Howard Hughes’ Estate: No Will

Howard Hughes’ net worth when he died is unknown, but he did have billions of dollars while alive. When he died, it appeared that Hughes had no direct descendants or immediate family, and he didn’t leave behind a will. After contacting his various banks, lawyers, and employees, every hotel he’d ever stayed in, posting classifieds in various newspapers, and even consulting a psychic, it appeared no will could be found.

Those associated with Hughes assumed he wanted the money to go to the Howard Hughes Medical Institute. It was well-known that he didn’t want the money falling into the hands of distant relatives. A battle ensued between the temporary administrator of the Hughes estate, cousin and lawyer William Lummis, and those who ran the Medical Institute. It was a multi-state war, with Nevada, California, and Texas all claiming to be responsible for the distribution of the estate, all having different laws about inheritance.

A couple of different wills surfaced, though eventually thrown out as fakes. A notable one was the three-page document that declared Melvin Dummar, a gas station attendant, was to inherit 1/16 of Hughes’ fortune. Supposedly, Dummar once picked Hughes up off the side of the road and gave him a ride to his hotel, and Hughes was so grateful that he left Dummar a huge chunk of money. In 1978, the will was thrown out as a forgery.

Next, “wives” started emerging from Hughes’ past, taking advantage of his reclusive reputation to explain why no one had heard of them before. Terry Moore, an actress, claimed to have married Hughes twice, but provided no documentation to support her assertions.  She did, in fact, once live with Hughes in the 1940s, but her claim that they were not only married, but never divorced, was called into question given the fact that she married three times after her supposed marriage to Hughes.

In addition to wives, an extraordinary number of Hughes’ supposed children decided to acknowledge their deceased father. After years of struggle trying to sort the people with legitimate claims from the fakers who were in it to try to grab some of the cash, a lot of the money did end up going to the Howard Hughes Medical Institute.

However, a huge chunk did go to various Hughes heirs. According to the Wall Street Journal, around 1000 people have benefited from the estate, including 200 of Hughes’ distant relatives. After liquefying many of his assets, they collectively were awarded about $1.5 billion.

Interestingly, the liquidation of the estate wasn’t completely finalized until 2010—34 years after his death. The last piece of the puzzle was the Summerlin residential development. In 1996, Rouse Co. (now General Growth) agreed to buy the Summerlin land from the Hughes’ estate on a 14-year repayment plan, finally wrapping up the estate.

The John Steinbeck Estate

When celebrated author John Steinbeck died in the late 1960s, he left a considerable literary legacy that included the classic American novels The Grapes of Wrath, East of Eden, and Of Mice and Men.  He also left confusion as to the rights to his works that would pit members of the next generation of his family against each other in court for more than 40 years!

In September of 2017, a Los Angeles jury in a federal California court awarded Steinbeck’s stepdaughter more than $13 million after finding that the late author’s daughter-in-law purposely sabotaged negotiations to make new film versions of The Grapes of Wrath and East of Eden.

The Pulitzer- and Nobel Prize-winning author died in 1968. He bequeathed the income from some copyrighted work. He also left to his third wife, Elaine Anderson Steinbeck, royalties from other works (which weren’t then eligible for copyright renewal during the author’s lifetime).  He also left royalties to his two sons from a previous marriage.

Steinbeck’s widow owned those works, pursuant to Steinbeck’s will, for which Steinbeck had been able to renew the copyrights during his lifetime. But, in accordance with federal copyright law, Steinbeck’s widow and his two sons were all entitled to royalty payments from those works for which the copyrights renewed after the author’s death.

It didn’t take long for the arguing to start over the royalty distributions, culminating in a number of lawsuits. These disputes also highlight the importance of careful estate planning that considers the long-term implications of asset distribution, particularly with royalties, and management for future generations.  For one thing, Steinbeck would have benefitted from a trust naming a neutral third party as the trustee, but his primary estate planning document was a will.    

The parties entered into a settlement agreement in 1983. The author’s sons relinquished their rights to “exploit” 16 of Steinbeck’s works that had their copyrights renewed after the author’s death in favor of his third wife, Elaine. In return, the sons received an increased share of the royalty payments and Steinbeck’s widow received a decreased share, according to court documents.

