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Texas Board of Legal Specialization Estate Planning Study Cards > TBLS more Studying > Flashcards

TBLS more Studying Flashcards

1
Q

Definition of alimony

A 
Taxes paid by payee, deductible by payor 
Section 71(b) any cash payment received by spouse under divorce instrument, payment not designated as NOT includable in gross income, payor and payee are not members of same household, no liability to make payments after death, and do not file joint return
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2
Q

Calculation of DNI and NII

A
  1. Set up chart indicating DNI and NII for all income.
  2. Determine % of distributions as DNI and NII–times that are both are distributions.
  3. Ben includes distributed in NII
  4. Trust’s NII is total NII less Ben’s included NII
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3
Q

Imposition of NII

A

Individuals: lesser of NII and exceeds of MAGI over threshold
Trusts: lesser of undistributed NII and excess of AGI over threshold

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4
Q

Roth IRA Additional 5-Year Requirement

A

Payment or distribution is not a Qualifying Distribution if it occurs before expiration of 5 years beginning with taxable year that rollover was made. Other payments/distributions are ok if not within 5 years of contribution.

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5
Q

Taxation of non-Qualified Distributions from Roth IRAs

A

Includable in distributee’s gross income TTEX attributable to earnings. Treated as coming from contributions first.
Can be subject to 10% penalty if from rollover and not yet 59 1/2

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6
Q

Stock Option/Incentive Stock Options

A

Exercise for FMV, must hold for two years from date of grant and one year from date of exercise for LTCG

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7
Q

Non-Statutory Stock Option

A

Discounted price below FMV on date of exercise

-Grantee recognizes income equal to FMV less price

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8
Q

IRA deduction for contribution

A

Up to $5000 if under income limits

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9
Q

Net Investment Income

A

Code 1411 Not wages or normal income.

  1. Category of gross income from interest, dividends, annuities, royalties, and rents.
  2. Gross income from passive activity–business you don’t materially participate in.
  3. Net gain TTEX included in computing taxable income.
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10
Q

Basic 409A rule

A

Absent an exception, amounts payable as deferred compensation are includable in the current tax year if an employee obtains a legally binding right during a taxable year to compensation that may be payable in a later tax year.

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11
Q

Substantial Risk of Forfeiture

A

Compensation is subject to a substantial risk of forfeiture if it is conditioned on performance or substantial future services or occurrence of a condition related to employment.

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12
Q

Payment of deferred compensation events

A
  1. Separation from service.
  2. Death.
  3. Disability.
  4. Unforeseen emergency (illness, casualty loss, or other extraordinary and unforeseen event)
  5. Change in control.
  6. Specified date
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13
Q

338 Election

A

Treat stock acquisition as asset acquisition. Buyer wants stock, but wants tax benefits of asset acquisition. Two levels of tax.

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14
Q

Roth IRA Contributions

A

Annual contributions do not exceed deduction limit ($5k)

Qualified rollover from IRA–total amount converted included in taxpayer’s gross income

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15
Q

IRA allowed early distributions

A

First home purchase, education, illness

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16
Q

Roth IRA Qualifying Distribution

A 
Payment after age 59 1/2
Payment after participant's death to beneficiary or estate
Made following disability
First time homebuyer
Five year requirement
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17
Q

IRA early distribution penalty

A

10% penalty tax on top of inclusion in income and tax on distribution.

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18
Q

Qualified Plans

A

Any plan under 401(a) or 408(a) (IRAs)

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19
Q

Required beginning date for IRAs

A

April 1 of the year after participant turns 70.5

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20
Q

Required beginning date for non-IRA Qualified Plans

A

If not 5% owner, then later of April 1 following year turns 70.5 (still has to take distribution for year of April 1 as well)
AND year of retirement

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21
Q

Qualification test for IRA trusts

A
  1. Valid under state law.
  2. Irrevocable or becomes irrevocable on participant’s death
  3. Ben’s must be identifiable from trust agreement–can be a class So long as you can identify the member with the shortest life expectancy
  4. A copy of the trust agreement must be given to the administrator
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22
Q

Look through trust for IRAs testing dates

A

September 30 of the year after the participant’s death, must meet all four qualifications.
Except 10/31 of the year after death to deliver trust agreement to administrator

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23
Q

IRA distribution calculations

A

Annual distribution = account value on prior 12/31 divided by applicable divisor for distribution year

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24
Q

RMD during participant’s lifetime

A

If spouse is more than 10 years younger and is sole beneficiary , division for RMD are the (taxpayer friendly) joint and survivor expectancy. Otherwise, use uniform life expectancy table.

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25
Q

Designated Beneficiary for IRA

A

Any individual or look through trust (not a charity)

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26
Q

RMD after participant’s death, but before RBD with Designated Beneficiary who is not the spouse

A

Plan benefits to be paid out starting 12/31 of year following participant’s death, with annual payments made over beneficiary’s life expectancy at next birthday

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27
Q

RMD after participant’s death, before RBD, with Designated Beneficiary who is surviving spouse.

A

Starts 12/31 of year following participant’s death per life expectancy (same as non-spouse)
Delay until 12/31 of year surviving spouse turns 70.5 (not 4/1 after)
If SS can take a lump sum, then make spousal rollover to own IRA.

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28
Q

RMD after participant’s death before RBD, but no Designated Beneficiary

A

Full distribution by 12/31 following 5 years after participant’s death.
DOD-5/10/2011
All out by 12/31/2016

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29
Q

After participant’s death, after RBD, with Designated Beneficiary not spouse

A

Plan balance (amount after year of death RMD) must begin to be paid out to DB on next 12/31 over DB’s life expectancy as of birthday that year, or over hypothetical life expectancy MINUS one of PARTICIPANT based on age at death

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30
Q

After participant’s death, after RBD, Designated Beneficiary who is spouse

A

RMD based on spouse’s age in year after death.
Use spouse’s life expectancy
Spouse Rollover if spouse can take lump sum distribution

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31
Q

After participant’s death, after RBD, no designated Beneficiary

A

Plan balance paid out over life expectancy of participant as of birthday in year of death which is reduce by ONE each year (if divisor is 26.3, then 25.3, then 24.3, then 23.3.)

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32
Q

IRA Spousal Rollover

A

Transforms benefits into spouse’s IRA.
Must be done by direct rollover to avoid 20% withholding on lump sum distribution
Rollover still computes using joint & survivor rules

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33
Q

Benefits of inherited IRA

A

Not subject to early withdrawal penalties

Take RMD based on Designated Beneficiary’s remaining life expectancy

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34
Q

IRA non-spousal rollover

A

Only for Designated Beneficiaries
Must be trustee to trustee transfer
Will be an inherited IRA, must take distribution based on DB’s remaining life expectancy

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35
Q

IRA equal annual distributions

A

IF participant is under 59 1/2, can avoid 10% early withdrawal penalty by taking annual distributions based on life expectancy , and distributions must continue until later of 5 years or participant’s age is 59 1/2

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36
Q

Roth IRA

A

Distributions are not included in distributee’s gross income, and contributions are not deductible .

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37
Q

Tax treatment of alimony and maintenance

A

Code 71(a)–amounts received as alimony or separate maintenance are included in payee’s gross income, and deductible by payor

Does not apply child support under Code 71(c)

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38
Q

Branch Profits Tax

A

Subjects foreign owned corporation to Branch Profits Tax to mimic double taxation of domestic corporation-
35% on corporation
30% on distributions to foreign shareholder

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39
Q

Restricted stock

A

With 83(b) election, gross income inclusion equal to FMV less consideration included at election.

