Power of Attorney Abuse

Posted on February 22, 2009 by Patti Spencer

The AARP Public Policy Institute has issued a report entitled Power of Attorney Abuse:  What States Can Do About It. 

Also see this summary of the report by Naomi Karp, J.D.,  In Brief: Power of Attorney Abuse: What States Can Do About It.

The ABA Commission staff, AARP staff, and advisory committee members identified 21 provisions in the Uniform Power of Attorney Act ("UPOAA") that protect against abuse and promote autonomy.  These provisions seek to fix the three inherent problems with the POA:

1.  The breadth of control that an agent generally has over the Principal's property

2.  The lack of third-party oversight of the agent's actions if the principal has become incapacitated, and

3.  The lack of legal standards and clarity about the duty owed by the agent to the principal.

For a case in point, read about the financial elder abuse of New York Philanthropist and socialite Brooke Astor.

 

Tags:

Estate Planning and the Forgotten Right to Recapture Copyrights

Posted on February 16, 2009 by Patti Spencer


The following blog post is reprinted with permission from the blog of Leslie A. Burgk, Esq,

Estate Planning and the Forgotten Right to Recapture Copyrights: How Not to Overlook this Important Right

February 6th, 2009

If your client’s estate plan overlooks the right to terminate contracts and recapture copyrights, it could cost your client’s heirs significant future income. Let’s take for example that you have a client who wrote a children’s book and signed a publishing contract in 1965. The copyright was secured that same year and your client transferred all his interest in the copyright to the publisher. For estate purposes, you may be thinking there is nothing there of value except for any income that your client is receiving and may continue to receive after his death pursuant to the contract terms. If the thought crossed your mind, you are likely overlooking a very important right that could be costly to your client and his heirs.

Under the Copyright Act of 1976, the author, or if deceased, the author’s widow or widower and children or grandchildren may terminate all transfers or licenses of the renewal copyright or any right under it (for pre-1978 copyrights) at the end of 56 years from the date the copyright was originally secured and recapture the last 39 years of copyright protection (*provided the contract was executed prior to January 1, 1978 and timely notice of termination is provided*). Congress made the right of termination inalienable. Therefore, any contract terms to the contrary have no effect.

In your client’s case, the 56th year is 2021 and the copyright in his work extends until 2060. Therefore, there is the possibility that his heirs may acquire the right to terminate the contract and recapture the copyright. If the estate documents are silent regarding this right, the heirs may miss the opportunity. If they are aware of the right, they could renegotiate the contract or take back the copyright and the exploit the work themselves or enter into more lucrative contracts thereby taking advantage of the termination right to derive more income from the work’s copyright.

If the opportunity to terminate and recapture is missed, there is another chance to recapture the copyright for the last 20 years of protection (* if timely notice is provided*); however, your client or his heirs will lose the benefit of potential income derived from exploiting the copyright in the work during those 19 years between the 56th year and the 75th year of protection.

Also Beware of Traps: There is a limited window of opportunity to terminate and the *notice* requirements are highly technical. There are also traps, such as the right to terminate does not apply to works-for-hire and the right of termination for post-1977 works is different. Therefore, if you are dealing with this issue with regard to any works protected by copyright (not just pre-1978 literary works as described above) make sure that you have thoroughly researched all the requirements, including the notice requirements and have planned accordingly, or contact an attorney who is familiar with this area of law.

 

 

Tags:

Gift Tax Paid Within 3 Years of Death

Posted on February 1, 2009 by Patti Spencer

In 1981 with the passage of the Economic Recovery Tax Act (ERTA), Section 2035 of the Internal Revenue Code was amended so that most gifts made within three years of death were no longer pulled back into the estate.  The 3-year rule was not eliminated completely, however.  Transfers of life insurance within three years of death can still cause inclusion of the death benefit in the estate and transfers of the "strings" under IRC Sections 2036, 2037 and 2038 that cause estate inclusion can cause a pull back. 

Also, any gift tax paid within three years of death is pulled back into the estate.   The reason for this gift tax rule is that the federal estate tax is a tax inclusive tax and the gift tax is a tax exclusive tax.  These examples illustrate the point:

Gift:         Donor has $150; transfer tax rate is 50%. Donor can give $100 to donee and pay $50 gift tax.

Bequest:       Decedent dies with $150; transfer tax rate is 50%. Decedent can leave $75 to beneficiaries and pay estate tax of $75. 

Without the 3-year pull back for gift tax paid with 3 years of death, one could cut the federal transfer tax payable by 1/3 simply by transferring everything days or moments before death.  OK.  So, decedent made taxable gifts and paid gift tax within three years of death.  Gift tax is brought back into the estate.  Who pays the estate tax on the gift tax?

See Gary Freidman's blogpost about  Matter of Rhodes, __ Misc.3d __, __ N.Y.S.2d __, 2008 NY Slip Op 28472 (Sur. Ct. Westchester Co. 2008), where the issue was whether donees of gifts made within three years of death are responsible for paying estate tax attributable to the inclusion of the gift tax paid on such transfers.

The Court held that the donees of the gifts made within three years of decedent's death are responsible for paying their ratable share of the estate tax attributable to the inclusion of the gift tax paid.  Ouch!  

Here is what the tax clause in the will said:

All inheritance, succession, transfer and estate taxes . . . payable by reason of my death in respect of all items included in the computation of such taxes which shall have passed under the provisions of this Will, shall be paid by my Executors as follows:
(A) All taxes with respect to property passing under this Will shall be apportioned in accordance with the law of New York, notwithstanding the foregoing, I direct that any such taxes resulting from the bequests under Clauses SECOND, THIRD and FIFTH of this Will shall be paid by my Executor out of my residuary estate, without apportionment or reimbursement from any beneficiary.
(B) I intend that all taxes described in paragraph (A) of this Clause with respect to property passing outside of the provisions of this Will shall be apportioned in accordance with the law of New York . . ..
(D) I wish to record that I have given great consideration as to how I have directed that the taxes described in paragraph (A) of this Clause are to be paid with respect to property passing under and outside my Will and to whom I have burdened with the payment of such taxes. I believe that the provisions which I have arrived at are equitable for all of my family members.

Looks like the decision is correct.  The gift tax paid certainly didn't "pass under the terms of the will."   Another reminder to be very careful with tax clauses.

Tags: