Death and Taxes Blog

Last week I was at a meeting of estate planners, and the guest speaker was a divorce attorney.  The meeting really gave me a lot more insight into how that process works, and into how divorce attorneys and estate planners need to work together to assist their mutual clients. 

When someone gets divorced, usually there are two goals:

1. Executing estate planning and other documents to make sure the ex-spouse isn't still named as a beneficiary.  However, as Christopher Yugo indicates in this article for nwitimes.com, you also need to think about assets that won't pass pursuant to a Will or trust (such as retirement benefits, life insurance, and payable on death -- POD or TOD -- accounts).

2. Making sure that any estate planning requirement set forth in the divorce decree is satisfied.  For instance, the decree might require that one party keep in force life insurance with the other party (or the children of the parties) as beneficiary.  If you die without taking steps to satisfy the terms of the divorce decree, your ex-spouse and/or children will have a claim against your estate at your death.

On Tuesday the U.S. Supreme Court hears oral arguments in the case of Vickie Lynn Marshall v. E. Pierce Marshall.  This is the so-called Anna Nicole Smith case (Vicki Lynn Marshall is Ms. Smith's real name) which I have mentioned before:

Anna Nicole Smith and the Best.Correction.Ever (8/4/05)

Anna Nicole Smith Goes to the Supreme Court (9/27/05)

More on Anna Nicole Smith's Probate Cast (10/7/05)

As I noted in my October '05 post, once you set aside the joking about the case, there are some very important legal issues involved.  These two recent articles do a good job of explaining the controversy:

"As Date With Playmate Approaches, High Court to Ponder Jurisdiction Issue," by Brenda Sapino Jeffreys, published at law.com

"Mrs. Smith Goes to Washington," published at the website for Foley & Lardner LLP

This weekend's Wall Street Journal has an interesting article about people who collect things (stamps, pencils, jigsaw puzzes) -- more specifically, the article discusses the problem of what will happen to a prized collection when the owner dies?  The article, by Jeffrey Zaslow, is entitled "Who's Going to Want Grandma's Hoard of Antique Gnomes?" -- it's online here, although you need to be a subscriber.

Evidently kids today aren't all that interested in these types of collections; as a result, upon the collector's death, the collections may be (a) discarded or (b) sold for a pittance.  This is the opposite of the typical problem that arises with tangible personal property upon the owner's death (where everybody wants it) -- here, nobody wants the antique gnomes (or the  matchbooks or the miniature guns).  It's still a problem, though, at least if we think in terms of carrying out the deceased collector's wishes. 

So what do you do to preserve that unique collection after your passing?  Two ideas:

1. Appoint a special executor or trustee for the collection, who can handle the disposition of the collection (either by selling it for full value, or by donating it to an appropriate institution); or

2. Leave the collection to an appropriate institution yourself, in your Will or trust.

The "Art & Money" column in this morning's Wall Street Journal (which I can't find online) has an interesting story about the estates of Lee Eastman and his wife, Monique de T. Eastman.  The family tree is a bit confusing, but the players are as follows:

Lee Eastman: Described as an "entertainment lawyer" and "art collector," Mr. Eastman was also the father of Linda Eastman McCartney (photographer and wife of the Beatle), which of course also makes him the grandfather of the fashion designer Stella McCartney.  Mr. Eastman died in 1991, at which point a Marital Trust was established for the benefit of...

Monique de T. Eastman: Mr. Eastman's wife, who died in May of 2005, naming as her executors...

Peter, Paul, and Philip Sprayregen: Mrs. Eastman's children from a prior marriage.

The Brothers Sprayregen (known as The Three P's?) have filed suit alleging that some of the paintings held in the Marital Trust were in fact owned by their mother (either alone or together with Mr. Eastman).  Following Mrs. Eastman's death, the paintings in the Marital Trust were sold at auction, with the proceeds of sale exceeding $48 million.  These proceeds were distributed to Mr. Eastman's descendants.  (It appears from the article that such distribution was what's known as "per stirpes," with the descendants of a deceased child -- in this case, the children of the deceased Linda Eastman McCartney -- receiving that child's share.)

Suit has been filed in New York.  I don't know anything about New York law on this point, but if this case took place in Illinois, the Brothers Sprayregen would be initiating a citation action.  This type of action is used when you (as executor or administrator) believe that property belonging to the estate you are handling is instead in the possession of a third party.  In the McCartney-Eastman case, the argument is that the proceeds from the sale of the paintings purportedly owned by Mrs. Eastman are a part of her estate, and should have been distributed to the executors of the estate.

