Estate Plan Lessons from DeMuth v. Commissioner

Lifetime gifts are a popular way to reduce estate and inheritance taxes. Currently, only estates worth $13.99 million or more in 2025, and $15 million in 2026, are subject to the federal estate tax. Twelve states and the District of Columbia levy an additional estate or inheritance tax.

To lower their taxable estate at death, an individual may consider giving gifts to friends and family members. The timing and form of gifts have essential estate planning implications, however, as a recent opinion from the United States Court of Appeals for the Third Circuit demonstrates. In that case, the failure to complete gifts in the form of checks before the donor'’ death cost his estate—and ultimately his heirs—a significant sum

Case Summary

William DeMuth, Jr., of Pennsylvania, executed a power of attorney (POA) in January 2007, appointing his son, Donald DeMuth, as his agent. In this capacity, Donald made annual monetary gifts to family members from 2007 to 2014.

On September 6, 2015, shortly after William was diagnosed with an end-stage medical condition, Donald signed and delivered seven checks to family members worth $464,000. William passed away on September 11, 2015. At the time of his death, just one of the eleven checks had been paid from his account. Ten of the eleven checks, totaling $436,000, had not been paid before William's death, although three of them were deposited on the day of his death.

Donald, the executor of William's estate, excluded the value of all eleven checks from William's account when reporting the gross estate. The Internal Revenue Service (IRS), however, concluded that the account's value had been underreported by $436,000, the amount of the ten checks, and issued a notice of estate tax deficiency for $179,130.

Donald filed an appeal with the Tax Court, where the IRS agreed to exclude the three checks deposited on the day William died. This reduced the tax deficiency to $131,774, but the Tax Court held that the funds from the remaining seven checks were part of William's estate because, under Pennsylvania law, they were not completed gifts before his death.

The estate appealed to the Third Circuit, arguing that the gifts were completed gifts in contemplation of William's death, and as a result were completed gifts in "causa mortis." In Pennsylvania, gifts causa mortis differ from gifts inter vivos (i.e., a gift or transfer made during someone's lifetime). A gift by check, deemed a gift causa mortis, is complete when the check is delivered to the recipient, not when the recipient deposits it.

Donald lost the appeal, with the court ruling that the estate did not show William wrote the checks as gifts in causa mortis. "Thus, the value of the seven remaining checks was improperly excluded from the gross estate," the court concluded. [1]

Estate Planning Takeaways

The outcome of the seven checks being included in William's estate is that the estate tax increased by more than $130,000. Then, there were the estate's legal and court fees paid to litigate the case in a losing effort, on top of nearly eight years of dealing with the courts and the IRS.

With better planning, the money paid in taxes and court costs could have been passed on to Donald and other heirs. The federal estate tax amount was also likely in addition to taxes owed in Pennsylvania, which imposes an inheritance tax that ranges from 4.5 to 15 percent on eligible transfers. [2]

Other estate planning takeaways from DeMuth v. Commissioner include the following:

1.    If the deathbed gifts made by Donald DeMuth on behalf of his father had been made by a bank check or wire—rather than a personal check—they could have been excluded from the taxable estate because a bank check or wire represents funds already withdrawn from the payer's account.

2.    The US Code and Treasury Regulations were relevant to DeMuth v. Commissioner, but state law governs property law. Relevant to this case, the distinction in Pennsylvania law between gifts inter vivos and gifts causa mortis was critical.

3.    Knowing that his father was in poor health, Donald should have ensured that the gift checks were received and deposited before William died.

4.    A similar mistake is made when checks are written at the end of the year to take advantage of the annual gift exclusion ($17,000 per person in 2023). If the check is not cashed or deposited by year-end, it is not considered complete until the following year and, therefore, is not a gift made in the year the check is written. This could result in a doubling of gifts, the filing of a gift tax return, and a reduction in the lifetime exemption amount.

5.    State tax laws should also be considered when timing gifts. Pennsylvania, for example, does not have a gift tax, but all gifts greater than $3,000 made within 12 months of the decedent's date of death are pulled back into the estate and subject to Pennsylvania inheritance taxes. [3]

Putting Off Estate Planning Can Have Unintended Consequences

DeMuth v. Commissioners is a lesson in what can happen when estate planning is put off to the last minute. Gifting can be an effective way to reduce estate and inheritance taxes and leave more money to heirs—but to maximize the unified estate and gift tax exclusions, it should be a long-term strategy.

