Articles Posted in Wills

PASSING THE FARM IS LIKE PASSING ON THE FAMILY CORPORATION

There is no doubt that some modern farmers run large multi-million dollar operations right in their backyard.  Maintaining a herd of cows and other grazing stock costs potentially millions to buy or lease (or both) land for the animals to grow on.  In addition, the processing equipment for milking cows, labor costs, insurance, veterinarian costs and any number of other costs can run into the millions each year.  While most farmers are far from millionaires, most work much harder than many millionaires.  Indeed there is more to farming than the land, buildings, equipment, animal stock or orchards and other tangible objects.  Tending to corn fields, wheat, soy, orchards, vineyards, sod, tree farms, et cetera are all specific skill sets that require years of training and no small measure of technological investment.  The same can be said of a family run saw mill or similar type of business.  There is something unique about farmers, however.  

Many families are tied to the land.  John Mellencamp who was raised in farm country and one of the original founders of Farm Aid wrote about the life of the average farmer, growing up on the same farm that his own daddy did on land cleared by his grandpa, walking along the fence while holding his grandfather’s hand and of being tied to land that fed a nation and made him proud.  It is this tie to the land, unique education and training that can start literally while the child is in diapers as well as the emotional bond with families that makes farmers different than most other family run small businesses.  There are also unique legal protections found throughout the law for the benefit of family farmer.  For all of these reasons transferring a family farm from one generation to the next requires special planning.

BEST LAID PLANS DO NOT ALWAYS WORK OUT

A case with an interesting factual background came out of Texas recently. While it was based on Texas law and the case is binding in only Texas, the legal principles discussed by the Court are equally applicable to New York or any other jurisdiction for that matter. More importantly, the set of events that gave rise to the case could happen anywhere. It just so happened that it occured in Texas rather than New York or somewhere else. The Texas Court of Appeals case of Gordon v. Gordon revolved around a trust that took ownership of a specific peace of real estate property and how that transaction related to a will signed subsequent to the trust. More specifically, the Court determined that the act of creating and endorsing a will by the testator subsequent to the transfer of the real estate did not overturn or cancel the previous transfer of the real estate to the trust. The will, however, contained language that by endorsing the will, the testator supersedes all previous transactions indicated in the trust documents, such as annuities or certificates of deposit. It never mentioned the real estate.

In 2009 (Mother) Beverly Gordon and (Father) Patrick Gordon executed a trust document which they funded with personal property and real estate. The very terms of the trust indicated that the trust could only be revoked by either Father or Mother and only by following the specific set of instructions laid out in the trust document, namely by signing and delivering a letter to the trustee. The letter had to indicate that they individually or jointly are going to cancel or revoke the trust. The trust further provided that upon the death of either of them the trust become irrevocable. They funded the trust with personal property and real estate. Soon thereafter, their son John sought to reduce the risk of an estate battle by creating a will that specifically stated that the parties want to cancel the terms of the trust. Neither Mr. Gordon nor Mrs. Gordon did anything to transfer their personal property or real estate out of the trust. Moreover, John did not act to convince his parents to move the property out of the trust. Mr. Gordon passed away within a year of signing the new will.

SUBSTANTIVE PROOF NEEDED

The issue of consent and state of mind touches upon perhaps some of the most personal and human issues imaginable. This blog explored issues related to the capacity necessary for a person to create a will. Passing on the bounty of your work to your loved ones or charity may be a specifically delineated right noted by Thomas Jefferson, James Madison or any other well known political philosopher, but it can only be denied, for all intents and purposes, if that person is legally or medically incapacitated or unable to make key decisions.

This is an extraordinary legal power that is only exercised after an exhaustive review of the facts. To legally deny someone the right to consent to decisions that directly impact them as a patient or client in a legal setting goes to the core of our humanity and, in some circumstances, requires Solomonic wisdom. As noted in different blog posting, Consent is situationally specific. Consent to intimate encounters with your spouse is different than consent to transfer money to a charity, of which little is known. As to the right to create a will and transfer your personal property, real estate and money to family members, what does New York law consider sufficient mental capacity to create a will? There is much case law on this topic as it is a topic that has to be resolved each generation in light of varying societal norms and advances in both psychiatric and general medicine.

