In this week’s New York Trusts and Estates blog entry, Sally M. Donahue discusses one of the many recent changes to the law regarding statutory short form Powers of Attorney, that change being the possible award of monetary damages, reasonable attorney’s fees and costs against a third party who is found to have acted unreasonably when it refused to honor the agent’s authority under a validly executed statutory Power of Attorney.

You did your estate planning.  As part of it, you executed a Power of Attorney appointing an agent or agents you trust to handle the financial and legal affairs you designate in a document that comports with all the requirements of New York General Obligations Law.  On June 12, 2021, your agent takes the document to your bank, so he or she can handle your banking transactions for you.  The bank officer tells your agent that it will not accept the form.  The proffered reason?  Your document was validly executed, but the bank requires its customers to use the bank’s form. What was your recourse against the bank?  Pretty much none.

Well, with the recent overhaul of Article 5, Title 15, of New York’s General Obligations Law, which governs short form Powers of Attorney, you are in luck.  As of June 13, 2021, the effective date of the changes, under New York General Obligations Law Section 5-1510[3], the principal (the person acting for himself or herself who signs the Power of Attorney), the agent or agents named in the Power of Attorney, “the spouse, child or parent of the principal, the principal’s successor in interest, or any third party who may be required to accept a power of attorney” can commence a special proceeding in court for a number of reasons, one of which is to compel a third party, here the bank, to accept your Power of Attorney and the agent’s authority to act in your stead.  Here comes the good part:  If the court determines that the bank (or other third party) “acted unreasonably” when it refused to honor your Power of Attorney and, hence, your agent’s authority under it, the court may award damages, including reasonable attorney’s fees and costs (NY GOL § 5-1504[4][b]).  Damages could be appreciable.  For example, perhaps, your agent had been unable to access funds with which to timely pay your income taxes, resulting in interest and penalties, or even a tax audit.  The remedy of damages, attorney’s fees and costs is available even if the Power of Attorney was executed prior to June 13, 2021, using an old form, so long as the form was proper and validly executed.

This change will give banks and other third parties something on which to chew.

The government just issued its “Green Book,” the summary of the President’s proposed changes to the tax laws. Perhaps the recent leaks from the IRS about the income taxes paid by some of our wealthiest citizens will have an impact on these proposals.

From Wealth Management, an article (see link below) that is a comprehensive and useful review:

“President Biden’s primary plan to tax HNW (High Net Worth) families’ estate-planning structures is by making death, lifetime gifts and exceeding maximum holding periods for assets in trust recognition events for income tax purposes. The resulting income tax would be in addition to the potential gift, estate and generation skipping transfer (GST) taxes that may be imposed. This proposal, while alarming for many, isn’t new.”

And now for something completely different and more enjoyable. Another kind of green book.

A close friend of mine, a retired artist no longer in the world, spent much of his career as a commercial artist in advertising. When he retired to the desert in southern New Mexico (perhaps to get away from the Mad Men and to pursue his art in peace).

Charlie and I kept in touch to share our loves of opera, European Classical Music, American Classical Music (i.e., Jazz),  Notre Dame sports, Bob Dylan, myth, etc. Charlie hated critics with a passion (“those cold and timid souls who neither know victory nor defeat”) that only an artist can understand. When he retired he was able to make a living from his own art rather than the commercial work required of him by his job.

More than a decade ago, after arthritis had prevented Charlie from painting in oils, he took to digital art. I am proud to say that I suggested to him that he translate his images, both oils and digital, to Youtube videos accompanied by the music that he loved, especially from artists we both believed were under appreciated, like Dr. Don Shirley, Oliver Nelson, Gundula Janowitz, and Franco Corelli. His first effort was a selection from Dr. Shirley, the first time his music appeared on YouTube. It opened up a whole new world for my friend and he was thrilled when a relative of Dr. Shirley reached out to thank him for remembering his music. Now there are many YouTube videos of Don Shirley.

