Wills, Trusts & Estates Prof Blog

Testamentary Capacity

Pamela Champine (Associate Professor of Law, Director of Core Curriculum, Graduate Tax Program, New York Law School) has recently published her article entitled Expertise and Instinct in the Assessment of Testamentary Capacity, 51 Vill. L. Rev. 25 (2006).

Here is the conclusion to her article:

Contemporary expert assessment is the missing link in the quest to transform the unpredictable morass of testamentary capacity decisions into a coherent body of law. The development and use of FAIs [forensic assessment instrument] in other areas of law offer a model for the development of a testamentary capacity FAI. Testamentary capacity law stagnated for the entirety of the twentieth century; it ought not to continue stagnating in the twenty-first.

In order to move forward, the testamentary capacity doctrine must give clear guidance to the psychologists who would design a testamentary capacity FAI, and procedure must facilitate its use. Doctrinal and procedural modifications to testamentary capacity law must originate in a logical, workable and generally acceptable policy vision. The aim of this Article has been to offer such a vision.

Much remains to be done. The FAI must be designed, the procedural framework must be set forth in detail; a legislative proposal must be packaged and passed; and estate planning lawyers and their clients must be educated about the potential benefit of the reform. The agenda is daunting, but the magnitude of the potential benefit of this reform is even greater. Never has there been such a promising opportunity for meaningful reform in this area where reform has been so near and yet so far for far too long

Top SSRN Downloads

The most popular downloads between February 28, 2006 and April 29, 2006 from SSRN's Journal of Wills, Trusts, & Estates Law for papers announced in the last 60 days are as follows:
 

Rank	Downloads	Paper Title
1	83	Conditional Love: Incentive Trusts and the Inflexibility Problem Joshua C. Tate, Southern Methodist University - Dedman School of Law, Date posted to database: January 10, 2006 Last Revised: March 17, 2006
2	65	A Rule against Perpetuities for the Twenty-First Century Frederick R. Schneider, Northern Kentucky University - Salmon P. Chase College of Law, Date posted to database: March 7, 2006 Last Revised: April 2, 2006
3	44	Taxing Middle Class Trust(s) Pamela Champine, New York Law School, Date posted to database: March 31, 2006 Last Revised: March 31, 2006
4	33	A Marriage Skeptic Responds to the Pro-Marriage Proposals to Abolish Civil Marriage Nancy J. Knauer, Temple University - Beasley School of Law, Date posted to database: March 10, 2006 Last Revised: April 21, 2006
5	22	Judicial Discretion and the Disappearing Distinction Between Will Interpretation and Construction Richard F. Storrow, Pennsylvania State University - The Dickinson School of Law, Date posted to database: February 7, 2006 Last Revised: March 15, 2006
6	17	Understanding Debt Subordination and the Rule in Cherry v Boultbee: Re SSSL Realisations Look Chan Ho, Freshfields Bruckhaus Deringer, Date posted to database: February 17, 2006 Last Revised: February 21, 2006
7	11	The Political Path to Limited Liability in Business Trusts Robert Flannigan, University of Saskatchewan, Date posted to database: April 17, 2006 Last Revised: April 17, 2006

Strangi Guidelines for FLPs

Susan Kalinka (Harriet S. Daggett-Frances Leggio Landry Professor, Louisiana State University, Baton Rouge -Paul M. Hebert Law Center) has recently released her article on SSRN entitled Strangi II (or IV?): Fifth Circuit Draws a Line for FLPs under Code Sec. 2036(a).

Here is the abstract of her article:

Estate of Strangi v. Commissioner has made its way back and forth between the Tax Court and the United States Court of Appeals for the Fifth Circuit for the last five years, generating four different opinions. When the Tax Court first decided the Strangi case (Strangi I), it held that the IRS was barred from arguing that the value of property transferred to a family limited partnership (FLP) was included in the decedent's gross estate under Code Sec. 2036(a) because the IRS had waited too long before trial to amend its answer attacking the estate's valuation under Code Sec. 2036(a). The Fifth Circuit remanded the case to the Tax Court for a reconsideration of the Code Sec. 2036(a) issue.

