AMBIGUITY: Court rejects latent/patent distinction. The decedent’s will poured over to her trust in which she gave all of her automobiles, furnishings, “and other personal property” to her brother, a gift of $10,000 to a friend, and the residue of the trust property to charity. The intermediate appellate court affirmed the probate court’s holding that the language gave all of the decedent’s tangible and intangible personal property to her brother. Finding the text to be patently ambiguous, the court in University of Southern Indiana Foundation v. Baker, 843 N.E.2d 528 (Ind. 2006), reversed on the basis of extrinsic evidence, holding that the distinction between latent and patent ambiguities “no longer serves any useful purpose” and that all relevant extrinsic evidence may be considered in resolving an ambiguity.
CLAIMS: Enforcement of buy-sell agreement is barred by nonclaim statute. A corporation brought an action against the shareholder’s estate for specific performance of a buy-sell agreement well beyond the three-month period for bringing claims under the state’s version of the Uniform Probate Code. Reversing the trial court, a divided court in Steen and Berg. Co. v. Berg, 713 N.W.2d 87 (N.D. 2006), held that the action involved a claim that was barred by statute in an opinion extensively discussing cases from other UPC jurisdictions.
ELECTIVE SHARE: Revocable trust is subject to right of election. Under former state law, a surviving spouse was entitled to an elective share comprising one-third of legal or equitable estates in real property “possessed by the decedent at any time during marriage” and one-third of the decedent’s personal property in addition to all exempt property. The court in Sieh v. Sieh, 713 N.W.2d 194 (Iowa 2006), held that the right of election extends to a revocable trust created by the deceased spouse before marriage, expressly adopting the positions in Restatement (Third) of Property § 9.1(c) and Restatement (Third) of Trusts § 25. State law now has been amended to subject a revocable trust to the elective share.
EQUITABLE ELECTION: Doctrine of equitable election does not apply when will did not dispose of entireties property. The decedent’s will gave one-half of the residue to his surviving spouse and directed that the spouse receive the couple’s house as part of the one-half. At the time of the decedent’s death, the couple owned their home as tenants by the entireties. On closing the estate as personal representative, the surviving spouse did not include the value of the house in the calculation of the distribution of the residue. The court in Mainsource Bank v. Unsupervised Estate of Hermann, 843 N.E.2d 69 (Ind. Ct. App. 2006), affirmed the lower court’s approval of the spouse’s closing statement, holding that the doctrine of equitable election did not apply because the will did not clearly attempt to dispose of the entireties property.
GIFT TAX: Ten percent minority discount approved. In Koblick v. Commissioner, 91 T.C.M. (CCH) 959 (2006), the court approved a 10% minority discount for a 45% interest in a corporation to determine the value of a charitable contribution.
HOLOGRAPHIC WILLS: Handwriting must stand alone if document is to be valid holograph. In Berry v. Trible, 626 S.E.2d 440 (Va. 2006), the court reiterated the criteria for holographic wills, reversing the admission to probate of handwritten additions to a typewritten document because the handwritten language was “interwoven with the text, both physically and in sequence of thought” and the typewritten language therefore could not be ignored as surplusage.
JURISDICTION: Federal probate exception does not prevent adjudication of tortious interference claim in federal court. In Marshall v. Marshall, 126 S. Ct. 1735 (2006), the U.S. Supreme Court clarified the extent of the “probate exception” to federal jurisdiction by allowing a claim for tortious interference with an expectancy to go forward in federal court. The Court explained that “the Ninth Circuit . . . read the probate exception broadly to exclude from the federal courts’ adjudicatory authority ‘not only direct challenges to a will or trust, but also questions which would ordinarily be decided by a probate court in determining the validity of the decedent’s estate planning instrument.’ . . . The Court of Appeals further held that a State’s vesting of exclusive jurisdiction over probate matters in a special court strips federal courts of jurisdiction to entertain any ‘probate related matter,’ including claims respecting ‘tax liability, debt, gift, [or] tort.’” The Court then reversed, holding: “[T]he Ninth Circuit had no warrant from Congress, or from decisions of this Court, for its sweeping extension of the probate exception.”
