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

They appear on late night television and on the internet promising to reduce your tax debt, remove tax liens, and settle your unpaid taxes, interest and penalties for pennies on the dollar. Do you really believe you can pay a fee to a tax relief company and reduce your $50,000 tax bill to $2,000?

Apparently a lot of people do believe that. The California Attorney General is suing TV’s Tax Lady, Roni Deutch, for $34 million.

Attorney General Jerry Brown announced the suit last Monday saying "Tax Lady Roni Deutch…promises to significantly reduce [clients’] IRS tax debts, but instead preys on their vulnerability, taking large up-front payments but providing little or no help in lowering their tax bills."

Brown alleges that Roni Deutch regularly violates state law by making false promises about her ability to resolve disputes with the IRS. He says that Deutch overstates her advertised television claims of winning 99% of her tax battles with the IRS while in reality she reduces the amount of money her clients owe in taxes in just 10% of the cases. Most of her clients quit or are terminated by her firm and are denied refunds after her staff bills them for work that wasn't performed, the lawsuit said.

The attorney general's office says hundreds of Deutch's clients have filed complaints. In addition to not lowering their debts, consumers says she also refused to refund fees of as much as $4,700 that her firm charged.

The complaint filed against her alleges that she engaged in a scheme to swindle taxpayers, including senior citizens and disabled, who cannot afford to pay their tax debt by enticing them to engage her firm to negotiate a resolution of their tax debt with the IRS. She promises to lower the amount the clients owe the IRS, eliminate interest and penalties, establish a low monthly payment plan, or prevent the IRS from collecting on the tax debt altogether. According to the complaint, she also falsely represents that she is able to immediately stop IRS collection actions such as levies and wage garnishments.

Deutch has faced similar allegations before. In December 2006, she settled a lawsuit filed by New York City's Department of Consumer Affairs that alleged she misled consumers with her advertising. She agreed to pay $300,000, including $100,000 in fines and $200,000 in restitution to consumers.

A recent MSNBC article cautioned taxpayers against falling for tax resolution promises that sound too good to be true. According to the article, "Instead of describing the long odds [of winning a tax settlement], many tax debt settlement companies sweet talk clients. Then they take large up-front payments — prices start at $3,000 and climb fast from there – but do little or nothing to help with the tax problem."

Most people are frightened when they are in trouble with the IRS. They may have a bill that is larger than anything they ever owed and they are scared stiff. Put yourself in their shoes. There you are, watching late night TV, unable to sleep because you are so worried about your tax problem, and an angry female attorney comes on and tells you she will fight the IRS for you and win! If you call the toll free number, you reach a salesperson whose job it is to get a large up front payment from you on your credit card.

Many tax relief companies make outlandish promises about reducing their tax bill to taxpayers, collect a large fee up front, and then never do anything. They may tell the taxpayer later that they don’t qualify for relief and suggest they call the IRS themselves for a payment plan.

If you are already in debt because of unpaid taxes, you don’t need to pay a big fee for nothing to one of these outfits.

Finding competent help can be challenging. You need to do your homework, and ask lots of questions. Find out about the firm - how long it’s been in business, what kind of complaints have been lodged against it? How many tax attorneys do they have on staff? Ask for references.

If the firm offers you a guarantee. Just say "no thanks" and run away. Nobody can guarantee anything. Does the firm want all its fee up front? If they do, run away. Some money upfront as a retainer is reasonable.

Do they give you a high pressure sales pitch? If they are pushing that hard, that's a warning sign to stay away. In many cases when you get a sales pitch, you are talking with a salesperson, not a tax attorney or tax resolution specialist who can help you.

In general, when considering hiring any company or person to represent you, look for statements that seem too good to be true, claims of some kind of special advantage, or creating a fear that only they can solve. Be careful out there.

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Huguette CLark, a 104-year-old heiress, has been in a hospital for the last 20 years? 

Read Verena Dobnik's article for the New York Post:  click here

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Most of these United States use post-mortem probate. A person’s will is submitted for probate after his or her death. The idea is that after the testator is dead, the will is read and the testator’s estate is distributed in accordance with his wishes.

I always thought there should be some procedure to validate a will before the testator's death, a "pre-mortem probate." After all, the testator is the best source of evidence about his or her intent. And the best time to assess a testator's capacity or susceptibility to undue influence is at the time the will is made, right? It seems illogical that these issues have to wait for probate when the best evidence is no longer available.

