Modified Accumulation Trusts For IRA or Other Qualified Plan Benefits at Death

Recent private letter rulings issued by the Internal Revenue Service have created concern among estate-planning attorneys regarding the best way to draft trusts that are intended as potential receptacles of IRA or other qualified plan beneifts upon the death of the participant. This concern stems from the fact that, unless the trust is properly drafted, it won't be possible to stretch out the payment of the retirement benefits over the trust beneficiary's lifetime.

Richest States Could Be the Best for Estate Planning

A recent study powered by TheStreet reports that the following are the states with the most and the least liquid millionaires as a percentage of the total population, listed in descending order:

Most Millionaires:
Hawaii
Maryland
New Jersey
Connecticut
Virginia
Massachusetts
Alaska
New Hampshire
Californai
D.C.

Least Millionaires:
Mississippi
Arkansas
West Virginia
Kentucky
South Dakota
North Dakota
Oklahoma
Tennessee
Louisiana
Alabama

Arizona Extends Time Non-charitable Trust May Exist

Arizona has extended the time a trust for a specific lawful non-charitable purpose may exist. The time period was increased from 21 to 90 years. Act of July 10, 2009, ch. 85 Ariz. Laws 2333.

Tax Court Rules on LLC Transfer Valuation

Transfers are valued as transfers of interests in a limited liability company so that the LLC is not disregarded under the “check the box” regulations to treat the transfers as transfers of a proportionate share of assets owned by the LLC. As a result, the transfers are subject to valuation discounts for lack of control and lack of marketability.

New Trust Company Laws in Nevada

As of October 1st, Nevada's public trust companies are subject to stricter licensing requirements, such as maintaining a physical office in the state, staffing a satisfactory Nevada employee, and keeping true copies of business records available for inspection. But the biggest change requires public trust companies to post $1 million in capital, with a graduated compliance plan for companies already in existence.

The new law was two years in the making. It does not apply to private family trust companies. A separate law provides for optional licensure under relaxed standards for these private companies.

North Carolina: Trustee Can Appoint Trust Property to Another Trust

New legislation in North Carolina authorizes a trustee to appoint trust property to another trust for the same beneficiary. Trustees looking to take advantage of this change in the law should consult the text of the statute because the second trust must meet certain requirements.

North Carolina Law Concerning Will-Drafting Attorney

New law in North Carolina renders void any gift in a will to the attorney who drafted the will unless the attorney is a relative of the testator. In addition, the legislation requires attorneys who draft a will or codicil to state their name on the document. 2009 N.C. Laws S.L. 2009-182.

Nevada Authorizes Electronic Will Storage

Nevada has adopted legislation that authorizes electronic will storage. The legislation permits the Secretary of State to create and maintain the Nevada Lockbox, a secure on-line registry which allows a person to post an electronic copy of a will or other document and retrieve that document when needed. 2009 Nevada Laws Ch. 253.

Trust Protectors: Trust Agreement May Create the Protector's Duty

Robert T. McLean Irrevocable Trust v. Patrick Davis, P.C., 283 S.W.3d 786 (Mo. Ct. App. 2009): A trustee and the mother of a beneficiary brought suit against the predecessor trustees and the trust protector alleging that the trustees improperly managed the trust and that trust protector violated his duties. Finding that the Missouri statutes (identical to Uniform Trust Code § 808) does not define the function and duties of a trust protector, the court turned to the trust document which stated that the trust protector is a fiduciary, is not to be liable to actions taken in good faith, and has the power to remove the trustee. The court held that the trust language created a duty in the trust protector to exercise the power to remove the trustee sufficient and reversed the lower court’s summary judgment for the trust protector.

Connecticut Enacts Pet Trust Statute

Effective October 1, 2009, Connecticut will have a pet trust statute that reads as follows:

(a) A testamentary or inter vivos trust may be created to provide for the care of an animal or animals alive during the settlor's or testator's lifetime. The trust shall terminate upon the death of the last surviving animal. A trust created pursuant to this section shall designate a trust protector in the trust instrument whose sole duty shall be to act on behalf of the animal or animals provided for in the trust instrument. A trust protector shall be replaced in the same manner as a trustee under section 45a-474 of the general statutes.

