Posthumously Conceived Children And Their Uphill Battle For Inheritance Rights

This story from yesterday’s highlights the difficulty faced by children who were conceived after one of their parents dies.

Melissa Amen conceived her 3-year-old daughter, Kayah, seven days after Kayah’s father died of cancer.

Melissa and her husband, Joshua, struggled for two years to have a child before she conceived through intrauterine insemination. Joshua had stored his sperm in a bank in case treatments for his cancer rendered him sterile. They were planning to raise a family together despite his three-year battle with cancer.

The use of assisted reproductive technology, such as in vitro fertilization and artificial insemination, is becoming more widespread among U.S. troops and cancer patients as they are increasingly banking their sperm to prevent a premature death or sterility-inducing injury from allowing them to have children, observers say.

Yet only 11 states recognize the biological relationships of children conceived posthumously: California, Colorado, Delaware, Florida, Louisiana, North Dakota, Texas, Utah, Virginia, Washington and Wyoming.

Other states grant inheritance rights to children born after one parent dies only if conceived naturally. And although the Social Security Administration generally oversees benefits, it defers to states when determining parentage and children’s inheritance rights.

After the Social Security Administration denied Melissa’s application seeking survivor benefits for Kayah because she was conceived after the death of her father, Melissa took the issue into federal court.  Iowa is close to changing its law to allow children conceived up to two years after a parent dies to receive inheritance rights and Social Security benefits. The Iowa House passed the bill last month and the Senate approved it this week.

I am unaware of any efforts in Ohio or any other states to accomplish the same worthy goal and, though it may not assist with the granting of federal survivorship benefits, an estate plan drafted by a qualified estate planning attorney in your area will most certainly simplify the apportionment and provisioning of assets for your after-born and after-conceived children.

So you gave some property to a relative and didn’t file a gift tax return. The IRS is coming.

This comes to us from today…

As part of a new national hunt for gift tax evaders, the Internal Revenue Service has asked a federal court for permission to order a California state tax agency to hand over its computer database of everyone who transferred real estate to relatives for little or no consideration from 2005 to 2010.

If granted, the sweeping request could expose many Californians–especially those who didn’t file federal gift tax returns–to audits as well as penalties or even substantial back taxes.

The little-known lawsuit, called “In the Matter of the Tax Liabilities of John Does,” was filed in December on behalf of the IRS in federal court in Sacramento, the state capital. That’s the home of the California Board of Equalization, which oversees property tax issues across the state. No action has been taken yet on the request.

From Professor Berry:

The IRS nearly admits that it is going on a fishing trip for John Does. However, it considers it to be in well-stocked waters as evidenced by the widespread noncompliance in 15 other states that have already been targeted. Gift tax returns were filed 0% of the time in Ohio and 10% of the time in Virginia and Florida. Other states that gave up this data include: Connecticut, Hawaii, Nebraska, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Tennessee, Texas, Washington, and Wisconsin.

It may not amount to much in the way of dollars to the government giving the rise in the federal estate tax exemption during the targeted years and because of the way the estate and gift taxes are linked but audits are terrible.  So, if you want to transfer some property, contact a qualified estate planning attorney in your area to advise you on the gift tax consequences of doing so and on the propriety of doing so generally.

Estate Planning and Divorce

I’ve written here and here before on the unique challenges planners face when drafting a plan for people who are not in their first marriage.  One such challenge is advising clients whether they have any lingering rights or responsibilities from their divorce decree or another agreement that arose when their prior marriage ended.  Such decrees and judgments can have serious effects on any proposed plan and must be considered by your estate planner before signing anything.

Yesterday’s decision out of Oregon deals with a common aspect of divorce decrees when children are involved, the mandatory life insurance requirement.

