Source: https://gassmanlaw.com/thursday-reports/the-thursday-report-4-9-15-the-lind-chair-and-more-naked-truth-about-see-through-trusts/
Timestamp: 2020-08-13 23:53:47
Document Index: 562058547

Matched Legal Cases: ['§ 4301', '§ 4302', '§ 4312', '§ 4312', '§ 4312', '§ 1', '§6110']

The Thursday Report - 4.9.15 - The Lind Chair and More Naked Truth About See-Through Trusts - Gassman, Crotty & Denicolo, P.A.
By Info | April 9, 2015 | Comments Off on The Thursday Report – 4.9.15 – The Lind Chair and More Naked Truth About See-Through Trusts
Proper Treatment of Army Reserve Personnel by Alyssa Perez
Planning for Ownership and Inheritance of Pension and IRA Accounts and Benefits by Christopher J. Denicolo, Alan S. Gassman, and Brandon Ketron, Part VI
Seminar Spotlight – University of Florida Tax Institute
Richard Connolly’s World – What’s New with Law School Programs
Proper Treatment of Army Reserve Personnel
Many companies hire military personnel while they are at home. But what happens when they are once again called upon to perform their military duties? What is the obligation of the employer?
A reservist is a person who is a member of a military reserve force. They are otherwise civilians, and hold careers outside of the military. All five branches of the United States armed forces have their own Reserve Forces, whose reservists can be called upon to serve anywhere at any time. During times of peace, the Reservists spend one weekend a month and two weeks a year annually in training. Otherwise, the Reservists are available to continue working at their respective employers.
What federal law allows reservists to maintain employment, and when was it enacted?
The Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA) is a federal law that establishes the rights and responsibilities for the uniformed services members and their civilian employers. This law is intended to ensure that persons who serve or have served in the Armed Forces, Reserves, National Guard or other uniformed services are (1) not disadvantaged in their civilian careers because of their service; (2) are promptly reemployed in their civilian jobs upon their return from duty; and (3) are not discriminated against in employment based on past, present, or future military service.1 USERRA protects the job rights of individuals who voluntarily or involuntarily leave employment positions to participate in the uniformed services. It also prohibits employers from discriminating against past and present members of the uniformed services as well as their applicants.2
The USERRA supercedes any state law, contract, agreement, policy or other matters that reduces, limits, or eliminates in any manner any right or benefit provided in the USERRA.3 Therefore, states cannot enact laws that would limit uniformed servicepeople from obtaining their civilian jobs nor can states discriminate against them.
What if the reservist volunteers for more than the required duty?
The USERRA protects the civilian careers of uniformed persons regardless of whether or not they voluntarily or involuntarily left their employment positions to serve. However, reservists do need to comply with section 4312 of the USERRA, which provides the reemployment rights of persons who serve in the uniformed services.
First, the reservist must give advance written or verbal notice of such service to their employer. Second, the cumulative length of absence and of all previous absences from a position of employment does not exceed five years. Third, the reservist should submit an application for reemployment to the employer.4 If there is a military necessity for the reservist, or giving notice is otherwise impossible or unreasonable, then it is not a requirement. However, the reservist must notify the employer of their intent to return to a position of employment with the employer upon completion of a period of service.5 If the reservist fails to report or apply for reemployment within the appropriate period, it will not automatically forfeit their entitlement to the rights and benefits of reemployment, but instead will subject the reservist to discipline regarding the employer’s conduct code.
A reservist has properly applied for reemployment if the application is timely; the person has not exceeded service limitations (i.e. 5 years); and the person’s entitlement to the benefits has not been terminated due to a separation from a uniformed service (i.e. discharge or dismissal).6 Further, a reservist is entitled to the position of employment in which the person would have been employed if the continuous employment of such person with the employer had not been interrupted by their service. If, after such reemployment, documentation becomes available that establishes that the reservist did not meet those requirements, the employer of such person may terminate the employment of the person.
