Wednesday, April 28, 2010

GRATs on Congress' Hit List

An article on Trusts and Estates magazine's website today refers to a provision in the March 24, 2010 Small Business and Infrastructure Tax Act that puts the hit on GRATS. The law will require that GRATs have a minimum 10 year term, that annuity payments not decline during the first 10 years of the trust, and that a GRAT’s design at inception envisions a remainder (which would basically eliminate the zeroed-out GRAT). The Senate has taken up the bill and T&E believes the Senate will vote on it by Memorial Day. The CBO estimate that this change will generate $4 billion over the next 10 years.

Even though most people aren't rich enough to need GRATS (I say that with the caveat that the future of the federal estate tax is, apparently, unknowable), the proposed changes seem to show a Congress more willing to look at the estates of the wealthy as a source of tax revenue. Expect to see more of this in the future. That means you, $1 million estate tax exemption and 55 percent rate! Get comfortable, you may be staying a while.

Tuesday, April 27, 2010

Settlement Agreements are Not Trusts!

From Trust & Estate Prof Blog: the Georgia Court of Appeals held that an exculpatory clause in a settlement agreement and release is not a trust amendment.

Curtis Mayfield, Jr., the musician, had a trust that held, among other things, the rights to his body of work. The beneficiaries settled with the trustee, received a distribution, and executed a settlement agreement and release. As with all good settlement agreements, the beneficiaries released all claims against the trustee. The beneficiaries then brought a lawsuit against the trustee for fraud, negligence, etc. The trustee filed a motion to dismiss, referring to the release language in the settlement agreement. The trial court granted the motion to dismiss, holding that the release violated Georgia law prohibiting a trust instrument from relieving a trustee for their own breach of trust.

The court of appeal reversed. The settlement agreement was not a trust instrument, and thus trust law did not apply. The court held that the release of liability was valid for negligent acts, although it might not be valid for intentional acts, as such a release would violate public policy.

I realize this is GA, and not CA, law, but there are similiarities. The GA law relied on by the court in concluding that the settlement agreement was not a trust is essentially the same as CA law: intention to create a trust (Prob. Code section 15201); trust property (Prob. Code section 15202); a valid purpose (Prob. Code section 15203); and a beneficiary (Prob. Code section 15205). Settlement agreements don't fall into these categories and therefore are not trusts. So, trust law limiting the ability of a trustee to exculpate him or herself from liability does not apply to a settlement agreement.

So, there are two things to take away from this, even under California law: (1) settlement agreements are not trusts, and (2) releases of liaibility in settlement agreements are governed by contract law, not trust law.

Turning the Lights Back On

I took a long, long break from my blog Bay Area Estate Planning Attorney, and I'm now back and ready to go again. I had to change the name, url, etc. from the old blog for internal control reasons, but don't fret - the mission is the same.

So, let's get started!