ADOPTION: Adult adoptee ineligible to take under adoptive grandparent’s trust. In In re Estate of Bovey, 132 P.3d 510 (Mont. 2006), a divided court held that a stepchild adopted as an adult could not take as a remainder beneficiary of a trust created by the adopting parent’s parent. Local law provides that a person adopted as an adult is a child for purposes of construing the instrument of a third person only if the adoptee had been a regular member of the adopting parent’s household while a minor, a requirement that the adoptee’s two-year residence in the adopting parent’s home did not meet.
ANTI-LAPSE STATUTE: Requirement of survival does not override the anti-lapse statute. In Ruotolo v. Tietjen, 890 A.2d 166 (Conn. App. Ct. 2006), the court concluded that the remedial nature of the anti-lapse statute prevents a simple requirement of survival by a beneficiary from overriding the statute.
DIVERSIFICATION: Direction to retain stock negates need to diversify. The testator’s (Charles G. Dumont’s) will created a trust funded principally with Kodak stock, forbade the trustees from selling the stock for purposes of diversification, purported to exonerate the trustees for responsibility for diminution in the value of the stock, and allowed the trustees to sell the stock should there be a “compelling reason other than diversification.” The lower court found that compelling reasons to sell existed on January 31, 1974, because of actual loss and lack of hope for gain. In In re Chase Manhattan Bank, 809 N.Y.S.2d 360 (App. Div. 2006), the court reversed, holding that the lower court’s decision was based only on hindsight. In addition, the low income yield was not a compelling reason because of the income beneficiary’s other resources.
DIVORCE: Undistributed assets of a decedent’s estate may be awarded as alimony. Having held that evidence of an impending inheritance could be considered in making a determination about awarding alimony ( Baldree v. Baldree, 306 S.E.2d 654 (Ga. 1983)), the court has determined now that an undistributed interest in a decedent’s estate may be awarded as alimony to the spouse of the estate beneficiary. Searcy v. Searcy, 627 S.E.2d 572 ( Ga. 2006).
ELECTIVE SHARE: Exempt assets not subject to elective share rights. Virginia law grants a surviving spouse a share of the deceased spouse’s “augmented estate,” which includes gifts exceeding $10,000 made within one year of death. In Sexton v. Cornett, 623 S.E.2d 898 ( Va. 2006), the decedent’s augmented estate consisted only of employment benefits under a plan for state employees. Because the beneficiary designations of the decedent’s sister and niece were revocable until death, the transfers were considered gifts made within one year of death. Local law, however, also exempted these assets from any legal process. The court held that the exemption statutes prevented these assets from being part of the augmented estate and thus the surviving spouse had no rights in them.
JOINT AND MUTUAL WILLS: Deathbed transfers violated joint will. A husband and his wife executed a single joint and mutual will giving the survivor both estates “absolutely” and providing for a nearly equal division among their four children on the death of the second to die. The wife survived. Five days before her death, she transferred three tracts of real property for nominal consideration to two of the children and a grandchild. The court in In re Estate of Erickson, 841 N.E.2d 1104 (Ill. App. Ct. 2006), upheld the judgment of the lower court ordering the return of the property to her estate. The court explained that the use of the word “absolutely” did not give the surviving spouse the right to alter the dispositive scheme of the will by deathbed gifts, regardless of the rights the will may have given her to use the property during her life.
LIFE INSURANCE: Question of whether a trust has an insurable interest unresolved. In Chawla ex rel. Giesinger v. Transamerica Occidental Life Insurance Co., No. Civ. A. 03-CV-1215, 2005 WL 405405 (E.D. Va. Feb. 3, 2005), the U.S. district court interpreting Maryland law determined that a life insurance trust has “no insurable interest in the life of the decedent” and that the policy was consequently void. The court explained that the trust would suffer no detriment from the insured’s death and, in fact, the trust would gain more from the life insurance proceeds than it would if the insured continued to live. The facts could easily have allowed the court to reach the same end result by finding that the insured misrepresented his health condition by not disclosing brain tumor surgery and chronic alcoholism treatment. On appeal to the Fourth Circuit, the insurer prevailed on the misrepresentation argument and the court vacated that portion of the district court’s opinion dealing with the insurable interest issue as unnecessary, leaving the issue unresolved. Chawla v. Transamerica Occidental Life Insurance Co., 440 F.3d 639 (4th Cir. 2006).
