One of the grounds upon which the validity of a Will may be attacked is if the Will was not created and executed by disinterested counsel.  In general, this means that the party contesting the Will believes that the attorney who drafted the Will had either a prior relationship with one of the beneficiaries under the Will, had a personal stake in a bequest made under the Will, or the attorney allowed a beneficiary to directly participate in the drafting and execution of the Will.  Obviously, if the person seeking to create a Will has had their own attorney they have utilized for many years it is perfectly acceptable for this attorney to draft a Will.  Any potential beneficiaries to the Will, however, should not engage in discussions about specific provisions of the Will with the attorney who will be drafting the Will.  Moreover, any potential beneficiary should not be present or witness the Will which is being executed.
 

While it is okay to refer a person to an attorney to draft a Will on a party’s behalf, a party should be careful if the attorney to whom they are referring the individual has been their personal attorney, and they stand to benefit by provisions of the Will.  While this does not automatically invalidate the Will, a party should be careful to insulate themselves from discussions with the attorney about the provisions of the Will, and should not be present when the Will is executed.  If this was to occur, a party may assert that the attorney was not disinterested counsel, as their previous client benefitted by the terms of the Will he/she drafted.
 

One issue which may lend itself to a stern challenge is where an attorney drafted a Will under which he or she may be a direct beneficiary.  Equally suspicious is where a person drafts a Will on behalf of another party by which they themselves benefit.  While this does not rise to the same level of an attorney drafting a Will by which they benefit, it obviously creates suspicious circumstances which a party should avoid at all costs.
 

A review of the within advice will hopefully lend some guidance in the selection of proper disinterested counsel for the creation and execution of a Will on behalf of a party.  Should a party have questions, than they should consult directly with an attorney as to what would be the appropriate course of action.

Paul Norris is a Shareholder in Stark & Stark's Litigation Group in our Lawrenceville, New Jersey office. For questions, or additional information, please contact Mr. Norris.

In order to establish the invalidity of a Will based upon an allegation of undue influence, the challenging party must present evidence which demonstrates that the type of conduct which occurred caused the decedent to execute a Will which did not accurately reflect his/her true intentions, but instead, those of the other party.

During a Will contest, a party may be successful in shifting the burden of proof to the other side to demonstrate that there was no undue influence in the execution of the Will.  The shifting of the burden of proof may occur when there is a confidential relationship between the proponent and the decedent, such as any attorney/client relationship, a power of attorney relationship, or any other relationship where trust and confidence naturally exists.  Should a party also establish the existence of suspicious circumstances, it may shift the burden of proof to the proponent of the Will to demonstrate its validity.
   

If a party is successful in establishing the invalidity of a Will based upon an allegation of undue influence, then the Testator may be deemed to have died intestate, or in the alternative, it may revert to a previous Will of the decedent provided a copy still exists.  Factors that the Court may consider in determining whether a Testator may have been subjected to undue influence concern a decedent’s health at the time the Will was executed, the relationship between the decedent and the person who benefitted by the newly drafted Will, and whether the decedent was in good mental and physical health during the same time.  There is no set formula in this regard; however, factors which demonstrate a mental or physical weakness may make the individual more susceptible to undue influence.
   

Should a party wish to challenge a Will based upon undue influence, it is suggested that they consult with any attorney as this is a complex process.

Paul Norris is a Shareholder in Stark & Stark's Litigation Group in our Lawrenceville, New Jersey office. For questions, or additional information, please contact Mr. Norris.

Should a beneficiary wish to challenge the validity of a Will based upon the mental capacity of the decedent, the beneficiary would bear the burden of proof to overcome the presumption that the Will was valid. As such, a beneficiary who seeks to uphold the terms of the Will need not establish its validity, but instead, a party who wishes to invalidate a Will must establish the incapacity of the Testator at the time the Will was executed. A challenge to the capacity of a descendent may involve a review of the relevant medical records, testimony of first-hand witnesses, as well as other factors which relate to the competency of the Testator at the time the Will was executed.
 

This is a general overview as to the mental capacity required of a descendent to execute a Will, as well as what an attack levied by another party seeking to invalidate a Will on the grounds of lack of capacity may entail.

Paul Norris is a Shareholder in Stark & Stark's Litigation Group in our Lawrenceville, New Jersey office. For questions, or additional information, please contact Mr. Norris.

New Jersey law is as follows:

For a single person:

1. To the person’s descendants
2. If there are no descendants, to the person’s parents
3. If there are no descendants or parents, to the descendants of the person’s parents
4. If there are no descendants, parents, or descendants of parents, one-half to the paternal grandparents, or if they are also deceased, to their descendants; and the other one-half to the maternal grandparents, or their descendants
5. If there are no descendants of grandparents, to stepchildren
6.  

