New Legislative Proposals

The Trusts & Estates Section of the State Bar of California has introduced new legislative proposals. Some have a potentially far-reaching impact.

• Disposition of Remains - would add conservators of the person and estate to the list of persons who may control the disposition of remains.
• Directed Trusts - Would add a chapter to the Probate Code specifically authorizing the use of directed trusts, and make other conforming changes.
• Repeal of Rule Against Perpetuities - Just like it sounds.
• Elective Administration of Decedent's Estates - Would permit certain beneficiaries to choose between "elective" administration and formal administration of a decedent's estate.
• Clarification of Principal and Income Act - pertains to the characterization of amounts received from business entities.

More details on these proposals are posted on the State Bar's Sections website. I will be posting more analysis of the repeal of the rule against perpetuities and elective administration of estates. These are proposals are at this time only being submitted to the State Bar Board of Governors for possible introduction in the California legislature in 2011.

Thanks to Kaysi Holman of the Alameda County Bar Association for bringing these proposals to my attention.

Of Disqualified Persons and Totten Trusts

This is a tale of a settlor's change of heart and an attorney's inadvertence. Only it's not a tale, it's real. Anyway, Lucia Howrey opened a "Totten Trust" account at Bank of America naming her step-daughter on the signature card as the beneficiary. Later, Lucia executed a revocable trust and identified the account as a trust asset. Lucia also named Gabriella Reeves as the beneficiary of the Bank of America account. Garbriella's son drafted the trust. Lucia died in April 2009. The step-daughter claimed she was the owner of the account because her name appeared on the signature card. On appeal, she argued that Gabriella was disqalified from receiving the money because she was the mother of the drafting attorney.

Under California Probate Code section 5302, the amount left in a Totten Trust account belong to the named beneficiary of the account on the death of the sole trustee of the account unless there is clear and convincing evidence of a different intent. Here, the California Court of Appeals affirmed the Ventura County Superior Court ruling that the Lucia's revocable trust identifying the bank account as a trust asset and Gabriella Reeves as the beneficiary was sufficient evidence of such a different intent. So, the step-daughter could no longer collect the balance in the account as the beneficiary of the Totten Trust.

Here's where the attorney inadvertence comes in. Because Gabriella was the mother of the drafting attorney, there is a rebuttable presumption that she is a "disqualified person" under Probate Code section 21350. The step-daughter's attorney never raised the disqualification issue in his moving papers, and referred to it only obliquely at the hearing. The step-daughter was barred from raising the issue on appeal.

Araiza v. Younkin.

Definition of "Care Custodian" Narrowed, Somewhat

In California, a gift in a will or trust by a "depdendent adult" to a "care custodian" is presumed invalid. I put those phrases in quotes because they are defined in the Probate Code and also in case law. The phrase "care custodian" has been particularly problematic for estate planners because it has been defined in case law rather broadly to include non-professionals (including friends and acquaintances) who provide health services or social services to a dependent adult (anyone over age 64, or a person between 18 and 64 who is an inpatient in a 24-hour health facility.) The law seemed broad enough to include anyone who helped a dependent adult in any way.

The recent case of Estate of Austin has helped clarify the definition of care custodian somewhat. The decedent was 72 years old, suffered from a broke hip, and had recently undergone triple bypass surgery. The decedent's ex-wife's daughter (ex step-daughter?) helped to prepare meals, drive him to doctor appointments, and "other unspecified helping out." The court of appeals concluded that this "could not reasonably be characterized as substantial, ongoing health services or social services" and held that she was not a care custodian, so the decedent's gifts to her were valid.

DIY Estate Planning Reviewed in NY Times

I swear I didn't learn about this NY Time article when I wrote yesterday's post. Tara Siegel Bernard used LegalZoom.com, Quicken WillMaker Plus and a program called Legacywriter to prepare wills (Tara lives in New York, where the vast majority of estate plans are will-based), and then had New York estate planning attorney Laura Twomey review the plans. The verdict: although it is possible to do it yourself, there are still a lot of questions that arise thare require an attorney's help.

This will probably not be enough to discourage the true do-it-yourselfer, but it illustrates how taking the law into your own hands will always entail some level of risk.

Estate Planning as Commodity

A recent article in California Lawyer magazine profiled LegalZoom.com, the self-help website co-founded by Los Angeles attorney Robert Shapiro. The article starts with the rather ominous proposition that the website will put many lawyers out of business. Yeah, sure, it's hyperbole aimed ag generating interest, but there is something to it, especially for estate planners.

