This series is designed for paralegals and will also be useful for attorneys new to managing or supervising estate administrations. Each program features a panel of leading industry professionals with in-depth knowledge and hands-on experience in administering estates.
In the first five programs, panelists will review the fundamental and practical concepts that commonly arise in estates, including immediate pre- and postmortem considerations, dealing with non-probate assets, and ancillary issues related to closely held entities and irrevocable trusts. The second set of programs will include a deep dive into fiduciary income tax reporting, estate tax reporting, and fiduciary accountings and releases.
www.ambar.org/rptecle
A monthly webinar featuring a panel of professors addressing recent cases or issues of relevance to practitioners and scholars of real estate or trusts and estates. FREE for RPTE Section members!
A monthly webinar featuring a panel of professors addressing recent cases or issues of relevance to practitioners and scholars of real estate or trusts and estates. FREE for RPTE Section members!
Register for each webinar at http://ambar.org/ProfessorsCorner
Register for each webinar at http://ambar.org/ProfessorsCorner
EMINENT DOMAIN USE AND ABUSE: ECHOES OF KELO (20 YEARS LATER)
Tuesday, May 16, 2023 12:30-1:30 pm ET
Tuesday, March 14, 2023 12:30-1:30 pm ET
PATRICIA H. LEE, Loyola University Chicago
VICTORIA J. HANEMAN, Creighton University
RONIT LEVINE-SCHNUR, Reichman University, Israel
GEORGE C. FATHEREE III, Sidley Austin
Moderator: SHELBY D. GREEN, Pace University
TITLE FRAUD
REGULATION AND A FUNDAMENTAL RIGHT TO PRIVATE PROPERTY
Tuesday, June 13, 2023 12:30-1:30 pm ET
CHRISTINA JENKINS, Christina Jenkins PLLC
Tuesday, April 11, 2023 12:30-1:30 pm ET
STEWART STERK, Cardozo Law at Yeshiva University
Moderator: SHELBY D. GREEN, Pace University
JAN LAITOS, Sturm College of Law, University of Denver
EDITORIAL BOARD
Editor
Edward T. Brading
208 Sunset Drive, Suite 409
Johnson City, TN 37604
Articles Editor, Real Property
Kathleen K. Law
Nyemaster Goode PC 700 Walnut Street, Suite 1600 Des Moines, IA 50309-3800
kklaw@nyemaster.com
Articles Editor, Trust and Estate
Michael A. Sneeringer
Porter Wright Morris & Arthur LLP
9132 Strada Place, 3rd Floor Naples, FL 34108
Senior Associate
Articles Editors
Thomas M. Featherston Jr.
Michael J. Glazerman
Brent C. Shaffer
Associate Articles Editors
Robert C. Barton
Travis A. Beaton
Kevin G. Bender
Jennifer E. Okcular
Heidi G. Robertson
Aaron Schwabach
Bruce A. Tannahill
Departments Editor
James C. Smith
Associate Departments Editor
Soo Yeon Lee
Editorial Policy: Probate & Property is designed to assist lawyers practicing in the areas of real estate, wills, trusts, and estates by providing articles and editorial matter written in a readable and informative style. The articles, other editorial content, and advertisements are intended to give up-to-date, practical information that will aid lawyers in giving their clients accurate, prompt, and efficient service.
The materials contained herein represent the opinions of the authors and editors and should not be construed to be those of either the American Bar Association or the Section of Real Property, Trust and Estate Law unless adopted pursuant to the bylaws of the Association. Nothing contained herein is to be considered the rendering of legal or ethical advice for specific cases, and readers are responsible for obtaining such advice from their own legal counsel. These materials and any forms and agreements herein are intended for educational and informational purposes only.
© 2023 American Bar Association. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Contact ABA Copyrights & Contracts, at https://www.americanbar.org/about_the_aba/reprint or via fax at (312) 988-6030, for permission. Printed in the U.S.A.
ABA PUBLISHING Director
Donna Gollmer
Managing Editor
Erin Johnson Remotigue
Art Director
Andrew O. Alcala
Manager, Production Services
Marisa L’Heureux
Production Coordinator
Scott Lesniak
ADVERTISING SALES AND MEDIA KITS
Chris Martin 410.584.1905 chris.martin@mci-group.com
Cover
Getty Images
All correspondence and manuscripts should be sent to the editors of Probate & Property
Probate & Property (ISSN: 0164-0372) is published six times a year (in January/February, March/ April, May/June, July/August, September/October, and November/December) as a service to its members by the American Bar Association Section of Real Property, Trust and Estate Law. Editorial, advertising, subscription, and circulation offices: 321 N. Clark Street, Chicago, IL 60654-7598.
The price of an annual subscription for members of the Section of Real Property, Trust and Estate Law is included in their dues and is not deductible therefrom. Any member of the ABA may become a member of the Section of Real Property, Trust and Estate Law by sending annual dues and an application addressed to the Section; ABA membership is a prerequisite to Section membership. Individuals and institutions not eligible for ABA membership may subscribe to Probate & Property for $150 per year. Requests for subscriptions or back issues should be addressed to: ABA Service Center, American Bar Association, 321 N. Clark Street, Chicago, IL 60654-7598, (800) 2852221, fax (312) 988-5528, or email orders@americanbar.org.
Periodicals rate postage paid at Chicago, Illinois, and additional mailing offices. Changes of address must reach the magazine office 10 weeks before the next issue date. POSTMASTER: Send change of address notices to Probate & Property, c/o Member Services, American Bar Association, ABA Service Center, 321 N. Clark Street, Chicago, IL 60654-7598.
The Nominations Committee, consisting of Chair Stephanie Loomis-Price, Vice-Chair Robert C. Paul, Members Marissa Dungey, Shelby D. Green, and Benjamin Orzeske, met this fall and interviewed Section Officers, Delegates, Council members, Standing Committee Chairs, and Editors of the Section’s publications. The Committee expresses its appreciation to all those who met with the Committee to share their thoughtful insights about the future leadership of the Section.
The Committee has completed its deliberations and hereby submits its nomination of the following persons to serve in the officer capacity noted by each name:
Section Chair
Section Chair-Elect
Real Property Division Vice-Chair
Trust & Estate Division Vice-Chair
Section Secretary
Section Finance Officer
Assistant Secretary (Trust & Estate Division)
Assistant Secretary (Real Property Division)
Section Delegate
Diversity Officer
Robert S. Freedman
Benetta Y. Park
Marie A. Moore
Ray Prather
George P. Bernhardt
James R. Carey
Bruce A. Tannahill
Timnetra Burruss
James G. Durham
Kellye Curtis Clarke
The following persons are each re-nominated to serve a three-year term on the Section Council:
For the Trust & Estate Division:
For the Real Property Division:
Mary E. Vandenack
James E. A. Slaton
Jin Liu
The following persons are each nominated to serve an initial three-year term on the Section Council:
For the Trust & Estate Division:
Abigail Rosen Earthman
Mary Elizabeth Anderson
David E. Lieberman
For the Real Property Division:
Kenneth A. Tinkler
C. Scott Schwefel
The following persons are nominated to fill a two-year unexpired term on Council:
For the Trust & Estate Division:
For the Real Property Division:
Carole M. Bass
Kim Sandher
The following person is nominated to fill a one-year unexpired term on Council:
For the Real Property Division:
D. Joshua Crowfoot
The Nominations Committee requests that, pursuant to Section 6.1(g) of the Section Bylaws, written notice of this report, together with contact information, a biographical statement of each nominated person and such additional information required under the Section Bylaws, be circulated to the Section membership in accordance with the Section Bylaws.
Robert S. Freedman
Carlton Fields, P.A. Tampa, FL
Will automatically assume the position of Section Chair, term ending August 2024. Positions held in Section: Chair, Timesharing and Interval Uses; Member, Continuing Legal Education; Chair, Common Interest Ownership Development; Member, Publications; Member, Technology; Group Chair, Vice-Chair, Council Representative, and Supervisory Council Member, Hospitality, Community Recreation and Common Interest Development; Member, Vice-Chair and Co-Chair, Groups and Substantive; Member, Council; RP
Division Vice-Chair; Chair and Member, Planning; Liaison, RP Synergy Summit; Chair-Elect, Officers.
Benetta Y. Park
Johnson Keland Management, Inc. Racine, WI
Nominated for Section Chair-Elect, term ending August 2024. Positions held in Section: TE Vice Chair, Officers; Vice-Chair, International Tax Planning; Co-Chair, CLE; Vice-Chair, Spring Meeting; Member, Community Outreach; Member, Council; TE Division Secretary, Council; Council Rep, TE Practice Groups; Member, Planning; Member, Nominations; Liaison, Section of Taxation; Member, Meetings Task Force; Member, Career Development Task Force; Liaison, TE Synergy Summit.
Marie A. Moore
Sher Garner Cahill Richter Klein & Hilbert, L.L.C. New Orleans, LA
Nominated for second term as Section Vice-Chair, Real Property Division, term ending August 2024. Positions held in
Section: Chair and Vice-Chair, Retail Leasing; Advisor and Member, Diversity and Inclusion; Co-Vice-Chair, Co-Chair, and Member, Corporate Sponsorship; Assoc. Articles Editors for RP and “Last Word” Editor, Probate & Property; Group Chair and Vice-Chair, Leasing Group; Member, Council; Division Vice-Chair and Member, CLE; Member, Planning; SCM and Council Rep, Residential, Multi-Family, and Special Use Group; Advisor and Member, Leadership/ Mentoring Task Force; Co-Chair, Special Committee on ABA Relations; Vice-Chair, Affordable Housing; Member, Groups and Substantive; RP Vice-Chair, Officers; RP Vice Chair, Council; Liaison, Other Groups and Organizations.
Ray Prather Prather Ebner Wilson LLP Chicago, ILNominated for first term as Section ViceChair, Trust and Estate Division, term ending August 2024. Positions held in Section: Articles Editor and TE Assistant Editor, eReport; Group Chair, Group ViceChair, Chair, Vice Chair and Co-Vice-Chair, Charitable Planning; Member, Corporate Sponsorship; Liaison, LGBT Bar Association; Liaison, ABA Commission on Sexual Orientation & Gender Identity; TE Editor and Member, Publications; Member, Special Committee on ABA Relations; 2023 Council Member, Council Rep, Charitable Planning Organizations Group; Member, Planning.
George P. Bernhardt Baker Hughes Company Houston, TXNominated for first term as Section Secretary, term ending August 2024. Positions held in Section: Member and Co-Chair, InHouse Counsel; Chair, Industrial Leasing; Member, Special Committee on In-House Counsel; Member, CLE; Group Chair, Group Co-Chair and Group Vice-Chair, Leasing Group; 2023 Member, Council; Council Rep, Joint Legal Education and Uniform Laws Group; Member, Nominations; Member, Planning.
James R. Carey Levin Schreder & Carey LtdChicago, IL
Nominated for first term as Finance Officer, term ending August 2024. Positions held in Section: Chair and Co-Vice-Chair, Probate & Fiduciary Litigation; Liaison, Section to Dispute Resolution; Council Representative, Group Chair and ViceChair, Litigation, Ethics and Malpractice Group; Co-Chair and Member, Corporate Sponsorship; Member, Task Force on Technology and the Profession; Member, Group and Substantive Committees; Member, Council; Member, Groups and Substantive; Member, Planning, Vice-Chair, Investments.
Bruce A. Tannahill
Mass Mutual
Wichita, KS
Nominated for first term, Assistant Secretary, Trust and Estates Division, term ending August 2024. Positions held in Section: Advisor, Vice-Chair and Member, CLE; Assoc. Articles Editor, Probate & Property; Co-Chair, Operating Businesses.
Timnetra Burruss
Chicago, IL
Nominated for second term, Assistant Secretary, Real Property Division, term ending August 2024. Positions held in Section: Member, Fellows; Member, CLE; Member, Diversity; Vice-Chair, Diversity, and Inclusion; Co-Chair, Diversity, Equity, and Inclusion; Vice-Chair, Multi-Family Residential; Member, Communications, Council, Real Property Division Assistant Secretary.
James G. Durham
University of Dayton School of Law
Dayton, OH
Nominated for first term as Section Delegate, term ending August 2026. Positions held in Section and ABA-wide: Section Secretary; Co-Chair, Career Development and Wellness; Chair, Real Property Division Ethics Committee; Vice-Chair and Group Chair, Practice Management Group; Member, Membership; Member, Task Force
on RP Law School Curriculum; Chair and Supervisory Council Member, Legal Education and Uniform Laws Group; Secretary and Member, Council; Liaison, CPR/SOC Joint Committee on Ethics and Professionalism; Advisor and Member, Planning; Member and Vice-Chair, CLE; Liaison and ABA Advisor to ULC Drafting Committee on Uniform Electronic Registry for Residential Mortgage Notes; SCM, RP & TE Legal Education and Uniform Laws Group.
Kellye Curtis ClarkeRGS Title
Alexandria, VA
Nominated for third full term as Diversity Officer, term ending August 2024. Positions held in Section: Member, Fellows; Chair and Vice-Chair, Single Family Residential; Member, Membership; Co-Chair, Vice-Chair, Co-Vice Chair, Member, Diversity and Inclusion; Group Chair and Vice Chair, Residential, Multi-Family and Special Use Group; Member, Nominations; Member, RP Government Submissions Task Force; Member, Council; Liaison, Commission on Homelessness and Poverty; Member, Groups and Substantive; Chair, Co-Chair and Member, Special Committee on ABA Relations; SCM, Real Estate Financing Group; Member, Council; Member, Planning; Council Rep, RP Litigation and Ethics Group; Diversity Officer.
Mary E. Vandenack
Vandenack Weaver LLC
Omaha, NE
Nominated for second term on Council, Trust and Estate Division, term ending August 2026. Positions held in Section and ABA-wide: Member and Co-Chair, Future Practice and Guidance Task Force; CoChair, Economics and Technology of the Practice Small Firm Practice; Vice-Chair, Small Firm Practice; Vice-Chair, Asset Protection Planning; Co-Chair, Emotional and Psychological Issues in Estate Planning; Member, Planning; Liaison, ABA Standing Committee on Technology and Information Systems; Group Co-Chair, Joint Law Practice Management Group; TE Assistant Secretary, Council; ABA Law Practice Division: Editor-in-Chief Law Practice
Magazine; Counsel; Women Rainmakers; Vice Chair Futures Task Force; Evolving Business Models; Attorney Well-being; ABA Commission on the Future of the Profession; ABA Commission on Youth At Risk; Member, Council; Member, Nominations; Council Rep, Non-Tax Estate Planning Considerations Group; Member; Special Committee on Career and Wellness; Chair-Elect, Law Practice Division.
James E. A. Slaton
Stone Pigman Walther Wittmann L.L.C. Baton Rouge, LA
Nominated for second term on Council, Real Property Division, term ending August 2026. Positions held in Section: Chair and Vice-Chair, Land Use and Zoning; Group Chair and Vice-Chair, Land Use and Environmental Group; Member, Marketing and Social Media; Member, Conservation Easement Task Force; Chair, Purchase and Sale; Member, Membership; Member, Nominations; Member, CLE; Assistant RP Division Secretary; Member, RP Government Submission; Member, Council.
Jin Liu
Carlton Fields, P.A. Tampa, FL
Nominated for second term on Council, Real Property Division, term ending August 2026. Positions held in Section: Member, Fellows; Co-Vice Chair and Chair, International Investment in Real Estate; Member, Communications; ViceChair and Group Chair, Special Investors and Investment Structure Group; Member, Membership; Member, Publications; Member, CLE; Member, Council; Member, Groups and Substantive; Member, Working Group on Anti-Money Laundering; Council Rep., Residential, Multi-Family and Special Use Group.
Abigail Rosen Earthman
Perkins Coie LLP
Dallas, TX
Nominated for first term on Council, Trust and Estate Division, term ending August 2026. Positions held in Section
and ABA-wide: Member, Fellows; Chair, Co-Chair and Liaison, Tax Litigation and Controversy; Chair and Co-Chair, Digital Property; Co-Vice Chair, Skills Training CLE; Fellows Vice-Chair, Membership; Liaison, National Asian Pacific Bar Association to other Groups and Organizations; Member, Special Committee on Career Development and Wellness; Member, Membership; Liaison, ABA Section of Taxation; Chair, TE Practice Group.
Mary Elizabeth AndersonWyatt Tarrant & Combs LLP
Louisville, KY
Nominated for first term on Council, Trust and Estate Division, term ending August 2026. Positions held in Section and ABAwide: Vice-Chair, Surrogate Decision Making; Member, Diversity and Inclusion; Group Chair and Group Vice-Chair, Elder Law and Special Needs Planning Group; Member, Community Outreach; RPTE Section Advisor to ULC Drafting Committee on Fundraising through Public Appeals (f/k/a Management of Funds Raised Through Crowdfunding Efforts Act); and ABA Advisor, ULC Drafting Committee on Fundraising through Public Appeals; Liaison, ULC Drafting Committee on Health Care Decisions Act; Assistant Secretary, Council – Trust and Estate Division; Member, Marketing and Social Media; Liaison, ABA Commission on Sexual Orientation & Gender Identity.
David E. Lieberman
Levin Schreder & Carey Ltd.
Chicago, IL
Nominated for first term on Council, Trust and Estate Division, term ending August 2026. Positions held in Section and ABAwide: Co-Chair and Vice-Chair, Ethics and Malpractice; Liaison, CPR/SOC Joint Committee on Ethics and the Profession; Co-Chair, Ethics and Professionalism; Member, Future Practice and Guidance Task Force; Co-Chair, Probate & Fiduciary Litigation; Group Chair and Group ViceChair, TE Litigation, Ethics and Malpractice Group; Liaison, ABA Advisor to the ULC Drafting Committee on Conflicts in Law and TE.
Nominated for first term on Council, Real Property Division, term ending August 2026. Positions held in Section: Group Chair and Group Vice-Chair, Land Use and Environmental Group; Chair and Vice-Chair, Land Use and Zoning; Liaison, Section of Environment, Energy and Resources; Co-Chair and Vice-Chair, Corporate Sponsorship.
Kim Sandher Pivotal Law Group PLLCSeattle, WA
Nominated to fill a two-year unexpired term on Council, Real Property Division, term ending August 2025. Positions held in Section: Member, Fellows; Liaison, YLD Liaison to RP; Member, Community Outreach; Chair and Vice-Chair, Single Family Residential; Member, Membership; Chair and Vice-Chair, Multi-Family Residential; Member, Special Committee on Career and Wellness.
D. Joshua CrowfootCrowfoot Law
Chattanooga, TN
Nominated to fill a one-year unexpired term on Council, Real Property Division, term ending August 2024. Positions held in Section: Member, Fellows; Vice-Chair, Retail Leasing; RP Acquisitions Editor, Media/Books Products; Liaison, ABA GP Solo Division; Chair, YLD; Vice-Chair, Senior Housing and Assisted Living; Chair, Young Lawyers Network; Vice-Chair, Purchase and Sale; Vice-Chair, Office Leasing; Chair, Assignment and Subletting. n
Nominated for first term on Council, Real Property Division, term ending August 2026. Positions held in Section: Vice-Chair, Property Tax; Member, Marketing and Social Media; Group Chair and Vice-Chair, Land Use and Environmental Group; Vice-Chair and Member, CLE; Member, Membership; Liaison to the ABA Section Officers Conference, Membership Committee.
Carole M. BassSullivan & Worcester LLP
New York, NY
Nominated to fill a two-year unexpired term on Council, Trust and Estate Division, term ending August 2025. Positions held in Section and ABA-wide: Co-Chair, BioEthics; Co-Chair, Vice-Chair and Member, CLE; Co-Chair and Vice-Chair, Non-Tax Issues Affecting the Planning and Administration of Estates and Trusts; Vice-Chair, Spring CLE; Group Co-Chair, Non-Tax Estate Planning Considerations Group; Vice-Chair, National CLE Meeting Division; Ex-Officio, Council; ABA Law Practice Division, Member, Women Rainmakers Committee Board; Co- Chair, Women Rainmakers Webinar Subcommittee; Member, Diversity, Equity, Inclusion and Belonging Committee; Presidential Appointment, Member, Advisory Committee to the ABA Commission on Lawyer Assistance Programs (CoLAP).
May 2023
TO: All Members, ABA Section of Real Property, Trust and Estate Law
FROM: James Durham, Section Secretary
RE: Proposed Amendments to the Section Bylaws
Pursuant to Article 14 of the Section of Real Property, Trust and Estate Law Bylaws, this is notice that approval of proposed amendments to the Section Bylaws will be sought at the Section Annual Business Meeting on August 4, 2023, during the ABA Annual Meeting.
There are many amendments that are simply clean-up, but there also are two substantive amendments to the Bylaws, as follows:
• § 4.5 is amended to rename the position of Section Diversity Officer to Diversity, Equity, and Inclusion Officer, and there also are amendments to the duties of the DEI Officer.
• Article 9 is deleted to remove from the Bylaws the listing of Section Standing and Special Committees. This change approved by the Section Executive Committee at its meeting on February 16, 2022, and was announced at the Section Council Meeting in Dallas on April 30, 2022.
These amendments are subject to being approved by the Section Council at its meeting in Washington, DC, on May 13, 2023. If approved by the Section and the ABA Board of Governors, the changes will become effective September 1, 2023. A copy of the proposed revised Bylaws may be found at ambar.org/rptebylaws
So you decided litigating trust and estate disputes might be interesting. Or, perhaps, you enjoyed your wills and trusts lawschool course but wanted to represent clients in court. Regardless of how you arrived at this point in your legal career, welcome. If you haven’t already, you will undoubtedly find trust and estate litigation to be a rewarding and interesting practice. The intersection of money and family is rarely, if ever, dull, particularly in litigated matters. But what should you know to ensure that trust and estate litigation will be a rewarding and sustainable practice for you? Here is some relatively brief unsolicited advice.
The adage that a litigator’s life would be stress-free if not for opposing counsel, judges, and (of course) clients applies with particular force to trust and estate litigation. Although saying “no” goes against our lawyerly instinct to help (as well as the financial imperative of building a successful practice), one need only experience a single nightmare client to understand the importance of being selective. We find our clients as they are—and, more often than not, they are traumatized, grieving, and emotionally wrapped around the axle. To be an effective trust and estate litigator, you certainly need the ability to empathize and connect with your client; however, you also need to hone your ability to detect when
Young Lawyers Network Editor: Josh Crowfoot, Crowfoot Law Firm, 200 W. MLK Blvd, Suite 1000, Chattanooga, TN 37450, josh@crowfootlaw.com. Contributing
Author: Julian C. Zebot, Maslon LLP, 3300 Wells Fargo Center, 90 South Seventh Street, Minneapolis, MN 55402, Julian.Zebot@maslon.com.
a prospective client is likely beyond your ability to manage. There are numerous warning signs that you will learn to identify in initial client conversations—one example is the client who has quickly cycled through prior counsel—but you also need to learn to trust your gut. And if your gut is telling you that the prospective client will be difficult, you would be wise to listen.
Once you have decided to represent a particular client, you have several immediate and essential responsibilities. You must establish rapport and gain your client’s trust, as both will be required throughout the representation. Just as importantly, you also need to develop a clear set of expectations—namely, what you will be doing for the client, what you will not be doing, and how often (and in what manner) you will communicate. Many clients are not particularly sophisticated in litigation and do not know what to expect from the court and their counsel. It is, therefore, vital for you to level set and not simply walk your client down the primrose path of litigation. Managing your clients’ expectations of what they can reasonably hope to achieve by way of litigation is, in some sense, your primary responsibility as their attorney. And it has the added benefit of avoiding—or at least mitigating— those awkward subsequent, “but you didn’t tell me this was going to happen” conversations.
Take everything your client tells you about the dispute, and its factual background, with a grain of salt. A trust and estate dispute’s factual narrative can be a bit like an onion—successive layers will gradually reveal themselves over the litigation’s course. Though you should generally avoid expressing skepticism regarding
your client’s factual account, you should maintain, at least internally, an appropriately skeptical attitude and continue to ask questions. Trust and estate disputes often involve issues—and conflicts—dating back years, if not decades, within the client’s family. Even with a client who appears eager to share information, you will typically not receive the entire story immediately. (And, of course, the other side’s factual account will likely differ in certain material respects.) To assess your client’s case objectively and properly advise them, you should keep an open mind.
That said, always listen to your client. Do not immediately discount information shared with you simply because it seems remote or unrelated to the disputed issues. Even if it is not, legally speaking, relevant, such information may still provide you with essential insights regarding litigation drivers and the parties’ respective goals. If the client feels it is important to share certain information with you, listen to the client.
Establish Appropriate Boundaries
Clients pay us to offload their problems. And, boy, do they have problems: familial conflict, psychological distress, you name it. Trust and estate litigation puts real life on full display in all of its messiness. Although you need to convey that the client’s problem is now your problem, you must also be able to compartmentalize your work from the rest of your life. The amount of vicarious stress you will be exposed to will sometimes seem overwhelming. Simply ignoring that reality does not make it go away. So you should set reasonable boundaries: avoid the impulse to give clients your cell phone number unnecessarily; schedule and block vacation time; and identify and make time for appropriate stress-relief habits, whether exercise, meditation, or hobbies. After all, if you don’t take care of yourself, you certainly won’t be able to take care of your clients. And trust me—they need you. n
For the past two years, a Uniform Law Commission (ULC) drafting committee has worked to modernize and improve the Uniform Health-Care Decisions Act, which was originally approved 30 years ago. The act governs both advance directives, which allow an individual to provide written instructions for future care, and health care powers of attorney (known in some regions as health care proxies), which allow an individual to authorize a trusted person to make health care decisions on their behalf.
