Enforcement of Arbitration Clauses in Trusts

Ever since George Washington included arbitration provisions in his will, this idea has kicked around.  Washington's will contained this language:

"That all disputes (if unhappily they should arise) shall be decided by three impartial and intelligent men, known for their probity and good understanding; two to be chose by the disputants each having the choice of one, and the third by those two - which three men thus chosen shall, unfettered by law or legal construction, declare their sense of the Testator's intention; and such decision is, to all intents and purposes, to be as binding as if it had been given in the Supreme Court of the United States."

John T. Brooks and Jena L. Levan writing for Wealth Management reviewed the state of the law in December 2013. See their article here.

On March 11, 2014 a California appellate court refused to enforce a mandatory arbitration provision. In the case of McArthur v. McArthur, No. A137133 (Cal.App. 1 Dist. Mar. 11, 2014)

Outsourcing Justice comments on the McArthur case as follows:

"The California appellate court also refused to enforce the arbitration provision and affirmed the denial of the motion to compel. The appellate court acknowledged the Texas and Arizona decisions involving arbitration clauses in trust agreements, as well as a few other decisions involving the trust fact pattern, and the appellate court reasoned that the plaintiff sister in this case was not attempting to accept benefits under the amended trust or enforce rights under the amended trust. Instead, the plaintiff sister argued the amended trust is invalid and should be set aside. As a result, the appellate court reasoned the plaintiff sister had not consented to the terms of the amended trust, and hence the plaintiff sister was not bound to arbitrate."

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Why not mediate trust and estate disputes?

"Discourage litigation. Persuade your neighbors to compromise whenever you can. Point out to them how the nominal winner is often a real loser – in fees, expenses and waste of time."

                                                                                --       Abraham Lincoln   1850

Lincoln’s words are doubly true today. Our society is beset with litigation - and all too often, there are no winners, except, perhaps, the lawyers. The time for Alternative Dispute Resolution (ADR), the private resolution of disputes outside of court, has come. There are two main forms of ADR - arbitration and mediation.

In arbitration the dispute is submitted to a third party, the arbitrator, who renders a decision after hearing arguments and reviewing evidence presented in a less formal and more expeditious fashion than in court. In binding arbitration, the parties are bound by the arbitrator’s decision. In non-binding arbitration, the parties can go to court for a trial if unsatisfied with their results.

In mediation an experienced neutral party attempts to assist the parties to air their concerns, understand each other’s point of view, and find a common ground. No decision is rendered; the mediator facilitates the parties’ arriving at their own solution.

Both litigation and arbitration seek a winner and a loser and are adversarial procedures - usually further alienating the parties from each other . Many professionals believe that only through mediation is it possible to resolve the dispute and at the same time achieve reconciliation - restoring and improving the relations between the parities.

Because of the possibility of reconciliation, mediation is an excellent approach for family disputes, including disputes over estates and inheritances.

Mediation in Estate Settlement

The death of a family members often sets the stage for conflict within the family. As John Gromala and David Gage point out in the November 2000 issue of Trusts and Estates: "Where estates are concerned, intricacies of fact and law can combine with emotion, misperceptions, and complicated family dynamics to form a highly combustible mixture. Mediation can put out the fires before they consume both money and family harmony."

The traditional method of settling disputes that arise in estate administration is the litigation process from the formal pleading and response, trial and appeal. This can be extremely time-consuming and astonishingly expensive. As a result of the litigation process, family relationships can be completely destroyed or left in tatters. Not only is the inheritance consumed by fees, but the family is consumed by anger and hatred.

Mediation has been widely used in divorce and child custody disputes but few jurisdictions look to mediation in disputes involving wills and trusts. The time has come to give these disputants the same chance at resolving issues and maintaining family relationships. There is nothing to stop disputants from seeking mediation privately. Parties to any dispute can seek mediation. Lawyers need to be alerted to the possibility of seeking this kind of resolution and trained away from the immediate reaction of pursuing claims in court. (A friend remarked that it takes 10 times longer to train a lawyer to be a mediator than to train anyone else; the adversarial approach must be unlearned.)

