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.
* ADEMPTION: Foreclosure sale results in ademption and devisee is not entitled to surplus. A testator devised a house to a beneficiary, but shortly before the testator's death, the house sold at a foreclosure sale. The surplus sale proceeds were paid to the testator's estate. In Estate of Hume, 984 S.W.2d 602 (Tenn. 1999), the court held that ademption occurred regardless of the testator's probable intent that the beneficiary receive the surplus. The court could not substitute the surplus for the devise because the foreclosure sale caused a material alteration to the subject matter of the bequest.
* FIDUCIARY RESPONSIBILITY: Decision to invade principal raises conflict of interest. A bank was trustee of two trusts for the same income beneficiary, one created by beneficiary's mother and the other self-settled. The two trusts had different remainder beneficiaries. The trustee had discretion to invade the principal of the first trust for the maintenance, welfare, comfort and happiness of the income beneficiary. The beneficiary could direct payment of the principal of the self-settled trust to herself. In Wiggins v. PNC Bank, Kentucky, Inc., 988 S.W.2d 498 (Ky. Ct. App. 1998), the court held that the bank had a conflict of interest in deciding to invade principal of the first trust and, under local law, was required to seek court authority to exercise that power. Having invaded the trust without seeking approval, the trustee was liable to the remainder beneficiaries of the first trust.
* FIDUCIARY RESPONSIBILITY: Trustee's purchase of trust property is breach of duty. Personal representatives sold real estate belonging to the estate to a corporation controlled by one of the personal representatives and the trustee of trusts created by the decedent's will. The remainder beneficiaries sued, claiming breach of fiduciary duty. The court in Stegemeier v. Magness, 728 A.2d 557 (Del. 1999), reiterated the common law absolute prohibition against self-dealing by fiduciaries and held the trustee liable.
* IRA: Divorce decree does not change beneficiary designation. A husband and wife were divorced. The husband was awarded his IRA but never changed the beneficiary designation from his former wife. When he died, his current and former wives both claimed the account. In Schultz v. Schultz, 591 N.W.2d 212 (Iowa 1999), the court held that the dissolution decree awarded the husband ownership of the account but did not change his former wife's status as the beneficiary.
* MALPRACTICE: Beneficiaries barred by privity requirement. In Nevin v. Union Trust Co., 726 A.2d 694 (Me. 1999), the court held that individual estate beneficiaries may not assert claims for negligence against the lawyer who created a decedent's estate plan because the beneficiaries are not the lawyer's clients and the estate is represented by a personal representative who may assert the decedent's claims.
* MALPRACTICE: Suit by joint client not barred by privity requirement. Although state law provides that legatees may not sue the testator's lawyer because they lack privity, in Estate of Arlitt v. Paterson, No. 04-97-00750-CV, 1999 WL 214882 (Tex. App. Apr. 14, 1999), the court held that the prohibition does not apply to a claim by a joint estate planning client. The widow's allegation that the decedent's lawyers were also her lawyers was sufficient to allow her claim for negligent misrepresentation to survive summary judgment.
* MARITAL DEDUCTION: Intent controls in determining size of marital gift. The decedent's 1976 will left his wife an amount equal to the maximum federal estate tax marital deduction available under the law in effect at his death. The decedent died in 1993 without changing his will. In Estate of Pouser, 975 P.2d 704 (Ariz. 1999), the court held that the reference to the date of the decedent's death made the federal transition rule under ERTA inapplicable. The court then held that the decedent's intent must control. Because the passage of the unlimited marital deduction made the will susceptible to two meanings, the court reviewed extrinsic evidence and upheld the trial court's finding that the decedent's intent was to leave his entire estate to his wife.
* PROFESSIONAL RESPONSIBILITY: Firm may disclose existence of husband's extramarital child to wife. A husband and wife retained a law firm to formulate their estate plans. The firm later learned from a third party that the husband had fathered an extramarital child. The firm proposed to reveal the existence of the child to the wife. The court held that the firm could disclose the existence but not the identity of the child to the wife. The husband's withholding of this information from his wife amounted to fraud because, under their reciprocal wills, the wife's property could eventually pass to her husband's extramarital child. A v. B, 726 A.2d 924 (N.J. 1999).
