Wills, Trusts & Estates Prof Blog

Different Definitions of Incapacity

A typical modern estate plan consists of the following documents: a revocable living trust, pour-over will, durable power of attorney for financial matters and for medical matters, a living will, assignment of personal property to the trust, deed of real estate to the trust, and certification of the trust. One of the prerequisites to a valid will is a client of sound mind to execute the estate planning documents. Traditionally, this is a comparatively low standard, which requires the testator to understand the nature of the act he or she is doing, understand the nature of his or her property, and remember and understand his or her relations to the persons who he or she will dispose his or her property to.

The capacity required to enter a contract like a revocable living trust is a higher standard. The person has to communicate the decision and appreciate rights, duties, and responsibilities created and affected by the decision, the probable consequences of the decision, and the significant risks and benefits that accompany the decision.

In one 2011 case, Anderson v. Hunt, the California Court of Appeals held that while most provisions of a trust will require the higher standard of capacity, the property transfer provisions of a trust only require the lower standard. Some courts might rule differently on this matter.

Under either standard, it is important that the adviser encourage the client to prepare an estate plan while he or she still has capacity.

To see a table that lists indicators of incapacity, please click here.

See Randy Gardener, Defining Incapacity in the Modern Estate Plan, Journal of Financial Planning, 2012.

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

Four Things You Should Tell your Children About Your Estate Plan

Parents have a hard time deciding what they should tell their children about estate planning. If you say nothing else to your children, here is a list of four things that you should start with:

1. Which child will be the executor of the estate? Tell that child that you are planning to appoint him or her as executor of your estate and then make sure that they know where the will is stored.

2. What are your long term care arrangements? Children should be aware if you do not have insurance that way they can discuss amongst themselves who can help in the future.

3. Discuss your Advanced Medical Directive/Living Will. Let your children know whether you have a living will as part of your overall estate plan. Be sure to let them know if you pre-made decisions about what you would like to happen if a tragic situation occurs.

4. Where is everything located? You should discuss with your children where you keep your important documents and where you have keep passwords to your electronic accounts so that they can access these things to wrap up your affairs after death.

You do not have to discuss your actual financial situation as long as you discuss these basic points so that your children can adequately handle your estate according to your wishes.

See What Four Estate Planning Things Parents Should Tell Their Children, Your Smart Money Moves, May 31, 2012. 

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

Finance Advice For the Ages

If your loved one passed away, would you know what do with your finances? The answer to this question is complex; however, there are some factors that a person might want to consider. 

• At one time in our recent past, simplicity was often the answer. A person could purchase a Wellington Fund, and it was capable of providing its owner with a stream of livable income for a long time. Now, the times have changed, and a person might want to consider discussing matters with a financial planner. A person might want to consider hiring a financial planner at a hourly rate to keep costs low. This would probably ensure that the planner would not have any incentive to have the person purchase more expensive products that would provide the planner with a commission. 
• A person might also want to consider purchasing items whose prices are plainly visible to the purchaser. This is called the Yahoo principle. In other words, purchase items that are easily trackable such as stocks from a public company. However, be aware that this concept does not apply to fixed annuities. A person might still want to consider price transparency to ensure that the person knows what they are paying for. 

See William Baldwin, Letter to My Widow, Forbes, Mar. 31, 2012.

Special thanks to Joel Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.

Top SSRN Downloads

Here are the top downloads from April 3, 2012 to June 2, 2012 from the SSRN Journal of Wills, Trusts, & Estates Law for all papers announced in the last 60 days.

