Pennsylvania Fiduciary Litigation : Pennsylvania Trusts and Estates Lawyer & Expert Witness : Patti Spencer Law Firm : Fiduciary Litigation, Planning : Lancaster, Harrisburg, Philadelphia, Pennsylvania

A patent is an exclusive right granted by the government to an inventor for a limited period of time in exchange for public disclosure of the invention. A patent application must include one or more claims defining the invention which must be novel and non-obvious. The exclusive right that is given with the granting of a patent is the right to prevent others from making, using, selling, or distributing the patented invention without permission or a license.Error! Hyperlink reference not valid. In general, the right to exclusivity is granted for 20 years.

The policy behind the system of granting patents is to 1) encourage inventions; 2) provide for disclosure of the invention to the public; 3) provide an incentive to invest the time, energy, and money to experiment and then to produce and market the invention; and 4) to improve upon earlier patents.

Relatively new on the scene is the tax patent. A tax patent is a business method patent that discloses and claims a system or method for reducing or deferring taxes. They are also known as "tax planning patents", "tax strategy patents", and "tax shelter patents". In 1998, the Circuit Court of Appeals held in State St. Bank & Trust v. Signature Fin. Group that tax strategies were patentable. Since 1998, 160 patents on tax strategies have been granted. Patents have been granted on charitable giving techniques, real estate transactions, retirement planning and stock options among others.

The granting of tax patents has been a controversial subject. Opponents to tax patents say that they are "government-issued barbed wire" that prevents some taxpayers from getting equal treatment under the tax law. These would be the taxpayers who can’t use certain tax strategies because the strategies have been granted exclusively to the patent holders.

The American Institute of Certified Public Accountants (AICPA) has been very critical of tax patents. Their position is that no one should have a monopoly over any part of the tax code and all Americans should be free to use any legally permissible means to comply with the law. Taxpayers should not be required to pay royalties or be subject to litigation for patent infringement just for paying their taxes.

The AICPA says that tax patents 1) limit the ability of taxpayers to fully utilize interpretations of tax law intended by Congress; 2) cause some taxpayers to pay more tax than Congress intended and may cause other taxpayers to pay more tax than others similarly situated; 3) complicate the provision of tax advice by professionals; 4) hinder compliance by taxpayers; 5) mislead taxpayers into believing that a patented strategy is valid under the tax law; and 6) preclude tax professionals from challenging the validity of tax strategy patents.

The idea of patenting tax planning techniques has caused much consternation. At a meeting of the American Bar Association, an estate planning technique using a Grantor Retained Annuity Trust (GRAT) to hold stock options was discussed. Many of the attendees received letters subsequently stating that the method under discussion had been patented - the Stock Option Grantor Retained Annuity Trust patent (“SOGRAT”) - and that taxpayers who had set up such an entity would have to pay a royalty or face suits for patent infringement.

Many of the attendees thought the technique was obvious, and many had frequently set up GRATs with various assets including stock options. With the advent of tax patents, before recommending any strategy does the lawyer have to do due diligence and search to see if the strategy was patented so as not to inadvertently violate the patent and subject himself and his client to liability for patent infringement?

In September 2011, President Barack Obama signed legislation passed by the U.S. Congress that effectively prohibits the granting of tax patents in general. The Leahy-Smith America Invents Act stops the granting of patents on tax strategies. Under the new law any “strategy for reducing, avoiding, or deferring tax liability” is deemed to be “prior art” under patent law, and, therefore not patentable. Existing tax patents were not affected by the new law and remain intact. However, tax patents in pending applications were deemed prior art under the new law and nonpatentable..

Since there are still existing tax patents, tax advisors and practitioners should know what techniques have been patented so as not to violate any patents thereby subjecting their clients and themselves to liability.

The Act specifically does not stop the granting of patents to tax preparation software and other software, and explicitly excludes the patenting of any “method, apparatus, technology, computer program product, or system, that is used solely for preparing a tax or information return or other tax filing” or that is “used solely for financial management, to the extent that it is severable from any tax strategy or does not limit the use of any tax strategy by any taxpayer or tax advisor.”

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We often see situations where one spouse dies and the surviving spouse changes his or her will to benefit different persons than were contemplated by the first spouse. A prime example would be a couple where the man had four children by his first marriage and five with his second wife. Husband and wife make wills leaving everything to each other and if there is no spouse surviving to the nine children in equal shares.

