Probate & Property - May/June 2025, Vol. 39, No. 03

PROFESSORS’ CORNER

Speakers:

• Anika Singh Lemar, Yale Law School

• Richard Schragger, University of Virginia School of Law Tuesday,

Speakers:

• Gabriel Chin, UC Davis School of Law

• Massimo F. D’Angelo, BlankRome LLP

A Publication of the Real Property, Trust and Estate Law Section | American Bar Association

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

Brennan Manna Diamond 200 Public Square, Suite 1850 Cleveland, OH 44114 masneeringer@bmdllc.com

Senior Associate

Articles Editors

Thomas M. Featherston Jr. Michael J. Glazerman

Brent C. Shaffer

Associate Articles Editors

Robert C. Barton

Travis A. Beaton

Maria Z. Cortes

William M. Kelleher

Jennifer E. Okcular

Heidi G. Robertson

Melvin O. Shaw

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.

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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 of $95 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) 285-2221, 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.

SECTION NEWS

The Nominations Committee, consisting of Chair Hugh F. Drake, Vice-Chair Robert Freedman, and Members Karen Boxx, David Lieberman, and Cynthia Paine, met and conducted interviews of Section Officers, Delegates, Council members, and Standing Committee Chairs at the Section Fall Leadership Meeting in Maui, Hawaii.

The Committee expresses its appreciation to all who shared 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:

Nominated or Renominated to Serve As Officers:

Section Chair

Section Chair-Elect

Real Property Division Vice Chair

Trust & Estate Division Vice Chair

Section Secretary

Section Finance Officer

Section Delegate

Diversity Officer

Marie A. Moore

Ray Prather

Kellye Curtis Clarke

James R. Carey

George P. Bernhardt

Crystal Patterson

Mary E. Vandenack

Christina Jenkins

Nominated to Serve a One-Year Unexpired Term as Section Delegate:

Jo Ann Engelhardt

Nominated for an Initial Three-Year Term as Division Assistant Secretary:

For the Trust & Estate Division:

For the Real Property Division:

M. John Way

Imran Naeemullah

Nominated for an Initial Three-Year Term on the Section Council:

For the Trust & Estate Division:

For the Real Property Division:

Bruce A. Tannahill

Stephen Liss

Timnetra Burruss

Bryanna C. Frazier

Nominated to Serve a Two-Year Unexpired Term on the Section Council:

For the Trust & Estate Division:

Renee E. Salley

Re-Nominated to Serve a Three-Year Unexpired Term on the Section Council:

For the Trust & Estate Division:

For the Real Property Division:

Keri Brown

Carole M. Bass

Kim Sandher

Eric M. Mathis

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.

Marie A. Moore

Sher Garner Cahill Richter Klein & Hilbert, L.L.C.

New Orleans, LA

Nominated for Section Chair, term ending August 2026. Positions held in the Section: Section Chair-Elect, Section Vice-Chair, Real Property Division; 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 and Property magazine; Group Chair and Vice-Chair, Leasing Group; Member, Council; Division Vice-Chair and Member, CLE; Member, Planning; SCM and Council Rep., Residential, MultiFamily, 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; Council; Liaison, Other Groups and Organizations.

Ray Prather

Prather Ebner Wilson LLP Chicago, IL

Nominated for Section Chair-Elect, term ending August 2026. Positions held in the Section: Section Vice-Chair, Trust and Estate Division; Articles Editor and TE Assistant Editor, eReport; Group Chair, Group Vice-Chair, 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.

Kellye Curtis Clarke

RGS Title Alexandria, VA

Nominated for a second term as Section Vice-Chair, Real Property Division, term ending August 2026. Positions held in the Section: Section Diversity Officer; 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.

James R. Carey

Levin Schreder & Carey Ltd Chicago, IL

Nominated for a first term as Section Vice-Chair, Trust and Estate Division, term ending August 2026. Positions held in the Section: Finance Officer; Assistant Finance Officer; 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, Chair and Vice-Chair, Investments.

George P. Bernhardt

Eversheds Sutherland (US) LLP Houston, TX

Nominated for a third term as Section Secretary, term ending August 2026. Positions held in the Section: Section Secretary; Member and Co-Chair, InHouse Counsel; Chair, Industrial Leasing; Member, Special Committee on In-House Counsel; Member and Advisor, CLE; Group Chair, Group Co-Chair and Group Vice-Chair, Leasing Group; Member, Council; Council Rep, Joint Legal Education and Uniform Laws Group; Member, Nominations; Member, Planning; Member, Leadership and Mentoring.

Crystal Patterson

Gulfstream Commercial Services, LLC Louisville, KY

Nominated for a first term as Finance Officer, term ending August 2026. Positions held in Section: Chair and ViceChair, Probate & Fiduciary Litigation; Group Chair and Vice Chair, Litigation, Ethics and Malpractice Group; Chair and Co-Chair, In-House Counsel; Vice-Chair, Hotels, Resorts and Tourism; Council, Member; Co-Chair, Career Development and Wellness; Member, Groups and Substantive; Member, Planning.

Christina Jenkins Dallas, TX

Nominated for second term as Diversity Officer, term ending August 2026. Positions held in the Section: Diversity Officer; Chair, Vice-Chair and Member, Fellows; Fellows Chair, Membership; Member, Communications; Group Chair and Group Vice Chair, Residential, MultiFamily and Special Use Group; Member, Corporate Sponsorship; Co-Chair and Member, Diversity, Equity and Inclusion; Chair, Vice-Chair and Member, RP Governmental Submissions; Member, Council; Council Representative, Commercial Real Estate Transactions Group; Advisor and Member, CLE; Member, Groups and Substantive; Member, Nominations; Member, Planning; Member, Leadership Mentoring Task Force; Vice-Chair, Solo and Small Firm Practice; Liaison, Other Groups and Organizations; ABA Center for Diversity, Equity and Inclusion, Liaison, ABA Entities.

Mary E. Vandenack

Duggan Bertsch, LLC Omaha, NE

Nominated for first full term as Section Delegate, term ending August 2028. Positions held in the Section and ABAwide: Council, Delegate Trust and Estate Division; Delegate, Officers; Member and Co-Chair, Future Practice and Guidance Task Force; Co-Chair, 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: Division Chair; Editor-in-Chief Law Practice Magazine; Counsel; Women Rainmakers; Vice Chair Futures Task Force; Evolving Business Models; Attorney Well-being; Council; Member, Nominations; Council Rep, Non-Tax Estate Planning Considerations Group; Member; Special Committee on Career and Wellness; Chair, Law Practice Division; ABA Commission on the Future of the Profession; ABA Commission on Youth At Risk Member; SCOTIS Member and Liaison; ABA Cybersecurity Task Force.

Jo Ann Engelhardt Ocean Ridge, FL

Nominated to serve a one-year unexpired term as Section Delegate, term ending August 2026. Positions held in the Section and ABA-wide: Governor, Board of Governors 2022-2025; Chair, Member Services, Board of Governors 20232024; Section Delegate, House of Delegates; Co-Chair, Leadership and Mentoring; Advisor and Member, Planning; Vice Chair, Co-Chair and Chair, Estate Planning and Drafting in Pre-Death Planning Issues Committee; Chair, Administration and Distribution of Trusts Committee; Member, Vice Chair and Co-Chair, Membership Committee; Member, Advisor, Vice-Chair, and Co-Chair, Diversity Equity and Inclusion Committee; Member and Co- Chair, Corporate Sponsorship; Member, Non-Tax Issues in Planning and Drafting for Lifetime and Testamentary Transfers Committee; Council Member; Member, Administration and Distribution of Estates and Trusts and Guardianship Committee; Supervisory Council Member, Investment and Financial Planning Group, Wealth Planning Group and Non-Tax Estate Planning Consideration Group; Chair, Trust and Estate Synergy Summit; Section Finance and Corporate Sponsorship Officer; Section Delegate, Officers; ABA Presidential Appointment and Liaison, Special Advisor to the Commission on Racial and Ethnic Diversity

in the Profession; Member, Council on Diversity in the Educational Pipeline; Member, Special Committee on ABA Relations; Member, National Conference of Lawyers and Corporate Fiduciaries; Member, Special Committee on In-House Counsel; Member, Investment.

M. John Way

Schwabe Williamson & Wyatt Seattle, WA

Nominated for a first term, Assistant Secretary, Trust and Estate Division, term ending August 2026. Positions held in the Section: Chair and Vice-Chair, Long Term Care, Medicaid, and Special Needs Trusts; Member, Communications; Members, Marketing and Social Media; Chair, Special Needs Planning; Group Chair, Vice-Chair and Member, Elder Law and Special Needs Planning Group; Liaison, RPTE Advisor to ULC Study Committee on Health Care Decisions Act; Member, Groups and Substantive.

Renee E. Salley

Bessemer Trust Powder Springs, GA

Nominated to serve an unexpired twoyear term on Council, Trust & Estate Division, term ending August 2027. Positions held in the Section: Member, Fellow; CoChair and Member, Diversity, Equity and Inclusion; Chair, Financial Planning and Risk Management; TE Co-Chair, Membership; Vice-Chair, TE Non-Tax Estate Planning Considerations Group

Bruce A. Tannahill Wichita, KS

Nominated for a first term on Council, Trust & Estate Division, term ending August 2028. Positions held in the Section: TE Assistant Secretary, Council; Advisor, Vice-Chair and Member, CLE; Assoc. Articles Editor, Probate & Property; Co-Chair, Operating Businesses.

Stephen Liss

Dungey Dougherty PLLC Greenwich, CT

Nominated for a first term on Council, Trust & Estate Division, term ending Au-

gust 2028. Positions held in the Section: Co-Chair and Vice-Chair, Estate and Gift Tax; Virtual Conference Vice-Chair and Member, CLE; Member, eCLE; Member, National CLE Conference; Drafting Dos and Donts Editor, Probate & Property magazine; Group Chair and Vice-Chair, Income and Transfer Tax Planning; Member, Leadership and Mentoring.

Keri Brown Baker Botts LLP Houston, TX

Nominated to serve a three-year unexpired term on Council, Trust & Estate Division, term ending August 2028. Positions held in the Section: Co-Chair and Co-Vice-Chair, Tax Litigation and Controversy; Assistant TE Editor and Assistant Editor, eReport; Associate Articles Editor, P&P, Vice-Chair and Member, Groups and Substantive; Council Rep., Group Co-Chair and Vice-Chair, Income and Transfer Tax Planning Group; Member, Council.

Carole M. Bass

Sullivan & Worcester LLP New York, NY

Nominated to serve a three-year unexpired term on Council, Trust & Estate Division, term ending August 2028. Positions held in Section and ABA-wide: CoChair, 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; Advisor and Member, Diversity, Equity, Inclusion and Belonging Committee; Presidential Appointment, Member, Advisory Committee to the ABA Commission on Lawyer Assistance Programs (CoLAP); Member, Council.

Imran Naeemullah

Eversheds Sutherland (US) LLP Chicago, IL

Nominated for a first term, Assistant Secretary, Real Property Division, term ending August 2028. Positions held in the Section: Member, Fellows; Chair and Vice-Chair, Ground Leasing; Chair, Legal Opinions in Real Estate Transactions; Vice-Chair, Leasing Group; Member, CLE.

Timnetra Burruss Chicago, IL

Nominated for a first term on Council, Real Property Division, term ending August 2028. Positions held in the Section: Member, Fellows; Member, CLE; Member, Diversity; Vice-Chair, Diversity, and Inclusion; Co-Chair and Member, Diversity, Equity, and Inclusion; ViceChair, Multi-Family Residential; Member, Communications, Council, Real Property Division Assistant Secretary.

Bryanna

C. Frazier B. Frazier Consulting,

L.L.C.

New Orleans, LA

Nominated for a first term on Council, Real Property Division, term ending August 2028. Positions held in the Section: Member, Fellows; Co-Chair, Vice-Chair and Member, Diversity, Equity and Inclusion; Chair and Vice-Chair, Affordable Housing; Skills Training Vice-Chair and Member, CLE; Vice-Chair, Life Insurance Company Investments; Member, Nominations; Vice-Chair, Green and Sustainable Transactions.

Eric M. Mathis

Inalfa Roof Systems, Inc.

Southfield, MI

Nominated to serve a three-year unexpired term on Council, Real Property Division, term ending August 2028. Positions held in the Section: Member, Fellows; Chair and Vice-Chair, RP Litigation and Alternative Dispute Resolution; Co-Chair, Advisor and Member, Diversity Equity and Inclusion; Liaison, National

Bar Association; Chair, Co-Chair and Member, Special Committee on In-House Counsel; Member, Membership; Member, Nominations; Liaison, National Bar Association; Member, Council; Co-Chair, Assignment and Subletting; Co-Chair, Ethics and Professionalism.

Kim Sandher

K&S Canon Seattle, WA

Nominated to serve a three-year unexpired term on Council, Real Property Division, term ending August 2028. Positions held in the Section: Vice-Chair and Member, Fellows; Liaison, YLD Liaison to RP; Member, Community Outreach; Chair and Vice-Chair, Single Family Residential; Fellows Vice-Chair and Member, Membership; Chair and Vice-Chair, Multi-Family Residential; Member, Special Committee on Career and Wellness; Member, Council; Member, Groups and Substantive; Council Representative, Joint Law Practice Management Group; Member, CLE; Member, Diversity, Equity and Inclusion.

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UNIFORM LAWS UPDATE

The Assignment for the Benefit of Creditors Act Plans to Bring Consistency to State Law

In 2022, the Uniform Law Commission (ULC) began studying the feasibility of a uniform act establishing guidelines for assignments for the benefit of creditors. An assignment for the benefit of creditors (ABC) is a voluntary, debtorinitiated alternative to bankruptcy, state receivership, or voluntary workout. Unlike a receivership or bankruptcy, an ABC is conducted without court supervision and is designed to maximize the value of the assignor’s assets. ABCs serve as an inexpensive, straightforward alternative or supplement to other forms of liquidation and are a valuable tool for attorneys dealing with distressed commercial real estate.

ABCs have been used for centuries under common law as an efficient, out-of-court tool for liquidating the assets of a failed business. The ULC recognized that existing blackletter law, customs, and practices for ABCs vary significantly among the states. This patchwork results in the underappreciation and underutilization of ABCs in most states.

In the fall of 2023, the ULC’s project progressed into a drafting committee, which has worked to prepare a uniform act that it aims to present for approval at the ULC’s annual meeting in July 2025. The drafting committee is comprised of Uniform Law Commissioners, an ABA advisor, and observers from the banking, bankruptcy, legal, receivership, and title insurance industries.

Uniform Laws Update Co-Editor: Jane Sternecky, Legislative Counsel, Uniform Law Commission, 111 N. Wabash Avenue, Suite 1010, Chicago, IL 60602.

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.

The current draft of the Assignment for the Benefit of Creditors Act (the draft Act) is intended to codify and clarify the common-law concept of ABCs as an out-of-court complement to judicial processes such as receiverships and bankruptcy. The draft Act authorizes the assignee to administer and pay claims associated with the assignor’s real and personal property.

First, the draft Act establishes which entities and individuals are eligible to be assignors and assignees. It limits assignees to those who are not a creditor, affiliate, or insider of an assignor and who otherwise do not have (1) a material financial interest in the outcome of the assignment, (2) a claim against the assets of the assignor, or (3) an equity interest in the assignor (other than a noncontrolling interest in a publicly traded company).

Next, the draft Act gives the assignee all rights, title, and interests of the assignor, which are called the “assignment estate.” The assignee holds the assignment estate in trust for the assignor’s creditors. The draft Act requires assignees to record the assignment of real property following existing state law and comply with

title transfer laws. Under the draft Act, the assignee has default authority to exercise a right of redemption with regard to real or personal property to redeem an asset of the assignment estate that is subject to a mortgage or other encumbrance.

Other default powers of assignees under the draft Act include operating an existing business using assigned assets, incurring secured or unsecured debt, and engaging professionals (including professionals previously engaged by the assignor) to provide legal services. The assignment agreement may modify the default powers and other provisions in the draft Act. Additionally, under the draft Act, assignors are obligated to turn over assigned assets and generally facilitate and cooperate with the assignee’s discharge of duties.

Under the draft Act, a creditor must file a valid proof of claim to be paid from the assignment estate. The proof of claim must include the name and address of the creditor, the amount and nature of the claim, an identification of any assets of the assignment estate securing the claim, an assignment of rights to the assignee, a signature, and a copy of the record on which the claim is based.

To resolve claims, the draft Act creates a procedure for the assignee to object, in writing, to a claim before final distribution and allows the creditor to file a judicial action to determine the claim. Additionally, the draft Act permits assignees to send a request to a creditor requesting additional information about a claim. It permits the claim to be disallowed if the information is not provided.

Once the assignee has received all claims and the required and requested information to substantiate them, the assignee will create a list detailing the amount of each creditor’s claim, whether it is secured or unsecured, and a description of the collateral. The draft Act requires the assignee to provide notice for creditors who will not receive distributions.

Additionally, the draft Act establishes the rights of transferees and the priority of claims and sets distribution procedures. Under the draft Act, neither

assignors nor assignees are personally liable for acts or omissions by the other. However, the draft Act holds assignees personally liable for their breach of fiduciary duty, failure to materially comply with the Act, or causing individualized harm to a creditor. For harms shared by all creditors, the draft Act holds the assignee liable to the assignment estate. Finally, the draft Act creates a procedure for the assignor to request that a court remove the assignee for cause.

The final text of the Assignment for the Benefit of Creditors Act will be available on the ULC’s website once it is approved in July 2025. This Act will improve the utility of ABCs and provide real property attorneys with flexibility and certainty when their clients are involved in ABCs. It will also provide opportunities for impartial attorneys to serve as assignees when appropriate. This Act should be considered for enactment in all states and US territories. n

FELLOWSHIP OPPORTUNITY

Applications due June 6, 2025.

The ABA Section of Real Property, Trust and Estate Law Fellows Program encourages the active involvement and participation of young lawyers in Section activities. The goal of the program is to give young lawyers an opportunity to become involved in the substantive work of the RPTE Section while developing into future leaders.

Each RPTE Fellow is assigned to work with a substantive committee chair, who serves as a mentor and helps expose the Fellow to all aspects of committee membership. Fellows get involved in substantive projects, which can include writing for an RPTE publication, becoming Section liaisons to the ABA Young Lawyers Division or local bar associations, becoming active members of the Membership Committee, and attending important Section leadership meetings.

Charitable Giving Tax Considerations and Entity Structures

By Abbie M. B. Everist

Charitable giving is a component of most people’s lifetime or testamentary goals. For ultra-high-net-worth individuals, there may be more complex factors to consider when advising on charitable giving. Some items to consider are the assets to be donated, the donors’ ages and health, the amount they want to gift, and the timing of the gift. From a tax perspective, there are income tax rules, estate tax deductions, and generation-skipping transfer (GST) tax implications to balance with the donor’s wishes for the assets, the family, and the charity.

Individual Income Tax

Most charitable contributions reduce the taxable gross estate of the donor, regardless of whether the contribution was made during life or at death. Making charitable contributions during life may provide the added benefit of an income tax deduction. At death, giving charity income in respect of decedent (IRD) assets means the charity will receive assets that do not get a step-up in basis, but the charity, as an income tax exempt entity, pays zero income tax. Testamentary bequests of non-IRD capital assets to taxable beneficiaries results in an efficient preservation of assets post death.

Reviewed below are individual lifetime charitable giving planning considerations.

Durable Power of Attorney

In case the donors become incapacitated during their lifetimes, it is a good idea to document their intent and the ability of the named agent to continue or accelerate charitable

Abbie M. B. Everist is a national principal in BDO’s National Tax Office, Private Client Services practice serving as an estate, gift, trust, and generation-skipping transfer tax subject matter expert. She also serves as the vice chair of the ABA generation-skipping transfer tax committee.

giving to achieve the donor’s charitable goals while providing tax benefits. A well-drafted durable power of attorney expressly stating the goals of the incapacitated individual will help enable the agent to carry out and complete those goals despite the principal’s legal incapacity. Even in the absence of expressly defined charitable goals, an agent under a broad durable power of attorney could review testamentary documents and the donor’s donation history to glean the charitable intent.

Lifetime Charitable Deduction Limitations and Carryforwards

The income tax deduction for charitable contributions for an individual is limited each year to a percentage of the taxpayer’s adjusted gross income (AGI). Internal Revenue Code (I.R.C. or Code) § 170(b). The AGI percentage limitation depends on the type of property donated, the type of charitable organization, and how the charitable organization uses the property. Qualified organizations that are nonoperating private foundations that do not distribute all contributions annually usually have deductions limited to 20–30% of AGI. Id. § 170(b)(1)(B), (D). For decades, cash contributions to most other qualified organizations have benefited from a 50% of AGI limit, which is currently increased to 60% through 2025 under the Tax Cuts and Jobs Act (Pub. L. No. 115-97), with noncash contributions still at the 50% limit. Deductions for donations of long-term capital gain assets to qualifying organizations are limited to 30% of AGI, but the donor may elect to use a 50% limit if asset basis is used to compute the applicable deduction. Id. § 170(b)(1)(A), (C).

Unused charitable contribution deductions are carried forward, normally for up to five years. Id. § 170(d). If an individual passes away and is not able to use all lifetime charitable contribution deductions on the final personal income tax return, the excess deductions will be lost. If donations are

Taxpayers should be wary of investments in real estate entities that claim a charitable contribution deduction for the donation of a conservation easement or in significant excess of the investment amount.

made jointly (each spouse contributing one-half) and there’s a carryforward, the carryforward will be split, with half needing to be used on the decedent’s final return and the other half carried forward on the surviving spouse’s returns, as applicable. Treas. Reg. § 1.170A-10(d)(4)(iii). If a spouse is not in great health and there is a potential charitable deduction carryforward, consider making fewer donations from assets titled in that spouse’s name.

Income in Respect of Decedent Assets (Retirement Assets)

IRD is normally taxed at ordinary income rates but includes only limited types of income, most commonly compensation and pretax retirement accounts. For pretax retirement accounts, in general, an individual beneficiary (other than a surviving spouse) must make required minimum distributions annually, and the full amount of the account must be withdrawn 10 years after the death of the contributor. Funding charitable donations with IRD assets will reduce income tax liability because qualifying charities do not pay income tax and noncharitable beneficiaries will get the assets that receive a basis step-up at death and have less taxable gain when later sold.

Long-Term Capital Gain Assets

Long-term capital gain assets may be favored as lifetime gifts because the taxpayer is generally allowed a charitable deduction at the asset’s fair market value without having to recognize capital gains. I.R.C. § 170(b)(1)(C). The fair market value of the donated asset is reduced by ordinary income items,

such as depreciation recapture. Id. § 170(b)(1)(C)(iv).

Many high-net-worth families have significant ownership interests in closely held businesses. These are often the most complex assets to donate because they are affected by many of the issues discussed in this article. For example, gifting business interests that may be sold by the tax-exempt organization shortly after donation should be reviewed to help prevent application of the assignment-of-income doctrine, described in the section on donoradvised funds below.

For tangible personal property that is not used by the charity in a way related to its mission, the deduction may be limited to basis unless the donee certifies that the intended use is no longer possible. Id. § 170(e)(1), (7). This is especially important when the donor is considering donating artwork or other museum-quality pieces. Donors often require, as a condition to the donation, that the donated tangible personal property be held for a period of three years. Although many individuals loan pieces to museums while retaining ownership, loans do not typically qualify for a charitable deduction, but they may reduce administration costs of holding the art personally for the loan period. Id. § 170(f)(3)(A).

Real estate is another asset that donors may wish to contribute. A deduction equal to the fair market value of the property should be available, presuming the donor holds the real estate for investment purposes for more than one year and not as inventory. A donation of encumbered property will involve bargain sale treatment if

the debt exceeds the basis. In computing the gain on the bargain sale, the basis must be allocated proportionately between the gift and sale portions of the transaction. Treas. Reg. § 1.1011-2(b).

A gift of a partial interest in real estate, in general, will result in no deduction unless the donation falls within certain specified exceptions. Typical exceptions include (1) a contribution of an undivided portion of the taxpayer’s entire interest, (2) a donation of a taxpayer’s entire interest in the property, (3) a donation of a remainder interest in a personal residence or farm, (4) a donation to a charitable remainder trust, (5) a donation to a charitable lead trust, and (6) a qualified conservation easement. I.R.C. § 170(f)(2), (3). If the qualified donation is for a partial interest in the property, the qualified appraisal must be for the actual partial interest donated to adhere to the strict interpretation that the Internal Revenue Service (IRS) applies to the substantiation of charitable contribution deductions. Treas. Reg. § 1.170A-13(c)(2)(i)(A).

Taxpayers should be wary of investments in real estate entities that claim a charitable contribution deduction for the donation of a conservation easement or in significant excess of the investment amount. The Department of the Treasury and the IRS recently issued final regulations identifying certain syndicated conservation easement transactions as “listed transactions”— abusive tax transactions that must be reported to the IRS. These final regulations are consistent with Notice 2017-10, which had previously identified certain syndicated conservation easement transactions as listed transactions and confirmed in Treas. Reg. § 1.6011-9.

Digital assets are becoming a popular alternative investment. Some digital assets may be difficult to value if they are thinly traded, a problem that is alleviated for commonly traded digital assets, such as Bitcoin. Nevertheless, the IRS considers digital assets— including cryptocurrency—noncash property that is not a marketable

security. Because of this classification, donors should donate digital assets held more than one year. Furthermore, all the applicable substantiation requirements—including a contemporaneous written acknowledgment from the charitable organization, a qualified appraisal, and the filing of Form 8283, Noncash Charitable Contributions— must be met to qualify for an income tax charitable deduction.

Donations of patents and other intellectual property receive a different and unique treatment under the tax law. The initial deduction is limited to the lower of basis or fair market value. Often, the basis in the intellectual property will be quite low. Assuming the charity is notified, however, the donor may take additional charitable deductions for up to 10 years based on a certain declining percentage of the “qualified donee income” received or accrued by the charity with respect to the donated intellectual property. Taxpayers who own intellectual property such as patents, copyrights, trademarks, trade names, trade secrets, and other similar property and wish to share the profits with charities should consider this unique opportunity. I.R.C. § 170(m), (e)(1)(B)(iii).

There are many strategies, and nuances within those strategies, available for donating long-term capital gain assets to benefit charities. Because of these complexities, donors should work closely with their advisors and planned giving personnel at the recipient charities to arrive at viable solutions meeting the needs of the donor and their favorite charitable causes.

Trust Income Tax

Non-grantor trusts are entitled to charitable deductions, but the deduction for trusts differs significantly from the deduction for individuals. In general, the charity must be a beneficiary of the trust and the contribution must come from trust income. Although allowable trust charitable deductions are usually not subject to income limits, the deductions have more carryforward limits and are restricted from offsetting certain types of income. Including

charitable beneficiaries provides flexibility; however, trust modifications or terminations may require state attorney general input, as many states see themselves as having a stake in protecting charitable interests. Depending on the grantor’s intent and family wishes, this option may allow significant income tax deductions.

Charitable Deductions

For a trust to deduct charitable contributions, specific language must be included in the trust document pursuant to Code § 642(c)(1), which allows qualifying Code § 170(c) charitable organizations to receive trust distributions (usually discretionary), and charitable distributions must be made from trust income. Based on these requirements, simple trusts do not qualify for a charitable donation if all income is required to be distributed to a noncharitable beneficiary. I.R.S. Priv. Ltr. Rul. (PLR) 8446007 (July 31, 1984). By contrast, if the requirements are met, the trust may receive a charitable income tax deduction, usually with no income limitations. Trusts are also subject to compressed tax brackets, so contributions from trusts also may make sense from an income tax perspective depending on the needs of beneficiaries.

Charitable Deduction Limitations and Carryforwards

As mentioned, one benefit of trusts making charitable contributions is that trusts are usually allowed charitable deductions against gross income without percentage limitations like individuals and corporations. I.R.C. § 642(c)(1). A couple of exceptions where trusts are subject to the percentage income deduction limitations are trusts treated as taxable private foundations and electing small business trusts (the S corporation portion of income). Id. §§ 642(c)(6), 641(c)(2)(E)(ii)). There are two additional restrictions on trust charitable deductions, which may not offset (1) unrelated business income or (2) qualified small business stock gain exclusion. Id. §§ 681(a), 642(c) (4). Further, most trusts may not carry

over any unused charitable deduction; thus, planning so that deductions are available to offset income would be necessary if that’s a priority (exceptions for specific nonexempt charitable and split interest trusts pursuant to Treas. Reg. § 1.642(c)-4 may apply).

