Wills, Trusts & Estates Prof Blog

Tax Reforms and Their Applicability

The following excerpts are from Robert L. Moshman, The Zero Percent Capital Gains Tax Rate, Est. Analyst (Feb. 2008):

These days, tax reforms are like time-release pills; the relief comes years after the legislation. The zero percent tax bracket of 2008 originated with the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) and was scheduled only for one year, 2008. Then the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) extended the zero bracket to include 2009 and 2010 as well.***

The zero bracket applies only to taxpayers who are in the two lowest federal income tax brackets of 10% and 15%. The favorable zero bracket covers long-term capital gains (after being offset by net short-term losses). Qualified  dividend income is also covered.***

Second guessing these decisions is inevitable because the fate of the stepped-up basis for assets transferred at death remains uncertain. An estate tax repeal with a carryover basis is still possible, so taking advantage of current temporary techniques to avoid capital gains is somewhat tempting.***

Michigan in Need of New Legislation for the Legally Incapacitated

Nicole E. Bergeron (J.D. 2006, Thomas M. Cooley Law School), has recently published her article entitled Resuscitating Elderly Wards in Michigan: Should a Legal Guardian Be Allowed To Execute a “Do-Not-Resuscitate” Order on a Legally Incapacitated Individual's Behalf?, 9 T.M. Cooley J. Prac. & Clinical L. 257 (2007).

Here is the conclusion to her article:

Michigan's legally incapacitated are in desperate need of legislation designed to protect them from the implementation of overly aggressive resuscitative procedures. Legislation should focus on the drafting of new procedural laws that are designed to adequately protect a legally incapacitated individual's right to refuse unwanted and overly aggressive medical treatment. As a model for reform, the legislature should look to California's Due Process in Competence Determinations Act. Using the procedural protections outlined in this act as a framework, the legislature should be able to draft legislation that adequately preserves an individual's right to refuse unwanted medical treatment. Legislation should also focus on reforming current guardianship laws so that the rights of family members and relatives are given adequate priority and protection. Given proper reform, legislation should further seek to allow for the signing of DNR's by guardians who are specifically authorized by the court to deal with the ward's end-of-life concerns. This goal can be accomplished by expanding the scope of Michigan's Do Not Resuscitate Procedures Act, and proposing legislation designed to uniformly regulate the implementation of DNR's in both traditional and non-traditional health care settings.

Negative Inheritance and Ways to Avoid It

According to Marshall Eckblad, When Inheritance Is Negative, WSJ.com, Jan. 22, 2008:

People who don't prepare to care for their sick and aging parents could fall victim to what economists call "negative inheritance."

If the term seems foreign, the scenario it describes won't: It is when costs to children caring for their relatives outstrip any gifts or bequests they might receive in return.

To protect against the havoc a negative inheritance can wreak on a financial plan, financial advisers have developed detailed strategies, typically including a combination of family dialogue, long-term-care insurance and proactive management of the parents' remaining assets.***

"If you planned to withdraw 5% from your portfolio every year to support your lifestyle," says Joe Birkofer, a principal at Legacy Asset Management Inc. in Houston, "and then you increase that by 50%" to care for ailing parents, "your financial plan's a mess."***

Domestic and International Trusts Conference in New York

On May 22 and 23, 2008, Financial Events International is sponsoring a conference entitled Advanced Planning : Domestic and International Trusts in New York, New York.
 
Here is an excerpt from the description of the program:

U.S. Trusts practices continue to experience widespread and highly significant change on a near daily basis. Now U.S. based legislation means an ongoing battle for those in the industry to provide the best possible service to clients, whilst ensuring they stay on the right side of regulation. On top of this, different initiatives from multilateral organizations mean all in the region are affected by developments, and all must strive to stay ahead, offering the best legal and product advice in what is currently an extremely competitive sector.***

Our conference will deal with trusts and estate planning for both U.S. clients with foreign connections and foreign clients with U.S. connections and discuss thoroughly Tax and reporting rules relating to foreign trusts, their regulation and their implementing. This event will also facilitate networking among international and U.S. delegates.***

"American Greed" Features Affordable Media Case

Many of you are probably familar with the case Federal Trade Commission v. Affordable Media, LLC.,179 F.3d 1228 (9th Cir. 1999), which is often used in casebooks to discuss self-settled asset protection trusts.  See, e.g., Jesse Dukeminier, Stanley Johanson, James Lindgren, & Robert H. Sitkoff, Wills, Trusts & Estates ch. 8 (7th ed. 2005) & Gerry W. Beyer, Teaching Materials on Estate Planning ch. 10 (3d ed. 2003).

