Estates and Trusts Commons^™

Principal And Income Allocation Of Stock Distributions--The Six Per Cent Rule, Michael C. Devine

Michigan Law Review

A productive trust is usually dynamic in two ways: the principal assets appreciate in value, and their use produces income. When the beneficial interests in such a trust are successively divided between income recipients and principal remaindermen, every payment to the trust must be characterized either as income or as an addition to principal. The most difficult categorization problems arise when the receipt is of corporate stock.

Joint Tenancy: The Estate Lawyer's Continuing Burden, John E. Riecker

Michigan Law Review

The discussion which follows will be divided into three major parts. First, it will be important to see why so much real and personal property remains in joint tenancy between husband and wife or in entireties tenancy. It has been almost eighteen years since Congress eliminated the necessity of holding property in this form in order to split income therefrom for income tax purposes. Is inertia the only reason for the popularity of joint ownership, or are there other reasons? Second, we shall review the familiar but false assumptions most laymen (and even a few attorneys) commonly make regarding the …

Retention Of Control Over Stock Constitutes "Ownership" Under Section 1239 Of The Internal Revenue Code-Harry Trotz, Michigan Law Review

Michigan Law Review

Petitioner set up a corporation, retaining seventy-nine per cent of the stock and -distributing the remainder to a third party. The third party borrowed from petitioner, pledging his stock as security and executing an option agreement under which the petitioner could recover the stock at any time. Subsequently, the newly organized corporation purchased all the depreciable assets of petitioner's proprietorship at a price in excess of their adjusted basis; petitioner reported the difference as a capital gain. The Commissioner declared a deficiency, relying on section 1239 of the Internal Revenue Code, which treats as ordinary income the gain recognized from …

Marital Deduction Formula Clauses In Estate Planning-Estate And Income Tax Considerations, Alan N. Polasky

Michigan Law Review

Once upon a time, and not so very long ago, a child was born, much to the delight of its lawyer-parents. As children will, it brought much joy and only occasional moments of dismay and concern during its early, formative years. But one day it entered the terrible teens, and at age sixteen it became, like many teen-agers, baffling, confusing, and frustrating, giving rise to frenzied attempts to cope with and control the complexities of its behavior. Its name? The Federal Estate Tax Marital Deduction.

Testamentary Option To Purchase Realty Can Be Exercised Under Anti-Lapse Statute By Heirs Of Beneficiary--Tuecke V. Tuecke, Michigan Law Review

Michigan Law Review

Testator devised his farm to his son and two daughters. The son, who predeceased his father, was bequeathed an option to purchase the daughters' two-thirds interest in the farm for a specified amount. Over the objection of the daughters, the heirs of the son sought to exercise the option under an anti-lapse statute. The trial court concluded that the son's heirs had inherited the right to purchase. On appeal to the Supreme Court of Iowa, held,affirmed. An option to purchase is a valuable property right inheritable under an anti-lapse statute.

Federal Estate Tax-Determination Of Marital Deduction In Community Property State When Surviving Spouse Elects To Take Under Decedent's Will, Jon E. Denney

Michigan Law Review

Decedent, a Texas resident, provided that if his wife elected to take under his will she would receive one-third of the total community property and one-third of his separate estate. The remaining two-thirds of decedent's total estate was devised in trust for the benefit of his children. The widow elected to take under the will, thereby allowing her interest in the community property to pass as provided in the will. The executors claimed a marital deduction for the one-third separate property passing to the widow. Since she received less under the will than the value of her relinquished community property, …

Taxation-Federal Estate Tax-Tax Consequences Of A Gift In Contemplation Of Death By A Joint Tenant Or A Tenant By The Entirety, Fredric L. Smith S.Ed.

Michigan Law Review

This comment will examine the foregoing problem in light of several recent cases which have cast doubt on the presently conceived relationship between section 2035 and section 2040.

