Florida Probate & Trust Litigation Blog : Florida Probate Litigation, Will Contest Lawyer & Attorney : Juan C. Antúnez : Serving Miami, Jacksonville, Tampa Saint Petersburg, Orlando, Fort Lauderdale

As end users of Florida's court system, trusts and estates lawyers know all too well the negative consequences of an underfunded judiciary. What may not be as clearly apparent is that our clients do have the power to largely "opt out" of the public court system. How? Think alternative dispute resolution or ADR. In Florida there are no jury trials in contested probate or trust proceedings, so these cases lend themselves to privately funded and managed ADR mechanisms, including mandatory arbitration.

F.S. 731.401: Statutory Authorization of Mandatory Arbitration Clauses in Wills & Trusts:

The trouble with arbitration clauses in wills and trusts is that historically it was unclear if a client could impose mandatory arbitration on the beneficiaries of his or her estate/trust. In Florida this uncertainty was eliminated in 2007 with the adoption of F.S. 731.401, expressly authorizing mandatory arbitration clauses in wills and trusts (which I wrote about here). In that blog post I also discussed a few sample arbitration clauses for wills and trusts, including the sample clause published by the American Arbitration Association or AAA (click here) and the sample clauses provided in an ACTEC article entitled Resolving Disputes with Ease and Grace.

Making Arbitration Clauses Work in Real Life: Think Rules and Procedure:

What's difficult about drafting effective arbitration clauses is incorporating a set of rules and procedures the parties and their arbitrators can rely on to resolve disputes privately, promptly and economically. One option is to draft these rules yourself and include them in your wills and trusts. I don't like that approach. First, a complete set of arbitration rules can run for dozens of pages, making it impractical to include them in a will or trust agreement. More importantly, I'm an expert in trusts and estates law, not arbitration law. The better alternative is to incorporate by reference a pre-existing set of arbitration rules tailored for wills and trusts that also include all of the generally applicable "best practices" an arbitration specialist would draft for. Ideally, you'd also want to incorporate a set of arbitration rules that gets revised from time to time to keep up with evolving arbitration norms and legal requirements.

To my knowledge the only publicly-available arbitration rules meeting all of these requirements are the rules published by AAA. Which is why I keep up with their rules and was interested to learn that effective June 1, 2012 they'd been amended and re-published. Here's an excerpt from the introduction to the PDF version of AAA's new Wills and Trusts Arbitration Rules and Mediation Procedures:

Every year billions of dollars are administered by executors and trustees. Wills, transferring property to beneficiaries, are the most frequently used instruments, but family trusts, charitable trusts, and commercial trusts are growing in use and scope. Occasionally, disputes arise over whether those funds are being properly administered and whether the governing will or trust is being interpreted correctly by the fiduciary. . . . Many of these disputes can be resolved by the use of mediation or arbitration, processes that provide parties with an alternative means to resolve their disputes. . . . Arbitration is an effective way to resolve these disputes privately, promptly, and economically, utilizing as the arbitrator a lawyer or lawyers with substantial experience in the area of wills, trusts and estates.

. . . The AAA Wills and Trusts Arbitration Rules and Mediation Procedures provide that the arbitrator, at his or her discretion, may provide for the protection of unrepresented parties, including the use of a guardian ad litem to represent any minor, incapacitated, or unborn beneficiary . A written reasoned award is required under the AAA Wills and Trusts Rules. Testators or settlors can require that future disputes be arbitrated by inserting the following clause into their wills and trusts in most jurisdictions.

Opting out of the public court system:

From my perspective there are two chief selling points for mandatory arbitration clauses in trusts and wills. First, if your arbitration clause is properly drafted, your case gets decided by a specialized trusts and estates lawyer (or lawyers) with real-life experience handling complex estate matters (usually 10+ years) vs. a randomly assigned state-court judge, who almost never has any private-practice experience dealing with complex estate matters (most judges are former prosecutors). Second, by privatizing the process the parties can, to the extent permitted by F.S. 731.401 (and there are limitations), opt out of the dysfunctions inherent to an overworked and underfunded state court system. This second point is what tips the scales for me.

In 1994 Yale Law professor John H. Langbein reviewed Undue Influence: The Epic Battle for the Johnson & Johnson Fortune, by David Margolick. In his book Margolick reported on a will contest litigated in New York City's probate court system involving heirs to the Johnson & Johnson pharmaceutical fortune of J. Seward Johnson, Sr., who died at age eighty-seven in 1983. The case was litigated by the best T&E legal talent from some of the largest, most well-regarded Wall Street firms. And yet, if you believe Margolick's reporting, a dysfunctional court system personified by the judge overseeing the case, Surrogate Marie Lambert, resulted in an ugly spectacle demeaning all involved. As famed NYC attorney William D. Zabel wrote here, "the parties decided to settle. The Will was, to put it charitably, totally rewritten by the contestants. The result: any resemblance to Seward Johnson’s actual last Will seemed purely coincidental."

In Prof. Langbein's review of Margolick's book, published as Will Contests, 103 Yale L.J. 2039 (1994), he lambasts the estate planners involved in the Johnson & Johnson case for not anticipating the dysfunctions inherent to many of our probate court systems.

There have long been difficulties in staffing the American probate bench, and some of the people who serve there-such as Surrogate Marie Lambert, whose partisanship disfigured the trial of the Seward Johnson estate-are menacing. Margolick supplies a chilling collection of instances of Lambert's incessant one-sidedness and impropriety. (E.g., 313, 407, 424, 479, 486, 494, 523-24, 546-47, 564, 568, 576, 585) He leaves open the question of whether she was looking to be bribed (459, 550) or whether her prejudgment was merely gratuitous.

I would not wish to imply that Marie Lambert typifies the American probate bench, or that competent and devoted judges are not to be found in American probate courts. Occasionally, splendid figures such as James Wade in Denver or Floyd Probst in Atlanta grace the probate bench. My point is simply that the integrity and ability of the American probate bench has so often been found wanting that confidence in the predictability and correctness of adjudication in these courts has been impaired. Americans can only look with envy to the esteemed and meritocratic chancery bench that conducts probate adjudication in English and Commonwealth jurisdictions.

The risk of error or worse in American probate adjudication is not adequately offset by the prospect of appellate review. Because the presumption of correctness that attaches to the trial court's findings of fact is so difficult to overcome on appeal, Marie Lambert had little to fear. She was virtually a potentate. . . . Indeed, Margolick asserts that in New York, Marie Lambert was thought to be especially immune from oversight on account of the perverse financial incentives of the appellate judges. In previous scrapes, “the judges of the Appellate Division, her ostensible superiors, went easy on her; once they left the bench, they wanted appointments” (314) to guardianships or other lucrative posts that, especially in New York, are treated as patronage plums within the gift of the surrogate.

Incorporating mandatory arbitration clauses in our wills and trusts is one way of anticipating the dysfunctions inherent to many of our probate court systems and planning accordingly. Arbitration may not be perfect, but at least you get some say in who your judge is and what his or her minimum qualifications are. And in the arbitration process (which is privately funded) you also have a fighting chance of getting your arbitrator to actually read your briefs and invest the time and energy needed to thoughtfully evaluate the complex tax, state law and family dynamics underlying these cases (a luxury that's all but impossible in a state court system that forces judges to juggle hundreds of cases at a time with little or no support). The alternative to a privately financed and managed arbitration proceeding is a public court system that usually works, but not always. And when it does fall short, it's not just bad, it's ugly.

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Certainty. It's the Holy Grail of estate planning and non-existent in any will contest. Here's how one judge put it over a century ago:

"[P]ost mortem squabblings and contests on mental condition . . . have made a will the least secure of all human dealings, and made it doubtful whether in some regions insanity is not accepted as the normal condition of testators." 

Lloyd v. Wayne Circuit Judge, 23 N.W. 28 (Mich. 1885).

Worst Evidence Rule = NO Certainty:

All litigation is uncertain, but why are will contests especially so? Think "worst evidence rule," a term coined by famed Yale Law professor John H. Langbein, in Will Contests, 103 Yale L.J. 2039 (1994). In most states (including Florida, see F.S. 732.518) you're barred as a matter of law from litigating the validity of a will until after the single most important witness -- the testator -- is dead. Which means we're forced to litigate these cases based in large part on the worst evidence available: the self-interested hearsay testimony of those claiming a right to the testator's estate.

So what's to be done? One possible solution is obtaining a final order validating a will in a guardianship proceeding while the testator is still alive; it worked in a California case I wrote about here. A better idea is adopting legislation expressly authorizing pre-death will contests.

Pre-Death Will Contest = Certainty:

State legislators have experimented with pre-death will contests for generations. According to Prof. Beyer in Will Contests - Prediction and Prevention, the first such statute was passed in 1883 in Michigan, and the National Conference of Commissioners on Uniform State Laws seriously considered the idea in the early 1980's. As explained by Prof. Beyer, if your goal is greater certainty, a pre-death will contest or "ante-mortem probate" is your best solution.

Today there are four states expressly authorizing pre-death will contests by statute: Arkansas, North Dakota, Ohio and Alaska. The pro's and con's of these statutes is the subject of a recent article in the ABA's Probate & Property Magazine entitled Before the Party's Over: The Arguments For and Against Pre-Death Will Contests. In my opinion, the best part of this article is the very funny cover illustration by Max Licht. On a more serious note, anything we can do to keep up the drumbeat in favor of this much-needed legislation is a good thing, and hopefully this article gets more people thinking about it.

Lesson learned?

If you're a working lawyer, it's easy to dismiss talk of pre-death will contests as theoretical mumbo jumbo only academics have the luxury of fooling around with. That would be a mistake. Wrapping our heads around the "worst evidence" problem makes us better practitioners, especially when we have our estate planning hats on. If the risk of a future challenge is present, we can't naively rely on the fact that there is no doubt the client has capacity and is acting of his own free will, we need to anticipate how the worst-evidence rule can undermine the best laid plans, and proactively stack the deck in the client's favor through smart defensive planning. For an excellent discussion of the more commonly used defensive-planning techniques you'll want to read Will Contests - Prediction and Prevention.

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Anyone can tell you what the current state of the law is when it comes to the federal estate and gift tax rules (news flash: for the first time in over a decade they're permanent, click here). For those of us in the trenches, the more interesting question is "what's next?" 

If I had to bet on what the next "big thing" in the estate-tax world is going to be, I'd go with one of the five "structural reforms" proposed by the President in his 2013 budget (and explained/scored in this recently published Congressional Research Service report). None of the ideas covered in the CRS Report is new, which means they've all demonstrated staying power (usually a good predictor of future enactment). And all of the proposed fixes have the added political bonus of increasing tax revenues without raising tax rates or lowering the exemption amount.

Want to know the future? Read on . . . 

CRS Report:

[T]he current size of the exemption and the rate of tax have been set in permanent tax law, and there is not much indication of a reconsideration. There are, however, some more narrow proposals aimed at abuse that have been included in some other legislation and in the President’s budget proposals. These provisions are described below. All of the estimates of revenue gain are for FY2013-FY2022 and are obtained from the FY2013 budget proposals. Most of the provisions were also estimated by the Joint Committee on Taxation and this source is used in the discussion below except in one case. Note that estimated budget effects would be altered and presumably reduced by the recent estate tax legislation.

[1] Grantor Retained Annuity Trusts

A Grantor Retained Annuity Trust (GRAT) is a trust that allows the grantor to receive an annuity, with any remaining assets transferred to the trust recipient. The value of the gift is reduced by the value of the assets used to fund the annuity. If the assets in the trust appreciate substantially, then virtually all of the gift can be reduced by the value of the annuity, while still providing a substantial ultimate gift to the recipient. If the grantor dies during the annuity period, the remaining value of the annuity is included in the estate. This trust approach could be a method of transferring assets roughly tax free if the assets appreciate at a rate faster than the discount rate used to value the annuity. The grantor needs to survive over the period of the annuity. To assure the latter will be likely to occur, many of these trusts have very short annuity periods, as short as two years. The GRAT proposal contained in H.R. 4849 in the 111th Congress and in the President’s budget proposals would impose a minimum annuity term of 10 years, disallow any decline in the annuity, and require a non-zero remainder interest. The provision was estimated to raise $3.6 billion over 10 years.

[2] Minority Discounts

There are existing restrictions to keep estates from engaging in artificial actions designed to reduce the value of estates (such as freezes on assets). As discussed above, courts sometimes allow estates to reduce the fair-market value when assets are left in family partnerships in which no one has a majority control. These discounts have even been allowed when assets are in cash and readily marketable securities, and the setting up of these family partnerships has become an estate tax avoidance tool. A provision in the Administration’s proposal would disallow these discounts. The JCT did not estimate this provision because of the lack of specific detail, but the Administration’s estimate was $18.1 billion over 10 years.

[3] Consistent Valuation

Currently, there is no explicit rule preventing a low valuation of fair-market value for an estate and a high valuation of the asset for purposes of stepped up basis in the hands of the heir. A low value of an asset reduces the estate tax, but a high value (because it reduces the amount of gain) reduces the capital gains tax. Requiring the same value for both purposes was projected to raise $3 billion over 10 years.

[4] Limit the Duration of Generation-Skipping Trusts

When generation-skipping transfers are made to a trust, the estate tax exemption applicable to them also exempts the associated earnings during the trust lifetime. In the past, a trust life has been limited because most states had a Rule Against Perpetuities that generally limited trusts to a 21-year life. Most of these laws have been eliminated. This Administration proposal would limit the life of a GST trust to 90 years. The revenue effect would be negligible over the next 10 years.

[5] Coordinate Grantor Trusts Income and Transfer Tax Rules

In a grantor trust, an individual is treated as owner for income tax purposes. However, the trust and the individual are treated as separate persons for purposes of the estate and gift tax. This proposal from the Administration would include the assets of the trust in the grantors estate and subject distributions to the gift tax if the grantor is the owner for income tax purposes. If the grantor ceases to be the owner, the assets would be subject to a gift tax. This proposal was projected to raise $3.3 billion over 10 years.

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For the first time in over a decade we have permanent federal estate and gift tax rules.

For those of us who didn't make it to the Heckerling conference in Orlando this year (including me, I usually go every other year), you'll want a quick and easy way to explain what the heck happened to the estate and gift tax after the fiscal cliff deal. There's no shortage of folks willing to give you their two cents on the subject, but separating the wheat from the chaff can be challenging.

So I was happy to run across an article by Forbes staff writer Deborah L. Jacobs entitled After The Fiscal Cliff Deal: Estate And Gift Tax Explained. Ms. Jacobs does a good job of explaining the new law in the type of plain English, question-and-answer format, clients like to hear; but she's also thorough enough to keep an audience of lawyers and CPA's interested. Good stuff, highly recommend it. Here's an excerpt.

Who has to pay federal estate tax? Once you’re worth more than a certain amount, taxes shrink your estate. Under the 2010 tax law, we can each transfer up to $5 million tax-free during life or at death. That figure is called the basic exclusion amount, and it is adjusted for inflation. In 2012 it was raised to $5.12 million per person. The new tax law does not change how much you can pass tax-free. On Jan. 11 the IRS announced that, with the inflation adjustment, the estate tax exclusion amount for deaths in 2013 would be $5.25 million.

Do spouses have to pay the tax when they inherit from each other? The new law doesn’t change this either. There is an unlimited deduction from estate and gift tax that postpones the tax on assets inherited from each other until the second spouse dies. This marital deduction, as it is called, applies only if the inheriting spouse is a U.S. citizen.

How much can the second spouse pass tax-free? Here’s where things get a bit complicated — but in a good way. The 2010 tax law gave married couples a wonderful tax break, which the new law has made permanent. Widows and widowers can add any unused exclusion of the spouse who died most recently to their own. This enables them together to transfer up to $10.5 million tax-free. Tax geeks call this portability.

. . .

How does this relate to lifetime gifts? The lifetime gift tax exclusion and the estate tax exclusion are expressed as a total amount – currently $5.25 million per person – and it is possible to use this exclusion (sometimes called the “unified credit”) to transfer assets at either stage or a combination of the two. If you exceed the limit, you (or your heirs) will owe tax of up to 40%.

. . .

Are there lifetime gifts that don’t count? Absolutely, and this is a common source of confusion. We can each give another person $14,000 per year without it counting against the lifetime exemption. (The amount went up at the end of 2012, as I reported here.) Spouses can combine this annual exclusion to double the size of the gift. Don’t confuse it with the basic exclusion–that $5.25 million discussed above.

Added Bonus:

For those of you who live for tax stat's, you'll want to read this recently published Congressional Research Service summing up the economics of the current state of affairs as follows:

Compared with the $1 million exemption and 55% rate under pre-EGTRRA law, the new rules lose an average of about $37 billion over the next 10 years, a two-thirds reduction in estate tax revenues. Regardless of the exemption levels considered, few estates are affected by the tax. The estate tax is a highly progressive tax, with about three-fourths collected from estates in which decedents are in the top 1% of the income distribution. At a $5 million exemption, less than 0.2% of estates will be subject to the tax. Although concerns have been raised about the effects of the tax on small businesses and farmers, estimates indicate that only a small share of these decedents would be affected.

. . . . .

Only a small portion of high-income decedents would be affected by the tax under the $5 million exemption.

• The estate tax will affect less than 0.2% of decedents over the next decade.

• The estate tax is concentrated among high income taxpayers: 96% is paid by the top quintile, 93% by the top 5%, 72% by the top 1%, and 42% by the top 0.1%.

• About 0.2% of estates with half or more of their assets in businesses will be subject to the estate tax.

• About 65 farm estates (or approximately one per state) are projected to be subject to the estate tax, and constitute 1.8% of taxable estates. Less than a fourth (0.4%) is projected to have inadequate liquidity to pay estate taxes. Less than 1% (0.8%) of farm operator estates is projected to pay the tax.

• About 94 estates (about two per state) with half their assets in small business and who expect their heirs to continue in the business are projected to be subject to the estate tax; they constitute 2.5% of total estates. Less than a half (1.1%) is projected to have inadequate liquidity to pay estate taxes.

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A decade ago states were racing to pass legislation making dynasty trusts possible. According to one 2005 study I wrote about here, the winners of that legislative race (including Florida) reaped roughly $100 billion in new trust business. So yes, the stakes are high.

Today, the legislative race is all about asset protection trusts. The concept originated offshore in the Cook Islands, a tiny chain of islands in the South Pacific, and migrated onshore when Alaska became the first U.S. state making self-settled asset protection trusts legal. Currently there are 14 states with some form of domestic asset protection trust (DAPT) legislation in effect (Florida isn't one of them).

Love 'em or hate 'em, you'll want to hang on to this 14-state DAPT chart.

The latest puff piece touting the benefits of DAPT's appeared in this month's issue of the ABA's Real Property, Trust and Estate Law Journal entitled The Domestic Asset Protection Trust: Ranking the Jurisdictions. The ABA article has an easy to read chart summarizing the DAPT legislation in the 14 states where they're currently legal. Sooner or later someone's going to ask you if it's a good idea to set up a DAPT in state "X". When they do, you'll be glad you have this 14-state DAPT chart handy.

Are DAPT's a good idea?

I was, and am, a big fan of dynasty trusts. DAPT's, not so much. And I'm not alone. My views are reflected in the following quote from this blog post by California attorney Jay Adkisson, author of the Wealth Conservation blog, one of the best blogs published in the trusts and estates universe:

[T]he real problem with DAPTs is that they are so far significantly untested. We’ve got a pretty good idea after the Anderson and Lawrence cases what happens with [foreign asset protection trusts (it's not pretty, click here)], but what will happen with DAPTs is largely a crapshoot. Whether they realize it or not, many clients in DAPTs are the lab rats in a great legal experiment which, in this author’s opinion, is not hopeful as far as DAPTs for non-DAPT settlors and their assets are concerned.

*  *  *  *  *

For what it is worth, your writer and his law firm only very rarely use self-settled trusts of any kind for asset protection planning. My advice has long been to “avoid self-settled trusts altogether whenever possible”

What about "exemption" planning for Florida residents?

Especially in a state like Florida, which affords extremely generous asset protection to its residents in the form of statutorily-sanctioned creditor exempt assets (think homestead property, TBE property, insurance, annuities, pension plans, IRA's), there's a lot of very effective planning you can do way before you need to even consider a DAPT. I did a seminar back in 2005 on this type of planning. Much has changed since then, so don't rely on my outline without doing your own research, but if you're interested in a better understanding of what I mean by exemption planning, click here for a copy of the 2005 outline.

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"Don't be original." Sage advice for estate planners. But sometimes clients insist on pulling us out of our comfort zones, especially when it comes to "doing what's best" for their children long after mom and dad have passed away. I mean, how can you argue with a guy who says the least his children can do is marry within the family faith if they want a piece of the family inheritance? Answer: you can't, nor should you. But don't walk into this minefield unprepared. The unintended consequences can include years of divisive litigation, as one family learned in a case the LA Times reported on in Jewish disinheritance upheld by Illinois high court [click here].

On the flip side of this issue, if you're a probate litigator you'll want to spot the potential traps lurking under will or trust clauses seeking to "incentivize" heirs to live a certain way, marry or not marry certain people, complete a certain degree, enter a certain profession, abstain from certain self-destructive conduct, etc. Generally speaking, you'll find these directives in incentive trusts, and they've probably been around in one form or another for as long as people have been writing wills.

Here's the rub. Clients don't want to pay a fortune for the legal research needed simply to understand what kind of minefield they're stepping into with these clauses, let alone how to successfully navigate through it. For that kind of basic research you'll want to read Prof. Gerry Beyer's article entitled Manipulating the Conduct of Beneficiaries with Conditional Gifts. Although Prof. Beyer writes for a Texas audience, the legal principles are widely applicable and just as useful for busy Florida lawyers. Here's an excerpt:

Some conditions are relatively benign such as a provision requiring property to be held in trust until the beneficiary reaches a specified age. However, testators and settlors may use conditions to control or influence nuances of the beneficiary’s behavior. For example, a testator left his house and $30,000 to his wife on the condition that she smoke five cigarettes per day for the rest of her life to get even for her distain of his practice. See Widow Fumes at Order to Start Smoking, SAN ANTONIO EXPRESS-NEWS Sept. 10, 1993, at 6A. Will the court force a beneficiary to engage in a dangerous habit to receive the property? If not, would the wife get the property free of the condition or would the property pass under other provisions of the testator’s will? What about a will provision providing $500 per month for the police officer who gives the most traffic tickets to motorists for double-parking? Dead Man Had Will, Way to Get Double-Parkers, WASH. POST, Aug. 25, 1998, at A2. This month’s article explores conditional gifts and focuses on how to increase the likelihood that the court will enforce the conditions.

* * * * *

Conditional bequests may be an effective way to carry out a testator’s or settlor’s intent. Courts uphold a wide array of conditions as long as they are phrased appropriately, not contrary to public policy, and not illegal. . . . . Whether to provide incentive for accomplishment, motivation for achievement, protection for the naive, or revenge from the grave, well-drafted conditional gifts may survive to do the bidding of the dead.

Below is a list of the types of clauses Prof. Beyer covers in his article, which includes all the usual suspects.

Restraints on Marriage:

1. Restraints on First Marriage
2. Restraint on Marriage Before a Certain Age
3. Restraints Requiring Consent by a Designee
4. Conditions Requiring a Beneficiary to Become Married
5. Conditions Requiring a Beneficiary Remain Married
6. Conditions Requiring a Beneficiary Be Married
7. Conditions Preventing the Remarriage of Spouse

Conditions Encouraging Divorce or Separation:

1. Benefit Conditioned on Divorce of Current Spouse
2. Condition Requiring that a Beneficiary’s Spouse be Deceased

Conditions Involving Religion:

1. Joining or Adhering to a Particular Faith
2. Raising a Child in a Particular Faith

Conditions Involving Behavior:

1. Being Drug, Alcohol, or Other Vice Free
2. Not Being Involved in Crime
3. Acquiring a Certain Level of Education
4. Attaining a Certain Age
5. Waiving Rights
6. Not Placing Surviving Spouse in Nursing Home

Other Personal Conduct:

1. Requiring that Beneficiaries Not Communicate with Disinherited Siblings
2. Not Joining the Military
3. Requiring a Beneficiary to Resume or Maintain a Family Name

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The stakes are high. Forbes Magazine lists Marilyn Monroe as the third-highest money-maker in its annual ranking of “The Top–Earning Dead Celebrities,” with an annual income of $27 million in 2011 alone. This income stream has been growing since Ms. Monroe's death 50 years ago in 1962, and if Forbes' 2011 figures are any indication, it isn't going to run out anytime soon.  Who controls this fortune has been litigated by Marilyn Monroe's estate for years in New York and California, culminating in the 9th Circuit's August 30, 2012 decision in Milton H. Greene Archives, Inc. v. Marilyn Monroe LLC, --- F.3d ----, 2012 WL 3743100 (9th Cir. 2012).

The fundamental question before every court that's heard this case is the following: Did the residuary clause of Marilyn Monroe's will gift her post mortem right of publicity to her heirs?

Here's the problem for Ms. Monroe's heirs: when she died in 1962, her state of domicile, New York, didn't recognize any post mortem publicity rights (to this day, New York is one of the few holdouts not recognizing this posthumous property right, click here). Also, under New York probate law, Marilyn Monroe's will can't gift a property right that didn't exist when she died. Bottom line: the heirs lose (although some creative financial engineering by the estate may have saved the day anyway, click here).

The following is an excerpt from Marilyn Monroe's estate loses right to charge for image use, reporting on the 9th Circuit's recent ruling.

It is a decision one imagines the legendary Hollywood star might well have embraced: Marilyn Monroe, according to a new legal ruling, belongs to everybody.

A US federal court said on Thursday that Monroe's estate was wrong to pursue photo libraries and other organisations that use her image without permission or payment on T-shirts and other memorabilia. It all stems from a decision made almost half a century ago by the Some Like It Hot star's legal representatives in the wake of her 1962 death. Faced with a grand tax bill from the Californian authorities if they registered her final abode in the state, they chose to list the actor's official domicile as New York, where Monroe had a second home, because the latter did not charge estate taxes.

Unfortunately, a move that saved Monroe's heirs millions of dollars at the time could now end up costing them far more. New York does not share California's generous laws regarding control of dead celebrities' images, and last week's hearing ruled in favour of those who believe the actor's estate has, for decades, been wrongly extracting a fee each time Monroe's image is used.

The issue came to light when the estate took a number of photo libraries to court in the middle of the last decade for selling her image on without permission. Several courts, noting that Monroe's official final abode was New York, opted to abide by that state's statutes and threw out the cases. The legal battle continued up until last week's decision by the federal ninth circuit court of appeals, despite efforts by the state of California at one point to retrospectively award rights to the estate via a change in the law. That position now appears to have been reversed.

. . .

In a footnote to its ruling, the [9th Circuit] pointed out that Monroe once foresaw the battle over rights to her image and its outcome. "We observe that the lengthy dispute over the exploitation of Marilyn Monroe's persona has ended in exactly the way that Monroe herself predicted more that 50 years ago," reads the judgment. "'I knew I belonged to the public and to the world, not because I was talented or even beautiful but because I had never belonged to anything or anyone else.'"

Would Marilyn Monroe's heirs have fared better if she'd died domiciled in Florida?

Two keys points determined the ultimate outcome of this litigation: [1] New York's non-recognition of a posthumous right of publicity; and [2] New York probate law limiting the inheritance flowing under Marilyn Monroe's will only to property she owned at the time of her death in 1962. To really understand what happened here you need to compare and contrast what the outcome would have been under Florida law.

In contrast to New York, Florida law does recognize a posthumous property right in a decedent's right of publicity. Under F.S. 540.08 a decedent's posthumous publicity rights are statutorily recognized and enforceable for 40 years. If F.S. 540.08 had applied at the time of Marilyn Monroe's death, her heirs would have won their case if she'd died domiciled in Florida. But it didn't. Florida didn't recognize a posthumous right of publicity until 1967 . . . five years after Marilyn Monroe's death.

Is the 1967 timing of Florida's adoption of F.S. 540.08 significant? Yes! Why? Because Florida law limits what you can gift under your will only to what you owned at the time of your death. Under F.S. 732.6005(2), which states in relevant part that "a will is construed to pass all property which the testator owns at death," your will can't gift new property rights you weren't somehow entitled to at the time of your death. New York law is identical to Florida law on this point, as explained in Shaw Family Archives Ltd. v. CMG Worldwide, Inc., 486 F.Supp.2d 309 (S.D.N.Y. 2007), one of the underlying federal cases leading up to the 9th Circuit's latest ruling.

It is well-settled that, under New York law, “A disposition by the testator of all his property passes all of the property he was entitled to dispose of at the time of his death.” N.Y. Est. Powers & Trusts Law § 3-3.1 (formerly N.Y. Decedent Est. Law 14) (emphasis added). The corollary principle recognized by the courts is that property not owned by the testator at the time of his death is not subject to disposition by will. . . .

Nor does § 2-602 of the Uniform Probate Code, which states that a will may pass “property acquired by the estate after the testator's death,” have anything to do with the present case, because . . . New York [is not] among the 18 states that have adopted the Uniform Probate Code in whole or even in part. This court has not found, nor has [Marilyn Monroe's estate] cited, any provision in . . . the New York . . . probate laws that codifies § 2-602. 

Did you catch the big distinction between existing Florida and New York probate law and the change triggered by UPC § 2-602? It's a big deal. Under the UPC section the residuary beneficiaries of your will can inherit entirely new property rights acquired by your estate after your death. If this law had applied to Marilyn Monroe's estate her heirs would have won (it didn't, so they lost). Here's the official commentary to UPC § 2-602 explaining what this section is intended to do.

This section is revised to assure that, for example, a residuary clause in a will not only passes property owned at death that is not otherwise devised, even though the property was acquired by the testator after the will was executed, but also passes property acquired by a testator's estate after his or her death. This reverses a case like Braman Estate, 435 Pa. 573, 258 A.2d 492 (1969), where the Court held that Mary's residuary devise to her sister Ruth "or her estate," which had passed to Ruth's estate where Ruth predeceased Mary by about a year, could not go to Ruth's residuary legatee. The Court held that Ruth's will had no power to control the devolution of property acquired by Ruth's estate after her death; such property passed, instead, by intestate succession from Ruth. This section, applied to the Braman Estate case, would mean that the property acquired by Ruth's estate after her death would pass under her residuary clause.

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I've been a fan of T&E Harvard Law professor Robert Sitkoff's work since he co-authored a groundbreaking article in 2005 entitled Jurisdictional Competition for Trust Funds: An Empirical Analysis of Perpetuities and Taxes, using banking data to demonstrate how states (including Florida) compete with each other for billions in new trust business by tailoring their trust legislation to attract this business. (I wrote about that article here.)

Prof. Sitkoff has now teamed up with fellow Harvard law professor John Goldberg, an expert in tort law, to argue for abolishment of the interference-with-inheritance tort in a provocative article entitled Torts and Estates: Remedying Wrongful Interference with Inheritance. If you're a busy probate litigator with time to read only one academic paper this year, make it this one. Here's the abstract:

This paper examines the nature, origin, and policy soundness of the tort of interference with inheritance. We conclude that the tort should be repudiated because it is conceptually and practically unsound. Endorsed by the Restatement (Second) of Torts and recognized by the U.S. Supreme Court in a recent decision, the tort has been adopted by the courts of nearly half the states. But the tort is deeply problematic from the perspectives of both inheritance law and tort law. It undermines the core principle of freedom of disposition that undergirds all of American inheritance law. It invites circumvention of principled policies encoded in the specialized rules of procedure applicable in inheritance disputes. In many cases, it has displaced venerable and better fitting causes of action for equitable relief. It has a derivative structure that violates the settled principle that torts identify and vindicate rights personal to the plaintiff. We conclude that the emergence of the interference-with-inheritance tort is symptomatic of two related and unhealthy tendencies in modern legal thought: the forgetting of restitution and equitable remedies, and the treatment of tort as a shapeless perversion of equity to provide compensation for, or deterrence of, harmful antisocial conduct.

So what's it all mean for working probate litigators?

No matter what the public policy merits (or lack thereof) of the interference-with-inheritance tort action may be; it's here for now, it's a fact of life, and working probate litigators ignore it at their peril [click here]. So the question is: can you use this oddball tort to legitimately advance your client's objectives in a way pure probate actions can't? Answer: MAYBE. Not only does this tort action open up possible avenues for redress otherwise foreclosed under traditional inheritance law, it may also deliver tactical advantages you usually don't get in Florida probate proceedings: such as having your claim tried before a jury, having your claim tried in a federal court [click here], or recovering compensatory damages (including pain and suffering damages) and possibly even punitive damages.

Practical Application Case Study: Lost Will Probate Proceeding vs. Tort Action:

I recently wrote here about Smith v. DeParry, a lost-will (codicil) case out of the 2d DCA demonstrating the specialized doctrines and procedures applicable only in probate proceedings. As the losing side in Smith v. DeParry learned, these specialized doctrines and procedures can produce harsh results. What if the losing side could simply call a "do over" after losing its lost-will case under the probate rules by  litigating the same case all over again as an interference-with-inheritance tort action? Is this possible? YES. In fact, that's exactly what happened in Estate of Hatten, 880 So.2d 1271 (Fla. 3d DCA 2004), discussed as follows in Torts and Estates: Remedying Wrongful Interference with Inheritance:

In Hatten, decided in 2004 by a Florida appellate court, the plaintiffs alleged that immediately after the testator’s death, the defendant located and then destroyed the testator’s will. The defendant had a strong motive to do so. Under the will, the decedent was to inherit just one dollar, whereas if the decedent had died intestate, the defendant would receive $100,000.

In most states, a lost will that was not properly revoked by the testator is entitled to probate if its contents can be proved—for example, by a copy retained in the drafting lawyer’s files. In Florida, however, a statutory rule requires proof “by the testimony of two disinterested witnesses, or, if a correct copy is provided, ... by one disinterested witness.” The plaintiffs in Hatten did not have such evidence. They had only their own testimony about what the testator had told them and what one of them recalled from reading the will. Because “the only available testimony would come from the three plaintiffs, all of whom are ‘interested’ under the terms of the Probate Code,” the court held that the statute foreclosed relief in probate. 

Plainly this statute reflects a legislative policy judgment, not unique to Florida, that interested testimony should be excluded categorically rather than left to the trier-of-fact for a case-by-case determination of credibility. Although the trend in the modern law of inheritance is to the contrary, the Florida statute is consistent with an older tradition of barring interested testimony in inheritance matters. To get around the statute, the plaintiffs sued in tort, and the court allowed the claim. The court reasoned that “relief is unavailable to [the plaintiffs] under the Probate Code.” But the court did not consider why relief was unavailable—namely, a specialized rule of evidence for inheritance disputes that rests on a principled (if contestable) policy choice to bar the plaintiff’s evidence. Commentators who have argued for the tort likewise praise its utility in circumventing inheritance law rules that limit interested testimony.

Lesson learned?

As noted by Prof's Sitkoff and Goldberg, "we are in the midst of a massive intergenerational transfer of wealth," with the current estimate being that between 1998 and 2052, $41 trillion will be transferred in the U.S. alone [click here]. If you're a working probate litigator you won't stay competitive in this environment by doing things the way you've always done them. You constantly need to step up your game. One way to do that is read articles like Torts and Estates: Remedying Wrongful Interference with Inheritance.

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Astrue v. Capato ex rel. B.N.C., --- S.Ct. ---- 2012 WL 1810219 (U.S. May 21, 2012)

Karen Capato gave birth to twins 18 months after her husband died from cancer in 2002 using sperm he froze after his cancer diagnosis. The Social Security Administration (SSA) defers to state law when deciding whether to award claims for benefits to heirs conceived posthumously in the absence of a will. In this case Florida law controlled, and the decedent’s will made no mention of his posthumously conceived twins, but did name his spouse, the son they had prior to his death, and two children from a previous marriage. The US Supreme Court sided with the District Court’s determination of non-eligibility based on the following interpretation of Florida law:

Karen Capato claimed survivors insurance benefits onbehalf of the twins. The SSA denied her application, and the U. S. District Court for the District of New Jersey affirmed the agency’s decision. See App. to Pet. for Cert.33a (decision of the Administrative Law Judge); id., at 15a (District Court opinion). In accord with the SSA’s construction of the statute, the District Court  determined that the twins would qualify for benefits only if, as §416(h)(2)(A) specifies, they could inherit from the deceased wage earner under state  intestacy law. Robert Capato died domiciled in Florida, the court found. Under [Florida] law, the court noted, a child born posthumously may inherit through intestate succession only if conceived during the decedent’s lifetime. Id., at 27a–28a.FN1.

FN1. The District Court observed that Fla. Stat. Ann. §732.106 (West 2010) defines “‘afterborn heirs’” as “‘heirs of the decedent conceived before his or her death, but born thereafter.’” App. to Pet. for Cert. 27a (emphasis added by District Court). The court also referred to §742.17(4), which provides that a posthumously conceived child “‘shall not be eligible for a claim against the decedent’s estate unless the child has been provided for by the decedent’s will.’” Id., at 28a.

For an excellent write up this case you'll want to read the analysis posted by Prof. Jeff Pennell on the LISI network entitled Jeff Pennell on the Supreme Court Decision in Caputo: An Update on the New Biology.

Can in vitro fertilization be used to create new beneficiaries of multi-generational dynasty trusts?

For most Florida trusts and estates lawyers the US Supreme Court's decision in Astrue won't be surprising. We've long known that posthumously conceived children don't qualify as intestate heirs under F.S. 732.106, and there's likely a good number of planners who have previously worked with F.S. 742.17(4).

The more interesting question for practicing trusts and estates lawyers, which remains unresolved under Florida law, is how children of assisted reproduction are treated for class-gift purposes. Are such children included as class members in the case, for example, of an income or a remainder interest to a trust beneficiary’s “children” or “descendants,” and if so, under what circumstances are they included? Here's how Prof. Pennell frames the issue in his write up of the Astrue decision:

If D leaves DNA in the freezer and that DNA is used postmortem with the requisite permission to produce a child, it seems relatively clear that D intended that child to be a beneficiary of D's estate. But what about relatives of the DNA provider? Assume, for example, that the provider's ancestor created a trust for the provider's benefit for life, remainder to the provider's descendants. Does the settlor intend to give anyone (the provider's surviving spouse or anyone else) a blank check to create more remainder beneficiaries? That question was answered in the affirmative by In re Martin B. (Sur. Ct. 2007), 841 N.Y.S.2d 207.

The question whether a provider intends for a posthumously conceived child to be treated as their own is easier than the question whether an ancestor intends for someone else to be able to use the DNA to create more beneficiaries of the ancestor's trust. Indeed, if clients were asked the question, “would you want your daughter-in-law to be able to make herself pregnant with your son's frozen sperm, to create more beneficiaries of your trust,” would their answers predictably be the same as if they were asked “do you want your son-in-law to be able to withdraw your daughter's frozen egg (or their frozen embryo) and find a surrogate mother to make more beneficiaries of your trust”? There is likely no way to predict a typical client's reaction to either question, nor to predict whether any client's response would distinguish between a daughter-in-law using the son's sperm and bearing the child herself as opposed to a son-in-law finding a surrogate mother to carry the daughter's child.

. . . 

As all this shakes out, it may be wise for estate planners to draft for these issues, to articulate their clients' intent in each regard. Particularly because state law is in flux, because one-size-fits-all legislation may not reflect a client's intent, and because conflict of laws issues may inform a court's reliance on the law of a different state.

So what's it all mean?

First, the question of whether posthumously conceived children are included as beneficiaries of multi-generational trusts should be answered by focusing on the original trust settlor's intent, not biological science. In other words, the right question is "what did the settlor intend?" not, "are posthumously conceived children biologically related to their parents?" The intent v. science conflict is crystalized beautifully in testamentary DNA cases [see here, here]. In Florida, the intent v. science conflict has yet to play itself out in an appellate decision involving a class gift to posthumously conceived children.

Second, one-size-fits-all legislation is never perfect, but it's sorely needed for intestate estates involving posthumously conceived children. As of 2008, we now have new UPC § 2-705 to potentially fill this gap (this new UPC provision hasn't been adopted in Florida). Here's how new UPC § 2-705 is described in The Uniform Probate Code Addresses the Class-Gift and Intestacy Rights of Children of Assisted Reproduction:

Although estate-planning specialists do not often deal directly with intestate estates, the treatment of children of assisted reproduction under the intestacy laws is a matter of social importance and, under the UPC, governs how such children are treated for purposes of a class gift. UPC § 2-705 provides that a class gift that uses a term of relationship to identify the class members includes a child of assisted reproduction and their respective descendants if appropriate to the class, in accordance with the rules for intestate succession regarding parent-child relationships.

It bears emphasizing that UPC § 2-705 establishes a rule of construction regarding class gifts, not a mandatory rule. A rule of construction is a default rule that applies in the absence of a contrary intention. Consequently, drafting attorneys have every opportunity to alter a rule of construction in order to give effect to a client's preferences.

Finally, until, as Prof. Pennell puts it, "all this shakes out," there's only one way to deliver a semblance of certainty to estate planning clients (as well as giving voice to their personal values): good drafting. When it comes to good drafting, no man is an island. I don't care how good you are, it never hurts to read what other thoughtful trusts and estates lawyers are drafting. In Florida, one of the best drafters in practice is Bruce Stone of Goldman Felcoski & Stone in Coral Gables, Florida. At the 2012 Heckerling conference earlier this year Bruce published a short piece entitled Drafting for Flexibility in Dynasty Trusts, in which he provides sample trust language addressing class gifts to posthumously conceived children. Bruce's clause probably won't be the last word in drafting for this contingency, but it's a solid start.

Stay tuned for more . . .

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We advise our fiduciary clients they can get sued for failing to diversify their investment portfolios. Why? Because it's inherently risky to put all your eggs in one basket. This is good advice for trusts and estates lawyers too: diversify your practice. One way to do that is to take the trust-law expertise you develop in your traditional estate planning practice, and offer it as a solution for a new set of clients who might not be thinking about as trusts as a planning tool.

Trusts are incredibly flexible arrangements that can be individually tailored to solve all sorts of complex problems. As trusts and estates lawyers, part of our challenge is simply being aware of what the possibilities are. That's why you'll want to read Oddball Trusts and the Lawyers Who Love Them or Trusts for Politicians and other Animals, by Seattle, Washington trusts-and-estates lawyer Wendy S. Goffe. Ms. Goffe does a great job of introducing us to dozens of lesser-known trusts that have evolved over the years in a variety of contexts, many having little to do with traditional estate planning. Good stuff, and well worth your time.

Here's my annotated list of some of the trusts Ms. Goffe covers in her article. 

1. Health and Education Exclusion Trusts
2. Delaware incomplete gift non-grantor (DING) trusts
3. Rabbi Trusts
4. Oral Trusts
5. Secret Trusts
6. Alimony and Maintenance Trusts
7. Business Trusts
8. Investment Trusts
9. Environmental Remediation Trusts [example]
10. Land Trusts
11. Liquidating Trusts
12. Voting Trusts
13. Purpose Trusts
14. Funeral and Cemetery Trusts
15. Gun Trusts [blog]
16. Pet Trusts [blog]
17. Constructive Trusts
18. Blind Trusts
19. Coogan Trusts
20. Totten Trusts
21. Interest on Lawyer Trust Account (IOLTA) [FL Bar IOLTA rules]
22. Interest on Real Estate Trust Account (IRETA)

And here's an excerpt from Ms. Goffe's introduction to Oddball Trusts and the Lawyers Who Love Them or Trusts for Politicians and other Animals:

This article discusses trusts that are, for want of a better expression, off the beaten path of usual trusts encountered in estate planning. Some, such as constructive trusts, are not even trusts at all. This article addresses these trusts for three reasons: First, some of these little-known trusts fill an estate planning need in a way that no other arrangement could. Second, the article explains characteristics of sham trusts and how to avoid these kinds of “trusts.” Finally, because many of our clients (and, truth be told, some of our non-estate planning colleagues) assume that if property is in trust or an entity has trust in its name, it must relate to estate planning. This article dis- cusses some of the more likely trusts that practitioners may encounter. A much broader world of trusts exists beyond the scope of this article, including revocable trusts, various types of irrevocable trusts such as Crummey trusts, dynasty trusts, asset protection trusts, marital trusts, special needs trusts, qualified subchapter S trusts, electing small business trusts, qualified personal residence trusts, charitable lead and charitable remainder trusts, and qualified terminable interest property trusts, to name just a few.

