Wills, Trusts & Estates Prof Blog

Mutual Fund Companies are Stepping in to Assist Baby Boomers with Retirement Planning

New Funds for Retirement Payouts, smart money, WSJ.com, Oct. 14, 2007, discusses several approaches to managing retirement accounts that are offered by various mutual-fund companies.  Here is the introduction to this article:

How can you make your retirement savings last as long as you do? That's the trillion-dollar question, as millions of baby boomers start to decide what to do with their workplace savings accounts.

For decades, financial planners and insurance salesmen have offered answers -- and products and services. Now the mutual-fund industry has jumped into the fray.

This fall, Fidelity Investments launched 11 Income Replacement Funds, followed by Vanguard Group, which announced plans to offer three Managed Payout funds.

Both companies have paired investment portfolios with monthly withdrawal plans. They've also replaced the traditional focus on guaranteed income with payment streams that could vary from year to year -- a novel idea, and one that may give retirees more spending power.

But that's where the similarities end.

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

Elvis is the King Again! -- Top-Earning Deceased Celebrities

As reported earlier on this blog, Kurt Cobain had captured the top spot on the Forbes list of top-earning decedents dethroning Elvis.

But, things have changed!  Elvis is now back on top and Kurt isn't even in the top 13!

Here is the current list according to AP, Elvis Is Forbes' Richest Dead Celebrity, Oct. 30, 2007:

1.  Elvis Presley ($49 million)
2.  John Lennon ($44 million)
3.  Charles M. Schulz ($35 million)
4.  George Harrison ($22 million)
5.  Albert Einstein ($18 million)
6.  Andy Warhol ($15 million)
7.  Theodor Geisel (Dr. Suess) (13 million)
8.  Tupac Shakur (9 million)
9.  Marilyn Monroe ($7 million)
10. Steve McQueen ($6 million)
11. James Brown ($5 million)
12.  Bob Marley ($4 million)
13.  James Dean ($3.5 million)

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!

Is Nonprofit and Philanthropy Law In Need Of State Level Reform?

David A. Brennen  (Professor of Law, University of Georgia School of Law) has recently posted on SSRN his article entitled Introducing the Law of Nonprofit Organizations and Philanthropy describing a recent symposium issue of the Georgia Law Review.

Here is an abstract of his description:

This symposium issue of the Georgia Law Review provides an excellent opportunity to showcase both the subject matter of the January 2007 AALS section program and the growing field of legal study on matters concerning nonprofit and philanthropy law.

Professor Garry Jenkins' article, included in this symposium, will provide foundational information concerning the section program. The panelists from the section program, including Professors Evelyn Brody, Susan Gary and Lizabeth Moody, have contributed to this symposium by submitting articles that address the general program topic of state-level reform of nonprofit law.

Each panelist represents a different private entity in the United States that is attempting, to some degree, to take aserious look at state law and its affect on nonprofit institutions. These reform entities include the American Law Institute (ALI), the National Conference of Commissioners on Uniform State Laws (NCCUSL) and the American Bar Association. But first, this short introduction to the symposium will outline other aspects of this growing field of law. It will describe the creation, development and purpose of the new AALS section, highlight the new Social Science Research Network (SSRN) abstracting journal on nonprofit law, and identify one of the major educational institutes that focuses on nonprofit and philanthropy studies.

Creative Technique to Sell a House -- Guaranty the Buyer a Repayment Legacy

A new technique is developing to help people sell homes in the current housing market downturn.

Here is how it works:  The seller enters into a contract to include a cash legacy in the seller's will to repay the buyer for the sale's price.  Some sellers may add additional incentives.  For example, if the buyer helps care for the seller when the seller gets older, additional funds or property will be added to the buyer's testamentary gift.

See Amy McConnell Schaarsmith, A house deal to die for?, Post-Gazette (Pittsburgh), Oct. 29, 2007.  The article also explains:

The Husicks' offer is certainly unusual, said attorney John Cook, who specializes in estates and trusts for the North Hills law firm Cook & Tate.

"Holy mackerel! This is unbelievable," Mr. Cook said when told of the Husicks' proposal. "You can make a contract to will the assets, so it would be a binding contract, but of course there's no guarantee that there will be anything of value left in his estate at the time of his death."

To protect themselves, Mr. Cook said, would-be buyers would have to write stipulations into the will that the Husicks not give away large portions of their estate, and not place the estate into joint ownership with anyone other than the buyer.

Special thanks to Deborah Letz (attorney, San Antonio, Texas) and Mark Killingsworth (J.D. Candidate, Texas Tech University School of Law) for bringing this situation to my attention.

Texas Judicial Update

Gerry W. Beyer (Governor Preston E. Smith Regents Professor of Law, Texas Tech University School of Law) has recently published his article Wills and Trusts, 60 SMU L. Rev. 1363 (2007).

