Wills, Trusts & Estates Prof Blog

How Would You Plan the Estate of a Man with 39 Wives?

Sixty-six-year-old Ziona Chana lives in a four-story building in India with his 39 wives, 94 children, and 33 grandchildren. The family consumes 200 pounds of rice and 130 pounds of potatoes each day. The women cook, clean, and wash while the men farm and take care of livestock.

Ziona, who heads the “Chana,” a local Christian religious sect that allows polygamy, said that he’s ready to expand his family and is “willing to go to any extent to marry.”

See Man Has 39 Wives, Nearly 100 Children, Yahoo! News, Feb. 22, 2011.

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

Texas court prevents trustee from proceeding pro se in representative capacity

In In re Guetersloh, 326 S.W.3d 737 (Tex. App.—Amarillo 2010, no pet. h.), Trustee attempted to represent himself pro se, that is, without an attorney, in both his capacity as a trustee and in his individual capacity.  The appellate court held that Trustee had no right to proceed pro se in his representative (trustee) capacity but could proceed without an attorney with regard to claims in his individual capacity.

The court explained that allowing Trustee to proceed pro se in his representative capacity would be the unauthorized practice of law.  The court stated that “if a non-attorney trustee appears in court on behalf of the trust, he or she necessarily represents the interests of others, which amounts to the unauthorized practice of law.”  The court relied on Steele v. McDonald, 202 S.W.3d 926 (Tex. App.—Waco 2006, no pet.) in which the court held that a non-lawyer may not appear pro se in the capacity as an estate’s independent executor.

Moral:  A trustee who is not an attorney may not appear in court pro se in the trustee’s representative capacity.

Planning for Chronic Illnesses

Martin M. Shenkman (Attorney at Law, Paramus, NJ) and Joshua S. Rubenstein (Attorney at Law, New York, NY) recently published their article entitled Chronic Illness Practical Planning and Drafting, Part 1, 25 Prob. & Prop. 36 (Jan./Feb. 2011).  The introduction is below:

Chronic illness is far more common than most practitioners realize. Addressing the implications of these health issues is essential to best serve clients. More than 400,000 people live with multiple sclerosis (MS), and estimates are that in total 120 million Americans live with some type of chronic illness. Of those ages 65 to 74, 26% have had their lives significantly affected by chronic illness. Twentytwo percent of the population is estimated to be living with two or more different chronic illnesses. More than 5 million Americans have Alzheimer’s disease (AD). AD accounts for approximately 70% of dementias in Americans age 71 and older. Recent headlines evaluated the issues surrounding the famous New York socialite Brooke Astor, who, at age 101 with Alzheimer’s disease, executed a will and a series of codicils, all of which are subject to challenge. AD is the fifth leading cause of death for those age 65 and older. Parkinson’s disease (PD) is also not rare; about 1% of all those over age 65 are diagnosed with PD. This makes PD second only to AD in terms of the number of people affected. The prevalence of these issues necessitates that practitioners have techniques available to them to assist clients facing the problems wrought by chronic illness.

This is not an elder law issue. Chronic illness does not discriminate in favor of older clients. About one-quarter of PD cases are diagnosed before age 60 (young onset PD, “YOPD”). YOPD has been diagnosed at ages as early as 30 years. So a significant portion of PD clients may have had their careers and savings negatively affected because of the early onset of their illness. A small percentage of those with AD are diagnosed in their 50s, or perhaps earlier (young onset AD). MS is typically diagnosed between ages 20 and 50 but has also been diagnosed in young children.

Many clients who live with chronic illnesses are fortunate not to experience symptoms significant enough to modify planning for health-related issues. For clients experiencing, or likely to experience, significant symptomsas their chronic illness progresses, planning and drafting are obviously affected. What planning and drafting modifications might be useful in these situations? Although the concepts are not technically complicated, the issues receive inadequate attention relative to their importance in terms of the number of clients affected, as well as the importance to those affected. It is hoped that the following discussion will serve as a catalyst for new ideas for planning and drafting for clients living with chronic illnesses.

