Wills, Trusts & Estates Prof Blog

Probate Judge May Have Enabled Fraud on the Elderly

Elderly individual Marie Long had a stroke in 2005 and subsequently came under the protection of Lindsay Ellis, a probate court judge, who appointed Sun Valley Group as Marie’s guardian. Marie was worth $1.3 million in 2005, but now she depends on taxpayers for support.

Judge Ellis allowed Sun Valley Group use all of Marie’s funds. Ellis also suggested that Sun Valley Group sue two attorneys, Gitre and Raynak, for driving up fees by repeatedly objecting to the drain on Marie’s account.

In reality, Gitre and Raynak worked for free to try to protect Marie. They were hired by Marie's sisters and  filed a lawsuit claiming that Sun Valley had a duty to investigate if the Arizona Department of Veterans Services could have helped Marie. ADVS would have served as Marie’s guardian for $75 a month because she was the widow of a veteran, a fraction of the $183,000 paid to Sun Valley for guardian fees. Gitre and Raynak also claim that Sun Valley breached its fiduciary duty by self dealing and charging unreasonable fees.

In the end, Marie got nothing. Ellis dismissed Marie’s claim, saying that she can’t sue due to her incapacity. Ellis further found that Gitre and Raynak had no legal standing to sue for breach of fiduciary duty. Finally, Ellis found that Marie’s sisters also did not have standing to sue Sun Valley.

However, Marie may have some good news. The court commissioner who inherited the case found that Ellis did not approve the final $104,000 that Sun Valley and its attorneys claimed they were owed. Perhaps Marie will get at least this back.

See Laurie Roberts, Probate Court Asked to Sanction Attorneys in Marie Long Case, The Arizona Republic, April 10, 2010.

Review of 'Gifts: A Study in Comparative Law'

Iris J. Goodwin (associate professor of law, University of Tennessee) has written and published a book review of Gifts: A Study in Comparative Law, which was written by Richard Hyland (distinguished professor, Rutgers Law) and published in 2009.

The following is the first paragraph of the book review:

Richard Hyland has written a masterpiece of comparative law scholarship.  Gifts: A Study in Comparative Law (2009) is a work certain to become a landmark in the extraordinary interdisciplinary conversation about gift giving that has been building in Hyland's crescendo throughout much of the preceding century.  Hyland begins the book with the admission that it took him twenty years to complete it.  In an era in which law review articles get shorter with each issue and the 800-word op-ed piece is the vehicle of choice for considered debate about major public issues, the idea of anyone devoting such a staggering amount of time to a single project is difficult to contemplate, notwithstanding the resulting two-inch-thick volume in 8-point type.  A mere cursory perusal of the book, however, reveals a massive work of such erudition that the length of time Hyland devoted to his endeavor seems neither surprising nor, indeed, unreasonable.  This work not only manages to do yeoman's work for the practicing attorney--providing six chapters that survey and compare the essential aspects of the substantive law of gifts in three common law and five civil law jurisdictions--but is also likely to change the terms of future discussions about the gift among comparativists and other scholars in the humanities and social sciences.  

Iris J. Goodwin, Book Review: Gifts: A Study in Comparative Law, 44 Real Prop., Trust & Estate L.J. 823 (2010).

Indiana Supreme Court Busts Insurance Agency for Unauthorized Practice of Law

Starting in 1995, United Financial Systems Corporation (UFSC) marketed and sold estate planning services, including wills and trusts. Once a client agreed to the estate planning work, a UFSC assistant would gather the information and send it to an outside counsel. Outside counsel would send the work back to the assistant who presented and “managed” the plan as well as sold the client insurance products. 

The Indiana Supreme Court found this to be the unauthorized practice of law and ordered UFSC to stop these practices. The Court also ordered the firm to refund fees to post-2006 clients. The Court did not like:

• That the plan was not sold by a licensed attorney
• That the assistant made more in fees than the outside counsel
• That the client did not have contact with the outside counsel

Tips for avoiding the unauthorized practice of law:

• Don’t charge fees for services that involve the drafting of legal documents
• Make sure that the attorney actually drafting the documents interacts with the client

See Roccy DeFrancesco, Insurance Agency Busted for the Unauthorized Practice of Law, The Wealth Preservation Institute, April 23, 2010. 

Special thanks to Jim Hillhouse (Wealth Counsel) for bringing this to my attention.

