Probate & Property - January/February 2025, Vol. 39, No. 1

MY LADY JANE, A KING’S WILL, AND UNDUE INFLUENCE ON A TESTAMENTARY INSTRUMENT BRIBING A

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2024 EXCELLENCE IN WRITING AWARDS

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The editors of Probate & Property are pleased to announce the winners of the magazine’s 2024 Excellence in Writing Awards: BEST CUTTING-EDGE ARTICLES

This premier American Bar Association’s real property, trust and estate law conference will take place in Washington, D.C. May 8–11, 2024. The American Bar Association’s 36th Annual RPTE National CLE Conference is renowned for its exceptional business connection opportunities, innovative programming, and trending legal topics. We cannot forget about the latenight fun if you choose!

REAL PROPERTY

WHY ATTEND?

Charging Forward! EV Charging Stations on Commercial Properties Create Real Estate Questions

By Katheryne L. Zelenock (May/June)

Premier Experience: Upgrade your conference experience. As a premier registrant, you will gain exclusive access to the VIP Only Lounge, discounts on conference events, first access to reception, red carpet check-in area and gold name badge.

TRUST & ESTATE

The Viability of Inserting Descriptive Photos in Wills: A Picture Is Worth a Thousand Words By Gerry W. Beyer and Scout S. Blosser (March/April) BEST PRACTICAL

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USE ARTICLES

REAL PROPERTY

36th Annual RPTE

Challenges in Estate Planning with Investment Real Estate By Mary P. O’Reilly and Andrew L. Baron (September/October)

TRUST & ESTATE

Fixing Damaged ILITs (Plus a Checklist to Avoid Problems) By Robert Adler and Michael J. Hausman (July/August)

BEST OVERALL ARTICLES

REAL PROPERTY

Commercial Office Lease Drafting and Negotiation—Tenant Pitfalls to Avoid By Patrice D. Stavile and Jennifer J. Bruton (November/December)

TRUST & ESTATE

Five Common GST Allocation Mistakes and How to Avoid Them By Carol G. Warley, Amber M. Waldman, and Rachel Ruffalo (September/October)

All articles published in Probate & Property during the current year will be eligible for the 2025 Excellence in Writing Awards. Any author interested in submitting an article should contact either Michael Sneeringer or Kathleen Law at the addresses listed on page 3. The magazine’s “Memorandum for Authors” is posted on the ABA website at ambar.org/ppmemo.

A monthly webinar featuring a panel of professors addressing recent cases or issues of relevance to practitioners and scholars of real estate or trusts and estates. FREE for RPTE Section members!

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Register for each webinar at http://ambar.org/ProfessorsCorner

Register for each webinar at http://ambar.org/ProfessorsCorner

Tuesday, January 14, 2025 12:30-1:30 pm ET

Tuesday, February 11, 2025 12:30-1:30 pm ET

UNIFORM MORTGAGE MODIFICATION ACT

ACCELERATING AND DE-ACCELERATING THE MORTGAGE NOTE

Tuesday, January 9, 2024 12:30-1:30 pm ET

DEATH AND TAXES: DYNASTY TRUSTS AND WEALTH IN AMERICA

SQUATTER’S RIGHTS

REGULATION AND A FUNDAMENTAL RIGHT TO PRIVATE PROPERTY

Tuesday, June 11, 2024 12:30-1:30 pm ET

Tuesday, March 14, 2024 12:30-1:30 pm ET

Tuesday, May 14, 2024 12:30-1:30 pm ET

Moderator: SHELBY D. GREEN, Elisabeth Haub School of Law, Pace University

Panelists: JAMES C. SMITH, University of Georgia

DAVID ZIVE, Ballard Spahr

DANIEL DURRELL, Locke Lord

Tuesday, February 13, 2024 12:30-1:30 pm ET

Tuesday, April 11, 2024 12:30-1:30 pm ET

A monthly webinar featuring a panel of professors addressing recent cases or issues of relevance to practitioners and scholars of real estate or trusts and estates. FREE for RPTE Section members!

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William M. Kelleher and Christina Smith

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

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Articles Editor, Trust and Estate

Michael A. Sneeringer

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Senior Associate

Articles Editors

Thomas M. Featherston Jr.

Michael J. Glazerman

Brent C. Shaffer

Associate Articles Editors

Robert C. Barton

Travis A. Beaton

Kevin G. Bender

Maria Z. Cortes

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.

© 2025 American Bar Association. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Contact ABA Copyrights & Contracts, at https://www.americanbar.org/about_the_aba/reprint or via fax at (312) 988-6030, for permission. Printed in the U.S.A.

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All correspondence and manuscripts should be sent to the editors of Probate & Property

Probate & Property (ISSN: 0164-0372) is published six times a year (in January/February, March/ April, May/June, July/August, September/October, and November/December) as a service to its members by the American Bar Association Section of Real Property, Trust and Estate Law. Editorial, advertising, subscription, and circulation offices: 321 N. Clark Street, Chicago, IL 60654-7598.

The price of an annual subscription for members of the Section of Real Property, Trust and Estate Law is included in their dues and is not deductible therefrom. Any member of the ABA may become a member of the Section of Real Property, Trust and Estate Law by sending annual dues 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.

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Check out our library of new real property, and trust and estate law books!

Buy-Sell Agreements: Valuation Handbook for Attorneys

Z. CHRISTOPHER MERCER

PC: 5431139

270 pages

Price: $149.95 / $135.95 (ABA member) / $119.95 (RPTE Section member)

Buy-Sell Agreements: Valuation Handbook for Attorneys contains new and important information that will help attorneys draft or revise buy-sell agreements for closely-held and family business clients. This book contains the most comprehensive treatment of valuation and valuation processes in buy-sell agreements available today.

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Insurance Law for Common Interest Communities: Condominiums, Cooperatives, and Homeowners Associations

Second Edition

FRANCINE L. SEMAYA, DOUGLAS SCOTT MACGREGOR, AND KELLY A. PRICHETT

PC: 5431137

974 pages

Price: $179.95 / $161.95 (ABA member) / $143.95 (RPTE Section member)

This book offers comprehensive coverage of insurance-related topics involving common interest communities. It discusses and analyzes statutes, court decisions and policies on those topics and more. It is not only a useful reference tool for attorneys who represent common interest communities but is also a valuable resource for community association managers, insurance producers, and common interest community boards.

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Title Insurance: A Comprehensive Overview of the Law and Coverage

Fifth Edition

JAMES L. GOSDIN

PC: 5431129

1130 pages (and hundreds of pages of exhibits online)

Price: $229.95 / $206.95 (ABA member) / $183.95 (RPTE Section member)

Title insurance is an increasingly complex and critical factor in real estate transactions, and lawyers must be prepared to play equally critical roles as advisors to their clients. This updated and expanded edition provides practical tools and essential information for real estate attorneys who need to understand title insurance coverage.

ambar.org/titleinsrpte

Third-Party and Self-Created Trusts: A Modern Look

REBECCA C. MORGAN, ROBERT B. FLEMING, AND BRYN POLAND

PC: 5431135

370 pages

Price: $139.95 / $125.95 (ABA member) / $111.95 (RPTE Section member)

This significantly updated edition of Third-Party and SelfCreated Trusts explains the effect that governmental legislation has had on trust law and guides you through the maze of federal laws that affect planning for the elderly and disabled. Focusing on the effect of the Omnibus Budget Reconciliation Act of 1993 on trusts for older and disabled Americans, this guide includes the full text of this act and outlines how it affects the drafting of trusts, illustrated by a comprehensive chart showing OBRA 1993’s effect on nine commonly used trusts.

americanbar.org/products/inv/book/430506927

UNIFORM LAWS UPDATE

2024 Legislative Update

State legislatures considered close to 200 bills to adopt uniform laws in 2024 and adopted 77 uniform acts on various topics. The following update will summarize 2024 legislative activity involving uniform real property acts and uniform trust and estate acts.

Real Property

The newest act promulgated by the Uniform Law Commission (ULC), the Uniform Unlawful Restrictions in Land Records Act, allows property owners to record an amendment, effectively removing a discriminatory restrictive covenant from their land records. The act was a significant success during this legislative session, with adoptions in Arizona, Colorado, the District of Columbia, Pennsylvania, and Washington, as well as introductions in Missouri, Nebraska, and West Virginia.

Other real property standouts from the 2024 legislative session include the Uniform Partition of Heirs Property Act (UPHPA), which provides due process protections to protect owners of heirs’ property from predatory partition actions, and the Uniform Real Property Transfer on Death Act (URPTODA), which authorizes the non-probate transfer of real property.

The UPHPA was adopted in Arizona and introduced in Kansas, Massachusetts, New Jersey, North Carolina, and Pennsylvania. Additionally, as of press time, the UPHPA has passed both

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.

chambers of the Michigan legislature and is awaiting Governor Whitmer’s signature. The URPTODA was adopted in New Hampshire and New York and introduced in Delaware, New Jersey, North Carolina, and Rhode Island.

Alabama adopted the Uniform Commercial Real Estate Receivership Act (UCRERA), also under consideration in the District of Columbia and Illinois. The UCRERA establishes the duties, rights, and responsibilities of receivers appointed to handle matters concerning commercial real property.

The Uniform Common Interest Ownership Act (UCIOA) provides straightforward guidance to associations and property owners of condominiums, co-ops, and planned communities. The most recent amendments to UCIOA made by the ULC in 2021 were adopted in Washington in 2024. This act was also introduced in West Virginia.

Unfortunately, no state legislature adopted three ULC acts during this session despite being introduced. First, the Uniform Easement Relocation Act (UERA), which authorizes a court to

permit the relocation of a private easement under certain circumstances, was introduced in Missouri. Second, the Uniform Real Property Electronic Recording Act (URPERA), which allows local recording offices to accept electronic deeds and other property records, was introduced in Massachusetts and Missouri. Finally, the Uniform Residential Landlord and Tenant Act (URLTA), which updates and re-establishes the rights and responsibilities of landlords and tenants under contract law, was introduced in Georgia and Kentucky.

The Uniform Mortgage Modification Act was approved at the ULC’s annual meeting in July 2024 and will be available for consideration by the states in the 2025 legislative session. The Mortgage Modification Act creates a series of safe-harbor modifications that can be made to an existing commercial or residential mortgage without affecting the priority of junior lienholders or constituting a novation.

Trusts and Estates

Turning to trusts and estates, the Uniform Directed Trust Act (UDTA) was adopted in several states—California, Oklahoma, Pennsylvania, and Vermont—bringing the total number of enactments to 20. The UDTA provides clear, functional rules for structuring directed trusts and was also pending consideration in the District of Columbia at press time.

The Uniform Community Property Disposition at Death Act (UCPDDA), which provides rules for courts in noncommunity property states to properly recognize the status of community

property created in a community property jurisdiction upon the death of the first spouse, was adopted in Nebraska and introduced in the District of Colum bia, Missouri, and North Carolina.

The Uniform Electronic Wills Act (UEWA) authorizes the execution and probate of an electronic will. This act was introduced in Georgia, Michigan, Missouri, New Jersey, New York, North Carolina, Oklahoma, and Virginia, but the only successful 2024 adoption was in Oklahoma. The national trend toward allowing electronic wills is con tinuing, and the act will be introduced in several other states next year.

Colorado, Oklahoma, and Washing ton adopted the Uniform Electronic Estate Planning Documents Act, which authorizes the electronic execution of estate planning documents other than wills, including trusts and powers of attorney. Missouri and Virginia also introduced this act.

The Uniform Guardianship, Conservatorship, and Other Protective Arrangements Act (UGCOPAA) was considered by four states (Alaska, Colorado, Hawaii, Idaho) and the US Virgin Islands. At press time, the Virgin Islands’ bill was pending consideration. The UGCOPAA provides comprehensive guidance on the creation of guardianship and related orders and provides statutory law to implement guardianship reforms, including greater due process protections and increased use of less-restrictive alternatives to guardianship.

The ULC comprises commissioners from every US state and territory, and it employs legislative staff attorneys to assist with enacting the ULC’s wide range of uniform and model acts. For more information about uniform real property acts, please contact ULC Legislative Counsel Jane Sternecky at (312) 450-6622 or jsternecky@ uniformlaws.org. For uniform trust and estate acts, contact ULC Chief Counsel Benjamin Orzeske at (312) 450-6621 or borzeske@uniformlaws.org. n

Conference

Wednesday, April 30 - Thursday, May 1, 2025

Thursday, May 1 - Friday, May 2, 2025

My Lady Jane, A King’s Will, and Undue Influence on a Testamentary Instrument

By William M. Kelleher and Christina Smith

Although having always been of interest to historians curious about the oddities of English royal succession, Lady Jane Grey is now having a moment. The critical and commercial success of the highly fictionalized Amazon Prime fantasy television series My Lady Jane has introduced Jane Grey to a wide audience. The series, almost a total reimagining of Jane Grey’s life and story, does derive from an actual succession crisis that took place in London in 1553. And what will surely surprise many modern-day trusts and estates practitioners is that the real-life Lady Jane saga revolved around a will (often called a “devise”), suspicions of undue influence, and perhaps the incompetency of the drafter, who just happened to be the King of England. Jane Grey, sometimes called the “Nine Days’ Queen,” took power pursuant to a Devise for the Succession created in the year 1553 (the 1553 Devise) that was amended by a dying King Edward VI. John Dudley, the Duke of Northumberland—a man who stood to gain significantly by the naming of Jane Grey as queen—was

William M. Kelleher is a director at the law firm of Gordon, Fournaris & Mammarella, P.A., in Wilmington, Delaware. Christina Smith is a law student at the Villanova University Charles Widger School of Law.

intimately involved in the drafting of the instrument, and it’s fair to conclude that had he acted similarly in modern times regarding, let’s say, his own parent’s will, he would likely have been called to court to face claims of undue influence and lack of capacity of the drafter. Indeed, the general circumstances surrounding the 1553 Devise will surely sound quite familiar to trust and estate litigators almost 500 years later.

Precedent for English Kings to Select Successor

Edward was the son of Henry VIII and Jane Seymour. Before the reign of Henry VIII, the succession of the English Crown was governed by law and was not something that a king could arbitrarily alter during his lifetime or through his will unless Parliament granted him authority to do so. Henry VIII was a particularly strong and forceful ruler, and he was able to manipulate Parliament into reshaping the rules of succession. Through a series of legislative actions, collectively known as the Succession Acts, Henry obtained the authority to designate the English Crown’s succession as he saw fit. The final of these was the Succession Act of 1544, which provided for the Crown to pass to Henry’s son, Edward. To solidify this new order, the Act required all subjects to swear an oath affirming its provisions, cementing the succession both in the law and in the public consciousness. In his will, drawn up in December 1546, Henry reinforced this arrangement, affirming nine-year-old Edward as heir to the Crown.

The Context of Edward’s Devise

Edward assumed the English throne at just nine years old. His relatively short reign, from 1547 to 1553, was dominated by powerful regents. As Edward’s health rapidly declined in early 1553 as a result of what most historians now believe was tuberculosis, the issue of succession became increasingly urgent. A fervent Protestant, Edward was determined to prevent his Catholic half-sister Mary from becoming queen. And the evidence suggests that Dudley, in particular, stoked this anti-Mary sentiment and religious animosity. It should be noted that Dudley was not simply some gadfly hanging about the royal court—he was a knight who had served as a very successful and innovative military leader under Henry VIII and had been extremely close to the royal family for quite some time. As Lord President of the Privy Council, Dudley wielded significant power and influence over the young king. There can be no doubt that Dudley wanted Edward’s successor

to be sympathetic to both his personal interests and the Protestant cause.

Dudley’s Influence on the Devise Dudley helped arrange the strategic marriage of his son, Guildford Dudley, to Lady Jane Grey in May 1553. Jane, a great-granddaughter of Henry VII and a committed Protestant, became a prime candidate for the throne in Dudley’s eyes. Lady Jane was Edward VI’s first cousin once removed. Her mother, Frances Brandon, was the daughter of Henry VIII’s sister, Mary Tudor, making Jane a rather close relative to Edward VI. What’s more, Jane Grey and Edward VI were quite likely friends. Historical evidence, including Jane’s letters to Edward and contemporary accounts, shows they maintained at least an acquaintance, supported by their shared royal connections and interests.

As Edward’s health worsened in the spring of 1553, key amendments were made to the 1553 Devise. Initially, the devise aimed to exclude both Mary and her half-sister Elizabeth (the future queen) in favor of the male heirs of the Grey family. When no male heirs were available and as Edward’s condition worsened rapidly, the devise was altered to name Jane Grey as Edward’s successor. This change occurred in the weeks leading up to Edward’s death

Though naming Jane Grey as heir aligned with Edward’s aspirations for England’s religious future, the considerable gains for Dudley resulted in speculation that he had manipulated the frail king.

and was marked by significant edits to the devise, which strongly suggested Dudley’s influence. Though naming Jane Grey as heir aligned with Edward’s aspirations for England’s religious future, the considerable gains for Dudley resulted in speculation that he had manipulated the frail king, casting a shadow over the succession and ultimately leaving it largely unsupported by the rank-and-file English people, as well as many of the nobles.

The Edits to the Devise

In the original draft of the devise, Edward VI sought to bypass his halfsisters by favoring the male heirs of the Grey family. Though by June 1553, as Edward’s health had undeniably significantly worsened, it became clear that Lady Jane Grey was very unlikely to have any children at all before Edward’s anticipated death. This led to a crucial series of edits to the devise, finalized shortly before Edward’s death on July 6, 1553.

The first version of the devise read: “To the L[ady] Fraunceses heires males, for lacke of such issue to the L[ady] Jane and her heires males.” This formulation indicated the long-established preference for male heirs, reflecting Edward’s initial hope for a Protestant male successor. With no male heirs of Lady Jane forthcoming, however, the document

was altered to read: “To the L[ady] Jane and her heires males.”

This critical edit, shifting the succession directly to Lady Jane Grey and her male heirs, was made under the considerable influence of Dudley. Edward, weakened by illness and still a teenager, was highly susceptible to Dudley’s influence. If Edward indeed had tuberculosis, he would likely have suffered ever-increasing symptoms of fatigue, fever, chills, and loss of appetite, along with near constant coughing. And Dudley had effectively unfettered access to Edward VI; Dudley’s proximity to Edward during his final days allowed him to shape the succession plans significantly.

The original 1553 Devise still exists today in the Inner Temple Library in London. Experts agree that all of the 1553 Devise was written in Edward’s handwriting. The edits appear awkward as they are scribbled in between lines, accompanied by “strike-throughs” of now-unwanted language. This is an image of the page of the devise with the crucial changes reflected at the top of the page:

Dudley’s Efforts

to Solidify

Crucial Support for the Devise

As Edward’s death loomed, Dudley worked tirelessly to ensure the

It is the party attacking testamentary capacity who bears the burden to establish that the decedent was legally incapable of executing a valid will.

revised devise’s legitimacy. On June 21, 1553, he gathered the leading nobles and secured their support of the 1553 Devise as amended. This effort was crucial in his effort to present a united front for Jane’s claim to the throne. In some instances, that support came hard-bargained. Chief Justice of the King’s Bench, Edward Montagu, procured a preemptive pardon from Edward VI as the justice believed that the 1553 Devise was unlawful.

In any event, while he managed to secure the council’s agreement, Dudley’s influence was viewed with suspicion. The rapid alterations to the succession plan ultimately lacked broad support among the English nobility and commoners.

The Succession

Jane was proclaimed queen on July 10, 1553, but her reign was extremely short-lived. After a few days of indecision, the public and key political figures rallied behind Mary, who truly had a legitimate claim (as she was Henry VIII’s oldest surviving child) as well as considerable popular support. By July 19, 1553, Mary had successfully claimed the throne, and Jane was imprisoned. John Dudley was arrested and executed for treason in August 1553. Mary remained Queen of England until dying, childless, of natural causes

in 1558; she was succeeded by Elizabeth, who promptly reversed Mary’s reestablishment of Catholicism as the state religion.

Elements of Undue Influence and Lack of Capacity Under Modern Law

We are writing this article from Delaware, so we will look to Delaware law. “Under Delaware law, all . . . will-contest matters start with the presumption that a testator had the capacity to make a will at the time it was made.” Matter of Langmeier, 466 A.2d 386, 389 (Del. Ch. 1983). It is therefore the party attacking testamentary capacity who bears the burden to establish that the decedent was legally incapable of executing a valid will. Id.; see also In re West, 522 A.2d 1256, 1263 (Del. 1987). The challenger of a testamentary instrument carries the burden of proving that it was the product of undue influence. In re Will of Norton, 672 A.2d 53, 55 (Del. 1996). The Delaware Supreme Court has explained that “the presumption of testamentary capacity does not apply and the burden on claims of undue influence shifts to the proponent where the challenger of the will is able to establish, by clear and convincing evidence, the following elements: (a) the will was executed by ‘a testatrix or testator who was of weakened intellect’;

(b) the will was drafted by a person in a confidential relationship with the testatrix; and (c) the drafter received a substantial benefit under the will.” In re Will of Melson, 711 A.2d 783, 788 (Del. 1998) (citation omitted). The elements required to establish undue influence are “(1) a susceptible testator; (2) the opportunity to exert influence; (3) a disposition to do so for an improper purpose; (4) the actual exertion of such influence; and (5) a result demonstrating its effect.” In re Norton, 672 A.2d at 55 (citing In re West, 522 A.2d at 1264). Although sometimes using different wording, the standard to show undue influence on a testamentary disposition is more or less the same in common law jurisdictions. See, e.g., Matter of Kosmo Fam. Tr., 207 A.D.3d 934, 936–37 (N.Y.S. 3d Dep’t 2022). Indeed, Delaware law is expressly derived from the English common law. Del. Const. of 1776 art. 25 (“The common law of England, as well as much of the statute law as have been heretofore adopted in practice in this state, shall remain in force, unless they shall be altered by a future law of the Legislature; such parts only excepted as are repugnant to the rights and privileges contained in this constitution and the declaration of rights, agreed to by this convention.”). See also Quillen v. State, 110 A.2d 445, 450 (Del. 1955) (“Apart from statute[,] our law is

in general the common law of England as it existed in 1776”).

How Would Dudley’s Actions Be Viewed by a Modern-Day Court?

Dudley was not the drafter of the devise or its amendments, so if his acts were viewed by a modern Delaware court, the burden of proof would not flip to him out of the gate. That said, it would appear that Dudley would still have a rather uphill battle in defense. If one looks to the first element of undue influence, it seems likely a court would conclude Edward to have been a susceptible testator as he was both increasingly sick and rather young at 15 years old. (Although Edward would be a legal minor today, he was not wholly regarded as such in his time, in part because he was the sovereign

viewed as deriving his authority from God.) As to the second element, Dudley was frequently at the royal court and had access to the king pretty much at will. Element number three asks if Dudley was motivated to arrange for a disposition for an improper purpose. If questioned, Dudley would surely say the purpose was to keep England Protestant. But that could have been achieved through other alternative means, and it is clear that Dudley was motivated to push for the 1553 Devise in order to render his son’s unborn heirs future English monarchs, as well as to further empower himself and his son. The fourth element is the actual exertion of undue influence. Live witness testimony would be helpful here, but the record and circumstances indicate that Dudley did exert

that influence. The fifth and final element looks to see if there was a result demonstrating the undue influence. In Dudley’s case, that answer would be in the affirmative as the 1553 Devise read as Dudley wanted it to read and as Jane, albeit briefly, became queen.

