Wills, Trusts & Estates Prof Blog

Long-Term Leases

Myrick v. Moody Nat’l Bank, 336 S.W.3d 795 (Tex. App.—Houston [1^st Dist.] 2011, no pet. h.).

Trustee entered into a lease extending beyond the termination of the trust.  Beneficiary sued asserting that doing so was a breach of duty.  The trial court found in favor of Trustee and Beneficiary appealed.

The appellate court affirmed.  Section 113.011(b) of the Trust Code grants the trustee the authority to “execute a lease containing terms or options that extend beyond the duration of the trust” unless the trust instrument provides otherwise.  See § 113.001.  The court examined the trust instrument and found no provision which would limit Trustee’s ability to enter into a long-term lease.  The court rejected Beneficiary’s argument that the requirement that Trustee distribute property to Beneficiary when the trust terminates operates to prohibit long-term leases.  See § 112.052.

Moral:  A settlor who wishes to prohibit long-term leases must expressly so provide in the trust instrument.

Tax Law Updates

David A. Handler (attorney, Chicago, IL) and Alison E. Lothes (attorney, Boston, MA) recently published the Tax Law Update, Trusts & Estates (2011). The updates they discuss include:

• Chief Counsel Advice 201047021 (Nov. 26, 2010). The IRS explained that an estate’s beneficiaries are not entitled to the estate’s loss carryovers.
• United States v. Kulhanek et al., 2010-2 USTC (Dec. 8, 2010). The U.S. District Court of the Western District of Pennsylvania held IRS action to recover estate taxes was timely.
• The IRS and the Office of Tax Policy released the Priority Guidance Plan for 2010-2011 (the Plan).

Explaining the Law of Unintended Consequences

Wealth Strategies Journal recently published an article that uses case files to help explain the law of unintended consequences and how it pertains to drafting trusts and annuities. The law of unintended consequences is an adage that typically warns “that human conduct will produce at least one unintended consequence over a course of time and during a series of activities or transactions.” The first case mentioned in the article is below:

QUERY. When you "strap" your client behind the wheel of the next annuity contract, will you do so with the assurance of delivering a safe and rewarding driving experience?

CASE #1: Exit Ramps

 
An elderly retiree withdraws $600,000 from his revocable trust to fund the purchase of a deferred annuity. So far so good; they both avoid probate.

The advisor matches the beneficiary appointments on the annuity with those listed in the trust; three sons - all with children of their own. What could go wrong?

One son (with two children) predeceases his father (annuity owner and annuitant) who subsequently dies.

Result. The two children were pleased to receive their father's share of his inheritance through the per stirpes distribution provisions of their grandfather's trust. Unfortunately, these same siblings came up $200,000 short of their total potential inheritance.

The reason. The default contingency provision of the annuity contract beneficiary form provided that in the event of a beneficiary's death, the surviving beneficiaries shall share equally in the death benefit. The shift from a "per stirpes" to "per capita" distribution format resulted in the disinheritance. Unintended? Presumably so. Unforeseeable? Presumably not.

QUERY. Should this occurrence give rise to a potential finding of fault attributable to some member(s) of the advisory community? If so, who are the possible suspects and under what circumstances might liability arise?

[Side Bar] Recall that every annuity transaction creates a "shift" of client assets. No assumption is made that the shift will prove beneficial or detrimental. However, advisors are encouraged to envision the road ahead and assess possible outcomes.

David F. Sterling (Wealth Strategies Journal), Annuities and the Law of Unintended Consequences: The Trusts and Estates Conundrum, Wealth Strategies Journal, Aug. 29, 2011.

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

Florida Funeral Home Installs “Liquefaction” Unit

Anderson-McQueen funeral home in St. Petersburg, Florida is now equipped with the first commercial “alkaline hydrolysis” unit. The unit dissolves a person’s body in a heated solution of potassium hydroxide pressurized to 10 atmospheres. Makers of the unit claim it is a green alternative to cremation because it uses a seventh of the energy and produces a third less greenhouse gas.

The funeral home could only install the unit after the Florida state legislature approved its use. Florida is now one of seven U.S. states that have legalized the use of alkaline hydrolysis as a means of corpse disposal.

See Neil Bowdler, New Body “Liquefaction” Unit Unveiled in Florida Funeral Home, BBC News, Aug. 30, 2011.

