Wills, Trusts & Estates Prof Blog

Father Steals Money Intended For His Daughter

Willie Edward Lockridge intercepted a check intended to go to his brother for the benefit of Willie's daughter. The court appointed Willie's brother as the plenary guardian for Willie's daughter when the young girl's mother died on October 30. 2011.  She left her daughter $58,866.61, proceeds from a 401(k) from Costco.  

On May 15, T. Rowe Price sent the check for $58,866.61 payable to a specific guardianship account at Comerica Bank. Willie, the girl's father, got Christopher Lockridge to cash the check, claiming that he needed the money for his daughter.  However, he used $28,088.14 to buy a Jaguar, and used other amounts to purchase a TV, plane tickets for his girlfriend, shoes, jewelry and other items. Lockridge was arrested on January 8 in Nashville and he was charged with larceny over $20,000 and fraud.

See Brett Clarkson, Dad Squandered Daughter's $58,000 Inheritance on Car, Flight for Girlfriend, Say Deputies, SunSentinel, Jan. 29,2013.

Trust Termination Due To Unforeseen Circumstances

Fern Stafford established a trust for her daughter Kathy Buckalew in 1997. Upon the death of settlor, the assets of the trust were suppose to transfer into a Buckalew's trust, then Anderson, named the Kathy Anderson Trust. At the time, she was the trustee of the trust and "authorized to distribute income and principal of the Anderson Trust for her own health, education, maintenance and support." The trust allowed her to withdraw assets from the trust at any time. The remainder of the trust was set to be distributed to Buckalew's estate. Two years later, Stafford amended the trust instrument to change where the remainder would go upon termination of the trust. Stafford stated that upon her death, "the Fern Trust would terminate and its assets would be conveyed to Arvest Trust Company as trustee of the Anderson Trust." This trust stated that Buckalew would not receive any of the trust until he reached the age of 60. The distribution would be based upon her income from the three years prior to her 60th birthday. The remainder of the trust would go to Buckalew's aunt. The trust also contained a spendthrift clause that prevented "Buckalew from receiving distributions other than the annual payment."

In Buckalew v. Arvest Trust Company, N.A., Buckalew argued that unforeseen circumstances warranted termination of the amended trust. Buckalew argued that these changes frustrated the purpose of the trust, which was to provide for her care. She claimed that the trust was over-funded and the amended trust placed an arbitrary limit on distributions that were made to her. Furthermore she claimed that it was an unforeseen circumstance that her mother died before Buckalew turned 60, and that her employment was interfered by Stafford's care. All of this limited Buckalew's ability to draw from the trust. The court disagreed and held that none of these were considered to be unforeseen circumstances.

See Luke Lantta, What Is An "Unforeseen Circumstance" That Might Permit Trust Termination?, BryanCaveFiduiciaryLitigation.com, Jan. 29, 2013.

401(k) 'Leakage'

According to the Wall Street Journal, "one in four 401(k) participants has, at some point, raided his or her 401(k) savings to cover non-retirement expenses, including mortgages, college tuition, and credit card bills." This finding came from a study that was released in January. Of these participants that reportedly withdrew money from their accounts, they withdrew about $70 billion from their qualified plans. This is actually a significant leak when compared to how much owners placed into their plans.

Some argue that leakage occurs in three different forms: loans, hardship withdrawals, and cash-outs. One of these forms of leakage is worse than the others. Some argue that the worse kind of leakage is cash-outs. The reason that this is the worse kind of leakage is because account holders often are subject to penalties for cashing out too early. If the account holder is below the age of 59 1/2 and does not roll the amount into another qualified retirement plan, then they are likely to owe income tax and a 10% penalty on the cash-out sum. This is an unacceptable outcome considering that the reason that most people receive cash-out sums is because of poor money management problems. 

See Anne Tergesen, One in Four Savers Has 401(k) 'Leakage', MarketWatch: The Wall Street Journal, Jan. 15, 2013.

