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.

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.

$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?

SCOTUS Rules on Social Security for Posthumous Children?

To be poor and independent is very nearly an impossibility.

                                                                    William Cobbett, Advice to Young Men, 1829

On May 21, 2012, the Supreme Court decided the case of Astrue v. Capato. This case may have consequences beyond the question the Court decided based on its deferral to state law.

Karen Capato, widow of Robert Capato, was artificially inseminated nine months after her husband’s death. She delivered twins and applied for Social Security survivors benefits for them.

The Social Security Administrator, Michael Astrue, declined to pay, citing Florida intestate law that 1) declares a marriage is over at the death of one of the spouses and 2) that posthumously conceived children are not intestate heirs.

Mrs. Capato pointed to 42 U.S.C.S. 402(d) which states that "[e]very child (as defined in section 416(e) of this title" of a deceased insured individual "shall be entitled to a child’s insurance benefit." Section 416(e), in turn, defines "child" to mean: "(1) the child or legally adopted child of an individual, (2) a stepchild . . . and (3) . . . the grandchild or stepgrandchild of an individual or his spouse . . ."

Mrs. Capato prevailed at the Third Circuit Court of Appeals, but the Commissioner appealed to the Supreme Court.

At that point, it looked like Mrs. Capato would prevail. But wait, there’s more. Section 416(h)(2)(A) further addresses the term "child." "In determining whether an applicant is the child or parent of [an] insured individual for purposes of this subchapter, the Commissioner of Social Security shall apply [the intestacy law of the insured individual’s domiciliary State]."

Thus, there are two definitions of "child" in the Code, one loosely defined and one that defers to state law. One might see another 5-4 decision brewing but the decision was for the Commissioner 9-0. Unanimous!

Reasoning was that even though state intestacy laws vary from state to state, it was better to let a few more people qualify for benefits and leave the decision out of the federal government’s hands than to restrict benefits but increase the workload of determining who is a child in every single case.

Also considered was Congress’s intention to "provide dependent members of a [wage earner’s] family with protection against the hardship occasioned by the loss of [the insured’s] earnings." Since posthumously conceived children never were dependent on those earnings, it stands to reason that their income should not be insured unless state law happens to include them.

In the end, the Court observed: "The SSA’s interpretation of the relevant provisions, adhered to without deviation for many decades, is at least reasonable; the agency’s reading is therefore entitled to this Court’s deference . . . "

The possible fallout is that if the Supreme Court decided to refer to state law in this case even through state intestacy laws vary, it might be obliged to defer to state laws that define a marriage.

What if the Defense of Marriage Act is repealed as the President has requested? Does Capato open the door for recognition of some same-sex marriages depending on individual state law? Remember, this was a 9-0 decision. Some, and maybe all, of the Justices had to be aware of that possibility.

Wills and contracts: what happens when the two meet?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

 

Does Emailing a Client at Work Invalidate the Attorney-Client Privilege?

If the employer has the right to view the e-mails that were sent to the client at the place of employment, that could destroy the privilege. 

Randall Ryder reports for Lawyerist.com

"The California Court of Appeals recently found that a client’s e-mail to her attorney, regarding her plans to sue her employer, was not privileged. The court said her e-mail was the equivalent of consulting her attorney in her employer’s conference room using a loud voice and leaving the door open. Notably, this e-mail exchange occurred on the company’s servers, through the client’s work e-mail address.

In New Jersey, a court held that emails sent from a Gmail account, or another web-based account, were still private and confidential."

Read more here.

NY Executor Can Sue Estate Planning Lawyer

The New York Court of Appeals has broken new ground.  It has held that an attorney may be held liable for damages resulting from negligent representation in estate tax planning that causes enhanced estate tax liability.  The court held that a personal representative of an estate may maintain a legal malpractice claim for such pecuniary losses to the estate.  The case is Estate of Saul Schneider, Appellant, v Victor M. Finmann, et al., Respondents, New York Court of Appeals Opinion No. 104 (June 17, 2010), 2010 NY Slip Op 5281.