Today's all-time high exclusion levels are set to be cut in half in 2026. With this drastic change on the horizon, families may want to revisit their estate plan now and consider actions such as creating a family trust. An estate plan should also account for expected asset appreciation that could put an estate over the exemption amount come 2026.

Even if you do not think upcoming changes in the tax law will affect your estate plan, it is still essential to review your plan every few years. Changes in your life and the lives of loved ones can make it necessary to modify your will or trust terms or reconsider trustees and executors. Like William DeMuth, you could also face a terminal medical condition that forces you to accelerate certain aspects of your plan.

Whatever your plan is, do not delay taking the necessary steps to make it official. Putting off estate planning can affect your estate, your heirs, and your legacy. When your plans change, our attorneys are here to help. Call or contact us to schedule an appointment.

If a loved one has recently passed and you are unsure what to do, please contact us so we can help you restore stability and clarity to your life. Click here to schedule a meeting.

Footnotes

[1] DeMuth v. Comm'r, No. 22-3032 (3d Cir. July 10, 2023), https://law.justia.com/cases/federal/appellate-courts/ca3/22-3032/22-3032-2023-07-12.html

[2] Pa. Dep't of Revenue, Inheritance Tax, https://www.revenue.pa.gov/TaxTypes/InheritanceTax/Pages/default.aspx (last visited October 27, 2023)

[3] Inheritance Tax, Art. XXI § 2107(c)(3), https://www.legis.state.pa.us/cfdocs/legis/LI/uconsCheck.cfm?txtType=HTM&yr=1971&sessInd=0&smthLwInd=0&act=002&chpt=21

Blindsided: The Michael Oher Conservatorship Controversy Explained

Michael Oher has had a remarkable life so far. Born to a single mother struggling with addiction and growing up in and out of foster care, Oher went on to star as a University of Mississippi football player and was selected in the first round of the 2009 NFL draft. He played eight seasons in the NFL, won a Super Bowl in 2016, and is the subject of a book that inspired an Oscar-winning movie, The Blind Side.

Sean and Leigh Anne Tuohy, the Tennessee couple who took Oher into their home when he was in high school and were appointed as his estate's conservators, are prominently featured in The Blind Side. But Oher has recently alleged that, contrary to the movie's portrayal, the Tuohys never actually adopted him. Oher alleges that the Tuohy's instead tricked him into agreeing to the conservatorship and unjustly profited from his trust in them.

While the accusations will play out in court, they raise questions about conservatorships, when they are necessary, and how they affect estate planning.

What Is a Conservatorship?

A conservatorship is a court-ordered arrangement that gives one or more people (a conservator) legal authority to manage the affairs of another person (a conservatee or ward).

Most jurisdictions—including Tennessee, where the Michael Oher conservatorship was created—recognize two types of conservatorships:

1.    A conservatorship of the person authorizes a conservator to manage the conservatee's personal affairs, including their healthcare and living arrangements.

2.    A conservatorship of the estate grants the conservator the authority necessary to supervise the conservatee's financial affairs, such as managing their money, paying their bills, and, in some instances, setting up an estate plan for them.

Conservatees are often children, but they can also be adults who are incapacitated, have developmental or age-related disabilities, or are otherwise deemed by the court to be unable to handle their own financial or personal affairs. A famous example of this is the Britney Spears conservatorship that was set up following her pattern of erratic behavior and placement in a psychiatric hospital for observation. In Spears's case, her conservatorship was split into two parts—one for her estate and finances and one for her as a person. [1]

A conservatorship may be established following a court petition by a friend or relative asking for the appointment of a conservator. The petition must explain the basis for establishing the proposed conservatorship. In many cases involving adult conservatorship, the petition must indicate that the conservatee is at risk of injury to their person due to their inability to manage their daily needs or make medical decisions, or of financial exploitation or involuntary depletion of their assets. Following an investigation and a hearing, the court decides whether a conservatorship is warranted.

If a conservatorship is granted, a conservator is named, and their specific powers are set out in a court order. Typically, the court requires conservators to file annual financial accounts or plans for the care of the person, depending on the type of conservatorship.