That is exactly what happened in the York County case of the Estate of Charlotte M. Bankert. But Mr. and Mrs. Bankert did something more, they signed an Irrevocable Will Agreement when they signed their wills. In it, they agreed not to change their wills without the consent of the other, and after the death of one spouse, the survivor agreed not to change his or her will at all. There was no specific language in the contract barring life-time transfers to anyone. Their lawyer pointed out that the survivor could circumvent the agreement by making gifts to some but not all of their children, but the husband insisted there be no discussion of gifts in the contract.

Then what happened? Mr. Bankert passed away. Some time after he died Mrs. Bankert started making gifts to her five children. A couple of months before she died, she made large transfers to her five children. When she passed, the estate was significantly diminished and the 1/9 shares to be distributed to the four stepchildren from Mr. Bankert’s first marriage were much smaller (about $800) than they would have been otherwise (about $25,000).

The four stepchildren who got reduced inheritances because of the gifts made by Mrs. Bankert to her own children objected, saying that the transfers during her life violated the Irrevocable Will Agreement. They said that it was clear from the documents that Mr. and Mrs. Bankert agreed to treat all nine children the same, and the transfers violated the agreement. The five children who got the life-time gifts from their mother said the contract was not breached because it did not specifically say that their mother could not make life-time transfers to them.

Here we have the intersection of the two worlds: wills and contracts. What happens when two people make a contract not to revoke a will that has prescribed distributions, and the survivor makes lifetime gifts not in keeping with the will intent?

In general, the law of wills is based on the premise that a testator can always change his or her mind and make a codicil or an entire new will at any time. The will doesn’t become irrevocable until the testator dies.

The laws of contracts is based on the premise that an agreement between two parties intended to create a legal obligation is binding. It can be enforced in court. There are penalties for breach of contract, both standard and any that are written into the contract. A party injured by a breach of contract has the right receive damages.

The Bankert case in York County is a case of first impression we learned about in a blog post by Attorney Paul Minnich, attorney for the five children. See www.palitigationblog.com Nov, 9, 2011.

The court held that the objecting four stepchildren were entitled to a hearing on the facts to determine whether or not the agreement was breached. The court said that in order to prevail in the absence of a specific restriction on lifetime transfers in the contract , the stepchildren would have to prove (1) that the transfer were made to "evade performance"of the contract, (2) violated the deceased spouse’s contract rights (3) the gifts were (a) unreasonable in amount or represented a significant part of the surviving spouse’s estate, or substantial gifts made to only some of the surviving spouse’s beneficiaries and (b) were received without cost or consideration, and (c) received by beneficiaries who knew the terms of the will agreement.

For those not keeping score, that adds up to five requirements, the third one being an either/or requirement. The first two require proof of state of mind (evasion and fraud), tough nuts to crack. The last one requires proof that the favored children knew the terms of the will contract, another difficult task.

The action went from Orphans’ Court to Civil Court back to Orphans’ Court where the Judge was asked to make a declaratory judgment and adopt the standards listed above as a standard in Pennsylvania.

Enough ambiguity about intent regarding gifts in the contract existed to justify the judge’s hearing testimony from the lawyer who wrote the wills and the contract. She testified that she explained that the surviving spouse could make lifetime gifts to just some of the beneficiaries, thus defeating the intent to treat all children alike. Mr. Bankert refused to write any restrictions on gifts into the contract.

On appeal, the five children prevailed. The Court held "that Mrs. Bankert had an unqualified right to dispose of her property through inter vivos gifts because it did not evade performance, and it was the intent of the parties not to limit such actions. The lack of any express provisions in the Agreement that clearly and unambiguously manifest an intent to limit the surviving spouse's right to freely transfer the property during her lifetime, along with the testimony that clearly shows it was the intent of Mr. Bankert to exclude such a provision in the Agreement, the Court must find that Mrs. Bankert was not acting in fraud, against the Agreement, or against the wishes of Mr. Bankert."

How to avoid this mess? Listen to the lawyer when a gift clause is recommended, or forget a contract and put the assets in trust and have the trustee (a neutral party, not the wife or the children) distribute the assets during the surviving spouse’s lifetime and at the death of the surviving spouse. Of course a trustee needs to be paid, but you can pay now, or....

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Hat Tip to Dean Mead:  Form 8939 Filing Deadline Extended

There's nothing like prolonging the agony.

