eReport 2024 Fall/Winter

FALL/WINTER 2024

Title Insurance or Title Opinion Letters?

Published in eReport, Fall 2023 / Winter 2024 © 2023-2024 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

FALL/WINTER 2024

REAL PROPERTY

3 Title Insurance or Title Opinion Letters?

By Justin L. Earley and Sterling Scott Willis

9 Supreme Court Holds That Federal Quiet Title Act’s Statute of Limitations is Non-Jurisdictional

By Ryan Ellard

11 Uniform Law Commission RPTE Projects Winter 2023 Update

By Jane Sternecky

TRUST AND ESTATE

13 Recent Massachusetts Tax and Estate Planning Developments

By Elizabeth Lindsay-Ochoa and Jaclyn G. Feffer

Editor Robert Steele (TE) Articles Editor for Real Property Cheryl Kelly (RP)

Articles Editor for Trust and Estate Keri Brown (TE)

By Todd A. Flubacher, J. Zachary Haupt and Anne Grae Martin

Assistant Real Property Editors John Trott (RP) Catherine Williams (RP) Sarah Dawn Cline (RP)

Assistant Trust and Estate Editors Jeffrey Hopkins (TE) Brandon Ross (TE) Rachel Lee (TE)

22 Tax Reimbursement Clauses: Drafting and Planning

Technology/Practice Editor for Trust and Estate Martin Shenkman (TE)

Assistant Editor for Section News and Events Amber Quintal (TE)

16 Uniform Law Commission RPTE Projects Winter 2023 Update

By Jane Sternecky

18 Delaware Trust Act 2023 Legislative Update

By Yaser Ali, Martin M. Shenkman, Jonathan G. Blattmachr

28 New California Law Attacks NINGs and DINGs

By Faith H. Liveoak and Mark A. Ziemba

The materials contained herein represent the opinions of the authors and editors and should not be construed to be those of either the American Bar Association or the Section of Real Property, Trust and Estate Law unless adopted pursuant to the bylaws of the Association. Nothing contained herein is to be considered the rendering of legal or ethical advice for specific cases, and readers are responsible for obtaining such advice from their own legal counsel. These materials and any forms and agreements herein are intended for educational and informational purposes only. © 2023/2024 American Bar Association. All rights reserved.

Published in eReport, Fall 2023 / Winter 2024 © 2023-2024 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

FALL / WINTER 2024

2

eReport

REAL PROPERTY

Title Insurance or Title Opinion Letters?1

By Justin L. Earley and Sterling Scott Willis2 This article compares and contrasts assurances afforded by a title insurance policy versus an attorney opinion letter.

The Federal Housing Finance Agency recently introduced equitable housing finance plans pursuant to which Fannie Mae and Freddie Mac would accept written attorney opinion letters in lieu of a lender’s title insurance policy in certain limited circumstances. The impetus for the agencies’ actions stems from a desire to lower transactional costs for low-income homebuyers.3 These actions have generated considerable pushback from the title insurance industry. This article will illustrate the historical origins of why title insurance supplanted attorney opinion let-

ters by comparing attorney title opinion letters to lender title insurance policies. Also, looking to commercial transactions, we will discuss whether several items frequently contained in a real estate finance opinion letter are duplicative of what is covered by a lender’s title insurance policy, and whether these opinions are really necessary. Because of the risks pointed out below, it is very unlikely that title opinions will gain acceptance in lieu of title insurance policies for commercial real estate financings, but the issues remain for consideration.

Background Any lender making a secured loan faces two problems: credit risk and collateral risk. Lenders specialize in credit risk, which we define as predicting the future likelihood that the borrower will pay the loan back on time. By its nature, credit risk involves attempting to predict an uncertain future. Lenders utilize a variety of tools to analyze, quantify, and be compensated for credit risk, perhaps most obviously by adjusting the interest rate they charge. Credit risk exists whether the loan is secured or not. Indeed, even in a secured loan a typical lender hopes never to re-

Published in eReport, Fall 2023 / Winter 2024 © 2023-2024 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

FALL / WINTER 2024

3

eReport

alize on collateral, as owning property is not a lender’s business competency.

As Robert A. Thompson noted in his seminal book, Real Estate Opinion Letter Practice,

Collateral risk is different. For purposes of this article, we define collateral risk as the possibility that the lender’s collateral fails, leaving the loan unexpectedly unsecured. There are numerous components to this, including legal concepts of proper attachment and perfection, which we do not take up here. Instead, we focus on the most fundamental form of collateral risk: the possibility that the borrower does not own the collateral at all, or that the borrower’s interest in the collateral is junior to the interests of others.4 Collateral failure risk is materially different from credit risk. Collateral failure risk involves analyzing the past and present, rather than predicting the future. Put simply, the borrower either owns the interest in the collateral with rights superior to those of others, or the borrower does not. The answer is knowable at the time of making the loan. Even if (as is not uncommon) there is some legal uncertainty about the borrower’s rights vis-a-vis other potential interest holders, in general that uncertainty can be resolved through litigation and quieting title, prior to making the loan. By contrast, no amount of investigation or court action can remove the uncertainty surrounding credit risk. The present and past are knowable; the future is not.

The real estate markets have learned that the methods used for addressing credit risk and collateral risk must differ. The tools developed for each do not readily extend to the other. As we discuss below, the technological methods currently en vogue (machine learning, artificial intelligence, statistical modeling, etc.) are tools of prediction. While they may perhaps be useful in analyzing credit risk, they are poor fits for handling collateral risk. Addressing collateral risk is a matter of due diligence, maintenance, and repair. Legal practitioners know that collateral risk must be removed, not predicted, because the consequences of an incorrect prediction can be unacceptably severe: an unexpectedly unsecured loan.5 Removing these “fat tail” risks through due diligence and correction means incurring small but frequent costs to prevent rare but catastrophic losses.6 With regard to real estate, the process of diligencing and removing collateral risk is called “title assurance.” In the earliest days of the United States, title assurance was not complex. Titles came directly from the English Crown, and the first purchasers of land from the Crown had little to worry about. The sovereign was the supreme power, and there would be little reason to question whether the Crown had the title promised. However, as conveyances continued and chains of title grew more complex with time, the rule of caveat emptor came into play, because in America the burden of diligencing land title status falls on the vendee.

Buyers and lenders thus began to hire professionals to perform title assurance on behalf of their clients. Lawyers therefore entered the practice of analyzing titles and providing title opinions as the output of their work.7

[f ]or many years, especially in jurisdictions in the eastern part of the United States, lawyers played an important role in assuring owners and lenders with respect to title to real property. The normal law school curriculum for the traditional first year property course, with its heavy emphasis on estates in land, conveyancing and recording acts, reflects the fact that, traditionally, tracing and affirmation of title have been viewed fundamentally to be the lawyers’ task. The attorneys’ abstract of title or title opinion was in many cases an absolute prerequisite for the closing of real estate transactions. In a very few states that tradition continues even to the present.8 “In most jurisdictions today, however, the lawyers’ abstract of title opinion has been replaced by a title insurance policy.”9 Thompson’s book explained that, over time, title insurance supplanted attorney opinions for a variety of reasons, including: (1) most real estate financing lawyers’ lack of sufficient expertise to examine title to property; (2) the various advantages of what is covered in a title insurance policy as opposed to a title opinion; and (3) the risks covered by title insurance that are not covered by a title opinion letter.

As a result, the practice has evolved with almost universal acceptance of title insurance policies in lieu of title opinions in almost all states. He concludes, “[as] a result of all of these considerations, issues of title to real property and the existence and priority of liens are now typically addressed by title policies rather than legal opinions. Only in jurisdictions where title insurance is unavailable can an attorneys’ title opinion ever be justified.”10 He also notes that “the rejection of title opinions where title insurance is available has now attained the status of orthodoxy.”11 Why? History again provides the answer, through the case of Watson v. Muirhead.12 In that case, a buyer sued on account of failure to spot a title problem. Noting the public policy problems that would arise from holding conveyancers strictly liable for making a mistake when the very nature of examining titles requires the exercise of judgment on questions where reasonable minds can disagree, the court declined to do so. Instead, the court applied the “reasonable person” standard for malpractice, and concluded that since the judgment call was reasonable, the conveyancer was not liable for the title problem.

The case illustrates the three core problems with attorney title opinions: First, the buyer or lender must prove negligence on behalf of the opinion-giver, which is generally quite difficult to do.

Second, the buyer or lender must absorb the litigation costs of suing the opinion-giver, either directly (through fees) or indirectly (through reduced recovery via contingency fees). And third, even if the buyer or lender succeeds in their lawsuit, the opinion-giver

Published in eReport, Fall 2023 / Winter 2024 © 2023-2024 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

FALL / WINTER 2024

4

eReport

may not have the wherewithal to pay the judgment received, as one “can’t get blood from a turnip.”

Title insurance arose in the wake of Watson v. Muirhead because title insurance solved each of these three problems. First, by issuing a contract of insurance rather than an opinion, the legal rule for recovery changed. If the title was not in the condition insured, the buyer or lender need only make an insurance contract claim; the “reasonable person” test is irrelevant. Second, by building the payment of title-defense costs into the policy coverage, the buyer or lender’s recovery was not bled out by legal fees in pursuit of the opinion-giver. Indeed, modern title policies do not even reduce the amount of insurance by the legal costs the title carrier incurs—a significant benefit. Finally, because title carriers are regulated by state departments of insurance and required to maintain sufficient capital to pay all claims, the risk of the judgment-proof opinion-giver is mitigated.13 For these reasons, title insurance has been the least-cost-avoider method of title assurance for over 160 years. It has been market-proven as superior to attorney opinion letters. Recognizing this fact and the malpractice risk they face in giving title opinions, over the course of those years, most attorneys have simply left the space and declined to take on title opinion engagements.

This position was codified in the Real Estate Opinion Letter Guidelines.14 Guideline 4.0.c provides as follows:

the priority of the security instrument with respect to other recorded liens. The similarities between title opinion letters and title insurance policies are all based on what is recorded in the public records.

However, there are title risks that emerge when: (1) relevant documents may not be recorded in the public records; (2) documents may not be properly indexed or recorded in the public records, and (3) substantively defective documents are filed in the public records. These three areas of risk highlight the principal differences between title opinion letters and title policies.

If an attorney is knowledgeable in preparing title opinion letters, the title opinion would normally reflect all recorded matters that affect title to the subject property. But there are numerous things that may affect title that even the most diligent title attorney could never discover: whether because they are not recorded at all, or because (even if recorded) they are missed due to the complexity of the land records system, or are otherwise undetectable from the documents alone. Most all of these defects are within the scope of the stock title insurance policies, since the covered risks in the ALTA title insurance forms cover “any defect in or lien or encumbrance” on the title. Among the specific effects covered in a title insurance policy that seldom would come to the attention of a title opinion preparer are the following: • Fraud • Forgery

4.0.c Real Property Title Opinions.

• Duress

Because of the availability of title insurance, the existence of difficult factual issues, and the need for title searches beyond the capacity and expertise (and/or the scope of engagement) of most real estate attorneys, opinions requested as to the ownership of property, the effectiveness of the lien and security instruments or exceptions to or encumbrances on title to real property are inappropriate.

Opinions as to the form of a mortgage or deed of trust necessary to create a lien against real property collateral and the recitation of the procedures necessary to perfect and provide record notice of such lien are, on the other hand, frequently given. Neither such a “form of documents” opinion nor a general enforceability opinion implies a substantive title opinion, and no express disclaimer of such opinion is necessary.15

• Incapacity • Impersonation • Improper execution of documents • Improper recording • Defective judicial proceedings • Boundary line disputes if there is not a current accurate survey • Priority over unrecorded or inchoate mechanics liens • The validity of the lien of the insured’s security instrument* • The enforceability of the lien of the insured’s security instrument* • The priority of the lien of the insured’s security instrument*

To understand further how and why title insurance policies came to supplant attorney opinion letters as the superior method of title assurance, it helps to compare and contrast the fundamental things that they each do. The examples cited in the Real Estate Opinion Letter Guidelines identify three of the main similarities contained in both title opinions and title insurance policies: (1) who owns the property that is encumbered by the security interests, (2) what recorded title encumbrances affect the property covered by the security instrument, and (3) what is

• The right of access to the subject property unless it is included in the current survey obtained for the closing • Back chain creditor’s rights • Preferential transfers for non-timely recording or failure of constructive notice * It would be risky, and unwise, for an opinion giver to give these title opinions since (as noted above) they are customarily not given, but one can imagine them being given.

Published in eReport, Fall 2023 / Winter 2024 © 2023-2024 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

FALL / WINTER 2024

5

eReport

In addition to what is covered by a basic lender’s title insurance policy, there are also numerous endorsements to a title insurance policy that are available and that are seldom covered by an attorney’s title opinion letter. These include: • Present violations of restrictive covenants that restrict the use of the land • Any charges or assessments in favor of homeowner’s associations • Enforced removal of existing structures on the land and encroachments onto adjoining land or easements • Failure of title by reason of the right of first refusal that was (or could have been) exercised as of the date of the policy.

In addition to not covering numerous risks that a title insurance policy insures against, there are other factors that make title policies more desirable for lenders than title opinions. This includes the duty of defense that is in all title insurance policies.

All three of these typical assumptions that are contained in real estate finance closing opinions are conceptually addressed by a title insurance policy—rather than simply assumed to be true.

While it is customary in real estate finance transactions for the borrower’s counsel to include opinions with respect to the enforceability of the security instrument and a form of documents opinion, it is fair to ask why these opinions should be needed when a lender’s title insurance policy has been obtained in connection with the transaction—which is almost the universal case for commercial real estate financings.

Covered Risk 9 in the ALTA Loan Policy of Title Insurance provides indemnity against “[t]he invalidity or unenforceability of the lien of the Insured Mortgage upon the Title.” Covered Risk 9 then goes into laundry-list detail as to some of the various risks: Covered Risk 9 includes, but is not limited to, insurance against loss caused by: a.

forgery, fraud, undue influence, duress, incompetency, incapacity, or impersonation;

b.

the failure of any person or Entity to have authorized a transfer or conveyance;

c.

3.5 Enforceability. The Borrower Transaction Documents are enforceable against the Borrower in accordance with their terms.16

the Insured Mortgage not being properly authorized created, executed, witnessed, sealed, acknowledged, notarized (including by remote online notarization), or delivered;

d.

3.6 Form of Security Documents. The Mortgage is in a form sufficient to create a lien on all right, title and interest of the Borrower in and to the Real Property.17

a failure to perform those acts necessary to create an Insured Mortgage by electronic means authorized by law;

e.

a document executed under a falsified, expired, or otherwise invalid power of attorney;

f.

the Insured Mortgage not having been properly filed, recorded, or indexed in the Public Records, including the failure to have performed those acts by electronic means authorized by law;

g.

a defective judicial or administrative proceeding; or

Overlap of Title Policies and Closing Opinions Most customary closing opinions rendered in a commercial real estate finance transaction include opinions as to the enforceability of the security instruments and a “form of documents” opinion that provides that the security instruments are in a form sufficient to create a lien on all right, title and interest of the borrower in and to the real property. For example, in the Illustrative Opinion that accompanies the Real Estate Finance Opinion Report of 2012, these typical opinions can be phrased as follows:

In order to give these two standard opinions, it is typical to make certain assumptions with respect to title to the property and matters with respect to the Security Documents. These typical assumptions include: (b)

The Borrower holds the requisite title and rights in and to any property involved in the Transaction. (g) The Security Documents have been or will be duly and properly recorded or filed and duly and properly indexed in all places necessary (if and to the extent necessary) to create the encumbrance and lien provided therein. (h) The description of the [real property] is accurate and reasonably identifies the [real property].18

h. invalidity or unenforceability of the lien of the Insured Mortgage as a result of the repudiation of an electronic signature by a person that executed the Insured Mortgage because the electronic signature on the Insured Mortgage was not valid under applicable electronic transactions law.19 As is made clear by the first sentence of Covered Risk 9, and in

Published in eReport, Fall 2023 / Winter 2024 © 2023-2024 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

FALL / WINTER 2024

6

eReport

particular the provisions of 9.c and 9.f, most of the assurances in an enforceability opinion or a form of documents opinion as it relates to the insured security instrument are also covered by the title insurance policy. Thus, it may be argued that despite the historical tradition of including them in a standard closing opinion, they may be redundant and unnecessary when a lender’s title insurance policy is obtained as part of the transaction.

That being said, there are typically numerous contractual provisions in a security instrument that are unrelated to the enforceability or validity of the lien that a secured lender will want to know are enforceable. Common examples of these include the duty to pay taxes, maintain insurance, maintain the property, and comply with usury laws (for which a title endorsement may be available). In addition, the security instrument is just one of many loan documents covered by a typical closing opinion, and opinion recipients historically have requested enforceability opinions covering each loan document.

As a building block to issue an enforceability opinion, the opinion giver normally will also provide opinions with respect to the status of the borrower, its power to execute and deliver the security documents, and the authorization, execution, and delivery of the security documents. Since a standard title insurance policy covers enforceability, all three of these typical opinions as to status, power, authorization, execution, and delivery are in substance subsumed within the covered risks provided by a title insurance policy as regards the Insured Mortgage. These are further set forth in Sections 9.b and 9.c of the stock ALTA policy. But opinion recipients nevertheless require the building block opinions for all loan documents.

It may therefore be argued that there is no reason to require a form of document opinion when there is title insurance since the form of document is ultimately addressed in material substance by Covered Risk 9.c. Also, the ability of a security instrument to “create” the lien on the real property is also covered by Covered Risk 9.c. As noted in the Local Counsel Opinions Letter Report: (a)

Creation. The determination as to whether or not the form of a document is sufficient to create a lien on real property is state specific and involves an analysis of requirements established under law of the Local Opinion Jurisdiction. When title insurance is issued in a loan transaction, an opinion on this subject is unnecessary.20

We do not contend that opinions of borrowers’ counsel are irrelevant, nor do we contend that it is universally improper or unfair for lenders’ counsel to demand that borrowers’ counsel opine on things that are already addressed in material substance by title insurance policies. We recognize that opinion practice is (like everything else in a commercial real estate financing transaction) a matter of negotiation and transaction party leverage.

It is logical for a lender to ask that borrowers’ counsel cover all of the loan documents in a deal and to give customarily provided opinions, even if the lender already has title insurance coverage for the very same risk, since this will give the lender more comfort should the loan transaction go sour and litigation erupt. Whether or not a lender will demand that opinion, and whether or not a borrower’s counsel will give that opinion, depends on the facts and relative negotiating leverage of the parties. Nevertheless, opinion recipients should be mindful of the protections afforded by title insurance in negotiating their opinion requirements.

Instead, our purpose is to show that the examples above are isolated instances of where opinion practice still touches land title issues. Because of the great breadth of coverage that title insurance policies offer to lenders, in most circumstances, attorney opinions are economically noncompetitive with title insurance policies. Title insurance policies offer materially identical risk mitigation measures through a standardized form that does not require expensive negotiations that burn through billable hours, and the marketplace has long accepted that as canon. For these reasons, we do not see attorney opinion letters as a title assurance / collateral risk mitigation method making a comeback in commercial real estate transactions.

Conclusion Finally, we close with a few thoughts on why efforts to repackage attorney opinion letters into a technology product using some sort of machine learning / artificial intelligence / predictive modeling algorithm are inapt for addressing collateral risk—at least in their present state of technological development.21 Presently these proposals are circulating in the residential real estate markets. History shows that the tools of credit risk must differ from the tools of collateral risk, and that credit risk and collateral risk must be borne by different parties who deal with each one differently.

In the 1920s, the business of title insurance and the business of mortgage lending began to mix, when banks began providing title insurance, and title insurance carriers began providing “mortgage guaranty insurance,” guaranteeing lenders that their loans would be paid back. This mix turned out to be volatile. The tools, competencies, and capital structure for addressing collateral risk are not the same as the tools, competencies, and capital structure needed for addressing credit risk. This unstable admixture exploded in the Great Depression that soon followed, wiping out a huge percentage of the title insurance capacity in New York.22 Policymakers responded by passing what are now called the “monoline statutes,” laws and regulations that (generally speaking) serve as a two-way barrier between the “business of title insurance” and other lines of insurance. In essence, the monoline statutes provide that no one but a licensed title insurance carrier can offer title insurance, and that a title insurance carrier cannot offer any other line of insurance but title. The monoline statutes thus codified the rule that, for the health and welfare of the real estate markets, credit

Published in eReport, Fall 2023 / Winter 2024 © 2023-2024 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

FALL / WINTER 2024

7

eReport

risk must be separated from collateral risk. As one commentator sums up these outcomes from the Great Depression: When banks failed because of mortgage defaults, their title insurance divisions went along with them. A result was that title insurers began to choose, and state legislatures began to require, a disassociation of the selling of title insurance from banking and mortgaging.23 The current efforts by certain “disruptors” in the real estate market would seek to break down this well-considered firewall by wrapping the predictive methods of credit risk in the previously-abandoned cloak of an attorney opinion letter. While they vary in their specifics, in general, some proposals seem to be of the effect that an attorney would write a title opinion based not on in-depth research about the history of a land title, but rather on some sort of probabilistic output by a computer program.

These proposals are doubly dangerous because not only would they attempt to insert the tools of credit risk where they do not belong, they would also unearth the three core problems that led to the creation of title insurance in the first place.

In other words, these proposals would take every method that has proven inadequate or dangerous for addressing collateral risk, painfully learned over a century and a half of real estate practice, package them up, and release them into the wild once again. As demonstrated above, these proposals lack historical understanding, and we do not doubt at all that they would be disruptive. But it certainly is not the sort of disruption that the real estate markets are looking for.

Endnotes 1. The views expressed in this article are those of the authors only, and should not be construed as the position of the author’s organizations or as investment or legal advice.

2. Justin L. Earley (JEarley@firstam.com) is Chief Innovation Underwriter at First American Title Insurance Company (https://www.firstam.com), Santa Ana, California. Sterling Scott Willis (swillis@fishmanhaygood. com) is a partner with Fishman Haygood, L.L.P. in New Orleans (https:// www.fishmanhaygood.com).

3. See Equitable Housing Finance Plan 2023, Fannie Mae, https://www. fanniemae.com/media/46631/display (last visited June 5, 2023) (noting at page 31 that Fannie Mae will, in certain circumstances, “allow lenders the option to utilize an attorney opinion letter in lieu of traditional title insurance”); cf. Equitable Housing Finance Plan, Freddie Mac, https:// www.freddiemac.com/about/pdf/Freddie-Mac-Equitable-Housing-Finance-Plan.pdf (last visited June 5, 2023) (discussing “title insurance cost reduction” at section 3.4).

4. We recognize that some might reasonably contend that there are other possible forms of “collateral risk” that are future-facing, such as the possibility that the collateral may be of insufficient value to retire the debt upon default and foreclosure, as may happen when the economy declines, or when the collateral has a “thin” and noncompetitive market with few potential purchasers. It may be responded that these are really forms of credit risk, but in any event, this debate is beyond the scope of this paper. For our purposes, we are focused on the simple question of whether or not the borrower actually owns the collateral, with rights

superior to those of other possible creditors. As we discuss, these are inherently backwards-facing risks of due diligence, not forward-facing risks of prediction.

5. E.g., Nassim Nicholas Taleb, Antifragile: Things That Gain from Disorder 98 (2021 Random House Trade Paperback ed.) (“When we look at risks in [areas where “fat tails” can skew results], we don’t look at [statistical] evidence (evidence comes too late), we look at potential damage . . . .”).

6. E.g., Nassim Nicholas Taleb, The Black Swan: The Impact of the Highly Improbable 208 (Random House Trade Paperback ed. 2021) (“[D]o not try to predict precise Black Swans—it tends to make you more vulnerable to the ones you did not predict. . . . [I]nvest in preparedness, not in prediction.”).

7. See generally Joyce D. Palomar, Title Ins. Law §§ 1:2-1:14 (2011-12 ed.); Joyce D. Palomar, Patton & Palomar on Land Titles § 41 (3d ed. 2003).

8. Robert A. Thompson, Real Estate Opinion Letter Practice § 7.1 at 213 (3d ed. 2014).

9. Id. 10. Id. at 213-4.

11. Id. at 214 12. 57 Pa. 161; 1868 Pa. LEXIS 81.

13. See generally Palomar, Title Ins. Law, supra n.7, at § 1:18 (comparison chart between attorney opinion letters and title insurance, at items 6 through 9).

14. See ACREL Attorneys’ Opinion Comm. and ABA Section of Real Prop., Prob. And Tr. Law Comm. on Legal Opinions in Real Estate Transactions, Real Estate Opinion Letter Guidelines, 38 Real Prop. Prob. & Tr. J. 241 (2003).

15. Id. at 252.

16. See Joint Drafting Committee, Real Estate Finance Opinion Report of 2012, 47 Real Prop. Tr. & Est. L. J. 213, 206 (2012) [hereinafter 2012 Report].

17. Id. 18. Id. at 264.

19. ALTA Loan Policy, version 2021 v. 01.00, https://www.alta.org/policy-forms/download.cfm?formID=602&type=word (last visited June 5, 2023).

20. Local Counsel Opinion Letters in Real Estate Finance Transactions. A Supplement to the Real Estate Finance Opinion Report of 2012, 51 Real Prop.

Tr. & Est. L.J. 167, 206 (2016).

21. The development of true, human-level “artificial general intelligence” would alter this dynamic. Technologists can and do argue about whether this is possible, or how far in the future it lies if possible. We cannot and will not attempt to predict the technological future. Our point is simply that these tools are not fit for collateral risk purposes in their current forms.

