Wills, Trusts & Estates Prof Blog

Hidden Fees in Qualified Retirement Plans – Problem and Solution

Matthew D. Hutcheson (MS, CPC, AIFA®, CRC®, Independent Pension Fiduciary) has recently published his article entitled Uncovering and Understanding Hidden Fees in Qualified Retirement Plans, 15 Elder L.J. 323 (2007).

Here is an excerpt from the conclusion to his article:

Participant directed accounts, their management, and the associated errant industry culture are the sources of the current fee problem. To eliminate hidden fees, the nonfiduciary participant-directed IRA suitability culture must be rooted out of all ERISA-governed plans. Failure to treat all plans subject to Internal Revenue Code (IRC) § 401(a), and hence subject to ERISA's fiduciary standard, the same has now placed some 401(k) service providers and fiduciaries at risk. They find themselves in the crosshairs of highly effective litigators, the SEC, the DOL, and state Attorneys General for violations of the exclusive benefit and other fiduciary rules. Most fiduciaries have not discovered that the fee problem begins deep inside the operational structure of the industry, and until this fact is universally internalized, the problem will remain within 401(k) plans. The 401(k) industry itself is now being viewed with suspicion and has taken a serious credibility and public image hit.***

It has taken serious litigation initiatives to bring this topic into the homes of the people it affects. Regular folks get it now, and vendors should consider the consequences of an indignant public. It is likely litigation will continue as long as the 401(k) industry insists on defending an inappropriate economic and philosophical model. It is advisable for the industry to settle these lawsuits, and seek direct guidance from an independent steering committee to fix the system and restore trust with the investing public.***

Tolkien Estate Files Suit to Recover Percentage of Lord of the Ring Film Revenues

The following is from Robert L. Moshman, Esq., The Lord of the Rings, published in the April 2008 issue of The Estate Analyst:

The Tolkien estate holds copyrights to the literary works of Tolkien, and several posthumous works have been published by Christopher Tolkien, who serves as literary executor of his father’s estate. Unfortunately, in 1969, Tolkien sold the film and merchandising rights to the books prior to his death to allow a cartoon movie to be made.***

To date, the estate has received none of the $6 billion generated by the recent Lord of the Ring films. In February, 2008, the estate filed a lawsuit against New Line Cinema claiming it is entitled to 7.5% of the revenues under the 1969 deal that Tolkien had made.

Estate Planning for Non-Married Couples

Kathleen Ford Bay (Attorney at Law, Blazier, Christensen, Bigelow, and Virr, P.C.) has recently published her article entitled Untying the Knot– Until Death and Taxes Do Us Part, RPPT eREPORT (Feb. 2008).

Here is an excerpt of the summary of her article:

To be cautious and practical, always discuss with same-sex and unmarried couples the following:

1. Wills (avoid testamentary libel);
2. Financial powers of attorney;
3. Health or medical powers of attorney;
4. Advanced Directives (Living Wills);
5. Revocable trusts and transfer of assets to such trusts (consider the mortgage company; insurance on assets; title insurance on home);
6. Declaration or nomination of guardian or conservator and stating who can never be a guardian;
7. Beneficiary designations (insurable interest) and non-probate property;
8. Providing for children (adoption and other issues); and
9. Funeral Directive.***

Proving a Lost Will Under Texas Probate Code – Change Needed

Charles M. Davis (J.D. Candidate 2008, Texas Tech University School of Law) has recently published his Comment entitled A Lost Will, a Photocopy of the Original, and Two “Snakes in the Grass”: Is It Time to Update Section 85 of the Texas Probate Code?, 40 Tex. Tech L. Rev. 89 (2007).

Here is an excerpt of the conclusion to his Comment:

The Garton decision sheds light on the shortcomings of the witness testimony requirement of section 85 of the Texas Probate Code. Statutes that require the proponent of a lost will to satisfy highly technical requirements can prevent the probate of an otherwise valid will. The requirements under the current version of the Texas statute are not realistic. When a witness is required to testify to the contents of the original document, the witness cannot be expected to recall the details satisfactorily to prove the contents of the decedent's estate. This mandate is exactly what transpired in the Garton case when the witnesses to Cullen's will were expected to recall the contents of the document almost thirty years later. The revision to section 85 of the Texas Probate Code suggested in this Comment addresses the shortcomings of the current statute by eliminating the technical requirement of testimony from a credible witness who either read the original will, or heard the original will read.***

The Legacy of Elvis Presley

The following is from Robert L. Moshman, Esq., The King of Rock & Roll, published in the April 2008 issue of The Estate Analyst:

At the time of his death in 1977, Elvis Presley’s estate was worth $10 million, but without the benefit of sound estate planning, 73 percent of the estate went toward legal fees, estate administration costs, and estate taxes, leaving only $3 million to his daughter.

