Personal Wealth Law News

An article in the on-line Wealth Counsel Quarterly asks why families fight over inheritances and offers several reasons:

• people are genetically inclined to competition and conflict
• receiving an inheritance is somehow a mark of approval, which many seek even from deceased parents
• people are inclined to look for evidence that they have been excluded, and don’t like it
• the loss of a family member triggers anxiety about one’s own death
• some family members may suffer from a personality disorder that escalates family rivalries into legal battles

Another explanation that I have seen: the death of the last parent means there is no longer a grownup in the room, so the kids can misbehave and get away with it. Many estate disputes reflect feelings that go back to childhood, that one child was favored over another. Or, as Tom Smothers would say to his brother- “Mom always liked you best!”

Comments Off

Apparently, Ms. Tudor had written a will leaving her copyrights and other assets to her children and a grandchild, but a subsequent will eliminated the bequest to one son, except for an antique highboy. That son may have been estranged from his mother, but he felt that his brother had exerted undue influence over their mother, causing her to change her will. The dispute ended up in court, unfortunately, but just before trial the matter was settled, to the at least expressed satisfaction of all parties. It’s good that the family dispute did not end up being aired in public, but perhaps some better communication and planning would have averted the problem from its beginning.

Comments Off

The Employee Benefits Security Administration has proposed a definition of the term “fiduciary” under the Employee Retirement Income Security Act of 1974 (ERISA), the purpose of which is to expand the protections available to retirement plan participants, to protect them in particular from conflicts of interest and self-dealing by advisors. The new rules can be accessed here: http://www.ofr.gov/OFRUpload/OFRData/2010-26236_PI.pdf.

Comments Off

  A Blog That Mentions Both Trusts and Estates Law and HootersBy Robert H. Louis 

A recent news report indicates that an effort will be made to sell or recapitalize the restaurant chain Hooters, as a result of a family dispute over the will of the majority owner of the business.  (I’ve never visited one of these restaurants, but I see that their ads feature a picture of an owl, so I assume they have a library-like atmosphere.)  The report illustrates several issues in the operation of family businesses, and how a failure to plan and to consider the effect of trusts and estates law on such businesses can lead to an unfortunate result.

Apparently, the decedent and some other businessmen purchased control of the chain some years ago, and the decedent was the majority owner.  In addition, the decedent had married for a second time, and had a son from his first marriage who was actively involved in the business, a much younger second wife, and a young child from the second marriage.  His will gave 30% of the estate to each of those children, another 10% to Clemson University (carrying on the decedent’s long years of philanthropic giving), and other amounts to friends and associates.  He left $20,000,000 to his wife, payable $1,000,000 per year.  The decedent and his wife, who were not living together at the time of his death, were residents of South Carolina, which has a provision in its law allowing a surviving spouse to elect to “take against” the will to the extent of one third of the decedent’s estate.  Pennsylvania law has a similar provision.  The widow made such an election, and this election was challenged by the decedent’s older child, in part because he contended it was unconstitutional.  After some legal wrangling, the parties settled for an undisclosed sum, and now the older child is looking at various options to either carry on the business or sell it.

It seems clear, from several reports on this case, that the decedent wanted the older child to run the business.  He had retired from active involvement and placed his older child in charge.  However, he made no arrangements other than in his will for the transfer of the business to that child.  This was clearly a mistake.  Planning for the business transition could have been completed before the decedent’s death in ways that could have protected the older child’s management of the business.  The second wife should have been asked to sign a prenuptial agreement, very common these days especially in second marriages, to limit her rights against the estate.  The wife could also have been provided for through insurance or other planning techniques. 

It is possible that these possibilities were considered by the decedent and didn’t work.  But in the world of family businesses, a much more common occurrence is to defer consideration of family business issues, in no small part because they require difficult conversations.  It’s easier to do nothing and hope that “things” sort themselves out.  But that doesn’t often happen.  An important service that lawyers can offer to business clients is to help them address these issues and, if other types of professionals are needed to facilitate the process, to recommend hiring such people. 

(from the Legal Intelligencer) 

Comments Off

This might be a good time to emphasize that it’s a trust fund.

The concept of one person or institution holding money in trust for someone else has been around for centuries.  Apparently, some people have misplaced their copies of Scott on Trusts and decided that being a trustee means you can pretty much do whatever you want, and pay a little or a lot of attention to your duties, as you see fit.  As a result, we have read reports of breathtaking embezzlements and inattention to trustee responsibilities, leading to failure of the purposes for which the trusts were set up.  But we don’t read in the popular press of less obvious wrongdoing, which can be equally damaging.

Here’s an example: an individual establishes a trust for the benefit of his descendants, and he funds it with stock of the company at which he spent his career.  He names two good friends as the trustees.  Over time, one of the trustees loses interest, and defers to the decision-making of the other trustee as to how the trust should be funded.  That trustee decides that since the settler funded the trust with a single stock, it should remain invested in that stock, despite the passage of many years and changes in the nature of the company.  In doing so, both trustees violate their duties, as well-defined in Pennsylvania law.  After some number of years, the beneficiaries begin a barrage of requests that the trustees diversify, which they refuse to do.  Naturally, the value of the company’s stock declines precipitously.  The trustees have failed to act prudently, which is the standard applicable to trustees.