22. See Nelson R. Lipshutz, The Role of the Monoline Requirement in Assuring Title Industry Effectiveness, report to the American Land Title Association, Dec. 1, 2004 (updated June 20, 2007) (executive summary page) (“Multiline title insurers, which wrote title and mortgage guaranty insurance, suffered a 72% insolvency rate during the Great Depression.”).

23. Palomar, Title Ins. Law, supra n.7, at § 1:3.

Published in eReport, Fall 2023 / Winter 2024 © 2023-2024 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

FALL / WINTER 2024

8

eReport

Ninth Circuit relied on Supreme Court precedent holding Supreme Court Holds the that the federal Quiet Title Act’s twelve-year statute of limitations is “jurisdictional” in nature and reasoned that failure to comply with its terms strips the court of its subject matter jurisThat Federal Quiet diction to hear the case. 28 U.S.C. § 2409a. In a 6-3 opinion, the Title Act’s Statute of Supreme Court reversed the Ninth Circuit’s decision.

The Court began its analysis by acknowledging that “Jurisdiction, this Court has observed, is a word of many, too many, Limitations is Nonmeanings.” Wilkins v. United States, 598 U.S. 152, 156, 143 S. Ct. 870, 875, 215 L. Ed. 2d 116 (2023). Failure to comply with Jurisdictional jurisdictional time limits may warrant dismissal for want of

By Ryan Ellard1 In this article, Ryan Ellard updates his earlier eReport piece to advise of the Supreme Court’s determination that the Federal Quiet Title Act’s statute of limitation is non-jurisdictional Larry Wilkins and Jane Stanton petitioned the Supreme Court to review the Ninth Circuit Court of Appeals’ holding that the court lacked subject matter jurisdiction to hear their quiet title action against the United States Government. In its opinion,

subject matter jurisdiction, whereas other deadlines function as “procedural” or “claims processing rules,” simply seeking to “promote the orderly progress of litigation by requiring that the parties take certain procedural steps at certain specified times.”

Id. at 157. In general, the Court will “treat a procedural requirement as jurisdictional only if Congress ‘clearly states’ that it is.”

Id. Citing this “clear statement rule,” the Court noted that most time bars are not jurisdictional and held that: Nothing about § 2409a(g)’s text or context gives reason to depart from this beaten path. Section 2409a(g) states that

Published in eReport, Fall 2023 / Winter 2024 © 2023-2024 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

FALL / WINTER 2024

9

eReport

an action ‘shall be barred unless it is commenced within twelve years of the date upon which it accrued.’ This ‘text speaks only to a claim’s timeliness,’ and its ‘mundane statute-of-limitations language . . . say[s] only what every time bar, by definition, must: that after a certain time a claim is barred.” Further, ‘[t]his Court has often explained that Congress’s separation of a filing deadline from a jurisdictional grant indicates that the time bar is not jurisdictional.’ The Quiet Title Act’s jurisdictional grant is in 28 U. S. C. § 1346(f ), well afield of § 2409a(g). And ‘[n]othing conditions the jurisdictional grant on the limitations perio[d], or otherwise links those separate provisions.’ Section 2409a(g) therefore lacks a jurisdictional clear statement.

Id. at 160 (internal citations omitted).

The majority distinguished a series of cases that the Government argued had already labeled the Act’s time bar as jurisdictional, going to great lengths not to overturn precedent or violate stare decisis by maintaining that, “The mere existence of a decision employing the term jurisdiction without elaboration does not show Congress adopted that view.” Id. at 165. The three-Justice dissent argued that the majority committed two critical errors: (1) ignoring that the statute involves a condition to a waiver of sovereign immunity (the dissent noted that, “This Court has long construed such conditions on waivers of sovereign immunity as jurisdictional.” Id. at 166.) and (2) inexplicably disregarding precedent that acknowledged the jurisdictional character of the Quiet Title Act’s time bar. Id. The majority’s analysis can aid practitioners in determining whether a litigant’s failure to act in a timely manner may give rise to a jurisdictional challenge. The “clear statement rule” serves as the starting point in any such assessment, but the Court’s decision also shows an emphasis on the language of the particular statute over potentially countervailing precedent.

Endnotes 1. Mr. Ellard is an attorney in Womble Bond Dickinson (US) LLP’s Charleston, South Carolina office. His practice includes handling a variety of real property matters. Mr. Ellard graduated from the University of Connecticut School of Law and is a Fellow in the American Bar Association’s Real Property, Trusts and Estates section.

Published in eReport, Fall 2023 / Winter 2024 © 2023-2024 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

FALL / WINTER 2024

10

eReport

Uniform Law Commission RPTE Projects Winter 2023 Update

insurability of title can be preserved. While some states have already taken action to allow the removal of unlawful restrictions, the uniform act includes a straightforward procedure for removing restrictions that are discovered in the land records of condominiums, co-ops, and planned communities, which sets it apart from other state-level legislation.

Drafting Committees:

Newly-Approved Acts:

Mortgage Modifications. A drafting committee aims to resolve uncertainty and inconsistency in the current law on mortgage modifications. The new act will aim to clarify the types of mortgage modifications that can be made without modifying the priority of junior and senior lienholders, specify which types of modification require documentation in public land records, and decrease the delays that are often associated with modifying a mortgage. By clarifying the law on mortgage modifications, this draft act strives to reduce the number of foreclosures and facilitate cooperation between lenders and borrowers. This new act will not be approved before summer 2024.

Uniform Unlawful Restrictions in Land Records Act. This new act creates a process for property owners to record an amendment that effectively removes a discriminatory restrictive covenant from the deed to their property. The act does not allow the physical removal, redaction, or modification of any records in the chain of title so that the historical records and

Redaction of Personal Information from Public Records. In 2020, a New Jersey federal judge’s husband and son were shot at their front door by a disgruntled former litigant who targeted the judge’s family by getting her home address from public records. In the wake of this horrific act of violence, states have begun to pass legislation allowing personal information of

By Jane Sternecky1 Below is a summary of Uniform Law Commission projects that may be of interest to members of the ABA Section on Real Property, Trust and Estate Law. Real Property

Published in eReport, Fall 2023 / Winter 2024 © 2023-2024 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

FALL / WINTER 2024

11

eReport

judges and other public officials to be redacted from public records. The drafting committee aims to address the inconsistency that has appeared amongst these state laws and create one uniform procedure for redaction.

Study Committees: Revisions to the Model Marketable Title Act. This committee is studying the need for and feasibility of updates to the Model Marketable Title Act. The Model Act, which was derived from Article 3 of the Uniform Simplification of Land Transfers Act, was originally promulgated in 1990 and enacted in one state before being withdrawn as obsolete in 2015. However, about 20 states currently have non-uniform marketable title statutes, with widely varying look-back periods and exceptions. The committee will determine whether a more uniform approach would be beneficial and feasible.

Use of Tokens or Other Similar Products in Real Property Transactions. This committee is studying the need for and feasibility of a uniform or model act addressing issues related to the use of blockchain-based non-fungible tokens and other technology to modernize and simplify the transfer and financing of real property.

Commercial Financing Disclosure. This committee is studying the need for and feasibility of a uniform or model act providing for standardization of disclosure requirements for commercial financing, including traditional bank loans and other products such as factoring and revenue-based financing. In assessing the viability of a uniform or model act, the drafting committee will consider whether such an act would increase efficiency and reduce compliance costs and uncertainty surrounding which law should govern when a transaction involves parties in two or more states.

The RPTE Section appoints at least one Advisor to each uniform law commission project involving the law of real property, trusts and estates. All uniform law drafting committees are open to any interested observer and members of the RPTE Section are encouraged to join and contribute their relevant expertise. Visit www.uniformlaws.org to find more information on these committees and on other ULC projects.

Endnotes 1. Jane Sternecky, Uniform Law Commission.

Published in eReport, Fall 2023 / Winter 2024 © 2023-2024 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

FALL / WINTER 2024

12

eReport

TRUST AND ESTATE

existing Massachusetts estate tax law, and a case addressRecent Massachusetts the ing the ability of the court to include a spendthrift trust as a marital asset in a divorce proceeding. All of these developmeaningfully impact estate planners and their clients Tax and Estate Planning ments in Massachusetts but also may have broader ramifications.

Developments Millionaire’s Tax 3

By Elizabeth Lindsay-Ochoa1 and Jaclyn G. Feffer2 Elizabeth Lindsay-Ochoa and Jaclyn G. Feffer provide a synopsis of Massachusetts’ new Millionaire’s Tax, amendments to its estate tax laws, and a case which included a spouse’s interest in an irrevocable trust for the purposes of equitable division upon divorce.

This past year has seen important legal developments for tax and estate planning in Massachusetts. There has been the implementation of a new millionaire’s tax, a significant change to

In 2022, the millionaire’s tax was voted into law, to be implemented as of January 1, 2023. This imposed an additional 4% annual income tax on Massachusetts tax filers whose reporting income is greater than $1 million in any given year. Under the law, the Massachusetts individual income tax rate for income over $1 million is increased (i) from 5% to 9% on wages, long-term capital gains, dividends, interest and other income and (ii) from 8.5% to 12.5% on short-term capital gains. To reduce income on the return, there was an option for married taxpayers to elect to file their income tax returns as married filing separately, regardless of how they filed at the federal level. In October 2023, Governor Healey of Massachusetts signed legislation (described in additional detail below) which now

Published in eReport, Fall 2023 / Winter 2024 © 2023-2024 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

FALL / WINTER 2024

13

eReport

requires conformity in the filing status for the federal and state income tax returns, beginning with the 2024 tax year.

For planners seeking to advise their clients, one option to combat the impact of the tax is through a charitable deduction.

Massachusetts will allow income tax charitable deductions starting with tax year 2023.

Estate Tax

4

Governor Healey signed legislation on October 3, 2023, which enacted amendments to Massachusetts estate tax law. The estate tax in Massachusetts is applicable to residents of the Commonwealth at the time of their passing, as well as non-residents who possess real estate or tangible personal property within Massachusetts.

Residents of Massachusetts Prior to the recent legislative changes, Massachusetts maintained a $1 million exemption threshold. If an individual’s estate amounted to less than $1 million, no estate tax liability would arise. However, for estates exceeding $1 million, the estate tax was assessed on the entire gross estate, a system often referred to as the “estate tax cliff.” The new law increased the exemption amount to $2 million and is retroactive to January 1, 2023. Additionally, the exemption is now a true exemption, meaning the estate tax is now on gross estates above $2 million. Additionally, the law clarifies that out-of-state real estate and tangible personal property are not subject to the Massachusetts estate tax for its resident decedents.

For planners representing clients in Massachusetts, there are a few things to consider. First, if an estate has already filed a tax return for 2023, the estate may be entitled to a refund based on the new law. Second, for married clients, it is advisable to continue drafting trusts that leverage the state exemption amount. Massachusetts does not have portability on the state level.

Non-Residents of Massachusetts Non-residents with estates exceeding $2 million and who own real or tangible property located in Massachusetts are subject to the estate tax. The issue for non-residents is that Massachusetts defines the taxable estate as all assets, wherever located (plus adjusted taxable gifts). This calculation uses a fractional approach, where the numerator of the fraction represents the value of real estate and tangible assets within the Commonwealth and the denominator is the total assets of the gross estate.

For those advising non-residents, a popular technique to avoid the estate tax is to move the real estate to a limited liability company (LLC), converting the asset from real property to intangible property and therefore falling outside of the estate tax regime. Nevertheless, planners should take caution as there is some uncertainty regarding whether the LLC would be legally recognized if it lacks a legitimate business purpose. Another

consideration is if the LLC is structured as a single member LLC, it may be considered a property interest instead of an intangible under Massachusetts law due to its disregarded status, and thus would not fall outside of the estate tax regime.

Jones v. Jones5 On September 6, 2023, the Appeals Court of Massachusetts decided the divorce case of Jones v. Jones, confronting the issue of whether gifts from the wife’s mother, including an irrevocable spendthrift trust, should be included in the marital assets for purposes of equitable division upon divorce. The Court concluded that the assets, including the spendthrift trust, should be included. Advisors should keep this case in mind as they advise clients who may one day be divorced in Massachusetts.

Facts Husband and wife married in Michigan in August 1998, and were married for almost 19 years when the husband filed for divorce in Massachusetts in March 2017. The parties had two children (born in 1999 and 2001) and both spouses were employed outside of the home during the marriage and contributed equally to raising the children. During the marriage, the parties received a variety of financial gifts from wife’s mother which included, among other things: (i) a trust for the wife’s benefit (the Juliana Jones Irrevocable Trust, or “JJIT”), (ii) substantial funds that were deposited into a UBS CD ($300,000 which the parties had not added to or withdrawn from and which totaled $310,683.54 at time of trial), and (iii) a 99% interest in an LLC (PHR II) gifted to the wife that held title to the marital home and a one-third interest in real property in Michigan. The JJIT was formed as a GRAT remainder trust (to hold the proceeds of a 2015 GRAT established by wife’s mother) and funded with shares of Bank of Nova Scotia common stock.

