustee to refrain from performing a particular act or the grant to a trustee of any necessary or desirable power;

(4) the resignation or appointment of a trustee and the determination of a trustee’s compensation;

(5) the transfer of a trust’s principal place of administration; and

(6) the liability of a trustee for an action relating to the trust.

(e) Any interested person may bring a proceeding in the Court of Chancery to interpret, apply, enforce, or determine the validity of a nonjudicial settlement agreement adopted under this Section, including but not limited to determining whether the representation as provided in § 3547 of this title was adequate.”

Tuesday, August 27, 2013

Congratulations to the following Private Client members for their inclusion in the 2014 edition of The Best Lawyers in America, the oldest lawyer-rating publication in the U.S. Selection is based on a peer-review survey in which leading attorneys cast almost 5 million votes on the legal abilities of other lawyers in their specialties.


William Linkous Jr. for Litigation – Trusts and Estates

William Linkous Jr. for Trusts and Estates

Frank S. McGaughey for Trusts and Estates


Renee M. Gabbard for Trusts and Estates

Kansas City:

B. John Readey III for Trusts and Estates

St. Louis:

Lawrence Brody for Tax Law

Lawrence Brody for Trusts and Estates

Michael N. Newmark for Tax Law

John D. Schaperkotter for Trusts and Estates

Kathleen R. Sherby for Litigation — Trusts and Estates

Kathleen R. Sherby for Trusts and Estates

Franklin F. Wallis for Trusts and Estates


Monday, August 26, 2013


What does a trustee do when an irrevocable trust needs to be modified?  Circumstances or laws may have changed in ways that could not have been anticipated at the time the trust was drafted.  In the past, a trustee who wanted to change some aspect of an irrevocable trust had few options, other than a court order to reform the trust which can be a costly and lengthy process.  Now, many states have alleviated the necessity of court approval to modify trusts by permitting “decanting.”  (For an example of such a statute, see our prior post, “How is an Illinois Trust Now Like a Fine Wine? It Can Be Decanted: A Summary of the New Illinois Decanting Statute”.)

Decanting is the term generally used to describe the distribution of trust property to another trust pursuant to the trustee’s discretionary authority to make distributions to, or for the benefit of, one or more beneficiaries.  Decanting may be permitted by statute, by the terms of the original trust or by court-created law.  Currently, Massachusetts has no specific decanting statute.  However, in Morse v. Kraft, 466 Mass. 92 (2013), the Massachusetts Supreme Court authorized the trustee of the Kraft family trusts to decant the trust without the consent or approval of the court or any beneficiary. (more…)

Monday, August 19, 2013

The 7520 rate for September 2013 is staying steady at 2.0%.

The September interest rates are as follows:


Monday, August 19, 2013

Beginning this year, individuals, estates and trusts will be subject to a Medicare contribution tax equal to 3.8% of the trust’s undistributed net investment income for the tax year, complicating the administration of estates and trusts. (IRC § 1411) As a result of the enactment of the new tax, every trust that owns an interest in a trade or business must now determine whether or not the trust materially participates in that trade or business in order to determine whether the trust’s undistributed income may be subject to the tax.

Net investment income is income from passive activities. Whether an activity constitutes a passive activity is determined in accordance with IRC § 469, which sets forth the law with regard to passive activity losses and credits. A “passive activity” is a trade or business activity in which the taxpayer does not materially participate. A taxpayer is treated as materially participating in a trade or business activity only if the taxpayer is involved in the operations of the trade or business on a regular, continuous and substantial basis. One way a taxpayer may be deemed to materially participate in a trade or business activity is if the taxpayer participated in that trade or business for more than 500 hours during the tax year. (more…)

Tuesday, August 13, 2013

At first blush, Chief Counsel Advice Memorandum CCA 201313025, may seem overly harsh. After all, the taxpayer was relying on information provided to her from her employer when she took her lump sum distribution and rolled it over into an IRA. However, the government was simply following the statute and regulations in refusing to refund the excess contribution penalty.

Here, the taxpayer’s former employer was overly generous to the taxpayer and, in making the lump sum distribution to her, distributed more to her than was in her qualified plan, and reported to her on a 1099R that the entire amount of the distribution was an eligible rollover distribution. Believing that she was entitled to the entire distribution and that it was entirely an eligible rollover distribution, the taxpayer rolled over this entire distribution including the over-payment to her rollover IRA and reported the lump sum distribution and rollover as a tax-free rollover on her income tax return that year. (more…)

Wednesday, August 7, 2013


Windsor was decided just over a month ago and we’re already starting to see how courts are interpreting the ruling. Windsor left unanswered the question of whether Part 2 of DOMA, which allows states to bypass the Full Faith and Credit Clause of the Constitution for same-sex marriages validly performed out-of-state, can stand now that Section 3 of DOMA has been deemed unconstitutional.  [Click here or here for additional information.]

Last week, a federal district court in Ohio ignored an Ohio law that refuses to recognize same-sex marriages, even if validly performed in another state (sometimes referred to as a mini-DOMA). In Obergefell v. Kasich, the plaintiffs, both Ohio residents, briefly traveled to Maryland earlier this month to get married, not even getting off the plane before returning home to Ohio. One spouse was dying of ALS and the other wanted to be recorded as the surviving spouse on the death certificate so they were trying to get married as quickly as possible. Now, for purposes of federal and Maryland law (as well as a handful of other states), the couple is validly married. (more…)

Friday, August 2, 2013

womanwomanOn June 26, the US Supreme Court decided the case of United States v. Windsor, holding (1) that the Court had jurisdiction to consider the merits of the case, and (2) that Section 3 of the Defense of Marriage Act (“DOMA”) is unconstitutional as a deprivation of the equal liberty of persons that is protected by the Fifth Amendment. For a description of the previous history of the case, see our prior posts here and here. In a 5-4 opinion, Justice Kennedy delivered the opinion of the Court. Justices Ginsburg, Breyer, Sotomayor and Kagan concurred, while Justices Scalia, Roberts, Alito, and Thomas dissented.


Edith Windsor (“Windsor”) and Thea Spyer (“Spyer”), New York residents, were legally married in Ontario, Canada, in 2007, after being in a relationship since 1963. Prior to their marriage, the two had registered as domestic partners when New York City gave that right to its citizens in 1993. While New York did not legalize same-sex marriage in New York until 2011, in 2008, the State of New York began recognizing marriages of same-sex couples validly performed elsewhere as valid marriages for purposes of New York law; Therefore, starting in 2008, New York recognized Windsor’s and Spyer’s Ontario marriage as a valid marriage. Spyer died in 2009, leaving her entire estate to her wife, Windsor.

As we’ve discussed in a prior post anticipating this decision (see here), the federal government allows an unlimited marital deduction for the federal estate tax for certain gifts on death to the decedent’s spouse. In this case, however, DOMA prevented Windsor from being able to claim the marital deduction on Spyer’s federal estate tax return because theirs was not a marriage between one man and one woman. (more…)