Wills, Trusts & Estates Prof Blog

The Senate's 2012 Farm Bill

Congress is writing the upcoming farm bill, and Kansas farmers, along with other similar farmers prioritize effective and affordable crop insurance. Farmers prioritize this insurance because it provides them an effective risk management tool, especially because many of their losses are beyond their control.

The U.S. Senate Agriculture Committee recently approved its version of the 2012 farm bill. Sen. Pat Roberts advocated to strengthen and preserve the crop program. The Senator is proud of the bill that they have produced because it fulfills their duty to taxpayers and strengthens the programs important to agriculture. The Senate plans to reduce the nation’s debt by $23 billion.

See John Schlageck, Asset Protection, The Emporia Gazette, May 26, 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

Duties of a Trustee

Trustees have some serious responsibilities as managers of a trust. ElderLaw Answers provides a brief overview of those responsibilities as follows: 

1. Fiduciary Responsibility: This responsibility to act in the best interest of the beneficiaries of the trust heightens the level of attention you should pay to investments and disbursements.

2. The Trust’s Terms: You should read the terms carefully and be guided by the specific language in the trust.

3. Investment Standards: Make prudent investments and avoid risky or speculative ones. Be sure to consider interests of current and future beneficiaries.

4. Distributions: When deciding whether to make a distribution, you should evaluate a beneficiary’s current needs, future needs, other sources of income, and responsibilities to other beneficiaries before you decide. You should also be sure to make these decisions in light of the size of the trust.

5. Accounting: Keep track of all income to, distributions from, and expenditures made by the trust. Usually, you will have to give an accounting annually.

6. Taxes: You will have to file an annual tax return and you may have to pay taxes. You should keep good records and turn these over to an accountant to prepare the tax return.

7. Delegation: You cannot delegate your responsibility as a trustee, but you can delegate financial advisors to make investments, accountants for taxes, and bookkeeping, and lawyers to help you interpret the trust terms.

8. Fees: As a trustee, you are entitled to reasonable fees for your service. Generally, this determination of reasonableness will be based on the amount of work involved, the amount of funds in the trust, other expenses paid out by the trust, your professional experience, and the overall expenses for administering the trust.

See A Brief Overview of a Trustee’s Duties, ElderLaw Answers, May 27, 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

Executor Accuses Staff of Huguette Clark of Coercing the Heiress

Huguette Clark, heiress to a $400 million fortune, allegedly gave $44 million in gifts to most of the individuals who cared for her in her last years. Ms. Clark gave gifts to her doctors, nurses, accountant, and lawyer. She also gave the hospital where she lived at for the greater part of two decades a substantial donation. She gave the most property to her long-time nurse. In total, her nurse received $31 million in gifts. The least amount of money she gave was to her accountant. Her lawyer received less cash money than her accountant; however, he also received close to $2 million to purchase a security system for his daughter's community, who was living within the West Bank in Israel following September 11th.

Now, the Executor of Clark's Estate is claiming that these individuals coerced Ms. Clark into giving them gifts. The petition claimed that these gifts were the product of fraud and undue influence. The Executor is asking that the gifts made by Ms. Clark be returned to the estate. Furthermore, the Executor is expected to file a suit against her lawyer and accountant for breach of fiduciary duty and malpractice.

See Mark Hansen, Staff of Reclusive Heiress Coerced Her Out of $44 Million in Gifts, Executor Says, ABA Journal, May 23, 2012.

Special thanks to J. Barrett Shipp (The Law Office of J. Barrett Shipp, San Antonio, Texas) for bringing this article to my attention.

Gun Trusts: Protection From Violations of the NFA

As I have previously discussed, a gun trust is an unique type of trust that offers the protections of a traditional trust but is specifically designed to offer additional protections. For example, a gun trust takes into account the various gun laws that exist around the country to prevent inadvertent violations of the National Firearms Act. 

With this in mind, Texas has joined a number of states that allows the use of silencers when hunting game. Previously, the state had only allowed the use of silencers when hunting varmint. The new law is set to take effect on September 1, 2012. 

