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.

Connecticut Expands Slayer Statute

Connecticut expands slayer statute to permit its operation even if the slayer dies before being determined to be a “slayer.” An Act Concerning Murder and Inheritance, Conn. Session Law 09-201.

Ohio: SOL for Breach of Trust Begins When Beneficiaries Learn of Alleged Breach

The successor trustee and a beneficiary brought suit for breach of duty against the prior trustee for alleged self-dealing in indirectly acquiring shares of stock in a closely held company by causing the trust to sell to a company which was effectively controlled by the trustee. The sales occurred 25 years before the suit was brought.

The Ohio Supreme Court affirmed the lower court’s dismissal, holding that the four year statute of limitations began to run at the time of the sale because the beneficiaries knew of the sale and of all of the actions of which they complain.

One justice dissented on the grounds that the decision was based on “facts and inferences” not in the complaint.

Cundall v. U.S. Bank, 909 N.E.2d 1244 (Ohio 2009).

California Court Upholds 1% Tax on Millionaires

The California Court of Appeals rejected a taxpayer's constitutional challenge to Proposition 63, which imposed a 1% tax on annual incomes in excess of $1 million to fund state mental health services. Jensen v. California Franchise Tax Board, No. B211815 (Ct. App. Oct. 14, 2009):
We find no constitutional infirmity in the challenged portions of Proposition 63. An income tax may be rationally based on a taxpayer‟s income level and ability to pay, and there is no need to show that a particular taxpayer personally benefits from a tax assessed for the public good. Taxpayers earning more than $1 million annually do not comprise a “suspect class” requiring a strict scrutiny constitutional analysis. Further, Proposition 63 is valid even if it is not a constitutional amendment. ...

We are unaware of any case authority holding that wealthy individuals form a “suspect class” deserving of a heightened degree of scrutiny. Suspect classifications include race, gender, national origin or illegitimacy. Wealth generally confers benefits, and does not require the special protections afforded to suspect classes. Wealth has “none of the traditional indicia of suspectness: the class is not saddled with such disabilities, or subjected to such a history of purposeful unequal treatment, or relegated to such a position of political powerlessness as to command extraordinary protection from the majoritarian political process.” (San Antonio School District v. Rodriguez, 411 U.S. 1, 28 (1973).) ...

The Taxpayers are mistaken in thinking that taxpayers in a particular tax bracket cannot be singled out for an income tax to benefit society at large. ...

The tax imposed by Proposition 63 is not arbitrary merely because a person earning $1,000,001 is subject to the tax, while a person earning $999,999 is exempt. The government has leeway in “drawing lines” below which individuals are exempt from a tax. ...

The Taxpayers perceive themselves as victims of a populist movement to “soak the rich.” The desire of the majority of the electorate to tax a minority of citizens based on their earnings is not a basis for overturning an income tax. The courts “do not substitute their social and economic beliefs” to supplant the judgment of the enacting body.

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.

Illinois Court Declines to Invalidate Religious Marriage Condition Placed on Inheritance

In re Feinberg, 2009 Ill. Slip Op. 106982 (SC Sept. 24, 2009): The Illinois Supreme Court decided whether to invalidated an inheritance condition based on marrying within the Jewish faith.

Facts:
Max Feinberg, who died in 1986, left a wife, Erla, two adult children, and five grandchildren. He had executed a will that created trusts from which his widow would receive income during her lifetime. At her death, the trust assets were to be combined, and half of these assets were to be held in trust for the benefit of the grandchildren during their lifetimes, provided they had not married out of the Jewish faith, in which case they were to be “deemed deceased” on the date of such a marriage. Shares of such “deceased” grandchildren would revert to the settlor’s two children. Between 1990 and 2001, all of the five grandchildren married.

Distribution of decedent’s assets did not go according to this original plan, however, because Max also gave his widow a limited lifetime power of appointment as to his descendants which she exercised in 1997. Instead of lifetime trusts, she directed that, at the time of her death, fixed $250,000 sums be given to each of her two children and to each of her five grandchildren. She provided, however, that, as to the latter, her husband’s religious-restriction clause must be complied with. Erla died in 2003. By this time, although all the grandchildren had married, only one had complied with the religious restriction.

This situation resulted in several different proceedings which were consolidated in the circuit court of Cook County. The religious-restriction clause was invalidated there as contrary to public policy, and the appellate court affirmed.

In reaching a different result, the Illinois Supreme Court found that the issue is not Max’s original scheme of lifetime trusts for the grandchildren, but the distribution which was authorized by Erla, giving out fixed sums at the time of her death. The supreme court declined to hold the religious-restriction clause void. The grandchildren had no vested interests and Erla had merely created a condition precedent that operated on the date of her death to determine who was qualified to take. The supreme court said Erla was free to make a distribution in favor of grandchildren whose lifestyles were approved of over other grandchildren who made choices which were disapproved of.

The judgment of the appellate court was reversed, and the cause was remanded to the circuit court for further proceedings.