PBI Solo and Small Firm Conference

Don't miss this CLE on Tues. & Wed., July 17-18, 2012 at the Omni Bedford Springs Resort

This is the best CLE of the year and a HUGE bargain.

Here is the brochure:  click here


What Arguments did the Supreme Court Hear on Obamacare?

On March 26, 27 and 28, the nine Justices of the United States Supreme Court sat for six hours to hear arguments on the constitutionality of the Patient Protection and Affordable Care Act. The case is officially known as Florida v. Department of Health & Human Services. A total of 26 states (including Pennsylvania) are involved in the suit.

Set aside for the moment whether or not you believe the legislation is good or bad public policy. Set aside your political views and whether you love it or hate it. Let’s examine the arguments before the court.

 Day One

The issue for argument on Monday, March 26, was the applicability of the Anti-Injunction Act, a reconstruction era law that prohibits the Courts from striking down tax laws before they take effect. Both parties to the suit, the administration and opposing 26 states agreed that the act did not apply. The Supreme Court appointed a third party, Washington D.C. lawyer Robert Long, to argue the position that the Court has no jurisdiction to hear the case because of the Anti-Injunction Act.

The administration’s position presented by Solicitor General Donald B. Verrilli Jr. was that the "penalty" imposed on persons who do not purchase medical insurance in accordance with the mandate, although collected by the internal revenue service with the income tax and dependent on income levels, is not itself a tax, therefore the Anti-Injunction Act is inapplicable.

Justice Samuel Alito broke in to say: "General Verrilli, today you are arguing that the penalty is not a tax. Tomorrow you are going to be back and you will be arguing that the penalty is a tax. Has the court ever held that something that is a tax for purposes of the taxing power under the Constitution is not a tax under the Anti-Injunction Act?"


 Day Two

:The individual mandate portion of the law goes into effect on January 1, 2014. It requires virtually all Americans to obtain health insurance or pay a penalty. On Tuesday March 27, the Supreme Court heard two hours of oral argument on the mandate and whether it is constitutional under the Commerce Clause. The Commerce Clause is found in the United States Constitution Article I, Section 8, Clause 3, and states that Congress shall have power "To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes."

The administration’s argument is that the mandate to buy health insurance or else pay a penalty is a permitted regulation of interstate commerce. The states argue that not buying something (health insurance) is not engaging in commerce and, therefore, can’t be regulated by the federal government.

While the administration relied heavily on the Commerce Clause, they also provide an alternative argument: that the individual mandate to buy insurance or pay a penalty is a valid exercise of Congress’ taxation power as provided by the General Welfare Clause, Article I, Section 8, Clause 1, (even though they argued that the penalty for non-compliance was not a tax in order to avoid the Anti-Injunction Act). The General Welfare Clause reads: "The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States. . ."

The states argued that the individual mandate and penalties for noncompliance with the mandate do not fall under Congress’ taxation powers under the General Welfare clause because Congress and the administration have gone to great lengths to specify in the legislation, as well as the debate about that legislation, that the penalty for noncompliance was a penalty, not a tax.

Paul Clement, arguing for the 26 states who oppose the mandate argued that if the government can mandate that everyone has to purchase health insurance, then what can’t it mandate? Where, exactly, does the line get drawn if the Court upholds the individual mandate and what might a future Congress do with this new found power. The Justices asked about requiring people to buy cell phones, burial services, even broccoli - because it is good for you.


Day Three 

The issue for argument on Wednesday March 28 was severability, that is, whether the rest of the health care law can stand if the individual mandate provision is found unconstitutional.

The states contend that if the individual mandate to buy insurance or pay a penalty is found to be unconstitutional, the entire Patient Protection and Affordable Care Act should be struck down.

The administration says that if the mandate is considered unconstitutional, only two major provisions of the law would have to fall, but the rest of the law can stand. Deputy Solicitor General Edwin Kneedler, on behalf of the Obama administration, argued that only the ban on pre-existing conditions and cap on the cost of policies should be turned down if the mandate was gone.

Here is the relevant precedent from the 1987 case Alaska Airlines v. Brock: "Unless it is evident that the Legislature would not have enacted those provisions which are within its power, independently of that which is not, the invalid part may be dropped if what is left is fully operative as law."

The Supreme Court has to figure out, based on documentation of Congress’ deliberations, whether or not Congress would have intended to pass the law without an individual mandate, and also if the law is workable, as a matter of policy, without the mandate.


Ex-spouse Does Not Mean Ex-beneficiary

If you are divorced, or you advise clients who are divorced, this is important. The Pennsylvania Supreme Court has ruled that the federal Employee Retirement Income Security Act (ERISA) takes precedence over the Pennsylvania statute that removes divorced spouses as beneficiaries. What this means is that unless your employer’s plan contains a provision to the contrary, if you are divorced and your ex-spouse is still named as beneficiary of your qualified plan; it is payable to the ex-spouse! That is without regard to Pennsylvania state law, without regard to any order from a Pennsylvania Court, and without regard to any provisions in a property settlement agreement or other contract. It’s really true.

It is very common for spouses to divorce but fail to update their estate plans, including beneficiary designations. This has not been a big problem because Pennsylvania law (20 Pa.C.S. § 6111.2) provides that if an ex-spouse is designated as a beneficiary on a life insurance policy, annuity contract, pension, profit-sharing plan or other contractual arrangement providing for payments to the spouse; any designation which was revocable at the time of death is ineffective, and the beneficiary designation is construed as if the ex-spouse had predeceased. If the designation or a separate contract (such as a property settlement agreement) provides that the designation is to remain in effect even after the divorce, then the designation remains effective. This statute produced the result that most people wanted: the ex-spouse is not the beneficiary. No more.

