Articles Posted in Trusts & Estates

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The National Firearms Act requires ATF permission for manufacture of a firearm, 26 U.S.C. 5822. Separately, the Gun Control Act, prohibits private manufacture of machineguns, with exceptions for government entities and machineguns lawfully possessed before 1986, 18 U.S.C. 922(o). Watson, as sole trustee of the Watson Family Gun Trust, applied to permit an M-16-style machinegun. An ATF examiner mistakenly approved the application. Watson had a machinegun manufactured. Weeks later, ATF informed Watson that the approval was mistaken. Watson argued that the trust was not a “person” under the Act. ATF explained that although a trust is not a “person” under the Act, a trust cannot legally make or hold property, so it considers the individual acting on behalf of the trust. Watson surrendered his gun under protest, then filed suit, claiming that the provisions are a de facto ban on an entire class of arms in violation of the Commerce Clause and the Second, Ninth, and Tenth Amendments; due process violations; equal protection violations; and detrimental reliance. The government initiated a forfeiture action. The district court held that Watson had standing, but failed to state a claim. The Third Circuit affirmed. The Second Amendment does not protect the possession of machineguns; a trust is not exempt from Section 922(o) because a trust is not an entity distinct from its trustees and cannot own property. View "United States v. One Palmetto State Armory PA 15 Machinegun" on Justia Law

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Singer-songwriters John Whitehead and Gene McFadden were “an integral part of the 1970s Philadelphia music scene. In 2002, Pullman approached them about purchasing their song catalogue. The parties signed a contract but never finalized the sale. Pullman claims he discovered tax liens while conducting due diligence and that the matter was never resolved. Whitehead and McFadden passed away in 2004 and 2006, respectively. Pullman became embroiled in disputes with their estates over ownership of the song catalogue. The parties eventually agreed to arbitration. Pullman, unhappy with the ruling, unsuccessfully moved to vacate the arbitration award on the ground that the panel had committed legal errors that made it impossible for him to present a winning case by applying the Dead Man’s Statute, which disqualifies parties interested in litigation from testifying about personal transactions or communications with deceased or mentally ill persons.” The Third Circuit affirmed, stating that the arbitrators did not misapply the law, but that legal error alone is not a sufficient basis to vacate the results of an arbitration in any case. View "Whitehead v. Pullman Group LLC" on Justia Law

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Plaintiffs each applied for Medicaid institutional care coverage shortly after purchasing a short-term annuity. The Pennsylvania Department of Human Services (DHS) classified each of their annuities as a resource when determining Medicaid eligibility. This classification meant that the value of each annuity precluded them from receiving Medicaid assistance and resulted in a penalty period of ineligibility. The district court held that the plaintiffs’ purchases of the short-term annuities were sham transactions intended only to shield resources from Medicaid calculations, and affirmed DHS’s imposition of a period of Medicaid ineligibility, but held that, contrary to DHS’s arguments, a Pennsylvania statute that purported to make all annuities assignable was preempted by federal law. The Third Circuit affirmed in part, finding that the statute was preempted, but reversed in part, citing “safe harbor” provisions, under which, certain annuities are not considered resources for purposes of Medicaid eligibility, 42 U.S.C. 1396p(c)(1)(F). The court noted the qualifications for safe-harbor protection: the annuity must name the state as the remainder beneficiary, be irrevocable and nonassignable, be actuarially sound, and provide for payments in equal amounts during its term, with no deferral and no balloon payments. The court rejected the state’s argument that the annuities were “trust-like.” View "Zahner v. Sec'y Pa. Dept. of Human Servs." on Justia Law

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Multi-sport Olympic gold medalist Jim Thorpe died in California in 1953 without a will. His estate was assigned to his third wife, who, over the objections of children from his previous marriages, buried him in Jim Thorpe, Pennsylvania, a new borough that was created by merging the boroughs of Mauch Chunk and East Mauch Chunk. Thorpe was a Native American of Sauk heritage and a member of the Sac and Fox Nation of Oklahoma. Some of Thorpe’s children want him reburied on Sac and Fox tribal land. In 1990 Congress enacted the Native American Graves Protection and Repatriation Act, which requires museums and federal agencies possessing or controlling holdings or collections of Native American human remains to inventory those remains, notify the affected tribe, and, upon the request of a known lineal descendant of the deceased Native American or of the tribe, return such remains, 25 U.S.C. 3005. In 2010, Thorpe’s son sued the Borough for violation of NAGPRA. The district court held that the Borough was a “museum,” required to disinter Thorpe’s remains and give them to the tribe. The Third Circuit reversed. Congress could not have intended the “patently absurd result” of a court resolving a family dispute by applying NAGPRA to Thorpe’s burial. . View "Thorpe v. Borough of Jim Thorpe" on Justia Law

