The dust has begun to settle after the election - and both the legislative and executive branches are controlled by the Democratic Party. If Obama’s estate tax plan becomes law, the $3.5 million exemption of 2009 would be retained, but amounts in excess of that would be taxed at 45%. The top tax rates of prior years (for dual earners over $250,000 or one earner of over $200,000) would be reinstated 26% or more. Additionally, investors who make more than $250,000 per year would see an increase in the capital gains tax to up to 20%.

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A minor who nominated his mother as guardian ad litem (See What is a California Guardianship?) does not voluntarily participate in a probate proceeding triggering a no contest clause provision in a will or trust. Safai v. Safai, 164 Cal.App.4th 233 (2008).

“The Trust (What is a Revocable Living Trust?) and the will both included ‘no contest’ clauses, with the Trust’s clause stating, as follows: ‘Any beneficiary who directly or indirectly voluntarily participates in any proceeding or action in which such person seeks to void, nullify, or set aside (1) any provision of this instrument; (2) any provision of the Settlor’s will; or (3) any amendment of this instrument or codicil of the Settlor’s will shall be considered to have predeceased the execution of this instrument without surviving descendants[.] The provisions of this paragraph shall not apply to any disclaimer by any person of any benefit under this instrument. The Trustee is authorized to defend any contest or other attack of any nature on this instrument or any of its provisions.’”

The court reasoned that the settlor did not intend “to disinherit his only son in the event that [the son] contested the Trust while still a minor,” even though a “guardian or guardian ad litem is not a party to the action; instead, he or she is a representative of record of a party who lacks capacity to sue.” Thanks to Professor Beyer for bringing this case to my attention.

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Steve Fossett, the adventurer who disappeared while in flight over Nevada’s desert, may have finally been found in California. The disappearance raised probate issues (What is California Probate?) when his wife petitioned the probate court to declare him legally dead and to probate his will (What Will Happen If I Die Without a Will?). Crash investigators have found a “very small” amount of human remains at the crash site and described the crash as “very high impact.”

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Heath Ledger’s daughter Matilda will apparently inherit his entire $16.3 million estate. The actor executed a will (What Are the Advantages of a Will?) that left nothing to his daughter, but left everything to his parents and three sisters. Those family members have allegedly gifted those distributions to Matilda.

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What is the best way to find a good estate planning or probate lawyer in San Diego? There are many resources that can help you find an attorney – but not all of them will produce an optimal result. Two good ways of finding an attorney are by contacting your friends or the San Diego County Bar.

Probably the best way to find an estate planning attorney or lawyer in San Diego is to go through the personal referral process – simply ask a friend if they have used an attorney and whether they were satisfied with the service.

The San Diego County Bar Association has a phone number that you can call and they will refer you to a lawyer. You can find out more about the Lawyer Referral and Information Service here. The first 30 minutes of the consultation with the lawyer will be free.

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A Wisconsin court has ruled that giving a loaded shotgun to a suicidal parent is not the proximate cause of the parent’s death (although it is the actual or but-for cause), so that a wife and daughter of the man may inherit his $500,000 estate. The man was terminally ill with lymphoma and his wife and daughter took him directly from the hospital (where he had only a one day pass to leave) to a cabin, gave him the loaded shotgun and left him.

The Wisconsin Slayer Statute (Read here about California’s Slayer Statute – Will I Inherit from My Parents if I Kill Them? Part I) prohibits those who “intentionally kill” another from inheriting from the person. California’s statute has basically the same language, and it is not clear what the result would be on the same facts here. The wife and daughter were embattled in probate litigation (See What is Probate?), and the case will likely be heard by the Wisconsin Supreme Court. You can read the full story here.

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Barack Obama has aired a new ad accusing John McCain of favoring offshore asset protection trusts that operate as tax shelters in Bermuda. McCain is alleged to have taken $50,000 while on a lobbyist supported vacation from those who have benefited from the trusts. You can see the ad here, courtesy of the Huffington Post.

For more on the current state of asset protection trusts, read:

Eight Signs Your California Tax Shelter or Offshore Asset Protection Trust Is Actually Tax Evasion

Criminal Tax Evasion - Trouble Ahead for San Diego Asset Protection Lawyers and Attorneys?

Offshore Trusts and Asset Protection Trusts Are Among 10 Things Millionaires Won’t Tell You About

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If you are appointed as executor, administrator, or personal representative (What are the duties of a personal representative?) of an estate, you are responsible for filing a tax return. An estate tax return must be filed within 9 months of the decedent’s death. Internal Revenue Code §6075. You may file for an extension for no more than 6 months. IRC § 6081. If you fail to file a timely return, the IRS will assess a penalty equal to 5% of the amount required to be shown as tax on the delinquent return for each month during which the return remains delinquent.

