Ashley Flotte’s Legal Blog

A man is laying in his hospital bed dying of a terminal illness. He calls in his lawyer, his doctor, and his priest and announces to the group: “Gentleman, I am going to die soon and I have made a decision. There is no one I wish to leave my estate to and I have decided I am taking it with me. Hence, I am giving you each $50,000 in cash that you are to place in my casket before they lower me into the ground. Are we understood?” The three gentlemen agreed, and three days later, the man died.

A few days later there was a funeral followed by a burial ceremony and a reception. The lawyer and the doctor were having a cocktail while the priest nervously paced back and forth in the reception area. Finally the priest approached the other two advisors and declared, “I cannot keep it inside of me any longer. I did not put the whole $50,000 into the casket. I used $25,000 to make some repairs to the rectory.” The doctor replied, “Well as long as it’s out on the table, I didn’t put the whole 50 in, either. I put 30 thousand into my clinic.” The lawyer glared at the other two with disgust and said, “You two ought to be ashamed of yourselves. Do you realize that casket holds my personal check for $50,000?”

I had the opportunity to attend the Bernstein 2008 Private Wealth Symposium this morning at the Houstonian Hotel in Houston. Hats off to Bernstein for hosting a first-rate seminar, complete with highly relevant material, excellent speakers, lovely ambiance and top-notch spread of refreshments.

Logically, a primary focus of the symposium was perspective in the current state of the market. Topics included an update on the capital markets, dealing with municipal bonds, perspective on global stocks, and emotions vs. reason in investing. A segment that caught my particular interest was that entitled “Investment Planning in Turbulent Markets,” outlining the propriety of various estate planning techniques in the current and projected markets from the perspective of various case studies.

During the symposium, it was mentioned that the applicable exclusion amount may not be the only estate planning issue that Congress will be taking up in the near future. Beyond the proposed $3.5 million exclusion and portability of exemption amounts between spouses, it was suggested that changes may be rolling in with regard to the availability and parameters of using GRATs, as well as to the availability of valuation discounts for tax purposes. Stay tuned!

                I love to hear stories of testators with a sense of humor. Today this little anecdote on “the internets” caught my attention:           

                Apparently a fellow named Charles Vance Millar, an attorney in Toronto, Canada who passed away in 1926, left behind a pretty amusing will. An affluent attorney with a penchant for practical jokes, Millar decided to leave his shares in the O’Keefe Brewery Company (beer manufacturer) to every Protestant minister in town. His shares in the Ontario Jockey Club? Millar left those to be divided among two well-known men in the town known for their staunch opposition to racetrack betting. Two men who were notorious for hating each other were bequeathed joint tenancies in Millar’s vacation home.

                Most famously, Millar left a huge chunk of his fortune to the woman in Toronto who could produce the most children within the 10-year period following his death. This sparked an area-wide contest in 1926 known as the “Great Stork Derby,” as the women of the town—particularly in the dismal economic state at the time—raced to birth as many children as possible and secure their spoils. The four winners—each producing 9 children in the 10-year period—split the inheritance, taking home $125,000 a piece.

Is this true?? Wikipedia says so, as does Snopes.com, which actually posts the purported clause:

“All the rest and residue of my property wheresoever situate I give, devise and bequeath unto my Executors and Trustees named below in Trust to convert into money as they deem advisable and invest all the money until the expiration of nine years from my death and then call in and convert it all into money and at the expiration of ten years from my death give it and its accumulations to the Mother who has since my death given birth in Toronto to the greatest number of children as shown by the Registrations under the Vital Statistics Act. If one or more mothers have equal highest number of registrations under the said Act to divide the said moneys and accumulations equally between them.”

Maybe Millar made the bequest as a result of his being a childless bachelor. If he

wasn’t going to personally bring children into the world, maybe it would be just as fun to indirectly motivate their birth. But good grief; nine children? Those ladies earned every dollar of that inheritance. In fact, even by 1936 values, $125,000 probably doesn’t come close to retribution.  

During a recent rendezvous in New York City, I was delighted to see an apparently probate-themed theatrical production in the heart of Broadway. Horton Foote’s Diving the Estate is currently playing at the Booth Theater at W 45^th and 7^th Street, with its official opening scheduled for November 20^th. The play is touted as a “comedy about a family that must confront its past as it prepares for its future.” Its 13-character cast portrays a widow and family in small-town Texas faced with grappling after the estate of the late family patriarch.

