Wills, Trusts & Estates Prof Blog

O.J. and the IRS

The IRS alleges that O.J. Simpson has not paid taxes since 2007.  In response, they filed a tax lien against O.J. until they can recover the nearly $180,000 he supposedly has not paid.  The IRS filed the lien against his Miami home, which is now in foreclosure.

Simpson has been serving a 33-year prison sentence since he was convicted of armed robbery and kidnapping in 2008. 

See Michael Cohn, IRS Files Tax Lien Against O.J. Simpson, Accounting Today, Aug. 31, 2012. 

Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention. 

Lawyer Is Remorseful About Stealing Money From Client

David R. Schnell, 53, was convicted of stealing almost $34,000 from a client’s estate.  Erie County Judge Sheila A DiTullio ordered the disbarred lawyer to repay the money and serve six months in jail and five years on probation. 

Schnell admitted to a gambling addiction, and expressed extreme remorse for betraying his client’s trust.  He makes no excuses for his actions and only blames himself. 

As a result of his gambling addiction, Schnell ran into other trouble with the law.  He plead guilty to grand larceny for thefts from other estates in Niagra County.  Currently, Schnell is serving two consecutive one-year sentences in Niagra County, and he has to pay the full amount back to the victims over 10 years. 

See North Tonawanda Lawyer Sentenced For Stealing From Client, The Buffalo News, Sept. 8, 2012.   

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

Article of Gift Taxes

Jay A. Soled (Professor of Business, Rutgers University) & Bridget J. Crawford (Professor of Law, Pace University School of Law) have recently published their article entitled, Gift Taxes, Valuation, and the Need for Quarterly Information Returns, Tax Notes, Vol. 136, No. 7 (2012). The abstract from SSRN is provided below:

Gifts of tangible personal property and closely-held business interests typically are made without a paper trail (e.g., cancelled check or deed recording). Because gift tax returns are not due until April 15 of the calendar year following the transfer, a non-compliant taxpayer can game the system by taking a “wait and see” approach. For example, if a taxpayer makes a gift of valuable gold ring on January 1, and by December 31 the value of gold significantly declines to an all-time low, a taxpayer might choose to report the gift as occurring on the latter date. Similarly, if a taxpayer makes a gift of privately-held stock to a grantor retained annuity trust on January 1, and, likewise, the value of that stock declines to an all-time low by December 31, the taxpayer might claim that the gift never happened. 

Professors Soled and Crawford propose reviving a quarterly gift tax return filing system applicable to all taxpayers whose aggregate taxable gifts equal or exceed $100,000 during a calendar quarter. Such a system would increase both compliance and revenue.

Pet Trusts

A person who cares for his or her pet like a member of the family or a child might want to consider planning for them as if they were a member of the family. This means that a person might want to consider how a pet is going to be taken care of when the owner cannot anymore. Speaking in legal terms, animals are considered property that belong to their owner. Because of this classification, animals cannot inherit property through a will or other traditional estate planning documents. In fact, most will likely be sent to an animal shelter upon their owner's death. 

Now, it looks as if the popular estate planning document creation site LegalZoom.com is teaming with the ASPCA "to promote LegalZoom's Pet Protection Agreement, which identifies guardians for your pets, allows you to leave funds for their care and lets ou list their caregivers, such as your veterinarian or groomer." If a person wants to do this, they will still need to determine who will be the guardian of his or her pet. A person might want to actually receive a written commitment from the person that is going to take care of that person's pet. If the owner cannot find a person, then they might try shelters who would be willing to take that person's pet. A person might also want to amend his or her power-of-attorney to include instructions for the care of a person's pets should that drafter become incapacitated. This last one may seem obvious, but a person might want to provide the necessary funds for the care of his or her pet. This is where the pet trusts comes in. If a person wants to provide more than $25,000 for the care of his or her pet, then that person qualifies for a pet trust. Like a normal trust, this document has a trustee who would manage the money in the trust for the pet. This person is separate from the caregiver of the pet. Only four states do not have pet trusts, including Kentucky, Louisiana, Minnesota and Mississippi. 

See Karen Blumenthal, Pondering a Trust for Your Pet, Wall Street Journal, Sept. 7, 2012.

Special thanks to Joel Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention. Make sure to check out Gerry W. Beyer's & Barry Seltzer's book, Fat Cats & Lucky Dogs – How to Leave (Some of) Your Estate to Your Pets (2010) for more information.

