Wills, Trusts & Estates Prof Blog

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

Monday, February 8, 2016

Wealthiest Investors Still Spooked By 2008 Financial Crash

Piggy BankThe 2008 financial crash shook the confidence of much of the developed world particularly the investor elite whose portfolios were exposed to the downturn. Since then, confidence has gradually been restored as a majority of investors in a recent poll reported they felt the comeback from the collapse was complete and that their financial position returned to normal. However, nearly 90 percent of respondents also stated that they now intend to hold larger cash stakes in order to protect themselves in the event of a liquidity crisis. This is in spite of the fact that the money will feel the effects of inflation and not be allowed to grow through investment. While this might be a sign of skittish caution, the recent economics woes of the BRIC's, Europe, and the Middle East may indicate that those with exposure to market downturns are preparing for the worst. But for the sake of the world's economy, let us hope that their caution proves to be unnecessary.

See, Emotional Scars, Wealth Management, February 5, 2016.

Special thanks to Jim Hillhouse for bringing this article to my attention.

February 8, 2016 in Current Affairs, Current Events | Permalink | Comments (0)

New Case On Nursing Home Arbitration Agreements In California

GavelIn 2012, Marjorie Fitzpatrick entered an assisted living center due to her advancing dementia and was sign in by her daughter Valerie acting as her mothers representative. However, in 2013, Marjorie suffered a fall outside the facility while unsupervised and was left on the ground for over half an hour and suffered numerous injuries which contributed to her death. Valerie, acting as a representative of Marjorie's estate, filed suit for wrongful death but the facility argued that Valerie and the estate was bound to the arbitration agreement that Valerie signed when she placed her mother in the facility. In Monschke v. Timber Ridge Assisted Living LLC, the appellate court affirmed the trial court and held that the estate was not bound by the agreement since the suit was brought on behalf of the children of Marjorie, rather than the decedent herself, and that they were not bound by the agreement.

Special thanks to Stacie Strong (Manley O. Hudson Professor of Law, University of Missouri School of Law) for bringing this article to my attention.

February 8, 2016 in Elder Law, New Cases | Permalink | Comments (0)

Article On Small Trust Termination Statutes

ArticlePictureAlyssa A. DiRusso (Professor of Law, Cumberland School of Law) recently published an article entitled, Euthanizing Small Charities: The Threat of Small Trust Termination Statutes, 45 Cumberland L. Rev. 475 (2015). Provided below is an abstract of the article:

With the widespread adoption of the Uniform Trust Code, many American states are enacting statutes that grant a trustee full discretion to terminate a trust on the sole ground that it has too little money to justify administrative expenses. This Article argues that there are two key costs of terminating small charities: depleting democracy in philanthropy and shrinking diversity in charitable focus. To support these claims of harm to democracy and diversity in charity, the Article reviews empirical evidence mined from tax returns: first, on disparity between charitable goals of the well-funded trust and the less-so, and second, on diversity of focus in smaller versus larger charities. The analysis reveals that smaller charities do tend to have different substantive primary goals than larger charities and that smaller charities do demonstrate more variety in focus than larger charities. We therefore may threaten democratic and diverse charity when terminating small charitable trusts, and ought to be reluctant to put our smaller charities to sleep.

February 8, 2016 in Articles, Trusts | Permalink | Comments (0)

Sunday, February 7, 2016

What To Know About Choosing An Out Of State Executor

Business_expenseThis financial advice column discusses the pros and cons of choosing an out-of-state executor. Selecting a personal representative to serve as the executor of an estate is a very important decision. When selecting an out-of-state executor, it is important to make sure that they meet all the requirements in your state. This column discusses the requirements in the State of Indiana, and one of those requirements is that the out-of-state executor would have to post bond and appoint a “resident agent.” “The goal is to make sure that the out of state personal representative submits to the personal jurisdiction of the probate court.” Because the Court’s authority stops at the State line the resident agent would need to be available to accept service of process, notices and documents.

See Christopher Yugo, Pros and cons of an out-of-state executor, NWI Times, February 7, 2016.

