Death and Taxes - The Blog

Cloudy with a Chance of Light Blogging

Blogging is probably going to be fairly light for the next couple of weeks, first because of the Memorial Day holiday and then because of some (hopefully) minor surgery.  I hope to be up and posting again on June 6.

Follow-up #2: Disinheritance

I've discussed disinheritance techniques in the past, most recently here.  Professor Beyer has a link (here) to a recent Wall Street Journal article on how to disinherit "neatly."  One of the suggestions of the article's author is to record the ceremony at which the Will is executed.  The problem with doing so is that, if recording the ceremony isn't part of the attorney's usual practice, then it can raise serious questions after the testator's death.  (Such as, "If John Smith was competent, then why did you film the execution of his Will?  Was it because you had questions about his competence?")

There's also a danger if you use low-quality video, which can make even healthy-looking people look sickly and frail.

Follow-up #1: Gifting a Home

Last week I shared a true story about a tax-related cost of gifting your residence.  The author of one of my favorite law blogs, Deirdre R. Wheatley-Liss, also posted on this topic recently, and fleshed out why gifting can be such a bad idea.  Her post is here.

Coretta Scott King and Lost Wills

According to this article, Coretta Scott King's Will has been filed with the Fulton County Probate Court.  I assume that a probate will soon be opened for Mrs. King's estate.

One thing in particular caught my eye in the above article:

King amended her will twice — on Dec. 20, 1978, and Aug. 29, 1984. The second amendment, which named [her daughter] Yolanda executor and trustee, has been lost, according to an affidavit signed April 26 by attorney Tyrone Bridges. A photocopy was filed with the court.

Wills and codicils sometimes get lost -- that's just the nature of life.  And, while the loss of a Will always provides some headaches, it doesn't mean that the Will (or in this case, codicil) can't be admitted to probate as valid.  Illinois law specifically talks about presenting evidence to prove that a Will is valid -- that evidence usually comes in the form of affidavits from (or depositions of) witnesses to the Will's signing.  Of course, you also have to present evidence that the person who created the Will didn't destroy it.  Presumably Mr. Bridges' affidavit addresses this point. 

"Big Love" and Guardianship

Choosing a guardian for minor children is often the most difficult decision faced in making a Will.  Now imagine if that decision involved one husband and three wives!  That was the situation on last night's episode of "Big Love", the HBO series about polygamists. 

Actually, the Will/guardianship storyline began last week, when Barb Henrickson (wife #1) decided that her sister -- who disapproves of Barb's lifestyle -- should no longer be named as guardian of Barb's three children.  This caused all three wives to consider updating their Wills, but with some twists:

Nicki (wife #2) was raised in a commune of polygamists, and doesn't want Barb to be named as guardian of her sons, since she doesn't know if Barb would raise them to "live the principle" of plural marriage. As a result, Nicki wants her father (Roman Grant, AKA the "Prophet," played by the always scary Harry Dean Stanton) and mother to raise her children. 

Margene (wife #3) has told Nicki that she will name her as guardian of Margene's children, but decides that she instead wants to choose Barb for the job (Nicki isn't exactly a warm person -- or a good mom).  When Margene goes to the family attorney to sign her new Will, she is given a copy of Nicki's Will by mistake, and learns Nicki's plan to name her parents as guardians.

Barb was planning to change her Will to name Nicki as guardian, but is now afraid that, if she predeceases Nicki, then Barb's three children will also have to go live with Nicki's parents.

The above situation, while exaggerated, actually raises some important points even for non-polygamists:

1. Think carefully about potential guardians, and about whether they truly share your values. 

2. Don't be afraid to change your mind about guardians as the situation dictates.

3. Be honest with the people you've selected as guardians (and, if it's not too uncomfortable, with those you haven't).

Finally, a piece of practical advice: if you are a polygamist, don't keep all of your wives' Wills in a folder on your desk -- a snoopy employee might find them!

FutureShop and the Sale of Estate Property

I recently read a fairly interesting book entitled FutureShop, by Daniel Nissanoff.  The full title really tells the whole story: FutureShop: How the New Auction Culture Will Revolutionize the Way We Buy, Sell, and Get the Things We Really Want.  The book isn't particularly well-written -- it sometimes seems like an advertisement for Mr. Nissanoff's business interests -- but it does present some thought-provoking ideas that could be applied to the estate and probate context.  In particular, Mr. Nissanoff talks about the inefficiencies of garage sales and classified ads for selling the stuff you don't want.  Of course, when someone dies, there tends to be a lot of this type of stuff.  Most of it winds up in a number of different places:

1. In the home of a relative or friend who may or may not want it (or realize its true value).

2. Sold for pennies on the dollar in a garage or estate sale.

3. Given away to charity.

The problem with garage sales, estate sales, classified ads, etc. is that they often don't attract the interested, informed buyer who would pay top dollar for a given item.  That's where the internet comes in.  We've already seen the rise of businesses that will "sell your stuff on eBay" -- there's tremendous power in a vehicle that brings interested buyers to your door. 

