Question 1: Cyrus, the owner of Eden, Inc., died at the end of 2011. He left all of his assets, including stock in Eden, to his two sons, Adams and Charles. Charles had been involved in the running of Eden, a subchapter S corporation, for many years. He had also been successful at several independent ventures so that his income put him in the highest marginal tax bracket. Adam's interests , on the other hand, generated little income. He had limited involvement with the family, or the family business, for several years. In fact, he had left the country and given up his citizenship a few years before Cyrus' death.
Charles was the executor of the Cyrus' estate. Charles had completed all the work necessary to wrap up the administration of the estate by the end of 2012, but has not distributed its assets or terminated the estate. The estate continues to hold all of the stock of Eden, which barely even after paying Charles' salary. Its liquid assets generate about $10000 of interest income each year.
Near the end of 2014, Adam contacted you about the estate. He would like to have it wrapped up and receive his share of the property. He says that Charles has told him it is better, for tax purposes, to keep the estate open. In that way, the tax paid on the interest income is reduced, and Eden's S selection is not jeopardized. What insight can you provide Adam regarding the continued existence of the estate and the potential tax consequences of its termination?
Question 2: Duncan Bennett, a single parent, wants to leave his entire estate to his only child, Bonnie. He knows Bonnie is extravagant and often spends her money foolishly; therefore, he establishes a trust with a spendthrift provision "to protect Bonnie from her own mismanagement and wasteful habits in spending money." The trust also provides that Bonnie cannot transfer, pledge, or assign her interest in the trust income or principal in any manner and that such interest is not to be subject to any of Bonnie's creditors' claims by attachment, garnishment, execution, or other process of law. Answer the following:
1. Are spendthrift trusts valid in all states?
2. Would this trust be valid in your state? If so, cite the statute. (my state is California)
3. If one of Bonnie's creditors supplies her with property items that are obviously "necessaries," can that creditor reach (obtain) Bonnie's trust income despite the spendthrift clause? See Erickson v. Bank of California, 97 Wash.2d 246, 643 P.2d 670 (1982)
Question 3: Amy purchased 20 acres of land from Ben, since Amy was immediately leaving the country to serve in the Peace Corps for two years and was unable to attend the closing, she asked Ben to deed the property to her close friend, Sally. Ben conveyed the property by deed to Sally in her name. When Amy returns, Sally refuses to turn over the property and claims the property was a gift to her from Amy. Amy denies the property was a gift and demands that Sally return the property.
Answer and explain the following:
1. Since real property (land) is involved in this case, does the Statute of Frauds apply?
2. In this case, can parol evidence be used to determine whether or not a resulting trust is establishment?
3. If Amy and Sally go to court, what methods might a court use to decide whether Sally's claim is correct?
4. If it goes to court, in your opinion, which party would win this case? See Rainey v. Rainey, 795 S.W.2d 139 (Tenn.App.1990)
5. If Amy had died while in the Peace Corps, would the property belong to Sally?