Wills, Trusts & Estates Prof Blog

The ultra-wealthy have made full use of Roth individual retirement accounts. Here’s how you can do the same

When most of us think about using the tax code to benefit financially, we think that the avenue is only available to rich people. 

Although it is true that wealthy individuals have "amassed hundreds of millions—or even billions—of dollars in tax-sheltered Roth individual retirement accounts," the strategy is available to virtually anyone. 

According to Ed Slott, CPA and founder of Ed Slott and Company, "[t]he great thing about the Roth is that it's everyone's best tax shelter." 

With traditional 401(k) plans and IRAs, "you generally get a tax break when you make contributions and then pay taxes on the withdrawals in retirement." On the other hand, Roth accounts have no up front tax break, but qualified withdrawals are excluded from federal income taxes. 

One of the ultra-wealth individuals who has taken advantage of the Roth IRA is Peter Thiel, one of Paypal's founders. Thiel's account was worth $5 billion as of 2019, a very steep increase from the $2,000 it was worth in 1999. 

You should place assets that have high growth potential in a self-directed IRA or a standard Roth IRA, which do not have required minimum distributions and can help avoid the uncertainty of future tax rates. 

See Sarah O'Brien, The ultra-wealthy have made full use of Roth individual retirement accounts. Here’s how you can do the same, CNBC, June 24, 2021. 

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

“I Care A Lot” – Could It Happen to Me?

"If you're a probate attorney (or someone with a Netflix account), you've seen or heard about the somewhat disturbing film 'I Care a Lot.'" The film was released on Netflix in early 2021. 

The film illustrates "a legal guardian's ability to target and drain the assets of susceptible elderly individuals." The movie follows a "crooked guardian" named Maria, played by Rosamund Pike. In the movie, Maria obtains guardianship over Jennifer, played by Dianne Wiest. 

What starts as a seemingly predictable plot turns into a thrilling piece of art with "twists of violence, crime, and laughable moments." Unfortunately, the legal procedures depicted in the film are inaccurate at best. 

It is important to discuss these inaccuracies. First, when Maria meets with Dr. Amos to discuss Jennifer's "need" for a guardian. The encounter is filled with HIPAA violations, ethical concerns, and Dr. Amos fails to provide a medical certificate to the court, which is required with a petition for guardianship. 

In a startling scene, Maria shows up to Jennifer's front door and takes her to an assisted living home, while Jennifer has no idea what is going on and is completely unaware that there was a hearing to begin with. 

Also, Maria seemingly has a lot of powers that guardians in most states would not have. For instance, Maria began painting the walls in Jennifer's home and attempted to sale the home. In the real world, these powers must be provided by the court and are not automatic when someone becomes a guardian. 

If you watched or plan on watching "I Care A Lot" keep in mind that the movie is not completely accurate and portrays an exaggerated picture of the potential abuse of a guardianship and the authority that comes with it. 

See Noelle Lussier, “I Care A Lot” – Could It Happen to Me?, Burns & Levinson, June 24, 2021. 

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

Britney Spears Conservatorship Testimony Inspires Californians in Same Boat

Last week Britney Spears decided to speak out against her conservatorship. That decision has inspired others in California that feel trapped in similar situations to take action. 

Britney Spears' "impassioned court testimony" produced an influx of action. According to a California lawmaker "spearheading legislation to change the way conservatorships operate" told TMZ that his office was flooded with calls from people that have been and continue to be burdened by their own conservatorship issues. 

These people were energized by Spears' powerful testimony. Many people have relayed the message that they were afraid to speak out about their conservatorship issues until Britney Spears made the courageous decision to do so. They feel that Spears' testimony helps "legitimize their claims and concerns." 

One of these people includes a 60-year-old woman and her husband that want to end the woman's mother's conservatorship. The couple has spent about $3 million fighting in court with no result. 

One woman committed suicide after her conservatorship "allegedly put her in isolation and started draining her finances." 

Apparently, conservatorships affect a lot of people, and thanks to Britney Spears, those people are becoming more comfortable speaking out on their own conservatorship issues.

See Britney Spears Conservatorship Testimony Inspires Californians in Same Boat, TMZ, June 25, 2021. 

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

Minnesota farmer concerned tax proposals could fundamentally change structure of family farms

Kirby Hettver, a fifth-generation farmer from DeGraff, Minnesota, expressed concerns about proposed changes to the estate tax. Hettver believes that the proposed changes could "fundamentally change the way family farms are structured. 

Hettver stated, “Obviously we don’t want to make any decisions without knowing a little more about what exactly they are going to end up with.”

