Wills, Trusts & Estates Prof Blog

How Banks Get Business

Because for many private banks getting new customers can be an arduous task, they employ various techniques to facilitate this process.

Ian Driscoll, How to hook prospective clients, FT.com, Nov. 20, 2007, provides examples of the marketing techniques employed:

Once a year, the Cleveland office of private bank The Glenmede Trust invites clients and prospective clients fly-fishing at an exclusive club in north-western Ohio. The all-day outing and lunch comes with the imprimatur of the bank's Philadelphia headquarters, which encourages its satellite offices to sponsor locally flavoured events.***

He attributes the event's effectiveness to the mix of current and potential clients. “If your existing clients are your best referral sources, it's always good to have them mingling with prospective clients[.]”***

When it comes to wooing prospective clients and getting them to sign on the dotted line, most banks rely on three tools: intermediaries, entertaining and referrals. ***

When it comes to the ultra-high-net worth sector, Northern Trust's Mr Regan believes that referrals are the gold standard.***

One way to build that consideration is through the constant "noise" of advertising. It's especially important, say some bankers, when the sell cycle can be anything from three months to four years. And unlike smaller banks and wealth providers that may face budgetary pressures to produce content-heavy advertising, the big ones have the resources to run more subliminal campaigns.***

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

Medicare Updates

On November 15, 2007, the U.S. Department of Health & Human Services issued a press release entitled 2008 Open Enrollment for Medicare Part D Prescription Drug Coverage and Medicare Advantage Plans Begins Today.

Some of the highlights of the release include the following:

Medicare beneficiaries will be able to begin making enrollment changes in their health and prescription drug coverage for 2008[.]***The Medicare annual Open Enrollment Period for prescription drug plan runs from Nov. 15 through Dec. 31, 2007. ***

[“]The most recent satisfaction rate stands at 86 percent; the estimated average premium is 40 percent lower than originally estimated and total estimated costs are running $188 billion below initial projections.  Part D is a program that is working well and is helping Medicare beneficiaries with their prescription drug costs.”***

Starting [November 15, 2007], www.medicare.gov also provides beneficiaries with the five-star ratings of the quality and performance of plans that offer Part C and Part D services.  The plan ratings are intended to help people with Medicare choose an MA plan, a Medicare Advantage Prescription Drug Plan (MA-PDP), or a stand-alone Prescription Drug Plan (PDP) by combining cost and coverage information with quality and performance information.*** Part D (prescription drug plans) plans are rated on criteria such as customer service and providing drug pricing information.***

Another focus for this year’s open enrollment period involves signing up beneficiaries eligible for extra help, known as the Low Income Subsidy (LIS), to pay for their drugs. By providing information and enrollment assistance, CMS will encourage them to apply for the extra help and enroll in Part D.  For those LIS-eligible Medicare beneficiaries who may not have enrolled in part D in the past, CMS has announced that it is once again waiving the fee for late enrollment to make it easier to get these individuals the extra help they need.***

Artwork, Estate Tax, and Capital Gain

On the settlor's death, the IRS Art Advisory Panel appraised the artwork in his estate as having a fair market value of $36,636,630. However, the IRS agreed to value the artwork at $14,500,000 for estate tax purposes.

After the trust termination in 1995, the distributees sold the artwork and used the Art Advisory Panel’s appraisal of $36,636,630 as their cost basis. The Tax Court stated that this amount was inconsistent with the discount used to calculate the estate tax value. The Court ruled that the distributees should have used a cost basis of $14,500,000 instead.

The court stated that “[t]he Janises [distributes] succeeded in ‘getting through the IRS audit a low valuation of their property,’ perhaps an unreasonably low one, and thus have deprived themselves of the full step-up basis to which they may have otherwise been entitled.”

Robert L. Moshman, Esq., The Janis Art Gallery, Est. Analyst (Nov. 2007), analyses this tax quandary as follows:

Considering the range of 464 assets, each with a different cost basis, some with greater potential for appreciation, some destined for museum contribu- tions, some part of the gallery business, some to be kept in the family perhaps, a more customized combination of gifts, trusts, and a family limited partnership might have been more effective at minimizing future tax consequences. Janis v. Comm'r., 469 F.3d 256 (2nd Cir. 2006).