MALPRACTICE: Executors may sue drafting attorney for malpractice. Executors sued the attorneys who prepared the testator’s will asserting that the attorneys provided negligent advice and drafting services. The executors believed that the testator’s estate incurred over $1.5 million in unnecessary federal estate taxes because of the malpractice. Both the trial and appellate courts agreed that the executors had no standing to pursue the claim because of lack of privity. In Belt v. Oppenheimer, Blend, Harrison & Tate, Inc., 192 S.W.3d 780 (Tex. 2006), the Supreme Court of Texas reversed and held: “[T]here is no legal bar preventing an estate’s personal representative from maintaining a legal malpractice claim on behalf of the estate against the decedent’s estate planners.” The court did not express an opinion as to whether the attorney’s conduct actually amounted to malpractice. Estate planners in Texas are now subject to potential malpractice actions brought by the personal representative of their client’s estate. Whether a practitioner may achieve protection from this liability is problematic. For example, must an estate planner review a detailed checklist of all estate planning strategies with each client and have the client affirmatively indicate that he or she understands the potential benefits of each technique but does not wish to use it?
POWER OF ATTORNEY: Authority to create a trust is limited by fiduciary duty. The decedent’s will gave his wife a life estate in real property, remainder to his children. Using authority granted her under a durable power of attorney, the wife created a trust and transferred the property to it. Under the trust, she had greater rights in the property than under the will. The court in In re Estate of Kurrelmeyer, 895 A.2d 207 (Vt. 2006), held that the trust and the transfer were valid, finding that the power of attorney authorized creation of the trust, that creation of the trust was not nondelegable even though the trust served a function similar to a will, and that, by giving the power to convey real estate to the agent, the principal must have anticipated that the terms of his will might be altered. The court remanded, however, for consideration of whether the wife as an agent breached her duty of loyalty.
TORTIOUS INTERFERENCE: Action may proceed even if there is no probate estate. A daughter brought suit alleging that her siblings had intentionally interfered with her expected inheritance from their mother and that a codicil disinheriting her was the product of undue influence. The mother’s assets had been transferred before death to the siblings, so there was no probate estate and no probate proceeding. In Peralta v. Peralta, 131 P.3d 81 (N.M. Ct. App. 2005), the court held that, although there is no action for tortious interference with an inheritance if probate proceedings are available and can provide adequate relief, here there was no probate estate and probate would be futile. Accordingly, both actions could be brought in one civil suit.
TRUSTS: Trustee who is also a remainder beneficiary may make unitrust election. The decedent’s will created a trust to pay income to his wife for life, remainder to his children. Eventually, two of his children became successor trustees. In March 2003, the trustees elected to convert the trust to a unitrust under state law and sought to have the unitrust election made retroactive to the effective date of the statute, which was January 1, 2002. As a result, the amount paid to the widow was reduced by more than 50%. The court in In re Heller, 849 N.E.2d 262 (N.Y. 2006), held that the trustees were not barred from making the election because they were also remainder beneficiaries and that the election could be made retroactively. The court remanded to the Surrogate’s Court for a careful review of the fairness of the election and the application of all factors applicable to the making of the election including those set forth in the statute.
RULINGS AND REGULATIONS
CHARITABLE REMAINDER TRUST: IRS approves split according to divorce agreement. A wife created a CRT with a unitrust to herself for life, then to her husband for life, and then to a charity. The IRS approved a split under a divorce agreement into two trusts, one for each spouse for life, then to the charity, as well as payment of reasonable legal fees from the CRT. PLR 200616008.
ESTATE TAX: Reformation of an irrevocable trust to correct scrivener’s error approved. The reformation eliminated a provision that would have caused estate tax inclusion. PLR 200615025.
GIFT TAX: Unauthorized transfers by the settlors did not result in taxable gifts by remainder beneficiaries. Settlors, as trustees of a QPRT, wrongfully conveyed the residence to themselves. The remainder beneficiaries were unaware of this action until several years later when the residence was sold. The beneficiaries made a demand for the sale proceeds and the settlors agreed to settle by paying the proceeds. The IRS determined that there was no gift by the beneficiaries at the time of the transfers but that the beneficiaries must pay capital gains tax on the sale. PLR 200617002.
INCOME IN RESPECT OF A DECEDENT: Distribution of IRA to a charity deemed sufficient to satisfy the charity’s share of the residual gift made in the decedent’s will. The IRD will be includable in the charity’s gross income. PLR 200617020. For a similar ruling, see also PLR 200618020.
MARITAL DEDUCTION: IRS provides guidance on how to qualify an IRA for the marital deduction if the IRA is payable to a QTIP trust. Rev. Rul. 2006-26.
Comparative Trust Law. With the rise of globalization, the use of trusts has expanded exponentially. Carly Howard focuses on theories that validate and invalidate private trusts in Trust Funds in Common Law and Civil Law Systems: A Comparative Analysis, 13 U. Miami Int’l & Comp. L. Rev. 343 (2006).
