Wills, Trusts & Estates Prof Blog

Creative Gifts For Family and Friends in Need May Avoid Gift Tax Liability

In tough economic times, wealthy clients may wish to provide financial help to less-fortunate family and friends.  Unlike the the federal estate tax, however, the federal gift tax has not been temporarily repealed.

According to Deborah L. Jacobs, Five Tax-Free Gifts to Family, Forbes, March 26, 2010, the following five gifts are ways wealthy clients could carry out their generous intentions without incurring a gift tax bill from Uncle Sam:

• Capitalize on Cash Gifts: The annual exclusion allows a donor to make gifts of $13,000 to an unlimited number of donees each year.   A donor could even give to minors by placing money in a custodial account that an adult other than the donor oversees.
• Fund a Section 529 Education Account: This is another way to use the $13,000 annual exclusion. Money invested will grow tax free and can be withdrawn tax free if used for education.
• Pay Tuition and Medical Expenses: Directly paying someone else's medical expenses or tuition is not a taxable gift and is excluded from the gift tax separately from the $13,000 annual exclusion.
• Lend Money: Another way to use the $13,000 annual exclusion is lending money at favorable interest rates.  
• Buy a House and allow loved ones to live in your property rent free:  It is unclear if this constitutes a gift, so steps such as keeping an at-will arrangement or making the rent-free inhabitants co-owners of the home may be beneficial in the long-run.

GRAT Bill Passes House

On March 24, the U.S. House of Representatives passed H.R. 4849, a bill that would change the laws relating to Grantor Retained Annuity Trusts (GRATs). I previously blogged about this bill here and here.

The following, taken from Deborah L. Jacobs, The GRAT Rush of 2010, Fin. Advisor, March 29, 2010, provides a well-written explanation of some of the changes this bill would make:

For the moment, it is possible to form what’s called a zeroed-out GRAT, in which the remainder is theoretically worth nothing so that there is no taxable gift. . . . In its March 19 report on H.R. 4849, the House Committee on Ways and Means stated, “such uses of GRATs for gift tax avoidance are inappropriate.” Without requiring a specific value for the remainder interest, the bill indicates that it must be “greater than zero.”

More drastically the House bill requires GRATs to have a term of at least ten years, compared with the current two-year minimum. This greatly accentuates what is called the “mortality risk” of a GRAT: If the grantor dies during the trust term, all or part of the trust assets will be included in her estate for estate tax purposes.

The article concludes as follows:

With Congress on Easter recess until April 12, there’s a pause in the action and time to reflect on the potentially larger significance of H.R. 4849. This may well be a sign that we are in for creeping estate tax reform, rather than a single piece of legislation. It may also be the first step toward whittling away at some really great tax deals for high net worth clients. We may soon look back on the past decade as the golden era of wealth transfer.

Deborah L. Jacobs, The GRAT Rush of 2010, Fin. Advisor, March 29, 2010.

Suit Against LegalZoom Seeks Class Certification & Alleges Unauthorized Practice of Law

A petition filed in the Missouri Western District Court seeks class certification to proceed with a claim against LegalZoom for unauthorized practice of law.

The petition avers that LegalZoom, without a license to practice law, offers services normally offered by lawyers.  For example, the petition states that one class member sought and received a customized will from LegalZoom.  The class member also received information about how to modify his will and how payable on death accounts and joint property would affect his will instructions.

In addition to class certification, the petition seeks the following:

• Actual damages in the amount of fees that were paid to LegalZoom for the unauthorized practice of law, 
• Treble damages for the unauthorized practice of law, 
• Punitive damages under the state's Merchandising Practices Act in order to punish LegalZoom for fraudulent and deceptive behavior and to deter similar conduct in the future, and 
• Injunctive relief to stop LegalZoom from continuing to operate.

A copy of the complaint is linked here; Justia.com also provides information about the pending case. 

Special thanks to Michael Knowles (J.D. Candidate 2011, Creighton University) for brining this to my attention.

Total Return Trusts: Case Summary & Tips for Avoiding Litigation

 Margaret E.W. Sager (attorney, West Conshohocken, Pennsylvania) recently published her article entitled Litigation and the Total Return Test, 35 ACTEC Journal 206 (2009). 

The editor's synopsis is below:

In the years following promulgation of the Uniform Prudent Investor Act and the latest iteration of the Uniform Principal and Income Act, the popularity of the "total return trust" has steadily increased.  This article begins with an examination of the cases involving total return trusts that have thus far been reported.  The remainder of the article presents and analyzes several situations in which total return trust litigation may be spawned and offers practical suggestions which, if followed, may enable avoidance of such litigation.

Wisconsin's Online Organ Donation Registry

Residents of Wisconsin may now register to be an organ donor online.  The website allows a prospective donor to join the state's donor registry by entering their name and driver's license number.  The website also provides an option to remove one's name from the organ donor list.  

Over half of Wisconsin's population is reportedly registered as an organ donor.

See AP, Wisconsin organ donors can sign up online, March 27, 2010; see also the state's organ donation website.

Special thanks to Melinda Gustafson Gervasi (attorney, Madison, Wisconsin) for bringing this to my attention.

Exchange Your Dollars for Coins

Are you a trustee or the representative of a wealthy client looking for a good investment in a less-than-ideal economy?  Perhaps you should exchange your dollars for coins.

During the final months of 2009, a rare reeded-edge penney from 1795 sold for over one million dollars.   According to Madhusmita Bora, Keep your Change: Rare coins fetching top dollars, Walletpop, Nov. 24, 2009, collectible coins may be an alternative to riskier investments:

Apparently wealthy investors, anxious about a spiraling dollar and future inflation are bidding up prices for rare coins. They feel more secure about putting their money on these coins than investing in stocks and bonds.

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

Members of Ethical Panels at Hospitals Discuss End-of-Life Decisions

A USA Today article offers the following insight from members of hospital ethics panels.  These quotes confirm the value of disability planning when it comes to end-of-life decisions for indefinitely unconscious patients:

• One Clinical Ethicists asks family members "[w]hat would she have wanted, how do we know this, and how certain are we?"
• Another ethical panel member says "[o]ur job then is to help them get clear and let go, to say, 'It's the disease, not you, taking your loved one's life.' "

For more insight from ethical panel members, see Lynn Grossman, Matters of life and death, USA Today.

Author Gabor Hamza Examines the Development of Private Law in Over 60 Countries

Gabor Hamza (chair of the Department of Civil Law, Eötvös Loránd University, Budapest) recently published his book entitled Entstehung und Entwicklung der modernen Privatrechtsordnungen und die römischrechtliche Tradition, which translated into English is The Origin and Development of Modern Private Law Systems Based on Civilian Traditions (2009).

The book is divided into four sections: (1) The Origins of Private Law in Europe, (2) The Development of Private Law in Europe in the Middle Ages, (3) The Development and the Codification of Private Law in Europe and in the Caucasus in Modern Times, and (4) The Influence of the European Civilian Tradition on Countries Outside Europe. The book examines the private law systems of over 60 countries.

Alzheimer's Planning With A Mental Health Advance Directive

Lisa Brodoff (Director, Ronald A. Peterson Law Clinic and Clinical Professor, Seattle University School of Law) has published her article entitled Planning for Alzheimer's Disease With Mental Health Advance Directives, 17 Elder L.J. 239 (2010). 

