Wills, Trusts & Estates Prof Blog

Granddaughter Raises Enough Money for Grandfather to Keep House

Jaclyn Fraley recently reached her goal of raising $125,000 to buy back her grandfather’s home. 

John Potter, a 91-year-old WWII vet, had been living in his Zaleski, Ohio, home for over fifty years.  In 2004, he gave power of attorney to his daughter, who then transferred the property to herself.  Potter’s daughter then attempted to evict him following a dispute between the two over visitation rights to Potter’s autistic son.   Fraley then launched a successful fundraising campaign on GoFundMe to save his house.

See Debra Cassens Weiss, WWII Vet Reaches Fundraising Goal in Effort to Prevent his Daughter from Evicting Him, ABA Journal, May 16, 2013.

Disturbing Trends in IRA Withdrawals

According to a recent report by the Employee Benefit Research Institute, younger retirees between the ages of 61 and 70 are withdrawing larger amounts from their individual retirement accounts than older households.  These earlier withdrawals “are larger in absolute dollar amounts and as a portion of their overall IRA balance.

The report also found that low-income households were more likely to make early withdrawals and withdraw in larger amounts than higher-income households.

See Kelly Greene, Younger Retirees Burning Through IRAs, The Wall Street Journal, May 15, 2013.

Article on Estate Settlement in Michigan

John H. Martin (Warner, Norcross & Judd LLP) recently published an article entitled, Improving Michigan Estate Settlement, 29 T.M. Cooley L. Rev. 1 (2012).  Provided below is the introduction to his article:

The indictment is short and pointed: probate estate settlement is too expensive, too slow, and lacks privacy. This indictment covers probate in Michigan as well as probate nationwide.

Michigan took a major step toward increasing public acceptance of estate-settlement procedures when it adopted EPIC in 1998.  The informal procedures under EPIC permit both the validation of the decedent’s will and the appointment of a personal representative without the delay and expense of an adjudicatory proceeding.  Intermediate settlement steps may take place free from a court’s view; and even closing an estate may be accomplished without adjudication.  Despite these advances, Michigan estate planners do not commonly recommend probate procedures for estate settlement, and the public still does not embrace probate.  Nevertheless, if the legislature adopts a few modest changes, then probate will become a viable, attractive option for estate settlement.  Indeed, a few minimal alterations can produce a procedure that is comparable, or even preferable, to settlement under a funded revocable trust.

This Article proposes modest changes to EPIC that will improve the acceptance of probate in Michigan. But first, this Article describes the need for statutory modifications by reviewing briefly the public’s present attitude and the estate planners current preferences.  It then reviews and draws pertinent lessons from summary-procedure statutes enacted by other states to facilitate the settlement of smaller estates.  Against that backdrop, this Article then explains the need for and describes the specific changes that will improve Michigan estate settlement.

Topeka Sperm Donor Motions for Judge to Recuse Herself in Child Support Case

William Marotta’s defense attorney has filed a motion calling for Judge Mary E. Mattivi to recuse herself from Marotta’s case.

The state of Kansas asserts Marotta owes child support to the 3-year-old daughter of two women who enlisted Marotta through Criagslist to provide sperm for the couple.  Under Kansas law, a physician is required to perform an artificial insemination for the man to be considered a sperm donor, but Marotta and the female couple agree that Marotta should have no financial responsibility for the child.

In accordance with the Kansas statute, Marotta’s attorney did not include a reason for the request for recusal.  However, if Judge Mattivi declines to recuse herself, Marotta’s attorney must then provide a reason by filing an affidavit.  Reasons may include personal relations to the parties, an interest in the action, or personal bias.

See Aly Van Dyke, Sperm Donor Defense Calls for Judge to Recuse Herself, The Topeka Capital-Journal, May 20, 2013.

The Giving Pledge's First Female Signatory

In 2009, Warren Buffet and Bill Gates started the Giving Pledge for charitable donations. Recently, nine billionaires have signed on to the Giving Pledge promising to donate half of their wealth to charity after death. The first female billionaire to sign on to the Giving Pledge is Sara Blakely. Blakely is the founder of Spanx Inc. Her hope in signing on to the Giving Pledge is to empower women. Other signatories who have signed on include Mark Zuckerberg, George Lucas, and Michael Bloomberg. 

