Foresight -- Devoted to Estate and Tax Planning
4th Quarter, 1997 -- Vol. 3, No. 4
© 1997 De Maio & De Maio
IN THIS ISSUE:

Feature Interview:

Recent Developments:

The Lighter Side:

 

Feature Interview

Giving Them What's Really Important
An Interview with Diane M. Comolli
Editor's Note: When we think about estate planning, we think about property. We strive to ensure that the personal assets, the investments, and perhaps the family business pass efficiently to the right people, with the best tax consequences. But there is another aspect of planning for the future that is often overlooked.
Each of us has a wealth of experience, of wisdom and values. These affect everything that we do, and naturally "rub off" on our loved ones.  Few people make a conscious effort to ensure that these intangibles pass safely to those we leave behind.
In this issue, Foresight interviews Diane M. Comolli. As a "legacy author", Ms. Comolli helps people to create for future generations a written record of their lives and experiences.

 
Foresight:  What does a legacy author do?

Comolli:  As a legacy author, I write stories or letters that capture some essential aspect or aspects of the person being written about. It is a beneficial and enriching process for the client, providing an opportunity for reflection, clarification, and understanding.  For the survivors, the story or letter provides a sense of wisdom and guidance from a loved one to face whatever challenges life brings--even generations from now.
 

Foresight:  How does your work fit in with the estate planning process?

Comolli:  It is a natural fit--and a most pleasant process.  I'm told frequently, particularly from younger parents, that they've completed the estate planning process and it has left them empty spiritually -- as if their existence has been defined by material wealth, or lack of it.  With Life Stories and Life Letters, people are provided the opportunity to undergo an enriching process to consider not only their chronological history, but the values and beliefs that shaped their decisions -- and their lives. The wisdom achieved is their greatest legacy -- and often their greatest asset.
 

Foresight: You refer to a Life Story and a Life Letter.  What is the difference between the two?
 
Comolli:  The Life Story is a thoroughly researched look into the chronological history of a person's life.  It is a lengthier process, and considerably more costly. It is written in a format of chapters, and in finished form reads more like a short story or small book.  While most often people request a Life Story for themselves, occasionally a Life Story is requested as a memorial gift for a grieving family.  While it is a wonderful gift, it can also be a wonderful aid in the healing process.

The Life Letter involves two or more comparatively brief interviews, one on paper and one via phone or in person. During those interviews, the values clarification process is completed, then the Life Letter is written. I can also provide families a Life Legacy, which ensures the the stories, rituals and traditions of a family as told through the generations are preserved.

 
Foresight:  What kind of things do people typically put in a Life Letter?

Comolli:  The content of a Life Letter seems to fall within generational lines or common experiences.  Grandparents tend to focus on today's changing values, and how to act with integrity in an ever-changing world.  Young parents want their children to have an essence of their beliefs, and to provide understanding of their values, hopes and dreams. The Life Letter is stored with their wills, and provides a very strong measure of security for the parents.  After undergoing the process, however, many parents have decided to share their letters now, or have decided to provide them as gifts at a time appropriate in the future. Life Letters are a celebration of wisdom -- a place for beginning, not an ending. Life Letters make wonderful gifts for Mother's Day, Father's Day, spiritual or religious events, and weddings.
 

Foresight:  Earlier, you mentioned a fascinating concept:  values, experience and wisdom as assets.  Can these things really be transmitted to children and other loved ones?
 
Comolli:  Absolutely.  And the results I've seen for families are remarkable.  Life Stories and Life Letters provide amazing insight into the hopes, dreams, and essence of a person. To provide a Life Story or Life Letter to your family is to provide more than an asset; it is a treasure.  It can be validation, spiritual guidance, life knowledge, business savvy  or common sense, but always a  voice to guide them--and the generations that follow.

 
Foresight:  Do you find that people have difficulty facing the prospect of their demise?  Do you see a tendency to procrastinate?

Comolli:  Actually, I find more fear that people will meet their demise without understanding the meaning of their lives. During the Legacy process, I help people focus on their values, what they have believed in, and what it all means to future generations. Through this process, people examine ideas they've never considered, providing personal breakthroughs that are life-enriching for them right now. And as for the tendency to procrastinate, my clients procrastinate too. However, once started, every client has shared with me their delight with the process -- surprised at their willingness to share information, and delighted with my written interpretation.
 

Foresight:  Can someone pursue the process of passing on a spiritual legacy on his or her own, without professional assistance?
 
Comolli:  Of course.  But the involvement of a professional enhances the result.  As a legacy coach, I utilize my skills and experience for values clarification, and for making specific inquiries that help define the knowledge to be passed on. As a legacy author, I use different skills to reflect that knowledge, and provide an eloquent, priceless gift for generations to come.

I have fielded inquiries recently from persons interested in attending a workshop for the values clarification and inquiry focus of my work, who would then like to write their own stories or letters.  This workshop is in development, and I would be interested to hear from anyone who might like to attend, or have me conduct a workshop in their area.

