The Contract Right of Value
Estates involving trusts often involve complicated financial instruments and terms that define them. Beneficiaries have rights to their proceeds governed by the terms of the estate trusts and state law. Disputes can result from the administration of these trusts or on issues involving disputes over entitlement and there can be many reasons involved and the court is asked to resolve them. What surprises me is this area of law can and often involve large sums of money, yet trust attorneys understand rights from governing trusts and appears less interested in the value of the rights the litigation expert deals with. That may be because the beneficiaries were not their initial clients when their estates were created and their initial clients were more interested in different goals than just value. The values needed to administer the estate are often defined for administrative and simplicity in the IRS Code. But when used for enforcement of rights in a court of law these rights are valued under a contract right of value. Contract right of value always uses facts, the legal trust that governs their disposition and apply state law to facts to determine their value.
When value is used in the administration of state trusts simplicity and uniformity are essential. The county appraiser uses defined value to assess property tax in the same way the IRS uses defined value to assess an income tax. Real value is determined with market forces, when such market exists. And the market has to identify a willing buyer and a willing seller. That is an IRS term that only applies for court purposes when market forces are at work. But the IRS especially understands that risk plays a huge part in value. But assets can have several different values and each of them is real and is driven by its purpose for seeking them, the codes, statutes and rules that govern them. In the world of finance, a transaction that triggers a debt creates a corresponding asset for the person that holds the promise to pay, the invoice or the note. This is where some confusion arises in this modern world of finance.
A debt can be liquidated in one clean transaction involving money. This gets back to basic concepts like the IRS market value. But it can often involve risk, which takes the same market value and allows the money to purchase much more assets and leverage it to increase wealth. and these can be accomplished with simple instruments, such as loans and annuities. But as financial instruments get more complex the risk becomes less understood by the public and favor the person, the corporation or institution that can take the risk and can easily violate principles of fairness, regulations or laws to prevent fraud. The latter three are just looked at as different forms of risk. The strategy can backfire and create a windfall for the borrower when the greedy institutions underwrite the untrustworthy for the loan. When repayment is involved, the debt is leveraged with a higher rate of return, if in fact realized can halve its liquidation value by using that simple fact. The same asset measured with risk changes in value and sometimes substantially. But that works only when the buyer or seller wants to engage in risk, or when the buyer has identified a larger buyer of risk, which could be a very large insurance company that sells reinsurance or a large corporation that sells derivatives.
Yet in the real world that happens with more than just money. We are taught in grade school that the shortest distance between two points is a straight line. I could get into complex scientific issues that would challenge that. We don’t have to. There are an abundant number of examples to show this is one observation that appears to be a law of nature, but that appearance is all it is: an assumption. Let’s suppose that you are a city manager, and you have to determine how many fire stations your city needs and where to build them. Both are determined by an ellipse with two equidistant focal points. But it draws a much different area than a normal ellipse does because it changes that shortest distance concept to the sum of vertical and horizontal blocks in city street geometry, where blocks are constant in measured feet. That is because the shortest distance is no longer a straight line but the sum of horizontal and vertical lines to get there on account the fact that cities have commercial real estate on each city block that prevent fire trucks travelling through buildings.
Arithmetic itself uses ten as its base. Everything in arithmetic is based on 10. The only reason for it was when all we could do was count we used our fingers. Had chickens been the predominant species, we would count on our toes 1, 2, 3, …6, 10 and memorized our multiplication tables only with numbers, 1 through 6, where then what’s natural would be based on a lifetime of different learned experiences
Because the stated purpose of this blog is to help the consumer navigate through the waters of litigation, when the issue is enforcement of rights, enforcement of rights has a contract right of value, and part of that enforcement process involves determining the value of the rights so the court can sort out how it can best deal with the disagreement. Each post will deal with different issues giving rise to litigation. It is an area fraught with problems because the estate attorney designs estates to please the benefactor, but the litigation is between those alive after the death of the benefactor.
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