The case involved a $1 million life insurance policy that was included in the decedent's estate for estate tax purposes.

Before this case, NY courts have applied a strict privity rule, that lawyers owe no duty of care to non-clients, and only a client may sue a lawyer for legal malpractice.   As the New York Appeals Court Jude pointed out, the application of the privity rule "leaves the estate with no recourse against an attorney who planned the estate negligently."  The opinion stated: "We now hold that privity, or a relationship sufficiently approaching privity, exists between the personal representative of an estate and the estate planning attorney."

Further:  "The personal representative of an estate should not be prevented from raising a negligent estate planning claim against the attorney who caused harm to the estate," Judge Jones wrote. "The attorney estate planner surely knows that minimizing the tax burden of the estate is one of the central tasks entrusted to the professional."

The court made it clear, however, that strict privity should remain a bar against malpractice suits launched by estate beneficiaries or other third parties absent fraud claims or other special circumstances.

 I recommend that you read Steve Leimberg's insightful comments on the case in his newsletter at LISI Estate Planning Newsletter # 1660 (June 19, 2010) at http://www.leimbergservices.com Copyright 2010 Leimberg Information Services, Inc. (LISI).

Widow of Drunk Driver Denied Life Insurance Payment

CIGNA refused to pay the death benefit on a life insurance policy claiming that the death was not a result of an accident.  They claimed the injury was self-inflicted, as the crash could reasonably have been anticipated to happen with an intoxicated driver.  No life insurance for you, Mrs. Firman.

The widow has brought a lawsuit since CIGNA denied the internal appeal. 

 As reported in the Houston Press:

"According to the lawsuit, CIGNA told Firman that since her husband "would have been aware of the risks involved in operating his vehicle while under the influence, his death was a foreseeable result of his actions and thus not an accident." CIGNA also told Firman that driving drunk is "conduct that must be deterred, apparently assuming a moral stance on this claim," the lawsuit states. In the end, Firman claims, CIGNA decided that since her husband was intoxicated, his death was the "result of intentionally self-inflicted injuries."
 

And if you have a heart attack because you are overweight, have high cholesterol and don't exercise. . . . . . .

 Hat tip to J. Michael Young of Texas Probate Litigation and his blog post.

 

Avoiding Estate Litigation

Thank you to Roy Newman of The San Diego Estate Center for his post, 8 Steps To Avoid Estate Litigation.

Newman reports:

"An article by the US News and World Report gives “8 Tips to Avoid Nasty Estate Surprises.”  I agree with most of the points, and add my critique after each tip below:

1. Get a good lawyer. I would add that your lawyer should concentrate exclusively in this area.
2. Pick the right executor and trustees. The right trustee will be solid and will react neutrally to avoid disputes over the estate’s property.
3. Talk about it now. This seems obvious, but most people will not let their intentions be known ahead of time. Unfair surprise is one surefire way to start a contest.
4. Know state laws. In California, as the Tax Professor adds, probate can be avoided entirely through the use of a trust.
5. Make your intentions known early and often. Making repeated modifications to the will or trust will make it harder to invalidate later.
6. Make sure title to your assets is clear. Circumventing the estate distribution by retitling assets later in life is another way to encourage litigation.
7. Consider including a “no contest” clause. Then give the beneficiary an amount that they would rather not sacrifice if they lost the contest.
8. Don’t try to manage your estate from the grave. Although I am not sure that I entirely agree with this one, in theory giving discretion to your beneficiaries may stop them from fighting over items to which they are personally attached. I agree that not every item need be listed in the instrument, but sometimes a person who writes a will or trust can avoid disputes ahead of time by simply making the right decision."

Whevener your estate ends up in litigation, only the lawyers win.  A good lawyer can help make sure youre state doesn't turn into a modren day Jaryndyce v. Jarndyce.

