Wills, Trusts & Estates Prof Blog

Article on Donative Intent and Unanticipated Circumstances

Reid K. Weisbord (Rutgers Law School, Newark) recently published an article entitled, Federalizing Principles of Donative Intent and Unanticipated Circumstances, Vanderbilt Law Review, Vol. 67, No. 6 (2014).  Provided below is the abstract from SSRN:

Federal preemption has begun to upend an array of settled principles of state property succession law in an uncertain and inconsistent path toward the development of a federal body of wealth transfer law. As Professor Adam Hirsch documents in his insightful contribution to the Vanderbilt Law Review’s Symposium on the Role of Federal Law in Private Wealth Transfer, the federal displacement of state wealth transfer law is particularly on display in the area of disclaimer rights, which allow the donee of property to refuse acceptance of a donative transfer. Using disclaimer rights as an illustration, this paper argues that federal law, in adjudicating conflicts with state wealth transfer law, would benefit from consideration of a central tenet of donative transfer law — that wealth transfer law facilitates donative intent by responding to circumstances unanticipated by the donor. With the goal of facilitating a more cogent and transparent mode of analysis for developing a federal body of wealth transfer law, this paper applies the principles of donative intent and unanticipated circumstances in three contexts where state disclaimer law has problematically intersected with federal law: (1) federal claims, including federal tax liens; (2) transfers at death governed by ERISA; and (3) bankruptcy law.

Charities Challenge Trust

Siv Ljungwe died in 2010 and is remembered as a Fulbright scholar, dedicated teacher, avid outdoorswomen, and triathlete.  Ljungwe also left behind a fortune worth millions of dollars, amassed over the decades through real estate investments with her husband Anders. What Ljungwe intended to do with that fortune is the subject of a long-running lawsuit in San Diego Superior Court. 

Four nonprofit charities including UNICEF, the NPR Foundation, Doctors Without Borders and the San Diego Research Foundation, are suing to invalidate a trust Ljungwe created in 2008, which left all her money to Encintas lawyer Carl Dimeff. 

The charities argue that Ljungwe was mentally ill when she signed off on the trust, suffering from delusions and was infatuated with Dimeff.  They say Ljungwe always wanted her fortune to be distributed to the four charities, each receiving 25 percent.  These were the terms in which the trust was created in 2004. 

In court documents, lawyers insisted that Dimeff did nothing improper and that Ljungwe did exactly what she wanted to do with her money when she decided he would inherit it all.  Dimeff said he helped to shield her from a malevolent husband, and she was thankful for his help. Dimeff was “truly surprised that she left him her entire estate.”

Yet, Superior Court Judge William Nevitt Jr. invalidated the 2008 trust, concluding there was ample evidence that Ljungwe was mentally incapacity and Dimeff had exerted undue influence on her.  This coming week a second phase of the trial will begin to determine how much money the charities are owed.

See Greg Moran, Charities Challenge Woman’s Estate, UT San Diego, Nov. 28, 2014. 

Estate Administration Exception to Self-Dealing

Prior to her death, decedent created a private foundation, and through her will left a piece of property to the foundation. Additionally, she left the foundation a remainder interest in another piece of property that she left a life estate to her two children. After the foundation decided that they preferred to receive cash than the property from the estate, and that it was unlikely that they could find a buyer other than the son, the foundation requested a private letter ruling. The issue of the PLR was whether it would constitute self-dealing if the son bought the property since not only was he family of the deceased, but also a trustee of the foundation. The son was also the executor for his mother's estate.

In Private Letter Ruling 201441020, it was held that the transaction would not be considered self-dealing because it falls under an exception in the Treasury regulations, known as the Estate Administration Exception. The exception requires that the executor have the power to sale the property, the sale is approved by a probate court, the sale take place before termination of the estate, the estate must receive at least fair market value, and that the consideration that the estate receives is at least as liquid as what is being sold.

See David A. Handler & Alison E. Lothes, Tax Law Update: December 2014, Wealth Management, Nov. 21, 2014.

