Holographic Wills in Virginia: Schilling v. Schilling

Wills (or, more broadly, testamentary instruments) are special: they are governed by a different set of rules than other legal documents. This reality was highlighted in Schilling v. Schilling (June 10, 2010), in which the Supreme Court of Virginia (a) examined the General Assembly's amended statute regarding holographic wills and (b) reiterated the rule that a will "speaks" (or takes legal effect) on the date of the testator's death, not the date of the will's execution. Most legal documents, on the other hand, become effective upon the date of their execution by the party or parties.

You can read Justice Mims's opinion in Schilling, here.

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First, some background on holographic wills:
 
Generally, Virginia law requires that for a will to be valid, it must be signed in the presence of two competent witnesses, who also must sign the will in the presence of the testator (the requirement of witnesses is in addition to other requirements including those governing the age and competence of the testator).
 
There is an exception for a will that is entirely in the testator's own handwriting.  Such a will is known as a holographic will and is valid even without any witnesses (though there is a requirement that two witnesses who are familiar with the testator's handwriting testify that the alleged will is authentic).
 
Until 2007, the Virginia statute governing holographic wills, Code of Virginia Section 64.1-49 (you can read the text here), mandated that a holographic will be "wholly" in the testator's handwriting.  If the testator's relative or friend had added certain words or sentences to the document, those "extra" words or sentences were not deemed to be part of the will -- they were excluded by Section 64.1-49.
 
In 2007, however, Section 64.1-49.1 (the text is here) modified the rule slightly, so that additions by others are now permitted (and read as part of the will), if a proponent of the will can establish by clear and convincing evidence that the testator intended the document - including the extra words - to constitute his or her will.

 

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The question arose in Schilling of how to interpret a holographic will that was signed prior to the 2007 law but not probated (because the testator did not die) until after enactment of the 2007 law. 
 
In particular, Ms. Schilling's son had added certain important words to the will that was otherwise entirely in her handwriting (and which left her entire estate to the same son!), and certain of her other heirs argued that those portions of the will should be invalidated, since it was signed prior to the 2007 law.

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The Supreme Court of Virginia reversed the Circuit Court for the City of Hampton (which had granted the protesting heirs' demurrer), holding that Ms. Schilling's will did not take legal effect until her death on September 23, 2008.

The Supreme Court's decision in Schilling illustrates the rule that makes wills special among legal documents:  whereas most documents are governed by the laws in effect at the time they are signed, wills are governed by the laws that are effective as of the date of death.

Albemarle County's "Life After High School" Conference

On Saturday, Albemarle County's Commonwealth's Attorney Denise Lunsford and I spoke at Albemarle County's "Life After High School" conference for students with special needs.  The conference was held at CATEC.  The turnout this year was great.

Denise and I led a discussion about the legal rights and responsibilities of adulthood.  As the basis for our presentation, we used the Virginia State Bar's resource, So You're 18: A Handbook on Your Legal Rights and Responsibilities.

You can download a free copy of So You're 18, here.  This is an excellent book, and I enjoyed reading through it again while preparing for the conference. The book summarizes various legal issues including employment, contracts, jury duty, and criminal charges. It focuses on how a person's rights and duties change when he or she turns 18-years old.

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The "Life After High School" conference included a series of presentations related to completing high school and then transitioning into adulthood.  Other sessions included "Transition from Pediatric to Adult Medicine", "Employer Expectations", and "Alternatives to Guardianship." My sense was that parents and students alike found the presentations informative and valuable.

Trusts & Estates Downsized

Word has rustled through the lawyer grapevine for several years that a number of large law firms are down-sizing (or eliminating altogether) their trusts and estates practices. 

The explanation is that T&E work does not generate revenue commensurate with other "big firm" specialties, in particular corporate transactions and litigation.

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Now comes evidence of the trend in last week's New York Times.

Peter Lattman reports (here) that Debevoise & Plimpton is eliminating its entire T&E department. Previously, Weil, Gotshal and Gibson Dunn did the same.

Here is Lattman's explanation:

There are problems with trusts and estates within a big law firm model. The practice, to use the law firm management parlance, is not as leverageable as other areas. Corporate and litigation partners generate big fees by assigning armies of junior lawyers to megamergers and complex lawsuits. By comparison, trusts and estates work requires far less manpower, which mean far less profit. 

Another issue in sustaining these departments is that individual clients bristle at billable rates that now reach more than $1,000 an hour. While big corporations grudgingly pay those rates, wealthy families often resist them. 