Conclusion

There can be little doubt that Edward VI’s failing health and youth made him quite vulnerable to Dudley’s influence. And it’s fair to conclude that, had modern-day law on undue influence been applied, the amendments to the 1553 Devise, at the very least, would have been at real risk of being found invalid. As it was, Dudley suffered far worse consequences; he was convicted of treason after a one-day trial and beheaded shortly thereafter. n

LITIGATING ADVERSE POSSESSION CASES: PIRATES V. ZOMBIES

By Paul Golden

Can a neighborhood Napoleon simply take over, and become the owner of, another neighbor’s property?

Any attorney even considering approaching an adverse possession case, regardless of which side, must start here. This is the first known book that focuses on just this issue—and from the litigator’s point of view. It is a one-stop shop for practitioners, with not only full descriptions of the ins and outs of the elements and potential defenses, and sample pleadings, but also various practical tips, tricks, clues, and ideas for successfully litigating these unusual cases.

KEEPING CURRENT PROPERTY

CASES

ADVERSE POSSESSION: Mowing grass and similar activities on neighbor’s land not sufficient to establish adverse possession. The Hovets and the Dahls own neighboring tracts of land, with the record boundary passing through several rows of trees. A driveway built long ago west of the trees led to the Hovets’ house. The Hovets moved onto their property in 1979 and used and maintained the driveway. In

Keeping Current—Property offers a look at selected recent cases, literature, and legislation. The editors of Probate & Property welcome suggestions and contributions from readers.

1985, they planted a row of shrubs that encroached on the Dahls’ land. They regularly mowed grass to the west of the driveway and cultivated the soil around the tree rows. In 2012, they added two stone markers north of the driveway. After a dispute between the neighbors arose, the Hovets filed a claim for title by adverse possession and boundary by acquiescence to a 0.24-acre tract of land that included the driveway, shrubs, and mowed grass. The lower court found for the Hovets, and the Dahls appealed. The supreme court reversed and remanded. The court noted the required elements for adverse possession as being actual

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.

possession that is visible, continuous, notorious, distinct, hostile, and of such character to indicate unmistakenly an assertion of claim of exclusive ownership by the occupant. Further, the applicable statutory period was 20 years, and possession of disputed land required protection by a substantial enclosure or the cultivation or improvement of the land. The Dahls argued that the Hovets’ use of the land failed to satisfy the hostility requirement. The court agreed with respect to some of the Hovets’ activities, stating that mowing grass is ordinary care and a harmless trespass as opposed to hostile use. Citing other jurisdictions, the court noted that mowing, planting flowers, maintaining a hedge, and like activities are based on the well-founded assumption that a neighbor will acquiesce and consent to such actions. The use of the driveway and the cultivated areas of trees and shrubs were of a different character, however, and sufficient to establish hostility. Although the placement of the stone markers was also hostile, it failed to satisfy the 20-year time requirement. The court rejected the claim of boundary by acquiescence as it was lacking in evidence of mutual mistake as to the boundary line. Hovet v. Dahl, 9 N.W.3d 699 (N.D. 2024).

CONDEMNATION: Racial discrimination claims under state constitution may be heard without first exhausting administrative remedies. Askew and Washington are African Americans who owned property in the predominantly black section of the city of Kinston. In 2010, Kinston began a program to condemn and raze unsafe properties. In 2017, it adopted a more targeted approach to improve the appearance of neighborhoods by removing dilapidated and blighted housing and buildings. The city came up with a “Top 50” list purportedly based on factors like dilapidation and proximity to heavily traveled roads. The plan further identified “clusters” and asked the city’s police department to identify especially problematic buildings. When Kinston’s city council met to review the Top 50 list, Kinston’s planning director acknowledged that the first cluster was in a predominantly black area. Askew and Washington, whose property was slated for demolition, objected

to the plan as a scheme to take property in the black community and then resell it to high-end developers without paying compensation to the property owners. They brought suit in federal court alleging Fourteenth Amendment violations, but the case was dismissed for lack of subject matter jurisdiction. Thereafter, they sued in state court,

House owned by the plaintiffs in Askew v. City of Kinston Photo courtesy of Ralph Bryant Law Firm, Greenville, NC.

Property at issue in Hovet v. Dahl. Photo courtesy of the Braaten Law Firm, Bismarck, ND.

which granted summary judgment for the city. The appellate court affirmed on jurisdictional grounds, holding that a court could not hear a direct constitutional suit unless the plaintiff depletes all avenues of administrative relief. Because the plaintiffs bypassed the city council review of the city’s condemnation action, they were not entitled to judicial consideration. The supreme court vacated and remanded because the lower court failed to disaggregate and examine the plaintiffs’ distinct constitutional claims and also wrongfully tied administrative exhaustion to subject-matter jurisdiction. The court relied heavily on its precedent regarding the right of citizens to bring direct action against state officials for violations of protections guaranteed by the state constitution. Corum v. University of North Carolina, 413 S.E.2d 276 (N.C. 1992). These Corum causes of action (here, substantive due process and equal protection by singling out black neighborhoods for condemnation) flow from the constitution, and exhaustion of administrative remedies does not dictate jurisdiction over such claims. Askew v. City of Kinston, 902 S.E.2d 722 (N.C. 2024).

CONDOMINIUMS: Condominium association can be liable for injuries to unit owner occurring on common elements. Janini, an owner of a unit in a condominium complex, slipped and fell on a snow and ice-covered sidewalk, sustaining a brain injury. The condominium bylaws expressly placed the responsibility for maintenance of the complex’s common elements, including the sidewalks, on the condominium association. Janini sued the association for breaching its duty to maintain the sidewalk by not timely removing snow and ice. The trial court denied Janini’s motion for summary judgment, and the appellate court reversed. The supreme court agreed with the appellate court. The court explained that it was wellsettled that an owner, occupier, or possessor of land owes a duty of care to invitees, but what was undecided was whether a condominium unit owner has the status of an invitee. The court

thought yes. Even though Janini was a co-owner of the common elements, the declaration of condominium and the bylaws allocated rights and duties over them to the condominium association. Janini did not enjoy the exclusive control that one typically associates with land possession. This meant that the condominium association owed a duty of care to Janini as to the common elements. To clarify the law going forward, the court declared that the proper inquiry when considering the duty owed in a premises liability context is who holds possession and control over the land where a person was injured, not merely who owns the land. Janini v. London Townhouses Condo. Ass’n, 2024 Mich. LEXIS 1279, 2024 WL 3381445 (Mich. July 11, 2024).

COVENANTS: State can enforce covenant in gross for public benefit. In 1974, the owner of a ski resort donated it to the state, along with abutting land and easements benefitting the conveyed property. The state ran the ski resort until 1986, when it sold it to Big Squaw Mountain Corporation (BSMC), hoping to encourage private investment for maintenance and improvements to the ski resort. The conveyance was subject to restrictive covenants, including one that prohibited the harvesting of timber with limited exceptions and one that granted the public rights of access and use. Moosehead Mountain Resort, Inc., acquired the ski area in 1995 from BSMC’s bankruptcy estate. Moosehead closed the ski resort from 2009 to 2012, and during that time, it engaged a logging company to harvest timber on more than 170 acres of the abutting land. The state sued to enforce the timber harvesting and public use covenants. The trial court granted summary judgment to the state. On appeal, Moosehead argued that the state lacked standing to enforce the restrictive covenants because it did not own or use a parcel of land benefitted by the restrictive covenants. The supreme court affirmed, first noting the position of the Restatement (Third) of Property: Servitudes § 8.1 that ownership of land intended to benefit from enforcement

of a covenant is not a prerequisite to enforcement, only that the person who holds the benefit must establish a legitimate interest in enforcing the covenant. The court explained that even as certain servitudes in gross other than covenants are enforceable under the common law, the question of the enforceability of covenants in gross was an issue of first impression in Maine. Acknowledging some of the compelling reasons against enforcement—including that restrictions in gross limit the value of one parcel without increasing the value of the other land, they extend the power of the dead hand to limit use in perpetuity, and it may be difficult to locate the beneficiary of the covenant— the court nevertheless allowed the state to enforce the covenants, even though no specific land is benefitted. In particular, the state can enforce the covenants on behalf of the public, and the state is a known and easily locatable entity. State v. Moosehead Mt. Resort, Inc., 319 A.3d 1060 (Me. 2024).

EMINENT DOMAIN: Purchaser of tax certificate is liable to former property owner for unconstitutional taking without compensation when value of property exceeds tax debt. After Nieveen failed to pay property taxes, the county foreclosed and sold a tax certificate for her property to a purchaser. Three years later, the county issued a tax deed to a purchaser. Nieveen filed suit against the county and the purchaser, alleging that her property had an assessed value of $61,900 yet her tax debt was under $4,000. Nieveen claimed that the issuance of the tax deed amounted to a taking for a private purpose or, in the alternative, was a taking for a public purpose without just compensation in violation of the US and Nebraska constitutions. The district court dismissed the constitutional claims, and the state supreme court affirmed. Nieveen appealed to the US Supreme Court, which vacated and remanded the lower court’s decision in light of its recent holding in Tyler v. Hennepin County, 598 U.S. 631 (2023). There, the Court found plausible a takings claim when a Minnesota

county seized the petitioner’s condominium unit to satisfy a $15,000 tax debt, sold the property for $40,000, and kept the proceeds. On remand, the state supreme court affirmed the prior finding that no private taking occurred but reversed and remanded on the issue of the public taking. The court noted that it initially relied on Nebraska law that did not recognize a protected property interest in a former property owner who lost title to her home pursuant to a property tax conveyance. In light of Tyler and state statutes, however, the court reconsidered its previous position and announced a new rule: a holder of a tax certificate commits a taking by requesting and obtaining a tax deed if the value of the property exceeds the tax debt. Further, the tax certificate holder engages in state action and thus can be liable to pay just compensation. The state court did not consider the effect of its ruling on the conduct and efficacy of property tax sales. Nieveen v. TAX 106, 10 N.W.3d. 365 (Neb. 2024).

HOME INSPECTIONS: Provision limiting homeowner’s assertion of all tort and contract claims to one year from date of inspection does not violate public policy. The Omsteads hired BPG Inspection, LLC, to inspect a home that they had contracted to purchase. The home inspection contract included a one-year limitation on the bringing of lawsuits of any kind. After the initial inspection and a follow-up, the Omsteads bought the home. Several months later, Mr. Omstead discovered defects in a retaining wall, and when he later tried to capture images of the wall to post on social media, it collapsed and killed him. Neither of the earlier inspection reports mentioned any issues with the wall. Omstead’s wife filed suit against BPG for breach of contract, wrongful death, and other counts. The trial court found for Omstead, concluding the contract’s time limitation did not apply to personal injury and wrongful death claims and, to the extent they did, was void against public policy. The appellate court reversed, directing the trial court to enter summary judgment in favor of BPG. Omstead appealed, and

the supreme court affirmed. Applying the cardinal rule of contract construction, the court endeavored to ascertain the intention of the parties, noting the plain language expressly applied the time limitation to all tort and contract claims. The court looked to Black’s Law Dictionary and ruled that the term was not an exculpatory clause, which in any case would not have excused gross negligence and willful and wanton conduct. The term limited only the time within which a suit must be brought but otherwise did not purport to provide immunity from liability. The supreme court further noted that it had long-enforced contractual provisions setting a time period to file an action shorter than the statute of limitations. Moreover, nothing statutorily imposed a duty on home inspectors to conduct inspections with a particular standard of care, such as statutes governing dentists and other medical professionals. Omstead v. BPG Inspection, LLC, 903 S.E.2d 7 (Ga. 2024).

LANDLORD-TENANT: City may recover costs from landlord for relocating residential tenants displaced by fire set by arsonist. Landlord owned a three-story apartment building with 40 residential units. A third party, later convicted of arson, started a fire on the second floor of the apartment building. The ensuing blaze caused water, smoke, and fire damage, rendering the apartment units uninhabitable immediately and for the foreseeable future. Less than one hour later that same day, the City of Hartford served the landlord a “Notice Violation/Emergency and Order to Abate,” which stated that the city was condemning the property and ordered all residents to vacate their units until the apartment building was repaired. The city placed a placard on the property declaring the building “Unfit for Human Occupancy.” The city provided shelter and relocation services to the residents and then filed a lien for $274,564 on the landlord’s property, pursuant to the Uniform Relocation Assistance Act, Conn. Gen. Stat. §§ 8-266 to 8-282. The lien provided that it was “for all reimbursable

relocation assistance expenses,” including temporary housing (hotel rental fees), moving, storage and insurance of personal property, and replacement housing due to code violations. In addition, the city asserted a claim against the proceeds of the landlord’s casualty insurance policy and later sent the landlord a letter demanding reimbursement for all relocation costs related to the displaced tenants. The landlord objected, arguing that it did not violate any code requiring enforcement by the city; instead, the structure was rendered unsafe as a result of the criminal action of a third party. The landlord filed an application to discharge the city’s lien. The trial court ruled the lien was invalid on the ground that the arson led to the displacement of the tenants, not municipal code enforcement activities based on the landlord’s violations. On appeal, the supreme court first considered whether the tenants were “displaced persons” under the act, defined as “any person who so moves as the direct result of code enforcement activities . . . .”, Conn. Gen. Stat. § 8-267(3), and concluded that they were. In the court’s view, the city’s enforcement of building codes triggers the act’s protections, regardless of the nature of the underlying cause that brought about the need for building code enforcement. The act’s definition of “displaced person” does not concern itself with fault but instead focuses on the status of the tenants. Here, even though a third party’s arson left the landlord’s property in a state that violated the building codes, once the city issued the condemnation order, the residents became displaced as a “direct result of code enforcement activities.” As such, the lien was appropriate. PPC Realty, LLC v. City of Hartford, 324 A.3d 780 (Conn. 2024).

LANDLORD-TENANT: “No rental offset” provision does not preclude tenant’s termination of lease for landlord’s material breach. Hto7 LLC leased two floors of office space to Elevate LLC for a term of eleven years. The lease set a payment schedule with escalating levels of rent. Section 5.1 of the

lease required Elevate to provide Hto7 a security deposit of $115,000. At the end of the second lease year, Hto7 was obligated to refund one-third of this amount within 30 days of receiving a written request from Elevate. A “no rental offset” provision stated: “in the event… Tenant shall have a claim against Landlord, Tenant shall not have the right to deduct the amount allegedly owed to Tenant from any rent …, it being understood that Tenant’s sole method for recovering upon such claim shall be to institute an independent action against Landlord. . . . The obligation to pay rent under this Lease of Tenant is an express independent covenant of Tenant.” The lease also included a catch-all provision, which stated that remedies were cumulative and in addition to any other right or remedy existing by agreement, applicable law, or in equity. During the early stages of the COVID-19 pandemic, Elevate sent a letter requesting that Hto7 refund one-third of its security deposit, which it was entitled to per § 5.1 of the lease. Hto7 acknowledged receipt of the request later that day but did not provide the refund within the required period. Thereafter, Elevate emailed Hto7 a notice of default with a demand to cure. After an additional 30 days had passed with no response from Hto7, Elevate mailed a notice of termination to Hto7, stating that it was terminating the lease “for cause” because Hto7 failed to refund the security deposit. Elevate asserted that Hto7’s failure was a material breach and demanded the return of its entire security deposit. Three days later, Hto7 responded with a letter contesting Elevate’s right to terminate the lease, citing the “no rental offset” provision. Elevate vacated the space, and Hto7 sued Elevate for breach of contract. The trial court concluded that Elevate breached the lease agreement when it stopped paying rent and vacated the premises. The court of appeals disagreed, finding that the “no rental offset” provision did not waive Elevate’s common-law right to cease performing under the lease agreement in the event of Hto7’s material breach. Instead, the provision, by its

plain terms, served an entirely different purpose; it precluded Elevate from engaging in just one particular type of self-help—withholding rent to offset any damages. Terminating an agreement because of a material breach was neither expressly nor implicitly covered by the “no rental offset” provision. Moreover, § 20.5 of the lease specifically preserved all other remedies available in law or equity. Under the common law, a party has a right to terminate a contract in the event of the other party’s material breach. The court concluded that if the parties here meant to extinguish that right, via the “no rental offset” provision or otherwise, that intent had to be apparent from the face of the contract, but it simply was not.

Hto7, LLC v. Elevate, LLC, 319 A.3d 368 (D.C. Aug. 2024).

LANDLORD-TENANT:

Tenant may recover damages for landlord’s termination of lease without complying with lease provision on notice and opportunity to cure. The Crouches leased their farmland to the Coopers for five years for pasturing cattle and growing crops for feed. The lease required the Coopers to employ best management practices, including maintaining the irrigation system and applying fertilizers and herbicides. The lease also provided that any default by either party could be cured within 90 days upon written notice. More than a year before the lease was to expire, in November 2020, the Crouches sent the Coopers a letter stating they were terminating the lease, effective February 15, 2021, on account of the Coopers’ failure to adhere to best management standards. The Coopers vacated the premises and thereafter sued the Crouches for breach of contract. The trial court ruled for the Coopers and awarded damages, and the supreme court affirmed. The court explained that the purpose of the notice requirement in the lease was to inform the Coopers of any alleged default, why the Crouches were taking such action, and how the Coopers could remedy the default. The November 2020 letter purported to terminate the lease without

allowing the Coopers to cure the alleged default. Instead, the Crouches’ letters and actions, including rejecting a rent payment tendered by the Coopers, left them with no information as to how they could cure and led them to believe they were being kicked off the property and needed to obtain alternative feed and pasture for their cattle. The Crouches were thus in breach and could not rely on the Coopers’ alleged prior default to excuse non-compliance with the notice provisions. Crouch v. Cooper, 556 P.3d 199 (Wyo. 2024).

LANDLORD-TENANT: Landowner may be liable for injury to adjacent property based on negligence. PHWLV, LLC owned and operated the Planet Hollywood Resort and Casino on the Las Vegas Strip and an adjacent shopping mall, where it leased space to two tenants who sold footwear and clothing. The landlord maintained a fire-suppression system above the retailers’ stores and the rest of the mall. A pressurized fire-suppression pipe separated from another pipe at its coupling, allowing water to escape and flood a service corridor within Planet Hollywood before leaking into the mall. The water caused extensive damage to the resort, mall, and the tenants’ stores and inventory. The tenants sued the landlord for negligence. The trial court granted summary judgment to the tenants, finding that there was no genuine dispute over the elements of duty or breach—that the landlord, as a property owner, had a legal duty to ensure that whatever was on its property did not invade or otherwise damage the property of others. The parties proceeded to a jury trial on the elements of causation and damages. At the close of evidence, the trial court entered a directed verdict for the tenants, and the jury awarded damages of $3,133,755 to one tenant and $411,581 to the other tenant. On appeal, the supreme court agreed that the landlord had a legal duty to the tenants because it owned and occupied the land, and the tenants were lawful entrants on that land. Because the landlord controlled the fire suppression system on its premises, it had a duty to exercise reasonable

care under the circumstances to avoid injury to other persons. Whether the landlord exercised reasonable care under the circumstances, specifically whether it breached its duty by the system malfunction, which created a risk of damage to the mall tenants, was a case-specific determination that should be determined by the jury. The trial court erred by describing the landlord’s duty in absolute terms. Its formulation of duty lacked the crucial principles underlying the law of negligence, specifically, whether the actor exercised reasonable care under the particular circumstances. The trial court’s directed verdict on liability based on the incorrect description of the landlord’s duty made causation essentially indisputable. PHWLV, LLC v. House of CB USA, LLC, 554 P.3d 715 (Nev. 2024).

LITERATURE

LAND USE: Should legislative exactions and special assessments be subject to the same standard of judicial review? Prof. Christopher Serkin addresses this question in Exacting Assessments: Sheetz and the Problem of Stategraft, Symposium on “Stategraft.” 2024 Wis. L. Rev. 641 (2024). In Sheetz v. County of El Dorado, 601 U.S. 267 (2024), the Supreme Court held that the constitutional rules applying to administrative development exactions also apply to legislated exactions. Despite this pronouncement, Prof. Serkin finds that courts defer much more to legislative rather than administrative decisions. He argues that political and distributional risks offer a partial explanation of this different treatment, relying on the lens of stategraft, a term coined by Prof. Bernadette Atuahene, A Theory of Stategraft, 98 N.Y.U. L. Rev. 1 (2023), to describe the government’s illegal use of its regulatory power to raise money from the poor and politically powerless. Prof. Serkin considers which of these contexts raises the greater likelihood of illegal burdens, especially on vulnerable populations, and to see who is more likely to bear the costs of different financing

mechanisms: taxes, assessments, and exactions. He warns that ratcheting up the constitutional scrutiny of one is likely to shift the government’s use to the others and that they will not have neutral distributive consequences. The essay offers a thoughtful analysis of Sheetz and provides valuable insight into what maneuvers local governments might adopt, with effects felt more severely by those least able to withstand them.

PROPERTY INSURANCE:

As storms become more severe, the numbers and amounts of casualty insurance claims also have risen to the point that more and more private insurance companies have stopped serving some coastal states. Taken together, the consequences of declining availability and increasing costs constitute a coastal property insurance crisis. In The Coastal Property Insurance Crisis, 54 Env’t L. Rep. 10443 (June 2024), a recounting of a roundtable discussion hosted by the Environmental Law Institute, Jeffrey Peterson, Alice Hill, Jessica Dandridge, Carolyn Kousky, and Dave Jones give a stark depiction of the looming crisis. These experts describe how high insurance costs are forcing many owners to forgo insurance altogether; others, if they have the means, will relocate. They offer advice on what programs and policies insurance providers and governments could adopt to best guide the coastal property insurance market toward desired national goals, including initiatives toward more reliable and sustainable insurance markets, better promotion of risk-mitigation practices, more standard coverage packages, more affordable premiums for low-income people, and better protection of federally guaranteed mortgages.

USURY: Prof. Adam J. Levitin, in The New Usury: The Ability-to-Repay Revolution in Consumer Finance, 92 Geo. Wash. L. Rev. 425 (2024), describes the erosion of traditional usury laws and advocates for the concept of “New Usury” to fill the regulatory gap. New Usury emerges from two new doctrinal approaches to protecting consumers in financial

transactions: a revived unconscionability doctrine and ability-to-repay requirements under federal and state laws. As he explains it, the New Usury represents a shift from traditional usury law’s bright-line rules to the fuzzier standards of unconscionability and ability to repay. Some courts have held loan contracts unconscionable based on excessive price terms, even if otherwise not in violation of codified usury limits, while other credit products are governed by statutory or regulatory requirements that, before making a loan, creditors determine the consumer’s ability to repay. Prof. Levitin notes that the ability-to-repay rules vary widely, and unconscionability, by definition, is a fluid concept. Although some constraints on lenders’ ability to craft financial transactions in their self-interest are necessary, the New Usury, as it now stands, may not be up to the task. Instead, he calls for a more comprehensive and coherent approach to consumer credit price regulation through a federal abilityto-repay requirement for all consumer credit products along with product-specific regulatory safe harbors. This combination, he believes best balances consumer protection and business certainty.

