"Undue influence" refers to a person’s will being usurped by the will of another. It is a significant problem when dealing with transfers and estate plans of the elderly or debilitated. It is the most common reason for a will contest. In Pennsylvania to establish the claim of undue influence in a will contest, the contestant must establish by clear and convincing evidence 1) that the testator was of weakened intellect when the will was executed, 2) that a person in a confidential relationship with the testator exercised influence over the testator, and 3) that such person received a substantial benefit under the will.

Usually one thinks of a friend, neighbor, caregiver, or family member as being the person doing the influencing. What about the lawyer?

When an attorney drafts a will, he or she owes the client a duty to be aware of the client’s competency, to ascertain whether the client is being subjected to undue influence, and to make reasonable inquiries about possible influence. An attorney should not draft a will for a client unless the attorney believes the testator has testamentary capacity and is free from undue influence. In making these judgments, the attorney must have undivided loyalty to the client.

But, the lawyer cannot make a reasonable inquiry about possible undue influence with undivided loyalty to the testator if the inquiry may disclose undue influence by another client to whom the lawyer also owes an obligation of undivided loyalty. It would be a conflict of interest for the lawyer to represent the testator in such circumstances. If a Beneficiary who is Lawyer’s client brings in Dad and asks Lawyer to draft a will for Dad that favors Beneficiary, there is a clear conflict.

This was the situation in the New Jersey case of Haynes v. First National Bank of New Jersey.

Charles Dutrow died in 1945 with an $8 million estate. His divorced daughter, Betty Haynes, and her two sons came to live with his widow (Betty’s mother), Isabel Dutrow. Isabel and her daughter Betty and two grandsons lived together until 1968 when the sons left the family home. Betty died unexpectedly in 1973. Isabel, then age 84, was not able to live alone, so she moved in with her other daughter, Dorcas Cotsworth, and her husband John in New Jersey.

During her life, Isabel executed five wills and several trusts all through her local lawyer, Richard Stevens. The theme was consistent – equal shares to the two branches of the family, that is, daughters Betty and Dorcas and their respective children. John and Dorcas began to persuade Isabel that changes to her estate plan were needed after Betty died, pointing out that the two Haynes boys would each receive twice as much as Dorcas’s four children if Dorcas also predeceased.

Dorcas’s husband John (Isabel’s son-in-law) arranged for Isabel to meet with the Cotsworth family lawyer, Grant Buttermore. Buttermore suggested changes and conveyed those recommendations to Attorney Stevens. Changes were made, and with each change, Attorney Stevens became less and less involved. Attorney Stevens testified at trial that Isabel Dutrow told him that Attorney Buttermore was pressuring her. Each change favored the Cotsworths more and the Haynes’s less. But aside from some lifetime gifts to the Cotsworths, equal distribution to the two branches remained.

In her next to last will, Isabel decided to give her entire estate to Dorcas if she survived and, if not, to her six grandchildren in equal shares. This cut the Haynes boys out altogether if Dorcas survived her mother. Attorney Buttermore drew up this will. As an afterthought, Isabel added a bequest of $10,000 each to all the grandchildren; probably realizing that if she didn’t, the Haynes boys would be completely cut off.

Isabel died and after the will was offered for probate, the Haynes boys appealed, claiming undue influence by Dorcas, John Cotsworth and Attorney Buttermore. The burden of proving undue influence lies upon the contestant of the will unless the will benefits someone who stood in a confidential relationship to the testator and there are additional circumstances of a suspicious nature which require explanation.

The court found there was in fact a confidential relationship between Isabel and Dorcas and between Isabel and Attorney Buttermore, and that there were suspicious circumstances (drastic changes to the will after Buttermore became counsel to Isabel) thus shifting the burden of proof to the proponents of the will.

The appeals court found that a standard of clear and convincing proof was needed to overcome the presumption of undue influence, and found that the trial court had only required a standard of the preponderance of the evidence. Therefore, it remanded the case to the trial court to determine if the proponents of the will could meet this more rigid standard.

Buttermore should have had another lawyer do the will. Preparing a will for one client that will affect another client requires consideration of a number of ethical issues. The lawyer’s obligation to provide each client with independent professional advice is the lodestone. You cannot serve two masters.

