Wills, Trusts & Estates Prof Blog

Treasury Department Going Plastic

The following is from Eleanor Laise, Treasury Plans Social Security Debit Card, WSJ.com, Jan. 4, 2008:

The Treasury Department plans to introduce a prepaid debit card for Social Security recipients in an effort to provide safer and cheaper benefits payments.***

The Plan: Treasury will roll out a prepaid debit card designed for Social Security benefits recipients who don't have bank accounts.

The Motivation: The move is part of a broader effort to provide cheaper, more secure benefits payments by shifting away from paper checks.

The Outlook: The plan may require substantial marketing and education to help users understand the card. ***

Special thanks to Neil E. Hendershot, Esq. (Attorney at law, Goldberg Katzman, P.C., Adjunct Professor, Widener University School of Law) for bringing this development to my attention.  You can read more on Neil's blog at PA Elder, Estate & Fiduciary Law Blog.

Probation Violator May Keep Lottery Winnings

Timothy Elliott, a convicted bank robber, was granted probation.  One of the conditions of his probation was to refrain from gambling and purchasing lottery tickets.

Timothy ignored the prohibition and played the Massachusetts lottery.  He was lucky -- he won $1 million.  After receiving the first of his 20 annual $50,000 checks, the truth came out.

On Friday, January 18, 2008, Barnstable, Massachusetts Superior Court Judge Richard Connon ruled that Timothy could nonetheless retain the winnings.  Timothy's probation was not revoked.  The only "penalty" he will pay for his disregard of the condition of his probation is that the monthly $65 fee to be on probation which was originally waived because of Timothy's poor financial status was reinstated.

At least, I think, he should first have to repay the money he stole along with all of the costs the government expended to house him in jail, prosecute him, etc.

See AP, Court rules bank robber Timothy Elliott can keep $1M lottery prize, Boston Harold, Jan. 18, 2008.

You better trust your life insurance beneficiary!!

As today's (January 19, 2008) B.C. comic reminds us, "Never go rock climbing with your life insurance beneficiary."

Anna Nicole's Will Analyzed

In Anna Nicole Smith’s Will: A Tragedy in Many Acts, 95 Ill. B.J. 270 (2007), Katarinna McBride discusses Anna Nicole’s will in which she disinherited her daughter by expressly omitting all future born children from her will:

Under California’s pretermitted heir staute, an heir that was intentionally excluded cannot use the pretermitted heir statute to take a share of the decedent’s estate, as long as the intention to exclude that child is clear from the face of the will.***

Finally we have arrived to California intestacy laws. Though intestacy commonly refers to individuals who die without a testamentary instrument or a will, it also applies to individuals with wills that fail to name a beneficiary.***

Since Dannielynn is Anna Nicole’s only surviving child, she will potentially inherit her mother’s entire estate.

Holding property as joint tenants with right of survivorship – Another possible advantage

William P. LaPiana, (Rita and Joseph Solomon Professor of Wills, Trusts, and Estates, New York Law School) and Marc S. Bekerman (Associate Director of New York Law School Graduate Tax Program) have recently published their article entitled Obtaining a Full Step-up in Basis for Jointly Held Property Between Spouses, Prob. & Prop., Jan./Feb. 2008, at 62.

Here is an introduction to their article:

Holding property together as joint tenants with right of survivorship has numerous advantages to spouses. Among the advantages are asset protection, disability planning, and possible avoidance of a probate or administration proceeding on the death of the first spouse. Because most assets can be held in this manner, many married couples own a substantial portion of their property in this form. This article will review a possible additional advantage [that is, obtaining a full step-up in basis] that may be available to a surviving spouse of jointly owned property in jurisdictions that have favorable law and when proper planning is done both before and after the death of the first spouse.

Supreme Court Holds Trust Investment Advisory Fees Subject to the 2% Floor

In its January 16, 2008 decision Knight v. Commissioner, No. 06–1286 (U.S. Jan. 16, 2008), the United States Supreme Court sided with the IRS on the issue of deductibility of investment advice fees paid by a trust.

