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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.
CONDITIONAL GIFT: Religious restriction on trust beneficiary's marriage is valid. The testator created two testamentary trusts for his wife. On her death, the trusts were to be consolidated and 50% of the combined trust held for the benefit of the descendants of his children. Any beneficiary who married outside of the Jewish faith or whose non-Jewish spouse did not convert within one year of marriage, however, would be deemed deceased as of the date of the marriage and his or her share of the trust would be distributed to the testator's children. The testator's wife exercised her power of appointment over the combined trust to give $250,000 to each of her children and to each grandchild who satisfied the marriage restriction at the time of her death. Only one grandchild met the condition. One of the other grandchildren sued to invalidate the restriction and was successful in the trial court. A divided appellate court affirmed. A unanimous Illinois Supreme Court reversed, holding that the condition attached to the exercise of the power of appointment did not violate public policy because the grandchildren had no vested interest in the trust property and because the restriction had no prospective application and therefore could not influence the grandchildren's behavior. In re Estate of Feinberg, No. 106982, 2009 WL 3063395 ( Ill. Sept. 24, 2009).
JOINT ACCOUNTS: Community property held as joint tenants automatically has survivorship feature even if that feature is not expressly stated or intended by spouses. A husband and his wife held investment accounts with the designation "JT TEN." The spouses signed the agreement but did not indicate whether the account had, or did not have, the survivorship feature. The intermediate appellate court held that these accounts did not have survivorship rights because they did not include an express statement of the survivorship feature as required by the applicable statute. In a significant departure from established Texas law, the Texas Supreme Court in Holmes v. Beatty, 290 S.W.3d 852 (Tex. 2009), determined that holding community property as joint tenants automatically includes the survivorship feature and that the designation "JT TEN" is an acceptable abbreviation. In so deciding, the court relied on the common law under which joint tenancies carry with them the survivorship feature. The court disregarded long-established Texas statutory and case law that requires that survivorship be expressly stated.
LIMITATIONS: Statute of limitations for breach of trust begins to run when beneficiaries learn of alleged breach. The successor trustee and a beneficiary brought suit for breach of duty against the prior trustee for alleged self-dealing in indirectly acquiring shares of stock in a closely held company by causing the trust to sell to a company that was effectively controlled by the trustee. The sales occurred 25 years before the suit was brought. The Ohio Supreme Court affirmed the lower court's dismissal, holding that the four-year statute of limitations began to run at the time of the sale because the beneficiaries knew of the sale and of all of the actions of which they complained. One justice dissented on the grounds that the decision was based on "facts and inferences" not in the complaint. Cundall v. U.S. Bank, 909 N.E.2d 1244 (Ohio 2009).
LIMITATIONS: Unlike suit for damages, action to remove trustee from office is not restricted by statute of limitations. The probate court removed the trustee from office. The trustee appealed claiming that the removal action was barred by the four-year statute of limitations governing breach of fiduciary duty claims because the underlying reason for the removal was for an alleged breach of duty that had occurred beyond the four-year period. The intermediate appellate court agreed, but in Ditta v. Conte, 52 Tex. Sup. Ct. J. 823 ( Tex. 2009), the Texas Supreme Court reversed, holding that "no statutory limitations period restricts a court's discretion to remove a trustee. A limitations period, while applicable to suits seeking damages for breach of fiduciary duty, has no place in suits that seek removal rather than recovery." The court stressed that a decision to remove "turns on the special status of the trustee as a fiduciary and the ongoing relationship between trustee and beneficiary, not on any particular or discrete act of the trustee."
PERPETUITIES: Restraint on alienation deemed invalid, resulting in transferee holding in fee simple. The testator devised real property to a hospital with a proviso that the property never be transferred, but, if it is, the property is devised to the county of the testator's residence or, in default, to the state of Washington. The hospital brought a quiet title action. The trial court found that the hospital had a fee simple absolute, and the intermediate appellate court affirmed. The court held that the restraint violated the rule against perpetuities and that consequently the condition is eliminated, leaving the hospital with a fee simple absolute. Kennewick Pub. Hosp. Dist. v. Hawe, 214 P.3d 163 (Wash. Ct. App. 2009).