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

Article on Disincentivizing Elder Abuse Through Disinheritance

Travis Hunt (J. Reuben Clark Law School, Brigham Young University) recently published a comment entitled, Disincentivizing Elder Abuse Through Disinheritance: Revamping California Probate Code § 259 and Using It as a Model, 2014 BYU L. Rev. 445 (2014). Provided below is an excerpt from the introduction of the comment:

Police found Ms. Brown, a seventy-four-year-old woman, partially fused to an arm chair surrounded by her own filth.¹ Her son and primary caretaker, James Owens, left her in the chair for days, allegedly complying with her request to let her die at home.² Luckily for Ms. Brown, James tried to endorse her social security check, and authorities eventually found her.³ Ms. Brown was pried from her arm chair and died of a stroke in the hospital several days later, and James was eventually sentenced to one year in prison.⁴ Although it is shocking that police found Ms. Brown in such a life-threatening and atrocious condition, it is almost equally shocking that nothing in Missouri's elder abuse statutes would keep James from inheriting from his mother's estate.⁵

Accounts like this are disconcerting for several reasons. First, for every disheartening story of elder abuse, there are several--perhaps dozens of--other stories that are never reported. Second, abusers have an eighty-four percent chance of living in a state that has not yet enacted a statute that disinherits elder abusers.⁶ Third, even in the eight states that have recognized that stories like Ms. Brown's are a major problem,⁷ the statutes that states have enacted to deal with this problem fail to provide strong incentives for people closest to elders to report abuse.

Existing scholarship tends to welcome elder abuse disinheritance statutes without extreme criticism, noting their potential deterrent effects.⁸ However, I argue that these statutes have severely limited their potential deterrent effects by relying too strongly on antiquated notions of inheritance rights, by refusing to treat many forms of elder abuse as perpetrations that can be deterred by probate law, and by refusing to disengage themselves from criminal law.

Most enacted elder abuse disinheritance statutes suffer from one of two common deficiencies. First, six of the eight states that have enacted such statutes require a criminal conviction, which deprives family members of an incentive to report and prosecute the abuse because they may lack evidence to support a conviction beyond a reasonable doubt. Second, three of the states provide for disinheritance only in cases of financial elder abuse, relying on false ideas about which kinds of abusive acts actually relate to inheritance.

Meet Your Match on 401(k)s

When an employer offers their employees free money as an incentive to participate in their 401(k) retirement plan, it makes sense to accept it by participating and making contributions to their accounts.  For those who were anxious to save as much as possible through an employer-sponsored IRA, another potential pitfall could reduce the full amount of matching contributions you are entitled to receive. 

For many employees, coming up with $3,000 to contribute can be the biggest challenge they face.  For higher wage earners, another pitfall can come into play.  If you contribute too high a percentage of your overall salary early in the year, you can end up maxing out the $17,500 annual limit on 401(k) contributions too early, thus costing yourself matching funds. 

Fortunately, some 401(k) plans have provisions that prevent the loss of your match from occurring in the first place.  These “true-up” provisions ensure the employer considers all of your earnings from throughout the entire year in calculating the matched amount, rather than just the months in which you made contributions.  Even if your employer’s plan does not have true-up provisions, there is another way you can make sure you get every penny of matching contributions you deserve.  If you monitor your matching to have an equal fraction of the 401(k) contribution limit taken from each regular paycheck and contributed to your 401(k) account, then you will ensure you make a contribution each month and get the full amount of the match throughout the year.

See Dan Caplinger, This 401(k) Mistake Could Cost You Your Match, Daily Finance, Nov. 27, 2014. 

Article on Probate Law in the Digital Age

Naomi Cahn (George Washington University Law School) recently published an article entitled, Probate Law Meets the Digital Age, Vanderbilt Law Review, Vol. 67, 1697-1727; GWU Law School Public Law Research Paper No. 2014-55, GWU Legal Studies Research Paper No. 2014-55. Provided below is the abstract from SSRN:

This Article explores the impact of federal law on a state fiduciary’s management of digital assets. It focuses on the lessons from the Stored Communications Act (“SCA”), initially enacted in 1986 as one part of the Electronic Communications Privacy Act. Although Congress designed the SCA to respond to concerns that Internet privacy posed new dilemmas with respect to application of the Fourth Amendment’s privacy protections, the drafters did not explicitly consider how the SCA might affect property management and distribution. The resulting uncertainty affects anyone with an email account.