February 7, 2016 in Estate Planning - Generally, Trusts, Wills | Permalink | Comments (0)

The Importance Of Planning Ahead For Long-Term Care

ABLEPlanning ahead for long-term care can be difficult because there are many ways it can impact different people. This column discusses some of the statistics that can provide people guidance with long-term care planning. It goes over the statistics on the age demographics of people needing nursing home care revealing that the odds are an individual will not need nursing home care until he or she is 80 or 85. Some of the key factors that go into determining whether a person will need long-term care include their family history, health and fitness level, and their current family situation. All these factors should be weighed together when planning ahead for the possibility of one day needing long-term care in an assisted living facility.

See Harry S. Margolis, Will You Need Long-Term Care?, Margolis & Bloom, LLP, February 2, 2016.

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

February 7, 2016 in Disability Planning - Health Care, Disability Planning - Property Management, Elder Law, Estate Planning - Generally, Non-Probate Assets | Permalink | Comments (0)

Redstone Media Empire In Turmoil As Succession Dispute Rages

Single CombatThe decline of the health of Sumner Redstone has a been a hot topic in the news due to his control of CBS and Viacom, two of the largest players in mass media. However, the aging billionaire recently began to pullback from his leadership roles with his resignation as chairman of the board of CBS. Now a full on battle for succession to lead the media empire has emerged between his daughter Shari, Les Moonves the CEO of CBS, and Philippe Dauman the CEO of Viacom. But this battle comes at a crucial moment as the landscape of the entertainment industry has rapidly changed as television ad revenues declines and more individuals opt for cable cutting which has sliced into the profit margins of many cable networks. In the end, the fight for primacy will come down to the choice of the trustees of National Amusements, which include Shari and Dauman, the holding company that controls the majority of shares of both Viacom and CBS. Only time will tell which party emerges as the dominant force in the Redstone empire and reveal if the eventual successor is able to navigate the treacherous waters of the modern media.

See Matthew Garrahan & Shannon Bond, Succession battle engulfs Sumner Redstone’s media empire, Financial Times, February 4, 2016.

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

February 7, 2016 in Current Affairs, Current Events | Permalink | Comments (0)

Article On Contingent Beneficiaries

ArticlePictureKevin Bennardo (Professor of Law, Indiana University Robert H. McKinney School of Law) recently published an article entitled, Slaying Contingent Beneficiaries, 24 U. Miami Bus. L. Rev. 31. Provided below is an abstract of the article:

This Article analyzes what impact, if any, the slaying of one beneficiary by another should have on distribution of a decedent’s property. This issue could arise in a variety of conveyances, such as intestate succession, wills, pay-on-death bank accounts, transfer-on-death securities, or life insurance proceeds. Based on equity, the Restatement (Third) of Restitution takes the position that a beneficiary may never move forward in the line of succession as the result of a slaying. This result is thought to be an extension of the traditional “slayer rule,” which disallows a slayer from inheriting from her victim.

The Article argues for the opposite conclusion: the slaying of a higher-priority beneficiary by a contingent beneficiary does not result in unjust enrichment because it does not result in a transfer of a property interest to the slayer. Although the slayer advances in the line of succession as a result of the slaying, the slayer still only possesses a defeasible expectancy, not a property interest. Because an expectancy is the legal equivalent of nothing, the slayer has not profited as a result of the killing.

February 7, 2016 in Articles, Trusts, Wills | Permalink | Comments (0)

Saturday, February 6, 2016

Form 8971 and Instructions Released but many ??? Remain

BwolfThe following post is supplied through the courtesy of Bob Wolf (Tener, Van Kirk, Wolf & Moore, P.C., Pittsburgh, PA):

 The final form 8971 and the instructions to the form have now been released.

 This is a form that is required to be filed for all estates where a Federal Estate Tax return is required to be filed on or after August 1, 2015. The point of it is to inform both the beneficiaries and the IRS of the estate tax value of assets passing to beneficiaries where a Federal Estate Tax Return is required.

1. If a Federal Estate Tax Return is not “required to be filed”, this form and its accompanying schedule A which is to be sent to the individual beneficiaries is not required.

2. Where a Federal Estate Tax Return is required, even though there may be no Federal Estate Tax due because of the marital or charitable deduction, the form and accompanying Schedule A will be required.