Steinbeck’s sons, John Steinbeck IV and Thomas Steinbeck, died in 1991 and 2016, respectively. Steinbeck’s widow, Elaine Anderson Steinbeck, died in 2003.

Waverly Scott Kaffaga, the daughter of Steinbeck’s widow, Elaine, and the executor of her mother’s estate, filed a lawsuit in 2014 against Thomas Steinbeck, his wife, Gail Knight Steinbeck, and their company, Palladin Group Inc., in which she alleged that they repeatedly interfered with the ability of Elaine Steinbeck’s estate to exploit the works, in direct violation of the 1983 settlement agreement. Kaffaga accused the couple of lying that they had rights to exploit the works and inserting themselves into negotiations between the estate and third partiess, according to the complaint. She sought to recover lost profits from alleged film adaptations of Steinbeck’s novels, including East of Eden and The Grapes of Wrath, in addition to punitive damages.

A district court judge ruled before the trial that the defendant’s actions were in violation of the 1983 settlement agreement. On September 5, 2017, a jury found that Gail Knight Steinbeck and her company intentionally interfered with Kaffaga’s efforts to negotiate deals to remake film versions of The Grapes of Wrath and East of Eden and awarded Kaffaga $13.15 million ($5.25 million in compensatory damages and $7.9 million in punitive damages).  The next chapter in the dispute may take place if Gail Knight Steinbeck decides to appeal the award.

 

New Laws in Arizona Summer 2017

The following new laws become effective in Arizona on August 9, 2017:

The Motor Vehicle Division cannot suspend the licenses of those who fail to respond to their citations. 

Dog racing is now illegal across the state. 

For spouses or dependents of military members killed in the line of duty, free car registrations become available.

The minimum wage will be increasing for workers, who can now expect $10 an hour. 

Homeowners with short-term rental homes on sharing websites like Airbnb and Homeaway will now have state taxes collected from the companies. The website companies will then forward the taxes to the Department of Revenue. 

In upcoming elections, pamphlets must be mailed to every household with registered voters showing what will be on the ballots. 

Got one of those plastic covers on your license plate to thwart photo radar?  They are now illegal.

Other laws range from expanding who can teach in Arizona classrooms and when police need warrants to track cell phones to exactly how much of someone’s foot a podiatrist can amputate (it’s a toe — not a foot).

Legislation to bar the state’s newest drivers from using cell phones does not take effect until July 1, 2018.

And a bill to set up procedures for people to argue about what they are charged by out-of-network hospitals does not become law until Jan. 1, 2019.

 

Paid Sick Leave Is Now The Law In AZ

Arizona’s new law mandating paid sick leave starts July 1. Businesses and non-profit groups could face penalties for failing to keep records, post notices and could incur damages for failing to provide paid sick time. Employers who retaliate against workers exercising their rights could face fines of at least $150 per day.

The law mandating as many as 40 hours of paid sick leave, which was approved by voters in November of 2016 that also raised the state’s minimum wage, applies to almost all businesses and non-profits with at least one Arizona employee including entities not headquartered in the state.  The only exceptions are those employed by Arizona’s state or federal government and sole proprietors. So, whether full-time or part-time, temporary or seasonal, all will receive paid sick time. They will be able to use this benefit for a variety of reasons.

The minimum requirements are 24 hours of paid sick time off annually for businesses with 14 or fewer workers, or 40 hours off for entities with 15 or more people. Employees are entitled to receive paid sick-time off; independent contractors are not. The general rule is that if you issue a W-2 to a worker, that person is an employee entitled to the benefit.

The law allows paid leave for various reasons besides sickness or injury such as domestic violence, sexual abuse, stalking or the closing of a child’s school owing to a public health emergency.  Additionally, reasons include taking time off to meet with an attorney, arranging shelter services or securing safe housing, as well as issues on behalf of family members. The definition of family members is quite broad including siblings, grandparents, in-laws and others. Significantly, an employer can request proof or documentation only after a worker has been absent for three days in a row. And, when proof is required, it can come in a variety of  forms such as a doctor’s note, a police report, a letter from an attorney or simply a worker’s own statement that he or she needed time off. Employers generally will be required to grant the time off. Penalties and damages await companies that ignore the new law. 

 

1964 Civil Rights Act Applies to Gays

A U.S. appeals court has ruled that federal civil rights law protects lesbian, gay, bisexual and transgender employees from discrimination in the workplace.

