Hughes Estate Group publishes Estate Street – about all things estate and tax planning.  This  post reports on the dispute over a $90 million dollar collection of art from Papua New Guinea:

"Three brothers have been feuding since 2005 over the estate of their mother, Evelyn A.J. Hall who was a sister of the late publishing tycoon Walter Annenberg. John Friede and his brothers reached a settlement where John agreed to pay his brothers $30 million dollars, $20 million which was secured by the collection. The problem was he had signed the collection over to the museum the week before. Oops!"

More info from the San Francisco Chronicle here and here.

From the New York Times on October 5, 2008:

"Last month a Florida judge ruled that Mr. Friede’s brothers, Robert Friede, 68, and Thomas Jaffe, 58, could take possession of the entire collection. The judge determined that John Friede had violated the terms of an October 2007 settlement in the estate dispute in which he put up his collection as collateral. Later the city attorney’s office in San Francisco, acting on the de Young Museum’s behalf, sued and obtained a temporary restraining order prohibiting the brothers and John and Marcia Friede from disturbing the collection until a judge could determine who legally had title to it.

And on Thursday a New York State Supreme Court judge ruled that Sotheby’s, which lent Mr. Friede $25 million and has not been repaid, could take possession of 54 artworks that are part of the collateral for the loan. The judge placed a restraining order on another 99 works to which priority rights are being disputed between Sotheby’s and Mr. Friede’s brothers. "

John T. Brooks and Erika A. Alley are authors of The Jewish Clause published in Trusts and Estates discussing the case of In re Feinberg, 383 III. App. 3d 992 (1st Dist June 30, 2008).

They write:

"Max Feinberg created a trust in which he declared that any descendant of his — that is, any descendant other than his children — “who marries outside the Jewish faith (unless the spouse of such descendant has converted or converts within one year of the marriage to the Jewish faith) and his or her descendants shall be deemed to be deceased for all purposes of this instrument as of the date of such marriage.”

The parties in Feinberg refer to this provision as "the Jewish clause."

ROUND 1:     The Illinois Circuit Court found the clause to be invalid and contrary to public policy. (Which public policy is that?)

ROUND 2:     A three- judge panel of the First District Appellate Court daffrimed, holding that  the clause is not enforceable.    As stated in the article:

"The court’s majority opinion ends by noting that the clear intent of the Jewish clause was to influence the marriage decisions of Max’s grandchildren based on a religious standard and thereby to discourage them from marrying outside the Jewish faith.  As such, the clause seriously interferes with, and limits the right of individuals to marry whom they choose. It is therefore unenforceable. "

Justice Alan J. Greiman dissented passionately, stating: “Max and Erla had a dream. . . to preserve their 4,000 year old heritage.”

ITS NOT OVER YET. 

ROUND 3:    Illinois’ Supreme Court has agreed to hear the case.

See Pauline Dubjkin Yearwood’s article, The Jewish Clause, in the Chicago Jewish News.  She reports on the views of an orthodox rabbi who is also an attorney:

"Steven H. Resnicoff, a professor at the DePaul University College of Law who is also an attorney, ordained Orthodox rabbi and expert on Jewish law, agrees.

The case "is significant in that it is different from what the majority of jurisdictions" have ruled, he said in a recent phone conversation. "Therefore estate planners were likely to have thought that it was permissible to structure the will the way it was structured, and unless they hear about it and make changes, the intention of the testators (those making the will) are going to be frustrated. The word has to get out so people can accomplish their objectives in a permissible way."

As for the case itself, he sides with the dissent. "I think it’s unfair," he said of the majority opinion. "The reason given by the majority was that the provision conflicts with public policy in favor of marriage and against divorce. But it seems to me that’s really a smokescreen. What may have rankled some of the people is the fact that someone wanted to influence the heirs’ religious choices. That bothers people, particularly people who are not sympathetic to religion," he said. "It seems disingenuous to make this kind of decision based on the supposed public policies in favor of marriage and divorce."

From the perspective of Jewish law, he said, a person is not supposed to disinherit his or her children unless they have converted to another religion, but since this case involved Max Feinberg’s grandchildren, it was not inconsistent with Jewish law.

