Hello from the Chair Scott M. Nelson
I hope everyone had a good holiday season, and that your new year is off to a good start. Some of you may be familiar with the MSBA sponsored North Star Lawyers program, which recognizes attorneys who provide 50 or more hours of pro bono legal services each year. They now have a web page where you can certify your pro bono hours or download a certification form. The website is www.mnbar.org\northstar. We were also recently informed that the hours that attorneys spend volunteering for Wills for Heroes will qualify towards the 2013 North Star Lawyer pro bono recognition program. If you need further information, you can contact Steve Marchese at the MSBA.
End of life issues continue to be in the news. I recently had the experience of assisting my mother in completing a POLST (Physician Ordered Life Sustaining Treatment) form. The POLST process is an approach to care planning developed for patients with one or more serious advanced illnesses. It is based on a conversation between the patient and the health care professional, and although it does not override the designation of agents in a health care directive, it does possibly override the living will provisions that may have been drafted in the health care directive. Because the POLST is a medical order, once a health care professional signs it, it means that the patient’s treatment wishes, as indicated in the order, will be followed during a medical emergency. You can obtain further information about POLST forms at www.polst.org. In addition, some of you may have received the MSBA announcement that the Elder Law and Health Law Sections are sponsoring a one-hour morning seminar on Friday, February 21 entitled “Who Calls the Shots? Exploring the authority of the principal, agent, and provider under a health care directive.” More information is listed below in the “Upcoming Events and CLE Programs” section.
Unfortunately, “Trust Mills” continue to be in the news. Attorney General Lori Swanson announced on Monday, February 3rd that she has filed a lawsuit against a Minnesota company that was operating a Trust Mill through which senior citizens and future retirees were charged $2,295 for living trusts, wills, and related documents that were supposed to be prepared by an experienced estate planning attorney. The allegation is that the legal documents were prepared by an individual in Arizona who is not licensed as an attorney in Minnesota or Arizona, and who had previously been enjoined from setting up sham business trusts in a lawsuit brought by the federal government. We, and our clients, should be on guard for such scams that impact our practice area and our integrity.
Look for further luncheon seminars this spring from the Probate and Trust Section, and plan ahead for the 2014 Probate and Trust Law Section Conference on June 2 and 3 in St. Paul. There is an early registration discount of $50 for registrations by March 7. Also let us know if there are other programs or initiatives that you would like to see from your Council. Don’t forget to let our newsletter editors know if you have any articles you may wish to publish in our monthly newsletter.
Wills for Heroes
As mentioned above, hours volunteering for Wills For Heroes in 2013 can now be included to qualify for the 2013 North Star Lawyer Program – the MSBA’s recognition of members who provide 50 hours or more of pro bono legal services per year. You can submit your hours at: http://www.mnbar.org/northstar/.
Additionally, the following clinics are still in need of volunteers:
- Monday, March 17, 2014 - Forest Lake Police Department
- Tuesday, April 8, 2014 - Forest Lake Fire Department
- Monday, May 12, 2014 - Litchfield Fire Department
- Monday, June 23, 2014 – Cold Spring Police Department
For those interested in volunteering, to sign up for any of those clinics or for more information on Wills For Heroes, please contact Andrea Bischoff (email@example.com) or Susan Link (firstname.lastname@example.org) or visit http://www2.mnbar.org/willsforheroes/index.asp.
Upcoming Events and CLE Programs
- The Affordable Care Ac
- Monday, February 17, 2014 – 9:00 – 12:35 p.m.
- Location: Minnesota CLE Conference Center
- The Care of the Aging Conference
- Monday, February 24, 2014 – 8:55 – 4:10 p.m.
- Location: Minnesota CLE Conference Center
- Greater MN Probate & Trust Study Group Conference Call
- Wednesday, February 12, 2014 at 9 a.m.
- Call-in Number: (800) 406-9170 passcode: 1491722
- Contact either Bradley Hanson (320-251-1414 ext. 1119) or JoEllen Doebbert (320-763-7838) with any questions or to join the group.
- MSBA Probate & Trust Law Section Monthly Meeting
- Thursday, February 20, 2014 at 3:30 p.m.
