New York Estate Planning Lawyer Blog

Legalized marijuana is having important legal impact on state property rules, and estate law is no exception. In “pot legal” states, estate planning attorneys are faced with questions about the transferability of cannabis assets to an estate or trust, and existing rules affecting distribution to beneficiaries. If an estate planning client owns a marijuana business, the option of estate transfer of cannabis assets will depend on both federal and state statute to ensure a client’s intent is carried out within the limits of the law.  

Cannabis Assets

Estate distribution of cannabis-linked assets at death is an issue that has received differential treatment under state and federal law. In some states, a will may be seized, and a beneficiary held criminally liable for an estate’s possession of illegal cannabis products and materials intended for distribution. There is also the potential that courts will not permit an executor to administer a will which contains cannabis assets. If those assets are part of a state-legal medical treatment program, there will be issues associated with an executor’s capacity to administer distributions from an estate or trust.

From the 1980s forward, patrimony laws have impacted major museum institutions around the globe. As source countries filed lawsuits against the cultural agents of former colonial empires, requesting return of antiquities and other cultural property, the response to due diligence by those foreign jurisdictions continues to be uneven. Conflicts over the rightful ownership of cultural property can also affect estate planning and probate proceedings. Beneficiary cultural institutions responsible for the accession, preservation, and management of those rare cultural objects can also decide to deaccession those gifted assets after the death of an estate holder, further complicating a matter.

Legal Definition of “Cultural Property”

Cultural property is distinct from personal or other forms of property within federal law. The United States recognizes the cultural property of sovereign tribal or foreign nations based on legal claims of territory, identity, or moral right. Rights to the ownership of registered cultural assets is considered a “superior claim” within international law; and supersedes “good faith” monetary transactions by collectors or museums.

The fiduciary responsibility to create an effective estate investment plan is something that some trustees and administrators find to be a challenge. Trust laws allow estate planning clients a fair amount of control and flexibility in asset diversification. If the goal is to generate income while minimizing taxes, and protecting assets for the purposes of family legacy, working with a licensed estate planning specialist who offers expert advice about trust investment, will assist a client in accomplishing the financial objectives of an estate.

Asset Diversification Strategies

Most high net worth estate planning clients require a diversified portfolio of equities, fixed-income securities, hedge funds, private equity, real estate, and natural resource funds. Since enactment of the Uniform Prudent Investor Act (UPIA) in 1994, all trustees in the United States must consider specific guidelines when formulating an investment strategy. In accordance with the legislation, a trust investment planner must consider the duration of the trust; the size of the portfolio; liquidity and distribution; tax consequences; expected total returns; individual investments; and the overall economic environment. Rules of UPIA fiduciary duty stipulate that trust assets are to be diversified, unless the purpose of the trust is solely for the targeted transfer of a family interest in a business, or to avoid capital gains. Trustee fiduciary liability is the premise of the legislation; also limiting client exposure to high-risk diversification strategies.

The recent Financial Industry Regulatory Authority (“FINRA”) announcement about federal enactment of a substantial piece of legislation that will likely delay close of some foreign direct investment (“FDI”) deals overseen by the Committee on Foreign Investment in the United States (“CFIUS”). The Act supports CFIUS regulatory response to the evolution in alternative trading system (“ATS”) transaction types. Under the new legislation, foreign investors will be responsible for filing mandatory “declarations” with description of transactions prior to close or transfer to an estate or trust; and payment of a filing fee of up to $300,000 per transaction.  

CIFIUS Oversight Expanded

Federal enactment of the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) on August 13, 2018 expands the jurisdictional powers of CFIUS responsible for oversight of foreign direct investment (“FDI”) made by investors from abroad. FIRRMA establishes that ATS compliance with Securities and Exchange Commission (“SEC”) NMS Regulation, and Regulation SHO close out standards. The Act also stipulates ATS have the capability of identifying trading risks occurring in those systems to be compliant. Full implementation of the Act will come in effect after the adoption of near future ATS regulatory provisions required to impose compliance within the investment sector.

The intent to commission, conspire to commission, or commission of a criminal act through intimidation, coercion, or solicitation of another for “racketeering activity” as defined by the  Racketeer Influenced and Corrupt Organization (RICO) Act  is illegal in New York. The RICO Act prohibits enterprises, including family businesses, from fraudulent and criminal racketeering activities while conducting interstate trade or foreign commerce. The costs associated with a RICO criminal proceeding can lead to excessive fees and the loss of an enterprise, including estate or trust held assets of a family business and its proceeds.  

A Lost Inheritance?

August 14, 2018 a federal US Court of Appeals declined to exercise supplemental jurisdiction over a Connecticut Superior Court decision denying Virginia A. D’Addario damages for beneficiary rights to her mother’s estate inheritance coinciding with the conviction of her sibling, David D’Addario in a RICO violation case (D’Addario v. D’Addario, No. 17-1162 (2d Cir. 2018). The Second Circuit appellate court instead vacated and remanded the case, upholding her claim of legal expenses incurred in pursuance of complaint against her brother and the other RICO defendants; yet rested a claim for full distribution of estate assets under her name was not necessary as RICO losses were speculative; and the estate was not closed.  

As of 2018, cross-border families planning an estate will require an investment plan meeting relevant rules to domicile, succession, generation-skipping transfer, and gift tax laws in each country where distribution will occur at the time of a decedent’s death. International estate planners use investment techniques specific to cross-border transfers and enforceable transfer tax situs rules, domestic and foreign credits, and treaties where they may apply.

Recent Domestic Tax Reforms

U.S. federal Internal Revenue Service (“IRS”) tax law reforms in 2018, have modified estate and gift tax lifetime exclusion amounts for: