Posts Tagged estate planning
Should Elizabeth Edwards’ Heirs Sue for Malpractice?
Posted by Scott Martin in News on January 16, 2011
It’s clear that John Edwards can inherit from Elizabeth’s estate even though she wrote him out of her will. Lawyers say her estate planners may be culpable.
UPDATE: John is now facing a grand jury probe into whether up to $3.3 million of his campaign funds were funneled toward hiding his extramarital affair from Elizabeth and the rest of the country. Details here.
Controversy around Elizabeth Edwards’ deathbed estate directives has shifted from whether she deliberately disinherited estranged philandering husband John to whether the will was ever viable anyway.
Edwards, who practiced law herself for nearly two decades, clearly had something in mind when she signed a new will barely a week before her death December 10.
The new will ignores John Edwards, former senator from North Carolina, completely. Instead, it elegantly leaves Elizabeth’s personal property to her children and pours everything else into her revocable living trust.
But no matter what her will says, North Carolina probate law gives John the right to claim an “elective share” of up to 1/3 of the entire estate — the personal property valued at maybe $1.5 million and the assets in the trust.
Elizabeth’s lawyer would have known that they would’ve needed to jump through some serious hoops if they were serious about disinheriting John, says Chapel Hill estate attorney Gregory Herman-Giddens.
“It’s not easy to avoid the elective share by planning,” he explains.
So the question is why they let her even try, if that’s what the new will was supposed to accomplish.
Avoiding the elective share
In fact, if Elizabeth truly wanted to keep John from getting one cent, and if her estate planner failed to remind her that it was impossible, the beneficiaries in her trust may be able to sue to recapture anything John takes.
This is unlikely, but it’s worth thinking about as a cautionary tale to other estate planners living in states where the elective share principle applies to trust assets as well as property that passes through probate.
It’s nearly impossible to exclude a spouse from at least a bit of the probate estate without significant advance planning. Even Georgia, the strictest state when it comes to elective shares, would let John draw a one-year allowance from the roughly $1.5 million in personal property Elizabeth left behind.
But since Elizabeth’s final will included a pour-over provision to funnel unassigned assets to the Anania Edwards Trust, it’s likely that most of her wealth — as a career lawyer, businesswoman and best-selling writer — was already in trust when she died.
Because trust documents are confidential, we just don’t know what’s in the trust. But we do know that in North Carolina and most other unified probate code states, John could use his elective share to make himself a 1/3 beneficiary if he wanted to do so.
Had the Edwards family lived in a community property state or a non-UPC state, the trust would’ve been secure and only Elizabeth’s designated beneficiaries — probably adult daughter Catharine and the two minor children — would’ve gotten a share of its assets.
As a public figure worth at least $30 million in his own right, John is vanishingly unlikely to risk the stink of fighting his own kids for their dead mother’s money, but other estranged dads may not be so high-minded.
Malpractice unlikely (but possible)
In any event, there’s a slim case for estate planning malpractice if Catharine Edwards, who is both executor and trustee, feels that her mother’s wishes were not accurately reflected or respected.
Veteran estate planner Steve Oshins says that although malpractice is possible in this case, it’s not likely. The lawyer was doing the best he could under the circumstances.
“Clients always want what they can’t get, but sometimes they don’t get it,” he says. “In this case, the situation just didn’t work out as advertised.”
Suing the planner would be “a steep uphill battle,” according to Minneapolis lawyer Alex Bajwa.
“The planner could be liable if Elizabeth Edwards’ intention was to minimize the size of the elective share,” he explains.
But the burden of proof is high. “Out of the two people that actually know what Ms. Edwards’ intentions were, one is dead, and the other would not admit malpractice of this caliber,” Bajwa continues.
Chapel Hill attorney Gregory Herman-Giddens acknowledges that lawsuits of this type are still possible, although the expense of pursuing the suit may end up higher than the amount of money recovered.
Unfortunately, if Elizabeth had truly meant to bar John from the trust assets — and to be fair, he might be a beneficiary anyway — her lawyer probably would have needed to get him to sign a postnuptial agreement to that effect.
The timing would’ve been tight but possible. Elizabeth and John separated in January 2009 after he admitted he’d had a daughter with his mistress. During that time, as the aggrieved and cancer-fighting wife of a politician, she had plenty of leverage to get him to sign just about anything.
