Death and Taxes Blog

Is there a parent alive who WANTS his children to fight over his estate? I hope not.

But what can you do to avoid fighting? Well, one thing you can do is to disclose your plans, by handing out copies of your estate planning documents to your children. The problem with this approach is that you may wish to change your documents in the future. Also, some folks like to maintain a little privacy.

Another approach is a letter to your children, touching on "hot button" issues and telling how they should be resolved. The "hot button" issues may not include how your estate or trust is to be distributed (usually there will be an equal distribution anyway). Rather, it could touch on things like:

-how you want your executor or trustee to be compensated OR

-how your personal property should be divided.

These are things that can take up a lot of space in an estate planning document, but they seem perfectly appropriate issues to raise in a letter that starts, "here's how I feel about the following."

I wrote recently about the issue of "heir property" here. Next week I start my second business school class, Advanced Economic Analysis with Professor Kevin Murphy. This is supposed to be a VERY intense class, so during my month break between quarters, I've been reading all of the economics information I can get my hands on (which includes trying to educate myself about our current financial crisis). The book I'm currently reading is entitled The Gridlock Economy: How Too Much Ownership Wrecks Markets, Stops Innovation, and Costs Lives, by Michael Heller. Professor Heller is a law professor at Columbia (he actually taught at the University of Michigan Law School while I was there, although I never had a class with him). His book is about what he refers to as the "tragedy of the anti-commons," meaning the problems that arise (underuse, mostly) when property is owned by too many different people or entities.

I'm only about half-way through the book, most of which has focused on drugs, and the inability of researchers to move forward with new discoveries because such discoveries may involve many different patents. If just one of the patent holders holds out, the research can be derailed -- hence the gridlock of the title. On pages 121-5, Professor Heller actually brings up the issue of heir property, and how the gridlock as a result of multiple owners has caused farm ownership by black families to drop from about 1 million (in 1920) to 19,000 today.

It's always hard for a lawyer to figure out what to call him/herself. What type of lawyer am I? Well, I'm the type of lawyer who currently has 33 active client files, in the following areas:

Estate Administration/Probate/Trust Administration: 18 (plus 3 "inactive" client files), or 54.5%

Estate Planning: 10 (plus 6 "inactive" client files), or 30.3%

Estate Litigation: 4, or 12.1%

Guardianship: 1, or 3.0%

This is a pretty interesting Wall Street Journal article about the ramifications of the bailout and Great Depression 2.0 for individuals with trust accounts at affected institutions. I’m less interested in how trust assets are being or should be invested in this market (very carefully? no freaking duh) than I am in the issue of what happens if your corporate trustee folds, or is bought out.

Let me be candid – I don’t know why anyone would have an entity like Merrill Lynch as their corporate trustee in the first place. You may have a nice relationship with your broker, but your account is inevitably foisted off on someone else. In my experience, that "someone else" is going to be a recent college grad who doesn't know anything about anything regarding the administration of trusts.

One happy consequence of this financial turmoil might be a return to smaller banks, which – surprise surprise! – have people who know you and provide actual customer service. I can stand in line or go through the drive-thru to make a business deposit at Chase, and it takes me 20 frustrating, alienating minutes. Or I can go see my man Emil at Community Bank Oak Park River Forest, and make my deposit in 2 fast, friendly minutes. Do you really think it’s going to be any different if you use Chase as your corporate trustee?

On a similar note, I recently became aware (thanks to Todd Schneider) of this post by Juan C. Antunez from last year. The case involves a $1 million malpractice verdict against the firm of Gunster Yoakley. The court said:

The substance of these accusations was that Gunster Yoakley wrongfully procured J.P. Morgan's appointment as corporate fiduciary and caused the estate administration to be more expensive.

I discussed conflicts of interest and referrals here. It really is a tricky business. Let me give an example: I have a good relationship with a broker at Edward Jones. In fact, after being impressed with him and his company while working on matters for some mutual clients, I switched all of my investments to him. He's been my broker for about 10 years now. He refers me some business. What if a client comes to me and says, "Do you recommend a corporate trustee? And, if so, which one?" Can I recommend Edward Jones? What must I tell my client?

Here’s a problem that I’ve encountered a couple of times recently: people who intentionally misstate their family situation in their estate planning documents. In both cases, the testator did not list all of his or her children in the section of the Will usually entitled “My Family.” Note that this is different from disinheriting, although that appears to be the purpose behind the exclusion.

Let me give an example:

Testator has four children, Adrian, Betty, Caliope, and David. Testator’s Will says, “I have two children now living, Adrian and Caliope,” and leaves all of testator’s property to “my children who survive me.”