As a result of these dynamics, firms’ trusts and estates practices have remained small and, in many cases, decreased. At the same time, firms have aggressively built up their corporate and litigation practices across the globe. They have also embraced hot, moneymaking practice areas like patent law and white-collar criminal defense. 

Richmond & Fishburne does a great deal of T&E work, and we think it's some of the most satisfying legal work there is. Helping families plan for the future may not be leverageable from a management perspective, but it is absolutely valuable from a people perspective.

Now let's go cheer for Joe Harris and those surprising Wahoos as they take on the Hokies at the JPJ this evening!

Estate Planning for the Digital Ever-After

We talk to our estate planning clients about the various types of property that constitute an individual's "estate," in particular (1) tangible personal property, (2) intangible personal property, and (3) real property.

Default rules govern the disposition of each type of property, and it is important for a client to consider particular ramifications and issues that may affect a house differently than a car, or a bank account differently than a copyright.

ALAS!! Word arrives in this weekend's New York Times Magazine that we have been failing to discuss an entire, increasingly important type of property: the various digital records that people are accumulating more and more.  Rob Walker's fascinating article, "Cyberspace When You're Dead," is here.

Walker frames the issue as follows:

It’s now taken for granted that the things we do online are reflections of who we are or announcements of who we wish to be. So what happens to this version of you that you’ve built with bits? Who will have access to which parts of it, and for how long?

Not many people have given serious thought to these questions. Maybe that’s partly because what we do online still feels somehow novel and ephemeral, although it really shouldn’t anymore. Or maybe it’s because pondering mortality is simply a downer. (Only about a third of Americans even have a will.) By and large, the major companies that enable our Web-articulated selves have vague policies about the fate of our digital afterlives, or no policies at all. Estate law has only begun to consider the topic...

Nevertheless: people die. For most of us, the fate of tweets and status updates and the like may seem trivial (who cares — I’ll be dead!). But increasingly we’re not leaving a record of life by culling and stowing away physical journals or shoeboxes of letters and photographs for heirs or the future. Instead, we are, collectively, busy producing fresh masses of life-affirming digital stuff: five billion images and counting on Flickr; hundreds of thousands of YouTube videos uploaded every day; oceans of content from 20 million bloggers and 500 million Facebook members; two billion tweets a month ...

We pile up digital possessions and expressions, and we tend to leave them piled up, like virtual hoarders. At some point, these hoards will intersect with the banal inevitability of human mortality. One estimate pegs the number of U.S. Facebook users who die annually at something like 375,000. Academics have begun to explore the subject (how does this change the way we remember and grieve?), social-media consultants have begun to talk about it (what are the legal implications?) and entrepreneurs are trying to build whole new businesses around digital-afterlife management (is there a profit opportunity here?).

It turns out that some tech-savvy individuals are starting to designate a "digital executor" in their estate planning documents to tend to all those photos and tweets; meanwhile, start-up companies (including the cleverly-named Legacy Locker, The Digital Beyond, and Entrustet) are sprouting up and offering to help in the digital estate planning process.

Meanwhile, disputes about post-mortem digital property rights are finding their way into the courts.  For instance, Walker cites in his article to cases of deceased soldiers whose parents are demanding that technology companies, such as Yahoo and Google, turn over internet passwords to the estate's executor (or administrator); in theory, since those passwords were the property of the deceased individual, they should be transferred to the executor.

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There is no doubt that -- at least for this group of estate planning attorneys -- the Times' article has raised an issue about which we have not previously given much thought... but that is likely to become more significant with each passing blog post!!

As Congress Re-Convenes, an Administration Switch on End-of-Life Planning

As the new Congress is sworn in, end-of-life planning is back on the front pages of America's newspapers (see, for example, today's Washington Post article here).

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Late in 2010, the Obama Administration announced the implementation of a new federal regulation providing that doctors' discussions with Medicare patients about their end-of-life options would be eligible for Medicare reimbursement.

The Administration's announcement provoked an outcry from opponents who said that the regulation would have an effect similar to the infamous "death panels" that were withdrawn from Obama's health care legislation prior to passage; the opponents complained that the Administration was trying to accomplish by regulatory fiat what it could not accomplish through Congressional approval.

Today's big development is that the Administration has reversed course and removed the short-lived regulation from the Federal registry. The Post reports that the Administration is blaming an insufficient notice-period, but it seems clear that the political backlash also played a role.