See David M. Goldman, Texas Legalizes Hunting with Silencers Starting September 1, 2012, Gun Trust Lawyer, May 16, 2012.

Four Ways to Keep Client Portfolios Safe Amidst Congressional Debates

Congressional debates over healthcare will likely lead to volatile equity markets for the remainder of the year. Andy Friedman, a principal of The Washington Update, recommends several steps to protect their clients’ portfolios from falling out:

1. Encourage clients to take advantage of current gifting opportunities. The money will be put into a trust and advisors can hang onto assets even after their client passes away.

2. Discuss selling certain stocks and dissolving concentrated positions. Capital gains taxes are set to rise when Bush tax cuts expire. Advisors should consider putting clients’ assets into stable investments.

3. Consider investments that provide tax deferral and retirement income guarantees for retirement planning.

4. Provide reliable retirement income through variable annuities.

See Donna Mitchell, Guiding Clients Through Washington’s Healthcare, Budget Debates, Financial Advisor Magazine, May 22, 2012.  

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

Boomers, Elders, and Money

Baby Boomers and their parents would rather pass along family stories than personal possessions. The 2012 Allianz Life Insurance Company of North America American Legacies did a study that indicated 86% of boomers and 74% of people over 72 ("elders") rank stories and family history as the most important part of their legacy. Personal possessions came in second (64% of boomers; 58% of elders), and expectation of inheritance for financial well-being came in third (9% boomers; 14% elders).

All participants agree that an inheritance is not a right. Elders are more prepared for the transfer of their legacy than boomer children are. 50% of boomers have never sought help with their planning or initiated a conversation with their own children about inheritance issues. 75% of elders sought professional assistance to create plans, and 79% have had an in-depth discussion with their children about legacy planning.

See Paula Aven Gladych, Boomers Aren’t Interested in Leaving Money to Heirs, LifeHealthPro , May 24, 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

Personal Loans

There are some important aspects that a person needs to take into consideration when gifting and lending money to family members, especially children.

• A person can "freeze" their estate when they loan money. The lender basically loans the growth of an asset to someone else. Any growth that results is not taxable on the lender, with some exceptions. 
• If a person's child purchases an asset from them and the seller "take[s] back a loan as consideration for all or part of the sale price," then the seller will incur no negative tax consequences. However, if the asset appreciates in value then the seller could incur a capital gains tax. 
• For tax purposes, any income earned from property, such as rent, is not attributable back to the lender, unless the lender loaned the money to a minor.
• If the lender is a U.S. citizen or an equivalent, then that person is subject to our federal gift and estate tax rules. 
• If a person is an non-U.S. citizen (Canadian citizen) but his or her child lives within the U.S. then Section 274(2) of the Canadian tax code could apply to these types of loans.
• Canadian law states that indirect loans (loans made to person so that person can lend the money to another person, such as a child) are acknowledge to be made by original lender who loaned the money. 
• Repayment of a loan by a child to their parent generally is not taxable; however, any amount in excess what the child has to pay is considered taxable interest on the loan.
• If a persons wants to lend money to a minor child, then that person must establish a trust for the child.

See Tim Cestnick, Tips and Traps When Tapping the Bank of Mom and Dad, Globe and Mail, May 23, 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

Medicaid Service Rankings Among the States

United Cerebral Palsy has released a report listing the the best and the worse states when it comes to Medicaid service. Of the states, Arizona provided the best while Mississippi offered the worse service. For those of you who live in Texas, the state landed just one place above Mississippi for second to the worse Medicaid service in this country. Here is a complete list of all of the states.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

Man Buried In Coffin Made Out of Tree He Cared For

Frank Knight became the unofficial “tree warden” in Yarmouth. At that time, Dutch elm disease was attacking the elm tree population. Frank had local workers prune one tree’s diseased limbs carefully. This tree was nicknamed “Herbie,” and endured 14 cases of Dutch elm disease. Thanks to Frank’s attentive care, the tree made it to 217-years-old before finally succumbing to Dutch elm disease. That weekend thereafter, 103-year-old Frank died too. He will now be buried in a casket carved out of the 110-foot-tall tree.

See Eric Pfeiffer, 103-year-old Man to be Buried in Coffin Made From Tree He Fought For Decades to Protect, Yahoo! News, May 15, 2012. 

Special thanks to David S. Luber (Attorney at law, Florida Probate Attorney Wills and Estates Law Firm) for bringing this article to my attention.

Grandson Accused of Abusing Grandmother's Estate

A Grand Jury indicted William Ray Vance Jr. alleging that he took money from the estate of his grandmother, Florene K. Grace in a two-year scheme. The indictment does not detail how much money he allegedly took or how he used it. Court documents do indicate that he was in  a legal dispute with his mother for years and she had filed suit against him in 2009, saying that she owned 66% of a radio station that he operated in Nacogdoches. She claims that her son did not notify her of a $725,000 agreement for the radio station. Furthermore, she claims that he was improperly named the executor of his grandmother’s will. Vance now faces a felony charge of misapplication of fiduciary property of an amount between $20,000 and $100,000. His punishment could range between two and ten years in prison and a $10,000 fine. 

See Son of Former County Judge Allegedly Abused Grandmother’s Estate, Estate of Denial, May 24, 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

Man defrauds the IRS and Seventh Circuit Affirms His Punishment

In 1997, Brian Wasson co-founded Midwest Alternative Planning to market and sell sham trusts through what was once Aegis Co. Clients would pay Aegis $20,000 to $40,000 plus annual fees to set up overseas trusts for them to reduce their tax liability. Over ten years, the Aegis system eliminated more than $60 million in tax liability nationwide.

In 2000, the IRS discovered the scheme during a criminal investigation. In September 2006, Wasson was indicted for aiding in the filing of a false tax return. The indictment was superseded twice to include Wasson’s two business partners and charge the trio with conspiracy to defraud the IRS. There were extensive delays throughout the trial, but U.S. District Judge Michael McCuskey noted the complex nature of the case and did not add all of the delay periods to the total trial time.

When one of the three partners from the indictment died of cancer, and another pleaded guilty, both parties sought continuances. During the March 2009 trial, Wasson insisted that their system was legal, but the district court rejected Wasson’s good-faith defense and held that he was guilty of all charges. Wasson was sentenced to 15 years in prison and three years of supervised release under the 2008 guidelines. He was denied bond while the case was being appealed. On appeal, he attacked the delays in trial and argued that the indictment should be set aside under the Speedy Trial Act.

The 7^th Circuit rejected Wasson’s two claims. The court could not see how Wasson was even prejudiced by the continuances. The court also affirmed Wasson’s sentence under the 2008 requirements even though it led to a four –level increase in Wasson’s offense level.

See Joe Celentino, Court Won’t Let Tax Fraudster Skate Away, Courthouse News Service, May 24, 2012.

Special thanks to Ike Z. Devji (J.D.; Executive Vice-President, The Wealthy 100; Of Counsel Lodmell & Lodmell, P.C.) for bringing this article to my attention.

Asset Protection and Trusts

Aside from purchasing excessive liability insurance, the wealthiest members of our society are choosing to place their assets into trusts to protect them from their creditors. These trusts, called asset-protection trusts, act to shield the liquid assets that are placed within the trust from creditors. However, there are a few important aspects that a person might want to take into consideration when deciding whether or not this is the best option.

• This option would allow a person to continue to receive benefits from the assets located within the trust.
• However, this type of trust does not offer protection from past creditors. This type of trusts only shields a person's assets from future creditors. 
• There are a number of states that allow for the creation of one of these trusts. These states are Delaware, Nevada, New Hamsphire, and Alaska.
• A lawyer might want to consider advising a client that they should not place more than 50% of their total liquid assets within the trust, mostly because these trusts should act like a last resort and not their primary means of asset protection. 
• A person might want to consider other means to protect his or her assets, such as if a state provides asset protection in the form of Homestead Rights.
• Even if a person opts to place their assets within one of these trusts, it still might be a good idea to purchase excessive liability insurance. 
• The costs of creating this trust and retitling a person's assets can be high.