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The estate of deceased multimillionaire Frank Blumeyer of Naples, Florida, is embroiled in controversy.

The 92-year old Blumeyer's $10 million estate is being fought over by his children and, his neighbor, a disbarred lawyer.  Aisling Swift, writing for Naplesnew.com says:  "The tangled web of litigation and love is like a made-for-TV movie. There’s a suspended lawyer who has been in trouble with courts and state bar associations; a now-defunct escort service the lawyer operated with his current wife before his prior wife died of cancer; naked photos of his current wife found on Blumeyer’s computer; and allegations of elder financial fraud."

And if that is not enough, the deceased Blumeyer's son Arthur, who is serving 22 years in federal prison for money laundering, is trying to remove his brothers as estate representatives.

Hat tip to Gerry W. Beyer at Wills, Trusts & Estates Prof Blog

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In a suit filed against Philadelphia law fimr Duane Morris LLP and two of their estate attorneys, Stanley M. Joffee, Esq. amd Stanley A. Barg, Esq.,  plaintiffs claim  they suffered "substantial losses" after the lawyers allegedly ignored their requests for conservative investment strategies and their money was invested in a Madoff feeder fund instead.  Plaintiffs are real estate developer Daniel Keating III and his wife Sarah.  

The complaint makes interesting reading:  Click Here.

Claire Zillman writes for The AmLaw Daily:

"The Keatings complaint alleges that Joffe suggested Notz Stucki & Cie as one of two managers for a trust established in 2008. According to the complaint, the Keatings thought that Notz would be instructed to allocate the assets into conservative investments, but nearly half of the sum was invested in risky equity and hedge fund investments, including feeder funds of Bernard L. Madoff Investment Securities, which they discovered in December 2008."

Here is my question:  Why are these lawyers giving investment advice? 

Hat Tip to the Trust Advisor Blog.

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See this excellent blog post at Trust Advisor Blog:

Zsa Zsa’s Heirs from Past Marriages Line Up at Deathbed, Get Ready for Probate Court

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On June 8, 2011 the Internal Revenue Service announced the names of 275,000 non-profit organizations that lost their tax-exempt status because they did not file legally required forms for three consecutive years. That means about 14% of existing non-profits lost their tax-exempt status. Most of the organizations that lost exempt status are charities but some are homeowners associations, civic associations, college fraternities, and other non-profit entities.

Nearly 10,500 of the organizations that lost their exempt status were based in Pennsylvania. More than 100 of them gave a Lancaster address.

If an organization appears on the list, it is because IRS records indicate the organization had a filing requirement and did not file the required returns or notices for 2007, 2008 and 2009.

The IRS thinks that the majority of the organizations are defunct. Some organizations claim they were on the list in error. Donors who made what they thought were tax-deductible contributions to organizations prior to the IRS’s publication of the list will still be able to deduct the donation on their taxes.

The Pension Protection Act of 2006 requires most tax-exempt organizations to file an annual information return or notice with the IRS. Small organizations (with less than $25,000 in revenue per year), which previously hadn’t been required to file tax reports, had to do so for the first time in 2007. Churches aren’t included; they still don’t have to file. The filing requirement is met by filing Form 990, 990-EZ, or 990-N.

Since passage of the 2006 law, the IRS has made extensive efforts to inform organizations of the changes. In 2010 the IRS published a list of at-risk groups and gave smaller organizations an additional five months to file required notices and come into compliance. About 50,000 organizations filed during this extension period.

Tax-exempt status is important for multiple reasons. Contributions by donors will not be tax deductible if the organization is not tax-exempt. The organization does not qualify for an exemption from the sales tax if the status is not currently tax-exempt. The organization must file a corporate tax return and pay income tax if it is not tax-exempt.

The revocation of tax-exempt status can’t be appealed or reversed. Organizations subject to automatic revocation that wish to have their tax-exempt status reinstated must file an application for exemption and pay the appropriate user fee. The IRS will allow small organizations (those with annual gross receipts of $50,000 or less for 2010) applying for reinstatement to pay a lesser application fee of $100 instead of the usual fee of $400 or $850. Also, the IRS will treat eligible small organizations applying for reinstatement before December 31, 2012 as having established "reasonable cause" for their filing failures, meaning their tax-exempt status will be reinstated retroactive to the date it was automatically revoked.