Probating a will after the decedent’s death brings with it all sorts of family disputes, will contest suits, and other litigation. The worst aspect of the process is that it encourages spurious contests where unhappy beneficiaries bring actions claiming lack of capacity, fraud or undue influence, just to get a settlement. It’s the cost of their going away. Of course, even if a will contest results in no settlement or adverse verdict, the failed challenger has no responsibility to reimburse the estate for all of the costs it has been forced to incur to defend the testator’s intent. As stated by Aloysius A. Leopold and Gerry a Byer in the article, "Ante-Mortem Probate: A Viable Alternative," [T]esting the validity of the instrument after the testator’s death is the most illogical and impractical time for such scrutiny because even the simplest of errors have the unavoidable effect of destroying the validity of a will and upsetting the testator’s interests."

The alternative to a post-death probate is the "Ante-Mortem Probate." A court proceeding is held during the testator’s lifetime to validate the will. The most obvious and striking feature of this approach is that the person who has the best evidence of intention, the testator, is alive and can tell exactly what he or she intends.

Questions about the capacity of the testator can be resolved by direct testimony of the testator. The testator is there, thus able to answer questions, explain his or her intentions, correct misapprehensions and eliminate ambiguities. Beneficiaries would have to consider carefully their complaints or contests.

In some jurisdictions, guardian or conservatorship proceedings are used in an attempt to establish a life-time determination of competency and freedom from influence. While these kind of proceedings are not directly related to the validity of a will, they are related to competency issues and can provide current testimony and actual input from the testator to build a legal record. For example, in California, a posthumous challenge to a will was barred because the same issues of capacity and undue influence had already been litigated in a proceeding for guardianship while the decedent was alive. While this may provide some help, the proceeding is expensive and can be embarrassing. There should be another way.

Several states experimented with Ante-Mortem Probate alternatives in the 19^th century. The uniform commissioners have considered the matter several times, in the 1930's, the 1940's and 1970's. There is much discussion of the concept in academic literature. Currently, three states, Arkansas, North Dakota and Ohio, allow living probate procedures. In those states the procedure is like a will contest and results in a declaratory judgement.

There are issues that need to be resolved if pre-mortem probate is enacted. Who would receive notice of a scheduled proceeding? What kind of notice should be given? Would the decree bind beneficiaries of prior wills who did not have notice? How many times should a testator be allowed to bring another proceeding if the first probate fails?

Providing for pre-mortem probate is not a panacea. And no one recommends that port-death probate be eliminated. But there should be a way to validate a will while the testator is living to make sure the testator’s property is distributed as he or she intends.

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If my father promises to give me money to buy a grand piano for my birthday and then reneges, can I sue him for the money? Is a promise to make a gift legally enforceable? In general, no, I cannot sue him to force him to give me the money for the grand piano.

But what if after he makes the promise I go to the piano store and sign a contract with the store to buy the piano? I relied on his promise. When a person reasonably relies to his or her detriment on another’s promise to make a gift, the promise becomes enforceable. Then I can sue him.

The same analysis applies in the context of a pledge to a charity. When we think of a charitable contribution, we think of a contribution that is freely given. However, most courts view charitable pledges as legally enforceable commitments. Whether or not the pledge is enforceable is a matter of state law.

Under general principals of contract law, a charitable pledge is enforceable if it is a legally

binding contract. There must be an agreement between the donor and the charity, and there must be "consideration" given in exchange for the pledge. That is, the charity must agree to do something (or not do something) in exchange for the promised donation.

It is also "consideration" if a charity has relied on a pledge to its detriment even though that reliance was not requested by the donor as consideration. The legal doctrine applied here is called "promissory estoppel." In the law of contracts, the doctrine of promissory estoppel provides that if a party changes his or her position substantially either by acting or forbearing from acting in reliance upon a gratuitous promise, then that party can enforce the promise although the essential elements of a contract are not present.

Actions that constitute such reliance based on the pledge include soliciting other donors, incurring costs, entering into contracts, or borrowing money based on the expectation that the donor’s promise will be kept. Promises by other donors can be the consideration for the pledge that the charity seeks to enforce. Courts have been very liberal in finding reliance such as where there are specific fund-raising goals for pledges or naming opportunities.

In some states, a charitable pledge is enforceable even without consideration or detrimental reliance as a matter of public policy. For example, in Ohio, a pledge is considered to be just like a promissory note.

In Pennsylvania, any written promise is enforceable despite the absence of consideration or reliance if the writing states that the maker intends to be legally bound. (33 P.S.§6)

According to the Financial Accounting Standards Board, unconditional promises must be listed as assets on the charities financial statements and reported as revenue when the pledge is made. Lenders will often use pledges as collateral for a loan to the charity.

The directors of a nonprofit corporation or the trustees of a charitable trust may have a duty to pursue the collection of legally enforceable pledges. In general, directors and trustees have a

fiduciary duty to protect and preserve assets. If a donor has declined to fulfill a pledge and clearly has adequate resources to fulfill the pledge, the charity may have a fiduciary duty to enforce the pledge. A breach of fiduciary liability can result in personal liability for the director or trustee.