In this case, decedent was required, pursuant to the terms of the stipulated judgement entry that ended the parties’ marriage, to maintain life insurance on herself – the requirement was reciprocal.  When she allowed the policy to lapse and subsequently died without such life insurance, her former spouse made a claim against her estate for the money he would have received had she not allowed her policy to lapse.  There was some discussion in this case about whether the surviving ex-spouse should be able to make such a claim given that he was the life insurance agent who issued the policy and therefore, the argument went, he should have known that the policy lapsed so he can’t now complain about his failures, but the court dismissed this argument almost out of hand and awarded the surviving ex-spouse his claim.

The point here is two-fold:  1) Pay attention to the documents that ended your prior marriage when doing planning now.  As much as you may want to, you can’t just pretend you were not previously married and, 2) Do what those documents tell you!

(As always there is a third point here:  Please, don’t try this at home!  For any planning needs, contact a qualified estate planning lawyer in your area. )

I’m Doing A Lot of Gifting Right Now

Well, not me personally but I’m working on a lot of gifting for clients.

High net worth individuals should consider making substantial gifts now and next year while the lifetime exemption for gifts is still $5 million.  No one knows what will happen to the law in 2013 but as it is presently written the exemption on lifetime gifts (and the still-unified estate tax/GST exemption) will come back down to $1 million.  Most folks don’t think this will happen, but then those are the same folks (me included) who would have bet their right arm that estate taxes would not disappear in 2010 as they did…  So, not only can crazy things happen, they already have!

If you want to make gifts to eliminate or reduce your or someone in your family’s possible federal estate tax liability before they die, contact a qualified estate planning attorney in your area.  Consider also making gifts from your/the gifting person’s trust if they don’t need the money for their care and support…  If done right, you could save some serious cash down the road.

Another Article on the Possible Demise of DOMA

Professor Berry this morning linked to a very interesting article [pdf] on the possible demise of DOMA by Jerry Simon Chasen (Attorney at Law, Miami, FL).

Within a four-week period last summer, three U.S. district court decisions were handed down that call into question the constitutional viability of the federal Defense of Marriage Act (DOMA). Because this law bars legally married same-sex couples from enjoying the 1,138 rights, benefits, and privileges extended to married couples under federal law—probably chief among which, for estate planners, are the unlimited marital deduction (when there is an estate tax) and the additional step up (when there is not)—the demise of this law would have a significant effect on planning for this population.

Read on!

90 Year Limit To Dynasty Trusts Proposed In 2012 Budget

If the estate planning lawyers you know are looking even more pallid than usual this morning, its likely because of this story in today’s WSJ:

A type of trust used by the wealthy to shelter assets from estate taxes for hundreds of years, or even forever, is under fire.

The proposal, which first appeared a few weeks ago on a hit list of estate provisions in President Obama’s 2012 budget, would limit tax-free “dynasty trusts” to 90 years.


Example: Robert, a widower, has a net worth of $15 million and his heirs include children, grandchildren and great-grandchildren. If he leaves everything to his children and they in turn leave everything to theirs and so on, there could be an estate tax toll with each generation.

Robert would like to put his entire estate into a trust and skip layers of tax. But if he does, the generation-skipping tax kicks in and replaces the lost taxes—except for an exempted amount, which is currently $5 million per individual or $10 million per married couple. That $5 million can be pumped up using discounts, life insurance and other leveraging techniques.

Dynasty trusts push that generation-skipping tax exemption to the max, putting the exempted amount beyond the reach of estate taxes for the life of the trust. That, in turn, means the heirs don’t have to “spend” their own exemptions on those assets. These trusts are now allowed in 23 states and the District of Columbia[.]

It looks next to impossible that this would actually happen this year but its at least interesting that the idea is on the table.

I tend to agree with the gentleman quoted in the article who pointed to the asset protection features of such trusts as being their most beneficial aspects and its unclear from the article how the proposed limitation may effect a creditor’s ability to get at the trust assets after the 90 years expires.  Impossible to say at this point what effect this proposed limitation may have on how frequently these trusts are used, so stay tuned.

Special thanks to Professors Beyer and Caron for their respective posts on this topic here and here.

