Educational FYI's
Educational FYI's are written on topics that effect various aspects of estate planning and the laws that govern it. They are published and posted to this site when news worthy events happen that we feel you should be made aware of. The purpose of an Estate Planning Update is to bring important information to the financial advisors in the community. Our hope is that this information better equips you to assist your clients.
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Personal Representative's Attorney Fees Chargeable Against Estate
The personal representative, in an estate administration contest, filed a seventh accounting and a request that the estate be closed. Family members objected, accusing the personal representative of conflicts of interest and failure to advise the beneficiaries about actions proposed to be taken by the decedent's partner (who was also a client of the personal representative). The personal representative retained counsel and the parties participated in extensive litigation resulting in the trial court removing the personal representative, denying requests for surcharge against him, and denying his request for payment of $589,441.28 in attorney's fees and costs.
Constructive Trust Imposed on Proceeds of Property Sale Transferred to Joint Ownership
The agents under a durable power of attorney arranged for sale of real property (specifically devised in principal's will to her stepson) to agents' relatives for substantially less than the assessed value of the property. The proceeds were placed in bank accounts in joint names with agents. After the principal's death, the agents were appointed as personal representative of the principal's estate and stepson sued.Exception to Privileged Communications for Will Drafter Does Not Apply Where No Will Prepared
A Testator consulted his long-time law firm about drafting a new will, but no new will was ever prepared. A few days later the Testator signed a new will prepared by another, unrelated law firm.Kaiser Commission Releases Report on the Impact of the Federal Deficit Reduction Act of 2005
The Kaiser Commission on Medicaid and the Uninsured has issued a report that summarizes the Medicaid provisions of the federal Deficit Reduction Act of 2005 (DRA) signed on February 8, 2006 and discusses the implications of the proposed changes. The changes would net projected reductions in Medicaid spending of $4.8 billion over the next five years and $26.1 billion over the next ten years.Genetic Link to Parkinson's Disease Found
A recent study has identified a single genetic mutation that accounts for more than 20 percent of all cases of Parkinson's disease in Arabs, North Africans and Jews. This is a major surprise, as genetics was thought to play a relatively minor role in the cause of Parkinsons disease. Although the mutation is rare in people with ethnic roots outside the Middle East, its discovery raises the prospect that undiscovered mutations may be major causes of Parkinson's in other groups.Drugs Effective in Treating Mild to Moderate Alzheimer's Disease
Three drugs -- Aricept, Razadyne, and Exelon -- may make some modest improvement in mental function for those persons suffering from mild to moderate impairment in mental functions due to Alzheimers disease. The finding come from a review of 13 studies of the drugs. The review appears in The Cochrane Library, a research journal.New Findings on Cause of Alzheimer's Disease
If confirmed, several new findings on the origins of Alzheimer's disease could overturn prevailing theories on the cause of the disease. Scientists reporting in the Journal of Neuroscience said the neurodegenerative disease may be triggered when adult nerve cells, or neurons, try to divide.Undernourishment Screening Tool
Undernourishment is one of the major risks to the good health of elders.Important Update from Leimberg re Trust-Owned Life Insurance
Steve Leimberg was kind enough to allow us to share the following e-newsletter regarding fiduciary liability for monitoring trust owned life insurance, You can find out more about the Leimberg e-newsletters by using the link at the end of this FYI.Effect of the Federal Estate Tax on Family Farms and Small Businesses
Recent discussion of the federal estate tax has focused in part, on how it affects family farms and small businesses -- particularly the possibility that having to pay the tax might jeopardize those operations.Social Security and Medicare Trustees Release Annual Reports
Annual reports released from both the Social Security Administration and the U.S. Centers for Medicare Medicaid Services.Wealthy People Less Likely to Die in Pain
A University of Michigan study finds that wealthier elders are significantly less likely than poorer ones to suffer pain at the end of their lives.Groups Campaigning Against Repeal of Estate Tax
Anti-estate tax repeal groups have begun a campaign targeting moderate Democrats and Republicans in a campaign to retain the estate tax. The campaign is helped by the efforts of many major life insurance companies as well as charitable organizations.Spendthrift Trust Not Reachable for Debts Incurred by Beneficiary Acting as Trustee
Two testamentary trusts were created in the decedents will, one for the benefit of each of her sons. One son became trustee of both trusts, and proceeded to empty his brother's trust by investing in his own business, and thereafter failed to account to the other brother. The court entered a surcharge against the trustee-brother and forfeited the surety bond he had posted. The court then gave a judgment in favor of the surety against the defalcating trustee-brother.Health Affairs Journal has published three articles about the Schiavo case and the costs of end-of-life care.
Federal Housing Programs That Offer Assistance for the Elderly
A number of federal housing programs provide assistance, including rent subsidies, mortgage insurance, and loans and grants for the purchase or repair of homes, to low-income renters and homeowners.Qualified Roth Contribution Programs Gain Attention
Beginning in 2006, 401-K retirement plans may be amended to permit employees to designate some or all of their contributions as Roth contributions pursuant to a "qualified Roth contribution program." Contributions to a qualified Roth contribution program are made on an after-tax basis, but distributions (including earnings) are tax-free.Alzheimer's Disease Symptoms Reversed in Mice
Mice with memory loss have had their condition reversed, a discovery that should help refine the search for a cure for Alzheimer's disease and other dementias.Will Effectively Exercised Power of Appointment Even Though Not Admitted to Probate
Father (who died in 1981) established a living trust that divided into survivor's and family shares, with the former giving his surviving wife a general testamentary power of appointment and the latter giving her a power of appointment exercisable by will, deed, conveyance, bill of sale, gift or any other written instrument. If Mother did not exercise the powers of appointment, the survivor's trust would pour into the family trust, which would in turn be distributed unequally among daughter, granddaughter and grandson. Mother executed a will in 1985 purporting to appoint the entire trust corpus of both trusts; the survivor's trust was appointed outright to daughter and the family trust in equal shares among daughter, granddaughter and grandson; Mother died in 1997. Relying on advice of counsel, the trustee and family members decided not to seek probate of Mother's will.Will's Assertion of Mistreatment by Disinherited Child is Not Grounds for Invalidity
Decedent's will specifically disinherited his only child and some of his grandchildren "by reason of their ... treatment" of him. Son challenged the will, claiming that it was improperly executed, and also that the decedent had operated under "an insane delusion that four of his grandchildren did not care about him."Disclaimer Reformed to Avoid GST Tax
Daughter signed disclaimers of her interests in her mother's property in two different states. After the disclaimers were completed, she learned that her mother's GST exemption was only $650,000 and that the disclaimed property would be subject to the tax. She signed an affidavit indicating that she had disclaimed by mistake, and sought reformation of one or both disclaimers. State high court rules that reformation of the two disclaimers is permitted, and remands to the trial court for entry of an order authorizing the reformation.An elderly woman was befriended by a law student, who helped her to transfer over $90,000 (in several transactions) to the law student, allegedly because the woman wanted to help her with tuition. The woman's nephew, who had power of attorney, discovered the transactions and moved to secure conservatorship and set aside the transactions.