Estate Planner Licensed in Eight States!

Texas lawyer A.M. Nunley III was recently sworn into the Wyoming bar -- his eighth state!

Here is what Nunley said as reported in I Pledge Allegiance to the Republic of Texas, 70 Tex. B.J. 845 (2007):

Despite garnering jokes from colleagues, the move to become licensed in so many states was a more practical one than Nunley will let on. “A lot of my clients have vacation homes in Colorado, others have oil and gas leases in Oklahoma, and I had a couple of clients who moved to New Mexico in the 1980s. I can still give those clients sensible advice about their estate planning, even though they are in another state.” * * *

Aside from being licensed in eight states, Nunley is a certified public accountant in each of those states, certified in estate planning and probate law and tax law by the Texas Board of Legal Specialization, certified in elder law by the National Elder Law Foundation, and has taken on several pro bono cases.

I am especially excited for A.M. as he was one of my students when he was in law school.  He tells me that he may next attempt to get licensed as an English barrister!

Star Trek and Digital Wills

Earlier on this blog, I discussed a recent law review article discussing the possibility that wills could be completely in electronic form.

Episode 24 of Season 6 of Star Trek Voyager entitled Life Line shows one of the main characters, thinking that death was imminent, creating something that would be cross between a nuncupative (he spoke the property disposition scheme) and a digital (a computer recorded the will) will.

Special thanks to Matt Lambert (J.D. Candidate, Texas Tech University School of Law) for bringing this episode to my attention.

Happy Black Friday

I don't know about you, but I'm staying home -- grade some papers and maybe do some shopping on line.  Some stores here (Lubbock, Texas) opened at 4:00 a.m.  Bargain hunters started setting up their tents yesterday (Thanksgiving) afternoon and camped out all night in below freezing weather.  I hope none of this conduct triggered an accelerated need to implement their estate plans.

Buffet Testifies that Government Should Keep the Estate Tax Alive

Earlier on this blog, I discussed expected estate tax developments and their impact on the estate planning of many individuals.

Notably, not all those affected by the expected estate tax increase in 2011 oppose it. Billionaire investor Warren Buffett testified at a Senate committee hearing in favor of keeping the estate tax alive and proposing various amendments to make it more fair and workable.

Jeanne Sahadi, Buffett: Phrase 'death tax' is 'dead wrong', CNNMoney.com, Nov. 15, 2007 reports:

Those, like Buffett, who oppose repeal say it would be too costly for the government to give up the tax revenue.***

Buffett said he would raise the amount of estate assets exempt from the estate tax from the current level of $2 million to $4 million and end up with a top rate higher than 45 percent.

But, he said, he'd put in a more gradual slope in rates in terms of how heavily assets above that $4 million are taxed. He also indicated he might include an exemption for small family-owned businesses so that they wouldn't be forced to sell off assets to meet their estate tax bill.***

Buffett noted that he thought the code should be more progressive - meaning those who make more should pay even more than they do now relative to those who make less. "We ought to do more for [low-income Americans] and take more out of the hides of people like me."

Should Fees for Trust Investment Advice Be Fully Deductible?

James Loebl   (Associate Professor of Law, Valparaiso University School of Law) has recently posted on SSRN his article entitled The Section 67 Question: Are Fees for Investment Advice Fully or Partially Deductible by Trusts?

Here is the abstract of his article:

One of the more controversial questions in tax law in recent memory is whether a trust may fully deduct the fees it pays for investment advice or whether it must treat the fees as miscellaneous itemized deductions that are allowed only to the extent that the total of such deductions exceeds 2% of the trust's adjusted gross income. While the Sixth Circuit held in the trust's favor that such fees are fully deductible under §67(e)(1) of the Internal Revenue Code, the Federal, Fourth and Second Circuits subsequently agreed with the Government that such costs were miscellaneous itemized deductions subject to the 2% floor under §67(a). As result, the United States Supreme Court has granted the petition for certiorari in the Second Circuit case and will resolve the issue during the Court's 2007-08 Term.