(b) Except as otherwise provided in this section, the provisions of the laws of this state that govern the creation and administration of trusts shall apply to a trust created to provide for the care of an animal or animals pursuant to this section.

(c) (1) The Superior Court, or a probate court described in subdivision (2) of this subsection, shall have jurisdiction over any trust created pursuant to this section.

(2) A probate court shall have jurisdiction over any trust created pursuant to this section if the trustee of the trust is otherwise subject to the jurisdiction of such probate court, or the trust is an inter vivos trust and the trust is or could be subject to the jurisdiction of such probate court for an accounting pursuant to section 45a-175 of the general statutes.

(d) The trustee of a trust created pursuant to this section shall annually render an account for the trust, signed under penalty of false statement, to the trust protector.

(e) Any individual identified as a trust protector pursuant to this section may file a petition in the Superior Court or a probate court having jurisdiction pursuant to subsection (c) of this section to enforce the provisions of the trust, remove or replace any trustee of the trust, or require a trustee to render an account as required under subsection (d) of this section. The court may award costs and attorney's fees to the trust protector, from the trust property, if the trust protector prevails on a petition filed under this subsection and the court finds that the filing of the petition was necessary to fulfill the trust protector's duty to act on behalf of the animal or animals provided for in the trust instrument.

(f) If the trust protector determines that the trustee has used trust property for personal use or has otherwise committed fraud with respect to the trust, the trust protector may request the Attorney General to file a petition in the Superior Court or a probate court having jurisdiction pursuant to subsection (c) of this section to enforce the provisions of the trust, remove or replace any trustee of the trust or seek restitution from the trustee with respect to such trust property. The Attorney General may file such petition if the Attorney General determines that the circumstances warrant such filing.

(g) Trust property may be applied only to its intended use, subject to proper trust expenses including trustee fees, except to the extent the Superior Court or a probate court having jurisdiction pursuant to subsection (c) of this section, upon application by the trustee or trust protector, determines that the value of the trust property exceeds the amount required for its intended use. Trust property not required for its intended use, including trust property remaining upon termination of the trust, shall be distributed in the following order of priority:
(1) As directed by the terms of the trust instrument;

(2) To the remainder beneficiaries identified in the trust instrument, under the same terms provided in the trust for the remainder interest;

(3) To the settlor, if then living;

(4) Pursuant to the residuary clause of the settlor's or testator's will; or

(5) To the settlor's or testator's heirs in accordance with the laws of this state governing descent and distribution.

Charitable Giving Declines

Charitable giving fell last year by the largest percentage in five decades, according to a new study by the Giving USA Foundation. Individuals and institutions made gifts and pledges of $307.65 billion, a decrease of 5.7 percent on an inflation-adjusted basis over the $314 billion given in 2007, according to the foundation, a research organization backed by the fund-raising industry. Some experts said they were surprised the drop was not even bigger, given that endowments fell by as much as 40 percent, the stock market declined by a similar margin, corporations posted unheard-of losses and unemployment was rising at a fast clip.

The Giving USA Foundation study found that the drop in giving accelerated in the fall, as the impact of the economic crisis and the steep decline in stock markets took hold. “In the first half of the year, it was more or less business as usual for our clients, which is to say pretty good.” “Then, as we got into the last quarter, we saw corporations begin rethinking their giving in greatly different ways, and we saw individuals begin to revisit their philanthropic priorities.”
Even with the steep drop, charitable giving remained strong. Last year’s giving outstripped all previous years on record except 2007, though the outlook for next year remains uncertain.
Amherst College, for example, had a “banner year” last year, said Megan Morey, the institution’s chief advancement officer. The college received the largest bequest in its history, $23 million, and several donors responded promptly to a new $425 million capital campaign, enabling Amherst to raise a total of roughly $70 million.

But like other nonprofit organizations, Amherst has found fund-raising in the current year tough. Ms. Morey said the annual campaign, which ends in a few weeks, is down by roughly 15 percent compared with the 2007-8 effort. “Over all,” she said, “we’re tracking comparable to what we were in 2007, which I feel good about.” Giving USA estimated that donations to educational institutions fell 9 percent on an inflation-adjusted basis to $40.94 billion. Colleges, universities and private schools, including Amherst, have also been hit by sharp declines in their assets.
About two-thirds of public charities saw donations decrease in 2008, the foundation said. Most surprising, Ms. Martin said, was the decline in gifts to organizations working to meet basic needs, like food banks and homeless shelters, which are seeing a big increase in demand for their services.

