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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1. “Major revisions to New York Power of Attorney Law” in the Nassau Lawyer
2. Will New York revise the power of attorney law again?
3. New York’s revised power of attorney statute (#2)
4. New York’s new power of attorney law
5. Power of attorney created under the old New York statute still valid after 9/1/09

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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2. Halachic Wills & Estates Series by the Bais HaVaad
3. Halacha and inheritance
4. Article on Wills, Inheritance & Halacha in Community Magazine
5. Testamentary capacity and undue influence in criminal proceedings

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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Back in June, two and a half months before the effective date of the statute, the New York State Assembly passed Bill No. A8392-A, which made some “technical corrections” to the statute and the statutory forms. Unfortunately, the State Senate was too busy bickering over Senate leadership to notice much of anything, least of all some technical corrections.

The bill passed by the Assembly clarifies some of language in the statute, including some changes to the statutory short form and the statutory major gifts rider. It also makes a few subtle but significant changes to the law.

For instance, the current new law states that unless the principal expressly provides otherwise, the execution of a power of attorney revokes all prior powers of attorney executed by the principal. The Assembly bill flips that around, and provides that the execution of a POA does not silently revoke all prior powers of attorney unless the principal gives written notice to the previously appointed agent.

Another change is in the limits to gifts an agent can give using the power of attorney – i.e., what the statute considers a non-major gift. The current statute allows the continuation of the principal’s customary gifts, with a limit of $500 per person or institution per year. For larger gifts, a statutory major gifts rider must be executed. The Assembly’s latest revision limits the total of all gifts taken together to $500.

These proposed changes are reflected in changes to the text of the statutory short form and the major gifts rider. So if the bill ever passes the Senate, the forms will have to be revised again. Add that to the list of results of the ridiculous power struggle in Albany.

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2. Power of attorney created under the old New York statute still valid after 9/1/09
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Last night I listened to a lecture by Rabbi Hershel Schachter on the Halachic Issues of Inheritance. The lecture is an introduction to the major halachic principles regarding wills and inheritance, including halachic estate distribution, whether and when wills are accepted in halacha, bechorah, property deposited with a third party, and dina demalchuta dina.

You can download the lecture here. I haven’t explored the entire yutorah.org website, but there seems to be thousands of lectures on various topics available for download.

Related posts:

1. Article on Wills, Inheritance & Halacha in Community Magazine
2. Estate Planning, Halacha and the Jewish Law of Inheritance
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4. Halachic perspective on the Estate of Max Feinberg

As we’ve mentioned, although the estate tax is set to expire at the end of 2009, Congress is expected to pass new legislation that will keep the estate tax rate at 45% with a $3.5 million exemption.

Morrissey’s article touches on gifts, life insurance, irrevocable trusts such as life insurance trusts and GRATs (grantor-retained annuity trusts), and using limited partnerships to reduce the value of assets for tax purposes. Although the article does not mention it, the Obama Administration recently proposed restricting the use of GRATs and valuation discounts going forward, so the time to take advantage may be now.

The article also stresses the importance of periodically reviewing your estate plan. Finances, relationships, and laws change over time, and an estate plan created ten years ago may no longer make sense.

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From the article:

Life insurance comes in a variety of forms meant to accomplish a range of objectives, from providing for survivors to moving assets out of your estate. The prices for it depend not only upon how much coverage you want but also upon what type of policy you get, either for a finite period of time or indefinitely.

Sullivan explains the basic differences between term life and whole life insurance, encourages consumers to check on the financial soundness of insurance companies, and provides links to other resources on purchasing insurance and selecting a broker.

Read the full article here.

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Below is a scanned copy of an article I wrote for the Nassau Lawyer, published by the Nassau County Bar Association.

Clicking on the image will enlarge it in your browser.

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5. New York’s revised power of attorney statute (#2)

Excerpts from the article:

In the torrent of estate-planning advice out there, one simple but crucial bit of wisdom often gets overlooked: Keep your stuff in order.

Surviving family members can get overwhelmed when loved ones leave behind disorganized financial statements and cluttered homes. Heirs and executors must become de facto investigators, sorting through the junk to figure out where the assets are — and what should be done with them.

Read the rest of the article here.