A summary of the article is below:

Mental Health Advance Directives (MHAD) have long been used for life planning in the context of debilitating mental conditions such as dementia and schizophrenia. As early detection and diagnosis of Alzheimer's disease has become increasingly more possible, Professor Brodoff argues in this Article that MHADs can be an extremely effective tool for planning for a future with Alzheimer's disease. Professor Brodoff suggests that all attorneys who assist clients with estate planning create a MHAD, particularly those clients who have been diagnosed with Alzheimer's disease and those with the disease in their families. The MHAD is designed to aid caregivers and medical professionals with determining the best methods for administering care for this individual, listing particular life values, preferred methods of care and treatment, and other life decisions, such as how to finance long-term care, when to stop driving, and how to handle future intimate relationships. Professor Brodoff argues that this will result in better care tailored to a particular individual's needs and increased patient involvement in his or her own decision making, which reduces the burden of shifting the decision making to a family member or other caregiver.

Happy Passover!

 
To all my readers of the Jewish faith, a very Happy Passover.

Arkansas Court Allows Disinterment After Administrator Fails to Advise Family of Burial Wishes

Long v. Alford, --- S.W.3d ----, 2010 Ark. App. 233, 2010 WL 811289 (Ark.App.):  Decdent and Patsy Long were married for seven years, divorced in 1977, and then lived together for over 30 years until decedent died. Decedent's will executed in 2005 specified that decedent had burial arrangements in Pine Bluff and directed Long to make final arrangements. On the day of decedent's death, decedent's only child, Fredye Alford, filed for and received letter's of administration to have decedent's estate administered intestate. The letters were revoked one week later upon a motion from Long. Long then filed an amended claim to have the decedent's body exhumed and burried in Pine Bluff according to the decedent's will.

The lower court denied Long's request to exhume the decedent's body because public policy and the decedent's family were against disinterment, because Long failed to bring the burial wishes to anyone's attention when arrangements were made, and because Long lacked any relationship to the decedent. On appeal, the Court of Appeals of Arkansas reversed and remanded with an order to allow Long to exhume the body. The court gave controlling weight to carrying out the decedent's expressed wishes regarding body disposition, stating that Long's failure to act when arrangements were made should not prevent those wishes from being carried out.

See Long v. Alford, --- S.W.3d ----, 2010 Ark. App. 233, 2010 WL 811289 (Ark.App.).

Special thanks to Ken Coughlin (Elder Law Answers) for bringing this case to my attention.

RPTE to Host 21st Annual Spring Symposia

The ABA Section of Real Property, Trust and Estate Law is sponsoring the 21st Annual Spring Symposia in Philadelphia on May 6 - 7, 2010. 

A summary of the program is below:

Whether you are specializing in estate planning or real estate law, are a general practitioner with a wide ranging practice or are a seasoned professional looking to refocus your practice, the Spring Symposia gives you the expertise you need to be at the leading edge of your practice.

Attend this comprehensive CLE Symposia and see how RPTE can help you be a better lawyer. Maximize the value you receive from the time and money you invest in your continuing education. Attend the ABA Section of Real Property, Trust and Estate Law 21st Annual Spring Symposia in Philadelphia May 6 & 7, 2010 to:

• ƒHear leading experts discuss the latest legislative, judicial and regulatory developments, meet in small groups to exchange ideas with your peers ƒ
• Learn about today’s most important estate planning topics including: Congress and transfer taxes, captive insurance companies, and tips for success in IRS appeals ƒ
• Discover practical solutions to the significant real estate issues of the day including: trends and responses to the credit crisis, green buildings and law firm trends in the down economy ƒ
• Attend our Young Lawyers Institute: Practice Essentials, which will present two separate tracks for skills training in real property and trust and estate law ƒ
• Enjoy social events that will expand your network of valuable professional contacts

Class Action Suit Claims Men Target Elderly With Bogus Estate Planning Services

A class action law suit has been filed against two California men who allegedly took advantage of senior citizens by offering uncessary or unqualified advice regarding estate planning issues:

• The men held scare-tactic seminars in which they promised senior citizens entitlement planning and pre-qualification for Medi-Cal, California's Medicaid program.
• Although the two men were not licensed to practice law in California, the plaintiffs allege that the men offered legal advice and estate planning services.
• The plaintiffs who paid for the services claim that the services were expensive, worthless, and sometimes fraudulent.  For example, they allege that prequalification for Medi-Cal is not possible.