REMOVAL OF PERSONAL REPRESENTATIVE: Stronger reason needed to remove executor from office than to disqualify for appointment originally. The beneficiaries' mother (the testator's ex-wife) moved to have the executor removed from office because he shared ownership of certain estate property with his deceased brother and allegedly had a conflict of interest with the beneficiaries. The mother argued that he could not adequately represent the estate while seeking to retain his own share of the property. The trial court denied the motion, but the intermediate appellate court reversed, holding that the existence of this conflict required the trial court to remove the executor. The Texas Supreme Court reversed in Kappus v. Kappus, 284 S.W.3d 831 ( Tex. 2009). The court examined the removal statute and pointed out that "conflict of interest," either actual or potential, is not one of the listed grounds for removal. The court explained that being in a conflict situation is not the same as the listed grounds such as misapplication, embezzlement, gross misconduct, gross mismanagement, or being incapacitated. The court noted that a trial court has broad discretion to disqualify a person as being "unsuitable" pre-appointment but that once a person is appointed, the only grounds for removal are expressly stated in the statute.
TRUST REVOCATION: Revocation of inter vivos trust cannot be challenged after death of settlor on grounds of undue influence. The beneficiary of an inter vivos trust brought suit following the settlor's death, alleging that transfers of property from the trust were the product of undue influence. Florida's Third District Court of Appeals affirmed dismissal of the complaint on the authority of Florida Nat'l Bank of Palm Beach Co. v. Genova, 460 So. 2d 895 ( Fla. 1984), which held that revocation by a settlor cannot be challenged on the basis of undue influence while the settlor is alive. The court held that the same result is required when the challenge is made after the settlor's death. MacIntyre v. Wedell, 12 So. 3d 273 ( Fla. Dist. Ct. App.).
VALUATION: Transfers are valued as transfers of interests in a limited liability company so that LLC is not disregarded under "check the box" regulations to treat the transfers as transfers of proportionate share of assets owned by LLC. As a result, the transfers are subject to valuation discounts for lack of control and lack of marketability. Pierre v. Commissioner, 133 T.C. No. 2 (2009).
BASIS: No step-up in basis of assets of a grantor trust at death of the grantor if assets are not subject to the federal estate tax. CCA 200937028.
GIFT TAX: Final regulations issued establishing a procedure for contesting gift tax valuation in Tax Court and obtaining a declaratory judgment, even if there is no deficiency or refund. TD 9460.
Concurrent and Future Interests in Land. Kenneth Salzberg reviews key concepts of title and value and considers some of the typical issues that arise in concurrent and future land interests when the value and title change in Zombie Life Estates, Ghost Value Transfers, and Phantom Takings: Confusions of Title and Value in Property Law Legislation, 22 Quinnipiac Prob. L.J. 363 (2009).
Durable Power of Attorney. Amy Jo Conroy discusses features of the English Lasting Power of Attorney that might transfer to the United States in her article, Curbing the License to Steal: A Discussion of English Law and Possible Reforms for the Durable Power of Attorney, 44 Real Prop. Tr. & Est. L.J. 31 (2009).
Georgia—Statutory Disinheritance. In her Note, Not Just for Kids: Why Georgia's Statutory Disinheritance of Deadbeat Parents Should Extend to Intestate Adults, 43 Ga. L. Rev. 867 (2009), Theresa Louise Davis addresses whether, in light of public policy concerns, the statute is even worth amending.
Illinois—Modern Estate Planning. In Winning at Darwin's Game, 97 Ill. B.J. 420 (2009), Katarinna McBride explains how changes in federal law, plus the Illinois estate tax, which is decoupled from the federal tax schedule, and the new Illinois virtual representation statute "present survivor-style challenges and opportunities to estate planners."
Illinois—Will Repository Statute. Helen W. Gunnarsson explains the operation of the new Illinois law authorizing the creation of a repository for attorneys to deposit original wills for long-lost clients in Illinois' New Will Repository Law, 97 Ill. B.J. 330 (2009).
Louisiana—Conditional Donations. Kristen Van de Biezenbos Gresham provides an overview and in-depth analysis of the Howard case in her recent development, Howard v. Administrators of the Tulane Educational Fund : The Louisiana Supreme Court's Gift to Would-Be Heirs Seeking to Enforce Conditional Donations, 83 Tul. L. Rev. 1509 (2009).
