Wills, Trusts & Estates Prof Blog

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

Monday, November 23, 2020

Article on Parens Patriae and The Disinherited Child

Michael J. Hidden recently published an article entitled, Parens Patriae and The Disinherited Child , Washington Law Review (2020). Provided below is the abstract to the Article. Estate planning

Most countries have safeguards in place to protect children from disinheritance. The United States is not one of them. Since its founding, America has clung tightly to the ideal of testamentary freedom, refusing to erect any barriers to a testator's ability to disinherit his or her children-regardless of the child's age or financial needs. Over the years, however, disinheritance has become more common given the evolving American family, specifically the increased incidences of divorce, remarriage, and cohabitation. Critics of the American approach have offered up reforms based largely on the two models currently employed by other countries: (1) the forced heirship approach, in which all children are entitled to a set percentage of their parent's estate; and (2) family maintenance statutes, which provide judges with the discretionary authority to override a testator's wishes and instead award some portion of the estate to the testator's surviving family members. This Article takes a different approach and looks at the issue of disinheritance through a new lens: the doctrine of parens patriae. Just as this doctrine limits the decision-making autonomy of living parents vis-A-vis their children, this Article argues that it should likewise limit the dead hand control of deceased parents. Focusing on minor children, adult children who remain dependent as a result of disability, and adult children who are survivors of parental abuse, it is the contention of this Article that testamentary freedom must sometimes yield to the state's inherent parens patriae authority to protect children from harm. Specifically, this Article proposes that courts must refuse enforcement of testamentary schemes that disinherit children who fall into those categories if that disinheritance would constitute abuse or neglect. Such an approach is not only mandated by the doctrine of parens patriae but, in contrast to the approaches other countries have adopted, is much more deferential to testamentary freedom. The limitations imposed by this proposal represent a relatively modest curtailment of the rights testators currently possess and, at the same time, are consistent with existing exceptions to testamentary freedom, most notably those in place to protect spouses and creditors as well as those that prohibit the enforcement of testamentary provisions that violate public policy.

November 23, 2020 in Articles, Estate Administration, Estate Planning - Generally | Permalink | Comments (0)

Sunday, November 22, 2020

Is Now the Right Time to Forgive Intrafamily Loans?

Estate planningIf you made intrafamily loans to family members in the past, or even more recently due to the COVID-19 pandemic, you should consider forgiving those loans. Here's why, as of now, the gift and estate tax exemption rates are at an all-time high. Also, the interest rates are at a record breaking low. 

It is possible that intrafamily loans can be used as an estate planning tool due to the ability to transfer wealth to your loved ones tax free so long as the loan proceeds reach a certain level of returns. 

"Generally, to ensure the desired tax outcome, an intrafamily loan must have an interest rate that equals or exceeds the applicable federal rate (AFR) at the time the loan is made. The principal and interest are included in the lender’s estate, so the key to transferring wealth tax-free is for the borrower to invest the loan proceeds in a business, real estate or another opportunity whose returns outperform the AFR."

Any excess from these investment returns over the interest expense will work as a tax-free gift to the borrower. With low interest rates, it is much easier to outperform the APR. 

If have some leftover exemption, forgiving an intrafamily loan will allow you to transfer the entire loan principal plus any accrued interest tax-free. This will allow you to take advantage of the $11.58 million exemption amount before it is gone. 

There are also income tax considerations. Typically, forgiving intrafamily loans will be considered a gift, which carries with it no income tax consequences. 

In deciding whether or not you should forgive an intrafamily loan, you should speak with your financial and/or estate planning advisor.

See Joseph R. Marion, III & David T. Riedel, Is Now the Right Time to Forgive Intrafamily Loans?, Adler, Pollock, & Sheehan P.C.: Insight on Estate Planning, October 27, 2020.

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

November 22, 2020 in Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax | Permalink | Comments (0)

Saturday, November 21, 2020

The Family Feud Behind a $32 Million T. Rex Named Stan

PNG imageLegendary paleontologist brothers Peter and Neal Larson dug up the fossils of a 40-foot-long Tyrannosaurus rex out of the ground in South Dakota. The twenty-eight year old discovery, now known by Stan, sold for $32 million dollars, a record breaking price for a fossil. 

One would expect this would be a joyful moment for the Larson brothers. However, the Larsons have been in a yearlong legal battle, and the sale of Stan only added fuel to the flame. The hope was that the sale of Stan would bring the brothers closer together, but it appears that has not been the case. Friends have begun to worry that the high sale price "deepened the bad blood between the brothers" as Neal received all of the money. 

