Wills, Trusts & Estates Prof Blog

The “Middle Class” Wealthy

The following is from Keith Whitaker, Just Don't Call Them Rich, WSJ.com, March 5, 2008:

The key to riches in America, according to Alan Prince and Lewis Schiff, is not thinking like a millionaire but thinking like...a member of the middle class.***

Even Bill Gates, in a recent interview, couldn't bring himself to use the R-word to describe his own sumptuous condition. Part of the hesitation may be simple prudence: Wealth-holders know that assets can be fugitive. The subprime crisis has only reinforced this painful truth.***

Prince and Schiff focus on the more than five million American households with a net worth of $1 million to $10 million. True to form, the members of such "MCM" households, according to the authors' extensive survey, don't think of themselves as rich. They feel themselves to be "middle class."***

To help draw their class portrait, Messrs. Prince and Schiff offer a few high-profile MCM examples, like Bruce Spector, the backer of PinnacleCare, and Edward Goldman, the founder of MDVIP, both "concierge" medical-care providers.***

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

Top SSRN Downloads

Here are the top downloads from February 26, 2008 to April 26, 2008 from the SSRN Journal of Wills, Trusts, & Estates Law for all papers announced in the last 60 days.

1	347	Deduction Ad Absurdum: CEOs Donating Their Own Stock to Their Own Family Foundations David Yermack, New York University - Stern School of Business, Date posted to database: February 24, 2008 Last Revised: March 29, 2008
2	151	Empty Promises: Settlor's Intent, the Uniform Trust Code, and the Future of Trust Investment Law Jeffrey A. Cooper, Quinnipiac University School of Law, Date posted to database: February 6, 2008 Last Revised: March 17, 2008
3	95	Perpetuities, Taxes, and Asset Protection: An Empirical Assessment of the Jurisdictional Competition for Trust Funds Robert H. Sitkoff, Max M. Schanzenbach, Harvard Law School, Northwestern University - School of Law, Date posted to database: April 2, 2008 Last Revised: April 2, 2008
4	86	The [Fiduciary] Duty of Fidelity Robert Flannigan, University of Saskatchewan, Date posted to database: March 14, 2008 Last Revised: March 14, 2008
5	81	Caregiving and the Case for Testamentary Freedom Joshua C. Tate, Southern Methodist University - Dedman School of Law, Date posted to database: March 25, 2008 Last Revised: April 25, 2008
6	75	Rector and Gore: Two Recent Flp Cases Wendy C. Gerzog, University of Baltimore - School of Law, Date posted to database: March 4, 2008 Last Revised: March 4, 2008
7	50	Serve the Cheerleader - Serve the World: Representation in Estate and Trust Proceedings and under the Uniform Trust Code and other Modern Trust Codes Martin D. Begleiter, Drake University Law School, Date posted to database: January 9, 2008 Last Revised: January 9, 2008
8	41	Text and Time: A Theory of Testamentary Obsolescence Adam J. Hirsch, Florida State University College of Law, Date posted to database: April 9, 2008 Last Revised: April 11, 2008
9	40	More is Not Always Better than Less: An Exploration in Property Law Daphna Lewinsohn-Zamir, Hebrew University - Faculty of Law, Date posted to database: March 4, 2008 Last Revised: March 12, 2008
10	37	Disclaimers and Defined Value Clauses: Christiansen Wendy C. Gerzog, University of Baltimore - School of Law, Date posted to database: April 8, 2008 Last Revised: April 8, 2008

Charitable Trusts -- India, U.K., and U.S. Compared

Taru Jain (Advocate, Supreme Court of India0 has recently posed an article on SSRN entitled Charitable Trusts: A Comparative Study of India, United Kingdom and the United States.

Here is an abstract of the article:

Trusts are an important institution to be studied in law for various reasons. Both jurisprudentially as well as from a perspective of taxation, trusts affect the making of rules. From a practical perspective, trusts are also an essential attribute for people to make things work and charitable trusts are one such type of trust, which have become increasingly common in todays world.

This paper seeks to examine the position and legal standpoint of a charitable trust across India, United Kingdom and United States.

Survey shows earners feel more secure about their wealth than heirs

According to Thomas Kostigen, Sophisticated Investor, marketwatch.com, April 15, 2008:

Most wealthy people earn their money, and because they earned it they feel more secure about keeping it. That's what a new survey reveals about wealth and values.