 

Insane Delusion in Lancaster County - Part 2

Thomas Bucher, son of retired Lancaster County Court of Common Pleas Judge Wilson Bucher, died in July 2008.  It was a suicide.  His will gave the bulk of his estate to the Lancaster County Public Library - an estimated $1 million. We wrote about the case in an earlier blog post. 

Judge Joseph Rehkamp, the Perry County Judge who is hearing the case because of Lancaster County judges' recusal, has dismissed Wilson Bucher's motion for summary judgment ruling that while there's no evidence his family was stealing from him, Thomas Bucher "had a strained relationship with his father and mother and siblings, and had expressed animus toward his brothers-in-law, particularly Steven R. Blair" — and that his suspicions did not amount to an "insane delusion." 

Judge Rehkamp stated in his opinion that Thomas Bucher "had a rational basis for willing his entire estate to a charity. . . . ""Despite the argument of Attorney Blair that Thomas Bucher had an insane delusion at the time he executed his will, none of the answers supplied by the scrivener of the will nor his associate indicate other than a rational mindset in willing his estate to the Lancaster Public Library." 

"There is, at minimum, a genuine dispute of material fact as to the state of the mind of the decedent [Thomas Bucher] to prevent the granting of a motion for summary judgment in this matter."

Read the Intelligencer Journal article about the ruling here.:  A Battle of Wills.

The article states:  "Both the office and the library had asked that Blair be disqualified as attorney for petitioner Wilson Bucher due to his close connection to the case. But Rehkamp ruled against those requests, saying that 'this court is satisfied, upon review of the case file, under the circumstances of this matter, that [Blair] shall continue as attorney for petitioner.'"

There will be a hearing on the insane delusion claim.  Also, Steven Blair, attorney for Wilson Bucher has also raised a claim based on an oral contract to make a will. 

Stay tuned for Part 3.
 

Widow Lacks Standing to Sue Husband's Lawyers Over Mishandled Will, Judge Finds

This article on www.law.com  points out a gross inequity.  Estate planning attorneys can get away with murder.  Well,  not murder literally, but they get off scot-free when committing horrendous malpractice because of antiquated notions about privity.

In short, the common law view is that since the heirs and beneficiaries didn't hire the lawyer to write the decedent's estate plan, they can't sue the lawyer for making mistakes.  There is no privity of contract.  And since the person who hired the lawyer is dead and isn't going to be suing anyone, oh well, i guess there is just no remedy.

Its time for this to change.  All professionals should be responsible for the quality of their work -- no exceptions.

The state law discussed in the article is New York.  Pennsylvania has a similar rule, except that in Pennsylvania, some headway can be made under third-party beneficiary  or negligence analysis.

About 18 years ago I was interviewing with the chair of a Trusts & Estates Department in a large Philadelphia firm.  I was new to Pennsylvania, having moved here from Boston.  He explained to me that estate planning was a great practice area because if you made mistakes, they weren't found.  Since beneficiaries had no privity they couldn't sue for malpractice.  I was appalled.  I explained, that as a matter of public policy, not to mention fairness and basic Justice, I did not think that was a good result.  I didn't get the job.

 

 

Brooke Astor's Son Goes On Trial This Week

Jury selection begins Monday March 30, 2009 for the trial of Anthony Marshall, Mrs. Astor's son.  The trial is expected to last two months.

As reported in the New York Times, "Prosecutors will argue that Mr. Marshall and Mr. Morrissey knew that Mrs. Astor, suffering from Alzheimer’s disease, had deteriorated mentally, but that they exploited her ailments to trick her into directing millions of dollars their way, according to the indictment and lawyers briefed on the case. A second change to Mrs. Astor’s will, executed in January 2004, which gave Mr. Marshall her estate outright, will be under the most scrutiny."

Anna Nicole Smith to the Supreme Court AGAIN

We wrote earlier about the first Supreme Court ruling on Anna Nicole's estate here  regarding the so-called "probate exception" to federal jurisdiction.

Here we go again.

A writ has been filed before SCOTUS asking that " lawyers for the late Anna Nicole Smith be allowed to start collecting on $88 million awarded her by a Santa Ana judge from her husband’s estate."