ZONING: In Nationalize Zoning, 72 U. Kan. L. Rev. 565 (2024), Prof. Stephen Clowney identifies a host of distortions in the housing market, from higher home prices to low inventory, many of which he attributes to local zoning laws. He calls for the wholesale dismantling of local zoning laws, which affect construction and housing access. Zoning rules that divide municipalities into districts and designate permitted uses for each place have caused a pernicious set of problems; he names urban sprawl, environmental degradation, homelessness, economic inequality, and even loneliness and obesity. Zoning also accounts in part for continuing racial segregation and its enduring socioeconomic impacts. Prof. Clowney sees the nationalization of zoning as a radical but necessary intervention.

The piecemeal adjustments to public land use regulation over the past century have proven largely ineffective in remedying effects that invariably spill over borders and into the housing markets. He rejects the arguments that land use regulation, i.e., zoning, is quintessentially local and not amenable to national oversight. He sees at first a limited set of substantive interventions at the federal level, under the Commerce Clause, to tamp down the worst abuses of parochial local governments and tackle some of the barriers that relegate poor and minority residents in low-opportunity neighborhoods. These interventions include prohibiting governments from banning apartments in single-family zones, eliminating largelot requirements that invariably drive up housing prices with no attendant benefits, and legalizing accessory dwelling units. Although many would agree that certain zoning practices are indeed pernicious, the real task seems to be getting Congress to undertake the challenge of dealing with them.

LEGISLATION

CALIFORNIA amends its Affordable Housing and High Road Jobs Act of 2022 on affordable housing development. For housing projects entitled to streamlined, ministerial processing by local governments, the amendments change project area maximums, prescribed distances from freeways, and density limits. The amendments also define eligibility for access to such housing. 2024 Cal. Stats. ch. 272.

CALIFORNIA amends landlord-tenant law to prohibit certain charges to residential tenants. A landlord may not charge a tenant a fee for serving, posting, or otherwise delivering any notice or for paying rent or security by check. Service members may not be charged a higher than standard or advertised security deposit unless the landlord explains in writing, on or before the date the lease is signed, the amount of the higher security and why the higher security amount is being charged. The act requires the landlord to return the

additional amount of security to the tenant after six months of residency if the tenant is not in arrears for any rent due during that period. 2024 Cal. Stats. ch. 287.

MICHIGAN enacts law on unclaimed property. The law contains a presumption of abandonment of property unclaimed for more than three years after funds become payable or after checks have not been cashed. Notice requirements are specified. 2024 Mich. P.A. 101.

NEW HAMPSHIRE amends landlord-tenant law to establish procedures for unauthorized occupancy evictions. A hearing on a petition by an owner must be held within 48 hours. If the court finds the occupancy to be unauthorized, it may order immediate removal and award actual damages or $1,000, whichever is greater. An owner may dispose of the occupant’s personal belongings as she sees fit and without notice, and the person may be arrested for trespass. 2024 NH ch. 370. n

AN ESTATE PLANNER’S GUIDE TO QUALIFIED RETIREMENT PLAN BENEFITS SIXTH EDITION

By Louis A. Mezzullo

Navigating New Camping Terrain Grants Pass v. Johnson and Its Effect on Real Estate

By Chelsea J. Glynn

On June 28, 2024, in Grants Pass v. Johnson, the US Supreme Court ruled that cities can criminally prosecute people experiencing homelessness for sleeping and camping on public property. 144 S. Ct. 2202 (2024). Before this ruling, jurisdictions across the country had differed as to whether a municipality could enforce criminal ordinances penalizing public camping when the city did not have enough beds for its homeless population.

The subject of public camping ordinances has been the source of ongoing policy debates. Some people advocate enforcing such ordinances to address perceived safety issues and

Chelsea J. Glynn is a principal at Foster Garvey PC in Portland, Oregon.

infringement of their own rights to enjoy public spaces. Others view these ordinances as worsening the cycle of homelessness, pointing to detriments of criminal prosecution on individuals, such as the loss of personal property and the stigma of a criminal record, which in turn can make it more challenging to find housing and gainful employment.

This ruling creates a pivotal shift across the country in the legal landscape surrounding municipal regulation of people experiencing homelessness. Although it remains to be seen how municipalities will respond, their responses will inevitably have direct implications for urban development and real estate professionals.

Grants Pass and Its Ordinances

Grants Pass is a small city in southern Oregon along the Rogue River, about an hour north of the California border. It has a population of about 39,149. At the time of the opinion, Grants Pass had about 600 people who were experiencing homelessness, and, like many cities in the United States, Grants Pass has laws restricting camping in public spaces. The district court opinion noted that the development of affordable housing in Grants Pass has not kept up with the population growth. A community action advocate testified that Grants Pass’s stock of affordable housing has dwindled to almost zero. Landlords routinely require an applicant to have an income that is three times the monthly rent. Rental units

that cost less than $1,000 per month are virtually unheard of in Grants Pass.

There were three ordinances primarily at issue in Grants Pass v. Johnson. The first ordinance prohibited sleeping on public sidewalks, streets, or alleyways. The second ordinance prohibited “camping” on public property, with “camping” defined as setting up or remaining in or at a campsite, and a “campsite” defined as any place where bedding, sleeping bags, or other material used for bedding purposes, or any stove or fire is placed for the purpose of maintaining a temporary place to live. Finally, a third ordinance prohibited “camping” and “overnight parking” in the city’s parks.

The penalties for violating these ordinances increased for repeated

offenses. A person with one initial violation may receive a fine, but a person who violates the ordinance multiple times may be subject to an order barring that person from city parks for 30 days. Finally, violations of such an order barring a person from a city park could constitute criminal trespass, punishable by a maximum of 30 days in prison and a $1,250 fine.

The Procedural Background

The Grants Pass v. Johnson case began in the Medford division of the U.S. District Court for the District of Oregon. Two individuals experiencing homelessness, Gloria Johnson and John Logan, sued the city of Grants Pass on behalf of a class of unhoused persons, claiming that the ordinances violated the Eighth Amendment. The plaintiffs argued that the city ordinances violated the Cruel and Unusual Punishments Clause because (a) they punish the plaintiffs’ mere existence or status as a

homeless individual and (b) sleep is a physical need and Grants Pass did not have enough shelter beds available for all the people in the city experiencing homelessness. The district court certified the class and entered an injunction prohibiting Grants Pass from enforcing its ordinances against individuals experiencing homelessness in the city, reasoning that because the total homeless population outnumbered the practically-available shelter beds, the plaintiffs were involuntarily homeless.

On July 5, 2023, the Ninth Circuit Court of Appeals agreed, concluding that the city’s anti-camping ordinances violated the Eighth Amendment to the extent that they prohibited homeless persons from taking necessary measures to keep themselves warm and dry while sleeping when there are no alternative forms of shelter available in Grants Pass.

Grants Pass filed a petition for certiorari, and many states, cities, and

counties from across the Ninth Circuit urged the Court to grant review.

The Eighth Amendment and the Martin and Robertson Cases

The Grants Pass decision centered around the Eighth Amendment of the US Constitution and two prior cases interpreting it: Robinson v. California, 370 U.S. 660 (1962), and Martin v. Boise, 920 F.3d 584 (9th Cir. 2019). As a constitutional refresher, the Eighth Amendment’s Cruel and Unusual Punishments Clause prohibits the government from inflicting cruel and unusual punishments on criminal defendants. Unlike most constitutional restrictions on government power, the Cruel and Unusual Punishments Clause limits substantively what the government can do for punishment, as opposed to serving as a procedural limitation.

In Robinson v. California, a jury found a defendant guilty under a California

statute that criminalized being addicted to narcotics. 370 U.S. 660 (1962). A Los Angeles officer had found scars and needle marks on both of Robinson’s arms and Robinson had allegedly admitted that he had previously used narcotics. Robinson was convicted in municipal court and eventually appealed to the Supreme Court. The Supreme Court held that laws imprisoning persons afflicted with the “illness” of drug addiction amounted to cruel and unusual punishment in violation of the Eighth Amendment. The Supreme Court reasoned that the statute was akin to making it a criminal offense “to be mentally ill, or a leper, or to be afflicted with a venereal disease.” The Court ruled that the state could not punish persons merely because of their “status” of being addicts.

Subsequently, the Ninth Circuit Court of Appeals in Martin v. Boise, 920 F.3d 584 (2019), barred the City of Boise from enforcing a public-camping ordinance against homeless individuals who “lacked access to an alternative shelter.” The ruling held that cities cannot enforce anti-camping ordinances if they do not have enough homeless shelter beds available for their homeless populations. The Martin decision had a chilling effect on ordinance enforcement. Many cities in the Ninth Circuit took the position that anti-camping ordinances could not be enforced if the homeless population exceeded the number of available shelter beds and were reluctant to enforce their public camping ordinances.

The Grants Pass plaintiffs used these two cases to support their argument that the ordinances violated the Cruel and Unusual Punishments Clause because they punished their “statuses” as homeless individuals, and the city’s lack of available shelter space caused its unhoused population to be “involuntarily” homeless.

The Supreme Court’s Decision

On June 28, 2024, the US Supreme Court issued a 6-3 decision holding that Grants Pass’s enforcement of its public camping ordinances did not violate the plaintiffs’ constitutional rights. This

The Court reiterated that the Cruel and Unusual Punishments Clause regulates the kind of punishment a municipality can impose, not the type of conduct a municipality should or should not punish.

ruling reversed the district court and overturned Martin

First, the Court addressed the plaintiffs’ argument that they were “involuntarily” homeless under Martin because there were not enough shelter beds in Grants Pass. The Court noted that the Martin decision had barred the city of Boise from enforcing its public camping ordinance against individuals experiencing homelessness where those individuals lacked access to shelter beds within Boise. It rejected its decision, however, reasoning that the Ninth Circuit had inappropriately limited the tools available to municipalities to pursue solutions to the homelessness crisis. As support, the decision included a quote from San Francisco’s mayor that San Francisco “uses enforcement of its laws prohibiting camping” not to criminalize homelessness but “as one important tool among others to encourage individuals experiencing homelessness to accept services and to

help ensure safe and accessible sidewalks and public spaces.” 144 S. Ct. at 2211–12 (citing San Francisco Brief 7). The Court described the Martin ruling as an unworkable experiment and overruled it because it determined that in practice it created a standard that was simply not possible to follow. Solutions to address rising homelessness in the United States appeared too complex to be addressed by judges.

The plaintiffs also argued that the Robinson ruling should be extended to the Grants Pass case. Because Robinson’s drug use was the involuntary result of his status as an addict and because the California law unconstitutionally criminalized that status, the Court should recognize that the plaintiffs were “involuntarily” homeless and the Grants Pass ordinances unconstitutionally criminalized their status as homeless.

The Court looked at the constitutional history and reiterated that the Cruel and Unusual Punishments Clause regulates the kind of punishment a municipality can impose, not the type of conduct a municipality should or should not punish. It noted the Cruel and Unusual Punishments Clause prohibits cruel punishment designed to “superad[d] terror, pain or disgrace.” Whether a particular behavior may be criminalized or how a conviction can be secured was not part of the Court’s analysis.

Following that reasoning, it found the Eighth Amendment therefore does not prevent a municipality from criminalizing conduct, even if such conduct is involuntary or occasioned by a status. Here, Grants Pass’s public camping ordinances do not criminalize a status, but, rather, they prohibit conduct (i.e., camping) by a person regardless of that person’s status.

Instead, the Court analyzed the type of punishment provided for in the Grants Pass ordinances, which included fines, an order barring a person from city parks for 30 days, and a maximum of 30 days in prison and a $1,250 fine. The Court held that such punishment is not cruel because it is not designed to cause terror, pain, or disgrace. The Court also found the punishment was

not “unusual” because similarly limited fines and jail terms are among the usual ways of punishing criminal offenses throughout the country.

Justice Sonia Sotomayor dissented, asserting that the ordinances in question did criminalize homelessness by punishing individuals for actions they had no choice but to undertake because of their lack of shelter. She emphasized that the ruling would cause a destabilizing cascade of harm and worsen the already dire situation for homeless individuals across the country.

In summary, it is no longer cruel or unusual punishment to criminally prosecute people for camping in public spaces, even if they have no other shelter available to them. Municipalities may impose criminal penalties for acts like public camping and public sleeping without violating the Eighth Amendment—even if they lack sufficient available shelter space to accommodate their population of homeless individuals. Challenges to public camping ordinances likely will continue shifting from petitions for injunctions based on an ordinance’s constitutionality to a courtroom dispute over the facts of individual criminal cases. And, this ruling is expected to have implications across the country, but particularly on the West Coast, where the Ninth Circuit’s earlier decisions had limited municipal enforcement of public camping ordinances. The decision has brought front and center the ongoing legal and policy debates surrounding solutions to homelessness, public order, and individual rights. In this ruling, the Supreme Court has attempted to address the complex challenges of finding solutions to homelessness within the framework of constitutional protections.

Potential Implications of Grants Pass v. Johnson on Real Estate Practitioners

In addition to municipalities, this ruling has implications for real estate practitioners, particularly those involved in property development, management, and municipal planning. Although the specifics of such

Grants Pass v. Johnson provides municipalities with greater authority to regulate public spaces, but it is not a solution, and the homelessness crisis will not simply disappear.

be fewer Martin injunctions, litigation under such ordinances will not cease and debate over how to address homelessness will continue. Instead, defendants likely will shift their focus to factual matters such as whether an individual was violating an ordinance or whether such punishment is justified. Real estate professionals should continue to be aware that the authority to enforce such ordinances prohibiting camping on public property remains with the municipality.

implications remain to be seen, after Grants Pass, cities are more empowered to enforce ordinances prohibiting camping in public spaces and may increasingly address public camping with criminal prosecution. In certain cities adverse to punishing public camping, the ruling could prompt cities to push for more affordable housing projects as a means preemptively to address homelessness. Real estate practitioners may find increased demand for affordable housing developments and public-private partnerships aimed at expanding shelter options.

The ability of cities to enforce public camping laws may lead to greater enforcement and fewer homeless campsites. This may influence property values or lead to an increase in real estate transactions, particularly in areas previously affected by visible homelessness.

Finally, although there will certainly

The Supreme Court’s decision in Grants Pass v. Johnson provides municipalities with greater authority to regulate public spaces, but it is not a solution, and the homelessness crisis will not simply disappear. The ruling underscores the complexities of balancing public order with individual rights, and real estate professionals will continue to be affected by the evolving legal framework and policies implemented in response to this ongoing issue. As cities grapple with these challenges, real estate practitioners will need to stay informed and adaptable, particularly in areas such as zoning, property management, and the development of affordable housing, where new opportunities and legal considerations may arise. The intersection of homelessness policy and real estate law will remain a dynamic and critical area of focus as the country seeks sustainable solutions to address this continuing challenge. n

ABA Real Property, Trust and Estate Law Virtual Conference | February 11-12, 2025

Join us for the inaugural ABA Real Property, Trust and Estate Law Virtual Conference. This two-day program provides practitioners with the latest developments you’ll need to best serve your clients while earning up to 12 hours of MCLE credit.

Join us for the inaugural ABA Real Property, Trust and Estate Law Virtual Conference. This two-day program provides practitioners with the latest developments you’ll need to best serve your clients while earning up to 12 hours of MCLE credit.

For trusts and estates attorneys, nationally recognized panelists will cover:

For trusts and estates attorneys, nationally recognized panelists will cover:

• practical planning strategies for a diverse range of clients

• practical planning strategies for a diverse range of clients

Real property practitioners will learn negotiation skills and strategies in:

Real property practitioners will learn negotiation skills and strategies in:

• the latest tax-related issues

• asset protection and business planning

• the latest tax-related issues

• asset protection and business planning

• best practices for drafting engagement letters

• best practices for drafting engagement letters

• leases

• purchase and sales transactions

• purchase and sales transactions

• leases

• title insurance

Our members have shared their feedback, and we’ve responded. This conference is tailored to deliver the same high-quality learning experience that was once exclusive to our in-person National CLE Conference. Now, busy lawyers can take advantage of this opportunity and gain insights from nationally recognized experts without the time and cost of travel.

Whether your focus is trusts and estates, real property, or a combination of both, this virtual conference will provide the essential information you need to stay up-to-date with the latest trends and developments in these areas.

• real estate financing

• real estate financing

• title insurance

Our members have shared their feedback, and we’ve responded. This conference is tailored to deliver the same high-quality learning experience that was once exclusive to our in-person National CLE Conference. Now, busy lawyers can take advantage of this opportunity and gain insights from nationally recognized experts without the time and cost of travel.

Whether your focus is trusts and estates, real property, or a combination of both, this virtual conference will provide the essential information you need to stay up-to-date with the latest trends and developments in these areas.

americanbar.org/rpte

KEEPING CURRENT PROBATE

CASES

JURISDICTION: Courts in state of probate administration have personal jurisdiction over out-of-state attorneys. The decedent and his spouse retained an Illinois law firm to draft their wills and update their estate plan. The will and other documents stated that the decedent’s domicile was in Florida. After the decedent’s death, the will was admitted to probate in Florida, and, eventually, the successor executor filed a malpractice suit against the firm in a Florida court. The trial court denied the firm’s motion to dismiss for lack of personal jurisdiction, and the intermediate appellate court affirmed in Neal, Gerber & Eisenberg LLP v. Lamb-Ferrara, 388 So. 3d 1112 (Fla. Dist. Ct. App. 2024). The court found that Florida’s long-arm statute, Fla. Stat. § 489.193, was satisfied because even though the Illinois firm made no appearance in the Florida proceeding and had no physical presence in the state, the estate’s Florida counsel took direction from the Illinois firm that prepared most of the filings and reviewed those created by Florida counsel, with which it exchanged hundreds of emails. The nature of work done by Illinois firm also satisfies the minimum contacts requirement of the constitutional test for due process.

PRIVILEGE: Physician-patient privilege yields to probate contest. Colorado law gives physicians, surgeons, and registered nurses an absolute privilege with respect to patient information. Colo. Rev. Stat. § 13-90-107(d) (1). In a case involving a will contest in

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.

which one of the contestants sought the testator’s medical records, the Colorado Supreme Court held in In re Estate of Ashworth, 549 P.3d 1003 (Colo. 2024), that the physician-patient privilege survives the death of the patient for the same reason the attorney-client privilege survives the death of the client: to promote candor in giving advice. A testamentary exception applies to both privileges, however, to promote the settlement and administration of the decedent’s estate in accordance with the decedent’s testamentary intent.

TRUSTS: Amendment of revocable trust by agent is void. After the settlor became incapacitated, the settlor’s nephew as agent amended the settlor’s revocable trust to remove charitable beneficiaries and substitute himself. The District of Columbia Court of Appeals in Garner v. University of Texas at Austin, 317 A.3d 333 (D.C. 2024), affirmed the trial court’s invalidation of the amendment, holding that there was no evidence the agent acted in accordance with the common law duty to act in good faith and to carry out the principal’s intent and if intent is unknown, to act in the principal’s best interest. In addition, the broad exculpatory provision in the power of attorney stating that no action taken by the agent can be considered self-dealing or a violation of fiduciary duty does not relieve the agent of the duty to act in accordance with the common law duty.

TRUSTS: Creditor can levy on property held in revocable trust to satisfy debt of one of two co-settlors. A creditor sought a judgment lien on the debtor’s home held in a revocable trust created by the debtor and the debtor’s spouse, of which both were also cotrustees and beneficiaries. Both had the power to “jointly or individually” revoke the trust or to withdraw any property from it. The Indiana intermediate appellate court in Sumrall v. LeSEA, Inc., 234 N.E.3d 230 (Ind. Ct. App. 2024), affirmed the grant of the lien, holding that the debtor’s power to withdraw all the trust property meant that lack of notice to the spouse as cosettlor and co-trustee did not violate the spouse’s due process rights.

TRUSTS: Emails are not trust amendments. The successor trustee of the decedent’s revocable trust petitioned to have emails exchanged between the decedent, the successor trustee, and the decedent’s attorney, and the client questionnaire completed by the decedent recognized as amending the trust. The trust required amendment by a writing signed by the settlor and delivered to the trustee. In Trotter v. Van Dyck, 322 Cal. Rptr. 3d 622 (Cal. Ct. App. 2024), the California intermediate appellate court affirmed the denial of the petition because amending the trust is not a “transaction” to which the California enactment of the Uniform Electronic Transactions Act (Cal. Civ. Code § 1633.3) applies. In addition, the emails and questionnaire did not express the intent to amend the trust but rather showed the intent that any amendment be carried out by documents to be prepared by the attorney.

TRUSTS: Funding of revocable trust is a conveyance. The decedent executed a revocable trust, the terms of which assigned to the trustee the property listed on “Schedule A.” The sole

item on Schedule A was the decedent’s homestead. After the decedent’s death, the trust was recorded. An heir of the decedent petitioned to quiet title to the property on the theory that the property had never left the probate estate. The trial court found in favor of the trustee; the heir appealed, and the Florida intermediate appellate court affirmed in Fuentes v. Link, 394 So.3d 684 (Fla. Dist. Ct. App. 2024). Florida law requires both deeds and most revocable trusts to be signed before two witnesses in the same fashion as a will. Fla. Stat. § 689.01(1) (deeds); Fla. Stat. § 736.0403(2)(b) (trusts). Florida law does not require a deed to be in any particular form. The trust instrument was, therefore, a valid conveyance, and the trust terms, which required the trustee to manage the trust property and distribute it on the decedent’s death, were sufficient to show delivery of the deed.

TRUSTS: Trust terms prevent amendment by agent. The settlor’s agent amended the settler’s revocable trust to make it irrevocable and thus “lock in” the agent’s interest in the trust. The trust terms permit the settlor’s agent to exercise “any right or power” on the settlor’s behalf other than to amend the trust by will or to exercise “any right or power that would constitute a general power of appointment if held” by the settlor’s agent. In Kosmann, Trustee v. Brown, 903 S.E.2d 567 (Va. Ct. App. 2024), the Virginia intermediate appellate court affirmed the invalidation of the amendment because the statutory definitions of “power of appointment,” Va. Code § 64.2-701, and of “presently exercisable general power of appointment,” Va. Code § 62.2-1600, include the exercise of the power to amend to benefit the person making the amendment.

UNDUE INFLUENCE: Only preponderance of the evidence is needed to support finding of undue influence. In Traylor v. Kraft, 552 P.3d 351 (Wyo. 2024), the Wyoming Supreme Court clarified the law of undue influence, holding that the case law requiring

“clear proof” or evidence “clearly demonstrating undue influence” does not elevate the burden of proof from preponderance to clear and convincing.

TAX CASES, RULINGS, AND REGULATIONS

TRUST: Late small business election allowed. A trust owned shares of an S corporation. The trust was owned entirely by an individual until that individual died. The trustee inadvertently failed to make the electing small business trust designation. As a result, the S corporation election terminated. PLR 202438011 determined that because the termination of the S corporation election was inadvertent and not motivated by tax avoidance or retroactive tax planning, the corporation will continue to be treated as an S corporation so long as the trustee files the proper election within 120 days of the letter.

LITERATURE

CONNECTICUT—REAPPEARANCE OF THE PRESUMED DEAD: Juliana Greco points out that it is not uncommon for people to vanish without a confirmed death in “The Living Dead: A Proposed Connecticut Statute for Handling Missing Persons and the Consequences of Reappearance,” 37 Quinnipiac Prob. L.J. 365 (2024). When these presumed dead individuals reappear, however, significant legal complications result. Connecticut’s current laws are unclear in such situations. Therefore, Greco compares Connecticut’s statute with those of Pennsylvania and New York, suggesting that Connecticut should consider adopting more comprehensive laws to declare someone deceased and distribute their estate legally.