Normally investment advisory fees incurred by individuals are deductible only to the extent they exceed 2% of an individual's adjusted gross income. In this case, the Trust argued that it should be allowed to fully deduct such fees under 26 U.S.C. § 67(e)(1).

The Supreme Court rejected the Trust’s argument and held that investment advisory fees incurred by the Trust were subject to the 2% floor. In a footnote, the court noted that the analysis in this case was equally applicable to decedents' estates.

Special thanks to Neil E. Hendershot, Esq. (Attorney at law, Goldberg Katzman, P.C., Adjunct Professor, Widener University School of Law) and Patrick S. Sylvester (Attorney at Law, Sylvester Law Firm, PC) for bringing this case to my attention.

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

Useful Tax Resources for Self-Preparers

In her article 50 Tools and Resources for Freelancers During Tax Season, businesscreditcards.com, Jan. 17, 2008, Jessica Hupp lists 50 tools to assist individuals who prepare their own income tax returns.

Here are some of the articles she recommends:

• Tax Tips for Freelancers: This article from About.com discusses Schedule C and some of the expenses you need to track.
• Freelancer Tax Insights: Learn about depreciation and expenses in this helpful dialogue.
• Tax Tips for Freelance Writers: This discussion covers self employment taxes, deductions, and more.
• Freelance Tax FAQ: The Anti 9-to-5 Guide discusses deductions and more in this simple question-and-answer session.
• Working at Home: Kiplinger offers tax advice for freelancers and independent contractors that work at home.

Special thanks to Amy S. Quinn for bringing this listing to my attention.

Steve Fossett Update

Earlier on this blog, I discussed Steve Fossett’s disappearance and his wife’s petition to declare him legally dead.

The following update is from Michael Higgins, Judge says testimony is needed to find Steve Fossett legally dead, Chicago Tribune, Jan. 16, 2008:

A Cook County judge wants to hear testimony about the disappearance of Steve Fossett before he decides whether to find the wealthy Chicago adventurer legally dead.

Probate Judge Jeffrey Malak said Fossett's wife, Peggy, had good reason to believe her husband died when his plane disappeared over the Nevada desert in September.

But because Fossett has been missing for less than seven years, testimony—and not just paperwork filed in court—is needed to show he isn't still alive, the judge said.

"I'm not looking for that much," Malak told lawyers for Peggy Fossett. "But I need something to overcome the presumption of life." * * *

Fossett's estate is "vast, surpassing eight figures," Peggy Fossett's lawyers have said in court documents. They want Fossett declared dead so his assets can be distributed according to his will.

If Mr. Fossett is declared dead, it will be very interesting to see the terms of his will.

NYLS Faculty Win Excellence in T&E Writing Award

The following is courtesy of Prof. Paul Caron, editor of the Tax Prof Blog:

Marc S. Bekerman, Associate Director of the Graduate Tax Program at New York Law School, and John J. Reddy Jr., President of the New York Law School Alumni Association and a member of its Board of Trustees, have received a 2007 Excellence in Writing Award for Trust & Estate Best Practical Use Article from the ABA's Probate & Property magazine for their two-part article entitled, Essential Steps to Take After "Finishing" The Estate Plan, which ran in the March/April and May/June issues. See the New York Law School press release here.

Dynasty Trusts -- No longer for the super rich?

According to Hillary Chura, Bequeathing, With Strings Attached, NYTimes.com, Jan. 5, 2008:

Once only for the superrich, dynasty trusts now provide a way for the rest of us to leave money to loved ones, preserve wealth for future generations and even control how an inheritance is used once donors die. ***

Setting up a trust can cost $2,000 to $20,000, depending on its complexity. As such, it may not make sense for, say, a $20,000 estate, but the final determination depends on the situation. People expecting to spend their entire $5 million portfolio before they die may not go through the exercise, while a couple with $50,000 may want to secure it in a trust for their daughter, keeping it from her husband in a bad marriage, said Kirsten L. Izatt, an estate planning lawyer in Wheaton, Ill. She said that even if people expect to use their entire estate before they die, they may want to consider a dynasty trust to shield any leftover money.***

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

Washington court to decide whether a son who killed his mother can inherit her estate

The following is from Natalie Singer, Son seeks estate of mother he killed, seattletimes.nwsource.com, Jan. 3, 2008:

From inside Western State [Hospital], where he's spent most of his time since stabbing his mother and brother to death with a butcher knife in 1999, Hoge is fighting to inherit part of his mother's estate. ***

After Hoge killed his mother, Pamela Kissinger, her family won $800,000 in a civil suit against King County when it was determined that a public-health clinic had failed to give Hoge his medication and was partially responsible for the slayings.