3. Where a Federal Estate Tax Return is filed solely for the purpose of electing portability, incredibly and unfortunately it is unclear as to whether 8971 and Schedule A are required:

It is not required. Looking at the statutes and the prior Notice 2015-57 by themselves, it seems clear that the Form and Schedule should not be required. Section 6035(a)(1) and (a)(2) provide that an executor required to file a return under Section 6018(a) or a beneficiary required to file a return under Section 6018(b) shall furnish the form and provide the information to the person acquiring the interest. Section 6018(a) provides that a return is required of an executor "where the gross estate of a citizen or resident exceeds the basic exclusion amount in effect under section 2010(c)." The Notice also connects the dots the same way with 6018(a). The instructions, however, say: "The filing requirement for Form 8971 does not apply to an executor of an estate that is not required to file an estate tax return because the gross estate plus adjusted taxable gifts is less than the basic exclusion amount, but who does so for the purpose of making an allocation or election respecting the generation-skipping transfer tax." If they intended to exclude portability returns, why would they not have included them in the instructions? Just as logically, if they intended to include portability returns, why would they not have said so?

What’s the argument that we do have to file for portability only returns? Treas. Reg. 20.2010-2(a)(1) says, “An estate that elects portability will be considered, for purposes of subtitle B and subtitle F of the Internal Revenue Code (Code), to be required to file a return under section 6018(a).” Oh no! If you make a portability election and you are deemed to be required to file a return, are you forced into filing the Form 8971 and a Schedule A? Wait a minute—I thought the Portability provisions were supposed to simplify things! And what about the fact that those same regulations tell us we don’t even have to put in a value for assets which qualify for the marital or charitable deduction? How does that work? Worse yet, I understand the BNA Daily Tax Report quotes Kathy Hughes (a primary Treasury spokesman) as saying that Treasury was aware of the issue, and that this explains seemingly missing elements in the instructions. What does that mean? Well, apart from the above being something like triple hearsay, it sounds like Treasury “is thinking about it.” Great! Section 6035 and this whole idea is a train wreck

4. Where a Federal Estate Tax Return is required and the inclusion of an asset causes an increase in estate tax liability, the beneficiary receiving the property must use a value which is not LOWER than that reported on the Federal Estate's tax Return. This is what is added by Section 1014(f). That presumably means that the consistency requirement is inapplicable to property that does not increase tax because it is part of the marital or charitable deduction (or does it—what about formula bequests?)

5. The form is due to be filed with the IRS and Schedule A is due to be delivered to each beneficiary within 30 days of the filing of the form 706. There is ambiguity about when it must be filed if it is filed late, because the instructions say that it must be filed by the earlier of the date that is 30 days after the due date or 30 days after the date the Form 706 is filed. The instructions also say that if the first Form 706 is filed after July 2015 and after the forms' due date, the form and schedules are due within 30 days after the actual filing date.

6. If the date for the filing of Form 8971 and Schedule A is delayed by virtue of the fact that the form had not yet been released, the due date for the Form and Schedule is February 29, 2016. Notice 2015 – 57 indicates that February 29, 2016 is also the first day that the IRS will accept these forms. I would hope and think that you should be able to file them earlier than that if you are ready to do so. Otherwise it will be a very busy day on February 29, 2016.

7. The Form may be required before you know what assets are going to pass to what beneficiary. That is unfortunate, however, as you then have to list all of the possible assets that might be used to satisfy the beneficiary's interest in the estate. Then when you actually know what assets pass to the beneficiary, it appears that you are supposed to file a supplemental Form and Schedule.

8. If the final value of the property for Federal Estate Tax purposes turns out to be different than what was reported on the Federal Estate Tax purposes, you are supposed to file a Supplemental Form and Schedule.

9. All of this ignores the fact that that things; lots of things in fact, happen to estate assets after someone dies and after a Federal Estate's Tax value is established which may in fact affect the cost basis in the property received. But you (the executor or other responsible person who must file this form – seemingly the same person as is required to file the Form 706) are not required to report the cost basis of the asset to the beneficiary – but rather its Federal Estate Tax value as finally determined. In most cases that will be the same but not in all cases.

10. You clearly have to identify by schedule and by item number in the asset passing to the beneficiary. I believe this means that using a "see attached" for securities held in a brokerage account or trust account will probably not work for this purpose. This may well mean significantly more work for those practitioners who utilize this shortcut method.

