New York Trusts & Estates Law Blog

Lecture announcement: “Equity in the 21st Century, a Surrogate’s Court Perspective”

Saul Elnadav — Tue, 04 May 2010 21:23:20 +0000

I received the following via e-mail:

On May 12 at 6:00 PM, Michael P. Ryan, chief clerk of the Nassau County Surrogate’s Court, will present a free lecture, the Ruth Lewinson Memorial Lecture, at the New York County Lawyers’ Association (NYCLA), 14 Vesey Street (between Broadway and Church Street) in Lower Manhattan. The lecture topic is “Equity in the 21st Century, a Surrogate’s Court Perspective.” Mr. Ryan has been chief clerk of the Nassau County Surrogate’s Court since 2005. Prior to that, he was a court attorney-referee in the Surrogate’s Law Department for ten years. Mr. Ryan received his J.D. from Fordham University School of Law. NYCLA’s Estates, Trusts and Surrogate’s Court Practice Section is sponsoring the lecture, which is named after Ms. Lewinson, the first woman officer at NYCLA and among New York’s first female attorneys, and an active and esteemed trusts and estates lawyer. RSVP: dlamb@nycla.org.

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Richard Epstein on the estate tax

Saul Elnadav — Wed, 10 Mar 2010 20:01:51 +0000

Richard Epstein, responding to Paul Krugman’s Op-Ed in the New York Times, defends the Republic position on unemployment benefits, the estate tax and health care. With regard to the estate tax he writes:

So let’s start with the estate tax and ask whether a tax that exempts 99.75%, of all estates, as the Democrats propose, is better than one that just abolishes the tax altogether. I vote for the latter. The estate tax operates as the third tax on the accumulation of wealth–after progressive taxes on earnings and savings. That heavy state and federal key drives many people to take grotesque steps to minimize their liabilities, which in part explains why only 0.25% of the people pay it. By forcing these dumb maneuvers, the tax distorts the accumulation and transfer of capital in ways that could easily reduce the production of wealth that could be subject to an income tax. Only if you think that hitting the most productive portions of the population is the right way to instill a sense of national unity would you want to keep this ship afloat.

The full article can be read here.

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Jewish Legal Perspectives

Saul Elnadav — Fri, 05 Mar 2010 16:57:16 +0000

Avrohom Gefen and I recently launched a new blog, Jewish Legal Perspectives (http://www.jlperspectives.org). We are posting regularly.

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Estate Planning, Halacha and the Jewish Law of Inheritance

Will Congress’ inaction on the estate tax cause more deaths in 2010?

Saul Elnadav — Mon, 11 Jan 2010 16:43:15 +0000

Paul L. Caron, the TaxProf blogger, provided the following chart from a 2006 article by Joshua S. Gans and Andrew Leigh, “Toying with Death and Taxes: Some Lessons from Down Under”. The chart purports to show that a significant number of the deaths in Australia were shifted from the week before to the week after July 1, 1979, the date on which the estate tax was abolished in Australia.

I haven’t read the article by Gans and Leigh, and statistics and interpreting raw data are not my areas of expertise. I was initially perplexed by the increase in the number of deaths between June 28 and June 30. However, John Gordon (transactional / real estate) and I, pooling our respective undergraduate backgrounds in philosophy and literature, concluded that many people who had been placed on life support earlier in the week had been long shots for survival. Some may have lived a few days longer, but much to their desperate family’s chagrin, didn’t quite make it to July 1.

Granted, that may be cynical and far-fetched. But see this article in the New York Post on January 11, 2010, which reported on two people whose estates will be taxed because they died several hours before the 2010 repeal.

But [the] dilemma tormented another New York family whose wealthy mother was terminally ill in December.

“The family could have put her on aggressive, artificial life support, with tubes and medical devices, until January 1, thereby saving $3 million in federal estate taxes,” a source said. “The family chose the kinder path — letting her die naturally and peacefully.” She didn’t make it to New Year’s Day.