See HuffPost Live Highlights, Spanx Founder Is First Women Billionaire To Join Giving Pledge, On.Aol.Com, May. 2013.

Special thanks to David S. Luber (Attorney at law, Florida Probate Attorney Wills and Estates Law Firm) for bringing this article to my attention.

CLE on Representing Estate and Trust Beneficiaries and Fiduciaries

The American Legal Institute will be hosting a CLE in Langham, Boston entitled, Representing Estate and Trust Beneficiaries and Fiduciaries, July 18-19, 2013.  A description of the CLE is below:

Why You Should Attend

Estate planners, litigators, and corporate fiduciary counsel all want to know what impact (if any) the American Taxpayer Relief Act of 2012 will have on their clients.

This advanced CLE course goes beyond basics and delves into topics that specifically affect beneficiaries and fiduciaries, while offering registrants solutions to their most pressing concerns through small roundtable discussions and networking opportunities.

Experienced planning chairs Steve Fast and Bob Whitman, and the rest of the nationally known faculty panel, provide two full days of knowledge, insight, and even a bit of humor as they update you on all the current law developments affecting beneficiaries and fiduciaries.

What You Will Learn

The go-to program for estate and trust administration professionals is back by popular demand! Get the latest insight on the issues, including strategies for addressing current challenges for unhappy beneficiaries and concerned fiduciaries. Expert faculty of seasoned practitioners from across the country will examine: 

• Emerging fiduciary issues and how to pick (or be picked as) the best lawyer for the job
• Hot topics in tax, ethics, and estate and trust administration
• What you don’t (but should!) know about income taxation of estates and trusts
• The current fiduciary litigation landscape—and what you should do differently
• Perils of the lawyer-trustee
• The emboldened beneficiary
• Deposition devils and details
• Decanting illusions
• “Side letters” to trustees
• The intersection of the prudent investor and business interests
• Failing facility – drawing the lines on diminished capacity
• Using taxes to settle disputes
• Ethics analysis (one hour)
• Your issues, one-on-one

Faculty will reserve time throughout the program to address your questions.

Registrants at the live program have the opportunity to take part in small, focused, and interactive discussions during breakfast.

Conservation Easement Deduction

The IRS has raised its scrutiny with charitable easements. The increase in scrutiny with charitable easements stems from compliance problems with subordination rights, valuation, and substantiation. Litigation over these compliance problems in charitable easements is steady making it more likely the problems will continue. Recently, the IRS argued easement contracts assigning particular rights to mortgagees did not meet the requirement of a mortgagee’s rights in relation to the subordination rights of the donee. The valuation issues come into play with the requirements for qualified appraisals. Additionally, the value of an easement is difficult to determine for a deduction. Failure to comply with Form 8283 could lead to problems with substantiating the value of the easement leading to a disallowance of a tax deduction. 

See Karl L. Fava, Conservation Easement Tax Donation Update, Journal of Accountancy May 2013.

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

When Can a Fiduciary Duty Be Discharged In a Bankruptcy Proceeding?

Recently, the Supreme Court has decided when the fiduciary duty can be released during a bankruptcy proceeding. Chris Bullock was the trustee of his father’s trust. The trust provisions did not allow the family from borrowing from the trust. Despite the provision, Chris made a loan to his mother to reimburse a debt. In addition, he made a loan to himself. As a result, Chris made several improper loans.  All of the improper loans were made at the same interest rate the trust was earning.  

 In Bullock v. BankChampaign, the Supreme Court determined the definition of “defalcation” within Section 523(a)(4) of the Bankruptcy Code. The court held that “defalcation” means a state of consciousness “as one involving knowledge of, or gross recklessness in respect to, the improper nature of the relevant fiduciary behavior.”  The court rationalized its decision by including scienter as a requirement. In effect, a fiduciary will still be held accountable for a breach of his duty where the standard is simple negligence.

See Luke Lantta, Defalcation, Bankrupcy, And Fiduciary Litigation, Bryan Cave Fiduciary Litigation, May 20, 2013.

Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.

