Death and Taxes - The Blog

Guardianships, Control and Pressure

An interesting question was posted on the Illinois State Bar Association transactional law discussion grouplist yesterday.  The fact scenario was something like this:

Minor (let's call him Greg) has a guardianship in Cook County Probate Court.  The assets in Greg's guardianship estate are pretty substantial (let's say $1 million).  Greg, who may have some emotional problems, turns 18 next month -- this is the age when, under Illinois law, the assets in the guardianship estate must be released to the ward.  Greg's guardian doesn't believe Greg is mature enough to handle the money. 

Can anything be done to stop the assets from being released to Greg next month, when he turns 18? I think the short answer is "no," unless you can somehow make the argument that Greg is mentally disabled, and succeed in opening a guardianship estate for him.  Another possibility would be to encourage Greg to place his assets in a trust that restricts his own access to the funds.  Why would Greg want to do this?  The main reason is that the adults in Greg's life could make it worthwhile for Greg to do it, either by wielding a carrot (set up a trust and we'll buy you a car) or a stick (if you don't set up a trust, we'll cut you out of our Wills).  Is that fair?  Maybe not, but in my experience it happens fairly often.

Grieving "Peanuts" and Estate Planning

It's great to see big companies putting estate planning information on the internet.  However, Christopher Bahn from The Onion's AV Club Blog makes a pretty funny observation:

[H]ere's my all-time favorite official Peanuts tie-in: Charlie Brown and his friends are the corporate mascots of Metropolitan Life Insurance, and their images are festooned all over the company's website—which leads to this unintentionally bizarre and disquieting juxtaposition. Who do you suppose he's grieving for? Based on the available evidence, possibly Sally.

Do It Yourselfers, Probate, and Wills

I recently came across two interesting articles that talk about probate and Wills from the perspective of "do it yourselfers."

1. This post, from Deirdre R. Wheatley-Liss's You and Yours Blawg, talks about two cases where individuals took the Home Depot approach to estate planning, and prepared their own (faulty) Wills.

2. This Lynn Bremer column about a probate-obsessed do it yourselfer. 

To my mind, the thread that ties these articles together is efficiency (the efficiency of good estate planning, the inefficiency of bad or incomplete estate planning).  Efficiency requires some type of quantification, asking questions like:

-What, specifically, are the costs of probate?  The man is Ms. Bremer's column is spending a lot of time, and creating a lot of problems, to avoid a situation (probate) that may be neither expensive nor time-consuming.

-What, specifically, are the costs of doing an estate plan correctly when compared to the costs of fixing a defective estate plan tomorrow?  Perhaps where your money goes after your death isn't a concern of yours -- in that case, it's probably fine if you go the "as cheap as possible" route in planning your estate.  But if you do want to control your property upon death or take care of your spouse and/or descendants, wouldn't you at least check out the costs of hiring a good estate planning attorney, and compare those costs to what must be paid if you make a mess of things?

Beneficiary Designations

One ancillary benefit of estate planning is that it affords you and your attorney the chance to review the beneficiary designations on your 401(k) accounts, IRAs, insurance, and other beneficiary assets.  If you're establishing a trust, you may be changing these designations; even if you aren't, it's a good idea to make sure the designations accurately reflect your current wishes.  In my time reviewing beneficiary designations, I've seen the following designated as beneficiary:

-Client's ex-wife

-Client's ex-girlfriend

-Client's deceased mother

-One of Client's three children.  This was on a large life insurance policy, and the client's idea was that the beneficiary would take care of his two siblings with the proceeds.  That strikes me as a recipe for disaster, since the beneficiary has only a moral (as opposed to a legal) obligation to share the proceeds with the others.

Gifts, Trusts, and the "Generous" Parent

I met with a new client last week, one whose situation is all too common.  My client's mother is generous -- to a fault.  Mom has enough money to live comfortably, but she never says no to anyone, especially my client's siblings.  She is paying the mortgages for three of her children (all adults, all unemployed), and the children have become increasingly aggressive in asking for money and property.  Mom even deeded her house to one of the children, and then took out a home equity line of credit for the child!

My client wants to make sure Mom is taken care of, but he's not interested in a scenario where Mom receives an inheritance, and then gives all of it to his siblings.

I offered two pieces of advice to my client:

1. Consider leaving money to Mom in trust.  While she is not really a "spendthrift" as that word is usually defined, her situation is such that she may not benefit from any direct gift you make to her.  The trust should be entirely discretionary (income and principal to Mom for her health and support in reasonable comfort as determined by the trustee); upon Mom's death, the trust can pass to other beneficiaries.

2. Be careful about getting involved in Mom's affairs.  From the facts described above, it's clear that Mom has made a mess of things.  In addition to the fact that Mom transferred her home to her child and THEN took out a loan on it, I'm willing to bet that no gift tax return was ever filed, and that Mom didn't consider that her child can now kick her out of her home.  But this isn't my client's mess, and I believe he should only get involved if Mom asks for his help.  My client also should be circumspect about preventing Mom from making gifts to her children in the future.  The big black-and-white question -- are my client's siblings taking advantage of Mom? -- is a hard one to answer in real life, with its varying shades of gray.  If Mom is incapacitated, or is being bullied into making the gifts, that's one thing; but what if Mom just wants to give some assistance to her children?  My client may consider this unwise and misguided, but should allow Mom to make her own mistakes, like any other adult.