Undue Influence and Constructive Fraud Claims Should Have Been Submitted to Jury
After her husband became ill, an elderly woman who had never managed finances during their married life summoned her children to meet with her and to help decide how to handle the family ranch and other properties. After the family discovered that her husband had incurred $54,000 in credit card debt the children agreed to take responsibility for that debt in return for their mother transferring shares of stock in the ranch to them; she made transfers of substantially all of the stock based on that understanding.Malpractice Claim May Be Brought By Successor Fiduciary Against Agent of Prior Fiduciary (CA)
During the pendency of a will contest, an attorney was appointed as administrator of a decedent's estate. He hired another law firm to assist with complicated tax issues. At some point, the administrator wrote to the tax lawyers confessing that he had misappropriated substantial funds from the estate; the tax lawyers initially attempted to help him borrow money to repay the estate, but ultimately wrote to him (in February) indicating that they withdrew from further representation and advising him to secure other assistance. In May the administrator died; the tax lawyers turned their file over to another attorney in July. In September the deadline ran out for filing IRS form 843, which would have extended the time for claiming a tax refund by three years. In November, after resolution of the will contest, a new executor was appointed and he brought a malpractice action against the two groups of tax attorneys. Both law firms argued that the plaintiff lacked privity with them, since they had been hired by the original administrator, and the trial court granted judgment for the defendants. The intermediate state appellate court affirmed, and the estate appealed to the state Supreme Court. That court now reverses, finding that the state probate code gives a successor fiduciary all the powers that his or her predecessor would have, impliedly including the power to bring an action such as the one here.Power of Attorney, Lacking Gift-Giving Authority, Does Not Authorize Gifts to Agent
Mother, suffering from mild dementia, executed a general power of attorney in favor of her son--the power of attorney did not include any language specifically authorizing gifts. Shortly thereafter she moved in and lived with him, and after about eight months moved to a nursing home. At the time of her move to the nursing home the son, using his power of attorney, transferred all her real property, stocks and other assets to himself. The mother died a little over a year later, leaving a will that devised all her assets equally to her son and daughter. After securing appointment as executor of the estate, daughter filed suit to recover the remaining assets, arguing that the purpose of the original conveyance was solely to protect the assets from being depleted by nursing home expenses and that with the mother's death they should be re-conveyed to her estate. Trial court ordered reconveyance and on appealed. Intermediate state appellate court affirms, noting that without a specific gift-giving provision in the power of attorney, a gift to the agent "carries with it a presumption of impropriety and self-dealing." In order to overcome that presumption, the recipient of the gift must make "the clearest showing of intent" on the part of the principal; evidence that the mother in this case trusted her son more, wanted him to manage her money, and may even have been fearful of her daughter did not meet that high standard of evidence.The plaintiff, who had been seeking to provide cash for his daughter to pay anticipated estate taxes, established an irrevocable life insurance trust in 1991 and paid $300,000 in premiums for a $4.2 million second-to-die policy. The insurance agent's projections, assuming a 10% return, showed no further premium payments would be required. The ILIT Trustee, a CPA, sought independent advice which indicated that the initial premium payment would need to earn a 24% return for 28 years to cover all premiums, but the settlor instructed him to follow the insurance agent's direction.
Testamentary Effect of Trust Provision Requires Compliance With Will Formalities - Arnold v. Davis
A decedent (the widow of country music recording artist Jim Reeves) had established a trust to hold her considerable assets, though her capacity to sign or approve of a trust was later called into question. When she died while conservatorship proceedings were pending, the court granted an interpleader request and ordered that all her trust assets and all income from sale of her late husband's music and real estate holdings be paid to an administrator while the validity of the trust was resolved.A victim that was vulnerable to exploitation made a videotaped statement to police officers two days before she died and a statement to a social work supervisor shortly before her death.
As the testatrix lay dying in a hospital bed, a lawyer relative contacted a long-time associate and asked him to visit her at the hospital to help her prepare a will. The relative also provided the lawyer with details about the testatrix' estate plan, including her intention to leave him (the lawyer relative) a significant bequest. The drafting lawyer, the lawyer relative and the testatrix all met together at the hospital, and the drafting lawyer prepared a will and supervised its execution. After the testatrix' death a will contest was filed, with the result that $620,000 was made unavailable to the residual beneficiaries (the opinion does not relate the particulars of the will contest or the identity of any contestant, or indicate how much of the $620,000 was attorney's fees incurred in defense of the will and how much a payment to contestants).
Legal Malpractice in Estate Planning Case Runs From Discovery - Watkins v. Hedman, Hielman & LaCosta
An attorney prepared a complicated estate plan for a married couple. The wife advised the attorney that they wanted to make sure their trusts were and remained revocable, that they minimized estate taxes, and that they avoided probate. The attorney never consulted with the husband, but sent documents home with wife and had her staff witness and notarize them upon return, even though they had never spoken with husband."Direct Lineal Descendants" in Old Trust Does Not Include Adopted Children - McGehee v. Edwards
Several trusts were established in 1929, 1930 and 1931. Each trust limited benefits to the "direct lineal descendants" of the settlor or the settlor's parents. Although state law was amended in 1978 to presumptively include adopted children in the terms "issue" or "descendant," the new law by its terms did not extend to prior trusts. The trustees of the trusts, concerned about potential liability for their determination of the approximately 142 trust beneficiaries, filed an action to determine "who are, or may be direct lineal descendants ... and specifically whether children born out of wedlock" would be beneficiaries. Counsel for one beneficiary answered, asking the court to also determine whether adopted children would qualify, whereupon the trial court appointed guardians ad litem for "persons adopted by lineal descendants, persons born out of wedlock to lineal descendants, persons born to lineal descendants through assisted conception, and legitimate minor beneficiaries and parties unknown."The guardian of person and estate filed a petition requesting compensation for services as guardian. The ward died before hearing on the petition, and guardian filed a second petition seeking additional compensation. Almost two years after the ward's death, the trial court summarily denied the compensation requests. The Florida Court of Appeals reverses the denials, noting that no one objected to the compensation requests, the guardian was not given notice of the pending denial of compensation, and the trial court did not conduct a hearing into the reasonableness or propriety of the fees. The summary denial "violated the guardian's right to due process of law."
