Inflation, Indexing, and Millionaires

During "Modern Marvels: The Seventies", a History Channel television show that aired last Wednesday, it was mentioned that an equivalent unit to today's $100 microwave oven would have cost approximately $395 in the mid-1970s.

That reduction in cost occurred through technological advances and mass production, which overcame the steady ravages of inflation.

Otherwise, by the effects of inflation, a $395 microwave oven sold in, say, 1975, would cost $1,559.90 in 2006, according to The Inflation Calculator.

A depression-era "millionaire" considered very "rich" then, would require, today, a "ten-millionaire" to achieve the same economic power, due to inflation. More specifically, if Lieutenant General Oliver "Daddy" Warbucks (approximate age, 52), the fictional character who appeared in 1924 in the comic strip Little Orphan Annie, had a million dollars in 1930, and was considered "rich", that wealth would translate into $11,391,702.40 in 2006.

This effect was explored in a fascinating article entitled "Because a million isn't what it used to be: 'Millionaire' needs an inflation adjustment to its definition", by Ruth Walker, published on August 31, 2007, in The Christian Science Monitor.

[T]hey haven't really adjusted millionaires for inflation.

Millionaire came into English from French in the 1820s. The Oxford English Dictionary defines millionaire rather airily as "a person possessed of a 'million of money' – pounds, dollars, francs, etc.; a person of great wealth." * * *

One might wonder what was going on in people's minds that made the early decades of the 19th century the moment when it seemed relevant to think in terms of a million. * * *

But no, we've stuck with "millionaire," even as inflating prices have made the term applicable to more and more people.

In 1995, there were 3.77 million millionaires in America, according to Wall Street Journal reporter Robert Frank's new book "Richistan." Nine years later there were 9 million. That's more millionaires than Austria, for instance, has people. And they control a collective net worth of some $30 trillion – more than the total value of all the goods and services produced in Europe, China, Japan, Brazil and Russia combined. * * *

In Frank's taxonomy, it takes $6 million to be really rich, and $10 million to be comfortably rich. Serious money seems to start somewhere beyond $100 million. * * *

She concludes: "Millionaire still means what it has always meant, all right. It's just that being a millionaire doesn't mean what it used to be."

Is it more than a coincidence, then, that a recent proposal for application of the federal estate tax suggests a $5 million threshold per person (applicable in 2015), which would allow a couple owning $10 million to escape the tax? See: PA EE&F Law Blog posting "Fed Est Tax Reform Bill Introduced" (08/16/07).

Daddy Warbucks would still be subject to federal estate tax under such proposals.

Update: 04/03/08:

Yahoo Finance posted an article published on March 20, 2008, in Barrons, entitled "Are You Rich?", by Tom Sullivan, who asked: "How much of a nest egg do you need to join the true elite?"

Yes, it takes more than $10 million to be seen as rich these days. It takes more like $25 million.

Not only is that the minimum for the red-carpet treatment at a growing number of banks, it is also, in the view of many experts, the sum needed for a truly cushy retirement, one free of financial worry. * * *

First Birthday for EE&F Law Blog

August 30, 2007 is the first birthday of this blog. My first posting was made on Wednesday, August 30, 2006.

One year later, the sitemeter reports just shy of 60,000 hits by readers since mid-September, 2006 (when I installed it).

This blog is listed among other blogs on similar topics:

• by Blawg under "Elder Law",
• by Justia under "Elder Law" and "Estate Planning",
• by Technorati under "Elder Law", and
• by the American Bar Association's Journal under "Elder Law" and "Trusts & Estates", among others.
  

I made 102 posts in 2006, and 150 in 2007 (including this one), so far.

My caseload, pro bono work, seminars, and teaching always press me; but I want to maintain this blog.

I've posted materials written by others, and I will continue that. Recently I invited the law students in my current Elder Law class (Fall, 2007) at Widener University School of Law (Harrisburg Campus) to contribute; and they show enthusiasm.

So, over the next three months, look for some postings written by them & edited by me, but credited to them. If you can suggest a topic for them, send me an email message, and I'll pass it along.

PA AG Fines "Homeward Bound" Provider

On August 22, 2007, the Pennsylvania Attorney General's Office issued a press release entitled "Attorney General Corbett announces $259,000 settlement with Homeward Bound for defrauding elderly", which reported a negotiated resolution of consumer protection charges against a company which allegedly defrauded elderly customers.

A Pennsylvania-based home health care provider has reached a $259,000 settlement with the Attorney General's Elder Abuse Unit for defrauding elderly consumers by misrepresenting the actual service it provided to its customers.

Attorney General Tom Corbett said the agreement was reached with Homeward Bound Services, Inc., which is based in Drexel Hill, and its affiliates. From 1999 to 2005, Homeward Bound allegedly deceived elderly Pennsylvanians into purchasing a non-medical home health care service program by marketing it as a long-term care insurance policy.

"Homeward Bound deliberately deceived elderly Pennsylvanians living on a fixed income by selling them a product they believed would keep them from entering a nursing home or assisted living facility," Corbett said. "It is appalling to believe that a company could prey on the fears of some of our most vulnerable citizens to line its own pockets."

Corbett said Homeward Bound allegedly used current and former insurance agents to market and sell its non-medical home care program to elderly consumers who did not qualify for or were looking for a cheaper alternative to long-term care insurance. * * *

This case demonstrates the confusion -- and also the deception -- that can occur regarding long-term care coverage versus home health care provisions. This case was resolved under charges of "Consumer Protection Law violations", rather than regulatory violations.

According to the Assurance of Voluntary Compliance (AVC), the "Assisted Living Service Agreement" promised to provide similar benefits and protections as long-term care coverage, such as meal preparation, cleaning, laundry, grooming, bathing, etc., but with easier access. However, Homeward Bound did not directly provide these services, and instead contracted with third-party providers and would only pay for services that were pre-authorized.