An employer will violate the USERRA if the employer would not have taken an adverse employment action but for the employee’s military service or obligation.7 An employer will not be able to escape liability by claiming it was discriminating against an employee on the basis of his or her absence when that absence is for military service. However, if the reservist does not place the employer on notice prior to leaving the job for military service, the employer has a right to terminate them.
In the United States Federal Court of Appeals, the Erickson court held that the United States Postal Services’s removal of an employee for excessive use of military leave constituted discrimination under USERRA; however, because the employee failed to timely request reemployment, the termination could potentially be lawful.8 If an employee makes a discrimination claim under USERRA, they bear the initial burden of showing by a preponderance of the evidence that their military service was a substantial or motivating favor in the adverse employment action.9 If, however, the employer can demonstrate that it would have taken the same action without regard to the employee’s military service, the termination is lawful.10 Congress enacted USERRA in part to make clear that discrimination in employment occurs when a person’s military service is a “motivating factor,” and not to require that military service be the sole motivating factor for adverse employment action. The Court held that because USPS did not provide any other factors for adverse employment action besides plaintiff’s military duty, the court was discriminating under USERRA.
The plaintiff in Erickson, however, did not comply with USERRA rules regarding reemployment application. Section 4312 of the USERRA provides that when a person accepts duty for less than 31 days, they must report to the employer no later than the beginning of the first full calendar day following the completion of the period of service and that period will expire eight hours following the transport of the person to his or her place of residence.11 In the case of a person who performs uniformed services for more than 30 days but less than 181 days, they must submit an application for reemployment no later than 14 days after the completion of their service. If the person performs uniformed services for more than 180 days, they have 90 days to submit their application for reemployment.12 Therefore, if a reservist does not file their application for reemployment as required under the USERRA, it is proper to take adverse employment action against the reservist.
Employers should not terminate employees simply because of long leaves of absence due to uniformed services. Whether the reservist chooses to perform their duties voluntarily or involuntarily is irrelevant. It is up to the employee to ensure that they too are in compliance with the USERRA. The reservist must give proper notice to the employer that they are leaving for uniformed service duty, and must, upon completion of that service, apply for reemployment as required by statute. If the reservist fails to give notice or apply for reemployment, the employer is able to take adverse employment action.
1Pub.L. 103–353, Oct. 13, 1994, codified as amended at 38 U.S.C. §§ 4301–4335.
3Id at § 4302(b).
4Id at § 4312(a)-(b).
5Id at § 4312(e).
7Erickson v. USPS, 571 F.3d 1364 (Fed. Cir. 2009).
9See Sheehan v. Dep’t of the Navy, 240 F.3d 1009, 1013 (Fed.Cir.2001).
10Id at 1013.
11§ 4312(e).
Planning for Ownership and Inheritance of Pension
and IRA Accounts and Benefits – Part VI
IRA SERIES CHAPTER 6
This week, we will be looking at rules that apply to conduit trusts only and toggling from a conduit trust to an accumulation trust (and vice versa.)
I. RULES THAT APPLY TO CONDUIT TRUST ONLY:
A. Income must be paid to the trust beneficiary upon receipt by the Trustee.
The trustee has no power to accumulate distributions from the IRA/Plan, and any distribution from the IRA/Plan must be paid directly to the trust beneficiaries[1].
B. Remainder beneficiaries do not count for Required Minimum Distribution Purposes.
Designated Beneficiaries are treated as sole direct beneficiaries of the IRA under a Conduit Trust. A Conduit Trust can thus have beneficiaries older than the desired Designated Beneficiary, Non-Persons as beneficiaries and unlimited power of appointment rights, so long as all distributions from the IRA/Plan to the trust are required to be paid to the Designated Beneficiary upon receipt from the IRA/Plan during his or her lifetime by trust during his or her lifetime. Remainder beneficiaries are disregarded as mere potential successors and if older than the designated beneficiary would not cause Required Minimum Distributions to be paid out over a shorter life expectancy.
C. Conduit Trusts can pay trust expenses.
The Designated Beneficiary is treated as the sole beneficiary for Required Minimum Distribution purposes regardless of whether the Conduit Trust can pay expenses. PLRs 200432027 and 200432029 concluded that the trust was “a valid, conduit, see-through trust” even though the trust assets could be used to pay expenses.[2]
D. Conduit Trust Flow Chart
See Illustration 3.3 below to determine the applicable Payout Method.
