$20M Barneys NY Disinherited Heir | EP 113

Speaker A: If your clients have estate plans that claim Florida residency to block New York income and estate tax, or you advise families who live in one state and file in another, here's a gap that may be sitting in your client files right now and the law that weaponizes it. Tax whistleblower statutes In New York, a disinherited family member paid as a whistleblower can enforce state tax law by filing a, uh, keytam action as the relator under the False Claims act alleging the family dodged millions of dollars in New York state tax by calling their parent a Florida resident. If the relator is correct in court, the estate pays New York state and the relator collects millions instead of inheriting zero. That's what a New York court is weighing right now in State of New York Xrel Pressman v. Pressman. And the case is still litigating. This is part one of Disinherited a wealth litigated series on what happens when the plan to cut someone out is ends up in court. Different families, different estate plans, different heirs who weren't supposed to win. But some still do. Join us to see how each litigated

Speaker B: when fortunes collide with courtrooms, wealth managers, financial advisors, accountants, fiduciaries and lawyers need real answers. Welcome to Wealth Litigated, where Professor Kelly Lease Murray, J.D. lawyer, legal scholar and retired Vanderbilt law faculty, analyzes actual courtroom wins and losses in asset protection to deliver actionable insights that optimize your client's wealth outcomes. Um, from explosive family feuds over fortunes to sophisticated financial fraud. Each week we explore what worked to protect wealth and what exactly went wrong. So you get it right. And now here's your host, Professor Kelly Lies Murray.

Speaker A: Foreign. I'm Kelly Liese Murray, and this is Wealth Litigated. Delivering all the drama of true crime without the blood. We break down actual court cases that impact your professional practice and your clients wealth outcomes. Let's gavel in the Pressman story. Disinheritance, revenge. Millions of dollars at stake for a whistleblower's bounty. Stone starts with the famous Barneys New York family dynamics and the keytam mechanics. The stakeholders in this keytam action are actually the grandchildren of Barney Pressman, founder of Barneys New York. There are two brothers and two sisters. The whistleblower is brother Bob. Put a post it on the next two quotes because they read differently. After you learn a bit more about the Ketam action itself. When the matriarch passed away, one of her daughters was quoted as saying matriarch was under hospice care at her home. In Palm Beach, Florida at the time of her death. The next quote has been reported in multiple news outlets by reporters who've actually read the keytam complaint itself. This is allegedly from the matriarch's trust instrument. Quote, bob doesn't get anything for reasons he well knows. Close quote. We do know that brother Bob was disinherited and in reaction he took action because New York had has a unique statute allowing private citizens to sue, um, on behalf of the state for tax fraud. This is called a keytam action. The whistleblower, called a relator, sues on behalf of the state of New York under the New York false claims act, effectively positioning the state tax authorities as the real party in interest. If the state intervenes, the whistleblower gets a lower percentage of the total recovered. That would be 15% up to 25%. If the state does not intervene and the entire case is prosecuted by the relator, the percentage increases from 25% to 30% of the recovered amount. In brother Bob's keytam action against his mother's estate and his three siblings, the allegations total $20 million in unpaid new York state income and estate tax. But the false claims act has additional consequences. Damages could be trebled, plus penalties. This total could go up to nearly, uh, $50 million. And Brother Bob's percentage could be anywhere from 5 million to $15 million. Instead of inheriting zero. It all comes down to one simple question. At the time of her death and the six years preceding it, did the matriarch reside in Florida or was she a New York resident? And how do you tell? These filings on behalf of the matriarch's estate identified Florida as her domicile. But the evidence, according to brother Bob's keytam action, points to New York residency for most of the final six years of her life. The evidence of where the matriarch actually lived for the final six years of her life. According to brother Bob's keytam action pharmacy, her prescriptions were filled in New York state, not Florida. Her home health aids were in New York and not Florida. She had a Southampton, New York landline that she frequently used. New York, not Florida. She also owned a, uh, Manhattan apartment. Her New York residence was transferred to an LLC only during the final six months of her life when she was in hospice in her home in Florida. And then there are statements attributed to the matriarch that she didn't like Florida and did not attend to permanently reside there. We, huh, have two timelines. The first gives us some context. Barney's new York filed bankruptcy for the second time and as a result of the 2019 bankruptcy, the flagship store and other locations closed in February 2020. Fall of 2023, the matriarch is moved to her home in Florida for hospice. Six months later, in April 2024, she passed away. Between April and July. Apparently Brother Bob found out he was disinherited from his mother's trust. July 2024 A New York False Claims act keytam action was filed by Brother Bob through his lawyers in New York State against his mother's estate and his three siblings, one one brother and two sisters. Later in 2024 through 2025, the KeyTam Action was amended then unsealed and that's when all the publicity and news articles started appearing. As of June 2026, the state still has not intervened. Put a post it on this the disinheritance of Brother Bob actually supports his keytam action