Wills, Trusts & Estates Prof Blog

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

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Thursday, March 5, 2015

Mounting Costs of Long-Term Care Insurance

Medical expenses

For about 1.2 million Americans, Tom McInerney will be paying their nursing home bill.  McInerney, 58, is the chief executive officer of Genworth Financial Inc., the giant of long-term care insurance. 

Long-term care policies written years ago have become a black hole for the insurance industry.  Executives misjudged everything from how much elder care would cost to how long people would live; costing insurers like Genworth billions. 

Struggling to contain the damage, Genworth warned of a “material weakness” in some of its accounting.  To cope with mounting costs on the policies, Genworth has been continually raising premiums.  Despite furious policyholders, there is no quick fix for Genworth. 

“What’s happened over the last five, six years is an example, frankly, of market failure,” said Howard Bedlin, vice president at the National Council on Aging.  “There was a slew of pretty significant premium increases.”  Nonetheless, McInerney says they will get it right eventually. 

See Bloomberg News, The Old-Age Bill That’s Crushing Genworth, Financial Advisor, March 3, 2015. 

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

March 5, 2015 in Current Affairs, Disability Planning - Health Care, Elder Law, Estate Planning - Generally, Non-Probate Assets | Permalink | Comments (0) | TrackBack (0)

Wednesday, March 4, 2015

Passing Down a Private Foundation

Charity 3

If you have a private foundation, it is time to think about who might run it after your death.  The best advice for donors and heirs is to start planning.

A private foundation is a lot like a family business: the business owner is so busy with the business; the succession planning is pushed off for another day.  Below are some tips for an easier transition:

  • Clarify your mandate.  A mission statement for your foundation can spell out your values and guiding principles.  You can decide how strict to make it, or whether you want to let future trustees into areas you may be unaware.
  • Consider family dynamics.  Not every family member wants to be involved.  Test this out by giving individuals responsibilities while the founder is still alive.  This way the founder has guided and educated the potential successor and can see if he or she is a good fit. 
  • Bring in experts.  Be open to outside help.  Being flexible enough to pull in the right people at the right time can help with strategies.
  • Make connections.  You can enrich your work by making connections with other philanthropists.  This is true for original donors as well as heirs who take over the foundation.

See Ashlea Ebeling, Do’s And Don’ts of Passing Down A Private Foundation, Forbes, Feb. 11, 2015.

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

March 4, 2015 in Estate Administration, Estate Planning - Generally, Non-Probate Assets | Permalink | Comments (0) | TrackBack (0)

Tuesday, March 3, 2015

Tougher Rules for Retirement Brokers


President Barack Obama has thrown the weight of the White House behind his plan that would make it difficult for brokers to push higher fee mutual funds or other expensive products on people saving for retirement.  The plan to be issued by the Labor Department would require brokers to act in a customer’s best interest, a change that could limit the earnings of financial advisers in the handling of Americans’ $11 trillion of retirement savings.  Labor Secretary Tom Perez stated, “I’m confident we can actually do more to help the small and moderate savers in the context of the proposal we will be putting forth.”  He further stated, “Financial advisers absolutely deserve fair compensation.  But they shouldn’t be able to take advantage of their clients.”

Former employees of companies such as AT&T, Hewlett-Packard Co. and United Parcel Service, have complained that brokers persuaded them to roll their 401(k)s into high-cost, unsuitable IRA investments.   However, some argue that subjecting brokers to a fiduciary duty will lead to more lawsuits against the industry and add burdensome compliance requirements.  Furthermore, the added costs will likely cause brokers to drop client accounts with less than $50,000 of assets, leaving those investors to manage their own savings. 

See Dave Michaels, Obama Backs Tougher Rules for Brokers on Retirement Funds, Bloomberg Politics, Feb. 23, 2015.

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

March 3, 2015 in Estate Planning - Generally, Non-Probate Assets | Permalink | Comments (0) | TrackBack (0)

Monday, March 2, 2015

Students Sue Harvard Over Fossil Fuel Investments

Harvard 2

Harvard students and faculty have been calling for the University to rid its endowment portfolio of fossil fuel investments.  Now in a novel case, Harvard students have sued their institution, claiming the university is violating its mission and intentionally investing in “abnormally dangerous activities” that threaten the “future habitability of the planet.” 

