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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.
ATTESTATION: Direction in tax clause against apportionment made beneficiary of life insurance policy an interested witness. New York's interested witness statute voids a "beneficial disposition" to an attesting witness whose testimony is necessary to prove the will. In In re Estate of Wu, 877 N.Y.S.2d 886 ( N.Y. Sur. Ct. 2009), the will's tax apportionment clause placed the burden of payment of all estate taxes on the residuary estate. The testator's brother was the beneficiary of life insurance policies on the testator's life and received more than $3.3 million on the testator's death. The policies were included in the testator's taxable estate. In an action by the executor to collect from the testator's brother the estate tax attributable to the life insurance proceeds, the surrogate held that the operation of the tax apportionment clause was the equivalent of a "beneficial disposition" to the brother regardless of whether the brother knew of his designation as the beneficiary at the time of the execution of the will and that therefore the brother could not benefit from the tax apportionment clause and must pay his share of the estate taxes.
ATTESTATION: Initials of witness on each page of will deemed insufficient as attestation. In its opinion in In re Estate of Leavey, 202 P.3d 99 (Kan. Ct. App. 2009), the Kansas intermediate appellate court affirmed denial of probate for lack of due execution. Although the testator and one witness signed the will at the end and also signed the self-proving affidavit, the intended second witness, the scrivener, did not sign on the line provided for his signature. The initials of the scrivener, the testator, and the witness did appear on the bottom right-hand corner of each page. The court held that the initials did not substantially comply with the statutory requirement that the witnesses attest and subscribe the will in the presence of the testator.
CONSTRUCTIVE TRUST: Court can impose trust on basis of unjust enrichment alone. In its extensive opinion in Nelson v. Nelson, 205 P.3d 715 (Kan. 2009), the Kansas Supreme Court held that proof of actual or constructive fraud is not necessary for the imposition of a constructive trust. The decedent's children claimed that the decedent had failed to comply with the property settlement agreement incorporated into the divorce settlement with their mother by diminishing his estate through inter vivos transfers, thus depriving them of the income of his "entire estate" as stipulated in the agreement. Although unjust enrichment of the beneficiaries of the inter vivos transfers is a sufficient basis for the imposition of a constructive trust in favor of the decedent's children, the court affirmed summary judgment against the children because they failed to make a timely claim against the decedent's estate under the Kansas nonclaim statute.
CONTRACTUAL WILLS: Oral contract barred by statute. Alaska law, identical to UPC § 2-514, requires that all contracts to make a will or devise be in writing. In its opinion in Cragle v. Gray, 206 P.3d 446 (Alaska 2009), the Alaska Supreme Court held that an oral agreement between a grandmother and her granddaughter providing that the grandmother would give her house to her granddaughter if the granddaughter cared for her until her death was a succession contract and void because it was not in writing.
PRENUPTIAL AGREEMENTS: Implied requirement of good faith allows beneficiaries to recover. A prenuptial agreement provided that if the husband died first, the wife would maintain a valid will giving not less than one-quarter of her entire estate to each of her husband's three sons. The husband's will left a substantial portion of his estate to his wife. After the husband's death, his wife made transfers to irrevocable trusts that greatly reduced her probate estate. Her will left her probate estate to the husband's sons. After the wife died, his sons sued and the Supreme Court of Kansas upheld the imposition of a constructive trust in their favor. The confidential relationship between the husband and his wife gave rise to an implied duty in the wife not to make gifts inconsistent with her obligations under the agreement. The nonclaim statute does not bar what is in essence an action by the wife's estate to marshal assets nor is the action barred by the statute of limitations because the right of action did not accrue until the wife's death. Estate of Draper v. Bank of America, N.A., 205 P.3d 698 ( Kan. 2009).
TRUST INVESTMENT: Exchange of life insurance policies not imprudent. The Indiana intermediate appellate court upheld as prudent a trustee's decision to exchange variable universal life (VUL) insurance policies on the life of the settlor for a standard whole life policy with a death benefit less than one-third that of the VUL policies. The VUL policies were losing money because of declines in the stock market, and maintaining them would require additional contributions to the trust that were beyond the financial capacity of the insured. The opinion contains an extensive review of the application of the Prudent Investor Act. In re Stuart Cochran Irrevocable Trust, 901 N.E.2d 1128 ( Ind. Ct. App. 2009).