Same-Sex Couples Receive a Tax Break in 2010 in Three States

Same-sex couples in California, Nevada, and Washington could save money on their federal income taxes this year due to unusual interactions between federal and state laws. These three states recognize domestic partnerships and apply community property laws to registered domestic partners. The IRS, which must follow state property laws, has determined that these couples should calculate their total community income and divide it down the middle. However, DOMA prevents the IRS from treating these same-sex couples as married joint filers. Thus, each partner claims half the community income while filing as the head of household. Chris Kollaja, a CPA in San Francisco, provided the Wall Street Journal with an example of how this results in an unintended benefit for same-sex couples:

David and Richard are registered partners in California who own a house together. In 2010 David earned $225,000 and Richard earned $20,000. Under the new IRS rules, they will merge their income and deductions, then divide them by half and file separate returns. Their total federal tax will be $40,744. If they filed a joint federal return, they would owe $3,144 more.

If David and Richard were two single filers but not registered partners in California, they would owe total taxes of $47,572, or $6,828 more. That is closer to what they would owe in states that recognize same-sex marriage or domestic partnerships but don't have community-property rules. In those states each partner files a separate federal return, claiming only his own earnings.

Laura Saunders, Same-Sex Couples and the Marriage Penalty, W.S.J., Feb. 19, 2011.

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

Business Succession Planning and the New Gift Tax Exemption

Clients with businesses who want to take advantage of the new gift tax exemption should start planning now. Owners who would like to pass on the business but also need to use it as a form of retirement income have several options:

• Owners can upgrade company retirement plans, enabling themselves to put more money away for retirement.
• Owners can purchase the building the company rents. They can lease it back to the company for a source of retirement income.
• Owners can establish a profit-sharing or defined benefit pension plan.
• Owners can continue working as a salaried employee, chairman, or consultant. Owners who didn’t pay themselves what they were worth may be able to recover “lost wages.”
• Owners can establish salary continuation plans. For IRS approval, such plans should be established long before retirement and pay reasonable amounts.
• Owners can sell shares to a defective trust for the benefit of their descendants. If structured properly, the owner won’t owe capital gains tax on sale proceeds, which can be used to fund retirement.

See Anne Tergesen, Family Businesses Catch a Big Break, W.S.J., Feb. 19, 2011.

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

Reverse mortgages analyzed

In Reverse Mortgages: Know the Traps, Consumer Reports, March 2011, at 14, the authors provide a concise and useful discussion of the pros and cons of the following types of reverse mortgages:

• fixed-rate reverse mortgages
• adjustable rate loans
• reverse home equity line

Top SSRN Downloads

Here are the top downloads from December 26, 2010 to February 24, 2011 from the SSRN Journal of Wills, Trusts, & Estates Law for all papers announced in the last 60 days.

Rank	Downloads	Paper Title
1	561	The Fundamentals of Wealth Transfer Tax Planning: 2011 and Beyond John A. Miller, Jeffrey A. Maine, University of Idaho College of Law, University of Maine School of Law, Date posted to database: January 27, 2011 Last Revised: January 27, 2011
2	322	The Politics and Policy of the Estate Tax - Past, Present, and Future Michael J. Graetz, Michael J. Graetz, Columbia Law School, Yale Law School, Date posted to database: February 6, 2011 Last Revised: February 7, 2011
3	290	Lady Bird Deeds: A Primer for the Texas Practitioner Gerry W. Beyer, Kerri M. Griffin, Texas Tech University School of Law, Estate Planning and Community Property Law Journal, Date posted to database: January 9, 2011 Last Revised: January 9, 2011
4	167	The Debt-Equity Distinction Robert Flannigan, University of Saskatchewan, Date posted to database: January 21, 2011 Last Revised: February 9, 2011
5	139	Educational Tax Benefits: More Please Bridget J. Crawford, Shamik Trivedi, Kimberly Bliss, Pace University School of Law, Tax Analysts, Pace University School of Law, Date posted to database: January 12, 2011 Last Revised: January 12, 2011
6	98	Lawyers and Slaves: A Remarkable Case of Representation from the Antebellum South Jason Gillmer, Gonzaga University - School of Law, Date posted to database: February 4, 2011 Last Revised: February 4, 2011
7	77	The Prudent Investor Rule and Trust Asset Allocation: An Empirical Analysis Max M. Schanzenbach, Robert H. Sitkoff, Northwestern University - School of Law, Harvard Law School, Date posted to database: January 29, 2011 Last Revised: January 29, 2011
8	61	The Geography of Love: Same-Sex Marriage & Relationship Recognition in America (The Story in Maps) Peter Nicolas, Mike Strong, University of Washington School of Law, Unaffiliated Authors - affiliation not provided to SSRN, Date posted to database: February 9, 2011 Last Revised: February 11, 2011
9	38	What Leona Helmsley Can Teach Us About the Charitable Deduction Ray D. Madoff, Boston College - Law School, Date posted to database: January 19, 2011 Last Revised: January 19, 2011
10	33	Maryland's Affordable Housing Land Trust Act James J. Kelly, James J. Kelly, Washington & Lee University School of Law, University of Baltimore - School of Law, Date posted to database: December 19, 2010 Last Revised: December 19, 2010

