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.
- CHARITABLE GIFT: Transfer by trustee to charity did not entitle decedent's estate to charitable deduction. A trustee transferred property to a charity, but the decedent's will did not require the trustee to distribute the property to a qualified charitable organization. In Estate of Lockett, T.C. Memo. 1998-50, the court held that the trustee was actually the person making the charitable transfer and thus the decedent's estate could not claim a charitable deduction.
- DEPENDENT RELATIVE REVOCATION: Doctrine does not apply if attempted disposition is significantly different from will. A woman revoked her will by cancellation and later wrote two wills, both of which were ineffective for lack of due execution. The court in Kroll v. Nehmer, 705 A.2d 716 (Md. 1998), refused to apply the doctrine of dependent relative revocation because the revoked will and the attempted dispositions were completely dissimilar. It was not possible to presume that the testatrix would have preferred the revoked will to intestacy.
- DISINHERITANCE: Will made after judgment against heir is not fraudulent transfer. A son was indebted to his ex-wife for maintenance. After the divorce, the son's father made a will excluding his son. The ex-wife attempted to set the will aside as a fraudulent transfer. The court in Miller v. Mauzey, 960 S.W.2d 564 (Mo. Ct. App. 1998), held that there was no transfer by the father. The father could dispose of his property as he liked and for whatever reason, and the former wife had no cause of action.
- ESTATE TAX: Gross undervaluation and omission of assets deemed fraud. In Estate of Trompeter, T.C. Memo. 1998-35, the court penalized the dece- dent's estate for fraudulently undervaluing and omitting assets.
- FIDUCIARY POWERS: Majority of trustees may vote corporate stock. Under state trust law, co-trustees must act unanimously but, under corporate law, a majority of co-trustees may vote shares held in a trust. In Edwards v. Edwards, 71 Cal. Rptr. 2d 653 (Cal. Ct. App. 1998), the court held that the specific provision of the corporation statute controls the general provision of the probate code.
- GIFT TAX: Non-beneficiary trustee did not make transfer by actions as trustee. A father was trustee of trusts for family members. The trusts held stock in a corporation of which he was a director. The father and the co-trustee recapitalized the corporation. In Saltzman v. Commissioner, 131 F.3d 87 (2d Cir. 1997), the Tax Court's finding that the recapitalization resulted in a gift from the father to the trust beneficiaries was overruled.
- GIFT TAX: Transfers from employer to employee deemed gifts and entitled to valuation discounts. An employer transferred real property to an employee. The court in Estate of Williams, T.C. Memo. 1998-59, held that these transfers were gifts and not compensation because of the close personal relationship between the two parties and a history of gift transfers. The court also permitted valuation discounts for lack of marketability and lack of control.
- HOLOGRAPHIC WILLS: Writing on photocopy of will not holographic instrument. A testatrix altered a photocopy of her validly executed will by crossing out her deceased daughter's name and writing words indicating that the daughter's share was to be divided among the testatrix's other daughters. The testatrix then initialed and dated the emendation. Reversing the decision reported in the May/June issue, the court in Estate of Foxley v. Hogan, 254 N.W.2d 204 (Neb. 1998), held that it could consider only the handwritten material that was insufficient to create a will. When considered apart from the typed words on the photocopy, the language did not show testamentary intent and did not constitute "material provisions."
- INTER VIVOS TRUSTS: Signed memorandum suffices as amendment. A settlor's revocable trust allowed amendment by an "instrument" signed by the settlor and the trustee. After receiving oral and written instructions for a second amendment from the settlor, the lawyer sent the settlor a letter summarizing changes that the settlor signed and returned. The lawyer then prepared a formal "Second Amendment" which was never executed. The court in Matter of Daoang, 87 P.2d 200 (Haw. Ct. App.) cert. denied (1998), held that the signed letter was an instrument and because he was also the sole trustee, the settlor's signature was sufficient even though the words "settlor" and "trustee" did not appear with the signature.