 

ABA Seeks Nominations for Blawg 100

Dear Reader,

The American Bar Association is working on its list of the 100 best legal blogs.

If you enjoy this blog, I would certainly appreciate your support by completing a very short "Friend-of-the-Blawg" form by following this link.

Thanks so much for your support,

Gerry

Tupac’s Group Admit to Smoking His Cremated Remains

When former rapper Tupac Shakur died in 1996, his body was cremated. Shakur’s former group, The Young Outlawz, recently affirmed rumors that they smoked Shakur’s cremated remains in marijuana cigarettes. The Young Outlawz claim they smoked the remains as per Shakur’s wishes stated in his song, Black Jesus.

See Peter C. Aitken, The Young Outlawz admit to smoking Tupac Shakur ashes mixed with marijuana in 1996, NY Daily News, Aug. 31, 2011.

Eighth Circuit Rules Posthumously Conceived Child Not Entitled to Social Security Survivor Benefits

Bruce Beeler was diagnosed with cancer and banked his sperm before undergoing chemotherapy treatments. Bruce died at age thirty-seven, before he and his wife, Patti, conceived any children. After her husband’s death, Patti used Bruce’s sperm to conceive her daughter Brynn (now eight) through in-vitro fertilization.

Patti filed for Social Security survivor benefits for Brynn shortly after Brynn’s birth, and the federal government denied the claim stating that Brynn did not qualify for benefits under Iowa law. Patti appealed the decision, and in 2009 a federal judge ruled that Brynn was eligible for over $150,000 in benefits. The Eighth Circuit Court of Appeals recently heard the case and overruled the federal judge’s ruling Monday, finding that the government had given a “reasonable” interpretation of Iowa’s law.

Interestingly, Brynn’s case caused Iowa to change its law regarding posthumously conceived children. The new law allows posthumously conceived children born two years after the deceased parent’s death to receive Social Security benefits and inheritance rights. Since the law is not retroactive, however, it does not apply to Brynn’s case.

See Iowa Girl Conceived After Father’s Death Not Entitled to Benefits, Appeals Court Rules, FoxNews, Aug. 30, 2011.

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.

One contract can govern multiple accounts

Kennemer v. Fort Worth Cmty. Credit Union, 335 S.W.3d 843 (Tex. App.—El Paso 2011, pet. filed).

Credit Union used a single contract to govern all of a customer’s accounts opened under the same membership number.  The contract provided that any joint accounts opened under the contract would have rights of survivorship.  After one party (husband) to a joint account died, Credit Union paid all funds in the account to the survivor (wife).  Approximately one year later, Independent Executor claimed that the account lacked the survivorship feature because the specific account lacked its own survivorship agreement.  Accordingly, the executor asserted that the estate was entitled to one-half of the account because the account contained community property.  The trial court granted summary judgment in favor of Credit Union and Independent Executor appealed.

The appellate court affirmed.  The court found that the language of the contract which both husband and wife signed governed all of the accounts they had in Credit Union whether they were open at the time they signed the agreement or thereafter.

Note:  The court reached an issue which was not necessary to decide, that is, whether the account had the survivorship feature.  Credit Union was entitled to pay any party to the joint account any part of or all of the funds in the account under Probate Code § 445.  The court failed to distinguish between ownership of the funds in the account and the ability to withdraw those funds.  Even if the account lack the survivorship feature, Credit Union had the authority to pay all funds in the account to the surviving joint party.

Moral:  A financial institution may rely on one account contract to govern multiple accounts.

IRS Issued Five Rulings Regarding Gift, Income, and Generation-Skipping Tax Consequences When Transferring Trust Assets

Brian Spring (Associate Editor, Wealth Strategies Journal) recently posted on the five rulings the IRS issued in PLR 201134017. The post is below, in full:

The IRS has issued five rulings regarding a proposed transfer of assets from a trust, which is exempt from the generation-skipping tax, to a substantially similar trust.

Regarding the proposed transfer of assets, the IRS ruled that:

1. the Receiving Trust would not lose its zero inclusion ration for generation-skipping tax purposes;
2. a beneficiary's power to remove and replace special trustees are not general powers of appointment under sections 2041 and 2514;
3. the transfer of assets to the Receiving Trust would not result in transfers of any beneficial interest that is subject to tax under section 2501;
4. neither the beneficiaries nor the trusts would recognize gain or loss under section 61 or section 1001; and
5. the holding period of the receiving trust in the assets transferred from Trust 1 will include the holding period of Trust 1 for each asset.