Lo and behold, they recently made a movie about Dr. Shirley called Green Book. This other  “green book” was a publication that some Americans had to use to determine where they could stay, where they could eat, how they could travel, even where they could go in the days of Jim Crow because other Americans refused them the right of free association.

For more on the green books, and in honor of my late friend Charlie and in honor of Dr. Don Shirley, here are three links:

The US Treasury’s Green Book.

Hometreasury.gov General Explanations

A review of the government’s Green Book’s impact on estate planning, from Wealth Management.

Wealthmanagement.com Estate Planning Implications

And finally, my late friend’s first venture on YouTube. Charlie was delighted with replies from some grateful listeners. RIP, Charlie. We’ll meet again, by the Sí Mór near Yeats’s Seven Woods or at one of the ancient pueblos of New Mexico where your dear wife’s  Anasazi ancestors lived. Perhaps we’ll meet Dr. Shirley there jamming with Mozart (although you would prefer Beethoven).

Youtube.com watch

As a trusts and estates practitioner, part of my practice is to help my clients formulate an estate plan.  The plan usually includes a Will, a Heath Care Proxy, a Living Will and a Power of Attorney.  Some people opt to place some or all of their assets in a Trust.  Assets also can be titled jointly with right of survivorship or with pay-on-death beneficiary designations.  After these documents are executed and the designations made, many people close the book on their estate planning and get on with their lives.  These people are ahead of the curve, unlike those people who do not plan for the inevitable.  However, estate planning is something that is fluid and should be reconsidered periodically, especially if a person’s marital status changes, if one becomes a parent or grandparent, as one’s wealth increases or decreases, and in respect to retirement plans and goals.

There is a nexus between estate planning and planning for one’s retirement.  The nexus gets stronger as we grow older and closer to retirement.  The lesson, though, is that it is never too soon to consider the tie-in between retirement and estate planning.  Both impact on how one’s assets will be used, both during one’s life, and after one passes.  Both impact not only on the person, but also on his or her family, including the next generations.  In that regard, there are two recent articles that address these topics, albeit from different angles.  The articles are food for thought, and I refer you to them.

The first article is from Investor’s Business Daily and is entitled, “Seven Retirement Myths Debunked.”  In the article, author, Donald Jay Korn, rethinks seven common retirement planning techniques, including the tenet that one should maximize one’s 401(k) contributions.

The second article is from Kiplinger and is entitled, “Planning for Retirement Assets in Your Estate Plan.”  Author Kathleen A. Stewart, an Accredited Investment Fiduciary and a Senior Wealth Strategist with BNY Mellon Wealth Management, examines the categories of assets that she recommends one should utilize planning for and during retirement versus the assets a person should pass down to maximize all of one’s assets, hence, the tie-in between retirement planning and estate planning,.

Both article are worth reading and may make you rethink your short-term and long-term planning.  The links to the articles are below.

Investors.com Retirement Planning Mistakes and Commom Myths Debunked

Kiplinger Planning for Retirement

The late great country singer, George Jones, had a hit with the title “Who’s Going to Fill Their Shoes?” It was a lament on the state of country music as it lost its connection to its roots and became more commercial. This entry has nothing to do with either country music or the complaints by old timers against the faults of young whippersnappers. Instead, it is going to focus on the confluence of two topics of concern to trusts and estates – the looming massive generational wealth transfer, and the continuation of a family business. This entry is more of a collection of recent articles and publically available resources than it is a comprehensive analysis, but perhaps one or more of the links will spur the reader to seek proper advice.

1. The Great Wealth Transfer is Coming! It has been variously estimated that as the baby boomers pass from the scene, they will leave to their loved ones among Generation X and the Millennials huge amounts of wealth, estimated to range from $15 trillion,[1] $30 trillion,[2] $59 trillion,[3] or even $68 trillion.[4]

It remains to be seen if these large amounts of wealth will be sufficient to pay for more than three semesters of college for the grandchildren or great grandchildren of the baby boomers, but they’ll be gone so they won’t have to worry about it.