For a married person (spouse or domestic partner):

1. The entire estate passes to the surviving spouse, if there are no descendants or parents of the deceased.
2. If there are descendants, all of whom are also descendants of the surviving spouse, then the surviving spouse receives the entire estate.
3. If the deceased is survived by a spouse and parent(s), the spouse receive the first 25% of the estate, but not less than $50,000 nor more than $200,000, plus 75% of the balance; the parent(s) receive the remaining property of the estate.
4. If the surviving descendants are also descendants of the surviving spouse, and the surviving spouse has other descendants; or if there is a descendant of the deceased who is not a descendant of the surviving spouse, then the spouse receives the first 25% of the estate, but not less than $50,000 nor more than $200,000, plus 50% of the balance.  The descendants receive the remaining property of the estate.

Now, maybe these are the people who you would want to inherit from you. But maybe they are not. Preparing and signing a Will gives you the power of choice to benefit others - family, friends, and/or charity - rather than relinquishing that choice to the government.
 

There is another important issue that state law will control if a person has died without a Will: guardianship of your minor children. If a child under the age of 18 has no living parent, state law determines that the child’s closest next of kin have the first right to serve as the child’s guardian. Being the closest relative does not really qualify someone to raise a child. And, if several persons are related in the same way to the child (for example, both sets of grandparents), the Court then decides, with both sides of the family incurring legal fees as well suffering an emotional hardship. Again, it is a matter of choice - should you choose who should raise your child in the event of an untimely death, or should the government?
 

Preparing a Will is not something you do for you - it is something you do for your family. To ensure your loved ones are benefitted, that your children are properly cared for, and that your estate is administered at the least possible cost, please contact us as to how we can assist you in preparing a Will and other estate planning documents.

Rose Durkin is a Shareholder in Stark & Stark's Lawrenceville, New Jersey office specializing in Wills & Estate Planning. For questions, please contact Ms. Durkin.

It is an issue that most of us will be confronted with at some point in the future; how best to care for an aging loved one. People commonly think a Power of Attorney is the only method by which to manage another person’s affairs who may no longer be competent to do so. There are other forms of protective arrangements, however, under New Jersey Law which provides a person who is to serve in a  fiduciary role with substantial latitude to provide care for their loved one. These arrangements differ in nature as to the scope of the supervisory role.

The two most common forms of protective arrangements under New Jersey Law are Guardianships and Conservatorships.

Guardianships are Court supervised arrangements that provide surrogate decision making for minors or persons who are incapacitated – that is, unable to manage their property and affairs effectively.  The arrangement is typically commenced by a third-party application to the Court, and once the Court adjudicates a person to be incapacitated, it obtains jurisdiction over an incapacitated person.  N.J.S. 3B:12-1 seq.; New Jersey Court rule 4:86-1 through 10.

A Plenary or General Guardianship grants to the appointed Guardian full substituted decision making authority over all aspects of an incapacitated person’s life, including matters such as medical decisions, handling legal affairs, managing property and finances, making vocational choices, determining residence and social associations, voting, maintaining a driver’s license, seeking employment, and entering into marriage.  Because the authority of a General Guardian is sweeping, there is a preference in New Jersey to employ limited Guardianship where possible, so that an incapacitated person can retain legal authority to make decisions over as many subject areas as possible, and safe to do so.  Even a General Guardian is expected to consider and take into account expressed preferences of the incapacitated person.  Guardianships are frequently used with respect to persons who are developmentally disabled (once they attain the age of eighteen), those who are cognitively impaired, and for elderly persons with diminishing capacity.  Guardianships are also put in place where minors (under the age of eighteen) have monies or property to be managed, but, given their age, lack the legal authority to do so. 

An alternate protective arrangement is the conservatorship, which is a voluntary arrangement employed by a competent person (the Conservatee) to grant authority to a third-party (the Conservator) to manage his or her property.  New Jersey Court Rule 4:86-11.  Conservatorships are voluntary proceedings where the Conservatee is legally competent, and the legal arrangement cannot be imposed by a Court over the objections of the Conservatee.  If a Conservator is appointed through a Court proceeding, the Court oversees this arrangement and the Conservatee can at any time – providing that he or she is competent, revoke the Conservatorship.  This type of arrangement, while as not as commonly employed as Guardianships, is often appropriate where the Conversatee has limited ability to manage his or her own financial affairs, or acknowledges a difficulty in doing so effectively.  Individuals with cognitive impairments that interfere with their ability to properly handle financial matters, older persons unable to resist undue influence of family or third-parties over their financial affairs, and person suffering from mental illness, or other afflictions that place their financial stability at risk are appropriate candidates for Conservatorship.
 