Charitable Giving Entities

Aside from direct giving, there are a handful of commonly used giving structures with their own benefits and drawbacks. Charitable trusts may provide tax benefits and incentives to donors but also are subject to the selfdealing and excess business holding rules detailed in the private foundation section.

Charitable Trusts

Charitable trusts offer a great opportunity to provide an income stream to an annuitant and the remainder to a beneficiary. The payment period may be for a term of years or for a measuring life (or lives). Charitable trusts may offer a charitable deduction to the grantor at funding and may provide for either set annuity payments based on the value of the trust at funding (CRAT or CLAT) or varying unitrust payments recalculated each year (CRUT or CLUT).

Charitable Remainder Trusts: In charitable remainder trusts, as the name implies, the charity is the remainder beneficiary, usually with the grantor receiving payments during the trust term. If the trust duration is for a term of years, the maximum term is 20 years. The grantor receives a charitable deduction for the actuarial value of the remainder interest to charity when the trust is funded. Annual payments must be between 5% and 50% of the initial trust funded amount or annual value with a charitable remainder of at least 10%. Charitable remainder trusts use a tiered accounting method whereby distributions are first from ordinary income, then from current capital gains and undistributed prior years’ capital gains, next from other current income and undistributed prior years’ other income, and finally as a return of principal. I.R.C. § 664(b).

Often a charitable remainder trust

Published in Probate & Property, Volume 39, No 3 © 2025 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

will be funded with a highly appreciated asset. The trustee will sell the asset and, because a charitable remainder trust itself is income tax exempt, the tax on the gain will be deferred until distributions are made to the annuity beneficiary. In essence, the charitable remainder trust operates as an income deferral planning technique, with the added benefit of having a charitable objective. When funding a charitable remainder trust with an appreciated asset ultimately to be sold by the trustee, tax advisors should be cognizant of the assignment-of-income doctrine (discussed below in the donor-advised fund section) to avoid application of the doctrine.

A specific type of CRUT is a net income makeup CRUT (NIMCRUT) with or without a flip provision. Id. § 664(d) (3)(B). A NIMCRUT is typically used when there are business interests or real estate held by the charitable remainder trust. The NIMCRUT will distribute the lower of the fixed unitrust percentage or the trust net income with makeup distributions later, potentially after a sale or family event. Adding a flip provision to a NIMCRUT will generally turn off the net income provisions at the occurrence of an event to become a regular CRUT.

Practitioners should be mindful that the IRS has included a transaction involving CRTs as a listed transaction, which is reportable to the IRS. The listed transaction involves CRTs that borrow against trust assets to prevent annual distributions from being taxable based on underlying trust holdings. Treas. Reg. § 1.643(a)-8. To combat this practice, the regulations treat this as a sale of the pro rata portion of the underlying trust assets.

In practice, the unitrust (as opposed to the annuity trust) offers more flexibility because additions may be made, and the document may use NIMCRUT and flip provisions. Some grantors would rather have the certainty of fixed annuity payments that a CRAT is required to distribute. As with any planning, grantor preferences and the facts and circumstances should be reviewed to provide the grantor with the best

CLUTs are beneficial because they allow for the allocation of GST exemption at funding based on funding value.

along with a “Newman’s Own private foundation,” discussed below.

Charitable lead unitrusts (CLUTs) make payouts to a charity based on a percentage of the assets held in the trust, valued annually. CLUTs are beneficial because they allow for the allocation of GST exemption at funding based on funding value. Depending on how much GST exemption a grantor has remaining, many planners will set the CLUT distribution rate to the charity to create a near zero remainder for estate, gift, and GST purposes.

options to achieve their goals while providing tax efficiencies.

Charitable Lead Trusts: Charitable lead trusts pay the charity the annuity or unitrust amount, with the term limited only to a life in being at trust creation (potentially subject to a state’s rule against perpetuities) and the remainder normally going to children or trusts for the benefit of the grantor’s family. One other major difference between a remainder and a lead trust is that with a lead trust the grantor must choose grantor or non-grantor status for income tax purposes. A grantor trust will allow charitable deductions, with the inclusion of income during the charitable term in the grantor’s personal income tax return. I.R.C. §§ 170(f)(2)(B), 671–679. Additionally, if the grantor passes and the charity has received less than the charitable deduction to the grantor, the grantor will be subject to recapture rules based on a formula of excess deduction. Treas. Reg. § 1.170A-6(c)(4). A grantor CLT is one of the couple of charitable entity types that may hold S corporation shares,

Charitable lead annuity trusts (CLATs) pay set amounts. Although annual payments are typically consistent, there are a couple of CLAT options that help create a higher remainder interest for family beneficiaries. One of these modified structures is an increasing rate CLAT, whereby the amount of the annuity payment starts low and goes up each year by a set percentage (20% was approved in PLR 201216045). I.R.S. Priv. Ltr. Rul. 201216045 (Jan. 23, 2012). A second, more aggressive type of CLAT structure is the shark fin CLAT, named after the graphical representation of the periodic payouts under this method. Under this structure, the payments start out very low, with larger payments made towards the end of the CLAT term. The IRS has not provided any guidance on this method, so a taxpayer’s risk tolerance should be reviewed and documented before it is recommended for implementation.

Donor-Advised Fund: A donor-advised fund (DAF) is a separate account or fund managed by a sponsoring organization, usually a community fund or investment advisory firm that holds these types of accounts, whereby the donor expects to advise on investments or distributions. I.R.C. § 4966(d)(2) (A). Contributions to a DAF are treated as donations to public charities for AGI limitations and are immediately deductible, even though a charity may not receive the funds until a future year. Id. § 170(b). Normally the agreement between the donor and the sponsoring organization allows input from the donor (and maybe future members of the family) on when and where

to send donations, but the sponsoring organization is not legally bound by the recommendations, restricting the amount of current and legacy control over the investments and donations. A DAF is not required to file its own Form 990, usually has lower associated administrative costs, and is not currently subject to distribution requirements. DAFs are subject to the self-dealing and excess business holdings rules that apply to private foundations, discussed below.

Some grantors may wish to incorporate the use of a DAF into a presale business transaction, hoping for a fair market value charitable deduction of the business interests, with the charity receiving business sale proceeds exempt from tax. One major issue with this type of fund is ensuring that the transfer to the DAF or directly to the charity is independent from the sale for anticipatory assignment of income purposes. The assignment-of-income doctrine has been applied to these cases, with recognition of income taxed to those who earn it (the donor), even when a purchase agreement hadn’t been executed when the donor didn’t bear risk that the sale would not close. Est. of Hoensheid v. Comm’r of Internal Revenue, T.C. Memo 2023-34 (Mar. 15, 2023); Rev. Rul. 78-187. If the transactions are not deemed to be independent, the income from the sale of the business interests owned by the charity may be allocated to the grantor; the IRS may simultaneously try to deny the charitable deduction for contributing the interests.

Funding DAFs with business interests may be a good way to further a donor’s goals, but strict compliance with the IRS’s requirements and avoidance of the assignment-of-income doctrine are necessary for donor-favorable results.

Private Foundations: Private foundations may offer families flexibility and control over investments and distributions; however, the flexibility is balanced by being subject to more regulations and compliance requirements. Most family private foundations are classified as nonoperating foundations and do not operate charitable programs.

Private foundations are required to file Form 990-PF annually, which will add to the foundation’s administrative costs. Form 990-PF is a public document, and various websites will post the tax returns online for anyone to review. Some donors may not like the disclosure requirements that allow publication of the names of a foundation’s officers and their compensation, and the foundation’s assets, contributions, expenses, and distributions. Donor contributions to a private foundation are generally limited to 30% of AGI, reduced to 20% of AGI for the donation of an appreciated capital asset. I.R.C. § 170(b)(1)(B), (D).

Private foundations are subject to 5% distribution requirements and a net investment income excise tax of 1.39%. Id. §§ 4942(a), 4940(a). Private foundations are required to distribute annually 5% of their assets’ average 12-month fair market value, determined under a reasonable and consistent method, for charitable purposes within 12 months after the tax year. If a foundation fails to distribute the required amount, it will be subject to a 30% excise tax for the current and subsequent years until the deficiency is corrected. Potentially, the foundation could be subject to an additional 100% excise tax if the deficiency is not corrected within 90 days of receipt of a notice from the IRS. Id. § 4942(a), (b).

The 5% annual minimum distribution amount includes deductions for grants paid, the purchase of charitableuse assets, reasonable charitable-related expenses (except for investment management fees or other investmentrelated expenses), a reduction of 1.5% for cash presumed held for charity, and a credit for excise taxes paid on investment income. Id. § 4942(d). Excess distributions made above the required distribution amount for a given year may be carried over for up to five years to help satisfy future distribution requirements. Id. § 4942(i).

A private foundation may have reasons not to make the full 5% distribution in a given year; the foundation may avoid the excise tax on undistributed income if the amount is set

aside for a specific project. This set-aside requires prior IRS approval, so it is not normally a preferred method, unless it is a large amount set to be paid out over a period of up to five years. Id. § 4942(g)(2).

Private foundations are subject to self-dealing and excess business holding rules. DAFs also are subject to these rules. Self-dealing encompasses most transactions between the private foundation or DAF and a disqualified person. Examples of self-dealing include selling or leasing property; lending funds; furnishing goods, services, or facilities; and paying compensation to a disqualified person, in addition to other transactions, each with its own nuances. Id. § 4941(d). Disqualified persons are:

• Trustees or directors, officers, and managers with substantial similar authority.

• Substantial contributors.

• Family members of each disqualified person.

• An owner that is a substantial contributor that has more than 20% profit interests, voting power, or beneficial interest.

• Entities with more than 35% of the interests owned or for the benefit of a disqualified person. Id. § 4946. The term “substantial contributor” is defined to include the creator of the foundation or fund and other contributors who made contributions of $5,000 or more if that exceeds 2% of the total bequests received since inception. Id. § 507(d)(2).

Essentially, any proposed transaction—direct or indirect—between a private foundation or DAF and a disqualified person should be reviewed first by tax advisors or counsel to ensure it doesn’t run afoul of these rules. Failure to comply with the rules may give rise to a 10% excise tax on the disqualified person, a 5% excise tax of the amount involved payable by a foundation manager who knowingly participated in the transaction, a 200% excise tax for failure to correct within the taxable period, and potentially a 50% excise tax imposed on the foundation manager for refusing to make a correction. Id. § 4941(a), (b).

Private foundations and DAFs are not permitted to own excess business holdings, unless the business meets the Newman’s Own exception, discussed below. Excess business holdings are defined as the amount of stock or other interest in a business enterprise that exceeds the permitted holdings. A private foundation is generally permitted to hold up to 20% of the voting stock of a corporation, minus the percentage owned by all disqualified persons, with two exceptions:

• If the private foundation, together with the disqualified persons, does not own more than 35% of the voting stock of a corporation and it is determined that a third party has effective control of the corporation; or

• The private foundation does not hold more than 2% of the voting stock and value of all corporation shares outstanding.

Id. § 4943(c)(2). The tax on a private foundation or DAF for owning business interests that exceed the allowable thresholds starts at 10% if the interests are held at the end of the taxable year. Id. § 4943(a). If the holdings continue to exceed the threshold and the 10% tax has been imposed, an additional tax of 200% also may be imposed. Id § 4943(b). The private foundation or DAF normally has a five-year period to dispose of the interests if acquired other than through purchase. Id. § 4943(c)(6). This is generally the case with closely held business interests donated to the charitable entity, so the five-year grace period usually applies. In addition, the IRS may allow an additional five-year extension period to dispose of the excess business holdings if it was an unusually large gift that prevented reasonable disposition of all the holdings within the initial five-year period and there were diligent efforts to reduce the holdings during that time. Id. § 4943(c)(7).

An exception to the excess business holdings rule is referred to as the Newman’s Own exception. A Newman’s Own–type private foundation is also an allowable S corporation shareholder, although corporate income still will be subject to unrelated business income

tax and capital gains on the sale of the shares. Paul Newman wanted all his business profits to go to charity, but, at the time, the excess business holdings tax prevented this. The Newman’s Own exception, or “independentlyoperated philanthropic business,” is now codified in Code § 4943(g) to allow for-profit businesses to operate solely for the benefit of charity. This rule was enacted as part of the Bipartisan Budget Act of 2018 (Pub. L. No. 115-123) but is limited to use by private foundations, so the structure will not work with a DAF, charitable and split-interest trusts, or supporting organizations.

I.R.C. § 4943(g)(5).

The general requirements of the Newman’s Own exception are as follows:

• The private foundation must own 100% of the business’s voting stock and the interest must have been acquired by the private foundation other than by purchase;

• The business must distribute all net operating income to the private foundation within 120 days after the close of the taxable year (it may retain an operating reserve);

• The donor or family member may not be a director, officer, trustee, manager, employee, or contractor of the business;

• A majority of the private foundation board may not be directors or officers in the business or family members of the donor; and

• There may not be an outstanding loan from the business to the donor or family member.

Id. § 4943(g). A significant hindrance to this exception is the lack of control that the donor and the donor’s family may have over both the business and the private foundation, but it may be advantageous if the donors meet all requirements and are committed to the structure.

Charitable Limited Liability Company: Charitable limited liability companies (LLCs) are a newer structure type that has been associated with abuse but may offer benefits that some donors

may prefer over other options. The benefits of using a charitable LLC include filings that are private (standard Form 1065, which is not subject to public inspection); the fact that the family controls the investments and distributions, so they may use it for legacy purposes; and fewer restrictions on asset holdings than other entity types, with no required annual charitable distributions.

Using charitable LLCs also has drawbacks, including increased IRS scrutiny of fraudulent uses, the inclusion of the donor’s ownership interest in their estate, and the fact that charitable LLCs are not tax-exempt entities, so the charitable deductions flow through to members when made to the charity and not when funds are contributed to the LLC. Abuses of this structure may involve a donor gifting nonvoting membership interests to a charity for a large donation deduction, then taking a loan from the LLC at the applicable federal rate, limiting the investment return, and potentially even going further to have family trusts buy back the interests from the charity at the now lower value. If used correctly, charitable LLCs may offer a viable charitable giving structure for a family.

Conclusion

Charitable giving is an important aspect of many ultra-high-net-worth family legacy goals. These families normally have complex asset types and entity structures. Careful consideration of assets and legacy objectives should be reviewed for planning purposes to best fulfill grantor intent while achieving tax efficiencies. n

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KEEPING CURRENT PROPERTY

CASES

CONVERSION OF GOODS: Statute of limitations usually runs from time of theft, but not if converter obtains possession by invalid gift. In the 1980s, Swan and Rankin operated a retail clothing store and engaged the celebrated artist Jean-Michel Basquiat to create a drawing as a prototype for business cards. They kept the drawing but decided not to use it for this purpose. Rankin died in 1989. In 2019, a store employee, Page, consigned the drawing to Sotheby’s, which sold it at auction. Page told Sotheby’s that he had received the drawing as a gift from Rankin. After Swan demanded the return of the drawing, Sotheby’s rescinded the sale and filed an interpleader action. Swan then sued Page and Sotheby’s, alleging conversion. Page moved to dismiss on the ground that the suit was barred by the three-year statute of limitations. The district court granted the motion to dismiss, but the Second Circuit Court of Appeals reversed and remanded. The court explained that under New York law, a cause of action for conversion accrues when all of the facts necessary to sustain the cause of action have occurred so that a party could obtain relief in court. In the case of theft, the cause of action accrues at once. The district court erred in dismissing the case, although understandably, the Circuit Court noted, given the conflicting legal theories asserted. In her amended complaint, Swan offered alternative theories as to how Page came into possession of the drawing—that he stole it at some

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.

point in the late 1980s or early 1990s (far more than three years before the suit was filed in 2022) but also that he received it as an unauthorized gift from Rankin. On a motion to dismiss, a court is required to accept all factual allegations as true and give the plaintiff the benefit of all reasonable inferences— here that Page obtained the drawing by an invalid attempted gift, which would have meant the action was not barred.

Swan v. Page, 2024 U.S. App. LEXIS 32186, 2024 WL 5165516 (2d Cir. Dec. 19, 2024).

EMINENT DOMAIN: Road improvement project that changes traffic flow, but does not change access points to owner’s retained land, is not a taking requiring compensation. The State began a construction project to convert a road into a new section of Interstate 69 and to close an existing intersection. After the State was unsuccessful in buying a 0.632-acre strip of land needed for the project, it filed an eminent domain action against the owner, Franciscan Alliance, Inc., and two holders of easements over the strip. The parties employed independent appraisers, with the State’s appraisers valuing the land at $40,500 and the defendants’ appraisals ranging from $1,986,000 to $4,400,000, which included an alleged reduction in the value of Franciscan’s retained land. At trial, the State moved to exclude the defendants’ appraisals and any other evidence of claimed damages from increased “circuitry of travel” to access the defendants’ businesses based on the closed intersection. The trial court denied the motions, and a jury awarded Franciscan $680,000 plus interest and $1,500,000 plus interest to one of the easement holders. The supreme court reversed and remanded the trial court decision. The court noted that the federal and state constitutions require just compensation for the taking of private property for public purposes. Just compensation includes an assessment of the fair market value of the property being acquired along with damages to the residue of the property retained by the owner. There is no right to compensation for damages

The Drawing by Jean-Michel Basquiat in Swan v. Page.

that do not result from the taking. The court stated that two legal principles are well-settled when landowners claim damages based on loss of access from reconfigured roadways: a landowner cannot recover damages for changes in traffic flow past their property; and landowners can recover damages when ingress and egress to their property is actually or constructively eliminated. Further, although evidence of changes to a property’s “highest and best use” is admissible to determine the amount of compensation owed, it is irrelevant to establishing whether a taking has occurred. Here the defendants’ ingress-egress points were not actually or constructively eliminated. Instead, this was a traffic-flow case, with the evidence produced only alleging a negative effect on the land’s commercial use from the increased circuitry of travel to the land. Indiana v. Franciscan Alliance, Inc., 245 N.E.3d 144 (Ind. 2024).

FORECLOSURE: Homeowners’ association that wrongfully sells property in foreclosure is not indispensable party to lender’s suit against foreclosure buyer to set aside sale. Staab purchased a condominium unit at a foreclosure sale conducted by the homeowners association to recover unpaid fees owed by the unit owner. Wells Fargo, the loan servicer, sued Stabb and the unit owner, seeking a declaration that the sale without the consent of the Federal Housing Finance Agency (FHFA) or the Federal National Mortgage Association, the holders of the deed of trust, was void under the Federal Foreclosure Bar established by a 2008 statute. 12 U.S.C. § 4617(j)(3) (prohibiting foreclosure of FHFA property “without the consent of the Agency”). Staab moved to dismiss the suit on the grounds that Wells Fargo omitted to join the homeowners’ association in the suit. The trial court ruled for Wells Fargo, declaring Staab’s deed to the property void, ordering Wells Fargo’s deed of trust reinstated, and authorizing Wells Fargo to foreclose on the property. Staab appealed. The Court of Appeals for the District of Columbia Circuit affirmed. The court explained that

a person is an indispensable party if it “claims an interest” related to the litigation and is “so situated that disposing of the action in the person’s absence may . . . impede the person’s ability to protect the interest” or “leave an existing party subject to . . . inconsistent obligations.” D.C. Super. Ct. Civ. R. 19(a)(1) (B)(ii). Here, the trial court was able to grant the relief Wells Fargo requested—a declaration that Staab’s purchase of the property and deed were void—without ordering equitable or monetary relief against the homeowners’ association. In fact, the homeowners’ association did not claim title to or a mortgage on the property, which might be extinguished by the foreclosure sale. Instead, it actively disclaimed any interest in the litigation. It was not necessary to resolve Staab’s potential claims against the homeowners’ association to adjudicate Wells Fargo’s arguments about the validity of the foreclosure sale and its deed of trust. Staab v. Wells Fargo Bank, N.A., 328 A.3d 391 (D.C. Ct. App. 2024).

LANDLORD-TENANT: Clause in shopping center lease providing for reduced rent if anchor tenants close is valid and does not constitute liquidated damages. After extended negotiations, in which both sides were represented by counsel, the parties entered into a lease of space in a shopping center. The lease contained a “cotenancy provision” that gave the tenant an option to terminate the lease or pay a reduced “substitute rent” if the landlord failed to maintain leases with three anchor tenants or leases covering at least 60% of the gross leasable space in the shopping center for a period of six months. After the tenant invoked the cotenancy provision and paid substitute rent for 20 months, the landlord sued for a declaration that the cotenancy provision was an unenforceable liquidated damages clause and sought to recover $638,000 from the tenant. At the time of the suit, the tenant’s scheduled rent was $42,000 per month, but the substitute rent was $12,000. The trial court granted the tenant’s motion for summary judgment. The intermediate appellate court agreed, and the

supreme court affirmed. The court first explained the difference between an alternative performance clause, which is not per se unenforceable, and a liquidated damages clause, which is unenforceable if it exacts a penalty for breach of agreement. The cotenancy agreement here was of the former character—to avoid allowing the tenant to pay substitute rent, the landlord had a “realistic and rational choice” to prevent its trigger by finding other anchor tenants through incentives and other marketing efforts. The court explained that cotenancy provisions are not negotiated in a vacuum—here, the parties, sophisticated and represented by counsel, obviously assessed the risks of entering into the lease, and these provisions were their method of allocating those risks. Absent unconscionability or significant public policy concerns, contracts are to be enforced as written and agreed to by the parties. JJD-HOV Elk Grove, LLC v. Jo-Ann Stores, LLC, 560 P.3d 297 (Cal. 2024).

LANDLORD-TENANT: Ordinance that requires regular inspections of rental housing units and allowed inspectors to obtain administrative search warrants is not facially unconstitutional. Orange City passed an ordinance requiring periodic inspections that included the option of securing a search warrant for the premises if an inspector was refused entry to a rental unit. Certain owners and renters filed suit asserting the ordinance violated the search and seizure clause of the Iowa state constitution because the city did not have to show probable cause that a violation had occurred in the unit. The trial court granted the plaintiffs’ motion for summary judgment, declaring unconstitutional the mandatory inspection requirement of the ordinance and permanently enjoining the city from seeking administrative warrants to conduct inspections. The city appealed, and the supreme court reversed. Although the plaintiffs’ case focused on comparisons between the Iowa Constitution and the Fourth Amendment of the US Constitution, the court made clear that the Fourth

Amendment does not control the interpretation or application of the state provision. The court found the ordinance does not violate the state or federal provisions because US Supreme Court precedent holds that administrative warrants are permitted to be issued without any specific knowledge of a violation within a particular dwelling. Additionally, because plaintiffs brought a facial challenge to the ordinance, they were required to prove that it was totally invalid and incapable of any valid application on any set of facts. Here, the court laid out several scenarios in which the ordinance could operate without violating the state constitution. For example, if reliable neighbors reported to the city that a unit had no smoke detectors, that could justify seeking a warrant under traditional probable-cause theory. Further, the city could choose not to seek an administrative warrant and instead pursue legal options that do not involve warrants and include traditional due-process features such as notice to tenants and the opportunity to be heard. Also, the ordinance allowed for private inspections so that the government would not be involved in the process at all. Singer v. City of Orange City, 15 N.W.3d 70 (Iowa 2024).

PREMISES LIABILITY: Forestry statute immunizes forestland owners from liability for personal injury caused by falling trees in riparian management zone. Chrisman was seriously injured when he drove his work vehicle through forestland on an extremely windy day, and a tree fell on the vehicle. Before the accident, the state granted a timber harvesting contract to a lumber company, which hired a logging company, which cut trees, except for a band of trees in a riparian management zone (RMZ). RMZs are buffers of trees left standing on either side of a river or creek to benefit wildlife and water quality. Chrisman and his employer sued the state, the lumber company, and the logging company for negligence. The defendants claimed protection under the Forest Practices Act of 1974, which immunizes

forestland owners from liability when a tree required to be left standing in an RMZ falls and causes damage or injury. Wash. Rev. Code § 76.09.330. Chrisman asserted that the defendants were not forestland owners and, therefore, could not claim immunity under the statute. He also claimed defendants were not immune on the theory that the RMZ was improperly drawn, and thus, the tree that struck Chrisman was not required to be left standing. The trial court granted the defendants’ motion to dismiss. The court of appeals reversed, holding that the logging and lumber companies were not forestland owners because they did not have the right to harvest RMZ trees. The appellate court also ruled that immunity would not attach if an RMZ was improperly drawn. The supreme court reversed, explaining that the act reflected a policy in favor of leaving riparian areas unharvested to benefit biodiversity and water quality and that falling trees would enhance habitat. The legislature anticipated that leaving trees standing could cause personal injury or property damage, so the act gives broad immunity, notwithstanding other statutory provisions, rules, or common law. The plain language of the statute extends this immunity to forestland owners, who must comply with the designation of the RMZ. The lumber and logging companies were forestland owners as defined by the act because they were in actual control of the forestland and had a right to sell or otherwise dispose of the timber on the land. The legislature expected that trees left in an RMZ would be vulnerable to blowdowns but believed that these blown-down trees would produce environmental benefits. To claim immunity, the forestland owners were required to leave trees in the RMZ zone standing but had no duty to adopt measures to protect against windthrow. The court concluded that the immunity under the act does not depend on the accuracy of a final RMZ designation. Public Util. Dist. No. 1 v. State, 562 P.3d 343 (Wash. 2025).

MINERALS: State statute governing the payment of royalties does

not abandon mineral rights. Petitioners filed claims to the mineral rights attached to 393 parcels of land based on their contention that the state abandoned all interest in the disputed minerals by passing a statute in 2017 that established a process for releasing mineral royalties to the owners of tracts of land adjoining the Missouri River. N.D. Cent. Code §§ 61-33.1-01 to 61-33.1-07. They asserted that after the statute’s passage, the minerals had no owner and that they became the owners by claiming the minerals before anyone else. The trial court dismissed the petitioners’ cases for failure to state a claim upon which relief could be granted, and the petitioners’ appealed. The supreme court stated that the statute in question only directed the state to release mineral extraction royalties to the actual owners of tracts lying entirely above the high-water mark of the Missouri River. The statute also set up a process for determining what part of the Missouri riverbed channel was state-sovereign land and for determining if the money paid to the state should be returned to actual property owners, but otherwise, the state did not abandon state property by the statute. The court ruled that a petitioner must have a valid interest or ownership in the disputed mineral interests to maintain a quiet title action. Such an action cannot be used to acquire an interest in real property; rather a petitioner must first own an estate in real property in order to test the claims of others. Here, the petitioners had no interest in the minerals and admitted having no surface rights to any of the tracts and no traceable connection to the hundreds of tracts listed in their petitions. The court characterized their claims as a convoluted and circular legal theory to create an interest or estate by simply asserting ownership and demanding through burden shifting that others disprove their allegedly superior rights. Nelson v. Lindvig, 14 N.W.3d 66 (N.D. 2024).

TAXATION: Municipality does not lose ad valorem tax exemption by engaging private company to manage municipal golf course. The City of Gulf Breeze

owned and operated a public golf course for several years, with the county property appraiser finding the course exempt from ad valorem taxation under Article VII, §3(a) of the Florida Constitution, providing that all property owned and used exclusively for municipal or public purposes shall be exempt. In an effort to operate the golf course more efficiently, the city hired a management company. After the parties executed a management agreement, the appraiser ended the exemption, claiming that the agreement was a lease and the property was no longer being used exclusively by the city. The city filed suit and received summary judgment in its favor. The appellate court reversed and remanded for a ruling in favor of the appraiser. The city appealed, and the supreme court quashed the appellate court decision. The court explained that the management agreement did not alter the city’s ownership and control of the property but expressly disavowed being a lease or granting any tenancy or proprietary interest in the golf course. In fact, the agreement reserved to the city “at all times … access to the [golf course property] for any purpose” and stated that “nothing in this Agreement shall be deemed to limit the city’s right to do anything regarding the [golf course] which the City would otherwise be entitled to do.” The court stated that the relevant constitutional test for the controversy is exclusive municipal use, which is exemplified by municipal control. Here, neither the involvement of a management company to facilitate the efficient operation of the property nor the means chosen to compensate the company (a portion of any profits generated) were in derogation of the city’s control of the property and its concomitant exclusive use. City of Gulf Breeze v. Brown, 397 So.3d 1009 (Fla. 2024).