CONSERVATION EASEMENTS:

In Birdies, Bogeys, and Bogus Deductions: An Argument for a Simpler Approach to Conservation Easement Valuations, 59 Wake Forest L. Rev. 537 (2024), Allison Lizotte investigates how wealthy golf course owners have used conservation easement deductions to lower their taxes. The IRS has faced difficulty regulating

these deductions, resulting in an unfair advantage for wealthy individuals. Lizotte advocates for a more straightforward valuation method to ensure a fairer tax system.

CY PRES: In Confusing Cy Pres, 58 Ga. L. Rev. 17 (2023), Ryan Christopher examines how American courts have used cy pres and equitable deviation to extend the life of a charitable trust. In this empirical study of American court cases, Christopher identifies factors influencing judges’ accurate or inaccurate use of these doctrines. Further, the findings from this empirical study may help clarify the doctrine, promote charitable trust-making, and define the roles of judges in shaping trust law.

DATA PROTECTION: In Unraveling the Gordian Knot for Data Trusts—The Next Leap Forward for Equity, 25 Tul. J. Tech. & Intell. Prop. 147 (2023), Kan Jie Marcus Ho explores the growing data governance field. Although governments have tried to make rules to protect people’s data, these rules are insufficient. This article suggests a different approach: using a “data trust” system to give people more power to protect their own data. Additionally, the principles of fiduciary law and the law of trusts could better protect users’ rights regarding their data online. Ho aims to show how these principles can be used to hold online service providers accountable for how they handle user data in both the United States and the United Kingdom.

DEATH DETERMINATION: In Life and Death Matters in Conflict of Laws, 97 Tul. L. Rev. 703 (2023), Alyssa A. DiRusso delves into the intricacies of determining legal death by highlighting the challenges posed by advancements in medical technology and the inconsistencies in state laws. Prof. DiRusso proposes two possible solutions to create a clear and consistent standard for determining death: the domicile rule and the decedent situs rule, ultimately endorsing the latter for its administrative feasibility.

FAMILY FARMS: In his Comment, Cultivating Stability: Property Tax Reforms for Family-Owned Farms and Their Impact on Agriculture’s Future, 16 Est. Plan. & Cmty. Prop. L. J. 545 (2024), Joshua Mendez discusses the uncertain future of the agricultural industry as the average age of farmers approaches 60, which could soon lead to significant turnover in labor and ownership. Family-owned farms, making up nearly 97 percent of all US farms, are vital for food production. Mendez examines the farmers’ challenges during this transition, particularly the inconsistencies in state property tax regulations and exemptions. Finally, Mendez advocates for policies that empower farmers to make their own decisions to enhance stability in this volatile sector.

FIREARMS: Andrew Lisenby points out a conflict between the Gun Control Act of 1968 and property rights in his Comment, Dispossession of Firearms: Caught in the Crossfire of Legal Impossibility, 16 Est. Plan. & Cmty. Prop. L. J. 503 (2024). Although those deemed to have a firearm disability are prohibited from possessing firearms, they still maintain ownership rights in their firearms. This creates a legal dilemma. Lisenby proposes (1) “amending the statute to include a grace period for managing property after gaining a firearms disability and (2) including a rebuttable presumption against possessory interests for future acquisitions of prohibited property,” thereby balancing public safety with constitutional property rights.

ILLINOIS—DURABLE POWERS OF ATTORNEY—ACCEPTANCE: In Behind the Curtain, Ill. B.J., Apr. 2024, at 18, Ed Finkel discusses “[w]hen banks deny access to those with powers of attorney, and what to do about it.”

ILLINOIS—DURABLE POWERS OF ATTORNEY—FIDUCIARY DUTY: Unlike under the law of many states, in Illinois, agents “have a fiduciary relationship with the principal and that fiduciary relationship begins the moment the POA is signed” rather than

when the agent begins acting under the POA. In Instant Karma, Ill. B.J., Apr. 2024, at 26, Robert S. Held explains this rule and how attorneys should “exercise caution in advising their clients in naming agents under property powers of attorney.”

LGBTQ+: In First Comes Love: Advocating for a Revival of Pre-Obergefell Estate Planning Vigor for LGBTQ+ Couples and Families, 58 U. Rich. L. Rev. 83 (2024), Kimberly Furtado notes that LGBTQ+ advocacy groups provided valuable estate planning resources before samesex marriage, but these resources diminished after Obergefell. Given the current political climate’s uncertainty about LGBTQ+ rights, including marriage, the community should strengthen its advocacy to ensure equal protection for all LGBTQ+ individuals, including those who choose not to marry.

PERPETUAL TRUSTS: Liam Cronan examines the resurgence of perpetual trusts, which can shield wealth from taxes indefinitely, in And the Heirs of His Trust Corpus: How the Fee Tail and Historical Limitations on Perpetuities Can Inform the Law of Perpetual Trusts, 103 B.U. L. Rev. 659 (2023). He compares these trusts to historical perpetuities and explores potential solutions, such as new statutes or reinterpretations of existing trust laws.

SUCCESSION PLANNING: In Succession Planning and the Approaching Massive Transfer of Wealth, 103 Mich. B.J. 24 (2024), Gerard Mantese and Ian Williamson explore how the massive transfer of wealth in the United States has increased the importance of succession planning for business owners. This article discusses key contract clauses, relevant case law, tax considerations, and estate planning strategies for successful succession planning. They emphasize the importance of careful planning to ensure a smooth transition of ownership.

TEXAS—DECANTING: Jeffrey Chadwick explores how decanting has grown in popularity since Texas adopted a

decanting statute in 2013 in A DecadePlus of Trust Decanting in Texas, 16 Est. Plan. & Cmty. Prop. L. J. 351 (2024). Decanting has become essential in every estate planner’s toolbox to modify an irrevocable trust. As the law evolves and improves, Chadwick reminds readers that decanting is just one option among several alternatives, such as trust combinations, divisions, and judicial modifications. If decanting is the best option, trustees must ensure compliance with Texas law and avoid any adverse tax consequences.

TEXAS—REPRESENTING

SPOUSES: In When Estate Planning Met Marital Property Law, 16 Est. Plan. & Cmty. Prop. L. J. 404 (2024), Brian Corove highlights critical examples of the intersection between estate planning and marital property law, offering guidance to avoid unintended consequences.

TEXAS—SLAYERS: In If You Kill Your Honey, Don’t Expect the Money: The Rights of a Killer in Texas to Share in His Victim’s Estate, 16 Est. Plan. & Cmty. Prop. L. J. 431 (2024), Gus Tamborello explores the story of Ross Lawrence, who, while suffering from severe mental illness, killed his parents with a sledgehammer in what he claimed was a “mercy killing.” Ross was found incompetent to stand trial due to schizophrenia, leading to delays in both criminal and civil cases as relatives sought to prevent him from inheriting his parents’ estate. Texas law requires a finding of both willful and wrongful conduct when determining whether a slayer should be denied inheritance. Thus, it remains uncertain whether he will benefit from the funds while still deemed incompetent.

TEXAS—SURROGATE DECISION

MAKERS: In her Comment, Keeping Surrogate Decision Makers out of the Court: A Proposed Amendment to Texas Health and Safety Code Sections 313.004 & 166.039, 16 Est. Plan. & Cmty. Prop. L. J. 465 (2024), Sarah Kronenberger explains that when equal-priority surrogate decision-makers disagree on

medical decisions for an incapacitated person, the only remedy is judicial intervention. This is neither practical nor ethical in urgent situations. Instead, Kronenberger suggests amending the Texas Health and Safety Code §§ 313.004 and 166.039 to provide a more efficient solution.

WYOMING—EXPERIENTIAL

ESTATE PLANNING: In The Importance of Experiential Estate Planning: Preparing the Next Generation of Lawyers and Serving Wyoming, 47 Wyo. Law. 24 (2024), Emily Harmon examines the growth of the University of Wyoming College of Law’s Estate Planning Practicum. This law school clinic provides free estate planning and probate services to those in need while offering law students valuable hands-on experience.

LEGISLATION

CALIFORNIA permits a trustee to terminate a trust if the fair market value of the principal of the trust does not exceed $100,000, an increase from the $50,000 threshold under prior law. 2024 Cal. Legis. Serv. ch. 76.

CALIFORNIA provides remedies for deepfakes and other unauthorized use of a personality’s name, voice, signature, photograph, or likeness. 2024 Cal. Legis. Serv. ch. 258.

ILLINOIS restricts the creation and distribution of deepfake identities and digital replicas without authorization. 2024 Ill. Legis. Serv. P.A. 103-836.

NEW HAMPSHIRE modernizes its unitrust provisions. 2024 N.H. Laws ch. 292.

PENNSYLVANIA provides that individuals convicted of elder abuse of a decedent are prevented from inheriting or otherwise acquiring the assets of the decedent to the same extent as a slayer would be limited. 2024 Pa. Legis. Serv. Act 2024-40. n

The Section acknowledges the generous support of the following sponsors for their involvement in this year’s National CLE Conference:

SILVER

PARTNER LEVEL SPONSORS

Carlton Fields Dungey Dougherty PLLC

COMBINED LEVEL SPONSORS

Prather Ebner Wilson LLP Sher Garner Cahill Richter Klein & Hilbert,

Stone Pigman Walther Wittmann L.L.C.

The 21st century [offers over 21 different ways to dispose of a cadaver, or the cremains, and] we can . . . get excited, or terrified . . . for what is to come for us and our loved ones . . . and maybe [you can] threaten your spouse with this next time you fall out.

—Burial Alternatives: 23 Ultimate Ways to Check Out, Lexikin, https://tinyurl.com/yxkmhtm4.

Bribing a Survivor to Protect Your Cadaver—Part 1

By William A. Drennan

Your client’s body may be boiled in drano and dumped down the sewer. A disgruntled, mischievous, or environmentally zealous survivor may have a decedent’s body legally boiled in Drano and dumped down a sewer in 28 states. A body may be composted in 10 states. It may be beheaded and a plastic surgeon may practice on the face, while the excess skin is used to “plump wrinkles or aggrandize penises.” Or scientists may simply leave a cadaver outside at a socalled death farm to observe how the body rots when left exposed to the elements and the insects. See Mary Roach, Stiff: The Curious Lives of Human Cadavers 253 (2004) (referring to a “pressure cooker with Drano”); id. at 25

William

A. Drennan

is a professor at Southern Illinois University Law School and a former editor for the Books & Media Committee of the Real Property, Trust and Estate Law Section of the ABA.

(discussing the terrors of using a body donated to science for plastic surgery practice); id. at 61–70 (regarding the “death farm”).

If a body is fire cremated, pranksters with a morbid sense of humor might snort some of their ancestor’s ashes up their noses. See Ethan Trex, 10 Bizarre Places for Cremation Ashes, CNN. com (Apr. 2, 2010). Also, cremains may be stored in a molded jar featuring a bizarre caricature of the decedent’s face.

See David Pescovitz, Strange 3D-Printed Cremation Urns of the Deceased’s Head to Hold Their Ashes, Boing Boing (Apr. 12, 2021), https://tinyurl.com/p9a7nw94. With 3D printers, a scorned spouse or scion might use the decedent’s cremains to create almost any disturbing, inappropriate, or vile object imaginable.

Estate planners understandably focus a great deal of attention on protecting the client’s property, but what about protecting the client’s corpse from defilement? One erudite

philosopher observed, “it seems unambiguous that a person’s body is one of the most precious things about which [they] care, certainly more than their . . . property.” Daniel Sperling, Posthumous Interests: Legal and Ethical Perspectives 45 (2010).

Presumably all the legal disposal methods discussed in this article appeal to someone. Nevertheless, individual client sentiments will vary—one person’s perfect “rest in peace” scenario may be another’s debasement. Even when this was primarily a mere binary choice, people had strong preferences for either burial or fire cremation. One client might say, “Please don’t bury me in that cold, cold ground.” Ann M. Murphy, Please Don’t Bury Me in That Cold, Cold Ground: The Need for Uniform Laws on the Disposition of Human Remains, 15 Elder L.J. 381 (2007). But another might say, “We’re sending our families into these intimidating industrial warehouses with behemoth fire machines

Techniques outside traditional burial and fire cremation have been devised, publicized, and legalized.

belching natural gas. It’s almost cruel.” Haley Campbell, In the Future, Your Body Won’t Be Buried . . . You’ll Dissolve, Wired (Aug. 15, 2017), https://tinyurl.com/ bddedpwd (quoting Caitlin Doughty, mortician).

In any event, today’s clients might appreciate being informed of the new potential risks to their cadavers and a strategy to provide some assurance that their wishes for “resting in peace” will be carried out.

Scope of This Article

This article discusses how cadaver disposition in the United States has changed over time. Along with the increased popularity of fire cremation, many potentially nightmare-inducing options have developed recently. Techniques outside traditional burial and fire cremation have been devised, publicized, and legalized. Also, this article briefly describes a device estate planners might use to promote pleasant dreams—a financial incentive clause (a/k/a “bribe”) to encourage a designated surviving agent to respectfully dispose of the client’s body in accordance with the client’s expressed wishes. The companion article (Part 2) will address practical tips for planning and drafting these types of incentive clauses, the likely challenge to these incentive clauses on public policy grounds, and the arguments about

whether the dead or the living should decide the fate of cadavers.

From

Two Respectful

Disposal

Procedures to Who Knows What’s Next in Just a Few Decades Historically, both burial and fire cremation were considered respectful methods of disposal. In ancient cultures, “the bodies of the Kings were buried, while other corpses were consumed by dogs and birds of prey.”

Percival Jackson, The Law of Cadavers and of Burial and Burial Places 7 (1936). Also, fire “cremation was . . . deemed a mark of unusual honor.” Id. at 9. In the United States, traditionally, burial was chosen more often for religious reasons. See Roach, supra, at 259.

In the US, before the Civil War, local churchyard (or community cemetery) burials were common. See Keith Eggener, Building on Burial Ground, Places J. (Dec. 2010), https://tinyurl. com/46f32vuf. “Simplicity to the point of starkness, the plain white box, the laying out of the dead by friends and family who also bore the coffin to the grave—these were the hallmarks of the traditional funeral until the end of the nineteenth century.” Jessica Mitford, The American Way of Death 17 (1963).

With the Civil War, the associated death of many young persons far from home, and the development of embalming techniques, the funeral and disposal process grew more complicated. For a

sense of closure, families back home wished to see the bodies of their fallen young relatives who had been vital and healthy just a short time earlier. The need for embalming and long-distance transport necessitated greater reliance on compensated third parties. Over time, professional, licensed funeral directors came to dominate a consistent approach to funerals and burials.

In 1963, Jessica Mitford’s bestselling exposé The American Way of Death condemned the practices that had developed. The “American way” involved funeral home personnel almost immediately taking possession of the body, embalming, publicly displaying the body at the funeral home, conducting a funeral service at the funeral home or a house of worship, and then laying the body to rest in an expensive stainless steel, oak, or mahogany casket, surrounded by a metal or plastic burial vault, in a resource-consuming cemetery. See Mitford, supra, at 16–18; Tanya D. Marsh, Rethinking the Law of the Dead, 48 Wake Forest L. Rev. 1327, 1336 (2013). Mitford stressed that this system placed consumers at the mercy of funeral directors at a very emotional time, and a funeral was often the third most expensive purchase “an ordinary American family” might make, behind only home and car purchases. Mitford, supra, at 26–27. Despite the excessive expense, Mitford asserted that custom, peer-pressure, advertising, and professional licensing requirements pushed survivors to follow this commercialized, costly, and environmentally harmful “American way.”

Scholars have credited Mitford with sparking a revolution. See, e.g., Tanya D. Marsh, The Death Care Revolution, 8 Wake Forest J. L. & Pol’y 1, 2 (2018). During the six decades since Mitford’s book, there have been at least two major shifts in death care. First, in the last half century, the popularity of fire cremation has increased tenfold. In the 1970s, the US cremation rate was “just around [5%].” Wayne Read, Chronicling the Substantial Rise in Cremation Rates Across the United States, 27 The Independent, no. 3, Summer 2022, at 18, 19,

https://tinyurl.com/4m5hjxtn. By 2015, the cremation rate surpassed the burial rate. Nat’l Funeral Dirs. Ass’n, 2022 NFDA Cremation & Burial Report 7 (July 2022). By 2022, the cremation rate was 59.3 percent, and the burial rate was only 35.7 percent. Id. at 9. The National Association of Funeral Directors predicts that by 2040, 78.7% of the US dead will be cremated and only 16.3% percent will be buried. Id. at 7.

Second, and likely more disturbing to clients, is the rise of new disposition methods in just the last couple of decades. Some are variations of traditional burial or fire cremation, and some are more creative. As these approaches are legalized and broadly publicized, and grow in public acceptance, more opportunities and temptations are created for malevolent or mischievous survivors to reject the decedent’s wishes and settle old grievances or find some humor at the decedent’s expense.

Variations on Fire Cremation and Traditional Burial

With the growing popularity of fire cremation comes more attention on what to do with the cremains. Traditionally, the family member receiving the cremains might purchase an urn and arrange for the urn to be solemnly buried in a cemetery or mausoleum. Recently, survivors have become more creative.

For those who want grandma to go out with a bang, her cremains can be incorporated into a fireworks display or blasted into outer space like Star Trek creator Gene Roddenberry or the TV show’s chief engineering officer, James “Scotty” Doohan. See Kathy Benjamin, Funerals to Die For: The Craziest, Creepiest, and Most Bizarre Funeral Traditions and Practices Ever 189–90 (2013). More disturbing, Rolling Stones guitarist Keith Richards told a reporter that he snorted some of his father’s ashes up his nose. After a “media firestorm,” the musician’s publicist released a statement saying it was “an off-the-cuff remark, a joke.” Trex, supra

A “green burial” may appeal to a survivor’s legitimate desires to limit

environmental effects and be more frugal. See Max Plenke, Traditional Burials Are Ruining the Planet—Here’s What We Should Do Instead, Bus. Insider (Apr. 7, 2016), https://tinyurl.com/3ny25vc6; Jeremiah Chiappelli & Ted Chiappelli, Drinking Grandma: The Problem of Embalming, 71 J. Env’t Health 24, 27 (2008).

Green burials may modify or eliminate one or more elements of the traditional “American Way of Death.” A family may choose to bury very quickly and forgo embalming, or they may use “eco-friendly” embalming fluids in place of formaldehyde. Sharleen Lucas, RN, 8 Green Burial Options: Some Are Greener Than Others, Healthnews (Jan. 2, 2024), https://tinyurl.com/4sm5p8ae. They may replace the traditional stainless steel, oak, or mahogany casket and concrete vault with a simple pine box or cloth burial shroud.

Also, a survivor may choose a temporal variation with either green or traditional burial. Burials for a term

Some states prohibit the composting of multiple decedents together without prior consent, prohibit the sale of the resulting compost heap, or prohibit using the compost heap in growing food for human consumption.

of years have been popular in Europe and reuse cemetery space. This reduces the otherwise ever-expanding need for cemetery space, but it does require exhuming the client’s corpse at some point and disposing of (or otherwise storing) the bones, teeth, and whatever else has not disintegrated. Some clients might prefer to rest in peace and may not enjoy the thought of being dug up in a few years.

A Disposal Method for Roadkill and Your Client: The Aquamation Controversy

An especially controversial method is called “water cremation,” “alkaline hydrolysis,” or “aquamation.” The technique is not new—the process was patented in 1888 to dispose of animal carcasses after all valuable parts had been removed. The process has been seen as an economical way to dispose of waste, see Roach, supra, at 251–53, including roadkill. See Bioresponse Solutions, Alkaline Hydrolysis System: BioLiquidator, https://tinyurl. com/4v5us77s. The new development is the legalization, publicity, and perhaps public acceptance of using it on people. See Kent Hansen, Choosing to Be Flushed Away: A National Background on Alkaline Hydrolysis and What Texas Should Know About Regulating “Liquid Cremation,” 15 Est. Plan. & Community Prop. L. J. 145, 150 (2012) (referring to the method as an “environmentally friendly alternative”).

Water cremation involves placing

the body in a stainless-steel tube and adding water and powerful chemicals, such as potassium hydroxide or sodium hydroxide (also called “lye”), and heating to 300 degrees Fahrenheit for four to six hours. The approximately 100 gallons of resulting affluent is then dumped into the sewers. Perhaps as an alternative to the sewer, one industry expert observed that people could drink it because “theoretically . . . there’s nothing that is going to hurt you.” Lauren Oster, Could Water Cremation Become the New American Way of Death?, Smithsonian (July 27, 2022), https://tinyurl. com/2yrb48n7 (quoting Oregon funeral director Morris Pearson).

As of August 2024, 28 states reportedly had legalized water cremation. TeamEarth, Tracker: Where Is Aquamation Legal in the US?, Earth Funeral (Oct. 30, 2023), https://tinyurl.com/mr3y7szt (listing Alabama, Arizona, California, Colorado, Connecticut, Florida, Georgia, Hawaii, Idaho, Illinois, Kansas, Maine, Maryland, Michigan, Minnesota, Missouri, Nevada, North Carolina, North Dakota, Oklahoma, Oregon, Tennessee, Utah, Vermont, Virginia, Washington, West Virginia, and Wyoming); Oster, supra; but see Alex Hager, Bathed to the Bone: This New Cremation Method Uses Water Instead of Flame, KUNC (Mar. 17, 2023), https://tinyurl.com/2rmsw2fb (pointing out that, at the time, water cremation was only being practiced in 15 of 25 states in which it was legal).

When evaluating this method, one Indiana lawmaker invoked the “yuck

factor,” saying the decedents are going to “run down the drain into the sewers and whatever.” Devin Powell, Dissolve the Dead? Controversy Swirls Around Liquid Cremation, Sci. Am. (Sept. 7, 2017), https://tinyurl.com/4cuafjka (quoting state Representative Dick Hamm, as reported by the Indianapolis Star). The U.S. Catholic Conference of Bishops Committee on Doctrine has decreed that Catholics may not use water cremation because it does not show sufficient respect for the human body. Comm. on Doctrine, U.S. Conf. of Cath. Bishops, On the Proper Disposition of Bodily Remains 5 (Mar. 20, 2023), https:// tinyurl.com/2keuaedv. In particular, the process results in “100 gallons of brown liquid into which the greater part of the body has been dissolved. This liquid is treated as wastewater and poured down the drain into the sewer system . . . [or] treated as fertilizer.” Id

Your Client’s Body as Fertilizer: The Composting Controversy

Another controversial technique is human composting (a/k/a “natural organic reduction” or “NOR”). First legalized in Washington in 2019, with this technique the decedent is left inside a steel container with a mixture of organic materials such as alfalfa, wood chips, straw, and wildflowers. Techniques may vary, but the temperature inside the box may reach 130 to 160 degrees Fahrenheit, everything is stirred, mixed, or rotated periodically, and after 30 to 45 days, the flesh will have thoroughly decomposed, enriching the soil and creating a “single mass of compost [of approximately] a cubic yard,” id., which can then be dumped on a lawn, in a garden or forest, or any other lawful place. As of August 2024, human composting was legal in 10 states (Arizona, Colorado, Delaware, Maine, Maryland, Minnesota, Nevada, Oregon, Vermont, and Washington). See Tracker: Where Is Human Composting Legal in the US?, Team Earth (Aug. 9, 2022), https://tinyurl.com/3dex74er. A California statute will become effective in 2027, and a New York statute will be effective when a regulatory process is complete. Id

Some states prohibit the composting of multiple decedents together without prior consent, prohibit the sale of the resulting compost heap, or prohibit using the compost heap in growing food for human consumption. Andrew Chamings, California Just Legalized “Human Composting.” Not Everyone Is Happy, SFGate (Sept. 19, 2022), https:// tinyurl.com/476rjuh5. The US Conference of Catholic Bishops Committee on Doctrine has concluded that Catholics are not permitted to compost humans because it fails to show proper respect for the body. In particular, the objection is that composting leaves no discernible trace of the physical body that could “be placed . . . in a sacred place [for] remembrance.” Comm. on Doctrine, supra. Instead, the “body is completely disintegrated.” Id. “Islam prohibits the pulverization of a body, which commonly occurs in human composting . . . [and] [t]here is diversity of opinion in Judaism, with some scholars opposed to the treatment of bones in human composting and the propriety of using human remains as fertilizer.” Dylan

Kelleher & Melissa Petruzzello, Human Composting (June 13, 2024), Britannica, https://tinyurl.com/5ujsj6r9.

