Wills, Trusts & Estates Prof Blog

Article on ESG Investing: Theory, Evidence, and Fiduciary Principles

Max M. Schanzenbach and Robert Sitkoff recently published an article entitled, ESG Investing: Theory, Evidence, and Fiduciary Principles, Wills, Trusts, & Estates Law ejournal (2020). Provided below is the abstract to the Article. 

Trustees and other investment fiduciaries of pensions, charities, and personal trusts, and those who advise them, face increasing pressure to rely on ESG factors in the investment management of tens of trillions of dollars of other people’s money. At the same time, however, confusion abounds about the intersection of fiduciary principles and ESG investing. This article cuts through that confusion to provide guidance about when and how ESG investing by trustees and investment fiduciaries is permissible. We make four interrelated points:

(1) we provide a clarifying taxonomy on the meaning of ESG investing, differentiating between risk-return ESG (i.e., using ESG factors to improve risk-adjusted returns) and collateral benefits ESG (i.e., using ESG factors for third-party effects);

(2) we discuss the subjectivity inherent to identifying and applying ESG factors, which complicates assessment of ESG investing strategies;

(3) we summarize the current theory and evidence on whether ESG investing can improve risk-adjusted returns, finding the results to be mixed and contextual; and

(4) we show that American trust fiduciary law generally prohibits collateral benefits ESG, but risk-return ESG can be permissible if supported by a reasoned and documented analysis that is updated periodically.

Article on Inheritance Crimes

David Horton and Reid K. Weisbord recently published an article entitled, Inheritance Crimes, Wills, Trusts, & Estates Law ejournal (2020). Provided below is the abstract to the Article. 

The civil justice system has struggled to resolve disputes over end-of-life transfers. The two most common grounds for challenging the validity of a gift, will, or trust—mental incapacity and undue influence—are vague, hinge on the state of mind of a dead person, and allow factfinders to substitute their own norms and preferences for the donor’s intent. In addition, the slayer doctrine—which prohibits a killer from inheriting from her victim—has generated decades of constitutional challenges.

But recently, these controversial rules have migrated into an area where the stakes are significantly higher: the criminal justice system. For example, states have criminalized financial exploitation of an elder, which includes obtaining assets through undue influence. Likewise, prosecutors are bringing theft charges against people who accept transfers from mentally diminished owners. Finally, legislatures are experimenting with abuser statutes that extend the slayer doctrine by barring anyone from receiving property from the estate of a senior citizen whom they mistreated.

The Article evaluates the benefits and costs of this trend. It explains that these new sanctions deter elder abuse: wrongdoing that is rampant, pernicious, and underreported. Nevertheless, the Article also exposes the dangers of criminalizing this unique area of law. First, criminal undue influence and the abuser doctrine may be unconstitutional in some situations. Second, inheritance crimes suffer from the flaws that make probate litigation so unreliable. Third, because inheritance law and criminal law are so different, jurisdictions have not yet figured out how to gracefully merge them. Finally, the Article builds on these insights to argue that states should abolish criminal undue influence, harmonize civil and criminal rules, and create exceptions to abuser laws.

Billionaire Aldi Family Fortune To Hit German Court As Son Sues Mother For Embezzling Funds: Reports

Theo Albrecht, cofounder of Aldi supermarket, passed away in 2010 and was ranked the 31st richest person in the world that same year. Albrecht's grandson Nicolay Albrecht has accused his mother Babette Albrecht and his three sisters of embezzling money from the trust. 

Nicolay Albrecht has has brought the action to a German court where the family members will argue over the fortune. Nicolay alleges that his mother and sisters have withdrew millions from a family trust that holds the family fortune. 

Nicolay's father, Berthold Albrecht was the beneficiary of the trust before his death in 2012. Babette is the widow of Berthold. 

"The conflict, which has been through many chapters, pits the cost-conscious elders who built Aldi against the younger generation who inherited the wealth."

Berthold's brother, Theo Jr., has already accused Babette and her children of "helping themselves to the assets" in the past. An alleged $88 million had already been withdrawn from the foundation in 2013, 2014, and 2015.

It appears that the elder generation felt that the younger, money-hungry generation, is disrupting the philosophy that the Albrecht family founded its success on. 