We hope that the courts will move toward recommending, or even requiring mediation before setting hearing dates.

In mediation the parties control the process, and there is no risk of an adverse decision, since the mediator does not render a decision or judgement. Nothing said during the mediation can be used as evidence later at trial. The process is completely confidential and solutions can be arrived at that could not be ordered by the court as legal or equitable remedies - for example, an opportunity to air grievances or receive and apology.

Mediation in Estate Planning

Estate planning aims at the transfer of wealth from one generation to another in a way which minimizes taxes and maximizes economic gain. At bottom, it usually involves parents making gifts to their children, grandchildren or charities. The problem is that while many clients spend hours with attorneys, accountants and financial advisors crafting an estate plan, they spend no time with their intended beneficiaries explaining what they have done and why. After Mom and Dad are gone, the family acrimony begins - brother sues brother and sisters stop talking to one another for years.

Since your typical (dysfunctional) family has trouble communicating about day to day activities such as what to have for dinner, perhaps it is no surprise that the typical family cannot and does not communicate about dying, property division, and settling estates. Nevertheless, communicating the plan and addressing the issues before death is the best gift you can give your beneficiaries.

It is not bad manners to talk about the estate plan, and it will not make matters worse. What makes matters worse is, leaving the children to fight it out after Mom and Dad are both gone. If you are afraid to tell your kids what your estate plan is you are leaving them a legacy of acrimony. A mediator will recognize that it is up to Mom and Dad what they do with their assets and that they want all family members to feel as good as possible about the estate plan and not feel cheated or disappointed. Bringing all the parties together can ensure that hidden agendas are brought out into the open, get the most buy-in from the parties and get the best protection against the plan being contested.

Mediation is not family therapy. It is a short-term process aimed at resolving a dispute while attempting to preserve family relationships. It depends on opening lines of communication and coming up with solutions.

Mediation can also be used to discuss long term care issues with parents, to determine how siblings can equitably share the responsibility of helping aging parents, and how to deal with caregivers and medical personnel.

As far as the estate planning documents themselves go, it is entirely possible to include provisions that require the parties to submit disputes to arbitration rather than resort to the courts. Many arbitration texts point out that George Washington’s will contained such a provision:

"That all disputes (if unhappily they should arise) shall be decided by three impartial and intelligent men, known for their probity and good understanding; two to be chose by the disputants each having the choice of one, and the third by those two - which three men thus chosen shall, unfettered by law or legal construction, declare their sense of the Testator’s intention; and such decision is, to all intents and purposes, to be as binding as if it had been given in the Supreme Court of the United States."

Much is at risk in estate planning, and the most important is not estate taxes. The most important factors are the beneficiaries, their lives and their relationships - in other words, your family.

Decanting News - Decant Without a Statute

On July 29, 2013, in the case of Morse v. Kraft the Supreme Judicial Court of Massachusetts held that the Trustee of an irrevocable trust in which the Trustees had full discretion to distribute trust principal "for the benefit of" the beneficiary, could, without consent or court approval, distribute the assets to a different trust with the same effective discretionary terms but modified in several ways, the key difference being the ability of the beneficiaries to serve as trustees, a power that was prohibited in the original trust.

The case was brought by the sons of New England Patriots owner Robert Kraft to modify a thirty-year old trust.  It will have far reaching impact.

The Facts:

In 1982, Plaintiff established the 1982 Trust, and four separate subtrusts therein, for the four sons of the Krafts. In 2012, Plaintiff, who had served as the sole and disinterested trustee of the trust and subtrusts, proposed to transfer all of the property of the subtrusts into new subtrusts established in accordance with the terms of a new master trust for the benefit of the Kraft sons. Plaintiff asked the Supreme Court to interpret the 1982 Trust to determine whether it authorized distributions to the new trust without the consent or approval of any beneficiary or court. The Supreme Court concluded that it did, holding that the terms of the 1982 Trust authorized Plaintiff to distribute the trust property in further trust for the benefit of the beneficiaries of the 1982 Trust without their consent or court approval.

Read the case here: 

How about Pennsylvania?