New York—Guardianship. Daniel Leinung argues that New York lacks a guardianship system that adequately advocates for the elderly and that many reforms can be undertaken to provide the elderly the maximum amount of autonomy while guaranteeing the care and support required for a fulfilling life in Reforming New York State's Guardianship System: It's Time for a Change (Again), 2 Alb. Gov't L. Rev. 677 (2009).
New York—No-Contest Clauses. In his Note, Infants and In Terrorem Clauses: Rethinking New York Estate Powers and Trusts Law Section 3-3.5, 22 Quinnipiac Prob. L.J. 397 (2009), Peter G. Billings argues that section 3-3.5(b)(2) is unnecessary and is in fact poor public policy in light of New York's larger statutory scheme that addresses in terrorem clauses in general.
UPMFIA. Cynthia R. Rowland provides a review of how recent developments in the economy affect institutional investment in UPMFIA, Three Years Later: What's a Prudent Director to Do?, Bus. L. Today, July/Aug. 2009, at 41.
Arizona enacts unitrust governing statute. 2009 Ariz. Legis. Serv. 85.
Arizona extends the time a trust for a specific lawful noncharitable purpose may exist. The time period was increased from 21 to 90 years. 2009 Ariz. Legis. Serv. 85.
Arizona permits the personal representative to consider nonprobate community property when dividing a decedent's property. The division of community property held in the estate and outside the estate is based on equal value but is not necessarily proportionate. 2009 Ariz. Legis. Serv. 85.
Arizona prohibits a written trust from being orally modified. 2009 Ariz. Legis. Serv. 85.
California amends its version of the Uniform Principal and Income Act. The amendments are to remedy an issue raised by Rev. Rul. 2006-26 so that a deferred compensation, annuity, IRA, or similar plan will qualify for marital deduction treatment by requiring the trustee to determine the internal income of these assets that qualify for the marital deduction. 2009 Cal. Legis. Serv. 152.
Connecticut expands slayer statute to permit its operation even if the slayer dies before being determined to be a "slayer." 2009 Conn. Legis. Serv. 201.
Delaware enacts Uniform Principal and Income Act. 77 Del. Laws 99.
Illinois creates depository for orphan wills. 2009 Ill. Legis. Serv. 137.
Illinois enacts state qualified terminable interest property trust legislation. 2009 Ill. Legis. Serv. 789.
Illinois expands situations in which virtual representation may be used in trust matters. 2009 Ill. Legis. Serv. 479.
Illinois passes Banking Convenience Account for Depositors Act allowing banks to offer convenience accounts. In a curious provision of the bill, this statute is automatically repealed on January 1, 2015. 2009 Ill. Legis. Serv. 123.
Illinois weakens formalities necessary for a valid do-not-resuscitate request. The DNR form now needs only one witness instead of two. This witness, however, must attest to a greater number of events surrounding the document's execution. 2009 Ill. Legis. Serv. 765.
Louisiana updates law governing pay on death accounts. 2009 La. Sess. Law Serv. 499.
New York grants a domestic partner the ability to make an anatomical gift of the other partner's organs. 2009 N.Y. Sess. Laws 348.
North Carolina allows a trustee to appoint trust property to another trust for the same beneficiary. 2009 N.C. Sess. Laws 318.
North Carolina establishes a procedure for providing notice to creditors without estate administration when a decedent dies leaving no property subject to probate. 2009 N.C. Sess. Laws 444.
North Carolina increases the amount of funeral expenses with payment priority to $3,500 from $2,500. The first $1,500 of gravestone and burial location expenses were also given priority. 2009 N.C. Sess. Laws 288.
North Carolina revamps how a surviving spouse's forced share is computed. 2009 N.C. Sess. Laws 368.
Rhode Island authorizes a personal representative to donate a conservation easement if authorized by (1) the testator or (2) all devisees with an interest in the underlying land. 2009 R.I. Pub. Laws 98. An analogous statute was enacted to cover interests in trust. 2009 R.I. Pub. Laws 100 & 101.Return to Probate & Property Magazine