 
Foresight:  How do survivors usually react to a Life Letter after the death of a loved one?

Comolli:  I have not yet witnessed that process, since every client has opted to share his or her Life Letter, except those with children too young to understand now. I think that is the greatest testimony to the process--the ability to share your legacy with the people you love when you think the time is appropriate.  And you get to exercise control over when that can be:  today, tomorrow, or after your passing. I have personally witnessed the reactions of some family members, and they are delighted with this written bond -- a gift that truly lasts forever.
 

Diane M. Comolli is the owner of Life Stories, based in Bomoseen, Vermont.  Her e-mail address is dmc@toast.net.  Life Stories is a trademark of Diane M. Comolli.

 

RECENT DEVELOPMENTS

Amendments to NJ LLC law facilitate planning
L. 1997, C. 139

The New Jersey limited liability company has become a more versatile tool for business and tax planning under amendments recently adopted by the legislature.  The new law includes these changes:

These changes make the New Jersey LLC a more desirable vehicle for holding and transferring family wealth.

Note:  Unlike many states, New Jersey law still requires an LLC to have two or more members.  If, through death, resignation, or some other reason, only one member remains, the company dissolves unless at least one additional member is admitted within 90 days.
 

Adopted Adult Cannot Benefit from Duke Trust
In re Trust for the Benefit of Duke, Superior Court of N.J., App. Div. (April 16, 1997)
 
The estate of Doris Duke has been the subject of recent, well-publicized controversy.  This case involved not Doris's estate, but a trust established in 1924 by her father, American Tobacco Company and Duke University founder James Buchanan Duke.

The Doris Duke Trust provided for the payment of two-thirds of the income of the trust to Doris until her death.  After her death, her two-thirds share of the trust would continue for the benefit of  her lineal descendants, if any.  If she had no descendants, the trust would terminate and be distributed to the Duke Endowment, which was also established by James Duke in 1924.

Doris Duke had one natural child, who died in infancy.  In 1988, at the age of 75, she legally adopted 35-year-old Charlene ("Chandi") Heffner.  After Duke's death, Heffner claimed entitlement to two-thirds of the income from the trust, which was then worth about $170 million.

However, at the time the trust was created, the law of New Jersey did not permit adult adoptions.  (The adult adoption statute was enacted March 25, 1925, about 100 days after the trust was signed.)  The Duke Endowment took the position that an adult adoption was not recognized under the trust.  Thus, according to the Endowment trustees, Doris had no lineal descendants, and the entire trust should terminate and be paid to the Endowment.

Heffner argued that the important date was the date of Doris's death in 1993.  Since adult adoptions were permitted at that time, she should be regarded as a legal descendant.

The Probate Part, in a 1995 decision, agreed with the Endowment trustees, and ruled that Heffner could not benefit from the trust.  The Appellate Division has now affirmed that ruling.
 

Surviving Joint Owner Takes Property Subject to Mortgage
In Re Estate of Zahn, Superior Court of New Jersey, App. Div., October 21, 1997

Charles Zahn owned a house in Jamesburg, New Jersey, subject to a $120,000 mortgage debt taken on when he bought the property.  Zahn began a relationship with Nina Fichter, and they lived in the home together until Zahn's death in 1995.  Before his death, Zahn changed the ownership of the home to his name and Fichter's as joint tenants with right of survivorship, so that the ownership of the house would pass to Fichter on his death.

Zahn's will left his entire estate to his two children, and directed that his executors "pay all of my just debts and funeral expenses as soon as practicable after my death."

A dispute arose over the payment of the mortgage loan.  Fichter claimed that the mortgage should be paid by the estate.  She testified that  Zahn had told her that she would receive the home free and clear of all debts after his death. The executors of the estate contended that payment of the debt was Fichter's responsibility.  They relied on a New Jersey statute, NJSA 3B:25-1,  which absolves estates of liability for mortgage debts on jointly owned property unless the will expressly or by implication directs that the mortgage be paid.

Reversing a Probate Part ruling in favor of Fichter, the Appellate Division held that the nonexoneration statute applied to Fichter, even though she was not named as a beneficiary under Zahn's will.  The court found nothing in the will to indicate that Zahn would have wanted to bankrupt his estate, leaving nothing to his children, in order to pay the mortgage debt.  The case was remanded to the trial court with instructions that the debt be paid by Fichter, unless Fichter could produce additional evidence that Zahn intended for her to receive the property free and clear.
 

Failure to Obtain Appraisal Trims Deduction for Charitable Contribution
Hewitt v. Commissioner, 109 T.C. No. 12 (October 29, 1997)

John and Linda Hewitt were stockholders in a tax preparation firm, Jackson Hewitt Tax Service, Inc.  In 1990 and 1991 they donated stock to a family foundation and to a church.  They claimed charitable deductions based on the fair market value of the stock.  They calculated the value based on the price at which Jackson Hewitt stock changed hands in arms-length transactions around the time of the gifts.