See Gerry Beyer's post at Wills, Trusts & Estates Prof Blog discussing the writ.  Here is an excerpt:

"The writ, filed with the court [on March 9, 2009], asks in the alternative that the heirs of Smith's husband, Texas oil tycoon J. Howard Marshall, post a bond in that amount to assure that the money is there when when the legal battle concludes. * * *

However, David Margulies, who represents the heirs of J. Howard Marshall and his son, E. Pierce Marshall * * * denied the award by U.S. District Judge David Carter in 2002 is still valid.

Margulies said the 9th U.S. Circuit Court of Appeals threw out Carter's award, finding that he overstepped the jurisdiction of the Probate Court.

Even though the U.S. Supreme Court in 2006 found that Smith had the right to pursue a claim on her husband's estate, it did not uphold the $88 million award, Margulies said."

Persuading a Cold Judge

Please read this excellent post by Juan Antunez at Florida Probate & Trust Litigation Blog:

Persuading a Cold Judge

Here is an excerpt:

"A defining characteristic of probate litigation is that your cases are decided by judges, no jury trials here. If your judge is prepared and understands the facts and law of your case, all is well. But when your judge is not prepared, or simply doesn't "get" it, he's what Denver, Colorado litigator Peter Bornstein refers to as a "cold" judge in Persuading a Cold Judge, an excellent article just published in the ABA's Litigation magazine. Here's how Bornstein frames the issue:"

And this is MOST interesting:

"So what's to be done? One option is to "privatize" contested probate proceedings to the extent possible by tapping into one of the many alternative-dispute-resolution tools available under Florida law [click here]."

 

 

 

Allentown Attorney - More Charges

In September 2008 we wrote about John P. Karoly, Jr. the Allentown attorney who allegedly faked his brother's will.

Turns out there's more.   Read what the Taxgirl, Kelly Erb, has to say at Lawyer Fakes Will (Allegedly), Now Faces Tax Charges.

Here is an excerpt::

While Karoly fights the fake will charges, he has other charges brewing. He has also been accused of one count of mail fraud, three counts of failing to report taxable income on his federal income tax returns, one count of conspiracy to commit wire fraud, two counts of wire fraud, and six counts of money laundering charitable proceeds through a church.

Karoly allegedly failed to report more than $5 million in income for the years 2002, 2004 and 2005.

Karoly is also accused of claiming a charitable donation for a noncharitable contribution. In 2005, Karoly donated $500,000 to the nonprofit Lehigh Valley Community Foundation and took the deduction on his tax returns. He later asked that the money be transferred to the Urban Wilderness Foundation, which does not have tax-exempt status. The Urban Wilderness Foundation shared an address with Karoly’s law office, and Karoly had sole signature authority on the Urban Wilderness Foundation bank account.

No wonder they say that 99% of lawyers give the rest of us a bad name.

The Art of the Inheritance Fued

Hughes Estate Group publishes Estate Street - about all things estate and tax planning.  This  post reports on the dispute over a $90 million dollar collection of art from Papua New Guinea:

"Three brothers have been feuding since 2005 over the estate of their mother, Evelyn A.J. Hall who was a sister of the late publishing tycoon Walter Annenberg. John Friede and his brothers reached a settlement where John agreed to pay his brothers $30 million dollars, $20 million which was secured by the collection. The problem was he had signed the collection over to the museum the week before. Oops!"

More info from the San Francisco Chronicle here and here.

From the New York Times on October 5, 2008:

"Last month a Florida judge ruled that Mr. Friede’s brothers, Robert Friede, 68, and Thomas Jaffe, 58, could take possession of the entire collection. The judge determined that John Friede had violated the terms of an October 2007 settlement in the estate dispute in which he put up his collection as collateral. Later the city attorney’s office in San Francisco, acting on the de Young Museum’s behalf, sued and obtained a temporary restraining order prohibiting the brothers and John and Marcia Friede from disturbing the collection until a judge could determine who legally had title to it.

