ARBITRATION: Trust arbitration provision not enforceable. The settlor in Rachal v. Reitz, 347 S.W.3d 305 (Tex. App. 2011), included a provision in his trust requiring the beneficiaries to arbitrate any dispute with the trustees. Both the trial and appellate courts held that this provision was unenforceable. A person cannot be compelled to arbitrate a dispute if the person did not agree to relinquish the person’s ordinary right to litigate. The beneficiary is merely a recipient of equitable title to property and not a party to the trust instrument. A trust is not an agreement or contract. Instead, a trust is a conveyance of property coupled with a split of legal and equitable title with the imposition of fiduciary duties on the trustee. A four-judge dissent argued that the settlor’s intent for disputes to be arbitrated should prevail and that the beneficiaries benefited from the trust and thus “agreed” to the trust even though the trust is not a contract.
CY PRES: Gift over does not prevent application of cy pres. The grantor conveyed an undivided interest in land to a charity so long as the land is used as an “education preserve for flora and fauna” to which the public would have access and if not “so used” to the state of Hawaii for use as a public park. After many years of negotiation between the state, the charity, and the owners of the other undivided interests in the land (relatives of the grantor), the parties agreed that the charity and the private parties would convey some of the land to the state, which would establish a protected watershed and release its interest in the remaining land. The charity would then sell its remaining interest to the other owners and the proceeds would be held in a fund named for the grantor and used to fund the charity’s educational programs. The charity filed a petition seeking approval of the land exchange, which was supported by the attorney general and the private parties. The trial court denied the petition because the gift over to the state provides for an alternative if the purpose of the gift cannot be carried out. The Hawaii intermediate appellate court reversed in an opinion thoroughly reviewing the use of cy pres and holding that because the gift over was impracticable, the state having decided that the land was not suitable for use as a public park, the land exchange and sale should be approved. In re Elizabeth J.K.L. Lucas Charitable Gift, 261 P.3d 800 (Haw. Ct. App. 2011).
DEBT FORGIVENESS: Will provision forgiving promissory note remains subject to debts and expenses of estate. A father’s will forgave a promissory note owed to father by his son. The estate was insolvent. In a case of first impression, the Florida intermediate appellate court held that the forgiveness was effective only to the extent that the proceeds of the note were not needed to pay the estate’s debts and expenses. Lauritsen v. Wallace, 67 So. 3d 285 (Fla. Dist. Ct. App. 2011).
DISCLAIMERS: Trust beneficiary can disclaim a portion of future income stream. The life income beneficiary of a spendthrift trust attempted to disclaim a portion of future income payments. The trial court held the disclaimer invalid because the beneficiary had accepted the interest sought to be disclaimed. The Minnesota intermediate appellate court reversed. Under the Uniform Disclaimer of Property Interests Act as enacted in Minnesota, a beneficiary can disclaim an interest if the disclaimer is not barred by prior law or by the UDPIA. The court held that because of the spendthrift restriction, the disclaimant’s interest was not “indefeasibly fixed in quality” and therefore the time to disclaim had not expired and that the disclaimer was not barred because the disclaimant had not accepted the portion of the interest she sought to disclaim. In re S.H. Bowman Trust, 804 N.W.2d 361 (Minn. Ct. App. 2011).
POWER OF APPOINTMENT: Devise of the residue of estate does not exercise special power of appointment. A husband’s will created two trusts over which his surviving wife had special powers of appointment that had to be exercised by “specific reference.” The wife’s will stated that she gave all of her property including “property over which I may have a power of appointment” under a later referenced provision that disposed of the remainder of her “estate and property” to her daughter. A Texas intermediate appellate court held that while the wife’s will made the required reference to the powers of appointment, the clause disposing of her residuary estate referred only to her estate and property, which could not include the appointive property because the powers of appointment were special and the language creating the powers stated that the donee wife could not appoint to herself or to her estate. Doggett v. Robinson, 345 S.W.3d 94 (Tex. App. 2011).
