"Boilerplate" provisions in a contract, will, or other legal documents are sections of apparently routine, standard language. The term comes from an old method of printing. Today, "boilerplate" is commonly stored in computer memory to be retrieved and copied when needed. A layperson should beware that the party supplying the boilerplate form usually has developed supposedly "standard" terms (some of which may not apply to every situation) to favor and/or protect the provider.

In the late 1800’s and early 1900’s, "boilerplate" or ready to print material was supplied to newspapers. Advertisements or syndicated columns were supplied to newspapers in ready-to-use form as heavy iron, prefabricated printing plates that were not (and, indeed, could not) be modified before printing. These never-changed plates came to be known in the late 19th century as "boilerplates" from their resemblance to the plates used to construct boilers. Eventually, any part of the paper that rarely changed (such as the masthead) came to be called "boilerplate." If you were the linotype machine operator, you loved boilerplate; instead of setting type for an article, you could just drop the big square piece of lead in the page setup. Maybe you could fill up a whole page that way!

The term "boilerplate" was later adopted by lawyers to describe those parts of a legal document that are considered "standard language," although any good lawyer will tell you to always read the "boilerplate" in any document you plan to sign.

In a will or trust, the choice of boilerplate is crucial. Let me give you a few examples.

Wills should contain a tax clause. A tax clause is a provision that says where the executor should get the money to pay federal and state death taxes. A common boilerplate provision could provide that all taxes are to be paid from the residue of the probate estate. Maybe your will says that.

What if some of the decedent’s property was jointly-held or payable pursuant to beneficiary designations and passed outside the will? Let’s say that a decedent held bank accounts jointly with a son and that the decedent has a will that leaves the remaining property to a daughter. On decedent’s death, the son (as surviving joint owner) becomes sole owner of the bank accounts. The will, when probated, gives the rest of decedent’s property (if any) to the daughter. But, the will says (in the boilerplate) that all death taxes are to be paid by the executor from the estate. This means that the estate and inheritance taxes payable on the bank accounts passing to the son are paid out of the property that passes to the daughter. Son pays no inheritance tax, but daughter pays the tax on his share as well as on her own. Is that what was intended? Probably not. But that result is mandated by the "boilerplate" provision that was used in the will.

Boilerplate is often used in a will or trust to provide definitions. For example, the will may refer to children, grandchildren, descendants or issue. Who is included? Is a stepchild included in the class? Is an adopted child included in the class? Are children born of unmarried parents included? If there is a definition in the boilerplate, it may exclude stepchildren as beneficiaries. Is this intended? Perhaps. Then again, perhaps not. This is a case where the definition in the boilerplate goes to the heart of the matter–who is a beneficiary and who gets a share of the estate.

If you name a bank or trust company as executor or trustee, do you want them to be able to invest your money in their own stock? If they invest your money in mutual funds, can they have a fee from the mutual funds as well as from your trust? Often boilerplate provisions provide that the answer is yes. Is that what you want?

If you name an individual or a bank or trust company as a trustee, can the beneficiaries ever remove that trustee? Thirty years later when the trustee’s fees are high, investment performance is poor, and there is inadequate customer service, can the trust be moved? It depends on what it says in the boilerplate.

All boilerplate is not equal. The choice of the boilerplate that is appropriate to the circumstances and is in accordance with the intentions of the parties is very important. There is no standard, across-the-board language for anything. It is all written by someone, the words have meaning, and they are binding. The quality of the attorney is often reflected in the quality of the boilerplate. Never skip over something saying "it’s just boilerplate."

Leslie Scism and Mark Maremont writing for the Wall Street Journal detail the story of the late Germain Tomlinson  who was found dead in her bathtub at the age of 74  "fully clothed from an evening out at a martini bar, high heels still on her feet."  Her "social companion," 36-year old JB Carlson had a $15 million life insurance policy on her life, payable to his compnay.  Read the article here.

"The dispute over the $15 million policy is a dramatic example of a larger controversy roiling the life-insurance industry over "stranger-originated" policies. In recent years, insurance agents, hedge funds and other investors have induced thousands of elderly people to take out giant policies. Investors then buy these policies, pay the premiums, and collect when the insured dies.