Corbett said Homeward Bound convinced consumers that the product was like long-term care insurance, but represented to the Commonwealth that the product was fee-for-service, creating confusion among consumers that would decrease the likelihood that they would request services. * * *

What is not clear from a quick reading of the the press release is whether the "fine" would ever be paid.

This was pointed out in an article posted by Philly.com on August 24, 2007, entitled "Delco health firm fined 249G", by William Bender. It noted: "The company can avoid paying the $249,000 fine if it complies with a strict set of demands outlined by the state."

Such compliance may be a problem for this company. That article also reported enforcement actions being conducted in other states against "Homeward Bound":

Last week [August 14, 2007], New York Attorney General Andrew Cuomo sued the company and obtained a restraining order to prevent it from selling its health plans there.

Cuomo said the company entered into agreements with more than 600 New York seniors and didn't deliver on its promises.

Similar cases have been filed against the company in Florida, Washington, Illinois, Wisconsin and California, according to Shonna Clark, a spokeswoman for Corbett.

"They're pretty much doing this across the country, it seems," Clark said.

The Post-Standard (Syracuse, NY) reported about New York state's separate enforcement action against the "Homeward Bound" company, in an article entitled "Company accused of cheating elderly", by J. Mulder, posted on August 14, 2007:

[New York state Attorney General Andrew Cuomo]'s office announced today it is suing Homeward Bound Services of North America and its owners. The lawsuit contends the Drexel, Pa., company used deceptive and fraudulent practices to sell agreements to seniors.

A temporary restraining order barring Homeward Bound from selling or renewing agreements across the state was signed today by Supreme Court Justice Joseph D. Mintz in Buffalo. * * *

The lawsuit said elderly consumers like [Mildred] Butterworth thought they were pre-paying at discounted rates for a variety of home care services that would keep them out of nursing homes. Very few seniors, however, benefited from the agreement, according to Cuomo's office. * * *

The victims cumulatively paid more than $1.2 million to Homeward Bound for agreements that proved to be virtually worthless, the office said. * * *

I am reminded of the lyrics written by Paul Simon for the 1966 hit pop song "Homeward Bound", performed by Simon & Garfunkel, which invoked the loneliness of a stranded entertainer.

But now it is some seniors, who thought they were comfortably "homeward bound", who instead are stranded.

Petition Filed for Reconsideration of Barnes Relocation

On Monday, August 27, 2007, the Friends of the Barnes Foundation, of Merion Station, PA, announced the filing of a Petition for Reconsideration with the Orphans' Court Division, of the Court of Common Pleas of Montgomery County, PA, regarding that court's previous approval of relocation of a portion of the Barnes Museum's art collection to Philadelphia.

The filing was announced on Monday, August 27th, at noon in a press conference planned by the FBF. In general (according to a press release), the Petition seeks, among other remedies, a review by Judge Stanley Ott of that Court's previously-approved (Dec. 13, 2004) opinion & order granting permission for the Barnes Foundation’s art collection to be moved from its present Merion site, established by the late Albert Barnes, to a new site in Philadelphia.

For background, see: PA EE&F Law Blog posting "Next Round for the Barnes Foundation" (06/11/07).

The Barnes Foundation and its artwork were the subject of an extensive "cover story" article in LifeStyle Magazine, a regional publication, entitled "Will the Barnes Foundation Stay Put?" by Maryanna S. Phinn [links added]:

Friends of the Barnes Foundation formed shortly after the December 2004 landmark ruling in Orphans’ Court of Montgomery County. The court’s decision broke the will of the institution’s founder, Dr. Albert C. Barnes, which prohibited the permanent art and horticultural collections from ever being moved from Merion. The Barnes’ trustees petitioned the court for permission to move citing financial hardship after years of legal problems.

[Jay Raymond, a member of the citizens’ group, a current student and former faculty member] unsuccessfully tried to appeal the court’s ruling on behalf of some of the institution’s students.

“Ultimately, there was no appeal or review of the Orphans’ Court decision,” notes Raymond. * * *

“We feel that the circumstances are different now since the ruling,” says Raymond. The Friends of the Barnes, therefore, will not accept the move as a “done deal.”

Although facing an uphill battle, the group remains optimistic. They recently received a vote of confidence and renewed support from Montgomery County’s commissioners, who unanimously agreed to hire local attorney Mark Schwartz to investigate additional legal avenues to keep the renowned institution in Lower Merion Township. * * *

* * *[T]he Friends of the Barnes and Montgomery County aim to keep up their fight. Their position is supported nationally by leading art critics, curators and historians in blogs and commentaries in The New Yorker, The Los Angeles Times, The Wall Street Journal, Fortune Magazine, TIME Magazine, The Philadelphia Inquirer and many others.

Locally, the Friends have kept the issue alive through essays in The Main Line Times, coverage in The Evening Bulletin, and through public forums and debates. In May, a debate was held at Drexel University between Robert Zaller, professor of history at Drexel and Gresham Riley, former president of the Pennsylvania Academy of Fine Arts. Zaller vehemently opposes the move, while Riley supports it. Their commentaries have frequently appeared on the Broad Street Review, an arts and culture opinion-based Web site. * * *

A Philadelphia City Council committee and the Fairmount Park Commission approved a 99-year lease agreement on the Benjamin Franklin Parkway near 21st Street at the site of the current Youth Study Center, a juvenile detention facility. Philadelphia wants to replace the Youth Study Center with a new building, at an estimated cost of $55 million, but a new location has not been selected yet. Philadelphia may need to find a temporary location for 100 juveniles at an estimated cost of $10 million.