This Article takes the position that fees for investment advice do not satisfy the two requirements under §67(e)(1) for full deductibility under a plain meaning interpretation of the statute. However, the Article concludes that §67(e)(1) should be amended so that costs incurred by trustees in fulfilling their fiduciary duties would be fully deductible. After providing the statutory background for the current dispute, this Article examines the opinions issued in the trial court and at the appellate level for each of the four cases that have reached the United States Court of Appeals. This Article then evaluates the decisions of the lower courts in light of the textualist approach to statutory interpretation advocated by several Justices of the Supreme Court and employed by the Court in Gitlitz v. Commissioner, and concludes that the Court will affirm the Second Circuit's decision. Finally, the Article discusses the policy considerations supporting the amendment of §67(e)(1).

Trusts Taxation in Switzerland CLE

On February 26 , 2008, Financial Events International will sponsor a CLE entitled Trusts Taxation in Switzerland in Geneva.

Among the key topics that will be fully analysed are:

• Switzerland as a jurisdiction of choice for trusts administration:
  • Confidentiality, know-how and reputation of the Swiss financial centres: a reasonable regulatory approach preventing the risk of over-regulation currently threatening some offshore jurisdictions
  • Switzerland as a “complete” financial centre offering some potential synergies among different branches in the industry (asset management, investment advise, custody, etc as long as fiduciary services)
  • The situation for the tax-payer before and after the law
• Will The Hague Convention usher into a domestic market for trusts in Switzerland?
  • Any lessons to be learned from Italy’s “trusts interni” approach and Malta’s inclusion of trusts in its civil law system?
  • The alternative situation of San Marino, Liechtenstein, Luxembourg: trusts markets for foreign clients only
  • Taxation of domestic trusts in the light of the Italian Circular 48/E and the Swiss CSI Circular 30
• Tax treatment of trusts
  • A clear framework needed, at least for “foreign” trusts.
  • Comparison with other civil law countries recognising trusts or otherwise coping with them ( Italy, France, Austria)
  • Possession of real estate in Switzerland by a trust
• The limits of the new Law
• The importance of trusts for Swiss family offices
• Trusts Swiss Real Estate Holding

The Viability of Life Insurance Trusts After Chawla

Reagan N. Clyne (2007 J.D. Candidate, University of Connecticut School of Law) has recently published her Note entitled The Chawla Decision: A Death Knell For The Use of the Life Insurance Trust in Estate Planning?, 13 Conn. Ins. L.J. 147 (2006-2007).

Here is the introduction to her Note:

Chicken Little ran around telling anyone who would listen that the sky was falling. According to some commentators today, the sky may well be falling again - at least as far as estate planners and the insurance industry are concerned. Troubling to all is a recent judgment that, if broadly read and widely applied, could render billions of dollars in life insurance policies void and eliminate the use of a widely used, basic estate planning tool: the trust funded by life insurance proceeds.

In February 2005, the Eastern District of Virginia issued a decision in Chawla v. Transamerica Occidental Insurance Co., wherein the district court denied the claim of the trustee for the proceeds of a life insurance policy owned by the trust and taken out on the decedent, a co-trustee. Although the court initially based its decision on the existence of a material misrepresentation of fact on the application, the case quickly gained notice for its alternate holding that the trust lacked an insurable interest in the life of the insured, and therefore was void.

Until the meaning of the holding is clarified on appeal, estate planners and the insurance market are in limbo as to the wisdom of using life insurance in trusts as a tool of estate planning. While there is significant disagreement over the possible effect of the decision, billions of dollars of life insurance policies could ultimately be affected if the decision is upheld and followed by other courts with statutes similar to the one governing the policy in issue.

After a review of the facts of the case and the district court decision, this Note will examine the general insurable interest requirement and the Maryland insurable interest statute at the heart of the case in order to analyze how the appellate court may decide the matter. This Note will then discuss the implications of various outcomes and possible responses.

