Wills, Trusts & Estates Prof Blog

Article on Capital Gains

Robert L. Moshman (attorney, New York & New Jersey) recently published his article entitled Capital Gains Paradox, The Estate Analyst (Mar. 2011). An excerpt from the begining of the article is below:

Have capital gains become a threatened and endangered species?

Can the size of future estates be projected accurately? If an estate’s assets appreciate in value, which capital gains tax breaks apply? Which of those tax breaks will still be available five years from now? What does it all mean?

The paradox of establishing financial plans that can exploit future gains and current tax rules is that there may be no gains, and the tax breaks that apply now may be gone by the time they are needed.

 

Woman Leaves $1 Million to Pets, Judge Rejects Will

The following video is Jerry Carnes’ report on the case of Kay Johnston’s estate. Johnston went to attorney Robert Johnson to draft her will. She left $1 million to her fifty cats and six dogs and $50,000 to Kyria Wilhite who was to move into the house and 7 acres to care for the pets. Johnston only knew Wilhite for two weeks prior to drafting this will.

Johnston’s cousin disputed the will. A probate judge rejected the will, finding that Johnston was physically and mentally weakened at the time the will was executed due to cancer, and that attorney Johnson failed to disclose that Wilhite was actually his girlfriend.

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

States Investigate Life Insurers' Failure to Pay Out

Three years ago, Verus Financial LLC pitched an idea to cash-strapped states regarding identifying unclaimed life insurance policies that the states could seize as abandoned property.  Eventually, 35 states signed up, agreeing to give Verus around 10% of what the state is able to seize.  Verus is currently investigating two dozen insurance companies. 

Insurance companies sometimes fail to ensure that they pay out on policies, which enables them to hold on to this money for a few years until the accounts go "dormant."  Once they are dormant, the insurance company must notify the state.  The state attempts to get in touch with the policyholders, but is able to seize the funds and use them until the rightful owner claims the property, if ever.  This battle could shift millions to state coffers and consumers.   

See Leslie Scism and Vauhini Vara, Life Insurers Skimp on Payouts:  States, W.S.J., Apr. 28, 2011. 

Special thanks to Gus Fuldner (MacAccess Systems LLC) for bringing this to my attention. 

Alzheimer's Association Released Study Regarding Alzheimer's and the Baby Boomer Generation

This year, the first of the Baby Boomer Generation turns 65. More than 10,000 baby boomers will turn 65 each day starting this year, and approximately 10 million will develop Alzheimer's.  To bring urgently-needed attention to the risk facing the Boomers, the Alzheimer's Association recently released a groundbreaking study entitled Generation Alzheimer's: The Defining Disease of the Baby Boomers.

 

The Story of an Elderly Widow

Stewart O’Nan recently published his book entitled Emily, Alone (Penguin Group USA 2011). The publisher’s description is below:

A sequel to the bestselling, much-beloved Wish You Were Here, Stewart O’Nan’s intimate new novel follows Emily Maxwell, a widow whose grown children have long moved away. She dreams of vists by her grandchildren while mourning the turnover of her quiet Pittsburgh neighborhood, but when her sole companion and sister-in-law Arlene faints at their favorite breakfast buffet, Emily’s days change. As she grapples with her new independence, she discovers a hidden strength and realizes that life always offers new possibilities. Like most older women, Emily is a familiar yet invisible figure, one rarely portrayed so honestly. Her mingled feelings-of pride and regret, joy and sorrow- are gracefully rendered in wholly unexpected ways. Once again making the ordinary and overlooked not merely visible but vital to understanding our own lives, Emily, Alone confirms O’Nan as an American master.

For a review of the book and how it can be helpful to caregivers, see Paula Span, The Caregiver’s Bookshelf: How She Carries On, N.Y. Times, Apr. 16, 2011.

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

Tips For Spending a Windfall Responsibly

When an individual receives a large financial gift, his or her choice on how to spend the money largely depends on his or her personal and financial circumstances. It is important, however, that the recipient is able to articulate the reasons for his or her financial decisions. Though spending a windfall on frivolous things is understandable and expected, financial advisers suggest a few guidelines to help recipients handle gifts in a prudent and responsible manner:

• Make a financial plan before spending any money.
• Pay off credit cards and other debt with high interest rates.
• Increase contributions to tax favored pension plans.
• Max out on retirement plans.
• Buy more health, life, and liability insurance.
• Put money away for long term plans (such as a child’s education).
• Last but not least, have some fun with the gift.