Conservation Easements. Nancy A. McLaughlin argues that the charitable trust doctrine of cy pres should apply to donated conservation easements in Rethinking the Perpetual Nature of Conservation Easements, 29 Harv. Envtl. L. Rev. 421 (2005). In a subsequent article, she explores the legal framework for modification by making a close analysis of one case in Amending Perpetual Conservation Easements: A Case Study of the Myrtle Grove Controversy, 40 U. Rich. L. Rev. 1031 (2006).
Construction vs. Interpretation. The continuing vitality of the plain-meaning rule and role of extrinsic evidence in resolving problems in identification are explored by Richard F. Storrow in Judicial Discretion and the Disappearing Distinction Between Will Interpretation and Construction, 56 Case W. Res. L. Rev. 65 (2005).
Disabled Adults: With a focus on Illinois law, Thomas A. Pasquesi discusses the standards that guide guardians and courts when making estate planning decisions for incompetent adults in Estate Planning for Disabled Adults: The Legal Framework, 94 Ill. B.J. 242 (2006).
Georgia . Mary F. Radford examines the major cases and legislation enacted over the past year in her article, Wills, Trusts, Guardianships, and Fiduciary Administration, 57 Mercer L. Rev. 403 (2005).
Illinois . In Legislation Would Reduce Confusion for Health Care, Property POA Agents, 94 Ill. B.J. 262 (2006), David A. Berek discusses “[p]roposed legislation [which] would clear up confusion about the power of POA agents to control the disposition of a decedent’s body and get access to Totten Trust and payable-on-death accounts.”
Inheritance Rights and Step-partner Adoption. Changing social norms and evolving reproductive technology have created inheritance issues that are explored by Peter Wendel in Inheritance Rights and the Step-Partner Adoption Paradigm: Shades of the Discrimination Against Illegitimate Children, 34 Hofstra L. Rev. 351 (2005).
Inheritance Rights of “Grandparent-parents.” Existing and proposed doctrines are explored by Kristine S. Knaplund in Grandparents Raising Grandchildren and the Implications for Inheritance, 48 Ariz. L. Rev. 1 (2006).
Oregon and the UTC. In her introduction to The Oregon Uniform Trust Code and Comment: Introduction, 42 Willamette L. Rev. 187 (2006), Valerie J. Vollmar presents a brief overview of the newly adopted code.
Power of Attorney: In Can an Incompetent Principal Revoke a POA?, 94 Ill. B.J. 170 (2006), Helen W. Gunnarsson discusses In re Estate of Doyle, 838 N.E.2d 355 (Ill. App. Ct. 2005). Her article explains how this “opinion raises questions as to how, if at all, the filing and granting of a petition for guardianship interact with an existing power of attorney and whether an incompetent principal may revoke a property power of attorney.”
Rule Against Accumulations of Income. In The Lurking Rule Against Accumulations of Income, 100 Nw. U. L. Rev. 501 (2006), Robert H. Sitkoff examines the rule, its relation to the rise of the perpetual trust, and the contemporary policy soundness of the rule.
Rule Against Perpetuities. Ashley Vaughan discusses why the rule presents a major roadblock for semi-perpetual trusts and how various states have addressed the issue in You Can’t Take It With You: Property Rights After Death and Rethinking the Rule Against Perpetuities, 47 S. Tex. L. Rev. 615 (2006).
Testamentary Capacity. In her article, Expertise and Instinct in the Assessment of Testamentary Capacity, 51 Vill. L. Rev. 25 (2006), Pamela Champine explores the tension between instinct and the law when determining testamentary
Colorado defines and authorizes a category of persons to assist individuals who lack sufficient decisional capacity in making health care benefit decisions for public or private benefits programs and to file any necessary appeals on their behalf. 2006 Colo. Sess. Laws 190.
Colorado modernizes laws addressing a person’s right to control the disposition of remains and anatomical gifts. 2006 Colo. Sess. Laws 196.
Colorado revises procedure regarding claims against the estate of a decedent. 2006 Colo. Sess. Laws 114.
Iowa removes the health care agent from the list of individuals authorized to make decisions regarding the disposition of remains. Under prior law, the health care agent was at the top of the list. 2006 Iowa Legis. Serv. 2364.
Iowa updates its provisions relating to claims made on a trust and estate. 2006 Iowa Legis. Serv. 2742.
Maryland fine tunes its estate tax. 2006 Md. Laws 225.
Ohio provides a procedure for a probate court to treat a document as a will notwithstanding its noncompliance with the statutory formalities for executing wills. 2006 Ohio Laws 96.
Oklahoma modernizes laws governing pay on death accounts. 2006 Okla. Sess. Law Serv. 151.
Vermont reduces the number of witnesses necessary for a valid written will from three to two. 2006 Vt. Acts & Resolves 106.
Wisconsin overhauls its Probate Code. 2006 Wis. Legis. Serv. 216.