Wills, Trusts & Estates Prof Blog

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

Saturday, May 15, 2021

Review of Naomi Cahn's What’s Wrong About the Elective Share “Right”? Article Released

Solangel Maldonado's review of Naomi Cahn's What’s Wrong About the Elective Share “Right”? article was recently released on Jotwell. Here is the introduction to the review:

I have long been perplexed by the inconsistency between the rights of divorcing spouses which are governed by family law rules and the rights of surviving spouses which are governed by trusts and estates law. While the rules governing the distribution of property at divorce and the elective share right both claim to reflect a partnership theory of marriage, Naomi Cahn’s article, What’s Wrong About the Elective Share “Right”?, demonstrates that the elective share does not further a partnership theory, at least not in cases involving subsequent marriages, and further fails to recognize and adequately balance the interests of multiple families.

May 15, 2021 in Articles, Wills | Permalink | Comments (0)

Friday, May 14, 2021

Article: What Would Settlor Do? Immortal Trust Settlors, Federal Transfer Taxes, and the Protean Irrevocable Trust

Kent D. Schenkel recently published an article entitled, What Would Settlor Do? Immortal Trust Settlors, Federal Transfer Taxes, and the Protean Irrevocable Trust, Wills, Trusts, & Estates Law ejournal (2021). Provided below is the abstract to the Article: Estate planning

The increasingly protean irrevocable trust puts substantive trust law and the federal transfer taxes at cross-purposes. State trust law’s overriding objective is simply to carry out the intent of the trust settlor. Settlors intend to manage or control the benefits from gifts over some period of time—that is, after all, the purpose of the donative trust. In contrast, the federal transfer taxes seek, by major policy purpose, to decrease the incidence of dynastic wealth—wealth locked into single-family possession and passed on from generation to generation. Yet state legislative changes to trust laws—abandoning or extending the terms of rules against perpetuities, for example—pave the way for dynastic wealth by allowing trusts to entrench that wealth in families for generations, or even indefinitely. Evolving trust laws also increasingly permit trust settlors, often by postmortem proxy, to repeatedly modify, refresh or even completely restructure irrevocable trusts in response to post-transfer events.

This essay looks critically at a change to the common law equitable deviation doctrine that ensures that irrevocable trusts can always be optimized in the face of circumstantial uncertainty. This modified equitable deviation doctrine invites trustees and courts to first imagine how the settlor would respond to unanticipated circumstances affecting an irrevocable trust, then further directs modification of the trust terms accordingly. Although this development expands settlor control over irrevocable trusts qualitatively and chronically, thereby increasing both the durability and duration of dynastic wealth, current federal transfer tax provisions are likely insufficient to discourage its proliferation. Trust settlors privileged to take advantage of the post-disposition control offered by trust laws already own a vastly disproportionate share of the nation’s wealth. Perpetual post-transfer control of wealth by a trust settlor or his proxy further entrenches this inequality of ownership and contributes to the problems it causes, including the erosion of democratic institutions. Unmitigated allegiance to the expansive value of freedom of disposition and its corollary, “the intent of the donor,” should be tempered, in post-transfer analyses, with a view to its consequences. Failing that, especially but not exclusively where costs to third parties are implicated, certain post-disposition trust modifications should be deemed new dispositions that bring about transfer tax penalties to the trust corpus.

May 14, 2021 in Articles, Estate Administration, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Trusts | Permalink | Comments (0)

Thursday, May 13, 2021

"Cost of dying" in America nears $20K

DeathcertificateThe cost of dying in the United States is approaching $20,000. The growth has many implications since death—and taxes—is one of the only things in life that is certain. 

Using 2020 figures from the National Directors Association and the CDC, "the group looked at the average 'cost of dying' across the U.S. based on the price of end-of-life care, funerals and cremations." 

The cost of dying is around $19,566, with Hawaii being the priciest state with end-of-life medical costs averaging $23,073, the average funeral cost at $14,478, and the average cost of cremation cost being around $12,095. The total: $36,124. Mississippi is the cheapest place today with the average cost of dying being $15,516. 

The CDC figures show that the cost of funerals and end-of-life care "jumped $63.8 billion in 2020, up 14.3% from a total of %55.8 billion in 2019." 

See Caitlin Owens, "Cost of dying" in America nears $20K, Axios: Vitals, May 12, 2021. 

