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P R O B A T E & P R O P E R T Y
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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.
• ADOPTION: Trust beneficiary has standing to challenge adult adoption. An uncle adopted his life partner. By the adoption, the adoptee became the remainder beneficiary of a trust that would otherwise have passed to the uncle’s niece when the uncle died. In Rickard v. McKesson, 774 So.2d 838 (Fla. Dist. Ct. App. 2000), the court held that the niece would have had the right to challenge the adoption had she received notice. The lack of notice amounted to fraud on the court. Accordingly, her action was not barred by the statute of limitations on reopening judgments.
• BENEFICIARY: Statute voiding gift to beneficiary who transcribes will narrowly construed. California law invalidates any donative transfer to a “person who has a fiduciary relationship to the transferor” and “who transcribes [the donative instrument] or causes it to be transcribed.” Cal. Prob. Code § 21350. In Estate of Swetmann, 102 Cal. Rptr. 2d 457 (Cal. Ct. App. 2000), the court held that the statute applies only to a beneficiary who causes the instrument to be written out in final form and is thus in a position to subvert the donor’s intent.
• CLASS GIFT: Gift over on death to children prevents vesting. A decedent left his wife a life estate in the residue of his estate, the remainder to his brothers and sisters and, if any of his siblings predeceased the life tenant, that sibling’s share would pass to the sibling’s children. A brother predeceased the life tenant but was not survived by children. The court in Martino v. Martino, 35 S.W. 3d 252 (Tex. App. 2000), held that the language creating a gift over prevented absolute vesting of the remainder and thus the brother lost his share of the remainder.
• DISCLAIMERS: Disclaimer may not be rescinded or reformed. A son disclaimed his interest in his mother’s estate, assuming it would pass to his brother, the other residuary legatee named in the will. Instead, by virtue of the applicable statute providing that a disclaimant is treated as predeceasing the decedent, the son’s interest passed to his minor children. In Estate of Fleenor, 17 P. 3d 520 (Or. Ct. App. 2000), the court held that the statutory provision making disclaimers irrevocable prevented the son’s attempt to undo his disclaimer and that the disclaimer could not be reformed into a conveyance to his brother.
• FAMILY LIMITED PARTNERSHIPS: Transfer of assets to an FLP did not constitute a taxable gift. The court in Estate of Strangi v. Commissioner, 115 T.C. No. 35 (2000), held that there was no gift when the FLP was formed despite a valuation discount causing the partner to receive an interest that was worth less than the value of the property transferred. The court allowed both an 8% minority discount and a 25% marketability discount. In the similar case of Knight v. Commissioner, 115 T.C. No. 36 (2000), a combined 15% discount was allowed.
• FIDUCIARY RESPONSIBILITY: Trustee not liable for excessive distributions made at beneficiaries request. The life beneficiary and the sole surviving contingent beneficiary demanded and received distributions from two trusts created by the life beneficiary far in excess of those allowed by the terms of the trusts. After the life beneficiary’s death, the contingent beneficiary sued the trustee for breach of trust. In Buchbinder v. Bank of America, 30 S.W.3d 707 (Ark. 2000), the court held that the remaining beneficiary had no cause of action, having procured the very distributions about which the beneficiary was complaining.
• FORMALITIES: Constructive trust not available to remedy faulty will execution. A testatrix acknowledged her will but neglected to sign it. The witnesses and the notary signed the instrument. Without the testatrix’s signature, the will cannot be probated, nor can a constructive trust be imposed in favor of the beneficiaries because that would validate an invalid will. Dalk v. Allen, 774 So. 2d 787 (Fla. Dist. Ct. App. 2000).
• GIFT TAX: Speculative liabilities do not reduce value of gift. The court in Frank Armstrong, Jr., Trust v. United States, No. CIV.A.5:99CV00006, 2000 WL 1534714 (W.D. Va. 2000), held that the value of a gift is not reduced by the potential estate tax liability the donee could incur if the donor died within three years of the gift or by the donee’s agreement to pay additional tax on any increases in value determined by the IRS. These amounts were too speculative at the time of the transfer to permit a valuation discount.