IRS Limits Material Participation by Non-Grantor Trusts

In a recent Technical Advice Memorandum (TAM), the IRS limited “the circumstances in which a complex, non-grantor trust can materially participate in the activities of an S corporation.”  The IRS concluded that only time spent by a fiduciary in a fiduciary capacity counts towards material participation in S corporation activities.  Time spent as a shareholder or an employee should not be counted as material participation.  The reasoning of this TAM applies to alternative minimum tax rules as well as “passive activity loss and credit rules and the new 3.8 percent net investment income tax.”

See Michala P. Irons & Randal J. Kaltenmark, Tax Law Alert – New IRS Guidance Takes Restrictive View of Material Participation by Non-Grantor Trusts, Barnes & Thornburg LLP, May 9, 2013.

Tips on Having a Successful Family Meeting

Family meetings are common after a medical crisis, but they can also be invaluable in resolving complicated financial issues as well as legal planning for elderly family members.  Here are some tips on starting, and getting the most out of, family meetings:

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    • Be inclusive by finding a date where everyone in the family can meet.  And ensure everyone has a chance to get their opinion across, especially any person you’re making decisions for.
    • Have family meetings before any serious health issues arise.
    • Hire a professional with expertise in the area of dispute to help resolve conflicts.  Consider a mediator if disputes get heated.
    • Set an initial agenda and invite any suggestions of other items that need to be discussed

See Kelly Greene, When It’s Time to Huddle, The Wall Street Journal, May 10, 2013.

 

Same-Sex Couples Face Challenges in Determining Whether Spouses Qualify as Trust Beneficiaries

Spouses often use trusts to pass monetary benefits to the other spouse, but the law is often unclear on whether same-sex spouses can become the beneficiary of their partner’s trust. 

If the Supreme Court finds the Defense Against Marriage Act constitutional, states will not have to recognize the relationship laws of other states and will be left on their own to determine the definition of spouse.  As a general rule, states will recognize marriages from other states unless it is contrary to the state’s public policy. 

If the trust document is ambiguous on the definition of spouse and the grantor’s intent is unclear, “trustees and fiduciaries often turn to the courts to help resolve the issue.”  Absent a Supreme Court ruling providing some clarity on this issue, attorneys will continue to rely on complex and unclear state laws to guide same-sex couples on this issue.

See States Decide: Can Same-Sex Spouses Become the Beneficiary of Their Partners’ Trust?, ABA Now, May 8, 2013.

Special thanks to Margaret Ryznar (Associate Professor of Law, Indiana University Robert H. McKinney School of Law) for bringing this article to my attention.

401(k) Considerations to Improve Your Financial Future

Inspired by the illuminating PBS Frontline story The Retirement Gamble, here are some key points to consider for employers offering 401(k)s as well as employees investing in them.

First, try to keep your investment fees below one percent.  These fees include “fund expenses, administration, asset management, and any other fees that silently but surely are taken from your 401(k) account."

Next, invest in the more reliable index funds instead of the much more erratic actively-managed funds.  Index funds are an efficient way to earn market returns and avoid risk.

Last, use a 401(k) provider that will agree in writing to act in the best interest of your company’s 401(k) plan.  By ensuring your provider takes on a fiduciary responsibility, you can hopefully receive the best fund options for your retirement, and not the best options for your provider.

See Stuart Robertson, PBS Frontline’s ‘The Retirement Gamble’ Got 401(k)s Right, Forbes, May 13, 2013.

Live Webinar on Family Wealth Transfers

The American Bar Association will be hosting a Trust & Estate Webinar entitled, What’s the Encore:  Correcting and/or Amplifying Family Wealth Transfers on June 6, 2013 from 12:00 PM – 1:30 PM CT.  A description of the webinar is below:

During this session our panelists will cover the application and management of wealth transfer strategies that provide some benefit to the grantor and/or the grantor’s spouse.

They will discuss the following strategies:

• Creative planning with loans and/or annuities owed by an IDGT to the grantor;
• Additional wealth transfer strategies available when gift tax exemption is exhausted, and;
• Strategies to preserve a basis adjustment upon the grantor’s death.