Both Guardianships and Conservatorships can only be put in place by a Court, and continuing Court supervision follows the initial appointment.  This can provide significant protection to a person who is vulnerable, lacks capacity, or suffers from cognitive limitations.  Many people choose to avoid involving Courts in their personal affairs by executing in advance of any potential infirmity, Durable Powers of Attorney and Medical Advance Directives.

The decision to enter into protective arrangements should be carefully considered, as the arrangement might later be scrutinized by other individuals who feel that the arrangement is not in the best of the interests of the individual who is receiving assistance.  As such, it is often suggested that you consult with an attorney to ensure that the process is fair, and moreover, ensure that the individual receives the best possible assistance.

If you have questions regarding guardianships or conservatorships and would like to discuss your specific case in more detail, please contact me to set up an appointment here in my firm’s Lawrenceville, New Jersey office.

Mr. Schwartz joins host Maiken Scott as they discuss a common issue facing many families after the death of a loved one: do we have to pay bill collectors looking for money after our family member has passed away? Mr. Schwartz discusses special considerations offered after the loss of a spouse, child and parent.

**Updated September 28, 2011 - 8:40 AM** In case you missed last night's edition of Newsworks Tonight with Mr. Schwartz, you can listen to the full program online here.

However, when a case involves non-probate assets, such as life insurance policies and pension proceeds, attorneys fees will not be paid out of these assets as they pass by operation of contract and property law and are outside of the decedent's estate.

In the Matter of the Estate of John Oliva, Jr., Deceased, a case decided by the Superior Court of New Jersey, Appellate Division, on August 25, 2011, the attack was on assets resulting from the decedent's life insurance policy and pension. The Court found that there was no authority for finding that such assets were part of the probate estate available to satisfy an award of counsel fees. In addition, the Court found that there could only be an award of counsel fees against an executrix personally where there was a "gross abuse of trust and confidence".

In general, New Jersey Courts follow the "American Rule" which requires each party to pay their own attorneys fees. While there is an exception in probate matters, that exception is limited and only applies to matters involving assets that are part of the probate estate.

If you have questions regarding the above matter, feel free to contact me here in my firm’s Lawrenceville, New Jersey office to discuss this matter in more detail.  

The son filed a complaint seeking to invalidate his mother's will on the basis that she lacked the testamentary capacity to make the will or that the will was the result of undue influence.  The family history of the parties was one of considerable animosity and extensive litigation. Prior to the mother's death, she found it necessary to seek multiple restraining orders against her son.  At one point, the restraints barred her son from entering the municipality where his mother lived.   In 1993, approximately eighteen years before the mother died, the son and mother executed a settlement agreement which globally resolved more than a dozen pending litigations and resulted in the vacation of all outstanding restraining orders. In the Agreement, the son agreed not to attempt to set aside or contest the mother's will, or make any claim against the mother's estate. The mother agreed to make annual payments to the son for his support which would continue for the rest of the son's life. The mother also agreed to fund the son's psychiatric care up to a set maximum amount per year. The mother agreed to create an inter vivos trust that would be funded upon her death in order to continue to fulfill the obligation to support the son under the Agreement. The son, as of the time of trial, had received in excess of five hundred thousand dollars under the terms of the Agreement. Further, since 1990 the mother had executed ten different wills, all purporting to disinherit the son; the last eight wills executed after the parties’ 1993 Agreement, including the March 21, 2007 Will, all referred to the mother's obligations to support her son as set forth in the Agreement.
 

The agreement also required the mother to make a total of four future visits with her son under the supervision of the son's psychiatrist; two pre-scheduled telephone calls to the son per year at times and intervals to be determined by the mother; to write the son two letters annually, whose timeliness, content and duration shall be totally within the discretion of the mother.  Other than the contact detailed above, the Agreement forbade the son from contacting, attempting to contact or communicate with the mother or any other member of the family without the prior written consent of the specific family member. 
 

To avoid enforcement of the very clear language in the 1993 Settlement Agreement prohibiting Will challenges of precisely the sort initiated by the son in this case, the son first argued that the Settlement Agreement was both procedurally and substantively unconscionable. The Court noted that our legislature has addressed the issue of unconscionability as it pertains to contracts. N.J.S.A. § 12A:2-302 states, "(1) If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result."  The common law doctrine of unconscionability has proven difficult to define and has been rarely invoked undoubtedly because, other than in exceptional cases, it has been largely viewed as grossly interfering with the freedom to contract.  There are very few cases from New Jersey courts examining and defining unconscionability.
 