One of the plaintiffs is second year law student Kelsey Skaggs, who says that it is important for Harvard to divest in fossil fuels because they are contributing to the harms of climate change.  Because Harvard is an elite institution, it is an opinion leader, so “an action of divestment would send a message that Harvard is not willing to be part of this system in which fossil fuel companies are given impunity to destroy the planet and destroy the future of Harvard students,” explains Kelsey. 

The plaintiffs consist of Kelsey and two other second-year law students, several undergraduate students, and a graduate student at the Applied Sciences and Engineering graduate school.  In addition to the first count, where the plaintiffs assert a special interest as students, a second count includes another plaintiff: future generations.  Hence, the students are suing on behalf of generations to come who could potentially be harmed by the climate change to which Harvard is contributing. 

The students are seeking injunctive relief, thereby asking that the court order Harvard University to divest its holdings in fossil fuel companies. 

See Harvard Sued Over Fossil Fuel Investments, Living on Earth, Feb. 20, 2015. 

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

March 2, 2015 in Current Affairs, Estate Planning - Generally, Non-Probate Assets | Permalink | Comments (0) | TrackBack (0)

Sunday, March 1, 2015

3 Roth IRA Considerations

Roth ira

There is no better way to secure your financial future than by taking advantage of the tax benefits offered by a Roth IRA.  These retirement accounts do not allow you to deduct contributions up front, but enable you to make tax-free withdrawals in retirement.  Before opening a Roth, learn the associated rules and limits.  Here are a few things to know:

  • Mind the Cap.  If your annual income is in the six figures, you may not be eligible to contribute to a Roth, because the IRS limits the use of Roth IRAs to those whose income falls below a certain threshold. 
  • Tax Breaks.  Roth IRAs do not offer an up-front tax break, so benefits of tax-free withdrawals can only be realized if your tax rate will be higher in retirement than it was when you were working. 
  • Health History.  By choosing a Roth IRA instead of a traditional IRA, you are assuming that you will live long enough to enjoy the tax benefit of those tax-free withdrawals.  It is important to consider your health and your likelihood of living decades into retirement, especially if you will be relying on Roth IRA withdrawals for income.

See Todd Campbell, 3 Things You Should Consider Before Contributing to a Roth IRA, The Motley Fool, Feb. 28, 2015.

March 1, 2015 in Estate Planning - Generally, Income Tax, Non-Probate Assets | Permalink | Comments (0) | TrackBack (0)

Saturday, February 28, 2015

Drafting a Trust Amidst Divorce

Divorce 2

While marriage can be wonderful, it can also be difficult.  Unfortunately, some couples encounter hurdles in their relationship from which they may never recover. 

Regardless as to whether the split is acrimonious or harmonious, leaving trust assets on the table during negotiations can enable the parties to make beneficial deals that will protect family business interests or other assets from division.  The goal should be to plan for divorce with flexibility to maximize a divorcing couple’s options, while also protecting what divorcing settlors would want. 

A big concern is that the settlor in the divorce action will not want their spouse to automatically continue as trustee or beneficiary with no safeguards.  A refined solution involves two provisions: First, upon the filing of a divorce action, the trust instrument default should automatically remove the spouse as trustee appointer and trustee remover only.  That way, a successor in line can remove the spouse as trustee if that’s desired.  The spouse can also remain as fiduciary if appropriate.  Second, someone should be empowered in the instrument to exercise a power to add or remove beneficiaries like a divorced spouse.  This combined approach can achieve all that most divorcing clients would want without limiting flexibility for the minority of clients whose divorce wishes may be atypical.

See Kim Kamin, Planning for Divorce When Drafting a Trust, Wealth Management, Feb. 27, 2015.

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

February 28, 2015 in Estate Planning - Generally, Non-Probate Assets, Trusts | Permalink | Comments (0) | TrackBack (0)

IRA Match Program

IRAIn an attempt to entice new customers, Fidelity has begun offering contribution matching for customers that transfer an existing IRA to Fidelity. The incentive program works by matching a percentage of the account contributions made for the three years after the account is transferred. The percentage depends on the amount in the account when it is transferred.

See Ashlea Ebeling, A New Reason to Fund an IRA: The IRA Match, Forbes, Feb. 26, 2015.

