Wills, Trusts & Estates Prof Blog

Article on Professional Degree as Community Property in Texas

Elizabeth Morse (Executive Managing Editor, EPJ, Vol. 5; J.D. Candidate 2013) recently published her article entitled, Can You Place A Value On An Education?: Why Texas Should Treat A Professional Degree as Marital Property, 4 Est. Plan. & Community Prop. L.J. 321 (2012).  The introduction to the article is below: 

Dan and Lily Robinson were high school sweethearts. They attended the same undergraduate university and married a week after graduation. Dan graduated with a degree in biology and became a middle school science teacher. Lily earned her degree in nursing and found her first job at the local hospital working nights in the intensive care unit. Although their hours kept them from seeing each other as much as they would like, Dan and Lily nonetheless enjoyed their new married lifestyle. Dan soon grew tired of his teaching job—finding the work to be rather dull and unchallenging. With Lily’s support, he applied to medical school with the intention of becoming a surgeon. Dan enrolled in a nearby university’s school of medicine, while Lily continued to work the night shift. She picked up extra hours here and there to earn extra money so she could pay the couple’s living expenses, as well as the cost of Dan’s tuition. 

After four long years of sacrifice with little time together, Dan received his medical degree. Soon after, Dan announced to Lily that he no longer felt engaged in the marriage and wanted to make his career his sole priority—he filed for divorce. Lily felt hurt but also cheated; what about all the sacrifices she made to put him through school? She worked so hard and put all of her earnings toward Dan’s education with the anticipation that his degree would translate to an enhanced standard of living for the couple. Would she ever be able to get back any of the contributions she made? As it turns out, the answer depends on the state in which the couple is divorcing. 

Texas has not formally addressed the issue of whether a professional degree is marital property. Unlike other states, the Texas legislature has yet to enact a statute that provides the answer and, as of this date, the Texas Supreme Court has not made a ruling on the issue.

This comment will explain the different methods states have used to deal with professional degrees acquired during marriage. This comment will discuss the aspects of distribution and valuation of professional degrees, and additionally suggest a solution of how Texas should handle professional degrees in divorce. Part II will discuss how property other than a professional degree is typically handled during a divorce. Part III will examine the one occasion on which this issue arose in Texas, and the manner in which the court ruled. Part IV will examine the states that follow the majority approach: that professional degrees cannot be divided as marital property. Part V will discuss the states that treat a professional degree as marital property, which can be valued and distributed in a divorce.  Part VI explains how the states that do not consider professional degrees to be marital property will value these advanced degrees allowing spousal reimbursement for any contributions. Finally, Part VII proposes legislation that Texas should consider adopting to create a uniform position regarding the treatment of a professional degree at the time of divorce.

The Importance of Following IRS Documentation Rules

Steven J. Fromm (Attorney, Steven J. Fromm and Associates, P.C.) recently published a blog entry entitled IRS Slams Taxpayers: Attention to Tax Details Matter.  In the blog post, he discusses Durden, TC Memo, 2012-140.  Durden exemplifies that documentation rules imposed by the IRS should be followed meticulously if you want to claim a charitable deduction. Please click here to read the blog post about the taxpayers' unfortunate fate in Durden.

Maryland Voting on Same-Sex Marriage

Maryland will be voting on same-sex marriage on the November ballot, and it could become the first state to affirm same-sex marriage in a popular vote. 

In March, Maryland lawmakers approved a measure that would allow same-sex unions, but it would not take effect until 2013. The issue is again up for debate because Maryland opponents of same-sex marriage gathered more than 100,000 signatures to put a referendum on the November ballot.

Despite the push back, supporters of same-sex marriage are still hopeful because it is 2012 and public attitudes have continued to change.  Also, Maryland’s ballot initiative will be written differently—framed in an affirmative manner as opposed to a yes vote indicating rejection of the idea. 

Supporters also have encouraging news from polls. The Washington Post conducted a poll in January that indicated half of Maryland residents supported same-sex marriage, and polls now suggest that even more residents support it now.

While advocates of same-sex marriage will be spending $5 million to $7 million to promote their cause, they also suspect that the opponents will spend large amounts of money for the opposite pull too.

In November, Maine, Minnesota and Washington will join Maryland in voting on same-sex marriage.

