Recent Developments


Charitable Bequests Must Follow the Rules to be Deductible:

The James D. Galloway Revocable Living Trust provided that the residue of the trust would pass in four equal shares to his son, a relative, and two charities.  Each of the four beneficiaries was to receive 50% of their one-quarter share in early 2006 and the remainder on January 1, 2016, when the Trust was to terminate. The trust provided that if  an individual beneficiary dies before then his share would be distributed to the remaining beneficiaries. The estate tax return claimed an estate tax charitable deduction under Code Section 2055 based on the portion of  assets anticipated to ultimately be distributed to the charities. The IRS denied the deduction stating that the Trust was a "split interest trust" that divided the same property between charitable and non-charitable beneficiaries. No portion of a trust with equal charitable and non-charitable beneficiaries qualifies for an estate tax contribution deduction unless the trust qualifies as a split-interest trust. This trust didn't. Galloway v. U.S., (CA 3 6/21/2007) 99 AFTR 2d Para. 2007-1115


Dissolved Corporation:

A corporation which distributed asbestos products was dissolved in 1999. The plaintiff sued the dissolved corporation which then sought to bring the decedent's employer into the case (implead). The employer argued that since the corporation had been dissolved it could not implead him. The court held that the dissolved corporation could sue or be sued under New York law (BCL Sec. 1006(a)(4)) so that the action to implead the employer was not barred by the corporation's dissolution years earlier. Tedesco v. A.P. Green Industries, Inc., 8 N.Y.3d 243 (Feb. 22, 2007).


LLC Interest Not a Security:

The plaintiff claiming he was defrauded on a real estate deal and argued that the LLC membership interests sold to him were investment contracts under the Exchange Act. Applying the landmark analysis of SEC v. W.J. Howey Co., 328 U.S. 293 (1946) the court held that interests in an LLC were not a "security" since the claimant's control over the LLC checking account, and veto power over the sale or encumbrance of the asset were inconsistent with the position that he was a passive investor (for security not tax law purposes).  The fact that the court found him to be a "babe in the real estate woods", did not change this conclusion. Therefore, the LLC interests were not investment contracts. Endico v. Fonte, 07 Civ. 2398 (4/24/07).

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