There are a great many people out there who believe that a will or a trust as a mostly boilerplate document that doesn't require paying a lawyer several thousand dollars to prepare. They believe they know who they want to name as their fiduciaries and who they want to leave their estate to. Whether their estate planning ideas will actually work is another story, and it is doubtful that using services like LegalZoom or will drafting software or storefront document preparation businesses can provide the necessary guidance to such people, or whether doing so would constitute practicing law without a license.

Nevertheless, as more people look to the internet first for solutions to whatever issues they face, places like LegalZoom.com will become more popular. Consider how the internet has changed the travel industry, or financial management. As an estate planning attorney, it will inevitably get more difficult to compete with these low cost options. At the same time, there are still people out there who would never try to prepare an estate plan on their own. I think there is room for both kinds of people, and there will continue to be room for at least as long as I plan to practice law.

I don't see this trend as a threat to my livelihood. But, then again, I also litigate trust and estate matters, including disputes that arise out of drafting errors and poor planning...

Drafting Effective Wills and Trusts

I will be giving a presentation entitled Fundamental Principals of Will Drafting at the upcoming NBI seminar "Drafting Effective Wills and Trusts" on Tuesday, September 21 at the Grand Hyatt San Francisco. It's an all day seminar starting at 9:00 am through 4:30 pm. My presentation runs from 9:00 to 10:30.

You can get more information at http://www.nbi-sems.com/Enbi/Brochurepdfs/53508.pdf.

Tuition is $349. It is approved for continuing ed for California attorneys, Accountants, financial planners, enrolled agents and others.

Hope to see you there!

Estate Planning for Humans

Most of the tools of estate planning (wills, trusts, etc.) are obsessed with taxes. Particularly estate taxes. Setting aside, for the moment, the fact that there is no estate tax for those dying in 2010 (see previous post), and the uncertainty of how it will return in 2011, the overwhelming majority of estates pay no estate taxes. The IRS estimates that only about 6,000 estate tax returns will be filed for those who died in 2009, when the exemption was $3.5 million. They also project that even if the applicable exclusion returns in 2011 at $1 million, only 1 percent of estates would be subject to the tax. With the estate tax affecting so few, why are estate planners so obsessed with it? Why don't planners spend more time thinking about what their documents actually say, how they are going to be implemented, how they interact with each other, and whether they really carry out the client's wishes?

Since it is much more likely than not that our clients will have no estate tax exposure (no matter what the law ends up looking like next year), perhaps now should be the time to refocus of our efforts on listening to the client, thinking about the implications of their wishes, drafting the documents to work with each other and carry out their wishes.

Let me give an example. The client has a piece of personal property that they wish to keep in family for future generations. Trust drafting considerations would be funding the trust so the property can be maintained properly, protecting the property from creditors, spendthrift children, as-yet-undetermined-future-former-spouses, etc. Perhaps these same considerations should also be addressed in the will and power of attorney, in case, for whatever reason, the house is not in the trust when your client dies. Another consideration is whether it is a good idea to keep the house in trust for future generations at all.

This is directed more at the CLE industry rather than planners themselves. We, as planners, already know that our clients have no estate tax exposure, and likely will never have such exposure. Lecturers, thinkers, and writers should perhaps spend greater efforts on the drafting component rather than the tax obsession. This would quite likely result in more readable (and likely shorter) estate plans that are much more likely to follow the client's wishes, reduce the chances of litigation, and improve the quality of our practice.

Throwing Momma From the Train(?)

I've heard twice in the past two days about an increase in deaths of rich people before December 31, 2010 to avoid estate tax when it returns in 2011.

Honestly, are people really going to off their relatives to save on estate taxes? Aren't there laws against that?

There also has been talk about Advance Health Care Directives (or health care proxies or Durable Powers of Attorney for Health Care depending on your jurisdiction) that include provisions permitting the agent to take estate taxes implications into consideration in end-of-life decisions.

Good luck enforcing that provision. Or relying on it when the one relative who isn't obsessed with estate taxes questions the wisdom of the agent to pull the plug.

I think that this will join the urban myth about estate taxes taking away the family farm (there is no known case of this ever happening, and the Internal Revenue Code is full of provisions to prevent this).

Live Blogging from the 2010 ABA STEP Conference

I'm in NYC for the 2010 ABA Skills Training for Estate Planners program. I will resist the urge to give "this is what I learned today" posts, choosing instead to post little nuggets of insight from the lecturers.