Return of the Legally Dead


The reappearance of Brenda Heist in May after being declared legally dead has brought me all sorts of questions.

The Pennsylvania Statute that governs the property of absentees and persons presumed dead is at 50 Pa. Cons. Stat §§5701 through 5706. Generally, if a person disappears and is absent from his place of residence without being heard of after diligent inquiry, the county court may make a finding and decree that the absentee is dead and of the date of his death.

There are notice requirements. The matter must be advertised in a newspaper of general circulation in the county of the absentee's last known residence and in the legal journal once each week for four successive weeks. Notice includes the hearing, which must be at least two weeks after the last appearance of the advertisement, when evidence will be heard concerning the alleged absence, including the circumstances and duration thereof.

An unexplained absence for seven years may be sufficient ground for finding that the absentee died seven years after he was last heard of. The seven years gives rise to a presumption but it is important to note that the court may declare an absentee dead before the expiration of 7 years. Conversely, the presumption can be overcome and a 7 year absence may not justify a finding that the absentee died. Evidence that the absent person was a fugitive from justice, had a bad relationship, was having money troubles, or had no family ties or connection to the community can be reasons not to presume death.

The fact that an absentee was exposed to a specific peril of death may be sufficient ground for finding that he died less than seven years after he was last heard of. An example would be an airplane crash. Passengers and crew of the Titanic who were not rescued by the RMS Carpathia were declared legally dead soon after Carpathia arrived at New York City.

In 2002, the statute was amended to provide that the terrorist attacks of September 11, 2001 are specific perils within the meaning of the law and a court would be justified to immediately determine that the presumed decedent died on September 11, 2001. Also, for persons presumed dead on September 11, 2001, the requirements of notice to the absentee and of the need to post a refunding bond for property distribution are eliminated.


What happens to the presumed decedent’s property?

The decedent’s property is administered by an executor of the will or administrator of the estate just as in the case of other decedents. However, the executor or administrator make not make any distributions to beneficiaries except by a court decree. The court, in awarding distribution, must require that a refunding bond, with or without security and in such form and amount as the court shall direct. The bond shall be conditioned that, if it shall later be established that the absentee was in fact alive at the time of distribution, the distributee will return the property to the preseumed decedednt, or if it has been disposed of, will make restitution

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Federal Jurisdiction - Probate Exception

Recommended reading: Stripping Away the Mystery of the Probate Exception   By John T. Brooks and Samantha E. Weissbluth

Federal court can hear breach of fiduciary duty claim against trustees.

We looked at this issue before in our post Make a Federal Case Out of It.

Midwest City estate planner sentenced to 10 years in prison for role in Ponzi scheme

I always say 99% of the lawyers give the rest of us a bad name.

Brianna Bailey writes for News OK:

"A federal judge has sentenced a Midwest City man who conned seniors out of their savings to serve nearly 10 years in prison and pay $4.6 million in restitution for his role in the Ponzi scheme.

Joe Don Johnson, 43, was an estate planner who drew up wills for his elder clients. He would convince the seniors to invest their life savings with the now-defunct Oklahoma City-based company Global West Funding Ltd., operated by Brian McKye.

Johnson promised his clients returns as high as 20 percent, but the bulk of the money went to pay off earlier investors, commissions to Johnson and other salesmen, as well as McKye's personal expenses, according to court documents."

Read rest of storyhere.

The Continuing Problem of Cy Pres

Thank you to WIlls, Trusts and Estates Prof Blog for the post regarding Fisk University, Cy Pres and Georgia O'Keefe's Art Collection.

Melanie B. Leslie (Professor of Law, Benjamin N. Cardozo School of Law) recently published her article entitled Time to sever the dead hand: Fisk University and the cost of the cy pres doctrine, 31 Cardozo Arts & Ent. L.J. 1-18 (2012). The introduction to the article is available below:

In 1949, painter Georgia O'Keeffe donated 101 valuable paintings and photographs to Fisk University, a prominent and historically important African-American university in Nashville, Tennessee. The donated art was part of a larger collection amassed by her late husband, Alfred Stieglitz, a prominent artist and collector.  Stieglitz's will gave O'Keeffe a life estate in his collection, which included works by Picasso, Cezanne, Renoir, Toulouse-Lautrec, O'Keeffe, Demuth, Hartley, Dove and Walkowitz.  Stieglitz's will also gave O'Keeffe the discretion to distribute the collection to nonprofit organizations of her choosing for the purpose of ensuring public access to the paintings to promote the study of art.  At O'Keeffe's death, any pieces in his collection that she had not donated were to be distributed to nonprofit organizations "under such arrangements as will assure to the public ... access thereto to promote the study of art."

