Charles Kuralt, the TV Journalist and "On the Road" reporter, has another distinction. He has become famous in estate planning circles for "what not to do" with regard to your estate plan.

Mr. Kuralt died at age 62 of complications from lupus. His wife survived him, and under his 1994 will, his estate passed to his wife and his two daughters from a prior marriage.

After his death, the truth emerged. While his wife lived in New York City, Kuralt had a second, "shadow" family with Pat Shannon. Over the nearly 30-year course of their relationship, Kuralt and Shannon saw each other regularly and maintained contact by phone and mail. Kuralt was the primary source of financial support for Shannon and established close, personal relationships with Shannon’s three children. Kuralt provided financial support for a joint business venture managed by Shannon and transferred a home in Ireland to Shannon as a gift.

In April1997 Kuralt deeded his interest in a 20-acre parcel with a cabin in Montana to Shannon. The transaction was disguised as a sale, but Kuralt supplied the "purchase" price for the 20-acre parcel to Shannon prior to the transfer. After that transaction, Shannon sent Kuralt, at his request, a blank real estate contract so that the remaining 90 acres along the Big Hole River could be conveyed to Shannon in a similar manner. The second transaction was to take place in September 1997 when Shannon, her son and Kuralt agreed to meet at the Montana cabin.

But Kuralt became ill and was admitted to a New York hospital in June 1997. On that day he wrote Shannon a letter. He died on July 4, 1997. The bulk of his estate was in New York, but he also owned the 90 acres in Madison County, Montana. Mr. Kuralt’s widow, Suzanna "Petie" Baird Kuralt, filed a petition to probate his will in New York. A short time later she filed a petition in Montana to be the Domiciliary Foreign Personal Representative of the Estate.

Then, in the words on the Montana Supreme Court, "Kuralt’s long-time and intimate companion,

Patricia Elizabeth Shannon, filed a Petition for Ancillary Probate of Will, challenging the application of Kuralt’s New York will to the Madison County property based, in part, on a letter which she had received from Mr. Kuralt shortly before his death – a letter that this Court, in Kuralt II, determined to be a valid holographic codicil conveying the Madison County property to Shannon."

What was that? You read correctly. Kuralt wrote his mistress a letter. What did it say? It said, and I quote: "June 18, 1997 Dear Pat – Something is terribly wrong with me and they can’t figure out what. After cat-scans and a variety of cardiograms, they agree it’s not lung cancer or heart trouble or blood clot. So they’re putting me in the hospital today to concentrate on infectious diseases. I am getting worse, barely able to get out of bed, but still have high hopes for recovery … if only I can get a diagnosis! Curiouser and curiouser! I’ll keep you informed. I’ll have the lawyer visit the hospital to be sure you inherit the rest of the place in MT. if it comes to that. I send love to you & [your youngest daughter] Shannon. Hope things are better there!  Love, C. "

And that, ladies and gentlemen, was found to be a valid codicil to his will. The attorney for the surviving spouse and after she died, Kuralt’s two daughters argued that this letter merely expressed an intention to make a will and was not a will itself. Not so, held the court.

The plot thickens. The 1994 will (to which the letter was found to be a codicil) provided that all estate and inheritance taxes should be paid from the residue of the estate. The residue consists of the assets remaining after the payment of specific bequests, legacies and devises. Since the letter created a specific devise of the Montana land to Pat Shannon, the residue, which as ultimately to be inherited by the two daughters, had to pay the taxes on the property that the mistress inherited. That’s rubbing salt in the wound. Not only did the girls not get the Montana property,. but they had to pay $350,000 in taxes on it when it passed to the mistress.

What’s the moral of the story? Many, to be sure. Take a lesson from Mr. Kuralt. Consult an attorney who specializes in estate planning so that your wishes can be incorporated in a valid instrument. All communications with your lawyer, (so long as the lawyer is not jointly representing you and your spouse) are confidential. Don’t put the burden and expense of litigation on loved ones to have the Court decide what were your intentions for the disposition of your estate.