Estate Tax and Art Collections - Examining Stone v. United States

Wendy C. Gerzog  (Professor of Law, University of Baltimore School of Law) has recently posted on SSRN her article entitled Valuing Art in an Estate, discussing the recent district court case of Stone v. United States which illustrates estate tax valuation facts unique to holding artwork.

Here is an excerpt from the introduction to her article:

The estate in Stone possessed a 50 percent undivided interest in 19 paintings. The controversy in the case centered on the value of two Pissarro paintings and on the appropriateness of a discount for the estate’s fractional ownership interest in the collection.

As a result of Lois Stone’s death on September 1, 1999, almost two years after her husband’s demise, their sons Robert and Gary, as trustees and beneficiaries of the J. Ralph and Lois Stone Trust, owned the property in her estate. On the decedent’s timely filed estate tax return, the sons valued her undivided 50 percent interest in 19 pieces of art at $1,420,000, computed by dividing in half the total value of the collection, as appraised by Sotheby’s, and by adjusting that figure with a 44 percent fractional interest discount as advised by FMV Opinions, Inc.

Wills, Estates and Probate CLE

The State Bar of Texas and the Real Estate, Probate & Trust Law Section of the State Bar of Texas are sponsoring a live via webcast CLE entitled Building Blocks of Wills, Estates, and Probate on January 8, 2008. 

Course topics will include:

• Basic Estate Planning
• Elder Law Planning and Issue Spotting 
• Document Assembly Products
• Office Technology and Administration 
• Probate Procedures and Alternatives
• Administration Issues

Barry Bonds’ Home Run Ball – Taxable Income?

Matt Murphy, a 21-year-old New Yorker, caught Barry Bonds’ record-setting 756th home run ball and immediately sold it for $752,467.20. Murphy acted on advice that he would owe income tax on the ball.

Here is what some of the bloggers on Peter Lattman’s Tax Law Final Exam Question: Barry Bond’s Ball, had to say about Murphy’s tax consequences:

• The Ball Is NOT Taxable Income

The home-run ball is essentially a gift from (pick one, Barry Bonds, The Giants, Major League Baseball) to the recipient…like getting a Bobble-Head prize for attending on Bobble-Head day.

Finding a home-run ball should be viewed like finding any other baseball…it is simply an object worth about $8. Any value others might ascribe to the ball is purely speculative.***

• The Ball IS Taxable Income

Catching a home-run ball is analogous to finding a treasure. It is an “accession to wealth” that is taxable currently.  Reg. § 1.61-14(a) provides: “Treasure trove, to the extent of its value in United States currency, constitutes gross income for the taxable year in which it is reduced to undisputed possession.”***

The ball is not a gift because it did not result from “disinterested generosity,” the standard of Commissioner v. Duberstein, 363 U.S. 278 (1960).***

See Robert L. Moshman, Taxing a Windfall Home Run, Est. Analyst (Nov. 2007).

Review of Raymond C. O’Brien & Michael T. Flannery, Decedents’ Estates: Cases and Materials (2006)

Earlier on this blog, I discussed a new casebook, Decedents' Estates: Cases and Materials, by Raymond C. O'Brien (Catholic University of America Columbus School of Law and permanent visitor at Georgetown University) and Michael Flannery (University of Arkansas at Little Rock School of Law).

Here are excerpts from a review of this casebook which was recently authored by Gerry W. Beyer (Governor Preston E. Smith Regents Professor of Law, Texas Tech University School of Law) and published in 29 U.A.L.R. L. Rev. 561 (2007):

The wills, trusts, and estates casebook market has long been dominated by excellent, time-tested works, several of which are in seventh editions.  It took considerable gumption for Professors Raymond C. O’Brien  and Michael T. Flannery  to enter into this mature market  with the 2006 publication by Carolina Academic Press of their law school course book entitled Decedents’ Estates: Cases and Materials (hereinafter the Casebook).  Unexpectedly, the Casebook provides a viable option to these well-established works by providing a fresh approach while maintaining the necessary coverage of traditional topics. * * *

I predict success for the Casebook and believe that it will bring its authors and their schools favorable recognition. Although long-time adopters of other time- and classroom-tested books may be reluctant to switch because of familiarity with their chosen material, Decedents’ Estates by Professors O’Brien and Flannery deserves serious consideration by both beginning and experienced trusts and estates professors.