Rank	Downloads	Paper Title
1	357	Updated Primer on Lady Bird Deeds Gerry W. Beyer, Kerri M. Griffin, Kerri M. Griffin, Texas Tech University School of Law, The Blum Firm, PC, Estate Planning and Community Property Law Journal, Date posted to database: March 28, 2012 Last Revised: March 28, 2012
2	285	Will Contests - Prediction and Prevention Gerry W. Beyer, Texas Tech University School of Law, Date posted to database: March 2, 2012 Last Revised: March 2, 2012
3	203	Oddball Trusts and the Lawyers Who Love Them or Trusts for Politicians and Other Animals Wendy S. Goffe, Stoel Rives LLP, Date posted to database: March 13, 2012 Last Revised: April 25, 2012
4	153	Defined Value Clauses and Fair Market Value Wendy C. Gerzog, University of Baltimore - School of Law, Date posted to database: March 27, 2012 Last Revised: March 27, 2012
5	145	New Life for the Death Tax Elizabeth Ruth Carter, Louisiana State University, Baton Rouge - Paul M. Hebert Law Center, Date posted to database: April 2, 2012 Last Revised: April 2, 2012
6	137	Staying Out of Trouble Gerry W. Beyer, Texas Tech University School of Law, Date posted to database: April 16, 2012 Last Revised: April 16, 2012
7	105	Arbitration of Trust Disputes: Two Bodies of Law Collide S.I. Strong, University of Missouri School of Law, Date posted to database: April 9, 2012 Last Revised: April 9, 2012
8	104	Irrevocability of Special Needs Trusts: The Tangled Web that is Woven When English Feudal Law is Imported into Modern Determinations of Medicaid Eligibility Mary F. Radford, Clarissa Bryan, Georgia State University - College of Law, Georgia State University - College of Law, Date posted to database: April 9, 2012 Last Revised: April 9, 2012
9	73	Empowering Settlors: How Proper Language Can Increase the Enforceability of a Mandatory Arbitration Provision in a Trust S.I. Strong, University of Missouri School of Law, Date posted to database: April 7, 2012 Last Revised: April 10, 2012
10	69	Estate and Gift Tax Must-Reads for 2011 Bridget J. Crawford, Pace University School of Law, Date posted to database: March 16, 2012 Last Revised: March 16, 2012

NIMCRUTs

A NIMCRUT or a Net Income with Make-up Charitable Remainder Unitrust allows a settlor to transfer highly appreciated assets to the trust. The trustee then sells those assets and re-invests the profits in variable annuities. The purpose of this type of trust is two fold. First, it provides an increase in the lifetime cash flow for the beneficiaries of the trust and defers distributions of income until a later time.

This type of trust allows the taxpayer to take several tax deductions. First, a taxpayer can take a deduction for the value of the remainder interest by gifting it to a charity. Furthermore, because the trustee sold the assets, the settlors of the trust can avoid the capital gains tax on the value of the property.

The article here provides an example of how a NIMCRUT works in practice. A link has been provided below.

See Renaissance, Case Study: NIMCRUT Invest in a Variable Annuity, CharitablePlanning.com, May 31, 2012.

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

Available Livers for Organ Donation in Decline

A study reported that the number of available livers for successful liver transplants is declining. There are two reasons for this decline:

1. The process of harvesting organs after cardiac death does not provide livers that are healthy enough for organ donation. Hospitals adopted this policy to increase the number of available organs for transplant. Under the standard process, a patient must be brain dead before his or her organs are extracted. In the meantime, the heart is kept on cardiovascular support to ensure that oxygen and blood can continue to flow to all the major organs. With extracting organs after cardiovascular death, doctors extract organs after the heart stops on its own.
2. Livers with fatty liver disease are discarded due to the damage that is caused by diseases that are the product of fatty liver disease.

See HealthDay, U.S. Liver Transplants Declining, U.S. News and World Report, May 22, 2012.

Kinkade's Widow Asks for a Restraining Order Against Mistress

Thomas Kinkade, the Painter of Light, died in April. Unbeknown to the public, Kinkade was separated from his his wife. In addition, he was living with his mistress at the time of his death, Amy Pinto-Walsh. His wife, Nanette Kinkade, and the family trust filed for a restraining order against his mistress. The restraining order was filed to prevent his mistress from publishing materials about the late-painter and his family. In addition, it would prevent her from public attacking his wife, family, or any of his companies. 

See Radar Staff, Thomas Kinkade's Widow Wants Restraining Order Against His Mistress, Radar, Apr. 22, 2012.

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

Technology Changes the Way We Mourn

Technology is changing the way that people mourn and grieve for the dead. Friends or family members can unite on Facebook by sharing their sorrow, or showing their support, even if far away from one another. People can upload videos to YouTube as a tribute to the deceased, or attach "QR code" chips to the back of the tombstone of a deceased. 

Using Facebook and similar communities not only helps provide a support community to mourn for ones who have passed, but for some people it also helps to keep a connection alive. Being able to post pictures and videos of loved ones who have passed and then receive comments and support in return can be a very soothing process for some. 