The article concludes that the Brothers Sprayregen face an uphill battle in proving that their mother had ownership of the paintings at issue.

I'm compiling a survey of estate planning and probate-related mediation resources (mostly of the on-line variety), and will be posting the results here in the near future.  Here's my plan for this survey:

Part 1 (yesterday): Articles about estate planning and probate-related mediation (if an article is available on-line, you can click on the word "link" following the article citation to access it)

Part 2 (today): Links to court probate mediation programs

Part 3: Links to websites that relate to probate mediation

I view all of these parts as works in progress -- I'll be supplementing the lists as new items come to my attention.  If you think I'm missing a link, please let me know!

ARIZONA

-Maricopa County

HAWAII (pdf)

ILLINOIS

-Cook County

MICHIGAN

-Genesee County

-Oakland County (pdf)

NEW HAMPSHIRE

UTAH

WASHINGTON DC

I'm compiling a survey of estate planning and probate-related mediation resources (mostly of the on-line variety), and will be posting the results here in the near future.  Other postings will probably be fairly sparse for the next two weeks, as I'm on jury duty in the United States District Court for the Northern District of Illinois (!) from today through March 7 (!!).   Here's my plan for this survey:

Part 1 (today): Articles about estate planning and probate-related mediation (if an article is available on-line, you can click on the word "link" following the article citation to access it)

Part 2: Links to court probate mediation programs

Part 3: Links to websites that relate to probate mediation

I view all of these parts as works in progress -- I'll be supplementing the lists as new items come to my attention.  If you think I'm missing a link, please let me know!

Laura Bachle, "Estate Planning and Family Business Mediation." link

J. Behrens, "The History of Mediation of Probate Disputes," 68 Arbitration: the Journal of the Chartered Institute of Arbitrators 138 (May 2002). link

Roselyn L. Friedman and Erica E. Lord, "Using Facilitative Mediation in a Changing Estate Planning Practice," Estate Planning, Dec. 2005. link

Roselyn L. Friedman and Erica E. Lord, “Using Mediation to Stem the Tide of Litigation in the Ocean of Family Wealth Transfers,” 59 Disp. Res. J. 36 (Nov. 2004/Jan. 2005). link

Roselyn L. Friedman and Sally Larson Sargent, “Applying Mediation Strategies to Trusts and Estates,” 139 Tr. & Est. 56 (Feb. 2000).

David Gage et al., “Holistic Estate Planning and Integrating Mediation into the Estate Planning Process,” 39 Real Prop. Prob. & Tr. J. 509 (2004). link

David Gage and John A. Gromala, "Mediation in Estate Planning: A Strategy for Everyone's Benefit." link

Susan N. Gary, "Mediating Probate Disputes," Probate & Property, July/Aug. 1999, at 10. link

Susan N. Gary, “Mediation and the Elderly:  Using Mediation to Resolve Probate Disputes over Guardianship and Inheritance,” 32 Wake Forest L. Rev. 397 (1997).

Samuel R. Graham and Paula Pierce, "Mediating Probate and Estate Matters." link

John A. Gromala and David F. Gage, "Trustee - Beneficiary Mediation." link

John A. Gromala, "The Use of Mediation in Estate Planning: A Preemptive Strike Against Potential Litigation." link

Rikk Larsen, "Mediating a Key Estate Settlement Issue - Dividing Personal Property." link

Rikk Larsen, "Mediation in Today's Estate Settlement World." link

Rikk Larsen, "Tipping Points - Reasons Why Mediation Works in Complex Family Disputes." link

Bridget A. Logstrom, “Arbitration in Estate and Trust Disputes:  Friend or Foe?,” 30 ACTEC J. 266 (2005).

Ray D. Madoff, “Mediating Probate Disputes:  A Study of Court Sponsored Programs,” 38 Real Prop. Prob. & Tr. J. 697 (2004). link

Mary F. Radford, “An Introduction to the Uses of Mediation and Other Forms of Dispute Resolution in Probate, Trust and Guardianship Matters,” 34 Real Prop. Prob. & Tr. J. 601 (2000). link

Mary F. Radford, “Tax Considerations and Other Issues Unique to the Mediation of Estate and Trust Cases,” 39 U. Miami Heckerling Inst. on Est. Plan.  IV-A-5 (2005).

Slate annually compiles a list of the 60 largest American charitable contributions.  This article explains the idea behind the list -- the list itself can be found here.  You'll note that the top contribution came from the estate of Cordelia Scaife May, who died in January of 2005.  I blogged about Ms. May's Will last March.