The son' next claim was that he was at an economic disadvantage when dealing with his mother and that he was required to "take whatever was thrown his way."  It was an undisputed fact that the son was represented by counsel at the time of the 1993 Settlement Agreement and that the parties engaged in multiple negotiations over a period of time exceeding one year. It was also undisputed that there was a lengthy history of litigation between the parties.  In light of the rancorous history of litigation and personal conflict, and also in light of the substantial consideration provided to the son over the years, the Court found nothing troubling about the agreement, either procedurally or substantively, as a matter of law.
 

Lastly, the son argued that he was excused from performance of the contract, because the his mother materially breached the agreement by failing to write him two letters per year as was required by the Settlement Agreement.  The Court noted that in contract law, a ‘material’ breach of contract is a failure to perform the contract that strikes so deeply at the heart of the contract that it renders the agreement irreparably broken and defeats the purpose of making the contract in the first place.  If there is a material breach the other party can simply end the agreement and go to court to try to collect damages caused by the breach.  The Court determined that due to the fact that the mother had total discretion to determine the timing, content, and duration of these letters, and, although there were questions as to just how therapeutic these letters could reasonably be expected to be, or how material they were to the overall agreement, the son's continuing to accept the other benefits of the Agreement in light of this alleged breach led to the conclusion that the son waived his right to use the breach as a defense to nonperformance.
 

The Court also found that the son's claims were also barred by the equitable doctrine of laches in view of his failure to timely act.   While the son claimed that his mother violated the Agreement shortly after it was executed by failing to send him two letters per year, he did not act on this knowledge, choosing instead to sit on his rights until he brought a will contest prohibited by the express terms of the Agreement. The Court found that a period of close to eighteen years without any assertion of his rights under the Agreement constitutes inexcusable delay and that the son was barred by laches.
 

Similarly, the doctrine of equitable estoppel barred the son's challenge to the contract. Equitable estoppel prevents one from rectifying his own grossly negligent mistake at the expense of another who has, without negligence, been misled.  The Court found that the son conducted himself in such a way as to lead all parties to believe the contract was still in force and to allow the son to assert the existence of a material breach negating his own obligations under the contract after all of these years would amount to fraud by conduct and would violate the Court’s equitable responsibilities.
 

The contract signed between the son and mother was deemed to be enforceable and the son was barred from making any claims concerning his mother's will.

The Plaintiffs argued that the Trial Court's finding that the decedent possessed the requisite testamentary capacity to execute a will was not supported by sufficient, credible evidence and rather, "was so far wide of the mark and contrary to competent evidence in the record as to amount to a manifest denial of justice.” The Appellate Division found the findings of the Trial Court on the issues of testamentary capacity and undue influence, though not controlling, were entitled to great weight since the Trial Court had the opportunity of seeing and hearing the witnesses and forming an opinion as to the credibility of their testimony reasonably credible evidence as to offend the interests of justice.
 

As a general principle, New Jersey law requires only a very low degree of mental capacity to execute a will. The gauge of testamentary capacity has been stated to be whether the testator can comprehend the property he/she is about to dispose of; the natural objects of his/her bounty; the meaning of the business in which he/she is engaged; the relation of each of these factors to the others, and the distribution that is made by the will. Testamentary capacity is tested at the time of execution of the will.
 

In any attack upon the validity of a will, there is a legal presumption that the testator was of sound mind and competent when he executed the will. This presumption can only be overcome by clear and convincing evidence. The burden of establishing lack of
testamentary capacity falls upon the party who contests the will being offered for probate.
 

Evaluating the evidence in the aggregate, the Trial Court in this case concluded that Plaintiffs did not satisfy their heavy burden of proving, by clear and convincing evidence, that the decedent lacked testamentary capacity when she executed her will.  The Appellate Division was satisfied that there was sufficient competent and reasonably credible evidence in the record to support the Trial Court's findings.
 

Plaintiffs also contended that the Trial Court's factual findings and legal conclusions with respect to the issue of undue influence were unsupported by the credible evidence adduced at trial and warranted reversal.
 

What constitutes undue influence sufficient to invalidate a will is a question of law.  But whether a will was procured by undue influence is a question of fact for the court, as is the truth or credibility of evidence introduced on such issue and the weight to be given to the evidence.   A will which on its face appears to be validly executed, can be overturned if it is tainted by "undue influence."
 

Undue influence has been defined as a mental, moral, or physical exertion of a kind and quality that destroys the free will of the testator by preventing that person from following the dictates of his or her own mind as it relates to the disposition of assets. 
 

Two elements are required to raise a presumption of undue influence. First, there must be a "confidential relationship" between the testator and the beneficiary. Second, the presence of "additional 'suspicious' circumstances" in combination with such a confidential relationship must exist.  Such circumstances need only be slight.
 