Gene Upshaw, one-time Oakland Raiders Hall of Fame lineman and head of the NFL Players Association for 25 years, died in August 2008. He led the union through a strike, decertification, the victory of free agency, soaring player salaries and disputes with retired players.

Upshaw was married for the second time and had three sons, Eugene III from his first marriage, and Justin and Daniel from the second. Upshaw, his wife Terri, and another couple, Norman and Sandra Singer, arrived in Lake Tahoe for vacation. Upshaw suddenly became ill and went to the emergency room where he was diagnosed with pancreatic cancer on August 17, 2008. He was hospitalized and died 3 days later at the age of 63.

On the day he died, August 20, 2008, Gene Upshaw’s will was signed, according to court filings. It left everything to his wife Terri.

Son Eugene III arrived in Tahoe the day after his Dad was hospitalized – he had planned on joining the vacationing couples. In Eugene III’s court filing, he said that by early August 2008, his Dad "had deteriorated substantially. . . He was not coherent, and was not speaking." How could his will have been signed that day?

Eugene III contested the will and sought to have his step-mother removed as executor. It came out that Mr. Upshaw didn’t sign his will. One of the witnesses signed it on his behalf. The fact that he did not sign the will is unusual, but not in itself a reason to overturn the will. Most states (including Pennsylvania) have a statute of wills that includes the alternative that a valid will may be signed by the testator or by some person in his presence and at his direction. There were a number of problems in Upshaw’s case, however. First, one of the witnesses was also the one who signed the will on behalf of Upshaw. Second, according to Eugene III, on the day Upshaw died and the will was also signed, he lacked all capacity to make a will.

The witness and signer of the will was Upshaw’s friend who went on vacation with him, lawyer Norman H. Singer. The litigation here was to contest the will and remove Terri as executor. Norman Singer was not sued.

The trial was scheduled for May 2011 (almost 3 years after death) but was settled by a confidential agreement a few days before it was to begin.

One of the assets that was uncovered was a previously undisclosed $15 million deferred compensation that the union paid to his surviving wife, Terri Upshaw. Retired NFL players, who were angry with Upshaw for not getting them better pensions and medical benefits, were outraged. Upshaw’s estate also apparently received $1.73 million in "past due compensation." The Upshaws lived in a home in Great Falls, Virginia. The probate inventory showed eight luxury vehicles, a 32-foot boat, and another home in Lake Tahoe, California.

When the will was submitted to probate in Fairfax County, Virginia; both Norman and Sandra signed a document in which they answered "yes" to the question: "Did the decedent sign this paper in your presence and in the presence of other witness(es), with all of you together at the same time?" When they were deposed, the Singers changed their answer to "no" and acknowledged that Norman Singer had actually signed it. What a mess.

If Upshaw had died intestate, his widow would have received a 1/3 share of his estate, and 2/3 would have gone to his children. That would have given a 2/9 share to son Eugene III. Which side do you like in this argument? If I had to bet, I’d say that Eugene walked away with a big chunk of his 2/9 share.

Certainly his is an interesting story, but here is my question. How can a 63 year-old man with a second wife, 3 children from two marriages, and a net worth of more than $20 million not have a will? Seriously.

A 2009 Wills and Estate Planning survey commissioned by lawyers.com found that only 35% of adult Americans currently have wills and only 29% have powers of attorney. Another survey found that 32% of respondents would rather have a root canal than make a will.

Please make a will. It is not too expensive. You have enough assets to plan for no matter how small your estate is. Signing a will does not hasten your death. You can die at any age, you don’t have to be old. Really.

"Extreme wealth is a menace to happiness."

                                                          – Huguette Clark

Reclusive heiress Huguette Clark died May 24, 2011 at the age of 104. Her estate is estimated at $500 million. She has lived in a New York hospital for the last 22 years. No visitors or family have seen her. Her affairs are controlled by an attorney and an accountant.

Huguette had been living at a New York hospital under pseudonyms – the latest was Harriet Chase. She had a guarded room with full-time private nurses. Her hospital room number didn’t even exist – outside her room on the 3rd floor, a card with the fake room number "1B" and the name "Chase" was taped over the actual room number.

