Making Your Intentions Clear in a Will

September 19, 2014

A successful estate plan makes the final distribution of a person's property plain and clear. Ambiguity in a will or trust may lead to costly litigation over conflicting interpretations of a person's intent. But even the best executed estate plan may still leave some unhappy heirs, as one recent California Court of Appeals decision illustrates.

The Case of the Lanfermans

The deceased in this case was Paul Lanferman, who died in 2011. Lanferman and his wife, Susan Lanferman, executed an estate plan nearly two decades earlier. The Lanfermans had a total of six children, all from prior marriages. The Lanfermans executed identical wills. As applicable here, Paul Lanferman's will said upon his death that his one-half interest in any community property would go to his wife. The will attached no conditions to the gift, aside from an instruction to the executor, which stated that the couple's home could not be sold during Susan Lanferman's lifetime without her consent.

In addition to his will, Paul Lanferman executed a separate contract with his wife affirming their intention that upon both of their deaths, their community property would be divided equally among all six children. Susan Lanferman's will contains language to that effect. Finally, in 1989, the couple signed an amendment to this contract, clarifying that upon the death of the first spouse, the surviving spouse would have “a complete and unrestricted right” to use or sell any of the community property.

After Paul Lanferman's death, Susan Lanferman filed a spousal property petition with the probate court. This is an abbreviated form of probate permitted under California law when a spouse is the sole or primary heir to a deceased spouse's estate. Lanferman's son and executor, David Lanferman, objected to the petition, arguing the contract and its amendment created an ambiguity in the will, and that his father actually intended to grant Susan Lanferman a life estate in his share of the community property, rather than a bequest. A life estate would impose restrictions on Susan Lanferman's ability to sell any of her husband's share, whereas an outright bequest is unrestricted.

The probate court rejected the son's argument, and the Court of Appeals agreed. As the Court of Appeals explained, there was no ambiguity in the wording of the will, and the contract and amendment were not relevant to the probate court's analysis. Such “extrinsic documents” may only be considered if there is, in fact, ambiguity in the will itself. But here there was none. Paul Lanferman clearly intended to leave his community property to his wife outright, not as part of a life estate.

Always Be Clear

This case is simply an illustration and not a complete statement of California law. But it does show how drafting a clear, unambiguous will can minimize the time and expense of potential litigation. If you are looking to prepare your own will, it is important to work with an experienced California estate planning attorney. Contact the Law Office of Scott C. Soady in San Diego today if you have any questions.

Naming Backup Beneficiaries In Your Will or Trust

September 18, 2014

In creating a will or trust, a person may make specific bequests of property to a chosen beneficiary. But what happens if that beneficiary does not survive the person making the bequest? A well-drafted will or trust must anticipate such contingencies. Either the document should name an alternate beneficiary, or it should be made clear that the gift lapses and passes as part of the person's residuary (leftover) estate.

A recent California Court of Appeals decision illustrates the confusion that may arise when the intended beneficiary of a gift dies before the giver. This case is only provided as an example and should not be viewed as a comprehensive statement of California law on this issue.

Dilworth v. Tiernan

Magnolia Austin died in 2012. Her only living relatives were several nieces and nephews. Austin created a living trust in 1990, which she amended in 2002. Under the amended trust, after paying all funeral and other death-related expenses, the successor trustee was to divide the remainder of the trust assets into two shares. One share would go to one of Austin's niece, the other to her friend, Virginia Sexton. The trust went on to say that if the niece died before Austin, that first share would go to Sexton. And if Sexton died before Austin, the second share would be divided among Sexton's living heirs.

Both Sexton and the niece died before Austin. This left unresolved the question of what to do with the first share intended for the niece. In 2013, another of Austin's nieces, Rosemae Dilworth, filed a petition with a probate judge, seeking a declaration the first share passed to her aunt's estate. In effect, the share would pass under California's intestacy law, which meant Dilworth and the other surviving nephews and nieces would split the share originally left to the deceased niece.

Marilyn Tiernan, Virginia Sexton's daughter, opposed Dilworth's petition. Tiernan argued Austin's entire estate passed to Sexton's heirs under the terms of the trust. The probate court ruled for Tiernan and the Court of Appeals upheld that decision.

