Wills, Trusts & Estates Prof Blog

Trust Drafting Advice

Jonathan C. Lurie (Partner, McDermott Will & Emery LLP, Los Angeles, Calif.) and William R. Burford (Counsel, McDermott Will & Emery LLP, Los Angeles, Calif.) have recently published their article entitled Drafting Flexible Irrevocable Trusts, 33 ACTEC J. 86 (2007).

Here is the introduction of this article:

Trusts drafted in the United States have traditionally been narrowly tailored and well defined in scope and purpose, requiring judicial intervention—sometimes unsuccessfully—to adapt to changing wishes, needs and circumstances. Domestic trusts generally include a host of details that would be found in a nonbinding letter of wishes, if at all, in trusts drafted outside of the United States. Indeed, many trusts drafted outside of the United States include such a degree of flexibility—or, some would say, obscurity—that it can at times be difficult even to ascertain the identity of the beneficiaries from the document alone.

Much of the prolixity and constraint imposed on trustees and beneficiaries of domestic trusts may be ascribed to United States tax laws, which often require a variety of specific incantations to secure desirable tax consequences. Other factors, however, may also be at work, including mistrust of fiduciaries or a desire to control beneficiaries from the grave. While the type of broad, open-ended discretion common outside of the United States remains relatively rare in domestic trusts, the increasing adoption of multi-generational or dynasty trusts, coupled with the uncertainty surrounding the future scope and impact of estate taxes, have whet the appetite of many for greater flexibility in our drafting to allow future trustees and beneficiaries to adapt trust terms to unknown future circumstances.  This article discusses several relatively simple techniques that may be employed to add flexibility to a trust instrument as well as some of the tax considerations attendant to including such provisions in a trust.

Conservation Easements

Nancy G. Henderson (Partner, Henderson & Caverly, LLP, Rancho Santa Fe, California) has recently published her article entitled This Land Is Your Land, This Land Is (Still) My Land: Using Qualified Conservation Contributions to Preserve Cherished Family Properties, 33 ACTEC J. 72 (2007).

Here is the author's description of the article:

This article provides both a primer on qualified conservation contributions (QCCs) as well as an indepth discussion on certain aspects of QCCs, with a particular focus on qualified conservation easements (QCEs). The article is divided into five parts. The first part of the article addresses the federal income tax rules governing lifetime gifts of QCCs, including planning opportunities arising from the Pension Protection Act of 2006, which are due to expire on December 31, 2007. The article then turns to the estate tax benefits of QCCs, and, in particular, post mortem QCCs. Part three of the article addresses the use of QCCs in conjunction with other estate planning techniques, such as family-owned entities and qualified personal residence trusts. Part four examines briefly some of the state tax benefits of QCCs. The article concludes with an overview of the perceived abuses of QCCs and how recent negative attention from the IRS and Congress may affect the future of QCCs as a tax planning tool.

The Future of the Estate Planning Profession

Christopher P. Cline (Partner, Holland + Knight, Portland, Oregon) has recently published his article entitled The Fault, Dear Brutus, Is Not in Our Stars, But in Ourselves. Some Thoughts on the Estate Planning Profession, 33 ACTEC J. 34 (2007).

Here is the introduction of the article:

Why do we even do what we do? It seems that the job of an estate planning lawyer just keeps getting worse and worse. Large firms, traditionally places of opportunity and training, with some notable exceptions seem to be marginalizing or jettisoning the practice. As that happens, the number of adequately trained associates dwindles, putting greater pressure on smaller boutique practices to find qualified lawyers. And just at the time that this talent drain is occurring, the estate planning environment becomes more uncertain: grandstanding legislators drive estate tax repeal bills in to Congress on tractors to prevent family farms from going under even though there is no evidence that this occurs. States faced with the loss of the federal state death tax credit decide to simply pretend that it’s a prior year so they don’t have to lose revenue or actually draft new tax legislation that makes sense. Uniform acts breed like rabbits. Honestly, it’s enough to drive a person to become a consultant.