 

Life Insurance v. Annuities

Both life insurance and annuities have tax deferral benefits. Annuities offer steady income, while life insurance protects your family in the event of your death. However, many believe the tax benefits are outweighed by administration costs and penalties. If you are planning to take money from your life insurance policy then it might be wise to consider an annuity instead. Moreover, people who live in a high tax state might want to consider an annuity to hold income-generating assets.

See Weighing the Tax Advantages of Life Insurance and Annuities Against Their Real Costs, Wealthstrategiesjournal.com, May 14, 2013.

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

Mere Friendship Insufficient Ground to Set Aside Beneficiary Designations on Non-Probate Assets

In In re Estate of Abernethy, 390 S.W.3d 431 (Tex. App.—El Paso 2012, no pet.),  Decedent and Beneficiary were very close personal friends. In addition, Beneficiary was a certified public accountant who prepared tax returns for Decedent. Decedent named Beneficiary as the beneficiary of an IRA and as the party with survivorship rights on various bank accounts. After Decedent died and Beneficiary collected approximately $1.2 million from these accounts, Independent Executor asserted that Decedent and Beneficiary were in a fiduciary relationship and that Beneficiary breached her duties by allowing herself to be named as the beneficiary of these accounts. The trial court rejected Independent Executor’s claim and granted summary judgment in favor of Beneficiary.

The appellate court affirmed. The court began its analysis by recognizing “[t]here are two types of fiduciary relationships: formal fiduciary relationships that arise as a matter of law, such as attorney-client, partnership, trustee, and principal-agent relationships and informal fiduciary relationships or ‘confidential relationships’ that may arise from moral, social, domestic, or personal relationships.” Id. at 437.  The court recognized that whether an informal relationship gives rise to fiduciary duties depends on “the actualities of the relationship between the persons” and that duties will not be “lightly created.” Id. at 438. The court also explained that merely “trusting” someone does not mean that a fiduciary relationship has been created.

The court then examined the evidence. Although the evidence showed that Decedent and Beneficiary had a long-standing close personal relationship, there was no evidence of a fiduciary relationship. The court explained that there was no competent evidence that Decedent was “accustomed to being guided by the judgment or advice” of Beneficiary. Id. at 438. Accordingly, there were no fiduciary duties that Beneficiary could have breached when she was named as the beneficiary of the IRA and bank accounts.

Moral:  A person attempting to set aside a beneficiary designation needs to present solid evidence of a legitimate reason other than being unhappy with the designation such as breach of a genuine fiduciary duty, undue influence, fraud, or lack of capacity.

A New Book On California Community Property

Charlotte K. Goldberg, (Professor of Law, Loyola Law School, Los Angeles) recently published the revised fourth edition of, Examples & Explanations: California Community Property (4th ed. 2013). A description from amazon of the book is below:

Using the Examples & Explanations pedagogy and FITS (Funds, Intentions, and Title)—an original tool for understanding the complexities of California Community Property—Charlotte Goldberg presents an effective and timely overview of California’s community property system.

• FITS (Funds, Intentions, and Title)—a class-tested, unique tool for determining, under California law, whether marital property is to be considered community or separate property
  • The FITS acronym helps students to understand the roles that funds, intentions, and titles play in characterizing property as either separate or community
• the proven-effective Examples & Explanations pedagogy combines straightforward introductions with well-written examples and explanations that apply concepts, reinforce learning, and test understanding of material covered
• meticulous treatment of joint titles and reimbursement, featuring examples thoroughly illustrating all possible scenarios, including retroactivity
• coverage of tangible and intangible property, such as businesses, educational degrees, goodwill, and pensions
• premarital agreements and recent amendments to the Premarital Agreement Act

Updated throughout and with many new examples, the Second Edition features:

• major developments regarding retroactivity of the Family Code—affecting premarital agreements, fiduciary duty, and domestic partnerships
• several new cases clarifying premarital agreements and fiduciary duty
• new case decision regarding celebrity goodwill
• coverage of Family Code §4 and §2640(c)

Designed and written for the needs of students, Examples & Explanations: California Community Property, now in a Second Edition, combines the time-tested E&E pedagogy with a class-tested tool of analysis that makes an enormous difference in the depth and quality of students’ understanding of California community property law.

