Death and Taxes - The Blog

Incentive Trusts

Sunday's New York Times had a nice article on incentive trusts.  The idea of an incentive trust is to make distributions from your trust to a beneficiary contingent upon the beneficiary doing (or not doing) something.  Incentive trusts can be based on things like:

-Educational accomplishments
    *the better your grades, the more money you get
    *you get money when you graduate from college or university

-Family accomplishments
    *you get money if you get married
    *you get money if you have a child

-Job accomplishments
    *you get money if you hold a full-time job
    *you get money equal to the salary you receive at your job

-"Substance Abuse" accomplishments
    *you get money only if you pass a drug test or complete drug rehab

The major knocks on incentive trusts are (1) they seem like a desperate way for a deceased person to seek control over his or her beneficiaries from beyond the grave and (2) inflexibility.  I think careful drafting can provide solutions to both of these problems.  When I've set up incentive trusts for clients in the past, I've tried to spend a lot of time determining my clients' real goals and walking them through various scenarios.  After doing so, most clients will decide to limit their use of incentives to provisions that represent their core values.  In other words, we can probably figure out a way to encourage your child to get a good education, but it may not be wise to require the child to attend your alma mater.

Claims and Limitations

Almost a year ago, I wrote a little about claims and their limitations.  Late last week, I had two situations where this issue arose again:

1. The State's Attorney filed a claim against the estate of one of my clients, on behalf of a hospital where my client was treated in 2001 and 2002.  My client died in 2003.

2. A potential client e-mailed me about the possibility of filing a statutory custodial claim in her mother's estate.  Her mother died in 2000.

Claims are barred in both of these situations because of §18-12(b) of the Illinois Probate Act.  This section bars almost all claims filed more than 2 years after a decedent's death, even if a probate estate was never opened for the decedent and even if notice of the decedent's death was never sent to the claimant. 

Cryonics and Personal Revival Trusts

On Monday I joked about "[l]eaving your entire estate to your reanimated corpse," but the link I provided was to a slate.com writeup of a rather serious article in last weekend's Wall Street Journal (which can be found here).  I found the article both fascinating and sad -- fascinating for the estate planning questions raised by it, and sad for the descriptions and accounts of people who want to cheat death and live forever (or at least for a very long time).

A quick recap: we're talking about the "cryonics" movement, whose members ("cryonauts") make arrangements to have their bodies (or heads) frozen in liquid nitrogen upon death, in the hopes that they will be "revived sometime in the future when medicine has advanced far beyond where it stands today."  (Fans of the TV show "Futurama" will be familiar with the concept.)

If (and what a BIG if!) we can get past the scientific problems, the question becomes, "what will the cryonauts do with the rest of their unfrozen lives?"  Not all of them can expect to hook up with a distant relative, befriend a one-eyed mutant and a drunken robot, and go to work as an interstellar delivery boy.  What good is living in the future if you are penniless?  Hence the idea for "personal revival trusts."  These long-term trusts allow you to leave money to yourself.  The key is that, through the miracle of compound interest, your small investment can grow to a large one, and you'll be able to live "high on the hog" when you awake in the future.  (The article cites one pitch promotional flier that says a $10,000 investment will be worth $8,677,163 in 100 years.)

Cryonics certainly raises some legal and ethical questions. Among them:

1. Florida estate planner Thomas Katz asks what would happen to the cryonaut's life insurance.  If a death benefit was paid on the policy at the cryonaut's original death, would the benefit need to be repaid when "the sleeper must awaken"?  To take this another step, if estate taxes are paid at the decedent's "death" and the decedent is later revived, is the decedent entitled to an estate tax refund?

2. What happens if a cryonics facility goes out of business or is destroyed by fire or other disaster?  (And please, no "heads will roll" jokes.)