O'Keeffe divided Stieglitz's collection among six institutions: the Metropolitan Museum of Art, the Philadelphia Museum of Art, the National Gallery of Art in Washington, the Art Institute of Chicago, the Library of Congress, and Fisk University.  The donation to Fisk, a small university with no museum experience, was unusual. In choosing Fisk, O'Keeffe was making a strong social statement - the South was racially segregated at that time, and O'Keeffe wanted to ensure that the art would be displayed in a place that welcomed both black and white members of the public.

But although she wanted to benefit Fisk, O'Keeffe - like many donors before and after - could not bring herself to relinquish complete control to the donee. Instead, she imposed a series of restrictions designed to ensure both the proper display and care of the art work and the creation of a perpetual memorial to Alfred Stieglitz. To achieve those ends, O'Keeffe stipulated in a series of letters to Fisk's President that the donated art must always be displayed together as one collection titled the Alfred Stieglitz Collection ("the Collection"), and that Fisk could never sell any piece in the Collection.  She also required that the Collection be housed in as safe a building as possible and kept under surveillance at all times when the room was not locked.  O'Keeffe severely limited the University's ability to loan the artwork, directed that no other art work could be shown in the same room as the Collection without her consent, prohibited the removal or change of any mounting or matting of photographs, and required that the walls of the room where the Collection was displayed be painted white or some other very light color chosen by O'Keeffe. Several years later, O'Keeffe donated four paintings from her own collection, including one of her own paintings, Radiator Building - Night, New York ("Radiator Building"), to Fisk, with the stipulation that the paintings be added to the Collection. 

O'Keeffe appears to have given little, if any, consideration to the impact the perpetual restrictions might have decades down the line. Like many donors who make restricted gifts, she failed to imagine how life might change in the years following her death. For example, she  does not appear to have contemplated that Fisk might cease to exist; that the University might one day lack funds to maintain the Collection; that the matting on the photographs might deteriorate; or that she might not be around to approve the paint color of the walls. She gave no guidance as to how Fisk should respond to changed circumstances or as to which of her objectives - benefitting Fisk, creating a perpetual memorial in honor of Stieglitz, keeping the Collection together, prohibiting sale of the Collection, and ensuring the Collection remained in the South - should be given priority in the event that changed circumstances should cause them to come into conflict. 

What happened sixty years later was predictable - changed circumstances, unforeseen by O'Keeffe, rendered it impossible for Fisk to comply with all of the restrictions. Fisk was on the brink of insolvency, and had to choose whether to close the University and relinquish the Collection, or find a way to replenish its endowment and properly care for the Collection.  Fisk decided to sell two paintings - including Radiator Building. The Tennessee Attorney General approved of the sale, subject to certain conditions, and Fisk, seeking court approval, filed an action for a declaratory judgment.  The O'Keeffe Museum of Santa Fe, New Mexico ("the Museum"), and later, the Attorney General of Tennessee, intervened to enforce the sale prohibition.  After six years of litigation and two appeals, a chancery court granted Fisk permission to sell a fifty percent interest in the Collection to the Crystal Bridges Museum in Arkansas for thirty million dollars. The deal allows Fisk to exhibit the Collection six months of every year.  The payment of thirty million dollars will ensure both that Fisk will survive and that it will be able to afford to properly care for and exhibit the artwork. 