In this case, Denyse and Michael sold products such as the Aquabell (a water-filled dumbbell), Talking Pet Tag, and KenKut (a plastic wrap dispenser) by way of late night television commercials.  They created a limited liability company to give investors the opportunity to share in their profits.  In actuality, the investment was a Ponzi scheme.  Eventually, the Federal Trade Commission enjoined their activities and ordered Denyse and Michael to repatriate any assets held for their benefit outside of the United States, including those held in an irrevocable trust under the law of the Cook Islands.  Following the provisions of the trust designed to frustrate attacks by United States courts, the Cook Island trustee refused to repatriate the assets.  The district court found that Denyse and Michael were in contempt of court and they were later taken into custody because they had not purged themselves of the contempt.  The appellate court affirmed the lower court’s injunction, contempt order, and subsequent incarceration.

Alyssa D. DiRusso (Assistant Professor, Cumberland School of Law) has just brought to my attention that this case was recently featured on American Greed on CNBC.  The site features video clips of Eric Stein (a co-defendant with Denyse and Michael) talking about how telemarketers hooked customers as well as an interview with a victim of the scheme talking about his loss.

Conference on Trusts Taxation in Switzerland

On February 26, 2008, Financial Events International is sponsoring a conference entitled Trusts Taxation in Switzerland: Consequences of the Hague Convention and the new Swiss guidelines on trusts in Geneva, Switzerland.

Here is a summary of the program:

Via the Swiss taxation conference, the Swiss government has issued a new guideline that aims at establishing a common framework for trusts taxation within the confederation. The impact of this new guideline on trusts in Switzerland remains to be seen.

The comparison between the current framework in Switzerland and its neighbour countries will provide the participants to our conference with an in-depth analysis of the future of trusts in the confederation.

Using Estate Planning to Pass on Family Values

The following is from Ian Driscoll, A wealth of experience to pass on, FT.com, Jan. 22, 2008:

When Doug Regan’s clients imagine passing their wealth on to their heirs, they often experience two emotions: Fear and anxiety. “Fear and anxiety that the money will negatively impact, or not positively impact, [on] their children and grandchildren; fear that money will take away the human driver of achieving success through hard work,” says the Northern Trust executive.***

The wealth management group at Northern Trust has responded to client concerns with a number of strategies, including an intranet site where families will be able to share concerns securely. Already running is “Inspiring Human Capital”, a day-long course that addresses some of the more intangible, non-financial issues that accompany wealth, with an emphasis on values.***

Mr Regan says client feedback has been positive, especially among those who didn’t grow up sharing values but for whom they were self-evident[.]

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

Happy Lunar New Year!!

This year (2008), just like the years 1912, 1924, 1936, 1948, 1960, 1972, 1984, and 1996, is the Year of the Rat.

According to Chinese New Year 2008, TravelaChina.com:

People born in the Year of the Rat are noted for their charm and attraction for the opposite sex. They work hard to achieve their goals, acquire possessions, and are likely to be perfectionists. They are basically thrifty with money. Rat people are easily angered and love to gossip. Their ambitions are big, and they are usually very successful. They are most compatible with people born in the years of the Dragon, Monkey, and Ox.

The Body Part Market

In Black Markets: The Supply and Demand of Body Parts, Michele Goodwin (Everett Fraser Professor of Law, University of MInnesota Law School) examines the problems that arise because of a shortage of organs.