See David Dawkins, Billionaire Aldi Family Fortune To Hit German Court As Son Sues Mother For Embezzling Funds: Reports, Forbes, September 20, 2020. 

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

How to Divide Up Personal Possessions Without Dividing the Family

When creating an estate plan, allocating and dividing your assets can be very difficult. You are more than likely trying to figure out how to allocate your possessions in a way that will not create tension between your family members after you are gone. When creating your estate plan, it is very important that you make your intentions clear and have your estate planning strategy in line with those intentions. 

Although possession that can be turned into cash are easy to divide, tangible things like jewelry and heirlooms will not be as easy to divvy up. You may also have items that hold sentimental value that multiple family members are hoping to get their hands on. The family fights are likely to be centered around these types of objects. 

It will likely be a tough decision, but whoever you decide to give these items to, you should make it very clear who you choose and why you have chosen them. 

Below are a few steps to help you along the way:

• List the most important or valuable items in your will
• Direct that certain items be sold
• Write a memorandum 
• Give everything away now
• Get an appraisal
• Use a letter 
• Bidding 

If you make these decisions instead of leaving them in the hands of your family, the process will be much smoother.

See Randy M. Lish, How to Divide Up Personal Possessions Without Dividing the Family, Elder Law News, September 18, 2020.

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

Millionaire Steve Bing’s Estate At Center Of Paternity and Disinheritance Dispute In California Probate Court

"Steve Bing, a wealthy Hollywood movie investor, committed suicide earlier this year in Los Angeles."

Kira Kerkorian has submitted a DNA test stating that she is Bing's biological child. Bing's will disinherited any children he may have had. Bing also died with a Trust "naming the Clinton Foundation as its sole beneficiary."

Kira retrieved DNA from Bing's body in the morgue. It was first revealed that Bing was Kira's father "in a legal dispute between Kira's mom and her ex-husband, billionaire Kirk Kerkorian." 

According to the California Probate court paternity can be established by clear and convincing evidence.

"Sometimes a child can be considered an omitted child under California law if they were born after the execution of decedent’s testamentary documents.  However, in certain circumstances even an omitted child still receives nothing from the California probate estate. . ." 

In an earlier case, "the California appellate court determined that a general disinheritance clause can defeat an omitted child claim for unknown children born before the execution of a will or trust.  Here, it appears that Kira was in utero at the time that Bing executed the will."

See Millionaire Steve Bing’s Estate At Center Of Paternity and Disinheritance Dispute In California Probate Court, Probate Stars, September 15, 2020. 

Article on The End of Fiduciary Accountability

Robert Flannigan recently published an article entitled, The End of Fiduciary Accountability , Wills, Trusts, & Estates Law ejournal (2020). Provided below is the abstract to the Article.

Some judges and writers have been moving our regulation of opportunism off its conceptual rails. Numerous departures from convention presently are nesting in the jurisprudence and the literature. None of the departures are justified, and all should be purged. They choke the coherent expression of principle. If not dispatched, they may invite or license the collapse of our prudent strict supervision of the mischief that vitally undermines synergy and community.

Article on What Is 'Fair and Reasonable'? Norms and Strategies Guiding the Distribution of Assets by Testators Who Have an Adult Child With Intellectual Disability

Jill Wilson, Cheryl Tilse, Ben White, and Linda Rosenman recently published an article entitled, What Is 'Fair and Reasonable'? Norms and Strategies Guiding the Distribution of Assets by Testators Who Have an Adult Child With Intellectual Disability, Wills, Trusts, & Estates Law ejournal (2020). Provided below is the abstract to the Article. 

 

Background: Parents making a will most commonly distribute assets evenly to adult children. How parents of an adult child with an intellectual disability use wills to plan for future care and support has had limited policy, practice and research attention.

Method: This research reports on the perceptions of 20 parents regarding the impact of the needs of their child with disability on estate planning. The participants were purposively recruited and interviewed during 2014–15.

Results: Participants were more likely to consider equity of outcomes for their children taking into account retaining access to state services. They report difficulties in future planning in the context of changing service systems and limited specialised advice.

