- University of Florida College of Law, L.LM. (Taxation), graduated 1978
- Hastings College of Law, JD, graduated 1977
- Trinity University, BA, graduated 1975
- California, 1978
- Probate Attorneys of San Diego - member
- San Diego County Bar Association - member
- State Bar of California - member
- Triple Nine Society - member
Recognized in The Best Lawyers in America for work in:
- Trusts and Estates
Areas of Expertise:
- Estate Planning
Attorney Practice Areas
Attorney Case History
Recovering on a claim the clients did not know they had
In Year One I met with a couple for routine estate planning. I learned that the wife's mother was the 50% income beneficiary of an $18,000,000 testamentary trust established by the wife's great grandfather, on his death in 1949. The trust provided for distribution of income only to the decedent's only child for life, distribution of income only to the decedent's two grandchildren for life, outright distribution of $250,000 to the issue of each grandchild on death and outright distribution of the balance to the then living issue of the decedent's 6 older brothers. When the decedent wrote his own will in 1942 he had about $550,000 so he thought most of the trust would be distributed to his great grandchildren. The $550,000 consisted, primarily, of stock in IBM. The decedent apparently failed to anticipate the spectacular growth of IBM. Under Delaware law, the absence of any ambiguity precluded a reformation or construction action to alter the trust terms.
I understood that nothing could be done about the trust terms but I wondered why the trustees had never diversified. In Year One $18,000,000 of IBM stock paid a $180,000 annual divided which was quite low for comparable large cap, blue chip stocks. IBM had a policy of accumulating and reinvesting most of its annual earnings. I thought that the retention of the IBM stock was unfair to the income beneficiaries. The family had no interest in paying me to look at the issue saying: Every time a new lawyer hears about the trust, they claim they can fix the mistake and make us rich. We get our hopes up again, spend a lot of money and the lawyer eventually tells us it is hopeless.
A year later, I persuaded them to allow me to look at the income and principal issue on my own time but with a contingency arrangement. I read every Delaware income and principal case. I eventually found a single 1902 Delaware Supreme Court case that adopted what was known as the Pennsylvania Rule that stock sales, stock splits and stock redemptions were principal; cash dividends were income and stock dividends were income. By Year One, the other 49 states had adopted the Uniform Income and Principal Act that provided that stock dividends were principal. Delaware was the only state that did not adopt the Act. The 1902 case was still valid law although it was never cited. I then checked the capital history of IBM's common stock and discovered, that for twenty plus years after the death of the decedent, IBM issued one or more stock dividends most years. The trustees never paid a stock dividend to the income beneficiaries.
I hired Delaware counsel, we filed suit and in Year Four won a motion for summary judgement. Between Year One and Year Four, the IBM stock in the trust increased in value from $18,000,000 to $44,000,000. We recovered $11,600,000 of IBM stock which consisted of the stock dividend shares and subsequent stock splits of the stock dividend shares.
The decedent was an attorney and the author of the Delaware Corporations Code. The three initial trustees were his associates. Two died and were replaced. One of the replacements confessed to a criminal conspiracy to cheat the beneficiaries and gave us one of three original agreements that the original trustees signed in 1949. The agreement stated the rule, cited the case, said the income beneficiaries were unlikely to find out and provided that if the beneficiaries did find out they could give them the stock at that time. The purpose of the agreement was apparently to bind the three to the plan and prevent any one trustee from turning against the others. The reasons for the conspiracy were a combination of personal animosity towards the income beneficiaries and the fact that two of the original beneficiaries were nephews of the decedent. They were stealing for the benefit of their grandchildren.
Recognizing a last minute planning opportunity
I met a family that consisted of an elderly man (the client) in hospice, his daughter, her husband and their two sons. The client had a ninety nine property real estate portfolio held in a limited partnership where the client was an 87% limited partner and a corporation owned 100% by the client was an 11% limited partner and a 2% general partner. I concluded that a prompt gift of the 2% general partnership interest would leave the client with a non-controlling limited partnership interest that would qualify for a minority interest discount that could substantially reduce the estate tax on the limited partnership interest. Because the 2% general partnership interest was held by the corporation, I concluded that the gift could be best implemented by gifting 100% of the stock in the corporation. The gift was implemented in four separate gifts to obtain minority interest discounts of the gifts as follows: 49% to the daughter, 49% to her husband and 1% to each of their sons. Prior to making the gifts, I made certain changes to the partnership agreement.
The gift was implemented using a substituted judgement petition shortly before the client died. The gift of the stock was reported on a gift tax return. The 87% limited partnership interest was reported on the estate tax return. The IRS allowed a 30% discount on the 87% limited partnership interest, a 30% discount on the 49% gifts to the daughter and her husband and a 35% discount on the 1% gifts to their sons. The tax savings from the last minute gift was over $7,000,000.