In addition, the wife’s mother provided other gifts during the marriage enabling the parties to “fund frequent travel, summer camp and a lifestyle they would not otherwise been able to afford [without gifts from wife’s mother].” The parties contributed only minimally to retirement which the Court surmised was likely “due to [the] wife’s anticipated inheritance and the significant gifts the parties received during the marriage.”

Holding and Rationale The Court held that the JJIT, the UBS CD account, and the LLC should all be considered part of the marital estate because the wife’s financial assets were “woven into the fabric of the marriage.” The Court felt it was equitable to include these assets due to the length of the marriage and the parties’ equal contribution during the marriage. The wife was able to retain the JJIT and PHR II, but was required to transfer to husband 60% of the UBS CD and make cash payments to him over a period of ten years (with the amount of such cash payments determined based on the value of the JJIT and PHR II as of the date of trial).

Published in eReport, Fall 2023 / Winter 2024 © 2023-2024 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

FALL / WINTER 2024

14

eReport

In determining that the JJIT should be included in the marital estate for purposes of equitable distribution, the Court determined that although the trust is discretionary, the wife had a “fixed and enforceable property right” in the trust, the wife was “entitled to the whole trust property”, and her share was not “susceptible to reduction.”

A primary focus for the Court focus was the mandatory nature of the trust distribution at wife’s mother’s death – it was this mandatory distribution that created a vested enforceable interest in the trust. This vested interest could not be defeated by the postponement provision, especially because the wife held a general power of appointment.

Given the Court’s conclusion regarding the JJIT being included in the marital estate, it is important for planners to understand the provisions of the trust, which included the following: (i) the trust was irrevocable, settled and funded by wife’s mother with the wife as the sole beneficiary, (ii) there was an independent trustee, (iii) the trust allowed for discretionary income and principal to wife for her best interests and welfare, (iv) the entire trust corpus was to be paid to wife after the mother’s death (terminating the JJIT), (v) the trustee had a power of postponement (allowing the trustee to postpone distributions for compelling reasons (which included the possibility of divorce and pending creditor claims, among other things), (vi) the trust was spendthrift, and (vii) the wife had a testamentary general power of appointment over the trust. It should be noted that the wife had never received a distribution from the trust.

Practitioners should also warn clients who would like to make gifts to his/her children and their spouses to enrich their lives about having those gifts be part of the “fabric of the marriage.”

If clients would like to have the freedom to make gifts to their children, those clients should consider encouraging their children to sign a prenuptial or postnuptial agreement. This advice is important, even outside of Massachusetts because while trust beneficiaries may not live in Massachusetts today, they may live there at some point in the future.

The wife argued that because the trust was spendthrift and fully discretionary, her interest in the trust was merely speculative and, regardless, the trustee could always postpone a distribution to her because of the postponement provision. The Court disagreed and focused on the fact that upon the wife’s mother’s death, the entire corpus of the trust was to be mandatorily distributed to the wife, which gave her a vested and enforceable interest in the trust. The Court was unpersuaded by the argument that the trustee could postpone distributions to the wife because the wife still held a testamentary general power of appointment over the trust enabling her to control its disposition at her death. Importantly, the Court noted that the trustee had never actually postponed a distribution, and that the circumstances for a postponement might be temporary in nature or within the wife’s control, which limited the scope of the trustee’s power to postpone. The Court also stated that there was no evidence that the wife ever requested or would need to request a distribution in order to make any of the payments required to be made to the husband pursuant to the divorce judgment.

The Court distinguished this case from Pfannenstiehl (a prior Massachusetts case holding that a beneficiary’s interest in a discretionary trust was too speculative to be considered part of the marital estate) on the grounds that the trust in that case involved an open class of trust beneficiaries and no one beneficiary was entitled to any distribution.

Planning Tips There are several lessons practitioners can glean from the Jones case. One key takeaway is that planners should be cautious about creating trusts with mandatory distribution provisions.

Another focus for the Massachusetts courts seems to be on whether there is an open class of beneficiaries. The courts appear to be more willing to include the trust in the marital estate where the divorcing spouse is the sole beneficiary (as opposed to just one beneficiary among others as in Pfannenstiehl). Finally, planners should be cautioned about using ascertainable standards especially if maximum creditor protection is sought.

It remains to be seen whether the wife will appeal the Court’s decision, but in the meantime, planners must be mindful of the Jones case while planning for Massachusetts clients or those who may move to Massachusetts in the future.

Endnotes 1. Elizabeth Lindsay-Ochoa (Liz) is a Private Wealth Strategist Raymond James. She has over 20 years of experience, primarily in estate, charitable, and income tax planning. She is active in the American Bar Association’s (ABA) RPTE section, having held several leadership positions. Additionally, she is member of the Society of Trust and Estate Practitioners (STEP), where she is on the editorial board of the STEP journal. She holds her law licenses for Michigan, Colorado (inactive), New York, Connecticut, and Massachusetts.

2. Jaclyn G. Feffer is Managing Director and Senior Fiduciary Counsel at Bessemer Trust, located in the New York office at 1271 Avenue of the Americas. In this role, she is responsible for working with clients and their advisors to develop practical and efficient wealth transfer plans, and for guiding the firm on fiduciary issues. She also oversees the Bessemer Giving Fund, the sponsoring organization for Bessemer’s donor advised funds. Ms. Feffer is also a Co-Vice Chair of the Non-Tax Issues Affecting the Planning and Administration of Estates and Trusts of the Real Property, Trust and Estate Law section of the American Bar Association as well as a member of the National Conference of Lawyers and Corporate Fiduciaries.

3. Article XLIV of the Massachusetts Constitution grants power and authority to the General Court to impose and levy a tax on income.

The Article was amended by Question 1 (“Millionaires Tax”), which was enacted by the people on November 8th, 2022. It is applicable to all tax years beginning on or after January 1, 2023.

4. https://malegislature.gov/Bills/193/H4104.

5. Mass. Appeals Court Slip Op. No. 21-P-655.

Published in eReport, Fall 2023 / Winter 2024 © 2023-2024 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

FALL / WINTER 2024

15

eReport

of experience since the prior update, incorporating the legal and medical communities’ knowledge and understanding of how advance directives are made and used.

Uniform Law Commission RPTE Projects

Drafting Committees:

Newly-Approved Acts:

Conflict of Laws in Trusts and Estates. This drafting committee will attempt to clarify and resolve the many conflicts of existing state laws governing trusts and estates. The project will likely modernize the law by removing the distinction between real and personal property for purposes of administration, de-emphasizing the distinction between testamentary and inter vivos trusts, and streamlining the process of determining which laws apply to matters of construction and interpretation of wills and trusts. The drafting committee is collaborating with the American Law Institute reporters who are drafting the Restatement (Third) of Conflict of Laws. The committee’s current draft is available online, and drafting will continue over the coming years. The earliest possible approval of a new uniform act on this topic will be in summer 2025.

Revisions to the Uniform Health-Care Decisions Act. This act governs living wills and powers of attorney for health care, and reflects societal and technological changes that have occurred since it was last updated in 1993. The updates to the act, now available for enactment in all states and jurisdictions, reflect the increased prevalence of non-traditional family relationships and living arrangements, an increase in the use of electronic documents, a growing use of distinct directives for mental health care, and other developments in the way healthcare is administered. Additionally, the act builds upon 30 years

Redaction of Personal Information from Public Records. In 2020, a New Jersey federal judge’s husband and son were shot at their front door by a disgruntled former litigant who targeted the judge’s family by getting her home address from public records. In the wake of this horrific act of violence, states have begun to pass legislation allowing personal information of judges and other public officials to be redacted from public records. The drafting committee aims to address the inconsistency that has appeared amongst these state laws and create one uniform procedure for redaction.

Winter 2023 Update

By Jane Sternecky1 Below is a summary of Uniform Law Commission projects that may be of interest to members of the ABA Section on Real Property, Trust and Estate Law. Trust and Estates

Published in eReport, Fall 2023 / Winter 2024 © 2023-2024 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

FALL / WINTER 2024

16

eReport

Study Committees: Probate and Non-Probate Transfer Integration Committee.

This committee is studying the need for and feasibility of a uniform or model act that will make it easier for a court-appointed personal representative of a decedent’s probate estate to gather information about the decedent’s non-probate transfers. This act may include revisions to relevant portions of the Uniform Probate Code and other uniform trust and estate acts.

The RPTE Section appoints at least one Advisor to each uniform law commission project involving the law of real property, trusts and estates. All uniform law drafting committees are open to any interested observer and members of the RPTE Section are encouraged to join and contribute their relevant expertise. Visit www.uniformlaws.org to find more information on these committees and on other ULC projects.

Endnotes

1. Jane Sternecky, Uniform Law Commission.

Published in eReport, Fall 2023 / Winter 2024 © 2023-2024 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

FALL / WINTER 2024

17

eReport

Delaware Trust Act 2023 Legislative Update

By Todd A. Flubacher, J. Zachary Haupt and Anne Grae Martin1 Delaware made numerous significant changes to the Delaware to its trust law in 2023. The legislation amended the spendthrift statute to include certain former spouses, and also updated it asset protection trust statute. Lawyers from Morris Nichols Arsht & Tunnell LLP summarize the changes.

On August 31, 2023, Delaware Governor John C. Carney signed House Bill 132, as amended (“Trust Act 2023”), into law. The legislation includes the following highlights: • Amendment of Delaware’s spendthrift statute, 12 Del. C. 3536, to expressly include beneficiaries’ former spouses within the definition of “creditor” to clarify that the protections afforded under the statute apply to claims by beneficiaries’ former spouses.

• Amendment to a provision of Delaware’s Qualified Dispositions in Trust Act (the “APT Act”), 12 Del. C. 3573 (i.e. Delaware’s asset protection trust statute), to provide

that the provisions of the statute that ordinarily except a transferor’s spouse to whom the transferor was married at the time of the transfer from the limitations on bringing claims against trust assets are inapplicable when such spouse has been provided with certain disclosures regarding the transfer and consents in writing to the transfer.

• Amendment of a Delaware domestic relations statute relating to the disposition of marital property, 13 Del. C. 1513, to clarify that a spouse’s beneficial interest in a trust that was created by another person is not included within the term “marital property” in a proceeding for divorce or annulment involving the beneficiary-spouse.

• Amendment of Delaware’s statute regarding governing law and change of situs, 12 Del. C. 3332, to cross-reference Delaware’s statute relating to place of administration, 12 Del. C. § 3340.

• Amendment of Delaware’s statute relating to place of administration, 12 Del. C. 3340, to clarify that meeting one of the criteria listed therein is not the exclusive way to establish that a trust is administered in Delaware.

• Amendment of Delaware’s designated representative statute, 12 Del. C. 3339, to clarify that a designated representative may be appointed under the statute when an otherwise appointed designated representative fails to serve and that, in certain instances, a trustor is included among the class of persons who may not be appointed to serve as a designated representative.

Published in eReport, Fall 2023 / Winter 2024 © 2023-2024 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

FALL / WINTER 2024

18

eReport

Clarifications and updates to statutes relating to rights of spouses and former spouses: 12 del. c. §§ 3536, 3573, and 13 del. c. § 1513 One significant clarification implemented by Trust Act 2023 is the modification of Delaware’s spendthrift statute, 12 Del. C. § 3536, which codifies the rights of a beneficiary’s creditors and assignees with respect to trust assets. Prior to Trust Act 2023, the non-exhaustive list of a beneficiary’s “creditors” for purposes of Section 3536 included “any person that has a claim against the beneficiary, the beneficiary’s estate, or the beneficiary’s property by reason of any forced heirship, legitime, marital elective share, or similar rights.” Absent from this list was mention of a beneficiary’s former spouse. As a result of Trust Act 2023, however, the non-exhaustive list of creditors now also expressly includes “a former spouse who has a claim against the beneficiary, the beneficiary’s estate, or the beneficiary’s property,” which conclusively resolves the issue and should make trustors, beneficiaries and their counsel comfortable that a beneficiary’s former spouse is indeed a “creditor” under Delaware’s spendthrift statute and, consequently, has no rights with respect to the assets of a spendthrift trust in the absence of a contrary provision in the governing instrument or a power vested in the beneficiary that would cause the assets to be reachable under the statute.

Notably, the synopsis to Trust Act 2023 explains that the amendment of Section 3536 is not an expansion of rights, but rather a clarification of existing law. Any prior confusion on this subject resulted from a misinterpretation of the 1973 Delaware Supreme Court case, Garretson v. Garretson, 306 A.2d 737, 742 (Del. 1973). Garretson involved a separated couple where the husband, who was a beneficiary of a testamentary spendthrift trust, failed to satisfy obligations to his wife, to whom he was still married, under the terms of a separation agreement. To obtain jurisdiction over the husband, the Court of Chancery issued a sequestration order over the trust income. The husband appealed, arguing that the trust income could not be sequestered because it was a spendthrift trust and the Court, noting the support obligation of the husband to his wife, held that the spendthrift clause did not apply to the wife because she was not the husband’s creditor. Notably, however, the Court assumed for purposes of the ruling that the husband and wife were still married and expressly acknowledged that the situation could be entirely different if the wife lost her status as wife (i.e., if husband and wife were divorced).

