Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

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Sunday, December 21, 2014

Article on Trust Protectors

Trust1J. Andy Marshall published an article entitled, Trust Protectors--Increasing Trust Flexibility and Security While Decreasing Uncertainty of Liabilities For Doing so: How Amending Ark. Code Ann. 28-73-808 to Better Conform With the Modern Trend of Clarifying Trust Protection Could Effectively End the Fiduciary Guessing Game in Arkansas, 35 U. Ark. Little Rock L. Rev. 1137 (Summer 2013). Provided below is an excerpt from the introduction of the article.

The year is 2040. 1 Sadly, death found you some twenty years ago. You lived a remarkable life though, blessed with a long and rewarding career in art. As it turns out, your paintings have noticeably increased in value over the past few years. So much so that the University you left them to in a trust agreement recently made quite the profit when it sold them to a modern art museum in a neighboring state. The University had fallen into financial hardship. But with your thoughtful contribution of more than $ 60 million in now-liquidated artwork and the blessing of a court, it will worry no more.
Before you died, you executed a testamentary trust that conveyed your gallery to the University to maintain as trustee for the benefit of the public. You probably did not recognize it then, but your attorney seemingly failed to get your full input before drafting the trust. The limitations he placed on the use of your property were astounding. He even went so far as to state that the University could only display your gallery at the University to educate the public. Even more startling, he stated that the University could never sell the gallery for profit. Indeed, the Attorney General nearly prevented the University from selling your gallery, claiming that it was obligated to keep the pieces on display for the public per the terms of your trust.

December 21, 2014 in Articles, Estate Planning - Generally, Non-Probate Assets, Trusts | Permalink | Comments (0) | TrackBack (0)

Thursday, December 11, 2014

Article on Settlor's Ignorance Constituting Mistake of Law

TrustZachary R. Eiken recently published a case comment entitled, Trust Law: Settlor Ignorance of Applicable Laws May Constitute A Mistake of Law Under North Dakota Century Code Section 59-12-15 (In re Mattew Larson Agreement, 831 N.W.2d 388), 89 N.D. L. Rev. 503-520 (2013).  Provided below is the article’s abstract:

In In re Matthew Larson Trust Agreement, the North Dakota Supreme Court held that the mistaken legal effects caused by a settlor's ignorance of applicable laws may warrant trust reformation under North Dakota Century Code section 59-12-15 if the moving party proves beyond clear and convincing evidence that such effects negate the settlor's intentions in creating the trust. With this conclusion, the court unequivocally rejected the application of contracting principles within the context of trust reformation claims. As a matter of first impression in North Dakota, Matthew Larson resolves a number of questions under North Dakota trust reformation law, but the decision unfortunately leaves some issues unresolved, the most important of which is Matthew Larson's applicability to commercial trust reformation claims. Because contracting principles will control commercial trust reformation claims, the North Dakota Supreme Court will have to qualify Matthew Larson so to apply solely to noncommercial trust reformations. In doing so, North Dakota will have to adopt a bifurcated trust reformation scheme that recognizes two distinct categories of trust reformation claims that are premised upon the exchange of consideration or the lack thereof.

December 11, 2014 in Articles, Estate Planning - Generally, New Legislation, Trusts | Permalink | Comments (0) | TrackBack (0)

Sunday, December 7, 2014

Article Review: Unconstitutional Perpetual Trusts

InfinityPaul Sullivan has written a review that discusses Robert H. Sitkoff and Steven J. Horowitz's new article entitled, Unconstitutional Perpetual Trusts, which analyses constitutional issues of perpetual trusts under select states' laws and constitutions.  Provided below is an excerpt from the review:

Critics of perpetual trusts have argued against them on moral grounds — saying tying up money for generations is bad public policy and could lead to a virtual aristocracy.

But Mr. Sitkoff is taking a new tack by questioning their legality.