Faced with such problems, there seem to be few options. In light of the hash the government is making of Social Security and Medicare, many of us won’t be able to retire until the next Ice Age (which, in light of global warming, won’t be any time soon). This leaves us only with the options of pushing on or finding another job. And to those who choose the former, let me suggest that the best way to do so is not to keep doing the same thing over and over, all the time expecting to achieve a different result, the classic definition of insanity, but rather to redefine what we do. The modest proposal of this article is that we need to reinvent ourselves, if we’ve not done so already, in order to cope with this difficult new environment in which we find ourselves.

Disability Planning

William L. E. Dussault (Dussault Law Group, Seattle, Washington) has recently published his articled entitled Planning for Disability, 33 ACTEC J. 42 (2007). 

Here is the author's description of the article:

It is the purpose of this article to emphasize the need for, and method of, estate and personal planning for persons whose family members include persons who may be disabled. Basic special needs trust planning has become somewhat commonplace over the last 20 years. This article will review concerns that relate to testamentary and inter vivos planning for families with handicapped children. It will also expand the topic to include appropriate and necessary planning for the likelihood of late onset disability of a spouse or parent. This article will also review planning for the individual who has a disability and who receives funds during adulthood, when eligibility for publicly supported programs and services can be critically important. Finally, the article will offer some more sophisticated approaches that coordinate transfer tax strategies with disability planning.

Estate Planning for Unmarried Couples CLE

The American Bar Association Section of Real Property, Probate and Trust Law and the ABA Center for Continuing Legal Education are sponsoring a teleconference and live audio webcast on July 10, 2007 entitled Estate Planning and Cohabitation Agreements for Unmarried Couples.

Here is description of the program:

Since most legal standards are based on the marital contract, unmarried couples, same sex or otherwise, are not afforded the same rights and protections as married couples.  From such issues as employee benefits and housing rights, to the challenge of just having a relationship recognized, unmarried couples face an uphill battle. 

The increase in unmarried couples makes it more likely that estate planners will represent one or both partners.  What challenges/problems face this growing aspect of the population? Which estate planning strategies are most suitable for such clients? How can domestic partners provide for one another contractually in the event of death or break-up? Learn how to resolve these issues and better serve your clients.

Topics will include: 

• Differences and similarities between planning for married and unmarried couples
• Cohabitation agreements (with sample form)
• Estate planning for unmarried couples
  • Grantor Retained Income Trusts
  • Family Limited Partnerships
  • Charitable Remainder Trusts
  • Inter Vivos Trusts
  • Life Insurance
• End-of-life directives

Study Reveals that Paying Taxes May Make People Happy

John Tierney, Taxes a Pleasure? Check the Brain Scan, NY Times, June 19, 2007, reports that

The University of Oregon announced a new piece of research last week with a startling headline: “Paying taxes, according to the brain, can bring satisfaction.”

Note, however, that "this study did not exactly involve a nationally representative sample of taxpayers. The sample consisted of 19 female students at the University of Oregon. And they were not exactly paying taxes * * *."
   

“The most surprising result is that these basic pleasure centers in the brain don’t respond only to what’s good for yourself,” said Dr. Mayr, the psychologist. “They also seem to be tracking what’s good for other people, and this occurs even when the subjects don’t have a say in what happens.”

Judge Larry Seidlin to Retire

Judge Larry Seidlin who presided over disposition of Anna Nicole Smith's remains has decided to retire at the end of July according to Judge in Anna Nicole Smith case says he'll retire, CNN.com, June 19, 2007.
   

Judge Seidlin wrote that "it is now time for me to devote more of my daily life to my own young family and to pursue the many opportunities that have been offered to me outside the judicial system, and I have disregarded until now."

Standby Guardianships

Joshua S. Rubenstein (Co-Managing Partner, Katten Muchin Rosenman LLP, New York, NY) has recently published his article entitled Standby Guardianship Legislation: At the Midway Point, 33 ACTEC J. 2 (2007).

Mr. Rubenstein explains that "[s]tandby guardianship legislation allows a parent or guardian who suffers from a progressively chronic or irreversibly fatal illness to ensure the current, effective appointment of a guardian of the person or property of his or her minor children to act sometime in the future during the lifetime of the parent without affecting existing parental rights."