The City is also under time constraints. Under the lease agreement, the Youth Study Center must be vacated by May 2008 or the Barnes has the option of breaking the lease. * * *

The Broad Street Review had posted various opinion articles in 2007 about the Barnes Museum's proposed move:

• Albert Barnes’s misguided vision, by Charles Morscheck (06/11/07)
  

• What did Albert Barnes really want?, by Robert Zaller (06/11/07)
  

• What the Barnes must do next, by Gresham Riley (06/10/07)
  

• Relocating the Barnes: A symposium, by Robert Zaller & Gresham Riley (05/22/07)
  

Little mention about the debate is found on the website of the Barnes Foundation. Instead, it promotes the extensive art collection, which includes Vincent van Gogh's Houses and Figure (1898, BF 136), copied above.

On the other hand, the home page of the FBF website promotes its recent initiatives, which preceded its court action. See also: "Philly's Future" Blog, under its "Update on the Barnes Foundation".

The anticipated filing of a petition was first announced in a FBF Press Release, dated August 24, 2007, and explained again in a further FBF Press Release, dated August 27, 2007. The latter described the requests in the petition:

Friends of the Barnes Foundation, together with students and neighbors of the Barnes Foundation, filed a petition today in Montgomery County Orphans’ Court.

The Petition requests that Judge Stanley R. Ott reopen the proceedings to examine new evidence and to rescind his previous orders including the order granting permission to the Barnes Board of Trustees to move the Foundation’s gallery collection to a site in Philadelphia.

The Petition further requests that Judge Ott remove the present Board of Directors and place the Foundation in receivership.

The matter now moves, again, into the courtroom of the Orphans' Court Division, in Norristown, PA.

Update: 08/28/07:

Articles noting the filing of the Petition for Reconsideration include:

• "Lawsuit asks judge to fire Barnes board", by Tom Infield, posted by The Philadelphia Inquirer (08/27/07).

• "Opponents urge U.S. judge to reconsider Barnes Foundation's move", by The Associated Press, published by the International Herald Tribune (08/27/07).
• "The Plot Thickens", by Richard Lacayo, posted by Time Magazine (08/23/07).

Update: 09/14/07:

Montgomery County, PA, joined the fight by way of its filing made in the Montgomery County Court of Common Pleas, Orphans' Court Division, on September 12, 2007, for reconsideration of the Court's prior order in view of changed circumstances.

See: PA EE&F Law Blog post "Montgomery County PA Joins Barnes Fight" (09/14/07).

Update: 05/19/08:

On May 15, 2008, the Orphans' Court Division, of the Montgomery County (PA) Court of Common Pleas, per Judge Stanley R. Ott, issued a Memorandum Opinion (8 pages) that denied "standing" to the Friends of the Barnes Foundation and the County of Montgomery in the litigation referenced as The Barnes Foundation -- Petitions to Reopen Proceedings.

See: PA EE&F Law Blog posting "No Standing" for Barnes Foundation Petitioners (05/19/08).

"Preneed Funeral Contracts" in PA

On August 25, 2007, the Pennsylvania State Board of Funeral Directors issued proposed regulations that would amend the rules governing preneed funeral contracts and the funds paid for such arrangements, including their transfer & sale in the Commonwealth.

The proposed regulations were published in the Pennsylvania Bulletin, as Document No. 07-1549, at 37 Pa.B. 4643. These regulations would implement provisions of the Pennsylvania Funeral Director Law, 63 P.S. §§ 479.1 - 479.20.

More technically, the proposed regulations would amend Title 49 of the Pennsylvania Code, in Sections 13.1, 13.224, 13.225 and 13.226 and would add Sections 13.227, 13.228 and 13.229 (relating to limitations on preneed funeral contracts; transfer of a preneed funeral contract by customer; and sale or transfer of preneed funeral contracts or preneed funeral funds by a funeral director).

Years ago, the AARP Public Policy Institute, of Philadelphia, PA, had provided general background, not specific to Pennsylvania, on the subject of preneed funeral arrangements, which are not the subject of federal regulation:

• "Preneed Funeral and Burial Agreements Fact Sheet", by Sharon Hermanson, of the AARP Public Policy Institute (June, 1999)

• "Preneed Funeral and Burial Agreements: A Summary of State Statutes Research Report", by Sandra B. Eskin (December, 1999)

• "The Deathcare Industry Research Report", by Sharon Hermanson (May, 2000)

See also: "Funerals: A Consumer Guide", posted by the Federal Trade Commission (June, 2000).

On February 12, 2005, changes to regulations had been proposed that would have governed the sale of funeral arrangements & the application of funds for such services, generally, and preneed funeral arrangements, specifically. But litigation ensued, first in federal court, and then in the Commonwealth Court, regarding the basis for state regulation of the sale of certain funeral services. These disputes delayed implementation of the original proposed regulations.

In Pre-Need Family Services Eastern Region v. Bureau of Professional and Occupational Affairs, No. 2052 C.D. 2005, issued July 26, 2006, the Commonwealth Court affirmed the jurisdiction, findings, & rulings of the BPOA regarding such matters:

Relying on this court’s decision in Cornerstone Family Services, Inc. v. Bureau of Professional and Occupational Affairs, 802 A.2d 37 (Pa. Cmwlth. 2002), aff’d, 577 Pa. 136, 842 A.2d 918 (2004), the Board held that it had jurisdiction to determine whether Pre-Need’s sale of cremation services directly to the public constituted the unlicensed practice of funeral directing.

The Board then concluded that Pre-Need’s activities constituted the unlicensed practice of funeral directing in violation of sections 13(a) and 13(c) of the Law, 63 P.S. §§479.13(a), (c).

Accordingly, the Board directed Pre-Need to cease and desist its unlicensed activities and to pay a civil penalty in the amount of $1,000.