TAX FORECLOSURE: Forfeiture of surplus value after tax foreclosure by holder of tax sale certificate is unconstitutional. Roberto, the owner of a mixed-use commercial and residential property, failed to pay sewer bills because, he claimed, his tenants did not pay rent during the COVID-19

pandemic. 257-261 20th Avenue Realty, LLC (20th Avenue) purchased the tax sales certificates under the Tax Sale Law, N.J. Stat. Ann. §§ 54:5-1 to 54:5-137. Years later, 20th Avenue filed to foreclose on the property. The redemption amount was $33,000. Because Roberto did not respond to redeem, a default judgment was entered. At the time, the property had a value of up to $500,000. After the sale, the US Supreme Court decided Tyler v. Hennepin County, 598 U.S. 631 (2023), ruling that the forfeiture of surplus after a tax sale is a taking that requires compensation. The appellate court reversed the default judgment under the reasoning of Tyler. Joining the growing list of states striking down tax sale foreclosure systems under Tyler, the supreme court affirmed, holding that the version of the TSL in effect ran counter to the principles outlined in Tyler and violated the Takings Clause of the Fifth Amendment. The court began by explaining the state’s centuries-old tax sale foreclosure system, which creates a continuous lien on property for unpaid property taxes. N.J. Stat. Ann. § 54:5-6. Municipalities convert the liens into a stream of operating revenues through the sale of tax certificates at auction. Potential buyers can start the bidding at a maximum interest rate of 18% and the certificate is sold to the bidder willing to buy it at the lowest rate. N.J. Stat. Ann. § 54:5-32. The successful bidder agrees to pay taxes to the municipality and can sue to foreclose the property owners’ title between two and 20 years from the date of purchase of the certificate. In 2024 after the Tyler decision, the New Jersey legislature amended the tax foreclosure law to give property owners more ways to preserve the equity in property, including by demanding a judicial sale or internet auction and to have any surplus funds from the sale returned to them. If no one bids on a property and the tax sale certificate holder gets title, it is “presumed that there is no equity in the property.” N.J. Stat. Ann. § 54:5-87(b). Nonetheless, it was the prior law that applied to the facts here, and the analysis lined up on all squares with Tyler—New Jersey recognizes a property right to surplus equity in real property; private

lienholders are acting jointly with local governments under the law to perform a traditional public function, the collection of taxes, and thus are considered state actors; and it was without question that the taking of surplus equity under the sale of tax liens is a public use as they are designed to raise revenue for municipalities to operate. The court did not rule on whether the revised statute is constitutional. 257-261 20th Avenue Realty, LLC v. Roberto, 327 A.3d 1177 (N.J. 2025).

ZONING: Dog-rescue operation is allowed as kennel in residential zone. A homeowner operated the Vermont English Bulldog Rescue to offer temporary foster care to rescued dogs. The dogs were kept in the backyard, enclosed by a fence, and were walked around the neighborhood by volunteers. There were no other structures associated with rescue use. The town issued a notice of zoning violation but eventually issued a limited permit to allow only one dog outside at a time. The neighbors appealed. The trial court ruled that the plain language of the home business exception in the regulations prohibited outdoor uses. The court rejected the landowner’s argument that she was operating a “kennel,” reasoning that the town bylaw provision allowing kennels was limited by the outdoor restriction for home businesses. The supreme court reversed in a close textual reading of the regulations. First, the court explained the home business exception allows certain uses of property in a residential zone that are not solely residential, such as accessory uses and structures, childcare centers, churches, elementary and middle schools, and parks. Town of Williston Development Bylaw § 39.1.3. Home businesses are defined as “any commercial activity conducted . . . by the residents . . . that meets the standards established here.” Id. § 20.4.1. The “space used for the proposed home business shall be within the dwelling or in an accessory structure.” Id. Appendix G § 3(a). The bylaw also contained provisions expressly permitting kennels, defined as “any space used to confine dogs,” as a home business and requiring

that kennels comply with the standards for “accessory structures” and “fences” contained in the bylaws. Id. § 20.9. The supreme court went on to note that, as the lower court observed, the kennel and home-business provisions are in tension; the kennel provision clearly contemplates some outdoor use of residential property because it refers to accessory structures and allows for higher fences, but the home-business provision generally prohibits outdoor workspaces and storage. In resolving the apparent conflict between two provisions in a regulation, the court explained that the specific provision is held as an exception to the general provision. Here, the kennel provision is more specifically applicable to the homeowner’s operation. The court believed this reading was the most sensible; otherwise, reading the homebusiness provision so as to prohibit outdoor uses by kennels in residential districts would render the provision permitting kennels as home businesses virtually meaningless because kennels typically require the use of outdoor space for the proper care for dogs. In re Pederzani Administrative Appeal, 328 A.3d 1278 (Vt. 2024).

LITERATURE

LAND USE: In a Georgia Law Review Symposium, Evolving Landscapes: American Land Use Law & Resiliency, 58 Ga. L. Rev. 1535 (2024), several scholars consider how climate change may affect where and how we build and live. First, Prof. Albert C. Lin in Public Insurance as a Lever for Semi-Managed Climate Retreat, 58 Ga. Law Rev 1535 (2024), describes the growing and worrisome trend of private casualty insurers declining to issue or renew homeowner policies in California, Colorado, Florida, and Louisiana following massive payouts from hurricane and wildfire damage in recent years. But he challenges the idea of statebacked insurance as the most effective response, even with ongoing managed retreat efforts. Managed retreat policies aim to move people and communities out of climate-vulnerable areas. But, by offering underpriced coverage, such programs have encouraged development in

climate-vulnerable areas, such as floodplains and the wildland-urban interface. He proposes to link public insurance with buyouts: public insurance in climate-vulnerable areas should be made contingent on insureds agreeing to buyouts if property damage exceeds a predetermined threshold amount.

LAND USE: Profs. Mark Nevitt and Michael Pappas, in Climate Risk, Insurance Retreat, and State Response, 58 Ga. Law Rev 1603 (2024), continue the dialogue on the insurance problem and claim that some areas are just too vulnerable to insure. In their view, we need to rethink various governmental policy choices, including interventions modeled after the federal National Federal Insurance Program as well as state insurance programs. In finding the best strategy, they note that the extent of government intervention will vary from region to region and will depend on weighing concerns about physical risk against the financial costs of intervening.

LAND USE: Prof. Tom Lininger, in Empowering Family Forestland Owners to Reduce Wildfire Risk, 58 Ga. L. Rev. 1567 (2024), notes that some commentators have argued for measures to reduce the human presence in the WildlandUrban Interface, given the growing wildfire risk, especially in the Western United States, the recent Los Angeles wildfires being a case in point. But he rejects the idea of wholesale removal of humans from these areas, instead believing the better strategy is to assist family forestland owners in fireproofing their residences and improving the health of their forests. Family forestland owners have a salutary effect on forest resiliency, such that excluding them altogether would create more problems than it would solve.

LAND USE: In Building Climate Resilience with Local Tools, 58 Ga. L. Rev. 1663 (2024), Prof. Shelley Saxer urges local planners to employ the many land use tools already at their disposal to blunt the toll of climate change. There are both short- and long-term approaches

that may prove efficacious, including requiring sustainable and green development, invoking nuisance laws, creating renewable energy incentives, and adopting smart city regulations. She believes it is imperative that the principle of socialecological resilience guide the creation of sustainable communities, and this effort must embrace an inclusive and community-wide approach.

LAND USE: Prof. John Travis Marshall calls our attention to rural communities in Farmland and Forestland in an Era of Climate Change: Hurricane Michael and Opportunities to Advance Rural Resilience, 58 Ga. L. Rev. 1721 (2024). He points out that rural communities, where some 20% of Americans live, are at heightened vulnerabilities and shows the significant lapses in state planning and disaster recovery policies that left smaller rural communities, farmers, and forestland owners wholly unprepared for major disasters. Focusing on the ravages of Hurricane Michael and the weak housing recovery, he offers ways to mitigate disaster-related housing loss, thus enabling more robust and long-term housing recovery.

LAND USE: Prof. Blake Hudson, in Resilient Forest Management and Climate Change, 58 Ga. L. Rev. 1775 (2024) takes the position that we can better manage forests for greater resilience, but there are scientific and policy complexities that stand as obstacles, although not insurmountable. In his view, the primary adaptation solutions for creating greater forest resiliency—reducing fire risk and integrating more climate resilient species into forests—often fall short in the face of a host of impediments, including federalism, geographic and ecological differences in forests, and scientific unknowns. New thinking to overcome these impediments includes incentivizing market development, increasing government investment, reforming federal administrative law, and harnessing expertise in regional forestry programs to build trust.

MORTGAGES: Prof. Julia Patterson Forrester Rogers provides what she identifies as the first comprehensive comparison of the traditional paper mortgage,

the eMortgage, and UCC Article 12 mortgage in her article eMortgage and Crypto-Mortgage in Home Finance, 52 Pepperdine L. Rev. 1 (2025). The article also evaluates what she has coined as a “crypto-mortgage,” which is a loan secured by real estate where the payment obligation is tied to a nonfungible token (NFT) “that can be transferred without an electronic mortgage loan registry system.” Having the payment obligation secured by an NFT is distinguished from having the real estate tied to an NFT. The characterization of the NFT linkage seems relatively figurative because the obligation is kept track of through its utilization of blockchain technology, which is itself an electronic registration, albeit in a different way than the modern traditional mortgage electronic recording system. Throughout her comparative analysis, Prof. Rogers makes several interesting assertions regarding the relationship between residential purchasers and mortgage lenders. She undoubtedly is correct in noting that consumers generally fail to understand mortgage loan documents and cites studies that have attempted to measure consumer understanding based on the preparation and presentation of those materials. The studies seem to confirm one’s natural expectation that less lengthy documentation and more time spent in explanation to persons with higher levels of education leads to greater understanding. As Prof. Rogers notes, the inevitability of nearly all documentation moving to electronic formats leads to new issues regarding consumer understanding and their potential future legal actions. She asserts that reliance on a paper-based system for loan processing and tracking has proven problematic in light of the high costs associated with storage as well as the susceptibility of paper to unpredictable weather-related natural disasters. She also cites the significant role of lost documents as contributing to the Great Recession. Prof. Rogers links the paper problem with what she calls a payment problem related to sufficient notice of mortgage servicer transfers, and the holder in due course problem, joining

the growing chorus of those advocating its repeal for residential mortgage transactions. Technological responses to the above problems have taken various forms since the turn of the century, and Prof. Rogers provides a significant timeline, including the Uniform Electronic Transaction Act (UETA) and E-Sign, both of which recognized an electronic version of a paper promissory note called a transferable record, and the 2022 adoption of UCC Article 12 to accommodate emerging technologies, which established the controllable electronic record (CER). She asserts that Article 12 facilitates the use of cryptomortgage architecture as evidence of a payment obligation embedded in or tethered to an NFT. As Article 12 contemplates blockchain technology and a cryptographic key as a method of control, it provides a legal basis for the crypto-mortgage. The article is quite futuristic, although she includes many suggestions for Congress, the Consumer Financial Protection Bureau, and like organizations to take the lead in setting a regulatory structure for the expanding use of new technologies in the mortgage loan realm.

LEGISLATION

DISTRICT OF COLUMBIA enacts

Uniform Commercial Real Estate Receivership Act. The act authorizes the appointment of a receiver before or after judgment, with the power to collect and manage receivership property. The act sets standards for eligibility to serve and for removal. The receiver may take possession, custody, and control of receivership property. 2023 D.C. ch. 658.

NEW YORK regulates short-term rentals. Registration and record-keeping are required, and safety measures must be in place. 2024 N.Y. Laws 672.

NEW YORK creates Climate Change Adaptation Cost Recovery Program. The program aims to secure compensation from responsible parties for climate change effects based on a standard of strict liability. A climate change adaptation fund is created. 2024 N.Y. Laws 679.

MICHIGAN amends landlord-tenant law to prohibit discrimination based on source of income. 2024 Mi. P.A. 178.

MICHIGAN prohibits discrimination in real estate transactions. The act applies to real estate brokers and salespersons and prohibits discriminatory practices, policies, and customs in sales, appraisals, and advertisements on the basis of religion, race, color, national origin, age, sex, sexual orientation, gender identity or expression, height, weight, familial status, or marital status. 2024 Mi. P.A. 180. n

The Purchase and Sale of Project-Based Rental Assistance Properties

By Chelsea Glynn

The United States has been experiencing a housing crisis for decades, and, as a result of high interest rates and low inventory, the crisis has grown in recent years. In an effort to promote affordable housing, the Department of Housing and Urban Development (HUD) offers incentives for real estate investors to become owners of affordable multifamily housing, including providing long-term project-based rental assistance (PBRA) to make units more affordable to families. U.S. Dep’t of Hous. & Urb. Dev., Increasing the Supply of New Affordable Housing: A Primer of Strategies to Implement Today 15–16 (Oct. 2023), https://tinyurl. com/28xd2js3.

Although many are familiar with the portable tenantbased Section 8 housing vouchers, project-based vouchers differ in that they are associated with a specific property rather than able to be used for any unit in the United States. Each project-based Section 8 property works through a Housing Assistance Payments contract, or HAP Contract, under which HUD, through the public housing agency contract administrator, provides funding for the subsidy if the property owner follows certain program requirements. Project-based rental assistance provides over 1.2 million low-income families with affordable housing; without this assistance, many currently affordable properties would either convert to market-rate rentals or would be unable to generate enough rental income to continue operations. Off. of Hous., Dep’t of Hous. & Urb. Dev., Project-Based Rental Assistance, at 21-2 (2021), https://tinyurl.com/mwc6xnjr.

In this era of escalating housing costs and a growing affordable housing crisis, PBRA properties play a crucial role in providing stable and affordable housing for low-income families. The ability to transfer PBRA properties ensures that this affordable housing can continue within the community. Although many aspects of a transaction involving PBRA property may be familiar to most real estate practitioners, there are some unique intricacies in which attorneys can play a critical role in advising and facilitating these transactions effectively.

History

The legal framework involving PBRA properties is the product of decades of changing policies. Federal housing programs have evolved in response to economic, political, and social circumstances, beginning with construction and financing programs for housing in response to the Great Depression. Maggie McCarty, Cong. Rsch. Serv., R41654, Introduction to Public Housing, at 2 (Jan. 3, 2014), https:// tinyurl.com/4ybneja3. In 1934, Congress passed the National Housing Act, creating the Federal Housing Administration, which established mortgage insurance programs to stop bank foreclosures on family homes. Adam Hayes,

Chelsea Glynn is a real estate attorney with Foster Garvey PC in Portland, Oregon.

National Housing Act: Overview, Impact, Criticisms, Investopedia (June 30, 2022), https://tinyurl.com/ku3c6je5. The Housing Act of 1937 then created local public housing agencies (PHAs) throughout the country and funded construction of public housing units, which were operated by the PHAs. McCarty, supra, at 2.

In the 1950s and 1960s, the federal government transitioned to programs that incentivized private investors to create new affordable housing, primarily with low interest rates or other subsidies. Nat’l Low Income Hous. Coal., A Brief Historical Overview of Affordable Rental Housing, 2024 Advocates Guide, at 1-7 (2024), https://tinyurl.com/mvtsuwfr. Initially, the Federal Housing Administration supported project-based assistance by subsidizing owner’s mortgages, which in turn reduced the cost of developing affordable housing. Nat’l Pres. Working Grp., Project-Based Rental Assistance [hereinafter Project-Based Rental Assistance], in 2024 Advocates Guide, supra, at 4-88. As a condition of these mortgage subsidies, owners agreed to rent restrictions and tenant income limits. Id.

To offer affordability beyond what the mortgage subsidies were providing, Congress enacted project-based rental assistance programs, including the Section 101 of the Housing and Urban Development Act of 1965 Rent Supplement Program (Rent Supp) and the Section 236 Rental Assistance Program (RAP), in which HUD set the rent level, of which the tenant paid 30% of the tenant’s adjusted gross income and the subsidy paid the remainder. Id. at 4-88 to 4-89. Through the Rental Assistance Demonstration program (RAD), the properties under Rent Supp and RAP contracts converted to long-term rental assistance Section 8 project-based housing operated by public housing authorities and overseen by HUD under a Housing Assistance Payment (HAP) contract. U.S. Dep’t of Hous., Off. of Recapitalization, Fact Sheet for Public Housing Authorities and Owners of Section 8 Moderate Rehabilitation (Mod Rehab) or McKinney Mod Rehab Single Room Occupancy (SRO) Properties Converting Under the Rental Assistance Demonstration (RAD) (released Jan. 2018).

From 1974 to 1983, developers created more than 800,000 project-based rental assistance units. Nat’l Pres. Working Grp., supra, at 4-86. In 1983, however, Congress repealed authorization for new construction. Id. In May 1999, HUD began transferring administration of Section 8 contracts to thirdparty contract administrators, such as housing authorities. Id. at 4-88. Currently, no new HAP contracts are being awarded, though owners generally have the right to renew the HAP contracts so the property can continue to provide affordable housing to its tenants. Id. at 4-87.

HAP Contracts

Existing PBRA properties continue to provide crucial affordable housing through the renewal of HAP contracts. Under a HAP contract, a property owner contracts with HUD or a PHA to provide affordable units. HUD pays subsidies to the owner to make up the difference between the low income-based rents charged to its tenants and previously agreed-upon contract

rents. Cong. Rsch. Serv., The Section 8 Project-Based Rental Assistance Program, In Focus, Dec. 11, 2023, at 1. The initial term of the HAP contract may be up to 20 years. 24 C.F.R. § 983.205(a).

To be eligible to rent in PBRA housing, a tenant must generally have a household income at or below 50% of the local area median income (AMI), and at least 40% of the units must be made available to households having an income at or below the greater of 30% of AMI or the federal poverty guidelines. Cong. Rsch. Serv., supra, at 1.

As a condition to payment of such subsidies, the HAP contract imposes additional requirements on owners to ensure the quality and accessibility of such housing. Owners must maintain the units in accordance with housing quality standards governing the habitability of the units. Form HUD-52641, pt. B, sec. 3. The housing quality standards cover aspects such as space, security, plumbing, electrical systems, heating, cooling and ventilation, and structural integrity, and contain specific criteria that each unit must meet to be considered habitable housing. See 24 C.F.R. § 5.703. The HAP contract also requires that the owner not discriminate against any person because of race, color, religion, sex, national origin, age, familial status, or disability and cooperate with the PHA and HUD in compliance reviews and complaint investigations. Form HUD-52641, pt. B, sec. 9.

Additionally, the HAP contract grants HUD and the PHA broad access to the property and owner records. PHA, HUD, and the Comptroller General of the United States have full and free access to the contract unit and the premises and to all accounts and other records of the owner that are relevant to the HAP contract. Id. sec. 11. Meeting these obligations may require considerable time and effort for property owners.

Benefits of Owning PBRA Property

Despite these additional obligations imposed on owners, PBRA housing can offer a level of stability to owners that non-PBRA housing often cannot. The PHA pays the federally subsidized

portion of rent directly to the owner each month, and its renters are incentivized to pay their portion of rent on time to avoid losing certain benefits. This combination generally creates a stable cash flow that owners can rely on.

On top of that, affordable housing will remain in great demand for the foreseeable future, so PBRA property owners can typically expect to sustain high occupancy rates. These benefits are in addition to the improvement the owner is making to the community by offering affordable housing to those in need. Although no new HAP contracts are being awarded, they can be renewed in one, five, or 20-year increments and assigned to a new owner.

Buying and Selling a PBRA Property

Because there is a limited supply of PBRA properties but a high demand for low-income housing, purchasing a PBRA may be of interest to certain real estate investors. Although many aspects of such transactions will be familiar to real estate practitioners, they do present a unique set of challenges.

To transfer ownership of a PBRA property, the PHA must agree to the assignment of the HAP contract. Therefore, if the owner of a property with a HAP contract decides to sell the asset, information must be submitted to the PHA in advance of the sale and the buyer also must agree to be bound by and comply with the terms and provisions of the HAP contract. Therefore, owners wishing to sell and buyers wishing to assume the HAP contract must each supply all information as requested by the PHA. Id. sec. 14.

The agreement that the new owner will comply with the HAP contract must be in a form acceptable to the PHA. HUD generally will provide a form “Assignment or Assumption of Housing Assistance Payments (HAP) Contract” and require it to be executed by the parties as part of the sale. If the buyer fails to provide the PHA with an acceptable form of assignment, the HAP contract will terminate on the effective date of the ownership change. Therefore, it is important to account for review and execution

of the Assignment and Assumption of HAP Contract as part of closing the sale in addition to an assignment of the leases.

There is also additional due diligence that a potential buyer may want to conduct before closing on the sale. This includes obtaining copies of the leases and the HAP contract to be assigned and reviewing them to ensure that the buyer has a complete set of documents. Buyers also can contact the PHA to confirm the continued eligibility of the property on the program before closing on the purchase. The parties will want to take into account these extra steps when structuring the transaction timelines set forth in the purchase and sale agreement.

Finally, to avoid unexpected repairs, the buyer should inspect the property for compliance with housing quality standards and, if there are deficiencies, it should consider requesting they be corrected or an adjustment made to the purchase price.

Because of the assignment of the HAP contract associated with the sale, transactions involving PBRA properties require advance planning for assignment of the HAP contract and necessitate close collaboration and communication between the buyer, the seller, and the PHA. Advanced planning and open communication will facilitate a smooth transfer of ownership.

Summary

The acquisition and disposition of PBRA properties present unique opportunities and challenges. While the obligations associated with HAP contracts and HUD regulations can present obstacles to be overcome, the potential for stable income streams and a positive community impact nonetheless render PBRA transactions compelling opportunities for investors and legal professionals. By understanding the intricacies of these transactions and conducting thorough due diligence, buyers and sellers can successfully navigate this market and contribute to the preservation of muchneeded affordable housing. n

KEEPING CURRENT PROBATE

CASES

ADJUSTMENT: Power to adjust properly exercised. In Matter of Will of Kline, 244 N.E.3d 1011 (Mass. 2024), the Massachusetts Supreme Judicial Court held that the terms of a testamentary trust created before the state’s enactment of the Uniform Principal and Income Act that limited principal invasions for the sole income beneficiary to “the most extraordinary circumstances” and expressed the testator’s belief that no such distributions would be required did not prevent the trustee from using the power to adjust where the trustee was investing for total return in accord with the prudent investor rule.

CONTRACTUAL WILLS: Valid contract not to revoke mutual wills cannot be ended by unilateral notice. In an opinion thoroughly discussing the law from several jurisdictions, the Vermont Supreme Court in Inouye v Estate of McHugo, 328 A.3d 1229 (Vt. 2024), held that a valid contract not to revoke mutual wills cannot be rescinded by notice of the intent to revoke given by one testator to the other without evidence of consent by the other testator, which the evidence did not show in the case.

EXONERATION: Direction to pay debts and obligations does not require exoneration of mortgage. In a case of first impression, Davis v. Goforth, 909 S.E.2d 15 (Va. Ct. App. 2024), the Virginia intermediate appellate court held first that the “clearly set out” “contrary intent” required by Virginia statute, Va.

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.

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.

Code Ann. § 64.2-531(A), to overcome the default rule of non-exoneration need not be expressly stated, and, second, the testator’s direction to pay “just debts” and “all debts and obligations” from the proceeds of sales required by the will does not meet the statutory requirement because they are no more than the “general directive” to pay debts that the statute says is insufficient to override the default rule.

INFORMING TRUST BENEFICIARIES: Failure to keep beneficiaries informed is serious breach justifying removal of trustee. The trustee failed to keep beneficiaries informed as required by the Ohio version of UTC § 813, Ohio Rev. Code Ann. § 5808.13. In Pollock v. Mullins, 253 N.E.3d 629 (Ohio Ct. App. 2024), the Ohio intermediate appellate court affirmed a judgment removing the trustee, finding that the failure to fulfill the duty to keep beneficiaries informed was a serious breach and rejecting the argument that the required information being known by the beneficiaries’ parent and their attorney was sufficient.

INTESTACY: Bar on parental inheritance from child does not bar child’s inheritance from parent. Nebraska law prohibits a parent from inheriting from or through a child if the parent’s parental rights were terminated and not judicially reinstated. Neb. Rev. St. § 30-2312.02. In In re Estate of

McCormick, 12 N.W.3d 802 (Neb. 2024), the Nebraska high court held that the statute does not prevent the child from inheriting from a parent whose parental rights were terminated and not restored.

POWER OF APPOINTMENT: A trustee need not inform the beneficiary of the details of a general power of appointment over trust property. Iowa law requires the trustee to keep “qualified beneficiaries of the trust reasonably informed about the administration of the trust” and of the material facts necessary for the beneficiaries to protect their interests. In Kelley v. Savings Bank Primghar, 14 N.W.3d 771 (Iowa Ct. App. 2024), the Iowa intermediate appellate court affirmed the lower court and held that having provided the life beneficiary who was also the donee of a testamentary general power of appointment over the trust property with a copy of the trust, the trustee had fulfilled its duties and was not required to insure that the beneficiary understood the workings of the power of appointment.

POWERS

OF ATTORNEY: Unprobated will is principal’s estate plan. Missouri law imposes on an agent under a durable power of attorney a fiduciary duty to maintain “without modification” “any estate plan which the principal may have in place.” In its opinion in Broy v. Broy, 698 S.W.3d 801 (Mo. Ct. App. 2024), a divided Missouri intermediate appellate court upheld a finding that an agent under a durable power of attorney breached that duty and rejected the argument that the “estate plan” could not be expressed in a will that was not offered for probate until after the principal’s death. One judge dissented on the grounds that the plaintiffs, two of the principal’s three children (the third was the agent), lacked standing.

REFORMATION:

Unambiguous trust reformed. The Supreme Court of Idaho in Terteling v. Terteling, 558 P.3d 705 (Idaho 2024), affirmed a judgment reforming unambiguous trust terms, adopting the rule of Restatement (Third) of Property § 12.1. Created in 1970, the trust terms identified the beneficiaries as the male descendants bearing the family name of two of the settlors who were brothers. In 2022, two of the surviving settlors and three female descendants of the settlors petitioned to reform the trust. The high court affirmed the grant of the petition, finding that an affidavit made in 1978 by the settlors and the original co-trustees stating that the settlors intended to relieve the co-trustees of any obligation to diversify investments and that the trust had been created to benefit “successive generations” of the family was sufficient evidence that the limitation to male descendants was a mistake.

RESTRAINTS ON ALIENATION:

Restraint on trust property distributed outright is void. California law makes void conditions restraining alienation “when repugnant to the interest created.” Cal. Civ. Code § 711. The decedent’s revocable trust directed the trustee to distribute the decedent’s home to the decedent’s three children as tenants in common. A trust amendment executed the year before the decedent’s death purported to require the children to sell their interests only to each other for a maximum price less than one-third the value of each child’s interest at the time of the decedent’s death. The California intermediate appellate court in Godoy v. Linzer, 327 Cal. Rptr. 3d 323 (Cal. Ct. App. 2024), affirmed the probate court’s judgment voiding the amendment, holding that the statute applies no matter how a fee simple interest is conveyed and agreeing that the limitation of permissible grantees to the siblings and the disparity between the allowed price and the value of the property makes the restraint unreasonable.

TAX CASES, RULINGS, AND REGULATIONS

GIFT AND ESTATE TAX: Regulations finalized concerning gifts from certain

expatriates. In TD 10027, the IRS issued final regulations giving guidance concerning taxes on gifts or bequests from individuals who gave up their U.S. citizenship or residency. Section 2801 imposed a tax on taxpayers who receive a gift or bequest from covered expatriates. This provision applies to gifts that would have been included in the covered expatriates’ gross estates if they had been U.S. citizens or residents at their deaths. Section 877A(g)(1) defines a covered expatriate as an individual who expatriates on or after June 17, 2008, and on the expatriation date: (1) has an annual net income tax liability for the previous five tax years greater than $124,000; (2) has a net worth of at least $2 million; and (3) fails to certify compliance with all U.S. tax obligations for the previous five tax years. The final regulations also revised the definition of a covered bequest to further define the categories of covered property and modified the definition of indirect acquisition of property.

