Estates & Trusts Archives - Page 2 of 9

Joint Trusts: A Useful Tool for Some Married Couples

Though not a silver bullet for every situation, in appropriate circumstances, a Joint Revocable Living Trust (“Joint Trust”) can provide a married couple with significant benefits and simplify the administration of assets upon death or incapacity.

The Probate and Estate Administration Process

In order to illustrate the benefits that can be achieved with a Joint Trust, it’s helpful to first understand the typical probate and estate administration process that occurs when a person dies.

When a person dies with a Will, the designated Executor in the Will typically submits the original Will for probate in the Estates Division of the Clerk of Superior Court in the county where the decedent resided at the time of death. “Probate” is the legal process by which the court validates the submitted document as the legal Will of the decedent. When offering the Will for probate, the designated Executor typically also files an application with the court to be appointed as Executor of the estate and granted Letters Testamentary, which is the legal document confirming the Executor’s authority to act for the decedent’s estate.

If a person dies without a Will, the decedent’s spouse or nearest relative typically files an application with the court in the county where the decedent resided at the time of death seeking to be appointed as Administrator of the estate and granted Letters of Administration which is the legal document confirming the Administrator’s authority to act for the decedent’s estate.

Once the court appoints an Executor or Administrator of the estate, as the case may be, that person is referred to as the “Personal Representative” of the estate and is charged with several duties and obligations. Actions required of the Personal Representative include:

Taking control of the decedent’s assets;
Filing an inventory with the court identifying the value of all of the decedent’s assets to the penny;
Publishing a notice to creditors giving them three months to file claims with the estate;
Satisfying any creditors’ claims;
Distributing all remaining assets to the decedent’s beneficiaries; and,
Filing an accounting with the court to report to the penny what occurred with all of the assets.

The court supervises the process at every step along the way and must ultimately approve all actions taken in the course of the estate administration before the Personal Representative will be relieved of their appointment.

Movement Away from Probate

Over the last few decades, a trend has developed in the estate planning community to attempt to structure a person’s affairs so that no assets will pass through a probate estate supervised by the court. That trend has developed in response to a public perception that the court supervised process is not only unnecessary but also yields additional costs. For instance, additional fees must be paid to attorneys and other advisors to prepare the inventory, accountings, and other documentation necessary to satisfy a court that the estate was properly administered. Also, in North Carolina, the court charges a fee of $4 per $1,000 of value that passes through the estate, excluding the value of any real estate. Currently, there is a cap on this fee in the amount of $6,000, which is reached when the value of the estate assets equals $1,500,000.

Additionally, all reporting made to the court about the administration of an estate is public record, meaning that anyone can access the information. The public nature of the process is why news organizations often are able to publish articles soon after a celebrity’s death detailing what assets the celebrity-owned and who received them. Such publicity causes concern for many people because they fear that their heirs will become targets for gold-diggers. This has further strengthened the trend away from court supervised estate administration.

Several techniques are available to avoid the court supervised estate administration process. These include:

Registering financial accounts as joint with rights of survivorship;
Adding beneficiary designations to life insurance or retirement accounts; and,
Adding pay-on-death or transfer-on-death designations on financial accounts.

However, because it is rarely possible to utilize those techniques to fully exempt a person’s assets from the court supervised estate administration process, the most commonly used avoidance device is the Revocable Living Trust.

The Revocable Living Trust

A Revocable Living Trust is essentially a substitute for a Will. To create a Revocable Living Trust, a person typically transfers the person’s assets to himself or herself as trustee and signs a written trust document that contains instructions as to what the trustee is to do with those assets while the person is alive as well as upon death. The trust document also identifies who should take over as successor trustee when the person is no longer able to serve due to death or incapacity.

During life, the person’s assets in the trust may be used in any way the person, as trustee, directs, and the person may change the instructions in the trust document in a similar manner as one can change a Will. If the person becomes incapacitated, the successor trustee is instructed to use the trust assets for the person’s care.

At death, the successor trustee wraps up the person’s affairs by utilizing the trust assets to satisfy all of the person’s liabilities and distributes the remaining assets to the beneficiaries identified in the trust document. No court supervises the process, so no court fees are incurred. Moreover, advisors’ fees related to preparing court filings are avoided. Also, the administration of the trust is a private matter with nothing becoming public record. This process often results in a much better outcome for the person’s beneficiaries as compared to having the assets pass through the court supervised estate administration process.

The Joint Trust

Typically, when a married couple utilizes a Revocable Living Trust-based estate plan, each spouse creates and funds his or her own separate Revocable Living Trust. This results in two trusts. However, in the right circumstances, a married couple may be better served by creating a single Joint Trust.

A Joint Trust tends to work best when a couple has the following characteristics:

The couple has a long, stable relationship;
Divorce is not a concern for either spouse;
The couple is willing to identify all assets as being owned one-half by each of them;
No creditors’ claims exist, whether current or contingent, for which the creditor could seek to collect from only one spouse and not the other;
Neither spouse has children from a prior relationship;
Each spouse is comfortable with the surviving spouse having full control over all of the assets after the death of one of the spouses; and,
The value of the couple’s assets is less than the federal estate tax exemption amount. For deaths occurring in 2022, this amount is $12.06 million (or $24.12 million per couple) reduced by any taxable gifts made during life.

A couple who meets these criteria could establish a Joint Trust by transferring their assets to themselves as co-trustees and signing a trust document to provide instructions as to what the co-trustees are to do with the assets. Typically, while both spouses are alive and competent, they retain full control over the trust assets and can change the trust document at any time. If one of the spouses becomes incapacitated, the other spouse continues to control the trust and can use the trust assets for the couple’s care.

After the death of one of the spouses, the Joint Trust will continue. The surviving spouse would continue serving as trustee and have full control over the trust assets. No transfers of assets are required at the first death because all assets are already in the Joint Trust.

Upon the death of the surviving spouse, the designated successor trustee wraps up the surviving spouse’s affairs by utilizing the Joint Trust assets to satisfy any liabilities and distributes the remaining assets as directed in the trust document.

The following are some of the benefits afforded by a Joint Trust:

Throughout this entire process, there is no court involvement. This minimizes costs and promotes privacy.
The couple no longer has to worry about whether a particular asset is owned by one of the spouses or by one of the spouses’ separate Revocable Living Trusts. All assets are simply owned by the Joint Trust.
Since only one trust is ever created, no transfers need to be made after the death of the first spouse to die. This simplification in the administration process minimizes advisors’ fees and other costs and is a key advantage of using a Joint Trust.

A Joint Trust can possibly yield even more benefits in certain situations. For instance, it may be possible to characterize some or all of the assets in a Joint Trust as community property. The benefit of having assets characterized as community property is that such property will receive a full basis adjustment for income tax purposes (commonly referred to as a “step-up” in basis) at the death of the first spouse to die as opposed to only one-half of the property receiving such a basis step-up.

Additionally, it may be possible to include asset protection features in the Joint Trust so that any real property owned by the trust would be afforded the same protection as real property owned by a married couple as tenants by the entireties. Such protection prevents a creditor of just one spouse from enforcing the liability against the real property owned by the couple. Though the details of these benefits are beyond the scope of this article, they demonstrate that a Joint Trust potentially can provide additional advantages beyond those listed above.