The legal issue is whether or not the federal law, ERISA, which provides that a qualified plan benefit is payable to the named beneficiary, is superior to, or "trumps" Pennsylvania state law that modifies the beneficiary based on circumstances, in this case, the divorce of the plan participant. The legal doctrine involved is called "federal preemption" and is based on the supremacy clause of the U.S. Constitution: "This Constitution, and the laws of the United States which shall be made in pursuance thereof; and all treaties made, or which shall be made, under the authority of the United States, shall be the supreme law of the land; and the judges in every state shall be bound thereby, anything in the Constitution or laws of any State to the contrary notwithstanding." In other words, certain matters are of such a national, as opposed to local, character that federal laws preempt or take precedence over state laws. As such, a state may not pass a law inconsistent with the federal law.

In 2001, the United States Supreme Court in Egelhoff v. Egelhoff, 532 U.S. 141 (2001), set the precedent that any state statutes having a "connection with" ERISA plans are superseded by ERISA. David Engelhoff divorced his wife and did not change his beneficiary designations on his qualified plans. Washington state law provided that on divorce, the beneficiary designation of his wife was revoked. However, his ex-wife successfully claimed the benefit asserting that since she was the named beneficiary and ERISA preempts state law she gets the benefit.

Closer to home, the Pennsylvania Supreme Court case decided an almost identical case on November 23, 2011, in re Estate of Sauers, York County, Supreme Court of Pennsylvania, Middle District (No. 78 MAP 2009). Paul and Jodie Sauers divorced in 2002, and Paul did not change the beneficiary on a $40,000 employee group life insurance plan subject to ERISA. Paul died in 2006. The Court held that the Pennsylvania statute which provides that Jodie, now an ex-spouse, does not receive the death benefit was preempted by ERISA - the benefit was payable to her, the ex-spouse. (The only question is why in the world didn’t the lower court follow Egelhoff.)

The Court explained that the state probate law at issue "gives a Pennsylvania court the power to enjoin a plan administrator from discharging his fiduciary duties in accord with federal law, while concomitantly subjecting the plan administrator to civil liability in federal court. ...

"This Hobson's choice, of being forced to choose between applying either state or federal law, at the potential peril of disregarding a state court order to evade federal liability, is exactly what the preemption provisions of [section]1144(a) of ERISA, as interpreted by the [U.S. Supreme Court], intended to avoid. Such potential not only 'relates to,' but also surely violates, the uniformity requirements and objectives of ERISA."

What to do? If you are divorced, make sure you have changed all of your beneficiary designations.

If you are a plan sponsor, consider amending your ERISA plan to include a provision that would automatically revoke a pre-divorce spousal beneficiary designation.


Does this apply to IRAs? Probably not, because IRAs are not governed by ERISA for most issues. To be safe, change IRA beneficiaries too.

PennsylvaniaFIducairy Litigation Nominated as one of Top 25 Estate Blogs

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:



Crystal Ball Reading on Estate Planning

The Trust Advisor Blog posted this excellent interview with Jonathan Blattmachr about the future of Estate Planning:  Visionary Predicts Future of estate Planning

Blattmachr on virtual law practice of "remote law":

"The next generation’s estate planners may serve a global clientele, without ever meeting a single client face to face.

More and more firms are already marketing to prospects and keeping their leads on the line by providing a rich experience through their website: an online newsletter, a blog, even a Twitter feed.

Down the road, Blattmachr sees these sites merging with the computerized decision-making software that is already helping mass-market clients write their wills.

“The law firm’s software will analyze the client’s responses and then advise the client whether he or she is an appropriate candidate for the strategy and state why,” he explains.

“Presumably, there will be an offer to meet with the client or prospective client to implement the strategy if that is what the client or prospect wishes to do,” he adds.

In effect, the estate planner will be providing basic advice — via the automated system — from anywhere in the world. As a result, Blattmachr expects a lot more work-at-home lawyers to do good business over the next decade.

And while many U.S. professionals are worried about having their jobs outsourced to India, there’s a secret to outsourcing, Blattmachr says.

“No lawyer in India is going to work as cheaply as a computer,” he adds. “So outsource yourself to the computer and keep the money.”

Of course, servicing clients outside of the lawyer’s own jurisdiction may require knowledge — whether derived from computer software) or affiliation with a lawyer in the client’s own jurisdiction — to adequately serve the client’s interest."

Please Vote - Every Day until June 30

One of my favorite charities, Lancaster Yeshiva Center,  is competing in the Pepsi Refresh Project -  they need votes!

Please vote for their idea to renovate an uninhabitable city home while training vocational students:

click here to vote



Amnesty for Unreported Foreign Accounts

On March 23, 2009 the IRS announced a new voluntary disclosure program for undeclared foreign accounts. The "amnesty" program is open for six months, closing on September 23, 2009. For qualifying taxpayers who come forward and report their undisclosed foreign bank accounts and pay back taxes for six years plus interest and some penalty, the IRS agrees not to bring criminal charges or assess the 75% fraud penalty.

IRS Commissioner Douglas H. Shulman said, "offshore accounts harbor billions of dollars, and people should take notice that the secrecy surrounding these deals is rapidly fading."

On June 30, 2008 a federal court authorized the IRS to serve a "John Doe" civil summons on UBS, demanding the names of approximately U.S. clients who hold off-shore bank accounts. On February 18, 2009, UBS entered into a Deferred Prosecution Agreement with the Department of Justice and agreed to pay $780 million to the U.S. and to disclose the names of between 250-300 of its U.S. clients who had maintained secret accounts at UBS. Now the IRS has sued to enforce the earlier John Doe summons seeking the disclosures of the owners of about 52,000 UBS Swiss accounts. It is estimated that these accounts hold some $17.9 billion in assets. The 52,000 accounts are just at one bank in one country. No one knows how many other accounts in other jurisdictions and financial institutions are unreported.