South Carolina seeks Wills & Trusts Visitor

The University of South Carolina School of Law is seeking a Wills, Trusts, and Estates visitor for Fall 2011.

Interested individuals should contact Associate Dean Rob Wilcox.

Michael Jackson's Children Think Dr. Murray is Innocent

I previously blogged about Dr. Murray’s upcoming wrongful death trial for his involvement with Michael Jackson’s death here and here. MJ’s children don’t think that Dr. Murray had anything to do with their father’s death because MJ constantly bragged to the children about Dr. Murray being the “best doctor in the whole world.”

MJ’s former nanny, Grace Rwaramba, said that Dr. Murray came by the house at least twice a week and that MJ had some sort of mysterious leverage over him.

See MJ’s Kids – Murray Couldn’t Have Killed Our Dad, TMZ.com, Feb. 20, 2011.

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

How Advisors Can Help Clients with Signs of Dementia

One of the early signs of dementia is the inability to understand simple financial concepts, such as how bank statements or bill payments work. Within a year, patients lose more basic skills, such as paying with cash and counting coins.

Financial planners, who sometimes work closely with clients for many years, may be the first to notice worrisome developments. As soon as these signs show up, families need to start planning for the incapacity of the clients and make sure the proper documents are in place. If families wait too long, the client may not be able to be involved in the decision-making, and families will have to resolve things in court.

See Temma Ehrenfeld, How Can Advisors Help Patients Diagnosed with Dementia?, Financial Planning, Feb. 18, 2011.

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

The Worst States to Die In

With the new $5 million federal estate tax exemption, few people need to worry about federal estate taxes. However, many states have their own estate or inheritance taxes that kick in at a much lower level. Bill Bischoff wrote an article for SmartMoney on February 16, 2011 entitled Estate Taxes: The Worst Places to Die. The article lists the different exemption levels and rates for state estate and inheritance taxes:

State Estate Taxes:

• Three states have exemptions of less than $1 million (Ohio at $338,333; New Jersey at $675,000; and Rhode Island at $850,000).
• Six states have $1 million exemptions (Maine, Maryland, Massachusetts, Minnesota, New York, and Oregon), and so does D.C.
• Three states have $2 million exemptions (Illinois, Vermont, and Washington)
• Two states have $3.5 million exemptions (Connecticut and Delaware).
• Two states have $5 million exemptions (Hawaii and North Carolina).

State Inheritance Taxes:

• Six states impose only inheritance taxes, which are assessed on the value of specific inherited assets in excess of the applicable exemption (estate tax is assessed on the entire value of an estate in excess of the applicable exemption).
• The inheritance tax exemptions are zero or negligible--except in Tennessee which has a $1 million exemption.
• The tax rates are 9.5% in Tennessee, 15% in Iowa and Pennsylvania, 16% in Kentucky, 18% in Nebraska, and 20% in Indiana.

The Bottom Line

The worst place to die is New Jersey with a combined effective estate and inheritance tax rate of 54.1%. Congrats to the Garden State! In second place is Maryland at 50.9%. Good try! In fact, none of the states mentioned here are good places to die, but some are significantly worse than others.

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

Provisions for Ex-Spouse in Contractual Will Revoked by Statute

In In re Estate of Pence, 327 S.W.3d 570 (Mo. App. 2010), husband and wife executed a joint contractual will that divided the estate between their daughters by previous marriages on the death of the second to die. After thirty years of marriage, the couple divorced and ex-husband died a year later.