In the paper, “Unconstitutional Perpetual Trusts,” which will appear in the coming issue of The Vanderbilt Law Review, Mr. Sitkoff and his co-author, Steven J. Horowitz, an associate at the law firm Sidley Austin, argue that legal challenges to these trusts could come from two sources: creditors in a state where the trusts are unconstitutional who are seeking ways to maximize their settlements and view the trusts as large sources of money, and descendants who want to break the trust and get their money now and without strings attached.

For the rest of the review, see Paul Sullivan, The Ins and Outs of Trusts That Last Forever, The New York Times, Dec. 5, 2014. 

December 7, 2014 in Articles, Estate Planning - Generally, Non-Probate Assets, Trusts | Permalink | Comments (0) | TrackBack (0)

Thursday, December 4, 2014

Article on Dealing With Faulty IRA Trusts


Seymour Goldberg (Goldberg & Goldberg, P.C.) recently published an insightful article entitled, Dealing With Faulty IRA Trusts, Ed Slott’s IRA Advisor (December 2014).  The article cautions practitioners against giving uninformed advice in the realm of retirement planning and IRA trusts, and iterates the importance of competent practice.  Provided below is the article’s introduction:

Naming a trust as an IRA beneficiary may offer many benefits.  If drafted properly, a trust can protect the account from creditors and reduce the risk that money will be mishandled.  On the other hand, naming a trust as IRA beneficiary makes it more challenging to stretch out required minimum distributions (RMDs).  Maximum tax deferral is possible, but only if the trust is crafted carefully and if the trustee follows proper procedures.

In reality, many IRA trusts are flawed, for purposes of extended tax deferral, and trustees often fail to meet a crucial deadline.  Advisors may face difficult after-the-fact decisions with noncompliant IRA trusts, and failure to take appropriate action could have unfortunate consequences.

Special thanks to Seymour Goldberg (Goldberg & Goldberg, P.C.) for bringing this article to my attention.

December 4, 2014 in Articles, Estate Administration, Estate Planning - Generally, Non-Probate Assets, Trusts | Permalink | Comments (0) | TrackBack (0)

Wednesday, December 3, 2014

Article on Jurisdictions Vie for Your Wealth

Pick me1Robert L. Moshman, Esq. recently published an article entitled, Don’t Live in New York, Don’t Die in New Jersey: Jurisdictions Vie for Your Wealth, The Estate Analyst, Nov. 30, 2014. Provided below is the introduction to the article:

Death requires no additional downsides. Death is almost always an inferior option to all the other alternatives that involve living. Yet, all other things being equal, some states provide estates with favorable amenities, such as mellow probate rules and an escape from state death taxes. Several jurisdictions are actively vying to become destination locations for your wealth (and the last stop for you).

There are, however, states that impose burdensome death taxes and unnecessary expenses on estates. Some jurisdictions will trap heirs in a punitive probate process that could be mistaken for Hell. Here, we attempt to identify some of the jurisdictions that might be worth avoiding. For example, living in New York may be an expensive option. Also, try not to die in New Jersey.

December 3, 2014 in Articles, Estate Planning - Generally, Estate Tax | Permalink | Comments (0) | TrackBack (0)

Tuesday, December 2, 2014

Article on Disclaimers and Federalism

Adam hirsch

Adam J. Hirsch (University of San Diego) recently published an article entitled, Disclaimers and Federalism, Vanderbilt Law Review, Vol. 67 No. 6 (2014); San Diego Legal Studies Paper No. 14-174.  Provided below is the abstract from SSRN:

