Wills, Trusts & Estates Prof Blog

IRA Scams

As I have previously discussed, the IRS is in the process of tightening restrictions and regulations on IRAs, and if a planner is not careful it could cause problems for the beneficiary of the IRA. Now, it appears that other problems can arise with a particular type of IRA. The government is now increasing its scrutiny of self-regulated IRAs. These IRAs allow an investor to choose from variety of alternative investment options. These options are usually not publicly traded commodities, and the assets of are typically held for a long time. The IRA to be more likely to be subject to fraud because of the nature of the assets and the length of time that the assets are held.

Even with these problems, these types of IRAs are still attractive to a number of investors who are interested in investing in alternative sources of income. A person who wants to invest in a self-regulated IRA might want to be more cautious about who they are investing with. For example, a person might want to be wary if the business tells that person that his or her "investment is 'guaranteed or safe without nay real substantial basis for those claims.'" A person might also want to be wary of policies that tell a person to act fact or lose the opportunity, or "provides an additional level of analysis or oversight."

See Kelly Greene, How to Avoid IRA Scams, Wall Street Journal, July 27, 2012.

Special Thanks to Brian J. Cohan for bringing this article to my attention.

Tips to Protect Your Assets

RelayRides is a new car-rental or car-sharing service where participants loan their cars to open up parking, promote environmentally sound habits, and help those in need of a ride.  Participants can rent their vehicles for a variable rate which usually falls around $10 per hour. 

RelayRides insures each vehicle for $1 million, but that is not always enough.  Victims of a serious accident often sue for at least $1 million, and if they find out that the person has assets, then this makes them even more of a target. Hillel L. Presser, a lawyer who specializes in asset protection planning, offers several tips to avoid being targeted:

• Account for all of your assets: Take the initiative to take stock of your valuable domain names, intellectual property, potential inheritances, and other non-liquid assets.
• Liability insurance is not a guarantee: Buy as much insurance as you can, but be aware that 70% of claims will not be covered.
• Convert non-exempt assets into an exempt asset: State laws usually provide for protection of some personal assets.  Determine which assets your state protects and then convert non-exempt assets to exempt assets.
• Transfer your assets to a protective entity: Effective asset protection is achieved by “own[ing] nothing while controlling everything.” As much as you can, transfer all of your assets to protective entities such as trusts.
• Don’t loan out your car out to avoid liability: The best way to avoid liability is not to loan out your car. Furthermore, you should have your children drive cars titled in their name in attempt to avaoid liability for their accidents. The most protection can be achieved if your children are paying for their own cars as well.

See Dude, Where’s My Car’s Legal Protection, Read Think Write Teach, Jun. 4, 2012.

Special thanks to Ginny Grimsley (National Print Campaign Manager, News and Experts) for bringing this article to my attention.

The White Elephant in the Art Room

As I have previously discussed, the IRS has decided to give value to a piece of art that cannot be sold because of federal law. The piece of art, "Canyon," is a collage that prominently displays a stuffed bald eagle as the centerpiece of the work. Federal law makes it illegal to sell the eagle and the collage itself. Even though it cannot be sold, the IRS has determined that the artwork still has value, which means that the IRS can tax the value of art. The estate tax that the piece incurred is about $40 million. 

Canyon's previous owners have run into legal troubles before. In one instance, the government notified Ileana Sonnabend that she would have to relinquish the eagle when she tried to transfer it to an art exhibit that contained pieces from its creator, Robert Rauschenberg. The Department of the Interior stated that she had to relinquish the artwork unless she could prove that "'the carcass was taken from the wild prior to 1940.'" It was in 1940 that the Bald Eagle Protection Act was passed into law. Mr. Rauschenberg was able to claim through a notarized statement that he obtained the eagle's carcass before the 1940 benchmark through one of Roosevelt's Rough Riders. This shows that, at one time, the federal government understood the whole situation.

Recently, the federal government proved that it could be quite unforgiving. The IRS originally valued the piece of artwork at about $15 million. When the attorney for the estate rejected the offer, claiming that the value should be zero, the IRS responded by issuing an official Notice of Deficiency stating that the value of Canyon increased by $50 million. Who knew, as the author of this article put it, that the price of non-complacency with the IRS was $50 million?

See Eric Felten, Bald Eagle Is a White Elephant Thanks to Uncle Sam, Wall Street Journal, July 26, 2012.