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

May 13, 2021 in Death Event Planning, Estate Administration, Estate Planning - Generally | Permalink | Comments (0)

Article: Dead Men (and Women) Should Tell Tales: Narrative, Intent, and the Construction of Wills

Karen J. Sneddon recently published an article entitled, Dead Men (and Women) Should Tell Tales: Narrative, Intent, and the Construction of Wills, Wills, Trusts, & Estates Law ejournal (2021). Provided below is the abstract to the Article: Estate planning

Intent is a foundational principle that is referenced in many varied aspects of succession. This article will focus on the role of intent in will construction proceedings where intent is referred to as the “touchstone” and “pole star.” When an issue arises as to the meaning of a provision in a will admitted to probate, the probate court must undertake a construction proceeding. This article posits that a will naturally forms a narrative that courts use when interpreting and construing the language of the will. This natural narrative form and tendency for courts to reference narrative during construction proceedings can be more effectively leveraged by the will-drafter in a manner that is consistent with succession’s intent-serving policies. When the drafter approaches the will as a narrative and uses narrative techniques to inform the customization of what may be one of the oldest-forms of legal documents, the resulting document becomes more meaningful for the testator, the beneficiaries, the personal representative, and, if needed, the court. To illustrate, this article presents standard will construction cases and revises the problematic testamentary language using narrative-based drafting techniques.

This intent-effectuating approach to drafting promotes the ultimate implementation of the testator’s intent, especially when a construction proceeding is initiated by an interested person. The construction proceeding, after all, seek to determine and give effect to the testator’s intent. The narrative-based approach to drafting will support the court’s inquiry by providing more context and more meaning to the language of the will. This customization refers to the deliberate sequencing of provisions, accurately enhancing the description of the relationships and property, and even including a statement of purpose. This article acknowledges the potential dangers raised by using narrative-based drafting techniques. But, as this article stresses, narrative-based drafting does not refer to the inclusion of language that injects uncertainty and confusion in testamentary instruments. Instead, narrative-based drafting brings the person, the personality, and the personal into wills. Testators should tell tales.

May 13, 2021 in Articles, Estate Administration, Estate Planning - Generally, Wills | Permalink | Comments (0)

Wednesday, May 12, 2021

Mega Millions jackpot surges to $370 million. Here are tips for handling the windfall if you win

LotteryThe Mega Millions jackpot has climbed again, reaching $370 million (lump sum cash option $254.1 million). Of course, when we dream of winning the lottery, we are typically thinking of all of the things we would buy: a new house, new car, yacht, private jet, land, a business—the list goes on forever. 

Though it is natural to have these thoughts, buying all of these things right off the bat isn't the smartest idea. With the odds of winning the Mega Millions being 1 in 302 million, it would be foolish to squander all of the money if you are the lucky one that wins. 

At some point, someone is going to get lucky and become the winner. If that person happens to be you, here is some advice to consider: 

Don't Rush 

You will likely have 6 months to a year to claim your prize, so you do not need to rush to the lottery headquarters to claim your prize. Take a second and breathe, your life is about to change forever. 

Protect the ticket and your identity 

Make a copy of your ticket and keep it in a safe place. You should also check if your state allows lottery winners to remain anonymous. If they do, take that option. 

Lump Sum v. Annuity 

For the $370 million jackpot you could choose the lump sum cash option ($254.1 million) or get an annuity that pays out over 30 years. 

Most people choose the lump sum option, as you get more control over the money this way. 

The Tax Bite 

You're going to pay a lot in taxes, so just expect that. 

With the lump sum option, the required 24% federal tax withholding would shave off $61 million, leaving you with $193.1 million. 

See Sarah O'Brien, Mega Millions jackpot surges to $370 million. Here are tips for handling the windfall if you win, CNBC, May 5, 2021. 

Special thanks to David S. Luber (Florida Probate Attorney) for bringing this article to my attention.