TRUSTEE DUTIES: Damages for failure to sell real property not properly measured by appraised value. A coal mine was the sole principal asset of a testamentary trust created in 1921. The testator directed the co-trustees to hold the mine absent "very radical change" from current conditions. The revenue from the mine began to decline greatly during the mid-1980s, and in 1987 the then sole trustee obtained an order from the appropriate court allowing the mine to be sold. In 1986, the mine was appraised at $1.1 million and was finally sold for $350,000 in 1997. In 2007, the beneficiaries sued the trustee and won damages for failure to diversify based on a failure to sell for $1.1 million in 1987. The Supreme Court of Virginia reversed and rendered judgment for the trustee because the beneficiaries failed to bring forward evidence showing the existence of a willing buyer at the appraisal price at any time after 1987. Suntrust Bank v. Farrar, 675 S.E.2d 187 ( Va. 2009).
TRUSTS: Loans by one trust to an insurance trust violated prohibition on retention of unproductive property. An income beneficiary objected to the trustees' accounting that showed the trust had made loans to a second trust to pay premiums on a life insurance policy on the income beneficiary. The court granted summary judgment for the income beneficiary. Because the loans had never produced income in the 15 years they had been outstanding, they were unproductive property retention that violated the trustees' duty to the income beneficiary and the express language of the trust prohibiting the trustees from retaining unproductive property beyond a reasonable period of time. In re Terranova, 873 N.Y.S.2d 651 (N.Y. App. Div. 2009).
GST TAX: Modification of grandfathered GSTT trust to limit the exercise by the beneficiary of five and five powers to January, rather than all year, will not cause trust to lose its exempt status. PLR 200917015.
GST TAX: Modification of grandfathered GSTT trust to permit adopted grandchildren to take as biological grandchildren will not cause trust to lose its exempt status. The biological children, however, will be deemed to have made taxable gifts to the adopted grandchildren. PLR 200917004.
GIFT TAX: Transfer of residence to qualified personal residence trust with simultaneous sale of remainder results in zero gift. PLR 200919002.
LIFE INSURANCE: Owner of policy who purchased policy from the insured incurs ordinary taxable income on the "profit" (not capital gain) when the insured dies. Rev. Rul. 2009-14. For a similar result when the policy is surrendered or sold, see Rev. Rul. 2009-13.
MORTALITY TABLES: Mortality tables in Code § 7570 updated to (finally) reflect results of 2000 census. T.D. 9448.
QTIP ELECTION: QTIP election made on Form 706 deemed null and void because election was not needed to eliminate estate tax liability. PLR 200918014.
RETAINED INTERESTS: Proposed regulations issued for the calculation of inclusion amount under Code § 2036 for a graduated annuity in a grantor retained interest trust. REG-119532-08.
Advance Directives. In Be Careful What You Wish For: Analyzing the "Five Wishes" Advance Directive, 97 Ill. B.J. 242 (2009), Ray J. Koenig III and MacKenzie Hyde warn that the "Five Wishes" form should not be used as a substitute for powers of attorney for health care and living wills under Illinois law.
Cy Pres Reform. In her article, Ask Not What Your Charity Can Do for You: Robertson v. Princeton Provides Liberal-Democratic Insights into the Dilemma of Cy Pres Reform, 51 Ariz. L. Rev. 75 (2009), Iris J. Goodwin focuses on a long-standing problem in the law of the public charity: how to ameliorate the force of restrictions imposed by donors on large gifts in the face of societal change.
Delaware—Tax Trap. James Spica argues that, for personal property held in trust, Del. Code tit. 25, § 504, completely fails to disarm the Delaware tax trap for want of a finite perpetuities testing period in A Trap for the Wary: Delaware's Anti-Delaware-Tax-Trap Statute Is Too Clever by Half (of Infinity), 43 Real Prop. Tr. & Est. L.J. 673 (2009).
Family Care Contracts. Deborah Ann Wainey explains how a formal family care contract may help to reduce disputes in Preventing Family Feuds, Trial, April 2009, at 30.
Long-Term Care Insurance. In The Untold Story of Long-Term Care Insurance, Trial, April 2009, at 20, Alicia Garcia and Mike Abourezk explain that investigation of a seemingly isolated case of a nursing home resident who suddenly loses long-term care insurance could uncover systematic abuses that reach far beyond this one case.
Louisiana—Renunciation. An explanation of how and why a Louisiana resident may alleviate the burden imposed by double taxation when renouncing in favor of less than all co-heirs is given by Matthew D. Simone in his comment, Louisiana Post-Mortem Estate Planning—Alleviating the Burden of Double Taxation Imposed Against a "Renunciation in Favor of ," 54 Loy. L. Rev. 905 (2008).
Pet Trust Taxation. Gerry W. Beyer and Jonathan P. Wilkerson provide practitioners guidance on how pet trusts are treated for tax purposes and make suggestions to Congress on how to amend the Code to clarify taxation issues in Max's Taxes: A Tax-Based Analysis of Pet Trusts, 43 U. Rich. L. Rev. 1219 (2009).