The conclusion of his article provides:

The past decade has seen the enactment of many new standby guardianship statutes. Currently, half of the states and the District of Columbia have incorporated such statutes into their bodies of law.  Hopefully, the remaining states will follow suit in the next decade, protecting the ability of terminally ill residents to provide and protect their children as fully as in the rest of the country.

Inheritance Rights of Unwed Fathers and Their Children

Linda Kelly Hill (M. Dale Palmer Professor of Law, Indiana University School of Law) has recently published her article entitled Equal Protection Misapplied: The Politics of Gender and Legitimacy and the Denial of Inheritance, 13 Wm. & Mary J. Women & L. 129 (2006).

Here is the conclusion of her article:

Inheritance is “one of the most essential sticks in the bundle of rights that are commonly characterized as property.” When a person dies without a valid will or certain property has not or can not be devised, the State must create a default plan to distribute the decedent's property. Yet while the State creates the intestate scheme, the right of inheritance remains with the decedent. Such right is not altered by one's familial position. The inheritance rights of unwed fathers and their children need to be afforded the same constitutional safeguards provided to all others. In accordance with equal protection, a State may create different, but constitutionally sound, evidentiary standards to prove the relationship between an unwed father and his child. States can also legitimately debate whether all parents, regardless of gender or marital status, should be held to a support standard in order to inherit from or through a deceased child. Such requirements can be established consistently with a decedent's interests. In so doing, equal protection will be properly applied, and the rights of inheritance will be affirmed.

2007 Estate Planning, Guardianship and Elder Law Conference

The 2007 Estate Planning, Guardianship and Elder Law Conference sponsored by the University of Texas will be held August 9-10, 2007 at the Moody Gardens Hotel in Galveston, Texas.

This * * * program offers multiple guardianship and ethics sessions, as well as practical advice on a wide array of topics:  the top ten common client issues; funding marital deduction and bypass trusts; planning options for beneficiary designations; recent wills and trusts cases; Medicaid Estate Recovery Program claims process; Medicare facts and questions; and more. Friday morning features the popular “Ask the Experts” breakfast Q&A.

Recommendations to Prevent Abuse of Durable Powers of Attorney

Nina A. Kohn (Assistant Professor of Law, Syracuse University College of Law) has recently published her article entitled Elder Empowerment as a Strategy for Curbing the Hidden Abuses of Durable Powers of Attorney, 59 Rutgers L. Rev. 1 (2006).

Here is an excerpt from the article's conclusion:

[M]ost states' DPOA enabling statutes create powerful documents that allow agents to exercise broad discretion while providing little guidance as to how they are to make decisions on behalf of principals. The result is a system in which enforcing an agent's fiduciary obligation is difficult, agents face uncertainty and confusion, and principals are fundamentally disempowered. Such a system not only facilitates financial exploitation of elders, but also unnecessarily burdens agents and has the potential to transform family dynamics at the expense of principals' physical and psychological well-being.

One way to clarify the DPOA relationship and the expectations of principals and agents alike--and at the same time address concerns about financial exploitation--is to have the AIF and the principal communicate openly with one another about expectations and potential transactions undertaken pursuant to the DPOA. However, only six states have statutory requirements that explicitly require the AIF to keep in contact or communicate with the principal, and there is no general common law duty to do so. Moreover, in no state is an agent necessarily required to notify a principal before undertaking a transaction, even if the principal has full capacity and the transaction would fundamentally transform the principal's life.

To continue to allow agents to act without communicating with principals is to ignore agents' basic duty of obedience. Moreover, the benefits of such communication far outweigh any additional burden it may place on the parties. Communication clarifies the agent's role, discourages the agent from acting in a manner inconsistent with the principal's wishes and values, reduces the extent to which the relationship can be expected to disempower the principal, and increases the chance of discerning misuse by putting the principal in a better position to monitor the relationship for exploitation.

