Wills, Trusts & Estates Prof Blog

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

Wednesday, May 28, 2008

Post-Nuptial Contracts -- New Way to Save Failing Marriages??


There appears to be a growing trend of using post-nuptial contracts as a way of "saving" rocky marriages.  Here are some excerpts from Abigail Trafford, A Mid-Marriage Change in the Rules May Make Sense, Washington Post, May 27, 2008, at HE06:

The post-nup is a contract signed during marriage to manage financial affairs and divide income and assets in the event of death or divorce. Unheard of 25 years ago, this mid-marriage document is gaining a foothold in American matrimonial culture. * * * In a recent survey of members of the American Academy of Matrimonial Lawyers, 49 percent said they had seen an increase in post-nuptial agreements in the past five years.

Like its better-known cousin, the prenuptial agreement, the post-nup is responding to two demographic trends: the overall aging of the population and the increasingly common pattern of marriage, divorce and remarriage along with its complicated legacy of children from different relationships.

One purpose of the post-nup is estate planning. "That is a perfectly good reason to do it," says Jeff Atkinson, principal author of "The American Bar Association Guide to Marriage, Divorce & Families" * * *." It is a way to direct retirement benefits to children of a previous marriage, or to an adult child with special needs. Or to make sure a beloved summer cabin stays in the family by making it separate from the couple's community property.

But using a post-nup to heal a troubled marriage is controversial.

"There are cases where that's advisable," says Gregg Herman, a family law attorney in Milwaukee. "But I only recommend it where there is an equal desire to stay married and work on the marriage." These are committed couples with "soft" problems of incompatibility, from struggling with retirement issues to coping with boredom. "Counseling and joint therapy are critical to these people," Herman says.

The post-nup is not recommended for couples who are confronting the "hard" problems: physical or mental abuse, infidelity, substance abuse. Nor for people who are really planning to break up and want to use the post-nup as a Trojan horse settlement in any future divorce battle. * * *

The temptation is to use the post-nup as leverage to change behavior. For example, if one has a drinking problem or has had an affair but wants to preserve the marriage, the other makes staying together conditional on signing an agreement that says in effect: If you slip up again, you give up your rights -- you have to pay me a lot of money in support and I get the house, too! This kind of post-nup is really an ultimatum. Money becomes the glue of the marriage.

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

May 28, 2008 in Estate Planning - Generally | Permalink | Comments (0) | TrackBack (0)

Clever Quirk in UDPIA May Allow Deadbeat Debtors to Avoid Creditors

HirschAdam J. Hirsch (William and Catherine VanDercreek Professor of Law, Florida State University College of Law) has recently published his article entitled The Uniform Acts' Loophole in Fraudulent Conveyance Law, Estate Planning, Dec. 2007, at 20.

Here is the abstract from the version of this article posted on SSRN:

This article illuminates a glitch in the Uniform Disclaimer of Property Interests Act of 1999 (UDPIA) which allows persons to disclaim not only inheritances but, in one special circumstance, part of their own, preexisting ownership interest in property. The article suggests a strategy whereby an insolvent debtor can exploit this glitch to put property out of the reach of creditors and thereby to employ disclaimer law to effect what would otherwise constitute a per se fraudulent conveyance. In the process, the article analyzes the legislative history of UDPIA to show how the glitch found its way into this Uniform Act and also offers a novel analysis of the legality of insolvent disclaimer generally under the text of UDPIA. Further sections of the article weigh the advantages and shortcomings of the proposed asset protection strategy in comparison to alternative ones already in use, including analysis of the availability of the strategy to debtors who do not themselves reside in a UDPIA jurisdiction and the viability of the strategy for debtors who enter a bankruptcy proceeding.

May 28, 2008 in Articles, Non-Probate Assets | Permalink | Comments (0) | TrackBack (0)

UBS tells employees to avoid travel to U.S. to prevent arrest

UbsTo reduce the chance of its employees being arrested in connection with tax evasion schemes, UBS has recommended that travel to the United States be curtailed.