See Elizabeth Banicki, 'Estate Planners' Ravage Seniors, Class Claims, Courthouse News, March 23, 2010; see also Karen Brady, These are the Estate Planners to Run Away From, Legacy Planner Blog, March 23, 2010 (discussing the fact that one of the men was listed as a certified estate planner by the San Jose Better Business Bureau).

Special thanks to Karen Brady (attorney, Arvada, Colorado) for brining this to my attention.

Top SSRN Downloads

Here are the top downloads from January 27, 2010 to March 28, 2010 from the SSRN Journal of Wills, Trusts, & Estates Law for all papers announced in the last 60 days.

Rank	Downloads	Paper Title
1	478	Ten Estate Planning Advantages of Limited Liability Companies Paul L. Caron, University of Cincinnati - College of Law, Date posted to database: February 13, 2010 Last Revised: February 13, 2010
2	286	Law Review Articles You Should've Read (But Probably Didn't) in 2009 Bridget J. Crawford, Pace University School of Law, Date posted to database: January 25, 2010 Last Revised: January 25, 2010
3	225	Estate and Gift Tax Problems of Principals and Agents Under Durable Powers of Attorney Paul L. Caron, University of Cincinnati - College of Law, Date posted to database: January 31, 2010 Last Revised: January 31, 2010
4	131	Check-the-Box Regs and Gift Tax Discounts Wendy C. Gerzog, University of Baltimore - School of Law, Date posted to database: February 17, 2010 Last Revised: February 26, 2010
5	129	Elder Law Teaching and Scholarship: An Empirical Analysis of an Evolving Field Nina A. Kohn, Edward D. Spurgeon, Syracuse University - College of Law, University of Utah, Date posted to database: February 5, 2010 Last Revised: February 8, 2010
6	118	Burn the Rembrandt? Trust Law's Limits on the Settlor's Power to Direct Investments John H. Langbein, Yale University - Law School, Date posted to database: January 26, 2010 Last Revised: February 18, 2010
7	117	Hicks v. Dowd, Conservation Easements, and the Charitable Trust Doctrine: Setting the Record Straight Nancy A. McLaughlin, W. William Weeks, University of Utah S.J. Quinney College of Law, Indiana University Bloomington - Maurer School of Law, Date posted to database: January 27, 2010 Last Revised: January 27, 2010
8	66	It is Logic Rather than Whom You Trust: A Rejoinder to Prof. Cohen Douglas A. Kahn, University of Michigan at Ann Arbor - Law School - Faculty, Date posted to database: January 21, 2010 Last Revised: February 9, 2010
9	58	Art Deaccessions and the Limits of Fiduciary Duty Sue Chen, United States Court of Appeals for the Tenth Circuit, Date posted to database: January 28, 2010 Last Revised: January 28, 2010
10	48	Testacy and Intestacy: The Dynamics of Wills and Demographic Status Alyssa A. DiRusso, Samford University - Cumberland School of Law, Date posted to database: January 13, 2010 Last Revised: January 13, 2010

Most Estate Planning Tasks Are Priority Tasks

Perhaps the daunting job of assembling an estate plan is simpler for the client if individual tasks are divided into categories such as "must do now" and "do someday later."  At least this is what a recent NY Times article suggests; however, because the "must do now" category includes creating and periodically reviewing a will & any necessary trusts, dealing with beneficiary designation forms for non-probate assets, and pre-designating health-care proxies and guardians, the bulk of the work appears to fall in the "must do now" category.  

See Paul Sullivan, Assemble a Paper Trail, and Make Sure Your Heirs Can Follow It, NY Times, March 24, 2010.  

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

Expanding the Definition of Child in Intestacy Laws for Caregiver Grandparents

Neta Sozonov has published her note entitled Expanding the Statutory Definition of "Child" in Intestacy Law: A Just Solution for the Inheritance Difficulties Grandparent Caregivers' Grandchildren Currently Face, 17 Elder L.J. 401 (2010).