Avoid Giving Improper Tax Advice

Tax advice is sought and rendered regularly is an unprofessional setting. This can be problem for professionals who give that advice because it could lead to liability. To avoid this problem, CPAs and other professionals should take it upon themselves to inform the person that they are talking to that they should not rely on anything that they say to the person. In addition, they might want to consider informing the person that they are not a client of the professional. This can also apply when the client-relationship is just beginning. The most important consideration of all of this is that the CPA should probably just remain from giving tax advice to someone who is not the client. 

This problem can also arise within the scope of a current existing client relationship. This is more likely to happen because the client would be more likely to rely upon the advice of their CPA. Therefore, it is important for a professional to let their client know the limitation of their expertise. Professionals might want to document all the correspondence between the professional and the client. Furthermore, professionals might want to consider declining to respond to requests for a second opinion after another CPA gives his opinion. The reason for this is because the second professional might not have the information that he needs to make a good determination.

See Deborah K. Rood, Avoiding Allegations of Improper Tax Advice, Journal of Accountancy, Jan. 2013.

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

Digital Disasters After Death

As I have previously discussed, some states have addressed the difficulties with digital asset management after death. Communication has evolved, gradually making some important asset information only available online. As a result, if the decedent does not enact a plan for his digital assets, then the passwords, security questions, and other web safety assurances may delay or prevent someone from carrying out the decedent's wishes. Now, many estate planners are faced with digital disasters after their clients pass.

While some states are addressing the after death digital management difficulties, other states are addressing the privacy issues by enacting anti-hacking laws restricting access to online accounts for privacy protection. Consequently, families and representatives of a decedent in these states are left with fewer options. There is no uniform body of law, state or federal, concentrating on the digital asset management issue; however, there are some solutions available to help with the problem. Some are as simple as keeping an updated paper list of online accounts, passwords, and security question answers in a safe place, or including a provision in a will or trust. Some solutions are more complex. Consumers can buy software for password management or hire companies that secure your accounts. These options usually make private information available after death. Digital asset management will depend on the individual, but as time goes on, it is becoming more necessary for both estate planners and families to discuss the topic.

See Kenneth P. Brier and Julia A. Rossetti, Death In The Digital Age, Private Wealth Magazine, Jan. 4, 2013.

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

PTIN System Down Due to a Litigation Stay

Federal tax professional preparer requirements are now in flux since the IRS's Tax Professionals system is currently "'down'" due to a litigation stay. In 2012, individual plaintiffs filed federal litigation regarding the annual fees the IRS charged professional tax preparers and the Federal Appeals Court upheld those fees. On January 18, 2013, the stay was issued by the trial court in Loving v. Internal Revenue Service, filed in the U.S. District Court for the District of Columbia. With the IRS PTIN system "'down,'" it is not clear how a professional tax preparer who is not currently registered can register anew or re-register with the IRS for the 2013 year. 

Neil E. Hendershot, IRS PTIN Registration System is "Down", PA Elder, Estate & Fiduciary Law Blog, Jan. 28, 2013. 

Special thanks to Neil E. Hendershot (Esquire, Serratelli, Schiffman & Brown, P.C.) for bringing this article to my attention. 

Gold to be Auctioned in Carson City, Nevada

Walter Samasko Jr. died in Nevada without a will last year and left some complications for a Carson City court to deal with.  Even though he only had $200 in the bank and lived modestly on income from less than $200,000 of stock investments, $7.4 million worth of coins were found in his garage.  

Aside from the $800,000 of that total that will go towards estate tax, a Carson City judge approved a plan to have much of that gold auctioned at the local courthouse.  A reserve will be set based on the market price of gold on the day of the auction, February 26.   

Carson City Clerk, Alan Glover is the administrator of the estate. When the coins were found last year, he used a wheelbarrow to get the gold coins to his truck so they could be safely deposited. 

See Martha Neil, $7M in Gold Coins Found in Intestate Man's Garage Will be Auctioned at Courthouse, ABAJournal, Jan. 29, 2013.

Second Edition of Estate Planning for Same Sex Couples

The ABA recently released a new reference to use when providing services to LGBT clients. The second edition of Estate Planning for Same Sex Couples is now available. The abstract from the book’s website is below:

Estate planning is more than post-death planning. It is also life planning. Drafting well-considered legal documents for clients gives them piece of mind. The myriad legal issues facing LGBT individuals and couples remain volatile. LGBT clients are the only ones whose legal status and legal rights are dependent on where they live, visit, or travel. Additionally, there are challenges facing the community, including basic rights concerning their children or property.