 

P.S.  And then there’s Ike Turner’s estate:  click here

 

Is Williamson Estate still good law?

On August 24, 2009, the PA Superior Court filed its opinion in Wachovia Bank, N.A.’s appeal in The Estate of Anna Fridenberg .  See 2009 PA Super 164.

The case arose on Objections to the Account of Wachovia Bank, N,A, as the Trustee of a perpetual charitable trust.  Wachovia’s corporate predecessor served as executor of the will of Anna Fridenberg and received commissions on principal for services as Executor.  The same corporate predecessor then served as trustee of the trust under the will.  The Attorney General of the Commonwealth objected to payments of Trustee’s commissions on principal.

The Philadelphia Orphan’s Court held for the objectant against Wachovia, N.A. because such payments are barred by decisions in the matters of Williamson Estate, 368 Pa. 343 (1951); Scott Estate, 418 Pa. 332 (1965); and, Ehret Estate, 427 Pa. 584 (1967). See the Court’s opinion here. The Orphan’s Court held that it would be unconstitutional under the Fourteenth Amendment of the United States Constitution, to apply retroactively any statute which repeals the prohibition on the same individual receiving commissions on principal as both executor and trustee, which prohibition existed under the 1917 Act.  The Orphan’s Court held that former Section 7185 (b) of the PEF Code, as amended by the Act of February 18, 1982, P.L. 45, No. 26, and, Section 7768 of the Uniform Trust Act, as enacted by the Act of July 7, 2006, P.L. 625, No. 98, may not be applied retroactively to permit the challenged payments of Trustee’s commissions on principal.

The Orphans’ Court rejected the argument that case law had been superseded by the numerous legislative amendments, concluding: “The Legislature could not do in 1982 and 2006 what it was constitutionally prohibited from doing in 1945 and 1953.”

The Superior Court reversed the Philadelphia Orphan’s Court.   See their opinion here. 

Justice Klein filed a dissent where he says:  

"Although I agree that the majority’s outcome is both logical and preferable in light of the duties required of a trustee/executor, I cannot agree that In re Ehret’s Estate , 235 A.2d 414 (Pa. 1967), has effectively rendered   In re Williamson’s Estate, 82 A.2d 49 (Pa. 1951), and In re Scott’s Estate, 211 A.2d 429 (Pa. 1965), obsolete. Therefore, I believe that our Supreme Court’s rule is still in effect. If a person or entity took a principal commission as executor dual commissions, that person or entity is barred from taking a principal fee from the trust although the rule changed before the fee against the trust principal was claimed. "

Stay tuned.  If this case is appealed, as many Superior Court fiduciary law decisions are, we predict that the PA Supreme Court will adopt the position of the dissenting Justice Klein.  Many fiduciary law cases have to go the extra mile to the Supreme Court.

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.
 

See John Elihon’s article in the August 5, 2009 New York Times:  Writing Expert Says Astor’s Signature Was Forged

"That testimony by Mr. Lesnevich, a forensic document examiner and prosecution witness, appeared to be a blow to Francis X. Morrissey Jr., an estate lawyer who prosecutors have accused of forging Mrs. Astor’s signature on that March 3, 2004, codicil to her will."

 

UBS is in trouble again.  This time for inducing a 77 year old Hong Kong woman who doesn’t speak English and who never finished primary school to sign documents in English, one making her a "professional investor" under SEC regulations.   They sold her an equity accumulator – a very complicated contract not unlike the fancy derivatives that caused this year’s financial crisis.  She lost $25.8 million. 

Melly Alazfaki writes for Daily Finance:

"Banks and businesses have one incentive: to increase their own profit. They can confuse the issue and offer as convoluted products/payment system as they want, but at the end of the day, their goal is their own bottom line. Consequently, when a bank pushes a product, it is doing so out of an attempt to gain money, not because it loves its customers.