Additional Potentially Disturbing Disposal Options

Other potential nightmare-inducing options are not easily pigeon-holed as variations of either burial or fire cremation. With sky burial, the decedent may be flavored with milk, flour, tea, and barley and left on a mountain top to be picked apart and devoured by vultures and other animals. Funeral Burial Alternatives, supra. A disgruntled or mischievous relative wishing to inflict a sky burial upon the decedent might need to transport the body overseas because, in the US, it may be illegal as criminal abuse of a corpse. See Lucas, supra. Nevertheless, corpses can be transported outside the US, and at least one commentator speaks glowingly about leaving a decedent in nature, on a picturesque mountain top, for this end. 7 Innovative Burial Alternatives: Beyond the Usual Grave, Better Place Forests, https://tinyurl.com/3m55x4za. Possible

locations would include parts of India and regions of the Tibetan Mountains where the terrain is so rocky that burial in the ground is impractical. Benjamin, supra, at 79–80.

Approximately 20,000 of the annual 3.2 million US dead donate their entire bodies to science, presumably motivated by altruism and generosity to promote medical advances. A.W. Ohlheiser, What Happens When You Donate Your Body to Science, MIT Tech. Rev. (Oct. 12, 2022), https://tinyurl. com/2u7rhze5.

Those who choose not to donate their entire bodies may have a different view. From approximately 1785 to 1885, doctors and medical schools were notorious for paying substantial sums (such as the equivalent of a skilled worker’s wages for a week) to grave robbers for a single cadaver that could be dissected. Ray Madoff, Immortality and the Law: The Rising Power of the American Dead 26 (2010). State criminal laws have imposed forced cadaver donation for medical dissection as a form of “super capital punishment” for those

guilty of egregious crimes. Id. at 21. Author Mary Roach has written about terrifying things that can happen to a donated cadaver, as briefly described in the first paragraph of this article. Roach expresses particular concern because, at least in some of these situations, there is no indication that the decedent or the decedent’s family consented to these peculiar uses. Roach, supra, at 103 (“At the time a person or his family decides to donate his remains, no one knows what those remains will be used for, or even at which university.”).

Prohibited Methods

There are some methods of disposition that would be prohibited as criminal abuse of a corpse. For example, in one case, the decedent’s brother chopped off her legs and burned her in their home furnace. The court concluded this was criminal abuse of a corpse, even if the sister consented before death. State v. Bradbury, 9 A.2d 657, 659 (Md. 1939); see also Stepenfoot v. Newby, S14C0388,

2013 Ga. S. Ct. Briefs LEXIS 563 (Dec. 9, 2013) (involving a foiled plot to “remove [the decedent’s] bones [and retain those bones] for ‘study’ and ‘art,’” dissect the body, and leave parts in various places, including some parts to be devoured by animals).

Protection Money: A Financial Incentive to Carry Out the Client’s Cadaver Directions

The legal significance of a decedent’s cadaver disposition directions varies from state to state. Commentators typically describe the decedent’s directions in a last will or other document as merely a “hope.” Madoff, supra, at 18; see also 25A C.J.S. Dead Bodies: Weight Given to Decedent’s Preference § 17, at 237 (2012).

More important for this topic, if no survivor seeks to discover, follow, and carry out (and perhaps fight for) the decedent’s wishes, the default decisionmakers under state law, usually the surviving spouse or next of kin, likely

may dispose of the cadavers in any lawful way they wish. Madoff, supra, at 18; Sperling, supra, at 145 (“Bodily testaments are not compelling unless voluntarily enforced by survivors”). One commentator states, “You’ve got a lot of children of baby boomers starting to make decisions about funerals who are questioning the death practices of previous generations, and who don’t see the value of an $8,500 . . . funeral that doesn’t hold meaning for them.” Oster, supra.

As indicated, typically under state law, if the decedent fails to effectively designate an agent to dispose of the cadaver, the surviving spouse will have authority. In the absence of a surviving spouse, the decision-maker will be the next of kin. Restatement (Second) of Torts § 868 cmt. b (Am. Law Inst. 1979) (describing the tort of “interference with dead bodies”).

A 2019 survey concluded that 46 states have a statutory procedure for individual to appoint an agent to

dispose of their cadavers. Tanya D. Marsh, You Can’t Always Get What You Want: Inconsistent State Statutes Frustrate Decedent Control over Funeral Planning, 55 Real Prop., Trust & Est. L.J. 147, 163 (2020). Perhaps the person designated could be called the “sepulcher agent” under an “ultimate” durable power of attorney (because it is effective only upon the principal’s death).

A client may wish to provide a financial incentive to their sepulcher agent in the form of a contingent bequest or trust, payable if the client’s cadaver disposition directions are followed. Preliminary steps in planning would be choosing the sepulcher agent, choosing the document in which to designate the sepulcher agent, and selecting a dollar amount sufficient to motivate the agent to act in accordance with the decedent’s wishes. The companion article (Part 2) will discuss the practical considerations involved.

Lack of Legal Authority on This Type of Financial Incentive Clause

There appears to be very limited authority on financial incentive clauses for cadaver dispositions. Back in 2013, a distinguished scholar already observed that a financial incentive could encourage a survivor to follow a decedent’s cadaver disposition wishes. See Gerry W. Beyer, Teaching Materials on Estate Planning 539 (4th ed. 2013).

There appears to be no reported case considering the enforceability of such a clause. There was a famous unreported case that may be described as the “Bury Me in My Ferrari” case. Hollywood heiress Sandra West’s last will directed that her brother-in-law would receive $2 million from her $5 million estate if she was buried according to her wishes; otherwise, the brother-in-law would receive only $10,000. Jim Motavalli, You Can Take It with You, If the Grave Is Deep Enough, N.Y. Times, Feb. 24, 2022. West’s burial wishes are famous— burial in one of her Ferraris, wearing a lace nightgown, “with the seat slanted comfortably.”

According to the popular press, the trial judge ruled there was nothing illegal about being buried in a Ferrari.

Court Approves Ferrari as Coffin, The Times (San Mateo, Cal.), Apr. 12, 1977, at 16 (discussing the ruling of Los Angeles Superior Court Commissioner Franklin Dana). Newspapers reported that West’s burial wishes were followed, and a contractor poured a layer of cement on top to discourage grave robbers. See, e.g., Timothy J. Fanning, Bury Me in My Ferrari: How a California Socialite Was Laid to Rest, San Antonio Express News (Mar. 22, 2023), https:// tinyurl.com/ypnv8e4v. Presumably, the executor of the estate paid the brotherin-law the bonus bequest.

Conclusion to Part 1

The options for cadaver disposal are changing, and clients and their estate planners may want to respond. Until recently, cadaver disposition primarily was a binary world—even if the client made no directions, or the survivors ignored those directions, the decedent likely would be buried or fire-cremated by a licensed funeral director.

In the early 1960s, author Jessica Mitford railed against the expensive and predictable use of formal funerals and burials conducted by professional funeral directors, but now clients may

say the pendulum has swung too far in the other direction. Today, a disgruntled, mischievous, or environmentally zealous survivor might have the client composted, or cooked in Drano and dumped down the sewer—bidding farewell to a human being with the same process used for roadkill.

Additionally, more disturbing alternatives may be envisioned. Scientists have worked on a method that one reporter described as answering the question, “What if you want to dispose of [a] body in the manner of an ecologically minded supervillain?” With promession, your enemy’s body would have been frozen (to –321 degrees Fahrenheit) using liquid nitrogen, and then the “block of frozen flesh” would have been violently shaken until it became a powder. See Eric Grundhauser, A Burial Machine That Will Freeze Your Corpse, Vibrate It to Dust, and Turn It into Soil, Atlas Obscura (Feb. 25, 2016), https:// tinyurl.com/mr2uz9fr. As a result, estate planners may want to help a client arrange their affairs to be confident of resting in peace in the manner they choose, perhaps with the help of a financial incentive clause. n

BEST USE OR NO USE? What Should Lawyers Do About AI Right Now?

By Jaime Herren

Attorneys often ask me whether AI will replace young lawyers in the traditional law firm structure. Let me give my opinion upfront to end that suspense: My response is simply, no. The author thinks it will change how students learn at all levels of education, including law school. Furthermore, the author thinks AI will fundamentally change how law students learn to conduct legal research and how traditional legal resources and practice guides provide search results. It might change how junior attorneys are tested and trained. Like every new powerful and pervasive technology, AI will be a tool that younger generations learn with ease and take for granted and that older generations will adopt, struggle with, or refuse to learn.

The author’s advice is for attorneys to embrace the new functionality of AI as they encounter it in their current practice. Know that Westlaw, Lexis, Google, and every other search engine are already incorporating and will continue to incorporate AI. You will, inevitably, use it. Why not start now?

Jaime Herren is a partner at Hartog Baer Zabronsky, APC, in Orinda, California, in the San Francisco Bay Area. She is the co-vice chair of the Alternative Dispute Resolution Committee to the Litigation Section of ABA RPTE.

The attorney needs to know whether AI is available for the task, whether the attorney should use AI for that task, and how to use the preferred AI tool to render a good result, while complying with the rules of professional conduct and the attorney’s duties to the client.

I came up with on the spot in a conversation with you—you could do it. But if I ask you how Google rendered your results, could you answer? Probably not. But you can locate the tool, use it for its intended purpose, and have results in a matter of seconds.

Only the future will reveal the scope of the effects of AI. For now, what do lawyers do with it and in anticipation of it?

If the reader takes nothing else away from this article, it is that one should not turn away from AI. That is not to say that it is something one needs to conquer. If you have not yet ventured into the fields of coding and software, you should not feel the need to learn how AI operates. If you can use Google, but you don’t know how Google works, then you do not need to know how AI works. But there are things one needs to know to use AI better. Attorneys have the basic ethical obligation to understand the tools that the attorney relies on to provide legal services to their client. The attorney needs the basic knowledge and skills to know whether AI is available for the task, whether the attorney should use AI for that task, and how to use the preferred AI tool to render a good result, while complying with the rules of professional conduct and the attorney’s duties to the client.

Why Do You Need to Obtain Basic Knowledge and Skill About AI?

You need to obtain basic knowledge and skill about AI because you are required to. Lawyers have a duty to provide competent representation. Rule 1.1 of the American Bar Association (ABA) Model Rules of Professional Conduct (the Rules) states, “[a] lawyer shall

provide competent representation to a client.” Competent representation “requires the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation.” Comments to Rule 1.1 include that “a lawyer should keep abreast of changes in the law and its practice, including the benefits and risks associated with relevant technology.”

History and Detailed Functionality That Is Beyond the Basics

Here’s what you do not need to know to provide competent legal services. You don’t need to know that Google was originally going to be named Backrub or that Google was intended to be the word “googol” but that it was misspelled and that a googol is the number that is a one followed by 100 zeros. You don’t need to know that OpenAI published research on generative models in 2016 and trained by collecting a vast amount of data in a specific domain, such as images, sentences, or sounds, and then teaching the model to generate similar data. In 2019, OpenAI published further research on GPT-2, which modeled human feedback. In 2022, OpenAI published research on InstructGPT models, siblings of ChatGPT, that show improved instruction following ability and reduced fabrication of facts.

What Do You Need to Know?

If I ask you to Google something—anything

More than that, you can also tell if AI malfunctioned or if it did not satisfactorily perform the search. You can compare search engines, and maybe Google is not your preferred or default search engine because you find that you obtain superior results on another platform. You can easily find and use alternative search engines when you need a different result or a different type of result. But you do not know what the search engine actually does when you engage it by hitting that search button. That’s OK, and this is the level of basic knowledge and skill that I recommend that every attorney should have for AI.

If I asked you to use AI to generate a nonconfidential draft cover letter, you should be able to do it without further instruction. You could tell me if the result was decent or if you want to try again, maybe with a different chatbot or with a few more iterations. Perhaps you could get a better generic template cover letter. If you can perform that task with relative ease, I’d say that you know what you need to know about using AI tools. Now you need to consider if the nature of AI tools is suited to your task.

Essential Knowledge of the Nature of AI

AI learns by gathering information. The search process it uses to learn from the web is sometimes referred to as data scraping. AI learning includes retaining the information it is given and that it locates. That means it keeps a copy of the information you provide to it. Read that again because it has heavy implications for attorneys using AI.

Every attorney-client relationship is confidential and privileged. You must never tell AI anything that is otherwise protected by the attorney-client privilege. Just as you would never put confidential information into a search bar, you should never feed confidential

information to an open chatbot.AI is already a part of our lives, but you may not even know it. Traditional AI, also known as Narrow or Weak AI, learns from data (input) and produces a response in the form of decisions or predictions based on the input. Forms of traditional AI include search engine algorithms and voice assistants—think of Siri and Alexa. They offer customized recommendations on shopping and streaming platforms, for example.

Then there is Generative AI. According to Google’s AI Overview, “Generative AI is a type of artificial intelligence (AI) that creates new content, such as text, images, music, audio, and videos. It’s different from traditional AI, which is programmed with specific rules and algorithms to make smart decisions. Generative AI learns to create new content by identifying patterns in large datasets and creating new variations based on those patterns.”

The legal profession has already embraced the use of traditional AI, even if practitioners don’t yet know it. AI is embedded in legal research platforms like Westlaw and LexisNexis. It is already being used in discovery in

litigation to organize large amounts of data, to analyze contracts, and even to predict how a judge might rule. Generative AI, on the other hand, is a new kid on the block. Its ability to generate new content is uncharted territory, and while it may prove useful, it will present new challenges to lawyers when performing their duties.

Essential Knowledge of Malicious Uses of AI

You should know about the negative uses of AI, including deepfakes and hallucinations. Deepfakes are videos or images where AI generates content based on learned information that is then used to produce an outcome that resembles what it learned. Think of the fake videos seeking to imitate actors or politicians making outrageous statements.

Hallucinations, on the other hand, are where AI generates new content that is not based on input data, or when the model relies too heavily on biases or patterns, resulting in erroneous or novel responses. The danger is that hallucinations can generate results that are seemingly plausible on the surface, yet

they have no basis in reality. The best example for our purposes is the nonexistent caselaw cited by various lawyers in their briefs, which has resulted in sanctions.

The Names of Your Tools

The most famous AI chatbot is ChatGPT, but there are many available and the list is ever-changing. Here is a short list that names a few:

• Microsoft Copilot (Bing Chat)

• Gemini (Google Bard)

• Socratic By Google (for kids)

• Anthrophic’s Claude

• Perplexity.ai

• Jasper (subscription $)

• You.com

• HugginChat (opensource)

• CoCounsel (Westlaw)

• Protégé (LexisNexis)

Why You Should

Be Able

to Generate a Nonconfidential Cover Letter and Why the Author Does Not Suggest Generating Any Kind of Legal Brief

Model Rule 1.6 expressly prohibits attorneys from revealing “information relating to the representation of a

client.” Model Rules 1.9(c) and 1.18(b) require lawyers to protect information of their former and prospective clients and require attorneys to make “reasonable efforts to prevent the inadvertent or unauthorized disclosure of, or unauthorized access to, information relating to the representation of the client.” As stated above, if you wouldn’t put confidential information into a search engine, the same should be true for chatbots. Search engines and chatbots are outside of the confidential attorney-client communications relationship. You cannot reveal important information to chatbots.

As stated earlier, AI retains the information provided to it. If you put in confidential information, the chatbot is going to remember it forever and could generate it in response to someone else’s inquiry without your knowledge. Often when you visit a chatbot website or sign up for an AI service, you agree to Terms of Service (TOS) and other privacy policies. These TOSs and policies may provide insight on how the data you input are being accessed, stored, used, and perhaps shared. The TOSs differ as to each chatbot and, if you intend to become a frequent user of a particular chatbot, you should familiarize

yourself with the terms.

AI will be useful for generating ideas and generic nonconfidential letters, summarizing and reviewing documents, and researching and drafting memoranda, but lawyers should exercise great care to avoid divulging your clients’ confidences.

Disclosure of the Use of AI May Be Necessary

Attorneys owe their clients a duty to communicate with them about the character of the representation and the means to be used in the course of representation. Model Rule 1.4(a)(2) requires lawyers to “reasonably consult with the client about the means by which the client’s objectives are to be accomplished,” and Model Rule 1.4(b) imposes a duty to explain matters “to the extent reasonably necessary to permit a client to make an informed decision regarding the representation.” The question then becomes when your use of AI technology should be disclosed to clients. You may not need to disclose the use of prevalent AI tools such as legal research platforms. The use of AI must be disclosed if the client inquires about your use of the technology. Similarly,

you must communicate with the client when the results of AI will influence significant aspects of the representation, such as evaluating potential outcomes or making the jury selection, or when the use of AI would violate the terms of your engagement agreement or the client’s reasonable expectations on how you will carry out the representation. If your engagement agreement includes a technology clause, review and revise it to make it consistent with your intended use of AI tools. If your engagement agreement states that you do not or will not use AI tools, you should be very careful about the tools you use because many “safe” and “traditional” tools now incorporate AI features.

Attorney Fees and Expenses When Using AI

Model Rule 1.5(a) requires that a lawyer’s fees and expenses be reasonable in light of various nonexclusive factors. Further, Model Rule 1.5(b) requires that the rate and expenses be communicated to the client, preferably in writing and either before or within a reasonable amount of time after starting the representation.

AI may allow attorneys to perform

certain tasks at a much faster pace, whether it be drafting a pleading, performing case analysis, or doing research. If charging on an hourly basis, your bills should reflect the actual time spent on the task. A lawyer’s bill should never be inflated. In the case of flat or contingency fee cases, a lawyer’s compensation will depend on its reasonableness for the legal services performed.

Whereas AI may reflect a decrease in the base hours spent on certain tasks, the necessity for review may rebalance that concern. The quality of AI output should be viewed with the same careful review as the work of a summer associate or one who may have questionable ethics. A stinging sanction order out of New York tells the tale of a chatbot that made up caselaw with citations that looked real and stated that the opinions were drafted by actual judges. Mata v. Avianca, Inc., 678 F. Supp. 3d 443 (S.D.N.Y. 2023). It is not the only such order. See, also, e.g., Park v. Kim, 91 F.4th 610 (2d Cir. 2024).

The cost of the use of AI technology could be considered overhead or an out-of-pocket expense. If the service is set up in your word processing program or perhaps has a subscription fee regardless of how often it is used, this would be an overhead cost that cannot be charged to clients unless this charge was previously disclosed. If the use of AI is for a particular client and the charge is on a per-use basis, this cost can be passed on to the client as an outof-pocket expense.

Conscious Supervision Is Necessary

Model Rules 5.1 and 5.3 address managerial and supervisory lawyers’ responsibilities when overseeing subordinate lawyers and nonlawyers. Lawyers in supervising positions must implement measures and policies to ensure that the lawyers and nonlawyers within the firm comply with their professional obligations when using AI. Similarly, supervisory lawyers should make reasonable efforts to ensure the firm has in effect measures giving reasonable assurance that the conduct of

nonlawyers, such as third-party providers, is compatible with the professional obligations of the lawyer.

Managerial lawyers must implement clear policies regarding the use of AI to ensure compliance with the rules of professional conduct. In addition to clear guidelines, managing lawyers should implement training on the proper use of AI tools, including the basics on how this technology works, its benefits and drawbacks, the ethical considerations, and best practices for handling data in a confidential and private manner.

Although supervision over thirdparty nonlawyers may prove to be more difficult, managing attorneys are not without recourse. As already discussed, it will be vital to learn from the provider its Terms of Use and privacy policies to learn what happens with the data collected by the third-party provider. Other alternatives include the configuration of the AI program so that it is set to preserve confidentiality and security and ensuring the reliability of the programs’ security measures.

Appropriate Use of AI Tools

AI is here to stay. If you choose to embrace it in your practice, you must do so with caution while adhering to the duties of professional conduct. The Standing Committee on Ethics and Professional Responsibility of the ABA issued Formal Opinion 512, which examines ethical considerations and provides guidance on best practices when using AI. These are some of the main takeaways.

Be cautious and verify the accuracy of your results. How much verification is required will depend on the AI tool used and the task performed. To provide competent representation, you must have a reasonable basis for relying on the AI tool’s results, which may require you to test the AI tool to ensure its accuracy and reliability. Similarly, you cannot relegate your responsibilities. While AI could be used as a springboard to generate ideas, it cannot replace your own judgment.

AI tools may disclose information about a client’s representation to

persons inside the firm who are prohibited from accessing the information or inadvertently to persons outside the firm. Because of this risk, the client’s informed consent must be obtained before entering the client’s information into chatbots. This consent cannot be obtained by adding boilerplate language to your engagement agreement. Furthermore, the ABA recommends reading, or consulting with someone who has analyzed, the Terms of Use, privacy policy, and related contractual terms and policies of the AI tool you use.

If you are embracing the technology, you may want to consider including this information in your engagement agreement to communicate in advance to your clients your use of AI and to set the expectations of representation.

You should consider whether your use of AI tools should be disclosed to the client. As discussed above, disclosure may vary depending on the type of tool and the purpose for which it is being used. In some instances, disclosure of the use of AI may not need to be disclosed or it may be included in your engagement agreement if used for routine tasks. Other instances, however, will require you to discuss the use of AI with your client, as it may involve important decisions about the strategy of the case.

Another consideration is the fees and costs charged to the client when using AI. Although attorney fees continue to be analyzed based on the type of fee agreement and the reasonableness of the fee, you will want to disclose in the engagement agreement any charges that may be associated with the use of AI or determine if it can be charged as an out-of-pocket expense if the situation warrants it. Finally, managing attorneys should make reasonable efforts to properly train their subordinates to ensure compliance with the rules of professional conduct while using AI and must make every effort to understand the terms of service of the AI provider you choose to use in your practice. n

Generation-Skipping Transfer Tax Planning Opportunities Planning to Last Many Lifetimes

By Abbie M.B. Everist, Jack Nuckolls, and Harry Dao

Generation-skipping transfer (GST) tax planning is vital to preserving taxpayer assets from being subject to multiple levels of tax. The GST tax is a flat 40 percent rate on certain nonexempt assets and distributions and is similar, but imposed in addition,

Abbie M.B. Everist is a managing director at BDO in Sioux Falls, South Dakota. She is vice chair of the Section’s Generation-Skipping Transfer Tax Committee. Jack Nuckolls is a managing director at BDO in San Francisco, California. Harry Dao is an associate at McDermott, Will & Emery LLP, located in Menlo Park, California. Harry is an RPTE Fellow.

to the federal estate tax. The cumulative effect of federal estate, GST, and potentially state estate or inheritance taxes may greatly diminish family resources for successive generations.