See Brian Spring (Associate Editor, Wealth Strategies Journal) PLR 201134017 on Income, Gift, and Generation-Skipping Tax Consequences of Trust Asset Transfers, Aug. 29, 2011.

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

Country Song on Family Probate Fueds

The Pistol Annies, a country music group, recently released a new album entitled Hell on Heels. The album contains a song called "Family Feud," which describes how a family probate feud can begin. The lyrics to the song are below: 

Fine china stacked by the kitchen sink 
Aunt Tammie's in there claiming all the diamond rings 
Uncle Bobbs holding up the TV set 
The only thing they are grieving over 
Is what they ain't gonna get 
She's only been in the ground a day or two 
I'm glad Mama ain't around to watch this family fued 

Great gran daddy's shotgun started it all 
She wasn't even cold 
Before they ripped it off the wall 
Wanda's fighting Angie over antique quilts 
Nobody even waited for the reading of the will 
If Daddy was here he'd beat us black and blue 
I'm glad mama ain't around to watch this family fued 

I'm watching it all go down in shame 
Wish the whole house would go up in flames 
Who gives a damn about a cedar chest 
When we just laid her soul to rest 
She's only been in the ground a day or two 
I'm glad Mama ain't around to watch this family fued 

She's probably rolling over in her grave 
'Cause the good lord giveth and the family taketh away

To listen to the song, please click here.

Special thanks to Clark Skatoff (attorney, Palm Beach Gardens, FL) for bringing this song to my attention.

Texas Estate Planning Statutes With Commentary -- 2011-2013 Edition Published

Gerry W. Beyer (Governor Preston E. Smith Regents Professor of Law, Texas Tech University) has recently published the 2011-2013 edition of Texas Estate Planning Statutes With Commentary.

This book is a compilation of Texas statutes which are significant to law school and paralegal courses related to estate planning such as Wills & Estates, Trusts, Estate Planning, Estate Administration, Probate, Elder Law, and Guardianship. Changes made by the 2011 Texas Legislature are printed in red-lined format to make the revisions easy for the reader to locate.

Many sections include carefully written commentary entitled Statutes in Context. These annotations provide background information, explanations, examples, and citations to key cases which will assist the reader in identifying the significance of the statutes and how they operate.

Special Needs Trusts

Proper estate planning is especially important for disabled individuals in need of Medicaid and Supplemental Security qualification. Individuals eighteen and older cannot receive these benefits under federal and state law if their assets exceed $2,000. A special needs trust can help disabled individuals circumvent this law by having the trustee hold the assets for the benefit of the individual.

Many options exist for the creation of a special needs trust. The trust can be individually or institutionally directed—institutionally directed trusts are funded with court-awarded settlements. Settlors can also fund trusts with regular life insurance, second-to-die life insurance, Social Security survivor benefits, military benefits, retirement funds, real property, inheritances, and many other available assets. Additionally, the settlor has a choice when appointing the trustee or co-trustees.

Though a special needs trust is a beneficial estate planning tool for disabled individuals, all situations are different. It is importation that individuals who wish to create a special needs trust consider their own family dynamic and personal financial needs.

See Toddi Gutner, Putting the special in special needs trusts, Reuters, Mar. 4, 2011; Speical Needs Trusts, Lawyers.com.

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

Ethical Decisions of the Family Counselor

Ronald D. Aucutt (Attorney, Tysons Corner, Virginia and Washington, D.C.) recently published his article entitled Creed or Code: The Calling of the Counselor in Advising Families, 36 ACTEC L.J. 669 (Spring 2011). The abstract of the article is below:

Families succeed by maintaining a tradition of regular, honest, and wide-ranging communication. The highest calling of a counselor is to encourage and enable such communication, both in planned family meetings and as an ongoing mindset. This requires the counselor to earn the family's trust and to engage in open-minded listening that demonstrates that the family comes first.

But whenever the counselor has contact with so many members of the family, there are ethical implications that sometimes pose impossible dilemmas regarding conflicts of interest and the flow of information. The prevailing rules of professional conduct, rooted in the needs and limitations of litigation, are not always helpful, particularly when they might require the trusted and understanding counselor to withdraw from the engagement at a time of stress or conflict when the family might need that counselor's services the most. At those times, the counselor must consider whether technical rules should yield to the higher creed of placing the family first.