With so many legal issues to consider, lawyers must look past appearances to be sure they have all of the information needed to help these clients. The Second Edition to the Benjamin Franklin Award recipient, Estate Planning for Same-Sex Couples, serves as a vital reference to provide services to this client base. Lawyers can use this book as a complete resource tool to handle LGBT legal issues and the array of variables among the states. Chapters include information on wills and trusts, children, estate planning, and dealing with senior LGBT clients. A companion CD holds forms and documents to aid in the estate planning process.

Please click here to purchase the book.

Ray Charles' Children Say Hit the Road Jack to his Foundation

As I have previously discussed, Ray Charles' children breached a condition that was placed upon them when they accepted a $500,000 irrevocable trust. As a result, the Ray Charles Foundation brought suit against seven of Charles' children. Recently, a U.S. District Court judge found that the Foundation lacked standing to bring their claims.The 1976 revision of the Copyright Act provided authors and their heirs the right to reclaim their works after a period of years, excluding works "for hire." However, the judge did not rule on if Charles' work was considered work made for hire. According to Variety,"[the judge] wrote that 'because the foundation is not a grantee of the rights to be terminated or its successor, Congress did not even require the statutory heirs provide it with statutory notice of the termination, let alone give it a seat at the table during the termination process."' 

The judge also struck down the Foundation's breach of contract and breach of covenant of good faith and fair dealing claims. However, the court stated that the children's filing of termination notices could not be brought as claims against their father's estate because they failed to file the termination notices before the probate of his estate closed in 2006. The court in this case also rejected the Foundation anti-SLAPP claim. At this time, his children have recovered several of their father's songs, including "Come Back Baby," This Little Girl of Mine," and "I've Got a Sweetie."

See Ted Johnson, Ray Charles' Children Win Copyright Dispute, Variety, Jan. 28, 2013.

Effects of Prenuptial Agreements on Long-Term Care

With the rise in second marriages, the use of prenuptial agreements has also increased. The use of prenuptial agreements can have a number of effects on long-term estate planning especially when it comes to the right of election and its affects on Medicaid eligibility. 

Generally speaking, "a surviving spouse's right of election can be exercised whether or not the decedent left a will." How much a spouse can inherit automatically from the estate depends on the applicable state statute. These right of election laws protect a spouse in the event that the entire estate passes to other people. There are only a few ways that a spouse can successfully waive the spouse's right of election and this is one of them. However, according to New York Law Journal, "people often do not realize that this waiver can be treated as a transfer of property for Medical Assistance (Medicaid) eligibility purposes." Unfortunately, Medicaid rules state that any uncompensated transfers of property could subject the applicant to a penalty, which could well affect the applicant's eligibility. This situation can often produce unfair results for those to choose to elect against their spouse's estate. 

See Ann-Margaret Carrozza, Surprising Effects of Prenuptial Agreements on Long-Term Care, New York Law Journal, Jan. 28, 2013.

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

Connecticut Probate Reform "Working"

The recent probate reforms in Connecticut has been deemed to be working. Some in Connecticut disagree and argue that the probate reform that was implemented in 2009 is bit of an overstatement considering the number of controversies that the system recently faced. The most infamous of these cases involved the misbehavior of a conservator and a probate judge, who "conspired to circumvent the will of an elderly woman who wanted to bequeathed her farm to her longtime caretaker." The probate reform has brought a series of changes to the systems. First, the regional system has reduced the number of courts in the system from 117 to 54. Second, the legislation also stated that the courts will remain open for a normal work week, and third all new judges must be lawyers. In addition, reform includes, "centralized financial operations, improved information technology, a uniform compensation and benefits package for court employees, and judges' salaries based on population and workload instead of the wealth of the district."

See Probate Reforms Are Working, Fewer Courts: Restructuring of the Probate System is Improving the Product, Hartford Courant, Jan. 18, 2013.

