The year was 1936 and it was the middle of the Great Depression. $180,084 was at stake. That’s $3,353,417 in 2020 money. The deceased husband, Yale Kneeland, had transferred most of his wealth to a special trust. The trust was actually a variation of our firms’ proprietary Asset Vault Trust. And it survived an IRS attack during the Great Depression.
The IRS hated this provision.
Mr. Kneeland had included a clause that allowed his wife to return the money to him at any time during his lifetime. She had what is called a Special Power of Appointment. The clause said that Mr. Kneeland could ask his wife at any time to simply return the trust money to him. As long as the money was in the trust, it was protected from his creditors, bankruptcy, divorce, and even the IRS. (Yes, I actually said divorce.) But Mr. Kneeland could call upon his wife to return the money to him at any time. And that didn’t cause the assets in trust to be any less protected.
Divorce protection as well.
Did you catch the irony there? Mrs. Kneeland could return the money to her husband. But as long as she didn’t do that, it was not considered a marital asset. So, if they had gotten a divorce, she would have received none of it. Clever.
Flexibility is key.
People weren’t that much different back in 1936. Mr. Kneeland wanted to avoid paying estate taxes. But he also wanted the option of getting it back if he wanted.
When Mr. Kneeland died, the executors of his will filed an estate tax return. That’s when the IRS attack happened. The IRS responded with a bill … showing a deficiency of $180,084.
The Board of Tax Appeals ruled in favor of the Kneeland family.
Our Asset Vault Trust is technically called a Special Power of Appointment Trust. It is similar to what other law firms call a 541 Trust. And it has always been successful at protecting assets.
Are you protected? Contact us if you want to find out how an Asset Vault Trust can protect you.
The case discussed was The Kneeland v. Commissioner of Internal Revenue, 34 BTA 816 – Board of Tax Appeals (1936).