Wills, Trusts & Estates Prof Blog

Minimum Distribution Rules for IRAs Changed

The folllowing excerpts discussing the new IRA MRD rules are from Relief from Required Minimum Distribution Rules - But Only for 2009 , BracewellGiuliani.com, Dec. 30, 2008:

A recent tax law change promises to help give retirees and retirement plan beneficiaries some much needed flexibility in managing their finances during these trying financial times. A key provision in the recently passed Worker, Retiree and Employer Recovery Act of 2008 provides relief to retirees and others by allowing them to continue to keep more money in retirement accounts in 2009. The The Act provides relief only for 2009 distributions; Required Minimum Distributions for 2008 will still need to be made before Dec. 31, 2008. * * *

The 2008 Recovery Act provides a one year suspension of the RMD rules for 2009. Specifically, no minimum distribution is required for calendar year 2009 from Individual Retirement Accounts and defined contribution retirement plans (such as Section 401(k) plans). The exemption also applies to so-called Section 457(b) eligible deferred compensation plans maintained by a state, a political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state. Thus, any annual minimum distribution for 2009 from these plans is not required to be made. The next RMD will be for calendar year 2010. This relief (referred to as the "2009 RMD waiver") applies to life-time distributions to employees and IRA owners and after-death distributions to beneficiaries. * * *

The 2008 Recovery Act's suspension of RMDs for 2009 helps retired taxpayers who are well-to-do and do not need to rely on their RMDs for living expenses. By not making the RMD for 2009 (or withdrawing less than the RMD) from their qualified plan accounts and/or IRAs, they will wind up with less taxable income for 2009, and, possibly, avoid (or mitigate the effect of) AGI-based phaseouts of tax breaks. They will also have more tax-sheltered amounts to leave to their beneficiaries. Older recipients will benefit the most, because their (short) table-life expectancy factors would otherwise compel them to take large RMD payouts in 2009. 

From a nontax standpoint, those taxpayers that can afford not to take their 2009 RMD will have an opportunity to allow their investments to recover (if the market rebounds over the next 12 to 24 months) before having to sell assets in order to make withdrawals.

Note that these changes are for 2009, not the current year (2008).

Retention of Testamentary Freedom -- A Good Idea?

Joshua C. Tate (Assistant Professor of Law, SMU Dedman School of Law) has recently published his article entitled Caregiving and the Case for Testamentary Freedom, 42 U.C. Davis L. Rev. 129 (2008) (the link is the the SSRN version of the article).

Here is the abstract of his article:

Almost all U.S. states allow individuals to disinherit their descendants for any reason or no reason, but most of the world's legal systems currently do not. This Article contends that broad freedom of testation is defensible because it allows elderly people to reward family members who are caregivers. The Article explores the common-law origins of freedom of testation, which developed in the shadow of the medieval rule of primogeniture, a doctrine of no contemporary relevance. The growing problem of eldercare, however, offers a justification for the twenty-first century. Increases in life expectancy have led to a sharp rise in the number of older individuals who require long-term care, and some children and grandchildren are bearing more of the caregiving burden than others. Recent econometric studies, not yet taken into account in legal scholarship, suggest a tendency among the American elderly to bequeath more property to caregiving children. A competent testator, rather than a court or legislature, is in the best position to decide how much care each person has provided and to reward caregivers accordingly. Law reform, therefore, should focus on strengthening testamentary freedom while ensuring that caregivers are adequately compensated in cases of intestacy.

Impact of Madoff scam on charitable donations

The impact of the Madoff scam on charitable donations is discussed in Deborah Brewster, Non-profits face donor ire over Madoff exposure, FT.com, Dec. 28, 2008.

Here are a few excerpts from this article:

Non-profit organisations may find it harder to raise money, and will almost certainly face calls for greater scrutiny by donors and regulators, after losing billions of dollars by investing with Bernard Madoff. * * *

Several foundations and charities have closed after losing either their endowment or their donors through investments with Mr Madoff.

Others have lost money but say they will continue and try to replace funding. Many endowments had all their money, or a large part of it, invested with Mr Madoff. * * *

Some in the non-profit world * * * suggested there should be greater regulatory oversight of non-profit investments, possibly by making an amendment to the section of the US tax code, 503c(3), which exempts a non-profit from paying tax.

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

Long-Term Care Insurance FAQs

Katherine C. Pearson (Professor of Law & Director, Elder Law and Consumer Protection Clinic Penn State Dickinson School of Law) has recently posted her article entitled Evaluating Long-Term Care Insurance in a Troubled Economy.