Insurers argue the practice violates "insurable interest" laws that require a buyer to be a relative, employer or someone else more interested in having the insured person alive than dead. U.S. courts long have supported this concept, including a 1911 ruling in which Supreme Court Justice Oliver Wendell Holmes Jr. wrote: "A contract of insurance upon a life in which the insured has no interest is a pure wager that gives the insured a sinister counter interest in having the life come to an end."

 

The biggest challenge for estate planners is how to reduce estate and gift taxes but allow the client to retain control over his assets. Family limited partnerships (FLPs) provide a solution to this problem.

When you place investments, a business, or real estate holdings in a FLP, you retain control of the assets while at the same time making gifts of limited partnership interests to your beneficiaries so that they own part of the equity. Because the limited partnership interests that are given to the beneficiaries are not marketable, they are valued at a discount which maximizes the amount of the underlying assets that can be transferred free of gift taxes. The family limited partnership also provides other benefits for asset protection from creditors and providing for centralized control and management.

How does it work? The older generation members ("Mom and Dad") form a partnership and contribute assets to the partnership. The contributed assets now belong to the partnership. Mom and Dad are the general partners and control the partnership. Mom and Dad make gifts of the limited partnership interests to children, grandchildren, trusts for grandchildren, as they wish.

What can a child or grandchild do with the limited partnership interest? Nothing. The interest can’t be transferred, can’t be sold, doesn’t give the owner decision making authority or authority to exercise control over the partnership assets. It is documentation of an interest in the partnership which entitles the owner to partnership distributions if they are made, and to liquidation proceeds if the partnership is liquidated. The terms of the partnership agreement restrict the limited partners’ ability to transfer or, otherwise, enjoy the asset.

A FLP gives a two-fold benefit: (1) Mom and Dad stay in control even though they have made gifts, and (2) because of the restrictions placed on the limited partnership interest by the partnership agreement, the value of the gifts is much less than a pro rata value of the underlying assets. Thus, Dad can transfer more property by making gifts of limited partnership interests than by making outright gifts of the assets. Both the psychological goal of retained control and the estate planning goal of a reduced taxable estate are reached.

The gift and estate tax savings are a function of gaining IRS acceptance of the discount. Let’s say you form a FLP and claim a 45% discount on the gifts of limited partnership interests. The IRS objects and, rather than go to litigation, you agree on a 25% discount. What do you call that? I call that "victory." You won a 25% discount. (If you think that losing the whole 45% is failure, a family limited partnership is not for you.)

There are things you need to do to make your case for a discount compelling. The FLP has to be a "real deal." It must be operated as a genuine partnership with a business purpose. It is not just a document. It is an operating entity, and the entity must be respected.

Some tests of whether or not it is a real entity are: Do you follow the partnership’s requirements for votes, meetings, contemporaneous records, and other requirements set forth in the document? Do you file a Form 1065 – Partnership Income Tax Return? Does the partnership have its own bank accounts and investments, contracts for services and pay its own bills? Does the FLP maintain books and records? Also, make sure that there are sufficient assets outside of the FLP. Don’t use the partnership as your own personal piggy bank. It cannot be stressed enough that FLPs have to be planned, documented, implemented and operated.

Next, make sure you have the best possible valuation appraisals from a qualified appraiser. Two appraisals are required, at two different levels. One appraisal is for the assets owned by the partnership. The second appraisal is for the value of an interest in the partnership. The valuations are key to defending the discount, so they are not something to stint on.

There are considerable non-tax advantages as well. The partnership can protect property against claims. Creditors that may sue the partnership cannot reach the personal assets of the limited partners and the general partner (if the general partnership is a limited liability company or corporation). Creditors of the partners themselves may be more willing to settle than be saddled with limited partnership interests and non-controlling general partnership interests that will cause them to have income tax liability, but no guarantee of distributions with which to pay the taxes.

The partnership property can be managed through one account, thus consolidating and simplifying the management of the family’s investments. The partnership simplifies the manner in which you make gifts to your beneficiaries. Instead of being required to select and give several securities or other assets, you simply could transfer limited partnership units.

FLPs are not for everybody; but if you can abide by the constraints of the entity, this estate planning technique is an important one that can provide significant benefits.