During this period of double unified credit through 2025 under the 2017 Tax Cuts and Jobs Act (2017 TCJA), the opportunity to protect larger amounts of taxpayer assets from additional levels of future taxes is significant. Even if the taxpayer has engaged in considerable estate planning, high engagement should be maintained in this advisory area throughout the taxpayer’s lifetime and even post-mortem, as many planning strategies are available after the exemption is exhausted.

GST Tax

Under US tax laws, every person is granted a gift, estate, and GST tax exemption—to be used during life or at death—that allows the taxpayer to transfer an exempt amount to individuals or trusts free of transfer tax. Under current law, this amount is “unified” so that the exemptions for gift, estate, and GST tax in 2024 are $13.61 million per person for US citizens. I.R.C. (Code) §§ 2010(c), 2505(a), 2631(c). The unified exemption amount is adjusted annually for inflation.

Gift and estate tax exemptions draw from the same $13.61 million. For example, if a taxpayer gifts $5 million, the taxpayer has $8.61 million

Although the amount of gift, estate, and GST tax exemptions are unified, not all gifts are allocated GST exemption because the transfers may be to non-skip beneficiaries (usually children).

remaining to use as an exemption for the taxpayer’s gross estate when the taxpayer dies (or it may be ported over to a surviving spouse as a deceased spousal unused exclusion amount). Id. § 2010(c)(4). Any unused GST exemption, however, is not portable to a surviving spouse, so it’s very important to plan to use both spouses’ GST exemptions effectively.

Although the amount of gift, estate, and GST tax exemptions are unified, not all gifts are allocated GST exemption because the transfers may be to non-skip beneficiaries (usually children), which creates a variance between the amount of gift and estate exemption a person may have and the amount of remaining GST exemption. The variance also may go the other way, typically in the case of an irrevocable life insurance trust, whereby premiums are contributed using the annual gift exclusion that don’t qualify for annual GST exclusion, requiring GST exemption to be used if the trust is a GST trust. Id § 2632(c)(3)(B).

Values for exemption purposes are typically based on the date of asset transfer. For example, if a taxpayer gifts $5 million today when the exemption amount is $13.61 million and the taxpayer dies in 2025 with an inflationadjusted exemption of, say, $14 million, the estate will have $9 million worth of exemption to allocate on the estate tax return. This is also true in the inverse. If a taxpayer gifts $13.61 million today,

the doubled exemption from the 2017 TCJA sunsets, and the exemption is $8 million in 2026 when the taxpayer dies, in most cases there would be no clawback of the extra exemption that was used during a period of higher exemption. Treas. Reg. § 20.2010-1.

The transferor during life or the executor through an estate may allocate GST exemption to a trust. I.R.C. § 2631. If a transfer to a trust has been allocated GST tax exemption, it is referred to as “exempt,” and if the transfer has not been allocated GST tax exemption, it is referred to as “nonexempt.”

Skip Beneficiaries of a Trust

The GST tax applies to nonexempt generation-skipping transfers, which means a transfer of property by gift or bequest to a “skip person” directly or indirectly through a trust. For a nonexempt trust, GST tax is incurred when:

1. Property is distributed from the trust (other than a trust that was irrevocable on September 25, 1985) to a beneficiary assigned to a generation that is two or more generations below the generation assignment, or for unrelated persons, someone 37.5 years or younger, of the person who transferred the property to the trust by gift or bequest (id. §§ 2611, 2651); or

2. The only beneficiaries of the trust are assigned to a generation that is two or more generations below

the generation assignment of the transferor (id. § 2613).

There is also a rule for transfers when the generation below the grantor has predeceased the grantor. In that case, generations will move up a generation, so the grantor’s grandchild from the predeceased child will step into the child’s shoes for GST purposes. Id § 2651(e). This will affect direct gifts to the grandchild or trusts established after the child, or other non-skip person, has passed. If an irrevocable trust that was not previously allocated GST exemption was established before the child predeceased the grantor, however, the grantor may retroactively allocate GST exemption. This is done on a timely filed gift tax return for the year of the child’s death using a date of transfer value with the grantor’s unused GST exemption amount available right before the child’s death. Id. § 2632(d). This is a taxpayer-friendly rule that recognizes that trusts that were expected to be distributed to a child should not be adversely affected because of an untimely death.

Gifts Subject to Tax

Often, a donor will have made previous gifts to children or other non-skip beneficiaries and will have more remaining GST exemption than lifetime gift exemption. It is generally beneficial for a donor to fully use the GST tax exemption by making one or more gifts that would incur gift tax to which unused GST exemption may be allocated. Assuming a gift is made in the amount of the unused GST exemption, the donor would incur a gift tax equal to 40 percent of the excess of the donor’s unused GST exemption over the donor’s remaining lifetime exemption. Despite the immediate tax cost, a lifetime gift often may be more efficient from a wealth transfer perspective than a testamentary bequest because of the ability to shift post-transfer appreciation out of the donor’s gross estate and, assuming the donor survives three years from the date of the gift, the avoidance of estate taxation on the gift tax liability. Id. § 2035(b).

An outright gift to a skip person

when the donor does not have remaining GST exemption available will create an immediate GST tax on the transfer. A gift to a trust having non-skip and skip beneficiaries when the donor has no remaining GST exemption will create a nonexempt or a mixed inclusion ratio trust. Planners should proceed with caution when making a gift involving skip persons when the donor has no remaining GST exemption.

Lifetime Allocations and Transfers Without Gift Tax

Althugh making taxable gifts as part of an estate plan may be beneficial, numerous planning solutions may effectively use GST tax exemption without incurring a gift tax. Most estate plans for families with multigenerational wealth incorporate several strategies for tax efficiency while achieving the donor’s goals.

1. Outright Gifts and Gifts to Trusts

First and foremost, the donor may effectively use GST exemption by transferring growth assets during the donor’s lifetime outright to beneficiaries or to trusts that may hold assets for several future generations. If drafted and administered correctly, this should prevent trust assets from being included in beneficiaries’ gross estates for tax purposes. The selection of the assets to be transferred and the specific terms of the trust receiving the gift revolve around the taxpayer’s goals and objectives. Other factors to consider might be the effect on the taxpayer’s net worth and liquidity needs, restrictions in buy-sell agreements, restrictions in loan covenants, business succession and entity control, and effect on family dynamics.

2. Discounted Assets

One way to leverage the donor’s GST exemption is to transfer assets that are subject to valuation discounts. This normally applies in the context of family business entities, when the interests gifted may be subject to minority and lack of marketability discounts. These discounts apply because the interest transferred does not represent a controlling interest and is not readily

marketable. Often, the business may be recapitalized into voting and nonvoting interests so the donor may transfer only the nonvoting interests. Although the valuation discounts provide benefits for gift and GST purposes, care must be taken that the donor not retain powers that may cause estate tax inclusion issues. Id. § 2036.

3. Grantor Trusts

Another opportunity to compound the benefit of using GST exemption with gifts to trusts is to include trust provisions that create a grantor trust for income tax purposes, yet the trust assets remain outside the grantor’s estate for transfer tax purposes. With a grantor trust, the grantor is considered the owner of trust assets for federal income tax purposes. The grantor pays the income tax on the trust’s taxable income. Income tax paid by the grantor on trust income is not considered a gift yet further reduces the grantor’s estate by the amount of income taxes paid. With the grantor paying the trust’s income tax, the trust will grow more rapidly and provide more assets to future generations.

Although this strategy may prove beneficial, consideration must be given to the liquidity of the grantor’s retained assets and their desire to pay income tax on behalf of the trust. The IRS has ruled that if a trust permits an independent trustee (id. § 672(c)) the power, on a discretionary basis, to reimburse the grantor for income taxes paid on behalf of the trust, a concern exists that under the law of some states, such a provision may result in the assets of the trust being included in the grantor’s gross estate. Some states permit trusts to include discretionary reimbursement provisions held by an independent trustee to the grantor for income taxes payable by the grantor on trust income without creating a concern that the grantor’s creditors may gain access to trust assets. This varies widely by state and should not be a prearranged plan of reimbursement between the trustee and grantor or the entire trust may be included in the grantor’s estate. Id. § 2036(a)(1). Taxes that are reimbursed

to the grantor eliminate the estate tax benefit of reducing the grantor’s estate by the income tax paid by the grantor on trust income.

Powers that create grantor trust status for income tax purposes may afford additional income tax planning potential. For example, most practitioners include a power of substitution as one of the grantor provisions. Id. § 675(4)(C). Lifetime gifts receive a carryover basis for income tax purposes, yet most assets included in a grantor’s gross estate will receive a basis stepup at death. Id. § 1014. Usually, gifted assets are highly appreciating to remove asset growth from the grantor’s estate. If timed correctly, before the grantor dies, the grantor may exercise the substitution power and swap low-basis assets from the trust with high-basis assets personally owned by the grantor. This allows for a basis step-up on the lowbasis assets and reduces beneficiaries’ income tax liability when the assets are sold. This strategy requires appropriate timing so as not to put high-growth assets back into the grantor’s estate for too long; it also requires the grantor to personally own substantial highbasis assets. If done correctly, though, it affords an opportunity for sizable income tax savings to beneficiaries.

This provides planning opportunities for estate and income tax during the grantor trust period. A grantor trust becomes non-grantor at the earlier of the grantor’s death or the releasing of trust grantor powers (with some exceptions, including spousal lifetime access trusts and life insurance trusts (id. § 677(a)), and some recommended times to avoid releasing powers, including when partnership interests gifted by the grantor have debt in excess of basis (Rev. Rul. 77-402, 1977-2 C.B. 222; Treas. Reg. § 1.1001-2(a)).

4. Purchase of Assets

Estate tax savings also may be realized by leveraging trust assets through the sale of additional assets to an exempt trust using a promissory note. Assuming the trust has been funded for a period of time and has a 10 percent minimum equity to avoid “thin”

capitalization, the trustee of the trust may purchase assets with a fair market value up to almost 10 times the initial trust balance by issuing a promissory note in the amount of the purchase price. The promissory note owed by the trust will have an interest rate that may be as low as the applicable federal rate for the term of the note. It is hoped that the purchased assets will have a much higher rate of return. In addition, if the sale occurs between a grantor and the grantor’s wholly-owned grantor trust, the purchase will be disregarded for income tax purposes and will not trigger an income realization event. Rev. Rul. 85-13, 1985-1 C.B. 184.

A riskier technique to leverage the growth of the exempt trust is to have the trustee purchase the appreciation potential of high-performing assets, rather than the assets themselves. For example, if a nonexempt trust is the remainder beneficiary of a grantor retained annuity trust (GRAT) funded with assets that are expected to substantially appreciate during the annuity term, the exempt trust may purchase the GRAT remainder interest from the nonexempt trust. In that case, the exempt trust is not buying the underlying assets from the GRAT but only the potential appreciation thereon during the annuity term. Because of the inherent uncertainties in the future performance of the GRAT assets, the value of the GRAT remainder interest is most likely significantly less than the value of the GRAT assets themselves. David A. Handler & Steven J. Oshins, The GRAT Remainder Sale, 141 Tr. & Est. 33 (2002). Practitioners can potentially achieve even greater leverage by paying the purchase price for the GRAT remainder interest with a promissory note. With the use of grantor trusts and the grantor’s responsibility for income tax on trust income, this technique also provides cash flow to the grantor to help pay the trust income tax. This may be beneficial for grantors with few liquid assets and that are located in states that do not expressly allow tax reimbursement to the grantor. It’s important to note that promissory note repayment terms should be reasonable based on

anticipated income on the assets held in the trust and the ability to repay, so repayment terms may be delayed in a balloon structure that may not necessarily line up with trust income tax liabilities.

The exempt trust also may enter into a derivative contract with either a related party or third parties. David A. Handler & Angelo F. Tiesi, Using Derivatives to “Transfer” Carried Interests in Private Equity, LBO and Venture Capital Funds, 17 Venture Cap. Rev., no. 1, Spring 2006; Ivan Taback & Nathan R. Brown, Estate Planning Ideas for Private Equity Fund Managers, 42 Est. Planning, no. 4, April 2015, at 3. This is usually done in the private equity space and may be able to avoid Code section 2701 partial gift issues that are common when a grantor has various types of ownership interests in a fund.

5. Preferred Freeze Planning

Freeze entities present another interesting opportunity to shift value to exempt trusts. In a typical planning scenario, different parties would create a freeze entity to effect a division among themselves of the economics of the underlying assets in a manner that will provide the preferred equity holder with a more secure, preferred return and priority liquidation right, while giving the potential for residual growth to the common equity holder. N. Todd Angkatavanich & Edward A. Vergara, Preferred Partnership Freezes, Tr. & Est., May 2011, at 20. In exchange for their respective capital contributions, senior family member traditionally would receive the preferred equity interest while junior family members (or a trust for their benefit) would receive the common equity interest. In the prevailing interest rate environment, however, it may be advisable to use a “reverse freeze” structure whereby the junior family members would instead receive the preferred equity interest. Depending on the preferred coupon rate, the payment of the preferred coupon may not only exhaust the return on the entity’s underlying assets but also “cannibalize” even the initial contribution by the common equity holder. In

other words, an appropriately-structured freeze entity may allow for a direct transfer of wealth to the exempt trust from either an individual donor or another nonexempt trust. Practitioners must be mindful of Code section 2701 considerations, the interaction of the various attribution and tie-breaking rules, and partnership income tax implications.

GST Transfer Risk

The techniques outlined above entail varying degrees of associated risk. For example, in the case of an asset sale for a promissory note, the IRS may seek to disregard the note as illusory and treat the transfer of the sale assets as a gift to the exempt trust that may change its inclusion ratio or create a taxable gift. Miller v. Comm’r, 71 T.C.M. (CCH) 1674 (T.C. 1996), aff’d, 113 F.3d 1241 (9th Cir. 1997) (enumerating nine factors often examined in determining whether an intra-family loan is bona fide). Accordingly, practitioners must be mindful of the various factors to support the characterization of the promissory note as “real debt.”

It also may be advisable to adequately disclose the sale transaction on a gift tax return to start the running of the statute of limitations, thereby foreclosing potential future challenges by the IRS after the expiration of the applicable period for assessment. Unfortunately, it may not be possible to report a sale transaction between two irrevocable trusts where the transfer of assets simply cannot result in any gift by an individual donor. In that case, the IRS may still challenge the inclusion ratio of the exempt trust until the later of (i) the expiration of the period for assessment with respect to the first GST tax return filed using that inclusion ratio and (ii) the expiration of the period for assessment of federal estate tax with respect to the estate of the transferor even if an estate tax return is not required to be filed. Treas. Reg. § 26.2642-5.

Situs and the Rule Against Perpetuities

The rule against perpetuities (RAP)

and trust situs are essential to any conversation regarding GST planning for families with wealth that will outlast a couple of generations; otherwise, trusts may terminate earlier than necessary and bring assets back into descendants’ taxable estates. Historically, most states recognized a RAP that would terminate a trust no later than 21 years after the death of the last life in being when the trust became irrevocable. Many states later incorporated a wait-andsee approach to avoid invalidating a trust from the outset if there was even a remote possibility that the RAP may be violated and allow for a period to see if the trust assets are timely distributed. Since the mid-1980s, numerous states have enacted legislation to allow the creation of dynasty trusts with significantly extended perpetuities periods from hundreds to a thousand years. Some states even abolished the RAP altogether to allow for perpetual trusts. Assets that are owned by dynasty trusts that have been allocated GST exemption by the donor may escape GST tax on any growth or distributions for the duration of the trust. The effect of the tax savings is exponential to legacy wealth families.

1. Annual Exclusion Gifting

Annual exclusion gifts are a great way to transfer assets to future generations with benefits that accumulate over time. In 2024, in addition to the $13.61 million lifetime exemption, every donor may give each donee $18,000 per year. For example, if a donor is married and has two children and five grandchildren, the donor couple may transfer up to $252,000 in 2024 to their descendants without using any lifetime exemption. Over the course of five years, the donors may transfer $1,260,000 or more (because the exclusion amount is adjusted annually for inflation), plus asset growth that has been removed from the donor’s estate. This translates to a conservative estimated tax savings of over $500,000 without using any lifetime exemption. Below are numerous ways to use GST annual exclusion gifting for skip beneficiaries.

Numerous states have enacted legislation to allow the creation of dynasty trusts with significantly extended perpetuities periods from hundreds to a thousand years.

• Outright Gifts. A donor may make gifts outright to a grandchild or a more remote descendant. If the recipient is a minor, the gifts are usually made to a custodial bank or investment account, with the donor or a guardian of the minor able to oversee it. The account will be transferred to the recipient at age 18 or 21, depending on the jurisdiction. Although the donor may manage the investments in the account, the taxation of the income from the account will follow the kiddie-tax rules under Code section 1(g).

• 529 Plans. Qualified tuition plans under Code section 529 provide an opportunity for donors to help with the costs of education for their grandchildren or great-grandchildren. A few of the benefits of these plans are that donors may front-load five years of annual exclusion gifting (although, if they die during that period, a portion will be brought back into their estates); the growth of the investments is not subject to income taxation if used for qualified educational expenses; the owner may change the beneficiary; and funds may be distributed for other uses, subject to a 10 percent penalty. The

SECURE Act 2.0 also added the ability to roll over up to $35,000 of a 529 plan into a Roth IRA, limited by certain restrictions. I.R.C. § 529(c)(3)(E). A couple of downsides to 529 plans over other gifting options are the potential 10 percent penalty and possible negative GST tax implications of changing beneficiaries.

• Trust. Annual exclusion gifts also may be made to a properly structured trust. Trusts that qualify for the annual GST exclusion must be for the benefit of a sole beneficiary who is a skip person, no portion of trust income or principal may be distributed to or for the benefit of anyone other than the beneficiary, and the trust must either terminate during the beneficiary’s lifetime or be included in the beneficiary’s estate. Id. § 2642(c)(2). These trusts must either be a minor exclusion trust until age 21 under Code section 2503(c) or satisfy the present interest requirements with withdrawal rights under Code section 2503(b); however, the limited duration of a Code section 2503(c) trust, unless the beneficiary chooses to extend the trust period, makes these far less common. Using a trust for annual exclusion

gifting provides the donor flexibility in deciding the purposes for which distributions may be made to the beneficiary, commonly health, education, maintenance, and support, and possibly for home acquisition assistance or business investments.

• Roth IRA. If the grandchild has earned income, a Roth IRA may be opened on the grandchild’s behalf with contributions up to the greater of their earned income for the year or $7,000, the annual limit for 2024. Id. § 408A(c)(2). Distributions from Roth IRAs are generally free from income tax if a withdrawal is of a contribution or is a qualifying distribution. Id. § 408A(d). Since $7,000 is below the $18,000 annual gift exclusion, this option may be used in conjunction with other methods discussed.

2. Payment of Educational or Medical Expenses

A donor may pay for qualifying educational and medical expenses on behalf of a beneficiary without using any of the donor’s estate, gift, and GST exemption or annual gift exclusion. Under Code section 2503(e), to be eligible, the expenses must be paid by the donor

directly to the education or health care provider. The donor may not give the beneficiary the funds to in turn pay for the educational and medical expenses. In addition, not all expenses qualify for the exclusion. For educational purposes, qualified expenses are tuition payments and do not include books, supplies, room, or board. Treas. Reg. § 1.2503-6(b)(2). By contrast, medical expenses are broadly defined as “expenses incurred for the diagnosis, cure, mitigation, treatment or prevention of disease, or for the purpose of affecting any structure or function of the body or for transportation primarily for and essential to medical care,” as long as the expenses are not reimbursed by insurance. Id. § 1.2503-6(b)(3). With the rising costs of education and health care, this may be a great way for donors to significantly reduce their estates, and most donors favor helping beneficiaries with these types of expenses.

3. Late Allocation of GST Exemption

Another way to use an unused GST exemption is to make a late allocation of GST exemption on a gift return to an existing trust that has an inclusion ratio greater than zero of which the taxpayer is the transferor for GST tax purposes. Id. § 26.2632-1(b)(4). Code section 2642(b)(3) provides that the

inclusion ratio of the trust will be determined based on the trust value on the date the late allocation is filed with the IRS, and the allocation is effective from that date forward. Treasury Regulation § 26.2642-2(a)(2), however, allows taxpayers to elect to value the trust property as of the first day of the month in which the late allocation is filed. This election often is necessary in the case of hard-to-value assets that cannot be immediately appraised on the date of filing of the late allocation.

A late allocation presents a particularly interesting planning opportunity in the case of a market downturn. If the value of the trust assets declines after the date of contribution, less GST exemption may need to be allocated to achieve a zero-inclusion ratio. As an example, assume the donor funded a trust with $1,000,000 on January 1, 2022. The extended deadline for filing the gift tax return reporting this gift is October 16, 2023. Because of a market downturn, the trust assets have significantly depreciated before the tax filing date. To reduce the amount of GST exemption that the donor needs to allocate for the trust to have a zeroinclusion ratio, the donor should file two separate gift tax returns. First, on a timely-filed 2022 gift tax return, the donor should make the opt-out election under Code section 2632(c)(5)(A)(i) not to have Code section 2632(c)(1) apply to the initial transfer to the trust. Then, on another return filed after October 16, 2023, the donor affirmatively allocates GST exemption equal to the value of the trust assets on the date of filing the late allocation. The taxpayer essentially avoided allocating GST exemption to the diminution in the trust value between the date of initial funding and the date of the late allocation. If the trust value on the date of late allocation is $600,000, the donor needed to allocate only $600,000 of GST exemption for the trust to have a zero-inclusion ratio, as opposed to $1,000,000 had the automatic allocation rule applied. Note that this is only for GST purposes and the full $1,000,000 gift exemption will have been used.

The late allocation must actually

be late, so it cannot be filed before the due date for filing the gift tax return reporting the initial gift, including any applicable extension. If the IRS extends the filing deadline because of natural disasters or other emergencies, that additional time should be taken into account to determine the first date when the late allocation may be filed. Even if a gift tax return is already filed to report the initial gift, the donor may still file another return on or before the filing deadline to supersede the original return and make any necessary opt-out election to enable a subsequent late allocation. I.R.S. Gen. Couns. Mem. 202026002 (June 26, 2020).

4. GST Planning with Trusts Funded by Earlier Generations

Nonexempt trust assets often are included in the gross estate of trust beneficiaries who are non-skip persons (such as the donor’s children) because of a general power of appointment granted to the beneficiaries, whether under the trust terms or by an independent trustee’s exercise of discretion. I.R.C. § 2041(a)(2). A GST planning strategy with these trust assets may be to distribute assets to such beneficiaries, who may then fund new exempt trusts using their own lifetime gift and GST exemptions. This is tax-efficient, as the same assets would otherwise be included in the beneficiaries’ gross estate, and by gifting now the beneficiaries may not only take advantage of the double exemption available through 2025 but also remove future growth on those assets from their estate. Even if the assets of a nonexempt trust are not subject to inclusion in any beneficiary’s gross estate, the enormous effect of GST tax from taxable terminations and taxable distributions should still be analyzed to see if there is a way to minimize the potential multiple levels of GST tax. This may potentially be achieved through an independent trustee exercising broad discretionary distribution authority.

