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

Here we go again.

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

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

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

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

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

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

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

Persuading a Cold Judge

Here is an excerpt:

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

And this is MOST interesting:

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

 

 

 

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

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

Here is an excerpt::

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

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

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

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

In Brodsky Estate. (O.C. Div. Montg), 29 Fiduc. Rep. 2d 57, December 11, 2008, objections were made to an account of the agent, Brent Brodsky,after the principal’s, Cecilia Brodsky’s, death.  The agent was surcharged $210,000 for transferring funds to himself from an account in joint names between agent and principal.  The funds had been contributed solely by the principal.

This is an excerpt from the opinion written by Judge Ott:

"The accountant does not deny that the account from which he paid himself the $210,000 contained funds contributed only by his mother. That account was titled jointly between him and his mother. From this, he argues, because the money would have become his at her death by operation of law, his having taken the money during her lifetime is not a problem. He is wrong. Cecelia Brodsky was never adjudicated an incapacitated person. In the eyes of the law, she retained authority and control over her assets even after she gave her son a general durable power of attorney. Until the day she died, she could have emptied out the joint account and used the money for any purposes she wished. Her agent breached his fiduciary duty when he made the improper gifts to himself. Had he not exceeded his authority under the gift provisions of the power of attorney, he would, indeed, have been entitled to any balance that remained at his mother’s death pursuant to 20 Pa. C.S.A. §6304(a). However, when he removed the $210,000 from the joint account during her lifetime, he severed the joint tenancy and thereby lost any right he would have had to the money as the surviving party on a multiple-party account. Accordingly, the accountant is hereby surcharged for this entire amount he paid himself plus interest at the rate of 6% per annum from December 15, 2000."

This agent did everything wrong. 

  • Judge Ott also, in a separate proceeding, found that the accountant exercised undue influence over his mother, the principal, and this resulted in her executing a will leaving everything to him.   That will was invalidated and the principal’s earlier will where the accountant would share equally in the estate with the children of his sister who predeceased their mother was valid.  One of these grandchildren, Steven Lichtenstein, is the administrator of the estate of the deceased principal and the objectant to the agents’ accounting.

  • At the hearing on the objections to the agent’s account, the agent testified that he made gifts of $200,000 to himself, and four gifts of $10,000 each to himself, his wife, and his two sons. He made it clear that the purpose of these transfers was to spend down his mother’s money so the government could "pick up the tab" for his mother’s care.

  • Judge Ott said "The accountant and his counsel seem to view this litigation as much ado about nothing. " 

  • The final paragraph:  "Throughout the proceedings involving the instant account and the prior will contest, the accountant and his counsel have exhibited a pattern of obstreperous and dilatory behavior. As just the most recent examples of this conduct, we point to the filing of frivolous preliminary objections to the instant objections and a refusal to cooperate with discovery, including the failure to produce certain requested documents until the very day of the hearing. In light of such tactics, we find it necessary to take the unusual step of assessing counsel fees, under 42 Pa. C.S.A. §2503(7), against the accountant and/or his counsel, Philip J. Berg, Esquire. We will therefore schedule a hearing forthwith, limited to the reasonable fees incurred"

Thank you to Grant Griffiths for his suggestion for this post.

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The AARP Public Policy Institute has issued a report entitled Power of Attorney Abuse:  What States Can Do About It. 

Also see this summary of the report by Naomi Karp, J.D.,  In Brief: Power of Attorney Abuse: What States Can Do About It.

The ABA Commission staff, AARP staff, and advisory committee members identified 21 provisions in the Uniform Power of Attorney Act ("UPOAA") that protect against abuse and promote autonomy.  These provisions seek to fix the three inherent problems with the POA:

1.  The breadth of control that an agent generally has over the Principal’s property

2.  The lack of third-party oversight of the agent’s actions if the principal has become incapacitated, and

3.  The lack of legal standards and clarity about the duty owed by the agent to the principal.

For a case in point, read about the financial elder abuse of New York Philanthropist and socialite Brooke Astor.

 

The following blog post is reprinted with permission from the blog of Leslie A. Burgk, Esq,

Estate Planning and the Forgotten Right to Recapture Copyrights: How Not to Overlook this Important Right

February 6th, 2009

If your client’s estate plan overlooks the right to terminate contracts and recapture copyrights, it could cost your client’s heirs significant future income. Let’s take for example that you have a client who wrote a children’s book and signed a publishing contract in 1965. The copyright was secured that same year and your client transferred all his interest in the copyright to the publisher. For estate purposes, you may be thinking there is nothing there of value except for any income that your client is receiving and may continue to receive after his death pursuant to the contract terms. If the thought crossed your mind, you are likely overlooking a very important right that could be costly to your client and his heirs.