But the estate was more than liquid assets. Elvis Presley was a marketable commodity and with good management his estate grew to $250 million posthumously. Under the control of Priscilla Presley, Elvis Present Enterprises was created in 1980. By 2004 the company had revenues of $45 million annually and 100 licensees, 600,000 annual visitors to Graceland, and intellectual properties including music and film that had grown in value because the Elvis Presley “product” had been kept alive.***

Federal Estate Tax Consequences of the Rights of Publicity Legislation

Mitchell M. Gans (Steven A. Horowitz Distinguished Professor of Tax Law, Hofstra University School of Law; Adjunct Professor, New York University School of Law), Bridget J. Crawford (Associate Professor of Law, Pace Law School) & Jonathan G. Blattmachr (Attorney at Law, Milbank, Tweed, Hadley & McCloy LLP), have recently published their article entitled Postmortem Rights of Publicity: The Federal Estate Tax Consequences of New State-Law Property Rights. This article was posted in the Pocket Part of an online companion to The Yale Journal on April 1, 2008.

Here is the introductory paragraph to their article:

California recently passed legislation that creates retroactive, descendible rights of publicity. The New York State Assembly is poised to enact similar legislation. Legal recognition of postmortem rights of publicity permits a decedent’s named beneficiaries or heirs to control (and financially benefit from) use of a deceased personality’s image and likeness. Legislators, proponents of these laws, and legal commentators have overlooked two significant federal estate tax consequences of these new state law property rights. First, a descendible right of publicity likely will be included in a decedent’s gross estate for federal estate tax purposes. Second, the estate tax value of rights of publicity easily could exceed the estate’s liquid assets available to pay taxes. These tax concerns could be eliminated, however, by rewriting the statutes to limit a decedent’s ability to control the disposition of any postmortem rights of publicity.

Disclaimers and Defined Value Clauses in Christiansen

Wendy C. Gerzog (Professor of Law, University of Baltimore School of Law) has recently posted on SSRN her article entitled Disclaimers and Defined Value Clauses: Christiansen.

Here is an abstract of her article:

A South Dakotan attorney who had become a full-time farmer, left her entire estate to her daughter, but she anticipated that her daughter would disclaim some of that property. The article discusses the Christiansen case that examined the validity of that disclaimer as well as of a defined value clause.

Attorney set to inherit £950,000 after killing his wife

According to Lawyer Who Killed His Wife Is Released after Just Two Years - And Inherits £950,000 From Her Estate, thisislondon.co.uk, April 9, 2008:

A wealthy lawyer who killed his wife after she had an affair is set to inherit nearly £1million from her will after being freed from jail.

Christopher Lumsden, 54, was said to have "snapped" after his wife Alison, 53, announced she was leaving him for a family friend.***

The jury heard that the father-of-two was suffering from a "depressive condition" at the time of the attack after being diagnosed with muscular dystrophy.

He was released on licence last September after serving around 18 months of his sentence and is now in line to receive £1million from her will, made five years before her death.

By law, a person convicted of manslaughter cannot inherit money from his victim.

But the courts can make an exception if the killer suffered from a mental disorder at the time of the crime.***

Rothko’s children seek to reunite their parents in death

The following is from Kathryn Shattuck, Rothko Kin Sue to Transfer His Remains, NYTimes.com, April 8, 2008:

For 38 years the body of the artist Mark Rothko has rested in an unassuming cemetery on the North Fork of Long Island, a quiet reminder of both the Abstract Expressionist legacy and one of the harshest legal battles ever to rock the art world.

Now, in a potential addendum to the history books that threatens to resurrect bitter memories of the long fight over Rothko’s estate, the artist’s daughter and son have petitioned a New York State judge to clear the way to have their father’s remains disinterred and reburied in a Jewish cemetery in Westchester County.***

Dr. Prizel and Dr. Rothko are also seeking to exhume the body of their mother, Mary Alice, who died six months after their father and was buried in Knollwood Cemetery and Mausoleum in Cleveland. Their goal is to reinter her remains with Rothko’s in Sharon Gardens in Kensico Cemetery in Valhalla, N.Y.

