Wills, Trusts & Estates Prof Blog

Unifying rules for tax apportionment for wills and revocable trusts

Earlier on this blog, I discussed an article focusing on whether the law of probate and non-probate transfers should be unified.

Continuing with the "unification" trend, Ira Mark Bloom (Justice David Josiah Brewer Distinguished Professor of Law, Albany Law School) has recently published his article entitled Unifying the Rules for Wills and Revocable Trusts in the Federal Estate TAx Apportionment Arena: Suggestions for Reform, 62 Univ. Miami L. Rev. 767 (2008).

Here are some excerpts from the article's conclusion:

Unification of the law of wills and revocable trusts in the area of federal estate tax apportionment is far from complete despite the near unanimous rule of apportionment among the states. Lack of uniformity is most evident regarding the ability of a decedent to change default rules on federal estate tax apportionment. * * *

Another state law matter involves the lack of uniformity on conflict of laws issues.* * *

Federal statutes on apportionment vastly complicate the area. * * *

In addition, the federal statutes may conflict with state laws on changing default rules. * * *

Must this morass of confusion and disarray continue? I think not. One suggestion is to have either federal law or state law control the substantive issues involving federal estate tax apportionment instead of the current situation where both laws control some facets of federal estate tax apportionment. But which set of laws should control? When most states used a burden on the residue approach, it probably made sense for federal law to control the area to ensure apportionment. Today, when apportionment is the controlling principle in virtually all states, I think it makes more sense for state law to determine the burden of federal estate taxes. * * *

My solution would have state rules on federal estate tax apportionment exclusively control for both probate property * * * and for all nonprobate property. In effect, state law apportionment rules would provide all default rules. Unlike the federal reimbursement-type statutes, which first require payment of the estate tax and then recovery, the apportioned tax would be initially allocated to all nonprobate transfers. * * *

Under my approach two new federal statutes would replace the repealed federal statutes to ensure uniformity among the states. The first statute would eliminate conflict of laws disputes when a decedent had property outside the domiciliary state. Specifically, the federal statute would mandate that the law of decedent's domicile govern the substantive rules on apportionment wherever the property is located and that collection of apportioned taxes from a fiduciary or beneficiary be authorized without regard to domicile. The net effect of these steps--state domiciliary law controls the substantive rules for federal estate tax apportionment but federal law ensures the effectuation of these rules--would be the elimination of both the federal and state conflicts that presently exist with federal estate tax apportionment.

The second federal statute would address the other area of disunity: the ability (or inability) to change default rules by revocable trusts. Consistent with the view that revocable trusts are the functional equivalent of wills, I would propose a federal statute that allows revocable trusts to do exactly what can be done under a will in changing a state's default rules. * * *

I recognize that states traditionally provide rules regarding wills and revocable trusts and that federal statutes on the matter, including a statute to eliminate the conflict of laws issues, would be unusual.  The countervailing reasons for these federal statutes, however, seem persuasive. In one fell swoop, the rules for wills and revocable trusts in the federal estate tax apportionment arena would become virtually uniform.

Marilyn Monroe and the right of publicity

John C. Fuller (J.D. Candidate, 2009, Villanova University School of Law) has recently published his Casenote entitled Like a Candle in the Wind: Shaw Family Archives, Ltd. v. CMG Worldwide, Inc. and the Flickering Recognition of Marilyn Monroe's Right of Publicity in New York. (Shaw Family Archives, Ltd. v. CMG Worldwide, Inc., 486 F. Supp. 2d 309, 2007.), 15 Vill. Sports & Ent. L.J. 299 (2008).

Here is the introduction to his article:

Every year, Forbes Magazine lists the highest-earning deceased celebrities.  In 2007, the top thirteen now-gone actors, authors, and musicians earned a combined $232 million from the distribution of their works and the licensing of their likenesses.  Not surprisingly, the iconic American sex symbol Marilyn Monroe is a perennial member of this elite list.  Forty-six years after her death, the great demand for Monroe's persona earned her estate $7 million*300 in 2007, primarily derived from licensing agreements for advertisements and merchandise.  A recent battle over licensing infringement may, however, leave Monroe's heirs without control over her likeness.

In Shaw Family Archives, Ltd. v. CMG Worldwide, Inc., the United States District Court for the Southern District of New York found that in 1962, the year Monroe died, New York did not recognize a transferable postmortem right of publicity.  Well-settled New York estate law allows testators to devise only the transferable rights they possess at the time of their deaths.  Because the court found that the right of publicity did not exist, Monroe did not possess the right when she died; therefore, her will could not have conveyed the right to her heirs. This finding defeated any claim of ownership and thrust Monroe's persona into the public domain, where anyone is free to use it.