Without 83(b) election, then gross income equal to FMV less consideration at time of vesting

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40
Q

743(b) Adjustment

A

Only made if PSP has made a 754 election or there is substantial built in loss.
Adjustment is equal to the change between buyer’s outside basis and share of inside basis–Equate the two. Allocated between capital and non-capital assets.

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41
Q

Like kind exchange

A

Code 1031(a)–No gain or loss recognized if property held for investment is exchanged solely for property of like kind

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42
Q

Boot in 1031

A

Gain recognized TTEX of FMV of boot.

Boot is non-qualified exchange property

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43
Q

US Income Taxation of NRAs

A
  1. ECI-Graduated rates, net basis, connected to US TorB
  2. FDAP–30% gross basis, withholding at source, no deductions.
  3. Portfolio bank deposit interest-exempt
  4. Capital gains–exempt
  5. Real Estate/FIRPTA–Graduated rates, net basis, 10% withholding as pre-payment of tax on gross sales price
  6. Branch Profits Tax–Regular income Tax on corporation at 35%, plus BPT of 30% on distributions to foreign shareholder
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44
Q

FIRPTA exceptions CHECK THIS WITH PATH ACT UPDATES

A

Sale for less than $1MM if property will be the buyer’s residence
Sale of publicly traded stock if seller owns no more than [10%]
-Non-foreign affidavit
-Non-USRPHC affidavit
-If partnership, withholding rules under 1445 trump FIRPTA

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45
Q

FIRPTA

A

US real property sales are treated as effectively connected income, subject to 10% withholding on amount realized.
Includes interests in USRP and USRPHC during five years before rule or TP’s holding period.

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46
Q

US Real Property Holding Corporation

A

Code 897
Any corporation in which the FMV of US RPI equals or exceeds 50% of the corporation’s assets.
Include USRPI, non-US RPI, any other assets held or used for trade or business

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47
Q

Portfolio and Bank-Deposit Insurance

A

871(h)(I), 881(c)
Interest is exempt from US tax if held in US bank
Portfolio interest
-Obligation in registered (not bearer) form
-US Borrower obtains a statement that the owner is not a US person
Cannot be a contingent for corporate borrowers, cannot be 10% of borrower’s assets

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48
Q

NRA Taxation of Capital Gains

A

Except for Real Estate CG, NRA CG not attributable to a US TorBare not subject to tax.

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49
Q

Expatriate Covered Gifts

A

Code 2801 Gift or estate tax imposed on donee if donor is covered expatriate.
Tax rates higher of gift tax or estate tax (40% for both), reduced by foreign gift tax paid.
Annual exclusion, marital, and charitable deductions apply.
No medical or educational exclusions
No subject if gifts are reported, or if property included in gross estate of covered expat and reported on 706

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50
Q

Exit Tax

A

Code 877A
One time mark-to-market tax on all property.
All property deemed sold at FMV immediately before expatriation date.
Applies to all property in net value–what do you have.
Gain is taxable TTEX it exceeds $600k, indexed for inflation ($680k in 2015)
Excludes deferred comp, qualified plans, tax deferred accounts (IRAs)), beneficial interest in non-grantor trust.

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51
Q

Expatriation Rules–Tax Motivated Expatriation

A

Must meet all three tests
1. Average annual net FIT for five years is more than $124k (adjusted for inflation, now $168k)
2. Net worth over $2mm on date of expatriation, not indexed
3. Fails to certify on form 8854 that he has complied with all US federal tax obligations for prior 5 tax years.
Break one, and you’re a covered expat

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52
Q

Tentative estate tax base

A

Taxable estate plus taxable gifts post-1976

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53
Q

Tentative estate tax

A

Tentative estate tax * estate tax rate (40%)

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54
Q

transfers of property between spouses incident to divorce

A 
Code 1041(a)--no gain or loss recognized on transfers between spouses or incident to divorce.
Must be within 1 year of cessation of marriage or within 6 years no related to cessation of marriage.
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55
Q

Resident Alien for Income Tax

A
  1. Green Card + physical presence
  2. Substantial Presence 31 days + 183 weighted average, exception for closer connection and treaty
  3. First year election, must be present 31 consecutive days, present for 75% of testing period, meet substantial presence in next year. Gets you in early so you can take FDAP deductions
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56
Q

Residency Test for Transfer Tax

A

Subjective domicile test–physically present with no definite present intention of leaving

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57
Q

Estate Taxation of NRAs

A

Exemption of $60k
Gross estate is all US sitused property,
Except savings, checking accounts and CDs if not used for US TorB, funds at foreign branch of US bank, life insurance owned by decedent on his own life.
QDOT is included.

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58
Q

Gift taxation of NRAs

A

Gift tax only applies to US sitused real property and tangible personal property. Does not apply to intangible property and us Debt obligations.
$14k annual exclusion available.

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59
Q

Marital Deduction for NRA gifts

A

limited to $100k inflation adjusted, now $148k, for gifts to non-citizen spouse. Unlimited gifts can be made by non-citizens to Citizens.
No gift splitting.

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60
Q

FDAP

A

Code 871(a) Fixed or determinable, annual or periodical income. Interest, dividends, rents, and royalties not effectively connected with a US TorB

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61
Q

Grantor Trust Rules

A 
673 Reversions
674 Retnetion of control
675 administrative powers
676 Power to revoke
677 Retention of income and payments to grantor or grantor's spouse
678 Retained powers
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62
Q

UPIA Allocations to Principal

A
  1. Assets received from transferor during lifetime, a decedent’s estate, a trust with terminating income interest, or a contract naming the trust as a beneficiary.
  2. Money or other property received from sale or exchange of principal asset.
  3. Proceeds from or recovery for reasons not related to loss of income.
  4. Proceeds from eminent domain.
  5. Income when there is no income beneficiary.
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63
Q

65-Day Election

A

663(b) trusts can treat distributions during the first 65 days of the next year as having been made in the prior tax year

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64
Q

FAI

A

Fiduciary Accounting Income. Used to allocate receipts between principal and income, determined under governing document and state law. Code 643(b).
Income–money or property a fiduciary receives as a current return from a principal asset.
Principal–Non cash receipts, cash in exchange for a trust’s interest in property, cash for capital gains, amounts for liquidation of an entity

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65
Q

DNI calculation

A

Accounting Income from an estate or trust
Taxable income without distribution deduction or personal exemption, less net capital gains, plus tax exempt income, reduced by expenses allocated to that income.

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66
Q

Recapture of Excess Alimony Payments

A

Excess = Year 1 Excess + Year 2 Excess
Year 2 Excess = Year2 alimony - (Y3 alimony +$15k)
Year 1 Excess = Year1 alimony - {([Y2 alimony -Y2 excess] + Y3 Alimony)/2 + $15k}

Excess amount is included in payor’s gross income in year 3, deductible in year 3 by payee.

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67
Q

Dependency Exemption

A

Custodial parent entitled to exemption if child receives over 1/2 of support from that parent

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68
Q

Child support payments

A

Code 71(c) Any payment of alimony or separate maintenance for child support or related to contingencies involving a child is child support, and is not income to payee, and is not deductible to payor.

