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GREETINGS!
Thank you for subscribing to
E-Update, the complimentary monthly electronic
estate planning bulletin from the Trusts and Estates
Practice Group of Giarmarco, Mullins & Horton,
P.C.
Our estate planning attorneys provide sound
estate and business succession plans
utilizing:
- Revocable Living Trusts
- Irrevocable Life Insurance Trusts
- Qualified Personal Residence Trusts
- Grantor Retained Annuity Trusts
- Sales to Grantor Trusts
- Business Succession Plans
- Split-Dollar Plans (Private and Employer)
- Generation-Skipping Transfers
- Charitable Trusts
- Buy-Sell Agreements
- Specialized Trusts for Retirement Benefits
- Asset Protection Trusts
For a referral to one of our attorneys,
please call Julius H. Giarmarco, Esq. at
(248) 457-7200.
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Ex-Spouse Prevails Under ERISA, Again |
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In Egelhoff v. Egelhoff, 121
S. Ct. 1322 (2001), the U.S. Supreme Court held that
an ex-wife was entitled to keep her deceased
ex-husband's employer-provided life insurance
proceeds
and pension plan because, at the time of his death,
she was the named beneficiary of the same. Although
state law automatically revoked such beneficiary
designations upon a couple's divorce, the court said
that because ERISA (federal law) preempts state law,
the beneficiary form controlled. This is sometimes
known as the "plan documents rule": when it comes
to benefits covered by ERISA, one need not look
beyond the plan documents to determine the
beneficiaries.
Michigan law similarly revokes the designation of
former spouses as beneficiaries when a divorce
occurs. MCL 552.101 and MCL 700.2807. Yet, these
statutes should not be relied upon for ERISA plans,
because of the plan documents rule. To remove an
ex-spouse as the beneficiary of an ERISA plan, a new
beneficiary form must be submitted.
What if an ex-spouse waives his or her rights to ERISA
plan benefits in a divorce decree? Would an
unchanged beneficiary form still prevail? In
Macinnes v. Macinnes, 677 N.W. 2d 889 (Mich.
App. 2004), the Michigan Court of Appeals said "no". It
held the ex-spouse true to his waiver, notwithstanding
his name on the beneficiary form. Numerous other
state and federal courts have held likewise, though
not all. For that reason, the U.S. Supreme Court heard
the Kennedy case.
The facts of Kennedy v. Plan Administrator for
Dupont Savings and Investment Plan, 129 S. Ct.
865 (2009) were similar to those of the
Macinnes case, except that the suit was
brought against the plan administrator and not the
named beneficiary. The court sided (unanimously)
with the plan administrator. It held that the plan
administrator properly paid the deceased's savings
and investment plan to his ex-spouse because she
was the named beneficiary at the time of his death.
Victory again for the plan documents rule! Some
commentators think that the case left the door open
for a possible recovery in a second suit against
the ex-spouse recipient. However likely or unlikely that
may be, one lesson from this continuing saga stands
out glaringly: advisors and clients should review
ERISA plan beneficiary forms periodically, and always
after a major event in a client's life.
For more information regarding this topic, please
e-mail your requests to
Salvatore J.
LaMendola, or call Sal at
(248) 457-7204.
THIS ARTICLE MAY NOT BE
USED FOR PENALTY
PROTECTION.
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New Legislation Introduced in House |
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Congressman Earl Pomeroy (D-
ND) and Congresswoman Ginny Brown-Waite (R-FL)
have renewed previously-introduced, but un-enacted,
legislation in an attempt to produce more reliable and
sufficient retirement amounts for Americans. Some of
the basic provisions outlined in the H.R. 2748 (the
Retirement Security Needs Lifetime Pay Act of 2009)
are as follows:
- Under the bill, 25% of the taxable portion of lifetime
income payments from IRAs and other qualified
retirement plans would be excluded from income, as
long as the source of such payments arises from
annuities guaranteed to continue for the life of the
annuitant (or joint annuitant). This 25% exclusion is
capped at $5,000.00 for an individual and $10,000.00
for a married couple filing jointly.
- If "longevity insurance" is purchased
within an IRA or qualified plans, such contracts are
exempted from the required minimum distribution
rules. Longevity insurance is designed to protect
individuals from income shortfalls in the event they live
beyond their life expectancy.
- In an effort to give assurance to those
individuals who want to generate income by adding
incremental annuities in their portfolios, the bill
provides that deferred annuity payments from partially
annuitized contracts will receive the same tax
treatment as other annuity payments.
For more information regarding this topic, please
e-mail your requests to
Thomas P.
Cavanaugh, or call Tom at
(248) 457-7218.
THIS ARTICLE MAY NOT BE
USED FOR PENALTY
PROTECTION.