“Top Blog” Nomination by LexisNexis


 LexisNexis Estate Practice & Elder Law Blogs 2011

I’m happy to announce that the Estate Practice & Elder Law Community at LexisNexis has nominated The Ohio Trust & Estate Blog as one of their “Top Blogs” for 2011.

If you happen to be a member of that community you can nominate your favorite blog here and, when the time comes, cast your vote.  They’ve nominated some of my favorites, many of whom I’m pleased to also be able to call my friends.

Thanks LexisNexis!

And thank you for reading.

One of The Top 3 Estate Planning Mistakes

One of the top 3 estate planning mistakes – in both frequency and severity –  is families not planning after second marriages.

These mistakes are so bad because there usually has not been any undue-influencing or other wanton shenanigans that would allow the plan to be set aside, its just that mom/dad or their attorney didn’t think things through when drafting their plan.  There are just so many options to consider and no one plan will fit all scenarios.

Professor Berry here links to an article on just subject and, in my opinion, its a must read for anyone who is either in a second (or third or fourth, etc…) marriage, or for anyone who is the child of a parent in a second marriage.

The below text is taken from the Professor’s post but I have reformatted it and added some additional content:

  • The first situation to consider is how money will be divided if both spouses die at the same time. This is actually the easier of all the scenarios.
    • One option is for each parent to pass property to his or her biological children.  This seems the most equitable on the surface, however, accomplishing such a distribution is a very difficult thing to do because very detailed attention must be paid to what assets are owned by mom and dad and, more importantly,  how they’re titled.  This option likely precludes joint ownership in any of their asset.  So while it sounds nice to pass each parent’s property down to their biological children, it would be quite a feat to accomplish this cleanly.
    • Another option is for all the assets to be divided among all of the children equally.  However, this could cause one heck of a rift where one of the parents has substantially more assets than the other.
    • Yet another is to divide assets based upon merit or need, but this can quickly become an emotional mess.
  • The more common—and complicated—situation occurs when one spouse dies first, usually dad.
    • If everything is left to the surviving spouse, she may spend those assets before spending her own (hey, its all hers so she is certainly allowed to), leaving nothing for dad’s surviving children. And at dad’s death, if his will leaves everything to mom or if his property is just passed to her via joint ownership or beneficiary designation, there is likely nothing that dad’s kids can do to change this result.
    • If at dad’s first death all of his assets are then left to his kids so that nothing goes to mom (or vice-versa, she  may not be able to maintain her standard of living during retirement.  (Again, this may sounds ok to dad’s kids but its usually anathema to dad’s wishes.)
    • Another possibility is for the surviving spouse to inherit half of the decedent’s property with the rest going to decedent’s biological children, but this non-need based decision model does not necessarily avoid any of the above problems, in fact, it could make them worse.

The best solution for planning for second marriages is to place assets in a trust.  And, because you can’t know who will die first, both mom and die typically need their own trust – avoid the dreaded joint trust! A properly drafted trust can allow the surviving spouse’s access to the deceased spouse’s assets during her lifetime, with reasonable restrictions, and on her death what remains will pass to dad’s surviving children.

“There is no one-size-fits-all solution to estate planning for couples in second marriages. Each situation is different and requires a different solution.”

What I do know, with certainty, is this is the situation which leads to more litigation than almost any other.  This is also the situation that is most likely to end the combined family by leaving everyone angry at everyone else.  But it doesn’t have to be this way.  Contact a qualified estate planning attorney in your area anytime you have a family with a second marriage.  Estate planning for “regular” families is tough enough; the second marriage – an arrangement that has almost become the norm – is doubly so.

You’re POA For Mom/Dad And They Have a Trust… Can You Change The Trust?

This question comes up frequently…  Someone is the power of attorney for someone else, let’s say mom or dad, and the POA wants to  change mom or dad’s trust (in their capacity as power of attorney) to conform to some new wish of mom or dad.  Can the POA holder do so after mom or dad has become incompetent and unable to make the change themselves? What’s the big deal?  Usually the POA holder has been making decisions for mom or dad for some time now – writing checks, making investment decisions and maybe even changing beneficiary designations on life insurance policies or retirement plans to avoid probate – so this would seem a small thing.