Under normal circumstances, once a presumption of undue influence has been established and the burden of proof is shifted to the proponent of the will, the presumption may be overcome by a preponderance of the evidence.  If, however, the presumption arises from a professional conflict of interest on the part of an attorney, coupled with confidential relationships between a testator and the beneficiary as well as the attorney, the presumption must instead be rebutted by clear and convincing evidence.
 

Notwithstanding the confidential relationship that existed, the Trial Court found no evidence that anyone overpowered the will of the decedent.  The court concluded the defendants had met their burden to overcome the presumption of undue influence by a preponderance of the credible evidence.  The Appellate Court upheld these conclusions as to the claims of undue influence as well as the claims of lack of testamentary intent.
 

Even though the Plaintiff was not successful in proving lack of mental capacity or undue influence, the Trial Court still awarded the payment of counsel fees from the estate.   The Plaintiffs appealed the Trial Court's failure to award the full amount of their counsel fees and the Defendants appealed the award of any counsel fees to Plaintiffs. The Appellate Court rejected both challenges.
 

The decision to award attorneys' fees falls within the discretion of the Trial Judge and, accordingly, is reviewed under an abuse of discretion standard as long as the Trial Judge did not act under a misconception of the applicable law.
 

New Jersey has a strong public policy against the shifting of attorneys fees and costs.  Generally, everyone pays their own counsel fees.  This based upon what is known as the American Rule.  However, there is an exception to this American Rule in certain cases.  One of those exceptions is for payment of counsel fees from an estate in a will contest where probate is granted and it appears that there was reasonable cause for contesting the validity of the will.  Except in a weak or meretricious case, courts will normally allow counsel fees to both proponent and contestant in a will dispute.
 

The Appellate Court upheld the finding of the Trial Court that there was a reasonable basis for the Plaintiffs position even though that basis was not sufficient to set aside the will. Simply put, the Trial Court determined the challenge to the will was reasonable and that the award of some, although not all of the counsel fees, was appropriate.

The MPPAA was therefore enacted and was “designed ‘(1) to protect the interests of participants and beneficiaries in financially distressed multiemployer plans, and (2) to encourage the growth and maintenance of multiemployer plans in order to ensure benefit security to plan participants.’ ”
 

To accomplish these goals, the MPPAA “requires that a withdrawing employer pay its share of the plan's unfunded liability,” which “insures that the financial burden will not be shifted to the remaining employers” in the fund. 
 

The pension fund determines whether withdrawal liability has occurred and in what amount.  A “complete withdrawal ... occurs when an employer-(1) permanently ceases to have an obligation to contribute under the plan, or (2) permanently ceases all covered operations under the plan.” The amount of an employer's withdrawal liability is the employer's proportionate share of the unfunded vested benefits existing at the end of the plan year preceding the plan year in which the employer withdraws.
 

A trustee is empowered to sue a withdrawing employer for its share of the unfunded liability of the plan. If, however, the trustee does not sue, a beneficiary may sue the trustee as well as the party or parties the trustee failed to sue. Consequently, should we discover that the trustees of the merged pension plan at issue failed to sue a withdrawing employer, we would have a cause of action against the trustees and the withdrawing party. 

Treasury regulations implementing the anti-cutback rule make the point explicitly: a pension plan may not deny a protected benefit “directly or indirectly, through the exercise of discretion ....”  Moreover, plan participants are entitled to notice whenever a plan amendment is seriously considered or enacted. 
 

Sometimes a violation of the anti-cutback provision will give rise to a breach of fiduciary duty claim.  According to the Second Circuit, amendments to multi-employer plans which “affect the allocation of a finite asset pool to which each participating employer has contributed” could properly be treated as fiduciary functions.  However, the Third Circuit does not agree and does not make a distinction between single-employer or multi-employer pension plans.
 

Thus, the Third Circuit has adopted the view that ERISA's fiduciary duty provision does not apply to amendment of multiemployer plans. Therefore, absent some other culpable conduct, a violation of ERISA’s anti-cutback provision will not, by itself, support a breach of fiduciary claim in New Jersey.

All costs, liabilities, rates of interest, and other factors under the plan must be determined on the basis of actuarial assumptions and methods that must be reasonable in the aggregate and in combination offer the actuary's best estimate of anticipated experience under the plan. A plan meets the minimum-funding requirements only if, at the end of each plan year, the account does not have an accumulated funding deficiency.

Supplementing these fundamental standards prohibits specific transactions. A plan fiduciary may not cause the plan to engage in a transaction that constitutes a loan, sale, or other transfer of assets to a party in interest, or the improper acquisition of employer security or real property. The statute also forbids a fiduciary from dealing with assets of the plan in his own interest or receiving consideration from any party dealing with the plan in a transaction involving plan assets; nor may a fiduciary participate in any transaction involving the plan on behalf of a party whose interests are adverse to the plan. Trustees who violate their fiduciary duty may be held personally liable and the courts are free to fashion equitable relief appropriate to the circumstances, including removal of the trustee. 

