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A “dynasty trust” is a trust that is not limited by the rule against perpetuities (the “RAP”) and can therefore last for centuries or, in some states, forever. Florida’s statutory rule against perpetuities is found in F.S. § 689.225. This statute was amended in 2000 to allow dynasty trusts in Florida to remain in effect for up to 360 years, which effectively abolishes the RAP.

Estate planning Nirvana:

Dynasty trusts have received a lot of attention in recent years from trusts-and-estates practitioners.  In a NYTs article entitled Shifting Rules Add Luster to Trusts, the planning benefits of these types of trusts was described as follows:

“Dynasty trusts are tremendously attractive, because wealth builds up quickly when it can be passed on without paying estate taxes at each successive generation,” said Gideon Rothschild, a partner at Moses & Singer, a law firm in New York.

If a dynasty trust of roughly $1 million was established today, Mr. Rothschild figured, it would be worth $867.7 million after four generations, assuming that it grew 7 percent a year and nothing was spent. By contrast, it would be worth $35.6 million if the property was given outright to future generations and was subject each time to an estate tax of up to 55 percent.

Dynasty trusts were also the subject of a WSJ article entitled Looser Trust Laws Lure $100 Billion.

Big business for bankers:

Dynasty trusts may be good estate planning, but are they big business for bankers?  You better believe they are!  Prof. Robert H. Sitkoff of Harvard Law School and Prof. Max M. Schanzenbach of the Northwestern University School of Law analyzed federal banking data and concluded that as of the end of 2003 roughly $100 billion in trust funds had shifted to U.S. states – like Florida – that abolished the RAP and are thus amenable to the creation of dynasty trusts.  According to the authors, these new trust funds may translate into as much as $1 billion in yearly trustees’ fees.

The Sitkoff-Schanzenbach study was published in a 2005 Yale Law Journal article entitled Jurisdictional Competition for Trust Funds: An Empirical Analysis of Perpetuities and Taxes.  Here’s the abstract of the article:

This Article presents the first empirical study of the domestic jurisdictional competition for trust funds. To allow donors to exploit a loophole in the federal estate tax, since 1986 a host of states have abolished the Rule Against Perpetuities as applied to interests in trust. To allow individuals to shield assets from creditors, since 1997 a handful of states have validated self-settled asset protection trusts. Based on reports to federal banking authorities, we find that, on average, through 2003 a state’s abolition of the Rule increased its reported trust assets by $6 billion (a 20% increase) and increased its average trust account size by $200,000. By contrast, our assessment of validating self-settled asset protection trusts yielded indeterminate results. Our perpetuities findings imply that roughly $100 billion in trust funds have moved to take advantage of the abolition of the Rule. Interestingly, states that levied an income tax on trust funds attracted from out of state experienced no observable increase in trust business after abolishing the Rule. Because this finding implies that abolishing the Rule does not directly increase a state’s tax revenue, it bears on the study of jurisdictional competition. In spite of the lack of direct tax revenue from attracting trust business, the jurisdictional competition for trust funds is patently real and intense. Our findings also speak to unresolved issues of policy concerning state property law and federal tax law.

Although many parents hesitate when it comes to discussing their estate plans with their children, doing so can be very helpful in terms of avoiding future acrimony. On this point, the California Estate and Business Law Blog recently posted the following:

Deborah L. Jacobs has written an informative article in the October 2005 issue of Bloomberg Wealth Manager (pdf format – slow loading but worth the wait). The article discusses the family dynamics of estate planning with adult children. Key graphs:

Many parents are afraid to inform children about an inheritance for fear it will “demotivate” them – destroy their incentive to work or to be productive members of society. But Thayer Willis, a therapist in Portland, Oregon, and author of Navigating the Dark Side of Wealth, says she’s had several clients in their 50s or 60s who didn’t know they were getting a huge inheritance and would have made very different life choices if they had – about careers and leisure activities, for instance. They wound of resenting their parents for being so secretive, Willis says.

Lee Hausner, a Los Angeles psychologist specializing in money and families and the author of Children of Paradise: Successful Parenting for Prosperous Families, explains that it’s perfectly appropriate for children to discuss their inheritance with their parents. And Las Vegas attorney Steve Oshins recommends children ask that their inheritance be distributed through a trust rather than outright – and the trust should be drafted to provide protection from law suits and claims of divorcing spouses.

Source: California Estate and Business Law Blog

On September 23, 2005 the Daily Business Review reported that Broward County probate judge Mel Grossman ordered Fort Lauderdale attorney Stephen Rakusin to return $1.6 million in fees and costs that were challenged by Holy Trinity Orthodox Seminary, a Russian Orthodox monastery. The Monastery was represented by Robert Judd, a partner at Gunster Yoakley in Fort Lauderdale, in connection with the fee dispute.

According to the Daily Business Review, judge Grossman ruled that under the “Maxcy rule” (see Maxcy v. Citizens National Bank of Orlando, 240 So.2d 93 (Fla. 2d DCA 1970)), after four years of work on the case attorneys Stephen Rakusin and Craig Donoff (both of whom were engaged by the personal representative of the estate) would have to contend themselves with a $151,500 flat-fee originally negotiated by Donoff. Judge Grossman ruled that Rakusin’s billing was a violation of the Maxcy rule because he was contracted to perform the same legal services on an hourly basis that Donoff had agreed to do for a flat fee.

Lesson learned: In probate, winning is only half the battle. Getting paid for your work is often just as difficult and hotly contested as the underlying litigation.

