Fear-mongers have used the inter-vivos trust, also called revocable living trust, to sell books, trust kits, trust documents and other products and services. They often do this without regard to the individual’s tax and personal objectives. They scare the client by telling them that probate is a dreadfully complicated and horrendously expensive process. Then they offer to "save" the client: If you buy our estate plan which gives you a revocable living trust for $2,000 (or more) you will avoid all of this.

There is nothing wrong with a living trust. A living trust is a part of many appropriate estate plans. Living trusts can be beneficial depending on the type of assets you own, such as real estate located in several states. In addition, if you want someone else to manage your financial affairs, perhaps because you travel frequently, having a trustee of a living trust may offer fewer problems than relying on a Power of Attorney document.

But for other people, it can be a waste of money and time, or worse, it can actually defeat their intentions. In their attempt to save their heirs the perceived expense, time and loss of privacy caused by probate, other problems arise.

In fact, probate fees, themselves, are quite modest. For example, in Lancaster County, a will for a decedent with a $ 1 million probate estate can be admitted to probate for less than $300. Notice must be published in two newspapers, each costing cost about $60.

Avoiding probate by using a trust does offer some privacy. A will when probated becomes a public record which can be viewed by anyone. However, even where there is no probate property, the inheritance tax return is filed with the Register of Wills, so much of the financial information may be available to the public. In Lancaster County, inheritance tax returns are available for public inspection, whether or not the estate was probated.

Living trusts are sometimes promoted as a way to avoid excessive court supervision. However, with a living trust, you eliminate protections given to heirs in probate proceedings. A successor trustee of a trust may find it easier to succeed in illegally misdirecting your assets than would a will’s executor. Some states, Pennsylvania being one, subject wills to very little court supervision, therefore avoiding probate for this reason may be risky

A living trust does not always eliminate the need for probate. If you don’t transfer all your assets to the trust (and some assets – such as your everyday checking account or car don’t work well inside a trust) your estate will still need to be probated.

The main problem with living trusts is that they are marketed as an estate planning cure-all when they are not. Unscrupulous profiteers have discovered that preying upon fears, especially of the elderly, in regards to the estate planning process has led to the creation of estate mills.

What is a trust mill? As described by the American College of Trusts and Estates Counsel, trust mills are organization which promote the indiscriminate marketing of inter-vivos by non-lawyers; often with the assistance of local counsel. Typically trust mill organizations consist of insurance agents, financial planners, stock brokers, and other individuals who are not lawyers, but who prepare estate planning documents from various forms. Sometimes these documents are sent to local counsel for "attorney review."

A trust mill promotes its product door-too-door, on TV, radio, in seminars, workshops, and through the mail Prices can range from $25 for a do-it-yourself kit to $5,000. The trust mill advertises with slogans like "Protect your assets", "Leave more to your heirs", and "Avoid the Agony of Probate". The trust mill makes exaggerated claims of reduced taxes, exaggerates the cost of probate and the need for privacy. The prices for these living trust packages often far exceed the legal fees that would be paid to a lawyer for a true estate plan.

"Don’t Trust Trust Kits," says the Michigan Bar Association. Get it. Their web site, www.michbar.org, lists some warning signs to make consumers beware of a living trust scam:

 

An ad or salesperson promising the consumer will "save on legal fees"

The use of a salesperson. The ethics rules governing attorneys do not permit the use of salespersons.

Encouragement to purchase other products such as investments or insurance.

A "first step" in the program that is anything other than a one-on-one meeting with a licensed attorney

An offer to purchase the fill-in-the blank forms or an estate planning kit.

No permanent local office.

 

Many states have taken action against trust mills on grounds of consumer fraud and the unauthorized practice of law. Preparing a trust in Pennsylvania requires a lawyer. Pennsylvania Attorney General issued a Consumer Advisory in July 2001 about Living Trust Scams, http://www.attorneygeneral.gov/press/cons_advis/July01.cfm If you have any questions, or want to file a complaint, call the PA Attorney General’s Bureau of Consumer Protection hotline: 1-800-441-2555, or visit their website at www.attorneygeneral.gov.

The Federal Trade Commission has issued a warnings about living trust promoters, see

http://www.ftc.gov/bcp/conline/pubs/services/livtrust.pdf , as have the AARP, http://www.aarp.org/confacts/money/wills-trusts.html.

We haven’t even touched on abusive trust schemes that claim to save income taxes. If you hear words like "Pure," "Pure Equity" or "Constitutional" Trust – these schemes are even worse than the living trust scams. Don’t be taken in. These trusts are tickets to the federal penitentiary. If you are approached by anyone selling a "Pure Trust" or a "Constitutional Trust" or similar vehicle with a pitch that the trust is exempt from income taxes, notify the F.B.I. or the Criminal Investigative Division of the Internal Revenue Service. 