If something is too complicated and cannot be properly explained by bank advisers, or understood by clients, why enter into such agreements? Notwithstanding possible negligence by the bank in this case as alleged by the suit, greed can often lead us to make the wrong choices. Chan, a woman who has accumulated millions through "hard work," should have known better — nothing is ever free and greed rarely pays."

 

 

Lou Ann Anderson writes for the Bell County Michigan Legal News Examiner.  See her article about an attorney who stole $800,000 from the estate of a now deceased client.  More details form Danielle Quisenberry writing for the Jackson Citizen Patriot here.

Anderson says:  "Using the probate system or probate instruments (wills, trusts, guardianships, powers of attorney) to steal assets is a growing problem.  Many of these actions are fueled by a sense of entitlement, others by plain greed.  Sometimes, as with guardianships, the asset owner is alive, but a person can be posthumously victimized by probate theft through estate planning vehicles like a will or a trust.  These cases manifest themselves in a variety of configurations, but "players" usually include one or some combination of greedy attorneys, disgruntled family members and/or wannabe heirs."

For more on this uplifting topic, see Estate of Denial – Shining Light on the Dark Side of Estate Management.   Anderson includes a post about "Legal industry silent on Astor estate attorney culpability."

A parable:

A frail old man went to live with his son, daughter-in-law, and young grandson. The old man’s hands trembled, and he often spilled his food. He dropped a good piece of china, breaking it. Exasperated, the son and daughter-in-law made the old man wooden bowls and spoons and told him to eat in the kitchen while the rest of the family ate in the dining room. One day, the little boy was playing with wood scraps on the floor. "What are you making?" his parents asked. The boy answered proudly, "I am making wooden bowls and spoons for you, so that when you are old you can eat in the kitchen just like grandpa." The words so struck the parents that they were speechless. That evening the husband took Grandfather’s hand and gently led him back to the family table. For the remainder of his days Grandfather ate every meal with the family and no one seemed to care any longer when a fork was dropped or the tablecloth got soiled.

Filial responsibility is the personal obligation or duty that adult children have for protecting, caring for, and supporting their aging parents. Filial responsibility is recognized as a moral duty in most cultures and religions. Is it a legal duty? The duty of parental support is created by statute. Under ancient common-law, an adult child had no duty or obligation to contribute to the support of his parents. In England, a statute changed this in the 17th century. The Elizabethan Act of 1601 for the Relief of the Poor, provided that "[T]he father and grandfather, and the mother and grandmother, and the children of every poor, old, blind, lame and incompetent person, or other poor person not able to work, being of a sufficient ability, shall, at their own charges, relieve and maintain every such poor person." These Elizabethan poor laws became the model for the United State legislation on the same subject.

In Pennsylvania, the first law imposing a duty of filial support is found in the Act of March 9, 1771, which required that children support their indigent parents if the children were of sufficient financial ability. This was obviously designed to relieve state and local authorities from the burden of supporting poor persons who had relatives of financial means who could care for them. The current formulation of the law has been on the books since 1937.

An example of its enforcement is the 1994 Pennsylvania Superior Court case, Savoy v. Savoy which involved an elderly parent whose reasonable care and maintenance expenses exceeded her monthly Social Security income. The Superior Court found that she was indigent and affirmed the lower court’s order directing her son to pay $125 per month directly to her medical care providers.

In July 2005, the Pennsylvania legislature passed an Act which, among other things, moved the filial support provision in the Pennsylvania statutes to a central position in its Domestic Relations Code. The law reads: "all of the following individuals have the responsibility to care for and maintain or financially assist an indigent person: (i) the spouse of the indigent person, (ii) the child of the indigent person, (iii) the parent of the indigent person."

Historically, these filial responsibility laws have rarely been enforced. Some states that have these statutes on the books have never enforced them at all.