The Elder Abuse Unit of the Manhattan District Attorney’s office has been investigating Huguette’s lawyer Wallace Bock and accountant Irving Kamsler. The investigation began in 2010 when three relatives of Huguette sought to have an independent guardian appointed for her alleging mismanagement of her funds by Bock and Kamsler. Huguette hadn’t been seen since she left her 42-room Fifth Avenue apartment in an ambulance 22 years ago. The action for appointment of an independent guardian was unsuccessful. The court allowed Huguette’s finances to remain in the hands of Bock and Kamsler. Bill Dedman writes for MSNBC: "The case presented something of a Catch-22: The judge said the relatives were not able to provide first-hand information about Clark to prove their allegations against the attorney and accountant, but the relatives said they had been prevented for many years by the attorney and accountant from visiting Clark." But the DA’s office launched an investigation that is ongoing.

Is this another case like Brooke Astor? Her son and her attorney were convicted in 2009 of taking $10 million f rom her. Astor’s estate was valued at $131 million. Huguette’s estate is estimated at $500 million and includes three opulent homes: an estate on the Pacific Ocean in Santa Barbara, CA, worth an estimated $100 million (she had not visited this home since the 1950s); a country house in New Canaan, CT, now on the market for $23 million (which she built but never spent a night in); and the largest apartment on New York City’s Fifth Avenue, actually 42 rooms on the 8th and 12th floors, valued at about $100 million. All three homes have been carefully maintained and staffed.

Huguette Clark was born in 1906 in Paris. She was the daughter of then 67-year-old U.S. Senator William A. Clark of Montana and his second wife, 28-year-old Anna Eugenia La Chapelle. William and Anna had another daughter, Louise, who died at the age of 17 from meningitis. Clark had 5 children with his first wife. The issue of these children are now parties of interest in Huguette’s estate, being her closest kin.

New York Post columnist Veren Dobnik writes of Huguette: "At 22, she married a poor bank clerk, but they parted ways after only nine months. Huguette Clark cited desertion by her husband. He claimed she failed to consummate the marriage, according to ‘The Clarks: An American Phenomenon.’"

In 2002 another mutual client of Bock and Kamsler died – Donald L. Wallace, Bock’s former law partner and Huguette’s former attorney. Wallace’s will (drafted by Bock) gave Bock and Kamsler $100,000 each, his Mercedes, and his New York apartment, not to mention the $368,000 in fees for settling Wallace’s $4 million estate. In New York, when a lawyer who drafted a will receives a bequest from that will, that fact automatically raises a suspicion of undue influence. The surrogate must determine if the bequest to the attorney was made voluntarily – a so-called Putnam inquiry. In Wallace’s estate, the surrogate determined that the bequests should be paid.

In September 2010 a spokesman for attorney Wallace Bock revealed that Huguette Clark did have a will which had been in existence for some time. Now we await the production of the will. Who will be the beneficiaries? And of course, we await the results of the Manhattan District Attorney’s investigation.

The take away: it can happen to anyone. Who protects the elderly, not only from physical abuse but from financial abuse. Who protects an old person who has no children and whose distant relatives have been prevented from visiting him or her? Does our current legal structure suffice?

According to the American Psychological Association, over 2 million older Americans are victims of physical, psychological, or other forms of abuse and neglect every year. Further, for every case of elder abuse and neglect that is reported to authorities, experts believe there may be as many as five cases that have not been reported.

An offer in compromise (OIC) is an agreement between a taxpayer and the Internal Revenue Service that settles the taxpayer’s tax liabilities for less than the full amount owed. Don’t get too excited – it is not that easy. Unless there are special circumstances, an offer in compromise will not be accepted if the IRS believes that the taxpayer can pay the liability in full either as a lump sum or through a payment agreement.

In most cases, the IRS will not accept an OIC unless the amount offered by the taxpayer is equal to or greater than the reasonable collection potential (RCP). The RCP is how the IRS measures the taxpayer’s ability to pay and includes the value that can be realized from the taxpayer’s assets, such as real property, automobiles, bank accounts, and other property. The RCP also includes anticipated future income, less certain amounts allowed for basic living expenses.

