Wills, Trusts & Estates Prof Blog

Probate Lawyer Behaving Badly

A Kerrville, Texas law recently received a 27-month suspension from the practice of law (three months actively served with the balance being probated) for engaging in conduct unbecoming of a probate lawyer.

Here is a description of the lawyer's conduct from Disciplinary Actions, Tex. B.J. 470, 471 (2006):

[The lawyer ] failed to respond to telephone calls, failed to keep his client reasonably informed about the status of the probate case, and failed to explain the matter to the extent reasonably necessary for the client to make informed decisions regarding the representation.  [He] neglected the representation by failing to pursue the probate matter in a timely manner, failed to protect the decedent’s estate, and failed to provide a requested accounting of funds he received on behalf of the estate. Upon termination of the representation, [he] failed to surrender papers, funds, and property to which the client was entitled.

E-STATE Issue 2006.1

ABA Real Property, Probate and Trust Law Section has recently released issue 2006.1 of its E-STATE publication.  Below is a list of the articles included in this issue:

By Steve R. Akers:

Heckerling 2006 Institute Musings

Heckerling Institute Notes 2006

ACTEC 2006 Annual Meeting Musings

By John C. McCaffrey:

December 19, 2005 N ew York State Office Of General Counsel – No “Insurable Interest” In Non-Recourse Life Insurance Transactions

January 6, 2006: Sendas Lose FLP Valuation Appeal To 8th Circuit

January 6, 2006 Transfer Of Funds To A CRT Are Not Part of Trust Corpus

January 17, 2006 Pre-Paying Tuition Benefits Confirmed

January 25, 2006 Retained Power To Substitute Property Does Not Cause Estate Inclusion

February 13, 2006: Trust To Trust Transfer Of Life Insurance Not A Transfer For Value

February 24, 2006 IRS Chief Counsel Denies Joint Filing For California Domestic Partners, In Spite of Community Property Law: Potential Transfer Tax Consequences Massive

Foreigners Coming to United States to Establish Trusts

G. Warren Whitaker (Partner, Day, Berry & Howard LLP) has recently posted his article entitled The U.S. May be a Good Trust Jurisdiction for Foreign Persons on SSRN.

Here is the abstract of his article:

At one time non-U.S. persons would rarely consider creating atrust  that was subject to the jurisdiction and governed by the substantive law of one of the fifty United States. The definition of what constituted a U.S. trust for income tax purposes was vague and amorphous, and US trusts are subject to U.S. income tax on their worldwide income, while non-U.S. trusts are taxed only on their U.S. source income.  However, recent changes in U.S. tax law have made it possible to create a trust with a U.S. trustee that is subject to U.S. court supervision and governed by the laws of a U.S. state, and still achieve all the tax advantages of a foreign trust. In addition, certain states have enacted substantive trust laws that are attractive for anyone who wants to create a trust, including non-U.S. persons.

Among the recent changes in the tax law that permit foreigners to use U.S. trusts are:

1. The revised definition of "United States Trust" enacted by Congress in 1996 creates a two-pronged bright line test, and only trusts that meet both tests are considered to be U.S. trusts. The tests make it possible to create a trust under US law that nonetheless qualifies as a foreign trust.

2. Several U.S. states now permit a Settlor to contribute assets to an irrevocable trust and remain a permissible beneficiary of the trust in the discretion of an independent trustee, and the trust assets will be protected from creditors whose claims arise after the trust is created, and thus also potentially excluded from U.S. estate tax at the Settlor's death.

3. The rules regarding grantor trusts with non-U.S. grantors were also significantly amended in 1996.

4. Certain countries have lists of jurisdictions that are considered to be tax havens. The U.S. is not on any of these lists.

5. Income tax treaties between the United States and certain other countries provide benefits to non-U.S. persons residing in these treaty countries who create and fund U.S. domestic trusts.

6. The income taxes of the United States on passive income have been dramatically reduced in recent years in order to avoid taxation in their home country.

The substantive advantages that make U.S. trusts attractive to foreigners include:

1. No Rule Against Perpetuities in some states.

2. Investment Advisor with sole responsibility for investment management.

3. Distribution Advisor

4. Protection From Forced Heirship

5. Private Trust Companies

Canada & Limited Liability Arrangements

Robert Flannigan (Professor, University of Saskatchewan) has recently released his article The Political Path to Limited Liability in Business Trusts on SSRN.

Here is the abstract of his article:

Following American initiatives, interest group efforts to acquire statutory limited liability have recently accelerated in Canada. Social elites have persuaded provincial legislatures to selectively alter conventional liability rules in a variety of contexts. There is no satisfactory analytical foundation for these radical moves. In the case of the business trust, the immunity legislation was engineered through an appeal to the undeveloped notion of investor protection and the tactical exploitation of provincial concerns with market share. The intention was to reshape conventional responsibility to accommodate investor harvesting and fee generation. While those objectives were realized, it would appear that the legislation actually only confirms the original liability configuration.

If it does grant non-contingent immunity, the new legislation is a testament to the efficacy of organized lobbying in elevating narrow self-interest over general legal principle.

Liquidation of Family Partnerships

Samuel A. Donaldson (Associate Professor of Law & Director, Graduate Program in Taxation, University of Washington School of Law) has recently released his article entitled Liquidation of the Family Partnership: The Taming of the Shrewd.

Here is the abstract of his article as published on SSRN:

Family partnerships and family limited liability companies are typically formed for reasons of efficiency, succession, and valuation. But all good things come to an end.