Planning for all outcomes
In any event, the Edwards case highlights how estate planning documents function to not only assign property but to adapt to unexpected scenarios, all the while serving as literal testaments to people’s sometimes complex wishes and regrets.
The will itself seems to have been an eleventh-hour move held in reserve in the event that Elizabeth’s breast cancer reached a terminal stage before her mandatory year of separation ended and she could file for divorce.
The document was originally drafted in October and the date was amended by hand. She signed on December 1. On December 6, the family announced that she had stopped treatment, and the day after, she was dead.
Had she lived a few months longer, she could’ve gotten her divorce, eliminating the elective share issue once and for all and possibly negating the need for the new will.
Once Elizabeth learned that might not happen, the October will may have come back out as a way to remind the world that she may be dying still legally married to John, but it definitely wasn’t by design.
“I think there is some evidence that she merely meant for the will to send a message,” Minnesota lawyer Bajwa says.
On that front, this estate plan seems to have been a success.
Scott Martin, contributing editor, The Trust Advisor Blog. Steve Maimes contributed to the research.
Permalink: http://thetrustadvisor.com/news/edwards
White House Reverses Course on End-of-Life Planning
Posted by Scott Martin in News on January 5, 2011
Mere days after authorizing payments to Medicare doctors who help seniors set up advance directives for future care, the Obama administration says it will once again revise the rules to eliminate the policy.
End-of-life planning has been a politically charged topic in Washington, with critics claiming that it may encourage attempts to convince seniors to refuse expensive life-saving procedures down the road.
However, as we reported here on Sunday, proponents of the move — including many members of the hospice care community — have praised the initiative as a way to get many Americans who would otherwise have ignored or evaded the need for advance medical directives to start thinking about these matters.
Bringing doctors into the estate planning conversation could be a very exciting thing.
Having a client’s physicians on the “team” theoretically gives financial planners a better sense of how much healthcare in life will end up costing that particular client, who can then adjust course as his or her medical situation changes.
While seniors are still perfectly free to bring up the topic with their physician, the fact that Medicare will once again no longer pay for it makes it less likely that doctors will open the conversation on their own.
In any event, the White House only notes that the rule should have been posted for comments along with the rest of the current Medicare compensation regulations back in July. Instead, it simply appeared in the final regs in late November.
The New York Times has more on the story.
Permalink: http://thetrustadvisor.com/news/obamacare2
Billionaire’s Heirs First to Win 2010 Estate Tax Jackpot
Posted by Scott Martin in News on April 10, 2010
Washington lawmakers’ estate tax hiatus has now potentially cost the IRS billions in lost tax collections. Experts say death of Texas billionaire Dan Duncan makes retroactive reinstatement of the death tax less likely because the stakes are now a lot higher.
Houston gas pipeline mogul Dan Duncan was the 74th richest person in the world when he died on March 28. If he’d passed away three months earlier or ten months later, his $9 billion estate could have generated up to $4 billion for the IRS. But because there’s no federal estate tax this year, the government gets nothing.
As the first billionaire to die in this year without an estate tax, Duncan presents a tempting opportunity for a revenue-strapped Congress to follow through on threats to reinstate the tax for 2010 and possibly even make it retroactive to the beginning of the year.
However, probate gurus say the sheer amount of money on the table makes a retroactive tax more unlikely. Big estates mean big lawyers ready to fight to see those billions of dollars go to the deceased’s heirs, and the headaches could go on for years.
“I never imagined it would get this far,” Joel Dobris, an estate planning professor at University of California-Davis, told me.
“The longer they wait, the stronger the ‘no retroactivity’ argument sounds,” he added. “Maybe they waited too long.”
The lack of clarity has already weighed on less monumental estates for months, says Don Ford, founder of Houston law firm Ford & Mathiason.
“We’ve had two clients fall into this already,” he told me. “They’ve died this year and would have had taxable estates under either last year’s rule or next year’s rule. But now we’ve just got to hang on and see what happens.”
Ticking Clock, High Stakes
Ford has heard that all the movers and shakers in Washington agree that the hole in the estate tax has got to be fixed, but nobody can agree on how to do it.
If nothing happens, the tax will reset in 2011 with an exemption of $1 million and a maximum rate of 50%. That would make a lot of upper-middle-class voters unhappy, Joel Dobris says, so the prospect of doing nothing isn’t popular in Congress.