See Rebecca Berg, In Maryland, Gay Marriage Seeks a ‘Yes’ at the Polls, The New York Times, Aug. 25, 2012. 

Divorce and Trusts

There are a number of factors that a person might want to consider during a divorce if one of the parties owns a trust. If the trust was established before the couple was married, then the assets of the trust are considered to be separate property in community property states. A partner might want to consider using a Domestic or Foreign Asset Protection Trust, which would allow that partner to transfer any separate property to a separate trust. A person might be able to forgo the determination of the classification of separate property and the appreciated value of that property because the trust would own the property and not the partner. In addition, the beneficiary of the trust might be able to exclude property that was placed in the trust in determining alimony. Furthermore, the settlor might want to draft the trust to protect the assets of the beneficiary regardless of whether a person is married or not. This last part refers to standard asset protection planning. Everyday people incur tort liability in auto accidents or other tragedies. If the beneficiary of a trust becomes liable for an accident, a good trust can protect the assets placed within the trust from his or her creditors.

See Can A Trust Protect My Assets in Divorce?, Bedrock Divorce Advisors, LLC, (2012). See also Jeff Landers, Can a Trust Protect My Assets in Divorce?, Forbes, July 18, 2012.

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

Book on Estate Planning for Second Marriages

Stephanie B. Casteel (Attorney, Georgia) & Eric A. Manterfield (Partner, Indiana) recently published a book entitled, Estate Planning for Second Marriages, (2011).The description of the book is provided below:

Many married couples you represent will be in a second (or subsequent) marriage and will have children from a prior marriage. Although there are certainly exceptions to this general rule, it is still unusual for clients to adopt the children of their new spouse. With this reason, the couple frequently tells you about “his” children, “her” children and, perhaps, “their” children.

Unlike the typical couple involved in a first marriage, couples involved in a second marriage frequently have substantial assets in their individual names alone. Although there certainly can and will be jointly held property, the existence of substantial assets in the sole name of each spouse may be significant. Joint property generally passes to the surviving joint owner at the death of the first spouse. Life insurance and retirement benefits will pass to the surviving spouse if he or she is named as the beneficiary.

Many couples in a second marriage want their individually owned assets to pass to their children from a prior marriage, either when the first spouse dies or at the death of the surviving spouse. They may want the couples’ assets to pass to the two families after the death of the surviving spouse. This transfer will not occur in accordance with the couples’ wishes without careful estate planning.

Estate Planning for Second Marriages helps attorneys handle these blended family situations, in which each spouse has children from a prior marriage and each spouse wishes to protect his and her individual assets for their respective children from the prior marriage. The couple also hopes to provide for the survivor, or if a divorce occurs, to provide for an orderly, predictable and conflict-free distribution of assets. The couple also hope to make use of the tax advantages available to married couples, such as filing joint income tax returns or making split gifts, in a mutually advantageous, systematic, fair, and transparent, way.

Casteel and Manterfield cover:

• Prenuptial and Postnuptial agreements
• Managing asset distribution
• Whether and how one spouse can control the other spouse's use of separate property
• What specific gifts are desired even when the first spouse dies
• The ethical constraints involved in representing the couple 

The text contains numerous practice pointers such as:

Although many clients who own sole title to the “marital” residence wish to permit the other spouse to reside there, the real world restrictions which that spouse wishes to impose make the drafting and later administration of this type of trust very difficult.

A Qualified Personal Residence Trust (QPRT) could purchase the marital residence from the husband who owns the property. The QPRT provides the husband and wife with respective life estates, for the life of the survivor of the couple. The Trust terminates to provide a remainder interest for the benefit of the husband’s children. All those benefitting from this Trust contribute amounts that reflect their respective actuarial interests in the Trust.

Do-It-Yourself Wills and the Internet

As I have previously discussed, there a number of reason why a person should not make his or her own will. A person might probably not want to follow any forms that a person might find on the internet. There are numerous problem with these forms. First, these forms tend to make mistakes which could invalidate the person's will. If the will is invalidated then the disposition of property will be controlled by the state intestacy statute, which probably will not follow the testators wishes. Now, even if the form is technically correct and adequate, a standard form could be not adequate to address the individual problems that a person might have. A person might own number of assets that these forms do not cover, such as annuities, insurance policies, and trusts. On the other hand, a lawyer would be able to help a person to plan and take into account the different assets that a person owns.

