Wednesday, January 25, 2006

Unlikely Connections - Bush Administration, Anna Nicole Smith, and the Supreme Court

Category: Probate and Estate Administration

Anna Nicole Smith will be getting some help as she takes her fight to gain part of her late husband's estate to the Supreme Court - the Bush Administration. The dryly named case of Marshall v. Marshall, Docket No. 04-1544, has the ability to affect the course of probate proceedings across the country in terms of appealing state probate court decisions to federal court. Of course, the nature of the litigants certainly make the case more spicy that your usual probate court or Supreme Court fare.

In the Smith case, much bandied about in the media, a Texas state probate court found that her husband's son, E. Pierce Marshall, was the sole heir to his father's estate, not Smith. When Smith appealed the ruling to federal court, a federal judge at the District Court level reversed the state probate court and awarded $474 million to Smith. This award was reduced to about $89 million, and then reversed again by the 9th Circuit Court of Appeals in San Francisco, which found that the state probate court decision should stand, thus leaving the entire estate to the son, and none to Smith.

Smith has taken her fight to the U.S. Supreme Court, which has scheduled arguments on the case for February 28. The narrow legal issue before the court is a question of federal versus state jurisdiction: when can federal courts can get involved in state probate proceedings? As stated in the Washington Post: At issue is the scope of the probate exception to federal jurisdiction. In other words, was a federal appeals court correct when it ruled last year that only state courts have authority over disputed estates?"

The Bush Administration has taken up the fight not necessarily in support of Ms. Smith, although clarifying points of law can make strange bedfellows, but to assert the jurisdiction of the federal court was proper in this case. Paul D. Clement, Solicitor General, has filed an amicus brief supporting the Bush Administration's position on the issue of federal court jurisdiction which is available here.

Thursday, January 05, 2006

One Trust, Two Trusts, Can you Merge Trusts?

Category: Estate Planning, Tax Law and Planning, Probate and Estate Administration

From the blog Rubin on Tax, a summary of PLR 200552009, issued December 30, 2005, discussing the tax consequences of two trusts with similar trust merging for administrative reasons (who wants to administer and pay administration expenses on 3 trusts when you can do it for just one?):

"In a recent Private Letter Ruling, the IRS provided that where several identical trusts combined into one trust with similar terms, and all the trusts held similar assets, the merger would not generate gain or loss to the trusts or their beneficiaries. The IRS further went on to provide that the tax attributes of the trusts merged into the new trust, such as net operating loss carryforwards and tax basis, would carry over to the new trust."

Note that a private letter ruling or PLR is only authority for that taxpayer, and cannot be relied upon by any other taxpayer. However, it is an example of the IRS's analysis of certain issues.

In doing estate planning, consider how well the distributive terms of any irrevocable trust you create, such as a life insurance trust or ILIT, match the distributive terms of your Will, or other testamentary document. To the extent that the trust terms for your children match, for example, then the Trustee may be able to combine the insurance trust with the trust created under your Will and only administer one trust per child. The key to being able to match these terms over time is to give someone a power over your irrevocable trusts to modify the distribution terms to the beneficiaries, so that as you modify your will over time, the trust terms can follow.