Wills, Trusts & Estates Prof Blog

New York STOLI Litigation

When an investor convinces someone to purchase an insurance policy on their life and then purchases the policy from the insured, gambling on the length of the insured's life, this is called a stranger originated life insurance policy (STOLI).

Justice Edmead of the Manhattan Supreme Court recently concluded that an insurance company's failure to pay an on an alleged STOLI may violate the very statute created to prevent a STOLI in the first place, allowing discovery on the issue to proceed. Phoenix Life Insurance Company v. The Irwin Levinson Insurance Trust II, 600985-08.  Below is a summary of the facts in the case.

• Levinson was an elderly man who had battled cancer.
• The Phoenix Life Insurance Company issued a $5 million policy to his trust.
• After Levinson died, Phoenix filed suit against the trust to rescind the policy.
• Phoenix alleges the policy was a really STOLI hiding behind a trust to get around New York laws that aim to prevent STOLIs.
• The trust alleges that failure to pay the trust is a deceptive practice under the same consumer protection statute that was to prevent STOLIs.

See Noeleen G. Walder, STOLI Scheme Alleged in Bid to Drop Policy, NY L.J., Feb. 23, 2009.

Damages for failure to sell real property not properly measured by appraised value

A coal mine was the sole principal asset of a testamentary trust created in 1921. The testator directed the co-trustees to hold the mine absent “very radical change” from current conditions.

The revenue from the mine began to decline greatly during the mid-1980s and in 1987, the then sole trustee obtained an order from the appropriate court allowing the mine to be sold. In 1986, the mine was appraised at $1.1 million and was finally sold for $350,000 in 1997.

In 2007, the beneficiaries sued the trustee and won damages for failure to diversify based on a failure to sell for $1.1 million in 1987.

The Supreme Court of Virginia in Suntrust Bank v. Farrar, 675 S.E.2d 187 (Va. 2009), reversed and rendered judgment for the trustee because the beneficiaries failed to bring forward evidence showing the existence of a willing buyer at the appraisal price at any time after 1987.

Intestate Succession under the Catalan Code

Maurici Perez Simeon has recently posted on SSRN his article entitled Legal Rights v. Will When Testator's Beneficiary Predeceases the Testator, InDret, Volume 3, 2008.

Here is the abstract of his article:

Section 144.2 of the Catalan Code of Succession provided that whenever a testator's beneficiary predeceased the testator, his issue should take his share. Since the Catalan Code of Succession entered into force, there has been an important debate among academics regarding whether the issue of a predeceased beneficiary should take before the other testator's beneficiaries in proportion to their shares and/or before the "vulgar substitution." The underlying debate is the role that legal presumptions should have for the interpretation of testamentary provisions.

Section 423-8 of the Catalan Civil Code's Book Four, recently approved, sets forth a similar provision, even though presenting new challenges regarding the scope of the above-mentioned rule and its judicial interpretation.

Michael Jackson -- Update

The following information is based on Michael Jackson's will; Jackson service set for Tuesday, BBC News, July 3, 2009;  Andrew Edgecliffe-Johnson, Jackson sales surge outstrips Presley, Fin. Times, June 30, 2009; Christopher Beam, Grave Concerns: Is it legal to bury Michael Jackson at Neverland Ranch?, Slate, July 1, 2009, and Abhinav Ramnarayan, Michael Jackson's ex-wife wins delay in child custody hearing, guardian.co.uk, July 3, 2009:

• Michael's will is a complete pour over, that is, his entire estate passes to the Michael Jackson Family Trust.  Thus, the actual disposition of Michael's estate is unknown.
• However, there are rumors that his mother receives 40%, his three children share in 40%, with 20% passing to children's charities as determined by the trustees.
• Michael's mother, Katherine, is named as the guardian of the persons and estates of his three children.  Singer Diana Ross is named as the alternate guardian.
• The court has granted Katherine temporary custody of the children.
• Debbie Rowe, the birth-mother of two of Michael's children, was successful in delaying a custody hearing.  She now has time to decide if she will seek custody of the two children.  Debbie also indicated her willingness to undergo DNA testing to show that she is also the biological mother (as compared to merely the birth mother) of these children.  A hearing will occur on Monday, July 6, 2009.
• The birth-mother of Michael's youngest child is unknown.
• A public memorial for Michael is planned for Tuesday, July 7, 2009, at the Staples Centre in Los Angeles.
• The value of Michael's estate is increasing rapidly due to huge sales of his recordings.  For example, Amazon.com, reports selling more of Michael's music in the 24 hours after his death than in the last 11 years.  This is bigger surge than after the deaths of Elvis Presley and John Lennon.
• 100 plus hours of video and audio footage of the rehearsals of his planned comeback tour could be extremely valuable.
• Neverland Ranch may be transformed into a tourist attraction modeled after Graceland.