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

U.S. Senator Wants To Expand Social Security Screening Program

In June, U.S. Senator Bob Casey started a pilot program designed to prevent criminals from becoming managers of a person's Social Security benefits.  The original program included Delaware, Maryland, Pennsylvania, Virginia and West Virginia. He reports that the program has successfully screened out dozens of people convicted of fraud and violence from becoming representative payees.  Through January 23, 100 people were rejected from becoming representative payees. 

Representative payees receive benefits on behalf of people who cannot manage the funds themselves. Senator Casey would like to expand the initiative and require more vigilant background checks to be performed on people who want to be representative payees.  In a letter to Social Security Commissioner, Casey asked the federal agency to provide him with more information on goals, methods and a timeline for a revamped background check system. 

SSA spokesman Mark Hinkle has previously identified as stumbling blocks the agency's lack of access to government databases with criminal background information and a lack of staff to perform the checks. In November, 2011, Casey introduced legislation that would give the agency more access. Congress did not act on the bill last session, but Casey plans to reintroduce it. 

See Kathy Matheson, US Sen. From Pa.: Expand Social Security Screening, Seattlepi, Jan. 27, 2013.

Madonna and Marlon Brando's Estate Settle Lawsuit Over "Vogue"

I previously blogged about how Marlon Brando's estate was suing Madonna over her use of the late actor's image in her performances of "Vogue." The parties have informed the court that they reached a settlement in principle, but need time to execute the agreement. Terms have not yet been revealed, but notably, the Brando estate is known for its litigiousness in protecting rights. 

See Eriq Gardner, Madonna, Marlon Brando Estate Settle Lawsuit Over 'Vogue,' The Hollywood Reporter, Jan. 21, 2013. 

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

Ataturk's $1 Million Inheritance

Ülkü Adatepe is the adopted daughter of the founder of the Republic of Turkey, Mustafa Kemal Ataturk.  Her sons sent notarized letters to the Republican People's party (CHP), and Turkey's largest bank, demanding that they deliver their grandfather's $1 million inheritance to them.  

Adatepe died in a car accident last year, and her sons are preparing to file a lawsuit against the CHP and the bank if they refuse to pay the inheritance to them.  Their letter claims that their mother's rights were violated and she never rightfully received her inheritance so they are just trying to collect the money that belongs to her. 

See Metin Colak, Ataturk's Grandchildren Send Letter to CHP, Asking for Inheritance, Today's Zaman, Jan. 28, 2013. 

Article on Pellegrini v. Breitenbach

Ann E. Breuer (Juris Doctor candidate, Quinnipiac School of Law, May 2013) recently published her note entitled Pellegrini v. Breitenbach and courts' reluctant power to reform innocent mistakes in wills. (Pelligrini v. Breitenbach, 926 N.E.2d 544, 2012), 26 Quinnipac Prob. L.J. 46 (2012).  The introduction to the article is available below.

In 2010, the Massachusetts Supreme Court reaffirmed its adherence to the traditional “plain meaning” and “no-reformation of wills” rules in Pellegrini v. Breitenbach: the former rule bars the admission of extrinsic evidence that varies the obvious meaning of a will, while the latter rule prevents courts from correcting innocent mistakes in attested wills. This ruling resulted in burdensome tax consequences for the estate, which could have been largely avoided had the testator created a more sophisticated estate plan. In reaffirming its commitment to these rules, the court rejected more liberal standards for admission of extrinsic evidence and reformation--standards that have been applied by other jurisdictions, and supported by scholarship.

This Note will analyze a number of these alternative standards to the plain meaning and no-reformation rules, and reexamine Pellegrini in light of each. Part I discusses the court's opinion in Pellegrini, along with the factual circumstances that the court noted as significant. It will lay out the precedent on which the holding relied and the legal arguments offered by the court in explanation of its opinion. Part II discusses in detail the state of the law regarding reformation of innocent mistakes in wills and the admissibility of extrinsic evidence to demonstrate a testator's actual intent. It will review these traditional rules and the ambiguity analysis that frequently accompanies them, as well as a number of alternatives employed by modern courts. In Part III, this Note analyzes the court's holding in Pellegrini in light of each alternative rule. It ultimately concludes that, despite the more lenient standards for admissibility of extrinsic evidence, each alternate rule would not result in a different outcome for the petitioner in Pellegrini. Part IV argues that, despite the fact that the outcome in Pellegrini would be unchanged under each rule examined, the result is nevertheless unfair and unreasonable. This section proposes an alternate rule, which would allow courts to modify a mistake in an unambiguous will where the only party detrimentally affected by the reformation is a tax collecting authority. This rule provides a fairer outcome to the beneficiaries, and one that better serves the testator's demonstrable intent.