Hoge's claim to that money is now poised to set legal precedent for interpretation of Washington's sometimes-vague Slayer Statute: the law that prohibits most killers from profiting off their victims.***

The Slayer Statute is designed to prevent those guilty of two key things — a "willful" and "unlawful" killing — from profiting from their crimes.  While some states have decided whether people found not guilty by reason of insanity can inherit the estates of their victims, Washington has not.

Special thanks to Deborah Letz (attorney, San Antonio, Texas) and for bringing this situation to my attention.

Comment Reminder and Request

Do you notice that when you post a Comment, it does not appear?  Do you post it again and again?  Then, after a while, do you notice that it suddenly appears?

This is not aberrant behavior. Instead, it is by design because comments on this blog, as well as all other blogs in the Law Professor Blog Network, are moderated.  This means that a comment will not appear until the blog editor approves the comment.  This requirement is imposed because the blog editor may be held liable for the publication of comments under the theory of publisher liability. Because of publisher liability concerns, the Law Professor Blogs Network does not allow automatic comment publishing.

Important Caveat:  Comments which contain potentially libelous material will either be edited to exclude the potentially libelous material or not posted at all.  Thus, I respectfully request that you refrain from including potentially libelous material in your comments.  TIA.

Holiday Gift Gone Awry

A woman in Phoenix, Arizona received a ceramic vase as a Christmas gift (pictured on the left) that was meant to hold the cremains of a stranger.

See Creepy Christmas gift, CNN Video, Dec. 27, 2007, to see the report about this mix-up.

British Prime Minister Advocates Presumed Consent for Organ Donation

The following excerpts are from UK PM backs organ donation plan, CNN.com, Jan. 13, 2008:

British Prime Minister Gordon Brown has said he supports plans to allow hospitals to take dead patients' organs without their prior consent. * * *

Under the present system [in the United Kingdom] people must sign up to an organ donor register if they want to give up their organs after they die. A total of 14.9 million people -- around 24 per cent of the population [of the UK] -- are on the register.

However, Brown said he backed moving to a system of "presumed consent" whereby a dead person's organs would automatically be available for transplant unless individuals had opted out of the national register or family members objected.

The proposals are closely modeled on the donor system in Spain where Brown said around 35 people per million had their organs used by hospitals. This compares with 13 donors per million in Britain and 25 per million in America, he added.

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

Illinois Small Trust Termination Legislation

The following is from Helen W. Gunnarsson, Small-trust-termination amendment gets mixed reviews, 95 Ill. B.J. 624 (2007).

With the governor’s signature on SB 531, the trustee of a trust having a market value of less than $100,000 may, under certain conditions, terminate the trust and distribute its assets to the income beneficiaries if the trustee determines that the costs of continuing the trust will hamper the trust’s purpose. The new act, PA 95-0605, amends section 4 of the Trusts and Trustees Act, 760 ILCS 5/1 et seq, and adds new section 4.26. Its provisions are effective June 1, 2008. ***

Some attorneys are concerned that the new bill may defeat the settlor’s intent by failing to provide for the remainder beneficiaries and propose the following solution: 

For example, an amendment could provide that actuarial principles should govern the trust’s liquidation, with the income beneficiaries’ life expectancy used to calculate the present value of their interest, and the remainder to be distributed to the remainder beneficiaries.

South Dakota Supreme Court Orders Equitable Division of Wife’s Inheritance upon Divorce

In Halbersma v. Halbersma, No. 24290 (S.D. Aug. 22, 2007), wife received an inheritance from her parents during her marriage and kept it in a separate account. Husband worked on the farm and provided for the family. After 50 years of marriage, the wife filed for divorce and claimed that she should receive the full amount of the inheritance as her separate property. The trial court agreed.