REFORMATION: Testimony of drafter is clear and convincing evidence justifying trust reformation. The terms of parents’ identical revocable trusts directed that their interests in a limited liability limited partnership to which they deeded some land farmed by their son John (who held 1% of the LLLP interests) pass to generation-skipping trusts established for each of their four children. After the death of both parents, the trustee petitioned for an order reforming the trust and the attorney drafter submitted an affidavit stating that the settlors intended to give their LLLP interests only to the trust for John. The trial court ordered reformation and the Supreme Court of North Dakota affirmed, holding that local law allowed reformation if there is clear and convincing evidence of the settlor’s intent and that the drafting attorney’s testimony, if believed, may constitute the clear and convincing evidence required by the statute. Additional evidence included notes of the settlor’s instructions to the attorney and the structure of the trust itself. Agnes M. Gassmann Revocable Living Trust v. Reichert, 802 N.W.2d 889 (N.D. 2011).
SLAYERS: Statute in effect at time of slaying governs. In Bell ex rel. Bell v. Casper ex rel. Church, 717 S.E.2d 783 (Va. 2011), the Virginia Supreme Court held that the question of forfeiture by a slayer is governed by the statute in effect at the time of the slaying, not by the statute in effect at the time of the conviction of the slayer. In addition, the court held that both the former and current versions of the statute do not violate statutory prohibitions of forfeiture of estate or corruption of blood.
TRUST DISTRIBUTIONS: Funding agreement does not change trust provision requiring distribution of net income. On the death of the settlor, his revocable trust divided into a marital deduction trust and a credit shelter trust. The trustee was required to pay all of the net income of the marital trust to the widow at least quarterly. The property of both trusts included shares of stock in a closely held corporation. After disputes arose between the widow and the surviving children (beneficiaries of the credit shelter trust and remainder beneficiaries of the marital trust), the widow and children entered into an agreement allocating to the two trusts the stock and “all income” received from the stock. The corporation then issued a check payable to the marital trust, which the widow deposited in her personal account. The children objected, maintaining that the distribution from the corporation should be reduced by the corporation’s business expenses. The trial court held that “all income” from the stock should be distributed to the widow. The children appealed, and the Wyoming Supreme Court affirmed in part and reversed in part, holding that any business expenses of the corporation were not attributable to the trust but that the “net income” language in the trust provisions was not negated by the agreement and that payments to the widow must be reduced by trust administration expenses. Jones v. Purcella, 258 P.3d 730 (Wyo. 2011).
TRUSTS: Objections to investment performance do not state cause of action, but trustee can be removed for conflict of interest. A sister named her brother as the successor trustee of a trust created by their father for her benefit, remainder at her death to her issue but if none, to her brother. After relations between the siblings deteriorated, the sister adopted her adult stepchildren (she had no birth children) and attempted to remove her brother as the trustee. After her death, the adopted stepchildren brought an action seeking a declaration that they were remainder beneficiaries, alleging violation of the Prudent Investor Act and seeking removal of the trustee. The trial court dismissed and the adopteds appealed. The Illinois intermediate appellate court reversed, holding (1) state law excluding persons adopted after the age of 18 from inheritance rights to and from the adopting parent and from rights under instruments unless they resided with the adopting parent as minors by its terms did not apply to instruments executed before January 1, 1998, and therefore did not apply to the trust at issue; (2) the allegation that the trustee violated the Prudent Investor Act by failing to invest the trust property to produce sufficient income did not state a cause of action because the statute creates a test of conduct and not performance; and (3) the trustee’s status as a contingent remainder beneficiary creates a potential conflict of interest with the adopteds requiring judicial consideration of their request that the trustee be removed. Faville v. Burns, No. 1-11-0335, 2011 WL 4580549 (Ill. App. Ct. Sept. 30, 2011).