Nevertheless, it certainly is time to think about estate planning, given the proposed tax changes. Regardless of any changes to the tax laws, proper estate planning involves more than tax efficiency. It also involves avoiding problems that could lead to litigation and its consequent expenses. The three major sources of litigation are: a) inattention to family dynamics and the failure to plan accordingly so as to avoid the disgruntled distributee from making trouble; 2) the careless drafting of testamentary documents that result in litigation and some third party, i.e., the court, trying to “guess” the intent of the testator from the words he or she (or more likely his or her attorney) chose; and 3) the choice of the wrong fiduciary.

Finally, as an illustration of how this issue is gaining wide currency, how can one resist an article on the website Vox titled “The impact of inheritance, A ‘great wealth transfer’ may be on the horizon. Will a gift from grandma save the middle class?” If the title is not catchy enough, then how about its lead sentence, “Technically, Megan is a farming heiress.”[5]

2. Business Succession Planning.

It’s one of the most common issues related to the future of a family-owned business: How do the owners pass the business to their children? Moreover, how do they know if their children will even want to take over the business, let alone make it profitable for the long term? This is a complicated issue, involving issues of corporate governance, income taxation, gift and estate taxation, family dynamics, commercial transactions, etc. In an excellent article from Crain’s New York Business we read:

A shocking number of U.S. businesses lack a detailed, written succession plan. When you look at family businesses and companies with annual revenues below $50 million, the absence in planning becomes especially pronounced. In its 2019 US Family Business Survey, PwC Private Company Services found that only 18% of family businesses said they have an effective plan.

This is particularly troubling considering that succession plans govern far more than scheduled exits. They can also serve companies as a powerful tool for navigating unforeseen transitions. The social and economic fallout from the coronavirus pandemic only underscores the need for businesses to account for force majeure events in planning for their future.[6]

There is a wealth of information on this topic available on the internet and should provide the reader with an introduction to the complexities of the issues presented and the need to seek out experienced and knowledgeable advice.[7]

[1] https://www.nytimes.com/2019/12/18/arts/design/great-wealth-transfer-art.html

[2] https://www.forbes.com/sites/markhall/2019/11/11/the-greatest-wealth-transfer-in-history-whats-happening-and-what-are-the-implications/#1ecf10c74090

[3] https://www.bankrate.com/personal-finance/great-wealth-transfer/

[4] https://www.cnbc.com/2019/10/21/what-the-68-trillion-great-wealth-transfer-means-for-advisors.html

[5] https://www.vox.com/the-highlight/22320272/inheritance-money-wealth-transfer-estate-tax

[6] https://www.crainsnewyork.com/crains-content-studio/succession-planning-long-lasting-business

[7]  For example, see this article on Investopedia, “How to Create a Business Succession Plan”:

https://www.investopedia.com/articles/pf/07/succession_planning.asp

They told him, “Don’t you ever come around here”

“Don’t wanna see your face, you better disappear”

The fire’s in their eyes and their words are really clear

So beat it,  just beat it.

The Beatles certainly had taxes on their minds when they wrote and sang “Taxman” in their seminal album Revolver in 1966, but does it strain belief  too much to think that the late Michael Jackson had the IRS in mind when he wrote the lyrics for his hit “Beat It” on the equally classic and seminal  Thriller album in 1982? After all, what comes to mind but the IRS when you encounter lyrics like “[t]he fire’s in their eyes and their words are really clear.”

The estate of Michael Jackson has long been in litigation with the IRS over issues related to the valuation of the late artist’s estate.  A person’s taxable estate is usually easy to measure because assets generally consist of easily valued properties. But what is an artist’s image and likeness worth? Reasonable minds may differ. Elvis Presley’s estate made more money in 2020 than the singer had in 1977, the year he died.

The IRS looks to maximize the estate tax liability by increasing the value of the assets while the estate looks to minimize it by downplaying the value of the same assets. “Experts” are retained by both sides to testify that what is up is down and what is down is up (depending upon which side they represent). The issues of valuation were particularly acute with Michael Jackson’s estate because of the troubled nature of his reputation at the end of his life and his efforts at making a comeback in what had been a long and brilliant career in music. As The New York Times reported:

But there was another matter that has taken more than seven years to litigate: Jackson’s tax bill with the Internal Revenue Service, in which the government and the estate held vastly different views about what Jackson’s name and likeness were worth when he died.

