Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Sunday, April 30, 2017

Wealthy Americans Are Living Longer and Taking More from Taxpayers

Wealthy americansThe American population continues to live longer and longer, but some are dying younger, according to recent data revealing that life expectancy estimates for 65-year-olds dropped by six months. These trends create a widening gap between the wealthy and poor Americans. Not only are the wealthiest people living longer, they are also reaping the greatest financial reward for their longevity courtesy of the American taxpayers. Tweaks to Social Security, Medicare, and other benefit programs could affect the rich and poor quite differently, namely benefiting well-off Americans, as Congress and the new administration consider changes to these long-standing programs. As they live longer, the wealthy Americans can expect to collect substantially more Social Security over their lifetimes. Ultimately, your life expectancy is a factor when planning and saving for retirement, so being conscious of how this will affect your future is key.

See Ben Steverman, The Rich Are Living Longer and Taking More from Taxpayers, Financial Advisor, April 24, 2017.

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

April 30, 2017 in Current Events, Estate Planning - Generally | Permalink | Comments (2)

Article on Hart-Scott-Rodino Antitrust Improvements Act

HsrJay D. Waxenberg & Jason A. Lederman recently published an Article entitled, The Intersection of Trusts and Anti-Trust: Why You, an Estate Planner, Should Care About Hart-Scott-Rodino, 51 Real Prop., Tr. & Est. L.J. 431 (2017). Provided below is an abstract of the Article:

This Article addresses how the Hart-Scott-Rodino Antitrust Improvements Act (HSR) affects estate planning transactions and how estate planners might resolve issues arising out of HSR. To help estate planners better understand the provisions of HSR, this Article briefly covers the key terminology, the coverage, and the exemptions of HSR. Additionally, this Article analyzes the application of HSR to Grantor Retained Annuity Trusts (GRATs) and other irrevocable trusts. Lastly, this Article discusses public policy and provides suggested changes to HSR.

April 30, 2017 in Articles, Estate Planning - Generally, Trusts | Permalink | Comments (0)

Saturday, April 29, 2017

The Lesson of Three Girls

Advance directive2Go back to the summer of 1975, and there is a 21-year-old girl who just found a job and was moving out of her parents’ house. The girl had been on a strict diet to fit into one of her dresses, and after a night of drinking, she felt faint and was taken home by her roommates. After some time, the roommates went to check on her, but she was not breathing; she was rushed to the hospital, where she was pronounced brain dead. Months later, her parents decided it would be best to turn off her respirator, allowing her to die in peace. However, the local county prosecutor threatened to charge them with homicide if they did so. Their case ended up in the New Jersey Supreme Court, where the court ruled that the girl could be disconnected if its what she would have wanted, creating a new area of law.

There was a second girl, who was 23-years-old and living in Missouri. After a bad motorcycle accident, she was found face down in a ditch. She ultimately lost part of her brain function from the accident, causing her parents to seek a court order to remove her feeding tube. Her case also went to court. After reaching the United States Supreme Court, the Court ruled that a competent person had a right to refuse life-prolonging treatment, but the individual states could pass laws regarding what was “clear and convincing” proof of a person’s preferences. A Missouri court ultimately decided that the girl would not want to be kept alive under these circumstances, and she died nine years after her accident.

The third girl, a 26-year-old, suffered a heart attack, which subsequently caused massive brain damage. After her condition persisted, her husband thought it would be best to let her die, but her parents were sure she was still conscious. Their dispute led to nineteen court cases.

These stories about Karen Ann Quinlan, Nancy Cruzan, and Terri Schiavo present two lessons. First, you do not need to be old in order to have an Advance Directive for Healthcare; in fact, you should sign one upon getting your driver’s license. Second, statistics report that only 26% of adults have advance directives, so it is important to increase this percentage for the sake of your family and loved ones.

See George, The Lesson of the Three Girls., Fox + Mattson, P.C., April 20, 2017.

April 29, 2017 in Disability Planning - Health Care, Estate Planning - Generally | Permalink | Comments (0)

Article on Fiduciary Obligations of Funeral Representatives

Funeral repJames P. Spica recently published an Article entitled, Rights and Rites: Understanding the Fiduciary Obligations of Designated Funeral Representatives, 62 Wayne L. Rev. 185 (2017). Provided below is an abstract of the Article:

Michigan Public Act 57 of 2016 added a new operative, the “funeral representative,” to the cast of fiduciaries subject to Michigan's Estates and Protected Individuals Code. This Article canvasses the peculiarly fiduciary aspects of a designated funeral representative's power to make funerary decisions, focusing on the breadth of the funeral representative's discretion and the identity of the holders of rights correlative to the funeral representative's fiduciary duties.