The ex-wife sought to probate the will, her former step-daughter objected, and the court granted letters to the daughter, holding that the Missouri revocation on divorce statute applied and the ex-wife must be treated as having predeceased her ex-husband. The intermediate appellate court affirmed, holding that the contract not to revoke could not prevail over statutory revocation in the absence of a provision in the contract dealing with divorce.

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.

Michael Jackson's Estate Earns Over $310 Million Since His Death

When Michael Jackson died on June 25, 2009, he had over $400 million in debt. The estate has since recovered much of that debt and negotiated deals for video games, albums, and movies. In less than two years, Jackson’s estate has earned over $310 million.

See Michael Jackson’s Estate Earns $310 Million Since His Death, CBSNews, Feb. 18, 2011.

Top 50 Charitable Donors Gave Less in 2010

Despite the hype surrounding the Giving Pledge last year, the top 50 private donors in the U.S. gave less in 2010 than they did in the previous nine years. In 2006 the 50 biggest private donors gave out $50.7 billion compared to $3.3 billion in 2010. Broader gauges reflect the same drought. In 2009, 400 charities saw an 11% drop in donations.

While the 2008 financial crisis may explain the overall drop in charitable giving, it doesn’t explain the drop in the “Philanthropy 50.” A blip in the economy doesn’t affect billionaires the way it affects other donors. So why did the top 50 donors decrease their donations as well? Maybe the tax uncertainty clouded some people’s donation plans, or maybe there was a lag in how the financial crisis affected the books of charities. Charitable foundations are required to give away 5% of funds each year based on the previous 12-16 quarters, which could cause a delayed reaction. Further, Gates’ and Buffet’s Giving Pledge may also have put a brake on some high-wealth donations.

See Big-Ticket Philanthropy Under Pressure, Private Wealth, Feb. 17, 2011.

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

Obama Justice Department Drops Defense of Anti-Same-Sex Marriage Law

I recently blogged that the Obama administration may be forced to take a stand on same-sex marriage due to two new lawsuits filed in New York and Connecticut. The Obama Justice Department has defended the Defense of Marriage Act in the past, but it announced on Wednesday that it will no longer do so. Attorney General Eric Holder agrees with the President, declaring the provision to be unconstitutional. Members of Congress may defend the statute, but the Justice Department “will cease defense.”

Obama Administration Drops Defense of Anti-Gay Marriage Law, FoxNews.com, Feb. 23, 2011.

Special thanks to Robert I. Aufseeser (Attorney at Law, Bedminster, NJ) for bringing this to my attention.

Future of Private Placement Life Insurance

Rafael Rodriguez (2011 J.D. Candidate, Texas Tech University School of Law) recently published his comment entitled Cashing in the Policy: Will Looming Financial Regulation End the Use of Private Placement Life Insurance in Estate Planning?, 3 Est. Plan. & Community Prop. L.J. 151 (2010). The introduction is below:

The economic decline had many direct and clear consequences. However, what is not clear are the secondary and indirect effects some individuals will face as a consequence of the recent recession. One of the major and clear effects of the financial decline was the push towards reforming financial regulation. The reformation of the regulatory structure and procedure, undoubtedly, will alter the face of the financial system. It is unknown how these new financial regulations will affect individual investors as well as estate planners and their clients. This comment will specifically focus on the increase in regulatory requirements for private pools of capital or hedge funds and its effect on estate planners.

Hedge funds in modern financial markets are playing a significant role in the financial system. Significant growths in number, size, and capital under management have propelled private funds into becoming an integral part of the financial industry and overall economy. Historically, hedge funds-although required to submit to anti-fraud requirements-are a largely unregulated sector of the financial industry. The lack of oversight and the heavily publicized collapses of large private funds have resulted in a growing sentiment favoring an increase in the regulation of these funds. Broad regulation proposals for hedge funds-largely focused on registration and transparency-may have significant effects on individual investors, including individuals using these investment vehicles for estate planning purposes.

Estate planners use hedge funds or private funds as investment vehicles because of their history of earning significant returns. Wealthier estates can use interests in private funds in a number of different ways when planning for the transfer of their estate at death. When combined with insurance policies, trusts, and other estate planning instruments, individuals can minimize what would otherwise be significant income, gift, and estate taxes, while earning high returns on a large amount of capital. These strategies, however, are exclusively limited to higher net worth individuals, who largely use these strategies for tax avoidance purposes. Tax rules eroded these strategies, leaving the use of hedge funds in estate planning solely for estate planning objectives.