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Leave aside the question of whether you think the federal government should be "involved" (via Medicare reimbursement) with end-of-life planning and other matters of political ideology: whether you are a Fox News conservative or an MSNBC liberal, discussing your care options -- and taking the step of clarifying your wishes to your medical and legal advisors and to the individuals to whom you want to entrust decision-making authority -- is an important step for everyone to take.

Greetings, Speaker Boehner...

Fare thee well, Speaker Pelosi...

WOW, that is a large gavel!

A Change in the Estate Tax is Imminent (Perhaps!)

Big news for estate planners and their clients this past week: President Obama's omnibus tax compromise includes a per person exemption from federal estate tax of $5 million (rather than $1 million, as scheduled under President Bush's sunset provision) and a top rate of 35% (rather than the scheduled 55%).

As proposed, the new exemption and rate apply only for 2011 and 2012 (with a reversion to the $1 million / 55% framework in 2013).  This means ongoing long-term uncertainty for planners and clients.  Also, media outlets are reporting that the Democrats in the House of Representatives are very angry with the President's willingness to agree to a higher exemption and lower rate, so the coming week will include crucial (and potentially fascinating!) negotiations between the House and Senate.

There's no shortage of coverge of the recent legislative developments:

The State of the Estate Tax (Wall Street Journal, December 11, here):

"A deal by President Barack Obama and top Republicans, which seems likely to pass Congress before Christmas, has a double dose of good news for the wealthy: a low 35% top rate on estate taxes and a high $5 million exemption per individual—plus new ways to plan around the tax. The gist: Estate planning is about to get easier for taxpayers—with more benefits for heirs. "It seems estate planners got everything they wanted and nothing they didn't," says estate expert Ronald Aucutt of McGuireWoods LLP. Washington insiders say the terms aren't likely to change much from here, although the road to passage in the House may be bumpy."

Estate Tax Could Be More Generous (Washington Post, December 10, here):

"Relatively few tax filers would be affected by the estate tax under the proposed deal - just 3,600, according to the Tax Policy Center. They would pay a total of $11.3 billion in estate taxes. Under the estate tax preferred by many Democrats, 6,500 estates would be taxed, raising $18 billion for the government. A who's who of progressive organizations, including key labor unions, blitzed lawmakers with letters this week arguing against the more generous estate tax."

Estate Tax Cutoff Draws Fire (New York Times, December 10, here):

"Republicans who have long opposed the estate tax, deriding it as the “death tax” and complaining it amounted to double taxation, have said little publicly about it in recent days. Privately, however, many acknowledge that it is a far better deal than they ever expected. The White House has made no effort to defend the estate tax provision or suggest that there is any economic merit to the proposal. Aides said that Mr. Obama had agreed to it only reluctantly to secure the overall deal."

Estate Planning in the Popular Press: Software for Writing a Will

Last week's New York Times has an interesting article ("In Using Software to Write a Will, a Lawyer Is Still Helpful," here) about estate planning software.

The Times's Tara Siegel Bernard tested four different software programs that enable a person to "write" his or her own will by answering a series of questions and inputting financial and personal data. 

Bernard found that the software programs, which included "WillMaker," "Legacy Writer" and "BuildaWill," produced a surprisingly varied set of documents.  She says she needed to talk with a good-old-fashioned human being to actually understand some of the legalese -- and to appreciate the decisions she was being asked to make about disposing of her property.

Bernard also learned through her will-writing exercise that there are particular requirements for executing a valid will. She reports that certain programs are better than others in explaining these requirements.

The conclusion of Bernard's article captures the essence of why talking to an attorney makes sense when it comes time to prepare your estate plan:

Of course, humans are also fallible, and some lawyers said they had seen poorly written wills drafted by professionals. But a computer program can’t ask you about your family relationships or tease out complex dynamics, like your daughter’s rocky marriage. Still, the biggest risk might be summed up by Phillip J. Kenny, a lawyer in McLean, Va., who said that one client came back to him after looking at a software package and said, “I don’t know what I don’t know.”

Tenancy by the Entirety and the Debts of an Estate: The Virginia Supreme Court's Decision in Dolby v. Dolby

In Dolby v. Dolby (June 10, 2010), the Supreme Court of Virginia concludes that the sole debt of a deceased husband is the obligation of his estate, notwithstanding that the debt was secured by real estate owned by the husband and his wife as tenants by the entirety.

You can link to the full-text of Justice Millette's opinion in Dolby here.

