2010 Estate Tax Anomaly

In June 2001, I wrote an article for the Houston Chronicle in which I detailed the new tax law changes that had been put into effect that would completely eliminate the estate tax in 2010. At the time, I posed the question, “Is the repeal of the estate tax a myth or a miracle?” As we sit here in April 2010, I’m not sure that anyone knows the answer any better today than we did 9 years ago.

Under the 2001 legislation, the estate tax exemption (the amount a person would leave to their family free of estate tax upon their death) was set to increase from $1 million in 2001 to $3.5 million in 2009. Additionally, the tax would be completely abated in 2010 (so that no one dying in 2010 would pay taxes as a result of their deaths), and then in 2011, the estate tax exemption would return to the $1 million level that had existed in 2001.

As the recession hit the U.S. in full force in 2009, members of Congress and the President have continually discussed the option of re-instituting the estate tax for 2010 and making it retroactively effective to estates of anyone who died in 2010, even if they died prior to the enactment of the new law. The March 28, 2010, death of Houston Billionaire Dan Duncan has created intense buzz about these issues because the death of someone like Duncan in the one tax-free year in decades means that the U.S. Treasury will miss out on potentially billions of dollars of tax revenue which it might have ordinarily received as a result of Duncan’s death.

Although very few estates are as large as Duncan’s, the 2010 quandary has the potential to affect a vast number of people dying in 2010. If Congress re-institutes the tax for this year, then it will necessarily include a cap on the amount of money that someone could leave to their family members tax free. At Ford & Mathiason, we had 2 clients die in just the first two weeks of January, 2010, who will potentially be affected by these changes. In our first meeting with their families after their deaths, we had no option but to tell them to just “hang on and see what Congress does by the end of the year.” Until Congress makes a decision about the estate tax issues, we will not know how to advise our clients.

Regardless of how the estate tax issues play out this year, 2010 will go down in the history books as an interesting year from an estate tax perspective. It is the first year in decades in which there could be no estate tax, but by the end of the year, that may be changed completely and will cost some taxpayers considerable amounts of money.

Stay tuned to see what happens!

This Week in Probate and Guardianship Appeals

Doherty v. JPMorgan Chase Bank, First Court of Appeals Houston

This week’s entry comes to us from the 1st District Court of Appeals in Houston. Lois Doherty appealed the order of Mike Wood, Judge of Harris County Probate Court Number Two, who granted JPMorgan’s motion for summary judgment.

Background

Mrs. Doherty is the beneficiary of the Lois Doherty Trust, created by her late husband Wilfred T. Doherty in his Will. JPMorgan is the trustee of this Trust. Paragraph 3.3 of the Trust states that the Trustee must distribute such amounts of Trust principal as Mrs. Doherty may request to provide for her comfort, health, support or maintenance. In 2005, Mrs. Doherty suffered a stroke that left her physically impaired and she moved into her daughter’s home. This house lacked a handicap-accessible bathroom and therefore Mrs. Doherty requested funds to modify the bathroom in her daughter’s home. Mrs. Doherty requested that all of the funds in the trust be released and placed into another account that she owned.

The bank decided that they did not agree with this request and instead asked her to send them quotes for the repairs to the bathroom and they would review such quotes and make the distribution. Obviously this did not sit well with Mrs. Doherty. She therefore hired an attorney and requested that JPMorgan resign as trustee. JPMorgan refused to resign and instead requested a full judicial release. They then denied the request for funds to install a handicap accessible bathroom and continued to hold the funds.

Mrs. Doherty filed a petition for declaratory judgment seeking a declaration that in light of JPMorgan’s refusal to act, the Will allowed her to appoint a successor trustee. Both Parties then filed motions for summary judgment. Mrs. Doherty’s motion sought summary judgment on the issue that JPMorgan had refused to act under the mandatory terms of the trust and such an act entitled Mrs. Doherty to appoint a successor. JPMorgan’s motion sought summary judgment on the issue that it had not failed to act under the terms of the trust and that all of Doherty’s claims were invalid. Even though JPMorgan expressly denied Mrs. Doherty’s request for funds under a mandatory provision of the Trust, Judge Wood found in favor of the bank and granted its request for summary judgment.

The Court of Appeals reviewed the terms of the trust, acknowledged that the provisions under Paragraph 3.3 required mandatory distribution when requested for maintenance, and therefore ruled that JPMorgan had in fact refused to act under the terms of the trust. This meant that Mrs. Doherty was well within her rights to appoint a successor trustee and JPMorgan was not entitled to summary judgment. The Court reversed Judge Wood’s ruling and rendered judgment in favor of Mrs. Doherty on her declaratory judgment claim.

What does all of this mean for you? First of all, if you have a trust, make sure it says exactly what you want it to say. Secondly, if you are a beneficiary of a trust and have concerns regarding the Trustee, call us today and schedule an appointment to discuss your matter. Even where a Judge has ruled against you there may still be options available, but the timelines are short so do not put off calling an attorney that is qualified in probate matters.