Fiduciary duty under ERISA has three components:

1. a duty of loyalty pursuant to which all decisions regarding an ERISA plan must be made with an eye single to the interest of the plan participants and beneficiaries;
2. the prudent-person obligation imposes an unwavering duty to act both as a prudent person would act in a similar situation and with single-minded devotion to those same plan participants and beneficiaries; and
3. an ERISA fiduciary must act for the exclusive purpose of providing benefits to plan beneficiaries.

Of these, the duty to act solely in the interest of plan participants and beneficiaries has been called the main fiduciary duty.
 

A participant, beneficiary, or other fiduciary may bring a civil action against any plan fiduciary who breaches any responsibilities, obligations, or duties under ERISA. However, the statutory provisions recognizing a right of action against an administrator for breach of trust obligations are limited to claims on behalf of the plan for misconduct regarding the trust itself, not the payment of benefits to participants. Recovery from a fiduciary for breach of fiduciary duty inures to the benefit of the plan as a whole. 
 

Therefore, ERISA actions for breach of fiduciary duty should be brought in representative capacity on behalf of the plan as whole. The trick seems to be proving that the plan assets themselves have been improperly depleted, rather than just the anticipated benefits of the individual plaintiffs being extinguished. 
 

Moreover, there is usually a question or disagreement regarding whether the alleged wrongdoer, is actually a fiduciary or trustee of the pension plan. To determine whether a person is a fiduciary under ERISA with respect to the particular function at issue, discretionary authority or responsibility of such person with respect to that function must be examined and the actions of the person to be charged as a fiduciary for the function must be considered. However, the ERISA provisions, creating a duty of care by requiring the administrator to use the care, skill, prudence, and diligence, under the circumstances then prevailing, that a prudent person acting in a like capacity and familiar with such matters would use in conduct of like enterprise does not create a standard of absolute liability. For an ERISA fiduciary to be liable for a breach of duty, there must be a showing of some causal link between the alleged breach and the loss the plaintiff seeks to recover. To show that a fiduciary is excused from liability for any loss which results from a participant's or beneficiary's exercise of control over an investment under an ERISA provision, the causal nexus between the participant's or beneficiary's exercise of control and claimed loss is established with proof that the participant's or beneficiary's control is the cause-in-fact, as well as a substantial contributing factor in bringing about the loss incurred.  Notably, the fiduciary duties owed participants and beneficiaries under ERISA apply only to the administration of the plan, not to its formation, amendment, or modification.
 

However, vested pension rights may not be altered without the consent of the retirees. Vesting of pension rights occurs when all the eligibility requirements of a voluntary noncontributory pension plan have been met, and the retiree may not therefore be divested of his rights. 
 

Nonetheless, in the past, courts have upheld the district court's conclusion that an employer was not acting in an ERISA fiduciary capacity in amending its pension and welfare plans to allocate assets and liabilities between itself and a newly created subsidiary, even though it allegedly "rigged" the allocation procedures so that the subsidiary might not have enough money to provide the benefits by the time it became responsible for the retirement benefits of the former employees of the parent corporation.  The district court had rejected arguments that the employer, although not a fiduciary in making the decision to restructure, became a fiduciary when it "invaded" its ERISA plan trust corpus to allocate the trust assets and thereby exercised management and control over the assets.  In upholding this decision, the court noted that changing the design of a trust does not involve the kind of discretionary administration that typically triggers fiduciary responsibilities.  The court concluded that the conduct complained of—that the employer had allocated the assets of its plans in a manner allegedly benefiting the employer to employees' detriment—might violate ERISA provisions regarding transfer of plan asset, but that the allocation did not implicate ERISA's fiduciary provisions. 
   

The 1980 amendments provided that a plan sponsor (the trustees) may cause a multiemployer plan to merge with another only if it complies with regulations of the Pension Benefit Guaranty Corporation, the benefits of participants are not adversely affected, and other statutory conditions are observed.

In general, ERISA prohibits reductions in accrued, vested benefits.  These ERISA provisions are commonly called “anti-cutback” rules.  The PPA changes the ERISA anti-cutback rules so that plans in critical status are permitted to reduce or eliminate early retirement subsidies and other “adjustable benefits” to help improve their funding status if this is agreed to by the bargaining parties.  Benefits payable at normal retirement age cannot be reduced, and plans are not permitted to cut any benefits of participants who retired before they were notified that the plan is in critical status.  Adjustable benefits include certain optional forms of benefit payment, disability benefits, early retirement benefits, joint and survivor annuities (if the survivor benefit exceeds 50%), and benefit increases adopted or effective less than five years before the plan entered critical status.
 

