Justia U.S. 5th Circuit Court of Appeals Opinion Summaries

Articles Posted in Trusts & Estates
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This case stemmed from an indirect gift made by J. Howard Marshall to various family members. After J. Howard's Estate failed to pay gift taxes pursuant to I.R.C. 6324(b), the IRS tried to collect the unpaid gift tax from the donees. The Government subsequently filed suit against the donees, seeking to recover the unpaid gift taxes and to collect interest from the beneficiaries. The Government also sought to recover from two individuals (E. Pierce Jr. and Hilliard), who, as representatives of various estates and trusts, allegedly paid other debts before paying those owed to the Government. The court rejected appellants' argument that the district court erred in finding that the donees incurred an independent interest liability as a result of the donor's unpaid gift tax and held that interest accrues on donee's liability for the unpaid gift taxes and that interest is not limited to the extent of the value of the gift. The court concluded that res judicata barred Eleanor Pierce (Marshall) Stevens from arguing that J. Howard did not make a gift to her because the court determined that Stevens was a donee. Finally, the court held that Hilliard and E. Pierce Jr. knew of the potential liability to the Government and the Federal Priority Statute applies; Hilliard and E. Pierce Jr. are liable under the Federal Priority Statue for the amount of the charitable set-aside; E. Pierce Jr. is individually liable for the value of the personal property he distributed from Stevens's Estate; Hilliard is personally liable for the amount he caused the Living Trust to pay for accounting and legal services on behalf of other charitable organizations; and E. Pierce Jr. did not breach his state law fiduciary duties because E. Pierce Jr. did not owe Stevens's Estate's creditors a fiduciary duty under Texas law. Accordingly, the court affirmed in part and reversed in part. View "United States v. Marshall, et al." on Justia Law

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Petitioners sought review and eventually eliminate the federal estate tax deficiency assessed against the Estate by the Commissioner. The deficiency resulted solely from the Commissioner's disallowance of the "fractional-ownership discount" applied by the Estate in determining the taxable values of decedent's pro rata shares of the jointly stipulated fair market values of 64 original works of art in which decedent owned only fractional interests at his death. The court affirmed and agreed in large part with the Tax Court's underlying analysis and discrete factual determinations, including its rejection of the Commissioner's zero-discount position. The court reversed, however, the Tax Court's analysis that led it not only to reject the quantums of the Estate's proffered fractional ownership discounts but also to adopt and apply one of its own without any supporting evidence. The court held that the taxable values of decedent's fractional interests in the works of art are the net amounts reflected for each on Exhibit B of the Tax Court's opinion. The court affirmed in part, reversed in part, and rendered judgment in favor of petitioners for a refund of taxes overpaid in the amount of $14,359,508.21, plus statutory interest. View "Estate of James A. Elkins, Jr., et al. v. CIR" on Justia Law

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Plaintiff sued her siblings based on diversity jurisdiction, alleging that the siblings, co-trustees of the Brunsting Family Living Trust, had breached their fiduciary duties to her, a beneficiary of the trust. At issue was the scope of the probate exception to federal subject matter jurisdiction in the wake of the Supreme Court's decision in Marshall v. Marshall. The court found no evidence that the trust was subject to the ongoing probate proceedings and concluded that the case fell outside the scope of the probate exception. Therefore, the district court erred in dismissing the case for lack of subject matter jurisdiction. View "Curtis v. Brunsting, et al" on Justia Law

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Maude Williams passed away in May 2000, leaving behind both a substantial fortune and incomplete estate-planning documents. Originally believing this omission precluded transfer of the relevant estate property to a limited partnership, her Estate paid over $147 million in federal taxes. The Estate later discovered Texas state authorities supporting that Williams sufficiently capitalized the limited partnership before her death, entitling the Estate to a substantial refund. In this refund suit, the Estate claimed a further substantial deduction for interest on the initial payment, which it retroactively characterized as a loan from the limited partnership to the Estate for payment of estate taxes. The district court upheld both the Estate's contentions. The court affirmed, holding that the district court correctly concluded that Williams' intent on forming the partnership was sufficient under Texas law to transfer ownership of the Community Property bonds to the partnership. The district court also correctly concluded that the post hoc restructuring of the transfer as a loan from the partnership back to the Estate for tax purposes was a necessarily incurred administrative expense; the Estate retained substantial illiquid land and mineral assets that justified the loan, and the loan did not constitute an "indirect use" of the Community Property bonds. View "Keller, et al v. United States" on Justia Law