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Prof. Stephen Alton, of the Texas Wesleyan University School of Law, recently published The Game is Afoot!: The Significance of Gratuitous Transfers in the Sherlock Holmes Canon. If you've ever enjoyed any of the Sherlock Holmes stories, and you happen to be a trusts and estates lawyer, you'll want to read this essay. Prof. Alton writes "in character" from the point of view of Dr. Watson, and does a great job of weaving some pretty complex T&E legal issues into a good piece of story telling. Well worth reading. Here's an excerpt:

“You are correct, Watson,” replied Holmes, reading my thoughts. “My knowledge of British law—in particular, that of estates of deceased persons, trusts, and possessory estates in land and future interests—has proven most useful on many occasions in our adventures. Indeed, I pursued a number of courses in the law during my years at the university, and I found the field of gratuitous transfers to be one for plowing.”

I did not pause to ask Holmes how he had read my mind. Instead, I continued my part of the conversation—this time, aloud. "Your most celebrated case in which such knowledge proved more than useful—it proved decisive—was The Hound of the Baskervilles."

"Quite so, Watson. As you will recall, Sir Henry Baskerville was not the last of the Baskerville line. In point of fact, he merely was the penultimate heir to the family title and fortune. Therein lay both the motive for, and the solution to, the mystery.

. . . . .

"My first clue in the chain of inferences that led to the solution of the Baskerville mystery was that Sir Charles, who himself had never married and was indeed childless, had died testate; the baronet's will left almost all of his quite considerable estate to our friend Sir Henry Baskerville, the son of Sir Charles's late younger brother who had borne the same name.

. . . . .

However, the main portion of Sir Charles's estate was the residue, which amounted to almost three quarters of a million pounds and which was left in its entirety to Sir Henry. At the time, I commented that that this vast sum was "a stake for which a man might well play a desperate game."

. . . . .

“Watson, you would hardly call me naïf in matters of human nature. Instantly, I saw the grave temptation to murder. . . . I began my investigation with the working hypothesis that the man who might profit from the death of both Sir Charles and Sir Henry was behind the reappearance of the family's cursed hound . . . "

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Most trusts and estates litigators don't start out specializing in this niche, they evolve into it. They either start out as pure estate/tax planners (like me) and morph into T&E litigation, or they start out as pure commercial civil litigators and morph into just doing T&E litigation. How you come to the practice obviously influences how you work a case and counsel your clients. What I've noticed is that T&E litigators who come to this niche from a non-litigation estate planning perspective, tend to view each case as an abject lesson in "what not to do" as an estate planner. That's certainly my perspective, which is why litigation-prevention is a recurring them on this blog and a topic I ask about in every interview I've done for this blog [click here].

So it's not surprising I found a recent article by law professor Gerry W. Beyer especially interesting and worth holding onto for future reference. Prof. Beyer's article is entitled Will Contests--Prediction and Prevention, and was published in the Estate Planning & Community Property Law Journal, Vol. 4, p. 1, 2011. It does a good job of identifying likely estate planning landmines and proposing reasonable planning solutions to mitigate the risk and/or costs of related litigation. Here is the abstract of Prof. Beyer's article as posted here on SSRN:

An estate planner must always be on guard when drafting instruments that may supply incentive for someone to contest a will. Anytime an individual would take more through intestacy or under a prior will, the potential for a will contest exists, especially if the estate is large. Although will contests are relatively rare, the prudent attorney must recognize situations that are likely to inspire a will contest and take steps during the drafting stage to reduce the probability of a will contest action and the chances of its success.

This article examines the situations which provide an enhanced likelihood of a will contest and then details the techniques a prudent attorney should consider. An important caveat is in order. Although this article discusses a wide range of strategies that may be helpful in preventing will contests, these techniques vary widely in both cost and predictability of results. There is no uniform approach to use for all clients. Each situation needs to be carefully examined on its own merits before deciding which, if any, of the techniques should be used.

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Steve Akers of Bessemer Trust is one of the best speakers you'll ever have the pleasure of running into as a trusts and estates lawyer. As a former private practice T&E lawyer himself, he knows what's important for those of us in the trenches. Which is why I was especially interested in his recent write up of Rev. Proc. 2011-48 (the new IRS guidance for preserving § 2053 estate tax deductions that are uncertain and have yet to be paid) poetically entitled Protective Claim for Refund Procedures for Section 2053 Claims.

If an estate is both subject to the estate tax and litigation, a key issue everyone needs to stay focused on from day one is ensuring all applicable tax deductions under IRC § 2053 are preserved. For example, IRC § 2053 tax deductions include attorney's fees and costs (usually a big sticking point in T&E litigation). Maximizing IRC § 2053 tax deductions creates win-win opportunities by mining the tax code for new funds with which to settle disputes.

. . . . .

Summary of Procedures Under Rev. Proc. 2011-48

1. Time Period For Filing Protective Claim. The protective claim for refund may be filed at any time within the period of limitations for filing a claim for refund under §6511(a) (i.e., the later of three years after the return was filed or two years after the payment of tax). Rev. Proc. 2011-48, § 4.01.

. . . . .

5. Identification of the Claim or Expense; Ancillary Expenses. Each claim or expense for which a protective claim for refund is made must be clearly identified with “an explanation of the reasons and contingencies delaying the actual payment to be made in satisfaction of the claim or expense.” Rev. Proc. 2011-48, § 4.05(1). For contested matters, the protective claim must identify the contested matter and potential liability by including the name of the claimant, the basis of the claim, “the extent or amount of the liability claimed,” and a brief statement of the status of the contested matter. (A copy of relevant court pleadings generally will be sufficient to identify the claim.) Rev. Proc. 2011-48, § 4.04(3).

There is no necessity that the protective claim “state a particular dollar amount.” The 2009 § 2053 regulation confirms that even though the “specific dollar amount” issue is not addressed in the Revenue Procedure. Treas. Reg. § 20.2053-1(d)(5). This is a very important consideration in crafting the protective claim because a request for a specific high dollar amount of deduction would likely be a “smoking gun” in the underlying litigation about the contingent claim.

Ancillary expenses (such as attorneys’ fees, court costs, appraisal fees, and accounting fees) “related to resolving, defending, or satisfying the identified claim or expense” are automatically included as part of the claim for refund without the need for separate identification of these ancillary expenses. Rev. Proc. 2011-48, § 4.04(2).

CCA 200848045, provides a general overview of protective claims. While Rev. Proc. 2011-48 does not specifically refer to this Chief Council Advice, it may nevertheless assist in understanding the type of information that the IRS is seeking in identifying claims. CCA 200848045 says that Reg. § 301.6402-2 does not require that a particular dollar amount be asserted but the claim must “identify and describe the contingencies affecting the claim.” This requirement “is interpreted liberally by the Service. So long as the claim is sufficiently clear and definite [to] apprise us of the essential nature of the claim, it will be accepted as having met the requirement.” (This is important because providing too much detail about what makes the claim contingent may give the other side in the litigation insight into the taxpayer’s perceived weaknesses in its case.)

. . . . .

10. Limited Scope of Review. Rev. Proc. 2011-48 confirms that “generally the Service will limit its review of the Form 706 to the deduction under section 2053 that was the subject of the protective claim.” Rev. Proc. 2011-48, § 5.01, referencing Notice 2009-84. However, very importantly, the limited review described in Notice 2009-84 and in § 5.01 does not apply to “[a] taxpayer that chooses not to follow or fails to comply with the procedures set forth in this revenue procedure.” Rev. Proc. 2011-48, § 3.

The explicit reference to Notice 2009-84 is important, because that Notice provides insight into why the IRS inserted the word “generally” in the sentence about limiting the scope of review. The Supreme Court has held that the IRS can examine each item on a return to offset the amount a refund claim, even after the period of limitations on assessment has run. Lewis v. Reynolds, 284 U.S. 281, 283 (1932). However, the IRS in Notice 2009-84 agreed that it would limit the review of protective claims for refund to preserve the ability to claim a deduction under §2053 “to the evidence relating to the deduction under section 2053,” and not exercise its authority to examine each item on the return to offset a refund claim. This limitation does not apply if the IRS is considering a claim for refund not based on a protective claim regarding a deduction under §2053 in the same estate. Also, the Notice says the limitation applies “only if the protective claim for refund ripens after the expiration of the period of limitations on assessment and does not apply if there is evidence of fraud, malfeasance, collusion, concealment, or misrepresentation of a material fact.” The Revenue Procedure is not as explicit but makes a passing reference to this requirement about the refund ripening after the period of limitations has run. It says the limited scope of review applies when determining “whether there is an overpayment of tax based on a timely-filed section 2053 protective claim for refund that becomes ready for consideration after the expiration of the period of limitation on assessment ...” (Accordingly, there may be an advantage in not having resolved the underlying lawsuit regarding the claim against the estate until after the period on additional assessments has run — to the extent that there may be items on other parts of the estate tax return that the IRS might question if it could.)

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Celebrities are great for the trusts and estates field. They focus popular attention by bringing to life in dramatic fashion the abstract principles T&E lawyers deal with every day. The latest celebrity to step up to the plate for the T&E world is George Clooney in “The Descendants.”

T&E lawyers can go on ad nauseam about the legal and financial challenges faced by trustees balancing the interests of current and future trust beneficiaries, and we can kill whole forests writing about the legal and financial tools available to trustees [I've done my part, click here, and here], but how do you explain the sometime metaphysical challenges faced by trustees who don't just want to get the job done, they want to "do the right thing." For that, we need good drama. Enter George Clooney in “The Descendants.”

In this blog post Scott Martin of The Trust Advisor Blog provides an excellent write up of Clooney's latest role from a T&E perspective. Here's an excerpt:

Every multi-generational trust is a balancing act between the living and the dead, with the trustee in the precarious position of having to weigh the wishes of vanished grantors against the priorities of their heirs.

The new film “The Descendants,” by the director of “About Schmidt” and “Sideways,” frames that balancing act against the lush landscape of Kauai, where the fictional King family have lived for decades on acreage held in trust.

The land is not only their home but their birthright, so when the heirs decide to sell the property to generate income, the trustee (played brilliantly by George Clooney) has to do plenty of soul searching.

As a beneficiary and heir of the grantors himself, his position is almost impossibly complicated. He is torn between succumbing to the pressure of the cash strapped beneficiaries and the original intent of the family to preserve the land for generations to come.

He gets a lot of things wrong along the way — nobody said playing referee for a fractious family is easy, especially when there are billions of dollars at stake and the heirs are your cousins.

But at the end, he does the best he can, and Payne (who co-wrote the screenplay from a book by Kaui Hart Hemmings) even gives him a little peace after the hard decisions have played out.

Ripped from the headlines

In fact, the situation he has to face reflects the real-life decisions the trustees made a few years ago on behalf of the beneficiaries of Hawaii’s billion-dollar Campbell Estate.

The 107-year-old Campbell Estate was required to dissolve in January of 2007, twenty years after the last death of the direct descendants who had been alive at the time of the trust’s creation.

Some of the heirs took large cash payouts, according to an account in the Honolulu Advertiser — now the Honolulu Star Advertiser — while others chose instead to roll their interests into a new national real estate entity, the San Francisco-based James Campbell Co. LLC.

In its new corporate identity, the former estate had to distribute its estate tax liabilities as well as its assets to the beneficiaries.

But where the acreage in “The Descendants” ends up sold off to outside developers, the Campbell family still controls several thousand acres of their family legacy in Hawaii, as well as an empire of projects on the mainland

Other details are drawn from the story of other family trusts in Hawaii that have faced this same situation in the last few years.

For example, when the film refers to how “Matt King,” played by Clooney, is a descendant of a Hawaiian princess, who was a member of the powerful Kamehameha dynasty, and a mainland banker, the lineage is fictional.

But the story is reminiscent of the foundation of what was formerly known as the Bishop Estate, created by Charles Reed Bishop, a banker who married the Hawaiian princess Bernice Pauahi.

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In December I'm scheduled to teach a one-hour segment on probate & trust litigation at an upcoming NBI seminar entitled "Estate Administration Procedures: Why Each Step Is Important." Click here for more information about the seminar and the other speakers. The dates and locations for the seminar are:

• Miami, FL - December 6, 2011
• Fort Lauderdale, FL - December 7, 2011
• West Palm Beach, FL - December 8, 2011 (I won't teach this day)

If you're an attorney looking to expand your practice into probate-administration matters, this introductory-level seminar is probably a good idea for you.

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This I believe: "Always go to the funeral." This philosophy took my co-counsel, Alex Gonzalez, and me to Caracas, Venezuela where we witnessed first hand the fruit of our labor in this high profile case: thousands of ordinary Venezuelans, jubilantly taking to the streets, welcoming home the remains of their ex-president, Carlos Andrés Pérez. Our clients, President Pérez's widow, Blanca de Pérez, and her children, beamed with pride and satisfaction as he was finally laid to rest in his native soil after months of heated litigation in Miami. 

This was the final chapter in a case that had started for me with a phone call in Miami in late December 2010, and ended ten months later in October 2011, with President Pérez's burial in Venezuela. 

The litigation was over President Pérez's place of burial: Miami vs. Venezuela. The legal issues at play were similar to those in the burial dispute involving Ana Nicole Smith's remains [see here, here]. I made my first public appearance in this case in early January 2011, when we obtained an emergency order halting President Pérez's burial in Miami over the objections of his wife and children in Venezuela (a copy of the order was posted here by the Miami Herald). 

From the start, every court appearance in this case drew multiple reporters and camera crews, reporting the story both domestically and internationally, in English and Spanish [see, e.g., NYT coverage here, WSJ coverage here, El Universal coverage here, El Nuevo Herald coverage here, FOX News coverage here]. For a complete set of AP photographs of the case click here.

Given this level of media attention, the Chavez regime's decade-long grip on power in Venezuela and embrace of poisonous anti-democratic rhetoric, plus Miami's large exile community, the litigation inevitably took on troubling political overtones. Fortunately, in the end, justice prevailed and President Pérez was buried in Venezuela.

Here's an excerpt from a piece in the Miami Herald, Venezuelans mourn former president Perez, reporting on President Pérez's final burial in Venezuela:

CARACAS, Venezuela -- Thousands of Venezuelans attended a wake for former President Carlos Andres Perez on Wednesday amid tears and speeches a day after his remains arrived in his homeland and ended a a bitter family feud over his final resting place.

Politicians, relatives and supporters of Perez crowded around his closed casket at the headquarters of the Democratic Action party in downtown Caracas and sang the party's anthem.

"Rest in peace, president," said Caracas Mayor Antonio Ledezma, once a confidant of Perez.

The remains of Perez arrived in Venezuela nine months after his death in Miami at age 88 set off a feud between his wife, who wanted to bring the body home, and his mistress in the United States, who said Perez had vowed repeatedly never to return as long as political arch-nemesis Hugo Chavez was president.

The two sides finally reached a confidential settlement sending his body back to his homeland.

There's gotta be a better way.

The way burial disputes are currently adjudicated in Florida needs to change. As things stand now, in burial dispute cases Florida courts are permitted to accept unwritten, hearsay opinion testimony from anyone who shows up and says he's got something to say about what the decedent "would have wanted," if he'd gotten around to writing down his wishes. This approach opens the door to drawn out litigation over the decedent's burial "intent," invites abuse and inflames family discord in cases where there really are no winners.

There is a better way. Florida needs new legislation governing burial disputes adopting the same approach already applied to living will/end-of-life cases: if the decedent didn't leave written instructions as to his burial wishes, his next of kin, in the same order of priority applicable to living will/end-of-life cases (see F.S. 765.401), has sole authority to decide his place of burial. Period, end of story, no hearsay testimony, no opinion testimony, no exceptions, no drawn out trials. If that type of statute had been in place in 2010, all sides of the President Pérez burial case would have been spared the stress, grief and expense of months of heated litigation.

For an excellent article tackling the need for better burial statutes nationwide, you’ll want to read Uniform Acts-Can the Dead Hand Control the Dead Body? The Case for a Uniform Bodily Remains Law. What I find particularly helpful about this article is that it provides a detailed, well-researched and thoughtful proposed statute from beginning to end. For those of you finding yourself involved in one of these cases, you’ll want to read this article. It highlights issues you’ll have never thought of on your own.

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Former Playboy Playmate, model, aspiring actress and professional celebrity Anna Nicole Smith probably wanted to be remembered for a lot of things, but her most lasting impact may have been in the court room.

In a 2006 win at the US Supreme Court, Anna Nicole Smith's battle over her late husband's $1.6 billion estate redefined the "probate exception" to federal court jurisdiction over trusts-and-estates related litigation [see here, here], in a way that is likely to result in a greater number of such cases being litigated in federal court [see here, here].

In 2007 Anna Nicole Smith died in Florida triggering litigation over where she would be buried [see here, here, here]. Not surprisingly, this case had a major impact on Florida law governing burial disputes and, I am told, is likely to result in legislation specifically designed to govern all such future disputes in Florida. This type of statue would be a first for Florida.

Now, in 2011, Anna Nicole Smith's estate battle has resulted in a significant Supreme Court decision redefining the power of federal bankruptcy judges. In Stern v. Marshall, --- S.Ct. ----, 2011 WL 2472792 (U.S. Jun 23, 2011), the Supreme Court ruled that a bankruptcy judge, who awarded Smith $475 million in 2000, did not have the constitutional right to try a probate case. Because the battle over oil tycoon J. Howard Marshall II's wealth outlived most of the parties to the suits, Chief Justice John G. Roberts Jr. compared it to "Bleak House," Charles Dickens' novel about a lawsuit that never ends.

This “suit has, in course of time, become so complicated, that ... no two ... lawyers can talk about it for five minutes, without coming to a total disagreement as to all the premises. Innumerable children have been born into the cause: innumerable young people have married into it;” and, sadly, the original parties “have died out of it.” A “long procession of [judges] has come in and gone out” during that time, and still the suit “drags its weary length before the Court.”

Those words were not written about this case, see C. Dickens, Bleak House, in 1 Works of Charles Dickens 4–5 (1891), but they could have been.

After Smith's death in 2007, Howard K. Stern, her former domestic partner, had carried on the case as executor of her estate. The estate's sole beneficiary is Smith's daughter, Dannielynn Birkhead, who will be 5 in September. The Supreme Court's ruling effectively ends any claim Smith's estate may have had to her late husband's vast estate.

Here's an excerpt from an AP piece entitled Court rules against Anna Nicole Smith’s estate in battle for deceased oil tycoon’s estate that does a good job of putting the Supreme Court's ruling in context:

The family of E. Pierce Marshall, son of J. Howard Marshall, cheered the decision.

“J. Howard’s wishes were always perfectly clear: He gave Anna Nicole Smith approximately $8 million in gifts during his lifetime, and those gifts were all that he intended to give her,” said Eric Brunstad, the Marshalls’ lawyer.

The convoluted dispute over the elder Marshall’s money has its roots in a Houston strip club where he met Smith. The two were wed in 1994 when he was 89 and she 26. Marshall died the next year and his will left his estate to his son and nothing to Smith.

Smith challenged the will, claiming that her husband promised to leave her more than $300 million above the cash and gifts showered on her during their 14-month marriage. A Houston jury said Marshall was mentally fit and under no undue pressure when he wrote a will leaving nearly all of his $1.6 billion estate to his son and nothing to Smith, a decision that has been upheld by the federal appeals court.

Smith moved to California after Marshall’s death and then filed bankruptcy in Los Angeles, alleging in federal court filings that her husband promised her a large share of the estate. A bankruptcy judge awarded her $475 million from Marshall’s estate, with a federal judge reducing that amount to $89 million in 2002.

Smith had wanted the courts to accept that ruling. But the 9th U.S. Circuit Court of Appeals in in San Francisco appeals court threw the bankruptcy court ruling out, saying a bankruptcy judge could not rule on the probate case [see here].

Roberts agreed with that decision, and was joined in his judgment by Justices Antonin Scalia, Anthony Kennedy, Clarence Thomas and Samuel Alito.

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The vast majority of cases settle. So for most probate litigants the question isn't am I going to settle, but when. If we were all the type of rational actors assumed by classic economic theory, knowing when to settle would be easy. All you have to do is get far enough along in the discovery process to accurately run a cost-benefit analysis and voila! the ideal settlement point would be obvious.

But we all know it's never that easy. Why? According to behavioral economists it's because most of us make decisions for all sorts of reasons that often have nothing to do with cold, hard reason. Makes sense to me, especially in the probate litigation context.

Which is why an article in this month's Estate Planning Journal by Chicago, Illinois attorney Howard M. Helsinger entitled Advising the Trust or Estate Litigant: When to Raise or Fold caught my attention. Drawing both on his own experience in the trenches and an impressive grasp of economic theory, Mr. Helsinger does a great job of applying behavioral economics to the dynamics at play in most contested probate proceedings (especially settlement negotiations). Good stuff; highly recommended for the practicing probate litigator. Here's an excerpt:

Lessons from behavioral economics

The conventional mode of valuing a case ... presumes an economically rational actor.... But behavioral economists have for a while now been demonstrating that, in many cases, people do not act like the “rational person” of classical economics. They engage in behaviors that fail to maximize their utility. Various factors discussed in the economics literature are relevant to the situation of estate and trust litigants.

Endowment effect. The value people assign to an item is often exaggerated by what is known as the "endowment effect." Individuals tend to overvalue what they already possess. Assume, for example, that half of a class of law students is given a coffee mug bearing the university's logo. It costs $8 at the university bookstore, and the sticker bearing the price is still on the bottom. Assume also that we know from prior study that the average price people would pay for this coffee mug is $5. Repeated studies have demonstrated that those students who receive this coffee mug will demand more than $5 to part with it, even though they would probably have been willing to pay no more than that to acquire it.

Although an individual might be willing to pay no more than $100 for a ticket to a Chicago Bears game, the same individual will demand more than that to sell the ticket he or she already possesses. Indeed, Duke University students who were fortunate to win a ticket to a Duke basketball game after camping out for a week demanded at average of $2,400 to sell it. Other students, who had also camped out, but had not won a ticket, would pay only $170 to acquire one. Ownership itself clearly enhances the perceived value of possessions. Indeed, even anticipated ownership may increase their value. The longer an auction participant is the high bidder, the greater he or she is likely to value the object.

Passions. Passions also distort judgment. Dan Ariely, for example, describes studies demonstrating, not surprisingly, the distorting impact of sexual arousal on the judgment of young males. That is an unlikely factor in trust and estate litigation, but we should expect similar distortions as a result of grief, sibling rivalry, and the other passions with which we are familiar in decedent's estates.

Undervalue costs. A third significant factor distorting the judgment of litigants is a tendency to overly discount the likely future cost of litigation. Quite independent of the distortions of passion, anger, and possession, people tend to underestimate and undervalue future costs.

Self-serving bias. A fourth factor is known as “self-serving bias.” Its effects are probably familiar to all of us: “[W]hen married couples estimate the fraction of various household tasks they are responsible for, their estimates typically add to more than 100 percent.” Well over half of us think we are better than average as drivers, better than average as managers, in better than average health, more ethical than the average. Empirical studies also demonstrate that “people tend to arrive at judgments of what is fair or right that are biased in the direction of their own self-interests.” The result, in litigation, is likely to be that “[e]ven when parties have the same information, they will come to different conclusions about what a fair settlement would be and base their predictions of judicial behavior on their own views of what is fair.” ...

Practice tips

How then should attorney respond to these irrationalities? Estate and trust litigation is so often carried out in the context of grief, mourning, guilt, jealousy, and anger, that it may be that irrationality is its dominant characteristic. Attorneys advising in such circumstances have an opportunity to temper those distortions....

An especially suggestive study indicates that in confronting self-serving bias, it is not sufficient to merely make litigants aware of the existence of such biases. They are likely to assume that the other side may be subject to such biases, but not them. What has been shown to be effective, however, is asking the litigant actually to list the weaknesses in his or her own case. We lawyers should be aware of such weaknesses—asking our clients to make such a list would be an easy way of enhancing their awareness and perhaps reducing their self-serving bias. Of course, we lawyers, if we are to make effective use of techniques such as this, need to be aware of our own self-serving biases and sensitive to the countervailing temptations we may ourselves face to fan the flames of litigation. 

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Congress shocked everyone by letting the estate tax lapse in 2010. What I've found most interesting about this state of affairs are the unintended consequences:

First, no estate tax in 2010 is great news for the super rich, like George Steinbrenner's heirs, but bad news for the moderately wealthy, people who have assets between $1.3 million and $3.5 million. For these families dying in 2010 likely means higher taxes. This is a federal tax issue only Congress can address.

Second, no estate tax in 2010 could lead to the unintended disinheritance of widows and widowers, which could in turn lead to expensive legal fights among family members. Potential inheritance litigation caused by Congressional inaction is a state-law issue that state legislators can step in and fix. And that's exactly what they've been doing.

Increased probate litigation threat: Florida's statutory fix: 733.1051 & 736.04114

As reported by Forbes in States Race To Clean Up Congress' Estate Tax Mess, state legislators have been busy passing legislation aimed at avoiding the unintended disinheritance of widows and widowers caused by the unforeseen lapse of the federal estate tax in 2010. Florida has now joined the club with passage of two new pieces of legislation: 733.1051 (governing wills), and 736.04114 (governing trusts). This White Paper does a good job of explaining the reasoning behind the new legislation.

Most states enacted simple one-size-fits-all statutes. The upside to this approach is that it's less expensive to implement. Here's how these statutes were described in the Forbes piece:

Most of the new emergency laws would set a default rule for interpreting wills and trusts while the federal estate tax is repealed, if the document itself doesn't spell one out. The rule: Any tax terms or formulas should be read as if the estate tax law of 2009 were still in effect. The proposed emergency laws also typically include a backstop provision allowing any potential beneficiary or executor to go to court, within a year from the date of death, if he or she doesn't think that this default is what the deceased really wanted.

The downside to the one-size-fits-all approach is that saving court costs is given priority over ensuring the testator's intent is followed. Maybe the testator knew exactly what would happen if he died in 2010 and intended that outcome? A one-size-fits all statute could essentially strip this testator of his testamentary freedom.

Florida didn't adopt a one-size-fits-all statute, opting instead for a more nuanced approach aimed at determining the testator's probable intent from all of the facts and circumstances. If your primary goal is effectuating testator intent, Florida's approach makes sense. But it comes at a cost: Florida's legislation makes it impossible to avoid the time and expense of a judicial construction proceeding. Here's how the Forbes piece described Florida's approach:

One renegade state--Florida--is proposing to send folks with ambiguous documents to court from the start to determine the deceased's intent, instead of assuming the deceased wanted to follow the estate tax law of 2009. The court could consider outside evidence, such as the estate attorney's testimony. The proposed law would allow estate assets to be used to pay for this proceeding and says that heirs might have to wait for distributions pending the outcome of the court's decision.

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In this latest opinion from the 9th Circuit, the spotlight turns once again on the record-shattering trust-and-estates litigation the late Anna Nicole Smith a/k/a Vickie Lynn Marshall (she died in 2007) and and her former step-son, E. Pierce Marshall (he died in 2006), waged over the vast estate of her former husband, J. Howard Marshall. As I've previously written about on this blog, this case resulted in a U.S. Supreme Court decision, Marshall v. Marshall, viewed by many (including me) as opening the federal court room doors to trust-and-estates litigation to an extent we've never seen before.

Here's how Law.com reported in this piece on the 9th Circuit's ruling.

A federal appeals court ruled Friday that Anna Nicole Smith's estate will get none of the more than $300 million the late Playboy model claimed a Texas billionaire to whom she was briefly married meant to leave her after he died.

The ruling came in a 15-year legal battle that started in a sleepy Houston probate court and stretched all the way to the U.S Supreme Court.

It initially pitted Smith against the son of J. Howard Marshall over the $1.6 billion estate the oil tycoon left after his 1995 death at age 90. J. Howard Marshall had wed Smith the year before when she was 26.

Marshall's son E. Pierce Marshall died in 2006 and Smith perished after a drug overdose in 2008. Their heirs and lawyers kept up the legal fight that included one ruling awarding Smith $474 million.

Kent Richland, who represents the Smith estate, said he would appeal the latest ruling but hasn't decided whether to ask the appeals court for another hearing or take the case back to the U.S. Supreme Court regarding different issues.

Eric Brunstad, a lawyer for Marshall family members, said they hoped the legal fight was over.

"Our only wish would be that Pierce were here to see his vindication," the family said in a prepared statement.

The three-judge appeals court panel ruled unanimously that a 2001 jury verdict in Houston in favor of the Marshall family should be honored over two federal court rulings in Smith's favor.

The appeals court said the federal bankruptcy court award of about $447 million and a subsequent federal trial court ruling that lowered the amount to $89 million should be ignored.

The appeals court said the Houston jury heard from all the parties, including Smith, during a five-month trial in which she accused E. Pierce Marshall of illegally coercing his father to keep the reality TV star out of his will.

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Here's something you don't see every day: an acknowledgment by a credible source usually not associated with the "liberal media" (Rupert Murdoch's the WSJ) reporting that repeal of the estate tax is not a free ride, there are consequences: taxes will be shifted from a wealthier segment of the U.S. population to a less wealthy segment of the U.S. population. As reported by the WSJ in Why No Estate Tax Could Be a Killer:

Congress shocked everyone by letting the estate tax lapse on Jan. 1.

Now, here is the real stunner: For many, the lapse actually will raise taxes.

Under last year's law, estates up to $3.5 million, or $7 million for married couples, were exempt from federal tax. This year that law has been replaced by a fiendishly complex levy raising taxes on the assets of those with little as $1.3 million. It will affect the heirs of at least 50,000 U.S. taxpayers who die this year, whereas the old law affected only about 15,000 estates a year, according to the Tax Policy Center.

"The new system is far worse for many people who have assets between $1.3 million and $3.5 million," says veteran estate lawyer Ronald Aucutt, of McGuire Woods.

The linked-to article does a good job of walking readers through a simple hypothetical demonstrating how differently this year's and last year's regimes treat the same asset held by two fictional widows: Ms. Bentley has total assets of $20 million, while Ms. Subaru's total is $2 million. Guess who is paying more taxes this year?

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As reported by Forbes in States Race To Clean Up Congress' Estate Tax Mess, several states - including Florida - aren't waiting around for Congress to get its act together on the estate tax front.

While Congress dilly dallies, the states are racing to come to the aid of families whose estate plans have been thrown into disarray by the Jan. 1 lapse of the federal estate tax. That lapse could, among other things, lead to the unintended disinheritance of spouses, which could in turn lead to expensive legal fights among family members and, ultimately, the impoverishment of some widows or widowers. It could also, ironically, force some families to pay extra state estate taxes.

Legislators in a handful of states, led by Virginia [click here], have already introduced legislation to try to head off such bad results. Virginia's House of Delegates passed its "emergency" bill unanimously Tuesday and the state's Senate is expected to take it up immediately [click here]. Similar bills are pending in Maryland, Nebraska, South Dakota, Tennessee and Washington. Other states, including Florida and New York, have somewhat different legislation pending.

By the way, Forbes has a very cool interactive map showing state-level estate tax laws for 2010 [click here].

Florida's Statutory Fix

At this year's Heckerling conference one of the giants of the Florida trusts and estates bar, Bruce Stone, reported on Florida's statutory fix (CS/HB 361) in an excellent presentation entitled The Clock Struck Midnight: Now What Do We Do?  You can track the status of CS/HB 361 here. Full text of the bill is here.  The following is the proposed trust-code provision as reported by Bruce:

The following is a draft as of noon Monday, January 18, 2010, of a statute to be proposed for adoption in Florida, addressing the uncertainties and potential liabilities of fiduciaries caused by repeal of the estate and generation-skipping transfer taxes. The proposed statute may be submitted to the Florida legislature for its regular session which convenes on March 2, 2010.

Section I - section 736.04114 shall be created as follows:

736.04114 Limited judicial construction of irrevocable trust with federal tax provisions.--

(1) Upon the application of a trustee or any qualified beneficiary of a trust, a court at any time may construe the terms of a trust that is not then revocable to define the respective shares or determine beneficiaries, in accordance with the intention of the settlor, if a transfer occurs during the applicable period and the trust contains a provision that:

(a) includes a formula devise referring to the "unified credit", "estate tax exemption," "applicable exemption amount," "applicable credit amount," "applicable exclusion amount," "generation-skipping transfer tax exemption," "GST exemption," "marital deduction," "maximum marital deduction," or "unlimited marital deduction;"

(b) measures a share of a trust based on the amount that can pass free of federal estate tax or the amount that can pass free of federal generation-skipping transfer tax;

(c) otherwise makes a devise referring to a charitable deduction, marital deduction, or a similar provision of federal estate tax or generation-skipping transfer tax law; or

(d) appears to be intended to reduce or minimize federal estate tax or generation skipping transfer tax.

(2) For the purpose of this section:

(a) "applicable period" means a period beginning January 1, 2010 and ending on the earlier of (i) December 31, 2010, or (ii) the date that an act becomes law that repeals or otherwise modifies or has the effect of repealing or modifying Section 901 of The Economic Growth and Tax Relief Reconciliation Act of2001.

(b) a "transfer occurs" when an interest takes effect in possession or enjoyment.

(3) In construing the trust, the court shall consider the terms and purposes of the trust, the facts and circumstances surrounding the creation of the trust, and the settlor's probable intent. In determining the settlor's probable intent, the court may consider evidence relevant to the settlor's intent even though the evidence contradicts an apparent plain meaning of the trust instrument.

(4) This section does not apply to a transfer that is specifically conditioned upon no federal estate or generation skipping transfer tax being imposed at the time of the transfer.

(5) Unless otherwise ordered by the court, during the applicable period and without court order, the trustee administering a trust containing one or more provisions described in subsection (1) may (a) delay or refrain from making any distribution, (b) incur and pay fees and costs reasonably necessary to determine its duties and obligations (including compliance with provisions of existing and reasonably anticipated future federal tax laws), and (c) establish and maintain reserves for the payment of these fees and costs and federal taxes. The trustee shall not be liable for its actions as provided in this subsection made or taken in good faith.

(6) The provisions of this section are in addition to, and not in derogation of rights under the Florida Trust Code or the common law to construe a trust.

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The WSJ's Wealth Report Blog posted here on litigation swirling around the trust/estate of billionaire mall magnate Mel Simon. What I found especially interesting was the implication of possible undue influence by his surviving spouse, Bren Simon. Here's an excerpt:

Months before he died of cancer last September, billionaire mall magnate Mel Simon made some big changes to his will.

The changes boosted the share of his fortune left to his wife, Bren Simon. Originally she was to get a third. After the changes, she was to half.

The changes also cut out Melvin’s three children from his first marriage—Deborah, David Simon and Cynthia Simon-Skjodt—and left charitable giving to Bren’s discretion. The earlier will earmarked one-third of the estate for charity.

Mr. Simon’s estate is valued at somewhere from $1 billion to $2 billion, and it has increased since his death since the stock in the company he founded–Simon Property Group–has rebounded.

The changes to the will sparked an escalating Simon-family feud, as this Chicago Tribune article lays out.. Mr. Simon’s daughter Deborah is suing her stepmom, Bren Simon, alleging she persuaded Mel Simon to change his will to reduce the children’s inheritances. The suit claims her dad was suffering from dementia at the time and needed help signing the document.

Now, Bren Simon’s latest court filing [click here] says Mr. Simon “voluntarily and of his own free will signed a valid will and trust in February.” She acknowledges that Mr. Simon needed help with his signature, but said Parkinson’s symptoms in his right hand were to blame.

Spousal Undue Influence Claims in Florida:

I have no idea what the law is on spousal undue-influence claims in Indiana (where Mr. Simon's estate is being litigated), but in Florida they're very tough to prove. For starters, you can't rely on the "confidential relationship" between spouses to trigger the presumption of undue influence. There's a solid, common sense reason for this rule: in its absence every will benefiting a spouse could potentially be challenged on undue influence grounds. Here's how the 3d DCA explained Florida's approach in Tarsagian v. Watt, 402 So.2d 471 (Fla. 3d DCA 1981):

The holding of Goertner v. Gardiner, 125 Fla. 477, 170 So. 112, reh. den., 126 Fla. 412, 170 So. 844 (1936), that the confidential relationship which exists between a husband and wife is not one which may be considered in the law governing will contests, accord, In re Estate of Knight, 108 So.2d 629 (Fla. 1st DCA 1959), is, in our view, still extant. Since a confidential relationship is one necessary requirement which must be met before a presumption of undue influence arises, under Goertner the presumption cannot arise in the case of a husband and wife. Were the confidential relationship between spouses not exempted from that presumption of undue influence rule, the presumption would arise in nearly every case in which the spouse is a substantial beneficiary, since the required active procurement would almost always be present. One would naturally expect to find a spouse to be present at the execution of the will, present when the testator expresses a desire to make a will, knowledgeable about the contents of the will prior to its execution, involved in its safekeeping, and perhaps even involved in the recommendation of an attorney-preparer and consultation with an attorney-preparer. These, of course, are among the criteria for determining if one is engaged in active procurement. See In re Estate of Carpenter, supra.

On the other hand,  I don't think this means a spousal undue influence claim is impossible in Florida; you just can rely on the presumption. Instead, you'll need to prove your case directly. A case that suggests a finding of undue influence against a surviving spouse, although not based on a presumption, is In re Auerbacher's Estate, 41 So.2d 659 (Fla. 1949). 

But what if the marriage itself is procured by fraud, undue influence, or duress?

By the way, if someone is intent on preying upon another's wealth, the best way to go about doing it isn’t mucking around with estate planning documents, it’s marrying the guy. The mother of all inter-spousal estate grabs is the marriage itself. Once you’re hitched, you’re automatically entitled to all sorts of goodies as a surviving spouse, no matter what the estate planning documents may say.

This is where we hit a brick wall in Florida: the current state of the law seems to be that marriages procured by fraud, undue influence or duress can’t be challenged after a person’s death. Click here for an excellent white paper prepared by über probate litigator William (“Bill”) T. Hennessey and his team over at Gunster summarizing Florida law on this issue and a proposed legislative fix. Here’s an excerpt:

The mere status of surviving spouse affords a myriad of significant financial benefits under Florida law, including the right to homestead property (at least a life estate in the decedent's homestead residence), an' elective share (30% of the decedent's augmented elective estate), to take as a pretermitted spouse (up to 100% of the estate under the laws of intestacy), family allowance, exempt property, and priority in preference in selecting a personal representative. In addition, Florida courts have held that a presumption of undue influence in a will contest "cannot arise in the case of a husband and wife" because the requirement of active procurement would almost always be present. Jacobs v. Vaillancourt, 634 So. 2d 667, 672 (Fla. 2d DCA 1994); Tarsagian v. Wall, 402 So. 2d 471, 472 (Fla. 3d DCA 1981).

Most of these benefits are well deserved. It has often been said that Florida has a strong public policy in favor of protecting a decedent's surviving spouse. See, e.g., Via v. Putnam, 656 So. 2d 460, 462 (Fla. 1995). However, what happens when a marriage is procured by undue influence, fraud or exploitation? Is Florida's public policy furthered, in such an instance? This report will discuss the current state of Florida law on the ability to challenge the validity of a marriage after the death of one of the parties to the marriage. It will also examine how other states have addressed this issue.
. . . . .

In sum, Florida follows the common law and majority rule which only allows void marriages to be challenged after death. In most instances, Florida courts have held that marriages procured by fraud, duress, and undue influence are merely voidable, affording potential heirs no ability to challenge a marriage after death. Given the extensive rights available to a surviving spouse, a wrongdoer can profit significantly by simply inducing or influencing an elderly person to enter into a marriage. The Subcommittee recommends that the full committee consider and discuss legislation to address this issue.

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I recently worked with one of my partners on drafting the Florida Chapter of the newly released International Succession, published by Oxford University Press. The list of contributors is a "Who's Who" of prominent probate lawyers in the world today. Good place to start if you’re ever looking for expert local counsel in anyplace from Dubai to Brazil . . . and all points in between.

I'm proud of the final product and think it's the kind of resource more and more trusts and estates lawyers will need to turn to over the coming years as everyone's practice grows evermore multijurisdictional in nature. If your practice has an international flavor, this resource is a good investment. Here's how the publisher described it:

Increasing numbers of people have connections with one country, but live and work in another, frequently owning property or investments in several countries. As such, international aspects arise in an increasing number of estates. Different countries may have separate arrangements for ownership, taxation, and succession. International Succession equips practitioners with the information necessary to navigate problems involving these different systems.

Although lawyers would often advise only on the law of the jurisdictions in which they are based, seeking advice from lawyers in other countries, this book will save the practitioner the time - and expense - of ascertaining the basics concerning the inheritance systems in different countries, offering clear and easy to use information on the laws of inheritance and succession.

Each country's report is based on responses to a comprehensive questionnaire that considers the practical issues arising from the jurisdiction's individual laws, making it easy for users to make specific comparisons between the laws of one country and another. The book covers over fifty countries with entries written by experts from each country, making it an invaluable resource for the busy practitioner.

This title is an improved and expanded version of International Succession , edited by Louis Garb and published by Kluwer Law International, 2004. This edition, published in hardback form, will also be supplemented annually in between editions to update the individual country entries.

Features

• Provides a comprehensive survey of succession laws in over fifty countries

• Enables easy cross-referencing with a questionnaire format for each country

• Considers the practical issues arising out of inheritance across multiple jurisdictions

• Supplemented annually in between editions to keep existing country entries fully up-to-date and include a selection of new countries

• Entries written by experienced practitioners in the relevant jurisdiction around the world

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Celebrity probate litigation is never boring, which explains why there's always lots of good stuff out there to write about [click here, here, here], and why a new probate blog out of Michigan, The Probate Lawyer Blog, by author and probate litigator Andrew Mayoras, is all about celebrity probate litigation, all the time [click here].

So it shouldn't come as a surprise that a probate battle involving pseudo celebrity "Leopard Lady" Kitty Tipton-Oakes, widow of jazz musician Billy Tipton, was picked for the pilot program of a new cable series called "The Will: Family Secrets Revealed." I didn't see the episode, but TV critic Linda Stasi gave it rave reviews in the New York Post [click here]. Ms. Stasi's one complaint: "As evidenced by the media feeding frenzy over the estate of Brooke Astor, it's just shocking that it took this long for a network to come up with an idea this juicy."

And for all you probate lawyers out there looking for your 15 minutes of fame, take heart, the show's producers are actively looking for more war stories to share with the rest of us, give them a call [click here].

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Florida’s adoption of the Uniform Trust Code in 2007 [click here] was good news for all sorts of reasons. One primary benefit was the UTC’s beefed up litigation defenses for trustees. Two of those defenses are the subject of an interesting article just published in the ABA’s Probate & Property Magazine by Arizona trusts-and-estates litigator Kevin J. Parker entitled Trustee Defenses: Statute of Limitations, Laches, Self-Executing Accounting Release Provisions, and Exculpatory Clauses.

Exculpatory Clauses:

If you're working with a client at the drafting stage and there's even a hint of future trouble, you need to consider folding an exculpatory clause into the trust agreement.  As explained in the linked-to article, these clause weren't always enforced in the past. Under the UTC, they're now expressly authorized:

Many trusts include a provision that purports to immunize the trustee from liability to the beneficiaries absent something beyond "ordinary" negligence or breach of fiduciary duty, such as fraud or intentional misconduct.

In the early days, such clauses were held unenforceable as against public policy. The modern rule (reflected in the Restatement and uniform statutes) provides for enforceability of such clauses, with certain limitations, although some state statutes still invalidate such clauses.

Most states deal with exculpatory clauses in trust instruments in one of three ways. Some states follow the Restatement principles. Some states have adopted the Uniform Trust Code. Some states have, by statute, nullified exculpatory clauses as being against public policy.

The Restatement and Uniform Trust Code provisions are similar. Both provide that exculpatory clauses are generally enforceable. Both provide that such clauses are to be strictly construed. Both establish substantive limitations, providing that the exculpatory clause does not relieve the trustee from bad faith, intentional misconduct, or reckless indifference. Both the Restatement and Uniform Trust Code also provide that an exculpatory clause will be unenforceable if insertion of the clause into the trust instrument was itself a breach of fiduciary duty. 

