Keeping Current Probate offers a look at selected recent cases, rulings and regulations, literature and legislation. The editors of Probate & Property welcome suggestions and contributions from readers.
- ADEMPTION: Sale by an agent resulted in ademption regardless of the principal's intent. The decedent's agent sold the decedent's home under a durable power of attorney after the decedent was institutionalized. The agent did not know that the decedent's will devised the home to her. In In re Estate of Hegel, 668 N.E.2d 474 (Ohio 1996), the court held that the devise adeemed regardless of the decedent's intent. The court noted that the relevant statute prevents ademption only when the sale is by a guardian and that the legislature had not adopted newer UPC provisions that extend the exception to sales by agents.
- ATTORNEYS' FEES: Contingent fee for estate probate deemed excessive and in violation of professional responsibility rules. A lawyer and client entered into a contingency fee arrangement for representation of the client in the probate of his wife's estate. In White v. McBride, 1996 WL 495006 (Tenn. Sept. 3, 1996), the court found that the contingent fee agreement violated DR 2-106. Because the agreement called for a "clearly excessive fee" and because a violation of DR 2-106 "is an ethical transgression of a most flagrant sort," the lawyer was also denied a quantum meruit recovery.
- DISCLAIMER: Beneficiary's disclaimer of interest in estate property did not prevent attachment of federal tax lien. A beneficiary disclaimed property under local law providing that disclaimed property passes as if the disclaimant predeceased the testator. Thus, the disclaimant's creditors cannot reach the disclaimed property. However, in Huebner v. United States, 70 A.F.T.R.2d 96-6344, 1996 WL 604485 (Aug. 21, 1996), the court held that a state law fiction of non-vesting, arising because the beneficiary is treated as predeceasing the testator, would not prevent the federal tax lien from attaching.
- ELECTIVE SHARE: Expert valuation of business interest not necessary; IRA included in augmented estate. In Matter of Luken, 551 N.W.2d 794 (N.D. 1996), the court held that the surviving spouse had the burden of proving that his assets did not come from the deceased spouse. One of the assets was a business. The court held that expert valuation of the business was not necessary; the personal representative's valuation was based on "significant information" and further information could not be obtained because of the survivor's lack of cooperation. In addition, because an IRA is not a "pension" and is not otherwise mentioned in the statute, the deceased spouse's IRA was part of the augmented estate.
- ELECTIVE SHARE: Guardian of a surviving spouse must make election to fund expenses for Medicaid disqualification period. A husband's estate passed through a revocable trust in which his wife had no interest. The wife was receiving Medicaid benefits when the husband died. Welfare authorities sought appointment of a guardian who could exercise the wife's right of election in her husband's estate. Finding that failure to pursue the right of election would result in a period of ineligibility for benefits and the possible interruption of the wife's nursing home care, the court ordered the guardian to make the election for the amount necessary to pay for the period of ineligibility resulting from the wife's right to the elective share. Matter of Mattei, 647 N.Y.S.2d 415 (N.Y. Sup. Ct. 1996).
- ESTATE TAX DEDUCTION: Interest on loans incurred by a decedent's estate to pay its estate tax obligation in a single payment constituted a deduct-ible administration expense under Code 2053(a)(2), even though the estate could have elected to pay the tax in installments under Code 6166. McKee v. Commissioner, TCM (CCH) 1996-362.
- ESTATE TAX VALUATION: Valuation discount of 45% for partnership interest approved. A decedent's general partnership interest in a business that leased commercial real estate in New York City was calculated based on economic conditions reflected by lease income received from comparable properties and leases executed by the partnership close to the valuation date. In light of the substantial decline of the commercial real estate market in New York City around the time of the decedent's death, the court held that a 45% discount was proper. The discount reflected a 19% discount for minority interest and a 26% discount for lack of marketability. Barudin v. Commissioner, TCM (CCH) 1996-395.
