Death and Taxes Blog

Last week my family visited Boston for a little spring break R&R (is it really spring break when the temp barely breaks 50? better than snow, I suppose).

I'd never been to the city before, and we had a nice time visiting friends and seeing the sights along the Freedom Trail. Surprisingly, a couple of estate planning issues impacted the makeup of the city. The following quotes are from the nice walking guide entitled The Complete Guide to Boston's Freedom Trail, by Charles Bahne:

1. "The [Massachusetts] State House stands on land once owned by John Hancock.... Hancock was the first person to sign the Declaration of Independence.... Hancock's elegant mansion stood on what is now the west lawn of the State House. Hancock wished to give his home to the state, for use as a governor's mansion, but he died before he could sign his will. Year later, his heirs offered to sell the old house to the state, but the price was considered too high. Much to the dismay of all Bostonians, the Hancock mansion was demolished in 1863." (page 8) Ah, the irony of one of the world's most famous "signers" failing to sign his Will.

2. Faneuil Hall is "Boston's town meeting-hall [] where the colonists first dared to speak publicly against British rule.... The building was a gift to the town from Peter Faneuil, 'the topmost merchant in all the town'.... Peter Faneuil inherited his fortune from his uncle Andrew, a prosperous merchant whose ships called at ports around the Atlantic. But Andrew's bequest was subject to one unusual provision: like his uncle, Peter had to remain a bachelor. If he ever married, he would forfeit the money!" (pages 30-31) Peter Faneuil was known around Boston as "the jolly bachelor," which is also a name he gave one of his ships. These days, a "no marriage" provision would possibly be declared void as against public policy.

One of the questions asked most often of me is this: "I am acting as executor (or administrator or trustee), and want to take compensation. How much compensation is appropriate?"

For the most part, the law isn't helpful on this point. Most Wills and trusts talk about "reasonable compensation," language echoed in the Probate Act:

Sec. 27‑1. Fees of representative. A representative is entitled to reasonable compensation for his services....

and the Trusts and Trustees Act:

Sec. 7. Compensation. The trustee... shall be entitled to reasonable compensation for services rendered.

Not particularly helpful -- the caselaw isn't either, really. So what is reasonable compensation? Here are some of my thoughts on the issue:

1. Reasonable compensation is whatever the beneficiaries are willing to agree to. If all the beneficiaries agree in writing that your fee is OK, isn't that per se reasonable?

2. Of course, compensation is often sought in contested cases. One thing I hear from fiduciaries: "I wasn't planning to pay myself, but my parent/siblings have been so annoying and I've put in so much work that I want to get paid!" In these cases, some persuasion may be necessary.

3. I tell fiduciaries to keep records of what they do, just like attorneys should. Be able to tell the beneficiaries what you did, and how long it took you. Presentation and detail are important -- people are more willing to consent to a $10,000 bill if you point out, in detail, what you did, and the benefit to the estate or trust.

4. The tricky part is taking the above time (let's call it 200 hours), and determining an amount from it. What's your hourly rate? I can see two approaches:

a. Set a fairly minimal hourly rate ($25 or $50), on the grounds that that's what it would take to hire someone to do fiduciary tasks.

b. Just use the rough hourly rate for your regular career. If you are an accountant and make $75 per hour, charge that. If you are a surgeon who makes $700 per hour, charge that. Of course, the higher the rate, the better chance that the beneficiaries are going to take you to court to protest. And I seriously doubt that any judge is going to allow you to take a fee based on $700 per hour.

5. One thing I run into occasionally is attorneys trying to charge their hourly attorney rate to do fiduciary tasks. I object to these attempts almost as a matter of course. It's almost an incapacity/undue influence argument. No one (or, at least, very few people) in their right mind would agree to pay someone $300 or $400 per hour to perform administrative tasks like preparing an accounting, or collecting assets. And, if the attorney/fiduciary also prepared the Will or trust that names him or her as fiduciary, then I have questions about whether the decedent understood what was happening. To me, there's little difference between leaving the drafting attorney $50,000 as a bequest (a big no-no) and leaving the drafting attorney with the ability to charge $50,000 to the estate or trust in fees. Absent signed, informed consent from the client, this seems like an abuse.