Variety gives the play a solid review, indicating a somewhat predictable story, old-fashioned premise and “mechanical,” “ultra-traditional” set is brought to life by very humanistic characters played by a “first-rate” cast. A New York Times review states that Dividing the Estate “earns its laughs honestly,” and “makes it clear that Mr. Foote’s authorial gaze is focused with satiric sharpness while retaining its elegiac sense of life’s transience.”

I’m unfortunately not able to chime in with my own two cents, since—although we tried—getting tickets just wasn’t in the cards for us. But I get the E for Effort for at least attempting a little probate law-related activity whilst on vacation. Plus, um, Wicked was sold out.

Postscript: My husband did a phenomenal job in the New York Marathon, coming in at 4 hours 18 minutes! BIG congrats go to him; way to go!!

As previously discussed, the media as well as the estate planning community continue to monitor the presidential candidates’ views on the fate of the federal estate tax. Another interesting article on the topic appeared on October 23^rd by Floyd Norris of The New York Times. The following is an interesting excerpt from that piece:

“The shape of [the estate tax], and its ability to raise significant sums from the very wealthy, will be decided by Congress next year and is an issue in the current presidential campaign. Senator John McCain and Senator Barack Obama agree that the tax should be extended, but differ significantly on the details.

Mr. McCain would exempt far more estates from the tax and would slash the tax bill for those who still must pay. Mr. Obama proposes to basically extend the tax as it will be in 2009.

The issue concerns more than dollars, although the dollars are substantial. A new study by the Tax Policy Center estimates that the estate tax backed by Senator Obama would bring in $116 billion from 2010 to 2014, while the McCain plan would bring in $27 billion.

To those who support an estate tax that bites the very rich, it is an issue of sharing the burdens of a free society by imposing a progressive tax that brings in money from those who have most benefited from the society. It encourages charitable giving, because such donations are one way to avoid or reduce the estate tax.

The tax also encourages work, they argue, by limiting the creation of an idle rich class that became wealthy by inheriting cash, not earning it. As Andrew Carnegie put it, “The parent who leaves his son enormous wealth generally deadens the talents and energies of the son, and tempts him to lead a less useful and less worthy life than he otherwise would.”

To opponents, the estate tax smacks of double taxation, as money that was taxed when it was earned is taxed again at death. They say it discourages work, saving and entrepreneurship.

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If Congress takes no action in 2009, the estate tax will fall to zero in 2010, and then bounce back to 2001 levels in 2011. That would create what the Tax Policy Center report, written by Leonard E. Burman, Katherine Lim and Jeffrey Rohaly, delicately calls “grotesque tax planning initiatives.” What they mean is that there would be a great temptation to do in dear old (very rich) dad before midnight on Dec. 31, 2010.

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The Obama plan calls for keeping the exclusion at $3.5 million permanently, as well as for maintaining the 45 percent tax rate.

The McCain plan seeks to raise the exemption to $5 million. But the far more important part of his proposal is to slash the tax rate to 15 percent. For those with estates in the range of hundreds of millions, that would have the effect of cutting the tax burden by two-thirds.

In 2001, the exclusion was $675,000 and the tax rate 55 percent. If nothing is done, the tax rate will revert to that level and the exclusion will fall to $1 million.

One sign of the accomplishments of the opponents of the estate tax is that while Mr. Obama wants to return tax rates on very high-income Americans to the levels that prevailed before President Bush took office, Mr. Obama supports an estate tax rate that is 10 percentage points lower than it was then.

There are many other parts of the tax law that must be changed next year. Congress used to pass tax laws for individuals that purported to be permanent, but since 2001 that practice has died. Leslie B. Samuels, a partner at Cleary Gottlieb and former tax policy official in the Clinton administration, notes that such provisions as a temporary fix for the alternative minimum tax and one allowing deductions for tuition expenses for some parents will also expire at the end of 2009. Individual income tax rates will rise at the end of 2010.

None of this will be easy. Instead of forecasted surpluses, the outlook is for huge deficits even before considering the tax cuts each candidate has proposed, not to mention the inevitable stimulus package to deal with the worsening recession.

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