MEDICAID: An invalid disclaimer operating as an assignment deemed to be a transfer for Medicaid purposes. After the state government made a claim against the decedent’s estate for Medicaid reimbursement, the estate attempted to disclaim nonprobate assets that the decedent had received on his sister’s death seven years earlier. The court in In re Estate of Meland, 712 N.W.2d 1 (S.D. 2006), determined that the disclaimer was invalid because it was not made within nine months of the sister’s death as required by local law. A disclaimer not made within the nine-month period operates as an assignment of the disclaimed interest to those who would take had the disclaimer been timely made. Accordingly, an assignment is a transfer and the property is therefore subject to the state’s claim.
NO-CONTEST CLAUSE: No-contest clauses are to be strictly construed. In Redman-Tafoya v. Armijo, 126 P.3d 1200 (N.M. Ct. App. 2005), the court set forth a general approach to the enforcement of no-contest clauses in wills that begins with strict construction of the clause, limits the term “contest” as used in such clauses to an attack on the validity of the will or of a provision of the will, and states that a beneficiary who acts in good faith with probable cause will not be penalized.
SPENDTHRIFT PROVISION: Early vesting rule applies despite spendthrift clause. The testators’ wills created almost identical trusts for their two children. All the trusts contained spendthrift clauses, but only one trust for their daughter made any distribution of corpus to her. The trusts for the son provided for distribution of one-half of the corpus to him by the age of 35. Both wills gave any undisposed property to the testators’ heirs at law and made no other disposition of the trust remainders. The daughter died without issue with a will devising her entire estate to her husband. On the death of her brother, the trustee sought instruction and the trial court held that the early vesting rule applied so that a portion of the trust remainder passed under the daughter’s will. The appellate court in Schmidt v. Wachovia Bank, N.A., 624 S.E.2d 34 ( Va. 2006), agreed, holding that the spendthrift clause by itself did not prevent early vesting and that there was no other language providing a different result.
TRUST AMENDMENT: A trust provision including singular within plural allows one settlor to amend trust. A husband and his wife created a lifetime trust that stated the “Grantors” reserved the right to revoke or amend the trust. The trust also provided that “the singular and the plural may be used interchangeably.” After the husband’s death, his wife amended the trust to exclude the children of a predeceased child. The court in Roberts v. Sarros, 920 So. 2d 193 ( Fla. Dist. Ct. App. 2006), upheld the validity of the amendment because the provision equating the singular with the plural allowed one settlor alone to amend the trust.
TRUST CREATION: Letter signed by the settlor before delivery of the deed creates a trust. A mother deeded her home to herself and one of her children as joint tenants with rights of survivorship. Before delivery of the deed, she signed a letter addressed to all her children expressing her wish that if the child sold the property, the proceeds would be equally divided among all of the children. The surviving joint tenant sold the house to one of her siblings and the others sued for their share of the proceeds. In Orud v. Groth, 708 N.W.2d 72 (Iowa 2006), the court held that because the letter was signed before the recording of the deed, it satisfied the statute of frauds and created an express trust. The court also determined that the portion of a mortgage outstanding at the time of the sale that was used by the trustee for her own benefit could not be deducted from the purchase price in calculating the net proceeds available for distribution.
TRUSTS: Scheme for distributing income deemed to govern distribution of remainder. The testator’s will created a trust that an earlier case construed as terminating on the death of all of the testator’s descendants living at his death ( Trust Created Under the Will of Damon, 869 P.2d 1339 (Haw. 1994)). On trust termination, the remaining property was to be distributed to all the testator’s then-living issue, “per stirpes and not per capita.” In In re Estate of Damon, 128 P.3d 815 (Haw. 2006), the court determined that for purposes of the distribution of the principal, the stirpes began in the generation of the testator’s children, a result primarily founded on the provisions for distribution of trust income that treated each child’s family line equally.
RULINGS AND REGULATIONS
INCOME TAX: Domestic partners may not use community property laws to split income. In CCA 200608038, the IRS examined whether a registered domestic partner in California must include all of the partner’s earnings in gross income or, as would be the case if spouses were involved, only one-half of the earnings because of their community property character. The IRS determined that because domestic partners are not married to each other, each must report all of his or her earnings.
MARITAL DEDUCTION: Deduction not allowed for disclaimed assets. A disclaimer was claimed to be invalid, but the purportedly disclaimed assets were not listed on Form 706, Schedule M. The IRS indicated that no marital deduction would be allowed for these unlisted assets. PLR 200612001.
