02/20/2022
Gift to Spouse Recharacterized
In Smaldino v. Commissioner, the Tax Court ruled that a husband’s transfer of a 41% membership interest in a limited…
On April 1, 2021, the Supreme Court of Virginia ruled in Plofchan v. Plofchan that the agent under a power of attorney and the trustees of a revocable trust had standing to challenge whether their mother properly revoked the power of attorney and revocable trust. Paula Plofchan executed a power of attorney naming her son Thomas as her agent and she also made a revocable trust of which she was the initial trustee but later resigned in favor of Thomas and her daughter Elizabeth as trustees. Paula was diagnosed with Alzheimer’s disease in June of 2014. Unhappy with how Thomas and Elizabeth were handling her affairs, Paula revoked both the power of attorney and the revocable trust.
Thomas and Elizabeth filed suit against Paula in Fairfax Circuit Court alleging, among other things, that Paula did not have the capacity to revoke the power of attorney and revocable trust, and that Paula, together with two other daughters, had taken steps to prevent the trustees from gaining access to financial accounts owned by the trust. Thomas and Elizabeth sought injunctive relief to prohibit Paula from dissipating trust assets and interfering with the administration of the trust. Finally, Thomas and Elizabeth asked the court to allow them to pay their attorney’s fees from the trust.
Paula argued that she properly revoked the trust and the power of attorney prior to the suit filed by Thomas and Elizabeth and, as such, they lacked standing to sue as trustees of the trust or as agent under the power of attorney. She further claimed that Thomas and Elizabeth could not use trust assets to pay their legal fees because she revoked the trust before those fees were incurred.
The Fairfax Circuit Court ruled against Thomas and Elizabeth, but the Supreme Court of Virginia reversed, holding that because Paula presented no evidence in support of her motion to dismiss the lawsuit, the Court was required to accept the allegations of the complaint as true – specifically that Thomas and Elizabeth were still trustees of the trust and that Thomas was agent under the power of attorney.