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69
Q

Simple Trust Definition

A

Governing agreement requires all income to be distributed currently
No corpus distributions in current year
No distributions deductible as charitable contributions

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70
Q

IRD

A

Items that would have been taxable income if decedent had lived, but isnt’ included on final 1040. Accrued interest, dividends, gain on 453 obligations, bonus paid after deat.
Estate will recognize gain on distributions of asset

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71
Q

New Basis at Death

A

1014 No new basis for IRD or death bed transfers TO decedent

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72
Q

Capital Gains tax rates

A

15% on gains up to $400k/$450k
20% on gains over $400k/$450k
3.8% NIIT

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73
Q

Taxable Estate

A

Gross Estate less
2053 administrative expenses, funeral, and debts
2054 Casualty losses
2055 Charitable deductions
2056 marital deduction
2056A QDOT
2057 Deduction for certain family business interests

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74
Q

Persons having statutory right to make burial instructions

A

Person designated in writing signed by decedent
Decedent’s surviving spouse
Any of the decedent’s adult children
Either of the decedent’s parents
Any of the decedent’s adult siblings
The person of closest kinship to the decedent according to intestacy statutes

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75
Q

Payment of funeral expenses and filing fees

A

Probate court may order a person, financial institution, or other entity to pay for the funeral home no more than $5k from the estate for funeral expenses. TEC 152.051
The first $15k in funeral expenses must be paid before any other claims, and amounts over that are paid as other unsecured claims. TEC 55.102(b)

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76
Q

Five Alternatives to Probate

A 
Affidavit of Heirship
Small Estate Affidavit
Proceedings to Declare Heirship
Application of No Administration
Informal Family Agreement
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77
Q

Affidavit of Heirship

A

May allows heirs to easily transfer title to real property consisting of homestead without judicial proceeding.
Executed by maker, acknowledged before NP, and been public record for five years. Generally require 3 from disinterested persons.
Statutory form exists

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78
Q

Small Estate Affidavit

A

Ancillary probate proceeding allows estate consisting of homestead, and TPP to be transferred to heirs.
Req’s
-No petition for appointment of personal representative filed or granted
-Intestate
-30 days elapsed since date of death
-Value of entire estate, except for homestead and exempt property ($100k/$50k) TPC 42.001, does not exceed $50k. TEC 205.001
-Two disinterested witnesses sign.
Certified copy of the Small Estate Affidavit can be provided to effect transfer of property.

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79
Q

Proceedings to Declare Heirship

A

May be required if more than 4 years have passed since decedent’s death.

  • Application
  • Notice to heirs by mail, notice to all known or unknown heirs by publication
  • Hearing with two witnesses
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80
Q

Application for Order of No Administration

A

TEC 451 to avoid administration by setting family allowance and moving on.
Req’s
-Decedent is surviving spouse or minor child
-Value of the estate, exclusive of homestead and exempt property, cannot exceed the family allowance
-Application must include names of heirs or devisees, creditors, and description of property.
-Prayer for establishment of family allowance

Order constitutes legal authority to transfer property to persons named in the order.
May be revoked within 1 year by showing
-other property discovered
-property belonging to the estate was not included in the application
-the property included in the application was incorrectly valued resulting in the situation that the total value of the estates would exceed the amount necessary to justify the order of No Administration

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81
Q

Informal Family Agreement

A

The principal of immediate vesting allows estate beneficiaries to divide the estate, subject to creditor claims, as they may agree. Every person who has a pecuniary interest should be joined as a party. Avoidance of a will contest is adequate consideration.

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82
Q

Court approval of Family Settlement Agreement

A

Must be sought when

  • Overturn a probated will
  • When a minor who’s guardian is an interested party
  • When there are unknown remainder men as interested parties and there is an ad litem
  • If the settlement agreement modifies or terminates a testamentary or irrevocable trust.
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83
Q

Dependent Administration

A

Appropriate when an estate is insolvent or potentially insolvent, or where substantial conflicts exist between the named executor and the heirs or legatees.

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84
Q

When is Dependent Administration appropriate?

A
  1. Intestacy
  2. No executor named in the will
  3. When an executor predeceases a testator and no alternate is named
  4. When an executor fails or neglects to qualify within 20 days after the wills admission to probate
  5. When the executor neglects to present the will for probate within 30 days after death
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85
Q

Liability of dependent administrator

A

Personal liability for any acts performed without any required court authority, for conversion, waste, or mismanagement of assets, hiring or renting property without approval.

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86
Q

Order of preference for administrator applicatants

A 
Person named in the Will
Surviving spouse 
Principal beneficiary
Any beneficiary 
Next of kin
Creditor of decedent
 Person of good character who applies for the position
Any other person not disqualified
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87
Q

Disqualified person for administrator/executor

A

Incapacitated person
Convicted felon
Non-resident without an appointed resident agent
Corporation not authorized to act as a fiduciary
Any unsuitable person

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88
Q

Time limit for probate

A

No administration after four years from the decedent’s death unless there exists a necessary to receive or recover funds or property due to the estate

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89
Q

Probate of will and appointment of administrator with will annexed

A

Will fails to appoint an executor or all appointed executors are deceased or no longer competent to serve, or will does not provide for independent administration .

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90
Q

Timing of probate hearing

A

No hearing until application citation has been returned, which is the the first Monday after 10 days from the posting, personal service, or publication.

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91
Q

Fiscal year for the estate

A

Estate may select fiscal year that ends on the last day of the month before decedent’s death. Allows deferral of taxes for estate and beneficiary

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92
Q

Possible tax returns for the estate

A

1040 for final year through date of death
1041 for estate
709 to cover all open gift years
706

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93
Q

Discretionary extension of time to pay estate tax

A

IRC 6161 allows discretionary time of up to ten years, but generally no more than 1 year

94
Q

Closely held business estate tax extension

A

IRC 6166, business must be more than 35% of the gross estate, allows payments of tax due to business to be spread over 10 years.

95
Q

Notice to Creditors

A

Secured Creditors must be notified within 2 months

Unsecured Creditors may be given permissive notice, and claims not presented within 121 days are barred.

96
Q

Notice to Beneficiaries

A

Notice to all beneficiaries within 60 days, plus attorney’s certificate or affidavit. Notice not required to beneficiaries who have received all gifts or if gift is $2k or less.

97
Q

Administration of community property

A

Executor is empowered to administer all community property that was the deceased spouse’s sole or joint Managment at the date of death.
After the inventory is filed, the surviving spouse may apply to the court for a partition of community property.

98
Q

Homestead exemption

A

Urban–10 acres contiguous
Rural–200 acres for married, 100 acres for single, non-contiguous
Homestead may not be partitioned until all superior rights have been terminated.
Children don’t have a homestead right if surviving spouse exists
When unmarried children surviv, the homestead is immune from General creditors

99
Q

Creditor’s Rights to Homestead

A

General creditor may not require sale of homestead or other exempt property if there are survivors entitled to the exemptions. Only purchase money creditors and taxes can reach property.

100
Q

Exempt property allowance

A

If the estate does not contain a homestead or exempt property, then the surviving spouse or children may apply for an allowance of $45k for the homestead and $30k for other property.

101
Q

Family allowance

A

The court fixes the family allowance after the inventory is filed equal to support and maintenance for one year, and is preferred to all except class 1 claims.

102
Q

Approval and rejection of probate claims

A

Whenever a claim is presented to the dependent rep or filed with the clerk, the representative should approve or reject the claim within 30 days or it will be rejected by operation of law. The rep must satisfy himself as to the claim’s legality and validity. After the rep allows or disallows the claim, the court approves, in whole or part, or rejects the claim, and then classifies the claim.