In addition, UBS has notified many of its U.S. clients that their secret bank accounts will be terminated. Closing the accounts is going to put the account holders in a tight spot. They have two choices: 1) transfer the money to banks in other "bank secrecy" jurisdictions which would create a paper trail discoverable by the IRS, or 2) repatriate the funds to the U.S and come clean with the IRS.

It is not illegal to have a foreign bank account in a bank secrecy jurisdiction (Switzerland, Liechtenstein and the Cayman Islands come to mind). What is illegal is failing to disclose the accounts and failing to report the income and pay income tax. In addition to disclosing the existence of the accounts on your 1040 and reporting the income, Foreign Bank Account Reports ("FBARs") must be filed by any U.S. taxpayer who has signatory or other authority over a foreign account or accounts that have a combined value of more than $10,000 at any time during the calendar year.

For taxpayers who "come clean" under the voluntary disclosure program, they will have to 1) pay back taxes due on the undisclosed assets for the last six years; 2) pay interest on the back taxes; and 3) pay a 20% accuracy penalty or a 25% delinquency penalty for each tax year at issue.

While this may seem like a tough position, it is far less than what these taxpayers will face if they are discovered by the IRS. Most importantly, the IRS will not pursue charges of criminal tax evasion against taxpayers who voluntarily disclose their offshore assets under this new policy. There is no guarantee of no criminal prosecution, but it is a mitigating circumstance in whether or not the IRS will recommend prosecution and, obviously, the amnesty program is not going to work unless the IRS sticks to its announced policy.

In addition, the IRS will not pursue other penalties against participating taxpayers, such as the fraud penalty of 75% of the unpaid tax or the statutory penalty for willful failure to file an FBAR, which is the greater of $100,000 or 50% of the foreign account balance. Both of these penalties apply annually to undisclosed accounts and assets during the relevant tax years.

Since a taxpayer's name may be discovered by the enforcement of the "John Doe" summons against UBS or in Congressional Hearings, it would be prudent for affected taxpayers to begin the process of determining whether the voluntary disclosure policy is available and appropriate for their particular circumstances. As IRS Commissioner Shulman forewarned, "having the IRS find you could mean a much heavier price than coming forward on your own."

Before making a voluntary disclosure, each case should be considered by a qualified tax advisor, giving consideration to the particular circumstances of each case. Voluntary disclosure is not a guarantee of no criminal prosecution. Experts recommend that the taxpayer’s attorney contact the local IRS district office. Without disclosing the taxpayer’s name, the attorney should explain the facts and circumstances to the IRS to determine if the IRS will agree not to prosecute. This disclosure should only be done with a high-level IRS official or counsel.

Taxpayers with offshore noncompliance should take advantage of the amnesty and come forward. The situation is going to get worse, not better.

Pennsylvania Trust & Estates Attorney Launches New Trust Administration Firm

Spencer Fiduciary Services offers trust and estate expertise to law firms and banks

LANCASTER, PA – May 27 – BUSINESS WIRE – At a time when law firms are scaling back operations or completely dissolving, Pennsylvania-based trust and estates attorney Patti S. Spencer has taken the bold step of starting a new corporate entity.

Spencer Fiduciary Services (SFS, www.spencerfiduciaryservices.com) is a private consulting company dedicated to providing trust and estate services to law firms and financial institutions. Founding attorney Patti Spencer, head of Lancaster-based Spencer Law Firm (www.spencerlawfirm.com), saw a need in the market for outsourced trust administration and estate settlement services.

“Handling trust and estate matters for clients is a natural expansion opportunity for many law firms, but it requires specialized expertise that may not be available within a firm,” says Spencer. 

SFS is designed to help Pennsylvania law firms and banks administer estates and trusts; value assets; and prepare and file inheritance, federal estate, or fiduciary income tax returns. SFS also helps clients comply with the Uniform Prudent Investor Act (UPIA), the Uniform Principal and Income Act (UPAIA), and the Uniform Trust Act (UTA).

“We work behind the scenes or directly with a firm’s clients to provide a wide range of estate and trust services,” says SFS Director M. Yvonne Crouse. “The client always remains the attorney of record.”

Law firms and banks that partner with SFS can maintain their client relationship while gaining in-depth tax knowledge, state of the art technology, and experienced staff. Every client of Spencer Fiduciary Services receives a password-protected Internet portal for unlimited access to all account documentation.

When trust and estate disputes lead to fiduciary litigation or arbitration, Ms. Spencer is also available to serve as an expert witness in matters relating to fee disagreements, attorney malpractice, breach of fiduciary duty, failure to pay taxes, estate violations, or fiduciary investment management.

About Patti S. Spencer, Esq.

Patti S. Spencer is a nationally recognized trusts and estates attorney, author and educator. She is a peer-nominated Fellow of the American College of Trust and Estate Counsel. Her publications include “Pennsylvania Estate Planning, Wills and Trusts Library” (Data Trace, 2007), and “Your Estate Matters” (AuthorHouse, 2005). Her blogs include www.pennsylvaniafiduciarylitigation.com and www.pennsylvaniatrustsandestates.com.


Margaret Grisdela

Legal Expert Connections, Inc.

866-417-7025, mg@legalexpertconnections.com

Is the AIG Bonus Clawback Tax Constitutional?

                            "The power to tax involves the power to destroy."

                                                                         --Chief Justice John Marshall  in McCulloch v. Maryland 

Senate Majority Leader Harry Reid and other congressional Democrats have proposed a 91% tax on bonuses given to executives of AIG and other companies. The proposed legislation is a way to recover the $165 million paid out to AIG executives, which triggered widespread outrage because the insurance giant received more than $170 billion in U.S. taxpayer money and is now owned 80% by the U.S. Government.

AIG claims its hands are tied under contract law and that the payouts had to be made to avoid lawsuits. Some legislators think if the government "claws the money back" from the AIG executives, that objection is removed.