- GENERATION-SKIPPING TRANSFER TAX: Settlor's estate was entitled to a $2 million GST tax exemption for each of settlor's grandchildren because their interests vested on settlor's death. A settlor executed a trust agreement stating that each of his grandchildren was to receive slightly less than $2 million from the residue of his estate. The executor maintained that the transfers to the grandchildren qualified for the GST tax exemption. The IRS asserted that the special $2 million exemption per grandchild did not apply to the transfers because the gifts were conditioned on the grandchildren surviving to the time they would physically receive the trust corpus. The court held that the settlor's grandchildren were deemed to have acquired vested interests in the corpus of the trust as of the date of the settlor's death, thus triggering the now repealed $2 million GST tax exemption. Dancey v. United States, 93 F.3d 225 (6th Cir. 1996).
- MEDICAID: Destruction of contingent remainder not a transfer. A husband created a revocable inter vivos trust naming his wife as the contingent remainder beneficiary. After both spouses entered nursing homes, the husband amended his trust to remove his wife as a beneficiary. She applied for Medicaid and was denied. Welfare authorities asserted that the amendment transferred an asset belonging to the wife for less than fair market value. In Canter v. Commissioner of Public Welfare, 668 N.E.2d 783 (Mass. 1996), the court held that a change of a con- tingent beneficiary was not a transfer of an interest. The court remanded the case to the welfare authorities, however, with the suggestion that they con- sider whether the revocable trust actually effected a transfer of the couple's assets at the husband's death, thus leading to a period of ineligibility for the wife.
- MEDICAID: Discretionary support trust an available resource. A husband created a testamentary trust naming his wife as the sole income beneficiary. The trustee was also given discretion to invade the principal for her comfort, welfare, maintenance and support, medical and surgical expenses, and "other unusual needs." In Rosenberg v. Department of Public Welfare, 679 A.2d 767 (Penn. 1996), the court held that the husband intended the trust to be for his wife's benefit and that the trust could be consumed for her medical expenses, even if the expenses would otherwise be paid by the public. Accordingly, the trust was an available resource for determining Medicaid eligibility.
- MEDICAID: Supplemental needs trust not an available resource. A father established a testamentary trust for his daughter that gave the trustee discretion over principal and income distributions. Distributions were limited to ones that would neither (1) diminish any benefit the daughter might be entitled to receive, nor (2) provide anything that would otherwise be supplied "by governmental or other assistance." The court in Young v. Ohio Department of Human Services, 668 N.E.2d 908 (Ohio 1996), held that under the regulatory language in effect at the time of the daughter's application, the trust was not a "countable resource" in determining her Medicaid eligibility. Subsequent amendments to the relevant regulations closed this loophole.
RULINGS AND REGULATIONS
- CHARITABLE TRUSTS: Charitable lead annuity trusts qualify for the charitable deduction despite the settlor or remainder beneficiary's power to change independent trustees. PLRs 9633027 and 9631021.
- CHARITABLE TRUSTS: Defective charitable remainder trust saved by qualified disclaimer and court approved trust reformation. PLR 9633004.
- CHARITABLE TRUSTS: Reformation of charitable trust tied to applicable federal rate on date of taxpayer's death. PLR 9635018.
- DISCLAIMERS: Beneficiary's qualified disclaimer triggered estate tax charitable deduction. A settlor created a trust that, on the settlor's death, was distributable to various charities and included a cash gift to an individual beneficiary. That beneficiary properly disclaimed this gift. Under the terms of the trust, the property passed to one of the charities. The IRS indicated that the disclaimer was qualified, thus entitling the settlor's estate to an estate tax charitable deduction for the disclaimed property. PLR 9635011.
- LIFE INSURANCE: Proceeds of family split dollar life insurance not included in the taxpayer's gross estate despite payment of premiums by the trustee and the insured's spouse. PLR 9636033.
- VALUATION: Valuation of lottery payments at estate tax alternate valuation date based on increase in applicable federal rate between date of the taxpayer's death and six months thereafter. PLR 9637006.