See Elizabeth Ody, Wealthy Americans Turn to Trusts to Shield Assets, Bloomberg, May 22, 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

Zuckerberg's Wedding Brings Estate Planning Issues

In the past week, Mark Zuckerberg, the founder of Facebook, married his longtime girlfriend Priscilla Chan. While the wedding was small, the money and property that Chan married into is not. It is likely that more money was spend on financial planning for their marriage than the actual marriage itself, considering the two large legal factors that will play into their finances as a couple:

• The first legal issue is that California is a Community Property state, which means that any money earned in the course of the marriage belongs to the both Zuckerberg and Chan. However, any money or property that one of the spouses earned before the marriage and any inheritance received in the either in the course of or before the marriage is considered to be separate property. Each spouse owns a one-half share in all community property. For Zuckerberg and Chan, this means that Chan is not entitled to any money produced from his Facebook stock because the couple married after the Zuckerberg received the initial public offering for his company. However, Chan is entitled to one-half the difference between the initial public offering and any money produced from an increase in the stock's value.
• There are also certain tax advantages to the marriage. Reportedly, Zuckerberg has already taken advantage of the gift tax, by making $37 million in gifts to his unborn children. Furthermore, Zuckerberg can take advantage of the fact that California does not have an estate tax, and he can also take advantage of the unlimited martial deduction, which provides him the opportunity to avoid taxes on property that he gives or receives from Chan. 

See Deborah L. Jones, Mark Zuckerberg Ties the Knot, But It Isn't All Love and Roses, Forbes, Mary 20, 2012.

Special thanks to Joel Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.

Hospice: The New Primary Care

The new health care law offers incentives for hospitals to send re-admittable patients to hospice care as alternative means of health care. The new law provides many benefits to hospitals. For example, the law would provide a means for hospitals to avoid Medicare penalties associated with the re-admitting of patients within 30 days of discharging them. From the point of view of the hospital, this move is seen as having the potential to cut costs under Medicare in a large way. After all, the costs per day of a patient in hospice care under Medicare is only $151.

However, those who take the point of view of prospective patients argue that this policy is contrary to the goal of general health care law, which is to provide the best care for the patients. Some argue that the whole idea behind hospice care is to provide care for those whose life is about to end; therefore, these people conclude that hospice care might not be what is best for some patients because its goal are not to cure a patient but to aid patients who are about to die. 

See Kelly Kennedy, Hospice Being Marketed As A Cost-Cutter For Hospitals, USA Today, May 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

Multiples Marriages and Estate Planning

Estate Planners might want to the consider the different needs of couples who are on their second or third marriage. These couples are different from couples who are on their first marriage because these couples are likely to have different goals when they are creating their estate planning documents. Therefore, it is important to note that the goals and ideas that an estate planner would use for a couple who is on their first marriage probably would not work now.

Furthermore, there are other considerations that an estate planner might want to take into consideration. First, an estate planner might want to make addition plans if one spouse has considerably more assets than the other. In these types of situations, a pre-nuptial agreement might be necessary. It is possible to provide income for the spouse during their life through a trust or life estate, while distributing the remainder man to the children of the wealthier spouse. Second, an estate planner might want to also consider long-term care and disability planning. Third, an estate planner might want to have the couple discuss their goals together to determine whether the couple can seek joint representation or will need separate lawyers. 

See Wswendson, Estate Planning for Second Marriage, Estate Planning.com, May 18, 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

Facebook Bans Photos of Child's Brain

Heather Walker, of Memphis, Tennessee lost her baby, Grayson, to anacephaly, That is a condition where the baby develops without parts of the brain and the skull.