This article by Texas attorney Ronald Lipman is a really nice summary of the advantages and disadvantages of living trusts (especially compared to Wills).  I've started explaining the costs associated with the two documents in terms of timing:

A living trust has immediate costs -- you pay a little extra now, both in terms of attorney's fees and in terms of work you have to do (transferring assets by changing title and beneficiary designations). 

A Will has future costs, which must be paid when you die -- basically, the attorney's fees and court costs associated with probate (including the cost of having your executor transfer assets to the estate and to your beneficiaries).

Which is better for you, a living trust plan or a plain old Will?  That's going to depend on your assessment of the above costs.  The actual fees are pretty easy to break down, but the intangible costs are more difficult to consider -- when we talk about transfers of assets during lifetime, we're really talking about questions like:

Do you have time to transfer your assets to your living trust?

Do you have the ability to make these transfers yourself (or can someone else, like your financial planner, help with the transfers)?

Can you devote your attention to these transfers, to make sure that nothing is forgotten, and that all assets get placed into the trust?

Do you mind the "hassle" of making these transfers, and the added complexity that a living trust gives to your life?

Answers to these questions will vary among different individuals, which is why a living trust may be a bad idea for one client (an 85-year-old who hates complexity and doesn't want the hassle of asset transfers) and a very good idea for another (a 55-year-old with time and interest to spare on the transfers).

I've written quite a bit about why it's a bad idea to give someone the gift of making them a joint tenant on your property -- here is my main post on the subject, which references an article from my website as well as an article from the You and Yours Blawg.

I'm sure Florida's politicians have the best of intentions, but the legislation discussed here is nonsensical.  The legislation "would keep a cap on property tax increases when a co-owner is added to a homestead property deed," an issue that "comes up most often when a parent puts a child's name on a deed to try to avoid probate court when the parent dies."  Adding a child or other individual as a joint tenant on your home is almost always a bad idea, and isn't something that the state should be encouraging or enabling.  The article mentions that  the legislation would cost the state $8.6 million per year in lost revenue.  The problem is that it's going to cost the people of the state of Florida much more than that when you consider the disputes that inevitably arise from these types of situations. 

Yesterday I talked a little about Will and trust construction, and about ambiguities.  As I mentioned, most ambiguities relate to either the property that is to be given away, or the identity of the beneficiary (or beneficiaries) to receive the property. 

Another way to think about ambiguities (one used by Illinois courts) is to distinguish between patent ambiguities (which are obvious from reading the document) and latent ambiguities (which only appear in light of outside evidence).  Some examples:

Patent ambiguity: A person's Will leaves her entire estate to nine people, in equal 1/18th shares.  What happens to the other half of the estate?

Latent ambiguity: Here is an example I blogged about last year.   In an article entitled "Construction, Reformation, Revocation, and Modification of Wills and Trusts," and featured in the 2002 edition of IICLE's Estate, Trust, and Guardianship Litigation Practice Handbook, authors David A. Baker and Kathleen O'Hagan Scallan give some others:

... a testator or grantor bequeathing property that he or she does not own, incorrectly describing the property subject to disposition or the identity of the legatee, and providing a description that, on its face, fits more than one object of property or person.

I think two other examples of possible latent ambiguities can be found in the Howard Hughes Mormon Will, which I posted here. 

ninth: one-sixteenth to be devided [sic] amoung [sic] my personal aids [sic] at the time of my death -

The remainder of my estate is to be devided [sic] among the key men of the company's [sic] I own at the time of my death.

How do we define "personal aids" (sic) and "key men"?

Disputes over a decedent's personal property are fairly common.  Now The Onion is weighing in with its own humorous take on the issue:

Grandmother Will Live On In Arguments Over Her Wedding China

Over at The New York Probate Litigation Blog, Philip Bernstein has a post about construing a Will.  This is different from a Will contest, where a party is trying to prove that the Will isn't valid.  In a construction suit, the executor or trustee is confronted with an ambiguous document, and wants to know how he or she is required to act. 

As Mr. Bernstein notes:

There is an art to writing so that folks understand exactly what you mean to say and not everyone has that talent. Lawyers included.  Just because an attorney has drafted a will does not mean that he or she has done a good enough job to resolve all questions as to what its maker has intended.