These are not new concepts. Every state already has a statute to authorize advance directives and health care proxies. So why a new uniform law?
At the beginning of this project, the drafting committee recruited an excellent group of highly qualified observers from both the legal and medical communities and posed a series of questions:
1. Why don’t more people execute advance directives and health care powers of attorney? The answers varied. Most people don’t think about the issue until confronted with a hospitalization or medical crisis. Some state laws require formalities akin to those for making a will, which can make execution unnecessarily difficult. Advance planning is uncommon among younger people and within certain ethnic cultures. Some people fear loss of control. Some forms are written in difficult-to-understand legalese.
Uniform Laws Update provides information on uniform and model state laws in development as they apply to property, trust, and estate matters. The editors of Probate & Property welcome information and suggestions from readers.
2. What would make advance directives and health care powers more useful in a medical setting? Again, the committee received helpful feedback. Health care professionals often had difficulty determining who had legal authority to make decisions for a patient or whether a patient retained sufficient capacity to make decisions for herself. There was little agreement about who was even qualified to determine whether the patient lacked capacity. It was also unclear what to do when a patient’s family members disagreed about care decisions or when the patient’s advance directive contradicted a doctor’s orders.
3. In the absence of advance planning, whom should the law recognize as a default surrogate to make health care decisions? Most health care providers look to the next-of-kin when a patient is unable to make decisions, but it can be difficult to identify the right person because blended families and long-term unmarried couples are increasingly common. Strained family relations can also
raise doubt about whether the next-of-kin is really the best person to make decisions in some cases.
4. What about decisions involving mental health? A patient with mental health care needs may present a different set of difficult issues for the decisionmaker. Most advance directives and health care power of attorney forms do not expressly address mental health care, and some patients would likely prefer a different surrogate who understood their specific condition to make decisions about mental health care.
Armed with this information, the drafting committee set out to draft a new and improved statute that would encourage more people to execute advance directives and health care proxies and would clarify the legal authority, duties, and responsibilities for surrogates and health care providers. At press time, the committee was finalizing its draft act for reading and, hopefully, approval at the ULC’s upcoming annual meeting in July 2023.
A revised Uniform Health-Care Decisions Act will have the following advantages compared to existing state laws:
• Clear rules regarding determination of capacity. The law will create a rebuttable presumption that a person has capacity to make decisions regarding his own health care and to execute advance directives and health care powers. A finding that the person lacks capacity may only be made by a court or by a medical professional unrelated to the
patient, after examination and in accordance with accepted medical standards. The finding must be documented, and a person found to lack capacity will have a right to object. An individual who objects must be treated as having capacity until the finding is confirmed by a court or by a second independent medical professional.
• Clear rules for resolving conflicts. If a person has provided multiple, conflicting instructions, either orally or in writing, the most recent instruction applies. If there are multiple surrogate decisionmakers who disagree about the patient’s treatment, a health care provider is required to comply with the decision of the majority of surrogates who have communicated their views. If they are equally divided, the act provides rules for bringing in additional surrogates to break the tie, and, if that proves impossible, the patient’s treatment is determined by the general law of the state regarding treatment of individuals who lack capacity.
• Default surrogates. The revised act will provide for an expanded list of persons who may serve as default surrogates for health care decisions, with the highest priority given to a person chosen by the patient to make medical decisions, followed by a spouse or domestic partner, parent or adult child, long-term cohabitant, adult sibling, other adult relative, adult who has assisted the individual with supported decision-making recently, and ending with any adult who has exhibited special care or concern for the individual and is familiar with the individual’s personal values. The list is intended to approximate the wishes of the greatest number of people as shown by empirical research of existing powers of attorney, but those who prefer a different surrogate can always designate someone else.
• Disqualification rules. Certain persons are automatically disqualified from serving as a surrogate for health care decisions, including owners and employees of nursing homes for their patients (unless they are immediate family members) and former spouses unless named in a power of attorney executed following the divorce. In addition, any patient may disqualify any individual from making health care decisions on behalf of the patient, either orally or in a record given to a medical provider.
• Advance directives for mental health care. The act provides that any individual may create an advance directive for mental health care, either separately or in conjunction with an advance directive for general health care. An advance directive for mental health care may include provisions specific to the patient’s experience, such as medications or treatments that have proven to be effective or ineffective during previous mental health crisis.
• Clear duties for health care providers. The act provides a procedure for health care providers to document the receipt of a health care instruction and a duty to comply with instructions with very limited exceptions for care that would violate the law, be contrary to applicable health care standards, or violate a consciencebased policy of the provider that was previously communicated to the patient. When care is refused, the provider has additional duties to inform the patient or patient’s surrogate, arrange for transfer to another institution if feasible, and provide continuing care in the interim. Under the act, a provider that complies with an instruction in good faith is immune from civil or criminal liability or discipline from a professional board for doing so.
• Easy-to-use forms. The
committee engaged a specialist in plain-language writing to help draft sample forms and instructions that will be easy to understand for most people. This new uniform act is expected to be approved in summer 2023 and available for state legislatures to consider by the fall. n
Estate planning is essential for people who have accumulated meaningful wealth or face challenging family circumstances. Like math, estate planning can be hard, especially so when clients need to decide who should drive their estateplanning bus. Disaster can ensue if this decision is taken lightly. Often, discussions of this topic focus on the relative merits of individual trustees versus corporate trustees. This article reframes the discussion by focusing on selection methodology, rather than type of trustee. Lawyers can help clients avoid estate-planning disasters by encouraging them to make better trustee-selection decisions.
“The best laid schemes o’ mice an’ men gang aft agley.” Robert Burns, To a Mouse, on Turning Her Up in Her Nest With the Plough (Nov. 1785).
What could possibly go wrong? Mr. and Mrs. Oh created revocable living trusts. (All examples herein are based upon actual cases; names are altered.) When Mrs. Oh died, Mr. Oh became trustee of her trust, which was to be divided into marital and credit shelter shares. He failed, however, to do so. When Mr. Oh died, the IRS challenged the estate tax return. At issue
Jay E. Harker is senior vice president at Stifel Trust Company, N.A., and is a member of the ABA’s Real Property, Probate and Trust Law Section. Connect with Jay on LinkedIn: linkedin.com/in/jayeharker.
was whether distributions he had made came from the credit shelter or marital shares. The estate claimed they came from the marital portion, reducing the amount subject to estate tax. But since Mr. Oh never actually divided the trust into shares, there was no way to substantiate this, and the IRS prevailed. The failure to divide a trust into shares is a frequent trustee misstep.
What could possibly go wrong? Ms. At created a 5 percent charitable remainder trust (CRT) and named Mr. Mac trustee. He never paid Ms. At any of the distributions required by the terms of the trust, and the IRS challenged the validity of the CRT. Because the failure to make required distributions from a CRT violates IRC § 664(d)(1)(A), various charitable deductions were lost, resulting in a tax deficiency over $2.6 million. (What if Ms. At told the trustee she did not want any income from the trust? If so, an outright gift to the charity or to a donor advised fund, or a strategy incorporating a NICRUT, may have been better planning solutions. Nevertheless, the trustee should have known better.)
When trustees mess up, things can indeed go terribly “agley.” The errant trustee’s actions are the proximate cause of the resulting disaster, but the driver would not have been in a position to crash the bus had not the trust creator put them there. Trust creators who appoint inappropriate trustees therefore bear ultimate responsibility when their estate-planning buses run off the road. Mrs. Oh’s and Ms. At’s estate plans failed because of poor trustee-selection decisions during the planning process.
When people plan their estates, there is often much wailing and gnashing of teeth about who gets what and when. But when choosing successor or testamentary trustees, clients usually consider family members first and often default to their oldest or smartest child. (People often refuse to even consider a corporate trustee because they want to avoid the trustee’s fees. That’s addressed below.) This decision is among the most important in the estate-planning process and should not be made in haste, nor based upon irrelevant criteria. The right choice can result in efficient and effective administration and passing of an estate on behalf of family and loved ones. The wrong choice can result in a mess, perhaps a costly one, as the Oh and At examples illustrate. See Charles (Clary) A. Redd, The Most Disrespected Decision in Estate Planning, Trusts & Estates, July 2014, at 13.
Lazy selection criteria such as oldest or smartest child are simply unrelated to a trustee’s duties and functions, and are therefore apt to result in the choice of inappropriate trustees. If you’re asked to choose a runner for the relay race at the annual family retreat, do you select your oldest or smartest child? No, that’s ridiculous! You choose the fastest runner because that’s directly related to the task and therefore more predictive of a successful outcome. When clients select trustees, they need to apply relevant criteria, such as an individual’s attitudes and competencies
An attitude is “a way of thinking or feeling about … something, typically one that is reflected in a person’s behavior.” Attitude, Lexico, lexico.com/en/ definition/attitude (last visited June 30, 2022). For example, a person’s attitude toward sports may be totally invested, mildly engaged, ambivalent, or completely disinterested. Here are three attitudes essential for trustees.
Attitude Toward Rules, Obligations, and Responsibilities. A trustee has many responsibilities, expressed in the trust agreement and imposed by statute and case law. A trustee’s attitude toward rules and responsibilities is therefore of utmost importance. A trustee who is not generally inclined to take rules seriously may act contrary to law or the trust creator’s intent, completely ruin the estate plan, and perhaps incur personal liability. Therefore, the ideal trustee will be deferential toward rules and inclined to do things “the right way.” The trustee’s attitude toward rules and obligations should be aware, reverent, accountable, and committed.
Attitude Toward Decision-Making. Trustees are more than mere custodians; they are usually empowered to make important decisions as the trust creator’s proxy. Some of these decisions may have significant consequences for beneficiaries. Therefore, a trustee’s attitude toward decision-making is crucial. A trustee should make informed, confident, and thoughtful decisions. Her attitude toward decision-making should be thoughtful and deliberate, not dismissive, impulsive, or tentative.
Attitude Toward Others. Trustees must act solely in the best interest of the trust’s beneficiaries and keep beneficiaries informed. They need to interact with beneficiaries who request money or information. Therefore, a trust creator should assess a potential trustee’s “attitude toward others.” The trustee needs to be sensitive to the beneficiary’s needs and best interests.
Beneficiaries may suffer from substance abuse or face other challenges that will not magically disappear when the trust creator dies. They often resent
the fact that their inheritance is held in trust and may focus their anger on the trustee. They may badger or even threaten the trustee. A trustee must be able to rise above that and focus on the beneficiary’s needs and best interests, according to the trust creator’s instructions. A trustee should be engaged, caring, concerned, and responsive. He should not be arrogant, condescending, or dismissive. A trustee’s attitude toward others should therefore be loyal, patient, respectful, and understanding, yet firm.
In addition to these attitudes are various competencies that are requisite for successful performance of a trustee’s responsibilities. A competency is a person’s ability to perform a certain job or task successfully because of her skills, knowledge, and capabilities. (This is consistent with the way the term is used by human resources professionals.)
See Soc’y for Hum. Res. Mgmt., https:// tinyurl.com/4umkrx2s (last visited July 2, 2022). See also Sarah Beckett, What’s the Difference Between Skills and Competencies?, HRSG blog (Mar. 14, 2018), https://bit.ly/3I43HQn. Here are two competencies essential for trustees. Can Responsibly Handle Money, Investments, and Finances. A trustee is responsible for all the “stuff” that is in the trust. Nonfinancial property such as real estate, collectibles, jewelry, or airplanes should be secured, valued, monitored, insured, and managed. Trustees may need to handle financial assets according to applicable prudent investor statutes (as of this writing, 46 states have adopted some version of the UPIA). Unif. Law Comm’n, www. uniformlaws.org (last visited Aug. 1, 2022). Clients need a trustee who is able to handle these tasks.
What could possibly go wrong? Ms. Ken died in 2007 and left most of her estate to a charitable foundation. Over 80 percent of the estate consisted of GE stock. The executor-trustee retained the stock without diversifying, even while it fell precipitously in value, eventually selling it at a substantial loss. The state
attorney general objected on behalf of the foundation, and the court held that the executor-trustee did not act prudently.
The ability to properly handle a trust’s assets depends upon experience, awareness of risk, and knowledge about financial assets, terms, and concepts, such as diversification and asset allocation. The trustee should be familiar with basic financial instruments such as stocks, bonds, mutual funds, and ETFs, and also with various types of risk. A typical individual trustee is often well-advised to engage the services of an experienced financial advisor to help with financial assets but needs to be knowledgeable enough to reasonably assess the advice that is given in light of her responsibilities as trustee. Clients should observe whether a potential trustee:
• Is careful with her own money;
• Is cautious with credit;
• Manages her own savings, investment, and retirement account;
• Prepares her own taxes; and
• Carefully maintains her car, collectibles, or other personal property.
Is Well-Organized, Pays Attention to Detail, and Keeps Good Records. Trustees are charged with providing the trust’s beneficiaries with information about the trust and its assets. A trustee must be able to keep accurate and complete books and records and must, at a minimum, keep the trust’s accounts, assets, and records separate from her own personal accounts, assets, and records. Statements from investment and bank accounts in the name of the trust should be reviewed and retained, as should tax returns. If the trust is paying bills for beneficiaries, the trustee should be able to make sure that they get paid on time and should keep records of those bills and payments.
If the trust owns nonfinancial assets, such as real estate, those records need to be kept in an organized way, too; for example, records about fees, taxes, insurance, repairs, rental income, and so forth. Therefore, a trustee needs to be well-organized. Clients should observe whether a potential trustee:
• Has an orderly desk where “everything is in its proper place”;
• Produces neat written work;
• Uses spreadsheets to record and track important information;
• Proofreads before hitting “send”; and
• Keeps important information and papers in organized files.
Has Time to Devote to the Job. All the attitudes and competencies in the world are irrelevant if the successor trustee does not have the time or inclination to do the job. People are busy! They have families, civic and social commitments, jobs, kids who play soccer, and so on. Does the potential trustee have the bandwidth to take on what is essentially a second job?
Is Likely to Outlive the Trust Creator. If a successor or testamentary trustee is close to the trust creator’s age, then at the time when the trust creator is no longer able to drive the bus, the successor trustee may be unwilling or unable to do so as well. My rule of thumb: include a successor trustee who is at least 10 years younger than the trust creator, or perhaps a corporate trustee, as a safety net.
Many more trusts have individual trustees than corporate trustees, and in many cases, perhaps most, this may be appropriate and successful. The chances of a good result increase greatly if relevant selection criteria, such as an individual’s attitudes and competencies, are used to select those individual trustees. What about corporate trustees? There are right and wrong ways to choose them as well.
“If you think it’s expensive to hire an expert to do the job, wait until you hire an amateur.” Attributed to Red Adair, expert at extinguishing oil well fires.
There are many planning scenarios where a corporate trustee might be appropriate. It’s crucial to appeal to relevant criteria to decide whether or not to use a corporate trustee, and also to choose between potential corporate trustees.
What could possibly go wrong? I received a call from a financial advisor about a man in Ohio who is trustee of a trust for his brother in California. The brother is totally undependable and is a handful to deal with. Looking after his brother’s finances has become a tremendous burden for the trustee and his family, and he no longer wants the job. On the flip side, I also got a call about a trust beneficiary in Pennsylvania who wants to remove her brother as trustee of a trust for her benefit. The brother lives on the West Coast and is often slow or completely unresponsive to requests for money or information. The problem in both cases is that the trust creators chose inappropriate successor trustees. These situations screamed for unrelated, independent trustees, which often means a corporate trustee, yet the trust creators named related family members instead.
I wrote above that inappropriate individuals are often nominated to be trustee because trust creators resort to irrelevant selection criteria, such as oldest or smartest child. The same thing happens with respect to corporate trustees. Many clients, and some of their advisors, too, believe that the key factor to consider when deciding whether to use a corporate trustee is cost. They may believe that corporate trustees charge hefty fees and that appointing an individual, usually a family member, can minimize the cost. Neither is true.
Corporate trustees certainly charge fees for their services, just as do lawyers, accountants, and financial advisors. Fees vary from one bank or trust company to the next, but I’ll suggest .75 precent to 1.5 percent as a wide, but
representative, range for discussion purposes. A particular corporate trustee’s fees for a particular trust may be more or less, but fees within this range are certainly not unreasonable.
In Greek mythology, recently deceased people pay Charon to ferry them across the river Styx from the land of the living to the land of the dead. If you don’t pay, you don’t cross, and you might be condemned to wander for 100 years. Can you avoid the ferryman’s fee by appointing an individual instead?
No. The estate-planning highway is a toll road, and the toll is going to
use a corporate trustee is in light of the attributes that corporate trustees bring to the table, and whether these are relevant to the particular planning scenario. Principal among these attributes are independence, knowledge, and oversight.
be paid no matter who drives the bus. Susie Successor will maintain an investment account, and also a checking account for paying bills. She’ll need an accountant for the trust’s accounting and tax returns, and maybe a lawyer for guidance. The cost for all that may be roughly equal to the fees a corporate trustee would charge for essentially the same bundle of services. (The investment account alone could cost 1 percent or more.) See Amy Fontinelle, How to Cut Financial Advisor Expenses, Investopedia. com (updated Feb. 15, 2022) (“The average fee for a financial advisor generally comes in at about 1 percent of the assets they are managing.”). That’s because corporate trustees have in-house expertise to handle tasks that an individual will pay for à la carte. I submit most clients don’t understand this.
The right way to decide whether to
The Right Way to
Whether to Use a Corporate Trustee Independence. What could possibly go wrong? Siblings often squabble over this or that after the death of a parent, but this is exacerbated greatly when one of them is put in charge of another’s inheritance. Resentment or hostility can alter
preference for an independent trustee. For a discussion of circumstances where a family member trustee may not be ideal, see Richard Ausness, Keeping It All in the Family: The Pitfalls of Naming a Family Member as a Trustee, 34 J. Am. Acad. Matrim. Law. 1 (2021). See also Scott Johns, The Tacoma Bridge … and Other Planning Disasters, 36 Prob. & Prop., no. 4, July/Aug. 2022, at 26.
Knowledge. What could possibly go wrong? Above, we met Ms. At, whose trustee failed to follow the rules applicable to CRTs, with financially disastrous results. Sometimes clients create “specialty” trusts, such as CRTs or supplemental needs trusts, that must be administered according to specific rules. In such cases, a corporate trustee will have knowledge and experience that an individual is not likely to have.
Even outside the realm of specialty trusts, a client may have considered various family members’ attitudes and competencies but found no one qualified to be successor trustee. A corporate trustee may be a reasonable alternative, qualified to step in and do the job.
the family dynamic forever.
In a blended family, the spouse who dies first (Spouse 1) may provide for money to be held in trust to support the survivor (Spouse 2), but, at the survivor’s death, the remaining funds shall pass to the children of Spouse 1, not to Spouse 2’s children. If the trustee is a child of one of the spouses, the trustee will have an inherent conflict of interest, and the children of the other spouse may be suspicious and distrustful. Again, a stable family dynamic may be damaged.
If you imagine an independent trustee in these situations instead of a family member, the outcome changes dramatically. The emotion is drained, and family relationships are not altered. They may be able to continue to enjoy Thanksgiving dinner together! So an important consideration is whether the client’s goals and situation indicate a
Oversight. What could possibly go wrong? DeeCee received over $300,000 as settlement of a lawsuit. A sister and nephew were named co-trustees. A scant six months later, only $3,000 remained. The trustees spent most of the money on themselves, for fancy cars and so forth. They “got away with it” because most often no one is responsible for monitoring the conduct of individual trustees.
Corporate trustees, on the other hand, are subject to state or federal banking laws and are audited by their regulators to ensure compliance with applicable regulations and internal policies. In general, trust accounts will be less susceptible to mismanagement, and therefore safer, when a corporate trustee is at the wheel. If oversight is a concern or brings peace of mind, a corporate trustee may be selected.
An inappropriate individual trustee can completely crash an estate plan. The
Lawyers can help clients avoid estateplanning disasters by encouraging them to make better trusteeselection decisions.
likelihood of a corporate trustee doing so is negligible—when a corporate trustee makes a mistake, it generally has the wherewithal to make good; a misbehaving individual trustee might not. See Robert Patrick, Ex-Edward Jones Worker Admits Stealing $188,000, St. Louis Post-Dispatch (Jan. 11, 2012), https:// bit.ly/40QQCTb. An inappropriate corporate trustee, however, may fail to meet a trust creator’s expectations with respect to special assets or service; for example, it may not be a good match for the trust’s beneficiaries or may cause expense and delay by declining the appointment.
Not only do people often look at fees to decide whether to name a corporate trustee in the first place, but also they tend to do so as a way to choose between competing corporate trustees, for example, by comparing fee schedules. A “choose the cheapest” approach assumes that, because all corporate trustees provide essentially the same menu of basic services— day-to-day administration, investing and managing trust assets, and making distributions to or for the benefit of beneficiaries—they are fungible. But selecting a corporate trustee is not like buying gravel for your driveway or sand for a sandbox. They have “personalities,” and aspects of those personalities may differentiate one from the next, just like buses may have different features that make them better suited for one purpose than another, such as shuttling people from the parking lot to the amusement park or comfortably transporting cross-country travelers. Here are three important factors that make up a corporate trustee’s personality, and that can make one corporate trustee more appropriate than another for a particular client’s situation.
Service Model. A service model is the set of operational practices and rules according to which a company interacts with its customers. Trust companies may have very different service models, so the choice of one corporate trustee instead of another may affect how the client’s beneficiaries will receive the trustee’s services.
For example, some corporate trustees
answer phone calls and emails in a timely manner, and others may not. Some may provide tiered service levels, wherein larger accounts that are most profitable receive an enhanced level of attention and service, or are assigned to more experienced personnel, yet more modest accounts may get a more generic level of service, for example, through a call center. Other corporate trustees may routinely assign designated trust officers to all accounts. Different corporate trustees differ with respect to the number of accounts or relationships they will assign to a trust officer. And some may provide for a relationship manager in addition to these account officers. This relationship manager could be a banker or a financial advisor, for example, who may be incented to see that the beneficiaries receive good service. How do you know? Ask!
Investment Policies. Corporate trustees can differ greatly with respect to the way they handle trust investments. For example, some use their own proprietary funds to invest trust assets, while others use commercially available mutual funds and ETFs. (If the proprietary funds cannot be transferred to another institution in kind, the trust may realize substantial capital gains when they are liquidated if the beneficiaries want to move the trust to another trustee.) Some buy individual stocks and bonds based upon their own in-house research or research they purchase, but others may employ affiliated or independent money managers to do the stock and bond picking.
Clients and advisors sometimes ask whether a corporate trustee will continue to hold the assets that are already in the trust when it takes over as successor trustee or instead sell all, most, or many of the holdings and reinvest in something else. The answer can be complicated and can depend on a number of factors, such as the trustee’s policy with regard to asset allocation or holding concentrated positions, for example. Depending on such factors, a corporate trustee may well reposition a portfolio, in whole or in part, to conform with its investment policies. The rules of the
game change after the trust creator dies. A living grantor has no obligations to anyone other than herself. A successor trustee, however, has obligations to all of the trust’s beneficiaries, present and future. Ask the potential trustee about this.
Special Assets. Some trusts or estates may include assets such as commercial real estate; oil, gas, or mineral interests; business entities; agricultural land; private equity; hedge funds; art or collectables; and so forth. Some corporate trustees have in-house expertise for handling certain special assets, and others do not. Those who don’t may not agree to hold and manage them or may simply decline the appointment. In other words, some bus drivers will let any and all riders board the bus, but others have policies about what riders can and cannot be accommodated. A conversation about this with the potential corporate trustee in advance is appropriate.
Sometimes an individual trustee may be appropriate, and sometimes a corporate trustee may be selected. Either way, lawyers and other advisors should help their clients select the most appropriate successor and testamentary trustees. The Model Rules of Professional Conduct may impose on attorneys an ethical obligation to provide such counsel. Rule 1.1 says that competent representation of a client should be “thorough,” and Comment 5 to Rule 1.1 says that thoroughness is determined according to “what is at stake.” As we’ve seen, much can be at stake if an inappropriate fiduciary is selected. This entails more than asking clients who their oldest or smartest child is, where they do their banking, or comparing trustees’ fee schedules. Advisors should help clients focus on relevant selection criteria so that their estate-planning buses don’t end up in the ditch. n
ADVERSE POSSESSION: Mere failure to object to adverse use does not establish neighborly accommodation to defeat hostility. Kudar and Morgan were neighbors. Not knowing for sure the location of their common boundary, Morgan constructed a dirt driveway to his house in 1990 and later built a garage and a greenhouse and planted a line of spruce trees. By 2002, he had expanded, graveled, and blacktopped the driveway, and, in 2015 or 2016, he built a deck behind the greenhouse. After the neighbor, Kudar, saw Morgan clearing brush, thinking he was tossing it on Kudar’s land, Kudar ordered a survey, which revealed that, some years earlier, a survey marker had been moved and that all of Morgan’s improvements were on Kudar’s property. Kudar refused to sell or give an easement to Morgan over the encroached land and then installed fence posts in the driveway along the newly surveyed property line, which prevented Morgan’s use of the driveway. Morgan sued, seeking a declaratory judgment to quiet title to the disputed land based on adverse possession. The trial court granted summary judgment for Morgan. The supreme court affirmed. At issue was the hostility element. Kudar asserted that Morgan’s possession was by neighborly accommodation, thereby defeating hostility. The court explained that a neighborly accommodation should ordinarily defeat a claim of adverse possession, or else neighbors would fear the loss of title for being kind. Yet, adverse possession disputes between neighbors are
Keeping Current—Property Editor: Prof. Shelby D. Green, Elisabeth Haub School of Law at Pace University, White Plains, NY 10603, sgreen@law.pace.edu. Contributor: Prof. Darryl C. Wilson.
