Wills, Trusts & Estates Prof Blog

Dispute Over Painting and Capital Gain Taxes

A dispute over a £9.4 million painting from Castle Howard is before the Royal Courts of Justice in London.  The painting is a Sir Joshua Reynolds painting known as Omai and it is viewed as possibly the artist's finest work.  For centuries, it graced the walls of Castle Howard.  It was sold at Sotheby's in 2001 to fund Simon Howard's divorce from his wife Annette.  Omai was part of George Howard's estate and his executors have been righting with tax authorities ever since he died in 1984 over whether the £9.4 million should be subject to capital gains tax.  

The executors argue that the painting should be viewed as a "plant" used in running the house as a business because it was essential in bringing visitors to the Castle Howard.  Last year, a tax tribunal dismissed those arguments after pointing out that the painting's sale did not lead to any falling off in visitor numbers.  In fact, visitor numbers have increased by ten percent in subsequent years. The executors are now asking the Upper Tribunal to overturn the tax tribunal's decision. 

See Mike Laycock, Tax Battle Over Castle Howard £9.4 million Painting, The Press, Nov. 30, 2012. 

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

Litigators Consider Estate Tax Cost of Premature Death

Estate planning practitioners have long been focused on the estate tax cost of a premature death, but now litigators are considering it too.  Recently, in Beim v. Hulfish, a New Jersey court allowed plaintiffs to assert additional estate tax cost as an additional measure of damages in a wrongful death claim.  

John Kellogg was a 97 year old passenger killed in an auto accident in 2008, and his family brought a wrongful death action.  In 2008, the estate tax exemption was $2 million and the Kellogg estate was required to pay almost $1.2 million in estate tax.  If Mr. Kellogg had died in 2009, hi sestate would only pay half of that because the estate tax exemption was increased to $3.5 million.  And if he had died in 2010, when the estate tax was increased to $5 million, his estate wouldn't have needed to pay anything.  

Plaintiffs presented evidence of his life expectancy and left it up to the jury to determine which year Kellogg would have died in were it not for the car crash.  Even though the court found that Kellogg could have died in any year prior to 2013, and the estate tax applicable in 2011 and 2012 was not determined until after the wrongful death action was filed, the Court ruled that the estate tax differential was not too speculative for the necessary standard to determine damages in a wrongful death action in New Jersey.  

This case may only be applicable in New Jersey where the courts have a rather expansive view of the pecuniary liability under its wrongful death statute. 

See Kathy Sherby and Stephanie Moll, Claim For Payment of Estate Taxes in Wrongful Death Case, Bryan Cave Life, Death and Taxes, Nov. 12, 2012. 

 

Teaching T&E Using Outcomes-Based Techniques

Carolyn Grose (Professor of Law, William Mitchell College of Law) has recently published her article entitled Outcomes-Based Education One Course at a Time: My Experiment with Estates and Trusts, 62 J. Legal Educ. 336 (2012).

Here is the abstract from the SSRN version of her article:

Over the past three or four years, the legal academy has been under pressure to reform, driven by the critique that legal education does not adequately prepare law students to be lawyers.

The Carnegie Report, Best Practices for Legal Education, and even publications by the American Bar Association challenge law schools to radically rethink the delivery of legal education by starting at the end and working backwards. The current buzzword for this kind of education is “outcomes-based” education. The reports encourage law schools to focus on demonstrated student learning (outcomes) rather than what students are taught (input). In fact a report by the ABA Outcome Measures Committee recommends that output measures substantially replace input measures for the purpose of law school accreditation, and the ABA is currently considering amendments to its Accreditation Standards that would incorporate parts of that proposal

When presented with the opportunity to teach a new course, I decided to put some of these ideas to the test. Thus, in planning and ultimately delivering my Estates and Trusts course for the first time, I started at the end: by identifying my desired outcomes. What did I want students who completed my course to be able to do? In Stage II, I identified what evidence I would need to determine whether students had achieved these stated goals. What would student proficiency look like, in my course? Having identified such evidence, I designed assessment tools and activities that would measure such evidence and help me determine the level of proficiency. Stage III involved designing my instruction tools and teaching activities geared toward helping students gather the evidence necessary to allow me to assess whether they were achieving the stated outcomes. I planned to teach toward my goals. And finally, in Stage IV, I reviewed the whole process – one goal at a time, one class at a time, one assessment tool at a time – to figure out how I as an instructor had succeeded, or not, at designing and delivering the course from the end to the beginning.

