Cyberspace When You're Dead - Interesting New York Times Article Addresses Our Digital Afterlives

There is an interesting article in the New York Times entitled "Cyberspace When You're Dead" that addresses the fact that estate law has only begun to consider the topic of what happens to our digital afterlives.

Considering that only about a third of Americans even have a will, how many people write down all the passwords and screen names for digital photograph servers like Flickr, email, social networks and leave them in a place where their family or heirs could find them? Facebook now has an option that allows a profile to be switched to "Memorial" mode when an individual dies.

For some family-owned businesses that rely on the Internet for sales and marketing, the digital rights and passwords may be very important for running a business. For many of our older clients, this has not been much of an issue but this is something for each person to consider.

Years ago, you could find a person's address book and contact their friends and family to tell them of their passing. Now much of that information is kept in Outlook Contacts or on an iPhone. Another thought is that some people are creating online memorials with photographs or video and allow friends and family to share memories. This is obviously a personal preference but is something that can be addressed at the planning stage.

Posted by Henry (Hank) J. Moravec, III, a partner at Moravec, Varga & Mooney. For a complimentary 30 minute consultation (telephonic or in person), you can e-mail Hank Moravec at hm@moravecslaw.com or call him at (626) 793-3210 or (818) 769-4221.

Tax Relief Act of 2010: It Finally Happened

Well, no one would have predicted this!

Essentially, Congress had ten years to provide some certainty to the U.S. Federal Estate and Gift tax system. Incredibly, with the Democratic Party in control of both houses of Congress and the White House, the Estate tax was allowed to lapse completely in 2010. As 2010 wore on, there were periodic statements of what should happen to the law, should there be a retroactive bill? Would the law really be allowed to return to the 2001 standard, with high rates and only a $1,000,000 exemption?

Then, the mid-term elections occur and we have divided government again. Yet now, with a technical "lame duck" congress, incredibly, a new tax bill emerges!

And what a bill! In addition to extending the Bush tax cuts on the income tax side (along with some very interesting temporary adjustments to the Social Security withholding tax), the Tax Relief Act signed into law on December 17, 2010, lowers estate, gift and generation-skipping transfer (GST) taxes for a two-year period.

Here are some of the estate and gift highlights of the Act:

■ The estate tax will be reinstated for 2011 and 2012 with a top rate of 35 percent. The exemption amount will be $5 million per individual in 2011 and will be indexed to inflation in following years.

■ Estates of people who died in 2010 can choose to follow either 2011 or 2011's rules. The estate may choose between an estate tax based on the $5 million exemption and a step up in basis of the estates assets, or no estate tax and a modified carryover basis in the estates assets.

■ For gifts made after December 31, 2010, the Act reunifies the gift tax with the estate tax, allowing for an exclusion of $5 million and the 35% tax rate. For gifts made during 2010, the exclusion amount is $1 million and the maximum tax rate is 35%.

■ The generation skipping transfer tax exemption for gifts made or decedents dying after December 31, 2009 will be equal to the applicable exemption for estate tax purposes. Transfers made during 2010 subject to the generation skipping transfer tax are subject to a tax rate of 0%, and will be subject to a rate of 35% for transfers in 2011 and 2012.

■ In addition, the TRA allows for the estates of decedents dying after December 31, 2010 to elect to transfer the unused portion of the $5 million exclusion to a surviving spouse.

Aside from the fact that a $5 million estate tax exemption per person, or $10 million per couple, is good news, there are many other planning opportunities raised by this new bill, many of which are caused by the fact that the gift tax exemption will now also be $5 million per person. This is the huge difference between the law since 2001 and now. Under prior law, with the gift tax exemption at $1 million, many clients who could otherwise afford to do so (from a financial perspective) could not make gifts to children or grandchildren. Now, there are many gifts which can be made, in trust or otherwise, and the parent/donor will not owe tax.

Perhaps the most surprising part of the Act is that estates of people who died in 2010 can elect to use either the new rules or the "old" rules. This addresses the situation in which an estate may owe significant capital gains tax even though no estate tax is owed. This is a surprising change because many times such inconsistencies are allowed to remain in the tax code because there is not much in the way of political capital to simply fixing an inconsistency. We have several estate matters which will be affected by this part of the Act.

The fact that the Act is in place for only two years is interesting. Perhaps Congress has realized that having these "deadlines" in place actually helps when it comes to compromise. We will see in two years' time.

Posted by Henry (Hank) J. Moravec, III, a partner at Moravec, Varga & Mooney. For a complimentary 30 minute consultation (telephonic or in person), you can e-mail Hank Moravec at hm@moravecslaw.com or call him at (626) 793-3210 or (818) 769-4221.

