Articles Posted in Estate Planning

Trustees make difficult decisions about estate or trust investments, distributions and requests for disclosure of financial information. If an estate holder’s investment portfolio is comprised of assets held by onshore and offshore institutions, trustee decisions are especially at risk of an inquiry giving rise to significant claims. Where ambiguities exist, the prudential authority of an estate or trust entity must follow the laws of all jurisdictions involved. An estate attorney can provide a trustee with legal representation in a petition for court instructions in an estate or trust litigation matter.  

Trustee Powers and Duties in U.S. Law

In the United States, the common law of estates provides trustees with prudential authority unless there Is reasonable doubt that the discretionary powers or duties are unreasonable (Restatement (Second) of Trusts § 259 (1959)). The Uniform Trust Code (UTC) allows for “judicial proceeding[s]] involving a trust may relate to any matter involving the trust’s administration, including a request for instructions[.]” (UTC § 201(c) (2010)). U.S. courts generally do not interfere prior to the exercise of a trustee’s discretionary authority, and trustees are entitled to request court instructions absent of a legal dispute.

Traditionally, estate planning has primarily been focused on transfer of assets to a tax-exempt shelter for distribution to named heirs or beneficiaries at time of an individual’s death. In addition to a written will, these five (5) directives specifying “end of life” actions to be taken by a Trustee or Personal Representative (“Executor”) may be part of an estate.  

1. Advance Directives

If a decedent is expected to die soon, or has court ordered physician-assisted-suicide in response to a terminal illness, “end of life” directives can be created in a “Letter of Final Instruction” or “Disposition Authorization” with instructions for contact of family members, attorney representation, and funeral and burial arrangements, and organ donation if a “Living Will” is not already present. A “Designated Agent” may be identified to administer those arrangements. A Durable Power of Attorney for Health Care might already be present to manage the transfer of the decedent from a hospice to a hospital.

Homestead exemption protect property assets from probate. Properties recognized under laws of homestead are off-limits to creditors seeking attachment. New York homestead law protects property owner rights to the value of an asset transferred to an estate or trust. Homestead declarations are automatic for title holders of residential property in the state. Jointly owned property owned by a married couple is held as a single married entity, “tenancy by the entirety” – not as individuals. Trustees of revocable trusts seeking homestead protections for property assets from lien, can consult with a licensed attorney specializing in estate probate law.  

NY Homestead Law

Federal and state property taxes are an exception to estate or trust homestead exemption from lien or attachment. No exempt homestead is exempt from taxation or from liquidation for purposes of payment of an outstanding assessment or tax lien. The NY C.P.L.R. §5206 Real property exempt from application to the satisfaction of money judgments outlines criteria for (a) homestead exemption; and (b) distribution of a property asset after the original owner has died. Homestead properties are “exempt from application to the satisfaction of a money judgment, unless the judgment was recovered wholly for the purchase price thereof: 1) lot of land with a dwelling thereon, 2) shares of stock in a cooperative apartment corporation, 3) units of a condominium apartment, or 4) a mobile home.”

Publication of the Financial Industry Regulatory Authority’s (“FINRA”) rule reform by the federal Securities and Exchange Commission (“SEC”) clarifies the enhanced practice rules recently enacted to protect investors from financial exploitation. As of February 2018, FINRA Rule 4512 Financial Exploitation of Specified Adults  requires FINRA members to place a temporary hold on the disbursements of a client’s funds or securities where “there is a reasonable belief of financial exploitation” of a customer falling under the criteria of a “specified adult.” Financial professionals must make a reasonable effort in obtaining the name and contact of a “trusted contact person” (“TCP”) before making changes to a client’s account.

An Added Layer of Protection

Amendment of Rule 4512 fulfills contract provisions for “incapacity” of parties. Rule 4512 allows for a hold on a specified person’s account if a TCP has made a decision that is questionable. The new legislation furthers prudential protections for clients that might otherwise be compromised by account mismanagement. FINRA members have fiduciary duty to a professional standard of care. Similarly, estate laws require fiduciary duty of a legal guardian, holder of power of attorney, executor, or trustee responsible for the administration of an elderly client’s account(s). The new TCP rule is intended as an added layer of protection; alerting an administrator of any exploitation by a third party.

Professional assessors have a duty to a standard of care under federal and state law. New York Department of Taxation and Finance (“DTF”) licensed assessors must take adequate precautions to not commit 1) errors of omission; or 2) commission that would significantly affect a valuation appraisal. All valuation of real property and special property assets of an estate or otherwise, must involve numerous checks during the process to ensure prevention of errors that could affect the value conclusion of an assessment report. Sufficient attention to site inspection should be followed by county recorder record to exhibit due diligence has been practiced so to avoid errors or omissions to the extent no further inspection is required. Evidence that accurate data from reliable sources shows that a value has been ascertained accurately. Only in a circumstance where real property consists of a substantial inventory of assets with value changing characteristics, should repeat onsite inspections be required.

