K eeping 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.
- ADEMPTION: Foreclosure and sale of specifically devised property does not adeem the gift. Decedent's will made a specific devise of a house on which there was a mortgage. Before the decedent's death, the house was sold at a foreclosure sale, producing a surplus that the creditor tendered to the court. In Estate of Hume v. Klank, 1997 WL 92072 (Tenn. Ct. App. 1997), the court held that the specific devise did not adeem and that the devisee was entitled to the surplus proceeds. The court indicated that as long as the action of a third party rather than that of the testator caused the elimination of the subject matter of the specific gift, ademption would occur only if the third party acted with the authority or consent of the testator or if there were no identifiable residue of the gift.
- CRUMMEY POWERS: Power of contingent beneficiary to withdraw supports present interest exclusion. In Estate of Kohlsaat v. Commissioner, 73 T.C.M. (CCH) 2732, the Tax Court rebuffed the IRS' attempt to restrict the use of withdrawal powers to create present interest exclusions for gifts to trusts. Decedent claimed a present interest exclusion for each of 16 contingent remainder beneficiaries of a trust. The trustee properly informed the beneficiaries of their withdrawal rights. The court refused to find an understanding between the dece-dent and the beneficiaries that they would not exercise their powers, and the evidence did not support the contention that the beneficiaries believed that they would be penalized if they exercised their withdrawal rights.
- ESTATE TAX: IRS prohibited from using equitable recoupment defense to retain refunds. Under the facts of Parker v. United States, 110 F.3d 678 (9th Cir. 1997), the IRS was prohibited from retaining refunds on the ground of equitable recoupment, i.e., that the refund claimants unjustly benefited from the event that later gave rise to the refund.
- ESTATE TAX: IRS' suspension of Rev. Proc. 81-27 during pendency of Tax Court case is permissible. Following an unpublished policy, the IRS prohibited an estate from recalculating deferred estate tax installment payments under Rev. Proc. 81-27 because a Tax Court case regarding the extent of the tax liability was pending. In Estate of Shapiro v. Commissioner, 111 F.3d 1010 (2d Cir. 1997), the court determined that this prohibition was not an abuse of the IRS' discretion.
- GIFT TAX: Date of the donor's execution of counterletter deemed date of gift. A donor executed a counterletter to transfer stock to a donee. The IRS asserted that the gift did not occur until 14 years later when the donor finally transferred the record ownership of the stock to the donee. In Autin v. Commissioner, 109 F.3d 231 (5th Cir. 1997), the court held that the gift occurred when the donor executed the counterletter because under state law the gift was complete and irrevocable then even though the donor continued to maintain actual control of the property.
- INCOME TAX: Donor taxed on gain from donee's exchange of donated stock for cash under merger agreement. When a donor made a charitable gift of stock, a merger agreement existed under which it was a foregone conclusion that the donee would tender the stock for cash. In Ferguson v. Commissioner, 108 T.C. No. 14 (1997), the court held that the donor must pay income tax on the gain under the anticipatory assignment of income doctrine.
- MARITAL DEDUCTION: QTIP trust stub income need not be paid to estate of surviving spouse. The Court of Federal Claims, in Talman v. United States, 37 Fed. Cl. 741 (1997), has joined the Ninth Circuit (Estate of Howard v. Commissioner, 910 F.2d 633 (9th Cir. 1990)) and the Eleventh Circuit (Estate of Shelfer v. Commissioner, 86 F.3d 1045 (11th Cir. 1996)) in rejecting the Tax Court's interpretation of Code 2056(b)(7)(B) as requiring a QTIP trust to provide that stub income must be distributed to the spouse/beneficiary's estate.
- POWER OF ATTORNEY: Power to "transfer" real property included power to make gift. The decedent executed a power of attorney naming his wife as his agent, which followed the North Carolina statutory short form power with the addition of words allowing the agent to "transfer" specifically described real property. At the decedent's direction, his wife executed a deed to the same real property and delivered it to the decedent's sisters. In Whitford v. Gaskill, 480 S.E.2d 690 (N.C. 1997), the court held that an agent lacks the power to make a gift of the principal's real property unless that power is expressly conferred. In this case, the addition of the word "transfer" to the agent's powers was sufficient to give the agent the power to a make a gift of the real property.
