Wills, Trusts & Estates Prof Blog

The Unequal Inheritance: It Can Work, or It Can ‘Destroy Relationships’

In order to avoid conflict, many parents and/or grandparents decide to leave their children the same inheritance, although equal may not always be equitable. With the pandemic bringing the drafting and execution of more wills, this issue is coming up more frequently. 

One example of this situation occurred with clients of Elizabeth Candido Petite, an estate planning lawyer in N.J. Her clients wanted to give one of their children more than the other two because she "needed it more." 

This child in particular had been laid off due to the pandemic and her parents had a feeling she would continue to need extra help. Meanwhile, the other two children still had their jobs and those jobs were in "higher-paying careers." 

Luckily, in this instance the other two children agreed and everyone was on the same page. 

According to a survey by Merrill Lynch Wealth Management and the consultant Age Wave, "two-thirds of Americans 55 and older said a child who provided them care should get a bigger inheritance than children who did not." 

Different families might approach these issues based on what their personal definition is of "fair" and "equity." Equal is not always fair and fair is not always equitable. 

See Susan B. Garland, The Unequal Inheritance: It Can Work, or It Can ‘Destroy Relationships’, N.Y. Times, February 19, 2021. 

Special thanks to Matthew Bogin, (Esq., Bogin Law) for bringing this article to my attention. 

Tennessee man leaves $5 million to dog in his will: 'She’s a good girl'

Tennessee businessman Bill Dorris died last year at the age 84 and left $5 million to his 8-year-old collie, LuLu. Bill's friend, Martha Burton, had already been well acquainted with LuLu as she would watch after her when Bill travel; an arrangement that had occurred for several years before Bill's passing. 

"I don’t really know what to think about it, to tell you the truth," Burton told WTVF. "He just really loved the dog."

According to the will, $5 million is to be placed in a trust for LuLu's care. The will also specifies that LuLu stay with Burton, for which Burton will be reimbursed for normal monthly expenses. 

Yes, LuLu the dog is a millionaire. The most interesting thing is that she is not the only animal that has come into a large sum of money, as it is far more common than you think for pet owners to leave a portion (and sometimes the entirety) of their estate to their animals.

See James Leggate, Tennessee man leaves $5 million to dog in his will: 'She’s a good girl', Fox News, February 12, 2021. 

 

 

Ethics, Earnings, ERISA and the Biden Administration

Albert Feuer has recently posted on SSRN his article entitled Ethics, Earnings, ERISA and the Biden Administration which is forthcoming in 62 Tax Mgmt. Memo No. 3, 23. Here is the abstract of his article:

Ethical-factor investing shall be defined as using ethics, such as an enterprise’s policies regarding social/economic/health/environmental justice, sustainability, climate change, or corporate governance, as a factor to determine whether to acquire, dispose of, or how to exercise ownership rights in an equity or debt interest in a business enterprise.

Ethical-factor investing includes, but is not limited to the ESG, sustainable, socially responsible, impact, and faith-based investing. Ethical-factor investing may. but need not, be intended to enhance the investor’s financial performance. Ethical-factor investing also may, but need not, be intended to enhance an enterprise’s ethical behavior, i.e., to be socially beneficial.

The Trump administration discouraged ethical-factor investing. Nevertheless, such investing is becoming increasingly popular among Americans, American mutual funds, and American retirement plans.

The article introduces the current types of ethical investing, their history, their financial and ethical performance, and their pre-Biblical progenitors. All those issues are discussed more extensively in a longer referenced article.

This article suggests how the Biden Administration may encourage ethical-factor investing by ERISA retirement plan fiduciaries. This may be done with revised ERISA regulations and other interpretative documents. No ERISA amendments would be needed. ERISA permits such investing if it does not adversely affect the expected financial performance of such plans’ investment portfolios or investment choices. Finally, such plans investors, including plan participants and beneficiaries, may thereby generate their preferred benefits for society. Such benefits are, like desired financial benefits, most likely to be achieved if such investors are explicit about their preferred benefits and they regularly monitor the performance of their investments.

Article: Express Trust as the Missing Piece in the Liberal Property Regime Jigsaw

Hanich Dagan and Irit Samet recently published an article entitled, Express Trust as the Missing Piece in the Liberal Property Regime Jigsaw, Wills, Trusts, & Estates Law ejournal (2020). Provided below is the abstract to the Article. 

