Wills, Trusts & Estates Prof Blog

Non-Residents May Not Benefit from Alaska's New Statute

I recently blogged about Alaska adopting a statute that allows individuals to prove Wills and trusts pre-mortem. As a result, Alaskan estate planners have gotten many calls from non-residents wanting to prevent ugly Will contests like the one surrounding Gary Coleman’s estate.

But will it actually work for non-residents? Delaware probate attorney Peter Gordon doesn’t think so, explaining that a “Utah judge sitting in a Utah court with a Utah resident is not going to send the case to Alaska.”

Unlike a trust (which is a separate legal entity residing in a particular state), a Will is simply a document used by the testator to express his/her wishes.

Thus, the Alaskan statute will be beneficial for resident testators as well as for resident and non-resident trustors. But in most cases, the non-resident testator is out of luck because the Will will still need to be probated where the testator lived.

See Scott Martin, Would the Actors Heirs Have Been Better Off with an Alaskan Will?, The Trust Advisor Blog, June 26, 2010.

Avoiding Malpractice in the Estate Planning Field

The June 2010 edition of The Estate Analyst is comprised of an article by Robert L. Moshman (attorney and writer) entitled Estate Planning Malpractice:  A Best Practices Checklist as well as an interview with Robert G. Alexander, a prominent estate planning attorney and lecturer.    

The introduction to the article and the June 2010 edition of The Estate Analyst is below:

Estate planning and estate administration practice go hand in hand. Each time an estate is planned, there is a potential estate that the practitioner may have an opportunity to serve someday. There is also a potential lawsuit if the estate does not fare well.

Let’s review how an estate planner can best serve clients…while avoiding liability. Several planning scenarios that can lead to difficulty come to mind. A checklist has also been developed to avoid oversights and protect against claims.

A New Website for Information on Elder Issues

The National Center for State Courts (NCSC) launched a new website, http://eldersandcourts.org/, to provide the nation's courts with resources, information, and training related to aging, probate issues, and elder abuse on June 15, which was World Elder Abuse Awareness Day.

The new website also serves as an online clearinghouse of information on aging issues as well as an online community where judges and court personnel can exchange information. The site also features the following resources:

• an interactive map that allows users to access information on specific state laws related to elder abuse and adult guardianships as well as links to state resources on aging
• a database of "promising practices," such as court technologies and administration procedures that have been successfully implemented by courts
• ten training videos that cover topics such as creating an elder justice center, creating an elder protection court, and working with adult protective services
• an elder abuse curriculum designed for presentation by state judicial educators
• the Elder Abuse Toolkit for the Courts, which includes an interagency coordination guide, model practices, a data collection guide, and performance standards (available near the end of 2010)

Confusion Surrounding Regulation R

Regulation R mandates that non-SEC-regulated institutions refer most securities sales to broker-dealers. Not all trust companies are sure they can demonstrate that they’re obeying Regulation R because the Office of the Comptroller of the Currency has not yet issued guidance on how to comply.

If a trust company does too much commission-based business, it can fail the compensation test and lose its exemption from SEC oversight.

Most banks and trust companies are simply referring the business to a certain broker for a fee. The question is how the bank examiners will look at these referral fees when they begin compliance testing on January 1.

For more information, including tips to avoid “red-flag referrals,” see Scott Martin, Feds to Target Trust Firms for Reg R Violations, Trust Advisor Blog, June 12, 2010.

Top SSRN Downloads

Here are the top downloads from April 29, 2010 to June 28, 2010 from the SSRN Journal of Wills, Trusts, & Estates Law for all papers announced in the last 60 days.

Rank	Downloads	Paper Title
1	521	The Generation-Skipping Transfer Tax: A Quick Guide Mark Powell, Chapman University - School of Law, Date posted to database: May 3, 2010 Last Revised: June 15, 2010
2	241	The Costs of Estate Tax Dithering Paul L. Caron, University of Cincinnati - College of Law, Date posted to database: May 3, 2010 Last Revised: May 3, 2010
3	115	What Estate Planners Need to Know About Firearms Gerry W. Beyer, Jessica B. Jackson, Texas Tech University School of Law, Estate Planning & Community Property Law Journal, Date posted to database: April 10, 2010 Last Revised: April 10, 2010
4	89	Technical Correction or Tectonic Shift: Competing Default Rule Theories Under the New Uniform Probate Code Lee-ford Tritt, University of Florida - Fredric G. Levin College of Law, Date posted to database: June 9, 2010 Last Revised: June 20, 2010
5	79	Freedom of Testation/Freedom of Contract Adam J. Hirsch, Florida State University College of Law, Date posted to database: May 13, 2010 Last Revised: June 21, 2010
6	73	The Taxation of Cause-Related Marketing Terri Lynn Helge, Texas Wesleyan University School of Law, Date posted to database: May 8, 2010 Last Revised: June 3, 2010
7	63	Integrating Catholic Social Thought in Elder Law and Estate Planning Courses: Reflections on Law, Age and Ethics Lucia Ann Silecchia, Catholic University of America (CUA) - Columbus School of Law, Date posted to database: May 8, 2010 Last Revised: May 8, 2010
8	56	Video-Recording the Will Execution Ceremony Gerry W. Beyer, Texas Tech University School of Law, Date posted to database: May 18, 2010 Last Revised: May 18, 2010
9	53	Proposed Guidance Under Treasury Regulation Section 1.509(A)-4 Mark Powell, Chapman University - School of Law, Date posted to database: May 3, 2010 Last Revised: May 3, 2010
10	45	Reform Options for the Estate Tax System: Targeting Unearned Income, Testimony Before the U.S. Senate Committee on Finance Lily L. Batchelder, New York University School of Law, Date posted to database: May 11, 2010 Last Revised: June 7, 2010