As Steve Leimberg says in his book, The New Book of Trusts, "The revocable trust (or, more accurately, the lack of an estate planning process that leads to the revocable trust) did not make matters better, but worse, just like the wrong surgery, the wrong drugs, or the right drugs in the wrong dosage, can make a patient worse, not better."

 “For Better, For Worse; For Richer, For Poorer”

You’ve heard of the “marriage penalty” — two people married to each other with the same income as two single people pay more taxes. Let me tell you about another “marriage penalty.”

If you file a joint return with your spouse and there is a problem and tax, penalties and interest are due, both spouses are liable individually and jointly, and the IRS may collect the owed tax from either spouse regardless of whose income, understatement or fraud was involved.

Most married couples file a joint income tax return because this gives a lower tax than filing two returns as married filing separate. (Although still not as little as two unmarried persons with the same income). The general rule for a joint return is that both taxpayers will be responsible for any taxes, interest, and penalties owed, even if only one spouse was earning the income. Married couples are not required to file a joint return. In fact, filing a joint return is an election. Since it almost always results in a lower combined tax than if each spouse files separate returns, it is routinely and almost automatically elected by married couples. If you file separately, you and your spouse can change your mind and file a joint return within three years after your original return’s due date. The converse is not true. If you file jointly, you can’t switch back to separate filing (unless there is enough time to do this before the due date for the return) even if your spouse agrees and wants the same thing. When you elect to file and sign a joint income tax return, you consent to joint and several liability.

Joint liability means that both spouses are liable. Several liability means that each spouse is liable for the entire amount The IRS may collect from either spouse. They may collect the tax however they think will be fastest and easiest.

Beware: even if you file separately, you can be liable for tax on your spouse’s income if you live in a community property state. When you are married, all income becomes community property income and one-half belongs to each spouse. The IRS can take ½ of your paycheck to pay an old tax bill for your spouse. In any state, the IRS can collect your spouse’s taxes from you if your spouse transferred assets to you in an attempt to evade taxes. Relief provisions are not available in this case because both spouses participate in a scheme to evade taxes.

Divorce does not terminate joint liability. Let’s say you were married to Spouse # 1 for 5 years and filed joint returns. You get divorced, and after a few years, marry Spouse #2. It turns out that Spouse #1 had significantly understated his income on one of those joint income tax returns. You get a notice form the IRS that you owe $10,000 in tax, interest and penalties. Unless you can qualify for one of the relief provisions described below, you have to pay the $10,000 because you signed a joint return. Often, as part of a divorce decree or marital property settlement, the spouses will make agreements about who is to pay income taxes. These agreements are not binding on the IRS. The IRS was not a party to the agreement. You can use the agreement to collect from your spouse (if he or she has anything), but the agreement is no bar to collection from you by the IRS. Chances are, if the IRS is coming after you for the tax, it’s because your ex-spouse has no assets, and the tax is noncollectable from the ex-spouse, by you or by the IRS. Before 1998, the only relief available for a spouse in this situation was if she qualified as an “innocent spouse.”

There were many rules and technicalities and this status was hard to demonstrate. In 1998, Congress amended the Internal Revenue Code to provide other mechanisms to allow you to avoid paying taxes that should have been paid by a spouse or former spouse. There are three forms of relief:  1) one is am improved version of the innocent spouse rules, 2) another has more lenient provisions, but is only available if you are no longer married or are separated from your spouse, and 3) the third form of relief is an equitable remedy that applies if it would be unfair to collect the tax from you and you didn’t qualify under 1) or 2). The 1998 new and improved version of the innocent spouse rules require that an innocent spouse must meet the following conditions to qualify: “(1) a joint return understated taxes because of erroneous claims by the requesting party’s spouse, such as unreported or under reported income, or unjustified deductions or credits; (2) when the return was signed, the innocent spouse did not know or have reason to know that there was an understatement of tax. If the spouse knew, or should have known, that there was an understatement, but did not know by what amount, partial relief may be given; and (3) in light of all of the surrounding circumstances, it would be unfair to hold the requesting party liable for the understatement of tax.”