Taxation-Federal Estate Tax-Application Of Section 2039 To Benefits Paid To Survivor Under A Deferred Compensation Plan, T. K. Carroll

Michigan Law Review

Upon decedent's death, his former employer made certain payments to the surviving widow under two voluntarily established benefit plans which were unfunded and non-qualified. The first of these arrangements, the death benefit plan, provided for three months' salary to be paid to an employee's widow, if the employee died before becoming eligible for retirement. The second, the deferred compensation plan, provided payment of a certain stated maximum to an employee's widow in sixty equal monthly installments. This was not a retirement program, however, since the employee himself would receive these payments if, and only if, he were ever to become …

Taxation-Federal Estate Tax-The Construction Of Section 2036, William S. Bach S .Ed.

Michigan Law Review

This comment will explore two problems: first, an analysis of the legislative history of the present section 2036 in an effort to discover exactly which property relationships Congress intended to reach by this provision; second, an examination of the treatment which several specific arrangements have been given by the courts to determine whether there is any degree of certainty or predictability in the application of section 2036.

Taxation-Federal Estate Tax-Inference Of Retained Life Interest Under Section 2036(A), Donald E. Vacin

Michigan Law Review

In 1936 decedent established an irrevocable trust naming herself and relatives as beneficiaries. The corporate trustees were directed to pay the trust income, in the exercise of their absolute discretion, either to the settlor or to the other beneficiaries. In filing her 1936 federal gift tax return settlor attempted unsuccessfully to exclude the value of a life estate in the trust income, allegedly retained by her. At her death, the value of the trust corpus was not included in her estate tax return. The Commissioner assessed a deficiency contending that decedent-settlor had retained for her life the "possession or enjoyment" …

Federal Estate Tax - Marital Deduction - Annuity For Life With Guaranteed Certain Payments Not Divided Into Two Properties By Insurer's Accounting Treatment, William S. Bach

Michigan Law Review

Plaintiff, executor of decedent's estate, brought suit to recover an overpayment of federal estate tax. Decedent had purchased a life insurance policy and had elected an option under which proceeds would be paid to his wife in monthly payments for her life; however, the option also guaranteed a minimum of 240 payments. In the event the wife died before 240 payments were made, payments were to continue to decedent's daughter, or on the death of both wife and daughter, the commuted value of the remaining guaranteed payments would be paid in lump sum to the estate of the survivor. The …

Taxation - Federal Estate Tax - Incidence Of Tax Determined By Testamentary Directive, Robert A. Smith

Michigan Law Review

An inter vivas trust created by testator and property held jointly with his wife were included in his gross estate in computing the federal estate tax.1Testator left his residuary estate to charity and directed in his will that the estate tax on the above inter vivas transfers be borne by the property so transferred. The government determined that the estate tax was payable out of the residue and reduced the charitable deduction by the amount of the estate tax attributable to the inter vivas transfers pursuant to section 812(d) of the 1939 Internal Revenue Code. The district court granted the …

Taxation - Federal Estate Tax - Insurance And Annuity Combinations, John B. Schwemm S.Ed.

Michigan Law Review

Decedent, aged seventy-six, invested in three single premium life insurance policies. Issuance of each was conditioned on the purchase of a single life, nonrefundable annuity of specified value, and no physical examination was required. Each combination was balanced so that the total premium, exclusive of loading charges, equalled the face value of the insurance. The resulting correlation between compound interest and annuity disbursements made the guaranteed payments to the annuitant correspond precisely with the expected income of a reinvestment of the entire deposit by the insurer. Decedent retained the annuity rights, but all present and future interests in the life …

Transfers Of Joint Property In Contemplation Of Death: A Call For Immediate Statutory Revision, L. Hart Wright

Michigan Law Review

For years the Tax Court sided with the government and the Court of Appeals for the Third Circuit in asserting that the contemplation-of-death provision of the estate tax act was sufficiently elastic to include the tax concept of ownership reflected in the joint-property provision of the same act. The alliance between those tribunals on this point was recently broken, however, when the Tax Court shifted to the competing view supported by taxpayers and the appellate court for the Ninth Circuit. It now believes that the two provisions mentioned above are complete strangers even though at one time these two were …

The Martial Deduction And Equalization Under The Federal Estate And Gift Taxes Between Common Law And Community Property States, Paul E. Anderson

Michigan Law Review

In 1948, as the culmination of much dissatisfaction with the treatment of community property under the federal estate and gift tax laws, Congress adopted a new formula for the treatment of gifts and bequests between spouses; this formula was known as the marital deduction. It has remained practically unchanged since its adoption and still stands as an integral part of our federal estate and gift tax structure.