Before a husband began chemotherapy treatment he arranged for freezing and storage of semen in case he became sterile. The treatment was unsuccessful and husband died within two months. In-vitro fertilization, begun ten months after his death, was successful and twins were born eighteen months after his death. The wife thereupon filed for Social Security Survivor's benefits for the children, and was denied by the Social Security Administration, an Administrative Law Judge, and a Federal District Court Judge.
State Must Permit Payment of Taxes on Special Needs Trust Termination - Stell v. Boulder Co. DSS
A self-settled special needs trust was established for the benefit of an SSI recipient who also received Medicaid benefits. The SNT provided that upon termination (by death of beneficiary, for instance), funeral, burial, and administrative expenses, and taxes would be paid first, and that the state Medicaid agency would then be required to submit a claim for reimbursement before the trust would repay Medicaid expenses. The Department of Social Services disqualified the trust and the beneficiary appealed.Probate Court's Removal of Fiduciary in Six Cases Upheld - Guardianship of Monus
A professional fiduciary, who is the director of a faith-based social service agency, had served as guardian, conservator or trustee for a number of years in six separate cases. The amounts involved in the estates varied from about $13,000 to about $210,000. In each case inventories were filed late or not at all, accountings were sporadic and incomplete, and requests were made for approval of expenditures after the fact. The probate court determined that the fiduciary had violated his obligation to account fully, and removed him from all six cases.Wrongful Death Action Dismissed Against Pharmacy in Death of Nursing Home Resident - Estate of Sharp
The estate of a deceased nursing home resident sued the pharmaceutical provider which had contracted with the nursing home to provide medications. The claims alleged that the pharmacy had failed to monitor administration of controlled substances, to observe that the drugs were either being misused or stolen, or to train the facility's staff in proper drug administration procedures. Relying on cases limiting the liability of pharmacists in wrongful death actions, the trial court dismissed the complaint with prejudice.Prior to establishment of a guardianship, a ward had signed and funded a revocable living trust. Prior to her death, the guardianship court had authorized the trustee to sell her home, and directed that the proceeds be held in the trustee's attorney's trust account. After the ward's death, the trustee sought and gained court approval to pay burial expenses, but when the trustee requested authority to pay the trustee's attorney (which would have exhausted the remaining proceeds), the guardianship court refused and directed instead that the trustee pay fees to the guardian and the guardian's attorney, plus previously unpaid court fees associated with the guardianship. The trustee appealed, and the Florida Court of Appeal reversed and remanded for further proceedings.
After their father became incapacitated, his children from a prior marriage filed an action to prevent his wife from taking charge of or dissipating his assets, which were largely held in a self-settled trust naming some of the children as successor trustees. As settlement of that matter, the parties agreed that the children would take over as trustees, that the wife would continue to make care decisions for the husband, and that the husband's trust would pay $25,000 per month to the wife for his care -- and specifically directing that the wife would not be a trustee. Some time later the children became concerned that the money was not in fact being used for their father's care, and sought an accounting from his wife. She successfully objected, arguing that the settlement agreement specifically precluded a finding of a trust relationship, and that they could have (but did not) required an accounting as part of the settlement.
When a proposed ward objected to a pending guardianship proceeding, state law mandated appointment of both an attorney to represent him and a guardian ad litem to evaluate him. The guardian ad litem questioned the physician (whose opinion was that the proposed ward did not lack capacity) and then arranged for appointment of and evaluation by a second physician. The guardian ad litem testified as an expert witness at trial, and provided opinion testimony based in part on hearsay evidence she had accumulated. After a jury found the proposed ward to be incapacitated and the court appointed a guardian, counsel for the ward appealed, arguing that the GAL's testimony should not have been admitted as expert testimony, that she should not have been permitted to rely upon or recite hearsay evidence, and that she should not have been permitted to characterize herself as "the eyes and ears of the court."
Bequest Does Not Fail for Indefiniteness of Charitable Beneficiary - Hays v. Harmon
A decedent's will left residue of his estate to a trust "to provide for poor relief to worthy and needy individuals who reside in Crawford County, Indiana...." The decedent's only child contested the will, alleging both that his father lacked capacity and that the trust was insufficiently precise to constitute a valid charitable trust.A decedent established a self-settled trust naming herself as trustee and her son as successor trustee. During the last few years of her life, the decedent was taken advantage of by her son. On her death the trust provided for specific distributions to two children and a granddaughter, with the remainder to be distributed to her son; if son failed to survive, the remainder would pass to the granddaughter. The granddaughter filed an action alleging that the son had committed elder abuse and, pursuant to the terms of a California statute, should be disinherited. The Son moved to dismiss the suit for lack of standing. The trial court found that granddaughter had standing and ultimately found that son had abused his mother and that such abuse effected his disinheritance.
Statements to Beneficiary Do Not Support Establishment of a Trust - Hubbard v. Shankle
Prior to his death, the decedent had changed the beneficiary on his life insurance policy to name his girlfriend of three months. He told her that he was making the change because he wanted her to have the proceeds and he wanted her to take care of college expenses for his two- year-old daughter. When he died the girlfriend received $110,000 from the policy, of which she immediately spent $45,000.The District Mental Retardation and Developmental Disabilities Administration (MRDDA) filed petition for appointment of guardian of the person for a 33-year-old developmentally disabled patient recently placed in a community setting as part of a court-ordered deinstitutionalization process. The trial judge found that the proposed ward qualified pursuant to the guardianship statute for appointment of a guardian, but expressed concern that there was no real emergency medical care problem and that appointment of a guardian in a case such as this one would simply encourage the MRDDA to file petitions in other cases, and that there was "no real crisis going on" to justify the guardianship.