April 29, 2017 in Articles, Current Events, Death Event Planning, Professional Responsibility | Permalink | Comments (0)

Friday, April 28, 2017

Tax Judge Rules Appraiser Placed Lowball Valuation on Estate's Painting

The youngerA Sotheby’s official appraised a painting by Pieter Bruegel the Younger back in 2005 at $500,000, but when the owner of the piece went to sell the painting, it drew more than four times that amount, selling for $2.1 million. So why such a wide gap between the estimated and actual value? The appraiser claimed that artwork prices spiked due to a large influx of Russian buyers who were eager to obtain old masters. However, the United States Tax Court took issue with this matter in a recent decision, ruling that the appraiser had most likely placed a lowball estimate on the piece to “curry favor” with the owner, an estate likely facing a substantial tax bill. With the IRS viewing valuations for artworks in income, estate, and gift tax returns as a potential area for abuse, it comes at no surprise that the IRS challenged the low value placed on the painting, seeking an additional $781,488 in taxes from the estate.

See Colin Moynihan, Don’t Blame the Russians, Tax Judge Tells Sotheby’s Expert, N.Y. Times, April 23, 2017.

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

April 28, 2017 in Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax, New Cases | Permalink | Comments (0)

Article on North Carolina's Living Probate Law

Living probateKyle Frizzelle recently published an Article entitled, Better to Play Dead? Examining North Carolina’s Living Probate Law and Its Potential Effect on Testamentary Disposition, 39 Campbell L. Rev. 187 (2017). Provided below is an abstract of the Article:

On August 11, 2015, North Carolina became the fifth state in the nation to permit a “living probate” proceeding. Like the laws of the four states before it, the new North Carolina law empowers a court to decide the validity of an individual's will while that individual is still alive. Generally, if the court determines the will is valid, that order is binding. In North Carolina, however, it may not be. In this state, an interested party may challenge a will after the testator has died, even though a court has already found the will valid based on evidence presented by the testator himself. This possibility should not exist. Allowing a post-mortem will contest in this situation destroys the desirability of living probate as an estate planning tool.

This Comment first offers a brief overview of living probate in North Carolina before analyzing benefits and concerns commonly associated with the proceeding. After establishing that the advantages of living probate make it a workable option for many individuals, discussion then turns to the effects of North Carolina's flawed provision. Because allowing a post-mortem will contest of an already validated will effectively renders living probate pointless, the North Carolina General Assembly should remove the provision entirely.

April 28, 2017 in Articles, Estate Planning - Generally, Wills | Permalink | Comments (1)

How to Protect Your Assets in Trust

Offshore trustDonald Hess, a wealthy Swiss businessman, saw his $200 million estate placed at risk when his wife of over twenty years sued for divorce. Despite having a pre-marital agreement that limited his wife’s possible recovery, Hess had concerns regarding a possible court decision falling outside the bounds of the contract. His fear was not unfounded. The list of Top 25 huge divorce settlements includes CEOs, hedge-fund managers, and well-known actors and entertainers, such as Madonna and Mel Gibson. Mel Gibson’s divorce left him nearly penniless when a court ordered him to pay almost $400 million to his former spouse. Fortunately for Hess, his ex-wife was not able to recover anything beyond the pre-settled amount. Hess had previously transferred his assets into an offshore trust. The only aspect of this action examined by the court was whether Hess’s transfer caused him to become insolvent.

There are a number of scenarios in which placing assets into a trust account can prevent creditors from reaching those assets. Individuals that run private businesses as the sole owner may face tremendous risk from creditors. In the event these individuals are privately sued, creditors may invade the businesses’ equity and take shares to recover on a judgment. This may leave a previously family-owned operation with new partners seeking to liquidate assets as quickly as possible. Forming an LLC or a partnership are two traditional means of protecting company assets from creditors. These tend only to postpone an eventual reckoning, as creditors may be able to intercept funds directed to the debtor-partner.

The self-settled asset protection trust is a relatively new addition to the number of options available as means of creditor protection. Seventeen states have authorized their use and, after establishment, these trusts eventually become impenetrable to creditors. For even more protection, offshore trusts afford an even greater degree of separation from court decrees as the United States enjoys no jurisdictional control of these trusts. With a number of options available, proper asset protection planning should consider and implement these various strategies.

See Alexander A. Bove, Jr., Cracks in Your Assets?, Private Wealth, March 21, 2017.

