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Challenges to a Will or Trust Part IV – Undue Influence, Evidence and Inferences

Challenges to a Will or Trust Part IV – Undue Influence, Evidence and Inferences

Cases involving undue influence often include allegations of diminished mental capacity – i.e. that the alleged victim was suffering from Alzheimer’s, dementia or another mental disorder – and therefore was susceptible to the influence of another. The fact that an individual was susceptible to undue influence at one period of time is not, however, be conclusive as to their state of mind on another date. See Martin v. Martin, 687 So. 2d 903 (Fla. 4th DCA 1997). In Martin, court considered a will executed in August 1989 and a trust in May 1991. The Court held that that a determination the victim was susceptible to undue influence on one of those dates was not conclusive as to his state of mind on the other. As a result, litigants pursuing a claim for undue influence should be prepared to present evidence sufficient to raise the presumption of undue influence for each separate testamentary change or gift that is challenged.

Recently, a Florida court has approved of the use of an inference of undue influence where the influence did not relate to the testamentary change at issue.   See Blinn v. Carlman, 159 So. 3d 390 (Fla. 4th DCA 2015). In finding that the plaintiff had proven undue influence in the execution of a will, the court relied on a voicemail which recorded the defendant exerting influence, in part, by disparaging the plaintiff. Although that conversation that was recorded did not relate to the changes in the decedent’s will, the court reasoned that “if appellant were so bold as to openly display such influence over [the decedent], then the court could reasonably infer that similar or greater influence was occurring in the dark during their marriage.” Id. at *3. Thus, it may be possible to prove undue influence through generalized evidence showing a pattern of influence that is not directly tied to the challenged testamentary changes or gifts during the time those changes or gifts were made.

Custodial IRAs for Your Child or Grandchild

Custodial IRAs for Your Child or Grandchild

With summer having just ended, now is the time to discuss the importance of saving for retirement with your children and grandchildren. Many parents and grandparents will have wanted their children and grandchildren to work over the summer so that they appreciate the effort it takes to earn an income. Therefore, many will have worked a summer job; that is by itself an important step to understanding the value of the dollar and the rewarding feeling of earning one’s own income. The money they have earned is usually spent (or saved) however they would like. While there is nothing wrong with this, the savvy parent or grandparent will take this opportunity to shift their focus to their future. By creating a custodial Individual Retirement Account (an “IRA”), the child or grandchild that is a minor may begin to learn about saving money, investing assets, publicly traded markets, the benefits of income tax deferral, retirement matching programs, and the time value of money.

So long as the minor has earned income for the year, they may create and/or contribute to their own IRA (either a Traditional IRA or a Roth IRA). Legal title to the account will rest in their legal or natural guardian as custodian of the IRA that is held for their benefit. The amount that may be contributed to the custodial IRA is limited by the lesser of the usual annual contribution limits for IRAs (i.e., Five Thousand Five Hundred Dollars ($5,500) in 2015), or the total amount of the minor’s earned income in that year. Also keep in mind that most financial institutions have a minimum account balance requirement. Often this could be One Thousand Five-Hundred Dollars ($1,500) or more, which may be less than what the minor earned during their summer job. There are however financial institutions that only require a One Hundred Dollar minimum balance ($100).

For example, let’s say a grandchild earned Two Thousand Dollars ($2,000) this summer. The grandchild has several options, such as: (1) keep the Two Thousand Dollars ($2,000) and do with it what they will, (2) contribute all or a portion of it to their custodial IRA, (3) keep all of it, while a parent or grandparent makes a gift to the minor that may be used as a contribution to their custodial IRA, or (4) a combination of the second and third options.

To illustrate these options, we will describe the second, third, and fourth scenarios. The second scenario will not be very appealing to the minor. That is natural, as they just worked very hard for their income (perhaps for the first time in their life) and the thought of saving the money for retirement is a foreign concept to them. Most minors will need some encouragement to get excited about retirement savings. The third scenario is the “have your cake and eat it too” option. There is nothing wrong with that in this context. The parent or grandparent may just wish to help start their retirement savings process and hope that it will engage the minor and turn on a light bulb for them. However, the fourth scenario is the most likely to cause the minor to become actively engaged in the discussion about saving and investing for their future, since they have skin in the game now. Their grandparent could talk with them and explain that if they agree to set aside One Thousand Dollars ($1,000) of their own money for their future by creating an IRA, then the grandparent will also give the grandchild One Thousand Dollars ($1,000) for that purpose. The grandchild has One Thousand Dollars ($1,000) of spending money and Two Thousand Dollars ($2,000) for their retirement.

The next big decision is whether to create a Traditional IRA or Roth IRA. If the minor is being claimed as a dependent on an adult’s income tax return, then you should first check with the CPA preparing that adult’s income tax return. It is likely that the minor would not be able to claim an income tax deduction for contributions to a Traditional IRA. Therefore, a Roth IRA is usually the preferred choice. Moreover, once the minor begins taking their Required Minimum Distributions (in the distant future), the withdrawals will be income tax free and will have had forty (40) or more years to grow tax free. For instance, assuming an average rate of return of six percent (6%), that Two Thousand Dollar ($2,000) contribution would become Twenty Thousand Five Hundred Seventy One Dollars ($20,571) forty (40) years later. If the minor continues to make annual contributions to their IRA, this growth only compounds over time.

It is also important to remember to fill out the beneficiary designation for the custodial IRA. Think through who is the likely choice as primary and contingent beneficiaries for the minor. If you feel the minor is mature enough to take part in this discussion, then ask them their opinion and desires on the matter. After all, the minor will eventually become owner of the IRA once the custodianship ends.

Assuming that the parent or grandparent does make a gift to the minor, then what are the tax consequences to the donor? Because the donor would be making a cash gift to the natural or legal guardian of the minor, for that minor’s benefit, it will qualify for the Gift Tax Annual Exclusion since it is a present interest. That means that the donor may give up to the maximum contribution for the custodial IRA ($5,500) (assuming that the minor earned at least that much income) and because that amount is less than the Gift Tax Annual Exclusion amount i.e. Fourteen Thousand Dollars ($14,000) in 2015, it will be excluded from being a taxable gift, will not reduce the donor’s Estate or Gift Tax Exemption Amount, and no Gift Tax Return (Form 709) will be required to be filed (assuming the donor made no other taxable gifts).

If you would like to discuss this, or any other gifting strategy for the benefit of minors, please feel free to contact us and we will be happy to go over your options with you.