Taxation & Estate Planning

Statutory Custodial Claims article

By Joel A. Schoenmeyer

Chicago attorney Margot Gordon has a nice article in the new (May) issue of the Illinois Bar Journal, in which she discusses statutory custodial claims. The article is here, for ISBA members.

I've written about these types of claims before, but Ms. Gordon makes some good points that I haven't raised:

1. The statute states that a statutory custodial claim "shall take into consideration the claimant's lost employment opportunities, lost lifestyle opportunities, and emotional distress experienced as a result of personally caring for the disabled person." There's been some question in the past as to whether this language is meant to establish additional requirements for the claimant to meet. Ms. Gordon cites the Estate of Lower case (which I mentioned here) for the idea that "a claimant may recover even if he or she did not suffer these latter three losses."

2. Most of the statutory custodial claims cases I handle involve estates with not a lot of money. But it is possible that you could have a large estate (perhaps due to a personal injury settlement) where a statutory custodial claim would be appropriate. In such a case, the claim might be a clever way to reduce the tax burden. Statutory custodial claims are taxable as income under Section 61 of the Internal Revenue Code, but deductible for estate tax purposes under Section 2053. Because income tax rates are lower than (typical) estate tax rates, a statutory custodial claim may lead to a tax savings. (Ms. Gordon's example is of a $15 million estate -- a successful $3 million statutory custodial claim would save $377,000 in taxes.)

Full post as published by Death and Taxes Blog on May 20, 2010 (boomark / email).