By adding former spouses to the non-exhaustive list of creditors under Section 3536, Delaware statutory law now makes it entirely clear that a former spouse is, indeed, treated as a creditor for purposes of Delaware’s spendthrift statute.

Amendments to 12 Del. C. § 3573 Trust Act 2023 makes another change that impacts spousal rights by amending Delaware’s APT Act. In general terms, the APT Act enables a transferor to create and fund a trust for the

benefit of the transferor (i.e. a so-called self-settled asset protection trust) that will not be subject to claims by certain creditors of the transferor. Since its enactment, 12 Del. C. § 3573 has provided that the limitations imposed by the APT Act do not apply to any person to whom the transferor is indebted on account of an agreement or order of court for the payment of support or alimony in favor of such transferor’s spouse, former spouse or children, or for a division or distribution of property incident to a judicial proceeding with respect to a separation or divorce in favor of such transferor’s spouse or former spouse. The definition of “spouse” under the APT Act is only persons to whom the transferor was married at, or before, the time the transfer to the asset protection trust was made. In other words, a spouse to whom the transferor was married at the time of the transfer is a so-called “exception creditor” and a transferor could not use the Qualified Dispositions in Trust Act to avoid claims by such “spouse” against the transferor in the event of a divorce.

The amendment to Section 3573 adds new paragraph (c) that enables a transferor to make a qualified disposition in trust that will not be subject to claims by the transferor’s current spouse, provided that the spouse receives certain disclosures and provides written consent. New Section 3573(c) requires that the following information and documents are provided to the spouse before the qualified disposition is made: (i) a written instrument providing notice of the qualified disposition as described in the statute and consent to the qualified disposition as described in, and executed in accordance with, the statute; (ii) a copy of the Qualified Dispositions In Trust Act; and (iii) a copy of the governing instrument of the trust that is the subject of the qualified disposition, (iv) a list of the property that will be the subject of the qualified disposition, and (v) disclosure of all material information relating to the value of such property, a reasonable estimate of the value of such property, and the basis for such estimate.

Paragraph (c)(2)a of Section 3573 provides that the written instrument required by the statute must contain the following statement, in capital letters.

YOUR SPOUSE IS CREATING OR HAS CREATED AN IRREVOCABLE TRUST INTO WHICH PROPERTY IS BEING TRANSFERRED. A COPY OF THE TRUST INSTRUMENT THAT WILL GOVERN OR GOVERNS SUCH IRREVOCABLE TRUST IS ANNEXED HERETO AS AN EXHIBIT. THE PROPERTY THAT IS TO BE TRANSFERRED TO THE IRREVOCABLE TRUST, WHICH IS THE SUBJECT OF A PROPOSED DISPOSITION UNDER DELAWARE’S QUALIFIED DISPOSITIONS IN TRUST ACT (12 Del. C. §§ 3570 et seq.), IS AS FOLLOWS: . THE ESTIMATED VALUE OF SUCH PROPERTY IS . YOUR CONSENT TO YOUR SPOUSE’S TRANSFER TO THE TRUST DESCRIBED HEREIN IS IRREVOCABLE AND YOUR RIGHTS TO THIS PROPERTY AS A SPOUSE OF THE TRANSFEROR WILL BE AFFECTED DURING YOUR MARRIAGE, UPON DIVORCE (INCLUDING THE PAYMENT OF ALIMONY OR A DIVISION OR DISTRIBUTION OF PROPERTY IN A DIVORCE), OR AT THE DEATH OF YOUR SPOUSE.

Published in eReport, Fall 2023 / Winter 2024 © 2023-2024 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

FALL / WINTER 2024

19

eReport

Section 3573(c)(2) further requires that the written statement must contain a list of the property that will be the subject of the qualified disposition, contain a reasonable estimate of the value of such property, contain the consent of the transferor’s spouse, which consent may be with or without consideration, to the qualified disposition, and be signed by the transferor’s spouse and witnessed in writing by someone other than the transferor or any person related or subordinate to the transferor within the meaning of § 672(c) of the Internal Revenue Code.

The general concept behind this expansion of the statute is that, if spouses can agree to a division of assets through premarital and postnuptial agreements, they should be permitted to knowingly and willfully agree to qualified dispositions to a Delaware asset protection trust that may affect their rights, provided they follow the required notice and written consent.

Spouses might agree to post-nuptial arrangements where certain assets are in trust for one spouse, protected from the claims of the other spouse in the event of divorce. In practice, it may be advisable for both spouses to have separate legal representation when entering into a Section 3773(c) notice and consent, similar to other pre-nuptial and post-nuptial agreements. Additionally, trustees of Delaware asset protection trusts may wish to include a new item on their intake checklists, inquiring whether the transferor is married at the time of the transfer and, if so, whether the transferor’s spouse has signed a Section 3773(c) notice and consent so that the trustee is aware of whether the spouse is (or is not) an exception creditor. Obviously, the notice and consent should be delivered to the trustee, along with the solvency affidavit and other relevant documents.

Amendments to 13 Del. C. § 1513 Additional updates in Trust Act 2023 relating to spouses are the amendments to Delaware’s domestic relations statute relating to dispositions of marital property, 13 Del. C. § 1513.

One such amendment clarifies that “marital property” does not include gifted property held in a trust that was created by another person of which the donee spouse is a beneficiary, regardless of whether other individuals are beneficiaries of the same trust. The second such amendment adds language to Section 1513 to confirm that a discretionary interest in a trust as described in 12 Del. C. § 3315(b) is not “property acquired” by the spouse as such term is defined in Section 1513.

Section 3315(b) of Title 12 of the Delaware Code generally provides that a beneficiary eligible to receive distributions from a trust in the discretion of a trustee or other fiduciary has a discretionary interest in the trust, a discretionary interest in a trust is a mere expectancy, not a property right, and a beneficiary eligible to receive distributions from a trust in the discretion of a trustee or other fiduciary, even if subject to an ascertainable standard, has a discretionary interest in the trust.

These amendments provide greater certainty regarding the treatment of trust assets in the event of divorce.

CLARIFICATIONS TO STATUTES INVOLVING Place of administration and Governing Law: 12 del. c. §§ 3332 and 3340 Section 3340 of Title 12 of the Delaware Code provides a set of criteria for determining when a trust is administered in Delaware. Section 3332 of Title 12 of the Delaware Code addresses, among other things, the determination of governing law.

Because Section 3332 provides that Delaware law ordinarily governs the administration of a trust when the trust is administered in Delaware, Sections 3332 and 3340 work in tandem to establish a statutory framework for conducting a governing law analysis under Delaware law.

Sections 3340 and 3332 were both modified by Trust Act 2023 to clarify the application of these sections and the connection between them. First, Section 3332 was modified to add an express cross-reference to Section 3340, emphasizing that, subject to a contrary provision in a trust’s governing instrument, the laws of Delaware shall govern the administration of a trust while the trust is administered in Delaware as provided in Section 3340. Next, Section 3340, which establishes criteria for determining place of administration in Delaware(usually the presence of a Delaware corporate trustee serving with or without individual trustees or if the sole individual trustee or a majority of individual trustees (if only individual trustees are serving) resides in Delaware), was modified to clarify that satisfying the framework set forth in the statute is not the exclusive method of determining that a trust is administered in Delaware.

The amended statutory language recognizes the reality that the determination of place of administration can, in addition to meeting the criteria of the statute, be satisfied through other methods, such as an analysis of the relevant facts, and complying with common law conflict of laws analysis.

SECTION 3339—DESIGNATED REPRESENTATIVES Delaware’s designated representative statute, 12 Del. C. §3339, provides for the appointment of a designated representative to represent beneficiaries – usually beneficiaries whose rights to information are restricted or eliminated under the terms of the governing instrument and minor, incapacitated and unborn beneficiaries – in certain circumstances. Prior to Trust Act 2023, the appointment of a designated representative by the trustor (under subsection (a)(4)) or by a beneficiary himself or herself (under subsection (a)(5)) was not permitted if a designated representative was appointed for such beneficiary in a manner prescribed by the trust’s governing instrument (under any one of subsections (a)(1) through (3)).

Trust Act 2023 amends Section 3339 to provide that appointment by the trustor or by the beneficiary is prohibited if a designated representative is not appointed and serving under the statutorily-preferred methods, which recognizes the possibility that a designated representative may have been appointed but may not be then willing or able to serve. This

Published in eReport, Fall 2023 / Winter 2024 © 2023-2024 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

FALL / WINTER 2024

20

eReport

minor but meaningful change should add utility to the statue and potentially avoid issues in a situation where a designated representative had been appointed but is not willing or able to serve. Where, formerly, parties may have arguably been left without a clear path to appoint a new designated representative, this amendment may present additional flexibility.

Additionally, prior to Trust Act 2023, Section 3339 provided that when the trustor appoints a designated representative for purposes of representing a minor beneficiary, a beneficiary who is incapacitated, an unborn beneficiary, or a beneficiary whose identity or location is unknown and not reasonably ascertainable, in any nonjudicial matter, as such term is defined in § 3303(e) of Title 12, the appointed designated representative must not be related or subordinate to the trustor within the meaning of § 672(c) of the Internal Revenue Code. As a result of Trust Act 2023, Section 3339 was amended to clarify that the trustor is also prohibited from appointing himself or herself under such circumstances.

Endnotes 1. Morris Nichols Arsht & Tunnell LLP Todd A. Flubacher, J.

Zachary Haupt and Anne Grae Martin

Published in eReport, Fall 2023 / Winter 2024 © 2023-2024 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

FALL / WINTER 2024

21

eReport

viewing this background as pedestrian should consider Tax Reimbursement Those a recent high profile professional liability case which highlighted how important it is to communicate these fundamentals in order to prevent a potential malpractice claim Clauses: Drafting and or, attoaclients minimum, significant frustration from the client or future beneficiaries.

Planning

By Yaser Ali, Esq., Martin M. Shenkman, Esq., Jonathan G. Blattmachr, Esq. Yaser Ali, Martin M. Shenkman, and Jonathan G. Blattmachr explore the complex area of tax reimbursement clauses in irrevocable Grantor trusts. They first review the basics and then dive into the many complexities surrounding these important provisions.

Introduction A tax reimbursement clause is a common clause in many irrevocable grantor trusts that enables a trustee to reimburse the grantor for taxes paid.

While most tax, estate planning, and allied professionals understand why they are used, these powerful but nettlesome clauses are not always fully appreciated nor adequately administered. This article provides a refresher on the basics of tax reimbursement provisions, outlines their pros and cons (especially in light of a few rather divergent views among some commentators), and discusses various considerations when administering these tax provisions.

Risks To Practitioners

In Estate of Wellen, the decedent’s estate alleged that the attorney – who had worked with the decedent for over 10 years on his estate planning –allegedly had failed to inform the decedent of the “risks and consequences” of including a discretionary tax reimbursement clause, to reimburse the grantor for income tax due on income of the trust attributed for income tax purposes to the grantor in an irrevocable grantor trust.1 In particular, the estate alleged that the decedent was not adequately informed of the details of the consequence of a grantor trust and of the implications of the “tax burn” on the grantor of the trust (meaning how the grantor’s payment of the income tax on the trust income imputed to the grantor reduces the value of the grantor’s estate because the grantor must pay the income taxes on the income). While the court ultimately only addressed whether a statute of limitations had passed, the case demonstrated the importance of properly explaining and memorializing, in writing, the mechanics of a tax reimbursement clause as part of the counseling process that relates to the establishment of a Grantor Trust.

Might the inclusion of a tax reimbursement clause have mitigated this issue? What if no tax reimbursement clause were included? The trust instrument might expressly state that one

Published in eReport, Fall 2023 / Winter 2024 © 2023-2024 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

FALL / WINTER 2024

22

eReport

was not included to avoid any ambiguity that the use of such a clause had been discussed with the grantor. What if the trustee refused to exercise the right to reimburse, or did so to a lesser degree than the grantor wished? What if the beneficiaries of the trust, children from a prior marriage of the grantor, challenged the trustee’s decision to reimburse? What if a trust includes a tax reimbursement clause but it is not exercised prudently?

If the grantor, rather than the trustee, is able to pay the income tax on the income earned by the trust, the trust corpus compounds even faster. While the reason for this is obvious to practitioners, not all clients will “connect the dots” without guidance. Since the grantor is paying the income tax on trust income, the value of the trust is effectively growing, really compounding, on an income tax-free basis.

Foundations: What Is a Grantor Trust?

For many wealthy clients there is a second benefit associated with this structure. Since the client pays the income tax on trust income, not only does the trust grow faster, but the value of the grantor’s taxable estate is concurrently reduced by the amount of the income tax payments. That reduction in the client’s estate – effectively tax-free annual gifts – sometimes referred to as “tax burn,” can be a positive benefit as it reduces the assets subject to estate tax and places them out of the reach of creditors. But the moniker “burn” is appropriate as too much of a good thing, i.e., too heavy a tax cost borne by the client post transfer to the trust, may come to be viewed by the client as a hardship or negative result (even if it, in fact, remains a positive result in terms of effectuating wealth transfer).