Number of Americans With Long-Term Care Insurance Unchanged from 2002
More than 85% of American older than 45 years old do not have long-term insurance, according to a second annual survey released by the Long-Term Care Financing Strategy Group, Washington D.C., a think tank affiliated with the American Health Care Association. The study, entitled "Index of Long-Term Care Uninsured," shows the number, at 82 million, has not changed since last year¹s study. The study reveals that approximately 16% of those aged 65 and over have private long-term care insurance.Treasury Eyeing Estate Tax Shelters Involving Charities
Treasury officials speaking at the American Institute of Certified Public Accountants conference on November 1-2, 2004, warned accounting and estate planning practitioners to expect a continued crackdown on many of the mechanisms being used to reduce estate tax liability, particularly those involving charities.A law firm secured a $300,000 judgment against its former bookkeeper for embezzlement. The bookkeeper's mother gave the law firm a brokerage account check for $60,000 (for reasons not clear from the record). The law firm, now aware of the fact that the brokerage account was titled in joint tenancy between mother, bookkeeper and mother's other child, executed against the account. The mother intervened in the garnishment proceeding and argued that she was the sole contributor to the account, that her two children were joint tenants only as a matter of convenience, and that she had not intended to make a gift.
Post-Nuptial Agreement Does Not Violate Public Policy - Bratton v. Bratton case
A year after his marriage, a medical student hand-wrote and signed a letter indicating that he promised never to be the cause of a divorce, and if he ever did he assigned 50% of his assets and 50% of his future earnings to his wife. Two months later the couple signed a more formal post-nuptial agreement, drafted by an attorney (the parties disputed whether the attorney represented the husband or the wife), which made a similar provision if the husband "was guilty of statutory grounds for divorce."Interest Accrues on Pecuniary Devise Despite Pendency of Will Contest - Estate of Holan Case
The decedent's will left the family farm to one son, but subject to that son's payment of a percentage of the appraised value of the farm to each of the decedent's other children over a fifteen year period with interest. Other children sought introduction of a later will, but the probate court ultimately found that will to be the product of undue influence and the South Dakota Supreme Court affirmed.A father established a testamentary trust for the benefit of his son, which included a spendthrift provision. The trust gave the trustee discretion to distribute or withhold all income and up to $1,200 per year of principal, and the trust language indicated that the discretion should be exercised "for the comfortable support and maintenance" of his son. The trustee secured a court order authorizing payment of a fixed amount each month to the son, increasing that amount over several years as his condition declined.
After an auto accident injured an already-disabled benefits recipient, his mother successfully sought court approval to establish a special needs trust with the $115,377.56 of net proceeds from a lawsuit. The trust and its establishment apparently satisfied the Social Security Administration, and his SSI benefits continued to be available. The State, however, determined that establishment of the trust was a disqualifying transfer for Connecticut's SSI supplement program and terminated his benefits.
Debt of the Elderly and Near-Elderly 1992-2001
American families with a family heads who are age 55 or older had approximately the same level of debt payments relative to income and of debt levels relative to assets in 2001 as they did in 1992, according to a new report by the Employee Benefit Research Institute. In terms of retirement security, the EBRI report noted that, on the whole, the new data are positive that most older families did not appear to be overburdened by debt in 2001. However, there has been an increase in the percentage of heavily indebted families -- defined as those with debt payments exceeding 40 percent of income -- especially for family heads in the two oldest groups (ranging from 5 to 10 percent of all near elderly and elderly families).Parents executed wills and powers of attorney naming one of four children as personal representative, sole devisee and agent. At the death of second parent to die, virtually all of parents' assets had allegedly been diverted to the favored child. The disinherited children filed an action for intentional interference with an expectancy, and the favored child / personal representative moved to dismiss on grounds that probate proceedings provided an adequate remedy.
A daughter and granddaughter of elderly woman filed competing petitions for appointment as the woman's guardian. The daughter requested appointment of a temporary guardian, alleging an emergency. At the hearing, the granddaughter acknowledged that she had loaned or transferred over $450,000 to herself using a power of attorney, but alleged that the transfers and purchase of an annuity were for Medicaid planning purposes. When specifically challenged about a $100,000 annuity (on which she had collected a commission on purchase, and naming her children as beneficiaries), the granddaughter characterized her failure to list it as an asset of her grandmother's estate as a "scrivener's error."
An elderly woman moved from her home state to an assisted living center near her granddaughter, who lived in another state. Her granddaughter, who is an attorney, was an agent in the elderly woman's power of attorney. Granddaughter was also named as the sole beneficiary of her estate. Shortly after the move she began to "slip," and when she learned that her granddaughter had expressed concern about her drinking she became more antagonistic. An old drinking friend made contact with the grandmother and began living with her, though not paying any rent or contributing to her expenses, and allegedly increased her alcohol use.
Uniform Trust Code Does Not Permit Termination of Spendthrift Trust - Estate of Somers case
A trust provided for payment of $100 / month each to two grandchildren of trustor, with remainder on their death to go to charity. The trust contained a spendthrift provision preventing the alienation of grandchildren's interests. Nearly fifty years after the trustor's death, the trust corpus had grown to $3.5 million. Grandchildren and remainder beneficiary entered into agreement to terminate trust and to distribute $150,000 to each of the grandchildren and the balance to the remainder beneficiary. The corporate trustee declined to act on the agreement, and charity and grandchildren filed a joint petition to terminate the trust.An elderly woman, with the assistance of her long-time attorney, created a will, a charitable trust and a power of attorney naming a personal friend as executor, trustee and agent. Some years later, after significant deepening of dementia and at the instigation of a caretaker who was disgruntled with the agent's refusal to change her to the day shift, the woman visited an attorney selected by her family members and revoked the prior planning documents and executed new documents naming those family members as the agents, trustees and executors.