I think we're now going to start seeing these businesses cater to estates, with services such as:

-clean out of the decedent's home
-inventory, appraisal, and storage of the decedent's property
-sale of such property on eBay or a similar type of website

I think these businesses could unlock a lot of value for estates and their beneficiaries, and generate nice returns for their owners.

Old-Fashioned Probate Litigation

As long as people have been dying, people have been fighting over inheritances.  This article in the Palladium-Item, a newspaper "serving the Greater Richmond, IN area," reminds  us of this fact.  As the article explains:

Former President Benjamin Harrison came to Richmond as a lawyer in the socially scandalous "Morrisson Will Case." It started on Jan. 2, 1895, and ended on May 17, making it the longest jury trial in the United States at the time.

The heirs of Richmond banker James L. Morrisson squabbled over his sizable estate of $626,840.

It seems like some things never change -- the lawyers wound up the big winners, and the parties eventually settled:

With the threat of legal action repeating and no end in legal sight, capitulation followed and both sides came to terms.

On May 17, a compromise was reached and the fortune was divided amicably between the two children of Morrisson's late son, and his daughter and her grandchildren.

The trial was estimated to cost between $75,000 and $100,000, a huge chunk of lost will revenue.

Harrison made $19,000 in the melee....

According to this site, $19,000 in 1895 is the equivalent of about $425,000 in 2004 dollars if we use the Consumer Price Index to make comparisons.  Mr. Morrison's estate ($626,840 in 1895) would be worth about $14 million in 2004.

A New (Not Recommended) Alternative To POAs

The title of the article (courtesy of Sploid) says it all:

"Granny Gets DNR tattoo on her chest"

I agree with Bob Cowie, chairman of the Iowa Bar Association's probate and trust law section, who is quoted as saying that "[t]here are easier ways to do it than that," such as signing a living will or authorizing a medical power of attorney.

And You Thought Your Family Was Crazy

Disputes over estate matters can get very ugly.  Need evidence?  Consider this article from law.com, where we learn the following:

A Manhattan judge has dismissed a New York attorney's lawsuit against his aunt and uncle [S. Robert Davidoff and Ila Davidoff-Feld], in which he alleged the Florida couple defaced his Web site by replacing all of his postings with a photograph of the lawyer labeled "Pig of the Year," in which he leans back in a chair and appears to say, "I'm going to eat everything in site."
...

The Davidoff family dispute began with a watch, according to plaintiff Jonathan Davidoff, the principal of the three-attorney Davidoff Law Firm.

Following the death of his grandfather (defendant Robert's father), Jonathan initiated an action in Arizona that resulted in a Maricopa County court holding Robert in contempt and requiring him to return a Rolex to Jonathan's grandfather's estate and to pay Jonathan's travel expenses.

Hopefully I can stay in the good graces of my aunts and uncles and avoid this type of thing.

Another Reason Not To Gift Residence

There are a lot of reasons NOT to give away your residence during your lifetime.  Many of those reasons have to do with relationship issues -- if you give your house to your son and then have a fight with him, will he kick you out? -- but tax concerns also play a part.  Here's a situation involving an acquaintance of mine -- the names and some details have been changed, but the main facts are accurate:

Joe Smith buys a house on the north side of Chicago in 1950 for $45,000.  In 2000, Mr. Smith makes a gift of the house to his only child, Marge, who lives there with (and cares for) him.  In 2005, Mr. Smith dies -- the house is appraised at $1.3 million. 

If Mr. Smith had owned the house at his death, Marge would have inherited it with a ("stepped-up") basis equal to the house's value at his death.  Marge then could have sold the house and paid no capital gains.  However, when Mr. Smith gifted the house to Marge, Marge assumed Mr. Smith's basis in the house -- let's say that's $45,000 (although improvements to the house may have increased that number a bit).  If Marge now wants to sell the house, she'll have a gain of around $1.2 million.  Some ($250,000) of that gain is excluded from taxation, but Marge will still have to pay tax on almost $1 million of gain.

One final point: gifting the house might have made more sense (at least from a tax perspective) if Mr. Smith had a bigger estate, since the estate tax rates are higher than the capital gains rates.  Excluding $1.3 million from your estate may be a good idea.  However, Mr. Smith had very few assets other than the house -- about $100,000 -- so his estate wasn't subject to estate tax at all.