Funeral homes are starting to integrate technology into their business strategies, including using high definition screens to showcase video homages, streaming a funeral live, keeping a digital guestbook, and keeping a digital candle "lit" on a memorial page. 

More and more people now own smartphones and tablets, and more people are using the internet, indicating that people are becoming increasingly comfortable with digital multimedia. While there are still some who oppose the new role of technology in funeral homes and on social media sites, honoring the dead with technology is just one other way that it is becoming a part of many areas of our lives. 

See Laura Petrecca, Mourning Becomes Electric: Tech Changes the Way we Grieve, USA Today, May 31, 2012. 

How One Lawyer Got Involved In the Fight for Same-Sex Marriage

Wendy Goffe is a straight estate planning attorney who supports gay marriage, and people often ask how she ended up in that position. Her stance is largely attributed to "Uncle" Howard who was a large influence on her earlier in life. He was her mother's professor, and he would come to dinners with Wendy's family often. He brought his boyfriends to dinner, and he brought Wendy artful and provacative gifts. After Howard passed away, Wendy learned that he was part of the S&M Bathhouse movement and that he created beautiful pieces of art as protest--several of these pieces are now on display in museums.

Wendy started off as a tax lawyer out of law school, and she started seeing ways that the disadvantaged could use taxes to their advantage. She also saw how gay couples who could not marry were denied the rights of married couples, including social security, the right to inherit retirement account benefits, along with several others. Since gay couples are not entitled to many of the same presumptions as married couples, It is particularly important for them to have their estate planning documents in order. In response to these concerns, Wendy has spent much of the last 20 years looking at issues that arise out of gay people's inability to marry. 

Despite Wendy's efforts, change will be slow. Even though the first circuit recently ruled DOMA was unconstitutional, it did not address whether states can decline to recognize same sex marriages that have been performed in states where it is legal. Even if the Supreme Court affirmed the first circuit's decision, its holding will be limited to a narrow issue. An overturn decision by the Supreme Court could have adverse effects on any future progress. 

See Wendy S. Goffe, How I Became the Straight Lady for Gay Marriage, Forbes, June 1, 2012.                                                                                                                                                                                                                                                                                                                                        

Article on Romanian Civil Code

Florentin Giurgea (Faculdade de Direito, Catholic University of Portugal) has recently published an article entitled, Changes to the Romanian Civil Code: Fiducia - The Romanian Concept of Trust on Sept. 19, 2011. The abstract from SSRN is available below: 

The New Romanian Civil Code came into force on 1 October 2011. It regulates for the first time fiducia, a mechanism similar to some extent to the English common law concept of Trust. Fiducia is the legal relationship by which one or more settlers transfer present or future rights to one or more trustees. The paper offer some brief insights on the aspects regarding: the trustee; registration procedures; insolvency; termination of fiducia; and conflict rules applicable to fiducia.

The Estate of William Martinez Awarded $3 Million

Recently, a family man died after engaging in an extra-martial affair with a close friend and another woman. The man, William Martinez, died after suffering from a heart attack. Martinez's family sued his cardiologist, Dr. Sreenivasulu Gangasani, for not advising Martinez to avoid all extraneous physical activities after he determined that Martinez had a "high risk" of clogged heart arteries. Dr. Gangasani wanted to conduct a stress test before he cleared Martinez. Martinez died the day before Dr. Gangasani could perform the stress test. A court awarded the family $3 million in damages. The family originally asked for $5 million in damages but the reward was reduced by 40% when the court determined that Martinez was 40% liable for his death. 

See David Moye, William Martinez, Threesome Death Victim, Family Awarded $3 Million In Medical Malpractice Suit, The Huffington Post, June 1, 2012.

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

Article on Defined Value Clauses

Wendy C. Gerzog recently published her article entitled, Wandering Far Afield with Defined Value Clauses, 135 Tax Notes 9 (2012). An abstract from the article available on SSRN is below:

The Wandry decision extends the application of defined value clauses beyond those family limited partnership cases that transfer any excess value to a charity. In Wandry, the Tax Court reads Procter narrowly and ignores the fundamental rationale of Robinette. 