The only way to avoid the penalty is to show that the failure to file was due to “reasonable cause” and not “willful neglect.” Reasonable cause is established where, despite the exercise of ordinary business care and prudence, a taxpayer is unable to timely file. Willful neglect is a “conscious, intentional failure or reckless indifference.” Reasonable cause may be established by relying upon the advice of an attorney. “However, a taxpayer’s reliance on the advice of an attorney with respect to matters such as meeting filing deadlines generally does not constitute reasonable cause.” Estate of Gertrude Zlotowski, Docket No. 22150-04 (July 24, 2007). In addition, relying solely on an attorney’s advice is likely an impermissible delegation of your duties as a personal representative of the estate.

“Congress has placed the burden of prompt filing on the executor, not on some agent or employee of the executor” except in a very narrow range of situations (such as erroneous advice that a return was not needed at all). United States v. Boyle, 469 U.S. 241, 249-250 (1985). If you are preparing to assume the duties of a California personal representative, it is important that you consult with a San Diego probate lawyer who can provide guidance on return preparation, filing deadlines, and other issues that could land you in hot water should you fail to spot them.

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Probate is an expensive proposition in California. The cost will vary depending upon the size of the estate, but one thing is guaranteed – your estate will pay much more than the cost of a living trust. San Diego probate fees include the cost of filing, notice of publication in the San Diego Union Tribune, real property appraisal by the probate referee, a probate bond, attorney’s fees, and executor’s fees. The TLD legal blog estimates that the probate of a $500,000 estate will generate $28,035 in costs and fees.

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The executors (See “What is a California Personal Representative?“) of Superman’s estate – Joanne Siegal and Laura Siegal Larson – have successfully reclaimed the estate’s half of Jerome Siegal’s copyright of Superman by terminating its grant to Warner Brothers, Time Warner, and DC Comics.

The opinion is an interesting read on the creation and promotion of Superman, and also goes into some detail about the treatment of Siegal (and his co-creator Joseph Shuster) by the companies. Apparently, DC Comics had given them very little money in return for the copyright – until a 1961 New York Times article pointed out they were nearly “destitute” and living with “threadbare furniture” in “cramped apartments.” You can find the opinion here Siegel v. Warner Bros. Entertainment Inc., 542 F. Supp. 2d 1098, (C.D. Cal., 2008), thanks to Professor Beyer for highlighting the article.

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Who may write a will in San Diego? Any person that is eighteen years of age and of sound mind may write a will (But should you? See Will Advantages; and Disadvantages of a Will). A person is of sound mind if they understand the rights, risks, and consequences of the testamentary act, the property they own, and their living descendents.

A person is not mentally competent if they lack the mental capacity to understand the nature of the testamentary act, understand and recollect the nature and situation of the individual’s property, or remember and understand the individual’s relations to living descendants, spouse, and parents.

In addition, a person may lack capacity to write a will if they have a deficit in mental function, such as alertness, information or thought processing. Of course, a court will not probate (See What is Probate?) a will where the person is insane, defined as a false conception of reality, a belief in supposed facts against all evidence and probability.

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A will is a living, breathing legal document (See “What Will Happen if I Die Without a Will?”. There are many ways in which people have tried – and failed – to revoke California wills (See “Advantages of a Will” and “Disadvantages of a Will“) that have produced unexpected and unintended results. Just like in drafting a will, there are traps for the unwary that could preclude a person from receiving a gift, or force an unintended sale of a widow’s home. In order to properly revoke a will, it is best to consult a San Diego estate planning attorney.

Arguably the best (and certainly most common) way to revoke a will is by a subsequent will, either expressly or by inconsistency. California Probate Code § 6120(a). A will may also be revoked by physical act, like being burned, torn, canceled or obliterated with the intent and the purpose of revoking it by the testator. California Probate Code §6120(b). A will may also be revoked unintentionally by operation of law, such as if the will is lost, by dissolution of marriage, or by improper execution.

If you fail to properly revoke your will, it remains a living document and will be admitted to probate court (See “What is Probate?”) along with your other testamentary documents. It is not advisable to attempt “cross-outs” (revocation by interlineation) on the face of the document in order to increase a devise to another. Crossing out a gift in a will does not actually increase a devise to another person who would receive part of a gift (such as a share of a home or bank account). Likewise, crossing out a term with additions to the face of the document will likely be invalid unless they meet the legal requirements for a valid will. If you have questions, be certain to direct them to a qualified San Diego estate lawyer before attempting a will revocation, your beneficiaries will thank you.