“I figured they might still dislike each other, but there’s no way they’ll ever get over this,” said Mark Norell, chair of paleontology at the American Museum of Natural History.

The original plan for Stan was to stay at the Larson brothers' Black Hills Institute of Geological Research in Hill City, S.D., but two years ago the brothers were in a complex ownership dispute and were ordered to divide the institute's assets and go their separate ways. 

The older brother, Peter, kept the institute and along with it, 100,000-plus fossils and 5,000-square-foot private museum, which was valued around $5 million. Neal, was given the rights to Stan and the proceeds as his buyout. At the time, the deal appeared financially equal, but of course at the time Stan was not predicted to sell for $32 million. 

As it turns out, neither one of the brothers thought they'd make that much "in the history of their entire business." 

See Kelly Crow, The Family Feud Behind a $32 Million T. Rex Named Stan, The Wall Street Journal, October 21, 2020. 

Special thanks to Laura Galvan (Attorney, San Antonio, Texas) for bringing this article to my attention.  

November 21, 2020 in Current Events, Estate Administration, Estate Planning - Generally | Permalink | Comments (0)

Friday, November 20, 2020

Debt After Death: What You Should Know

BoxHeadAlthough some debts are relieved when you die, others may have a great impact on your family. Below are a few things you should know about incurring debt and how those debts may impact your family after your death. 

First, after you die, your debt becomes apart of your estate. Dividing up your debt is done in a process called probate. "The length of time creditors have to make a claim against the estate depends on where you live. It can range anywhere from three months to nine months. Therefore, you should get familiar with your state’s estate laws, so you are well aware of which rules apply to you."

You should know that Beneficiaries' money is partially protected but only if they are named properly. Unsecured creditors usually will not be able to touch funds that are in life insurance policies or 401(k)s. However, if beneficiaries are not named until after your death, the funds will go to the estate leaving them open to creditors. 

Credit card debt will not disappear so easily. It is the norm for the estate to pay credit card debt using the estate's assets. So long as children are not a joint holder on the account, they will not inherit credit card debt. If a surviving spouse is a joint borrower, they will be responsible for their deceased spouse's debt. It is important to pay attention to joint applicants and joint borrowers on your credit card accounts, whether or not they had anything to do with the credit card following the paperwork. 

Federal student loan debt will be forgiven. Once the borrower dies, the debt is forgiven, however, proof of death is required. This rule is not the same for private student loan debt. Although some loan programs offer loan forgiveness upon death, others are not so generous. Thus, it is important to know where your student loans came from and who the borrower was, especially for private loans. 

In regard to your mortgage, if your heirs inherit property, lenders must allow them to take over the mortgage. However, heirs are not required to keep the mortgage and can refinance or pay off the debt. This same rule applies to the surviving spouse. 

Marriage is very important. If your spouse dies, you are legally required to pay any "joint tax owed to the state and federal government."

It is very important for you to organize your debts and use any safeguards possible to plan for your debts and how they may impact your family in the event of your death. 

See Michael Aloi, Debt After Death: What You Should Know, Kiplinger, November 2, 2020.

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

November 20, 2020 in Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax | Permalink | Comments (0)

Thursday, November 19, 2020

Year-end planning just got a whole lot more complicated

Estate planningAs Election Day approached, talk surrounding estate planning grew. Presidential candidate Joe Biden announced his tax plan proposal, which many thought may come to fruition if the Democratic Party won the Presidency and took over a majority of the Senate. The proposed tax plan would significantly reduce estate and gift tax exemptions. 

Although the election has come and gone, there is not yet much clarity surrounding the future of estate planning. It appears more likely than not that Joe Biden will be the next President, there is still a lot of discussion. Further, the determination of which party will control the Senate will not be made until the two runoff elections in Georgia are held in January.

Therefore, we will not know who will control the Presidency, House, and Senate until after 2020 has ended. Due to the uncertainty, estate planning has been and will continue to be difficult. 

It may be in your client's best interest to take advantage of the current tax exemptions while they are available. Whether this is what is best for your client will depend on their current financial situation. It may be the case that the potential reduced exemptions will not affect them.

However, "The harder situation is for those individuals who might not have a federal tax due at death if the exemptions stay where they are, but would owe tax if they were to be cut by 50% or more. Those of us who lived through 2012 have already seen this movie. In these cases, there may be ways to structure the gift to give a family more time to make the decision."

It is important to discuss the implications of the new exemption rates and the potential impact they could have on your client, whether or not the new tax plan is a sure thing.