The ruling from the 7th U.S. Circuit Court of Appeals in Chicago, Illinois represents a major legal victory for the gay rights movement. The name of the case is Hively v. Ivy Tech Community College.

In its 8-3 decision, the court reversed decades of rulings that gay people are not protected by the milestone civil rights law because they are not specifically mentioned in it.

“For many years, the courts of appeals of this country understood the prohibition against sex discrimination to exclude discrimination on the basis of a person’s sexual orientation,” Chief Judge Diane Wood wrote for the majority. “We conclude today that discrimination on the basis of sexual orientation is a form of sex discrimination.”

The ruling also allows a lawsuit to go forward in Indiana where plaintiff Kimberly Hively alleges she lost her community college teaching job because she is a lesbian.

“I have been saying all this time that what happened to me wasn’t right and was illegal,” Hively said in a statement released by the gay rights legal organization, Lambda Legal, which represents her. In so doing, the full appeals court overruled a decision by a smaller panel of its judges to uphold the district court’s decision in the college’s favor. 

To reach its conclusion, the court examined 20 years of rulings by the U.S. Supreme Court on issues related to gay rights, including the high court’s 2015 ruling that same-sex couples have a right to marry, Wood wrote. 

 

 

 

 

 

IRS Tax Rates – 2017

The IRS has announced the inflation adjustments for 2017 for important estate planning and income tax thresholds. Here are some of the key adjustments that affect estate plans:

The estate and gift tax exclusion amount will increase to $5,490,000.
The generation skipping tax exemption also increases to $5,490,000.
The gift tax annual exclusion amount stays at $14,000.
The annual exclusion for gifts to a non-citizen spouse increases to $149,000.
Special use valuation under Section 2023A: decrease cannot exceed $1,120,000.

Marginal tax rates for taxable income of estates and trusts:
Not over $2,550 15% of taxable income
$2,550-$6,000 $382.50 plus 25% of excess over $2,550
$6,000-$9,150 $1,245 plus 28% of excess over $6,000
$9,150-$12,500 $2,127 plus 33% of excess over $9,150
Over $12,500 $3,232.50 plus 39.6% of excess over $12,500

As you can see, some rates are indexed to inflation and others are not.  For more detailed information, visit the IRS website, IRS.gov.  The effect of enacted tax reform legislation will undoubtedly change some or perhaps all of these figures.  Stay tuned.  

States With Estate Taxes

Nine states are making estate tax changes for 2017.  Altogether, eighteen states plus the District of Columbia impose either estate or inheritance taxes or both. They are Oregon, Washington state, Minnesota, Illinois, New Jersey, New York, Vermont, Hawaii, Kentucky, Nebraska, Iowa, Maryland, Pennsylvania, Connecticut, Massachusetts, Maine, Rhode Island, and Delaware.

As an example, New Jersey has had a long time $675,000 exemption from the state estate tax but now it will be $2 million dollars.  Similar changes are in effect for the other states.  Because the federal estate tax exemption amount is indexed to inflation, it rose from $5.45 million dollars for 2016 to $5.49 million dollars in 2017.  So, for a married couple the exemption amount is a little shy of $11 million dollars.

How much money you can leave to your heirs free of state tax levies depends on where you live and own property, whom you’re leaving your money to, and whether your estate planning is up to date.  Any doubt about this, please see an estate planning attorney for assistance.

 

 

Arizona v Theranos

Arizona Attorney General Mark Brnovich is seeking bids to retain outside legal expert to pursue a consumer-fraud lawsuit against troubled blood-testing company Theranos.

Brnovich’s office is seeking “legal action against Theranos” and its closely related subsidiaries for violations of the Arizona Consumer Fraud Act, according to a request for proposals posted this month on the state procurement website.

Theranos came to Arizona in 2013 when it rolled out its unproven technology at Walgreens stores across metro Phoenix. The Silicon Valley start-up opened 40 Theranos Wellness Centers at Walgreens locations across metro Phoenix, operated a laboratory at Arizona State University office complex in Scottsdale, and successfully lobbied for a bill that allowed consumers to order any test without a doctor’s orders.

Then, media reports and government regulators raised questions about the company’s testing procedures. Federal regulators moved to revoke the company’s laboratory certificate after finding multiple deficiencies at its California lab and moved to bar founder Elizabeth Holmes from the lab business.