 

 

The Pennsylvania Superior Court is reversed!  No surprise.   (See our prior posts here and here.) Read the Supreme Court’s decision here.

Common sense prevailed.  Joint accounts are rehabilitated.  The joint account result is correct and good.   However, in this particular case, the appellants missed the boat.  This really should have been a case on the appropriateness of the agent under a POA’s actions.  Too bad those weren’t the issues on appeal.  I wonder if its too late to go back?

Here are some highligts from the opinion:

"There is no statutory provision giving a will primacy over the right of survivorship

presumed by Section 6304(a), nor does anything in the MPAA or the PEF Code support the

Superior Court’s path of interpretation. Indeed, the MPAA clearly evinces a legislative

intent that joint accounts are to be generally governed and interpreted separate and apart

from provisions governing wills."    

"We do not hold that provisions of a will, in the appropriate case and in conjunction

with other relevant evidence, are beyond consideration as “clear and convincing evidence”

of intent different from a right to survivorship “at the time [a joint] account is created.”

However, the Superior Court’s conclusion that such clear and convincing evidence exists

simply when a court determines that the provisions of a pre-existing will indicate a

distribution scheme in conflict with one under a co-existing joint account is not supportable

under a plain reading of the MPAA or otherwise."       

"We understand Appellee’s disappointment, and we note the orphans’ court and

Superior Court’s apparent discomfort with the master’s conclusion that the proceeds of the

Treasury Direct account, representing the bulk of Decedent’s substantial property,

belonged to Appellant rather than to the estate.

 

 

 

"Amnesty

(from the Greek amnestia, oblivion) is a legislative or executive act by which a state restores those who may have been guilty of an offense against it to the positions of innocent people. It includes more than pardon, in as much as it obliterates all legal remembrance of the offense. The word has the same root as amnesia."

 

 

 

                                                                                                                          – Wikipedia

The Pennsylvania legislature has authorized a tax amnesty period from April 26 to June 18, 2010. During this limited, 54-day time frame, the Pennsylvania Department of Revenue will waive 100% of penalties and half of the interest for anyone who pays his or her delinquent state taxes.

Any PA taxes delinquent as of June 30, 2009, and any non-filed PA returns overdue as of June 30, 2009, are eligible for tax amnesty. Individuals and businesses are included.

All taxes administered by the PA Department of Revenue are eligible for the tax amnesty program. There are many state taxes. Here are a few: Personal Income Tax, Inheritance Tax, Capital Stock Tax, Sales and Use Tax, Corporate Net Income Tax. The tax amnesty does not include Unemployment Compensation because it is administered by the PA Department of Labor and Industry. The program does not apply to any tax administered by another state, the federal government or Internal Revenue Service.

To obtain tax amnesty, you must do the following between April 26 and June 18, 2010:

 

 

 

 

file an amnesty return online with the PA Department of Revenue (taxpayers will only be able to apply online; no paper application will be available);

file tax returns for periods for which returns were not filed, or file amended returns for all underreported tax; and

pay all delinquent taxes plus 50 percent of the interest due with the amnesty return that is filed.

 

 

 

 

No extensions to file or to pay are available. Penalty and interest paid before the tax amnesty program begins are non-refundable.

If you are reporting and paying taxes which are completely unknown to the Department – meaning you have not registered, filed or paid the state taxes, nor have you been contacted by the department about the taxes – you could qualify for a limited filing period. In this case, only undisclosed tax delinquencies dating back to July 1, 2004, will be required to be filed and paid under the amnesty program.

If you are reporting and paying taxes which are known to the department, you must file tax returns or amended returns for all tax periods and pay all taxes due to the department.

Taxpayers with known delinquencies will receive notices from the DOR informing them about the amnesty program. The notice will include a Personal Identification Number (PIN) to be used in the application process. For delinquencies that the department does not know about, taxpayers will have to register and get a PIN online in order to file.
 

A business or individual currently under criminal investigation for violation of a tax law, or named as a defendant in a criminal complaint alleging a violation of a PA tax law is not eligible to participate in the amnesty.