Most construction cases center on one of two types of ambiguities:

1. Ambiguities surrounding property.  What was the decedent trying to give away? 

2. Ambiguities surrounding beneficiaries.  To whom was the testator trying to give his or her property?

Since the start of the year I have blogged extensively about the case of Lillian Glasser:

1/16/06

1/10/06

1/4/06

Most of my postings have related to a power of attorney executed by Mrs. Glasser in 2002, in favor of her daughter, Suzanne Mathews.  However, in reviewing the testimony of Joseph Purcell, the attorney who drafted this power of attorney, I also learned of a second power of attorney.  This second power of attorney (from 2004) was in favor of David Lawrence, described in testimony as Mrs. Glasser's "nephew by marriage." I discussed this second power of attorney in my 1/10/06 post above.  Note that the New York Times previously reported that Ms. Mathews used her 2002 power of attorney to transfer her mother's assets into partnerships, which were under the management of Goldman Sachs, and that Mr. Lawrence is a managing director for Goldman Sachs.

In his testimony, Mr. Purcell was shown a copy of a document that he described as "a power of attorney from Lilian [sic] Glasser to David Lawrence." Mr. Purcell stated that he had prepared the document, and that Mrs. Glasser executed the document in Florida (testimony of Joseph Purcell from August 10, 2005, pages 34 and 109).

Yesterday I was forwarded an e-mail from an attorney for Mr. Lawrence (John T. Gerhart) to another attorney in the case.  In that e-mail, Mr. Gerhart states that Mr. Lawrence will not agree to appear for a deposition in Mrs. Glasser's case.  Mr. Gerhart says that "[o]ur objection is based on lack of relevance -- [Mr. Lawrence cannot] speak to the mental competence of Mrs. Glasser.  Further, your contention that Mr. Lawrence took a power of attorney simply is not true.  Further, [Mr. Lawrence had no] involvement in the management of Mrs. Glasser's assets." (emphasis added)

I'm not sure if Mr. Gerhart is using the word "took" as a term of art, but the facts seem to be as follows:

(a) Ms. Mathews placed Mrs. Glasser's assets under the management of Goldman Sachs;

(b) Mr. Lawrence was and is an employee of Goldman Sachs;

(c) Mrs. Glasser executed a power of attorney in favor of Mr. Lawrence.

I for one would be interested in learning more about Mr. Lawrence's (and Goldman Sachs') involvement with Mrs. Glasser's affairs -- it certainly seems relevant, doesn't it?

My link for the day is to Grant D. Griffiths' excellent Kansas Family and Divorce Lawyer blog.  I know that seems perverse, given the day, but it's got a ton of useful information.  For those romantics among you, it even includes a recent post on "Secrets to a Happy Marriage."

"How much do you charge?" is obviously an important question to ask of any attorney, but the answer can be complicated.  People want me to give them a number that fits within their idea of what the work should cost, but I'm not always able to do that, especially if I don't know anything about the client's situation.  Instead of asking "how much do you charge?" I think the better question is "how do you charge?"

Some thoughts about methods of billing:

1. I charge a fixed fee for estate planning work.  I've been doing this type of work for almost ten years, and I know what is required of me in terms of time and brainpower.  I'll meet with a client to discuss his or her situation, and quote my fee at the end of that (no obligation) meeting.  My fee won't exceed that quote except in extraordinary circumstances (like, the client completely changes his estate plan after I've already prepared it). 

2. I charge my hourly rate ($200) for probate work (including litigation).  I can't charge a fixed fee for this work because it's impossible to know from the beginning whether an estate or trust matter will be simple or complex.  I don't want to quote a small fee and then be held to that quote when the estate blows up (with Will contests, citation actions, etc.) -- that's not fair to me.  I also don't want to charge a large fee and then discover that the estate can be handled very easily and cheaply -- that's not fair to the client.

3. Every method of charging attorney's fees has its problems -- consider the Big 3:

hourly rate: can create an incentive for attorneys to spend (or bill) too much time on a matter, in an attempt to drive up fees (examples: the attorney who has 9,000 billable hours in a year, or who bills a client 10.00 hours for a matter that should've taken 5.00 hours)

fixed fee: can create an incentive for attorneys to spend too little time on a matter, in an attempt to maximize their overall fees (example: the attorney who spends 2.00 hours -- and therefore does a bad job -- on a fixed fee matter that should've taken 5.00 hours)

percentage: Some attorneys bill based on a percentage of assets in an estate -- this is how things work in California (see Sawday and Drake's excellent post on fees in California probate, here).  The problem (as I explained a few months ago) is that size of estate is a bad proxy for amount of time the estate will require.  I've worked on large estates that were handled very easily (maybe one heir and a limited number of assets), and small estates that took up a lot of my time (lots of heirs, lots of fighting, etc. etc.).

4. Every once in a while, some firm will try to introduce a billing method other than those mentioned above (like this one).  They may get some free marketing in the process, but their efforts will, I think, ultimately be worthless.  At the end of the day, if you provide good service and bill in a reasonable way, your clients will pay your bills and remain your clients, regardless of the method you use for billing. 