Special thanks to Rob V. Robertson for bringing this article to my attention.

The First Woman in Space

Sally Ride was the first American woman to venture into outer space. Now, almost 20 years after her voyage, Ms. Ride passed away on July 23, 2012 at the age of 61. She died of pancreatic cancer. However, Ms. Ride was more than just the first American woman to go into outer space, she was also the first lesbian to do so. Ms. Ride kept her life personal and did not publicly share the fact that she was gay. Her obituaries state that she was survived by her partner, Tam O'Shaughnessy. 

While there is nothing wrong with keeping her sexual orientation a secret from the world, it is sad to think that Ms. Ride might have kept her orientation because of the repercussions of revealing her sexual orientation to the world. This is especially the case because Ms. Ride dedicated a portion of her life to overcoming stereotypes in the workforce. Let us all hope that the truth about Ms. Ride continues to inspire all of us to overcome the stereotypes that prevent us from completing our goals.

See Wendy S. Goffe, Sally Ride's Surprise Legacy, Forbes: Deborah L. Jacob's Blog, July 25, 2012.

Article on Conservation Easements as Gifts

Daniel I. Halperin (Stanley S. Surrey Professor of Law, Harvard Law School) recently published his article entitled, A Better Way to Encourage Gifts of Conservation Easements, The Shelf Project, Vol. 136, p. 307 (July 2012). The abstract of the article, available on SSRN, is below: 

The author’s proposal would repeal the deduction for the appraised value of a conservation easement that is allowed by current law. Congress should consider replacing the subsidy with a program of direct grants or limited-budget tax credits administered by an expert agency. If the deduction is continued, eligible donees should be only large institutions with a large portfolio of easements and resources and motives to enforce the easement, there should be an excise tax on nonenforcement of the easement, and there should be another government agency other than the IRS involved in enforcement. The special higher allowances for the deduction of appreciated property allowed by current law should be repealed.

The proposal is offered as a part of the Shelf Project, a collaboration of tax professionals to develop proposals to raise revenue without a VAT or a rate increase. Shelf Project proposals raise revenue while making the tax system more efficient and reducing deadweight loss. Shelf projects follow the format of a congressional tax writing committee report in explaining current law, what is wrong with it, and how to fix it.

IRS Holds that a Power of Appointment is not a General Power

The parents of two children established an irrevocable trust. The trustee was instructed to divide the components of the trust equally into two shares for both children. The trustee was also given the discretion to distribute income to the son of the settlors and any of his descendants. The son was also given a power of appointment that he could exercise during his lifetime. The power of appointment gave the son the ability to appoint the remainder of the trust to any "issue" of the settlors. This also included the son. If the son does not exercise this power of appointment, the remainder is held in trust for any further beneficiaries.

In PLR 201229005, the IRS decided even though the son had the power to appoint the remainder of trust's corpus to himself this was not a general power of appointment. Therefore, the remainder of the trust's corpus will not be included in his gross estate upon his death.

See PLR 201229005 - Power of Appointment Is Not a General Power, CharitablePlanning.com, July 23, 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

10 Health Care Mistakes That Elderly People Make

The Institute for Healthcare Advancement reported that the following are the most common health care mistakes made by the elderly in America:

• The first is not really a health care mistake, but it can lead to injury. Older Americans might want to consider evaluating themselves to determine whether they are competent enough to drive. Otherwise, they could cause serious injury to themselves and other people on the road.
• Many older Americans have also refused the use of medical devises such as hearing aids or walkers. These Americans might want to use these devises because they provide helpful aid to those who need it.
• Many elderly people refuse to talk about their health care needs with health care professionals.
• In additional, many elderly people are embarrassed to admit that they cannot understand or remember what their health care professional told them about their medical problems, which can create additional problems.
• Unfortunately, serious injury can also result if elderly people do not take the necessary precautions when walking around their homes or other areas.
• An older American might also want to have some type of system in place to manage the times when he or she is suppose to take his or her medications.
• Older Americans also make the mistake of going to different primary care physicians, instead of having only one primary care physician.
• Elderly Americans also make the mistake of not seeking help when early warning signs of possible illness occur.
• In addition, many elderly Americans do not use preventive health care such as flu shots.
• Finally, the biggest mistake that elderly Americans probably make is that they refuse to ask for help from their loved ones.