There are many cases in which the judgment of trustees has been challenged, and trustees may have good reasons for their actions, and attempt to defend themselves in court.  These kind of situations are easily distinguishable from recent reports of out-and-out theft and misappropriation of funds, as well as entrusting funds to investment advisors who offer no explanation of their activities over periods of many years.  But there seems to be a common thread linking many of these trust problems.

That link seems to be, generally, a lack of professional trusteeship.  In recent years, people have moved away, in many cases, from the idea of having a bank or trust company as a trustee or co-trustee, often because they charge fees for their services.  If Uncle Charlie will serve as trustee at no charge, then why is it necessary to have an independent trustee?  Perhaps now we have an answer to that suggestion: we’d better be very sure that Uncle Charlie has the skill and understanding to serve as a trustee.  Many Uncle Charlies will be fully capable of serving as trustee, but it might be appropriate to have some independent party, like a bank or trust company, to offer guidance and judgment in the administration of trusts.  That won’t be a guarantee against problems such as the criminal activities reported recently, but it can add to trust administration an unbiased and professional perspective.  This won’t always be necessary, but it’s something to consider in trust planning.

(Reprinted by permission of the Legal Intelligencer)

Comments Off

The world of estates litigation is certainly not boring. Sometimes it’s even about the money.

There are psychologists who provide a valuable service in trying to help families work through issues relating to inheritances. These kinds of issues often bring to the fore other issues that have been simmering for a while: why was one child chosen to be in the family business and another not; why one child got other advantages over a period of a lifetime; did one child plot to get on the good side of a parent to do better in the will?

It’s probably not possible to prevent intra-family disputes, and it’s not the lawyer’s task to become a substitute parent. It seems clear, however, that some of these problems are preventable. The prevention that can avoid them must be undertaken by the parents while they are still here. Sometimes that’s difficult to accomplish, because parents do not always want to share with their children their reasons for decisions made regarding the children and business interests. In addition, some parents are simply reluctant to discuss finances with their children. They may find it easier to say nothing and hope the children work things out. Like Scarlett O’Hara, they prefer to think about these things tomorrow.

As a number of commentators have suggested, it’s much better to discuss these issues openly, while the parents are able to explain the choices they have made. It’s probably also advisable to tell children how much they have and what their plans are for spending, saving and passing it on. It’s not easy to do that, and many parents will have kept their finances mostly secret from their children. But in many cases the result is the opposite of what the parents intended: money doesn’t make people happy or comfortable; it makes them crazy. So lawyers advising the parents would be well-advised to suggest disclosure to the children. The reaction might cause the parents to change their plans, perhaps in a way that attempts to head off trouble. In some situations, a family conference might be appropriate, and maybe such conferences should be held more than once. If talking through the problems or concerns among the family members doesn’t work, it might be time to call in a professional counselor.

As some philosopher, or at least a smart guy, said, not having money can make you miserable, but the opposite isn’t necessarily so: a lot of money won’t guarantee happiness. But at least talking it through can avoid some family disputes that end up in court.

(reprinted by permission of the Legal Intelligencer)

Comments Off

The San Diego Union-Tribune has been reporting for some time on the ongoing woes plaguing that city’s retirement system. A story reported on June 14, 2008 indicates that the city had hired a large law firm to look into the problems and to represent it in an investigation by the Securities and Exchange Commission. But, as it turned out, that created a conflict of interest- how could the law firm investigate the problem and at the same time defend the city in the SEC matter? Apparently, it could not, and the city sued the law firm for a very large sum of money. The case was just settled, with the law firm agreeing to return $3.25 million in fees and to forgive outstanding bills of another $1.1 million. This illustrates a couple of points: first, pension plans are important and complicated, and it’s not difficult to cause problems if you’re not sure of what you’re doing. Second, if you are a public entity and you hire someone to straighten out a problem with your pension system, that’s what they should do, not try to minimize or gloss over the problem. Even in private businesses, it makes sense to have someone, such as a law firm that knows what it’s doing, review the administration of retirement plans from time to time, to avoid lawsuits and government investigations.

Comments Off

A recent dispute over a Washington will highlights the necessity for clients to frequently review their estate plans, especially when those plans include wills or trusts that bequeath significant assets to charitable organizations. The Washington case involved a decedent who left $264 million in his will to eight charities, including the Salvation Army and Greenpeace. The decedent left the Greenpeace bequest to “Greenpeace International”; however, that group was dissolved and absorbed into the related “Greenpeace Fund” during the year before the decedent’s death.  The Salvation Army disputed the executor’s plan to distribute the Greenpeace share to the Greenpeace Fund, arguing that the organization named by the decedent in his will was defunct and that its successor was not eligible to receive the gift. The dispute was finally resolved in a recent settlement agreement, with the Greenpeace Fund agreeing to take $27 million from the estate — $6 million less than it was allotted under the terms of the will.

This feud over the will’s language demonstrates the necessity of frequently reviewing estate planning documents to ensure that the charities named in them continue to qualify for 501(c)(3) tax exempt status, and that those charities continue to have the same names.  The dispute also underscores the need for charities contemplating or executing a name change or transfer of assets to publicize the change and to inform both current and potential donors.

Comments Off

Comments Off