On remand (Strangi II), the Tax Court held that Code Sec. 2036(a) applied to include the value of the property transferred to the FLP in the decedent's gross estate. The Fifth Circuit affirmed Strangi II in July. Estate planners have been waiting eagerly for the Fifth Circuit's opinion in Strangi II for two reasons.

First, the Tax Court held that not only was the property in question included in the decedent's estate under Code Sec. 2036(a)(1), but that Code Sec. 2036(a)(2) also applied. The Tax Court's opinion on the Code Sec. 2036(a)(2) issue could threaten the use of an FLP in an estate plan more than its opinion on the Code Sec. 2036(a)(1) issue.

Second, the Fifth Circuit also has issued an opinion in Kimbell v. United States, holding that property transferred to an FLP was not included in a decedent's gross estate under Code Sec. 2036(a). Practitioners had hoped that the Fifth Circuit would follow its Kimbell opinion to hold, in Strangi II, that property transferred by a decedent to an FLP was not included in the decedent's gross estate under Code Sec. 2036(a). These hopes were dashed, however. The Fifth Circuit distinguished the facts in Kimbell from the facts in Strangi II.

Strangi II offers some guidance to estate planners in the Fifth Circuit concerning the types of arrangements involving the use of an FLP in an estate plan that may pass muster under Code Sec. 2036(a) and the types of arrangements that will not achieve estate planning goals. This column discusses the Fifth Circuit's opinion in Strangi II and the guidelines that it seems to provide.

Asset Protection Trusts

Adam J. Hirsch (William and Catherine VanDercreek Professor of Law, Florida State University College of Law) has recently published on SSRN his article entitled Fear Not the Asset Protection Trust.

Here is the abstract of his article:

This article addresses the rise and gradual diversification of state statutes permitting settlors to self-settle trusts that avoid claims by their own creditors (known generically as asset protection trusts). The article argues that, whatever the motives underlying their authorization, asset protection trusts are unobjectionable, and even potentially beneficial, as a matter of public policy, at least to the extent that they affect the rights of voluntary (contract) creditors. The same can be said of revocable asset protection trusts, a new type of vehicle permissible since 2004 under one state statute. On the other hand, statutory provisions shielding the corpus of an asset protection trust from the claims of involuntary creditors (tort claimants, alimony creditors, etc.) raise a different set of concerns and merit revision on policy grounds. Unless efforts to revise the relevant statutes are undertaken in a broader legal context, however, so that they encompass all sorts of asset protection strategies, those efforts would prove counter-productive. A second section of the article analyses the problem of asset protection trusts in a bankruptcy proceeding.  Like other forms of spendthrift trust, asset protection trusts should remain impervious to creditors' claims in bankruptcy, but as a matter of discharge policy ought to be made subject to the new means test regulating eligibility for bankruptcy relief.  Ensuring that this occurs in all cases will require tweaking the language of the Bankruptcy Code as revised in 2005.

Mourning Death Online

Following on the heels of online dating, mourning those who have recently died has moved into cyberspace.

An article in today's New York Times, Warren St. John, Rituals of Grief Go Online, NY Times, April 27, 2006, explains the growing phenomena of people expressing grief on various types of websites including:

• "Social" sites originally maintained by the now deceased person such as MySpace.com.
• Professional obituary services such as Legacy.com.
• Funeral homes sites.

Importance of Asking Potential Fiduciary Prior to Nomination

Before naming anyone as a fiduciary (executor, trustee, guardian, etc.), the person should be shown a draft document and asked if the person would be willing to serve.  It is costly, both in terms of time and money, if the named fiduciary refuses to accept the position.

This basic principle was discussed in today's Dear Annie advice column.  See Dear Annie, Lubbock Avalanche-Journal, April 27, 2006, at B3.  Here is an excerpt from the a reader who wrote in using the nomination "R.I.P. (Not)":

This is a plea for all parents.  Please do not appoint someone trustee or guardian unless you know they are willing to take on the responsibility.  My husband begged his mother not to make him trustee over her estate, but when the lawyer read the will, guess who got the job?