Conclusion

In the right circumstances, utilizing an estate plan that involves a Joint Trust can simplify a married couple’s affairs and, as a result, make the administration process easier after death and ultimately lower costs. Any couple interested in a Joint Trust should contact competent counsel to assist them in evaluating whether the technique is appropriate for them.

Article By Zachary F. Lamb of Ward and Smith, P.A.

For more family, estates and trusts legal news, click here to visit the National Law Review.

5 Questions You Should Be Asking About Succession Planning for Your Family Office

Succession planning for family offices is often a difficult process. It is emotional. It takes longer than it should. But succession planning that is deliberate, collaborative, and strategic can offer so much opportunity.

Katten recently hosted a conversation with Jane Flanagan, Director of Family Office Consulting at Northern Trust, who discussed a survey conducted with former family office CEOs to capture their experience with succession and succession planning. The results were illuminating, and the survey participants spoke loud and clear about two major points: 1.) they wished they had begun the process sooner, and 2.) they wished they’d known what questions to ask along the way.

We’ve pulled together a series of basic questions about succession planning to help you consider your own approach.

Why should I create a succession plan?

Like it or not, a succession will take place eventually. The last thing you or your family office want is the chaos, acrimony, and setbacks an unexpected succession can cause.

Putting a plan in place can give your current leadership peace of mind, ensure buy-in and collaboration throughout the family, and prepare potential internal successors or identify key attributes for external candidates.

When should I start?

Now! It’s never too early to begin planning, and there are some easy steps you can take right away to set you on the right path.

If you aren’t sure where to begin or what a planning process looks like, you’re in good company. According to Northern Trust’s recent survey, 64 percent of family office CEOs expect a succession event in the next three to five years.

What is included in a succession planning process?

The planning process will differ from family to family, but Northern Trust created a checklist to help you think through your own approach.

Taking on the entire process at once can be daunting. To build momentum (and buy-in), consider starting small by documenting the responsibilities of the current leadership.

Once you have a good sense of the current role’s responsibilities, think about the knowledge and relationships critical to the role’s success.

These should be top considerations throughout the succession planning process.

Where should I begin?

First, consider putting an emergency succession plan in place as soon as possible while you develop a long-term succession plan.

You want to give this process the time, attention, and consideration it deserves. An emergency plan will help immensely if an unexpected succession is needed, so focus first on getting that in place before you set out on a long-term planning process.

How do I find the right successor?

This is why the planning process is so important. These decisions can have a big impact, so you want to have a plan in place well before you need it.

Consider what works and what could be improved about the current role. Are there creative approaches or changes to consider? (Such as shifting to a CIO/CEO hybrid role, refocusing the role’s priorities, or even expanding into a multi-family office.)

Northern Trust’s survey participants were evenly split on their choices to hire an external successor or grow a successor from within. There are pros and cons to each approach, but so many of the factors to consider will be specific to your situation.

Article By Adam M. Damerow, Abby Feinman, and Saul E. Rudo of Katten

For more family law legal news, click here to visit the National Law Review.

Suing Attorneys In Texas For Participating in Fiduciary Breaches

It is not uncommon for an attorney to execute all or part of his or her client’s wishes, which may be in breach of a fiduciary duty owed by the client to a third party. The third party can certainly sue the client for breaching fiduciary duties. But can the third party also sue the attorney for participating in the client’s actions?

An officer or director of a company may set up a competing business and direct company business to the new competing business. If the officer or director uses an attorney to set up this business and the attorney knows that new business will be used to usurp opportunities, can the company sue the attorney for facilitating the creation of the new business? What if the attorney is an owner of the new company or works for the new company in a nonlegal position?

Certainly, Texas has legal theories that can hold a party liable for participating with a fiduciary in breaching duties owed by the fiduciary. There is a claim for knowing participation in a breach of fiduciary duty. See Kinzbach Tool Co. v. Corbett-Wallace Corp., 138 Tex. 565, 160 S.W.2d 509, 514 (1942); Paschal v. Great W. Drilling, Ltd., 215 S.W.3d 437, 450 (Tex. App.—Eastland 2006, pet. denied) (holding wife liable for knowing participation in employee’s embezzlement where funds were placed in joint account and wife benefitted from stolen funds). See also Westech Capital Corp. v. Salamone, 2019 U.S. Dist. LEXIS 143577, 2019 WL 4003093, at *1 (W.D. Tex. Aug. 23, 2019) (collecting cases that explain that “Texas appellate courts have routinely recognized the existence of a cause of action for knowing participation in the breach of fiduciary duty.”). The general elements for a knowing-participation claim are: 1) the existence of a fiduciary relationship; 2) the third party knew of the fiduciary relationship; and 3) the third party was aware it was participating in the breach of that fiduciary relationship. D’Onofrio v. Vacation Publ’ns, Inc., 888 F.3d 197, 216 (5th Cir. 2018); Meadows v. Harford Life Ins. Co., 492 F.3d 634, 639 (5th Cir. 2007). There is also a recognized civil conspiracy claim in Texas. The essential elements of a civil conspiracy are (1) two or more persons; (2) an object to be accomplished; (3) a meeting of the minds on the object or course of action; (4) one or more unlawful, overt acts; and (5) damages as the proximate result. Juhl v. Airington, 936 S.W.2d 640, 644 (Tex. 1996). Finally, there may be an aiding-and-abetting breach-of-fiduciary-duty claim. The Texas Supreme Court has stated that it has not expressly adopted a claim for aiding and abetting outside the context of a fraud claim. See First United Pentecostal Church of Beaumont v. Parker, 514 S.W.3d 214, 224 (Tex. 2017); Ernst & Young v. Pacific Mut. Life Ins. Co., 51 S.W.3d 573, 583 n. 7 (Tex. 2001); West Fork Advisors v. Sungard Consulting, 437 S.W.3d 917 (Tex. App.—Dallas 2014, no pet.). Notwithstanding, some Texas courts have found such an action to exist. See Hendricks v. Thornton, 973 S.W.2d 348 (Tex. App.—Beaumont 1998, pet. denied); Floyd v. Hefner, 556 F.Supp.2d 617 (S.D. Tex. 2008). One court identified the elements for aiding and abetting as the defendant must act with unlawful intent and give substantial assistance and encouragement to a wrongdoer in a tortious act. West Fork Advisors, 437 S.W.3d at 921. Some courts have held that here is no aiding and abetting breach of fiduciary duty claim. Hampton v. Equity Trust Co., No. 03-19-00401-CV, 2020 Tex. App. LEXIS 5674 (Tex. App.—Austin July 23, 2020, no pet.). See also Midwestern Cattle Mktg., L.L.C. v. Legend Bank, N.A., 2019 U.S. App. LEXIS 36966, 2019 WL 6834031, at *7 (5th Cir. Dec. 13, 2019); In re DePuy Orthopaedics, Inc., Pinnacle Hip Implant Prod. Liab. Litig., 888 F.3d 753, 782, 781 (5th Cir. 2018) For a discussion of these forms of joint liability for breach of fiduciary duty, please see E. Link Beck, Joint and Several Liability, STATE BAR OF TEXAS, 10TH ANNUAL FIDUCIARY LITIGATION COURSE (2015).