To find out if a nonprofit is on the list, go to www.irs.gov/charities. OpenData also provides on its website a searchable combined list. Go to http://opendata.socrata.com.

Failing to comply with annual reporting obligations is not the only way to lose your tax-exempt status. A non-profit may not provide private benefit to any officers, directors or employees. This is the prohibition against "private inurement."

A tax-exempt organization may engage in lobbying but on a restricted basis. If the organization contacts or urges the public to contact a member or employee of a legislative body to propose, support, oppose legislation, and the activities are substantial, the tax-exempt status is at risk. The rules are complicated and many organizations do not engage in lobbying as a matter of policy so as not to run afoul of the complex rules.

Political campaign activity is prohibited absolutely. The organization may not directly or indirectly participate or intervene in any political campaign on behalf of or in opposition to any candidate for public office. An exempt organization may invite a political candidate to speak at an event provided that the organization ensures that 1) it affords an equal opportunity to political candidates seeking the same office, 2) it does not indicate support for or opposition to the candidate, and 3) no political fund-raising occurs. Equal access is not necessary if the candidate is a public figure speaking in a non-candidate capacity.

Activities generating excessive unrelated business income and failure to operate with an exempt purpose also put the exempt status at risk.

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The Department of Justice, the Internal Revenue Service, and Congress have all identified "offshore tax evasion" as a primary enforcement target. The success of the enforcement effort so far has energized government efforts in these cases.

If you are an American taxpayer with an offshore account that you thought was secret, you have very little time to bring it into compliance. We are now in the second amnesty for unreported foreign income. The first amnesty was in 2009. In February 2011, the IRS announced a second amnesty for taxpayers with unreported foreign assets. It is called the 2011 Offshore Voluntary Disclosure Initiative - OVDI. The objective is to bring taxpayers who have used undisclosed foreign accounts and undisclosed foreign entities to avoid or evade tax into compliance with U. S. tax laws.

This is the last amnesty. You will not get another chance. If you have unreported foreign accounts and/or unreported foreign income, after August 31, 2011 you will no longer be able to come forward under the amnesty. There is not much time left. The disclosure and its related amended return filings and payment of taxes, interest and penalty must be completed before August 31, 2011. Once the IRS gets your name from other sources, it is too late.

Foreign banks have boots (wingtips) on the ground in the U.S. selling accounts and services. The U.S. is threatening to expel them if the foreign banks resist cooperating with the IRS. This new "cooperation" is why there will not be a third amnesty program and why the second is less generous than the first.

Taxpayers are strongly advised to bring unreported foreign income and accounts into tax compliance to avoid discovery by the IRS, higher penalties, and criminal prosecution.

If you have unreported foreign income in any amount (there are no exceptions, a small amount of unreported income is still a violation) you have three choices:

(1) Do nothing and hope you don’t get caught. I definitely do not recommend this. The government now has TIEs (Tax Information Exchange Agreements), MLATs (Mutual Legal Assistance Treaties), John Doe summonses (like those used against UBS in Switzerland and HSBC in India) and a vast collection of information from the more than 20,000 voluntary disclosures already made. The new Foreign Account Tax Compliance Act (FATCA) also creates new reporting requirements for U.S. taxpayers and foreign financial institutions. If you do nothing, keep this in mind: "He who places head in sand, will get kicked in the butt.’

(2) Make a "quiet disclosure." Some U.S. taxpayers with undeclared foreign accounts are hoping to "sneak through" by amending their returns and paying taxes on unreported income from foreign accounts. This is what is referred to as a "quiet disclosure". This is not recommended. The IRS has made it clear that these returns have a high chance of being audited. It is also well known that so-called quiet disclosures have resulted in criminal prosecutions. The IRS is targeting amended tax returns reporting increases in income. Even though tax returns are amended and taxes paid, foreign account holders will still face penalties and criminal charges.

There are other problems with a "quiet disclosure". It only addresses payment of taxes and interest, not penalties. It does not address the issue of failure to file the Report of Foreign Bank and Financial Accounts (FBAR) disclosing the foreign account. If the foreign account was in the name of a foreign trust, then an IRS Form 3520 was probably due also.

(3) The third choice, and the recommended course, is for a taxpayer with noncompliant foreign accounts to enter the Offshore Voluntary Disclosure Initiative - OVDI. In order to participate in the 2011 OVDI, taxpayers must resolve any non-compliance within an eight year period, from 2003-2010. All filings and payments must be complete by August 31, 2011.