Rule Against Perpetuities: An Interest too Remote Cannot Not be Severed, Making Deed Void

Kerr v. Bauer, 222 P.3d 1117 (Or. Ct. App. 2009): A deed purported to convey the grantor’s real property to her sons, in trust, to provide a “place of rest, recreation and recuperation” for her children, grandchildren, and “descendants.” There was no time limit on the trust nor any ultimate vesting of any interest in the realty and, therefore, the trust violated the Rule Against Perpetuities.

On appeal from a decree severing the children’s interests from those of the more remote generations and thus reforming the trust to remove the perpetuities violation, the Oregon intermediate appellate court reversed. Oregon’s version of the USRAP makes reformation of instruments predating enactment of the uniform act optional with the court. Here reformation by severance was not appropriate because the deed expressed the grantor’s intent to benefit all of her beneficiaries equally, making a severance which preserved only the children’s interest contrary to her intent.

Book Review: Immortality and the Law

Christopher Caldwell has written a review on Ray Madoff’s Immortality and the Law: The Rising Power of the American Dead.

The introduction to the review follows:

Two rough principles have governed the way we think about our duties to dead people. The first is summed up in G.K. Chesterton’s aphorism: “Tradition is the democracy of the dead.” The second is: “You can’t take it with you.” To put it crudely, while society has let dead people “vote” (in that it respects their traditions), it has not let them own property (since there would be no point to it). Things are changing, though, in the US. To judge from Immortality and the Law, a sparkling polemic by the Boston College law professor Ray Madoff, US courts and lawmakers have recently made a number of bad decisions that have turned this arrangement upside down. We hold the wisdom of previous generations in ever lower esteem. But, Madoff convincingly argues, we are granting the dead ever more elaborate property rights, which are crowding out the rights of the living.

For the rest of the favorable review, see Christopher Caldwell, Immortality and the Law, FinancialTimes.com, April 26, 2010; see also my previous blog on the publication of this book.

Styron's Family Allowed to Control E-book Rights

Contracts between authors and publishers did not specifically mention e-books until about fifteen years ago.  As a result, legal battles have arisen over the right to publish electronic editions of older books.  

Publishers typically claim e-book rights, claiming that “in book form” clauses include the right to publish digital versions.  Despite this, Random House is releasing the rights to several of the deceased William Styron’s books without a fight.  Styron’s family will give these rights to Open Road Integrated Media, who has promised to revive Styron’s legacy and introduce new readers to his older books. Open Road has also agreed to split equally the profits from the e-books with Styron’s family, which is twice the amount that most publishers give authors for rights to e-books.

The question now is whether or not this has paved the way for "other authors to take their e-books away from traditional publishers."  Motoko Rich, Random House Cedes Some Digital Rights to Styron Heirs, NY Times, April 25, 2010.

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

Estate Planning for Clients Suffering From Multiple Sclerosis & Parkinson's Disease

Rosalind Kalb, PhD, Nicholas LaRocca, PhD, Alessandro Di Rocco, MD, Mary Hughes, MD, and Martin M. Shenkman, CPA, MBA, PFS, JD, have written an outline-style article entitled Psychological and Emotional Impact of Chronic Illness on Estate Planning: Case Study Comparing and Contrasting Multiple Sclerosis and Parkinson’s Disease.

The article first outlines the definition and symptoms of Multiple Sclerosis and Parkinsons's Disease, which is essential information for estate planners trying to relate to and work with people diagnosed with these illnesses. Next, the article outlines the emotional and cognitive issues that can arise when a person is suffering from one of these illnesses. Finally, the article outlines special considerations that arise when providing estate planning services to an individual suffering from Parkinson's or MS, such as:

• Planning shorter meetings
• Planning for the effects the illness has had on the client's ability to write
• Recognizing that family members may be exerting undue influence on the client
• Helping the client come to terms with the need for estate planning
• Addressing special estate planning issues that might arise as the client's illness progresses
• Paying attention to how a client's religious beliefs impact planning

The article concludes as follows:

With what will often prove a modest effort and time commitment, general estate planning can be tailored to provide considerable sensitivity, protection and even encouragement to those struggling with the challengesof chronic illness. We should invest our hearts and minds fully in the pursuit of helping those living with disease — simply because it is the compassionate and human thing to do.