The I.R.S. thought they were worth $161 million . The estate put it at just $2,105 [yes, dear reader, there were “experts” ready, willing, and able to testify to those two extremes]— arguing that Jackson’s reputation was in tatters at the end of his life, after years of lurid reporting on his eccentric lifestyle and a widely covered trial on child molestation charges, in which Jackson was acquitted.

On Monday [May 3, 2021], in a closely watched case that may have implications for other celebrity estates, Judge Mark V. Holmes of United States Tax Court ruled that Jackson’s name and likeness were worth $4.2 million, rejecting many of the I.R.S.’s arguments. The decision will significantly lower the estate’s tax burden from the government’s first assessment. . .

The Jackson case has been watched closely as a guide for how celebrity estates may be valued, and for their tax liabilities. Among the major estates with large tax issues still before the I.R.S. are those of Prince and Aretha Franklin.[1]

Issues of valuation are rarely as large or as publicized as was the case with the late Mr. Jackson, but they remain a prime concern of the estate attorney when preparing or defending the estate tax return. The IRS initially valued Michael Jackson’s likeness and image as worth about $434 million at death (later graciously amended down to $161 million), while the estate said it was only worth about $2,000.

If you are interested in reading the judge’s decision (and it is a long but interesting  one), it is available at: Assets KPMG

By the way, what did the judge decide? He valued the asset at $4.1 million, a win for  the estate and some useful guidance for future valuation cases.

[1]  New York Times Michael Jackson Estate

Parents who have children approaching adulthood, in New York, that being when the child reaches his or her eighteenth birthday, know that even such a happy occasion can bring its own version of angst.  Watching one’s child undertake the rights and responsibilities of adulthood involves letting go of the control the parent has had since the child was born.  What parent does not wonder, “Is my child mature enough to make responsible decisions?  Will he or she exercise good judgment?”

Parents of children who are intellectually disabled or developmentally disabled and who approaching their eighteen birthday face a myriad of issues.  On the one-hand, the child will be legally recognized as an adult and, as such, the only person allowed to make his or her medical, financial and personal decisions; on the other hand, the particular child, because of his or her disabilities, may never be able to make these decisions.  The child may not have the intellect or the proper development to choose where to live, to make medical decisions, or, in the worst-case scenario, end-of-life decisions.

There is a legal mechanism that allows parents, and legal guardians, of an intellectually disabled or developmentally disabled child to become that child’s legal guardian when that child attains legal adulthood.  It is Article 17-A of the Surrogate’s Court Procedure Act.  It requires commencing a proceeding in Surrogate’s Court in the county where the child resides.  After the proper application is made, there is typically a hearing where it must be proved to the satisfaction of the court that the person is either intellectually disabled or developmentally disabled, or both, such that the person is incapable of managing his or her own affairs because of the disability, and that the disability is permanent or likely to continue indefinitely.

The statute requires the certification of the intellectual or developmental disability by one licensed physician and one licensed psychologist, or by two licensed physicians, at least one of whom must be familiar with or has professional knowledge about caring for and treating individuals with the particular intellectual or developmental disability.  Further, the court will consider whether the appointment of a guardian or guardians is in the best interests of the allegedly disabled person and whether the applicant or applicants are suitable for the position.

If these requisites are met, after the hearing, the court will appoint a guardian or guardians for the intellectually or developmentally disabled person.  The guardian or guardians will have the right to make that person’s decisions indefinitely.   Since this deprives a person of the rights he or she would otherwise have as an adult, the court takes this type of appointment seriously, as one would expect.  In fact, the court-appointed guardian or guardians will have to account on an annual basis for all of their ward’s finances, and they are subject to removal if the court finds any financial or other improprieties.

Article 17-A is the solution to what would otherwise present an untenable situation.