Taxpayers have to pay: 1) income tax deficiencies during the eight year period 2003-2010; 2) interest on the deficiencies; 3) a 25% penalty on the highest aggregate balance held within foreign accounts during the eight year period. For smaller foreign holdings not exceeding $75,000, the penalty will be reduced to 12.5%. ; 4) accuracy-related penalties of 20% of the back taxes; and 5) if applicable, 25% of back taxes for failure to timely file a return or pay tax shown on a filed return.

Taxpayers who participate in the OVDI will generally avoid 1) criminal prosecution; 2) civil and criminal penalties for failure to file FBARs; and 3) any taxes, interest, and penalties prior to 2003.

While the OVDI fines and penalties are significant, they pale compared to the consequences of an IRS criminal prosecution and imposition of all penalties for non-reporting.

If you are entering the OVDI or planning a quiet disclosure it is a very serious matter with potentially life altering repercussions. Don’t rely on the internet for your advice. Make sure you get a competent tax lawyer with experience in the amnesty program.

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 "Undue influence" refers to a person’s will being usurped by the will of another. It is a significant problem when dealing with transfers and estate plans of the elderly or debilitated. It is the most common reason for a will contest. In Pennsylvania to establish the claim of undue influence in a will contest, the contestant must establish by clear and convincing evidence 1) that the testator was of weakened intellect when the will was executed, 2) that a person in a confidential relationship with the testator exercised influence over the testator, and 3) that such person received a substantial benefit under the will.

Usually one thinks of a friend, neighbor, caregiver, or family member as being the person doing the influencing. What about the lawyer?

When an attorney drafts a will, he or she owes the client a duty to be aware of the client’s competency, to ascertain whether the client is being subjected to undue influence, and to make reasonable inquiries about possible influence. An attorney should not draft a will for a client unless the attorney believes the testator has testamentary capacity and is free from undue influence. In making these judgments, the attorney must have undivided loyalty to the client.

But, the lawyer cannot make a reasonable inquiry about possible undue influence with undivided loyalty to the testator if the inquiry may disclose undue influence by another client to whom the lawyer also owes an obligation of undivided loyalty. It would be a conflict of interest for the lawyer to represent the testator in such circumstances. If a Beneficiary who is Lawyer’s client brings in Dad and asks Lawyer to draft a will for Dad that favors Beneficiary, there is a clear conflict.

This was the situation in the New Jersey case of Haynes v. First National Bank of New Jersey.

Charles Dutrow died in 1945 with an $8 million estate. His divorced daughter, Betty Haynes, and her two sons came to live with his widow (Betty’s mother), Isabel Dutrow. Isabel and her daughter Betty and two grandsons lived together until 1968 when the sons left the family home. Betty died unexpectedly in 1973. Isabel, then age 84, was not able to live alone, so she moved in with her other daughter, Dorcas Cotsworth, and her husband John in New Jersey.

During her life, Isabel executed five wills and several trusts all through her local lawyer, Richard Stevens. The theme was consistent - equal shares to the two branches of the family, that is, daughters Betty and Dorcas and their respective children. John and Dorcas began to persuade Isabel that changes to her estate plan were needed after Betty died, pointing out that the two Haynes boys would each receive twice as much as Dorcas’s four children if Dorcas also predeceased.

Dorcas’s husband John (Isabel’s son-in-law) arranged for Isabel to meet with the Cotsworth family lawyer, Grant Buttermore. Buttermore suggested changes and conveyed those recommendations to Attorney Stevens. Changes were made, and with each change, Attorney Stevens became less and less involved. Attorney Stevens testified at trial that Isabel Dutrow told him that Attorney Buttermore was pressuring her. Each change favored the Cotsworths more and the Haynes’s less. But aside from some lifetime gifts to the Cotsworths, equal distribution to the two branches remained.

In her next to last will, Isabel decided to give her entire estate to Dorcas if she survived and, if not, to her six grandchildren in equal shares. This cut the Haynes boys out altogether if Dorcas survived her mother. Attorney Buttermore drew up this will. As an afterthought, Isabel added a bequest of $10,000 each to all the grandchildren; probably realizing that if she didn’t, the Haynes boys would be completely cut off.

