Author(s)

Keeping CurrentKeeping Current—Probate Editor: Prof. Gerry W. Beyer, Texas Tech University School of Law, Lubbock, TX 79409, gwb@ProfessorBeyer.com. Contributors include Dave L. Cornfeld, Claire G. Hargrove, Prof. William P. LaPiana, and Sean Yan.

Probate & Property Magazine, March/April, Volume 23, Number 2

Keeping Current | Probate

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.

CASES

EXONERATION: Will does not require exoneration of jointly held property. The testator's will included language directing payment of all "just debts." In Manders v. King, 667 S.E.2d 59 (Ga. 2008), the court held that the will language was declaratory of the law and therefore did not require the estate to discharge a mortgage on real property that passed to the testator's son as the surviving joint tenant and that the common law doctrine requiring exoneration did not apply because the property was not part of the probate estate.

IN TERROREM CLAUSE: Action for accounting and removal of the executor does not trigger forfeiture. The testator's will contained a no contest clause requiring forfeiture of any gift to a beneficiary who "contests the validity" of the will or of "any provision thereof," whether or not there is probable cause for the contest. The court held that the beneficiary's request for a declaratory judgment was proper, that the beneficiary's proposed action to compel an accounting and require removal of the executor was not a will contest, and that it would violate public policy and the principle that in terrorem clauses must be strictly construed to apply the clause to the proposed action. Sinclair v. Sinclair, 670 S.E.2d 59 (Ga. 2008).

LATENT AMBIGUITY: Latent ambiguity may be resolved with extrinsic evidence. The will of science fiction author Andre Norton made a specific bequest of royalties "from all posthumous publication of any of my works" to an individual and gave the residue to two other persons. In an exhaustive opinion, the court in Horadam v. Stewart, No. M2007-00046-COA-R3-CV, 2008 WL 4491744 (Tenn. Ct. App. Oct. 6, 2008), held that the specific bequest created a latent ambiguity and, after considering extensive extrinsic evidence, decided that the specific bequest was of royalties on works for which no contract to exploit the works existed during the testator's lifetime.

NEGATIVE WILL: Express disinheritance of the testator's sister does not prevent the sister's heirs from taking by intestacy. The testator's will gave his entire estate to his mother and expressly left nothing to his half-sister. The mother predeceased the testator who was the mother's only descendant. The disinherited half-sister also predeceased the testator leaving two daughters who survived the testator. In In re Estate of Samuelson, 757 N.W.2d 44 (N.D. 2008), the court held that the will would have prevented the half-sister from taking both under the will and in intestacy but that her daughters took the entire estate by intestacy because the disinheritance of their mother did not extend to them as their mother's descendants.

PRETERMITTED CHILD: Pretermitted heir statute does not apply to revocable trust created as will substitute. Oklahoma's pretermitted heir statute provides an intestate share for a child of a testator omitted from the testator's will "unless it appears that such omission was intentional." In In re Estate of Jackson, 194 P.3d 1269 (Okla. 2008), a case of first impression, the court held that the statute does not apply to a revocable lifetime trust because, unlike the statute applicable to a surviving spouse, this statute does not limit the testator's power to dispose of his or her property.

TRUSTS: Trust instrument was effective in transferring both real and personal property to the trust. The decedent had created a revocable trust, which stated that she was transferring to the trust certain property listed on Appendix A to the agreement. The appendix listed three parcels of real property as well as "a variety of personal effects, including bank accounts." In Chebatoris v. Moyer, 757 N.W.2d 212 (Neb. 2008), the court affirmed summary judgment for the trustees against the special administrator of the decedent's estate, holding that the trust document was effective as a deed to transfer the real property because it satisfied the statutory requirements for a deed. In addition, equity supported that conclusion as well as the conclusion that the personal property was transferred to the trust because the decedent's intent was clear.

VESTING OF REMAINDER INTEREST: Remainder interest vests at date of trust termination, not when trust property later distributed. The testator's will created a trust for her niece, terminating on the earlier of the exhaustion of the trust principal or the niece's death. The trust was not exhausted at the niece's death and the trust property therefore was to be divided among a number of beneficiaries, including a Methodist church that had been dissolved after the niece's death but before the distribution of the trust property. The court in In re Will of Keys, 193 P.3d 490 (Kan. Ct. App. 2008), held, first, that the church's interest was contingent on the trust not being exhausted at the niece's death; second, that the interest vested at the niece's death; and, third, that the remainder interest belonged to the church body, which under church law succeeded to all of the dissolved church's property.