Farms and the Federal Estate Tax

Don Hurst (USDA, Economic Research Service) has recently posted on SSRN his article entitled Federal Tax Policies and Farm Households, Economic Information Bulletin 54.

Here is the abstract of his article:

Significant changes in Federal individual income and estate tax policies have occurred over the last 10 years. Analysis suggests that changes in Federal tax provisions affecting both individual and business income taxes have reduced average tax rates for all farm households, resulting in the lowest tax burden on farm income and investment in a decade. Similarly, an analysis of the changes to Federal estate tax policies suggests that increases in the value of property that can be transferred to the next generation free of the estate tax, combined with special provisions for farmers and other small businesses, have greatly reduced the number of farm estates subject to the tax and the amount owed. While nearly 10 percent of commercial farm estates could owe tax in 2009, only 1 to 2 percent of all farm estates are estimated to be subject to the Federal estate tax this year.

Treasure Hunter Loses Bid to Find His Treasure

Nathan Smith, a musician, was inspired by the movie National Treasure and began hunting for his own booty.  Using Google Earth, he thought he found the site of a sunken ship bearing $3 billion worth of Southwest of Houston, and confirmed it when he visited with a metal detector.  Smith filed a lawsuit seeking property rights to the treasure, claiming the ship lies beneath navigable waters.  The landowner where the waterway is located opposed. 

It appears that after two years of litigation in Smith v. The Abandoned Vessel, the district court ruled against Smith and his appeal to the Fifth Circuit has been denied. 

This setback may not stop Smith, however, who said in 2008 that for three years he had been seeking "the Lost Dutchman's gold mine, the Franklin Mountains treasure, Jesse James' buried treasure, Belle Starr's iron door, the Lost Peg Leg gold and numerous others." 

Mary Flood,Fortune hunter believes he has Googled gold, Houston Chronicle, Dec. 30, 2008; see also Justia.com on Smith v. The Abandoned Vessel. 

Special thanks to Boyd K. Johnson (attorney, Vest & Johnson) for bringing this interesting story to my attention.

Article argues for Repeal of Estate Tax on Gifts Made with Strings Attached

Richard L. Dees (partner, McDermott, Will & Emery) has recently posted on SSRN his article entitled Time Traveling to Strangle Strangi (and Kill the Monster Again): Part 2. 

Here is the abstract of his article:

In Part 2 of this article, the author argues that the solution to the problems of the Strangi cases detailed in Part 1 (see Tax Notes, Aug. 13, 2007, p. 563) is repeal of section 2036 and the other estate tax sections that include in the estate gifts made with retained 'strings'. The author proposes that repeal of these estate tax provisions will end for all time the problematic application of section 2036 to partnership and corporate interests. The author proposes coupling repeal with a change treating most irrevocable transfers with 'strings' attached as complete for gift tax purposes. The author believes that the opportunity to establish flexible succession plans without running afoul of section 2036 will encourage business owners, particularly small business owners, to make gifts implementing those plans. Thus the author's change is likely to produce gift tax revenue to help offset other reductions in the estate tax. The author also considers some of the technical issues in implementing his proposed tax changes.

Are express and constructive trusts closer kin than usually thought?

Lionel Smith (Director, Quebec Research Centre of Private and Comparative Law) has posted his article on SSRN entitled Philosophical Foundations of Proprietary Remedies, PHILOSOPHICAL FOUNDATIONS OF THE LAW OF UNJUST ENRICHMENT, R. Chambers, C. Mitchell, J. Penner, eds., Chapter 10, OUP, 2009.

Here is a summary of the article:

In the law of unjust enrichment, the question when a plaintiff should have access to proprietary remedies is one of the most controversial issues. This paper attempts to expose the philosophical and historical foundations of the most important category of proprietary remedies; namely, trusts arising by operation of law, including trusts over traceable proceeds. In so doing, it also explores the historical and philosophical foundations of all trusts, and emphasises the conceptual unity between constructive trusts and express trusts.

