Estates and Trusts Commons^™

The Tax Recommendations Of The Commission On The Bankruptcy Laws--Income Tax Liabilities Of The Estate And The Debtor, William T. Plumb Jr.

Michigan Law Review

The Commission on the Bankruptcy Laws of the United States (Commission), pursuant to congressional mandate, has reported its recommendations for the first comprehensive revision of the bankruptcy laws since the Chandler Act of 1938. This Article deals with the proposals concerning the obligation of the trustee in bankruptcy to file returns of income and to pay federal and state taxes on the income, and concerning the calculation of the taxable incomes of the bankrupt estate and the debtor (including their rights to utilize each other's carryovers), as well as with certain problems in those areas in which the Commission has …

Kahn, Colson, & Craven: Federal Taxation Of Estates, Gifts, And Trusts, Richard D. Hobbet

Michigan Law Review

A Review of Federal Taxation of Estates, Gifts, and Trusts by Douglas A. Kahn, Earl M. Colson, and George Craven

Restructuring Federal Estate And Gift Taxes: Impact Of Proposed Reforms On Estate Planning, Verner F. Chaffin

Michigan Law Review

It is undeniable that estate and gift taxes, in contrast to income taxes, have not received the legislative attention that they deserve. Congress has largely ignored these important segments of our tax structure for many years, and during that time a host of defects and inequities have become apparent. This congressional indifference in the estate and gift tax field can be attributed to the fact that these taxes, unlike the income tax, affect relatively few people, and that they produce less than two per cent of our total tax revenue. It is understandable, therefore, that while the major thrust of …

Loopholes And Ambiguities Of Section 2036, James C. Ervin Jr.

Michigan Law Review

The possibility of divergent tax treatment of economically similar situations has made section 2036 of the Internal Revenue Code' one of the most abused of the federal estate tax provisions. Originally enacted to ensure inclusion within the gross estate of the value of all property ostensibly transferred by the decedent prior to his death and yet beneficially enjoyed by him during his lifetime, the section is being circumvented by an increasing number of tax avoidance patterns. Although some of the confusion can be traced to the erratic approach of the courts to cases involving section 2036, the primary interpretive difficulty …

Estate Tax-The Failure Of I.R.C. Section 2039 To Reach Death Benefits Arising Out Of The Employment Relationship-Estate Of Fusz, Michigan Law Review

Michigan Law Review

Decedent's employment contract provided for a salary payable to him and monthly payments to his widow for life if he died during the term of the contract. No post-retirement benefits were payable to decedent under the contract or pursuant to any other agreement with the employer. After decedent's death during the term of the contract the payments to his widow commenced; their commuted value, however, was not included in the gross estate of decedent. The Commissioner of Internal Revenue, ruling that the payments to the widow constituted an annuity, the commuted value of which was includable in decendent's gross estate …

Estate Tax-"Disallowance Of Double Deductions" In I.R.C. Section 642 (G) Applies Only To "Statutory Deductions"-Estate Of Bray, Michigan Law Review

Michigan Law Review

Petitioners, as executors for a substantial estate, had to sell a large amount of securities in order to pay administration expenses incurred by the estate. The estate received $2,250,000 from this sale, which was $50,000 in excess of the value of the stock at the time of decedent's death and thus as reported on the estate tax return. The brokerage commissions and taxes on the sale, which totaled $23,000, were deducted from the value of the gross estate as administration expenses pursuant to section 2053(a)(2) of the 1954 Internal Revenue Code. The same $23,000 was also subtracted from the $50,000 …

Federal Estate Taxation Of Community Property Life Insurance, Michigan Law Review

Michigan Law Review

Under section 2042 of the Internal Revenue Code of 1954, proceeds of insurance policies on the life of the decedent payable to beneficiaries other than the decedent's executor are included in the gross estate only if the decedent possessed at the time of his death "any of the incidents of ownership [in the insurance policies], exercisable either alone or in conjunction with any other person." To determine the extent of the decedent's "incidents of ownership," the Regulations provide for the application of state property law. The problems inherent in relying upon state law to govern federal estate taxation of the …

Withholding Taxes On Wage Dividends For Pre-Bankruptcy Wages Assigned To Fourth Priority In Distribution Of Bankrupt's Estate-In Re Connecticut Motor Lines, Inc., Michigan Law Review

Michigan Law Review

Among claims against a bankrupt estate were those for unpaid wages and vacation pay earned within three months of the bankruptcy of the employer. The referee ordered distribution of the amount of the claims, assigning them second priority, but he refused to authorize deduction of income withholding tax and social security taxes from these payments as requested by the Government. The district court reversed, holding the trustee in bankruptcy liable for the taxes as a first priority administrative expense. On appeal, held, reversed. Taxes based on wage claims accruing prior to bankruptcy but paid during bankruptcy are section 64a(4) …

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.