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In 2002, Mr. Dolby acquired title to a house in Fairfax County, with a promissory note in his name alone secured by a deed of trust on the property.  In 2006, Mr. Dolby married Mrs. Dolby and transferred the Fairfax real estate to himself and his new wife as tenants by the entirety.

Mr. Dolby did not, however, have Mrs. Dolby assume the existing promissory note (or sign an amended one).  In other words, he remained at all times the sole obligor on the loan, even though the real estate was now owned by both spouses as tenants by the entirety.

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Mr. Dolby's 2006 last will and testament included the following relevant provision:

I hereby expressly empower my Executor to pay such debts and expenses ... My Executor shall not be required to pay prior to maturity any debt secured by mortgage, lien or pledge of real or personal property owned by me at my death, and such property shall pass subject to such mortgage, lien or property.

The question addressed by the Supreme Court was whether, in light of the provision in Mr. Dolby's will, the debt secured by the Fairfax real estate (a) was a liability of his estate (and must be paid now) or (b) passed to Mrs. Dolby along with the property (with the possibility of delaying payment until maturity).

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Several of Mr. Dolby's children from a prior marriage argued that Mr. Dolby had (effectively, if not in writing) "assigned" the debt secured by the Fairfax real estate and, further, that his will evidenced an intent that the debt not be paid immediately on his death but instead pass with the property. 

The Fairfax Circuit Court ruled for the children.

The Supreme Court overruled and said that Mr. Dolby's estate was liable for payment of the promissory note. 

The Court reasoned, first, that Mrs. Dolby had never assumed the existing promissory note (or signed a new one) and that it was therefore a valid debt of Mr. Dolby's estate.  Second, since Mr. Dolby's estate did not own the property secured by the note (it having passed to Mrs. Dolby by operation of law, by virtue of the TBE ownership), the provision in his will which provided for the Executor not paying off debts until their maturity was inapplicable.

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It is unclear based on the stated facts of the case whether Mr. Dolby would have intended the result reached by the Supreme Court: namely, that Mrs. Dolby now owned the real estate free of the prior debt. 

The practice lesson, however, is clear: if a re-marrying spouse intends for a sole debt to become a debt of both spouses, then the loan document must be accordingly amended.

George Steinbrenner and the Federal Estate Tax

When he died in early July, George Steinbrenner quickly leapfrogged Walter Shorenstein, Glenn Bell, and Dennis Hopper as the most famous beneficiary of the 2010 lapse (unless a new law is made retroactive) in the federal estate tax. 

[More precisely, the beneficiaries of Steinbrenner's estate became the most famous beneficiaries of the current law.]

Steinbrenner's estate, which is variously estimated between a half-billion and 1.1 billion dollars, will pass free of the federal estate tax, although the large portion of his personal wealth stemming from his stock in the Yankees will not receive a step-up in basis (as it would have in prior years) upon transfer to his heirs.

Here's a sampling of some of the commentary and analysis of Steinbrenner and the estate tax:

• Ruth Marcus at the Washington Post - George Steinbrenner and Estate Tax Insanity (here)
• Wall Street Journal Editorial Page - How George Steinbrenner Saved His Family a $600 Million Tax Bill (here)
• Dave Carpenter of the Associated Press - George Steinbrenner's Death Saves Heirs Money (here)
• Kevin McCormally at Kiplingers - Did 'The Boss' Trump The Ben? (here)

It will be interesting to see whether the increasing number of billionaire beneficiaries of the lapse in the estate tax might prompt Congress to action during the remainder of 2010.

Scams

There's an extremely depressing article in today's Washington Post about the increase in financial scams against elderly people.  The report, by Dan Morse, is here.

Experts interviewed by Morse predict that the number of scams will continue to increase as America's population ages during the next several decades. 

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Although the most famous recent scams have been internet-based (including the ubiquitous requests to provide your bank account information so that untold millions can be wired to you right away), there are also a number of "door-to-door" operators who take advantage of older people with offers to do non-existent repairs -- so long as payment is up-front.

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One step with which an estate planning attorney can assist in the effort to avoid becoming a victim of financial fraud is a discussion about the process of selecting an agent or agents under a durable power of attorney.  As Morse points out in his article, choosing an agent who does not have one's best interest at heart can be a costly mistake.

Katy Butler's Powerful Reminder of the Importance of Talking (Beforehand) with Your Decision-Makers

In the June 14 edition of the New York Times Magazine, Katy Butler writes a powerful account of her family's struggle with end-of-life issues.