And on Thursday a New York State Supreme Court judge ruled that Sotheby’s, which lent Mr. Friede $25 million and has not been repaid, could take possession of 54 artworks that are part of the collateral for the loan. The judge placed a restraining order on another 99 works to which priority rights are being disputed between Sotheby’s and Mr. Friede’s brothers. "

The Jewish Clause

John T. Brooks and Erika A. Alley are authors of The Jewish Clause published in Trusts and Estates discussing the case of In re Feinberg, 383 III. App. 3d 992 (1st Dist June 30, 2008).

They write:

"Max Feinberg created a trust in which he declared that any descendant of his — that is, any descendant other than his children — “who marries outside the Jewish faith (unless the spouse of such descendant has converted or converts within one year of the marriage to the Jewish faith) and his or her descendants shall be deemed to be deceased for all purposes of this instrument as of the date of such marriage.”

The parties in Feinberg refer to this provision as "the Jewish clause."

ROUND 1:     The Illinois Circuit Court found the clause to be invalid and contrary to public policy. (Which public policy is that?)

ROUND 2:     A three- judge panel of the First District Appellate Court daffrimed, holding that  the clause is not enforceable.    As stated in the article:

"The court’s majority opinion ends by noting that the clear intent of the Jewish clause was to influence the marriage decisions of Max’s grandchildren based on a religious standard and thereby to discourage them from marrying outside the Jewish faith.  As such, the clause seriously interferes with, and limits the right of individuals to marry whom they choose. It is therefore unenforceable. "

Justice Alan J. Greiman dissented passionately, stating: “Max and Erla had a dream. . . to preserve their 4,000 year old heritage.”

ITS NOT OVER YET. 

ROUND 3:    Illinois' Supreme Court has agreed to hear the case.

See Pauline Dubjkin Yearwood's article, The Jewish Clause, in the Chicago Jewish News.  She reports on the views of an orthodox rabbi who is also an attorney:

"Steven H. Resnicoff, a professor at the DePaul University College of Law who is also an attorney, ordained Orthodox rabbi and expert on Jewish law, agrees.

The case "is significant in that it is different from what the majority of jurisdictions" have ruled, he said in a recent phone conversation. "Therefore estate planners were likely to have thought that it was permissible to structure the will the way it was structured, and unless they hear about it and make changes, the intention of the testators (those making the will) are going to be frustrated. The word has to get out so people can accomplish their objectives in a permissible way."

As for the case itself, he sides with the dissent. "I think it's unfair," he said of the majority opinion. "The reason given by the majority was that the provision conflicts with public policy in favor of marriage and against divorce. But it seems to me that's really a smokescreen. What may have rankled some of the people is the fact that someone wanted to influence the heirs' religious choices. That bothers people, particularly people who are not sympathetic to religion," he said. "It seems disingenuous to make this kind of decision based on the supposed public policies in favor of marriage and divorce."

From the perspective of Jewish law, he said, a person is not supposed to disinherit his or her children unless they have converted to another religion, but since this case involved Max Feinberg's grandchildren, it was not inconsistent with Jewish law.

Still, Resnicoff said, "the concept under Jewish law is that generally, even if an heir doesn't behave properly, we hold out hope for that person." So, he said, declaring the grandchildren who married non-Jews "deceased" "doesn't violate the letter of Jewish law but it does violate the spirit - for very different reasons from what the court said.""

Insane Delusion in Lancaster County?

Lancaster Sunday News front-page headline today:  

" Retired county judge challenges late sons' $500,000-$900,000 bequest to Lancaster Public Library; state Attorney General's office wants the filing attorney - judge's son-in-law - off the case." 

Read the article - click here or here. 

THE CAST OF CHARACTERS:

The retired judge is Wilson Bucher, now 88 years old.  Last July, his son, Thomas Bucher, was found in his apartment in Columbia dead of a self-inflicted gunshot wound.  The 59 year old Thomas Bucher had been employed as a supervisor with the Impaired Driver Program of the Adult Probation and Parole Office for Lancaster County Court.

