Wills, Trusts & Estates Prof Blog

Happy Halloween

Many law school classes have one or more holidays which are especially relevant.  For example, Family Law has Valentine's Day, Mother's Day, and Father's Day, Labor Law has Labor Day, Environmental Law has Earth Day, Military Law has Memorial Day, and Law and Religion has Christmas, Hanukkah, Ramadan, etc.

Halloween, with its fascination with death, may be the most relevant holiday to those who teach wills, trusts, estates, probate, and estate planning.

So, however you celebrate, have fun and be safe!

Top SSRN Downloads

Here are the top downloads from August 31, 2010 to October 30, 2010 from the SSRN Journal of Wills, Trusts, & Estates Law for all papers announced in the last 60 days.

Rank	Downloads	Paper Title
1	193	Wills and Trusts Gerry W. Beyer, Texas Tech University School of Law, Date posted to database: September 11, 2010 Last Revised: September 11, 2010
2	146	Gay and Lesbian Elders: Estate Planning and End-of-Life Decision Making Nancy J. Knauer, Temple University - Beasley School of Law, Date posted to database: August 6, 2010 Last Revised: September 6, 2010
3	113	Case Law Update Gerry W. Beyer, Texas Tech University School of Law, Date posted to database: August 31, 2010 Last Revised: August 31, 2010
4	103	The Price of an FLP Annual Exclusion Wendy C. Gerzog, University of Baltimore - School of Law, Date posted to database: September 9, 2010 Last Revised: September 9, 2010
5	87	Financing Long-Term Care After Health Care Reform Richard L. Kaplan, University of Illinois College of Law, Date posted to database: October 16, 2010 Last Revised: October 21, 2010
6	68	Critters in the Estate Plan Gerry W. Beyer, Texas Tech University School of Law, Date posted to database: August 27, 2010 Last Revised: August 27, 2010
7	66	Risk of Death Ariel Porat, Avraham D. Tabbach, Tel Aviv University, Tel Aviv University, Date posted to database: September 1, 2010 Last Revised: September 1, 2010
8	49	Can a Modern Legal System Do without the Trust? Reinout M. Wibier, Tilburg University, Date posted to database: September 16, 2010 Last Revised: September 16, 2010
9	39	Disinheritance in New York State: Legacies We Do and Do Not Leave Jason N. Summerfield, Finkelstein & Virga P.C., Date posted to database: August 10, 2010 Last Revised: August 10, 2010
10	35	The Game is Afoot!: The Significance of Gratuitous Transfers in the Sherlock Holmes Canon Stephen R. Alton, Texas Wesleyan University-School of Law, Date posted to database: September 18, 2010 Last Revised: September 18, 2010

Smith's Boyfriend and Doctor Convicted in Drug Conspiracy

On Thursday, Howard Stern and Dr. Khristine Eroshevich were found guilty on charges of using false names to provide Anna Nicole Smith with drugs. With Stern’s permission, Eroshevich used Stern’s name, as well as other names, to get Vicodin prescriptions to Smith. The prosecution showed that Stern and Eroshevich used false names to hide Smith’s excessive prescriptions from the state’s monitoring system. The prosecution further argued that the doctors wanted to be part of Smith’s entourage, so they never said no to her drug-seeking.

Sentencing for the two defendants will be determined on January 6. They could each face a maximum of three years in prison.

See Alan Duke, Anna Nicole Smith’s Boyfriend, One Doctor Convicted in Drug Conspiracy, CNN, Oct. 28, 2010.

