The Dark Side of POAs.

CNN is reporting that the Anthony Marshall trial is entering the sentencing phase.

http://www.cnn.com/2009/CRIME/12/18/new.york.astor.marshall/

Mr. Marshall is the son of New York socialite, Brooke Astor. Mr. Marshall was convicted of grand larceny and scheming to defraud his mother's estate. During his mother's life, he used his power as Ms. Astor's power of attorney to take money out of her estate for himself. Ms. Astor's will left most of her estate, upon her death, to various charities.

This case illustrates the need for caution when executing power of attorneys. POAs are useful tools to make sure your financial affairs, like paying for the heating bill to keep your pipes from freezing... (can you tell I'm writing this in Minnesota, in January?) etc, are taken care of if you are alive, but incapable of doing it yourself. POAs are extremely helpful in a majority of circumstances and everyone should consider executing a POA.

However, care should be taken when choosing who will have that power. A POA is like giving someone a blank check to your entire financial life. If you don't have someone you trust to act in that capacity, it may be better not to execute a POA.

This is especially true in states, including Minnesota, where durable POA's (those which are effective when someone does not have the capacity to make financial and legal decisions) are effective from the moment they are signed. That means that the person you name in your POA, has the blank check even before you are incapacitated.

All the caution in the world may not have prevented the Astor tragedy, but everyone should carefully consider who they name in their POA.

The Never Ending Uncertainty of the Federal Estate Tax

Oh, the federal estate tax issue. The House recently voted to extend the current tax rate.

http://www.washingtonpost.com/wp-dyn/content/article/2009/12/03/AR2009120304433.html

What does this mean for you? First, a little background. Gifts and estates are taxed by the federal government, and by many states. However, there is generally an exemption allowing estates under a certain amount to be transferred tax free. The exemption from the federal estate tax was, for many years, $1 million dollars. That meant that your estate did not have to pay tax unless your estate was over the $1 million mark. Eventually, this limit didn't only impose tax on the very wealthy, but also on small family farms and businesses, as the entire estate, for tax purposes, includes things like real property, business interests, some types of trusts and life insurance. Congress, taking the position that the estate tax was crippling small farms and businesses, increased the exemption, to $1.5 million in 2004 and 2005, $2.5 million in 2006 - 2008 and $3.5 million in 2009. That legislation had a sunset provision which basically repealed all federal estate tax for 2010 and returned the exemption to the $1 million mark in 2011. This system created a level of uncertainty because it was nearly impossible to predict what exemption would be in place at death. Additionally, the 2010 repeal with the 2011 exemption leads to an absurd result, which the darker humored among estate planners called, the "unplug grandma" rule.

The House bill would keep the 2009 exemption in place for the foreseeable future. However, the uncertainty under the prior system becomes even more unpredictable because the Senate has yet to move on the bill. It seems extremely unlikely that the Senate will touch this issue before 2010, in light of their current fight over health care. What may likely happen, is that the Senate will take a look at the issue sometime in 2010. If they follow the House's lead, and the President is on board, the 2009 exemption may be extended and applied retroactively for all of 2010.

So what should you and your planner be doing? We are in uncertain times when it comes to the estate tax and uncertainty is no friend to a planner. One way to approach the issue is plan for the $1 million exemption which is the likely worst case. Here in Minnesota, that is a common approach, as our state estate tax exemption has remained at the $1 million mark. Also, if this affects you, keep informed. If legislation is enacted that brings some certainty, it would be time to call up your planner and evaluate whether your plan should be changed accordingly.

Common Pitfalls for even the Rich and Famous

Forbes online has collected an interesting array of estate planning mistakes the rich and famous have made.


http://www.forbes.com/2009/11/24/princess-di-heath-ledger-brando-personal-finance-investment-guide-2-09-celebrity-estate-mistakes.html



Even if you aren't famous, or rich, some of these same mistakes can pose a big problem for those you leave behind. If you don't have an estate plan in place, meet with a licensed attorney so that your estate doesn't repeat other's mistakes.

Was Oilman "Manipulated" to Give to Charity?

Bloomberg.com is reporting on VERY messy battle on a probate involving a Texas oilman's estate. http://www.bloomberg.com/apps/news?pid=20601103&sid=auPHfoPfzSHA

The gist of the fight revolves around whether the deceased was manipulated into giving to charity, instead of his kids. Perhaps tellingly, only one child is arguing that the deceased was manipulated.