Butler's article, What Broke my Father's Heart, is here.

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Butler's article can be read as a searing indictment of certain characteristics of the fee-for-service model of medical care that predominates in the US (and which, according to critics, the recently enacted federal legislation will do little to change).

The article can also be read as one person's (specifically, one daughter's) examination of an ethical dilemma we'd all hope never to confront - and her attempt to grapple with questions that are often left undiscussed precisely because they are so hard to talk about.

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From an estate planning perspective, the article serves as a reminder of the importance of putting one's end-of-life preferences into a legally enforceable document. 

And -- as Butler discovered -- even aside from end-of-life issues, it is important to sign a document that delegates medical decision-making authority to someone (or to someones) and then to communicate with the individual(s) to be sure that he or she understands your wishes.

The Supreme Court of Virginia's Decision in Harbour v. Suntrust Bank

In Harbour v. Suntrust Bank, the Supreme Court of Virginia held that the interests of the beneficiaries of an inter vivos trust vested at the time of the grantor's death in accordance with the plain language of the trust document.

Harbour was decided on November 5, 2009, and you can read the full opinion by Justice Keenan here.

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Mollie Boaz Johnson (the Grantor) executed an inter vivos trust that included the following disposition:

"Upon the death of the Grantor's spouse, the Trustee shall divide the trust res, including any undistributed income and the remaining principal, into four equal shares, to be distributed as follows:

One such share shall be paid and delivered to my brother James Clayton Boaz; the second such share shall be paid and delivered to my brother Herbert Alan Boaz; and the third such share shall be paid and delivered to my sister Hazel Boaz Harbour.

The fourth such shall shall be delivered to the Stuart Baptist Church to be kept in a separate trust account entitled "Mollie Boaz Johnson Educational Fund," to be used for scholarships for deserving students from Patrick County in accordance with ... my Last Will and Testament.

If any or my brothers or sister shall fail to survive me, his or her share shall lapse and such shall shall be added to the trust fund for Stuart Baptist Church, previously mentioned."

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Two of Mrs. Johnson's siblings survived her but did not survive Mr. Johnson, leading to a dispute as to whether those siblings' trust interests had vested at the time of Mrs. Johnson's death. The signficance of whether the interests had vested is this: once the interests vested, the beneficiaries' successors-in-interest would have become legally entitled to them, even if the beneficiaries did not themselves survive until they were entitled to possession.

The children of the now-deceased siblings argued that the interests had vested at the time of Mrs. Johnson's death and that following her husband's death they were entitled to the trust shares. Stuart Baptist Church contended that vesting of the trust interests did not occur until Mr. Johnson's death and that therefore the siblings' shares should pass to the church.

The Patrick County Circuit Court held that the siblings' shares had lapsed, notwithstanding the plain language of Mrs. Johnson's trust. In a letter opinion, the Circuit Court stated that the Stuart Baptist Church's position was "more compelling [from] review [of] the instrument in its entirety."

The Supreme Court reversed, and Justice Keenan's opinion relies entirely on the language of Mrs. Johnson's trust agreement:

"In examining the language before us, we conclude that the language employed by the grantor ... is unambiguous... The language chosen by the grantor referenced her own death, not the death of the husband, as the event determining whether the share of a sibling would lapse.

Thus, under this language, a sibling's death would lapse only if that sibling failed to survive the grantor... The church's contrary position would require us to add the phrase "and my husband" to the grantor's directive that "[i]f any of my brothers and sisters fail to survive me ..."

A court has no authority, however, to insert words into a trust document."

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The Court's decision seems fairly self-evident in light of the facts of this case. As such, aside from reiterating Virginia's deference to a grantor's intent -- so long as that intent is communicated in plain language on the face of a document -- there does not appear to be any major new legal ground broken in Harbour.

The House of Representatives Will Examine the Estate Tax This Week

Amidst all its work on health care reform, we'd started to wonder whether Congress had forgotten to set-up a tickler to remind itself that the estate tax exemption amount becomes unlimited on January 1, 2010 (meaning that there'd be no federal estate tax on anyone dying in 2010, no matter how wealthy, if current law remained unchanged).

Kim Dixon, though, reports in last Friday's Washington Post (here) that the House is expected to take up revisions to the estate tax framework sometime this week. As Dixon writes, the stakes are high:

At stake are billions of dollars in taxes the U.S. Treasury receives annually from the existing tax and the desire by wealthy Americans for certainty in planning how to dispose of their estates after death.