To prepare her article, Prof. Pearson interviewed Thomas M. Lilly, J.D., C.L.U., who is from Pittsburgh and is the founder of Futurecare Associates, Inc.  Their discussion was triggered by questions raised by students during her fall 2008 Seminar on Law and Aging Policy, questions that were made more important by the country’s recent economic turmoil.

Estate Planning for Closely Held Business Owners CLE

The American Bar Association Section of Real Property, Trust and Estate Law and the ABA Center for Continuing Legal Education are sponsoring a teleconference and live audio webcast on January 6, 2009 entitled Estate Planning for Business Owners: Recent Developments You May Have Missed.

Here is a description of this program:

Closely held business owners have distinctive estate planning needs, but also have unique opportunities available to meet those needs in life and in death.  To take advantage of those opportunities, and avoid the many pitfalls, you should be aware of the current developments in this area.  This program will concentrate on recent developments in tax planning and administration involving closely held business interests, while considering the significant non-tax issues that often drive these choices.

The topics to be covered include the following:

• IRC Section 2032--Alternate Valuation Proposed Regulations:  The Anti-Kohler Regulations
• IRC Section 6166--Notice 2007-90:  Security Under Section 6166 Elections
• IRC Section 6695A:  Appraiser Penalties Revisited
• Family Limited Partnerships:  Case Law Update
• Rev Rul. 2008-22, 2008-16:  The Grantor Trust 675(4) Exchange Power

Probate lawyer behaving badly

A Houston lawyer recently received a six-month suspension from the practice of law for the following behavior:

[He] was retained to file an application for a guardianship in probate court. [He] did not return many of the client’s phone calls and generally failed to keep her properly informed about the matter. Richey promised the client a partial refund of his fee, but failed to follow through on that promise.

In the second matter, [he] was retained to file a Medicaid application and handle related issues. For a lengthy period, Richey did not respond to the client’s letters or otherwise communicate with the client.

Surprisingly, the suspension was fully probated!

See Disciplinary Actions, 71 Tex. B.J. 910, 912 (2008).

First U.S. Face Transplant

Earlier on this blog, I reported on an unusual anatomical gift, a face.  Up to now, face transplants have only been done in France (2) and China (1).  Now, the first face transplant in the United States has taken place.

Here are some details from Marilynn Marchione, Nation's first face transplant done in Cleveland, YahooNews!, Dec. 16, 2008:

• 80% of a woman's face was replaced with that of a deceased female donor.
• The donee's name and age were not released for privacy reasons.
• The ethics of the surgery is being debated because the transplant is to enhance the quality of life, not to extend it.
• If the surgery does not go well, at least one bioethicist thinks the patient should be given the option of assisted suicide.

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

Mediation of Elder Law Disputes

The ABA Commission on Law and Aging and the ABA Senior Lawyers Division are co-sponsoring a program entitled Elder Mediation: The Challenges and Rewards of this Evolving Practice Area on February 13, 2009 from 10:45 a.m. to 12:15 p.m. EST as part of the ABA Midyear Meeting in Boston.  Attendance is also possible via teleconference.

Here is a description of the program:

This session will highlight the challenges of working with adult families in multi-party disputes around care giving, estate planning, inheritance matters, living arrangements and other issues brought on by aging.  Join us to learn about this evolving practice area and multi-disciplinary approach to mediation.
   

Topics covered include: how to present issues; characteristics of adult mediation; who should be included; when the elder does not/should not participate; obstacles to and strategies for bringing parties to mediation; ethical challenges; and defining success.

To register for this program, please click here.

Steeler Update

Earlier on this blog, I discussed the considerable family and business strife involved with the Pittsburgh Steelers professional football team.

Here are some recent developments according to AP, NFL OKs Steelers restructuring, SI.com, Dec. 17, 2008:

• Dan Rooney and his son will own 30% of the team.  This reduction in ownership will meet the NFL's requirement that not too much control be in one family.
• Other family members with gambling connections have agreed to sell their shares.
• Yet other family members and owners are adjusting the amount of their ownership.
• "The NFL approved three new partners for the Steelers during the meeting: James Haslman III of Knoxville, Tenn., Thomas Tull of Los Angeles, and the Paul family based in Pittsburgh and Los Angeles."
• "The agreement among the Rooney family calls for the deal to be closed by March 31," 2009.

Special thanks to Sara Hudman (May 2008 J.D., Texas Tech University School of Law) for bringing this article to my attention.