He focuses his practice on Estate Planning, Trust and Probate Administration, Beneficiary and Trustee Representation, Probate Litigation, Tax Law, and Nonprofit Law. He represents clients throughout Southern California and his offices are conveniently located for clients in the Los Angeles, Orange, Santa Barbara, Riverside and San Bernardino Counties.

The firm website is http://www.moravecslaw.com/. The firm has two offices and consultations and meetings can be held at either office. The San Gabriel Valley office is located at 2233 Huntington Drive, Suite 17, San Marino, California 91108. Telephone: (626) 793-3210.

The San Fernando Valley office is located at 4605 Lankershim Boulevard, Suite 718, North Hollywood, California 91602-1878. Telephone: (818) 769-4221.

Proposed Estate Tax Deal for Two Years: 35% Tax Rate And $5 Million Exemption. Bigger Question For Most Americans: Do You Have An Estate Plan?

On December 6, 2010, President Obama announced that he has reached a deal with Republicans regarding the estate tax and other Bush Tax Cuts. Under the deal, the repeal of the estate tax in 2010 would not be extended. The estate tax would be revived, but not as it is scheduled.

Under current law, if Congress reaches no agreement, the estate tax is scheduled to come back in 2011 at a top rate of 55% (60% in some cases) and an exemption of a mere $1 million for individuals.

Under the Obama-Republican deal, the estate tax would come back at a rate of 35% and with an exemption of $5 million for individuals -- for two years. However, it is unknown whether the lame duck House would pass an estate tax exemption this high. This proposal may also not be popular among the Democrats.

From a planning perspective, the question is what should we advise our clients? Our approach is simple. Plan with the current law and not based upon any politicians' proposal.

One problem with this current proposal is that it's not a permanent solution. Under the deal the 55% tax rate and $1 million exemption would return in 2013. Married taxpayers will still need to utilize highly flexible planning that will allow the surviving spouse to adjust the planning after the first spouse’s death. This can be done by utilizing a “wait-and-see” trust that can adjust for different Federal and State exemptions and can be adjusted for up to 15 months after the date of the first spouse’s death if congress changes the law.

Get an estate plan. According to a Lawyer.com survey in early 2010, many Americans do not have proper estate plans. Only 35% of Americans now report having a will and only 21% have a trust. Thus, while a great deal attention is focused on the proposed legal changes, it is important to focus on yourself and your family and get an estate plan in place and not wait for Congress to act.

Posted by Henry (Hank) J. Moravec, III, a partner at Moravec, Varga & Mooney. For a complimentary 30 minute consultation (telephonic or in person), you can e-mail Hank Moravec at hm@moravecslaw.com or call him at (626) 793-3210 or (818) 769-4221.

He focuses his practice on Estate Planning, Trust and Probate Administration, Beneficiary and Trustee Representation, Probate Litigation, Tax Law, and Nonprofit Law. He represents clients throughout Southern California and his offices are conveniently located for clients in the Los Angeles, Orange, Santa Barbara, Riverside and San Bernardino Counties.

The firm website is http://www.moravecslaw.com/. The firm has two offices and consultations and meetings can be held at either office. The San Gabriel Valley office is located at 2233 Huntington Drive, Suite 17, San Marino, California 91108. Telephone: (626) 793-3210.

The San Fernando Valley office is located at 4605 Lankershim Boulevard, Suite 718, North Hollywood, California 91602-1878. Telephone: (818) 769-4221.

Probate Battle Involving Heirs Of Book Author And Undue Influence Allegations Settles After Two Years And On Eve Of Trial

A notable probate battle in Vermont has settled just before trial was to start after a 2½-year-old fight among the heirs of children's book author and illustrator Tasha Tudor. The estate was worth $2 million. Ms. Tudor, 92, died in 2008 of complications from a series of strokes. The settlement agreement was confidential and not filed with the court.
The fight was over the legitimacy of the will and the key issue was whether Ms. Tudor was unduly influenced when she rewrote it to give nearly everything to her oldest son.
Although this case is not in California, it highlights trends we see in cases here in California. First, given the cost of probate litigation and the risks involved, most cases settle before trial. With a $2 million estate, a significant amount of the estate can be consumed in legal fees over a two-year period. It is important to analyze legal expenses and costs as part of the business side of evaluating whether it makes economic sense to proceed to trial.

Second, there is an increase in probate litigation given the economic and housing crisis with some heirs not willing to settle for less and with real estate prices being depressed. Third, when wills or trusts are changed to leave out other children -- it increases the likelihood of probate litigation unless the changes are well documented and planned.