Mom left my husband as trustee over money to be held for nine great-grandchildren.  He will be 81 before the last one comes of age.  His younger sister has to go through him to get at her inheritance because his mother felt she would spend the money foolishly. Maybe she would, but at least she would have a decent relationship with her brother.

Please don't try to control your children from the grave.  It just might kill them.

Trustee/Lawyer Visits the Dark Side

Today in my Wills & Trusts class, we discussed the various civil sanctions against a trustee who breaches fiduciary duties such as removal from office and surcharge.  We also examined the criminal penalties that may be available.

In this regard, I found an interesting note about a San Antonio, Texas lawyer, George Gonzales, who received a 15 year prison sentence for misapplying approximately $380,000 from a trust.  Mr. Gonzales was the trustee of a trust established for a man who became a paraplegic after an accident.

See Lawyer is handed 15-year sentence, San Antonio Express-News, Oct. 15, 2004, at 2B.

Revocation of Power of Attorney by Incompetent Principal

In Can an incompetent principal revoke a POA?, 94 Ill. B.J. 170 (2006), Helen W. Gunnarsson (Highland Park, Illinois) discusses the case of In re Estate of Doyle, 838 N.E.2d 355 (Ill. App. 2005).  Her article explains how this

recent opinion of the fourth district of the Illinois Appellate Court, including a special concurrence and a thoughtful dissent, highlights some uncertainty in the application of the Power of Attorney Act. The opinion raises questions as to how, if at all, the filing and granting of a petition for guardianship interact with an existing power of attorney and whether an incompetent principal may revoke a property power of attorney.

Tax Malpractice

Jacob L. Todres (Professor of Law, St. John's University - School of Law) has recently posted on SSRN his article entitled Recent Tax Malpractice Development in the Estate and Gift Tax Area.  Here is the abstract of his article:

In this article the author reviews developments of approximately the past five to six years in tax malpractice litigation in the estate and gift area. After a brief review of the basic elements of the malpractice cause of action, the author examines the recent cases by category: tax return preparation/filing, planning errors, drafting errors, disclaimers and valuation. The author concludes that a relatively large number of cases are brought in this area and that it likely is the leading area for malpractice suits during the time period involved. The author also notes that tax practitioners frequently avoid liability on statute of limitations grounds, various privity-related arguments and various other procedural reasons. Careful, preventive lawyering is especially important in this area.

Will Interpretation & Construction

Richard F. Storrow (Associate Dean for Academic Affairs and Professor of Law, Pennsylvania State University - The Dickinson School of Law) has recently posted his article on SSRN entitled Judicial Discretion and the Disappearing Distinction Between Will Interpretation and Construction.  Here is the abstract of his article:

In its recently completed Restatement (Third) of Property, Wills and Other Donative Transfers, the American Law Institute determines that the distinction between will interpretation and will construction is no longer tenable. The distinction has been prominent in the American will interpretation tradition. It holds that when a will's language is not plain, courts may consider extrinsic evidence for the purpose of resolving ambiguities arising from, for example, problems identifying the named beneficiaries or the described property. If such interpretation fails to reveal the testator's intent and ambiguity persists, courts then resort to rules of construction - presumptions that allow a court to attribute an intent to the written instrument.

Arguing that the current judicial practice is to consider actual and presumed intention simultaneously, the new Restatement rejects the view that interpretation and construction are discrete parts of a sequential process. It proposes a one-step process in which courts will consider extrinsic evidence and rules of construction simultaneously.

Professor Storrow argues that the new Restatement formulation of will construction is misguided. First, Storrow reveals that the judicial practice cited in justification of the new formulation is employed primarily in cases involving disputes over the quantum of estates - cases that, because of their peculiar context, have historically received treatment different from those cases involving the problems with identification that the law of will interpretation was designed to address. Second, through the lens of a recent case that interpreted the will of a decedent who owned vast holdings of mineral-rich land, Storrow demonstrates how the new Restatement formulation vests courts with excessive discretion and virtually invites them to flout the principle that, in every wills case, locating and carrying out the testator's intention is the primary and paramount concern.