When I draft wills and trusts I always include definitions of "child" and "descendant:"

"For purposes hereof, the term "child," however expressed, shall refer to any descendant in the first degree of the parent designated. The term "descendant," however expressed, shall include (i) children or more remote descendants, either naturally born or legally adopted, but only if such descendant was adopted prior to attaining the age of eighteen (18) years, it being my intent that such adoption shall have the same effect as if such individual had been naturally born to the adopting parent or parents; (ii) legitimate descendants only; and (iii) any child or remote descendant in gestation at any time specified in connection with the administration, division or distribution of any portion of my estate."

The thinking is that if my son adopts his new (much too young) girl-friend, Miss Gold Digger – she is not a descendant of mine.

But what if the document does not address the issue?

Professor Gerry Beyer at Wills, Trusts & Estates Prof Blog reports on the case of In re Ray Ellison Grandchildren Trust, 261 S.W.3d 111 (Tex. App.—San Antonio 2008, pet. denied, rehearing filed), Settlor established a trust for the “descendants” of his children.  A dispute arose as to whether descendants included the adopted children of his son who were adopted after reaching adulthood.  The trial and appellate courts agreed that these individuals were not within the class of individuals who would qualify as descendants.

In Ellison, the deceased grantor’s son adopted the three children of his second wife when they were adults – ages 39, 37 and 36.  His two children from his first marriage didn’t want to share with these 3 adoptees.

Surprisingly, the court held, through some very strained reasoning, that the adopted children are not included.  We shall see what happens on appeal.

In the meantime – don’t leave it to litigation – include a definition when you draft.

In general, any payment, whether called a gift or not, to an employee is taxable income to the employee.

Gifts of nominal value, such as a holiday turkey, are treated as de minimis fringe benefits. A gift to an employee is de minimis if the value is nominal, accounting for the item would be administratively impractical, the gift is provided infrequently, and the gift is made for the purpose of promoting health or goodwill to the employees. There is no set dollar limit, but in one particular instance a gift with a value over $100 was treated as taxable income. A de minimis employee gift is deductible as a non-wage business expense by the employer.

Regulations give these examples of gifts that qualify for de minimis treatment: birthday or holiday gifts of property (not cash) with a "low fair market value", gifts such as books or flowers under special circumstances (e.g., outstanding performance), traditional awards (such as a gold watch) upon retirement after lengthy service for an employer, and an occasional cocktail party, group meal or picnic for employees and their guests, or occasionally giving out theater or sporting event tickets.

If you give your employees cash, gift certificates or other similar items that can be converted to cash, the value of these gifts is considered additional wages or salary, regardless of the amount.

Reasonable costs of giving a holiday party for employees are fully deductible. There is no requirement to discuss business before, during, or after the event. To be fully deductible, the party must be primarily for the benefit of employees and not limited only to top executives.

When a business makes gifts to others, whether they be customers, vendors, or referral sources, other rules apply. A business may deduct up to $25 in gifts given to each recipient during any given year. Items clearly of an advertising nature such as promotional items do not count as long as the item costs $4 or less. Many companies give things like pens, frisbees, and key chains under this rule. Incidental expenses for the costs of engraving, wrapping, and mailing the gifts are also allowed as a deduction. A husband and wife are considered to be one taxpayer, so only $25 in total gifts to the two of them can be deducted.

The limit is not on the value of the gift that can be given. The limit is on how much of the cost of the gift the business can deduct. You may give a client a gift worth $100 – but you may only deduct $25.

What if you give your clients tickets to a concert or a football game? Is it a gift, or is it entertainment? If it’s a gift, only $25 is deductible. If it’s entertainment, 50% of the cost is deductible.

If you give a customer tickets to a theater performance or sporting event and you do not go with the customer to the performance or event, the IRS gives you a choice. You can treat the cost of the tickets as either a gift expense or an entertainment expense, whichever is to your advantage

If you go to the event with the client, then it’s a business entertainment expense. That means no $25 limit, but you only get to deduct 50% of the total cost. You must treat the cost of the tickets as an entertainment expense. You cannot choose, in this case, to treat the cost of the tickets as a gift expense.