See Conrad de Aenlle, When a Windfall of Money Arrives, So Can Challenges, N.Y. Times, Nov. 23, 2010.

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

Not All Americans Can Be a Betty White

Older celebrities like Betty White (89) and Joan Rivers (77) may have the stamina to continue working well past retirement age, but for many Americans, working past the age of 65 is unlikely. A recent survey found that 74% of Americans expect to continue working after retirement (increased from 56% in 1998). Additionally, the survey found that 36% of Americans do not expect to retire until after age 65 (increased from 11% in 1991).

However, the same survey found that 45% of current retirees left work earlier than they expected. Reasons for these early retirements included the retiree’s health or disability, downsizing or other company changes, and caring for a family member.

For Social Security benefits purposes, 62 is currently the early retirement age, and 66 is the “full” or “normal” retirement age for Americans born between 1943 and 1954. The full retirement age increases two months per birth year and eventually hits 67 for Americans born in 1960 or later. During the recession, 42% of Americans claimed early Social Security retirement benefits and will experience a reduction in their full benefits amount as a result.

Some economists advocate for the raise of both the full and early retirement ages, though these economists believe allowances for individuals unable to work past 62 should exist. These economists concede that, realistically, the average American cannot work in a regular job past the age of 67.

The notion that Americans can quit work at 55 or 60 to lounge on the beach has already been exposed as the unaffordable fantasy it always was. But it’s delusional, too, to believe we all have the stamina and skills to hang in there as long as Betty White—or even until 67.

Janet Novack, Betty White, Joan Rivers, Social Security And Senior Slackers, Forbes, Apr. 6, 2011.

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

Article on Cy Pres Redux

Alberto B. Lopez (Professor of Law, Salmon P. Chase College of Law, Northern Kentucky University) recently published his article entitled A Revaluation of Cy Pres Redux, 78 U. Cin. L. Rev. 1307 (2010). An excerpt from the introduction is below:

Although cy pres doctrine has remained relatively staid over time, the doctrine received a legislative makeover during the latter twentieth century that has continued into the twenty-first century. The most recent revision to the doctrine of cy pres is contained in the Uniform Trust Code (UTC). The UTC transforms one of the traditional elements of cy pres--finding general charitable intent--into a presumption that can be rebutted by the party opposing the application of the doctrine. Furthermore, the UTC abandons the traditional “as near as possible” standard for redistributing cy pres assets and provides an additional ground to justify the exercise of cy pres. These changes not only represent the most recent reconfiguration of the doctrine, but also the most important modifications of cy pres since the early twentieth century. As evidence of its importance, the UTC has been adopted in twenty-one jurisdictions and bills proposing its adoption are making the legislative rounds in several states. If the trend continues, the UTC's version of cy pres will soon become a majority rule.

A wave of commentary has been aimed at portions of the UTC involving subjects such as special and supplemental needs trusts and the information available to beneficiaries, but the UTC's cy pres has barely elicited a whisper from commentators. The paucity of cy pres analysis under the UTC stands in stark contrast to the criticism directed at the versions of cy pres contained in the Restatement (First and Second) of Trusts. Scholars have long argued for an expansion of cy pres to prevent spending charitable dollars on antiquated charitable objectives simply out of respect for the dead hand. If silence can be equated with approval, the scholarly community welcomes the liberalization of cy pres represented by the changes to the power under the UTC.

This Article fills that scholarly void by subjecting the modifications to cy pres doctrine introduced by the UTC to a critical evaluation and offers a view of the UTC's cy pres that is contrary to its perceived acceptance. Part II traces the evolution of cy pres in England and the United States through the promulgation of the UTC to highlight the substantial differences between the UTC's cy pres and its traditional ancestor. Part III of this Article demonstrates that the departure from history cleaved by UTC Section 413 tilts the theoretical balance of interests associated with cy pres too far toward the public interest and fails to fulfill its underlying goal of promoting efficient use of scare resources. To counter the theoretical and efficiency concerns associated with the UTC's cy pres, Part IV proposes replacing the UTC's presumption of general charitable intent with a presumption of specific charitable intent. Although presuming specific charitable intent is likely to result in an increase in cy pres denials, Part V argues that presuming specific charitable intent benefits charity generally by increasing the number of charities that will receive assets via cy pres without any loss in efficiency. The Article concludes that a presumption of specific charitable intent not only serves as a counterweight to the increasing paternalism of charity law, but also ultimately benefits the public by reducing ambiguity in the law, thereby saving litigation costs.