Still, Resnicoff said, "the concept under Jewish law is that generally, even if an heir doesn’t behave properly, we hold out hope for that person." So, he said, declaring the grandchildren who married non-Jews "deceased" "doesn’t violate the letter of Jewish law but it does violate the spirit – for very different reasons from what the court said.""

POINT:

Duncan Bannatyne, a British Multi-Millionaire and best selling author terminated his daughter’s interest in a trust after her caught her smoking.  

COUNTERPOINT:

In September 1993, Marin Cemenescu died leaving a will which stipulated that his wife must smoke five cigarettes per day for the rest of her life to inherit his house and $30,000.

The will provided that "She could not stand to see me with a cigarette in my mouth [and] I ended up smoking in the bathroom like a schoolboy.  My life was  hell."

 Blogging credit to Prof. Gerry Beyer

What kinds of conditions are enforceable?   What about a condition that the beneficiary shall not marry?  Or shall not marry a Catholic?  What about a provision discouraging divorce?

The general rule is that a trust can be created for any purpose that does not violate public policy (whatever that is).

It is generally accepted that in the case of a surviving spouse, a provision that discourages remarriage is enforceable.  

While they live parents certainly try to influence the behavior of their children, often with monetary consequences for reward ro punishment.  Why not after death?

While much is made of the importance of blogging for today’s lawyers, here is a sobering note in counterpoint.

Brian Leiter, Why Blogs Are Bad for Legal Scholarship, 116 Yale L.J. Pocket Part 53 (2006), http://www.thepocketpart.org/2006/09/20/leiter.html.
 

Excerpt:

"Blogs, like markets, are hostage to the ignorance and irrationality of their most visible proprietors, as well as to that of their readers, and the costs of those cognitive limitations are greatest when blogs purport to critique serious scholarship, a task in which the ability to sort wheat from chaff often turns on intellectual skills that are not widely distributed, even among academics. My guess is that Judge Posner has not, understandably, spent much time actually reading the blogs that are out there. I have seen relatively little evidence of correction and refinement of ideas, facts, and scholarship, much more amplification and repetition of existing prejudices and ignorance, or, occasionally, feeding frenzies on trivial mistakes in the mainstream media. "

Agents acting under durable powers of attorney are in a position to abuse their powers.  Vulnerable elderly principals can be taken advantage of by the very persons they appointed to this position of trust.  

Dennis R. Roddy, writing for the Pittsburgh Gazette, addressed this issue in "Courting Trouble:  The document granting ‘power of attorney often leads to abuse."  He writes:

""Once you give people unlimited authority, greed can overcome goodness," said Neil Hendershot, a Harrisburg attorney who has lobbied in the past for reforms in the law. Precisely how many times powers are abused is unclear because no one knows how many power of attorney documents exist. No court requires that they be filed when created, and in many instances, abuses are never uncovered."

 Neil Hendershot’s blog post "POA Abuse Report and a PA POA Trial" discusses the AARP Public Policy Institute and the American Bar Association’s Commission on Law & Aging joint research report issued December 8, 2008 entitled "Power of Attorney Abuse: What States Can Do About It"

Not only is an agent breaching his or her fiduciary duty to the principal if the power is used to convert funds for the agent’s personal benefit  – it’s also a crime.  Lori A. Stiegel, J.D., of the American Bar Association Commission on Law and Aging provides a fact sheet for Criminal Justice Professionals:  "Durable Power of Attorney Abuse:  It’s a Crime Too."

Matthew A. Christiansen has recently posted on SSRN his article entitled Unconscionable: Financial Exploitation of Elderly Persons with Dementia.  See Wills, Trusts & Estates Prof Blog for an abstract of the article.

 

Stephen Greenspan has written an article entitled Why We Keep Falling for Financial Scams, published in the Wall Street Journal on Janury 3, 2009.  See the article here.

Greenspan writes: 

"There are few areas where skepticism is more important than how one invests one’s life savings. Yet intelligent and educated people, some of them naïve about finance and others quite knowledgeable, have been ruined by schemes that turned out to be highly dubious and quite often fraudulent. The most dramatic example of this in American history is the recent announcement that Bernard Madoff, a highly regarded money manager and a former chairman of Nasdaq, has for years been running a very sophisticated Ponzi scheme, which by his own admission has defrauded wealthy investors, charities and other funds of at least $50 billion.