After the amnesty period closes, a 5% non-participation penalty will be imposed on all un-paid tax, penalty and interest not paid in full during the amnesty period. Existing deferred payment plans, active appeals and entities in bankruptcy will not be assessed the additional 5% penalty.

In addition, if within two years after the end of the program a taxpayer that is granted amnesty becomes delinquent for certain periods in payment of any taxes that are due or in the filing of any required returns, the Department of Revenue may assess and collect all penalties and interest waived through the amnesty program.

You only get one shot at Pennsylvania tax amnesty. If another Amnesty Program is held in the future, a taxpayer participating in the 2010 Amnesty Program will be prohibited from participating in future Amnesty Programs.

The amnesty is projected to generate an additional $190 million for the state to help offset spending in the fiscal year that began July 1, 2009. Last year New Jersey had a hugely successful amnesty program which collected $725 million in six weeks.

Pennsylvania’s last tax amnesty was 14 years ago. The 1995-96 amnesty waived penalties but required full payment of taxes and interest. This year’s amnesty is better. It will waive penalties and 50% of the interest. The extra incentive for taxpayers previously unknown to state officials to come forward is that they will not be held responsible for taxes due before July 2004. The theory is that they will have to supply the department with the information it needs to tax them in the future.

While there is no question that tax amnesties work, it can provide a negative incentive to tax payers. As Kail Padgitt of The Tax Foundation in Washington D.C. says a tax amnesty is essentially "rewarding people that have not paid their taxes and have been out of compliance. So really what it does is it provides a perverse incentive to not pay your taxes."

 

How many families do you know who fought over the settlement of their Mom and Dad’s estate? In my experience, these family feuds are often over things – not money. Who gets the sterling flatware and who gets the drop-leaf table are points of contention that rip apart the family fabric.

Mom and Dad, why on earth do you think that children who fought over who gets the last cookie and, as recently as last week, fought over who gets to stay in the beach house the third week in August will somehow miraculously change when you die? I have news for you. When you’re gone, they will fight worse than ever. Face up to it now.

Even in estates where there are no tax issues – let’s say the total value of the estate is less than $3.5 million – disputes over personal property can cause permanent schisms. Each child wants the teapot that was the center of every family dinner and embodiment of all memories of childhood love. The executor has to decide who gets it. What a job that is! The only way for an executor to escape with his skin is often to sell the piece – then everyone can be equally angry.

If tempers can flare over items of sentimental value, watch out when the monetary value of the disputed items rises or when the estate exceeds the federal exemption for estate tax.

Mom and Dad, don’t bring this problem on yourselves. You may have heard at bridge club that you shouldn’t mention these things in the will because then your heirs have to pay tax on them. Even worse, some estate planners might tell you that too. This is wrong. A decedent’s property owned at death is subject to estate and inheritance tax. It doesn’t matter whether the property is specifically mentioned in the will. What these "advisors" really mean is that if it isn’t mentioned in the will, it’s easier to cheat on the taxes by omitting to report the item. This is tax fraud, pure and simple. The same tax is due on a $10,000 bank account as on a $10,000 oriental rug, and it is absolutely fair and just that it be so.

Tempers may also rise when you or your Executor low-ball the value of valuable items, asking for "low" appraisals for "estate tax purposes" to try to reduce taxes. Then the property is divided up among the children using the appraised value. Surprise, surprise — a child sells the breakfront that was part of his share for double the appraised value and his siblings call foul.

The IRS is not as dumb as you think. Most people who have valuable collectibles – jewelry, artwork, antiques – realize that they must be insured. Your average homeowners insurance policy doesn’t cover the loss of these items unless they are separately listed and valued. If you don’t report the jewelry all the IRS has to ask for is a copy of the homeowner’s policy. The IRS knows that if you live in a $300,000 house, have three expensive cars, belong to the Country Club and have a winter place in Florida then your household furnishings are worth more than a couple of thousand dollars.

If you’re afraid to talk to your kids about it, how do you think your executor (who may be one of the kids) is going to feel about it? The best thing you can do is make list of items, and who should receive them. Allow your children to have input. You be the one to settle the disputes. Then make the list part of your will or at least make it a non-binding memorandum, mentioned in your will.