II. TOGGLING FROM A CONDUIT TRUST TO AN ACCUMULATION TRUST (AND VICE VERSA?)
Private Letter Ruling 200537044 confirmed that it is possible to “Toggle” what would have been a Conduit Trust into an Accumulation Trust on or before the Designation Date (September 30th of the calendar year of death of the Plan Participant). The conversion may only occur once, regardless of its direction. This can be accomplished by providing powers to independent Trust Protectors named under the trust agreement, if the exercise of such powers will be considered a disclaimer under state law that will result in the disclaimed powers and rights being considered as never having existed (i.e., void ab initio). The Trust Protectors would have the power to void the provision in the trust agreement that requires that all Required Minimum Distributions be currently distributed to the Designated Beneficiary of the trust. This can enable the trustee to accumulate IRA/Plan distributions in trust, and distribute such funds according to his or her discretion.
The Toggle provision described above will typically provide that the following changes will apply when the Toggle switch is flipped:
Remove any non-person beneficiary as a beneficiary of the trust.
Remove any possible individual beneficiary older than the Designated Beneficiary as a possible beneficiary of the trust.
Restrict any power of appointment over trust assets to be exercisable solely in favor of individuals younger than the Designated Beneficiary.
A non-generation skipping exempt Conduit Trust (where IRA/Plan distributions are all paid to the Designated Beneficiary) need not limit the exercise of any power of appointment to individuals younger than the Designated Beneficiary.
For example, a trust that provides that all IRA/Plan distributions are to be paid to the Surviving Spouse, and that a charity is a permissible beneficiary, could be changed by having the spouse disclaim the right to receive all IRA/Plan distributions and any power of appointment that he or she has over the IRA/Plan distributions (without disclaiming the right to receive amounts as needed for health, education, maintenance and support), and the charity can be paid out in full, or paid enough so that it agrees to no longer be a beneficiary as of the Designation Date. If the other requirements for an Accumulation Trust are met, then this will be considered to have been successfully toggled to an Accumulation Trust.
Toggling from a Conduit Trust to an Accumulation Trust has several benefits, including creditor protection and asset preservation, especially if the beneficiary is young, unsophisticated, or may have creditor, spendthrift, or divorce risk factors. Several states (including Florida) provide statutory creditor protection for inherited IRAs/Plans held by beneficiaries in their individual name. However, any distribution from a retirement plan will not be exempt from the beneficiary’s creditors in some states. As further discussed in Chapter One, Section I (G)(1) of this handbook, Florida Statute Section 222.21(2)(c) provides that any money or other assets, or any interest in any fund or account that is creditor exempt, does not cease to be exempt by reason of death or a direct transfer or eligible rollover to an inherited IRA/Plan. This is one reason why using an Accumulation Trust will often be favored over leaving an IRA/Plan outright to a Designated Beneficiary or to a Conduit Trust.
Conversely, toggling from an Accumulation Trust to a Conduit Trust could possibly occur by giving Trust Protectors the ability to mandate distribution of all Required Minimum Distributions made to the trust to a specified Designated Beneficiary. This could be beneficial in situations where a beneficiary, who once had creditor issues, is free of such issues within 9 months after the death of the Plan Participant. However, the authors are not aware of any ruling or precedential authority which would permit the toggling of an Accumulation Trust into a Conduit Trust, and the IRS might be less inclined to approve such toggling and may claim that this constitutes the addition of beneficiaries or trust provisions, as opposed to a disclaimer or removal.