Emergency Rooms Tailored to Senior Patients

Many hospitals are now opening emergency rooms tailored exclusively to senior patients. Many seniors have a difficult time explaining their symptoms, and traditional ERs are not always equipped to spend the time and resources to discover a senior’s true ailment.

There are roughly twelve self-designated senior ERs in the U.S., but many estimate that number will grow as the number of seniors continues to rise. One estimate shows that one in every five Americans will be sixty-five or older by the year 2030.

Aside from tailoring care-giving techniques to senior patients, senior ERs also create a nurturing environment through the use of senior friendly amenities:

Mattresses are thicker, and patients who don't need to lay flat can opt for cushy reclining chairs instead....Nonskid floors guard against falls. Forms are printed in larger type, to help patients read their care instructions when it's time to go home. Pharmacists automatically check if patients' routine medications could cause dangerous interactions. A geriatric social worker is on hand to arrange for Meals on Wheels or other resources.

Some Hospitals Open ERs Just For Graying Patients, Associated Press, Mar. 14, 2011.

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

CLE on Mastering the Basics of Estate Planning

The ABA Section of Real Property, Trust and Estate Law is sponsoring an annual program entitled Skills Training for Estate Planners at the New York Law School July 11-15, 2011. Covered topics include:

Basic Fundamentals and Substantive Skills Development

• Marital deduction basics
• Charitable deduction planning
• Analyzing inter vivos gifting
• Life insurance planning
• Deferred compensation and employee benefits
• Practical tips on planning with the generation-skipping transfer tax
• Preparing flexible trusts with an eye to the future

Technical Skills Development

• Tax compliance: hands-on manual preparation
• Fiduciary administration, accounting and the tax aspects of postmortem and other fiduciary administration
• Valuation in practice, including how to select valuation experts
• Software programs and web sites that assist in the analysis of estate assets and facilitate construction of planning models

Developing Ethical Attitudes

• Ethics instruction in practical settings, particularly including representations of spouses and fiduciaries.

To download the registration form, click here.

California School Helps Special Needs Students

Sierra Works, a workability program in Sacramento’s Sierra School, helps special needs students develop skills needed after graduation. Each student earns minimum wage and must submit an application to become a part of the program. Along with teaching students to become self-sufficient, the program also helps build a student’s self-confidence and self-esteem.

One student of the program, junior Nick Perez, says, "We probably wouldn't be here, possibly even in school without those teachers. For me, I know I'd be probably seriously injured or I'd be in jail right now if it wasn't for this school. I'm just trying to be a great person in society."

Maneeza Iqbal, School Teaches Life Skills to Special Needs Students, News 10, Mar. 30, 2011.

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

Article on Awarding Attorney's Fees in Contested Guardianship Proceedings

Mark R. Caldwell (Attorney at Law, Phoenix, AZ) recently published his article entitled A Good Deed Repaid: Awarding Attorney’s Fees in Contested Guardianship Proceedings, 51 S. Tex. L. Rev. 439 (2009). The introduction is below:

Guardianships are often required to protect and care for incapacitated persons who have not executed advanced estate planning documents, such as medical or durable powers of attorney. As the aging population in Texas continues to grow, experts predict that the number of guardianships will increase dramatically. A guardianship is essentially a legal proceeding designed to supervise and protect individuals who are unable to care for themselves or manage their financial affairs. When contested, these proceedings can be expensive. An “interested person” may contest the creation of a guardianship or the appointment of a particular applicant as guardian. Typically, family and friends bear the initial costs of establishing or contesting a guardianship.

