First, I want to start by saying I spent way too much time thinking about why Donna and
Wendy do not like each other. It may seem wasteful (I know), but I am so used to
meeting new clients and having them spill their entire life’s history to explain what they
want done and why they want it done in that way. It is a little jarring to have so little
information provided but that is just me. Unfortunately, because they do not get along
and Ernie has already passed on by the start of this question, there is no way to know his
true wishes. So, we must work with what we have.
So, what do we have, what are the facts? We have 1 hard piece of evidence, the
established estate statement which benefits Wendy’s claims as a spouse and Donna’s
handwritten napkin. A piece of circumstantial evidence that cannot withstand the calls
for omittance from evidence in the court of law without any additional supporting
evidence, which Donna does not have. Federal Rules of Evidence rule 801(c)(2) states
that Hearsay means a statement that a party offers as evidence to prove the truth of the
matter asserted in the statement. This statement being her late father’s updated late
minute will and his final words to her leaving her his entire estate. And rule 401(a) states
that all relevant evidence must make a fact more probable than it would without it. So,
with no witness statement, notary seal, or statement from a forensic handwriting
specialistic who can say with certainty that the writings on the napkin match those of the
late Ernie, the napkin is inadmissible.
Based on the laws in Wendy favor, she would be entitled to no less than 50% of the
entire estate (IRS code 2010 (c)(4). Donna’s claims would be more difficult to secure.
Using the hypotheticals in the assignment, if Wendy gets all $20M, $10M set aside as
inheritance liability and $10M gifted would leave Wendy with an estate tax of $0.00 after
the exemptions and if his daughter Donna gets all $20M, her taxable estate amount
would be $8.82M in 2018 with a tax debt of $3.528M and an after-tax value of $16.472M.
It would be great to believe that Wendy & Donna could reach a compatible settlement
agreement in probate court. Having finally put aside their torrid history of once being
best friends in college until Donna brought Wendy home during senior year winter
holiday and Wendy met Ernie. By Spring break Wendy dropped out of school and was
picking out rings with Ernie in tow. And by June, they made it back from their
honeymoon just I time for Donna’s graduation. Maybe I have been watching too many
Kdrama’s, but I digress. As I said before I might have gotten a little too invested in the
working narrative for this discussion. Trying to take into consideration as to the ‘Why’?
Because a lot of the troubles in this case could be totally avoided if they got along, things
would be a lot simpler.
If Wendy and Donna could agree to sharing the full estate each taking a 50% stake, the
taxable estate, and the tax debt of the inheritance for Donna would be fully exempt.
Because under the law as Ernie’s surviving spouse Wendy’s entire $10M share would be
tax free as a part of the estate’s gross assets and liability, and Ernie’s entire $12.92
unified exemption would be used towards Donnas $10M share thus making her
inheritance tax free as well.
However, if believing Donna’s (and my) assumptions are correct and Wendy married
Ernie for his money. A more likely settlement outcome would be Wendy receiving a
larger share than Donna, even if there is a chance for monies to be lost to tax liability, all
due to their poor relationship. Using that as a base and if their probate settlement were
to come to a 75/25% split. Wendy’s would receive her 50% of the estate, $10M as a
surviving spouse and the remaining $5M awarded her would be below the exemption
threshold therefore both Wendy’s $5 and Donna’s 25% or $5M would also be tax free as
of none of Ernie’s unified credits have been used.
Only in the speculative events where one triumphs over the other and chooses to
proceed without sharing any of the estate with the other, does an estate tax generate
and result in a balance due to be paid under regular inheritance tax law, and that more
likely in the cases were Donna’s legal team defeats Wendy’s. Because of Wendy’s rights
as spouse a surviving.
One of those cases being Donna’s legal team successfully nullifying Ernie and Wendy’s
marriage license (again deep diving into my expanded narrative). Having only been just
married in summer 2016, Ernie dying in the late Summer 2017 & being able to prove
Wendy’s infidelities throughout their entire time together, Donna’s Team’s work
awarded her 100% of her late father’s estate. Unfortunately, by the time probate ended
in late February and early March the estate had lost almost ¼* of its value due to severe
decreases in oil prices.
And knowing she would be faced with a large bill after her legal battle came to an end,
Ernie’s Executor (Donna’s God Father----but we will not get into that right now) chose to
use the Alternative Valuation Date to help combat the expected tax debt. (In my
narrative) The Estate is now valued at $15.65M, placing Donna’s inheritance well over
the 2018 unified credit limit of $11.18M. That will leave her with a $4.47M taxable
estate, a $1.788M tax liability and an after-tax value of her inheritance at $13.862M
under the 2018 laws.
Using this same scenario under the 2023 UCL of $12.92M, Donna’s taxable estate would
be $2.73M, that times the unchanged 40% tax, leaves a tax debt of $1.092M and the
after-tax value of $ 14.558M. (And since I have just completed the tax season) When
using the UCL of 2022, Donna’s would have faced a much higher tax liability due to the
limit being just $12.06M. The taxable estate would have been $3.59M with a federal
estate tax debt of $1.436M and a total after tax value of just $14.214M.
Following this week’s narrative but adjusting to my own totals if Wendy’s legal team
won, and the estate’s value decreased to $15.65M using the same AVD. The Executor
using Wendy’s spousal claim would be able to receive 50% of her awarded share through
the gross estate under IRS section 2010(5)(a) with the remaining 50% or $7.825M being
gifted to her would fall well below the UCL for 2018, 2022 and 2023 of $11.18M,
$12.06M and $12.92M respectfully. All of which would result in a $0.00 federal estate
tax debt.
I saved the ‘conflict’ question for last because as I contemplate my future as a Tax
Attorney, I know conflict of interest is a matter that I will inevitably have to face at some
point in my career. However, trying to objectively debate the grounds of for and against
in this case without just repeating what I have read already is difficult. I can honestly say
if I got emotionally attached to either side, I will have to recuse myself from the other
side. It is different in tax and financial matters but when it comes to the law, I can think
of several reasons why joint representation would not benefit either Wendy or Donna.
(Personal narrative aside). Both have vastly different desired outcomes in this case. In my
opinion, even with written consent, if a clause is not added to prevent retaliatory suits
on false claims of negligence or damages for loss of claims the representation cannot
take place. And I do not believe an exception can be taken in this case for an individual
or small law office. There would be a conflict of interest if one were to try and duel
represent this case.
To be able to fairly represent both Wendy and Donna and not compromise their
representation, only a large legal firm can accomplish such a feat. A firm large enough
where each client’s legal team can independently focus solely on their clients’ needs
without worrying about the consequence of tactic. So, the dual representation would be
in the firm’s name alone. There would not be any crossover between legal team
members before the clients or the judge.
References:
Anderson, K.E., Pope, T.R. & Rupert, T.J. (2023) Taxation 2023 Corporations,
Partnerships, Estates & Trusts Pearson. (Chpts 13)
Internal Revenue Service. (n.d.). Estate and gift taxes. (4/26/2023)
(https://www.irs.gov/estate-and-gift-taxes)
Internal Revenue Code §§ 2010(c)(3);(c)(4);(5)(a) (4/25/2023)
https://www.govinfo.gov/content/pkg/USCODE-2015-title26/pdf/USCODE-2015-title26-
subtitleB-chap11-subchapA-partII-sec2010.pdf
Federal Rules of Evidence Rule 401(a), 801(a, b & c)
