Fiduciary Solutions Symposium Recap

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by Kelly Cooper

Last week, we held our first Fiduciary Solutions Symposium.  We want to thank each of you that came and participated.  We enjoyed seeing all of you and getting a chance to catch up with you over breakfast.

For those of you that couldn’t attend, here is a brief recap.  When we discussed topics that we wanted to present at the Symposium, we kept coming back to the constantly evolving and changing nature of our practices.  Whether it is taxes, ADR or changes in state laws, things never stay the same.  As a result, we decided to discuss a variety of topics and the trends we are seeing each day in our practices.  It was difficult to narrow down the topics to two hours of content, but we ended up discussing the following issues:

  • Digital Assets
  • Social Media and Use in Litigation
  • Gun trusts
  • Civil Unions/Same Sex Marriage and related tax issues
  • Reformation and modification of trusts and decanting
  • Apportionment and allocation of taxes and expenses in administration
  • Baby boomers and the “Silver Tsunami”
  • Migratory Clients and Differing State Laws
  • Trends in Alternative Dispute Resolution
  • Assisted Reproductive Technology

 We had so much fun that we are taking the show on the road and will be in Salt Lake City on November 12th.  We hope to see you there.

Real Lessons From the Gandolfini Will?

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by C. Jean Stewart

In the six weeks since the death of Soprano’s actor, James Gandolfini, the web-based criticism of his will that was lodged in the New York Surrogate’s Court last month has exceeded the entire analysis of his career as Tony Soprano or genuine expressions of sympathy on his untimely death while in Italy with his son—maybe I’m just reading the wrong posts?

Much of the commentary is highly sensationalized, presumably to draw the readers’ attention to the pages where advertisements lurk, and does little to advance the dialogue about sound and sensible estate and tax planning.  The small part of the plan that is actually public, a brief will, has been described as “clumsy,” a “disaster,” and “a catastrophe” by critics who reveal how little they knew about the man, his motives or his assets.

I think there are some real lessons for the public about the actor’s death and about the small part of his estate plan that was published on the world-wide web:

  1. Death can be unexpected and untimely; take steps to prepare.  Rather than join the so-called “experts” who declared the Gandolfini will a calamity of epic proportion, I prefer to think that a busy father, who had substantial wealth and a promising future, the parent of two young children with different mothers, and a penchant for rich food and Italian wine, both engaged an attorney to prepare trusts and a will for his signature and then signed them.  Too much of the estate and trust litigation we see these days arises from the sheer neglect of those important issues in our clients’ lives.
  2. Identify a Client’s Intent and Express it Properly. One of the most common errors estate planners make is failing to learn enough about their clients’ lives, interests, assets, concerns and purposes in undertaking estate planning.  This is abundantly evident in the commentary expressing how calamitous the Gandolfini plan is or will be by people who have no apparent knowledge of his assets, his goals or his intent.  When we purport to be “experts in the abstract” we are doing a disservice to potential clients who come to believe they do not need to give actual or factual information to buy an estate plan—after all it can be done over the internet!  One commentator, after roundly criticizing Mr. Gandolfini’s attorney, suggested that a better plan than Gandolfini’s could have been accomplished by a Do-It-Yourself kit obtained online.
  3. Buy Life Insurance When You Can Get It. While we should all be skeptical about what we read in the popular press, there are reports that Mr. Gandolfini had set up a life insurance trust and funded it with a policy in excess of $7.5 million for his young son.  Depending on a lot of circumstances, this may have both avoided some estate taxes and provided a source of liquidity, and may serve as a long term vehicle for support and protection of the young man.  In any event, the purchase of life insurance while it’s available and affordable is a lesson in estate planning that is wise to note, even for clients whose wealth does not justify use of a trust to own it. 
  4. Don’t Over Sell Privacy. It’s been interesting to read criticism about the public aspects of part of the Gandolfini estate plan—the will—from people who make their living inquiring into and publicly criticizing the behavior of others.  Could Mr. Gandolfini have executed this part of his plan in a more private way? Probably yes.  Do trusts ever become public and subject to review and criticism?  Again, yes.  Just a few months ago, I blogged about another famous entertainer’s estate in that is in litigation and the public scrutiny his will and trust had suffered: https://www.fiduciarylawblog.com/2013/03/i-feel-good-settlement-suffers-a-setback-.html#more  
  5. Keeping Taxes in Perspective. We don’t know and we may never know what motivated James Gandolfini and his legal advisor to make these choices.  It is possible that some of the federal, New York and Italian taxes that may ultimately be paid could have been avoided but it will always be an abstract issue of discussion.  Sophisticated and experienced estate and trust lawyers would be wise to use this sad circumstance as an opportunity to counsel with individual living clients who are still able to engage in thoughtful and informed discussions leading to appropriate decisions and implementation of plans that meet their needs and address their concerns.