Why did resolution of this conflict require six years of litigation and the expenditure of enormous amounts of charitable and public dollars? The blame lies with the law itself: the centuries-old doctrine of cy pres, which requires courts to determine how the donor would have responded to the changed circumstances, combined with the law's lack of clarity about who has standing to speak for the donor, practically guarantee that years of litigation will ensue when a charity finds itself unable to comply with a gift restriction. In the Fisk case, the law's fuzziness allowed the Museum - an unrelated third party - to make a grab for the Collection under the guise of effectuating donor's intent. The fact-specific cy pres standard also enabled the Tennessee Attorney General to make it extraordinarily difficult for Fisk to craft a solution involving entities located outside the state of Tennessee.  Although the court ultimately approved Fisk's contract with the Crystal Bridges Museum, that approval came at an extraordinarily high cost.

The doctrine of cy pres holds that donor's intent is of paramount value. Courts must therefore prioritize effectuation of intent over other concerns, such as donees' present needs or the inefficient use of charitable dollars.  This preoccupation with perpetual enforcement of donor intent is justified as necessary to encourage charitable bequests and protect donors' property rights.  Yet what the law giveth, it taketh away: the law's commitment to donor intent stops short at granting to donors standing to enforce the restrictions they create.  Instead, enforcement power is given to the attorneys general of each state. 

The Fisk litigation is just one of several recent epic battles over restricted charitable gifts and changed circumstances, but it is important because it neatly illustrates the problems that the law creates and highlights the need for legal reform. After elaborating on this point, I examine the Uniform Trust Code ("UTC"), which changes cy pres law in significant ways. I show how application of certain UTC provisions to the Fisk case would have reduced the length of the litigation and the corresponding waste of charitable assets, to some degree. I then argue that further reforms are necessary. I suggest that perhaps the time has come to consider limiting the duration of restrictions on charitable gifts. To offset any chilling effect that such a time limit might have on charitable giving, we might allow donors and their heirs to enforce restrictions during the period of enforceability.

Father's Will Dictates Sham Marriage

This from Samantha E. Weissbluth writing for Wealth Management:

Gay son must marry woman to get inheritance

In a recent New York case, a father, in his will, dictated that his gay son’s child get nothing unless his son married the child’s mother.  Manhattan resident Frank Mandelbaum founded the ID verification company, Inteli-Check, and passed away in 2007 at the age of 73.  His son, Robert, a Manhattan Criminal Court Judge, is now arguing in a court battle that his longtime partner, Jonathan, is the only “mother” their infant, Cooper, has ever known.  Robert and Jonathan married shortly after the baby’s birth via surrogate.  The child is entitled to a share in a $180,000 trust established for Frank’s three grandchildren. 

The Manhattan Surrogate’s Court is pondering whether to approve a settlement to ignore Frank’s requirement as contrary to New York law.  Robert claims that Frank’s restriction “imposes a general restraint on marriage by compelling Robert Mandelbaum to enter into a sham marriage.”  He alleges that this violates state law supporting marriage equality.  The guardian ad litem appointed for Cooper agrees and stated “Requiring a gay man to marry a woman…to ensure his child’s bequest is tantamount to expecting him either to live in celibacy or to engage in extramarital activity with another man, and is therefore contrary to public policy.”

Frank’s wife is contesting Robert’s allegations claiming that Frank’s will “specifically prohibited [Cooper] from becoming a beneficiary.    Robert counters that Frank knew Robert was gay and his partner was welcomed at family gatherings.

Given New York’s passage of the Marriage Equality Act, in July of 2011, I think the odds are in Robert’s favor, but stay tuned!

Brooke Astor's Son Tries to Get out of Prison Sentence

In May 2012, we wrote about the final settlement of Brooke Astor's Estate.  Her son, Anthony Marshall,  was sentenced in December 2009 to one to three years in prison.  He was convicted of 13 felonies and one misdemeanor. 

Now - that would be December 2012 - 3 years after the sentencing, his lawyer is arguing he shouldn't have to go to prison.

So after 3 years he's still not in jail.  I guess there really are different laws for the rich.

Stephen Rex Brown writing for The Daily News:

"THE DISGRACED son of Brooke Astor pleaded for mercy in appeals court Thursday, arguing he didn’t deserve to die behind bars.