A Quick Guide for the GST Tax

Mark Powell (Adjunct Professor of Law, Chapman University School of Law) recently published his article entitled The Generation-Skipping Transfer Tax: A Quick Guide, Working Paper Series (2009). The abstract available on SSRN is below:

Sooner or later, every estate planner comes face-to-face with the generation-skipping transfer tax. Many practitioners do not feel up to the challenge because this particular tax as a reputation as being treacherous as the sea. This article helps identify situations that subject clients to the GSTT.

***NOTE: One sentence in the discussion about life insurance trusts is misleading as it was finally edited. The first sentence of the second paragraph in the Life Insurance Trust Issues section should say that if a transfer to an ILIT qualifies for the annual gift tax exclusion, it MAY ALSO be exempt from GST if the trust is drafted the right way. As published, the sentence makes it sound like annual gift tax exclusion gifts automatically qualify for GST exclusion, but it is not automatic. The trust must be designed the right way for contributions to qualify for both exclusions.

State Estate Taxes Uncertain Too

The federal estate tax isn’t the only estate tax that’s unresolved. State politicians have also been putting off decisions.

However, some of the state uncertainty is linked to the uncertainty surrounding the federal estate tax. For example, North Carolina’s estate tax will mirror the federal estate tax when it is resolved. Illinois is in a similar situation, except it may reinstate a tax retroactively for 2010 until Congress makes a decision.

For more information, including a map of which states currently have estate and inheritance taxes, see Ashlea Ebeling, The State Estate Grab, 2010 Edition, Forbes.com, June 9, 2010.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this to my attention.

Five Rules to Help Stretch Out IRAs

These five rules can help you to stretch out the tax benefits of IRAs, possibly for decades:

1. First, do no harm. Don’t take out money or make any changes until you know what rules apply. You must also retitle the IRA.
2. Beneficiary forms rule. The beneficiary form determines who inherits the IRA and its ability to be stretched out. If the estate is named as a beneficiary, tax deferral is cut short. If there is no beneficiary form on file, the IRA custodian’s default policy will rule.
3. Employer plans are different. Some employer plans allow the funds to go straight to the kids if there is no beneficiary form and no living spouse. However, employer plans usually don’t allow nonspouse beneficiaries to stretch out withdrawals.
4. Spouses have more options. A spouse can roll inherited IRA assets into his/her own IRA and postpone distributions until he/she turns 70.5.
5. Watch for distribution traps. If the deceased IRA owner was 70.5 or older, beneficiaries must withdraw the owner’s mandatory distribution for the year before doing anything else.

See Deborah L. Jacobs, Five Rules for Inherited IRAs, Forbes.com, June 9, 2010.

Estate Tax System Reform Options

Lily Batchelder (Professor of Law, NYU Law) recently published her article entitled Reform Options for the Estate Tax System: Targeting Unearned Income, Testimony Before the U.S. Senate Committee on Finance, NYU School of Law, Public Law Research Paper No. 10-29; NYU Law and Economics Research Paper No. 10-24 (May 7, 2010).

The abstract available on SSRN is below:

This testimony makes three main points. First, inheritances tend to exacerbate existing economic disparities and may be the most important barrier to intergenerational economic mobility. These tendencies are most pronounced at the top of the income distribution. While inherited income is distributed fairly evenly across most of the population, it rises sharply at the very top.

Second, the estate tax system is the most important mechanism by which the current fiscal system mitigates the effect of inheritances on economic disparities and intergenerational mobility. The burden of the estate and gift taxes falls largely on heirs, not donors. Moreover, on average, it rises rapidly with the amount the heir inherits and his economic income. Nevertheless, the relationship between the heir’s financial circumstances and his or her estate tax burden is relatively imprecise.

Third, upcoming legislative changes create an opportunity to better focus the estate tax system on the unearned income that inheritances represent. We should use that opportunity to reform, not repeal, the estate tax system so that it continues to tax inherited income but in a more equitable manner. Two reform options are discussed. The first would replace the estate tax system with a comprehensive inheritance tax, under which heirs would pay tax on extraordinary amounts of inherited income at roughly the same rate that presently applies to earned income under the income and payroll taxes. The second would retain the estate tax but better focus it on the amount transferred as a proxy for the amount received. It would do so through a package of simplification reforms that would limit the extent to which the tax burdens on heirs depend on their access to sophisticated tax advice.

Banks Provide Elder Care

Private banks and trust companies are increasingly helping older clients manage their financial affairs. Banks with elder services programs will do things like manage crises, sort out medical bills, manage the sale of a home, manage Medicare-coverage claims, or hire in-home care for their elderly clients.

The banks and trust companies that offer such services get something out of providing these services as well, possibly including:

• Increased asset management fees
• Providing an incentive for clients to move more assets to their institution to qualify for the services
• A long-term, loyal relationship with the client as well as the younger generations of the client's family

For more information, including examples of banks helping out their elderly clients, see Kelly Greene, Beyond Estate Planning: Bankers Tackle Elder Care, W.S.J., June 26, 2010.

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