PNC Wealth Management conducted the survey of people with more than $500,000 of investable assets.***

"An overwhelming number of affluent Americans earned their wealth and are more likely to feel secure during challenging economic times compared to peers who inherited their money," according to PNC.***

A couple of things separate the earners from the inheritors: First, earners were in control of making their money, and therefore feel more confident about preserving it or making even more. Second, earners likely took large risks to achieve wealth. As we all know, as risk increases, so does return. Accordingly, earners are likely more comfortable with the concept of risk.***

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

Removal of Executor & Return of Fees

In In re Estate of Miller, 243 S.W.3d 831 (Tex. App.—Dallas 2008, no pet. h.), attorney was named as the independent executor of his great-uncle’s will.

Before being appointed by the court, he entered into a fee agreement with Beneficiary that include provisions for Attorney to receive a contingency fee.

After being appointed, Attorney hired himself as the attorney for the estate.

Attorney was not a beneficiary of the will nor was he entitled to a fee under the terms of the will.

Attorney filed the inventory over one year late.

Later, he sold some of the estate property taking almost $100,000 in “compensation.”  (Note that experts testified that Attorney’s services were worth about $5,000).

Beneficiary filed an ancillary action to have Attorney removed as the executor alleging that Attorney grossly mismanaged the estate.  For example, Attorney lent estate money to one of his other clients and did not pay property taxes causing the property to be scheduled for foreclosure.

The trial court agreed, removed Attorney, and ordered him to reimburse the estate for the fees he received.

Attorney appealed and the appellate court affirmed.

The court reviewed Attorney’s actions and found that they amounted to gross mismanagement of the estate under Texas Probate Code § 149C.  For example, he unnecessarily delayed performing the administration of the estate, he improperly made excessive fee payments to himself, he lent estate property to a client without receiving a promissory note or collateral, and he did not make property tax payments.

Moral:  An attorney serving as a personal representative should not mismanage the estate.  The attorney should not charge excessive fees, make late filings, drag out the administration of the state, lend estate property to others, or otherwise breach fiduciary duties.

A non-resident trustee is subject to the long-arm statute

An out-of-state trustee who performed legal services for a Kentucky resident in connection with the creation of the trust is subject to the jurisdiction of the Kentuckycourts in a suit by a successor beneficiary who is a Kentucky resident.

The court found that the facts alleged by the plaintiff-beneficiary established sufficient minimum contacts to invoke the state’s long arm statute.  Cummings v. Pitman, 239 S.W.3d 77 (Ky. 2007).

James Brown Update

Earlier on this blog, I discussed the ongoing dispute over James Brown's estate.

Here is some additional information from Lynnley Browning, Stewards of James Brown Estate Sue Morgan Stanley, NYTimes.com, April 24, 2008:

A dispute over the estate of the legendary soul singer James Brown has reached a bitter new pitch — on Wall Street.

The estate’s guardians are accusing Morgan Stanley, the investment bank, of failing to prevent the estate’s previous manager, David G. Cannon, from draining millions of dollars held for Mr. Brown at the bank.

The money, which was to be used to finance Mr. Brown’s lavish personal lifestyle, came from the 1999 sale of $26 million of “Pullman bonds” that were tied to Mr. Brown’s future royalty income.***

In a statement Wednesday, Morgan Stanley said that the newest lawsuit “is without merit and we will contest it vigorously.” The bank said it had documentation authorizing Mr. Cannon to manage the funds in question.***

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

The Special Needs of Women in the Estate Planning Context

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 May 6, 2008 entitled Working with Women Clients in Estate Planning:The Difference is More Than Just Changing Pronouns.

Here is a description of this program:

Women today control more than 50% of the total personal wealth in the United States and the percentage is expected to rise in the coming decade. However, many American women have not done estate planning to protect their assets, their families, and themselves. Since most women will survive their husbands, the need for estate planning continues and often becomes more important for widows.

Working with women clients requires a different approach than working with men, and estate attorneys need to understand the nuances of designing client services for this growing market.

Attend this program to:

• Learn about the communication styles of women
• Find out how women make decisions
• Become aware of women's expectations
• Learn how to engage women in the planning process

Ademption & Equitable Conversion

The testator executed a will devising a home to Beneficiary.  Later, the testator entered into a contract to sell the home to Purchasers.  The testator died before the closing.  The trial court held that the devise adeemed and that Purchasers were entitled to specific performance of the contract.  The appellate court affirmed.

The court explained that once the testator executed the contract to sell the home, equitable conversion occurred.  In other words, in equity, the testator no longer owned real property (the home) but instead owned personal property (the contract right to the proceeds of the sale because the sale contract was specifically enforceable).  At the time of the testator’s death, he no longer owned the home and consequently the devise adeemed.