Uniform Probate Code Authorizes Notarized Wills

As many of you aware, the Uniform Probate Code has recently authorized what is known as the "notarized will," that is, a non-holographic unwitnessed will which may be valid if properly notarized.

To read more about this new technique, see David M. Goldman, Uniform Probate Code Authorizes Notarized Wills, Florida Estate Planning Lawyer Blog, Dec. 17, 2008.

Did Whitney Houston improperly use her dad's life insurance proceeds?

Singer Whitney Houston is involved in lawsuit regarding the proceeds of her dad's (John Houston) life insurance policy.

John died in 2003 naming Whitney as the beneficiary of a $1 million life insurance policy.  According to the lawsuit, Whitney was supposed to use $723,000 of the proceeds to pay off the mortgage on John's condominium which is still occupied by John's wife (Whitney's step-mother).  The stepmother also claims that the balance of the proceeds should be paid to her.

The legal basis for the stepmother's claims is unclear.

See AP, Stepmother sues singer Whitney Houston over condo, life insurance money, Newsday.com, Dec. 17, 2008.

Mary Pickford & The Oscars

Mary Pickford was a famous actress who won two Oscars for her work: best actress for Coquette (1929) and Lifetime Achievement (1976).

Mary died in 1979.  The two Oscar statuettes she received are now the center of dispute.  So too is an Oscar her husband, Charles "Buddy" Rogers, received when he won the Jean Hersholt Humanitarian Award (1976).

The Oscars are now in the hands of Kim Boyer, Virginia Patricia Casey, and Marian Stahl who inherited the statuettes through Rogers' second wife (Beverly).  They want to sell them to raise money.

The Academy of Motion Picture Arts and Sciences wants to block the sale claiming that the Academy is entitled to buy back the statuettes for $10 each.  Under current rules, recipients are bound by the $10 buy back rule but Mary won hers before the rule was enacted.  However, the Academy claims that she signed an agreement after she won her second Oscar agreeing to the $10 buy back for both awards.

On December 15, 2008, a Los Angeles jury agreed with the Academy deciding that the women are bound by Mary's agreement.

See AFP, Women barred from selling Mary Pickford Oscar, Yahoo!News, Dec. 15, 2008.

Are adopted adults considered "descendants"?

In the case of In re Ray Ellison Grandchildren Trust, 261 S.W.3d 111 (Tex. App.—San Antonio 2008, pet. denied, rehearing filed), Settlor established a trust for the “descendants” of his children.  A dispute arose as to whether descendants included the adopted children of his son who were adopted after reaching adulthood.  The trial and appellate courts agreed that these individuals were not within the class of individuals who would qualify as descendants.

The appellate court began its analysis by holding that “descendants” is not an ambiguous term and recognizing that it is well established under Texas law that extrinsic evidence is not admissible when a term is unambiguous.  The court also determined that merely because Settlor listed his descendants at the time he created the trust did not act to limit class membership to the listed individuals..

The court then turned its attention to whether adopted adults would be considered heirs under the intestacy statutes as they existed on the date Settlor executed the trust.  The court determined that although it was not bound by these statutes, that they provided evidence of the meaning of the term “descendants.”  Despite the fact that the statute provided that an adopted adult is the “son or daughter of the adoptive parents for all purposes,” the court held that this did not abrogate the “stranger to the adoption rule” because it lacked similar language contained in the statute governing the adoption of minors which stated that the term “descendant” includes adopted minors.  (Note that this statement is in direct contravention of a prior ruling of the Texas Supreme Court in Lehman v. Corpus Christi Nat’l Bank, 668 S.W.2d 687 (Tex. 1984).)

Comment:  The court’s opinion is puzzling and appears to distort the law to reach a decision which it thinks is “morally” correct.  The settlor used a term, “descendants,” which has a well-established legal meaning and is, as stated by the court, “not an ambiguous term.”  Id. at 118.  Accordingly, the adopted children are part of the class gift.  The court’s strained reading of historical statutes does exactly what the court states consideration of statutes cannot do, that is, to “control or defeat” the plain meaning of the terms of the trust.  Id. at 121.  However, because of allegations that the adoptions were done merely to give the adopted adults standing to demand an accounting, the court twists the law to exclude the children.  The court should not rewrite a trust merely because the settlor did not address the issue of adult adoptions and the court “thinks” the settlor would have excluded them.  As the court explained, but then did so nonetheless, “we must not redraft a trust instrument to vary or add provisions ‘under the guise of construction of the language’ of the trust to reach a presumed intent.”  Id. at 117.