Trust sceptics are correct to revolt against the increasing abuses of the trust. But they are wrong to deem it beyond redemption. In this chapter, written for the “Philosophical Foundations of the Law of Trusts”, we develop a charitable interpretation of trust doctrine and of the legacy of the trust that offers a happy raison d’être around which it can, and should, be reconstructed. The trust, we argue, plays an indispensable role in a system of liberal (that is: autonomy-enhancing) property law. Pushing it to live up to this (implicit) promise offers an exciting reformist agenda in which many of its weeds are properly cleared.

 

Article: Risk Management and the Prudent Investor Rule

Max M. Schanzenbach and Robert H. Sitkoff recently published an article entitled, Risk Management and the Prudent Investor Rule, Wills, Trusts, & Estates Law ejournal (2020). Provided below is the abstract to the Article.

The prudent investor rule, now enacted in every state, is the centerpiece of trust investment law. In accordance with modern portfolio theory, the rule directs a trustee to implement an overall investment strategy having risk and return objectives reasonably suited to the trust. This article, recently published in Trusts & Estates magazine, summarizes the results of an earlier empirical study of the effect of the rule on asset allocation and management of market risk by bank trustees. We had two main findings. First, enactment of the rule was associated with increased stockholdings by bank trustees, but not among banks with average trust account sizes below the 25th percentile, a result that is consistent with sensitivity in asset allocation to trust risk tolerance. Second, enactment of the rule was associated with increased portfolio rebalancing by bank trustees, a result that is consistent with increased management of market risk. Given these findings, we concluded that reallocation toward additional stockholdings after enactment of the rule was correlated with trust risk tolerance and that the increased market risk exposure from those additional stockholdings was more actively managed.

Shh! This is a Silent Trust — Let’s Keep it Quiet

Typically, it is encouraged to keep your family in the loop in terms of estate planning. However, if you are using a silent trust, it is best to keep quiet. 

"A silent trust limits the amount of information shared with beneficiaries or, in some cases, keeps the existence of the trust secret."

The duties of the trustee will vary from state to state as they are governed by state law. Most states require trusts to relay at least some information to beneficiaries who are not minorities. These states require the beneficiaries to be reasonably informed about the existence of a trust and its terms.

Most states also place limits on the information that can be provided to beneficiaries. "Some states, for example, allow the trust agreement to waive the trustee’s duty to inform the beneficiaries. Others allow the trust’s settlor (the person establishing the trust) to limit the trustee’s duty by executing a separate waiver document."

Some of the benefits of a silent trust are below: 

• Maintaining confidentiality over the settlor’s financial affairs and estate planning arrangements,
• Avoiding beneficiary scrutiny of the trustee’s investment and management of trust assets,
• Preventing the disclosure of information about the trustee’s management of family business interests, and
• Potentially reducing disincentives for beneficiaries to behave in a financially responsible manner, pursue higher education and gainful employment, and lead a productive life.

There are also drawbacks with silent trusts given the fact that beneficiaries are not as informed as they are in normal trusts. They may also do not have the same encouraging effect on behavior as normal trusts. 

If you are a secretive person, or if you do not want your family to be in the loop until after you are gone, a silent trust may be right for you. 

See Joseph R. Marion, III & David T. Riedel, Shh! This is a Silent Trust — Let’s Keep it Quiet, Adler Pollock & Sheehan P.C., January 25, 2021. 

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

Article: Limiting the Fiduciary's Account of Profits: But-for Causation?

Alex C.H. Yeung and Jason Fee recently published an article entitled, Limiting the Fiduciary's Account of Profits: But-for Causation?, Wills, Trusts, & Estates Law ejournal (2020). Provided below is the abstract to the Article.

In an account of profits for breach of fiduciary duty, courts have understandably required some form of nexus between the breach and the gains to be disgorged, but have otherwise struggled to articulate a precise test. In the recent case of UVJ v UVH, the Singapore Court of Appeal broke new ground by requiring but-for causation, apparently branching off from the Anglo-Australian jurisprudence which advocates a more liberal approach to causation. While the but-for test is practically appealing as a technique well known to various areas of law, this article seeks to assess the normative justifications for such a bold move, in view of the attendant issues of deterrence, the unique policy of fiduciary law, and the juridical nature of an account of profits.

RPTE Advocates for Remote Ink Notarization and Remote Witnessing During the Pandemic

The Covid-19 pandemic forced most if not all real estate and trust and estate attorneys to work from home and away from clients. Further, the elderly and others with health issues were advised to stay home and/or in shelter and to avoid face-to-face meetings. Due to the shelter-in-place, the standard practice of ink signatures and in-person witnesses before an in-person notary became nearly impossible to execute. 