Moral:  Each testator who makes a specific gift of real property must be warned that the gift is likely to fail if he or she enters into a contract to sell the land even if the sale is not completed at the time of death.

Note:  Many states have anti-ademption statutes which would give the beneficiaries in this type of case the sale proceeds.

The "Uncleing Principle" and Intestate Succession

Gary Spitko (Professor of Law, Santa Clara University School of Law) has recently posted on SSRN his article entitled Open Adoption, Inheritance, and the  Uncleing Principle.

Here is the abstract of his article:

This article critiques current inheritance law relating to adopted children in light of the purposes of modern adoption law and the increasing prevalence of open adoptions.  The article proposes an uncleing principle to determine intestate inheritance rights in cases of open adoption in which a birth parent has maintained a qualifying functional relationship with the adopted-out child subsequent to the adoption.  When applicable, the uncleing principle would treat the adopted-out child and her birth parent as potential heirs of one another.  Unlike the presently dominant  all-or-nothing  approach to inheritance rights arising from adoption, however, the proposal would not under any circumstances treat the birth parent as a legal parent of the adopted-out child for purposes of inheritance.  Rather, the uncleing principle would treat the birth parent as an uncle or aunt to the adopted-out child, and would similarly increase the distance on the family tree between the adopted-out child and members of her birth family by one line of inheritance and two degrees of kinship.  When applicable, the uncleing principle would better serve the interests of the adopted child, her adoptive family, and her birth family than does the all-or-nothing approach, under which the adopted-out child is either a child of her birth parents for purposes of inheritance or is a stranger to her birth parents for purposes of inheritance.  The uncleing principle affirms the parental role of the adoptive parents by refusing to treat a birth parent as a legal parent.  Simultaneously, the uncleing principle recognizes and validates the importance of the bond between the adopted child and her birth family when the birth parent has maintained a sufficient functional relationship with the adopted child subsequent to the adoption.

Regulation of the Cremation Industry

As the rate of people selecting cremation over burial increases (now approximately one-third), the need to regulate the industry is increasing.

The following is from Chris Joyner, Cremation industry awaits tougher controls, USA Today, April 20, 2008:

The last thing most industries want is increased government regulation. But that's exactly what the Cremation Association of North America is advocating.

Currently 12 states — Arizona, California, Georgia, Illinois, Louisiana, Nebraska, New Hampshire, New York, North Carolina, South Carolina, Texas and West Virginia — regulate cremation, at a time when more people are choosing the service, said Mike Nicodemus, chairman of the association's operator certification program. * * *

Nicodemus said the majority of operators are honest, but the dishonest ones hurt the industry and tougher regulations are the only way to root them out. "We know that people with regulation in their state are held to a higher standard," he said. "The girl that cuts my hair has to jump through more hoops than my crematory operator does," he added.

Reverse Mortgages -- The Good, Bad, and Ugly

In Cashing in on home sweet home, 96 Ill. B.J. 179 (2008), Helen W. Gunnarsson explains that reverse mortgages are a popular, but controversial, way for elderly clients to use the equity in their homes.  Her article discusses how they work and why people should be wary.

Here is an excerpt from the article:

Simply put, says [Elizabeth W.] Anderson, a reverse mortgage is "a way of getting cash from the equity in a home." The lender pays the borrower/homeowner money, either as a lump sum, a monthly payment, a line of credit, or a combination of those methods, Anderson says. "The home remains titled in the name of the owners and the responsibility of maintaining the property, paying home-owner's insurance and property taxes continues to lie with the owners."

Instead of making monthly repayments of the loan, the amount of the homeowner's debt actually increases over the loan term. So, says Anderson, "If the loan is carried for a long period of time, there may not be any equity left in the house. This is also true if the home's value decreases. However, a lender may not recover any more than the value of the home upon repayment. Therefore, the homeowner will never owe more than what the home is worth."

All reverse mortgages involve fees, Anderson notes. Those fees are added to the loan balance and accrue interest over the period of the loan. Naturally, those fees, plus interest on them, must be repaid when the loan is repaid. Additionally, fees as well as interest rates and closing costs may impact the loan amount, Anderson cautions. * * *

Anderson cautions that clients should consider carefully whether a reverse mortgage makes financial sense for them. "[I]t can be a very expensive way to make purchases or investments, particularly when other options are available," she notes. Additionally, taking out a reverse mortgage may mean leaving little or nothing to heirs, she points out. * * *

Anderson warns of third parties who may financially exploit elderly people by persuading them to take out reverse mortgages to buy other goods and services.