Many fund-raising experts had predicted that donors would increase giving to those types of charities at the expense of others, like arts groups. But the foundation estimated that gifts to those organizations fell by an inflation-adjusted 15.9 percent, to $25.88 billion. Boys & Girls Clubs of America, for instance, saw donations drop 4.7 percent last year to a preliminary $524 million. This year is not shaping up to be any better, said Cyndi Court, executive vice president for marketing and development at the organization, although the group recently received unexpected gifts of $5 million and $1.2 million to support its summer meals program from Morgan Stanley and Wal-Mart, respectively. “We’re definitely anticipating another down year,” Ms. Court said.

Article courtesy of NY Times

The History of U.S. Inheritance Laws

The Colonial Period:

• Authority over inheritance of personal and real property was handled by one court as opposed to two as it was in Great Britain.
• Intestacy laws turned to a more equal, if not totally equal, intestacy rule for children.
• Virginia introduced the holographic will as an exception to witness requirements.
The American Revolution:
• Equal treatment of children in intestacy spread to all states.
• Entails, or restrictions on land ownership limited to the testator's descendants, were abolished in most states.
The Nineteenth Century:
• Inheritance rights of a surviving spouse grew: Texas introduced the first surviving spouse homestead right guaranteeing the surviving spouse a life estate in the family home; more states gave personal property inheritance rights to the surviving spouse; all but one state provided a forced share for a surviving spouse; the surviving spouse begins taking through intestacy to the exclusion of children.
• The use of trusts greatly expanded: The spendthrift trust developed to keep creditors away from trust funds, business and pension trusts emerged, and the prudent investor rule emerged.
The Twentieth Century:
• The Rise of Federal Taxes: The estate tax, which had been used only during military crisis, became a permanent institution; the gift tax was enacted simultaneously; the generation skipping tax was later introduced.
• Trusts Expand: the dynasty trust resulted when states began abolishing the rule against perpetuities and the living trust became an inexpensive and popular alternative to a will.

Estate of Feinberg - The Jewish Trust Clause

In Estate of Feinberg, 383 Ill. App. 3d 992 (1st Dist. June 30, 2008), an Illinois appellate court ruled a testator could NOT disinherit his grandchildren for marrying non-Jews. Here's how the case was summarized in this piece in the Chicago Jewish News:

When Max Feinberg was in dental school in the 1920s and '30s, he was one of only a handful of Jews in his class and was subjected to anti-Semitic slurs. He graduated at the height of the Depression and worked a seven-day week to build his dental practice. Although he did not adhere to the Orthodox Jewish practices in which he was raised, his Judaism was a crucial part of his life. He and his wife, Erla, belonged to a Conservative synagogue, observed Jewish tradition and always celebrated Jewish holidays.

Before he died in 1986 at age 77, Feinberg had his attorney insert a clause in his will concerning the distribution of his considerable financial assets. It stated that none of his grandchildren, or their children or grandchildren, would inherit the $250,000 he had allotted to each of them if they married a non-Jewish spouse unless the spouse converted to Judaism.

Max Feinberg couldn't have known that that clause would become the subject of intense scrutiny and the basis of a lawsuit. In it, one of his grandchildren sought to prove that the clause was invalid. An Illinois court agreed. Now the Illinois Appellate Court has confirmed the decision, with one Jewish justice offering an impassioned dissent. There's a possibility the case may go to the Illinois Supreme Court next.

The key excerpt from the Feinberg opinion:

The Restatement Third of Trusts provides that trust provisions which are contrary to public policy are void. It gives as a specific example a provision that all of a beneficiary's rights to a trust would terminate if he married a person who was not of a specified religion:

[Comment j.] Family relationships. A trust or a condition or other provision in the terms of a trust is ordinarily * * * invalid if it tends to encourage disruption of a family relationship or to discourage formation or resumption of such a relationship. * * *

In addition, a trust provision is ordinarily invalid if it tends seriously to interfere with or inhibit the exercise of a beneficiary's freedom to obtain a divorce * * * or the exercise of freedom to marry * * * by limiting the beneficiary's selection of a spouse * * *. * * *

[Illustration 3.] The marriage condition terminates all of [settler's nephew] N's rights if, before termination of the trust, he ‘should marry a person who is not of R Religion,’ with the same gift over to C College. The condition is an invalid restraint on marriage; the trust and N's rights will be given effect as if the marriage condition and the gift over to C College had been omitted from the terms of the trust.