Enjoying Art as Collateral

Art Capital Group specializes in lending to art owners in need of cash.  The art owners put of their painting as collateral, which Art Capital will sell for a commission and repayment of the original loan in the event of a repayment default. 

The average loan: $5 million with 2 years for repayment.  This means your average art owner need not apply as only serious art collectors will have collateral in the form of art worth this much. 

See Felix Salmon, A visit to Art Capital Group, Rueters Blog, June 10, 2009.

Trust laws in England and Wales -- are they gender biased?

Simone Wong (Senior Lecturer, Kent Law School) has posted her article on SSRN entitled The Iniquity of Equity: A Home-Sharer's Tale, Singapore J. of Leg. Studies 326 (Dec. 2008).

Here is a summary of the article:

The article is concerned with the application of trusts law in disputes between home-sharers who are cohabitants in England and Wales. It considers the criticisms made of trusts law in dealing with such disputes, and the proposals of the Law Commission for England and Wales in its 2007 Cohabitation Report. However, as plans to introduce any new legislation have been shelved by the British government, cohabitants must continue to rely on trusts law. In the light of these developments, the aim of the article is to critique Equity's response in disputes over the shared home and, more particularly, whether the remedial approach evinced in recent cases will enable trusts law to respond in a fairer manner in these disputes. The article will, however, argue that trusts law remains gender biased because of its continued emphasis on financial contributions, and will thus discriminate disproportionately against female cohabitants.

Michael Jackson's Will Released -- Read it for yourself!

Follow this link to see a copy of Michael Jackson's will.
   
   
 

AALS Section on Trusts and Estates Call For Papers for 2010 AALS Annual Meeting

Trusts and Estates law was for centuries a fairly stable, if dusty, body of doctrine. Over the past few decades, however, striking changes in the economic, legal and social landscape have prompted an explosion of new doctrinal developments. Major trends in banking and tax law – including the gradual elimination of Glass-Steagall, which resulted in mergers of investment and commercial banking institutions and increased competition for trust business, and the Economic Growth and Tax Relief Reconciliation Act of 2001, which is set to expire next year -- spurred the development of dynasty and domestic asset protection trusts and significant changes in fiduciary duty law governing trustees’ management and investment duties. Banks’ demand for more predictability in law helped jump start a trend away from common law and toward codification, which produced the Uniform Trust Code and increasingly detailed revisions to the Uniform Probate Code. Cultural changes and scientific and medical advances caused states to grapple with their conception of family relationships, and with treatment of end-of-life issues.

The AALS section on Trusts and Estates issues a call for papers that evaluate and critique these and other trends and developments in Trusts and Estates Law. Those chosen will present papers at the 2010 AALS Annual Meeting in New Orleans during a program entitled Changing Times, Changing Law: Evaluating Legal Trends in Trusts and Estates Law. To encourage greater participation and attendance, some preference will be given to academics who have not previously presented at the AALS Annual Meeting. Please submit papers by August 24, 2009 to Melanie Leslie at Leslie@yu.edu.

Exchange of life insurance policies not imprudent

The Indiana intermediate appellate court upheld as prudent a trustee’s decision to exchange variable universal life (VUL) insurance policies on the life of the settlor for a standard whole life policy with a death benefit less than one-third that of the VUL policies.

The VUL policies were losing money because of declines in the stock market and maintaining them would require additional contributions to the trust which were beyond the financial capacity of the insured. The opinion contains an extensive review of the application of the Prudent Investor Act.

In re Stuart Cochran Irrevocable Trust, 901 N.E.2d 1128 (Ind. Ct. App. 2009).

Michael Jackson's Will -- Update

Earlier on this blog, I discussed Michael Jackson's alleged will.

Here is an update based on Source says Jackson will gives mom custody, MSNBC.com, July 1, 2009:

• Michael Jackson's mother (Katherine Jackson) is named as the guardian of his three children.

• All of his assets are left in trust.

• Filing of the will is expected to occur today (July 1, 2009).

• Burial at the Neverland Ranch may not be possible due to state law.

Special thanks to Neda Jahansouz (J.D. 2009, Texas Tech University School of Law) for being the first reader to bring this article to my attention.