It is clear that at least under some theories, that third parties can be held liable for participating in fiduciary breaches with the party owing fiduciary duties. Can the third party be an attorney? Prior to Cantey Hanger, LLP v. Byrd, 467 S.W.3d 477 (Tex. 2015), it was unclear in Texas whether a party could assert a claim against an attorney not representing the party, such as for negligent misrepresentation or aiding and abetting fraud or breaches of fiduciary duty. Some courts allowed the claim if the attorney was committing or participating in fraud. Others did not.

The plaintiff in Cantey Hanger alleged that the attorneys who represented her husband in a divorce proceeding had committed fraud by falsifying a bill of sale to shift tax liabilities from the sale of an airplane from her husband to her. Id. at 479-80. The Texas Supreme Court held that attorney immunity barred the claim because “[e]ven conduct that is ‘wrongful in the context of the underlying suit’ is not actionable if it is ‘part of the discharge of the lawyer’s duties in representing his or her client.’” Id. at 481. The following are key excerpts from the opinion:

Texas common law is well settled that an attorney does not owe a professional duty of care to third parties who are damaged by the attorney’s negligent representation of a client. Barcelo v. Elliott, 923 S.W.2d 575, 577 (Tex. 1996); see also McCamish, Martin, Brown & Loeffler v. F.E. Appling Interests, 991 S.W.2d 787, 792 (Tex. 1999) (explaining that a lack of privity precludes attorneys’ liability to non-clients for legal malpractice). However, Texas courts have developed a more comprehensive affirmative defense protecting attorneys from liability to non-clients, stemming from the broad declaration over a century ago that “attorneys are authorized to practice their profession, to advise their clients and interpose any defense or supposed defense, without making themselves liable for damages.” Kruegel v. Murphy, 126 S.W. 343, 345 (Tex. Civ. App. 1910, writ ref’d). This attorney-immunity defense is intended to ensure “loyal, faithful, and aggressive representation by attorneys employed as advocates.” Mitchell v. Chapman, 10 S.W.3d 810, 812 (Tex. App.—Dallas 2000, pet. denied).

….

In accordance with this purpose, there is consensus among the courts of appeals that, as a general rule, attorneys are immune from civil liability to non-clients “for actions taken in connection with representing a client in litigation.” Alpert v. Crain, Caton & James, P.C., 178 S.W.3d 398, 405 (Tex. App.—Houston [1st Dist.] 2005, pet. denied); see also Toles v. Toles, 113 S.W.3d 899, 910 (Tex. App.—Dallas 2003, no pet.); Renfroe v. Jones & Assocs., 947 S.W.2d 285, 287-88 (Tex. App.—Fort Worth 1997, pet. denied). Even conduct that is “wrongful in the context of the underlying suit” is not actionable if it is “part of the discharge of the lawyer’s duties in representing his or her client.” Toles, 113 S.W.3d at 910-11;

….

Conversely, attorneys are not protected from liability to non-clients for their actions when they do not qualify as “the kind of conduct in which an attorney engages when discharging his duties to his client.” Dixon Fin. Servs., 2008 Tex. App. LEXIS 2064, 2008 WL 746548, at *9; see also Chapman Children’s Trust v. Porter & Hedges, L.L.P., 32 S.W.3d 429, 442 (Tex. App.—Houston [14th Dist.] 2000, pet. denied) (noting that “it is the kind of conduct that is controlling, and not whether that conduct is meritorious or sanctionable”).

Because the focus in evaluating attorney liability to a non-client is “on the kind—not the nature—of the attorney’s conduct,” a general fraud exception would significantly undercut the defense. Dixon Fin. Servs., 2008 Tex. App. LEXIS 2064, 2008 WL 746548, at *8. Merely labeling an attorney’s conduct “fraudulent” does not and should not remove it from the scope of client representation or render it “foreign to the duties of an attorney.” Alpert, 178 S.W.3d at 406 (citing Poole, 58 Tex. at 137); see also Dixon Fin. Servs., 2008 Tex. App. LEXIS 2064, 2008 WL 746548, at *9 (“Characterizing an attorney’s action in advancing his client’s rights as fraudulent does not change the rule that an attorney cannot be held liable for discharging his duties to his client.”).

….

Fraud is not an exception to attorney immunity; rather, the defense does not extend to fraudulent conduct that is outside the scope of an attorney’s legal representation of his client, just as it does not extend to other wrongful conduct outside the scope of representation. An attorney who pleads the affirmative defense of attorney immunity has the burden to prove that his alleged wrongful conduct, regardless of whether it is labeled fraudulent, is part of the discharge of his duties to his client.

Id. at 481-484.

Based on the holding in Cantey Hanger, if an attorney is performing duties that a lawyer would typically perform, the attorney immunity defense would apply. This defense would likewise apply to aiding and abetting fraud and breaches of fiduciary duty. See Kastner v. Jenkens & Gilchrist, P.C., 231 S.W.3d 571, 577-78 (Tex. App.—Dallas 2007); Span Enters. v. Wood, 274 S.W.3d 854, 859 (Tex. App.—Houston [1st Dist.] 2008).

In Bethel v. Quilling, Selander, Lownds, Winslett & Moser, P.C., the Court extended the Cantey Hanger holding to allegations of criminal conduct. 595 S.W.3d 651, 657-58 (Tex. 2020). There, the plaintiff had urged the Court “to recognize an exception” to attorney immunity “whe[n] a third party alleges that an attorney engaged in criminal conduct during the course of litigation.” Id. The Court rejected the invitation to adopt an exception or state a categorical rule because doing so would allow plaintiffs to avoid the attorney-immunity defense through artful pleading—”by merely alleging that an attorney’s conduct was ‘criminal.’” Id. The Court eschewed a categorical exception for criminal conduct because such an exception would defeat the purposes of the attorney-immunity defense. Instead, the Court held that conduct alleged to be criminal in nature “is not categorically excepted from the protections of attorney civil immunity when the conduct alleged is connected with representing a client in litigation.” Id. As we explained there, a lawyer who is doing his or her job is not more susceptible to civil liability just because a nonclient asserts that the lawyer’s actions are fraudulent, wrongful, or even criminal. Id.

In 2021, the Texas Supreme Court further clarified the holding in Cantey Hanger to state that “When an attorney personally participates ‘in a fraudulent business scheme with his client,’ as opposed to on his client’s behalf, the attorney ‘will not be heard to deny his liability’ because ‘such acts are entirely foreign to the duties of an attorney.’” Haynes & Boone, LLP v. NFTD, LLC, 631 S.W.3d 65, 77 (Tex. 2021) (quoting Poole v. Hous. & T.C. Ry. Co., 58 Tex. 134, 137 (1882)). The Court in Haynes & Boone, LLP, also expanded the Cantey Hanger holding to extend to transactional work that the attorney performs, in addition to litigation work covered in the Cantey Hanger opinion:

Today we confirm that attorney immunity applies to claims based on conduct outside the litigation context, so long as the conduct is the “kind” of conduct we have described above. We reach this conclusion because we see no meaningful distinction between the litigation context and the non-litigation context when it comes to the reasons we have recognized attorney immunity in the first place. We have recognized attorney immunity because attorneys are duty-bound to competently, diligently, and zealously represent their clients’ interests while avoiding any conflicting obligations or duties to themselves or others.