10 Ways to Put Your Body to Use After Death

J. Nathan Bazzel, a thirty-eight-year-old HIV-positive man, signed documents to donate his body to the Mutter Museum so that scientists can learn from his remains. Because being on display in a museum isn’t for everyone, CNN came up with a list of ten ways to put your body to use in the spirit of the Halloween season:

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      1. Donate Your Organs. Nineteen people die daily waiting for an organ. You could lower that number. 
      2. Donate Your Tissue. You can donate your bones, heart valves, corneas, or ligaments. 
      3. Will Your Body to a University. Help future doctors learn how to help others. 
      4. Help Doctors Practice Their Skills. Donate your body to a research institute for doctors to learn new techniques. 
      5. Leave Your Body to “The Body Farm.” This is where detectives study decaying bodies to learn how to determine time of death. 
      6. Become a Crash Test Cadaver. 
      7. Give Your Body to a Broker. Brokers take your body parts and transfer them to scientists who use them for training, research, and education. 
      8. Send Your Body on Tour. You could become one of the “Body Worlds” exhibits by donating your body to the Institute for Plastination. 
      9. Become a Skeleton. 
      10. Be on Display at a Museum. Like Bazzel, you could become a display at a museum. Museums are particularly interested in bodies with abnormalities.

For more information, including links to help you get started for any of these ten options, see Elizabeth Cohen, Ten Uses for Your Body After You Die, CNN, Oct. 28, 2010.

Special thanks to Hayden Olson (2011 J.D. Candidate, Texas Tech School of Law) for bringing this to my attention.

CLE on Grantor Trust Liabilities

My Legal Conferences is sponsoring a 60-minute live audio conference entitled Grantor Trust Liabilities: Keys to Avoid Income Tax Consequences in 2011 on November 10, 2010. The program summary is below:

Estate planning with Grantor Trusts can lead to complex income tax issues for grantors and beneficiaries. Whether the grantor is still alive, or has recently died, you must know the income tax essentials to properly secure the assets of your clients, and the proper filing guidelines when dealing with Irrevocable & Revocable Grantor Trusts in estate planning. Join us for a 60-minute audio conference, where you and your colleagues will discover:

• Income tax intricacies when planning with grantor trusts
• Treatment of income and gifts under GRAT regulations
• Grantor lifetime transfer policies & guidelines
• Grantor trust & non-grantor trust conversions

Suggestions for Dealing with Tax Uncertainty

Some tax professionals offered suggestions for dealing with this time of uncertainty in the tax world:

Investments. You may want to recognize your gains now and take the 15% rate. This is not necessarily always a good idea though, and the type of asset should play a role in your decision. 

Gifts. You can gift a trust to a spouse at this year’s gift tax rate and not have to elect to treat it as a marital or nonmarital trust until next October. Giving gifts to grandchildren is also a good idea because there is no GST tax this year. 

Estate Taxes. People have put off updating their estate plans because of the tax uncertainty, but meeting with an estate planning attorney is vital. Attorneys will know what planning is best for your situation, and they’ll know your state’s estate tax laws. 

Roth Conversions. Converting your IRA into a Roth IRA and paying 2010 taxes or spreading them out in 2011 and 2012 may be a valuable move. 

Business Owners. Due to the Small Business Jobs Act, those who make big outlays for business property this year can realize tax savings.

If this isn’t enough for you to worry about, Congress may decide to enact a retroactive tax law. While most professionals don’t anticipate Congress to do so, it is a theoretical possibility. In fact, Congress has done it before in 1987, and the Supreme Court upheld the law seven years later.

See Jan M. Rosen, The Watchword on Taxes This Year is Flexibility, N.Y. Times, Oct. 20, 2010.

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

Discussion About $20 Million Estates

The September and October 2010 editions of The Estate Analyst included a two-part discussion about $20 million estates by Robert L. Moshman (attorney and writer).

The introduction to the September edition, entitled The Unfortunate $20-Million Estate: When Things Go Wrong, is below:

A sobering reality is confronting many Americans in general, but there is a niche that has unique and serious planning problems—and we are not referring to all those who are going bankrupt, losing their homes to foreclosure, or filling out forms for unemployment benefits. They won’t be getting much sympathy from the one in seven Americans living in poverty, nor from the vast majority of Americans with less than $1 million in total assets, but those with $20-million estates may have the most to lose in a short time if they aren’t extremely vigilant right now—and over the next several years. Here we examine the unique circumstances and context of the $20-million estate, what can go wrong, and some defensive measures for keeping things under control.

