Wills, Trusts & Estates Prof Blog

Visual Presentation of Gift Tax Changes

On December 17, President Obama signed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 into law. This bill makes significant changes to the gift tax from 2010 to 2011 and 2012. The gift tax rate will remain at 35% for 2011 and 2012, but the exemption is increased from $1 million to $5 million, the exemption will be reunified with the estate tax exemption, the exemption will be portable between spouses, and the exemption will be indexed for inflation.

Hani Sarji, author of Estate of Confusion, created a chart to summarize these changes: 
Hani Sarji, Gift Tax Under The 2010 Tax Relief Act (P.L. 111-312): Different Rules For 2010, 2011 & 2012, Estate of Confusion, Dec. 29, 2010.  See also Hani Sarji, Gift Tax: Changes Made by the 2010 Tax Relief Act, Estate of Confusion, Dec. 2010 for a concise visual presentation of the changes.

Sisters' Release from Prison Conditioned on Organ Donation

In 1994, Jamie and Gladys Scott led two men into an ambush. Three teenagers hit each man in the head and took their wallets, making off with $11. The sisters were convicted and sentenced to life in prison. After 16 years in prison, Jamie is on daily dialysis, which costs the state approximately $200,000 a year.

Recently, Gov. Haley Barbour decided to suspend their life sentences on the condition that Gladys donates her kidney to Jamie within one year.

Some applaud the governor, calling it a “shining example” of the governor’s power being put to good use. Others argue that the organ donation shouldn’t be a condition of release because trading something of value (in this case, freedom from prison) for an organ is illegal.

See Sister’s Kidney Donation Condition of Parole, Associated Press, Dec. 30, 2010.

Language Directing Beneficiaries to Continue Financial Support of Another Person is Precatory

The testator’s will devised her residuary estate to her three children. The next article of the will stated the testator’s desire that a named granddaughter of the testator “be taken care of as [the testator] did during [her] lifetime."

In Williams v. Williams, 43 So. 3d 517 (Miss. Ct. App. 2010), the court held that the language directing care of the granddaughter was precatory. Having devised her entire estate, the testator’s desire for continued care of her granddaughter was precatory and thus unenforceable.

Special thanks to William P. LaPiana (Rita and Joseph Solomon Professor of Wills, Trusts,and Estates, New York Law School) for bringing this to my attention.

Trustee's Duty to Diversify

Trent S. Kiziah (Los Angeles, CA) recently published his article entitled The Trustee's Duty to Diversify:  An Examination of the Developing Case Law, 36 ACTEC L.J. 357 (Fall 2010).  The introduction is below: 

Under the Uniform Prudent Investor Act (1994) (hereinafter “UPIA”), a trustee has a duty to diversify the investments of the trust unless special circumstances justify retention of the concentration or the operative document waives the duty to diversify.  This article explores what circumstances justify retention of a concentration and what language waives the duty to diversify.

Voltaire's Will Contest Quote

"Animals have these advantages over man: they never hear the clock strike, they die without any idea of death, they have no theologians to instruct them, their last moments are not disturbed by unwelcome and unpleasant ceremonies, their funerals cost them nothing, and no one starts lawsuits over their wills."

--Voltaire, French author (1694 - 1778).

Special thanks to Carlo Taboada (2012 J.D. candidate, Texas Tech School of Law) for bringing this to my attention. 

 

CLE on Disclaimers

The National Business Institute is sponsoring a 90-minute national teleconference entitled Use of Disclaimers in Probate on January 5. The program description is below:

Explore all the details and possible outcomes of disclaiming interest in property and get tips for making certain the decedent's property is transferred to the right beneficiaries. Learn when and how to use qualified disclaimers to take full advantage of this simple technique. Register today!

• Review the rules governing disclaimers to ensure your clients' compliance.
• Trace the steps involved in transfer of disclaimed property to anticipate the effects of qualified disclaimers.
• Find out when disclaimers become a valuable estate planning tool and how to execute one correctly.

Agent May Withdraw Funds from Trust Bank Account

A durable power of attorney authorized the agent to act in the principal’s stead and to do anything the principal could do. The agent then closed the principal’s trust bank account and opened a new account with a different beneficiary. The principal’s guardian and personal representative sued the bank for allowing the withdrawal.

The trial court dismissed the complaint and the Florida intermediate appellate court affirmed. The power of attorney authorized the withdrawal and although state law prohibits an agent from altering any disposition effective at the principal’s death, the prohibition does not apply to withdrawing money from a trust account because the beneficiary cannot object to any changes made by the owner of the account.

