Posts Tagged Jonathan Blattmachr
Debate over whether Nevada’s top judges validated the state’s dynasty trusts may seem esoteric but the stakes for planners and jurisdictions jockeying for priority on the high-net-worth map are extremely high.
A few weeks ago, noted Las Vegas estate attorney Steve Oshins was crowing that simmering questions surrounding Nevada’s perpetuities statute had been settled.
He’s completely convinced he’s still in the right. But his counterparts in other states aren’t about to let him win the point without exhausting every logical weapon they have.
And with two of the biggest players on the national stage – Oshins and the Blattmachr family of Alaska – openly trading shots across the bow, it looks like what was once a dormant controversy is now blazing hotter than ever.
Fine points add up to $100 billion in play
The distance between the warring factions adds up to whether a seemingly tangential comment from the Nevada Supreme Court represents an explicit endorsement of the state’s dynasty trust statutes or simply a point of information.
Oshins insists that by even mentioning the statutory 365-year trust period, the judges were probably sending a message to out-of-state critics who questioned whether the rule would hold up to a state constitutional ban on perpetuities.
The timing, as he says, is auspicious. And the ruling goes out of its way to point out “over and over and over” that the state legislature is free to interpret and modify the state constitution as it sees fit.
The Blattmachrs have fired back that any veiled contextual statement here would be at best tricky to interpret, much less apply in a constitutional challenge.
Jonathan Blattmachr, a key architect of Alaska’s trust code, questions whether his “friend Steve Oshins” might be leaping to conclusions, while nephew Matt points out that “the decision does not even appear related to trusts” in an upcoming article on the estate planning ramifications.
“Despite the contention by some that the recent decision . . . eliminates any question concerning the invalidity of the Nevada statute permitting trusts to last for 365 years,” Matt writes, “a careful review of this well written decision does not, in fact, seem to do so.”
These are fighting words in the elite estate planning world. With an estimated $100 billion in cross-state trust assets in the balance, there’s good reason for both sides to read so deeply between the lines.
Nevada guards its position as one of the most attractive trust jurisdictions in the country extremely jealously. Its closest rivals – Delaware, Alaska, South Dakota – are constantly looking for an opening to take the upper hand.
If the state constitution technically overrules more recent statutes that let non-charitable trusts run longer than 90 years, then its prestige fades in the eyes of ultra-high-net-worth families looking for the best place for their money.
Once again, the distinctions may appear narrow, but every infinitesimal edge makes a difference as people with enough money to last for more than a few generations weigh the decision of where to park immense sums for centuries.
And with that much money on the table, the fine shadings of risk cast a huge shadow. If a trust created in one state has a lower chance of surviving a challenge from creditors, rival heirs or the IRS, the family’s advisors will note it and move on.
That’s why the knives are out. Oshins says the latest decision confirms that Nevada dynasty trusts would survive a constitutional challenge. The Blattmachrs say the hypothetical outcome remains in doubt.
So who’s right?
I’m not going to pick sides and none of the third-party bystanders I talked to were especially eager to do it either.
Bob Moshman, a New Jersey attorney and publisher of the Estate Analyst, threads the diplomatic needle.
“Nevada’s Supreme Court doesn’t specifically rule on the 365-year limit,” he points out in apparent accord with the Blattmachr position. “Yet the court goes well out of its way to pay respect to the state legislature as the source of public policy and even states the 365-year limit as the law of the land.”
As Moshman points out, the recent outbreak of controversy here derives from an article the Vanderbilt Law Review published last summer from Harvard professor Robert Sitkoff and Chicago lawyer Steven Horowitz.
The article questions the idea that any statute in jurisdictions like Nevada – as well as Wyoming, Tennessee, North Carolina and Arizona – explicitly overrides what’s written in each state’s constitution.
Moshman calls it “a brilliant 54-page speculation,” but warns that any court that starts to overturn rules that have been on the books for years if not decades starts to look like a “constitutional bogeyman” – especially when there are pragmatic considerations to consider.
“Is this court that just paid homage to the legislature going to kill the state’s dynasty trust business?” he asks. “No. You have a better chance of seeing a Nevada Jackalope.”
However the wind blows, rich families are still going to park their money in the states that offer the surest situation and best overall protection in the here and now.