Harvard Constitutional Law Professor Lawrence Tribe was asked by Wall Street Journal Blog reporter Ashby Jones whether a retroactive tax would violate either the prohibition on Bills of Attainder or Ex Post Facto Laws.

A Bill of Attainder is an act of the legislature declaring a person or group of persons guilty of some crime and punishing them without benefit of a trial. The word "attainder", meaning "taintedness", is part of English common law. Under common law, a criminal condemned for a serious crime, could be declared "attainted", meaning that his civil rights were nullified: he could no longer own property or pass property to his family by will. Bills of attainder are forbidden by Article I, section 9, clause 3 of the U. S. Constitution.

In an e-mail exchange, Tribe was asked if a law that targeted AIG executives violates the prohibition on Bills of Attainder. Tribe responded, "I do think Congress (and the Executive Branch) could avoid serious Bill of Attainder problems by passing a sufficiently broad law . . . rather than targeting a closed class of named executives even though the prohibition against Bills of Attainder, unlike that against Ex Post Facto laws, potentially reaches civil as well as criminal penalties."

An Ex Post Facto Law (from the Latin for "after the fact") is a law that retroactively changes the legal consequences of acts committed or the legal status of facts and relationships that existed prior to the enactment of the law. The federal government is prohibited from passing ex post facto laws by Article I, section 9 of the U.S. Constitution, and the states are prohibited from the same by clause 1 of section 10.

When asked by the Wall Street Journal if a law that imposed a tax on past-gotten earnings would violate the Ex Post Facto Clause, Tribe responded, "The Ex Post Facto Clause applies exclusively to criminal punishment and poses no difficulty here. And the fact that the measure contemplated would operate retroactively as well as prospectively doesn’t distinguish it from any number of tax and other financial measures that the Supreme Court has upheld over the claim that fundamental fairness precludes retroactively undoing contractual obligations."

In the Wall Street Journal Law Blog interview, Tribe also addressed whether the law would violate the contracts clause, the takings clause and the due process clause. He saw no problem. Many courts have ruled requirements for substantive due process are not violated if the legislation has a rational legislative purpose, "something nobody could deny in this instance," according to Tribe.

But wait – the wind is changing.

Kay Bell, in her Don’t Mess With Taxes Blog, writes: "Laurence H. Tribe, a professor of constitutional law at Harvard Law School, first thought the [AIG Bonus Tax] would pass court review. But he has had a change of heart, now telling Tax Analysts he has ‘growing doubts about the constitutionality of H.R. 1586’s 90 percent AIG bonus clawback tax.’"

Greg Sargent, author of The Plum Line Blog, reports on his telephone conversation with Professor Tribe. According to Sargent, Tribe says he is now leaning towards seeing the clawback tax as unconstitutional. "Tribe says the problem with the bill is that the Constitution forbids Congress from enacting a "bill of attainder", which would essentially "legislate punishment of an identifiable class", as he put it. Tribe noted that the Supreme Court had used that clause to slap down other laws."

As quoted by Sargent: "Its punitive intent is increasingly transparent," Tribe says, "when you have Chuck Grassley calling on [executives] to commit suicide, and people responding to pitch fork sentiment, it’s hard to argue that this isn’t an attempt to punish an identifiable set of individuals who are the subject of understandable outrage."

Hmmmm. So which is it? It might be bad tax policy, but it’s not unconstitutional. Tribe was right the first time. A number of the bonuses have been returned, so perhaps it’s a moot point. Until next time.

Texas judge allows collection of dead son's sperm

Thank you to Professor Gerry W. Beyer for this interesting piece of news:

Harvest of a dead man's sperm authorized by Texas judge.

Here is the story from the AP:  click here.

Let me get this straight.  A 21 year old guy dies after a bar fight.  His mother wants his sperm so she can carry out his wish to have children.  Let me be more speicfic -  to have 3 boys named Hunter, Tod and Van.

"University of Texas law professor John Robertson, who specializes in bioethics, said state law gives parents control over a child's body for organ and tissue donations but its use for sperm "is very unclear."

"There are no strong precedents in favor of a parent being able to request post-mortem sperm retrieval," he said

No kidding.

How to Make This Blog on PA Fiduciary Litigation More Useful to You

Thank you to Grant Griffiths for his suggestion for this post.

We appreciate your visits to Pennsylvania Fiduciary Litigation.  While many of you are stopping by to read the new post we have published, you may be missing out on what else we have to offer.

1. Don’t forget about the search box

If you look in the lower left column of the blog page you will see our search box. You can use this to find posts we have done in the past. If there is a particular topic you are looking for, type in your search request. 

2. Subscribe by either email or RSS feed

As our readership continues to grow, so does the number of  subscribers to our RSS feed and/or email feed. You can find our subscription options on the left side of the blog page also. 

I  encourage our readers to use RSS if they want. If you click on this link, you will get a video explaining RSS in plain english which is posted on the commoncraft site.

3. "Taxing Matters" columns

I write a weekly column called "Taxing Matters" which is published every Monday morning in the Business Section of the Lancaster Intelligencer Journal.   If you missed it in the newspaper you can see the column on the Publications page of the Spencer Law Firm website.

If you have an idea for a column, please pass it on to patti@spencerlawfirm.com.

4. If you have a topic you would like me to post on, please tell me

I want our readers to tell me if there is a topic or a particular question they may have which they would like me to post on. I spend a lot of time considering what to post on and I do have a file folder on my desktop full of ideas. However, what makes a blog so great is when its readers and the blogger develop a community whereby the readers get involved in what is being talked about. You can leave a comment on any blog post asking me to expand on it or to write a post on a different topic. You are also always encouraged to drop me an email at patti@spencerlawfirm.com and let me know what you would like to see on Pennsylvania Fiduciary Litigation.