Executor owes no duty to unsecured creditor

Mohseni v. Hartman, ___ S.W.3d. ___, 2011 WL 2304133 (Tex. App.—Houston [1^st Dist.] 2011, no pet. h.).

Unsecured Creditor sued Independent Executor (IE) for breach of fiduciary duty, negligence, fraud, and conversion.  The creditor claimed that IE’s misconduct caused the estate to lack sufficient funds to pay his claim.  The trial court granted IE summary judgment ruling that an independent executor owes no legal duty to an unsecured creditor of the estate.  The creditor appealed.

The appellate court affirmed holding “that an independent executor does not owe a general legal duty of care to the unsecured creditor of an estate in the management of the estate’s assets.”  The court explained that the executor’s duty runs to the beneficiaries of the estate.  It is the beneficiaries who have title to the property under Probate Code § 37 subject to the payment of debts.  The executor thus holds the property in trust for the benefit of the title holders, not the creditors.  The court made the analogy that a creditor cannot bring an action against living debtors who cannot pay their debts because they mismanage property.

The court also discussed how public policy supports the court’s holding.  To create “such a duty would undermine independent administrations and conflict with the executor’s duty to administer the estate for the benefit of the heirs and legatees * * *.  Also, it could conflict with the executor’s statutory duties to other classes of creditors. * * * The creditor’s remedy is to seek a judgment against the executor in her capacity as the estate administrator and seek execution against the estate[’s] assets.”

Moral:  An independent executor’s duties run toward the heirs and beneficiaries, not unsecured creditors who seek to deprive them of the property to which they are otherwise entitled.

Domestic Partners in Community Property States

Wendy S. Goffe (shareholder, Graham & Dunn, PC) has recently published her paper entitled Marriage, Domestic Partnerships, Civil Union: The Developing Tax Landscape, Through Time: Using the Law to Support LGBT Relationships, Washington State Bar Association Qlaw Section CLE, Seattle, Washington. The abstract available on SSRN is below:

This working paper focuses mainly on recent changes in the IRS's position regarding how domestic partners in community property states report income for federal income tax purposes. Other topics include ERISA preemption and estate planning issues for the transgender client.

Foreigners and the Current Gift Tax

Wealthy non-citizens who live in the U.S. can, in some cases, take advantage of the current $5 million gift exemption to hedge their gifting. Individuals who are domiciled in the U.S. but who are not U.S. citizens must pay U.S. estate and gift taxes on transfers of “sitused” property located in the U.S. Non-domiciled individuals may gift unlimited non-U.S. situs property without incurring U.S. gift taxes, while U.S. domiciliaries will be subject to gift taxes on transfers of non-U.S. situs property that exceed the current exemption.

For more information of the current gift tax and its affect on non-U.S. citizens, see Beth D. Tractenberg and Kathryn von Matthiessen, Foreigners And The Gift Tax, Private Wealth Magazine, Jul. 2011.

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

Living to be 1,000

Currently, .03% of the U.S. population lives to be 100 or older. Scientists predict that this percentage will increase to .14%, or 601,000 people, by the year 2050. While this increase may seem extreme, many scientists believe that technological and medical advances may increase life spans far past 100 years. Aubrey de Greay, gerontologist and scientific provocateur, believes that people alive today may be the first individuals to reach 1,000 years old.

While a 1,000 year life span may be possible one day, scientists working on increasing life spans predict that an average life span of 150 years will be ascertainable in the near future. These scientists stress that they are attempting to increase both the quality and the quantity of life.

With a longer life, however, come concerns regarding the environment, population growth, the economy, and resource availability. Additionally, increased life spans may have an affect on more personal matters such as marriages, divorces, intra-family dynamics, estate planning techniques, and financial savings.

Bill McKibben, an environmental writer, argues against “techno-longevity”, claiming that “like everything before us, we will rot our way back into the woof and warp of the planet. Sonia Arrison, author of How the Coming Age of Longevity Will Change Everything, From Careers and Relationships to Family and Faith (Basic Books 2011) is unconvinced, stating:

Arguments against life extension are often simply an appeal to the status quo. If humans were to live longer, we are told, the world, in some way, would not be right: It would no longer be noble, beautiful or exciting.