Requests for relief under any one of these three provisions is made on Form 8857, Request for Innocent Spouse Relief. Separation of liability is an allocation between the spouses of unpaid liabilities resulting from the understatement of taxes owed. Either 1) the parties filing the joint return are no longer married or are legally separated, or 2) the joint filers were not members of the same household at any time during the 12-month period before the relief is sought. If spouses transferred assets between themselves to avoid tax, this relief does not apply. If the spouse had actual knowledge of the other spouse’s erroneous items on a joint return, this relief is also not available. For those situations where the innocent spouse rule or separation of liability does not apply, a third possibility of equitable relief is there. If there has been no fraud and it is “unfair” to hold the spouse seeking relief liable, the IRS can still grant relief. Various factors are considered such as separation or divorce, economic hardship, whether or not there was knowledge of the items causing the understated tax, or whether the spouse seeking relief received a significant benefit from that understatement. Don’t depend on these rules. Even these do not always provide relief. The bottom line is, if you think something is wrong with your tax return, don’t sign it. If your spouse won’t file a correct return, file a separate return with married filing separately status. It may mean paying more tax in the short run, but signing a false tax return can mean paying a lot more tax in the long run.

Maybe the marriage ceremony should go like this: "You have the right to remain silent, anything you say may be held against you, you have the right to have an attorney present. You may kiss the bride."

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.

Contact:

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.

Joel A. Schoenmeyer wrote an excellent review of Mrs. Astor Regrets, by Meryl Gordon. 

Attorney Schoenmeyer says: "I just finished reading Meryl Gordon’s book Mrs. Astor Regrets, and highly recommend it. The story should be interesting to anyone who likes a lurid tale that’s well-told, but it has special interest to those interested in estate planning and related fields."

And closes with: "Interestingly enough, although Brooke has been dead almost two years, the battle over her estate is just beginning. And the battle has now carried over into the criminal arena, as Anthony is currently on trial and charged with stealing from his mother. After that trial, a Will contest trial will begin over certain estate planning documents signed by Brooke."

Here is the New York Times Sunday Book Review of the book.  Click here.

Donna L. Davey, writing for Library Journal:  "This is a behind-the-scenes account of the scandal sparked when the grandson of world-famous philanthropist Brooke Astor sued his father for neglecting to properly care for his grandmother. Gordon (New York magazine) conducted 230 interviews for the book and interweaves Astor family history with insights provided by Astor’s family, friends, caregivers, and servants. Shortly after Astor’s death, Tony Marshall, her 83-year-old son, was indicted on 18 counts of grand larceny, falsifying business records, conspiracy, and possession of stolen property, reigniting a frenzy in the tabloids that began 16 months earlier, when grandson Philip Marshall first raised the allegations that his aged grandmother was living out her final days in neglect. Intimate details of the family life and interpersonal relationships of the New York society icon are exposed by Gordon in this impeccably researched, thoroughly detailed, and absorbing profile of a sadly dysfunctional family."

 

 

According to the AP story:

The executor of Dee Dee Ramone’s estate has gone to court to stop publication of a book about the late punk rocker by his first wife.

Executor Ira Herzog says Vera Davie of Port St. Lucie, Fla., violated an agreement to let him review and change anything she wrote about the bassist.

Herzog’s lawsuit in Manhattan’s state Supreme Court uses Ramone’s real name, Douglas Glenn Colvin. Colvin was with the Ramones from their creation in 1974 until 1989. He died in June 2002 at age 50 in Los Angeles.

Davie’s book is "Poisoned Heart: I Married Dee Dee Ramone," published by Phoenix Books of Beverly Hills under the pen name Vera Ramone King.

Phoenix Books did not immediately return a call for comment.

Here is the Amazon pre-order:    order form

From the Back Cover:

"I’ll always be grateful to Vera and thank her for loving and taking such good care of my son for so many years. Her story tells it all and this final tribute to Dee Dee will keep his legacy alive long after he’s gone. I know he’s smiling down from heaven."

––Doug’s Mom

"Vera Ramone was Dee Dee Ramone’s wife, lover, punching bag, babysitter, and support system. In this riveting memoir of a romance on the edge, she chronicles both the recklessness and the poetry of a disturbed but talented punk god."

––Michael Musto, Village Voice

"The sweet, heartbreaking tale of Vera Ramone’s shattered romance with Dee Dee unflinchingly told from the flickering gloom and glitter of the Punk bunker."

––David Dalton, founder of Rolling Stone magazine and author of El Sid: Saint Vicious

"As Dee Dee Ramone’s wife, Vera Ramone King was half of punk-rock’s royal couple––but at tremendous cost. Her inspiring memoir ‘Poisoned Heart,’ while vividly portraying a marriage savaged by the late Ramone’s mental illness, also shows King to be a true survivor, not only of an abusive relationship but one of the most exhilarating periods in rock ‘n’ roll history…. ‘I have chosen, rather than to cry over what I’ve lost, to smile about what I’ve had,’ she concludes, her own heart anything but poisoned."

––Jim Bessman
 

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.

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."