As the Court of Appeals explained, the key issue was whether the division of the trust into shares functioned as a residuary clause intended to make a complete distribution of the trust assets. Dilworth argued it did not; she said the two shares were separate gifts. Tiernan and the courts disagreed. The Court of Appeals said the trust language clearly manifested Austin's intent to make a final distribution. The courts have a duty to interpret wills and trusts, where possible, to avoid having any part of an estate pass under intestacy.

Planning Ahead

The whole point of a will or trust is to prevent litigation over your property after your death. Sometimes this cannot be avoided. But proper drafting of estate planning documents is always an essential first step. That is why you should always consult an experienced California estate planning attorney before making a will or trust. Contact the Law Office of Scott C. Soady in San Diego today.

California May Adopt Uniform Law on Conservatorships

September 5, 2014

California is poised to join the majority of its sister states in adopting a uniform law designed to promote interstate cooperation on the subject of adult conservatorship proceedings. In May, the California Senate passed SB-940, a bill that would enact the Adult Guardianship and Protective Proceedings Jurisdiction Act, a model law created by the National Conference of Commissioners on Uniform State Laws. A California Assembly committee approved the Senate bill on July 2, and it is likely to pass the full assembly sometime this month.

Making Interstate Conservatorships Easier

A conservatorship proceeding may be necessary when an adult cannot manage his or her own financial, personal or health care decisions. For example, an adult child might petition a California court to be named conservator of her elderly father's person or estate because he suffers from dementia. In California, a probate court supervises such conservatorship proceedings.

Because probate is handled at the state level, complications may arise if a person under conservatorship has to be moved to another state. Let's say the daughter named conservator of her father moves him from California to another state. A new conservatorship proceeding must then be initiated in that state, costing substantial time and money.

The uniform act, as contained in SB-940, would eliminate such duplication. The act allows California courts to communicate with other state courts in order to establish a single jurisdiction over the guardianship or conservatorship. The “home state” where the individual lived for the six months preceding the conservatorship action would have priority, followed by any state where there is a “significant connection,” such as a family member.

If and when a person under a conservatorship is moved from one state to another, the uniform act allows for transfer of the conservatorship without the need for a second judicial proceeding. The courts in both states must approve such a transfer, and both states must have adopted the uniform act as law. In no case could a conservatorship be transferred from another state to California without the consent of a California probate court.

The uniform act also allows for registration of conservatorships obtained in one state so they may be recognized in another. For instance, let's say a person under a conservatorship lives in Nevada but owns property in California. The conservator could register the Nevada conservatorship with the California probate court, thereby enabling the conservator to sell the property without going through a new conservatorship proceeding.

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Regardless of whether the uniform act takes effect—and if adopted, it would not become law until 2016—you should carefully consider the possible need for a guardian or conservator as part of your estate plan. A durable power of attorney lets you name someone to manage your financial affairs in the event of your disability, and an advance health care directive does the same for your personal and health care decisions. By nominating agents in advance, you can spare your loved ones (and your bank account) an extended court battle over who should take responsibility for your affairs. Contact the Law Office of Scott C. Soady in San Diego if you have any questions about this or any other estate planning matter.

Leaving a Legacy or Financial Abuse of the Elderly?

September 4, 2014

Many people use their estate plan to “leave a legacy.” A common example of this is making a gift to a charitable organization as part of a last will and testament. A person might, for instance, leave a gift to a university with instructions to establish a scholarship in his or her name. Some wealthier individuals might go so far as to establish a charitable foundation as part of their estate plan.

Then there are more unusual efforts at leaving a legacy that, unfortunately, often lead to expensive and unnecessary litigation. A recent case from Illinois presents one example. The case involved the estate of the late Virginia Rogers. In 2000, Rogers was a widow with no children or other immediate family. In a purported effort to continue her family name, Rogers signed a contract with her neighbor, George Dohrmann, whereby she would leave more than $5 million worth of property from her estate to him; in exchange, Dohrmann agreed to legally change the names of his two children to include the middle name “Rogers.”

Dohrmann apparently held up his end of the bargain. Rogers, however, did not amend her estate planning documents to reflect the terms of this supposed agreement. Instead, Rogers' will left her estate to various friends, distant relatives and charities. In 2004, Rogers transferred ownership of her apartment—which Dohrmann claimed was part of the $5 million promised to him under the contract—to her living trust. By 2008 Rogers, who suffered from dementia, was judged legally incompetent to continue managing her own affairs.