Herskovitz v. Hershkovich, 2005 WL 2254003, 30 Fla. L. Weekly D2209 (Fla. 5th DCA Sept. 16, 2005) (Trial Court Affirmed) This case is yet another example of why probate litigation can be especially challenging. Not only must counsel in these cases have the ability to quickly spot the often highly technical probate-law issues in play in the relatively short period of time permitted to challenge a will in probate, he or she must also be sufficiently knowledgeable in civil procedure and trial techniques to successfully venture into the litigation arena. The decedent’s surviving brother in this case challenged the validity of a second codicil to his brother’s will (which completely cut him out of the estate) on the grounds that the two attesting witnesses to that codicil were unaware of the testamentary nature of the instrument they were signing. In other words, counsel for surviving brother correctly identified a substantive issue under Florida probate law that favored his client. Counsel made this argument when he successfully opposed a summary judgment motion filed by the surviving spouse. So far, so good. Unfortunately, counsel failed to make this argument again when the probate court conducted an evidentiary hearing on the matter . . . thereby waiving the issue on appeal. The Fifth District Court of Appeal summed up its ruling on this point as follows:

In [his memorandum opposing summary judgement, surviving brother] contended questions of fact existed as to whether the witnesses could authenticate the documents. Subsequently, the trial court denied [surviving spouse’s] motion for summary judgment. Once the summary judgment was denied, it was incumbent upon [surviving brother] to present whatever arguments and documents he believed relevant to determining those questions of fact to the trial court at the evidentiary hearing. By failing to do so, he waived this issue for appellate review.

The Daily News reported here that famed ABC News anchor Peter Jennings left a fortune worth more than $50 million to his wife and two children. According to Jenning’s will, which was recently filed in Manhattan Surrogate’s Court, Jennings, 67, left the bulk of his estate in trust for his two children, Elizabeth, 25, and Christopher, 23, from his marriage to writer Kati Marton.

Source: Legacy Matters Blog

“Trust, but verify.” That’s what Ronald Reagan used to say about negotiating with the Soviet Union, but this maxim also applies whenever one person is entrusted with the care of another person’s money. This New York Law Journal is but the latest example of that point. A retired partner of one of the largest and most prestigious law firms in the country, Paul, Weiss, Rifkind, Wharton & Garrison, has been disbarred for stealing more than $500,000 from a family trust for which he was a trustee. Allan L. Blumstein admitted he essentially depleted an account intended to benefit his elderly aunt, who was suffering from dementia and was confined to a nursing home. The former litigator said he took the money to maintain a lavish but unaffordable lifestyle, without which he feared his wife would leave him.

Disputes revolving around whether the trustee of a “discretionary” trust acted appropriately or not often get bogged down because one side or the other fails to grasp the following basic concept: in Florida, discretionary authority does not translate into “I-can-do-whatever-I-want” authority. This Florida Bar Journal article by attorney Peter B. Tiernan does an excellent job of summarizing the current state of the law in Florida on this point.

Former Playboy model Anna Nicole Smith is taking her claims against the estate of J. Howard Marshall II, an oil tycoon who married her in 1994 when he was 89 and she was 26, all the way to the U.S. Supreme Court! The Associated Press reported here that the U.S. Supreme Court has granted cert in Marshall v. Marshall, 04-1544, to answer the following question: when may federal courts hear claims that are also involved in state probate proceedings? When the Ninth Circuit earlier ruled here on the so-called “probate exception” to federal jurisdiction, it held as follows:

We hold that all federal courts, including bankruptcy courts, are bound by the probate exception to federal court jurisdiction and that we are required to refrain from deciding state law probate matters, no matter how the issue is framed by the parties. We vacate the district court’s final judgment and remand with instructions.

As I previously posted here, the stripper-turned-reality-TV-star stands to win as much as $474 million that a bankruptcy judge initially said she was owed. The self-described “blonde bombshell” claims that her husband promised her millions but that his scheming son cut her out of the estate. As the Chicago Sun-Times reported here, this case promises to liven things up at the Supreme Court:

The case promises to be the sexiest of the nine-month [Supreme Court] term which begins next week. “She’s very excited. She will be attending arguments, there’s no question about that,” Smith’s lawyer, Howard K. Stern, said from Vermont where the television reality star is filming a movie.

Interim Healthcare of Northwest Florida, Inc. v. Estate of Ries, 2005 WL 2219224 (Fla. 4th DCA September 14, 2005) (Trial Court Affirmed) Two public-policy priorities play themselves out every time a creditor seeks to satisfy its claim against a probate estate: (1) on the one hand, there is the public policy favoring expeditious and low-cost completion of the probate administration process; (2) on the other hand, a creditor’s constitutionally protected due process rights must respected. As this case makes clear, procedural safety nets available to litigants in general civil litigation (think due process) do not always apply in the probate context. In general civil litigation Rule 1.540 of the Florida Rules of Civil Procedure provides for the “vacatur” of mistaken orders. As the creditor in this case learned, Rule 1.540 runs head on against the public policy favoring the expeditious and low-cost completion of probate proceedings. As such, as the Fourth District Court of Appeal makes clear in Footnote 1 to this opinion, Rule 1.540 simply does not apply in the probate context.

FN1. The Florida Probate Rules do not contain a provision for vacatur of orders–and this includes those striking claims as untimely–made final by the lapse of the time for appeal. The Rules of Civil Procedure no longer apply in probate except as specified in the probate rules. See Fla. Prob. R. 5.010. At one time a statute applied the civil rules to adversary proceedings in probate, but that statute was repealed in 2002. See Ch.2001-226, § 8, Laws of Fla. Thus, even though rule 1.540 might logically seem to support an attempt to vacate an earlier probate order made final by the lapse of the time for appeal, in this case that rule has no application. See In re Estate of Clibbon, 735 So.2d 487 (Fla. 4th DCA 1998).