Con Law Professors Weigh In on The Constitutionality of DOMA

The Defense of Marriage Act (DOMA) defines marriage as between a man and a woman. Professor Dale Carpenter of University of Minnesota Law School asked constitutional law professors whether they believe the DOMA is constitutional.  He sent the survey to 1,579 constitutional law teachers that were listed in the 2011-12 directory of the Association of American Law Schools.  485 of those professors responded to his survey. 

Professor Carpenter’s results showed that 87% of constitutional law professors support marriage for same-sex couples, and 7 out of 10 professors think DOMA is unconstitutional.  A smaller 54% of the professors think that the Constitution requires states to recognize same sex marriage.

See Joe Palazzolo, Survey: 7 Out of 10 Con Law Profs Think DOMA is Unconstitutional, The Wall Street Journal Law Blog, Sept. 7, 2012.   

Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention. 

Moves to Make Before 2012 Expires When the Gift Tax Exemption Might Expire Too

I have previously blogged about how the estate tax is set to expire at the end of 2012.  As a result of this uncertainty, estate planners are seeing a drastic rise in business from clients concerned that the gift-tax exemption will decrease dramatically next year. 

NerdWallet recommends avoiding the rush and consulting a financial planner to create a viable financial plan.  This planning can take several months to complete with valuations of assets and completion of paperwork, so it is best to see a planner as soon as possible.  That way you can put your plan into action before the $5 million gift tax exemption potentially expires.

Also, remember that there are other ways to gift your estate, tax-free.  Individuals can give up to $13,000 to another person per year before gift taxes kick in.  Tuition or medical expenses for others are also tax-exempt if individuals pay them directly to the institution.  Additionally, individuals can still make tax-free gifts to spouses and charitable organizations.

See Ashwin, I’ve Heard The Gift Tax Exemption Is Going To End Soon—Does That Mean I Should Change My Will?, NerdWallet, Aug. 24, 2012. 

Stetson University College of Law to sponsor 14th Annual Special Needs Trusts National Conference

On October 17-19, 2012 at the Don CeSar Beach Resort in St. Pete Beach, Florida, the Stetson University College of Law is sponsoring the 14th Annual Special Needs Trusts National Conference.  Here is a description of the conference:

This year's conference offers two pre-conferences. One pre-conference will focus on the technology and social media issues faced by attorneys and their staff. The other pre-conference will focus on issues for pooled trust administrators, attorneys and those who work with pooled trustees.

Pre-conference: Law Office Management Technology highlights:

• What Law Office Staff Need to Know About Using Social Media in/for the Law Office
• The Firm's Digital Assets - How to Protect Them, How to Value Them, What to Do With Them
• Developing Written Policies for All Sorts of Things in the Law Office

Pre-conference: Hot Topics About Pooled Trusts highlights:

• Breaking News - Recent Developments For, About, or Affecting Pooled Trusts
• Decision-Making for a Pooled SNT - Using a Decision Tree for SNT Distributions: Dealing with Clients and Attorneys
• Pooled Trusts Meet Subsidized Housing: Understanding How SNTs Are Treated in the World of HUD Housing

The Conference (Oct. 18-19, 2012)

The National Conference is hosting a two-day main conference featuring excellent speakers and support materials on basic and advanced topics for a variety of professionals who work in the field.

Main conference highlights:

• Goal-Based Investing and Management of the SNT - Different Investment Models and the Prudent Investor Rule
• Focus on SNTs: Checklists to Keep You on Track
• Marketing on Special Needs Practice - Five Tips in 60 Minutes
• Update from Social Security
• Reasons Why SSI Turns Down a SNT and How to Appeal
• HUD Policy and SNTs - Bringing Finley v. City of Santa Monica to Your State
• Fees - How Courts Interpret the Standard of Reasonableness
• The Update: Cases and Breaking News About SNTs

Raising the Medicare Eligibility Age

As we all know, Medicare’s long term success is grim.  Some have proposed gradually raising the eligibility age from 65 to 67, pointing out that we are living longer now than we did when Medicare began in 1966.  Opponents of this proposed solution argue that it is unfair to the poor to make Americans wait two years to get Medicare.  They also argue that it would increase the number of uninsured, and end up costing Americans more than it saves them. 

Please click here to view a life expectancy chart.  When retirement was set at age 65, the life expectacy age was less than age 65 and very few people lived to reach age 65. In fact, when social security started, the life expectancy was 61.  People were expected to work until they died and retirement was not part of a life plan.  The age should now be 78 to match “life inflation.”

See Should Medicare’s Eligibility Age Be Raised?, Wall Street Journal, Sept. 6, 2012.     

Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention. 