Id. at 79.

Most recently, in Taylor v. Tolbert, the Court reviewed whether there was an exception to immunity for private-party civil suits asserting that a lawyer has engaged in conduct criminalized by statute. No. 20-0727, 2022 Tex. LEXIS 385 (Tex. May 6, 2022). The court discussed the immunity defense as follows:

The common-law attorney-immunity defense applies to lawyerly work in “all adversarial contexts in which an attorney has a duty to zealously and loyally represent a client” but only when the claim against the attorney is based on “the kind of conduct” attorneys undertake while discharging their professional duties to a client. Stated inversely, if an attorney engages in conduct that is not “lawyerly work” or is “entirely foreign to the duties of a lawyer” or falls outside the scope of client representation, the attorney-immunity defense is inapplicable.

In determining whether conduct is “the kind” immunity protects, the inquiry focuses on the type of conduct at issue rather than the alleged wrongfulness of that conduct. But when the defense applies, counsel is shielded only from liability in a civil suit, not from “other mechanisms” that exist “to discourage and remedy” bad-faith or wrongful conduct, including sanctions, professional discipline, or criminal penalties, as appropriate.

Conduct is not the kind of conduct attorney immunity protects “simply because attorneys often engage in that activity” or because an attorney performed the activity on a client’s behalf. Rather, the conduct must involve “the uniquely lawyerly capacity” and the attorney’s skills as an attorney. For example, a lawyer who makes publicity statements to the press and on social media on a client’s behalf does “not partake of ‘the office, professional training, skill, and authority of an attorney’” because “[a]nyone—including press agents, spokespersons, or someone with no particular training or authority at all—can publicize a client’s allegations to the media.” Immunity attaches only if the attorney is discharging “lawyerly” duties to his or her client.

A corollary to this principle is that attorneys will not be entitled to civil immunity for conduct that is “entirely foreign to the duties of an attorney.” “Foreign to the duties” does not mean something a good attorney should not do; it means that the attorney is acting outside his or her capacity and function as an attorney. For that reason, whether counsel may claim the privilege turns on the task that was being performed, not whether the challenged conduct was meritorious.

This is so because the interests of clients demand that lawyers “competently, diligently, and zealously represent their clients’ interests while avoiding any conflicting obligations or duties to themselves or others.” To prevent chilling an attorney’s faithful discharge of this duty, lawyers must be able to pursue legal rights they deem necessary and proper for their clients without the menace of civil liability looming over them and influencing their actions. Attorney immunity furthers “loyal, faithful, and aggressive representation” by “essentially . . . removing the fear of personal liability,” thus “alleviating in the mind of [an] attorney any fear that he or she may be sued by or held liable to a non-client for providing . . . zealous representation.” In this way, the defense protects not only attorneys but also their clients, who can be assured that counsel is representing the client’s best interests, not the lawyer’s.

Id. The Court acknowledged that “there is a wide range of criminal conduct that is not within the ‘scope of client representation’ and [is] therefore ‘foreign to the duties of an attorney,’” and that “when that is the case, the circumstances do not give rise to an ‘exception’ to the immunity defense; rather, such conduct simply fails to satisfy the requirements for invoking the defense in the first instance.” Id. “[O]ur approach to applying the attorney-immunity defense remains functional, not qualitative, and leaves an attorney’s improper conduct addressable by public remedies.” Id.

The Court then held that the common-law defense of attorney immunity would still apply to state statutes (unless the statute specifically abrogated that defense). Id. The Court stated:

That does not mean that all conduct criminalized by the wiretap statute is immunized from civil liability or free of consequences. As we explained in Bethel, while criminal conduct is not categorically excepted from the attorney-immunity defense, neither is it categorically immunized by that defense. Criminal conduct may fall outside the scope of attorney immunity, and even when it does not, “nothing in our attorney-immunity jurisprudence affects an attorney’s potential criminal liability if the conduct constitutes a criminal offense.”

Id. However, regarding federal statutes, the Court concluded “that attorney immunity, as recognized and defined under Texas law, is not a defense under the federal wiretap statute because, quite simply, a state’s common-law defense does not apply to federal statutes.” Id.

In light of the foregoing authorities, it appears claims against attorneys merely doing work for a client (whether fraudulent, tortious, or even criminal) would be covered by attorney immunity and bar any participation in breach of fiduciary duty claim. However, if the misconduct relates to the attorney personally benefitting from the transaction, or having been a party to the transaction (as opposed to merely the attorney for a party), such an immunity would not apply. See, e.g., Olmos v. Giles, No. 3:22-CV-0077-D, 2022 U.S. Dist. LEXIS 77134 (N.D. Tex. April 28, 2022) (refused to dismiss breach of fiduciary duty claim and misrepresentation claim against attorneys where it was unclear whether the defendant attorneys were a part of the transaction).

Another issue that should be discussed is the impact on the attorney client privilege when an attorney participates in fraud or criminal activities. The attorney-client privilege cannot be enforced when “the services of the lawyer were sought or obtained to enable or aid anyone to commit what the client knew or reasonably should have known to be a crime or fraud.” Tex. R. Evid. 503 (d)(1). As one court describes:

The exception applies only when (1) a prima facie case is made of contemplated fraud, and (2) there is a relationship between the document at issue and the prima facie proof offered. A prima facie showing is sufficient if it sets forth evidence that, if believed by a trier of fact, would establish the elements of a fraud or crime that “was ongoing or about to be committed when the document was prepared.” A court may look to the document itself to determine whether a prima facie case has been established.…

We begin our analysis by examining the scope of the fraud portion of the crime/fraud exception. The Texas Rules of Evidence do not define what is intended in Rule 503(d)(1) by the phrase “to commit . . . [a] fraud.” Black’s Law Dictionary defines fraud as: “A knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment.” The Texas common law tort of fraud also requires proof of misrepresentation, concealment, or non-disclosure. The legal concept of fraud therefore has at its core a misrepresentation or concealment. This definition also dovetails with the apparent reasoning behind inclusion of fraud in the exception: by keeping client communications confidential–pursuant to the attorney-client privilege –the attorney whose client intends to make a misrepresentation or concealment helps prevent the injured party from learning the truth about the misrepresentation or concealment. Thus, in that situation, the attorney’s silence affirmatively aids the client in committing the tort. This is not generally true of other torts (not based on misrepresentation or concealment) and explains why the exception is not the crime/tort exception.

In re Gen. Agents Ins. Co. of Am., Inc., 224 S.W.3d 806, 819 (Tex. App.—Houston [14th Dist.] 2007, orig. proceeding). Moreover, the Texas Court of Criminal Appeals has held that this exception includes the work-product in the proper circumstances. Woodruff v. State, 330 S.W.3d 709, 2010 Tex. App. LEXIS 9569 (Tex. App. Texarkana Dec. 3, 2010), pet. ref’d No. PD-1807-10, 2011 Tex. Crim. App. LEXIS 749 (Tex. Crim. App. May 25, 2011), pet. ref’d No. PD-1807-10, 2011 Tex. Crim. App. LEXIS 770 (Tex. Crim. App. June 1, 2011), cert. denied, 565 U.S. 977, 132 S. Ct. 502, 181 L. Ed. 2d 347, 2011 U.S. LEXIS 7788 (U.S. 2011).