5. Please ask if you would like to guest post

I love it when I get someone who wants to guest post on Pennsylvania Fiduciary Litigation. Not only does it give me a break from doing the writing, it gives our readers a different take and voice on the subject of fiduciary litigation. Please drop me an email at patti@spencerlawfirm.com if you would like to guest post on Pennsylvania Fiduciary Litgaiton.

6. Connecting with me, Patti Spencer

You can always reach me by e-mail at patti@spencerlawfirm.com.  If you would like to follow me in the other social media tools I use, you can find me on Linked In at:


You can find me on Twitter at:   http://www.twitter.com/pattispencer.

I am active on Twitter and enjoy the interaction and conversations I have with those I follow and who follow me. I also post on twitter when we put up a new post here. Twitter is a great way for you to interact and learn from those you follow and who follow you. 

7. Please feel free to distribute our post to others

If you ever feel someone would benefit from reading what we offer and if they are not subscribed to the blog, please feel free to give them a copy. I hereby give you permission to redistribute the text of any post from Pennsylvania Fiduciary Litigation as you want. I only ask that you give us proper credit and a link back to Pennsylvania Fiduciary Litigation.

Estate Planning and the Forgotten Right to Recapture Copyrights

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.



Spencer Joins Faculty at Solo Practice University

When I graduated from law school, I had little insight into the business of running a law practice. Don’t get me wrong; I had great knowledge about the law. But I did not know how to actually build a client roster, create and deliver services, administer an office, and get paid a fair fee for work performed.

Susan Cartier Leibel has provided a way for today’s sole practitioners to learn all of these things, and more. She has founded Solo Practice University™. SPU is a web-based legal learning and networking community for lawyers and law students. I am very flattered to be included among this distinguished faculty of progressive lawyers, marketing professionals, technology consultants, and other legal business giants. 

I will be teaching, talking and blogging about wills, trusts, estates, and taxes. The much ballyhooed inter-generational wealth transfer from the baby boomers is upon us and this practice area will be going strong. I will help you to use the SPU community to pull together the knowledge of tax, property law, future interests, contracts, litigation, and legal writing you need in today’s complex trust and estate practice environment.

I will be teaching a course on Trusts and Estates Practice as well as being available for online office hours where you can get your technical questions answered and find answers to how to run your law business and give your clients top notch service.

Lawyers who take on trust and estate matters without the necessary skills and tax experience may find themselves facing unexpected fiduciary liability. As a frequent expert witness on trust and estate matters, I will work to help you avoid common mistakes that can undermine your legal career.

Working along with SPU, I will teach you how to use the Internet more effectively to access the necessary information, forms, advice, and research you need for your trust and estates work. You will find that access to information is no longer prohibitively expensive for the solo practitioner.

Technology has made it possible for solo practitioners like you to be just as prepared, just as smart, and even more nimble than their big law competitors. Add to this the advantage of the SPU community to share tactics, solutions, and ideas. As a solo practitioner, you now have the unparalleled opportunity to expand your network, learn new skills, find the best technology, and build your practice.

Can’t wait to get started!

Giving Thanks for What's Important

1918 photo of 18,000 troops at Camp Dodge in Iowa as they prepared to go off to war. 


Blogging credit to Susan Cartier Liebel at Build a Solo Practice.

The Feldman Election Report

We are happy to welcome a guest post from political commentator Don Feldman:

It could have been worse.


*         In the year of the “perfect storm” for Republicans, the charismatic Democratic candidate got 52% of the vote.  If not for the timing of the economic meltdown, McCain might have won.

*         As it is supposed to, the Electoral College margin exaggerated the size of the victory.   This will probably save the Electoral College for another generation or so which is a big plus for the country.

*         Although we will sorely miss Liz Dole and especially John Sununu in the Senate, so far we have kept Al “the Barbarian” Franken at the gates (at this writing, the sainted Norm Coleman – the only candidate in history to quote Maimonides in a stump speech – is leading by 750 votes out of 3 million cast).  The Democrats will not get 60 seats in the Senate.

*         Bans on gay marriage were approved in Arizona, Florida, and (likely) California.

*         In a long overdue development, it looks like convicts will have fair representation in the Senate in the form of the indomitable Ted Stevens.  Sleazeballs will continue to be overrepresented by among others, the shameless William Murtha.

*         And of course, we have the inspiring Sarah Palin to look forward to in 2012!  Keep your chins up!


Updates to follow.

$250,000 FDIC Insurance for Revocable Trust Beneficiaries

There are good reasons and bad reasons for setting up a funded revocable living trust (RLT) -  here is one of the better reasons:  FDIC insurance has been increased and now covers each beneficiary's interest in an RLT up to $250,000 each.

 See the FDIC website explanation here.

The legislation authorizing the increase in deposit insurance coverage limits makes the change effective October 3, 2008, through December 31, 2009.

A beneficiary must be a person, charity or another non-profit organization (as recognized by the Internal Revenue Service). All other beneficiaries are not eligible for separate coverage as revocable trust deposits.

While the owners [grantors] of a trust may benefit from the trust during their lifetimes, they are not considered beneficiaries for the purpose of calculating deposit insurance coverage. Beneficiaries are those identified by the owner to receive an interest in the trust assets when the last owner dies. Unlike POD accounts, the beneficiaries do not have to be identified by name in the deposit account records of the bank.   But the account title at the bank has to show that the account is owned by the RLT.

For example, if the RLT holds $1 million in a bank account and provides that on the grantor's death, the trust is distributed in 1/4 shares to the grantor's four children, there is $ 1 million of FDIC insurance on the account.

Blogging credit to Liza Weiman Hanks, author of  Everyday Estate Planning.




Estate Planning Opportunities in the Financial Crisis

"It’s an ill wind that blows nobody good "

                                                              –old proverb

The current low valuation levels in the financial markets present some unique opportunities for estate tax and income tax planning.  Low values give the opportunity for transferring assets on very advantageous terms, freezing low values, and recognizing losses for income tax planning.   