Financial scams are just one of the many forms of human gullibility — along with war (the Trojan Horse), politics (WMDs in Iraq), relationships (sexual seduction), pathological science (cold fusion) and medical fads. Although gullibility has long been of interest in works of fiction (Othello, Pinocchio), religious documents (Adam and Eve, Samson) and folk tales ("The Emperor’s New Clothes," "Little Red Riding Hood"), it has been almost completely ignored by social scientists. A few books have focused on narrow aspects of gullibility, including Charles Mackey’s classic 19th-century book, "Extraordinary Popular Delusion and the Madness of Crowds" — most notably on investment follies such as Tulipmania, in which rich Dutch people traded their houses for one or two tulip bulbs. In my new book "Annals of Gullibility," based on my academic work in psychology, I propose a multidimensional theory that would explain why so many people behave in a manner that exposes them to severe and predictable risks. This includes myself: After I wrote my book, I lost a good chunk of my retirement savings to Mr. Madoff, so I know of what I write on the most personal level."

Blogging credit to Professor Gerry Beyer of Wills, Trusts & Estates Prof Blog.

Lancaster Sunday News front-page headline today:  

" Retired county judge challenges late sons’ $500,000-$900,000 bequest to Lancaster Public Library; state Attorney General’s office wants the filing attorney – judge’s son-in-law – off the case." 

Read the article – click here or here. 

THE CAST OF CHARACTERS:

The retired judge is Wilson Bucher, now 88 years old.  Last July, his son, Thomas Bucher, was found in his apartment in Columbia dead of a self-inflicted gunshot wound.  The 59 year old Thomas Bucher had been employed as a supervisor with the Impaired Driver Program of the Adult Probation and Parole Office for Lancaster County Court.

The son-in-law who brought this petition is Steven R. Blair, married to Wilson Bucher’s daughter Christine.

The PA Attorney General’s office, involved to protect the interest of the library which is a public charity, wants Steven Blair removed as counsel because he is a potential witness.

Lancaster County Judge Jay Hoberg has recused himself.  The case is being heard by Perry County Judge Joseph Rehkamp.

Thomas Bucher’s will was written by Theodore Brubaker.

The library is represented by Bob Hallinger of Appel  & Yost

THE CASE:

Lancaster Court of Common Pleas No. 36-2008-1522

According to the The Sunday News, in 1998 Thomas Bucher approached his parents and "said he could not understand how it was that his brother-in-laws could be supporting their families since he had information that they were going to Las Vegas and blowing all their money."  This was the "insane delusion"  under which Thomas Bucher made the first changes to his will.

In 2002 Thomas Bucher’s aunt, Helen Bucher died.  Steven Blair had been her agent under a power of attorney, had written her will and was executor.  Apparently, Thomas Bucher was suspicious of Blair’s actions.

Hallinger, representing the library, wrote  that Thomas "simply did not trust the involvement of his brother-in-law, attorney Steven R. Blair, in estate planning and/or settlement matters relating to family."  "[M]istrust or suspicion of motives and actions of an in-law and an attorney do not rise to the level of an ‘insane delusion’ under Pennsylvania law, regardless of whether there is a factual basis for such mistrust or suspicion."

THE LAW:

Partridge-Remick Practice and Procedure in the Orphan’s Court Division Court of Common Pleas of Pennsylvania by Charles W,. Frampton. George T. Bisel Company (1975)  (hereinafter Partridge-Remick")Section 4.12, p. 273:

"A man may be of sound mind in regard to his dealings in general, but he may be under an insane delusion,and whenever it appears that the will was a direct offspring of the partial insanity or monomania under which the testator was laboring at the very time the will was made, that it wasthe moving cause of the disposition, and if it had not existed the will would have been different, it ought to be considered no will, although the general capacity of the testator may be unimpeached.45"  Footnote 45: "Nelson Estate, 66 York 161."

 and  from Partridge Remick Cumulative Supplement at §4.12 for p. 273.