- Location: MSBA Offices
- Call-in Number: (800) 406-9170 passcode: 1491722
Federal & Minnesota State Tax Update
Portability Election for Small Estates
The IRS published Revenue Procedure 2014-18, providing a simplified method to obtain an extension of time to make the "portability" election for estate and gift tax purposes with respect to the estate of a decedent who died in 2011, 2012, or 2013 survived by a spouse.
Code Section 2010(c) allows the estate of a decedent who is survived by a spouse to make a portability election, which allows the surviving spouse to apply the decedent's unused exclusion amount to the surviving spouse's own transfers during life and at death. The amount receive by the surviving spouse is referred to as the deceased spouse's unused exclusion, or DSUE, amount.
Generally, the executor of the estate of the deceased spouse must elect portability of the DSUE amount on a timely-filed Form 706, U.S.
Estate (and Generation-Skipping Transfer) Tax Return
If an estate failed to elect portability on a timely-filed estate tax return, the taxpayer had to request an extension of time under Regulation 301.9100-3 to elect portability. Revenue 2014-18, noting that this relief has been granted several times by the IRS, provides that a taxpayer who meets the following requirements will be deemed to meet the requirement for relief under Regulation 301.9100-3:
(1) the taxpayer is the executor of the estate of a decedent who: (a) has a surviving spouse; (b) died after December 31, 2010, and on or before December 31, 2013; and (c) was a citizen or resident of the United States on the date of death;
(2) the taxpayer is not required to file an estate tax return based on the value of the gross estate and adjusted taxable gifts;
(3) the taxpayer did not timely file an estate tax return;
(4) the person permitted to make the election on behalf of a decedent must file a complete and properly-prepared Form 706 on or before December 31, 2014; and
(5) The person filing the Form 706 on behalf of the decedent's estate must state at the top of the Form 706 that the turn is "FILED PURSUANT TO REV. PROC. 2014-18 TO ELECT PORTABILITY UNDER SECTION 2010(c)(5)(A)."
As result of Revenue Procedure 2014-18, executors of decedents who died in 2011, 2012, and 2013 survived by a spouse may now elect portability by filing an estate tax return before the end of 2014. This includes same-sex married couples who could not have known that portability was available before the United States v. Windsor, 570 U.S. ___, 133 S. Ct. 2675 (2013) decision. This will save those executors the expense and uncertainty of a ruling request for Section 9100 relief. An executor who has already filed ruling request for Section 9100 relief may withdraw its letter ruling request and receive a refund of its user fee.
1. Section 6166 - Acceleration of Installment Payments. In PLR 201403012, the IRS privately ruled that neither the pro rata distribution of one or more properties from a business to decedent's estate, nor the subsequent contribution of each property by decedent's estate to certain LLCs will constitute a distribution, sale, exchange, or other disposition of an interest in a closely held business within the meaning of Section 6166(g)(1). In addition, the proposed transaction, taken in the aggregate, will not result in the acceleration of the installment payments of federal estate tax in Section 6166(a).
2. 7520 Rate. The Section 7520 applicable federal rate for determining the present value of an annuity, an interest for life or a term of years, or a remainder or reversionary interest increased from 2.0% to 2.4% for February 2014.
Joe Higgins is an associate at Briggs and Morgan, P.A. Joe is based in the firm’s St. Paul office and is a member of the Estate Planning and Administration Section where he focuses his practice in estate planning, trust and estate administration, and nonprofit law. Joe is admitted to practice before Minnesota, Wisconsin and Florida state courts.
Drafting Education Trusts
By: William C Kuhlmann
Often grandparents, especially those who value education, will establish a trust to partially or fully cover the education of their grandchildren as part of their estate plan. However, while the concept of creating a trust for the education of children or grandchildren may be simple, it can be one of the most complex trusts to draft. While not exhaustive, below are a few critical questions for the drafter to go over with the grantor to help assure that the trust accomplishes the grantor’s objectives.
- Who are the beneficiaries? Limiting the beneficiary class to a single generation or to a class identified by name makes many drafting issues simpler. However, if the trust is intended to be a long term generation skipping trust, the class of beneficiaries may include multiple generations. In this case, extra thought should be given to identify the education expenses covered and to ensure adequate funding for the duration of the trust if a measure of equity among the beneficiaries is important to the grantor. Specifying the priority among the beneficiaries may be important as events subsequent to funding may make it impossible to provide for all potential beneficiaries.