Charity Correlates With The Stock Market

It has become a common pre-conceived notion that the amount of charitable gifts that people make correlate with the tax treatment for charitable donations. However, a survey U.S. Trust, a Bank of America trust company, stated that "tax matters are subordinate to the performance of stocks and the health of the overall economy."  Ramsay Slugg, the managing director of U.S. Trust, said that the proof is in the number. He claimed that the number of people who pay taxes or itemize deductions is much lower than the number of Americans that give to charity each year. Furthermore, Slugg also stated that among those that do not pay taxes, many of them still give to charity. Slugg concluded that those who give simply want to give. That is not to say that there is nothing that does not coax donors into giving. The survey by U.S. Trust revealed that there are usually more gifts when investors feel that they are in a bullish economy. This survey only really applies to the wealthiest donors. The survey concluded that middle-income taxpayers are more likely to be affected by an increase in taxes on whether those donors will make gifts.

See Gil Weinrich, Charitable Giving Link To Stock Performance, LifeHealthPro, Jan. 25, 2013.

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

Review of Charitable Rollover

As I have previously discussed, taxpayers that are 70 1/2-years-old or older can take a charitable rollover by transferring funds directly from the taxpayer's IRA to a qualified charity. Furthermore, it appears that there is a small twist for taxpayers who took their distribution in December of 2012. If a taxpayer took their distribution in 2012 during December, the taxpayer can still use the rollover by contributing either the full amount or a part of the distribution to a qualified charity but only during January of 2013. Charities have worked hard to revive the rollover provision. Many of them argue that its existence has increased the number of donations to charities. 

See Tom Herman, A Twist to the 'Charitable Rollover, Wall Street Journal, Jan. 27, 2013.

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

Article on FLP and the Annual Gift Tax Exclusion

Wendy C. Gerzog (Professor, University of Baltimore School of Law) recently published an article entitled, Wimmer Wins FLP Annual Exclusion, Vol. 138 Tax Notes, No. 4 (2013). Provided below is the abstract from SSRN:

In Wimmer, the Tax Court held that the income stream from a taxpayer’s gifts of family limited partnership interests was eligible for the annual exclusion. By comparing the income interest in the partnership’s dividend paying marketable securities to the income interest in a trust, the court made Wimmer a winner. But does the opinion logically lead to that conclusion?

Article on Managing Your Digital Afterlife

Sarah Kellogg (Washington Lawyer) has recently published an article entitled, Managing Your Digital Afterlife: Cyber Footprint, Ownership, and Access, Washington Lawyer (Jan. 2013). Provided below is the introduction from the DC Bar:

Everyone dies, but thanks to Web sites and social media networks, your digital life likely never will. Long after you’re gone, your digital presence will echo throughout the Web—on Facebook, Twitter, YouTube, and countless other social media platforms—for years, if not decades, to come.

All those videos, status updates, tweets, and e–mails have so expanded the average person’s digital footprint that he or she carries into death a mountain of electronic content. While much of it is personal communications or amusing fluff, individuals also have built up confidential financial information through online banking systems as well as sites such as Amazon and PayPal. In addition, there are valuable libraries—e–books, games, movies, subscriptions, etc.—that traditionally have been passed on to surviving family members.

Text of Legislative Bill 37, An Act Relating To Decedent's Estates

Here is a copy of Legislative Bill 37, which was recently introduced in the Nebraska Legislature. Introduction to the bill is provided below:

FOR AN ACT relating to decedents' estates; to amend section 30-2476, Revised Statutes Cumulative Supplement, 2012; to change provisions relating to powers of personal representatives with respect to a decedent's Internet sites; to provide an operative date; and to repeal the original section.