There are tax issues as well. Charities enjoy tax exemption granted by the IRS. One of the conditions is that a charity not give its assets away except to another charity. Forgiving a pledge could be construed as a gift back to the donor - obviously an improper action for a charity. Forgiving a pledge could be a prohibited benefit for which sanctions could be imposed on the organization for giving a disqualified person an excess benefit.

While charities have the right to sue donors who default on pledges and while the directors owe duties to the charity to conserve its assets, they probably do not have an absolute duty to sue defaulting donors. So far, no court has held a charity liable for refusing to enforce a pledge. The costs of pursuing such legal action and the damage such a lawsuit might do to relationships with other donors are appropriate for the board to consider.

Most charities routinely file claims in a deceased donor’s estate to secure payment of a pledge. This is considered to be routine and is not seen in the same way as a suit against a living donor. Suing living donors in default has pubic relations ramifications.

As with any contract, a charitable pledge will not be enforced if certain defenses to recovery exist such as where the donor was a victim of undue influence or fraud. If a pledge is small or the debtor is in financial trouble, the prudent course may be not to seek to enforce the pledge.

Directors and trustees are placed in the unenviable position of deciding whether to accept a significant write-off of the charitable organization’s assets or putting pressure on donors to honor their pledges which, in turn, may jeopardize future donations.

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Retail mutual fund shares are classes A, B and C. They differ in the amounts of internal 12-b1 fees and also on the loads, or sales charges.  Read about it here:  The ABCs of Mutual Funds.  There is another class offered for many funds: Class I, which stands for institutional class. Class I shares are offered only to large investors, typically investment firms and minimum purchases are often more than $500,000. Class I shares’ fees are typically 40% less than those of classes A, B and C.

What does this have to do with you and me? The connection is that our 401(k) managers can make Class I funds available as investment options for our retirement account. Since Class I funds have exactly the same underlying investment positions as the A, B, and C class shares (ABCs), you would expect the fund manager would go with the better deal for us. Wouldn’t you be upset if he were paying higher fees than he had to?

Think about it this way. You want to buy a car. There are two identical cars on the dealer’s lot. One costs $5,000 more than the other. Which one would you buy?

Why would you pay $5,000 for an identical car? Why would a fund dealer provide ABCs which carry a higher fee instead of Class I shares? Maybe carelessness. Or maybe because the additional fee charged benefits the fund manager or plan sponsor. That is exactly what happens when your 401(k) investment manager provides retail (ABCs) mutual funds for you. They call it "revenue sharing". The plan sponsor receives "offsets" from retail mutual funds, that is, the 12-b1 fees. They don’t call it a kickback.

A recent court case should make 401(k) plan sponsors think twice before offering retail funds as investment options in the plan when investment class shares, Class I, are available with lower expenses. In a case in the middle district of California, Tibble vs Edison International, a group of plan participants went to federal court to complain about the plan buying non-institutional shares. Judge Stephen V. Wilson ruled that the company violated its duty of prudence by selecting retail shares instead of Class I shares for three of the funds held by the plan.

The Edison International Trust Investment Committee made retail share classes of three mutual funds available to participants in the Edison 401(k) Savings Plan. In deciding which funds to offer, the committee did not consider, let alone evaluate, other share classes of the funds. However, it did solicit and rely upon the advice of Hewitt Financial Services, an affiliate of the plan’s third-party record keeper. A class of plan participants sued the committee, Edison International, and others seeking damages under ERISA for alleged financial losses suffered by the plan, in addition to injunctive and other equitable relief on account of breaches of fiduciary duty.

Judge Wilson stated, "In light of the fact that the institutional share classes offered the exact same investment at a lower fee, a prudent fiduciary acting in a like capacity would have invested in the institutional share classes."

Daniel Sonin reported this case on dailyfinance.com on July 28. He reported that Edison is not an isolated instance. He asserts that "over ninety percent of the funds he has examined have purchased retail class funds when institutional class funds of the same content were available."

If Class I shares’ fees are typically 40% less than those of classes A, B and C, what would a 40% reduction in fees by offering Class I shares look like? Consider a fund of $200,000. For simplicity, assume no additions or withdrawals. Assume a rate of return of 8% minus annual fees of 2% for a net annual return of 6%. If the fees of 2% were forty percent lower, they would be just 1.2 % per year, allowing the fund to grow at a net 6.8 % per year. After ten years at 6%, it would grow to $358,170. At 6.8 %, it would grow to $386,138, a difference of almost $28,000.

If Judge Wilson is correct and the company is liable for lost income, that would make many fund advisors think twice about recommending retail funds.

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