There are three grounds for acceptance of an OIC: 1) doubt as to collectibility, 2) doubt as to liability, and 3) effective tax administration.

Doubt as to collectibility applies when it appears unlikely that the taxpayer can pay all that is due within the statutory period for collection. Doubt as to liability exists when there is legitimate doubt about the correctness of the assessment. The examining agent may have made a mistake, or there could be an argument over interpretation, or perhaps the taxpayer has come up with new evidence. Effective tax administration exists when the taxpayer can demonstrate that the collection of the tax would create an economic hardship or would be unfair or inequitable.

 

Don’t think that an OIC is a way to make a deal with the IRS to split the difference. It’s not that kind of compromise. It is based on a formula to determine what the taxpayer can pay from what they owe and what they earn (the reasonable collection potential). Offers less than that amount are typically not accepted. The rules for application of the formula are very complicated. The taxpayer must present a complete financial picture to the IRS, detailing assets and liabilities, income and expenses.

An OIC is not for everyone. It actually prevents taxpayers from disputing the underlying liability at appeals or in tax court. Negotiating an installment plan that is a realistic payment plan may be a better alternative for the taxpayer. An installment plan works much like any installment loan. Those who are struggling financially catch up on their tax debt by making smaller payments over a period of time. While this may translate to paying more in total (because of interest rates and penalty charges), it’s often a workable alternative.

An OIC is a lengthy and time-consuming process. Only about 15% of applicants actually reduce their debt through the OIC program. Because the filing and process are complex, it is highly recommended that you get professional advice in preparing and negotiating the offer. You need a tax attorney, a CPA, or an Enrolled Agent. Make sure you find someone with experience in IRS collection matters. A professional can help maximize the possibility that the OIC is accepted and the tax debt is minimized.

Beware of scams where promoters claim that tax debts can be settled for "pennies on the dollar." You’ve probably seen them on late-night TV. These scammers collect high fees and then don’t deliver on the promise – because they can’t in most cases. Some preparers collect fees but then fill out and file a form but provide no backup documentation and do not negotiate with the IRS. This is a waste of time and money. If the advertising refers to a "tax settlement specialist", run the other way.

An OIC is made on Form 656. There is a $150 application fee that must accompany the form. You cannot file an OIC if you are in bankruptcy. A taxpayer filing a lump-sum offer must pay 20 percent of the offer amount with the application. A lump-sum offer means any offer of payments made in five or fewer installments. A taxpayer filing a periodic-payment offer must pay the first proposed installment payment with the application and pay additional installments while the IRS is evaluating the offer. A periodic-payment offer means any offer of payments made in six or more installments.
 

 

 

We are proud to announce that  Pennsylvania Fiduciary Litigation Blog has been nominated as one of the Top 25 Blogs for Estate, Probate and Elder Law by LexisNexis

The Top Blogs campaign on the LexisNexis Estate Practice & Elder Law Community will move ahead in several phases. They will take nominations during a comment period that ends on March 31, 2011.  LexisNexis nominated a group of initial nominees.  Community members are invited to make additional nominations and support their favorite blogs.

The top 25 will be  selected based on LexisNexis’s review of the sites and comments from our Community members. After they announce the Top 25 Estate, Probate, and Elder Law Blog honorees, they will ask the Community to vote for the Top Estate, Probate, and Elder Law Blog of the Year.

To "talk up" or nominate your favorite Estate, Probate, and Elder Law Blog, you’ll need to be a registered Community member and be logged in. If you haven’t  registered previously, follow this link to create a new registration or use your sign in credentials from your favorite social media site. Registration is free! Once you are logged in, scroll all the way to the very bottom of this page. You should see a comment box similar to this one:

 

 

 

In February 2011, the IRS announced a second voluntary disclosure program for taxpayers with unreported foreign assets. It is called the 2011 Offshore Voluntary Disclosure Initiative – OVDI. The objective is to bring taxpayers who have used undisclosed foreign accounts and undisclosed foreign entities to avoid or evade tax into compliance with U. S. tax laws.