WITNESSES: Signature of party to joint will counts as signature of witness. A husband and his wife created a joint will. The document was in the wife’s handwriting and signed by the husband, the wife, and a notary public. The probate court denied probate after the husband’s death on the grounds that the will lacked two witnesses. An intermediate Texas appellate court reversed, however, holding that the wife’s signature counted as the attestation of a witness even though she did not intend for her signature to be also that of a witness. In addition, the court held that language disposing of the property subject to the will “in the event of our deaths” was ambiguous and remanded for a construction of its meaning in the light of extrinsic evidence of the husband’s intent. In re Estate of Fuselier, 346 S.W.3d 1 (Tex. App. 2009).
RULINGS AND REGULATIONS
GENERATION-SKIPPING TRANSFER TAX: IRS continues to approve trust modifications to correct scriveners’ errors. PLRs 201147005 and 201147010.
GENERATION-SKIPPING TRANSFER TAX: IRS issues final regulations. These regulations “provide rules for purposes of the [GST] tax that require the disclosure of listed transactions and transactions of interest by certain taxpayers on their Federal tax returns under section 6011.” T.D. 9556.
GRADUATED RETAINED INTERESTS: IRS issues final regulations. These regulations “provide guidance on the portion of property (held in trust or otherwise) includible in the grantor’s gross estate if the grantor has retained the use of the property, the right to an annuity, unitrust, graduated retained interest, or other payment from property for life, for any period not ascertainable without reference to the grantor’s death, or for a period that does not in fact end before the grantor’s death.” T.D. 9555.
Abortion–UPC Interface. Aaron Mullen’s Note, The Twisted Sisters of Probate: How the Uniform Probate Code and Supreme Court Precedent Create Incentives for Abortion, 23 Regent U.L. Rev. 403 (2010–2011), explains how the UPC encourages abortion and suggests a simple modification to the UPC that would prevent women from being forced to make a choice between their babies and their pocketbooks.
Advance Directives. Joseph Karl Grant advocates that all states adopt legislation embracing digital or electronic technology to create Internet “lockboxes,” registries, or portals where citizens can store their advance directives and where health care providers can access these advance directives in critical situations. The Advance Directive Registry or Lockbox: A Model Proposal and Call to Legislative Action, 37 J. Legis. 81 (2011).
Artificial Reproduction. In Synthetic Cells, Synthetic Life, and Inheritance, 45 Val. U. L. Rev. 1361 (2011), Kristine S. Knaplund focuses on practical and regulatory issues that may encourage or inhibit the use of technology to create synthetic gametes and the legal issues of parentage and inheritance for a synthetically created child.
Capacity. Kerry R. Peck explores Ethical Issues in Representing Elderly Clients with Diminished Capacity, 99 Ill. B.J. 572 (2011), and how “nettlesome” issues may arise and how the answers may be “counterintuitive.”
Conservation Easements. In Conservation Easements and the Doctrine of Merger, 74 Duke J.L. & Contemp. Probs. 279 (2011), Nancy A. McLaughlin argues that extinguishing conservation easements that continue to provide significant benefits to the public through the doctrine of merger would be contrary to the conservation and historic preservation policies that underlie the state enabling statutes and the federal and state easement purchase and tax incentive programs.
Disclaimers. In The Code Breakers: How States Are Modifying the Uniform Disclaimer of Property Interests Act, 46 Real Prop. Tr. & Est. J. 325 (2011), Adam J. Hirsch assesses whether state changes contribute to the quality of the act and discusses whether states should stop second guessing the drafters and instead wait for the Uniform Law Commissioners to amend the act.
Estate Tax—FLPs. Brent B. Nicholson summarizes the significant cases in the last year and outlines the coordinates that have emerged to guide taxpayers in Recent Developments Concerning the Estate Tax Inclusion of Transfers to a Family Limited Partnership, 26 Akron Tax J. 41 (2011).
Illinois—Medicaid. Helen W. Gunnarsson explains that “[n]ew state regulations, passed in response to federal requirements after years of delay, make it harder for nursing home care recipients to both shelter assets and stay eligible for Medicaid” in Attention Estate Planners: New Medicaid Asset Transfer Rules Finally Adopted, 99 Ill. B.J. 550 (2011).