Medicaid eligibility rules in effect at time of application determine whether a trust is a countable resource

The Ohio Supreme Court has resolved a conflict among the intermediate appellate courts by holding in Pack v. Osborn, 881 N.E.2d 237 (Ohio 2008), that the rules in effect at the time the beneficiary of a trust applies for Medicaid benefits determine eligibility but that the nature of the beneficiary’s interest in the trust is determined by the law in effect at the time the trust was created.

Wife Vents on YouTube

According to Wife takes divorce drama online, vents scorn via YouTube, CNN.com, April 16, 2008:

Some prominent New York divorce lawyers couldn't think of another case where a spouse -- in this instance, the wife of a major Broadway theater operator -- had taken to YouTube to spill the secrets of a marriage in an apparent effort to gain leverage and humiliate the other side.***

In a tearful and furious YouTube video with close to 150,000 hits to date, former actress and playwright ("Bonkers") Tricia Walsh-Smith lashes out against her husband, Philip Smith, president of the Shubert Organization, the largest theater owner on Broadway.

She goes through their wedding album on camera, describing family members as "bad" or "evil" or "nasty," and talks about how her husband is allegedly trying to evict her from their luxury apartment. She also makes embarrassing claims regarding their intimate life[.]***

Felder explained that his client was "acting out of passion." He also called the prenuptial agreement she'd signed with her husband, who is a quarter-century older than her, "stupid.

Note: this YouTube video has been “removed by the user.”

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

Canadian same-sex marriage entitled to recognition in New York

A marriage contacted in Canada by a same-sex couple is entitled to recognition in New York because is it neither contrary to New York positive law nor prohibited by natural law as are polygamous or incestuous marriages.

See Martinez v. County of Monroe, 850 N.Y.S.2d 740 (N.Y. App. Div. 2008); accord, Beth R. V. Donna M., 853 N.Y.S.2d 501 (N.Y. Sup. Ct. 2008).

Man Declared Brain Dead Now Feeling "Pretty Good"

Zach Dunlap was in a serious automobile accident.

On November 19, 2007, Zach was declared brain dead at a hospital in Wichita Falls, Texas.

His family then authorized the donation of his organs.

According to AP, Man declared dead, says he feels 'pretty good,' CNN.com, March 24, 2008:

As family members were paying their last respects, he moved his foot and hand. He reacted to a pocketknife scraped across his foot and to pressure applied under a fingernail. After 48 days in the hospital, he was allowed to return home, where he continues to work on his recovery. * * *

Dunlap, 21, of Frederick, Oklahoma, said he has no recollection of the crash.

Dunlap said one thing he does remember is hearing the doctors pronounce him dead.  * * *

His father, Doug, said he saw the results of the brain scan.

"There was no activity at all, no blood flow at all."

Events like this are one of the reasons individuals are leery of consenting to organ donations.  One might wonder if someone was waiting in the wings for Zach's organs and whether the brain scan machine was properly connected.

The depositor’s will can be clear and convincing evidence to defeat the joint account survivorship feature

In In re Estate of Novosielski, 937 A.2d 449 (Pa. Super. Ct. 2007), the court held that a U.S. Treasury Direct account entitled “A or B” is a joint account governed by the Pennsylvania Multi-Party Accounts Act.

If the creation of a joint account is not consistent with provisions of the depositor’s will, these provisions may act as clear and convincing evidence of the testator’s intent that the account is not to pass to the other joint holder on the testator’s death but is rather part of the testator’s probate estate.

To hold otherwise, the court explained, would be to sanction revocation of a will in a manner inconsistent with state law.

Probate Litigation and Family Relations

Karen S. Gerstner, (Attorney at Law, Karen S. Gerstner & Associates, P.C.) has recently published her article entitled A Message to Clients . . . Avoiding Probate Court Litigation, Prob. & Prop., March/April 2008, at 56.

Here is an excerpt from her article:

When I was a young lawyer, I attended a meeting with several attorneys to discuss certain “contested matters” that had arisen after the death of a widower who died survived by four children. I was shocked to hear one of the seasoned attorneys say, “If all decedents had only one child, my workload would decrease to nothing.” Whether you go back to Cain and Abel, or only as far back as the Smothers Brothers (“Mom always liked you best”), sibling rivalry is the chief factor in many disputes arising after a parent dies. Many laypeople attribute all litigation to greed, but in the case of family situations, often much more is involved than simply greed. Sometimes children hold deep-seated resentments, which may be based on perceived unfair treatment by a parent or sibling, often going back many years. Sometimes the last living parent is the only “glue” holding the children in the family “together” (if they ever truly were, in fact, “together”). Sometimes parents have unrealistic expectations about family.