If you give a customer packaged food or beverages that you intend the customer to use at a later date, it is treated as a gift.

Keep accurate records of all business gift expenses, recording the date, the name of the business associate, and the cost of the gift. Make sure you can show receipts.

When I graduated from law school, I had little insight into the business of running a law practice. Don’t get me wrong; I had great knowledge about the law. But I did not know how to actually build a client roster, create and deliver services, administer an office, and get paid a fair fee for work performed.

Susan Cartier Leibel has provided a way for today’s sole practitioners to learn all of these things, and more. She has founded Solo Practice University™. SPU is a web-based legal learning and networking community for lawyers and law students. I am very flattered to be included among this distinguished faculty of progressive lawyers, marketing professionals, technology consultants, and other legal business giants. 

I will be teaching, talking and blogging about wills, trusts, estates, and taxes. The much ballyhooed inter-generational wealth transfer from the baby boomers is upon us and this practice area will be going strong. I will help you to use the SPU community to pull together the knowledge of tax, property law, future interests, contracts, litigation, and legal writing you need in today’s complex trust and estate practice environment.

I will be teaching a course on Trusts and Estates Practice as well as being available for online office hours where you can get your technical questions answered and find answers to how to run your law business and give your clients top notch service.

Lawyers who take on trust and estate matters without the necessary skills and tax experience may find themselves facing unexpected fiduciary liability. As a frequent expert witness on trust and estate matters, I will work to help you avoid common mistakes that can undermine your legal career.

Working along with SPU, I will teach you how to use the Internet more effectively to access the necessary information, forms, advice, and research you need for your trust and estates work. You will find that access to information is no longer prohibitively expensive for the solo practitioner.

Technology has made it possible for solo practitioners like you to be just as prepared, just as smart, and even more nimble than their big law competitors. Add to this the advantage of the SPU community to share tactics, solutions, and ideas. As a solo practitioner, you now have the unparalleled opportunity to expand your network, learn new skills, find the best technology, and build your practice.

Can’t wait to get started!

Neil Hendershot has an excellent post about POA Abuse here which includes the research report "Power of Attorney Abuse: What States Can Do About It."

The most egregious abuse is where the agent simply takes (that is, steals) the principal’s money for is or her own purposes.  But there are many other type of abuse.  For example, one often sees agents under a power of attorney creating joint accounts in banks or brokerage houses.  This frustrates the intent of the principal that the assets pass under his or her will to intended beneficiaries.  Similarly, one sees agents changing beneficiary designations on IRA’s, life insurance policies, annuities, and other contractual benefits. 

Sadly, this is often in a family context where one child is acting to the detriment of his or her siblings.

The principal thinks that all the children are being treated equally because that is what the will says.  After the principal’s death, the facts emerge and siblings see that what passes under the will is relatively small compared to the assets that pass to the agent via beneficiary designations.

Our prior post  How to Act as an Agent under a Power of Attorney talks about how to stay out of trouble when acting as an attorney in fact,

For a discussion of power of attorney abuse as illustrated by the unfortunate case of Brooke Aster,  whose son Anthony Marshall was indicted for abusing her POA, see this NY Times article.

 

Trusts and Estates published an article here called Get Me To The Church On Time by John T. Brooks and Samantha E. Weissbluth.  They write:

"The Kinney case out of Minnesota offers a good review of the general requirements for a valid prenuptial agreement. The appeal also shows a modern trend in which courts view such agreements with suspicion when one party is not represented by counsel. Of course, decisions in most cases turn on the facts, but courts tend to enforce prenups when the playing field is more level. The litigants in Kinney appear headed for another round to determine the facts and fairness of the agreement. Estate of Kinney, 733 N.W.2d 118 (Minn. June 14, 2007)."

The leading case in Pennsylvania on the enforceability of pre-nuptial agreements is Simeone v. Simeone, 581 A. 2d 162 (Pa. 1990).   The case marks a sea change in the way Pennsylvania courts viewed these agreements.  The PA Supreme Court abandoned the protective and paternal stance of earlier years and provided these two requirements for enforcability:

1.  application of the usual contract law concepts about invalidating contracts for fraud, misrepresentation, or duress.