Keeping Current—Property offers a look at selected recent cases, literature, and legislation. The editors of Probate & Property welcome suggestions and contributions from readers.
different from those involving strangers. There is usually some sort of social relationship or contact between them. This means that accommodation must be established by communication or joint activity, such as a shared driveway or shared maintenance of the roads. Kudar proved only that Morgan had offered to remove the spruce trees if Kudar demanded. Critically, there was no evidence that, before 2016, Kudar objected to Morgan’s use of the property other than to complain about the disposal of “junk” on the Kudar property. Alas, how could he object, if he didn’t know where the boundary was? Nonetheless, the court stated that passive forbearance to continuous, open, and exclusive adverse use for over ten years cannot be the basis for a claim of neighborly accommodation sufficient to defeat a claim of adverse possession. Kudar v. Morgan, 521 P.3d 988 (Wyo. 2022).
CONDOMINIUMS: Seller of condominium unit has no implied right of action to challenge amount of fees imposed by association for statutory disclosure of information to buyer. The Channons decided to sell their condominium unit. The state condominium statute requires sellers to obtain and disclose to buyers, upon request, specific information related to the unit and the financial condition and operations of the condominium association. 765 Ill. Consol. Stat. § 605/22.1.
The Channons entered into a sales contract and requested the disclosures from the association’s agent, Westward Management. Westward provided the information but charged the Channons $245. The Channons filed a class action lawsuit alleging a violation of a statutory provision allowing a condominium association to charge “a reasonable fee covering the direct out-of-pocket cost of providing such information and copying.” Id. § 22.1(c). The trial court denied Westward’s motion to dismiss but certified a question to the appellate court. The appellate court held for the Channons, but, on further appeal, the supreme court reversed. The court ruled that because the statute was silent on who could enforce this provision, a private remedy is implied only if the statute would be practically ineffective without the existence of a cause of action and that plaintiffs are members of the class the statute was intended to benefit. Looking to the plain meaning of the statute, the court found the sellers had a duty to disclose but no protection from unreasonable fees. The mandated disclosures were for the sole benefit of potential buyers, ensuring information critical to their purchasing decision is readily available. Any benefit to the sellers is merely incidental. The court’s opinion did not discuss whether sellers could pass the fees on to the buyers. In any case, the fees make the alienation of property more costly, although $245 may not always be a deal breaker. But, if the fees are not expressly passed on to the buyer, it is fair to ponder who else has a legal right to challenge the limits. Channon v. Westward Mgt, Inc., 2022 Ill. LEXIS 877 (Ill. Nov. 28, 2022).
COTENANTS: Home purchased by one party in romantic relationship is not jointly owned by the couple. Murphey and Pearson began a romantic relationship in 2009 when Pearson
moved into Murphey’s residence, where her two children from a prior relationship also lived. He paid her $500 per month for what he characterized as his contribution to household expenses. In 2012 they had a child of their own and, in the next year, moved to a new home purchased by Murphey. Murphey presented Pearson with monthly expense statements and asked him to pay half of what was listed, which he paid sporadically in full or in part. Pearson claimed to have made significant improvements to the home. In 2020 the relationship ended, and Murphey filed for custody, child support, and shared parenting. Pearson counterclaimed, alleging the parties had an implied contract for joint ownership of the home and unjust enrichment based on his contributions to the mortgage, claiming 50 percent of the accrued equity in the home. The trial court rejected Pearson’s claims. On appeal, the supreme court affirmed, observing that Pearson paid rent while living in the couple’s prior home and did not seek an equity share of that home when it sold. He obtained renter’s insurance in the prior home and did the same in the new home. He declined to sign on as a purchaser of the new home to save his money and credit to further expand his business. He did not have his name placed on the deed, did not participate in the closing, did not assist in obtaining homeowner’s insurance, and did not participate in or contribute funds when she refinanced her mortgage loan. The court also affirmed the denial of Pearson’s claim of unjust enrichment, noting that he had received considerable benefits from the living arrangements over time while Murphey assumed all the financial risks. Murphey v. Pearson, 981 N.W.2d 410 (S.D. 2022).
new act conferred upon condominium associations the right to foreclose liens for unpaid assessments by power of sale. In 2018, Executive filed a claim of lien against three units owned by Rock, asserting delinquency for more than 30 days, which Rock disputed. Subsequently, the clerk of court authorized a power of sale foreclosure, which the trial court affirmed. Rock appealed, and the court of appeals held that Executive lacked the authority to foreclose by power of sale because its 1982 declaration had not been amended to meet the provisions of the new act. Executive appealed, and the supreme court reversed. The court stated the act clearly provides that “unless the declaration expressly provides to the contrary,” power of foreclosure “appl[ies] to all condominiums created … on or before October 1, 1986 . . . with respect to events and circumstances occurring after October 1, 1986.” Id. § 47C-1102(a). Executive’s declaration did not provide otherwise. It expressly allowed for the foreclosure of liens with no restriction on the process of foreclosure. In re Exec. Office Park of Durham Ass’n, 879 S.E.2d 169 (N.C. 2022).
Condominium formed before enactment of new condominium act may foreclose lien for unpaid assessments by power of sale. In 1982, a declaration created the Executive Office Park Condominium under a North Carolina condominium statute, which was replaced in 1985 by the North Carolina Condominium Act. N.C. Gen. Stat. §§ 47C-1-101 to 4-120. The
GROUND LEASES: Transfer of reversionary interest in improvements is subject to transfer taxes. A landowner agreed to sell two adjoining parcels burdened by ground leases for $250 million, apportioned at roughly $50 million for one and $200 million for the other. The leases had a term of 17 years remaining, including renewal options. The ground tenants were subsidiaries of the landowner. The deeds conveyed “in fee simple, all …land described in Schedule 1, …together with all improvements … thereon.” At the same time, the landowner terminated the ground leases. The contract of sale allocated the $250 million purchase price, assigning $76 million to the assessed value of the land for real property tax purposes and the remaining $174 million to “termination of Leasehold Owner’s leasehold title.” The purchaser recorded the deeds and paid a $1.7 million transfer tax calculated on the $76 million land value. Six years
later, during a routine audit, the city tax officials determined that the parties to the sale had underpaid transfer taxes because taxes were due on the entire $250 million. It then gave notice of that deficiency and assessed penalties for a total of $11 million. The taxpayers protested, and the matter came before the trial court, which concluded that only the transactions covered by the deeds were taxable events and that the termination of the ground leases with a term of fewer than 30 years was exempt from taxation by statute. D.C. Code §§ 47-901(3) (transfer tax); 42-1101(3) (B) (recordation tax). The court of appeals reversed, explaining that ordinarily in a ground lease when a tenant erects permanent buildings, the landlord’s ownership of the land attaches immediately to the improvements. But some ground leases provide that the improvements are the tenant’s property and that the fee owner can acquire them only if they are left on the property after the lease terminates. The leases here provided that the improvements would be “surrendered to and become the full and absolute property of Lessor at the expiration or earlier termination of the Lease Term.” This departure from the common law placed initial ownership of the buildings on the property with the tenants, with the landowner holding merely a reversionary interest in the buildings. Yet, that reversionary interest had a present value, but the taxpayers did not account for this value in the transfer. The court remanded for a determination of what part of the $174 million ostensibly paid for the termination of the ground leases was, in reality, taxable consideration for the value of the reversionary interests in the buildings on the land rather than for the removal of the groundlease encumbrances. District of Columbia v. Design Ctr. Owner (D.C.) LLC, 286 A.3d 1010 (D.C. Ct. App. 2022).
LANDLORD-TENANT: Term of lease that exceeds 99 years in violation of statute is void and not voidable. Tufeld owned prime commercial real property in Beverly Hills. In 1960, it rented the property to two
tenants at an annual rent of 6 percent of the appraised value, subject to periodic reappraisals, for a term of 98 years ending in 2058. In 1964, the tenants built an office building on the property and later assigned the lease to Emmet, who in turn assigned it to BHG. BHG borrowed to finance the transaction. Planning to renovate the building to make the investment more attractive, BHG sought an extension of the term. In 2003, the parties executed an amendment to the lease to extend the term to December 31, 2123, with a rent increase to 6.5 percent of appraised value. In 2007 and 2009, BHG refinanced its loan, and, in each case, Tufeld signed an estoppel certificate stating the lease term ended in 2123. In 2017, Tufeld learned that leases exceeding 99 years are invalid under a California statute. Cal. Civil Code § 718. In January 2018, Tufeld sued for declaratory judgment and quiet title, seeking to terminate the lease or an order canceling the amendment. BHG filed a cross-complaint, asserting unjust enrichment and seeking reformation and a declaration that the statute did not affect the lease. The trial court found that the assignment in 2003 operated as a novation and reset the term, but it was still subject to the 99-year limit, making the termination date 2102, but those excess years were unenforceable. The court of appeals affirmed. In determining whether a lease that exceeds the statutory maximum is void or merely voidable, the court traced the history of limitations on terms, finding it dates back to 1872, shortly after California became a state. The public policy behind the limitation concerns alienability and flexible use, which are thought to be impaired by long leases. Because public policy is at issue, the statutory limit makes the excess years not merely voidable but void. Given that the central purpose of the lease is to rent the property, however, the court found that the invalid extension beyond 99 years did not taint the entire contract; only that part of the term that exceeds the limit is void.
Tufeld Corp. v. Beverly Hills Gateway, L.P., 302 Cal. Rptr. 3d 203 (Ct. App. 2022).
MORTGAGES: Bankruptcy full-payment plan that pays only arrears on loan cannot discharge mortgage on home. In 2015, Bozeman mortgaged her home to MCS for a $14,000 loan, at 19.7 percent annual interest, payable in nine years. A year later, she filed a petition in bankruptcy, and MCS filed a proof of claim seeking $6,817, the amount in arrears but not including the remaining balance on the mortgage loan. Bozeman submitted a full-payment plan, which did not list the MCS mortgage balance, only the arrearage. MCS did not object to the plan or amend its claim. The bankruptcy court confirmed the plan, and, three years later, the trustee gave notice that Bozeman had completed the plan, indicating that $6,817 reflected the entire debt. MCS objected, claiming that Bozeman still owed $15,000. Bozeman then moved for the release of the lien, and the bankruptcy court discharged Bozeman and terminated the mortgage lien. The district court affirmed, but the Eleventh Circuit reversed. The approved plan violated the anti-modification provision of the Bankruptcy Code, which states, a bankruptcy “plan may . . . modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor’s principal residence.” 11 U.S.C. § 1322(b)(2). No statutory exception removed a full-payment plan from the anti-modification provision, making unlawful the release of MCS’s lien before full repayment of its loan. The court went on to consider whether MCS should be barred from challenging the plan after confirmation by the court. Ordinarily, a confirmation by the bankruptcy court has a preclusive effect, foreclosing re-litigation of any issue actually litigated by the parties and any issue necessarily determined by the confirmation order. Though MCS should have challenged the plan and could have prevented confirmation by timely objection, nevertheless, its lien cannot be deemed satisfied because the anti-modification provision protects MCS’s right to receive a full recovery, and MCS raised a timely challenge to the order releasing its lien. The societal
interest in finality did not override the protections of the anti-modification provision. Until MCS is paid in full, its lien remained intact. In re Bozeman, 57 F.4th 895 (11th Cir. 2023).
RESTRICTIVE COVENANTS: Covenant establishing right to operate golf course may preclude homeowner’s claim for injury from errant golf balls. Indian Pond developed a subdivision consisting of homes and a golf course. The covenants, recorded in 1999, granted a perpetual easement on golf-course lots for golfers to have “reasonable foot access … to retrieve errant golf balls on unimproved areas of such residential lots.” In 2001, an amendment to the covenants granted easements to the owner of the golf course “for the reasonable and efficient operation of the golf course and its facilities in a customary and usual manner.” In 2014, plaintiffs bought a golf-course lot with a house situated in the immediate path of balls from hole 15, where the design caused golfers to try to cut the corner to stay on the course, but which maneuver sent balls onto the plaintiff’s property. The plaintiffs sued, seeking damages and an injunction for design changes to hole 15. They claimed that, since 2017, more than 650 balls had hit their house. In its jury instructions, the trial court referred only to the first easement for ball retrieval but not the second easement for the operation of the golf course, and the trial court refused to examine attendant circumstances to ascertain the drafter’s intent as to the meaning of “customary and usual” operation. The trial court sustained a jury verdict awarding damages of $100,000 for property damage and $3.4 million for emotional distress. The court also granted injunctive relief, forbidding the operation of the golf course in any manner that allows golf balls to enter the plaintiffs’ property. The supreme judicial court reversed, concluding that the failure to give an instruction addressing the reasonable course operation easement was clearly prejudicial. The court explained that the meaning of an express easement is derived from the
presumed intent of the grantor, which is to be ascertained from the words used in the written instrument, construed when necessary in the light of the attendant circumstances. Under the covenants, Indian Pond had reserved the right to operate a golf course, and this meant that if the errant shots that hit the plaintiffs’ home were the result of reasonable golf course operation, they were within Indian Pond’s rights. Any ambiguity in the scope of this provision is to be resolved by the attendant circumstances, but errant golf balls are the natural result of residing next to a golf course. The ball-retrieval easement reinforced this interpretation. Whether the design of hole 15 was inside or outside the range of reasonableness was a question for the jury to decide based on proper instruction from the trial court. This was particularly so, given that the parties had presented conflicting expert testimony on the propriety of the design. Tenczar v. Indian Pond Country Club, Inc., 199 N.E.3d 420 (Mass. 2022).
SALES CONTRACTS: Unconscionable arbitration provisions in contracts for sale of new homes are not severable, rendering the contracts wholly unenforceable as matter of public policy. Homeowners filed a construction defect suit against their homebuilder and general contractor, Lennar Carolinas, LLC (Lennar). Lennar moved to
compel arbitration based on arbitration provisions in the sales contracts. The trial court denied Lennar’s motion based on numerous oppressive terms in the arbitration clauses, rendering the contracts unenforceable. The appellate court reversed, finding the lower court violated a federal doctrine that precludes consideration of unconscionable terms outside an arbitration provision. In Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967), the US Supreme Court explained that under the Federal Arbitration Act (FAA), courts may “consider only issues relating to the making and performance of the agreement to arbitrate,” rather than those affecting the contract as a whole. Id. at 404. The state supreme court reversed. The court agreed (1) that the FAA applied because the transactions involved new housing construction, which manifestly involves interstate commerce based on materials and shipping, and (2) that under Prima Paint and the FAA the validity of an arbitration clause is a separate consideration from the validity of the contract in which it is embedded. Nevertheless, the arbitration provisions in Lennar’s sales contracts, standing alone, contained enough one-sided oppressive language to render the contracts unconscionable and unenforceable. These were contracts of adhesion. That characterization alone did not make them unconscionable, but their substantive terms and the circumstances surrounding contract formation did so. First, based on the contract forms and the parties’ disparate bargaining positions, the claimants lacked a meaningful choice in the negotiation of the arbitration agreement. Further,
language throughout the arbitration agreement was particularly egregious. One section gave Lennar sole power to determine what, if any, subcontractors to include in the arbitration. Another limited the usage of any arbitration findings in additional proceedings unless the parties mutually agreed. By these provisions, Lennar maintained the power to decide who appeared and created an additional potentially insurmountable procedural hurdle for claimants beyond the initial arbitration. Unconscionability pervaded the contracts, including the insertion of the arbitration terms in deeds and characterizing them as equitable servitudes. The court refused to sever the arbitration clause and gave two reasons: doing so would require the court to “blue-pencil” the agreement regarding a material term of the contract, a result strongly disfavored in contract disputes and as a matter of policy; severing terms from an unconscionable contract of adhesion would discourage fair, arms-length transactions in the first place. Instead, it would encourage sophisticated parties intentionally to insert unconscionable terms—which often go unchallenged— throughout their contracts, believing that the courts would step in and rescue the party from its gross overreach. The court cautioned that it was not abandoning severability clauses in general, only here where the contract would remain one-sided and be fragmented after severance. Damico v. Lennar Carolinas, LLC, 879 S.E. 2d 746 (S.C. 2022).
TAX SALE: Failure to first intervene in tax sale foreclosure by purchaser does not vitiate purchaser’s right to redeem. Calderon owned a condominium unit in North Bergen. After he failed to pay real estate taxes on his unit, the municipality foreclosed its tax lien, and Green Knight Capital, LLC purchased a tax sale certificate for $3,168. After waiting the two years required by N.J. Stat. § 54:5-86(a), in April 2020 Green Knight commenced an action to foreclose Calderon’s statutory right of redemption. In June 2020, Calderon responded to an advertisement circulated by Abreu, an investor apparently
seeking to purchase properties in the area. The two soon began negotiating a sale. On August 27, 2020, Abreu’s LLC contracted with Calderon to purchase the unit for $100,000. This transaction, which netted Calderon $63,194, closed on September 22, 2020, and that same day, the closing agent forwarded a $21,612 check to the tax office to redeem the tax sale certificate. Two days after the closing, Green Knight moved in the foreclosure action for the entry of default and for an order setting the time, place, and amount for redemption. A day later, Green Knight learned of the attempt to redeem the tax sale certificate and moved for an order barring the LLC from redeeming. Green Knight also sought the imposition of a constructive trust on the contract between the LLC and Calderon. The LLC filed a cross-motion to intervene in the foreclosure action and for permission to redeem. The chancery judge entered three orders that allowed the LLC to intervene and denied Green Knight’s motions. The judge explained that the record contained nothing to suggest the LLC had unduly influenced Calderon or otherwise acted inequitably or fraudulently. The purchase price was fair and for more than nominal consideration, as required by N.J. Stat. § 54:5-89.1. On appeal, the issue before the supreme court was whether the redemption by the LLC was invalid because the LLC sought to redeem before first moving to intervene in the foreclosure action. The court ruled that it was not. Though the tax sale law does provide that when a property interest is acquired after a foreclosure action is commenced, redemption “shall be made in that cause only,” N.J. Stat. § 54:5-98, here the LLC’s premature attempt to redeem was not fatal. The court pointed out that nothing in the law requires strict compliance with the procedural requirement, only that intervention must be made. Indeed, in recent years, the court has shown greater solicitude for last-minute investments as the means for providing property owners with some degree of relief from foreclosure. These ownerbased interests were further enhanced when the legislature recently amended
the tax sale law to require that the consideration paid by an investor constitutes fair market value. N.J. Stat. § 54:5-89.1. The court was guided by the fact that the tax sale law is a remedial measure and should therefore be liberally construed, and one of those remedial objects is to protect an owner’s right to recoup some of the value of her property facing tax foreclosure by contracting with an investor like the LLC. A strict rule that bars redemption when an investor fails first to intervene would defeat that purpose. Indeed, the LLC’s misstep puts the tax sale certificate holder in no worse position than it would have possessed had the error not occurred because the chancery judge is still able to oversee the disposition of their competing claims in a manner envisioned by the tax sale law. Green Knight Cap., LLC v. Calderon, 284 A.3d 832 (N.J. 2022).
PUBLIC LANDS: For more than a century, ranchers have grazed livestock on vast ranges of public land in the western United States, paying very modest fees and subject to few controls over the use of the land. Some 220 million acres of federal land are used for livestock grazing. In Opening the Range: Reforms to Allow Markets for Voluntary Conservation on Federal Grazing Lands, 23 Utah L. Rev. 197 (2023), Shawn Regan, Temple Stoellinger, and Jonathan Wood question the wisdom of this ancient system. They point to worrisome harm to the natural environment and recreational uses. They believe that the existing livestock grazing policies and practices need an overhaul to achieve better management and conservation outcomes. Among the reforms the authors propose are measures to create a marketplace for voluntary conservation, including allowing transfers of unused rights and discounts for implementing conservation measures. They propose two legislative pathways for these reforms: first, to authorize conservation use and second, to allow conservation leasing of federal grazing permits, thus advancing the Biden
Administration’s goal to conserve 30 percent of US lands and waters by 2030. They are hopeful that these reforms would promote voluntary, mutually beneficial exchanges between ranchers and environmentalists, two groups that are often in conflict, creating an alternative to costly and time-consuming litigation. In addition, they believe that grazing should be recognized as a formal property right to encourage ranchers to invest in conservation measures and encourage market exchanges that reflect the value of foregone land uses. These ideas seem promising, but we might need first to convince some ranchers, like the Bundys, that the land ultimately belongs to the people.
Religious institutions hold vast amounts of real property, some used in their religious practices and others for mundane purposes. When selling both types of property, religious institutions often impose “religious covenants” that prohibit a wide range of conduct on their former property—from the sale of tobacco to offering reproductive services to wearing “hot pants”—deemed offensive to religious tenets or viewed as bringing discredit, ridicule, or scandal to the religious institution. In Religious Covenants, 74 Fla. L. Rev. 821 (2022), Prof. Nicole Stelle Garnett and Patrick E. Reidy assert that such covenants present many legal and policy questions and raise both private and public law issues. As private law concerns, the covenants may impose unreasonable burdens on land use, and these covenants do not fit neatly within the prevailing scheme of servitudes. When the terms of the covenants are rooted in moral or spiritual commitments, they may seem idiosyncratic and not intuitive to would-be purchasers, making transactions more difficult and costly. At the same time, this inscrutability may make their judicial termination easier on the ground that they tend not to add value to the benefitted land. On the public law side are civil-rights concerns (as purchasers and users may be excluded based on their religious beliefs) and the risks
of entanglement by the courts if asked to determine whether a restriction runs afoul of theological terms. In the end, the authors believe that most religious covenants can be enforced, despite the private law concerns about notice and arbitrariness. The authors conclude that although courts have normative and prudential reasons for enforcing the covenants, it does not mean that they are advisable. The authors recommend that religious institutions consider the costs of these control devices, including the likelihood that they result in lower purchase prices, which means fewer resources to support their organizational and charitable missions.
Prof. Karl T. Muth’s article, ApartheidEra Chicago, 55 UIC L. Rev. 219 (2022), adds noteworthy historical information to the discussion and documentation of racially restrictive covenants from the late nineteenth and early twenti eth centuries. The article draws upon well-chronicled archival facts, as well as some exceptional books, covering the early use of restrictive covenants drafted to deny access to housing to a wide range of people from the middle to lowest socio-economic scales, mean ing formerly enslaved people, Native Americans, and most immigrants. The article tracks the acquisition of more than 950 acres of Chicago land by Paul Cornell, a man initially characterized as bereft of any finances whose luck turns as a real estate investor. However, Cor nell was actually from a wealthy New England family. He practiced law with Stephen A. Douglas while purchasing land en route to becoming one of Chi cago’s wealthiest citizens at the time. In hopes of preserving lands and housing standards for those of his ilk, he used racially restrictive covenants through out his 50-plus years there. These types of covenants can still be found in recording offices throughout the nation, reflecting a measure of irreparable harm done to the country. The covenants exist as a grim reminder of an ugly past, and what some currently desire, namely openly enforced racism in housing for the benefit of segregationist-minded minorities, saddened by their current or impending loss of majority (market
driver) status. The article seems particularly timely during these days of unfortunate popular debate over Critical Race Theory, “wokeism,” indoctrination, etc., relative to the actual information that specifically reflects the evolution of society in all of its glorious and inglorious past. Although focused on Chicago and Paul Cornell’s holdings during his time there from 1847 until his death in 1904, there is enough reference material to compare the effects of racially restrictive covenants beyond that city’s boundaries. Thus, the article is to some degree a basic primer on the origins and types of, as well as reasons for, those types of covenants. Racially restrictive covenants were first found in documents from the late 1800s in Cali-
of Entrepreneurship there. He holds a law degree and presents as a gifted academic researcher with a keen interest in the history and circumstances of the neighborhood where he resides. Unlike typical law review articles, Prof. Muth’s article cites very few law review articles, none directly addressing racially restrictive covenants, despite at least 10 being published in 2022 alone. Nor does he cite any property treatises or books written by legal academics on the subject. From a social and historical perspective, it is still fascinating to review the development of Prof. Muth’s neighborhood, and this article provides a good introduction for readers with limited knowledge of racially restrictive covenants as precivil-rights extensions of the horrors of black codes, Jim Crow laws, redlining, and other atrocities related to housing.
RIGHT OF FIRST REFUSAL:
Emilio R. Longoria, in Refusal Option Contracts: What They Are, Reoccurring Issues, and Simple , 62 S. Tex. L. Rev. 1 (2022), offers a short but comprehensive guide through Texas law on Right of
to purchase, the way they are drafted determines whether a deal closes quickly, or at all. He goes on to discuss the various scenarios in which these clauses operate to disturb expectations and closings, leading to damages or legal liability. The pitfalls include the failure to know that the property is burdened by the right, the lack of clear termination rules, provisions on waiver, and extensions. Prof. Longoria offers a valuable checklist for drafting to ensure consistency and facilitation of transfers.