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We wrote in early October (here) about the shifting tactics of interest groups with a stake in estate tax reform.

The Supreme Court of Virginia's Decision in Keener v. Keener

In Keener v. Keener, the Supreme Court of Virginia held that valid forfeiture clauses in revocable trusts are to be strictly enforced. Keener was decided on September 18, 2009, and you can read the full opinion by Senior Justice Russell here.

Keener is a significant case because it is the first time that the Supreme Court has expanded the "strict enforcement" rule from wills to their ever-more-popular estate planning cousin: revocable trusts.

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First, some background. A forfeiture clause -- also known as a "no contest" or "in terrorem" provision -- typically looks something like this:

If any beneficiary of this will shall conduct or take part in any proceedings to invalidate or set aside this will or any provisions of this will, or to contest any action proposed to be taken by my Executor, then, in such event, the provision made in this will for the benefit of such person shall be revoked. Such person shall cease to have any right to any portion my estate, and the share of such person shall be distributed as if such person were deceased.

Wow! Sounds rather scary, no?

In fact, their scariness is the reason for the name "in terrorem," which is Latin for "to frighten": the purpose of including this kind of language in one's will (or trust) is to discourage the beneficiaries from engaging in unnecessary legal wrangling -- from going straight from the funeral home to the courthouse, if you will.

The discouragement is accomplished by frightening the potential-litigant by way of threatening to take away his or her portion of the estate.

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Whether a court will enfoce a forfeiture clause like the one above depends upon the state in which the will is probated. Some states enforce the provisions in all cases, while other states refuse to enforce them if probable cause exists for challenging the will.

In general, Virginia courts have tended historically to reach decisions that promote individual autonomy, and Virginia law regarding forfeiture clauses is no exception: Virginia strictly enforces the clauses because -- in the words of past decisions -- doing so protects an individual's "right to dispose of his property as he sees fit."

As a second rationale, Virginia courts also refer to the "societal benefit of deterring the bitter family disputes" that typically result when sibilings -- or parents and children -- take one another to court to fight-out what mom or dad really meant to do with their property.

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Getting back to Keener: the facts in the case are interesting, if a bit convoluted.

Debra Keener attempted to qualify as the administrator of her father's intestate estate, alleging that he did not have a will (though later agreeing, in court, to abide by the provisions of his will).

Mr. Keener's will (a pourover will, which left everything to the trustee of his revocable trust, to be distributed according to its provisions) did not include a forfeiture clause, while his revocable trust did include such a clause.

Certain of Mr. Keener's children argued that Debra's attempt to qualify as administrator should disqualify her from inheriting under the revocable trust, since it constituted a challenge to the trust (thereby triggering the forfeiture clause).

The Supreme Court disagreed: the Court held that Debra "made no objection to, or contest of, any provision of the trust" -- instead, her challenge was a challenge to the will.

Notwithstanding the Court's decision on the particular facts of Keener, it held that forfeiture clauses will be strictly enforced in revocable trusts, and it explained that the rationales for the newly-announced rule are the same as those for enforcing the provisions in wills: (1) protecting one's right to dispose of property in accordance one's wishes and (2) decreasing the likelihood of unnecessary and/or harmful litigation among beneficiaries.

Debra's siblings who objected to her actions, therefore, won a Pyrrhic victory (and perhaps not even that?), as they expanded the Court's prior rulings on forfeiture clauses but lost on the facts of their case.

Estate Planning in the National News: Brooke Astor

Since Brooke Astor's death in 2007, there has been contentious civil and criminal litigation regarding the distribution of her estate.

Last week, Astor's estate -- and the cast of intriguing family members, charities, and attorneys with a stake in its disposition -- were back in the news, in a major way, with the criminal conviction of her son.

Samples of the coverage are here (New York Times), here (Washington Post), and here (Wall Street Journal).

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When Astor's son Anthony Marshall was initially arrested in November 2007, Manhattan District Attorney Robert Morgenthau stated that "Marshall and Francis Morrissey (an attorney who represented Mrs. Astor in connection with her estate planning) took advantage of Mrs. Astor’s diminished mental capacity in a scheme to defraud her and others out of millions of dollars ... Marshall abused his power of attorney and convinced Mrs. Astor to sell property by falsely telling her that she was running out of money."

Last week, Marshall was convicted on 14 of the criminal charges related to defrauding his mother, including a conviction for grand larceny related to a retroactive $1 million raise that Marshall gave to himself as his mother's power of attorney. He faces up to 25 years in prison, though it sounds as though he's likely to appeal the convictions.