Not so.

The Ohio Trust Code clearly states in Section 5806.02(E): “An agent under a power of attorney may exercise a settlor’s powers with respect to revocation, amendment, or distribution of trust property only to the extent expressly authorized by both the terms of the trust and the power.”

So unless both your POA and the trust you want to modify explicitly authorize you to do so, in Ohio, you’re out of luck.  Such specifically delegated powers in both documents are not default.  And for good reason. So if you’re uncertain about your ability to make a change to your Principal’s trust, contact a qualified estate planning attorney in your area to answer this common (but not always simple) question

I was reminded of this point by Gregg’s post today about this same issue in North Carolina.

Same Sex Marriage, The Estate Tax & The [Possible] Death of DOMA

“There is nothing more powerful than an idea whose time has come.” – Victor Hugo

I posted last week about Hawaii having approved civil unions for same sex and couples (and for the rest of us breeders too).  Then the Obama administration one-upped that news by deciding to stop defending DOMA in the federal courts which lead directly to a number of posts and articles out there on the blog-o-nets about how a possible repeal of DOMA may have estate tax implications for same-sex couples.  It gets a little technical but my man Joel Shoenmeyer does a great job of getting us started in his post, DOMA, Same-Sex Marriage, and the Estate Tax.  Joel writes:

Federal estate tax law allows for a “marital deduction” for gifts made to a spouse at death, but the deduction is “equal to the value of any interest in property which passes or has passed from the decedent to his surviving spouse.” And, because of DOMA, same-sex married couples were not deemed to have a surviving spouse. This created a larger burden on same-sex married couples with estates subject to tax.

Some commentators have called this additional burden a “Gay Tax.” writes here:

The Williams Institute of UCLA School of Law has released a study [pdf] that shows that same-sex couples are assessed an average of $3.3 million more in taxes upon the death of their partner than a similarly situated opposite-sex couple. Because estate taxes are set federally, the Defense of Marriage Act prohibits even married same-sex couples from taking advantage of the marital deduction.

The Edith Windsor case, detailed here (and in this NYT article),  illustrates the point:

On November 9, 2010, Ms. Windsor, who shared her life with her late spouse, Thea Spyer, filed a lawsuit against the federal government for refusing to recognize their marriage. In the lawsuit, Ms. Windsor alleged that DOMA violated the equal protection clause of the U.S. Constitution because it recognized marriages of heterosexual couples, but not those of same-sex couples, despite the fact that New York State treats all marriages the same. Edie and Thea were married in Canada in 2007, and were considered married by their home state of New York.
When Thea died in 2009, Edie was the sole beneficiary of Thea’s estate. Because they were married, Thea’s estate normally would have passed to her spouse Edie without any tax. But because the federal government refuses to recognize otherwise valid marriages of same-sex couples due to DOMA, Thea’s estate had to pay more than $350,000 in federal estate tax. Earlier in 2010, Edie requested a full refund from the government. The IRS rejected that claim, citing DOMA.
These cases are going to come like a flood into the courts.  This NYT article describes how,  back in July of 2008, Judge Joseph L. Tauro of United States District Court in Boston sided with the Plaintiffs and ruled that DOMA “compels Massachusetts to discriminate against its own citizens in order to receive federal money for certain programs.” The other case [pdf], brought by Gay and Lesbian Advocates and Defenders, focused more narrowly on equal protection as applied to a handful of federal benefits. In that case, Judge Tauro again sided with Plaintiffs in ruling that DOMA violated the equal protection clause of the Constitution by denying benefits to one class of married couples — gay men and lesbians — but not others.
DOMA feels like its on its way out folks.  1996 was a long time ago and, though opinions on gay marriage have changed dramatically since then, the real force of change here looks to be the writing of unfair checks to Uncle Sam.  The insecurity over the future of the federal estate tax and a potentially lower exemption can only mean that we will see more of these cases.  And thus, another test of Mr. Hugo’s maxim may not be too far away…