When it comes to exculpatory clauses, Florida law tracks the UTC pretty closely, subject to one significant modification.  Like UTC 1008, under F.S. 736.1011 an exculpatory clause may relieve a trustee of liability for breaches resulting from ordinary negligence, but not for breaches committed in bad faith or with reckless indifference to the purposes of the trust or the interests of the beneficiaries. Under F.S. 736.0105(2)(u) these restrictions are mandatory; you can't draft around them.

In addition, under F.S. 736.1011 an exculpatory clause is unenforceable if it was inserted as a result of an abuse of a fiduciary or confidential relationship between the trustee and settlor. This latter restriction applies to terms that were drafted or caused to be drafted by the trustee unless the trustee proves that the term is fair and its existence and contents were adequately communicated directly to the settlor.  Here's where Florida law and the UTC part ways. Unlike the UTC, Florida law adds the requirement that an exculpatory clause drafted by or at the direction of the trustee must be directly communicated to the settlor in order to be enforceable. This requirement is meant to clearly distance Florida law from a statement in the comments to UTC section 1008 that disclosure to the settlor's attorney would suffice for this purpose. 

Ultra-short Limitations Periods for Lawsuits Against Trustees:

One way to protect a trustee from frivolous litigation is to make sure you give a recalcitrant beneficiary the least amount of time possible to sue. Historically limitations periods were unclear in the trust context, and they were usually pro-beneficiary. Under the UTC the tide has turned, with the limitations-period regime now being decidedly pro-trustee. Here’s how the linked-to ABA article put it: 

The law on the time limits for a beneficiary to bring an action against a trustee has evolved over time. In early cases, the courts were pro-beneficiary, rejecting time limit defenses on various grounds, including that the cause of action was not time barred unless and until a certain period of time had elapsed after termination of the trust or resignation of the trustee, or that statutes of limitation were tolled until full disclosure had been made by the trustee. Some courts held that statutes of limitation did not apply at all, on the theory that claims against trustees were equitable claims and therefore only equitable timeliness defenses (laches, for example) were available to the trustee. The modern rules are more pro-trustee.

The shortest limitations period provided in Florida’s trust code is a mere 6 months! The protective value of a 6-month limitations period can’t be over stated, and Florida trustees are cheating themselves if they don’t take full advantage of this tool. Here’s how it works: under F.S. 736.1008 the 6-month limitations period applies to actions on matters the trustee has adequately disclosed on a trust accounting or other trust disclosure document when the trustee has provided the beneficiary with a related limitation notice. So getting your limitations notice right is key. Fortunately, the statute provides a sample clause in F.S. 736.1008(3)(c):

A limitation notice may but is not required to be in the following form: "An action for breach of trust based on matters disclosed in a trust accounting or other written report of the trustee may be subject to a 6-month statute of limitations from the receipt of the trust accounting or other written report. If you have questions, please consult your attorney."

Word to the wise: use the statutorily provided sample clause.

For trustees NOT taking advantage of Florida’s ultra-short 6-month limitations period, F.S. 736.1008(1)(a) provides that the claims are barred as provided under Florida’s general limitations period rules, which are found in F.S. Ch. 95. Under these rules assume your trustee will be exposed for at least 4 years to the threat of a lawsuit. 6 months vs. 4 years: that's a huge difference. Which limitations period applies to your trustee may very well be the single most important factor controlling whether or not he gets sued. Yeah, this is a big deal.

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A year ago things looked pretty bleak for attorney Ben Kuehne here in Miami and a couple of Georgia lawyers who were arrested and apparently spent a night in jail after their client was forced to forfeit estate assets under Georgia's Slayer Statute [click here]. All were on the receiving end of criminal prosecutions for arguably doing nothing other than getting paid for representing unpopular clients.

Fast forward a year: the Kuehne prosecution has caved in on itself [click here] and in a ruling that should warm the hearts of probate lawyers everywhere, Georgia's Supreme Court confirmed in Levenson v. Word (No. S09G0336) that you can't use a Slayer Statute to target lawyers for simply doing their jobs. Florida's Slayer Statute comes up with some frequency [click here, here], so the threat of being targetted in the same way the Georgia lawyers were targetted can't be shrugged off by probate lawyers in this state.  One day you may need to refer to the Levenson opinion.

Here's how the Levenson opinion was reported in 'Slayer Statute' Doesn't Bar Lawyers From Keeping Fees Paid by Executrix, Judges Rule:

Georgia's defense bar on Monday welcomed a state Supreme Court decision confirming that legal fees paid to two attorneys by the executor of an estate prior to her subsequent guilty plea for murder of her husband could not be clawed back to the estate.

The court ruled that Georgia's "slayer statute," which forbids a murderer from profiting from the death of his or her victim, could not be used to bar access to the deceased's assets until there has been a guilty plea, conviction or other "clear and convincing evidence in any judicial proceeding."

"We are pleased the Supreme Court unanimously got it right," said Christine Koehler, president of the Georgia Association of Criminal Defense Lawyers, which had filed an amicus brief and supplied additional counsel supporting attorneys Gerald P. "Jerry" Word and Maryellen Simmons as they sought to retain $75,000 in fees paid to prepare a death-penalty defense for Debra Post. Post pleaded guilty in return for a life sentence in the Oct. 25, 2001, murder-for-hire of her husband, Jerry Post, in Douglasville, Ga.

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A bitter chapter in the litigation swirling around Brooke Astor and her estate - worth more than $180 million when she died two years ago - came to a close this week when Anthony Marshall was found guilty on criminal charges that he defrauded his mother and stole tens of millions of dollars from her as she suffered from Alzheimer’s disease in the twilight of her life.

As reported by the NY Times in Brooke Astor's Son Guilty in Scheme to Defraud Her:

The jury’s verdict means that Mrs. Astor’s son, Anthony D. Marshall, 85, faces a sentence of at least a year and as many as 25 years. A co-defendant, Francis X. Morrissey Jr., a lawyer who did estate planning for Mrs. Astor, was also convicted of a series of fraud and conspiracy charges, as well as one count of forging Mrs. Astor’s signature on an amendment to her will.

And it won't be long now before round two of this litigation heats up: a direct challenge to Brooke Astor's last will, again as reported by the NY Times:

Because many of the convictions were related to changes to Mrs. Astor’s will that prosecutors said the defendants procured through fraud, Mr. Marshall would seem to be compromised when the battle over Mrs. Astor’s estate — worth more than $180 million when she died two years ago — shifts to Surrogate’s Court in Westchester County.

Of the changes to the will, prosecutors vigorously objected to one executed in January 2004 that gave Mr. Marshall outright control of $60 million of his mother’s estate upon her death.

Paul Saunders, a lawyer for Mrs. de la Renta, said the main defense argument — that Mrs. Astor understood and consented to what her son was doing — had been undermined by the criminal verdict. “The jury clearly found that she did not,” he said. “That’s important because her mental capacity is the central issue in the will contest.”

Lesson learned?

This is only the latest development in a case that's been grabbing headlines for years [click here, here, here, here]. Will contests rarely have lasting significance beyond the families directly caught up in them, and this case is no exception. But I think those of us who make our living in the trusts and estates world may come to remember the Astor case as a very high profile example of a trend I predict we'll see more of in years to come: inheritance disputes morphing into criminal prosecutions. 

Whether trusts and estates lawyers think this is good or bad public policy is almost beside the point; it's a fact of life we'll have to deal with. Which means probate litigators will need to start teaming up with criminal defense attorneys much more frequently, advise their clients to "plead the 5th" at the first hint of trouble [click here], and consider what steps they as lawyers need to take to avoid becoming prosecution targets themselves [click here].

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I previously wrote here about the so-called “Jewish Clause” at the heart of an Illinois probate battle that’s received a good amount of national attention. The first time around an intermediate appellate court ruled the clause was not enforceable. In Estate of Max Feinberg, the Illinois Supreme Court has now reversed that court in a unanimous ruling upholding the clause.

In a 24-page opinion, Justice Rita Garman wrote that "Max and Erla were free to distribute their bounty as they saw fit and to favor grandchildren of whose life choices they approved" even though their decision might be "offensive" to other family members or to outsiders.

As reported by the LA Times in Jewish disinheritance upheld by Illinois high court:

Steven Resnicoff, co-director of the DePaul College of Law's Center for Jewish Law & Judaic Studies, hailed the court decision as consistent with Illinois public policy.

"It's not just a Jewish clause. It's a Catholic clause. It's a Muslim clause," Resnicoff said. "It's not uncommon that people want to encourage children to follow in their footsteps. [The] decision emphasizes the principle that, with some exceptions, a person is free to allocate his or her assets as the person sees fit."
 

For those looking to dig a little deeper, Ft. Lauderdale estate planning attorney David Shulman provides an excellent in-depth analysis of the case on his blog, the South Florida Estate Planning Blog, here and here.

Special thanks to Miami estate planning attorney Lucelly Dueñas for bringing this story to my attention.

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Brian R. Dolan and Joel M. Commerford have just published an interesting article entitled Virtual Adoption: Not Just for Netizens. Virtual adoption's one of those probate doctrines that most people don't know about, but it can be very useful in the right circumstances. So what is "virtual adoption"?

No Florida court has specifically defined the term “virtual adoption.” A good working definition, however, is “a court given name to a status arising from and created by contract where one takes and agrees to legally adopt the child of another but fails to do so.” While the term has not been specifically defined, the elements of virtual adoption are well established in Florida. The Fifth District Court of Appeal concisely listed the following elements necessary to establish an effective virtual adoption:

[1] An agreement [to adopt] between the natural and adoptive parents;

[2] Performance by the natural parent[s] of the child in giving up custody;

[3] Performance by the child by living in the home of the adoptive parents;

[4] Partial performance by the foster parents in taking the child into the home and treating the child as their child; and

[5] Intestacy of the foster parents.

All five elements must be present, and these elements must be proven by clear and convincing evidence.

Think Laterally: Virtual Adoption = Heir = PR?

The obvious, straight-line application of the virtual adoption doctrine is to establish a claim to an intestate share of an estate. If the authors had stopped there, they would have had a solid article, but not particularly noteworthy. So I was happy to see they went in a different direction; focusing on a less direct - but perhaps equally important - application of the doctrine.

Being someone's "heir" has all sorts of implications in a probate proceeding; probably the most important from a litigation standpoint being how it plays into who gets appointed personal representative ("PR"). In probate litigation the significance of who's appointed PR can't be overstated. The PR can use estate funds to pay his lawyers, the other side has to pay his own way. This one factor alone can often mean the difference between victory and defeat. So yeah, this is a big deal.

And here's how the authors link the virtual adoption doctrine to the question of who gets appointed PR:

It is a natural extension of the established principles that virtual adoption should also embrace the collateral issues of the appointment of personal representatives and other issues under the intestacy statutes. Florida courts have never addressed the question of whether virtual adoption confers upon the virtually adopted person eligibility to be appointed as personal representative of the estate. Close reading of the various authorities, however, suggests that virtual adoption should be extended to confer such eligibility upon the virtually adopted person.

The Third District Court of Appeal has stated that, “what can be enforced by such an action [virtual adoption] is the establishment of filiation where the child can be shown to have been virtually adopted.” As such, the virtually adopted child should be treated under the intestacy statutes as any other child of the decedent.

While scarce, courts have recognized applications of virtual adoption status to issues outside the immediate scope of the intestacy statutes. For instance, in Williams v. Dorrell, 714 So. 2d 574 (Fla 3d DCA 1998), the Third District Court of Appeal reasoned that a virtually adopted person was entitled to the rights of an heir under the homestead provisions of the Florida Constitution and Florida Statutes, ruling that descent of homestead property inures to the benefit of a virtually adopted child in the same manner as to natural or legally adopted children of an intestate decedent. Though not at issue in that case, presumably the protection from claims of the decedent’s creditors adhering to homestead property would likewise inure to the benefit of a virtually adopted child. Moreover, Georgia has recognized the virtually adopted child’s right to file a caveat in a probate action to protect the virtually adopted child’s rights. The Georgia Supreme Court stated:

[a] person claiming an interest in the estate of a testatrix, by reason of a virtual adoption, has such an interest in the estate as will authorize him to file a caveat to the will of the testatrix, when by the probate of such will he will be deprived of such interest. A contrary holding would deny to a party at interest in the estate, other than as heir, an opportunity to attack the probate, and thereby as against such party make the probate conclusive, thus defeating his interest in the estate of the testatrix.

The Florida Probate Code provides that preference in appointment of personal representative in intestate estates be given to “[t]he heir nearest in degree.” It is indisputable that a person deemed to have been virtually adopted is an heir in the second degree (behind the surviving spouse) for inheritance purposes. As an heir, it is a natural adjunct, then, that a virtually adopted person would hold the same position as any other heir with regard to appointment as personal representative. The court’s reasoning in Dorrell supports this conclusion. Furthermore, the Florida Probate Code provides that the first priority (after the surviving spouse) is “the person selected by a majority in interest of the heirs.”

*     *     *     *     *

Combining all these disparate parts into one cogent whole, then, it could reasonably be stated that virtual adoption is intended to put the virtually adopted person in the same position as that of a person naturally born of or formally adopted by the decedent as that relationship is affected by the intestacy statutes. Such a status would necessarily include not just inheritance rights, but the rights, duties, and obligations inherent in administering the estate of an intestate parent, particularly the right to preference in appointment as personal representative under the Florida Probate Code.

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Tax issues loom large in trusts & estates litigation, especially when the estate tax is in play. So on Monday, September 14, 2009, I'm teaching a 90-Minute National Teleconference entitled Tax Issues in Trust and Probate Litigation [click here for seminar materials].

In this seminar we'll examine how an awareness of the tax issues lurking in the background of almost every contested proceeding can be leveraged to maximum advantage for all concerned.  Click here to sign up.  I hope you can join me.

Bonus Materials:

The written materials for this seminar [click here] include a copy of the Mediation Settlement Agreement discussed in Private Letter Ruling 200844010, in which the IRS ruled that if you split a single "QTIP" marital trust into five separate sub-trusts and then terminate just one of those sub-trusts, IRC § 2519 is triggered only with respect to the terminated sub-trust [see also here for related commentary on this case/ terminating a marital trust that's been QTIP'd]. The significance of this state of the art sample settlement agreement is that it provides an excellent real-life example of how to elegantly navigate all the issues you need to both anticipate and deal with in any settlement agreement involving a termination of a marital trust that's been QTIP'd. This sample document alone is worth the price of admission.

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If you've never been in a probate courtroom, you might expect to walk in and see a judge sitting on a raised dais wearing a black rob. In real life (at least in Miami-Dade and Broward County Florida) your average probate courtroom is a good-sized office (otherwise known as the judge's "chambers") with everyone - including the judge - wearing a business suit and sitting around a long rectangular conference-room table. Which doesn't mean the quality of the process is diminished, it's just not what you're used to seeing on TV.

Bench Trials: Good Advice for Lawyers

It's also a fact of life that non-jury bench trials rarely get much attention in professional journals (and forget about the popular press). So I was happy to see an excellent piece in the August 2009 edition of the ABA Journal discussing the virtues of bench trials, which was also packed with good advice for lawyers involved in bench trials: When the Judge Is the Jury.

“It is essential for the only juror in the case—as well as everyone else—to actually watch an honest witness testify on direct and a dishonest one squirm during a powerful cross,” said Standwell.

“The best way to do that is to hold the trial in a good-size conference room around a large, oval table. Every­thing—from oral testimony to handling electronic demonstrative evidence—is easier. What’s more, everybody sees everybody else through the whole trial.

“And one of the biggest advantages over the traditional courtroom is that the lawyers get to ‘read the jury’ all through the case. And since the judge can—and often will—ask questions, you’re always aware of what’s on the jury’s mind,” said Standwell.

“The conference room setting also helps you be a better cross-examiner,” said Angus. “You’re not strutting around and posturing in front of an audience of 12 jurors, trying out those nasty bits of sarcasm on the wit­ness. You’re doing what you ought to do on cross-exam—telling ‘the rest of the story,’ what was left out of direct—with short, leading questions that give the wit­ness no wiggle room for evasive or misleading answers.”

“Another thing,” said Standwell. “The conference room setting also has an important effect on the dynamics of expert testimony."

“Even with world-famous scientists, economists, doctors and physicists, modern formal courtroom practice often turns the most fascinating expert testimony into sesquipedalian tergiversation,” said the judge. (Later, my 15-year-old daughter told me this means “incomprehensible, evasive large words.”)

“For my money,” said Standwell, “the more you can get your experts to explain economics, physics and medicine in plain English—the way the late Carl Sagan made simple sense out of intergalactic space—the better you will serve your case.

“The formal pageantry of 12 jurors, the clerks, bailiffs and court reporters, two or three sets of lawyers and a black-robed judge drives most experts back to the safety of the home cave—which for them is the world of incomprehensible jargon.

“A judge wearing a business suit instead of a robe in a conference room with everyone seated around an oval table goes a long way to make the whole process more human.

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The esoteric tax and property-law issues at play in most will contests or contested probate proceedings are so complex that it's become common practice in Florida to use experienced trusts and estates lawyers as expert witnesses in these trials.

But is it really proper to call a lawyer-expert to explain a body of law (no matter how complex) to the judge? Isn't the judge supposed to "know" the law? And if there's any explaining to do, isn't that what counsel for the parties is supposed to do?

That was the question the trial judge was asked to rule upon recently in the trial of Anthony Marshall, the son of the philanthropist Brooke Astor. Here's how the judge's ruling was reported in Former Milbank Chairman to Testify as Wills Expert in Astor Trial:

Three months into the criminal trial of socialite Brooke Astor's son, Anthony Marshall, and the lawyer he hired who allegedly helped him loot his mother's estate, the presiding judge has cleared the way for a trusts and estate expert to testify for the prosecution.

Alexander D. Forger, the former chairman of Milbank, Tweed, Hadley & McCloy, can give expert testimony on the "patterns" of Astor's wills and codicils and the "professional practice standards" for trusts and estates attorneys, Acting Supreme Court Justice A. Kirke Bartley Jr. ruled Wednesday from the bench.

However, the judge barred Forger from testifying on issues that could prove critical to the prosecution's case: whether Henry Christensen III, who represented Astor for more than 20 years, and G. Warren Whitaker, the attorney who drafted a hotly disputed Jan. 12, 2004, codicil to the socialite's 2002 will, violated ethical standards.

By the way, if you ever find yourself arguing either side of this issue, you'll want to read the submissions of the prosecution and Marshall regarding Forger's appearance. Both do a good job of articulating the classic arguments for and against allowing lawyers to testify as expert witnesses.

But is it OK under Florida law to qualify lawyers as "experts" to explain trusts and estates law issues to a judge? Like I said, it's so commonly done, you'll rarely if ever find yourself actually having to litigate the issue. But if you do find yourself having to argue this point, a case you'll want to read - regardless of what side of the argument you may be on - is Guy v. Kight, 431 So.2d 653 (Fla. 5th DCA 1983), which provides as follows:

Section 90.703, Florida Statutes (1981) provides that “[t]estimony in the form of an opinion or inference otherwise admissible is not objectionable because it includes an ultimate issue to be decided by the trier of fact.” Additionally, it has been held that there is no error in permitting an attorney to testify as an expert witness at trial as to substantive and procedural Florida law. Warwick, Paul & Warwick v. Dotter, 190 So.2d 596 (Fla. 4th DCA 1966).

Another source you should review if you're thinking about serving as an expert witness yourself or engaging another attorney as an expert witness is ABA Formal Ethics Opinon 97-407 (Lawyer as Expert Witness or Expert Consultant).

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Celebrities loom large in the world of probate litigation. They've often lead messy lives, which means their estates are magnets for litigation [click here]. And (if their heirs are lucky), they leave  behind huge fortunes that actually get bigger over time. In fact Forbes publishes an annual Top-Earning Dead Celebrities list that tracks this phenomenon.

So far Michael Jackson's estate is following the celebrity-probate script to a "T". 

Jackson's life was messy: three children by different women; complicated family dynamics involving his brothers, sister, mom and dad; drug abuse . . . you get the picture.  And even if Jackson's will isn't challenged or some unkown heir doesn't come forward with some other type of claim, figuring out how to manage his estate will be a monumental task akin to reorganizing a multimillion dollar media conglomerate on the verge of insolvency. Here's an excerpt from a WSJ piece entitled Jackson Will From 2002 In Spotlight that gives us a glimpse of what's to come:

Unwinding Mr. Jackson's estate is likely to be a thorny challenge, given the size and complexity of both the assets and the debts involved. In all, Mr. Jackson died with around $500 million debt, but the value of his assets probably outweigh that, possibly by $200 million or more, according to people familiar with the matter.

Mr. Jackson's most valuable asset is believed to be his 50% stake in Sony/ATV Music Publishing, a joint venture with Sony Corp. That stake is collateral for a $300 million loan held by Barclays PLC. And Mr. Jackson's level of control over the venture was reduced in a 2006 refinancing. For instance, he no longer has veto power over key executive appointments, according to people familiar with the situation. Sony also has the right to buy half of Mr. Jackson's 50% stake when it chooses.

Mr. Jackson's other assets include Mijac, a publishing catalog that comprises his own musical composition that is collateral for a separate $73 million loan. And control of the master recordings of his albums, currently in the hands of Sony, is set to revert to him in five years, according to people familiar with the matter.

But Mr. Jackson last year defaulted on a $24.5 million loan backed by another major component of his portfolio, Neverland Valley Ranch. He then became a partner in a venture -- Sycamore Valley Ranch Co., LLC -- that now owns the property. It is not clear what will become of the property once the will is executed.

On the upside, in the midst of this recession Jackson's estate is the kind of economic stimulus package that'll "provide a lifetime annuity for scores of trust and estate lawyers," as predicted in the WSJ's Wealth Report Blog [click here].

Stay tuned for more . .

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Undue influence is one of the mainstays of probate litigation and a frequent topic of discussion on this blog [click here, here, here]. Probate lawyers need to know this area of the law cold.

Orlando litigator David P. Hathaway tackled the issue from an interesting perspective in a June 2009 Florida Bar Journal article entitled Make It an Even 10: Courts Rely on More Than the Seven Carpenter Factors to Analyze a Claim for Undue Influence of a Will or Trust.

David's thesis is that probate litigators need to think beyond the seven Carpenter factors we all know and love.

In addition to the seven Carpenter factors, however, Florida law recognizes at least three other indicators of active procurement: a) isolating the testator and disparaging family members; b) mental inequality between the decedent and the beneficiary; and c) the reasonableness of the will or trust provisions. This article analyzes the case law surrounding these additional factors to assist practitioners in fully developing a case for or against undue influence.

And here's how David goes on to introduce each of these factors:

Isolating the Testator and Disparaging Family Members
As early as 1919, the Florida Supreme Court found undue influence where a beneficiary purposefully isolated the decedent by denying access to family and friends, with hopes of breaking down whatever ties of affection existed between the decedent and his family and friends.9 In Newman v. Smith, 82 So. 2d 236 (Fla. 1919), a beneficiary of a will had intercepted letters and telegrams sent to the decedent by his daughter, ignored all requests contained within them, and responded only to prevent the decedent’s daughter from visiting the decedent.10 The beneficiary’s isolation of the decedent denied the daughter all access to the decedent, such that “the ties of fatherly affection [were] destroyed.”11 The court stated that based on these facts, it would have invalidated the will on the grounds of undue influence alone without any evidence of lack of testamentary capacity.12

Mental Inequality Between the Decedent and the Beneficiary
Florida courts have considered the inequality of mental acuity between the decedent and beneficiary to determine whether a will was procured by undue influence. Although this factor is similar to the issue of voiding a will for lack of testamentary capacity, it differs in that it assumes the decedent does have testamentary capacity, but is weak-minded and, therefore, easily influenced. Essentially, the factor compares the decedent and the influencer rather than merely evaluating the testamentary capacity of the decedent.

Reasonableness of the Will or Trust Provisions
A sometimes obvious sign of undue influence in the procurement of a will or trust is the instrument itself. The 1919 case of Newman v. Smith, discussed earlier, stated that a suspicion of undue influence was inevitable because the will seemed to contradict, ignore, and disregard the promises and assurances made by the decedent to his needy child, yet provided substantial bequests to an “affluent wife, held in slight regard.”47 In Newman, the decedent had promised and assured his beloved daughter that he would provide for her upon his death and had an original will reflecting such intent.48 However, this “equitable, rational, and just” will was replaced by a subsequent will which disinherited the daughter and devised all of the decedent’s property to his affluent wife.49 The Florida Supreme Court stated that a will should not be revoked “merely because it is unreasonable and unjust.” However, where “it does violence to the natural instincts of the heart, to the dictates of fatherly affection, to natural justice, to solemn promises, to moral duty, such unexplained inequality and unreasonableness is entitled to great influence in considering the question of testamentary capacity and undue influence.”50 The court also stated “[i]n doubtful cases the reasonableness or not of a will, in its various provisions is entitled to great weight.”51

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In Estate of Feinberg, 383 Ill. App. 3d 992 (1st Dist. June 30, 2008), an Illinois appellate court ruled a testator could NOT disinherit his grandchildren for marrying non-Jews. Here's how the case was summarized in this piece in the Chicago Jewish News:

When Max Feinberg was in dental school in the 1920s and '30s, he was one of only a handful of Jews in his class and was subjected to anti-Semitic slurs. He graduated at the height of the Depression and worked a seven-day week to build his dental practice. Although he did not adhere to the Orthodox Jewish practices in which he was raised, his Judaism was a crucial part of his life. He and his wife, Erla, belonged to a Conservative synagogue, observed Jewish tradition and always celebrated Jewish holidays.

Before he died in 1986 at age 77, Feinberg had his attorney insert a clause in his will concerning the distribution of his considerable financial assets. It stated that none of his grandchildren, or their children or grandchildren, would inherit the $250,000 he had allotted to each of them if they married a non-Jewish spouse unless the spouse converted to Judaism.

Max Feinberg couldn't have known that that clause would become the subject of intense scrutiny and the basis of a lawsuit. In it, one of his grandchildren sought to prove that the clause was invalid. An Illinois court agreed. Now the Illinois Appellate Court has confirmed the decision, with one Jewish justice offering an impassioned dissent. There's a possibility the case may go to the Illinois Supreme Court next.

The case was also written up here in Trusts & Estates Magazine and here in the Chicago Tribune.

It's not uncommon to see estate-planning articles touching on the pros and cons of "incentive trusts": trusts that use money to encourage or discourage certain behaviors [click here]. The take-away for Florida estate planners from the Feinberg opinion is that love 'em or hate 'em, you can only go so far with incentive trusts; get too creative and your client's estate plan may meet the same fate Max Feinberg's did.

By the way, I'm pretty sure a Florida court would rule the same way as the Illinois court did. If you come across this issue in your practice you'd do well to focus on Restatement of Trusts §29, which the Illinois court relied on heavily in its opinion. Here's the key excerpt from the Feinberg opinion:

The Restatement Third of Trusts provides that trust provisions which are contrary to public policy are void. It gives as a specific example a provision that all of a beneficiary's rights to a trust would terminate if he married a person who was not of a specified religion:

[Comment j.] Family relationships. A trust or a condition or other provision in the terms of a trust is ordinarily * * * invalid if it tends to encourage disruption of a family relationship or to discourage formation or resumption of such a relationship. * * *

* * *
In addition, a trust provision is ordinarily invalid if it tends seriously to interfere with or inhibit the exercise of a beneficiary's freedom to obtain a divorce * * * or the exercise of freedom to marry * * * by limiting the beneficiary's selection of a spouse * * *. * * *

* * *
[Illustration 3.] The marriage condition terminates all of [settler's nephew] N's rights if, before termination of the trust, he ‘should marry a person who is not of R Religion,’ with the same gift over to C College. The condition is an invalid restraint on marriage; the trust and N's rights will be given effect as if the marriage condition and the gift over to C College had been omitted from the terms of the trust.

Restatement of Trusts § 29, Explanatory Notes, Comment j, Illustration 3, at 62-64 (3d ed.2003).

We hold that under Illinois law and under the Restatement (Third) of Trusts, the provision in the case before us is invalid because it seriously interferes with and limits the right of individuals to marry a person of their own choosing.

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The Manhattan district attorney's office's elder abuse unit is prosecuting Anthony Marshall of exerting undue influence upon his mother, Brooke Astor, when she was diminished by Alzheimer's disease, to persuade her to sign a codicil to her 2002 will that made Marshall the outright heir of her residuary estate instead of having it pass ultimately to charities.  Marshall is the only son of Brooke Astor, a grande dame of New York society who died in August 2005 at 105 leaving an estate valued at $132 million in addition to a $60 million trust.

This is a will contest, pure and simple. Unfortunately, it's being litigated as a criminal prosecution.  

As reported in Lawyer, Socialite Astor's Son Stole Millions Intended for Charity, DA Says, Marshall - who is 84 - is effectively looking at spending the rest of his life behind bars if he loses this trial:

Marshall is named in 16 counts charging him with crimes such as a scheme to defraud, grand larceny and conspiracy. He faces a maximum sentence of 8 1/3 to 25 years if convicted of first-degree grand larceny, the most serious of the 16 counts he has been charged with.

Lesson learned?

As our population ages, I suspect more and more local prosecutors will feel compelled to prosecute what are essentially inheritance disputes as criminal matters. Whether you think this is good or bad public policy is almost beside the point; it's a fact of life we'll have to deal with. Which means probate litigators will need to start teaming up with criminal defense attorneys much more frequently, advise their clients to "plead the 5th" at the first hint of trouble [click here], and consider what steps they as lawyers need to take to avoid becoming prosecution targets themselves [click here].

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A celebrity's best earning years may come long after he or she passes away, as reported by Forbes in its annual Top-Earning Dead Celebrities list. The NY Times reported on one estate that's trying to join the Forbes list in Protecting Brando Legacy, Trustees You Can’t Refuse.  In the excerpt below two points caught my eye: (i) the estate's focus on intellectual property rights and (ii) the incredible amount of litigation Brando's estate has been involved in (26 cases and counting!):

On Friday the Brando trustees — the movie producer Mike Medavoy, the accountant Larry Dressler and Brando’s former personal assistant Avra Douglas — filed suit in Los Angeles County Superior Court against a group of companies that own and operate the Broadcast Center Apartments near CBS Television City, claiming infringement of Brando’s trademarked name.

It was one small step for those who have been trying to make a business out of Brando’s legacy ever since he died, at 80, in 2004.

The trustees are also expected to announce on Monday that they have begun operating as Brando Enterprises, a business partnership designed to protect and manage the Brando brand, and have hired a Los Angeles licensing agency, Brand Sense Partners, to help them.

If the coalition finds new value in what Brando left behind, it will be a welcome change for the heirs and trustees. Until now they have spent time and resources on an extraordinary tangle of litigation. A summary recently compiled by lawyers for the Brando trust showed that 26 separate legal cases had been opened since late 2003.

But the Brando legal team is now mostly on offense. “I’m the guy who makes them an offer they can’t refuse,” said Jeffrey I. Abrams, a lawyer who has been helping the estate hunt for trademark infringers.

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A trustee's duty to inform and report to beneficiaries is fundamental to the trust relationship. When that system breaks down, things can go bad really fast, a point that comes up again and again every time the press reports on some trustee getting caught stealing trust funds.

And that's apparently what happened again in the case reported on in Foreign Trusts Allege N.Y. Lawyer 'Shamelessly Looted' Millions From Bank Accounts. In the excerpt below note how the breakdown in the trustee reporting/accounting regime is at the heart of the accusation of theft.

The owners of five Liechtenstein-based trusts have sued a New York lawyer with 60 years experience in international estate planning, alleging he "shamelessly looted" more than $15 million from the clients for longer than a decade.

*     *     *     *     *

The suit alleges that funds were embezzled between January 1997 and December 2007. The five plaintiffs, Establishment Finapart, Establishment Figest, Establishment Gour-Sande, Establishment Elatia and Establishment Elatia, accuse Munyan of "using a Byzantine system of trusts and offshore companies for his own personal use." It alleges he diverted assets from the five Liechtenstein trusts to make payments to Riad's accounts and to pay Kinbrace for his personal use, and that he diverted plaintiffs' funds to pay his American Express accounts.

In Establishment Finapart v. Munyan, No. 0960110 (New York Co., N.Y., Sup. Ct.), Feldberg alleges that Ritter and Meier were directors on the trusts' board of directors and had an obligation to prepare annual financial statements. Instead, "Ritter and Meier gave Munyan the keys to the establishments and, by extension, the assets they controlled, and turned a blind eye as Munyan drained the establishments' coffers."

But what about confidentiality?

If you've got your litigator hat on it makes perfect sense to impose reporting duties on trustees. But my estate planning clients look at me like I'm some kind of Communist when I tell them their children (and perhaps even grandchildren!) will be entitled to annual trust accountings (plus all the other disclosure rights beneficiaries get under Florida law [click here]) once they fund that new irrevocable trust we've been talking about for the last six months.

Apparently I'm not the only one whose encountered this reaction because there's a fix built right into Florida's new trust code. Under F.S. 736.0306 a settlor can appoint or designate a person to represent and bind a trust beneficiary or to receive notices, information, reports and accounts on the beneficiary's behalf. This section, which has no counterpart in the Uniform Trust Code, contemplates that the designated representative could be appointed directly by the settlor or by others (such as a committee) pursuant to a process set out in the trust instrument. Presto! confidentiality preserved.

By the way, some really smart people out there think this "designated representative" idea may not be such a good thing. In The Trustee's Duty to Inform and Report Under the Uniform Trust Code, author and Denver, Colorado, trusts-and-estates attorney Kevin Millard writes about a similar statute adopted by the District of Columbia. The following critique would apply to F.S. 736.0306 with equal force:

[A] troubling aspect of the District of Columbia surrogate notice provision is that it does not give the surrogate any standing or authority to enforce the trust on behalf of the beneficiaries. If notice or information provided to the surrogate discloses a potential claim against the trustee for breach of trust, what is the surrogate to do? The statute gives the surrogate no express authority to pursue action against the trustee to redress a breach of trust. Presumably, the surrogate should notify the beneficiary of the potential breach and let the beneficiary decide whether to pursue action against the trustee, but passing the notice through the surrogate’s filter may effectively prevent the beneficiary from pursuing a claim. If the surrogate, through ignorance, lack of sophistication, or simple mistake, fails to notify the beneficiary of a potential claim, the beneficiary may never learn of the claim or may learn of the claim only after the statute of limitations has run. Additionally, it appears that the beneficiary would have no recourse against the surrogate for failing to inform the beneficiary of the claim unless the beneficiary can show that the surrogate did not act in good faith.

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Accounting concepts are dull in the abstract, it's only in application to a real live set of facts that they become interesting. Ask the folks at Enron/Arthur Anderson if they think accounting is boring?! And ask your clients if they think accounting is boring the next time you double a trust's income distribution or deliver a huge tax savings based on nothing other than a working knowledge of Florida's fiduciary accounting principals? (P.S. Think you'll have trouble getting that bill paid?)

So I think we can all agree it's worth your while to at least know how to spot a fiduciary-accounting issue when it's staring you in the face. And the best way to tackle that problem is to have a list of hot-button fiduciary accounting scenarios to be on the look out for. Which is what William C. Carroll and John W. Randolph, Jr., deliver in an excellent two-part series on Florida's version of the Uniform Principal and Income Act. I wrote here on Part I of this series. In Things That May Surprise You About Florida’s Principal and Income Act and Related Accounting Law, Part II, the authors move up the complexity scale by tackling the following scenarios:

1. Life Estate in Real Property
2. Mutual Fund Capital Gain Distributions
3. Bond Discounts and Premiums
4. Determination of Net Income of an Estate in Marital Deduction Instances
5. Establishing a Principal Reserve for Future Income Expenses 

Here's an excerpt from the article's introduction:

Part one of this two-part article introduced the reader to the provisions of the Florida Uniform Principal and Income Act. In part two, the authors continue using examples to explore the more complex workings of the act and how those provisions allocate trust and estate receipts and disbursements between income and principal of an estate or trust. As in part one, these examples assume that the will or trust is silent as to allocating the receipt or disbursement at issue to either income or principal, and does not give the personal representative and/or trustee a discretionary power of administration.

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As reported here, Sen. Max Baucus has introduced a bill in the Senate that would make the 2009 estate tax level permanent and reunify the estate and gift taxes. Nothing surprising here, but it's worth noting that this bill also allows portability of the exemption for spouses. This is a big deal. By now I think the emerging consensus is that "portability" is going to be a part of the new estate-tax landscape, which I previously wrote about here.

For more detail on the Baucus bill, click here for North Carolina estate planning attorney Greg Herman-Giddens' comments on his North Carolina Estate Planning Blog.

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A defining characteristic of probate litigation is that your cases are decided by judges, no jury trials here. If your judge is prepared and understands the facts and law of your case, all is well. But when your judge is not prepared, or simply doesn't "get" it, he's what Denver, Colorado litigator Peter Bornstein refers to as a "cold" judge in Persuading a Cold Judge, an excellent article just published in the ABA's Litigation magazine. Here's how Bornstein frames the issue:

Having your case decided by another human being who may rule against your client out of ignorance is to stare into the abyss. Of all the reasons to tell your client why his or her case was lost, the least satisfying and most embarrassing is having to say, “The judge never understood what it was about.” Every trial lawyer has candidly said, “I won cases I should have lost and lost cases I should have won.” The reason for this truism is often the “cold” judge—the judge who hears and rules without knowledge, understanding, depth, or concern. So, what do you do when you stand before a cold judge? Don’t panic. Keep your cool. Do your best. And remember that even when your judge is prepared, scholarly, and mindful of her reputation, you still know more about your case than anyone else in the courtroom. 

Probate courts are especially prone to cold judging. Not because our probate judges don't want to do the right thing (I assume they all do), but because Florida's state court system is so starved for resources they simply don't have the luxury of preparation. Also, as a general rule, although the stakes in dollar terms may be smaller, the issues involved in contested probate proceedings can be just as complicated and difficult as the issues at play in large complex commercial cases. To make matters worse, clients are often unwilling or unable to pay for the same level of preparation.

So what's to be done? One option is to "privatize" contested probate proceedings to the extent possible by tapping into one of the many alternative-dispute-resolution tools available under Florida law [click here]. If that doesn't work, then Bornstein delivers solid advice - especially useful for probate litigators - on how to warm up even the frostiest probate judge:

Begin at the beginning. In every court appearance, there are six basic queries to answer for a judge: [1] Who are you? [2] Who is with you, and whom are you representing? [3] What is the controversy, in one sentence? [4] Why are you here today? [5] What outcome or relief do you want? [6] Why should you get it? This last query is most often forgotten. Indeed, these six essential queries are a good beginning even when you are dealing with a warm judge. Consider putting them on a PowerPoint slide, a handout in the form of an “executive summary,” or a demonstrative exhibit to project through Elmo or other presentation technology.

A judge in a suburban district told me that the one thing I could do to assist his judging was to begin succinctly by telling him what was before the court, remind him of the nature of the case, and tell him what action I wanted the court to take and why I thought I had the right to that action. Once I did this for him, he would be ready to listen to my argument. This particular judge told me that he has so many cases that he can’t read the motions before the hearing, and if he has read them, it was so long ago that he couldn’t recall what he’d read. He has no legal assistant to write memos for him; he does his own legal research, and if you cited more than 10 cases for him to read, he couldn’t do it. He likes being a judge and wants to do the best job he can, but he is forced to come into hearings and trials cold. So, help him be the good judge he wants to be and the quality of his decisions will be your reward.

Sounds like good advice to me.

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Especially in large or fairly complex estates or trusts, the ultimate value of your client's inheritance often depends in large part on how income and expense items are accounted for and allocated among the beneficiaries. Spotting these fiduciary accounting issues in advance (either as an estate planner or probate lawyer) is easier said than done.

One way to tackle that problem is to have a list of hot-button fiduciary accounting scenarios to be on the look out for. Which is exactly what William C. Carroll and John W. Randolph, Jr., deliver in an excellent article they published in this month's Florida Bar Journal. In Things That May Surprise You About Florida’s Principal and Income Act and Related Accounting Law, Part I, the authors explain how Florida's Principal and Income Act would apply (in often unexpected ways) in each of the following scenarios:

1. Specifically Devised Real Estate
2. Rental Real Estate
3. Distributions Received by a Private Trustee from Investment Entity and a Targeted Entity
4. Allocation of Receipts at Decedent’s Death
5. Death of an Income Beneficiary
6. Pecuniary Amounts

Here's an excerpt from the article's introduction:

In 2002, the Florida Legislature adopted the Florida Uniform Principal and Income Act, effective on January 1, 2003 (the act). The act, which is found in F.S. Ch. 738, is a modified version of the Uniform Principal and Income Act (1997) [click here]. The statutory sections of the act allocate trust and estate receipts and disbursements between income and principal. Additionally, the act contains provisions that allow a trustee to make adjustments between income and principal (§738.104) and to convert a trust to a unitrust (§738.1041). Sections 738.104 and 738.1041 are beyond the scope of this article.

It is significant to note that the statutory sections of the act are “default” sections, meaning that the provisions of Ch. 738 only apply if the terms of the trust or will do not contain a different provision or do not give the fiduciary a discretionary power of administration. It is critically important that attorneys practicing in the trusts and estates area have a working knowledge of the act. Through extensive examples, this two-part article will explore the inner workings of some of the more significant provisions of the act. These examples assume that the will or trust is silent as to allocating the receipt or disbursement at issue to either income or principal, and does not give the fiduciary a discretionary power of administration.

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Chicago-area probate lawyer Joel A. Schoenmeyer wrote here on his Death and Taxes Blog about an article discussing why even probate lawyers feel the heat as our economy continues its downward spiral: Tough times making even probate practice riskier.  One particular risk the linked-to article points out is worth focusing on:

Before the bottom started falling out of the real estate market, a probate lawyer who was dilatory in dealing with an estate could point to the fact that the property had increased in value while he fiddled. Not any more. In some cases, property values are fluctuating tens of thousands of dollars in a month. Beneficiaries do not take kindly to seeing their nest egg evaporating in plain sight. While the estate’s lawyer can’t determine when a property will sell or for what price, he does have some say over when it gets on the market, and the sooner the better, according to White, who is based about 400 kilometres northeast of Vancouver.

And if you think estate beneficiaries won't sue over plunging values, think again. Back in 2006 I wrote here about a New Hampshire priest serving as executor of an estate who was tagged with a $1,256,000 surcharge judgment after the estate's stock portfolio dropped in value from $6.5 million to $500,000 on his watch. And guess who the priest sued for malpractice? Who else, his probate lawyer.

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Hays v. Lawrence, --- So.2d ----, 2009 WL 211048 (Fla. 5th DCA Jan 30, 2009)

The probate bar has been mulling over the question of if, when and how Civ. Pro. Rule 1.525, the rule setting a 30-day post-judgment deadline for filing fee motions in civil litigation, applies to contested probate and trust proceedings.  This is an important issue; the last thing any lawyer wants to do is blow past a deadline for claiming fees on behalf of his client. Here's what the rule says:

Any party seeking a judgment taxing costs, attorneys' fees, or both shall serve a motion no later than 30 days after filing of the judgment, including a judgment of dismissal, or the service of a notice of voluntary dismissal.

Then a few months ago comes the Donkersloot opinion, a case out of the 2d DCA implying that Civ. Pro. Rule 1.525 applies to trust litigation (this was a first).  In the context of writing about that case I also linked to the excellent work being done by a subcommittee of the RPPTL section looking at possible statutory fixes [click here].

Then the Winter 2009 edition of ActionLine contained an article by Jon Scuderi, Esq., Goldman, Felcoski & Stone P.A., Naples, FL and Rebecca Y. Zung-Clough, Esq., Wealth Strategist, Northern Trust, NA, Naples FL, entitled Does Florida Rule of Civil Procedure 1.525 Apply to Probate and Trust Proceedings? Their conclusion: YES!