11. The instructions go into the penalties at great length which start as low as $50 per Form 8971 to a maximum penalty of $3,193,000 per year. I guess I wouldn't worry too much about the maximum penalty since that would imply a rather large number of Federal Estate Tax returns. And you qualify for lower maximum penalties if "your" average annual gross receipts for the 3 most recent tax years ending before the calendar year in which the information returns were due are $5 million or less (what does "your" mean? you personally? the firm?).

12. With respect to the consistency requirement and whether the question "did this asset increase estate tax liability?" should be answered "yes" or "no", the instructions indicate that generally, any property that qualifies for a marital deduction or charitable deduction will not generate estate tax and "No" should be indicated. If, as is usually the case, the marital and charitable deduction may be determined by formula, it would seem to me in many cases the value of the asset may generate estate tax even if that particular asset were used to satisfy a marital or charitable formula.

13. What about cash? There seems to be no exception for cash. So is that to be reported? Or imagine this very common situation: you have a $6 Million estate that is essentially all securities--no cash--and that the executor prudently sells the securities and distributes the cash. Result? A 8971 is required listing all of the securities, and after the cash is distributed a supplemental 8971 would be required that would presumably be blank because there was no cash listed on the 706 to begin with, and hence nothing to list. Problem is that the statute doesn't ask for a report of the cost basis of distributed assets, but rather the property as it is listed on the 706.

14. There are many other questions about all of this—but you have to stop somewhere—I am stopping here, with these two additional notes.

15. This form is to be filed to a slightly different address and is to be filed separately from Form 706 or any of the other Form 706 series.

16. Steve Gorin of St. Louis, Missouri suggested that if Congress had simply added Section 1014(f) and not 6035, things would be much improved. I think Steve is right. This is an extraordinarily complicated, troublesome and expensive solution to a problem that in my opinion is hardly a problem at all. 1014(f) would have been more than enough. I think the problem was that Congress wanted to provide funding for our roads and bridges, but didn’t have the fortitude and candor to either cut some other expenditure, raise revenue (taxes), or admit that they were increasing our deficit.

There, I’m done. Unfortunately, this is complicated, it is more work, there are ambiguities and many questions. Hopefully these questions may be answered within the next year or so, but in the meantime we will have to struggle with how to interpret, prepare and file these forms and Schedule A.

February 6, 2016 in Estate Tax | Permalink | Comments (0)

Banks Are Now Helping Parents Plan For Their Children’s Retirement

Kids retirementThere are a growing number of banks helping parents with planning for their children’s retirement. A new “Roth IRA for kids” sends the message that it is never too early to start planning for retirement. “Fidelity is the latest on the list of major banks like Charles Schwab and Vanguard who offer retirement-savings products for kids under 18, reports Dan Kadlec at TIME.” These Roth IRAs for children are custodial accounts created by parents and where the children are the beneficiaries of investments that grow tax-free. As medical advancements cause average life-spans to increase people are going to need to start planning as soon as possible to make sure they have the savings needed to live a comfortable retirement. Perhaps creating a Roth IRA for children is not such a bad idea.

See Libby Kane, Forget college – Banks are offering parents ways to save for their kids’ retirement, Business Insider, February 6, 2016.

February 6, 2016 in Estate Planning - Generally, Non-Probate Assets, Trusts | Permalink | Comments (0)

Getting Ready For The First Estate Planning Meeting

Necessary estate planningPutting together an estate plan with an estate planning attorney is an important task that everyone needs to perform. This column discusses the important steps that people should follow when they are getting ready to have their first estate planning meeting. It is important to put together a list of assets and liabilities, and also decide how to distribute personal items that might have sentimental value. People should start thinking about who has the necessary skill and willingness to serve as the personal representatives of the estate. Creating trusts for children and grandchildren might be a better alternative than distributing assets directly to them, but it is important to make sure that the person who is tasked with serving as trustee is qualified for the position. It is also extremely important for people to decide who will be making medical and financial decisions for them if they lose capacity by creating the necessary power of attorney.

See Julia Satti Cosentino, 7 Ways You Can Prepare for Your First Estate Planning Meeting, Generation to Generation, January 28, 2016.

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

February 6, 2016 in Estate Planning - Generally, Non-Probate Assets, Trusts, Wills | Permalink | Comments (0)