103
Q

Claims of secured creditors

A 
Secured creditors can elect to have the claim treated as a matured secured claim to be paid in the due course of administration (class 3 claim), or as a preferred debt and lien against the specific property securing the debt to be paid in accordance with the terms of the contract (class 3). 
If the secured creditor does not present claims within later of 4 months of receipt of notice or six months after letters are granted, deemed to elect preferred debt and lien status, and can only look to the collateral for payment of the claim.
104
Q

Classification and Payment of Claims

A

Class 1: First $15k of funeral and last illness expenses (any extra is Class8)
Class 2: Administration Expenses
Class 3: Claims secured by mortgage or other liens against specific property
Class 4: Claims for delinquent and unpaid child support and interest
Class 5: Claims for taxes, penalties, and interest due to the State of Texas
Class 6: Claims for Tx Dept. of Corrections confinement
Class 7: Claims for state medical assistance payments
Class 8: All other claims (unsecured)

105
Q

Sale of Estate Property

A

Estate property should be sold to pay administration expenses, funeral expenses, last illness, allowances, and claims if it is in the best interest of the estate. The following property should be sold:

  • Perishable, wasting, or deteriorating assets, including assets that are an expense or disadvantage to the estate (sold because of nature of asset, not need to sell to pay claims)
  • personal property, crops, livestock, but not exempt property, may be sold to pay expenses of administration, funeral, last illness, allowances, and claims
  • Real property needed to pay expenses of administration, funeral, last illness, allowances, and claims
  • Easements and rights of way sold to pay charges and claims against the estate
  • All property that cannot be partitioned among the heirs or paid in cash to the estate may be sold (nature of asset, not need to sell)
106
Q

Report of Sale

A

When court approval is required (always in DA, sometimes in IA), the rep must report to the court the date of sale, description of property, time and place of sale, name of purchaser, sales price, and whether the purchaser is ready to comply with the order of sale.

107
Q

When is court approval required for sale by Independent Rep?

A

Generally not required to sell real property, hire out personal property, or borrow funds if authorized by the will or agreement of the beneficiaries.
But if not authorized, may be done if necessary to pay expenses of administration, funeral, last illness, allowances, and claims, and IA should affidavit confirming need for sale to protect the purchaser.

108
Q

Lease by Dependent Rep

A

May lease property with court approval.
No court approval needed if term is one year or less, but must file sworn report for any property leased for more than $3,000

109
Q

Removal of Personal Rep, no notice required

A

Instituted by court or any interested person.

  • Failed to timely qualify
  • failed to return an inventory
  • failed to furnish a new bond
  • Leaves the state for an extended period of time
  • Clear evidence he or she has misapplied, embezzled, or removed estate assets or will do so
  • Cannot be served with notice
110
Q

Removal of Personal Rep, Notice Required

A
  • Misapplied, embezzled, or removed assets from the state
  • Failed to return any account required
  • Failed to file the affidavit or certificate required by Tx ECode 308.004
  • Failed to return any original or additional inventory required
  • Failed to obey an order from the court with proper jurisdiction
  • Guilty of gross misconduct or mismanagement in performance of any duties
  • Becomes incompetent, imprisoned, or incapable of property performing duties
  • Material conflict of interest
  • Failes within three years of granted of dependent letters to make final settlement unless time extended by court
111
Q

Removal of personal rep, additional grounds

A

Rep purchases a claim against the estate
Fails to endorse his allowance or rejection on a claim within 30 days of presentment
Fails to file sworn statement of the condition of the estate within 20 days after notice that a new or increased bond is required

112
Q

Compensation of Personal Rep

A

If not set by the will, then entitled to commission for all services of 5% of all cash received or paid during the administration, but may not exceed 5% of the gross FMV of the estate.
Does not include receipt of funds in financial institutions at death, collecting life insurance, or paying cash to beneficiaries.

113
Q

Payment of Estate Expenses

A

Personal rep may recover all reasonable and necessary expenses incurred in administration, preservation, safekeeping, and managment of the estate, collecting or attempting to recover property of the estate, and reasonable attorney fees necessarily incurred in the management of the estate

114
Q

Closing the Estate Options

A 
Partial Distributions
Distributing without any agreement
Distributing with only a receipt
Distribution with receipt 
Closing Report and Notice of Closing of the Estate
Judicial Discharge
Closing Dependent Administration
115
Q

Partial Distributions

A

Advantage to getting property out of the estate.
Appropriate to distribute specific bequests and pecuniary bequests that aren’t allocated to debts or administration expenses

116
Q

Distributing without any agreement

A

Advantage of simplicity and cheapest, low confrontations, and purchaser is entitled to rely on recitals in deed that independent personal rep made acting as such during open administration.
Disadvantage of no proof of delivery, no relief from liability, no document stating when limitations begins to run

117
Q

Distributing with only a receipt

A

Advantage of simplicity and costs, not confrontational, provides notice that fiduciary considers estate assets distributed.
Disadvantage that it does not terminate Reps duties and obligations, no termination of relationship for statute of limitations or discovery, does not prevent beneficiary from compelling an accounting

118
Q

Distribution with receipt release

A

Advantage of lower costs than judicial release, and can get greater release than judicial. Documents disclosures to bens to start statute of limitations. May document informal closure by confirming all debts have been paid and all property has been distributed.
Disadvantage of not terminating rep’s duties and obligations, or relationship for statutes of limitation. Does not prevent beneficiary from seeking to compel an accounting. Potential for future claims left open. May bar claims based on release, estoppel, or waiver, but not res judicata, potential challenges due to valid/lack of consideration.

119
Q

Closing Report and Notice of Closing of the Estate

A

File report with Court to terminate authority and close the estate, which deprives rep of authority to get additional letters if another asset is found. Useful if rep wants to be released from responsibility and start the running of the SoLs without forcing issue of judicial discharge.
Req’s
-All known debts paid, no pending litigation, independent personal rep has distributed all assets of the estate to those entitled after paying debts.
Must file report that looks like an inventory, and names of people entitled to remaining property, and signed receipts of delivery of property to beneficiaries.
Or file notice of closing with court verified by affidavit stating all debts have been paid, all remaining assets have been distributed, names and addresses of distributee’s entitled to property has been distributed after payment of debts,and signed receipts or other proof that distributee’s have received copy of notice.

120
Q

Judicial Discharge

A

Personal rep must disclose and effectively sue the beneficiaries for a discharge. Forces resolution of all transactions in estate administration. May cause a beneficiary to bring counterclaims. Expensive.

121
Q

Closing a Dependent Administration.

A

Only one way to close this, and after all assets have been distributed and no further necessity exists to administer the estate..

122
Q

Government Benefits Programs

A 
Means Tested Programs
-SSI (Supplemental Security Income)
-Medicaid
Non-Means Tested Programs
-SSDI Social Security Disability Insurance
-Medicare
123
Q

SSI

A

Supplemental Security Income is a means-tested program that provides monthly cash income to help pay for a person’s food and shelter. Available to aged (65+), blind, or disabled. Amount received is reduced by income, which is anything the beneficiary receives in cash, including wages earned and property readily converted to cash, or in-kind support that can be sued to meet the recipient’s needs for food and shelter.

124
Q

Medicaid

A

In Texas, qualify for this when you get SSI, even if just $1 of benefit. Mean-tested health insurance run by Texas with federal money.

125
Q

Medicaid Requirements

A

Five

  1. Citizen, lawful permanent resident
  2. Age (65+), blind, or disabled
  3. Medical necessity–requires services of licensed nurses in an institutional setting to carry out physicians planned regimen. Requires medical disorder necessitating regular medical attention by registered or licensed vocational nurse. Inability to perform activities of daily living is not sufficient.
  4. Income cap for Texas is $2,199, or $4,398 for a couple. Exempt income is value of medical services provided for free or paid by 3P, but does not include in kind support and maintenance as income.
  5. Resource limitations– can’t have more than $2,000 ($3k for married applying) in cash or other liquid assets. If only one spouse is applying, then 1/2 of couple’s assets is counted subject to Spousal Protected Amount (min $23,844, max $119,220)
126
Q

Social Security Disability Insurance

A

SSDI non-means tested cash benefit to bens who are disabled and have made sufficient contributions to Social Security through employment taxes. Amount varies based on contributions.