Isabel died and after the will was offered for probate, the Haynes boys appealed, claiming undue influence by Dorcas, John Cotsworth and Attorney Buttermore. The burden of proving undue influence lies upon the contestant of the will unless the will benefits someone who stood in a confidential relationship to the testator and there are additional circumstances of a suspicious nature which require explanation.

The court found there was in fact a confidential relationship between Isabel and Dorcas and between Isabel and Attorney Buttermore, and that there were suspicious circumstances (drastic changes to the will after Buttermore became counsel to Isabel) thus shifting the burden of proof to the proponents of the will.

The appeals court found that a standard of clear and convincing proof was needed to overcome the presumption of undue influence, and found that the trial court had only required a standard of the preponderance of the evidence. Therefore, it remanded the case to the trial court to determine if the proponents of the will could meet this more rigid standard.

Buttermore should have had another lawyer do the will. Preparing a will for one client that will affect another client requires consideration of a number of ethical issues. The lawyer’s obligation to provide each client with independent professional advice is the lodestone. You cannot serve two masters.

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Gene Upshaw, one-time Oakland Raiders Hall of Fame lineman and head of the NFL Players Association for 25 years, died in August 2008. He led the union through a strike, decertification, the victory of free agency, soaring player salaries and disputes with retired players.

Upshaw was married for the second time and had three sons, Eugene III from his first marriage, and Justin and Daniel from the second. Upshaw, his wife Terri, and another couple, Norman and Sandra Singer, arrived in Lake Tahoe for vacation. Upshaw suddenly became ill and went to the emergency room where he was diagnosed with pancreatic cancer on August 17, 2008. He was hospitalized and died 3 days later at the age of 63.

On the day he died, August 20, 2008, Gene Upshaw’s will was signed, according to court filings. It left everything to his wife Terri.

Son Eugene III arrived in Tahoe the day after his Dad was hospitalized - he had planned on joining the vacationing couples. In Eugene III’s court filing, he said that by early August 2008, his Dad "had deteriorated substantially. . . He was not coherent, and was not speaking." How could his will have been signed that day?

Eugene III contested the will and sought to have his step-mother removed as executor. It came out that Mr. Upshaw didn’t sign his will. One of the witnesses signed it on his behalf. The fact that he did not sign the will is unusual, but not in itself a reason to overturn the will. Most states (including Pennsylvania) have a statute of wills that includes the alternative that a valid will may be signed by the testator or by some person in his presence and at his direction. There were a number of problems in Upshaw’s case, however. First, one of the witnesses was also the one who signed the will on behalf of Upshaw. Second, according to Eugene III, on the day Upshaw died and the will was also signed, he lacked all capacity to make a will.

The witness and signer of the will was Upshaw’s friend who went on vacation with him, lawyer Norman H. Singer. The litigation here was to contest the will and remove Terri as executor. Norman Singer was not sued.

The trial was scheduled for May 2011 (almost 3 years after death) but was settled by a confidential agreement a few days before it was to begin.

One of the assets that was uncovered was a previously undisclosed $15 million deferred compensation that the union paid to his surviving wife, Terri Upshaw. Retired NFL players, who were angry with Upshaw for not getting them better pensions and medical benefits, were outraged. Upshaw’s estate also apparently received $1.73 million in "past due compensation." The Upshaws lived in a home in Great Falls, Virginia. The probate inventory showed eight luxury vehicles, a 32-foot boat, and another home in Lake Tahoe, California.

When the will was submitted to probate in Fairfax County, Virginia; both Norman and Sandra signed a document in which they answered "yes" to the question: "Did the decedent sign this paper in your presence and in the presence of other witness(es), with all of you together at the same time?" When they were deposed, the Singers changed their answer to "no" and acknowledged that Norman Singer had actually signed it. What a mess.

If Upshaw had died intestate, his widow would have received a 1/3 share of his estate, and 2/3 would have gone to his children. That would have given a 2/9 share to son Eugene III. Which side do you like in this argument? If I had to bet, I’d say that Eugene walked away with a big chunk of his 2/9 share.

Certainly his is an interesting story, but here is my question. How can a 63 year-old man with a second wife, 3 children from two marriages, and a net worth of more than $20 million not have a will? Seriously.

A 2009 Wills and Estate Planning survey commissioned by lawyers.com found that only 35% of adult Americans currently have wills and only 29% have powers of attorney. Another survey found that 32% of respondents would rather have a root canal than make a will.