MICHIGAN amends recording law to prohibit the recording of documents containing racially restrictive covenants or limitations. The law applies to deeds and other instruments that have a restriction, covenant, or condition, including a right of entry or possibility of reverter, that purports to restrict occupancy or ownership of property on the basis of race, color, religion, sex, familial status, national origin, or other class protected by the federal fair housing act. 2022 Mich. P.A. 234.
MICHIGAN amends its marketable record title act. The amendments provide a list of exceptions for property rights that are not terminated
by the operation of the act, some of which are common to many states and some unique to Michigan. The exceptions include succession rights of lessors and lessees after expiration of the lease; interests of mortgagors and mortgages before the obligation has become due and payable (except when no due date is expressed); easements that are observable by physical evidence; easements reserved by a recorded instrument for pipes, valves, roads, cables, flowage, and vegetation management; environmental restrictive covenants that cite state or federal law as their basis; rights in federal and state governments; and oil and gas leases and interests. 2022 Mich. P.A. 235.
NEW YORK adopts foreclosure abuse prevention act. The act provides that once an action is pending or after final judgment, no other action may be commenced, including an action to foreclose, without leave of court. The commencement of the new action without leave is a defense in the new action and operates to discontinue the earlier action. If an action to foreclose under the mortgage or to recover under the note is time-barred, any other action to foreclose or recover under the same debt is similarly time-barred. A voluntary discontinuance of a foreclosure
will no longer re-set the statute of limitations to bring an action to foreclose, and the action to foreclose is timebarred after six years from the date the loan is first accelerated. The law applies retroactively to any pending foreclosure action filed before December 30, 2022, for which a final judgment and order of sale have not been enforced. 2022 N.Y. Laws 821.
NEW YORK creates special proceedings for judgment directing deposit of rents to remedy conditions dangerous to life, health, or safety. The proceeding is available for residential tenants outside the city of New York and certain counties. Either tenants or a housing commissioner may commence a proceeding in cases of lack of heat, running water, light, electricity, adequate sewage disposal facilities, or any other condition dangerous to life, health or safety, which has existed for five days, or an infestation by rodents, or any combination of such conditions. The act also covers conduct by the owner or the owner’s agents of harassment, illegal eviction, continued deprivation of services, or other acts dangerous to life, health or safety. The act authorizes the court to appoint an administrator with the power to order repairs to remedy the conditions. 2022 N.Y. Laws 677.
NEW YORK creates special proceedings to convey title to abandoned commercial and industrial real property to a city, town, or village. The provisions apply to commercial or industrial real property where the owner has failed for at least three consecutive months either to collect rent or to institute summary proceedings for nonpayment of rent, and the buildings department finds that the property has become a danger to life, health, or safety as a result of the owner’s failure to assume responsibility for its condition. Such failure may be shown by an owner’s failure to make repairs, supply janitorial services, purchase fuel or other needed supplies, or pay utility bills. 2022 N.Y. Laws 837. n
Awork letter is the portion of a lease, often an incorporated attachment, that designates the parties’ respective obligations to construct the improvements necessary for the tenant’s initial occupancy (the leasehold improvements). It should be a practical document designed to allocate construction responsibilities between the tenant and the landlord in a realistic way that provides guidance to both parties, including by fixing the portion of the cost that the landlord will pay (the allowance).
There are two basic types of work letters, each with its own set of concerns. First, the most common type of work letter is one in which the landlord upfits the leased premises for the tenant’s occupancy. Second, the retail, restaurant, or industrial-lease work letter is one in which the tenant constructs its own leasehold improvements on the landlord’s property or in its building.
This Part One will cover the parties’ and their lawyers’ practical considerations in the common office lease work letter in which the landlord will contract for and construct the leasehold improvements for the tenant’s occupancy, though many of the same considerations are also present in a build-to-suit lease requiring the landlord to construct a building or other large-scale improvements to the tenant’s specifications. Part Two, in a future issue of this magazine, will cover the other type of work letter, in which the tenant constructs its own leasehold improvements.
The main concerns of both parties in a work letter under which the landlord will construct improvements for the tenant’s occupancy include (1) establishing exactly what leasehold improvements are to be constructed, (2) determining each party’s payment obligations, (3) anticipating the time
Marie A. Moore is a member of Sher Garner Cahill Richter Klein & Hilbert, L.L.C., in New Orleans, Louisiana, and is the Real Estate Vice-Chair of the Real Property, Trust & Estate Section. G. Trippe Hawthorne is a partner at Kean Miller LLP in Baton Rouge, Louisiana.
required for plan preparation and construction and describing what will constitute completion, (4) providing for changes by both parties, and (5) describing the time and procedure for reporting and handling construction defects.
In the simplest office space work letter, the landlord will agree to install “building standard improvements” in the leased space before the term begins. But what are “building standard improvements”? They vary by building, generally by the type and quality of the floor, ceiling, and wall coverings; the countertops; and the like. The tenant’s lawyer should be sure that the tenant knows exactly what the landlord considers building standard improvements for the leased space and what the landlord is obligated to construct. This means that the tenant should meet with the landlord’s representative to review the carpet samples, paint colors, and other fit-out improvements that constitute the landlord’s building standard improvements, and the tenant’s lawyer should attach the specifications to the work letter.
Communication between the landlord and the tenant, and each party’s communications with its lawyers, are complicated by the fact that the brokers, the building managers, and the parties themselves often throw around terms that have no fixed meanings; for example, in their letters of intent or term sheets, the brokers often use terms like “Vanilla Box,” which might or might not include partitions, HVAC, and lighting fixtures. See Marie A. Moore, Being Constructive About Construction Terms, 34 Prob. & Prop., no. 6, Nov./Dec. 2020, at 64. For this reason, if the letter of intent requires the landlord to deliver only a Vanilla Box, the tenant’s lawyer should determine exactly what floor and wall coverings, ceilings, countertops, and utility attachments the tenant expects the landlord to provide and then include those specifics in the work letter.
If the leasehold improvements are more than just building standard—and often, even if they are just building standard— the work letter should lay out the plan development process. The tenant generally has the initial task of meeting with the landlord’s architect or space planner (depending on the complexity of the leasehold improvements) and establishing the desired layout of its offices (the space plan). If this has been done before the lease is executed, the agreed space plan can be attached to or at least identified by date and description in the work letter. This space plan and the specifications for the building standard improvements may be the only plans and specifications needed to guide the landlord if the leasehold improvements are limited to the installation of walls, ceiling tiles, partitions, utility outlets, HVAC vents, and the agreed (and, hopefully, specified) building standard improvements.
If the leasehold improvements will go beyond the installation of walls, partitions, ceiling tiles, utility outlets, HVAC vents, and specified building standard improvements in the locations shown on the site plan, the work letter should require the landlord first to produce preliminary plans and specifications by a specified deadline. The landlord’s lawyer should include a fixed time period during which the tenant must approve, or, if it does not agree with some portion of the plans, specify its desired changes to, each set of documents by an “approved as noted” notation. The term “approved as noted” generally means that the tenant approves the work described in the plans, subject to the landlord’s compliance with the comments or corrections on the tenant’s approved version. The landlord’s lawyer should provide that the tenant is deemed to have approved each set of plans if it does not notify the landlord of its objections within this fixed time period. The tenant, in turn, should specify a deadline for the landlord’s response to the tenant’s notations and comments, all with the goal of enabling the parties to reach mutual
agreement on plans for the leasehold improvements in sufficient time to both meet the tenant’s occupancy needs and allow for the landlord to start collecting rent as soon as possible.
Each party should specify that the other cannot unreasonably withhold its approval of the other’s plans or plan requirements. Some lawyers add that neither party may condition or delay its approval. If there’s already a time for response in the work letter, an “or delay” qualification will not be needed. If there are to be preliminary plans followed by final plans, the landlord should consider limiting the tenant’s right to disapprove aspects of the leasehold improvements that the tenant already approved in a prior set of plans.
Occasionally, if the project will be significant, and the tenant is required to pay for a portion of the construction costs, the tenant may require that the contractor’s cost estimates be provided to the tenant before finalization of the landlord’s construction contract and that the tenant be permitted to alter its design requirements to lower these costs (sometimes this is called value engineering). This can be a time-consuming process, and the lawyers representing both parties will need to be clear about the parties’ respective response periods and which party will be responsible for resulting construction delays. The tenant may also require approval of the landlord’s construction contract, though this is rare.
The parties do not often reach design impasses in ordinary office-lease settings. These impasses are a much bigger risk in build-to-suit or other large or custom projects. Impasses can be resolved by a right to terminate on the part of one or both parties, renegotiation of certain terms of the lease, or dispute resolution provisions requiring negotiations between upper-level management or even by requiring the intervention of a project-neutral party or mediator. If the parties really want to consummate the lease, of course, they should be able to work out their differences without termination or complicated dispute resolution procedures.
In most office leases and many retail leases, the landlord will contribute an allowance toward the cost of altering the space so that it suits the tenant’s business needs. This allowance, with interest, is generally factored into the rent so that the landlord is repaid the amortized allowance over time as part of the rent. Consequently, if the tenant improvements are particular to the tenant, as in the case of a retail tenant’s trade dress, then if the tenant defaults or the lease otherwise terminates early, the landlord will not be able to re-lease the space with those tenant improvements in place, and it will suffer a loss. Notwithstanding this potential issue for
landlords, allowances are a feature of most leases in the current market.
The landlord generally views the allowance as the fixed amount that was factored into its financial evaluation of the lease and its calculation of the rent. The tenant, on the other hand, may view the allowance as a price for which the landlord must complete its construction—like a fixed-price bid from a contractor. The landlord may be willing to agree to fund all of the leasehold improvements if, before the lease is executed, the landlord has received a binding estimate from its construction contractor for the leasehold improvements—but this generally requires that the parties have a firm description of the leasehold improvements work when the lease is executed. That’s not usually the case.
Most landlords insist on a fixed allowance amount, and if, upon completion of design, the costs exceed the allowance, the landlord will require the tenant to provide the landlord with the additional funds needed for the construction. Most landlord-form work letters require the tenant to pay these amounts to the landlord before the landlord begins work.
The landlord will, of course, apply the allowance and the tenant’s overage amount to the construction costs as they are incurred. Upon completion of construction, particularly if the tenant has provided funds to supplement the allowance, the tenant may require an accounting and perhaps the right to review the landlord’s books and records.
Excessive construction costs may be an issue for a tenant on a budget and may be more of a problem when there are supply-chain disruptions and rising prices. A tenant with a tight budget may want the right to negotiate scaled-back leasehold improvements if the construction costs exceed a specified amount. An alternative might be for the tenant to require updated estimates during the design process so that the tenant can opt out of including certain items if the final or estimated cost
Impasses can be resolved by a right to terminate on the part of one or both parties, renegotiation of certain terms of the lease, or dispute resolution provisions requiring negotiations between upper-level management or even by requiring the intervention of a project-neutral party or mediator.
to construct the leasehold improvements will exceed the allowance plus the amount the tenant has budgeted for overages. This can help eliminate a surprise at the end of construction, but it will add extra design costs and time unless the tenant’s alternatives were initially bid as optional add-ons.
Most tenants have a fixed date by which they must vacate their current space and start operating in the new premises; consequently, they need their leasehold improvements to be completed by a fixed date to a degree sufficient for their installation of their equipment and perhaps their construction of additional improvements. On the other hand, most landlords want the rent to commence as soon as possible but don’t want to be liable to the tenant if construction is delayed.
The term “substantial completion” is generally used to describe the required state of completion. This term should be defined in the work letter, but it generally means completed to the point necessary for the tenant to move in and use the space for its business purposes, subject to minor items of finish work (punch list items). The tenant may also stipulate that “substantial completion” requires both (i) a certification by its architect or the landlord’s architect or contractor that the work has been “substantially completed” and (ii) that a certificate of occupancy or temporary certificate of occupancy has been issued by the appropriate governmental authorities with jurisdiction over the premises. Tenants with leverage sometimes wish to stipulate that the work will not be considered “substantially complete” until the tenant has been given notice by the landlord that substantial completion has occurred and has inspected the space and confirmed substantial completion; however, this provision is not common in ordinary office leases, and, if it is included, the landlord should specify the period within which the tenant must inspect
and notify the landlord of deficiencies. The landlord should try to impose the tenant’s completion requirements on the landlord’s contractor in the construction contract, but the contractor may insist on the standard definition of “substantial completion” set out in the AIA General Conditions (A2012017, section 9.8.1): “[T]he stage in the progress of the Work when the Work or designated portion thereof is sufficiently complete in accordance with the Contract Documents so that the Owner can occupy or utilize the Work for its intended use.” Whether a certificate of occupancy should be required for the contractor to have satisfied its substantial completion obligations will depend on the time required in the jurisdiction to obtain a temporary or permanent certificate of occupancy and the contractor’s willingness to vary its standard form.
Clearly, the best result for the tenant is a fixed required substantial completion date, with the landlord being liable to the tenant for liquidated damages (often an amount equal to a day’s rent for each day of delay) or otherwise if the construction has not been substantially completed by that required date. If the landlord is willing to entertain delay damages, it will likely seek to: (i) exclude delays caused by force majeure like Acts of God, casualty, governmental delays in issuing permits (this exclusion may be challenged by the tenant), or other causes beyond the landlord’s reasonable control; and (ii) require that damages not be due unless the delay has exceeded a certain amount of time— for example, 30 days. Most work letters also provide that delays by the tenant in approving plans, tenant’s requests for changes, and other delays caused by the tenant will not give rise to damages due by the landlord or push back the rent commencement date.
Most landlords are not willing to be liable for any damages caused by their delays, particularly general damages like hold-over amounts charged by the tenant’s prior landlord or the tenant’s
business losses. To protect the landlord, the landlord’s lawyer should clearly state that the only penalty that tenant will be due is a delay in the commencement of tenant’s rent equal to the delay in completion, plus, if the tenant has leverage, the agreed fixed daily liquidated damages. If the landlord will not agree to be liable for liquidated delay damages, the tenant’s lawyer should advise the tenant to approach its current landlord and try to negotiate some flexibility on its move-out. Otherwise, the tenant will risk becoming liable to its existing landlord for hold-over damages if the new landlord does not substantially complete its new space by the scheduled date.
If the landlord does agree to be liable for delay damages, it should try to make these damages an obligation of its contractor in the contract for the performance of the tenant improvements work. Generally, a contractor will be more likely to agree to liquidated damages for delay where the contract is a fixed-price contract and where the schedule is such that the contractor has a reasonable amount of “float” to be comfortable in its ability to finish the work on schedule. Where the contractor carries the risk for schedule compliance, it will build that risk into its fixed price. However, when the pricing for the contract is on a cost-plus or timeand-materials basis, the contractor will not have a place in its compensation model to quantify its risk. Also, if the contractor will be liable for delays, the contractor will be much more diligent in monitoring and seeking extensions for delays or potential delays.
The completion of the landlord’s construction is and should be a key element in the commencement of the term and the tenant’s rent. The landlord’s lawyer may start with a term and rent commencement date that is a fixed number of days—most tenants want time to move in—after the landlord has achieved substantial completion. However, if the parties have agreed that the term and the rent are to commence on a fixed date, then the tenant will need that rent commencement date to be delayed on a day-to-day basis for delays
in substantial completion of the leasehold improvements, and the landlord will add to the lease a provision stating that delays caused by the tenant will not be counted as part of the delay in commencement of the rent. National retail tenants with strong bargaining positions frequently negotiate other types of consequences for landlord delay in delivering the completed leased premises; for example, if the lease is a build-to-suit lease for a national retail tenant and if the construction delay keeps the retail tenant from opening at the beginning of the fall holiday season, the tenant may require that its rent not start until after the end of that holiday season.
Work letters, particularly work letters for extensive tenant improvements, generally provide both parties with the ability to make changes in the plans after construction has begun. In particular, landlords should try to reserve the right to make changes that are necessitated by governmental requirements identified or imposed during permitting or conditions discovered during construction. The tenant, for its part, will require approval over these changes, but the landlord will try to restrict the tenant’s approval rights to material changes and to exclude the obligation to obtain the tenant’s approval of changes required by governmental authorities. Negotiations are common over what constitutes a “material” change that requires the tenant’s approval. The landlord should require the tenant to voice its objections to the landlord’s changes a fixed number of days after the landlord has provided the tenant with its proposed change order and, of course, should prohibit the tenant from unreasonably withholding its approval.
Landlords are justified in their concerns about changes in the plans made by tenants since these changes might increase the cost of the work and delay its completion. Consequently, if the tenant has the right to make changes, the landlord will require that it have approval of these changes, though it
will generally agree not to be unreasonable and to respond to the tenant within a fixed period of time. But it will charge the tenant the additional costs of its change orders and condition its obligation to make the changes on the tenant’s payment of these costs in advance. The landlord will also insist that the rent commencement date not be delayed by construction delays caused by the tenant’s change orders. In large projects, the tenant may require the landlord to obtain a time and cost estimate from its contractor before the tenant is bound by its change. Again, the parties’ lawyers need to draft clear time periods for the landlord to obtain these estimates and for the tenant to accept the change order after receiving these estimates, and the tenant is likely to be charged with all delays caused by this back-and-forth.
Work letters generally provide for the landlord’s and the tenant’s inspection of the substantially completed work (or work that is almost substantially completed) and preparation of a list of items that need to be repaired or completed, but that does not prevent the tenant’s occupancy of or its work in the space (these items are punch list items). The tenant will then require the landlord to complete these punch list items within a certain period, often 30 days, after the lease commencement date. Whether both parties must agree on the items to be completed depends on the parties’ negotiations, but if the landlord’s construction contract, like most construction contracts, provides for a punch list and obligates the contractor to fix punch list items within a specified time, then the work letter’s provisions should mirror the obligations of the contractor. Issues for negotiation may include whether the punch list is a “valued punch list,” meaning that a dollar amount is specified and withheld for the cost of each punch list item; whether retainage is paid before the completion of the punch
list; and whether the punch list can be amended or supplemented after its initial issuance.
In many work letters, landlords have the obligation to repair defective work, in addition to the punch list items, for a fixed period after substantial completion. To limit the repair items, the landlord’s lawyer generally starts with (i) a provision requiring the tenant to sign a delivery date certificate in which it accepts the premises unconditionally, except for the punch list items, when the space is turned over and (ii) a provision stating that if the tenant does not give the landlord notice of punch list items by a fixed date and notice of other specified defects or deficiencies in the leasehold improvements by the commencement of the term (or a very short time after that commencement), then, except for the punch list items, the tenant is conclusively deemed to have accepted the leasehold improvements “as is” in their condition upon delivery. These provisions will then stipulate that after the tenant has executed this delivery date certificate or the lapse of the date by which the tenant must give the landlord notice of all defects, the landlord will have no further responsibility for the leasehold improvements other than its general repair obligations with respect to the entire leased premises otherwise set out in the lease.
The tenant’s lawyer should then raise the issue of defective work that the tenant could not have discovered with a reasonable visual inspection of the leased premises and should ask that the tenant’s acceptance be limited to defects or deficiencies that can be discovered by a visual inspection. Whether this becomes a heavily negotiated issue depends on whether the contractor, and consequently the landlord, provide a warranty period. It also depends on the party that has the general repair and replacement obligations during the remainder of the term. If the tenant is responsible for all maintenance and repairs after delivery of the space, that tenant’s lawyer should require that the landlord remain responsible for
all construction defects for a specified period; whereas, if the landlord has the obligation of performing the general premises repairs and maintenance, then a warranty period is less necessary and may even limit the extent of the landlord’s normal repair and maintenance obligations.
If the tenant assumes responsibility for repairs and maintenance during the term and demands a warranty period during which the landlord will repair defective work, the landlord is likely to limit the duration of this warranty period, often for 12 months. The landlord should ensure that this warranty period is no longer than the warranty period provided by its contractor and extends only to the types of warranty work that the contractor is obligated to provide in the construction contract, often repair or replacement of defective work after timely and appropriate notice. Because the contractor is likely to exclude from its warranty obligations all work necessitated by normal wear and tear, abuse, lack of regular maintenance or improper maintenance, and damage caused by another contractor or person, as well as all liability for consequential damages such as business losses caused by the tenant’s inability to occupy the leased premises and the landlord’s loss of rents, the landlord should carry over these same exclusions in its work letter.
In the work letter, a tenant that has responsibility for maintenance and repairs should also require that all mechanical systems installed by the landlord (such as heating, ventilating, and air-conditioning systems) be new and have warranties of a certain period—the tenant may even specify particular manufacturers. If the tenant assumes the responsibility for repairs to and the maintenance of these mechanical systems during this warranty period, it should require that the manufacturer’s warranty be assignable and be assigned to the tenant at lease commencement. In the alternative, the tenant may ask that the landlord remain responsible for these mechanical systems throughout the warranty period, but the landlord may specify
that its responsibilities will be limited to notifying the manufacturer of issues and causing the manufacturer to perform the repairs. Landlords’ lawyers should remember that manufacturers’ warranties often will include only an obligation to repair or replace the warranted equipment and will not cover the cost of accessing, removing, or reinstalling the equipment, or the cost of other work associated with the warranty work; consequently, the lease should limit the landlord’s obligations accordingly.
In preparing and negotiating a work letter, both parties’ lawyers should approach the work letter with the goal of giving each party a roadmap for the design and construction of the tenant improvements, keeping in mind the following general goals:
• The landlord’s lawyer should (i) identify the tenant improvements that the landlord is willing to construct with enough specificity to avoid conflicts later, (ii) limit the landlord’s allowance amount and provide a mechanism for the tenant to pay the excess construction costs before they are incurred,
(iii) permit reasonable landlord changes in the work as they become necessary, (iv) establish an achievable substantial completion date and minimize penalties for delays in construction, and (v) establish a deadline for the tenant’s identification of construction defects and an agreement on the landlord’s necessary response.
To achieve these drafting goals, the landlord’s lawyer should endeavor to make the work letter provisions as consistent as possible with those of the landlord’s construction contract so that the contractor, not the landlord, is responsible for its own avoidable delays and defective work.
• The tenant’s lawyer, on the other hand, should work with the tenant to (i) assure that the described or subsequently designed leasehold improvements are what the tenant needs and expects; (ii) assure that the tenant is realistic about whether the allowance amount plus the tenant’s budgeted overage will be sufficient to satisfy the tenant’s improvements needs; (iii) give the tenant a reasonable mechanism for change orders; (iv) require the landlord to complete the leasehold improvements by the tenant’s desired occupancy date, while emphasizing to the client that it should have a plan for holding over in its existing space until construction is completed; and (v) provide the tenant with a punch list and, if the tenant is assuming responsibility for the space, a landlord warranty period after completion of the work.
Part Two will cover issues that lawyers should address in work letters under which the tenant will construct the tenant improvements on the landlord’s property or in the landlord’s building, using the landlord’s allowance. n
The landlord’s lawyer should endeavor to make the work letter provisions as consistent as possible with those of the landlord’s construction contract so that the contractor, not the landlord, is responsible for its own avoidable delays and defective work.
BREACH OF TRUST: Monthly account statements begin running of statute of limitations. Adopting language from the Uniform Trust Code, Mich. Comp. Laws § 700.7905(1)(a) establishes a one-year statute of limitations on actions for breach of trust for beneficiaries against trustees beginning after the trustee sends the beneficiaries “a report” sufficient to disclose the existence of a potential claim and informs the beneficiaries of the one-year period. In Kilian v. TCF National Bank, No. 358761, 2022 WL 12073427 (Mich. Ct. App. Oct. 20, 2022), the court held that a monthly account statement including notice of the one-year limit was sufficient to begin the running of the statute and expressly rejected the argument that the statement was inadequate because it did not include information on benchmarks, projected gains and losses, and information on why investment decisions were made.
INHERITANCE TAX: Substance rather than form determines if a transfer was intended to take place at death. Parents executed two deeds conveying farmland to their child. After the parents’ deaths, a dispute arose between the child and the executors (other children of the decedents) over whether the land was subject to Nebraska inheritance tax because the transfers, although absolute on their face, were intended to take place after death. The county court held that tax did not apply, and the Supreme Court of Nebraska reversed on appeal in In re Estate of Lofgreen, 981 N.W.2d 585 (Neb. 2022), because the grantors continued to pay expenses related to and taxes
Keeping Current—Probate Editor: Prof. Gerry W. Beyer, Texas Tech University School of Law, Lubbock, TX 79409, gwb@ ProfessorBeyer.com.
Contributors: Julia Koert, Paula Moore, Prof. William P. LaPiana, and Jake W. Villanueva.
on the property, leased out the property to another child, received income they reported for tax purposes, maintained insurance on the property, and when grantee eventually did pay expenses and taxes, the grantors reimbursed the grantee.
PARENTAGE: California law determines parentage although family resided outside of the state. The decedent died a resident of California, and under California law, the heirs were the descendants of the decedent’s grandparents. An individual claimed to be an heir through a presumed parent-child relationship between the individual and the decedent’s mother’s sibling. In affirming the probate court’s finding that the individual was an heir, the court in Wehsener v. Jernigan, 302 Cal. Rptr. 3d 916 (Cal. Ct. App. 2022), held that the individual’s status would be determined under California law even though the presumed parent and the child never lived in California, that clear and convincing evidence supported the finding of presumed parentage, that the administrator offered no facts to rebut the presumption, and that it could not be rebutted on alleged public policy considerations alone.