A multiemployer plan is considered to be in critical status if: (1) it is less than 65% funded and has a projected funding deficiency within five years or will be unable to pay benefits within seven years; (2) it has a projected funding deficiency within four years or will be unable to pay benefits within five years (regardless of its funded percentage); or (3) its liabilities for inactive participants are greater than its liabilities for active participants, its contributions are less than carrying costs, and a funding deficiency is projected within five years.  A plan in critical status has one year to develop a rehabilitation plan designed to reduce the amount of underfunding.  Pursuant to such a rehabilitation plan, the plan is permitted to reduce or eliminate early retirement subsidies to help improve their funding status.  In addition to giving plans the right to eliminate or reduce some benefit payment options and early retirement benefits for plan participants who have not yet retired, the law also establishes new disclosure requirements for multiemployer plans.
 

The plan must notify all affected parties within 30 days after a determination is made that the plan is in critical status.  Beginning 30 days after this notification, a 5% employer surcharge will apply to keep plan funding from deteriorating while the rehabilitation plan is being developed.  This surcharge increases to 10% in the second year and stays in effect until the rehabilitation plan has been approved.  During this period, increases in benefits and reductions in contributions are prohibited.  The surcharge is no longer required beginning on the effective date of a collective bargaining agreement that includes a rehabilitation plan.  A plan has 10 years to move out of critical status from the earlier of (1) two years after adoption of the rehabilitation plan or (2) the first plan year after the beginning of collective bargaining agreements covering 75% of active participants.  If the parties to the collective bargaining agreements fail to agree on a funding improvement plan, a default schedule will apply that assumes no increases in contributions — unless necessary to exit critical status — after benefit accruals and adjustable benefits have been reduced to the extent permitted by law.  A plan exits critical status if it no longer projects a funding deficiency within 10 years.

Even so, in more than 30 years of practicing law, I have never seen anything as absurd as what is happening now.  In 2001, a political compromise led to a temporary reduction in the federal estate tax.  Without the 2001 tax reduction, the amount exempt from federal estate taxation would have been $1,000,000.  The 2001 law temporarily increased that exemption through 2009, eliminated the estate tax for 2010 estates, and will reinstate the $1,000,000 exemption on January 1, 2011.
 

By its very nature, estate planning deals with uncertainty because so many life events will always be unpredictable.  How long will I live?  What health issues will I face?  What will my family look like?  What special needs will my beneficiaries have? Will anyone challenge my choices?  With all that uncertainty, having a stable, permanent, estate tax law helped keep the planning simpler, and therefore, less costly.  Since 2001, the task of developing estate plans that met our clients’ needs and objectives has been like trying to hit a moving target.  The estate tax uncertainty left us trying to plan around an infinite number of possibilities - a $1,000,000 exemption, an unlimited exemption, and anything in between.
 

Since 2001, most pundits have been certain that Congress would never let 2009 pass without amending this illogical tax law.  Even after Congress proved the pundits wrong, they remained convinced that Congress would act in 2010.  At the least, Congress was expected to allow 2010 estates to elect to use the 2009 law, since couples with a net worth of $7,000,000 or less fared better in 2009 than in 2010.  Still no action and only 2 weeks left in the year.
 

Sadly, Congress is not even discussing a permanent fix.  To the contrary, the only proposal currently being debated is whether to continue the uncertainty with another temporary fix - this one good for only 24 month.  Observing Congress’ 10-year failure to enact a permanent fix, the question is whether there is a political disincentive to do so.  The estate tax is a perfect wedge issue on both sides of the political aisle, giving rise to speculation that we will never have a rational and permanent solution.

Although bills were introduced in Congress in 2009 to repeal the repeal, possibly to retain the $3.5 million estate tax exemption and 45% maximum tax rate in effect in 2009, nothing was accomplished.  So we have reached 2010 with less taxes on the books – why is this a bad thing?
   

First of all, the federal estate tax has not been permanently repealed, but only disappears for one year.  At midnight on January 1, 2011, it returns with a vengeance – with an exemption of only $1 million and a maximum tax rate of 55%.  In addition, most commentators and practitioners are unsure that the estate tax has truly disappeared for 2010.  The Democratic leadership of both the House and the Senate has indicated that they may attempt to pass legislation with an effective date retroactive to January 1, 2010.  This retroactive imposition of a tax will undoubtedly face legal challenges, specifically that such a law is unconstitutional.  The U.S. Supreme Court, however, has upheld such retroactive legislation in the past, most recently during the Clinton administration.
Review Your Estate Plan
   

Those clients who will be primarily affected by the 2010 estate tax repeal are those clients whose Wills or Trusts use a formula clause to divide property into shares, usually between the surviving spouse and children.  One typical formula that has been used by attorneys for their clients for many years allocates as much property as possible to children or other descendants without triggering a federal estate tax, with the balance passing to the spouse.  In 2009, this type of formula would have directed $3.5 million to the children, since that was the federal estate tax exemption in 2009.  In 2010, this same formula will direct the entire estate to the children, since there will be no estate tax due, and nothing will pass to the surviving spouse. 
   