What do I mean by "bill in a reasonable way"?  Basically, I try to perform work and prepare bills with my clients in mind.  If I'm billing on an hourly basis, I provide a lot of detail about the work I did, and how long it took to do it.  I also don't engage in the (ethically suspect) practice of billing clients .25 hours for work that takes 1-2 minutes.  If the only work I do on a client matter during a given day is to have a brief phone call, then I note the call on my bill and put down 0.00 hours for my time. 

Do clients appreciate things like that?  Given the fact that, in almost 5 years of solo practice, I've never had a fee dispute with (or a late payment by) a client, I believe the answer is "yes."

Last week naplesnews.com published an article (available here) about claims against the estate of Nelson Faerber, and the statute of limitations.  Although this is a Florida case, the issues it raises are important in Illinois as well.

I've spoken (most recently, in this post) about Illinois' bar on claims filed more than two years after a decedent's death.  However, disputes over the two-year bar (found in §18-12(b) of the Illinois Probate Act (the "Act")) are pretty rare -- most of the "action" in this area of law surrounds the shorter periods set forth in §18-12(a) of the Act, which is also connected to §18-3 of the Act. 

Section 18-3 requires the representative (administrator or executor) of an estate "to publish once each week for 3 successive weeks, and to mail or deliver to each creditor of the decedent whose name and post office address are known to or are reasonably ascertainable by the representative... a notice stating the death of the decedent," as well as contact information for the decedent's representative and attorney, and the date by which claims are barred.  You will notice that §18-3 makes a distinction between "known or reasonably ascertainable creditors" and all other creditors -- basically the rule is as follows:

known or reasonably ascertainable creditors: notice must be given to them via mailing or delivery, and their claims are barred 3 months after they receive the mailing or delivery.

all other creditors: notice must be given to them via publication in a newspaper in the county where probate is taking place, and their claims are barred 6 months from the date notice is first published.

Obviously, creditors who are "known or reasonably ascertainable" are favored under this scheme -- if they haven't received notice via mailing or delivery, then their claims are not barred under §18-12(a) (but could be barred under §18-12(b)).  You can probably foresee the issues that typically arise with the scheme:

1. First, what constitutes a known or reasonably ascertainable creditor? 

2. Second, what constitutes notice to a known or reasonably ascertainable creditor?

The above article seems to indicate that Florida has laws similar to the ones used in Illinois:

After Faerber died, state law required Faerber’s personal representative to publish notice in the newspaper to any would-be creditors who could stake a claim to assets in the estate or trust. The notice must indicate the deadline for creditors to file their claims. Faerber’s personal representative is his brother, Karl Faerber.

Also, any specific creditors who the brother could reasonably be aware of that has a claim against the estate must receive a certified letter about the pending probate case. They also have a deadline to respond.

But the man filed his claim — and the lawsuit — months after the deadline elapsed. He never received such a letter, and the attorneys for Faerber argued he wasn’t entitled to such notice because Karl Faerber had no reason to know the man intended to file a claim.

Mr. Faerber was facing charges of criminal sexual assault when died (of suicide).  The question of whether the alleged victim would be a known or reasonably ascertainable creditor is an interesting one, although I can understand why a court would decide that he is not.  After all, at the time of Mr. Faerber's death (or the beginning of the probate process), the alleged victim wasn't a creditor at all -- just a potential creditor.  In addition, there's the question of how Mr. Faerber's representative could have contacted the alleged victim, since his real name and address are unknown.

It is possible for two parties (usually a husband and wife) to enter into an agreement about how their estate plans will work.  Such an agreement adds an element of contract to the estate planning process.

A common situation where parties might enter such an agreement involves a second marriage.  For instance, John and Eva get married -- each is over the age of 50, and has two children from a prior marriage.  They both want the survivor to receive the property of the first of them to die, but don't want that survivor to control the ultimate disposition of the property -- instead, they want all of their (combined) property to pass equally to their four children upon the survivor's death.  So they enter into an agreement. 

At this point, a little terminology might be helpful:

mutual or reciprocal Will(s): each party makes provisions for the benefit of the other

joint Will: the parties together sign one Will

Not all mutual or reciprocal Wills are joint Wills -- in many cases, each party has his or her own Will, containing provisions for the other's benefit.   However, I'd venture a guess that all joint Wills are mutual or reciprocal.

