KEEPING CURRENT PROBATEKeeping 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.
- CHARITABLE REMAINDER UNITRUSTS: CRUTs receiving unrelated business taxable income (UBTI) from partnerships are subject to tax on their entire income. The decedent created a CRUT in 1975 by a testamentary bequest. The CRUT was partially funded by shares of common stock. In 1983, the unitrust exchanged some of its shares for depository receipts in two publicly traded limited partnerships. In 1985, the corporation's assets were distributed to a third publicly traded limited partnership and the unitrust received another depository receipt in redemption of its shares. In the late 1980s, the CRUT received less than 20% of its total gross income from the interest it possessed in the limited partnerships. In Newhall Unitrust v. Comm'r, 1997 WL 29596 (9th Cir. 1997), the court found that under Code 512(c), the CRUT had received unrelated UBTI, even though the CRUT's investments were passive. Thus, under Code 664(c), receipt of any UBTI subjected the CRUT to tax on its entire income for the years in which it had UBTI.
- DISCLAIMER: Disclaimer was not a fraudulent transfer. A disclaimant owed over $100,000 in back alimony to his ex-wife. The disclaimant's brother died with a will leaving one-eighth of his estate to the disclaimant. He properly disclaimed this interest, rendering worthless the ex-spouse's garnishment of the disclaimant's interest in his brother's estate. In Trew v. Trew, 1996 WL 764766 (Neb. Ct. App. 1996), the court held that the disclaimer was not a fraudulent transfer because under the "relation back" language of the disclaimer statute, the disclaimant never made a transfer.
- INCOME IN RESPECT OF DECEDENT: Amounts received by taxpayers from their mother's estate, representing alimony arrearages due to estate, con-stituted IRD. In Kitch v. Comm'r, 103 F.3d 104 (10th Cir. 1996), the court held that if a decedent's estate collects a pre-existing alimony obligation, the alimony is reportable as income to the estate and is taxable to the estate's beneficiaries under IRD rules.
- LIFE INSURANCE: When spouse is divested of community property rights under state law, all proceeds are included in the deceased spouse's gross estate. Estate of Street v. Comm'r, TCM (CCH) 1997-32.
- MARITAL DEDUCTION: Marital trust eligible for deduction as QTIP trust despite trust amendment containing scrivener's errors. Despite errors, such as switching "A trust" to "B trust" in some but not all places in the document, the court permitted the trust to qualify for the marital deduction in Miller v. United States, 1996 WL 738958 (N.D. Ohio 1996).
- STATUTE OF LIMITATIONS: Transferee liability notices assessing donees for unpaid gift taxes were untimely because the IRS issued them more than one year after the assessment period against the transferor, as extended by a Form 872 agreement between the transferor and the IRS, had expired. Ripley v. Comm'r, 103 F.3d 332 (4th Cir. 1996).
- TRUST REFORMATION: QPRT reformed to avoid GST tax. In Simches v. Simches, 671 N.E.2d 1226 (1996), the court used the doctrine of mistake to reform a QPRT, substituting the grantor's children for her grandchildren as remainder beneficiaries to avoid the GST tax.
- TRUSTEE'S DUTIES: Trustee must inform beneficiaries of trust provisions. After the settlor's death, her revocable inter vivos trust divided into separate trusts for several of her children. One of the children became trustee and refused to disclose to the other children all the provisions of the governing instrument. The court, in Fletcher v. Fletcher, 1997 WL 15251 (Va. 1997), held that general principles of trust law required the trustee to give the beneficiaries complete information about the trust agreement, even though one beneficiary was interested in only one of the three trusts created under the instrument.
- VALUATION: Adequacy of consideration for life interest. A decedent exchanged her remainder interest in closely held stock for an annuity, but she retained her income interest in the stock. The Tax Court held that her gross estate included the full, fee simple value of the stock at the date of death less the amount of annuity payments she received during her life. The Third Circuit, however, in Estate of D'Ambrosio v. Commissioner, 101 F.3d 309 (3d Cir. 1996), held that when a decedent receives consideration for making a transfer of property in which the decedent retains only a life interest, the adequacy of the consideration must be determined using the value of the limited property interest transferred rather than the fee simple value of the property.