LITERATURE

BASIS: In Stepping up Basis in Living Taxpayer Assets with Upstream Wealth Transfers Through Intentionally Defective Grantor Trusts, 36 Thomas L. Rev. 80 (2023), Michael Schaum provides background on key tax and estate planning principles in wealth transfer, including taxable gross estate, unified tax credit, basis adjustments, defective grantor trusts, and downstream sale combined with a grantor trust. Schaum argues that the IRS should permit wealth preservation through these mechanisms because the current code allows it.

CAREGIVER STATUTES: In Toward a Generation of Caregiver Statutes, 31 Elder L.J. 239 (2024), Jamie McWilliam explores caregiver statutes, which presume undue influence for gifts to caregivers. When first enacted, these laws were often critiqued for restricting testamentary freedom. Since their enactment, however, they have proven helpful in protecting many care recipients from undue influence. McWilliam explores the history of these statutes and provides a path

forward for a new generation of caregiver statutes.

CHARITABLE PLANNING: In SuperCharging Charitable Estate Tax Planning with a Gift of a Remainder Interest in a Personal Residence or Farm, 52 Real Est. Tax’n (2024), Jennifer Kohlbacher and Arielle Lederman highlight the charitable remainder gift as a powerful estate planning strategy. This strategy allows donors to retain lifetime use of their property while gifting the remainder interest to a charity. The authors recommend estate planners discuss this strategy with suitable clients, emphasizing the importance of a detailed cost-benefit analysis to address professional fees and optimize tax savings.

CHILD SUPPORT: In After Sveen v. Melin, Is There a Contracts Clause Argument Against Laws Retroactively Terminating Child Support Obligations After the Death of the Obligor Parent?, 50 ACTEC L. J. 53 (2024), Diane Kemker analyzes the Supreme Court’s ruling in Sveen v. Melin (2018) and challenges its limited application of the Contracts Clause. She argues that retroactive laws ending child support obligations after a parent’s death are both detrimental to children and unconstitutional.

CONSERVATION EASEMENTS:

In Judicial Extinguishment of Conservation Easements: An Analysis, 52 Real Est. Tax’n (2024), W. Brian Dowis explains how the IRS closely examines conservation easements because of the significant tax deductions involved and the fact that property ownership doesn’t transfer from donor to donee. This article explains the rules for creating valid easements, how judicial extinguishment works, and key court decisions. Because this area often leads to disputes, it is essential to carefully follow all rules and structure easements properly to avoid IRS challenges.

CONSTITUTIONAL LAW: In Anna Nicole’s Constitutional Estates Law Legacy, 50 ACTEC L. J. 17 (2024), Dave Fagundes reviews two Supreme Court decisions involving Anna Nicole Smith: Marshall v. Marshall (2006), which clarified that a

tortious interference claim fell outside the probate exception to federal jurisdiction, and Stern v. Marshall (2011), which ruled that bankruptcy courts cannot constitutionally exercise jurisdiction over such claims.

CORPSES: In Dead Bodies as QuasiPersons, 77 Vand. L. Rev. 999 (2024), Ela Leshem argues that American law treats dead bodies as “quasi-persons,” granting them a status between property and persons. This article also explores the unequal treatment of unclaimed bodies, particularly those from marginalized communities. Lastly, Leshem highlights a growing area of legal and ethical interest in other in-between entities like animals, fetuses, plants, and AI models.

ESTATE PLANNING IMPORTANCE:

In Civilization Depends on Us: The Virtues of Estate Planning and Estate Planners, 50 ACTEC L. J. 95 (2024), Turney Berry explores the importance of estate planners and ACTEC’s essential role in helping individuals and families pass on their legacies while inspiring service to others.

FORCED HEIRSHIP: In Constitutional Limitations on the Enforcement of Foreign Forced Heirship Laws, 50 ACTEC L. J. 5 (2024), Raquel Begleiter, Austin Bramwell, and Molly Schiff examine whether a foreign probate decree is enforceable in United States courts when it calls for discriminatory gender-based distribution. They highlight the nuanced application of the 14th Amendment’s equal protection clause, noting that although state action might invoke constitutional limitations, courts often prioritize testamentary freedom over constitutional objections.

OKLAHOMA—TESTAMENTARY FREEDOM: In Testamentary Freedom: A Constitutional Perspective, 50 ACTEC L. J. 39 (2024), Richard J. Goralewicz examines a legislative proposal (not enacted) in Oklahoma that would have invalidated wills executed after an Alzheimer’s diagnosis. He analyzes its implications for testamentary freedom under state law and potential conflicts with federal constitutional protection.

POSTHUMOUS COMMUNICATION: In Don’t Fear the Reaper? How Generative Artificial Intelligence is Changing the Landscape of Posthumous Communication Technology, 73 Am. U. L. Rev. 1271 (2024), Samuel Brown examines the ethical, legal, and societal issues surrounding generative AI technologies that enable posthumous communication with deceased loved ones. He advocates for a policy that gives individuals control over their likenesses, even after death.

SUCCESSOR TRUSTEES:

In Why Do We Ask the Court to Do Something That It Can’t? Constitutional and Practical Issues with Judicial Appointment of Successor Trustees, 50 ACTEC L. J. 85 (2024), R. Ethan Ward and Stephen Crofford, Jr. explore the UTC’s provisions for the appointment of a successor trustee and whether they are consistent with the 13th Amendment’s prohibition against involuntary servitude. Although trustees can resign under Article 7, they must continue their duties until trust property is handed over to a successor. If the court must appoint a successor, trustees are required to serve until the transition, prompting the authors to question whether this enforced service violates the 13th Amendment.

TRUST TAXATION: In Constitutional Limits on State Power to Tax Trust Income, 50 ACTEC L. J. 69 (2024), Carlyn McCaffrey and John McCaffrey consider the due process constraints on states that seek to impose an income tax on trusts and the nature of contacts with the state that are necessary before a state can constitutionally impose its tax. They focus on the Supreme Court’s most recent decision addressing the issue, North Carolina v. The Kimberley Rice Kaestner 1992 Family Trust, 588 U.S. 262 (2019).

UNDUE INFLUENCE: In Undoing Undue Influence: How the Doctrine Can Avoid Judicial Subjectivity by Omitting the Vulnerability Element, 47 Am. J. Trial Advoc. 23 (2023), Robin Laisure argues that the doctrine of undue influence has lost its effectiveness over the years because it relies on determining the vulnerability of the person being influenced. This article highlights three contexts in which assessing vulnerability is problematic: general contract formation, will disputes, and contracts in high-control groups. n

Where’s the Uniformity? Trustee Compensation

By David E. Wolff

Currently, there exists little uniformity among states in determining what is appropriate trustee compensation under the circumstances. Indeed, within the states that use “reasonable compensation” as the metric for determining trustee fees, there is no uniform framework of factors; courts instead conduct a fact-based inquiry to determine what is “reasonable.” Though some courts will cite to the list of nine factors provided by the Restatement (Third) of Trusts, other courts examine fewer factors than the Restatement, use more factors than the Restatement, take a totality-of-the-circumstances approach, or, in some cases, disallow trustee fees for extraordinary services and even set

David E. Wolff is the founder and managing attorney at Wolff Law in Hallandale Beach, Florida. He is a member of the Florida Bar’s Real Property, Probate, and Trust Law Section.

a ceiling on trustee fees. This article will examine whether the Florida factors set forth in West Coast and analyzed in the famed Estate of Rauschenberg should be uniformly adopted by states using reasonable compensation as the standard.

Survey of Jurisdictions Adopting Reasonable Trustee

Compensation or Statutory Fees

The following states use reasonable compensation as the metric in determining testamentary trustee fees, with some states using statutory factors, specific allowances for extraordinary services, or ceilings on trustee fees:

• Alabama (Ala. Code § 19-3B-708),

• Alaska (Alaska Stat. § 13.16.440),

• Arkansas (Ark. Code Ann. § 28-73-708),

• Delaware (Del. Code Ann. tit. 12, § 3561),

• District of Columbia (D.C. Code § 19-1307.08),

• Florida (Fla. Stat. § 736.0708),

• Idaho (Idaho Code § 15-7-205),

• Illinois (760 Ill. Comp. Stat. 5/7),

• Indiana (Ind. Code § 30-4-5-16),

• Iowa (subject to a statutory ceiling; Iowa Code § 633A.4109),

• Kansas (Kan. Stat. Ann. § 59-1717),

• Louisiana (La. Stat. tit. 9 § 2181

• Maine (Me. Stat. tit. 18-B, § 708, with statutory factors to consider),

• Maryland (Md. Code Ann., Est. & Trusts § 14-103)

• Massachusetts (Mass. Gen. Laws ch. 203E, § 708)

• Michigan (Mich. Comp. Laws § 700.7708)

• Minnesota (MN Stat § 501C.0708 (2016))

• Mississippi (MS Code § 91-8-708),

• Missouri (Mo. Rev. Stat. § 456.7-708, with reasonable compensation allowed in excess

of fee schedule for corporate fiduciaries),

• Montana (Mont. Code Ann. § 72-38-708, with extra compensation allowed for extraordinary services),

• Nebraska (Neb. Rev. Stat. § 30-3864),

• Nevada (Nev. Rev. Stat. § 153.070, with extra compensation allowed for extraordinary services),

• New Hampshire (N.H. Rev. Stat. Ann. § 153.070, with extra compensation allowed for extraordinary services),

• New Mexico (N.M. Stat. Ann. § 46A-7-708),

• North Carolina (with list of factors, N.C. Gen. Stat. § 32-54),

• North Dakota (N.D. Cent. Code § 59-15-08),

• Ohio (Ohio Rev. Code Ann. § 5807.08, allowing for reduction for cause),

• Oklahoma (Okla. Stat. tit. 60,

§ 175.48, with extra compensation allowed for extraordinary services),

• Oregon (Or. Rev. Stat. § 130.635, with extra compensation allowed for extraordinary services),

• Pennsylvania (20 Pa. Cons. Stat. § 7768),

• Rhode Island (18 R.I. Gen. Laws § 18-6-1),

• South Carolina (S.C. Code Ann. § 62-7-708, subject to statutory ceiling of 5%),

• South Dakota (with factors to consider; S.D. Codified Laws § 55-3-14),

• Tennessee (Tenn. Code Ann. § 35-15-708),

• Texas (Tex. Prop. Code Ann. § 114.061, with extra compensation allowed for extraordinary services),

• Utah (Utah Code Ann. § 75-7-708),

• Vermont (with factors to consider;

Vt. Stat. Ann. tit. 14A, § 708),

• Virginia (Va. Code Ann. § 64.2-761),

• Washington (Wash. Rev. Code § 11.98.070(26)),

• West Virginia (W. Va. Code § 44D7-708, with extra compensation allowed for extraordinary services), and

• Wyoming (Wyo. Stat. Ann. § 4-10-708, with extra compensation allowed for extraordinary services).

The following states have adopted statutory testamentary trustee fees:

• Georgia (Ga. Code Ann. § 53-12-210),

• New Jersey (N.J. Stat. Ann. § 3B:1823 et seq.), and

• New York (N.Y. Surr. Ct. Proc. Act Law § 2309).

The following states have no statutes that address reasonable compensation for testamentary trustee fees:

• Colorado,

• Connecticut (but see Hayward v.

Plant, 98 Conn. 374 (1923), setting forth factors to consider for reasonable compensation), and • Kentucky.

Differing Factor Analysis Between States

The Restatement (Third) of Trusts enumerates the following nine factors for determining trustee compensation: local custom, trustee’s skill and expertise, time devoted to the trustee’s duties, amount and character of trust property, degree of difficulty, level and type of responsibility, risk assumed, nature and cost of the services, and quality of such party’s performance.

Maine has a specific statute that uses only six factors for aiding the court in assessing reasonable compensation for trustees: (1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the service properly; (2) the likelihood, if apparent to the trustee, that the acceptance of the particular employment will preclude the person employed from other employment; (3) the fee customarily charged in the locality for similar services; (4) the amounts involved and the results obtained; (5) the time limitations imposed by the trustee or by the circumstances; and (6) the experience, reputation, and ability of the person performing the services. See Me. Stat. tit. 18-B, § 708, Connecticut, in Hayward v. Plant, used nine factors that its courts should weigh to determine what constitutes reasonable compensation, which are different from those provided for in the Restatement: (1) the size of the estate; (2) the responsibilities involved; (3) the character of the work required; (4) the special problems and difficulties met in doing the work; (5) the results achieved; (6) the knowledge, skill, and judgment required of and used by the executors; (7) the manner and promptitude with which the estate has been settled; (8) the time and service required; and (9) any other circumstances that may appear in the case and are relevant and material to this determination.

Only six states provide statutory fee

Whatever elements of proof are acceptable to a court in awarding trustee compensation, it is fundamental that the compensation be supported by evidence, be it testimony, documentation, or both.

schedules for trustees, including New York and New Jersey, both of which limit statutory fees to individual trustees and allow corporate fiduciaries reasonable compensation. In New York, the court can decline statutory commissions where the trustee has engaged in fraud, gross neglect of duty, intentional harm to the trust, sheer indifference to the rights of others, or disloyalty. In re Lasdon, 105 A.D.3d 499, 500 (N.Y. App. Div. 2013); In re Pavlyak, 139 A.D.3d 1338, 1340 (N.Y. App. Div. 2016); Matter of JP Morgan Chase Bank, N.A., 133 A.D.3d 1292 (N.Y. App. Div. 2015); see Kim v. Solomon, 132 A.D.3d 463 (N.Y. App. Div. 2015).

Delaware uses Sections 3560 and 3561 of Title 12 of the Delaware Code to analyze reasonable compensation for trustees. Section 3560(a) allows the court to fix or allow greater or lesser

compensation allowed under the instrument (i) where the duties of the trustee are substantially different from those contemplated when the trust was created, (ii) where the compensation in accordance with the terms of the trust would be unreasonably low or high, or (iii) in extraordinary circumstances calling for equitable relief. See Amended Petition, In re Trust Created Under the Will of Harold S. Schutt, 2018 WL 3619890 (Del. Ch. July 24, 2018).

Florida courts, in contrast, consider the totality of the trust or estate administration and draw from the precedent set by the 1958 Florida Supreme Court ruling of West Coast Hospital Association v. Florida National Bank, 100 So. 2d 807 (Fla. 1958), which proscribes a more expansive set of criteria than the Restatement, with 11 criteria to be consider in determining reasonable trustee fees: (1) the amount of capital and income received and distributed by the trustee; (2) the wages or salary customarily granted agents or servants for performing similar work; (3) the success or failure of the administration of the trust; (4) any unusual skill or expertise that the trustee may have provided; (5) the fidelity or lack thereof displayed by the trustee; (6) the amount of risk and responsibility assumed; (7) the time commitment required; (8) the custom in the community as to allowances to trustees by settlors or courts and as to charges exacted by trust companies and banks; (9) the character of the work done in the course of administration, whether routine or involving skill and judgment; (10) any estimate that the trustee has given of the value of their own services; and (11) payments made by the cestuis to the trustee and intended to be applied toward compensation.

An analysis of each factor can weigh in favor of or against the trustee’s compensation petition or the trustee’s request for extraordinary compensation. These factors are not all-inclusive, however, and courts throughout the United States currently consider other facts and circumstances in determining the amount of compensation due to a trustee. In making its decision,

whatever elements of proof are acceptable to a court in awarding trustee compensation, it is fundamental that the compensation be supported by evidence, be it testimony, documentation, or both. See Hood v. Marvin & Kay Lichtman Found., 832 So. 2d 941 (Fla. 3d DCA 2002). Testimony from fiduciary experts can prove critical in supporting a trustee’s application for fees, as discussed further infra. As it stands, Florida, Missouri, Montana, Nevada, New Hampshire, Oklahoma, Oregon, Texas, West Virginia, and Wyoming currently permit additional allowances for extraordinary services. The following factors set forth in West Coast should be considered by courts across the country, especially in situations involving complex estates or where a trustee applies for additional allowances for extraordinary services.

Capital and Income Received and Distributed

In trust or estates comprising complex, unique assets, such as real estate, art, and closely held business interests, additional compensation may be contemplated as closely held businesses and unique assets require time, consideration, appraisals, third-party experts, and constant attention by the trustee to preserve value for the benefit of the beneficiaries. An analysis of the amount of income generated for the income beneficiary, and depending upon the amount of capital appreciation for the remainder beneficiaries, the court can adjust trustee compensation upward or downward based on this factor. In Robert Rauschenberg Foundation v. Grutman, 198 So. 3d 685 (Fla. Dist. Ct. App. 2016), the trial court awarded $24,600,000 in trustee fees based, in part, on the trustee’s increase of the original value of the estate by a factor of 3.5.

Wages or Salary Customarily Granted to Agents Performing Similar Work

If the trust or estate comprises assets such as real estate or closely held businesses, analysis of median base salaries of managers of these assets or companies may be needed to establish

a baseline. For example, reports by the Economic Research Institute or CompAnalyst could serve to establish reasonable compensation for the trustee’s management and services associated with the unique asset or closely held business. The court also should consider the feasibility and availability of a corporate fiduciary willing to handle a complex trusts or estate similar to that before the court.

The Success or Failure of the Administration of the Trust

The trustee’s experience, knowledge, and planning can make or break the administration of the estate or trust, especially if there exist unprecedented or uncertain economic circumstances at the time. The trustee’s adaptability and flexibility to ever-changing market and economic conditions can have a substantial effect on the profitably and efficiency of the administration. Typically, the success of the administration can be best demonstrated by the increase in value of the gross estate as a percentage, or the amount of distributions made to the beneficiaries after taxes. The court should consider favorable or unfavorable market conditions as a contributing element of this factor.

Unusual Skill and Expertise Provided by the Trustee

If a trustee possesses special skills, those special skills must be used for the benefit of the trust and the beneficiaries. In conjunction with the success of the administration, this factor also may weigh in favor of the granting of extraordinary compensation in favor of the petitioning trustee when special skills are used, resulting in significant capital appreciation in trust assets. In Rauschenberg, the trial court found that the selection of the trustees was an extraordinary choice; each had intimate knowledge of Rauschenberg’s art, his business; they had experience with estates of other artists all over the art world; and they assisted Rauschenberg with his investments and tax and estate planning, as well as acquisition and disposition of property.

Fidelity Displayed by the Trustee

The trustee’s compliance with the duty of loyalty and adherence to principles of impartiality can weigh in favor of substantial or extraordinary compensation. In situations where structuring or refinancing of trust assets is needed, the trustee’s use of neutral third-party agents or experts can provide valuable insight into the decision-making process. Additionally, in situations where the trustee is forced to navigate the troubled waters of defending the trust from litigation, this also can support the grant of extraordinary compensation depending on the result. In sum, trustees who are loyal to the settlor’s vision and maintain a focus on maximizing the beneficiary’s interests will be compensated accordingly.

The Amount of Risk and Responsibility Assumed by the Trustee

Trustees assume a matrix of potential risks in undertaking appointments. First among these risks is the operational risks unique to each of the trust’s unique assets. These operational risks, from an asset and liability perspective, can be compounded by unprecedented or uncertain economic circumstances. Potential audits and tax liability are also an ever-present concern for trustees managing large estates or trusts. In some situations, corporate fiduciaries are unwilling to accept an appointment of complex estates or trusts comprising unique assets because of enormous responsibility and risk, even in light of trusts containing exculpation clauses. In these circumstances, personal trustees should be compensated commensurate with the risk they shoulder, especially when a trustee’s reputation is on the line.

The Time Commitment Required of the Trustee

Serving as trustee is a time-consuming and incredibly detail-oriented endeavor. A trustee must be committed to devoting the time necessary to administer the trust or estate. In the same vein, the time for administration may need to be assessed as reasonable

under the unique circumstances of the estate or trust. Corporate fiduciaries typically do not provide personal trust services for estate administration on a billable-hour basis. Corporate fiduciaries do charge hourly fees for special services beyond the base compensation published in their fee schedules. A trustee’s time expenditures consulting with trust counsel and other advisors or third-party experts or appraisers in developing a plan of administration and determining distribution schedules, as well as taking into account tax considerations, can prove beneficial in supporting a trustee’s petition for compensation. The trustee’s responsiveness to the beneficiaries’ inquiries and efforts to keep them reasonably informed regarding the administration of the trust or estate throughout the administration is also a component the court should consider. Once again, time spent by the trustee defending litigation also should be evaluated as part of the court’s inquiry into this factor. In analyzing this factor, the court typically reviews the length of the administration period and whether the nature of the trust or estate allowed for a quick turnover or required studied planning.

The Custom in the Community for Charges Exacted by Trust Companies and Banks

In analyzing a personal trustee’s compensation, the court should consider the custom in the community for corporate trustee compensation. Corporate fiduciary fee schedules typically break down trustee compensation into two categories: base compensation and additional compensation for special services. Each corporate trustee uses different variables and factors in calculating trustee compensation. In determining reasonable trustee compensation, a corporate trustee can calculate the base fee from the gross value of the decedent’s estate at time of death in compliance with the IRC. Usually, this is a one-time fee amortized over the term of the administration. Each institution reserves the right to charge additional fees if the term of administration lasts longer than two

years. With regard to unique assets such as closely held businesses and real estate, corporate fiduciaries typically appoint a fiduciary officer to the corporate governance structure of the operating businesses or to manage the unique assets and are entitled to additional fees for managing such unique assets. The circumstances of each trust or estate and the composition of each trust or estate’s assets must be considered by the court in analyzing this factor. In Rauschenberg, the court did not afford substantial weight to this factor, finding that it would result in unreasonably high fees, especially those for extraordinary services.

The Character of the Work Done in the Course of the Administration

Each trust or estate has its own unique circumstances and composition of assets. Unique operating business, real estate, art, and other assets typically require specific market knowledge and operational experience to achieve a successful administration for the benefit of the beneficiaries. If seeking extraordinary compensation, a trustee must be involved with each of the trust’s unique assets from a top-down basis, including the overall supervision of the management of the closely held businesses (e.g., debt restructuring; tax planning; hiring, supervision, and management of employees, key personnel, contractors, and vendors; maintaining insurance coverage and handling claims; and payroll), and maintain a handson approach with regard to real estate (appraisals, listings, leasing, repair, etc.). A trustee possessing specific expertise in a particular asset class along with intimate knowledge of the settlor’s business and operational structure could likely weigh in favor of substantial compensation, whereas if the trustee needed to engage outside experts to aid in the administration, that could weigh against substantial compensation.

Trustee’s Estimate of the Value of Their Services

A personal trustee’s generation of a significant appreciation in value of the

trust assets, timely resolution of creditor claims, and protection of the trust from protracted litigation should be considered in analyzing this factor. The court also should consider the personal trustee’s request for compensation as compared to what a corporate trustee would typically charge for like services or for dealing with the challenges inherent to the complexity of the assets.

Payments Made by the Cestuis to the Trustee and Intended to Be Applied Toward Compensation

What compensation (if any) the trustee has already received can play a part in a reduction of the compensation sought by the trustee, especially if overpayments were made or reimbursements or advancements were made.

Additional Considerations

There are several other considerations the court should take into account— namely, what should be considered to be reasonable compensation when there are multiple trustees involved and also how the determination is made regarding the allocation of a trustee’s fees from principal versus income. Several key factors are taken into account when determining how fees will be divided among multiple trustees, including whether or not the overall fee should be taken from the principal or income of the trust; whether certain beneficiaries should pay more than others; and whether specific language in the trust controls or Florida Statutes §§ 738.701 and 738.702 should govern.

The Rauschenberg Precedent

In Rauschenberg, the trustees of the iconic and prolific artist’s estate petitioned for between $51 million and $55 million in fees based on West Coast and the extraordinary increase in asset value the trustees generated. The Foundation asserted that the trustees were entitled to only $375,000 based on the lodestar method. See Fla. Patient’s Comp. Fund v. Rowe, 472 So. 2d 1145 (Fla. 1985), modified, Standard Guar. Ins. Co. v. Quanstrom, 555 So. 2d 828 (Fla. 1990). Quoting Bogert’s Trusts & Trustees § 976, and after analyzing the legislative

history of Florida Statutes § 746.0708, the Second District Court of Appeal upheld the trial court’s calculation of the trustee’s fees based on West Coast, finding the trial court “properly applied the West Coast factors” supported by expert testimony and evidence presented at trial. Charles W. Ranson, fiduciary expert for the trustee, testified that the trustees were an extraordinary selection by Rauschenberg, that the trustees shouldered enormous responsibility and no bank or trust company would have been willing to handle the estate, and that had a bank or trust company accepted the case, its fees would have been significant. The trial court ultimately ordered that the trustees were entitled to $24,600,000 in trustee fees based on the West Coast factors and that the trustees were able to increase the value of the assets by 3.5 times the original value of the estate, especially considering the complex nature of the trust and its assets.

Conclusion

The current landscape of rapidly evolving technology presents unique challenges to trustees administering complex estates comprising digitized assets and novel asset classes. For this reason, a uniform framework of factors for evaluating the efforts and skill of trustees is necessary. In determining reasonable compensation or extraordinary compensation to which a trustee is entitled, the court is best aided with expert opinion and analysis. For large, complex estates involving hard-to-value assets, trustees should be prudent in selecting a situs that allows for extra compensation for extraordinary services such that trustees who are successful in increasing value for the beneficiaries are permitted by the court to be compensated accordingly. Although caselaw and statutes do not currently afford weight to one factor over another, the success of the administration and the trustee’s percentage increase to the gross value of the assets of the estate could serve as one of the more reliable metrics for awarding extraordinary compensation.

An individual trustee’s use of any

special skills and expertise in the administration and management of trust assets should be analyzed and compared to the cost and feasibility of corporate fiduciary services. Moreover, as our society continues to become more litigious, a trustee’s demonstration of loyalty and fidelity in the presence of sensitive or adversarial family dynamics also should be considered. In other words, a trustee who is able to mitigate and manage the risks and responsibilities assumed in the administration of the trust yet also devote the time required to successfully administer the trust are factors that may weigh heavily in support of extraordinary compensation.

In some cases, the court should consider how a personal trustee’s plan of administration would have differed from that of a corporate fiduciary. For example, corporate fiduciaries typically attempt to close estates, liquidate assets, and distribute cash to beneficiaries as soon as practicably possible. But this rapid plan of administration does not always create maximum value. A trustee with special skills in real estate or art, for example, may be able to create additional value by restructuring the assets, creating a plan of sale or marketing of the assets over time, or planning an exhibition during particular times of year in specified locations with the aid of local or national experts. According to some corporate fiduciary fee schedule disclosures, a corporate fiduciary’s role as trustee or agent for the trustee is to collect, organize, and distribute the assets, and not to implement an active investment strategy to increase income or the value of trust assets over any time period. In some cases, corporate fiduciaries choose not to accept certain trust administrations because of the unique nature of the assets or inherent risks associated with closely held operating businesses. Moreover, the trustee’s character of the work done in the course of the administration may be unique and specialized, and this factor should weigh in favor of the trustee’s petition for compensation if the trustee possessed the requisite skill and experience to administer the trust for the

benefit of the beneficiaries. Ultimately, a trustee who is successful in using his or her special skills and is able to maximize the value of unique assets should be compensated accordingly. n

Valuation & Lit igation Cons ulting

MP I is a nat ional c onsulting f irm f ounded in 1939, s pecializ ing in bus iness v aluations, lit igat ion s upport and c orporate adv isory work.

Todd Povlich, CFA, ASA tpovlich@mpival.com 212-390-8310

John L. Varga III, AM jvarga@mpival.com 212-390-8374

The Housing Crisis in the United States

By Riley N. Keelty and Walter E. Block

The housing crisis has become a significant problem in the United States, with millions of Americans struggling to find stable and affordable housing because of the increasing prices of homes and rents stemming from a chronic shortage of housing, high costs of land and construction, restrictive zoning laws, rent control, and public housing. Joseph Gyourko & Raven Molloy, Regulation and Housing Supply, in 5 Handbook of Regional and Urban Economics, at 1289 (Gilles Duranton et al. eds., 2015), https://tinyurl.com/4587uba3. Consequently, the housing market does not provide adequate housing for lowand middle-income families, resulting in housing insecurity and financial burdens for many. In addition, the specter of homelessness haunts many of our large-size cities. Some commentators point to what they see as a dilemma in maximizing the economic gains from limited state intervention and applying selective policies to ease affordability constraints while maintaining the spirit of competition and personal responsibility. This article does not take that approach; instead, the solution lies in the free market direction of rescinding these public policies. A historical background of this chronic housing problem, its consequences, and policy discourses in the United States is followed by sections that feature analysis of zoning and then discussions pertaining to rent control, urban renewal, and public housing. The COVID-19 pandemic compounded the crisis. It brought new challenges and amplified trends already affecting the housing market. The pandemic affected the availability of building materials, which increased the cost of construction and halted the progress of ongoing construction projects. Lack of raw materials such as lumber and high labor costs led to high prices charged to customers and tenants. The pandemic, therefore, amplified existing

Riley N. Keelty is a senior at Loyola University in New Orleans, Louisiana.

