Death and Taxes - The Blog

Cincinnati Bengals Probate Fight

What is it about founders of football teams and probate litigation?  The estate of Chicago Bears founder and owner George Halas gave rise to a huge probate case many years back, and now there's the case of Austin E. "Dutch" Knowlton, a founder of the Cincinnati Bengals.  This article has the details.  The case features...

[a]llegations of wrongdoing - including falsification of documents and forgery - ... from Austin E. "Dutch" Knowlton's adult children, who were left out of their father's will.

On one side are attorney Charles Lindberg, the Bengals and the family of Paul Brown, another Bengals founder.

On the other side are the children of Knowlton - a construction giant who also was one of the founders of the Bengals - and their prominent attorney, Stan Chesley.

At stake are 176 shares of the Cincinnati Bengals valued by experts at between $42 million and $350 million.

Commissions in a Slow Real Estate Market

I've been trying to figure out what bothers me about this Bob Bruss column, in which he suggests (to a person trying to sell his house in a buyer's market) "increasing the sales commission to 7 percent with 4 percent going to the buyer's agent who produces an acceptable buyer."

There's always a conflict of interest involved with real estate brokers, especially with respect to buyer's agents.  A buyer's agent gets paid if (and only if) his or her client buys, and the amount of the agent's commission is dependent upon the price of the real estate purchased.  What if the buyer's agent pressures the buyer into purchasing a house the buyer doesn't really want (or a particularly high-priced house), simply because of the commission the agent will receive?

A similar problem exists if you increase the commission going to the buyer's agent.  (Mr. Bruss even suggests more direct -- or, if you prefer, more vulgar -- ways of appealing to buyer's agents. These include "offering buyer's agents incentives such as the home seller's car, a Hawaiian vacation, and various other special incentives to get a property sold.")

Mr. Bruss wouldn't consider offering these types of incentives unless he felt that buyer's agents can successfully persuade their clients to purchase house A instead of house B.  But what if house A and house B are identical in all respects other than the commission to be received by the buyer's agent?  Or, what if house B is actually a much nicer house than house A, but offers a lower commission?

By increasing the buyer's agent's commission, what you are really doing is hoping that some buyer's agent will behave unethically in steering his or her clients your way.  Isn't this just a bribe by another name? Is the real estate market so slow that it's really come to that? 

Intestacy Calculator

Want to know who will inherit your Illinois probate property if you die without a Will?  Now the answer to this question is a click away, thanks to Kurt R. Nilson's calculator, which can be found here.  Professor Beyer's write-up of Mr. Nilson's project (here) also lists a number of other states for which calculators are available.

More on Wills and East of Eden

I've already blogged once about a Will-related aspect of John Steinbeck's East of Eden, but it turns out that the book is full of references to Wills and inheritance.  I guess that makes sense, given that one of the book's main themes is the extent to which our actions and personalities are inherited from our parents.

SPOILER ALERT!

At one point, a prostitute (unduly?) influences her boss to make her the sole beneficiary under the boss's Will, and then poisons the boss to death.  Later on in the book, this same character executes her own holographic Will (that is, a hand-written Will with no witnesses), leaving all of her property to one of the sons she previously abandoned.  This character's husband also faces a dilemma when he learns that he and his wife are each 1/2 beneficiaries under his brother's Will.  Does he inform his brother's lawyers that his wife is still alive, even if this means his wife's identity -- as the owner of a brothel -- is revealed?

Whether or not you are interested in Wills and inheritance, I highly recommend East of Eden.

Real Estate Attorney's Fees

I'm a member of a transactional law e-mail group that is a part of ISBA (the Illinois State Bar Association).   Every few months or so, there is a round-robin discussion of attorney's fees among the group's residential real estate attorneys.  The general point tends to be that real estate attorneys feel like it's difficult to make a living doing this type of work because of the constant price pressure, which stems from two things:

-the presence of real estate attorneys who offer to handle closings at rock-bottom prices (like $200).  Presumably these attorneys are using non-attorneys to do most of their work (preparing documents, clearing title, etc.); and

-the influence of realtors, who may tell their clients that they shouldn't pay more than a minimal amount for a real estate attorney.

Illinois attorney TJ Thurston offers his take on the issue here.  I mostly agree with Mr. Thurston's assessment, with two exceptions:

1. Mr. Thurston states the following:

I have nothing against paralegals and secretaries performing the clerical and non-legal tasks in a transaction (such as calling the county assessor to determine if there are outstanding taxes due on the property). I DO have a problem with attorneys that allow paralegals or secretaries to perform the unauthorized practice of law (UPL), which is both illegal and an ethical violation.

The problem is that attorneys alone are in charge of deciding what constitutes UPL, and attorneys have abused this power in the past.  Does a given type of work appear lucrative and challenging?  It's deemed "legal work."  Is a given type of work mind-numbingly boring?  Sounds like something a secretary can do.

There's legal ethics (as defined by the Illinois Rules of Professional Conduct) and there's real world ethics.  Having a non-attorney perform legal work may be a problem from a legal ethics perspective, but from a real world ethics perspective, the more important issues are (a) does the person I hire know how to do this job, (b) am I aware of this person's qualifications, and (c) is this person charging a fair price for this work.  There are plenty of non-lawyers who have the competence to handle the legal work involved in real estate transactions, and there are plenty of lawyers who are not competent to perform this work.