Attorney Not Liable for Failure to Undo Estate Plan - DiStefano v. Milardo case
Client, a serious alcoholic, utilized the services of an attorney to establish a trust, will and power of attorney. After several institutionalizations, she approached the attorney to undo her plan, and particularly to remove her son as agent, trustee and personal representative. The attorney reminded her that she had established her plan precisely to protect against her own mismanagement, and did not take steps to unravel her planning. A year later (and after another institutionalization for alcoholism and depression), she revoked the trust and power of attorney on her own, and then sued her attorney for malpractice, alleging that his failure to undo her estate plan was the proximate cause of alleged losses from theft by her agent.Trust Amendment Effective Even Though Unsigned by Trustee - Godley v. Valley View State Bank case
A trust provided that the trustor retained the power to amend, and that amendments became effective upon delivery to the trustee. The trustor signed a trust amendment which removed her stepchildren as remainder beneficiaries (and named caregivers in their stead), and named a corporate trustee (effectively resigning as trustee). The attorney who prepared the amendment then sent it to the corporate trustee for acceptance and signature. The corporate trustee did not immediately sign the amendment, and two weeks later the trustor died; thereafter, the corporate trustee declined to serve as trustee and returned the original, unsigned amendment to the attorney.Forbes magazine interviewed several leaders in the insurance industry about Long Term Care Insurance and has issued a report on their findings.
Baby Boomers' Retirement Prospects: An Overview by CBO
Over the past 15 years, the retirement prospects of the baby-boom generation (people born from 1946 to 1964) have become a source of public concern. Some experts contend that low saving by boomers could limit economic growth in the United States and compound the financial pressures that face government programs such as Social Security and Medicare. A November 2003 Congressional Budget Office (CBO) study -- prepared at the request of the Chairman of the Senate Budget Committee -- updates and expands on a 1993 CBO report on the retirement preparedness of boomers. It places the baby-boom retirement issue in historical and policy context, describes the methodologies used to analyze that issue, reviews numerous studies of retirement preparedness that have been published since 1993, and draws general conclusions from their findings.Missing Person's Date of Death Not Set by Judicial Determination of Death
A surviving spouse began receiving benefits under late husband's pension plan in 1977, but disappeared in 1982. The pension plan administrators suspended payments, but acknowledged that they would be liable if she reappeared. Fifteen years later missing beneficiary was declared dead and her estate's administrator sought payment of unpaid pension benefits from date of disappearance until presumption of death arose seven years later. The trial court granted summary judgment to missing spouse's estate, ordering payment of seven years' pension benefits.Guardianship Order Does Not Itself Preclude Joint Tenants from Withdrawing Joint Accounts
When the guardian of the estate was appointed for an elderly woman, her primary liquid asset was a bank account naming her two sons as joint tenants. After the guardian was appointed, the sons withdrew the balance of the joint account. The guardian sought an order compelling the return of account balance.Mere Fact of Power of Attorney Does Not Create Presumption of Undue Influence
A decedent's son had held a power of attorney for financial matters, but had exercised it for very limited purposes. The decedent had also executed a will leaving her entire estate to her son, and specifically disinheriting her daughter. The daughter challenged the will arguing that decedent did not have testamentary capacity and that she had been unduly influenced by son.Handwritten Trust Distribution Schedule is Not Holographic Will
A decedent had signed a pre-printed living trust form, one portion of which was a "Schedule of Beneficiaries and Distributive Shares." The schedule was handwritten by decedent. Named distributees attempted to introduce the schedule as a "holographic" will under state law permitting wills substantially in the decedent's handwriting and signed by the decedent, though unwitnessed. The trial court denied admission of the alleged will and determined that the decedent had died intestate.Fiduciary Handbook - Prudent Investment Practices
The term "fiduciary" is inclusive of more than five million people who have the legal responsibility for managing someone else's money, including members of investment committees of retirement plans, foundations, and endowments; trustees of private trusts; and investment advisors. The primary purpose of the Fiduciary Handbook - Prudent Investment Practices, prepared by the Foundation for Fiduciary Studies, is to outline uniform fiduciary standards of care and practices that are intended to define a prudent investment process. The handbook covers 27 practices culled from federal and state legislation, regulatory opinion letters, and relevant case law. The handbook states: "Fiduciary liability is not determined by investment performance, but rather on whether prudent investment practices were followed. It's not whether you win or lose, it's how you play the game."AFRs for October 2004 Announced
The Section 7520 rate for October 2004 is 4.4%New IRS Page for Self Employed / Small Businesses
Take a look at some of the changes you will find on the Small Business/Self-Employed Community on IRS.gov.The Section 7520 rate for November 2004 is 4.2%.
Proposed Regs Require Registered or Certified Mail to Prove Timely Filing
Taxpayers would need registered or certified mail to prove timely filing under proposed regsPreamble to Prop Reg; Prop Reg 301.7502-1(e)(1); Prop Reg 301.7502-1(g)(4)
IRS Releases Inflation Adjusted Figures for LTCI; MSAs and HSAs
Inflation-adjusted figures for long-term care insurance, Archer MSAs and HSAsSummary of American Jobs Creation Act of 2004
Congress has recently passed the American Jobs Creation Act of 2004 and the president has indicated that he will sign it.IRS Statistics for 2003 Estate Tax Returns
The IRS data for the 2003 Estate Tax Returns are now available from the IRA. This data include gross estate by type of property, deductions, taxable estate, estate tax and tax credits, and by size of the gross estate.The Section 7520 rate for December 2004 is 4.2%
Ohio Bill Would Cut Interest Rate on Unpaid, Overpaid Estate Taxes
Under Ohio HB 260, which was approved on November 9, 2004 by the Ohio House with a vote of 81 to 14, the interest rate on unpaid and overpaid estate taxes is lowered to the federal short-term rate, and the penalty for late payments would be 10 percent of the unpaid tax regardless of how late the payment is.IRS Reports Increased Use of Online EIN Application
Businesses and tax professionals are turning to an online application form on IRS.gov to get new employer identification numbers ("EIN"). The Internal Revenue Service has issued more than 498,081 of the numbers through its online application since it became available in April 2003.The Internal Revenue Service and Treasury Department issued a notice to advise taxpayers that the IRS intends to disallow improper deductions for charitable contributions of patents and other intellectual property. Taxpayers claiming improper deductions may be subject to penalties. In addition, the notice advises promoters and appraisers that the IRS intends to review promotions of transactions involving these improper deductions and that promoters and appraisers also may be subject to penalties.
