Death and Taxes Blog

I blogged here about estate planning attorneys storing their clients' original documents. The issue came up again today on the ISBA Transactional Law listserv. I thought about my position on why I don't keep clients' original documents, and wanted to share it here.

I don't keep any originals, for a few reasons:

1. "I'm an attorney, not a Will repository, damnit!" (Imagine me saying this in the voice of Bones, from Star Trek)

2. The biggest rationale for keeping original documents -- that you'll get the estate work when your clients die -- always has struck me as a little bit sleazy. Ditto the fact that you are making it uncomfortable for clients who want to hire a new attorney in the future. I don't know how many new clients have come to me and said, "Attorney X has my documents. Can you contact him and get them back? I feel really funny about it."

3. I like to manage risk, and am not interested in managing the risk that my Will repository is damaged in a fire or flood or tornado.

4. While we may have a formal Illinois Will repository in the future, what if we don't? Illinois law imposes a duty on anyone holding an individual's original Will to file the Will with the local probate court upon the individual's death. Do I really want to spend my time checking obits to see if my former clients have died?

My friend Ellen and I did a podcast a few years ago on the Terri Schiavo case. I don't think anyone ever listened to it, and I eventually took it down. That being said, I've always wanted to revisit the world of podcasting. Probably because, when I was a kid, I wanted to be a disc jockey (or a fire truck, or a left-handed third baseman for the Cubs).

Anyway, I'm going to try to do a 10-part series called "Estate Planning 101." I hope to post a 5-10 minute podcast every week, and here's the tentative schedule:

Week 1: What is estate planning?
Week 2: Wills
Week 3: Living Trusts
Week 4: Health Directives
Week 5: The Estate Tax
Week 6: Simple Gifting
Week 7: Not-so-simple Gifting
Week 8: Probate Basics
Week 9: Trust Administration
Week 10: Probate and Trust Litigation

Now I just have to test whether I can upload an audio file to this page. If all goes well, Week 1's podcast will be up this week.

This article is an interesting one on the use of strange documentary evidence in court. The last item mentioned is the relevant one for my purposes:

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.

In Illinois the rule about beneficiaries as witnesses is as follows (this is from Section 4-6(a) of the Illinois Probate Act):

If any beneficial legacy or interest is given in a will to a person attesting its execution or to his spouse, the legacy or interest is void as to that beneficiary and all persons claiming under him, unless the will is otherwise duly attested by a sufficient number of witnesses as provided by this Article exclusive of that person and he may be compelled to testify as if the legacy or interest had not been given, but the beneficiary is entitled to receive so much of the legacy or interest given to him by the will as does not exceed the value of the share of the testator's estate to which he would be entitled were the will not established.

That's a sort of convoluted way of saying this:

1. If you are a beneficiary of a Will and a witness to the Will, you can't inherit your share. Neither can anyone "claiming under" you (like a child of yours if you predecease the testator).

2. Ditto for the case where you witness a Will and your spouse is named as a beneficiary -- your spouse can't inherit his or her share.

3. There's an exception to the two above rules if there are at least two other witnesses who are NOT named as beneficiaries in the Will, who can attest to its accuracy. But under this exception, you can't inherit more than you would if the testator died without a Will. An example:

Joe Smith is a widower with three children. He does a Will leaving 1/2 of his estate to his daughter Susan and 1/4 of his estate to each of his two sons. Susan witnesses the Will along with two officials from Mr. Smith's bank. Upon Mr. Smith's death, Susan can inherit only 1/3rd of her father's property (since that is what she would receive if he had died intestate).

Most Wills and trusts I draft follow a pretty basic framework:

-first, the decedent can give away specific gifts of cash and/or property, if he or she wishes;

-then, the decedent disposes of the so-called "residue" of his or her estate. The residue is what's left after specific gifts are made and debts and expenses are paid.

Sometimes clients ask about this. "Why can't I just give away every piece of my property, period, and not include a gift of the residue?" There are a few reasons:

-What happens if, at death, you no longer own a piece of property given away in your Will?

-What happens if, at death, you own a piece of property not given away in your Will?

-A lot of estate planning involves drafting for flexibility, and making a lot of specific bequests may mess up the relative values received by each beneficiary. If you have a specific goal (like, "my wife gets 75% of my estate and my sister gets 25%"), what happens if the property you bequeath to your sister grows a lot in value while the property bequeathed to your wife doesn't?