The basic purpose of the deduction was to provide equalization in estate and gift tax treatment between spouses residing in community property states and those residing in common law property states. The plan …

Taxation - Inheritance Tax - Transfers Subject To Take Effect At Or After Death, Harvey A. Howard S.Ed.

Michigan Law Review

Decedent was a participant in a company profit-sharing savings and retirement trust. Under the terms of the plan, the company made deposits with a trustee on an annual basis and relinquished the right to recapture or impair the fund for its own use or benefit. The contributions were to be held for ten years with accrued interest, and then were to be distributed to the employees in three annual instalments. Should an employee leave the company, he was entitled to his share in three instalments; in the event of retirement or illness he was to receive his entire share in …

Taxation - Federal Income Taxation - Problems Created By The Complex Trust Provisions Of The 1954 Code, Harvey A. Howard S.Ed.

Michigan Law Review

This comment will not be expository of all of the trust provisions but rather will attempt to deal with some of the more important interpretative difficulties likely to be encountered in the new law involving the taxation of the income of those trusts which may accumulate income, distribute corpus, or pay or set aside amounts for charitable purposes. It will be assumed that the reader is familiar with the basic statutory pattern of the trust sections of the new code.

Notes, Michigan Law Review

Michigan Law Review

The information given in the notes is derived from inspection of the books, publishers' literature, and the ordinary library sources.

Apportionment Of The Federal State Tax In The Absence Of Statute Or An Expression Of Intention, William P. Sutter

Michigan Law Review

Federal law now provides in sections 826 (c) and (d) of the Internal Revenue Code that life insurance and property transferred by appointment shall bear their proportionate tax burden. It does not contain similar provisions with respect to other types of non-probate property. At the present time, twenty states provide by statute for some sort of apportionment of estate taxes. Two states have statutes restricting apportionment in some degree. In the rest, the matter rests in the discretion of the courts. I propose to discuss in this article the situation in those areas where no statutory guidance exists.

Taxation-Federal Income Tax-Deductibility Of Contributions To Profit-Sharing Trusts, W. H. Bates S.Ed.

Michigan Law Review

Plaintiff corporation set up a profit sharing trust for the benefit of its employees as authorized under section 165(a) of the Internal Revenue Code. The plan for the trust, as approved by the Treasury, provided that plaintiff should contribute annually an amount equal to 15 % of net income, as defined, not to exceed 15% of basic salary or wages of all eligible participating employees. For the tax year 1944 plaintiff claimed deductions under section 23(p)(1)(C) for an amount equal to 15% of the total participating payroll, which is actually the allowable maximum, but which in this case exceeded 15% …

Gifts For The Benefit Of Minors, Austin Fleming

Michigan Law Review

Primarily because of tax incentives, lifetime gifts have become increasingly popular in recent years among persons of wealth. Until the Revenue Act of 1948, such gifts were frequently made between spouses. But the tax advantages of interspousal gifts were greatly lessened by the split-income privilege and the marital deduction, and a new inducement was given to gifts to third persons by the establishment of the right to treat such gifts as being one half from each spouse. As a result, gifts to children and grandchildren have taken on new prominence.

Taxation-Federal Estate Tax-Transfers Of Life Insurance In Contemplation Of Death, Ralph E. Hunt S. Ed.

