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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.
• ADOPTION: Collateral relatives may inherit from adopted persons. In MacCallum v. Seymour’s Administrator, 686 A.2d 935 (Vt. 1996), the Vermont Supreme Court determined that a statutory provision denying adopted children the right to inherit from collateral relatives was unconstitutional. The court extended this ruling in In re Gillin, 773 A.2d 270 (Vt. 2001), by holding that collateral relatives by adoption may inherit from adopted persons.
• BONDS: Estate may collect legal fees from surety. An administrator breached his fiduciary duty and the surety was held liable on the administrator’s bond. A divided court held that the estate was entitled to collect legal fees incurred in litigating the bond, absent language in the bond to the contrary, and to simple interest from the date of the administrator’s defalcation. In re Estate of Lash, 776 A.2d 765 (N.J. 2001).
• CAPACITY: IRA beneficiary may not be changed by incompetent account holder. The court declared a father incompetent and eliminated his ability to contract and to dispose of property. The court, however, did not cancel his ability to make a will. After he was declared incompetent, the man changed the beneficiary of his IRA from his estate to his son who was also his guardian. The appellate court reversed the lower court’s holding that the change of beneficiary was valid because it involved a testamentary transaction, holding that the change involved a contract and thus was ineffective. SunTrust Bank Middle Ga. N.A. v. Harper, Nos. A01A0105 & A01A0106, 2001 WL 736792 (Ga. Ct. App. 2001).
• HEIR HUNTERS: Assignment of portion of inheritance to heir hunter valid. An heir assigned 35 percent of her inheritance to an heir hunter in exchange for information about a potential inheritance. The heir also signed and then revoked a general power of attorney granting a lawyer suggested by the heir hunter the power to act in her behalf in the probate proceeding. The lawyer’s fees were to be paid by the heir hunter. The heir then sought a court order invalidating the assignment. In Estate of Wright, 108 Cal. Rptr. 2d 572 (Ct. App. 2001), the court held that the assignment was valid and enforceable because it was not induced by fraud or duress. The power of attorney, however, was deemed invalid because it involved the solicitation of business for the lawyer by the heir hunter and created a conflict of interest.
• JOINT ACCOUNTS: Withdrawal by nondepositor ends survivorship right with respect to withdrawn funds. An aunt deposited money in joint accounts with her nephew who withdrew the balances of the accounts shortly before the aunt’s death. In Vaughn v. Bernhardt, 547 S.E.2d 869 (S.C. 2001), the court held that the statutory provision stating that, during the lifetime of the parties, a joint account belongs to the parties in proportion to their contributions meant that the withdrawn amounts belonged to the aunt’s estate. The money was not in the joint accounts at the time of the contributor’s death and thus the survivorship feature was irrelevant.
• LAPSE: Substitute taker also takes share of lapsed residue. A decedent’s will left the residue of his estate in unequal shares to his five siblings, three of whom predeceased him, with only one leaving issue, the decedent’s niece. The court in In re Estate of Eickmeyer, 628 N.W.2d 246 (Neb. 2001), held that the niece took her parent’s share under the anti-lapse statute and also took her parent’s proportionate share of the lapsed residue that passed by statute to the surviving residuary beneficiaries.
• MALPRACTICE: Extrinsic evidence not admissible to show negligence. A widow sued the lawyers who had drafted her husband’s will, asserting that the will did not achieve her husband’s intent. The court affirmed the lower court’s summary judgment dismissing the widow’s suit because she could not show that husband’s intent was different from the provisions of the will. Extrinsic evidence could not be considered absent latent ambiguity in the will. Henkel v. Winn, 550 S.E.2d 577 (S.C. Ct. App. 2001).
• TAX APPORTIONMENT: Express directions in will control over apportionment statute. A will provided that estate tax was to be paid from the residuary estate. One of the two remainder beneficiaries claimed that it was unfair for her gift to be reduced by one-half of the estate taxes because the other remainder beneficiary received more lifetime gifts from the testatrix. The court in Rossen v. Sable, No. 77935, 2001 WL 740102 (Ohio Ct. App. 2001), held that the will clearly indicated that the two residuary beneficiaries were to bear the burden of the estate taxes equally. Thus the default apportionment statute was inapplicable.
• TORTIOUS INTERFERENCE WITH EXPECTANCY RIGHTS: Alabama withdraws its prior recognition of the tort. The Alabama Supreme Court’s opinion in Ex parte Batchelor, 2001 WL 10891 (Ala. 2001), reported in the May/June 2001 column, has been withdrawn and the writ of certiorari that brought the case to the court quashed as improvidently granted. The court’s action reinstated the lower court’s opinion dismissing the claim of tortious interference. Nevertheless, in light of Holt v. First Nat’l Bank of Mobile, 418 So. 2d 77 (Ala. 1982), the court may recognize the tort in a later case.