The Estate of Bantsolas (pdf here) case is an interesting one in that it discusses a probate issue (a citation to recover assets), land trusts, and what could almost be described as a contractual issue.

The matter involved a land trust, of which a woman named Baseleky Bantsolas was the sole owner. On November 30, 1996, Mrs. Bantsolas signed an amendment to the land trust, naming beneficiaries of the trust upon her death. Evidently, prior to this amendment, there was no beneficiary on the land trust, so upon her death, Mrs. Bantsolas's interest in the land trust would pass to her estate.

Mrs. Bantsolas's attorney got confused, and sent the land trust amendment to the wrong place (Chicago Title, instead of Chicago Trust -- same building, different entities). Eventually, Chicago Trust received the amendment, and accepted it -- a day AFTER Mrs. Bantsolas died.

Was the amendment valid? Or, put another way, does the property in the land trust belong to Mrs. Bantsolas's estate, or to the two individuals she named as beneficiaries of the land trust? Both the trial court judge (Cook County Probate Judge Jeffrey Malak) and this court say it belongs to the beneficiaries. Their reasoning: an amendment is effective upon delivery, and the estate did not meet its burden to show that delivery failed to occur during Mrs. Bantsolas's lifetime.

There are two burdens/presumptions at work here:

1. The burden on the estate to prove that the property belonged to Mrs. Bantsolas at the time of her death.

2. The presumption in favor of delivery.

I first became aware of the idea of BlockShopper when a friend of mine, a partner at a big Chicago law firm, called to ask whether he could take title to his new townhome in a private manner. "What's the big deal?" I wondered.

The "big deal" (as a new client informed me last evening) is Chicago BlockShopper, a site that reports on real estate transactions in the (fairly upscale) Lincoln Park and Lake View neighborhoods of Chicago. (There's also a BlockShopper site for St. Louis.)

The articles look like those fake headlines you can make for someone's birthday or some other special occasion ("Cleveland OB-GYN Named Best Mom in America"). But in this case, the articles relate to the purchase and sale of real estate, and flesh out the identities of buyers and sellers with information gathered from other parts of the web. It's legal, of course -- I just question whether it's appropriate from a lack of privacy perspective. I guess you can always take title in a land trust, or change your name to John Smith.

Illinois has a pretty shameful history of not requiring attorneys to take continuing legal education classes. That's now changed, with some new CLE requirements. One good thing about the change is that more CLE classes, and different types of CLE classes, are being offered. Yesterday I listened in on a teleconference about new developments in Illinois probate law. I might spend the next few posts talking about some of these developments. Thanks to yesterday's speaker, Robert Hamilton, for drawing my attention to these topics.

First up is a change to the Illinois Trusts and Trustees Act. But note that this change doesn't take effect until mid-2008. Here's the provision that's been changed -- it comes in an area of the Act that lists the powers a trustee is given:

(760 ILCS 5/4.26)

(This Section may contain text from a Public Act with a delayed effective date)

Sec. 4.26. Small trust termination. To terminate the trust and distribute the trust estate, including principal and accrued and undistributed income, if the trustee determines, in the trustee's sole discretion with the consent of the recipients, that the market value of a trust is less than $100,000 and that the costs of continuing the trust will substantially impair accomplishment of the purpose of the trust.

Distribution shall be made to the persons then entitled to receive or eligible to have the benefit of the income from the trust in the proportions in which they are entitled thereto, or if their interests are indefinite, to those persons per stirpes if they have a common ancestor, or if not, then in equal shares. The trustee shall give notice to the persons at least 30 days prior to the effective date of the termination.

If a particular trustee is an income beneficiary of the trust or is legally obligated to an income beneficiary, then that particular trustee may not participate as a trustee in the exercise of this termination power; provided, however, that if the trust has one or more co‑trustees who are not so disqualified from participating, the co‑trustee or co‑trustees may exercise this power.

This Section shall not apply to the extent that it would cause a trust otherwise qualifying for a federal or State tax benefit or other benefit not to so qualify, nor shall it apply to trusts for domestic or pet animals.

The provisions of this amendatory Act of the 95th General Assembly apply to all trusts created before, on, or after its effective date.

(Source: P.A. 95‑605, eff. 6‑1‑08.)

A couple of comments:

1. I don't write much about the Trusts and Trustees Act because I don't use the Act very often. The Probate Act has provisions that apply to almost every probate estate. The Trusts and Trustees Act mostly covers problem areas -- it gives default provisions in cases where the trust instrument doesn't address an issue. But most trust well-drafted trust instruments handle these issues, and probably do so better than the Act does.