Court filings in the probate and guardianship matters are available at http://www.scribd.com/doc/16974369/Michael-Jackson-Probate-Filings.  Special thanks to Greg Broiles for providing this link.

Book Review: Estate Taxation

Ronald H. Jensen (Professor of Law, Pace University) has recently posted on SSRN a Review of Federal Income Taxation of Estates and Beneficiaries, 20 Buff. L. Rev. (forthcoming).

Here is the abstract of the review:

Review of Federal Income Taxation of Estates and Beneficiaries by M. Carr Ferguson, James L. Freeland, and Richard B. Stephens. This comprehensive volume should help fill a void which tax practitioners have long endured. As the authors properly point out, though many volumes have been written on estate taxation and estate planning, relatively little attention has been given to the income tax consequences resulting from death. The present volume is a welcome and needed addition to the sparse body of literature on this subject.

Terms of Michael Jackson's Alleged Will Revealed

Here is some of the most currently reported information about Michael Jackson's alleged will:

• Prepared in 2002.

• Drafted by John Branca (an entertainment lawyer who Michael hired from 1980 to 2006 and rehired again earlier this month).

• Primary beneficiaries are his mother (Katherine) and his three children.

• A portion of his estate will also pass to various charities.

• His father, Joe Jackson, is not named as a beneficiary.

• The named executors are John Branca and John McClain.

• The will may be filed as early as July 2, 2009.

See Nick Allen, Michael Jackson's father Joe 'not named in will', Telegraph.co.uk, June 30, 2009 and Ethan Smith, Jackson Will From 2002 In Spotlight, Wall St. J., June 30, 2009.

Special thanks to the legion of faithful readers who are keeping me posted on the developments of this case which will provide us with months and perhaps years of "enjoyment."

Charitable Giving Techniques CLE

The ABA Section of Taxation and the ABA Section of Real Property, Trust & Estate Law are co-sponsoring a live course andcorresponding live video webcast CLE entitled Charitable Giving Techniques on July 9-10 in Seattle, WA.

A description of the program is below:

This annual course of study, taught by a small faculty of experienced practitioners, a professor, and a university financial officer, presents a comprehensive review of charitable giving techniques, both lifetime and testamentary, with full discussion of recent statutory provisions. Comprising more than 13 hours of instruction, it addresses the technical, mechanical, and legal sides of the issues, while also providing registrants with practical applications, pointing out common pitfalls, and offering “tips from the trenches.” Topics include:

• Charitable remainder trusts, charitable lead trusts, and pooled income trusts
• Property contributions and non-trust giving techniques
• Gift annuities
• Use of private foundations, donor-advised funds, and supporting organizations
• Post-mortem charitable planning
• Charitable giving tax pitfalls

A full hour is devoted to consideration of particular ethical dilemmas faced by attorneys practicing in this area. Time is reserved throughout the program to address registrants’ questions

Michael Jackson -- Will or No Will?

The debate rages whether Michael Jackson died intestate or testate.

In Michael Jackson's Estate in Court, myjoyonline.com, June 29, 2009, it is reported that Michael's parents, Joe and Katherine Jackson, claim in their probate filing that Michael died intestate.

However, in Michael Jackson's Will Surfaces, TMZ.com, June 29, 2009, it is reported that Michael Jackson's attorney, John Branca, is in possession of MJ's will and that he intends to file it with the court.

Fiduciary Duties in Canada

Robert Flannigan (Professor, University of Saskatchewan College of Law) has recently posted on SSRN his article entitled Fiduciary Accountability Transferred, 35 Advocs. Quarterly 334 (2009).

Here is the abstract of his article:

The Supreme Court of Canada has toyed with the boundaries of fiduciary accountability for three decades. Some of the criteria it has advanced to identify when fact-based accountability will arise (e.g. vulnerability, power differential, reasonable expectation) are vague notions that potentially derail the conventional function of the jurisdiction. Specifically, the criteria may be taken to support the view that fiduciary accountabilityregulates the merits or fairness of the actions of fiduciaries. In BCE Inc. v. 1976 Debentureholders, the court now appears to have explicitly adopted that view, albeit without recourse to any of the criteria it had previously identified. It also appears to have compromised the strict operation of the conventional regulation. The decision represents yet another novel turn, and a radical one, in the court's mercurial intercourse with fiduciary accountability.