• INTERFERENCE WITH EXPECTANCY: Tort of interference with expectancy recognized. Over two strong dissents, the Alabama Supreme Court recognized a right to recover for tortious interference with an expectancy. The plaintiffs alleged that the decedent’s husband prevented her from executing her will. Ex parte Batchelor, No. 1991507, 2001 WL 10891 (Ala. 2001).
• JURISDICTION: Federal court has jurisdiction regarding certain probate-related matters. Federal courts lack jurisdiction to probate wills and administer estates. In Dulce v. Dulce, 233 F.3d 143 (2d Cir. 2000), however, the court held that a federal district court has jurisdiction to order the executor to file a will for probate and to determine that a creditor is entitled to share in the estate.
• LAPSE: Reformation to conform to the testator’s alleged intent denied. A man’s will left his residuary estate to his wife but did not provide for a contingent gift should she predecease him, which she did. Her sisters petitioned for reformation of the will to conform to the husband’s alleged intent to leave his property to them should his wife die first. The court in Flannery v. McNamara, 738 N.E.2d 739 (Mass. 2000), held that a will cannot be reformed under such circumstances, rejecting the contrary statement in Restatement (Third) of Property (Donative Transfers) § 12.1.
• LIFE INSURANCE: Constitutionality of statute revoking designation of ex-spouse as beneficiary. In Means v. Scharbach, 12 P.3d 1048 (Wash. Ct. App. 2000), a Washington court upheld the constitutionality of the state’s revocation on divorce statute as applied to insurance beneficiary designations in existence on the date of enactment. The Colorado courts are divided on this issue. In re Estate of Becker, No. 99CA2251, 2000 WL 1785278 (Colo. Ct. App. 2000) (constitutional) and In re DeWitt, No. 99CA1349, 2000 WL 1785182 (Colo. Ct. App. 2000) (unconstitutional).
• POWER OF ATTORNEY: Gifts by agent not recognized. In Christensen v. Commissioner, T.C. Memo. 2000-368, the court did not recognize gifts made under a durable power of attorney because the power did not expressly authorize the gifts. Accordingly, the gifts were included in the donor’ s gross estate.
• PROFESSIONAL RESPONSIBILITY: Lawyer not liable to individuals not named in any estate planning document. The decedent’s nieces and nephews sued his lawyer alleging that the lawyer was negligent in not preparing a new will according to their uncle’s instructions, under which they would have been beneficiaries. The court in Beauchamp v. Kemmeter, No. 00-0470, 2000 WL 1863576 (Wisc. Ct. App. 2000), held that a lawyer has no duty to individuals who claim to be intended beneficiaries based only on extrinsic evidence.
• PROFESSIONAL RESPONSIBILITY: Lawyers for administrator owe no duty to heir. The father of an intestate decedent alleged that he did not receive his share of the estate and sued the lawyers who represented the administrator. The court dismissed the complaint, holding that lawyers for a personal representative owe their duties only to the client and not to the heirs or beneficiaries of the estate. Jackson v. Furey, No. 98014796S, 2000 WL 1918052 (Conn. Super. Ct. 2000).
• SHAM TRUSTS: Court disregards sham trusts for tax purposes. Settlors transferred the vast majority of their assets and right to income to a series of trusts. The settlors were the sole trustees and sole beneficiaries of these trusts. The trusts then paid their basic living expenses, such as housing and health care. The court in Muhich v. Commissioner, 238 F. 3d 860 (7th Cir. 2001), disregarded these trusts for income tax purposes.
RULINGS AND REGULATIONS
• CHARITABLE REMAINDER UNITRUSTS: Settlors permitted to withdraw prohibited contribution. The transaction did not disqualify the CRUT despite the impermissible contribution. The settlors did, however, pay the tax on the sale and did not take a deduction for the contribution. PLR 200052026.
• ELECTING SMALL BUSINESS TRUSTS: Proposed and temporary regulations issued regarding grantor trusts selecting ESBT status under S corporation rules. T.D. 8915.
• GENERATION-SKIPPING TRANSFER TAX: Final regulations provide guidance on the type of trust modifications that will not affect the exempt status of a trust. T.D. 8912.
• QUALIFIED REVOCABLE TRUSTS: Proposed regulations provide guidance for making a QRT election under Code § 645, the tax treatment of the trust and estate while the election is in effect and rules regarding the termination of the election. Treas. Reg. § 10.6542-98.