And now, in the linked-to case above, the 5th DCA has weighed in on whether Civ. Pro. Rule 1.525 applies to adversary probate proceedings. Their conclusion: YES!  Here's an excerpt:

Appellants filed a petition for administration, claiming, in part, that a handwritten document dated August 13, 1978, was the last will of James Douglas Lawrence. Appellants' petition requested that the court admit the handwritten document to probate and appoint them as personal representatives of Lawrence's estate. On the same day, Appellants filed a declaration that the proceeding was adversary. After a trial was held on the petition in accordance with Florida Probate Rule 5.025, the court issued a final order denying Appellants' petition for administration and refusing to admit the handwritten document to probate. Appellants appealed the decision to this Court, which ultimately dismissed the appeal on March 1, 2007.

On March 29, 2007, Appellants' attorneys filed a petition for order authorizing the payment of attorney's fees and expenses pursuant to section 733.106(2), Florida Statutes (2007). Appellees moved to strike the petition, arguing, in part, that the petition for fees and costs was untimely because it was filed seven months after the final order was entered instead of within thirty days as required by rule 1.525. The trial court granted the motion to strike.

The central issue framed by the parties is whether the rules of civil procedure applied to the proceeding below. The resolution of this issue turns on whether the underlying dispute in probate court was an adversary proceeding. In a probate action, if the case is determined to be an adversary proceeding, it “shall be conducted similar to suits of a civil nature and the Florida Rules of Civil Procedure shall govern, including entry of defaults.” Fla. Prob. R. 5.025(d)(2). Notwithstanding Appellants' prior declaration that the dispute was adversary, they urge that it was not. We disagree. See Fla. Prob. R. 5.025(b) (proceedings are adversary if declared as such).

Contrary to Appellant's argument, In re Estate of Beeman, 391 So.2d 276 (Fla. 4th DCA 1980), is distinguished. There, our sister court addressed the issue of whether the rules of civil procedure applied in a probate proceeding to determine fees of counsel for the estate. In ruling that the civil rules did not apply, the Beeman court emphasized that the proceeding below had not been “designated” an adversary proceeding. We think this finding distinguishes Beeman from this case. Here, the proceeding was declared as an adversary proceeding to determine the validity of the purported will and tried as such. Under these circumstances, the rules of civil procedure, and specifically, rule 1.525 were applicable. Therefore, the motion was not timely.
 

Lesson learned:

If anyone was hoping this trap-for-the-unwary would just go away, forget about it. Now that we have a couple of appellate decisions plus an ActionLine article plus the RPPTL section all talking about how Civ. Pro. Rule 1.525 applies to "adversary" probate proceedings and trust litigation, you need to assume everyone's heard of this issue by now and will be more than happy to spring this trap on you if you blow the 30-day deadline to file your motion for fees. You've been warned.

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The Winter 2009 edition of ActionLine contains a short article entitled The Cutler En Banc Opinion: Is the Third DCA Eroding the Protection Afforded to Heirs Who Are to Receive Devises of Florida Homestead? by Melbourne probate attorney Charlie Nash. Charlie's article does a good job of dissecting the 3d DCA's opinion in the Cutler case, which addressed the interplay between the creditor protections applicable to otherwise freely-devisable homestead property in Florida. I previously wrote about the Cutler opinion here.

Lesson learned?

Just because you're dealing with "freely devisable" homestead property doesn't mean you're home free. As made clear by the Cutler decision and Charlie's article, as well as other recent appellate decisions I've written about involving freely-devisable homestead property [click here, here, here], the unintended consequences can blow up even the most carefully crafted estate plan.

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A "QTIP trust" allows a person's estate to receive a 100% estate-tax marital deduction for assets left in trust for a surviving spouse for life, with the remainder of the trust assets going to the settlor's children (or other heirs) once the surviving spouse passes away [click here].  A common source of trust litigation is the hostility often existing between children of a first marriage and the step-parent who becomes the life-time beneficiary of the QTIP trust.

One very effective long-term solution for this type of litigation is to permanently separate the warring factions by simply terminating the QTIP trust and dividing the assets between the life-time beneficiary (surviving step-mother) and the remainder beneficiaries (children of dad's first marriage).  Sounds simple, but the tax and trust-law issues triggered by this split can be extremely complex.  There are two recently-published resources that provide a solid starting point for trusts-and-estates lawyers looking to get their arms around QTIP splits.

First, I recently wrote about creative lawyering by Florida attorneys working through a QTIP trust split/termination and related IRS Private Letter Ruling 200844010, in which the IRS outlined the operative tax issues and blessed the tax results the parties were attempting to achieve in their settlement agreement [click here].

Second, in a follow-up to his blog entry discussing the QTIP-termination PLR [click here], Florida tax attorney/blogger Charles Rubin, of Gutter Chaves Josepher Rubin Forman Fleisher P.A., recently published an article entitled Tax Results of Settling Disputes Involving QTIP Trusts.  Mr. Rubin's article does an excellent job of expanding on the tax issues reflected in IRS Private Letter Ruling 200844010 and pointing out all the other potential traps for lawyers involved in similar cases.

Presto!  You're now a QTIP trust termination expert.

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At this year's Heckerling conference in Florida one of the speakers asked a conference room of (I'd guess) over a thousand trusts-and-estates attorneys/CPAs from across the country how many of them had clients affected by the Madoff scandal: easily 9 out of 10 raised their hands. The breadth and scope of this scandal is truly amazing.

As you might expect there was a good deal of discussion regarding what trustees and other fiduciaries (our clients) need to be thinking about if they're unlucky enough to be administering trusts or estates that invested with Madoff. Here are a few of the highlights:

[1.]  For those trustees and other fiduciary investors who cashed out before the fraud was detected . . . you're not out of the woods yet. Think "claw back".

As reported in an excellent on-line piece by the law firm K&L Gates entitled The Madoff Dissolution: A Consideration of the Bayou Precedent and Possible Next Steps, in Ponzi-scheme cases such as Madoff's courts have regularly held that each individual redemption payment made to an investor who cashed out before the scheme is discovered is presumptively a fraudulent transfer. Based on this fraudulent-transfer theory courts can compel investors to pay back funds received from the Ponzi scheme unless they can affirmatively show that they received the funds in good faith and for value.

Citing to a similar case, the Bayou matter, presided over by the very same NY judge presiding over the Madoff case, the linked-to K&L Gate piece gave us a glimpse of what Madoff investors can look forward to:

In 2006, Bayou’s court-appointed receiver brought over 130 fraudulent transfer adversary proceedings against Bayou investors that had redeemed fictitious profit and principal within two years of Bayou’s bankruptcy filing. Later in 2008, the Bayou receiver brought New York state law claims against persons redeeming up to six years before the bankruptcy filing. In a series of rulings, the court held that redemption payments from a Ponzi scheme presumptively satisfied the “actual fraud” prong of the fraudulent transfer standard and that the “good faith” affirmative defense requires an objective test of whether a reasonable and prudent investor should have been on inquiry notice of the fraud, and, if on inquiry notice, the redeemer was diligent in its investigation.[11] In addition, the court ruled as a matter of law that redemption payments received by investors in excess of their original principal based on artificially inflated results, or so-called “fictitious profits,” were required to be refunded to the estate, regardless of the redeemer’s good faith.[12] Moreover, the court held that a redeeming investor cannot utilize the good faith affirmative defense unless it can show it conducted a diligent investigation of each potential problem or red flag.[13]

As a result of these rulings, all of the investors in the Bayou matter who redeemed their investments within the six-year clawback period were ordered to return fictitious profits and may be required to pay pre-judgment interest on those profits. Over 90 redeemers have settled with the estate for the return of false profits and a portion of their principal. In addition, the court has ordered several dozen investors to refund all of their principal. The court upheld the good faith defenses of a small number of redeemers, and ordered trial of a handful more cases. To date, the Bayou receiver has recovered through settlement and legal rulings approximately $68 million, with an anticipated litigation recovery for creditors of the Bayou estate, net of expenses, of between 15 and 20 cents per dollar.

For those of you looking to drill down into this issue a good starting place would be the two Bayou opinions cited in the K&L Gates piece: In re Bayou Group, LLC, 362 B.R. 624 (Bankr. S.D.N.Y. 2007) and In re Bayou Group, LLC, 396 B.R. 810, *__ (Bankr. S.D.N.Y. 2008).

[2.]  What tax issues should you be thinking about?

From an income-tax perspective, the consensus seems to be that Madoff investors need to focus on (1) entitlement to a theft loss deduction under IRC § 165 and (2) the ability to file amended returns seeking refunds for taxes paid on phantom income reported from the Madoff firm. These issues are summarized nicely in an on-line piece published by the Gibbons law firm entitled Federal Income Tax Treatment of Investment Losses From L'Affaire Madoff.

Warning: make sure your clients don't forfeit claiming a refund for taxes paid on 2005 phantom income. Here's how this point was summarized in an on-line piece published by the Gibbons law firm:

For most taxpayers, the current open years are 2005, 2006, and 2007. A taxpayer will need to file an amended return for 2005 by April 15, 2009 if the taxpayer filed the 2005 return on or before April 15, 2006. If a taxpayer obtained an extension for filing until October 15, 2006, the taxpayer will have three years from the date of filing in 2006 to file the amended return.

By filing an amended return, the taxpayer implicitly reduces its adjusted basis by the amount of the reduction in reported income. This reduction will also reduce the overall amount of the theft loss deduction.

For a comprehensive list of on-line sources addressing the tax fallout from the Madoff case go to More Tax Planning for Madoff Victims on the Tax Prof Blog.

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Win, lose or draw, I think all sides can agree that finality on the estate-tax front would be a welcomed development. And the wait may be coming to an end. The WSJ reported today in Obama Plans to Keep Estate Tax that the new administration has concluded "that if they don't act now, it will be politically harder to go ahead with their plan to resurrect the estate tax once it has disappeared [in 2010]."  Stay tuned for an announcement "within weeks":

The Senate Finance Committee will move within weeks on legislation to reverse that law, and Mr. Obama is expected to detail his estate-tax preservation proposal in his budget next month, congressional tax writers said.

So what can we expect? Here's what the WSJ is predicting:

Under the Obama plan detailed during the campaign, the estate tax would be locked in permanently at the rate and exemption levels that took effect this year. That would exempt estates of $3.5 million -- $7 million for couples -- from any taxation. The value of estates above that would be taxed at 45%. If the tax were returned to Clinton-era levels, it would exclude $1 million from taxation with the rest taxed at 55%.

Portability

Nothing surprising here, but expect "portability" of the estate-tax marital deduction to also be part of the plan. I predict this change in the law will ultimately end up having the most profound impact on your average estate planner's day-to-day practice. "AB" trusts, long the center of most estate plans for married couples, may soon become a thing of the past. As reported by the WSJ in October of 2008 in On Death and Taxes ... and the Candidates, both candidates were including portability as part of their estate-tax reform proposals:

Both candidates agree the exemption amount should be easily portable. "Families should not be required to undertake complex and unnecessary financial planning or be penalized for failing to take advantage of sophisticated financial strategies," says Jason Furman, economic policy director for the Obama campaign. The Democrats' nominee "believes we should eliminate the estate tax for 99.7% of families -- and this is part of his plan to accomplish that goal," says Mr. Furman.

.  .  .  .  .

Under current law this year, a married couple could leave a total of $4 million to their children without federal estate tax. "But because the exemptions aren't portable, quite a bit of planning is necessary to achieve this result," says John M. Olivieri, a tax partner at the law firm of White & Case LLP in New York City.

Suppose a husband and wife each has $2 million. The husband dies and leaves everything to his wife. Although there's no federal estate tax because of the marital exemption, the wife now has a $4 million estate but only a $2 million exemption, Mr. Olivieri says. Consequently, if she dies this year and leaves her $4 million to her children, "her estate will be hit with a federal estate tax of about $900,000," based on this year's rate structure, Mr. Olivieri says. "A similar problem arises if the entire $4 million is owned by the husband and the wife dies first."

To avoid the problem, "many married couples expend considerable time, effort, and money to avoid wasting their combined federal exemptions," says Mr. Olivieri. "But if the exemptions were portable, none of this would be necessary." However, even if the exemption does become portable for federal estate-tax purposes, Mr. Olivieri points out that many people may need to take special estate-planning steps anyway because of state-tax issues.

 

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When I first wrote about this case in 2006 [click here], I saw it as a prime example of public relations as litigation tool. (Check out the litigants' dueling websites: here, here). Well, fast forward two years, the Princeton suit settled on the eve of trial. Here's an excerpt from a New York Times piece entitled Princeton Settles Money Battle Over Gift reporting on the terms of the deal:

In 1961, when the A.&P. grocery heirs Charles and Marie Robertson gave Princeton a $35 million gift endowment, they directed that the money should be used to educate graduate students for careers in government.

But in a lawsuit filed in 2002, the Robertsons’ descendants claimed that Princeton was misusing the gift, which peaked at more than $900 million in June, spending it on training students for a broader range of careers. The endowment provides most of the financing for graduate programs at the Woodrow Wilson School of Public and International Affairs.

The case was to go to trial in January.

Under the settlement, Princeton will pay $40 million in legal fees, and, starting in 2012, another $50 million, plus interest, to a new foundation that will support education for government service. Princeton will be able to use the remainder of the money for the Wilson school, as it chooses.

Based on these settlement figures, my sense is that Princeton settled not because it was afraid of losing at trial ($90 million is a lot of money, but it's a relatively small % of the total endowment fund), but because it wanted to finally kill this case and turn off the bad-publicity machine.

As trusts-and-estates lawyers, why should we care about all this? Because advising clients with respect to charitable giving is often a big part of our practice. And sometimes those charitable gifts go sideways on our clients. If the parties end up in litigation, understanding the unique dynamics at play in these situations can make all the difference in the world.

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I previously wrote about this case from the perspective of how conflicts of interests can kill you as an estate planner if (a) you're not aware of the issues and (b) you fail to take appropriate precautions [click here]. As a follow up to that post, it seems that the estate planner at the center of this particular drama dodged the bullet (for now). Here's an excerpt from Jury rejects $17M legal malpractice claim against Orrick, written by National Law Journal staff reporter Pamela A. MacLean. 

San Francisco jury rejected a $17 million legal malpractice claim against Orrick Herrington & Sutcliffe in an eight-year-old dispute claiming breach of fiduciary duty by retired trusts and estates partner William Hoisington.

"It is not often that a law firm takes a malpractice claim to trial," said Wendy Thurm, one of the Keker & Van Nest attorneys representing Orrick. "Orrick's case was strong, and we're happy Bill Hoisington's character and reputation have been preserved."

The verdict on Tuesday came following a six-week trial and two days of deliberation in Benesch v. Tandler, No. 317187 (San Francisco Co., Calif., Super. Ct.). Hoisington spent more than 30 years as a trusts and estates attorney in the San Francisco office of Orrick prior to his retirement.

An 86-year-old multimillionaire businesswoman, Fritzi Benesch, filed the suit in 2000, claiming she had been misled into relinquishing control of her clothing company, Fritzi California, to her daughter and son-in-law, Valli and Robert Tandler. Both Tandlers are lawyers and worked in the family business.

Valli worked for the former Brobeck, Phleger & Harrison firm for two years before joining the family clothing and real estate businesses. Robert worked as general counsel for Fritzi California.

In 2002, the trial court dismissed the parties from the suit on summary judgment, but the case was reinstated on appeal in 2005. The Tandlers mediated a settlement with Benesch, but Benesch abruptly backed out of the deal and the Tandlers have an appeal pending to enforce the agreement, according to Thurm.  

Lesson learned:

When you read the excerpt, note that even though the Orrick lawyer "won" this trial, the stress and financial drain of this litigation has been going on for years (and it's not over yet).  The next time you consider whether or not to take on an estate-planning matter that may involve a tricky conflicts issue ask yourself "is it really worth it?"

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Understanding how to conceptually "frame" a case, both factually and legally, is half the battle in litigation.  So even if an appellate decision from another state isn't binding precedent in Florida, the way in which the case is framed by the appellate court can be instructive for Florida lawyers.  Which is all a long-winded way of saying Florida probate lawyers should take note of an interesting LAW.COM article entitled Appeals Court: Relatives Who Assist in Suicide Can Inherit Estate, reporting on a Wisconsin case where the appellate court ruled that even if a decedent's wife and daughter helped him commit suicide, which is illegal in Wisconsin, they weren't barred from inheriting his estate by Wisconsin's slayer statute.

Click here for a copy of the Wisconsin appellate decision.

The Facts:

The following excerpt from the linked-to article provides a solid summary of the key facts:

Edward Schunk, 63, shot himself in 2006 in a cabin on his property while he was terminally ill with non-Hodgkin's lymphoma, a form of cancer. He left an estate valued at nearly $500,000.

The court ruled in favor of his wife, Linda, and youngest child, Megan Schunk, now 20, who were granted most of the estate under Schunk's will.

Schunk's six older children received little or nothing, according to court records. Five of them challenged the will, arguing that Linda and Megan Schunk took Schunk to the cabin, gave him a loaded shotgun and left even though they knew he was suicidal.

The two acknowledged they took him home from the hospital on a one-day pass but denied assisting his death. They said he had told them he wanted to go turkey hunting.

For the purposes of deciding the dispute, the court assumed the other children's allegations were true but still ruled in favor of the wife and younger daughter.

Under Wisconsin law, assisting in a suicide is punishable by up to six years in prison. Thursday's ruling did not address that law, and no one has been charged in Schunk's death.

Slayer Statute Analysis:

The Wisconsin opinion turned on whether the bold text of the following sentence, which is found in both the Wisconsin and Florida slayer statute, includes assisting someone to commit suicide:

A surviving person who unlawfully and intentionally kills or participates in procuring the death of the decedent is not entitled to any benefits under the will or under the Florida Probate Code, and the estate of the decedent passes as if the killer had predeceased the decedent.

The Wisconsin appellate court held that "unlawful and intentional killing" within the meaning of its slayer statute did not include assisting another to commit suicide. 

Assisted Suicide Statute Analysis:

It's interesting to note that the Wisconsin court ruled as it did even though Wisconsin, like Florida [F.S. 782.08], makes it a crime to help someone commit suicide. Here's how the Wisconsin court distinguished its assisted-suicide statute from its slayer statute:

The objectors point out that WIS. STAT. § 940.12 makes it a felony to “with intent that another take his or her own life assist[] such person to commit suicide....” Thus, they assert, Linda and Megan acted unlawfully and the facts show they intended to help Edward commit suicide. However, “unlawful” and “intentional” modify “killing” by limiting its meaning. If, as we have concluded, assisting another to commit suicide is not “killing” another, it does not become so because the conduct is unlawful and intentional.

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According to a WSJ article entitled Trusts Require Attention During Market Turmoil, there's no need to worry if you open the paper one day and read your trust company's going down in a ball of flames.

The good news is that trust assets managed by a corporate fiduciary such as Merrill Lynch & Co. don't go on the company's balance sheet. So, if the company is acquired, in the case of Merrill Lynch -- or files for bankruptcy protection, as in the case of Lehman Brothers Holdings Inc. -- trust assets the company manages aren't in danger.

Bruce Stone, a trust expert and shareholder at Goldman Felcoski & Stone PA, a law firm in Coral Gables, Fla., said, "Nobody is going to take your trust assets and liquidate them to pay off a bankruptcy, because the bankrupt entity doesn't own your trust assets."

Feeling better?

Blogging credit:

Credit goes to the Death & Taxes Blog for bringing the linked-to article to my attention in the blog post entitled Trusts, Corporate Fiduciaries, and the Bailout.

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Probate litigation has a way of spawning jurisdictional disputes that make your toughest law-school exam seem like a walk in the park.  Click here, here and here for recent examples.  These jurisdictional battles rarely become mano-a-mano contests between competing judges, but that's what seems to be happening in a case reported on in a San Francisco Chronicle article entitled Inheritance fight imperils de Young tribal art.

Since 2005 Palm Beach County, FL probate Judge John Phillips has been presiding over an inheritance battle between heirs of the Annenberg publishing fortune that is currently centered on an art collection valued for insurance purposes at over $90 million.  Known as the Jolika Collection, it's housed in a specially built wing of the M.H. de Young Memorial Museum, which is owned and operated by the City of San Francisco, CA.

As you can imagine, San Francisco's citizenry wasn't about to let some small-town Florida probate judge to take control of this very valuable public asset without a fight.  So when San Francisco City Attorney Dennis Herrera got wind of the case, he asked Judge Phillips for permission to intervene in the Florida case.  Judge Phillips said no.  Undeterred, and presumably fully aware that possession is nine-tenths of the law, Mr. Herrera then turned to an apparently much friendlier venue - San Francisco state court Judge Peter Busch - and (surprise!) got a restraining order effectively giving him the win he was denied in Florida. The Florida parties and Judge Phillips can stomp their feet in righteous indignation all they want, but as long as the Jolika Collection's in San Francisco, nothing's going anywhere until San Francisco Judge Busch says so.

Here's an excerpt from the linked-to article:

Three brothers - John Friede, Robert Friede and Thomas Jaffe - have been feuding since 2005 over the estate of their mother, Evelyn A.J. Hall, a sister of the late publishing tycoon Walter Annenberg. Under a settlement reached on Oct. 18, 2007, John and Marcia Friede agreed to pay his brothers $30 million - $20 million of which was secured by the couple's art collection, according to figures in the case.

The problem was that a week earlier, John Friede had finalized paperwork donating the entire 4,000 piece collection to the city-owned de Young, according to documents from the city attorney.

Last week, a probate judge in Florida ruled that John and Marcia Friede had breached the settlement agreement by its deal with the de Young and by granting a lien on the art in exchange for a $670,000 advance, court documents show.

Judge John Phillips ordered the couple to turn over "all collateral described in the security agreement, which is in their care, custody or control" to the two other brothers. The balance of the Jolika Collection is at the couple's home outside New York City, according to court filings. Those pieces had been donated to the museum even if they had not been moved, according to the city.

Herrera's office tried to intervene in the Florida case this week, but Phillips would not allow it, prompting Herrera to file a case in San Francisco Superior Court. There, Judge Peter Busch issued a temporary restraining order prohibiting the artwork from being removed from the museum or the house. A hearing on the issue is scheduled for Oct. 6.

The main question is: Who really owns the artwork?

"That's a murky area," Deputy City Attorney Donald Margolis said. "We're taking the position that entirety of the Jolika Collection has been transferred to the museum."

Lesson learned?

In the real world, bare-knuckles politics trumps the legal niceties of civil procedure any day of the week.  The City of San Francisco may not have had legal standing to intervene in the Florida probate case, but it's now firmly ensconced at the negotiating table.  The parties can spend the next few years litigating this turn of events or simply accept the realities of life and cut the best deal possible with Mr. Herrera.  If the collection's worth over $90 million, and the amount in dispute in Florida is $30 million, there's probably a deal to be had that works for all concerned.

Blogging credit:

Credit goes to the Wills, Trusts & Estates Prof Blog for bringing the linked-to article to my attention in the blog post entitled Estate of Evelyn A.J. Hall.

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Florida recently adopted it's own version of a "directed trusts" statute [click here].  And if you take a look at the agenda for the upcoming Florida Bar Trust Law Committee meeting [click here], you'll see we're not done tinkering with that statute just yet.

Is this amount of focus on directed trusts by Florida's Bar and Banking Industry really worth it?  Well, according to a Wall Street Journal article by Arden Dale entitled Estate Plans With Reins (Wall St. J., Sept. 13, 2008), there's a lot of really smart folks out there who think the answer is a resounding YES! 

Hint: If you're a Florida trusts-and-estates lawyer or bank trust officer, you may want to take a quick look at this new statute.

The WSJ piece is short and it's full of Florida references, so here's all of it:

People near retirement age are turning to directed trusts as part of their estate-planning strategy.

Directed trusts are designed for those who want to put most of their estate into a trust but wish to hold the reins on one of the assets in it -- say, a company. A bank or trust company manages the trust overall, but the client picks an outsider to handle a particular asset.

Florida recently changed its rules to make it more attractive for people to use directed trusts; some 30 states now have such statutes. The push for the change came from banks and trust companies with clients who own businesses and real-estate developments.

An entrepreneur nearing retirement, for example, might choose a directed trust to safeguard his company along with the rest of his estate, but also give family members the power to buy, sell and have voting rights on the company stock.
Putting a business into a larger trust is for those who "think the long-term economic interest of the family is to not sell the business, to let it go on generating money," said Bruce Stone, a shareholder at Goldman Felcoski & Stone PA, a law firm in Coral Gables, Fla.

Banks often don't want to administer a closely held company. On the other hand, a business owner is likely to have family or other associates who can take on the job as co-trustee.

In Florida, the proliferation of troubled real-estate developments is giving people another reason to choose directed trusts. Clients holding such assets tend not to want a trust company to manage them, said Mr. Stone.

Joan Crain, senior director of wealth-management strategies at BNY Mellon Wealth Management in Fort Lauderdale, Fla., said she has heard of wealthy people using directed trusts to keep specialized investments, such as hedge funds, in the hands of a longstanding money manager. Another common reason to use a directed trust is to put a relative or family lawyer in charge of doling out money from the trust to beneficiaries.

Directed trusts don't have dollar-amount requirements, but some advisers said $1 million is the minimum to make the strategy worthwhile. BNY Mellon generally handles directed trusts of about $25 million and up in total assets, but also works with some smaller ones depending on the client's long-term estate plan, said Ms. Crain.

Banks and trust companies like directed trusts because they don't have to worry about managing assets in which they have no expertise.

A good trustee recognizes there are categories of assets he or she isn't as good at managing, said Richard W. Nenno, managing director and trust counsel at Wilmington Trust Co. Mr. Nenno is chairman of the committee of the Delaware State Bar Association that works on updating Delaware trust law.

Anyone thinking about setting up a directed trust should tread carefully when choosing the outside manager, called a co-trustee or special trustee, protector or adviser, depending on the state where the trust is created.

The main trustee may not be responsible for that piece of the estate, and so the directed trustee "better be someone good and trustworthy who can be held accountable if something goes amiss," Mr. Nenno said.

It also is important to realize that all directed trusts aren't created equal. States hold trustees to different standards of liability, and one should get to know the rules that apply in any specific case. In several states, one could theoretically draft the trust so that no one is responsible should something go wrong, said Mr. Nenno.

However, he said, "an attorney drafting one of these is going to want to make someone responsible for the performance of the asset."

Fees can be a sticking point with directed trusts; the bank or trust company typically charges a fee for the special asset, even though someone else is managing it. One reason is that the bank will end up performing some basic administrative work on the asset. The fee could be a flat fee or a percentage of the value of the asset in question.

Work to negotiate the lowest fee possible if you set up a directed trust. The result will depend on your relationship.

Blogging credit:

Credit goes to the Wills, Trusts & Estates Prof Blog for bringing the linked-to WSJ article to my attention in the blog post entitled "Directed Trusts" gain in popularity.

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If you practice in South Florida you've probably heard about the the indictment of Ben Kuehne, a former president of the Dade County Bar Association, former president of the Miami chapter of the Florida Association of Criminal Defense Lawyers and member of the Florida Bar Board of Governors.  As explained here, Kuehne is being charged with money laundering for allegedly taking tainted funds for fees.

What's scary for lawyers about the Kuehne indictment is that even if you apparently do everything right, you may end of getting arrested for simply doing your job.  Sure, you may ultimately prevail, but you'll have to live through the personal nightmare of being arrested and charged with a crime.

I thought of the Kuehne indictment when I read Lawyers Accused Of Stealing From Murder Victim's Estate; reporting on two Georgia lawyers who were arrested and apparently spent at least one night in jail after their client was forced to forfeit estate assets under Georgia's Slayer Statute.  Here's the report:

Two Carroll County lawyers were indicted Thursday by a Douglas County Grand Jury on charges related to theft from the estate of a murder victim.

Candice Rader and Valerie Cooke, attorneys for Debra Post, were each indicted on 6 counts of Theft by Taking and one count of Theft by Receiving.

Post was charged in September of 2002 with murdering her husband Jerry Post.

This is the first known Georgia criminal case where charges were based upon Georgia's "Slayer's Statute", O.C.G.A. 53-1-5, which prohibits a person who kills another from inheriting assets from the murder victim.

The GBI investigation determined that Rader and Cooke knowingly took assets which belonged to the estate of Jerry Post as payment for their legal fees associated with their representation of Debra Post. The assets included life insurance proceeds to Post and real property deeded over to Rader and Cooke by Post. The total value of these assets is over $320,000.

The case was presented to the grand jury by Special Prosecutor Brown Mosely who will handle the prosecution of the two lawyers.

On September 12, 2003, six months after Jerry Post's assets were turned over to Rader and Cooke, Post pled guilty to felony murder and is now serving a life sentence without parole.

Cooke and Rader were arrested late yesterday in Carrollton by GBI agents and taken to the Douglas County Jail. They were scheduled to appear in Douglas County Magistrate Court at 10 a.m. Friday morning.

Lesson learned?

When it comes to staying out of trouble, spotting your risk exposures is half the battle (it's the "unknown unknowns" that will get you).  The Georgia case gives probate attorneys something else to worry about (as if we didn't have enough already). If your fees could in any way be characterized as tainted by criminal conduct, you need to assume the worst and take appropriate precautions.  As the Georgia lawyers learned, just because you're the friendly neighborhood probate attorney (and not some high profile criminal defense attorney), doesn't mean you can't get put in jail for doing your job.

Blogging credit:

Credit goes to the Wills, Trusts & Estates Prof Blog for bringing the linked-to Georgia article to my attention in the blog post entitled Attorneys for murderer charged under slayer statute.

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I've been a fan of the "directed trusts" idea from the time it was first talked up in the press [click here], through to its recent adoption here in Florida [click here].

Whether you make a living drafting trusts as a lawyer or administering them as a trustee, you should get to know this important new statute, and a great way to do that is to read Directed Trusts: The Statutory Approaches to Authority and Liability, written by two of Miami's very own trusts-and-estates stars, Greenberg Traurig associate Mary Clarke and shareholder Diana S.C. Zeydel.  Their article does a good job of zeroing in on the key issues drafters/trustees need to know about by using a compare-and-contrast approach among the various jurisdictions that have adopted a form of the directed-trusts statute, with a special focus on Florida and Delaware.

Here's what the linked-to article had to say about Florida's directed-trusts statute:

The Florida legislature recently passed an amendment to Florida Statutes §736.0703 intended to relieve the directed trustee of liability for acts done in reliance on the direction of a co-trustee having the authority to direct it in the trust document. Florida's approach differs from the Delaware approach and the approach in the UTC in that it permits a directed trust only if the person giving the direction is also a trustee. The bill revises Florida Statutes §736.0703 by adding a new subparagraph (9) as follows. 

Amendment to Fla. Stat. §736.0703. Cotrustees. 

(9) If the terms of a trust instrument provide for the appointment of more than one trustee but confer upon one or more of the trustees, to the exclusion of the others, the power to direct or prevent certain actions of the trustees, then the excluded trustees shall act in accordance with the exercise of the power. Except in cases of willful misconduct on the part of the directed 3 trustee of which the excluded trustee has actual knowledge, an excluded trustee shall not be liable, individually or as a fiduciary, for any consequence that results from compliance with the exercise of the power, regardless of the information available to the excluded trustees. The excluded trustees shall be relieved from any obligation to review, inquire, investigate or make recommendations or evaluations with respect to the exercise of the power. The trustee or trustees having the power to direct or prevent actions of the trustees shall be liable to the beneficiaries with respect to the exercise of the power as if the excluded trustees were not in office, and shall have the exclusive obligation to account to and to defend any action brought by the beneficiaries with respect to the exercise of the power. 

The significant difference between the approach in the amendment to the Florida statute and the approach of other states is that only a co-trustee may act as a “director,” thus subjecting the co-trustee with the power to direct to full liability as a fiduciary. Presumably, the governing instrument could, however, relieve the trustee with authority to direct from liability for breach of trust except for bad faith and reckless indifference to the purposes of the trust or the interests of the beneficiaries consistent with Florida Statutes §736.1011(1)(a). This should be distinguished from the authority contained in Florida Statutes §736.0808 where the power to direct the trustee does not completely exonerate the directed trustee from liability for following the direction, but the person giving the direction is limited to a fiduciary standard of “good faith,” rather than being subject to liability as a trustee.

The original bill did not include the language, “Except in cases of willful misconduct on the part of the direct[ed] trustee of which the excluded trustee has actual knowledge, ....” Surprisingly, it is not the directed trustee that is held liable for his or her own “willful misconduct” as in Delaware. Instead, the directed trustee must test the malfeasance of the directing trustee. This may present an interesting challenge for the directed trustee because the directed trustee must in effect test the state of mind of the directing trustee to determine if intentional misconduct has taken place. One wonders how the directed trustee will make such a determination. The “actual knowledge” requirement might mean that the directing trustee would have to articulate an intention to commit malfeasance regarding the trust before the directed trustee could be held liable. On the other hand, in its practical application the two tests may yield the same result. If the direction is a blatant violation of the terms of the trust, the directed trustee would likely be deemed to have engaged in willful misconduct upon following the direction, and the directing trustee would likely be deemed to have engaged in willful misconduct by giving such a direction. 

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As I've written before, under Florida law you don't need to actually produce a dead body to have someone declared dead [click here].  If someone's missing for over 5 years or there's direct or circumstantial evidence of death, under F.S. 731.103 a court can enter an order declaring that person dead.

According to a CNN article entitled Son of wanted Nazi wants him declared dead, the son of notorious Nazi doctor Aribert Heim is apparently relying on a similar statute to have his father declared legally dead so he can take control of a bank account with $1.78 million and other investments in his father's name and donate some of it to help document the suffering that occurred at a former concentration camp.  Here's an excerpt from the linked-to story:

Ruediger Heim told the Bild am Sonntag newspaper that his father -- dubbed "Dr. Death" and atop the Simon Wiesenthal Center's list of most-wanted suspected Nazi war criminals -- should officially be declared missing and then dead.

He reiterated he has not had any contact with his father since he fled Germany in 1962, save two short notes in his family's mailbox.

"Between 1962 and 1967, two notes appeared in our mailbox. There was a single sentence written on them, 'I am doing fine.' But if those letters were really from my father, I do not know," the paper quoted him as saying.

Heim also said that he has no idea if his father, who would be 94, is alive or dead.

He told the paper he is working with a lawyer to see how he can have his wanted father declared missing and then dead so as to get control of the man's bank account. [Watch the video].

He said he, his brother and sister only discovered in 1997 that a bank account in his father's name existed. If he could get control of the money, he told the newspaper he would donate to help document suffering in the Mauthausen concentration camp near Linz, Austria, where his father worked as camp doctor in October and November 1941.

So far, Heim's children have made no claim to a bank account with $1.78 million and other investments in his name. To do that, they would have to produce proof that their father is dead.

Blogging credit:

Credit goes to the estate lawyers of Hull & Hull at the firm's Toronto Estate Law Blog for bringing the CNN article to my attention in this blog post.

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Tampa probate litigator Russell R. Winer was kind enough to point me to an interesting will-contest story in the St. Petersburg Times by staff writer Chris Tisch entitled A will casts a shadow on a prominent lawyer who stands to gain millions. 

When I read the linked-to story two points jumped out at me.  First, the decedent's attorney wrote himself into the will, which is a clear ethics violation.  Fla. Bar Rule 4-1.8(c) prohibits an attorney from preparing an instrument giving the attorney or a person related to the attorney any substantial gift from a client, including a testamentary gift, unless the client is related to the proposed donee.  Second, bad facts can kill you at trial, even if these facts are arguably irrelevant as a matter of law.  On this second point read the following excerpt from the linked-to story:

But one piece of evidence convinced the judge the most that something improper was occurring. In her order, Laughlin calls it "The Agreement."

It was signed in 2002 by Carey, DuBois and Tornwall and their spouses. It says that no breach of fiduciary duty had occurred in regard to Murphy and that "should any of the parties have a mind to upset the grand plan, they should first check with the other two parties," Laughlin wrote.

"This document wreaks of a consciousness of fraud, and the court finds it to be persuasive evidence of undue influence," Laughlin wrote. "The Agreement is also compelling evidence that the perpetrators knew all of the elements of undue influence were present."

*     *     *

As for "The Agreement," Fleece said it doesn't reflect what should be most important in the case: Murphy's intent.

"Does it look good? No. Did it really matter? No. It didn't really deal with her intent," Fleece said.

Murphy's $7.2-million residuary estate remains in the hands of a curator until all appeals are exhausted.

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As a self confessed trusts-and-estates “law geek”, I obviously believe courts (and thus litigants) are guided by the rule of law.  But I’ve also been around long enough to have a healthy respect for the “legal realism” school of thought: all law is made by human beings and, thus, is subject to human foibles, frailties and imperfections.

So thinking about what makes a particular group of human beings (judge, lawyers, clients) involved in a particular case “tick” is just as important as figuring out the law.  With that background in mind, I found a recent article by Arthur D. Burger of the New Jersey Law Journal entitled Why Do Lawyers Lie? One Word: Narcissism particularly interesting.

Next time your judge, opposing counsel or one of the clients does something baffling, take a step back and think about that person as a human being who may be under a lot of pressure and is just having a bad day.  If the particular person going crazy on you is opposing counsel, consider the following excerpt from the linked-to article:

Richard Ratner, a board-certified psychiatrist since 1973, has many lawyers as patients in his clinical work and also serves as a forensic psychiatrist in bar disciplinary cases and other types of litigation. He says a lot of "psychopathology" takes place in litigation, for a variety of reasons.

First, he notes that lawyers, generally, and litigators, in particular, tend to "have generous helpings of narcissism," which he says can be both good and bad. Narcissistic people, he states, "want to go out of their way to shine and make themselves look terrific." This is a good thing to the extent it motivates them to work hard and be prepared.

The problem, he says, comes when you put such people in the crucible of litigation, which after all is a competition with winners and losers. He says that this competition aspect creates a polarization of issues and, for narcissistic people, places their fragile egos directly onto center stage.

Ratner explains that extremely narcissistic people are so "needy for the affirmation of success," that the idea of losing is seen as unbearable. They will therefore use the psychological defenses of "rationalization" and "denial" to enable themselves to intentionally mislead -- and even lie -- if they believe that is the only way to win.

Ratner states that as a result of this rationalization and denial, they do not see themselves as having done anything wrong. Instead, they see themselves as justified , because they were acting for a "higher purpose." He explains that the power of rationalization can be enormous. It can even be seen in such horribly extreme examples as when the killing of innocent civilians by terrorists is seen as "heroic."

It is useful to understand this dynamic in our adversaries so we know what we are up against , and see the element of insecurity and desperation driving such behavior. It is also useful, however, to examine ourselves and look for similar symptoms.

None of us likes to lose, and nearly all of us, at times, get carried away in litigation by a certain "bunker mentality," through which we see our side as "good" and the other side as "bad." Ratner says that it's important to take one's own temperature during the course of a contentious case to assess whether you have maintained perspective. One good way to do this, he says, is to discuss the case with a colleague or at least to take time to calmly review the record and look at the facts.

. . .

Being aware of Ratner's observations provides a tool for us to periodically look at ourselves, which should work to our benefit by allowing us to avoid court sanctions, see the strengths of an opponent's case or simply avoid looking silly.

Our clients want us to fight hard -- and to win. But we can do that best if we keep our wits and see reality. If that requires putting our egos in check, so be it. After all, it's doctor's orders.

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I've written before about the upswing in trusts-and-estates litigation in this country [click here]. Now it's the U.K.'s turn.  An article in the Telegraph entitled Inheritance disputes: where there's a will there's a war, reported on factors fueling increased probate litigation in the U.K. If you take a look at the U.S. article linked-to above and the linked-to U.K. piece it's amazing how the same demographic and societal trends in both countries are playing themselves out in a similar fashion through probate litigation.  Here's an excerpt from the U.K. article:

But it should not be surprising that inheritance disputes are so common: three-quarters of British citizens do not have a will, and 24 per cent of people anticipate that their inheritance could cause arguments among relatives, according to new research from Friends Provident. Lawyers from across Britain have told the Telegraph that they are handling ever-increasing numbers of will contentions. One northern firm, Brabners Chaffe Street, has reported a 200 per cent rise in the number of contested wills in the past three years alone.

While some solicitors cite high property prices, which make an estate well worth fighting over, others put the trend down to our newly litigious society and the fractured nature of modern families.

"Remarriages and children from previous relationships complicate an estate," says Simon Rylatt, head of contentious trusts and probate at law firm Boodle Hatfield. "There are more people who might be expecting to get a share ­- and more to feel resentment."

Blogging credit:

Credit goes to Prof. Gerry Beyer's Wills, Trusts & Estates Prof Blog for bringing the U.K. article to my attention in this blog post.

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In Florida the law is clear: you can't contest a will until after the testator dies. F.S. 732.518. But that doesn't necessarily mean you can't preempt a will contest before the testator dies.

For example, suppose you're working with an older client with diminishing capacity whose will is sure to be contested.  What if you initiated a voluntary guardianship proceeding and obtained a final judgment specifically approving the ward's will and specifically finding that the ward's will is NOT the product of undue influence, fraud, etc?  Unlike in a will contest, you'd have the actual testator in front of the judge testifying as to the validity of his will.  This judgment should collaterally estopp re-litigation of these same issues in a will contest after the testator/ward dies if all interested persons in this estate were given notice of the guardianship proceeding and an opportunity to be heard.  Presto! Will contest has been preempted.

That's basically what happened in a recent California case that received some national attention in a short piece by Pamela A. MacLean of the The National Law Journal entitled In Appellate First, Attacks on Wills Barred After Estate Owner Dies. Here's an excerpt:

For the first time, a California appellate court has said that when a conservator seeks court approval of an estate plan, while the subject is living, any challenge to the will must be raised at that hearing -- not when the person dies. [Murphy v. Murphy, No. A115177.]

The appellate decision is the first in the country to say attacks on wills would be barred after the estate owner dies, if there has been a court-approved substituted judgment, according to David Baer, attorney at Hanson Bridgett Marcus Vlahos & Rudy in San Francisco. Baer represented the daughter of William J. Murphy in an estate battle with her brother.

The opinion essentially bulletproofs the will of a person found incompetent and placed under the protection of a conservator, if the court OKs a revised estate plan, according to Baer. He added that the court made clear that notice to potential objectors is required to protect due process.

"You essentially can't contest an estate plan that has been approved in by a substituted judgment order," Baer said. "A substituted judgment is an opportunity to get a court order for the conservator to sign various instruments," he said.

The 1st District Court of Appeal in San Francisco held in the June 26 decision that an attack on such a court order, after the conservatee dies, is barred by collateral estoppel rules. Murphy v. Murphy, No. A115177.

Lesson learned?

One of the most challenging attorney-client scenarios is the older client with diminishing capacity. There are lots of solid articles/resources out there addressing this scenario from an estate-planning perspective [click here for Older Clients With Diminishing Capacity And Their Advance Directives (by A. Frank Johns)], but I haven't seen any that points to guardianship proceedings as a tool for heading off future will contests. The linked-to California case could provide a template for that strategy.

Blog Post Update:

As an update to this post, in this post the Pennsylvania Fiduciary Litigation Blog pointed me to an article published in "Trusts and Estate Fiduciary Litigation Update," August 20, 2008, by Samantha E. Weissbluth, senior counsel, and John P. Mounce, summer associate, Foley & Lardner LLP, Chicago, entitled Barred by Lunatics Law.  The article discusses the implications of the California case linked-to above and concludes with the following observations:

The lesson here is that court approval of an individual’s estate plan when that individual is under a conservatorship will protect the plan against any posthumous contest to it (assuming, of course, that interested parties receive notice of the conservator’s petition to approve the plan).

Those of you with clients in dicey family situations in which you worry about a posthumous contest might want to weigh the risks, costs and public nature of a conservatorship proceeding (or some kind of declaratory judgment action if permitted in your state) to try and bulletproof your client’s plan.

And, attorneys representing clients disgruntled by a now incapacitated relative’s estate plan should certainly come armed and ready for battle upon receiving notice of an action for court approval of that plan.