IRS Tightens Reins on Lawyers, Accountants, Other Tax Advisers
The Treasury Department and the IRS issued four items of administrative guidance as part of their ongoing effort to halt abusive tax avoidance transactions and maximize effective use of IRS audit resources.Interesting Ninth Circuit Asset Protection Case
The Ninth Circuit recently affirmed the denial of availability of assets in a third party spendthrift trust to the trustee of a Chapter 7 bankruptcy estate. This is another example of the effectiveness of using trusts as asset protection vehicles for beneficiaries.IRS Issues Guidance on Health Savings Accounts
The Treasury Department and the IRS issued their first round of guidance for health savings accounts (HSAs). HSAs are new tax-favored vehicles created by the Medicare Prescription Drug, Improvement and Modernization Act of 2003 that individuals covered by high deductible health plans can use to pay for certain medical expenses.SEC Rules Would Require Mutual Fund Costs Disclosures
The Securities and Exchange Commission has proposed rules that would require securities and investment companies to make disclosures of mutual fund transaction costs and of breakpoint discounts by mutual funds. The proposals are issued amidst concerns that mutual fund companies have been charging excessive fees to investors.Medicaid Eligibility Order Remanded Without Addressing Effect of Single-Premium Annuity
The husband of a nursing home resident purchased a $90,000 five-year, single-premium, assignable annuity naming husband as initial beneficiary and couple's sons as contingent beneficiaries, then made Medicaid application. The Arkansas Medicaid agency determined that the annuity remained an available resource (at a value of $70,000 as of the time of application) and denied eligibility. The Wife appealed her denial, and both applicant and the Medicaid agency agreed that the sole issue on appeal was whether the annuity remained available.Attorney Not Permitted to Appear on Behalf of Ward
A proposed ward objected, through court-appointed counsel, to appointment of a guardian. The trial court guardianship order was granted over the ward's objection. Just over one year later, the trial judge vacated the appointment of counsel nunc pro tunc to the date of the final guardianship order. The next day the attorney filed a notice of appearance on behalf of the ward; no motions or petitions were then pending in the guardianship matter. The guardian moved to strike counsel's notice of appearance, and the trial court not only found that the ward lacked capacity to retain counsel but also ordered counsel not to have "any interactions" with the ward regarding legal matters without the guardian's consent.Elderly Driver's Estate Not Liable For Traffic Accident Resulting From Heart Attack
An elderly driver suffered a fatal heart attack, swerved into oncoming traffic and collided with victims' vehicle. The victims sued the driver's estate for negligence, alleging that he knew he had a family history of heart disease, he had suffered a prior heart attack and was under treatment for heart disease, and he knew or should have known that he posed a danger to the motoring public when driving.Property Owner Successfully Sues to Rescind Gift Deed for Undue Influence
The owner of 258-acre ranch signed a series of wills prepared by three different attorneys over a short period of time, culminating in a will leaving the ranch to acquaintances. Shortly after that, the acquaintances took the owner on a picnic to the property (which had been her grandfather's homestead) and described their plans to rebuild her grandfather's cabin. The property owner, overcome with emotion, announced her intention to transfer the property immediately. The acquaintances had one of the lawyers involved in estate planning prepare a warranty deed and the property owner signed it. When it was returned to her after recording, she became agitated and demanded that the property be returned to her name; the acquaintances would agree only to transfer the property into joint tenancy with the original owner.Physical and Mental Decline in Elderly Not Inevitable
Years of laboratory testing indicate that the abilities to think quickly, remember accurately, and reason clearly decline beginning in young adulthood. A growing body of research is challenging the depth of this decline and its impact, suggesting that most healthy seniors can work, drive, and live independently well into their golden years.IRS Wins Another FLP Tax Court Case
In Estate of Abraham, TC Memo 2004-39, the Tax Court denied any discount for three separate Family Limited Partnerships. It found the FLPS to be testamentary devices.Betting on Death: The Risk of Life Annuities versus Phased Withdrawal Plans
How might retirees consider deploying the retirement assets accumulated in a defined contribution pension plan?Ambiguous Trust Established By Couple is Available Resource for Surviving Spouse
In 1996 a married couple established an irrevocable trust for their own benefit, requiring distribution of income to themselves. The trust document was silent as to the trustee's authority to distribute principal to the beneficiaries, though it does permit payment of "personalty" to the couple or the survivor of them. Husband died four months later; five years after that wife applied for Medicaid eligibility.Purchase of Life Estate in Daughter's Home Treated as Transfer
The daughter of a Medicaid applicant, utilizing a durable power of attorney, purchased a life estate in her own home for the applicant for $43,953.13. The Medicaid agency treated the purchase as an uncompensated transfer, arguing that the applicant received nothing of value, and denied eligibility.Proper Standard for Appointment of Conservator of Estate is "Management Competency Test"
Sisters disagreed over the management of their mother's finances and the operation of a family business, and one sister sought appointment of herself as conservator of the person and estate. After a three-day court trial, the other sister was appointed conservator of the person and a public conservator as conservator of the estate.The Attorney General of Maryland has released a report on Alzheimer's disease that practitioners from other states should find useful. The 115- page report examines the regulation of nursing homes, long-term care insurance and Medicaid. Policy goals include protecting patients against abuse, neglect, and financial exploitation and improving state-regulated facilities.
Action for Tortious Interference with Inheritance Not Possible During Life
Two siblings brought an action to set aside transfers from their mother to two other siblings, alleging both undue influence and tortious interference with expectancy of inheritance. Guardian of property sought to intervene as a plaintiff. State trial court dismissed sibling's tortious interference claims, but declined to dismiss guardians.On March 10, 2004, the U.S. Senate enacted a new rule, the "Feingold Amendment." Under this rule, any tax cut or spending increase will require 60 votes for passage unless an offsetting revenue provision is included in the legislation. For example, a bill cutting taxes by $100 million would have to include an offsetting tax increase or spending cut of $100 million or it would have to have 60 votes to pass.
Abusive Home Based Business Tax Schemes
The Internal Revenue Service is cautioning the public about promoters who are selling the concept that taxpayers can operate any type of unprofitable "business" out of their home and claim personal expenses as business expenses. Taxpayers should be wary of these programs.DON'T BE TAKEN IN BY TAX SCAMS...The IRS reminds taxpayers not to fall victim to a variety of tax scams. These schemes take numerous shapes, ranging from promises of special tax refunds to illegal ways of "untaxing" yourself.
CCH issued a report which contained many good tax planning strategies you may want to suggest to your clients.
Does HIPAA Affect Patients' Access to Care?