In this article, I explore and demonstrate the effectiveness of outcomes-based education in the context of the planning and delivery of this one course. After giving a general overview of outcomes-based education, each section of the article will first describe the particular stage of outcomes-based education (i.e. outcomes, assessment, delivery, evaluation), drawing from non-legal and legal education resources on the topic; and then will describe my process of implementing these ideas, with some evaluation of their usefulness both for me as a teacher, and for my students.

I do not think I am ruining the story by giving away the ending: Requiring clarity and transparency about my goals for this course, and gearing the entire course toward helping students meet those goals resulted in a course that felt more intentional, contextual, and capable of reproduction than any course I had taught before. I believe the students benefited from my planning and teaching, by gaining more understanding both of the material itself, and also of the process of learning the material. Their ability to self-assess throughout the semester improved measurably, allowing me to refine and adjust the materials as needed much more than I had done in previous courses. In short, this way of designing and implementing a course worked beautifully for me, and I believe it worked for my students.

AALS Section on Trusts & Estates Fall 2012 Newsletter

The AALS Section on Trusts & Estates has just released its Fall 2012 Newsletter with information about conferences, programs, scholarship, and other professional news of interest to the membership.

You may read this exciting Newsletter by following this link.

Guardianship in Virginia

In Virginia, judges usually appoint a law firm when it places an elderly or incapacitated person in a guardianship and that person has no one else to take care of them. This happened to Samuel and Jeanne Drakulich, who were placed in the guardianship of Needham, Mitnick and Pollack (NMP). The major problem with this model is that it can be quite expensive. So much so, that the Drakulich's and NMP are in a dispute turned lawsuit over "tens of thousands of dollars in billing" that NMP charged the couple to take care of them. According to the Washington Post, "NMP billed the Drakuliches $6,300 to prepare $1,800 worth of household items for auction, another ward $2,300 to sell a $4,000 car and a third person in their care $4,200 to recover $5,300 worth of investments." For daily expenses, NMP charged between $85 and $125 an hour. The Drakulichs argue that the amount of money that they are being charged is too much. NMP, however, asserts that the amount that the couple is being charged is their normal professional rate.

The problem for the Drakulichs is that there is no cap or guidelines on the amount that NMP a law firm can charge. The only guideline is that fiduciaries are entitled to receive "reasonable" compensation. What makes matters more troubling is that professional guardians are not required to have any formal training, and the State of Virginia lacks of unified system to keep oversight over the firms it places in guardianship positions.

Recently the county's commissioner of accounts, the fiduciary watchdog that approves billings, told NMP to refund about $229,000 for expenses in seven different cases, including the Drakulich's case. In the case of Drakulichs, NMP argues that the fees they charged the Drakulichs was reasonable because of "the amount of work needed on cases with complicated family dynamics." Now, the Supreme Court of Virginia will hear this precedent setting case on how much a private firm can charge for guardianship duties. What shocked the family members of the different wards was that the firm was charging them $165,000 legal tab to defend it. 

See Justin Jouvenal, Guardianship Case in McLean Illustrates Lack of Regulation For Those Caring For The Elderly, The Washington Post, Nov. 29, 2012. 

Special thanks to Lewis J. Saret (Attorney at Law, Washington D.C.) and Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

In response to this posting, the law firm of Needham Mitnick & Pollack submitted the following response:

Our firm, Needham Mitnick & Pollack, has served as guardian and conservator in numerous cases over the last 20 years, including many pro bono cases. We take our responsibilities seriously, as evidenced by our reputation in the community. We also take seriously the misleading reporting by The Post in this article.

What was not stated in the article is that both an independent court investigator and the judge reviewed all of our bills for seven years of work and concluded that all of our time was reasonable and that the services performed were necessary, appropriate, proper and of value to the wards. 

To illustrate just one problem with the story, the article’s closing implied that our goal was to deplete the Drakuliches’ estates of all assets. However, when Jeanne Drakulich died in December 2010, there was more than $379,000 in her estate and all four Drakulich children asked our firm to serve as administrator of her estate. 

By not providing a balanced story, The Post has done a disservice to the valuable work performed by the elder law community.

Man Tries To Dodge Estate Tax By Establishing a Foundation

The Education Assistance Foundation for The Descendants of Hungarian Immigrants in The Performing Arts (EAFDHIPA) was established as education foundation designed to provide scholarships to junior or senior college students of hungarian of eastern european descent that have a descendant who took part in the performing arts. The foundation was established in 2005, has received more than $2 Million in donations, and have only given $200,000 in only a few scholarships. To make matters more interesting, when the IRS conducted an audit of the foundation, they discovered that one of few scholarships awarded were given to someone with the same last name and address as the President of the organization. If this seems like something gone awry then you are not alone because the IRS felt the same way too.