Walter E. Block is the Harold E. Wirth Eminent Scholar Endowed Chair and Professor of Economics at Loyola University New Orleans.

problems within the housing market and exposed the inability of the current system to adapt to shifts in demand. Short shrift is given to this obvious cause of housing debilities because (1) it is so obvious and (2) there is certainly nothing that can be done about it now in terms of housing public policy.

Historical Background of the Housing Crisis

The current housing crisis in America dates back to the post–World War II economic frameworks and urban planning strategies that defined residential markets. After the war, the government actively encouraged suburbanization, subsidizing homeownership through federal programs offering low-interest mortgage loans to veterans and middle-income families. David Madden & Peter Marcuse, In Defense of Housing: The Politics of Crisis (2024). This desire for suburbanization also led to a cultural and economic focus on single-family homes, often backed by zoning laws that prohibited the construction of multifamily buildings, thus reducing the density of cities and limiting housing options. These zoning policies persisted in the subsequent decades, further deepening housing misallocations that exist to this day.

The housing crisis escalated during the housing boom and bust of the late 2000s when high foreclosure rates and a decline in homeownership occurred. Manuel B. Aalbers, Financial Geography III: The Financialization of the City, 44 Progress in Hum. Geography 595 (2020), https://tinyurl.com/2xyf5vj2. After the 2008 financial crisis, the affordability and accessibility of housing never returned to previous levels for these groups, as wages stagnated and home prices rose even higher. Id. This historical background is crucial in explaining the structural problems and imperfections that persist in fueling the housing crisis in the present day.

The housing crisis in the United States has affected significantly the affordability of homes, with young people and first-time homeowners being most affected. With home prices soaring high while wages remain stagnant,

the prospect of homeownership has remained a pipe dream for the younger generations, particularly the Millennials and Gen Z. These people have higher hurdles to overcome to become homeowners because of student loans, high rents, and low incomes, which makes it challenging for them to save for a down payment or meet the requirements for a mortgage. Id. Higher housing costs prolong the dream of owning a home and affect the economy as young people find it more difficult to invest in assets, save, or be financially stable. This inability to buy homes limits their economic opportunities and decreases their lifetime earnings, entrenching generational poverty. With the housing crisis ongoing, the divide between homeowners and renters deepens, leading to increased vulnerability of the youth in the face of economic shocks. The crisis has significantly affected homelessness.

There has been a continuous decline in the rate of new housing construction, which has led to a sizable supplydemand imbalance in the market. Construction rates that had started to decline after the 2008 financial crisis did not return to normal, and recent hikes have made it even harder to construct new homes. Land, labor, and material costs also have increased, while lengthy and expensive permitting procedures have limited the construction of exceptionally affordable housing. Gyourko & Molloy, supra. These regulatory barriers cumulatively raise costs for new construction, which are transferred to consumers and tenants, thus exacerbating the affordable housing crisis for middle- and lower-income households. Although the free market can achieve supply and demand equilibrium, this becomes more difficult when policies and other hindrances prevent developers from addressing housing deficits, thus deepening the problem.

Effect on Mental Health and Physical Well-being of Americans

Housing insecurity also takes a toll on mental and physical well-being, as constant stress from unsure living conditions results in higher incidences of anxiety and stress-related diseases

among households. Research also suggests that housing-insecure people are vulnerable to mental health disorders and chronic stress diseases like hypertension and heart disease. Tom Slater, Rent Control and Housing Justice, 55 Finisterra, no. 114, 2020, at 59, https://tinyurl. com/5y52wtnk. Children in poor households constantly change schools often because of rent issues, which hampers their early development. Further, such persons at risk of eviction or homelessness are also more at risk of substance use and other risky behaviors, as well as coping strategies that threaten their health and financial stability. Id. These health points more inclusively show additional socioeconomic costs of housing insecurity, as these effects worsen overall wellness as costs of the healthcare industry and diminish general productivity, making negative circles in the economy. For the connection between zoning and health, see the following: Lauren M. Rossen & Keshia M. Pollack, Making the Connection Between Zoning and Health Disparities, 5 Env’t Just. Rev. 119 (2012), https://tinyurl.com/mncjbsne; Kenneth A. De Ville & Suzanne Sparrow, Public Health Law: Zoning, Urban Planning, and the Public Health Practitioner, 14 J. Pub. Health Mgmt. & Prac. 313 (2008); Lant Pritchett & Lawrence H. Summers, Wealthier Is Healthier, 31 J. Hum. Res. 841 (1996); and Joseph Schilling & Leslie S. Linton, The Public Health Roots of Zoning: In Search of Active Living’s Legal Genealogy, 28 Am. J. of Preventive Med. (Suppl. 2) 96 (2005), https://tinyurl.com/2w98kvb4.

Effect on the Economic Mobility and Living Standards

The housing problem also contributes to the lack of improved economic status among families trapped in high-rent, low-quality buildings. When house rents take a significant part of the family’s income, there is less that a family can spend on education, training, or creating jobs for themselves and others, which are some pathways to economic mobility. Marcuse & Madden, supra. Inadequate or limited ability to afford homes in good school districts and well-lit areas containing employment

opportunities confines low-earning families to substandard areas, creates vicious cycles of poverty, and reduces the chances of children’s education and employment. Id

Zoning Restrictions

The zoning ordinances put in place to regulate the construction of housing units in different areas have significantly fueled the crisis further. Most urban areas have laws restricting housing density and development, especially for multi-unit structures, rendering land costs higher than otherwise would have been the case. Jake Wegmann, Death to Single-Family Zoning . . . and New Life to the Missing Middle, 86 J. Am. Planning Ass’n 113 (2020), https://tinyurl. com/3n3jjv2r. These laws protect neighborhoods and property values, limit the supply of affordable housing, and curb the construction of apartments and other multifamily dwellings. In cities such as San Francisco and New York, which are experiencing extremely high housing demand, these restrictions have put in place narrow constraints that do not allow the market to expand and accommodate the greater demand. Zoning laws restrict the ability to build more housing units and result in urban sprawl, meaning affordable homes constructed further away from employment centers, leading to problems such as lengthy transportation. For a critique of zoning, see the following: Dave Albin, Historic Preservation vs. Private-Property Rights, Mises Inst. (2010), https:// tinyurl.com/p29p9pt9; Bruce L. Benson, Land Use Regulation: A Supply and Demand Analysis of Changing Property Rights, 5 J. Libertarian Stud. 435 (1981), https://tinyurl.com/yw2h6p4x; Zoning: Its Costs and Relevance for the 1980s (Walter E. Block ed., 1980); Walter E. Block, Zoning and the Free Market, YouTube (Jan. 29, 1981), https://tinyurl.com/yjwze8s4; Walter E. Block, Private Urban Planning and Free Enterprise, in Cities and Private Planning: Property Rights, Entrepreneurship and Transactions Costs (David E. Andersson & Stefano Moroni eds., 2014), https://tinyurl.com/bdz9jnwy; Troy Camplin, Zoning Laws Destroy Communities, Mises Daily (Apr. 30, 2010),

https://tinyurl.com/yuupd3x7; Jim Fedako, Zoning Is Theft, Mises Daily (Mar. 21, 2006), https://tinyurl.com/bdmfv59n; Jim Fedako, Government Laws Are Not Contracts, Mises Daily (May 30, 2019), https://tinyurl.com/2buxkyvu; Lee Friday, The Scam That Is Urban “Land Use” Planning, Mises Wire (Feb. 7, 2018), https://tinyurl.com/yfrbc2eu; Lee Friday, City Governments Don’t Care About Housing Affordability, Mises Wire (Oct. 23, 2018), https://tinyurl.com/ mr3mwh73; Frank Hollenbeck, To Save Europe, Free the Markets, Mises Daily (Oct. 19, 2013), https://tinyurl.com/yke6tfxa; Jacob G. Hornberger, The Cure for Homelessness, Mises Wire (Sept. 15, 2018), https://tinyurl.com/bddv3e6n; Douglas W. Kmiec, Deregulating Land Use: An Alternative Free Enterprise Development System, 130 U. Pa. L. Rev. 28 (1981), https://tinyurl.com/3n3wbwkh; Ryan McMaken, Homelessness and the Failure of Urban Renewal, Mises Wire (May 4, 2017), https://tinyurl.com/yzy96uas; Ash Navabi, The Economics and Politics of Zoning, Mises Wire (Nov. 4, 2019), https://tinyurl.com/mr9m8x58; José Niño, Seattle Declares War on Workers with Wage and Housing Regulations, Mises Wire (June 6, 2018), https://tinyurl. com/7m3wc55t; Ben O’Neill, How Zoning Rules Would Work in a Free Society, Mises Daily (June 17, 2009), https:// tinyurl.com/2rnu97dm; Bernard H. Siegan, Non-zoning in Houston, 13 J. L. & Econ. 71 (1970); Bernard H. Siegan, Land Use Without Zoning (1972); Timothy D. Terrell, Simulating Statism, 18 The Free Mkt., no. 3 (Mar. 2000).

Relaxing Zoning Restrictions

A possible solution to address the lack of housing stock is the relaxation of zoning rules and limitations on land use. Cities also could increase the number of affordable units by removing zoning restrictions that prevent higher-density development, such as multifamily housing. Gyourko & Molloy, supra. For example, some cities have been able to adopt measures that permit the construction of ADUs or the conversion of underused business areas into residential units, thus increasing the population density without changing the nature of

the community. Zoning reform remains a sensitive issue because many communities oppose high-density development because of traffic congestion, pressure on public facilities, and changes to the physical character of neighborhoods. Removing zoning hurdles might help increase the housing stock. One possibility is to gradually increase the density of zoning laws to improve the availability and affordability of housing without such a severe effect on the market as rent control. Given that this policy is unjust as well as inequitable and reduces the housing stock, if one had the power to eliminate this law and did not do so, one would bear some of the guilt for its continuation.

A successful example of the deregulation of zoning laws happened in Minneapolis, where, in 2018, the city council passed an ordinance to do away with single-family zoning and allow triplexes in residential zones. Wegmann, supra. Minneapolis politicians understood that exclusionary zoning policies contributed to the housing shortage by making it difficult to build affordable housing in high-demand neighborhoods. The city allowed the construction of more high-density housing to provide more housing units. Id. The policy change was to permit property owners to develop multi-housing structures in regions once reserved for single-family dwellings, resulting in increased housing stock and more affordable options in the most sought-after neighborhoods. Although the effects of this policy are still emerging, some people have applauded it as one that will open the doors to providing houses, especially in cities struggling with housing problems, such as Minneapolis. Nonetheless, several issues persist, such as slow implementations and impediments arising out of residents’ concerns over the transformation of neighborhood aesthetics.

Rent Control

Rent control is one of the most discussed measures to help fight the housing crisis. It is aimed at preventing rent hikes by defining the legal maximum values of the increase. Advocates suggest that rent control can create an instant backup for

residents who paid extreme sums for a house in a famous region and now risk losing their savings and home to a wellfunded investor. Slater, supra. Detractors claim this legislation comes with detriments because it deters landlords and property developers from taking care of their property and making improvements because of the cut-down profits that come with rent control legislation. If owners cannot increase rent to market levels, they will cut back on the quality of building maintenance, thereby contributing to the decline in housing quality. Id For instance, Argentina’s elimination of rent controls is a clear illustration of this. See the case study below. Although the policy effectively prevented further hikes in rent charges, it resulted in a scarcity of houses in the market as landlords withdrew their properties. Although rent control may offer some short-term benefits regarding rent affordability, the long-term economic effects indicate that other strategies can more effectively address housing requirements.

Effect on Renters

The consequences for renters are also significant, as landlords have increased rental prices, making housing unstable and leading families to spend a higher percentage of their income on rent. Because of higher rental prices than income growth, millions of Americans have rent burdens, which means they spend over 30% of their income on rent. Bradley, supra. Because of high rental costs, tenants are likely to experience housing insecurity because they may have to relocate in search of cheaper homes or risk eviction if they cannot pay their rent. These challenges, especially for low-income renters, perpetuate the cycle of poverty and leave little hope of building any savings or making longterm investments. Id. The housing crisis has led to the situation where renters, especially in urban areas, are forced to spend a significantly higher proportion of their income on housing to the detriment of other basic needs such as health, education, and transportation, thus making them more prone to financial risks.

How is it possible for these deleterious effects to take place? Does not rent control preclude them? Well, yes, for those covered by this law, at least temporarily, until the quality of the housing covered falls to the level allowed by the law. But the best way of looking at this legislation is to ask: Does this law increase or decrease the stock of housing? Obviously, the latter. For the investor, in effect, is told that if you place your hard-earned savings in this one area, you will be subject to controls. If you invest anywhere else in the economy, this will not occur. Even if such a person is fixated on the real estate area, there are other options—for instance, shopping malls, factories, or office buildings. None of them has ever been subjected to rent controls. Hence, investment funds will migrate from residential housing, for which there is a dire need, and percolate into these other areas of real estate and, further, into any and all other corners of the economy. Paradoxically, the best way to promote investment in residential housing would be to price control every other good and service in the economy, except for this one area. According to Lindbeck, “In many cases, rent control appears to be the most efficient technique presently known to destroy a city except for bombing.” Assar Lindbeck, The Political Economy of the New Left (1972) (cited in Sven Rydenfelt, The Rise, Fall and Revival of Swedish Rent Control, in Rent Control: Myths and Realities at 213, 230 (Walter E. Block & Edgar Olsen eds., 1981). In the view of Myrdal, “Rent control has in certain western countries constituted, maybe, the worst example of poor planning by governments lacking courage and vision.” Gunnar Myrdal, Opening Address to the Council of International Building Research in Copenhagen (1965) (cited in Block & Olsen, supra, Preface). For more in this vein, see the following: Charles Baird, Rent Control: Ther Perennial Folly (1980); Block & Olsen, supra; Walter E. Block, Joseph Horton & Ethan Shorter, Rent Control: An Economic Abomination, 11 Int’l J. Value-Based Mgmt. 253 (1998); Walter E. Block, A Critique of the Legal and Philosophical Case for Rent Control, 40 J. Bus. Ethics 75 (2002), https://

tinyurl.com/4j3sk8my; Walter E. Block, Harold E. Wirth & Joseph A. Butt, The Case for Punishing Those Responsible for Minimum Wage Laws, Rent Control and Protectionist Tariffs, 18 Revista Jurídica Cesumar—Mestrado 235 (2018), https:// tinyurl.com/yf9zprz6; Milton Friedman & George Stigler, Roofs or Ceilings? (1946), reprinted in Block & Olsen, supra; Gary Galles, Rent Control Makes for Good Politics and Bad Economics, Mises Wire (Apr. 10, 2017), https://tinyurl. com/9s34fmkk; William D. Grampp, Some Effects of Rent Control, 16 S. Econ. J. 425 (1950); R.W. Grant, Rent Control and the War Against the Poor: Ideology, the Poor and the Role of Political Force (1989); Friedrich A. Hayek, The Repercussions of Rent Restrictions, in Block & Olsen, supra; Resolving the Housing Crisis: Government Policy, Decontrol, and the Public Interest (M. Bruce Johnson ed., 1982); Lindbeck, supra; Myrdal, supra; Victoria Perrie & Walter E. Block, Rent Control and Public Housing, 24 Pol. Dialogues: J. of Pol. Theory 49 (2018), https://tinyurl.com/ yk6erbtx; Peter D. Salins, The Ecology of Housing Destruction: Economic Effects of Public Intervention in the Housing Market (1980); William Tucker, The Excluded Americans: Homelessness and Housing Policies (1990).

Case Study

Argentina’s experience with the deregulation of rent control is one of the most critical and stirringly discussed cases in the context of housing policy regulation, and it is still one of the crucial lessons to the countries inclined to implement rent control measures. Argentina instituted severe rent restraints in the early 2000s because of high rents in its major cities like Buenos Aires. Alejandro D. Jacobo & Konstantin A. Kholodilin, One Hundred Years of Rent Control in Argentina: Much Ado About Nothing, 37 J. Hous. & Build Env’t 1923 (2022). At first, rent control appeared to help tenants, especially in famous districts where rent increased and became unbearable for low and middle-income earners. As time progressed, rent control had many adverse effects, including reducing the number of houses left out for rent. Id. Tenants wanted fixed rents that did not reflect the inflation

levels; hence, landlords felt no incentive to offer value for lettable space. They withdrew their buildings from the market or provided a worn image of their properties. These problems prompted Argentina to remove rent control in 2020, which shows that although rent control may provide short-term benefits, the long-term effects are harmful and can hinder the market’s ability to improve affordability and quality in the housing sector.

Urban Renewal and Public Housing

For a critique of urban renewal policy, see the following: Walter E. Block, Defending the Slumlord, LewRockwell. com (Aug. 12, 2010), https://tinyurl. com/2u2kutvn; Brent Cebul, Tearing Down Black America, Bos. Rev. (July 22, 2020), https://tinyurl.com/mpecsyyt; Ron Daniels, Gentrification: The New “Negro Removal” Program, IBW21. org (Nov. 26, 2018), https://tinyurl.com/ hvyfjj8a; Herbert J. Gans, The Failure of Urban Renewal, Commentary (Apr. 1965), https://tinyurl.com/3k89b9fs; Jane Jacobs, The Death and Life of Great American Cities (1961); Jane Jacobs, The Economy of Cities (1970); Jane Jacobs, Cities and the Wealth of Nations: Principles of Economic Life (1985); Ryan McMaken, Homelessness and the Failure of Urban Renewal, Mises Wire (June 14, 2019), https://tinyurl.com/y9nuvmur; Michael Rikon, Urban Renewal, an Assault on Black Neighborhoods, N.Y. L.J. (Feb. 24, 2023), https://tinyurl.com/4y24f75b.

For a criticism of public housing, see the following: William L. Anderson, The Dangers of Smart Growth, Mises Daily (May 28, 2000), https://tinyurl. com/2h6n9b8t; Iron Lady’s Right to Buy and Economic Policies Had Far-Reaching Impact; Social Landlords Reflect on Thatcher’s Legacy, Inside Hous., Apr. 12, 2013; Andrew Gamble, Privatization, Thatcherism, and the British State, 16 J. L. & Soc’y 1 (1988), https://tinyurl.com/2uym4882; Kevin Gulliver, Thatcher’s Legacy: Her Role in Today’s Housing Crisis, The Guardian (Apr. 17, 2013), https://tinyurl. com/2t7nebbr; Hans-Hermann Hoppe, Of Common, Public, and Private Property and the Rationale for Total Privatization,

3 Libertarian Papers, no. 2 (2011); Jacobs, The Death of Life, supra; Jacobs, The Economy of Cities, supra; Jacobs, Cities and the Wealth of Nations, supra; David Marsh, Privatization Under Mrs. Thatcher: A Review of the Literature, 69 Pub. Admin. 459 (1991), https://tinyurl. com/y5x74st9; Brian Milligan, Right-toBuy: Margaret Thatcher’s Controversial Gift, BBC News (Apr. 10, 2013), https:// tinyurl.com/yc63ervh; Perrie & Block, supra; Joel Wolfe, State Power and Ideology in Britain: Mrs Thatcher’s Privatization Programme, 39 Pol. Stud. 237 (1991), https://tinyurl.com/4w38nakr. In 1965, Herbert Gans stated:

Suppose that the government decided that jalopies were a menace to public safety and a blight on the beauty of our highways, and therefore took them away from their drivers. Suppose, then, that to replenish the supply of automobiles, it gave these drivers a hundred dollars each to buy a good used car and also made special grants to General Motors, Ford, and Chrysler to lower the cost—although not necessarily the price—of Cadillacs, Lincolns, and Imperials by a few hundred dollars. Absurd as this may sound, change the jalopies to slum housing, and I have described, with only slight poetic license, the first fifteen years of a federal program called urban renewal.

Gans, supra.

No truer words have ever been said about this misbegotten program than these. The aesthetic sensibilities of the powers that be were offended by the existence of tenement housing, so they knocked them down! What of the people who were living there? According to one commentator: “Urban renewal programs fell disproportionately on African American communities, leading to the slogan ‘Urban renewal is Negro removal.’ The short-term consequences were dire, including loss of money, loss of social organization, and psychological trauma.” Mindy Thompson Fullilove, Root Shock: The Consequences of African American

Dispossession, 78 J. Urb. Health 72 (2001), https://tinyurl.com/yxfezxs8/.

“Twas public housing for the likes of them.” But these have been properly characterized as “vertical slums.” Perhaps the best evidence for this claim is the Pruitt-Igoe housing project. Jacob Barker, McKee Buys Pruitt-Igoe Site, a Symbol of St. Louis’s Decline, and now, Rebirth, St. Louis Post-Dispatch (Aug. 14, 2016), https:// tinyurl.com/he8nhru6; Luke Fiederer, AD Classics: Pruitt-Igoe Housing Project/ Minoru Yamasaki, ArchDaily (May 15, 2017), https://tinyurl.com/bddwejpn; Collin Marshall, Pruitt-Igoe: The Troubled High-Rise That Came to Define Urban America, The Guardian (Apr. 22, 2015), https://tinyurl.com/2u68nc98; Rowan Moore, Pruitt-Igoe: Death of the American Urban Dream, The Guardian (Feb. 26, 2012), https://tinyurl.com/2u5hckpe; Nena Perry-Brown, Why Privatization Became the Fashionable Solution to Public Housing, St. Sense Media (Aug. 28, 2020), https://tinyurl.com/yc46xbem.This was a gigantic government-built vertical slum, housing not hundreds of people, but thousands. Virtually all of them were first rendered homeless by urban renewal. It was so bad that the government had to dynamite the entire project, leading to homelessness a second time around for these heavily put-upon people.

Not only does public housing of this sort reduce the stock of housing, but when it has to be destroyed, the destruction alone exacerbates homelessness and raises the price of housing. Even when such public housing is more stable, it misallocates resources. For example, consider the island of Manhattan. It is the major part, the crown, of a world-class city. It is the Maserati or Rolls Royce of real estate. In an economy predicated upon maximizing wealth, only highly productive people would live there, of the ilk that could afford such luxury automobiles. Yet, perched on the lower east side of that borough are thousands of poor people living in the projects, alongside the East River. That means that highly productive people have to commute to a greater extent than if they occupied those neighborhoods. This is a waste of resources.

How to rectify such a situation? Why, privatization, of course. For the general case on behalf of privatization, see the following: The Privatization Process: A Worldwide Perspective (Terry L. Anderson & Peter J. Hill eds., 1996); Walter E. Block, Radical Privatization and Other Libertarian Conundrums, 2 Int’l J. Pol. & Ethics 165 (2002), https://tinyurl. com/4m4rdyfa; Walter E. Block, The Privatization of Roads and Highways: Human and Economic Factors (2009); Walter E. Block & Peter Lothian Nelson, Water Capitalism: The Case for Privatizing Oceans, Rivers, Lakes, and Aquifers (2015); The Mechanics of Privatization (Eamonn Butler ed., 1988); Laurent Carnis, The Case for Road Privatization: A Defense by Restitution, 13 J. des Economistes et des Etudes Humaines 95 (2003); Richard Ebeling, Why Not Privatize Foreign Policy?, EPICTiMES (Sept. 5, 2013), https:// tinyurl.com/3bpnemm7; Privatization and Development (Steve H. Hanke ed., 1987); Steve H. Hanke, Privatization, in 3 The New Palgrave: A Dictionary of Economics (J. Eatwell et al. eds., 1987); Rögnvaldur Hannesson, The Privatization of the Oceans, in Evolving Property Rights in Marine Fisheries (D.R. Leal ed., 2004); Rögnvaldur Hannesson, The Privatization of the Oceans (2006); Hoppe, supra; Jonathan M. Karpoff, Public versus Private Initiative in Arctic Exploration: The Effects of Incentives and Organizational Structure, 109 J. Pol. Econ. 38 (2001); William L. Megginson & Jeffry M. Netter, From State to Market: A Survey of Empirical Studies on Privatization, 39 J. Econ. Literature 321 (2001); Stephen Moore, Privatizing the U.S. Postal Service, in Privatization (Stephen Moore & Stuart Butler eds., 1987); Privatization (Stephen Moore & Stuart Butler eds., 1987); Amy Motichek, Walter E. Block & Jay Johnson, Forget Ocean Front Property, We Want Ocean Real Estate!, 11 Ethics, Place & Env’t 147 (2008), https://tinyurl.com/2bt6wtxf; Peter Lothian Nelson & Walter E. Block, Space Capitalism: The Case for Privatizing Space Travel and Colonization (2018); T.M. Ohashi, Privatization, Theory and Practice: Distributing Shares in Private and Public Enterprise (1980); T.M. Ohashi et al., Privation Theory & Practice (1980); Madson Pirie, Privatization in Theory

and Practice, Adam Smith Inst. (1986), https://tinyurl.com/nu5uxtmu; E.S. Savas, Privatization (1987); Privatization: Tactics and Techniques (Michael A. Walker ed., 1988); Lawrence H. White, Privatization of Municipally-Provided Services, 2 J. Libertarian Stud. 187 (1978). One way to do so, channeling Margaret Thatcher’s actual practice, would be to sell those apartments as condominiums to their present occupants, for example, at, say, $10 each (this is very valuable real estate we are talking about here). Duxbury, supra; Gamble, supra; Gulliver, supra. Then, allow market forces to work. Soon, the present occupants will be bought out at princely sums, and those with lower productivity will relocate to the other four boroughs, or to the counties surrounding New York City. Both buyers and sellers will necessarily gain, ex ante. The only losers will be the local taxpayers.

Conclusion

We do not say that elimination of the terrible trio of zoning, rent control, and public housing will eliminate all housing problems. But rescinding these policies will go a long way in the direction of reducing homelessness, and aid and abet the middle classes in terms of housing availability.

The housing affordability crisis in the United States is a pressing concern that stems from historical experiences, supply-side constraints, and changes in economic realities in the housing market. High construction costs, regulations, investors who own income-producing property, and policy mistakes are all factors that have contributed to housing deficits, especially in the most desirable regions. These situations imply that the prospects of homeownership and rental for young people and even lowincome families continue to diminish as prices and rents escalate. They are not just about affordability; these situations affect mental health, mobility, and social inclusion, making a lasting social influence. Housing challenges must address regulatory and incentive mechanisms in a rational manner that would entail reviewing the regulatory environment and the market mechanisms to ensure housing availability. Recommendations

such as relaxation of zoning restrictions, ending rent control, urban renewal, and public housing can expand housing stock while avoiding structural changes. The findings derived from the analysis of the cases considered herein suggest the need for well-planned and sustainable long-term policies, namely free enterprise, which aims at making housing more affordable and sustainable.

Treasury Finalizes LongAwaited Basis Consistency and Reporting Regulations

By Nelson H. Hunt and Olivia Mae Vrielink

On September 17, 2024, the Treasury Department published long-awaited final regulations under Internal Revenue Code (Code) §§ 1014(f), 6035, 6662, 6721, and 6722. Consistent Basis Reporting Between Estate and Person Acquiring Property from Decedent (Final Rule), T.D. 9991, 89 Fed. Reg. 76,356 (Sept. 17, 2024) [hereinafter Preamble to Final Regulations]. The rules under §§ 1014(f) and 6035 relate to the basis consistency and informationreporting requirements Congress enacted in 2015. Generally, those rules prevent taxpayers from claiming an income tax basis that exceeds the date-of-death value of inherited property and impose reporting requirements on executors, and in some cases beneficiaries, of estates. Sections 6662, 6721, and 6722 contain rules related to penalties for failure to comply. This article summarizes the rules under §§ 1014(f) and 6035 and describes the most significant changes made by the final regulations.

Background

Section 1014(a) provides that the basis of property in the hands of a person acquiring the property from a decedent is the fair market value of the property at the date of the decedent’s death. This rule

Nelson H. Hunt is a partner at Neuhoff Hunt PLLC in Dallas, Texas.