So, though an attorney may be immune from civil liability, the crime/fraud exception may open up attorney/client communications to the light of day. Regarding crimes involving breaches of fiduciary duty, in addition to theft crimes, the Texas Legislature has created the following crimes: (1) Financial Abuse of Elderly Individual in Texas Penal Code Section 32.55; 2) Financial Exploitation of Vulnerable Individuals in Texas Penal Code Section 32.53; (3) Misapplication of Fiduciary Property in Texas Penal Code Section 32.45; and (4) Failure to Report of the Exploitation of the Elderly or Disabled Individuals in the Texas Human Resources Code Section 48.051.

Article By David Fowler Johnson of Winstead

For more litigation and trial practice news, click here to visit the National Law Review.

Court Reversed Order Appointing Temporary Administrator Due To A Lack Of A Bond

In In re Robinett, a party filed a petition for writ of mandamus, challenging a trial court’s order appointing a temporary administrator. No. 03-21-00649-CV, 2022 Tex. App. LEXIS 926 (Tex. App.—Austin February 9, 2022, original proc.). The petitioner complained that the trial court failed to hold an evidentiary hearing and also appointed a temporary administrator without a bond. Regarding the hearing complaint, the court of appeals disagreed:

Under Section 55.001 of the Texas Estates Code, “[a] person interested in an estate may, at any time before the court decides an issue in a proceeding, file written opposition regarding the issue.” Relators are correct that such interested persons are entitled “to process for witness and evidence, and to be heard on the opposition.” Id. But, based on the record before us, they did not file any “written opposition” to the appointment until they filed their motion to reconsider three days after the appointment had already been decided. The trial court therefore did not abuse its discretion by appointing the temporary administrator without first conducting a hearing pursuant to Section 55.001 because there was no requirement for the trial court to hold a hearing under that statute.

Id. The court, however, agreed that the trial court abused its discretion by appointing the temporary administrator without bond:

The Estates Code expressly requires that the order appointing a temporary administrator “set the amount of bond to be given by the appointee.” Moreover, the Estates Code requires that a party must enter into a bond unless they meet one of a limited number of exceptions: (1) a will directs that no bond be required; (2) all the relevant parties consent to not requiring bond; or (3) the appointee is a corporate fiduciary. And other statutory provisions require a hearing and evidence before “setting the amount of a bond.” Based on the record before us, there is no evidence that the temporary administrator met any of the exceptions to the bonding requirement, nor is there any indication that the trial court undertook any evidentiary hearing regarding the bond amount. Accordingly, the trial court abused its discretion by failing to follow the statutory requirements for setting bonds as part of a temporary administrator appointment.

Id.

Article By David Fowler Johnson with Winstead.

For more articles about civil procedures in litigation, visit the NLR Civil Procedure section.

Counsel Fee Award When Contesting A Will

In general, the party tasked with defending a decedent’s Will during a Will contest, which is typically the executor, is entitled to the reimbursement of counsel fees that they incur in defending the Will on behalf of the Estate. At times, however, a party who has filed an action to contest a Last Will and Testament may also be entitled to an award of counsel fees provided there was a reasonable and legitimate basis to contest the decedent’s Last Will and Testament. In a recent appellate division case, the court affirmed an award of counsel fees to the contestant of a decedent’s Will for these very reasons.

In this matter, the defendant executor had been awarded counsel fees by the court, as the defendant was responsible for defending the decedent’s Last Will and Testament against the challenges levied by the plaintiff. In addition, the trial court also awarded counsel fees to the plaintiff, as it found that plaintiff’s challenge to the decedent’s Will was made in good faith and was reasonable. Moreover, the court found that plaintiff’s fees for which it sought reimbursement were fair and reasonable. In response, the defendant argued that the award of counsel fees was contrary to the applicable New Jersey court rules, and therefore, objected to the award. The appellate division reviewed the applicable rule of professional conduct, RPC 1.5(a), and concluded that the plaintiff had reasonable cause to contest the validity of the decedent’s Will, and moreover, that the fees the plaintiff sought were reasonable. As such, the appellate division concluded that the trial court correctly awarded counsel fees to the contestant of the decedent’s Will.

This appellate division decision reaffirmed a well-accepted standard as to an award of counsel fees in the context of probate litigation. When you are either taxed with defending a Last Will and Testament or intending to contest a Last Will and Testament, this factor should be considered when deciding whether settlement makes sense. Since there is no guarantee to either side that the counsel fees will be awarded, it is an issue that should be considered in the context of any settlement discussions before trial.

Article by Paul W. Norris with Stark & Stark.

For more articles on estates and trusts, visit the NLR Family, Estates & Trusts section.

A Simple Solution for Your Stuff: The Use of a Separate Writing for the Disposition of Tangible Personal Property

If you have a Will (and you should!), part of your Will gives away your tangible personal property, your stuff, as George Carlin would call it. Tangible personal property is all your household goods, furniture, furnishings, clothing, boats, automobiles, books, art, jewelry, club memberships and articles of personal adornment or household use. It is anything that is not real property, like your house, and not intangible property, like stocks or bank accounts. It is your grandmother’s silver tea service, your favorite set of golf clubs, and all that other stuff you love, and which may become the stuff of heated family discussions after you are gone. Who gets it? You can and should decide now. After all, it’s your stuff.

In your Will, you can give all your tangible personal property to one person or another, or you can give particular items to particular people. The problem is that if you change your mind about an item or a person after you sign your Will, you have to either completely re-do your Will or prepare a special amendment to your Will called a “codicil.” Both alternatives require not only the input of an attorney but also the presence of two witnesses and a notary public.

Fortunately, several states, such as Florida and South Carolina, offer a simple solution for your stuff. According to Florida Statute 732.515 and South Carolina Probate Code Section 62-2-512, you may dispose of any item of tangible personal property by a memo prepared by you, separate from your Will. The memo can be done without witnesses or notarization. And you can change it as often as you like, without changing your Will.

For the memo to be valid, your Will must refer to it and may provide that the most recent version of the memo supersedes any prior version. The memo must describe each item and the identity of its recipient with reasonable certainty and you must sign and date the memo or, alternatively, in SC, the memo must be in your handwriting. If you revise the memo or prepare a new one, it is important to sign and date it (or, in SC, make sure the revised memo is in your handwriting).

There are limitations on the types of tangible personal property you can list in the memo. It cannot be used to dispose of property used in your trade or business, cash money or books, paper, or documents whose chief value is evidence of intangible property rights, such as bank books, stock certificates, promissory notes, insurance policies, and items like that. In Florida, the memo should also not be used to give away a coin collection, because the law governing that is not yet settled.

Finally, you should treat the memo as though it is your Will. It should be kept with your Will because the assets listed in the memo will be administered as though actually set forth in your Will. If your Will is in your attorney’s vault, send the original memo to your attorney for safekeeping in the attorney’s vault and keep a copy of the memo with the copy of your Will.

For those who have a revocable trust, there is currently no statute in Florida or South Carolina concerning separate writings for tangible personal property applicable to revocable trusts. So, a reference to a memo in your trust may not work. A better move is to have such a reference in your Will.