Widows' Allowances And Marital Deductions-The Date-Of-Death Rule, Michigan Law Review

Michigan Law Review

In every state there are statutes that provide for widows' allowances in an attempt to assure adequate support for widows during the time it takes to settle their husbands' estates. A common feature in most of these state support statutes is that the local probate judge is permitted to order an amount which the court finds to be reasonably necessary for the maintenance of the widow during the period of settlement to be set aside for her from the rest of the estate. The maximum amount permitted, the method of payment, the duration of the allowance, the extent to which …

The Joint And Survivor Account In Michigan-Progress Through Confusion, Richard V. Wellman

Michigan Law Review

Legal writers have been intrigued for years by the challenge of classifying and identifying the resulting incidents of the joint and survivor bank deposit when an attempt is made to use it as a mode of effectuating a donor depositor's intention to confer benefits on a donee co-depositor. Much in their discussions is useful to one who is concerned with the concept that has evolved in Michigan, where a 1909 statute states that some co-depositors are presumed to be joint tenants. Michigan judges and practitioners must determine, however, whether comment about national trends is applicable here, for in many respects …

Fiduciary Administration-Power Of Court To Authorize Inter Vivos Distribution From Incompetent's Estate, Robert C. Bonges

Michigan Law Review

The guardians of an eighty-six-year-old incompetent multi-millionaire petitioned for authorization to give a portion of the ward's assets to his children and grandchildren. It was not suggested that the proposed beneficiaries were currently in need of funds, but rather the sole purpose of the inter vivas distribution was to minimize the impact of federal estate taxes on the ward's estate at his death. It was alleged and proved, however, that the proposed distribution would follow a plan which accorded substantially with the terms of the ward's will, and which the ward presumably would have followed himself, had he remained competent …

Voluntary Payments To Widows Of Corporate Executives: Gifts Or Income?, Paul A. Rothman

Michigan Law Review

The solicitude of hardhearted corporations for the widows of corporate executives has given rise to an abundance of cases involving the question whether payments to these widows constitute gifts or income. In the cases to be considered in this comment, payments are made by the corporation to the decedent's widow on a purely voluntary basis. In the typical situation, the board of directors adopts a resolution eulogizing the decedent and authorizing payments to his widow in recognition of his long and faithful service. In most cases, these payments are measured by the decedent's salary and continue for periods ranging from …

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, …

Future Interests-Powers Of Disposition-Some Practical Considerations In Using Powers Of Disposition For Testamentary Purpose, Lawrence Ray Bishop S.Ed.

Michigan Law Review

Testators, in an effort to retain control of their property from beyond the grave, have often developed schemes by which they attempt to alter the normal devolution of title to, and the utilization of, that property by their beneficiaries. One of the primary motives giving rise to such schemes is the desire to give the immediate object of a testator's bounty a great deal of flexibility and control in the use of the testamentary property, while reserving to the testator the possibility of controlling its further disposition upon the death of such person. The most theoretically suitable device by which …

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 …

Property - Powers - State Powers Statutes Protecting Creditors And Requiring Formal Execution, Robert A. Smith S. Ed.

Michigan Law Review

The first part of the comment considers the elevation sections of the statute-sections that change the donee's interest in the appointive or dispositive property to a fee for the benefit of creditors. The second part considers the execution sections of the statute-sections that subject the execution of powers to conveyancing requirements. These sections are of the utmost significance to estate planners.

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.

Taxation-Federal Estate Tax-Relevance Of Marital Deduction To Computation Of Widow's Distributive Share Of Husband's Estate Where She Elects To Take Against Will, Alice Austin

Michigan Law Review

A widow electing to take against her husband's will claimed to be entitled to have her one-third share of decedent's net personal estate computed without deduction of federal estate taxes, on the theory that Congress in allowing the marital deduction intended that a widow's share qualifying for such deduction should be free of the impact of the federal estate tax. The state had no statute providing for apportionment of federal estate taxes. Held: Congress did not intend, by allowing the marital deduction, to change the rule that state law is determinative of the impact of the federal estate tax. …

Taxation-Federal Estate Tax-Taxability Of Joint And Survivor Annuity Paid Pursuant To Pension Plan, Lawrence M. De Vore S.Ed.

Michigan Law Review

Under a pension and retirement plan, decedent had the option of receiving a pension for life or a smaller pension while both he and his wife lived, with two-thirds of such reduced pension payable to the survivor for life. On decedent's normal retirement date he chose the latter. Decedent did not retire but continued working until his death. His wife was then entitled to receive a monthly income for life under the pension plan. The Commissioner of Internal Revenue determined that the value of the wife's annuity should be included in the decedent's gross estate. Plaintiff instituted action for refund …

Obtaining The Gift Tax Exclusion On Gifts In Trust: Drafting And Legislative Suggestions, Zolman Cavitch

Michigan Law Review

The purposes of this article are to outline the "future interest" pitfalls in the use of various conventional trust provisions, to explore remedial drafting possibilities even under the present law, and to suggest a statutory amendment which will eliminate the fundamental defects of the present poorly-drafted law.