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Sir John Thouron died in 2007 at the age of 99, leaving a substantial estate. Thouron’s grandchildren are his only heirs. His named executor retained Smith, an experienced tax attorney. The Estate’s tax return and payment were due November 6, 2007. On that date, the Estate requested an extension of time and made a payment of $6.5 million, much less than it would ultimately owe. The Estate timely filed its return in May 2008 and requested an extension of time to pay. It made no election to defer taxes under 26 U.S.C. 6166, it had conclusively determined it did not qualify. The provision allows qualifying estates to elect to pay tax liability in installments over several years. The IRS denied as untimely the Estate’s request for an extension and notified the Estate that it was imposing a failure-to-pay penalty. The Estate unsuccessfully appealed administratively. The Estate then filed an appropriate form and paid all outstanding amounts, including a penalty of $999,072, plus accrued interest, then filed a request with the IRS for a refund. After not receiving a response from the IRS, the Estate filed a complaint, alleging that its failure to pay resulted from reasonable cause, reliance on Smith’s advice, and not willful neglect and was not subject to penalty. The district court granted the government summary judgment, holding that under Supreme Court precedent the Estate could not show reasonable cause. The Third Circuit vacated, reasoning that the precedent did not apply to reliance on expert advice.View "Estate of Thouron v. United States" on Justia Law

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In 2006, Lincoln T. Griswold purchased an $8.4 million life insurance policy. Griswold established a Trust for the sole and exclusive purpose of owning the policy and named Griswold LLP as the Trust’s sole beneficiary. In 2008, the Trust sold its policy to Coventry First LLC. The written purchase agreement contained an arbitration clause. After learning that the policy was sold for an allegedly inflated price that included undisclosed kickbacks to the broker, Griswold sued. Coventry moved to dismiss the case for lack of standing or, in the alternative, to compel arbitration. The district court denied the motion, concluding that both Griswold and the LLP had standing and that the arbitration clause was unenforceable as to the plaintiffs, who were non-signatories. Coventry appealed. The Third Circuit (1) concluded that it lacked appellate jurisdiction to review the district court’s denial of Coventry’s motion to dismiss; and (2) affirmed the district court’s denial of the motion to compel arbitration against the plaintiffs, as they never consented to the purchase agreement. View "Griswold v. Coventry First LLC" on Justia Law

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In 1997, the trusts acquired all shares of AIS with an aggregate basis of $5,612,555. In 1999, the trusts formed Wind River Corporation and contributed their AIS shares in exchange for all Wind River shares. Wind River designated itself a subchapter S Corporation. In 2003, Wind River elected to treat AIS as a qualified subchapter S subsidiary. Before that election, the trusts’ aggregate adjusted basis in Wind River was $15,246,099. After the Qsub election, the trusts increased their bases in that stock to $242,481,544. The trusts sold their Wind River interests to Fox. After transaction costs, the sale yielded $230,111,857 in cash and securities in exchange for the Wind River stock. The trusts claimed a loss of $12,247,229: the difference between the amount actually received for the sale and the new basis in the Wind River stock. The trusts shareholders’ 2003 tax returns showed that capital loss. The IRS determined that a capital gain of approximately $214 million had been realized from the sale to Fox, for a cumulative tax deficiency of $33,747,858. Deficiency notices stated “the Qsub election and the resulting deemed I.R.C. 332 liquidation did not give rise to an item of income under I.R.C. 1366(a)(1)(A); therefore, [the Trusts] could not increase the basis of their [Wind River] stock under I.R.C. 1367(a)(1)(A).” The Tax Court found the increase in basis and declared loss to be improper. The Third Circuit affirmed. View "Ball v. Comm'r of Internal Revenue Serv." on Justia Law

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Giles was a prisoner in the Delaware penal system. Campbell worked at the Sussex Correctional Institution. Giles brought excessive force and deliberate indifference claims, 42 U.S.C. 1983, against officers, including Campbell, based on a confrontation during Giles’s transfer to Sussex and against others regarding his medical treatment after the incident. The district court granted summary judgment in favor of several defendants, including Campbell, on the basis of qualified immunity, held a bench trial, and entered judgment in favor of remaining defendants. The Third Circuit remanded the summary judgment. On remand, the Delaware Department of Justice, which had represented defendants, notified the court that Campbell had died in July 2006. Giles moved to substitute the administratrix of Campbell’s estate as a defendant. Neither the suggestion of death nor the motion to substitute was served on the estate. The district court denied the motion to substitute, holding that Giles’s claim was not pending under Delaware law and was extinguished. Giles proceeded to trial and the jury found in favor of the remaining defendants. The Third Circuit vacated denial of the motion to substitute, finding that the court lacked jurisdiction over the estate. View "Giles v. Campbell" on Justia Law

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Plaintiffs brought a putative class action challenging 62 Pa. Stat. 1414, which was enacted to regulate special needs trusts. The comprehensive Medicaid eligibility rules enacted by Congress generally mandate that trusts be counted as assets of those seeking Medicaid, but exempt special needs trusts, which are intended to provide disabled individuals with necessities and comforts not covered by Medicaid. Plaintiffs allege Section 1414 is preempted by 42 U.S.C. 1396p(d)(4). The district court held that all but one of the challenged provisions of Section 1414 was preempted, finding that plaintiffs had a private right of action under both Section 1983 and the Supremacy Clause. The court also held that Section 1414 was severable, certified a class, and appointed class counsel. The Third Circuit affirmed in part, agreeing that the case is justiciable and that plaintiffs have a private right of action. Section 1414's 50% repayment provision, "special needs" provision, expenditure provision, and age restriction are all preempted by federal law. The enforcement provision of Section 1414, however, when used to enforce provisions not otherwise preempted, is a reasonable exercise of the Commonwealth's retained authority to regulate trusts. View "Lewis v. Alexander" on Justia Law