Wednesday, September 10, 2014

A New Estate Tax Proposal to Address Wealth Inequality

          Bernie Sanders, an independent senator from Vermont, has published a new opinion piece in the Huffington Post addressing the need for increased estate taxes for the wealthiest Americans. Sanders believes that new estate tax laws are needed to reduce income inequality in the United States, and he cites a number of statistics to support his cause, such as the fact that the top one percent owns about 37 percent of our nation’s total wealth, while the bottom 60 percent owns only 1.7 percent. In addition to wealth disparity, Sanders points out that income gains have unevenly benefited the already affluent, with 95 percent of all gains going to the top 1 percent since 2008.

Greater estate taxes on the rich, Sanders argues, would not only reduce wealth inequality, but lower the national debt and raise money for investments in infrastructure and education. His proposal includes a tax rate of 40 percent for estates worth over 3.5 million, 50 percent for estates worth more than $10 million and less than $50 million, and 55 percent for estates worth more than $50 million. Additionally, there would be a billionaire’s surtax of 10 percent, which would be applicable to the less than 500 American families whose combined wealth totals over $2 trillion. The first $3.5 million of an individual’s estate would be exempt from taxes, meaning that 99.7 percent of Americans would not have to pay an estate tax. 

Thursday, July 24, 2014

Access to Digital Assets After Death Is About to Get Easier

Digital assets can be a thorny issue for estate planning. Probate law has not kept up with technology, and often fails to resolve who is able to access digital assets such as email accounts. This digital conundrum may be on the verge of a solution.

The Uniform Law Commission recently approved a Uniform Fiduciary Access to Digital Assets Act. As the name implies, the act would allow fiduciaries such as estate executors and trustees to have access to digital assets belong to the persons they represent. The Uniform Act solves the problem of who can access digital assets by using the concept of "media neutrality."

Media neutrality works by analogizing digital assets to tangible ones. If a fiduciary would have access to a tangible asset, that fiduciary will also have access to a similar type of digital asset.

The Act has received a positive response from some corners, but other observers have concerns. For instance, Gerry Beyer at the Wills Trusts and Estates Prof Blog worries that media neutrality may override the deceased's wishes and make private information public.

The Act would make digital assets accessible to fiduciaries by default. But it would also allow account holders to affirmatively maintain their privacy. It defers to an account holder's privacy choices as expressed in a document (such as a will or trust), or online by an affirmative act separate from the general terms-of-service agreement.

Whether the Act would simplify estate planning in the digital age or create more headaches remains to be seen. Because the Act is only a model code, no one knows for sure how media neutrality will play out, and we won't find out until a state adopts the Act into law.

Tuesday, June 3, 2014

Florida Court Considers Whether Human Remains Are Estate Property

Juan Antúnez of the Florida Probate & Trust Litigation Blog reports on an odd case out of Florida. A father wants his deceased son's ashes declared property and divided between him and the deceased's mother along with the rest of the deceased's estate.

Twenty-three-year-old Scott Wilson died in 2010. His divorced parents agreed to cremate his remains, but have yet to agree on what to do with the ashes. Deadlocked in court, Wilson's father suggested a compromise to the court: split the ashes between him and Wilson's mother so that each could choose where to bury part of Wilson's remain. To make the compromise work, Wilson's father argued that the ashes were property includable in Wilson's estate and subject to partition between Wilson's father and mother.

The court rejected the property argument. The issue was one of first impression for the court, and the judge turned to English common law for an answer, quoting from Blackstone for the proposition that human remains are beyond the reach of property law. 

The facts of this particularly case may be odd, but disputes over the remains of a deceased family member are not uncommon. According to Antúnez, the real problem in the Wilson case is the lack of any "mechanism under Florida law for resolving the kind of burial dispute represented by this case." 

For an answer, Antúnez points to the article Uniform Acts-Can the Dead Hand Control the Dead Body? The Case for a Uniform Bodily Remains Law. This article "provides a detailed, well-researched and thoughtful proposed statute from beginning to end."

Uniform Acts-Can the Dead Hand Control the Dead Body? The Case for a Uniform Bodily Remains Law, written by Western New England University School of Law student Tracie Kester, won the 2006 William J. Pierce Award from the National Conference of Commissioners on Uniform State Laws.