There are some things you can do to lessen the impact of later fights about your will. No-contest clauses and self-proving affidavits help. Also, if a messy probate court battle seems likely, a living trust (as much as I might disparage them in other contexts) may be a good idea. If a family fight sounds less than theoretical in your situation, contact a licensed attorney who can assist you in creating an estate plan that can limit or prevent those fights.

Beware of Trust Mills

The Law.com is reporting on a bust up of a trust mill in Ohio.

http://www.law.com/jsp/article.jsp?id=1202434692692

What's a trust mill and why are they so bad? A trust mill is a derogatory term we in law land give to business who scare people into paying fees for a living trust, without correctly evaluating whether a living trust is appropriate for the clients needs. The mills overstate the problems of probate and taxes and overstate the role a living trust can have in remedying those problems. They crank out form trusts without legal review, or very cursory review. Most estates will have little to no problems with taxes and probate. In most cases, a living trust is more of a cost and hassle than benefit.

However, it should be stated that in some, specific, circumstances, a living trust may be beneficial. Don't be intimidated by salesmen into paying for an estate plan that may not be beneficial for you. Contact a licensed attorney who can meet with you, review your specific needs and craft a plan that meets them.

Providing for your parent without providing for your siblings... or allegedly abusive stage dad.

TMZ is reporting that Katherine Jackson, matriarch of the Jackson family, will receive 40% of the Michael Jackson estate. However, she does not get the 40% outright. Rather, the amount is held in trust. The trustees have control of how much is distributed to Kathrine, and upon her death, any remaining funds go to Michael's children.

http://www.tmz.com/2009/10/12/michael-jackson-katherine-jackson-kids-inheritance-trust/

This actually isn't that uncommon. Although there are many reasons to structure a testamentary dispositon (gift through a will) that way, one obvious reason is to protect those assets from other family members. If Katherine received 40% outright, Katherine would have 100% control over what happens to it, both during her life and after her death. Upon Katherine's death, any remaining amount would be part of her estate and go through intestacy or by the provisions of her will. This could result in family members who were specifically excluded from Michael's will receiving assets through Katherine.

Putting estate assets going to Katherine in a testamentary trust (trust set up through provisions in the will), prevents such an occurrence and helps assure that Michael's wishes as to who exactly benefits from his estate remain intact.

If you have specific wishes as to who, and who cannot, benefit from your estate, a testamentary trust may meet your needs. Contact a licensed attorney who can craft a will and testamentary trust that can help assure your wishes also remain intact.

How controlling can I be from the grave?

A recent Illinois Supreme Court case upheld a will provision which disinherited descendants if they did not marry a fellow Jew.

http://www.google.com/hostednews/ap/article/ALeqM5j8QwP4ZvRjh-5EDghmS7q9wwP_DgD9ATRI300

As in this case, most American jurisdictions follow the general rule that a testator, or one writing the will, has (almost) free reign to dictate how their assets are disposed of upon their death. However, most jurisdictions limit this free reign by allowing courts to strike provisions that are "against public policy". That was the argument in the Illinois case. The descendants argued that the provision amounted to religious intolerance, which they argued is against public policy. The Court demonstrated just how much leeway a testator can be given, stating that the Court was not in a position to ensure that a grandparent treats "grandchildren who reject his religious beliefs and customs in the same manner as he treats those who conform to his traditions".

Minnesota courts have not spoken on whether such religious clauses would be upheld. However, two cases give guidance on how a Minnesota court might evaluate a questionable clause. In its 2008 ruling, In re The Estate of Peka, the Minnesota Court of Appeals upheld a provision that prohibited an ex-wife from living in the testator's house, which was placed in trust for the benefit of the parties' minor child, rejecting an argument that the provision was against public policy in promoting separation between parent and child.

The Minnesota Supreme Court, all the way back in 1897, showed that they are willing to strike down a provision as being against public policy. In Morse v. Blood, the testator stated in his will that his spouse would inherit his estate, but that she would be prevented from giving, either during her life or through her will, "one cent" to either her relatives or his. Among the issues created by this clause, the Court pointed out that if the spouse invited her family over for dinner, she would run the risk that the entire estate would be forfeited. The Court called the provision "mischievous and technical" and struck it down as against public policy.

If you're thinking of putting a ... creative... provision into your will or trust. Remember that, although you will enjoy a certain amount of leeway, you run the risk that a court could strike the provision. Make sure that you meet with a licensed attorney who can draft the provision, which could increase the chances that it would later be upheld by a court.