WHAT EVERY LAWYER NEEDS TO KNOW ABOUT DIVORCE & TAXATION
BY DAVID LEE RICE, ESQ.

UCLA 2004 ANNUAL TAX CONTROVERSY INSTITUTE
October 20, 2004

USC § 1396p(a)(1)(B)(ii)

See Spero, ¶ 14.05[3]

See Spero, ¶ 5.07

IRC §§ 2036-2038 and 1014.

Treas. Reg. § 1.121-1(c)(2)(ii).

Treas. Reg. § 1.121-1(c)(3).

IRC § § 674 and 2038

See, e.g., PLR 9709001 ( IRS required reimbursement of grantor for income taxes paid). See also PLR 9444033 (payment of the income tax by the grantor results in an additional gift to the remainderman), withdrawn by PLR 9543049.

Whitehouse v. Ives, 736 F. Supp. 368, 374 (D. Me. 1990)(that taxes that are required to be withheld from a pension plan are an available resource for eligibility purposes);   In so holding, the Whitehouse court relied on Heckler v. Turner, 470 US 184, 200 – 202 (1985) (for AFDC purposes mandatory tax withholdings are available income); see also Peura v. Munson, [1990 – 1991 Transfer Binder] Medicare & Medicaid Guide ( CCH ) ¶  38,973 (D. Ala. 1990) (for the purpose of computing post-eligibility income and resources, tax on unearned income was not to be taken as an expense; consequently it was an available resource); cf., Jackson v. Blum, 91 AD2d 663, 456 NYS2d 1000, 1002 (1982) (claimant may not increase her need for assistance by failing to claim all permissible exemptions for withholding taxes); see also Hines v. Sullivan, 779 F. Supp. 258, 263 – 268 (NDNY 1991), aff'd, 956 F2d 1159 (2d Cir. 1992) (court-ordered child support held an available resource); Martin v. Sullivan, 932 F2d 1273 (9th Cir. 1990), cert. denied, 116 L. Ed. 2d 666 (benefits that were reduced to recover prior overpayment were treated as available); Cervantez v. Sullivan, 963 F2d 232 (9th Cir. 1992) (garnishment of disability payments held an available resource).

Tex. Prob. Code Ann. § § 37A and 37A(c).

See e.g., Cal. Prob. Code § 279(9 months is presumed reasonable).

IRC 2518(b)(2).

Madorin v. Comm'r, 84 TC 667 (1985) . Rev. Rul. 77-402, 1977-2 CB 222

Treas. Regs. §  1.675-1(b)(4) ( “ If a power is not exercisable by a person as trustee, the determination of whether the power is exercisable in a fiduciary or a nonfiduciary capacity depends on all the terms of the trust and the circumstances surrounding its creation and administration. ” )

See also, Zaritsky, Tax Planning for Family Wealth Transfers: Analysis With Forms (Warren Gorham & Lamont 2003)¶ 3.04[4][a] Example 3-30

IRC § 674(b)(6).( The income must ultimately be payable to the (i) beneficiary, (ii) beneficiary's estate (iii) persons named under the beneficiary's broad limited power of appointment; (iv) income beneficiaries when the trust terminates in stated shares; and withholding income, unless someone can add beneficiaries, other than after-born or after-adopted children.)

IRC § 2036(a); U.S. v. O'Malley, 383 U.S. 627 (1966); Stephens, Maxfield, Lind, Calfee & Smith / Federal Estate and Gift Taxation (W, G & L 2003) ¶ 4.08[5][c].

Peschel & Spurgeon , Federal Taxation of Trusts, Grantors and Beneficiaries ¶ 6.02[2] Rev. Rul. 75-350, 1975-2 CB 366; Armata v. United States, 494 F2d 1371 (Ct. Cl. 1974); Estate of Alperstein v. Comm'r, 613 F2d 1213 (2d Cir. 1979); Pennsylvania Bank & Trust Co. v. United States, 597 F2d 382 (3d Cir. 1979); Estate of Gilchrist v. Comm'r, 630 F2d 340 (5th Cir. 1980); Williams v. United States, 634 F2d 894 (5th Cir. 1980) . See also, Rev. Rul. 81-6, 1981-1 CB 385 (minor beneficiary's power to withdraw certain amounts from trust principal and income made the beneficiary taxable on that portion of the trust income and gains).

42 USC § 1396p(b)(4)(B)(emphasis added).

See, e.g., See California Advocates for Nursing Home Reform v. Bonta, __ Cal. App 4 th ___ No. A097107 (Cal.App. Dist.1 2003) .

Restatement (Second) Trusts § 160 (1957); Davis v. Harrison , 240 F. 97, 101 (9th Cir. 1917).

IRC §§ 675(1) and 674(a)

42 USC § 1396p(c)(1)(B)

HEALTH CARE FINANCING ADMINISTRATION; State Medicaid Manual. Part 3 – Eligibility; Transmittal No. 64, November 1994; 3259.6 Treatment of Trusts.— F. Placement of Excluded Assets in Trust.

See Spero, Chapter 6