Please make a will. It is not too expensive. You have enough assets to plan for no matter how small your estate is. Signing a will does not hasten your death. You can die at any age, you don’t have to be old. Really.

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Interesting reading from Estate of Denial:  The long goodbye.

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"Extreme wealth is a menace to happiness."

                                                          – Huguette Clark

Reclusive heiress Huguette Clark died May 24, 2011 at the age of 104. Her estate is estimated at $500 million. She has lived in a New York hospital for the last 22 years. No visitors or family have seen her. Her affairs are controlled by an attorney and an accountant.

Huguette had been living at a New York hospital under pseudonyms - the latest was Harriet Chase. She had a guarded room with full-time private nurses. Her hospital room number didn't even exist - outside her room on the 3rd floor, a card with the fake room number "1B" and the name "Chase" was taped over the actual room number.

The Elder Abuse Unit of the Manhattan District Attorney’s office has been investigating Huguette’s lawyer Wallace Bock and accountant Irving Kamsler. The investigation began in 2010 when three relatives of Huguette sought to have an independent guardian appointed for her alleging mismanagement of her funds by Bock and Kamsler. Huguette hadn’t been seen since she left her 42-room Fifth Avenue apartment in an ambulance 22 years ago. The action for appointment of an independent guardian was unsuccessful. The court allowed Huguette’s finances to remain in the hands of Bock and Kamsler. Bill Dedman writes for MSNBC: "The case presented something of a Catch-22: The judge said the relatives were not able to provide first-hand information about Clark to prove their allegations against the attorney and accountant, but the relatives said they had been prevented for many years by the attorney and accountant from visiting Clark." But the DA’s office launched an investigation that is ongoing.

Is this another case like Brooke Astor? Her son and her attorney were convicted in 2009 of taking $10 million f rom her. Astor’s estate was valued at $131 million. Huguette’s estate is estimated at $500 million and includes three opulent homes: an estate on the Pacific Ocean in Santa Barbara, CA, worth an estimated $100 million (she had not visited this home since the 1950s); a country house in New Canaan, CT, now on the market for $23 million (which she built but never spent a night in); and the largest apartment on New York City's Fifth Avenue, actually 42 rooms on the 8th and 12th floors, valued at about $100 million. All three homes have been carefully maintained and staffed.

Huguette Clark was born in 1906 in Paris. She was the daughter of then 67-year-old U.S. Senator William A. Clark of Montana and his second wife, 28-year-old Anna Eugenia La Chapelle. William and Anna had another daughter, Louise, who died at the age of 17 from meningitis. Clark had 5 children with his first wife. The issue of these children are now parties of interest in Huguette’s estate, being her closest kin.

New York Post columnist Veren Dobnik writes of Huguette: "At 22, she married a poor bank clerk, but they parted ways after only nine months. Huguette Clark cited desertion by her husband. He claimed she failed to consummate the marriage, according to ‘The Clarks: An American Phenomenon.’"

In 2002 another mutual client of Bock and Kamsler died – Donald L. Wallace, Bock’s former law partner and Huguette’s former attorney. Wallace’s will (drafted by Bock) gave Bock and Kamsler $100,000 each, his Mercedes, and his New York apartment, not to mention the $368,000 in fees for settling Wallace’s $4 million estate. In New York, when a lawyer who drafted a will receives a bequest from that will, that fact automatically raises a suspicion of undue influence. The surrogate must determine if the bequest to the attorney was made voluntarily - a so-called Putnam inquiry. In Wallace’s estate, the surrogate determined that the bequests should be paid.

In September 2010 a spokesman for attorney Wallace Bock revealed that Huguette Clark did have a will which had been in existence for some time. Now we await the production of the will. Who will be the beneficiaries? And of course, we await the results of the Manhattan District Attorney’s investigation.

The take away: it can happen to anyone. Who protects the elderly, not only from physical abuse but from financial abuse. Who protects an old person who has no children and whose distant relatives have been prevented from visiting him or her? Does our current legal structure suffice?

According to the American Psychological Association, over 2 million older Americans are victims of physical, psychological, or other forms of abuse and neglect every year. Further, for every case of elder abuse and neglect that is reported to authorities, experts believe there may be as many as five cases that have not been reported.

