Death and Taxes Blog

I was at a seminar today on ethical considerations in estate planning. One of the things I noticed was how often an ethical dilemma starts because the attorney doesn't know (or doesn't keep in mind) the identity of the client. Some examples:

1. Joint representation (husband and wife): In most cases, they are BOTH the client, even if one of them is your primary contact. And that should mean that there are no secrets here -- if John and Jane Adams come to see you for estate planning, and John pulls you away and tells you "secretly draft my Will to leave everything to my mistress," you have a duty to inform Jane (YOUR CLIENT) of John's comment.

2. Multiple-generation representation: Maybe you represent mom and dad, and one or more of their grown kids and their spouses. Just remember that they are ALL your clients, and you can't favor one set of them (usually mom and dad) over the others.

3. The third party: Son or daughter calls you. "I want you to do a Will for mom." Who's your client? NOT son or daughter. It's mom, and you don't do it unless it's what mom wants, and you can assure yourself that mom is competent and isn't being unduly influenced.

4. Same as above, but son or daughter are paying you. Who's your client? It's still mom -- it doesn't matter who's paying you.

I just finished reading Meryl Gordon's book Mrs. Astor Regrets, and highly recommend it. The story should be interesting to anyone who likes a lurid tale that's well-told, but it has special interest to those interested in estate planning and related fields.

Mrs. Astor is, of course, Brooke Astor, who passed away in 2007 at the age of 105. Mrs. Astor was born Roberta Brooke Russell, but married Vincent Astor of THE Astors (her third and final husband) in 1953. Interestingly enough, Vincent received his fortune as a result of a famous event: his father, John Jacob Astor IV, went down on the Titanic (he was even depicted in the movie). While Vincent's father's second wife survived, as did the son she was pregnant with, a premarital agreement left most of John Jacob Astor IV's estate to Vincent.

Vincent and Brooke were married less than six years, but Brooke inherited most of his property. Brooke then turned herself into a beloved philanthropist with lots of famous friends.

But how was Brooke as a mother to her only child, Anthony Marshall (born of her first marriage)? Not so good, according to the book. Anthony was kept at a distance, especially after he left his second wife for a woman named Charlene Gilbert, who was married to the priest of the church Brooke attended at her summer home in Maine.

Brooke carried on very well for a very long time, but began to decline somewhere around her 100th birthday. What happened then is all too common, in families rich and not-so-rich: a battle over access to Brooke, and to her money. Brooke had an estate plan favoring Anthony as well as certain charities; Brooke became close to one of her two grandsons, Philip. Then, all of a sudden, Brooke seemed to be cut off from her old friends, and she signed a series of new estate planning documents -- favoring Anthony much more than before.

Initially, the controversy surrounding Brooke and her son focused on whether he was caring for her properly. (You may remember allegations that Brooke was forced to sleep on a urine-stained couch.) Philip and Brooke's old friend Annette de la Renta (Oscar's wife) were successful in having Annette named as Brooke's guardian. That caused a rift between Anthony and his sons, and things then got worse as the focus turned to the estate planning documents, which seemed rather fishy. The issues here are as follows:

-did Brooke have capacity to execute the documents? (Anthony said she was competent, but had written a letter years before discussing her Alzheimer's Disease in depth.)

-did Anthony procure the documents via undue influence? (There were allegations that men in suits were "forcing" Brooke to sign certain documents, and it's unclear whether the documents were actually Brooke's idea.)

-did Anthony procure the documents via fraud? (There is evidence that Francis X. Morrissey Jr., a disgraced lawyer with ties to Anthony, forged Brooke's signature on one document.)

So, as you can see, lots of estate planning, probate, and guardianship-related issues to chew on. Even some involving professional responsibility (with respect to Francis's conduct, and the conduct of another attorney, Terry Christensen, who prepared a document for Brooke when he likely knew that she was incompetent). I previously blogged about some of this here and here.

Interestingly enough, although Brooke has been dead almost two years, the battle over her estate is just beginning. And the battle has now carried over into the criminal arena, as Anthony is currently on trial and charged with stealing from his mother. After that trial, a Will contest trial will begin over certain estate planning documents signed by Brooke.

I'm a regular reader of Lifehacker, even though about 80% of the posts there are way over my head (when I hear "linux," I think of a Peanuts fan with a speech impediment, not an open-source operating system or what have you).

Anyway, a recent Lifehacker post (here) is entitled "Know What to Ask Before Hiring a Financial Planner." It's actually from another site, called Get Rich Slowly. This got me thinking that a similar post about estate planners might be helpful. So here goes -- some questions you should ask:

1. What do you charge? You'll want to know HOW the attorney charges (hourly? fixed fee? other?), and HOW MUCH the attorney charges. Hopefully the attorney will put this in writing in an engagement letter, BEFORE you hire him or her -- that's what most of us do, for everyone's protection.

Note that fixed fee isn't necessarily better than hourly rate, but if your attorney DOES charge by the hour, you'll want to ask how he or she handles small time increments. You do NOT want to be charged .25 hours for a five-minute phone call.

2. How much of your practice is devoted to estate planning? Estate planning can be complicated, and it's something that requires ongoing effort, to keep abreast of changes and new ideas. When I see a Will or trust prepared by a general practitioner, or a document done by a bankruptcy lawyer as a "favor," it usually sucks.

3. Will you be drafting my documents? If you are paying the attorney's hourly rate for a period of time, then you should be getting the attorney's expertise for the entire period. Ditto with a fixed fee situation. Don't pay $300 per hour or its equivalent so that a paralegal can draft your documents.