- INTERPRETATION: Description of stepson as "child" included this child in gift to "issue." The testatrix's will described her deceased stepson as the son of the testatrix and her husband. Her will also defined "issue" to mean descendants by birth or adoption and left her residuary estate to her issue. The court in Davis v. Neshem, 574 N.W.2d 883 (N.D. 1998), held that the description of the stepson as the testatrix's son was not an ambiguity and that the testatrix meant to include her husband's children among the testatrix's issue.
- JURISDICTION: Unpaid trust income does not support jurisdiction. The decedent, a Texas domiciliary, established two trusts in Louisiana in which he retained income interests. At his death, both trusts held accrued income due the estate. The trustees opened the decedent's succession (a probate proceeding) in Louisiana. In In re Howard Marshall Charitable Remainder Annuity Trust, 1998 WL 94426, reh. denied (La. 1998), the court held that the undistributed income was an incorporeal movable (intangible personal property) that was located at the decedent's domicile in Texas under the maxim mobilia sequuntur personam (movables follow the person). The court emphasized that jurisdiction over the trusts did not confer jurisdiction over the decedent's estate.
- MISTAKE: To set aside a will, mistake must involve testamentary intent. Estate of Smith v. Smith, 71 Cal. Rptr. 2d 424 (Cal. Ct. App. 1998), involved a properly executed statutory will leaving all of the testatrix's property to her husband. Her children by a previous marriage argued that she misunderstood the will's provisions and intended to leave her estate to them. The court held that a will can be invalidated because of mistake only when the mistake involves the execution of the will or the forming of testamentary intent.
- POWER OF APPOINTMENT: Specific exercise of power granted in one will does not exercise power in subsequent will. A testator's will created a marital deduction trust with a general power of appointment and required that any exercise of the power be by specific reference. His wife executed a will exercising the power. She became incompetent and the testator executed a new will with a marital trust and a general power of appointment requiring exercise by specific reference. In Smith v. Brannan, 1998 WL 66017 (Or. Ct. App. 1998), the court held that the wife's will did not exercise the power created in her husband's second will.
- REFORMATION: State court reformation of will to qualify for QTIP treatment ineffective. In Rapp Estate v. Commissioner, 1998 WL 117867, amended on reh., 1998 WL 242451 (9th Cir. 1998), the court refused to give effect to a state court reformation of a testamentary trust to obtain QTIP treatment because the will as originally drafted clearly did not qualify. The state court's reformation was contrary to state law because the will was not ambiguous and there was scant evidence that the testator intended to create a QTIP trust.
- REVOCATION: Partial revocation that significantly alters will must be formal. A testatrix canceled a specific bequest and a trust provision in her will by marking them through with a pencil, greatly increasing the outright gift to the trust beneficiary. The court in Estate of Malloy v. Smith, 949 P.2d 804 (Wash. 1998), held that if the intent of a testator is to significantly alter the testamentary scheme and the effect is to substantially change the nature or value of a bequest, then the change must be accomplished with testamentary formalities. The will was admitted as originally written.
- SPENDTHRIFT TRUSTS: Trust not immune from tort judgment. A beneficiary's interest in a spendthrift trust is not immune from the victim of the beneficiary's intentional or grossly negligent tort. Sligh v. First Nat'l Bank, 704 So. 2d 1020 (Miss. 1997).
- TESTAMENTARY CAPACITY: Will executed during conservatorship not necessarily invalid. A testator executed a will while under a conservatorship. In Estate of Mask v. Mask, 703 So. 2d 852 (Miss. 1997), the court held that the existence of the conservatorship did not mean the testator could not have a lucid interval in which he could validly execute a will.
- VALUATION: Taxpayer had right to rely on actuarial tables to value property despite taxpayer's terminal condition. A taxpayer sold partnership interests to family members about six months before his death in exchange for private annuities. At the time of the sale, the taxpayer was terminally ill with cancer. The taxpayer used the IRS approved actuarial tables to value the remainders but the lower court held that the taxpayer's actual life expectancy should be used instead. In Estate of McLendon v. Commis- sioner, 135 F.3d 1017 (5th Cir. 1998), the court held that the taxpayer had the right to rely on the approved actuarial tables.