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To Gift or Not to Gift, That is the Question |
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The decision to gift is not always easy. There are
emotional, financial and legal issues that may be
involved. However, for the client who wishes to gift an
asset or assets, the following is a roadmap:
Assets to be given away should:
- Be manageable by the donee, considering
- Be difficult for the donor's executor to
administer,
such as closely-held business interests
- Be likely to appreciate significantly in
value, such
as
- Life insurance policies
- Common stock in a recapitalized corporation
- Regular interests in a recapitalized partnership
- Antiques and artwork
- Real estate
- Have a low income tax basis, so that the
gains are
taxable to the low-bracket donee
- Generate large amounts of taxable
income, such
as
- High-yield stocks and bonds
- Tax-sheltered investments that have exhausted
their principal deductions (depletion or depreciation)
- Produce ordinary income if sold by the
donor, such
as
- Depreciable property with potential recapture
- Inventory
- Copyrights or personal papers created by the
donor
- Increase the proportion of business or
farm
interests in the donor's estate, to help it qualify for
special tax breaks, including those under
- Section 303 (income tax on redemption of closely-
held stock)
- Section 2032A (special use valuation of farm and
business real estate)
- Section 6166 (deferred payment of estate taxes on
closely-held business interests)
- Give the donee experience handling
types of
assets of which the donee will ultimately receive much
more, such as closely-held business interests
- Produce little or no gift tax, because of
- The $13,000 annual exclusion
- The unlimited annual exclusion for medical and
tuition expenses
- The gift tax marital deduction
- The gift tax charitable deduction
Assets to be given away should not:
- Reduce the donor's total assets below those
required to meet the donor's needs for
- Capital
- Liquidity
- Probable future needs
- Generate tax-sheltered or nontaxable income,
such as
- Tax-exempt bonds
- Depreciable real estate
- Oil and gas interests
- Have adjusted basis in excess of their fair
market
value
- Generate ordinary income to the donee
but capital
gains to the donor, such as property that is inventory to
the donee
- Be needed by the donor's estate for
liquidity, such
as
- Cash
- Marketable stocks and bonds
- Life insurance policies (unless given to trusts)
- Reduce the proportion of farm and business
interests and disqualify the donor's estate from
favorable tax benefits, such as those under
- Section 303 (income tax on redemption of closely
held stock)
- Section 2032A (special use valuation of farm and
business real estate)
- Section 6166 (deferred payment of estate taxes on
closely held business interests)
- Be future interests that do not qualify for the
$13,000/$26,000 gift tax annual exclusion
- Require retained strings that cause the
property to
be part of the donor's gross estate, such as
- Retained life estates
- Retained substantial reversionary interests
- Retained powers to alter, amend, revoke, or
terminate
- Be encumbered by a debt in excess of its
adjusted
basis
- Be an interest in a partnership
representing a
share of debts in excess of the donor's basis
For more information regarding this topic, please
e-mail your requests to
Randall A.
Denha, or call Randy at
(248) 457-7205.
THIS ARTICLE MAY NOT BE
USED FOR PENALTY
PROTECTION.
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No-Contest Clause Upheld |
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On December 2, 2008, the Michigan Court of Appeals
held
In Re Mary E. Griffin Revocable
Grantor
Trust,
that a no-contest clause in a trust is unenforceable if
there is probable cause for challenging the trust. The
no-contest clause in Griffin provided that any
heir who challenged or contested any provision of the
trust agreement would receive no portion of the
Settlor's estate. In reaching its decision, the Court of
Appeals relied on Michigan Compiled Laws Section
700.2518, which provides that a no-contest clause in
a will is unenforceable if probable cause exists
for instituting proceedings.
The dissenting opinion determined that MCL §
700.2518 did not apply to trusts and, therefore, the
clause in question should be upheld. On June 3,
2009, the Michigan Supreme Court reversed the
Judgment of the Court of Appeals for the reasons
stated in the dissenting opinion. And, while there is
no apparent reason to treat no-contest clauses within
trusts differently than those within wills, the fact that
they will be treated differently is another reason (along
with avoiding probate) for clients to use revocable
living trusts in lieu of simple wills.
For more information regarding this topic, please
e-mail your requests to
Julius H.
Giarmarco, or call Julius at
(248) 457-7200.
THIS ARTICLE MAY NOT BE
USED FOR PENALTY
PROTECTION.
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August 2009 AFRs |
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| Compounding Period |
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| Annual | Semi-Annual | Quarterly | Monthly |
|---|
Short Term AFRs
(Term 3 Years or Less) |
0.83%
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0.83%
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0.83%
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0.83%
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Mid Term AFRs
(Term More Than 3 Years
and Less Than 9 Years)
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2.80%
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2.78%
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2.77%
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2.76%
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Long Term AFRs
(Term More Than 9 Years) |
4.26%
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4.22%
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4.20%
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4.18%
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Section 7520 Rate
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3.4%
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Giarmarco, Mullins & Horton, P.C. | 101 West Big Beaver Road | Tenth Floor | Troy | MI | 48084
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