Heather posted photos of her son’s open skull to hopefully help other patients going through the same situation. Facebook banned the photos, and replaced them with a threatening message to remove them. Heather will not be banning her Facebook account despite the threatening messages in place of the removed photos. Facebook admitted and apologized for their mistake in removing those photos.

See ‘Facebook’s Mistake Was Blessing,’ Says Mother of Baby Born with Severe Brain Defect, RadarOnline.com, May 21, 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

CLE on Estate Planning, Guardianship, and Elder Law

UT is hosting its 14^th annual CLE entitled, Estate Planning, Guardianship and Elder Law Conference. The CLE will be August 8 – 10 at Moody Gardens Hotel in Galveston. An overview of the conference is below:

The Estate Planning, Guardianship and Elder Law Conference—part of UT Law's Summer Conference Series— presents practical tips and advice for estate planners and elder law attorneys, offers essential information for guardian ad litems, and provides a must-have set of materials and resources.

2012 highlights include:

•    Discussion of the current Collision of Real Estate Law and Elder Law

•    "2012 Case Law Update" with Professor Gerry W. Beyer

•    New developments in planning for wartime veterans

•    Guardianship essentials and hot topics—3.75 hours of Guardianship credit expected

•    Current issues and “How-Tos” regarding Medicaid

•    The popular "Ask the Experts" panel returns

•    FAQ Luncheon panels on both Thursday and Friday

This conference is informative and informal—participants are invited to dress casually and bring the family to enjoy Moody Gardens on Galveston Island!

Please click here to register. 

In Opposition to "DIY" Estate Planning

There are many problems that can arise from "DIY"or Do-It-Yourself Estate Planning. This practice has become more common with gifts of real estate property where little or no money is exchanged. One of the more common mistakes with DIY Estate Planning usually occurs when a person fails to file his or her gift tax. Now, the IRS is increasing its enforcement of the gift tax and are specifically looking for this type of transaction. What makes this troubling is that the failure to do so could result in criminal penalties. The fact that lifetime gift tax exemption is $5 million adds insult to injury because it is unlikely that most taxpayers will incur any tax.

To ensure that a taxpayer is in compliance, that taxpayer might want to consider speaking to an attorney. The consequences for not filing vastly outweigh any costs that could result from filing a gift tax or seeking help from an attorney. 

See Robert L. Firth, Estate Planning & Gift Tax in California: DO NOT "Do-It-Yourself", JDSupra, May 16, 2012. 

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

Legal Battle Over Parks' Estate Continues

As I have previously discussed, the lawyers that were placed in charge of the Estate of Rosa Parks were accused of overcharging her estate with unnecessary legal fees. Now Alan May, the lawyer of the two probate attorneys, has fought back. May claims that not only did his clients, Chase and Jefferson, charge Rosa Parks' estate appropriately but also that they acted within the best interest of the estate when they tried to preserve the value of Parks' assets. 

See David Ashenfelter, Lawyers Accused of Overbilling Parks Saved Her Belongings, Attorneys Says, Detriot Free Press, May 17, 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

Preparations For The Expecting

Expecting parents or parents of newly born children might want to consider the following estate planning steps to secure the future care of their child:

• First, a couple might want to consider purchasing life insurance to provide support for their children or each other should one of the spouses die unexpectedly.
• Second, a couple might want to consider the tax advantages associated with gifting portions of their estate to their children. If a person does this correctly, it could reduce a person's estate tax.
• Third, parents might want to consider setting up a trust for their children. A couple could use a trust to effectively establish a payment plan to provide support for their children throughout the course of their lifetime. It helps ensure that the child's inheritance will not be squandered. 
• Fourth, parents might want to ensure that they have selected a guardian for their children should they die unexpectedly.
• Finally and probably most importantly, parents might want to consider updating their will or creating a will to reflect their new addition to the family.

See Larry Bodine, Choosing a Name and a Lawyer For Your Baby, Lawyers.com, May 14, 2012. 

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.