127
Q

Medicare

A

Federal health insurance available to individuals who are

  • Age 65+
  • Have paid money into the program through retirement tax payments
  • Eligible to receive SSDI
  • Have end-stage renal disease
128
Q

Miller Trust

A

Used to gain income eligibility for Medicaid for nursing home Medicaid, community based alternatives, and other home based waivers programs. May not be used for QMB, SLMB, primary home care, or community care programs.
Trust can only be funded with grantor’s income, must be irrevocable, and contain a Medicaid repayment provision that repays all amounts remaining in the trust up to the total medical assistance paid by Medicaid on behalf of the individual.

129
Q

Self Settled Special Needs Trusts

A

(d) (4)(A) sole benefit trust

(d) (4)(C) pooled trust

130
Q

(D)(4)(A) Trust

A

Trust created and funded for the sole benefit of an individual with a disability under age 65 that is created with beneficiary’s own funds. Court created 142 or 867/1402 trusts qualify. Must include Medicaid repayment provisions.

131
Q

(D)(4)(C) trust

A

Pool trust created and managed by a nonprofit organization. A separate account is maintained for each beneficiary. TTEX anything is left after paying Medicaid, other beneficiaries may benefit.

132
Q

Medicaid Estate Recovery Program

A

Claim may be filed against the PROBATE estate of a deceased recipient if the participant was over 55 at the time were initially applied for.

133
Q

Exceptions from Medicaid Estate Claims

A

Claims will only be sought after the death of the Medicaid recipients if there is no surviving spouse, surviving child under 21, surviving child who is blind or disabled, or unmarried adult child residing continuously in the decedent’s homestead for at least one year before death.

134
Q

Undue Hardship Claims for Medicaid Estate Recovery

A

Compelling reasons, including property is site of family business for at least 12 months before death and is primary income source for 50%+ for heirs and recovery would result in loss of income,
Heirs & legatees would become eligible for public assistance if claim is made,
Allowing survivor to receive estate will allow them to discontinue eligibility for public services,
Medicaid recipient received property as a result of a crime.
Does not include legatees not receiving an inheritance.

135
Q

Medicaid Estate Recovery Recoverable Services

A

Nursing Home Services
Home and community based services,
Related hospital and prescription drug services

136
Q

Medicaid Estate Recovery Not Cost Effective

A

Value of estate is $10k or less
Recoverable amount is $3k or less
Cost involved in sale of the property would be equal to or greater than the value of the property.

137
Q

Veterans Benefits’

Disability Compensation

A

Monthly cash benefit to disabled veterans. Must result in an injury contracted during active duty, and includes aggravation of pre-existing condition during active duty.
Discharged with “other than dishonorable discharge”
did not result from willful misconduct or abuse of alcohol or drugs.

138
Q

Veterans Benefits

Low Income Disability Payments

A

Non-service connected disability pension paid to veterans and certain surviving spouses based on need determination.

  • Meets a need based to test to determine there is adequate income and net worth to provide for adequate care and maintenance
  • Must suffer from total and permanent disability (including age 65+)
  • Must have been discharged for other than dishonorable conditions
  • Cannot be result of the veteran’s own willful misconduct
  • Must have served at least 90 consecutive with at least one day during wartime
139
Q

Veterans’ Benefits

Special Payments

A

Aid and Attendance Payments for vets who are unable to perform the activities of daily living without assistance receive cash based on amounts needed for healthcare and family situation

Housebound Allowance is similar for vets who are permanently housebound and expect to be for the rest of their lives.Payment based on amounts needed for healthcare and family situation

140
Q

Elder Law Exploitation Reporting Requirement

A

If an attorney receives a call about a potential exploitation, abuse, or neglect of an elderly person, may need to report if

  • Attorney should tell someone to dial 911
  • If suspected victim is a resident in a long-term care facility, then call DADS
  • If suspected victim is in a hospital, psychiatric hospital, or other medical facility, then contact TxD State Health Services
  • If none of the above, then call TxDFamily and Protective Services
141
Q

When does a GRAT make sense?

A

Grantor expected to live beyond GRAT term and GRAT earns more than applicable 7520 rate (currently 1.4%)

142
Q

Death of grantor during initial GRAT term

A

All of or a portion of the GRAT may be includable in the gross estate.

143
Q

Short Term v. Long Term GRATS

A

As long as it will exceed the 7520 growth rate, the GRAT makes sense, but a series of short term GRATS allows multiple transfers to be made and completed. A long term GRAT will be includable if grantor dies during term.

144
Q

GRAT Payments Structures

A

Can have increasing or decreasing payments, but limited to 120% increase on payments made in prior years.

145
Q

GRAT Income Tax COnsequences

A

Annuity payments may not make it sufficiently a grantor trust, so add in provisions to be sure it is.

146
Q

Minor under Texas law

A

Person under 18 who has never been married and has not had disabilities of minority removed.

147
Q

Incapacitated under Texas Law

A

-A minor,
-An adult because of a physical or mental condition is unable to:
–provide food, clothing, or shelter for himself,
–care for his own health, or
–manage own financial affairs, or
-must have a guardian appointed for the person to receive funds to from a governmental source.
Cannot inherit or otherwise own property

148
Q

Alternatives to Guardianship or Court Created Trusts

A

Do nothing until age 18
-Pay into registry of the court if less than $100k
UTMA Account–Custodian is not required to transfer the property to the minor until age 21

149
Q

Who can be appointed to serve as guardian?

A

Only one person, unless:

  • Husband and wife
  • Joint managing conservators
  • Co-guardians appointed under law of a jurisdiction other than Texas,
  • BOth parents of an adult who is incapacitated if ward has not been subject to SAPCR or has been subject of SAPCR and both parents were named as joint managing conservators but are no longer serving in that capacity.
150
Q

Declaration of Guardian

A

Parent may name proposed guardians. After age 12, minor may select the guardian if the court finds the selection in the minor’s best interests

151
Q

Personal Service on Wards, Parents, Spouse, and other Persons

A

Personal service of citation must be made on
-proposed ward age 12 or older
-Proposed ward’s parents if whereabouts are known or can be ascertained
-any court-appointed conservator or person having control of the care and welfare of the proposed ward
-Proposed ward’s spouse, if known or can be reasonably ascertained
-Person named in the application to be appointed guardian, if not the applicant.
Proof of service must be filed before the hearing.

152
Q

Service by certified mail on interested persons

A

Applicant must also mail by registered or CMRRR to each of the following:
1. Each adult child of the proposed ward
2. each adult sibling of the proposed ward
3. the administrator of a nursing home or similar facility in which the proposed ward resides
4. Operator of a residential facility in which the proposed ward resides,
5. Any person the applicant knows to hold a power of attorney signed by the proposed ward
6. person designated to serve as guardian in a written DecG’n
7. Person designated to serve as guardian of the ward in the probated will of the last surviving parent of the proposed ward
8. person designated to serve as guardian by written DecG’n of proposed ward’s last surviving parent, if declarant is deceased and applicant knows of the existence of the DecG’N
9. Each person named as another relative within 3rd degree of consanguinity in the application if the proposed ward’s spouse and each of the ward’s parents, adult siblings, and adult children are deceased or do not exist.
Applicant must file a copy of required notices and proofs of delivery, and an affidavit sworn by the applicant or attorney stating that notice was mailed as required by statute, and name of each person to whom notice was mailed, if not shown on proof of delivery.

