{"id":390,"date":"2010-11-01T22:18:58","date_gmt":"2010-11-02T05:18:58","guid":{"rendered":"http:\/\/fiduciarydutiesblog.com\/?p=390"},"modified":"2010-11-01T22:18:58","modified_gmt":"2010-11-02T05:18:58","slug":"estate-of-cairns-judicial-interpretation-of-five-plus-five-power","status":"publish","type":"post","link":"https:\/\/fresnolawyerblog.com\/?p=390","title":{"rendered":"Estate of Cairns – Judicial Interpretation of Five-Plus-Five Power"},"content":{"rendered":"

Some estate plans make use of a \u201cfive-or-five\u201d provision to help reduce the estate tax.\u00a0 In the recent decision in Estate of Cairns<\/strong><\/a> (Sept. 15, 2010) 188 Cal.App.4th 937, the court had to interpret such a five-or-five provision many years after the death of the testator.<\/p>\n

As the court explained, \u201cMargaret Cairns executed a will in 1975, and died in 1977.\u201d\u00a0 The will established a testamentary trust.\u00a0 The court continued.\u00a0 \u201cThe five-or-five provision of the will [ ] specified: \u2018The Trustee shall also pay to my son during his lifetime, from the principal of the trust, such amounts as he may from time to time request in writing, not exceeding in any calendar year, non-cumulatively, the greater of the following amounts: Five Thousand Dollars ($5,000.00) or Five Per Cent (5%) of the value of the principal of the trust, determined as of the end of the calendar year.\u2019\u201d<\/p>\n

The trust was administered for many years after the death of Mrs. Cairns.\u00a0 Eventually, demands were made for trust distribution in periods after the right to receive the funds arose. The court held that such requests were not time-barred.\u00a0 Explained the court,<\/p>\n

\u201cAs we read the provision, the beneficiary may make multiple demands from \u2018time to time\u2019 for distribution of Trust assets for a calendar year as long as the total amount demanded is no greater than $5,000 or 5 percent of the value of the principal of the trust.\u00a0 The directive that the request must be non-cumulative refers to the total amount of the permissible distributions in a calendar year, not the date by which the demand must be exercised.\u00a0 Finally, the total maximum distribution available to the beneficiary in any given calendar year is not ascertained or determined until the \u2018end of the calendar year.\u2019\u201d<\/p>\n

The court continued.\u00a0 \u201cThus, if the 5 percent distribution is elected, the beneficiary will not even know the amount of the permissible demand until after the calendar year has concluded and an accounting is completed. The beneficiary may often not have adequate information to make a prudent decision as to which five-or-five election \u2013 five percent or $5,000 \u2013 is appropriate during the calendar year.\u201d<\/p>\n

The trustee disputed such interpretation under applicable tax law. The court swept aside these objections, stating \u201cWe reject Kenneth’s contention that the trial court’s interpretation of the instrument also is not in accord with applicable provisions of federal tax law.\u00a0 We deal in the present case with an issue of interpretation of a trust document, which implicates state rather than federal tax law.\u00a0 Further, Kenneth’s suggestion that under these tax rules, the beneficiary’s right to the disbursement lapses if the power is not exercised, is in keeping with our determination of the meaning of the five-or-five provision.\u201d<\/p>\n

\"Berkeley\"<\/a>This analysis seems incomplete. True, the court was obligated to review the written trust agreement. The court also was obligated to consider the circumstances under which the trust agreement was drafted. The circumstances included the tax rules applicable at the time that the will was drafted. The interpretation should have taken these circumstances into consideration.<\/p>\n

The court made the following findings. \u201cWe therefore interpret the five-or-five provision to mean: during his lifetime [the beneficiary] is not required to make a single demand for distribution of principal during each calendar year in which the maximum total amount of the distribution is calculated.\u201d<\/p>\n

OK, that makes sense.<\/p>\n

\u201cHe may make multiple written demands for distribution of principal from time to time within a single year, as long as the total amount requested for any single calendar year does not exceed the annual 5 percent or $5,000 maximum.\u201d<\/p>\n

Agreed. That\u2019s what the document states.<\/p>\n

\u201cThe proscription against non-cumulative requests prohibits him from making demands for less than the maximum amount for one calendar year, then seeking to add the amount not requested for that year to the distribution the next year.\u201d<\/p>\n

Agreed again. The distributions were to be noncumulative.<\/p>\n

\u201cThe total maximum distribution amount available to him, whether it is 5 percent or $5,000, is calculated as of the end of each calendar year.\u201d<\/p>\n

Again, that\u2019s the document states.<\/p>\n

\u201cAnd, he must make his demands for distribution before the end of the next calendar year after the determination of the value of the principal of the Trust to avoid the ban against non-cumulative distributions \u2018in any calendar year.\u2019\u201d<\/p>\n

This prevents the beneficiary from requesting distributions many years after the fact.\u00a0 In conclusion, \u201cWe have found that the Trust does not require [the beneficiary] to exercise his right to a principal distribution in a given calendar year to receive the distribution related to that same year. Thus, he was not required to make his demands for the year 2007 in the year 2007. The ban on cumulative distributions required him to demand principal distributions not in excess of the five-or-five maximum for the year 2007 by no later than the end of 2008.\u201d<\/p>\n

In the end, a sensible interpretation.<\/p>\n

Estate of Cairns<\/strong> (Sept. 15, 2010) 188 Cal.App.4th 937<\/p>\n","protected":false},"excerpt":{"rendered":"

Some estate plans make use of a \u201cfive-or-five\u201d provision to help reduce the estate tax.\u00a0 In the recent decision in Estate of Cairns (Sept. 15, 2010) 188 Cal.App.4th 937, the court had to interpret such a five-or-five provision many years after the death of the testator. As the court explained, \u201cMargaret Cairns executed a will […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3,9],"tags":[],"class_list":["post-390","post","type-post","status-publish","format-standard","hentry","category-case-law","category-trusts-and-estates"],"_links":{"self":[{"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=\/wp\/v2\/posts\/390"}],"collection":[{"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=390"}],"version-history":[{"count":0,"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=\/wp\/v2\/posts\/390\/revisions"}],"wp:attachment":[{"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=390"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=390"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=390"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}