Death of Settlor of Revocable Trusts is a Change in Ownership

Steinhart v. County of Los Angeles, 223 P.3d 57 (Calif. 2010): The California Supreme Court held that a “change of ownership” allowing a taxing jurisdiction to reassess real property for purposes of taxation occurs at the death of the settlor of a revocable inter vivos trust which contains the settlor’s home even though the trust continues and gives a beneficiary the right to live in the home for life. When that beneficiary dies, the home is to be sold and the proceeds distributed to other beneficiaries. Because the settlor held the entire equitable estate in the residence, ownership of the residence was transferred at the settlor’s death.

Constructive and Resulting Trusts Book

Hart Publishing recently published Constructive and Resulting Trusts, ed. Charles Mitchell (2010).

The publisher's description of the book is below:

Constructive and resulting trusts have a long history in English law, and the law which governs them continues to develop as they are pressed into service to perform a wide variety of different functions, for example, to support the working of express trusts and other fiduciary relationships, to allocate family property rights, and to undo the consequences of commercial fraud. However, while their conceptual flexibility makes them enormously useful, it also makes them hard to understand. In the twelve essays collected in this volume, the authors shed new light on various aspects of the law governing constructive and resulting trusts, revisiting current controversies, bringing new historical material to the fore, and offering new theoretical perspective.

Watch Out for Medical Identity Theft

The Web Nurse Blog reports that medical identity theft is on the rise.  Medical identity theft occurs when someone uses your identity for health insurance or treatment reasons and in the process, changes your medical records regarding blood type, allergies, and even gender.

Because it is difficult to correct your medical records, the Web Nurse Blog offers the following tips for protecting yourself from medical identity theft:

• Request and review copies of your medical records.
• Obtain a Medical Information Bureau report, which is complied annually and lists all people who applied for disability, health, or life insurance in the last seven years.
• Obtain an Explanation of Benefit report that lists benefits paid on your behalf.
• Review bills, notices, and statements. 
• Protect your medical information.  For example, ensure that your social security number is different than your insurance ID number.
• Be aware that hospital personal may be involved in identity theft.  

Estate planners drafting documents relating to medical treatment should be aware of potential abuses of information contained in these documents and should limit, as much as possible, information that is sensitive to identity theft.

See The Web Nurse Blog, The Ultimate Guide to Health Insurance Theft - A Growing Problem, April 27, 2010. 

Resulting Trust Deemed Appropriate Mechanism to Unwind Joint Tenancy

Gregoire v. Gregoire, 987 A.2d 909 (Vt. 2009): Parents took title to real property used in the family business as tenants by the entirety with son as a joint tenant with rights of survivorship. Although the son signed the promissory note and mortgage, he never made any mortgage payments or paid any of the expenses associated with the property. The family business moved from the site and it was leased to another business. The son then sued for a share of the rents.

The trial court found that the joint tenancy was created solely for estate planning purposes and imposed on constructive trust on son. On appeal, the Vermont Supreme Court affirmed, but held that a purchase-money resulting trust was created because the evidence showed that the parents did not intend to make a gift to their son at the time of the creation of the joint tenancy.

Coin Collection Returned to China

Howard Bowker began his Chinese coin collection while stationed in Hankou, China in 1923. Some coins in his collection date back to 200 B.C. Last week, two of Bowker's grandchildren hand-carried their grandfather’s priceless collection to the Shanghai Mint Museum.

Interestingly, Bowker originally left the coin collection to the Smithsonian, but his descendants decided it would be more appreciated and better served in China.  There are no details on whether the Smithsonian agreed to the decision of Bowker's descendants, which raises interesting questions about the decision to "relocate" the collection.

See Louisa Lim, Priceless Coin Collection Returns Home to China, NPR, April 16, 2010.    

Special thanks to Ann Murphy (associate professor of law, Gonzaga University) for bringing this to my attention.

Trust Recruiting is Back

As the financial industry prepares for a growth cycle, trust companies are emerging from a hiring freeze and are hiring people through national recruiting firms as well as in-house departments.

Finding jobs in the trust industry, however, isn’t the same as it has been in the past:

• Trust companies no longer want solely paperwork-oriented administrators.  They now seek individuals that also have the interpersonal skills to manage client relationships. 
• Trust companies have moved away from commission-based pay and towards a base salary plus a performance bonus.

For more information, see Scott Martin, Help Wanted: Salesmen Preferred, Trust Advisor Blog, April 24, 2010.

Comparing American and Australian Laws for Protecting Disinherited Children

Adam Dayan recently published his note entitled The Kids Aren't Alright: An Examination of Some of the Flaws in American Law Regarding Child Disinheritance, the Reasons Children Should be Protected, and a Recommendation for the United States to Learn From the Australian Model that Protects Children Against Disinheritance, 17 Cardozo J. Int'l & Comp. L. 375 (2009).