Just to put that in perspective: As of right now, there is no federal estate tax for people who have died in 2010. Congress may still act to reinstate the tax retroactive to January 1, 2010, and several members of Congress have indicated that they intend to do so.

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Will contests: surviving summary judgment

Saul Elnadav — Thu, 07 Jan 2010 23:18:33 +0000

Surrogate Calvaruso of Monroe County issued a decision in Matter of Feller on January 4, 2010, worth reading for its succinct summary of some of the burdens of proof and presumptions that have to be overcome to survive summary judgment in a will contest.

In Feller, the decedent’s will left her estate to 10 charities and 4 individuals in equal shares. Eight of her 11 distributees filed objections based upon due execution, testamentary capacity and undue influence. The Attorney General, on behalf of the charities, filed a motion for summary judgment. The court rejected all claims by the distributees and granted summary judgment.

Due Execution

The claim that the will was never properly executed was based on the fact that the testatrix had only responded in the affirmative to the attorney’s queries regarding the request that witnesses sign the will, and that she had not herself requested that the witnesses sign the will. The court (thankfully) rejected this claim:

Attorneys routinely lead their clients through the will execution formalities in order to ensure that the requirements of EPTL 3-2.1 are satisfied in order to qualify a document as last will and testament entitled to be admitted to probate. Such publication and instruction of a request is not required to be in any “ironclad ceremonial or ritualistic language.”

Testamentary Capacity

The objectants also claimed that the testator lacked testamentary capacity at the time she executed her will. The court found that the objectants failed to offer sufficient evidence to raise a triable issue of fact. The court wrote:

Proponent [of the will] bears the burden to prove testamentary capacity at trial. For purposes of a summary judgement motion, once a proponent makes a prima facie case for probate, the burden switches to the objectant to show a triable issue of fact….

There is a presumption of testamentary capacity when a will is drafted and the execution is supervised by an attorney, particularly when the evidence indicates that the testatrix executed the will only after careful review and discussion of its contents. Here, objectants have failed to raise competent evidence creating a genuine issue of fact to overcome the presumption.

Undue Influence

The court also rejected the claim of undue influence because objectants failed to present any evidence of undue influence:

At a minimum, the objectant must make a showing of actual acts of undue influence, including time and place of the occurrence….

Though undue influence is typically proved by circumstantial evidence rather than direct evidence, this does not preclude summary judgement where a material issue of fact has not been shown. In fact, it is proper for the Surrogate to issue summary judgement where objectant has not made out a prima facie case of undue influence. Where a reasonable conclusion other than undue influence is supported by the facts, it is improper to conclude that undue influence existed:

[Undue influence] may be proved by circumstantial evidence but the circumstances must lead to it not only by a fair inference but as a necessary conclusion. To avoid the will of a competent testator on the ground of undue influence, the contestant must show facts entirely inconsistent with the hypothesis of the execution of the will by any means other than undue influence. In re Will of Henderson, 253 A.D. 140, 145 (1937).

The full text of the decision can be read here.

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Halachic Wills & Estates Series by the Bais HaVaad

Saul Elnadav — Fri, 25 Dec 2009 06:22:42 +0000

The Bais HaVaad Institute of Talmudic Law is presenting a seven part internet lecture series on halachic wills and estates. I mentioned the introductory lecture by Rabbi Ari Marburger in my post on the Estate of Max Feinberg.

The second lecture, also by Rabbi Marburger, surveyed the various principles that are relevant to the halachic enforceability of wills, including whether a valid kinyan (transaction) can be accomplished by executing a will, the extent to which halacha incorporates domestic law (dina demalchuta dina), and whether and under what circumstances the heirs are required to honor the the wishes of the deceased. Audio and video of past lectures are available on the Bais HaVaad website. Audio downloads are free of charge, though registration is required.