with cyenter evidence from the disinheritance and here's how that works. The complaint apparently alleges that Brother Bob's disinherit proximate consequence of his refusing to participate in the Florida residency scheme. Scienter is a legal term for knowledge of wrongdoing as alleged Brother Bob was punished by his siblings for not supporting and participating in the allegedly false declaration of his mother being a Florida resident instead of the evidence supporting her being a New York resident. I highly recommend Bloomberg Law's April 2026 article written by Michael Bologna Barney's Family Drama Shows Reach of New York' Tax Whistleblower Law. It is well researched, well written, thorough and will get you up to date not just on KAM actions in New York, but the availability of similar litigation in other states. Quick sidebar. Not many other states currently have this, but some uh, states are actively considering adding it. Who's Brother Bob's Lawyer? Brother Bob is represented by the founding chief of the New York Attorney General's Taxpayer Protection Bureau. This is the entity that would intervene in Brother Bob's Ketam action. This lawyer built it from the ground up after the 2011 New York legislation changes that open Ketam actions to tax fraud claims. He's the co head of the whistleblower practice of his law firm and he's represented relators in whistleblower cases similar to the Pressman Ketam action. Our second timeline predicts some of the defense that may be presented by Brother Bob's siblings, including 30 years of Pressman family litigation In January of 1996, Barneys New York filed Chapter 11 bankruptcy. In 1996 post bankruptcy claims were filed by the three siblings against brother Bob, accusing him of defrauding them of millions of dollars. In 1996, there's a lawsuit against the other brother for $170 million on personally guaranteed loans. August 2019, Barney's New York files for bankruptcy for the last time with the key tam action against his mother's estate and his siblings filed in July of 2020, four months after his mother's death. That same year, the other brother was served with the amended complaint while at a Manhattan bookstore promoting his own memoir. And then in January 2026, the other brother was sued by a uh Barney's New York executive. Based on that memoir, the siblings defense counsel has already been interviewed in the press and raised possible defenses. Many of them are structural and procedural. For example, that the New York False Claims act is designed for commercial tax cheating, not estate Domicile disputes that the primary jurisdiction should be the probate court, that this type of investigation should originate with the State of New York Tax Authority and not with a relayor in a keytam action. And then finally, that brother Bob's motive is as a disinherited air Sidebar Motive is irrelevant to a keytam action for tax fraud in New York. Although the New York False Claims act permits a private citizen to pursue tax fraud claims on behalf of the state, there are thresholds that must be met. The defendant's net income, whether it's a person or a business, must be at least $1 million and the owed tax must be at least $350,000. Here in the Pressman Keam action, the allegation is $20 million in unpaid taxes. This is a quote attributed to a lawyer by the Bloomberg article. Quote it's actually very rare to see a frivolous False Claims act tax case. Close quote. And the New York False Claims act track record is impressive. Fifteen years, 224 tax cases filed. New York State recovered over $500 million. And that does not include what the whistleblowers were paid. The Pressman case is not the only one with the New York Florida domicile dichotomy. In Sandel a 2021 case, the New York taxes on $450 million in deferred fees resulted in a 105 million dollar settlement. And that whistleblower was awarded over $22 million. The lawyer for the whistleblower, the same lawyer as brother Bob. A uh, 2024 Washington D.C. case. 25 million in D.C. taxes avoided. Domic was claiming residency in Florida. The settlement exposure was $40 million. The actual settlement was not publicly disclosed. That lawyer was the same lawyer as brother Bob's. A domicile problem is also a client file problem. One client with real property in multiple states which state is their primary residence? Primary residence declared in the lower tax state between New York with state income tax and Florida without state income tax. Florida is the clear winner in reducing tax exposure related to this and we're going to cover it in our takeaways at the end. Primary residence is also an issue for federal taxes capital gains when the primary residence is sold, an individual can Shield up to 250, but only if they haven't used the exemption in the previous two years and they meet other criteria. One of the biggest is the residence at issue must have been your primary residence for at least two of the previous five years. This same New York Florida dichotomy can apply in those instances that are litigated in federal tax court. Your risk radar should should be ringing right now for both of these applications. Which states permit tax keytam related lawsuits? New York since 2011 Washington D.C. since 2021 with the same thresholds as New York. Illinois but only for sales tax. Nevada and Rhode island is permitted. Maryland it's agency based. You are a whistleblower to the state and then the state chooses whether to prosecute. There's no personal Keytam action. Pennsylvania this is pending. Minnesota this is also pending. Cal this was defeated in 2025. 