An article from the March 29, 2004 Detroit News examines concerns from health care providers that the Health Insurance Portability and Accountability Act medical privacy rules have affected patients' access to care. Providers must obtain consent from patients before they can disclose medical records in "non-routine" cases. Providers who violate the rule can face fines between $100 to $250,000 and as many as 10 years in prison. Providers maintain that they are so wrapped up in complying with the privacy standards that they are distracted from doing their jobs, which can cause patients to wait longer for care.2003 A Profile of Older Americans
The 2003 edition of A Profile of Older Americans is now available on the U. S. Agency on Aging Web site. This Web-based publication includes statistics on older Americans in key subject areas such as population (including the latest population estimates and future growth projections), income and poverty, marital status, living arrangements, health, and much more. It includes both narrative and statistical charts.Agent Personally Liable for Unpaid Nursing Home Bills After Medicaid
Daughter of nursing home resident held a power of attorney for her mother. Daughter/agent signed nursing home contract as "responsible party," promising to use mother's assets for her welfare (specifically including nursing home costs). Thereafter, daughter/agent made gifts to herself of just under $50,000 and paid a companion $31,760 over a period of years. Mother's husband had apparently also transferred $285,000 into a revocable trust prior to nursing home placement.Private Annuity Contract With Irrevocable Trust is Subject to Medicaid Transfer Penalty
Husband and wife established an irrevocable trust, and then transferred $150,000 in assets to the trust. The Trust executed a private annuity agreement with wife to pay $1,424.55/month to her. Husband then applied for Medicaid eligibility. Medicaid agency denied first application due to inadequate documentation, excess assets and a transfer penalty occasioned by the transfer to trust. After a second Medicaid denial based on excess income, husband appealed.Parental Support Statute Does Not Authorize Suit Against Child of Patient With Assets
Father was admitted to the hospital for what turned out to be his final illness. Days before his death approximately $1.2 million was deposited into a trust for his benefit in settlement of a personal injury action. At the time of his death the hospital believed that Medicare would cover his care, and so submitted a bill for $42.73, which the father's estate paid and for which it secured a release of further liability from the hospital.Attorneys' Fees Award Against Losing Party in Trust Contest Upheld
Mother/son team unduly influenced a demented multimillionairess to modify three trusts of which she was settlor, naming son as successor trustee and changing the trusts' ultimate distribution to substantially benefit the mother and son. Several months later the former trustee filed a petition for appointment of a guardian ad litem for the settlor. After setting aside the changes, the trial court ordered the mother and son to repay the trusts all of their legal fees (which had been paid from trust assets) but declined to order payment of the prior trustee's or the trust beneficiary's attorneys' fees and costs.IRS Releases Form 8855, Election to Treat Trust as Estate
New Form 8855, Election to Treat a Qualified Revocable Trust as Part of an Estate, has been released. Instead of having to write a statement as outlined in the IRS regulation under IRC Section 645, we should now use this form to make this election.IRS Offers Tips for Accurate Schedule K-1 Filing
Correct filings can prevent unnecessary notices when IRS matches K-1 income reports to the recipients' tax returns. For tax year 2002, approximately 25 million Schedule K-1 forms were filed reporting over $1 trillion in income to partners, shareholders and some trust beneficiaries. A matching program to ensure all Schedule K-1 income is being reported is critical to IRS tax administration policies.Various States Address Estate Taxes
On April 27, 2004 the Virginia Senate approved a tax plan passed by the Senate Finance Committee the night before that would cap at $950 million the amount the state reimburses localities for "car tax" relief and would reinstate the Virginia estate tax.Law Firm Ordered to Comply with IRS Summonses
Jenkens and Gilchrist Ordered to Comply with IRS SummonsesThe section 7520 rate for August 2004 is 4.8%.
Tax Fraud Promoters Associated with "We the People" Convicted
Seven individuals associated with a tax fraud group known as "We the People" were convicted May 4, 2004 on various federal charges related to the promotion of bogus tax shelters that falsely promised to limit exposure to federal income taxes.HCFA Transmittal 64 Tables for Medicaid Planning Available on the Web
A useful resource for Medicaid Planning with annuities and life estates is the HCFA Transmittal 64 Tables, but these are often difficult to find. The link below will take you to the Tables on the Centers for Medicare and Medicaid Services website.IRS Wins Victory in Thompson FLP Case
The Third Circuit Court of Appeals has upheld the IRS Tax Court victory using an IRC 2036 attack. Unfortunately, bad facts (death bed FLP) make for bad case law. We will reconcile this case with the recent taxpayer victory in the appeal of the Kimbell case in an upcoming memo to members. In the meantime, we have attached a copy of the Third Circuit opinion. Finals briefs are due from the Department of Justice today on the appeal of the Strangi case, so we will see whether that court follows the logic of Kimbell or Thompson within a few months.Tax Proposals from Republican and Democratic Campaigns
As the Presidential campaign heats up, a few details have emerged on how the incumbent and the challenger would approach federal income taxes. Here's a thumbnail review.Utah Tops List of Best Places to Die
Geography determines much about an individual's final days: the kind of care received, where he or she will get it, and how much a decedent can pass on to heirs. This Forbes article ranks the states top to bottom. On top: Utah. At the bottom: IllinoisGreenspan Again Calls for Social Security and Medicare Fix
Federal Reserve Chairman Alan Greenspan again took aim at the pending Social Security and Medicare crises, asserting that retirees will face "abrupt and painful" choices if Congress does not act swiftly. Greenspan acknowledged that addressing the problem by raising payroll taxes was problematic as this would make it harder for employers to hire new workers. The 78-year old Fed chairman has said that he favors raising the age at which full Social Security benefits are delivered to retirees.Bush Renews Call for Privatization of Social Security
In his acceptance speech at the Republican National Convention, President Bush promised major changes in American society's most basic pillars: its health care system, pension plans, tax code and workplaces. Revising the Social Security system to give younger Americans the option of investing part of their tax contribution would be the most dramatic piece of his second-term domestic agenda. "We must strengthen Social Security by allowing young workers to save some of their taxes in a personal account," Bush said in his prepared speech, "a nest egg you can call your own and government can never take away." The president made a similar proposal four years ago, but political resistance, a budget deficit, and other priorities blocked his efforts.April 2005 section 7520 rate released