While existing trusts and estates laws could legitimately be interpreted to encompass the new technologies, and while the laws applicable to these new technologies could be interpreted to account for wealth transfer, we are currently in a transition period. To fulfill their obligations, however, fiduciaries need certainty and uniformity. The article suggests reform to existing state and federal laws to ensure that nonprobate-focused federal laws ultimately effectuate the decedent’s intent. The lessons learned from examining the intersection of federal law focused on digital assets and of state fiduciary law extend more broadly to show the unintended consequences of other nonprobate-focused federal laws.

Retirement Changes for 2015

Change is coming next year to retirement benefits and plans that will affect both those currently retired and those in the planning stages. Here are some key retirement account changes in 2015:

• As a result of cost-of-living adjustments, those receiving social security benefits will see a 1.7 percent increase.
• The hospital inpatient deductible will increase for Medicare Part A from $1,216 to $1,260, and premiums for Medicare Part D will likely see a four percent increase.
• The contribution limit for 401Ks will rise to $18,000 from the current $17,500 limit, but the contribution limit will not change for IRAs.
• A new retirement account option is expected to enter the retirement planning landscape next year, the myRA.

See Emily Brandon, How Retirement Benefits Will Change in 2015, U.S. News, Nov. 24, 2014.

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

Looking Back at Estate Planning in 2014

2014 was mostly a year of stability for estate planning, but did include some significant developments. The current exclusion amounts for estate, gift, and generation-skipping transfer tax is at a historical high at $5.34 million currently and expected to be $5.43 million for 2015. Portability for gift and estate tax exclusions by a surviving spouse has been a focus of estate planning considerations this year, as well as heightened attention to income tax as a result of increased income tax rates. One significant development in 2014 that garnered much attention was the US Supreme Court decision in Clark v. Remeker, which held inherited IRAs do not fall under bankruptcy protection.

See David M. Allen, Mal L. Barasch, Victor H. Bezman & Diane B. Burks, 2014 Year-End Estate Planning Advisory, The National Law Review, Nov. 28, 2014.

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

Guide to Holiday Gift Giving

The holiday season has just begun, which means it is a time to think about friends, family, good cheer, and of course, the IRS. 

Why the IRS? If you run a business and the holidays includes gift giving to employees or customers, you should consider whether these gifts are deductible for the company or taxable for the recipient.  As usual, the answer depends.  Below is a guide to some of the rules:

• Gifts of minimal value are generally not taxable for employees.  Minimal means $25 to $75 per employee each year.  Gifts worth more than that are taxable.
• Monetary prizes, including achievement awards, as well as non-monetary bonuses such as vacation trips, are taxable compensation.
• Gifts awarded for length of service or safety achievement are not taxable, so long as they are not cash, gift certificates or points. 
• Gifts and awards, regardless of whether they are taxable to the employee, are deductible for expenses for employers.
• Deductions for gifts to customers are limited to $25 in value per person per year, whether given directly to the individual or indirectly to the company, but will eventually be given to the individual.  Incidental costs, such as engraving, packaging, insurance and mailing generally do not count against the $25 limit.

See Jonathan Cooke, Follow IRS Rules for Holiday Gift Giving, The Tennessean, Nov. 23, 2014. 

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

The Way Early 529

As college costs have spiked, anxious families are looking at strategies for helping their future children or grandchildren get an education.  One of theses strategies is to open a 529 college-savings plan and have it start growing years before the future student is born. 

Anyone can start a 529, which is funded with after-tax income; the fund’s earnings and principal will be untaxed as long as the money goes to expenses that qualify as higher education.  It is wise for parents with adult children to open a 529, as it helps jump start savings.  Furthermore, if parents subsequently transfer ownership of the account to their grown children, both generations can benefit from some gift-tax exemptions. 

In addition to increasing the amount of giving both sets of parents can do without owing gift tax, this can help wealthier grandparents reduce their estate below taxable level, especially in states such as New York and Pennsylvania, where estate-tax exemptions are much lower than the 2014 federal level. 

Starting a 529 plan when a child is born can mean years of lost earning potential.  A plan started with the maximum $14,000 initial gift, five years before a child is born, funded with $500 every month and earning interest at 3% compounded monthly, would yiled $226,784 by the child’s 18^th birthday.  The same plan started at birth would yield $167,336.  While the future is unpredictable, a will can provide for an executor or trustee to carry out 529 plans using assets in a revocable trust. 

See Peter S. Green, The Way-Early ‘529’ Gift, The Wall Street Journal, Nov. 3, 2014.