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.

ANCILLARY PROBATE

It is not an uncommon scenario for a middle class family of even modest means to own a vacation home in another state. For those of us who love to ski, hike and explore, mother nature’s wonders on horseback, Vermont and Wyoming may be your choice. For those of us who can never tire of beaches, the ocean and sun, California, Florida or maybe even the Carolinas are for you. Even more of us own timeshares and similar properties throughout the country.

Most of us never stop to think about what it takes to insure that these properties pass via a will without complication. Whenever a person lives, or, to couch it in lawyer lingo “domicile” in a state (and own the vast majority of their property in that state) their estate should go through probate in that location. The vacation property in the other state, however, will likely not pass as desired and outlined in the decedent’s will without opening an independent probate proceeding in that state. This secondary proceeding to insure the proper passing of the property in that state is commonly called “ancillary probate“.

IRREVOCABLE TRUSTS COSTS AND BENEFITS

Trusts are valuable estate planning devices that allow for the transmission of wealth with lower tax liability. When proper estate management is picked, they also allow for the creation of future income, potentially allowing for the life of the trust in perpetuity. Trusts also allow for the beneficiaries to benefit from the income of the corpus of the trust, yet insure that their creditors cannot obtain the income producing assets itself. The same also applies for a financially irresponsible beneficiary, in that it provides income but prevents the financially irresponsible beneficiary from squandering the income producing asset. One of the most popular types of trusts is the irrevocable trust. As with anything in life, there are upsides and downsides; one of the downsides to an irrevocable trust is that in most circumstances, and, more particularly, most states, an irrevocable trust is usually irrevocable. Unwinding an irrevocable trust when it no longer functions as it should, due to, for example, a major change in the estate and gift tax law is possible but must be done correctly, whereby the assets from the trust may be transferred or gifted to the beneficiaries or the settlor if still alive.

WHY TO MODIFY OR REVOKE?

The United States Tax Court recently decided a case where the issue was the role that a tax return due to the decedent played in overall estate tax liability. The Estate of Russell Badgett, Jr. et al v. Commissioner, T.C. Memo 2015-226 (Nov. 24, 2015) dealt with a very large overpayment of taxes by the decedent during his last full calendar year of his life. The estate failed to include the value for the tax returns that Mr. Badgett, Jr. (or his estate as it were) received, which ultimately undervalued the estate a rather significant amount.

The Internal Revenue Service indeed caught this accounting error and sent out a notice of deficiency approximately a year and a half after the filing of the last tax return. The Tax Court ruled in favor of the Internal Revenue Service because estate tax returns must list all the property that an estate owns. The Tax Court cited an United States Supreme Court case that held that state law defines what property rights, while federal law defines what property is taxed. Morgan v. Commissioner, 309 U.S. 78, 80 (1940).

THE CASE OF MR. BADGETT, JR.

WHAT HAPPENS IF A WILL IS INVALIDATED?

Wills are perhaps the most basic and simple form of passing on property and the transmission of wealth from one generation to the next. It allows the testator to give away the property and money that they own and have on hand as they see fit. A person can write a person out of a will, with certain limitations, include another non-child in the distribution and treat them as if they were a child or even leave it all to a charity. While the vast majority of wills are honored and respected without question, there is always the possibility that a potential heir may contest a will. In the event a will is invalidated a Surrogate’s Court must still resolve the issue of how and to whom shall the property be distributed. One possible way of dealing with issue of distributing the property if a will is invalidated is to utilize the state’s default, intestate distribution scheme. Another means is to revive a previous, otherwise valid will. This latter method is called the doctrine of dependent relative revocation.

DOCTRINE OF RELATIVE REVOCATION

STRICT ADHERENCE TO FORM

On March 3, 2015 the Eighth Circuit Court of Appeals, sitting in Denver, Colorado, rendered an opinion in the case of Draper v. Colvin, where it explicitly admitted that it drew “a hard line” when it upheld the decision of the Social Security Administration that denied Stephany Draper eligibility for supplemental security income. Draper v. Colvin, 229 F.3d 556 (8TH Cir. 2015). Ms. Draper was an 18 year old woman who suffered traumatic brain injuries in an automobile accident and applied for supplemental security income benefits. In addition, she filed a personal injury case where she netted approximately $429,000 from the settlement. This amount of money would render Ms. Draper ineligible for both supplemental security income as well as Medicaid, both of which are means based programs.