Anthony Marshall, who was convicted in 2009 of taking advantage of his mother’s dementia and plundering millions from her $200 million fortune, watched from a wheelchair as his lawyers argued prison amounted to a death sentence.

Lawyer John Cuti noted Marshall, 88, suffered a ministroke during his trial and had already paid back $12 million.

“You want to send this man to prison, after he’s already paid back the money, so he can die there?” Cuti asked.

Prosecutors countered Marshall should serve his sentence of one to three years as a sign the state will stick up for the mentally fragile.

“Society will understand (when) we defend our most vulnerable citizens,” prosecutor Gina Mignola said. “This was a very long and concerted effort to loot his mother’s estate.”

Astor, the grande dame of New York society, died in 2007 at 105.

A ruling is expected next year."



Rauschenberg's "Canyon" now belongs to MoMA

A couple of months ago we wrote about the IRS' s ridiculous position on the estate tax value of this piece of art featuring an "illegal eagle."

The case has been setlled - finally.  A charitable contribution was made to the Museum of Modern Art where it joins others of its ilk.  It spent the last few decades on loan at the Metropllitan Museum of Art.

Eric Gibson writes fo the Wall Street Journal:

"On Wednesday last week, New York's Museum of Modern Art unveiled its most recent gift, and one of the most significant in its history: Robert Rauschenberg's "Canyon" (1959). Rauschenberg was among the leading American artists of the post-World War II era, and "Canyon" is a "combine," a kind of large-scale, three-dimensional collage that includes photographs, pieces of wood, a mirror, a pillow and a stuffed bald eagle.

The arrival of "Canyon" at MoMA is the culmination of a five-year absurdist farce—one tinged more by Kafka than Feydeau—that involved the IRS, the U.S. Fish and Wildlife Service and the heirs of art dealer Ileana Sonnabend. It might have been laughable, except that the stakes were so high. "

Read the rest of his article.

P.S.  For you arty types - check out this blogpost and compare "Canyon" to Rembrant's "Rape of Ganymede."

Federally Indicted Estate Planning Attorney Pleads Guilty

Attorney Jospeh Caramadre and his associate Raymour Radhakrishnan were to be tried for a scheme of defaruding dying individuals and make more than $15 million.  On November 20, 2012 they admitted in the U.S. District Court in Rhode Island that they had committed wire fraud and conspiracy. The guilty pleas were entered as part of a packaged agreement.

In exchange for the pleas, the U.S. Attorney's Office will recommend that the court give the two men prison terms of no longer than 10 years. Each faced a maximum sentence of 25 years in prison and $500,000 in fines.

As reported by Darla Mercado for InvestmentNews:

" From 1995 through 2010, Mr. Caramadre created a strategy for investors that involved using variable annuities and naming a terminally ill person as the annuitant. Once the annuitant died, the investor received the death benefits, as well as a guaranteed return of the principal and other enhancements.

“The insurance companies collectively lost millions of dollars from defendants' submission of variable annuities utilizing terminally-ill annuitants,” authorities noted in a court document stating the facts of the case. Some 20 carriers were involved, including Metropolitan Life Insurance Co., Western Reserve Life Insurance Co. and Transamerica Life Insurance Co.

The lawyer also offered “death put bond” strategies. Those involved assigning a sick person as a co-owner on the bond, along with an investor, who then profited when the co-owner died.

Federal authorities said that from July 2007 to August 2010, Mr. Caramadre and Mr. Radhakrishnan conspired to commit mail, wire and identity fraud.

The pair “concealed from the terminally-ill individuals and their family members that their identities would be used on annuities and bonds that were purchased by Caramadre and others,” authorities said. "

Here is the FBI's new release:  click here

The FBI says:  "According to court documents, Caramadre located terminally ill individuals in various ways, including by visiting AIDS patients at a House of Compassion in Cumberland, Rhode Island, by locating family members and associates who were terminally ill, and by soliciting individuals who were terminally ill to purchase small life insurance policies.

According to court documents, Caramadre placed an advertisement in a local Catholic newspaper that provided that there was a compassionate organization that would immediately give $2,000 in cash to terminally ill individuals. Dozens of terminally ill responded to the ad. Caramadre gave Raymour Radhakrishnan, who began working for Caramadre in July 2007, the job of meeting with the people who responded to the ad for the purpose of obtaining their identity information and using that information on annuities and brokerage accounts.