Ray Charles' Estate Disputed

According to Michael A. Hiltzik, Ray Charles' children battle over his legacy, LATimes.com, April 20, 2008:

Shortly before Christmas 2002, Ray Charles called a meeting of his 12 children at a hotel near Los Angeles International Airport. Ten of them, ranging in age from 16 to 50 -- with 10 mothers among them -- listened as their father told them he was mortally ill and outlined what they could expect from his fortune.

Most of Charles' assets would be left to his charitable foundation. But $500,000 had been placed in trusts for each of the children to be paid out over the next five years, according to people at the meeting and a trust document.

Yet Charles' description left so much to the imagination that some of the children came away with the impression that he meant to leave them $1 million each. Charles also hinted that there would be more for them "down the line," which some interpreted to mean they would inherit the right to license his name and likeness for profit.***

Charles exercised iron control over his music and recordings, but his legacy is in disarray, knotted up in legal disputes between the estate's management and his family members[.]

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

Gift of brokerage account accomplished by opening account under donee’s name and Social Security number

A father opened a brokerage account in his son’s name and Social Security number.  The son knew nothing of the account until after it was closed by someone other than the father and the property transferred to a joint account in the name of the father and another child.

The son sued the brokerage firm and was awarded the value of the account at the time it was closed plus costs.

The court in Wasniewski v. Quick and Reilly, Inc., 940 A.2d 811 (Conn. 2008), upheld the judgment, holding that the father had made a completed gift of the brokerage account and that the son was the third party beneficiary of the contract between the father and the brokerage firm.

Waiver of homestead exemption in unsecured agreement

A retainer agreement between an attorney and his client purported to waive the client’s homestead exemption if the attorney obtained a lien to secure payment of legal fees and costs.

In an extensive opinion reviewing the law throughout the United States, the Florida Supreme Court held that a waiver of the homestead exemption in favor of other than a secured creditor is invalid.  Chames v. DeMayo, 972 So. 2d 850 (Fla. 2007).

Should state law update "old" wills on the basis of presumed intent?

Adam Hirsch (William and Catherine VanDercreek Professor of Law, Florida State University) has recently posted on SSRN his article entitled Text and Time: A Theory of Testamentary Obsolescence (forthcoming in the Washington University Law Review).

Here is the abstract of his article:

Events may occur after a will is executed that ordinarily give rise to changes of intent regarding the estate plan - yet the testator may take no action to revoke or amend the original will. Should such a will be given literal effect? When, if ever, should lawmakers intervene to update a will on the testator's behalf?

This is the problem of testamentary obsolescence. It reflects a fundamental, structural problem in law that can also crop up with regard to statutes, contracts, and other performative texts, any one of which may become timeworn. This article develops a theoretical framework for determining when lawmakers should - and should not - step in to revise wills that testators have left unaltered, and to locate this framework in the context of other forms of textual obsolescence. The article focuses on a variable I call friction - i.e., the extent of difficulty text makers face in revising texts on their own. Some changed circumstances display the interesting quality of altering testamentary intent while simultaneously disabling the testator from executing a new estate plan. In such instances, legal intervention to effectuate intent is warranted. Where the testator remains in a position to amend a will following a change of circumstance, the case for legal intervention becomes uneasy. Nevertheless, lesser forms of friction may continue to operate, affording testators less practical opportunity to redo their wills, and hence again giving cause for interpreting wills dynamically.

When lawmakers do act to update a will, they should ordinarily do so on the basis of the testator's probable intent. Yet, I also argue that in some instances lawmakers do better to follow the testator's probable assumptions about what rule governs will interpretation, even if that rule fails to match most testators' preferences. I call this an error-minimizing default. In the Appendix, I show that under some conditions an error-minimizing default is more efficient than a majoritarian default, a contribution to default rule theory.

Taking Religion into Account in Estate Planning

Martin M. Shenkman, (Attorney at Law, Martin M. Shenkman, P.C.) has recently published his article entitled Integrating Religious Considerations into Estate and Real Estate Planning, Prob. & Prop., March/April 2008, at 34.

Here is an excerpt from his article:

Contemplating the myriad religious, philosophical, and related issues in your law practice provides amazing touchstones to better understand and appreciate your own heritage, culture, and religious feelings and affiliation. The intellectual and personal rewards are substantial. As you seek out and address a client’s religious and other personal wishes, you will likely create a bond with the client that will take the relationship beyond that of a mere scrivener to that of a true family and business adviser. The rewards of providing that level of personal service, and the strengthened client bonds, will enhance your practice, client retention, and more. It’s good business.