The Commonwealth Court noted that state regulation of the sale of funeral services varies considerably. See: Footnote 11 on page 12, which cited statutes in Florida, Georgia, & Mississippi. The Court concluded that sale of direct cremation packages to the public constituted the “practice” of “funeral directing”, which was regulated by the Pennsylvania Funeral Director Law.

After clarifications from these courts, and after consideration of public comments, modified final regulations were eventually adopted by the SBFD.

The final set of regulations, published on May 26, 2007, deleted references to preneed funeral arrangements. See: 49 PA. Code, Ch. 13, finalized per publication in the Pennsylvania Bulletin at 37 Pa.B. 2412.

In its comments upon adoption of a modified form of regulations, the SBFD explained its approach:

As [previously] proposed, new § 13.202(13) would have prohibited a funeral director from retaining funds for goods or services that the funeral director has not provided, or that exceeded the value of funeral goods and services that the funeral director has provided. Various commentators, including the HPLC [House Professional Licensure Committee] and IRRC [Independent Regulatory Review Commission], were concerned about how this proposed amendment would impact preneed funeral arrangements.

When the funeral director has received those funds under a preneed agreement, the Board concludes that issues concerning entitlement to payment should be addressed through comprehensive rulemaking specific to preneed funeral arrangements.

Accordingly, in this final-form rulemaking the Board has specifically excluded preneed funeral arrangements. * * *

The Board [previously] proposed adding § 13.202(17) to prohibit a funeral director from aiding a person or entity that the funeral director has reason to believe is attempting through unlicensed persons or entities to engage in preneed sales.

Subsequent to the publication of the proposed rulemaking, the Federal District Court for the Middle District of Pennsylvania noted in Walker v. Flitton, 364 F. Supp. 2d 503 (M.D. Pa. 2005), that the Board has not set forth by regulation what unlicensed employees and agents may lawfully do in the realm of preneed sales. Accordingly, the Board decided not to adopt this paragraph as part of its misconduct regulation and instead will address this issue through separate rulemaking.

That "separate rulemaking" resulted in the publication of the presently proposed regulations specifically on preneed funeral arrangements.

This is the published summary of the proposed new regulations:

In § 13.1 (relating to definitions), definitions of ''prepaid burial contract'' and ''prepaid burial account'' would be deleted and replaced with definitions of new terms ''preneed funeral contract'' and ''preneed funds.'' The proposed definition of ''preneed funds'' would exclude premiums paid directly to an insurance company to purchase a life insurance policy. However, preneed funds would include amounts to be paid for arrangement fees or additional allowance for other services or merchandise. Preneed funds would also include the assignment of a life insurance policy or other asset received by a funeral director to fund a preneed contract.

Section 13.224 requires a funeral director to deposit in escrow or transfer in trust money received under a prepaid contract. The Board proposes to amend subsection (a) to require the deposit or transfer be made within 10 days of receipt. In addition, the Board proposes to add a provision to prohibit a funeral director or entity from using another person or entity to avoid this requirement. Currently, a funeral director must submit to the Board a written report every time the funeral director enters into a prepaid burial contract or performs under a prepaid contract. Under proposed subsection (b), a funeral director would be required to report to the Board all preneed accounts on a quarterly basis, including activity during that quarter. A funeral director could submit these reports on paper or disk or electronically and must maintain copies of the report for 3 years. A funeral director closing a business would be required to submit a report showing how all funds were distributed. These reports are not public records and will not be available for public review.

The limitations proposed for contract provisions are added in § 13.227. Under the proposed rulemaking, every preneed contract must be in writing. Also, a funeral director performing under a preneed contract would be prohibited from charging or collecting any fee that exceeds the fees set forth in the funeral director's current price list at the time the service or merchandise is provided. In addition, a preneed contract may not incorporate a contract with an unlicensed person or entity.

Proposed § 13.228 would govern customer transfers of preneed funds to another funeral director or funeral entity. Every preneed funeral contract entered into after the effective date of the final-form rulemaking must expressly permit the customer to transfer the preneed funeral account and funds to another funeral director or funeral entity of the customer's choosing that will provide funeral goods and services. The funeral director would be required to forward to the other funeral director the entire amount of preneed funds, including both principal and interest or other earnings, within 30 days of notice from the customer. The proposed rulemaking would prohibit a funeral director from collecting a fee for funeral goods or services that have not been provided or liquidated damages for the cancellation.

Proposed § 13.229 would govern funeral director transfers of preneed contracts or funds. It would require a funeral director or entity that acquires a portion of the preneed business of another to notify each customer and provide each customer with the opportunity to transfer the contract and funds to another funeral director of the customer's choosing. A funeral director ceasing preneed business must notify each customer and provide each customer with the opportunity to transfer the preneed funds to another funeral director of the customer's choosing.

The proposed regulations are set forth at length in the published notice of proposed rulemaking.

That notice invites public comment:

Interested persons are invited to submit written comments, suggestions or objections regarding this proposed rulemaking to Michelle T. Smey, Administrative Officer, State Board of Funeral Directors, P. O. Box 2649, Harrisburg, PA 17105-2649 within 30 days of publication of this proposed rulemaking in the Pennsylvania Bulletin. Reference No. 16A-4815 (Preneed funeral arrangements) when submitting comments.

Bankers Associations File Amicus Brief in Rudkin Case

The American Bankers Association announced on August 24, 2007, that the ABA and eleven state bankers associations filed a friend-of-the-court brief with the U.S. Supreme Court in the pending appeal of William L. Rudkin Testamentary Trust v. Commissioner (PDF, 19 pages), 467 F.3d 149, 98 AFTR2d 2006-7368 (2d Cir. 10/18/06).

The filing of the Amicus Brief was made on August 23, 2007, according to the United States Supreme Court's Docket for the case, found here.

