Wills, Trusts & Estates Prof Blog

Enforcement Rights of Charitable Donors

Reid K. Weisbord (Dechert, LLP) has posted his article Reservations About Donor Standing: Should the Law Allow Charitable Donors to Reserve the Right to Enforce a Gift Restriction? on SSRN.

Here is the abstract of his article:

While charitable donors are often eager to enforce the terms of their gift in court, principles of charitable trust law traditionally preclude a donor from litigating restrictions governing the use of a gift. This article analyzes the most recent decisions that erode the common law prohibition of donor standing and proposes a model for legislative reform that would create a limited right to reserve donor standing.

The Interface Between the UTC and the NY EPTL

Victoria Hasseler has recently published her Comment Trustee-Beneficiaries, Creditors, and New York's EPTL: The Surprises That Result and How the UTC Solves Them, 69 Alb. L. Rev. 1169 (2006).

Here is the introduction to her Comment:

A trust is established. Tracy Brown is both the trustee and the beneficiary. The settlor has empowered the trustee to make discretionary distributions from the trust to the beneficiary herself without any limitation, such as an ascertainable standard. Much to the dismay of creditors, this means that Tracy Brown, as the trustee-beneficiary (hereinafter "T/B"), can access the trust funds at any time, yet the funds remain protected from her creditors while held in trust. Could the New York Legislature have intended such a consequence from the seemingly benign 2003, and subsequent 2004, amendments to section 10-10.1 of the New York Estates, Powers and Trusts Law (EPTL)?

This protection against creditors occurs because the discretionary power under section 10-10.1 of the EPTL is not a general power of appointment--with the accompanying provisions for creditors--although it is tantamount to such a power. Should the Legislature act and amend the current law to prevent abuse from occurring?

This paper begins by presenting a brief background of trust law and creditor law, including the doctrine of merger and the rights of creditors, in Section II. Section III sets forth the evolution of section 10-10.1 of the EPTL. Section IV addresses the implications of the 2003 and 2004 amendments by first discussing provisions for creditors and then discussing why the discretionary power is not a power of appointment based on the definition of a power of appointment under section 10-3.1 of the EPTL; the legislative history of article 10 of the EPTL; and the statutory heading of article 10, part 10 of the EPTL. Section V presents the possible positions of the Uniform Trust Code and considers why New York should adopt versions of articles 1 and 5 of the Uniform Trust Code. Finally, Section VI suggests feasible legislative solutions for New York's current law.

Happy Halloween!

Many law school classes have one or more holidays which are especially relevant.  For example, Family Law has Valentine's Day, Mother's Day, and Father's Day, Labor Law has Labor Day, Environmental Law has Earth Day, Military Law has Memorial Day, and Law and Religion has Christmas, Hanukkah, Ramadan, etc.

Halloween, with its fascination with death, may be the most relevant holiday to those who teach wills, trusts, estates, probate, and estate planning. So, however you celebrate, have fun and be safe!

Patent Your Favorite Tax-Saving Technique?

There is a growing trend for lawyers to patent tax-saving techniques which they have developed.

Here are some excerpts from Jeremy Kahn, Taxes: Patent that loophole, Fortune, Aug. 30, 2006:

In recent years, the Patent Office has begun granting patents to people who claim to have invented novel ways of avoiding taxes. The trend is part of a larger explosion in the number of patents granted to financial firms for so-called "business method" innovations.

So far, 48 patents for tax reduction strategies have been granted and at least another 61 applications are pending.

To tax shelter touts, the patents are a potentially deceptive new marketing tool. After all, if something is patented, it sounds as if it is government-approved. But just because something is patented doesn't mean it's legal.  * * *

Earlier this year, a Florida company called Wealth Transfer Group filed suit against John Rowe, the executive chairman of Aetna, alleging he infringed on the patent it holds for a tax savings technique involving the transfer of stock options to a certain type of trust because he used a similar technique without paying Wealth Transfer a licensing fee.

The case, which has yet to go to trial, is being closely watched by both tax and intellectual property lawyers.

Some are warning of dire consequences if the court sides with Wealth Transfer. "If you can patent an interpretation of the tax law, why not patent anyone's legal advice?" asks Carol Harrington, a lawyer with the firm McDermott Will & Emery in Chicago. "Then you could say people being prosecuted for murder can't use a certain defense without paying a licensing fee. Something is seriously wrong with that in my view."

An editorial in today's (Oct. 31, 2006) New York Times speaks out against the practice.

Attorney Reprimanded for Representing Husband and Wife

Despite repeated warnings of the risks associated with representing both spouses in preparing an estate plan, many attorneys continue the practice.

Recently, a Texas lawyer was given a public reprimand for such conduct.  Here is a summary of what happened:

[A] member of [the attorney's] law firm prepared estate planning documents for a husband and wife, including reciprocal wills. The husband had been represented by [his] law firm for other legal matters as well.

On April 12, 2002, [the attorney] drafted a new will for the wife naming the wife’s mother as the sole beneficiary of her estate.

[The Attorney] failed to obtain the prior consent of the former client husband before presenting the wife and drafting a new will.