3. On a more serious note, one of the reasons for the dreaded rule against perpetuities was to avoid leaving property in the control of "the dead hand."  While the rule has been repealed in many jurisdictions, do we really want to promote a situation where billions of dollars in assets are being held passively, all around the country, to care for frozen people in the event that they are dethawed?

4. The article mentions the difference between a cryonaut being revived, and a clone.  Do we need to start incorporating language into Wills or other estate planning documents, allowing our clients to opt in or out of cloning or cryonic revival?

John Hodgman on Negotiation

John Hodgman, a contributor to NPR's "This American Life," has written a book entitled The Areas of My Expertise.  Mr. Hodgman claims the book is the successor to works like Poor Richard's Almanack, but the big differences are that (1) nothing in the book appears to be true and (2) Mr. Hodgman's areas of expertise include werewolves, hoboes (including a list of 700 potential hobo names), and "History's Worst Men's Haircuts."  One of my favorite sections of the book includes Mr. Hodgman's "Five Secrets of Successful Negotiation" -- number 4 is a keeper:

A bestselling author on the subject of "negotiation" reminds: "Negotiation requires compromise.  Each party must gain something, and each must give something up.  Before you begin your negotiation, privately consider what you are willing to give away.  Now gather all of that material together and put it in a sack.  Hide the sack in a secure location, such as a cave that is laced with explosives that you can detonate by remote control.  Take the remote control in with you to the negotiation.  As any experience negotiator knows, in order to succeed, you must be willing to walk away from the deal at any moment, and then blow up the cave.  Note: The sack should be made of velvet."

The Bequests Quiz

Which is better?

A. Leaving your entire estate to the federal government, to help pay down the federal deficit? (here)

OR

B. Leaving your entire estate to your reanimated corpse? (here)

Is there a C choice?

ADR and George Washington's Will

I am 3/5ths of the way through classes for my mediation certificate, and am becoming excited about the possibility of applying what I've learned to the resolution of probate disputes.  On Friday I spoke with my professor about the use of ADR in probate, and she told me that George Washington's Will included an ADR provision.  I found the entire document online here -- the relevant provision (contained in the second-to-last paragraph) is as follows:

But having endeavoured to be plain, and explicit in all Devises--even at the expence of prolixity, perhaps of tautology, I hope, and trust, that no disputes will arise concerning them; but if, contrary to expectation, the case should be otherwise from the want of legal expression, or the usual technical terms, or because too much or too little has been said on any of the Devises to be consonant with law, My Will and direction expressly is, that all disputes (if unhappily any should arise) shall be decided by three impartial and intelligent men, known for their probity and good understanding; two to be chosen by the disputants--each having the choice of one--and the third by those two. Which three men thus chosen, shall, unfettered by Law, or legal constructions, declare their sense of the Testators intention; and such decision is, to all intents and purposes to be as binding on the Parties as if it had been given in the Supreme Court of the United States.

(Emphasis added.)

Chancery and Bleak House

I find probate and trust administration to be fascinating business, but it's rarely the subject of art and literature.  One major exception is Charles Dickens' Bleak House, which involves chancery proceedings in the interminable case of Jarndyce v. Jarndyce.  The case is described by one of the characters as follows in Chapter 8:

"it was about a Will when it was about anything....  A certain Jarndyce, in an evil hour, made a great fortune, and made a great Will.  In the question how the trusts under that Will are to be administered, the fortune left by the Will is squandered away."

Bleak House is also the subject of a new adaptation starting tomorrow night (and running through February 26) on "Masterpiece Theater" (check local listings).  The reviews are starting to come in, and they're very good -- Nancy deWolf Smith, writing in today's Wall Street Journal, called it "perhaps the most glorious Masterpiece Theater of all time."

I'm working my way through the book right now, and hope to have a review when I'm finished (which may not be very soon -- my edition runs 989 pages, not including notes).