The associations' brief argues for a reversal of a lower-court ruling strictly limiting the deductibility of investment-advice fees incurred by trustees.

For background about the Rudkin dispute, see: PA EE&F Law Blog posting "Rudkin" Regulations Proposed During Appeal (08/02/07).

The "ABA Amicus Brief to the Supreme Court in the Rudkin Case" (PDF, 19 pages) was made available online by the ABA on its "Center for Securities, Trust & Investments" web page. It was also made available here on the website of the American College of Trust & Estate Counsel.

The American Bankers Association was joined in the filing by bankers associations from the following states: California, Florida, Illinois, Kansas, Massachusetts, Missouri, New York, North Dakota, Ohio, Pennsylvania, and Texas. The Pennsylvania Bankers Association was listed as an amicus; and a Pennsylvania statute -- 20 Pa. Cons. Sta. Ann. §§ 7201 – 7214 (West, Westlaw through 2006-189) -- was cited in the brief on page 8. [Note: This last statement is a correction from the original posting. See: Update on 09/04/07, below.]

The interest of the ABA in the case was stated as follows:

The ABA is the largest national trade association of the banking industry in the country. It represents banks and holding companies of all sizes in each of the fifty states and the District of Columbia, including community, regional, and money center banks. The ABA also represents savings associations, trust companies, and savings banks. ABA members hold approximately 95% of the U.S. banking industry’s domestic assets. ABA frequently appears in litigation, either as a party or amicus curiae, in order to protect and promote the interests of the banking industry and its members.

The amici have a direct interest in the outcome of this litigation. Many of ABA’s and the State Association Amici’s members serve as trustees and executors, or act as agents for individuals who serve as executors or trustees. The issue presently before the Court concerns the proper construction and interpretation of Section 67(e) of the Internal Revenue Code (the “Tax Code”), 26 U.S.C. § 67(e). This statute addresses the taxation of trusts and estates, specifically the deductibility of investment advisory fees. The outcome of this case will have a direct effect upon the manner in which the amici’s members engage in (and are taxed on) their trust business.

This is the "Summary" of the argument in the brief:

The ABA and the State Association Amici respectfully submit that the decision below was incorrectly decided because the court failed to recognize that, unlike individual investors, trustees have an affirmative legal duty to prudently invest trust assets.

While individual investors often seek professional investment advice, they do so out of good sense and not legal obligation. Trustees, on the other hand, manage assets and act on behalf of others which, in turn, bind them to certain legal duties and responsibilities, including a duty to prudently manage the trust that is in their care.

This legal duty of prudence is embodied and codified in the Uniform Prudent Investor Act (“UPIA”). Since the completion of the UPIA in 1995, versions of this uniform statute have been adopted by 44 states and the District of Columbia as the standard for trust investment law.

It is the existence of this duty that differentiates the individual investor from the trustee; because trustees generally have an affirmative duty to handle the investment of trust assets in a prudent fashion, and the fulfillment of that duty may require the retention of expert investment help. * * *

The full argument and citations are set forth in the brief.

In a footnote, the brief mentioned the position and activities of the IRS, which issued proposed regulations for comment on these matters during the pendency of the Rudkin appeal to the United States Supreme Court:

It is worth noting that the Commissioner opposed review of this case partly on the grounds that the IRS was intending to issue a notice of proposed rulemaking regarding the deductibility of investment advisor fees.

The IRS took the position that once the regulations were issued, the matter would be resolved because the court would be required to defer to the agency’s interpretation of section 67(e) under Chevron U.S.A. Inc. v. NRDC, 467 U.S. 837 (1984).

The IRS has subsequently issued a notice of proposed rulemaking that seeks comment on proposed regulations that address the issue before the court. See Section 67 Limitations on Estates or Trusts, 72 Fed. Reg. 41243 (July 27, 2007).

The amici respectfully submit that, apart from the rather curious timing, the IRS’s proposed regulations are irrelevant to the court’s consideration of this case. The notice of proposed rulemaking was issued by the IRS well after the operative facts of this case occurred, and no final regulations have been issued. Further, the Court need not defer to the IRS’s interpretation of the law contained in its final regulation – whenever it is issued and in whatever form it eventually takes – if that interpretation is contrary to the express language of the statute or the regulations are arbitrary and capricious.

This is the summary and the conclusion of the amicus brief regarding the Rudkin case:

In sum, the Court should conclude that the Second Circuit decided the case below incorrectly. The existence of a legal duty of prudence differentiates the individual investor from the trustee, and the fulfillment of that duty of prudence may require a trustee to retain expert investment help. The advice received by the trustee (and for which the fees are incurred) is in most cases peculiar to the particular trust in light of the trust’s purpose and other factors outlined by the UPIA. The Court should ultimately conclude that investment management fees are fully deductible by trusts under Section 67(e) of the Tax Code because they “would not have been incurred if the property had not been held in trust.”

CONCLUSION

Based upon the foregoing, the ABA and State Association Amici urge the Court to grant the petition for certiorari to resolve the conflict between the circuits and to provide a uniform interpretation of the Tax Code.

Update: 09/04/07:

In my original posting, I had mentioned that the Pennsylvania Bankers Association was not among the amicus parties. This was clearly incorrect, as indicated by the list of participants.

This error was pointed out to me today by Louise A. Rynd, Esq., who serves as General Counsel for the Pennsylvania Bankers Association, in Harrisburg: "I read your posting to state that PBA had not joined and that no PA statute was cited. We did in fact join and the first statute cited is PA law."

I changed the text of the posting above to be accurate. I thank Louise for telling me; and I apologize for the error. I am glad that the PA Bankers Association is participating.

Update: 11/19/07:

Various organizations submitted comments to the proposed regulations, and the IRS held a hearing on Wednesday, November 14, 2007. See: PA EE&F Law Blog posting, IRS Gets Comments on "Rudkin" Regs Proposed (11/19/07).