According to court documents, Caramadre and Radhakrishnan made misrepresentations to terminally ill and elderly patients and their family members in order to obtain their personal identity information. They used the information, including names, dates of birth, and Social Security numbers, to obtain more than 200 variable annuities and to open more than 75 brokerage accounts in order to purchase death-put bonds in the victims’ names without their knowledge and consent. Caramadre and Radhakrishnan either forged the signatures of terminally ill people on account documents or obtained the signatures by means of misrepresentations. When the terminally ill person died, Caramadre and others reaped substantial profits by exercising death benefits associated with the investments."

Is a Divorce Agreement That Promises an Inheritance to Kids Enforceable?

Let’s say you got a divorce. As part of the divorce agreement your ex agreed to leave half of his estate to your kids. He dies. He leaves a will that doesn’t comply with the agreement - leaving 90% of his estate to his second wife. What happens? Enforce the contract you say, the kids get half. That’s what you and I think the answer should be. Maybe you have a divorce settlement with a similar provision. Will it hold up? That is the issue that has been tying up the Oleg Cassini estate for years.

Oleg Cassini, the fashion designer who made first lady Jackie Kennedy's style the "single biggest fashion influence in history" died in 2006. Jackie had chosen Oleg Cassini as her exclusive couturier and called him her "Secretary of Style."

Cassini married film star Gene Tierney in 1941. Tierney, a very successful actress, was nominated for an Academy Award for her performance in "Leave Her to Heaven." (The story is the basis for the plot in Agatha Christie's murder mystery, Mirror Crack'd.) Tierney and Cassini had two daughters, Christina Belmont and Daria Cassini. When Tierney was in her first trimester of pregnancy carrying Daria, a fan with German measles broke her quarantine to shake hands with her favorite star, and Tierney unknowingly contracted the disease. Daria was born deaf, severely retarded and nearly blind.

When Cassini and Tierney divorced in 1952, the marriage termination agreement mandated that half of Mr. Cassini's estate be split equally between the couple's two daughters upon his death.

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Executor of Estate Sues Baker Botts


The executor of the estate of a Houston man who died in September 2010 filed a negligence and negligent misrepresentation suit against Baker Botts on Oct. 10, alleging the firm made an estate-planning error that will cost the estate more than $1 million.

Read more here.

The errror stems from failing to file a gift tax reutrn and paying gift tax.


$80 Million in Gold Coins Seized from Estate


Philadelphia coin dealer Israel Switt died in 1990. In 2003, 13 years after Switt died, his daughter and grandsons drilled open a safe deposit box in Switt’s name and found 10 rare gold coins.

The coins were 1933 Saint-Gaudens double eagle $20 gold coins and were valued at approximately $80 million. The coin is named after its designer, the sculptor Augustus Saint-Gaudens. The Philadelphia Mint struck 445,500 double eagles at the height of the Great Depression, but it pulled them back weeks later as President Franklin D. Roosevelt ordered U.S. banks to abandon the gold standard. Not only were no more gold coins to be issued for circulation, people had to turn in the ones they had.

It became illegal for private citizens to own gold coins unless they clearly had a collectible value. This law was enacted during desperate times to prevent the hoarding of gold currency. Since there would be no more gold currency issued in the U.S., the Mint melted down the 1933 run of Gold Double Eagles and converted them to gold bullion bars by 1937.

Numismatic historians speculate that Philadelphia Mint cashier George McCann somehow sold or gave the coins to local coin dealer Israel Switt, our decedent. We may never know for certain how these coins left the Mint, but there is a general consensus among scholars that George McCann exchanged about 20 of the 1933 Double Eagles headed for melt down and replaced them with earlier dated Double Eagles.

Apparently Switt had 19 of the coins at one time, and one of them found its way to the collection of King Farouk of Egypt. King Farouk had legally exported his coin before the theft was discovered, and the Secret Service was unable to recover his specimen through diplomatic channels.