Reprints of this review are available upon request.

Most Cited Wills, Trusts, & Estates Professors

According to Brian Leiter's Law School Rankings, the following are the most cited Wills, Trusts, and Estates professors:

1. Adam Hirsch (Florida State University), 210 citations, age 53.
2. Stanley Johanson (University of Texas), 180 citations, age 74.
3. Joel Dobris (University of California, Davis), 160 citations, age 67.
4. Lawrence Waggoner (University of Michigan), 160 citations, age 70.
5. Jeffrey Pennell (Emory University), 150 citations, age 58
6. Melanie Leslie (Cardozo Law School), 140 citations, age 46.
7. Robert Sitkoff (Harvard University), 130 citations, age 33.
8. Frances Foster (Washington University, St. Louis), 100 citations, age 52.
9. Jeffrey Schoenblum (Vanderbilt University), 100 citations, age 49.
10. Mark Ascher (University of Texas), 90 citations, age 54.

Runner-up: Grayson McCouch (University of San Diego), 80 citations.

Other highly-cited scholars who don’t work exclusively in this area: John Langbein (Yale University), 1000 citations; Stewart Sterk (Cardozo Law School), 420 citations; Gregory S. Alexander (Cornell University), 340 citations; Mary Louise Fellows (University of Minnesota), 270 citations; T.P. Gallanis (University of Minnesota), 100 citations.

Special thanks to Paul L. Caron (Associate Dean of Faculty, Charles Hartsock Professor of Law, University of Cincinnati College of Law) for bringing this information to my attention.

How to Obtain Protection from Phony Advisors – the Ask First Form

According to Protect Yourself: Ask First!, help4srs.org, 2007, while some financial advisors are perfectly legitimate and have their clients’ best interests in mind, others may provide sub-standard services and have hidden financial motives.

The California Attorney General recently cracked down on one company that was giving estate planning advice, and selling living trusts to Older Adults in California.*** [T]he company would find out all about an Older Adult’s finances and investments as part of the living trust planning process. Then the Older Adult would be approached to buy annuities, after selling or exchanging their existing investments. Annuities can generate significant up-front commissions for the seller, and over $200,000,000 of annuities were sold this way.***

This growing problem points out the need to know, in advance,

• if the new advisor has legitimate professional credentials,
• if the person will serve as a fiduciary and put your interests first, and
• how the new advisor gets paid.

H.E.L.P. has developed the Ask First! form as a tool to help you.*** Using the Ask First! form, you ask the advisor to disclose in writing his or her credentials and ways of being paid. Keep a copy of the form handy. Use Ask First! at the beginning, before you start a relationship with a new advisor.***

Special thanks to Neil E. Hendershot, Esq. (Attorney at law, Goldberg Katzman, P.C., Adjunct Professor, Widener University School of Law) for bringing this article to my attention.

You can read more on this issue on PA Elder, Estate & Fiduciary Law Blog.

Happiness is something that money cannot buy

In his article, All They Are Saying Is Give Happiness a Chance, Eduardo Porter, NYTimes.com, Nov. 12, 2007, reminds his readers that wealth does not guarantee long-lasting happiness.

The article explains:

Most disconcerting, happiness seems to have little relation to economic achievement, which we have historically understood as the driver of well-being. A notorious study in 1974 found that despite some 30 years worth of stellar economic growth, Americans were no happier than they were at the end of World War II. A more recent study found that life satisfaction in China declined between 1994 and 2007, a period in which average real incomes grew by 250 percent.

Happiness, it appears, adapts. It’s true that the rich are happier, on average, than the poor. But while money boosts happiness, the effect doesn’t last. We just become envious of a new, richer set of people than before. Satisfaction soon settles back to its prior level, as we adapt to changed circumstances and set our expectations to a higher level.***

While the extra happiness derived from a raise or a winning lottery ticket might be fleeting, studies have found that the happiness people derive from free time or social interaction is less susceptible to comparisons with other people around them. Nonmonetary rewards — like more vacations, or more time with friends or family — are likely to produce more lasting changes in satisfaction.