After conducting the audit of their 2005 tax return, the IRS concluded "that the Foundation was created in order to avoid paying estate and generation-skipping taxes on the estate of one individual, Julius Schaller, and to finance the education of Mr. Schaller's relatives." The estate has challenged the conclusion in tax court pending the appeal of a district court's decision this month. That case dealt with the tax exemption status of the organization. The IRS is claiming that Mr. Schaller's estate has committed fraud and tried to place a tax penalty on the organization.

See Peter J. Reilly, Education Foundation Or Estate Tax Dodge - Remains To Be Seen, Forbes, Nov. 28, 2012.

Special thanks to Bruce J. Gary (Price, Crooke, Gary and Hammers, Inc.) and Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.

CLE on Estate Planning 101

The ABA Section of Real Property, Trust & Estate Law and ABA Standing Committee on Paralegals will host a 60 minute session entitled, Estate Planning 101: The Basics. The session will be led by two members of the Real Property, Trust & Estate Law, Hugh Drake (Brown, Hay & Stephens LLP) and Tye Klooster (Katten, Muchin Rosenman LLP). The session include discussions of the following:

1. Defining the need and objectives for clients.
2. Determining intestacy.
3. Wills and revocable trusts.
4. Steps of probate and probate avoidance.
5. Taxes and asset protection.

Article on Medicare Open Enrollment

Wesley E. Wright (Partner, Texas) and Molly Dear Abshire (Partner, Texas) recently published an article entitled, Medicaid Open Enrollment: Opportunity for Beneficial Changes, Senior Living Section, Houston Chronicle. Provided below is the introduction of their article:

During this time of year, as you begin holiday shopping for your friends and loved ones, do not forget to do some shopping around for yourself or your elderly parents. 

October 15 through December 7, Medicare allows beneficiaries a chance to review and make changes to their healthcare and prescription drug plan benefits, and there are multiple reasons for doing so.

Individual needs can change on an annual basis, so it’s wise to use the open enrollment period to compare your options and get the right fit. Have you changed any medications that you take? Have you been diagnosed with a new medical condition? If you answered yes to either of these questions, it would behoove you to shop around for another provider. 

Helpful Chart To Explain the Fiscal Cliff

The fiscal cliff involves the expiration of the current tax rates, along with the deep spending cuts that will be required in defense and domestic programs by the federal government.  As the end of the year nears, Washington continues to grow more concerned with this fiscal cliff.  Financial advisor Leo LaBrecque* and his team at LJPR LLC have created a chart to help people understand this fiscal cliff that has Washington all in a flurry.

Please click here to see the chart. 

*Leo LaBrecque is a CPA, CFP and CFA as well as managing partner and chief strategist at LJPR, which manages over $470 million in assets.  

See Michael Cohn, Charting the FIscal Cliff, Accounting Today, Nov. 28, 2012. 

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

Collaborative Process: What is it and How Does It Work?

A collaborative process can be used in place of probate court proceedings to address issues in the disposition of an estate.  The collaborative process is less time-consuming, less expensive and less confrontational than a traditional adversarial case.  It is especially effective in disputes where monty is not the sole issue.  Akron.com explains what collaborative probate law is and how it works.  

1. What is collaborative probate law? This is a process that can be used to settle disputes over an estate in place of probate proceedings. Each collaboration participant is represented by his or her own attorney and all parties and their attorneys work in face-to-face meetings to resolve probate issues.  All interested parties get a spot at the table, and these kinds of settlements tend to be more satisfactory to the parties, and therefore more enduring.  

2. How does it work? All parties and their attorneys first get permission from the court to put the case on hold while a collaborative settlement is attempted.  All parties then sign a collaborative law participation agreement saying that they will all take a reasoned approach to the issues.  After the agreement is signed, each party meets with his or her attorney, and then the first collaborative meeting is held.  The attorneys agree that, if the collaborative process does not work, they will withdraw and not represent a party in any court proceeding substantially related to the dispute's subject matter. The five steps of the collaborative process are as follows: (1) determine goals, interests, and concerns; (2) gather relevant information; (3) develop options; (4) evaluate options; and (5) negotiate a settlement.  

See Collaborative Process Used to Settle Probate Disputes, Akron.com, Nov. 29, 2012. 

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