- WILL EXECUTION: Testator's signature before transcription of will and witness's signature in body of will satisfied statutory requirements. The testatrix dictated her will from her hospital bed. On paper already containing the testatrix's notarized signature, a friend transcribed the will, which included a gift to the friend. In Draper v. Pauley, 1997 WL 15264 (Va. 1997), the court held that the testatrix's signature satisfied the signature requirement even though it appeared at the beginning of the document and was made before the body of the document was written. In addition, the court determined that by writing her name in the body of the will as part of a dispositive provision, the scrivener became a witness to the will.
- WILL VALIDITY: Will proponent bears burden of proving decedent's capacity when using dispensing power. The decedent executed a will three days before her death. The document bore the signature of only one witness. The court in Estate of Brooks, 927 P.2d 1024 (Mont. 1996), upheld the denial of probate. Under Montana's version of the "dispensing power" (UPC 2-503), the requirement that the proponent prove "by clear and convincing evidence" that the document was intended to be the testator's will requires the proponent to prove that the testator was competent to make the will.
RULINGS AND REGULATIONS
- GIFT TAX: Timing of gifts by check clarified. "The delivery of a check to a noncharitable donee will be deemed to be a completed gift . . . on the earlier of (i) the date on which the donor has so parted with dominion and control under local law as to leave in the donor no power to change its disposition, or (ii) the date on which the donee deposits the check (or cashes the check against available funds of the donee) or presents the check for payment, if it is established that: (1) the check was paid by the drawee bank when first presented to the drawee bank for payment; (2) the donor was alive when the check was paid by the drawee bank; (3) the donor intended to make a gift; (4) delivery of the check by the donor was unconditional; and (5) the check was deposited, cashed, or presented in the calendar year for which completed gift treatment is sought and within a reasonable time of issuance." Rev. Rul. 96-56.
- GENERATION-SKIPPING TRANSFER TAX: Approval of divisions of trusts cause neither the recognition of gain by trusts or their beneficiaries, nor the loss of the trusts' grandfathered exemptions from GST tax. PLRs 9649015, 9701056 and 9701009.
- LIFE INSURANCE: Life insurance proceeds excluded from taxpayer's gross estate even though insurer's records were not changed to show new policy owner until one year before taxpayer's death. Other evidence clearly showed that the transfer of the policy occurred several years earlier. TAM 9651004.
- Q UALIFIED PERSONAL RESIDENCE TRUST: A trust holding parcels of land satisfied QPRT requirements because the parcels were comparable in size to others near the residence's location. PLR 9701046.
- Duties of lawyer to nonclients. The duty of lawyers to third parties is critiqued in John R. Price, Duties of Estate Planners to Nonclients: Identifying, Antici- pating, and Avoiding the Problems, 37 S. Tex. L. Rev. 1063 (1996); and John F. Sutton Jr., The Lawyer's Fiduciary Liabilities to Third Parties, 37 S. Tex. L. Rev. 1033 (1996).
- Georgia guardianship law. Kim Dammers, Guardian and Ward, 13 Ga. St. U. L. Rev. 173 (1996), discusses recent changes in Georgia law regarding guardianship.
- Health care proxy. Steven I. Friedland, The Health Care Proxy and the Narrative of Death, 10 J. L. & Health 95 (1995-96), traces changes in the "narrative of death" and suggests that one of the consequences of these changes is that health care proxies and other advance directives are suffering from disuse.
- Illinois trusts and estates law. Michael K. Moyers, Survey of Illinois Law: Trusts and Estates, 20 S. Ill. U. L.J. 959 (1996), addresses developments in Illinois law governing trusts and estates from October 1, 1994 through September 30, 1995.
- Louisiana legislative proposals. Recommendations for new legislation pertaining to wills, estates and rusts are evaluated in Diane Tooley Arruebarrena, Property Changes in the Proposed Successions Revision, La. L. Rev. 149 (1996); H. Alston Johnson, Testamentary Dispositions, La. L. Rev. 181 (1996), Lawrence L. Lewis III and Harry J. Phillips Jr., Changes in the Law of Dispositions Mortis Causa From the Practitioner's Perspective, 57 La. L. Rev. 167 (1996); and Martha Quinn Thomas, Commentary of Senate Bill No. 1379_An Introduction, 57 La. L. Rev. 147 (1996).