Year-End Gifting Made Easy

Next year the annual gift tax exclusion will increase from $11,000 to $12,000.  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 $11,000 to each child on December 31, 2005 and $12,000 to each child on January 1, 2006.  You have just given away $138,000 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 $138,000 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 $138,000 that you've given away without having to pay gift tax or even file a return.

Offer and Acceptance: Contract Law and Real Estate

At its heart, an agreement for the purchase and sale of real estate is just a contract.  As such, the agreement needs to conform to the requirements of a valid contract under state law.  A key aspect of a valid contract is the "meeting of the minds" -- the parties need to agree on the actual terms of the contract.  This is the law -- it's also common sense.

Let me present a (slightly altered) timeline for a transaction on which I'm currently working:

November 4: Buyers offer to purchase real estate for $210,000, with a $5,000 inspection credit (in other words, $205,000 net offer)

November 5: Sellers make a verbal counter-offer of $215,000 with $5,000 inspection credit ($210,000 net offer)

November 6: Buyers present a signed contract to Sellers offering $215,000 with $6,000 inspection credit ($209,000 net offer)

November 7: Sellers cross out the purchase price and inspection credit amount on the Buyers' contract, write in $216,000 with $5,000 inspection credit, and sign the contract ($211,000 net offer)

We now have a contract signed by both parties, but the contract isn't valid.  The Sellers have agreed to a $216,000 purchase price with a $5,000 inspection credit, but the Buyers haven't.  We're pretty close to an agreement ($209,000 net offer vs. $211,000 net offer), but we aren't there yet.

A separate issue arises when the parties have entered into a valid contract, one that includes an attorney review provision.  (This provision, which is very typical in residential real estate contracts, allows each party's attorney to propose modifications to the contract.)  Let's suppose that the buyer's attorney sends a letter to the seller's attorney, asking that certain provisions in the contract be modified.  The question then becomes whether or not this modification request constitutes a rejection of the original contract and a counter-offer.  As Helen W. Gunnarrson explains in this very insightful article from the Illinois Bar Journal, practitioners differ in their take on the effect of an attorney modification letter.  Some attorneys do indeed view the modification request as a rejection of the original contract and a counter-offer, while others simply think of the modification request as a proposal of some kind.

Real Estate Disclosures and Sales "As Is"

The recent Second District decision in Bauer v. Giannis has opened some eyes among Illinois real estate attorneys.  The facts are as follows (this synopsis comes from Steven B. Bashaw's "Real Estate Law Flash Points" for November 2005, available online here -- the Bauer case is point #4):

In executing the Residential Real Property Disclosure Act Report at the time of the contract with Bauer, the sellers misrepresented that they were not aware of flooding or recurring leakage problems and concealed the fact that the property had flooded the year before and sustained $425,000 damage due to flooding. The home was on the market at the time of the flooding, and taken off for repairs by a civil engineer, including constructing a berm and a comprehensive grading plant. When a contract was prepared between the parties, and after a number of inspections (at least six) by the Bauers (during which time the Bauers testified Giannis never advised them about the flooding or repairs, but Giannis testified otherwise), an "As Is" Rider was added to the contract by their attorneys.

The Court found that, because the sellers did not make the appropriate disclosure on the Residential Real Property Disclosure Act Report, the "As Is" rider was not a defense against a fraud action by the buyers. 

The moral of the story for sellers?  Disclose disclose disclose.

Pride, Prejudice and the Entail

I'm a huge Jane Austen fan (must be the English major in me), and took in the latest version of Pride and Prejudice (with Keira Knightley and, for some reason, an ampersand in the title) over the weekend. 

Perhaps I love the story for its mix of real estate and estate planning?  One of its main elements involves an "entail," which prevents Mr. Bennet from bequeathing his home to one of his five daughters.  Upon Mr. Bennet's death, the property will instead pass to a distant relative, Mr. Collins (who of course shows up and attempts to woo Elizabeth Bennet).  Luckily, Elizabeth and her sister Jane are able to find true love with men whose money can save their sisters and mother from destitution.

This page has a great introduction to the entail (and inheritance) issues in Pride and Prejudice.

Rosa Parks and Probate Litigation

If litigation erupts over the care of a disabled person, you can almost be certain that fighting will begin anew when the disabled person dies.  According to this article in today's Detroit Free Press, that scenario appears likely in the case of Rosa Parks.  The fight could pit Mrs. Parks' heirs against the two individuals chosen by her in 1998 to handle her affairs (who are now seeking to be named as the personal representatives for her estate). 

Near the end of Mrs. Parks' life, she was involved in litigation with the hip-hop group Outkast over their song entitled "Rosa Parks."  Because of questions regarding whether Mrs. Parks' interests were being represented in such litigation, former Detroit Mayor Dennis Archer was appointed as her guardian.