Hello from the Chair Scott M. Nelson
The Probate and Trust Law Section website is a valuable location to find out information the Section. It can be found at http://www2.mnbar.org/sections/probate-trust/index.asp. The website lists updates on Section activities, links to sources of information identified by our Technology sub-committee headed by Rick Bunin, and links to other MSBA resources for its members. The Section is always looking for volunteers for some of the sub-committees, such as:
- Federal Taxation Committee chaired by Richard Hawke and Eileen Day
- Consumer Protection/Publications Committee chaired by Derrick Doerr
- Ethics & Professional Responsibility chaired by Tamara Peterson
- Litigation chaired by Alan Silver and Bridget Logstrom-Koci
Please feel free to contact any of the chairs or me if you are interested in volunteering for their committees.
Our next CLE luncheon is scheduled for November 18 and will feature a panel of trust and estate litigators covering recent developments. See information below regarding registration. Also look for a December luncheon CLE sponsored by the Human Rights Committee and covering planning for Minnesota domestic partnerships.
Planning has started for the 40th annual Probate and Trust Law Section Conference, which will be held June 2 and 3, 2014 at the St. Paul RiverCentre. We hope many of you can make plans for the upcoming conference, which will feature many local, and a few national, speakers.
This time of year is the busiest time for the MSBA legislation process. All proposals from the various sections were required to be submitted to the MSBA for review and approval by the end of October, which will then be vetted by other sections. The Probate and Trust Section has legislation approved by the MSBA, that carried over from last session, which permits the appointment of an agent over a multi-party account and conforms Minnesota’s spousal apportionment of estate taxes with the federal right of recovery. In addition, our Section has been working on an update to the trust law in Minn. Stat. §501B and has been studying the Uniform Trust Code for three years under a task force chaired by Chris Hunt. They have been finalizing their recommendations, and the Council is recommending that the MSBA consider the recommendations for possible introduction during the short legislative session in 2014. The MSBA has a list of its current legislative positions posted on the MSBA Assembly website found at http://www2.mnbar.org/committees/legislative/legislativepositionsmsba.asp
Finally, take advantage of the opportunity to submit articles for publication to our newsletter editors, David Joyslin and Jennifer Santini.
Wills for Heroes
As of November 7, 2013, Wills For Heroes has prepared 8,193 estate plans for Minnesota First Responders and their families. The Wills For Heroes program continues to welcome new volunteers. The next attorney volunteer training program is on Wednesday, January 29, 2013.
To sign up for the training program or for more information, please contact Andrea Bischoff (firstname.lastname@example.org) or Susan Link (email@example.com) or visit http://www2.mnbar.org/willsforheroes/index.asp.
Upcoming Events and CLE Programs
- Greater MN Probate & Trust Study Group Conference Call
- Wednesday, November 20, 2013 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, November 21, 2013 at 3:30 p.m.
- Location: MSBA Offices
- Call-in Number: (800) 406-9170 passcode: 1491722
- CLE: Probate & Trust Law Section Luncheon
- One if by Land, Two if by UTC. Be Ready for New Developments Coming in Probate and Trust Litigation
- Monday, November 18, 2013 – 11:30 – 1:00
- Location: Dorsey & Whitney
- Registration Deadline: Thursday, November 14, 2013
- CLE: MN’s New Gift Tax & Related Tax Issues Video Replays
- MSBA Human Rights Committee CLE On Same-Sex Marriage
- Thursday, December 12, 2013 from 8:30 – 10:30 a.m.
- Location: More details to follow
- A broad perspective to help ascertain key points in different practice areas when meeting with same-sex couples.
Federal & Minnesota State Tax Update
Net, Net Gifts - Steinberg v. Commissioner
On September 30, 2013, a divided Tax Court determined that it would no longer follow an earlier opinion regarding net gift valuation, and denied the IRS’s motion for summary judgment.
On April 17, 2007, Jean Steinberg, age 89, entered into a binding net gift agreement with her four daughters (the “donees”). In the agreement, Ms. Steinberg agreed to make gifts of cash and securities to the donees. In exchange, the donees agreed to assume and to pay: (1) any federal gift tax liability imposed as a result of the gifts, and (2) any federal estate tax liability imposed under Section 2035(b) if Ms. Steinberg died within three years of making the gift. Ms. Steinberg’s appraiser calculated the value of the net gift by reducing the fair market value of cash and securities by the amount of gift tax paid by the donees and the actuarial value of the donees’ assumption of the potential estate tax. The IRS objected to the subtraction of the potential Section 2035(b) estate tax liability to determine the amount of the net gift, and issued a notice of deficiency increasing the gift tax by about $1.8 million.
The only issue in the summary judgment action requested by the IRS was whether the assumption of any estate tax liability under Section 2035(b), if the donor died within three years, may constitute consideration in money or money’s worth that can be subtracted in determining the amount of the gift under Section 2512(b). The IRS argued that the donees’ assumption of the potential liability did not replenish the donor’s estate, and thus, was not consideration for the gift under the “estate depletion” theory of the gift tax.