This comment will evaluate the possible effect that increased regulation on private funds and hedge funds will have on estate planning strategies for wealthier individuals, as well as the compatibility of increased regulatory standards and stringent tax requirements. The second section of this comment will outline a general estate planning strategy that uses a combination of life insurance and private funds interests as a medium to transfer wealth to future generations. This section will also include a description of the strict tax guidelines in these strategies. Part III will begin with a description of recently passed regulations and how these regulations will affect the private funds industry. The second portion of Part III will survey the regulatory proposals. The final section of this comment will evaluate the effect that increased regulations will have on estate planning strategies. Ultimately, this comment will conclude that, although there will be an elimination of the exemptions regularly used by private funds, an unclosed exemption will increase the number of private funds that cater to estate planners.

UB School of Law and Hopkins Announce Collaboration

The University of Baltimore School of Law and the Johns Hopkins University School of Medicine are joining to launch the nation’s first academic center for law and medicine focused on the health care provider. The center, which will open in July, will promote understanding between the two professions. It will help doctors to better understand legal issues that affect their daily practice while helping lawyers understand the real-world issues involved in the medical profession.

See Hopkins, UB School of Law Announce Collaboration, University of Baltimore School of Law Press Release, Feb. 15, 2011.

Ultimate Beneficiaries Can Enforce Contractual Will Omitting Restrictions on Survivor's Use of Property

In Ernest v. Chumley, 936 N.E.2d 602 (Ill. Ct. App. 2010), husband and wife executed mutual wills giving the entire estate to the survivor of them and on the death of the survivor, one-half to his children and one-half to hers. The wills were also declared to be irrevocable on the death of the first to die. After husband’s death, wife remarried, executed a new will giving her estate to her new husband if he survived and if not to her children and his children in equal shares, sold the home she and her late husband had held in joint tenancy with right of survivorship and ultimately placed the proceeds in three separate certificates of deposit held in joint tenancy with her husband. The late husband’s children sued asking for a constructive trust to be imposed on the property.

The trial court entered judgment for the wife and on appeal by the children, the intermediate Illinois appellate court held that because the will placed no restrictions on the surviving spouse’s use of the property received from the deceased spouse, the children have no interest in the spouse’s property until her death. However, the creation of the jointly held certificates of deposit breaches the contract by removing those assets from the wife’s estate by operation of law. The court remanded with directions that the trial court order wife to end her current husband’s interest in the certificates of deposit and to refrain from taking any action inconsistent with the children’s interest under the contractual will except expenditures made for her own support.

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.

Anna Nicole Smith's Estate May Sue Opera

I previously blogged about the Anna Nicole Smith opera. Larry Birkhead says Smith’s estate is now threatening legal action regarding the opera. The producers never contacted Larry or Smith’s estate, nor did they offer an advance screening. The opera features a very large woman with big boobs and is like “a sleazy tabloid.”

See ‘Anna Nicole’ Opera – The Fat Lady May Sue, TMZ, Feb. 17, 2011.

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

Struggle to Save Newcomb College Over; LA Supreme Court Refuses to Hear Case

I previously blogged about Susan Henderson Montgomery asking the Louisiana Supreme Court to hear an appeal in the case of Montgomery v. Tulane. On Friday, four justices of the Louisiana Supreme Court voted not to hear the case, putting an end to the struggle. 

Supporters of Newcomb College cannot reapply for a hearing before the Louisiana Supreme Court, so the only option would be to request a hearing at the U.S. Supreme Court. However, neither side sees a federal issue, so it seems that the battle is finally over.

See John Pope, Newcomb College to Remain Closed After State Supreme Court Refused to Hear Appeal, The Times-Picayune, Feb. 21, 2011; Louisiana Supreme Court Denies Application, Feb. 21, 2011.

Special thanks to Sue Bentch (Professor, retired, St. Mary's University School of Law) and Ronald J. Scalise, Jr. (A.D. Freeman Associate Professor of Civil Law, Tulane University Law School) for bringing this update to my attention.