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Richard Epstein on the estate tax

Richard Epstein, responding to Paul Krugman’s Op-Ed in the New York Times, defends the Republic position on unemployment benefits, the estate tax and health care. With regard to the estate tax he writes:

So let’s start with the estate tax and ask whether a tax that exempts 99.75%, of all estates, as the Democrats propose, is better than one that just abolishes the tax altogether. I vote for the latter. The estate tax operates as the third tax on the accumulation of wealth–after progressive taxes on earnings and savings. That heavy state and federal key drives many people to take grotesque steps to minimize their liabilities, which in part explains why only 0.25% of the people pay it. By forcing these dumb maneuvers, the tax distorts the accumulation and transfer of capital in ways that could easily reduce the production of wealth that could be subject to an income tax. Only if you think that hitting the most productive portions of the population is the right way to instill a sense of national unity would you want to keep this ship afloat.

The full article can be read here.

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2010 03 10 Saul Elnadav Estate Tax Comments (0) Permalink

Jewish Legal Perspectives

Avrohom Gefen and I recently launched a new blog, Jewish Legal Perspectives (http://www.jlperspectives.org). We are posting regularly.

2010 03 05 Saul Elnadav Uncategorized Comments (0) Permalink

Will Congress’ inaction on the estate tax cause more deaths in 2010?

Paul L. Caron, the TaxProf blogger, provided the following chart from a 2006 article by Joshua S. Gans and Andrew Leigh, “Toying with Death and Taxes: Some Lessons from Down Under”.  The chart purports to show that a significant number of the deaths in Australia were shifted from the week before to the week after July 1, 1979, the date on which the estate tax was abolished in Australia.

I haven’t read the article by Gans and Leigh, and statistics and interpreting raw data are not my areas of expertise. I was initially perplexed by the increase in the number of deaths between June 28 and June 30. However, John Gordon (transactional / real estate) and I, pooling our respective undergraduate backgrounds in philosophy and literature, concluded that many people who had been placed on life support earlier in the week had been long shots for survival. Some may have lived a few days longer, but much to their desperate family’s chagrin, didn’t quite make it to July 1.

Granted, that may be cynical and far-fetched. But see this article in the New York Post on January 11, 2010, which reported on two people whose estates will be taxed because they died several hours before the 2010 repeal.

But [the] dilemma tormented another New York family whose wealthy mother was terminally ill in December.

“The family could have put her on aggressive, artificial life support, with tubes and medical devices, until January 1, thereby saving $3 million in federal estate taxes,” a source said. “The family chose the kinder path — letting her die naturally and peacefully.” She didn’t make it to New Year’s Day.

Just to put that in perspective: As of right now, there is no federal estate tax for people who have died in 2010. Congress may still act to reinstate the tax retroactive to January 1, 2010, and several members of Congress have indicated that they intend to do so.

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2010 01 11 Saul Elnadav Estate Tax Comments (0) Permalink

Will contests: surviving summary judgment

Surrogate Calvaruso of Monroe County issued a decision in Matter of Feller on January 4, 2010, worth reading for its succinct summary of some of the burdens of proof and presumptions that have to be overcome to survive summary judgment in a will contest.

In Feller, the decedent’s will left her estate to 10 charities and 4 individuals in equal shares.  Eight of her 11 distributees filed objections based upon due execution, testamentary capacity and undue influence.  The Attorney General, on behalf of the charities, filed a motion for summary judgment.  The court rejected all claims by the distributees and granted summary judgment.


Due Execution

The claim that the will was never properly executed was based on the fact that the testatrix had only responded in the affirmative to the attorney’s queries regarding the request that witnesses sign the will, and that she had not herself requested that the witnesses sign the will.  The court (thankfully) rejected this claim:

Attorneys routinely lead their clients through the will execution formalities in order to ensure that the requirements of EPTL 3-2.1 are satisfied in order to qualify a document as last will and testament entitled to be admitted to probate.  Such publication and instruction of a request is not required to be in any “ironclad ceremonial or ritualistic language.”



Testamentary Capacity

The objectants also claimed that the testator lacked testamentary capacity at the time she executed her will.  The court found that the objectants failed to offer sufficient evidence to raise a triable issue of fact.  The court wrote:

Proponent [of the will] bears the burden to prove testamentary capacity at trial. For purposes of a summary judgement motion, once a proponent makes a prima facie case for probate, the burden switches to the objectant to show a triable issue of fact….

There is a presumption of testamentary capacity when a will is drafted and the execution is supervised by an attorney, particularly when the evidence indicates that the testatrix executed the will only after careful review and discussion of its contents.  Here, objectants have failed to raise competent evidence creating a genuine issue of fact to overcome the presumption.