Beane v. Suntrust Banks, Inc., No. 4D09-3033, 2010 WL 4483472 (Fla. Dist. Ct. App. Nov. 10, 2010).

Special thanks to William P. LaPiana (Rita and Joseph Solomon Professor of Wills, Trusts,and Estates, New York Law School) for bringing this to my attention.

Today is the Last Day to Vote!!

Each year, the editors of the ABA Journal choose the 100 best legal blogs. Thanks to your loyalty and support, this blog has been selected. Voting is now taking place to determine the "popular" favorite in each of 12 categories -- my blog is in the Law Prof Plus category. I would greatly appreciate your taking the time to cast a vote for this blog by following this link -- vote here. Thank you!!!

Fiduciary Accounting Statutes

Julia C. Zajac (J.D. candidate, University of Connecticut School of Law) and Robert Whitman (Professor of Law, University of Connecticut School of Law) recently published their article entitled Fiduciary Accounting Statutes for the 21st Century, 36 ACTEC L.J. 443 (Fall 2010).  The introduction is below:

Fiduciary duty, in the Anglo-American legal tradition, requires a fiduciary to exhibit a heightened degree of loyalty and honesty, subordinating its own interests to see to the best interest of the beneficiary group. Cornerstones of fiduciary duty are to keep a beneficiary well informed and keep intact a clear line of communication. These canons of fiduciary duty are inextricably connected to fiduciary accounting, which in turn, is governed by state statute.

Fiduciary accounting statutes must, ideally, be flexible so that creating the fiduciary account does not over-burden the fiduciary on the one hand but keeps the beneficiary group reasonably informed on the other hand. As compared to the technology available when old-style fiduciary accounting statutes were legislated, the advent of the computer now permits the achievement of a better balance of interests between the fiduciary and beneficiaries.

A fiduciary accounting can take many forms, but generally it involves a process by which a fiduciary presents to a beneficiary a record of financial transactions that have occurred during the period being accounted for. Depending on the state statutes that deal with fiduciary accounting and local customs, fiduciary accounting practices can vary widely from state to state and in some cases from one court to another in the same state. For example, it is not uncommon in the Midwestern part of the United States to have annual reports comprise the fiduciary accounting with no other reporting required. On the East Coast, charge and discharge accounting is more often found. State statutory provisions often determine the makeup and complexity of the fiduciary accounting done.

Where charge and discharge accounting is carried out, an accounting will begin with the fiduciary preparing and presenting an inventory of all initial assets. In preparation for this type of accounting, a recording system must be established by the person who will account in order to record the credit/debit cycle of the fund. Finally, depending on the state statutes, a final accounting is presented to the beneficiary group or any other interested party “as part of a process by which the fiduciary seeks discharge of responsibility for the property entrusted and release from liability for the events disclosed.”

This article examines the current status of fiduciary accounting statutes and argues that there is a need for more up-to-date legislation. Part II examines the history of fiduciary accounting statutes leading up to the Report of the National Fiduciary Accounting Study which set forth uniform principles related to fiduciary accounting. Part III focuses on how the Uniform Trust Code (“UTC”) and Restatement of Trusts 3rd (“Restatement 3rd”) treat the trustee's duty to inform and report. Four recently adopted statutes are then analyzed based on how they were amended to change the UTC's and Restatement of 3rd provisions. Part IV reviews suggested goals of the new generation of fiduciary accounting statutes and based on those goals, a model statute is put forward.

Disney Family Estate Battle

Sometimes even the most careful estate planning cannot prevent vicious court battles from erupting among family members. This is the case with Walt Disney’s descendants. When Disney’s youngest daughter died seventeen years ago, she left her twins and another daughter massive sums of money in trusts. One of the twins is currently in a legal battle with her father, and the other twin sides with the father. A Disney family advisor, a lawyer, and some relatives accuse the father of enriching himself from trust dealings, and he accuses the other side of attempting to seize control of the trust assets.

One thing that all the family members agree upon is their frustration with the court. The process has been very slow, and the legal fees are astronomical.

For details regarding the Disney family feud, see Robert Anglen, In the Valley, Heirs Embroiled in Disney Feud, The Arizona Republic, Oct. 8, 2010.

