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).