Wills, Trusts & Estates Prof Blog

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

Sunday, July 15, 2018

Article on Discretionary Trusts: An Update

TrusteesRichard C. Ausness recently published an Article entitled, Discretionary Trusts: An Update, Wills, Trusts, & Estates Law eJournal (2018). Provided below is an abstract of the Article:

In the past, settlors tended to limit a trustee’s discretion by setting forth a specific formula for the distribution of trust assets. Nowadays, however, settlors often prefer to vest more discretion in their trustees. This is partly due to the fact that beneficiaries tend to live longer and, therefore, trusts inevitably last longer, thereby requiring trustees to respond to changing conditions. In addition, settlors often believe that vesting increased discretion on the part of trustees will discourage beneficiaries from bringing expensive and disruptive challenges to their decisions.

Nevertheless, the trend toward increased discretion is not without its problems. First of all, there is a need to balance the wishes of the settlor against the duty of the courts to oversee the conduct of trustees and other fiduciaries. In addition, it is also necessary for courts to balance the wishes of the settlor with the right of the beneficiaries to receive fair and impartial treatment. Finally, it is necessary to determine when, if ever, creditors should be able to reach a beneficiary’s interest in a discretionary trust. The article begins with a description of the various linguistic formulas that settlors have typically used to describe the scope of a trustee’s discretion. It concludes that no language, however broad, can completely shield a trustee from judicial scrutiny. It then examines some of standards courts invoke when they purport to review the exercise of discretion by trustees. These standards be classified as subjective, objective or a combination of both.

The article also examines the ability of trust beneficiaries to challenge a trustee’s exercise of discretion. In addition, the article discusses the rights of creditors and concludes that discretionary and support trusts are treated like spendthrift trusts. This means that providers of necessary goods and services, as well as spouse, ex-spouses and minor children, can often reach a beneficiary’s interest in a trust. Finally, the article suggests some improvements in certain problem areas and advises drafters to be more specific about what a trustee can and cannot do when exercising discretion.

July 15, 2018 in Articles, Current Affairs, Estate Administration, Estate Planning - Generally, Trusts | Permalink | Comments (0)

Friday, July 13, 2018

Protecting Your Pets: How to Make Financial Provisions in a Will or Trust

GarfieldIn our modern society pets are no longer simply considered an animal - they are members of a family, providing emotional support and comfort. Laws have not evolved to the point to see pets as not property, though, so certain steps but be taken to provide for your furry loved one after your passage.

Just as children with their growing list of sports, scholastic activities, and college tuition, pets can be quite expensive. According to a Harris Poll survey, Americans spend an average of nearly $1,500 on essentials such as food, grooming, boarding and trips to the veterinarian’s office for their pets each year. Horses are the most expensive at roughly $13,000 a year.

Here, National Head of Trusts and Estates, Gerry Joyce, answers commonly asked questions such as:

  • Should I Use a Will or a Trust to Protect My Pet after I’m Gone?
  • Could I Simply Leave Money to a Trustworthy Friend?
  • Why Is the Trust Document so Important?
  • How Long Can a Pet Trust Continue?
  • How Much Money Can I Leave to Care for My Pet?
  • What Are the Most Unusual Trust Provisions You Have Seen?

See Protecting Your Pets: How to Make Financial Provisions in a Will or Trust, Fiduciary Trust International, June 19, 2018.

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

July 13, 2018 in Current Affairs, Estate Planning - Generally, Humor, Trusts, Wills | Permalink | Comments (0)

Will Parents’ Long-Term Care Costs Sink the Farm? [Wisconsin]

FarmersFor those from a farming family, a farm is the family home as well as the family business. For medical-assistance benefits purposes, the value of the farm is not considered an asset. But when the parent that received the care passes away, the home's value is part of that person estate and the state will file against it to recoup some of the costs of the care benefits. The inheriting person or people may then have to come up with cash or sell of other assets to make sure the farm is not sold off.

Gifting the farm to the next generation of farming children could be an option, but there are risks. When applying for medical assistance, the state will use a "look back" process of checking gifts of assets transferred within five years. If there have been a hefty gifting of property, certain benefits may be withheld. The parent also loses all control over the farm that they worked so hard for.

A more viable option may protect the farm from long-term care costs but also retain control would be to place the farm in an irrevocable trust and have the parents named as trustees. It would still be reviewed by the state under the "look back" policy, but it will be protected and the parents will retain control.

See Aric D. Burch, Will Parents’ Long-Term Care Costs Sink the Farm?, Ruder Ware, July 11, 2018.

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

July 13, 2018 in Current Affairs, Disability Planning - Health Care, Elder Law, Estate Planning - Generally, Trusts | Permalink | Comments (0)

Are Your Kids Heading off to College? Consider Setting Up A Power of Attorney

FreshmanAt the age of 18, a person is suddenly an adult and considered fully capable of making all of their own financial and medical decisions. But these subjects are insanely complex, and even the most responsible college freshman may need a bit of guidance from their parents for proper navigation. A Power of Attorney and a Power of Attorney for Health Care may be just the cushion young adults need to slip into the treacherous waters of adulthood.