Estate Planning Is Critical

As I have previously discussed numerous times, it is important for a person to create their estate planning documents sooner rather than later. The issues with the estate of Sherman Hemsley provide an excellent example of why that's a good idea. As I have previously discussed, the star of "The Jeffersons" is still not buried because his family is still in a battle over his will and estate. What is particularly unfortunate about this situation is that these problems are common. That is why it is important for a person to have his or her estate planning documents up-to-date, which include: how a person wants to allocate his or her assets, a durable power of attorney, a medical proxy, and an advance directive. As in the case of Sherman Hemsley, a person might want to insert the details surrounding the funeral arrangements and how to pay for the funeral itself.

See THELAW.TV, Why Estate Planning Is Critical For Your Family, DenverLaw.TV, Sept. 

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

Brain Damage and the NFL

A study has recently shown that former NFL Players are more prone "to dying from degenerate brain disease" than the general population. In fact, these numbers have shown that the death rate is three times the normal rate among the general population. These diseases include Alzheimer's, Parkinson's, and Lou Gehrig's Disease. While many might want to claim that the cause of this is the number of repeated head injuries that football players receive, the study cannot prove that this is the case. In fact, this study did not examine the number of deaths that resulted from CTE or Chronic Traumatic Encephalopathy, which is caused by repeated blows to the head. In addition, the study might be a bit under inclusive because the survey might not include players that have played less than five years. To make the waters even more muddy, some believe that several cases that were part of the survey may have been CTE and was misdiagnosed. The reason that this occurs is because CTE can only truly be diagnosed after that person's death throught a chemical test. 

See Study: Players Prone To Brain Disease, ESPN, Sept. 5, 2012.

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

Article on Trusts in Civil Law

James Koessler (Law Student, Warwick University) recently published an article entitled, Is There Room for the Trust in a Civil Law System? The French and Italian Perspective, (March 2012). The abstract from SSRN is provided below:

It is argued, through the examination of two civil law jurisdictions – France and Italy, that there is room for the trust to be translated – not transplanted – into existing civil law institutions and practice. The extent to which this is the case and the most appropriate model for this introduction will be dependent on the cultural, historical and political background of each such jurisdiction. 

Whilst Italy lacks a domestic trust law, it has taken advantage of the Hague Convention to develop a thriving local practice of using foreign law for Italian trusts. This effort, spearheaded by both doctrinal and jurisprudential support, has allowed the development of a consistent framework and the surmounting of the obstacles inherent in the civil law tradition. As a result of this process initiated nearly twenty years ago, these trusts can no longer be said to be ‘foreign.' A more accurate term would be ‘domesticated’ due to the distinctive features they have developed. 

Whereas France has its fiducie, a sui generis institution introduced in 2007, which is structurally a trust in comparative law terms, it is, nonetheless, functionally neutered. Trusts can be based on civil institutions, as the examples of Panama and Quebec show, and it is to be hoped that the French fiducie represents such a first step and will, one day, play a similar role. In any case, recent reforms which have increased its flexibility both structurally and functionally are to be welcomed. In particular the decision, albeit unsuccessful, of the French legislature to introduce a concept of ‘economic ownership’ goes to show just how much the lines are blurring between civilian and common law traditions.

One More Reason To Review Your Estate Planning Documents

A married couple, Eileen and Len Tweten, recently sold their business to Best Buy, the electronic retailer. Following the death of their mother Eileen, a court has ruled that the daughters "must await their father's death before they can receive their mother's half of the couple's $100 million estate." Furthermore, the judge ruled that the father can use the daughter's portion of the estate for a number of costs. This is case first became known because Eileen died in 2010, which allowed the father to take her portion of the estate without incurring any estate tax. Because of the lapse in the estate tax, the court was required to decide which member of the family should receive the inheritance.

In this case, Eileen apparently met with her attorneys to change her plan to ensure that $50 million would pass to her husband through their marital trust and not pass through the bypass trust a few days before the death. Her daughters claim that their mother knew about the estate tax lapse and that she wanted to bequest her share to them directly. The attorney of the daughters, Adam Streisand, claims the state of the mother's mind is in contention, and that the mother was unaware of the changes that the amendment made. The lawyer for the father rejected this contention, and argued instead that the daughters just wanted to take advantage of the estate tax lapse. This goes to show that if Eileen had planned in advance, this whole situation would probably have been avoided. Therefore, a person might want to consider reviewing his or her estate planning documents to ensure that the person's wishes are consistent with changes in tax law or any law for that matter.