Olivia Mae Vrielink is an associate at Neuhoff Hunt PLLC in Dallas, Texas.

has been a feature of federal income tax law since at least 1921. See Revenue Act of 1921, § 202(a)(3), Pub. L. No. 67-98, 42 Stat. 227 (1921).

In 2015, Congress enacted § 1014(f) as a part of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, § 2004, Pub. L. No. 114-41, 129 Stat. 443 (the 2015 Act). Section 1014(f)(1) provides that the basis of certain property acquired from a decedent cannot exceed that property’s final value for purposes of the federal estate tax imposed on the estate of the decedent, or, if the final value has not been determined, the value reported on a required “Statement.” See Preamble to Final Regulations, 89 Fed. Reg. at 76,357. This rule is known as the “consistent basis requirement.” See id. Property subject to the rule is known as “consistent basis property.” See id. Only property that increases an estate’s federal estate tax liability is consistent basis property. I.R.C. § 1014(f)(2). Property that is not consistent basis property is still subject to the basis adjustment rule of § 1014(a) but not the basis consistency requirement of § 1014(f).

To facilitate reporting, Congress also enacted § 6035. 2015 Act, § 2004. Section 6035(a)(1) provides, “[t]he executor of any estate required to file a return under section 6018(a) shall furnish to the Secretary and to each person acquiring any interest in property included in the decedent’s gross estate for [f]ederal estate tax purposes a statement identifying the value of each interest in such property as reported on such return and such other information with respect to such interest as the Secretary may prescribe.” Section 6035(a)(3)(A) provides that such statements shall be furnished to the IRS and the beneficiaries no later than the earlier of (i) 30 days after the due date of the federal estate tax return or (ii) 30 days after such return is filed. Section 6035(a)(3)(B) provides that if there is an adjustment to the information required to be reported, a supplemental statement must be filed no later than 30 days after the adjustment.

Not all property that is required to be reported under § 6035 is consistent basis property. For example, property that qualifies for the estate tax charitable deduction or the estate tax marital

deduction does not increase the estate’s federal estate tax liability and therefore is not consistent basis property. But marital deduction property and charitable deduction property are still required to be reported under § 6035, unless the type of property in question is excepted from the reporting requirements (for example, if the property is cash).

Only estates required to file a federal estate tax return under § 6018 are subject to the reporting requirements of § 6035 and the basis consistency requirements of § 1014(f). I.R.C. §§ 6035(a)(1), 1014(f)(2). Not every executor who files an estate tax return is subject to these rules. An executor of an estate that is not required to file a federal estate tax return under § 6018 because the estate is not large enough may nevertheless choose to file the return for some other purpose, such as to elect portability, or to make a generation-skipping transfer tax exemption allocation, or as a protective filing. In those cases, the estate is not subject to the requirements of §§ 1014(f) and 6035. Consistent Basis Reporting Between Estate and Person Acquiring Property from Decedent, 81 Fed. Reg. 11,486, 11,493 (Mar. 4, 2016) (Prop. Reg. § 1.6035-1(a)(2)) [hereinafter Consistent Basis Reporting]; Treas. Reg. § 1.6035-1(b)(1), 1014(f)(1), I.R.C. § 1014(f)(1).

In January 2016, the IRS published Form 8971 and its instructions. Neither Form 8971 nor its instructions have been revised since 2016.

On March 4, 2016, the Treasury Department published proposed regulations under §§ 1014(f) and 6035. On June 27, 2016, the Treasury Department and the IRS held a public hearing about the proposed regulations. In addition to comments made at that hearing, the IRS received over 30 written comments. The preamble to the final regulations, in T.D. 9991, discusses these comments at length.

Definitions

The final regulations use several defined terms, many of which are new:

• “Allowable credits” includes any credit against the estate tax liability allowable by any section of the Code or by reason of any treaty

obligation of the United States, provided the estate qualifies for and properly claims the credit by complying with all applicable rules for claiming the credit. Treas. Reg. § 1.1014-10(d)(5).

• “Beneficiary trust” means a trust, whether foreign or domestic, including without limitation a grantor retained annuity trust, charitable remainder trust, and charitable lead trust, that acquires property from a decedent’s estate. Id. § 1.6035-1(g)(1)(iii).

• “Consistent basis property” is any property (A) to which § 1014(a) applies (i.e., property acquired from a decedent); (B) that is included property, and any other property the basis of which is determined by reference to the basis of included property (for example, property acquired in a like-kind exchange or an involuntary conversion); and (C) whose value increases the estate tax liability that is payable after the application of allowable credits. Id § 1.1014-10(c)(1).

• “Consistent basis requirement” is the requirement that the initial basis in certain property be equal to or less than the property’s fair market value as finally determined for federal estate tax purposes or, if no such final value has yet been determined, the property’s reported value. Id. § 1.1014-10(a)(1).

• “Excepted property” means property excepted from the reporting requirements of § 6035 (and therefore not required to be included on Form 8971 or its Schedule A). Id § 1.6035-1(f)(1).

• “Estate tax liability” means the amount of tax imposed under chapter 11 of the Code. Id. § 1.101410(d)(3).

• “Included property” means property the value of which is included in the value of the decedent’s gross estate for federal estate tax purposes. Id. § 1.1014-10(d)(4). Included property does not refer to unreported property whose value is not reported on an estate tax return and whose value is not

The final regulations provide that executors no longer must provide Schedules A prospectively to all beneficiaries who may receive property.

otherwise included in the value of the decedent’s gross estate as finally determined for federal estate tax purposes. Id.

• “Information Return” means IRS Form 8971, Information Regarding Beneficiaries Acquiring Property from a Decedent. Id. § 1.6035-1(c) (1).

• “Reported value” means a property’s value as reported in a statement (Form 8971, Schedule A) received by a beneficiary. Id. § 1.1014-10(b) (2).

• “Required estate tax return” means a federal estate tax return that is required to be filed for an estate under § 6018. Id. § 1.6035-1(b) (1). Section 6018 provides that an estate tax return must be filed if the gross estate plus adjusted taxable gifts of a US citizen or resident decedent exceeds the basic exclusion amount in effect under § 2010(c). (For 2025, the basic exclusion amount is $13,990,000. See I.R.C. § 2010(c)(3)(C); Rev. Proc. 2024-40, 2024-45 I.R.B. 1100.) If an estate tax return is not required to be filed under § 6018 but is filed for another purpose, such as to elect portability, such a return is not a required estate tax return. Treas. Reg. § 1.6035-1(b)(1).

• “Statement” means Schedule A to IRS Form 8971. Id. § 1.6035-1(c)(2).

• “Unreported property” means property of a decedent’s estate whose value is not reported on an estate tax return and whose value is not otherwise included in the value of the decedent’s gross estate as finally determined for federal estate tax purposes. Id. § 1.1014-10(d)(4).

Delayed Issuance of Schedule A to a Beneficiary Who Receives Property After the Filing Deadline

Section 6035 requires executors to provide Schedules A to all beneficiaries “acquiring any interest in property.” I.R.C. § 6035(a)(1). The proposed regulations required executors to issue a Schedule A to each beneficiary on or before the earlier of 30 days after the due date of the estate tax return or 30 days after the date the estate tax return was filed with the IRS, regardless of whether the reported property had been distributed to that beneficiary at that time. Consistent Basis Reporting, 81 Fed. Reg. at 11,494 (Prop. Reg. § 1.6035-1(d)(1)). If an initial Form 8971 and Schedule(s) A identified several beneficiaries who might receive the same property, the executor was permitted, but not required, to file a supplemental Form 8971 and Schedule(s) A to specify the actual distribution of that property among the identified beneficiaries. Id. (Prop. Reg. § 1.6035-1(e)(3)(B)). As such, the proposed regulations interpreted the term “acquiring” in § 6035 to be forwardlooking (i.e., to include beneficiaries who may acquire an interest in property). Id. (Prop. Reg. § 1.6035-1(c)(3)) (“If, by the due date [for filing the Form 8971 and providing Schedules A], the executor has not determined what property will be used to satisfy the interest of each beneficiary, the executor must report on the [Schedule A] for each such beneficiary all of the property that the executor could use to satisfy that beneficiary’s interest.”).

Commenters heavily criticized this approach. They argued it would result in duplicate reporting because a single item of property (or interest in the property) would be reported on the Schedule A of several beneficiaries, even though some of those beneficiaries will never

receive an interest or a partial interest in that property. According to commenters, this duplicate reporting may confuse beneficiaries by leading them to expect to receive all the property reported on the Schedule A furnished to them. In addition, commenters contended that this duplicate reporting is burdensome and may violate a decedent’s or beneficiary’s right to privacy and possibly result in conflicts and litigation among beneficiaries with competing interests in the estate. Preamble to Final Regulations, 89 Fed. Reg. at 76,363.

The Treasury Department and the IRS agreed with these comments, and, accordingly, the final regulations adopt an interpretation of “acquiring” that is backward-looking (i.e., to include only beneficiaries who have acquired an interest in property). Treas. Reg. § 1.6035-1(c) (4) (“[T]he term acquired property refers to property subject to reporting . . . that a beneficiary acquires. A beneficiary acquires such property when, under local law, title vests in the beneficiary or when the beneficiary otherwise has sufficient control over or connection with the property that the beneficiary is able to take action related to the property for which basis is relevant for [f]ederal income tax purposes (such as, for example, to sell or depreciate the property).”). The final regulations provide that executors no longer must provide Schedules A prospectively to all beneficiaries who may receive property; instead, executors must provide Schedules A to only those beneficiaries who have received property on or before the filing of the estate tax return. Id § 1.6035-1(c)(2), (5). If a beneficiary later acquires property subject to reporting after the due date of the estate tax return, the executor must furnish a Schedule A to that beneficiary with regard to that property on or before January 31 of the year following the beneficiary’s acquisition of the property and must file a supplemental Form 8971 with the IRS by that same January 31. Id. § 1.6035-1(c)(3)(ii).

The final regulations still permit an executor to furnish a Schedule A to a beneficiary before distribution of the property to that beneficiary, but only if the executor has reason to believe that the beneficiary in fact will acquire the property Id

§ 1.6035-1(c)(5). If the executor delivers a Schedule A to such a beneficiary and the reported property is later acquired by that beneficiary, the executor is not required to file a supplemental Form 8971 or Schedule A to report the beneficiary’s receipt of the property. Id. § 1.6035-1(c)(3)(ii). If the executor delivers a Schedule A to an anticipated beneficiary, but the property is ultimately distributed to a different beneficiary, the executor must update the beneficiary information on a supplemental Form 8971 filed with the IRS and furnish a Schedule A to the beneficiary who ultimately receives the property. Id § 1.6035-1(c)(5). The executor also must furnish an updated Schedule A to the beneficiary whose previous Schedule A included the property now distributed to another beneficiary. See id. § 1.6035-1(c) (5), (d)(2)(i). Generally, the due date for filing such a supplemental Form 8971 and furnishing updated Schedule(s) A to affected beneficiaries is 30 days after the executor determines that the property will be distributed to a different beneficiary. Id. § 1.6035-1(d)(4), (c)(3)(ii). Keep in mind that Form 8971 must be filed by its due date even if no Schedules A are attached. Id. § 1.6035-1(c)(1).

Eliminating the Subsequent Transfer Reporting Requirement for All but Trustee Beneficiaries

Under the proposed regulations, if a beneficiary received property from an estate that was reported on Schedule A, then disposed of that property in a transaction in which the transferee determined their basis in the property by reference to the beneficiary-transferor’s basis (e.g., a gift or like-kind exchange), the beneficiary-transferor was required to file a supplemental Schedule A with the IRS and provide a copy of the Schedule A to the transferee within 30 days after the transfer. Consistent Basis Reporting, 81 Fed. Reg. at 11,495 (Prop. Reg. § 1.6035-1(f)). For example, if a beneficiary received property from an estate and later gave the property to his child, the beneficiary was required to file with the IRS a supplemental Schedule A and furnish a copy of that Schedule A to the child. I.R.C. § 1015(a); Consistent Basis Reporting, 81 Fed. Reg. at 11,495 (Prop. Reg. § 1.6035-1(f)).

Commenters argued that this reporting requirement could continue for generations and thus be impossible for the IRS to monitor and enforce, especially with respect to nonresident noncitizen beneficiaries if the property is no longer in the United States. Commenters also noted that this subsequent reporting requirement creates uncertainty for executors, estate tax return preparers, and beneficiaries as to whether supplemental reporting is required, and that the failure to comply with the reporting requirement is subject to penalties. They contended this requirement is particularly unfair with respect to unsophisticated individual recipients who are likely to be unaware of the reporting requirements and, as a result, are more likely to become subject to noncompliance penalties. Finally, commenters noted that, in many cases, the obligation to report the basis of property transferred is duplicative of other required filings. Preamble to Final Regulations, 89 Fed. Reg. at 76,372.

In response to these comments, the Treasury Department chose to eliminate the subsequent transfer reporting requirement for individual beneficiaries but to retain it for trustees. Id. Accordingly, the final regulations impose the subsequent transfer reporting requirement only on trustees of trusts that receive property from an estate. Treas. Reg. § 1.6035-1(h)(1).

The supplemental reporting obligation for trustees continues to apply for each subsequent disposition until the property is distributed outright to an individual beneficiary or the property acquires a basis that is no longer related to the property’s final value as determined for estate tax purposes. Id. For example, if the trustee sells the property in a transaction where gain or loss would be recognized for income tax purposes, the trustee is not required to report that transfer on a supplemental Schedule A.

The Treasury Department also pushed back the deadline for reporting subsequent transfers. Under the proposed regulations, the due date for reporting subsequent transfers was 30 days after the transfer. Consistent Basis Reporting, 81 Fed. Reg. at 11,495 (Prop. Reg. § 1.6035-1(f)). Under the final regulations, the due date for reporting

subsequent transfers is now January 31 of the year following the transfer. Treas. Reg. § 1.6035-1(h)(2).

Changing the Reporting Options in the Case of a Beneficiary Trust

Proposed Regulation § 1.6035-1(c)(2) provides that, if the beneficiary is a trust, the executor must furnish the beneficiary’s Schedule A to the trustee of the trust rather than to the beneficiaries. Commenters were concerned this rule did not take into account the variety of trust arrangements an executor may encounter. In response, the Treasury Department revised the rule to provide that, in the case of a beneficiary trust, the executor may still provide the Schedule A to the trustee. Alternatively, the executor may instead provide the Schedule A directly to the trust beneficiaries, with a copy to the trustee, if the executor reasonably believes that it is unlikely that the trust will depreciate, sell, or otherwise dispose of the property in a recognition event for income tax purposes. Treas. Reg. § 1.6035-1(g)(2)(i); Preamble to Final Regulations, 89 Fed. Reg. at 76,371. For this purpose, a trust’s beneficiaries include all potential current income beneficiaries and each remainderman who would have had a current interest in the trust if one or more of the income beneficiaries had died immediately before the decedent. Treas. Reg. § 1.6035-1(g)(2)(i); Preamble to Final Regulations, 89 Fed. Reg. at 76,371.

Eliminating the Zero Basis Rule

The proposed regulations provided that any property discovered after the filing of the estate tax return, or otherwise omitted from the estate tax return (so-called unreported property), and not later reported before the expiration of the period of limitations on assessment, had a basis of zero. Consistent Basis Reporting, 81 Fed. Reg. at 11,492 (Prop. Reg. § 1.1014-10(c)(3)(i) (B), (ii)). This was referred to as the “zero basis rule.” Preamble to Final Regulations, 89 Fed. Reg. at 76,360.

Comments regarding the practical effects of the zero basis rule contended that the rule is onerous, unduly harsh, and unfair. Commenters noted that a beneficiary receiving unreported property

Comments regarding the practical effects of the zero basis rule contended that the rule is onerous, unduly harsh, and unfair.

in many cases will not be the executor or other person having the responsibility to report the property and the beneficiary may have no ability to compel the executor to report the property on the return. Yet, under the zero basis rule, the beneficiary receiving unreported property will have an increased tax burden because of the denial of basis, whether determined under § 1014(a) (fair market value on the decedent’s date of death) or, in the alternative, a carry-over basis of the decedent’s adjusted basis in the property. Commenters noted that unreported property is more likely to arise by inadvertent omission from the estate tax return or as a result of being undiscovered, rather than from willful omission. Therefore, except in the case of willful omission by a beneficiary who is the executor or other person responsible to report the property, commenters contended that the zero basis rule is unduly harsh and unfair because it creates a 100 percent taxable gain on the sale of the property by the beneficiary. Id. at 76,361.

The Treasury Department and the IRS sympathized with these concerns about the practical effects of the zero basis rule, and the final regulations eliminate the rule. Under the final regulations, the basis of unreported property is determined under § 1014(a). Id. Under § 1014(a), the basis of property acquired from a decedent is the fair market value of the property on the date of the decedent’s death. So, if an executor omits property from an estate tax return and does not discover the omission until after the period of limitations expired, the unreported property has a basis equal to the fair market value of the property on the decedent’s date of death. Treas. Reg. § 1.1014-10(c)(1)(i), (d)(4); see

also Preamble to Final Regulations, 89 Fed. Reg. at 76,361.

Adding Exceptions to the Consistent Basis Requirement of § 1014(f)

Proposed Regulation § 1.1014-10(b) (2) excluded from the consistent basis requirement only the following types of property:

• Property that qualifies for the estate tax charitable deduction under § 2055;

• Property that qualifies for the estate tax marital deduction under § 2056; and

• Tangible personal property for which an appraisal is not required under Treasury Regulation § 20.2031-6(b).

In response to comments, the Treasury Department significantly expanded these exceptions. The expanded list of exceptions is now located in Treasury Regulation § 1.1014-10(c)(2), and that list:

• Includes US dollars, and defines that term (Treas. Reg. § 1.1014-10(c) (2)(i));

• Includes cash equivalents (id. § 1.1014-10(c)(2)(ii)–(v)), life insurance proceeds (id.. § 1.1014-10(c) (2)(vi)), tax refunds (id. § 1.101410(c)(2)(vii)), and notes forgiven in full by the decedent upon death (id. § 1.1014-10(c)(2)(viii));

• Changes “tangible personal property” to “household and personal effects” for which an appraisal is not required under Treasury Regulation § 20.2031-6(b) (id § 1.1014-10(c)(2)(ix));

• Adds property the initial basis of which is not in any way determined with regard to or derived from the property’s final value

as determined under Treasury Regulation § 1.1014-10(b) (1) or its reported value as determined under Treasury Regulation § 1.1014-10(b)(2), if applicable, and provides examples of such property (id. § 1.1014-10(c)(2)(x));

• Provides an added qualification to the exception for charitable deduction property and marital deduction property to clarify that the exception applies only if the value of the decedent’s entire interest in the included property is wholly deductible and equal to the total amount qualifying for those deductions (to address split interests) (id. § 1.1014-10(c)(2)(xi));

• Adds property that represents the surviving spouse’s one-half share of community property to which § 1014(b)(6) applies, regardless of whether this property is included property as defined in Treasury Regulation § 1.1014-10(d)(4) (id § 1.1014-10(c)(2)(xii));

• Adds property subject to a taxable termination for generation-skipping transfer tax purposes whose basis is adjusted under § 2654(a)(2) (id. § 1.1014-10(c)(2)(xiii)); and

• Adds “any other property that is not described in [the definition of ‘consistent basis property’ in Treasury Regulation § 1.1014-10(c)(1)(i)] or that is identified as excepted property in published guidance in the Federal Register or in the Internal Revenue Bulletin” (id. § 1.101410(c)(2)(xiv)).

Adding Exceptions to the Reporting Requirements of § 6035; Clarifying Reporting of Excepted Property

The proposed regulations under § 6035 required reporting on Form 8971 all property required to be reported on an estate tax return, as well as property whose basis is determined in whole or in part by reference to that property (for example, like-kind exchange property) (Consistent Basis Reporting, 81 Fed. Reg. at 11,493 (Prop. Reg. § 1.6035-1(b)(1)), with the following exceptions:

• Cash (other than a coin collection

or other coins or bills with numismatic value) (id. at 11,493 (Prop. Reg. § 1.6035-1(b)(1)(i)));

• Income in respect of a decedent (as defined in § 691) (id. (Prop. Reg. § 1.6035-1(b)(1)(ii)));

• Tangible personal property for which an appraisal is not required under Treasury Regulation § 20.2031-6(b) (id. (Prop. Reg. § 1.6035-1(b)(1)(iii))); and

• Property sold, exchanged, or otherwise disposed of (and therefore not distributed to a beneficiary) by the estate in a transaction in which capital gain or loss is recognized (id (Prop. Reg. § 1.6035-1(b)(1)(iv))).

In response to comments, the Treasury Department significantly expanded this list of exceptions. The final regulations also introduce the term “excepted property” to describe any such property. The expanded list is now located in Treasury Regulation § 1.6035-1(f)(2), and that list:

• Replaces “cash” with “United States dollars” (Treas. Reg. § 1.6035-1(f) (2)(i));

• Adds cash equivalents (id. § 1.60351(f)(2)(ii)–(v)), life insurance proceeds (id. § 1.6035-1(f)(2)(vi)), tax refunds (id. § 1.6035-1(f)(2)(vii)), and notes forgiven in full by the decedent upon death (id. § 1.60351(f)(2)(viii));

• Changes “tangible personal property” to “household and personal effects” for which an appraisal is not required under Treasury Regulation § 20.2031-6(b) (id § 1.6035-1(f)(2)(ix));

• Adds property that, before distribution from the estate, is disposed of in one or more transactions that are recognition events for federal income tax purposes (whether or not resulting in a gain or loss, and whether or not any gain is capital or ordinary), and includes a nonexhaustive list of examples of such property (id. § 1.6035-1(f)(2)(x));

• Adds property having an initial basis that is not in any way determined with regard to or derived from the property’s fair market value for federal estate tax purposes, and includes a

non-exhaustive list of examples of such property (id. § 1.6035-1(f)(2) (xi));

• Adds bonds to the extent they are redeemed by the issuer for US dollars before being distributed to a beneficiary so that any resulting gain or loss is recognized by the estate (id. § 1.6035-1(f)(2)(xii));

• Adds property included in the gross estate of a beneficiary who died before the due date of the Form 8971 (id. § 1.6035-1(f)(2)(xiii)); and

• Adds “any other property identified as excepted property in published guidance in the Federal Register or in the Internal Revenue Bulletin” (id. § 1.6035-1(f)(2)(xiv)).

The final regulations clarify that an executor must file Form 8971 even if all property subject to the reporting requirement is excepted property. Id. § 1.6035-1(f)(1). If there is excepted property, the executor must report on Form 8971 that some or all of the property subject to reporting is excepted property. Id. However, the executor is not required to identify or to provide any other information about excepted property on the Form 8971, and the executor is not required to furnish a Schedule A to the beneficiary with regard to that property. Id. Accordingly, if a beneficiary receives only excepted property, no Schedule A needs to be provided to that beneficiary. Id.

Clarifying the Scope of Included Property Subject to the Reporting Requirements of § 6035

An estate may include property for which the executor claims an estate tax marital deduction or charitable deduction. The final regulations clarify that marital deduction property and charitable deduction property must be reported unless the particular item in question is excepted property. Id. § 1.6035-1(e)(1).

An executor may distribute some estate property to a surviving spouse in satisfaction of that surviving spouse’s interest in community property not included in the gross estate and distribute some of the surviving spouse’s interest in community property to a non-spouse beneficiary. In that case, the

final regulations provide that the property included in the decedent’s estate is included property subject to reporting, but property that represents the surviving spouse’s share of community property is not included property and therefore not subject to reporting, even if such property receives a basis adjustment pursuant to § 1014(b)(6). Id. § 1.6035-1(e)(1).

Other Changes, Additions, and Clarifications

The final regulations contain numerous other changes, additions, and clarifications, including:

• Guidance on how to report property to be distributed to a beneficiary trust that lacks a trustee or taxpayer identification number. See id. § 1.6035-1(g)(2)(ii).

• Clarification that the consistent basis requirement continues to apply until the entire property is sold, exchanged, or otherwise disposed of in a recognition transaction for income tax purposes (whether or not any amount of gain or loss is actually recognized) or until the property becomes includible in another decedent’s gross estate. Id. § 1.1014-10(a)(3). For a like-kind exchange under § 1031, the substituted property remains subject to the consistent basis requirement. Id. § 1.1014-10(c)(1)(i) (B); Preamble to Final Regulations, 89 Fed. Reg. at 76,357.

• Clarification that if property included in a decedent’s estate was subject to recourse or nonrecourse debt, the final value or, if applicable, the reported value of that property is determined based on the gross value of that property undiminished by debt, regardless of whether the estate tax return reports the net value of the property or separately reports the gross value and claims an estate tax deduction for the outstanding debt. Treas. Reg. § 1.1014-10(b)(3)(i); Preamble to Final Regulations, 89 Fed. Reg. at 76,358.

• Clarification that, in determining whether the property’s value increases the estate tax liability that

is payable after the application of allowable credits (and is therefore “consistent basis property”), credits against the estate tax allowable by any treaty obligation of the United States shall be taken into account. Treas. Reg. § 1.1014-10(d)(5); Preamble to Final Regulations, 89 Fed. Reg. at 76,358.

• Clarification that, in determining whether property is excepted from the consistent basis requirement by virtue of qualifying for the estate tax charitable deduction or marital deduction, partially deductible property (e.g., property funding a charitable remainder trust) is not excepted and therefore remains consistent basis property. Treas. Reg. § 1.1014-10(c)(2)(xi); Preamble to Final Regulations, 89 Fed. Reg. at 76,358. However, in the case of property divided between a decedent’s surviving spouse and charity, the regulations indicate such property is consistent basis property so long as the sum of the deductions for those interests equals the value of such property as included in the decedent’s gross estate. Treas. Reg. § 1.1014-10(c)(2)(xi); Preamble to Final Regulations, 89 Fed. Reg. at 76,358–59.

• Clarification regarding the circumstances under which the value of property becomes final for purposes of the consistent basis requirement. See Treas. Reg. § 1.1014-10(b), (d)(1); Preamble to Final Regulations, 89 Fed. Reg. at 76,360.

• Statement that, although the final regulations do not provide a beneficiary a means to challenge the value of consistent basis property reported by an executor, the Treasury Department and the IRS are considering providing such an opportunity in the future. Preamble to Final Regulations, 89 Fed. Reg. at 76,362.

• Clarification that, in the case where there is an executor serving, but there is also a trust includible in the decedent’s estate, each person required to file an estate tax

return (i.e., both the executor and the trustee) is subject to the § 6035 reporting requirements, but only with regard to property reported or required to be reported on the estate tax return filed by that person. Treas. Reg. § 1.6035-1(b)(2); Preamble to Final Regulations, 89 Fed. Reg. at 76,363.

• Clarification that, where multiple co-executors are serving, all co-executors are responsible for filing Form 8971, but it is sufficient if only one of the co-executors files the form and furnishes the Schedules A. Preamble to Final Regulations, 89 Fed. Reg. at 76,363.

• Clarification that post-death or other adjustments to the basis of property made under sections of the Code other than § 1014(f) do not require supplemental reporting. Treas. Reg. § 1.6035-1(d)(3)(iii); Preamble to Final Regulations, 89 Fed. Reg. at 76,366.

• Clarification that property included in the decedent’s gross estate that is distributed to the decedent’s surviving spouse in lieu of the surviving spouse’s interest in community property under state law remains subject to reporting. Treas. Reg. § 1.6035-1(e)(1).

• Discussion of the reporting of property that has a basis that is determined without reference to the property’s federal estate tax value, such as individual retirement accounts (IRAs). Preamble to Final Regulations, 89 Fed. Reg. at 76,369.

Form 8971 and Instructions

IRS Form 8971 was issued in January 2016 and has not been revised since. The most recent instructions to Form 8971 are dated September 2016. The preamble to the final regulations anticipates that revisions to Form 8971 and its instructions will be necessary. See id. at 76,373 (“To the extent not otherwise addressed in the final regulations or this preamble, these comments are best considered in contemplation of necessary or appropriate revisions to the Information Return and its instructions.”). The instructions to Form 8971 will certainly require

revisions. Examples include: The guidance under “When To File” and under “Schedule A—Information Regarding Beneficiaries Acquiring Property From a Decedent” should be revised to (i) describe the option to delay issuing Schedule A to a beneficiary who has not yet received estate property as of the date the estate tax return is filed and (ii) reflect the due date of January 31 of the year following acquisition to issue Schedule A to a beneficiary who receives estate property after the estate tax return is filed.