Why would the parties want or need an agreement with respect to their Wills?  Basically, to protect the first spouse to die from the actions of the surviving spouse.  Consider the facts in the above example, and assume that Eva dies first.  Her Will says that John gets all of her property if he survives her, and also contains a provision saying that all four children divide such property if John doesn't survive her.  Eva goes to her grave believing that John's Will is reciprocal (leaving all property to Eva or, if Eva doesn't survive him, all to the four children equally).  However, a year after Eva dies, John changes the provisions of his Will, to leave all of his property (including the property he inherited from Eva) to his two children only.  Is that fair?  The caselaw says it isn't.  (And note that the law surrounding joint and mutual Wills is based on caselaw as opposed to statute.)

In re: the Estate of Lea J. Erickson is a recent Illinois appellate court decision on this topic, and can be found here.  Erickson involves facts similar to the above example except that, instead of changing the provisions of her Will, the surviving spouse sold real estate to certain beneficiaries (but not others) for a nominal sum ($10) right before her death.  The court ruled that these sales violated the terms of the joint and mutual Will entered into by Mrs. Erickson and her late husband Charles.

It seems like every few months I post about some site that appears to be the future of real estate (this was my last one).  Here's my new favorite: zillow.com.  I read about the site in Walt Mossberg's column (here - written with Katherine Boehret) in today's Wall Street Journal, and then visited it myself.  I think it's tremendous, and would recommend it to anyone with an interest in real estate (including all homeowners).  The site doesn't cover every geographic location, and it's been overwhelmed by visitors today, but I see a lot of potential.

[added 2/15/06: Yesterday I was actually able to use zillow.com in my practice.  I was meeting with estate planning clients who had lived in the same house for about 40 years.  They had no idea what their house might be worth, and it's important for me to at least have a sense of the value of all client assets for planning purposes.  In less than a minute, zillow was able to give me and my clients a general idea of the value of their house.  They were pretty amazed!]

Mary Penner of The Albuquerque Tribune has an informative series on using probate records in genealogy:

Part 1

Part 2

I'm embarrassed to admit that, while I'm both a probate attorney and an amateur genealogist, I've never taken the time to explore my ancestors' probate records.  This series may well provide the inspiration I need to get started.

"Judge must decide if it's love or Alzheimer's"

Now there's a catchy headline, to an article published here.  The story will sound familiar to attorneys and others working with the elderly.  Vic Varallo is 83 years old, and even his lawyers admit that he is suffering dementia, and is probably in the early stages of Alzheimer's disease.  A conservator (i.e. guardian) has been appointed to manage Mr. Varallo's affairs, but Mr. Varallo would really like to marry his 48-year-old fiancée, Sheila White.  Mr. Varallo's children object.

On the one hand, we have a valid concern about whether Mr. Varallo is competent to make his own decisions (especially considering that he transferred more than $1 million in property to Ms. White, which she later returned to Mr. Varallo's estate under a settlement agreement).  On the other hand, we have a respected man who has reached the last years of his life, and believes that he has found happiness.

I'm sure there are times when it's a lot of fun to be a judge.  This is probably not one of those times.

The Wieland and Brown decisions I discussed on Friday create some real challenges for practicing lawyers.  To begin with, when client trust money comes in, an Illinois attorney must determine whether the money constitutes "nominal or short-term funds" under Illinois Supreme Court Rule 1.15(d).  If it does, then the money must be deposited (per paragraph (4) of Rule 1.15(d)) into an account affiliated with the state's IOLTA program.

What if the attorney's determination of whether the money constitutes "nominal or short-term funds" is incorrect?  Paragraph (5) of Rule 1.15(d) states that "[t]he decision as to whether funds are nominal in amount or are expected to be held for a short period of time rests exclusively in the sound judgment of the lawyer or law firm, and no charge of ethical impropriety or other breach of professional conduct shall attend a lawyer's or law firm's judgment on what is nominal or short term." 

It appears, therefore, that a lawyer is "off the hook" if he or she mistakenly places funds that are "nominal or short-term" in a non-IOLTA account, thereby allowing the client (rather than the Lawyers Trust Fund of Illinois) to retain the interest generated on the funds.  The converse is not true, however -- while a lawyer who mistakenly places client funds into an IOLTA account will not face disciplinary problems (because of Rule 1.15(d)(5)), the lawyer could face a lawsuit from his or her client.  Justice Stevens makes this clear in the Brown decision (in the excerpt below, "LPOs" are non-lawyers who hold money in escrow for real estate transactions -- the same analysis should apply to lawyers):

The Rules adopted and administered by the Washington Supreme Court unambiguously require lawyers and LPOs to deposit client funds in non-IOLTA accounts whenever those funds could generate net earnings for the client.... Thus, if the LPOs who deposited petitioners' money in IOLTA accounts could have generated net income, the LPOs violated the court's Rules.... Such mistakes may well give petitioners a valid claim against the LPOs, but they would provide no support for a claim for compensation from the State, or from any of the respondents.