If you can’t bear to talk about it, at least put a mechanism in your will for the division of the property. Maybe each child selects items in rotation. Who gets first choice is determined by lot.

Keep this in mind too: putting someone’s name on an item with a tag is legally meaningless. All property is passed under the will or under the intestacy statute if there is no will. It doesn’t matter if "Mom promised it to me" or if "Dad told me it would be mine." If all the other beneficiaries agree, you may be ok. But if there is any dispute, such oral representation, tags, notes, and letters are completely without any legal effect.

Also, there are the people who say "Grandma gave it to me years ago, I just left it in her house until she died." Even if this is true, the IRS takes the view, that this is not a completed gift. A completed gift of personal property, like a corner cupboard, requires delivery. How can you prove delivery in this instance? Even if you can prove delivery by some ingenious means, to the IRS, it still looks like a transfer with a retained right to the use of the property for life and is still subject to tax in the estate.

If you have a $40,000 grand piano, by all means, dispose of it in your will. If you want your daughter to have it, bequeath it to her. The best gift you can give to your beneficiaries is to make a clear and incontestable disposition of all your property, including jewelry, furniture, collectibles and artwork. The last thing you want to bequeath to your children is a battle that will drive them away from mutually supporting each other.

Manohla Dargis writes a movie review of a documentary about the Barnes Foundation for the New York Times.

Dr. Albert Barnes’ will provided that the collection must remain in its original location – the mansion in Lower Merion Township, Pennsylvania.

The Foundation became embroiled in controversy due to a financial crisis in the 1990s, partially related to longstanding restrictions related to its location in a residential neighborhood.  The relocation of the gallery from Lower Merion to a site in Philadelphia, on the Benjamin Franklin Parkway, for enhanced public access is scheduled for 2012.

Mel Simon, who died at age 82 in September 2009, left behind a huge estate tangled in litigation.   Mr. Simon was famous for building shopping centers – including the huge multi-use complex, Mall of America, located outside of Minneapolis, known as the U.S.’s largest mall.  Forbes estimated his net worth at $1.3 billion.

Mr. Simon was survived by a wife and children from a prior marriage.  He signed a new will and trust seven months before he died that drastically reduced the amount left to his three children and increased the amount going to his wife of 37 years, Bren Simon (37 years is a long time.)

Andrew Mayoras comments on the litigation at The Probate Lawyer Blog:  The wars over the final wishes of Bill Davidson & Mel Simon:

"Deborah Simon, Mel’s daughter, filed the lawsuit a few weeks ago.  She claimed that Mel was ill from pancreatic cancer, dementia and neurological disorders which impaired his understanding and his ability to sign the new documents.   In fact, she says, he wasn’t even able to hold the pen or the documents to sign his name, and someone else had to move his hand for him.  Mel Simon

Mel’s wife, Bren, counters that the documents were valid.  Mel fully understood and desired to make the changes, she says, to protect his wife from his children, and because he wanted to compensate her for loss in value of company stock.  Bren admits that Mel needed help signing the estate planning documents, because he suffered from symptoms of Parkinson’s disease. 

As a probate litigation attorney who regularly handles will disputes and trust contests like these cases, I see these types of family fights affect people on a daily basis.  While millionaires and billionaires do seem to attract these legal battles more often (as covered in Trial & Heirs:  Famous Fortune Fights!), the reality is that they are also far more common than people realize, even for middle-class families. 

The exact same type of legal fights surface over estates worth hundreds of thousands, or even tens of thousands.  When a will or trust is changed and family members are cut out, or someone is convinced that a promise was made and not fulfilled, estate disputes are usually just around the corner. " 

Kris Hudson and Rachel Emma Silverman wrote about the case for the Wall Street Journal:

"The battle over Mr. Simon’s will joins a list of high-profile estate contests among the super-rich, involving accusations that a senior family member may not have fully understood what was at stake when signing estate-planning documents. For instance, in the recent case of society doyenne Brooke Astor, her son, Anthony Marshall, was convicted last year of defrauding his mother as she struggled in her last years with Alzheimer’s disease. "

For more commentary see Estate of Denial:  Simon Family Estate Dispute. and Juan Antunez’s Billionaire’s Will Sparks Family Fued:  Spousal Undue Influence?