Texas Probate Code section 665B (§ 665B) provides that when a court creates a guardianship or management trust, the court may award attorney's fees out of the ward's estate to the attorney who represented the applicant at the application hearing if the applicant “acted in good faith and for just cause” in filing and prosecuting the application. This article explores § 665B and case law interpreting various issues affecting the section's requirements. As is the case with many Texas Probate Code sections, the case law interpreting § 665B is sparse. Analogies are therefore made to similar estate administration code sections in order to examine and uncover similar definitions and policy considerations surrounding awarding attorney's fees based on the aforementioned “good faith and for just cause” requirement. Allowing applicants who act in “good faith and for just cause” to recover attorney's fees from the proposed ward's estate encourages capable applicants to seek and establish guardianships and also protects the proposed ward's estate from unwarranted depletion.

Part II of this article discusses the legislative history of § 665B. Part III examines whether the typical methods of recovering attorney's fees in guardianship proceedings are applicable to contested guardianship proceedings. Part IV focuses on Texas cases dealing with attempts to recover attorney's fees under a “good faith and for just cause” standard after the original proceeding. Part V explores how various sources have defined “good faith and for just cause” and discusses the standard in the context of a guardianship proceeding. Part VI analyzes the relationship of standing and disqualification to the “good faith and for just cause” analysis. Finally, Part VII addresses potential litigation strategies to prove, oppose, and settle attorney fee issues.

100 Nursing Homes Sue New York

The Reimbursement Reform Act of 2006 requires New York's Department of Health to base Medicaid reimbursement rates on recent and relevant nursing home costs. Rebasing is the process by which a state updates its calculation of nursing home costs to reflect actual current costs.

In 2007 and 2008, New York began its rebasing processing using transitional rates, but in December 2008 the state reverted to rates from 1983. The state then, with federal approval, delayed the implementation of the new rates until April 2009.

Though these rates were to take effect in 2009, the state still has not updated reimbursement rates for Medicaid residents. As a result, approximately 100 nursing homes have joined a law suit asking for the immediate implementation of the 2006 Act.

See Patti Singer, 100 Nursing Homes Sue State Over Medicaid Reimbursement, Democrat and Chronicle, Mar. 25, 2011.

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

Budget Proposal Cuts Reverse Mortgage Counseling

Reverse mortgages allow individuals 62 and over to receive money from a bank in return for their home upon their death. Counseling for reverse mortgages is mandatory due to their complexity and the possibility that these individuals may destroy their nest eggs if something goes awry with the loan. The Department of Housing and Urban Development allocates $9 million of its yearly budget to provide reverse mortgage counseling programs that assist borrowers in understanding the costs, risks, and benefits of such loans. Advocates for the elderly, however, have been lobbying hard for broader and better reverse mortgage counseling.

These advocates will be disappointed if the latest federal budget proposal for the current fiscal year is approved in Congress. This proposal cuts $88 million from HUD’s budget for loan counseling, which includes the money reserved for reverse mortgage counseling. Borrowers will have to pay for the counseling themselves, so those who can’t afford the counseling should seek it before the new fiscal year begins on October 1, 2011.

See Ann Carrns, Budget Deal Cuts Reverse Mortgage Counseling, N.Y. Times, Apr. 26, 2011.

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

Federal Judge Continues to Hear Cases at 103

At 103 years old, U.S. District Judge Wesley Brown is the oldest working federal judge in the nation. Of President Kennedy’s appointees, he is only one of four still on the bench. Though Judge Brown has “senior status” which allows him to have a reduced case load, he continues to hear cases from 8:30 a.m. to 3:00 p.m. every day. Four years ago he moved into assisted living, but Judge Brown does not plan to leave his post unless it is “feet first.”

In a profession where advanced age isn't unusual -- and, indeed, is valued as a source of judicial wisdom -- Brown has left legal colleagues awestruck by his stamina and devotion to work. His service also epitomizes how the federal court system keeps working even as litigation steadily increases, new judgeships remain rare, and judicial openings go unfilled for months or years.

Roxana Hegeman, Federal Judge, 103, Still Hearing Cases in Kansas, Associated Press, Apr. 10, 2011.

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

Seniors Live Longer by Shopping Daily

A recent study from Taiwan reports that elderly people who shop frequently will likely live longer than their non-shopping counterparts. The nine year study included 1,850 elderly people over the age of sixty-four.