See Scott Bieber, Year-end planning just got a whole lot more complicated, Thompson Coburn LLP, November 13, 2020. 

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

November 19, 2020 in Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, New Legislation | Permalink | Comments (0)

Wednesday, November 18, 2020

Article on Blockchain Wills

Bridget J. Crawford recently published an article entitled, Blockchain Wills, Indiana Law Journal (2020). Provided below is the abstract to the Article. Wills

Blockchain technology has the potential to radically alter the way that people have executed wills for centuries. This Article makes two principal claims-one descriptive and the other normative. Descriptively, this Article suggests that traditional wills formalities have been relaxed to the point that they no longer serve the cautionary ,protective, evidentiary, and channeling functions that scholars have used to justify strict compliance with wills formalities. Widespread use of digital technology in everyday communications has led to several notable cases in which individuals have attempted to execute wills electronically. These wills have had a mixed reception. Four states currently recognize electronic wills. The UniformLaw Commission approveda Uniform Electronic Wills Act in July 2019, so it is likely that even more states will permit these documents. This Article identifies some of the weaknesses in existing state statutes and the model law and considers how technology can addressthose problems.

This Article explores how blockchain, the open-source technology underlying cryptocurrency like Bitcoin, could be harnessed to create a distributed ledger of wills that would maintain a reliable record of a testator's desires for the post-mortem distribution of estate assets. These blockchain instruments easily could qualify as wills underexisting substantialcompliance doctrine or the Uniform ProbateCode's harmless error rule. Blockchain wills would serve the true purpose of wills formalities-which is to authenticate a document as the one executed by the testator with the intention of having it serve as the binding directive for the distribution of her property. By uniting blockchain technology with the innovations of the best aspects of electronic wills legislation, a blockchain will could serve as a reliable, authentic, and secure record of a decedent's last wishes for disposition of her property.

This Article's account has important implications for the legal profession. As financial institutions and governments have moved to develop blockchain-based solutions for the delivery of services, lawyers have lagged behind. In some legal circles, attorneys have become interested in "smart contracts"and the possibility of using blockchain to create a more accurate record of real property deeds. But most lawyers have not yet invested the requisite time and energy needed to understand how blockchain works and to develop systems that would use the technology effectively. By demonstrating how blockchain could make wills cheaper to prepare and less susceptible to tampering, this Article also points to multiple other uses for blockchain in the legal profession, including authentication of chain of ownership, record-keeping, and drafting of all kinds. Even though lawyers have been slow to harness blockchain's potential, the technology holds the promise to transform the practice of law into a form that will be unrecognizable to today's lawyer.

November 18, 2020 in Articles, Estate Administration, Estate Planning - Generally, Wills | Permalink | Comments (0)

Tuesday, November 17, 2020

It’s a tough year for year-end tax planning

Estate planningWith the new year approaching and the likelihood of a new president, advisers have their work cut out for them. Not knowing who will control the senate, leaves helping clients plan difficult. 

If the Democrats control the Senate, it is more likely that tax plans will change dramatically as Presidential candidate Joe Biden's proposal is very different from what President Donald Trump implemented. Control of the Senate will likely be determined on the Georgia Senate seats. 

Although possible, the odds of the Democrats winning both Georgia Senate seats is only 25%. Thus, it is not very likely. 

Even though Democratic control of the Senate is unlikely, the possibility should be taken into consideration. Under Biden's proposal, capital gain tax, charitable giving, and estate tax would be affected. 

Biden has proposed raising the capital gain rate form 20% to 39.6% for taxpayers with income over $1 million. So it may be more beneficial for individuals to sell before the end of the year. 

In regard to charitable donations, Biden's proposal caps itemized deductions at a 28% tax benefit for anyone making more than $400,000, compared to the current rate of 37%. 

In regard to estate tax, the Biden plan would reduce the gift and estate tax exemption from the current $11.58 million to $3.5 million. 

If your clients are making plans and their plans include one of these three categories, it may be safe for them to go ahead and make their moves before 2021. 

See Dave Strausfeld, J.D., It’s a tough year for year-end tax planning, Journal of Accountancy, November 16, 2020. 

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

November 17, 2020 in Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, New Legislation | Permalink | Comments (0)

Monday, November 16, 2020

When Medicare Choices Get ‘Pretty Crazy,’ Many Seniors Avert Their Eyes

RetireWith the new year approaching, many seniors will be bombarded with messages about their Medicare coverage. These messages range from emails to physical mail to television ads. 

The fall enrollment season which began October 15 and will run until December 7. During this season, "enrollees can shop Medicare’s marketplace for the prescription drug and Advantage plans offered by commercial insurance companies. They can also switch between fee-for-service original Medicare and Advantage."