Why so little enforcement? One of the main reasons is that the government has taken over this traditionally familial responsibility. Since the 1960’s federal law (U.S. Code Title 42 §1396a(a)(17)(D)) has barred the states from considering the financial responsibility of any individual (except a spouse) in determining the eligibility of an applicant or recipient of Medicaid or other poverty programs. In other words, even if family members have a legal duty to support a loved one, the federal government places the burden on taxpayers. In the words of Matthew Pakula, "The moral duty receded as society evolved, family life changed, and government created a variety of federal and state programs to meet the needs of the poor."

As the pending financial crisis of how to pay for the care of the nation’s elderly looms, the issue of family responsibility is coming to the fore. Medicaid is the major funding source for long-term care. If a person consumes his financial assets and his income is low enough, he qualifies for Medicaid coverage. Medicaid paid $60 billion for long term care in 2002. An increasing number of persons are transferring their assets in order to qualify for Medicaid. Their children receive their assets, and the taxpayers pay the bill for their care. Medicaid has become an inheritance protection plan. Enforcement of filial responsibility statutes could bring a stop to this.

Here is an idea that has been put forward: Allow states to consider an adult child able to pay toward care of an indigent parent unless the child files a public notice that they are not responsible for the debts of the parent, foreswears any inheritance rights and consents to the revocation of any trust set up for their benefit by the parent.

But maybe the carrot works better than the stick. Look at what Korea has done: Since 1999, children who live with and support the parents get more inheritance. A person who has supported his or her parent for a considerable time will get 50% more added to his or her share of inheritance. This is called the "filial piety inheritance system."

Honor thy father and mother. The Talmud teaches that `honor’ means the son must supply his father with food and drink, provide him with clothes and footwear, and assist his coming in and going out of the house.

See Neil Hendershot’s blog post for more information and another point of view:  PA’s "Filial Responsiblity" Law in the News .

 

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.

 

 

No word as yet about Michael Jackson’s will.  According to a June 29, 2009 article in The Independent: "For reasons that remain murky, Jackson’s immediate family have so far had no luck in persuading his former entourage to grant access to his will, the one document that could reveal details of how the performer wished his funeral to be conducted."

It is commonly known that Jackson had serious financial problems and was deeply in debt.  Reports vary – from $200 to $500 million in debt.  His assets are estimated by one source at $ 1 billion.  Jackson was counting on his upcoming "This Is It" tour with 50 dates over 6 months to restore his financial position.

True, the tour won’t be proceeding but as blogger Harry Thomas Hackney says in his post, the estate may make a lot of money:  "Jackson’s estate may earn even more than Jackson.  Even as I write this, radio stations and TV stations are playing Jackson songs and videos and the royalties are pouring in. Itunes is probably sellng Jackson’s music at a record rate and CDs and posters are flying off the shelves at WalMart.  This income is likely to go further without Jackson to spend it faster than it comes in.  It is likely to support an army of lawyers and accountants and still be able to pay debt and a legacy for his three (3) children.  Elvis Presley’s estate earned $52,000,000.00 last year, which may be more than Jackson earned while living. "

Then there will be the custody battle.  Mail Online reports that Jackson’s three children, Prince (age 12), Paris (age 11) and Prince Michael II (a/k/a Blanket) want to live with their grandparents – Joe and Katherine Jackson.  Jackson’s second ex-wife, Debbie Rowe, also wants custody.

There has long been speculation that Jackson would will the rights to the 200 songs from the Beatles catalogue that he purchased in 1985 to Paul McCartney. 

An article in The National Law Journal predicts a slew of legal battles over the use of Michael Jackson’s name, music and image.  Posters and T-shirts with his picture are already out there along with bootleg copies of videos and CDs.   

The June 29 article in The Independent continues:

"Friends, family and former business associates unveiled legal teams yesterday as they prepare to duke it out over everything from the shady events that led to the King of Pop’s sudden death, to the billion-dollar question of how the estate should be divided and who should gain custody of his three children.

Even Jackson’s forthcoming burial is the subject of legal wrangles. His parents and eight siblings, who spent the weekend at their home in Encino, are hoping to co-ordinate a private service and public memorial event that would bring hundreds of thousands of mourners to the streets of Los Angeles. "

 

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.