"Winning The Money Game: Separating The Myths From The Truth"

Here is the publisher's description of this new book:

Winning The Money Game is a must read for anyone who wants to know the real truth about achieving financial independence. Find out what you don’t know about spending, saving, investing, insuring and planning wisely for the future…so you can achieve financial independence!

Ike Ikokwu is the rare accountant who guarantees success to clients who follow his advice. His education includes a unique blend of three financially-based accreditations: Certified Financial Planner, Registered Investment Advisor, and Certified Public Accountant. His professional background includes experience as a CPA at 2 of the Big 6 Accounting Firms, a Tax Consultant for one of the fastest growing consulting firms in the US, a Financial Advisor at a Nationally-Known Financial Planning Firm and as a small business owner in Georgia for the past 8 years.

Disinheritance and Other Facts

The general rule with disinheritance is that a person drafting a will can write a spouse or child out of the will. However, there are certain laws that can make it quite difficult to disinherit either a spouse or child. 

Children do not have a right to inherit from their parents; however, there are certain protections that are carved out for them. A child that is born after a will is executed can still receive a portion of the estate. This is even the case if the parents never alter their will to include their new child. The omission of the child from the will cannot appear intentional, otherwise a child will receive nothing. Also, the inheritance tax does not apply to transfers that are made to children or grandchildren.

Spouses have a few more protections than children. In Iowa and several other states, a spouse has right to take an elective share of the estate instead of what he or she would receive under the will, regardless of whether the spouse will receive anything under the will. There is one exception to the rule and that is with prenuptial agreements. There are also uncertainties about the what assets are subject to the elective share. For example, in Iowa, it is unclear whether the elective share can reach life insurance or retirement assets.

See Jana M. Luttenegger, Can I Write My Children and/or Spouse Out of My Will?, JDSupra, Apr. 24, 2012.

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

Article on Philosophy of Restitution and Unjust Enrichment

Lionel Smith (Faculty of Law, Quebec Research Centre of Private and Comparative Law, McGill University) has recently published an article entitled, Legal Epistemology in the Restatement (3d) of Restitution and Unjust Enrichment, 92 B.U.L.Rev. (2012). The abstract of this article on SSRN can be found below:

The publication of the Restatement (3d) of Restitution and Unjust Enrichment is an important accomplishment, on at least two levels. Its contribution, actual and potential, to the development of the law is beyond question. Equally important is the legal epistemology adopted in R3RUE. In the law of unjust enrichment, even more so than in other fields of private law, legal realism has been associated with the decline of respect in the U.S. for doctrinal scholarship. However, like most publications in the Restatement project, R3RUE stands against this rejection of doctrine. It situates itself in the interpretive tradition that has been a hallmark of the development not only of the common law, but of the civil law as well.

In this text, I have three aims. The first is to explore some of the characteristics of the traditional Western epistemology of private law, in order to understand its default position of respect for elaborated doctrine. The second goal is to assess the approach in R3RUE to the important topic of constructive trusts. My argument will be that in this field, R3RUE is ambivalent. It combines traditional epistemology with, in some respects, the law-skeptical approach that arose in the wake of American legal realism. My argument will be that the attempt to draw on these incongruent epistemologies — these different ways of knowing what the law is — leads to tension and inconsistency in the positions taken in R3RUE. The third goal is to evaluate whether and to what extent this matters. Is there any particular reason why we should adopt a single way of knowing what the law is?

First Circuit Rules DOMA is Unconstitutional

The Defense of Marriage Act (DOMA) defines marriage as a union exclusively between a man and a woman. A major issue surrounding this act is whether the federal government can deny tax, health and pension benefits to same-sex couples in states where they are legally allowed to marry.

On Thursday, in Massachusetts v. Dept. of Health and Human Services, the 1^st Circuit Court of Appeals ruled that the federal law is unconstitutional. This decision is likely to go up to the Supreme Court, and until then, there will not be immediate availability of benefits that are currently denied to same-sex marriages.

A bill aimed at repealing DOMA, the Respect for Marriage Act, is working its way through Congress. Currently same-sex marriage is allowed in the District of Columbia and six other states. Many states have legalized domestic partnerships, but some states still have laws or amendments that ban same-sex marriage.

See Bill Mears, Federal Court Strikes Down Key Part of Federal Law Banning Same-sex Marriage, CNN, May 31, 2012.

