USA – CALIFORNIA Trends and Developments Contributed by: Jennifer J. McCall, Pillsbury Winthrop Shaw Pittman LLP
sion later may cause a taxable gift to occur from the remainderman under recent case law. Note, too, that modifications of the trust which encompass remain- dermen allowing the income beneficiary to receive property which would otherwise not be distributable to the income beneficiary in the discretion of the trus- tee may also attract a taxable gift and may invoke IRC, Section 2519, subjecting the trust to current federal estate tax. (See Anenberg v Comm’r 162 T.C. 9 and McDougall , 163 T.C. No. 5.) Recent cases in California illustrate the importance of very clearly delineating intentions, especially since blended families are increasingly common. Areas for potential disagreement can include property held in a safety deposit box: advisers should assist the client in clearly designating what is intended with property held in a safe deposit box. When a “co-renter” is des- ignated, this generally does not change the ownership of the underlying assets. If the intention is to make a gift of half the contents in the safety deposit box, the client should be represented by counsel and should execute a Deed of Gift accordingly. Similarly, if the client wishes to give works of art to a museum and separately wishes to give “furnishings” to the spouse or child, a methodology should be adopted to deline- ate which articles are considered works of art, as dis- tinguished from the furnishings. A qualified appraiser can provide an opinion, such as whether a museum would wish to accession the work of art and whether the art has a function other than its utilitarian use – in other words, does it have abstract meaning, which can denote a “work of art”? Another area for potential contention is how to deter- mine the “standard of living” of a spouse who is/was entitled to receive income for his or her “health, main- tenance and support”. When the children from a pri- mary marriage are the remaindermen, this can lead to disputes. One possible alternative is to provide a fixed percentage to go to the spouse of the assets of the trust each year (the greater of “income” as defined in IRC, Section 2056 or the fixed percentage amount, to ensure the trust will qualify for the marital deduc- tion). Even then, there can still be disagreements as to how those assets should be invested. Should they favour income, or should they favour growth? When a fixed percentage is to be paid to the spouse, this
should align the spouse with the remaindermen since everyone would prefer appreciation. Fiduciaries Recent cases illustrate the importance of carefully delineating who will serve as personal representative or trustee. Care should be taken to consider friction between different groups of beneficiaries such as a spouse and children from a prior marriage. Also care should be taken to consider the qualifications of the fiduciary – do they have a history of being fair and open or do they tend to be more aggressive in their approach to financial matters? Counsel is essential here to ensure full disclosure and agreement among the different parties, in representing the fiduciary. Validity of the will Recent cases in California such as the matter of Frank- lin Antonio , a founder of the Qualcomm company and a resident of San Diego, illustrates the importance of ensuring the completion of estate planning documents and adherence to rules of testamentary execution. In the Antonio case, a holograph (a will handwritten by the testator, which is valid in California) was located shortly after the death of the decedent. As it was not witnessed, there was a potential for it to be invalid. Fortunately, the intestate heirs and beneficiaries in the holograph were able to reach a settlement, due to successful mediation and talented attorneys, who assisted with respectful and patient advice. A key question in the case of a holograph can be estate tax apportionment. While charitable benefi- ciaries generally do not pay estate tax, when a lay- person writes a holograph, a tax clause is generally not included, nor is the layperson usually aware of the technical apportionment of estate tax. For this rea- son, tax is often paid equally by all the beneficiaries, as otherwise, the percentages they should receive as designated by the layperson could be vastly changed. The IRS may prefer this result as it decreases what a charitable beneficiary receives, thereby increasing the estate tax. For these reasons, it is preferable for attorneys and their clients to complete the estate plan well in advance of any serious illness to ensure the intentions of the testator are clearly set forth.
226 CHAMBERS.COM
Powered by FlippingBook