Without a financial and health care power of attorney, a parent will not have the authority to make health care decisions or manage money for their child over 18 years old, even if parents are paying tuition and the child is still on their parents' health insurance and claimed as a dependent on the parents' tax return. If a college student or child over 18 is disabled in an accident, the parents will have to petition the probate to be given the authority to make crucial decisions for their child.

"A power of attorney is a legal document that allows one person (called the principal) to appoint someone else - called the agent or attorney-in-fact - to act on his or her behalf. The powers that can be exercised by the agent can be broad or narrow; the principal stipulates them in advance. There are three different types of powers of attorney:

  • conventional power of attorney gives the agent whatever powers the principal chooses for a specific period of time (e.g., 30 days) beginning when it is signed.
  • durable power of attorney stays in effect for the principal's lifetime - beginning when it is signed.
  • springing power of attorney is triggered by a specific event, such as when the principal becomes incapacitated."

See Meredith Murphy, Are Your Kids Heading off to College? Consider Setting Up A Power of Attorney, Smith Amundsen, July 10, 2018.

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

July 13, 2018 in Current Affairs, Disability Planning - Health Care, Estate Planning - Generally | Permalink | Comments (0)

Thursday, July 12, 2018

Don't Split Heirs With Your Estate

image from https://s3.amazonaws.com/feather-client-files-aviary-prod-us-east-1/2018-07-13/9599b5d1-9640-41a8-a934-5f50409948b1.pngMark Accettura, estate planning attorney and author of Blood & Money: Why Families Fight Over Inheritance and What to Do About It, says that stepparents and stepchildren are natural competitors to children. “It’s the number one source of conflict in my practice.”

Your first responsibility should be your spouse, especially if they are not financially independent and look to you for economic support. A surviving spouse does have the right to claim certain amounts of the late spouse’s assets, in the absence of a will or proper prenup depending on their state's laws on the matter.

At the death of the first spouse, distribute at least a little cash to all the adult children, equally. It’s not so much the amount as the signal that you cared. If the relationships are appropriate, try to treat children and stepchildren the same.

A persistent source of conflict is the division of personal property, says John Scroggin, an attorney with Scroggin & Co. in Atlanta. First-family heirlooms might be claimed by second-family children — in the worst case leading to lawsuits.

See Jane Bryant Quinn, Don't Split Heirs With Your Estate, AARP Bulletin, July/August 2018.

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

July 12, 2018 in Current Affairs, Estate Administration, Estate Planning - Generally, Intestate Succession, Trusts, Wills | Permalink | Comments (0)

Article on The "Charming Head" of the Rule Against Perpetuities

PandpDavid H. Fishman and Edward J. Levin recently published an Article entitled, The "Charming Head" of the Rule Against Perpetuities, Probate & Property Magazine, Vol. 32, No. 4, July/August 2018. Provided below is an abstract of the Article:

The September/October 2017 issue of Probate & Property contained an extensive article regarding purchase options and rights of first refusal. Kathryn E Allan et al., Rethinking Rights of First Refusal, Rights of First Offer, and Options to Purchase, Prob. & Prop., Sept./Oct. 2017 at 48. The article commented that, regarding purchase options, the Rule Against Perpetuities can "rear its charming head regularly, albeit sometimes in useless desperation. This occurs in cases with purchase options under commercial lease where the purchase price in the option clause may bear no relation to current market value of the property.

July 12, 2018 in Articles, Current Affairs, Estate Administration, Estate Planning - Generally, New Cases, Wills | Permalink | Comments (0)

Aligning Client Lifestyle, Dreams And Legacy Goals With Wealth Objectives

image from https://s3.amazonaws.com/feather-client-files-aviary-prod-us-east-1/2018-07-12/360f065f-4af7-4e93-ae15-68871d6a3fc7.pngFinancial advising companies have a quite peculiar way to categorize their clientele. They determine that the "mass market" are clients that are worth $1 million or less, and that the "high net worth" category are those that have a net worth of more than $20 million. Two vastly different types of companies assist these types of clients, and that often means that the middle section of "lower millionaires" that could be overlooked.

These type of millionaires are often the self-made ones that are more determined and driven than the ones that have had their fortunes come to them through inheritance. Their dreams may be harder to define and it is the job of their advisor to help align their dreams with their reality.

Legacies for self-made millionaires can be tricky, as they understand the need for hard work but also the desire to enjoy the fruits of that labor. It may not just comprise of assets and accounts, but values that the client wants to pass on to their loved ones are desired organizations.

Any good financial advisor will consult with their client about their lifestyle: how they spend their money and how they save it, what brings them comfort and ease, how they like to live on a daily basis. Advisors must know these items if they expect to tell the client what’s necessary to achieve his or her goals. 

See Greg Powell, Aligning Client Lifestyle, Dreams And Legacy Goals With Wealth Objectives, Financial Advisor, July 6, 2018.