Here is an excerpt from a report by Haig Simonian, UBS tells unit staff to avoid US visits, FT.com, May 27, 2008:

UBS has told members of its former private banking team responsible for rich US clients not to travel to America.

The Swiss bank has also made lawyers available to the more than 50 bankers involved, many of whom have left UBS since it decided last November to wind down its cross-border private banking business for US ­customers.

The move follows the recent indictment of one of the unit’s former senior executives, Bradley Birkenfeld, who US authorities have accused of helping a billionaire client evade taxes. Mr Birkenfeld has pleaded not guilty and his lawyers have made no public statement on the matter.

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

May 28, 2008 in Income Tax | Permalink | Comments (0) | TrackBack (0)

New York City to Help Potential Organ Donors

OrgansOne of the biggest hurdles in carrying out the intent of an organ donor is that the body deteriorates before doctors have the chance to remove organs.  As Robert Davis, Buying time for organ recovery, USA Today, May 7, 2008, explains:

New York City officials plan within months to dispatch the nation's first ambulance equipped to preserve bodies of the newly dead so that families have time to consider organ donation.

The controversial twist: Crews would swoop in and perform procedures on a corpse without consent in order to preserve the organs until the family had time to give consent for organ donation. No organs would be taken without consent. * * *

The proposal for the Rapid Organ Recovery Ambulance followed complaints from families who were told their loved one, who had wanted to be an organ donor, could not donate because the person died outside a hospital.

May 28, 2008 in Current Events, Death Event Planning | Permalink | Comments (1) | TrackBack (0)

Tuesday, May 27, 2008

Makdisi and Bogart Publish 5th Edition of "Estates in Land and Future Interests"

Makdisi_bogart_bookJohn Makdisi (Professor of Law, St. Thomas University School of Law) and Daniel B. Bogart (Director of the Center for Land Resources, and Donley and Marjorie Bollinger Chair in Real Estate, Land Use and Environmental Law, Chapman University School of Law) have recently published the Fifth Edition of Estates in Land and Future Interests: Problems and Answers.

Here is the publisher's description of their book:

[This book] provides a clear and systematic presentation of the rules and classifications of estate law. Problem sets in each chapter let students practice applying the rules and assigning the classifications of estates and future interests, carefully leading students from one level of complexity to the next.

  • 550 hypothetical problems that thoroughly cover the rules and their application
  • explanations of the answers to every problem
  • an up-to-date treatment of the Rules Against Perpetuities (RAP) that ensures continued usefulness for bar exam preparation
  • an organization that reflects the authors’ highly successful method for learning:
  1. learn the classifications for estates and future interests
  2. learn the rules governing those classifications
  3. tackle the Rules Against Perpetuities, which build on a knowledge of both the classifications and the rules
  • systematic coverage of common law
  • clear and concise explanations of classifications of interests and estates
  • a Correlation Chart that links topics covered in this book to those in the leading first-year Property casebooks

Updated throughout and with many new and updated problems, the Fifth Edition features:

  • revised and simplified introductions to the classification of estates and the classification of future interests
  • a comparative look at how several rules are used in different states
  • discussion of fee tails moved to appendix
  • an updated and expanded Correlation Chart

May 27, 2008 in Books - For the Classroom | Permalink | Comments (0) | TrackBack (0)

ALI-ABA Sponsors Representing Beneficiaries Program

AliabaALI-ABA is sponsoring a seminar entitled Representing Estate and Trust Beneficiaries and Fiduciaries on July 17-18, 2008 in San Francisco.  The course is also available as a live video webcast.

Here is a description of this program:

This annual advanced course of study is designed for lawyers representing fiduciaries and beneficiaries, in-house bank and trust counsel, risk managers, investment officers and relationship managers, investment advisors, and estate planning and estate and trust administration professionals.

Over the course of more than 14 hours of instruction, lively panel discussions are used to examine current developments and corresponding strategies in fiduciary law.  The program focuses primarily on issues surrounding fiduciary litigation and how to prevent it, rather than traditional estate planning approaches and considerations.