Dissent:  The well-reasoned dissenting opinion of Justice Rebecca Simmons explains that this case is one where “bad facts make bad law” and that a court should not “neglect established precedent and impose [its] own intent” just because the adopted beneficiaries appear unworthy.  Id. at 128.  Justice Simmons recognized that even under the 1975 statute in effective in 1982, adopted adults were considered children for all purposes.

Moral:  When making gifts to classes such as “children,” “grandchildren,” and “descendants,” settlors and testators should indicate whether adopted children are included and if adopted children are included, the age by which they need to be adopted to be included in the class.

Top SSRN Downloads

Here are the top downloads from October 28, 2008 to December 27, 2008 from the SSRN Journal of Wills, Trusts, & Estates Law for all papers announced in the last 60 days

Rank	Downloads	Paper Title
1	433	2008 Federal Tax Update Samuel A. Donaldson, University of Washington - School of Law, Date posted to database: October 28, 2008 Last Revised: October 28, 2008
2	128	Take the Money and Run - The Impact of the HEART Act on the Ultimate Estate Plan: Expatriation to Avoid U.S. Income, Estate and Gift Tax Kathleen Macaulay, University of Houston Law Center, Date posted to database: November 9, 2008 Last Revised: November 20, 2008
3	118	Dead or Alive: An Investigation of the Incidence of Estate and Inheritance Taxes Lily L. Batchelder, Surachai Khitatrakun, New York University School of Law, The Urban Institute - Tax Policy Center, Date posted to database: May 16, 2008 Last Revised: October 31, 2008
4	74	Valuation Discounting Techniques: Terms Gone Awry Wendy C. Gerzog, University of Baltimore - School of Law, Date posted to database: October 20, 2008 Last Revised: October 20, 2008
5	67	Causation and Breach of Fiduciary Duty Vicki Vann, Monash University, Date posted to database: February 27, 2008 Last Revised: February 27, 2008
6	59	Financing Reverse Exchanges and Safeguarding Exchange Proceeds Bradley T. Borden, Washburn University - School of Law, Date posted to database: November 1, 2008 Last Revised: November 1, 2008
7	54	The Estate Tax Non-Gap: Why Repeal a 'Voluntary' Tax? Paul L. Caron, James R. Repetti, University of Cincinnati - College of Law, Boston College - Law School, Date posted to database: November 5, 2008 Last Revised: November 6, 2008
8	50	Unconscionability in the Law of Trusts David Horton, Boalt Hall School of Law, Date posted to database: October 8, 2008 Last Revised: October 8, 2008
9	48	Family Values, Inheritance Law, and Inheritance Taxation Anne Alstott, Harvard University - Harvard Law School, Date posted to database: November 13, 2008 Last Revised: November 27, 2008
10	34	Replacing the Estate Tax with a Re-Imagined Accessions Tax Joseph M. Dodge, Florida State University College of Law, Date posted to database: October 20, 2008 Last Revised: October 20, 2008

Riches to rags -- What may happen if you don't diversify

A basic tenant of investing is to diversify -- that is, don't put all your eggs in one basket.  Failure to diversify can have devastating consequences as Nancy Silverton recently learned.

The following excerpts are from Claudia Eller, A noted restaurateur's recipe for disaster, LA Times, Dec. 24, 2008:

[Nancy Silverton], [t]he La Brea Bakery founder and queen of L.A.'s restaurant scene is among the legions of investors who've lost their fortunes in the alleged $50-billion fraud attributed to New York financier Bernard L. Madoff.

The financial pain is bad enough, Silverton says, but what makes it worse is that she ignored the advice of her father and others who warned her to diversify her investments.

Instead, after walking away with a profit of more than $5 million from the sale of La Brea Bakery in 2001, Silverton put all of her money in a fund affiliated with a Beverly Hills advisor, who in turn entrusted the funds to Madoff. * * *

Silverton said she lost her entire nest egg, including her retirement fund and money she had set aside for her children and their educations.

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

Planning during difficult economic times CLE

The American Bar Association Section of Real Property, Trust and Estate Law and the ABA Center for Continuing Legal Education are sponsoring a teleconference and live audio webcast on January 21, 2009 entitled Estate and Related Planning During Economic Turmoil.

Here is a description of this program:

The markets are in turmoil. Daily Dow movements make roller coasters look tame. Tax, business, economic, and investment matters have all become extraordinarily uncertain. Every aspect of estate planning has been affected, as well as ancillary planning implications.