Sullivan on Estate Planning for Same-Sex Couples

I previously wrote about the pitfalls of estate planning for same-sex couples here.  Andrew Sullivan sort of discusses the issue in this post.  I say "sort of" because the individual mentioned in the article (Sam Beaumont) failed to inherit his partner's property for two reasons:

1. Because the law did not recognize Mr. Beaumont as a spouse, he didn't acquire the typical spousal rights.  (In Illinois, this includes -- but is not limited to -- the right to be treated as an heir, and the right to elect to set aside an unfavorable Will and receive a percentage of the decedent's probate estate.) 

2. Because the Will didn't have enough valid witness signatures.

Only one of those reasons (#1) can be said to relate to discrimination against gays and lesbians (although not for the reason set forth in the article -- see below).  Reason #2 has been around for a long time -- it has nothing to do with sexuality, and everything to do with intelligent planning.  EVERY Will that is short one witness signature is going to be declared invalid.  This rule only discriminates against the incompetent.

By the way, the following statement is patently false:

Every state has common-law marriage rules that protect heterosexual couples. If someone dies without a will, or with a faulty one, his or her live-in partner is treated as the rightful inheritor.

For instance, Illinois doesn't recognize common-law marriage.  If you are part of an unmarried heterosexual couple in Illinois and one of you dies, you have no rights to inherit anything from your partner.  Mr. Beaumont and his partner weren't denied benefits afforded other unmarried (yet heterosexual) couples; rather, they were denied the opportunity to acquire the benefits afforded married, heterosexual couples.  That may seem like a small point, but I think it's an important one.

[added 1/21/06: I e-mailed Mr. Sullivan with a link to my post, and he was nice enough to send an e-mail back with his thoughts.   He said that he would agree with me "if every gay man and lesbian had access to great lawyers. but many - especially rural folk - don't. that's why marriage is so important. why should gay people have to fight so much harder to have their basic rights respected?" I understand his point, but I don't think it's really an issue of having access to a great lawyer.  Even the most incompetent attorney usually knows enough to make sure a signed Will has the correct number of signatures (and if he or she doesn't, the beneficiary can probably sue for malpractice).   In fact, even do-it-yourself Will kits (which I don't recommend) make sure to address this issue. So, while I agree with Mr. Sullivan that (a) gay people have to fight much harder to have their basic rights respected and (b) they shouldn't have to, I also think it's important to pick your battles.  This case was written up to elicit sympathy, and I simply don't think the facts (i.e. the decedent's mistakes) bear that out.  (Or, rather, I am sympathetic to Mr. Beaumont's situation, but think Mr. Beaumont's partner is just as much to blame for it as the government).]

The Return of J.G. Banks

I wrote about "legendary probate investor J.G. Banks" last year.  Evidently he's still at it, and by the looks of this article, his "system" isn't coming off so well.  (As a side note, I think the funniest thing about J.G. Banks is his use of the word "legendary."  For me, it evokes stories -- told around the campfire -- of men like Paul Bunyan and John Henry.  I'm not sure when or why it started to be used to describe guys who run casinos or advise you to invest in probate schemes.)

I'll be attending mediation classes for the rest of the week, but will resume regular posts next week.

Lessons from the Lillian Glasser Case

I am continuing to devote time and attention to blogging about the Lillian Glasser case, by reviewing court papers and speaking with friends of Mrs. Glasser.  On Friday, I reviewed the testimony of Joseph Purcell -- as I mentioned here, Mr. Purcell was the attorney who drafted the December 9, 2002 power of attorney by which Mrs. Glasser named her daughter (Suzanne Mathews) as her agent.

This testimony makes it clear to me that the the various elements of Mrs. Glasser's case combined to create a "perfect storm" of estate planning problems.  Those elements include:

1. Potential Incapacity.  It's pretty easy to tell if someone is entirely competent or entirely incompetent.  The tricky cases involve a client who may or may not have been incapacitated when an estate planning was executed.  Interestingly enough, Mr. Purcell was asked about the April 30, 2002 letter I referenced in the above post, in which Mrs. Glasser's doctor seems to indicate that Mrs. Glasser was incapacitated at that time.  Mr. Purcell indicates that this letter "would not have been important to me," and goes on to state that "I've been doing this work for 45 years.... What is important to me is my own observation of the person who is attempting to do whatever they're doing, and whether or not they're capable of understanding it."