On appeal, the South Dakota Supreme Court held that the inheritance was not ipso facto excluded from consideration in the overall division of property; only where one spouse made no or de minimis contributions to the acquisition or maintenance of property and had no need for support, should a court set it aside as non-marital property.

The Court found that husband’s contribution was not de minimis because he invested all of his earnings into marital assets; but for his contribution wife would have spend some of her inheritance to help support the family. The court remanded the case for equitable division of property, including the inherited property.

Post-Death Implantation Child Not Considered an Heir in Arkansas

The following is from John Lyon, Court: Embryo implanted in mother's womb after father's death not an heir, Arkansas News Bureau, Jan. 11, 2008:

A child conceived through in vitro fertilization but implanted in his mother's womb after his father's death is not automatically considered his father's heir under Arkansas' inheritance laws, the state Supreme Court said Thursday in an advisory opinion.

The court issued the opinion in response to a request from a federal judge in an Arkansas woman's lawsuit against the Social Security Administration over its denial of her claim for "child's insurance benefits."

The Supreme Court noted that the state statute governing intestacy * * * was enacted in 1969, before the technology of in vitro fertilization was developed, and therefore does not address the issue.

Because the law predates the technology, "we can definitively say that the General Assembly ... did not intend for the statute to permit a child, created though in vitro fertilization and implanted after the father's death, to inherit under intestate succession," Justice Paul Danielson wrote.

Danielson wrote that it is not the court's role to create law, but he added that "we strongly encourage the General Assembly to revisit the intestacy succession statutes to address the issues involved in the instant case and those that have not but will likely evolve."

Special thanks to Deborah Letz (attorney, San Antonio, Texas) and for bringing this case to my attention.

Registry for Reproductive Material Donors -- The British Approach

Earlier on this blog, I reported on the proposal to develop a registry in the United States of reproductive material donors.

This issue has already been addressed in England where in March 2005, a law took effect which provides that egg and sperm donors do not have the right to remain anonymous.  Instead, children conceived by the use of reproductive materials have the right to learn the identities of their genetic parents once they reach age 18.

The following excerpts are from Sperm donor anonymity ends, BBC News, March 31, 2005:

The new rules will not be retrospective, so people who have already donated will not be affected.

But some experts are concerned that the removal of anonymity will deter donors from coming forward in the future.

And the British Fertility Society has warned that couples who do want eggs or sperm from anonymous donors may choose to go to unlicensed "backstreet" clinics, or travel abroad to countries with less strict regulations. * * *

While children will be able to access more information about the donor's genetic origins, they will have no financial or legal claim.

Because the law only applies to people who donate from Friday, the first time children born in this way will have the option to ask for the identity of their donor will be when they turn 18 in 2023.

They will have to ask the Human Fertilisation and Embryology Authority to release the information.

The donor will not be able to trace a child.

Special thanks to David S. Luber (The Estate Planning Law Firm, P.A.) for bringing this article to my attention.

Taxation of Virtual Winnings or "Are your WoW earnings income"?

Bryan T. Camp (Professor of Law, Texas Tech University School of Law) has recently published his article entitled The Play’s the Thing: A Theory of Taxing Virtual Worlds, 59 Hastings L.J. 1-71 (2007).

Here is the abstract of his article as found on SSRN:

Taxation is shadow life. As our culture monetizes more and more life activities, the shadow grows. This article looks at the potential tax issues arising from a new life activity: online role-playing games in virtual worlds. Currently, some 12 million people regularly play such games and the number is growing. Exploring the reach of the Tax Code into virtual world transactions not only responds to the potentially practical needs of millions of U.S. taxpayers, it also permits a reevaluation of core principles of income tax as they interplay with life activities in the context of 21st century American culture.