Now, a person might consider online forms to save money on the costs. However, if a problem does arise, it might cost the person more money to fix these problems than if the person just went to an attorney in the first place. Not to mention, a person could reduce time it takes to settle an estate. Estates can take a good while to completely settle, and that is assuming that nothing goes wrong. It can be even longer if something goes wrong.

See Ray Brandon & Dana Brandon, Homemade Wills Can Cause Woes, Memphis Daily News, Aug. 30, 2012.

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

Article on Inefficiency of the Provisions of Article 553

Cosmin Dariescu (Lecturer Ph.D., University of Iasi) has recently published an article entitled, The Inefficiency of the Provisions of Article 553 Paragraph (3) of the Civil Code (Ineficienta Prevederilor Articolului 553 Alineatul 3 Cod Civil), Aug. 6, 2012. The abstract on SSRN is provided below:

The enforcement of Article 553 paragraph (3) of the Civil Code (Law no. 287/2009 republished in 2011), which provides that the Romanian state acquires any inheritance in abeyance from abroad or any abandoned immovable from abroad is impossible. That because it would contradict the choice-of-law rules of Article 2636 paragraph (2) and 2613 paragraph (1), both of the Civil Code and it would infringe the sovereignty of other states which entitled them to acquire the estates without a claimant or the abandoned immovable on their territory. Therefore we recommend the abrogation of Article 553 paragraph (3) of the Romanian Civil Code.

Article on Bequesting Season Tickets

Rachael Rustmann (Comment Editor, EPJ, Vol. 5, J.D. Candidate 2013) recently published her article entitled, It's a Brand New Ballgame: How to Bequest Season Tickets For Your Favorite Sports Team's Games, 4 Est. Plan. & Community Prop. L.J. 369 (2012). The introduction to the article is available below: 

It all started with the Greek Olympic Games. According to written records, the history of sporting events dates back to when the first Olympic games were held in 776 B.C. At that time, the sole event was the stade: an approximately 210-yard run. For nearly 1,200 years, the Olympic games expanded, and athletes continually competed every four years. However, in 393 C.E., Roman emperor Theodosius I abolished the Olympic games because of their pagan influences. Fortunately, Pierre de Coubertin helped revive the Olympic games in 1896. 

About the same time that the Olympic games were making their way into the sports arena, football was beginning to develop in America. In 1876, members from Harvard, and various other universities in the United States, met to formalize the rules for their new game, which they based somewhat on rugby; they called the game “football.” While these institutions and their scholars were just beginning to develop football in the northeastern United States, athletes had already been playing baseball in the United States for almost a century. Baseball, America’s pastime, “has given our people rest and recreation, myths and memories, heroes, history and hope.” Basketball, like football and baseball, is another sport invented in the 19th century. Dr. James Naismath created basketball in Springfield, Massachusetts in 1891.

A century after their creation, these various sports evolved into a symbol of American life. Most day-to-day conversations and water cooler talk revolve around sports topics. As a result of this American obsession with sports entertainment, more professional team organizations are capitalizing upon this by marketing season tickets and seat licenses to fans as the business of the sports industry expands. Regardless of a fan’s reason for liking or disliking a team, that allegiance will always be there, in life and in death. This is why many fans with valuable season tickets to various sporting events want to be able to pass on their interest to their friends and family members when they pass. 

Whether it is baseball, football, or basketball, sports in America are an integral part of everyday life. Many people even identify themselves based on their allegiance to various sports teams. Baseball fans of the New York Yankees automatically dislike Boston Red Sox fans and vice versa.

Unfortunately, violent crimes have even resulted from these rivalries. Roughly 70% of the population identifies themselves with some sports team. Some devoted fans have gone so far as vomiting out of anxiety before every kickoff, skipping weddings for games, and even giving up their spot on transplant lists to avoid missing a game. Fans like this have been around forever: “In the Iliad, Homer described spectators at a chariot race peering through the dust and trying to see who was winning. Arguments ensued, bets were made, and a fight almost erupted before Achilles told everyone to chill.” 