- PRETERMITTED HEIRS: Mention of grandchild in will precludes grandchild's descendants from taking as pretermitted heirs. Decedent's will specifically dis- inherited his son and the two sons of a predeceased daughter. A daughter was born to one of the grandsons the day before the will was executed and two years later a son was born to the same grandson, who then predeceased the decedent. The court in Estate of Laura, 690 A.2d 1011 (N.H. 1997), held that the great-grandchildren were not pretermitted heirs. The reference to their father was enough to remove them from the application of the state pretermitted heir statute, which applies to every child or issue of a child who is not named or referred to in the will.
- RETIREMENT BENEFITS: ERISA preempts state community property laws. In Boggs v. Boggs,117 S. Ct. 1754 (1997), the United States Supreme Court in a 5-4 decision held that ERISA preempts state law that allows a nonparticipant spouse who predeceases the participant spouse to make a testamentary transfer of undistributed pension plan benefits in which the nonparticipant spouse has a one-half interest because of the community property nature of the benefits. Thus, the provision of the nonparticipant spouse's will leaving the benefits to her children on the participant spouse's death was ineffective. Instead, the participant's new spouse received all of the benefits.
- TESTAMENTARY CAPACITY: Monomania without mental illness insufficient to support will contest. A disinherited daughter challenged her mother's will on several grounds, including monomania, i.e., the mother's preoccupation with mistaken beliefs about her daughter and the daughter's companion. The court in Joseph v. Grisham, 482 S.E.2d 251 (Ga. 1997), upheld a summary judgment against the daughter because there was no evidence that her mother suffered from hallucinations or delusions.
- WILL INTERPRETATION: Failure of the testator to dispose of the entire remainder of a testamentary trust does not create ambiguity. Decedent's will provided for the distribution of one-half of her residuary estate to her nephew and one-half to his children, if her friend pre-deceased her. If the friend survived, which he did, the residue was to be placed in trust for his benefit and at his death the realty in the trust was to be distributed to the nephew and his children. The trustee requested construction of the will regarding the appropriate dis-position of the personal property remaining in the trust. The lower court determined that the will was ambiguous and admitted extrinsic evidence indicating that the omission of the personal property in the trust provision was a clerical error. In Burnett v. First Commercial Trust Co., 939 S.W.2d 827 (Ark. 1997), the court reversed, holding that the will was unambiguous on its face and thus extrinsic evidence could not be considered. Consequently, the personal property passed via intestacy.
RULINGS AND REGULATIONS
- CLAIMS AGAINST ESTATE: Charitable pledge unpaid at time of taxpayer's death deductible as a claim against the estate under Code 2053(a)(3) because claim was enforceable under state law. PLR 9718031.
- DISCLAIMER: Court order confirming beneficiary's renunciation of trust interest did not satisfy requirements of a qualified disclaimer under Code 2601 because it was not made within the applicable nine month period. PLR 9714030.
- GST TAX: Grandfathered status not lost by a co-trustee's waiver of fee. PLR 9718009.
- GST TAX: Grandfathered status not lost by court's removal of trustees for breach of investment duties or by transfer of trust management to the court. PLR 9718025.
- SPECIAL VALUATION: Donor's retained annuity interests in trust that were payable with a promissory note did not constitute qualified interests under Code 2702(b). PLR 9717008.
- VALUATION OF GIFT: Transfers of stock to nearly identical trusts treated as separate gifts thus preventing blockage discount. TAM 9719001.
- VALUATION OF GROSS ESTATE: Existence of partnership disregarded for purpose of estate tax valuation. Days before the taxpayer died, trust assets were placed in a family limited partnership from various sources, including trusts the assets of which would have been included in the taxpayer's gross estate. The estate claimed a discount of 48% because of this and later transfers of partnership interests. In TAM 9719006, the IRS disregarded the existence of the partnership when valuing the assets and treated all of these events as a single testamentary transfer occurring at the taxpayer's death.