Posthumous Children. Browne C. Lewis addresses the inheritance rights of children conceived using the sperm of dead men in Dead Men Reproducing: Responding to the Existence of Afterdeath Children, 16 Geo. Mason L. Rev. 403 (2009). In Dead Dads: Thawing an Heir from the Freezer, 35 Wm. Mitchell L. Rev. 433 (2009), Charles P. Kindregan Jr. focuses on the legal implications of the use of gametes and embryos to conceive human children after the death of the producer(s) of cryopreserved sperm, eggs, or embryos. In her comment, I Consented to Do What?: Posthumous Children and the Consent to Parent After-Death, 33 S. Ill. U. L.J. 157 (2008), Amanda Horner advocates enacting a bright line to determine parental consent.
Powers of Attorney. Lawrence A. Frolik explains how powers of attorney may be abused and how to reduce the likelihood of such abuse in Keep Powers of Attorney in Check, Trial, April 2009, at 42.
Split-Dollar Life Insurance. Katarinna McBride explains how split-dollar life insurance can "allow wealthy clients to use life-insurance trusts to avoid gift taxes and maximize estate value" in Passing the Buck: Private Split-Dollar for Every Vocabulary, 97 Ill. B.J. 262 (2009).
Tennessee—Revocation on Divorce. In his note, The Revocation-Upon-Divorce Doctrine: Tennessee's Need to Adopt the Broader Uniform Probate Code Approach, 39 U. Mem. L. Rev. 383 (2009), Hailey H. David argues that given the rapid growth of the multiple-marriage society and the increasing tendency to avoid the probate process through the use of will substitutes, the Tennessee statute is no longer a sufficient response to the problem of decedents who did not adjust their estate plans accordingly after a divorce.
Testamentary Obsolescence. Adam J. Hirsch in his article, Text and Time: A Theory of Testamentary Obsolescence, 86 Wash. U. L. Rev. 609 (2009), proposes a theoretical framework for determining when lawmakers should—and should not—step in to revise wills that testators have left unaltered and endeavors to locate this framework in the context of other forms of textual obsolescence.
Alabama amends the Alabama Small Estate Act to further define small estates and provide for procedures for the summary distribution of small estates. 2009 Ala. Laws 399.
Arkansas enacts Final Disposition Rights Act of 2009. 2009 Ark. Acts 402.
Colorado adopts the Uniform Power of Attorney Act. 2009 Colo. Legis. Serv. 106.
Colorado authorizes designated beneficiary agreements. 2009 Colo. Legis. Serv. 107.
District of Columbia recognizes same-sex marriages. Although D.C. will now recognize same-sex marriages if they are valid in the jurisdiction in which the marriage was performed, it does not authorize same-sex marriages to be performed in D.C. 2009 DC L.B. 10 (NS).
Kansas allows a trustee to convert a trust into a unitrust if doing so better enables the trustee to carry out the settlor's intent and the purposes of the trust. 2009 Kan. Sess. Laws 57.
Maryland authorizes a copy of an executed will to be admitted to probate under limited circumstances. 2009 Md. Laws 37.
Maryland authorizes statutory pet trusts. Pet trusts also are exempted from the Maryland Rule Against Perpetuities. 2009 Md. Laws 132.
Maryland enacts the Uniform Prudent Management of Institutional Funds Act. 2009 Md. Laws 134.
Minnesota enacts the Uniform Adult Guardianship and Protective Proceedings Jurisdiction Act. 2009 Minn. Sess. Law Serv. 46.
Minnesota enacts Uniform Disclaimer of Property Interests Act. This enactment includes several enhancements to the uniform text. 2009 Minn. Sess. Law Serv. 67.
Minnesota regulates viatical settlements. 2009 Minn. Sess. Law Serv. 62.
Mississippi authorizes heirs to obtain a copy of the decedent's medical records before the appointment of an executor or administrator. 2009 Miss. Laws WL No. 221.
Nevada adopts the Uniform Power of Attorney Act. 2009 Nev. Laws 64.
New Hampshire authorizes same-sex marriages. Effective January 1, 2010, same-sex couples will be able to marry. 2009 N.H. Laws 61.
North Dakota modernizes intestate succession law to account for new types of parent-child relationships. 2009 N.D. Laws 283.
Oklahoma adopts Revised Uniform Anatomical Gift Act. 2009 Okla. Sess. Laws 139.
Virginia adopts the Uniform Power of Attorney Act. 2009 Va. Legis. Serv. 830.
Washington enacts the Uniform Adult Guardianship and Protective Proceedings Jurisdiction Act. 2009 Wash. Legis. Serv. 81.
Wyoming adopts provisions concerning the persons who are entitled to determine burial arrangements. 2009 Wyo. Sess. Laws 125.
Wyoming adopts the Revised Uniform Anatomical Gift Act. 2009 Wyo. Sess. Laws 97.