Trusts and Estates

Week of 3-23-09

24 March

It's important to be self-aware and self-reflective as a practitioner. Don't do things just because: examine the alternatives. Discipline is rare, and malpractice suits are rare also, but being a successful attorney is more than just not getting disciplined or sued.
This course comes with a lifetime warranty: you get one question down the road.
If you offer advice that a specialist would have done differently, you can be held to the standard that a specialist would be.
What about dual representation? Obviously, it's out of bounds in litigation. Of course, when both people have lawyers, that more than doubles the cost, because the lawyers have to talk to one another. You want to be sure that you think it through, though: don't just decide "I'm not representing both" or "I am representing both." Be thoughtful about it.
Even if parties have differing notions of what should happen, that doesn't rule it out. They just have to agree that there can be no secrets between the lawyer and any one of the parties. Pay attention to cues between the people: figure out whether it makes sense to represent them both or not. You can talk to them separately in making this evaluation.
Then get it in writing: what's the nature of the representation, how much are you going to charge, etc. This is not just CYA: it also protects the relationship and is good customer service.
Problem 1: this is like Eisenberg (Estate of Persion). Note that the supreme court already said there was no undue influence, but they discipline Eisenberg anyhow: appearance of impropriety. That case may not still be good law, since the supreme court rules technically supercede them, so rely on the rule, not the caselaw.
Under SCR 20:1.8(c), the worry is (3): whether there's reason to anticipate a contest. There are people left out, the gift is large, and there's language in the document about contesting the will. So he should anticipate a contest.
Maybe you should never write a will for a family member, since it's always possible to anticipate a challenge? All things being equal, it's probably better not to get involved in that. But this is sort of interestingly unfair: it makes the lawyer in the family feel like a jerk, and forces the family to pay money on an outside resource.
Notice that WI has more caselaw on lawyer discipline than other states. Not that we're more unethical, but that our supreme court has issued more decisions that casebooks like to reprint.
But other states have different rules. CA's per se invalidation of any clause in a will where the lawyer receives something. In WI, you can do it, but you might get disciplined, and the test for undue influence will tell whether you get the transfer or not.
Problem 2: malpractice exposure. Because of privity, estate planning is actually an area of practice where you're less likely to be sued, at least in some jurisdictions. In WI (and some other juridsictions), you have to be a named beneficiary to sue for malpractice: just being able to demonstrate that you were supposed to be in the will is insufficient. So, e.g., if they get your middle initial wrong...
Other issues: damages (what is the harm that you're suing for?) and statute of limitations (if it's more than 6 years since the estate plan was made, maybe there's no suit). And you can't sue before the testator dies, because the will is not yet in effect. Courts increasingly find a "continuing duty" or start the statute of limitations when you find out (or should find out) that you've been damaged.
Anyway, this is why you want to be careful about free advice: it's whether the "client" reasonably thinks they've been given legal advice.
Save e-mails, make a note of phone calls. Make disclaimers. You want to be able to get back in touch with someone if you later think of a new thing you should have said. Flip legal advice isn't helpful to anyone.
And there is malpractice here-- you only need the records to show that something isn't marital property: we presume that it is.
Of course this will be hard to prove: people might have differing recollections about what the conversation was.
So what are the damages? There are no records of who owned what, so it's all marital by presumption. But that doesn't mean that the surviving spouse would own half of B's estate. Why? Well A has an estate as well, which B owns half of.
Review problem
```
	SD ------ Mom    Dad
   |____|         |_______|
   2 kids         B1  B2  Linda
	
```
- Well first off, maybe Linda shouldn't do this. At least she should think twice about it. What if there's a problem and people stop getting along? Also, she doesn't want the cremation. That's not necessarily an issue, though: Linda can serve as a mediator, even though she doesn't agree.
- A will is a bad place to put requests about burial, because it won't be read until after you're buried. See Wis. Stats. § 154.30 (mentioned in Appendix A): authorization for final disposition. That's actually not too different from the power of attorney documents. You can appoint an agent to handle your remains, and leave instructions about what's supposed to happen. Not many states have this.
- So who will be the trustee? Can a beneficiary also be a trustee? Yes, but one would have to be very careful about exercising trustee powers in a fiduciarycapacity. That will be a lot of stress and pressure.
- And what about the watch: that's the sort of thing that tends to make conflict (heirlooms and Packers tix). If B1 is getting the watch, mom should talk to B2 to make sure there's not going to be conflict.
- There's probably no ERISA issue with the pensions, because she retired before she got married. ERISA rights are determined at retirement.
- Also, what is the net worth, really? Might want to double-check that before writing the will. Maybe the distributions to the kids would cut the husband out entirely. You may not want fixed-size distributions when the value of the estate might fluctuate. There is the "abatement" rule, which allows pro-rating, but any time you're putting in fixed numbers, you want to be conscious of this issue.
- There's nothing here about pre-deceasing: that's a contingency Linda will want to plan for.