* REFORMATION: Trust reformed to eliminate adverse tax consequences. Because of a drafting error, a trust would have been included in the deceased spouse's estate. The court in Fleet Bank, N.A. v. Fleet Bank, N.A., 706 N.E.2d 627 (Mass. 1999), reformed the trust by adding the language necessary to prevent inclusion in the deceased spouse's estate and to avoid the resulting taxes.
* VALUATION: Value of stock based on sales of similar stock shortly after the decedent's death was inappropriate under the circumstances. The court in Estate of Kaufman v. Commissioner, T.C. Memo. 1999-119, refused to value the decedent's stock based on sales by family member shareholders that occurred shortly after the decedent's death. The court determined that these family members were not knowledgeable of the value of the stock and that their stock interests lacked sufficient similarity to the decedent's interest to serve as a proper
measure of value.
* WILLS: Minor witness invalidates will. One of the witnesses to the testator's will was only 14 years old. Applicable state law required that witnesses be at least 18 years of age. The court in Norton v. Hinson, 989 S.W.2d 535 (Ark. 1999), refused to validate the will. The court held that it could not vary the explicit statutory requirement and that the doctrine of substantial compliance was inapplicable.
* WILLS: Tort remedy for intentional interference with prospective economic advantage applies to wills. In Allen v. Hall, 974 P.2d 199 (Or. 1999), the court held that an action for interference with a prospective inheritance may be maintained under a theory of tortious interference with prospective economic advantage. The court also held that evidence that a will beneficiary interfered with a testator's attempt to write a new will benefiting others was sufficient to state a claim.
RULINGS AND REGULATIONS
* CHARITABLE REMAINDER TRUSTS: The IRS extended the deadline for special reformations of CRUTs from June 8, 1999 to June 30, 2000. IRS Notice 99-31.
* GROSS ESTATE: Discretionary trust included in gross estate because the decedent's creditors could reach
the income and corpus of the trust . TAM 199917001.
* GST TAX: Court clarification of trust language does not taint a trust that qualified for grandfathered exemption from GST tax. PLR 199917022.
* GST TAX: Trust retains grandfathered exemption from tax despite modification of the provision regarding successor trustees. PLR 199917017.
* IRAs: Disclaimer effective to cause the deceased spouse's IRA to roll over to the surviving spouse's
IRA. PLR 199913048.
* LIFE INSURANCE: IRS issues final regulations updating the uniform premium table used to compute the cost of group term life insurance coverage that an employer provides to an employee. T.D. 8821.
* LIFE INSURANCE: Settlor and insured are not treated as the owner of a trust merely because the trustee has the power to make premium payments on insurance policy. PLR 199915045.
* Charitable remainder trust regulations. Gretchen Butler Clayton and Francis J. Mirabello explain why Donors and Charities Have Good Reason to Flip Over Charitable Remainder Trust Regs, 90 J. Tax'n 204 (1999); and Jerry J. McCoy explains how Charitable Remainder Trust Regs Present Planning Opportunities, Tr. & Est. 16 (Mar. 1999).
* Charities. Carlyn S. McCaffrey, et al. examine how a charity organized as a trust may receive more favorable income tax treatment on S stock ownership in When S Corps Meet Charities: Choice of Entity Considerations From an Income Tax Perspective, 90 J. Tax'n 181 (1999).
* Delegation of trustee's duties. Iris J. Goodwin and Pierce McDowell discuss Delegating Responsibility: Trustees Explore the Once Taboo, Tr. & Est. 8 (Mar. 1999).
* Dynasty trusts. Stephen M. Margolin and Mitchell D. Weinstein explore Dynasty Trusts and the Rule Against Perpetuities, 87 Ill. B.J. 134 (1999).
* Employee welfare benefit plans. Lawrence L. Bell explains Employee Welfare Benefit (EWB) Plans: An Estate Planning Tool, Tr. & Est. 41 (Mar. 1999).
