Case Examination

In a recent opinion, a Minnesota Appellate Court rejected a petition to revise a trust’s terms to permit the early distribution of trust assets to beneficiaries. The court also rejected a request by the petition for the trust to pay attorney’s fees and held that the litigation was neither necessary nor existed for the benefit of the trust. This opinion functions as a reminder of the high threshold that a person must overcome when beneficiaries attempt to revise a trust’s distribution terms.

The Court’s Decision

In Skarsten-Dineman v. Milton, a trust settlor established a revocable naming his six children as the primary beneficiaries following his death. Assets were to be passed to the man’s children until three of them had passed away then the trustee was to end the trust and pass on the principal equally divided to the surviving children.

In the recent case, Heiting v. the United States, an appellate court denied a claim-of-right deduction in accordance with Section 1341 of the Internal Revenue Code. The case originated from an effort by a taxpayer to receive a tax refund from the Internal Revenue Service. Following a denial of the refund by the Internal Revenue Service, the taxpayer initiated a lawsuit pursuing a tax refund of the taxes paid on an unauthorized stock sale made by the grantor trust.

Claim-of-Right Deductions

The claim of right deduction is a regulation that governs how income recognition is time. The law decides when income is taxed instead of whether it can be taxed. The regulation results from Congress’s implementation of an annual accounting period. If a person who pays taxes receives earnings under a claim of right and no restrictions exist regarding the disposition, the individual has received income to which he or she is required to return. This is true even though the person may claim that he or she has no entitlement to retain the funds.

Articles Posted in Case Examination

Minnesota Case Emphasizes Important Trust Management Lessons

Lessons from Heiting v. the United States: Utilizing Claim-Of-Right Deductions