But what is noble, beautiful and exciting about deterioration and decline? What is morally suspect about ameliorating human suffering?

The answer is nothing. Everything that we have, socially and as individuals, is based on the richness of life. There can be no more basic obligation than to help ourselves and future generations to enjoy longer, healthier spans on the Earth that we share.

See Sonia Arrison, Living to 100 and Beyond, The Wall Street Journal, Aug. 27, 2011.

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

Deceased BitTorrent User Sued By Makers of The Hurt Locker

The makers of the movie The Hurt Locker have already sued 24,583 BitTorrent users for alleged copyright infringement. The makers started sending out subpoenas earlier this year, and it appears that one of the alleged infringers may have been deceased at the time of the offense.

More than 200,000 people have been accused of copyright infringement in the U.S. since last year, and with this many suits comes plenty of room for wrongful accusations (especially considering the fact that an IP-address is not a person).

See Anti-Piracy Lawyers Sue Dead Person, TorrentFreak, Aug. 26, 2011.

Developments in Elder Law

Katherine C. Pearson (Professor of Law, Penn State Law) recently published her article entitled The Lesson of the Irish Family Pub: The Elder Clinic Path to a More Thoughtful Practice, 40 Stetson L. R. Vol. 237 ( 2010). The abstract available on SSRN is below: 

In this article, the Director of the Elder Law Clinic at Pennsylvania State University provides insight into the development of Elder Law as a unique discipline by tracking the history and challenges faced by her program as it approaches ten years of operation. A core focus of the Elder Law clinic, beyond practical experience, is to expose its students to the ethical issues confronted in Elder Law practice. Students in the clinic combine classroom discussions with practical experience representing clients, thereby becoming better prepared for their professional futures, while also gaining appreciation for the special concerns of the elderly client. To demonstrate a particular issue of concern, the Author recounts the story of one Irish family's struggle following the death of their father to nullify an unfavorable real-estate transaction prepared by an attorney insensitive to the needs of his elderly client. The history of this case illustrates a recurring theme in Elder Law -- the necessity of identifying the unique concerns of older clients and responding to their needs in the face of competing influences, such as the desires of the clients' family members.

Interview with Steven Oshins on New SMLLC Legislation

Provident Trust Group recently interviewed Steven Oshins, an estate planning attorney at Oshins & Associates, LLC, regarding his influence in drafting Nevada’s Senate Bill 405 (a bill dealing with remedies for creditors of single member limited liability companies, or SMLLCs). An excerpt of the interview is below:

Q. Why the need for new legislation addressing SMLLCs?

After reading the Olmstead case in early 2010 and seeing where the trend in the law was heading, I felt that it was time to clarify Nevada’s charging order laws to continue to enhance them and keep Nevada ahead of the rest of the pack. So I contacted Attorneys Rob Kim and Mark Smallhouse, both part of the Business Law Section of the State Bar of Nevada, and worked with them on the new language. This is the third time I have authored or co-authored the Nevada charging order laws. I also wrote them in 2001 and 2003. This change in Nevada law makes Nevada and Wyoming the only two states to statutorily legislate that a single member LLC gets the same protection as a multi-member LLC.

Q. The Nevada statute provides that a charging order is the “exclusive remedy.” Are you confident that the prohibition against any other remedy being imposed by a court prevents the imposition of equitable remedies such as a constructive trust or resulting trust?

Yes. In addition to the single member LLC changes, I added in language specifying that no equitable remedies can apply. Equitable remedies are remedies that the court will sometimes use where the legal remedies are insufficient for the judge to get to the desired result. I felt that South Dakota law had the best equitable remedy language, so I used that language.

Q. Is there a provision in the enacting legislation, if not in the statute itself, assuring that the new law applies to pre-existing SMLLCs?

There’s no specific language. It is clear that it applies to pre-existing SMLLCs.

Q. In Olmstead, the Florida Supreme Court pointed to an entirely independent statute that allowed creditors to foreclose on assets of the debtor. Is there any other provision in Nevada law that could be relied upon, as was the case in Olmstead?

There is no foreclosure language in the Nevada charging order statute. So this is not an issue under Nevada law.

See Neil Schoenblum, Nevada Extends Charging Order Protection to Single Member LLCs, Provident Trust Goup, Jun. 20, 2011.

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