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The last major change to the federal gift and estate tax law was the Economic Growth and Tax Relief Reconciliation Act of 2001. A basic summary of the current law and the changes proposed by Senator Baucus, as provided by the AALU, is as follows:

Under current law, U.S. citizens and residents must pay taxes on transfers of property both during life and at death. These taxes are due under three separate tax systems: the estate tax, the generation skipping transfer tax, and the gift tax. Currently, the top tax rate for all three taxes is 45%. Both the estate and generation-skipping transfer taxes currently have a $3.5 million exemption for individuals ($7 million for couples). The gift tax has an exemption of $1 million ($2 million for couples). For the 2010 tax year, the estate and generation skipping transfer taxes are repealed. In the same year, the gift tax rate will fall to 35%. In 2011, the estate, generation skipping transfer, and gift taxes are scheduled to revert back to pre-2001 levels, with an exemption of $1 million, a 55% rate, and a 5% surtax on large estates.

The proposal would make permanent the 2009 estate, gift, and generation skipping transfer tax laws going forward and index the exemption amount. The proposal would also reunify the estate and gift taxes. In addition, the proposal would allow portability of exemption for spouses. Finally, the proposal would increase the amount available under the special use valuation revaluation to equal the estate tax exemption. (AALU Washington Report, 3/26/2009)

In other words, as proposed, there would be no estate tax repeal for 2010. Instead, the estate tax exemption would remain at $3.5 million. A maximum tax rate of 45% would also continue into 2010. In addition, beginning in 2011, the exemption would be pegged to inflation. So, for example, a 3% CPI increase in 2010 would result in a $3,610,000 exemption for 2011.

Under current law, the estate tax exemption for 2009 is $3.5 million, but the gift tax exemption is still only $1 million. Gifts that do not qualify for the annual gift tax exclusion use the lifetime gift tax exemption. The proposed legislation would reunify gift and estate tax by increasing the gift tax exemption to the same level as the estate tax.

The proposed portability of exemption for spouses would preserve the exemption of the first spouse to die, even where the exemption amount was left outright to the surviving spouse. Under current law, couples who together have assets over $3.5 million would have to create a trust (such as a credit shelter trust) to preserve the exemption following the first spouse’s death. Under the proposed legislation, however, the estate of the first spouse to die can elect on the estate tax return to preserve any unused portion of the exemption.

A few more points about the portability proposal:

If the proposed bill becomes law, it seems that it would make sense to file a federal estate tax return even for small estates, since by doing so an unused spousal exemption can be preserved.

The proposed bill allows a surviving spouse to use the aggregate unused exemptions of all marriages, but unused exemptions cannot exceed the basic exclusion amount applicable at the time the surviving spouse dies. This prevents the accumulation of unused spousal exemptions from multiple marriages.

As Greg Herman-Giddens of the North Carolina Estate Planning Blog and others have pointed out, the proposal wouldn’t make credit shelter trusts a thing of the past, since a credit shelter trust also protects the growth of the trust assets from being taxed in the survivor’s estate. A credit shelter trust can also be used to protect assets from creditors and future spouses.

Beyond that, the portability proposal raises a whole new set of potential issues, especially with regard to estate planning for a surviving spouse in a second or third marriage whose estate can potentially benefit from the unused exemption of a previous deceased spouse.

The Baucus proposal is currently in the Senate Finance Committee. To become law, it would still have to survive the committee, pass votes in both houses of Congress and be signed by the President.

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The BBC reported in Pious ‘fight death the hardest’ that “people with strong religious beliefs appear to want doctors to do everything they can to keep them alive as death approaches.” The study of 345 patients with terminal cancer, conducted by the Dana-Faber Cancer Institute, reportedly found that “those who regularly prayed were more than three times more likely to receive intensive life-prolonging care than those who relied least on religion.” (Thanks to Michael Bonasera of the Ohio Trust and Estate Blog for the link.)

The BBC article further reported that this is despite downsides to intensive medical intervention.

[W]ork has been done which suggests that intensive intervention in the last few weeks and days before death may reduce a patient’s quality of life.

Researchers at the University of Pittsburgh School of Medicine found that treatments such as ventilator support, resuscitation, having a feeding tube and non-palliative chemotherapy were associated with more psychological and physical distress. The patients’ chances of dying in their preferred place were also reduced.

The Economist, in its report in the study, wrote:

Explaining the unpleasantness and futility of the procedures does not seem to make much difference, either. Holly Prigerson, one of Dr Phelps’s co-authors, was involved in another study at Dana-Farber which was published earlier this month in the Archives of Internal Medicine. This showed that when doctors had frank conversations about the end of life with terminally ill cancer patients, the patients typically chose not to request very intensive medical interventions.

According to Dr Prigerson, though, such end-of-life chats had little impact on “religious copers”, most of whom still wanted doctors to make every effort to keep them alive.