Here is a description of her book:

In direct response to indefinite delays on the national transplantation waitlists and an inadequate supply of organs, a growing number of terminally ill Americans are turning to international underground markets and brokers for organs. Offering a contemporary view of organ and tissue supply and demand, Michele Goodwin explores the legal, racial and social nuances of current altruistic institutionalized procurement schemes. It is understandably not publicized that Chinese inmates sitting on death row and the economically disadvantaged in India and Brazil are the most often compromised co-participants in the negotiation process and supply kidney and other organs for Americans as well as other Westerners willing to shop and pay in the shadow of the law. Goodwin suggests that the best alternative model for organ procurement is a market approach or one based on presumed consent and provides an alternative way of studying how to increase the supply of organs and other body parts as well.

Jennifer Bard (Alvin R. Allison Professor of Law and Director, Health Law Program ) has recently published a somewhat critical review of this book in 33 J. Health Pol. Pol’y & L. 117 (2007).  Here is an excerpt from the review's abstract:

Black Markets: The Supply and Demand of Body Parts is an important contribution to the body of scholarship and policy analysis about one of the most difficult problems facing contemporary health policy, public health, and bioethics: the fact that the demand for donor organs far outstrips supply. In this book, Michelle Goodwin systematically reviews the general ways in which the United States' current organ-donation and transplantation system negatively affects potential donors and recipients, particularly African Americans. She proposes solving these problems by changing the current system that prohibits payment for organs to one that allows it. However, I argue that the entire discussion of a market-based solution to the problem of a shortage in supply in donor organs suffers from a flaw far greater than the inability to predict how such a market would work, because of a lack of reliable evidence that an offer of compensation would be effective in changing the minds of people who currently decline to donate the organs of their loved ones.

Adoption of the Nebraska Uniform Trust Code did Not Undermine Trust Asset Protection Against Creditors

William H. Lyons (Richard H. Larson Professor of Tax Law, University of Nebraska College of Law) and John M. Gradwohl (Judge Harry A. Spencer Professor of Law, University of Nebraska College of Law) have recently published their article entitled Discretionary Trusts, Support Trusts, Discretionary Support Trusts, Spendthrift Trusts, and Special Needs Trusts Under the Nebraska Uniform Trust Code, 86 Neb. L. Rev. 231 (2007).

Here is an excerpt from the introduction to their article:

The Uniform Trust Code (“UTC”) includes a number of provisions dealing with the rights of creditors to reach the interests of trust beneficiaries. A few authors in a series of articles have raised concerns that adopting the UTC significantly undermines traditional equity rules and policies governing the protection of trust assets against claims of creditors. These articles have caused attorneys and other trust professionals to question the extent to which enactment of the UTC changes the rules in this important area of trust law. The arguments raised by these few authors provided the initial impetus for this article. To address the particular concerns of Nebraska attorneys, we extensively analyzed Nebraska law governing the protection of trust assets against claims of creditors prior to enactment of the Nebraska Uniform Trust Code (“Nebraska UTC”) which became operative on January 1, 2005. The comprehensive legislative study prior to enactment concluded that the Nebraska UTC would change prior case law on these types of trusts very little and that the changes made by the Nebraska UTC were grounded in sound legislative policy. We then compared the Nebraska UTC provisions relating to this area with prior Nebraska law. Finally, we examined the arguments presented in the various articles. We concluded that, although the Nebraska UTC expanded the rights of certain specific creditors under limited circumstances, there was no basis for the prophesies of doom asserted by these authors. Similar conclusions have been reached nationally and in other states enacting the UTC.

New Tax Law Protects Widows and Widowers Selling Their Homes

The following is from Tom Herman Tax Break for Surviving Spouses Selling Homes, WSJ.com, Jan. 20, 2008:

Some widows and widowers thinking of selling their home may benefit from a new law enacted last month.

The new law effectively gives them more time to sell and still be eligible for the maximum home-sale tax break available for married couples who file jointly. This change is effective on sales or exchanges beginning this year. Congress passed the new law to provide relief for surviving spouses. * * *

If you're married and file your federal income-tax return jointly with your spouse, you typically can sell your main residence and exclude as much as $500,000 of the gain from gross income. If you're single, the limit is $250,000.

To qualify for the maximum exclusion, you must have owned the home -- and lived in it as your primary residence -- for at least two of the five years prior to the sale.