Owners of a family partnership opt for liquidation in a variety of situations, usually following the death of the founding owner(s). Although most practitioners recall that the liquidation of a partnership is not a taxable event, few remember that as many as three Code provisions can come into play upon the liquidation of a family partnership. This article reviews those potential income tax traps and uses two examples to illustrate their coordination and application in a typical setting.

Post-Death Divorce

The traditional marriage vow includes the phrase "'Til death do you part."  The law has followed this lead and declared that a marriage is automatically terminated upon the death of one of the spouses, that is, no court action is needed to terminate the marriage after one of the spouses dies.

But, in a recent case from Blairsville, Pennsylvania, the estate of a man who was murdered the day before he had planned to sign his divorce papers is seeking to finalize the divorce even after the man's death.  The man's attorneys have alleged various grounds for doing so from carrying out the man's intent to preserving an already approved property settlement.

For more information, see Dentist seeks divorce -- after his death, CNN.com, May 27, 2006.

Special thanks to Sara Hudman for bringing this article to my attention.

Top SSRN Downloads

Below are the most popular downloads from March 29, 2006 to May 28, 2006 for all papers announced in the last 60 days from the SSRN Journal of Wills, Trusts, & Estates Law:

Rank	Downloads	Paper Title
1	113	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	48	Taxing Middle Class Trust(s) Pamela Champine, New York Law School, Date posted to database: March 31, 2006 Last Revised: March 31, 2006
3	32	Evaluating the Potential Success of a GRAT Against Competing Strategies to Transfer Wealth Jonathan G. Blattmachr, Diana S.C. Zeydel, Milbank, Tweed, Hadley & McCloy LLP, Greenberg Traurig, LLP, Date posted to database: April 3, 2006 Last Revised: April 3, 2006
4	23	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: May 8, 2006
5	20	Forty Years of Codification of Estates and Trusts Law: Lessons for the Next Generation Gregory S. Alexander, Mary Louise Fellows, Cornell Law School, University of Minnesota School of Law, Date posted to database: May 15, 2006 Last Revised: May 15, 2006
6	19	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
7	14	The September 11 Relief Efforts and Surviving Same-Sex Partners: Reflections on Relationships in the Absence of Legal Recognition Nancy J. Knauer, Temple University - Beasley School of Law, Date posted to database: March 10, 2006 Last Revised: March 13, 2006

Intestacy and Step-Partner Adoptions

Peter T. Wendel (Professor of Law, Pepperdine University School of Law), has recently published an article entitled Inheritance Rights and the Step-Partner Adoption Paradigm: Shades of the Discrimination Against Illegitimate Children, 34 Hofstra L. Rev. 351 (2005).

Here is the conclusion of his article:

Just as inheritance laws that excluded illegitimate children "sent a signal that childbearing ought to occur within the marital context," the prevailing stepparent adoption inheritance laws that exclude children adopted by a step-partner send a signal that adoption ought to occur within the marital text. The stepparent adoption rule discriminates against children adopted by step-partners with respect to inheritance laws. From a public policy perspective, this distinction is illogical and unjust. One would expect that, as the asymmetry in inheritance rights is made public, there should be support for granting a child adopted by a step-partner the right to inherit from both natural parents. Liberals should support such an approach because it broadens what constitutes a legally recognized parent-child relationship. Conservatives should support such an approach because it is in the best interests of the child. From a public policy perspective, the failure to extend the stepparent adoption rule to the step-partner adoption scenario is as illogical as the rule itself.

In addition, while there is no constitutional requirement that states permit step-partner adoptions or that states adopt the stepparent adoption rule, if a state has the stepparent adoption rule and it recognizes step-partner adoptions, the Equal Protection Clause of the Fourteenth Amendment requires the state to extend the stepparent adoption rule to children adopted by step-partners. Similarly situated children should be treated the same. At a minimum, the Uniform Probate Code's stepparent adoption rule should be amended to grant a child adopted by a step-partner the same inheritance rights as a child adopted by a stepparent so that family law, as embodied in the Uniform Adoption Act, and wills and trusts law, as embodied in the Uniform Probate Code, speak with one voice on this important emerging social and legal issue.

Determining Proper Amount of Life Insurance

Follow this link to read The Wizard of Id comic strip from May 25, 2006 which provides insight on how a married person may determine whether he or she has sufficient life insurance coverage.

Lottery and the Gross Estate

Wendy Gerzog (Professor of Law, University of Baltimore School of Law) has recently released her article entitled Donovan and Davis: Two More Lottery Cases.

Here is the abstract of her article as posted on SSRN:

Despite restrictions on marketability, lottery payments included in a decedent's estate must be valued by the actuarial tables and without a marketability discount. They must be valued by the actuarial tables because:

(1) Congress said so (section 7520); (2) the Supreme Court said so (Ithaca Trust); and (3) the values under the tables in the cases are not "so unrealistic and unreasonable" to necessitate, under either case law or the regulations, an exception from their application.

Section 7520 requires the sole use of the tables to value annuities and partial interests in property and no exceptions pertinent to the lottery cases are found in the statute, regulations, or prior case law. If there were no statute, regulations, or prior case law, logically one would still need to acknowledge that the value of a nonmarketable sure thing like lottery payments should not be much less than the present value of those winnings. That means their value cannot be "wildly unrealistic" or "substantially unrealistic and unreasonable" as compared to their value computed under the tables.