An excerpt from the introduction to the note is below:

This Note will identify some of the flaws in the current American system, and will recommend that the United States consider the Australian model for the protection of children against disinheritance. Part II will discuss the protection that children have historically had against disinheritance. Part III will provide an overview of current American law and discuss some of the legal restraints on testamentary freedom. Part IV will discuss the way in which a significant number of American courts have manipulated the undue influence doctrine to achieve the “moral” result and provide for disinherited family members-a phenomenon referred to as “the unspoken rule.” As a result, these American courts have seriously hampered testamentary freedom by hastily invalidating wills based on undue influence. Part V will examine why many American courts manipulate doctrine to protect children and why their reasons for doing so are justified. Part VI will review the state of testamentary law in Australia, focusing particularly on the Inheritance [Family Provision] Act of 1972 (“Act”) and the discretion that these courts possess to constrain testamentary freedom and benefit a testator's children. Part VII will recommend that the United States consider the Australian model, allowing courts to alter a testator's will as necessary to ensure both that children are adequately provided for and that a testator's wishes are upheld. Finally, Part VIII will review some of the reasons that reform is necessary at this particular time.

Indemnification agreement the beneficiaries executed as part of a receipt for distribution is not a trust instrumentt

 Heiman v. Mayfield, 686 S.E.2d 284 (Ga. Ct. App. 2009): The trustee in Heiman made distributions to the beneficiaries of the trust and the beneficiaries executed a release and indemnification agreement releasing the trustee for all claims “of whatever kind or nature.” Seven years later and after the trustee’s resignation, the beneficiaries sued alleging fraud, negligence, and other wrongdoing. The trustee brought a breach of contract counterclaim, which was dismissed by the trial court on the grounds that the release violated state law making ineffective any provision in a “trust instrument” that purports to relieve the trustee from liability for breaches in bad faith, done intentionally, with reckless indifference or involves self-dealing.

On appeal, the intermediate Georgia appellate court reversed, holding that the release was not a trust instrument and that the release did not violate public policy to the extent it applied to conduct preceding execution of the release.

CLE on FLP and LLC Strategies

The National Constitution Center is sponsoring a 60-minute audio conference entitled FLPs & LLCs: How to Take Advantage of the 2010 Estate Tax on May 19, 2010. A summary of the program is below:

FLPs and LLCs are the ideal vehicles for smart family business succession planning in 2010. How can you take advantage of the current estate tax opportunities that will save your client thousands-before legislation changes? Please join us for a live, 60-minute audio conference, where you and your colleagues will learn:

• Estate tax advantages when planning with FLPs and LLCs
• Strategies to preserve client benefits under 2010 legislation
• FLPs vs. LLCs: What succession strategy works best for your client?
• How estate tax changes in 2011 will impact your clients

Levy Estate Fights the IRS

Norman F. Levy, a New York City real estate tycoon, died in 2005 leaving a $1.09 billion estate to charity and his family. Since his death, his estate has encountered many setbacks. First, Madoff swindled the estate out of hundreds of millions of dollars, forcing two Levy charities to close. Second, the estate paid $220 million to the Madoff bankruptcy trustee to repay withdrawals made before the Ponzi scheme collapsed in 2008.

Now the estate is fighting the IRS over a $61 million estate tax bill. Levy’s will put $905 million into a charitable lead annuity trust (CLAT) in order to minimize estate taxes and benefit the Levy family and charity. Due to the CLAT, the Levy family calculated a taxable estate of $98 million and paid $46 million in federal estate taxes. The IRS valued the estate at $226 million, claiming a total tax of $105 million plus $2 million in penalties. Some of the dollar disputes between the family and the IRS include:

• Valuation disagreements over partially-owned real estate assets
• Co-executor commission amounts due to gross estate miscalculation
• Theft loss claims that arose from Madoff’s (then executor of the Levy estate) scheme

See William P. Barrett, Family Swindled by Madoff Fights $61 Million IRS Bill, Forbes.com, April 21, 2010. 

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

Top SSRN Downloads

Here are the top downloads from February 24, 2010 to April 25, 2010 from the SSRN Journal of Wills, Trusts, & Estates Law for all papers announced in the last 60 days.