Annual Exclusion. In Higher Exclusion Limit Presents New Opportunities for Gifts to Minors, 94 Ill. B.J. 94 (2006), David A. Berek provides advice on how to take advantage of the gift tax annual exclusion, which increased to $12,000 on January 1, 2006, in planning with custodial accounts and Code § 2503(c) trusts for minors.
Charitable Gifts. Iris J. Goodwin argues that a liberalization of the standing rules is an important incentive to continued participation by donors and a boon to the vitality of civil society in Donor Standing to Enforce Charitable Gifts: Civil Society vs. Donor Empowerment, 58 Vand. L. Rev. 1093 (2005).
Cy Pres. In Settlor’s Intent vs. Trustee’s Will: The Barnes Foundation Case, 29 Colum. J.L. & Arts 63 (2005), Henrich Schweizer contends that the doctrine of cy pres should be used to reform trusts in contravention of the settlor’s intent when circumstances surrounding the trust have drastically changed to preserve the existence of the trust.
Family Limited Partnerships. In Death and Taxes: The Family Limited Partnership and Its Use in Estate Planning After the Third Circuit’s Ruling in Estate of Thompson v. Commissioner, 50 Vill. L. Rev. 1183 (2005), Lauren E. Bishow explores how courts have increasingly scrutinized the use of FLPs in estate planning over the last decade.
Hague Trust Convention. An in-depth analysis of the ambiguities of the Hague Trust Convention choice of law rules is provided by Adeline Chong in her article, The Common Law Choice of Law Rules for Resulting and Constructive Trusts, 54 Int’l & Comp. L.Q. 855 (2005).
Missouri . In her comment, Quieting the “Noisy” Trusts of the Missouri Uniform Trust Code, 74 UMKC L. Rev. 139 (2005), Jessica Haynes discusses new provisions of the Code that may inhibit the future use of trusts in Missouri.
Rule Against Perpetuities. Darryl C. Wilson attempts to demystify the meaning and to simplify the application of the rule against perpetuities in Waltzing to R.A.P., 39 Creighton L. Rev. 129 (2005).
Testamentary Freedom. An examination of the efforts of American judges to account for deviant wills over the course of the 19th century is made by Susanna L. Blumenthal in The Deviance of the Will: Policing the Bounds of Testamentary Freedom in Nineteenth-Century America, 119 Harv. L. Rev. 959 (2006).
Trustee Duties. Melanie B. Leslie calls for the development of a coherent theory on the extent to which fiduciary duties may be modified in her article, Trusting Trustees: Fiduciary Duties and the Limits of Default Rules, 94 Geo. L.J. 67 (2005).
Alabama enacts Uniform Trust Code. 2006 Ala. Laws 216.
District of Columbia enacts the Estate and Inheritance Tax Clarification Congressional Review Emergency Act of 2006. This Act clarifies that the estate tax filing threshold of $1 million applies to decedents whose death occurs on or after January 1, 2003. 2006 D.C. Sess. Law Serv. 16-283.
Idaho increases the size of a trust that a trustee may terminate from $25,000 to $100,000. 2006 Idaho Sess. Laws 160.
Indiana modernizes its statute concerning intestate and testate succession. 2006 Ind. Acts 61. Among other things, a personal representative was granted broader authority to deal with estate matters without a court order.
Indiana protects anatomical gift donors and their estates from liability. Under the new statute, “[n]either the donor making an anatomical gift nor the donor’s estate is liable for any injury or damage that may result from the making or use of an anatomical gift.” 2006 Ind. Acts 53.
Kansas updates various sections of its version of the Uniform Trust Code. 2006 Kan. Sess. Laws 23.
New York enacts legislation concerning the disposition of a decedent’s remains. The statute also contains a form a person may use to state disposition desires and to appoint an agent to carry out those desires. 2006 N.Y. Laws 768.
Ohio waives the physician-patient and attorney-client privileges in probate cases under specified circumstances. 2006 Ohio Laws 81.
South Dakota authorizes honorary trusts and trusts for animals. 2006 S.D. Sess. Laws 247.
Utah expands slayer statute. The standard of proof for a homicide that will trigger the slayer statute is now a preponderance of the evidence. 2006 Utah Laws 270. Under prior law, the killing had to be done feloniously and intentionally.