Michigan Law Review

Insurance policies on the life of a decedent are ordinarily included in his gross estate according to the provisions of section 811 (g) of the Internal Revenue Code. Where the policy is payable to a beneficiary other than the executor, it is taxable under section 811(g)(2): (1) if the decedent paid premiums on the policy, in proportion to the amount of premiums paid by him in relation to the total premiums paid, or (2) if the decedent possessed at his death any of the incidents of ownership. However, these provisions are not exclusive; even though section 811 (g) is inapplicable, …

Taxation-Debt Reduction, John M. Veale S.Ed.

Michigan Law Review

Inherent in an economy financed by a large volume of credit, extending over varying intervals of time, is the problem of debt reduction and revalorization. The ramifications of this problem in the income tax field have long intrigued legal scholars and confounded the courts. A recent case illustrates anew the danger, to client and counsel, lurking in the assumption that the tax significances of debt reduction have finally been reduced to mathematical certainty. The taxpayer borrowed $90,000 from a bank in 1925, using the funds to pay off encumbrances upon, and make improvements on, a piece of property. As a …

Executors And Administrators-Priority Of Payment Of United States Claims, E. M. Deal S.Ed.

Michigan Law Review

When decedent died in 1940, his personal estate was consumed by the widow's exemption and expenses of administration, leaving only a one-sixth interest in certain real estate formerly owned by his deceased father. Proceedings to partition this property resulted in a sum of $2,306.17 payable to decedent's widow, subject to the payment of his debts. The executors of one Davidson who had obtained a $24,588.00 judgment against decedent in 1933 claimed the entire fund as did the United States under tax liens entered in 1940 and 1941 of $2,202.89 and $8,904.67. The government based its claim on section 3466 of …

Abstracts, Mary Jane Plumer

Michigan Law Review

The abstracts consist merely of summaries of the facts and holdings of recent cases and are distinguished from the notes by the absence of discussion.

Abstracts, Mary Jane Plumer

Michigan Law Review

The abstracts consist merely of summaries of the facts and holdings of recent cases and are distinguished from the notes by the absence of discussion.

Abstracts, Katherine Kempfer

Michigan Law Review

The abstracts consist merely of summaries of the facts and holdings of recent cases and are distinguished from the notes by the absence of discussion.

Executors And Administrators - Double Domicile - Inheritance Taxation Of Intangibles, Robert Walsh

Michigan Law Review

Plaintiff was appointed executor by a Georgia court which found that decedent had been domiciled in Georgia. Defendant was appointed administrator by a New York court which found that decedent was domiciled in New York. Plaintiff and defendant were interpleaded in the Delaware court by a Delaware corporation to determine who was entitled to shares of stock owned by decedent in the Delaware corporation. Plaintiff claimed that the Delaware court was required to give full faith and credit to the Georgia finding that decedent was domiciled in Georgia. The Supreme Court of Delaware found that decedent was domiciled in New …

Constitutional Law - Due Process - Jurisdiction Of A State To Tax The Exercise Of A Power Of Appointment, Charles J. O'Laughlin

Michigan Law Review

Decedent's father, a resident of Massachusetts, by his last will created a trust of the residue of his estate, consisting of intangibles, and gave one share to decedent for life, with remainder to whomsoever decedent should appoint by will. The trust was administered in Massachusetts and there was no question as to that state's power to tax. Decedent, a resident of New York, appointed his share to his widow. The New York courts held that although the interest of the decedent fell within the provisions of the New York tax law imposing a tax upon the transfer of the net …

Taxation - Federal Estate Taxation Of Life Insurance Effect Of Treasury Decision 5032 Amending Articles 25 And 27 Of The Estate Tax Regulations, Lloyd M. Forster

Michigan Law Review

Stated briefly, the effect of T. D. 5032 has thus been to revert to the original test of payment of premiums for determining when insurance has been "taken out" by the decedent, and to abandon ownership of the policy as a basis for including the proceeds in decedent's estate, thereby departing from the fundamental theory of estate taxation. Thus the regulations, in closing one door to tax avoidance, apparently open another. While this avenue of escape may be narrowed by judicial interpretation, a change in the regulations probably will be required to seal it completely.