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.


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.

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:



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."

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.

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

                            "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.

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.