To understand the use and utility of a tax reimbursement clause, the practitioner needs to first understand what a grantor trust is and how it works. Again, some of this discussion may seem introductory to the seasoned practitioner but can be useful to educate clients who are engaging in this type of planning.

An Intentionally Defective Grantor Trust (“IDGT”)2 is a trust which a grantor sets up for the benefit of someone else that is treated as a completed gift for federal estate and gift tax purposes but is treated as still owned by the grantor for federal income tax purposes. The trust is “intentionally defective” because the trust instrument includes one or more retained powers which causes the grantor to include the income, deductions, and credits of the trust on her person tax return despite no longer having access to trust assets.3 To understand this odd result, a bit of historical context might be helpful. When the marginal income tax rates were much higher than they are today, taxpayers would try to save income taxes by engaging in planning to shift income to a trust that would then pay income tax at a lower rate.4 In 1953, for example, the lowest tax bracket was set to be 17% and the top bracket at 88%, making income tax shifting extremely valuable.5 Congress reacted to that type of planning by enacting rules to cause the income of certain trusts to be taxed to the person considered the grantor of the trust. This, in turn, limited many of these types of income tax planning strategies. But these Congressional restrictions on the use of grantor trusts as income tax planning tools were eventually reimagined by creative planners as constructive tools to aid in estate planning.

Grantor Trusts Become a Common Estate Planning Tool In 1986 when the tax law started taxing non-grantor trusts in a much harsher way, practitioners began using grantor trusts primarily for estate tax planning purposes. By retaining substantial benefits or control with the grantor, tax practitioners realized that what may have seemed to be a negative income tax result could be a powerful estate planning tool that effectively allows for tax free compounding of assets in the trust. Clients who gift or sell assets to an irrevocable trust hope, from an estate tax and ” perspective, to freeze the value and have those assets grow inside the trust as rapidly as possible.

Because the Grantor is treated as the trust’s owner, there are no income tax consequences to the transaction but the structure allows the assets to pass outside the grantor’s taxable estate and away from the reach of potential creditors.6

Further, and critical to this benefit, is that the grantor’s payment of income taxes on trust income is not deemed to constitute an additional gift to the trust or utilization of the grantor’s annual exclusion or lifetime exemption because the grantor was liable under the tax laws to pay that income tax.

Tax Burn Can Grow to become A Negative Feature to the Grantor Grantor trusts thus increase growth outside of the client’s estate and reduce what is left in the estate. So, if this may all be advantageous, why would anyone want to restrict or limit these benefits?

A grantor trust burn may become an excessive burden for the grantor, for example, if an asset inside the trust balloons in value. For example, a speculative investment in a private equity deal balloons in value and is then sold, resulting in a large capital gain. A well-drafted trust may include an option to toggle off the grantor trust status either by action of a trust protector or other named or identified person, or by various persons renouncing or turning off the powers that create grantor trust characterization. Or perhaps this type of issue could be ameliorated by swapping in cash or other assets for the position before the substantial growth occurs, or before a sale occurs confirming a higher value. But neither approach may be a good option or the right plan from an estate planning perspective. In other instances, it is possible that they grantor may not have fully grasped the implications of the tax burn of a grantor trust until after paying for the increased income tax costs for several years.

One approach to address this potential concern in advance might be to have forecasts completed modeling what the impact to the settlor might be of grantor trust burn under different scenarios. That may be particularly helpful as a

Published in eReport, Fall 2023 / Winter 2024 © 2023-2024 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

FALL / WINTER 2024

23

eReport

settlor’s conceptual understanding may fall short of what the actual implications might be. Further, with longevity, years, even decades of compounding of grantor trust burn can over time and depending on the circumstances significantly erode the settlor’s remaining non-trust estate. Also, with the desire of some clients to shift large portions of their wealth into such trusts for perceived asset protection or estate tax benefits (e.g., to use exemption before it is reduced in 2026 by legislation already enacted) that may exacerbate the impact on the settlor’s remaining estate from the tax burn. If forecasting is used, and too often clients simply refuse to take the recommended step, practitioners might consider the assumptions used in the model. For example, what will the growth and income of assets be, what will marginally tax rates be changed to over time, and what might the impact of a linear model be?

Regardless of the causal factor, if the grantor trust burn becomes too burdensome in the view of the grantor, what can be done?

What if the grantor simply does not wish to continue paying the income tax on a trust’s earnings? What if the grantor does not have the cash to pay the income taxes due on trust income?

A tax reimbursement clause enables the trustee to reimburse the grantor for the income taxes paid on trust income, which can offer a solution to the grantor’s cash flow concerns. Further, because no client transfers all of their wealth to a grantor trust, a second, seemingly counterintuitive result is attained by the inclusion and exercise of a tax reimbursement clause: by reimbursing the grantor for income taxes paid on trust income, more assets will be left in the grantor’s taxable estate for the grantor’s beneficiaries – who may or may not be the same beneficiaries of the grantor trust.

The fact that a tax reimbursement may add to a client’s estate, the opposite result of what the initial wealth transfer plan may seek to accomplish, should be considered by practitioners when explaining the possible application of a tax reimbursement clause to the grantor during the planning stages of the trust, and again before any application or use of the tax reimbursement provision after the trust is funded.

These pros and cons could be incorporated into a discussion with a client evaluating whether or not to include a tax reimbursement clause in a trust, or if the client has a trust with such a clause, whether or not and when it should be used.

Should a Tax Reimbursement Clause be Included in Every New Grantor Trust?

Some tax advisers insist that a tax reimbursement clause be included in every grantor trust. On the opposite end of the spectrum, other tax advisers recommend that a tax reimbursement clause should never be used out of concern that this type of clause – if improperly used – may increase the risk of all trust assets being included in the grantor’s estate as a result of the tax reimbursement clause being viewed as a retained right in the trust or as the grantor being a beneficiary of the trust which under some state laws could result in estate inclusion.7

The IRS published its position on the matter in Revenue Ruling 2004-648 in which it held that (a) a mandatory tax reimbursement clause would cause the full value of the trust’s assets to be includible in the grantor’s gross estate under Internal Revenue Code Section 2036(a)(1), (b) a provision that granted the trustee discretion to reimburse the grantor for taxes paid – regardless of whether or not it is exercised – would not cause the trust assets to be included in the grantor’s estate, and (c) the trust’s governing instrument or applicable local law would be instructive in determining whether the assets would be included in the grantor’s estate and thus accessible to creditors.

Importantly, the Ruling warns that even a discretionary reimbursement power may result in estate inclusion in certain cases. These situations may include a pre-existing explicit agreement between the grantor and trustee, or an implied understanding based upon the frequent exercise of the clause.

As a result of this Ruling, one would imagine many states would pass laws clarifying their position but so far (as of the date of this publication) only six states have enacted legislation authorizing reimbursement clauses and twelve others have passed laws preventing a grantor’s creditors from reaching the assets inside of a grantor trust based simply on the inclusion of such clauses.9 Advising Clients If you are assisting a client in planning a new grantor trust, you should discuss with the client and his or her advisory team the pros and cons of including a tax reimbursement clause in the trust. Each of the trust officer, wealth adviser, CPA and estate planning attorney may have different perspectives on what might be the advisable course of action for the particular trust being planned. The key, perhaps, especially in light of the allegations in Estate of Wellen, is that whatever is done should be a thoughtfully considered decision. For practitioners, it may be advisable to record or otherwise memorialize the discussion with the client so that whatever option is pursued, if a complaint is later rendered by the client or a beneficiary of the trust, there will be a means for the practitioner to deflect that challenge.

Many advisers recommend that financial modeling be done before a client creates a trust. The wealth adviser may be able to forecast results based on life expectancies and expected investment returns and illustrate the impact of tax burn and reimbursement. While that analysis is likely beneficial to have done in all instances, at minimum it may help the client and advisory team to better understand potential or possible economic implications of the plan. But a forecast, while useful in theory, is unlikely to depict how the financial future may actually play out. Thus, even with robust Monte Carlo simulations, the grantor may still not be able to determine with certainty the potential future financial status and tax consequences.

There will always be uncertainties. Since no one can predict

Published in eReport, Fall 2023 / Winter 2024 © 2023-2024 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

FALL / WINTER 2024

24

eReport

accurately inflation or investment returns over the long term, or a myriad of other factors, perhaps including a tax reimbursement clause as a safety valve might be a good measure.

Including a discretionary tax reimbursement clause, if not trigger creditor attachment under state law, seems prudent, but emphasizing that it may not need to be utilized unless it becomes absolutely necessary may be advisable. Also, practitioners might explain to clients that the clause is in fact discretionary, and a trustee may not view exercise as appropriate in the same circumstances, or to the same degree, as the client might wish.

What If Your Grantor Trust Does Not Have a Tax Reimbursement Clause?

If the client has an irrevocable grantor trust that does not include a tax reimbursement clause, and the client no longer wishes to continue paying income taxes on trust income, it may be feasible, according to some commentators, to decant (merge) the trust into a new trust and in that process add a tax reimbursement clause (in some cases, only if court approval can be obtained).10 In some instances it may be necessary to first migrate or decant to a jurisdiction with a favorable trust reimbursement statute.

Another option, if someone holds a power of appointment, might be to have a powerholder exercise the power directing the property to be added to another trust, perhaps, even to a trust that has a tax reimbursement provision. The powerholder may be able to exercise the power of appointment and direct that the current trust be poured into a new trust that is identical to the current trust but which also includes a tax reimbursement clause.

A third approach might be to turn off grantor trust status (although that might be difficult if not impossible to achieve).

If the trust is no longer a grantor trust, then the grantor will no longer have to pay the income tax on trust income. But such a conversion is not always a simple or a cost-free step. If the grantor trust has liabilities in excess of basis, conversion could trigger gain.11 But it may not be a simple matter to convert a grantor trust into a non-grantor trust. If, for example, the grantor’s spouse is a beneficiary that may not be possible (unless, of course, distributions to the spouse have to be approved by an adverse party).

Should A Trust’s Tax Reimbursement Clause Be Used?

Whether or not a tax reimbursement clause should be used may depend on the grantor’s current and future tax and economic circumstances. Reimbursing the grantor for income taxes paid on trust income may not be an advantageous estate planning or asset protection result as it results in more value being included in the grantor’s estate. This may reduce the purpose of the client having created the trust plan in the first place. So, maybe, the general rule is to avoid using a tax reim-

bursement clause even if included in the client’s irrevocable trust. But if the client really must use the tax reimbursement clause, e.g., because of a large capital gain, the advisory team should evaluate that use, assure the formalities discussed below are considered, and use it as infrequently and to the least degree possible.

How To Administer a Tax Reimbursement Clause There are several requirements and other suggested practices on how to use tax reimbursement clauses in a manner that might reduce the risk of causing the entire trust to be included in the grantor’s gross estate, or enabling the grantor’s creditors to reach the trust assets.12 The pundits that advocate for not using tax reimbursement clauses might be concerned about the fact that trustees, especially family or individual as contrasted with corporate or professional trustees, often trip up over one or more of these rules or recommendations. Perhaps those saying that tax reimbursement clauses should always be included in trusts presume that trustees will handle a tax reimbursement mechanism properly.

As a preliminary matter, as outlined in See Rev. Rul. 2004-64, it is essential that if a tax reimbursement clause is included in a trust agreement, the trustee must not be mandated by the trust to reimburse the grantor for taxes paid on trust income.

The action of reimbursing must be discretionary in the trustee.

Draftspersons should be certain that the trust instrument uses appropriate language.13 State law should not permit a creditor of the grantor to reach trust assets as a result of the tax reimbursement clause or act.

While some states have enacted legislation permitting reimbursement without subjecting trust assets to the grantor’s creditor’s claims, practitioners should confirm that before forming a trust with a tax reimbursement clause. If state law does not support the desired result, consider creating the trust in a state that has favorable law on this point, or moving the situs and governing law of a trust in a jurisdiction that is not supportive to the clause already in the trust instrument.

If a tax reimbursement clause is to be used, the trustee and anyone else involved should consult with the advisory team for the trust before implementation. The attorney for the trust should confirm that the exercise of the tax reimbursement clause complies with the terms of the governing instrument.

In too many situations the clients/trustees without input from counsel exercise a reimbursement clause in a manner that does not comport with the requirements of the governing instrument. The accountant for the grantor should be involved and should calculate what tax the grantor has incurred on trust income and that should be documented. Consider having the grantor’s Certified Public Accountant calculate and document what that tax cost is, including any calculations and assumptions used in those calculations. That calculation should address whether the tax reimbursement amount is being calculated on an average or marginal basis and which-

Published in eReport, Fall 2023 / Winter 2024 © 2023-2024 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

FALL / WINTER 2024

25

eReport

ever approach is used should be consistent with the terms of the instrument. That documentation could be part of the trustee’s records in determining how much the reimbursement will be. There might also be records of the trustee confirming that the trustee made an independent discretionary decision to reimburse the grantor for taxes (e.g., the meeting minutes of trustee committee charged with this decision). Consider that any reimbursement of the grantor for income taxes is detrimental economically to the beneficiaries of the trust to whom the trustee owes a fiduciary duty. That may be important for the trustee to consider, and to document accordingly any considerations made.