2. Mr. Thurston also suggests that there is an insurance element to hiring (and compensating well) a real estate attorney:

Sure, you may be saving some money [if you hire a low-cost attorney], but you are running the risk of serious mistakes; mistakes that might cost you thousands of dollars. If the transaction goes bad, what are you going to do?

That may be the case, but where are the figures to back it up?  How often does a real estate deal go bad?  Is the rate 1 in 2? 1 in 50? 1 in 100? 1 in 1,000?  My sense is that real estate attorney's fees are where they are because the market/public has assessed the risk of a deal gone bad, and found that it isn't significant.

On a personal note, my experience has been this: I liked doing real estate transactions, and thought I did a good job (I did all of my own work, and was constantly available to my clients by phone and e-mail).  My experience is that most realtors are overpaid and most attorneys are underpaid.  The market doesn't agree with my experience, and votes with its collective wallet.  I therefore found it difficult to make money as a real estate attorney, and as a result have pretty much stopped practicing in this area of law.

Heirship and Children Born Out of Wedlock

The Illinois Probate Act says that, if you die unmarried and without a Will, all of your probate assets pass to your descendants.  But what happens if you were never married?  How does a child born to unmarried parents prove heirship?

That's obviously pretty easy if the child is trying to inherit from his or her mother, since a birth certificate would show the relationship.  It gets trickier when the child is trying to inherit from his or her father.  Illinois law (§2-2 of the Probate Act) sets forth the applicable standards -- basically the rule is that a child born out of wedlock "is heir of his father and of any paternal ancestor and of any person  from whom his father might have inherited, if living" if...

1. the decedent has acknowledged paternity of the child OR

2. during his lifetime or after his death the decedent was adjudged to be the father of the child.

The standard of proof here is "clear and convincing evidence," except in cases where there was an adjudication of parentage during the decedent's lifetime -- in that case, all that's needed is an authenticated copy of that judgment.

An Introduction to Apportionment

Apportionment relates to how (or from which property) estate taxes are paid.  A person with a taxable estate may die with property in various forms -- in her own name (that's probate property), in trust (non-probate), with beneficiary designations (non-probate), etc.

The question then becomes, how do we figure out which assets are used to pay the tax? The answer to this question may have a great impact on what the beneficiaries receive.  If all taxes are paid only from probate property, then beneficiaries under my Will wind up paying my estate tax (and having their bequests reduced).  That's why the general rule in Illinois is for courts to apply the concept of "equitable apportionment," which permits taxes to be apportioned among probate AND non-probate assets.  That strikes me as fair.

That being said, a testator is free to override the concept of equitable apportionment in his or her estate planning documents.  For instance, a Will might say something like this:

All estate and succession taxes, including interest and penalties payable by reason of my death, shall be paid out of and be charged against the principal of my residuary estate, without reimbursement from any person.

That language clearly indicates that estate taxes are paid from probate assets (and from the residue of the probate estate) only. 

I see two problems raised by the above language:

1. Why would you want to do this?

2. What if the estate taxes exceed the value of the residue?

The recent case of Estate of Williams (from the 3rd District Court of Appeals) tries to address question #2.  In that case, the court found as follows:

... [W]here a testator directs through her will that all obligations be paid from the residue yet the will is silent as to the source of funds in the case that the residue is insufficient to cover such liabilities, equitable apportionment must be applied if it is later discovered that the residue is in fact insufficient.  In such a case, the testator has failed to clearly express her intent as to who should be responsible for the additional payments and the will is ambiguous on this issue.  The application of the doctrine of equitable apportionment is therefore proper.

Does one of the M's stand for mediation?

According to this note at imdb, Marshall Mathers (aka "Eminem") and his on-again, off-again wife Kimberly will have their divorce handled by a mediator in Macomb County, Michigan.  This nice article (from something called Selfhelp Magazine) gives 10 reasons why mediation in divorce might be a good idea.  Number 9 ("It's confidential") is probably of utmost importance to Mr. Mathers.

Caregiver Contracts and Statutory Custodial Claims

Professor Beyer talks here about a recent Wall Street Journal article that discusses "contracts between parents and children or other family members for care of an elderly or disabled parent or relative."

In Illinois, we have statutory custodial claims, which I discussed in two in-depth posts:

Post #1: An Introduction

Post #2: Problems

Statutory custodial claims can be useful in protecting a caregiver's rights, but they are an imperfect solution.  A contract between the caregiver/child and the parent, clearly spelling out how the relationship is going to work (especially in terms of remuneration), is the best solution.  Unfortunately, many people don't view elderly parent and caregiver/child scenarios as requiring any sort of formal documentation.

Steps to Take After Death

I've spoken in the past (here) about the importance of a "bye-bye" file.  If you have older people in your life (parents, friends, even a spouse), it's also a good idea if you have a list of what needs to be done when someone passes away.  The Wall Street Journal explains more in this nice article (registration required).

There may be some duplication on the lists, but at least nothing will slip through the cracks.