Estate Planning and Transfer of NFA Firearms – Examining the Alternatives

Joshua G. Prince, (J.D. Candidate, Widener University School of Law) has recently posted on the PA Elder, Estate & Fiduciary Law Blog his article entitled Estate Planning 101 under the National Firearms Act, paelderestatefiduciary.blogspot.com (2007).

Here are some excerpts from his article:

As an estate attorney, how do you handle the planning of an estate, which includes National Firearms Act [NFA] firearms? What if your client asks you, prior to his/her purchase of a NFA weapon, what is the best form of ownership, with long term estate planning in mind?

This issue may plague estate attorneys, leaving them to scratch their head in bewilderment as to the correct course of action. More importantly, a probate attorney may be flirting with malpractice, since the registration of NFA weapons is mandatory and ignorance is not a defense.

To begin, one must understand what a “transfer” of a NFA firearm entails, and which registration entity best suits his/her client. The Bureau of Alcohol, Tobacco, Firearms and Explosives currently allows the registration of NFA firearms, by an “individual,” which is defined as “A partnership, company, association, trust, estate, or corporation, as well as a natural person.” The correct entity will depend on the clients current and future desires.***

For the purposes of this article, I will deal with the requirements, benefits, and detriments of registering a weapon as an individual person, corporation, or trust.***

Special thanks to Neil E. Hendershot, Esq. (Attorney at law, Goldberg Katzman, P.C., Adjunct Professor, Widener University School of Law) for bringing this article to my attention.

Patients in a Vegetative State May Understand More than We Think

According to a recent study conducted by Adrian Owen, a young British neuroscientist, some patients in a vegetative state recognize their loved ones’ photographs, comprehend speech, and are able to perform complex mental tasks on command.

Here are more details on this issue from Jerome Groopman, Silent Minds, newyorker.com, Oct. 15, 2007.

Owen heard about a patient *** named Kate Bainbridge, a twenty-six-year-old schoolteacher who had become comatose after a flulike illness, and was eventually diagnosed as being in what neurologists call a vegetative state.***

Whenever pictures of Bainbridge’s family flashed on the screen, an area of her brain called the fusiform gyrus, which neuroscientists had identified as playing a central role in face recognition, lit up on the scan.***

The patients’ brains were scanned while they listened to a recording of simple sentences interspersed with meaningless “noise sounds.” The scans of some of the patients showed the same response to the sentences as scans of healthy volunteers[.]***

Owen’s final experiment was the most ambitious: a test to determine whether vegetative patients who seemed able to comprehend speech could also perform a complex mental task on command. He decided to ask them to imagine playing tennis.***

The woman had to be able to hear and understand Owen’s instructions, retrieve a memory of tennis—including a conception of forehand and backhand and how the ball and the racquet meet—and focus her attention for at least thirty seconds. To Owen’s astonishment, she passed the test.***

Special thanks to Neil E. Hendershot, Esq. (Attorney at law, Goldberg Katzman, P.C., Adjunct Professor, Widener University School of Law) for bringing this article to my attention.

You can read more on this issue on Neil's blog at PA Elder, Estate & Fiduciary Law Blog.

Top SSRN Downloads

Here are the top downloads from September 20, 2007 to November 19, 2007 from the SSRN Journal of Wills, Trusts, & Estates Law for all papers announced in the last 60 days.