In announcing the 2011 OVDI, IRS Commissioner Douglas H. Shulman stated, "The situation will just get worse in the months ahead for those hiding assets and income offshore. The new disclosure program is the last, best chance for people to get back into the system. It gives people a chance to come in before we find them."

In 2009 the IRS offered a similar amnesty program for taxpayers not reporting income from foreign accounts. That program brought in 15,000 disclosures prior to its October 15, 2009 deadline.

It is not illegal to have a foreign account. What is illegal is 1) failing to disclose the accounts and 2) failing to report the income and pay income tax on income earned on the foreign assets. 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.

In order to participate in the new 2011 OVDI, taxpayers must resolve any non-compliance within an eight year period, from 2003-2010. The deadline is August 31, 2011.

Taxpayers will have to pay: 1) income tax deficiencies during the eight year period; 2) interest on the deficiencies; 3) a 25% penalty on the highest aggregate balance held within foreign accounts during the eight year period; 4) accuracy-related penalties of 20% of the back taxes; and 5) if applicable, 25% of back taxes for failure to timely file a return or pay tax shown on a filed return.

For smaller holdings of not more than $75,000, the penalty will be reduced to 12.5%. The rate could be reduced to 5% if the taxpayer did not know he or she was a U.S. citizen (mostly children born in the U.S. to foreign parents and now living in the foreign jurisdiction) or if the account was inherited.

Taxpayers who participate in the OVDI will generally avoid 1) criminal prosecution; 2) civil and criminal penalties for failure to file a Report of Foreign Bank and Financial Accounts (FBARs); and 3) any taxes, interest, and penalties prior to 2003. The IRS policy on voluntary disclosures is that when a taxpayer truthfully, timely, and completely complies with all provisions of the voluntary disclosure practice, the IRS will not recommend criminal prosecution to the Department of Justice.

If the IRS has initiated an examination, regardless of whether it relates to undisclosed foreign accounts or undisclosed foreign entities, the taxpayer will not be eligible to participate in the 2011 OVDI. Taxpayers under criminal investigation are also ineligible. Disclosures involving illegal source income will not be accepted.

Some taxpayers have attempted so-called ‘quiet’ disclosures by filing amended returns and paying additional taxes and interest. The IRS is currently reviewing amended returns that show an increase in income and selecting returns for audit. Individuals who are singled out for audit are not eligible to participate in the OVDI. Individuals who have filed quietly and have not yet been audited may make an application to participate in the OVDI.

Possible criminal charges related to tax returns include tax evasion, filing a false return and failure to file an income tax return. Willfully failing to file an FBAR and willfully filing a false FBAR are both violations that are subject to criminal penalties.

A person convicted of tax evasion is subject to a prison term of up to five years and a fine of up to $250,000. Filing a false return subjects a person to a prison term of up to three years and a fine of up to $250,000. A person who fails to file a tax return is subject to a prison term of up to one year and a fine of up to $100,000. Failing to file an FBAR subjects a person to a prison term of up to ten years and criminal penalties of up to $500,000.

Warning for Tax Professionals:

It is the IRS position that it is a violation of Circular 230 to represent a taxpayer on a prospective basis if such taxpayer has noncompliance that the taxpayer elects not to resolve through a voluntary disclosure: "[a] practitioner whose client declines to make full disclosure of the existence of, or any taxable income from, a foreign financial account, may not prepare a current or future income tax return for that taxpayer without being in violation of Circular 230."

Andrew Wolfe writing for the Nashua Telegraph:

NASHUA – A daughter of the late developer Samuel Tamposi will appeal a judge’s decision that cut her out of the family fortune and left her with millions of dollars in debt to the family trust, probate court records show.

Last month, Elizabeth “Betty” Tamposi, 55, of Gilford, lost a long, high-stakes battle with her brothers, Samuel Jr. and Stephen Tamposi, for control of her share of their family’s fortune.

Hillsborough County Probate Court Judge Gary Cassavecchia concluded that Betty Tamposi had violated the “no contest” clause of her father’s trust and would thus be disinherited. Rather than gain control of her share, Betty Tamposi could lose everything.