According to an e-mail sent out this week, the third lecture, entitled “Wives, Firstborns, & Children That Are Astray” will be presented by Rabbi Dovid Grossman on Sunday 12/27/09 at 10 am EST. The rest of the series, still unscheduled, will cover the following topics:

- How to Write a Halachic Will
- Trusts & Foundations
- Eldercare in Halacha
- Development Disability and Guardianship

Registration can be done through the website.

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New York Power of Attorney and Statutory Major Gifts Rider forms

Saul Elnadav — Tue, 08 Dec 2009 16:28:04 +0000

One of the strange, often amusing, things about keeping a blog is the ability to see what people were searching for when they stumbled across the blog. Not that analytics should necessarily dictate content, but since many visitors seem to be looking for New York’s new Power of Attorney and Statutory Major Gifts Rider forms, I figured I’d point frustrated googlers in the right direction.

The New York State Bar Association has the new POA and SMGR forms for download in Word or Wordperfect, along with suggested clauses for the Modifications sections. The forms cost $20 but are free for NYSBA members.

You can download the forms here. I also posted a link under the blog’s “Links & Resources,” a page I will add content to as I go along.

House to vote on estate tax amendment

Saul Elnadav — Thu, 03 Dec 2009 01:10:52 +0000

According to North Dakota Congressman Earl Pomeroy’s website, the House of Representatives is scheduled to vote on H.R. 4154, the Permanent Estate Tax Relief for Families, Farmers, and Small Businesses Act of 2009 on Thursday, December 3, 2009. The bill proposes to freeze the estate tax exclusion at $3.5 million with a maximum tax rates of 45%.

As noted in earlier posts, current law repeals the estate tax for 2010 and reinstates it for 2011, with an exemption of only $1 million and a maximum rate of 55%.

As with so many budgetary issues, depending on what you compare it to, you can spin it as a tax increase or, more logically, as an overall tax cut. Compared to current law, it’s an increase for 2010 and a cut for 2011 and beyond.

In case you’re wondering, the farm picture is courtesy of Congressman Pomeroy’s website.

Update 12/4/09: The House passed the bill 225-200. See House Votes to Extend Tax on Estates of the Wealthy, NYT 12/3/09, which notes that the bill might be delayed in the Senate, but that “lawmakers do not want to delay action until next year because they are wary of enacting retroactive tax changes.”

Halachic perspective on the Estate of Max Feinberg

Saul Elnadav — Tue, 01 Dec 2009 20:23:10 +0000

Litigation in the Estate of Max Feinberg has sparked online discussions both before and after the case was decided by Illinois Supreme Court. The question involves the validity of a clause in a will or trust that effectively disinherits a descendant who marries outside of a given faith. Since Max Feinberg and his wife, Erla Feinberg, were Jewish, the clause has been called the “Jewish clause,” although the Illinois Supreme Court’s “beneficiary restriction clause” is more accurate, since this is not a uniquely Jewish issue.

Surprisingly, there have been very few recent decisions from any court on the legal effectiveness of the clause, which explains the widespread attention to the outcome of this particular case.

Two lower courts held that the clause violated state public policy, which encourages marriage and discourages divorce. The Illinois Supreme Court took a more nuanced approach and upheld the validity of the clause under the narrow facts presented. The Court explained that in this case the distribution scheme could have been altered by will or powers of appointment during Max and Erla Feinberg’s lifetimes. Since no interests were vested until Erla Feinberg’s death, at which point the property was distributed outright, the estate plans never acted as a restraint on marriage or as an incentive for divorce. The Court may very well have come out the other way and invalidated the clause had the beneficiaries been given a remainder interest in a trust on condition that they marry Jewish spouses.

The case deals with the so-called Jewish clause from a legal perspective. But how Jewish is the Jewish clause?