Although it is unrealistic and unreasonable to require such communication to take place in advance of all transactions, some transactions are so fundamental to the principal's life and lifestyle that the agent should be explicitly required to notify the principal before undertaking them. Requiring notification of such “fundamental transactions,” will help curb over-reaching and allow elders greater control over their own lives. Moreover, by giving protection to agents who do engage in advance notification, states can protect well-meaning agents from subsequent legal challenges and the legal system from avoidable litigation.

These simple reforms would help DPOAs live up to their promise of being tools of empowerment. * * * In short, the DPOA, which for so long has been touted as a way to increase elder autonomy, could finally become a tool for advancing society's acceptance of the notion that elders retain autonomy.

Zip Code to Impact Life Insurance Rates

According to Rebecca Knight, Providers move to postcode terrorism cover, Financial Times, May 28, 2007:

US life assurers are adopting a more aggressive model to reflect the greater likelihood that certain neighbourhoods will fall victim to terrorist attacks or catastrophes.

The move, in which the industry has implemented the kind of risk management tools previously restricted to property and casualty insurance, means that life assurers could start to charge clients according to which city or even which neighbourhood they live in. * * *

For instance, clients in neighbourhoods and postal codes that contain a large number of high-profile, high-rise buildings or are within an area with a perceived greater risk for earthquakes might cause assurers to adopt a more aggressive underwriting model.

Special thanks to Prof. Joel C. Dobris of the University of California-Davis for bringing this article to my attention.

Half-Blooded Heirs

Ralph Calhoun Brashier (Cecil C. Humphreys Professor of Law, University of Memphis) has recently published his article entitled Half-Bloods, Inheritance, and Family, 37 U. Mem. L. Rev. 215 (2007).

Here is the conclusion of his article:

Into the twentieth century, states retained inheritance laws excluding half-blood relatives in all or many instances. Some of these laws were merely antiquated property rules having nothing to do with the presumed intent of the decedent. By mid-twentieth century, most states had rejected these exclusionary approaches. Most states decided instead to treat half-blood relatives the same as whole-bloods. The UPC adopted this approach without comment several decades ago.

In recent decades, however, the continuing evolution of American family life has had a significant impact upon half-blood relationships. As more individuals procreate with different partners, more half-sibling relationships arise in society. Today, many half-blood relatives do not consider each other family. Many half-blood relationships are bitter and vicious; others involve no enmity, but also no interaction. Heir hunters and DNA tests now prove half-blood connections that neither the decedent nor his heirs presumptive had suspected. Taking advantage of the UPC approach, half-blood relatives have walked away with all or a substantial part of a decedent's estate at the expense of those individuals the decedent had reasonably believed to be his closest relatives.

Survey responses concerning the proper treatment of half-blood siblings suggest the inadequacy of the UPC's extreme position. One alternative is a statute permitting different distributions based on the decedent's family structure and circumstances. A limited-objective statute might begin with a presumption of exclusion. The half-blood relative could rebut the presumption by establishing statutorily-defined factors indicating the decedent's probable wish to include her. A second alternative, which departs substantially from traditional intestate schemes, is a statute granting judges significant discretion on the question of half-blood inclusion.

If lawmakers are unwilling to move beyond existing fixed-rule approaches for half-blood survivors, then they should look to the compromise fixed-rule approaches. These approaches are easy to apply and give predictable results. They include the half-blood relative in the estate distribution but give the whole-blood relative a larger portion. With all-or-nothing fixed-rule approaches completely thwarting the probable wishes of many decedents in modern families, the compromise approaches are the best of the fixed-rule solutions.

James Brown Update

The following updates about James Brown's estate are from Sandi Martin, James Brown's financial estate - like his life - proving to be a messy situation, Morris News Service, June 15, 2007:

• $24 million that Mr. Brown supposedly received for selling his music's future earnings cannot be located.
• Judge Jack Early granted the request of the special administrators on Wednesday (June 13, 2007) for a court order requiring the executors to turn over financial documents starting from 1999.
• Judge Early agreed to decide whether to remove a New York law firm from representing Brown's estate for allegedly being in a conflict of interest position.