- What type of education may be funded through the trust? For example, if the trust is to cover the costs of a post-secondary education, then that should be clearly stated. Otherwise beneficiaries may seek reimbursement for everything from preschool costs, to riding lessons, to that fifth post graduate degree, and all things in between. Even if the trust is limited to post-secondary program expenses, identifying the type of program that qualifies should be considered. For example, are expenses toward any post-secondary program covered or only those incurred leading to the awarding of a bachelor’s degree or equivalent? Further it should be determined whether a grantor wants to cover only expenses incurred at certain institutions or in a certain field of education.
- What specific expenses may be paid or reimbursed through the trust and for how long? Lack of care in drafting the definition of covered educational expenses is the cause of much litigation or at least frustration among the beneficiaries of education trusts. For example, even if the funds are to be used for something as specific as earning a bachelor’s degree, it is important to clarify whether distributions are to be made only for tuition or if related expenses such as room and board are to be covered as well. If the latter is intended, it may be appropriate to specify a standard that will apply in determining the reasonableness of such costs such as being equivalent to the cost of on-campus housing. Even this can become complicated if the beneficiary lives at home. In such case are commuting costs covered, including the cost of a car, if that avoids housing costs? Finally, if the beneficiary has children and/or is married, are the costs of housing for the family unit to be covered expenses? Other costs that can raise questions are travel expenses to and from the college, the child’s parent’s home, books and supplies, activity fees, sorority dues, study-abroad costs, tutoring costs, computer and equipment costs, lessons or classes not taken for credit, and childcare expenses.
- How long may a beneficiary draw on the trust? Where a trust is designed to be used for post-secondary expenses, a grantor may set a time limit after the completion of high school for a beneficiary to be eligible for distributions. Others will start a clock running once the beneficiary first enrolls at a university even if that is several years after completing high school. Another related requirement may require the beneficiary to make continuous, satisfactory and/or reasonable progress toward a degree in order for funding to continue. Finally, to avoid a beneficiary becoming a perpetual student, a grantor may set a maximum age limit after which a beneficiary may not submit expenses for payment.
- How will the assets be divided among the potential beneficiaries for the defined purpose of the trust? If there are few potential beneficiaries who are close in age and who are likely to pursue similar educational programs and it is close to the time the permitted expenses will be incurred, then drafting the trust provisions may be relatively easy. Where circumstances are the opposite, drafting becomes more challenging. Not infrequently, grandchildren may be twenty years or more different in age. Depending upon the level of funding, investment returns and the rising cost of education, the trust may not be able to cover the costs for identical programs at the same institution incurred many years apart. One solution is to split a pot trust into separate equal shares if all potential beneficiaries are known when the first distribution is made. Another is to fix a dollar amount, perhaps adjusted for inflation, which caps the aggregate expenses any one beneficiary may incur. This, however, may create inequities if education inflation rises faster than general inflation or, as we saw recently, there is a sudden, precipitous market drop. Many other possible formulae can be used in dividing the trust, all of which may be functional if thought through carefully.
- How will any remaining assets be distributed upon termination? Hopefully there will be funds in the trust after all of the beneficiaries complete their education. If so, the final drafting issue is how those assets will be distributed at that time. The simplest provision would be to divide the remaining assets equally among the beneficiary class. This could also be used as an opportunity to equalize gifts if the beneficiaries received differing amounts from the trust previously. A grantor may also choose to limit the class sharing in the final distribution to those who successfully completed the level of education that the trust was intended to fund. Again, there is no correct answer to how the trust should be drafted in this regard, but care in drafting will help to avoid hard feelings or worse among the beneficiaries later on.
Helping a grantor consider the above questions and drafting a trust based on the grantor’s thoughtful answers will help to make it certain that the grantor’s intentions are met and that the administration of the trust will go smoothly.
Bill Kuhlmann is a Senior Vice President at Security Bank & Trust Company. He is a graduate of the University of Minnesota Law School and has previously been engaged in private practice with Best & Flanagan LLP and Lindquist & Vennum LLP as well as having worked in the trust.
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