Restatement of Trusts § 29, Explanatory Notes, Comment j, Illustration 3, at 62-64 (3d ed.2003).

We hold that under Illinois law and under the Restatement (Third) of Trusts, the provision in the case before us is invalid because it seriously interferes with and limits the right of individuals to marry a person of their own choosing.

Boomers Going Bust - Boston Globe

People have accused the baby boomers of being whiners almost since we were born. But just wait until we get to retirement age and discover that we don't have nearly enough money to take care of our "golden years." That's going to be the ultimate generational bummer.

I've been gathering some data about what I'll call, with the usual boomer understatement, the "retirement crisis." My mentors have been Eugene Ludwig, the head of the consulting firm Promontory Financial Group, and his colleague Michael Foot. The numbers show a genuinely frightening gap between what people have saved for retirement and what they will need. And many of these studies don't take into account last year's stock market crash, which will make the problem worse.

Let's start with the basic fact that only about half of Americans have any employer-sponsored retirement plan at all. The other folks will have to depend on Social Security. For a typical boomer worker, that would mean a monthly benefit of about $2,400 at a retirement age of 66 in 2020. On that, you won't be able to afford many Starbucks lattes.

But let's assume that our average worker is one of the lucky ones with an employer-sponsored pension. Not so long ago, that usually would have meant a "defined benefit" pension at retirement. About 80 percent of employees in medium-size and large companies had such plans in 1985, according to the Labor Department. By 2000, defined-benefit recipients totaled just 36 percent.

What's happened is that employees have taken on the investment and actuarial risks as their employers shifted to "defined contribution" formulas. Employers now contribute to 401(k) plans that are managed by the employees. Unfortunately, workers often don't do a good job as investors. They underestimate what they will need in retirement, and they underfund their 401(k) plans. And as for shifting out of stocks before the market tanks, well, let's just forget about that. . . .

How bad are baby boomers at financial planning? Extremely bad, according to Annamaria Lusardi and Olivia Mitchell of the National Bureau of Economic Research. They found that more than one-quarter of boomer households thought "hardly at all" about retirement and that financial literacy among boomers was "alarmingly low." Half could not do a simple math calculation (divide $2 million by five) and fewer than 20 percent could calculate compound interest. The NBER researchers also found that, as of 2004, the typical boomer household was holding nearly half its wealth in the form of housing equity. Uh-oh.

For a closer look at the retirement squeeze, consider a study released last month by the Congressional Research Service. Patrick Purcell analyzed the most recent data on consumer finances gathered by the Federal Reserve. He found that for the 53 percent of households that hold at least one retirement account, the median combined balance was a mere $45,000.

Hold on, you say, that figure includes some younger workers who haven't started saving in earnest yet. Okay, for households headed by persons between the ages of 55 and 64, the median value of all retirement accounts was just $100,000. Purcell noted that for a 65-year-old man retiring last month, that $100,000 would buy an annuity that would pay a paltry $700 a month for life, based on current interest rates.

And here's an extra bit of bad news: The Fed data used in Purcell's study were gathered in 2007. With stock market declines since then, the median account balances are probably even lower now.

What's going to happen? Certainly, people will try to save more. But my guess, knowing my generational cohort, is that we'll want a government bailout to supplement our too-meager retirement savings. Unfortunately, the Treasury won't have enough money to fund our Medicare benefits, let alone a top-up in Social Security.

A poll released in January by the National Institute on Retirement Security shows the anxiety about this issue. Because of the recession, 83 percent of those polled said they were worried about having a secure retirement; of those with a 401(k) account, only about half thought they would have enough money to retire. And 71 percent said it was harder to retire now than for previous generations.

Are you whining yet? I am. As my pension mentor Foot says: "This is a time bomb that has been building for years. The recession has made it more acute. It has pricked the bubble of hope that high investment returns could get us out of the crisis."