Tuesday, May 20, 2014

Delaware Bill Seeks to Resolve Issue of Access to Digital Assets after Death

Delaware Public Media reports that the Delaware General Assembly is considering a new bill that would give estate executors access to the deceased's digital accounts. The bill, introduced by Rep. Darryl Scott (D-Dover), would require Internet companies to surrender control of a user's accounts to persons named in the user's will. The companies would have 30 days to grant access after receiving an executor's request, or they would face civil penalties.
The bill would prevent digital assets from being lost by Internet providers deactivating accounts after a user's death and against the user's wishes.

In response to privacy concerns, Rep. Scott emphasized that the proposed bill has built in safeguards. "People can designate assets that they don’t want to be included as part of their estate,” Scott said. So if you don't want people to read your email after you die, you can exclude the account from your estate.

If approved, the Delaware bill will be the first comprehensive law of its kind. Seven other states grant different levels of access.

Tuesday, May 6, 2014

Crowdfunders Pass on Estate-Planning Game

In April the ABA Journal reported on a lawyer seeking crowdfunding for an estate-planning game. The lawyer behind the game is Stephanie Kimbro, an estate-planning practitioner and pioneer in law practice technology. The game is Estate Quest, a mystery/time-travel adventure where players take on the role of a detective who investigates the cases of people who died without estate plans. By traveling into the decedents' past, players uncover clues about what should have been included in the missing estate plans.

Kimbro sought crowdfunding throught According to her blog, Virtual Law Practice, Kimbro went the crowdfunding route because she wanted to "make this a game that’s free for the public to play and learn about some basic estate planning concepts. I’m also doing this to learn about how the crowdfund process might be used for other legal services related projects."

What Kimbro may have learned about crowdfunding is that the crowd isn't interested in educational legal games. The funding period for Estate Quest ended on May 1, and the project received $2,110, well short of the $20,000 that Kimbro requested.

Tuesday, April 22, 2014

The State of Elder Law Scholarship: SSRN Articles

Here is a sampling of recent articles on elder law and related topics. All of these articles were posted on SSRN within the last month, so they represent the latest in elder law scholarship.

  • Memento Mori: Death and Wills by Karen J. Sneddon
    Death. The mere mention of the word sends shivers down the spine or provokes a nervous giggle. Modern reactions to death range from avoidance, as shown by the abundance of death euphemisms, to fascination, as shown by the number of movies and television shows centered on death, including Twilight's vampires and The Walking Dead's zombies. Estate planning is the legal environment in which a person confronts his or her mortality and participates in the formulation of his or her legacy. Contextualizing the experience as a memento mori experience promotes the function of the estate planning process, specifically the drafting of the Will. The Will is the document that nominates the representative of the testator and the guardians of the testator's minor children. The Will gives cherished mementos of a life lived. "Remember you must die" prompts reflection and contemplation.

  • Health Care Spending and Financial Security after the Affordable Care Act by Allison K. Hoffman
    Health insurance has fallen notoriously short of protecting Americans from financial insecurity caused by health care spending. The Patient Protection and Affordable Care Act (“ACA”) attempted to ameliorate this shortcoming by regulating health insurance. The ACA offers a new policy vision of how health insurance will (and perhaps should) serve to promote financial security in the face of health care spending. Yet, the ACA’s policy vision applies differently among insured, based on the type of insurance they have, resulting in inconsistent types and levels of financial protection among Americans.

    To examine this picture of inconsistent financial protection, this Article offers a taxonomy to describe ways in which health insurance regulation can promote financial security. It then uses this taxonomy to map the effect the ACA will have on the financial security of various insured populations. Specifically, it analyzes how much a person in poor health might spend out of pocket on health care in three scenarios: a person with average coverage through an individual-market health insurance exchange, a worker with employer-sponsored insurance, and a retiree with Medicare and a supplemental insurance plan. This analysis reveals two effects. First, the ACA alleviates financial risk from health care spending to some degree in all three scenarios. But, secondly, the ACA preserves (and may even exacerbate) variability in the degree and type of financial risk remaining across the three scenarios. In effect, the ACA asserts and affirms different visions of the role of health insurance in promoting financial security for different people. This inconsistency leaves some insured especially vulnerable to spending and creates complexity that may impede insured from comprehending these points of vulnerability.