Another type of formula clause that has often been used directs the exclusion amount to the children, and the balance to the spouse.  This formula, however, will result in nothing passing to the children since there is no exclusion amount in 2010, and everything will pass to the surviving spouse.  Although there will be no estate tax due at the first spouse’s death in 2010, this may actually be a worse scenario than the first:  if the surviving spouse dies in 2011, owning all of the property previously held by both spouses, and with only a $1 million exemption available, there may be substantial estate tax paid at the second spouse’s death.
New Basis Rules
   

Now here’s the real bad news -- the repeal of estate tax in 2010 brings with it a change to the rules on carryover basis.  Congressional officials estimated that an extension of the 2009 estate tax ($3.5 million exemption, 45% maximum rate) would have resulted in taxes on approximately 6,000 estates, but the carryover basis changes will result in taxes on over 70,000 estates.
   

Prior to 2010, the carryover basis rules provided for a “stepped-up” basis as of a decedent’s date of death.  The beneficiaries inherited property from an estate at the property’s fair market value on the date of death, not the decedent’s basis (usually the purchase price).   If an asset was sold by the estate or the beneficiary fairly close to the date of death, this often resulted in little or no capital gain, and little or no corresponding capital gains tax, since the stepped-up basis would have been close to the sales price.
   

The basis rules for inherited property have drastically changed for 2010.  The basis of property received from a decedent will now be calculated at either the decedent’s basis or the fair market value as of the date of death, whichever is lower.  For example, if the beneficiary inherits the decedent’s residence, which the decedent purchased in 1970 for $50,000, and which is now worth $400,000, the beneficiary receives the property with a basis of $50,000.  When the beneficiary sells the residence at its fair market value, the beneficiary will pay capital gains tax on the difference between the basis of $50,000 and the sales price of $400,000.
   

The new rules include a “Special Basis Adjustment” of $1.3 million.  This provides that this amount may be added to the basis of various estate assets (as allocated by the executor or administrator) to increase the basis of such assets from the decedent’s basis to the fair market value at the date of death.  In addition, the surviving spouse will have an additional $3 million that may be added to the decedent’s basis for various assets passing to the spouse, to increase the basis to the fair market value at the date of death.
 

What To Do Now?
The changes to the estate tax, and the changes that may occur within the next year, make it an uncertain future, with no clear overall answer for everyone.  These changes must be considered in light of each client’s individual circumstances, and in fact, may have to be reviewed again if Congress changes the law.  Should you wish to review your Will and estate planning documents, or have any questions as to how your estate plan may be affected, please do not hesitate to contact us.

IRS Circular 230 disclosure: In order to comply with requirements imposed by the IRS, please be advised that any tax advice contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or tax-related matter(s) addressed herein.

In addition to the act of getting estate planning done, many other factors play into the fact that so many probate estates end up in litigation.  As families grow away from each other, natural suspicions arise.  Did someone influence the preparation of the Will?  Was the maker of the Will competent?  How were the assets divided?  How long was the marriage?  The questions are virtually endless.

In a recent case decided in the United States District Court for the District of New Jersey, the Federal District had to decide whether there was appropriate subject matter jurisdiction for the Federal District Court to hear probate matters.  In the matter of Berman v. Berman, 2009 WL 1617758 (D. N.J.) the case involved allegations of undue influence and lack of testamentary capacity to execute a Will, among other claims.   The plaintiff filed the case in the New Jersey State Court, Probate Division and the defendant removed the case to the Federal District Court.  The central issue for consideration was whether the Federal District Court could hear the dispute between the parties, which included probate issues.

The Federal District Judge noted that the United States Supreme Court had recognized a "probate exception" to otherwise proper federal jurisdiction.  Accordingly, when a case may otherwise qualify to be heard in Federal Court, the Federal Court would not have jurisdiction where the matter involved (1) the probate or annulment of a will; (2) administration of a decedent's estate; or (3) the assumption of jurisdiction of over property that was in the custody of the probate court.

Since the case in Berman involved questions of the validity of a Will, the Court determined that the "probate exception" applied and that the case had to be heard in the State Court.   The case was therefore remanded to the Superior Court of New Jersey, Chancery Division.