This issue poses a conundrum because the people that are most at risk are the same people that are more in need of the execution of a will and other estate planning documents. In order to meet the legal needs of these people as well as attorneys and other clients, the legal industry had to evolve in a way that allowed clients to execute estate planning documents while also minimizing risks and danger. 

Since state law controls most of the requirements and standards for real estate and health and estate planning documents, "the executive committee of the section determined that RPTE should advocate that states adopt special rules and procedures for remote ink execution during the pandemic." 

These newly adopted rules would allow attorneys to serve clients that are or have family members that are susceptible to great risk to safely execute legal documents. The rules also provide protection to the attorneys with the same risk factor. 

Working with the ABA Governmental Affairs Office, RPTE leaders drafted a letter to be sent to state governors. The letter advocated for the issuance of executive orders and other types of legislation to allow for remote ink notarization and witnessing by other—simpler—means.

See Jo-Ann Marzullo, RPTE Advocates for Remote Ink Notarization and Remote Witnessing During the Pandemic, ABA: Probate & Property, Jan/Feb. 2021. 

Nevada Supreme Court: Include All Trust Documents To Trigger 120-Day Trust Challenge Deadline

In In re Estate of Horst Revocable Trust, "the Nevada Supreme Court considered what a trustee must include in a notice to beneficiaries under NRS 164.021 to trigger the 120-day limitation period deadline to challenge the validity of a trust." 

Ella E. Horst established the Ella E. Horst Revocable Trust for the benefit of her children and grandchildren. After the trust was established, Ella moved to Las Vegas to live with her granddaughter Patricia. Through the trust, Ella bought a home with Patricia and Patricia's partner. The trust paid for 50% of the purchase price for the home and retained a 50% interest therein. 

The trust was amended a couple of times over the next few years and those amendments are below: 

• Ella executed a second amendment to the Trust that removed a $20,000 specific gift to Patricia, provided Patricia with a specific gift of the Trust’s interest in the Home, and named Patricia as successor trustee.
• Ella signed a third amendment that gave an additional specific gift of real property to Patricia.
• Patricia’s partner conveyed her 25% interest in the Home to the Trust, and Ella purportedly executed a fourth amendment, adding a specific gift of the Trust’s recently acquired 25% interest in the home to Patricia.

When Ella died, Patricia became the successor trustee and on January 27, 2017 Patricia gave notice to the other beneficiaries, heirs, and interested persons. However, the notice did not include the fourth amendment to the trust. In May 2018, Patricia sought to have the validity of the court amendment confirmed. 

Brian Holiday, one of the beneficiaries, filed an objection to the petition claiming that the amendments were the result of undue influence. 

The district court barred the objection because Holiday filed more than 120 days after Patricia served the initial notice. However, in respect to the fourth amendment, the district court found that the objection was timely. 

The Nevada Supreme Court ultimately held that Holiday's objections to the second and third amendments were also timely because the initial notice did not include the fourth amendment and was therefore insufficient notice to the beneficiaries. 

See Nevada Supreme Court: Include All Trust Documents To Trigger 120-Day Trust Challenge Deadline, Probate Stars, January 8, 2021

 

 

Court Held That The Term “Spouse” In A Trust Meant The Primary Beneficiary’s Wife At The Time Of The Trust’s Execution And Not A Subsequent Wife

In Ochse v. Ochse, "a mother created a trust that provided that the trustee was authorized to make distributions to her son and the son’s spouse." 

When the trust was executed, the sone was married to his first wife. However, after the trust's execution, the son divorced and remarried. The son's children sued the son for breaching fiduciary duties as trustee. Both the son and his first wife filed motions for summary judgment. 

The son and the first wife were particularly focused on whether the term "spouse" in the trust agreement referenced the first wife or second wife.

The trial court found that "spouse" referenced the second wife, but the first wife appealed. The son and second wife argued that the term "spouse" referenced a class of the son's current wife at the time and not the first spouse specifically. 

The Court of Appeals disagreed finding that the term "spouse" should be construed to mean the spouse at the time of execution and not a future spouse.

See David Fowler Johnson, Court Held That The Term “Spouse” In A Trust Meant The Primary Beneficiary’s Wife At The Time Of The Trust’s Execution And Not A Subsequent Wife, Texas Fiduciary Litigator, January 3, 2021. 

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