The disposition of tangible personal property is often an afterthought. It shouldn’t be. A close, loving family can be torn apart by arguments over family heirlooms, even those of little monetary value. Talk to your loved ones now about which items of yours they want, and then prepare a separate writing for the disposition of your tangible personal property. Do a memo for your stuff.

Article By Cynthia Bock and Maurice D. Holloway of Nelson Mullins

Does It Matter if a Trust Is Revocable or Irrevocable? Yes, It Matters a Lot!

A recent decision issued by the Supreme Court of Alabama highlights the importance, for both creators and beneficiaries of trusts, of understanding whether a trust is Revocable or Irrevocable, and the consequences that flow from that distinction.

Revocable and Irrevocable Trusts

Any trust has three players: a Settlor, a Trustee, and a Beneficiary. The Settlor creates (or “settles”) the trust, and the Trustee manages the trust assets based on written instructions from the Settlor (typically in the form of a Trust Agreement) for the benefit of a Beneficiary. A trust can be created during the Settlor’s lifetime (a “Living Trust”), in which case the trust can be either revocable or irrevocable, or upon the Settlor’s death, usually under the provisions of a Will (a “Testamentary Trust”) which, because the Settlor is deceased, is always irrevocable.

An Irrevocable Trust generally cannot be revoked or modified, exactly as the name implies. However, in some states (including New Jersey and Alabama), either the Trustee or a Beneficiary (not the Settlor) of an Irrevocable Trust may bring an action in court to modify or terminate the trust, or an Irrevocable Trust can be modified or terminated upon consent of the Trustee and all Beneficiaries if the modification or termination is not inconsistent with a material purpose of the trust.

The Alabama Case

The Alabama case referenced above involved a Husband and Wife who in 2012 engaged in a common estate planning technique known as non-reciprocal SLATs, or Spousal Lifetime Access Trusts. Essentially, the Husband created a trust for the benefit of the Wife during her lifetime, and upon her death, the trust assets would pass to their three children; and the Wife created a trust for the benefit of the Husband during his lifetime, and upon his death, the trust assets would pass to the children.

The trusts were designed to utilize the couple’s Federal Estate Tax Exemptions before those Exemptions were to be substantially reduced beginning in 2013 (which, as it turns out, did not happen), while retaining access to the underlying trust assets through their interests as beneficiaries. However, the Wife died in 2017. Accordingly, the assets of the trust that the Husband created for her passed to the children, thereby ending his access to the assets of that trust.

The Husband brought an action in court to have the trust rescinded (in other words, revoked) and the assets returned to him, claiming that he did not understand that the trust assets would pass to his children if his Wife predeceased him. The court, relying on the testimony of his attorney, who stated that the trust worked exactly as designed and explained to his clients, held in favor of the children.

It Matters a Lot

The takeaway for Settlors of an Irrevocable Trust is that irrevocable means irrevocable; they cannot get back whatever money or property they transfer to the trust. The lesson for beneficiaries of those trusts is the same: if the Settlor has a change of heart after the trust is formed and funded, irrevocable means irrevocable.

This article was written by James J. Costello Jr.

For more articles regarding estate and trust law, please visit our Family, Estates and Trusts page.

Larry King Will Contest — Key Takeaways

The press has made much of the handwritten will that Larry King executed in the months before he died and in which he purports to change his prior will executed in 2015 to leave his estate equally between his children. The facts pertaining to the King estate dispute are explained in more detail in this article from the Los Angeles Times.

The family dispute over the King estate highlights issues that sometimes arise when an elderly Testator/Testatrix makes changes late in life after becoming weakened physically and perhaps mentally as a result of age and disease. Here are four key takeaways:

The handwritten will is likely to be probated. King’s handwritten will was witnessed by two witnesses and therefore, potentially satisfies the requirements of section 6110 of the California Probate Code. California was likely King’s state of domicile at the time of his death. However, even if King’s will does not satisfy the requirements of section 6110, it appears to satisfy the requirements of section 6111 of the California Probate Code for a holographic will. Although the requirements vary from state to state, a holographic will is generally a will in the testator’s handwriting that may or may not be witnessed. Holographic wills are permitted and can be admitted to probate in 26 states including California. Some states will allow a holographic will to be admitted to probate if the will was executed in another state and was valid in such other state. Even other states will only accept holographic wills when made by members of the armed forces under certain circumstances.
The dispute over King’s will is just the tip of the iceberg. The bulk of King’s assets were titled in the name(s) of his revocable trust(s) and will be conveyed through those trust(s), which he apparently did not seek to revoke or amend in his own hand (or otherwise) before he passed away. In fact, according to news reports, the probate estate to be conveyed according to the terms of the will is only $2 million, as compared to his nonprobate estate (i.e., the revocable trust(s) and other assets passing outside of probate) estimated by TMZ to be worth $144 million (other reports indicate his net worth was $50 million). One of the advantages of passing assets by trust, rather than by will, is that the administration is not subject to the probate process. This helps to prevent the trust agreement from becoming a matter of public record and having to file an inventory of its assets with the court which is not the case with a will. This element of privacy offered by trusts can be a big deal for wealthy individuals, particularly celebrities like King. Also, note that keeping the makeup of the assets private only works if title to the assets are transferred from the testator to the trust during the testator’s lifetime. It appears in King’s case that $2m of his assets did not make into trust.
Any pre- and/or post-nuptial agreements will be important in how King’s estate will be distributed ultimately. News reports indicate that King did not have a prenuptial agreement with Shawn Southwick King (“Southwick”), who was his 7th wife in 8 marriages. Although the couple was married for 22 years, they separated in 2019 and King had filed for divorce. They had not yet reached a financial settlement. Because California is a community property state, Southwick will likely have a claim to 50% of the assets the couple acquired during their lengthy marriage, regardless of any changes King made to his will. It is unclear whether the parties executed one or more post-nuptial agreements. King and Southwick reportedly were separated in 2010 after tabloids reported King had a relationship with Southwick’s sister. Reports indicate the couple then executed a post-nuptial agreement declaring all of King’s $144 million in assets (even those acquired before his marriage to Southwick) to be community property. Southwick reportedly filed for divorce in 2010, and King sought to have the post-nup nullified. The couple subsequently reconciled for a time and King reportedly updated his estate plan in 2015. It seems likely his 2015 estate plan would have addressed the status of the marital assets.
Setting aside the will on the basis of undue influence will be challenging. Southwick is alleging that King was unduly influenced by his son, Larry King, Jr., who is 59 years old and a resident of Florida. Larry, Jr. is King’s oldest child, but apparently the two did not have a relationship for most of Larry, Jr.’s life. Nonetheless, King reportedly transferred over $250,000 to Larry, Jr. in the final years of his life, and Southwick is seeking to set aside those transfers, in part, on the basis of undue influence. Southwick claims that when King executed his will in October 2019, King was “highly susceptible” to outside influences and had “questionable mental capacity” due to various physical health issues. Under California law, undue influence is defined as “excessive persuasion that causes another person to act or refrain from acting by overcoming that person’s free will and results in inequity.” Typically, proving that a Testator’s “free will” was overcome is a difficult task. Southwick will be particularly challenged by the length of time that transpired between King’s execution of his will and his death.

The King will contest is likely to continue for some time, with the next hearing scheduled to take place later this month. Whether the probate court dispute will be expanded to other litigation between Southwick and Larry, Jr. remains to be seen.