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

CLE on Qualified Disclaimers

The ABA Section of Real Property, Trust & Estate Law is sponsoring a 90-minute teleconference and live audio webcast entitled Qualified Disclaimers—What Part of “No” Don’t You Understand? on January 18, 2011. The program information is below:

Disclaimers are used today more than ever because they can provide flexibility for planning in uncertain times. The recent tax act extends the time a disclaimer can be filed for property inherited from someone who died after 2009 to 9 months from December 17, 2010. However, using disclaimers can be complicated.

This session will focus on the use of qualified disclaimers of assets, interests in trusts, and powers held as trustee and beneficiary, including the use of formula disclaimers.

Elderly Care Rates Rise in 2010

According to the 2010 MetLife Market Survey of Long-Term Care Costs, nursing home and assisted living rates rose drastically from 2009 to 2010. Some of the changes are below: 

• • • Nursing home private room: rose 4.6% to $83,585 a year
    • Assisted living facility: rose 5.2% to $39,516 a year
    • Home health care aides: remained the same
    • Semi-private nursing home room: rose 3.5% to $74,825 a year

See Average Cost of a Nursing Home Room Tops $83,000 a Year, ElderLawAnswers, Nov. 1, 2010.

Trusts as Beneficiaries of Retirement Benefits

Alvin J. Golden (attorney, Austin, TX) recently published his artice entitled It Should Not be This Hard:  A Look at Trusts as Beneficiaries of Retirement Benefits, 36 ACTEC L.J. 399 (Fall 2010).  The introduction is below:

A host of problems arise when a trust is named as a beneficiary of a qualified retirement plan or IRA, including the limited flexibility afforded by current IRS rulings in identifying the measuring life used to take post-death required minimum distributions. Additional requirements and limitations arise when these retirement funds pass to a Qualified Terminable Interest Property Trust, a Bypass Trust, or a Special Needs Trust. The language included in (or omitted from) the trust governing instrument can have dramatic impact upon realizing the desired benefits of these trusts when they serve as repositories for post-death retirement accounts.

The numerous problems associated with retirement funds after the participant's death can be exacerbated when the funds are characterized as community property, including problems that arise if the nonparticipant spouse predeceases the participant. Effecting a non-pro rata division of community property assets at death can reduce some of these complexities, but may cause tax problems of its own. The problems can often be minimized through the use of a funded revocable trust, with both spouses serving as grantors, which is named as the beneficiary of these retirement assets. Here again, however, it is imperative that proper language be included in the governing instrument.

 

Purchasing Life Insurance for the Ultra-Wealthy

The most common reasons someone with a net worth of $100 million purchases life insurance are liquidity, wealth transfer, and income replacement.

• Liquidity. It’s common for the ultra-wealthy to have their wealth tied up in assets that cannot be sold in time to pay estate taxes. Life insurance can be used to provide this liquidity.
• Wealth Transfer. Life insurance can be used to minimize estate taxes.
• Income Replacement. While not that common among the ultra wealthy, income replacement is still an issue.

The ultra wealthy typically buy universal life because the premiums are flexible and these policies build cash value. When purchasing policies with multi-million-dollar death benefits, carrier stability is crucial. Advisors should consider purchasing policies from multiple carriers to hedge against the risk of an insolvent carrier.

See Beyond High Net Worth: Insurance Needs of the Ultra Wealthy, Wealth Strategies Journal, Nov. 1, 2010.

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

Heirs of the Wealthy Fire Their Parents' Advisors 90% of the Time

A recent study showed that the heirs of wealthy people retain mom and dad’s advisors only 10% of the time. How can an advisor position himself to become the new advisor that the heirs hire? A few tips are below:

1. Differentiate Your Practice From a Mere Investment Advisor. Invest in yourself and your education. Get new certifications and look for opportunities to learn skills in communication, family issues, prospect development, and marketing.
2. Develop Skills that Centers of Influence (COIs) Will Value. Develop relationships with attorneys, trustees, and CPAs so that they turn to you with questions. 
3. Market Your New Skills and Knowledge. “Become a spokesperson for preparing heirs for wealth and responsibility.”

Vic Preisser, The Children of the Wealthy Fire Their Parents’ Advisors—Most of the Time, Registered Rep, Nov. 1, 2010.

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

Odds of having a will increase with age

According to Anne R. Carey & Veronica Salazar, Americans with wills by age, USA Today, Dec. 22, 2010, at A1, the odds of a person having a will increase significantly with age.