Michael Oher's Conservatorship

In 2004, shortly after Oher turned 18 and about two months before he signed on to play football at Ole Miss, a Tennessee judge entered an order establishing a conservatorship over Oher with the Tuohys as conservators. At the time, the conservatorship was established with the permission of Oher and his biological mother. According to the conservatorship filing, a judge declared that the Tuohys "should have all powers of attorney to act on his behalf and further that Oher shall not be allowed to enter into any contracts or bind himself without the direct approval of his conservators."[2]

Legal experts say the 2004 filing for a conservatorship of the person is unusual because Oher had "no known physical or psychological disabilities." The petition notes that he was a good student and made the dean's list his sophomore year.

In an August 14 petition to terminate the conservatorship, which was allegedly scheduled to end when Oher was 25 years old, Oher claimed that the Tuohys deceived him and did not act in his best interest as conservators. [3] His petition stated that he did not understand that he was giving up his right to contract for himself, the Tuohys misrepresented the conservatorship as an adoption, and that "the lie of adoption" enabled the Tuohys to enrich themselves at the expense of Oher, including from film royalties.

In addition to seeking to sever the conservatorship, the lawsuit filed by Oher sought a full accounting of assets; an injunction prohibiting the Tuohys from using his name, image, and likeness; compensatory and punitive damages; and costs and attorneys' fees.

Adoption versus Conservatorship

Adopting Oher would have made him a member of the Tuohy family, no different in the eyes of the law than the Tuohys' two biological children. Adoption would also have allowed Oher to retain power over his own financial affairs—a power that he surrendered under the conservatorship.

The Tuohys say they are blindsided by Oher's accusations that they profited from the conservatorship. Their version of events portrays the conservatorship as necessary to help Oher obtain a driver's license, health insurance, and assistance with the college admissions process. [4] Sean Tuohy said lawyers advised him at the time that adoption was not an option because Oher was 18 and a legal adult.

Many states, including Tennessee, however, allow adult adoption. Adoption laws in Tennessee permit adoption at any age. When the adoptee is over the age of 18, consent from birth parents is not needed—only the permission of the adopted adult. This law is apparently not new. As part of a fact check about adult adoptions in the state, a Tennessee adoption attorney told Fox 13 Memphis that they have been doing them for decades. [5]

Conservatorships and Estate Planning

The Tennessee judge overseeing the case has signed an order ending the conservatorship. [6] However, Oher's accusations against the Tuohys will still have to play out in court. Among the legal questions to be answered are whether the Tuohys filed an annual report with an accounting of Oher's finances with the probate court and if they have received money on Oher's behalf and properly disbursed it to him.

Conservatorships, illustrated by the Michael Oher and Britney Spears cases, can sometimes lead to family feuds over a conservator's intentions toward a ward. Taking away somebody's legal rights to make decisions—and giving those rights to somebody else—is often reserved only for extreme situations, such as when somebody is brain-injured, suffers a stroke, is in a coma, or develops dementia.

In such cases where the court declares that a person is unable to manage their own affairs, a conservator may be appointed. One of the rights the court may grant the conservator is the power to make an estate plan for the conservatee. Depending on the situation and specific authority granted to the conservator, however, a person subject to a conservatorship may still have the capacity to set up their own estate plan. The ward may later revoke or amend a conservator-drafted estate plan if they can show that they possess testamentary capacity or that their rights, as delegated by the court, are restored.

Given the restrictive nature of a conservatorship and the lengthy court process to establish it, families may want to avoid it unless there is an imminent need that cannot be addressed through less restrictive means. If estate planning documents, such as powers of attorney for finances and healthcare, are already in place, the family can avoid a conservatorship and step in to manage finances or make important decisions as soon as it becomes necessary.

Plan Early and Often to Avoid Difficult Choices Later

Failure to plan for all possibilities—even those we would rather not think about—can have unintended consequences. If you neglect estate planning now, you could limit your future options regarding issues such as conservatorships, probate, and inheritance.

Maybe there is an adult family member whom you never legally adopted but would like to adopt now for estate planning purposes. There might be lingering questions about what would happen to you, your spouse, your adult children, or your aging parents if disability or incapacity suddenly struck. Alternatively, it could be the case that a loved one is already showing signs of dementia and may not have the capacity to execute estate planning documents.

Our estate planning attorneys are in the business of addressing these sensitive questions professionally and legally, and of creating a plan that leaves nothing to chance. To start planning today, contact our office and schedule a meeting.