5. Lifetime QTIP

Another GST planning technique that does not incur a gift tax is to allocate

GST exemption to a lifetime transfer that qualifies for the marital deduction. This strategy would require the creation of an inter vivos qualified terminable interest trust (QTIP) that qualifies for the marital deduction. The donor would need to make a lifetime QTIP election under Code section 2523(f) for gift tax purposes and the reverse QTIP election under Code section 2652(a)(3) (B) for GST tax purposes.

This strategy is viable only for an individual who is married to a US citizen and may not be the most efficient solution from a wealth transfer standpoint because of the requirements under Code section 2523(f). The QTIP needs to distribute all its net income to the donor’s spouse at least annually (which income, however, may be reduced through the use of a “spigot” holding structure that minimizes income generation). In addition, upon the death of the donor’s spouse, the QTIP will be includible in the spouse’s gross estate. Id. § 2044(b)(1)(B). This means that any post-transfer appreciation may still be subject to estate taxation. Moreover, because the transfer is considered a gift to the donor’s spouse, a split-gift election under Code section 2513 will not be available.

6. Qualified Severance

If a trust has a mixed inclusion ratio, the best structure may be to sever the trust into GST exempt and GST nonexempt shares pursuant to regulatory requirements. Treas. Reg. § 26.2642-6(d). This allows the trustee to prioritize distributions from the nonexempt portion to non-skip beneficiaries, which would be subject to GST tax if distributed to skip persons, and make distributions from the GST exempt share to skip beneficiaries.

Post-Mortem Planning

Fortunately, there may be some postmortem GST planning opportunities, too. One option is allocating GST on Form 706, Schedule R, to avoid deemed allocation rules. This allows the executor to allocate GST exemption to trusts that may be subject to future GST tax. Otherwise, the deemed allocation rules

would have the decedent’s remaining exemption allocated pro rata among assets based on value, first to direct skips, then to nonexempt trusts with possible skip beneficiaries. Id. § 26.2632-1(d)(2).

Another option may be to use a reverse QTIP election on Form 706, Schedule R. Since any remaining GST exemption is not portable to a surviving spouse, the election may allocate the remaining GST exemption, or portion thereof, to a QTIP trust for the ultimate benefit of skip beneficiaries. Id. § 26.2652-2.

A third post-mortem GST planning possibility involves the surviving spouse’s ability to disclaim part of the spouse’s interests in a decedent’s estate or revocable trust. This method is highly dependent on the testamentary document provisions and who the beneficiaries are if the disclaimant is treated as being predeceased because the disclaimant may not direct where the disclaimed assets pass. Id. § 25.2518-2(a)(5). It is also important to comply with the technical requirements of a qualified disclaimer: The disclaimer must be in writing, irrevocable, and made within nine months of the interest being created or the disclaimant’s turning 21, and the disclaimant may not have received any benefit from the disclaimed assets. Id. § 25.2518-2. An effective qualified disclaimer will not use the disclaimant’s gift tax exemption and will, it is hoped, allow more of the decedent’s GST exemption to be allocated to estate assets.

Conclusion

Thoughtfully incorporating GST exemption strategies into an estate plan provides for tax-effective outcomes for families with multigenerational wealth. The GST tax rules are complex and require numerous professionals working together to achieve the grantor’s goals, along with tax and risk reduction. As discussed in this article, there are many planning options available that generally result in favorable outcomes if timely executed. n

Tiered Discounts Theory and Tax Court Record

By William H. Frazier

When it comes to business valuation for estate or gift tax purposes, there is perhaps no single topic that evokes stronger opinions than tiered discounts. Taxpayers love them and the IRS hates them. Situations giving rise to tiered discounts are frequently encountered in the structures used in estate planning. Appraisers must opine on the magnitude of such discounts and provide a rational explanation supporting that opinion. Unfortunately, there is virtually nothing in the financial valuation literature that speaks to this issue.

The determination of the fair market value (FMV) of fractional equity interests for estate or gift tax purposes is one of the most documented and researched topics of modern business valuation theory and practice. A not-insubstantial part of the body of knowledge of business valuations for federal estate and gift taxes relates to the subject of valuation discounts. Oft-cited textbooks on business valuation are noticeably silent when it comes to the subject of tiered discounts.

William H. Frazier is a business appraiser and managing director with Weaver in Houston, Texas.

It comes as no surprise that, in gift and estate tax controversies, taxpayers’ appraisal experts argue for much higher discounts than the experts proffered by the IRS. The courts are in the unenviable position of determining a result that is most correct based upon the evidence. Much of the evidence presented by business valuation experts in these cases falls into the ipse dixit category. In fact, the only evidence cited by the courts in their tiered discount opinions is the record of other courts having previously considered the issue.

Several U.S. Tax Court cases exist that provide explanations for acceptance or disallowance of tiered discounts. Upon further examination, however, the explanations thus far proffered shed very little light on the subject.

The subject of this article is the theory of tiered discounts—not a “how to” application guide. Perhaps that will follow. The discounts provided herein for the various examples are purely arbitrary and for illustration purposes only.

The Theory of Discounts

The term “tiered discount” implies the application of two sets of discounts applied in the valuation of a noncontrolling equity interest in an investment entity whose underlying

assets are composed of noncontrolling investments in one or more other asset-holding entities. So, to understand tiered discounts, we must first understand the nature of valuation discounts.

In common parlance, the word “discount” means a price reduction because of the existence of a new condition. For example, after Christmas, a clothing retailer will lower or discount the selling price of merchandise. Physically, the inventory has not changed, but because of the passage of time, its value has diminished. After a hailstorm, an automobile dealership will often sell damaged vehicles at a discount from the prices offered the day before the storm. In one case, the asset has become obsolete. In the other, the asset was damaged. In neither case is the discounted asset truly the same as the original asset.

For business valuation purposes relating to asset holding entities, discounts are applied because of the change in nature of the ownership interest—not because of a change in nature or value of the valuable asset. The decrease in value is caused by risks made manifest by the nature of the ownership interest.

It is axiomatic that a discount is always a mathematical relationship of the value of one ownership interest to

another. A discount is not a commodity or thing unto itself. It is always an expression of the lowering of price relative to a previous condition. For our purposes here, we will call the value to which the discount is applied the “original value interest” and the resulting discounted value the “discounted value interest.”

As an example, one has only to look at the market prices of publicly traded stocks for evidence of this phenomenon. Stock prices are most often quoted for “round lots” of 100 shares. These shares are noncontrolling interests in the overall company. The value of the company as a whole, however, is usually worth relatively more than the aggregate value of 100 percent of the publicly traded stock. That is, on a prorata basis, the controlling interest sells at a premium to the noncontrolling interest.

The controlling interest sells at a premium because it is subject to less risk than the noncontrolling interest. The controlling interest has at its disposal all of the financial, operational, and market information about the company. The noncontrolling interest gets to see very little of these data. The controlling interest can create and implement managerial actions having a profound effect on the company’s business. The controlling interest sets the dividend policy and the compensation paid. The noncontrolling interest has no voice in any managerial action. These risks, when compensated for, give rise to the discount for lack of control. Publicly traded shares are minority (noncontrolling) interests and the risk because of lack of control is embedded in the stock’s market price.

Publicly traded stock is marketable and freely tradeable. At times corporations with publicly traded stock will raise capital in a private sale of unregistered shares of the same class as the publicly traded shares. The pricing of this so-called restricted stock almost always reflects a discount to the pricing found in the public marketplace. There are numerous empirical studies that establish this as a fact.

The discussion of discounts explains

In valuations for estate and gift taxes, a need developed for the determination of discounts for minority interests because of the distinct valuation implications of lack of control separate and apart from the cost of lack of marketability.

expected income or cash flow; r is the discount rate (which is the measure of risk); and n is the time element or holding period. There are many other formulas for different types of financial constructs, such as debt, perpetuities, and annuities. But they all center around the same three elements of value: income, risk, and time (holding period).

In mathematical terms, then, a discount is the monetary differential in value of two ownership interests with the same proportional ownership of a valuable asset but with different characteristics relative to liquidity or control. Those differences can be experienced as a lengthy and uncertain holding period, income volatility, and financial risk that comes from the lack of information.

only the “what” of the historical record of certain transactions. “Why” a particular discount came to be is explained by the give and take between the buyer and seller, each of whom is attempting to maximize economic return on the investment. The buyer and seller of a negotiated transaction, each having unique views of risks and reward, develop an opinion of value, but this value is unique to that person and is defined in valuation parlance as “investment value.” For federal estate and gift tax purposes, however, the definition of value that must be used is FMV. This is the condition of value that results from the negotiations between the seller and buyer. The resulting price is FMV.

Financial value is defined as the present value of expected future economic income. Mathematical present value tables date back thousands of years. The theory of discounts is actually a subset of the theory of value. After all, a discount is merely a term we use to describe the value differential between two separate ownership interests in the same underlying asset.

The basic formula for present value of a finite, continuous stream of income is: P = D/(1+ r)n, where D is the annual

When the academics study “illiquidity” (and there is a vast amount of economic literature on this subject), the concepts of lack of control and lack of marketability are usually considered together. The risk associated with lack of control is often defined as “asymmetric information” and is considered a subset, or one of the constituent components, of illiquidity. In valuations for estate and gift taxes, however, a need developed for the determination of discounts for minority interests because of the distinct valuation implications of lack of control separate and apart from the cost of lack of marketability. The Tax Court has noted that it is often difficult to distinguish between the two because there is considerable overlap in causation. See Estate of Andrews v. Comm’r, 79 T.C. 938 (1982); Estate of Heck v. Comm’r, 83 T.C.M. (CCH) 1181 (2002).

There are two primary methodologies for the estimation of discounts: empirical studies and quantitative methods. More detailed information on this topic may be found in Shannon Pratt, The Lawyer’s Business Valuation Handbook (3d ed.), recently published by the American Bar Association and the American Society of Appraisers. Regarding the lack of control discount, the most commonly used methodology is the study of the pricing of closed-end funds. These funds usually trade at a discount to net asset

value (NAV), and that discount is usually associated with the lack of control. There are no academic studies supporting this claim, but closed-end funds have been accepted as proof of the discount for lack of control in innumerable Tax Court cases—perhaps because valuation practitioners and the IRS have suggested nothing better.

Restricted stock studies provide a historical record of the pricing in the sale of illiquid (restricted) stock relative to publicly traded counterparts and is the most widely used empirical evidence for the discount for lack of marketability. A far greater amount of attention has been placed on the discount for lack of marketability by the valuation community, perhaps because, relative to the discount for lack of control, the value consequences are so much greater. There are also mathematically oriented methodologies, such as option pricing models, and specialized valuation systems, such as the quantitative marketability discount method and the nonmarketable investment company evaluation method.

The empirical studies are backward looking and provide the “what” of the discounts. The causal relationship between individual transactions and the magnitude of discounts is explained only in very general terms. For the restricted stock studies, it is true that some statistical significance between discounts and such factors as stock price volatility, block size, and dividends has been found, but the correlations are generally weak.

As far as the Tax Court is concerned, discounts are best determined by a careful consideration of all relevant factors. The 1995 Tax Court case of Mandelbaum provides an excellent framework of nine different factors that logically affect the discount for lack of marketability. Bernard Mandelbaum et al. v. Comm’r, 69 T.C.M. (CCH) 2852 (1995). It is clear that the Tax Court is impressed by a thorough, careful analysis of these and other factors. It also is clear that the court is unimpressed by mere mentions of averages of studies without a studious comparison of the characteristics of the subject entity with

the commonly analyzed factors.

The Tax Court does not always approve of the empirical studies, however. In the case of Nelson, the court rejected the taxpayer’s expert’s discount for lack of marketability specifically because the expert’s analysis depended solely upon empirical studies. Nelson v. Comm’r, 119 T.C.M. 1554 (2020). In referring to three prior cases, the court stated: “And in those cases we have repeatedly disregarded experts’ conclusions as to discounts for long-term stock holdings when based on these studies.” Here the court was referring to the fact that the restriction period for restricted stocks is relatively short compared to the very long expected holding period of an interest in a closely held entity. The court was more impressed by the respondent’s expert’s analysis, which considered quantitative models in addition to the empirical studies.

Interestingly, the subject of this particular discount represented a tiered discount. Discounts were being applied to a noncontrolling interest in a family limited partnership whose primary source of value was a noncontrolling interest in a family-owned operating company. The NAV of the partnership was the value of the interest held in the operating company after discounts for lack of control and lack of marketability. Although the court sided with the respondent’s expert, it assigned a slightly higher discount for lack of marketability. The court noted that the expert contended that the partnership’s discount should be incrementally lower than the discount found for the interest held in the operating company because the marketability of that company’s shares was already considered in the FMV of the partnership’s holding in the company. The court found the contention reasonable, but, because no support was provided by the expert, the court determined a slightly different result.

Tiered Discounts

As evidenced in Nelson, the term “tiered discount” implies the application of two sets of discounts in the valuation of a noncontrolling equity interest in

an investment entity whose underlying assets are composed of noncontrolling investments in one or more other assetholding entities.

Each business entity, regardless of whether it is an operating or a holding entity and regardless of the legal form (corporation, limited partnership, LLC, etc.), contains two levels of ownership. We will use the term “enterprise level” to describe the asset holding level and “shareholder level” to describe the level holding fractional equity interests of the entity.

Because the topic of tiered discounts is a process of related investments, there must be a beginning and an endpoint. The process begins with a source of value held in an entity. This we describe as the “source asset holding entity.” In our opinion, the discounts are determined in a logical, hierarchical order. That is, the appropriate discount at the source asset level is first determined. Then, because the value in the investment entity is a derivative of and dependent upon values determined at the source asset level, the investment entity discount is determined last.

In a tiered investment structure, regardless of the number of tiers, there can be only one source (or “valuable”) asset holding entity. The asset values of any additional tiered entities will always be a derivative of the source entity enterprise level. Thus, for additional (investment) entities in the tiered structure, the enterprise level of that entity will be described as holding an investment asset. The FMV of the shareholder level of that entity would be found by applying any applicable discounts to the investment asset value or NAV of the entity.

Like a river that flows downstream from its source, the tiered discount begins with a valuable asset that is the source of wealth for one or more chained or “tiered” investment entities. The valuable asset can be an operating asset, such as a for-profit corporation or income-producing real estate. It also might be an intangible asset, such as a stock portfolio, royalty interest, or even art.

If the source asset value is the

ABC ReaI Estate Development, L.P.

(owns Southpark Shopping Center) NAV - $100 Million

beginning of the tiered discounting process, the end is found at the fractional equity interest that is the subject of the valuation exercise. This is the interest that has been transferred for gift or estate tax value purposes and for which the FMV must be determined.

The existence of two tiers does not imply that discounts are appropriate at both levels. A discount is appropriate only if a pricing adjustment is required because of a change in the nature of the ownership, which also represents a change in the level of risk.

A frequent complaint of the IRS relative to tiered discounts is typified by its stance in Astleford: “In valuing the 50-percent Pine Bend general partnership interest, respondent’s expert concluded that because the Pine Bend partnership interest was simply an asset of AFLP, discounts he applied at the AFLP level . . . obviated the need to apply an additional and separate discount at the Pine Bend level.” Astleford v.

Comm’r, 95 T.C.M. (CCH) 1497 (2008). The Tax Court, in answer to this claim, defended its opinion that a second layer of discounts should be applied to the Pine Bend partnership interest by citing four cases in which it had applied tiered discounts. The court also cited two other cases where such discounts were disallowed. We shall discuss this in more detail later.

The Type 1 Tiered Discount

We use the term “type 1 tiered discount” to exemplify discounts taken for which there is (1) direct, comparable market evidence for the valuation discount taken to determine the FMV of the source asset entity’s shareholder level FMV; (2) a fractional, noncontrolling share of the source asset holding entity’s equity that is held by a separate investment entity; and (3) there is a transfer of a fractional, noncontrolling interest in that investment entity for which FMV must be determined.

For illustration purposes, let’s assume ABC Real Estate Development, L.P. (ABC) directly owns and operates an income-producing shopping center—Southpark Shopping Center. The limited partners were the original investors in the development.

A distinguishing characteristic of the type 1 tiered discount is that the initial discount taken at the asset level is easily established and verified from transactions observed in the secondary marketplace or active private placement marketplace. For operating entities in various sectors such as private equity, real estate, and oil and gas, secondary markets exist wherein fractional interests are bought and sold on an organized and regular basis.

The pricing information is objective and verifiable. Thus, there is proof that the noncontrolling equity interest in question can be observed to sell at a discount. Most often, the pricing information containing valuation metrics

is somewhat limited, but, for private equity and real estate investments, a discount from NAV may be directly observed. This discount is a combined one as no allocation between “lack of control” or “lack of marketability” is provided.

In the illustration, the fractional interest held in the source asset entity (ABC) is transferred to an investment entity (Smith Family, L.P.). The justification for the 15 percent combined discount is taken directly from the secondary marketplace for real estate partnership interests.

The Smith family’s 16.5 percent limited partnership interest in ABC is held by their family limited partnership, Smith Family, L.P. If the FMV of John and Mary Smith’s 30 percent interest in Smith Family, L.P., were to be determined, a careful analysis must ensue.

The validity of discounts at the investment level implies that the nature of the specific equity interest has changed in the transfer from one holder to the next. At the Smith Family, L.P., enterprise level, the financial ramifications of the fractional ownership interest in ABC has been likened to the same value that interest would obtain if sold in the secondary marketplace.

Now the task is to assess what discounts might apply in the valuation of the ownership interest in the Smith Family, L.P., held by John and Mary

TYPE 2 TIERED DISCOUNT

JAS Partners, L.P.

Smith. Let us begin with the discount for lack of control.

A large degree of discounts for both lack of control and lack of marketability are associated with the financial risks (earnings or pricing volatility). The discount for lack of control of the Smith Family, L.P., shareholder level is with a view that the asset risk found at the ABC enterprise level has been mitigated to a large extent via the previous discounting. Thus, the risk of the investment asset is far lower than the asset risk of the source asset, but the risk is not zero.

Significant components of the risk of lack of control are related to the governance and management of the entity. For the type 1 tiered discount, it is a given that these elements are not related between the asset tier and the investment tier. That is, in the type 1 construct, Smith Family, L.P.’s general partners could not serve as the general partners of ABC. Further, the limited partnership agreements of the two entities could not be linked or contractually bound together.

The Smith family investment in ABC may come with significant flows of information and opportunities to converse with management. The ABC financials may be audited and ABC may have informational reporting duties to regulatory agencies such as the IRS and SEC.

In Smith Family, L.P., however, a hypothetical buyer of a noncontrolling interest may have no access to information other than annual K-1 tax statements. Control over the partnership operations’ distribution policy may be entirely out of the hands of the general partners. Distributions paid out by ABC may or may not be passed through to the Smith Family, L.P., limited partners. These are all factors that might exist at the investment entity level, which would give rise to an additional element of discount for lack of control.

Although some of the combined discount taken at the asset level must be allocated to lack of marketability, it must be recognized that the marketability of the Smith Family, L.P., interest held by John and Mary Smith is relatively more impaired. After all, the secondary market, as imperfect as it is, does represent an element of liquidity. The Smith Family, L.P., limited partnership interests are nonmarketable. Finding a buyer would involve an expensive and lengthy private placement process.

Type 2 Tiered Discounts

In the type 1 tiered discount, only two entities are involved in the discounting process. In the type 2 tiered discount, three entities are involved.

Type 2 tiered discounts might be found to exist when a fractional interest

in an investment (nonvalue source) entity is held by another investment entity and a fractional, noncontrolling interest in that second investment entity is transferred to another party, requiring a valuation and the consideration of whether or not additional discounts are warranted. In this structure, the NAV of the first investment entity is at a risk-mitigated value relative to the source asset holding enterprise level NAV. The NAV of the second investment entity is found by risk-reducing whatever lack of control and lack of marketability risks exist at the FMV of the first investment entity’s shareholder level interest.

Illustration of a Type 2 Tiered Discount

Let’s assume John and Mary Smith wish to transfer their nonmarketable, noncontrolling interest in Smith Family, L.P. to their own family entity, JAS Partners, LP. This will be followed by a gift of four separate limited partnership interests to trusts set up for their four children: Charles, Robert, Susan, and Ann.

The FMV of John and Mary’s 30 percent limited partnership interest in Smith Family, L.P., becomes the NAV of JAS Partners, LP. The four separate 20 percent gifted interests are candidates for discounts for lack of control and lack of marketability in the determination of FMV.

Substantiating discounts for the type 2 pattern is difficult but not impossible. The primary factors giving rise to discounts are (1) asset risk, (2) governance and management, and (3) lack of marketability. The asset risk will have been mitigated already in the source asset level discount (ABC). To the extent there is any residual asset risk, it will most likely have been mitigated by the discount taken at John and Mary’s fractional interest in Smith Family, L.P.

There often is an overlap in the management and equity owners between the two investment entities. Frequently, the management and other equity holders are of the same family. At this level, the functions of management may be very limited, and, as such, any risk because of lack of control would be

The primary factors giving rise to discounts are asset risk, governance and management, and lack of marketability.

conclusions found therein should not be used directly in the valuation of any subject interest. Such cases can be very useful, however, in illustrating factual matters that influenced valuation determinations such as discounts. The examples we provide are but a few of many such examples found in reported Tax Court cases.

slight. Further, any lack of marketability discount would be only any marginal or additional risk not already captured at the source asset or first investment entity levels.

Likely, any marginal discounts found at the shareholder level of the third-tier entity would be related to differences in the governance of the entities. But even if these can be enumerated, are they that different that they merit a separate discount?

There are no secondary markets for equity interests for which a type 2 tiered discount might be sourced. Accordingly, discounts must be applied based upon reason and logic, which will be dictated by the facts and circumstances of each situation.

Tiered Discounts in Tax Court

Evidence of tiered discounts can be found by reviewing US Tax Court cases. The support for opinions in every case is different and, so, valuation

In Nelson (discussed previously), the Nelson family controlled Warren Equipment Co. (WEC), a large construction equipment dealer that also owned several other operating businesses. The overwhelming majority of WEC’s stock was held by Longspar, Ltd.—the Nelson family limited partnership. In determining the NAV of Longspar, the court allowed discounts for both lack of control (15 percent) and lack of marketability (30 percent). In the determination of the fair market value of noncontrolling and nonmarketable interests in Longspar, the court arrived at discounts for lack of control of 5 percent and lack of marketability of 28 percent. Nelson is also an example of a type 1 tiered discount as a minority interest buyer for the interest in WEC could be found. (Technically, that company’s franchise agreement with Caterpillar might not permit such a transfer, but that only serves to increase the magnitude of any discount.)

In Astleford (also discussed earlier), the Astleford Family Limited Partnership (AFLP) owned real estate and a 50 percent general partnership in Pine Bend Development Co. (Pine Bend), which also owned real estate. The other 50 percent GP interest in Pine Bend was held by an unrelated third party. In valuing the GP interest held by AFLP, the Tax Court determined a combined discount of 30 percent. Thus, AFLP’s NAV was composed of directly owned real estate and a discounted fractional ownership in Pine Bend. The court also determined discounts from NAV of 17.47 percent for lack of control and 22 percent for lack of marketability for the AFLP limited partnership interests.