"A testatrix may suffer from a delusion and, indeed, there is no requirement that she give any of her property to those she loves or to the relatives that society believes she should love.  She can give it in such a way that 99 percent of her fellow citizens believe it is foolish, unjust or outrageous.  Such a dispositive scheme does not mean a testatrix suffers from an insane delusion.41,1  Footnote 41.1 Sommerville Est, 406 Pa. 207, 177 A. 2d 496 (1962)

and

"For a will to be invalidated on the grounds of insane delusion, the evidence must show not merely that testatrix was the victim of an insane delusion, but that she was controlled by the delusion in the making of her will, causing it to be written differently from what it otherwise would have been. 42.1 Footnote 42.1 Dunross Will, 395 Pa. 492, 150 A. 2d 710 (1983); Agostini Est., 311 Pa. Super, 457 A. 2d 861 (1983); Nunemacher Will, 3 Fiduc. Rep. 2d 292 (Berks 19083).

THE FACTS:

Unknown until the hearing. 

THE RESULT:

It will be interesting.  If disliking and mistrusting in-laws is an "insane delusion" there are heck of a lot of wills out there that will be invalidated.  On the other hand, shouldn’t a will disposition made on account of paranoia (assuming that it is insanity) be invalidated?

Here is Robert FIeld’s comment on www. NewsLanc.blogspot .com and his original post here.

The next headline may be  "Just because you’re paranoid doesn’t mean they’re not out to get you."

Your marital status on December 31 determines your filing status for the entire preceding year. If you are still married on December 31, you have a choice. You can file jointly with your soon-to-be ex-spouse or file using married filing separately status. You might qualify to file as Head of Household even though you are still married if you have been living apart for the last 6 months of the year.

Unfortunately, using married filing separately status is not very favorable from a tax viewpoint. A joint return usually results in a lower overall tax liability.

If you file a joint return, as far as the IRS is concerned, both you and your spouse are liable for the whole amount of tax due regardless of what any agreement between the spouses states and regardless of who earned the money. This can obviously be a problem. For example, if your self-employed husband has not paid his taxes and you file a joint return with him, the IRS can collect 100% of the tax from you. It does not matter what you have agreed with him, or whether or not you earned the money – filing a joint return produces joint liability. If you are concerned that your spouse might have unreported income or be claiming improper deductions, your best route may be to forego any joint tax return savings and file separately.

There is an exception to joint liability if you can prove you were an "innocent spouse." Let’s say your husband failed to report some of his income. If you didn’t know and had no reason to know about a tax understatement, then you may not be liable. If you know that he is not reporting accurately and you sign the joint return, you are liable.

If your return shows a refund but you owe arrearages in child or spousal support payments, or student loans, all or part of your refund may be used to pay the past-due amount. If you file a joint return and your spouse owes some of these debts, you can prevent your share of a tax refund on a joint return from being applied to a debt owed by your spouse by attaching a completed Form 8379, "Injured Spouse Claim and Allocation", to your return. Also, write "Injured Spouse" in the upper left corner of Form 1040.

If you choose to file separate returns, each spouse reports his or her own income, exemptions, deductions and credits. You each report your own withholding tax from W-2’s. If you and your spouse made estimated tax payments, they may be divided in whatever way you and your spouse agree. If there is no agreement, the IRS will divide them proportionately based on your two respective tax liabilities. If you paid the estimates, some may be credited to your spouse.

The advantage of filing separately is that each spouse is responsible only for the tax due shown on his or her own return. Unfortunately, separate returns often result in overall higher taxes for the couple. If one of you itemizes deductions, the other spouse will not qualify for the standard deduction and, therefore, must also itemize deductions on his/her tax return. If you file separately, you cannot take the credit for child and dependent care expenses, and IRA deductions are reduced.

If you agree to file jointly in order to save overall taxes, you and your spouse can execute an agreement on how to share any tax savings generated by filing a joint return.

If you file separately, you can change your mind, go back and amend to joint returns any time within 3 years of the due date. You cannot go the other way. If you file jointly, you cannot amend to file a separate return.