If nothing else, this underscores the importance of having a living will communicating your wishes with regard to end of life treatment. For a more detailed discussion of advance directives and the Terri Schiavo case, see VMM’s Sidebar for Spring 2005.

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Excerpts from the article:

The biggest issue, given both the recession and the flux in federal estate tax laws, is whether wills already drawn up still fulfill their intent.

* * *

Just as you should periodically rebalance your portfolio, you need to rebalance your will. To take full advantage of the $7 million exemption for couples, each spouse needs to have $3.5 million of assets in his or her name. Given the across-the-board drop in asset values, spouses may want to rethink who owns what, at least on paper.

* * *

For simplicity, many people added clauses to wills that put whatever the exemption amount was in a trust for their children and left the rest to the surviving spouse, who is not subject to the estate tax. That tax-free level kept rising, from $675,000 in 2001 to $3.5 million this year. But if your estate was worth $6 million in 2001 but is now worth $4 million, allowing the new limit to go automatically into a trust would leave your spouse without enough money.

Read the full article here.

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3. Common sense estate planning: Get Organized!
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The STOLI agent or broker’s sales pitch does not inform the customer of the risks. I heard a spiel last summer from someone in the STOLI business. I’m not sure this particular person saw any downside to a STOLI arrangement.

As he put it, the investor pays the premiums for two years (the period in which an insurance company may contest a policy), so there’s no out of pocket cost. After two years, the insured person gets a lump sum payment he or she wouldn’t otherwise get. The insurance companies issuing the policies are often players on the secondary market themselves, so it isn’t as though they don’t know the policy might be sold. Nobody is hurt, no one’s out any money, and the purchaser walks away with a lump sum risk-free. I’d have to be crazy to talk my grandmother out of purchasing a STOLI.

So where is the harm? Consider these points:

• There may be hidden income tax ramifications for the insured person resulting from of the lump sum payment and from the payment of premiums on his/her behalf (if you’ve purchased a STOLI policy, speak to your tax professional).
• Turning life insurance policies into easily traded commodities may induce Congress to strip life insurance policies of the tax benefits they now enjoy, which hurts everyone.
• Pricing for policy premiums takes into account that a percentage of policies will eventually lapse because the policy owners stop paying premiums; in order to make up for STOLIs, which are investor backed and won’t lapse, premiums for all policies would have to increase.
• If an insurance company succeeds in rescinding a policy, the insurance company is not back to where it was before. It’s out the huge commission it paid to the broker. If it can’t find the broker or the broker is judgment proof, the insurance company might try to recover the commission from the estate of the original policy purchaser.
• There’s a public policy behind the statute. Remember how short sellers were being blamed for causing the financial crisis by betting against the market and driving down stock prices? When someone buys your life insurance policy, they’re betting against your longevity. How well will you sleep at night knowing that some stranger somewhere has no idea what a wonderful, caring person you are but has a very profitable, multi-million dollar incentive in seeing you dead? (Cue up the horror soundtrack.) You might want to join a self-defense class or get a licensed weapon.

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A point of clarification, since several people have asked. A valid New York power of attorney created prior to September 1, 2009, will remain valid after September 1, 2009. You don’t have to re-appoint an agent using the new statutory short form. The requirements of the new POA statute apply only to powers of attorney created on or after September 1, 2009.

Several statutory changes will apply to all powers of attorney, regardless of whether they were created before or after September 1, 2009. These include provisions requiring acceptance by all third parties, establishing the standard of care for the agent or attorney-in-fact, and providing for a special proceeding to compel third parties to accept the POA.

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In ruling on a motion to dismiss claims in Phoenix Life Ins. Co. v. Irwin Levinson Ins. Trust II, Justice Carol Edmead wrote by way of background that in a SOLI arrangement:

a policy is purchased, not with a view of the insured paying premiums for the benefit of the insured’s family, but with a view toward reselling the policy to an “outside investor” in a secondary market for life insurance. The outside investor pays the insured in order to make a “wager” on the duration of the insured’s life. [Blogger's note: i.e., the investor pays the premiums for two years and then buys the policy for a lump sum.]

The entire secondary market for life insurance policies (sometimes called the “life settlement” market) is a multibillion dollar financial industry that provides life insurance policyholders who do not wish to continue maintaining their policies alternatives besides either allowing their policy to lapse or selling it back to the insurer for its cash surrender value, but also involves parties who seek to invest in an “insured’s imminent demise.”