Here is a list of excellent strategies reprinted from North Carolina Estate Planning Blog:

1)      If you are not selling options or using margin trading, you should revoke your margin agreements.  This reduces your risk by ensuring that your securities are not lent.

2)     Roth IRA conversions should be aggressively reviewed.
3)      Loss Harvesting, while remaining in the market should be reviewed.
4)      For now, if you have over $100,000 [over $250,000 for IRAs and certain other retirement accounts]  in one bank you should consider using several banks.
5)     GRATs to freeze (for tax purposes) the value of depressed stocks should be implemented.
6)     Large gains should be taken under the 15% tax rate compared to a higher future tax rate.
7)     Tax efficient asset allocation between Roth's, Qualified Plans and outside accounts should be reviewed.
8)      Parents should aggressively gift and sell closely-held business interests to trusts for children and Grandchildren.
9)      Taxable Gifts, incurring a gift tax, will be in vogue under a new administration.
10)    Oil and Gas will continue to provide tax and financial planning opportunities.
11)     Have an expert review all life insurance policies.
12)     Consider funding dynasty trusts today ($2,000,000) and on January 1, 2009 ($1,500,000). [Or a total of $3,500,000 in 2009]
 From Bob Keebler, CPA


Will Jilted Citigroup Sue?


"Hell hath no fury like a white knight spurned."

           - Jonathan D. Glater writing for the Wall Street Journal.



Wachovia had a "silent run" losing scads of big depositors. Citigroup came to the rescue - loaning them cash.  With FDIC guidance, Citigroup stepped in to prevent Wachovia from collapsing on Monday September 29 having made a deal to buy Wachoiva for $ 1 per share. The loans, in an undisclosed amount, were made with the idea that the Citigroup acquisition of Wachovia was a done deal.

How does Wachovia thank Citigroup? By turning tail and making a deal with Wells Fargo.

Citigroup claims Wachovia was contractually barred in an exclusivity agreement from negotiating with anyone else until October 6.  The Wells Fargo deal was struck in the wee hours of the morning on October 3.

Is this deja vu? Twenty years ago the brawl was Pennzoil and Texaco over Getty Oil. In that fight Pennzoil was the jilted suitor turned away by Getty in favor of a deal with Texaco. Pennzoil claimed  that Texaco jumped into the middle of its deal with Getty Oil. There was no formal, written merger contract between Getty and Pennzoil, but the jury found that an "informal agreement" was still binding and found in favor of Pennzoil. The result: An $11 billion verdict against Texaco that bankrupted the company.

Citigroup’s press release said "a transaction with Wells Fargo is in clear breach of an exclusivity agreement between Citigroup and Wachovia. In addition, Wells Fargo’s conduct constitutes tortious interference. . . "  Sounds nasty.  Here’s a copy of the agreement. You be the judge.

As Glater reported in the Wall Street Journal, courts do not always tolerate companies’ efforts to tie their own hands, especially when doing so might hurt investors.   Wachovia might have been in worse trouble if it didn't pursue the Well Fargo deal which was a much better deal for shareholders ($7 per share instead of $ 1 per share). They could have been breaching their fiduciary duty. 

Wachovia is incorporated in North Carolina and that state's law will determine its directors' duties to its shareholders.  

The Wells Fargo/ Wachovia deal was worth $15.1 billion in stock - obivously better for shareholders than Citigroups’s proffered $2.2 billion. Not to mention the taxpayers come off better not having to absorb any Weachovia liabilities. Will Citigroup sue? And can it win? Who knows. What about all the Wachovia shareholders who dumped their stock when they heard the terms of the Citigroup deal which valued Wachovia stock at just $1 per share. Were they deceived?

This deal is far from over.  Stay tuned.


Allentown Attorney Indicted for Faking Brother's Will

High-profile Allentown PA defense attorney John P. Karoly Jr.,  was indicted September 25, 2008 by a federal grand jury on charges he and two others conspired to defraud his brother's and sister-in-law's estates of millions using fake wills.

John J. Shane, a doctor Karoly often used as an expert witness and Karoly's son, John P. Karoly III, were also named in the indictment.  Each of the three is charged with single counts of conspiracy and two felony counts of wire fraud, according to federal authorities.

As reported at www.lehighvalleylive.com:

"Karoly's brother and sister-in-law, Peter Karoly, and Lauren B. Angstadt, died Feb. 2, 2007, in a Massachusetts plane crash that also killed the pilot. Peter Karoly was a prominent Allentown attorney, and Angstadt was a dentist.

The couple had no children and each left multi-million-dollar estates. Shortly after their deaths, authorities allege the three defendants conspired to create fake wills dated June 2, 2006, intended to supercede authentic wills prepared in 1985."

Karoly has won multimillion-dollar settlements in brutality and misconduct suits against the Bethlehem and Easton police departments.  His attorney, Robert Goldman, says he thinks Karoly has been targeted because of these successful suits against police officers.

Karoly's deceased brother was also a lawyer and they used to practice together.  In 1986 they had a rift and split up their law practice.

According to the indictment, as reported by Matt Birkbeck for Of The Morning Call:

"Nine days after the crash, John Karoly told family members that Peter gave him a sealed package in June 2006 to place in storage.

When John Karoly learned that Peter's authentic will, filed in 1985, was submitted for probate to Northampton County Court on Feb. 15, 2007, Karoly created fraudulent wills for his brother and sister-in-law and subsequently enlisted Shane to sign them as a witness.

Karoly also tried to get a family member from South Carolina, identified only as ''J.F.,'' to sign the fraudulent wills as a witness but J.F. refused.

The indictment continues:

On Feb. 20, 2007, Karoly began notifying family members, including sisters in Florida and New Jersey, that he had found the ''original will'' of Peter Karoly inside the sealed envelope that was in storage, and that it bequeathed the bulk of his estate to John Karoly, along with gifts to his two sons and various nieces and nephews.