No Contest Clauses in Trusts and Powers of Appointment: Is Colorado’s Silence an Oversight or an Opportunity?

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by Kelly Cooper

With the increasing diversity in the make up of today’s families, many estate plans now treat family members differently or disinherit certain family members completely.  When there is unequal treatment or a disinheritance, estate planners often include no contest clauses in their documents to try to avoid costly disputes and litigation after a client’s death.  Under Colorado law, a no contest clause is only enforceable against a beneficiary if the beneficiary lacked probable cause to bring a contest.  An in-depth discussion of these clauses and the probable cause exception to enforceability was posted to our blog last week, to read it, click here.  We expect the use of these clauses to increase and for clients to request these clauses as they become more familiar with them through media reports about the use of them in celebrities’ estate plans (e.g. Michael Jackson, Brooke Astor).

The topic for today is whether a contest clause in a trust agreement is subject to the same probable cause exception as a contest clause contained in a decedent’s will.  Since a revocable trust is considered a will substitute, some will argue that there is no compelling reason to treat a contest clause in a revocable trust any differently than one in a will.  While Colorado’s probate statutes are clear that a probable cause exception exists for contest clauses in wills, Colorado’s trust statutes do not contain any similar provision.  Is this silence an oversight or an opportunity for planners?  

Colorado’s silence on the question of contest clauses in trusts made me wonder how many states had statutes addressing contest clauses in trusts (enforceability and/or exceptions to enforceability).  The answer is thirteen (and is found in a great 2012 State Laws Survey cited at the end of this post) – Alaska, California, Delaware, Florida, Hawaii, Indiana, Michigan, Nevada, New Hampshire, Oregon, Pennsylvania, South Dakota and Texas.  According to the survey, another nine states have case law addressing the question of the enforceability of contest clauses in trusts, but Colorado and twenty-five states have no statute or case law on this issue.  The Uniform Trust Code is also silent on whether contest clauses in trusts are enforceable.  In light of the fact that numerous states have already addressed the issue of contest clauses in trusts, it can be argued that Colorado’s silence is purposeful.

Colorado law is also silent on the issue of a decedent can place a condition on the exercise a power of appointment.  For example, a decedent’s will may state that he exercises a power of appointment to give assets equally to A and B if no contest is filed, but that he exercises the power to give all of the assets to A if B files a contest.  While this is a conditional exercise of the power of appointment, it reads very similarly to a contest clause.  Unlike revocable trusts, which are often will substitutes, a power of appointment is not a will substitute and the argument that a power of appointment should be treated like a will may well fall short.  In addition, powers of appointment are generally exercisable in regard to trust assets, not probate assets.  Here, Colorado’s law silence on the enforceability of contest clauses in trusts may provide a real opportunity to avoid the probable cause exception, but also causes uncertainty for fiduciaries and administrators of trust assets subject to powers of appointment.

In light of the uncertainty in this area, planners may want to consider drafting trusts instead of wills for those clients who wish to include contest clauses.  When possible, planners may also want to include powers of appointment to allow for greater flexibility and to assist their clients in exercising powers of appointment to implement any plan of unequal treatment among beneficiaries.

For more information about the differing state laws in regard to contest clauses, see a great survey “State Laws: No-Contest Clauses,” T. Jack Challis and Howard M. Zaritsky, March 24, 2012.