Late last year, the House approved an eleventh-hour plan to keep the tax alive in 2010 under the 2009 rules, which impose a maximum 45% tax rate on estates worth over $3.5 million. But the bill went nowhere in the Senate, feeding speculation that when and if Congress reinstates the tax for this year, it would be on a retroactive basis to cover those who died after January 1.
Back in January, estate planner Phil Kavesh told me that whatever happens, making the tax retroactive would be a bit like Russian roulette: the longer the game goes on, the more dangerous it gets.
“Sooner or later, some billionaire will die this year, and then there’s a real incentive to argue that any kind of retroactive law is invalid,” he said.
Not a Big Revenue Source
Nobody in Congress really expected a billionaire of Dan Duncan’s caliber to die this year without significant estate protection already in place.
In fact, the Congressional Joint Committee on Taxation estimated last year that restoring the estate tax at 2009 levels would have only added about $468 million to the federal government’s 2010 revenue.
That kind of cash really wouldn’t have made much more than a symbolic difference in a $3.5 trillion operating budget. But symbolism matters a lot in Washington these days, UC-Davis professor Joel Dobris told me.
Duncan gave away hundreds of millions of dollars over his lifetime to local hospitals, schools, community groups, and other charitable organizations. Details of his estate plan aren’t available, but it’s likely he made huge additional bequests to be paid after his death.
If his advisors were up to the job, the bulk of his remaining wealth was probably held in trust, so it probably wouldn’t be subject to estate tax either way. (There’s no Texas estate tax, so that’s not an issue in this case.)
However, a significant slice—about $362 million, according to my math—of his fortune was locked up in a controlling stake of the energy partnerships he’d built or bought over the years.
The absence of federal estate tax this year frees his heirs from the need to liquidate that equity in order to pay the IRS. As a result, the Duncan family has already announced that it won’t be selling out soon.
Looking Ahead
For the rest of us, the clock is ticking and the spring and summer Congressional recesses are ahead. It’s theoretically possible that gridlock and inertia will leave the door open for more billionaires to leave tax-free estates this year, in which case Houston lawyer Don Ford worries that the retroactivity issue could come back in 2011.
“Does this get pushed back to next year when it becomes a real issue, and then they try to make the new exemption and rates retroactive?” he wonders. “That’s when it becomes a little unsettling.”
No matter what happens to the estate tax, Ford told me that his clients take comfort in the trusts and other estate planning instruments he’s put in place for them. “Uncertainty like this only demonstrates the value of what we do,” he told me
Scott Martin, contributing editor, The Trust Advisor Blog. Steven Maimes contributed to the research.
Permalink: http://thetrustadvisor.com/news/billionaire
Understand and Manage Digital Property
Posted by Steven Maimes in News, Practice Management on November 20, 2009
Who has rights to digital property after death or incapacitation? Why is it important to consider digital property in estate plans?
In our blog post from October, we discussed the importance of understanding and managing genetic property. Another current topic for estate planners and individuals is to understand and manage digital property.
Recently, a great deal of attention has been given to the digital life after death – especially gaining access to a deceased person’s email accounts. We have entered into an age where digital storage is replacing physical document storage. In the future, more important property will be created, revised, and stored digitally. And as more people move important components of their lives onto the computer (from photos to legal documents, medical records and beyond), it becomes necessary to devise a safe and secure method for a deceased or otherwise incapacitated person’s loved ones to access digital property. A recent article from The Wall Street Journal suggests everyone establish a separate plan to deal with online property issues when they die or become incapacitated.
What is Digital Property?
Digital property includes any digital material or data owned by an individual including text, photos, audio and video. It includes data stored on a personal computer or storage device as well as data stored on a remote server (such as email and data files).
When understanding digital property, it is important to distinguish if the property is personal, has a monetary value or belongs to someone else.
- Digital Personal Property. Includes digital documents and personal files. Examples are numerous and include: emails, photos, music, videos, medical records, vital documents, legal or financial papers, genealogy records, journals, etc.
- Digital Property with Monetary Value. Includes digital property that is owned and has monetary value like websites or blogs. It includes manuscripts, art, music, photographs, eBooks and digital intellectual property. It also includes online bank accounts, such as PayPal, and online accounts or services with credit balances. Website domain names are sometimes valuable – they are leased and, if not renewed, are lost. Social media accounts/profiles (such as Facebook, MySpace and iTunes) can be considered pseudo-intellectual property and may have monetary value.