20 other states no, this is impossible. The takeaways are primarily the cautionary tale of the Pressman Ketam action and the capital gains exclusion, both of which hinge on actual primary residency evidence. Multi state clients with declared versus actual residency gaps when domicile locks in New York, keep in mind that the New York standard is much more difficult to prove by the taxpayer than the federal standard. The federal standard is more lenient and folks still end up losing in tax court. Regarding capital gains underreported after the sale of a residence that was not according to the tax court taxpayers primary residence days present in the state center of Life Indicators Primary medical care Banking Social ties Household operations Declared domicile is only one factor of this multifactor approach. A declared domicile with formally filed documents can be contradicted with lived facts and that's Pressman in a nutshell. A more common application of this residence dichotomy when your clients own homes in multiple states is capital gains exclusion. Under section 121 it is only allowed for the sale of a primary residence that must have been the primary residence for at least two of the previous five years. Each individual has a $250,000 exclusion. Married couples filing jointly can combine for a $500,000 exclusion against capital gains that may have been owed. The statute itself does not define principal. Residents and clients with multiple homes in multiple states with different tax treatments face significant risk. The consequences Deficiency assessment accuracy related penalties Back tax exposure how is this litigated? We have a February 2026 federal tax court opinion in the PSARA case. In 2020 the taxpayer sold two residences reported capital gains tax owed on neither claimed the more expensive property had been his principal residence, which requires at least two of the previous five years. The Tax Court held evidence the taxpayer presented was insufficient to show that the Massachusetts house qualified as a primary residence sale. These were the factors. The taxpayer had no Massachusetts state income tax returns filed maintained an out of State driver's license Arizona all of his mail was sent to a P.O. box in New Hampshire. Absence of moving expenses furniture couldn't prove he spent enough days at this residence in Massachusetts Massachusetts for it to qualify as a primary residence. With the capital gains exclusion disallowed, he owed over $150,000 in capital gains tax. Although the New York assessment is stricter, more difficult for the taxpayer to demonstrate, evidence does overlap state tax filings Evidence of official tax residents in the claim state civic and personal records in state driver's license mailing address Health care seeking medical care in the state you're claiming to be your primary residence Family proximity in that state Evidence of relocation moving records numbers of days present in the state, not just utilities of the residents. New York raises the bar. Taxpayers claiming to have left New York must prove the domicile change by clear and convincing evidence. That means it's highly probable that the former New York taxpayer has re domiciled in a different state. When you review client files this week, you're looking for clients with residences in multiple states confirming which state they claim as their primary residence with the evidence to back it up before claiming residency in the lower tax state. But I have a house there or a section 121 exclusion from capital gains maybe is not wealth protection and may become wealth litigation. Thank you for joining us. Stay tuned for a preview of our next episode. What happens when the younger brother creates an irrevocable life insurance trust to thank the older sibling who twice donated bone marrow to extend his life, then six years later secretly redirects the one million dollar life insurance policy to nine other people as beneficiaries? Was the irrevocable trust ever funded and who actually owned the policy when the younger brother tried to redirect it. The California Court of Appeal had to decide. In the Dudek case, here's the million dollar problem. Years after a leukemia diagnosis, the younger brother signed an irrevocable life insurance trust, naming his older brother the bone marrow donor as trustee and co beneficiary of a million dollar life insurance policy. But when the younger brother as the insured settlor submitted the change forms about ownership and beneficiaries to the life insurance company, he made two handwritten corrections and failed to initial them. So the insurance company rejected the forms. The settlor never resubmitted. Six years later the settlor named nine people as beneficiaries. None of them was the older brother. When the settler died from m illness, the insurance company paid the nine. The older brother got nothing and the trial court concluded he had no case because the trust was never funded. Who prevailed on appeal? The older brother who donated bone marrow twice or the widow plus eight other people who received $1 million from the insurance company? If you advise clients using irrevocable life insurance trusts, the due duck appellate outcome impacts your client files, not just this family. In episode 114, Bone Marrow Brother Betrayed One Million Dollar Trust Litigation, we examine how two uninitial policy form corrections put an irrevocable life insurance trust on appeal, explore the donative transfer doctrine and analyze the appellate court's reasoning whether insurance company paperwork can override an irrevocable life insurance trust. This is part two of Disinherited, a, uh, Wealth Litigated series on what happens when the plan to cut someone out ends up in court. Different families, different estate plans, different heirs who weren't supposed to win. Some still do. Join us to see how each litigated and subscribe so you don't miss an episode.

Speaker B: This is Wealth Litigated where the real courtroom battles we analyze today are your roadmap to stronger asset protection and better wealth outcomes. Follow us on your favorite podcast platform or something. Subscribe on YouTube so you never miss a weekly episode. Questions or cases? Visit wealthlitigated.com questions this show is for informational and educational purposes only and does not constitute legal, tax or financial advice. No attorney client relationship is formed. Consult a qualified professional for advice specific to your situation and jurisdiction. Wealth Litigated is now adjourned.