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In a previous article, “Eight Signs Your California Tax Shelter or Offshore Asset Protection Trust Is Actually Tax Evasion,” I pointed out that several partners were in trouble at Arnold and Porter for promoting abusive tax shelters. The current state of charges, indictments, and investigations against other firms are almost too numerous to count.

Indictments against KPMG were thrown out by a New York appellate court (not on the merits, but because the government “interfered with defendants’ relationship with counsel“), yet charges are currently pending against Ernst & Young as well as several law firms. Ernst & Young has been snagged in an investigation in which Ernst set up illegal tax shelters for wealthy citizens seeking to hide income or conceal it as capital gains. But the investigation of Ernst has led to interesting revelations that have entangled estate planning lawyers in criminal and possibly civil charges.

Ernst & Young asked “friendly law firms to write opinion letters assuring the taxpayers that the shelters were ‘likely’ to pass muster should the IRS investigate their legality. In return, the firms received a fixed fee for each case–usually $50,000, but at times up to $150,000, according to court records.” The case is currently being tried in New York, but will surely have a ripple effect at the San Diego branch offices of the big accounting firms, including any local San Diego estate planning lawyers that have written such opinion letters.

Those that lost money will likely be able to recoup their losses against the firms through malpractice cases. Several rules of California professional responsibility are violated by such an arrangement (especially if their interests were not disclosed) and the case for professional negligence is strong. The firms would likely seek to avoid the limelight, so they would probably attempt to settle to avoid public embarrassment.

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If San Diego estate planning is anything like the rest of the nation, it is in pretty bad shape. The National Association of Estate Planners & Councils has planned the third week of October for a National Estate Planning Awareness week. The reasons for the promotion?

• 70% of Americans do not have a basic will - those that have a will fail to keep it updated.
• 79% do not have a living trust
• 69% do not have a living will or advance healthcare directive

Surprisingly, up to 74% of parents do not have a last will and testament, and cite choosing a guardian as a deterrent.

The council is preparing promotional materials for local affiliates to hold presentations for the public. You can find updates at the council’s website. Thanks to the PA Elder Blog for bringing this story to my attention. As of right now, the website for the local San Diego chapter is down, check back here for updates.

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A California probate court [See "What is California Probate?"] correctly ruled that a widow was not entitled to her dead husband’s frozen sperm, held the California Court of Appeal (Third District). Estate of Kievernagel, C055516 ( 9/11/08). The issue was whether Joseph Kievernagel would have wanted his wife, Iris Kievernagel, to have the sperm after his death. The sperm preservation agreement provided for two options upon the death of Joseph, either it would be donated to Iris or destroyed. Joseph initialed by the latter option, and both husband and wife signed the document. Joseph died in a helicopter crash in 2005.

Iris was appointed administrator [See "California Personal Representative"] of Joseph’s estate and then petitioned the probate court for a preliminary distribution of an “asset of no financial value” but “of immense sentimental value to the widow.” Joseph’s parents contested the preliminary distribution, claiming that it was against the testamentary intent of Joseph.

Frozen sperm falls within the broad definition of property in California Probate Code §62. Hecht v. Superior Court (1993) 16 Cal.App.4th 836, 846. This court agreed with Hecht that “gametic material, with its potential to produce life, is a unique type of property and thus not governed by the general laws relating to gifts or personal property or transfer of personal property upon death.” Estate of Kivernagel. Presumably, this means that a person can dispose of sperm or embryos in an instrument (or perhaps without any instrument at all) that does not meet the requirements of a formal will [See "Advantages of a Will"] – because the sperm bank agreement at issue was not properly witnessed. “Accordingly, in determining the disposition of Joseph’s frozen sperm, the trial court properly relied on Joseph’s intent as to its use after his death.” Id.

The probate court may find such testamentary intent by a preponderance of the evidence. Id. What is interesting is that this holding opens up the possibility of probate litigation over just what the intent of the donor was in the case of a cryogenic agreement that fails to specify what will happen to the genetic material after death. Nevertheless, in this case the written agreement was in place, and Joseph’s intent that the sperm be destroyed upon his death controlled.

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A will (see “Advantages of a Will”) drafted under California law cannot violate public policy. For example, a San Diego probate court (see “Disadvantages of San Diego Probate”) will not enforce a clause that dictates the commission of a crime or specifies that the beneficiary must divorce a named spouse before a gift from the will is delivered.