The son-in-law who brought this petition is Steven R. Blair, married to Wilson Bucher's daughter Christine.

The PA Attorney General's office, involved to protect the interest of the library which is a public charity, wants Steven Blair removed as counsel because he is a potential witness.

Lancaster County Judge Jay Hoberg has recused himself.  The case is being heard by Perry County Judge Joseph Rehkamp.

Thomas Bucher's will was written by Theodore Brubaker.

The library is represented by Bob Hallinger of Appel  & Yost

THE CASE:

Lancaster Court of Common Pleas No. 36-2008-1522

According to the The Sunday News, in 1998 Thomas Bucher approached his parents and "said he could not understand how it was that his brother-in-laws could be supporting their families since he had information that they were going to Las Vegas and blowing all their money."  This was the "insane delusion"  under which Thomas Bucher made the first changes to his will.

In 2002 Thomas Bucher's aunt, Helen Bucher died.  Steven Blair had been her agent under a power of attorney, had written her will and was executor.  Apparently, Thomas Bucher was suspicious of Blair's actions.

Hallinger, representing the library, wrote  that Thomas "simply did not trust the involvement of his brother-in-law, attorney Steven R. Blair, in estate planning and/or settlement matters relating to family."  "[M]istrust or suspicion of motives and actions of an in-law and an attorney do not rise to the level of an 'insane delusion' under Pennsylvania law, regardless of whether there is a factual basis for such mistrust or suspicion."

THE LAW:

Partridge-Remick Practice and Procedure in the Orphan's Court Division Court of Common Pleas of Pennsylvania by Charles W,. Frampton. George T. Bisel Company (1975)  (hereinafter Partridge-Remick")Section 4.12, p. 273:

"A man may be of sound mind in regard to his dealings in general, but he may be under an insane delusion,and whenever it appears that the will was a direct offspring of the partial insanity or monomania under which the testator was laboring at the very time the will was made, that it wasthe moving cause of the disposition, and if it had not existed the will would have been different, it ought to be considered no will, although the general capacity of the testator may be unimpeached.45"  Footnote 45: "Nelson Estate, 66 York 161."

 and  from Partridge Remick Cumulative Supplement at §4.12 for p. 273.

"A testatrix may suffer from a delusion and, indeed, there is no requirement that she give any of her property to those she loves or to the relatives that society believes she should love.  She can give it in such a way that 99 percent of her fellow citizens believe it is foolish, unjust or outrageous.  Such a dispositive scheme does not mean a testatrix suffers from an insane delusion.41,1  Footnote 41.1 Sommerville Est, 406 Pa. 207, 177 A. 2d 496 (1962)

and

"For a will to be invalidated on the grounds of insane delusion, the evidence must show not merely that testatrix was the victim of an insane delusion, but that she was controlled by the delusion in the making of her will, causing it to be written differently from what it otherwise would have been. 42.1 Footnote 42.1 Dunross Will, 395 Pa. 492, 150 A. 2d 710 (1983); Agostini Est., 311 Pa. Super, 457 A. 2d 861 (1983); Nunemacher Will, 3 Fiduc. Rep. 2d 292 (Berks 19083).

THE FACTS:

Unknown until the hearing. 

THE RESULT:

It will be interesting.  If disliking and mistrusting in-laws is an "insane delusion" there are heck of a lot of wills out there that will be invalidated.  On the other hand, shouldn't a will disposition made on account of paranoia (assuming that it is insanity) be invalidated?

Here is Robert FIeld's comment on www. NewsLanc.blogspot .com and his original post here.

The next headline may be  "Just because you're paranoid doesn't mean they're not out to get you."