  • Contemporary Trusts and Estates - An Experiential Approach by Jerome Borison, Naomi Cahn, Susan N. Gary, & Paula A. Monopoli
    In this essay in a special issue dedicated to teaching trusts and estates, the co-authors of Contemporary Trusts & Estates: An Experiential Approach (2d. ed. Aspen 2014) reflect on how the teaching of trusts and estates can integrate policy, practice, doctrine, and centuries of tradition. They describe the genesis of their problem-based casebook and the influence of the Carnegie Report on their choice of pedagogic framework. Each of the co-authors embraced the fundamental principles advocated by the Carnegie Report, which counsels that legal education should integrate "theoretical and practical legal knowledge and professional identity." This essay goes on to outline how the book incorporates a problem-based methodology as well as an innovative choice of ordering the chapters that tracks the chronological path of estate planning, addressing the lifetime use of trusts first, followed by issues of will validity and interpretation. Drafting exercises complement the problems as well as traditional cases that illuminate theory and practice. With chapters on planning for disability, the federal estate and gift tax, estate administration and charitable trusts as well as basic doctrine on intestacy, wills and trusts, the book reflects the contemporary challenges addressed by trusts and estates lawyers. The co-authors have found that the book’s innovative approach engages students in a way that makes the study of trusts and estates relevant and students practice-aware.

  • Viable Solutions to the Digital Estate Planning Dilemma by Jamie Patrick Hopkins & Ilya A. Lipin
    Countless people are dying without proper digital estate plans in place, leaving billions of dollars of assets unaccounted for in the digital world. This is occurring in part because individuals are often unaware that traditional estate planning tools and techniques, such as wills, are ill-equipped to handle the unique challenges of digital estate planning. As a result, the majority of Americans are vastly unprepared for their digital afterlife, unintentionally foregoing digital estate planning altogether and leaving their assets trapped in a digital purgatory.

    With the ongoing growth in our reliance on technology, interaction via social media, digitization of individual’s property, and further advancement of new Internet technologies, the amount and value of our digital assets are growing exponentially. In response to this immediate need for digital estate planning and management of digital assets, some businesses began to offer their users the ability to plan for the disposition of their digital assets upon their death. However, due to the novelty of this area of law, the business solutions currently afforded often leave more questions than answers about what happens to the individual’s digital assets, raise concerns about privacy and security, and augment disputes over their overall effectiveness in the estate plan. This Essay examines the importance and increasing prevalence of digital assets, discusses the challenges facing traditional estate planning in the growing world of digital assets, and suggests a workable strategy for the creation of a well-developed and manageable digital estate plan.

  • Who Said Learning Trusts & Estates Can't Be Fun? by Gerry W. Beyer
    From even before their first day of law school, Texas Tech University School of Law students have the opportunity to appreciate the importance of the estate planning area and to understand that it can be both an enjoyable and rewarding area of law in which to practice. During orientation, which takes place the week before classes start, new students participate in full-day programs centered on a particular area of practice either of their own choosing or assigned by the administration. For the 2013 entering class, I was in charge of two full-day Estate Planning Tracks with a total of approximately thirty-five entering students.

    As their legal education continues, students have additional exposure, some mandatory and some optional, to estate planning topics. In my first year required Property course, I spend several days reviewing the basic principles of intestate succession and wills. Texas Tech then requires all students to complete a four-credit introductory course entitled Wills and Trusts as a condition of graduation during their second or third year. Students desiring a more sophisticated treatment may take courses such as Estate Planning, Texas Estate Administration, Guardianship, Estate and Gift Tax, Elder Law, and Marital Property. Students may also compete for a coveted position as an editor for the Estate Planning and Community Property Law Journal that Texas Tech publishes.

    This Article reveals my basic teaching philosophy and the general pedagogical techniques I employ to make Trusts and Estates topics both fun and relevant. I will then share with you the specific tools I use when teaching the introductory course as well as the advanced courses such as Estate Planning and Texas Estate Administration. It is my hope that you may be able to gain insight from my approach to enhance your own teaching and the experience you provide to your students.