“Petitioners have long wished to reunite their parents in a final resting place consistent with their parents’ wishes and Mark Rothko’s Jewish faith,” their petition reads.***

Special thanks to Bruce S. Johnson (Associate Dean for Information Services, Thomas J. and Mary E. Heck and Leo H. Faust Memorial Designated Professor of Law, Moritz College of Law, the Ohio State University) for bringing this article to my attention.

Wills -- Korean Style

While visiting the National Museum in Seoul, South Korea a few days ago, I had the opportunity to view King Taejo's will in which he disposed of his property to his daughter, Princess Suksin.  The will is dated 1401 and is from the Joseon Period.  Because of the significance of this will, it has been designated as the 515th most important National Treasure of South Korea.

Here is a picture of the dispositive provisions of the will.  Note that the will itself is in the middle of a long scroll.  Also note the use of Chinese characters as the will was written before the adoption of the Korean hangeul alphabet in 1446.  (The two bright spots are reflections of overhead lights.)

         

 

 

 

 

 

 

   

DRA and Its Effect on Long-Term Care Services

Ellen O'Brien (Public Policy Institute at AARP, Washington, D.C.) has recently published her article entitled What Is Wrong with the Long-Term Care Reforms in the Deficit Reduction Act of 2005?, 9 Marq. Elder's Advisor 103 (2007).

Here is an excerpt from the conclusion to her article:

The DRA provides some modest relief to the federal, state, and local governments that jointly finance Medicaid, and it promises to target those resources more effectively. Although it is possible to imagine a scenario where public subsidies are reduced for upper middle-class individuals who are able to pay for their own care in order to improve the amount and quality of means-tested assistance for low-income individuals, the DRA is unlikely to deliver it. It remains to be seen how states will implement the DRA and how elderly applicants for Medicaid assistance will be affected. However, it is likely that much of the savings will accrue because those with very modest resources will spend more on care.***

Some may argue that advocates for better long-term care services were somewhat successful due to the DRA reforms that increased flexibility to expand home services, community-based services, and provided additional federal monies to pay for those services. However the fundamental goal of the DRA is to reduce public responsibility and increase private responsibility for long-term care. That is a worrisome trend. Changing course to reduce the already large burdens on those who need care will require better appreciation of the gaps in the current system, the impact of these gaps on individuals and families, and the feasibility and affordability of meaningful alternatives to the inadequate approach to financing that we have today.

The Gottlieb Real Estate Heritage

The following is from Andrew Rice, The Tightwad’s Legacy, NYTimes.com, April 6, 2008:

Bill Gottlieb died in 1999, but residents of Greenwich Village talk about him to this day, retelling tales that get more colorful with each passing year. A rumpled, elusive fellow who would walk the streets carrying shopping bags stuffed with cash and documents, Gottlieb spent decades quietly amassing an empire of run-down tenements, abandoned warehouses and weedy vacant lots. The properties cost Gottlieb little, but they could now be worth as much as a billion dollars altogether as the grimy neighborhoods where he shopped for bargains have long since given way to a landscape of luxury lofts and pet-grooming salons.***

Even after Gottlieb’s death, however, his heirs wouldn’t listen to offers.*** Historic preservationists have appreciated that intransigence; over the years, they came to see Bill Gottlieb as a sort of cheapskate savior, whose hands-off management style saved many buildings from insensitive renovations or outright demolition.***

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

Estate Tax Reform May Be Underway

According to Jeff Carlson, Finance Panel Mulls Reform of Estate Tax Rules, tax.cchgroup.com, April 4, 2008:

By all indications, the Senate Finance Committee is serious about reforming estate tax rules. On April 3, Committee Chairman Max Baucus, D-Mont., held a third hearing on the subject, ostensibly to get input from experts on where change is most needed in four areas: liquidity; portability; unification of gift and estate taxes; and charitable giving.

Prior to the 2001 tax law changes, the estate and gift tax taxes were unified; they had a single graduated rate schedule and they were also combined into a single unified credit. Under current law, the amount that transferrors can transfer tax-free while alive is substantially less than the amount that they can transfer tax-free at death. Panelists and lawmakers were in agreement that unification is necessary.

Speaking on behalf of the American Institute of Certified Public Accountants (AICPA), Roby B. Sawyers, a practicing CPA and professor in the College of Management at North Carolina State University, took it one step further, suggesting that the estate, generation-skipping transfer (GST) and gift tax exemptions be reunified.***

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 Neil's blog at PA Elder, Estate & Fiduciary Law Blog.

Valuation of Stock in Closely Held Investment Companies

James V. Roberts (Attorney at Law, Glast, Phillips & Murray P.C.) has recently published his article entitled Jelke: Simplicity in Valuation of Closely Held Investment Companies, RPPT eREPORT (2008).