 

 

May 12, 2021 in Current Events, Estate Planning - Generally | Permalink | Comments (0)

Article: The Canadian Answer to the English Dilemma: Contribution-based Approaches over a Common Intention Constructive Trust in Family Homes

Alexander Ng recently published an article entitled, The Canadian Answer to the English Dilemma: Contribution-based Approaches over a Common Intention Constructive Trust in Family Homes, Wills, Trusts, & Estates Law ejournal (2021). Provided below is the abstract to the Article: Estate planning

Determining each other’s proprietary interests in the shared home after relationship breakdown remains hotly debated. In Stack v Dowden, Baroness Hale stated that it was possible to impute an intention that the parties could never have had, to achieve fairness. In Jones v Kernott, imputation could only operate in quantifying interests. Also, imputation is limited to (1) presumption of resulting trusts, or (2) absence of evidence to infer common intention. This clarification limited its use in legal practice, but imputation remains controversial since it practises the court’s standard of morality.

However, this can be resolved by focusing on how the defendant is benefited, rather than summoning a common intention. This is particularly important when the defendant is the sole legal owner. After Pettkus v Becker, Canada shifted from an intention-based resulting trust to a remedial constructive trust approach, based on unjust enrichment. This shift absolves the need to find or impute a common intention. Any of the claimant’s contribution received by the defendant in relation to the home, domestic or financial, already constitutes enrichment. Gender discrimination is avoided since the claimant’s contributions are not judged against a (gendered) threshold for detrimental reliance.

This approach may attract criticism, since remedial constructive trusts are rejected in FHR European Ventures LLP v Cedar Capital Partners LLC. However, the focus here is the merits of a contribution-based approach. Whether a remedial constructive trust should be imposed is only part of the question. Routes to reclaim assets discussed in this article include proprietary remedies from unjust enrichment, and conventional trusts law (resulting trusts and Quistclose trusts). Shifting one’s attention away from the common intention is expected to promote fairness in asset division.

May 12, 2021 in Articles, Estate Administration, Estate Planning - Generally, Trusts | Permalink | Comments (0)

Monday, May 10, 2021

Dividends Received by an Employee of a Corporation are Still Part of Net Investment Income

IRSIn Chief Counsel Advice 202118009 the IRS addresses an interesting question: "Whether tax dividends received by a shareholder who is also employed by the C corporation is subject to the net investment income tax, as well as if the answer changes if the corporation is closely held." 

Net Investment Income Under IRC §1411

IRC §1411, which was added to The Affordable Care Act, "imposes a tax on the lesser of the net investment income of a taxpayer or the taxpayer's adjusted gross income in excess of threshold amounts that vary by filing status." 

This "net investment income" includes gross income from dividends apart from those that are the result of the ordinary course of a trade or business. (IRC §1411(c)(1)). 

The situation that is addressed by the IRS is quoted below: 

The Taxpayer is a shareholder in a C corporation. It was determined under examination that the corporation paid Taxpayer’s personal expenses from corporate accounts, and the payments were reclassified as dividend income paid to the Taxpayer by the corporation. The Taxpayer is also an employee of the corporation and is involved in the day-to-day operations of the corporation’s manufacturing trade or business. The facts further indicate that the corporation may be a closely-held corporation within the meaning of § 469(h)(1) as described in § 465(a)(1)(B) (the Taxpayer appears to own a majority of the shares of the corporation). The Taxpayer contends that because the Taxpayer materially participates in the manufacturing trade or business of the corporation as an employee, the dividend income that the Taxpayer received from the corporation is not subject to tax under § 1411, because the dividend income is derived in the ordinary course of a trade or business that is not a passive activity of the Taxpayer within the meaning of § 469

The deeper question is, under IRC §1411(c)(1), if a taxpayer is involved in day to day operations of the corporation whether the dividend income is removed from the investment income category found in (c)(1), or whether the dividends retain their status as investment income, and are outside the scope of the ordinary course of a trade or business. 

According to the IRS, employment does not change the nature of the dividends, meaning they retain their status as part of investment income.

For more information see, Ed Zollars, CPA, Dividends Received by an Employee of a Corporation are Still Part of Net Investment Income, Kaplan Financial Education: Current Federal Tax Developments, May 7, 2021. 

Special thanks to Mark J. Bade (CPA, GCMA, St. Louis, Missouri) for bringing this article to my attention. 