CHARITABLE LEAD ANNUITY TRUST

There are many great estate planning strategies that allow a person to avoid or lower estate tax liability and give money to charity at the same time. With the large estate tax exemption and portability of estate tax exemptions only a small number of Americans will face the possibility of paying the federal estate tax. For many New Yorkers, however, the federal estate tax is a secondary consideration in light of the lack of right to transfer any unused estate tax exemption from for the first deceased spouse to the next. Instead of a double benefit, New Yorkers face a potential double hit of not only having a lower estate tax threshold, but being taxed on the entire estate amount, sans estate tax exemption. For couples that face this possibility and for those with larger estates, few match the simplicity of the charitable lead annuity trust, often abbreviated as a CLAT. It is also a good fit for those who seek to defer the payout of their trust payments to relatives quite some distance in the future.

The CLAT works quite simply by funding the trust with a certain amount, usually a large amount (since it is generally used by families or grantors looking to reduce their estate tax liability) that is scheduled to be paid out to a charity over of a certain length of time. Once the payout period for the charity is over, a certain sum, plus any additional monies earned (minus taxes and expenses of course) is paid to the remainderman beneficiary of the trust.

NEW YORK ANTI-LAPSE STATUTE

This blog previously discussed what happens if an heir passes away simultaneous with a testator and how the property that would otherwise go to the person who simultaneously passed away with testator ends up getting transferred. An obvious related question is what happens if an heir or beneficiary passes away prior to a testator? This blog also explored this issue in the past. It is now time to reexamine that issue in more detail and in light of the larger legal structure that the law provides for various contingencies that exist in the law regarding property passing via probate when some sort of mistake or event occurred that would otherwise leave the property unpassed to the next generation.

In both cases the law has default, fall back statutes to specifically address these sorts of scenarios. In the case of property or money left to an heir who predeceases a testator, if the property or money passes to siblings or children of the testator, New York’s anti-lapse statute controls and allows for that property or money to pass to that sibling or child’s heirs, almost as if the heir did not predecease the testator. If an heir passes away prior to distribution that bequest is considered to have “lapsed”. New York’s anti-lapse statute, as judged by its name, obviously prevents the lapse from occurring. In the absence of the anti-lapse statute, a bequest that fails to pass to the intended heir that heir predeceased the testator, the bequest becomes part of the larger estate, to be dealt with via other provisions in the will or otherwise dealt with through the application of the state’s intestacy statute. All states have anti-lapse statutes. In a sense the anti-lapse statute provides a substitute heir via statutory decree for the beneficiary who predeceased the testator.

CLOSING PERCEIVED LOOPHOLE

Congress created the generation skipping tax almost 40 years ago in 1976 and ushered in an age of increasing complexity for the tax code, always complicated and cumbersome, to fix a problem perceived at the time (and since) of avoiding taxable events by transferring assets to “several generations while avoiding the Federal Estate Tax” via use of trusts and other transfers of property rights. At the time, Congress saw how wealthy families were creating life estates in their kids, followed by a life estate in their grandkids and followed by a life estate of their great grandkids.

Life estates are not subject to federal estate tax. This meant that wealthy families who had the inclination to create these arrangements and the money to pay an attorney to do so avoided paying large amounts of taxes and smaller families and estates were paying more in taxes than wealthier ones. As such, Congress decided to tax any transfer of property or assets from an individual to another individual that is more than one generation away from the grantor, in the case of family members, or from one person to another who is at least 37 1/2 years younger than the grantor, in the case of nonfamily members. The tax applies even if the transfer is via a trust

GOOD FOR CERTAIN SUBSET OF POPULATION

A health savings account is another way to save your money, tax free, for an inevitable expense that everyone will have to face and deal with eventually. Unfortunately one of the variables of retirement is that you will never know how much you will spend on health care costs. At the same time, as the body ages health invariably declines with more visits to the family doctor or perhaps even more expensive specialists. To further add to the expense, modern medicine has added significantly to the life expectancy of the majority of people who do not meet some unfortunate trauma or accident.