See Ann Marsh, Family Feud: Review Estate Plans Annually, Financial Planning, Sept. 1, 2012. 

Special thanks to Brian J. Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.

Keep Liquidity By Transferring Your Home to An Intentionally Defective Grantor Trust

As I have previously mentioned, estate tax provisions allowing for a $5 million exemption are set to expire at the end of this year.  Now is the chance for wealthy families to transfer assets with little to no federal gift tax.  Many wealthy people have already taken advantage of this opportunity, but some clients lack liquidity to do so.  Much of their wealth is tied up in business, real estate, venture capital, and/or personal residences. 

Rob Clarfeld, a wealth strategist, has a recommendation for how clients can still take advantage of the opportunity that remains this year without impinging upon liquidity of their estate.  Rob recommends gifting one’s personal residence to an intentionally defective grantor trust (IDGT).  This can be an ideal way to remove the asset and the future appreciation from one’s estate while still remaining in the residence as a tenant.  The steps to make such a transfer are as follows:

1. Set up an IDGT, which allows one to remove transferred assets from your estate for estate and gift tax purposes, but not for income tax purposes.   

2. Get an appraisal of the fair market value of the residence.

3. Transfer the residence to the trust.

4.  The trustee is then responsible for collecting rent and paying the expenses of the residence.

There are numerous benefits to making this transfer.  The rental income will not be taxed, and real estate taxes or mortgage interest deductions flow through to the grantor’s tax returns.  Furthermore, if the rental payments are consistent with the residence’s fair market rental value, they are also gift-tax free.  Any rental income that the trust accumulates in excess of its expenses is considered tax-free additions. 

See Rob Clarfeld, Reduce Estate Taxes Without Reducing Your Liquidity, Forbes, Sept. 4, 2012.   

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

Ways to Plan for Your Digital Assets

As I have previously blogged about, estate planning for your digital assets is becoming increasingly important. Social network accounts can get hacked, and it can be an emotional and time consuming ordeal for family members to get those networks closed.  Digital estate planning can address that concern along with others including what do do with online Paypal or cloud storage accounts. 

A simple solution is to write down all accounts with their accompanying passwords and login information. But then you will have to be sure to constantly update this document any time you change passwords or create new accounts. There are a few other websites that can be helpful in digital estate planning:

DeadmansSwitch.net: This site lets you send emails after your death.  For example, you could set up an email to be sent to your executor with passwords and accounts. To determine when to send the emails, the service will send you an email to confirm you are alive. If you do not reply to that email in 60 days, the site presumes you are dead and sends your stored emails.

SecureSafe.com: This site adds cloud to the solution above. You can upload documents to files, and you assign a beneficiary to each file.  Upon your death, these files will be sent to the designated beneficiaries.

The Digital Beyond: This site discusses all news related to digital estate planning.

See Bob Rankin, Do You Have A Digital Estate Plan?, Ask Bob Rankin, 2012.

Special thanks to Russell R. Winer (Attorney at Law) for bringing this article to my attention.  

Growing Numbers of Younger People Purchase Long Term Care Insurance

Long term care insurance isn’t just for an aging crowd.   The American Association for Long-Term Care Insurance released a study that found a 28 year old who had been receiving benefits from his long term care insurance for four years.  He purchased the coverage at 21 and received his first benefit at 24. 

In 2011, the long term care insurance industry paid $6.6 billion in claim benefits to over 200,000 individuals.  Insurance companies noted that there a growing number of younger individuals are purchasing long term care insurance. 

See American Association for Long-Term Care Insurance, Younger Long Term care Insurance Claimants Examined, Sacramento Bee, Sept. 5, 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

Article on Vacating Probate Decrees in New York

Robert M. Harper (Associate, Farrell Fritz, P.C.) recently published his article entitled Vacating Probate Decrees in New York, 25 Quinnipiac Prob. L.J. 394 (2012). The introduction is available below: 

Vacatur of a probate decree in New York is an extraordinary remedy that disrupts the orderly administration of estates. Given that public policy and judicial economy disfavor post-probate will contests and, more generally, inefficiency in the administration of estates, New York courts have applied heightened standards in vacatur proceedings, requiring parties seeking such relief to do much more than merely allege facts which might be sufficient to question a probated instrument's validity. This article addresses the standards applied by the courts in granting and denying vacatur; the parties' entitlement to pre-vacatur disclosure and evidentiary hearings; the affirmative defenses that may be available in opposition to a vacatur application; and the countervailing policy interests that arise when the instrument in question contains an in terrorem clause. Practitioners should consider the standards for vacatur, entitlement to discovery and evidentiary hearings, and affirmative defenses that may be available when advising their clients as how to best make--or, for equal measure, oppose--a vacatur application.