This note will explore the existence of a descendible right of publicity in New York State at the time of Monroe's death. Section II will describe the facts and procedural history of Shaw Family Archives. Section III will trace the evolution of the right of publicity, including both the tort-based right of privacy and the modern *301 property-based right of publicity. Section IV will evaluate the court's holding that Monroe's estate is not the predecessor-in-interest to her right of publicity.  Section V, after thoroughly examining New York law in this field, will evaluate the appropriateness of the court's determination.  Finally, Section VI will discuss the effect this decision may have both on New York law and the estates of other legendary American entertainers.

Pre-death mediation may prevent problems in same-sex couple estates

X. Brian Edwards (J.D. 2008, Ohio State University Moritz College of Law) has recently published his Note entitled True Donative Freedom: Using Mediation to Resolve the Disparate Impact Current Succession Law has on Committed Same-Gender Loving Couples, 23 Ohio St. J. on Disp. Resol. 715 (2008).

Here is the conclusion of his article:

The law that governs the implementation and application of estate plans in the United States, on its face, does not hamper the rights of individuals to dispose of their property as they see fit upon their death. However, if one looks beneath the surface, it is clear that laws currently in place blindly cling to the notion of the American nuclear family. Thus, these laws, in essence, fail to address that a vast majority of Americans have to make personal decisions on the basis of economic, psychological, and sexual realities that cause them to reinvent the typical family structure.

The real world application of the current law exposes the inherent disparate effects committed same-gender loving couples experience. For example, it is arguable that a same-gender loving female who leaves all of her property to her partner stands on equal footing with a husband who leaves all of his property to his wife. Yet, nothing could be further from the truth because if surviving blood relations challenged either of these devises it is far more likely that the former devise would be struck down when compared to the latter. So, the idea that current probate and succession laws provide all Americans with testamentary freedom and are designed to effectuate testamentary intent is a myth. Americans only have the right to distribute and or assign their property according to a well delineated format set forth by the sexual majority. This disparate effect will continue until the current succession laws are changed, but such change is unlikely to occur in the near future being that the socio-political power and influence of the conservative right is growing exponentially in this country today. However, the concept of pre-death mediation will allow committed same-gender loving couples an opportunity to overcome the norms of the sexual majority and condition succession to their property on terms that conform to their sexual reality.

Should English courts recognize constructive trusts?

Nikunj Kiri (Senior Associate, Herbert Smith, United Kingdom ) has recently posted on SSRN an article entitled Tracing Claims: Court Leaves the Door Open for the Recognition of a Discretionary Remedial Constructive .Trust

Here is the abstract of the article:

In London Allied Holdings Limited v Anthony Lee and ors, Etherton J considered whether English law should follow the US and Canadian model and use a discretionary remedial constructive trust to facilitate the assertion of a proprietary claim over the proceeds of a £1m fraud perpetrated on the claimant. Although the judge was ultimately able to sidestep this decision by finding that the circumstances of the fraud were sufficient to allow the imposition of an institutional proprietary constructive trust in accordance with recognised principles, the judge stopped short of concluding that English law would never recognise a discretionary remedial constructive trust and has, therefore, kept the debate alive.

Law professor's pro-Federal Estate Tax message

Grayson M.P. McCouch (Professor of Law, University of San Diego School of Law) has recently posted on SSRN his article entitled The Empty Promise of Estate Tax Repeal.

Here is the abstract of his article:

The terms of the debate over the estate tax have been framed largely by abolitionists who have propounded an antitax message that portrays the estate tax as unambiguously harmful and threatening to ordinary families and small businesses. The attack on the estate tax is linked to a larger agenda of eliminating taxes on capital and capital income and dismantling the progressive elements of the federal tax system. The slogan of estate tax repeal, while effective in mobilizing antitax sentiment, makes no sense as a matter of tax policy because it downplays revenue costs, distributional effects, administrative concerns, and consequences for the rest of the tax system. The 2001 Act illustrates the gap between the abolitionists' simplistic antitax agenda and the complex reality of tradeoffs among competing tax and spending priorities. The estate tax cuts enacted in 2001 imply large revenue losses as well as a shift in tax burdens from the very rich to the middle class and from current taxpayers to future taxpayers. This appears to be a step in precisely the wrong direction, given growing inequalities of income and wealth and a looming fiscal gap.