SPECIAL NEEDS TRUSTS NOT COUNTED AS ASSET IN MEANS TEST

VALUABLE ASSET

        A residential lease in New York City or any desirable locale can provide many benefits.  Some people wait years to get into a rent stabilized apartment.  There is even a Seinfeld episode where Elaine quips that some people scan the obituaries to see if someone in a rent stabilized apartment has passed away.  It is a common occurrence for many people to live decades and raise generations of families in their rent controlled rental unit.  Many cities have their own laws dealing with how to inherit these leases.  New York Real Property Actions and Proceedings §236 law deals permits an estate to inherit the lease of a deceased person and New York Estate Powers and Trusts Laws §13-1.1(a)(1) also holds that a lease is an asset of an estate.  In addition, many local laws housing and regulations also mandate how and when a lease may be inherited.  New York City ended its Rent Control laws in 1971, yet still has approximately 38,000 rental units listed under the old Rent Control laws, as once the lease is under the Rent Control law it remains until it is no longer.  Going forward New York leases are generally covered by Rent Stabilization laws, also covered by the same laws dealing with succession of a residential lease.  Rental units under the rent stabilization laws are the most common type of residential lease.  These leases will remain for so time due to the right to succeed these leases by other family members or even friends.  Most particularly, New York Code, Rules and Regulations §2532.5(b) allows for family members to succeed the lease.  Landlords have been known to fight like the devil to regain possession of these rentals, sometimes offering cold hard cash, from $40,000 on the low end to $17,000,000 on the high end.

HOW TO INHERIT OR SUCCEED – COHABITATION

WHY IT MATTERS FOR ESTATE PLANNING

Every year the Federal Department of Treasury publishes the greenbook which outlines the then current presidential administration’s revenue proposals, tax policies, job creation issues that relate to the Department of Treasury and other related fiscal and policy issues. The greenbook is scrutinized by tax pundits, politicians and others for what it contains, but what it does not contain is also important. Within the 2013 greenbook, there was an obvious lack of discussion of 26 U.S.C. § 2704, which mandates how the law measures the value of certain family controlled entities for estate and gift tax purposes. Some observers took that to indicate that the IRS plans on amending the regulations pursuant to this statute. This suspicion was validated when an official from the Department of Treasury spoke at an American Bar Association, tax section meeting in May, 2015. She indicated that a proposed regulation may be released as early as September, 2015. As of mid-November 2015 such regulations have yet to be published. This issue is of substantial import for estate planning throughout the nation. If and when a family business is transferred via an estate or even to a trust created by an owner of the business, it is likely be a taxable event, depending on the specifics of the transaction.

PASSING A FAMILY BUSINESS ON TO NEXT GENERATION

GROWING LEGAL ISSUE

The federal Department of Health and Human Services estimates that there are currently approximately 600,000 frozen embryos in the United States and the number continues to grow each year. Of these, it is estimated that approximately 60,000 could be implanted for full term pregnancy. In still other cases, a father or mother may freeze and store some sperm or eggs for future family planning purposes. In either event, a mother must have artificial insemination or in vitro fertilization or the embryo implanted. It is possible, even likely, that some of these embryos may be implanted and born after the passing of the father or mother with the use of a surrogate mother. The legal rights of these posthumously conceived children are still being fleshed out in legislatures and courtrooms throughout the country. In 2012, the United State Supreme Court dealt with rights of a posthumously conceived child to the Social Security survivor’s benefits of the deceased parent in Astrue v. Capato.

FEDERAL AND NEW YORK LAW

PORTABILITY

In 2011 Congress revamped the estate and gift tax laws and legislated that the federal estate and gift tax exclusion amount was $5 million. This amount is annually adjusted for inflation; the 2015 maximum is $5.43 million. Any estate values less than this amount are excluded from estate and gift tax liability. So, for example, if a husband passes away and leaves $4 million to his wife, the wife has an additional $1.43 million that she carried over to her own estate, as well as the standard $5 million that she is entitled to for her own estate if she also passed away in 2015 before any federal estate tax liability is incurred. Consequently, under the simple example provided, the wife is entitled to $6.86 million in exemptions before incurring any federal estate tax liability. If the surviving spouse remarries, he/she still retains the right to the portability of the unused estate tax. The portability is only effected if the second spouse of the surviving spouse also pre-deceases the original surviving spouse then the portability from the first spouse is extinguished. The idea and principles of estate tax portability do not apply to generation skipping transfer taxes, which is when a grandparent leaves money to his or her grandchildren.

IRS ALLOWS A DO OVER

Contact Information