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Dynasty trusts are a huge growth industry [click here], and one of the main selling points for these trusts are their creditor-protection properties.  When Florida adopted its version of the Uniform Trust Code in 2007 some questioned whether Florida's existing spendthrift-trust protections had been watered down.  To me the answer was always an obvious "NO".  But this point is important enough to reiterate again . . . and again . . . and again.  Which brings me to a recently published article entitled UNIFORM TRUST CODE SECTION 503: APPLYING HAMILTON ORDERS TO SPENDTHRIFT INTERESTS, that summarizes the point nicely:

Florida’s enactment of the UTC was merely a codification of the state’s existing case law. In Bacardi v. White, 463 So.2d 218 (Fla. 1985), after a beneficiary with a substantial interest in a spendthrift trust refused to pay court ordered child support and alimony, the Florida Supreme Court held that the beneficiary’s interest in the spendthrift trust could be reached to satisfy the beneficiary’s child support and alimony creditors. The Florida Trust Code preserves the Bacardi requirement that child support and alimony creditors reach a beneficiary’s spendthrift interest “only as a last resort.”[FN]

[FN]  Compare FLA. STAT. § 736.0503(3) (West 2005 & Supp. 2008) (“[T]he remedies provided . . . apply to a claim . . . in paragraph (2)(a). . . . only as a last resort upon . . . showing that traditional methods of enforcing the claim are insufficient.”), with Bacardi, 463 So. 2d at 222 (allowing garnishment “only as a last resort”).

The linked-to article also does a good job of providing a plain-English explanation of the general public policy rationale underlying exceptions to spendthrift-trust protections.  If you're ever litigating this point, understanding the "why" of the rule will be just as important as understanding what the statute actually says.

The primary policy justifications for allowing a settlor to prevent beneficiaries from losing their interests in a spendthrift trust are that (1) a settlor should have the right to dispose of his property as he chooses, and (2) as part of that right, the settlor should have the opportunity to protect beneficiaries from creditors taking advantage of the beneficiaries’ misfortune or improvidence.

Most states provide exceptions that allow certain creditors to reach a beneficiary’s interest in a spendthrift trust. The two most common exceptions are for child support and alimony creditors. The primary justifications for allowing child support and alimony creditors to reach a beneficiary’s interest in a spendthrift trust are that (1) unlike ordinary creditors, child support and alimony creditors are unable to protect themselves from the debtor’s irresponsibility, and (2) while a settlor should be able to protect a beneficiary from personal pauperism, a beneficiary should not be able to enjoy an interest in a spendthrift trust while neglecting to support those dependent on him.

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Jonathan Klick of the Florida State University College of Law and Robert H. Sitkoff of Harvard Law School just published an outstanding article entitled Agency Costs, Charitable Trusts, and Corporate Control: Evidence from Hershey's Kiss-Off.  What this article does well is "crunch the numbers" to answer the sort of open-ended question trusts-and-estates litigators face all the time:

Is a particular investment strategy in the "best interests" of the trust's beneficiaries?

Crunching the Numbers:

Being non-math types, lawyers and judges often shy away from the type of quantitative, objectively-verifiable, empirical analyses employed in this article. Whether you agree or disagree with the findings, the value of this approach to any contested trust proceeding should be self evident.  Rather than relying on the judge's gut to figure out if a "prudent investor" would invest trust assets in a certain way under the terms of a specific trust agreement within the context of a specific class of trust beneficiaries, hire a finance whiz to crunch the numbers and demonstrate, in an objectively-verifiable and quantitative manner, which option results in the best overall economic benefit for the trust's beneficiaries. Once the legal wrangling over how to define the operative terms is done, everyone should step back and let the finance gurus quantitatively fill in the blanks.

Trustees Lose PR Battle:

The controversy surrounding the Hershey School Trust's decision to diversify its trust holdings by attempting to sell its controlling stake in the Hershey Company (thus potentially putting a lot of people in Hershey, Pennsylvania out of work) and subsequently backing out of the deal (thus depriving the trust's beneficiaries of a control-premium windfall profit estimated to be as high as $1 billion) is often cited as a terrible example of "politics" trumping sound sound fiduciary decision making.  For more on the political back-story of this case read The Hershey Power Play in Trusts & Estates Magazine by Pennsylvania attorney Christopher H. Gadsden, and Daniel Gross's piece in Slate entitled Hershey Barred, whose subtitle says it all: How Pennsylvania officials screwed poor kids out of $1 billion by stopping the sale of the candy-maker.

However, blaming the politicians is way too easy. They were (not surprisingly) simply responding to legitimate concerns raised by their constituents. The board of directors of the Hershey School Trust deserves equal blame.  The general public holds non-profit entities to a higher civic standard than for-profit companies, which means trustees of high-profile charitable trusts need to address any potential contested proceeding with two sets of professionals: lawyers and litigation-public-relations experts [click here, here].  It's obvious the board of directors of the Hershey School Trust was blindsided by the "politics" of this deal, and bungled it terribly  .  .  .  to the detriment of the poor children they have a fiduciary duty to serve.

If someone from the trust's board of directors had reached out to the key political players from the start, involved local civic groups in the decision-making process, and preempted any local bad press with a smart PR campaign using quantitatively-verifiable facts developed using the analytical tools employed in the linked-to law review article, the end result might have been very different.  For example, if the Hershey School Trust's upside from the deal was going to be around $1 billion, its board of directors could have easily set aside $100 million (or some other mind boggling large figure) for worker retraining, community redevelopment, generous termination packages for all fired employees (not just the top brass), etc. The trustees would have come out looking like heroes, and still vastly improved the economic well-being of trust's beneficiaries. That would have been a good deal for everyone.

Blogging credit:

Credit goes to the Wills, Trusts & Estates Prof Blog for bringing the linked-to law review article to my attention in this blog post.

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If you're representing a plaintiff in an undue-influence or testamentary-capacity case, one of your first challenges is mapping out the questions you'll be asking when you depose the lawyer who drafted the will or trust being challenged.  If you're representing the estate defending against this challenge, you'll want to know how best to build a deposition record that dissuades the challenger from proceeding with his or her case, or encourages an early settlement on favorable terms.  Why is the deposition so important? Because the vast majority of contested probate proceedings settle before trial, so your depositions may be the only "trial" you'll ever have, and will certainly tilt the negotiating leverage to one side or the other in any settlement negotiations.

And lest we forget our estate-planning brethren, if you're an estate planner and for some reason you believe the estate planning documents you're working on are likely to end up being challenged, then you'll want to be especially sure that [a] your client is competent and not the victim of undue influence and [b] that you build a record documenting your conclusions.

In all of these circumstances a good checklist of questions is worth its weight in gold.  And a good starting point for building this kind of checklist is a recent article in the American Journal of Psychiatry entitled Assessment of Testamentary Capacity and Vulnerability to Undue Influence, by Kenneth I. Shulman, M.D., F.R.C.P.C., Carole A. Cohen, M.D., F.R.C.P.C., Felice C. Kirsh, LL.B., Ian M. Hull, B.A., LL.B., and Pamela R. Champine, J.D., LL.M.  Here's an excerpt:

Documentation for Assessment of Testamentary Capacity and Undue Influence

In the absence of a validated assessment instrument, we propose that in addition to the traditional Banks v. Goodfellow criteria, the following issues should be addressed and documented in a forensic assessment, whether it is contemporaneous or retrospective:

1. Rationale for any dramatic changes or significant deviations from the pattern identified in prior wills or previous consistently expressed wishes regarding disposition of assets.
2. The appreciation of the consequences and impact of a particular distribution, especially if it deviates from or excludes "natural" beneficiaries, such as close family members or spouses.
3. Clarification of concerns about potential beneficiaries who are excluded from the will or bequeathed lower amounts than might have been expected—that is, ruling out the presence of a specific delusion or overvalued idea that influences the distribution.
4. Evidence of the presence of a specific neurologic or mental disorder that may affect cognition, judgment, or impulse control.
5. Evidence of behavioral disturbances or psychiatric symptoms at the time of the execution of a will, for example, behavioral and psychological symptoms of dementia such as agitation, impulsiveness, disinhibition, aggression, hallucination, and delusions.
6. The emotional/psychological milieu in which the testator lives, with specific reference to conflicts or tensions within the family, documenting the complexity and conflictual level of situation-specific factors.
7. The testator’s understanding and appreciation of any conflicts or tensions in his or her environment.
8. Evidence of a pathological or dependent relationship with a formal or informal caregiver, such as a younger woman who offers comfort and reassurance or plants seeds of suspiciousness toward family or friends.
9. Evidence of inconsistency in expressed wishes or an inability to communicate a clear, consistent wish with respect to the distribution of assets; for example, frequent will changes are sometimes made in a desperate attempt to garner care, support, or comfort at a time when the testator feels increasingly vulnerable or threatened.
10. Any of the indications of undue influence.

Specific questions posed to the testator may help in elucidating and probing the relationship between task-specific and situation-specific factors:

1. Can you tell me the reason(s) that you decided to make changes in your will?
2. Why did you decide to divide the estate in this particular fashion?
3. Do you understand how individual A might feel, having been excluded from the will or having been given a significantly less amount than previously expected or promised?
4. Do you understand the economic implications for individual B of this particular distribution in your will?
5. Can you tell me about the important relationships in your family and others close to you?
6. Can you describe the nature of any family or personal disputes or tensions that may have influenced your distribution of assets?

When a retrospective assessment is being conducted, assiduous review of medical records, examinations for discovery, and selective interviews of informants are needed to cast light on these issues.

Another excellent resource for those brave souls willing to delve into the murky waters of a testamentary-capacity lawsuit is a piece in the Journal of the American Academy of Psychiatry and the Law entitled Common Pitfalls in the Evaluation of Testamentary Capacity by Harvard Medical School Professor of Psychiatry Thomas G. Gutheil, MD.

Blogging credit:

Credit goes to Pennsylvania trusts and estates lawyer and expert witness Patti S. Spencer for bringing the linked-to articles to my attention in this post on her Pennsylvania Fiduciary Litigation Blog.

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I've written before about the jurisdictional competition for trust funds, both within the U.S. among various states and internationally [click here].  Internationally, Switzerland has long relied on its reputation for banking secrecy (dating back to the Middle Ages) as a competitive advantage in this market [click here].

However, in a post 9/11 world financial transparency has become a national security issue [click here].  Which means jurisdictions like Switzerland, that sell their services in part on the assumption that government authorities in home-country jurisdictions will NOT be able to crack their veil of secrecy, are facing enormous pressure to open up.  The latest battle on this front was reported on today by the WSJ Law Blog in a post entitled: A Falling Shelter? DOJ Playing Hardball with UBS, Swiss Regulators.  Here's an excerpt from the WSJ Law Blog post with links to underlying source materials:

.  .  .  In an unprecedented move against a foreign bank, the DOJ is seeking to force UBS AG to turn over the names of wealthy U.S. clients who allegedly used the giant Swiss bank to avoid taxes [click here]. Here are stories from the WSJ’s Evan Perez and the NYT’s Lynnley Browning. [Click here, here, here for a copy of the government’s ex parte petition, a supporting memo of law, and exhibits, all seeking disclosure UBS bank records in Switzerland.]

In seeking a federal court order Monday, the Justice Department ratchets up the pressure in its high-profile case, which has spawned federal criminal and civil probes into the alleged tax evasion. The matter places UBS in a bind between U.S. tax authorities and a Swiss law that prevents banks from disclosing confidential information without client approval.

.     .     .     .     .

The Justice and Internal Revenue Service investigation has been aided by information from a former UBS banker, Bradley Birkenfeld, who pleaded guilty June 19 to helping his U.S. clients evade taxes. Birkenfeld told U.S. prosecutors that UBS holds an estimated $20 billion in assets for U.S. clients in undeclared accounts. These accounts generated $200 million a year in revenues for the bank, prosecutors said.

Switzerland's loss is Florida's gain:

Florida trust companies cannot compete with off-shore jurisdictions willing to protect banking clients from legitimate investigations by home-country authorities.  To the extent jurisdictions such as Switzerland are compelled to open up their banking records to legitimate investigations by government authorities - or face pariah status in world financial markets if they don't - that can only be a good thing for Florida trust companies.

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Bud Newman of the Daily Business Review reported here on the details of a settlement deal ending the high-profile battle over the multi-million dollar estate of Seth Tobias, a wealthy hedge fund manager who died last Labor Day weekend with cocaine, the prescription sleep aid Ambien and alcohol in his system. His brothers claimed in court papers that he was killed by his wife. An autopsy concluded he drowned, and Palm Beach prosecutors filed no criminal charges. I've written about this case before, click here.

The value of the estate was not disclosed but was estimated in several news reports to be $25 million to $35 million.

Settlement Terms:

As best as I could make out from the linked-to news report, here are the specific settlement deal terms:

1. The Tobias brothers will withdraw the claim in their court filing that Filomena Tobias killed her husband.
2. Filomena Tobias will become the administrator of the estate after a temporary curator is discharged.
3. Each side agrees to place $400,000 into an escrow account pending final resolution of a claim involving an unresolved lawsuit against the estate.
4. Seth Tobias' brothers, Sam and Spence Tobias, will receive all of the estate's stock and interest in Tobias Brothers Inc., in which Seth Tobias was a partner. The value of this stock was not disclosed.
5. The estate will set aside a $3.6 million fund to be split among Seth Tobias' relatives, friends, charities and their attorneys in the following order of priority:
   1. First a Pennsylvania high school scholarship fund and a Philadelphia rehabilitation center will split $400,000.  The remaining $3.2 million (3.6 - .4 = 3.2) is split as follows:
   2. Attorneys are next in line for an unspecified amount "equal to the reasonable attorneys' fees of counsel for the Tobias brothers."  In other words, the parties agreed to set aside a fund for attorney's fees and allow the court to make the final call on who gets what.  According to the linked-to news report, the brothers were represented by West Palm Beach attorney Jamie Pressly of Pressly & Pressly, who declined to say what he will charge in attorney fees.
   3. After paying attorney's fees, whatever's left over will be split as follows: 11% to Seth Tobias' mother, Esther Chakov, 11% to Seth Tobias' father, Sidney Tobias, 18% to each of Seth Tobias' four brothers (Scott Tobias, Sam and Spence Tobias, and Joshua Goldberg), 3% to Seth Tobias' friend, Patrick Bransome, and 3% to Seth Tobias' friend, Anthony Parker.

Lesson learned? Manage Expectations

What is striking about this settlement is the apparently low figure the brothers settled for.  Out of an estate worth from $25 million to $35 million, the widow basically gave up only $3.6 million (14.4% to 10.3% of the estate), and the $3.6 million share of the estate she is giving up will have to be split among a slew of parties - net of attorney's fees.  That is not to say that this was a bad deal for the brothers.  In fact, this was probably a great deal for the brothers (if they'd gone to trial and lost, which is likely, they would have got NOTHING).

This case provides a reality check for future litigants (and their attorneys).  Managing expectations is 99% of the game when working with families in contested probate matters (the other 1% is probably all the stuff they teach you in 3 years of law school).  One of Florida's most experienced and best known probate litigators, Jamie Pressly, advised his clients to settle for between 14.4% to 10.3% of the estate vs. rolling the dice on a winner-take-all trial.  If at the very beginning of the engagement someone sat down with the Tobias brothers and told them to assume their chances of winning at trial were not good (say less than 10%), then a last-minute deal in the 14.4% to 10.3% range was a big "win" and every penny in legal fees paid was well worth it.  If no one ever had this conversation with them or, even worse, if someone told them their case was a "slam dunk," then a last-minute deal in the 14.4% to 10.3% range probably felt like a dumbfounding "loss" to these clients.  Win or lose, big case or small case, wild facts (gay murder conspiracy) or mundane facts (who gets dad's WWII lighter), managing expectations is the key to happy clients.

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A last-minute settlement deal means the widow of drowned hedge fund millionaire Seth Tobias will avoid a trial.  As reported here, here, lawyers for Filomena Tobias and Seth Tobias' brothers Friday night made a confidential deal avoiding a week-long trial expected to receive national attention and provide an inside look into a life of money, sex and drugs.  The Tobias brothers were battling Filomena Tobias over the former CNBC commentator’s estate, worth $25 million.

As I previously wrote here, this case boiled down to a battle between two little known inheritance legal doctrines that can have a huge impact on who gets what from an estate: Florida's slayer statute vs. it's pretermitted spouse statute (both statutes are explained at length in my prior blog post on this case).  Fortunately for the parties involved the costs and uncertainties of a trial were avoided.  I once heard a friend say: "Your best outcome at trial is almost always second best to a negotiated settlement deal."  I think that's generally good advice.  On the other hand, for Florida probate attorneys this would have been a fascinating case to follow.

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File this under business development for all you trusts-and-estates planners out there.  A new study sponsored by U.S. Trust, Bank of America Private Wealth Management finds that the majority of owners of ultra-high-net-worth family businesses are leaving their professional and personal interests vulnerable through inadequate business succession, asset protection and estate planning. Click here for a link to the full press release. 

Although the full study is not available on line (you have to buy it), the following bullet points caught my attention (again, think business development):

Succession Plans Collecting Dust

• While over three quarters (76%) of owners have succession plans, only 38 percent implement them, inadequately addressing issues of succession
• Most individuals with succession plans in place are not focusing on tax-mitigation issues (73%), even though nearly all participants (93%) report a desire to lower the tax burden associated with transferring the business

 Asset Protection Strategies Missing

• Almost nine out of 10 (89%) business owners were "very" or "extremely concerned" about protecting the family's wealth
• However, nearly three quarters (73%) of them do not have asset protection plans in place

Estate Plans Outdated

• Over three quarters (78%) of owners have personal estate plans; however, 89 percent have not updated them after a life-changing event such as marriage, birth or death rendering the plan obsolete
• More than half (54%) of participants lacking estate plans reported difficulty dealing with their own mortality, and one quarter (25%) cited a lack of time as reasons for not creating a plan

Blogging credit:

Credit goes to the WSJ Wealth Report Blog for bringing the U.S. Trust study to my attention in this blog post.

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Slate recently reported here on Bill Murray's brewing divorce. From a practitioner's standpoint I was especially interested to find excerpts of original source documents - including Murray's prenuptial agreement - reproduced in the Slate post. Here's an excerpt:

Days before their 1997 wedding ceremony, comedian Bill Murray and his wife, Jennifer Butler Murray, entered into a 26-page antenuptial agreement (excerpted below and on the following four pages). "Jennifer … is aware that Bill is a person of very substantial means and income," the document said (Page 2). The agreement stipulated that Murray would "continue to retain all right title and interest … to all separate property he may now own or hereafter acquire" (Page 3). As a wedding present, Bill agreed to buy his bride a modest house ("not exceeding one million dollars") of her own ("title … taken in Jennifer's sole name"—Page 5). In the "event of marital discord," Jennifer would relinquish her rights to alimony (Page 4) and instead receive within 60 days of the marriage's dissolution a lump-sum "marital award" of $7 million (Page 5).

I don't do divorce litigation, but I do draft marital agreements as part of my practice. The Murray piece underscored for me how high the stakes can be when you work on a pre-nup. Fortunately, Florida recently adopted the Uniform Premarital Agreement Act (UPAA) at F.S. 61.079 (like that segway from celebrity divorce to Florida statutory reference?).  In a recent Florida Bar Journal article entitled The Uniform Premarital Agreement Act: Taking Casto to a New Level for Prenuptial Agreements, Florida divorce attorney Doreen Inkeles described the likely impact of this new legislation on the enforceability of pre-nuptial agreements as follows:

Ultimately, it would appear that prenuptial agreements will be harder to set aside under the act. If one cannot establish fraud, duress, or overreaching, which are hard enough to prove, the need to prove unconscionability catapults what had previously been an “unfair or unreasonable” standard into the stratosphere where the circumstances must be “shockingly unfair” and “excessively unreasonable.” And the elements of lack of financial disclosure/lack of knowledge must also accompany the unconscionability claim. The act reflects Florida’s policy which does not prohibit persons from making hard bargains or entering into unfair agreements, as long as they do it voluntarily, of their own free will, and with at least an approximate knowledge of what they are giving up.

.  .  .  .  .

Combined with the apparently more stringent standards set forth in the UPAA, parties will have second thoughts about testing the enforceability of their agreements now that the Florida Supreme Court has recognized the enforceability of prevailing party attorneys’ fee provisions contained in prenuptial agreements which would place liability on the impecunious spouse for the already dominant spouse’s attorneys’ fees should the agreement be upheld.

Blogging credit:

Credit goes to Chicago probate attorney Joel A. Schoenmeyer for bringing the Slate piece to my attention in this post on his Death & Taxes Blog.

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The Florida Bar Real Property Probate and Trust Law Section has developed a new Fellowship program aimed at encouraging junior attorneys (i.e., under age 36) and newly-minted attorneys (i.e., admitted to the bar for fewer than 10 years) to become involved in the Section. Breaking into this niche ain't easy, so anything the Section can do along these lines is a good thing.

Here's a copy of the memo explaining the Fellowship program and a copy of the Fellowship application. The deadline for this year's application is July 21, 2008. If you have any questions contact Tae Bronner, co-chair of the RPPTL Fellowship committee at tae@estatelaw.com or 813-907-6643. The Fellowship memo and application can also be found on the section website; www.rpptl.org.

Good luck!

CORRECTION:

I originally reported that the RPPTL Section's Fellowship program was only open to attorneys under age 36. That was incorrect. As explained in the linked-to Section memo the Fellowship Program is in fact open to all lawyers who (a) are members of the RPPTL Section and (b) have been admitted to the bar for fewer than 10 years or (c) are younger than 36 years of age. I've revised this blog post accordingly.

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Law professors Joanna Grossman and Mitchell Gans, both of Hofstra University, published an interesting two-part article dissecting the outcome of Heath Ledger's untimely death from a probate point of view. Entitled Heath Ledger's Estate: Why Daughter Matilda, Who Was Left Nothing in Her Father's Will, Might Have a Claim to Everything, the article is worthwhile reading for all probate practitioners because it provides a useful outline for thinking about any estate involving a pretermitted child. The following excerpts are from part one of the series.

1.  The Few, but Potentially Important, Rights of a Disinherited Child

Under American law, children have no right to inherit from their parents, but they do have the right not to be disinherited by accident – at least, in most states. At a minimum, most jurisdictions protect children who are born after the execution of a parent's will – so-called "afterborn" children – from unintentional disinheritance. Under omitted child statutes (also called "pretermitted" child statutes), the forgotten child is entitled to some share of the parent's estate on the assumption that the parent simply forgot to amend the will after the child's birth.

Let's assume that New York law applies to the distribution of Ledger's estate, because New York is the place he resided and then died. (The conflict-of-law issues will be considered in detail in Part II of this column.) Under Section 5-3.2 of the New York Estates, Powers and Trusts Law (EPTL), a child born after the execution of a parent's last will is entitled to a portion of the estate as long as she is neither provided for nor mentioned in the will. Matilda was born in 2005, clearly after execution of his will in 2003, and there is no mention in Ledger's will of future children. (In contrast, in Anna Nicole Smith's will, she intentionally disinherited all existing and future children not mentioned, putting her daughter Dannielynn's right to inherit in jeopardy – as discussed in a prior column for this site.).

Florida law:

The law in Florida regarding pretermitted children is similar to New York's on this point and would result in the same outcomes discussed above. Here's our statute:

732.302 Pretermitted children.--When a testator omits to provide by will for any of his or her children born or adopted after making the will and the child has not received a part of the testator's property equivalent to a child's part by way of advancement, the child shall receive a share of the estate equal in value to that which the child would have received if the testator had died intestate, unless:

(1) It appears from the will that the omission was intentional; or

(2) The testator had one or more children when the will was executed and devised substantially all the estate to the other parent of the pretermitted child and that other parent survived the testator and is entitled to take under the will.

The share of the estate that is assigned to the pretermitted child shall be obtained in accordance with s. 733.805.

2.  When Do Children Born Out of Wedlock Inherit from Their Fathers?

Matilda's rights as a disinherited child turn on whether she is considered the "child" of Ledger under New York law. The many magazine photos of the two strolling through the park may cement the social perception of the parent-child relationship, but the legal standard is more technical.

A child born to married parents is considered to be legally the child of both – and, as such, will have full inheritance rights from both parents. However, New York, like most other states, has different rules for determining legal parenthood of children born out of wedlock. A non-marital child is always considered the legal child of her mother and may thus always inherit from her. Yet such a child may only inherit from her father if steps were taken to establish the legal parent-child relationship, such as an acknowledgment of adjudication of paternity.

In New York, under EPTL § 4-1.2, a man is the legal father of a non-marital child if paternity has been adjudicated by a court; the parents have acknowledged paternity in writing; or paternity has been established by other "clear and convincing" evidence and the father has "openly and notoriously acknowledged" the child as his own.

Here, it seems pretty clear that Ledger's paternity has been adequately established. He is listed as the father on her birth certificate, and he lived with Matilda and Michelle for the first year of Matilda's life. (Plus, all the photos in US Weekly of Ledger pushing her stroller do support the claim of open and notorious acknowledgment.)

Moreover, a recent appellate case in New York rules that a child can get posthumous DNA paternity testing as long as she can show open acknowledgment of paternity. So, one way or the other, Matilda should be able to establish a parent-child relationship with Ledger.

Florida law:

In Florida the rules for establishing paternity of out-of-wedlock child are governed by F.S. 732.108, and would again result in the same outcome. Here's the relevant portion of the statute

732.108 Adopted persons and persons born out of wedlock.--

.  .  .

(2) For the purpose of intestate succession in cases not covered by subsection (1), a person born out of wedlock is a descendant of his or her mother and is one of the natural kindred of all members of the mother's family. The person is also a descendant of his or her father and is one of the natural kindred of all members of the father's family, if:

(a) The natural parents participated in a marriage ceremony before or after the birth of the person born out of wedlock, even though the attempted marriage is void.

(b) The paternity of the father is established by an adjudication before or after the death of the father.

(c) The paternity of the father is acknowledged in writing by the father.

3.  To What Share of a Parent's Estate is an Afterborn Child Entitled? 

As an after-born child, what portion of Ledger's estate might Matilda be entitled to? Now, this is where the story gets interesting. Under New York's omitted child law, when a testator has no children living at the time the will is executed, the afterborn child is entitled to the same share she would have taken had the testator died without a will (in legal terms, "intestate"). In other words, the afterborn child is entitled to her "intestate" share of his estate, and the will is revoked to the extent of that share.

The laws of intestate succession determine who succeeds to a decedent's estate and in what proportions when the individual died without a will. These laws tend to first give priority to a decedent's spouse, but then seek to distribute the estate to the closest surviving relatives, with descendants always being preferred to ancestors. As a general matter, for example, parents of a decedent would never take under the rules of intestacy unless the decedent had not a single living descendant.

In this case, New York's intestacy laws lead us to a somewhat striking result: Matilda, who was omitted from her father's will entirely, would be entitled to everything. Why? Under EPTL §4-1.1, when a decedent is survived by no spouse, the decedent's "issue" (a legal term that includes any direct descendant of the deceased such as children and grandchildren) take everything. Ledger was single when he died (he had never been married), so Matilda is next in line.

What about the Will, which was designed to benefit Ledger's parents and sisters? If New York law governs disposition of his estate, his Will would be revoked in its entirety by the pretermitted child law. Ledger's Will, in other words, could be declared valid, but, ultimately, completely revoked by the share due Matilda.

This result is counterintuitive, yet,clearly supported by both statutory and caselaw in New York. In a 2003 ruling of a probate court in New York, Lance Nelson's entire estate was given to his infant daughter under the omitted child law, even though he had executed a valid will leaving everything to his parents. As the court explained in that case: "If Ashley Nelson is determined to be an afterborn child and was unprovided for by any settlement, the Will is revoked to the extent of her intestate share. If she is the only child of the decedent, that intestate share is the entire estate and the entire dispositive provisions of the Will are revoked." If Ledger's Will were probated in New York, and governed by New York law, this exact same analysis would apply, and Matilda would inherit his entire estate.

Florida law:

Here again the result under Florida law would be the same as under New York law: the pretermitted children of an unmarried decedent get 100% of his estate, even if the decedent executed a valid will leaving everything to his parents, a girl friend, a neighbor or a local charity. If there's only one pretermitted child, he or she gets everything. Here's the relevant portion of the governing Florida statute.

732.103 Share of other heirs.--The part of the intestate estate not passing to the surviving spouse under s. 732.102, or the entire intestate estate if there is no surviving spouse, descends as follows:

(1) To the descendants of the decedent.  

4.  What Effect Might a Second, Pre-Will Child Have on Matilda's Claim?

After Ledger died, tabloids reported that Ledger might have fathered a child long before he fathered Matilda. There is an as-of-yet-unsubstantiated claim that he fathered a child while still in high school in Australia, with an older woman. If this claim is true, would the existence of that child (claimed to currently be an 11-year-old girl) have any effect on the distribution of Ledger's estate?

That depends largely, at least under New York law, upon whether the criteria for legal parenthood would be met. There is no reason to think, with the current evidence, that Ledger had acknowledged paternity of the Australian child, had a DNA test during his life to determine paternity, or indeed even knew about her. As a result, under New York's § 4-1.2, at least as presently interpreted, the child would be unable to prove paternity.

But what if the Australian girl were nonetheless determined to be Ledger's child? Such a claim might be made either by the girl (through her mother or another representative), by pointing to the law of some other jurisdiction, or by Ledger's parents and sisters, in order to wholly defeat Matilda's rights.

The latter claim is somewhat counterintuitive: As a child born prior to the execution of the Will, the Australian girl is not protected by New York's omitted-child law. So how can her existence, if the law treats her as Ledger's legal child, deprive Matilda of her after-born share?

Here is the logic behind New York's rule: If the testator omitted a child who was already in existence when he wrote his Will (for Ledger, this would be the Australian girl), how can we assume that he would have provided for the after-born child (for Ledger, Matilda)? To the contrary, we might assume that he intentionally had disinherited and would continue to disinherit, any and all children he might have. That assumption might be unfair in a particular case – Ledger may not have know about the Australian girl (if she exists) and that may be the only reason he did not include her in his Will. But the assumption applies in all cases, and cannot be rebutted.

Florida law:

Here for the first time Florida and New York law diverge in their results. New York's pretermitted child statute [EPTL § 5-3.2] is more restrictive than Florida's pretermitted child statute [F.S. 732.302]. Under Florida's statute, intentionally disinheritting a child in existence at the time the will is executed does NOT result in an automatic disinheritance of a later-born child. As such, under Florida law Matilda would still be entitled to 100% of the estate . . . even if another child, born before Ledger executed his will, establishes paternity.

It's interesting to note that neither Florida nor New York have adopted the Uniform Probate Code's pretermitted child statute (Section 2-302. Omitted Children.) The UPC commentary to this subsection is, as usual, an excellent starting point for figuring out the public policy rationales underlying the statute. Reading the UPC commentary and comparing how the Florida statute differs also makes clear the public policy decisions we've made here in Florida.

Blogging credit:

Credit goes to Texas probate litigator J. Michael Young for first reporting here in his Texas Probate Litigation Blog on the linked-to article.

Postscript:

Heath Ledger's daughter inherited all of his estate, see here.

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In 2006 I predicted the federal estate tax would ultimately NOT be repealed, but that it would be frozen at 2009 levels: $3.5 million exemption ($7 million for couples), at a top rate of 45 percent [click here].

Post 2006 developments have only confirmed my initial estate tax predictions. The latest evidence: The Wall Street Journal's Wealth Report Blog reported here on a new Financial Times/Harris Poll finding growing worldwide support for raising taxes on the wealthy. Here's the Wealth Report Blog's take on the poll:

The study of 8,748 adults in eight countries found that more than half of respondents in all countries believed the wealthy should be taxed more. Here are the soak-the rich rankings (i.e., the percentage of respondents from each country who said “The government should tax the wealthy more”):

Japan — 77%
Spain — 65%
Germany — 64%
U.S. — 62%
China — 60%
Italy — 59%
U.K — 56%
France — 51%

Granted, there are some obvious problems with the poll — it defines neither “wealthy” nor “tax more.” And it’s a relatively small sample size per country.

Yet the responses become more interesting when they’re compared with another poll question: Is the gap between rich and poor too wide?

In this ranking — call it the envy ranking — Japan is at the bottom, with only 64% of respondents saying the gap is too wide, while another 20% believe it’s just right. France has the second-highest envy ranking, with 85% believing the gap is too wide — yet it has the lowest “soak-the-rich” ranking. Germany is ranked first in the envy ranking at 87%, while the U.S. ranks second to last, with 78% saying the gap is too wide.

You would think that the countries with the highest envy ranking would also be the most likely to want to hike taxes on the rich. So why is the relationship nearly the opposite?

One answer might be existing tax codes. France already taxes its earners heavily, so there might be less pressure to tax people even more, even though the envy ranking is high. The U.S. probably has the highest wealth gap of any of the other countries, yet taxing the rich isn’t as popular here, since more voters aspire to become wealthy themselves.

Another answer may be relative wealth gaps. Germans says their wealth gap is too wide –but Germany is among the more meritocratic economies in the world when it comes to distribution of wealth. Germans’ definitions of “too wide” are probably different from those of Japanese and American respondents.

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Michael A. Hiltzik of the Los Angeles Times published an excellent article reporting on the probate and trust litigation swirling around Ray Charles' $75+ million estate: Ray Charles' children battle over his legacy. This estate is so discombobulated you could probably pick it apart from an estate planning perspective in a dozen different ways. Three points that jumped out at me:

1. Talking to your heirs about your estate plan can sometimes be a VERY bad idea.
2. Picking the wrong fiduciary to be in charge of your estate can turn low level, simmering resentments that would otherwise simply blow over into World War III.
3. If an estate plan involves the creation of a private charitable foundation, governance issues are doubly important.
   

1. Talking to your heirs about your estate plan can sometimes be a VERY bad idea.


When estate planners write about parents discussing their estate plans with their children, it's almost always assumed to be a good idea [click here for example]. Well, sometimes it's a lousy idea, as the Ray Charles estate is learning. If estate litigation is even a remote possibility, family discussions about mom and dad's estate plan can make a difficult situation worse.

Shortly before Christmas 2002, Ray Charles called a meeting of his 12 children at a hotel near Los Angeles International Airport. Ten of them, ranging in age from 16 to 50 -- with 10 mothers among them -- listened as their father told them he was mortally ill and outlined what they could expect from his fortune.


Most of Charles' assets would be left to his charitable foundation. But $500,000 had been placed in trusts for each of the children to be paid out over the next five years, according to people at the meeting and a trust document.

Yet Charles' description left so much to the imagination that some of the children came away with the impression that he meant to leave them $1 million each. Charles also hinted that there would be more for them "down the line," which some interpreted to mean they would inherit the right to license his name and likeness for profit.

The confusion and contention that resulted from that family gathering, the only time so many of the children met with their father as a group, helps explain what has happened since. Charles exercised iron control over his music and recordings, but his legacy is in disarray, knotted up in legal disputes between the estate's management and his family members, according to interviews, court documents and correspondence from the California attorney general's office.

2. Picking the wrong fiduciary to be in charge of your estate can turn low level, simmering resentments that would otherwise simply blow over into World War III.

As I've written before [click here], picking the right person or bank/trust company to be in charge of your probate estate or trust may be the single most important estate planning decision you make . . . especially if your estate is large or especially complex. Ray Charles picked his long-time business manager, Joe Adams, to be the one fiduciary in charge of every aspect of his estate. After reading the following excerpts from the LA Times piece ask yourself if Adams is the right man for the job:

That executive, Joe Adams, is the target of the family's complaints. Adams signed on as Charles' manager in 1961. Toward the end of the artist's life, Adams was perceived by Charles' children and others close to him as controlling access to the star.


After Charles' death, Adams ended up with virtually unchallenged power over the estate. He was head of Ray Charles Enterprises, director of the foundation and trustee of the children's trusts. In some cases, co-officers appointed by Charles departed their roles while Adams remained.
.     .     .     .     .

Adams has kept the children and other family members from participating in ceremonies honoring their father, they say, even his funeral.

Adams interrupted a private family service at the Angelus Funeral Home in Los Angeles, attempted to eject some of the participants and ordered the casket removed from the chapel, according to several people who were there.

"The biggest issue with me is disrespect for the family and kids," the Rev. Robert Robinson, one of Charles' sons, said in an interview. "If you respect a man and his work, then you respect his kids. His blood is flowing through our veins."
.     .     .     .     .

In 1997, Charles decided he needed a fresh approach to his career and attempted to replace Adams with Jean-Pierre Grosz, a 50-year-old French artists manager who had become a close friend. Charles, however, apologetically sent Grosz home to Paris after Adams refused to relinquish his office in Charles' Washington Boulevard studio, according to the French manager.

3. If an estate plan involves the creation of a private charitable foundation, governance issues are doubly important.

Governance issues are especially important when it comes to private foundations because after the founder is dead, generally speaking no one other than the state attorney has standing to step in and make sure the foundation is being properly run. And just because it's a charity don't assume the sins of humanity are somehow banished from its hallowed halls, as reported by NY Times reporter Stephanie Strom in Report Sketches Crime Costing Billions: Theft From Charities. The following excerpt from the linked-to LA Times piece makes clear the Ray Charles private foundation may be many things, but a beacon of good governance it's not:

In February 2006, Adams' stewardship of the foundation was questioned by Deputy Atty. Gen. Wendi A. Horwitz. After learning that Adams was serving simultaneously as chairman, president and treasurer of the foundation -- in violation of state law -- she gave Adams 30 days to comply. He appointed a new treasurer and a few months later added a majority of independent outsiders to the board.


The attorney general's office never took public action against the foundation. In December, Adams resigned as president of the foundation and of Ray Charles Enterprises. He was succeeded by Ivan Hoffman, a lawyer who had worked with the estate. However, a receptionist at Ray Charles Enterprises said last week that Hoffman was not currently its president. Hoffman and a company spokesman declined to comment.

Adams still exercises power at the organizations, the lawsuit filed by Den Bok alleges. It is unclear whether he still holds any formal titles. A spokesman for Atty. Gen. Jerry Brown, who succeeded Lockyer in 2006, had no comment.

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John W. Porter and Stephanie Loomis-Price of Baker Botts LLP in Texas and Charles E. Hodges II of Chamberlain, Hrdlicka, White, Williams & Martin in Georgia published a useful article entitled: Anticipating the Audit Call: Thinking About Controversy at the Planning Stage, Prob. & Prop., Jan./Feb. 2008, at 20.

The article does a good job of explaining why every email, letter, memo and draft document you prepare as an estate planner should be written under the assumption that one day the IRS (or opposing counsel in a will contest) will read the document and construe it in worst light possible for your client.  The following excerpt sums up this point:

 [T]he production of carefully drafted estate planning correspondence or similar documents in response to . . . an IRS request can actually help the taxpayer state his or her case with the examiner or in litigation. With that goal in mind, while a planner works on a client’s estate plan, he or she must assume that every document prepared by the estate planning lawyer, the client, the accountant, or any other person involved in the estate planning process may be reviewed by an IRS agent, appeals officer, IRS counsel, or the finder of fact in tax litigation (perhaps a judge or even a jury). Of course, certain documents may be withheld from production based on one or more applicable privileges. Thus, every estate planner should have a solid understanding of the relevant privileges.

The authors then go on to provide a solid summary of the evidentiary privileges most likely to come up in an estate tax audit or any other type of estate litigation. This article is worth holding on to. The following excerpts sum up the evidentiary-privileges aspect of the article:

Understand and Preserve All Privileges

All planners should have a general understanding of five types of privileges when representing their clients: (1) the attorney-client privilege, (2) the attorney work-product doctrine, (3) privileges extending to third parties who assist attorneys in rendering legal advice to their clients, (4) the tax practitioner’s privilege, and (5) the doctor-patient privilege.   .     .

Work-Product Doctrine

The work product of an attorney or his or her staff in anticipation of litigation is protected from disclosure. In fact, the attorney work-product doctrine is not a privilege, although some courts (and many practitioners) refer to it as one. The purpose of the work-product doctrine is to encourage lawyers to thoroughly prepare for litigation (whether pending or not) through investigation of the good and the bad, without fear of being forced to disclose their thoughts and analysis.

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Texas probate litigator J. Michael Young reported here in his Texas Probate Litigation Blog on a high profile case involving two Texas trusts worth upwards of $4 billion entitled: Hunt vs. Hunt: The Fight Inside Dallas' Wealthiest Families. The family drama swirling around this litigation makes for interesting reading, but it also distracts from what is conceptually a pretty simple conflict-of-interests case.

Al III is accusing Uncle Tom of conflicts of interest because of his roles as chairman of the board of Hunt Petroleum and as trustee for both of the trusts that own the company. . . .


Two Hunt Petroleum executives serving on the advisory panel of Hassie’s trust were concerned enough about the changes in Texas law that they asked the trust’s beneficiaries in January 2007 to release them from liability. Their request, according to a review of the document, cited potential conflicts relating to the need to diversify trust holdings, to avoid self-dealing, to “invest and manage the trust assets solely in the interest of the beneficiaries,” and to keep a beneficiary reasonably informed of trust activities. In other words, all of the things that Al III and his attorney, Bill Brewer, are complaining about.

Misconduct + No Damages = Empty Victory

As an outside observer I think the trust-beneficiary/plaintiff's toughest challenge will be to demonstrate that the malfeasance he's accusing his trustee of, even if true, has actually harmed the trust in some way. Here's how one observer quoted in the article put it:

Wes Holmes, a Dallas lawyer specializing in trust and estate disputes, is quite possibly the last lawyer left in Dallas who has not worked for the Hunt family. Trust law is quite malleable, unlike tax law, he says. Even self-dealing isn’t always illegal, if the end result was fair and benefited the beneficiary, included full disclosure and didn’t line the pockets of the trustee. “But as a general proposition, you don’t get to come in and rewrite the trust,” he says.

Proving damages will likely require a team of forensic accounts to comb though truck loads of files and untangle of maze of interrelated, closely held entities whose business operations span the globe. No easy task. An alternative strategy would have been to examine the trust books first and sue for malfeasance later . . . only after you've uncovered your smoking gun evidence. The "ask questions first, sue later" approach is possible in trust litigation because trust beneficiaries are legally entitled to this disclosure at any time, they don't have to sue their trustee for malfeasance to get at the trust books. This is a big difference between trust litigation and general commercial litigation that is often overlooked.

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Ohio trusts-and-estates attorney Michael D. Bonasera reported here in his The Ohio Trust & Estate Blog on a NY Times article he spotted entitled: Breaking Up Is Hard to Do. According to the NY Times, trust beneficiaries are growing increasingly dissatisfied with their corporate trustees:

Dissatisfaction with trustees — particularly corporate trustees rather than individuals — has been growing over the last five years, those experts say. Most complaints center on investment performance, mostly because beneficiaries have become more financially sophisticated and more types of investments are now available.

Poor service — including high turnover among trust officials and phone calls that are not returned — is another common complaint. “The longer a trust lasts, the more you’re going to have a change in trustee personnel,” said Richard Kahn, a partner in the law firm Day Pitney in Florham Park, N.J., who specializes in trusts and estate planning.

This is not the first time I've seen an article reporting on the drift away from traditional corporate trustees [see Trust in your bank?].

In my opinion if a trust is large enough to warrant professional management, appointing a corporate trustee is usually a good idea. However, the benefits of having a corporate trustee can be had without wedding your trust beneficiaries to a particular bank or trust company in perpetuity. The ability to fire a current corporate trustee and appoint another corporate trustee of their choosing would seem to address all of the trust-beneficiary grievances reported on in the NY Times piece. As pointed out in the article, the easiest and best way to address this issue is through proper trust-agreement drafting.

In the absence of a well-drafted trust agreement, trust beneficiaries traditionally could sue for the removal of their trustee only upon a showing of malfeasance. This type of litigation is fraught with uncertainty and usually very expensive for trust beneficiaries to pursue. The appeal of these cases drops even further when trust beneficiaries realize that although they have to pay their legal fees out of their own pockets, the trustee can use trust funds to pay its attorneys.

Fortunately for Florida trust beneficiaries, Florida's new Trust Code provides an alternative. If all of the trust beneficiaries agree, they can obtain an order compelling a trustee to resign under the following statute, without having to prove the trustee was negligent in any way.

736.0706 Removal of trustee.  .  .  .

(2) The court may remove a trustee if:

(d) .  .  . removal is requested by all of the qualified beneficiaries, the court finds that removal of the trustee best serves the interests of all of the beneficiaries and is not inconsistent with a material purpose of the trust, and a suitable cotrustee or successor trustee is available. 