Under the old law, a surviving spouse would have been eligible to claim the maximum $500,000 exclusion only if he or she filed a joint tax return for the year of death and sold the home during that same year * * *.

The new law includes an important change: A surviving spouse who hasn't remarried typically may be eligible to claim the full $500,000 exclusion from the gain on the sale of a principal residence owned with the deceased spouse if the sale occurs not later than two years after the date of death of the spouse * * *.

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

Oregon Same-Sex Partnership Law Takes Effect

Oregon citizens may now register as domestic partners because an attack on the law failed.

The following excerpts are from Ruling Allows Legal Status for Partners of Same Sex, NY Times, Feb. 3, 2008:

A state law allowing same-sex couples to register as domestic partners took effect Friday after a federal judge ruled the state’s process of disqualifying petition signatures was consistent enough to be valid.

The state quickly announced that the domestic partnership applications were available online, and jubilant gay-rights activists predicted hundreds of couples would line up on Monday morning at county offices to register.

The law was passed in 2007 and was to take effect when the new year started, but the judge, Michael Mosman of Federal District Court, suspended it to hear testimony about a petition drive that sought to put the law to a vote..

The sponsors of the drive fell 96 signatures short of the 55,179 needed to refer the law to the November 2008 ballot. The petitioners claim that county clerks rejected signatures improperly. * * *

Same-sex couples will be able to file joint state tax returns, inherit property and make medical choices on each other’s behalf, along with a other benefits given to married Oregonians.

Oregon becomes the ninth state to approve spousal rights in some form for same-sex couples, joining California, Connecticut, Hawaii, Maine, New Hampshire, New Jersey, Vermont and Washington. Massachusetts is the only state that allows same-sex couples to marry.

New York Recognizes Same-Sex Marriages From Other Jurisdictions

On February 1, 2008, a New York appeals court held in Martinez v. County of Monroe that same-sex marriages that are valid in the jursidiction where performed are entitled to recognition in New York.

Here are some excerpts from this important case:

For well over a century, New York has recognized marriages solemnized outside of New York unless they fall into two categories of exception: (1) marriage, the recognition of which is prohibited by the “positive law” of New York and (2) marriages involving incest orpolygamy, both of which fall within the prohibitions of “natural law.” * * * Thus, if a marriage is valid in the place where it was entered, “it is to be recognized as such in the courts of this State, unless contrary to the prohibitions of natural law or the express prohibitions of a statute.” * * * Under that “marriage-recognition” rule, New York has recognized a marriage between an uncle and his niece “by the half blood,” * * * common-law marriages valid under the laws of other states, * * * a marriage valid under the law of the Province of Ontario, Canada of a man and a woman both under the age of 18, * * * and a “proxy marriage” valid in the District of Columbia, * * * all of which would have been invalid if solemnized in New York. We conclude that plaintiff’s marriage does not fall within either of the two exceptions to the marriage-recognition rule. “[A]bsent any New York statute expressing clearly the Legislature’s intent to regulate within this State marriages of its domiciliaries solemnized abroad, there is no positive law in this jurisdiction” to prohibit recognition of a marriage that would have been invalid if solemnized in New York * * *. The Legislature has not enacted legislation to prohibit the recognition of same-sex marriages validly entered into outside of New York, and we thus conclude that the positive law exception to the general rule of foreign marriage recognition is not applicable in this case.  The natural law exception also is not applicable. That exception has generally been limited to marriages involving polygamy or incest or marriages “offensive to the public sense of morality to a degree regarded generally with abhorrence” * * *, and that cannot be said here.

Defendants nevertheless contend that recognition of plaintiff’s same-sex marriage is contrary to the public policy of New York, as articulated by the Court of Appeals in Hernandez v Robles * * *, and thus falls within an exception to the rule requiring recognition of valid foreign marriages. We reject that contention. Hernandez does not articulate the public policy for which it is cited by defendants, but instead holds merely that the New York State Constitution does not compel recognition of same-sex marriages solemnized in New York * * *. The Court of Appeals noted that the Legislature may enact legislation recognizing same-sex marriages * * * and, in our view, the Court of Appeals thereby indicated that the recognition of plaintiff’s marriage is not against the public policy of New York.