This language raises three problems:

1. Is it effective to disinherit Betty and David? If I represent either of them, I say that the language leaving the property to “my children who survive me” governs, since the testator obviously was incorrect in stating that he had two living children.

2. This language also gives Betty and David a better argument for contesting the Will. Would you say that someone who misstates the number of their children is competent?

3. In some cases, the disinherited children don’t wish to contest the Will. This is the case where the Will was trying to do something the testator wanted to do (cut out two children), but did it incompetently. (The best way to disinherit is to say it specifically.) The issue is that the probate attorney needs to be able to go into court and show the decedent’s family situation to the judge. Next month I will go to court and ask a judge to rule that a decedent had four children, despite the decedent having a Will that says he had only two children. That could create problems.

To expand on this last point, I’m starting to think that heirship should be set forth more explicitly in estate planning documents. Usually I do this roughly, with a section entitled “My Family,” listing spouse and living children. But maybe we should go one step further? I recently had a situation where a decedent died leaving hard-to-pin-down heirs. The decedent was unmarried, and had no children or living parents or siblings. It took quite a bit of time to track down her two heirs (cousins), because the beneficiary/sole heir didn’t really know about the decedent’s family situation. It would have been better to get the heirship information from the decedent during the estate planning process.

Chartjunk gives us some nice visual representations of the tax proposals of Senators McCain and Obama, here.

One of my most well-received posts was this one, on "year-end gifting made easy."

Evidently the Federal Taxes Weekly Alert has calculated that the gift tax annual exclusion will go from $12,000 (right now) to $13,000 in 2009. Based on this, it seems like time for an update:

Next year the annual gift tax exclusion will increase from $12,000 to $13,000. The gift tax exclusion is the amount that you can give to as many people as you wish, per year, without paying gift tax or even needing to file a gift tax return.

If you are in a situation where you'd like to make gifts, the end of the year (and the start of the next year) is a good time to do it. Three quick, easy scenarios:

1. You and your spouse have three grown children. (Each child is married and has one child of his or her own.) You and your spouse each give $12,000 to each child on December 31, 2008 and $13,000 to each child on January 1, 2009. You have just given away $150,000 without having to pay gift tax or even file a return.

2. Same facts as in 1., but you also make the same gifts to each child's spouse. That's another $150,000 that you've given away without having to pay gift tax or even file a return.

3. Same facts as in 2., but you also make the same gifts to your three grandchildren. That's another $150,000 that you've given away without having to pay gift tax or even file a return.

One of the things that I emphasize as an estate planner is "making things easy" for the people who will ultimately handle your estate, by getting yourself organized. That saves them a lot of aggravation, and will also save your estate a fair amount of money, as no one will need to pay an attorney $200+ per hour to figure out how many bank accounts you had, or whether you executed a Will.

Columnist Christopher Yugo espouses the same philosophy in this Q&A regarding stock certificates. As a probate attorney, stock certificates are a real nuisance (and it sounds like Mr. Yugo has had the same experience). The best approach is to set up a brokerage account, and let an investment professional take care of fulfilling all necessary transfer agent requirements.

One of my very long-range projects is creating a comprehensive, soup-to-nuts checklist for Illinois probate. This may be a stand-alone website with just my own content, or I may set it up as a wiki. Anyway, here is the rough outline of things I hope to cover, which can serve as a very rough checklist for Illinois probates:

1.0 Deal with funeral and related post-death matters (including anatomical gifts)

2.0 Find and file the Will, if any

3.0 Compile a list of the decedent’s assets and liabilities

4.0 Compile a list of the decedent’s heirs and (if there’s a Will) legatees

5.0 Determine who will be personal representative (executor or administrator)

6.0 Initiate a probate proceeding (if needed)

7.0 Deal with initial practical matters (forward mail, contact social security, etc.)

8.0 Collect property

9.0 Liquidate or otherwise manage property

10.0 Deal with claims, if any

11.0 Deal with litigation, if any

12.0 Pay taxes

13.0 Close the estate

My prediction is that, as more and more baby boomers become fiduciaries for their parents, we're going to get a lot more articles like the very good one by Helen W. Gunnarsson in last month's Illinois Bar Journal (available for members here).

Powers of attorney were created in response to a very real problem: if you are disabled, who can make decisions for you? The "old school" way to proceed was with a guardianship -- that's very expensive and very time-consuming. But there are also problems with powers of attorney, which give the agent acting under them a LOT of power. Also, there are a lot of gaps in the law, which the article mentions. For instance, we just don't know whether an agent under a health care power of attorney is eligible to receive compensation.

All of this creates a lot of uncertainty for individuals named as agents. The solution is to get your own representation, to negotiate the terms of the power of attorney and to explain the agen'ts duties, but that's rarely done. It seems to me that we are seeing an attempt to turn law into a commodity. "Why should I spend the money to do X?" when X is, in this case, the legal equivalent of preventive medicine. Of course, when things go wrong, costs and aggravation can skyrocket, and THEN people want to (or have to) bring in the lawyers.