Ms. Tudor, who quit school after the eighth grade, won a worldwide following with her whimsical watercolors and drawings in "Pumpkin Moonshine," ''Corgiville Fair," and "Little Women," among nearly 100 children's books she illustrated or wrote. Ms. Tudor celebrated old-fashioned family life at home, becoming known for her anachronistic lifestyle — often going barefoot, wearing vintage dresses or making linen for her own clothing and living in a replica of an 18th-century New England farmhouse built by her sons, in Marlboro, Vt.

Her 2001 will requested that her cremated remains be buried with her beloved predeceased Corgis and the ashes of her pet rooster. It left her copyrights and most of her assets to sons Seth Tudor and Thomas Tudor and Seth's son, Winslow Tudor, giving only $1,000 each to daughters Bethany Tudor and Efner Tudor Holmes.

But an amended 2002 version cut out Thomas, save for an antique highboy, because of his "estrangement" from his mother. Thomas contended his brother wielded undue influence over their mother and that there are suspicious circumstances surrounding the changes in the will.

Posted by Henry (Hank) J. Moravec, III, a partner at Moravec, Varga and Mooney, A Partnership.
For a free 30 minute consultation (telephonic or in person), you can e-mail Hank Moravec at hm@moravecslaw.com or call him at (626) 793-3210.

He focuses his practice on Probate Litigation, Estate Planning, Trust and Probate Administration, Beneficiary and Trustee Representation, Tax Law, and Nonprofit Law. He represents clients throughout Southern California and his offices are conveniently located for clients in the Los Angeles, Santa Barbara, Orange, Riverside and San Bernardino Counties.

With respect to probate, Hank Moravec has over 20 years' experience as a probate and probate litigation attorney practicing in Los Angeles and is available should you need legal advice regarding your own or a family member's situation.

The firm website is http://www.moravecslaw.com/.
The Los Angeles area office is located at 2233 Huntington Drive, Suite 17, San Marino, California 91108. There is ample free parking adjacent to the firm's office.

NYT Article On Competency: "Money Woes Can Be Early To Alzheimers" And How This Effects Deciding When A Client Lacks Capacity

The New York Times recently had an article entitled "Money Woes Can Be Early Clue To Alzheimers" which is a case study on why early estate planning and having powers of attorney in place before there are competency issues is important -- especially to avoid later charges of undue influence and competency. It also raises the issue, however, of “What do we mean when we say someone has enough decision-making capacity to be ‘competent’?" The issue promises to become even more complicated as researchers and doctors diagnose Alzheimer’s earlier and earlier.

The article notes that the Financial Industry Regulatory Authority, the largest nongovernmental regulator for securities firms doing business in the United States, recently met with individual financial services companies and the Alzheimer's Association to formulate guidelines on how to deal with clients who have trouble remembering and reasoning, a problem that is not new but is increasing as the population ages.

On one hand, it is generally agreed that decisions by a competent adult should be respected. On the other hand, if new brain scans and other methods show signs that a person is developing dementia, does that mean the patient should be watched, or that there should be limits on his or her abilities to make financial or legal decisions?

The article cites experts who say confusion over money and finances is perhaps the most important and most predictable early functional change as people descend into dementia. For lawyers, the main question is at what point a client lacks the capacity to execute a will, trust or other document, and who decides when that point has been reached. And if a lawyer lets a client go ahead, will the document be challenged?

The American Bar Association's Commission on Law and Aging created guidelines on this issue in 2005 entitled "Assessment of Older Adults With Diminished Capacity." The guidelines that include warning signs of diminished capacity, like memory loss and problems communicating and doing calculations. The guidelines instruct lawyers to look at the legal requirements for capacity in specific situations, like making a gift. Courts are always struggling to come up with principles and definitions of capacity and definitions of capacity vary among the states.

With respect to probate, Hank Moravec has over 20 years' experience as one of the best Los Angeles probate attorneys and Los Angeles probate litigation attorneys and is available should you need legal advice regarding your own or a family member's situation. For a consultation, You can e-mail Hank Moravec at hm@moravecslaw.com or call him at (626) 793-3210 or (818) 769-4221 to request a consultation.

The firm website is http://www.moravecslaw.com/. The firm has two offices and consultations and meetings can be held at either office.

The San Gabriel Valley office is located at 2233 Huntington Drive, Suite 17, San Marino, California 91108. There is ample free parking adjacent to the firm's office.

The San Fernando Valley office is located at 4605 Lankershim Boulevard, Suite 718, North Hollywood, California 91602-1878.