Illinois—Transfer of Death Instruments. In The Transfer on Death Instrument Comes to Illinois, 99 Ill. B.J. 618 (2011), Charles G. Brown explains how starting on January 1, 2012, Illinois law gives “clients a convenient way to transfer residential real estate outside of probate.”
IRAs and Bankruptcy. Justin F. Polach discusses cases and “suggests strategies for keeping inherited IRA assets beyond creditors’ reach” in Are Inherited IRAs Exempt from Creditors in Bankruptcy?, 99 Ill. B.J. 628 (2011).
Italy. Kathy L. Cerminara, Federico Gustavo Pizzetti, and Watcharin H. Photangtham compare and analyze the legal development of Italian end-of-life decision-making law with that in the United States in Schiavo Revisited? The Struggle for Autonomy at the End of Life in Italy, 12 Marq. Elder’s Advisor 295 (2011).
Maine—Reverse Mortgages. Andrew C. Helman calls on Maine state legislators to take action to curb abusive practices associated with reverse mortgage products so that seniors can more easily free locked-up equity to help during retirement in Putting Equity Back in Reverse Mortgages: How State Legislatures Can Bring Fairness to Home Equity Conversion Mortgages, 12 Marq. Elder’s Advisor 415 (2011).
Maryland—Same-Sex Partners. In her Comment, Needlessly Fighting an Uphill Battle: Extensive Estate Planning Complications Faced by Gay and Lesbian Individuals, Including Drastic Resort to Adult Adoption of Same-Sex Partners, Necessitate Revision of Maryland’s Intestacy Law to Provide Heir-at-Law Status for Domestic Partners, 40 U. Balt. L. Rev. 495 (2011), Madeleine N. Foltz seeks to provide a workable solution to the myriad estate planning problems that a same-sex couple faces by creating heir-at-law status for a surviving domestic partner.
Texas—Case Update. In Wills and Trusts, 64 SMU L. Rev. 597 (2011), Gerry W. Beyer discusses and analyzes recent Texas court opinions dealing with intestacy, wills, estate administration, trusts, and related issues.
Trusts. Lee-ford Tritt demonstrates that applying a rigid agency cost analysis to trust law not only produces a positively inaccurate account of modern trusts but also a normatively incoherent philosophy to guide the evolution of trust law in The Limitations of an Economic Agency Cost Theory of Trust Law, 32 Cardozo L. Rev. 2579 (2011).
UPMIFA. In Probing UPMIFA: The Mysteries of the Uniform Act in Light of Federal Tax and State Charity Laws and Concepts, 46 Real Prop. Tr. & Est. J. 281 (2011), Johnny Rex Buckles “maintains that while UPMIFA has successfully improved the level of guidance available to institutional fund holders and the fiduciaries that manage and invest those funds, the act has also provoked questions about its proper scope, the extent to which it allows donors to control the management of their donations, and its interaction with the common law doctrine of cy pres.”
Will Drafting. In How to Do Things with Wills, 32 Whittier L. Rev. 455 (2011),
Diane J. Klein recommends that will drafters pay close attention to a legal and linguistic practice that involves the use of present tense verbs to produce future effects after the death of the speaker and ultimately helps drafters to think more precisely about how the language of a will accomplishes what it does.
California increases protection for consumers of life insurance and disability insurance policies. 2011 Cal. Legis. Serv. 425.
California provides for dissolution of a marriage between persons of the same sex. 2011 Cal. Legis. Serv. 721.
New York construes certain formula clauses to refer to the federal estate and generation-skipping transfer tax laws applicable to estates of decedents dying after December 31, 2009, and before January 1, 2011. 2011 Sess. Law News of N.Y. 529.
Ohio modernizes its laws relating to probate proceedings. 2011 Ohio Laws 52.
Virgin Islands enacts Uniform Fraudulent Transfer Act. 2011 V.I. Sess. Laws 7322.
Washington modernizes guardianship laws. Washington now requires mandatory lay guardian training, authorizes expiring letters of guardianship, and requires court review of guardian reports or accounts before new letters of guardianship can be issued. 2011 Wash. Legis. Serv. 329.