- Advance Directives. Vicki Joiner Bowers, Advance Directives: Peace of Mind or False Security?, 26 Stetson L. Rev. 677 (1996), discusses the historical evolution of the right to refuse medical treatment, the current problems and how the continual advancement of technology makes achieving solutions difficult.
- Business Trusts. The benefits of electing small business trust status are discussed in Frederic G. Corneel, The Electing Small Business Trust: Subchapter S's User-Friendly Estate Planning Tool, 86 J. Tax'n 215 (1997), and in Suzanne Tucker Plybon and Stephen E. Parker, Estate Planning with Electing Small Business Trusts, 25 Tax'n for Law. 270 (1997).
- Estate Taxes. Joseph R. Oliver, Protective Elections Sustain Estate Tax-Saving Options, 25 Tax'n for Law. 294 (1997), discusses various elections, such as those available under Code 2032A and 6166.
- Euthanasia. James Bopp Jr. and Richard E. Coleson, Roe v. Wade and the Euthanasia Debate, 12 Issues in L. & Med. 343 (1997), raises concerns that the legalization of assisted suicide may lead to the legalization of voluntary euthanasia and even involuntary euthanasia for the incompetent.
- Georgia Practice. Recent developments in Georgia estate planning law are discussed in James C. Rehberg, Wills, Trusts and Administration of Estates, 48 Mercer L. Rev. 565 (1996).
- Housing Needs of the Elderly. Lawrence A. Frolik, The Special Housing Needs of Older Persons: An Essay, 27 Stetson L. Rev. 647 (1996), emphasizes the need to consciously consider the special needs, values and capabilities of older persons when plan-ning for housing.
- Organ Donation. The wisdom of creating financial incentives to encourage organ donation is reviewed in Andrew J. Love, Replacing Our Current System of Organ Procurement with a Futures Market: Will Organ Supply Be Maximized?, 37 Jurimetrics J. 167 (1997). The effect of Medicaid on organ transplants is addressed in Lisa B. Deutsch, Medicaid Payment for Organ Transplants: The Extent of Mandated Coverage, 30 Colum. J.L. & Soc. Probs. 185 (1997).
- Posthumous Children. In Anne Reichman Schiff, Arising From the Dead: Challenges of Posthumous Procreation, 75 N.C. L. Rev. 901 (1997), the author argues for honoring the pre-death intentions of individuals regarding posthumous procreation.
- Prudent Investor Rule. Various aspects of the prudent investor rule are critiqued in W. Brantley Phillips Jr., Chasing Down the Devil: Standards of Prudent Investment Under the Restatement (Third) of Trusts, 54 Wash. & Lee L. Rev. 335 (1997).
- Retirement Certificate of Deposit. The status of the retirement certificate of deposit is presented in Stephen D. Palmer, What Do You Get When You Cross a Cert- ificate of Deposit with an Annuity? The Retirement Certificate of Deposit Struggles for Survival, 45 Emory L.J. 1429 (1996).
- Maine clarifies distribution of decedents' estates to conform with Uniform Prudent Investor Act and reduce unintended tax consequences. 1997 Me. Legis. Serv. 1st Sp. Sess. Ch. 73 (West).
- Montana excludes from inheritance taxes any interest in and the real and tangible personal property of closely held businesses that are transferred to the lineal descendants of the decedent's grandparents. 1997 Mont. Laws ch. 288.
- New Mexico provides surviving spouse with personal property allowance. 1997 N.M. Laws ch. 95.
- Texas enacts Uniform Transfer on Death Security Registration Act. 1997 Tex. Sess. Law Serv. ch. 10 (West).
Keeping Current_Probate Editor: Gerry W. Beyer, Visiting Professor, Southern Methodist University School of Law, P.O. Box 750116, Dallas, TX 75275. Contributing editors: Dave L. Cornfeld, William P. LaPiana, Kendra Lashawn McCartney and Cyndi L. Watson.
Probate & Property Magazine is published six times annually and is included in section members' annual dues.