Under the Copyright Act of 1976, the author, or if deceased, the author’s widow or widower and children or grandchildren may terminate all transfers or licenses of the renewal copyright or any right under it (for pre-1978 copyrights) at the end of 56 years from the date the copyright was originally secured and recapture the last 39 years of copyright protection (*provided the contract was executed prior to January 1, 1978 and timely notice of termination is provided*). Congress made the right of termination inalienable. Therefore, any contract terms to the contrary have no effect.

In your client’s case, the 56th year is 2021 and the copyright in his work extends until 2060. Therefore, there is the possibility that his heirs may acquire the right to terminate the contract and recapture the copyright. If the estate documents are silent regarding this right, the heirs may miss the opportunity. If they are aware of the right, they could renegotiate the contract or take back the copyright and the exploit the work themselves or enter into more lucrative contracts thereby taking advantage of the termination right to derive more income from the work’s copyright.

If the opportunity to terminate and recapture is missed, there is another chance to recapture the copyright for the last 20 years of protection (* if timely notice is provided*); however, your client or his heirs will lose the benefit of potential income derived from exploiting the copyright in the work during those 19 years between the 56th year and the 75th year of protection.

Also Beware of Traps: There is a limited window of opportunity to terminate and the *notice* requirements are highly technical. There are also traps, such as the right to terminate does not apply to works-for-hire and the right of termination for post-1977 works is different. Therefore, if you are dealing with this issue with regard to any works protected by copyright (not just pre-1978 literary works as described above) make sure that you have thoroughly researched all the requirements, including the notice requirements and have planned accordingly, or contact an attorney who is familiar with this area of law.

 

 

In 1981 with the passage of the Economic Recovery Tax Act (ERTA), Section 2035 of the Internal Revenue Code was amended so that most gifts made within three years of death were no longer pulled back into the estate.  The 3-year rule was not eliminated completely, however.  Transfers of life insurance within three years of death can still cause inclusion of the death benefit in the estate and transfers of the "strings" under IRC Sections 2036, 2037 and 2038 that cause estate inclusion can cause a pull back. 

Also, any gift tax paid within three years of death is pulled back into the estate.   The reason for this gift tax rule is that the federal estate tax is a tax inclusive tax and the gift tax is a tax exclusive tax.  These examples illustrate the point:

Gift:         Donor has $150; transfer tax rate is 50%. Donor can give $100 to donee and pay $50 gift tax.

Bequest:       Decedent dies with $150; transfer tax rate is 50%. Decedent can leave $75 to beneficiaries and pay estate tax of $75. 

Without the 3-year pull back for gift tax paid with 3 years of death, one could cut the federal transfer tax payable by 1/3 simply by transferring everything days or moments before death.  OK.  So, decedent made taxable gifts and paid gift tax within three years of death.  Gift tax is brought back into the estate.  Who pays the estate tax on the gift tax?

See Gary Freidman’s blogpost about  Matter of Rhodes, __ Misc.3d __, __ N.Y.S.2d __, 2008 NY Slip Op 28472 (Sur. Ct. Westchester Co. 2008), where the issue was whether donees of gifts made within three years of death are responsible for paying estate tax attributable to the inclusion of the gift tax paid on such transfers.

The Court held that the donees of the gifts made within three years of decedent’s death are responsible for paying their ratable share of the estate tax attributable to the inclusion of the gift tax paid.  Ouch!  

Here is what the tax clause in the will said:

All inheritance, succession, transfer and estate taxes . . . payable by reason of my death in respect of all items included in the computation of such taxes which shall have passed under the provisions of this Will, shall be paid by my Executors as follows:

(A) All taxes with respect to property passing under this Will shall be apportioned in accordance with the law of New York, notwithstanding the foregoing, I direct that any such taxes resulting from the bequests under Clauses SECOND, THIRD and FIFTH of this Will shall be paid by my Executor out of my residuary estate, without apportionment or reimbursement from any beneficiary.

(B) I intend that all taxes described in paragraph (A) of this Clause with respect to property passing outside of the provisions of this Will shall be apportioned in accordance with the law of New York . . ..

(D) I wish to record that I have given great consideration as to how I have directed that the taxes described in paragraph (A) of this Clause are to be paid with respect to property passing under and outside my Will and to whom I have burdened with the payment of such taxes. I believe that the provisions which I have arrived at are equitable for all of my family members.

Looks like the decision is correct.  The gift tax paid certainly didn’t "pass under the terms of the will."   Another reminder to be very careful with tax clauses.