Wealth Management Update – November 2021 – Family and Marriage

To print this article, all you need to do is register or log in to Mondaq.com.

November 2021 Interest rates on GRATs, Sales to Broken Grantor Trusts, Intra-Family Loans, and Split Interest Charitable Trusts

Federal interest rates rose slightly for November 2021. The federal rate (“AFR”) applicable in November for use in the event of a sale to a defective grantor trust, a self-canceling installment note (“SCIN”) or an intra-family loan with a note with a duration of three to nine years (the medium-term interest rate, compounded annually) is 1.08%, compared to 0.91% in October and 0.39% in November 2020.

The November 2021 section 7520 rate for use with estate planning techniques such as CRTs, CLTs, QPRTs, and GRATs is 1.40%, down from 1.0% in October.

The AFRs used in connection with intra-family loans (based on annual compounding) are 0.22% for loans with a maturity of 3 years or less, 1.08% for loans with a maturity between 3 and 9 years and 1.86% for loans with a term of a term longer than 9 years.

For example, if a child is given a 10 year loan and the child can invest the funds and achieve a return greater than 1.86%, the child can keep any returns above 1.86%. The same phrases are used in connection with sales to defective grantor trusts.

Buck v. US (DC CT, 128 AFTR 2d) – discounts for fractions

In a gift tax refund case in which a taxpayer applied controversial discounts on the valuation of two 48% stakes in forest land he gave to two sons at the same time, the government was denied a summary judgment of its claim that discounts were based on different values ​​of interest, which each son received could not apply if the taxpayer did not hold these shares in fractional form before the donation. The government argued that such discounts “would help circumvent one of the primary purposes of gift tax, which is to ensure that inheritance tax is not circumvented”. The government further argued that the assessment should reflect “economic reality” that the gifts to the taxpayer were 96% and should be aggregated for gift tax purposes. However, the court found that these theories were not supported by relevant case law and violated current gift tax principles that gifts should be valued at the time of gift rather than before or after gift and that separate gifts should be valued separately.

Interestingly, the government’s motion to compel the taxpayer’s will and testimony from his financial manager was granted. The court ruled that the information was relevant to the government’s defense that fractional discounts do not apply. The taxpayer’s objections, including that the financial manager’s testimony was protected by legal confidentiality, were dismissed.

Arlene Williams-Paris versus April Nelle Joseph, Priscilla Paris-Austin, Theodore Paris and Samuel Paris – Morning of Marriage Premarital Agreement found enforceable

This case concerned the enforceability of a prenuptial agreement signed hours before the wedding by two Florida residents, Massachusetts. On the wedding day, the husband woke his wife up in the morning and asked her to find and sign a prenuptial agreement online. Feeling pressured by the significant potential embarrassment of canceling the wedding, the wife reluctantly worked with the husband to draft an online prenuptial agreement and then they both signed the document hours before the wedding.

After the husband died four years later while he was still married to the wife, the wife took legal action to challenge the validity of the marriage contract. The petition argued that the marriage contract was invalid because of fraud, deception, coercion, coercion, misrepresentation and exaggeration, because the husband never stated that it would apply in the event of death and because it contained unfair or inappropriate provisions. She also requested that the agreement be terminated due to her unilateral error.

The husband’s children requested a summary judgment, arguing that the marriage contract contained a special provision relating to the death of the spouse, and therefore invalidated the wife’s argument that it was effective only in the event of a divorce. In addition, in response to the wife’s allegation that the husband did not disclose his property prior to signing the agreement or in the attachments accompanying the agreement, the children argued that full disclosure to Florida is not required if the validity of the agreement is contested in probate proceedings.

The probate court gave the children a summary judgment on the coercion and coercion arguments of the wife. The probate court, however, dismissed the summary judgment of the children on the basis of the wife’s unilateral error of argument; facts remained disputed as to whether the husband had argued that the agreement should only apply in the event of divorce and not in the event of death. After out-of-court proceedings on the controversial issue of misrepresentation and one-sided error, the probate court rejected the wife’s application for annulment of the marriage contract on these issues. The wife then appealed.

The appellate court upheld the summary judgment of the court of first instance regarding the validity of the agreement and rejected the wife’s claims that the marriage contract should not be enforced on the basis of coercion, coercion, excessive or inadequate influence. Much was at stake on the choice of law issue, as Massachusetts law requires financial disclosure for the validity of a prenuptial agreement and for the validity of a prenuptial agreement, while Florida law requires only financial disclosure for the validity of a prenuptial agreement and none financial disclosure required for a premarital contract that waives the right after death. The Court of Appeal’s opinion discussed the lex loci contractus doctrine and its exceptions and eventually concluded that the public order exception applied in this case because the parties never lived together as a married couple in Massachusetts and the wife had no connection with Massachusetts other than that Fact that she signed the contract and there married the husband.

The case has been referred back to the probate court to determine the wife’s interest in a specific asset that was exempt from the prenuptial agreement, so this case is not yet final. This case can be related to Bates v. Bates, 46 fla. L. Weekly D287c (3rd DCA, Feb. 3, 2021) earlier this year, in which a prenuptial agreement signed the day before the wedding was invalidated on the basis of arguments related to coercion.

PLR 202139005 – S Corporation accidentally terminated

A corporation will continue to be treated as an S corporation if its S corporation election was inadvertently terminated because the beneficiaries did not submit timely QSST elections for certain trusts and the trustees did not submit ESBT elections for other trusts. The Company believed that the circumstances that resulted in the required QSST and ESBT elections not being submitted were unintentional and not motivated by tax avoidance or retrospective tax planning.

Wealth Management Update – November 2021

The content of this article is intended to provide general guidance on the subject. Expert advice should be sought regarding your specific circumstances.

Comments are closed.