Topics include:

    • The current fiduciary litigation landscape and its impact on policy
    • The inside of the Plaintiff’s playbook and the response of the Defense FLP/LLCs in estates and trusts and tax controversies
    • The not-so-irrevocable irrevocable trust
    • Tax consequences of settlements that usually surprise
    • The modern release
    • A practical and specific standard for “prudent”
    • UTC-driven changes in what we need to do
    • The self-canceling right to sue a fiduciary
    • Avoiding liability
    • Ethical restraints in representing those who represent
    • IRS enforcement priorities
    • Strategies for the dysfunctional family
    • Protecting attorney-client privilege
    • Carrot and stick trust provisions
    • Practical and media considerations in disputes
    • The protocol for prudently managing managers
    • The “collateral” duties that provide a back-door to liability\
    • Communicating complex matter

Time is reserved throughout the program to address registrants’ questions. A reception for registrants and faculty, following the conclusion of Thursday’s presentations, provides additional networking opportunities. Registrants at the live program also have the opportunity to take part in small, focused, and interactive discussions at informal roundtables available during the last half-hour of the lunch breaks.

May 27, 2008 in Conferences & CLE, Estate Administration, Trusts | Permalink | Comments (0) | TrackBack (0)

Do CEOs gain unfair tax benefits by donating their own stock to family foundations?

YermackDavid L. Yermack (Professor of Finance, Daniel P. Paduano Faculty Fellow, Yamaichi Faculty Fellow, New York University Stern School of Business) has recently posted on SSRN his article entitled Deduction Ad Absurdum: CEOs Donating Their Own Stock to Their Own Family Foundations.

Here is the abstract of his article:

I study large charitable gifts by Chairmen and CEOs of public companies using their own company stock as the donation currency. Unlike open market sales, gifts of stock are not subject to insider trading law and have very lenient disclosure requirements.

Consistent with their exemption from insider trading law, I find that CEOs' stock gifts occur just prior to significant drops in their firms' stock prices, a pattern that enables the donors to obtain increased personal income tax benefits. This timing is more pronounced when executives donate their own shares to their own family foundations, which I identify using foundations' IRS tax returns posted on Internet databases. Stock gifts are also strategically timed to occur prior to unfavorable quarterly earnings announcements and after positive earnings announcements.

Evidence related to reporting delays and seasonal patterns suggests that some CEOs backdate stock gifts to their own family foundations in order to increase personal tax benefits.

CEOs' family foundations hold donated stock for long periods rather than diversifying, permitting CEOs to continue voting the shares but violating standard prudent investor principles of risk reduction through diversification.

These results highlight an odd juxtaposition of motives, suggesting that while making charitable contributions to support good works in society, CEOs use aggressive and perhaps fraudulent tax evasion strategies.

May 27, 2008 in Articles, Estate Planning - Generally, Income Tax | Permalink | Comments (0) | TrackBack (0)

The "Ghost Busters" Will Interface

Christopher J. Buccafusco (student, University of Chicago Law School) has recently posted on SSRN his article entitled Spiritualism and Will(s) in the Age of Contract.

Here is the abstract of his article:

Spiritualism was one of the most salient cultural phenomena of late-nineteenth-century American life. The belief of considerable numbers of respectable citizens that they could communicate with the dead via an entranced medium called into question both popular and scientific conceptions of rationality, volition, and freedom. In turn, these changing ideas about the mind challenged American law's commitment to its belief in free and reasonable legal actors. This Article, the first to consider Spiritualism's implications for American law, examines the legal reaction to the anxieties Spiritualism generated for the age of contract. Principally, it looks at the judicial response to cases of Spiritualists' wills that were challenged on the grounds of insanity and undue influence. In dealing with such cases, I argue, American judges adopted a realist, pragmatic strategy of promoting polyphonic discussion and preserving democratic decision making. Approaching the subject from the perspective of cultural legal history, I suggest that popular culture, science, and the law were mutually constitutive discourses in which nineteenth-century Americans enacted their anxieties about the mind, the will, and the family. Finally, I argue that a contextualized understanding of these nineteenth-century debates can suggest much about current legal debates about rationality, responsibility, and volition engendered by recent discoveries in behavioral economics, the psychology of emotions, and cognitive neuroscience.