• Those sections should be revised to provide that the requirement to supplement Form 8971 and Schedule A upon distribution of that property is mandatory.

• The instructions will need to be revised to provide that, if some of the property subject to reporting is excepted property, then the executor must disclose that fact on Form 8971 but may provide no other information regarding that property.

• The instructions should state that if a beneficiary is receiving only excepted property, then no Schedule A needs be provided to that beneficiary.

Penalties

The final regulations make no changes to the penalties the IRS may assert in the case of an inconsistent estate basis or for failure to satisfy the reporting requirements.

Subsections 6662(a) and (b)(8), as amended in 2015, impose an accuracyrelated penalty equal to 20% of an income tax underpayment attributable to any “inconsistent estate basis.”

Section 6662(k) provides that the term “inconsistent estate basis” means any portion of an underpayment attributable to the failure to comply with § 1014(f) (the consistent basis requirement). Proposed Regulation § 1.6662-8 incorporated this rule into the applicable regulations. The final regulations move this rule to § 1.6662-9 and add an example.

Subsection 6721(a) and (f) impose a penalty of $250, adjusted for inflation, for the failure to file an information return (which includes Form 8971) or to include all the information required to be shown on the return. See also Treas. Reg. § 301.6721-1(h)(2)(xii); I.R.C. § 6724(d) (1)(D). Code § 6724(d)(1)(D), added in

2015, provides that “information return” includes any statement required to be filed under § 6035, i.e., Form 8971.

Subsections 6722(a) and (f) impose a penalty of $250, adjusted for inflation, for the failure to furnish a payee statement (which includes Schedule A to Form 8971) or to include all the information required to be shown on that statement. See also Treas. Reg. § 301.67221(e)(2)(xxxv); I.R.C. § 6724(d)(2)(II). Code § 6724(d)(2)(II), added in 2015, provides that “payee statement” means any statement required to be furnished under section 6035 (other than an information return), i.e., Schedule A to Form 8971. For Forms 8971 required to be filed and Schedules A required to be furnished in 2025, the inflation-adjusted penalty is $330. Rev. Proc. 2023-34, 2023-48 I.R.B. 1287.

Sections 6721 and 6722 provide for reductions in penalties for timely corrections. See I.R.C. §§ 6721(b), 6722(b); Treas. Reg. § 301.6721-1(b)(2), (6). There are exceptions to penalties for certain de minimis failures. See I.R.C. §§ 6721(c), 6722(c). Also, penalties may be waived for reasonable cause. Id. § 6724(a); see Treas. Reg. § 301.6724-1(a)(2).

The preamble to the final regulations clarifies the application of penalties for the filing of (or failure to file) multiple Schedules A. See Preamble to Final Regulations, 89 Fed. Reg. at 76,372 (“A penalty applies separately to each initial or supplemental Information Return that the executor is required to file with the IRS, and to each initial or supplemental Statement that the executor is required to furnish to a beneficiary. Accordingly, only one penalty under section 6721 may be imposed for filing an incorrect Information Return, even if copies of multiple required Statements are not attached to the Information Return, but multiple penalties under section 6722 may be imposed for furnishing multiple incorrect Statements, even if the Statements were filed with the IRS as attachments to a single Information Return.”).

Applicability Dates

The proposed regulations stated they would become effective upon publication of the Treasury Decision adopting

its rules as final and that the rules would apply to property acquired from a decedent or by reason of the death of a decedent whose return required by § 6018 is filed after July 31, 2015. Consistent Basis Reporting, 81 Fed. Reg. at 11,490, 11,491 (Preamble to Proposed Regulations). The final regulations push back that effective date to coincide with their date of publication. Accordingly, final Treasury Regulation § 1.101410 applies to property acquired from a decedent if the decedent’s estate tax return is filed after September 17, 2024. Treas. Reg. § 1.1014-10(f). Similarly, final Treasury Regulation § 1.6035-1 applies to executors of estates of decedents that file estate tax returns after September 17, 2024, and to trustees that receive property included in the gross estate of such a decedent. Id. § 1.6035-1(j).

As provided in the 2015 Act, the statutory rules of §§ 1014(f) and 6035 continue to apply to property with respect to which an estate tax return is filed after July 31, 2015. 2015 Act, § 2004(d). Accordingly, the consistent basis rule of § 1014(f) continues to apply to property acquired from a decedent whose estate tax return was filed after July 31, 2015, and before September 18, 2024. See Preamble to Final Regulations, 89 Fed. Reg. at 76,361. Likewise, the reporting requirements of § 6035 continue to apply to executors of estates of decedents who filed an estate tax return after July 31, 2015, and before September 18, 2024. See id. at 76,373.

Proposed regulations generally do not have the force of law until finalized. See Lecroy Rsch. Sys. Corp. v. Comm’r, 751 F.2d 123, 127 (2d Cir. 1984). Accordingly, a taxpayer need not comply with a rule that the Treasury Department included in its proposed regulations but failed to adopt in its final regulations (such as the subsequent transfer reporting requirement for individual beneficiaries).

Conclusion

The final regulations under §§ 1014(f) and 6035 represent a substantial improvement to the proposed regulations and should significantly ease the

compliance burden borne by executors and beneficiaries. Practitioners who assist executors in filing federal estate tax returns will be pleased with the additional clarity and options provided. Individual beneficiaries will be relieved not to have to comply with a subsequent transfer reporting requirement or be subject to the zero basis rule. It took the Treasury Department over eight years to issue the final regulations, but the improvements they provide seem to have been worth the wait. n

The Impact of AI on Real Estate Lawyers

By Juliana Hakakian

As technology continues to evolve, artificial intelligence (AI) has emerged as a transformative force across multiple sectors, including the legal industry. Real estate law, in particular, is undergoing significant changes as lawyers begin to incorporate AI into their daily practices. Although concerns about AI replacing legal professionals persist, AI is best viewed as an assistant rather than a substitute. By streamlining processes, enhancing data analysis, and supporting decision-making, AI has the potential to improve the efficiency and effectiveness of real estate lawyers. This claim sets the stage for a deeper exploration of AI’s capabilities, its effect on the legal profession, and the challenges that arise as AI technologies become more prevalent in real estate law.

Understanding AI in Real Estate Law

Definition and Scope of AI

AI is a field of computer science aimed at creating systems capable of performing tasks that would typically require human intelligence. These systems include functions such as learning, reasoning, problem-solving, perception, and language understanding. AI technology encompasses various forms, including machine learning, natural language processing, and computer vision, each designed to process large volumes of data

and recognize complex patterns. Across different industries, AI applications serve specific functions tailored to the demands of each field. In health care, AI assists in diagnosing medical conditions and predicting patient outcomes. In finance, AI systems help with fraud detection and to automate trading processes. Meanwhile, in retail, AI is used for personalized recommendations and inventory management. The adaptability of AI technology allows it to be customized for a wide range of tasks, making it a transformative tool in fields like education, manufacturing, and legal services, where it can automate routine tasks and provide data-driven insights.

Juliana Hakakian is a student at the Schack Institute of Real Estate at New York University.

In real estate law, AI applications can help manage complex workflows and optimize time-consuming processes, which are critical in handling extensive documentation and regulatory compliance. AI-powered tools streamline document review by automating the extraction of essential information from contracts, lease agreements, and other legal documents. For instance, AI can quickly identify clauses, flag compliance risks, and detect discrepancies that would otherwise require hours of manual review, allowing lawyers to focus on more strategic tasks. Moreover, AI enhances due diligence by rapidly analyzing property data, market trends, and historical records to assess

potential risks and inform investment decisions. By automating these processes, AI not only improves accuracy but also expedites transaction timelines. Such expedition is invaluable in the fast-paced real estate industry. Chris O’Leary, Revolutionize Your Commercial Real Estate Document Workflow with AI, Thomson Reuters (Aug. 23, 2023), https:// tinyurl.com/2p8vuwbv.

The Role of AI in Enhancing Legal Practice

AI’s role in enhancing legal practice goes beyond just streamlining routine tasks; it empowers lawyers with the capacity to handle vast datasets and extract valuable insights, reshaping how legal firms approach case management and advising clients. By automating document review and contract drafting, AI reduces the time historically required for labor-intensive tasks, freeing up legal professionals to focus on higher-level decision-making. AI-driven platforms can process enormous amounts of property data, identify trends, and provide predictive insights, helping real estate lawyers make more informed recommendations and strategic decisions. For instance, case studies from law firms using AI tools like Kira Systems show a marked increase in productivity, with some reporting a 50% reduction in time spent on lease reviews. Kira for Audit, Accounting & Advisory Firms, Kira Sys. (2024), https://tinyurl. com/5n6hy2z7. By integrating AI solutions, these firms are not only able to handle more cases but also offer clients faster turnaround and enhanced accuracy. Brent Horak, Kristi Gibson & Kirstie Tiernan, AI in Real Estate, BDO USA (Oct. 21, 2024), https://tinyurl.com/wpjd2975.

Benefits of AI for Real Estate Lawyers

Increased Efficiency

The benefits of AI in real estate law are evident particularly in its ability to increase efficiency. By automating tasks such as document analysis, contract drafting, and title searches, AI significantly reduces the time lawyers spend on repetitive and administrative duties. This efficiency boost allows legal professionals to devote more time to complex tasks that require human judgment and creativity. AI tools can process vast amounts of real estate data quickly and accurately, providing lawyers with valuable insights that inform their decision-making. For example, AI can predict market trends, assess property values, and highlight potential legal risks, enabling real estate lawyers to make more informed, strategic recommendations for their clients. As highlighted by Anna Prozherina, AI applications in property transactions allow law firms to not only accelerate workflows but also enhance the accuracy of their work, ultimately improving client satisfaction and strengthening competitive advantage in the market. Anna Prozherina, Using AI in Property Transactions, Law Soc’y (Sept. 3, 2024), https://tinyurl.com/5t425m6y.

AI’s ability to increase efficiency in real estate law is

beneficial particularly for law firms looking to streamline their operations. With AI tools handling time-consuming tasks such as document review, legal research, and contract drafting, lawyers can significantly reduce the time spent on these routine duties. By using AI’s capabilities to process large volumes of data quickly, law firms can expedite the completion of tasks that would otherwise take days or even weeks. For example, AI can quickly search through thousands of documents to identify key clauses or potential legal issues, ensuring a faster turnaround for clients. This increased efficiency not only saves time but also reduces the likelihood of human error, leading to more accurate and reliable work. As noted by Mary Harriet Moore, implementing AI tools allows law firms to improve workflow productivity, automate administrative processes, and focus their human resources on highvalue tasks such as client relationships and strategy development, enhancing overall practice performance. Mary Harriet Moore, 5 Ways Law Firms Can Use AI to Improve Efficiency, Rosen Hagood (Apr. 15, 2024), https://tinyurl. com/4kc3rvjm.

Enhanced Decision-Making

AI’s ability to enhance decision-making is another significant advantage for real estate lawyers. By analyzing vast amounts of data, AI tools can provide valuable insights that guide legal decisions in real estate transactions. For example, AI can help lawyers assess market trends, predict property values, and identify potential risks, allowing them to advise clients more effectively. This data-driven approach enables lawyers to make informed decisions based on comprehensive analyses, rather than relying solely on intuition or limited data. In real estate investment, AI can forecast market fluctuations and offer insights into the best times to buy or sell properties, empowering lawyers and their clients to make strategic, well-timed decisions. As highlighted by the Hispanic Wealth Project, AI has the potential to transform investment strategies by providing more accurate risk assessments and uncovering opportunities that may

have otherwise gone unnoticed, thereby improving long-term outcomes for investors and legal professionals alike. Enhancing Real Estate Investment with AI, Hispanic Wealth Project, https://tinyurl. com/4cfb93cv.

Improved Client Outcomes

AI also offers real estate lawyers the opportunity to improve client outcomes by providing more efficient and accurate legal services. By automating routine tasks such as contract review and document management, AI allows lawyers to focus on higher-level strategic

work, which directly benefits their clients. For instance, AI-powered tools can simplify the drafting and review of real estate contracts, ensuring that terms are clear, complete, and aligned with current laws and regulations. Additionally, AI can detect errors or inconsistencies in contracts that may be overlooked by human lawyers, thus reducing the likelihood of costly mistakes. These capabilities lead to more reliable and timely legal counsel, enhancing client satisfaction. Moreover, AI’s predictive capabilities can help lawyers guide clients through complex real estate decisions by

AI APPLICATION DESCRIPTION BENEFIT

Document review automation AI extracts key information and flags errors or risks in contracts Speeds up review process, improves accuracy

Contract drafting assistance Auto-population of standard clauses based on legal requirements

Data analytics Analyzes market trends, property history, and investment risks

Case study example: Kira Systems

AI BENEFIT

Increased efficiency

Improved accuracy

Time savings

Saves time, reduces human error

Informs investment decisions

Reduces lease review time by up to 50%

Enhanced decision-making

Better client satisfaction

Enhances productivity, offers faster client service

DESCRIPTION

AI automates routine tasks, enabling faster document review, contract drafting, and title searches.

AI reduces human error by analyzing data accurately and quickly, ensuring legal work is more precise.

By handling repetitive tasks, AI frees up time for lawyers to focus on more complex, creative work.

AI analyzes market trends, predicts property values, and identifies potential risks to support better decisions.

With faster, more accurate work, AI improves the overall client experience and strengthens firm competitiveness.

offering detailed risk assessments and market predictions. As real estate law increasingly integrates AI technologies, firms can offer a more personalized and proactive service, positioning themselves as more responsive and effective advocates for their clients’ interests.

Challenges of Implementing AI in Real Estate Law

Cost Implications

Although the benefits of AI integration in real estate law are clear, one of the main challenges is the significant cost involved in implementing these technologies. AI systems, particularly those tailored to legal practices, often require substantial upfront investment, not only for the software itself but also for the infrastructure and training needed to integrate it into existing systems. These costs can be prohibitive for smaller law firms, limiting their ability to adopt AI solutions. Additionally, the need for ongoing maintenance, updates, and support services can add to the financial burden. As AI technology evolves, legal firms must continue to invest in the latest tools to remain competitive, which can be a barrier for firms with limited budgets. According to a report by William Josten, AI offers efficiency gains, but its high implementation costs are a significant factor in the decision-making process for many legal practices, especially those that operate with tight margins or in niche markets like real estate law. William Josten, Pricing AI-Driven Legal Services: It’s Not a Question of Cost Recovery, Thomson Reuters (May 15, 2024), https://tinyurl. com/bdemah3e.

The long-term financial implications of AI implementation extend beyond initial setup and directly affect the cost of legal service delivery. As touched upon previously, AI technology demands not only a substantial initial investment but also continuous spending on maintenance, upgrades, and compliance to stay current with legal standards and technological advancements. For real estate law firms, especially those operating on tight margins, these ongoing expenses can quickly accumulate, affecting their overall financial

sustainability. Smaller firms may struggle to keep up with larger counterparts that can more readily afford AI infrastructure. Furthermore, as the demand for cuttingedge technology in client services increases, law firms that do not adopt or continuously update AI solutions may find themselves at a competitive disadvantage. Although AI can enhance efficiency and streamline routine tasks in the long term, these cost implications remain a critical factor that many real estate law firms must weigh carefully when considering AI adoption.

Job Displacement Concerns

Another significant challenge of implementing AI in real estate law is the potential for job displacement, particularly among junior lawyers and support staff who handle routine, data-heavy tasks. With AI capable of automating document review, contract analysis, and data organization, roles traditionally filled by paralegals and entry-level associates face uncertainty. This shift could lead to fewer opportunities for early-career professionals to gain foundational legal experience, ultimately affecting career progression in the field. As AI systems take on these responsibilities, firms may become less inclined to hire for these positions, opting instead for a more efficient, technology-driven structure. Although AI can streamline workflows, it does not replace the need for critical thinking, judgment, and the nuanced understanding required in complex legal scenarios. The question of how to balance technological efficiency with workforce stability remains a pressing issue in the legal industry, sparking debates about the future role of lawyers in an AI-driven landscape.

The potential for job displacement from AI is a particularly pressing concern in the legal field, and real estate law is no exception. As firms increasingly adopt AI for routine legal tasks, junior roles may be phased out in favor of technology that can complete these duties faster and with fewer errors. For instance, automated document review tools are capable of extracting, categorizing, and analyzing information without the need for human

oversight, which traditionally would have been the work of junior associates or paralegals. This shift not only affects entry-level employment opportunities but also poses challenges for training new legal professionals. Without hands-on experience in foundational tasks, junior lawyers may miss critical learning opportunities essential for developing their legal skills and judgment, which AI currently cannot replicate. Additionally, the reliance on AI may result in firms prioritizing efficiency over cultivating a steady stream of skilled lawyers who can adapt to more complex legal roles as they advance in their careers.

Quality and Reliability of AI Systems

Although AI offers efficiency and speed, the quality and reliability of these systems in real estate law remain ongoing challenges. AI tools rely heavily on the quality of data on which they’re trained, meaning any gaps or inaccuracies in the data can lead to flawed outputs. In highstakes fields like law, where decisions rely on precise language and interpretation, an AI systems’ inability to consistently analyze complex nuances poses risks. For example, AI-powered legal tools may misinterpret ambiguous contract language or overlook essential exceptions within legal documents, potentially jeopardizing a case’s outcome or a client’s interests. These limitations in accuracy mean that firms must rigorously test AI systems and maintain substantial human oversight, especially when handling critical tasks like contract review or risk assessment. Given these constraints, AI may not yet be reliable enough to fully replace humans in real estate law but instead serves as a tool requiring close supervision.

Furthermore, AI systems bring significant speed and efficiency to legal tasks, but challenges surrounding their quality and reliability persist, especially in real estate law. A key issue is that AI accuracy often depends on the quality and relevance of the data on which it is trained. Even slight inaccuracies in training data can lead to significant errors, particularly in fields like law where context and interpretation are crucial. This dependency on high-quality

data and the risk of misinterpretation highlight the limitations of current AI technology in capturing the complexity of legal tasks. Thus, although AI can enhance efficiency, it still requires substantial human oversight to ensure that outputs align with the nuanced demands of real estate law, underscoring its role as a supplementary tool rather than a replacement for human expertise.

The Symbiotic Relationship Between AI and Lawyers

AI as a Complementary Tool

The symbiotic relationship between AI and lawyers in real estate law demonstrates how AI functions as a complementary tool, enhancing rather than replacing human expertise. AI excels at streamlining repetitive tasks, such as document review and data analysis, allowing lawyers to allocate more time to complex, client-facing responsibilities. For instance, legal AI tools can efficiently organize and analyze vast amounts of data, flagging

potential risks and inconsistencies in contracts that would otherwise demand hours of manual scrutiny. The interpretation of these outputs, however, requires human expertise to account for legal nuances and subjective reasoning that AI systems cannot replicate. This collaboration enables law firms to harness the strengths of AI while relying on human judgment to navigate the intricacies of real estate law.

Future Prospects for AI in Real Estate Law

The future of AI in real estate law points to an evolving partnership where technology amplifies the capabilities of legal professionals rather than diminishes their roles. AI advancements are expected to delve deeper into predictive analytics, offering lawyers more precise tools for forecasting market trends, property valuations, and risk assessments. For example, AI could refine zoning and land-use analysis by cross-referencing local regulations with geospatial data, enabling lawyers

to provide more strategic guidance to clients. Moreover, natural language processing is expected to improve, allowing AI to generate highly customized legal documents and conduct preliminary contract negotiations. The integration of AI requires human oversight, however, to ensure ethical compliance, accuracy, and adaptability to unique legal circumstances.

Conclusion

This article has explored the multifaceted impact of AI on real estate lawyers, highlighting its potential to serve as an invaluable assistant while addressing concerns about job displacement and system reliability. By embracing AI technologies, legal professionals can enhance their practices, improve client outcomes, and adapt to the changing landscape of real estate law. However, a careful balance must be maintained to ensure that human expertise remains central to the legal process. n

CAREER DEVELOPMENT AND WELLNESS

Financial Fitness for Attorneys

Although many well-being articles focus on physical and emotional health, well-being also encompasses financial fitness. Without monetary resources, other well-being goals become more challenging to achieve. Approximately 50% of all Americans say that money damages their mental health, causing stress, anxiety, and other adverse effects. Roughly the same percentage experience stress and anxiety at least three times a week over money matters. Acknowledging the money issue is important, but developing a plan and implementing habits to promote financial fitness is paramount to ensure that attorneys are on solid financial ground throughout their careers. As succinctly stated by Dave Ramsey, “Winning at money is 80% behavior and 20% head knowledge. What to do isn’t the problem; doing it is.”

Early Career

Start with good basic practices.

401k/403b. Establish regular 401k contributions to the maximum extent possible, especially if there is an employer match. Taken out of your paycheck on a pre-tax basis, these funds will be allowed to grow over time to create a pool of money that can be withdrawn in retirement. When deciding on an investment mix, many people choose to consider Lifecycle Funds built around their expected retirement date. These prepackaged investments follow investing principles and proper allocation. During the early years, investors can experience market swings, and if an investment mix is highly concentrated, it may experience more significant swings, which may deter future investments. Working with a qualified professional will help you determine what is right for your risk tolerance and individual needs.

Student Loan Debt. Make timely payments on student loan debt. Doing so will help improve your credit score and decrease this liability over time. Evaluate your effective interest rate

Contributing Authors: Crystal Patterson is a general counsel at Gulfstream Commercial Services, LLC, in Owensboro and Louisville, Kentucky. She is co-chair of RPTE’s Committee on Career Development and Well-Being and the Section’s assistant finance officer. Andy Tate, CFP®, is a principal at Cahill Financial Advisors in Edina, Minnesota.

to determine whether making extra principal payments to retire this debt early is beneficial in light of your ability to create greater returns on other long-term investments, such as 401k savings. Remember to set up automatic payments from your bank account; some loan providers will give you a lower rate if you do so.

Savings. Begin a program of regular savings. A variety of strategies can be used, including having a portion of your paycheck automatically deposited into a separate savings account or enrolling in a “round up” program with a credit or debit card issued by a financial institution with consumer accounts. Savings goals should be established from a short-term perspective (upcoming vacations, auto purchases, down payment on a home purchase, etc.) and a long-term perspective. Having money deducted from your paycheck or doing automatic savings as the money enters your bank account is critical. The savings plan not only will help you build wealth but also will create a standard of living below your means. Save before you can spend and watch your net worth increase!

Credit Card Debt. Strive to eliminate credit card debt as soon as possible. Thereafter, maintain an achievable strategy of only purchasing on credit what can be paid off very quickly, ideally in the following month. This strategy builds your credit score and reduces expensive interest expenses. When choosing a credit card, consider your spending and personal habits to determine which credit card benefits programs (cash-back, points, miles, or other redeemable benefits) work best for you. Don’t forget to review the benefits annually to ensure you are using the best possible option for your lifestyle. The benefits programs change regularly.

Term, Variable, or Whole Insurance. If you are healthy, term life insurance should be relatively inexpensive and is one way to provide a nest egg for your loved ones if you prematurely pass away. Term insurance is somewhat of a bandaid: you may need it to address a particular problem. Variable and whole life insurance provides the same benefit but at a higher cost because these policies typically carry a cash value that can be withdrawn. Another benefit of some variable life insurance policies is the ability to take loans against that policy’s cash value. Depending on the applicable interest rate, such a loan could be a low-cost way to borrow money to buy an equity interest in a law firm. Whole life

insurance is also used more for estate planning since it will be there when you die as long as you pay the premiums. Most people benefit from using a combination of both early in their careers. As assets increase, the term insurance needs may decrease. Your health and age will determine the cost, so review what your employer may offer and compare it with a quote from a qualified insurance broker.

Disability Insurance. Many law firms will offer employer-paid basic shortterm and long-term disability insurance. Evaluate your spending habits and savings to determine whether the monthly benefit, plus amounts drawn from your savings, will cover your routine expenses. If not, consider purchasing an additional stand-alone or supplement policy to ensure additional funds are available should a disability arise. A common question that is asked is whether it is genuinely needed. A simple way to answer the question is to ask if you depend on your income to cover your bills. If you do, then you need it. As assets grow and your dependency decreases, lower your benefit and save money on your premium. Your employer may have an option that doesn’t require underwriting, so always

consider that option in addition to reviewing plans sold through insurance brokers.

Equity and Law Firm Interest Purchase Planning. If you are in private practice and intend to seek an equity stake, you’ll need a strategy on how you plan to fund the investment. Some law firms will lend attorneys the funds, and others require you to seek the funding from a separate source.

Low-Hanging Fruit. Lastly, don’t ignore the low-hanging fruit. If your employer requires you to charge all travel expenses, CLE costs, and other expenses on your personal credit card and submit an expense report for reimbursement, make sure you are maximizing the benefit of those charges by using the credit card you determine works best for your spending and hobby habits. Similarly, if you travel frequently for business, establish loyalty program accounts and, if you can, retain the “points” to fund your next personal vacation.

Mid Career

Home Ownership. For many attorneys, their personal residence is one of the most significant investments they will make. If you are buying your first home or upgrading from a starter home to a

“forever home,” consider how the debt service, appreciation potential, and home value factor into your overall financial situation. A mortgage payment is one consideration for your monthly cash flow. You should also factor in the income tax deductibility of real estate taxes and mortgage interest, miscellaneous costs of home ownership such as utilities, insurance, homeowners association dues and assessments, and repair costs. Many recent studies have shown that renting makes more financial sense than owning if you do not plan to stay in the same residence for more than three years based simply on closing costs and interest rates. Also, remember that buying a home happens first, and paying for a home comes second. Having the right amount to put down on the home can cause financial stress, and many only look at the ongoing mortgage and carrying costs to determine what they can afford. Factor in both situations before you decide on what size of home you want to buy.

Personal Financial Statement

. If you haven’t already done so, this is the right time to begin preparing an annual personal financial statement (PFS). Most financial institutions have a template available to customers. A PFS is a great way to track your assets and liabilities in a simple, easy-to-read format. In addition to your assets and liabilities pages, consider adding another that outlines each year’s goals. On this page, outline each goal and an update next to it to track your progress. This 5-minute exercise will increase accountability and may impact your retirement success.

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Private Equity. Consider diversification options if you have established a solid base. Friends or families may be starting businesses and ask you to invest. Corporate employers may have stock options. Clients may offer you a profit or carried interest as compensation instead of an hourly rate for a particular project. Work with a qualified professional to determine if this is appropriate for you. For some private equity investments, you must be an “Accredited Investor.” To be one of those, you need to verify a certain level of assets because these investments tend to carry more risk and,

thus, a greater risk of loss. They also can have a great deal of upside. That doesn’t mean they are good or bad; just know a few additional steps may be required.

Long-Term Care Insurance. This is also when many consider whether to purchase long-term care insurance or “self-insure” with other assets instead. The long-term care insurance arena has substantially changed over the past five years. Policies that were once affordable and provided robust coverage have been overhauled. Carefully evaluate whether a long-term care policy provides the type of coverage you might need and whether the premium costs are worth it.

Estate Planning. If you haven’t already created an estate plan, mid-career is a great time to do so. By this point, you may have married or entered a domestic partnership, had children, or created other relationships you want to benefit from when you pass. You should include your PFS with these documents as a way for your loved ones to locate your assets. There are a myriad of end-of-life planning, tax, and other considerations that an estate planner can help you evaluate, which are beyond the scope of this article.

End of Career

By this stage, the fruits of your labor should be stable and ready for a slow harvest over a long time. But this is also a period of compression for many attorneys as health demands, caring for aging parents, and assisting children to launch from the nest assert competing demands on time and resources.

College Costs. Ideally, you or a family member, such as a grandparent, created a 529 Plan many years ago that covers the entire cost of higher education for all your children. Practically speaking, however, most attorneys end up paying out-of-pocket for some or all of their children’s higher education costs. Nevertheless, a few strategies can still be implemented. First, complete the FAFSA. Most institutions require this for meritbased scholarships, and all institutions for need-based financial aid. Second, if you can outpace the interest rate with alternative investments during the borrowing period, evaluate whether the

prevailing student loan interest makes borrowing some portion of the education costs a viable strategy. Most student loan interest is deferred while the student is a full-time enrolled student. Consequently, there is an opportunity to borrow funds at a lower interest rate than the student’s parent might earn in the stock market or other investments. As with other factors, it is a matter of balance.