- Digital Business Property. Includes digital property owned by a company. Digital business property can also include business lists of friends/followers on social media sites like Facebook.
Estate Planning Guidelines
Most estate planners and individuals are doing little or nothing to address the disposition of digital property. It is important to understand and manage digital property and consider adding it to one’s estate plan.
Many of us have various Internet accounts for email, data storage and social media. Examples include Yahoo!, Gmail, Hotmail, Facebook and MySpace. A list of some of the popular Internet service companies and how they handle death of an account holder is below in the reference section.
We also have requested that financial records and statements be sent to us electronically instead of by paper. We have scheduled automatic electronic bill payments for loans, utilities, insurance, website hosting, etc. This account information needs to be accounted for after death and may be necessary to pay bills and identify property.
Digital property needs to be clearly documented in a will or trust and these documents may be needed to identify and distribute property to beneficiaries. Otherwise, accessing their online accounts can be extremely problematic and may require a court order. Therefore, account logins and passwords need to be stored in a safe place or held by an attorney, family member or trusted friend.
If the online account owner becomes incapacitated someone can be named as an attorney-in-fact with financial power to access the accounts.
To help the family/beneficiaries after death, a trusted technology-savvy person may be the right person to “clean-up” multiple online accounts and computers – such as delete secret emails, trash appropriate files, clear computer caches, and create an inventory.
Wills. Be cautious when entering detailed account information into a will. When a will is admitted to probate court, it becomes public record and can be viewed by anyone desiring access. Be specific if you want certain people to have access or be denied access to your online digital property.
Trusts. A trust agreement may be a more desirable place to document account information because these documents are designed to avoid the probate process and do not become part of the public record. It is possible to create a specific “digital asset trust” to address digital property. The trust can be the owner of digital property and will survive death, thus allowing others to access the information.
Businesses. If digital property belongs to a business, passing it on to someone should be clearly spelled out in a business plan. For online accounts, it may be best to title the account in the business name.
Legal Considerations
Digital property, like any other property, is subject to state laws concerning succession and distribution. Caution should be taken when accessing online accounts that deal with financial property such as online banking, online brokerage accounts or PayPal. Even though someone may have access to a financial account, they may not be the beneficiary of the underlying financial property. Never assume that naming a beneficiary with a third party beneficiary service will allow a digital asset to pass out of the estate. Depending on state law, accessing an account without legal permission could constitute a criminal offense.
Internet accounts are governed by contracts between individuals and service providers. This is sometimes referred to as the “terms of service” and is the agreement in small print that we agree to when we open an online account. Digital rights associated with Internet accounts are not actual property; they are licenses and these licenses generally expire upon death. Service providers do not always uphold the “letter” of the agreement – but attorneys insist that the agreement exists. It is important to understand these conditions when storing valuable property.
What to do with Digital Property while living
Here is what individuals/clients can do now:
- List your digital property. Create a document and note if the property is personal or has monetary value. Other details can be included. For example account usernames and passwords, specific instruction about each account, and other details (such as whether certain documents or correspondence should be deleted). Update this list quarterly. (see graphic example below)
- Define your wishes. Choose who will have access to the property.
- Choose someone to execute your wishes. Provide access and control to that person including account usernames and passwords.
Reference Section
Popular Internet Service Companies. Here is a list of some of the popular Internet service companies and how they handle death of an account holder. Remember, policies vary from company to company and are constantly being revised. Usually email providers will give up the deceased’s password on receipt of a death certificate from the family.
- Yahoo! Next of kin is not allowed to access the email account of a deceased account owner unless the deceased account owner specifically stated otherwise in his or her will. Next of kin can ask for the account to be closed.
- Gmail / Google. Next of kin (or executor) can apply for access to a deceased user’s email account by proving their identity and providing the account owner’s death certificate with the additional requirement of providing proof of email correspondence between the next of kin and the account owner. Gmail does not delete the deceased user’s account, but allows the next of kin to choose to do so after gaining access to it.
- Hotmail / Microsoft. Next of kin can access the email account by proving their identity and providing the account owner’s death certificate. The next of kin should act quickly because an account inactive for 270 days will be deleted.
- Facebook. Facebook has a policy called memorialization that applies to the profiles of deceased users. Once the user’s death is confirmed, their profile is frozen in time and sensitive information removed. Only confirmed friends can see the profile or locate it in search.
- MySpace. Accounts are handled on a case-by-case basis.
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