Three Ideas to Deal With A Person's Assets

As I have previously discussed, Bruce Willis has brought suit against Apple because the terms and agreements under this iTunes Account will not let him bequest his music to his children. I have also previously discussed that the reason for this is that these purchasers do not technically own their digital assets. People who purchase digital assets only receive a license to use the assets from the seller. Thus, a person does not have the right to transfer or bequest the digital property at the person's death.

So, what's a person to do? Well, a person generally has only three options. First, as I have previously discussed, a person could a DAP trust. This is trust that acts like a normal trust but tries to "circumvent the iTunes rules."  However, there is no guarantee that the trust would work because a trust cannot be used to change policy or circumvent a contract. Second, a person might want to store his or her music on a CD or hard drive and then bequest the device. The third option is the easiest to implement and is probably the most obvious answer. A person might want to provide his or her password to the beneficiary. While a person may not own a property interest in the digital assets, that person does own a property interest in the password, which means that a person can give that person his or her password. By maintaining the deceased person's account, the beneficiary can continue to enjoy that person's music.

See Jeff John Roberts, 3 Ways to Deal With Digital Media When You Die, Gigaom, Sept. 5, 2012.

Warhol's Estate Sells His Art Collection

The executor of Andy Warhol's estate, the Andy Warhol Foundation for the Visual Arts, has decided to auction the remaining artwork that Warhol's estate owns. The estate originally gave a good number of paintings in Warhol's collection to establish the Andy Warhol Museum in his hometown of Pittsburgh. In addition, the estate has donated a great deal of money from past art sales. In the spirit of donation, the executor believes that his sale will further the goals of Andy Warhol. It is said that the estate might earn about $100 million from the sale of the remaining paintings in his artwork. The auction is set to begin in November of this year. 

See Julie Zeveloff, Andy Warhol's Estate To Sell Off Thousands Of Works For More Than $100 Million, Business Insider, Sept. 5, 2012.

Special thanks to Brian J. Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.

Can a court keep the terms of a probated will secret?

One usually thinks of a probate will as a public document which demonstrates the transfer of property from a deceased person to a living person, just like a recorded deed documents transfer of property between two living individuals.

In what is a highly unorthodox procedure, a judge has sealed the will of a deceased doctor, Joseph Alert Sonnier III.  The probate lawyer handling the case asserts this is proper "to maintain as much privacy as possible."  It seems to me that Sonnier should have used a trust or other non-probate technique if he desired privacy.  It is also interesting to note that even the order sealing the will was itself sealed.

A lawyer for the Lubbock Avalanche-Journal is seeking to have the will unsealed.

If the order stands, it will certainly cause problems especially for title examiners who need to document the chain of title.

See Walt Nett, Sealing Sonnier's will appears to breach court procedures, attorney says, Lubbockonline.com, Sept. 4, 2012.

Article on the Freedom on Testators in France, Belgium, and Italy

Alexandra Braun (Faculty of Law, University of Oxford) has recently published an article entitled, Towards a Greater Autonomy for Testators and Heirs: Some Reflections on Recent Reforms in France, Belgium, and Italy, (2012) 3 Zeitschrift für Europäisches Privatrecht 461-483. The abstract from SSRN is provided below:

While in Germany, the use of contractual devices in the context of succession law is expressly admitted by law, legal systems belonging to the Romanistic legal family usually consider succession pacts, that is to say arrangements that concern a future inheritance, illegal. In fact, the Civil Codes of Belgium, the Netherlands, France, Italy and Spain contain provisions prohibiting succession pacts. At the same time, however, these Codes also allow for certain exceptions, the range of which leads one to question the very purpose of the ban. Recent reforms in some of these countries have challenged the ban on succession pacts even further, revealing a trend towards a ‘contractualisation’ of succession law. The article analyses the nature and rationale of three new contractual instruments that were recently introduced into the succession laws of France, Italy and Belgium. In doing so, it shows that, although they are inherently different, all three instruments effectively enable testators and their heirs to derogate from rules of forced heirship. This enhances their private autonomy, and also indirectly enhances the freedom of testation of the testator. The article further looks at the policy considerations behind the prohibition of succession pacts, and in particular the prohibition of pacta de non succedendo, both from an historical and a modern perspective. It attempts to show that not only can the traditional policy reasons used to justify the ban be overcome, but also that many of the risks facing the heir and his descendants are balanced by the advantages created by such pacts.