See Disciplinary Actions, Tex. B.J. 902, 904 (2006).

California and the Estate Tax

Frank J. Doti (Professor of Law and William P. Foley II Chair in Corporate Law and Taxation – Chapman University School of Law) and Kevin B. Morriss have posted their article California's Estate Tax Dilemma on SSRN.

Here is the abstract of the article:

As a consequence of the Economic Growth and Tax Reconciliation Act of 2001 (2001 Tax Act), the federal government eliminated the estate tax credit for state death taxes paid after 2004. Due to an anomaly in California constitutional law, the legislature is prohibited from imposing a California estate tax as it had in the past because the California Estate Tax was tied to the federal death tax credit. The authors discuss the details of the problem and suggest alternatives to overcome the significant loss of revenue from wealthy estates.

Probate Lawyer Suspended

A San Antonio, Texas lawyer was recently suspended from the practice of law (one year of active suspension and two years probation) for probate misconduct.

The lawyer "neglected the representation, failed to reasonably communicate with his client, and failed to return unearned fees."

See Disciplinary Actions, Tex. B.J. 902, 906 (2006).

Choice of Entity Issues

Douglas Branson (W. Edward Sell Professor of Business Law – University of Pittsburgh School of Law) has posted his article Corporate Governance: Indeterminate or Schizophrenic Choices in the Form and Operation of Legal Entities on SSRN.

Here is the abstract:

Business, mutual benefit and charitable entities often choose a sub-optimal legal form. Alternatively, entities choose one form, only to operate as another, often running afoul of the law, at least historically. A trust may operate as if it were a partnership when, in reality, a corporate governance structure would suit it better. At the extreme, corporations under the Alaska Native Claims Settlement Act, for example, have acted as corporations, charities, political subdivisions, trusts, or tribes of Native Americans, as time passes and their needs change. Prompted by a book (Samuel King & Randall W. Roth, Broken Trust (2006)) chronicling mismanagement at the United States's largest charitable trust, the Bishop Estate, whose trustees acted as though they were partners of a small firm, this article inquires into this common but overlooked matter. One conclusion is that differences in the law applicable to differing legal forms have narrowed. Another is that corporate governance best practices may in reality be governance best practices, as suitable for a large trust, charity, or mutual benefit corporation as for a business entity.

Top SSRN Downloads

Here are the top downloads from August 30, 2006 to October 29, 2006 from the SSRN Journal of Wills, Trusts, & Estates Law for all papers announced in the last 60 days:

Rank	Downloads	Paper Title
1	69	The Adulteration of Fiduciary Doctrine in Corporate Law Robert Flannigan, University of Saskatchewan, Date posted to database: September 6, 2006 Last Revised: September 6, 2006
2	59	What Kinds of Stock Ownership Plans Should there Be? Of ESOPs, Other SOPs and 'Ownership Societies' Robert C. Hockett, Cornell University - School of Law, Date posted to database: September 20, 2006 Last Revised: October 9, 2006
3	45	Defining Life from the Perspective of Death: An Introduction to the Forced Symmetry Approach Kirsten Rabe Smolensky, University of Arizona - James E. Rogers College of Law, Date posted to database: August 18, 2006 Last Revised: October 21, 2006
4	39	From Right to Wrong: A Critique of the 2000 Uniform Parentage Act Mary Patricia Byrn, University of Minnesota Law School, Date posted to database: September 6, 2006 Last Revised: September 27, 2006
5	37	2006 Federal Tax Update Samuel A. Donaldson, University of Washington - School of Law, Date posted to database: October 9, 2006 Last Revised: October 9, 2006
6	23	California's Estate Tax Dilemma Frank J. Doti, Kevin B. Morriss, Chapman University - School of Law, Author - Affiliation Unknown, Date posted to database: August 3, 2006 Last Revised: October 11, 2006
7	19	Reservations About Donor Standing: Should the Law Allow Charitable Donors to Reserve the Right to Enforce a Gift Restriction? Reid K. Weisbord, Esq., Dechert LLP, Date posted to database: September 11, 2006 Last Revised: September 14, 2006

Medicaid Update Webcast

The State Bar of Texas is sponsoring a webcast entitled Medicaid Transfer Rules and Medicare Part D Benefit Plans on November 15, 2006 from 10:00 a.m. - 12:00 p.m. (Central time).

Topics covered will include:

• Medicaid Transfer ("Gifting") Rules
• Medicaid Transfer Strategies
• Ethical Issues in Medicaid Practice
• Prescription Drug Discount Card
• The Medcare Prescription Drug Program
• Eligibility and Enrollment
• Benefits and Beneficiary Protections
• Grievances, Coverage Determinations,and Appeals
• Miscellaneous Provisions of Part D

The speakers will include:

• H. Clyde Farrell, Austin, Attorney at Law
• Marilyn G. Miller, Dripping Springs, Attorney at Law
• Patricia F. Sitchler, San Antonio, Schoenbaum, Curphy & Scanlan P.C.
• Pi-Yi Mayo, Baytown, Law Office of Pi-Yi Mayo