Massachusetts non-resident same-sex marriage update

Earlier on this blog, I reported that although the first state to legalize same-sex marriage, Massachusetts has not been able to share in the economic benefits of being a marriage destination because a law passed in 1913 prevents marriages which would not be legal in the partners' home states.  On July 15, 2008, the Massachusetts Senate voted to repeal this law.

On Tuesday (July 29, 2008), the Massachusetts House voted 118-35 to repeal the law.  Several procedural steps are needed before it will be sent to Governor Deval Patrick who has indicated that he will sign the bill.

See Pam Belluck, Same-Sex Marriage Barrier Nears End in Massachusetts, NY Times, July 30, 2008.

European Trust Taxation CLE

Financial Events International is sponsoring a conference in London on November 12, 2008 entitled Trusts Taxation in Europe.  If you can't make the trip to London, no worries -- the conference is also available via webcast.

Here is a description of the program:

Trusts structures are very efficient tax optimization tools especially in the United Kingdom and Switzerland, two of the key actors in this area. Since the Hague Convention has been ratified, news rules have emerged in these countries to modify their trusts taxation. Switzerland held new guidelines on trusts taxation in order to plan a federal taxation instead of a cantonal way previously while the United Kingdom, has implemented some important changes in its trusts taxation tools. These modifications will have a large impact on the UK trusts by changing for example tools for the residences and remittance rules.

The comparison between the pre-mentioned topics more Luxembourg will provide to the attendees an idea about which country will currently offer the best structures.

The topics that will be in-depth developed during the conference are:

• Overview of the environment in the United Kingdom
  • Why the authorities modified its legislation.
  • What will be the impacts of the changes and do they represent a risk for the UK place against its competitors.
  • Are there still strategies to avoid taxation on remittance?

• Switzerland as a jurisdiction of choice for trusts administration
  • Confidentiality, know-how and the reputation of Swiss financial centres: a reasonable regulatory approach preventing the risk of over-regulation currently threatening some of the other offshore jurisdictions
  • What are the implications of the circular?

• The alternative situation of Luxembourg and Israel

The conference should be of interest for Trustees and their professional advisers, solicitors, accountants, private bankers and private office advisors, attorneys, trusts officers, accountants and wealth management professionals.

Virginia updates slayer statute

The Virginia legislature has made it harder for killers to inherit by adding voluntary manslaughter as a disqualifying crime.

In another change, not just the slayer but also "any transferee, assignee, or other person claiming through" the slayer will not be entitled to acquire any property or receive any benefits as the result of the death of the decedent.

2008 Virginia Laws Ch. 822.

Idaho probate law changes

Recent changes to Idaho probate law include:

• Authorization for wills and self-proving affidavits to be signed by the testator's proxy.  2008 Idaho Laws Ch. 76.
     
• Revamping of allowances for a surviving spouse and children.  2008 Idaho Laws Ch. 182.  According to the bill's statement of purpose and fiscal impact, the new law "greatly simplifies and clarifies the probate allowances and their application.  It also gives freedom of choice to decedents on how their estates will pass.  Finally, it eliminates several problems in the Medicaid area, without having any current fiscal impact on Medicaid."

Should the law of probate and non-probate transfers be unified?

Grayson M.P. McCouch (Professor of Law, University of San Diego School of Law) has recently posted on SSRN his article entitled Probate Law Reform and Nonprobate Transfers.

Here is the abstract of his article:

The advent of widespread, large-scale probate avoidance has added a new dimension to the project of probate law reform. When the Uniform Probate Code made its debut in 1969, its primary goal was to modernize traditional probate procedures and make them more uniform, flexible, and efficient. The Code's reforms were in part a response to the rise of will substitutes which offered a ready means of transferring property at death outside the probate system. In the intervening years, however, will substitutes have continued to proliferate, while traditional probate procedures have resisted comprehensive reform. The probate system has not become obsolete - it provides valuable safeguards in many cases and remains indispensable in dealing with residual assets and resolving disputes - but it now plays a relatively modest role in regulating deathtime wealth transfers. Today, wills operate side by side with an ever-expanding array of will substitutes, and it no longer makes sense for reformers to focus exclusively or even primarily on the probate system. Accordingly, they have taken the first tentative steps toward articulating a unified law of probate and nonprobate transfers. Ultimately, the success of the reformers' project will require a sustained and vigorous effort to maintain conceptual coherence and achieve practical implementation.