Can a trustee who is also a beneficiary exercise discretion to exclusively benefit oneself?
Kansas intermediate appellate court reversed in Roenne v. Miller, 475 P.3d 708 (Kan. Ct. App. 2020),
A parent’s will created a trust for the benefit of the parent’s five children and named one of them as trustee. The trust terms gave the trustee “uncontrolled discretion” to distribute income and principal for the benefit of the beneficiaries. The trustee eventually distributed all of the trust property to himself and not the other four beneficiaries. The trial court held that the trustee had acted within the trust’s grant of discretion. However, in appeal, the Kansas intermediate appellate court reversed and held that the trustee’s actions violated the duties of loyalty and impartiality and remanded for a determination of damages.
Can a Settlor’s creditor may reach assets of a self-settled trust after the Settlor’s death?
De Prins v. Michaeles, 154 N.E.3d 921 (Mass. 2020)
The Massachusetts Supreme Judicial Court held that the creditor of the settlor of a self-settled irrevocable trust of which the settlor is a beneficiary can reach the assets of the trust after the settlor’s death whether or not the trust terms include a spendthrift provision. The court concluded that because Massachusetts law allows the creditor of the settlor to reach the assets of a self-settled trust to the extent those assets may be distributed to the settlor but says nothing about whether the creditor may reach those assets after the settlor’s death, the common law controls giving the creditor after death access.
Can a Slayer’s non-probate property passing to innocent family members be subject of a constructive trust for victim’s successors?
Kentucky appellate court affirmed in Bewley v. Heady, 610 S.W.3d 352 (Ky. Ct. App. 2020)
Gloria Dorris and Russell Dorris had divorced, and both of the ex-spouses had children from prior relationships. Nineteen years after the divorce, Russell murdered Gloria and then took his own life. Russell had non-probate assets that passed to his children. Gloria’s estate and her children sought to impose a constructive trust over the non-probate assets on the theory that Russell could have used those assets during his life and that they should be available to satisfy any judgment against Russell’s estate. The circuit court dismissed the estate’s action and the Kentucky appellate court affirmed because Russell’s children had not committed any wrong, were not enriched at the expense of Russell’s estate, and Russell had not acquired the property as the result of wrongdoing. Gloria’s death did not affect the ownership or passing of the non-probate assets.
Is a Trustee to remain neutral in litigation over the identity of beneficiaries?
Wing v. Goldman Sachs Tr. Co., N.A., 851 S.E.2d 398 (N.C. Ct. App. 2020)
After the trust’s creation, the settlor removed beneficiaries by amendments. Following the settlor’s death, the former beneficiaries filed claims against the trust, alleging that the amendments were invalid. The trustee made payments to the beneficiaries under the last-executed amendment. The beneficiaries then filed a motion to direct the trustee to pay the costs of defending the trust. The former beneficiaries asked the court to freeze distributions. The trial court granted the motion to pay and denied the motion to freeze. The North Carolina intermediate appellate court reversed and held that as a matter of first impression; because the controversy was not over the validity of the trust but the identity of the beneficiaries, the trustee was required to remain neutral and could not make distributions to the purported beneficiaries.
Does the finding of undue influence partially invalidates will?
Matter of Estate of Grenz, 948 N.W.2d 320 (N.D. 2020)
Litigation over the decedent’s will resulted in a finding of undue influence by the spouse and the decedent’s child by that spouse, which caused the device of the decedent’s ranch to the spouse. The will further provided that if the spouse did not survive the decedent, the ranch would be devised in equal shares to the child and two children of the decedent’s prior marriage. The trial court struck the portions of the will devising the ranch to the spouse and the child so that the entire ranch passed to the children of the prior marriage. On appeal, the child accepted the finding of undue influence but contended that the ranch should therefore pass in intestacy. The Supreme Court of North Dakota held that the doctrine of partial invalidity is part of the common law of the state, that it is not supplanted by the state’s version of the Uniform Probate Code because the code is silent on the question, and that the doctrine was properly applied to prevent the spouse and child from benefitting from their wrong.
Can a Corporation continue as an S corporation even though S corporation status terminated?
Private Letter Ruling 202046002
A corporation owned by five trusts elected to be an S corporation. All five trusts qualified as QSST trusts, but the income beneficiary of the trusts failed to make the election to treat the trusts as a QSST. The corporation claimed the failure to file the elections was inadvertent and not motivated by tax avoidance. The corporation further claimed that the trusts reported their share of income or loss consistent with treatment as a QSST. The Private Letter Ruling, PLR, held that qualifying trusts were allowed to file a QSST election and have it effective as of the date the corporation’s S corporation election terminated.
Can both an executor and his estate be liable as a transferee and fiduciary for the estate tax when he made an estate insolvent by distributing assets before paying estate tax?
United States v. Estate of Kelley, 3:17-cv-965-BRM-DEA, 2020 WL 6194040 (Oct. 22, 2020, D. N.J.)
The decedent was the sole beneficiary of his sister’s $2.6 million estate, consisting of an annuity, her residence, stocks, and securities. In his capacity as co-executor, he distributed property even though the estate owed estate tax. He used the distributions to run his business, make gifts to his daughter, and buy and develop other property. Before he died, the decedent tried to resolve the estate tax liability and enter into an installment agreement with the IRS. He made payments before his death, and his daughter made several on her father’s behalf. The daughter, as executor of the decedent’s estate, listed the federal estate tax debt as a liability on the decedent’s state estate tax return. The decedent’s daughter eventually distributed the estate assets to herself. The court held that, as a fiduciary, the decedent had constructive knowledge of the estate tax debt of his sister’s estate when he distributed the assets, leaving it insolvent. Similarly, the court held that the transferee’s daughter was liable as a fiduciary because she knew of the decedent’s transferee tax liability and distributed the assets of his estate to herself, which rendered that estate insolvent.