As Rabbi Ari Marburger points out in the introductory webcast to Bais Havaad’s Halachic Wills & Estates Series, halacha draws a distinction between the validity and the appropriateness of an estate plan that varies the halachically prescribed order of distribution. Just because the estate plan can be made to be halachically binding does not mean it bears halachic approval. In fact, whether it is ever appropriate to vary the halachic order of distribution has historically been a matter of halachic dispute. The disinheritance of a halachic heir is more problematic, but what constitutes a disinheritance is far from clear.

In the Feinberg case, the clause operated to disinherit four grandchildren. Since grandchildren are not halachic heirs while their parents are alive, the clause disinheriting them is inconsequential from a halachic perspective. Rabbi Marburger suggests that even if the clause had been directed at the halachic heirs, contemporary authorities would allow the disinheritance. Even so, while the clause may be valid, I am not aware of any contemporary traditional halachic authority that actually advises disinheritance for any reason.

While halachic estate planning often focuses on the mechanics and halachic validity of an estate plan, the larger question of halachic appropriateness should not be ignored. This is particularly true in the common situation of a married couple leaving their entire residuary estates to each other. In most cases, that distribution scheme is halachically problematic, whether or not the will is accompanied by a binding halachic note of indebtedness.

Reverse mortgages

Saul Elnadav — Tue, 24 Nov 2009 18:30:23 +0000

Reverse mortgages are not new, but they have been gaining in popularity. In March 2009, the New York Times attributed recent interest to the credit crunch, since reverse mortgage lenders do not generally consider borrowers’ credit histories.

According to the New York Times articles (here and here), reverse mortgages allow people to access the equity in their homes with no requirement to make monthly payments. The loan must be repaid when the borrower moves out, sells the house or dies. People over 62 are eligible, and the property must be the primary residence. The limit on the amount that can be borrowed was raised earlier this year to $625,500.00. And a borrower can never owe more than the value of the home, which is significant when it’s been recently reported that 23% of mortgage borrowers have negative equity in their homes.

While the ability to convert equity to cash may be a lifeline for some people, it is not appropriate for everyone, and there are risks involved. Professor Gerry Beyer links a September 2009 Consumer Reports article which reports that reverse mortgages:

can be terrible for customers who don’t understand the complicated rules governing them and how quickly high fees and interest charges can balloon. They can end up stranded in their homes without any remaining equity to cover unexpected costs later in life.

Use of the loans is exploding as lenders—who shoulder almost no risks—push them to the growing ranks of retired baby boomers, especially for spending on vacations, new cars, and more.

Lawmakers and regulators are getting worried. “The people who are making these loans and advertising them so heavily to seniors on cable TV get the rewards but escape the risks that come with them. It’s going to be the sequel to the subprime-mortgage mess,” says Sen. Claire McCaskill, D-Mo., who is pushing for reverse-mortgage industry reforms.

You can read the full Consumer Reports article here.

More about reverse mortgages and their risks can be found on the HUD website and AARP’s website. See especially Reverse Mortgages Ripe for Abuse, AARP 10/7/09, raising concern about reverse mortgage scams and questionable sales practices.

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Article on Wills, Inheritance & Halacha in Community Magazine

Saul Elnadav — Wed, 14 Oct 2009 14:27:23 +0000

An article I wrote on yerusha (Jewish Laws of Inheritance) and halachic estate planning was published in the October 2009 issue of Community Magazine.

See The Top 10 Questions & Answers About Wills, Inheritance & Halacha. If you’re concerned about halacha, you should, at the very least, have a will.

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Will New York revise the power of attorney law again?

Saul Elnadav — Thu, 27 Aug 2009 19:32:27 +0000

New York’s new power of attorney law will be going into effect on September 1, 2009. While attorneys and other financial professionals update their forms for next week, they should be prepared to have to do it again in the near future.

Back in June, two and a half months before the effective date of the statute, the New York State Assembly passed Bill No. A8392-A, which made some “technical corrections” to the statute and the statutory forms. Unfortunately, the State Senate was too busy bickering over Senate leadership to notice much of anything, least of all some technical corrections.