LEGISLATIVE UPDATE -- Odds On No Action On Estate Tax This Year Just Went Through The Roof

Its October 1, and there is still no action pending on Federal Estate Tax this year. Based upon several well publicized remarks, including a speech by Charles Grassley on the floor of the Senate and an op-ed piece by Robert Rubin in the Wall Street Journal ("Bring Back The Estate Tax Now"), it is fair to say that, with one quarter left in 2010, policymakers have finally noticed that the tax is coming back at only a $1 Million exemption and a 55% rate next year.

With an election looming in a month, there is basically no chance of action prior to Mid-November, I think that any retroactive application is now over.

I also think that a return to the $3.5 Million exemption and 45% rate is now the most likely scenario, because the government needs the money and has to get it from somewhere.

In an October 2, 2010 New York Times article entitled "TARP Bailout to Cost Less Than Once Anticipated" there is a good opportunity to imagine, as a legislator, (or even a top aide, like all those guys and gals in "The West Wing") how you would (a) address this issue and more importantly (b) explain it to your constituents.

It is no easy task. The New York Times article mentioned above, for example, points out that, according to one poll, 3 out of 10 voters are against the"bailout" even though the bailout is not going to cost $700 billion and may actually make money for the government. In another New York Times article "In Tax Cut Plan, Debate Over the Definition of 'Rich'" (Sept. 30, 2010) is a very thorough dissertation on one of the major issues in tax policy -- who, exactly, are "the rich?"

The only thing missing is the one fact which is rarely discussed, tax policy must address distribution of whatever it is that is being taxed. (It is rarely discussed because it is not entertaining enough, that is for sure!) For example, imagine an economic system with one peasant who is only paid in food, who works for the farm owner. The farm owner, who is "only 50% of the population" pays "100% of the taxes." He pays 100% of the taxes because he makes 100% of the income. The U.S. economy is more complex than that, but the principal is the same, in order to raise money you have to levy taxes on actual streams of income or assets -- you cannot just tax "in theory."

So, now read the two articles and figure out the best solution. (I know I don't know the best solution, that is for sure!) Remember, these are the guidelines:

(i) if you actually apply the taxation to those who have the money, you are vulnerable to the argument that "so and so voted to have 5% of the population pay 37% of the tax";

(ii) you know the average voter basically does not like rich people, since a program to essentially stabilize one of the worst recessions in memory is thoroughly demonized even though it may actually be profitable for the taxpayers, basically on the grounds that people don't like banks; and

(iii) no one agrees on who the "rich" are -- at least no one agrees based on any logic.

Good luck. And if you ever wonder why the Internal Revenue Code is complicated, or why politicians only speak in sound bits with no substance, imagine trying to explain these considerations in 30 seconds.

Posted by Henry (Hank) J. Moravec, III, a partner at Moravec, Varga & Mooney. For a complimentary 30 minute consultation (telephonic or in person), you can e-mail Hank Moravec at hm@moravecslaw.com or call him at (626) 793-3210 or (818) 769-4221.

He focuses his practice on Estate Planning, Trust and Probate Administration, Beneficiary and Trustee Representation, Probate Litigation, Tax Law, and Nonprofit Law. He represents clients throughout Southern California and his offices are conveniently located for clients in the Los Angeles, Orange, Santa Barbara, Riverside and San Bernardino Counties.

The firm website is http://www.moravecslaw.com/. The firm has two offices and consultations and meetings can be held at either office. The San Gabriel Valley office is located at 2233 Huntington Drive, Suite 17, San Marino, California 91108. Telephone: (626) 793-3210.

The San Fernando Valley office is located at 4605 Lankershim Boulevard, Suite 718, North Hollywood, California 91602-1878. Telephone: (818) 769-4221.

Recent California Decision On Breach Of Trust & Trustee Fiduciary Duties - Uzyel v. Kadisha

A recent decision from the California Court of Appeal (10 S.O.S. 5529) serves as an incredible reminder about the duties of a trustee not to engage in self-dealing even if the trustee believes he or she is also acting in the best interest of the trust and beneficiaries.

It also demonstrates how long these cases can take to run through the courts. The lower court trial lasted for almost four years before it went to the appellate courts.

In this case, the Court of Appeal affirmed a judgment against trustee Neil Kadisha, a venture capitalist and philanthropist who is reportedly one of Los Angeles’ wealthiest residents, for actions arising from two trusts he was administering for a young widow. The lower court found that Neil Kadisha used the trusts for his own benefit. Neil Kadisha served as the trustee of two trusts.