Here are the statistics they reported: 

• Age 18-34 -- 17%
• Age 35-44 -- 39%
• Age 45-54 -- 39%
• Age 55-64 -- 60%
• Age 65+    -- 81%

Top SSRN Downloads

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

Rank	Downloads	Paper Title
1	487	2010 Federal Tax Update Samuel A. Donaldson, University of Washington - School of Law, Date posted to database: November 28, 2010 Last Revised: November 28, 2010
2	290	High Volatility, Negative Correlation, Roth IRA Conversions, and the Codified Economic Substance Doctrine Gregg D. Polsky, University of North Carolina (UNC) at Chapel Hill - School of Law, Date posted to database: November 30, 2010 Last Revised: November 30, 2010
3	202	Fundamentals of Texas Multiple-Party Accounts Gerry W. Beyer, Texas Tech University School of Law, Date posted to database: September 20, 2010 Last Revised: September 20, 2010
4	198	The Basics of Texas Intestate Succession Law Gerry W. Beyer, Texas Tech University School of Law, Date posted to database: November 20, 2010 Last Revised: November 20, 2010
5	148	Lessons from the Supreme Court of Texas Gerry W. Beyer, Texas Tech University School of Law, Date posted to database: October 23, 2010 Last Revised: October 23, 2010
6	142	Access or Expectation: The Test for Fiduciary Accountability Robert Flannigan, University of Saskatchewan, Date posted to database: October 29, 2010 Last Revised: December 17, 2010
7	137	Can a Modern Legal System Do without the Trust? Reinout M. Wibier, Tilburg University, Date posted to database: September 16, 2010 Last Revised: November 24, 2010
8	134	When Do Fiduciary Duties Arise? James J. Edelman, University of Oxford - Faculty of Law, Date posted to database: October 26, 2010 Last Revised: November 13, 2010
9	116	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
10	109	The 'Big Three' VEBAs and Other Stand-Alone Welfare Benefit Trusts: What Is and Is Not Novel about Them Andrew Stumpff, University of Michigan at Ann Arbor - Law School - Faculty, Date posted to database: November 15, 2010 Last Revised: November 15, 2010

Tracy Morgan Recovers From Kidney Transplant

Tracy Morgan, star of NBC’s “30 Rock,” was diagnosed with diabetes in 1996, but didn’t take it seriously until he got very sick years later. Around December 10, Morgan underwent a successful kidney transplant and is currently recovering. He will miss taping two or three episodes of “30 Rock,” which are set to air in March.

See Tracy Morgan Kidney Transplant: ’30 Rock’ Star Recovering from Surgery, The Huffington Post, Dec. 20, 2010. See also Christie D’Zurilla, Tracy Morgan Kidney Transplant Means He’ll Miss Some ’30 Rock,’ Ministry of Gossip, Dec. 20, 2010.

Obama Returns to End-of-Life Plan That Caused Political Storm

When a political storm arose over “death panels,” Democrats dropped the proposal to encourage end-of-life planning from the health care legislation. Starting January 1, the Obama administration will achieve the same objective through a Medicare regulation.

Under the regulation, doctors can provide information to patients regarding how to prepare an advance directive, which specifies how aggressively patients want to be treated if they can no longer make their own health care decisions. The preamble to the Medicare regulation states, “Advance care planning improves end-of-life care and patient and family satisfaction and reduces stress, anxiety and depression in surviving relatives.”

The section that was dropped from the legislation allowed Medicare to pay for discussions about advance care planning every five years. The new rule allows annual consultations as part of the wellness visit.

Congressional supporters of the new regulation, while pleased, have kept quiet for fear of provoking another political storm.

See Robert Pear, Obama Returns to End-of-Life Plan That Caused Stir, N.Y. Times, Dec. 25, 2010.

Extrinsic Evidence Not Admissible to Vary the Meaning of Unambiguous Term

Parents created an inter vivos trust giving their son income for life, remainder to his “issue.” Parents amended the trust several times to redefine “issue” to exclude both persons adopted into the son’s bloodline and those adopted out. The son fathered a nonmarital child who was acknowledged by both the son and his parents.

A California intermediate appellate court reversed the lower court’s finding that the nonmarital child was not a beneficiary of the trust, finding that the failure of the language to address the status of nonmarital children did not create a latent ambiguity, that the extrinsic evidence supports the child’s inclusion, and that had the settlors wished to exclude nonmarital children, they could have amended the trust just as they did to exclude those adopted in or out.

Citizens Business Bank v. Carrano, 117 Cal. Rptr. 3d 119 (Cal. Ct. App. 2010).

Special thanks to William P. LaPiana (Rita and Joseph Solomon Professor of Wills, Trusts,and Estates, New York Law School) for bringing this to my attention.