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

April 28, 2017 in Estate Planning - Generally, Trusts | Permalink | Comments (0)

Article on Remedies for Breach of Trust

TrusteeDaniel B. Kelly recently published an Article entitled, Remedies for Breach of Trust (2017). Provided below is an abstract of the Article:

Private and charitable trusts hold trillions of dollars in assets. Trustees manage, invest, and distribute these assets, subject to fiduciary duties, such as the duty of loyalty and prudence. But remedies for breach of trust, and their justifications, are convoluted. The conventional view, especially in law and economics, is to characterize most fiduciary relationships, including trusts, as contractual and most fiduciary duties as implicit contract terms. One might suppose, then, the optimal remedy for fiduciary breach would be the same as the optimal remedy for contractual breach: damages. But the traditional equitable remedies in fiduciary law, and modern remedies in trust law, allow a plaintiff to elect either damages or disgorgement. Plus, courts increasingly allow punitive damages for breach of a fiduciary duty, especially if a breach is “egregious”, even though punitive damages were not available as an equitable remedy. Applying insights from optimal deterrence theory and the agency costs theory of trusts, this Article provides an economic framework for analyzing trust law remedies. It argues that disgorgement and punitive damages serve distinct functional purposes and both remedies may be necessary to serve the deterrence and disclosure functions of trust law depending on how likely it is for a trustee to escape liability.

If a trustee is always found liable, the optimal remedy for a breach of loyalty is an election of damages or disgorgement. Damages deter self-dealing and conflicts of interest if the harm to the beneficiaries exceeds the gain to a trustee. Disgorgement is necessary not only to deter breach if the gain exceeds the harm but also to encourage disclosure. Specifically, rather than allowing a trustee to breach and pay damages, a trustee must disclose any potential gain from a transaction and obtain approval from the beneficiaries, whom the settlor selected as the residual claimants. Similarly, the optimal remedy for a breach of prudence is to elect damages or disgorgement. Such a breach usually entails damages (e.g., harm from failing to invest trust assets in a diversified portfolio), but, to the extent it entails disgorgement, over-deterrence is unlikely because, unlike a party to a contract, a trustee may resign to pursue other opportunities. Thus, while contract law, by relying on damages, typically permits efficient breach, trust law, by disgorging a trustee’s ill-gotten gains, attempts to prevent efficient fiduciary breach.

However, if there is a significant chance of a trustee’s escaping liability, the optimal remedy also includes an election of punitive damages or punitive disgorgement. Given asymmetric information between trustees and beneficiaries, it is usually difficult for beneficiaries to detect breach. A total damages multiplier, set equal to the inverse of the probability of escaping liability, would force a trustee to internalize the harm by paying average damages equal to expected harm. Similarly, if an election of remedies is optimal, there is a justification for punitive disgorgement. Under this novel remedy, a court not only would strip ill-gotten gains but also use a punitive multiplier to ensure the trustee disgorges the gain by paying average disgorgement equal to the expected benefit. Overall, punitive remedies may be necessary to deter an ordinary breach that is difficult to detect but unnecessary to deter an egregious breach that is easy to detect. Because it is often more difficult to detect mismanagement than misappropriation, punitive damages may be needed to deter imprudence, even while disgorgement is needed to deter disloyalty.

April 28, 2017 in Articles, Estate Planning - Generally, Trusts | Permalink | Comments (0)

Thursday, April 27, 2017

Daughter Sues Her Mother for Swindling Away Her Inheritance

Elizabeth marcusA daughter is accusing her Long Island mother of swindling away her inheritance. Elizabeth Marcus’s father left her a huge portfolio worth approximately $15 million, but now, her mother is selling the properties that belonged to Marcus in order to fund her lavish lifestyle. Marcus’s father, a real estate tycoon, demanded that his ex-wife get no portion of his estate, but she eventually gained control of their daughter’s trust, allowing her to sell its assets.

See James Wilkinson, Daughter Sues Her ‘Self-Involved’ Mother for ‘Frittering Away More than $13m of Her Inheritance - So She Could Buy Cars and a $6m Mansion Next to Gwyneth Paltrow in the Hamptons’, Daily Mail, April 23, 2017.

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

April 27, 2017 in Current Events, Estate Planning - Generally, Trusts | Permalink | Comments (0)

How a Will Can Carry Out Your Wishes

Hiddent trapIn recent years, a growing number of people are drafting wills and living wills, which name agents to handle their medical care decisions if they become incapacitated. Perhaps, the deaths of entertainers like George Michael and Prince who died without wills has really hit home for the generation that grew up idolizing these superstars. Starting the estate planning process is usually more life-experience driven, but many people do not realize that an unexpected accident can occur at any time, and without a plan, these effects can be devastating to your loved ones. When starting the estate planning process, you should get familiar with your local laws because estate and probate rules vary from state to state. Always keep your wills updated to your current circumstances, which includes crosschecking the beneficiaries on your investment accounts. Most importantly, you should discuss these estate plans with those that matter so that your wishes are carried out with ease.

See Janet Morrissey, Wills Can Avert Family Welfare, but Have Their Own Hidden Traps, N.Y. Times, April 21, 2017.

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

April 27, 2017 in Estate Planning - Generally, Wills | Permalink | Comments (0)