The choices continue to grow as time passes. This year, enrollees will have 57 different coverage plans to choose from. At its inception in 1965, Medicare was much more basic and was seen as a social insurance program. Eligible workers would pay taxes and premiums but would all receive the same coverage. 

Between the 1990s and 2006 and continuing on, Medicare has expanded greatly. The growth allows people to make decisions and choose plans that are best tailored to their needs and lifestyle. 

This type of shopping is very important because seniors' needs may change, requiring them to shop for new plans and coverages that fit their lifestyle changes.

See Mark Miller, When Medicare Choices Get ‘Pretty Crazy,’ Many Seniors Avert Their Eyes, N.Y. Times, November 13, 2020. 

Special thanks to Lewis Saret (Attorney, Washington, D.C.) for bringing this article to my attention.  

November 16, 2020 in Current Events, Elder Law, Estate Administration, Estate Planning - Generally | Permalink | Comments (0)

John Waters, Droll Bard of Baltimore, Promises Art to Hometown Museum

John WatersJohn Waters is a filmmaker, known for his 1988 movie "Pecker." Fitting for a steward of the arts, the movie portrays the life of a young photographer. 

This week, John Waters announced that he will bequest 372 works by 125 artists, which is a great deal of his collection. The gift will go to the Baltimore Museum of Art following his death.

The collection includes pieces by Thomas Demand, Diane Arbus, Nan Goldin, Christian Marclay, Catherine Opie, Gary Simmons, Cy Twombly, Andy Warhol and Christopher Wool.

Mr. Waters amusingly stated in a Zoom call, "I've always said you have to have good taste to have good bad taste." This type of statement is characteristic of Waters who was coined the nickname "the Pope of Trash" earned from his scene in the cult classic "Pink Flamingos." 

Christopher Bedford, the Baltimore Museum's Director stated, “Though outrageously vulgar in his work, John is himself a man of extraordinary refinement.”

See Ted Loos, John Waters, Droll Bard of Baltimore, Promises Art to Hometown Museum, N.Y. Times, November 11, 2020. 

Special thanks to Deborah Matthews (Virginia Estate Planning Attorney) for bringing this article to my attention.

November 16, 2020 in Current Events, Estate Administration, Estate Planning - Generally, Film | Permalink | Comments (0)

Thursday, November 12, 2020

Trezzi v. Trezzi: Can You Gift Assets You Do Not Own?

Estate planningIn the Canadian case Trezzi v. Trezzi, the Ontario Court of Appeal upheld a gift made to beneficiaries under a will even though the assets were owned by a corporation and not by the deceased. Under this new precedent, testamentary gifts that have failed in the past may now be valid. 

In Trezzi, the deceased was the sole shareholder of company Trezzi Construction Inc. In his will, the deceased gifted assets that were owned by the corporation to his son. "The gifts were challenged by other family members on the basis that the assets being gifted were not owned by the deceased, but were owned by Trezzi Construction, which is a separate legal entity from the deceased shareholder." 

The issue was whether the deceased had could gift these assets even though he did not personally own them. Per usual, the application judge "looked at the surrounding circumstances to determine the deceased's intent." While also looking at the provisions of the will, the judge found that the deceased could bequeath the assets to his son. 

Other family members appealed this decision, sending the case to the Court of Appeal, which ultimately upheld the application judge's decision.

The Court held that the proper process is to look at the deceased's "subjective intentions as reflected in his will." 

It was clear that the deceased intended to "wind-up" Trezzi Construction by transferring all of its assets to his son, even though the winding-up was not directly expressed in the will. 

Further. Moreover, as a matter of general powers under corporate law, “shareholders of a corporation may, by special resolution, require the corporation to be wound up voluntarily." 

As the sole shareholder of the corporation, the deceased has the corporate authority to make such a transfer while he was alive. "On his death, this authority devolved to the executors of his estate and, therefore, the executors could wind-up Trezzi Construction and dispose of the assets as intended."

The Court of Appeal stated that it would be "preferable for the will to explicitly refer to the executor's authority to deal with the assets of Trezzi Construction," but nonetheless held that the language of the will implied this intention. 

See Brian Radnoff & Sahar Cadili, Trezzi v. Trezzi: Can You Gift Assets You Do Not Own? , Dickinson Wright LLP: All Things Canada Blog, November 10, 2020. 

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

November 12, 2020 in Current Events, Estate Administration, Estate Planning - Generally, New Cases, Wills | Permalink | Comments (0)