Enforcing Pre-Nuptial Agreements

Trusts and Estates published an article here called Get Me To The Church On Time by John T. Brooks and Samantha E. Weissbluth.  They write:

"The Kinney case out of Minnesota offers a good review of the general requirements for a valid prenuptial agreement. The appeal also shows a modern trend in which courts view such agreements with suspicion when one party is not represented by counsel. Of course, decisions in most cases turn on the facts, but courts tend to enforce prenups when the playing field is more level. The litigants in Kinney appear headed for another round to determine the facts and fairness of the agreement. Estate of Kinney, 733 N.W.2d 118 (Minn. June 14, 2007)."

The leading case in Pennsylvania on the enforceability of pre-nuptial agreements is Simeone v. Simeone, 581 A. 2d 162 (Pa. 1990).   The case marks a sea change in the way Pennsylvania courts viewed these agreements.  The PA Supreme Court abandoned the protective and paternal stance of earlier years and provided these two requirements for enforcability:

1.  application of the usual contract law concepts about invalidating contracts for fraud, misrepresentation, or duress.

2.  a "full and fair disclosure of the financial positions of the parties"

Notably, the PA Supreme Court did not require representation by separate counsel:  "To impose a per se requirement that parties entering a prenuptial agreement must obtain independent legal counsel would be contrary to traditional principles of contract law, and would constitute a paternalistic and unwarranted interference with the parties' freedom to enter contracts."  See Simeone at p. 161.

Despite the assurances of Simeone, I have never been comfortable with a pre-nup unless both parties are represented by separate counsel.   I have always insisted on such representation for the party who is not represented by Spencer Law Firm.  Call me paranoid, but I think the Kinney case in Minnesota points out the risks and it can happen here in Pennsylvania too.
 

Additional resource:

Robert B. Standler has an excellent essay, Prenuptial and Postnuptial Contract Law in the US, posted at http://www.rbs2.com/dcontract.pdf.

Postscript:

I never refer to these agreements as Antenuptial Agreements, although that is quite proper and correct.  I find that the general public's understanding of Latin is quite deficient.  Many do not know that "ante" means "before" as in "antebellum."  All too often they mistake it for "anti" which means "against" as in "anti-aircraft."   We don't want them to think these agreements are "against" marriage.  On the contratry, they are a way to promote marriage with the parties making their own property agreement instead of relying on the "one-size-fits-all" agreement provided by state law.

 

Deloitte pays $40 Million to PA for Malpractice

The Pennsylvania insurance commissioner, has finalized a $40 million settlement with Deloitte & Touche LLP.  The New York-based accounting firm yesterday paid the settlement in connection with its auditing service for Philadelphia-based Reliance Insurance Co., a carrier that’s now in liquidation.

The PA insurance commissioner had accused Deloitte & Touche LLP of accounting and actuarial malpractice

 According to the Allentown Morning Call:

"When state officials stepped in to liquidate the Philadelphia-based company in 2001, they estimated that Reliance's losses were around $3 billion.

A state insurance bailout account, funded through surcharges paid by homeowners and businesses, had to cover Reliance's losses. The company was licensed to write insurance policies in all 50 states and concentrated on workers' compensation, commercial auto and liability and personal auto insurance.

A year after Reliance collapsed, the insurance department sued Deloitte, claiming that it contributed to Reliance's failure by not reporting the company's true financial condition. According to earlier news accounts, Deloitte signed off on an audit in 2000 that Reliance had sufficient cash reserves, but soon thereafter told an investment partnership that the company had a "seriously deficient" $350 million shortfall."


 A copy of the agreement can be found under recently filed documents here.

 The accounting firm admitted no wrongdoing.

The Insurance Department took statutory control of Reliance on May 29, 2001, under an Order of Rehabilitation, followed by an Order of Liquidation that October. On Oct. 15, 2002, the department, as the liquidator, filed a complaint in Commonwealth Court of Pennsylvania against Reliance's outside auditor, Deloitte & Touche LLP, and its appointed actuary, Lommele.  Among other things, the complaint alleged claims for breach of fiduciary duties, professional negligence and the recovery of preferential transfers.

This latest settlement brings the state’s total recovery amount from the Reliance case to $145 million. Previously, $45 million was recovered from the Reliance parent companies, and about $60 million was recovered from legal actions against the carrier’s former officers and directors. 