After King Farouk was deposed in 1952, his 1933 Double Eagle briefly appeared on the market, but when it became clear that U.S. authorities still wanted to confiscate it, it vanished again! More than 40 years later, British coin dealer Stephen Fenton showed up with it in New York, and the Secret Service finally seized it during a sting operation during which they purportedly negotiated to purchase the coin. Fenton fought a long legal battle during which the coin was stored in the Treasury Vaults at the World Trade Center. Only 2 months before the terrorist attacks of September 11, 2001, the litigation was settled and the famous coin was moved to Fort Knox. Fenton and the U.S. Mint compromised: the coin would be sold at auction, the proceeds to be split 50/50 between the Fenton and the Mint.

When Israel Switt’s children drilled open the safe deposit box, they found the coins in a gray paper Wanamaker’s department store bag. Switt’s daughter, Joan Langbord, gave the coins to the Philadelphia Mint to be authenticated and identified. What happened? The government seized the coins with no compensation to the estate.

The government said it was government property stolen in the 1930s from the U.S. Mint; and, therefore, they had a right to take it.

According to Adam Klasfeld writing for Courthouse News Service, in July 2011, the Langbords tried to convince a federal jury that the coins could have escaped the Mint legitimately through a "window of opportunity" between March 15 and April 5, 1933. The government's star expert, David Tripp, acknowledged gold coins could have left the Mint during that window, but he added that there were no records that 1933 Double Eagles did.

Last week, Judge Legrome Davis of the Eastern District Court of Pennsylvania, stated that, "the coins in question were not lawfully removed from the United States Mint." He wrote further in his decision: "The Mint meticulously tracked the ’33 Double Eagles, and the records show that no (legal) transaction occurred… What’s more, this absence of a paper trail speaks to criminal intent. If whoever took or exchanged the coins thought he was doing no wrong, we would expect to see some sort of documentation reflecting the transaction, especially considering how carefully and methodically the Mint accounted for the ’33 Double Eagles."

The Langbord family will be filing an appeal to address the issue in the 3rd Circuit.

The decedent’s estate held contraband coins valued at $80 million. They were seized by the government. Sound familiar? It recalls the Rauschenberg "combine" work, "Canyon" valued at $65 million by the IRS for estate tax purposes even though it is illegal to possess or sell it.

To be consistent, shouldn’t the IRS be claiming estate tax on Israel Switt’s coins? And if they don’t, why should the Rauschenberg estate have to pay tax on artwork that is illegal to own or sell?

Patti Spencer Talks to Fox News on Art Valuation


What is the value of a piece of art that cannot be sold? In the case of "Canyon" by artist Robert Rauschenberg, the IRS claims it is worth $65 million. They also want to tax the heirs who now own the artwork over $29 million.  

Last week I had the privilege of appearing on Fox News to discuss the dilemma that taxpayers can face when estate planning basics are overlooked. Click on the image below to watch.

Patti Spencer on Fox News 

Patti Spencer on Fox News

Fair Market Value and Estate Planning

All personal and business assets are subject to an estate tax based on fair market value at the date of death. In this case, deceased art owner Ileana Sonnabend knew that the Canyon artwork she held could not be sold because it prominently features a bald eagle. She had acquired a special permit to continue owning the artwork, but failed to transfer it out of her estate through a charitable donation prior to her death.

Read the New York Times Coverage

Here is an excerpt from a New York Times article on the story.  

Because the work, a sculptural combine, includes a stuffed bald eagle, a bird under federal protection, the heirs would be committing a felony if they ever tried to sell it. So their appraisers have valued the work at zero.

But the Internal Revenue Service takes a different view. It has appraised "Canyon" at $65 million and is demanding that the owners pay $29.2 million in taxes.

"It's hard for me to see how this could be valued this way because it's illegal to sell it," said Patti S. Spencer, a lawyer who specializes in trusts and estates but has no role in the case.


The family is now challenging the judgment in tax court and its lawyers are negotiating with the I.R.S. in the hope of finding a resolution.

Read the full New York Times story:
Art's Sale Value? Zero. The Tax Bill? $29 Million.