May 27, 2008 in Articles, Wills | Permalink | Comments (0) | TrackBack (0)

Monday, May 26, 2008

Kenedy Ranch Update


John G. Kenedy, Jr. [one n] was the heir to an enormous ranch deep in South Texas.  John died in 1948.  His will left all of his "property of every character and [description] both personal and mixed" to his wife.  An argument was made that the will did not dispose of John's real property and thus the real property would pass by intestacy.  After notice to John's wife and sister, the court rendered a judgment in 1949 that the will was effective to devise John's real property to his wife after finding that all of John's heirs were represented.  No attorney ad litem was appointed to represent unknown heirs, especially since everyone believed John was sterile as a side-effect of having the mumps as a child.

Several years ago, Ray was visiting with his grandmother.  Just before she died, she remarked that he looked like John, his "grandfather."  Ray then started an investigation and set up a website to see if it was possible that his mother, Ann, was actually John's non-marital child and sole heir to the Kenedy fortune valued at up to $1 billion.

Of course, to gain any portion of the estate, Ann must set aside the 1949 judgment that Ray's will was effective to devise the real property to his wife.  So, on May 13, 2003, she filed a petition for an equitable bill of review.  She claimed that she was a necessary party to that action and thus the court's holding was not binding on her. 

Attorneys for the charities which now control most of the property traceable to John's estate claim that the estate was closed decades ago and it is irrelevant whether Ann is or is not John's child.

On the other hand, Ann claims that she has a right to prove her paternity and then seek whatever portion of the estate to which she may be entitled.

To get the necessary evidence to prove paternity, the probate court order the exhumation of John's remains.  However, that order was stayed by the Supreme Court of Texas and then abated until various lower court actions are resolved.

In Fernandez v. Frost Nat'l Bank decided May 22, 2008 by the Thirteenth Texas Court of Appeals in Corpus Christi-Edinburg, the court reversed a lower court judgment which had blocked Ann's lawsuit based heavily on complicated Texas jurisdictional rules.  The bottom line is that the case may continue so that a probate court will have the chance resolve the issue as to whether Ann has an interest in the estate.

For additional discussion of this case, see AP, Fight for South Texas fortune renewed with , MySA.com, May 25, 2008.

May 26, 2008 in Current Events, Intestate Succession, New Cases | Permalink | Comments (1) | TrackBack (0)

Do charities (or charitable gifts) deserve special tax treatment?

CharityGranting tax relief to charities and gifts to charties increases the tax burden on everyone else.

Some states are starting to conclude that this unfairness is not justified.  For a discussion of some recent developments, see Stephanie Strom, Exemptions for Charities Face New Challenges, NY Times, May 26, 2008.  Here are some excerpt from this article:

Authorities from the local tax assessor to members of Congress are increasingly challenging the tax-exempt status of nonprofit institutions — ranging from small group homes to wealthy universities — questioning whether they deserve special treatment.

One issue is the growing confusion over what constitutes a charity at a time when nonprofit groups look more like businesses, charging fees and selling products and services to raise money, and state and local governments are under financial pressure because of lower tax revenues.

And there are others: Does a nonprofit hospital give enough charity care to earn a tax exemption? Is a wealthy university providing enough financial aid?

In a ruling last December that sent tremors through the not-for-profit world, the Minnesota Supreme Court said a small nonprofit day care agency here had to pay property taxes because, in essence, it gave nothing away.  * * *

The tax-exempt status of charities costs local governments $8 billion to $13 billion annually, according to various rough estimates. * * *

The idea behind tax exemptions is that the organizations provide a public service or substantially reduce the burdens of government. Standards from property-tax exemptions are set by the states, while the federal exemption means charities are not taxed on their income.

May 26, 2008 in Gift Tax, Income Tax | Permalink | Comments (0) | TrackBack (0)