If a loved one has recently passed and you are unsure what to do, please get in touch with us so we can help you restore stability and clarity to your life. Click here to schedule a meeting.

Footnotes

[1] Britney Spears: Singer's Conservatorship Case Explained, BBC (November 12, 2021), https://www.bbc.com/news/world-us-canada-53494405

[2] Sean Neumann, Attorneys Explain What's "Puzzling" about Michael Oher's Conservatorship Filing—and What's Next, People (August 21, 2023), https://people.com/attorneys-explain-what-is-puzzling-about-michael-oher-s-conservatorship-filing-and-what-is-next-7706819

[3] In re Michael Jerome Williams, Jr. a/k/a Michael Jerome Oher, No. C-010333 (Prob. Ct. of Shelby Cnty. Tenn. August 14, 2023), https://www.wkrn.com/wp-content/uploads/sites/73/2023/08/Michael-Oher-Lawsuit.pdf

[4] Adrian Sainz & Teresa M. Walker, Devastated Tuohys Ready to End Conservatorship for Michael Oher, Lawyers Say, AP (August 16, 2023), https://apnews.com/article/nfl-michael-oher-tuohys-blind-side-movie-1bebe2ba9ee2ba60ac806dabab4f6d4c

[5] Katrina Morgan, Yes, It Is Legal to Adopt Someone Over the Age of 18 in Tennessee, 13NewsNow (August 17, 2023), https://www.13newsnow.com/article/news/verify/national-verify/yes-it-is-legal-to-adopt-someone-over-the-age-of-18-in-tennessee/536-2b3ffb4f-c80d-4ea4-9d46-e0db4d914d71

[6] Brynn Gingras & Emma Tucker, Judge Terminates Tuohy Family Conservatorship over Former NFL Player Michael Oher, Depicted in The Blind Side, CNN (September 30, 2023), https://www.cnn.com/2023/09/29/us/michael-oher-tuohy-conservatorship-termination/index.html

The Life and Legacy of Jimmy Buffett

Jimmy Buffett died on September 1, 2023, at age 76 after a diagnosis of Merkel cell carcinoma (skin cancer) four years earlier. He was a renowned singer-songwriter, film producer, businessman, novelist, and philanthropist.

Buffett released his first album, Down to Earth, in 1970. By 2023, his net worth was officially $1 billion,[1] including a $180 million stake in his company, Margaritaville Holdings LLC, which opened in 1985 and now brings in $1 to $2 billion annually.

Who Stands to Inherit Buffett's Estate?

Buffett had an early three-year marriage to Margie Washichek, which ended in 1972, and married Jane Slagsvol in 1977. He and Jane had three children: Savannah, Sarah, and Cameron. The children have all pursued careers in the music, film, and entertainment industries.

According to the New York Times, most of Buffett's money and property, including intellectual property and music rights, are held in a trust. [2] His wife, Jane, is the personal representative distributing the estate according to his will, with help from his business partner and Margaritaville Holdings LLC CEO, John L. Cohlan, if necessary. Because the trust provides the family with privacy, there are no specifics regarding which belongings will be passed to his wife, three children, two grandchildren, and two siblings. His estate is estimated to include the following[3]:

1.    Music royalties of $20 million annually

2.    A collection of houses and cars

3.    150 Margaritaville restaurants, casinos, cruises, and related business holdings

4.    A yacht and several planes

5.    Stock market investments, including shares in Berkshire Hathaway

6.    Watches and memorabilia

Buffett was receiving close to $200 million annually for his shares in Margaritaville Holdings LLC, and issues with his health and medical expenses did not affect his business or family legacy. He was still growing his wealth when he died.

Other Estate Planning Strategies Buffett Could Have Included Beyond His Will

Buffett cofounded the Save the Manatee Club in 1981 with former Florida governor Bob Graham, supporting rescue, rehabilitation, research, and education efforts in the Caribbean, South America, and West Africa. During his lifetime, Buffett gave away and helped raise millions of dollars for charities. For every concert ticket he sold, one dollar went to a charitable cause he believed in. [4]

Charitable Remainder Trusts

Given his charitable actions during his lifetime, Jimmy Buffett may have established a charitable remainder trust (CRT) to incorporate charitable giving into his estate plan. This type of trust could secure his family's future by providing a consistent income source to his beneficiaries while ultimately honoring his charitable nature by leaving the remainder to the charity of his choice.