Some services assist families during the college decision process and help reduce the overall cost. They help identify the best college choice for the child, locate grants and scholarships, and locate lower-cost loans. This will help reduce the cost of education. Far too often, families fall into the trap of picking a school based on the popularity of its logo. Using these services may also be a great way to have a third party encourage students to study more.

Portfolio Balance. During the last ten to fifteen years of your career, you should look to stabilize your overall portfolio. This is not necessarily the time to take bold moves with risky investments, but rather consider balance with a more significant emphasis on less volatile and more easily accessed items. Portfolios need to adjust just like any other piece in your financial plan. Time horizon is critical, but so is creating a sense of security as you enter the final stretch of your career. Far too often, peo ple have a goal of retirement only to have it extended because of an overly aggres sive portfolio. If you have notified your employer of a set retirement date only to ask for more time, your employer may be unable to accommodate you. Many employers plan for your replacement, and therein lies the problem. Working with a qualified professional to consider your specific situation can be helpful. Another factor to consider is how peo ple like to invest in companies they are familiar with instead of the best invest ment. If you like Coke over Pepsi, you may lean toward Coke as a company to invest in. Have a third party review your holdings and remove personal biases.

consider what you will do with any assets you inherit from your parents or older relatives. Instead of considering these gifts as a windfall, they may become seed money for new business ventures, college tuition costs, the early purchase of retirement homes, or philanthropic endeavors. n

Inheritance Planning. In addition to re-evaluating how you want your assets to pass upon your death, you may also

TECHNOLOGY PROBATE

Ctrl+Alt+Bequeath:

Evolving

Legal Challenges and Legislative Responses in the Digital Age

The COVID-19 pandemic accelerated digitization in the world of estate planning. Shifts in client expectations and attitudes toward electronic wills required significant adaptations from attorneys and courts amid an unpredictable landscape. In recent years, several states have enacted legislation to recognize electronic wills, reflecting a broad shift towards digital solutions in legal processes. Arizona, Florida, Indiana, and Nevada have passed e-will laws. Additionally, Colorado, North Dakota, Utah, and Washington have adopted the Uniform Electronic Wills Act (UEWA), providing a standardized framework for the creation and execution of electronic wills. With the growing amount of legislation, there is also an increasingly visible split between state courts on what constitutes a valid will.

The Supreme Court of Montana recently ruled against the validity of a video recording as a will in the Matter of Estate of Beck, 557 P.3d 1255 (Mont. 2024). Four days before his death, Beck recorded a selfie video on his phone, stating his wish to leave all his possessions to his brother. The Montana Supreme Court upheld the lower court’s decision that the video was not a valid will under Montana law.

The court’s decision hinged on Montana’s statutory requirements for a valid will. Montana requires a will to be a “document or writing upon a document.” The court emphasized that although the video undoubtedly expressed Beck’s intent, it did not qualify as a “document” as required

Technology—Probate Editor: Emma V. Connor, Prather Ebner Wilson, 53 W Jackson Boulevard, Ste. 1025, Chicago IL 60604, emma@pewlaw.com.

Technology—Probate provides information on current technology and microcomputer software of interest in the probate area. The editors of Probate & Property welcome information and suggestions from readers.

by the statute. The court’s decision highlighted the limitations of current statutory frameworks in accommodating non-traditional forms of wills. The court referenced the UEWA but noted that the Montana legislature had not adopted it. The court also observed that the UEWA still requires a will to be “readable as text” and signed by the testator and witnesses. The court pointed out that no state has legislatively authorized nonwritten video wills, nor has any court applying the Uniform Probate Code approved such a will.

The Montana Supreme Court’s ruling in Beck underscores the challenges of adapting existing legal frameworks to accommodate new forms of testamentary documents. The court’s decision to reject the video recording as a valid will highlights the need for legislative updates to address the evolving nature of testamentary documents

An earlier ruling in Michigan validated an electronic will under the state’s “harmless error” rule. In re Estate of Horton, 925 N.W.2d 207 (Mich. Ct. App. 2018). The case involved a 21-year-old man who died by suicide, leaving behind a typed note on the Evernote app on his phone. The conservator of the estate claimed that Horton

intended the note, which included personal sentiments and detailed instructions for the distribution of his property, to serve as his final will. The court found that the combination of the document’s contents, the surrounding circumstances, and extrinsic evidence provided clear and convincing evidence of Horton’s testamentary intent. The court admitted the electronic document to probate as a valid will despite the absence of witnesses or a handwritten signature.

The Michigan Court of Appeals’s decision in Horton demonstrates the potential for the harmless error rule to validate electronic wills. The court’s ruling was based on clear and convincing evidence that Horton intended the electronic document to be his will. This decision aligns with the broader trend of recognizing electronic documents in various legal contexts, such as digital signatures and electronic records. The case also underscores the importance of clear statutory guidance to avoid inconsistent outcomes and ensure that testamentary intent is honored.

In the cases of Horton and Beck, courts grappled with the validity of non-traditional wills, ultimately arriving at divergent outcomes based on the nature of the testamentary documents and the court’s willingness to liberally construe the statute. These outcomes underscore the diversity among states in determining the validity of electronic and video wills. In its analysis, the Montana Supreme Court did not consider the harmless error rule, which allows a document to be treated as a valid will if there is clear and convincing evidence of the testator’s intent. The court focused on the statutory language and the requirement for a will to be

a “document” or “writing,” ultimately concluding that a video recording does not meet these criteria.

The UEWA’s “harmless error” rule provides one potential path forward. The rule addresses the complexities of validating electronic wills that do not meet traditional execution formalities. Under the rule, courts may admit a will to probate if the proponent can establish by clear and convincing evidence that the decedent intended the document to serve as a will, even

if it fails to comply with statutory requirements. The rule ensures that the testator’s intent is honored, reducing the risk of invalidating a will because of minor procedural errors. The harmless error rule is particularly significant in electronic wills, where traditional formalities such as physical signatures and witness presence may be challenging to fulfill.

Some jurisdictions are willing to adapt and recognize electronic documents as valid testamentary

instruments, but others maintain traditional requirements. As technology advances, clear guidelines for electronic and video wills are increasingly necessary. As more people turn to electronic devices to conduct personal business, statutory guidance on the execution of electronic wills can streamline the process of validating those wills and reduce the potential for legal disputes. n

CALLING ALL LAW STUDENTS!

The Section of Real Property, Trust and Estate Law is now accepting entries for the 2025 Law Student Writing Contest. This contest is open to all J.D. and LL.M students currently attending an ABA-accredited law school. It is designed to encourage and reward law student writing on real property or trust and estate law subjects of general and current interest.

1st Place

$2,500 award

2nd Place

$1,500 award

3rd Place

$1,000 award

n Free round-trip economy-class airfare and accommodations to attend the RPTE National CLE Conference. This is an excellent meeting at which to network with RPTE leadership! (First place only.)

n A full-tuition scholarship to the University of Miami School of Law’s Heckerling Graduate Program in Estate Planning OR Robert Traurig-Greenberg Traurig Graduate Program in Real Property Development for the 2025-2026 or 2026-2027 academic year.* (First place only.)

n Consideration for publication in The Real Property, Trust and Estate Law Journal, the Section’s law review journal.

n One-year free RPTE membership.

n Name and essay title will be published in the eReport, the Section’s electronic newsletter, and Probate & Property, the Section’s flagship magazine.

Contest deadline: May 31, 2025

*Students must apply and be admitted to the graduate program of their choice to be considered for the scholarship. Applicants to the Heckerling Graduate Program in Estate Planning must hold a J.D. degree from an ABA-accredited law school and must have completed the equivalent of both a trusts and estates course and a federal income tax course. Applicants to the Robert Traurig-Greenberg Traurig Graduate Program in Real Property Development must hold a degree from an ABA-accredited law school or a foreign equivalent non-US school.

The State of the Nation’s Housing Harvard University’s annual report on US housing markets estimates the national housing shortage at more than one million units and finds a growing housing affordability problem fueled by robust household growth and high housing costs. Joint Center for Housing Studies of Harvard University, The State of the Nation’s Housing 2024, tinyurl.com/hshvm. Households increased by 1.7 million between 2022 and 2023, a significant change from the 1.1 million annual average for new households in the 2010s. The cost of owning a home increased, with home prices rising at an annual rate of 6.4% in February 2024. Home insurance premiums added to costs by increasing an average of 21% from May 2022 to May 2023.

High affordability slowed homeownership growth over the past year. The monthly payment on a median-priced home is now $3,096 after taxes and insurance and requires an annual income of at least $119,800. Only one in seven renter households meets this threshold. High interest rates for mortgage loans, peaking at 7.79% in October 2023, limit homeownership for many potential first-time buyers. High home ownership costs continue to act as a barrier to reducing the wide homeownership rate gaps among racial groups. These gaps are significant. In the first quarter of 2024, Hispanic (49.9%) and Black (46.6%) homeownership rates were significantly lower than white household rates (74.0%).

Housing cost burden is an indicator of housing affordability. A household is housing cost-burdened if it spends

Land Use Update

Editor: Daniel R. Mandelker, Stamper Professor of Law Emeritus, Washington University School of Law, St. Louis, Missouri.

LAND USE UPDATE

Three Faces of Housing

more than 30% of its household income on housing and utilities. Nearly one in four homeowner households (23.2%) is stretched worryingly thin because costburdened households grew by 19.7 million between 2019 and 2022.

The housing market remains challenging for renters. Rents have increased faster than incomes for decades, and a pandemic-era rent surge produced an unprecedented affordability crisis. Half of all renter households were cost-burdened in 2022, the highest number on record. Severely cost-burdened renter households, who spend more than half of household income on housing and utilities, hit a new high.

Rental construction showed strength. Multifamily completions rose 22 percent in 2023, the highest annual level in over three decades. Units under construction in March 2024 remained near a record high despite sizeable increases in new renter households. Patrick McAnaney, Debunking the Vacancy Myth, Greater Washington (Dec. 19, 2024), tinyurl. com/rentvac, explains that a significant construction boom in 2022 and 2023 significantly increased housing supply, which cooled rent inflation because it caused higher vacancy rates. Higher interest rates have now reduced housing production dramatically, placing upward pressure on rents, which can cause an increase in rent inflation. In October 2024, the national vacancy rate of 6.8% was slightly above historic levels but still tight, which could also place upward pressure on rents.

Accessory Dwelling Units

An accessory dwelling unit (ADU) is a smaller, independent residential dwelling unit located on the same lot as a single-family home. ADUs include workforce housing for persons who work in

communities where they cannot afford housing, housing needed by singleperson households, and housing that allows seniors to be near their families as they age. ADUs make better use of the existing housing fabric in established neighborhoods and provide an alternative type of affordable housing.

An ADU is not usually allowed as a permitted use in an exclusive singlefamily zoning district and requires a zoning permit or a rezoning to another residential district. Neighborhood opposition frequently occurs because of the expected effect of ADUs on property values and the neighborhood’s character, their use of on-street parking, and service costs caused by increased density. Opposition can also occur because ADUs may introduce residents with lower incomes into a neighborhood and because of fears that they will strain public services, especially public schools. Opposition may then spring into action to obtain restrictive zoning regulations that make the construction of ADUs impracticable. Density restrictions limit the number of ADUs allowed on a lot. Minimum onsite parking requirements make finding space on the same lot for parking and an ADU difficult. The number of occupants permitted in an ADU is restricted.

Restrictive minimum lot-size requirements can be adopted, and how much of a lot an ADU can cover can be restricted. A minimum and maximum absolute unit size, a maximum floor area, a minimum and maximum ratio of unit size to the size of the main dwelling, and a minimum and maximum ratio of unit to lot size can also be adopted.

Where an ADU can be placed on a lot can be restricted, and the visibility from the street can be prohibited. Architectural design requirements can demand

changes that increase construction costs. For example, costs may increase when an ADU’s architectural design must be similar to the architectural design of the main dwelling.

An owner-occupancy requirement is common, which significantly affects the availability of ADUs and impedes their financing. Owner occupancy is a unique property restriction not usually attached to the ownership of a single-family home. Finally, homeowners must often navigate challenging procedural requirements, such as high permit costs and approval delays, that can occur if a permit or rezoning is required. For an analysis of ADU zoning in the Boston metropolitan area, see Amy Dain, The State of Zoning for Accessory Dwelling Units 7, Pioneer Institute (July 2018), tinyurl.com/bostud.

The AARP Model State Act

The American Association of Retired Persons prepared influential model legislation to protect ADUs. AARP, Accessory Dwelling Units: Model State Act and Local Ordinance (2020), tinyurl.com/actmod. In an important provision, the Act requires local governments to adopt ordinances “authorizing accessory dwelling units in single-family zones or districts and on appropriate lots in other zones that allow housing … and authorizing their use as rental housing.” Id. at 14.

The Act also prohibits restrictive regulation by authorizing only “reasonable local regulations governing ADUs, addressing height and bulk, setback, lot coverage, and regulations generally applicable to other residences in the same zones.” Id. at 17. This provision prohibits discrimination against ADUs and is explicitly intended to prohibit owneroccupancy requirements.

Fees can be regulated. Id. at 19. A minimum lot size may not be larger than the minimum lot size for single-family houses and townhouses in the same zone or district. Id. at 20. ADUs may be any size, but an ADU’s total square footage must be less than that of the primary dwelling. Id. at 21. Additional off-street parking may not be required. Id. at 21. Setbacks from side and rear lot lines must not exceed four feet. Id. “A permit application for an accessory dwelling unit shall be approved or

denied ministerially without discretionary review or a hearing …within 90 days after receipt of a completed application,” even though a local ordinance regulates “the issuance of variances or special use permits.” Id. at 23. This provision prohibits discretionary reviews that would provide an opportunity for rejection and procedures that would cause approval delays.

Reforming Zoning

The 2024 Harvard report finds that most of the land in cities across the country is zoned exclusively for single-family use, a zoning restriction that creates an obstacle to an increase in the housing supply. The report argues for improving housing affordability by allowing higher residential densities and more diverse housing. See also Allison Hanley, Rethinking Zoning to Increase Affordable Housing, 80 J. Hous. & Community Dev. (Fall/Winter 2023), tinyurl.com/zonreth.

Cities and states nationwide have adopted zoning reforms that improve housing affordability and diversity, such as reforms that protect ADUs. My Land Use Update, Zoning Reform, Prob. & Prop., May/June 2024, at 50, discusses state reform statutes. Oregon abolished singlefamily zoning. Here are some additional zoning reforms that state and local governments should consider:

Eliminating Exclusive Single-Family Zoning. Exclusive single-family zoning, the bedrock of the zoning system, covers 75% of the land in American cities. It encourages sprawl, prohibits densities needed for mass transit, and excludes affordable housing such as multifamily housing, ADUs, manufactured housing, and twofamily and three-family dwelling units. Reform should modify exclusive singlefamily zoning by allowing affordable housing types to be permitted for use in exclusive single-family zones. It should also allow higher residential densities along transit corridors where public transit is available.

Walla Walla, Washington, went further and adopted a “Neighborhood Residential” (RN), a near-universal residential zoning designation that allows builders to build as dense as 75 units per acre if they meet existing standards like landscaping, height, setbacks, parking, and

lot coverage. Property owners can create duplexes, fourplexes, cottage homes, and even tiny homes with some relaxed parking requirements.” Patrick Sisson, Zoning Reform Creates New Model for Smart Growth in Walla Walla, Washington, Planning Magazine (Sep. 22, 2022), tinyurl.com/walzon. Eliminating Minimum Parking Requirements. Parking is a standard feature in zoning ordinances, based on arbitrary formulas that have created an astounding surplus of two billion parking spaces nationally for about 250 million cars. Unused parking spaces sit empty, increasing land and construction costs, robbing developers of usable space, creating sprawl, making cities less walkable, and adding to air pollution by encouraging driving. Rainfall runoff from impervious parking surfaces carries pollutants, and asphalt parking traps heat. More than 50 cities and towns have adopted reforms that repeal parking minimums for businesses and residential use. See Katie Gould, Parking Reform Alone Can Boost Homebuilding by 40 to 70 Percent (Sightline Institute, Dec. 10, 2024), tinyurl.com/ pkelim.

Adaptive Residential Reuse. Adaptive residential reuse has increasingly repurposed nonresidential property in the last few decades. See Tatiana Walk-Morris, How Adaptive Reuse Can Help Solve the Housing Crisis, Planning Magazine (May 1, 2021).

Zoning creates difficulties for adaptive residential reuse. It cannot be done in industrial or commercial areas or school sites because they are usually not zoned for residential use. Adaptive reuse for housing usually requires a special permit or a rezoning that can be costly. The adoption of a flexible adaptive reuse zoning ordinance avoids the need for case-by-case approvals that can create these problems. Adaptive reuse zoning can increase density and allow additional uses, such as housing in an office building. Flexibility can be provided for dimensional requirements such as setbacks and lot coverage, and parking can be eliminated. Building codes with modern rules that do not fit older structures, such as stair width requirements, can be a barrier and can be modified. Adaptive reuse of historic buildings must comply with historic preservation requirements. n

YOUNG LAWYERS NETWORK

RPTE Fellows: Exploring the Legacy and Opportunities

“Where are the fresh faces?” asked RPTE Leadership in April 2001. The response to that question created opportunities for 178 young lawyers and counting. The RPTE membership committee studied the question and pointed out that those most likely to join an ABA section were younger and newer to the profession. The RPTE membership committee wanted to create a program to give these newer and younger faces a path to leadership. “The idea was taken from the Business Law Section,” stated Andrew Palmieri, former RPTE chair, who was a member of the initial Fellows selection committee. The Business Law Section had launched a similar program three years prior and was launching a companion program called the Ambassadors Program. Jo Ann Engelhardt, co-chair of the leadership and mentoring committee, who also served on the membership committee, confirmed, “We gleefully borrowed their main provisions.” The membership committee offered several ideas for implementation, from giving a stipend to the Fellows to waiving the Fellows’ fees for the RPTE section meetings. The Fellows program was approved in the spring of 2001, and the first Fellows class was selected, starting in the fall of 2001. The initial class had two Fellows focused on real property and two on trusts and estates.

RPTE Fellows

The Fellows program gives young and new attorneys from various backgrounds a more direct path to Section leadership. There is an application

Contributing Author:

process that routinely brings in more applicants than open Fellows positions; the selection process is rigorous and thorough. Each Fellow is assigned a substantive committee and a mentor. The mentor is meant to be a guide through the Section, helping the Fellow meet additional leaders and answering any questions. The Fellow, in turn, must create a work plan. The work plan consists of opportunities the Fellow has identified within the Section, whether speaking, writing, comment projects, or anything else where a Fellow can help. In return, RPTE provides a stipend to attend the annual and leadership meetings for the two years of the program.

“I encourage current Fellows to seize their opportunities to get involved,” says Steve Gorin, a current leadership and mentoring committee member. Steve was the Fellows chair in the earlier years of the program and has served as a mentor to many Fellows. During his time as chair, Steve instituted the work plan requirement. “Seeing Fellows speak and put together program materials made Section leaders realize they have that access to talent that would make the leaders’ jobs easier. Soon, everyone wanted to work with a Fellow, and the program expanded.” Over the years, the program has grown from four Fellows to ten Fellows starting each bar year. This means that 20 active Fellows help with section work each bar year.

Christina Jenkins, RPTE Diversity Officer and former Fellow (RP 20102012), said that the Fellows program provides “opportunities for young lawyers to be in places and rooms they normally wouldn’t [be in] at that time of their careers. The Fellows are exposed to some of the best practitioners in real property, trusts, and estates fields. The program opens the door and allows

them to choose the direction of their careers without being solely dependent upon the firm that they are in.”

“We focused on making sure that each Fellow would get at least a substantive committee vice chair position at the end of their term, as well as opportunities for involvement in standing committees,” said Steve. Although not guaranteed, one of the program’s goals is to have the Fellows receive some type of leadership appointment after the ends of their terms. Most Fellows receive a vice-chair appointment for a substantive committee after their terms have ended. Trust and Estate Fellows also have an additional opportunity to become a Dennis I. Belcher Young Leader through ACTEC.

Past Fellows Success

Hugh Drake, a Trusts and Estates Fellow in the 2003-2005 class, had decided he would be involved with RPTE whether he was selected or not. Hugh is from a small legal market, and “attorneys in Springfield, Illinois, are generally not involved in national organizations.” He added that local attorneys are usually involved in the state and local bars. Hugh felt that RPTE was the right organization for him, as it was immediately applicable to his practice and would elevate his practice dramatically. Hugh also stated that he applied to become a Fellow multiple times. When Hugh was not chosen for the program, he decided to get involved with RPTE, as his firm supports professional activities. When he was finally selected to become a Fellow, Hugh stated that the financial support from the Fellows program helped dramatically to ensure that he could attend the RPTE meetings.

Hugh said the Fellows program gave him the structure and the discipline to

Liz Ochoa serves as the managing attorney of wealth strategy at a financial services firm. She is the current chair of the Fellows.

reach a certain level in leadership. “You need to be receptive,” he added. “Once I found my feet, it gave me confidence to be more involved in the section.” Andrew and Steve were instrumental in getting him up and running. In 2023, Hugh became the RPTE Section Chair. Although Hugh is the first Fellow to become Section Chair, he will not be the last. Two additional Fellows will be serving as Section Chairs: Ray Prather (TE Fellow 2008-2010), who will be chair in 2026-2027, and Kellye Curtis Clarke (RP Fellow in 2003-2005), who will be chair in 2027-2028.

You can find former Fellows at all levels in the Section, whether as a substantive committee chair, a group vice chair, on a standing committee, or on council. Josh Crowfoot, former RP Fellow (2016-2018) and current Council member, shares his enthusiasm. “I’m very grateful for my participation in the Fellows program. As a young lawyer, it provided the best opportunity for me to get involved and ‘plugged in’ to the Section. I was able to publish articles and speak on panels with leaders on the RP side, who were willing to show me the ropes within the Section and provide encouragement when it was needed. The Fellows program built confidence in speaking and writing in my practice area. Through my involvement with the Fellows program and later other committees, I grew my professional network from local to national. I’ve been referred work (and referred work to others) because of those relationships. I’ve added to my list of mentors and built lifelong friendships within the Section. It all started with the Fellows program.”

Fellows Impact on RPTE

“The hard work of the Fellows Committee and the Fellows themselves has rewarded the Section tenfold,” said Jo Ann. “There is more diverse energy in the Section. We have expanded our reach to younger practitioners in more varied practice settings.”

Hugh explained that the Section exists to serve everyone, and a majority of its members are solo practitioners in small firms and from smaller legal markets. “The Fellows program is a pipeline

to leadership, and we want our Fellows to reflect that demographic.”

Hugh, who has been on the Fellows selection committee for many years, indicated that “every year I am more impressed and wonder if I would have been chosen. It is amazing what the applicants accomplish so early in their careers.”

Fellows’ work can be seen everywhere, from comment projects to speaking on CLE and eCLE panels to writing articles for Probate and Property and the eReport. Christina added that the “Fellows program is pumping life into the Section. The program identifies young lawyers who can be appointed to leadership positions… We are building leaders and securing the future of the Section by adding new, bright, and young talent.”

Of course, the Fellows program is not the only way to become active in the Section, and those who are not selected are encouraged to participate in Section activities. One way to get started is through group calls that are held monthly. “You should develop a plan for how RPTE involvement will benefit your career and advocate for access to whatever you need to get there. Feel free to approach any leaders you meet,” Steve added.

“My professional life would not look anything like it does currently without my involvement in the RPTE Section, and I don’t know if that would have been possible without the Fellows program,” said Hugh. “Acceptance to the program opens the doors; you must walk through it and work to get the benefit out. Be proactive and take full advantage of the opportunity,” added Christina.

Application

Each year, the Section chooses ten Fellows, five from Real Property and five from Trusts and Estates. To be considered for selection, a person must (1) have practiced in the trusts and estates or real property area for at least one year, (2) be younger than 36 years of age, or have been admitted to the bar for less than 10 years, and (3) have demonstrated leadership at the state or local

bar level or in the ABA Young Lawyers Division. The applicants do not need to be ABA or RPTE members but would need to join upon being selected as a Fellow. Fellow applications are typically due in June. n

THE LAST WORD

The Linguistic Nuance of “Serendipitous Coincidence”

The perceived redundancy of certain phrases may cause you to raise your eyebrows. One that lifts mine is “serendipitous coincidence,” as it seemingly doubles down on the idea of chance. Both “serendipitous” and “coincidence” inherently involve elements of the unexpected, leading one to question the necessity of their combination. This phrase pops up in judicial opinions, so a closer examination is justified. This phrase can be a powerful tool for conveying nuanced meanings when used judiciously (pun intended).

Understanding the Components

To appreciate the phrase “serendipitous coincidence,” we must dissect its components:

Coincidence: This noun refers to events without any apparent connection, yet they happen simultaneously or in close succession. Coincidences are often neutral, merely highlighting the timing or alignment of events rather than the outcome.

Serendipitous: “Serendipity” has no equivalent in languages other than English. It refers to events that occur by chance but result in a positive or beneficial outcome. The term originated in Horace Walpole’s 1754 recounting of an ancient Persian fairy tale, “The Three Princes of Serendip,” in which the princes make unexpected discoveries to discern the nature of a lost camel. See https://tinyurl.com/5xpjr2fj. In short, “serendipitous” carries a connotation of happy accidents.

The Last Word Editor: Mark R. Parthemer, Glenmede, 222 Lakeview Avenue, Suite 1160, West Palm Beach, FL 33401, mark. parthemer@glenmede.com.

Analyzing Potential Redundancy

“Serendipitous coincidence” might seem redundant because both words imply an element of chance. But each term conveys a distinct nuance between unexpected timing and positive outcomes. The word “coincidence” emphasizes the simultaneous or aligned occurrence of events, highlighting the randomness in their timing. On the other hand, “serendipitous” underscores the beneficial or fortuitous results of the chance occurrence, adding a layer of positivity that “coincidence” alone does not convey.

Thus, “serendipitous” emphasizes the outcome. If an event is coincidental but not beneficial, one wouldn’t describe it as serendipitous. Coincidence underscores simultaneity or alignment. An event can be serendipitous without any specific timing element, but coincidence introduces this layer of synchrony.

Why Use Both?

Combining these words captures an event’s unexpected alignment and advantageous outcome, providing a more specific description. Consider the following scenarios.

Professional Encounter: Imagine attending a CLE conference when you strike up a conversation with someone who practices law outside your geographic area and who subsequently refers a piece of business to you—an unexpected encounter (coincidence) that leads to a successful collaboration (serendipitous).

Scientific Discovery: Many scientific breakthroughs occur when researchers stumble upon unexpected results. The discovery of penicillin is often cited as a serendipitous coincidence, as the unanticipated growth of mold led to a medical revolution.

In both examples, the phrase communicates the dual nature of the event: its chance occurrence and its positive effect. This phrase can encapsulate the complexity of situations where both the timing and the outcome are equally significant.

The Role of Context

The appropriateness of “serendipitous coincidence” depends on the context and the writer’s intent. This phrase can enrich the narrative in literary or rhetorical uses, where emphasis and nuance are crucial. But in legal writing where precision is paramount, it might be unnecessarily verbose. A writer must be confident that its use is justified and furthers the intended narrative.

Linguistic and Stylistic Considerations

Beyond the literal meaning, “serendipitous coincidence” can be a stylistic device. Its rhythm and cadence add elegance to writing, making it appealing in expressive contexts. The phrase captures a universal human experience: the delight in unexpected, beneficial happenings. Writers can tap into this shared understanding, creating a connection with their audience.

Conclusion

“Serendipitous coincidence” might initially appear redundant but can be stylistically effective when the aim is to convey an event’s unexpected and beneficial nature. It is a matter of nuance rather than strict grammatical correctness, transforming potential redundancy into a rich tool for expression, highlighting the intricate interplay between timing and outcome. n

MANAGEMENT

A successful wealth management relationship begins with trust. For over 90 years our clients have benefitted from the guidance of some of the industry’s most knowledgeable, forward-thinking professionals. To learn more about how we can deliver highly personalized solutions to serve the best interests of your clients, please contact Paulina Mejia, National Fiduciary Counsel at (212) 632-3375 or paulina.mejia@ftci.com.