President Biden's proposed changes, which include elimination of the stepped-up basis, will affect a lot of families, farm families included. The elimination of stepped-up basis would cause "inherited assets, like land, to be taxed upon the previous owner's death, and lower the estate tax threshold from $11.7 million to $500,000.

Hettver further stated, “In order for us to maintain (the farm) and pass it onto the sixth generation, based on the new policies if we need to make changes we’ll have to figure out what rules we’re playing by and play by them.”

See Mark Dorenkamp, Minnesota farmer concerned tax proposals could fundamentally change structure of family farms, Brownfield Ag News, June 25, 2021. 

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

Britney Spears: ‘I Just Want My Life Back’

Britney Spears opened up to a Los Angeles Judge on Wednesday. She told the judge that "she had been drugged compelled to work against her will and prevented from removing her birth control device over the past 13 years. . ." 

Britney Spears further plead, “I’ve been in denial. I’ve been in shock. I am traumatized. . . .I just want my life back.”

Wednesday was the first time Britney Spears had addressed the Court and the World in such a detailed manner, outlining the struggles she has faced for years. Britney Spears asked for the conservatorship arrangement with her father, Jamie Spears, to end without her having to be evaluated. “I shouldn’t be in a conservatorship if I can work. The laws need to change,” she added. “I truly believe this conservatorship is abusive. I don’t feel like I can live a full life.”

The "Free Britney" Movement has continued to gain traction and has imploded following Britney Spears' statements in court on Wednesday.

Britney Spears also said, “It’s embarrassing and demoralizing what I’ve been through, and that’s the main reason I didn’t say it openly,” Ms. Spears said. “I didn’t think anybody would believe me.” Ms. Spears said she had been previously unaware that she could petition to end the arrangement. “I’m sorry for my ignorance,” she said, “but I didn’t know that.”

See Joe Coscarelli, Britney Spears: ‘I Just Want My Life Back’, N.Y. Times, June 24, 2021. 

Article: Study Paper on Inclusive Investing: Respecting the Rights of Vulnerable Investors through Supported Decision-Making

The Canadian Centre for Elder Law recently published an article entitled, Study Paper on Inclusive Investing: Respecting the Rights of Vulnerable Investors through Supported Decision-Making, Wills, Trusts, & Estates Law ejournal (2021). Provided below is the abstract to the Article:

Supported decision-making allows adults to pick who may assist them in making decisions. Supported decision-making can enable people living with disabilities to make their own decisions about financial, personal, health care, legal, or other matters. For people living with dementia, supported decision-making may open a door to maintaining a degree of autonomy in making decisions regarding their investments.

The Inclusive Investing Project was born out of a desire to enhance capacity within the investment sector to work with clients who may prefer to make decisions with the support of family and friends. We are thrilled to share with you this study paper, which is the culmination of many years of research and consultation.

The work of the Canadian Centre for Elder Law (CCEL) aims to break down silos of practice to support robust conversations about law and policy reform. The Inclusive Investing study paper reflects the perspectives of stakeholders from financial, legal, and other professional sectors, and incorporates the lived experience of older people living with dementia, people living with intellectual or developmental disabilities, and family members who provide support. Like many CCEL projects, the Inclusive Investing Project was a collaboration — this time with project partners Alzheimer Society of B.C. and Inclusion BC. The collaboration amongst the project partners was integral to ensuring this research reflected diverse experiences.

Robert Indiana’s Estate Has Reached an Agreement With His Longtime Financial Backer After a Bitter Three-Year Legal Fight

A three-year long legal dispute involving the legacy and estate of Pop artist Robert Indiana has finally come to an end. According to artnet news:

The artist's estate, the Star of Hope Foundation, which the artist established before his death, and the Morgan Art Foundation, which holds the copyright to some of Indiana's most famous works, have agreed to drop their overlapping claims and counterclaims. 

However, the parties did not end at dismissing their claims. The parties have also agreed to "mint a partnership in order to jointly promote the artist's work and foster growth in his market."

The dispute began in May 2018, which is the month Robert Indiana died. The Morgan Art Foundation filed a federal lawsuit against art seller Michael McKenzie and a number of other parties claiming that they "had isolated Indiana, taken advantage of him, and produced unauthorized reproductions of his work." 

Luckily, after three years the parties involved were able to come to an agreement and resolve the issues. 

See Eileen Kinsella, Robert Indiana’s Estate Has Reached an Agreement With His Longtime Financial Backer After a Bitter Three-Year Legal Fight, artnet news, June 14, 2021. 

Special thanks to Glen Yale for bringing this article to my attention.