- Louisiana's forced heirship. Louisiana's forced heirship statutes and their recent limitation by a 1995 state constitutional amendment are critiqued and reviewed in Ralph C. Brashier, Protecting the Child from Disinheritance: Must Louisiana Stand Alone?, 57 La. L. Rev. 1 (1996); Kerry Miller, The New Forced Heirship Law, Its Implementing Legislation, and Major Substantive Policy Changes of the Louisiana State Law Institute's Proposed Comprehensive Revision of the Successions and Donations Laws, 71 Tul. L. Rev. 223 (1996); and Katherine Shaw Spaht, Forced Heirship Changes: The Regrettable Revolution Completed, 57 La. L. Rev. 55 (1996).
- Modern portfolio theory. Robert J. Aalberts and Percy S. Poon, The New Prudent Investor Rule and the Modern Portfolio Theory: A New Direction for Fiduciaries, 34 Am. Bus. L.J. 39 (1996), discusses the evolution of the prudent investor rule and analyzes the key provisions contained in both the Restatement and the Uniform Prudent Investor Act.
- Organ donation. Phyllis Coleman, Brother, Can You Spare a Liver? Five Ways to Increase Organ Donation, 31 Val. U. L. Rev. 1 (1996), summarizes previously suggested solutions to the organ scarcity prob- lem and suggests five methods to increase the supply of organs. In addition, this article explains organ donation procedures and reviews the organ donation allocation process.
- Property valuation. Stephan C. Gara and Craig J. Langstraat, Property Valuation for Transfer Taxes: Art, Science, or Arbitrary Decision?, 12 Akron Tax J. 125 (1996), discuss the concept of fair market value and examine the inherently subjective methods for determining the fair market value of different types of property. The authors concludes that valuation is more of an art than a science.
- Wrongful living cause of action. In Tricia Jonas Hackle- man, Violation of an Individual's Right to Die: The Case for a Wrongful Living Cause of Action, 64 U. Cin. L. Rev. 1355 (1996), the author posits that only if the legal community recognizes a cause of action for wrongful living will patients be able to enforce their rights to refuse treatment. LEGISLATION
- Connecticut raises asset value for termination of a charitable trust to $150,000 from $65,000. 1996 Conn. Legis. Serv. P.A. 96-35 (West).
- Connecticut grants courts the power to authorize temporary administrators to sell or mortgage estate property. 1996 Conn. Legis. Serv. P.A. 96-91 (West).
- Connecticut authorizes courts to close certain con- servatorships, estate guardianships and testamen- tary trusts for dormancy. 1996 Conn. Legis. Serv. P.A. 96-43 (West).
- Illinois permits a personal representative to continue as lessee under the existing terms of leases of farm property owned by a decedent or ward even after the personal representative is appointed under specified conditions. 1996 Ill. Legis. Serv. P.A. 89-540 (West).
- Iowa revises laws regarding disbursement of funds in a nonguaranteed irrevocable burial trust fund. 1996 Iowa Legis. Serv. S.F. 2101 (West).
- Kansas permits courts to waive the requirement of in court testimony of subscribing witnesses if they are unavailable or cannot be located. 1996 Kan. Sess. Laws ch. 106.
- Michigan revises probate statutes to reflect passage of laws relating to parentage, parenting time-support, and visitation enforcement. 1996 Mich. Legis. Serv. P.A. 8 & 306 (West).
- Pennsylvania enacts Uniform Transfer on Death Security Registration Act. 1996 Pa. Legis. Serv. Act 1996-168 (West).
Recent developments as reported by the Significant Probate and Trust Case Law, Legislation and Literature Committee are now available online at http://www. abanet.org/rpt. Previously, the reports were published in the Real Property, Probate and Trust Journal and, more recently, appeared in a separate publication. The developments are in a downloadable format.
Keeping Current_Probate Editor: Gerry W. Beyer, Visiting Professor, Southern Methodist University School of Law, P.O. Box 750116, Dallas, TX 75275. Contributors include: Dave L. Cornfeld, Christopher S. Jackson, William P. LaPiana, Kendra Lashawn McCartney and Tracy M. Tierney.
Probate & Property Magazine is published six times annually and is included in section members' annual dues.