The IRS’s position relied heavily on the Tax Court’s previous rejection of an offset for this potential estate tax liability in McCord v. Commissioner 120 T.C. 358. In McCord, the Tax Court reasoned that (1) the potential Section 2035(b) estate tax liability was too speculative to be considered, and (2) the assumption of such liability did not satisfy the estate depletion theory because the assumption of the potential estate tax liability would benefit the donor’s estate and its beneficiaries rather than the donor.
The majority opinion in Steinberg reconsidered and reversed the Tax Court’s position in McCord, reasoning that: (1) the potential estate tax liability was not too speculative to consider, because morality tables can be used to estimate the likelihood of whether the donor will die within three years, and estimating the amount of estate tax owed at donor’s death is less speculative than factors used to determine the “built-in-gains discount” for C corporation stock which has been allowed in Estate of Jelke v. Commissioner, 507 F.3d. 1317, and (2) the distinction made between the donor and the donor’s estate for purposes of the estate depletion theory in McCord was incorrect, and thus, the Section 2035(b) liability assumption satisfied the estate depletion theory because it would replenish the estate by relieving it of such liability. The majority concluded that there were genuine disputes of material fact as to whether the donees’ assumption of the potential Section 2035(b) estate tax liability constituted consideration in money or money’s worth, and therefore, the IRS was not entitled to summary judgment.
A concurring opinion concluded that the IRS’s motion for summary judgment was properly denied; but argued the majority should not have addressed the “too speculative” argument, and therefore, the McCord case should not have been overruled to the extent it embraced the too speculative theory.
Final Version of Form 706 Released. The final version of Form 706, U.S. Estate (and Generation-Skipping Transfer) Tax Return (Rev. August 2013), to be used for decedents dying after December 31, 2012, was released by the IRS on October 30, 2013. The revised Form 706 is available on the IRS website at http://www.irs.gov/pub/irs-pdf/f706.pdf.
Projected Estate and Gift Tax Thresholds for 2014. CCH Tax & Accounting has released projections regarding estate and gift tax thresholds for 2014. CCH projects that the annual gift tax exclusion will remain at $14,000 in 2014, and the estate, gift, and generation-skipping transfer tax exemption will increase from $5,250,000 in 2013 to $5,340,000 in 2014.
November 7520 Rate. The Section 7520 applicable federal rate for determining the present value of an annuity, a life estate or term of years, or a remainder or reversionary interest will decrease from 2.4% to 2.0 percent for November 2013.
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.
DHS POSITION ON LIFE ESTATES REVERSED BY DISTRICT COURT
By: Laura Zdychnec
Long, Reher & Hanson
Last month, Polk County District Court Judge Kurt Marben ruled that DHS acted in an arbitrary and capricious manner, contrary to federal law, by counting the value of a non-homestead life estate owned by a community spouse when determining Medical Assistance eligibility for the institutionalized spouse. In Audrey Larson v. Minnesota Department of Human Services and Polk County Social Services, Court File No. 60-CV-13-465, the District Court, acting as an appellate court, reversed the Commissioner of Human Services’ final determination at the administrative level. The Commissioner has 60 days to appeal the decision to the Minnesota Court of Appeals.
For more than 25 years, the value of a non-homestead life estate was not counted when determining eligibility for Medical Assistance, whether that interest was held by a husband or wife. Then in 2010, DHS circulated to county agencies an undated, unsigned memorandum purporting to explain how life estates are evaluated when determining eligibility for Medical Assistance for an institutionalized spouse. The memorandum advised that a life estate is counted if titled in the name of a community spouse, but does not count if titled in the name of the institutionalized spouse. The memorandum was not made available to the public, was not published in any notice or bulletin, was not prompted by a change in federal or state law, and was not the subject of formal rule-making procedures.
Subsequently on January 1, 2011, the Health Care Programs Manual was amended to, for the first time in history, require married couples to identify which assets would be retained by the community spouse before an eligibility determination is made. This change has broad implications for application of the spousal impoverishment rules in Minnesota.
Laura Zdychnec of Long, Reher & Hanson in Minneapolis, and Mike Brouse of Brouse, Woodke & Meyer in Fosston, asserted the following arguments on behalf of the appellant:
- A non-homestead, non-saleable life estate interest is not a “resource” under federal law, and only “resources” may be counted in determining eligibility;
- When determining eligibility for an institutionalized spouse, federal law requires consideration of a married couple’s combined resources – whether the resource is titled in the name of the institutionalized or the community spouse is irrelevant; and,
- Absent a change in federal or state law, or formal rule-making procedures, the change in DHS policy for treatment of life estates was arbitrary and capricious.
The district court agreed. The decision is available here. It is also posted on the Reports, Guides, and Memoranda page of the Elder Law Section website.
Advocates need to be aware that the policies promoted in the DHS memorandum have been incorporated into financial caseworker training.
For more information, contact Laura Zdychnec at firstname.lastname@example.org or Mike Brouse at email@example.com.
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