In addition, Cassavecchia ruled that she must pay back all the money she has received over the last two years, since she first filed the suit, and pay her brothers’ legal bills, which by their reckoning exceed $2 million.

Betty Tamposi and her lawyer, Michael Weisman, of Boston, had asked the judge to reconsider his rulings, but they withdrew their request on Aug. 31, court records show. On Sept. 17, one day before the 30-day deadline, they filed notice that they will appeal his decisions before the state Supreme Court.

It isn’t clear exactly how many millions of dollars Betty Tamposi would owe under Cassavecchia’s order – the figure could be $17 million or more – and neither side would comment on whether any post-trial settlement negotiations were under way.

Betty Tamposi declined to comment on the case by e-mail, writing that while the court case is public, “I view this as a private matter among my family.”

Andie Schwartz wrote an excellent article for Trusts and Estates analyzing the case.  It is entitled "Cementing Family Bonds."  Read it here.

Schwartz writes:  "As an expert witness for Betty, John Langbein, a professor at Yale Law School testified that the investment directors ‘have a continuing duty to diversify trust assets to afford sufficient liquidity to meet the … distribution requests of the trustee.’ He stated also that it wouldn’t benefit the beneficiaries to hold assets that were illiquid or undiversified. "

"The court held that in bringing and prosecuting the litigation, Betty acted in bad faith. Because she challenged the investment directors’ role and specific investments—both of which were expressly provided in the trust document as well as through Sam, Sr.’s intent—her lawsuit was a challenge to the trust provisions. "

The court’s 54 page opinion: Shelton, Tamposi v. Tamposi, Jr. & Tamposi, 316-2007-EQ-0219 (August 2010).

The beleaguered Hershey Trust Company is much in the news.  On February10, 2011, former Hershey Trust board member Robert Reese filed a petition in the Dauphin County Orphan’s Court asking the court to compel current and former members of the trust company’s board of directors to redress "breaches of trust."  Reese filed the petition on February 10, 2011 and an amendment to the petition of February 11. 2011.

This follows much bad press about alleged self-dealing on behalf of the board by acquiring Pumpkin World and Penn Wren Golf Course at grossly inflated prices. (And wouldn’t you know it?  Board members had interests in the purchased land.)

Today we have this news: 

HERSHEY, Pa., Feb. 21, 2011 /PRNewswire/ — Hershey Trust Company ("HTC") announced today that it has entered into a definitive agreement with Bryn Mawr Bank Corporation ("Bryn Mawr Trust") under which Bryn Mawr Trust will acquire the entire HTC Private Wealth Management Group (the "PWMG Business").  The transaction, which is subject to various closing conditions, including HTC and Bryn Mawr Trust both receiving regulatory approval, is expected to be completed within 90 days.

"The Hershey Trust Company has been taking ongoing steps to return its full focus to its core mission of managing the assets of the Milton Hershey School Trust," said LeRoy S. Zimmerman, chairman of the HTC Board of Directors.  "Selling our private wealth management business to Bryn Mawr Trust is another positive step to help us achieve that goal while doing so in a manner that is in the best interests of the group’s private clients."

HTC expects the transition to Bryn Mawr Trust to be seamless and to have minimal impact on clients.  Bryn Mawr Trust is acquiring the entire PWMG Business, including the full team of client services personnel.  In addition, the Group will remain at its current location at West Chocolate Avenue in Hershey.  "Our clients can be assured that following the completion of the sale they will continue to work with the same team and receive the same high quality advisory and fiduciary services that they currently receive," said William F. Christ, President, Hershey Trust Company, PWMG.

"We carefully considered the sale of the PWMG Business and determined that Bryn Mawr Trust was the right buyer," Christ said.  "Bryn Mawr has a long and venerable history in the region and a culture rooted in tradition similar to ours.  Importantly, they share our commitment to customer service.  In addition, Bryn Mawr Trust and its subsidiaries offer a full range of personal and business banking services, and our clients will have access to additional services beyond those we currently offer.  We look forward to working with Bryn Mawr Trust during the coming months to ensure a smooth transition."