The bill passed by the Assembly clarifies some of language in the statute, including some changes to the statutory short form and the statutory major gifts rider. It also makes a few subtle but significant changes to the law.

For instance, the current new law states that unless the principal expressly provides otherwise, the execution of a power of attorney revokes all prior powers of attorney executed by the principal. The Assembly bill flips that around, and provides that the execution of a POA does not silently revoke all prior powers of attorney unless the principal gives written notice to the previously appointed agent.

Another change is in the limits to gifts an agent can give using the power of attorney – i.e., what the statute considers a non-major gift. The current statute allows the continuation of the principal’s customary gifts, with a limit of $500 per person or institution per year. For larger gifts, a statutory major gifts rider must be executed. The Assembly’s latest revision limits the total of all gifts taken together to $500.

These proposed changes are reflected in changes to the text of the statutory short form and the major gifts rider. So if the bill ever passes the Senate, the forms will have to be revised again. Add that to the list of results of the ridiculous power struggle in Albany.

Halacha and inheritance

Saul Elnadav — Tue, 21 Jul 2009 16:26:47 +0000

A two hour summer commute is a proven cause of blog neglect. On the other hand, my long commute gives me time to listen to downloaded CLEs, podcasts and lectures I wouldn’t otherwise have time for.

Last night I listened to a lecture by Rabbi Hershel Schachter on the Halachic Issues of Inheritance. The lecture is an introduction to the major halachic principles regarding wills and inheritance, including halachic estate distribution, whether and when wills are accepted in halacha, bechorah, property deposited with a third party, and dina demalchuta dina.

You can download the lecture here. I haven’t explored the entire yutorah.org website, but there seems to be thousands of lectures on various topics available for download.

Testamentary capacity and undue influence in criminal proceedings

Saul Elnadav — Wed, 24 Jun 2009 20:49:19 +0000

An article in Monday’s New York Law Journal raised the interesting question of whether a criminal trial is the best place to get to the bottom of issues surrounding Brooke Astor’s estate.

The case has all the hallmarks of a classic will contest. Anthony Marshall, Brooke Astor’s son, is accused of taking advantage of his mother’s dementia to divert assets from her estate to himself by influencing her to amend her will. The matter is now the subject of a criminal trial in State Supreme Court in Manhattan, but the issues – testamentary capacity and undue influence, among others – are most often seen in Surrogate’s Court.

It’s not just a question of which forum the case is tried in. The issues involved can get very sticky when applied in the real world. Family dynamics are always nuanced. When elderly parents, particularly those with diminishing mental capabilities, rely on their children, are the children being helpful, are they being controlling, do the parents feel controlled? What goes on outside of the earshot of the lawyers preparing the will? In the Astor case, the lawyers themselves are alleged to be part of the problem.

I noted earlier that whether someone has testamentary capacity is not a simple yes or no. Someone can suffer with Alzheimer’s disease and lack testamentary capacity, but wake up one morning with a clear mind and sign a will. The will may be valid, but proving capacity is another matter entirely.

These issues frequently arise in will contests, and Surrogate’s Court has the expertise to deal with them. A criminal fraud and conspiracy trial, on the other hand, may not be the best way to untangle what exactly was or was not on Brooke Astor’s mind when she signed the amendment to her will. In this particular case, the drama involving the so-called “doyenne” of New York society and her son, the cameo appearances of famous people like Henry Kissinger and Barbara Walters as witnesses, and news, blog and tabloid coverage (in no particular order), will certainly compound the difficulties of a careful analysis of the issues.

But there’s another important consideration. Unlike Supreme Court, Surrogate’s Court can’t impose criminal sanctions. It can order Anthony Marshall to return assets, but it can’t send him to prison for committing fraud. According to a former prosecutor quoted in the Law Journal article, “as the problem of elder financial abuse has gotten more serious, the courts have recognized that the penal law must be read more broadly to fully fulfill its purpose.”