Although this statute is a vast improvement over traditional trust law with respect to the forced removal of unwanted trustees, it does impose one very significant requirement: a unanimous vote by all of the trust's qualified beneficiaries. As reported in the NY Times article, this may not be an insubstantial hurdle:

Mr. Dinzeo of Accredited Investors has been working for the last five years with a family where the younger generation is unhappy with the big international bank that has been handling its trust, worth more than $100 million. Trust officers were rotating every 12 to 18 months, these beneficiaries complained. “They wanted to switch down to a smaller trust company, a local player that would have less of an institutional feel,” Mr. Dinzeo said.

“The other side of the family agreed that the service level wasn’t par,” he added, but they wanted to stay with the big bank. “They felt that this large institution would be there. There would be continuity from generation to generation.”

The result? The beneficiaries talk periodically with bank officials, and conditions improve for a while, but then matters slide again, Mr. Dinzeo said. “It’s a constant recurring discussion that just sucks out the family’s resources and time.”

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Daniel Wise of the New York Law Journal reports in Disbarred Lawyer Sentenced After Admitting to Stealing From Grandparents on yet another case involving the theft of estate funds by the person who was supposed to be the estate's primary protector.  Here's the linked-to report in its entirety:

A disbarred Westchester County, N.Y., lawyer has admitted in court that he stole $310,000 from his grandparents.

Chase Caro of White Plains pleaded guilty Monday to grand larceny and has been sentenced to 2 1/2 to 7 1/2 years in prison by County Court Judge Susan Cacace.

A spokesman for Westchester District Attorney Janet DiFiore said Caro, 49, admitted stealing money meant for his grandparents' trust fund. He already had pleaded guilty to another theft of more than $470,000 from another elderly client. He was sentenced to 2 to 6 years on that count.

Caro agreed to pay restitution of $1.1 million, which also includes funds from a third theft. His sentences will run at the same time.

Caro, who was disbarred in November, is the son of Robert Caro, the Pulitzer Prize-winning biographer of Robert Moses and Lyndon Johnson.

Two points came to mind when I read this report. First, no matter who the fiduciary is or how trustworthy that person may appear, systemic, structural safeguards against malfeasance are ALWAYS needed. I've written about this point before and given specific examples of the types of safeguards I'm referring to [click here and here].  Second, if someone is accusing the fiduciary of taking money that didn't belong to him or her, that claim may morph into a criminal prosecution against the fiduciary. Which means that if you're representing the fiduciary you need to be thinking about whether or not your client should refuse to answer deposition questions or file an accounting based on his or her Fifth Amendment constitutional right against self-incrimination [click here for recent example of this point].

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Bud Newman of the Daily Business Review reported in Attorney Unlicensed in Florida Still Awarded $1 Million in Fees in Messy Probate Case on a case I first wrote about last year [click here].  Here's an excerpt:

A Palm Beach Circuit judge has awarded a North Carolina attorney $1 million in fees for representing a wealthy Palm Beach, Fla., widow in a messy probate case even though the attorney was not licensed to practice law in Florida.

Judge Jeffrey Winikoff ruled Winston-Salem, N.C., solo practitioner William West was entitled to the fee for his work protecting and improving the financial interests of Palm Beach resident Carla Morrison in a complex probate case in 2004 and 2005.

Morrison is the widow of Pedro Morrison, who died of a heart attack in 2003 at 49 shortly after filing for a divorce, leaving an estimated $100 million estate, according to court documents. His three beneficiaries were his widow, his brother Carlos Morrison and Carlos' son Tommy.

*     *     *     *     *

Winikoff also ruled West should get his fee despite the fact the paperwork he submitted to practice law in Florida had not yet been approved. The judge said West's failure to get his paperwork certified on time made him an unlicensed practitioner on the date the financial settlement was signed.

Even though West "engaged in the unlicensed practice of law" throughout his representation of Morrison, "the public policy of the state of Florida would not be compromised by allowing West recovery" of his fee, the judge wrote.

Four months after the probate settlement was approved in 2005, Winikoff noted the Florida Supreme Court changed the rules on appearances by out-of-state lawyers in disputes in Florida. The Florida Bar had already recommended the change, and "the American Bar Association had authorized conduct similar to West's since 2002," the judge wrote.

For those reasons, the judge ruled "there was no public policy violation that would justify" denying the fee to West.

The complicated case has another potentially bizarre twist that could have two big-name law firms battling each other over who should pay West.

West Palm Beach attorney Gerald Richman of Richman Greer Weil Brumbaugh Mirabito & Christensen, who represented West, said the total award with interest would be about $1.15 million after deducting the $41,000 he has already received. However, Richman said he may sue the Edwards Angell firm to collect some or all of West's $1 million award.

Morrison authorized $1 million to be set aside for West and held in an Edwards Angell trust account until the fee dispute with West was resolved, Richman said. Instead, he claimed the law firm returned the money to Morrison before the dispute was resolved and she spent at least $250,000 of it on a diamond bracelet and may have spent all of it.

Palm Beach Circuit Judge Karen Martin, who presided over the probate settlement, ordered Morrison in 2006 to return the money to the Edwards Angell trust account. Richman said she has not yet done so. Richman said he will first try to get West's money from Morrison, but if her assets -- including a $90,000 monthly payment from her late husband's estate -- are legally protected from being attached, "obviously we're going to look at the Edwards Angell firm" to try and collect the money.

"They made a mistake here," Richman said of Edwards Angell.

Lesson learned?

There are two sets of lawyers sweating bullets in this case. 

First, I was surprised to learn that an otherwise very astute out-of-state attorney (he apparently was instrumental in crafting a settlement agreement involving a complex $100 million estate) put his own $1 million fee at risk by apparently failing to file a timely pro hac vice motion.  Although these motions "should" be perfunctory in nature, as another out-of-state attorney recently learned, even something as simple as a pro hac vice motion can trip you up when you least expect it [click here].

I think everyone involved in this case probably assumes the fee-order reported on above will be appealed, so Mr. West's $1 million pay day remains uncertain.  This poor guy is probably kicking himself for not getting that darn pro hac vice motion filed when he first stepped into the case.

Second, the Edwards Angell attorneys are probably wishing someone in accounting had stood up and said "are you kidding me??!!" before they released the $1 million in estate funds they were supposed to retain in their escrow account pending final resolution of the fee dispute.  You can just imagine how upset the trial-court judge must have been when he learned these funds had been released to the client and she in turn testified that she blew $250,000 of those funds on a diamond bracelet and "may have spent all of it."  Oops!!

Stay tooned for more . . .

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The Associated Press just reported in Sperm Donor Case Heads for U.S. Supreme Court that a Topeka, Kan., man seeking parental rights to children conceived with sperm he donated is petitioning the U.S. Supreme Court to take his case.  For those of you who like your news served up on TV, [click here] for a local-news piece reporting on the same story.

The case reported on in the AP piece arises out of a Kansas Supreme Court ruling holding that a Kansas state law that doesn't give sperm donors any parental rights unless there's a written agreement is indeed constitutional.  As I noted when I first wrote about this case, the result would have been the same under Florida law [click here].

From a probate/inheritance-law viewpoint, I see this case as yet another example of the challenges our society (and by extension probate courts and lawyers) will have to confront as technology races ahead in the development of new forms of assisted reproductive technology, a point I've written about before and that is receiving quite a bit of academic/media attention lately [click here].

My bet is that the U.S. Supreme Court will take a pass on this case opting to allow more state courts to take a crack at the issue before weighing in with it's own conclusions.  But then again, you never know.  If the U.S. Supreme Court does take this case the ramifications could be huge, and not just with respect to inheritance rights.  Although I can't point to them exactly, I would imagine that somewhere in this case lurking in the underbrush are issues relevant to the abortion debate.  Any time the U.S. Supreme Court steps into that minefield (no matter how obliquely), the stakes are always sky high.

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Mark Fass of the New York Law Journal reported in N.Y. High Court Finds Adopted-Out Child Has No Claim to Jell-O Fortune on an interesting case determining the inheritance rights of a woman given up for adoption by her birth mother.  I've written about this case before [click here].  In Florida the answer when it comes to adopted-out children is clear: subject to a few specific exceptions, an adopted-out child is not considered an heir of the birth mother.  Here's the relevant Florida statute:

732.108 Adopted persons and persons born out of wedlock.--

(1) For the purpose of intestate succession by or from an adopted person, the adopted person is a descendant of the adopting parent and is one of the natural kindred of all members of the adopting parent's family, and is not a descendant of his or her natural parents, nor is he or she one of the kindred of any member of the natural parent's family or any prior adoptive parent's family, except that:

(a) Adoption of a child by the spouse of a natural parent has no effect on the relationship between the child and the natural parent or the natural parent's family.

(b) Adoption of a child by a natural parent's spouse who married the natural parent after the death of the other natural parent has no effect on the relationship between the child and the family of the deceased natural parent.

(c) Adoption of a child by a close relative, as defined in s. 63.172(2), has no effect on the relationship between the child and the families of the deceased natural parents.

For me the inheritance rights of adopted-out heirs are relatively easy to figure out.  What is much more difficult for courts to figure out are the inheritance rights of heirs conceived as a result of new developments in assisted reproductive technology [click here], or inheritance rights based on advanced DNA testing [click here].  Now that's hard.

Coming back to the linked-to story out of N.Y.  When reading the following excerpt, aside from the substantive-law issues regarding inheritance rights of adopted-out heirs, I was struck by the roller coaster ride that litigation can be for clients and counsel alike.  The poor woman at the center of this case went from a trial-court ruling holding that she didn't get a dime of the fortune created by her biological great grandfather, to an intermediate appellate decision reversing the trial court and ruling she was entitled to an approximately $3.5 million share of the estate, to a final appellate ruling swinging back to the original ruling that gave her nothing.  I think there's a lesson in here somewhere about litigation in general, but that's for a later day.  OK, so here's the excerpt from N.Y. High Court Finds Adopted-Out Child Has No Claim to Jell-O Fortune:

The daughter of an heir to the Jell-O fortune, who spent 14 years looking for her birth mother, is not entitled to a multimillion-dollar share of two disputed trusts, the New York Court of Appeals ruled Thursday.

In a separate ruling Thursday involving two joined cases, Matter of Adult Home at Erie Station, 21, and Regional Economic Community Action Program v. Bernaski, 22, the state's highest court ruled that an Orange County city improperly denied tax exemptions to a home for the elderly and a social work organization devoted to the poor.

In the disputed trusts decision, Matter of the Accounting by Fleet Bank, 27, the court reversed the Appellate Division, 4th Department, finding that the law in effect at the time of the execution of the trusts, in 1926 and 1963, does not imply the right for an adopted-out child to share in a class gift.

The unanimous court also found that public policy precludes office manager Elizabeth McNabb, 52, from receiving shares of two trusts created to benefit her birth mother's "descendants" and "living children."

Citing the court's own 1985 decision Matter of Best, 66 NY2d 151, Chief Judge Judith S. Kaye wrote, "As the Court noted, the finality of judicial decrees would be compromised if adopted-out children were included in such class gifts 'because there would always lurk the possibility, no matter how remote, that a secret out-of-wedlock child had been adopted out of the family by a biological parent or ancestor of a class of beneficiaries.'"

McNabb was born out of wedlock, and her mother consented to her adoption by strangers. She began her quest to find her birth family in 1974, at age 19. She finally uncovered the identity of her mother, Barbara Woodward of Rochester, N.Y., in 1988, when she uncovered a copy of her birth certificate from a Salem, Ore., vital-statistics office.

McNabb then called every Woodward in a Rochester phone book, finally hitting upon a cousin of her mother who passed on Ms. Woodward's married name, Barbara W. Piel.

Piel's grandfather, Francis Woodward, purchased the rights to the gelatin he would soon rename Jell-O in 1899 for $450.

McNabb called Piel, and the two soon developed a relationship. Shortly after Piel's death in 2003, McNabb received a phone call from a Fleet Bank trustee, requesting proof of her relationship to the late Piel.

After the bank determined that McNabb was not entitled to a share of the trusts benefitting Piel's children, she intervened in the Surrogate Court's settlement of the trusts.

In December 2005, Monroe County Surrogate Judge Edmund A. Cavalruso decreed that McNabb did not constitute a "descendant" or "child" of her birth mother and therefore was not an intended beneficiary.

Last March, the 4th Department reversed, effectively granting McNabb an approximately $3.5 million share of the two trusts.

Thursday, the Court of Appeals again reversed, holding that McNabb is in fact not entitled to any part of the trusts intended to benefit her birth mother's children.

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The materials distributed for the last meeting of the Florida Bar's Probate & Trust Litigation Committee included a subcommittee report entitled Collateral Attack on the Validity of A Marriage after Death Based Upon Undue Influence [click here then scroll down to AGENDA ITEM 6]. 

The subcommittee report provides an excellent state-by-state survey of current law regarding challenges to deathbed marriages and is well worth reading.  The report concludes with proposed legislation that would give a decedent's heirs standing to challenge a deathbed marriage on the grounds of fraud, duress or undue influence.  I think this is good public policy and the subcommittee members (John Moran, Bill Hennessey, Laura Sundberg, and Russ Snyder) should be commended for a job well done. Here's the report's conclusion and recommended statutory fix:

VI. Conclusion

In sum, Florida follows the common law and majority rule which only allows void marriages to be challenged after death. In most instances, Florida courts have held that marriages procured by fraud, duress, and undue influence are merely voidable, affording potential heirs no ability to challenge a marriage after death. Given the extensive rights available to a surviving spouse, a wrongdoer can profit significantly by simply inducing or influencing an elderly person to enter into a marriage. The Subcommittee recommends that the full committee consider and discuss legislation to address this issue.

VII. Proposed Statute

Over the last several meetings, the Probate and Trust Litigation Committee discussed and debated a legislative change to permit a challenge to a marriage procured by fraud, duress, or undue influence. At the August 2, 2007 meeting in Palm Beach, a straw vote revealed that a majority of the Committee was in favor of working on a proposed legislative fix. Accordingly, the proposed statute set forth below would provide an avenue to attack a marriage on the basis of fraud, duress, or undue influence after the death of a party to the marriage. The proposed statute aims to narrowly focus on inheritance rights. The proposed statute also borrows from F.S. §732.802 (the slayer statute), F.S. §732.5165 (effect of fraud, duress, mistake, and undue influence), and F.S. §733.107 (burden of proof in contests; presumption of undue influence).

73X.XXXX. Challenge to marriage procured by fraud, duress, or undue influence

     (1) An action to challenge a marriage may be maintained by any interested person after the death of the husband, wife, or both in any proceeding under chapters 731 through 736, 744, 747, and the Florida Probate Code, in which the fact of marriage may be material, either directly or indirectly.

     (2) The scope of this section is limited to all inheritance rights or other benefits a surviving spouse or any other person may acquire as a result of the surviving spouse's marriage to the decedent, including any rights or benefits acquired under chapters 731 through 736, 744, 747, and the Florida Probate Code.

     (3) A marriage is void for all purposes under subsection (2) if it is procured by fraud, duress, or undue influence.

     (4) In all proceedings contesting a marriage under this section, the contestant shall have the burden of establishing, by clear and convincing evidence, the grounds on which the marriage was procured by fraud, duress, or undue influence.

If after reading the linked-to subcommittee report you're still not convinced that the proposed Florida legislation is a good thing, then you need to read a newly-published law journal article that advocates strongly for exactly the type of legislation being proposed here in Florida.  As reported here in the Wills, Trusts & Estates Prof Blog, Terry L. Turnipseed (Assistant Professor of Law, Syracuse University College of Law) has recently published his article entitled How Do I Love Thee, Let Me Count the Days: Deathbed Marriages in America.  Here's the article's abstract:

Abstract:

Should you be able to marry someone who has only days to live? If so, should the government award the surviving spouse the many property rights that ordinarily flow from marriage?

In almost every state, the only person allowed to challenge the validity of a marriage (or, by extension, the property consequences thereof) after the death of one of the spouses is the surviving spouse! Seems incredible, does it not? The expectant heirs of a dying man (or woman) who marries on his (or her) deathbed cannot challenge the marriage post-death. Ironically, the one person allowed to challenge is the only person who has absolutely no motivation to do so.

How did this rule come about? What, if anything, should we do to change it?

This article explores these and other related questions, including a proposed theoretical framework for a model act giving heirs and beneficiaries standing to sue in order to negate the property consequences that flow from marriage, depending on the level of mental capacity at the time of the marriage.

Individuals on their deathbeds have just as much right to marry as anyone, and if competent and under no duress, the parties to the marriage certainly should have protection under the law. Protection should be appropriately shaped to avoid harassment of widows and widowers.

However, I simply cannot see a valid argument for denying a decedent-spouse's heirs (those who would take the decedent's property if he or she died unmarried and intestate) and beneficiaries (those who would take under the decedent's valid will, if any, absent a spousal election) the right to challenge the property consequences of a suspect marriage, especially when that challenge is based on traditional grounds that might naturally flow from a deathbed marriage.

Ironically, a decedent on their deathbed may not have the legal capacity to enter into a contract but can get married. It is only reasonable that these poor people and their heirs and beneficiaries should have state protection against a surviving spouse taking some or all of the decedent's property. Protection of heirs and beneficiaries is necessary where a surviving spouse may have few legitimate motives for entering into a deathbed marriage, particularly in light of the surviving spouse's ability to take some or all of the decedent's property.

The current incentives are off kilter. A greedy potential spouse has every incentive to find a minister or officer of the law willing to marry them off to a wealthy sick person and no legal incentives not to try it. No matter how ugly the situation, a marriage becomes set in stone with no person other than the surviving spouse allowed standing to seek redress in a court of law upon the death of one of the spouses. Allowing, in an appropriate way, heirs and beneficiaries to challenge the property consequences of a suspect marriage puts in place the proper disincentives before attempting to take advantage of one of feeble mind and spirit.

If these property consequences are allowed to stand, victims will continue to abound in deathbed marriage situations where consent is lacking: the decedent, her family, and society generally. Just imagine how you would feel losing an expectancy in such circumstances.

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This letter from Miami-Dade County Chief Judge Joseph Farina was recently emailed to Miami-Dade County attorneys asking us to get involved in the political process revolving around looming budget cuts.  According to Judge Farina:

The judicial branch was recently advised that due to the State of Florida's budgetary deficit totaling approximately 4 billion dollars, the State Courts' budget would have to be reduced by more than 16 million dollars by June 30, 2008. While this unanticipated reduction amounts to only 0.06% of the state budget, the loss of these funds would be devastating to  the judicial branch and its ability to provide access to justice and quality service to the public.

Should probate litigants "opt out" of the public court system?

As a "user" of Florida's court system faced with the negative consequences of an underfunded system, I have the option of passively accepting the status quo and simply resigning myself to doing the best I can under less than ideal circumstances.  Another possible reaction is to opt out of the public court system whenever possible.  There are no jury trials in probate litigation, so these cases lend themselves to alternative dispute resolution mechanisms.  Fortunately, existing Florida law provides litigants and their attorneys a wide menu of ADR options to chose from, including:

[1]  Court-ordered mediation (F.S. 44.102).  This option is well-known and commonly used.  It's not really an alternative to the public court system because there's no third party acting as "judge" to resolve the dispute.  The parties either voluntarily come to an agreement - or they don't - and end up right back in the public court system.

[2]  Court-ordered, nonbinding arbitration (F.S. 44.103).  This option is a little closer to private litigation because you have an independent third party making findings of fact and law that can end up in a legally-binding judgment.  Although the parties don't have to live with the arbitrator's ruling if they don't want to, if you decide to reject the arbitration ruling and go back into the public court system for a trial you may have to pay the other sides attorney's fees and costs if your after-trial judgment isn't at least 25% higher than what you got from the arbitrator.  This can be a powerful incentive to stick with the arbitration ruling.

[3]  Special Masters (Florida Rule of Civil Procedure 1.490; Florida Probate Rule 5.697).  Special masters can perform a wide variety of tasks usually shouldered by the trial judge directly. They serve various roles in pretrial discovery and proceedings, facilitate the mediated settlement of cases, make recommendations and submit reports to judges, assist with complex issues, chair advisory committees composed of lawyers of record, help administer class actions and settlements, propose orders jointly recommended by the parties, make decisions based on judicial reference or the parties' consent, and become engaged in post-trial proceedings.  In short, special masters are a flexible and commonly-used means of lightening the load for overburdened trial judges while also making life much easier for the litigants.  A recent Florida Bar Journal article by Howard R. Marsee entitled Utilizing "Special Masters" in Florida: Unanswered Questions, Practical Considerations, and the Order of Appointment does a good job of explaining all the ins and outs of using special masters in Florida litigation.

[4]  Voluntary trial resolution a/k/a "Rent-a-Judge"  (F.S. 44.104).  This is Florida's version of California's "rent-a-judge" statute, which first gained prominence in the early '80s.  I'm intrigued by this concept.  Why put up with an underfunded public court system when you can hire a judge with subject-matter expertise and get all the benefits of a trial and the right to appeal an adverse ruling while avoiding the worst aspects of the public court system?

The following excerpt from a piece in Time entitled Rent-a-Judge does a good job of describing the pros and cons of the rent-a-judge option in plain English:

Once both sides in a dispute agree to set up their own court, they select a judge (so far all have been retired jurists) and settle on his pay (usually $125 an hour, split by the parties). If the regular court approves, trial can begin when and where the litigants choose.

By averting the 4½-year wait for trial, parties almost automatically save money. Normally, Chodos asserts, "lawyers have to justify their existence, so they file 39 depositions and countless motions that are meaningless but costly." Another advantage of the system, particularly important to litigants in complicated business cases, is that parties can pick judges with expertise in certain fields. Moreover, proceedings can be held in secret and kept off the public record. When Tonight show Host Johnny Carson and NBC were battling over his contract in 1979, they hired a retired judge to hear their megabuck dispute behind closed doors. (Before the trial began, however, they settled the case.)

Judges regard the system as the best thing since raised benches. Los Angeles jurists, who earn $60,000 a year, retire comfortably: a 20-year man receives a pension of $45,000. But an energetic ex-judge can increase that income greatly by freelancing. Eugene Sax received more than $40,000 for five months of work on a dispute between California's air resources board and several oil industry giants.

Because private courts can work only when both parties want a prompt decision, their growth potential is limited. Explains Judge Schauer: "Over 99.9% of our cases involve one side that doesn't want to go to court. Defendants don't want that day of judgment." The typical rent-a-judge case involves squabbling business partners who are eager to get a ruling and resume their profitable venture. Recently, private judges have also started handling family law matters.

The private jurist program resembles arbitration, a widely used procedure that calls on a non-judge to resolve disputes typically involving labor contracts. But the California procedure has some features that arbitration does not. Examples: the judge must adhere to regular procedural and substantive aspects of law, and decisions can be appealed.

For Florida-specific articles describing our rent-a-judge statutory regime see: Christopher M. Shulman's “Voluntary Trial Resolution: Tailor-Made for Employment Claims”, The Checkoff, Vol. XLII, No. 3, at 5 (Florida Bar Labor and Employment Section May 2004) [click here]; and Cary R. Singletary's "Voluntary Trial Resolution - A New Dispute Resolution Process in Florida," The Checkoff, Volume XXX, No. 4, July 2000, The Florida Bar [click here].

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Coral Gables attorney Patrick J. Lannon just published in interesting article in this month's Florida Bar Journal entitled Challenging Inter Vivos Transfers Procured by Undue Influence: Factors to Consider.  The article is well researched and good stuff to keep on file.  I thought the following "nuggets" were especially interesting:

The Florida Supreme Court determined in Rich v. Hallman, 143 So. 292 (Fla. 1932), that “the degree of proof necessary to invalidate a will is much greater than that required to set aside a gift inter vivos.”

*     *     *     *     *

[A] long line of cases in Florida and elsewhere consider a gift made in the course of a meretricious relationship (such as a gift to a mistress) to be essentially per se undue influence.[FN 13]

[FN 13]: See Taylor v. Johnson, 581 So. 2d 1333 (Fla. 1st D.C.A. 1991), and cases cited therein. But see Hill v. Hill, 222 So. 2d 454 (Fla. 2d D.C.A. 1969), finding mere fact of meretricious relationship insufficient to prove undue influence where the donor left his wife and set up residence with his mistress and treated her as his wife). In light of Hill, Taylor limited the application of this line of cases to situations where the mistress gains at the expense of the spouse. See also deFuria, Testamentary Gifts Resulting From Meretricious Relationships: Undue Influence or Natural Beneficence?, 64 Notre Dame L. Rev. 200 (1989) (arguing that different treatment of meretricious relationships in undue influence cases can not be justified in light of modern legal and social developments).

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UPDATE:

This is a first, I just received a demand letter from a firm in California requesting that I "remove [this] posting from [my] blog forthwith."  [Click here for copy of demand letter].  Apparently, I "should" have known that the original story was pulled by the Orange County Business Journal.  No, I didn't know, and am at a loss as to why I "should" have known this fact.

I have to say I'm somewhat flattered that someone in California thinks this Florida-focused blog is important enough to warrant a demand letter.  Anyway, as stated in the demand letter, the offending report has been pulled by the Orange County Business Journal, so who am I to say no.  The post below has been redacted accordingly.

ORIGINAL BLOG POST - AS REDACTED:

I've previously written about Florida probate litigants successfully claiming the Fifth Amendment privilege against self-incrimination [click here].  The reason why litigants claim this constitutional right in a probate proceeding is because they don't want their testimony used against them in a criminal investigation.  This is a legitimate concern. 

A probate case out of California involving the estate of Vitamin C entrepreneur Jay Patrick and his California-based Alacer Corp. is a good example of how estate litigation can spill over into a criminal investigation.  .  .  .

[Original text deleted in response to the demand letter linked-to above.]

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• 4th DCA: Barrett v. Barrett, --- So.2d ----, 2008 WL 239032 (Fla. 4th DCA Jan 30, 2008)
• 4th DCA: Nasser v. Nasser, --- So.2d ----, 2008 WL 239073 (Fla. 4th DCA Jan 30, 2008)

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Is a will invalid if one of the witnesses is an "interested" party? In Florida the answer is clearly NO:

732.504 Who may witness.--

(1) Any person competent to be a witness may act as a witness to a will.

(2) A will or codicil, or any part of either, is not invalid because the will or codicil is signed by an interested witness.

Florida's is not the traditional approach, which may be why most people instinctively shy away from witnessing wills that benefit them.  For example, Joel Schoenmeyer recently wrote here on his Death and Taxes Blog about a famous pre-WWII case out of California where an "unorthodox" will was invalidated because the attesting witnesses also benefited from the will:

MISS LILLIAN PELKEY’S PETTICOAT
In Los Angeles, before the Second World War, George W. Hazeltine, 86, lay ill in hospital. He wanted to make a new will and leave $10,000 to his nurses, Lillian Pelkey and Madeline Higgins. There being no paper to hand, Miss Pelkey pulled up her dress, placed a board under her petticoat, and the will was pencilled on her undergarment. The petticoat was eventually admitted to probate but the nurses were prevented from benefiting from the will because they were attesting witnesses of it.

By the way, as noted by Joel, Illinois continues to follow the traditional rule disqualifying attesting witnesses from benefiting under wills they witnessed.  

The commentary to Uniform Probate Code section 2-505 (which was adopted verbatim by Florida as F.S. 732.504) explains why the old rule against witness-beneficiaries  was abandoned by the UPC drafters:

The position adopted simplifies the law relating to interested witnesses. Interest no longer disqualifies a person as a witness, nor does it invalidate or forfeit a gift under the will. Of course, the purpose of this change is not to foster use of interested witnesses, and attorneys will continue to use disinterested witnesses in execution of wills. But the rare and innocent use of a member of the testator's family on a home?drawn will is not penalized.

This approach does not increase appreciably the opportunity for fraud or undue influence. A substantial devise by will to a person who is one of the witnesses to the execution of the will is itself a suspicious circumstance, and the device might be challenged on grounds of undue influence. The requirement of disinterested witnesses has not succeeded in preventing fraud and undue influence; and in most cases of undue influence, the influencer is careful not to sign as a witness, but to procure disinterested witnesses.

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An article written by Anthony Lin of the New York Law Journal entitled N.Y. Court Suspends Lawyer Accused of Taking Money From Judge's Estate underscores the wisdom of building systemic, structural safeguards against malfeasance into ALL guardianship proceedings.  In Miami-Dade and Broward counties probate judges require the liquid funds of ALL probate or guardianship estates to be immediately deposited into a "restricted depository account" governed by F.S. 69.031.

Although some grouse about the minor expense and delay caused by a blanket policy requiring restricted depository accounts for ALL estates, those "costs" are far outweighed by the obvious advantage of eliminating the "moral hazards" inherent to attorneys (often solo practitioners) holding estate funds in their own firms' escrow accounts and paying themselves from these funds without having to justify such payments to any third party in advance.

The following excerpts from the linked-to New York Law Journal article prove - again - why systemic, structural safeguards, such as Florida's restricted depository account regime, are a good idea.

Emani P. Taylor has been the subject of disciplinary proceeding over her alleged withdrawal without authorization of $327,100 from accounts of John L. Phillips, a onetime Civil Court judge who was ruled mentally incompetent in 2002. Taylor, who served as Phillips' guardian from 2003 to 2006, has acknowledged withdrawing some money but claims she did so properly to pay both herself and others for services rendered.

*     *     *     *     *
Citing Taylor's lack of cooperation, the court said it would accept as uncontested an accounting prepared by a court-appointed examiner of the period during which Taylor acted as Phillips' guardian. According to this accounting, Taylor wrote $200,000 in checks to herself from guardianship accounts for supposed retainers and legal fees. Another $69,000 was paid to herself or to "cash" for supposed expenses, and another $57,000 was withdrawn in cash.

*     *     *     *     *
"While [Taylor] was entitled to be compensated for the work she performed for three years, self-help to guardianship funds is not the way to proceed," the court said.

The court also said it was "very disturbing" that Taylor had applied to the court for $853,100 in legal fees relating to her guardianship but did not disclose that she had already withdrawn from the guardianship account more than $327,000 for her own use.

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UPDATE:

This is to follow up to my blog post below regarding the case filed against The Salvation Army claiming that under Florida's POD statute [F.S. 655.82] a charity is not a "person" and therefore not a permissible POD beneficiary.  The court has granted The Salvation Army's Motion to Dismiss [click here], holding that F.S. 655.82 does not define the word person and that the context requires that the definition in F.S. 1.01(3) must be used. Therefore, a person for purposes of Florida's POD statute includes corporate charities such as The Salvation Army.

Special thanks to Miami attorney Kevin E. Packman of Holland & Knight for bringing the dismissal order to my attention.

ORIGINAL POST:

Pay on death or "POD" accountants are familiar territory to Florida probate counsel. As my partner Michele "Mickey" Maracini commented in Salvation Army Accused of Draining Dead Man's Funds by Jordana Mishory of the Daily Business Review, POD accounts are often used as probate-avoidance devices:

Attorney Michele Maracini at Stokes McMillan Antúnez of Miami, who is not involved with the case, said people frequently use this type of account. She said by leaving an account in trust for a specific person, the recipient is able to bypass the probate process.

POD Account Litigation: Florida Charities Beware!

POD accounts, like any other form of jointly-titled bank account, are not immune from disputes . . . many of which end up getting litigated in court.  I recently wrote about one such case [click here]. The two Florida statutes principally at play in these cases are 655.82 and 655.825.

Due to a quirk in the statute charities may be legally disqualified from being designated as beneficiaries of POD accounts.  That's the focus of the litigation reported on in Salvation Army Accused of Draining Dead Man's Funds:

A lawsuit in U.S. District Court alleges the Salvation Army improperly took more than $120,000 from a dead man's bank accounts -- even though the man had left $106,000 of that amount in the charity's name.


Filed by the estate of Richard Jose Belanger of West Palm Beach, Fla., the Oct. 5 lawsuit claims the Salvation Army improperly took the money left for it in Belanger's payable-on-death bank account. The suit, filed on behalf of Richard Jason Belanger, a son who is serving as personal representative, claims only a person may be left money in these types of accounts. The suit alleges the account his father left for the charity is invalid.

Family attorney John Cooney said the Florida Legislature did not intend for the 1995 statute that allows for the establishment of pay-on-death accounts to apply to entities or organizations. He drew his analysis from a portion of the statute that requires proof that the beneficiary is alive on the date of the account holder's death.

"When you have a statute that changes the way the law used to be, you need to interpret it narrowly and strictly," said Cooney, a partner at Arnstein & Lehr in Fort Lauderdale. "It doesn't matter what the decedent intended. If the decedent wanted to leave money for charity, that's why we have wills."

The lawsuit is the first legal challenge to the statute in Florida, according to the complaint. An Ohio appellate court found that a similar statute in that state allowed for only people to receive money from these types of accounts.

If Belanger's estate is successful in its case against the Salvation Army, the case could affect money left for charities across the state.

Lateral Thinking?

By the way, I think this case is yet another example of creative, lateral thinking in the probate litigation context.  Rather then challenge the Salvation Army gift on undue influence or lack-of-capacity grounds, which as litigation goes is always expensive and always full of uncertainty, plaintiff's counsel took a left turn, read the POD statute and "viola," he developed a low-cost, high probability-of-success litigation strategy where, as plaintiff's counsel states, "It doesn't matter what the decedent intended."  The case now becomes an exercise in statutory construction, which is a relatively inexpensive and quick case to litigate. Win or lose, plaintiff's counsel gets an "A" for lateral thinking.

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1. 2d DCA: In re Guardianship of Morrison, --- So.2d ----, 2007 WL 4180873 (Fla. 2d DCA Nov 28, 2007) (Contested Guardianship Proceeding)
2. 2d DCA: In re Commitment of Reilly, --- So.2d ----, 2007 WL 4270584 (Fla. 2d DCA Dec 07, 2007) (Contested Guardianship Adjudication)
3. FL SCT: Chames v. DeMayo, --- So.2d ----, 2007 WL 4440212 (Fla. Dec 20, 2007) (Homestead Litigation)
4. 3d DCA: Griem v. Becker, --- So.2d ----, 2007 WL 4482171(Fla. 3d DCA Dec 26, 2007) (Petition to Determine Heirs)

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The Florida Bar ethics rules governing contingent fee agreements are found in Rule 4-1.5(f).  Other than in divorce and criminal-defense cases [Rule 4-1.5(f)(3)], contingent fees are acceptable in any form of litigation, including contested probate proceedings.  Another point to keep in mind is that the percentage ceilings applicable to personal injury and medical malpractice cases, do NOT apply to probate cases [Rule 4-1.5(f)(4)].  In my experience, a straight 40% seems to be the norm for non-PI contingent fee agreements.

There's not a lot of Florida case law out there addressing contingent fees in probate cases.  The one Florida appellate opinion addressing this specific issue I am aware of is Brooks v. Degler, 712 So.2d 419 (Fla. 5th DCA 1998).  In Brooks the 5th DCA reversed a trial-court order enforcing a contingent fee in a contested probate matter because the contingent-fee agreement was poorly drafted, NOT because contingent fee arrangements are per se invalid.  Brooks provides solid guidance on how NOT to draft a contingent fee agreement for a probate case.

Late 40 Percent Retainer Pact Survives Widow's Dismissal Bid: Lawyers Seek $42 Million Fee

A recent NY Law Journal article entitled Late 40 Percent Retainer Pact Survives Widow's Dismissal Bid, reports on a NY case in which a 40% contingency in a contested probate matter resulting in a $42 million payday for the lawyers was challenged as being "unconscionable on its face."  The WSJ Law Blog also reported on this case here [the comments to the WSJ blog post are a fun read].  For a more colorful take on the case the NY Post delivers - as always - with: WAR OVER $40 MIL LEGAL BILL.

I previously wrote about this case here.

The NY appellate opinion in this case is worth noting by Florida probate litigators.  If someone ever tries to get out of your probate/contingency fee agreement, the arguments played out in this NY case just may surface in yours.  The following excerpt from the linked-to NY Law Journal article should give you a sense of the operative facts and law at play in this case:

A 40 percent contingent-fee agreement between New York law firm Graubard Miller and Alice Lawrence, the 83-year-old widow of real estate developer Sylvan Lawrence, was not unconscionable on its face, an appellate court said Tuesday, even though the agreement was executed in the final months of a decades-long estate litigation in which the firm had already received $18 million in hourly fees and three partners had further requested and received $5 million in "gifts."

In Lawrence v. Graubard Miller et al., a 4-1 majority of the New York Appellate Division, 1st Department denied Ms. Lawrence's motion to dismiss Graubard Miller's petition to compel payment of the contingent fee and said further proceedings would be needed to determine the propriety of the arrangement.

"[W]hile at first blush such agreement might arguably seem excessive and invite skepticism, before any determination regarding unconscionability can be made, the circumstances underlying the agreement must be fully developed, including any discussions leading to the agreement, as well as the prospects at that time of successfully concluding the litigation in favor of Mrs. Lawrence," Justice Richard T. Andrias wrote for a majority that included Justices David Friedman, George D. Marlow and Eugene Nardelli.

But in a blistering dissent, Justice James M. Catterson said he would not only have found the fee agreement invalid on its face but would also have referred the Graubard Miller lawyers to the Departmental Disciplinary Committee.

"Regardless of the procedural aspects of the parties' negotiations, no court can condone such an exorbitant fee," Catterson wrote.

Ms. Lawrence first retained the law firm, then known as Graubard Moskovitz McGoldrick Dannett & Horowitz in 1983, to represent her in a suit against Seymour Cohn, her late husband's brother, business partner and executor.

At the time of Mr. Lawrence's death in 1981, the brothers held a 12-million-square-foot real estate portfolio that included the former Port Authority building at 111 Eighth Ave. and a number of Wall Street office towers. It was estimated to be worth over $1 billion. Ms. Lawrence, who inherited 75 percent of her husband's interest, sought the portfolio's sale, but Cohn, who died in 2003, long opposed her.

Over the next 20 years, some $350 million was distributed from the estate, but the litigation dragged on until a final settlement was reached in May 2005 by which Cohn's estate would pay Ms. Lawrence and her children $105 million. Graubard Miller is seeking 40 percent of this amount, or around $42 million. Ms. Lawrence has sought rescission of the agreement as well as the return of all previous fees on the grounds of unjust enrichment and breach of fiduciary duty.

Though contingent fees of such magnitude are not uncommon in personal injury cases, they are rarer in estate cases. Moreover, such deals normally date from the beginning of the litigation and are in lieu of hourly fees, meaning a law firm bringing a case on a contingent-fee basis normally faces a risk of nonrecovery.

But Graubard Miller's contingent-fee deal was signed in January 2005, only months before the settlement. The 1983 retainer agreement in effect prior to that only specified hourly billing. In his dissent, Justice Catterson said the contingent fee might have been reasonable if agreed upon at the beginning of the case or if the firm had agreed to refund its previous fees.

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A NY Times article entitled A Lurid Aftermath to a Hedge Fund Manager’s Life reports on a brewing dispute over a Jupiter, FL estate reportedly "worth at least $25 million."  The following excerpts from the linked-to article give us a sense of what kind of case this will be (ugly!) and where the battle lines are being drawn:

JUPITER, Fla. — A life of private jets and black-tie balls ended with Seth Tobias, a wealthy investment manager and a familiar presence on CNBC, floating face down in the swimming pool of his mansion here.

*     *     *     *     *

Mr. Tobias, who was 44 years old, had apparently suffered a heart attack, his brother Spence said at the time. The police did not consider his death suspicious.

But now an unfolding drama over Mr. Tobias’s estate is providing a lurid account of fast money and faster living in the volatile world of hedge funds. Mr. Tobias’s four brothers and Mrs. Tobias are locked in a legal battle over the estate, which is worth at least $25 million. And, in a civil complaint, they have gone so far as to accuse her of murder.

The brothers, Samuel, Spence, Scott and Joshua, claim Mrs. Tobias drugged her husband and lured him into the pool. Bill Ash, a former assistant to Mr. Tobias, said he had told the police that Mrs. Tobias confessed to him that she had cajoled her husband into the water while he was on a cocaine binge with a promise of sex with a male go-go dancer known as Tiger.

*     *     *     *     *
At the center of the dispute is Mr. Tobias’s will, which designates his brothers as beneficiaries but does not name Mrs. Tobias. She contends that she is entitled to the estate because the will was signed before the couple married. In court filings, the Tobias brothers invoke Florida’s “slayer statute,” which prohibits inheritance by a person who murders someone from whom they stand to inherit. They claim she “intentionally killed” her husband “by asphyxiation and drowning.”

Florida's "pretermitted spouse" statute:

Mrs. Tobias' argument is based on Florida's version of the pretermitted spouse rule.  Here's how that argument is played out:
 

Mr. Tobias married Mrs. Tobias after making his will.  As such, pursuant to F.S. §732.301, regardless of what the will says, Mrs. Tobias is entitled receive a share of his $25+ million estate equal in value to that which she would have received if Mr. Tobias had died intestate, unless 1) provision has been made for, or waived by, Mrs. Tobias by a nuptial agreement; 2) Mrs. Tobias is otherwise provided for in the will (she apparently is not); or 3) the will discloses an intention not to make provision for Mrs. Tobias.


Pursuant to F.S. §732.102, the intestate share to which Mrs. Tobias would be entitled is as follows: a) If there are no living lineal descendants of Mr. Tobias, she gets the entire intestate estate; b) if there are surviving lineal descendants of Mr. Tobias, all of whom are also Mrs. Tobias' lineal descendants, she gets  the first $60,000 of the intestate estate, plus one-half of the balance of the intestate estate; and c) if there are surviving lineal descendants of Mr. Tobias, one or more of whom are not lineal descendants of Mrs. Tobias, she gets one-half of the intestate estate.

Florida's "slayer" statute:

Mr. Tobias' surviving brothers argue that Mrs. Tobias murdered her husband, and thus she shouldn't get a penny of the estate under Florida's version of the "slayer" rule, a doctrine I've written about before [see here, here, here]. 

Florida’s slayer statutes are found at F.S. § 732.802 (probate estates) and F.S. § 736.1104 (trust estates).

Although a murder conviction would make things easier for the Tobias brothers, it's not a pre-condition to their lawsuit. If Mrs. Tobias were convicted of the murder, that would conclusively divest her of all of her interest in Mr. Tobias' estate; but if Mrs. Tobias were acquitted of the murder (or never charged), the probate court could still weigh the evidence and determine "by the greater weight of the evidence" whether or not she should be divested. Here is the key language from F.S. § 732.802:
 

(1) A surviving person who unlawfully and intentionally kills or participates in procuring the death of the decedent is not entitled to any benefits under the will or under the Florida Probate Code, and the estate of the decedent passes as if the killer had predeceased the decedent.

*     *     *     *     *

(5) A final judgment of conviction of murder in any degree is conclusive for purposes of this section. In the absence of a conviction of murder in any degree, the court may determine by the greater weight of the evidence whether the killing was unlawful and intentional for purposes of this section.

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In Florida a death certificate is prima facie proof of the “fact, place, date, and time of death as well as the identity of the decedent.” § 731.103(2), Fla. Stat. (2007). It is not conclusive proof of any fact related to the death.  If insurance proceeds are at stake, you'll need a lot more than a death certificate to prove the insured is dead [click here and here for real-life examples of this point].

In a CNN article entitled Wife of missing adventurer wants him declared dead, we get a glimpse of the quantity and quality of the circumstantial evidence Steve Fossett's wife will be submitting in Illinois to legally establish the fact of his death.  I am assuming insurance proceeds are at stake in this case.  Excerpts from the linked-to CNN article demonstrate that Mrs. Fossett is going far beyond simply filing a copy of his death certificate:

"As difficult as it is for me to reach this conclusion, I no longer hold out any hope that Steve has survived," wrote Peggy V. Fossett in court documents filed Monday with the Cook County [Illinois] Circuit Court.

She asked that the will of her husband of 38 years be admitted to probate.

*     *     *     *      *

"No one involved in the search holds out any hope that Fossett is still alive," the petition said.

Rick Rains, a sheriff's supervisor of the San Diego County Sheriff's Department, said Fossett's plane was last spotted at 11 a.m. less than 20 miles from the ranch's airport. "Given the timeline and the sighting of Fossett's plane, I believe he was within 20 to 25 miles of the ranch when he crashed," Rains said.