4. What do you recommend, and why? One size does not fit all in estate planning. So your attorney should be able to tell you the advantages and disadvantages of any estate planning set-up (such as simple Will vs. pourover Will plus living trust). An attorney who tells you that "everyone" has a living trust, regardless of their asset level and personal situation, is a salesman, not an attorney.

5. What type of follow-up will you do? If you are creating a living trust, then that living trust needs to be funded (with ownership and beneficiary designation changes). Who's going to do that? If the attorney does it, what's the fee? If you are expected to do it, does the attorney tell you in writing exactly what you must do?

As a final note, I would suggest talking to at least two if not three different attorneys (and asking the above questions to all of them) before you hire one. You may also want to check at the Illinois Attorney Registration & Disciplinary Commission website to see if the attorney has had any disciplinary action taken against him or her.

The estate of Kathleen Savio, Drew Peterson's third wife, was re-opened last year. Estates are typically re-opened when new assets are found -- in this case, the new asset is a potential wrongful death judgment against Mr. Peterson. I've dealt with re-opened estates in other contexts, though. In one estate I handled early in my career, a deceased person's safe deposit box (containing stock certificates and rare coins) was discovered well after his probate estate was closed. The estate needs to be re-opened because that's the only way that anyone will have legal authority to deal with the assets (pursue a wrongful death action, sell the stocks or coins, etc.).

A somewhat similar situation arises when assets of a long-deceased person (one whose estate was never probated) are located. I have this situation with an estate right now. The decedent died in 1991, but her family only recently learned that significant assets were being held in her name as unclaimed property (by the Illinois Treasurer). To claim those assets, we need to open a probate estate.

So (picking up from Part 1) -- you've sent a final report and an accounting to the beneficiaries. Now what?

Well, you also need to get signed receipts from them. For beneficiaries who receive a specific item of property or set amount of money in the decedent's Will, a very simple receipt will suffice.

If a beneficiary is receiving a share of the estate, which is affected by attorney's fee and the personal representative's fee (if any), then the beneficiary needs to sign a receipt and consent to the payment of those fees.

In any event, receipts have to be returned BEFORE the distributions are made (or at the same time), for reasons I detail here.

In order to close the estate, the attorney will go to court with the original final report, and receipts for all beneficiaries. Once those documents have been presented to the court, the court will issue an order of discharge, releasing the personal representative from his or her duties. The estate is then considered officially closed.

I wanted to discuss, in a few parts, what happens when the administration of a probate estate is completed. How is a probate estate officially closed out?

Note that this analysis only applies if the estate is in what's called "independent administration," which most Illinois estates are. This means there is very little court supervision; basically, the court is happy if the beneficiaries are happy.

Where do we start? With information being provided to the beneficiaries. The personal representative should have been doing this all along, just to keep them happy (and should have been keeping good records of his or her actions). If that's the case, providing information will be a snap. The personal representative will give each beneficiary:

1. A final report, which is a document signed by the personal representative stating that all aspects of the probate are complete (all claims and taxes paid, all distributions made, etc. etc.); and

2. An accounting. This needn't be formal; or, rather, it should be as formal as the beneficiaries want it to be. An accountant or an attorney can prepare this, or the personal representative can do it on his or her own to save money.

In Part 2 (on Thursday), I'll explain what is needed from the beneficiaries.

I’ve said it before, I’ll say it again: I’m opposed to the estate tax, and think we should get rid of it. But – as I’ve also said before and will say again – I don’t understand why opponents of the estate tax have to engage in bald-faced lies in order to make their point.

Take today’s Wall Street Journal editorial, for instance. It reiterates two of the most popular lies perpetuated by anti-estate tax folks:

1. “We’ve long argued that the fairest [estate] tax rate is zero, because the money was already taxed when it was earned.” That is, um, a lie. A LOT of assets have never been subject to tax prior to death (for instance, retirement benefits in a 401(k) account, or unrealized appreciation). The Journal acknowledges this fact in the very next sentence: “Assets, such as stocks or property, in estates that have appreciated in value over time should be taxed at the capital gains rate of 15% in the year of the sale.” That’s some classic double-speak: all estate assets have already been taxed, but if they haven’t (wink wink), they should be taxed at a very low rate.

2. That the estate tax harms small businesses and farms, who are “looted” by the tax. Those people, quite frankly, do not exist. Opponents of the tax mention small businesses and farms all the time, but they are never able to produce a family that was forced to liquidate its farm or business because of the tax. Funny enough, these are the same people who pushed to add Section 6166 to the Internal Revenue Code (which allows small businesses or farms to pay estate tax over a number of years at a very low interest rate), and then complained that Section 6166 wasn’t being used. No duh. To make its argument here, the Journal depends on Senator Blanche Lincoln of Arkansas, who evidently spoke with great eloquence about the nefarious effect of the estate tax on the good people of Arkansas. His words carried much weight with the Journal, whose editorial board has presumably never actually been to Arkansas or met anyone from that state.

This IRS page includes filing figures for the estate tax. One of the spreadsheets sorts by state and shows, for the most recent year (2007), that a total of 82(!) Arkansas estates paid estate tax. The average federal estate tax paid was $81,343. So the tax paid totals $6,670,126 (82 x 81343). So that’s what Senator Lincoln and the Journal are arguing about, in this case. Less than $7 million paid by fewer than 100 people (and note that this figure comes from 2007, when the estate tax exemption was $2 million -– it’s now $3.5 million).