Let's consider this hypothetical:

Attorney Andrews receives $10 million from Chuck Client on February 6, 2006.  Attorney Andrews is instructed by Chuck Client to transfer these funds to Steve Seller on February 7, 2006 (the next day).  Illinois Supreme Court Rule 1.15(d)(4) would seem to require Attorney Andrews to place the $10 million in an IOLTA account, since the funds are obviously being held on a short-term basis.  However, if Attorney Andrews does so, then (according to Justice Stevens) he risks a lawsuit from Chuck Client for the interest lost (if we assume a 1% interest rate, we're talking about perhaps $275). If this lawsuit is successful, and Chuck Client is able to recoup his "lost" interest, then...

Lawyers Trust Fund of Illinois will be +$275 for this transaction

Chuck Client will be +$275 for this transaction

Attorney Andrews will be -$275 for this transaction

Put another way, because of an error in judgment, Attorney Andrews mistakenly gave to the state money that rightfully belonged to Chuck Client.  But, rather than give the money back to Chuck Client, the state is allowed to keep it!

I'm all in favor of punishment when lawyers do wrong, but IOLTA rules put lawyers in very difficult situations.  In Washington, the lawyer must guess whether the client funds will generate net interest; in Illinois, the lawyer must ascertain whether the client funds are nominal or will be held short-term.

What can practitioners do to avoid these problems?  One of two things, I think:

1. Incorporate references to the IOLTA rules into all engagement letters (and, of course, always have an engagement letter).  Explain the dilemma, in writing, to your clients, and tell them that you plan to deposit all of their funds into an IOLTA account (meaning they lose the interest) unless you and the client sign an agreement to the contrary. 

2. If Ronald D. Rotunda is correct in stating (in this article) that the costs of getting interest from a client trust account to a client are approaching zero, then I think lawyers need to stop placing client funds in IOLTA accounts.  Instead, we need to work with banks (and, possibly, each other) so that client funds can work for the benefit of our clients.

Lawyers occasionally hold money on behalf of their clients -- for instance, a client may pay me for legal work I have not yet completed, and I will (per my engagement letter with the client) hold these funds in a client trust account until I finish the job.

What happens to the interest earned on money held in a client trust account?  In most cases, Illinois (under Illinois Supreme Court Rule 1.15(d)) requires that such interest (referred to as IOLTA, short for Interest On Lawyer Trust Accounts) be paid to the Lawyers Trust Fund of Illinois.  According to an article in January's CBA Record, the Lawyers Trust Fund "used interest income that it received [during its last fiscal year]... to make more than $4,000,000 in grants to organizations that provide legal aid to the poor."

The problem with the above arrangement is that it seems to violate the Fifth Amendment to the United States Constitution ("... nor shall private property be taken for public use, without just compensation.")  At least, that's what plaintiffs claimed in the recent Illinois Appellate Court case of Wieland v. Lawyers Trust Fund of Illinois, 836 N.E.2d 166 (5th Dist. 2005).   The court disagreed.

Wieland follows (unsuccessful) challenges to IOLTA programs in other states.  Indeed, for its decision, the court in Wieland relied heavily on the U.S. Supreme Court's decision in Brown v. Legal Foundation of Washington (538 U.S. 216 (2003)), which involved a challenge to the IOLTA program in Washington state.  In Brown (available here as a pdf), the Supreme Court found that private property had been taken for public use, but valued the "just compensation" for this taking at zero.  Why zero?  Because the Supreme Court decided to measure "just compensation" by looking at the property owner's loss instead of at the government's gain.  Washington's IOLTA program required only funds that couldn't generate net interest to be placed in what are referred to (with some redundancy) as IOLTA accounts.  In other words, no compensation was necessary because the client wouldn't have earned interest on the funds anyway -- either the funds wouldn't have been held in an interest-bearing account, or the interest generated would have been subsumed by the administrative costs associated with it. 

Ronald D. Rotunda questions this point and some others raised by the Supreme Court in Brown, in a well-written article entitled "Found Money: IOLTA, Brown v. Legal Foundation of Washington, and the Taking of Property without the Payment of Compensation."  The article is available as a pdf at The Cato Institute's website, here.  One of Mr. Rotunda's observations is that some of the justices in Brown don't seem to understand technology or how law is actually practiced.  With computers, it has become quite easy to track the interest created from even a small amount of principal, and to assign that interest to a client as a credit.  If the potential cost of doing so is under $4,000,000 per year in Illinois (and it surely is), then how could a court set the amount of "just compensation" at zero?