But, he noted, "the terrain is very difficult to search, with many areas where the crevices, deep ravines and closely grown trees make it impossible to see from the air what is on the ground."

"If Fossett was physically able to find water to survive on in the Nevada desert, he would have been physically capable of signaling searchers, by doing something as simple as crafting a large X of sticks or rocks, or by starting a signal fire," Rains said.

In affidavits supporting his wife's petition, Fossett's doctor described the 63-year-old man as physically and mentally fit.

Robert Keilholtz, a captain in the California Civil Air Patrol who was involved in the search, noted that the difficulty in finding wreckage was underscored by the fact that World War II-era plane wreckage was discovered last spring in the mountain range.

In the search for Fossett, wreckage from eight other crashes was discovered, one of them from the 1960s, the lawyers said.

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In the latest twist to the Brooke Astor estate litigation [click here for a chronology of the case], Ms. Astor's son, Anthony D. Marshall, has been indicted on charges of plundering his mother's $198 million estate.  Here’s an excerpt from an AP article headlined Brooke Astor's son accused of plundering estate:

An indictment charges Marshall, 83, with grand larceny, criminal possession of stolen property, forgery, scheme to defraud, falsifying business records, offering a false instrument for filing and conspiracy.

The top count, grand larceny, is punishable by up to 25 years in prison.

Marshall's former attorney, Francis X. Morrissey Jr., also has been indicted on those charges.

"The indictment charges that Marshall and Morrissey took advantage of Mrs. Astor's diminished mental capacity in a scheme to defraud her and others out of millions of dollars," said District Attorney Robert Morgenthau.

Marshall's son, Philip, prompted the criminal investigation last year after he accused his father of neglecting Astor's care and stealing her money.

While a criminal indictment may seem like a win for the parties suing Mr. Marshall in the NY probate proceedings, in the long run it will likely cause more harm than good in the civil litigation.  For example, as previously reported by the NY Times in Talks on Astor Estate Halted to Clear Way for a Criminal Inquiry, settlement discussions that were apparently making good progress have now been halted at the behest of the prosecutor's office:

The district attorney’s office wants the settlement talks, being held under the auspices of the Westchester County Surrogate’s Court, held at bay to prevent prosecutors from losing a strategic edge, should indictments and a criminal trial result, according to the people who have been briefed.

This could happen, for example, if their key witnesses were deposed in the Westchester case by Mr. Marshall’s lawyers, who could then learn details of the district attorney’s line of inquiry, the people said.

*     *     *     *     *

During a half-hour hearing .  .  . Judge Anthony A. Scarpino asked a representative for the attorney general if the office’s position regarding settlement talks remained the same. He was told that it did.

“Negotiations are on hold status, as far as we’re concerned,” the judge then said, without mentioning the specific reason behind the stalled talks.

He reiterated that protracted litigation as a result of an inability to settle the case was “going to cost the charities a lot of money” by eroding their bequests. The settlement discussions spanned two weeks or so last month. The talks, spurred by the question of which of Mrs. Astor’s wills should be the valid one, focused on how much money the main charities would receive from her estate, which is valued at about $132 million, in addition to a trust estimated to be worth more than $60 million.

Not only do the civil litigants lose control of the case once a criminal indictment is issued, discovery becomes much more challenging because the other side can now "plead the 5th" and simply refuse to answer your questions in a deposition.  I've written before about this tactic [click here].  Ask yourself: who really benefits when the other side is indicted?

Lesson learned:

Criminal indictment = more expensive and time consuming civil litigation = unhappy client.

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I will be speaking on December 11 and 12 on probate litigation at an NBI seminar entitled The Probate Process from Start to Finish."  Click here for a PDF copy of the brochure.  The dates and locations for the seminar are:

• Miami, Florida - December 10, 2007
• Dania, Florida - December 11, 2007
• West Palm Beach, Florida - December 12, 2007

If you're an attorney looking to expand your practice into probate-administration matters, this introductory-level seminar is probably a good idea for you.  Here's how to register:

• WEB: register online at www.nbi-sems.com
• PHONE: (800) 930-6182 - weekdays 7:00 AM - 5:30 PM CST
• FAX: (715) 835-1405
• MAIL: NBI, Inc. P.O. Box 3067, Eau Claire, WI 54702

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The statute governing removal of personal representatives ("PR") in Florida is 733.504.  Acrimony - no matter how heated - is usually NOT sufficient to warrant removal of a PR [click here for recent example].  However, the outcome may be different if you can establish a detailed factual record proving that the acrimony is such that a significant portion of the estate will be eaten up in litigation expenses if the designated PR is not removed.  Note the shift in emphasis from "I don't like him" so please remove him as PR, to "the estate assets will be wasted" so please remove him as PR.

Mark Fass of the New York Law Journal recently published an article entitled 'Vexatious' Attorney Conduct Results in Removal of Executor.  In that NY case, the PR (referred to as "executor") was removed based upon a detailed factual record proving that a PR's representation by a particular law firm was so likely to result in litigation and waste of estate assets, that the PR should be removed.  The court agreed, and removed the PR.  Here's an excerpt from the linked-to article:

The "vexatious conduct" of the attorneys in the distribution of a woman's estate has led to the disqualification of their client as executrix of the estate.

The complex familial dispute began with the intestate death of 83-year-old Roseanna DeLaune, in 1997. Pursuant to statute, her sister, Paula M. Venezia, was appointed administrator; her heirs included her disabled nephew, William Pennington III.

Venezia hired her childhood friend from Manhattan's Little Italy, attorney Alfred Sica, to serve as counsel. He in turn hired the firm now known as Vaneria & Spanos.

In 2003, Venezia, 85, died, leaving the entirety of her own million-dollar estate to the same nephew, Pennington. She nominated her goddaughter, Joanne Zaccaria, to serve as executrix. Zaccaria, who had no role in the disbursement of the first estate, hired the same counsel -- Sica and Vaneria & Spanos.

Meanwhile, over the intervening six years, the administration of DeLaune's estate had devolved into what Sica later termed "combat" between himself and Pennington.

Loath to let history repeat itself, Pennington objected to Zaccaria's appointment, based in part on her selection of the attorneys he crossed swords with following the death of his first aunt.

Brooklyn Surrogate Margarita Lopez Torres has granted the petition, disqualifying Zaccaria from overseeing Venezia's estate. The surrogate cited the "vexatious conduct" of Zaccaria's chosen attorneys during the administration of the previous estate.

"To permit Zaccaria to serve as executor, along with her chosen counsel of Vaneria & Spanos and Alfred Sica, Esq., would be detrimental to this estate," Surrogate Lopez Torres held in Estate of Venezia, 2100/2003.

"Because of the excessively hostile and bitter relationship between the nominated fiduciary, her counsel and Pennington, the appointment of Zaccaria as fiduciary ... would have the practical effect of rendering the bequests of decedent to her nephew a nullity, as this estate would surely be taken down the inevitable road to further combative litigation," she said.

Lesson learned:

The concept of "issue framing" is nothing new in politics [click here].  Same idea applies in litigation. How an issue is "framed" in estate proceedings is everything.  If a litigant frames the issue in terms of his or her personal interests, a probate court is not likely to respond favorably.  By contrast, as the linked-to article shows, if the litigant frames the issue in terms of preserving estate assets - the likelihood of success goes way up.

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I recently had the pleasure of speaking at a luncheon hosted by the Miami Branch of the "Society of Trusts and Estates Practitioners" (STEP).  Originating in the U.K., this organization has grown exponentially in the last few years by attracting international planners from around the world.

I was asked to explain Florida's new trust code - in 30 minutes or less.  Feeling a bit overwhelmed by the scope of the topic, I did what any good litigator would do: I redefined the question to my liking, speaking instead on how Florida's new trust code fits into competition for trusts-and-estates business at the "macro" state level.  Entitled Jurisdictional Competition for Trust Funds: Florida's Competitive Strengths, the discussion outline should be of interest to anyone who's ever been asked to explain why Florida is better/just as good as jurisdiction "X" [you fill in the blank] for trust "situs" purposes.

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Question:

Why did trust law become statute law in the United States?

Answer:

Because in today's world the most common trust asset is a diversified portfolio of marketable securities.  Uniform legislation involving trusts, which culminated in the Uniform Trust Code ("UTC"), which was adopted by Florida effective July 1, 2007 [click here], was needed to "clear away" centuries of common law that worked when trusts usually only held real property, but clearly did NOT work when it came to managing investment portfolios.

In his recently published article entitled Why Did Trust Law Become Statute Law in the United States?  Prof. John H. Langbein of Yale Law School explains how codification of trust law facilities trustee management of the modern investment portfolio, and overrides common law governing trusts to the extent its inconsistent with modern portfolio management.

Trustees: what can the the new Florida Trust Code do for you?

In order to take full advantage of the new Florida Trust Code's default rules, Florida trustees need to understand how they simplify trust administration in Florida.  Prof. Langbein's linked-to article provides the following road map for figuring out how the Florida UTC makes life easier for Florida trustees.  (I've cross-referenced Prof. Langbein's UTC citations to the new Florida Trust Code.)

• Transaction Empowerment
• Allocating Expenses and Receipts
• Facilitating Pooled Investments
• Fiduciary Investing

1.   Transaction Empowerment

Historically, third parties doing business with trustees had a duty to independently verify that the trustee was authorized to enter into the subject transaction.  Florida UTC section 736.1016 eliminates this duty.  Historically, trustees were very limited in their authority to engage in business transactions.  A primary goal of new uniform trust legislation was to equip trustees as a matter of default law with essentially unlimited transaction authority.  Florida UTC sections 736.0815 and 736.0816 codify this regime.

2.   Allocating Expenses and Receipts

A trust containing financial assets requires the trustee to pay a great deal of attention to apportioning the receipts and expenses of a trust between or among different classes of beneficiaries (typically life and remainder interests).  Codifying fiduciary law on this point allowed for the development of sound default rules for allocating such such receipts and expenses.  A prefatory note to the UTC recognizes that the Uniform Principal and Income Act ("UPI") accomplished this goal, and that "a jurisdiction enacting the revised Uniform Principal and Income Act may wish to include it either as part of this Code or as part of its probate laws."  Florida incorporated its version of the UPI into stand alone Chapter 738 of the Florida Statutes.

3.   Facilitating Pooled Investments

Historically, trustees were barred from pooling funds from different trusts for investment purposes.  In today's world, pooling trust-fund investments via mutual funds and other similar financial products needed to build an adequately diversified investment portfolio is a must.  Florida UTC section 736.0802(g) facilitates mutual-fund investing by expressly overriding existing common law and authorizing bank trust departments to invest in affiliated mutual funds.

4.   Fiduciary Investing

Historically, trustees were very limited in the types of assets they could invest in.  Again, this approach makes perfect sense if most trusts only own real property, it simply does not work in a world where most trusts are invested in marketable securities and managed in accordance with the "modern portfolio theory."  Florida UTC section 736.0901 recognizes that the Florida Uniform Prudent Investor Act previously overrode the common law on this point by simply cross referencing to Florida Statutes Chapter 518.

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Private foundations are a growing phenomenon.  A piece by Petra Pasternak in The Recorder entitled Small Firms Find Profit in Nonprofits reported on the trend as follows:

[T]he nonprofit sector is exploding. In California, the number of private foundations more than doubled in the past decade, while the number of public charities swelled by nearly 60 percent, according to the National Center for Charitable Statistics.

And their wealth is growing. California private foundations owned about $34.9 billion in total assets in October 1997. That has since ballooned to $78.2 billion in September of this year.

Private foundations are not a big part of my practice, but they do come up with some frequency.  A basic question that sometimes gets lost in the tax arcana surrounding private foundations is "how long will this thing last?"  In the absence of an express termination date, the presumption is that the private foundation will go on in perpetuity after the client's death.  The longer the private foundation remains in existence after the client's death, the more likely it is that it will veer -- perhaps dramatically -- away from the client's original philanthropic intent.

For example, a recent NY Times article by Stephanie Strom provides dramatic anecdotal evidence of what can go wrong when private foundations become "orphaned" because the original donor has died and there are no remaining family members to oversee distributions.  Entitled Donors Gone, Trusts Veer From Their Wishes, the investigation uncovered several examples of abuse.  Here's an excerpt:

When Mamie Dues died in 1974, she left the fortune her husband, Cesle, had made in movie theaters in El Paso to a foundation controlled by a local bank there. The couple had no heirs and no other family.

*     *     *     *     *

Three decades later, however, the foundation’s legal address is in Delaware, and a global bank, JPMorgan, manages it from an office in Dallas. While its assets have grown to almost $6 million, from $5.1 million in 2000, its giving has fallen sharply, and the local group that once decided who would receive its money no longer has a say in its operations.

Such is the fate of many “orphan” trusts and foundations around the country that have been left in the hands of lawyers or local banks that have then been swallowed up by multinational financial institutions.

With no family members to encourage gifts to the original donor’s favorite causes, the banks and lawyers have wide latitude to change the way the trusts operate and to decide which charities will receive grants.

Banks can reduce gifts and increase the foundation’s assets, thus increasing their fees. At the same time, banks and lawyers stand to gain personal influence and prestige by selecting new charities.

*     *     *     *     *

An examination of several orphan trusts found these cases:

¶When large global banks take over, the number of grants often drops sharply, reducing the bank’s administrative costs. But bank fees, which are based on the amount in the trust, increase..

¶Small local grant recipients that have historically received money are either dropped in favor of larger charities or receive money far more sporadically.

¶New grant recipients sometimes include the alma maters of trustees or organizations with which they and their families have personal relationships.

¶Regulators have limited ability to identify such trusts and foundations and monitor them.

Lesson learned?

The simplest way to address the "orphan" trust problem is to define a termination date for the private foundation keyed off of the original donor's date of death.  If the private foundation terminates within 10, 20 or even 50 years after the original donor's date of death, it is much more likely that a family member or someone else with a personal link to the donor who shares his or her vision/values will still be around -- and in charge -- when the private foundation's last charitable dollar is given away.

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I've received a number of inquiries regarding the $1 million estate-planning/probate malpractice verdict recently upheld on appeal, which I previously wrote about [click here].  I think many practitioners are trying to figure out what went wrong in that case and what they can do to avoid making the same mistakes.

Against this backdrop, a recently published article by LawPRO, a Canadian professional liability (malpractice) insurance provider, should be of interest.  Wills & estates law claims on the rise by Deborah Petch and Dan Pinnington provides claims statistics and risk management advice specifically focused on the probate/estate planning practice area.  Although written for a Canadian audience, the advice seems equally applicable in Florida.

I was especially interested to see that "lawyer/client communication failures" was far and away the single most common cause of malpractice claims.  This finding is in line with the med-mal statistics and "don't-be-a-jerk" risk management advice given to doctors I previously wrote about [click here].  Another way of stating the don't-be-a-jerk rule is: respectfully listen to and communicate with your clients.

Here are a few excerpts from the linked-to article:

In both count and cost, wills and estates-related legal malpractice claims have slowly increased over the last several years. By area of law, wills and estates is the fifth most common area of claims: Only litigation, real estate, corporate and family claims are higher. 

Over the last five years, wills and estates-related claims averaged 6.0 per cent of LAWPRO’s claims count (112 claims per year), and 5.4 per cent of our claims costs ($3.9 million per year). On average, resolving a wills and estates claim costs LAWPRO $34,404.

This article examines the reality behind the numbers: It highlights the most common errors, and the steps you can take to reduce the likelihood of a claim.

The most common errors

In the wills and estates area, the most common causes of claims
are the following:

1. lawyer/client communication failures;
2. inadequate discovery of facts or inadequate investigation;
3. failure to know or properly apply the law;
4. time and deadline-related errors;
5. conflicts of interest; and
6. clerical/delegation.

What is striking to most lawyers is that law-related errors rank third.  Lawyer/client communication-related errors are actually the most common, representing almost 40 percent of the errors in the wills and estates area.

*     *     *     *     *

Avoiding communications errors

When it comes to avoiding or reducing the likelihood of a communications-related claim, the importance of putting things in writing cannot be over-emphasized. While the failure to have written confirmation of instructions and advice is not negligence in and of itself, such written communication can be extremely helpful in defending you in the unhappy event that a claim is made against you. Why? Because more often than not, this type of claim involves the lawyer recalling that one thing was said or done, or not said or not done, and a disappointed beneficiary that alleges something different. This type of claim is very hard for LAWPRO to defend successfully. At the end of the day it essentially comes down to a question of credibility. Unfortunately, we frequently find inadequate documentation in the lawyer’s file to back up the lawyer’s version of what occurred. All too frequently, we see files with no correspondence or reporting letters whatsoever.

Fortunately this error is one of the easiest to prevent. You can significantly reduce your claims exposure by documenting your work. Confirm the information that your client provided to you, your advice to the client, the client’s instructions to you, and what steps were taken on those instructions. Document the time spent reviewing the provisions of the will, including what issues were discussed. This can be done in your notes, and in interim or final reporting letters, or even in an e-mail message.

Even taking a few seconds to make more detailed dockets can be a lifesaver. "Conference with client re review of draft will, including provisions re cottage” is much better than just "Conference with client re draft will."

A special caution is warranted for matters involving family members and close friends: We do see claims on these matters, and quite often find almost no documentation in the file. This probably happens because the lawyer is familiar with the personal circumstances of the client, and fails to make and document all appropriate inquiries. It would be best not to act for them; but, if you feel that you must, treat them as though you had never met them before. Remember, often it is not your client who is the potential claimant, rather it is a beneficiary or disappointed beneficiary, with whom you have no personal relationship.

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Opening safe-deposit boxes is a part of most probate administrations.  Banks are usually sticklers for protocol, which is understandable given their liability exposure if anything goes wrong.  Fortunately, Florida has a detailed statutory scheme governing access by fiduciaries to safety deposit boxes (see F.S. 655.93 - F.S. 655.94 and F.S. 733.6065).

Wachovia is learning the hard way that people will sue if things go wrong, as reported by Daniel Wise in Bank's Opening of Box Leads to Trial on Missing Cash Claim.  Here's an excerpt:

An elderly woman's claim that Wachovia Bank was liable for $75,000 allegedly lost when it authorized unsupervised locksmiths to break into her safety deposit box should proceed to trial, an acting Supreme Court justice in Manhattan has ruled.

The bank's failure to check one of its computer databases to see if the box had been rented raises a triable issue of fact as to whether the bank committed "gross negligence," Justice Michael Stallman ruled last week in Glassman v. Wachovia Bank, 115380/06.

In early 2005, Roberta Glassman, who has residences in Manhattan and Florida, rented a self-service safe deposit box at the Wachovia branch in West Palm Beach, Fla. Under the agreement, she was to be given the only keys.

The agreement also provided that any missing contents were Glassman's responsibility and that "the Bank has no liability whatsoever unless the loss is caused by the Bank's gross negligence, fraud or bad faith."

Glassman, 74, claimed that when she left in May 2005 for a trip to Europe, she removed $3,000 in cash from the safety deposit box, leaving $87,000 in $100 bills and a $100,000 Suffolk County bond.

However, an envelope bearing the box number and containing keys was mistakenly included in the bank's inventory of unrented boxes. The keys did not open her box.

On May 27, 2005, a short time after Glassman left on her trip, the bank called in locksmiths from Diebold Incorporated.

The bank's lawyer, Jocelyn Keynes, said it was the bank's policy not to supervise the work of locksmiths on unrented boxes. In this case, the locksmiths soon realized the box had been rented because it did not have a piece of white Styrofoam normally found between the door of unused boxes and the actual container for valuables.

The locksmiths, according to the lawyer's affidavit, then summoned two bank employees, who inventoried the contents of the box as $12,000 in $100 bills and the $100,000 bond.

Both sides sought summary judgment upon Glassman's claim. Wachovia claimed it had acted reasonably, and had certainly not been grossly negligent.

Stallman found that the agreement's gross-negligence provision was sustainable under both New York and Florida law.

Although the case referred to in the quoted piece [Glassman v. Wachovia Bank, 115380/06] is out of New York, fortunately for us in sunny Florida the court skirted the choice of law issues by simply applying both New York and Florida law.  Florida practitioners should find the following useful:

• Exculpatory clauses in safe-deposit box agreements are enforceable.

[I]n Florida . . . an appellate court has held that the limitation of liability provided in a safe deposit box agreement which limited the bank's obligations for loss to instances of gross negligence, fraud or bad faith was . . . [enforceable]. F.D.I.C. v. Carre, 436 So.2d 227, 229-230 (Fla App 2d Dist 1993)(court noted that whether or not “a customer is wise to enter into an agreement such as the one in this case, we cannot find that the agreement was against public policy.”). Thus, under the laws of New York and Florida, an exculpatory clause, such as the provision contained in the subject Agreement that limits a party's liability to grossly negligent conduct, is enforceable.

• If a gross-negligence exculpatory clause is enforceable, then what is "gross negligence"?

The Florida courts have acknowledged that their jurisprudence “reflects a history of difficulty in dividing negligence into degrees” and that “it is doubtful that gross negligence has precisely the same meaning in each context.” See Fleetwood Homes of Florida, Inc. v. Reeves, 833 So.2d 857, 865-66 (Fla App 2d Dist 2002); see also LeMay v. Kondrk, 860 So.2d 1022, 1025 (Fla App 5th Dist 2003) (“Courts have encountered great difficulty in attempting to draw clear and distinct lines between the various grades of negligence). In Fleetwood Homes, the court observed that, in the context of addressing workers' compensation and in awarding punitive damages based on gross negligence, the relevant statute defines gross negligence to include “conduct [that] was so reckless or wanting in care that it constituted a conscious disregard or indifference to the . . . rights of person exposed to such conduct.” Id. at 867.[FN3]

[FN3]. The same definition for gross negligence was noted in In re Standard Jury Instructions-Civil Cases, (797 So.2d 1199 [2001] ), where the Florida Supreme Court authorized the publication of guidelines for jury instructions and model verdict forms with respect to the award of punitive damages in instances that involve intentional misconduct or grossly negligent conduct.

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I previously posted here the text of new legislation proposed by the Florida Bankers' Association to allow "directed trusts" in Florida.  This type of legislation would allow Florida banks and trust companies to assume no fiduciary liability for those trusts where they assume very limited administrative trust duties and focus solely on managing the trust's portfolio.

The inter-state "trust legislation" market is headed in the direction of directed trusts, lead as usual by Delaware, so it's only a matter of time before Florida adopts its version of the statute.  Here's a link to an excellent white paper explaining Delaware's directed trust statute.

A recent LawyersUSA article entitled Family trusts branch out addressed the growing prevalence of directed-trust legislation and, most importantly, contained a few nice Florida references and quotes on the subject.  Here's an excerpt from the linked-to story:

Experts estimate that by the middle of this century, the largest intergenerational wealth transfer in the United States - more than $41 trillion - will have taken place.

Competing to capture the lucrative family trust business, states are revamping their trust statutes to offer tax breaks and encourage the use of multiple trust advisers. So far, 20 states have adopted the Uniform Trust Code, which allows trustees to delegate duties to co-trustees and agents, and generally provides that trustees are exempt from liability for others' actions, except in cases of a "serious breach of trust."

About 10 states have adopted "directed trusts" statutes that specifically authorize the appointment of co-trustees and advisers for investment, management and distribution duties.

South Dakota and Delaware, which are considered to have the strongest directed trust statutes, eliminate liability for a trustee who follows instructions from an adviser appointed in the trust agreement to make investment or distribution decisions. 

*     *     *     *     *

Bruce Stone, a trusts and estates lawyer and shareholder at Goldman, Felcoski & Stone in Coral Gables, Fla., said directed trusts can .  .  .  be used for running closely held family businesses.

"A corporate trustee doesn't want to get involved in running a closely held business, and families don't want corporate trustees interfering in a lot of their decisions," he commented. "The solution is that with a directed trust, the corporate trustee only has to do certain things."

Crain, of BNY Mellon Wealth Management, agreed: "The family wants a corporate trustee to do all the important things - like tax returns, compliance - so the directed trust is the answer, because by statute, you can relieve the trustee of liability and responsibility for holding those assets."

Crain is the chair of a Florida Bankers' Association Trust legislative committee, which expects to introduce a bill next year proposing a directed trustee statute in Florida.

"It's a competitive issue," she said. "I personally have lost trust business because Florida doesn't have a directed trustee statute."

Florida's existing trust laws "don't go far enough in insulating a trustee," Crain said.

"You still have the duty to oversee, to monitor, to intervene," she noted. "The directed trustee statutes in the few states that have strong ones are explicit as to the lack of responsibility on the part of the trustee for reviewing the actions of the investment manager."

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In a blog post entitled Rich vs. Super-Rich, WSJ blogger Robert Frank highlighted this very funny video produced by the folks at The Onion lampooning the pseudo class war brewing between millionaires and today's super-rich class of billionaires.  The video is hilarious, and well worth watching.  On a more serious note, Frank notes that the joke plays off of the very real, and growing, wealth gap in the U.S.  Here's an excerpt from Frank's blog post:

The main reason for all this class envy at the top is that inequality among the rich is now at its highest level in recent history. The economic distance between mere millionaires and the richest billionaires has more than doubled over the past decade. While the average income for the top 1% of income earners grew about 57% between 1990 and 2004, it grew by more than 80% for the richest one-tenth of one percent.

.  .  .

The rich (or even affluent) may be feeling more and more class envy because of all the people around them who are even richer. But mere millionaires are still among the luckiest people in the world. Instead of always looking up and counting their fortunes, they should also look down and count their blessings. Because, as the Onion video points out, “not everyone can vacation in Italy. Some of you have to vacation on Martha’s Vineyard.”

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I can't imagine a more extreme example of trustee decision making under pressure-cooker conditions than the on-again-off-again negotiations for the sale Dow Jones & Co., which owns the Wall Street Journal.  As reported by the WSJ in Bancroft Trusts' Lawyers Hold Key to Dow Jones, at the center of that deal was a small group of lawyer-trustees:

The Bancroft family may own a controlling stake in Dow Jones & Co., but the final decision on whether to sell the publisher of The Wall Street Journal to Rupert Murdoch could well be made by a small circle of longtime family lawyers in downtown Boston.

Lawyers from Hemenway & Barnes sit at the center of dozens of overlapping trusts that hold power over most of the Bancrofts' 64% voting stake in the company .  .  .  . Those lawyers occupy two of the three trustee seats on a number of key trusts, with the third held by a family member. On one of the biggest trusts, lawyers from the firm are the only trustees. And the fact that the large Bancroft clan is divided over whether to sell further deepens the firm's influence.

"The vote really resides with them," says one family member who is leaning in favor of selling the company.

Risk management:

The best way to reduce the risk of getting sued as a trustee is to make sure the trust beneficiaries consent to your actions.  That seems to be what the trustees did in this case:

"There are 35 adult family members who have 35 points of view," Mr. Elefante said. "We've tried to be fair to all the family members by giving each of them all the information they need to make a good decision."

As the family's legal representative, Mr. Elefante likely would be reluctant to go against the family's wishes if a large portion of them oppose the deal. While trustees don't legally have to consult the beneficiaries of a trust before acting, ignoring their wishes might expose them to litigation. What's more, the Hemenway & Barnes trustees do not have to vote in concert. Mr. Elefante is expected to poll the family before deciding how the trusts would vote on a sale, a person close to him said.

Lesson learned -- plan ahead:

The earliest Bancroft trusts date back to the mid-1930s.  Back then no one could have possibly anticipated a sale of the WSJ in the year 2007 to a controversial media magnet from Australia.  Just like no one creating a trust today to hold a client's family business could possibly anticipate every contingency that trust will have to face in the decades (perhaps centuries - see here) that trust may be around for.

What you can do today is put in place a mechanism for trustee decision making that decreases the likelihood of future litigation while also making sure qualified trustees are at the helm when needed.  One way of achieving this balance is to design the trust so that an independent trustee, preferably a bank or trust company (see here for why), has ultimate decision making authority.  However, if trust beneficiaries feel their trustee isn't doing a good job or doesn't have their best interest at heart, sooner or later the parties will end up in court.  A way to avoid this type of showdown is to give the trust beneficiaries the power to hire and fire their corporate trustee at regular intervals.  Here's one way to do it:

• Require a corporate trustee:

After my death or if my personal rights under this Trust Agreement are suspended, there must be at least one Corporate Trustee serving at all times.

• Give trust beneficiaries periodic power to hire/fire corporate trustee:

Upon the third anniversary date of my death, and every three years thereafter, a majority in interest of the permissible current income beneficiaries most closely related to me who are then legally competent may remove any Corporate Trustee for any reason by giving 30 days’ written notice to that Trustee and to the permissible current income beneficiaries, including the natural or legal guardians of any beneficiaries who are then disabled.

• Give senior generation greater voting power:

If there is ever a vacancy in the office of Trustee of any trust created in this Trust Agreement and no successor is appointed as provided in this instrument, a majority in interest of the permissible current income beneficiaries most closely related to me who are then legally competent (the “beneficiaries”) will nominate as a successor Trustee a Corporate Trustee as defined in this Trust Agreement. If the beneficiaries do not appoint a successor Trustee within a reasonable time, the terminating Trustee shall, or any beneficiary may, petition a court of competent jurisdiction to appoint a successor Corporate Trustee.

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The saying "truth is stranger than fiction" didn't originate in a trusts-and-estates case (see here) . . . but it should have. 

For example, say you went to a movie and the plot line revolved around a brilliant but eccentric MIT professor who allegedly staged his own "hit" by two masked men with Russian accents then blamed his son in order to gain the upper hand in litigation involving a family trust.  You'd say "no way, that could never happen."  And you'd be wrong.  As reported in Former MIT professor headed to trial in allegedly staged shooting that's exactly the real life drama currently playing itself out in a Boston courtroom:

CAMBRIDGE, Massachusetts (AP) -- What the former MIT professor and wealthy businessman told police sounded like a scene from a bad spy novel: He was shot by two masked men with Russian accents, and saved only because two of the bullets bounced off his belt buckle.


Five months later came the indictment -- against him.

Prosecutors say John J. Donovan Sr. staged his own shooting to gain an advantage in a legal battle with his own children for control of trusts that he claims are worth at least $180 million. He's accused of trying to get back at his oldest son by falsely accusing him of hiring his would-be killers.

*     *     *     *     *
Donovan is charged with filing a false police report, a misdemeanor that carries a maximum one-year sentence. His trial is scheduled to begin Friday in Middlesex Superior Court.

"John Donovan repeatedly provided false information to police about a crime that did not occur in order to 'frame' his son for a crime his son did not commit and had no part in," prosecutors claim in court documents.

*     *     *     *     *

During the 911 call Donovan made from his cell phone after the shooting, he told a state police dispatcher that his son James, now 40, "laundered $180 million" and had threatened to kill him.

Prosecutors say Donovan made up the story to exact revenge, but his lawyer Barry Klickstein calls Donovan "the innocent victim of a violent crime."

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Big firms have been shedding their trusts and estates practice groups for decades (see here).  But those that still have them apparently populate them with the most interesting lawyers at the firm.  At least that's what I gather from reading Undue Influence: The Epic Battle for the Johnson & Johnson Fortune, by David Margolick.  Here are two gems from his book:

:"[A]t Shearman & Sterling as at most large firms, the individual-clients group was a loss leader, a service the firm extended to plutocratic executives, but a gilded graveyard for those lawyers -- eccentrics, aristocrats, gays, fops, women -- who traditionally congregated in them."


"[Sullivan & Cromwell's] probate department was small and idiosyncratic, inhabited by the usual collection of oddballs, geniuses, and women.  It was the only place at the firm where one could be an associate in perpetuity and eccentric with impunity."

Well, one of S&C's eccentric, oddball geniuses has decided to go elsewhere.  As reported here in the WSJ Law Blog:

Trusts and estates lawyer Henry “Terry” Christensen III, who formerly represented New York society doyenne Brooke Astor, is leaving Sullivan & Cromwell after more than 37 years to join McDermott Will & Emery. Christensen is the senior partner in Sullivan’s T&E practice and former head of the group.


It is almost unheard of for a partner to leave Sullivan, one of the country’s most prestigious and profitable law firms. Its average profits per partner in 2006 were about $2.8 million, double that of McDermott’s, according to the American Lawyer.

Christensen, as well as a person at the firm, said he was departing because of recent potential conflicts between work for his individual clients and corporate clients of the firm. Here’s the press release from McDermott trumpeting Christensen’s pending arrival.

Among Christensen’s clients are the Tate Gallery and the Starr Foundation. S&C represented Astor, now 105 years old, for more than 40 years, and Christensen handled the Astor relationship for the firm when it ended in 2004. For prior Law Blog coverage of the flap surrounding Astor’s fortune, click here, here and here.

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Last year I wrote here about a case out of the 3d DCA that had me puzzled.  The 2006 case was a will contest involving allegations of "insane delusion".  I couldn't reconcile the 3d DCA's apparent retreat from the extremely tough "lucid interval" standard generally applicable to testamentary capacity cases.

What the 3d DCA failed to explicitly state was that lack of testamentary capacity can be established in two ways: (1) general incapacity (governed by the insane-delusion standard) or (2) by establishing some specific and narrower form of insane delusion that is the direct cause of the invalid will.  This second testamentary-capacity line of attack is worth remembering.


As if on cue, professor Bradley E.S. Fogel of St. Louis University School of Law just published an article in the Spring 2007 edition of the ABA's Real Property, Probate and Trust Journal providing an excellent summary of the law governing insane-delusion will contests.  The article is entitled THE COMPLETELY INSANE LAW OF PARTIAL INSANITY: THE IMPACT OF MONOMANIA ON TESTAMENTARY CAPACITY.  Here's the editor's synopsis of his article:

In this Article, the author discusses the doctrine of monomania, which permits a court to invalidate a will based on the testator’s insane delusion if that insane delusion caused the testator to dispose of his property in a way that he otherwise would not have. The author argues that the monomania doctrine is fatally flawed and that the doctrine should be abandoned in favor of using the general test for capacity to make all testamentary capacity decisions.

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A blog dedicated to probate litigation usually doesn't go for laughs, but I couldn't pass this one up from San Francisco blog Crooked Street Press:

Estate Attorney With Tourettes Learning to Adjust

San Francisco- Estate Planner George Henry came down with a severe case of tourette syndrome about 9 months ago strangely enough while he was in front of a judge in a court room. Henry says that the last nine months has been hard on himself and loved ones around him “especially the people that make me mad F&#@ SH** B*^%#!” Where it has been especially tough is on the job as an estate planner to families that have lost members of their family and Henry starts to blurt out rants of swear words. Many times the swearing goes on for several minutes especially around the time the fees for his service are debated by the grieving family.

“When he swore in my court room after I over ruled against him on an objection, I about threw the book at him.” Judge Thurgood Thompson said. “Then he told me that he had tourettes. But I had never heard him swear before. From that point forward until the end of the case he would put on a swearing clinic. In my gut…I think most of it was directed at me.”

“Don’t get me started on F&#@ SH** B*^%# Judge Thurgood Thompson.” Henry said.

Henry and his family have been living with his condition for about 9 months now and his family has adjusted to this sudden problem. “I think the kids like it because it gives them new ideas.” Margaret Henry said. “Usually the episodes happen when I ask George to wash the dishes. He’ll rant for about twenty minutes or so but then he eventually does them.”

“I hope someday my F&#@ SH** B*^%# condition will subside.” Henry said. “But until then people had better leave me the F&#@ SH** B*^%# alone.”

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Many predicted that Anna Nicole Smith's 2006 Supreme Court victory involving her late husband's estate would lead to increased numbers of trust-and-estate cases being litigated in federal court (see here and here).

A recent example of the "federalizing" of trust-and-estates litigation is reported on in 2nd Circuit Re-Examines Standard for Probate Exception.  As the following excerpts make clear, it will now be much easier for litigants in the North East (i.e., litigants within the 2nd Circuit's jurisdictional boundaries) to adjudicate trusts-and-estates disputes in federal court:

 A retired attorney's long-running fight with the Bank of New York and a White Plains, N.Y., law firm over her parents' estate gave a federal appeals court the chance to explore the new standard on the probate exception to federal diversity jurisdiction.

The 2nd U.S. Circuit Court of Appeals said a 2006 U.S. Supreme Court decision changed the scope of the exception and the circuit's own case law, with the result that some of the claims brought by Adrienne Marsh Lefkowitz against the bank and McCarthy, Fingar, Donovan, Drazen & Smith can stay in federal court.

Second Circuit Judges John Walker and Peter Hall, with Southern District of New York Judge Denise Cote, sitting by designation, decided Lefkowitz v. The Bank of New York, 04-0435-cv. Hall wrote for the panel.

.     .     .     .     .

[I]n 2006, the U.S. Supreme Court decided Marshall v. Marshall, 126 S.Ct. 1735. In that case, former Playboy playmate and TV reality show star Anna Nicole Smith won a procedural victory in her attempt to collect a bequest from her late 90-year-old husband, Texas oil magnate J. Howard Marshall.

Hall, in writing the 2nd Circuit's opinion, said Marshall "reigned in the boundaries of the probate exception."

"The court explained that in Marshall the probate exception did not apply because plaintiff sought neither to (1) 'administ[er] an estate, ... probate ... a will, or [do] any other purely probate matter,' nor (2) 'to reach a res in the custody of a state court,'" Hall said. "From these statements, we discern that under the clarified probate exception a federal court should decline subject-matter jurisdiction only if a plaintiff seeks to achieve either of these in federal court."

Hall said that, therefore, "insofar as our Court's decision in Moser purported to direct courts to exercise subject-matter jurisdiction over in personam and other claims that might 'interfere' with probate proceedings only ... that holding was overly broad and has now been superseded by Marshall's limitation of the exception."

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Tampa probate litigator Steven L. Hearn provided an excellent case-law update for the 26th Annual Attorney/Trust Officer Liaison Conference.  As always happens when I review someone else's case-law list, I found cases on his list that I had missed.  Below is a list of cases covered by Mr. Hearn which I had not blogged on.  I intend on posting individual discussions for these cases over the next several weeks.  Stay tuned!

• Robinson v. Weiland, 936 So.2d 777 (Fla. 5th DCA Sep 01, 2006) (Newly Discovered Evidence/Fraud on the Court)
• Kranias v. Tsiogas, 941 So.2d 1173 (Fla. 2d DCA Oct 13, 2006) (Evidence/Privilege)
• Register v. State, 946 So.2d 50 (Fla. 1st DCA Dec 15, 2006) (Guardianship/Due Process)
• Marlowe v. Brown, 944 So.2d 1036 (Fla. 4th DCA Aug 02, 2006) (Divorce/Probate)
• Taylor v. Maness, 941 So.2d 559 (Fla. 3d DCA Nov 15, 2006) (Homestead Deeds)
• Favreau v. Favreau, 940 So.2d 1188 (Fla. 5th DCA Oct 06, 2006) (Pro Se Litigants)
• Banks v. Orlando Regional Healthcare, --- So.2d ----, 2007 WL 1010113 (Fla. 5th DCA Apr 05, 2007) (Settlement Agreements)
• Weiss v. Berkett, 949 So.2d 1092 (Fla. 3d DCA Feb 07, 2007) (Lack of Prosecution)
• Forman v. State Dept. of Children & Families, 2007 WL 601628 (Fla. 4th DCA Feb 28, 2007) (Powers of Attorney)
• City of Key West v. Knowles, 948 So.2d 58 (Fla. 3d DCA Jan 10, 2007) (Dead Bodies)

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Law.com reported on an interesting issue in Abandonment at Issue in Family's Feud Over Distribution of 9/11-Related Funds regarding the rights of a surviving parent that abandoned a pre-deceased child.  I'd be interested if anyone has seen similar Florida law on this point.  Here is an excerpt from the linked-to story:

 A judge in Brooklyn on Wednesday heard testimony in a case that pits the mother of a man who died in the 2001 terrorist attacks on the World Trade Center against her former husband, who wants half of their son's $2.9 million award from the federal September 11th Victim Compensation Fund.

Brooklyn Surrogate Margarita Lopez Torres held a daylong hearing that included testimony from the mother, Elsie Goss-Caldwell; the father, Leon Caldwell; their eldest son, Leon Jr.; and family friends.

The case might turn on Lopez Torres' interpretation of Estates, Powers and Trusts Law §4-1.4(a), which precludes the distribution of a deceased child's estate to a partner who has refused to provide for, or abandoned, a child before the child reached age 21.

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As reported here by CNN, Judge Larry Seidlin has decided to retire in part "to pursue the many opportunities that have been offered to me outside the judicial system."  (See here for law.com's more lengthy report.)  The speculation has been that Judge Seidlin will now "pursue" some sort of TV deal.  As I reported here, Judge Seidlin's performance during the Anna Nicole Smith proceeding in Florida was the subject of much criticism.  Perhaps any press (good or bad) is enough to land a daytime TV deal?  Anyway, the following is the entire CNN report (it's short):

(CNN) -- The Florida judge noted for his unorthodox oversight of the Anna Nicole Smith case says he is retiring at the end of July.

"As a judge, I have been deeply touched by the thousands of children and families in crisis who have come before me to share their struggles," Broward County Circuit Judge Larry Seidlin wrote June 13 to Florida Gov. Charlie Crist.

"I hope that by working together, we have made a positive difference in their lives," Seidlin added. "I consider myself among the most fortunate people on earth."

The letter was made public Tuesday.

"Nevertheless," he continued, "it is now time for me to devote more of my daily life to my own young family and to pursue the many opportunities that have been offered to me outside the judicial system, and I have disregarded until now."

The 57-year-old Bronx native wept on the bench during his oversight of the disposition of Smith's remains.

CNN legal analyst Jeffrey Toobin referred to him as "Judge Judy's wacky little brother."

Some observers speculated he was using his platform as a dais from which to try out for a job on television.

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One of the basic building blocks of Florida probate law is the "life estate" in homestead property all surviving spouses are entitled to.  The statutory basis for this rule is found in F.S. 732.401, which provides as follows:

(1) If not devised as permitted by law and the Florida Constitution, the homestead shall descend in the same manner as other intestate property; but if the decedent is survived by a spouse and lineal descendants, the surviving spouse shall take a life estate in the homestead, with a vested remainder to the lineal descendants in being at the time of the decedent's death per stirpes.

(2) Subsection (1) shall not apply to property that the decedent and the surviving spouse owned as tenants by the entirety.

Pretty basic stuff for any Florida probate practitioner.  What may not be so simple is explaining the real life practicalities of a life estate to a surviving widow.  Which is why you may want to keep a copy of The New Homestead Trap: Surviving Spouses Are Trapped by Life Estates They No Longer Want or Can Afford handy.  In this just published article Ft. Lauderdale attorney Jeffrey A. Baskies does a good job of explaining the costs assumed by surviving spouses/life tenants, a point often overlooked by families and their advisers.

Costs Borne by Life Tenants

F.S. §738.801 provides in part that “the provisions of F.S. §738.701-738.705 … shall govern the apportionment of expenses between tenants and remaindermen when no trust has been created….” In the absence of some agreement, those provisions apply to all life estate/remainder situations created by the Florida homestead laws (created by the constitutional restrictions on devise in art. X, §4 of the state’s constitution and F.S. §732.401).

Taken together, these statutes require the life tenant to pay:

• All of the ordinary expenses incurred in connection with the administration, management, or preservation of property, including ordinary repairs (including condo or homeowners’ association maintenance charges) and regularly recurring taxes (ad valorem property taxes).
• The interest portion of mortgage payments, if any, on the property.
• Recurring premiums on insurance covering the loss of a principal asset or the loss of income from or use of the asset.
• The costs of, or special taxes or assessments for, an improvement representing an addition of value to property shall be paid by the tenant when the improvement is not reasonably expected to outlast the estate of the tenant. In all other cases, a part only shall be paid by the tenant, ascertainable based on the present value of the tenant’s estate (actuarially).

Thus, surviving spouses — who are ostensibly “protected” by the Florida Constitution and statutes (given the “right” to live “rent-free in a homestead”) — are required to bear 100 percent of the burden of the state’s two largest fiscal crises: the escalation in property taxes and homeowners’ insurance. In addition, costs of ordinary upkeep, interest payments on mortgages and, in many cases, virtually all of the special assessments are also the burden of the surviving spouse. Further exacerbating the situation, many widows live in communities which have charged (and are still charging) assessments to repair common areas damaged by the hurricanes the state faced these past few years — with the promise of active hurricane seasons for the foreseeable future.

