In Estate Planning Awareness, General Estate Planning
As I read today’s Baton Rouge Advocate, there was yet another story about the legal wranglings going on between Tom Benson, the owner of the New Orleans Saints and Pelicans, and his child, Renee Benson, and grandchildren, Ryan and Rita Leblanc, who allege he is improperly cutting them out of their inheritance. In a prior Advocate article, it is alleged that he was trying to remove the sports’ teams from a trust that his children are the beneficiaries of. “How can he do that?” you might ask. After all, it is an irrevocable trust, isn’t it? This article will detail the strategy he is trying to employ and also offer some commentary about its likelihood of success. Unfortunately, I do not have a copy of the trust document itself from which I might make other relevant observations. In fact, I do not even know if the trust is subject to Louisiana law as it is possible that the law of another state applies to it. Rather, this article is written based on my general knowledge of trust and estate law as an attorney who has been recognized by the Louisiana Board of Legal Specialization as a specialist in estate planning and administration. Louisiana was late to the game of trust law. While trusts had been a part of the common law of England and the other states for centuries, it wasn’t until 1964 that Louisiana adopted a trust code that finally recognized trusts as being a “legal” way to transmit property. Prior to that time, it was questionable whether they were allowed. Louisiana’s legal tradition saw trusts as an improper giving of property to one person and then to another – what was known as a prohibited substitution. However, since the advent of the trust code, trusts have been legal in Louisiana. Due to their short history in the state, there is scant court-created law regarding them compared to the other states. Certainly, Louisiana’s trust code recognizes revocable and irrevocable trusts. As an estate planning lawyer I use these tools all of the time in my planning for clients. When a trust does not specify that it is revocable, then it is deemed to be irrevocable. A trust is a relationship between parties where one of them (known as the Settlor in Louisiana but the Grantor in many states) gives property to another of them (known as the Trustee) to hold for the benefit of the beneficiary. The assets are usually to be distributed at a later date. When a trust is irrevocable, once it is created and the beneficiaries named, they cannot be changed. In the Benson saga, an irrevocable trust was apparently created by Benson for the benefit of his daughter and grandchildren. The property he gave to the trustee for their benefit consisted of the Saints and Pelicans sports teams and some other assets. These types of trusts are often used for estate tax planning purposes. In addition to removing the assets placed in the trust from the Settlor’s (or Grantor’s) estate for estate tax purposes, the trusts often allow the Settlor to continue to pay the income tax on the assets placed in the trust. This is to further reduce the value of their estate for tax purposes. It is possible to do this as the estate tax and income tax laws are not congruent and a trust that removes the property for estate tax purposes can be considered as still owned by the Settlor for income tax purposes. This type of trust is called an “intentionally defective grantor trust.” However, it is not defective at all – in reality it is very effective at achieving its purposes. In order to become an “intentionally defective grantor trust,” the lawyer who drafts it has to put some special language or some special powers in it. In other states there are several special powers that are often used. Here in Louisiana, the most common power we use to create an “intentionally defective grantor trust” is for the Grantor (remember this person is called the Settlor in Louisiana) to reserve the right to substitute assets of an equal value for the assets that are in the trust. In my trusts, I do not typically give this power to the Grantor but to a third party who is not “related or subordinate” to the Grantor in the language of the tax law. Apparently, this right to substitute assets of an equal value is what Tom Benson is trying to do in this case. His daughter and grandchildren argue that the assets he is trying to replace the Saints and the Pelicans with are not truly of equal value. Further, the Trustee, who has a fiduciary obligation to Benson’s daughter and grandchildren, is refusing to allow this to occur right now. He is probably concerned that if he allows this substitution he could open himself up to liability. Another famous case involving a prominent New Orleans family, the Schwegmann family, might be weighing on the trustee’s mind. In the Schweggman case, John F. Schwegmann was held personally liable as the trustee of a trust for his half-sister because he failed to act in her best interest as is required of a trustee. Although the issues in that case are different than in the Benson case, the trustee is wise to be very careful with regard to his duties to the beneficiaries. Again, I have no knowledge of the particular trusts in the Benson case, but as a general rule, attempting to replace trust property with something that is not truly equal could run afoul of both Louisiana’s substantive trust law and the tax law. This is something a prudent Settlor might want to steer away from. Additionally, there may be other legal theories that might be used to invalidate the removal of the property from the trust. But, those will have to wait for another day.

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