6. Some states determine compensation based on the value of an estate. To me, these things have little relation. The lives of the poor can be very complicated; the lives of the rich may not be.

I've written before about unique real estate -- for instance, here and here. I spent Easter in my hometown (Marshall, Michigan), and found that one very unique piece of real estate is on the market for only the second time in about 100 years. It's called the Cronin House, and it's offered (here) for $1.25 million.

The house inspires a lot of interest, especially in people who like historic homes and/or children's literature. Why children's literature, you may ask? Because the house was the inspiration for a pretty well-known book entitled The House with a Clock in Its Walls John Bellairs (who was born in Marshall).

Marshall -- like much of Michigan -- is in a major real estate recession. But, for a house like the Cronin House, does that really matter? It will be interesting to see.

Last week I was getting my teeth cleaned (no cavities -- yippee!). My dental hygienist has a college-age daughter, and one of her friends recently had a drinking "accident" (fell while drunk, and had to be hospitalized with a broken leg). Because this friend is 18 years old, his parents didn't find out about the hospitalization until their son told them (presumably he didn't want them to be surprised by the hospital bills).

This type of thing always surprises me. If I'm a parent and paying ridiculous sums to State U., shouldn't I have the right to know about my child's well-being? The law says no, but there's a way around the law: have your child sign a power of attorney for health care with one or both parents as agents, and make the power of attorney effective immediately. Then, furnish a copy of the power of attorney to the campus health center. Now -- presto! You have the right to find out about your child's health and well-being.

Section 6-1(a) of the Illinois Probate Act requires that "[i]mmediately upon the death of the testator any person who has the testator's will in his possession shall file it with the clerk of the court of the proper county...." It's a felony (under section 6-1(b)) to "wilfully alter[] or destroy[] a will without the direction of the testator or wilfully secrete[] it for the period of 30 days after the death of the testator is known to him."

One question that recently arose in one of the Illinois State Bar Association's e-mail discussion groups is this: If you have a number of Wills of a deceased testator in your possession, must you file ALL of these Wills with the clerk of the court of the proper county? Or, if you believe that the most recent Will is valid and revokes all prior Wills, may you just file this most recent Will?

I am of the belief that you must file ALL Wills of a deceased testator, although you can obviously seek to have admitted to probate only the most recent one. The statute discusses "the testator's will," but doesn't define that term. Certain attorneys have suggested that they have the ability to decide which of the testator's Wills is THE testator's Will, and to file only that Will. I disagree on this point -- I think that a probate judge is the only person who can decide which Will (if any) is valid, and since filing comes before this determination, individuals in the possession of a decedent's Wills (whether attorneys or not) must file all Wills.

I will agree that the Illinois Probate Act could be clearer on this point -- a simple change to the statute would do it (maybe a reference to "any original will of the testator"?).

Note that confusion can also be avoided if the testator destroys his or her prior Will whenever he or she executes a new Will.

Cook County has a pretty major backup in the probate area -- four judges now handle all decedent's estates cases. That's a lot, considering that they handle new cases as well as ones that are dragging on from prior years. As a result, the timeframe for opening an estate has expanded. If I file a petition right now, I may not be able to get a court date for another 4 (or 5 or 6) weeks. Not to mention the fact that, when you go into court, you typically have to wait for an hour or more to have your case called.

If I ran the Cook County Probate Court, my solution to the above problem would be computer filing of "non-contested" estates. I'd estimate that at least 80% of all probate cases in Cook County are open and shut -- no one is contesting the Will, and everyone just wants the probate process to move along as quickly and easily as possible. In cases like that, I would allow the attorney to file all court papers to open the estate via e-mail (as PDFs). The attorney would have to indicate that the PDFs are true and correct copies of the original papers (which are in the attorney's possession).