In 2007, Dohrmann sued Rogers to enforce the terms of their purported agreement. The litigation continued against Rogers' estate after she died. An Illinois trial court granted summary judgment to the estate, holding the contract was not enforceable as a matter of state law. In a decision issued on June 26 of this year, an Illinois appeals court agreed with the lower court.

The key defect with the contract, the appeals court noted, was the “grossly inadequate consideration” Dohrmann offered Rogers. In exchange for more than $5 million, all he offered was giving his sons an additional middle name. Dohrmann argued this was valuable consideration, as Rogers wished to perpetuate her family name. But as the court explained, “Dohrmann did not change the boys' surnames to Rogers, nor even exchange their middle names for Rogers.” He simply gave the children a second middle name of “Rogers.”

The appeals court also pointed to the “circumstances of unfairness” surrounding the contract. Rogers was a widow in her 90s. Dohrmann was a highly educated surgeon. His attorney prepared the contract. The court clearly believed he took advantage of her advanced age and declining mental capacity.

The Best Protection

This is certainly an unusual case. But financial abuse of the elderly is a common problem in California. There are laws to protect against such abuse, but the best protection is a good estate plan. An experienced California estate planning attorney can help protect your assets while ensuring you leave a proper legacy. Contact the Law Office of Scott C. Soady in San Diego today if you have any questions.

Medi-Cal and “Estate Recovery”

August 31, 2014

An estate is not only responsible for distributing property after your death. It must also pay any valid debts to the extent your assets allow. Medical debts are a common expense most estates must pay. And if the deceased received health care benefits from the California Medical Assistance Program (Medi-Cal), the estate may have to reimburse the State of California for some of those expenses.

Estate Recovery

This is known as estate recovery. Medi-Cal is part of the federal Medicaid program. Medicaid rules require states to try and recoup the costs of certain long-term care from the estates of now-deceased recipients. California law goes even further and seeks recovery of costs for most covered services provided to people ages 55 and over. The Affordable Care Act (aka “Obamacare”) prohibits California from conducting estate recovery if the beneficiary was under 55 and received coverage under the low-income expansion to Medicaid and Medi-Cal.
If a beneficiary, regardless of age, is permanently institutionalized and owns a home, Medi-Cal may place a lien on the beneficiary's residence during his or her lifetime. Otherwise, estate recovery may not begin until after the beneficiary's death. If the beneficiary was married, recovery may not begin until after the spouse's death. There may also be no estate recovery if the beneficiary left minor or disabled children.

Estate recovery is limited to the lesser of the costs claimed by Medi-Cal or the value of the estate's assets. There are also hardship exemptions available for certain low-income individuals.

Estate Recovery In Practice

A recent California appeals court decision illustrates how estate recovery works. Merver Lee Mays died in 2006. She owned a home in Stockton. She left no will but two surviving children. One of the children, Betty Bedford, was named administrator of the estate, which consisted mostly of the house, which was valued at about $245,000.

The Department of Health Care Services (DHCS), which administers Medi-Cal, filed a creditor's claim to recover approximately $84,000 for services provided to Mays. Bedford should have paid this claim from the proceeds of the sale of her mother's house. However, Bedford's brother had deeded the house to himself, using a power-of-attorney signed by their mother just before her death. A probate judge later held the estate still owned a 50% interest in the house. Bedford later waived this interest in exchange for cash payable to her, not the estate.

Meanwhile, nobody bothered to pay the DHCS. The Department ultimately filed a civil suit against both siblings, maintaining they were now personally responsible for the unpaid $84,000 claim. The probate court—and the Court of Appeal—sided with the DHCS and found that Bedford was personally liable for paying back the DHCS since she personally benefited from her mother's estate without first bothering to properly administer it.

Planning Ahead

This was a case where a personal representative's carelessness proved costly. In developing your own estate plan, it is essential you select agents who will comply with the law and not try to circumvent legitimate creditor's claims. This goes doubly so when dealing with a potential Medi-Cal recovery. If you have any questions, contact the Law Office of Scott C. Soady in San Diego.

The Importance of Safekeeping Your Will

August 29, 2014

A last will and testament does little good if nobody can find the document after you pass away. It is important to safeguard your signed, original will as it must be filed with a probate court in order to formally open an estate. As a general rule, California courts will not accept photocopies of wills.

Any delay in locating a will may produce significant complications for your estate. As an illustration, consider a recent California appeals court decision which is discussed here for informational purposes only. The case arose from a horrific 2009 murder-suicide that resulted in the death of Elizabeth Fontaine, her mother and Fontaine's two small children. Fontaine left a will naming her cousin, Jennifer Hoult, as executor.