The results showed that the elderly people who shopped every day had a 27% lower risk of death than those who shopped the least frequently. When the researchers divided the frequent shoppers by sex, women had a 23% lower risk of death, and men had a 28% lower risk.

See Catharine Paddock, Seniors Who Shop Frequently Live Longer, Medical News Today, Apr. 11, 2011.

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

Social Security Administration Bans "Do-Over" Strategy

Some financial advisers used to suggest that retirees could boost their monthly Social Security checks by repaying all the benefits they had already received and then reapplying for the higher benefits given to those who waited to claim their benefits until they were older. In December 2010, the Social Security Administration banned this “do-over” strategy with the publication of new rules.

Recipients now have twelve months to withdraw their initial decision to receive Social Security checks. A recipient may only withdraw their decision once, and they may not receive delayed retirement credits for the months in which benefits were actually received. Benefit repayments continue to be interest-free.

The Social Security Administration allows beneficiaries who may need to withdraw an application for benefits due to unforeseen changes in circumstances to still do so. These new rules have no effect on disability or survivor benefits.

See Jane Novack, Social Security Administration Kills “Do-Over” To Boost Benefits, Forbes, Dec. 8, 2010.

Avoiding Taxes on Insurance Benefits

Life insurance proceeds are generally received by beneficiaries free of any income taxes, but avoiding the federal estate tax requires some planning. If someone possesses “incidents of ownership” in a life insurance policy (e.g., you retain the power to cancel the policy, change coverage amounts, or change beneficiaries), the proceeds will be included in his or her taxable estate. One solution is to set up an irrevocable life insurance trust to own the policy. The trust pays the premiums, and the trust’s beneficiaries receive the death benefits. Such a strategy is very complex, however, so be sure to hire an experienced estate planner to get it done right.

Long-term disability insurance is another type of insurance that you want to plan for properly. Such policies usually limit benefits to 60-70% of earnings before income taxes. If you don’t plan properly and are required to pay income taxes on the benefits, this will cut your benefit amount down to 36-49% of pre-tax earnings. Benefits are typically taxable if your employer pays the premiums rather than yourself, or if you pay the premiums with pre-tax dollars. To avoid such a tax hit, pay the premiums yourself with after-tax dollars or purchase a supplemental long-term disability policy to cover the income taxes on the company-provided insurance benefits.

See Bill Bischoff, How to Avoid Taxes on Life Insurance, Smart Money, Apr. 20, 2011.

Strategy to Reduce Tax Costs of Roth Conversions

Gregg D. Polsky (Willie Person Mangum Professor of Law, UNC School of Law) recently published his paper entitled High Volatility, Negative Correlation, Roth IRA Conversions, and the Codified Economic Substance Doctrine, UNC Legal Studies Research Paper No. 1717019, Nov. 30, 2011. The abstract available on SSRN is below:

This paper describes and analyzes an investment strategy that, when combined with simple Roth IRA conversion planning, can substantially reduce the tax costs of Roth conversions. The strategy leverages, through the combination of volatily and negative correlation, the put option feature inherent in Roth IRA recharacterizations. The only significant risk to taxpayers who execute the strategy is that the IRS might assert that the recently codified economic substance doctrine (and its strict liability penalty) applies to disallow the tax benefit. However, the doctrine appears not to be relevant in this context, where Congress has given taxpayers an explicit election to recharacterize Roth IRA conversions. Even if the doctrine were to apply, it would not likely increase current year tax liability.

Wilmington Urges That Clients Will Not Witness Disturbances During Transfer to the M&T Name

As I previously blogged, Delaware’s Wilmington Trust Company sold itself to New York’s M&T Bank last year. Wilmington’s shareholders were enraged at the time of the sale, and many smaller investors and pension funds have sued Wilmington alleging the company concealed the truth about the impact of its deteriorating commercial loan portfolio.

In an effort to appease its existing high-net-worth clients, M&T will not retire the Wilmington brand in either its private trust or corporate branches. When the deal closes, however, Wilmington’s retail branches will switch to the M&T name. Wilmington maintains that its clients will not witness disturbances in their business relationships either during or after the transition.

See Scott Martin, Wilmington’s Wealthy Clients Rattled as Loan Loss Scandal Unfolds, Forbes, Dec. 8, 2010.