The problem:  income tax regulations enacted under the Tax Reform Act of 1984 require a "qualified appraisal" for gifts of non publicly traded stock of over $5,000 in value.  Jackson Hewitt stock was not publicly traded until 1994.  The IRS denied the charitable deduction, except to the extent of the Hewitts' tax basis in the stock.

The Hewitts relied on a 1993 Tax Court decision (Bond v. Commissioner, 100 T.C. 32), which held that a deduction should be allowed if the taxpayer substantially complies with the appraisal requirement, but omits some details.   In that case, however, the donor had hired an appraiser and had filed a summary of the appraisal with the return.   The omission was the failure to obtain and file a full appraisal report, and to include the appraiser's qualifications with the summary.

The Hewitts, however, didn't even hire an appraiser, and attached no summary to their return.  The Tax Court held that they were not entitled to a deduction beyond their basis in the stock.

Note:  The result could have been even worse for the Hewitts:  IRS could have sought to deny the deduction in its entirety.  Instead, the IRS allowed the deduction to the extent of about $6,000, the Hewitts' tax basis for the stock.

 
Power of Attorney Burden of Proof Placed on Agent
D'Amato v. D'Amato, Superior Court of N.J., App. Div. (Nov. 5, 1997)

While hospitalized with terminal cancer in 1994, Anthony D'Amato signed a power of attorney appointing his brother Rocco and Rocco's wife Rita as his attorneys in fact. Three weeks later, Rita wrote a check to Rocco for $10,000, drawn on the joint bank account of Anthony and his disabled wife Mary.

After Anthony's death the following month, Mary, acting through her attorney in fact, questioned the $10,000 transfer to Rocco.  Rocco and Rita responded that the check was to repay funds that Rocco had given Anthony to hold in 1992 at a time of marital disharmony between Rocco and Rita.  Not convinced, Mary's agent brought suit claiming that Anthony and Rita had misappropriated the funds.

Rocco and Rita moved for summary judgment, arguing that there were no factual issues in dispute.  No evidence contradicted their account of the 1992 transaction.  The Law Division granted the motion and dismissed the case, ruling that Mary had the burden of disproving Rocco and Rita's account and that there was no competent proof to support her case.

The Appellate Division had a different view of the burden of proof.  It held that Rocco and Rita could prevail only if they proved that they used the $10,000 for Anthony's benefit.  Although no one directly contradicted their account, the court pointed to some inconsistencies in their testimony.  Whether or not they were telling the truth should be decided in a trial.  The Appellate Division reversed, and remanded the case for trial.

Comment:  This case highlights the need for thorough record keeping in connection with powers of attorney.  As the court points out, a power of attorney imposes a fiduciary duty on the agent to act only for the principal's benefit.  The court goes a step further by placing the burden of proof on the agent in the event of litigation.  One acting under a power of attorney should always be prepared to explain and supply documentation for all transactions.
 

Ninth Circuit Affirms Miller Decision on Gifts
Miller v. Commissioner, 79 AFTR2d Par. 97-967 (9th Cir. 1997)

In the 2nd Quarter 1996 issue, Foresight reported on the case of Elizabeth N. Miller, whose transfers of cash to her sons were recharacterized by the Tax Court as gifts, not loans, as she had claimed.  The Ninth Circuit Court of Appeals has now affirmed the Tax Court's decision.

 

THE LIGHTER SIDE:

Squeezing for Dollars

The local bar was so sure that its bartender was the strongest man around that they offered a standing $1,000 bet.  The bartender would squeeze a lemon until all the juice ran into a glass, and hand the lemon to a patron. Anyone who could squeeze one more drop of juice out would win the money.

Many people had tried over time (weight-lifters, longshoreman, etc.) but nobody could do it.

One day this scrawny little man came into the bar, wearing thick glasses and a polyester suit, and said in a tiny squeaky voice, "I'd like to try the bet."  After the laughter had died down, the bartender said OK, grabbed a lemon, and squeezed away. Then he handed the wrinkled remains of the rind to the little man.

But the crowd's laughter turned to total silence as the man clenched his first around the lemon and six drops fell into the glass.

As the crowd cheered, the bartender paid the $1,000, and asked the little man, "What do you do for a living? Are you a lumberjack, a weight-lifter, what?"

The little man replied, "I work for the IRS."
 

 

 

FORESIGHT is a publication of De Maio & De Maio, Attorneys at Law. It is not intended as and does not constitute legal advice, nor does it create an attorney-client relationship. The information contained in this publication should not be acted upon without first obtaining the advice of a professional advisor.

De Maio & De Maio is a law firm located in central New Jersey.  Serving clients in New Jersey and New York, we provide legal services in the areas of estate planning and administration, tax planning, business formation and transfer, trust administration, and related fields.

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