Later, Theranos announced it would shut down its Scottsdale lab and its stand-alone retail locations. Walgreens had earlier shut down its Theranos locations.  Theranos, a privately-held company, was once valued at $9 billion based on investor hopes that the company’s proprietary finger-prick technology would revolutionize the lab-testing business.

The bid listed on Arizona’s procurement website states that Arizona will pursue litigation “for violations of the Arizona Consumer Fraud Act arising out of Theranos Inc.’s long-running scheme of deceptive acts and misrepresentations related to Arizona consumers.”

 

What is “per stirpes” & “per capita” and What do They Mean?

Per Stirpes

“Per stirpes” means taking “by representation.” In the estate planning world, this means that if the beneficiaries are to share in a distribution “per stirpes,” then the living member in the class of beneficiaries who is closest in relationship to the person making the distribution will receive an equal share.

However, if a member in the class of beneficiaries who is closest in relationship to the person making the distribution is deceased and survived by any descendants, then that deceased beneficiary’s descendants will take “by representation” what their deceased parent would have taken.

The easiest way to explain the concept is by a few examples. Let’s assume the following:

  1. You have two children, Mark and Eve
  2. Eve has two children, Yvonne and Julie
  3. Mark has no descendants

If your Last Will and Testament or Revocable Living Trust states that your property is to be distributed to your then living descendants, “per stirpes,” here’s what happens in different scenarios:

  1. Assume that Mark and Eve have survived you:
  2. Mark and Eve each receive half
  3. Yvonne and Julie receive nothing
  • Assume that Eve has predeceased you and Mark has survived you:
  1. Mark has half the estate
  2. Yvonne and Julie share the other half of the estate, each get ¼, because they take the share that Eve would have taken had she lived – one half

“Per stirpes” is used in estate planning so that a child of a beneficiary receives that beneficiary’s share in the event the beneficiary predeceases you.  You can also put in your estate planning documents whether “descendants” includes individuals added to the family by adoption.

Per Capita

In the estate planning world, “per capita” means that if the beneficiaries are to share in a distribution, then all of the living members of the identified group will receive an equal share.  However, if a member of the group is deceased, then a share won’t be created for the deceased member and all of the shares of the other members will be increased.  So, if your estate is to be distributed to your then living descendants, “per capita,” here’s what happens in the same scenarios described above:

  • Assume that Mark and Eve survived you – each gets half
  • Assume that Eve predeceased you and Mark survived you.  Mark gets the entire estate and Yvonne and Julie receive nothing.

“Per stirpes” is used more commonly in estate planning than “per capita” because it covers the typical family situation.  If you prefer to use a “per capita” distribution, then you’ll need to see that your estate plan addresses any generation-skipping shares that may be created by this type of distribution. Leaving direct shares to grandchildren and great grandchildren through a per capita or other type of direct distribution while your children have also survived you will trigger the generation skipping transfer tax on the grandchildren’s and great grandchildren’s shares. So, work with a tax attorney to avoid this.

 

 

What is a Trust Protector?

A trust protector is a party designated in a trust agreement with certain limited powers intended to protect the trust.  A trust protector is not needed while you are alive, if you are the trustee and beneficiary of your own living or revocable trust.  However, eventually you will die and the successor trustee will step in to administer the trust. 

This new trustee may not have your best interests at heart when administering the trust.  For instance, the trustee may start to milk the trust for fees and reimbursement of expenses for whatever reason, draining the trust assets.  Another bad scenario involves the trustee with a grudge against one or more beneficiaries, where the trustee has no intention of treating the beneficiary properly.  A trustee has a duty to treat all beneficiaries in a fair and impartial manner, but you will not be around to see that they do.  The only recourse is expensive litigation. 

How does a trust protector help in these situations? By using his or her powers to change trustees.  A trust protector provision should have three sections:

(1) Empowering the protector to terminate the trustee and appoint a new trustee;

(2) Empowering the protector to appoint successor protectors; and

(3) Stating that the protector is not a trustee and owes no fiduciary duties to anyone and has no duty to act.

Needless to say, you need to nominate a person to be a trust protector only whom you greatly trust.  Any trust agreement may benefit from a trust protector provision including irrevocable trusts.