The Astleford tiered discounts illustrate the commonly found situation in which only a part (or a “sliver”) of the NAV of the investment entity is

represented by a previously discounted asset. The tiered discount evidenced for AFLP’s 50 percent Pine Bend GP interest is of the type 1 tiered discount described above. Although there is no secondary market for general partnership interests in real estate, the fact that there is such a market for limited partnership interests could be reasonably extended to the discounting analysis of the GP interest.

Astleford most importantly provided an opinion from the bench as to when tiered discounts apply and when they don’t. Focusing on when it has rejected tiered discounts, the court states:

We note that this Court, as well as respondent, has applied two layers of lack of control and lack of marketability discounts where a taxpayer held a minority interest in an entity that in turn held a minority interest in another entity. See Estate of Piper v. Commissioner, 72 T.C. 1062, 1085 (1979); Janda v. Commissioner, T.C. Memo. 2001-24; Gow v. Commissioner, T.C. Memo. 2000-93, affd. 19 Fed. Appx. 90 (4th Cir. 2001); Gallun v. Commissioner, T.C. Memo. 1974-284. However, we also have rejected multiple discounts to tiered entities where the lower level interest constituted a significant portion of the parent entity’s assets, see Martin v. Commissioner, T.C. Memo. 1985-424 (minority interests in subsidiaries comprised 75 percent of parent entity’s assets), or where the lower level interest was the parent entity’s “principal operating subsidiary”, see Estate of O’Connell v. Commissioner, T.C. Memo. 1978191, affd. on this point, revd. on other issues 640 F.2d 249 (9th Cir. 1981).

Astleford, 95 T.C.M. (CCH) 1497, at n.5. The court seems to imply that tiered discounts will be disallowed (1) if the lower-level interest is a significant portion of the parent entity’s assets or (2) where the lower-level interest was the

parent entity’s principal operating subsidiary. There is obviously considerable overlap between the two conditions because a parent company’s principal operating subsidiary is de facto a significant portion of the parent entity’s assets.

We would note that the court’s terminology for the hierarchy of entities follows the familiar legal construct. Our presentation of the order of entities, for tiered discounting theory purposes, is based on the source of value and how it affects related ownership interests. Thus, the “parent entity” referred to by the court is the investment entity that holds an interest in the asset entity.

This message from the bench as to when tiered discounts might be disallowed is highly problematic. The implication seems to be that, because the Pine Bend interest was only a sliver of the AFLP NAV, its discounting was permissible. The logical extension of this is that if the Pine Bend interest had been AFLP’s only asset, a tiered discount would not have been allowed.

But this does not square with the court’s decisions in other cases. For example, in Nelson, the heavily discounted WEC interest was the primary asset of Longspar. In Gow, the only significant asset of the parent entity, Williamsburg Vacations, Inc., was its one-third joint venture ownership interest in Powhatan Associates. The case involved a minority ownership interest in Williamsburg Vacations, Inc. The appraisal accepted by the court included discounts for lack of control and lack of marketability for the minority interests of both entities.

In Piper, in valuing interests gifted in two similar investment entities, the court agreed to a “portfolio discount” for the unattractive nature of each company’s component assets. This is tantamount to an adjustment to NAV and is a discount for neither lack of control nor lack of marketability. A 35 percent discount for lack of marketability also was allowed for each company’s stock. There are not two layers of discounts here.

Similarly, in Janda, discounts for

lack of control and lack of marketability were allowed in the valuation of the closely held holding company, which owned a 94.6 percent interest in a small community bank. The bank stock was not discounted. Thus, two discounts were allowed, but two layers of discounts were never discussed in this case.

Martin v. Commissioner is an example of a tiered structure for which discounts were disallowed by the Tax Court. The Court stated: “Thus, insofar as the gifted Arbor shares represent an interest in the seven Martin family corporations, lack of control over the family corporations and the lack of marketability of the shares of such corporations is more appropriately addressed at the level of the underlying corporations.” But what the Court said next is of great significance: “We think, therefore, that respondent’s application of a 70-percent discount at the level of the underlying corporations is a sufficient marketability/minority discount.” It is ironic that it was the IRS’s valuation expert that applied the heavy discount.

O’Connell is a case with some issues similar to Martin. In this estate tax case, the decedent owned an interest in a corporation (Capri, Inc.) that owned an interest in Glacier General Assurance Company. The court allowed a 30 percent interest for lack of marketability of the Glacier General interest. No discount was allowed for the Capri interest. The court reasoned that because it had already allowed for a discount at the Glacier General level, and because Glacier General is Capri’s principal operating subsidiary, any additional discount would serve only to increase the Glacier General discount. Mentioned but not discussed was the relevance of the large ownership interests found in this case. Capri owned a 74.3 percent and controlling ownership interest in Glacier. Even more striking is that the estate owned a 95.74 percent interest in Capri. It is somewhat of a surprise that a significant discount was allowed in this case—much less, tiered discounts. n

LAND USE UPDATE

The Takings Clause and the Graham Rule

A landowner can argue that a land use regulation is unconstitutional because it is a taking of property under the takings clause of the federal constitution: “[N]or shall private property be taken for public use, without just compensation.” Since Justice Holmes’s opinion in Pennsylvania Coal Company v. Mahon, 260 U.S. 393 (1922), more than 100 years ago, the US Supreme Court has applied the takings clause to laws regulating property.

Assume that a zoning ordinance prohibits multifamily dwellings in singlefamily residential districts. This restriction can be a taking if it is excessively restrictive. Justice Holmes’s famous dictum in Pennsylvania Coal explained when a taking will occur. He said that “while property may be regulated to a certain extent, if regulation goes too far it will be recognized as a taking.” Courts frequently cite this dictum, but it is unclear when a regulation goes “too far” because Justice Holmes did not explain what “too far” means.

Two US Supreme Court takings decisions dominate takings law and give meaning to Justice Holmes’s dictum. They attracted extensive scholarship, but recent studies found that takings claims based on these decisions seldom succeed.

Takings: The Penn Central Factors

Penn Central Transportation Company v. City of New York, 438 U.S. 104 (1978), which the US Supreme Court calls its “default” takings rule, is the first case. Justice Brennan held that the city’s historic landmark law and its decision to landmark the historic Grand Central Terminal were not a taking.

Land

Use Update Editor:

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

He explained that the Court had been unable to develop any “set formula” for deciding when “justice and fairness” require that economic injuries caused by public action are a taking. The takings decision, he held, depends on the circumstances of each case. Justice Brennan listed several factors that should have particular significance for what he called this essentially ad hoc, factual inquiry. They are the “economic impact of the regulation on the claimant and, particularly, the extent to which the regulation has interfered with distinct investment-backed expectations,” and “the character of the governmental action.”

These factors are irrelevant and ambiguous. The “economic impact” factor is questionable because the Court later held that a per se taking occurs when land is deprived of all of its beneficial economic use. It is unclear whether this rule affects the first “economic impact” factor, but it could mean that a taking requires a total economic impact. The investment-backed expectations factor has had little effect. One of my students found that courts held this factor relevant in only three out of a large group of cases he reviewed, and the Court has never explained what it means.

In Penn Central, Justice Brennan did explain that the “character” factor may be more readily found “when the interference with property can be characterized as a physical invasion by government, than when interference arises from some public program adjusting the benefits and burdens of economic life to promote the common good,” a category that includes land use regulation. This factor is no longer relevant because the Court later held that a physical invasion of property is a per se taking. Neither has the Court clarified what weight to give to each takings factor or whether all the factors must be

considered in a takings analysis. Ramsey Thrasher, Daunting Odds: Regulatory Takings Claims in the United States Circuit Courts of Appeals (2023), https://tinyurl.com/circ820, reviewed 366 takings cases decided in the Circuit Courts of Appeals from the mid1970s to 2023 and found that a taking occurred in only 24 cases. The courts dismissed many of these cases for lack of ripeness, but success under the Penn Central takings factors was rare. See my Land Use Update on ripeness, Takings Litigation and Zoning Reform, 36 Prob. & Prop. 62 (Jul/Aug 2022).

Takings: The Lucas Bright Line Rule

In the second significant takings case, Lucas v. South Carolina Coastal Council, 505 U.S. 1003 (1992), Justice Scalia ignored the Penn Central takings factors and adopted a categorical bright-line rule. Why he adopted this rule is not clear. Perhaps he thought it would protect landowners better.

Lucas arose in an unusual takings situation. A real-estate developer bought two oceanfront lots on a coastal barrier island and planned to build two single-family homes on the lots. Homes lined the oceanfront on each side of the lots. South Carolina enacted a Beachfront Management Act a couple of years later to prevent beach erosion. The Act directs the Coastal Council to establish a “baseline” on each barrier island that connects the landward-most “point[s] of erosion ... during the past forty years.” It allows development only landward of a baseline. Lucas could not develop his lots because they were not landward of the baseline on his barrier island.

Justice Scalia’s opinion paid no attention to the US Supreme Court’s admission that it had not found a “set formula” for

takings cases, the case-specific inquiry rule, and the takings factors. He identified “two discrete categories of regulatory action” that the Court holds compensable “without case-specific inquiry into the public interest advanced in support of the restraint.” A taking occurs in the discrete category that applies to this case when a “regulation denies all economically beneficial or productive use of land.”

On remand, the South Carolina Supreme Court remanded to the circuit court to determine the actual damages Lucas sustained from being temporarily deprived of the use of his property.

The Lucas decision was a dramatic change in precedent. Its categorical takings rule does not require a case-specific inquiry, depends only on the severity of the economic deprivation, and eliminates public purpose as a factor in takings analysis. Lucas was a warning for environmental regulation, which can deny all economically beneficial or productive use of the land to protect an environmental resource, such as a wetland.

Justice Scalia predicted, however, that the Lucas categorical takings rule would apply only in an “extraordinary circumstance.” His prediction was accurate, as Lucas categorical takings cases rarely succeed. Carol Necole Brown & Dwight H. Merriam, On the Twenty-Fifth Anniversary of Lucas: Making or Breaking the Takings Claim, 102 Iowa L. Rev. 1847 (2017), https://tinyurl.com/merrcar, examined more than 1,600 Lucas cases across the United States and found that only 27 were successful.

The authors grouped successful Lucas cases into these categories: (1) nuisance abatement cases; (2) cases considering private agreements and the denominator problem, which is how to define the parcel of land that is the basis for a takings claim; (3) cases where there was a segmentation of uses under the zoning land use pyramid; and (4) cases where there were taking delays. These are not typical land use cases.

The US Supreme Court narrowed the Lucas categorical takings rule in Palazzolo v. Rhode Island, 533 U.S. 606 (2001). The Court held that a taking did not occur when a Coastal Resources Management Council denied an application to

fill 18 acres of coastal wetlands and construct a beach club. The landowner was not deprived of all economic use of his property because the remaining value of his upland portions was substantial. To prove a taking, a plaintiff must show that a regulation leaves a property “economically idle” and that a landowner retains no more than “a token interest.”

Environmental laws similar to the law in Lucas have escaped the categorical takings rule. In Gove v. Zoning Board of Appeals, 831 N.E.2d 865 (Mass. 2005), a zoning board of appeals denied a building permit for a single-family home on a 1.8-acre lot subject to flooding that was located in a coastal conservancy district that prohibited residential development. The landowner’s expert testified that the property was worth $23,000, which suggested more than a “token interest” in the property. Neither did this value consider nonresidential uses the conservancy district allowed by right or special permit, such as marine-related uses, which the plaintiff admitted could make the property “an income-producing proposition.”

The Takings Gloss

Michael Allan Wolf, Superfluous Judicial Activism: The Takings Gloss, 91 Geo. Wash. L. Rev. 287 (2023), https://tinyurl. com/wolftak, argues that three recent US Supreme Court cases put a gloss on takings law by ignoring precedent and not focusing primarily on the words of the takings clause. The cases applied an extratextual judicial gloss on words established in takings opinions over the last 100 years.

One of these cases, Cedar Point Nursery v. Hassid, 594 U.S. 139 (2021), held that a California regulation that gave labor organizers access rights to an agricultural employer’s property for up to three hours daily for 120 days each year was a per se taking. Chief Justice Roberts’s opinion makes little sense as a coherent analysis. He increased the takings risk for land use regulation by holding that “whether the government action at issue comes garbed as a regulation” is not the “essential question.” He added, “Government action that physically appropriates property is no less a physical taking because it arises from a regulation.”

The Graham Rule

A landowner doubting success under the takings clause can bring an alternative constitutional claim. She can argue that a land use regulation that does not serve a substantial governmental interest or that an arbitrary land use decision violates substantive due process. She can claim, for example, that the abusive rejection of a residential architectural design by an architectural design commission is a substantive due process violation.

The problem is that substantive due process is a generic constitutional limitation. Unlike specific constitutional limitations, it does not identify a particular action, such as an unreasonable search and seizure, that can violate the Constitution. This difference could block a substantive due process claim in court. Graham v. Connor, 490 U.S. 386 (1989), held that a substantive due process claim is preempted if it could have been brought under a more specific constitutional clause. In this case, the Court held that the Fourth Amendment Search and Seizure clause preempted a substantive due process claim that law enforcement officers used excessive force during an arrest. The substantive due process claim could not be brought.

Graham preemption is a judicial anomaly. It conflicts with well-established US Supreme Court precedent that allows a plaintiff to sue on multiple constitutional theories. Still, it survives, and the Court has extended it to other Fourth Amendment cases and constitutional provisions.

Courts are split on whether the takings clause preempts a substantive due process claim under the Graham rule. The Ninth Circuit believes that it does not preempt a substantive due process claim because no takings rule duplicates substantive due process. Crown Point Development, Inc. v. City of Sun Valley, 506 F.3d 851 (9th Cir. 2007). Graham preemption through the takings clause could be a dead end because a takings case is so difficult to win.

See my article, Litigating Land Use Cases in Federal Court: A Substantive Due Process Primer, 55 Real Prop. Tr. & Est. L.J. 69, 93-101 (2020), https://tinyurl.com/litigsub, discussing the Graham rule. n

CAREER DEVELOPMENT AND WELLNESS

How Lawyers Can Use AI to Improve Health and Well-Being

As lawyers figure out how to responsibly, ethically, and effectively integrate AI into their legal practices, a good place to start might be where lawyers generally struggle the most—their health and well-being. Most personal trainers, nutritionists, and other health gurus are fastidious about tracking and analyzing their clients’ eating and workout habits, making incremental adjustments, and tracking and evaluating their results. An iterative data tracking and analysis process is the perfect task for AI. Many fitness professionals are already using AI in their coaching and training. This article explores how lawyers may use this incredible new(ish) technology to hack their time, health, and well-being.

Fitness

AI is being integrated into the fitness world in every way imaginable. Apps that used to be limited to tracking your stats now use AI to provide real-time feedback, training, and performance improvements. These are great for those already committed cyclists, swimmers, runners, or other athletes, but they have become equally valuable for beginners or those training for a specific event. And, just like the law, these tools don’t necessarily replace a qualified coach or a trainer but can be used to improve the results efficiently.

For example, apps like Fitbod and Vi Trainer use AI to create training plans based on your fitness level, available equipment, and muscle recovery and can provide real-time coaching. These apps can track your progress and adapt each workout, making it an efficient solution for targeting training without spending time on planning. For swimming, MySwimPro creates AI-guided workouts to improve endurance and technique tailored to your skill level and personal goals. If you are still deciding whether to jump into a specific fitness tool, an AI chatbot can help plan a fitness routine. Try the following prompt to see how it works for you:

Contributing Author: Heather Johnston, Managing Attorney, Sapphire Law Group, 29122 Rancho Viejo Road, Suite 213, San Juan Capistrano, CA 92675, hjohnston@sapphire.law.

Create a workout schedule for the next 8 weeks, prioritizing at least 4 days per week of strength training, one day a week of Zone 2 cardio, one day a week of Zone 4 interval training with one day of rest, and one or two fun fitness activities like biking or paddle boarding. Please make sure I get at least 150 minutes of cardio each week.

This prompt provided a solid workout schedule that someone with prior fitness knowledge and a significant comfort level in a traditional gym could follow. With a few modifications to the prompt, the workout schedule can be even more personalized. Regardless of which tool or app is used, AI is changing the game in fitness.

Nutrition

Macro counting, calorie counting, meal planning, recipe modification—it’s all possible and super-efficient using AI. There are numerous tools specific to nutrition that use AI to optimize and personalize results. From MyFitnessPal to LifeSum, personalized nutrition tracking and programming options are plentiful. And, just like fitness, a simple chatbot query yields pretty good results. For inspiration, try something like this:

Please prepare a meal plan for the week for [number of people] with a total number of calories per person of approximately [number of calories]. We follow a [type of diet or dietary restrictions] diet. Please include recipes and a shopping list for the week. We plan to eat out on Wednesday night and need lunches only on Tuesday through Thursday.

Mindfulness, Sleep, and Stress Management

AI can track, make suggestions, and analyze behavior to help improve rest and improve mental clarity. Certain apps, like Wysa’s AI-driven mental wellness platform, provide personalized support through customizable cognitive behavioral therapy based exercises, stress management tools, and guided check-ins. Apps like Headspace and Calm

use AI to provide personalized mindfulness sessions, breathing exercises, and meditation programs. These apps can track stress levels and recommend specific exercises or meditation routines to help attorneys manage stress and improve focus. Regular use of these tools has been shown to reduce anxiety and enhance overall well-being.

AI-powered sleep trackers, such as Sleep Cycle, analyze sleep patterns and provide recommendations for improving sleep quality. They offer insights into sleep habits and suggest adjustments to create a healthier sleep routine, ensuring busy lawyers can recharge and wake up refreshed.

Time Management and Administrative Tasks

One major impediment to health and well-being for many lawyers is time (or perhaps priorities). If this is true for you, then using AI to get some time back in your day may allow you to fit in activities you already enjoy. Some apps are perfect for busy lawyers, such as apps that help track time, organize email, and schedule meetings. If you aren’t ready for such in-depth AI integration, many other tasks can be offloaded to AI, which will still save time. For instance, some parents use AI

chatbots to create their children’s sports or carpool schedules. AI chatbots are also good at formulas, writing snippets of code, marketing research, creating draft emails, and creating lists of ideas or market research.

The Ultimate Hack

To truly harness the power of AI, you can use a holistic app, like Gyroscope, that combines all of the above. For all who have read this far but still think they don’t have time or the motivation to cobble together their own personalized set of AI tools and life hacks, I suggest having AI create a plan for you. For example, using your AI chatbot tool of choice (ChatGPT or Claude, for example), type in one of the following prompts, filling in the bracketed area with your information:

Please prepare a list of suggestions for the use of AI resources or tools that will help with the health and wellness objectives for a [age] yearold lawyer who lives in [geographical location] with [health concerns] who prioritizes [goals]. Please include specific tools or programs that are free or low-cost and provide privacy of the data that is entered. Activities for fitness should include [favorite

sport or activity] if specific tools are designed for this purpose. The suggestions should be formatted as a draft plan addressing many different areas of health and wellness that do not take more than [time] hours per [day/week].

Note: Being polite in AI interactions doesn’t hurt and alters the results favorably.

Closing Thoughts

AI is not just helpful to attorneys in handling legal tasks; it’s also a powerful tool for managing non-legal aspects of work and personal life. All of the ideas expressed in this article are intended to help readers understand how useful and powerful AI can be for health and wellness improvement. As with all technology, however, you should use these tools with caution to ensure your privacy and personal information is not put at risk or used in a manner you are uncomfortable with. The key to making the most of AI is to explore various tools, identify those that fit your needs, and integrate them into your daily routines. By leveraging AI’s capabilities, attorneys can build a more efficient, productive, and balanced lifestyle. n

After my annual physical, my doctor sent me to get a blood test and gave me strict instructions, “To take this test, do not eat, drink alcohol and smoke within 12 hours.” Ignoring the absence of an Oxford comma, do the instructions mean I can have steak and a martini so long as I abstain from tobacco?

“And” is a conjunction. Every reader of this column knows that, as a conjunction, it connects. If my partner asks me to go to the grocery store and the dry cleaners, I do not doubt that going to one or the other but not both will fall short of expectations. But “and” can be ambiguous. Suppose I returned to the office and my assistant told me to “call Bill and Sue.” Should I call one then the other, or should I call them jointly?

The Supreme Court in Pulsifer v. United States, 601 U.S. 124 (2024), concluded, interestingly, that although we understand that “and” is a conjunction, it sometimes may play the role of a disjunction.

The statute in Pulsifer related to a safety valve to minimum sentencing for certain crimes. Circuit courts were divided over what the word “and” meant. For thousands of defendants, eligibility for relief from mandatory minimum sentencing depended on whether “and” was written to conjoin requirements for reduced prison time. Under the statute, a defendant is eligible for relief if:

the defendant does not have—

(A) more than 4 criminal history points, excluding any criminal

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

THE LAST WORD

When “And” Means “Or”

history points resulting from a 1-point offense, as determined under the sentencing guidelines; (B) a prior 3-point offense, as determined under the sentencing guidelines; and (C) a prior 2-point violent offense, as determined under the sentencing guidelines.

18 U.S.C. § 3553(f)(1) (emphasis added); additional requirements exist but aren’t relevant to our discussion.

Mark Pulsifer had pleaded guilty to felony drug distribution with a prior conviction. His lawyers argued that he should be granted relief because “‘and’ is still conjunctive” after the negative “does not,” much like “Don’t drink and drive” would mean you could maybe do either but can’t do both. As Pulsifer read the subsection, the ”and” joins three features of a defendant’s criminal history into a single disqualifying characteristic.

Justice Kagan, for the majority, described the parties’ positions as follows:

Pulsifer . . . asks whether “the defendant does not have (A, B, and C).”

Much as a student would solve “5(2 + 1)” by adding 2 and 1 and then subtracting the sum from 5, Pulsifer wants a court first to combine A, B, and C and then determine whether the defendant has the total. By contrast, the Government reads the statute without parentheses, and so arrives at a different conclusion. On its view, the “does not have” language operates on A, and on B, and on C consecutively, rather than on the three combined (so “5 - 2 + 1”). Or said another way, the test is met if the defendant does

not have A, and also does not have B, and finally does not have C. If he has even one, he cannot complete the requisite checklist and so can not gain the safety valve’s benefits.

124 U.S. at 133-34.

We might refer to the transporting of “does not have” as distribution; that is, the introductory phrase “does not have” is distributed to each of A, B, and C. Here are two examples of distribution in legal writing:

1. “Under the terms of the agreement, the parties shall maintain confidentiality with respect to trade secrets, proprietary information, and financial data.” The introductory phrase, “Under the terms of the agreement,” applies to each item in the list and the obligation to maintain confidentiality applies equally to all three categories without needing to repeat the phrase for each item.

2. “I give, devise, and bequeath my personal property, including my jewelry, furniture, and artwork, to my children, Alice, Bob, and Charlie, to be divided equally among them.” The introductory phrase, “I give, devise, and bequeath,” applies to the entire list of personal property items, making it clear that each type of personal property is included in the bequest. In addition, the phrase “to my children, Alice, Bob, and Charlie” applies equally to all items in the list. Imagine you are finishing dinner when the waiter says, “For dessert, you can have cake and ice cream.” You get excited and think you’re about to feast on both. But then the waiter brings just one of them, explaining, “Oh, when we say ‘and,’ we mean ‘or.’” n

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