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

February 28, 2015 in Estate Planning - Generally, Non-Probate Assets | Permalink | Comments (0) | TrackBack (0)

Friday, February 27, 2015

Auctioning Bequest Creates Controversy for Gordon College

Gordon CollegeWhen a wealthy family bequeathed a collection of rare Bibles and Shakespeare folios to Gordon College in 1922, there was one caveat: the works must remain with the school. 

When a descendant of the late collector Edward Payson Vining learned that Gordon plans to auction off ten percent of the 7,000 volumes, he was shocked.  “I know [Vining] would want the books to be there,” said Vining’s great-granddaughter, Sandra Webber. 

The planned sale has spread unease among the campus, leading some faculty to question the leadership of the college’s president, D. Michael Lindsay.  The administration was left out of the decision to auction off the works.  Yet, some administrators say that selling a portion of the collection is necessary to afford preserving the rest of the books.

Meanwhile, the collection is listed in a full-color advertisement of the auction house Doyle New York.  The auction has been scheduled for April, but the college postponed it until the fall.

See Laura Krantz, Gordon College’s Bid to Auction Books Creates Uproar, Boston Globe, Feb. 26, 2015.

February 27, 2015 in Estate Administration, Estate Planning - Generally, Non-Probate Assets | Permalink | Comments (0) | TrackBack (0)

Article on Reintegrating the Wealth Transmission System

Melanie_LeslieMelanie B. Leslie (Professor of Law and Vice Dean, Benjamin N. Cardozo School of Law) and Stewart E. Sterk (Mack Professor of Law, Benjamin N. Cardozo School of Law) recently published an article entitled, Revisiting the Revolution: Reintegrating the Wealth Transmission System, 56 B.C.L. Rev. 61 (2015). Provided below is the abstract from the article:

Thirty years ago, John Langbein published “The Nonprobate Revolution and the Future of Succession.” The article celebrated testators’ newfound ability to avoid the expense and delay of the probate court system by holding assets in a variety of non-probate devices, such as retirement and bank accounts with beneficiary designations and revocable trusts. Langbein highlighted problems the revolution might generate and predicted how they might be resolved. Since then, significant problems have indeed developed. First, wills law doctrines designed to effectuate intent of testators have not been universally extended to non-probate transfers. Second, the fragmentation of the wealth transmission process has created coordination problems that did not exist when almost all of a decedent’s assets passed through the decedent’s probate estate. This has increased opportunities for attorney error. Even when attorneys get it right, rogue clients can easily undermine a carefully constructed estate plan, and the law does not always allow courts to correct these errors. Third, the non-probate system increases the potential for wrongful takers to dissipate assets before rightful beneficiaries have an opportunity to make claims to those assets. As we explain, neither lawyers, financial institutions nor the legal system have successfully resolved these issues. We advance several proposals that might ameliorate the costs of the non-probate system, such as conferring broader power on estate executors to coordinate non-probate assets, and a voluntary registration system that would reduce the risk of inadvertent conflicts among wealth transmission documents.

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

February 27, 2015 in Articles, Estate Administration, Estate Planning - Generally, Non-Probate Assets | Permalink | Comments (0) | TrackBack (0)

Thursday, February 26, 2015

Trustee’s Control of Entity Held in Trust Relevant to Removal Proceeding

GavelA beneficiary brought an action seeking removal of his mother as the personal representative of his father’s estate and as co-trustee with his brother, of his father’s testamentary trust. 

In In re Estate of Stuchlik, the Nebraska Supreme Court affirmed dismissal of all the actions relating to the estate because it was already closed but reversed and remanded on the issue of trustee removal based on the co-trustees’ management of a partnership in which the trust held both a minority limited partnership interest and a one percent general partnership interest.  Another one percent general partnership interest was held by the mother in her own right and together with the trust interest effectively gives mother all of the general partnership interest.

The Court reasoned that because trustees must deal with entities held in trust in the best interests of the beneficiaries, a trustee’s management of the entity may violate the duty of loyalty and the duty to act impartially between beneficiaries, and therefore is an appropriate subject of inquiry in a removal proceeding so long as the evidence offered pertains to the co-trustees’ actions in their capacity as trustees.

Special thanks to William LaPiana (Professor of Law, New York Law School) for bringing this case to my attention.

February 26, 2015 in New Cases, Non-Probate Assets, Trusts | Permalink | Comments (0) | TrackBack (0)