153
Q

Guardianship Doctor’s Letter

A

Court may not grant guardianship application without MD licensed in Texas and dated before 120 days before the date of the application is filed and based on an examination of the proposed ward within 120 days before the date of the application is filed.
If the application is for a proposed ward with an intellectual disability, the letter may instead show that no more than 24 months before the hearing date that the proposed ward has been examined by a licensed physician and has an intellectual disability (or the letter has been updated within 24 months).

154
Q

Testimony Needed At Guardianship Hearing

A

Applicant, applicant’s attorney, attorney ad litem, guardian ad litem (if appointed), and any other parties may need to give testimony. Proposed ward must be present at the hearing unless the court determines PW is not necessary.
Court must inquire in to the following:
1. PW’s ability to feed, clothe, and shelter self,care for own physical health, and manage own property or financial affairs.
2. Ascertain the age of any PW who is a minor
3. Inquire into the governmental reports for any person who must have a guardian appointed to receive funds from any governmental source, and
4. Inquire into qualifications, abilities, and capabilities of the person seeking to be appointed guardian.

155
Q

Required findings by court for appointment of guardian.

A
  1. Court must find by clear and convincing evidence that PW is incapacitated person, it is in best interests to have Gn appointed, that PW’s rights or property will be protected by the appointment of a G’n
  2. Find by preponderance of the evidence that Court has venue and person to be appointed is eligible to act as guardian and is entitled to appointment, if G’n is appointed for a minor, it is not for the primary purposes of enabling the minor to establish residency for enrollment in a school that the minor is not otherwise entitled to enroll in, and the proposed ward is totally without capacity to take care of self and manage property, or lacks capacity to do some, but not all, of the tasks necessary to care for self or manage property.
156
Q

Guardianship Required OAth

A

Must be filed before 21st day after the order granting letters of guardianship, and any other documents required by the court.

157
Q

Guardianship bond and safekeeping agreements

A

Guardian required to post bond, unless guardian is a corporate fiduciary or guardianship program operated by a county.
Court does not have discretion in setting bond, which is equal to estimated value of all personal property, and amount to cover anticipated revenue to be received in next 12 months from interest and dividends, collectible claims, aggregate installment payments not including federal social security payments, and rental income from use of property.

158
Q

Guardianship Notice to Creditors

A

Must publish in newspaper within one month of receiving letters.
Must notify secured creditors and any claims that guardian has actual knowledge of
May provide notice to unsecured creditors that if not presented within 120 days, claim is barred.

159
Q

Guardianship Inventory

A

Must be filed within 30 days of date that guardian qualifies

160
Q

Guardianship Monthly Allowance

A

Within 30 days of qualifying, guardian must file application requesting monthly allowance to be spent from estate for education and maintenance of ward, and maintenance of ward’s property.

161
Q

Good faith Guardianship Expenses

A

If guardian in good faith spent month for support and maintenance and amounts exceeded allowance authorized by the court if

  1. expenditures were made when not convenient or possible for G’n to first secured court approval.
  2. Proof is clear and convincing that expenditures were reasonable and proper.
  3. Court would have granted authority before making expenditures.
  4. Ward received benefit of the expenditures.
162
Q

Guardianship Investments

A

Statue suggests G’n may invest in wide range of stocks, bonds, and other investments, but obligation is met if G’n invests in:
US Gov’t bonds
Texas tax supported bonds
FDIC insured shares in state or federal savings and loan associations or banks with Texas offices
Collateral bonds issued by Texas company with $1MM+ paid in capital, that are direct obligations of the company, and specifically secured by first mortgage real estate notes or other securities
Interest bearing time deposits

163
Q

Authorization for investment outside of authorized assets

A

G’n must file written application for approval of investment plan within 180 days after the date of qualification.
If G’n wishes to invest in real property, G’n must file application requesting a court order authorizing G’n to make investment and stating reasons why the investment would be for the ward’s benefit.

164
Q

Guardianship Annual Accounting

A

Not later than 60th day after the first anniversary of the date the G’n qualifies, attorney for G’n must file accounting for the estate

165
Q

Guardian Compensation

A

G’n receives reasonable compensation, paid in arrears, based on annual accounts. Reasonable compensation is 5% of gross income and 5% of all money paid out of estate unless court determines amount is unreasonably low

166
Q

Court Created Trusts

A

142 Trust under Texas Trust Code

1301 Trust under Texas Estate Code (Was 867 Trust)

167
Q

Advantages of 142 and 1301 Trusts

A

Disbursement of funds may be delayed until age 25. 1301 Trust requires order of the court do distribute from age 18 to 25.
Both trusts reduce administrative expenses associated with seeking court approval before making estate distributions and investments.
Investments for both trusts can be made without an investment plan, and are subject to Texas Trust Code.

168
Q

Persons authorized to apply for creation of 1301 Trust

A

Guardian of the ward
Attorney ad litem or guardian ad litem appointed to represent ward’s interests
Person interested in welfare of an alleged incapacitated person who does not have a guardian
Attorney ad litem or guardian ad litem appointed to represent an alleged incapacitated person who does not have a guardian
A person who has only a physical disability

169
Q

Persons authorized to apply for creation of 142 trust

A

No statutory restriction, but may only be created for a minor or incapacitated person who has no legal guardian, or a person with a physical disability, and must be created pursuant a judgment under a suit (e.g., Heirship proceeding, wrongful death suit, or inter pleader)

170
Q

Requirements for Application of 1301 Trust

A

All of the requirements for the application for a guardian of the estate apply, such as appointing an attorney ad litem, posting notice, making personal service of citation or mailing service, and filing the physician’s certificate.

171
Q

Required terms for 1301 and 142 Trusts

A

Beneficiary must be sole beneficiary
Trustee may disburse amounts from P and I for HEMS
Income not distributed is added to principal
Corporate trustee may serve without giving bond

172
Q

Distinctions between 1301 Trusts and 142 trusts

Trustee Compensation

A

1301 Trust may only compensated in same manner as guardian of the estate, but trustee appointed for person with only physical disability may receive reasonable compensation for services provided
142 Trustee may receive reasonable compensation from Trust’s P&I on application and approval of court.

173
Q

Differences between 1301 Trusts and 142 Trusts

Annual Accountings

A

1301 Trust must file annual accounting similar to Guardianship of Estate, but not required for person who has only physical disability
142 Trust subject to general rules applicable to trusts administered under the Texas Trust Code.

174
Q

Differences between 1301 Trusts and 142 Trusts

Threshold Value for Requirement of Corporate Trustee

A

1301 Trust if principal is greater than $150k unless the applicant hasn’t found a trustee in the geographic area willing to serve
142 Trust if principal is more than $50k, the court may appoint a person other than a financial institution if the court finds that no financial institution is willing to serve as trustee and the appointment is in the beneficiary’s best interests

175
Q

Optional Provisions for 142 Trusts

A

May provide for distributions of principal before trust termination (e.g., if trust will last until age 25)
May provide for distributions to to legal or natural guardian.
Exculpatory clause for specific circumstances applicable to the trust, and the court creating or modifying the trust finds there is clear and convincing evidence that the inclusion is the best interests of the ward

176
Q

Optional provisions for 1301 Trusts

A

May provide for distributions for HEMS for beneficiary as necessary without intervention of the Guardian or a representative of the incapacitated person, or to the ward’s guardian, a person who has physical custody of the person, or a person providing a good or service to the person for whom the trust is created.
May exonerate a trustee from duty or liability if the provision is limited to specific facts and circumstances of the trust and the court creating the trust makes a finding that the inclusion of the provision is in the best interest of the beneficiary.