* Encouraging beneficiary conduct. The use of trusts to encourage good beneficiary behavior is discussed
by Paul A. Meints in Value-based Estate Planning: Using Trusts to Promote and Reward Behavior, 87 Ill.
B.J. 138 (1999). The article includes a detailed client questionnaire.
* Estate expenses. Glenn J. MacGrady provides a practical and theoretical framework for assessing the various Hubert opinions in Paying Estate Expenses from Estate Income: A Practice and Policy Analysis of the Hubert Decisions and the Proposed Hubert Regulations, 78 B.U. L. Rev. 1393 (1998). Heather J. Kidwell examines The Uncertainty of Death and Taxes: Valuing Estate Tax Marital Charitable Deductions After Hubert, 25 J.C. & U.L. 317 (1999).
* Fiduciary duty. Benjamin G. Carter examines Relief for Beneficiaries Suing for Breach of Fiduciary Duty: Payment of Accounting Costs Before Trial, 76 Wash. U.L.Q. 1411 (1998).
* Intestate succession--South Dakota. Julia M. Melius evaluates the enforcement of negative will provisions
in Was South Dakota Deprived of $3.2 Million? Intestacy, Escheat, and the Statutory Power to Disinherit in the Estate of Jetter, 44 S.D. L. Rev. 49 (1999).
* Life insurance trusts. C. Markham Whitelaw & William C. Ries discuss a trustee's liability for an unmanaged portfolio in Managing Trust-Owned Life Insurance Revisited, Tr. & Est. 38 (Apr. 1999).
* Life insurance. Roger M. Shoor looks at life insurance as an effective estate planning tool in Taking a Look Inside Life Insurance, Tr. & Est. 28 (Apr. 1999); Thomas F. Commito examines FLPs and LLCs vs. Trusts in Life Insurance Planning, Tr. & Est. 33 (Mar. 1999); and Brian H. London, et al. discuss Split-Dollar Life Insurance: An Old Friend With New Wrinkles, Tr. & Est. 48 (Mar. 1999).
* Marital trusts. Peter B. Tiernan examines Using Gifts From a Marital Trust to Reduce the Second Tax, 90 J. Tax'n 210 (1999).
* Swing trustees. Bruce J. Bettigole discusses how the Swing Trustee Provision May Optimize Beneficiary's Control, Tr. & Est. 35 (Apr. 1999).
* Arkansas enacts the Durable Power of Attorney for Health Care Act. 1999 Ark. Acts 1448.
* Arkansas enacts the Uniform Statutory Form Power of Attorney Act. 1999 Ark. Acts 1423.
* Georgia enacts the Uniform Transfer on Death Security Registration Act. 1999 Ga. Laws 392.
* Indiana enacts the Indiana Uniform Prudent Investor Act. 1999 Ind. Legis. Serv. P.L. 137-1999.
* Iowa amends disclaimer law. 1999 Iowa Legis. Serv. H.F. 662.
* Maine restricts application of the Durable Financial Power of Attorney to exclude non-estate planning powers. 1999 Me. Legis. Serv. ch. 118.
* Minnesota amends intestacy, survival and estate tax provisions. 1999 Minn. Sess. Law Serv. ch. 171.
* Montana raises the value of small estates that can be collected by affidavit from $7,500 to $20,000. 1999 Mont. Laws ch. 234.
* Washington authorizes mediation in guardianship proceedings. 1999 Wash. Legis. Serv. ch. 360.
* Washington provides that a disclaimer under state law is presumed to include disclaimer of all interests necessary for a qualified disclaimer under federal law. 1999 Wash. Legis. Serv. ch. 43.
Keeping Current--Probate Editor: Gerry W. Beyer, Visiting Professor, Santa Clara University School of Law, 500 El Camino Real, Santa Clara, CA 95053. Contributors include Dave L. Cornfeld, William P. LaPiana, Bridget Lovett and Steven Lovett.
Probate & Property Magazine is published six times annually and is included in section members' annual dues.