At the time of her death, Fontaine worked as an attorney at a prominent Los Angeles-area law firm. Hoult made several attempts to locate Fontaine's will, which she believed the firm held for safekeeping. But it was not until 2013—four years after Fontaine's death—that the will was found. (The law firm entered bankruptcy in 2011, and the trustee assigned to distribute the firm's assets ultimately found the will.)

The will named Fontaine's two deceased children as beneficiaries. Hoult still moved to probate the will, as there were creditors with potential claims against Fontaine's estate. Those creditors included Fontaine's estranged husband, who filed a rival petition seeking appointment as executor of the estate.

A probate judge rejected the husband's petition and agreed Hoult had priority appointment as executor under the will. The Court of Appeal, in a June 25 decision, reversed the probate court's order and directed the judge to conduct an evidentiary hearing on the husband's objections to Hoult's appointment. The litigation over Fontaine's estate will therefore continue nearly five years after her death.

Safekeeping Your Own Will

Setting aside the husband's still-pending objections, this case emphasizes the importance of locating a will in a timely manner. Normally, an attorney's office is an ideal place for keeping a person's will, and but for the bankruptcy issues faced by Fontaine's firm, her will should have been located shortly after her death.

In lieu of keeping a will with your estate planning attorney, you might also consider a safe deposit box. The important thing to remember here is that your intended executor should have easy access to the box. Ideally, you would name the executor (and maybe your alternate executor) as a co-owner of the box. Otherwise, the bank may not release the contents of the box without a court order.

You might also keep your will at home among your personal effects. It is still a good idea to keep a will in a home safe or other locked and secure area that your executor or family can access when necessary. A will should be treated like any other important personal document, such as a passport or birth certificate.

Your estate planning attorney can advise you on all the best options for preparing and safekeeping your will. Contact the Law Office of Scott C. Soady in San Diego today if you have any questions.

What Is a “Pour-Over” Will?

August 22, 2014

In estate planning, a “pour-over will” is a document signed in conjunction with the creation of a living trust. A pour-over will is like any other last will and testament, except that it distributes—or “pours over”—any probate assets to the related living trust. In this sense, the pour-over will is a backup that ensures no assets remain outside of the trust.

The Difference Between a Will and a Trust

Many people simply dispose of their estate through a will. This means the person leaves an estate subject to probate before the California courts. When the person dies, his or her will must be filed with the court, an executor is named (usually by the will) and assets are distributed according to the terms of the will.

A trust operates along similar lines. A person typically creates a living trust and names themselves as trustee. When he or she dies, the trust names a successor trustee who distributes the trust's assets. This is similar to a probate estate, except there is no need for a formal court proceeding. A trust may be kept private, while a probate estate becomes a matter of public record. A trust may also be wound up more quickly than a probate estate, where the executor must comply with certain legal deadlines and requirements.

The Need for a Pour-Over Will

A living trust involves more than signing a trust document. A person must actively transfer all of his or her assets into the trust. For example, if you own a home, you would sign a deed transferring the property from yourself to you as trustee of your living trust. If all of your assets are titled in the name of the trust, then upon your death there may be no need to open a probate estate at all.

However, trusts are rarely complete. A person may acquire many assets between the time they created the trust and their death. Even with careful estate planning, some assets may remain outside the trust. In that case, a pour-over will is necessary to complete the trust. The pour-over will directs your executor to transfer any assets remaining in your name to the trust.

This does not mean you should rely on a pour-over will in lieu of transferring assets into a living trust during your lifetime. Like any will, a pour-over will is subject to formal probate. This means the executor may have to wait several weeks or months before making the final transfer to the trust. This can defeat the very purpose of the trust, which is to expedite the distribution of a person's assets after their death.

Deciding the Best Option

A pour-over trust is only necessary when a person chooses to include a living trust as part of his or her estate plan. Depending on your circumstances, a simple will may be the better option. Before you commit to anything, you should always consult with an experienced California estate planning attorney. Contact the Law Office of Scott C. Soady in San Diego today if you have any questions.

What Happens to an Estate With No Heirs?

August 17, 2014

Dying without a will is never a good idea. In California, like all states, there are laws governing the succession of intestate estates—that is, estates where the deceased failed to leave a will. The intestate succession law directs the distribution of property to your closest living relatives. But what if you have no living relatives or they fail to make themselves known to the probate court? In such cases your estate is “escheated” or transferred to the state as unclaimed property.