I remember very little about my law school jurisdiction class (other than the fact that my professor, who looked like a Teutonic version of Queen lead singer Freddy Mercury, wore the world's tightest jeans).

But jurisdictional questions do arise in the probate context. Often these issues have to be resolved by the court sua sponte (on its own, without motion from either party), since a party may not even have standing to present an argument. In re. Estate of Hoch v. Hoch (a 4th district Appellate Court case, available as a PDF here) is such a case, in which an Illinois court dismissed an Illinois probate (vacating its own order admitting the decedent's Will to probate) because a probate had already been initiated in Louisiana.

I spoke about frustrations with the termination of independent administration here. A few follow-up points:

1. In the statute, a distinction is made between Wills that direct independent administration, and those that don't. If the Will directs independent administration, then supervised administration will only be allowed "if the court finds there is good cause." Otherwise, the court will switch to supervised with no argument. But note that the Will must use the magic language directing indepedent administration; it's not enough for the Will to say that the executor has X powers, which may be exercised without court order.

2. Cook County has provided the following language for orders terminating independent administration:

On the petition of [petitioner] for termination of independent administration:

IT IS ORDERED THAT:

1. Independent administration of the decedent's estate is terminated.

2. [Executor/administrator's name] shall continue to act as [executor/administrator] in supervised administration, and letters of office issued subsequent to this date shall issue to the representative as supervised [executor/administrator].

3. The clerk of the court shall mail a copy of this order to the representative and the representative's attorney.

4. The representative shall mail notice of the termination of independent administration to all interested persons whose names and post office addresses are known to the representative, and file proof of mailing with the clerk of court. (Here is Cook County's form notice.)

5. The representative shall file an inventory within 60 days.

The August 2008 edition of the Illinois Bar Journal features a discussion about reasonable compensation under a power of attorney -- here is the table of contents (I think you need to be a member to read the article). My previous post about the issue (here) is mentioned in the article.

Here's an interesting one: Linda Damm was killed by her daughter's boyfriend, Bryan Grove. Her daughter, Tess, was 15 when she evidently helped to "plan and facilitate" her mother's murder. The question is whether Colorado's so-called "slayer statute" applies to prevent Tess Damm (a minor) from inheriting from her mother's estate. This article details the situation. One lawyer calls the argument "interesting" -- the parties are currently going into mediation.

The Illinois statute (Section 2-6 of the Illinois Probate Act) reads in relevant part as follows:

Person causing death. A person who intentionally and unjustifiably causes the death of another shall not receive any property, benefit, or other interest by reason of the death, whether as heir, legatee, beneficiary, joint tenant, survivor, appointee or in any other capacity and whether the property, benefit, or other interest passes pursuant to any form of title registration, testamentary or nontestamentary instrument, intestacy, renunciation, or any other circumstance. The property, benefit, or other interest shall pass as if the person causing the death died before the decedent, provided that with respect to joint tenancy property the interest possessed prior to the death by the person causing the death shall not be diminished by the application of this Section. A determination under this Section may be made by any court of competent jurisdiction separate and apart from any criminal proceeding arising from the death, provided that no such civil proceeding shall proceed to trial nor shall the person be required to submit to discovery in such civil proceeding until such time as any criminal proceeding has been finally determined by the trial court or, in the event no criminal charge has been brought, prior to one year after the date of death. A person convicted of first degree murder or second degree murder of the decedent is conclusively presumed to have caused the death intentionally and unjustifiably for purposes of this Section.

As you can see, Illinois also talks about "person," just as Colorado does. Is someone under the age of 18 a "person" for purposes of the statute? I would think so, although the Probate Act doesn't define the term. Interestingly enough, there is a provision in the part of the Probate Act that applies to guardianship and disabled adults -- Section 11a-2 -- that talks about a "disabled person" as a "person 18 years old or older who...."

Here's a double dose of crazy for your reading pleasure:

1. Probate and Switch, by Lou Ann Anderson. My favorite part: "Attorney misconduct is rarely punished so our country is full of attorneys who will bend or break rules. These 'bottom feeders' are the vanguard flag carriers emblematic of why the general public has such disdain for the legal profession."

2. Illiinois [sic] Guardianship Law Similar to Slavery-Law Should Be Stricken as Vague, Prohibiting too Much Speech and Too Discriminatory, by James Timothy Struck. Looking for the link between slavery, Nazi Germany, and guardianship? Here it is!!!

I've published a legal guide over at www.avvo.com on "How to File a Will in Cook County." It's available here.