The introduction to the October edition, entitled Resurrecting the $20-Million Estate; Don't Forget About the BDIT!, is below:

Two limousines pull up alongside each other. The passengers roll down their windows. A bottle is exchanged. Is it Dom Perignon? Is it Grey Poupon? Or is it…Pepto Bismol?

Worrisome economic times have humbled estates of all sizes. Even a once-mighty estate may now need to be nurtured back to fiscal health.

As the estate tax prepares for a dramatic return in 2011, the challenge of estate taxation has returned as well.

Let’s review some of the best planning options for estates of about $20 million. One of those options is the Beneficiary Defective Inheritor’s Trust (BDIT).

Elder Mediation Gains Popularity

Conflict Resolution Quarterly published a study in 2001 that found that nearly 40% of adult children caring for an elderly parent had experienced “serious conflict” with a sibling related to the care of the parent. In situations like this, elder mediation may be the solution. Elder mediators dig to the bottom of things, considering everyone’s viewpoint, and enable the family to sort out the important issues.

While elder mediation has been around for years, the practice has only recently gained recognition as a specialty area of mediation. Elder mediation still has no national credential program, so be careful in selecting a mediator. If you need an elder mediator, go to the National Eldercare Mediation Network website or Mediate.com to see profiles of elder mediators in every state.

See Joshua Tapper, When the Family Needs an Umpire, N.Y. Times, Oct. 28, 2010.

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

Rocky and Bullwinkle Cartoonist Dies at Age 90

Alex Anderson, the cartoonist who created the cartoon characters of Rocky and Bullwinkle, died on Friday from Alzheimer’s disease at the age of 90.

After serving in World War II, Anderson began working with his childhood friend, Jay Ward, to create “Crusader Rabbit.” The Rocky and Bullwinkle characters grew out of that collaboration. In 1991, Anderson saw a documentary about the show that didn’t give him any credit, so he filed suit against Jay Ward Productions. In 1996, the parties reached a settlement with a court-mandated acknowledgement that Anderson was “the creator of the first version of the characters” and a monetary component.

Anderson left behind his wife, four sons, a daughter, fourteen grandchildren, and five great-grandchildren.

See Dennis Hevesi, Alex Anderson, Creator of Rocky and Bullwinkle, Dies at 90, N.Y. Times, Oct. 25, 2010.

Special thanks to Trina Montalban (attorney, Portland, OR) for bringing this to my attention.

Now is the Time to Create a GRAT

Not only is the estate tax set to come back with a vengeance next year, but Congress is also trying to put limits on a popular trust used to avoid the tax. A grantor-retained annuity trust (GRAT) allows people to pass some of an asset’s future profits tax-free to heirs. Now is a great time to create a GRAT for several reasons.

First, Congress may make GRATs less valuable in the near future in order to raise revenue. Congress wants to require that GRATs remain in place for a minimum of 10 years rather than the current minimum of 2 years. This makes GRATs less useful for those with shorter life expectancies because if the owner of a GRAT dies before the trust expires, the entire value is included in the owner’s gross estate. Until Congress acts, short term GRATs can still be created.

Second, when interest rates and asset values are low, as they are now, heirs can receive a larger portion of future profits of assets in the GRAT. A GRAT’s owner must agree to take back the “hurdle rate,” which is lower when the interest rate is lower, leaving more appreciation for heirs.

Third, aside from premature death, there are little risks involved with GRATs. If asset values fall, the owner is no worse off than he or she would have been without the GRAT, except for the loss of money paid to create the GRAT.

See Anne Tergesen, Hurry Up and Fund That Trust, W.S.J., Oct. 16, 2010.

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

CLE on Formula Clauses

The ABA Section of Real Property, Trust & Estate Law is sponsoring a 90-minute teleconference on November 16 entitled Using Formula Clauses for Sales and Gifts. The program information is below:

Transferring business interests and other difficult-to-value assets can be fraught with peril for taxpayers and their advisors. The IRS can assert a large gift where none was intended or where a smaller gift was intended. GRATs avoid these issues, but they are not always the most appropriate vehicle. Using a defined value formula clause can mitigate risks when a GRAT does not satisfy the client's objectives. Although the IRS rarely questions formula clauses in testamentary estate plans, it has challenged them for gifts and sales.