VESTING OF REMAINDER INTEREST: Trust did not prevent vesting in a beneficiary who died before trust distribution. A husband and his wife created revocable trusts terminating on the death of the second to die, at which time both trusts were to terminate and be distributed equally to the couple's three children. The trusts provided that, if a child "is not living at the time" of the surviving parent's death, that child's share is to pass to his or her lineal descendants. The trusts also directed the trustee to distribute the trust assets after clearance letters were received from federal and state tax authorities and to give spendthrift protection to the interests of beneficiaries other than the creators of the trusts. In Wilson v. Rhodes, 258 S.W.3d 873 (Mo. Ct. App. 2008), the court affirmed summary judgment for the estate of a child who died after the death of the second spouse to die but before distribution, holding that the language of the trust gave a child's share to his or her lineal descendants only if the child did not survive the second parent to die.

RULINGS AND REGULATIONS

CHARITABLE REMAINDER TRUSTS: Certain CRT transactions deemed "transactions of interest." The IRS has designated as transactions of interest, which require disclosure, transactions involving the sale of all interests in a CRT after the contribution of appreciated assets and reinvestment by the CRT. Notice 2008-99.

DEFINED BENEFIT PLAN: Proceeds of a defined benefit pension plan payable to the decedent's estate deemed not taxable to estate because the personal representative assigned the right to receive the benefits to the residuary charitable beneficiary. PLR 200845029.

GIFT TAX: Exception to special valuation rule available to carefully constructed transaction. The IRS approved the creation of a qualified personal residence trust followed by the sale of the remainder interest to a previously created grantor trust for the benefit of the settlor's children when the trustee of the purchasing trust was an independent trustee and the price met the valuation rules of Code § 7520. The remainder interest would be valued under the general actuarial valuation rules and the sale of the interest would not constitute a gift because it was a sale for adequate and full consideration. PLR 200840038.

NONRESIDENTS: The right of a nonresident alien to receive annuity proceeds on an annuity owned by a U.S. citizen decedent was not U.S. property subject to estate tax. PLR 200842013.

POWER OF APPOINTMENT: The ability of the decedent as the sole trustee of a trust for the decedent's benefit to encroach only for support and maintenance was not a general power of appointment. Accordingly, the trust property was not includable in the decedent's gross estate. TAM 200847015.

QUALIFIED TERMINABLE INTEREST PROPERTY TRUST: The split of a QTIP trust into several QTIP trusts for multiple remainder beneficiaries with each having a single beneficiary and the later termination of one of the trusts to comply with a settlement agreement allowed. The remaining trusts will not incur gift tax liability because of the division or termination. PLR 200844010.

TRUSTS: Power to substitute trust property has tax neutral effect. The IRS indicated that the settlor's retention of the power to substitute existing trust property with different property of equal value would not cause the trust property to be included in the settlor's gross estate and would not be deemed a gift if the fair market value of the assets removed from the trust equaled the total fair market value of the assets transferred to the trust. PLR 200842007.

LITERATURE

ArkansasRule Against Perpetuities. In Fifty-One Flowers: Post-Perpetuities War Law and Arkansas's Adoption of USRAP, 29 U. Ark. Little Rock L. Rev. 411 (2007), Lynn Foster discusses the history of perpetuities law in Arkansas, as well as USRAP and the effect that its enactment will have on Arkansas law.

Copyright Law. In A Portrait of the Artist's Estate as a Copyright Problem, 41 Loy. L.A. L. Rev. 739 (2008), Rebecca F. Ganz discusses the current problems with copyright misuse by estates; summarizes the existing structure of copyright law and how it pertains to estates in particular; illuminates problems with existing copyright law and how it functions to enable estates to abuse power; proposes options for remedying these abuses and explains why they are justified; and concludes that the current copyright regime must change for artists and scholars to continue their own creative work without constant threat of litigation.

Distributable Net Income Allocation. In Deductions in a Proposed Calculation and Allocation of Distributable Net Income to the Separate Shares of a Trust or Estate, 5 Pitt. Tax Rev. 123 (2008), Michael T. Yu addresses certain deductions as they relate to the DNI of a trust or estate with separate shares and proposes a calculation and allocation of DNI applicable to the separate shares of a trust or estate.

Holographic Wills. In his article, In Their Own Hand: An Analysis of Holographic Wills and Homemade Willmaking, 43 Real Prop. Tr. & Est. L.J. 27 (2008), Stephen Clowney addresses the common conception that holographic wills are a constant source of imprecise, ambiguous, and vague language inviting forgery, fraud, and deception that ultimately corrupt a testator's final wishes leading to unnecessary postmortem litigation.