RULINGS AND REGULATIONS
- CHARITABLE TRUST: Provision in charitable lead trust specifying the order of charitable distributions as first out of ordinary income not given effect because the clause had no economic significance except for tax purposes. PLR 9808035.
- DISCLAIMER: Disclaimer of interest in discretionary trust after disclaimer period deemed gift to remainder beneficiaries. PLR 9811044.
- POWER OF APPOINTMENT: Failure to exercise power may be taxable gift. A surviving spouse had a noncumulative right to demand 10% of the corpus of the trust. Failure to exercise this right would create a gift to the extent the value of the property not withdrawn exceeds the greater of $5,000 or 5% of the trust corpus. PLR 9804047.
- RECIPROCAL TRUST DOCTRINE: Reciprocal trust doctrine deemed not applicable when cross-trusteeship occurs long after original transfers. PLR 9804012.
- RETAINED INTEREST: Decedent's power to determine compensation of trustee not a retained interest and thus property was not in decedent's gross estate. PLR 9809032.
- Bypass trusts. Jay A. Soled offers possible solutions to the taxpayers' burden on the transfer of wealth between spouses in A Proposal to Make Credit Shelter Trusts Obsolete, 51 Tax Law. 83 (1997).
- Children from assisted conception. Katheleen R. Guzman analyzes the probate implications of alternative reproduction techniques in Property, Progeny, Body Part: Assisted Reproduction and the Transfer of Wealth, 31 U.C. Davis L. Rev. 193 (1997). In Who's Your Daddy?: A Constitutional Analysis of Post- Mortem Insemination, 14 J. Contemp. Health L. & Pol'y 127 (1997), John A. Gibbons discusses the con- stitutional right to procreate and make procreative decisions and how this right applies to the practice of post-mortem insemination.
- Estate administration. Stephen M. Dickson delineates recent changes to Georgia's probate statutes in Wills, Probate, and Administration of Estates, 14 Ga. St. U. L. Rev. 313 (1997).
- Intestacy. In Intestate Succession and the Laughing Heir: Who Do We Want to Get the Last Laugh?, Quinnipiac Prob. L.J. 153 (1997), David V. DeRosa examines the history of intestacy schemes, reviews the policies supporting modern reforms and surveys the descent and distribution statutes of all states.
- Living wills. Maggie J. Randall Robb argues that living wills ought to be enforceable by means of injunctive relief and damages and that state legislatures should create a statutory remedy to ensure the enforcement of advanced directives in Living Wills: The Right to Refuse Life Sustaining Medical Treatment_A Right Without a Remedy, 23 U. Dayton L. Rev. 169 (1997).
- Native Americans. In Youpee v. Babbitt_The Indian Land Inheritance Problem Revisited, 22 Am. Indian L. Rev. 223 (1997), Michelle M. Lindo reviews the historical and legal contexts of Indian trust land inheritance issues and the possible solutions to the fractionation problem together with how they must pass constitutional scrutiny.
- Nonresident aliens. In United States Estate and Gift Taxation of Nonresident Aliens: Troublesome Situs Issues, 51 Tax Law. 83 (1997), M. Annette Gold analyzes some of the unsettled situs issues in wealth transfer taxation.
- Spendthrift provisions. In A Radical Theory of Jurisprudence: The "Decisionmaker" as the Source of Law_The Ohio Supreme Court's Adoption of the Spendthrift Trust Doctrine as a Model, 30 Akron L. Rev. 393 (1997), Gerald P. Moran reviews the criteria the court used to reverse its prior position on the validity of spendthrift provisions.
- South Dakota revises trust law including provisions regarding trust termination. 1998 S.D. Laws 257 (West).
- Utah enacts Uniform Statutory Rule Against Perpetuities Act and revised Article 2 of the Uniform Probate Code. 1998 Utah Laws ch. 39.
Editor: Gerry W. Beyer, Professor, St. Mary's University School of Law, One Camino Santa Maria, San Antonio, TX 78228. Contributing editors: Dave L. Cornfeld, Vionette Douglas, William P. LaPiana and Kendra Lashawn McCartney.
Probate & Property Magazine is published six times annually and is included in section members' annual dues.