Update: 01/17/08:

On January 16, 2008, the United States Supreme Court issued its decision in Knight, Trustee of William L. Rudkin Testamentary Trust v. Commissioner of Internal Revenue Service. (No. 06–1286; PDF, 16 pages). In short, the IRS won. But the drama may not be over, either.

See: PA EE&F Law Blog posting "IRS Wins Rudkin Case in U.S. Supreme Court" (01/17/08).

Donate Computer Equipment to a Senior Center!

In a Press Release entitled "Department of Aging Offers Surplus Computer Monitors to Senior Centers", dated May 14, 2007, the Pennsylvania Department of Aging noted its special program to recycle functional, surplus computer equipment for use at senior centers in the Commonwealth.

Secretary of Aging Nora Dowd Eisenhower said today that the Rendell administration will provide 150 state surplus computer monitors to senior community centers across Pennsylvania.

“The computers available for use at many senior community centers provide older adults with access to a wealth of information that can help them to better manage their lives,” Eisenhower said. “A growing number of older adults use the Internet for communicating with friends and family, as well as conducting financial transactions and continuing their education.

“I would like to express my appreciation to the leadership of the state Senate, who felt it was important to make these surplus computers available to older Pennsylvanians,” she added.

A surplus distribution program in November 2005 organized by the department distributed personal computers to senior centers through 17 Area Agency of Aging offices. The centers were located in Beaver, Berks, Chester, Clearfield, Dauphin, Franklin, Indiana, Jefferson, Mifflin, Juniata, Monroe, Montgomery, Northampton, Pike, Somerset, Union, Snyder and Westmoreland counties.

The new computer monitors will be available to senior centers across the state.

On May 15, 2007, I sent email messages to Harriet B. Withstandley, Esq., the Chief Counsel of the PA DoA, and to Nora Dowd Eisenhower, the PA Secretary of Aging, inquiring whether senior centers could also accept donations of usable computer equipment from other sources.

I know that most law firms are replacing older CRT monitors with flat screen LCD monitors.

Would there be a conduit for lawyers or law firms to donate such monitors to senior centers too? If so, I would like to mention this on my Blog.

Harriet replied affirmatively.

* * * I think that mentioning it in your blog is a great idea.

[Y]ou could certainly recommend that lawyers and others contact local senior centers before discarding old monitors or other equipment, such as printers.

Nora replied, simply: "Great idea!"

Announcement of the redesign of the PA DoA's website (see: PA Aging Dept Unveils New Resource Website, 08/21/07) reminded me about the need for computer equipment in senior centers -- and also about the "great idea" that I failed to mention on this Blog since May. I correct that now.

The last paragraph of the Press Release issued August 20, 2007, noted the use of computers at senior centers:

Older adults who do not have a computer at home can access the Department of Aging’s Web site by using a computer at a senior center, local library or family member’s home.

There are many other benefits to senior citizens who utilize computers. The Senior Journal has reported about some:

• "Senior Citizens Who Master Computer Have Less Depression" (Aug. 18, 2005) – Senior citizens who become adept at using a computer appear to have fewer depressive symptoms than those older adults who aren’t so technologically connected. That’s the finding of a research study, Depression and Social Support Among Older Adult Computer Users, presented August 18, [2005,] at the 113th Annual Convention of the American Psychological Association. * * *
  

• "Senior Citizens Play Computer Game to Determine Memory Loss" (July 18, 2006) – Scientists said today they are using a popular computer card game – FreeCell – to help distinguish between senior citizens with memory problems and those without cognitive problems. Scientists with the Oregon Health & Science University's Oregon Center for Aging & Technology, or ORCATECH, found that a Solitaire-like game called FreeCell, when adapted with cognitive performance assessment algorithms, may be able to distinguish between persons with memory problems and cognitively healthy seniors. * * *
  

• "Senior Citizens Seeking Discounts Should Not Overlook Coupons Online" (July 13, 2007) – When looking for senior discounts, be careful not to overlook one of the oldest sources of savings -- coupons. [M]any Internet sites offer meaningful discounts on everything from travel to electronics, as well as your favorite brand of chicken noodle soup. * * *
  

Seniors should adopt -- and many have already adopted -- use of the computer & the Internet as an essential component of living today.

One online software distributor, TuCows, posted an article, dated December 9, 2005, entitled "Computing for Seniors", noting that "many seniors shy away from computers". It then provided "some insights on why seniors and computers should get together."

There are many things seniors can use computers for.

SeniorNet suggest writing memoirs, tracing genealogy, starting a home business, planning finances, managing investments and banking, surfing the Internet, peer counseling, monitoring health and homes, and keeping up with the grandkids. * * *

E-mail is one of the greatest innovations of the modern age – if the people you know also use e-mail. The beauty of it is that you can write something brief, and it is immediate. Heavy computer users have e-mail conversations, sending short messages back and forth several times a day. Others check once a week, answering when they get a moment.

It is a wonderful way to keep in touch with children and grandchildren because younger people love computers and will be motivated to write to you often if they get mail from you.

Then there's shopping. Go to a shopping site and you are likely to get more information about a product than you would in a store. On top of that Web sites often have better deals because they have less overhead than a brick and mortar store. Finally, your purchases are delivered to your door. How great is that?!

One passage in that article reminded me how a computer, hooked to the Internet, can allow a disabled person "mobility":

The thing is that if you ever get to the point where mobility is an issue, the computer could become your window to the world.

Shopping, games, contact with friends and family are all possible with an Internet connection and a modest computer.

Learning some basic things you like to do is an investment in the future when you may depend on the machine to keep the texture of your life rich and varied. * * *

However, a significant danger facing "wired seniors", like all computer users, is online fraud, which occurs both though "spyware" and also by online "phishing".