Our panelists will discuss:

• Transfers in which defined value formulas might be considered.
• What has happened when the IRS has attacked them (described by a lawyer who has won the most recent high-profile cases in this area).
• How to structure where the excess goes if the IRS adjusts the value beyond what was thought to be correct. A charity is often the best donee to receive any excess value.

Learn the benefits of including a charity - and the process this entails - on March 1, 2011, when one of our panelists walks through the process with charities who have experience receiving such gifts.

A Prepaid Estate Tax

If Congress changes the estate tax from the exemption amount and rate that it’s set to return to in 2011, the extra billions would have to come from other modifications of the estate and gift tax as a practical political matter. One way Congress might do this is by placing restrictions on GRATs. Another way Congress may choose to do this is through a prepaid estate tax.

Senate Finance Committee member Maria Cantwell proposed a prepaid estate tax. Under this plan, taxpayers could prepay estate taxes on the assets in an “estate tax prepayment trust” at a discount. Essentially, taxpayers could freeze their estates for purposes of the federal estate tax. This idea is receiving serious attention largely because it could raise billions of dollars “over the next 10 years—Congress’ (shortsighted) budget time frame.” However, the possibility of people like Mark Zuckerberg avoiding the estate tax may make this proposal a tough sell to Democrats.

See Janet Novack, Should Congress Let the Next Mark Zuckerberg Prepay His Estate Taxes?, Forbes, Oct. 26, 2010.

Step Transaction Doctrine

Donald P. DiCarlo, Jr. (attorney, Villanova, PA) recently published his article entitled What Estate Planners Need to Know About the Step Transaction Doctrine, 45 Real Prop., Trust & Estate L.J. 355 (Summer 2010). An excerpt from the introduction is below:

This Article introduces (or reacquaints, as the case may be) estate planners to the basic theory of the step transaction doctrine and its development and application in estate planning techniques. This Article will also examine recent case law to identify methods that estate planners can use to avoid stepping on the issue with the Service, particularly regarding the use of LLCs as wealth transfer vehicles.

Carry-over Basis Example

Although potential heirs may think they’d be better off if their rich grandfather died at the end of 2010 rather than the beginning of 2011, that may not be the case due to the carry-over basis. George Steinbrenner’s estate will probably pass to heirs tax-free this year, but his heirs may end up owing millions in capital gains taxes when they sell the assets. Nobody is concerned about the Steinbrenner heirs, but it’s the taxpayers who inherit small businesses that will be hit the hardest by the carry-over basis of 2010. Here’s an example of how the carry-over basis affects small business owners:

"Say Uncle Harry built his business with sweat equity. His company was worth $3 million when he died, but its tax basis was zero. Jack inherits the firm and sells it right away. If Harry died in 2009, there would be no tax (since Harry’s estate was worth less than $3.5 million it owed no estate tax, and thanks to stepped-up basis Jack owed no capital gains tax). But under 2010 rules, Jack would owe $255,000 ($3 million less the $1.3 million in allowed step-up leaves $1.7 million in gains taxed at 15 percent)."

Howard Gleckman, No Estate Tax, But 2010 Still May Not be so Great for Heirs, Tax Policy Center, Sept. 30, 2010.

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

Famous Octopus Dies, Donates to a Sea Turtle Rescue Center

Paul, an octopus at the Sea Life aquarium in Germany, correctly predicted the winner of all seven games of the World Cup. He made his predictions by opening one of two clear plastic boxes, each bearing a team flag and containing a mussel. His predictions attracted worldwide attention, and he was subsequently paid to support England’s 2018 World Cup bid. Paul also received hundreds of requests to go to Spain, but his agent turned them all down.