MissouriInheritance Rights of Cohabitants. Jennifer Berhorst takes a close look at the differences in property rights between traditional married couples and unmarried couples who consider themselves to be in a significant committed relationship in her note, Unmarried Cohabitating Couples: A Proposal for Inheritance Rights under Missouri Law, 76 UMKC L. Rev. 1131 (2008).

New JerseyAttorney's Fees. In No Good Deed Goes Unpunished: The Impact of New Jersey Court Rule 4:42-9(a)(3) on Attorney Fees in Estate Litigation, 60 Rutgers L. Rev. 769 (2008), Charles Huberty argues that the menial safeguards in place to prevent contestants and their attorneys from taking advantage of the estate are ineffective in the face of the realities of will contests. Accordingly, he advocates for a viable alternative that allows testators to ensure their testamentary plan receives postmortem protection.

PennsylvaniaRule Against Perpetuities. Martha W. Jordan discusses whether the doctrine of relation back makes the rule against perpetuities applicable to contingent interests resulting from the exercise of a special or a testamentary general power of appointment created before, but exercised after, the effective date of the repeal and the effect of the repeal on the estate and gift tax consequences to the donee of a special power of appointment and recommends the adoption of a perpetuities period applicable to successive powers that begins at the creation of the first power as the most viable solution in her article, Requiem for Pennsylvania's Rule Against Perpetuities?, 46 Duq. L. Rev. 555 (2008).

Pet Trusts. Breahn Vokolek discusses the history, current status, and probable future of pet trusts in his comment, America Gets What It Wants: Pet Trusts and a Future for Its Companion Animals, 76 UMKC L. Rev. 1109 (2008).

Same-Sex CouplesBasic Planning. In Nuts and Bolts: Estate Planning and Family Law Considerations for Same-Sex Families, 30 W. New Eng. L. Rev. 751 (2008), Patience Crozier considers basic principles and statutes as well as how family law intersects with estate planning when the clients are same-sex couples.

Same-Sex CouplesElder Planning. In Growing Old Together: Estate Planning Concerns for the Aging Same-Sex Couple, 30 W. New Eng. L. Rev. 713 (2008), authors Aimee Bouchard and Kim Zadworny analyze estate planning concerns of same-sex couples with small or moderate estates, that is, those consisting of less than federally taxable net value, few assets other than cash, an automobile, or a rented or owned home.

Same-Sex CouplesIntestate Succession. Charles Patrick Schwartz considers the necessity of a statutory amendment by reviewing the obstacles to attacks through the courts on both the marriage statutes that prevent same-sex partners from becoming legal spouses and the intestacy statutes that prevent them from inheriting in his comment, Thy Will Not Be Done: Why States Should Amend Their Probate Codes to Allow an Intestate Share for Unmarried Homosexual Couples, 7 Conn. Pub. Int. L.J. 289 (2008).

Spendthrift Trusts. Timothy J. Vitollo examines the exceptions to spendthrift trust protection for child support and alimony creditors and proposes extending this exception to involuntary tort creditors in Uniform Trust Code Section 503: Applying Hamilton Orders to Spendthrift Interests, 43 Real Prop. Tr. & Est. L.J. 169 (2008).

TennesseeAdemption by Extinction. In his note, Property—Administration of Wills—Common Law Ademption by Extinction and the Applicability of Tennessee Code Annotated Section 32-3-111, 75 Tenn. L. Rev. 577 (2008), Joshua A. Mullen outlines the exceptions to the common law in specie theory of ademption by extinction instituted by the Tennessee legislature.

Transgendered Clients. Basic information about transgender clients and their estate planning needs, along with suggestions for how effectively to address the unique needs of transgender individuals is provided by A. Spencer Bergstedt in Estate Planning and the Transgender Client, 30 W. New Eng. L. Rev. 675 (2008).

Virtual Representation. An in-depth examination of representation in estate and trust proceedings of one person (or class of persons) by a person who is already a party to the action is made by Martin D. Begleiter in Serve the Cheerleader—Serve the World: An Analysis of Representation in Estate and Trust Proceedings and Under the Uniform Trust Code and Other Modern Trust Codes, 43 Real Prop. Tr. & Est. L.J. 311 (2008).

LEGISLATION

California modernizes guardianship procedures. 2008 Cal. Legis. Serv. 293.

California establishes uniform filing fee for petitions or accounts filed in connection with the administration of an estate or trust. Prior law, which had established a graduated fee based on the size of the estate or trust, had been declared unconstitutional in In re Estate of Claeyssens, 74 Cal. Rptr. 3d 304 (Ct. App. 2008), for violating the California initiative prohibiting estate taxes. 2008 Cal. Legis. Serv. 310.

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