Caution should be exercised when employing the toggling strategy. The endorsement of this strategy by the IRS has occurred only under Private Letter Rulings, which are not precedential except as to the requesting party. Thus, it is possible that the IRS could take the position that toggling powers held by Trust Protectors could cause a Conduit Trust to be an Accumulation Trust, even when not “toggled” on the basis of asserting that it is possible that distributions could be made to a person other than the Designated Beneficiary of the Conduit Trust before pulling the Toggle switch. This is one reason to not have beneficiaries other than individuals the same or younger ages than the intended “Designated Beneficiary.”[3]
[1] “All amounts distributed from A’s account in Plan X to the trustee while B is alive will be paid directly to B upon receipt by the trustee of Trust P…no amounts distributed from A’s account in Plan X to Trust P are accumulated in Trust P during B’s lifetime for the benefit of any other beneficiary.” Reg. § 1.401(a)(9)-5, A-7(c)(3), Example 2
[2] PLR 200432027 – 200432029 held specifically that the trust was a valid conduit see-through trust and that “The use of Trust T to pay expenses associated with the administration of Trust T (in effect, expenses associated with the administration of the Trust T assets for the benefit of Taxpayers B, C, and D) or the possibility, under these facts, that Trust T assets may be required to be used to pay an estate taxes due…does not change this conclusion.”
[3] Howard M. Zaritsky’s “The Year in Review” annual write-up for Bloomberg/BNA Tax Management Estates, Gifts & Trusts Journal includes the following discussion of Private Letter Ruling in Footnote #2:
Private letter rulings (PLRs) and technical advice memoranda (TAMs) are not legal precedents. §6110(k)(3). They may, however, show how the Service might address a similar case, and they have been cited and discussed by several courts. See, e.g., Wolpaw v. Commissioner, 47 F.3d 787 (6th Cir. 1995), rev’g T.C. Memo 1993-322 (taxpayers can rely on 20-year-old PLR, absent definitive regulations); Estate of Blackford v. Commissioner, 77 T.C. 1246 (1981) (noting that the Service litigation position was contrary to a prior PLR); Xerox Corp. v. United States, 656 F.2d 659 (Ct. Cl. 1981) (stating that PLRs are useful in ascertaining the scope of the doctrine adopted by the Service and demonstrating its continued and consistent application by the Service); Fanning v. United States, 568 F. Supp. 823 (E.D. Wash. 1983) (noting that a distinction between the facts of the instant case and those of prior cases had been cited in a TAM, and that TAMs are often relied upon by the courts).
Once the required pledge level is reached, we can all gather for a celebration. Currently, the Stephen A. Lind Eminent Scholar Chair, Fund number F019521, held at the University of Florida Foundation, has nearly $400,000 in contributions and pledges. Gassman Denicolo and Crotty are proud to be donors to this and to the Calfee chair, which is pictured below.
You can make an online contribution to the Stephen A. Lind Eminent Scholar Chair in Federal Taxation by clicking here or by calling the Gift Processing office at 1-877-351-2377.
What’s New with Law School Programs
This week, the article of interest is “Law Students Leave Torts Behind (for a bit) and Tackle Accounting” by Elizabeth Olson. This article was featured in The New York Times DealBook on February 12, 2015.
Instead, they spent the “boot camp” sessions learning about accounting principles, reading financial statements, valuing assets and other basics of the business world – subjects that not long ago were thought to have no place in classic law school education.
Law schools as diverse as Brooklyn, Cornell, and the University of Maryland are offering focused sessions that aim to bring students up to speed on business practicalities.
The 124 firms that responded to the survey called “What Courses Should Law Students Take? Harvard’s Largest Employers Weigh In,” listed accounting, financial statement analysis, and corporate finance as the best courses to prepare lawyers to handle corporate and other business matters.
The second article of interest this week is “Law School Program Emphasizes Practical Skills” by Joe Palazzolo. This article was featured in The Wall Street Journal on January 4, 2015.
In recent years, as more clients have refused to pay for young lawyers to learn on the job, many law schools have tinkered with their curricula, making courses more practical and less theoretical as graduates compete for fewer openings.
The NSA is now listening in on the string tied between two tin cans. They’ve discovered that Bobby was totally lying when he said he kissed Sally in the treehouse.
100 Year Old Defendant Behind on Taxes Tries Stalling Tactics Against the US Government – “One of us is going to go eventually,” he said. “I’m betting it’s them. But I’m a winner either way.”