When selecting the trustee of a trust, it is appropriate to consider who will be the trustee if a tax reimbursement is going to be acted upon. If a family member or friend of the grantor is named as trustee, then perhaps that trustee should be replaced by an independent person, and ideally a professional trustee, before a tax reimbursement is made pursuant to the trust instrument. Using a corporate trustee may be even safer.

There should probably not be a pattern of tax reimbursements being made. If a tax reimbursement is made on a regular or periodic basis that may look as if there was an implied agreement between the grantor and the trustee to fund tax reimbursements. That could be problematic. One thought might be to start with A as trustee but then have A resign and have B, who was not involved with the setup of the trust, become the trustee before any tax reimbursement payments are made.

That approach would seem to negate a challenge that there was an understanding as between the trustee and the grantor from inception of the trust.14 This suggestion is also consistent with an earlier acknowledgement that each exercise of a tax reimbursement mechanism reduces the assets removed from the grantor’s estate, which may be contrary to the intent for the trust plan.

Possible Other Approaches to Consider Besides a Tax Reimbursement Finally, while tax reimbursement clauses are an enticing and powerful technique to account for situations where Grantors are unintentionally left with large tax bills, there are several alternate potential solutions besides a tax reimbursement mechanism which should be considered as well, a few of which are outlined below: • Swap out the asset, or portion of that asset, which starts to realize significant appreciation, or before a realization event fixing the value at a higher amount then may be supportable at an earlier date.

• Make distributions to the grantor if the grantor is then a beneficiary of the trust and if permitted under the terms of the trust and state law (e.g., in a domestic asset protection trust (DAPT) or hybrid DAPT, but the latter would first require adding the grantor back as a beneficiary) or if the trust were formed as a Special Power of Appointment Trust or SPAT.15 • Make distributions to the grantor’s spouse if the grantor is married and if permitted under the terms of the trust (e.g., in a SLAT).

Exploring other possible options to provide cash flow to the grantor for use in paying income tax may be advantageous to consider if: • The trust does not have a tax reimbursement provision and it is not feasible to add one.

• The trust includes a tax reimbursement provision but the trustee does not choose to exercise such a discretionary provision.

• The trust includes a tax reimbursement provision but the trustee has already used the tax reimbursement provision or there is a concern that it may be exercised too frequently and might be interpreted by the IRS or creditors that there is an implied agreement to use the mechanism as between the grantor and the trustee.

Conclusion Tax reimbursement clauses can be a valuable and flexible tool to consider including in grantor trusts. The decision to include one or amend a trust to add one may depend on how the advisor team views the plan and the applicable law. If such a mechanism is included in a trust instrument, caution the client to be careful on how it is administered. Practitioners should consider documenting in writing that they have advised the grantor about the risks of not incorporating a tax reimbursement clause if one is not to be used. If one is used, practitioners might consider documenting in writing that the mechanism should only be used infrequently, with care, and under the supervision of the advisory team.

In a recent Chief Counsel Advice (CCA) issued November 28, 2023, the IRS took the position that modification of a grantor trust, with the beneficiaries’ consenting to that modification in order to add a discretionary income tax reimbursement provision for the grantor, resulted in a taxable gift by the beneficiaries. A discussion of the CCA and planning considerations relating to it will be published in a subsequent article.

• Turn off grantor trust status to eliminate the tax liability to the grantor.

• Loan the grantor funds if the trust includes provisions permitting such a loan.

Published in eReport, Fall 2023 / Winter 2024 © 2023-2024 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

FALL / WINTER 2024

26

eReport

Endnotes 1. Estate of Wellin v. Farace et al. No 20-1120 (4th Cir. Nov 22, 2021); See also Glazier, Shenkman, Blattmachr & Garin, “Wellin v. Nixon, Peabody, LLP - Case Lessons on Defensive Practice,” LISI Estate Planning Newsletter #2934 (January 20, 2022) 2. The moniker, “intentionally defective grantor trust,” is a misnomer.

A trust may be a grantor trust (causing the income, deductions and creditors against tax to be attributed to the grantor) whether that was intended or not. Moreover, although at one time it was viewed that grantor trusts were viewed was “bad” or defective, today they are regarded as a most powerful estate tax planning tool.

3. See IRC §§671 through 679.

4. See e.g., Corliss v. Bowers, 281 U.S. 376 (1930); Lucas v. Earl, 281 U.S. 111 (1930).

5. Understanding Grantor Trusts, Steven Siegel, NAEPC Journal Issue 36 6. See Rev. Rul. 85-13, 1985-1 C.B. 184.

7. Strategies for Mitigating the ‘Burn’ of Grantor Trust Status, Kristen A. Curatolo and Jennifer E. Smith, Bloomberg Tax (May 11, 2023) 8. Available at https://www.irs.gov/irb/2004-27_IRB#RR-2004-64 9. See Jennifer Smith and Kristen Curatolo, Grantor Trust Reimbursement Statutes, Trusts & Estates, February 2021; Curatolo and Smith, Bloomberg (2023); for further discussion of considerations for tax reimbursement clauses; Kim Kamin, Where Are All The Grantor Trust Reimbursement Statutes? Why Aren’t They More Ubiquitous?

WealthManagement.com (2018), https://www.wealthmanagement. com/wealth-planning/estate-planning (last visited Feb 16, 2023).

10. Delaware, Todd Flubacher and J. Zachary Haupt, Trusts & Estates August 2019, at p. 49.

11. See, e.g.., Rev. Rul. 77-402.

12. Rev. Rul. 2004-64, issued July 6, 2004 (2004-27 IRB 7).

13. See Samuel A. Donaldson, Burning Questions (and Even Hotter Answers) About Grantor Trusts, NAECP Journal of Estate & Tax Planning (2010), https://www.naepcjournal.org/ (last visited Feb 16, 2023); https://www.wealthmanagement.com/estate-planning/whereare-all-grantor-trust-reimbursement-statutes 14. See Nate Patterson & Craig Benson, Clarity on Income Tax Reimbursement for Grantor Trusts in Nebraska Society of CPAs (2022), http://www.nescpa.org/ (last visited Feb 16, 2023). “The continued and repeated exercise of the power on a routine basis increases the risk of an IRS challenge, so the conservative trustee should show restraint and only exercise the power judicially.”

15. See O’Connor, Gans, and Blattmachr, “The SPAT: A Flexible Asset Protection Alternative to DAPTs,” 46 Estate Planning 3 (Feb. 2019).

Published in eReport, Fall 2023 / Winter 2024 © 2023-2024 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

FALL / WINTER 2024

27

eReport

New California Law Attacks NINGs and DINGs

By Faith H. Liveoak and Mark A. Ziemba California has closed the income tax “loophole” for out-ofstate incomplete gift non-grantor trusts (“INGs”). Previously, if not otherwise distributed to a California resident, income earned on assets held in an out-of-state ING would not be subject to California income tax, making this an attractive structure for income tax planning. However, under the newly enacted Cal. Rev. & Tax. Code Section 17082, the income of an ING is now included in the gross income of a Grantor of the ING, as if the ING was a Grantor Trust On July 10, 2023, California Governor Gavin Newsom signed into law S.B. 131, which included a provision targeting the California state income tax treatment of incomplete gift non-grantor trusts (“INGs”). Under the prior law, a Grantor who contributed property to an ING did not report the trust’s income on their California state income tax return, unless the Grantor received a distribution of distributable net income (“DNI”) from the ING. Under the newly enacted Cal. Rev. & Tax. Code Section 17082, the income of an ING is included in

gross income of a Grantor of the ING, as if the ING was a Grantor Trust. The new rules are retroactive to January 1, 2023.

Incomplete Gift Non-Grantor Trusts: An ING is an incomplete gift non-grantor trust. Whether the trust is a NING or DING depends on whether they are established in Nevada (a “NING”) or Delaware (a “DING”). NINGs and DINGs were initially pitched to residents of high-income tax states, like California and New York, as a strategy for avoiding state income taxes. An ING is funded when a Grantor (also commonly referred to as a “Settlor” or “Trustor”) makes an incomplete gift1 to an irrevocable non-grantor trust in Nevada or Delaware, often with a Nevada or Delaware Corporate Trustee.

Since the gift is “incomplete” the Grantor is not required to file a Federal Gift Tax Return, pay gift taxes, or use any of the Grantor’s Unified Credit. The assets transferred to the ING will still be included in the Grantor’s estate for estate tax purposes.

A Grantor Trust is a trust wherein all of the Trust’s income is treated as income of the Grantor, and is reported on the Grantor’s individual federal and state income tax returns.2 As a “non-grantor” trust, the ING is a separate taxpayer, and, to the extent that income is not DNI that is distributed to a beneficiary in the tax year it is earned, the ING reports the trust’s income on its own federal income tax return. When an ING is formed in states that do not tax an irrevocable trust’s income (like Nevada and Delaware), the only income tax paid by the ING is federal income tax.3 Unless DNI is distributed

Published in eReport, Fall 2023 / Winter 2024 © 2023-2024 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

FALL / WINTER 2024

28

eReport

to a Grantor in the year that it is earned, the Grantor of an ING does not report any of the ING’s income on their federal income tax return.

beneficiary during the tax year. A Grantor of an ING will not report the ING’s income on their Federal Income Tax Return.

Legislative History of Cal. Rev. & Tax Code Section 17082:

Grantors of INGs should evaluate whether their California income tax obligations are impacted as a result of the enactment of Cal. Rev. & Tax. Code Section 17082. A California-resident who is a Grantor of an ING will be required to report the ING’s income on their individual California income tax return, as if the ING was a Grantor Trust. A non-California-resident who is a Grantor of an ING should evaluate whether the ING produces any California-source income, and consider consulting with a California tax professional as to whether the Grantor is required to report that income on a California individual income tax return.

In 2020 the Franchise Tax Board (“FTB”) released a legislative proposal, which recommended treating INGs as grantor trusts for state income tax purposes.4 The FTB’s proposal suggested that the change in the law could result in an additional $1723M in annual revenue for California. The FTB’s proposed legislation was modeled after New York’s anti-ING law (New York Tax Law Section 612(b)(41)), which took effect in 2014 and resulted in New York treating INGs as Grantor Trust’s for state income tax purposes.

On January 10, 2023, Governor Newsom indicated that California was intending to go after ING income in the proposed 2023-2024 Governor’s Budget for California. Shortly thereafter, on January 18, 2023, S.B. 131 was introduced. On June 26, 2023, an amended version of S.B. 131 was released, which included the proposed language of California Revenue & Taxation Code Section 17082. S.B. 131 was signed into law by Gov. Newsom on July 10, 2023.

California Revenue & Taxation Code Section 17082: Under the newly enacted Cal. Rev. & Tax. Code Section 17082, for taxable years beginning on or after January 1, 2023, income from an ING will be included in the Grantor’s gross income, as if the ING was a Grantor Trust. For a California-resident Grantor, all of the ING’s income, regardless of whether it is California-source, will be included in the Grantor’s California income tax return and will be subject to California income tax.

Conclusion:

Endnotes 1. Treas. Reg. §§ 25.2511-2.

2. See, e.g., Internal Revenue Code §§ 670 – 679.

3. Please note, if an ING has California-source income, the ING is required to file a California fiduciary income tax return and pay California income taxes on the California-source income, to the extent that the California-source income was not actually distributed to a beneficiary in the tax year that it was earned. If California-source income is distributed to a beneficiary in the tax year that it is earned, that beneficiary is required to pay California income taxes on the distribution, regardless of the beneficiary’s residency status.

Other states may have similar rules relating to the taxation of “sourced” income. A discussion of the states other than California is omitted from this legal alert.

4. Franchise Tax Board’s Legislative Proposal C, Taxation of Income from an Incomplete Gift Non-Grantor (ING) Trusts (November 10, 2020).

The language of Section 17082 is not exclusive to California-resident Grantors. If a non-resident of California is a Grantor as to California-source income producing property to an ING, Section 17082 appears to require that non-resident Grantor to individually file a California income tax return and pay California income taxes on that California-source income.

There may be constitutional concerns relating to this that are still to be evaluated.

There is a limited exception to Section 17082, which requires, in part, that the ING file a California Fiduciary Income Tax Return and make an irrevocable election to be taxed as a resident non-grantor trust, and that 90 percent or more of the DNI of the ING is distributed (or treated as distributed) to a charitable organization. If an ING can meet this exception, then the ING will not be treated as a Grantor Trust for California income tax purposes.