PRO SE: Lay trustees may not act pro se for a trust. The purchaser at a sheriff’s sale brought a quiet title action to strike a deed a trust recorded. The trustees defaulted and later filed a pro se petition
to reopen the matter, which was denied. The trustees then filed a pro se notice of appeal. Denying the purchaser’s application to quash, the Pennsylvania Superior Court in Delaware Valley Landscape Stone, Inc. v. RRQ, LLC, 284 A.3d 459 (Pa. Super. Ct. 2022), held as a matter of first impression that trustees who are not lawyers may not represent the trust in legal proceedings but that the notice of appeal filed by the trustees is not a nullity and the court, therefore, may exercise jurisdiction over the appeal. The brief filed by the trustees was stricken, and the trustees were directed to obtain counsel if they wished to proceed.
RACKETEER INFLUENCED AND CORRUPT ORGANIZATIONS ACT: RICO claim related to probate proceeding does not require federal abstention. In the course of a prolonged dispute in the Rhode Island courts over the administration of a parent’s estate, one of the children-beneficiaries brought a proceeding in federal district court including allegations of violations of RICO based on the actions of the executors and other children-beneficiaries. The district court dismissed for lack of subject matter jurisdiction based on the probate exception to federal jurisdiction. On appeal, the First Circuit reversed in Glassie v. Doucette, 55 F.4th 58 (1st Cir. 2022). Although the federal suit covers much the same ground as the state proceedings, those proceedings are unlikely to resolve completely the issues in the federal proceeding, particularly the RICO claim, and abstention is not required on that ground. Nor is specific probate abstention required because the calculation of damages might require a valuation of estate assets or because some of the claims involve allegations of breach of fiduciary duty. Any problems can be resolved by coordination between the state and federal courts.
TRUST JURISDICTION: Court has no jurisdiction because trustee’s conduct not directed at state. The trustee of an Illinois trust living in Florida was sued in the
Keeping Current—Probate offers a look at selected recent cases, tax rulings and regulations, literature, and legislation. The editors of Probate & Property welcome suggestions and contributions from readers.
Nevada courts by the life beneficiary, who lived in Nevada. The lower courts denied the trustee’s motion to dismiss for lack of personal jurisdiction, and on appeal the Supreme Court of Nevada reversed in Matter of Paul D. Burgauer Revocable Living Trust, 521 P.3d 1160 (Nev. 2022). The court held that because the beneficiary’s claims involved intentional torts, under US Supreme Court precedent, such as Calder v. Jones, 465 U.S. 783 (1984), the “effects test” applied. Under that test, there was no personal jurisdiction because the trustee had not purposefully directed the trustee’s conduct to Nevada. The only connection with the state was the beneficiary’s residence, and no independent action occurred in Nevada.
ACT: Will executed abroad deemed valid under the Act and under conflicts of law principles. A United States person domiciled in Maryland executed a will in Portugal in 2006. When the testator died in 2020, the probate estate consisted only of real property in Nevada. The will was offered for probate in Nevada and admitted. On appeal, the intermediate appellate court affirmed in Matter of Estate of Sweet, 520 P.3d 827 (Nev. Ct. App. 2022), holding that the will complied with the Nevada codification of the uniform act because the Portuguese notary who signed the will and supervised execution is an “authorized person” under the statute. The will also was admissible because it was valid under the law of the place of execution and the law of the testator’s domicile at that time.
TAX DEFICIENCY: Res judicata prevents wife from raising innocent spouse defense. The taxpayer and her husband petitioned the Tax Court in a deficiency case for the years 2000 to 2004. The husband hired an attorney. Before the Tax Court decided the case, however, the husband died. The husband’s estate, of which his wife and a business colleague served as co-executors, was substituted as a party for the husband in the deficiency case. The Tax Court determined that no deficiencies existed from 2000 to 2003 but that
the husband and his business partner had failed to report income in 2004. The wife then filed Form 8857 Request for Innocent Spouse Relief from the joint and several 2004 liability. The wife petitioned the Tax Court after the IRS denied the request, arguing that an exception to res judicata applied because she did not meaningfully participate in the deficiency case. The Tax Court in Kechijian v. Comm’r, T.C. Memo 2022-127, held that she meaningfully participated through her attorney and that even if the litigation had been controlled by her husband before his death, the situation changed after he died. After he died, for 18 months she was a party both individually and as co-executor to her husband’s estate. Although she delegated the handling of the deficiency case for 18 months to her co-executor and her attorney, she made that choice and was responsible for the resulting ramifications.
ADULT GUARDIANSHIP: In Adult Guardianship Privacy, Redaction, and Professional Responsibility, 48 ACTEC L.J. 77 (2022), Alberto Lopez explains how a simple oversight like failing properly to redact information in adult guardianship can violate the Rules of Professional Conduct and cause irreparable harm to the client. Although modern software may make redaction quicker, he stresses the need to always double-check for redaction before submitting adult guardianship papers to courts.
ART: In Privacy, Probate, and NaziPlundered Art, 48 ACTEC L.J. 83 (2022), Alex Swanson suggests that as public documents, probate records can be the potential tools to finally locate Nazilooted art and secure restitution for the victims’ families. He explains how privacy provided by non-probate transfers complicates the current efforts to find the missing art, and he suggests a public recording system for transfers of what he calls “suspect artworks” as a solution.
ASSISTED REPRODUCTION: In Functional Siblings, Donor-Conceived People and Intestacy, 48 ACTEC L.J. 5 (2022),
Naomi Cahn examines the legal rights of donor-conceived people and the legal developments to address the needs of modern families, including the Uniform Parentage Act and the 2019 revisions of the Uniform Probate Code. Although there are still many unresolved issues regarding donor-conceived people in trusts and estates, she calls for greater clarity in this murky area of law.
In Augmented Estates and Spouses, Nat’l Coll. Prob. Judges L.J. (Fall 2022), Michael Lentz and Brianna Pickhardt explore how many states, like Maryland, are using an “augmented” estate to protect surviving spouses and the complications that probate courts face with this decision. Maryland’s 2020 Augmented Spousal Elective Share Law includes virtually all of a decedent’s current and former assets in calculating a spouse’s elective share. This raises complications for probate courts, forcing them to decide whether non-probate assets should be included in the elective share calculation.
BUSINESS TRUSTS: In Common Law Business Trusts, Anonymity, and Inclusion, 48 ACTEC L.J. 21 (2022), Eric Chaffee analyzes the trade-offs between transparency and privacy in business entities. Under the recently enacted Corporation Transparency Act, the identity of those who own an interest in an entity must be disclosed, but this legislation has an inherent trust exception. He argues in favor of retaining the trust exception because the benefits of allowing “socially stigmatized” individuals to enjoy privacy will result in greater diversity and inclusion in the United States.
In An Estate Plan for Kanye West, 39 Cardozo Arts & Ent. L.J. 195 (2021), Thomas E. Simmons analyzes Kanye West’s property interest in his name, image, and likeness with significant commercial value. In California, this publicity right survives a celebrity’s death and can be transferred to beneficiaries. Simmons proposes a noncharitable purpose trust as a means by which Kanye West can
support his family through the economic returns his right of publicity generates and safeguard his image on his own terms.
COMMON LAW DIVORCE: In Common Law Divorce, 74 Ala. L. Rev. 365 (2022), Michael Higdon offers suggestions to courts, legislators, and policymakers to institute more meaningful access to divorce for marginalized communities who often choose to informally separate rather than formally divorce. Informal divorces often undermine important state interests like safeguarding the economic interests of current spouses and protecting those who are victims of domestic violence and children. Instituting meaningful access to divorce, therefore, provides greater agency to those seeking to dissolve unsuccessful marriages while protecting state interests.
CO-TRUSTEES: David F. Johnson provides a detailed analysis of the “advantages and drawbacks to using a co-trustee structure to administer a trust” in The More the Merrier? Issues Arising from Cotrustees Administering Trusts, 15 Est. Plan. & Comm. Prop. L.J. 35 (2022).
COVID-19: In The Wills of COVID-19: The Technological Push for Change in New York Trusts and Estates Law, 95 St. John’s L. Rev. 951 (2021), Olivia Visconti argues that to ensure testators’ abilities to execute their wills safely, New York should adopt a form of the Uniform Electronic Wills Act, which defines electronic wills and offers a model for electronic will legislation. As the overall trend of will formalities in the United States leans toward an acceptance of modern technological alternatives, Visconti highlights the need for New York to do the same and bring New York Trusts and Estates Law into the twenty-first century.
CRYPTOCURRENCY: In Privacy in Plain Sight: How Blockchain Assets and Decentralized Technology Can Increase Privacy in Inheritance, 48 ACTEC L.J. 31 (2022), Tye Cressman explains the “blockchain privacy paradox” for inheritance planning and ponders the question, “How does this developing technology impact
the role of a post-mortem fiduciary as it pertains to the inheritance of Blockchain assets?”
DOUBLE BASIS STEP-UP RULE:
In Geographic Income Tax Marriage Equality: A Proposal to Expand the Double Basis Step-Up, 55 Mich. St. L. Rev. (2022), Daniel Durst argues that surviving spouses in community property states benefit from a significant, but unintended, tax advantage over surviving spouses in other states because of the current double basis step-up at death rule. To eliminate this geographic inequality, there should be a national eligibility for double basis stepup for every surviving spouse’s “marital property,” instead of a state law defined “community property.” This solution would create geographic equality and be easily incorporated into long-standing basis rules.
DYNASTY 529 PLANS: In Dynasty
529 Plans and Structural Inequality, 61 Washburn L.J. 497 (2022), Victoria Haneman argues that current educational incentives, like 529 plans, often entrench rather than mitigate class divisions. To bridge this gap, Haneman recommends three important changes: (1) create limits to discourage dynastic use; (2) change the definition of “qualified education expense” to exclude K-12 education; and (3) cap the amount of income that may accrue without tax.
ELECTRONIC WILLS: In Legacies of a Pandemic: Remote Attestation and Electronic Wills, 48 Mitchell Hamline L. Rev. 826 (2022), Richard Storrow examines how the coronavirus pandemic has propelled many states to institute remote attestation on an emergency basis and the unforeseen problems that have resulted in an environment that is still largely unreceptive to electronic wills. Storrow explains that this unexpected change presents both difficulties and opportunities. He predicts that the current experiment with remote attestation will speed the enactment of electronic-will legislation and make estate planning more accessible in the modern digital age.
ERISA: Christine Vanderwater argues
in her Comment, Don’t Risk, Don’t Dwell: How Employers’ ERISA Benefit Plan Offerings, or Lack Thereof, Routinely Fail LGBTQIA+ Employees and Solutions for Employers, 15 Est. Plan. & Comm. Prop. L.J. 175 (2022), that employers should keep equity, rather than equality, in mind as they enact policy changes to their ERISA plans because “equal treatment does not always produce an equitable result.”
FINANCIAL SECRECY: In Joining the Global Community in the Fight Against Financial Secrecy: Congress Enacts the Corporate Transparency Act to Mandate Beneficial Ownership Reporting in the United States, 48 ACTEC L.J. 49 (2022), Glenn Fox, Raj Malviya, Michael Breslow, and Kevin Shepherd consider the significant step the United States made in improving financial transparency with the recently enacted Corporate Transparency Act.
GRANTOR TRUSTS: In Grantor Trusts: The MVP of the IRC, 15 Est. Plan. & Comm. Prop. L.J. 91 (2022), Kelly M. Perez “focuses on the current legislative standing of grantor trusts as well as some of the more detailed nuances of grantor trust planning.”
HEIRS PROPERTY: In Heir Property Owners and Federal Disaster Aid Programs: Opportunities for a More Equitable Recovery When Disaster Strikes, 30 J. Affordable Housing & Community Dev. L. 467 (2022), Heather Way and Ruthie Goldstein discuss the historic struggles that Black and Latinx communities face when living on heir property and trying to access disaster relief programs due to the onerous ownership verification requirements. In an era of climate change, Way and Goldstein share major obstacles and offer recommendations for additional legal and policy reforms to allow these disaster survivors to get the help they need to rebuild their homes.
LAPSE: Adam Hirsch examines the public policy of anti-lapse statutes, assessing them by undertaking the first survey of popular preferences concerning the matter in When Beneficiaries Predecease: An Empirical Analysis, 72 Emory L.J. 307 (2022). He hopes that this empirical data will help lawmakers better align default rules to probable intent and thus advance the equity of estate planning.
In her Comment, Revisiting the
Visitor: Maine’s New Uniform Probate Code & The Evolving Role of the Court-Appointed Visitor in Adult Guardianship Reform, 74 Me. L. Rev. 141 (2022), Lisa Rosenthal explains the critical role a court-appointed visitor plays in helping a judge understand the circumstances of a guardianship. As Maine continues to reimagine its probate court system, Rosenthal argues that a robust visitor program is one of the only ways to ensure that all alternative methods have been exhausted before resorting to the appointment of a guardian.
MINOR GUARDIANSHIP: In Minor Guardianship, Nat’l Coll. Prob. Judges L.J. (Fall 2022), Deborah Cochelin explains the history of minor guardianship and stresses the need for uniformity of minor guardianship laws to better safeguard children in our constantly growing and mobile society.
PET EUTHANASIA: In Unleashing Pets from Dead-Hand Control, 22 Nev. L.J. 349 (2021), Kaity Emerson and Kevin Bennardo address the validity of pet euthanasia provisions in decedents’ wills and propose the anti-waste doctrine as a simple and sufficient rationale for courts to find pet euthanasia provisions unenforceable.
PROBATE AVOIDANCE: In Fringe Inheriting: Probate Avoidance at Both Ends of the Wealth Spectrum, 48 ACTEC L.J. 95 (2022), Allison Tait examines why low-income and high-wealth families transfer wealth outside of the public process of probate courts. Though their personal experiences differ, low-income and high-wealth earners share a similar distrust of the probate process. Redefining this process could provide significant benefits for low-income families. Additionally, pushing high-wealth families from more private wealth transfers toward a system of increased transparency, like probate, might lead to more comprehensive societal benefits.
also discuss tax-minimization techniques considering evolving state law affecting estate planning for the rich and famous on this issue.
PUBLICITY—POLICY CONSIDERATIONS: In Identity Appropriation and Wealth Transfer: Twain, Cord, and the Post-Mortem Right of Publicity, 48 ACTEC L.J. 41 (2022), Alyssa DiRusso and Timothy McFarlin encourage policymakers and private institutions to consider how inequalities have affected and may continue to affect the control of identity and inheritance of wealth from the right of publicity. They argue the importance of critically considering race and gender when evaluating this commercially valuable post-death right of publicity.
PUBLICITY—TENNESSEE: In Of Privacy and Publicity: Symbiotic Rights (Or Wellspring of Obfuscation), 48 ACTEC L.J. 13 (2022), Jeffrey Carson and Trace Brooks explore significant estate planning opportunities to help clients preserve commercially valuable publicity rights using Tennessee’s unique trust law. Though untested (to the author’s knowledge), Tennessee’s right of publicity has a 10-year term that resets after the commercialization of the right, creating an opportunity for a never-ending right of publicity.
RANCH OWNERS: In Estate Planning for Ranch Owners, 15 Est. Plan. & Comm. Prop. L.J. 1 (2022), Tanya E. Feinleib explains how planning for ranch owners “involves a complex interplay of real estate law, federal and state tax laws, business law, family law, and employment law” and provides valuable planning advice.
Kinsee Tumlinson analyzes the need for legislation “governing the use, rights to, [and] ownership of natural resources from outer space once they are brought to Earth.”
REFORM: In Changing Property Rights in the Family: Evidence from an Inheritance Reform, 65 J.L. & Econ. 343 (2022), Gustaf Bruze and Emma von Essen provide the first economic evaluation of a Swedish 1988 inheritance reform that reassigned property rights in the extended family. Before the 1988 reform, children inherited the estate of a deceased married parent and, afterward, the estate is inherited by the surviving spouse. This study rejected the idea that if parents are altruistic toward children, a change of property rights in the family has no effect on the consumption of parents and children. Results showed that the inheritance reform increased the surviving spouse’s overall standard of living and had minimal effect on the children.
TRUSTS: In From Illinois to Delaware, Ill. B.J., Aug. 2022, at 26, Ira N. Helfgot provides “a primer on trust collection for creditors” by describing a variety of techniques creditors may use to reach trust assets to satisfy their claims.
NEW YORK clarifies the operation of statutory short-form power of attorney. 2022 Sess. Law News of N.Y. Ch. 784.
TECHNIQUES: In The Post-Mortem Right of Publicity: Defining It, Valuing It, Defending It, and Planning for It, 48 ACTEC L.J. 63 (2022), Sharon Klein and Jenna Cohn share new developments on the post-death right of publicity and provide a helpful comparative chart to reflect the states’ differences. They
SAME-SEX COUPLES: Elizabeth Brenner provides “practical suggestions for working with LGBTQ clients” in Estate Planning and Probate for Same-Sex Couples, 86 Tex. B.J. 88 (2023).
SPACE MINERAL RIGHTS: In her Comment, The Private Space Race: Applying Private Space Mineral Rights to Texas State Property and Estate Planning Law, 15 Est. Plan. & Comm. Prop. L.J. 137 (2022),
OHIO provides (1) that disability cannot serve as a basis upon which a person may be denied the ability to serve as a guardian for a minor, (2) modernized procedures whereby a body may be disinterred, and (3) a permissible procedure for trustees who are concluding their administration of an irrevocable trust because they are resigning, they are being removed, or the trust is terminating, which, if complied with in good faith and by serving of a notice described in the statute, will bar subsequent claims against the trustee. 2022 Ohio Laws File 152. n
By Scott M. Engstrom
Our new Constitution is now established, everything seems to promise it will be durable; but, in this world, nothing is certain except death and taxes.
So goes the famous quote attributed to Benjamin Franklin. This adage is not lost on estate planning and elder law attorneys, whose practices largely center around death and tax considerations.
Unless something fundamental changes with the human condition, mortality and death will remain topics of reflection that every person must grapple with. Estate planning and elder law attorneys must grapple not only with their own mortality, but also with that of their clients. For an elder law attorney, the goal is to ensure the clients’ medical and financial needs are accounted for until their deaths, including planning for retirement, long-term care, government benefits, and inter vivos gifts. Estate planning attorneys address death by working with their client to ensure their assets are appropriately disposed of after they pass away, consistent with the goals they expressed during their lifetime. Estate planning attorneys do this by carefully structuring trusts, wills, and other instruments that prepare assets for post-death disposition.
Although attorneys in this space take different approaches to these practice areas—some diving headlong into both, while others focus on one or the other—tax considerations are pervasive regardless of whether the attorney practices estate planning, elder law, or both. Tax issues come in many forms, including those related to gift taxes, estate taxes, treatment of trusts and LLCs, various exceptions and exclusions, and business succession planning, to name a few. No matter how simple or complex the client’s finances, there is no avoiding the necessity of a sound tax planning strategy for clients as they
Scott M. Engstrom is the Corporate Counsel and COO of Krause Financial Services in De Pere, Wisconsin.plan for their anticipated end-of-life care needs and any testamentary or other post-death bequests.
Given death’s inevitability and the existing regulatory environment for taxation, attorneys are frequently presented with the question of what to do with a retirement account when their clients transition from the labor force into retirement and beyond. This is a crucial stage for clients’ finances, and they should have plans in place for what life looks like in the event of a residential care need, and for what happens when they die. There are multiple options for this general fact-pattern, but the critical first step is establishing a client profile, including the client’s family and marital situation, health, existing financial resources, and underlying objectives.
It is difficult to illuminate the benefits of the various options that exist for retirement accounts at or after retirement without having specific client profiles. The remainder of this article, however, will focus on what each option entails and touch on certain categories of clients who might benefit from each option. Of course, this is provided as a high-level overview and not as a roadmap for planning that should be done in each type of case.
For some clients, the best option for their retirement accounts when leaving the labor force permanently is to do nothing. For a client of this type, the decision is made not to liquidate, not to roll over, not to add additional funds, and not to begin taking distributions. Clients who fit into this category will generally be in at least fair health with few long-term medical concerns, will not have an immediate need for the funds in the retirement account, will not have any immediate planning needs requiring them to reduce their assets, and will not have any alternative investment opportunities that promise a higher return on investment.
This “do nothing” option is a bit of a misnomer in that doing nothing will still result in distributions. Specifically, once an individual reaches a certain age, he is required to take a set distribution referred to as a “required minimum distribution” or “RMD.” Per the IRS, RMD rules “apply to original account holders and their beneficiaries” for various types of retirement accounts, including traditional IRAs, SIMPLE IRAs, 401(k) plans, defined contribution plans, and others. Retirement Topics—Required Minimum Distributions (RMDs), IRS.gov (last updated Dec. 8,
2022), https://bit.ly/40UAeAZ. Notably, although Roth IRAs do not have an RMD requirement for the original account holder, beneficiaries of a Roth IRA are required to take RMDs.
When clients elect the “do nothing” option, it should still be an informed choice. Specifically, it should be a signal that, after careful consideration, they are comfortable where they are in terms of total assets, they have sufficient income from other sources, and they want to allow their retirement account more time to grow. Some clients lean toward the “do nothing” option because they do not fully understand the vehicle in which their assets are maintained or are afraid of what happens if they do something. It is the attorney’s role to make sure the decision to do nothing is carefully considered and appropriate for that specific client.
Another option that is not discussed frequently enough is the opportunity for the client to continue her retirement account contributions. Of course, there are specific rules attached to this strategy, though Roth IRAs provide some additional flexibility. One such rule limits contributions to a retirement account after retirement to those made from earned income as opposed to distributions from other retirement vehicles, annuities, and the like. Additionally, the client is still constrained by the applicable annual contribution limits. Retirement Topics—IRA Contribution Limits, IRS.gov (last updated Dec. 21, 2022), https://bit.ly/40TuYgV. Specifically, the client’s earned income must be equal to or greater than the amount contributed in a given year. Contributions in excess of the earned income requirement are considered “excess” contributions and result both in a penalty and the inability to deduct the amount in excess of earned income.
Publication 590-A (2021), Contributions to Individual Retirement Arrangements (IRAs), IRS.gov (last updated Feb. 22, 2022), https://bit.ly/3Yu7IEP (“Tax on Excess Contributions”).
Clients who elect to fund their retirement account even in retirement are
Some clients lean toward the “do nothing” option because they do not fully understand the vehicle in which their assets are maintained or are afraid of what happens if they do something.
often those who have a more comfortable income stream coming in each month and do not foresee a need to access the funds in the near future, opting instead to watch these additional funds grow. Because these clients are not looking for immediate access to the funds and they want time for their additional investments to mature, it is important that they think critically about the current status of their physical and mental well-being and how it projects into the future; good health is important when electing this option. One final, but crucial, element to this option is a source of earned income to contribute because, without it, continued contribution isn’t allowed.
For some clients, their financial needs are immediate, and they need access to their funds quickly. Typically, these clients are driven by factors not directly tied to the financial performance of their retirement account but rather external factors necessitating additional liquidity. Such external factors often relate to treatment for a serious or chronic medical condition or the care related thereto.
It is important for clients considering a cash out option to carefully deliberate before deciding to move forward because there are significant financial downsides to doing so. Specifically, if the client hasn’t reached the age of 59½, he will be forced to pay a penalty tax on the withdrawal in addition to paying any taxes on the distributed funds. This can have the effect of wiping out a large portion of the market gains earned on the retirement account contributions and should be done with extreme caution, particularly with retirement accounts containing significant dollar figures.
Because clients considering this option are often operating from an emotional place (a pressing need for money is emotionally taxing), it is crucial that the attorney clearly explain the financial risks associated with liquidation and explore any available alternatives. For example, if a client’s financial need is dire yet temporary, the client could consider borrowing from her retirement
account and returning an amount equal to that withdrawn within 60 days in order to avoid penalties.
One final option (for purposes of this article) is a rollover. But before discussing what a retirement account or retirement plan could be rolled into, it’s important to provide further detail on what a rollover entails. Specifically, it is important to understand how a rollover occurs.
Generally speaking, there are three ways that funds in an existing retirement account can be transferred to another account: (1) via direct rollover; (2) via 60-day rollover; and (3) via transfer. Rollovers of Retirement Plan and IRA Distributions, IRS.gov (last updated June 16, 2022), https://bit.ly/3lAq4W1. A direct rollover involves the transfer of a retirement plan directly from one financial institution (the one holding the original account with the funds) to another financial institution (the one holding the newly funded IRA). A 60-day rollover involves the funds from the original retirement account being distributed to the client, who is then charged with using the funds to fund the new retirement account within 60 days (as the naming convention would suggest). Similar to the direct rollover, a transfer involves the movement of funds directly between financial institutions. In the case of a transfer, this typically involves transferring the original retirement account to a new retirement account.
When choosing between a direct versus 60-day rollover, the attorney should consider the client’s level of financial sophistication and ability to facilitate somewhat complex financial transactions. If a client is unfamiliar or uncomfortable with moving significant amounts of money between accounts, a direct rollover or transfer, depending on the original plan type, will likely be most appropriate. A more sophisticated client, however, should be able to accomplish the rollover indirectly within the 60-day timeframe.
Before advising a client, even a sophisticated client, to jump headlong
into a 60-day rollover, it is important that the client understand the legwork required. First, 60-day rollovers involve a significant amount of coordination among the original financial institution, the fund administrator, and the new financial institution. Second, “rollover distribution” rules add a layer of complexity to the transaction, not to mention of the tax implications that are outside the scope of this article. Third, clients must ensure that the funds distributed to them from the original account are reinvested in a timely manner—within 60 days—to avoid penalties. Fourth, only one rollover is allowed in any 12-month period.