It is also worth noting that, unlike the overwhelming majority of states, New York has not chosen, pursuant to the federal Defense of Marriage Act * * *, to enact legislation denying full faith and credit to same-sex marriages validly solemnized in another state. Thus, we conclude that plaintiff’s marriage to Golden, valid in the Province of Ontario, Canada, is entitled to recognition in New York in the absence of express legislation to the contrary. As the Court of Appeals indicated in Hernandez, the place for the expression of the public policy of New York is in the Legislature, not the courts * * *. The Legislature may decide to prohibit the recognition of same-sex marriages solemnized abroad. Until it does so, however, such marriages are entitled to recognition in New York.

See also Robert D. McFadden, State Court Recognizes Gay Marriages From Elsewhere, NY Times, Feb. 2, 2008.

Knight v. Commissioner Analyzed

In his February 2008 issue of Estate Analyst, Robert L. Moshman, Esq. discusses the recent U.S. Supreme Court case of Knight v. Commissioner. The following excerpts are from his article entitled A Knight’s Tale, Est. Analyst (Feb. 2008):

The United States Supreme Court has ruled that the investment advice received by a trust is subject to the 2% threshold to be deductible.***

Trustee Knight argued that while an individual may make a voluntary and personal choice to seek investment advice, fiduciary duties render such professional advice a necessary and “involuntary” component of trust administration.***

A small window of hope was left open, however. The Court noted that a trust could have some unique investment objective or some investment advisors might have some special surcharge that is applicable only to fiduciary accounts.

Family Wealth Enhancement and Preservation Conference

On April 7 - 9, 2008, Financial Events International is sponsoring a conference entitled Family Wealth Enhancement & Preservation: The Western Way vs Islamic Shariah Compliant Way in Ras-Al-Khaimah Emirate, United Arab Emirates.

Here is a summary of the program:

The objective of this event is to reveal the difference existing between the Western Family Wealth Management way and the Islamic Shariah Compliant way and create a debate to which all of the attendees – typically professionals of the financial sector - will participate.

A part of the conference will be dedicated to investment opportunities and regulations in the RAK Free Trade Zone, which is bound to become one of the most active in the Middle East.

A visit of the Free Trade Zone will be organized in order to present the ongoing and future business projects and investment opportunities. The city of Dubai will also be visited and attendees will have the opportunity to meet influential businessmen.

Delaware Legislator Proposes a ‘You’re In Unless You Opt Out’ Organ Donation Statute

The following is from J.L. Miller and Hiran Ratnayake, Change in procedure aims to save lives ,delawareonline.com, Jan. 24, 2008:

When 23-year-old Timothy Layfield died from a sudden onset of meningitis in 2002, he left behind a young daughter and stunned family. As his mother, father, brother and sister mourned in a private room at Christiana Hospital, a representative from Gift of Life asked if they'd be willing to donate his organs.***

Timothy was among a minority, the less than 40 percent of Delaware drivers who sign up to become organ donors. That belief has turned into an effort in Legislative Hall to reverse the "opt-in" organ-donation system in Delaware to an "opt-out" one.***

On Wednesday [January 23, 2008], Rep. Peter C. Schwartzkopf, D-Rehoboth Beach, introduced legislation to automatically make people donors unless they opt out.

Kentucky Dower Statute Analyzed

Elizabeth S. Muyskens (J.D. Candidate 2008, University of Kentucky College of Law) has recently published her Note entitled Married in Kentucky: a Surviving Spouse's Dower Right in Personalty, 96 Ky. L.J. 99 (2007-2008).

Here is an excerpt from her Note:

Kentucky is not only unusual for retaining some form of the common law rule of dower through statute, but also for including personal property in its dower statute. Common law limited dower to real estate and, in most states, the right to dower has been replaced with elective share statutes.***

Rather than trying to persuade the legislature to abolish Kentucky's dower statute, this Note analyzes the current way that Kentucky courts define and administer personal property in the context of dower along with the transactions that courts have found constituted a fraud on the surviving spouse's dower right in personal property. An understanding of the current status of a spouse's dower interest is necessary to ensure that transactions involving personal property will not be found fraudulent and therefore voided upon the interested spouse's death.