IRS Releases Interest Rates

Recently, the IRS released the interest rates for June 2013 income tax. Included in the rates are the short, mid, and long-term federal rates for 1274(d), and 1288(b) of the tax code. Additionally, the released rates included the long-term tax-exempt rates detailed in section 382(f). Moreover, there are provisions dealing with the details of the low-income housing credit, and the federal rate for annuities. The 7520 rate is unchanged at 1.2%. 

 

See Stephanie Moll, IRS Releases June 2013 Interest Rates, trustbryancave.com, May 17, 2013.

Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.

Columbia University Asks Court to Exclude White-Only Provision from Trust

Columbia University is seeking to modify the terms of a highly restrictive trust that violates current anti-discrimination laws.

Under the terms of the 93-year-old Lydia C. Roberts Graduate Fellowship, money should be given only to “a person of the Caucasian race” who was born in Iowa and attended an Iowa college or university.  This fellowship also excludes the student from studying in a number of fields, including law and medicine, and requires the student to move back to Iowa for at least two years following graduation.

Columbia is requesting that the State Supreme Court in Manhattan exclude the whites-only provision and modify the Iowa-only rule in the $840,000 trust.

See Columbia U. Seeks to Alter Whites-Only Bequest, Houston Chronicle, May 15, 2013.

New Questions Arise After Hong Kong Allows Transsexual Marriage

Following a court ruling allowing for transsexuals to marry in Hong Kong’s New Territories, new questions have arisen concerning inheritance rights, matrimonial rights, and sex offenses.

By covering male-to-female transsexuals under the definition of “woman,” does a male-to female transsexual lose inheritance rights under Hong Kong’s male-line inheritance?  Does a female-to-male transsexual gain these rights?

Another issue is whether a man with children who chooses to become a female loses her duty to be a “father.”  Also, only women can be raped under Hong Kong law, so can transsexuals be considered victims?

Although the legislature has not yet considered these issues, scholars believe the right to marry will coincide with associated rights of inheritance, divorce, and adoption.

See Patsy Moy and Stuart Lau, Transsexual Marriage Ruling Opens Door to Questions of Inheritance, South China Morning Post, May 14, 2013.

Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.

CLE on Beneficiary Designation Problems

The American Bar Association Section of Real Property, Trust and Estate Law will sponsor a CLE entitled, When Good Benes Go Bad or Missing Beneficiary Designation Problems with Qualified Plans and IRAs: How to Identify, Avoid and Fix Them, on May 22, 2013. Provided below is a description of the event:

PANELISTS:
Robert S. Keebler, Keebler & Associates, LLP, Green Bay, WI
Kristen M. Lynch, Fowler White Burnett, Ft. Lauderdale, FL

PROGRAM INFORMATION

TextIt is currently estimated that there are over Five Trillion Dollars currently invested in Individual Retirement Accounts (IRAs) and that these assets comprise approximately 10% of all household financial assets. IRAs, and a staggering amount of tax-deferred employee benefit accounts (which are eligible at some point be rolled into the IRAs) now constitute a meaningful part of estate planning and post mortem planning discussions. Both IRA assets and plan assets are supposed to pass by way of beneficiary designation . . .and yet there is an ever-increasing number of situations in which the beneficiary designation does not appear to name the intended beneficiary, has some execution flaw, or has completely gone missing.

The purpose of this informative webinar is to provide some background on Federal and common State laws that impact IRAs and qualified plans, as well as contractual issues.

The speakers will discuss the types of beneficiary problems that can arise and will discuss various options and approaches towards correcting the problems or mitigating the damage caused, including:

• The impact of ERISA and REA on plan beneficiary designations;
• The deadlines after death within which actions should be taken;
• How to preserve or salvage tax deferral/life expectancy if possible;
• Spousal IRA concerns – community property, divorce settlements, elective share;
• Undue influence and beneficiary disputes – or the IRA version of a will contest;
• Post-mortem possibilities if the named beneficiary has “Special Needs”;
• The issues presented when trusts are named or utilized inappropriately;
• The constant balance between best possible tax deferral and getting the IRA into the right hands; and
• Best practices 

Register now for this program using your ABA ID (00954888).