But what’s the benefit of a rollover or transfer anyway? Put simply, control. When a client funds his retirement account through his employer, he is limited to the options available through that employer’s plan. After leaving the workforce, the client may wish to move his funds to another account administered differently. These differences in administration can include the availability of more diverse investment options, the ability to modify the portfolio’s makeup with increased specificity, and the ability to identify a retirement account with lower fees.
The options outlined in this article are not the only options available to estate planning and elder law attorneys and their clients. There are also many layers of complexity that can be added to the base fact-pattern, such as rules related to inherited retirement accounts, frequent legislative and regulatory changes, and changing economic winds.
The options outlined in this article do serve as a high-level primer on the topic of retirement accounts and issues related to the practice of elder law and estate planning. This information is not the end of the journey but the beginning. In this way (and only this way), this discussion is like Mr. Franklin’s soothsaying on the topic of our republic, with there being a “promise it will be durable” while leaving room for uncertainty. Well, except for death and taxes. n
Temporary tenancy agreements, better known as “pop-ups,” have become quite common over the past decade. These “pop-ups,” or short-term retail leases or licenses, have morphed from one-week sample sales to short-term tenancies, often for a period of up to one year. Many of these agreements have all the features of a long-term lease, such as cancellation rights, buyout provisions, and extension provisions. As online sales have eclipsed in-store retail sales, brick-and-mortar stores have struggled. This transition to “e-tail” has left many storefronts vacant. Property owners view pop-ups as an excellent opportunity to optimize the value of those empty retail spaces. Likewise, pop-ups are an elegant solution for successful online retailers considering a brick-and-mortar store or hoping to increase their brand profile. Pop-ups are a valuable way for a retailer to assess the demand for their products and concepts, with minimal risk. Often the landlord and tenant do not want to commit to a long-term lease as a new or online retailer is an unknown commodity, with no track record or history of brick-and-mortar retail sales. Pop-ups have proven to be a win-win proposition despite, or because of, their flexibility. The growth of pop-ups has spawned an entire industry of intermediaries matching property owners and prospective shortterm tenants. Because of the short terms and often shared floor space, pop-ups are often licenses rather than short-term leases.
Pop-ups offer many advantages to property owners or landlords. Landlords can generate revenue from short-term licenses or leases while they wait for a desirable long-term tenant, the market rent to rise, or a zoning change ruling.
Landlords can now reach small businesses seeking to use space for the short term. This new pool of prospective popup tenants available to landlords often consists of small businesses previously priced out of retail leasing. Landlords offer these pop-ups below-market rent in exchange for having the right to terminate or buy out the license and quickly evict if a desirable long-term tenant comes along. Another advantage is that these pop-ups, usually via a license agreement versus a lease, are more straightforward to negotiate and therefore involve lower transaction costs.
The rash of empty storefronts was a blight throughout the pandemic and caused decreased foot traffic for those businesses that survived. Retail spaces look better when occupied. Pop-ups for mixed-use commercial and residential properties are revenue-generating and enhance home values. Sometimes commercial properties have adjacent areas where a long-term tenancy would not be viable. A series of pop-ups in that space would allow landlords to capture that lost revenue. As stated above, retail spaces look better when occupied.
Pop-ups with unique experiential ideas in this competitive diminished retail environment are valuable. These buzzed-about concepts may be impractical for a long-term commercial lease but ideal for a pop-up. Landlords of pop-ups must, however, be careful to avoid being seduced by a trendy, high-profile tenant. Property owners or landlords should narrowly define the purposes for which the tenant or licensee may use the premises. A short-term tenant or licensee has no long-term investment in the property’s reputation. The landlord must ensure that the pop-up tenant does not install inappropriate signage, unsightly fixtures, or worse. For this reason, landlords should include strong indemnification provisions (and personal guaranties) to protect against liabilities resulting from the failure of the tenant to comply with the landlord’s or a municipality’s requirements. If a large store or chain operates this pop-up, the landlord may get a guaranty from the parent corporation. By contrast, the landlord may waive a
guaranty if a large, established retailer is a desirable tenant.
Landlords should always have unfettered access to the space, provided the landlord does not unduly interfere with the licensee’s business. A license agreement should not include a covenant of quiet enjoyment. Pop-ups are short-term agreements, and the landlord still bears the risk of the long-term overhead on the space and must maximize the building’s rental stream. The landlord must maintain a flexible portfolio of tenants. Landlords can do this by negotiating clauses giving them the right to relocate or buy out pop-up tenants. The landlord should consider where pop-ups are located within a shopping center to ensure they enhance the aesthetics of the shopping center or its long-term tenants.
pop-up tenant. A standard pop-up operates on a razor-thin profit margin and must anticipate its rent costs at the outset of its term.
Because the landlord is building its expenses into the base rent, it should include caps on utilities in the space. The agreement should address whether the tenant will have specific requirements, such as using excessive electricity or water.
An alternative rent model common in pop-ups is base rent plus a percentage of revenue. Many pop-ups derive revenue from online sales, which take more work to track. If the pop-up is primarily a showroom, the landlord could also request a portion of online sales while the pop-up operates instead of gross in-store sales. This rental arrangement also benefits the
As well as “testing the waters” of a store presence, pop-ups can open near noteworthy events such as art fairs or seasonal attractions. Pop-ups can experiment with a novel, memorable, or offbeat venue to attract the increasingly jaded consumer. When doing this, however, pop-ups must consider the space’s zoning for retail use. When a pop-up tenant leases vacant premises, the space may lose any grandfathered zoning status. Online tenants must include accessory use of the space in their use clauses for online retailer pop-ups: These often include an area for returns, shipping of omnichannel goods, alterations of clothing, and a delivery hub.
Landlords should also review the exclusivity provisions in their existing leases to prevent a breach of those restrictions.
Most importantly, a short-term rental license agreement must provide that the rights granted to the licensee do not run with the land or constitute a possessory interest in the real property. The license agreement should contain language such as the following: “The Agreement granted as a result of this is a non-exclusive license for the licensee to use the licensed Premises solely as required to perform its obligations hereunder, revocable according to the terms hereof.”
Landlords should calculate common area maintenance (CAM) charges or additional rent for space for pop-ups and then build these costs into the base rent—passing through taxes and CAM charges as additional rent to a pop-up tenant is not practical. Just as impractical as it is for the landlord to apportion these costs over a brief period, it is not desirable for the
pop-up because the landlord shares the risk in their venture. Online tenants must negotiate use clauses for online retailer pop-ups: including an area for returns, shipping of omnichannel goods, alterations of clothing, and a delivery hub.
A license agreement must have an arbitration clause. As the license does not convey a possessory interest, the landlord and tenant could not litigate a dispute in a landlord-tenant court. It would be purely a contract action heard by a trial court or arbitrator. Given the short duration of pop-ups, arbitration is the fastest and most cost-efficient method.
Most short-term leases or licenses will require that the tenant obtain and keep in full force and effect general commercial liability, property and worker’s compensation insurance with a licensed carrier. The coverage limits should be higher than in a long-term lease due to the untested, transitory nature of the pop-up.
Spaces designed for pop-up tenants or licensees are usually constructed as a “vanilla box” to facilitate the process of a quick turnover of the occupant. The tenant or licensee will have to take the space “as-is” in “broom clean” condition. The tenant or licensee generally makes no significant alterations to the premises. The landlord must make representations regarding building code compliance and the certificate of occupancy. A potential problem occurs when a pop-up tenant uses repurposed space previously zoned for office or manufacturing use and creates a pop-up store that makes the premises a “place of public accommodation.” This new classification could put a pop-up tenant on the hook for Americans with Disabilities Act (ADA) violations caused by their build-out, regardless of the short term.
The prospective tenant should obtain a copy of the landlord’s master lease if not renting directly from the property owner. When the rental agreement is a sublease from an existing tenant, the pop-up tenant must review the landlord’s sublease provisions to ensure compliance. The rental agreement should address whether the tenant’s plans will require consent from the landlord after the agreement’s execution.
If the chosen location has a history of complaints from neighbors, the tenant may be inheriting a problem. A pop-up tenant could face unanticipated hurdles— for example, even issues as mundane as municipal parking. If local stakeholders
Most importantly, a short-term rental license agreement must provide that the rights granted to the licensee do not run with the land or constitute a possessory interest in the real property.
raise objections, the new tenant must make the case to local authorities that the pop-up will not attract significant traffic.
A pop-up tenant with enough bargaining power may request an exclusive clause, preventing its landlord from renting to a competing business in the shopping center. If a pop-up is successful, the tenant may seek an option to extend the term—for example, in the case of a shared space such as a food hall— and, especially in the marketplace or food hall concepts, a move to a larger or more prominent location.
Landlords may insert a provision that requires the tenant to maintain and repair the premises. This language could require the tenant to repair lighting, heating, plumbing fixtures, or an HVAC system. If the pop-up tenant makes no significant alterations to the premises, the tenant should object to this language. Pop-ups frequently have inadequate resources to manage these issues if something breaks down during their tenancy. If there is a need for a repair, usually only the landlord’s super or maintenance staff can take care of it. A pop-up licensee is a lower priority for the landlord than the landlord’s long-term tenants. The pop-up tenant should negotiate that the landlord agrees to “maintain, repair, and replace” building systems on an expedited basis.
Many short-term tenancies are better suited to be license agreements. License agreements have become standard for a broader range of uses, including (a) fashion pop-up or brand-building experience; (b) master lease of space with multiple units, often underutilized commercial or retail spaces; (c) food court; (d) billboard or telecom use; and (e) joint ventures or synergistic businesses, where physical proximity to others is deemed beneficial to promoting their respective business objectives.
There are three popular ways to organize a pop-up: The first involves leasing a space whose last tenant had a similar use; the second calls for renting out a portion of a current tenant’s premises footprint; and the third is taking over a nonzoned use, such as a warehouse. As
heretofore discussed, the third option is the least attractive to pop-ups looking for a weeks- or months-long tenancy as getting municipal approvals will take significant time.
As licenses become more common, attorneys drafting short-term rental agreements must consider whether a court will interpret the document as a lease or license. For example, courts in New York look beyond the title of a document to define it. An agreement labeled a lease will be treated as a license if it has more of the elements of a license, and vice-versa.
The Supreme Court of Putnam County, New York, ruled in Zaslansky v. Zakkaya L.L.C., 41 N.Y.S.3d 722 (2016), that a tenancy agreement was a license, not a lease. The plaintiff was being evicted and sought an injunction available only to lessees. The court, however, carefully weighed factors such as whether the contract revocation was contingent on a default, access limitations, relocation rights, and control issues and found that the agreement was a license, not a lease. The court denied the injunction despite explicit language labeling the document a lease.
The Supreme Court of New York, Appellate Term, Second Department, in JCF Assoc., LLC v. Sign Up USA, Inc., 101 N.Y.S.3d 700 (2018), indicated that it was disregarding labels and terminology in the agreement. This case involved a billboard. It is standard practice to refer to billboard agreements as “leases,” the parties as “Lessor” and “Lessee,” and money paid as “rent.” The landlord had filed a holdover proceeding to evict. As the agreement was revocable by the landlord, the court (and the appellate court) found that the agreement was a license, not a lease, and the parties had not established a landlord-tenant relationship.
Courts frequently look at the equities of a situation when making decisions. In Blenheim LLC v. Il Posto LLC, 827 N.Y.S.2d 620 (Civ. Ct. 2006), the Civil Court of the City of New York County considered a lease provision making a restaurant’s license to use vault space revocable at will. The court concluded that the landlord knew the tenant needed the vault for its compressors, water heaters, and
elevator machine equipment. The vault space was necessary for the tenant to use the premises as a restaurant and, therefore, irrevocable. Accordingly, where the lease is dependent on a license, a court might equitably rule that the ancillary license has the same protections as the lease.
Pop-ups must adhere to the same employment laws as long-term licensees or lessees. A pop-up’s temporary status may relieve it from some labor obligations, such as the Family and Medical Leave Act, as there will be no long-term employees. The pop-up will remain subject to other employment mandates, such as minimum wage laws and workers’ compensation. It is essential for the popup to have a system and policy to record workers’ hours. It is easy to lose track of your employee’s overtime hours and easy to run afoul of the wage-and-hour laws.
Although pop-ups frequently operate on a shoestring budget, creating corporate entities is essential. Pop-up tenants should set up a limited liability company or corporation with a business license to protect them, because the same liabilities exist as would in a long-term lease.
Tenants should apply for municipal permits and approvals required for their intended use as soon as possible. Depending on the nature of a tenant’s use, it may be necessary to coordinate inspections by the local fire department, local health department, or state liquor authority. Suppose the pop-up has outdoor space or encroaches on public land. In that case, the tenant may need community board approval. If there is a critical popup event, such as a concert outside, the tenant should have insurance for special events and weather coverage.
Setting up a pop-up can be just as expensive and time-consuming as a permanent store, with insurance, equipment, payroll, and advertising costs. Delays could jeopardize the profitability of the entire venture. There are now companies that can be retained by pop-up tenants to secure the space and provide other services to quickly get the pop-up tenant up and running. These services include design of the space with fixtures or furniture provided, setting up the internet, having signage designed and installed, and hiring and training staff. Some of these companies sign license agreements with the landlord and then further license the space to the pop-up client.
Overall, retail use clauses are becoming increasingly broad to accommodate “customer experiences” in line with the vision
or branding of the tenant. Pop-up tenants would be wise to vet their ideas with an intellectual property lawyer in the zeal to attract attention. For example, a pop-up that featured McDowell’s, the McDonald’slike restaurant in Eddie Murphy’s Coming to America, was sued by Paramount Pictures for copyright infringement. The pop-up’s operators argue that it is a fanmade parody. They may succeed, but most pop-ups do not have such litigation costs in their budget.
The pop-up’s appeal to landlords is the agreement’s buyout and recapture features. Pop-up tenants should be aware that licenses are, by definition, easily revocable by landlords. Suppose a pop-up tenant in a shopping mall spends a significant amount on an experiential concept and is later relocated or evicted. In that case, the agreement should provide that the landlord reimburse the tenant for an unamortized portion of the build-out cost. A shorter term and less costly buildout would lower buyout costs for the landlord.
In pop-ups, both landlord and tenant usually want flexibility. If a tenant wants to surrender the premises before the end of the term, the landlord may be amenable to it. The landlord may quickly recapture and remarket space. But suppose a pop-up tenant fails to surrender the premises on the termination date. In that case, the tenant should hold the landlord harmless from all damages resulting from their failure to surrender the premises, including, without limitation, claims made by a succeeding tenant. Landlords frequently include high holdover punitive penalties in pop-up agreements because the benefit of the bargain for landlords is the short-term aspect of the tenancy.
Landlord-tenant courts give substantial protections to tenants, even commercial tenants. An eviction of a tenant holding a lease can be an expensive, technical gauntlet of the legal process. Terminating a pop-up license entitles the property owner to engage in self-help— i.e., turning off utilities. Courts recognize the need for property owners to have this drastic remedy. The pop-up tenant should also have the right to self-help to
cure any landlord defaults at the landlord’s expense.
In food halls or shared retail spaces, a problematic licensee can be disruptive. Landlords should attach a copy of the underlying lease as an exhibit to the license agreement to avoid plausible deniability of specific terms, restrictions, and obligations.
Licenses are per se revocable. If the landlord is itself a licensee, the parties must negotiate specific language as to whether a Master-License Agreement (MLA) or Sub-License Agreement (SLA) controls. An example of such language in the MLA is:
Although this agreement and each Sub-License Agreement (SLA) executed pursuant hereto is a license and that a license is normally revocable at will by the Licensor, the parties hereto agree that the License granted by this agreement and each applicable SLA is not revocable at will and that this agreement, and any applicable SLA, can be terminated only per the provisions of this agreement or as a result of a default existing beyond any applicable notice and cure period outlined in this agreement or otherwise as ordered by a court of competent jurisdiction.
Upon expiration of the term, the tenant shall surrender to the landlord the licensed premises in good condition (except for ordinary wear and tear) and will have the right to remove all the tenant’s equipment and trade fixtures installed in the licensed premises. The licensee shall perform all necessary repairs caused by removing these items.
The evolution of pop-ups has permanently disrupted the retail rental market. These short-term rental agreements are here to stay. Regardless, attorneys should not be lulled into a false sense of security by the short terms and lower build-out costs. Pop-up agreements should receive all the same considerations as a longterm lease. n
Conference attendees will have private access to the only national museum devoted exclusively to the documentation of African American life, history, and culture, with over 40,000 artifacts.
By Mark R. Parthemer
On December 29, 2022, President Biden signed into law the omnibus spending bill. A key aspect of the Consolidated Appropriations Act, 2023, is funding the federal government. But with a total of $1.7 trillion of spending, much more is included in this law, which spans 4,126 pages. (For context, this is more than three times longer than War and Peace, first published at 1,225 pages.) We explore only one component, the SECURE Act 2.0.
There are significant and taxpayer-friendly changes to retirement plans through what is referred to as the SECURE Act 2.0. It is a combination of three bills from early in 2022, none of which became law: the Securing a Strong Retirement Act of 2022, introduced in the House, and The Enhancing American Retirement Now Act (EARN) and the Retirement Improvement and Savings Enhancement to Supplement Healthy Investments for the Nest Egg Act (RISE & SHINE), both introduced in the Senate.
R. Parthemer is the Chief Wealth Strategist and Head of Florida at Glenmede Trust Co.The new SECURE Act 2.0 builds upon the 2019 Setting Every Community Up for Retirement Enhancement Act, known as the SECURE Act. The original SECURE Act was part of the Further Consolidated Appropriations Act, 2020.
There are many changes and new provisions in the SECURE Act 2.0. Here are 10 highlights, some of which will take effect in 2023, others in later years, as detailed below.
1. Required minimum distributions (RMDs):
a. The age to start taking RMDs increases to 73 in 2023 and 75 in 2033.
b. The penalty for failing to take an RMD will decrease from 50 percent to 25 percent of the RMD amount and, for IRAs only, down to 10 percent if corrected in a timely manner.
c. RMDs will no longer be required from Roth accounts in employer retirement plans.
2. Qualified charitable distributions (QCDs) of up to $50,000 can be made to charitable remainder annuity trusts, charitable remainder unitrusts, and charitable gift annuities.
3. Student loan payment matching allows employers to “match” employee student loan payments with contributions into a retirement account.
4. Automatic 401(k) and 403(b) enrollment for employees will be the default unless they opt out.
5. Catch-up contributions for those 50 and over will be indexed for inflation and there will be enhanced catch-up provisions for individuals ages 60–63.
6. Defined contribution retirement plans will be able to add an
emergency savings account associated with a Roth account as well as a Saver’s Match for lowerincome earners.
7. A limited withdrawal penalty exception is created for emergencies.
8. Roth matching will be permitted at the option of the employer.
9. 529 plan rules are changed to permit transfer of up to $35,000 into a Roth IRA when the plan is over 15 years old.
10. A new Retirement Savings Lost and Found searchable database will be established for 401(k) and pension plans.
Congress has recognized the value of retirement savings, as well as the fact that many of the original rules for individual retirement accounts (IRAs) deserve updating. After all, the first law establishing IRAs was in 1974. Following is an exploration of each of these 10 changes in greater detail.
The SECURE Act 2.0 delays the triggering age for RMDs, that is, the year in which one is required to begin taking minimum distributions from a taxadvantaged retirement savings account. Currently, the mandatory age to begin making withdrawals is 72 (under the SECURE Act, it changed from 70½ to 72). Starting January 1, 2023, the mandatory age will change to 73; in 2033, it will be 75.
Two important things to think about:
• If you turned 72 in 2022 or earlier, continue taking RMDs as scheduled.
• If you’re turning 72 in 2023 and have already scheduled your withdrawal, you may want to reconsider your plan.
Starting in 2023, the steep penalty for failing to take an RMD will decrease from 50 percent to 25 percent of the RMD amount not taken. The penalty will be further reduced to 10 percent for IRA owners if the account owner withdraws the RMD amount previously not taken and submits a corrected tax return in a timely manner.
• Roth accounts in employer retirement plans will be exempt from the RMD requirements starting in 2024.
• Beginning immediately, in-plan annuity payments that exceed a participant’s RMD amount can be applied to the following year’s RMD.
Planning consideration: Consider when to take your first RMD, as the law permits you to defer the first payment until April 1 of the second year. For example, if you turn 73 in 2024, you can either take your first RMD by December 31, 2024, or delay until no later than April 1, 2025. But if you delay your first RMD to April 1, 2025, you will pay tax on two RMD distributions in 2025—your first by April 1, 2025, to satisfy the 2024 required withdrawal and the second by December 31, 2025, to satisfy the 2025 required withdrawal. This stacking of income in 2025 could have an adverse effect on your tax bracket and other tax attributes.
Under existing law, an IRA owner age 70½ or older does not have to pay tax on up to $100,000 of QCDs per year. These can be made with voluntary withdrawals as well as with RMDs. To qualify, the QCD must be paid directly to a qualified charity (accomplished by having the distribution check made payable to it). Donor advised funds, supporting organizations, and private foundations are not qualified charities.
Beginning in 2023, people age 70½ and older may elect as part of their QCD limit a one-time gift up to $50,000, adjusted annually for inflation, to a charitable remainder unitrust, a charitable remainder annuity trust, or a charitable gift annuity. (Note that these funds cannot be contributed to any such vehicle funded with non-QCD dollars.) This amount counts toward the annual RMD, if applicable. Similarly, these QCDs must be paid directly to the recipient vehicle.
Starting in 2024, employers will be able to “match” employee qualified student loan payments with matching payments to a retirement account. Qualifying payments are those made to a qualified education loan that was incurred by the employee to pay qualified higher education expenses, as defined in the Higher Education Act of 1975. Employers are permitted to rely on a certification by employees that the debt qualifies.
If an employer wishes to permit such matches, the plan must provide for them. Also, matches must be nondiscriminatory and must vest in the same manner as elective deferrals.
Matches cannot exceed the employee’s annual contribution limits.
Starting in 2025, employers establishing a new 401(k) or 403(b) retirement savings plan must have default automatic enrollment for all employees (subject to their eligibility). The initial contribution must be at least 3 percent but not more than 10 percent of pretax earnings. Plans also are to provide for an automatic annual increase after the first year of participation of 1 percent per year until the contribution is at least 10 percent of the employee’s compensation, but not exceeding 15 percent.
Employees may opt out of making contributions or elect to have contributions made at a different percentage.
Small businesses with 10 or fewer employees and businesses that started
less than three years ago would be exempt.
The Act permits retirement plan service providers to offer plan sponsors automatic portability services, transferring an employee’s retirement accounts to a new plan when they change jobs. The change could be especially useful for savers who otherwise might cash out their retirement plans when they leave jobs.
Expanded IRAs: Qualifying individuals can contribute $6,500 in 2023 to a traditional or Roth IRA. This contribution limit is indexed for inflation. Persons 50 or older are entitled to make a $1,000 catch-up contribution. Previously, this $1,000 catch-up was not indexed for inflation, but it will be
starting in 2024. The adjustment will be rounded down to the nearest $100.
401(k) and other employer-sponsored plans: The 2023 contribution limit is $22,500, with a catch-up of an additional $7,500 for those 50 and older. Starting in 2025, individuals ages 60 through 63 years old will be able to make catch-up contributions up to the greater of $10,000 or 150 percent of the “standard” catch-up contribution. The $10,000 will be indexed for inflation starting in 2026.
One twist: Beginning in 2024, there will be an income limit that governs the type of account into which a catch-up contribution can be made. Those earning more than $145,000 in the prior calendar year will be able to make a catch-up contribution only to a Roth account in after-tax dollars. Individuals earning $145,000 or less will be exempt from the Roth requirement. Starting in 2025, the $145,000 income limit will be indexed for inflation but rounded down to the nearest $500.
Beginning in 2024, defined contribution retirement plans are able to add an emergency savings account that is a designated Roth account eligible to accept participant contributions for non–highly compensated employees. These are referred to as pension-linked emergency savings accounts.
Contributions are limited to $2,500 annually (or lower, as set by the employer) and the first four withdrawals in a year would be tax- and penalty-free. Depending on plan rules (set by the employer), contributions may be eligible for an employer match. In addition to giving participants penalty-free access to funds, an emergency savings fund could encourage plan participants to save for short-term and unexpected expenses. Upon termination of employment, the participant can roll the funds into another Roth. If a participant becomes a highly compensated employee, the account can be retained but no further contributions made into it. The $2,500 threshold is indexed for inflation beginning in 2025.
The change could be especially useful for savers who otherwise might cash out their retirement plans when they leave jobs.
The current Saver’s Tax Credit will be transformed in 2027 to a Saver’s Match. These changes apply to lowerincome-earning participants. Under the Tax Credit program, a credit on the participant’s tax return of up to $1,000 ($2,000 if married) is given as a match to plan contributions by 10 percent, 20 percent, or 50 percent of the first $2,000 in contributions, with the percentage dependent on income and filing status. It is phased out based on adjusted gross income (AGI). In 2023, for example, it is eligible only for a married couple whose AGI is less than $73,000. Under the Saver’s Match, instead of a credit on the return, the federal government will make a contribution of the qualifying payments into the participant’s retirement plan (other than a Roth). An exception is if the match is less than $100, in which case it will be issued as a tax credit.