Whatever happens, they’re not going to settle for the paltry 90 years that the default trust code provides. They’re going to demand that their trusts be set up in jurisdictions that give the great-grandkids at least a shot at partaking in the family fortune before the IRS gets its cut.
“A dynasty trust should be the cornerstone of virtually every wealth transfer plan for families desiring to protect their wealth,” sums up Robert Keebler, an estate planner in Wisconsin.
“When designed correctly and sitused in the proper jurisdiction, you obtain protection from both future estate taxes and from the claims of your heirs’ creditors and spouses, “he explains.
“Absent a dynasty trust, $1,000 of wealth becomes $216 or 21.6% after the estate tax is imposed from the matriarch and patriarch [down] to their great-grandchildren.”
With that in mind, Keebler’s thoughts turn to figuring out how to best fund a theoretical trust. Picking one state out of several that offer blue-ribbon protection is almost a secondary concern.
Trusts and estates officially enter the electronic era this year as British Columbia enacts a new law that allows binding wills to be made by email. But one U.S. estate planning expert considers the concept a disaster waiting to happen.
The Wills, Estates and Succession Act passed back in 2009 is finally going into effect on April 1. Designed to make it easier for a spouse to transfer jointly held property of a partner who dies, the law includes a section that permits electronic wills that can be made by email.
Don’t hold your breath waiting for anything similar in the United States.
“There is buzz about this but I don’t think anything in the U.S. has happened,” says Jonathan Blattmachr, a well-known U.S. estate planner.
But some of his colleagues are concerned about the risks of email wills.
“I can’t imagine that any state would ever allow an email will,” says Steve Oshins, a Nevada-based estate planning attorney.
If spam is bad, fraud would be worse
Oshins sees “about zero” chance that U.S. courts would allow an email message to serve as a formal testament.
“There are very strict rules involved to protect people from fraud,” he points out. “What would stop a person from sending an email from an elderly person’s computer with fraudulent provisions? That is why states have safeguards.”
Many Canadian lawyers apparently feel much the same way.
When about 300 estate planners got together to discuss the new system, local newspaper reports indicate with barely disguised amusement that some “wrung their hands” while others “rubbed theirs” ahead of the litigation that seems likely to emerge here.
Trevor Todd, a Vancouver lawyer who helped bring the law to the legislature, warns that the consequences could be in the development of the law, says this could create awkward situations.
As he notes, the court is relatively powerless to fix a will that fails to meet security and validation requirements unless officials can review other documents that hint at the real intent.
This could mean other email messages as well as unsigned or improperly executed drafts, lawyer’s notes from discussions with the person and additional copies of the will text stored on various computing devices.
Unfortunately, opening up a dead person’s files to find the supporting evidence may not be as straightforward as it sounds.
An elementary search of computers and email records can turn up a lot of text that will in turn help the court determine whether a particular email will is legitimate or not.
But procedurally it may turn into a nightmare unless everyone who files a will via email includes links to plenty of supporting material to confirm that this is not a fake or a frivolous exercise.
How Nevada did it
As Steve Oshins points out, British Columbia is not actually the first jurisdiction to pursue legally binding email wills.
Nevada has a holographic will provision — NRS 133.090 — that allows scribbles on a napkin or other piece of paper to serve as a will if the document sets out otherwise undocumented testamentary wishes.
The scribbling can include electronic notes as well as email messages.
Data security remains an issue as far as he is concerned.
“There are already too many instances of elder abuse and even financial abuse of younger people who are just gullible,” he says.
“Many people take advantage of other people. It will never happen here. If it’s happening in B.C., I sure hope they are including safeguards to make sure it is being policed properly.”
And while many elderly have embraced email, many still remain relatively inexperienced in high-tech protocols.
Will a lost or hacked password translate into a lost or stolen estate?
Until we see the implementation, it seems likely that British Columbia has only made the process of filing a valid will more complicated – and not, as intended, simplified the situation.
Estate tax guru Jonathan Blattmachr says wealth planning will change radically over the next 10 years. From artificial intelligence making tax and estate planning decisions to litigation settled by computer, our interview with him offers thrilling details.
While many law firms prepare intricate contingency plans for every possible scenario in their clients’ lives and posterity, visionary attorney Jonathan Blattmachr says few prepare for their own futures with anything like the same care.
“The one thing you cannot afford is to get too far behind the change curve,” he says. “If you get too far behind, you’re going to lose out.”