See Robert Brunson’s three-part interview with psychiatrist Linda Austin for more insights into mental health and undue influence

ARTICLE BY Robert H. Brunson and Maurice D. Holloway of Nelson Mullins

For more articles on estate law, visit the NLR Estates & Trusts section.

2021 Biden Plan Estate Planning Advisory

After President-Elect Joe Biden’s Electoral College victory over President Donald Trump, the nation’s eyes were largely focused on the two US Senate run-off elections in Georgia, which determined the makeup of the US Senate for the coming years and, with that, affected the likelihood of the enactment of President-Elect Biden’s tax agenda and other initiatives. Now that Democrat candidates Jon Ossoff and Raphael Warnock have won their respective elections, the Senate is divided 50-50, with any potential tie-breaking vote resting in the hands of Vice President-Elect Kamala Harris. As a result of these elections, many are left wondering how President-Elect Biden procedurally will go about enacting his various tax proposals and intentions (collectively, the “Biden Plan”), the likelihood of the enactment of the Biden Plan, whether the effective date of the Biden Plan could be made retroactive to January 1, 2021, and, if so, what can be done about this in the planning process. While the Biden Plan is comprehensive and contains proposals for individual income tax, taxes related to real property, and corporate tax reform (including increasing the top individual income tax rates, limiting deductions and taxing capital gains as ordinary income), this advisory is limited to the potential estate, gift and generation-skipping transfer (GST) tax reforms that President-Elect Biden has discussed.

Overview of President-Elect Joe Biden’s Estate, Gift and Generation-Skipping Transfer Tax Plan

President-Elect Biden has expressed an intention to decrease an individual’s federal estate tax exemption amount either to $5 million per individual (and $10 million for a married couple), perhaps indexed for inflation and perhaps not, or to the pre-Tax Cuts and Jobs Act amount of $3.5 million per individual (and $7 million for a married couple). This decrease in lifetime exemption could be coupled with an increased top tax rate of 45 percent. Additionally, although Biden does not support a “wealth tax,” and there has been no discussion of including a “wealth tax” in the Biden Plan, the Biden Plan might repeal stepped-up basis on death and, moreover, might tax unrealized capital gains at death at the proposed increased capital gains tax rates. While anything is possible, it should be noted that although transfer tax rates have gone up and down, transfer tax exemption amounts have never decreased before and prior attempts to repeal stepped-up basis on death have not been successful.

Likelihood of Enactment of the Biden Plan

Congressional Procedures

With the Democrats capturing Georgia’s two seats in the US Senate in run-off elections, they will control both chambers of Congress, including their tax-writing committees. While this should give President-Elect Biden an easier path to pass much of his tax agenda, there are certain additional Congressional procedures that need to be considered before that happens.

In the Senate, subject to limited exceptions, it typically takes 60 votes to avoid a filibuster (which otherwise could delay or block legislative action). Although Democrats “control” the Senate, they hold only 50 seats. Barring filibuster repeal (which would be an unexpected change to the long-standing Senate rules), the support of at least some Republican Senators will be needed to achieve the 60 votes required to avoid a filibuster and allow tax reform legislation to proceed. That being said, there is also a process referred to as “budget reconciliation” by which some types of legistation (including certain tax measures) can be moved forward in the Senate with a simple majority vote.

The purpose of budget reconciliation is to provide a process by which Congress, once it has adopted a fiscal budget, can change existing spending and revenue laws to bring their application into conformity with the adopted budget. In other words, Congress must reconcile existing laws with the newly adopted budget. The Congressional Budget and Impoundment Control Act of 1974 provides for an expedited procedure in both the House and the Senate that limits debate to 20 hours, foreclosing the possibility of filibuster. Budget reconciliation cannot be used for all types of legislation. In President-Elect Biden’s favor, however, the budget reconciliation process has been used since the late 1990s to enact revenue reducing legislation (i.e., tax decreases) and historically has been employed to achieve revenue increasing legislation (i.e., tax increases). While President-Elect Biden campaigned on his ability to work with lawmakers from across the aisle, it is likely that budget reconciliation may be attempted to advance his tax-based legislative policies, but it will succeed only if the entire Democratic caucus votes in favor of the proposed bill (which is by no means guaranteed).

Retroactivity

Assuming that some version of the Biden Plan is passed into law, one needs to consider its effective date. Typically, tax legislation is prospective, and might not be effective until January 1, 2022 or later (depending upon how long the enactment process takes). Sometimes, however, tax legislation is retroactive, in which case it would either be effective as of its date of introduction (which would in all events be sometime after the inauguration) or possibly even effective as of January 1, 2021.

Although many high-net-worth individuals are contemplating additional planning in 2021 to use more or all of their remaining estate, gift and GST tax exemptions before a potential reduction in those exemption amounts (currently $11.7 million under each tax regime), one reason to proceed with some amount of caution is the possibility that any changes to these tax regimes may be retroactive to January 1, 2021. In other words, a retroactive reduction in exemption amounts to, for example $5 million, could cause otherwise gift-tax free transfers retroactively to be subject to a large amount of gift tax. There is some precedent in previous court cases that suggests such a retroactive law lowering exemption amounts would be legal and constitutional, but it should be noted that this precise issue previously has not been litigated and its outcome would be uncertain. Still, much case law points to the fact that a retroactive change would be appropriate except in a situation where the taxpayer had no reason to think that the tax treatment would later change. Given the amount this topic has been discussed, such an argument that the taxpayer could not have foreseen the change may not be persuasive.

Accordingly, while the law appears to suggest that a change to the estate and gift tax regime may be applied retroactively to January 1, 2021 (if such legislative act is enacted within a reasonable time, such as calendar year 2021), there are, on the other hand, legitimate arguments that suggest a retroactive decrease in exemption amounts unfairly would prevent taxpayers from the opportunity to plan their affairs — and penalize those who attempt to undertake such planning — and so such retroactive treatment could be disallowed. Regardless of whether such a retroactive change in exemption amounts would be constitutional, it also is important to consider whether Congress would even attempt to make a new law retroactive. Although we are still evaluating the current political landscape, which inherently is an ongoing matter, our general view is that the political forces at play likely would not be supportive of a retroactive law given the Democratic control of the Senate by the slimmest of margins (in other words, there is not likely to be strong support for a retroactive law, but it is impossible to foresee how legislative negotiations will play out). Therefore, although it is possible that a retroactive change to the gift and estate tax regime can be legitimate, because the law is not entirely clear on this issue and political pressure suggests it is not a high priority, at present, it seems questionable that any change in exemption amounts would be applied retroactively. More likely, any change in law that is passed in 2021 would be effective on a forthcoming date, such as January 1, 2022. That said, due to the uncertainty of what laws might change and when they would take effect, we recommend all individuals contemplating additional 2021 estate and gift planning to contact an experienced estate planning professional to navigate the various issues, and to take action sooner rather than later to get a planning strategy in place.