Here is the opening paragraph to his article:

The Eleventh Circuit’s decision in Jelke lays down a simple rule for valuation of corporate stock in closely-held investment companies. At issue is the extent to which built-in capital gain tax liability should be taken into account. In reaching its decision, the Court provides, in an easy to read, well written opinion, a short history of valuation of investment companies. The Eleventh Circuit assumes that such corporations will always be liquidated on the date of death, and the tax liability paid, thus requiring a reduction of value by 100% of the tax attributable to the built-in capital gain, and providing an easy to understand method of valuation, similar to that mandated by the Fifth Circuit in Dunn But the dissent in the present case provides good reasons for caution against relying on the majority decision.

Donations to Museums Decrease as Collectors Build Their Own

According to Lauren A.E. Schuker, The Firestorm over Private Museums, online.wsj.com, April 4, 2008:

Collectors looking to show off their riches used to donate their art to a museum. Now many are building their own museums instead, and directors at existing institutions are up in arms.***

To fight back, museum directors are resorting to a variety of tactics, such as expanding their space to display more works and appease donors who don't want their gifts sitting in the basement. Others are appointing collectors with their own spaces to their boards, in hopes of eventually getting important work.***

In another blow to established museums, more collectors are forgoing donations and starting foundations that essentially serve as lending libraries, loaning out works to institutions around the world.***

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

Ohio Trust Code and Its Impact on the Existing Law

Alan Newman (Associate Professor of Law, University of Akron School of Law) has recently published his article entitled The Uniform Trust Code: An Analysis of Ohio's Version, 34 Ohio N.U. L. Rev. 135 (2008).

Here is the introduction to his article:

Shortly after the National Conference of Commissioners on Uniform State Laws approved the Uniform Trust Code (the “UTC”) in August of 2000, members of the Estate Planning, Trust, and Probate Law (“EPTPL”) Section of the Ohio State Bar Association, and members of the Legal, Legislative, and Regulatory (“LLR”) Committee of the Ohio Bankers League, began studying it. In 2003, a joint committee of members of the EPTPL Section and the LLR Committee (the “Joint Committee”) was formed to continue that study. Over the next three years, the Joint Committee worked on a modified version of the UTC that resulted in the enactment in 2006 of House Bill 416, which includes the new Ohio Trust Code (the “OTC,” or the “Code”).

Prior to the OTC, trust law in Ohio included relatively few statutes and consisted primarily of case law that had developed in the usual common law fashion by which courts resolve disputes arising from the specific facts of the cases before them. The OTC addresses many issues that formerly were either not addressed by Ohio law or were addressed only in difficult to find case law. For the most part, the OTC codified existing law. In some respects, however, it has changed Ohio's trust law. The purpose of this Article is to analyze the new OTC and its impact in Ohio, with a particular focus on the ways it has changed Ohio law and ways it differs from the UTC.

Tax Treatment of Blended Families - Change Needed

Wendy C. Gerzog (Professor of Law, University of Baltimore School of Law) has recently posted on SSRN her article entitled Families for Tax Purposes: What About the Steps?

Here is an abstract of her article:

At least 4.4 million families in the U.S. are blended ones that include step-children and step-parents. For tax purposes, these steps receive preferential treatment for their status because they are on the one hand included as family members for many income tax benefit sections, but on the other hand excluded as family members for business entity attribution purposes and for gift and estate tax anti-abuse provisions. In the interests of fairness and uniformity, steps should be treated as family members for all tax purposes where steps have in fact voluntarily acted as their biological or adoptive counterparts, both when such treatment would decrease and increase their tax burdens.

The Many Aspects of Estate Planning

The following is from Ian Driscoll, Parents must put children in the know, us.ft.com, Mar 24 2008:

"Tax planning is a very important part of estate planning; sometimes the only part," says Susan Schoenfeld, principal and associate fiduciary counsel at New York-based Bessemer Trust. "But it shouldn't be, in the perfect world, the sole motivator."

Done wisely, estate planning can help parents enshrine values and educate children about fiscal responsibility. It can also forestall sibling conflicts that may follow a parent's death.***

The temptation to control one's children from the grave also afflicts incentive trusts (sometimes known as ethical trusts), an estate planning tool that has attracted much attention in recent years.

A variant of the incentive trust matches dollar-for-dollar distributions according to a child's income. Another type might disperse funds when children meet benchmarks - graduating from college, performing philanthropic work or remaining drug-free. But some advisers warn incentive trusts must be used judiciously, if at all.***

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