- Adult guardianships. Pauline G. Dembicki, What You Should Know About Adult Guardianships, 42 Prac. Law. 73 (1996), introduces the basic issues a practitioner must address when working with adult guardianships.
- Assisted suicide. Edward Grant, Legal/Legislative Issues in Euthanasia and Physician-Assisted Suicide, 36 Cath. Law. 357 (1996), critically examines the recent decision of Michigan's Commission on Death and Dying to support assisted suicide.
- Ethics. Barry D. Halpern and Thea F. Silverstein, Ethical Considerations in Elder Care, 44 U. Kan. L. Rev. 783 (1996), reviews the changing demographics in American health care and how this change triggers ethical considerations in the health care industry. The author also examines risk management, competing interests of patients and facilities, ethics committees and mediation.
- Family partnerships. David M. Cohen, What You Need to Know About Family Partnerships, 12 Prac. Real Est. Law. 13 (1996), considers the advantages and the risks involved with using family partnerships in estate planning.
- Generation-skipping transfer tax. Pam H. Schneider and Lloyd Leva Plaine, Generation-Skipping Final Regs. Cure Many (But Not All) of the Problems in the Prop. Regs., Part II, 85 J. Tax'n 139 (1996), discusses the GST tax final regulations and examines the internally inconsistent separate share rule, the operation of the estate tax inclusion period and the impact of the definition of "transferor."
- Long term health insurance. Anthony Szczygiel, Long Term Coverage: The Role of Advocacy, 44 U. Kan. L. Rev. 721 (1996), analyzes long term care services in the United States from a consumer advocate's point of view. The article covers home care, nursing home care and related services from Medicare, the VA and private health insurance contracts. The author concludes that the complexity of the programs often results in confused and overlapping plans, making advocacy in this area especially important.
- Retirement benefits. Robert H. Louis, Estate Planning for Retirement Benefits, 42 Prac. Law. 31 (1996), focuses on five aspects of the planning process: (1) the income and estate tax imposed on retirement accounts; (2) the excise tax on retirement plan distributions and accumulations; (3) the distribution requirements applicable to such accounts; (4) planning with the marital deduction; and (5) charitable planning. ù Uniform Prudent Investor Act (UPIA). John H. Langbein, The Uniform Prudent Investor Act and the Future of Trust Investing, 81 Iowa L. Rev. 641 (1996), serves as a guide to the UPIA by discussing the main reforms in light of modern portfolio theory. The author also predicts how trust investment practice is likely to change as the principles embodied in the Restatement of Trusts and the UPIA_such as the greater use of equities, pooled investments and unconventional investments, including foreign securities and derivatives_ are implemented.
- California modernizes powers of guardians and conservators for mutual funds, dividend reinvestment plans, appraisals and related property disposition matters. 1996 Cal. Legis. Serv. ch. 86 (West).
- Delaware clarifies Rule Against Perpetuities. Del. Laws. ch. 538 (1996).
- Delaware updates business trust provisions. Del. Laws ch. 548 (1996).
- Illinois allows trustee to terminate small charitable trusts without court permission. 1996 Ill. Legis. Serv. P.A. 89-575 (West).
- Louisiana revises estate and trust income tax. 1996 La. Sess. Laws Serv. Act 41 (West).
- New York prevents partial lapse when trusts terminate if another remainder beneficiary is capable of taking. 1996 N.Y. Laws ch. 297.
- Rhode Island enacts Uniform Prudent Investor Act. 1996 R.I. Pub. Laws ch. 96.
Keeping Current_Probate Editor: Gerry W. Beyer, Visiting Professor, Southern Methodist University School of Law, 3315 Daniel Avenue, Dallas, TX 75275. Contributing editors: Susan Burnett, Katherine Coleman-McQuitty, Dave L. Cornfeld, Jill Gillen and William P. Lapiana.
Probate & Property Magazine is published six times annually and is included in section members' annual dues.