This article's central thesis is that while player activity in virtual worlds produces measurable economic value to the player, player activity that occurs solely within the online virtual world is not gross income under the law. The article argues for a "cash out" rule. Players whose added wealth consists solely in what are defined as "units of play" should not be taxed unless and until they convert those units into cash or property that is something other than a unit of play. Conversely, when the play ceases, taxation begins. The resulting line-drawing difficulties have nothing to do with player intent nor with "fun" and "games." Instead, the issue presented is as old as the Tax Code itself: at what point does economic gain become legal gain? The new context of virtual words allows for a renewed exploration of how and why the legal concept of "income" differs, and indeed must differ, from the economic concept.

The article proceeds in three parts. Part I describes the relevant facts of online role-playing games. It describes two popular virtual worlds which sit at opposite ends of the spectrum of online gaming - World of Warcraft and Second Life - and describes how game-related activity produces economic income. Part II reviews the basic rules of income tax, focusing on the broadness of the theory of gross income under section 61. Part II argues that the limits of section 61, whether imposed by Congress, the courts, or the IRS, are best described as operational limits. Part III applies the basic tax rules to virtual worlds and advances a theory based on "units of play" to distinguish between virtual worlds that are games and virtual worlds that are the equivalent of bingo halls or barter clubs. Using the concept of imputed income, Part III discusses the circumstances under which economic activity in-world involving only trade of virtual goods or services for virtual money will cast a real world tax shadow.

National Academy of Elder Law Attorneys announces the Third Annual NAELA Student Journal Writing Competition

Here is some information taken from the Competition's announcement:

The National Academy of Elder Law Attorneys is pleased to present the Third Annual NAELA Student Journal Writing Competition offering a $1,500 cash prize for the best article submitted. In addition to the $1,500 cash award, the winner will be honored at the Fall 2008 NAELA Institute in Kansas City, MO and will receive up to $1,000 for travel and meeting related expenses. The second place winner receives $1,000 cash, and the third place winner receives $500 cash.

The top eight articles submitted will be published in the NAELA Student Journal, an annual publication, and the top eight authors will receive a complimentary one-year membership to NAELA. This competition is open to all students in good standing who attend a law school within the United States. * * *

The article should address any topic related to the intersection of law and aging, elder or disability planning.

The deadline is May 1, 2008.

More information is available by following this link.

Tentative Draft on Powers of Appointment in the Restatement (Third) of Property

Ira Mark Bloom (Justice David Josiah Brewer Distinguished Professor of Law, Albany Law School) has recently published his article entitled Powers of Appointment under the Restatement (Third) of Property, 33 Ohio N.U. L. Rev. 755 (2007).

Here is an excerpt from the conclusion to his article:

The Tentative Draft on powers of appointment is a major and important piece of work. It provides many lessons for estate planners, both in the planning and drafting areas. In connection with planning, estate planners must understand that tax concepts of powers may differ in important ways from the policy concepts adopted in the Tentative Draft. For example, although a power subject to an ascertainable standard is not a general power for transfer tax purposes, the power is a general power for property purposes with the potential adverse creditors' rights. Because the Tentative Draft greatly expands creditors' rights for general powers not created by the donor, serious consideration should be given to releasing or disclaiming such powers. ***

I have one final suggestion for ensuring acceptance of the Restatement's principles and policies for powers of appointment that otherwise may be rejected. A Uniform Powers of Appointment Law based on the Restatement (Third) of Property should be undertaken. Unfortunately, if experience is any guide, even a Uniform Powers of Appointment Law will not succeed in the enactment of principled rules in all states as too many states in a relentless race to the bottom are more interested in securing trust business.

Ownership of a Decedent's E-mail Remains Controversial

Jonathan J. Darrow  (Assistant Professor of Business Law, Plymouth State University) and Gerald R. Ferrera (Gregory H. Adamian Professor of Law, Bentley College) have recently published their article entitled Who Owns a Decedent's E-Mails: Inheritable Probate Assets or Property of the Network?, 10 N.Y.U. J. Legis. & Pub. Pol’y 281 (2006-2007).

