[WSBAPT] wrongfully excluded heir

Thu Jan 10 12:47:37 PST 2019

This is probably a gross oversimplification and someone with a lot more
legal talent than me would have some reason why it won’t work, but what if
the beneficiaries took their inheritance and later each gifted a portion to
the sibling left out as part of their estate plan. Seems like the gift
would transfer with it the steeped up tax basis of each beneficiary upon
death of parent, but of course each would get a hit on their lifetime gift
exemption.

Sincerely,

Tom

Thomas J. Westbrook

Attorney at Law

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Rodgers, Kee & Card, P.S.

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*From:* wsbapt-bounces at lists.wsbarppt.com <wsbapt-bounces at lists.wsbarppt.com>
*On Behalf Of *Felicia Value
*Sent:* Thursday, January 10, 2019 11:39 AM
*To:* wsbapt at lists.wsbarppt.com
*Subject:* Re: [WSBAPT] wrongfully excluded heir

Dang y'all.  Phil just dropped the mic.

On 1/10/2019 11:04 AM, Philip N. Jones wrote:

An assignment would be a taxable gift, but (as has been noted) a gift is
not really taxable unless the donor has enough assets to be subject to the
federal estate tax.  But watch out for a spendthrift/nonassignment clause.
Which leads us to TEDRA.

A transfer pursuant to a TEDRA would also be a gift unless is it backed up
by a bona fide enforceable cause of action.  If a bona fide dispute exists
between the beneficiaries, and the agreement is intended to resolve that
dispute, then the resulting transfer will not constitute a gift, but
instead will constitute a settlement in satisfaction of the dispute.  In
such a situation, the agreement should recite the nature of the dispute and
the fact that the altered division of the property is intended to resolve
that dispute.  For somewhat greater certainty that the result will be
honored by the IRS, the aggrieved beneficiary should first file a will
contest, a petition for instructions, an objection to the final account, or
some other appropriate pleading to lend greater credence to the notion that
a bona fide dispute exists.  However, neither the IRS nor the courts will
respect a settlement based on “friendly” litigation where no bona fide
dispute is present.  For example, in *Grossman v. Campbell*, 368 F.2d 206,
18 AFTR2d 6251 (5th Cir. 1966), the court held that a settlement agreement
had been reached in a situation where no real dispute existed, and thus the
settlement would be ignored for estate tax purposes.  The Ninth Circuit
reached a similar result in *Commissioner v. Vease*, 314 F.2d 79, 11 AFTR2d
1800 (9th Cir. 1963), rev’g. 35 T.C. 1184 (1961).  In that case, the court
concluded that a settlement agreement had not resulted from a bona fide
will contest, but instead had resulted from “nothing more than a voluntary
rearrangement of property interests acquired under an admittedly valid
will.”  See also *Wolfsen v. Smyth,* 223 F.2d 111 (9th Cir. 1955); *Bath v.
Commissioner*, T.C. Memo 1975-102.  Other examples of settlements or trust
modifications that were disregarded for tax purposes include *Aronson v.
Commissioner*, T.C. Memo 2003-189; *Brandon v. Commissioner*, 86 T.C. 327
(1986), rev’d on other grounds, 828 F.2d 493 (8th Cir. 1987), on remand 91
T.C. 829 (1988); *Simpson v. Commissioner*, T.C. Memo 1994-259; *Crown
Income Charitable Fund v. Commissioner, 8 F.3d 571 *(7th Cir. 1993); *La
Meres v. Commissioner*, 98 T.C. 294 (1992); CCA 201651013; see also Rev.
Rul. 89-31, 1989-1 C.B. 277.

Phil Jones

Portland, OR

*From:* wsbapt-bounces at lists.wsbarppt.com [
mailto:wsbapt-bounces at lists.wsbarppt.com <wsbapt-bounces at lists.wsbarppt.com>]
*On Behalf Of *Christopher Sm
*Sent:* Thursday, January 10, 2019 10:44 AM
*To:* WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com>
<wsbapt at lists.wsbarppt.com>
*Subject:* Re: [WSBAPT] wrongfully excluded heir

Could you do a partial assignment of interest? Or is that treated as a gift?

Cheers,

Christopher Small

CMS Law Firm LLC <http://cmslawfirm.com>

150 Lake St. S., Suite 218

Kirkland, WA 98033

206.659.1512

Legal stuff I have to put in... *To ensure compliance with Treasury
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On Thu, Jan 10, 2019 at 10:42 AM Eric Nelsen <Eric at sayrelawoffices.com>
wrote:

Lots of tax implications if it's done by any method other than inheritance.
I have done the heirs-gift-to-excluded-child method but only where the
individual gifts were below the federal annual gift exclusion limit
(currently $15,000, but lower back when I did this in a case).

I think best bet on your facts, assuming there isn't a fact problem I don't
know about, is a TEDRA Agreement executed by all heirs, indicating that the
Will should be reformed because its provision concerning the excluded
sibling is in dispute, that everyone agrees that the true intent of the
testator was to provide equal benefit to all children, that the testator
made a mistake of fact in excluding the sibling (not realizing that the
expected benefit was not received or was not certain to be received), and
that but for that mistake, the testator would have included all children as
equal heirs. And therefore, the heirs all agree that the Estate should be
split in equal shares. That way everyone gets the distribution as
inheritance and the tax implications go away.

Sincerely,

Eric

Eric C. Nelsen

SAYRE LAW OFFICES, PLLC

1417 31st Ave South

Seattle WA  98144-3909

phone 206-625-0092

fax 206-625-9040

*From:* wsbapt-bounces at lists.wsbarppt.com [mailto:
wsbapt-bounces at lists.wsbarppt.com] *On Behalf Of *Allen Draher
*Sent:* Thursday, January 10, 2019 10:14 AM
*To:* WSBA Probate & Trust Listserv
*Subject:* [WSBAPT] wrongfully excluded heir

I’m meeting with a potential client.  She is the named PR in parent’s
will.  Estate passes to all but one sibling.  This sibling was excluded
because of some benefit to be received that wasn’t and all other siblings
want to divide estate among all siblings.  Each share will be several
hundred thousand dollars, but estate will be under WA State Estate Tax
limit.  I suppose each sibling could gift to the excluded sibling and file
Federal Gift Tax Returns.  With the current federal exclusion amounts not
likely to be an issue using some of the existing credit, but who knows what
the future will bring.  Has anyone a more creative solution they’ve used?
Have excluded sibling file a creditor’s claim that is approved by the PR
with non-intervention powers?  (I would have other siblings consent in
writing).  TEDRA?  Thank you.

*Allen Draher*

*Law Office of Allen Draher, PLLC*

*5426 California Ave. S.W.*

*Seattle, WA 98136*

*ph   206-935-2998*

*allen at draherlaw.com* <allen at draherlaw.com>

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Felicia Value

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Felicia at skagitprobate.com
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