177
Q

Duties and Responsibilities of a trustee

A

Follow Trust Instrument, then Texas Trust Code, and common law.
Must always honor the intent of the settlor.

178
Q

Resolving Ambiguous Trust Terms

A

If terms are ambiguous, then look to extrinsic evidence surrounding the formation and creation of the trust.
If not possible to determine intent of settlor, then trust must be reformed.

179
Q

Main Categories of Trustee Duties

A

Duty of Loyalty
Duty of Competence
Duty to Reasonably Exercise Discretion
Duty of Full Disclosure

180
Q

Trustee Duty of Loyalty

A

Trustee may not personally benefit from serving as trustee, and must at all times put the beneficiary’s interests above his own.
Any self-dealing gives rise to presumption of unfairness.

181
Q

Duty of Competence

A

Comprised of many sub duties, including
Duty to Comply with Prudent Investor Rule (evaluated in context of trust as a whole)
Duty Not to Delegate
Duty to Keep and Render Accounts
Duties at Inception of Trusteeship to account for property
Duty to exercise reasonable care and skill
Duty to take and retain control of property
Duty preserve trust property
Duty to enforce claims
Duty to defend trust
Duty not to commingle trust funds
Duty with respect to co-Trustees

182
Q

Co-Trustee Liability for Actions of Others

A

All trustees are under duty to participate in administration of trust, and must use reasonable care to prevent breaches by co-trustees.
Co-Trustee who does not join in actions is not liable unless co-trustee does not exercise reasonable care.
Co-Trustee is liable for actions of other Co-Trustees, except if co-trustee joins in action of majority of others and has notified dissent in writing

183
Q

Duty to Reasonably Exercise Discretion

A

Must be reasonable, and there is no absolute discretion, even if the trust provides for it.

184
Q

Duty of Full Disclosure

A

Must make a full and accurate disclosure of all material facts, including facts necessary to protect their interests.
Must provide formal accounting,

185
Q

Trustee Standard

Bad Faith

A

Acting knowingly or intentionally adverse to the interests of the beneficiary with improper motive.

186
Q

Trustee Standard

Good Faith

A

Good faith is when a trustee subjectively believes his or her defense is viable AND
Acts reasonable in light of existing law.

187
Q

Trustee Standard

Gross Negligence

A

More than momentary thoughtlessness, inadvertence, or error of judgment.
Such an entire want of care as to establish that the act or omission was the result of actual conscious indifference to the rights, safety, or welfare of the person. Only if the act or omission is unjustifiable and likely to cause serious harm is it grossly negligent.

188
Q

Trust Income

A

Excess of cash receipts characterized as trust income,
Less cash disbursement properly charged against income,
Less distributions from income, and
Adjusted for proper transfers to or from principal.

189
Q

Trust Distributions

Beneficiary as Trustee

A

No estate tax inclusion or gift on lapse if limited by ascertain able standard,
No loss of spendthrift protection,
No gift for distributions to others

190
Q

Settlor as Trustee, Trust Distributions

A

No estate inclusion if distributions limited to ascertainable standard, but power to distribute income held by settlor or settler’s spouse that is not limited by an ascertainable standard will cause grantor trust status.

191
Q

Trust Distributions

Unascertainable Standards

A

Comfort,
Happiness,
Welfare

192
Q

Trust Distributions

Limitations on Distributions

A 
Standard of living,
Other resources (Should be considered if not mentioned),
193
Q

Trust Distributions

Priority Among Beneficiaries

A

Trustee must act impartially if the agreement does not provide a priority among the beneficiaries. If no priority, then relationship to settlor is important, but individual lines should be treated equally.

194
Q

Trust Distributions

Parent’s Obligation to Support Beneficiary

A

Parents must support minor children, including clothing, food, shelter, and medical and dental care. This duty must be considered when making trust distributions. So, only when parents cannot meet their support obligation must a trustee make distributions for the support of a beneficiary who has a parent who should be supporting.

195
Q

Trust Distributions

Judicial Review

A

Court will not substitute its judgment for that of the trustee, but won’t permit the trustee to abuse its discretion. Abuse of discretion is an action outside the bounds of reasonable judgment.

196
Q

Trustee Duties

Duty Not To Delegate

A

Trustee under duty to personally administer the trust, and may not delegate duties the trustee should personally perform. Trustee may not delegate authority to a third party that requires the exercise of discretion on the part of the trustee.
Co-trustees may delegate among themselves unless prohibited by the trust agreement.

197
Q

Trustee Duties

Ability to Delegate Investment Decisions

A

Trustee may delegate investment and management functions that a prudent trustee of comparable skills could delegate under the circumstances. Must exercise reasonable care, skill, and caution in selecting an agent, establishing the terms of the delegation, consistent with terms of trust, and monitor activities.
If met, then trustee is not liable if the agent is not an affiliate of the trustee, the delegation does not require arbitration with the agent, and the agreement does not shorten any applicable statute of limitations.

198
Q

Trustee Duties

Prudent Investor Rule

A

Default Rule that may be expanded, restricted, eliminated, or otherwise altered.
Trustee must invest and manage trust assets as a prudent investor would, by considering the purposes, terms, distribution requirements, and other circumstances of the trust.
Must consider the following
A. General economic conditions
B. Possible effect of inflation or deflation
C. Expected tax consequences of investment decisions or strategy
D. Role that each investment plays within the portfolio
E. Expected total return from income and appreciation of capital.
F. Other resources of the beneficiary
G. Needs for liquidity, income, and preservation or appreciation of capital.
H. An asset’s special relationship or value to the trust or beneficiary.

199
Q

Trustee Duties

Prudent Investor Rule–Diversification

A

A trustee must diversify investment, unless the trustee reasonable determines that because of special circumstances the purposes of the trust are better served without diversifying. If holding closely held stock, must diversify unless authorized to hold to get around the duty to diversify. Beneficiaries may excuse duty to diversify

200
Q

Trustee Duties

Prudent Investor Rule–Duties at Inception of Trusteeship

A

Trustee must within a reasonable time after accepting trusteeship review the trust assets and make and implement decisions concerning retention and disposition of assets to bring the portfolio into compliance.

201
Q

Trustee Duties

Record Keeping

A

Trustee must keep accurate, complete, and orderly books and records for the trust. Records must be retained from trust inception without exception because a beneficiary can always request an accounting from inception.
Trustee liable for amounts that cannot be found.

202
Q

Trustee Duties

Texas Trust Code Accounting

A

No duty to make periodic Accountings, but is required to provide an accounting upon request. Trustee is not required to provide an accounting more than once every 12 months.

203
Q

Statute of Limitations for Breach of Fiduciary Duties

A

Four years

204
Q

Trustee Compensation

A

Trustee entitled to compensation, even though not allowed to personally profit from the trust.
Entitled to reimbursement for expenses.
Entitled to exoneration for torts when trustee was properly engaged in a business activity for the trust and the tort is a common incident of that kind of activity, if the trustee is not guilty of actionable negligence or intentional misconduct, or the tort increased the value of the trust property.

205
Q

Trustee Resignation

A

May resign in accordance with the terms of the trust or by petitioning a court for permission to resign.

206
Q

Trustee Removal

A

Trust Code 113.082(a)
In accordance with trust agreement, or after petition of an interested person, a court may remove if the court finds cause, including trustee materially violated the terms of the trust or attempted to violate which resulted in a financial loss to the trust, the trustee becomes incapacitated or insolvent, or the trustee fails to make a required accounting.

207
Q

Trustee Discretion

Judicial Review

A

Courts can take whatever action is necessary according to the facts of the situation.