If a living heir appears within five years of the initial escheat, he or she may file a petition in court to claim your estate. After the five-year period expires, however, your estate becomes the permanent property of the State of California. And once a distribution is made to a claimant, it excludes any rival claims that may arise, as one recent California appeals court decision demonstrates.

Estate of Dickson

This case is discussed here merely as an illustration and should not be treated as a conclusive statement of California law on this subject. Alvin Dickson, Jr., died in 2009 without a will. At the time of his death no living heir had appeared to claim the estate, so it was escheated to the unclaimed property office of the California State Controller.

In September 2012, Kent Orr filed a petition in San Bernardino Superior Court to recover the estate from the Controller. Orr was Dickson's second cousin, once removed, and claimed to be his closest living relative. The court granted Orr's petition in an October 2012 order.
Two months later, another man, Reginald Watkins, appeared and claimed he was Dickson's first cousin. In fact, he said there were 17 living first cousins who all had higher priority to claim Dickson's estate than Orr, who was only a second cousin. Watkins said the Controller's office was aware of his competing claim but never informed him about Orr's petition in San Bernardino. Watkins therefore asked the court to reverse its order in favor of Orr and award the estate to the first cousins.

The court denied this motion. The judge said the Controller had no legal duty to inform Watkins about Orr's petition. Nor did any action (or inaction) by the Controller reasonably interfere with Watkins' ability to learn about the Orr petition. The Court of Appeals, which upheld the trial judge's decision, noted California's escheat law created a “first come, first served policy,” with respect to previously unknown heirs. Unless Orr deliberately misled the court about the existence of other unknown heirs—and the appeals court said there was no evidence of this in the record—his petition was validly granted.

Avoiding Confusion

It's unknown what Alvin Dickson's wishes were regarding his estate since he never left a will. This unfortunately led to litigation years after his death. To avoid a similar situation, you should always work with an experienced California estate planning attorney to prepare a will or trust specifying the heirs of your choice. Contact the Law Office of Scott C. Soady in San Diego today if you have any questions

When a person dies without a will, California law specifies an order of precedence for individuals entitled to act as executor or administrator of the estate. A surviving spouse or domestic partner has top priority over all other persons, including the ch

August 15, 2014

When a person dies without a will, California law specifies an order of precedence for individuals entitled to act as executor or administrator of the estate. A surviving spouse or domestic partner has top priority over all other persons, including the children or parents of the deceased. Obviously, this assumes the spouse or domestic partner has a legally recognized relationship. In some cases, California courts will recognize a “putative” spouse or domestic partner—someone who has a good faith belief they were the deceased's spouse or domestic partner despite the failure to obtain legal recognition.

A recent California Court of Appeals decision illustrates the confusion that can arise when a person claiming to be a spouse or domestic partner fails to support his or her claim. This case is discussed here for informational purposes only and should not be construed as a complete statement of California law on this subject.

Estate of Langman

Kirk Langman and Michael Greene had been friends since they both attended elementary school in the 1960s. From the late 1980s forward, they lived together on-and-off, with Greene moving in with Langman permanently in 2008. In 2010, they moved into a house in Pebble Beach paid for by Langman's father and owned by Langman.

Langman died in September 2011 after collapsing in his home. Thereafter, Langman's father asked a probate court to name him administrator of the estate, as his son did not leave a will. Greene objected, claiming he was Langman's domestic partner—or, in any event, his putative domestic partner—and therefore entitled to priority appointment as administrator.

According to Greene's testimony before the probate court, he and Langman signed a domestic partnership declaration after moving in together in 2008. Greene said he did not previously have an intimate relationship with Langman, although they did after signing the declaration. Greene said the domestic partnership was Langman's idea and that, as far as Greene knew, Langman had taken care to ensure the declaration was properly filed with the state.

In fact, no such declaration was ever recorded. Unlike marriage, which requires a license from a county clerk, a domestic partnership need only be registered with the California Secretary of State. (Same-sex marriage, of course, was not permitted in California until June 2013.) By the time the probate court tried Greene's objection, he acknowledged there was no registration on file. Still, he said he had a good-faith belief he was Langman's domestic partner at the time of his death, and therefore he should be appointed administrator as Langman's “putative domestic partner.”