See The Top 10 Health Care Mistakes Made By the Elderly, ElderLawAnswers, July 27, 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

Article on Social Media's Role in Legal Practice

Michael H. Rubin (Attorney, Louisiana) & Kathy Gutierrez (Attorney, Texas) has recently published an article entitled, The Social Media Thicket, Surviving and Thriving in the Tangled Thorny Issues, 59 Prob. & Prop. July/August 2012. The introduction to his article is provided below: 

When more than half of all in-house counsel report using social media for news and information, when 81-year old Rupert Murdoch uses Twitter, when the fastest growing cohort on Facebook includes those over the age of 50, when the Association of Corporate Counsel has a user group on LinkedIn, and when bloggers regularly break important stories and appear on television and radio news broadcasts, you can be sure that social media permeates society. No lawyer can afford to ignore social media. 

Lawyers and law firms are increasingly using social media today to build their reputations, to inform existing clients, and to reach potential clients.

Can the use of social media create ethical problems for attorneys? Can lawyers inadvertently back themselves into ethical corners? Let's consider four examples, all of which are based on real situations. The purpose of these examples is not to scare anyone into abandoning social media; rather, the purpose is to make us more aware of the issues involved and to think through why and how we use social media. Further, this article does not answer questions but rather poses issues to be considered by those who use (or who are thinking about using) social media. 

Top SSRN Downloads

Here are the top downloads from May 31, 2012 to July 30, 2012 from the SSRN Journal of Wills, Trusts, & Estates Law for all papers announced in the last 60 days.

Rank	Downloads	Paper Title
1	213	How to Conduct a Texas Will Execution Gerry W. Beyer, Texas Tech University School of Law, Date posted to database: June 20, 2012 Last Revised: June 20, 2012
2	141	Gift Tax Completion and Retained Powers Bridget J. Crawford, Pace University School of Law, Date posted to database: June 19, 2012 Last Revised: June 19, 2012
3	137	Texas Estate Planning Case Law Update Gerry W. Beyer, Texas Tech University School of Law, Date posted to database: June 28, 2012 Last Revised: June 28, 2012
4	136	Wandering Far Afield with Defined Value Clauses Wendy C. Gerzog, University of Baltimore - School of Law, Date posted to database: June 2, 2012 Last Revised: June 2, 2012
5	127	Legislative Enactment of Standard Forms John Gradwohl, University of Nebraska College of Law, Date posted to database: May 25, 2012 Last Revised: May 25, 2012
6	121	Justifying Fiduciary Duties Paul B. Miller, Queen's University (Canada) - Faculty of Law, Date posted to database: June 13, 2012 Last Revised: June 13, 2012
7	74	Taxing Once, Taxing Twice, Taxing Joint Tenants (Again) at Death Isn't Nice Stephanie J. Willbanks, Vermont Law School, Date posted to database: June 6, 2012 Last Revised: June 29, 2012
8	65	Effectively Curbing the GST Exemption for Perpetual Trusts Lawrence W. Waggoner, University of Michigan at Ann Arbor - Law School - Faculty, Date posted to database: June 13, 2012 Last Revised: July 9, 2012
9	47	Façade Easement: Inexpert Valuation Wendy C. Gerzog, University of Baltimore - School of Law, Date posted to database: July 9, 2012 Last Revised: July 9, 2012
10	42	Inheritance Legal Systems and the Intergenerational Bond Shelly Kreiczer-Levy, Academic Center of Law and Business, Date posted to database: May 16, 2012 Last Revised: May 16, 2012

Report on the Federal Estate Tax

A report by the Joint Economic Committee, Costs and Consequences of the Federal Estate Tax, concluded that "there are [high] costs "associated with estate tax in terms of the dissolution of family businesses, slower growth of capital stock and a loss of output and income over time." This finding is particularly troubling because the estate tax can become too burdensome for farm families to continue to sustain their business. The problem arises from the assets that the government taxes. Most of the taxable income that farmers and ranchers own lie within the land that they use for agricultural purposes. Comparatively speaking, the amount of liquid assets that farmers and ranchers own is actually low. This situation means that farmers and ranchers are likely to incur a large estate tax bill but ultimately lack the liquid assets needed to pay off the tax without dissolving parts of the business to pay the estate tax. For these reasons, the American Farm Bureau Federation supports that abolition of the estate tax or, at the least, the extension of the Bush-era tax cuts.

See Estate Tax Report Released, Farm Futures, July 26, 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.