California Estate Planning Practice Blog started up last month, and I think it's great -- the blog (by the firm of Sawday & Drake) has lots of basic, practical information that you can't find elsewhere (like how to put vehicles into your living trust). 

I've blogged about the Howard Hughes Will issue pretty extensively on this site.  Evidently the dispute has reached the consciousness of spammers, as Wonkette shows here.  The scammers spammers even have a website devoted to the topic.  The initial message sure makes it sound like you can become a beneficiary of Mr. Hughes' estate, doesn't it?  Alas, it's really just a PROVEN SYSTEM to get rich via the oil business.

Two interesting mediation stories are in the news these days -- one national and one local:

Story #1. As reported here, Major League Baseball and the District of Columbia are engaged in mediation over plans to build a new baseball stadium.  The very well-respected Dennis Archer, former mayor of Detroit and former guardian of Rosa Parks, is acting as mediator.

DC and Major League Baseball have a contract regarding the stadium, and DC failed to fulfill certain contractual requirements.  Under the contract, the parties must attempt mediation (i.e. negotiation using a neutral third party who tries to help the parties reach agreement).  If mediation fails to result in a settlement, the parties will move to arbitration (where a neutral third party essentially acts as a judge in deciding which party is in the wrong, damages, etc.).

Why would the parties prefer mediation or arbitration over going to court?  A few reasons:

1. Privacy

2. Lower costs

3. Speed of resolution

4. Desire to preserve an ongoing business relationship.  It may be that DC is entirely in the wrong here, but what would such a finding accomplish for Major League Baseball?  Not much, perhaps.  Maybe they have decided that DC is "the best game in town," and that no other location can provide the same benefits as our nation's capital.  Most attorneys and mediators will advise negotiating parties to consider their BATNA ("Best Alternative To a Negotiated Agreement").  If Major League Baseball's BATNA is going to court, or finding another location for a team to play (Oregon? Las Vegas?), then perhaps they are willing to spend more time working with the other party to reach a solution, even if the other party is in the wrong. 

It's harder to talk with private disputants (such as parties in probate litigation) about BATNA -- they are much more likely to become emotional, and to talk in terms of "principle" and wanting to prove that they are right (and the other party is wrong).

Story #2. For some time, day laborers have been congregating at the Home Depot store in Cicero, looking for work.  This has led to conflict involving:

-the day laborers;

-the store (which has intermittently tried to have the day laborers arrested for trespassing);

-the town of Cicero (including the police, who don't want to devote a lot of resources to this matter); and

-the Chicago Minuteman Project (which picketed because many of the day laborers are illegal immigrants).

This morning's Chicago Tribune reports (in an article I can't find online) that Home Depot has now hired mediator Trudy Nichols to attempt to work out an agreement between the store, town officials, and the Latino Union (described in the article as "an advocacy group representing the day laborers").

Mediation strikes me as a great way to resolve this dispute.  There are lots of different interests at play here, and a good mediator can probably be pretty creative in helping the parties to craft a solution.  My only concern is whether all of the necessary parties will be involved in the negotiations.  Does the Latino Union truly represent all of the day laborers?  Does it make sense to involve the Chicago Minuteman Project?

I'm still working my way (ever so slowly) through Bleak House.  Interestingly enough, Dickens makes reference (in Chapter 9) to a "hot" topic in estate planning these days, a trust for a pet (in this case, a canary):

'You have brought your bird with you, I suppose?' said Mr Jarndyce.

'By Heaven, he is the most astonishing bird in Europe!' replied [Mr Lawrence Boythorn]. 'He is the most wonderful creature! I wouldn't take ten thousand guineas for that bird. I have left an annuity for his sole support, in case he should outlive me....'

(Emphasis added.)

Bleak House is available for free online at Project Gutenberg (the direct link is here).

When I last posted about the book, I noted that probate and trust administration is rarely the subject of art and literature.  However, I should have mentioned another classic that centers on estate matters: The Crying of Lot 49, by Thomas Pynchon.  The book is a good introduction to Mr. Pynchon's work, and features a great opening sentence:

One summer afternoon Mrs Oedipa Maas came home from a Tupperware party whose hostess had put perhaps too much kirsch in the fondue to find that she, Oedipa, had been named executor, or she supposed executrix, of the estate of one Pierce Inverarity, a California real estate mogul who had once lost two million dollars in his spare time but still had assets numerous and tangled enough to make the job of sorting it all out more than honorary.

As is usually the case with Mr. Pynchon, things just get weirder from there.