Tuesday, March 24, 2015

"However, according to the complaint, the 2013 will was drafted 'negligently and carelessly,' resulting in a trust that did not qualify for the federal estate tax charitable deduction."

Artnet's Rozalia Jovanovic reports on a lawsuit by the estate of legendary collector Robert Ellsworth, “against attorney George L. Bischof and his firm for negligence in creating a charitable trust in Ellsworth's will that has resulted in $25 million in taxes for Ellsworth's estate.”

It’s a little hard to tell from the report what exactly happened, but it seems like the trust was not a so-called “qualified charitable remainder trust” -- meaning the non-charitable interest (the part that went to Hashiguchi) was neither an annuity nor a unitrust interest.  Instead, it was cast as a discretionary trust,  for which no charitable deduction is allowed.

On the other hand … it’s possible that there was no error here.  The taxes on the 2010 will, where everything passed to Hashiguchi, and the 2013 will, where the assets pass to the non-qualified charitable remainder trust, would be the same.  Perhaps Ellsworth still wanted the entire corpus to be available to Hashiguchi during Hashiguchi’s lifetime, which would not be the case with a charitable remainder trust, and simply wanted to designate the charities which would receive any corpus not consumed by Hashiguchi during his lifetime.  It’s true that $25 million is a stiff price to pay to ensure that the entire trust corpus could be made available to Hashiguchi should he need it, but the result is no different than under the 2010 will, where Hashiguchi gets everything outright in the first instance.

Will be interesting to see how this one develops.