In Uncategorized on 10/13/2016 at 16:20

Unfortunately for Harvey C. Hubbell Trust, Harry J. Finke, IV, Trustee, 2016 T. C. Sum. Op. 67, filed 10/13/16, for the year at issue Clarence E. Caesar and Frances Cleveland were, in the words Buck Ram’s ginormous 1956 hit for The Platters (of glorious memory), still around.

And they got a munificent $1500 between them for the year at issue from the trust aforesaid. The late Harve Hub left $2 million in 1960, when the $125 per month that was the aggregate limit the trustees could give Clarence and Frances could actually buy something. If I had $125 per month in 1960 I would have lived like a king.

Poor Finke IV gets nailed by IRS for making charitable contributions unauthorized by the will which created the trust.

The language that sinks Finke IV is the termination of the trust, Item V (the individual beneficiaries are dealt with in Item IV). The trust “…shall terminate upon the death of the last person receiving benefits therefrom, except that if in the judgment of the then Trustees it is advisable to continue the trust, it may be continued for not longer than ten (10) years after such death. All unused income and the remainder of the principal shall be used and distributed, in such proportion as the Trustees deem best, for such purpose or purposes, to be selected by them as the time of each distribution, as will make such uses and distributions exempt from Ohio inheritance and Federal estate taxes and for no other purpose.” 2016 T. C. Sum. Op. 67, at p. 4.

Finke IV says that for years his predecessor trustees made charitable gifts after they paid the individual beneficiaries what the late Harve Hub said to give them.

Judge Whelan says that isn’t good enough. Our old chum Section 642(c)(1) requires that a charitable donation made by a trust, to be tax deductible, must be made “pursuant to the terms of the governing instrument.” 2016 T. C. Sum. Op. 67, at p. 12.

Finke IV claims the will is ambiguous. And they have a State Court decision saying the will does authorize the charitables.

Not good enough for Judge Whelan, even though caselaw says that giving the trustee discretion doesn’t mean that a charitable isn’t made “pursuant to the governing document.”

“It is not until after the death of the last annuitant, when the trust terminates…, that the trustees are permitted to continue the trust, and to use and distribute unused income and the remainder of the principal for a purpose ‘exempt from Ohio inheritance and Federal estate taxes and for no other purpose’.  Thus, items IV and V conserve the assets of the trust by authorizing only the annual annuity payments required by item IV until after the annuities have been paid in full.

“This conservative approach is consistent with the fact that Mr. Hubbell’s will provides not only for the creation of the trust, but also for the creation of a marital trust for his wife, and directs in item II that the marital trust be given one half of his property after the payment of his debts.  If the marital trust had come into existence, then the trust would have received less than one-half of the amount it actually received.  Representatives of the trust fail to take the marital trust into consideration in their argument.  We also note that item IV provides that the trustees shall make the annual annuity payments ‘out of net income if available, otherwise out of principal’ and thereby suggests a concern about whether the assets of the trust would be sufficient to generate enough net income to pay the annual annuities.” 2016 T. C. Sum. Op. 67, at pp. 19-20.

If the late Harve Hub wanted the trustees to be charitable without impairing the payments to the individual beneficiaries, he could have said so, and there’s learning from the Supremes that tells the drafter of a will or trust instrument exactly how to do it.

The late Harve Hub didn’t. Finke IV wants Judge Whelan to rewrite the will. That’s a nonstarter, so IRS wins.

The problem, of course, is that the dollar caps for distributions to the individual beneficiaries became laughable. As inflation took over, the trust was rolling in taxable money. And the explicit dollar limits kept the individual beneficiaries from suing.

Goes to show that micromanaging from the grave doesn’t work, especially over decades. The micromanager is not “still around.”


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