Rank	Downloads	Paper Title
1	651	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	112	Fact-Based Fiduciary Accountability in Canada Robert Flannigan, University of Saskatchewan, Date posted to database: March 12, 2010 Last Revised: April 14, 2010
3	109	The FLP, the Transfer Taxes, and the Income Tax Laura Cunningham, Yeshiva University - Benjamin N. Cardozo School of Law (faculty), Date posted to database: April 16, 2010 Last Revised: April 16, 2010
4	80	The Scope of Fiduciary Obligations: How Contract Informs, But Does Not Determine, the Scope of Fiduciary Obligations Mark Leeming, University of Sydney - Faculty of Law, Date posted to database: February 22, 2010 Last Revised: February 28, 2010
5	50	The Federal Estate Tax: History, Law, and Economics David Joulfaian, U.S. Department of the Treasury, Date posted to database: April 2, 2010 Last Revised: April 14, 2010
6	43	When Should Asset Appreciation Be Taxed?: The Case for a Disposition Standard of Realization Jeffrey L. Kwall, Loyola University of Chicago - School of Law - Faculty, Date posted to database: March 1, 2010 Last Revised: March 18, 2010
7	36	Human Capital and Transfer Taxation Kerry A. Ryan, Saint Louis University School of Law, Date posted to database: March 5, 2010 Last Revised: March 14, 2010
8	32	The New Regime of Fiducie in French Law, in the Light of the Last Reforms (El Nuevo Régimen de Fiducie en el Derecho Francés a la Luz de las Ultimas Reformas) (Spanish) Karolina Lyczkowska, Unaffiliated Authors - affiliation not provided to SSRN, Date posted to database: March 10, 2010 Last Revised: March 10, 2010
9	12	Inheritance Law and Limitation Periods Reform in Germany (La Reforma del Derecho de Sucesiones y de la Prescripción en Alemania) (Spanish) Esther Arroyo Amayuelas, University of Barcelona - Faculty of Law, Date posted to database: March 10, 2010 Last Revised: March 10, 2010

Second Marriages Affect Asset Distribution

Almost fifty percent of all marriages are second marriages, and second spouses usually benefit from the same inheritance rights as first spouses. The following is a brief summary of where assets may go when a person dies when married to a second spouse:

If there's no plan.  If the deceased did not have a will, the surviving spouse will get 100% of the estate in 16 states and in most other states, will split the estate in half with the kids.

If there's a will. The deceased cannot disinherit a surviving spouse with a will. In most states, spouses are entitled to elect against the will and if they do, their elective share is usually 1/3 to 1/2 of the estate.

If there's a prenup. The prenuptial agreement is the only way to disinherit a spouse, but courts do not like agreements that seem like bully situations.

If there's a trust. A Q-Tip trust pays income to the surviving spouse, and the remainder of the assets pass to the children upon the death of the surviving spouse.

See Brad Reagan, Second Spouses:  Passing It On, SmartMoney, March 19, 2009; see also my previous blog on Late-in-Life Marriages. 

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

New Book on Understanding Fiduciary Doctrine

Matthew Conaglen (senior lecturer, University of Cambridge has published his book Fiduciary Loyalty: Protecting the Due Performance of Non-Fiduciary Duties (2010).

Below is a summary provided by the publisher:

Fiduciary Loyalty presents a comprehensive analysis of the nature and function of fiduciary duties. The concept of loyalty, which lies at the heart of fiduciary doctrine, is a form of protection which is designed to enhance the likelihood of due performance of non-fiduciary duties, by seeking to avoid influences or temptations that may distract the fiduciary from providing such proper performance.

In developing this position, the book takes the novel approach of putting to one side the difficult question of when fiduciary duties arise in order to focus attention instead on what fiduciary duties do when they are owed. The issue of when fiduciary duties arise can then be returned to, and considered more profitably, once a clear view has emerged of the function that such duties perform.

The analysis advanced in the book has both practical and theoretical implications for understanding fiduciary doctrine. For example, it provides a sound conceptual footing for understanding the relationship between fiduciary and non-fiduciary duties, highlighting the practical importance of analysing both forms of duties carefully when considering fiduciary claims. Further, it explains a number of tenets within fiduciary doctrine, such as the proscriptive nature of fiduciary duties and the need to obtain the principal's fully informed consent in order to avoid fiduciary liability. Understanding the relationship between fiduciary and non-fiduciary duties also provides a solid foundation for addressing issues concerning compensatory remedies for their breach and potential defences such as contributory fault. The distinctive purpose that fiduciary duties serve also provides a firm theoretical basis for maintaining their separation from other forms of civil obligation, such as those that arise under the law of contracts and of torts.