2.  a "full and fair disclosure of the financial positions of the parties"

Notably, the PA Supreme Court did not require representation by separate counsel:  "To impose a per se requirement that parties entering a prenuptial agreement must obtain independent legal counsel would be contrary to traditional principles of contract law, and would constitute a paternalistic and unwarranted interference with the parties’ freedom to enter contracts."  See Simeone at p. 161.

Despite the assurances of Simeone, I have never been comfortable with a pre-nup unless both parties are represented by separate counsel.   I have always insisted on such representation for the party who is not represented by Spencer Law Firm.  Call me paranoid, but I think the Kinney case in Minnesota points out the risks and it can happen here in Pennsylvania too.
 

Additional resource:

Robert B. Standler has an excellent essay, Prenuptial and Postnuptial Contract Law in the US, posted at http://www.rbs2.com/dcontract.pdf.

Postscript:

I never refer to these agreements as Antenuptial Agreements, although that is quite proper and correct.  I find that the general public’s understanding of Latin is quite deficient.  Many do not know that "ante" means "before" as in "antebellum."  All too often they mistake it for "anti" which means "against" as in "anti-aircraft."   We don’t want them to think these agreements are "against" marriage.  On the contratry, they are a way to promote marriage with the parties making their own property agreement instead of relying on the "one-size-fits-all" agreement provided by state law.

 

The Pennsylvania insurance commissioner, has finalized a $40 million settlement with Deloitte & Touche LLP.  The New York-based accounting firm yesterday paid the settlement in connection with its auditing service for Philadelphia-based Reliance Insurance Co., a carrier that’s now in liquidation.

The PA insurance commissioner had accused Deloitte & Touche LLP of accounting and actuarial malpractice

 According to the Allentown Morning Call:

"When state officials stepped in to liquidate the Philadelphia-based company in 2001, they estimated that Reliance’s losses were around $3 billion.

A state insurance bailout account, funded through surcharges paid by homeowners and businesses, had to cover Reliance’s losses. The company was licensed to write insurance policies in all 50 states and concentrated on workers’ compensation, commercial auto and liability and personal auto insurance.

A year after Reliance collapsed, the insurance department sued Deloitte, claiming that it contributed to Reliance’s failure by not reporting the company’s true financial condition. According to earlier news accounts, Deloitte signed off on an audit in 2000 that Reliance had sufficient cash reserves, but soon thereafter told an investment partnership that the company had a "seriously deficient" $350 million shortfall."

 A copy of the agreement can be found under recently filed documents here.

 The accounting firm admitted no wrongdoing.

The Insurance Department took statutory control of Reliance on May 29, 2001, under an Order of Rehabilitation, followed by an Order of Liquidation that October. On Oct. 15, 2002, the department, as the liquidator, filed a complaint in Commonwealth Court of Pennsylvania against Reliance’s outside auditor, Deloitte & Touche LLP, and its appointed actuary, Lommele.  Among other things, the complaint alleged claims for breach of fiduciary duties, professional negligence and the recovery of preferential transfers.

This latest settlement brings the state’s total recovery amount from the Reliance case to $145 million. Previously, $45 million was recovered from the Reliance parent companies, and about $60 million was recovered from legal actions against the carrier’s former officers and directors. 

 

The general rule is that damages for a decedent’s pain and suffering (the survival action) are an asset of the decedent’s estate and subject to federal estate tax and PA inheritance tax.  The wrongful death award that goes to next of kin for loss of society, consortium and support are not estate assets and are not subject to estate or inheritance tax.

Trusts & Estates carried an article by John T. Brooks and Samantha Weissbltuh, entitled Estate Tax on Wrongful Death Claims? which discusses an Illinois case where the appellate court held that the wrongful death damages went to the estate.  The case, Bender v. Eiring, 2008 WL 351126 (Ill. App. 1st Dist. Feb. 7, 2008) established, in the words of the authors. "a potentially dangerous precedent."

Brooks and Weissbluth say:  "We not only think the appellate court made a mistake, but also worry that the decision could have an unfortunate ripple effect. Will wrongful death proceeds now be subject to estate tax? Spousal elections? Creditors’ claims?"