For the record, New York Law School, where the conference is held, is a mightily impressive facility. Still, it wouldn't make we want to go back to law school. A quick look at the law library alone is enough to bring on my law school PTSD. And that was 10 years ago.

Gary Coleman: Another reason to get an estate plan

As is so often the case with celebrity mortality, intense media attention is paid to the "will" as a source of potential post-mortem drama. What often is overlooked (as in the case of Michael Jackson) is that most celebrity wills are part of a trust-based estate plan, and are little more than "pourover" wills directing the executor to distribute the estate to the trustee of the trust. Gary Coleman may be different, though.

Coleman was divorced at the time of his death (despite statements to the contrary by his ex-spouse). He had no living children at the time of his death. No one has been able to find a will, trust, or other testamentary document (although Todd Bridges, the sole surviving child star from Diff'rent Strokes claims Coleman had a "secret will" that disinherited Coleman's parents).

Coleman was estranged from his parents. If no estate plan is found, then under intestacy his parents would inherit his estate. Judging by the claim of estrangement, I would venture that this was not Mr. Coleman's intent.

I've written previously on my old blog about people who die relatively young wihout a will but with intestate heirs to whom they would never want their estate to go. The only way to avoid this is with an estate plan that clearly sets our your wishes.

It's not about money. It's about control.

Thanks to Gary Beyer of Wills, Trusts & Estates Prof Blog, who has been monitoring these events closely.

Baucus sees action on small business bill, estate tax soon - The Hill's On The Money

From Trust & Estates Prof Blog: Baucus sees action on small business bill, estate tax soon - The Hill's On The Money. While short on details, it looks like the Senate may be near a vote on a small business bill that includes an estate tax provision returning the estate tax to 2009 levels ($3.5 million exemption, 45%) maximum rate. We'll see! Look for a vote by Memorial Day.

GRATs on Congress' Hit List

An article on Trusts and Estates magazine's website today refers to a provision in the March 24, 2010 Small Business and Infrastructure Tax Act that puts the hit on GRATS. The law will require that GRATs have a minimum 10 year term, that annuity payments not decline during the first 10 years of the trust, and that a GRAT’s design at inception envisions a remainder (which would basically eliminate the zeroed-out GRAT). The Senate has taken up the bill and T&E believes the Senate will vote on it by Memorial Day. The CBO estimate that this change will generate $4 billion over the next 10 years.

Even though most people aren't rich enough to need GRATS (I say that with the caveat that the future of the federal estate tax is, apparently, unknowable), the proposed changes seem to show a Congress more willing to look at the estates of the wealthy as a source of tax revenue. Expect to see more of this in the future. That means you, $1 million estate tax exemption and 55 percent rate! Get comfortable, you may be staying a while.

Settlement Agreements are Not Trusts!

From Trust & Estate Prof Blog: the Georgia Court of Appeals held that an exculpatory clause in a settlement agreement and release is not a trust amendment.

Curtis Mayfield, Jr., the musician, had a trust that held, among other things, the rights to his body of work. The beneficiaries settled with the trustee, received a distribution, and executed a settlement agreement and release. As with all good settlement agreements, the beneficiaries released all claims against the trustee. The beneficiaries then brought a lawsuit against the trustee for fraud, negligence, etc. The trustee filed a motion to dismiss, referring to the release language in the settlement agreement. The trial court granted the motion to dismiss, holding that the release violated Georgia law prohibiting a trust instrument from relieving a trustee for their own breach of trust.

The court of appeal reversed. The settlement agreement was not a trust instrument, and thus trust law did not apply. The court held that the release of liability was valid for negligent acts, although it might not be valid for intentional acts, as such a release would violate public policy.

I realize this is GA, and not CA, law, but there are similiarities. The GA law relied on by the court in concluding that the settlement agreement was not a trust is essentially the same as CA law: intention to create a trust (Prob. Code section 15201); trust property (Prob. Code section 15202); a valid purpose (Prob. Code section 15203); and a beneficiary (Prob. Code section 15205). Settlement agreements don't fall into these categories and therefore are not trusts. So, trust law limiting the ability of a trustee to exculpate him or herself from liability does not apply to a settlement agreement.

So, there are two things to take away from this, even under California law: (1) settlement agreements are not trusts, and (2) releases of liaibility in settlement agreements are governed by contract law, not trust law.

Turning the Lights Back On

I took a long, long break from my blog Bay Area Estate Planning Attorney, and I'm now back and ready to go again. I had to change the name, url, etc. from the old blog for internal control reasons, but don't fret - the mission is the same.

So, let's get started!