Conclusions: Judgements about what is fair and reasonable in distributing assets reflect differing views of need and entitlement within families. Such families would benefit from specialised advice and support in estate planning, particularly given the changing context.

Article on Trust-owned Companies and the Irreducible Core of the Trust

Jason Fee recently published an article entitled, Trust-owned Companies and the Irreducible Core of the Trust, Wills, Trusts, & Estates Law ejournal (2020). Provided below is the abstract to the Article.

The recent Hong Kong Court of Final Appeal case of Zhang Hong Li v DBS Bank (Hong Kong) Ltd upheld the effectiveness of anti-Bartlett clauses. This gives rise to the question whether a trust-corporate structure, coupled with a well-drafted anti-Bartlett clause, leaves any room for trust obligations. Through the lens of the law on trust-owned companies, this article thus seeks to re-conceptualize the ‘irreducible core of trust obligations’. It argues that the irreducible core means the minimum duties which are necessary to preserve the integrity of the trust concept. It draws a distinction between core and mandatory duties, in that the ‘bells and whistles’ one adds in specific contexts may be mandatory duties reflecting appropriate policies, instead of core duties necessary for a trust to exist. It accordingly considers the proper content of the irreducible core, as distinguished from other mandatory duties.

The 2020 Election in Maryland: It's Not About Politics

During Autumn of 2020, Maryland's new elective share law will take effect. "No longer limited to a fractional share of the net probate estate, a surviving spouse who decides to reject what was given to him under the decedent's existing estate plan will then receive his elective share out of the deceased spouse's augmented estate."

Maryland's existing share law is based on a statute that was originally enacted in 1798. That statute states:

“Instead of property left to the surviving spouse by will, the surviving spouse may elect to take: (1) A one-third share of the net estate if there is also a surviving issue; or (2) A one-half share of the net estate if there is no surviving issue.”

Any rights the spouse has in non-probate assets will be unaffected by the spouse's exercise of her elective share rights. The fact that non-probate assets and other inter vivos transfers will not be affected by the election is an important upside. 

Under the new law, "a surviving spouse who exercises his right of election will receive a share of the deceased spouse’s estate from a mix of assets that includes probate assets, property outside of the probate estate, and certain other lifetime and testamentary transfers."

"The new law establishes the following ordering rule for the satisfaction of the elective share, to determine the priority of payment from assets included in the estate and which are not part of the spousal benefits: (i) from the probate estate; (ii) from the revocable trust; (iii) if the decedent had more than one revocable trust, by apportionment among the trusts in proportion to the value of each revocable trust; and (iv) by the recipients of any other portions of the estate, prorated among the recipients in proportion to the value of the assets received by each recipient. The decedent’s will or trust instrument may override the ordering rule, or the parties who pay the elective share may enter into an agreement subject to court approval for payment of the elective share."

See Linda Kotis, Andrea Dykes, & Carolyn Rogers, The 2020 Election in Maryland: It's Not About Politics, American Bar Association: Probate & Property, July/August 2020. 

Gifting in uncertain markets

When volatility is high, many clients consider updating their gifting plans. However, "it is important to consider the opportunities that gifting can present in uncertain markets."

We have seen historically low rates in 2020 that have resulted from consistent market volatility. Also, the current gift tax exemption ($11.58 million for individuals and $23.16 million for married couples), allow wealthy clients to transfer significant wealth while "maximizing transfer tax savings."

"One way to maximize clients’ gifting plans in a volatile market is to gift assets that are undervalued as a result of market instability, but that would otherwise be expected to appreciate in value." This is a good strategy because you would report the gifted assets at the fair market value, which would likely be low in volatile market, but would then appreciate outside of your clients' estate for estate tax purposes. However, the success of this strategy is conditioned on whether the IRS accepts the reported values. This is a good estate planning option during uncertain times, like now. 

You can also estate plan with discounted values like the discount for lack of control (minority discount) and the discount for lack of marketability. "To take advantage of these and other valuation discounts, wealthy families may want to consider contributing undervalued assets to a closely held entity, such as a family limited liability company or family limited partnership."

Now is a great time to take advantage of the historically low interest rates and the substantial gift tax exemptions. 

See Rose Watson, Gifting in uncertain markets, Investment News, August 17, 2020.

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