While the surviving spouses have borne all of these huge increases in their costs of living, the remainder beneficiaries have seen property values double in most of the state (and increase three to five times in some areas) over the past five to 10 years. One hundred percent of that appreciation inures to the benefit of the remainder beneficiaries, while they are not forced to pay for any of these increased expenses.

Contrast the “rent free” use of the property by the widow with the “free ride” the remainder beneficiaries have had on property values, and ask who is being helped and who is being harmed by our homestead “protections”? The costs of property taxes and homeowners’ insurance have skyrocketed at the same time property values have appreciated at a meteoric pace. This situation has exposed in stark relief the discrepancy in treatment and benefits of surviving spouse life tenants and remainder beneficiaries.

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As reported here by the New York Probate Litigation Blog, a New York jury found last month, in a mixed verdict, that Jonathan Blattmachr, one of the country’s leading trusts and estates lawyers, breached his fiduciary duty to a client in connection with a planning strategy called a “split-dollar insurance arrangement,” involving the purchase of life insurance to avoid estate taxes.

The following is an excerpt from Jury: Milbank’s Blattmachr Breached His Fiduciary Duty, as reported in the WSJ Law Blog:

Among the T&E bar, wrote New York Times tax reporter David Cay Johnston in his book “Perfectly Legal,” Blattmachr “enjoys the status of some Hollywood stars — his first name alone prompts recognition.” (We know Blattmachr’s a big macher, but can the name “Jonathan” alone really prompt recognition?)


But one of Blattmachr’s wealthy clients, Marvin Schein, was none too happy with Blattmachr’s services. Schein, whose father founded medical-supplies company Henry Schein Inc., sued Blattmachr and Milbank in 2003. Click here for the amended complaint, in which Schein alleged, among other things, that Blattmachr persuaded Schein to pursue a tax-avoidance strategy even though Blattmachr sensed IRS hostility toward it.

The strategy, called a “split-dollar insurance arrangement,” involved the purchase of life insurance to avoid estate taxes. In December 2000, Schein paid roughly $12 million in premiums for about $340 million in life-insurance policies. The IRS effectively halted the strategy in August 2002, a move Schein said rendered his policies useless.

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The Wills, Trusts & Estates Prof Blog reported here on an interesting West Virginia case revolving around whether a mentally ill man who killed his mother and plead not guilty by reason of insanity is excluded from her estate under Virginia's slayer statute.

The case is discussed in detail in Estate Claims "Insane" Killer Can't be Victim's Heir:

The estate of a woman who was killed by her mentally ill son may create new law in West Virginia by seeking to bar him from inheriting any of her assets even though he was not technically convicted of a crime.

Richard O'Neal pleaded not guilty by reason of insanity to the murder of his mother, whom he suffocated to death in her Charleston home in March 2005. A judge accepted the plea and ordered him committed to a state mental health facility for up to 40 years or until a further order of the court.

Under West Virginia's “slayer's statute,” “No person who has been convicted of feloniously killing another ... shall take or acquire any money or property, real or personal, or interest therein, from the one killed.”

As one of Bonnie O'Neal's three sons, Richard is entitled to a one-third share of her estate. But in a declaratory relief claim, her executor says that given his responsibility for her death, it would be "inequitable” and a violation of the “slayer's statute” for him to receive that share.

“While the slayer's statute applies ostensibly when there is an actual felony conviction in connection with the wrongful act, the public policy of West Virginia prohibits Richard G. O'Neal from profiting from his wrongful act,” the complaint, filed in Kanawha County Circuit Court, states.

Florida's Slayer Statute:

Florida’s slayer statutes are found at F.S. § 732.802 (probate estates) and F.S. § 737.625 (trust estates).  Unlike the West Virginia statute, the Florida statute is drafted broadly enough to give the trial judge the discretion necessary to disinherit a killer even if he or she isn't actually convicted of murder.  Here is the key language from F.S. § 732.802:

(1) A surviving person who unlawfully and intentionally kills or participates in procuring the death of the decedent is not entitled to any benefits under the will or under the Florida Probate Code, and the estate of the decedent passes as if the killer had predeceased the decedent.

.  .  .  .  .

(5) A final judgment of conviction of murder in any degree is conclusive for purposes of this section. In the absence of a conviction of murder in any degree, the court may determine by the greater weight of the evidence whether the killing was unlawful and intentional for purposes of this section.

 

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Picking the right person to serve as personal representative or trustee can make all the difference in the world.  The wrong person can convert what should be an uncontested estate into a quagmire of never-ending litigation (see here).  The right person (or entity) can take a difficult situation and smoothly work through the issues with minimum fuss and expense to the benefit of all concerned.

Forbes on-line recently published Choose The Right Executor, which does a solid job of underscoring the importance of picking the right personal representative ("executor" if you live in the North East). Here's an excerpt from the linked to piece:

Most people tend to choose a family member or a close friend to act as an executor and to administrate their wills upon their death. But because of the intricacies that go with the job, people must realize that the most competent person (not the closest in relation) should be chosen. As mentioned before, this does not mean that the chosen individual must do everything themselves. Executors are allowed to hire others to help with various aspects of the process (such as an accountant to help with the taxation portion).

With that in mind, if you don't have a friend or a relative who you think can complete these duties in a satisfactory manner, don't worry--attorneys, accountants and other professionals can act as an executor for a fee, usually derived from the deceased person's estate. And while that fee may be in the hundreds or even thousands of dollars (depending on the size of the estate and difficulties involved) it may be worthwhile, especially if it means that your family will receive their inheritance intact and on a timely basis.

The bottom line is that most people assume that being an executor is an easy task that can accomplished by anyone, but because the probate process is so involved and may entail interaction with tax and legal professionals, only an intelligent, dependable person should be named as executor.

Source: Death & Taxes Blog

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Intellectual property rights may be the single most valuable asset owned by a decedent's estate, and in the case of celebrities, the dollar amounts can easily be in the millions (see here).  This recent news item is but the latest example of pseudo probate litigation addressing the issue (see here for others).  The following is an excerpt from Lensman's Estate Wins Battle Over Images of Marilyn Monroe:

A federal judge in Manhattan has sided with the family of late photographer Sam Shaw in a dispute over the rights to images of Marilyn Monroe.

Southern District of New York Judge Colleen McMahon rejected a claim that the estate of Shaw had violated Monroe's right of publicity by selling photos without the consent of Marilyn Monroe LLC, a company founded by the Hollywood icon's heirs.

The judge, writing in Shaw Family Archives Ltd. v. CMG Worldwide, Inc., 05-CV-3939, said the laws of New York, California and Indiana, which were at the heart of the dispute, did not grant a retroactive right of publicity to Monroe after her death.

"Ms. Monroe could not devise by will a property right she did not own at the time of her death in 1962," the judge wrote.

The ruling is the first of its kind involving the image of the legendary sex symbol. The attorneys who represent the Shaw estate, David M. Marcus and Christopher Serbagi, said "tens of millions" of dollars are at stake because of the ruling. They will pursue counterclaims against Monroe's heirs for interfering with licensing relationships.

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As reported in When the Rich Die, Lawsuits Sometimes Fly by WSJ columnist Robert Frank, the widow of famed nutritionist Dr. Robert Atkins is suing the trustees of her $400 million marital trust.  Ms. Atkins' lawsuit is also summarized in greater detail in a press release (interesting litigation tactic?).  And there's a Florida connection: as reported here, Ms. Atkins' attorney is celebrity Florida attorney Roy Black.

Here is an excerpt from the linked-to WSJ column:

Ms. Atkins’ tale, recounted in my print column today, is a lesson in choosing advisors. When Dr. Robert Atkins, of Atkins diet fame, died suddenly in 2003 after slipping and falling on an icy New York City sidewalk, he had a relatively small investible fortune, since most of his wealth was tied up in his business. When the business was sold after his death, his wife was left with $400 million. Dr. Atkins had appointed two of his business partners as trustees for the marital trust. But shortly after his death, Veronica Atkins got a call from a family acquaintance to offer to help manager her money. She got rid of the two advisors appointed by her late husband and hired a new team, led by a Miami businessman.

Over time, however, Ms. Atkins felt that the advisors were taking her for a ride. So in 2006, she stopped paying part of their hefty salaries — $1.2 million a year each — and asked that they be terminated. The advisors sued, claiming breach of contract. They also say Ms. Atkins has fallen prey to a financial predator, Alexis Mersentes, now Ms. Atkins’ husband. They say Mr. Mersentes had the advisors fired so he could get his hands on the Atkins fortune.

Lesson learned?  When the stakes are high, hire corporate fiduciaries to avoid disputes.

Mr. Frank ends his quick summary of the Atkins litigation with this bit of sage advice:

The case offers an important lesson: hire a bank or trust firm. Sure, they can be irresponsible too. But if Dr. Atkins had hired a private bank or trust company to give advice to Veronica - who had little financial experience - she might not have been vulnerable to all manner of advisors and “friends.”

I agree with Mr. Frank and have previously said the same myself (see here).

Original source: Death & Taxes Blog

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According to this recently published survey, probate litigators can be assured of much gainful employment for years to come.  Here are a few excerpts from the linked-to press release:

You can’t take it with you, according to the adage, but many Americans seem to be planning to do just that.

That’s because over half (55 percent) of all adult Americans do not have a will, a new survey shows, a percent that has remained virtually unchanged over the past three years.

*     *     *     *     *

Among non-white adults, the lack of wills is even more pronounced. Only one in three African American adults (32 percent) and one in four Hispanic American adults (26 percent) have wills, compared to more than half (52 percent) of white American adults.

The Jolly Testator Who Makes His Own Will

While these statistics may drive estate planners bananas, those of us who make a living litigating estate disputes should be more philosophical, taking comfort in the following words of wisdom penned over 150 years ago by Lord Neaves:

The Jolly Testator Who Makes His Own Will

-Lord Neaves, Judge and Solicitor General – Edinburgh, Scotland

circa 1852

Ye lawyers who live upon litigants' fees,
And who need a good many to live at your ease,
Grave or gay, wise or witty, whate'er your degree,
Plain stuff or Queen's Counsel, take counsel of me.
When a festive occasion your spirit unbends,
You should never forget the Profession's best friends;
So we'll send round the wine and bright bumper fill,
To the jolly testator who makes his own will.

He premises his wish and his purpose to save
All dispute among friends when he's laid in the grave;
Then he straightaway proceeds more disputes to create
Than a long summer's day would give time to relate.
He writes and erases, he blunders and blots,
He produces such puzzles and Gordian knots,
That a lawyer, intending to frame the thing ill,
Couldn't match the testator who makes his own will.

Testators are good, but a feeling more tender
Springs up when I think of the feminine gender!
The testatrix for me, who, like Telemaque's mother,
Unweaves at one time what she wove at another;
She bequeaths, she repeats, she recalls a donation,
And ends by revoking her own revocation;
Still scribbling or scratching some new codicil,
Oh! success to the woman who makes her own will.

'Tisn't easy to say, 'mid her varying vapors,
What scraps should be deemed testamentary papers.
'Tisn't easy from these her intention to find,
When perhaps she herself never knew her own mind.
Every step that we take, there arises fresh trouble:
Is the legacy lapsed? Is it single or double?
No customer brings so much grist to the mill
As the wealthy old woman who makes her own will.

Source: see here, here and here.

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In a blog post entitled Offshore trust scheme leads to former U.S. Attorney pleading guilty to tax fraud, I wrote about two North Carolina attorneys who had been charged with conspiring to commit tax fraud in connection with a tax evasion scheme revolving around the use of off-shore trusts.

One attorney, Samuel T. Currin, a former North Carolina U.S. Attorney, state judge and state Republican chairman, agreed to plead guilty to conspiring to launder $1.45 million through his law firm's client trust account and to lying on his taxes by failing to report an offshore debit card account.  The second attorney caught up in the prosecution was North Carolina tax attorney Rick Graves.

In fairness to Mr. Graves, I feel compelled to follow up on my original blog posting by reporting that he was recently cleared of all charges by a unanimous jury verdict of NOT GUILTY.  The following are excerpts from this post on the North Carolina Estate Planning Blog:

Mr. Graves is a lawyer in Wilmington, North Carolina, who was charged a year ago with two federal crimes: 1) Conspiring to Defraud the IRS and 2) Obstructing the IRS. Both charges arose from Mr. Graves’ association with other individuals who engaged in “off-shore” criminal activities – without Mr. Graves’ knowledge -- relating to tax planning and asset protection. Mr. Graves has always asserted his complete innocence, and based upon all the evidence, including a 7-hour cross-examination of Mr. Graves, the jury agreed.

*     *     *     *     *

Co-counsel, Will Terpening added that, “over the last two weeks, during the trial, Rick Graves was finally given an opportunity to defend himself and to clear his name. With the jury’s verdict ---- He has done both.” Reflecting on the investigation, the trial, and the jury’s verdict, Rick Graves wondered how he gets his good reputation back. More specifically, he stated that “the case against me was based on false assumptions and guilt by association.” He added that, “the prosecutors indicted first, and investigated later.”

Lawyer Anderson also added that:
The investigation of Rick Graves raises important issues about the increasing use of criminal punishment in highly regulated areas, like tax planning. In this arena, the line between mistakes” and “crimes” is often too blurry for fair prosecutions. Criminal charges should only
be used for truly “bad actors.”

Lawyer Terpening added that:
Mr. Graves was a lawyer with an impeccable reputation, who was a deacon in his church, and who had a 20-year military career. At a minimum, he should have been given the chance to address the government’s concerns before being indicted. In the end, Rick Graves was thrilled with the outcome and with the hard work of his legal team. He concluded by stating that: “Justice has finally been served. This nightmare is over. My name is finally cleared.”

Lesson learned: Make sure you get paid for taking on the risks associated with an estate tax practice.

My personal belief is that estate planning attorneys often take on risks they are not paid for.  In other words, the fees they charge for the tax services they provide do not adequately compensate them for the risks they assume.  This case is a prime example.  I have no idea what Mr. Graves was paid for the tax work he did in this case.  But I am absolutely certain that it in no way adequately compensated him for the risk of possibly being the subject of a two-year nightmare/criminal prosecution.  In the corporate context, CPAs and tax attorneys charge very large sums of money to compensate them for the risks they assume when they give their corporate clients tax advice.  Much of those fees are generated in the "due diligence" phase of the corporate engagement.  My sense is that this rarely happens in the estate-planning context.

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Writing here back in November of 2006 I predicted that permanent reform of the estate tax was a very real possibility, and that such reform would likely mean a freeze on the estate tax at 2009 levels: $3.5 million exemption at a top rate of 45 percent.

As recently reported here by the North Carolina Estate Planning Blog, the U.S. Senate just approved an amendment to the Budget Resolution that would extend the 2009 estate tax rate (45%) and exemption ($3.5 million) through 2012.  Under current law the estate tax would be "repealed" in 2010, but would return in 2011 with an exemption of only $1 million.

This latest Senate vote may not be a permanent fix, but if passed into law, it will get us passed 2010.   In the same blog post cited above the North Carolina Estate Planning Blog also published an excellent analysis of the current state of affairs on the estate-tax front prepared by Marshall Jones of West Palm Beach, Florida.  Well worth reading.

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When reading the linked-to story keep two Florida-law points in mind.

• As I wrote about here, in Florida, adults can be adopted, and for the purpose of intestate succession by or from an adopted person, the adopted person is considered a lineal descendant of the adopting parent and is one of the natural kindred of all members of the adopting parent's family. 63.042, 732.108.
• I wrote here about a 2005 decision where the 4th DCA held that under Florida law the presumption is that a testator intendedd the term “heirs at law” to be construed under the statutes in existence at the time the Will was executed.

With these points in mind, now consider the following excerpts from Woman's Search for Her Birth Mother Leads to Share of Jell-O Fortune:

'ADOPTED OUT' DAUGHTER

After the trustee told McNabb that she would not be entitled to a share, McNabb hired an attorney to represent her at the Surrogate Court's settlement of the trusts.

She chose a lawyer randomly from the Genesee County Web site and called his office, hoping to find someone familiar with the Woodward family. Coincidentally, the first attorney she called, Paul S. Boylan, knew the family well.

"Not only do I know about the Woodwards," Boylan told McNabb, "but my father was your grandfather's attorney."

In December 2005, Monroe County Surrogate Judge Edmund A. Cavalruso ruled that as an "adopted-out" daughter McNabb did not constitute a "descendant" or "child" of Piel and therefore was not a member of the trusts' class of intended remaindermen or beneficiaries.

On Friday, the 4th Department reversed, effectively awarding McNabb a one-third share of the multimillion-dollar trusts.

The case turned on the dates the trusts were established.

The underlying Surrogate Court decision had relied on a 1985 decision, Matter of Best, 66 NY2d 151, which in turn rested on amendments to the Domestic Relations Law that became effective in 1964 and 1966. Under the amended law, adopted children could no longer inherit "from and through" both their biological and adoptive parents.

But the 4th Department disagreed, holding that Best did not apply as it and the amendments were not in effect when the trusts were established.

By the narrowest of margins -- the second trust was executed in 1963, the year the first amendment was passed by the Legislature, but one year before its effective date -- the original Domestic Relations Law controlled, the panel determined.

And under the original DRL §117 (as well as Decedent Estate Law §89), McNabb is her mother's daughter, the panel concluded.

DEL §89 "recognized the status of a nonmarital child as the descendant of his or her mother, albeit through the provision that such child shall inherit only in the event that no 'lawful issue' existed," the panel ruled. "In addition, Domestic Relations Law former §117 specifically provided that adopted-out children may inherit from and through their biological as well as their adoptive parents."

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Unfortunately, the Florida trial judges involved in the Anna Nicole Smith proceedings in this state have not fared well under the glare of national media attention.  First Judge Seidlin was the focus of considerable criticism (see here), now it's Judge Lawrence Korda's turn under the microscope.

But for the Anna Nicole Smith case, Judge Korda's recent run in with the law would never have hit the papers.  But, here we are.  In Judge Involved in Anna Nicole Smith Case Cited for Marijuana the Associated Press reported on the following sad news:

A judge who had a secondary role in recent Anna Nicole Smith proceedings was cited for smoking marijuana in a Hollywood, Fla., city park, police said Monday.

Lawrence Korda was smoking marijuana while sitting under a tree at Stanley Goldman Park on Sunday, police said. Three officers who were doing training there caught Korda and field-tested the joint, said Capt. Tony Rode, a police spokesman.

The judge was not arrested. He was given a misdemeanor citation to appear in court.

"Judge Korda was not given special treatment because of his status as a circuit court judge," Rode said. "He was provided with a notice to appear. That's exactly what 99 percent of other offenders would have been given for this type of offense."

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Estate planning is challenging because planners are asked to anticipate issues that may or may not present themselves for decades to come.  The "adult adoptee" issue is a perfect example of the type of low-probability scenario that can come back to bite a family if not appropriately anticipated.

The New York Times reported on a high profile trust case involving an adult adoptee in Partner Adopted by an Heiress Stakes Her Claim.  The following are excerpts from the linked-to piece: 

In 1991, Ms. Watson, then 43, adopted Ms. Spado, then 44, under a Maine law that allows one adult to adopt another. The reason, Ms. Spado has contended in court documents, was to allow Ms. Spado to qualify as an heir to Ms. Watson’s estate.

But less than a year after the adoption, Ms. Watson and Ms. Spado broke up. Then in 2004, Ms. Watson’s mother died, leaving multimillion-dollar trusts established by her husband to be divided among their 18 grandchildren.

Re-enter Ms. Spado with a claim: Because she was adopted by Olive F. Watson, she said, she is technically Thomas J. Watson Jr.’s 19th grandchild and is therefore eligible for a share of the trusts.

*     *     *     *     *

Many states allow adult adoption, but the laws were primarily intended for situations like a stepparent adopting a stepchild later in life, said D. Marianne Blair, an adoption expert at the University of Tulsa College of Law.

However, some same-sex couples began using the adoption process to establish financial security or inheritance for their partners, said Arthur S. Leonard, a professor at New York Law School.

“Before we had domestic partnership ordinances, before same-sex marriage or civil unions, back then there wasn’t much you could do,” Professor Leonard said.

In Florida, adults can be adopted, and for the purpose of intestate succession by or from an adopted person, the adopted person is considered a lineal descendant of the adopting parent and is one of the natural kindred of all members of the adopting parent's family.  63.042, 732.108.

The adult-adoptee issue can be addressed with fairly simple boilerplate language inserted into the client's will or trust.  The following is an example:

Effect of Adoption. A legally adopted child (and any descendants of that child) will be regarded as a descendant of the adopting parent only if the petition for adoption was filed with the court before the child’s thirteenth birthday. If the legal relationship between a parent and child is terminated by a court while the parent is alive, that child and that child’s descendants will not be regarded as descendants of that parent. If a parent dies and the legal relationship with that deceased parent’s child had not been terminated before that parent’s death, the deceased parent’s child and that child’s descendants will continue to be regarded as descendants of the deceased parent even if the child is later adopted by another person.

Special thanks to Miami commercial litigator Javier A. Reyes of Boies, Chiller & Flexner LLP for bringing the New York Times article to my attention.

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Professor Judith G. McMullen, Marquette University - Law School, just published a new article that should be of interest to probate litigators trying to make sense of the underlying dynamics driving most will contests: Keeping Peace in the Family While You are Resting in Peace: Making Sense of and Preventing Will Contests.

Here's the SSRN abstract of this article:

Abstract:

This Article focuses on post-mortem challenges to wills. All such will challenges involve a clash between the testator's stated intentions and the disappointed heirs' expectations and desires. While the legal issues may differ somewhat in individual cases, the claims are almost invariably the result of a disappointed heir feeling that she has been treated unfairly or has not received what she expected to receive. Rather than focusing on the technical issues of will drafting or execution, this Article reflects on the emotional causes of fighting over an estate and suggests some ways to reduce the family fighting and hard feelings that result in will contests.

The first section of the Article describes some of the common legal challenges used to prevent the enforcement of specific will provisions or to contest the will's admission to probate. The Article then discusses the overarching issue of why surviving family members fight about property after the death of a love one. Here, the Article describes the legal concept of freedom of testation and contrasts a testator's view towards property ownership and disposal with the views of potential family recipients. This section also discusses the implicit preference that the law gives to presumptive heirs – a preference that probably bolsters the resolve of disappointed heirs to engage in will challenges. In the final section, this Article describes specific steps that typically are recommended for use by testators to reduce the likelihood of will challenges, and it concludes by asking clients and their lawyers to mull over the long-term emotional and social repercussions of proposed estate plans.

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In stark contrast to the glowing reviews enjoyed by Attorney Richard C. Milstein (see here), most observers have been less than impressed with Judge Larry Seidlin.  The following excerpts from Florida Judge in Anna Nicole Smith Case Is Vilified as 'Weepy Wacko' sum up the national consensus:

From the state that brought you the hanging chad, now comes the crying judge.


Some members of the bar and other court-watchers are cringing over the way Judge Larry Seidlin wept -- no, sobbed -- on live, national TV as he announced a ruling Thursday in the dispute over where Anna Nicole Smith should be buried.

Some are accusing the brash former New York cab driver of showboating for the cameras, or worse, auditioning for his own courtroom TV show, with his one-liners, his personal asides and his smart-alecky Bronx delivery during the six-day hearing.

They say that he let the hearing drag on way too long, that he made inappropriate jokes for a dispute over a body, that he acted as if it were all about him.

"He's like Judge Judy's wacky little brother," legal analyst Jefrey Toobin quipped on CNN.



The New York Post called him a "Weepy Wacko," while the The New York Daily News asked, "How Low Can This Judge Go?" and referred to him as "Blubbering Seidlin." One of Miami's most celebrated defense attorneys, Roy Black, said of the circus-like scene in Seidlin's courtroom: "I sort of think it gives circuses a bad name."

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It couldn't happen to a better guy.  In the midst of all the antics surrounding the proceedings to determine custody of Anna Nicole Smith's body one calm professional stood out: Akerman Senterfitt’s Richard C. Milstein.

I know Richard only casually from bar functions.  However, he's known as a true gentlemen and professional in every sense of the word.  Richard makes us all look good.  So perhaps it shouldn't be surprising that he's getting some great national press in Akerman Attorney Is 'the Calm' in Media Storm Over Anna Nicole Smith Case.  Here are a few excerpts from the linked-to story:

Seidlin granted the power to decide where Smith will be buried to Richard C. Milstein, an Akerman Senterfitt attorney who was appointed last week as guardian ad litem for Smith's 5-month-old daughter, Dannielynn Hope Marshall Stern.

*     *      *     *     *

Milstein, who has avoided the spotlight, left the courthouse through a side exit and went straight to his car without making any statements.

Throughout the hearings the dapper and mild-mannered Milstein seemed above the fray as the proceedings quickly degenerated into a circus-like atmosphere.

*     *      *     *     *

Those who know Milstein said he was the perfect lawyer for the job.

"He is always the calm in the middle of many storms," said Milstein's friend Jorge Mursuli, the executive director of People for the American Way in Florida. "What a perfect choice amongst the circus to have someone so deeply committed to child-advocacy issues and not interested in self-serving press."

Miami attorney Valdespino said Milstein "wouldn't be influenced by the glitz."

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Broward Circuit Court Judge Larry Seidlin surprised everyone by ruling from the bench today.  Here's the latest from the Boston Globe:

FORT LAUDERDALE, Fla. --Anna Nicole Smith will be buried in the Bahamas, alongside her dead son, it was announced Thursday after a tearful judge left the decision up to the attorney for the model's baby daughter.

Richard Milstein, the court-appointed lawyer for 5-month-old Dannielynn, announced the plans not long after a judge gave him control of Smith's final resting place. He gave no timeframe for the burial.

*     *     *     *     *
The judge, who choked up frequently and sometimes blubbered as he explained his decision, compromised and gave custody to Milstein. And the judge made it abundantly clear what he felt should be done.

"I want her buried with her son in the Bahamas," he said through tears. "I want them to be together."

By the way, choking up, "blubbering," speaking through tears, is not exactly the court-room demeanor one would expect from a veteran trial judge.  But then again, Judge Seidlin's performance in this case has become a topic of discussion all on its own.  Here's what this Miami Herald report had to say:

He's become something of a national spectacle for his role as Anna Nicole Smith's probate judge, with his colleagues snickering about his courtroom demeanor and with national legal analysts deriding his professional judgment.

But Broward Circuit Court Judge Larry Seidlin has been taking it all in stride, keeping in daily contact with the county's chief judge and refusing to let the criticism stop him from long soliloquies and other courtroom antics.

Thanks to Alachua, FL attorney Jane E. Hendricks for alerting me to this latest breaking news.

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The NY Times published an interesting Op-Ed piece by Stephanie Coontz entitled Illegitimate Complaints that does a good job of highlighting how “traditional” family values were historically very harsh on out-of-wedlock or “bastard” children. Generally accepted notions of the rights of lineal descendants – irrespective of whether or not the parents were married – have changed dramatically over the last hundred years or so.

The harsher aspects of the common law dealing with an illegitimate child have been eliminated in all states, primarily through the application of the Equal Protection Clause of the Fourteenth Amendment to the U.S. Constitution (see here for discussion).  Florida codified its approach to persons born out of wedlock in F.S. 732.108.

Here are a few excerpts from the linked-to NY Times piece:

PITY poor little Dannielynn, just 5 months old and already the potentially multimillion-dollar prize in a paternity battle waged by three of the unsavory men who partied with her mother, Anna Nicole Smith, in the last years of her troubled and tawdry life. There’s an even creepier fourth potential candidate: Ms. Smith’s half-sister claims that Ms. Smith’s late husband, the nonagenarian billionaire J. Howard Marshall, left behind frozen sperm. And now Ms. Smith’s estranged mother has also rushed forward to claim custody of the baby. Could anything be worse for this little girl than to be at the center of such a media circus or to end up with one of these characters?

Actually, yes. For thousands of years, the future of a child born out of wedlock was of absolutely no interest to anyone, especially if she was an orphan. The only people likely to take her in were people who needed free labor on their farms or required a child “helper” small enough to run under dangerous factory machines piecing together broken threads or picking up dropped objects.

For 500 years, British law, on which American law was modeled, held that a child born to an unwed mother was a “filius nullius” — literally, a child of no one, entitled to support from no one. Little Dannielynn would not have had a right to her mother’s inheritance, much less a legal claim to receive support from the family of either her deceased mother or her father.

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As the Anna Nicole Smith saga takes its latest bizarre twist inside a South Florida courtroom, prominent South Florida trusts and estates litigators - Richard Milstein & Shane Kelley - were tapped by Broward County Judge Larry Seidlin to help him sort through the conflicting claims for custody of Anna Nicole Smith's body.  CNN reported in In court: Who will bury Anna Nicole Smith? on these latest developments.  For those of us practicing in South Florida, it's fun to spot our colleagues in the news.  Here's an excerpt from the linked-to story:

FORT LAUDERDALE, Florida (CNN) -- Anna Nicole Smith wanted to be buried in the Bahamas, next to her son, and bought a burial plot there, according to attorneys for her longtime companion, Howard K. Stern.

Smith's estranged mother, Vergie Arthur, wants to take the body home to Texas to be buried with family members.

The two sides faced off in Broward County Circuit Court on Thursday at a probate hearing that bounced from custody of the body to DNA sampling to whether a baby can be considered next of kin under Florida law.

With several attorneys arguing loudly around a conference table, Judge Larry Seidlin tried to sort through a tangle of legal arguments and competing interests.

. . . . .

Some progress was made: The judge appointed a guardian, Miami attorney Richard Milstein, to protect the interests of Smith's infant daughter, Dannielynn. He also appointed an administrator, Shane Kelley, a Fort Lauderdale lawyer, to sort through the competing interests and recommend who will bury Smith, and where.

An evidentiary hearing is scheduled for Tuesday.

Smith's body is being kept under refrigeration at the medical examiner's office in Dania Beach. She is likely to be embalmed there as early as Friday. But any decision about releasing her body for burial isn't likely until next week at the earliest.

So who gets the body under Florida law?

What law applies will likely turn on what jurisdiction Anna Nicole Smith is deemed to have been a resident of when she died.  I don't think Florida is in the running, but assuming somehow Florida law ends up governing the substantive rights at play here, then the 4th DCA's 2005 opinion in Cohen v. Guardianship of Cohen, 30 Fla. L. Weekly D664 (Fla. 4 DCA March 9, 2005) will likely determine the outcome.  I wrote about this opinion here.

Anna Nicloe Smith apparently executed a will prior to her death (see here).  However, even if her will speaks to her wishes regarding her burial, the inquiry does not necessarily end there.  In Cohen the 4th DCA held that a testator's will does not control where he or she is buried if there's clear and convincing evidence reflecting that the testator's true intent was to be buried elsewhere.  In other words, the parties need to present "clear and convincing" evidence to substantiate their claims to Anna Nicole Smith's body.  Here's how the Cohen court stated the rule:

[A] testamentary disposition is not conclusive of the decedent’s intent if it can be shown by clear and convincing evidence that he intended another disposition of his body.

I assume whatever ruling is entered by Judge Seidlin it will get appealed.  If it is, the appeal will be heard by none other than the 4th DCA, the same appellate court that decided Cohen.  Yes, Anna Nicole Smith's on-going contributions to U.S. probate-litigation jurisprudence continue unabated (I wrote here about her May 2006 U.S. Supreme Court win).

P.S.  For additional commentary, see Anna Nicole Smith - Guidance for Burial Disputes (published in Steve Leimberg's Estate Planning Newsletter).  As an extra bonus, this linked-to item also contains a link to Anna Nicole Smith's just-released will.

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Lawyers USA published this article discussing many of the reasons Florida is becoming an increasingly popular destination for the wealthy seeking lower taxes and greater asset protection.  For an alternate race-to-the-bottom angle on Florida's increasing popularity see Marching Off a Cliff.

There's nothing particularly new in the linked-to Lawyers USA article for practicing Florida trusts and estates attorneys.  However, I thought the introductory paragraphs were fine examples of Florida boosterism, and gladly reprint them below:

People are flocking to the Sunshine State in greater numbers than ever, seeking asset protection and a decrease in taxes, estate planners tell Lawyers USA.


"It's a tidal wave," said Bruce M. Stone, a 32-year estate planning veteran at Goldman Felcoski & Stone in Coral Gables, Fla. "We've noticed a huge increase in the numbers of wealthy clients claiming Florida as a domicile."

"We're seeing a significant uptick in the number of people relocating, or establishing themselves as Florida residents," agreed Donald R. Tescher, an estate planning and tax specialist at Tescher Gutter Chaves Josepher Rubin Ruffin & Forman in Boca Raton, Fla. "We've been really busy."

Clients with a second home in Florida are establishing it as their primary residence, and others are simply moving all of their assets into the state, he said.

Jonathan B. Alper, a solo in Heathrow, Fla. who specializes in asset protection, said that lawyers and clients are increasingly taking advantage of Florida's favorable legal climate because "technology gives them the ability to communicate out of state so easily. Now it's possible to live in Florida but run a business up north or stay in contact with family in California."

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Anna Nicole Smith’s tragic death (see here) put a spotlight once again on the record-shattering trust-and-estates litigation she and her former step-son, E. Pierce Marshall (he died in 2006), waged over the vast estate of her former husband, J. Howard Marshall. As I've previously written about on this blog, this case resulted in a U.S. Supreme Court decision, Marshall v. Marshall, viewed by many (including me) as opening the federal court room doors to trust-and-estates litigation to an extent we've never seen before (see here).

So the timing of an article appearing in the January/February edition of the ABA’s Probate and Property magazine written by California trust-and-estates litigator Dominic J. Campisi was almost eerily prescient. This article deserves notice by trust-and-estates litigators everywhere. In Marshall v. Marshall -- Rashomon Revisited Campisi does a good job of articulating why this case should be viewed as part of a general trend towards greater federal court involvement in trust-and-estates disputes. Here’s the conclusion to Campisi’s article, summing up his views nicely:

J. Howard Marshall, who had taught wills and trusts at Yale Law School, certainly has provided a most intriguing case study for future generations of law students and practitioners. The price of a unanimous decision such as Marshall is that many contentious issues are left unresolved in order to reach a common decision. The lower courts continue to wrangle over attempts to use federal diversity jurisdiction for probate and trust disputes based on the general conclusions in Marshall.

In Hoffman v. Sumner, No. 05-C7114, 2006 WL 1444677 (N.D. Ill. May 18, 2006), the court followed Marshall in denying remand of a diversity case involving a dispute over a joint tenancy asset, holding that the dispute did not violate the probate exception, and rejected the suggestion that it should abstain in favor of the local probate court. The bankruptcy court in In re Enron Corp. v. Whalen, 351 B.R. 305 (Bankr. S.D.N.Y. 2006), held that an action to recover an allegedly improper transfer from the estate of a decedent was not covered by the probate exception because there was no interference with the res in the possession of the state court. The court explained that any federal judgment could subsequently be enforced in the probate action.

Judge Richard Posner in Jones v. Brennan, 465 F.3d 304 (7th Cir. 2006), distinguished between a claim brought concerning the conduct of the Cook County Probate Court in a pending dispute, holding:

That clearly would violate the probate exception. Marshall v. Marshall, supra, 126 S. Ct. at 1748. But she is also accusing the guardians of having mismanaged the estate, and as an heir she may have a claim for breach of fiduciary duty by them. . . . Such a claim does not ask the court in which it is filed to administer the estate, but rather to impose tort liability on the guardians for breach of fiduciary duty.

465 F. 3d at 307–08 (citations omitted).

In Burt v. Rhode Island Hospital Trust National Bank, No. C.A. PC/022243, 2006 WL 2089254 (R.I. Super. July 26, 2006), the court followed Marshall in holding that a breach of fiduciary duty claim against an executor was not within the limited jurisdiction of the probate court and could be heard in the Rhode Island general jurisdiction court instead.

In Bedree v. Lebamoff, No. 05-2258, 2006 WL 2860575 (7th Cir. Sept. 27, 2006), the Seventh Circuit held in a federal question case that

[t]he claim against the probate commissioner confronts another jurisdictional bar: the probate exception to federal jurisdiction. . . . And Bedree’s request for the district court to remedy what he perceives as errors in the state court’s administration of the estate, like the plaintiff’s request in Jones is the equivalent to asking the district court to take over administration of the estate. . . . This violates the probate exception even under the Supreme Court’s narrowed construction of the exception in Marshall. See, Marshall, 126 S.Ct. at 1748 (limited probate exception to proscribe only “disturb[ing] or affect[ing] the possession of property in the custody of a state court”). . . . The breach of fiduciary duty claim, on the other hand, is not barred by the probate exception because it need not necessarily affect the administration of the estate. See Marshall, 126 S. Ct. at 1748; Jones, 2006 WL 2337610, at *3.

2006 WL 2860575 at *2.

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I've written in the past regarding the unique public-relations issues faced by charities involved in trust/probate litigation (see here) and the different expectations the public and media have with respect to such litigants (see here).  The same dynamics are currently playing themselves out in a case involving a $260 million gift to eight charities.

As reported by the New York Times in Salvation Army Unit Seeks to Gain More of a Huge Gift, the charities find themselves balancing a legitimate desire to maximize the funds going to their respective charities -- all of which do good works and could use the money -- against appearing less than saintly in public.  Here are a few excerpts from the linked-to story:

The Salvation Army has gone to court in Seattle to challenge a trust dividing more than $260 million among eight charities, including Greenpeace.


The Salvation Army argues that the specific Greenpeace organization to which the donor, H. Guy Di Stefano, assigned the money was dissolved in 2005 and that its affiliate is not eligible to receive the gift. It wants the court to divide the money among the seven other charities.

“I’m mystified why anyone, let alone the Salvation Army, would oppose Greenpeace receiving this generous donation,” said John Passacantando, the group’s executive director. “It’s obvious that the donor’s intent was for Greenpeace to benefit from this.”

The dispute involves a trust created by Mr. Di Stefano, whose late wife, Doris, inherited United Parcel Service stock from her father, a former U.P.S. executive, and never sold it.

Mr. Di Stefano died in July and left his estate to eight charities: Direct Relief International, the Salvation Army, the Santa Barbara Hospice Foundation, the Santa Barbara Visiting Nurse Association, the American Humane Society, the Disabled American Veterans Charitable Service Trust, Greenpeace International Inc. and the World Wildlife Fund. Each stands to receive roughly $33 million.

Greenpeace International is defunct, however, and a charity called the Greenpeace Fund, with which it shared offices, phones and some employees, is claiming its share.

In October, Bank of America, the trustee, filed a petition in court in Washington State, where Mr. Di Stefano lived at the time of his death, asking what it should do. Shirley Norton, a bank spokeswoman, said it was only seeking to clarify its duties, not to deprive Greenpeace of money.

“Because of the disparity in the names and the fact that Greenpeace International no longer exists, we need guidance from the court,” Ms. Norton said.

The bank’s petition prompted the Salvation Army to contest disbursement of the money to the Greenpeace Fund.

.     .     .     .     .

The other beneficiaries of the trust have avoided the dispute.

“In my 10 years as a legal counsel here, we have never gotten involved in a dispute over donor intent, and we certainly have had the opportunity,” said Christopher J. Clay, general counsel and planned giving director at the disabled veterans group.

“For a national charity to get out there in this kind of a case would take a compelling reason,” Mr. Clay said, “and I don’t think there’s a compelling reason here.”

The tone of the article clearly telegraphs the writer's disapproval of the Salvation Army's actions and the lengths the other charities are going to distance themselves from the Salvation Army.  Not surprisingly the blogosphere has been less than "charitable" to the Salvation Army on this case (see here).  The Salvation Army thought it was resolving a legal dispute when in fact it was stepping into a big PR mess.  I don't fault them for seeking to maximize their share of the $260 million charitable gift, but I do fault them for being clumsy about it.

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The departure of a number of prominent trust-and-estates partners from Sonnenschein Nath & Rosenthal has highlighted - again - the precarious nature of big firm trusts and estates departments.

As a partner in a small "boutique" trusts-and-estates firm (4 partners, 1 associate) I've seen first hand why this practice is a tough sell for big firm bean counters: leverage.  It's very, very difficult to leverage yourself as a T&E lawyer, which is OK in a small firm -- but not-so-OK in a big firm.  Here's an excerpt of what the Wall St. J. Law Blog had to say on the the subject:

With profitability a top priority at Sonnenschein Nath & Rosenthal, one practice group is under the microscope: trusts and estates. Four T&E partners at Sonnenschein in recent weeks have either left or announced plans to leave the 660-lawyer firm.


Roy Adams, the senior chairman of the practice group, left on Jan. 1 for Constantine Cannon; Eileen Trost jumped to Chicago’s Bell Boyd & Lloyd in December; Richard Brown recently departed for Harrison & Held; and Susan Slater-Jansen has announced she’s moving to Kurzman Eisenberg Corbin Lever & Goodman in White Plains, N.Y.

The departures come at a time when Elliott Portnoy .  .  .  , the firm’s 41-year-old chairman-elect, has said he is bent on taking a hard look at the economics of Sonnenschein’s various departments. T&E may be vulnerable because it is a low “leverage” practice — fewer junior lawyers generally are needed, say, to draft a will than to complete a merger agreement.

I say good riddance -- a sentiment apparently shared by Chicago T&E lawyer Joel Schoenmeyer, as expressed in the following excerpt from his blog, Death & Taxes:

It may be that big firms don't need estate planning groups (or don't think they do -- big firms, like Kirkland & Ellis, are famous for changing their minds on this point). But I think that goes both ways -- good estate planners don't need big firms, either. We're probably going to see more T&E boutique firms (like this one) spring up in the near future, which is a good thing.

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Although civil-rights icon Rosa Parks passed away leaving behind a modest estate, there are millions at stake in her estate's upcoming will-contest jury trial.  When Ms. Parks passed away, her most valuable asset was not her bank account -- it was the future marketing rights to her name and likeness.  An excerpt from Forbe's list of Top-Earning Dead Celebrities for 2006 gives a sense of how high the economic stakes in the Parks litigation could be:

The 13 icons on our sixth annual Top-Earning Dead Celebrities list collectively earned $247 million in the last 12 months. Their estates continue to make money by inking deals involving both their work and the rights to use their name and likenesses on merchandise and marketing campaigns. To land on this year’s list, a star needed to make at least $7 million between October 2005 and October 2006.

As reported here in Philip Bernstein's New York Probate Litigation Blog Parks died in October 2005, leaving virtually all of her assets under a 1998 will to the nonprofit Rosa and Raymond Parks Institute for Self Development, which she founded in 1987 with her longtime friend and caregiver, Elaine Steele. Steele, who has served as an officer of the institute, was granted power of attorney over Parks in 1998, the same year Parks' will was signed.  The will-contest goes to trial on February 19, 2007, before a six-member jury in Wayne County Probate Court, although rumors of a pre-trial settlement have surfaced in the past (see here).

For the latest developments in this case, here's an excerpt from Millions at stake in name of Parks:

The ongoing battle over Rosa Parks' estate set to play out in a Wayne County courtroom next month will have more to do with the marketing rights to her likeness and image than any money the civil rights icon left when she died.


Even if Parks' estate isn't worth the millions some have claimed, experts say, her name and image could be worth millions for decades to come.

"Maybe tens of millions," said Charles L. Sharp, a marketing professor at the University of Louisville, noting that former boxing great Muhammad Ali last year sold most of the rights to his name and likeness for $50 million to be used on such products as snack food.

. . . . .

Since her death, Parks' likeness has appeared in national Chevrolet and Apple Computer ads. Not to mention the souvenirs and other memorabilia being sold around metro Detroit and over the Internet.

Parks' only family, 13 nieces and nephews, contested their aunt's will in November 2005, claiming that Steele bamboozled Parks, who suffered from dementia, into signing a will that cut them out of any decision-making about how Parks' likeness would be used and any profit from the licensing of her name and image.

. . . . .

Civil rights activists and others will closely watch the outcome because it could determine how the country ultimately remembers one of its greatest heroes of the struggle for racial equality.

"If this can happen to someone of her stature, then it can happen to anyone," said nephew William McCauley, 48, of Detroit, who serves as the family spokesman. "We just believe that our aunt was taken advantage of. ... The way her will read, she didn't care about her family, and that couldn't be farther from the truth."

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