The probate court and the Court of Appeal rejected Greene's claim. As the Court of Appeal explained, the available evidence showed Greene and Langman “were merely friends and roommates and not domestic partners or putative domestic partners.” The court pointed to a number of inconsistencies in Greene's statements after Langman's death, which damaged his credibility before the probate judge.

Protecting Your Partner's Interests

A committed couple need not enter into a legal marriage or a domestic partnership. But if one partner wishes the other to oversee his or her estate, it is imperative to prepare a will, trust or other estate planning documents that override the defaults established by state law. An experienced California estate planning attorney can advise you on the best option for your relationship and situation. Contact the Law Office of Scott C. Soady in San Diego today if you have any questions.

Making Charitable Bequests In Your Will or Trust

August 3, 2014

Many people wish to “leave a legacy” by making a charitable contribution through their estate plan. The Internal Revenue Service, which collects data from large estates required to file a federal estate tax return, reported more than $1.6 billion in charitable bequests from California residents alone in 2012. Charitable bequests are popular precisely because they are deductible from the value of an estate for federal estate tax purposes. (California does not impose an estate tax at the state level.)

What Is a “Charitable Organization”?

There are many ways to provide for a charity in your will or trust. First, you should understand what is meant by “charity.” The IRS is responsible for recognizing charitable organizations. Broadly defined, a charitable organization is one that operates not-for-profit—that is, there are no shareholders who receive dividends—and fulfills one or more “exempt purposes” as defined by law. These exempt purposes include:

- Relief of the poor and underprivileged;

- Advancement of religion;

- Advancement of education or science;

- Building and maintaining public works;

- Promoting civil rights;

- Sponsoring amateur sports competitions; and

- Preventing cruelty to children or animals.

Two common recipients of charitable bequests are churches and schools. Most colleges and universities are charitable organizations, as are most types of religious institutions, including synagogues and temples. And while charitable organizations may not engage in significant political activity or lobbying, many activist groups maintain a separate charity to receive tax-deductible contributions. The Internal Revenue Service maintains a searchable online database, so you can check to see if your favorite group is a charitable organization or has an affiliated charity.

Forms of Charitable Bequests

Once you have decided to include one or more charitable organizations in your estate plan, what are your options for actually making a bequest? The most common gift is a straightforward gift of money. For example, your will might include a clause that says, “I give, devise, and bequeath to XYZ CHARITY, INC., the sum of Ten Thousand Dollars ($10,000.00), for the general purposes of the organization.” The “general purposes” language means the charity can use the gift as it sees fit.

However, there may be cases where you wish to direct your contribution to a specific purpose. Perhaps you wish to leave money to your college to fund a scholarship in your honor. Your will or trust should contain exact language detailing the purpose of your bequest, as well as instructions on what to do if the specific purpose cannot be honored.

Instead of a specific gift of cash or other property, you might also name a charitable organization as the residuary legatee of your estate. This means the charity receives the “rest, residue and remainder” of your estate after all other specific bequests are made. Alternatively, you could name the charity as a contingent beneficiary, meaning it would receive a portion of your estate if your first-named beneficiary (such as a family member) dies before you.

These are just some of the options to consider when including a charitable organization in your estate plan. A qualified California estate planning attorney can advise you of all your options and help decide what is best for your needs and interests. Contact the Law Office of Scott C. Soady in San Diego today if you have any questions.

Bernard Madoff ran one of the largest Ponzi schemes in history. Madoff ran his own brokerage firm for nearly 50 years, claiming unusually high returns on investments. In reality, Madoff's company stopped trading in stocks in the early 1990s. Instead, he s

August 1, 2014

Bernard Madoff ran one of the largest Ponzi schemes in history. Madoff ran his own brokerage firm for nearly 50 years, claiming unusually high returns on investments. In reality, Madoff's company stopped trading in stocks in the early 1990s. Instead, he simply used money provided by new clients to pay off fabricated returns to existing customers. In late 2008, in the midst of a credit crunch, Madoff's scheme collapsed, leaving roughly 4,800 clients holding $65 billion in phantom assets.

The estates of some of these now-deceased former clients now face unusual probate issues. An estate must always take inventory of a deceased person's assets and determine the date-of-death value for tax and probate purposes. But how does one value an investment based on a lie? The Internal Revenue Service and several estates are presently struggling to answer that question.