• VULTURE OR GHOUL TRUSTS: Final regulations address the abusive use of charitable remainder and charitable lead trusts. To obtain a large charitable deduction, a settlor could create a trust in which a charity receives payments until the death of a young person. The young person, however, would be terminally ill so that the charity would actually receive far less than the valuation rules anticipate. The new regulations restrict measuring lives to prevent this and related abuses. T.D. 8926 (charitable remainder trusts); T.D. 8923 (charitable lead trusts).
• Advance directives. Karen L. Schultz & Timothy D. Schultz review the use of the four types of advance directives authorized by Texas law in Advance Directives: A Primer, 63 Tex. B.J. 1034 (2000).
• Disclaimers. Jeff Y. Bae & David M. Maloney discuss requirements for disclaiming property interests in joint tenancies in Disclaimers: The Last Line of Defense When Wrestling with Estate Planning Problems, Tr. & Est. 40 (Nov. 2000).
• Estate tax. Is Treasury Regulation Sec. 25.2702-3(e), Example 5 Valid?, Tr. & Est. 58 (Nov. 2000), offers Christopher P. Bray’s analysis of one of the federal estate and gift tax system’s most challenging provisions.
• Family businesses. In Are Estate Taxes Sounding the Death-Knell for High-Value Family-Owned Businesses? An Examination of the Jack Kent Cooke Estate and the Forced Sale of the Washington Redskins Football, 2000 Colum. Bus. L. Rev. 303, David S. Gasperow discusses avoiding estate taxes.
• Family limited partnerships. Marva J. Rowan explores The Availability of Lack of Liquidity Discounts for Transfers of Family Limited Partnership Interests: Kerr v. Commissioner, 53 Tax Law. 959 (2000).
• Fiduciaries. John C. Novograd et al. offer tips for the practitioner in Private Settlements of Fiduciary Accounts: A Prescription for Achieving Finality, Tr. & Est. 28 (Nov. 2000).
• Inter vivos trusts. Dennis M. Patrick explores the recent hype and applauds its demise in Living Trusts: Snake Oil or Better Than Sliced Bread?, 27 Wm. Mitchell L. Rev. 1083 (2000).
• Life insurance. J. Richard Duke explains Planning for High Net-Worth U.S. Persons Through the Use of Offshore Life Insurance, 1 Richmond J. Global L. Bus. 43 (2000).
• Power of attorney. Robert McLeod explores agents’ fiduciary duties in What Are the Limitations to an Attorney-In-Fact’s Power to Gift and to Change a Dispositive (Estate) Plan?, 27 Wm. Mitchell L. Rev. 1143 (2000).
• Rule Against Perpetuities. Keith L. Butler argues that even reform does not help an otherwise extant legal rule in Long Live the Dead Hand: A Case for Repeal of the Rule Against Perpetuities in Washington, 75 Wash. L. Rev. 1237 (2000). For a historical overview and a discussion of the recent changes, read John G. Shively’s The Death of the Life in Being—The Required Federal Response to State Abolition of The Rule Against Perpetuities, 78 Wash. U. L. Q. 371 (2000).
• Spendthrift trusts. Karen E. Boxx discusses whether spendthrift trusts have a place in the common law system in Gray’s Ghost—A Conversation About the Onshore Trust, 85 Iowa L. Rev. 1195 (2000).
• Will contests. Dennis W. Collins discusses the warning signs and the lawyer’s role in proper planning in Avoiding a Will Contest—The Impossible Dream?, 2000 Creighton L. Rev. 7.
• Hawaii enacts Uniform Disclaimers of Property Interests Act. 2000 Haw. Sess. Laws 43.
• Kansas provides a statutory order of individuals with authority to determine final disposition of a decedent’s remains. 2000 Kan. Sess. Laws Ch. 122.
• Massachusetts protects beneficiaries of structured settlements. 2000 Mass. Legis. Serv. Ch. 427.
• Ohio requires certain statements in living wills and durable powers of attorney for health care to be in conspicuous type or capital letters. 2000 Ohio Laws 270.
Keeping Current—Probate Editor: Gerry W. Beyer, St. Mary’s University School of Law, One Camino Santa Maria, San Antonio, TX 78228-8603, email@example.com. Contributors include: Dave L. Cornfeld, William P. LaPiana, Theresa A. Sutton and Theresa York.
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