Rank	Downloads	Paper Title
1	142	Federal Tax Update: Important Developments in Federal Income, Estate & Gift Taxation Affecting Individuals - August, 2006 to August, 2007 Samuel A. Donaldson, University of Washington - School of Law, Date posted to database: October 19, 2007 Last Revised: October 19, 2007
2	89	Why Did Trust Law Become Statute Law in the United States? John H. Langbein, Yale University - Law School, Date posted to database: September 12, 2007 Last Revised: October 22, 2007
3	63	The Trustee's Duty to Inform Thomas P. Gallanis, University of Minnesota Law School, Date posted to database: October 10, 2007 Last Revised: October 17, 2007
4	59	Leaving More than Money: Mediation Clauses in Estate Planning Documents Lela P. Love, Stewart E. Sterk, Yeshiva University - Cardozo School of Law, Yeshiva University - Cardozo Law School, Date posted to database: September 25, 2007 Last Revised: September 25, 2007
5	56	The Fiduciary Accountability of Ordinary Employees Robert Flannigan, University of Saskatchewan, Date posted to database: October 15, 2007 Last Revised: October 15, 2007
6	55	Estate Tax Exemption Portability: What Should the IRS Do? And What Should Planners Do in the Interim? Mitchell Gans, Hofstra University - School of Law, Date posted to database: September 11, 2007 Last Revised: September 26, 2007
7	54	Introducing the Law of Nonprofit Organizations and Philanthropy David A. Brennen, University of Georgia School of Law, Date posted to database: October 3, 2007 Last Revised: October 26, 2007
8	47	The Uniform Acts' Loophole in Fraudulent Conveyance Law Adam J. Hirsch, Florida State University College of Law, Date posted to database: September 15, 2007 Last Revised: November 5, 2007
9	44	The Section 67 Question: Are Fees for Investment Advice Fully or Partially Deductible by Trusts? James Loebl, Valparaiso University - School of Law, Date posted to database: October 16, 2007 Last Revised: November 6, 2007
10	36	Tax Losses Lester B. Snyder, University of San Diego School of Law, Date posted to database: October 3, 2007 Last Revised: November 1, 2007

Another Self-Help Estate Plan Gone Awry

Mr. B, having decided not to consult with attorneys or accountants, made lifetime transfers of property to his son and his three stepchildren. His son received securities in the amount of $150,000 and his stepchildren received the family home. Mr. B passed away 18 months later.

Robert L. Moshman, Esq., The Wrong Gift, Est. Analyst (Nov. 2007), tells us about the consequences of Mr. B’s lifetime transfers:

The house, being highly appreciated, was a poor asset to select to make a lifetime gift. Because it was transferred during life, the children received it with Mr. B's basis instead of a stepped-up basis at death. Sale of the home by the three stepchildren resulted in over $80,000 of capital gains liability.

Nor did the lifetime transfers improve transfer tax liabilities. As gifts made within three years of death, the house as well as the securities had to be included in Mr. B's gross estate for estate tax purposes.***

The moral of this story: Spontaneous self-help by a Testator/Grantor can backfire and deprive heirs of large percentages of an estate and prompt family tensions. Professional planning would have made a huge difference for Mr. B.

"Do it Yourself" Estate Plan Backfires

In The Medicaid Trap, Est. Analyst (Nov. 2007), Robert L. Moshman tells a story about an unfortunate mother who did not hire her own estate planning attorney and ended up in a financially detrimental situation.

Here are some excerpts from this article:

Mom, a widow, age 72, with a net worth of $500,000 owns a home worth $400,000. She has four children.

Five years ago Daughter and Son-in-Law lost their home and declared bankruptcy and ended up moving in with Mom.***

Then, one day, Daughter and Son-in-Law informed Mom that they want to buy her house[.]*** They tell her that by selling assets now, she'll qualify for Medicaid in the future. And they'll provide her with a life estate...***

Son-in-Law priced the house at $300,000, had Mom provide a "gift of equity" worth $150,000, got a mortgage for the remaining $150,000 which he had Mom sign over in return for the life estate.***

Without offering up one dime of his own money, Son-In-Law ended up with a house worth $400,000 and $150,000 cash. Meanwhile, Mom was left with a life estate. But from that day on, Mom was excluded from the household, subjected to verbal abuse, and ended up staying in her room, which was crammed with possessions that Son-In-Law threatened to throw out. The tension landed Mom in the hospital.

Analysis: What's wrong with this picture? Everything. Without her own attorney, Mom never understood what a "gift of equity" meant or where her $150,000 went. Nor did anyone take the time to explain the impact of this transaction on her estate plan. Instead of providing benefits worth $125,000 to each of her four children, this transaction left her with $100,000 to be divided equally under her existing will even though one of her children had already seized 80% of her net worth.***