I'm not sure that I totally agree with the above -- wouldn't having a letter like the April 30, 2002 one from a doctor make you wonder about your client's competence, and make you want to take some additional steps to confirm it? -- but I honestly don't know what the alternative is.  An older individual shouldn't have to prove that he or she is competent (by supplying test results or a doctor's note) in order to execute legal documents. 

2. Potential Undue Influence.  I will occasionally receive telephone calls from individuals asking me to meet with/talk with/prepare estate planning documents for a third party (usually a parent).  This is tricky business -- is the individual acting at the third party's request (for the sake of convenience only), or trying to engage in some funny business?  These situations can create uncertainty about who is being represented (put another way, "who is my client?").  This confusion manifests itself in two ways in the Glasser case:

    a. At one point Mr. Purcell states that his law firm has never represented Ms. Mathews (Mrs. Glasser's daughter) as a client.  However, Mr. Purcell is then confronted with a letter from his firm, written to the Surrogate of Middlesex County, New Jersey, stating that "[w]e are the attorneys for Suzanne Mathews, daughter of Benjamin P. (sic) Glasser, the above-named decedent," and requesting court documents on Ms. Mathews' behalf.

    b. Mr. Purcell states that the work he performed for Mrs. Glasser was done with her approval, and by her instruction only.  However, Mr. Purcell is also presented with a letter written to him by Ms. Mathews' husband (Gilbert Mathews), dated February 11, 2004, which relates to another power of attorney to be executed by Mrs. Glasser.  This power of attorney was to be in favor of David Lawrence, Mrs. Glasser's "nephew by marriage," and was to include a provision allowing Mr. Lawrence to prevent Mrs. Glasser's brother and nephew from "interfering" in Mrs. Glasser's affairs:

Dear Joseph,

Please see sugested revision to form you circulated yesterday.  As explained by Suzanne, she and I are comfortable with David having a general power of attorney.  We believe the specific authorization within should be incorporated as a part of the general power, and that [Mrs. Glasser] will have no problem with this.  In conversation with [Mrs. Glasser] last night, she was agreeable to [Mr. Lawrence] going to court to get a restraining order if [Mrs. Glasser's brother and nephew] don't back off after his intervention.  Please copy us with what document is forwarded to [Mrs. Glasser] for signature.  The time is of the essence.

Who has given their consent for the power of attorney pursuant to this letter?  Mrs. Glasser?  Mr. Mathews? Ms. Mathews?  All three of them?  I'm not sure.

I try to deal with these situations early in my engagement, before they become a problem.  For instance, in a situation where a child initiates a request for a parent's estate plan, or has been present at the initial meeting, I set ground rules: I meet alone with the parent to discuss substantive provisions, and I speak to the child about the representation only if I have my client's written authorization to do so.

Assisting an elderly client in executing estate planning documents can sometimes seem like more of an art than a science.  As the population ages, we're going to run into a lot more of these types of situations.  And I want to make it clear that I am not trying to turn myself into Mr. Purcell's judge, and say that he acted inappropriately. 

These are exceedingly hard questions.  It may be the case that Mr. Purcell felt Mrs. Glasser had the capacity to execute her documents.  It may also be the case that Mr. Purcell truly felt Mrs. Glasser was the real (and only) client, and that his interactions with Ms. Mathews and her husband were done at the request (and with the authorization) of Mrs. Glasser.  However, I also know that the appearance of impropriety can often lead to litigation down the road.  My goal as an estate planning attorney is to help my clients to effectuate their wishes.  I am fairly certain that Mrs. Glasser did not have "get myself involved in a contested guardianship case" as one of her estate planning goals.