A summary of the article is below:

Grandparents taking on a parental role in raising their grandchildren is a growing trend, and some grandparents assume that a grandchild who they have reared as they would their own child would be entitled to a share of their inheritance upon their death. However, without a will, inheritance rights are controlled by intestacy law, which does not recognize the grandparent caregivers' grandchildren as their heirs. Instead, the grandparent's inheritance passes to the deceased's spouse or children. Further, many grandparent caregivers neither create a will nor formally adopt their grandchild because of the substantial costs involved. This Note examines the effect that current intestacy law has on those raised by grandparent caregivers. The Note discusses the currently existing equitable adoption doctrine, which protects the inheritance rights of an individual who was not the decedent's “child” as defined in intestacy law, but nonetheless had a parent-child relationship with the decedent. The author recommends legislatively amending intestacy statutes to incorporate equitably adopted grandchildren of grandparent caregivers into the definition of “child,” giving these grandchildren equal inheritance rights to those of biological or adopted children.

Finding A Missing Beneficiary on the Internet

Estate planing practitioners may be required to locate long-lost beneficiaries.  The internet makes this task easier.  The following tips should help in this search:

• To search the person's full name, enter the name in search engines enclosed in quotes, such as "John Smith."  
• Search the person's profession, last known residences, or other associated information.  
• Search online services providing criminal and traffic violations.  
• Search for wedding notices if the beneficiary is female and may have changed her last name.
• Be careful about paying for information through an online people locater service, as many do not actually guarantee any information.

See Erica E. Taub, Going Beyond Google to Find a Lost Friend, NY Times, March 24, 2010. 

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

Steps For Practitioners Fearing Lawsuits Resulting From the Estate Tax Repeal

The unexpected estate tax rules in effect for 2010 could result in unintended consequences for some wills, and when unintended consequences occur, lawsuits may occur as well.  Unhappy beneficiaries of these wills may sue the attorney who drafted the will in the first place.  

 Estate planning and tax attorneys should consider sending their clients a letter or email informing their clients of the big estate tax changes and the need to review their wills. This would create a useful paper trail in the event that the attorney is later sued over the client's will or trust.  Following up with a phone call after mailing the letters would make that paper trail even better.

See Dow Jones, Estate Tax Repeal Stirs Lawsuit Fears, March 24, 2010. 

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

The 101 Biggest Estate Planning Mistakes

Herbert E. Nass has published his book entitled The 101 Biggest Estate Planning Mistakes (2010).  Nass is a New York attorney who has helped countless celebrities with estate planning. The book reproduces real-life examples from the wills and trusts of the famous and not-so-famous to show readers the missteps to avoid.   

You might enjoy reading my full review of the book which can be found on JOTWELL, The 101 Biggest Estate Planning Mistakes, March, 25, 2010.

Possible Effect of Proposed Changes to GRAT Laws

Yesterday I posted a blog about H.R. 4849, a bill introduced in the house last week that would make significant changes to grantor retained annuity trusts.  GRATs allow wealthy families to pass wealth while lowering estate and gift tax liabilities.

A recent Forbes article adds insight into the effect of the proposed changes of H.R. 4849:

• Requiring that the GRAT last at least ten years would increase the risk that the person setting up the GRAT will die during the GRAT term, which makes the GRAT less attractive for older clients.
• Requiring that the remainder interest in the GRAT have a value greater than zero increases gift tax liabilities for the person setting up the GRAT.

President Obama suggested reigning in on GRATs in his proposed budgets for 2010 and 2011, something Democrats may favor to fund tax cuts and spending.  The Joint Committee on Taxation estimates that reigning in on GRATs would generate $4.45 billion over ten years.

In the meantime, wealthy families considering a GRAT as a tax saving strategy may want to accelerate their plans.  

See Ashlea Ebeling, Goodbye GRATs?, Forbes, March 24, 2010.