The beneficiary of an inheritance has the right to disclaim (i.e., decline) it, within limits ordinarily set by state law. This Article examines situations where a beneficiary’s right to disclaim might instead be governed by federal law, as a matter of both existing doctrine and public policy. Issues of federalism arise with regard to disclaimers in several contexts: (1) when a disclaimer would function to defeat a federal tax lien; (2) when a disclaimer could affect a beneficiary’s eligibility for Medicaid assistance; (3) when a beneficiary disclaims ERISA pension benefits; and (4) when a beneficiary executes a disclaimer prior to declaring bankruptcy or in the midst of a federal bankruptcy proceeding. The Article begins by developing a theoretical model of the potential costs and benefits of federal preemption, jumping off from prior scholarly discussions of this problem. The Article then addresses, from the perspective of the model, each of the four situations where a disclaimer raises federal concerns. The Article concludes that different policy considerations arise in each situation, depending upon how a disclaimer relates to federal affairs — viz., whether a disclaimer would threaten the financial interests of the federal government, whether those financial interests can be safely delegated to states, whether federal law regulates the kind of property disclaimed, and whether the disclaimer occurs in anticipation of, or within, a specialized federal proceedings. Hence, the four situations addressed in this Article call for no synchronized response from the perspective of federalism but instead demand distinct treatment.

December 2, 2014 in Articles, Disability Planning - Health Care, Elder Law, Estate Administration, Estate Planning - Generally | Permalink | Comments (0) | TrackBack (0)

Article on New York's Decanting Statute

Wine1David Restrepo (Pace University School of Law) recently published a comment entitled, New York's Decanting Statute: Helping an Old Vintage Come to Life or Spoiling the Settlor's Fine Wine?, 34 Pace L. Rev. 479 (2014). Provided below is the introduction of the comment:

The avid wine drinker has many tools at his disposal to maximize the experience of a wonderful bottle of wine. These tools include specially crafted glassware in different shapes and sizes, and the ever-popular wine decanter.1 The decanter serves many functions, and its pros and cons are debatable, but one of the recognized uses is the aeration of the wine, which arguably allows a wine to quickly “come to life.”2 Similar to wine, trust assets may need modification in order to realize their full potential. It might be that the trust would operate at its best if it existed for an additional period of years beyond its original purpose, or that a new trust serves the beneficiaries better by taking advantage of tax benefits.3 The year 1992 was a historic year for estate planners in New York, as a tool very similar to the wine decanter became available for the use of trust assets. The 1992 addition of section 10-6.6 of the New York Estates, Powers and Trusts Law (“NY EPTL”) marked the first state statute to allow the “pouring” of trust assets from one trust into another.4

Estate planning presents several challenges to attorneys and trustees who face the dilemma of serving their client's interests by anticipating future effects on their assets. Utilizing trust decanting provisions has become a critical tool for a trustee when determining how to best serve a client's interests for various reasons such as protection of assets from tax ramifications, or modification of existing trusts to create better utility. Acknowledging these practical utilities, decanting has left several questions unanswered: Is the decanting process a blatant slight to the traditions that New York State has held dear in the field of Trust and Estate law? Why are estate planners using a utility that currently sits in limbo as far as an Internal Revenue Service (“IRS”) determination on what the eventual tax ramifications and treatment will be? While addressing what could be a major forthcoming issue on tax treatment of decanting, this Comment explores section 10-6.6 of the NY EPTL,5 the history behind the amendments, and the various practical uses decanting offers to the modern estate planner. Furthermore, and most importantly, this Comment examines the overlooked clash between the New York legislature's granting of seemingly unbridled power in trust reformation with New York's longstanding commitment to honoring a settlor's intent.6 The decanting statute and its modern use have disregarded the original intention of the statute, which was to allow estate planners to preserve the benefits of the Generation Skipping Transfer (“GST”) tax exemptions.7 Moreover, the reach of this statute has now placed it in complete conflict with New York's commitment to preserving settlor intent.

The Comment examines trust decanting in four parts. Part I reviews the historical evolution of decanting statutes, first from common law roots, and later focusing on the legislative history of New York's decanting statute. Part II briefly explains the functionality of section 10-6.6 of the NY EPTL; the “how does it work” explanation of the statute that authorizes decanting. Part III will discuss the many practical uses of the decanting statute. Finally, Part IV will transition into a discussion on how the trustee's use of this statute not only leaves him in limbo regarding the tax treatment of his actions, but places him in a head on clash with New York's longstanding commitment to honoring settlor intent.