2. What's small trust termination and why is it important? Small trust termination provisions are important in cases where a trust is so small that the administration of it no longer makes much sense. Note the requirement above that "the costs of continuing the trust will substantially impair accomplishment of the purpose of the trust." If I leave property to a trustee, with my daughter as beneficiary, that's great. But what if the trust has $60,000, but it's costing $15,000 per year to administer? That probably wasn't what I intended, so this provision allows the trustee to terminate the trust and distribute it to the beneficiary or beneficiaries immediately.

Again, the key is viewing the Act as a default provision. I can set different terms for the termination of a small trust in my trust instrument, if I desire.

No, that title isn't from an adult Harry Potter spinoff. Rather, it's the latest really weird installment in the Seth Tobias saga, which is detailed here. Mr. Tobias was a CNBC commentator who, according to reports, lived a pretty interesting life. The latest allegations (found here) are among the craziest -- that Mr. Tobias's widow, Filomena, hired a voodoo priestess named Madam Simbi M'Arue to put a curse on Mr. Tobias. (Allegedly the priestess also was hired to cast spells to "remove evil from [the Tobias] homes and bring more money and sex to [Filomena]."

Illinois has a so-called slayer statute, preventing someone who causes a person's death from inheriting from the person. Of course, I think we have to assume that curses don't actually work. So even if Ms. Tobias meant to kill her husband, would it matter?

More related to a slayer statute are the allegations that Ms. Tobias "drugged Seth by putting sleeping pills into his pasta, then lured him into the pool of their Jupiter, Fla., home with the promise he could have 'kinky sex' with a male stripper named Tiger." Mr. Tobias evidently died by drowning in the pool, although the relationship of pasta, sleeping pills, and the male stripper to his death is unknown at this time.

On December 22nd, 2007, this letter to the editor was published by the Chicago Tribune. The letter is interesting in part because it challenges the typical reportage that arises in the wake of a financial scandal. That typical reportage involves dividing the players into villains and victims, while making sure that Mr. and Mrs. Joe Public always fall into the second category.

I wanted to give a little attention to this sentence: "Did these stupid people get no sound advice from anyone, not even their closing lawyer?" I used to practice in the area of real estate law, handling residential closings. I stopped a year or so ago, although I occasionally handle real estate deals if they are connected to probate (my main area of practice).

One of the reasons I stopped practicing in the area of real estate is that it didn't make financial sense for me. The market for real estate lawyers is such that you can charge about $400 to represent someone in a purchase or sale. And, as a solo practitioner, I could spend 15 or 20 hours on a single matter.

If you go to buy a house in Illinois, your team of professionals consists of:

1. a real estate broker, who is being paid a percentage of the selling price for the home;
2. a mortgage broker, who is being paid a percentage of the amount of your loan; and
3. an attorney.

So, who is in your corner? Not the brokers -- they have a clear conflict of interest. And not the attorney, because he or she is usually being paid only a minimum amount to sit with you at the closing and show you where to sign. Some attorneys have tried to charge hourly rates for closings, providing full service and emphasizing the importance of the transaction. My understanding is that many of these attorneys haven't been successful.

I'm not trying to be vindictive, and I'm not trying to suggest that the lending crisis is somehow payback because the American public as a whole decided it didn't need thorough, professional attorneys to handle their real estate purchases. Rather, I'm suggesting that someone who is not conflicted needs to do the analysis as to whether the recommended purchase price + mortgage are the appropriate purchase price + mortgage. That "someone" can be the buyer (crunching his or her own numbers), a fee-only financial planner, or an attorney. Unfortunately, if you aren't sophisticated enough to crunch your own numbers, you aren't going to be sophisticated enough to hire a financial planner or attorney to do it for you. And the unsophisticated folks wind up in default. Which wouldn't be so bad for the rest of us, basking in the glow of our 5.25% 30-year fixed mortgages, except that we now have to pay to bail out the defaulters.

Happy 2008! Let me ring in the new year with good news, bad news.

The Good News: As I mentioned a while back, I applied to business school. Last Thursday, I found out that I've been accepted into the University of Chicago's Graduate School of Business, to start in the evening program this summer.

The Bad News: I have to decide whether to accept the offer by this Friday. It's not that I don't want to (let me put it this way -- I only applied to the U of C). Rather, it's a question of coming up with the $80,000+ needed to attend. My mean employer won't pay for it. (Or, rather, he will, but I am him and he is me.)