  1. Courts will not second guess a decision unless it is an abuse of discretion.
  2. Any trustee action that subverts the intent of the settlor will be overturned.
208
Q

Actions That Can Be Filed W/R/T A Trustee

A

An action can be filed under Texas Trust Code 115.001(a) to
Construe a trust instrument
Determine law applicable to a trust instrument
Appoint or remove a trustee
Ascertained beneficiaries
Make determinations of fact affecting administration, distribution, or duration of a trust
Determine a question arising in the administration or distribution of a trust
Relieve a trustee from any or all of the duties, limitations, and restrictions existing under the terms of the trust or law
Require an accounting by a trustee, review trustee fees, and settle interim or final accounts
Surcharge a trustee

209
Q

Remedies for breach of fiduciary duty

A

Under Trust Code 114.008, a court may order any appropriate relief, including these remedies:
Compel the trustee to perform a duty
Enjoin the trustee from committing a branch of trust
Compel the trustee to redress a breach of trust, including compelling the trustee to pay money or restore property
Order a trustee to account
Appoint a receiver to take possession of the trust property and administer the trust
Remove the trustee
Reduce or deny compensation to the trustee
Void an act of the trustee, impose a lien or constructive trust on trust property, or trace trust property that the trustee wrongfully disposed of and recover the property or proceeds

210
Q

Trustee liability for damages

A

Trustee is personally liable for damages resulting from a breach of fiduciary duty. In the absence of a breach of fiduciary duty, the trustee is accountable to the trust and its beneficiaries for the trust property and for any profit made by the trustee through or arising out of the administration of the trust.

211
Q

Trustee measure of damages

A

Trustee is liable for the amount necessary to fairly and reasonably compensate the trust for damages resulting from the breach of trust. Beneficiaries are entitled to be put in the position that would have been if no breach had been committed, even if no loss.

Three measures of damages:

  1. Any loss of depreciation of the value of the trust estate as a result of the breach.
  2. Any profit made by the trustee through the breach of trust.
  3. Any profit that would have accrued to the trust estate if there had been no breach of trust.
212
Q

Constructive Trust for Trustee Breach

A

If trustee is insolvent or has used trustee assets to purchase property, then constructive trust may be appropriate. Must plead and prove

  1. Breach of fiduciary relationship
  2. Unjust enrichment
  3. Tracing to an identifiable res.
213
Q

Special Fiduciary Remedies

A 
Equitable lien
Fee forfeiture 
Profit disgorgement
TRO
Receiver
Auditor
214
Q

Breach of fiduciary duty

Attorney’s Fees

A

Award is strictly within the discretion of the court as may seem equitable and just.
If a trustee is removed for cause, he is not entitled to recover fees from the trust and may be personally liable for the beneficiary’s attorney’s fees.

215
Q

Contesting Wills

Testamentary Capacity

A

Testator must have been capable of understanding the nature of the business he was engaged in, the nature and extent of his property, the persons to whom he meant to devise and bequeath it, the persons dependent upon his bounty, and the mode of distribution among them; that he must have had memory sufficient to collect in his mind the elements of the business to be transacted, and to hold them long enough to perceive their obvious relations to each other, and to be able to form a reasonable judgment as to them.

216
Q

Contesting Wills

Insane Delusion

A

Belief in a state of facts that does not exist and which no rational person would believe to exist.

  1. Must maintain an irrational belief that can be judged true or false by reference to the physical world or realm of specific facts,
  2. Insane delusion must have been operative in the production of the will.
217
Q

Contesting Wills

Undue Influence Claims

A

Three elements
1. Existence and exertion of an influence
2. Effective operation of such influence to subvert or overpower the mind of the testator at the time of the will’s execution
3. Execution of a will that the maker would not have executed but for the influence.
Some cases imply there is undue influence any time the testator makes a disposition to obtain peace.

218
Q

Contesting Wills

Burden of Proof

A

For testamentary capacity, the burden is on will proponent if brought before will is admitted. If brought after the will is admitted, then the burden shifts to the challenger.

For undue influence, the burden is always on the person claiming undue influence.

219
Q

Jurisdiction for Contesting

A

For wills, it is in the statutory probate court.
For trusts, it is in the district courts, but cases may be transferred to the statutory probate courts if the matter relates to a probate proceeding.

220
Q

Contesting Wills–Defenses

A

Estoppel (taking advantage of a situation to cause another to change position)
1. False representation or concealment of material fact
2. Made with knowledge of the facts
3. To the party without knowledge of the facts
4. With the intention that it should be acted upon
5. Party has relied to his determent/prejudice
Quasi Estoppel (requires no concealment or misrepresentation on one side, and no ignorance on the other–where it would be unconscionable to allow someone to maintain a position to one in which he acquired, or by which he accepted a benefit.)
Waiver
Ratification

221
Q

RMD from IRA for no designated beneficiary

A

No designated beneficiary = estate, charity, ineligible trust, or no DB.
Death before RBD: five years
Death after RBD: remaining life expectancy of someone who was the decedent’s age in the year of death

222
Q

RMD from IRA for non-spouse DB before RBD

A

Remaining life expectancy of the oldest DB, fixed as of year after death. Distributions must begin before the end of the year after the year of death. No rollover option.

223
Q

RMD from IRA for DB after RBD

A

Remaining life expectancy of the oldest DB, fixed as of the year after death. Distributions must begin before the end of the year after year of death.

224
Q

Look-through Trust for IRA

A

Find requirements

225
Q

RMD from IRA for Spouse as only DB before RBD and after RBD

A

Rollover is an option. Minimum distributions over surviving spouse’s remaining life expectancy. May elect to leave assets in decedent’s IRA but treat like rollover. May delay distributions until the year that decedent would have been age 70.5 if before RBD.

226
Q

RMD from IRA for Spouse as one DB before RBD and after RBD

A

RMD are based on life expectancy of oldest DB fixed as of the determination date, unless separate accounts for DBs.
If charity is a beneficiary, five years, unless separate accounts.

227
Q

Determination date for IRA

A

September 30 of year after death

228
Q

Five year rule for IRA distributions

A

Entire account must be distributed by December 31 five years later–if DOD is 1/11/14, then must be out by 12/31/19

229
Q

Look Through Trust Requirements

A

Irrevocable Trust
Valid under state law
Trust must have designated beneficiaries only identifiable
Trust document must be provided to the IRA custodian by October 31 of the year after death.

230
Q

Funding Trusts with Retirement Assets

A
  1. Post-death IRA distribution rules work better with individuals instead of trusts.
  2. Direct trust to distribute accounts as income so they are not trapped as corpus, which could jeopardize marital deduction
  3. Don’t satisfy pecuniary bequests with retirement accounts because it will trigger taxable income to the estate
    4.
231
Q

ESBT Requirements

A

Multiple beneficiaries, may accumulate distributions, and may sprinkle distributions.
Trustee makes the election.
Treated as two trusts for s purposes, but one trust for administrative purposes
Income of the trust is taxed at highest rates at the trust level and not treated as DNI
All beneficiaries must be estates, individuals, and certain nonprofits.
No interest can be acquired by purchase

232
Q

QSST Requirements

A

Only one beneficiary
Must be required to distribute (or actually distribute) all income each year to its beneficiary, who must be a citizen or resident of the US.
Do principal distributions to anyone other than the beneficiary
Current income beneficiary’s interest must terminate on the earlier of the beneficiary’s death and the termination of the QSST. If the QSST terminates during the beneficiary’s life, then all assets must be distributed to that beneficiary.

Texas Board of Legal Specialization Estate Planning Study Cards (2 decks)

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