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Michael Daniel drove a truck for Cryogenic Transportation to a plant owned by Airgas Carbonics. Upon exiting the Airgas plant, Daniel fatally collided with a passing train operated by Illinois Central Railroad Company. Illinois Central filed suit against Cryogenic Transportation and Michael Daniel's widow, Clydine Daniel, as representative of Michael's estate, seeking recovery for damage to its property resulting from the collision. Clydine filed a counterclaim sounding in negligence and added Airgas as a counterclaim defendant, seeking recovery for damages resulting from Michael's death. The district court dismissed the counterclaim against Airgas for failure to state a claim, concluding that Airgas owed no duty to Michael at the time of the collision. The Fifth Circuit Court of Appeals affirmed, holding that after Michael exited Airgas's plant, Airgas did not owe him a duty under Mississippi tort law. View "Ill. Cent. R.R. Co. v. Cryogenic Transp., Inc." on Justia Law

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ACS and FKI appealed the district court's decision to dismiss their suit for equitable relief under section 502(a)(3) of the Employee Retirement Income and Security Act of 1974 (ERISA), 29 U.S.C. 1132(a)(3)(B), for lack of jurisdiction. ACS and FKI argued that the district court: (1) erroneously interpreted two Supreme Court cases as requiring dismissal of their claims; (2) abused its discretion in denying their motion for a default judgment against one of the defendants; (3) should have concluded that Chapter 142 of the Texas Property Code was preempted by ERISA; and (4) should have deferred to the FKI Plan administrator's determination of liability. Pursuant to the three-part test in Bombardier Aerospace Emp. Welfare Benefit Plan v. Ferrer, Poirot, & Wansbrough, the court affirmed the district court's decision to dismiss the ERISA claims against Larry Griffin, Judith Griffith, Willie Earl Griffin (the Trustee), and the Larry Griffin Special Needs Trust for lack of jurisdiction. Accordingly, the court found it unnecessary to address the remaining arguments. View "ACS Recovery Services, Inc., et al. v. Griffin, et al." on Justia Law

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This case arose when debtors inherited an IRA worth $170,000. When debtors filed for bankruptcy, they sought to exempt the inherited IRA from the bankruptcy estate pursuant to 11 U.S.C. 522(d)(12). The Chapter 7 trustee objected to the exemption, arguing that inherited IRAs did not qualify for exemption under section 522(d)(12). After the bankruptcy court ruled for the trustee, the district court reversed the bankruptcy court. Because the court held that inherited IRAs were exempt from the bankruptcy estate, upon de novo review, pursuant to section 522(d)(12), the court affirmed the district court's judgment.

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This appeal arose from the settlement of a class action where defendant paid substantial sums for res judicata protection from the claims of persons assertedly injured by the toxic emissions of an industrial plant. The monies were allocated among three subclasses, one of which was to receive medical monitoring. Upon the monitoring program's completion, substantial sums remained unused. The district court denied the settlement administrator's request to distribute the unused medical-monitoring funds to another subclass of persons suffering serious injuries. Instead, the district court repaired to the doctrine of cy pres and ordered that the money be given to three charities suggested by defendant and one selected by the district court. The court held that the district court abused its discretion by ordering a cy pres distribution in the teeth of the bargained-for-terms of the settlement agreement, which required residual funds to be distributed within the class. The court reversed the district court's order distributing the unused medical-monitoring funds to third-party charities and remanded with instructions that the district court order that the funds be distributed to the subclass comprising the most seriously injured class members.

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The Estate of Mable Dean Bradley (Estate) filed suit against defendants, excess insurers, in federal district court seeking recovery for defendants' alleged bad faith failure to indemnify the Mariner defendants in an underlying state lawsuit and settlement. At issue was whether the district court properly denied the Estate's motion for summary judgment against both insurers, finding as a matter of law that defendants' respective policies did not require them to defend or indemnify Mariner in the lawsuit. The court held that because the actual facts giving rise to liability in the underlying suit occurred outside of defendants' policies, neither excess insurer had a duty to indemnify Mariner for the judgment or settlement in the underlying state suit. Therefore, there could be no breach of denying coverage. The Estate's bad faith action failed as a matter of law. Accordingly, summary judgment was affirmed.

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This case stemmed from the Chapter 11 bankruptcy filing of a family-owned oil and gas drilling business. The Nancy Sue Davis Trust ("Trust") filed a motion to revoke a confirmation order from the Chapter 11 bankruptcy filing for fraud and alleged that it had recently become aware that former advisers of the family and various representatives of the purchasing entities had engaged in fraud that enabled them to buy out the family's interests far below market value. At issue was whether the plan of reorganization and confirmation order barred the assertion of fraud claims against defendants. The court held that all family members, including the Trust, were continuously represented by sophisticated counsel and could have elected zealously to pursue their remedies under Chapter 11 rather than succumb to the hasty process that occurred. Accordingly, the judgment of the bankruptcy court denying the Trust's motion to pursue its claims against appellees was affirmed.