An Alzheimer’s program addressing “sundowning”

Saul Elnadav — Mon, 15 Jun 2009 18:04:41 +0000

The New York Times published an article last week on ElderServe at Night, a night program run by the Hebrew Home at Riverdale for people suffering with Alzheimer’s disease.

Quoting from the article:

Nighttime can be treacherous for people with dementia, who are often struck by sleeplessness or night terrors and prone to wandering about. This agitation and disorientation, called “sundowning,” is especially vexing for relatives trying to care for them at home, and often hastens their placement in nursing homes.

While there are countless day care programs for the nation’s estimated 5.3 million Alzheimer’s patients, some experts believe that ElderServe at Night, which began a decade ago, is the only one of its kind in the country.

Participants are fetched from their homes by vans and spend 7 p.m. to 7 a.m. painting, potting plants, dancing and talking — or, for those immobilized by their disease, relaxing amid music, massage and twinkling lights. The patients rest as they need, for a few minutes or a few hours, and return home the next morning fed, showered and, usually, tuckered out.

The article and a video are at All-Night Care for Dementia’s Restless Minds, by Cara Buckley and James Estrin, NYTimes, 6/12/09.

The New Old Age blog linked the article and there are some excellent reader comments there that are well worth reading.

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Estate planning basics

Saul Elnadav — Fri, 05 Jun 2009 17:29:18 +0000

A CNN Money/Fortune Magazine article published yesterday gives a basic overview of some estate planning fundamentals. See How to avoid the ‘death tax’ by Janet Morrissey, 6/4/09.

As we’ve mentioned, although the estate tax is set to expire at the end of 2009, Congress is expected to pass new legislation that will keep the estate tax rate at 45% with a $3.5 million exemption.

Morrissey’s article touches on gifts, life insurance, irrevocable trusts such as life insurance trusts and GRATs (grantor-retained annuity trusts), and using limited partnerships to reduce the value of assets for tax purposes. Although the article does not mention it, the Obama Administration recently proposed restricting the use of GRATs and valuation discounts going forward, so the time to take advantage may be now.

The article also stresses the importance of periodically reviewing your estate plan. Finances, relationships, and laws change over time, and an estate plan created ten years ago may no longer make sense.

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The free lunch seminar trap

Saul Elnadav — Thu, 04 Jun 2009 18:10:07 +0000

A recent Wall Street Journal article by Jennifer Levitz reported that financial scams targeting seniors are on the rise, and states are responding by increasing penalties on scammers.

Seizing on fear of stock-market turmoil, sales people and fraudsters are hawking investments that claim to be “low-risk,” or a supposedly safe way to invest in the stock market and earn back losses. In fact, the products may be complex and have significant downsides.

Special mention, at least in Arkansas, goes to free lunch seminars. The seminars are pitched to seniors as educational events with complimentary lunch, but are sometimes nothing more than sales opportunities for unethical brokers who misrepresent financial products and aggressively push products that are inappropriate for older people. The article contains a helpful list of questions you might want to ask before investing.

According to the article, Arkansas recently passed a law doubling the civil penalty for securities violation when the victim is 65 or older, and ten other states (I counted Michigan, Idaho, Maryland, Minnesota, Missouri, New Jersey, Rhode Island, West Virginia, Wisconsin and Pennsylvania) have either recently passed, proposed, or are expected to introduce legislation aimed at financial scammers who target the elderly.

Read the full article here.

- A side note to subscribers of the blog’s feed and e-mail updates. The blog has been moved to a new web address, http://trustsestateslaw.com. It also has a new and improved design. Click over, take a look, and let me know what you think.