Organ Shortage Prompts Nephew to Become a Liver Donor for His Uncle

According to Where Are The Donors?, courant.com, Jan. 23. 2008:

Mr. Gray, 29, donated half of his liver to his uncle Daniel Gray, 59, whose own liver was failing due to a large tumor.***

As The Courant's Hilary Waldman reported, the operation can be very risky for the donor; two have died in the past decade.***

Yet a question we must ask is why he had to do it.

Doctors began a limited use of transplants from living donors because there are not enough livers from deceased people.*** About 7,000 people, including almost 2,000 on the liver transplant list, die every year while waiting for a lifesaving organ.*** Meanwhile, countless usable organs are buried or cremated every day.***
   

It can be done by going to a Department of Motor Vehicles office when getting or renewing your driver's license, or by going to the department's website, www.ct.gov/dmv.

Equal Inheritance Rights Could Positively Impact Health and Economy in Uganda

Rachel C. Loftspring (J.D. Candidate 2008, University of Pennsylvania Law School) has recently published her Comment entitled Inheritance Rights in Uganda: How Equal Inheritance Rights Would Reduce Poverty and Decrease the Spread of HIV/AIDS in Uganda, 29 U. Pa. J. Int'l L. 243.
   

Here is an excerpt from the conclusion to her article:

In Uganda, clearly the culture, through the use of traditional customs, has been a force of oppression for women.*** Those laws that Uganda has promulgated to better the situation of women are either not enforced or not sufficient. As a result, women are left to suffer, often while also battling HIV/AIDS, as victims with little recourse.

But, if women had sufficient inheritance rights, their situation would improve. How to achieve sufficient inheritance rights is the crucial question. The country could commit to enforcing the laws already passed, create new and better laws, or import the UPC as a functional model that ensures that widows (and widowers) receive a fair share of their deceased spouses' estates. With inheritance rights women would become economically independent and the decision-makers in all aspects of their lives. Such independence, as this Comment has shown, would have great ramifications: it would decrease poverty and reduce the spread of HIV/AIDS in Uganda.

Access to Life-Saving Organs May Be Limited in Rural Areas

The following is from Rural Patients Less Likely To Receive Organ Transplants, sciencedaily.com, Jan. 9, 2008:

Patients in small towns and isolated rural areas have lower organ transplant rates and are less likely to be wait-listed than patients in urban areas, according to a new study.

Organ transplantation offers the best, and often only hope for long-term survival for patients with end-stage heart, liver, and kidney disease. However, despite federal regulation and national efforts to ensure equal access to the limited pool of donated organs, previous research has demonstrated the presence of significant barriers to access to transplantation services for racial minorities, women, and patients with low socioeconomic status or poor insurance, according to background information in the article. Rural residents represent another group that may have impaired access to transplant services. Nearly 14 percent of the U.S. population lives outside major urban areas.***

[T]hese discrepancies may be related to differences in the burden of disease in rural environments or reduced access to entering the waiting list.***

Perpetual Conservation Easements Subject to Charitable Trust Principles

Nancy Assaf McLaughlin (Professor of Law, University of Utah, S.J.Quinney College of Law) has recently posted on SSRN her article entitled Conservation Easements: Perpetuity and Beyond. 

Here is an abstract of her article:          

Perpetual conservation easements are intended to protect the particular land they encumber for the conservation purposes specified in the deed of conveyance in perpetuity, or at least until circumstances have changed so profoundly that continued protection of the land for those purposes is no longer feasible. To protect the public interest and investment in perpetual conservation easements, and, at the same time, permit adjustments to be made to respond to changing conditions, such easements should be treated like any other form of charitable asset acquired by a government or charitable entity for a particular charitable purpose - i.e., as subject to equitable charitable trust principles. This Article outlines the considerable support for applying charitable trust principles to perpetual conservation easements, including uniform laws, the Restatement of Property, federal tax law, and judicial activity on this issue to date. This Article cautions that perpetual land protection is not appropriate in all circumstances and recommends a more considered use of perpetual conservation easements as a land protection tool. This article also explores the possible use of a number of nonperpetual conservation easements to accomplish land protection goals.