Undue Influence

The court also rejected the claim of undue influence because objectants failed to present any evidence of undue influence:

At a minimum, the objectant must make a showing of actual acts of undue influence, including time and place of the occurrence….

Though undue influence is typically proved by circumstantial evidence rather than direct evidence, this does not preclude summary judgement where a material issue of fact has not been shown. In fact, it is proper for the Surrogate to issue summary judgement where objectant has not made out a prima facie case of undue influence. Where a reasonable conclusion other than undue influence is supported by the facts, it is improper to conclude that undue influence existed:

[Undue influence] may be proved by circumstantial evidence but the circumstances must lead to it not only by a fair inference but as a necessary conclusion. To avoid the will of a competent testator on the ground of undue influence, the contestant must show facts entirely inconsistent with the hypothesis of the execution of the will by any means other than undue influence. In re Will of Henderson, 253 A.D. 140, 145 (1937).



The full text of the decision can be read here.

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2010 01 07 Saul Elnadav Estate Litigation Comments (0) Permalink

Halachic Wills & Estates Series by the Bais HaVaad

The Bais HaVaad Institute of Talmudic Law is presenting a seven part internet lecture series on halachic wills and estates.  I mentioned the introductory lecture by Rabbi Ari Marburger in my post on the Estate of Max Feinberg.

The second lecture, also by Rabbi Marburger, surveyed the various principles that are relevant to the halachic enforceability of wills, including whether a valid kinyan (transaction) can be accomplished by executing a will, the extent to which halacha incorporates domestic law (dina demalchuta dina), and whether and under what circumstances the heirs are required to honor the the wishes of the deceased.  Audio and video of past lectures are available on the Bais HaVaad website.  Audio downloads are free of charge, though registration is required.

According to an e-mail sent out this week, the third lecture, entitled “Wives, Firstborns, & Children That Are Astray” will be presented by Rabbi Dovid Grossman on Sunday 12/27/09 at 10 am EST.   The rest of the series, still unscheduled, will cover the following topics:

- How to Write a Halachic Will
- Trusts & Foundations
- Eldercare in Halacha
- Development Disability and Guardianship

Registration can be done through the website.

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2009 12 25 Saul Elnadav Halacha Comments (0) Permalink

New York Power of Attorney and Statutory Major Gifts Rider forms

One of the strange, often amusing, things about keeping a blog is the ability to see what people were searching for when they stumbled across the blog.  Not that analytics should necessarily dictate content, but since many visitors seem to be looking for New York’s new Power of Attorney and Statutory Major Gifts Rider forms, I figured I’d point frustrated googlers in the right direction.

The New York State Bar Association has the new POA and SMGR forms for download in Word or Wordperfect, along with suggested clauses for the Modifications sections.  The forms cost $20 but are free for NYSBA members.

You can download the forms here.  I also posted a link under the blog’s “Links & Resources,” a page I will add content to as I go along.

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2009 12 08 Saul Elnadav Power of Attorney Comments (0) Permalink

House to vote on estate tax amendment

According to North Dakota Congressman Earl Pomeroy’s website, the House of Representatives is scheduled to vote on H.R. 4154, the Permanent Estate Tax Relief for Families, Farmers, and Small Businesses Act of 2009 on Thursday, December 3, 2009.  The bill proposes to freeze the estate tax exclusion at $3.5 million with a maximum tax rates of 45%.

As noted in earlier posts, current law repeals the estate tax for 2010 and reinstates it for 2011, with an exemption of only $1 million and a maximum rate of 55%.

As with so many budgetary issues, depending on what you compare it to, you can spin it as a tax increase or, more logically, as an overall tax cut.  Compared to current law, it’s an increase for 2010 and a cut for 2011 and beyond.

In case you’re wondering, the farm picture is courtesy of Congressman Pomeroy’s website.

Update 12/4/09:  The House passed the bill 225-200.  See House Votes to Extend Tax on Estates of the Wealthy, NYT 12/3/09, which notes that the bill might be delayed in the Senate, but that “lawmakers do not want to delay action until next year because they are wary of enacting retroactive tax changes.”

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2009 12 02 Saul Elnadav Estate Tax Comments (0) Permalink

Halachic perspective on the Estate of Max Feinberg

Litigation in the Estate of Max Feinberg has sparked online discussions both before and after the case was decided by Illinois Supreme Court.  The question involves the validity of a clause in a will or trust that effectively disinherits a descendant who marries outside of a given faith.  Since Max Feinberg and his wife, Erla Feinberg, were Jewish, the clause has been called the “Jewish clause,” although the Illinois Supreme Court’s “beneficiary restriction clause” is more accurate, since this is not a uniquely Jewish issue.