This article discusses judicial developments relating to the Texas law of intestacy, wills, estate administration, trusts, and other estate planning matters. The discussion of most cases includes a moral, that is, the important lesson to be learned from the case. By recognizing situations which have lead to time consuming and costly litigation in the past, the reader may be able to reduce the likelihood of the same situations arising with his or her clients.

If you would like a reprint of this article, please let me know (supplies are limited).

Gift and Estate Taxes -- Swedish Style

Henry Ohlsson (Professor of Economics, Uppsala University) has recently posted on SSRN his article entitled The Legacy of the Swedish Gift and Inheritance Tax, 1884-2004.

Here is an abstract of his article:

This paper has two objectives. The first is to study the revenue from the gift, inheritance, and estate taxes in Sweden during more than a century. The second is to focus on a unique episode during the second half of the 1940s when gifts and gift tax revenue exploded. This episode has never before been discussed in the research literature. It gives an extremely clear illustration of behavioral response to taxes in general, and the impact of expectations of future tax increases in particular. It is also a very interesting episode in the economic history of Sweden. I have access to aggregate tax revenue data since 1884.

Moreover, I have constructed a rich micro data set of all gifts reported during the period 1942-1949 in one county. A first main result is that gift tax revenue during the 1940s started to increase long before a new estate tax and increased wealth taxation were decided and implemented. The increase even began before the legislative process started. Second, both the number and the average values of gifts increased. Promissory notes were, in value, the most common way to give. Finally, gifts, inheritances, and estates were never important sources of tax revenue. Revenue as a share of GDP reached a peak already in the 1930s. The role of these taxes has instead primarily been equity and to provide integrity for other tax bases.

Anxiety over Indeterminate Future of Estate Tax Is on the Rise

Earlier on this blog, I discussed the uncertainty associated with the amount of exemption and the tax rate that will be applicable to non-exempt estates in the upcoming years.

According to Rebecca Knight, Facing up to the two certainties in life, FT.com, Oct. 23, 2007, this uncertainty has caused many Americans to experience an increased level of anxiety. Knight reports:

The survey, carried out by The Hartford Financial Services Group, found that most affluent Americans - particularly those with more than $2m in net worth - say they are more concerned than they were a year ago about their families having to surrender significant chunks of an estate to federal taxes.* * *

The top federal estate-tax rate on the biggest estates is 45 per cent until 2009, and will increase to 55 per cent in 2011.* * *

Compared with the sample average of 49 per cent that expressed greater concern about the estate tax, 73 per cent of Americans with $5m or more in assets, and 56 per cent of Americans with more than $2m in assets, said that their fears were increasing, the survey found.

The greatest concerns over the estate tax were: the respondents' increase in their net worth; the growing federal budget deficit that might imperil any estate tax cuts; and their sense that the new Congress is less likely to repeal or reform the tax.

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

IRS Proposes Modification of Tax Return Preparer Penalty Provisions

IRS has proposed new regulations that amend Circular 230 and address the tax return preparer penalty provisions under I.R.C. § 6694. In Notice 2007-54 IRS provides guidance on the proposed amendments.

Here is an excerpt from Prof. Roger A. McEowen's discussion on this issue:

The proposed regulations, when final, would amend section 10.34 of Circular 230.  Changes to the standards of practice were triggered by the Act, which became law in May and effectively extended the application of the return preparer penalties to all tax return preparers, altered the standards of conduct that must be met to avoid imposition of the penalties for preparing a return showing an understatement of liability, and increased applicable penalties.* * *

Under the proposed regulations, IRS says that the standards of practice under Circular 230 should conform to the civil penalty standards for return preparers. That means a practitioner may not sign a tax return as a preparer unless the practitioner has a reasonable belief that the tax treatment of each position on the return would more likely than not be sustained on its merits, or there is a reasonable basis for each position and each position is adequately disclosed.  The proposed regulations say that the definitions of "more likely than not" and "reasonable basis" are to be defined by the way those phrases are defined under I.R.C. § 6662.

Employer provided financial education helps employees better plan for the future

While few companies offer their employees company-based pension plans, progressively more business are providing financial planning opportunities as an incentive to help retain workers.

Elizabeth Olson, A Few Lessons on Saving, Courtesy of Employers, NYTimes.com, Oct. 23, 2007 reports:

Rinker, an engineering company in Manassas, Va., hired Principal Financial Group two years ago to hold financial planning seminars periodically for its 100 employees, and personal sessions for those who wanted to take a deeper dive into retirement planning.* * *

In March, I.B.M. unveiled a $50 million personal finance and education benefit program for its 127,000 workers in the United States. Earlier, the company had said it would end contributions to its pension plan but expand its 401(k) retirement plan benefits.***

However, many workers are not taking full advantage of the 401(k) plans offered by their employers: * * *

A 2006 survey of 1,000 company plans by the Profit Sharing/401k Council of America found that 77.7 percent of eligible workers participated in 401(k) plans. But lower-paid employees contributed much less than their higher-paid colleagues — 5.4 percent of their income, compared with 6.9 percent. * * *

Some employees have increased their 401(k) contributions after meeting with a financial advisor.

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