Counteracting Buyer’s Remorse

If reductions to the gift, estate and GST exemption amounts are made retroactive to January 1, 2021, is there anything that can be done for individuals who made gifts in 2021 prior to the enactment of these changes in law? Individuals contemplating such gifts should speak with an experienced estate planning professional to discuss certain techniques that can be considered to unwind estate planning in order to avoid an unintended gift or GST tax. For example, the individual could consider disclaimer planning, including allowing one beneficiary of a trust to disclaim on behalf of all trust beneficiaries. This should provide the designated beneficiary with nine (9) additional months to disclaim the gift and, if the designated beneficiary does so, the result should be that the gifted assets are returned to the donor without using any of the donor’s gift and/or GST exemption.

Individuals could also consider planning with qualified terminable interest property (QTIP) elections. A married person could make a gift to a trust for the benefit of a US citizen spouse that would qualify for the marital deduction if a QTIP election is made or, if no election is made, would instead pass to a non-qualifying trust for the spouse that would use up the donor spouse’s lifetime exemption. This provides the donor spouse with flexibility either to make the QTIP election or not in the following calendar year when the related gift tax return is due, depending on whether any reduction of the gift and/or GST exemption amount is made retroactive to January 1, 2021.

Finally, an individual could consider making gifts utilizing a formula transfer clause. The donor would make a gift of a fractional interest of an asset where the numerator is the donor’s available exemption on the date of the gift and the denominator is the fair market value of the gifted assets, as finally determined for federal gift tax purposes. If the exemption amount on the date of the gift is retroactively reduced, the formula should “self-correct” so that the donor only gives away an amount equal to the donor’s available exemption on that date.

Takeaway Observations

As the last four years in general, and the last four weeks in particular, graphically have demonstrated, anything is possible. But panicked responses or knee-jerk reactions to what might happen never make sense. It is, of course, likely that taxes will go up. But in trying to assess the likelihood of dramatic or radical changes to existing tax laws, and the timing of any such changes, in order to make reasoned decisions, it may be helpful to keep the following in mind:

Joe Biden is a moderate Democrat.
The Biden Plan is a proposal that Biden campaigned on in order to garner as many votes as possible from voters ranging from moderate to liberal. It does not mean, once he is inaugurated, that he will necessarily propose every aspect of the Biden Plan.
Biden has a lifelong track record of forging compromises across both sides of the aisle.
Even in the absence of compromise, it is not clear that 100 percent of the Democrats in the Senate would support extreme or retroactive tax changes (there are a few “conservative” Democrats that may vote against it).
While everyone should be vigilant and prepared, there likely will be time to assess any proposed legislation and consider your options.
Countries in the rest of the world have been imposing wealth taxes, making expatriation more penal and requiring public registers of beneficial ownership. All of those items are absent from the Biden Plan.
As important as trying to anticipate change is, no one can predict the future. At least as important, if not more so, will be promptly and thoroughly reviewing your estate plans once change is enacted to make certain the plans still function as intended, in order to forestall dashed expectations and/or intra-family litigation.

Neil Carbone, Mackenzie Collins, Nancy Collins and Alexandra Copell contributed to this article.

ARTICLE BY David M. Allen, Mal L. Barasch,

Diane B. Burks, Lawrence B. Buttenwieser,

Jonathan C. Byer, and Michelle R. Canerday of

Katten

For more, visit the NLR Estates & Trusts section.

Court Affirmed Finding That Testator Had Capacity To Execute A Will, Was Not Unduly Influenced, And That The Appointment of Co-Executors Was Appropriate

In In the Estate of Flarity, a son of the testator challenged the trial court’s probating of a 2004 will and the appointment of two of his siblings, named in that will, as executors. No. 09-19-00089-CV, 2020 Tex. App. LEXIS 7536 (Tex. App.—Beaumont September 17, 2020, no pet. history). The contestant alleged that the testator did not have mental competence. The court of appeals disagreed. The court first addressed the standard for mental competency challenges:

In reviewing evidence addressing a testator’s capacity, we focus on the condition of the testator’s mind on the day the testator executed the will. Under Texas law, whether a testator has the testamentary capacity hinges on the condition of the testator’s mind the day the testator executed her will. Thus, the proponents of the will must prove that, when the testator signed the will, she could understand: the business in which she was engaged, the nature and extent of her property, the persons to whom she meant to devise and bequeath her property, the persons dependent on her bounty, the mode of distribution that she elected to choose among her beneficiaries, a sufficient memory so she could collect the elements of the business she wanted to transact and hold it in mind long enough to allow her to perceive the relationship between property and how she wanted to dispose of it, all so she could form reasonable judgments about doing those things.

Id. Applying those legal principals, the court held that the evidence was sufficient to support the trial court’s finding that the testator had capacity. There was testimony from the two children that were executors that the testator knew what she was doing. The contestant relied on his own testimony that the testator suffered from recurring depression many times in her life, including 2004. The court held:

But there is no expert testimony showing Paula was clinically depressed. There are not medical records in evidence that support Joe’s claim. While Joe argues Paula was not being treated for her condition in 2004, he never established that she was suffering from depression that year, as the parties never developed evidence about whether Paula was or was not seeing doctors at any time for any reasons at a time relevant to the day Paula signed the will. Furthermore, even Joe and Becky never testified that Paula told them at any time in 2004 that she was being treated for depression.

Id. Further, the court held that the testator had a reason for her will and there was no evidence that the executors influenced her:

Generally, the evidence admitted in the trial reflects that Paula chose to give her children a percentage share of her estate based on how much time they spent with her as she aged. Joe does not contend the evidence shows he spent more time with Paula than his siblings. Nor does he suggest that Paula miscalculated how much time he spent with her when compared with his siblings. Instead, Joe argues that Wes and Merrie obtained a larger share because they spent more time with her. That may be true, but that evidence does not show that Merrie and Wes used their influence to get Paula to change her will in a way that favored them during a period that Paula could not freely make that decision on her own.

Id.

Finally, the court of appeals affirmed the trial court’s appointment of the co-executors. The court stated the legal standard as:

When a testator nominates a person to be the executor of her will, the law requires the probate court to appoint that person to that office unless one of the enumerated exceptions in the Estates Code applies. The exceptions allow the probate court to choose someone else other than the person the testator named if the person the testator named renounces the appointment, or the evidence shows the person is “not qualified,” statutorily disqualified, or “unsuitable” for the office. Since the Estates Code requires probate courts to appoint the person the testator nominated in her will absent one of the listed exceptions, Joe was required to prove in the trial that Wes and Merrie were not qualified, statutorily disqualified, or unsuitable for the office. Thus, since Joe is attacking an adverse finding on which he had the burden of proof in the trial, he “must demonstrate on appeal that the evidence establishes, as a matter of law, all vital facts in support of the issue.” To do that, he must show the evidence before the probate court conclusively shows one of the enumerated exceptions to the provisions requiring probate courts to appoint the person the testator designated applies

Id. The court held that evidence from the contestant of hostility was not sufficient to show that the co-executors were not suitable. The court also held that the fact that one of the co-executors let her son live a home owned by the estate without the payment of rent was not a conflict as that could be viewed as a benefit to the estate (having someone protect and upkeep estate property) and that the co-executor was a part owner of the home and had the right to have her son live there without paying rent (in the absence of an objection co-owner). The court of appeals affirmed the trial court in all things.

ARTICLE BY David Fowler Johnson of Winstead

For more articles on wills, visit the the National Law Review Estates & Trusts section.

Category: Estates & Trusts

Joint Trusts: A Useful Tool for Some Married Couples