The IRS has released the Applicable Federal Rate for the month of April, 2005. Each month the Service surveys interest rates and publishes the rate that is applicable for gift calculations. The rate for April is 5.0%. The rate for March was 4.6%.Illinois Governor OKs Modification of Estate Tax
On August 2, 2005, Illinois Governor Rod Blagojevich (Dem.) signed legislation (HB 1570, now PA 94-0419) that changes the credit for estate and inheritance taxes paid to other states. The new law eliminates one option of the options previously available as to how the credit is calculated for taxes paid to other states.Greenspan Rejects Estate Tax Repeal
On June 21, 2005, Federal Reserve Chairman Alan Greenspan testified before the Senate Banking, Housing and Urban Affairs Committee, during which time he reiterated his opposition to tax-cut proposals that increase the deficit and made clear that this opposition applies to proposals that repeal or drastically reduce the estate tax without fully offsetting the costs.Vote for Estate Tax Repeal Delayed; Senator Kyle Prepares Amendment to H.R. 8
Aides to several key Senators have announced that there will be no vote of estate tax repeal in the Senate until after all the relief for the hurricane victims has been secured and the rebuilding in Louisiana, Mississippi and Alabama begins. Therefore, we can expect that nothing should happen for at least several weeks.Final Regulations on Ordering Rules for Charitable Remainder Trusts Issued
The Internal Revenue Services has issued final regulations on the ordering rules of section 664(b) of the Internal Revenue Code for characterizing distributions from charitable remainder trusts (CRTs).IRA Gifts to Charity Temporarily Unlimited
As part of the tax relief provided by Congress, unlimited donations of IRAs or pension plans to charities will be allowed for a short period of time.Leavitt Endorses Many of Governors' Medicaid Proposals
On August 2, Department of Heath and Human Services Secretary Mike Leavitt discussed various health topics in an interview with Associated Press editors and reporters. On Medicaid, Leavitt said that the commission he appointed to recommend ways to cut $10 billion from Medicaid over five years would "likely look" at proposals from the National Governors Association and determine that they "are pretty well thought-out ideas."IRS Releases December 7520 rate
The 7520 rate for December 2005 is 5.4%, up significantly from November's 5.0%. This rate is what is used to actuarially value life estates, remainder interests, etc. A higher 7520 rate makes some transactions, such as QPRTs more attractive, while some other transactions less attractive.DC Circuit: Lawyers Exempt from Sending Gramm-Leach-Bliley Privacy Notices
The Gramm-Leach-Bliley Act has provisions which require "financial institutions" to send annual privacy disclosure notices. This applies to banks, brokerage houses, etc. The Federal Trade Commission had taken the position that this also applied to attorneys holding financial information. The American Bar Association filed suit for a declaratory judgment. The ABA won in the District Court. Now, the U.S. Court of Appeals for the District of Columbia has affirmed the District Court's judgment.IRS Increases PLR Fees, In Some Cases Dramatically
New PLR User Fees
The IRS has released the 2006 Revenue Procedures outlining fees for Private Letter Ruling Requests. Continue on to see some of the outlined changes:
Social Security Death Benefit Eliminated in Bush Budget Proposal
The $255 Social Security death benefit will be eliminated under the Budget proposal submitted to Congress on February 7, 2006 by the President. White House officials defended the proposals and estimated costs would be trimmed by $3.4 billion over the next decade with the elimination of the stipend. Congressional aides said Jo Anne Barnhart, the Social Security Commissioner, had told them during a closed-door briefing that the $255 one-time death benefit has become an administrative burden, since it is not paid in all cases. Mark Lassiter, a spokesman at the Social Security Administration, said the benefit "bears no relation to what a person's funeral expenses are or to any of workers' earnings levels. We believe that eliminating it is not going to cause an appreciable financial hardship to a survivor."Commission Considers Separating LTC Component of Medicaid
The Medicaid Commission, which is looking into ways to improve the government program is mulling over the possibility of separating long-term care financing from Medicaid.Photocopy of Will is Not "Duplicate Original"
After a decedent's death, his original 1987 will could not be located. However, a photocopy of that will was in his personal papers. There was no indication of any intent to revoke the will other than the fact that the original was missing.Equitable Estoppel Doctrine Not Available Where Medicaid Eligibility Worker Gave Wrong Advice
A State Medicaid eligibility worker advised the son of a beneficiary that her estate would not be subject to a claim after her death, and that if he wanted to preserve the family home all he needed to do was to state that his mother intended to return home. The worker was wrong.Insurance on Retirement Accounts Increased
The FDIC and Credit Union insurance coverage on retirement assets such as Individual Retirement Accounts and 401(k)s has recently been increased to $250,000 from $100,000.Article of Interest on Intestacy
You may be interested in reviewing the article on the laws of intestacy in the various states.The Section 7520 rate (used to calculate life and remainder interests) for June 2006 will be 6.0%. This is slightly higher than the May and April rates.
House Passes Bill to Raise Applicable Exclusion Amount to $5 Million
On Thursday, June 22, 2006, the House of Representatives passed legislation, by a vote of 269 to 156, that would raise the applicable exclusion amount to $5 million for an unmarried person and $10 million for couples. The marginal estate tax rate on estates up to $25 million would be set at the same tax rates that apply to capital gains -- now 15 percent but scheduled to rise to 20 percent in 2011. The marginal estate tax rate for estates worth more than $25 million would be twice the capital gains rate.Estate Tax Repeal Vote Fail in Senate
Late Thursday, August 3, 2006, the Senate voted on an estate tax reform proposal that was came to close to full repeal and the republicans did not get the 60 votes they needed to pass it. The vote was 56-42!Why Can't a NY Lawyer Counsel FL Residents on NY Law?
This article from the ABA Journal summarizes the case of a NY licensed attorney wanting to give advise to FL residents about NY matters. It does a good job of summarizing FL's position on unlicensed practice of law in FL.Senate Resolution Freezes Estate Tax for Two Years
Senate Resolution 21, 110th Cong. 1st Session, passed the Senate by a vote of 91 - 1.New Study Finds Changes Needed to U.S. Health System to Accommodate Needs of Boomers
The aging baby boom generation is likely to increase the nation's disabled population, and a study says the United States needs a better system to provide care for them. More than 40 million Americans currently have some sort of disability, the Institute of Medicine reported Tuesday.
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