Article: IRS Guidance About the SECURE Act's Beneficiary Provisions Requires Revision

Albert Feuer recently published an article entitled, IRS Guidance About the SECURE Act's Beneficiary Provisions Requires Revision, Wills, Trusts, & Estates Law ejournal (2021). Provided below is the abstract to the Article:

The IRS has presented its first and only guidance about how the SECURE Act changed the Required Minimum Distribution (RMD) Rules. This was done in a detailed IRS guide for preparing 2020 returns, and an IRS FAQ web site that referenced the guide that had been released a day earlier. The SECURE Act limited the set of individual beneficiaries permitted to use their own life expectancy to stretch out the benefit distributions after the death of participant. Non-favored individual beneficiaries became subject to a 10-year rule similar to the 5-year rule upon which it is based. The 5-year rule does not require any benefit distributions before the end of the 5-year period, but requires distribution on or before the final day of the period. The 5-year rule is applicable to an estate or trust not treated as a pass-through entity when the participant died before attaining the participant’s required beginning date.

The IRS correctly treats the 10-year rule as replacing a disfavored individual beneficiary’s ability to use the beneficiary’s life expectancy to determine annual RMDs. The return guidance incorrectly describes the 10-year rule as requiring annual distributions in each year following the participant’s death even though the 5-year rule has no such requirement. Furthermore, if the participant dies after attaining the participant’s required beginning date, the IRS guidance prevents a disfavored individual beneficiary from continuing to use the participant’s life expectancy to determine annual minimum required distributions. The IRS does this even though such continuation would result in no further stretch-out of the benefit distributions, and an estate or trust not treated as a pass-through entity may so use the participant’s life expectancy. These limitations are not consistent with the stated purpose of the SECURE Act RMD provisions, the long-standing IRS regulations interpreting the RMD rules, or the amended RMD statute as a whole. Moreover, they may be readily avoided by well-advised participants.

Article: Trusts as Vehicles for Tax Evasion and Tax Avoidance: a Critical Study

Mohammad Habibur Rahman recently published an article entitled, Trusts as Vehicles for Tax Evasion and Tax Avoidance: a Critical Study, Wills, Trusts, & Estates Law ejournal (2021). Provided below is the abstract to the Article:

The legal arrangements related to the trusts are proved to be cumbersome and many also abuse this mechanism as a vehicle of tax evasion and avoidance. The secrecy is one of the disadvantages of the trusts which do not allow tax officials and other crime-fighting agencies to discover the existence of the trusts. This is also a case for the offshore trusts where foreign jurisdiction usually does not share the information with a third-party. This particular feature mainly popularized the notion of the offshore tax shelter. Undeniably, the trusts also have some positive implications which cannot be fulfilled by any other principle of law e.g. asset protection cases, commercial purpose, charitable trusts etc. Thus, this article intends to critically evaluate how trusts are often used as a vehicle for the tax evasion and avoidance particularly taking into account the political, social and moral contexts in which trusts operate.

Iowa Supreme Court: Tortious Interference With an Inheritance Requires Defendant To Have Knowledge of Plaintiff’s Expectancy Of an Inheritance

In Buboltz v. Birusingh, the Iowa Supreme Court addressed the question of "whether a cause of action for tortious interference with inheritance requires the plaintiff to prove that the defendant had knowledge of the plaintiff's expectation to receive an inheritance from the decedent." 

Cletis Ireland died was an only child, had never married nor had children when she died at the age of 92. Her estate was mostly consumed of by her family's century farm "where she hahaha lived most of her adult life." 

In 2001, Ireland executed a will in which she would have split her farm into two equal shares and given them to David Buboltz, a cash rent farmer who had been leasing a portion of the farm for a number of years, and her cousin Edith Mae Maertens. 

In 2015, Ireland executed a new will in Iowa, in which she removed Maertens who had passed away, and Buboltz. The new will included Kumari Durick, the daughter of a family friend, as the beneficiary and Kumari's mother, Patricia Birusingh as the executor of her estate. 

Birusingh was married to Ireland's doctor. When Ireland could no longer perform daily tasks due to her age, Birusingh and Kumari began running errands for her and taking care of her. 

After Ireland's death Donna Reece, one of Maerten's daughters, and Buboltz filed a petition to have the 2015 will removed, alleging undue influence and tortious interference. 

The Iowa Supreme Court held that in order to establish that the defendants purpose was to interfere with the plaintiff's expectancy, the defendant must know of the plaintiff's expected inheritance "since a defendant ignorant of a plaintiff's expectancy could never have as her purpose an intention to interfere with it."

The Iowa Supreme Court ultimately dismissed the tortious interference claim due to the lack of evidence for the knowledge requirement. 

See Iowa Supreme Court: Tortious Interference With an Inheritance Requires Defendant To Have Knowledge of Plaintiff’s Expectancy Of an Inheritance, Probate Stars, June 19, 2021.