26 March

The Marital Property Classification Handbook is a nice resource for general practitioners. We can get it for cheap at the bookmart.
So most of this community property stuff is applicable among the community property states. And all states more or less apply community property concepts at the time of divorce. So the principles are useful no matter where you are.
The marital property system doesn apply to you unless you have a "determination date" (this term is from the Uniform Marital Property Act, which heavily influenced WI). This is the date that triggers the application of the act, and is defined in § 766.01(5):
- Both spouses domiciled in WI
- Married
- After 1/1/1986
§ 766.03 says that the marital property chapter applies to spouses upon their determination date.
All property held by a spouse is marital, unless classified otherwise: § 766.31(1). In § 766.31(2) we've got that presumption. The only way it can become individual property is defined in § 766.31(6),(7),and (7p). Unclassified property is discussed in § 766.31(8) and (9). (8) says the act is not retroactive. And (9) says that property not classified under the act is treated as individual under the marriage (so, at death, unclassified property might be treated specially: deferred marital property). And § 766.31(10) talks about reclassification. Things that don't reclassify property include "moving into the state" or "leaving the state" or "the passage of the act." So ownership is what it is, in other words, and to redistribute it would be unconstitutional (absent specific conditions), and the statute is careful about that.
Community property isn't the only form of spousal protection: there are family allowances, selection of personal property, allowances for omitted spouses, etc.
Classification is the heart and soul of any community property system. It's more straightforward than meets the eye. It can seem daunting, but try not to make that assumption, and treat it as though it's manageable.
Problem 1:
- A: So we have three deposits and no withdrawals. Not all of the deposits have the same classification, sometimes, and so if there are withdrawals, it's hard to know which deposit was withdrawn. So:
  1. $700 from moonlighting: this is marital property § 766.32(4)
  2. $200 from parents' gifts: assuming this is a gift only to A, § 766.31(7)(a) this is non-marital
  3. $100 in interest: and this is income again § 766.32(4) in WI, this is all marital, even though it's partly earned on on non-marital assets.
  Total is $1K. This is "mixed:" $200 individual property, and $800 marital. At this point, we can trace that property. § 766.31(4) says that income is marital property. Remember, of course, that most matters aren't settled in court: maybe the spouses just agree that the moonlighting money is A's or something. But the statute says it's marital. Still, we need to pay attention to what the law in clients' heads is: the people you're talking to may not get what the law is, and they might be the decisionmaler.
  So interest on marital property is marital. Five states say interest on non-marital property is non-marital ("the California Rule"): CA, NM, NV, AZ, EA. The others: WI, LA, TX, ID. What's income? Salary, interest, dividends. What about appreciation in assets (i.e., a stock)? No-- that is not income.
- B: We've got a pie. Is this payment for services, or is it a gift? You can argue it either way. There's no records, and we presume things are marital property, but if there are records, that makes it seem more like a gift. And also note that this is only an issue if H doesn't want to share the pie, and tries to assert individual property rights. But that is a presumption? That means that if you can't figure it out, it's marital property. So this is a marital pie. If it's marital property (because it's income), must you report it?
- C: In the account:
  1. $1K paycheck: obviously marital property
  2. $200 pre-move interest: also marital
  3. $50 in interest while they were away.
  We can argue about that $50 (whether it's marital under § 766.31(4)). So when they were out of the state, the marital property act didn't apply, so it's just unclassified property. So look at § 766.01(8), we see an ordinary term given a technical definition: "during marriage." So even though the interest was earned while they were married, it's not "during marriage" for the sake of this statute. So § 766.03(2) says that the act applies "during" the marriage, and (3) says it ceases when somebody is no longer domiciled in the state. So while they are in FL, the marital property act doesn't apply to them. And effectively they get a second determination date when they return from FL.
Problem 2: the cabin isn't marital property. No doubts there.
- A: See § 766.63(2): the active appreciation rule. If the appreciation is "active" (meaning the fruits of one spouse's efforts), the appreciation is marital. What are the criteria?
  1. No reasonable compensation for the...
  2. Substantial appreciation...
  3. Resulting from the application...
  4. Of substantial labor
  If you've got those things, the appreciation is marital. So was this labor substantial? Plenty of room to argue there. Assuming that we're at a standoff about whether it's marital or not, what do we do? Well there's the question of who is the decision-maker. But more importantly, we have the presumption. Normally, we presume that property is marital if we don't know. However, we already know the cabin is individual property, so in this one case, the presumption is undone. Refer back to § 766.63(2): if it can't be shown that those criteria are met, then they're not.
- B: In a law-in-action sense this might make a big difference. But in a legal sense it doesn't: § 766.63(2) doesn't care which spouse puts in the labor on which spouse's property. Interesting footnote: does "reasonable compensation" have to be financial?
- C: The $4K is presumed to be marital property: there's nothing in the facts that says it's not marital property. The $1K of labor doesn't necessarily create marital property (back to those conditions). And 20 hours is probably not substantial. So looks like this probably isn't active appreciation. So it looks like $51K of individual property, $4K of marital property, and it can be traced.
- D: So we start with $50K individual property, and $5K of marital property. And then the house goes up to $110K. What part is marital, and what part is individual? There are four ways to do this, and they're all arguable points:
  1. The $50K and $5K were pretty undifferentiated, so we should consider this wholly marital property.
  2. $5K is marital, and $105K is individual (this is basically reimbursement for the marriage's investment. Maybe give interest too).
  3. The asset value doubled, so there's now $10K marital property. Just sort of a pro rata approach
  4. That $5K was the rock garden. So those are two separate entities: the property, and the rock garden. And you can get that appraised, and treat them as separate entities.