  • Older Persons and Compromised Decisional Capacity: The Role of Public Policy in Defining and Developing Core Professional Competencies by Marshall B. Kapp
    Issues frequently arise concerning the cognitive and emotional ability of older individuals to make certain legally significant decisions. In confronting these issues, the professional involvement of both attorneys and physicians (and other health care professionals), acting both individually and collaboratively, is desirable. This article describes the possible contributions of public policy in developing, through fostering innovations in medical and legal education, core competencies for physicians and attorneys that are essential to improving interprofessional collaboration on behalf of older individuals suspected of being compromised in their ability to make certain significant decisions. Additionally, ideas are suggested to address certain aspects of the current policy environment that may inhibit attorneys and physicians from optimal interprofessional interaction in this sphere.

Tuesday, April 8, 2014

Conundrum of Material Participation for Trusts Closer to Resolution

At the end of March, the tax court released a decision in Frank Aragona Trust v.Commissioner, 142 T.C. No. 9 (3/27/14). The long-awaited decision addresses the issue of whether a trust can materially participate in rental real estate activities so that the trust can avoid passive activity taxes.

Starting in 2013, the Affordable Care Act introduced a 3.8% Medicare Tax on certain investment income. The tax does not extend to non-passive trade or business income. Under § 469(c)(7) of the Internal Revenue Code, a taxpayer who material participates in business activities can classify the income from the activities as non-passive. So trusts can avoid the Medicare Tax if they can have their investment income classified as non-passive trade or business income.

Prior to Aragona Trust, the IRS maintained that a trust materially participates in business activities only if the trustee is directly involved in the operations of the trust's business activities on a regular, continuous and substantial basis. The trustee also has to be fiduciary of the trust, so the activities of special trustee whose role is limited to participating in the trust's business are not considered in determining if the trust material participates in the business. The IRS further maintained that if the trustee is also an employee of the underlying business, only activities performed by the trustee in his capacity as trustee count toward material participation, and not activities done as an employee.

In Aragona Trust, the trust attempted to have income from its rental real estate activities classified as non-passive business income. The Bloomberg BNA Estate Tax Blog summarizes that facts and arguments as follows:

In 1979, Frank Aragona formed a trust naming himself as the grantor and trustee and with his five children as beneficiaries. Frank Aragona passed away in 1981 and he was succeeded as trustee by six trustees. One of the trustees was an independent trustee and Frank Aragona's children comprised the other five trustees. Two of the five children had very little involvement with the trust or the business of the trust. Three of the five children worked full time for a limited liability company (LLC) that was wholly owned by the trust. This LLC managed most of the trust's rental real estate properties. It employed several people in addition to Frank Aragona's children including a controller, leasing agents, maintenance workers, and accounting clerks. In addition to receiving a trustee fee, the three children who were employed by the wholly-owned limited liability also received wages from the limited liability company.

During 2005 and 2006, the Frank Aragona Trust incurred substantial losses from its rental real estate properties. The trust also reported gains from its other (non-rental) real estate activities. In the Tax Court, the IRS argued that the trust's rental real estate activities were passive because a trust is incapable of materially participating in rental real estate activities. Alternatively, the IRS argued that even if a trust could materially participate in rental real estate activities, in the Aragona case, the court should disregard the activities of the three trustees who also work for trust's wholly-owned LLC because these trustees performed their activities as employees of the LLC and not in their duties as trustees. The trust contended that it could materially participate in its rental real estate activities, and that the activities of the three trustees who were also employed by the wholly-owned limited liability company should not be disregarded.

In its decision, the tax court held first that a trust is capable of materially participating in business activities through the activities of its trustees. The court then considered the Aragona Trust and found that on the facts of the case, the trustees' involvement in the business activities qualified as regular, continuous and substantial. The court held that the trustees' activities as employees of the LLC counted as the trust's participation because the trustees retained their duties as trustees of the trust while acting as employees of the LLC.

The holding of material participation in Aragona Trust is limited to the facts of the case, but the case provides some clarity on the issue and furnishes trustees with arguments to use in dealing with the IRS. As the Daily Tax Report puts it,

The case gives trustees, who have been suffering for decades from a lack of Internal Revenue Service guidance on material participation, another arrow in their quiver to say that a trust or estate can materially participate in a business—and that it isn't only the fiduciary acting solely in the fiduciary capacity that counts in making that determination.