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Now that the criminal trial is complete (pending the posibility of appeal), the action will shift back to the Westchester County Surrogate's Court, where the primary issue will be whether Mrs. Astor had testamentary capacity to execute her 2002 will.

The 2002 document gave Mr. Marshall greater control over a larger portion of Mrs. Astor's property, as compared to her prior will (executed in 1997), which left a larger share of the property to charities including the Met and the New York Public Library and which left Marshall's share in trust.

Commentators writing about the criminal conviction last week generally agreed that the 2002 will is less likely to be deemed valid in light of the judgment against Marshall. However, it sounds as though the issue may ultimately be settled out of court.

The stakes are large: Mrs. Astor's estate was valued at approximately $180 million and several of the charities stand to lose in the range of $10 million if the 2002 will is deemed valid.

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Whether an individual has the "testamentary capacity" to execute a valid will is often described, in popular culture, in terms of whether the person is "of sound mind."

In Virginia, the testamentary capacity determination includes an assessment of whether the person actually understands the nature (and extent) of the property he possesses and the way that the will purports to distribute that property.

Interestingly (and importantly) the legal capacity to enter into a valid contract and the legal capacity to make a valid will do not necessarily equate in all cases. Moreover, as the Astor litigation is showing, a determination of testamentary capacity is not always clear cut (particularly when one or more potentially-benefiting parties believes, rightly or wrongly, that the testator was unduly influenced or defrauded).

The Chamber of Commerce, American Farm Bureau and Other Groups Change Tactics on Estate Tax Reform

In April of this year, we wrote that the estate tax debate was heating up (the post is here). Since then, however, Congress has focused the majority of its attention on health care reform (with the occasional foray into environmental regulation), and there's been little movement on the estate tax issue.

Last week, a coalition of business groups released a letter that has put estate taxes back in the headlines. The group, which includes the Chamber of Commerce and the American Farm Bureau Association, is advocating a permanent exemption amount of $5 million, with a 35% tax on amounts above $5 million. Ryan Donmoyer, at Bloomberg, has the story here.

The significance of the letter is that it represents a significant change in the business groups' position. Up until now, most of the groups had lobbied for a total repeal of the estate tax. As recently as last January, for instance, Bruce Josten of the Chamber called for sending the estate tax "to the grave once and for all."

Now, however, the business groups appear to have recognized the inevitability of some form of continued estate tax, in light of Democratic control of both houses of Congress. The letter is, therefore, a tactical concession aimed at preserving the groups' larger strategic aims -- (1) a higher exemption amount (to be locked-in rather than fluctuating from year to year) and (2) a lower rate.

Qualifying to Administer an Estate

When an individual (a "decedent") dies in Virginia, a personal representative typically qualifies in the Clerk's Office of the Circuit Court for the city or county in which the decedent resided at the time of his death.

If the decedent died with a valid will, the personal representative is called the estate's executor, whereas the personal representative for a decedent who died without a will (the legal terminology in that case is that the decedent died intestate) is called the administrator.

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To qualify in the City of Charlottesville or Albemarle County, a personal representative should make an appointment with the City or County Clerk's Office (depending on the jurisdiction in which the decedent resided). Among other tasks, the personal representative is asked to make an initial estimate of the probate assets owned by the decedent, in order to calculate the probate tax (an aside: probate assets usually do not include assets with beneficiary designations such as life insurance, IRA's, and other retirement assets, and they also do not include assets held in a decedent's living trust; the distinction between probate and non-probate assets can be an important consideration in developing an estate plan suitable to one's particular situation).

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An executor or administrator is empowered with certain legal authority under the terms of the will or applicable law -- and, importantly, the executor or administrator owes significant fiduciary duties to the decedent's estate.

It is important that the personal representative understands both her authority and her duties in carrying out her various responsibilities, which including notifying certain parties of the estate administration, protecting the estate's assets, paying the decedent's enforceable debts and obligations, and distributing the decedent's assets in accordance with his or her will or under applicable law. Violating the fiduciary duties can result in personal liability for the executor or administrator, so it is advisable to consult with an attorney with any questions about the estate administration process.

Quantum Meruit in Virginia (Try Saying THAT Five Times Fast!)

In Mongold, Co-Executor (et al.) v. Woods, (009-6-072, June 4, 2009) the Supreme Court of Virginia analyzed an interesting fact pattern that touches on questions of both contract law and property/estate law.