This is often the result of more expensive treatments, more costly medicines and more diagnostic tests or procedures that occur more often. Often these treatments, medicines, tests and procedures are medically appropriate, so any money spent is money well spent. But as with anything in life, the question must be asked, from where did the money come from? Insurance does not cover all medicines, tests and procedures and even when it does, it does not one hundred percent of their costs. You can pay for better insurance plans, with the inevitable higher monthly premiums, which leads back to the original question of where does the money come from for these costs? A more sound approach to these unknown variable but inevitable costs is a health savings account. Health savings accounts are not for everyone, but for a sizable portion of the population they are a good fit.

ROBIN WILLIAMS UNIQUE ESTATE PLANNING GENIUS

This blog discussed some of the aspects of Robin Williams estate in the past. Mr. Williams will be remembered for a long time due to his many accomplishments, with a long, funny, inciteful and compassionate comedic wit. While it seems fairly certain that Mr. Williams mental state was brought on by a biological or, more accurately, a neurological condition that spawned a profound depression. Mr. Williams will also be remembered for his estate which was perhaps the first of many to come from actors, singers or other celebrities who have value in their likenesses or other unique personal attributes.

While Mr. Williams created a multi-tiered estate plan, he was sure to include the right to profit, or, more accurately, to curtail a person, company or entity from profiting from his likeness and publicity for 25 years following his death. In other words, movie studios, music producers or producers of Mr. Williams stand up comedy routine cannot take Mr. Williams image, voice or any other asset tied to his likeness or even his publicity and profit from it. While some pundits commented on the novelty of it and the breadth of the prohibition on his likeness and the length of time, it is not surprising that someone created such a blanket prohibition. Look at what the producers of Forrest Gump did with John Lennon or President Lyndon B, Johnson. To someone unaware of the times, they would be unaware that the producers of the movie morphed and cut and pasted the images and footage into the movie and could believe that Mr. Lennon or President Johnson personally appeared in the movie.

It happens often enough that a parent for many reasons decides to disinherit one, several or all of his/her children.  At the same time, this is often not a controversial decision and is just as common both understandable and predicable.  Perhaps a person promised their estate to a specific child, stepchild or niece or nephew for taking care of them instead of being required to be sent to a long term continuing care facility.  Perhaps the parent provided financial largesse to his/her via college education, graduate school and even helped them purchase a house but had one child who had special needs who always lived at home and insured that child’s future by funding a trust during his/her lifetime and then disinherited all of his/her other children by putting the whole of the estate into the trust.  

Mickey Rooney was a very well known and well paid actor that had a long career, with many children and many marriages and disinherited his children.  He instead left his estate to his stepson and explained that his kids were better off than he was.  By the time Mr. Rooney passed, his estate dwindled to just about $18,000, so there was little incentive for any of his kids to contest the will, although the same did not hold true for Mr. Rooney’s then current spouse.  Unfortunately for some families, this can be a shock and there are sufficient incentives for the family to contest the will.  

INVALIDATING THE WILL

WRONGFUL INTERFERENCE WITH WILL

It is known by many different names, depending on the state and the era. Most recently it made its appearance in news headlines with the name – intentional interference with expected inheritance, sometimes even shortened it IIEI. The United States Supreme Court referred to it as “a widely recognized” cause of action and as the “tort of interference with a gift or inheritance” in the Anna Nicole Smith case. Marshall v. Marshall, 547 U.S. 293, 296 (2006). The matter has surfaced in the news over at least the last century, most famously (perhaps infamously) in the Father Divine case in New York, in 1949. Latham v. Father Divine, 299 N.Y. 22 (1949).

The American Law Institute published the The Restatement of Torts (Second) of Torts in 1979.  That was the first time that the tort, known by many names, was formally recognized as such. Prior to this, the principal and concept was recognized but only in the most egregious of circumstances. There are several seminal cases that speak to the larger concept, one of which was the New York case dealing with Father Divine case noted above.

Contact Information