Many teams, such as the New York Yankees, Boston Red Sox, New England Patriots, Green Bay Packers, and the Duke University Blue Devils, have decade-long waiting lists and can have anywhere from 30,000–60,000 people waiting for a chance to purchase these highly coveted season tickets. 

Regardless of the economic climate looming outside the gates, Americans have always spent countless dollars on sporting events and the activities and costs that come with them. Fans will wait day and night for tickets to some of sport’s most coveted events like the Super Bowl and NCAA March Madness. Some fans, however, will wait a lifetime or more for coveted season tickets to America’s most elite teams’ games. Many sports teams, such as the Green Bay Packers, have their own guidelines and forms for passing on season tickets at death. These forms are usually available through the organization and are meant to help settle most disputes that could potentially arise, but many disputes do arise if the decedent dies intestate. 

This comment explains how individuals can pass on the right to purchase coveted season tickets in their will, if there is a fee associated with the transfer, and if there is a tax or transfer fee associated with the transfer. It will also propose a solution to the varying transfer policies among the sports organizations. 

Part I of this comment introduced the history of sporting events and the integral part those events play in everyday American lives. Part II discusses various teams that already have forms that provide current season ticket owners with the opportunity to transfer tickets and if there is a property interest created by owning season tickets. Part III discusses if there are any transfer fees and if Congress may tax the transfer or purchase of tickets as an inheritance tax or part of the estate tax. Part IV uses a hypothetical situation of a man who has season tickets to multiple teams’ events, and it discusses the difficulties the season ticket holder, lawyers, and courts may face because of the varying team policies. Finally, Part V proposes a solution to the problem with varying transfer policies by implementing a uniform transfer policy among all sports organizations. This can be achieved either by Congress passing a statute that applies to all organizations, each individual state’s congress adopting a statute that applies to the teams within that state, or creating a vested property right with the season ticket holder when he or she purchases the tickets. 

George Jefferson Still Not Buried

Sherman Hemsley, who played George Jefferson, died of lung cancer on July 24 at the age of 74.  Even though he died over a month ago, he still has not been buried because there is a dispute over his will.  Associated Press described a will that left his estate to a woman named Flora Enchinton, his friend and manager for over 20 years. 

A man named Richard Thornton has come forth, claiming that he is Mr. Hemsley’s brother and that the will may not have been written by the actor.  Ms. Enchinton told the Associated Press that Mr. Hemsley never told her he had relatives.  She speculates that money might be motivating Thornton’s claim.

See Dave Itzoff, Contested Will Delays Burial of ‘Jefferson’ Star Sherman Hemsley, The New York Times, Aug. 30, 2012.  

Special thanks to Brian J. Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.

Difficulties in Closing Bank Accounts Result in Zombie Bank Accounts

Now that automatic deposits and bill payments are linked to bank accounts, it is harder to close them. This difficulty was particularly evident in one California man's case. Four days after Richard Palmer Sr. died, his family went to the nearest California branch of Bank of America to close his checking account.  One month later, his account "sprang back to life, becoming what is known as a zombie account."  

His surviving family members had no idea that money was being automatically withdrawn from his bank account every month to pay outstanding loans to payday lenders. Those creditors planned going to keep taking money from the account indefinitely.  

This week, the bank changed their policy to state that a closed account will not release payments or accept deposits.  Because the previous policy allowed checking accounts to be reactivated by electronic transactions and the Palmers started the closing process under the previous policy, Richard's account still is not closed. In an attempt to fix the problem, one Bank of America representative made a fake withdrawal of $888,888.88 so the account is now on fraud alert. 

Palmer's account woes not only show how much harder it is to close a bank account, they also point out how hard it can be for survivors to trace the financial lives of the deceased as technology becomes more prevalent and paper trails become less utilized. 

Bank of America's spokeswoman said that customers trying to close an account need to allow time for any incoming debits or credit.  If the account holder is dead, the responsibility to handle these requirements falls to the executor of the estate.  In Palmer's case, the debt would first come from the estate if there are available funds.  If the estate is insolvent, the debt may be written off by creditors. Creditors often try to come after a surviving spouse for such debts, but the surviving spouse is not legally obligated to pay.