Ultimately, the Supreme Court reaffirmed earlier decisions holding that the Commonwealth (1) does not recognize a cause of action for promissory estoppel but (2) does recognize a cause of action for quantum meruit.

Promissory estoppel and quantum meruit are two legal theories by which Person A can be awarded compensation -- even in the absence of a binding contract -- if (a) Person A performs a service that benefits Person B and (b) Person A reasonably anticipates that he will be compensated for his services, based on (c) Person B having promised Person A such compensation (or requested such service).

The principle underlying both theories is that the beneficiary of the services should not be unjustly enriched; courts' strict insistence on the existence of a valid contract could lead to such unjust enrichment.

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In Mongold, Terry Woods worked as a farm laborer for Paul and Nina Dove for more than two decades. According to the Supreme Court's opinion, Woods accepted considerably lower wages than he otherwise would have been entitled to because the Doves had assured him on more than one occasion that they would leave most of their farm to him after they both died.

Upon Mr. Dove's death, his interest in the farm passed to his wife (the property was held as tenants by the entirety). Then, after Mrs. Dove died, Mr. Woods discovered that she had left the farm to her siblings.

The Circuit Court of Rockingham County found in Mr. Woods's favor (though not on all counts) and awarded him the amount of $115,172.57 from Mrs. Dove's estate on the basis of quantum meruit; the Supreme Court then expanded the time frame for which Mr. Woods was entitled to damages.

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Mongold is particularly interesting for the distinction the Court drew between promissory estoppel and quantum meruit.

Promissory estoppel -- said the Court -- provides as its remedy "judicial enforcement of the promisor's promise." If such a remedy were available to Mr. Woods, he would have been entitled to a conveyance of most of the Doves' farm. Perhaps because the remedy for a promissory estoppel claim is so generous, the Supreme Court of Virginia has not previously recognized it as a cause of action, and the Court reaffirmed that position in Mongold.

Quantum meruit provides a different remedy: the reasonable value of services rendered by the promisee on behalf of the promisor, less the compensation that was actually received by the promisee. With respect to Mr. Woods, this meant that the Circuit Court should determine the "extra" value of the services provided by Mr. Woods (in reliance on the Doves' promise) from the beginning of his period of employment.

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An important lesson of Mongold is that the absence of a binding contract is not (depending on the facts and circumstances (of course -- everything depends on the facts and circumstances, especially in the courtroom)) a complete bar to recovery of a service-provider who can establish his reliance on another's promise.

The Estate Tax Debate is Heating Up

President Obama submitted to Congress, several weeks ago, his proposal for locking-in permanently the per-person exclusion from federal estate taxes at the level of $3.5 million (which is the level for 2009 but which, under current law, becomes unlimited in 2010 before reverting to $1 million in 2011).

Now, as the Obama proposal wends its way through Congress -- along with a host of other budgetary measures -- there is a push by Republicans and some Democrats to increase the per-person exclusion to $5 million rather than $3.5 million.

Ten Democrats have signed-on to the $5 million proposal, and commentators on both sides of the political divide are chiming in with their views on the proper shape of the federal estate tax.

• In a piece in today's Washington Post (you can read it here), Michael Kinsley argues that the effort to increase the exclusion to $5 million is misguided.
• In an editorial in yesterday's Wall Street Journal (you can read it here), the Journal's editorial board took the opposite position and applauded the Democrats for crossing party lines.

Estate Planning In The Popular Press, Part II

In an earlier post (you can link to it here), we highlighted several recent articles that discuss the important of estate planning.

In a February 25, 2009 article for the New York Times (you can link to it here), Deborah Jacobs highlights a particular issue that may adversely affect couples' estate plans. The issue is related to the increase, as of January 1, 2009, of the "exemption equivalent" (which refers to the amount that may be left to persons other than your spouse free of estate tax) from $2.0 million to $3.5 million.

Many tax-planning wills (or trusts) include language that maximizes the amount of a deceased individual's estate that can, ultimately, pass free of estate tax by establishing a "credit shelter" or "bypass" trust. This "maximization" is often accomplished by inclusion of a formula, included in the will, that is based on the then-current amount of the exemption equivalent. The combination of (1) formula language in one's will or trust plus (2) the now significantly higher amount of the exemption equivalent, means that there is a potential that a larger percentage (than was originally intended, when the exemption equivalent was lower) of the deceased individual's property will be left in trust -- with strings attached -- rather than outright to the surviving spouse.