May 10, 2021 in Estate Planning - Generally, Income Tax, New Legislation | Permalink | Comments (0)

Article: A New Feudalism: Selfish Genes, Great Wealth and the Rise of the Dynastic Family Trust

Eric A. Kades recently published an article entitled, Selfish Genes, Great Wealth and the Rise of the Dynastic Family Trust, Wills, Trusts, & Estates Law ejournal (2021). Provided below is the abstract to the Article: Estate planning

Today’s record levels of economic inequality are infecting our future as the top 0.01% bequest vast wealth to their descendants. With the death of the Rule Against Perpetuities (RAP), this inequality has the potential to harden social class lines not just for a generation or two but forever. Although it may sound implausible, interviews with estate lawyers serving very high net worth clients reveal that some of the wealthiest tier of testators are already exploiting the RAP’s elimination, along with a tax loophole, to establish dynasty trusts that will financially empower their bloodline as long as it continues. Evolutionary biologists will not be surprised by this finding. Recent work in their field shows a universal and powerful human drive for high status descendants — a drive for “quality” progeny so powerful that it appears to trump the usual desire to maximize quantity of offspring. Coupled with the long history of dynastic family wealth in England, this science suggests that today’s wealthiest testators will utilize powerful modern legal institutions (e.g. well-developed laws of contract and trust; deep and efficient capital markets) to forge a new sort of trust that I dub a Dynastic Family Trusts (DFT). These DFTs will be larded with innovative provisions leveraging a founder’s wealth to maximize descendants’ status for generation after generation. For those fearing the pernicious effects of concentrated wealth on democracy and equal opportunity, the rise of the DFT is alarming. Fortunately there is a very easy fix: simply reinstate the Rule Against Perpetuities. Given a race-to-the-bottom dynamic among the states, national legislation from Congress is necessary.

May 10, 2021 in Articles, Estate Administration, Estate Planning - Generally, Trusts | Permalink | Comments (0)

Friday, May 7, 2021

Pandemic Pets and Pet Companionship: Seven Benefits/Considerations for Care Coordination and Estate Planning

PetsOne thing that many people learned as they were forced to stay at home during the pandemic is that pet companionship is important. For many, life trapped in their home would've been unbearable had they not had their furry friends. 

An unanticipated effect of the pandemic was "a surge in interest in fostering and adopting pets." Although unanticipated, this effect is not surprising given the cancellation of social human interaction during the stay-at-home orders. 

With the surge in pet adoption, the significance and importance of care coordination and estate planning advice in regard to pets became increasingly clear. 

Below are seven benefits for pet owners and key considerations for aging individuals and people with special needs.

  1. Reducing Isolation and Loneliness
  2. Lowering Stress and Anxiety 
  3. Improving Fitness
  4. Increasing Social Interaction and Connection to the Community 
  5. Improving Cardiovascular Health 
  6. Improving Signs of Depression
  7. Providing Routine and a Sense of Purpose

Considerations: 

  • Choose someone you trust and who knows your pet to designate as a temporary or permanent caregiver for the pet.
  • Estimate how much it will cost to feed, care for, and provide veterinary treatment for your pet’s lifetime.
  • Include pets in your estate plan to ensure that they have a caregiver and money is set aside to pay for care. 
  • Write down information about the pet’s feeding schedule, personality and behavior, medical conditions, and veterinarian information and provide the information to the designated caregiver. 
  • Consider the benefits of pet trusts.

 

See Rebecca H. Miller, Pandemic Pets and Pet Companionship: Seven Benefits/Considerations for Care Coordination and Estate Planning, Chambliss Law, May 5, 2021. 

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

May 7, 2021 in Disability Planning - Property Management, Estate Administration, Estate Planning - Generally | Permalink | Comments (0)

Article: Explaining Assignments of Arbitration Agreements

Ying Khai Liew recently published an article entitled, Explaining Assignments of Arbitration Agreements, Wills, Trusts, & Estates Law ejournal (2021). Provided below is the abstract to the Article: Estate planning

The case law and literature to date have struggled to locate the rationale for the assignability of arbitration agreements. While different justifications have been proffered, each of them rests on questionable premises. This has given rise to a host of uncertainties over the rules which apply in practice. This paper proposes that a satisfactory rationale can be found in the “acceptance principle”. This principle indicates, first, that arbitration agreements which are not actual burdens can be assigned, and second, that the assignability of arbitration agreements is grounded in the assignee’s acceptance in the form of non-disclaimer of the assignment. Bringing the acceptance principle to the fore not only provides a theoretically sound justification for the assignability of arbitration agreements; it also suggests how the practical uncertainties in this area of law can be resolved satisfactorily.

May 7, 2021 in Articles, Estate Planning - Generally | Permalink | Comments (0)