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

Article on Estate and Gift Tax Articles

Bridget J. Crawford (Professor, Pace University School of Law) has recently published an article entitled, Estate and Gift Tax Must-Reads for 2011, 134 Tax Notes 1453 (2012). The abstract on SSRN to her article can be found below:

This short column is part of the annual Tax Notes issue that highlights noteworthy law review articles published during the previous year. In this piece, I identify articles relating to estate and gift tax taxation that practitioners likely will find of interest, not withstanding Chief Justice Roberts' view that academics don't publish work that is of "much help to the bar." The articles reviewed (in alphabetical order by author's last name) are: (1) Martin D. Begleiter, "Son of the Trust Code - the Iowa Trust Code after Ten Years;" (2) Frances H. Foster, "Should Pets Inherit?"; (3) Thomas P. Gallanis, "The New Direction of American Trust Law;" (4) Wendy C. Gerzog, "The New Super-Charged PAT (Power of Appointment) Trust;" (5) Victoria J. Haneman, "Changing the Estate Planning Malpractice Landscape: Applying the Constructive Trust to Cure Testamentary Mistake;" (6) Adam J. Hirsch, "Freedom of Testation/Freedom of Contract;" (7) Kristine S. Knaplund, "The New Uniform Probate Code's Surprising Gender Inequities;" (8) Kristine S. Knaplund, "Synthetic Cells, Synthetic Life, and Inheritance;" (9) Carla Spivack, "Let's Get Serious: Spousal Abuse Should Bar Inheritance;" (10) Lee-ford Tritt, "The Limitations of an Economic Agency Cost Theory of Trust Law."

ABA-CLE of Elder Care Mediation

The ABA will sponsor a new 1.5 hour CLE Webinar on June 5, 2012 entitled Elder Care Mediation and Why It Is Important to Your Practice. The description of this CLE is provided below:

Learn about the conflicts that arise in estate planning. Increase your ability to address issues with siblings and extended family to avoid intergenerational disputes in elder care. Understand senior mediation from an experienced mediator and attorney who will better prepare you to deal with your clients.

Judges Rules That Florida Attorney Is Not Liable For Failure To Warn

Mr. Kyros was an elderly man who lived in Florida and the client of the David Gilmore. Mr. Kyros was obsessed with a child prodigy named Promethea Pythaitha to the point that he offered to pay for her college education. Ms. Pythaitha was such an advanced student that she became the youngest person to graduate from Montana State University. However, Mr. Kyros was upset that she was a student at Montana State and demanded that she attend an Ivy League School. His obsession eventually led him to travel to Montana where he decided to kill Ms. Pythaitha's mother, Ms. Georgia Smith. He failed, but not before shooting Ms. Smith 5 times seriously injuring her. Before he was killed by police, he gave Ms. Pythaitha a trust with enought money to pay her $50,000 a year for school on the condition that her mother not be living. 

Ms. Smith and her daughter sued Mr. Kyros 'attorney, claiming that Mr. Gilmore knew that Mr. Kyros was dangerous and that he failed to warn them of the danger. The district court ruled that Mr. Gilmore could not have known that his client was dangerous and that he was outside the jurisdiction of the Florida courts.

See Montana Judge Tosses Care Against Florida Estates Attorney for Failure to Warn of Danger Posed By Elderly Client, ElderLawAnswers, May 1, 2012. 

The Importance of Updating Beneficiary Designation Forms

A person who is a policy holder might want to consider updating their beneficiary designation forms after a significant life event or a change in circumstances. It is important to remember that beneficiary designation forms overrule any other estate planning documents, and ultimately control the disposition of the property subject to the beneficiary designation form. 

An example of this is the Kennedy Case. In that case, Mr. Kennedy designated his wife as the beneficiary under his saving and investment plan. Mr. Kennedy and his wife divorced, and he failed to alter his beneficiary designation form before he died. Ms. Kennedy died shortly afterwards, and so the administrator of plan transferred the funds to her estate. In Kennedy, Executrix v. Plan Administrator of the DuPont Savings and Investment Plan, the Supreme Court upheld a beneficiary designation against a challenge by the executrix of Mr. Kennedy's estate to invalidate the beneficiary designation form. 

See David M. Watts, Jr., Have You Checked Your Beneficiary Designations Recently?, JDSupra, Apr. 25, 2012. 

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