Family Limited Partnerships or Family Limited Liability Company

Buffett likely considered his restaurants to be much more than commercial enterprises, and business continuity may have been preserved by creating a family limited partnership (FLP) or family limited liability company (LLC). Using one of these entities could have enabled him to pursue different strategies to retain control of his business shares while gradually transferring ownership to his wife and children. He could also have taken advantage of the annual gift tax exclusion by making tax-free gifts of the limited partnership interests, thereby mitigating potential future estate tax implications.

Grantor Retained Annuity Trusts

A grantor retained annuity trust (GRAT) may have been another trust structure that Buffett considered to pass down his business interests while retaining certain financial benefits during his lifetime. A GRAT is an irrevocable trust that would have allowed him to transfer his business interests or other assets with the potential for significant appreciation in value to the trust while still retaining an income stream for himself via annuity payments for a specified term. At the expiration of the term, his beneficiaries would receive any trust assets, with any excess appreciation above the § 7520 rate transferred free of estate and gift taxes.

Family Trusts

After years of using and enjoying the property he owned, Buffett could also have taken steps to ensure the smooth transfer of assets, such as his airplanes, to future generations for their own use and enjoyment by establishing a family trust. A family trust would have allowed him to designate how the planes should be used, maintained, and cared for after his death.

In a well-designed estate plan, the things someone owns, such as Buffett's planes, money, and other significant property, would be transferred outside probate, thereby maintaining the family's privacy. Additionally, the beneficiaries would not have to wait to wrap up lengthy or costly court proceedings before inheriting the assets Buffett intended for them.

Long-Term Care Planning and Advance Directives

Buffett had plenty of funds to pay for his long-term care needs privately. Still, he may have set aside specific financial resources to pay for care in advance if he had consulted a professional advisor or estate planning attorney earlier in his life. Based on comments made by his family in his final days, he may have also prepared advance directives so everyone understood his wishes for care and treatment at the end of his life. Consequently, he has made a peaceful exit from a terminal illness on his own terms.

While Buffett's life may be over, he leaves behind a substantial legacy. Keep an eye out for the posthumous release[5] on November 3, 2023, of the album Equal Strain on All Parts, featuring guest contributions from Paul McCartney, Emmylou Harris, Angelique Kidjo, and the Preservation Hall Jazz Band.

If a loved one has recently passed and you are unsure what to do, please get in touch with us so we can help you restore stability and clarity to your life.  Click here to schedule a meeting.

Footnotes

[1] Jessica Tucker, Here's How Much Jimmy Buffett's Estate Is Worth (and Who Stands to Inherit It), The Things (September 8, 2023), https://www.thethings.com/how-much-was-jimmy-buffett-worth/#.

[2] Julia Jacobs, Jimmy Buffett's Will Appoints His Wife as Executor of His Estate,N.Y. Times (October 13, 2023), https://www.nytimes.com/2023/10/13/arts/music/jimmy-buffett-will.html.

[3] Gabbi Shaw & Jordan Parker Erb, Jimmy Buffett Became a Millionaire after 5 Decades in the Music Industry. Here's How the Late Singer Made and Spent His Fortune, Insider (September 2, 2023), https://www.insider.com/jimmy-buffett-billionaire-makes-and-spends-his-money-2023-4.

[4] Id.

[5] Megan LaPierre, Jimmy Buffett's Estate Announces Posthumous Album Equal Strain on All Parts, Shares Three Songs, Exclaim (September 8, 2023), https://exclaim.ca/music/article/jimmy_buffetts_estate_announces_posthumous_album_equal_strain_on_all_parts_shares_three_songs.

Estate Planning Checklist for Californians in 2025

Estate planning isn’t just for the wealthy — it’s for anyone who wants to protect their family and legacy. Here’s a simple checklist to start your plan in 2025:

1. Create a revocable living trust

2. Draft a pour-over will

3. Create a financial Durable Power of Attorney

4. Create advanced health care directives

5. Title assets correctly (fund your trust)

6. Name guardians for minor children (if applicable)

7. Review and update beneficiary designations

8. Plan for digital assets (online accounts, cryptocurrency)

Your Next Step:

Work with an experienced estate planning attorney to tailor documents to your situation.

At Tuller Law, we make the process clear, efficient, and personalized.