December 2, 2014 in Articles, Estate Planning - Generally, Trusts | Permalink | Comments (0) | TrackBack (0)

Monday, December 1, 2014

Article on Domestic Asset Protection Trusts and Child Support

Trent MaxwellTrent Maxwell (J. Reuben Clark Law School, Brigham Young University) recently published a comment entitled, Domestic Asset Protection Trusts: A Threat to Child Support? 2014 BYU L. Rev. 477 (2014). Provided below is the introduction of the comment:

In 1997, Alaska became the first state to pass a usable statute allowing the creation of domestic asset protection trusts (DAPTs).1 Delaware was quick to follow, passing asset-protection legislation of its own later that year.2 Since then, a total of fourteen states have passed legislation allowing the creation of DAPTs.3 The impetus behind this legislation has been the respective states' hope for an increase in trust business and the revenue that it would generate.4 In order to achieve this result, the DAPT statutes are structured so that settlors must utilize services within the DAPT state5--such as requiring trust assets to be deposited within the state and requiring trust administration to be done by a state resident or company.6 In also a bid to attract trust business, many states have chosen to severely limit or entirely abolish the Rule Against Perpetuities.7 By eliminating the effect of the Rule Against Perpetuities, so-called dynasty trusts can be created,8 which are exempt from the generation-skipping transfer tax.9

While it is unclear whether these states have achieved their goal of increasing revenue,10 it is clear that the recent DAPT legislation has had a significant impact on creditors' rights.11 As states vie to become the top trust situs, states are incentivized to pass progressively more debtor-friendly legislation in order to draw trust business into their state.12 Because of the perverse incentives it creates, this competition has been dubbed a “race to the bottom.”13 One question that states have been confronted with in passing DAPT legislation has been how to treat child support--whether this “creditor” claim would be treated the same as other claims, or whether an exception would be made so DAPTs could not be used to avoid child support claims.14

While much has been written about the passage of DAPT statutes in general, this Comment adds to the discussion by specifically examining how states have tackled this question of how to treat child-support creditors. The majority of states that have passed DAPT legislation have included an exception for child support; however, disparity exists among the states on the strength of the exceptions and under what circumstances the exceptions apply.15 Furthermore, at least one state did not include any exception for child support at all, in effect treating child-support claimants the same as any other creditor-debtor relationship.16 Such legislation is troubling not only for its immediate effect on child-support dependents of settlors in DAPT states, but for how this legislation might pressure other states to eliminate child-support exceptions from their own statutes in order to compete for trust business. This Comment argues that states should include strong exceptions for child-support dependents because the creditor-debtor relationship is unique in this context, shielding of child support debts is immoral, and the economic cost to society of not having an exception for child-support claimants likely outweighs the economic benefits to the states.

Part I of this Comment examines the history behind self-settled trusts, including the traditional view of these trusts, the rise in the use of off-shore trusts, and finally the creation of domestic asset protection trusts. Part II summarizes the DAPT statutes that have been passed, particularly focusing on how the respective statutes treat child support, and also discusses why tax considerations are likely the motivation behind some states choosing to provide little or no protection to child support in their DAPT statutes.17 Part III explores policy considerations for including child support exemptions in DAPT statutes; such as the unique nature of the creditor-debtor relationship, and examines why tax considerations may be driving states that have passed DAPT statues to eliminate all exemption creditors (including child support “creditors”).18 Lastly, Part IV concludes that DAPT statutes that provide no exception, or only a weak exception, for child support are a threat to child support and should be disallowed for public policy reasons.19

December 1, 2014 in Articles, Estate Planning - Generally, Trusts | Permalink | Comments (0) | TrackBack (0)