Surprisingly, there have been very few recent decisions from any court on the legal effectiveness of the clause, which explains the widespread attention to the outcome of this particular case.

Two lower courts held that the clause violated state public policy, which encourages marriage and discourages divorce.  The Illinois Supreme Court took a more nuanced approach and upheld the validity of the clause under the narrow facts presented.  The Court explained that in this case the distribution scheme could have been altered by will or powers of appointment during Max and Erla Feinberg’s lifetimes.  Since no interests were vested until Erla Feinberg’s death, at which point the property was distributed outright, the estate plans never acted as a restraint on marriage or as an incentive for divorce.  The Court may very well have come out the other way and invalidated the clause had the beneficiaries been given a remainder interest in a trust on condition that they marry Jewish spouses.

The case deals with the so-called Jewish clause from a legal perspective.  But how Jewish is the Jewish clause?

As Rabbi Ari Marburger points out in the introductory webcast to Bais Havaad’s Halachic Wills & Estates Series, halacha draws a distinction between the validity and the appropriateness of an estate plan that varies the halachically prescribed order of distribution.  Just because the estate plan can be made to be halachically binding does not mean it bears halachic approval.  In fact, whether it is ever appropriate to vary the halachic order of distribution has historically been a matter of halachic dispute.  The disinheritance of a halachic heir is more problematic, but what constitutes a disinheritance is far from clear.

In the Feinberg case, the clause operated to disinherit four grandchildren.  Since grandchildren are not halachic heirs while their parents are  alive, the clause disinheriting them is inconsequential from a halachic perspective.  Rabbi Marburger suggests that even if the clause had been directed at the halachic heirs, contemporary authorities would allow the disinheritance.  Even so, while the clause may be valid, I am not aware of any contemporary traditional halachic authority that actually advises disinheritance for any reason.

While halachic estate planning often focuses on the mechanics and halachic validity of an estate plan, the larger question of halachic appropriateness should not be ignored.  This is particularly true in the common situation of a married couple leaving their entire residuary estates to each other.  In most cases, that distribution scheme is halachically problematic, whether or not the will is accompanied by a binding halachic note of indebtedness.

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2009 12 01 Saul Elnadav Estate Planning
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Reverse mortgages

Reverse mortgages are not new, but they have been gaining in popularity.  In March 2009, the New York Times attributed recent interest to the credit crunch, since reverse mortgage lenders do not generally consider borrowers’ credit histories.

According to the New York Times articles (here and here), reverse mortgages allow people to access the equity in their homes with no requirement to make monthly payments. The loan must be repaid when the borrower moves out, sells the house or dies. People over 62 are eligible, and the property must be the primary residence. The limit on the amount that can be borrowed was raised earlier this year to $625,500.00. And a borrower can never owe more than the value of the home, which is significant when it’s been recently reported that 23% of mortgage borrowers have negative equity in their homes.

While the ability to convert equity to cash may be a lifeline for some people, it is not appropriate for everyone, and there are risks involved. Professor Gerry Beyer links a September 2009 Consumer Reports article which reports that reverse mortgages:

can be terrible for customers who don’t understand the complicated rules governing them and how quickly high fees and interest charges can balloon. They can end up stranded in their homes without any remaining equity to cover unexpected costs later in life.

Use of the loans is exploding as lenders—who shoulder almost no risks—push them to the growing ranks of retired baby boomers, especially for spending on vacations, new cars, and more.

Lawmakers and regulators are getting worried. “The people who are making these loans and advertising them so heavily to seniors on cable TV get the rewards but escape the risks that come with them. It’s going to be the sequel to the subprime-mortgage mess,” says Sen. Claire McCaskill, D-Mo., who is pushing for reverse-mortgage industry reforms.

You can read the full Consumer Reports article here.

More about reverse mortgages and their risks can be found on the HUD website and AARP’s website.  See especially Reverse Mortgages Ripe for Abuse, AARP 10/7/09, raising concern about reverse mortgage scams and questionable sales practices.

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2009 11 24 Saul Elnadav Elder Law Comments (0) Permalink

Article on Wills, Inheritance & Halacha in Community Magazine

An article I wrote on yerusha (Jewish Laws of Inheritance) and halachic estate planning was published in the October 2009 issue of Community Magazine.

See The Top 10 Questions & Answers About Wills, Inheritance & Halacha.  If you’re concerned about halacha, you should, at the very least, have a will.

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2009 10 14 Saul Elnadav Basics
Estate Planning
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