There are, however, always silver linings in difficult times.  Now is the time to rethink your clients’ needs and plans to position them for future success. All aspects of estate planning should be reevaluated in the current environment.  This program will provide a review of various points and discuss several related topics and their impact on estate planning. No one program can be complete, but this one will at least stimulate ideas about addressing the issues estate planning attorneys currently face in helping their clients. Listeners will learn how to help their clients take control of their affairs in the current economic climate and be at a better place in the months and years ahead.

The program will highlight: estate planning, charitable planning, closely held business planning, financial planning, special needs planning, and matrimonial planning.

The program will cover the following topics:

• Short-term rolling versus long-term GRATs and the implications to GRAT immunization
• Late allocations of GST Exemption
• Valuation and discounts – impact of market conditions and whipsaw on distributions from GRATs/IDITs
• Power to adjust – issues when addressing trust portfolio declines.
• How to control what can be controlled, instead of worrying about what cannot.
• The necessity of a team approach – involving multiple advisers to achieve better results, especially since the playing field has changed in so many disciplines so rapidly.

Passage Graves Explained

The following excerpts are from Passage graves from an astronomical perspective, EurekaAlert.com, Dec. 18, 2008:

Passage graves are mysterious barrows from the Stone Age. New research from the Niels Bohr Institute at the University of Copenhagen indicates that the Stone Age graves' orientation in the landscape could have an astronomical explanation. The Danish passage graves are most likely oriented according to the path of the full moon, perhaps even according to the full moon immediately before a lunar eclipse. The results are published in the scientific journal Acta Archaeologica. * * *

There is a significant concentration of orientations towards east/southeast as seen from within the passage grave. It can be interpreted that the passage graves are oriented according to the winter sunrise. But researchers think it more likely that they are positioned according to the rise of the full moon, for example, the first full moon after the spring equinox.

The calculations show, that in the period from 3.300 to 3.100 BC there was an over frequency of 50 percent in the number of lunar eclipses that could be seen in Denmark. And the exciting thing was that the pattern indicated that it could fit with the rise of the full moon immediately before a lunar eclipse.

How the Stone Age people had known that a lunar eclipse would come after a full moon is unknown, but astronomer Per Kjærgaard Rasmussen explains, that if one had observed a lunar eclipse there is a very strong likelihood that another lunar eclipse would come either 12 months or 18.6 years later.

The passage graves had been used for burials and the orientation of the entrance is concentrated towards the full moon points to a ritual practice that involved the moon.

Special thanks to Mary Sue Donsky (NYC College of Technology, Department of Law and Paralegal Studies ) for bringing this article to my attention.

Caught in the legal recession? - ABA Journal Survey Results

Earlier on this blog, I posted a request from the American Bar Association to invite readers to participate in a survey being conducted by ABA Journal about the legal job market and the current state of the economy.

The results of the survey are now reported in Stephanie Francis Ward, 14,307 Lawyers Predict the Future, ABA J. Law New Now, Jan. 2009.  Interestingly, 19% of the respondents expect to lose their jobs by the end of 2009.

Happy Holidays!!

   
    

Unconscionability in the Law of Trusts

David Horton (Lecturer in Residence, Boalt Hall) has written an article entitled Unconscionability in the Law of Trusts, 84 Notre Dame L. Rev. (2009).

Here is an abstract of the article:

This Article claims that trust law should recognize the unconscionability defense. It begins by noting the symmetry between trust and contract defenses and the broad consensus among courts and scholars that trusts are contracts. It sketches the leading rationales for why courts enforce promises between private actors: the theories that free exchange allows parties to maximize welfare and exercise free will. It then argues that neither concept justifies upholding a contractual term if informational defects prevent one party from observing that it sharply deviates from her ex ante desires. It asserts that the unconscionability doctrine strikes down contractual terms that suffer from precisely that defect.

The Article then explains how the unconscionability doctrine could serve the same purpose in trust law. It discusses why the policies underlying freedom of testation depart from those behind freedom of contract and provide less support for a laissez-faire regime. It then challenges the unarticulated but intuitive notion that controls in the trust-creation process are sufficient to align an instrument's text with a settlor's intent. It reveals that corporate fiduciaries, trust mills, and a revitalized do-it-yourself movement have spawned "procedurally suspect" trusts: those created without attorney involvement and laden with complex terms. It then examines three common but controversial "substantively suspect" terms - exculpatory, no contest, and arbitration clauses - and shows how a trust-specific unconscionability doctrine would improve outcomes in cases.