That will and a fictitious Angstadt will were submitted to Northampton County Court on Feb. 22, 2007. The eight-page Peter Karoly will, dated June 2, 2006, left all of Peter's money and property to his wife. But if she died, the majority share of the estate would go to John Karoly, including all cases, clients, awards, verdicts, monies and receivables from Peter Karoly's law firm.

John Karoly was also left Peter's law practice and law office at 1511-25 Hamilton St. in Allentown, all investment and brokerage accounts owned by Peter Karoly and his wife, and control of eRAD, a medical imaging company based in Greenville, S.C., that Peter Karoly founded and ran as chief executive officer.

Peter Karoly's 1985 will liquidated the law firm and divided all property and money among family members of Peter Karoly and his wife, The Morning Call reported in 2007.

Soon after being notified of the new will, Karoly's sisters protested, claiming it was fraudulent. FBI agents raided John Karoly's home in May 2007, seizing boxes of documents and computer files."

Blogging credit to Prof. Gerry Beyer at Wills, Trusts & Estates Prof Blog.

Here is Neil Hendershot's post when the wills were contested in April 2007.


Love Potion No. 9? For the Financial Crisis?

Neil Hendershot has a terrific post on his blog called "Liquid Trust" or "Living Trustworthiness"?   With tongue in cheek, he talks of buying trust in a bottle (like Love Potion No. 9) to solve the nation's financial crsis.

"Liquid Trust is the world's first Trust Enhancing Body Spray, specially formulated to increase trust in the wearer.

Scientists have recently discovered a chemical that makes people trust each other. For the first time, you can have the world in the palm of your hands...It all starts with Trust."

On a more serious note, what Neil points out is that in the midst of the most serious financial crisis since the Great Depression, we find ourselves in a world without integrity, without honesty and accountability. 

As David Francis says, writing for the Christian Science Monitor, when "so many people engaged in so many aspects of finance have lost their ethical compass and put their short-term personal gains above other considerations, such as was the case in the subprime mortgage market in the US, it can have a "profound macroeconomic impact." In other words, the broad economy gets hurt by greed and selfishness as ensuing financial losses mount and trust fades."

Which brings me to the current Congressional debate over whether Washington should enact an extraordinary bailout of the country's financial system.   

Sen. Sherrod Brown, (Ohio-D), said calls from his constituents about the plan have been universally negative. He told the story of one constituent who drove to Washington:

"He quite rightly asked why we were rushing to bailout companies whose leaders got rich gambling with other people's money,"

There is plenty of blame to go around for the current crisis.   Part of being trustworthy is being accountable. 

As House Speaker Nancy Pelosi put it:  If the bailout passes, "The party is over for this compensation for CEOs who take the golden parachute as they drive their companies into the ground. ... The party is over for financial institutions taking risks [and] at the same time privatizing any gain they may have while they nationalize the risk, asking the taxpayer to pick up the tab,"

Reporting Tax Fraud - Are You a Bounty Hunter?

Did you know you can turn in tax cheats for bounty?

Section 7623 of the Internal Revenue Code authorizes payments for detecting underpayment of tax and detecting and bringing to trial and punishment persons guilty of violating the internal revenue laws or "conniving" (love that word) at the same.


As pointed out by Timothy W. Maier, writing forInsight on the News, offering cash incentives for information about alleged criminals is a time-honored technique. In addition to the IRS, which collects about an additional $100 million from tax cheats annually by paying out rewards anywhere from $2 million to $5 million, the FBI, according to Meier, claims to have captured 140 suspects through its 53-year-old "Most Wanted" program as a result of offering millions in cash. And look at the success of the TV program America's Most Wanted in bringing criminals to justice.

Maier reminds us that "[r]ewards paid by authorities date back to the Bible when Judas was paid 30 pieces of silver to betray Jesus. They were common in England in the 18th century when thieves were paid for police tips, and they continued to be popular in the Wild West where bounties routinely were offered and paid to gunmen such as Bob Ford, who for $10,000 shot the notorious outlaw Jesse James in the back on April 3, 1882. Today, rewards even are announced to try to throw off police or deceive the public as O.J. Simpson may have done when he offered $1 million to find the "real killers" of Nicole Simpson and Ronald Goldman."

If you want to report suspected tax fraud, use IRS Form 3949-A, Information Referral. It can be downloaded at IRS.gov, or ordered by calling 1-800-829-3676. The report needs to include specific information about who is being reported, the suspected fraud being reported, how the fraud became known, when it took place, the amount of money involved and any other information that might be helpful in an investigation. You are not required to identify yourself , although it is helpful to do so. The IRS says that your identity can be kept confidential.

You may be entitled to a reward, but keep in mind it is completely discretionary whether you will be given a reward. You have no legal right to a reward. In order to apply for a reward you must file Form 211, Application for Reward for Original Information. The quality of your information is critical because the IRS is swamped with leads - many of them vindictive - things like reports of tax fraud by former spouses and former bosses. The IRS has limited resources and, of course, pursues leads with the best chance of bringing in substantial revenue.

According to IRS Policy Statement 4-27, while the amount of the rewards and whether one is payable at all is completely discretionary, in general , the Service will follow these guidelines:

  •  For specific and responsible information that caused the investigation or, in cases already under audit, materially assisted in the development or identification of an issue or issues and resulted in the recovery, or was a direct factor in the recovery, the reward shall be 15 percent of the amounts the Service recovers, with the total reward not exceeding $10 million.
  • For information that caused the investigation or in cases already under audit, caused an investigation of an issue or issues, and was of value in the determination of tax liabilities although not specific, the reward shall be 10 percent of the amounts the Service recovers, with the total reward not exceeding $10 million.
  • For general information that caused the investigation, but had no direct relationship to the determination of tax liabilities, the reward shall be 1 percent of the amounts recovered, with the total reward not exceeding $10 million. 