Here is an excerpt from the introduction to their article:

In early 2005, military dad John Ellsworth made national news through his seemingly innocuous request to be allowed access to his deceased son's e-mail account. His twenty-year-old marine son, Justin, was killed in Fallujah on November 13, 2004, by a roadside bomb. Mr. Ellsworth wanted to collect e-mails that his son wrote and received while in Iraq to create a memorial in his son's honor. Were his e-mails similar to "sending a first-class letter," with all of the attendant implications for ownership and inheritability, or is the comparison mentioned in Lipsitz inaccurate? ***

This Article is divided into six parts: Part II outlines some copyright basics and addresses the copyright status of e-mail messages as well as the current de facto control of e-mail by service providers independent of copyright implications. Part III suggests bailment law as an appropriate framework for the analysis of the legal status of e-mail held by a third party, and also offers comparisons to warehouse law and the law of safe deposit boxes. Part IV summarizes the current legal status of e-mail, explains why privacy arguments may be inapposite in the case of a decedent's e-mail, and sets the stage for the recommendations in Part V. Finally, in Part VI, the Article concludes with a comparison of e-mail to paper and pen (first class) letters and their attendant ownership and intellectual property interests. The article suggests that e-mail, as a unique kind of property, has not been given sufficient legal protection as an inheritable probate asset and that legislative action could provide some much needed certainty in this developing area of law.

Special Needs Trusts CLE

On January 31 through February 1, 2008, the University of Texas School of Law and the Wealth Management and Trust Division of the Texas Bankers Association is sponsoring a seminar entitled 2008 Changes and Trends Affecting Special Needs Trusts: A Guide for Attorneys, Financial Advisors and Trust Officers in Austin, Texas.

Here is a description of this program:

While special needs trusts offer innovative planning opportunities for a growing client base, it has been very hard to find clear practical explanations, forms and tools to optimize the use and administration of these trusts. This program brings together leading professionals in the SNT field, and offers a great set of seminar materials, including sample forms, resources and tool sets. If you work with special needs trusts—or want to learn how to use, draft, fund and administer them—don’t miss this important program.

Cafeteria Plans Update

In Retirement Benefits Planning Update, Prob. & Prop., Jan./Feb. 2008, at 51, Harvey B. Wallace II (Berry Moorman PC, Detroit, Michigan) provides an update of cafeteria plans including a discussion of the new proposed regulations.  His article covers the following issues:

• Integrated rules for cafeteria plans
• Written plan documents
• Failure to comply
• Election of benefits
• Substantiation of expenses
• Flexible spending arrangements
• Nondiscrimination rules

What does it mean to be "rich"?

According to The Wealth Report, A Rich Person’s Definition of Rich, Wall St. J., Jan. 9, 2008, a net worth of $1.4 million will place a person in the top 5% of Americans. 

However, a survey by Spectrem Group of households with $500,000 or more of investible assets revealed that to be rich, "45% said $5 million or more, 25% said $25 million or more, and 8% said $100 million."

The article also reports that:

Previous studies have shown that when people are asked how much it takes to be rich, they always give a number that’s twice their current net worth or income. Those with $100,000 in incomes say $200,000, while those worth $5 million say $10 million.

All of these studies show that when it comes to defining rich, Americans of all income levels always look up, rather than down.

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 November 14, 2007 to January 13, 2008 from the SSRN Journal of Wills, Trusts, & Estates Law for all papers announced in the last 60 days:

Rank	Downloads	Paper Title
1	146	Shrinking Boomer Social Security Retirement Benefits Francine J. Lipman, Chapman University - School of Law, Date posted to database: November 16, 2007 Last Revised: November 21, 2007
2	79	Dealing with Postdeath Events Wendy C. Gerzog, University of Baltimore - School of Law, Date posted to database: November 8, 2007 Last Revised: November 8, 2007
3	73	Valuing Art in an Estate Wendy C. Gerzog, University of Baltimore - School of Law, Date posted to database: November 8, 2007 Last Revised: November 8, 2007
4	57	Taxation of the New Era 'Family Unit' Lester B. Snyder, University of San Diego School of Law, Date posted to database: November 9, 2007 Last Revised: November 13, 2007
5	49	Conservation Easements: Perpetuity and Beyond Nancy A. McLaughlin, University of Utah - S.J. Quinney College of Law, Date posted to database: December 12, 2007 Last Revised: January 11, 2008