Typically, one pays a 10 percent penalty tax on a withdrawal from a tax-preferred retirement account before age 59½, unless meeting an exemption. The new act adds an exemption effective in 2024 “for purposes of meeting unforeseeable or immediate financial needs relating to necessary personal or family emergency expenses,” allowing withdrawals up to $1,000 penalty-free.
Only one distribution can be made every three years, or one per year if the distribution is repaid within three years. If the funds are not repaid within three years, however, penalties will be applied on withdrawals for another emergency for the same reasons.
Penalty-free withdrawals are also allowed for individuals who need the funds in cases of domestic abuse. These are limited to the lesser of $10,000 or 50 percent of the present value of the vested benefit. Also, penalty-free withdrawals may be made in the case of a participant’s terminal illness. Generally, under the tax code, someone is terminally ill if he has a life expectancy of 24 months or less; however, for this withdrawal exception, the expectancy is expanded to 84 months or less.
Unlike Roth IRAs, RMDs from an employer-sponsored plan are required until tax year 2024. Further, any employer match of contributions to an employer-sponsored Roth 401(k) goes to a regular 401(k) and thus is subject to RMD rules.
Under SECURE Act 2.0, beginning in 2025, employers will be able to provide employees the option of receiving vested matching contributions in Roth accounts. Previously, matching contributions in employer-sponsored plans were made on a pretax basis. Contributions to a Roth retirement plan under this match will be after-tax, but earnings still can grow tax-free.
Starting in 2024, funds in a 529 account that was opened at least 15 years before the date of distribution can be rolled into a Roth IRA account without current income taxation or penalty. These rollovers may be done multiple times but are subject to an aggregate lifetime limit of $35,000. Further, each distribution cannot exceed the aggregate amount contributed (and earnings attributable thereto) before the five-year period ending on the date of the distribution. Also, the rollover is treated as a contribution towards, and thus capped by, the annual Roth IRA contribution limit.
Within two years of the date of enactment of the SECURE Act 2.0, the Department of Labor is to establish a national database that is searchable to serve as a “lost and found” for 401(k) and pension plans. This will permit employers to locate “missing” participants as well as enable participants to more easily pinpoint where their retirement savings are located. Although the Department of Labor is instructed to work with the IRS on securing a participant’s personal information, participants are permitted to opt out of the database.
As shown in these sample provisions, the SECURE Act 2.0 makes sweeping and taxpayer-friendly changes to retirement accounts. We recommend employers and employees work closely with their tax advisors to best position themselves to navigate this new law.
The author takes sole responsibility for the views expressed herein and these views do not necessarily reflect the views of the author’s employer or any other organization, group, or individual. n
Part I of this article discussed federal conservation easement law generally and how the laws are supported by the legislative intent of conservation and preservation of our nation’s species and natural resources. See Elizabeth M. Hughes, How the US Tax Code Can Save Our Most Endangered Species, Part I, 37 Prob. & Prop. no. 2 (Mar./ Apr. 2023). Part I also explored how the proper utilization of conservation easements can be a critical and successful conservation tool. Part II of the article will delve further into the current legal landscape surrounding conservation easements and pitfalls to avoid when practicing in this area of the law along with some legislative proposals to help ease the most litigious areas.
The conservation of habitat for vulnerable species can be achieved by either “expanding the amount of public land set aside for conservation or by establishing conservation practices on private lands.” Peter Kareiva et al., Documenting
Elizabeth M. “Liz” Hughes is an attorney in Akerman’s Tax Group in Miami, Florida. She represents clients in all aspects of trust, estate, and guardianship litigation. She currently serves on the Board of Directors for the Miami Dade Bar and is the immediate past Chair of the Probate and Guardianship Committee. Hughes is a Vice Chair of the Guardianship Committee and sits on the Executive Council of the Real Property, Probate, and Trust Law Section of the Florida Bar. She is a graduate of the Florida Fellows Institute for ACTEC.
the Conservation Value of Easements, 3 Conservation Sci. & Prac., no. 8, Aug. 2021, at e451. Many preservationists recognize that conservation easements are the better tool because they allow for the preservation of critical habitat yet allow private landowners to own, use, sell, and devise land subject to easement restrictions on a greater land area than is available in the public domain. With conservation easements, the land remains private but also protected in perpetuity for the purposes of conservation, allowing such easements to and serve as cost-effective strategies to preserve the land and maintain the natural ecosystem. Id. Because of the flexibility and advantages they provide to private landowners, conservation easements have become a prominent tool for protecting habitats, species, and, accordingly, biodiversity in the United States on otherwise private lands. Id.
It is now widely recognized that private land conservation is key in resolving the current nature crisis. As conservation easements have developed as an important tool for land trusts and government agencies to conserve private land in the United States, an abundance of success stories related to conservation easements have arisen. See Adena R. Rissman & Adina M. Merenlender,
The Conservation Contributions of Conservation Easements: Analysis of the San Francisco Bay Area Protected Lands Spatial Database, 13 Ecology & Soc’y 40 (2008), https://bit.ly/3EcBOEx. The use of conservation easements has grown dramatically since the 1980s, and they have shown to be critical particularly in the protection of grasslands, oak woodlands, and agriculture. Id.
Conservation easements have emerged in an environment that encourages voluntary and economic–based approaches to conservation. Id. Throughout the United States, protected land can be found on farmlands, forests, scenic view areas, waterways, historic sites, wetlands, and even golf courses. These protected lands are very frequently the landscapes that are some of the very best examples of the beautiful and varied environments our nation has to offer.
To date, the US Department of Agriculture (USDA) has banded with private landowners to protect more than 5 million acres of priority conservation land on grasslands, wetlands, and prime farmlands. Press Release, US Dep’t of Agric., USDA Recognizes 5 Million Acres Enrolled in Conservation Easements (Apr. 2, 2021), https:// bit.ly/3I5gZvM. Federal programs, such as the Agricultural Conservation Easement Program (ACEP), exist to help
private landowners and land trusts to protect habitats such as working farms and ranches, wetlands, and grasslands. See id. These programs have helped to make significant strides for US conservation goals.
Meaningful success stories of conservation easements abound. For instance, Natural Resources Conservation Service’s Wetland Reserve Easement Program has preserved wetlands in the Lower Mississippi River Valley by placing conservation easements thereon. See Nat’l Conservation Easement Database, https://bit.ly/3k10bOF. This area is an internationally significant floodplain and bird habitat. Id. The river valley is also home to sizable and diverse wetland habitats. The program has been successful in improving water quality and reducing flooding in the area—all of which increase and improve the habitat of the local wildlife, plants, and species that rely on the area for migratory purposes such as to roost and mate.
Another success story can be found in the Malpai Borderlands Group, which is a successful ecosystem organization and conservation effort that works to protect the land on the United States–Mexico border. See Tyler McIntosh & Hannah Rider, Case Studies, in The Road to 30: Private Land Conservation, Ctr. for W. Priorities (Nov. 11, 2020), https:// bit.ly/3jXNV1i. This is a very biologically diverse landscape. The region is home to the Chiricahua leopard frog, the jaguar, the New Mexico ridge-nosed rattlesnake, and many other threatened and endangered species. The private conservation efforts in this area started when the Nature Conservancy purchased a conservation easement on a large-scale ranch, the Gray Ranch, in 1990. See id. The Gray Ranch remains one of the largest conservation easements in the country; as one of only three easements over 200,000 acres, it is larger than some national parks such as Crater Lake, Zion, and Shenandoah. Id. The amount of conserved and protected land has grown to nearly two million acres and the land management team has written collaborative management plans for 19 listed species and facilitated numerous ecological monitoring
and research programs. See id.
Individual families also commonly utilize conservation easements to keep land in their families for generations. Private owners are able to maintain the land as working farms as they simultaneously protect the unique and important ecological features of the land. See id. One example of many is that of the Yust family ranch in northwest Colorado. Id. The family wanted to ensure that their land would remain a working ranch. They also wanted to protect the sagebrush habitat on their land that supports a large population of greater sage-grouse. The family placed a conservation easement on 995 acres of the Yust Ranch and accomplished both of their goals. Id.
Beyond the more traditional forms of conservation easements, “conservation development” has also grown as a new type of conservation. Conservation development is an approach to development that “prioritizes the protection of natural resources, open space, and agricultural lands.” What Is Conservation Development?, Planetizen, https://bit. ly/3S4oxDH. Conservation development allows for natural areas, open space, and agricultural space as a part of the overall design of a development. Id. Conservation developments attempt to preserve the natural habitat and condition of the land as much as possible, touting benefits such as protection of biodiversity, cleaner water, and a generally more sustainable approach to development. Id. This new concept of conservation has also spurred concepts such as “agrihoods.” These neighborhoods provide jogging and bird watching in protected land and highlight the conservation efforts of the neighborhood as a marketability point. Id.
Conservation easements have been subjected to heightened scrutiny of Congress, the media, and the Internal Revenue Service for many years. Tax scholars have called for reform around conservation easements to improve the laws. The reforms have focused largely
on legal, tax, and public policy aspects of conservation easements and have called for more standardization of easement documents, increased monitoring of compliance, third-party easement enforcement, and suggested modifications of tax benefits for easement donations. See Rissman & Merenlender, supra.
Nevertheless, in the current environment of increased inspection and enforcement relating to contributions of conservation easements, the legal landscape in this area has been filled with pitfalls, and it is important to be aware of which transactions (and which features thereof) may garner unwanted attention. See Shannon R. Jemiolo & Ian Redpath, The Benefits and Pitfalls of Qualified Conservation Contributions, 102 Tax Notes State, Prac. & Analysis, Nov. 8, 2021. Listed here are some areas to be aware of when advising clients with respect to conservation easements.
The IRS has been particularly focused on what are referred to as syndicated conservation easements (SCEs). What is an SCE? Essentially, a typical scenario that might garner scrutiny would be where an investor “purchase[s] an interest in a passthrough entity, which then contributes a grossly overvalued conservation easement encumbering the property to a qualified organization and then allocates a charitable contribution deduction to the investor.” Id. “After that contribution, the investor gets a passthrough charitable contribution deduction based on the grossly overvalued appraisal of the easement.”
Id. To further explain, a “‘syndicated conservation easement’ is basically an investment vehicle where pre-packaged conservation easements are marketed to investors with the representation that a charitable deduction will accompany the investment in excess of the amount invested.” Cory D. Halliburton, Syndicated Conservation Easements (and Other Tax Schemes) Beware, Freeman Law (Feb. 2, 2022), https://bit.ly/3jY4c6z; see also IRS Notice 2017-10.
The IRS further details the issue in
Notice 2017-10. IRS Notice 2017-10; see also Halliburton, supra. The Notice describes the problematic transaction as one where “promoters obtain an appraisal that purports to be a qualified appraisal as defined in § 170(f)(11) (E)(i) but that greatly inflates the value of the conservation easement based on unreasonable conclusions about the development potential of the real property.” The Notice explains that the IRS will seek to challenge the purported tax benefits from this transaction based on the overvaluation of the conservation easement. IRS Notice 2017-10; Halliburton, supra.
The IRS has also listed SCEs on the IRS’s “Dirty-Dozen” tax fraud schemes since 2019. See Jemiolo & Redpath, supra. The agency has made it known that it will place a priority on SCE transactions like these and will stringently enforce the law in this area. See News Release IR-2019-182, IRS, IRS Increases Enforcement Action on Syndicated Conservation Easements (Nov. 12, 2019), https://bit.ly/3EavQ6W.
Conservation easements have been described as “most efficient when the value of removed development rights is considerably less than the full value of the property.” Rissman & Merenlender, supra. In line with this concept, for many contributions of conservation easements, the most serious problems arise from valuation issues. See, e.g., Esgar Corp. v. Comm’r, T.C. Memo 2012-35; Butler v. Comm’r, T.C. Memo 2012-72.
When taxpayers undertake the due diligence required to determine the proper value of an easement, they will want to consider the Whitehouse III case. Whitehouse Hotel Ltd. P’ship v. Comm’r, 755 F.3d 236 (5th Cir. 2014). Whitehouse III is important because its application recognizes the difficulty in valuing conservation easements and provides a roadmap for taxpayers to consider when relying on professional advice. The Fifth Circuit held that “[o]btaining a qualified appraisal, analyzing that appraisal, commissioning another appraisal, and submitting a professionally-prepared tax return is sufficient to show a good faith investigation.” Id. at 250 If a taxpayer is concerned about the valuation of its conservation easement and the standard of making a good faith investigation into the value of the easement, it should keep in mind that it may rely on tax professionals to support its valuations. See id.; see also Frank Agostino, Anson H. Asbury & Ronald Levitt, Give It Away Now: An Update on Conservation Easements, Charitable Deductions, and Substantial Compliance (Part 2), 33 Prac. Tax Law., no. 3, May 2019, at 13, 14.
The increased popularity of conservation easements has produced much literature and litigation in this area. Some commentators laud the successes of easements and promote their significant benefit to nationwide conservation efforts. Others, however, warn of problems. There remain questions about the genuine ability to retain and enforce easements in perpetuity. In that vein, some scholars question whether the changed circumstances doctrine should apply to easements, as it is frequently used to terminate other restrictive covenants.
There is also discussion of whether the foreclosure of a pre-existing mortgage might eliminate a conservation easement. Or what if a hazardous waste spill occurs on land that is subject to a conservation easement—is the easement holder liable? How would a conservation easement be affected by adverse possession claims or eminent domain?
But even with the numerous areas to be wary of while advising clients on the proper implementation and continuation of conservation easements, there is an abundance of success stories describing situations in which easements have
served to protect habitats and threatened species very effectively, protection that is crucial to conservation efforts in the United States.
Declines in nature, native species, and healthy biodiverse environments are threats to the healthiness and vibrancy of ecological communities across the country. See Harvey M. Jacobs, Conservation Easements in the U.S. and Abroad: Reflections and Views toward the Future, 2014 (Lincoln Inst. of Land Pol’y, Working Paper No. WP14HJ1, 2014), https:// bit.ly/3I7ivhf. Habitat destruction, in particular, is driving the current extinction crisis. See Ryan Richards & Matt Lee-Ashley, The Race for Nature, How Congress Can Help Farmers and Ranchers Save Their Lands and Survive the Coronavirus-Induced Economic Crisis, CAP (June 23, 2020), https://ampr.gs/3I7dKnw. Minimizing habitat destruction is one of the most important tools for the conservation of at-risk species in the United States because “habitat loss negatively affects the population sizes of species and also the reproductive success of threatened species.”
Adam J. Eichenwald, Michael J. Evans & Jacob W. Malcolm, US Imperiled Species Are Most Vulnerable to Habitat Loss on Private Land, 18 Frontiers in Ecology & Env’t 439 (2020), https://bit. ly/3KsXSyT. It has been shown that reducing or reversing habitat loss is one of the most critical, if not the single most crucial, goal of conservation because habitat destruction is the primary cause of the loss of biodiversity in species. Id.
The problem with nature loss is more prevalent on private lands in the United States. More than 75% of the natural areas lost to development between 2001 and 2017 in the United States occurred on privately owned land. See Valerie Volcovici, U.S. Has Lost 24 Million Acres of Natural Land in 16 Years: Independent Report, Reuters (Aug. 5, 2019, 11:04 PM), https://reut. rs/3lxKZc5. Conservation researchers have noted that the habitat of threatened and endangered species is disappearing more than twice as fast
Conservation easements are one of the most effective tools available for conservation on private land as they motivate and empower private owners to act by providing tax incentives.
on unprotected private lands than it is on all federally regulated properties. Eichenwald, supra. Presently, although 26 percent of US ocean territory is protected from activities like oil and gas drilling, only “12% of U.S. land area has been conserved as national parks, wilderness areas, and other types of protected areas.” Volcovici, supra. The United States has a goal of protecting 30 percent of land by 2030. To achieve this goal, there needs to be an emphasis on conservation laws and strategies throughout the nation.
Conservation easements are a proven and efficient way to combat these problems. Luckily, the growth in conservation easement acres in the United States has accelerated over the past three decades. See Sabhyata Lamichhane, Trends and Drivers of Conservation Easements in the United States (Aug. 7, 2020) (M.S. thesis, Miss. St. Univ.), https://bit.ly/3YSS7yh. Conservation easements are one of the most effective tools available for conservation on private land because they motivate and empower private owners to act by providing tax incentives. Their use has successfully protected millions of acres of wildlife habitat and open space in the United States. As of 2020, it is estimated that more than 40 million acres nationally are preserved by conservation easements. This is more acreage than exists in all national parks in the contiguous 48 states. See id. Federal laws such as farm bills and the Endangered Species Act, along with federal and state tax incentives, are all credited with an increased implementation of easements. Id.
And while the existing policies and laws have effectuated a positive increase in easement implementation, there is still room for improvement. Commentators have summarized the issues well.
While encouraging the preservation of environmentally sensitive areas is an important legislative priority, the tax law has proven to be problematic. It has allowed for easements to be donated for property that was highly unlikely to
ever be developed, land with little conservation value, and in some situations the nonprofit entity that received the easement has a connection with the owner who got the tax break . . . or had little expertise in managing easements.
Ike Brannon, Amid IRS Overreach, Congress Has a Real Opportunity to Reform Conservation Easement Legislation, Forbes (June 4, 2019), https://bit.ly/3Eb5nGK. Legislative reform could make conservation easement law more effective and decrease the litigated aspects in this area of law—in turn, reducing the cost of these programs for taxpayers. For one, conservation easement law could be reformed to curb some of the typical avenues of misuse. Amendments to the current laws could specifically address the “promoters” that are involved in crafting tax shelters by using conservation easements. See id. Legislative changes could also address the issues related to inflated valuations related to several aspects of easements. Id. Inter alia, a simple solution could be proposed legislation that disallows charitable deductions when the amount of the deduction claimed exceeds a certain percentage of the total investments that would be attributable to the property that is subject to the easement.
Beneficial reform could also include
language to ensure that areas that have true conservation benefits are being preserved. Right now, the IRC contains somewhat general language about the “conservation purposes” required for deductibility. Conservation easement laws could be further improved to include specifications that capture the intended purpose of the law and ensure true conservation benefits for truly unique habitats for our endangered species. See K. King Burnett, John D. Leshy & Nancy A. McLaughlin, Building Better Conservation Easements for America the Beautiful, Harv. Env’t L. Rev. Online (Sept. 15, 2021), https://ssrn. com/abstract=3925094.
The IRC could also benefit from more stringent requirements regulating who can qualify as an eligible holder of the deductible easement. For example, confirming that the holder of the perpetual easement has the experience and financial solvency to maintain and enforce the easement would help to ensure that the conservation benefits are enforced over time. Id. Legislation of this kind would likely gain support on both sides of the aisle. Until then, we should continue to critically evaluate all approaches to conserving habitat and improve the areas with proven conservation success because it is imperative to safeguard our most threatened species in the country. See Eichenwald, Evans & Malcolm, supra. n
Since ChatGPT was released to public beta at the end of 2022, lawyers have been asking, “What will happen next?” You can tell ChatGPT to compose a legal brief, but therein lies the rub. How good is that legal brief, and is ChatGPT threatening my livelihood as an attorney? With ChatGPT, you can ask a detailed question and get an answer in written form. With a Google search, you get a search result with an “extracted text” response from the top search result, followed by a list of web pages ranked by relevance. By contrast, with ChatGPT, you get a comprehensive written answer but no citations and no links to web pages.
There have been disturbing reports that ChatGPT makes up stuff; that is bad news for lawyers whose stock in trade is credibility. Hallucination is the term used when ChatGPT makes an entirely unsupported statement of fact. According to an article published in the online magazine, Datanami, “Roughly speaking, the hallucination rate for ChatGPT is 15% to 20%.” The article continues: “So 80% of the time, [ChatGPT] does well, and 20% of the time, it makes up stuff.” See Alex Woodie, “Hallucinations, Plagiarism, and ChatGPT,” www.datanami.com, January 17, 2023. ChatGPT doesn’t reveal its sources. A first-year law student knows that a legal brief without accurate and verified citations isn’t worth the paper on which it is printed. Moreover, Chat does not “know” anything after 2021, when it stopped learning. ChatGPT is only a
Technology—Property Editor: Seth Rowland (www.linkedin.com/in/ sethrowland) has been building document workflow automation solutions since 1996 and is an associate member of 3545 Consulting® (3545consulting.com).
Technology—Property provides information on current technology and microcomputer software of interest in the real property area. The editors of Probate & Property welcome information and suggestions from readers.
glorified parlor trick that can provide helpful but unreliable information. So, is there a place now for ChatGPT and similar applications of artificial intelligence (AI) in law? Incidentally, there are reports that when ChatGPT is incorporated into the Bing search engine later this year, it will include footnotes linking to web pages that support the statements made in the “answer.” And indeed, the Bing implementation will include a crawler that keeps learning and is aware of current development.
As a legal technology consultant specializing in automated document assembly and workflow, I have long dabbled in automated intelligence. I review dozens of transactional documents to identify transaction changes in a typical consulting engagement. I translate those changes into simple English questions and decision points that mirror how a lawyer thinks about a transaction. Then, I organize those questions into an interview that can be presented to a junior attorney, a paralegal, or a client. Using business logic, I mark up document templates and load them into an online platform, be it XpressDox, ContractExpress, HotDocs, or PatternBuilder, which presents the interview to the end user. Then, as
if by magic, complex, highly accurate, and verified documents are produced in minutes.
AI is different. With AI, the computer is “fed” a few dozen, hundreds, or even thousands of documents. It reviews them, searching for linguistic patterns. AI needs to be trained, but unlike a dog, most AI engines already understand basic English. AI engines don’t yet understand English’s legal meaning or the law’s nuances. That is where the trainer builds a linguistic model so the AI engine can understand what it is reading and how the trainer wants it to respond.
AI engines are currently very good at identifying patterns and extracting data that is semi-structured. For example, an AI engine can read a lease and identify the landlord and the tenant. It does this by looking for the word “Landlord” in quotes and then stepping backward through the document to find the closest “entity,” which it determines to be the landlord’s name. An entity to AI is the name of a person or a business entity. The AI engine can then move forward through the document, noting other properties of that entity, such as the type of organization, where it is incorporated, the business address, and the authorized signatory. One can also train the AI engine to spot dates and numbers and identify what they are for from the context of those dates and numbers. A human might take five minutes to abstract a single lease; an AI engine can abstract 100 leases in five minutes. Initially, the human will more accurately identify the key provisions and who the parties are. Over time, with corrections by humans, the accuracy level of the AI will improve to the point that the human overseer is needed less frequently.
When we, in turn, ask the AI engine to construct a new lease based on those 50 models that meet our particular needs, the best current AI engine fails to deliver. It is constrained by what it reads and cannot extrapolate what you need from the source material without the risk of hallucinations (see above). Further, statistical biases from the source documents limit its creativity to inventing new linguistic constructs. A true understanding of why a provision was chosen differs from statistical probabilities that a particular legal provision should be used. AI engines are an aid for good legal drafting and not a replacement. The AI Lawyer HAL 9000 is a parlor trick, not a real threat.
In March 2023, I attended the ABA’s annual Tech Show conference in Chicago. At the meeting were several startup companies using AI technology to power their service offerings and some existing vendors who have added AI to enhance their software. In this article, I will look at some current approaches to using AI to change how lawyers deliver their services.
What I saw fell into five categories:
(1) the AI-powered contract abstracter, (2) the AI-empowered “virtual receptionist” and intake clerk, (3) the AI-enhanced litigation support paralegal team, (4) the AI-turbocharged research engine, and (5) the AI-adjacent contract reviewer and drafting assistant. AI technology, while disruptive, has not reached the level of HAL 9000, the “Heuristically programmed ALgorithmic computer” that powers a space station in Stanley Kubrick’s movie 2001: A Space Odyssey. AI engines are quite a long way from becoming Skynet, the self-aware computer system in the Terminator movies series, a network of computers built by Cyberdyne Systems that deemed humans a threat to its existence and sought to terminate the human race.
The obvious first use for AI is reading
and extracting information from legal and business documents. AI technology is now part of your Office365 subscription. For a modest extra fee, you can write an application that reads vendor invoices attached to incoming emails and automatically inputs your bills into a spreadsheet or your accounting system. With PowerAutomate tools, you can train the AI engine by uploading a few dozen invoices and marking on them where critical data is located: the invoice number, the name and address of the vendor, the amount owed, etc. YouTube videos and free all-day seminars teach you how to do this. See https://powerplatform.microsoft.com/ en-us/training-workshops/.
If you are a corporate counsel and need to review and manage hundreds of agreements, more powerful AI tools are optimized for reading and understanding legal documents. Someone else has taken the trouble to educate the AI engine to read and understand an agreement at the level of a paralegal or corporate contract manager. FoundationAI (www.foundationai.com) showed me a system that could pull several hundred similar agreements from a DMS like NetDocuments or iManage and spit out a report of parties, terms, and key provisions in short order. As Will Parkhurst, VP of Sales at FoundationAI, told me, contract managers whose sole job is reviewing contracts and producing spreadsheet reports don’t know they are already out of a job. With a proper model, the task of managing contractual relations just got a whole lot easier.
The data extraction can also be applied to something as unstructured as a user’s email inbox. With FoundationAI’s Extract Filer, users can train the system to tag, categorize, and file the emails and attachments that overwhelm a user’s inbox. It can even split large files into separately categorized PDFs and link the documents automatically to the correct matter. Along the way, it can capture essential information about each document.