Perhaps one additional judge could be hired to handle computer filing (review and issue orders). His or her salary could be paid by a $100 "convenience fee" charged for computer filing. It seems to me that everyone wins:

1. Non-contested estates get processed more quickly and more cheaply (you'd rather pay a $100 convenience fee than pay an attorney to sit around in court for hours at a time at $200 or more per hour).

2. The other judges are freed up to handle the contested estates, which are also processed more quickly and more cheaply.

[added 3/18/08: Another idea, based on my observation of court this morning -- a LOT of court activity involves attorneys asking for routine continuances, which are of course routinely granted. Again, if the parties agree and a judge agrees, why do the attorneys need to sit around in court -- wasting their time and their clients' money -- waiting to be heard? Can't the additional judge mentioned above handle these situations too?]

Podcast #1 is up and running -- see below.

Here's the plan with respect to future podcasts:

#2: Wills
#3: Living Trusts
#4: Health Directives
#5: The Estate Tax
#6: Simple Gifting
#7: Not-so-simple Gifting
#8: Probate Basics
#9: Trust Administration
#10: Probate and Trust Litigation

I'm new to this, so comments are much appreciated. Am I talking too loudly? Too softly? Too quickly? Just let me know, and I'll try to correct it on future podcasts.

The opening and closing music is "Musette," by the French composer Felix Le Couppey (1811-1887).

MP3 File

Almost three years ago -- soon after I started writing this blog -- I posted about how real estate sales statistics tend to shed more heat than light. Here's that post.

This still happens in a down market, like the one we have now. Each Sunday, in a feature called Price Pulse, The Chicago Tribune real estate section runs the numbers for a different area of Chicago. This week the focus was West Cook County and DuPage County, using figures from August - October 2007 (and the same period in 2006). The "results" are shown in a half-page color map.

My biggest complaint about Price Pulse is that its focus is on increase/decrease in value, and not on the effect of a good or bad market on the number of houses sold. While Price Pulse includes total units sold, the emphasis is on whether there was an increase or decrease. That's not particularly helpful, especially in municipalities where few houses are sold. (For instance, in Wayne, Illinois, the median price of houses sold went from $720,000 in Aug. - Oct. 2006 to $466,00 in Aug. - Oct. 2007. Given that only 5 houses were sold in the '06 period, and only 2 were sold in the '07 period, are these figures at all meaningful?)

Here's a quicker way to quantify what's going on in an area's real estate market, one that takes into account median price and number of houses sold. Basically, it just involves multiplying these numbers together, as you would for a company that sells widgets or spark plugs. You can then quantify the drop in "gross sales." For instance,...

I live in Oak Park. From Aug. - Oct. 2006, 348 homes were sold in Oak Park, with a median price of $310,000. From Aug. - Oct. 2007, the median price actually increased -- to $310,750 -- but the number of homes sold dropped to 272. Is it at all accurate to think that the Oak Park real estate market went up, based on the small increase in median price? I don't think so. Rather, I'd show the Oak Park market by doing the following calculations:

Aug. - Oct. 2006: 348 x 310,000 = $107.88 million in gross sales

Aug. - Oct. 2007: 272 x 310,750 = $84.524 million in gross sales

That's a decrease of about 22%, which is a number that makes sense to me. Overall, the "big" municipalities (which I define as municipalities with sales of 100 or more units in Aug. - Oct. 2006 and in Aug. - Oct. 2007) in West Cook and DuPage saw a decrease in gross sales of 23.50%. Berwyn had the highest decrease (57.84%).

I've been spending a lot of time on Facebook lately, as my classmates and I reconnect and make plans for the (gulp) 20th reunion of the Marshall (Michigan) High School Class of 1988, this summer or fall.

As you may know, Facebook allows you to add applications to your profile page -- for photos, music, something called SuperPoke (don't ask), etc. Anyway, one of the applications is something called "My Own Last Wishes." Here's how it is described by its creators:

If you died tomorrow, would your family or friends know what your own last wishes would be? Would they know if you wanted to be an organ donor or what to do with your beloved pet? Would they know whether you wanted to be cremated and your ashes scattered on your favorite hiking trail or if you wanted to be buried dressed as Elvis, along with your prized bowling trophy, and accompanied to your gravesite to the strains of “Blue Hawaii”?