But in a textbook lesson in how to write a will, Bruce Ivins, the man who committed suicide after becoming the primary suspect in the anthrax mailings which killed 5 people in 2001, created a will that skirts those public policy concerns. Ivans knew that his wife stoutly opposed abortion – she served as president of Frederick County’s Right to Life movement – and also that she might not honor his request that his remains be cremated. So he proposed that “If my remains are not cremated and my ashes are not scattered or spread on the ground, I give to Planned Parenthood of Maryland” a $50,000 gift from the estate. He knew that his wife would oppose the gift and would therefore be coerced into honoring his request.

Apparently, his threatened gift has spurred the family to action. His cremated remains are stored at a funeral home while Maryland probate lawyers seek advice from the probate court on how to provide detailed proof to the probate court (as directed under his will) that the remains were cremated and scattered. A California probate court (”What is California Probate?”) would likely follow the result, which gives will drafters added incentive to create alternative dispositions to enforce testamentary intent. Read more here.

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Now that the big accounting firms have been stung by IRS investigations, indictments, and convictions of the promoters of off the shelf tax shelters (like the POPS, PICOs, and FOCUS of Arnold and Porter), they have largely stopped offering speculative “investments” and offshore asset protection trusts. Now “a few smaller accounting and regional law firms, which are increasingly offering individual investors complex tax transactions, some custom-designed” are beginning to come under the scrutiny of the IRS.

In no particular order, here are the eight signs that your tax shelter could result in a criminal charges:

1. Tax savings that greatly outweigh the amount you initially put forth.
2. When an accountant or tax lawyer tells you that the financial transaction poses no risk.
3. When you are asked to sign a confidentiality agreement (so that you can’t get a second opinion).
4. A return that dramatically changes your tax liability when compared to previous years (which raises red flags at the IRS).
5. The profit of the transaction is insubstantial when compared to the tax savings.
6. It is a “deal done by very smart people that, absent tax considerations, would be very stupid.”
7. It sounds too good to be true.
8. You believe your tax shelter was built by God.

Of course, keeping money offshore in an asset protection trust is not against the law. But failing to declare those assets to the IRS is a violation of tax law, because the United States taxes on the basis of citizenship, not borders. Click here to read the New York Times article.

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Asset protection may come in many forms, but what if your tax shelter was built by God? That is the claim of an Iowa resident who believes he resides in heaven, the ultimate off-shore asset protection trust. The man’s logic seems to be that heaven is not within the jurisdictional reach of the IRS, and he is therefore owed a refund of previous taxes paid in the amount of $240,000. Of course, the IRS has a rigorous belief system of its own that is quite the contrary. His refund application resulted in a criminal indictment of filing a false claim and the man faces up to 5 years in prison and a $250,000 fine. Maybe the man took Henry Thoreau a little too literally. Thoreau once said, “Heaven is under our feet as well as over our heads.”

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When you write a will, your estate becomes vulnerable to probate litigation (as opposed to a living trust). When you are related to the Godfather of Soul, there are many, many reasons (read: dollars) to litigate over a contested stake. Elvis Presley’s estate earned $49 million last year; John Lennon’s took in $44 million. True to form, not fewer than 5 of Brown’s 6 recognized children are contesting the share left to them, and Brown’s fourth wife claims she had his 7th child – which would be owed a share under the pretermitted-omitted child doctrine.

At the present time not much remains in Brown’s estate. Although there have been opportunities to earn money through the production of television shows and movies (the latter to be written/directed by Spike Lee), the potential suitors have been scared away by the prospect of litigation. When the judge overseeing the estate administration asked to see all lead counsel in chambers, no less than twenty-one lawyers stood up. That would send a chill down any estate lawyer’s spine, and certainly the Godfather cannot feel good about the result. Read more about the story here, thanks to Professor Beyer for highlighting the ongoing dispute here.

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Michael Ray Jennison was found guilty of second degree murder of a real estate agent hired by a local San Diego probate lawyer. [See the first report here and the second report here.] Jennison inherited part of a condominium from his grandmother (see “What Will Happen If I Die Without A Will?“). Probate agent James Magot was hired to handle the sale of the property, but placed a competing bid against Jennison for its purchase (the forced sale was truly one “Disadvantage of Probate“). The agent and Jennison were involved in an altercation witnessed by a neighbor, after which Jennison shot the probate agent twice in the head. Jennison faces a life sentence.

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