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Warren Buffett and Bill Gates on the estate tax

Saul Elnadav — Mon, 18 May 2009 14:43:00 +0000

I just came across a interview of Warren Buffett and Bill Gates which I thought was relevant to our earlier discussions of wealth, luck and whether the wealthy should complain less about their share of the tax burden. (I say “discussion” because, yes, I did get some of you to comment. And no, I didn’t pay anyone to comment.)

In the interview with Liz Claman of Fox Business News on May 4, both Buffett and Gates say they are in favor of the estate tax. They make a pragmatic point similar to the one Robert Frank of the Wall Street Journal made in passing – the estate tax raises significant revenue. If we repeal the estate tax, how will we replace the lost revenue?

Buffett also does the following calculation. Approximately 2,450,000 people in America will die in 2009, but only about 12,000 federal estate tax returns will be filed, which means that only 1 in 200 people leaves a taxable estate. If you went to a funeral every month, says Buffett, it could take 17 years to attend the funeral of someone whose estate will be federally taxed. I haven’t checked his numbers, but his point is that if we repeal the tax on 1/200th of the population, we’d have to shift the tax burden downward to everyone else.

Gates then says that people with very rich estates, himself and Buffett included, have benefitted from the rules and stability of this country. If they had to choose where to be born, they would choose the U.S., even if that meant paying the estate tax.

According to a blog post by Edward Zelinsky, a law professor at Cardozo, Warren Buffett has made the same argument in the past:

Among his other observations, Buffett has correctly noted the dangers to a democracy of inherited wealth as well as the moral obligation of those who have done particularly well in American society to give back to that society. As Buffett observed, he would not be Warren Buffett if he had been born in Bangladesh.

These concerns have led Buffett to support retention of the federal estate tax and to express dismay that his federal income tax bracket is lower than his secretary’s.

Which seems very civic minded indeed, except that, as Zelinsky notes, Buffett and Gates appear to have planned their estates around charitable giving to avoid paying federal estate tax.

Zelinsky writes:

Buffett (and Gates) might explain this apparent contradiction by arguing that their charity is an effective substitute for taxation. Thus, the argument would go, when they give $1.00 to the Gates Foundation with no corresponding tax payment, they should nevertheless be treated as if they had paid $1.00 in tax since the contributed $1.00 is devoted to public purposes.***

[But] giving money to the Gates Foundation is not the same as giving money to the federal Treasury. The federal Treasury is controlled by the people of the United States through their elected representatives. The Bill and Melinda Gates Foundation is controlled by Bill and Melinda Gates.

Zelinsky urges Buffett to put “his money where his heart is” and give charity to the Gates Foundation on a taxable basis. The logic escapes me. If Buffett really believes that the best place for his money was the federal government, he should donate it all to the Treasury and encourage Bill Gates to do the same. After all, Buffett’s estimated $37 billion is 2% of the projected $1.84 trillion federal budget deficit for 2009.

It seems to me that Buffett’s actions imply a clear distrust of governmental taxing and spending programs and their ability to improve society in an efficient manner. As we’ve said, the argument that one has a moral obligation to society for the opportunity to acquire wealth does not necessarily lead to an endorsement of government tax and spend policies. Philanthropy has a long history of improving society. Warren Buffett obviously trusts the Gates Foundation more than he trusts the Treasury to use his money wisely for the public good.

On the other hand, perhaps people who have attained a certain level of wealth stop making sense and maybe I should stop trying to figure them out. At the beginning of the clip Warren Buffett says that the income tax charitable deduction is “peanuts” to him, and he isn’t at all effected by the Obama proposal to reduce the deduction. By the end of the clip, he and Bill Gates are talking about the piles of coupons they used at McDonald’s in China. I’m sure they had a blast.

Dementia and the question of testamentary capacity

Saul Elnadav — Mon, 11 May 2009 21:27:00 +0000

Paula Span’s post today on the blog The New Old Age does a good job explaining the challenges of establishing whether someone with dementia had the capacity to sign or change a will.