The article "Wired Seniors" Sitting Ducks?", dated April 12, 2006, by Susannah Fox, of the Pew Internet & American Life Project, delves into the problem in great detail. This article followed her prior survey report, "Older Americans and the Internet", dated March 28, 2004.

She concluded in her article:

Currently, the vast majority of Americans age 65 and older do not go online.

But that will likely change in a big way as the "silver tsunami" of internet-loving Baby Boomers swamps the off-line senior population in the next 10 years.

That demographic shift, paired with a rising tide of viruses, spyware, and other online critters, is cause for concern since there is evidence that older users are less likely than younger ones to take precautions against software intrusions and fraud. * * *

The seniors' computer learning, their online access, and that newly-acquired freedom could be provided at a senior center -- but only if it could offer adequate computer hardware & software.

If you can donate functional surplus computer hardware (CPUs, monitors, cable modems, printers, pointing devices, or other usable peripherals) to a senior center in your area, do it.

Urge your office to do it. Urge your professional associations or community groups to support doing it.

A participant at a Pennsylvania Senior Center could benefit greatly.

PA Aging Dept Unveils New Resource Website

On August 20, 2007, the Pennsylvania Department of Aging issued a Press Release, entitled "Department of Aging's New Web Site Offers Help For Older Adults, Families", which "announced it has launched a new Web site designed specifically to help older Pennsylvanians and their loved ones more easily find information about available programs and services."

The Press Release, which was listed on PA PowerPort (the Internet portal for Pennsylvania's state government), quoted Secretary of Aging Nora Dowd Eisenhower in the announcement:

People, including a growing number of older adults, rely on the Internet for answers.

Now when anyone needs information about issues facing older adults, the Department of Aging’s new Web site will be the best place for them to start,” said Secretary of Aging Nora Dowd Eisenhower.

“Our new Web site will help older Pennsylvanians find the support and services they need to remain healthy and independent.”

Through the site, www.aging.state.pa.us, visitors can learn how to contact Pennsylvania’s local Area Agencies on Aging, which are community organizations staffed by workers who are skilled in geriatrics, social work and are knowledge about local programs for older adults.

The site provides information on long-term living, how to report and recognize elder abuse, application information for Pennsylvania’s PACE/PACENET prescription drug benefit program, where to find legal advice for older adults, how to get help with utility bills, health and wellness tips, volunteer opportunities and more.

“Nearly everyone can benefit from using our Web site. Pennsylvania’s large population of older adults will find information on issues specific to them, as well as information helpful to their friends, family members and even their neighbors,” said Eisenhower.

“Ensuring the safety and well-being of an older person can often involve a network of people, and I hope that our new Web site provides easy access to the help and support that they need.” * * *

The website for the PA DoA technically is not "new". PA DoA has sponsored a public website regarding its activities & services for many years. The Internet address for that website & its link from PA PowerPort remain the same.

Instead, PA DoA's website is significantly redesigned. It is "refreshed" to be more user-friendly and consumer-capable. This refresh-ment is welcome.

The main topics, which are listed in the left side column of the website's home page, organize its contents from a top view:

• Your Local Resources
• Health and Wellness
• Prescription Assistance
• Long-Term Living
• Abuse or Crime
• Other Helpful Programs
• Brochures
• Home

As a main topic is selected, the side-banner remains in view, but sub-topics are revealed. This aids navigation around the website. You can, of course, conduct a search of the website's contents.

Clicking a button labeled "Professionals & Providers" reveals information relevant to these folks, as opposed to consumers.

Overall, the redesign is a nice upgrade to an already content-rich website. This "facelift" is important to senior users, who require particular visual design features. See: "Designing websites with senior citizens in mind", posted April 3, 2005, by Emily Shartin, of the Boston Globe.

Unveiling of this redesigned website shows the attention paid by the PA DoA to public needs.

Another such sign was the issuance that same day (August 20, 2007) of the Department's latest Newsletter (Issue 18, Summer, 2007 (PDF, 12 pages), entitled "Secretary's Notes to the Aging Services Network". Past Newsletters issued by the Department are available here.

The current Newsletter contains these articles:

• 2007-2008 State Budget News: Assisted-Living Signed into Law, Prescription for Pennsylvania Moves Forward
• Older Adults, Pennsylvanians Will Benefit From Historic Assisted-Living Legislation
• Prescription for Pennsylvania: Healing the Health Care System Symposium a Success
• Make Your Voices Heard; AARP Lobby Day
• Make Your Voices Heard; PA Association of Senior Centers Rally in Harrisburg
• On the Road Again, Protective Services Specialists Resume Statewide Visits
• PEERS Recognized for Their Dedication to Residents Rights: PEER Day 2007
• Property Tax/Rent Rebate Deadline Extended
• Senior Center Study Data is Released
• Conference Aims to Help Family Caregivers
• PDA Employees Assist With Prescription for Pennsylvania
• Pennsylvania Businesses, Individual Awarded for Outstanding Employment Contributions
• Out and About With the Secretary
• A Tribute to Charlie Kane

You may note that, in its Newsletters, the Department refers to itself as the "PDA", rather than the abbreviation I use -- the "DoA". Why do you think that is their preference? And, should I change?

By whatever name, the Department is responding vigorously to its challenges.

Online Scammers Invoke Government Agencies

Last week I received an unsolicited email message, which purported to be from the Internal Revenue Service, offering me a modest refund. I knew that it was not genuine. It was a scam, a con, a blatant attempt at "phishing".

These anonymous scammers not only invoke the name of the IRS as bait for their victims. They also invoke the names of Medicare, state agencies, and local governments to attract interest to their broadcast impersonal messages.