Blattmachr recently laid out a few of the revolutionary trends that might shape the world of estate planning for the elite participants at this year’s Heckerling Institute on Estate Planning summit at the University of Miami.
Once he got back to New York, he was gracious enough to give The Trust Advisor Blog and our readers a taste of the changes he sees in the profession over the next decade.
1. Computerized Law
Word processing was only the first step in streamlining the work of preparing trust documents and other paperwork. Retail clients can already get a professional-quality will drafted for under $100, Blattmachr says, and as template-driven systems get smarter, the level of service can only improve.
Given the sophisticated state of modern tax prep software, a computer could probably figure out what types of estate planning vehicles are appropriate for a given user’s situation and prepare a fairly complex — if impersonal — estate plan based on the results.
Blattmachr says he’s tried a $71 will-in-a-box from a company called LegalZoom and wasn’t exactly thrilled with the results personally. But he recognizes the fact that these products compete with face-to-face estate planners and help drive down the value proposition of their services.
To level the playing field, estate planners may well bring the technology in-house and have it do the heavy lifting while they establish a rapport with their clients.
A planner who can add human expertise and a personal touch to a computer-generated will may be able to price the final product within competitive range of the fully automated alternative — while charging enough of a premium to make a fair living. In fact, by leveraging 99% of the work, the planner can theoretically serve many more clients a year, bill the hours and enjoy even higher cash flow.
2. A.I. Judges
And if a computer can write the documentation, another one can read the file, compare it to the body of historical precedent and make a decision — without human intervention.
This is happening even as we speak, Blattmachr says.
“Litigators are saying no computer can do what I do,” he explains. “Well guess what? They are now deciding cases by computer.”
New York City is already settling thousands of cases a year just by feeding the files into a machine and having it crunch the case law to determine how each dispute should be resolved.
It isn’t so much actively adjudicating as a matter of adding up how judges have ruled in the past and weighing the final probabilities, Blattmachr says — something like a legal Monte Carlo simulation.
3. Proprietary Trusts
A bit less high-tech, but patenting their favorite trust twists will become a way for planners to ensure that computers don’t turn their services into commodities, Blattmachr says.
He points to the SO-GRAT, which functions like a conventional grantor-retained annuity trust only funded by stock options. The technique has been patented by Florida estate planning firm Wealth Transfer Group, which has successfully defended its property in court.
Offering this type of proprietary service makes a planner unique — or licensing it to friendly colleagues (or software companies) can bring in additional revenue. Either way, those who want to make use of the technique have to come to you to get their piece of the action.
4. Remote Law
The next generation’s estate planners may serve a global clientele, without ever meeting a single client face to face.
More and more firms are already marketing to prospects and keeping their leads on the line by providing a rich experience through their website: an online newsletter, a blog, even a Twitter feed.
Down the road, Blattmachr sees these sites merging with the computerized decision-making software that is already helping mass-market clients write their wills.
“The law firm’s software will analyze the client’s responses and then advise the client whether he or she is an appropriate candidate for the strategy and state why,” he explains.
“Presumably, there will be an offer to meet with the client or prospective client to implement the strategy if that is what the client or prospect wishes to do,” he adds.
In effect, the estate planner will be providing basic advice — via the automated system — from anywhere in the world. As a result, Blattmachr expects a lot more work-at-home lawyers to do good business over the next decade.
And while many U.S. professionals are worried about having their jobs outsourced to India, there’s a secret to outsourcing, Blattmachr says.
“No lawyer in India is going to work as cheaply as a computer,” he adds. “So outsource yourself to the computer and keep the money.”
Of course, servicing clients outside of the lawyer’s own jurisdiction may require knowledge — whether derived from computer software) or affiliation with a lawyer in the client’s own jurisdiction — to adequately serve the client’s interest.
5. Expect the Unexpected
Given the pace of innovation, modern technology will look almost unimaginably archaic by the time 2020 rolls around, Blattmachr says.
“The rate of change right now is almost perpendicular, straight up,” he explains.
As a result, while the basic facts of human life will remain constant, the day-to-day details may be hard to recognize.
But unless they cure the mortal condition, there will still be estate planners. And it’s almost certain they’ll still be wrestling with the ever-changing headaches of the tax code.
Written by the Trust Advisor Blog staff. To contact us, click here .