The occasion for the post is, of course, the ongoing criminal trial of Brooke Astor’s son, Anthony D. Marshal, and lawyer, Francis X. Morrissey Jr., who are accused of diverting money from Astor’s estate. One of the issues at trial is whether Astor, who was diagnosed with Alzheimer’s disease, had the mental and legal capacity to make changes to her will.

As Paula Span writes:

Alzheimer’s sufferers may experience days of comparative lucidity alternating with days of bewilderment. Cognitive ability “may even vary throughout the day,” said Dr. Ronald C. Petersen, a neurologist at the Mayo Clinic who chairs the medical and scientific advisory board of the Alzheimer’s Association. “A person might be relatively sharp in the morning and by evening be quite confused.”

Caregivers are familiar with the late-day agitation called “sundowning.” Medications, disrupted sleep, social stimulation and even a minor cold can affect these diurnal cycles. Though a variety of doctors are expected to testify during the two-month trial, they may shed little light on whether Mrs. Astor had, in legalspeak, “testamentary capacity” on a particular January afternoon in 2004, when she altered her will.

Read the full article here. At the end is a short video of Brooke Astor speaking at her 100th birthday party. The video was recently shown in court.

Hard work and dumb luck

Saul Elnadav — Mon, 04 May 2009 22:24:00 +0000

My recent post, Tough luck for dumb luck, linked an article by Robert H. Frank which disagreed with the contentions that the tax system strains the vital connection between individual effort and reward. Robert H. Frank argued that luck contributed heavily to success, and that “well-paid Americans owe an enormous, if rarely acknowledged, debt to the social investments that supported their success.”

Following an interview on Fox Business News, Robert H. Frank clarified his position this way in a Huffington Post column:

There’s no question that hard work and talent make someone more likely to achieve economic success. But for every successful person who exhibits these qualities, there are hundreds of others who are just as talented and work just as hard, yet earn only modest incomes.

Even talent and the inclination to work hard are themselves heavily dependent on chance. In combination, genes and environment ultimately account for all important individual differences, which means that someone who was born talented and brought up to be hard-working was incredibly lucky to begin with.

The Wall Street Journal journalist and author of the Wealth Report, Robert Frank (apparently no relation) appeared on Fox Business News the following day in this video:

Near the end of the clip, WSJ’s Robert Frank makes the common sense point that the discussion of luck and success is all very nice and academic, but misses the most important thing about tax policy in the current economic environment. Congress and the Obama Administration need to raise money to fund the stimulus, and the wealthy are who have it. An honest debate about tax policy should focus less on philosophy and more on what, if anything, government needs to do.

This essentially was my point when I wrote that Robert H. Frank’s point that luck plays a big role, even if true, “doesn’t necessarily lead to the belief that governmental taxing and spending is fiscally sound or that it creates the circumstances for economic and social progress.”

However, in a follow-up blog post on the Wealth Report, WSJ’s Robert Frank wrote that:

practically all of the millionaires or billionaires I have interviewed over the years were obsessive workers. Sure, people win the lottery. And some inherit their money. But they are the minority. Repeated studies show that inherited wealth accounts for 10% to 20% of today’s multimillionaires.

That isn’t to say that luck doesn’t play a role in getting rich. In a study by PNC Wealth Management of 1,500 Americans with $500,000 or more in investible assets, 37% of self-made wealthy agreed that “the money I have made so far has come from being at the right place at the right time.

One Robert Frank writes for the Wall Street Journal. The other Robert Frank writes for the New York Times and teaches economics at Cornell. They’re talking past each other, but seem to agree more than disagree that hard work leads to success if you’re lucky. Both Robert Franks focus on whether and to what extent the wealthy should congratulate themselves or all of us for their wealth, but miss the crucial questions of whether governmental taxing and spending is fiscally sound and whether it’s the right step to creating the circumstances for economic and social progress.

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