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An offer in compromise (OIC) is an agreement between a taxpayer and the Internal Revenue Service that settles the taxpayer’s tax liabilities for less than the full amount owed. Don’t get too excited - it is not that easy. Unless there are special circumstances, an offer in compromise will not be accepted if the IRS believes that the taxpayer can pay the liability in full either as a lump sum or through a payment agreement.

In most cases, the IRS will not accept an OIC unless the amount offered by the taxpayer is equal to or greater than the reasonable collection potential (RCP). The RCP is how the IRS measures the taxpayer’s ability to pay and includes the value that can be realized from the taxpayer’s assets, such as real property, automobiles, bank accounts, and other property. The RCP also includes anticipated future income, less certain amounts allowed for basic living expenses.

There are three grounds for acceptance of an OIC: 1) doubt as to collectibility, 2) doubt as to liability, and 3) effective tax administration.

Doubt as to collectibility applies when it appears unlikely that the taxpayer can pay all that is due within the statutory period for collection. Doubt as to liability exists when there is legitimate doubt about the correctness of the assessment. The examining agent may have made a mistake, or there could be an argument over interpretation, or perhaps the taxpayer has come up with new evidence. Effective tax administration exists when the taxpayer can demonstrate that the collection of the tax would create an economic hardship or would be unfair or inequitable.

Don’t think that an OIC is a way to make a deal with the IRS to split the difference. It’s not that kind of compromise. It is based on a formula to determine what the taxpayer can pay from what they owe and what they earn (the reasonable collection potential). Offers less than that amount are typically not accepted. The rules for application of the formula are very complicated. The taxpayer must present a complete financial picture to the IRS, detailing assets and liabilities, income and expenses.

An OIC is not for everyone. It actually prevents taxpayers from disputing the underlying liability at appeals or in tax court. Negotiating an installment plan that is a realistic payment plan may be a better alternative for the taxpayer. An installment plan works much like any installment loan. Those who are struggling financially catch up on their tax debt by making smaller payments over a period of time. While this may translate to paying more in total (because of interest rates and penalty charges), it's often a workable alternative.

An OIC is a lengthy and time-consuming process. Only about 15% of applicants actually reduce their debt through the OIC program. Because the filing and process are complex, it is highly recommended that you get professional advice in preparing and negotiating the offer. You need a tax attorney, a CPA, or an Enrolled Agent. Make sure you find someone with experience in IRS collection matters. A professional can help maximize the possibility that the OIC is accepted and the tax debt is minimized.

Beware of scams where promoters claim that tax debts can be settled for "pennies on the dollar." You’ve probably seen them on late-night TV. These scammers collect high fees and then don’t deliver on the promise - because they can’t in most cases. Some preparers collect fees but then fill out and file a form but provide no backup documentation and do not negotiate with the IRS. This is a waste of time and money. If the advertising refers to a "tax settlement specialist", run the other way.

An OIC is made on Form 656. There is a $150 application fee that must accompany the form. You cannot file an OIC if you are in bankruptcy. A taxpayer filing a lump-sum offer must pay 20 percent of the offer amount with the application. A lump-sum offer means any offer of payments made in five or fewer installments. A taxpayer filing a periodic-payment offer must pay the first proposed installment payment with the application and pay additional installments while the IRS is evaluating the offer. A periodic-payment offer means any offer of payments made in six or more installments.
 

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We are proud to announce that  Pennsylvania Fiduciary Litigation Blog has been nominated as one of the Top 25 Blogs for Estate, Probate and Elder Law by LexisNexis

The Top Blogs campaign on the LexisNexis Estate Practice & Elder Law Community will move ahead in several phases. They will take nominations during a comment period that ends on March 31, 2011.  LexisNexis nominated a group of initial nominees.  Community members are invited to make additional nominations and support their favorite blogs.

The top 25 will be  selected based on LexisNexis's review of the sites and comments from our Community members. After they announce the Top 25 Estate, Probate, and Elder Law Blog honorees, they will ask the Community to vote for the Top Estate, Probate, and Elder Law Blog of the Year.

To "talk up" or nominate your favorite Estate, Probate, and Elder Law Blog, you'll need to be a registered Community member and be logged in. If you haven't  registered previously, follow this link to create a new registration or use your sign in credentials from your favorite social media site. Registration is free! Once you are logged in, scroll all the way to the very bottom of this page. You should see a comment box similar to this one:

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