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

July 12, 2018 in Current Affairs, Estate Administration, Estate Planning - Generally, Income Tax, Trusts, Wills | Permalink | Comments (0)

Wednesday, July 11, 2018

How Tax Reform Could Fuel Life Settlement Industry

Tax actThe life settlement industry may have already been growing at a steady pace, but the Trump Administration's passage of the Tax Cuts and Jobs Act gave it much appreciated momentum. Taxpayers could continue to shun life insurance policies due to the increase in the gift and estate tax exemption amount and opt to purchase life settlements instead.

But is the improved tax situation enough? "While the investing environment surrounding the life insurance market is looking ideal, it’s not yet clear if a better tax situation alone is sufficient to encourage long term growth in the life settlement industry." It is no longer a necessity for life insurance programs to be grouped together with a client's entire estate plans.

No market is entirely level for too long, and the truth of the matter is that Americans aren’t investing nearly enough in their retirement. A change of government in the near future could see new tax legislation introduced, altering or even removing the current master overhaul from President Trump.

See Gary Eastwood, How Tax Reform Could Fuel Life Settlement Industry, Accounting Web, June 13, 2018.

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

July 11, 2018 in Current Affairs, Estate Planning - Generally, Estate Tax, Gift Tax, New Legislation, Wills | Permalink | Comments (0)

Article on From Switzerland with Love: Surrey’s Papers and the Original Intent(s) of Subpart-F

SwitzerlandNir Fishbien recently published an Article entitled, From Switzerland with Love: Surrey’s Papers and the Original Intent(s) of Subpart-F, Tax Law: Tax Law & Policy eJournal (2018). Provided below is an abstract of the Article:

For the first time since 1913, and as part of the 2017 tax reform, Congress adopted a tax regime that exempted from U.S. taxation dividends from foreign subsidiaries. By doing so, Congress abandoned the general principle that U.S. residents should be subject to tax on all income “from whatever source derived.” This shift marked a good occasion for considering the reasons the United States taxed such dividends in the first place. In 1962, Congress enacted a new law, also known as ‘Subpart-F’, which subjected certain earnings of foreign subsidiaries of American parent corporations to current-base taxation. This was a deviation from the general tax principle of tax deferral, under which earnings of foreign subsidiaries are taxed only upon repatriation of these earnings (by a dividend, for example). The new legislation was the result of a political compromise. While Treasury supported a wide-scale elimination of tax deferral, Congress eventually adopted a much narrower law, eliminating tax deferral only in cases where it was abused by using it to avoid otherwise owed U.S. taxes.

Seven internal Treasury Department reports found in the archive of Harvard Law School Library reveal the dramatic sequence of events that led to the legislation of Subpart-F, one of the most prominent international tax reforms the United States had ever known. The reports unequivocally support the notion that the idea behind Subpart F was initially formed mainly due to the deteriorate U.S. Balance of Payment position, and that its “original intent”, as designed by its main architect, Assistant Secretary of the Treasury, Stanley S. Surrey, was to eliminate tax deferral and protect the U.S. tax base. This was based on the principles of equity, efficiency (Capital Export Neutrality), and elegance. Congress, on the other hand, rejected the proposal and adopted a much more limited in scope legislation, mainly due to the concern that eliminating tax deferral would result in a competitive disadvantage to American corporations operating abroad.

Based on the reports, as well as the controlling legal and economic concepts of that time, I argue that Congress was mistaken in limiting the original proposal to eliminate tax deferral. This mistake was the result of relying on overly-emphasized and exaggerated competitive concerns, instead of on concrete tax and sound fiscal policies.

July 11, 2018 in Current Affairs, Estate Planning - Generally, Income Tax, New Legislation | Permalink | Comments (0)

Tuesday, July 10, 2018

Texas: A Cautionary Tale for Medicaid Management and Managed Care Companies

MedicaidState Medicaid Agencies are required to have all medically necessary services accessible to beneficiaries, but also safeguard Medicaid from fraud, waste, or abuse of billing, which equates an intense and challenging balancing act.

"In 2010, Texas entered into a landmark settlement of a 14-year old lawsuit, Frew v. Hawkins.   The Frew litigation, originally filed as a class action in 1993, alleged that Texas had failed to ensure that children enrolled in Medicaid were receiving necessary preventative and specialty health care services." In essence, the plaintiff's alleged that reimbursement for services were low enough that it caused a shortage of Medicaid providers throughout the state.

The settlement required Texas to increase Medicaid to incentivize providers to enroll in the system and fund a 50% increase in dental reimbursement rates. One way Texas decided do implement this was to contract with private companies "including the responsibility for oversight and prevention of fraud waste and abuse; the state also insisted on contract provisions requiring the private companies to swiftly process and pay Medicaid claims to ensure an unimpeded flow of services."

This unfortunately led to more abuse, as initially revealed TV station WFAA-TV in Dallas. Ensuing federal and state audits found that Texas dental providers were being paid for pediatric orthodontic services that were beyond what was medically required or justified - at least $191.4 million.

See Ellyn Sternfield, Texas: A Cautionary Tale for Medicaid Management and Managed Care Companies, Health Law Policy Matters, July 8, 2018.

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

July 10, 2018 in Current Affairs, Estate Planning - Generally, New Cases | Permalink | Comments (0)