Filevine (www.filevine.com) took another tack with AI for data extraction. They have an immigration law
module that fills out US Immigration and Naturalization forms. Much of the information required for these forms is written in a foreign language. Filevine added a module that takes images and documents provided by clients—such as birth certificates, marriage licenses, passports, and tax returns—first translates them, if they are not in English, and then extracts and labels the data. Once extracted and labeled, the client data (name, date of birth, etc.) is then stored in Filevine and can be used to auto-populate immigration forms.
iDox.ai (www.idox.ai) uses tools for entity extraction to identify confidential and personal protected information in documents. This information is restricted and must be redacted before disclosure to other parties, or the law firm could be liable. The redaction process is tedious and error-prone. iDox. ai will safeguard this sensitive data by auto-redacting entity information in documents. It looks for entity information and wipes it out for document production. Integrating with a document management system (DMS) like NetDocuments or iManage creates a new protected document version while preserving the original.
Another exhibitor, Wisedocs (www. wisedocs.ai), has focused on understanding medical records. These documents often appear to be written in a different language. Deciphering medical bills, costs, and adjustments can be challenging. Wisedocs trained its AI to understand medical records about legal claims. It can process hundreds of pages an hour. It can shorten turnaround in document review and de-duplicate the documents.
For personal injury attorneys, another venture, Truve (www.truve. ai), consolidates case information into a dashboard. Truve has a range of tools to manage insights into how your law firm is managed. An AI engine powers its case value estimator that pulls data from your CMS, CRM, and accounting systems. It will let you put a value on cases that consider multiple factors and rank the profitability of cases in the law firm’s portfolio.
Yes, she has a name—Amelia. OneLawAI.com has built a proprietary AI engine that replaces your receptionist and intake clerk. Amelia is your personal concierge. She is smart, learns quickly, and knows everyone’s calendar. She knows which clients you want to talk to and which clients you would rather send on to someone else. She has a pleasant voice, speaks in complete English sentences, and can simultaneously talk to thousands of people. She can answer your inbound calls, greet your website visitors, qualify leads, and make outbound client calls.
Not only can Amelia answer the phone and take messages, but she can ask questions and record the answers. If you are running an advertising campaign that drives potential new clients to your office, she can run through a series of questions to gather critical data from your callers. You design the script, and Amelia executes it flawlessly. Amelia can engage in a conversation, unlike the typical phone tree, which requires the user to punch in a series of numbers. If the interaction stresses the caller, Amelia can sense the caller’s frustration and route the caller directly to a live receptionist, someone in your office, or schedule a call back from a human. Amelia can work 24/7 and doesn’t charge for overtime.
Smith.ai was another automated reception service exhibited at ABA TechShow. SmithAI offers a bundled service that includes live agents working with AI to provide receptionist services 24/7. Like OneLawAI, the service can pull data from your calendar or practice management system for a better user experience.
Litigators have different needs than transactional attorneys, but they, too, can benefit greatly from AI. For litigators, AI engines enhance document, email, and video searches. Keyword and name searches in traditional eDiscovery tools are limited to full-word or partialword matches. To find all references to
“Alfred E. Neuman,” you would need a series of alternative searches for “Al,” “Alvin,” “Afred,” “Neuman, Al,” etc. With an AI-enhanced search, your search engine would automatically identify all variants and return them in the result set, including his childhood nickname of “Alfie.”
AI engines can provide a matrix of relations between documents and users, organized in a timeline using keywords and entity extraction. In addition, the newer AI engines can also search for concepts. Relativity is an eDiscovery engine that has technology-assisted document review (www.relativity.com). AI can weigh the value of documents on a scale from responsive to non-responsive to a given question. If you find a beneficial document to your case, you can ask the system to find “more documents like this one.” In addition, you can enhance the search with sentiment analysis that looks at tone and emotion in the document.
Most practicing attorneys have an associate, law clerk, or paralegal who does legal research for them. The attorney states a position or legal argument she wishes to make and sends her assistant to find legal support for that position. The assistant returns shortly with a list of legal citations and language supporting that position, case summaries, and some contrary cases. The LawDroid (www.LawDroid.com), Jurisage (www. jurisage.com), and CaseText (www. casetext.com) are AI-powered research assistants who do the footwork for you in seconds. Their droids are trained in case law. Using a chat interface, you engage in a dialog. Each system can find your supporting case law and provide case summaries.
LawDroid’s Copilot will answer research questions. It will first help you narrow down the issue and refine your search. Once done, it will help you draft emails, letters, and document summaries. These systems can write the first draft or fill in the legal argument to support a point. LawDroid’s AI engine was trained on cases stored in the Harvard
Law School’s Caselaw Access Project, which contains 6,930,777 unique cases from 612 federal and state case reporters. LawDroid Builder will let you design your own ChatBot for your website to engage with your clients and answer their questions, much like Amelia described above. This engine can showcase your law firm’s expertise and attract new clients.
CaseText offers a research engine that covers case law but can also research business history. The same tools that can answer questions about the law can also answer questions about your organization’s or clients’ contracts. It can evaluate unstructured data in the agreements and tell you which contain trade secret provisions or escalation clauses.
As a profession, our greatest fear is that robots will take over the legal drafting process; when they do, what will be left for us humans? Though there have been great strides in this direction, the first drafting products out of the gate are more akin to spelling and grammar checks. Picture a side panel in Microsoft Word. As you are drafting a brief, the side panel makes suggestions. If you like the suggestion, click on it, and it will be added to your document, whether it is a legal memorandum, a letter, an email, or a contract.
At ABA Techshow, I spoke to two vendors that offered drafting assistance software. Docgility (www.docgility.com) focuses on contracts. It converts them into a model and allows you to view similar provisions in multiple contracts side by side. You load the contracts into the system and identify the key concepts. Then, as you review the agreement, you can review similar provisions in other agreements.
Spellbook (www.spellbook.legal) appears in the side panel in Microsoft Word. As you highlight text in the agreement, it lets you cast a spell. The spell runs a search in the Spellbook AI engine and returns text to put into your document. You can describe what you want the language for, and it will find it.
Spellbook can also be used to analyze the contract. It can list key provisions and even explain the contract to a fiveyear-old. Depending on your goal, it can beef up a contractual provision or tone it down.
• Take time to understand the larger industry that your company is in, the legal issues that are most pertinent and unique to it, and outside resources that may be available (e.g., trade associations and specialized legal organizations).
Familiarize yourself with and (generally) follow existing practices while identifying areas for long-term improvement. During the first three to 12 months, you will become very familiar with existing (and sometimes longstanding) business practices, forms, templates, policies, etc. Unless something is clearly problematic or deviates notably from best practices, as a new inhouse lawyer it is best not to be overly critical. This is especially true for petty, stylistic, and non-substantive issues in
Chris Pearson, Director and Business Head of XpressDox (www.xpressdox. com), spoke at ABA Techshow on how AI will affect document automation. In his presentation, Pearson pointed out that AI tools have several hurdles to overcome before they become widely adopted. They need to prove themselves trustworthy, they need to demonstrate consistent results for similar inputs, and they need to guarantee confidentiality. And at present, they need to overcome lawyers’ resistance to change.
He points out that the bridge may be document assembly. The same tool that provides entity extraction can be reversed to markup documents for automation. AI can be used to identify all the data points in a model agreement and place the correct variable tag in the form. AI can review a set of similar agreements, present alternative versions of a contract clause, group them by concept, and allow the document assembly coder to assign business logic to decide which alternative clause gets used.
which changes could disrupt day-to-day business. Here are a few things to consider doing instead:
• As you identify critical and problematic shortcomings, bring them to the attention of your business colleagues and propose specific and reasonable solutions. You should not ignore shortcomings that could result in significant legal exposure to the company. If you have begun to build those internal business relationships (above), then these recommendations will likely be well received.
from similar inputs. And the data entered into these agreements would be confidential because the data would never leave the protected workspace surrounding the document assembly system.
processes to be more e cient or cost-e ective, and adopting and implementing revised policies and practices needed to better address a changing legal and regulatory environment.
• Identify and maintain a list of longer-term changes and needed improvements. These may include making substantive changes to or completely replacing standard forms, revising
In this way, AI can be used to turbocharge the development of document assembly templates. These templates would be trustworthy because the lawyers chose the model forms. Assembly of new agreements based on these templates would be consistent because the end user follows a dynamic questionnaire that produces consistent results
Pearson points out, “If we look back on history, automation has never cost jobs—although it has changed them.” The practice of law is ever-evolving. We need to embrace the bots while understanding their limitations. They will enable transaction attorneys to write better contracts, contract managers to better understand their portfolios, litigation attorneys to have more insight into their cases, and appellate attorneys to write better legal briefs. But they will not replace us. n
• When appropriate (e.g., maybe around the time of the one-year mark and review), rank your list of long-term matters and present them to your colleagues. Be prepared to justify the need for the changes, potential proposals to accomplish the same, and estimated timelines and costs.
Whether you are considering serving as in-house counsel, or just starting your first in-house position, the above information will help guide you in the right direction. ■
You are the attorney for a neighborhood association, and it has asked for your advice on an urgent problem. Unwanted land uses are planning to move into the neighborhood, including an adult-oriented book store, outdoor signs advertising tobacco, and a retail marijuana dispensary. The community is vehemently opposed because it believes that these uses may have harmful secondary effects, including increased crime, depressed property values, and an undesirable influence on children. The association wants to know what can be done through zoning to keep these uses out of its neighborhood, limit their number, or restrict their location.
There are many options for zoning locally unwanted land uses, commonly called LULUs. Site regulation can limit storefront characteristics such as lighting, outward-facing displays, and signage. These are traditional zoning regulations and are not controversial. Exclusion is a problematic and untested option. Density limitations can determine how many of these uses can locate in a neighborhood. Still, they can be challenging and raise free speech problems when applied to uses protected by the free speech clause of the federal constitution.
Spacing is a frequently used but not well-known zoning alternative that functions as a density limitation. It typically requires a minimum distance between unwanted land uses or a minimum distance from susceptible uses, such as schools, or both. Spacing is intended to prevent the harmful secondary effects
that undesirable land uses are supposed to create by limiting their concentration and location. An example is a requirement that adult-oriented uses must be spaced at least 1,000 feet apart to disperse secondary effects, such as crime. Another example is a requirement that marijuana dispensaries must be located at least 500 feet from schools so that they will not influence children to use marijuana.
Spacing in zoning ordinances is an impromptu zoning strategy. It is not usually included in comprehensive plans and is an afterthought in zoning codes. Unless spacing prevents harmful external effects, it does not serve the traditional zoning function of separating harmful uses from each other. The argument for spacing is that it contains harmful effects by preventing the overconcentration of harmful uses or avoiding harmful effects on susceptible uses.
Spacing is a common strategy for adultoriented uses to prevent these uses from creating harmful secondary effects. In City of Renton v. Playtime Theatres, Inc., 475 U.S. 41 (1986), the US Supreme Court held that a spacing requirement that prohibited adult motion picture theaters from locating within 1,000 feet of a residential zone, single-family or multiple-family dwelling, church, park, or school was not a violation of free speech.
districts, and the quality of urban life,’ not to suppress the expression of unpopular views.” Id. at 45.
City of Renton decided that spacing is an appropriate remedy for the secondary effects of adult-oriented uses, which can be accepted, assuming that preventing secondary effects preempts free speech objections. The difficulty is that the Court’s decision is undercut by studies of the secondary effects of adultoriented uses, which have failed to prove that they exist, although one court rejected these studies. Dr. John’s, Inc. v. City of Roy, 2007 WL 1302757, at *7-*10 (D. Utah May 2, 2007), aff’d sub nom. on other grounds, Dr. John’s v. Wahlen, 542 F.3d 787 (10th Cir. 2008).
City of Renton also considered another free speech argument, that the ordinance violated free speech because it did not leave reasonable alternative avenues of communication open for adult-oriented uses. The Court rejected this argument because more than five percent of Renton’s land area was available for adult theater sites. The Court did not consider whether spacing was invalid because it created an unacceptable quota on adult-oriented uses by limiting the number allowed in the city.
The Court avoided a decision that the spacing requirement violated free speech by holding that it was aimed not at the content of films shown at the theaters but at preventing the undesirable “secondary effects that the theaters had on the surrounding community.” Id. at 44. The Court concluded spacing was “designed to prevent crime, protect the city’s retail trade, maintain property values, and generally ‘protec[t] and preserv[e] the quality of [the city’s] neighborhoods, commercial
The Supreme Court later held that a similar spacing requirement for tobacco advertising was justified under the free speech clause. Still, the Court struck it down because it excessively limited outdoor advertising for these products throughout the state. In Lorillard Tobacco Company v. Reilly, 533 U.S. 525 (2001), a Massachusetts statewide regulation prohibited on-site and off-site advertising for smokeless tobacco and cigars within a 1,000-foot radius of a public playground in a public park, an elementary school, or a secondary school. Its purpose was to restrict smoking by children under the legal age by preventing access to these products by underage consumers.
The Court relied for its decision on Central Hudson Gas & Electric Corporation v. Public Service Commission, 447 U.S. 557 (1980). There
the Court adopted four factors that it uses to decide the constitutionality of commercial speech regulation. Lorillard based its decision on two factors—a regulation must directly advance a substantial governmental interest and not be more extensive than necessary to serve that interest.
The spacing requirement satisfied the first of these two factors. The state extensively reviewed studies of the outdoor advertising problem and had “ample documentation” that outdoor advertising affected the underage use of smokeless tobacco and cigars. Regulating the advertising of smokeless tobacco and cigars to combat tobacco product use by minors was not based on mere speculation and conjecture.
The spacing requirement did not satisfy the second factor, which requires a reasonable fit between the means and ends of a regulatory scheme, a rule similar to substantive due process requirements. The regulation’s broad sweep showed that the state did not carefully calculate the costs and benefits of the burden on speech that the regulation created. A case-specific analysis was required. In this case, along with zoning restrictions, the spacing requirement would prevent outdoor advertising in 87 percent to 91 percent of Boston, Worcester, Springfield, and other areas. It would “constitute nearly a complete ban on the communication of truthful information about smokeless tobacco and cigars to adult consumers.” Id. at 562.
The Supreme Court’s spacing cases are based on the free speech clause, which requires a heightened standard of judicial review for regulations that burden commercial speech. Much of this analysis tracks substantive due process and could be applied to spacing requirements for uses unprotected by the free speech clause, which receive a less demanding judicial review.
Retail marijuana dispensaries are the latest commercial battleground for spacing requirements. States that recently legalized the use of marijuana through statutes and constitutional amendments have enacted legislation that requires local governments to adopt spacing requirements
for marijuana dispensaries. Spacing that requires a minimum distance from susceptible land uses, such as schools, is standard. There is no consensus on the needed spacing, and statutory distance requirements vary from 500 to 1,000 feet. Local governments may be authorized to increase the spacing distance beyond the state minimum.
Spacing requirements for retail marijuana dispensaries are the latest example of spacing for commercial uses, which has a 100-year history. Municipalities applied spacing to the early gasoline filling stations, which were thought to create hazardous and damaging secondary effects, such as noise, fire safety, traffic hazards, and an unattractive appearance. Most courts upheld spacing requirements for gasoline filling stations as reasonably related to public welfare because they mitigated the secondary effects they were expected to create.
Mitigating secondary effects could justify spacing requirements for marijuana dispensaries. Many of them cannot obtain banking services, which significantly increases the risk of robbery because they must deal with vast amounts of cash. The cash problem convinced a California court that a county’s requirement for minimum spacing between marijuana dispensaries and from schools and other land uses did not violate equal protection, even though this requirement was more restrictive than requirements applied to pharmacies. County of Los Angeles v. Hill, 121 Cal. Rptr. 3d 722 (Ct. App. 2011).
Testimony in the case showed that marijuana dispensaries attract loitering and marijuana smoking on or near the premises, but studies dispute whether these secondary effects occur.
Spacing for marijuana dispensaries and other commercial uses may present another problem because they may prevent competition, which could violate the rule that the prevention of competition is not a proper purpose in zoning. This rule belongs in substantive due process, but the connection is unclear. It is a standalone requirement, and courts interpret it much as they interpret a rule included in a statute. An Arizona case shows how spacing requirements can create a control-of-competition problem, although
the court did not discuss the control-ofcompetition rule. Dreem Green, Inc. v. City of Phoenix, 2019 WL 1959618 (Ariz. Ct. App. May 2, 2019).
A medical dispensary obtained the required state license. However, it could not use the license in the zoning district where it was allowed unless it received a variance from a one-mile spacing requirement between medical marijuana dispensaries. Other sites in the same zoning district but outside the area covered by the license could be used for a medical dispensary because the spacing requirement did not apply to them.
The Arizona court upheld area zoning variances granted by the zoning board that exempted the medical dispensary from the spacing requirement. Credible evidence supported the board’s implicit conclusion “that due to the Property’s location and surroundings, strict application of the Ordinance will deprive the Property of privileges enjoyed by similarly-zoned parcels in the district,” which were not subject to the spacing requirement. Id. at *3, ¶ 19. Dreem was a variance case, but the interplay of spacing and licensing requirements influenced the court’s decision.
Spacing is a zoning strategy that reflects a bias against targeted businesses and fears about secondary effects. It is a well-established but not well-known requirement for separating unwanted land uses from each other and from uses that could be damaged by proximity.
The judicial response to spacing is unsettled. The Supreme Court provided a mixed reaction when spacing was attacked under the free speech clause. State courts accepted the spacing of commercial uses that were believed to create secondary effects, but the judicial response to spacing for marijuana dispensaries is untested. Spacing must lose its impromptu place as a land use restriction and must be applied only when required to prevent known secondary effects from specified land uses. For discussion, see Daniel R. Mandelker & Harrison Hartsough, Spacing Requirements as a Land Use Strategy: The Marijuana Puzzle, 46 Zoning & Plan. Law Rep. (Jan. 2023). n
I have a fair number of friends who are coaches. Each has a favorite coaching tool. One of my coaching friends, Anne, advocates for a tool called the Actualized Leadership Profile. When Anne first started to share the details of this tool with me, I admit that I rolled my eyes when she started talking about the “shadow side.” After listening to Anne and doing some reading, some parts of the actualized leadership tool have helped me bring together leadership and mindfulness.
The Actualized Leadership profile focuses on the Maslow Hierarchy of Needs and identifies three leadership styles. For me, the noteworthy aspect of the profile is not so much the leadership style as the analysis of the attributes that someone will reflect as an “actualized leader” compared to those that will be reflected when someone is at his worst. By way of example, I am an Asserter/Affirmer. I am confident, decisive, proactive, creative, and accountable at my best. At my worst, I am impatient, arrogant, reactive, and controlling. I learned that I was likely to be at my worst (my shadow side) when I was under significant stress. Under significant stress, being at the top of Maslow’s Hierarchy is challenging.
Stress is common in the practice of law (as well as in life itself). I was relieved to realize that perhaps I did not suffer from inherent character defects so much as too much stress and the need for improved stress management. On the other hand, I knew that functioning around others in my “shadow side” was likely to result in a less positive culture than I wanted to achieve. (The current goal at our law firm is to achieve an “actualized culture.”)
I concluded that it is imperative that my shadow side attributes not show up at
Contributing Author: Mary E. Vandenack, Vandenack Weaver LLC, 17007 Marcy Street, #3, Omaha, NE 68118.the office. I called Anne and chatted about preventing my shadow side from showing up at the office. My idea was that I would work remotely on those days when I was under so much stress that I might appear impatient or reactive. I was expecting Anne to cheer my idea, but instead, she said: “No, Mary, it doesn’t work that way. As a lawyer leader, you must learn to show up with executive presence daily regardless of how you feel on a particular day.”
Executive presence refers to the ability to inspire others and support them. Someone with executive presence will engage in speech and actions that positively influence those around the person. The ability to work calmly under stress is exhibited, and the ability to do so keeps others calm and focused.
I acknowledged my desire to present myself with executive presence as much as possible. I reached into my toolbox to find a path to maintaining a positive presence, even when I knew that doing so would be a challenge. I pulled out the tool I use for so many things —mindfulness. I considered how to use mindfulness so that I could show up with positive and effective leadership more regularly.
Mindfulness is the ability to be fully present in the moment. We use our breath to help us become fully present. We notice precisely what we are doing and where we
are and seek to be non-judgmental about what we might be experiencing.
One of the challenges of mindfulness is learning to practice mindfulness during a busy, stressful day, but this is when mindfulness matters most. I rarely have time to stop, close my eyes, and meditate during the workday. Instead, I have to find mindfulness practices that fit in between phone calls, emails, meetings, and knocks on my door.
The most important practice I have adopted is just stopping for six to ten seconds to take a deep breath – and to notice my breath. I set my Apple Watch to remind me to take a breath break every 90 minutes. When I notice my breath, I notice my state of mind. I seek not to judge my feelings but to simply notice and ensure that my behavior remains positive even if I feel slightly overwhelmed.
In my practice, I touch as many as 20 files daily, which can readily result in significant stress. I focus on doing a single task at a time to manage that stress. If I am drafting a document that needs my full attention, I close my email inbox and use do not disturb on other devices to focus on the single task at hand.
I use mindful reminders. I have coffee cups with reminders to be mindful. I have coasters with mindful comments. I use calming sounds on my notifications. When I hear the ping from a message, I try to use that as a reminder to take a deep breath and stay present.
Notice the critical voice in your head that encourages you to feel stressed and redirect it. When someone (the voice in your head or another person) suggests that what you are doing is “stressful,” correct the comment and say, “Oh, actually, this is challenging and exciting.”
Practice gratitude. On a hectic day, I try to express gratitude for the great work and opportunities that have come my way. Whenever possible, take a deep breath and find something to appreciate. n
August 10-11, 2023
Join the ABA Section of Real Property, Trust and Estate Law as we present a consolidated take on the ideal estate planning CLE program for both new and experienced lawyers. Young and transitioning lawyers new to the practice will receive an educational experience focused on the “how-to” of estate planning. The outstanding faculty includes experts in all aspects of estate planning and will cover a wide range of topics.
August 10-11, 2023 Chicago, IL
www.rpteskillstraining.com
Sponsored by the American Bar Association Section of Real Property, Trust & Estate Law
Verbs are the most important of all your tools. They push the sentence forward and give it momentum. Active verbs push hard; passive verbs tug fitfully.
—William Zinsser, On Writing WellActive is the preferred voice used when speaking and writing. For example: “My client (subject) avoided (verb) taxes.” In contrast, in a passive sentence, the subject does not perform the action of the verb; in fact, the action of the verb is done to the subject: “Taxes (subject) were avoided (verb) by my client.”
Although it’s typically simple to identify whether a statement or sentence is active or passive, there is also a common hint. The sentence may be passive if it contains a phrase beginning with the word “by.” Try re-writing the sentence and moving the subject buried in the “by” phrase closer to the beginning, and the contrast should be clear.
The active voice draws the reader or listener into the narrative. In addition, there are at least four benefits of using active voice:
1. Emotion—evokes a stronger reaction
2. Pithy—sentences and statements are less wordy
3. Clarity—meaning is not obscured
4. Immediacy—pace is improved In contrast, passive voice:
1. Distance—creates separation between the reader/listener and the narrative
2. Awkward—sentences are wordier and can become clumsy
3. Confusing—especially for those with a limited vocabulary
4. Nonurgent—conveys in a sterile fashion
According to plainlanguage.gov, “More than any other writing technique, using active voice and specifying who is performing an action will change the character of your writing.”
There’s room for the passive voice, especially in some areas of the practice of law and other nonfiction writings. Whether to use passive voice depends on the message being conveyed, particularly when the emphasis is on the receiver of an action rather than the doer. Here are five reasons to use passive voice.
1. Minimizes Blame. Because the passive voice doesn’t emphasize the person responsible for the action, the action itself becomes more important in the reader’s mind. When using the passive voice, we often leave out the subject altogether. For example: Bad advice was given. At this stage, it’s not important to the reader who was responsible for giving the bad advice but that it was given.
2. Creates a Sense of Anonymity. Passive voice can be useful when the doer of the action (the actor) is unknown, unimportant, or obvious. To that end, the passive voice allows the actor to be omitted. It creates not just anonymity but also a sense of mystery. Bad advice was given. By whom? In what way?
3. Fosters Objectivity and Tact. Because the passive voice creates a sense of emotional distance between the reader and the narrative, the tone can be viewed as neutral or objective. This is the main reason why scientific
reports are often written in a passive voice. Though most coaches of journalism writing encourage active writing, especially in broadcast, there are often legal reasons that underpin the choice of passive voice. For example: The bad advice was given by the taxpayer’s tax attorney A court hasn’t yet proven that a specific attorney is culpable, or the attorney hasn’t yet claimed responsibility. Further, in some cases, it’s less relevant who gave the bad advice than the fact that the client relied on bad advice. X of ABC law firm gave the bad advice. After all, when the sentence is read in the active voice, you might feel incited to take action!
4. Emphasis at the Beginning of the Sentence. The use of passive voice allows the writer to start a sentence with the intended focus. Twenty-five people were defrauded by the tax attorney. This allows attention to be drawn to the number of people.
5. Imbues Authority. If the active voice sounds more conversational, the passive voice sounds more formal. Readers tend to perceive this formality as more professional and authoritative. It sounds like the author knows what he is talking about.
You are free to buck the conventional teaching that active should (almost) always be used. The choice is tied to your objective, who your readers are, what experience you want to create for them, and the impression you want to leave with them when they’re done. Don’t be afraid to consider mixing the voices. Using active at the opening of a paragraph can set the right tone, with the passive voice used to provide proper explanatory emphasis by the writer. n