They hope to catch a trusting, but unsophisticated, responder. Once "on the hook", the responder might volunteer sensitive information or account numbers that would enable Internet theft with no trail for law enforcement to follow.

This is the text of the "income tax refund" message that I received, which bore an official-looking logo. My email filter properly categorized it as "junk mail" or "spam":

After the last annual calculations of your fiscal activity we have determined that you are eligible to receive a tax refund of $109.30.

Please submit the tax refund request and allow us 6-9 days in order to process it.

A refund can be delayed for a variety of reasons. For example submitting invalid records or applying after the deadline.

To access the form for your tax refund, please click her [link removed]

Regards,
Internal Revenue Service

© Copyright 2007, Internal Revenue Service U.S.A..

It was clear to me -- beginning with the "copyright" notice on the communication -- that this was a fraud. I have become sensitized to it; and I have attempted to inform others. See: PA EE&F Law Blog postings SEC's Senior Investor Protection Seminar on May 18 (05/07/07); Beware Email Bearing Benefits! (01/10/07); PA AG Speaks to Seniors about Scams (09/22/06); and PA Bar Assn Prepares Public Education Campaign on "Personal Identity Theft" (09/01/06).

But it was clear to other attorneys, too, who received similar messages recently, and then reported them on an American Bar Association listserv as a reminder.

Do folks really respond to such messages? Apparently, some do, despite warnings; and the financial consequences can be personally devastating.

The Internal Revenue Service had posted a warning about such email scams nearly two years ago. See: "IRS Warns of e-Mail Scam about Tax Refunds", dated November 30, 2005.

The Internal Revenue Service today issued a consumer alert about an Internet scam in which consumers receive an e-mail informing them of a tax refund. The e-mail, which claims to be from the IRS, directs the consumer to a link that requests personal information, such as Social Security number and credit card information.

This scheme is an attempt to trick the e-mail recipients into disclosing their personal and financial data. The practice is called “phishing” for information.

The information fraudulently obtained is then used to steal the taxpayer’s identity and financial assets. Generally, identity thieves use someone’s personal data to steal his or her financial accounts, run up charges on the victim’s existing credit cards, apply for new loans, credit cards, services or benefits in the victim’s name and even file fraudulent tax returns.

The bogus e-mail, which claims to come from "tax-refunds@irs.gov" tells the recipient that he or she is eligible to receive a tax refund for a given amount. It then says that, to access a form for the tax refund, the recipient must use a link contained in the e-mail. The link then asks for the personal and financial information.

The IRS does not ask for personal identifying or financial information via unsolicited e-mail. Additionally, taxpayers do not have to complete a special form to obtain a refund. * * *

The IRS isn't the only governmental agency impersonated by scammers.

The Medicare Program is also impersonated with growing frequency. Medicare scams have been the subject of warnings from the Centers for Medicare and Medicaid Services, as reported by The Boston Globe in an article entitled "US issues Medicare scam alert Perpetrators tricking elders into giving up bank data on phone, dated June 17, 2006, by Jeffrey Krasner.

Alerts have been issued by many organizations, as evidenced by online bulletins posted by the Federal Trade Commission, the National Association of Insurance Commissioners, the Attorney General's Office in Michigan, the Attorney General's Office in Arizona, and the Attorney General's Office in Florida, just to name a few.

Pennsylvanians are targets too. The article "Phone scam targets Medicare recipients", posted on July 13, 2007, by Elizabeth Gibson on Penn-Live (Harrisburg, PA), reported recent attempts by con-criminals hiding behind a false Medicare persona.

People who use Medicare are being targeted in a telephone scam that surfaced in Cumberland County today.

Callers, claiming to work for the government's health insurer for senior citizens, insist they must issue a second Medicare card. All that's needed, the caller insists, is a senior's bank account information.

Hogwash, says Barbara Hocking, a Cumberland County Aging and Community Services officer. * *

"The scary part is, these people who prey on the elderly know exactly which buttons to push," said Robert Burns, director of Dauphin County Area Agency on Aging. "A lot of older people are trusting. They grew up in a different world than we are in," Hocking said. * * *

This trusting nature, with a touch of loneliness, makes some senior citizens perfect targets for scammers, according to an article entitled "Data miners swindle the lonely and elderly", by Charles Duhigg, published May 20, 2007.

The thieves operated from small offices in Toronto and hangar-size rooms in India. Every night, working from lists of names and phone numbers, they called World War II veterans, retired schoolteachers and thousands of other elderly Americans and posed as government and insurance workers updating their files.

Then, the criminals emptied their victims' bank accounts. * * *

Pennsylvanians indeed are attractive targets for criminals with a "con" to foist, according to the article "Western Pa. scammers who prey on elderly targeted", posted May 13, 2007, by Jason Cato, of the Pittsburgh Tribune-Review.

Pennsylvania is ripe with seniors, and seniors are ripe targets for con men, legal experts say. Swindlers know the elderly are often flush with savings and other assets, such as real estate and investments, experts say.

State and federal prosecutors are working to make seniors less of a target. Their efforts have attracted national notice.

"In Pennsylvania, particularly, they've gone a long way toward getting the expertise and resources to seek justice against people who perpetrate these crimes against older people." said Sara Aravanis, director of the National Center for Elder Abuse.

"There are major efforts under way to prosecute these egregious cases." * * *

The Pennsylvania Attorney General's Office stands in the forefront of efforts to prosecute Internet & phone crimes, such as those relating to a bogus "Medicare Drug Discount Card". The PA AG's website offers advice, both to prevent & to prosecute scammers.

Helpful also are the Federal Bureau of Investigation's explanation of telemarketing fraud and the website of the the National Consumers League Fraud Center.

Yet prevention remains the best tool against scammers. That tool, in your hands, is your email's "deleted" folder, or the cradle for your hung-up phone.