Sunday, November 30, 2014

Article on Donative Intent and Unanticipated Circumstances

Reid Weisbord

Reid K. Weisbord (Rutgers Law School, Newark) recently published an article entitled, Federalizing Principles of Donative Intent and Unanticipated Circumstances, Vanderbilt Law Review, Vol. 67, No. 6 (2014).  Provided below is the abstract from SSRN:

Federal preemption has begun to upend an array of settled principles of state property succession law in an uncertain and inconsistent path toward the development of a federal body of wealth transfer law. As Professor Adam Hirsch documents in his insightful contribution to the Vanderbilt Law Review’s Symposium on the Role of Federal Law in Private Wealth Transfer, the federal displacement of state wealth transfer law is particularly on display in the area of disclaimer rights, which allow the donee of property to refuse acceptance of a donative transfer. Using disclaimer rights as an illustration, this paper argues that federal law, in adjudicating conflicts with state wealth transfer law, would benefit from consideration of a central tenet of donative transfer law — that wealth transfer law facilitates donative intent by responding to circumstances unanticipated by the donor. With the goal of facilitating a more cogent and transparent mode of analysis for developing a federal body of wealth transfer law, this paper applies the principles of donative intent and unanticipated circumstances in three contexts where state disclaimer law has problematically intersected with federal law: (1) federal claims, including federal tax liens; (2) transfers at death governed by ERISA; and (3) bankruptcy law.

November 30, 2014 in Articles, Elder Law, Estate Administration, Estate Planning - Generally | Permalink | Comments (0) | TrackBack (0)

Article on Disincentivizing Elder Abuse Through Disinheritance

LawTravis Hunt (J. Reuben Clark Law School, Brigham Young University) recently published a comment entitled, Disincentivizing Elder Abuse Through Disinheritance: Revamping California Probate Code § 259 and Using It as a Model, 2014 BYU L. Rev. 445 (2014). Provided below is an excerpt from the introduction of the comment:

Police found Ms. Brown, a seventy-four-year-old woman, partially fused to an arm chair surrounded by her own filth.1 Her son and primary caretaker, James Owens, left her in the chair for days, allegedly complying with her request to let her die at home.2 Luckily for Ms. Brown, James tried to endorse her social security check, and authorities eventually found her.3 Ms. Brown was pried from her arm chair and died of a stroke in the hospital several days later, and James was eventually sentenced to one year in prison.4 Although it is shocking that police found Ms. Brown in such a life-threatening and atrocious condition, it is almost equally shocking that nothing in Missouri's elder abuse statutes would keep James from inheriting from his mother's estate.5

Accounts like this are disconcerting for several reasons. First, for every disheartening story of elder abuse, there are several--perhaps dozens of--other stories that are never reported. Second, abusers have an eighty-four percent chance of living in a state that has not yet enacted a statute that disinherits elder abusers.6 Third, even in the eight states that have recognized that stories like Ms. Brown's are a major problem,7 the statutes that states have enacted to deal with this problem fail to provide strong incentives for people closest to elders to report abuse.

Existing scholarship tends to welcome elder abuse disinheritance statutes without extreme criticism, noting their potential deterrent effects.8 However, I argue that these statutes have severely limited their potential deterrent effects by relying too strongly on antiquated notions of inheritance rights, by refusing to treat many forms of elder abuse as perpetrations that can be deterred by probate law, and by refusing to disengage themselves from criminal law.

Most enacted elder abuse disinheritance statutes suffer from one of two common deficiencies. First, six of the eight states that have enacted such statutes require a criminal conviction, which deprives family members of an incentive to report and prosecute the abuse because they may lack evidence to support a conviction beyond a reasonable doubt. Second, three of the states provide for disinheritance only in cases of financial elder abuse, relying on false ideas about which kinds of abusive acts actually relate to inheritance.

November 30, 2014 in Articles, Elder Law, Estate Planning - Generally | Permalink | Comments (0) | TrackBack (0)