 

Wrongful Death vs. Survival Actions

The general rule is that damages for a decedent's pain and suffering (the survival action) are an asset of the decedent's estate and subject to federal estate tax and PA inheritance tax.  The wrongful death award that goes to next of kin for loss of society, consortium and support are not estate assets and are not subject to estate or inheritance tax.

Trusts & Estates carried an article by John T. Brooks and Samantha Weissbltuh, entitled Estate Tax on Wrongful Death Claims? which discusses an Illinois case where the appellate court held that the wrongful death damages went to the estate.  The case, Bender v. Eiring, 2008 WL 351126 (Ill. App. 1st Dist. Feb. 7, 2008) established, in the words of the authors. "a potentially dangerous precedent."

Brooks and Weissbluth say:  "We not only think the appellate court made a mistake, but also worry that the decision could have an unfortunate ripple effect. Will wrongful death proceeds now be subject to estate tax? Spousal elections? Creditors' claims?"

 

Hell Hath No Fury. . . .

"Heaven has no rage like love to hatred turned, Nor hell a fury like a woman scorned."

                                                                                            from William Congreve's The Mourning Bride (1697)

Fritzi Benesch, 86 year old multimillionaire and former owner of the clothing company, Fritzi California, is suing her lawyer for malpractice.  The case, brought in 2000 went to trial the week of October 27, 2008.  See ABA Journal report here.

Her lawyer, now retired trust and estates lawyer William Hoisington, of Orrick, Herrington & Sutcliffe did estate planning for the Benesch family for 20+ years.  Fritzi and her husband Ernst started working with Orrick in 1977.

In 1981 daughter Valli (and later, her husband Robert Tandler) also retained the Orrick firm for advice on their own estate, corporate and tax matters, and for the family business.   Fritzi, the plaintiff in this action, now alleges that the Orrick firm did not inform her of the representation of her prospective heirs, nor was the potential conflict of interest inherent in that representation ever explained to her, nor was she ever asked to consent to that representation or to waive the conflict.

In the summer of 1999, 16 years after she had passed control of the family business to her older daughter, Valli and Valli's husband Robert Tandler,  In that same year Fritzi discovered that her husband had had an affair and Fritzi filed for divorce.  The attorney for the defense says that Fritzi Benesch's discovery of her husband's infidelity sparked her desire to undo decades of estate planning and stock transactions.

Plaintiff's attorney argues that Fritzi's attorney had a conflict of interest.  "What this case is about is a law firm favoring one set of clients over another," he said. "They were getting richer as my client was getting lesser."  (Isn't that what we do all the time in estate planning? Don't' we usually call that good planning?)

Here is brief submitted to San Francisco Superior Court on behalf of Fritzi Benesch, Plaintiff and Appellant.

Here is Juan Antunez's blog post discussing the ethics issue.

What do you think?

Locking Out Expert Witnesses

 

Robert Anbrogi has an excellent article posted at Findlaw:  Ethics: Hiring Experts You Don't Plan To Use.   He asks:  "Do lawyers ever retain experts just to lock them out from being hired by the other side?"

"Lawyers do occasionally contact or 'retain' experts solely to disqualify them from working for the other side," says Erik Anderson, senior attorney in the corporate legal department of Safeco Insurance Company of America. He should know: he faced this situation in a case not long ago in which one party sought to disqualify the other's expert.

Another lawyer who has seen it done is David W. White, a trial attorney in Boston who is also president of the Massachusetts Bar Association. Although he would never do it himself, he once found himself the victim of this tactic.

"It was an antiques case, where fraud was alleged," White says. "There wasn't an available independent expert on the east coast of the U.S. because the plaintiff had consulted them all." 

When the expert is contacted, how much can be disclosed?  Typically the hiring attorney wants to be able to discuss that case with  the expert.  Must the expert refuse to hear any details before being hired?  Must you request a retainer just to talk about whether or not you want to take the case? Sure sounds like it.