Paul died in his tank Tuesday morning of natural causes at the octopus old age of 2 ½ years. The aquarium hasn’t decided how to commemorate Paul yet, but they may give him a burial plot and modest shrine on the aquarium grounds. “Paul’s name will live on the Greek island of Zakynthos, where a permanent sea turtle rescue center funded in part by donations generated by the famous octopus is being established.”

Nesha Starcevic, Paul, the WCup Predicting Octopus, Dies at 2 ½, AP Sports, Oct. 26, 2010.

Special thanks to Adam J. Hirsch (William and Catherine VanDercreek Professor of Law, Florida State University College of Law) for bringing this to my attention.

Trust Protectors

Richard C. Ausness (Gallion & Baker Professor of Law, University of Kentucky College of Law) recently published his article entitled The Role of Trust Protectors in American Trust Law, 45 Real Prop., Trust & Estate L. J. 319 (Summer 2010). An excerpt from the introduction is below:

This Article discusses some of the powers that settlors can give to trust protectors as well as some of the duties and potential liabilities that may come with this position. This Article also suggests what role a trust protector might play in connection with various types of trusts.

Part II of this Article examines the status of trust protectors in the United States. Part III identifies some of the powers that a trust protector may exercise and the sources of these powers. Part IV analyses a trust protector’s potential duties and liabilities. Part V discusses how a settlor may employ trust protectors to achieve various goals. Finally, this Article concludes by suggesting that the UTC be amended to explicitly recognize trust protectors and set forth their powers and duties.

CLE on Dealing with Spousal Health Issues

The National Business Institute is sponsoring a 90-minute national teleconference entitled Elder Law: What to do When a Spouse is Confronting Health Issues on December 1, 2010. The program description is below:

Dealing with incapacity and end of life decisions is never an easy task. This focused legal briefing will give you the skills you'll need to help your clients maintain control when they most need you. Make certain the spouse's loss of capacity will not send your client's life crashing down. Register today!

• Plan for tough health and financial decisions ahead of time through effective use of asset titling, durable powers of attorney and advanced directives.
• Challenge-proof the guardianship with skillful drafting and impeccable execution.
• Don't reinvent the wheel - use our sample forms and letters.

Giving Gifts to Children

You can’t leave money or property to minors outright, so giving gifts to young children takes preparation and thought. Here are some tips:

• • • Set up a Living Trust. A living trust can save the time and money involved in the probate process. After your death, your appointed trustee will manage the assets and distribute the money to the child in accordance with your directions.
    • Pick a Trustee. A bank or corporate trustee is ideal because they are regulated and will manage the money responsibly. If there’s not enough money for a professional, choose a relative or friend who has experience managing money.
    • Pick an Age. Once your beneficiary turns 18, he or she can legally take control of his or her inheritance. However, you may wish to designate a later age for him or her to get control over the trust assets.

See Alexia Elejalde-Ruiz, Bequests to the Young Hardly Child’s Play, Placing a Packed Piggybank on a High Shelf Simply Won’t Do, Chicago Tribune, Sept. 23, 2010.

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

Uniform Power of Attorney Overview and Suggestions

Andrew H. Hook and Lisa V. Johnson (attorneys, Virginia Beach, VA) recently published their article entitled The Uniform Power of Attorney Act, 45 Real Prop., Trust & Estate L. J. 283 (Summer 2010). The Editor’s Synopsis is below:

Historically, laws relating to durable powers of attorney were based primarily on the common law of agency, but because of the increased use of durable powers of attorney and the resulting litigation, states have begun to enact detailed statutes. In this Article, the Authors give an overview of the Uniform Power of Attorney Act and examine the Act’s individual sections. The Authors recommend several revisions to the Act and encourage states to adopt the Act to bring uniformity to this area of the law.

2001-2011 Estate Tax Animation

Douglas K. Cook (attorney, Phoenix, AZ) recently created an animation of the various estate tax rates and effective exemptions from 2001 to 2011. The animation is below:

The Changing Federal Estate Tax: 2001 - 2011 

Special thanks to Douglas K. Cook for allowing me to display this animation.