How likely are you to get a reward? IRS senior program analyst says "We determined from a study that one in 10 informants actually asks for a reward and approximately one in 10 of those gets one." In fiscal 2002, the IRS paid $7.7 million in rewards that led to $66.9 million in additional collections. There were 6,982 reward claims filed during that period and only 215 rewards allowed in full. Don’t start spending your reward money until you get it.

Just about any word used to describe this behavior has a negative connotation: stool pigeon, tattle-tale, snitch, rat, squealer, informant, fink, whistle-blower. Should you turn in a cheat and a fraud?

Much has been written about the issue in connection with business ethics. Look at the treatment of people who expose wrongdoing in their companies in the media. People who report wrong-doings by their companies are subjected to persecution, pariah status, and blacklisting. They often are ostracized by co-workers, lose their jobs and can't find work in the same industry.

According to Jim Hillesheim, Professor of Education at The University of Kansas, it is a social fact that honest employees rarely report theft committed by unscrupulous coworkers or managers. Psychologists and behavioral scientists offer various explanations, but the most prevalent one is that the hesitation to report theft is due to fear of being thought of as a tattletale. Reporting a theft or other wrongdoing is seen as a violation of a deeply entrenched code of conduct that demands that one not be thought of as a snitch.

Children get the message that they should not be "tattletales." Years later as adults, when they should be seeing the world in adult terms they are still afraid to come forward. As Hillesheim says, "we need only to ponder how horrible society would be if no one, having witnessed a crime, would step forward to help police, because he or she did not want to be thought of as a tattletale.

Remember, you can come forward with information and not claim reward. What is your motivation, after all?

Does FDIC cover my bank deposits?

The failure of IndyMac Bank has caused many bank depositors to ask questions about FDIC - the Federal Deposit Insurance Corporation. According to FDIC 10,000 IndyMac customers could lose as much as $500 million in uninsured deposits. FDIC will pay claims between $4 billion and $8 billion to insured depositors. FDIC representatives predict that there will be more bank failures, but “it will be within range of what we can handle.”

What will the FDIC pay?

All types of deposits are covered - checking, savings, money market deposit accounts, and certificates of deposit. The amount covered is the account balance plus accrued interest up to the date of the bank’s closing and up to the insured limit. FDIC does not cover stocks, bonds, mutual funds, life insurance or annuities.

The basic FDIC insurance amount is $100,000 per owner per insured bank. Accounts maintained in different categories of ownership may be separately insured up to $100,000 so that it is possible to have deposits of more than $100,000 at one insured bank and still be fully insured.

There are 8 ownership categories that may be separately insured at the same bank.  The following 8 categories summarize the information available in the FDIC's publication, Your Insured Deposits.:

1. Single Accounts. All single accounts owned by the same person at the same insured bank are added together, and the total is insured up to $100,000.

2. Certain Retirement Accounts. This category qualifies for $250,000 in insurance. It includes traditional IRAs, Roth IRAs, SEP IRAs, SIMPLE IRA’s, Section 457 deferred compensation plan accounts, self-directed 401(k) plans, and self-directed defined contribution qualified plans, and self-directed Keogh plan accounts.

3. Joint Accounts. For joint accounts owned by people where each co-owner has equal rights to withdraw funds from the account, each co-owner’s share of every account that is jointly held at the same insured bank is added together with the co-owner’s other shares, and the total is insured up to $100,000. For example, a husband and wife could have $200,000 in a joint account and the deposit would be fully insured. Using different social security numbers or reordering the order of names on joint accounts has no effect on how much insurance is available.

4. Revocable Trust Accounts. An “informal” revocable trust account is a pay-on-death (POD) account, an “in trust for” (ITF) account, or a “Totten trust.” “Formal” revocable trusts are created by a trust document as part of an estate plan. All deposits that an owner has in both informal and formal revocable trusts are added together, and the insurance limit is applied to the total. When two insured banks merge, the deposits from the assumed bank are insured separately for 6 months. This period gives the depositor a chance to move the account if necessary.

The owner of a POD (or other “informal” trust) account is insured up to $100,000 for each beneficiary if the account is properly titled, the beneficiaries are identified by name on the deposit account records of the bank, and the beneficiary is a spouse, child, grandchild, parent or sibling. Adopted and step children, grandchildren, parents and siblings also qualify. Note that the owner or grantor does not count for this insurance.

5. Irrevocable Trust Accounts. If the bank account records disclose the trust relationship, the beneficiaries are identifiable from the bank’s records, and the amount of each beneficiary’s interest is not contingent, then the interest of a beneficiary of an irrevocable trust established by the same grantor and held at the same bank are added together and insured up to $100,000. For irrevocable trusts, beneficiaries do not have to be related to the grantor. But since these trusts often contain conditions or give trustees discretion to make distributions, coverage for these accounts is often limited to just $100,000.

6. Employee Benefit Plan Accounts. This insurance “passes through” the plan administrator to each participant’s share.

7. Corporation/Partnership/Unincorporated Association Accounts. Deposits owned by one of these entities are insured separately up to $100,000 and are insured separately from the personal accounts of the entity stockholders, partners or members. Accounts held in sole proprietorship accounts or DBA (doing business as) accounts are not included in this category but are added to the owners other single accounts.

8. Government Accounts. These are deposits of the United states, any state, county, municipality or political subdivision, or an Indian tribe. Each official custodian of time and savings deposits of a public unit is insured up to $100,000. Demand deposits are separately insured up to another $100,000. Pubic deposits maintained in out-of-state banks are limited to a maximum of $100,000 in coverage per official custodian.

Any recovery of uninsured amounts will depend on the sale of the banks assets and may take some time. Not all uninsured amounts are paid.

Deposits with each FDIC-insured bank are insured separately from any deposits at another insured bank. You can have $100,000 in as many banks as you wish!