UNDUE INFLUENCE PERMISSIBLE FOR TRUST REVOCATIONS [FLORIDA]

If an individual exercises undue influence in regard to the creation of a trust, the trust can be voided. Interestingly, if an individual exercises undue influence to convince a grantor to revoke his or her revocable trust, no challenge to the revocation is allowable.

Both situations involve improper influence that results in a change in a grantor’s estate planning disposition. Nonetheless, Florida’s 4th District Court of Appeals recently asserted that one type of influence is subject to challenge, while the other is not.

This unusual state of affairs was premised by the appeals court by the Florida Supreme Court case of Florida National Bank of Palm Beach County v. Genova, 460 So.2d 895 (Fla.1984). Genova provided that a grantor’s right to revoke his or her revocable trust should not be subject to challenge on undue influence grounds. Many believed that this case could be limited to situations when the grantor was still alive – that is, no challenge on undue influence grounds would lie while the grantor was living. However, the 4th DCA rejected the argument that Genova was so limited, and instead also applied its rule to reject an undue influence challenge to a revocable trust revocation after the grantor was deceased.

MacIntyre, ex rel. Wedrall Trust v. Wedell, --- So.3d ----, 2009 WL 1393375, Fla.App. 4 Dist., 2009.

REVISED “INVERSION” REGULATIONS

NOTE: The following discussion relates to a narrow area of tax law relating to the transfer of a U.S. corporation or its business to a foreign corporation, so it may be of interest only to a small segment of readers.

Section 7874 was enacted to foreclose many tax benefits from the transfer of a U.S. corporate business to a foreign corporation or the insertion of a foreign holding company as owner of U.S. corporations. The rules also apply to similar partnership transfers. Two different sets of rules apply, depending on the percentage ownership in the foreign entity that is acquired by former owners of the U.S. entity. The IRS has now issued additional regulations regarding the application of these rules, which regulations apply to acquisitions completed after June 9, 2009.

The following is a summary of the items covered in the new regulations:

1. The use of two or more entities to acquire the U.S. entity as a method of avoiding the anti-inversion rules is prohibited;

2. Guidance on how the rules apply when the foreign corporation is acquiring more than one U.S. entity is provided;

3. Publicly-traded foreign partnerships may be treated as a foreign corporation under the rules, even if public trading does not being in the two-year period after the acquisition;

4. Treating interests in entities as equity interests under the rules if they are economically equivalent to equity;

5. Clarification of how the rules apply when the acquisition is not of a U.S. entity, but of  a foreign entity that owns a U.S. entity;

6. Guidance as to when interests of creditors may be treated as equity interests under the rules;

7. The taking away of a safe harbor and guidance as to what constitutes substantial business activities for purposes of the exception to the rules where the foreign corporation has substantial business activities in its home country; and

8. Expansion of when stock of the foreign entity is treated as acquired “by reason of” holding interests in the domestic entity (for purposes of determining whether Section 7874 will apply), to include taxable and nontaxable distributions and other transactions.

JULY 2009 APPLICABLE FEDERAL RATES