California’s new law does not impact the federal income tax treatment of INGs. Federally, an ING’s income will still be reported on the ING’s Federal Income Tax Return, to the extent that the income is not DNI that was actually distributed to a Published in eReport, Fall 2023 / Winter 2024 © 2023-2024 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

FALL / WINTER 2024

29

eReport

Business Planning Group The Business Planning Group of committees covers choice of entity, estate planning, and estate administration for clients who own business entities or interests in farms or ranches. The entities may be active businesses or formed to hold investments. Entities include partnerships (general, limited, and/or limited liability), limited liability companies, and corporations (including those with an “S” election in place).

Trust and Estate Groups and Committees (americanbar.org)

Published in eReport, Fall 2023 / Winter 2024 © 2023-2024 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

FALL / WINTER 2024

30

eReport

Charitable Planning and Organizations Group The committees of the Charitable Planning and Exempt Organizations Group are concerned with both sides of the charitable giving process. The various tax and non–tax issues for the donor are addressed by the Lifetime and Testamentary Charitable Planning Committee, while the donor organization perspective is the focus of the charitable Organizations Committee.

Trust and Estate Groups and Committees (americanbar.org)

Published in eReport, Fall 2023 / Winter 2024 © 2023-2024 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

FALL / WINTER 2024

31

eReport

Committee Calls February 2024 Central Time (US and Canada)

COMMERCIAL REAL ESTATE TRANSACTIONS Feb 7, 2024 1:00PM CT Join Zoom Meeting https://americanbar.zoom.us/j/99891147557?pwd=SitsUVkxQ2FlRVBGKzhRVWF5bkNWUT09 Meeting ID: 998 9114 7557 Passcode: 212639 +13126266799,,99891147557# US (Chicago)

RESIDENTIAL, MULTI-FAMILY AND SPECIAL USE GROUP Feb 27, 2024 12:30PM CT Join Zoom Meeting https://americanbar.zoom.us/j/96049449303?pwd=RE1ad2pUaGVHVnh6VTdtSUtEcE5RUT09

BUSINESS PLANNING GROUP February 12, 2024 11:00 AM CT

Meeting ID: 960 4944 9303

Join Zoom Meeting

Passcode: 791112

https://americanbar.zoom.us/j/99860548109?pwd=Q1NQTVRWeENrZ2owbEpXTkNQY3hKQT09

+13126266799,,96049449303# US (Chicago)

Meeting ID: 998 6054 8109 Passcode: 059353 +13126266799,,99860548109# US (Chicago)

Published in eReport, Fall 2023 / Winter 2024 © 2023-2024 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

FALL / WINTER 2024

32

eReport

Joint Legal Education and Uniform Laws Group The Legal Education and Uniform Laws Group works across the spectrum of property law on subjects of interest to either the Real Property Division or the Trusts and Estates Division that involve the teaching of property law or the development of uniform state laws.

Joint Groups and Committees (americanbar.org)

Published in eReport, Fall 2023 / Winter 2024 © 2023-2024 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

FALL / WINTER 2024

33

eReport

Real Estate Financing Group The Real Estate Financing Group is devoted to assisting attorneys in financing techniques involving real estate as collateral. To this end, this group presents educational programs and produces written materials to educate lawyers in all aspects of real estate finance. Separate committees within this group are dedicated to mortgage lending, construction lending, securitizations and legal opinions issued in connection with these financings, as well as legal issues and developments in real estate workouts, foreclosures and bankruptcies.

Real Property Groups and Committees (americanbar.org)

Published in eReport, Fall 2023 / Winter 2024 © 2023-2024 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

FALL / WINTER 2024

34

eReport

FELLOWSHIP OPPORTUNITY

Applications due June 21, 2024.

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

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

www.americanbar.org/groups/real_property_trust_estate/ fellowships-and-awards/fellows/ Published in eReport, Fall 2023 / Winter 2024 © 2023-2024 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

FALL / WINTER 2024

35

eReport

2023 RPTE LAW STUDENT WRITING COMPETITION WINNERS We are delighted to announce the winners of the 2023 RPTE Law Student Writing Competition.

FIRST PLACE: Everyone Deserves Autonomy: Making Advance Care Planning Accessible for All

by Amelia Tidwell, Pepperdine Caruso School of Law SECOND PLACE: Stopping the Architects of Urban Sprawl: How Urban Sprawl Facilitators Can Be Stopped through Litigation and City Planning Reform

by Caden Burchianti, George Washington Law School Amelia Tidwell, the first-place winner, will receive $2,500 cash, a oneyear free membership in the Section and free round-trip airfare and weekend accommodations to attend the 36th Annual RPTE National CLE Conference, May 8-11, 2024, in Washington, D.C. She is eligible for a full-tuition scholarship to the University of Miami School of Law’s Heckerling Graduate Program in Estate Planning OR Robert TraurigGreenberg Traurig Graduate Program in Real Property Development for the 2023–2024 or 2024–2025 academic year. In addition, Amelia’s essay will be considered for publication in a future issue of the Real Property, Trust & Estate Law Journal.

Caden Burchianti, the second-place winner, will receive $1,500 cash.

Caden’s submission will also be considered for publication in a future issue of the Real Property, Trust & Estate Law Journal.

The goal of the RPTE student writing contest is to encourage and reward law student writing on the subjects of real property or trust and estate law. The essay contest is designed to attract students to these law specialties, and to encourage scholarship and interest in these areas.

Articles submitted for judging are encouraged to be of timely topics and have not been previously published. Information for the 2024 writing contest will be made available soon!

The Section sends a huge thank you to Michael Ostermeyer and the 2023 selection committee: Robert Paul, Edward Brading, Amy Milligan, Amy Hess, Susan Gary, Ray Prather, Andrea Boyack, and Jeff Hopkins.

2024 contest entries will be due May 31, 2024. See details at:

ambar.org/rptewriting Published in eReport, Fall 2023 / Winter 2024 © 2023-2024 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

FALL / WINTER 2024

36

eReport

CALLING ALL LAW STUDENTS! The Section of Real Property, Trust and Estate Law is now accepting entries for the 2024 Law Student Writing Contest. This contest is open to all J.D. and LL.M students currently attending an ABA-accredited law school. It is designed to encourage and reward law student writing on real property or trust and estate law subjects of general and current interest.

1st Place

$2,500 award

2nd Place $1,500 award

3rd Place

$1,000 award

n Free round-trip economy-class airfare and accommodations to attend the RPTE National CLE Conference. This is an excellent opportunity to meet RPTE Leadership and other attorneys who practice real property or trust and estate law.

(First place only.) n A full-tuition scholarship to the University of Miami School of Law’s Heckerling Graduate Program in Estate Planning OR Robert Traurig-Greenberg Traurig Graduate Program in Real Property Development for the 2024-2025 or 20252026 academic year.* (First place only.) n Consideration for publication in The Real Property, Trust and Estate Law Journal, the Section’s law review journal. n One-year free RPTE membership. n Name and essay title will be published in the eReport, the Section’s electronic newsletter, and Probate & Property, the Section’s flagship magazine.

Contest deadline: May 31, 2024 Visit the RPTE Law School Writing Competition webpage at ambar.org/rptewriting. *Students must apply and be admitted to the graduate program of their choice to be considered for the scholarship. Applicants to the Heckerling Graduate Program in Estate Planning must hold a J.D. degree from an ABA accredited law school and must have completed the equivalent of both a J.D. trusts and estates and federal income tax course. Applicants to the Robert Traurig-Greenberg Traurig Graduate Program in Real Property Development must hold a degree from an ABA accredited law school or a foreign equivalent non-US school.

Published in eReport, Fall 2023 / Winter 2024 © 2023-2024 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

FALL / WINTER 2024

37

eReport

The American Bar Association’s 36th Annual RPTE National CLE Conference

REGISTRATION IS NOW OPEN! 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!

WHY ATTEND? 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.

In-Depth Programming: Interactive sessions led by industry experts.

Business Connection Opportunities: Connect with fellow legal professionals.

Innovative Trending Legal Content: Stay at the forefront of the real property and trust and estate landscape.

WASHINGTON

1.

36th Annual RPTE National CLE Conference May 8-11, 2024 | Capital Hilton

36TH ANNUAL RPTE NATIONAL CLE CONFERENCE May 8-11, 2024 | Capital Hilton AMERICAN by BAR Published in eReport, Fall 2023 / Winter 2024 © 2023-2024 theASSOCIATION American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

www.rptecleconference.com

FALL / WINTER 2024

38

eReport

RPTE PUBLICATIONS

Check out our library of Real Property, and Trust and Estate Law Books

ambar.org/casualtyinsurance ambar.org/insurancelawcommunities Published in eReport, Fall 2023 / Winter 2024 © 2023-2024 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

FALL / WINTER 2024

39

eReport

RPTE PUBLICATIONS

Check out our library of Real Property, and Trust and Estate Law Books

ambar.org/thirdpartytrusts Published in eReport, Fall 2023 / Winter 2024 © 2023-2024 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

FALL / WINTER 2024

40

eReport

Learn about Section of Real Property, Trust and Estate Law’s eReport The eReport is the quarterly electronic publication of the American Bar Association Real Property, Trust and Estate Law Section. It includes practical information for lawyers working in the real property and estate planning fields, together with news on Section activities and upcoming events. The eReport also provides resources for seasoned and young lawyers and law students to succeed in the practice of law.

For further information on the eReport or to submit an article for publication, please contact Robert Steele(Editor), Cheryl Kelly (Real Property Editor), Raymond Prather (Trust and Estate Editor), or RPTE staff members Bryan Lambert or Monica Larys. Are you interested in reading FAQs on how to get published in the eReport? Download the FAQs here. We welcome your suggestions and submissions!

FREQUENTLY ASKED QUESTIONS BY PROSPECTIVE AUTHORS RTPE eReport What makes eReport different from the other Section publications? The most important distinction is that eReport is electronic. It is delivered by email only (see below) and consists of links to electronic versions of articles and other items of interest. Since eReport is electronic, it is flexible in many ways.

How is eReport delivered and to whom? eReport is delivered quarterly via email to all Section members with valid email addresses.

At the ABA website, www.americanbar.org, click myABA and then navigate to Email, Lists and Subscriptions. You have the option of receiving eReport. Currently almost 17,000 Section members receive eReport.

What kind of articles are you looking for?

We are looking for timely articles on almost any topic of interest to real estate or trust and estate lawyers. This covers anything from recent case decisions, whether federal or state, if of general interest, administrative rulings, statutory changes, new techniques with practical tips, etc.

How long should my article be?

Since eReport is electronic and therefore very flexible, we can publish a two page case or ruling summary, and we can publish a 150 page article. eReport is able to do this since the main page consists of links to the underlying article, therefore imposing no page restraints. This is a unique feature of eReport.

Published in eReport, Fall 2023 / Winter 2024 © 2023-2024 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

FALL / WINTER 2024

41

eReport

How do I submit an article for consideration?

Email either a paragraph on a potential topic or a polished draft – the choice is yours – to the Editor, Robert Steele, at rsteele@ssrga.com, and either our Real Estate Editor, Cheryl Kelly, at ckelly@thompsoncoburn.com, or our Trust and Estate Editor, Keri Brown, at keri.brown@bakerbotts.com.

Do I need to have my topic pre-approved before I write my submission?

Not required, but the choice is yours. We welcome topic suggestions and can give guidance at that stage, or you may submit a detailed outline or even a full draft. You may even submit an article previously published (discussed below) for our consideration.

Do citations need to be in formal Bluebook style? eReport is the most informal publication of the Section. We do not publish with heavy footnotes and all references are in endnotes. If there are citations, however, whether to the case you are writing about, or in endnotes, they should be in proper Bluebook format to allow the reader to find the material. Certainly you may include hyperlinks to materials as well.

Can I revise my article after it is accepted for publication?

While we do not encourage last minute changes, it is possible to make changes since we work on Word documents until right before publication when all articles are converted to pdf format for publication.

What is your editing process?

Our Editor and either the Trust and Estate Editor or the Real Estate Editor work together to finalize your article. The article and the style are yours, however, and you are solely responsible for the content and accuracy. We will just help to polish the article, not re-write it. Our authors have a huge variety of styles and we embrace all variety in our publication.

Do I get to provide feedback on any changes that you make to my article?

Yes. We will email a final draft to you unless we have only made very minor typographical or grammatical changes.

Will you accept an article for publication if I previously published it elsewhere?

YES! This is another unique feature of eReport. We bring almost 17,000 new readers to your material. Therefore, something substantive published on your firm’s or company’s website or elsewhere may be accepted for publication if we believe that our readers will benefit from your analysis and insight. In some cases, articles are updated or refreshed for eReport. In other cases, we re-publish essentially unchanged, but logos and biographical information is either eliminated or moved to the end of the article.

How quickly can you publish my article?

Since we publish quarterly, the lead time is rarely more than two months. If you have a submission on a very timely topic, we can publish in under a month and present your insights on a new topic in a matter of weeks.

Published in eReport, Fall 2023 / Winter 2024 © 2023-2024 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

FALL / WINTER 2024

42

eReport