‘My Own Last Wishes” lets you give your family and friends a roadmap for your final journey and more.

I know that "My Own Last Wishes" is really just like any other application -- it's intended to waste a bit of time on the internet. But you can probably see the problem with this, can't you?

-Very few Americans have a Will. Presumably (hopefully) they understand that they need one, and that "My Own Last Wishes" is not a substitute for one. This doesn't create a legally-binding document.

-I also question whether "My Own Last Wishes" can even do what it says it's trying to do: "give your family and friends a roadmap for your final journey and more." How does your family know that you are on Facebook? Or know how to access your account? Or know that Facebook is where you listed your last wishes? And will they find all of this out soon enough after your death to cremate you, or bury you like Elvis?

I have praised "The Wire" before (here and here) -- I think it's the best thing I've ever seen on TV. Tonight is the series finale. It will probably be impossible to understand what's going on if you are new to the show, but there's always DVD.

"The Wire" isn't a law show per se -- although the show does touch on legal institutions -- but its creator and some of its writers have taken a unique legal position (known as jury nullification) in this article in Time magazine:

If asked to serve on a jury deliberating a violation of state or federal drug laws, we will vote to acquit, regardless of the evidence presented. Save for a prosecution in which acts of violence or intended violence are alleged, we will — to borrow Justice Harry Blackmun's manifesto against the death penalty — no longer tinker with the machinery of the drug war. No longer can we collaborate with a government that uses nonviolent drug offenses to fill prisons with its poorest, most damaged and most desperate citizens.

This is more of a cross-update. I have blogged about Ms. Spears and her prenup on a number of occasions (most recently, here and here), and I blogged about Amy Winehouse and her out-of-control behavior here. Ms. Spears has been exhibiting similar behavior, and her family actually did step in -- her father was appointed as conservator of her estate, and his position has been extended to July 31 (per this article). (Conservator is really just another name for guardian.) This article has a bit more information about the scope of the conservatorship.

I blogged about this case previously (here and here). As this article notes, Ms. Smith's daughter Dannielynn has been named her sole heir.

The interesting issue raised here is this: if you specifically disinherit someone (as Ms. Smith did -- her Will excludes descendants born after its execution), but your Will winds up not listing any valid beneficiaries (thereby creating an intestacy, with your heirs inheriting your property), can the person you disinherited take as an heir? One approach might be to consider Ms. Smith's heirs, but exclude as heirs anyone specifically disinherited in the Will. I believe that would leave Ms. Smith's mother as her sole heir. Of course, there is an inherent unfairness involved here -- should an individual be able to disinherit their minor child?

I really am working to get a podcast up and running by early next week. Unfortunately, as I recover from bronchitis, I notice that my tones are far from dulcet -- I'm more Les Nessman than Dr. Johnny Fever or Venus Flytrap.

I do, however, want to make sure that the technology works. So here is a Bach minuet:


MP3 File

In re. Estate of Agnes H. Wright is an appellate case that deals with whether an individual's attorneys can be disqualified. The case is available here as a pdf. I'm less interested in that issue than in the issue that prompted the litigation in the first place. This is an undue influence case, pitting sibling vs. sibling. At issue is a trust amendment signed by Mrs. Wright. The trust amendment says that she loaned her son Peter $1.8 million to purchase a vacation home in Lake Geneva, Wisconsin. The amendment recites other information about the transaction, but the key is that the amendment characterizes the transaction as a loan. Peter, however, says that the transaction was a gift, and that the trust amendment was executed only because Peter's sister Linda exerted undue influence against their mother.

If I had any advice to take from the case, it would be this: resolve issues of loan vs. gift before death, by a writing signed by all parties. The problem in the above case is that the amendment is signed only by Mrs. Wright. If you want to loan money to a child, have the child agree to the terms of the loan BEFORE you hand over the money. Similarly, if you want to gift money to a child, think seriously about making equal gifts to all children OR having all children acknowledge that the gift IS a gift (not a loan).