ASB Appraisal Guidelines

The Appraisal Standards Board (“ASB”) of the Appraisal Foundation responsible for the definition and publication of  Uniform Standards of

The New York Department of Taxation and Finance (‘DTF”) recognizes the Office of Real Property Tax Services (“ORPTS”) and Appraisal Standards Board (“ASB”) definition of  Uniform Standards of

Professional Appraisal Practice (“USPAP”) guidelines

for the appraiser inspection process requiring licensed appraisers identify 1) the property to be inspected; 2) the purpose and intended use of the assessment report; 3) the data collection and analysis process; 4) conditions or limitations to valuation; and 5) the effective date of the valuation. Property rights and interests are a key rule element in the rules to professional appraiser valuation of real property in the state.

Estate planning involves asset valuation for purposes of taxation, financial and investment planning, and future distribution to heirs and beneficiaries of record. New York Department of Taxation and Finance (“DTF”) guidelines for ad valorem real property taxation of estates is defined by the standards of the Office of Real Property Tax Services (“ORPTS”). The Uniform Standards of Professional Appraisal Practice (“USPAP”) is basis to New York guidelines for property valuation, including the statistical techniques and professional appraisal practices. The USPAP is informed by both federal and state laws; as well as precedent setting case record; and rules and regulations of the ORPTS. Estate planners should be aware of the rules to ethical best practice when working with an appraiser during the valuation process.

Ethical Standards of Valuation

The New York ethical standards of valuation as described by the USPAP, are divided into four (4) four categories best practices:

High wealth investors can avoid federal estate taxes on digital assets with the Revised Uniform Fiduciary Access to Digital Assets Act (“RUFADAA”) since 2015. Estate planners know that the end-of-life planning of trust and estate assets may include a whole host of digital assets, including financial assets such as cryptocurrency, as well as nonfinancial assets like business websites, digital storefronts, payment gateways, enterprise data, cloud storage repositories, contact lists, social media, subscription accounts, as even digital medical images and records.

Terms of Service Agreements

Legal consideration of terms of service agreements exhibits statutory provisions limiting access to designated user account access. Legal issues arise when the owner of a digital account has died or is otherwise incapacitated. Without the capacity to log into an account, an estate executor is posed with a challenge that has the potential to result in probate court intervention. If the owner of an account mentioned in a will or last testamentary documents of an estate is deceased, the account providers are under no binding legal obligation to allow others to access those digital accounts held in the decedent’s name.

Celebrity assets left without a will or formal testamentary estate document are increasingly of interest to both estate and intellectual property law practitioners. Example is the estate of the late Singer, Aretha Franklin. Otherwise known as the “Queen of Soul,” the estimated $80 million estate involving the value of the artist’s artistic copyright and the trademark of her celebrity, has been embroiled in ongoing legal dispute over permissions to her name, work, image, and likeness within commercial publicity. Of the estate’s intellectual property which has been contested in litigation over publicity rights, a significant portion of those assets has been recently subject to taxation.  

Merchandising Rights of Publicity

Trademark and copyright law allow for estate administration of port-mortem rights to publicity associated with intellectual property assets. For purposes of valuation, the image, likeness, or representation of an artist or celebrity is an asset. Merchandising rights entitle a copyright or trademark licensee to derive future value from those assets, based on strategic performance estimates of a publicity campaign. Celebrity publicity valuation is complicated by publicity placement, as well as the cost of trademark permissions. Request for use of a copyright or trademark for publicity requires legal agreement. Terms and conditions to publicity agreements generally include a royalty clause, specifying a percentage based on an estimate of the future streams of income to flow from the use of a celebrity’s work or image.

September 28, 2018, the estate of Cuban American Artist, Ana Mendieta filed suit against Amazon Studios for copyright infringement of her work in a Seattle federal court, Mendieta Estate v. Amazon Studios, Case No. 2:18-cv-01426. The dispute claims that the Amazon’s cinematic production, Suspiria directed by Luca Guadagnino, a remake of the 1977 horror film of the same directed by Dario Argento, extrapolates its content from Mendieta’s work. Guadagnino the director of award-winning film Call Me by Your Name, 2017, clarified his interest in Mendieta as inspiration, citing feminist artists in development of his film productions. The case exhibits how estate fiduciaries can protect copyrights to artistic assets under federal law.

Cease and Desist

The estate claims two of the scenes from the movie derive narrative from Mendieta’s photographic work, Rape Scene, 1973, and her performance Untitled: Silueta Series, Mexico, 1978. Amazon was served with a cease and desist letter in July of this year. Damages for the use of Mendieta’s work without express consent of the estate were demanded. Amazon’s response to letter has been to remove the contested scenes from the movie’s trailers.