The beneficiaries, Dafna Uzyel and her children Izzet and Joelle Uzyel (collectively the Uzyels), filed petitions for breach of trust against Kadisha and terminated the trusts. After a nonjury trial, the trial court awarded the Uzyels over $59 million in compensatory damages and disgorgement of profits, plus $5 million in punitive damages and over $13 million in attorney fees. The Court of Appeal upheld the lower court's findings and also added about $20 million in prejudgment interest to the judgment.

Justice Walter Croskey, writing for the Court of Appeal, cited numerous instances of self-dealing by Mr. Kadisha, who agreed to assist then-28-year-old Dafna Uzyel, who had a 10th grade education and spoke little English, after her 40-year-old husband died unexpectedly. Rafael Uzyel had emigrated from Israel with his wife and two children and had a successful export-import business.

Mr. Kadisha appealed the judgment, challenging the awards on several claims, the punitive damages, and the attorney fee award. The Uzyels also appealed, challenging the denial of relief on some of their claims, the denial of prejudgment interest on some claims, the punitive damages, and the costs award.

This case raised several questions concerning a trustee’s liability for breach of trust under Probate Code Section 16440(a). With respect to these questions, the Court of Appeal concluded:

(1) tracing is not required for the disgorgement of profits made by the trustee “through the breach of trust” under section 16440(a)(2);

(2) the fact that an act is consistent with or even compelled by the duty of prudent investing does not excuse a trustee from liability for breach of the duty of loyalty, including liability for appreciation damages as lost profits under section 16440(a)(3);

(3) the determination as to which of the statutory measures of liability “is appropriate under the circumstances” under section 16440(a) is reviewed for abuse of discretion;

(4) an investment loss resulting from a breach of trust should be offset against a profit resulting from a breach of trust only if the breaches were not separate and distinct;

(5) prejudgment interest is mandatory on an award of damages under section 16440(a)(1); and

(6) the absence of an express provision for prejudgment interest under section 16440, subdivision (a)(3) does not preclude an award of prejudgment interest under Civil Code section 3287, subdivision (a) on damages awarded under that provision.

Citing legal treatises and the 3d Restatement of Trusts, Justice Croskey wrote: “A trustee is strictly prohibited from administering the trust with the motive or purpose of serving interests other than those of the beneficiaries....A trustee also is strictly prohibited from engaging in transactions in which the trustee’s personal interests may conflict with those of the beneficiaries without the express authorization of either the trust instrument, the court, or the beneficiaries...."

"It is no defense that the trustee acted in good faith, that the terms of the transaction were fair, or that the trust suffered no loss or the trustee received no profit. This is known as the no further inquiry rule...Such a transaction is voidable at the election of the beneficiaries, and other remedies may be available, including an award of profits that the trust would have made if not for the breach of trust.”

Mr. Kadisha argued, among other things, that many of the challenged transactions, such as a sale of Qualcomm stock in 1992 at the time the investment was properly classified as risky, were in the trusts’ best interests. But a trustee cannot enter into a transaction solely for his personal benefit, even if it makes economic sense from the trust’s point of view, Croskey wrote.

Croskey said the additional prejudgment interest, which the trial judge denied as a matter of equity, had to be added to the award under Probate Code provisions setting forth remedies for breach of trust.

Attorney Comments: Where there is a conflict of interest or possible conflict of interest, obtaining written consent or legal advice is important at the outset. The fiduciary duties a trustee holds to the trust and beneficiaries impose serious legal duties that sometimes get overlooked especially where the trustee is also a beneficiary (which was not the case in Mr. Kadisha's case). Trustees should seek legal advice before making decisions that could cause them potential liability and exposure. In Mr. Kadisha's case, it seems he obtained legal advice and then ignored some of it to his later detriment.

Mr. Moravec is a very experienced estate planning, trust administration and probate litigation attorney. He has more than 20 years' experience in probate and is extremely dedicated to his clients and helping them create a plan that is tailored to their wishes, finances, helps avoid probate and taxes, and takes into account their families' unique situation.

He focuses his practice on Estate Planning, Trust and Probate Administration, Beneficiary and Trustee Representation, Probate Litigation, Tax Law, and Nonprofit Law. He represents clients throughout Southern California and his offices are conveniently located for clients in the Los Angeles, Orange, Santa Barbara, Riverside and San Bernardino Counties.

The firm website is http://www.moravecslaw.com/. His email is hm@moravecslaw.com

The Los Angeles area office is located at 2233 Huntington Drive, Suite 17, San Marino, California 91108. Telephone: (626) 793-3210.