Estate of Kessel

Bernard Kessel was a Madoff client. In 1982, Kessel established a pension fund with himself as sole beneficiary. Kessel initially invested about $600,000 with Madoff.

Kessel died in July 2006, about two-and-a-half years before the Madoff scheme collapsed. Iris Steel, Kessel's longtime partner, was named executor of his estate. As is standard procedure in an estate administration, Steel asked Madoff's company for a list and valuation of all assets held in Kessel's account. Based on the information provided, an appraiser hired by Steel valued the Madoff account at approximately $4.8 million at the date of Kessel's death.

Of course, as everyone subsequently learned, the assets in the Madoff account were an elaborate lie. In fact, Steel and Kessel's son—the beneficiaries of the account—actually withdrew more money from Madoff's scheme than had been deposited.

This created an estate tax problem. The estate had previously paid federal estate taxes based on the appraised value of the Madoff account. After the scheme's collapse, the estate asked the IRS for a $1.9 million refund based on its view that the appraised value of the Madoff account was now zero. The IRS rejected that argument and the estate appealed to the United States Tax Court.

On May 21 of this year, the Tax Court ruled the estate could proceed with its case. Rejecting an IRS motion for summary judgment, the court found there was a genuine dispute over the value of the Madoff account. The IRS argued the original valuation of $4.8 million was correct because it reflected the “fair market value” of the account at the time of Kessel's death. The IRS said that a reasonable buyer would not have been aware of the fact the account was part of a Ponzi scheme. The estate argued that a buyer exercising due diligence could have uncovered Madoff's chicanery. However the Tax Court ultimately resolves this case, it will affect not just Kessel but other Madoff investors who lost money.

In effect, the IRS wants estates to pay taxes on assets that never existed in the first place. And while the federal estate tax only affects a small percentage of estates, such aggressive activity only highlights the importance of careful estate planning. If you need advice on any estate planning matter, contact the Law Office of Scott C. Soady in San Diego today.

Who Owns Your Blog Posts After You Die?

July 22, 2014

Copyrights are a unique form of intellectual property recognized by the federal government. A copyright exists in an “original work of authorship” fixed in any form. Copyright is not the same thing as ownership of a material object. Under federal law, a copyright can be transferred by will (or intestate succession) like any other item of personal property. It is important to understand that copyright exists separately from the actual object that is the subject of the copyright. For example, if you write a novel, and your will leaves “all copies of the novel in my possession” to someone, that does not transfer the copyright as well. This is because, as the term implies, copyright refers to your right as the author to decide who may or may not make copies of your work in the future.

You may not think copyright will matter much after you're gone. But U.S. copyrights continue for 70 years after an author's death. So if you anticipate future royalties from your artistic or literary works, it is essential to make the appropriate provisions for your copyrights as part of your will or living trust.

An Unusual Situation

Copyrights and estate planning can also intersect in more unusual ways. In March, a probate judge in Arlington County, Virginia, authorized the executor of an estate to “take any reasonable action necessary to access, remove and destroy any web postings” authored by the deceased. The executor was actually the deceased man's ex-wife. He allegedly made several posts to his personal blog criticizing his former spouse.

The posts were subsequently republished on several other websites. The ex-wife, acting as executor, sent notices under federal copyright law demanding the posts' removal. Some websites complied. Others have not, citing an exception in federal copyright law permitting “fair use” of otherwise protected works.

Eugene Volokh, a law professor at UCLA who writes for the Washington Post, suggested the enforcement of copyright here might not be appropriate, given that the deceased “voluntarily published the works” and the posts presently have no commercial value. Copyright law is principally concerned with protecting an author's ability to profit from his or her works.

The Virginia case is by no means a definitive statement of the law. But it does raise interesting questions about how far an executor may go in “erasing” a deceased individual's online works. Many popular social media websites have terms of service that grant the website a “perpetual” license to continue publishing anything a person voluntarily and legally posts. If you post an update to Facebook, for example, you cannot then sue Facebook for violating your copyright in that post, because in agreeing to Facebook's terms of service you grant the website a non-exclusive license to publish that post.

Does this mean you should bequeath the copyright to your Twitter feed in your will? No, but it is important to ensure you appoint fiduciaries you can trust to manage your online and intellectual property portfolios after you pass away. At a minimum, your will or trust should make clear who inherits any copyrights of possible commercial value. If you have questions about this, or any other California estate planning topic, contact the Law Office of Scott C. Soady in San Diego today.