***

In 2006 alone, more than $12 billion in life insurance policies (measured by face value) were sold to purchasers in the secondary market such as Goldman Sachs & Co., Credit Suisse, and UBS AG. Phoenix itself created its own separate division, Phoenix Life Solutions, to participate in the life settlement market.

The problem with STOLI policies is that, under New York law, it is illegal to procure a life insurance contract if the benefits are payable to a person who at the time the contract was made did not have an insurable interest in the person insured.

What is an insurable interest? “In the case of persons closely related by blood or by law,” an insurable interest is defined as “a substantial interest engendered by love and affection.” Among other persons, an insurable interest is defined as “a lawful and substantial economic interest in the continued life, health or bodily safety of the person insured, as distinguished from an interest which would arise only by, or would be enhanced in value by, the death, disablement or injury of the insured.” (New York Insurance Law § 3205)

The investors behind a SOLI have no interest in the insured person’s continued life. On the contrary, they’re betting that the insured person will die sooner rather than later, so that fewer premiums are paid before they receive the large death benefits.

How do they get around the law? Justice Edmead wrote:

To conceal the real policyholder’s lack of insurable interest from the insurer, as well as to induce the insured’s application, investors establish an irrevocable trust solely to hold the target insurance policy. The trust is established around the time that the insured submits his application, and is named as the owner and beneficiary of the policy, with the beneficiary being entitled to the death benefits payable under the policy. The beneficiary of the trust is typically disclosed to the insurer and designated as the insured or a family member. Once the policy is issued, the insured transfers the beneficial interest in the policy to an outside investor in exchange for a significant lump sum payment.

Investors selling STOLIs usually target elderly people because they benefit from shorter life expectancies. Often, to get the purchaser eligible for the large policy, the application involves medical or financial misrepresentations.

Whether the policy owned by the Irwin Levinson Insurance Trust was in fact illegal is subject to dispute between the parties. Phoenix Life Insurance said the policy was stranger-originated. They also claimed that application for the policy contained medical misrepresentations. The Trust countered that the Phoenix’s refusal to pay the death benefits was part of a deceptive business practice.

Justice Edmead ultimately decided not to dismiss the deceptive business practice claim. However, she also noted that individuals instrumental in procuring the policy include life insurance experts who are also involved in a number of large life insurance transactions currently being litigated. Referring to the Trust, she further noted that:

it appears that defendants are relying on a consumer protection statute to defend a practice that the very same statute was intended to guard against.

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Here’s a quick overview of the issue:

There are two distinct questions regarding the Halakhic status of wills and trusts. First, are wills and trusts recognized as valid instruments by Jewish law? Second, if they are, or if estate plans can be made to be Halakhically valid, should they be used to leave property to someone other than those entitled to inherit under the Jewish Law of Inheritance?

Many, if not most, leading Halachic authorities throughout history consider a will to be an invalid document where it contradicts the order of succession laid out by the Torah. This is because both the will and the Jewish Law of Inheritance become effective at the same instant — the moment the testator (the person making the will) dies. According to these opinions, the Jewish Law of Inheritance prevails and the will is ignored. In fact, according to many opinions, simply executing a will is prohibited as a diversion of assets from the rightful Halachic heirs (the Talmudic prohibition of ha’avarat nahala) in a manner enforceable in a secular court.

A common solution to the problem is for the testator to separately sign a note of indebtedness to the non-Halachic heirs in an amount in excess of the estate. The note states that the debt is satisfied if the halachic heirs accept the terms of the will, essentially forcing the Halachic heirs to choose between the will and the note, with the will obviously being the better alternative for the Halachic heirs. Halacha allows a debtor to create an enforceable debt without an underlying reason for the debt. The note probably has no validity in a U.S. court.

There are many other related Halakhic issues to deal with. Does dina demalkhuta dina (the law of the land is the law of the Torah), itself a complex question, apply to the Jewish Law of Inheritance? While one can distribute estate assets during life by giving gifts, according to many opinions such distributions may be limited to assets already owned by the person making gifts. Furthermore, regardless of whether the methods are Halachically sanctioned, at what point does providing for non-Halachic heirs rise to the level of diversion of assets?

I’d be happy to discuss this topic further, so long as it is understood that there are divergent opinions at every step of the way, and that one must consult a Halachic expert for a practical application of these laws.

Update 5/11/2010: For further discussion of estate planning and the Jewish Laws of Inheritance, see my other blog, Jewish Legal Perspectives, and click on the Estates category (or just click here).