• TORTIOUS INTERFERENCE WITH EXPECTANCY RIGHTS: Arkansas refuses to recognize the tort. Having failed to invalidate her mother’s will on the grounds of undue influence and lack of capacity, a daughter instituted an action based on tortious interference with her expectancy rights. In Jackson v. Kelly, 44 S.W.3d 328 (Ark. 2001), the court refused to recognize a cause of action and create a new tort because the daughter had an adequate remedy in the probate court.
• TRUST ACCOUNT: Invalid trust account deemed effective as traditional trust. A decedent opened a savings account and simultaneously executed a trust agreement creating a revocable trust of the account with herself as trustee. She named her three sons as beneficiaries, but only one son survived. The court in Bland v. Branch Banking & Trust Co., 547 S.E.2d 62 (N.C. Ct. App. 2001), held that the agreement did not create a valid trust account because it failed to comply with statutory requirements. It did, however, create a valid traditional trust by transferring a present interest to the beneficiaries, which on their deaths prior to the decedent passed through their estates.
• TRUSTS: Trust not revocable merely because the heirs were the remainder beneficiaries. A special needs trust was established for a beneficiary with the proceeds of a medical malpractice settlement. The trust contained the provisions required by 42 U.S.C. § 1396p, including reimbursement to the state when the trust terminates. The trust created a remainder in the beneficiary’s “heirs at law” defined by reference to the state’s intestacy statute. SSI benefits were denied on the ground that the trust was actually revocable because the remainder in the heirs invoked the doctrine of worthier title. The court held that the intention to create a special needs trust prevailed and that the trust was irrevocable. Lanoue v. Commissioner, Social Sec. Admin., 774 A.2d 1236 (N.H. 2001).
• VALUATION: Partnership’s right to lottery payments is valued using private annuity actuarial tables. The decedent and her former sister-in-law won the Texas lottery and transferred their interests into a limited partnership. Upon the decedent’s death, a dispute arose as to the correct valuation of the decedent’s partnership interest. The court in Estate of Cook v. Commissioner, T.C. Memo. 2001–170, held that the partnership interest should be valued by using the annuity tables in the regulations, not by appraisal.
RULINGS AND REGULATIONS
• CHARITABLE LEAD TRUST: Sale by estate of property to family limited liability corporation with proceeds going into CLAT is not a prohibited self-dealing transaction. PLR 200124029.
• CHARITABLE REMAINDER TRUST: Income beneficiary recognizes long-term capital gain when income interest in CRUT is sold to remainder beneficiary. PLR 200127023.
• ESTATE TAX RETURNS: Final regulations regarding application for automatic six-month extension of time to file estate tax return issued. A person desiring an extension must file Form 4768; an extension is not automatic. T.D. 8957.
• FAMILY LIMITED PARTNERSHIP: Formula clause that allocates increase in value to the charitable donee’s interest to reduce transfer taxes ineffective for federal tax purposes. FSA 200122011.
• MARITAL DEDUCTION: Distributions to the surviving spouse resulting from a bona fide settlement of a will contest action qualifies for the marital deduction. PLR 200127027.
• QTIP ELECTION: IRS agrees to ignore QTIP election if the election is not needed to reduce estate tax. This procedure applies to elections whenever made, and thus affected taxpayers may apply for a refund provided the statute of limitations has not run. Rev. Proc. 2001-38.
• RETIREMENT PLANS: Model pension plan amendment to comply with minimum distribution rules announced. Announcement 2001-82.
• SPLIT GIFTS: Gift splitting allowed on transfer in trust to extent of hanging Crummey powers for children even though the spouse is also a potential beneficiary. PLR 200130030.
• Construction. For an update on judicial trends, see Charles A. Redd, Recent Case Law Development in Will and Trust Instrument Construction, Tr. & Est. 34 (May 2001).
• Family Limited Partnerships. Joseph R. Oliver & Charles A. Granstaff discuss how to Avoid Tripping on [the] Family Limited Partnership Trap, 65 Prac. Tax. Strategies 268 (2001).
• Fiduciary Surcharge. Dominic J. Campisi & Patrick J. Collins explore the pros and cons of using Index Returns as a Measure of Damages in Fiduciary Surcharge Cases, Tr. & Est. 18 (June 2001).
• Fiscal Responsibility Training. For financial planning for children that involves teaching them the social and financial responsibilities that come with such wealth, read Helene W. Stein & Marcia C. Brier’s article Raising Responsible Children of Wealth, Tr. & Est. 42 (June 2001).
• Individual Retirement Accounts. E. Frank Stephenson & Doug Waddle elucidate the differences between traditional and Roth IRAs in A Reexamination of the Tax Effects of Traditional and Roth IRAs, 2001 Det. C. L. Rev 139 (2001).
• Inter Vivos Trusts. Pamela Lopata examines the legality of multidisciplinary firms that craft living trusts in Can States Juggle the Unauthorized and Multidisciplinary Practices of Law?: A Look at the States’ Current Grapple with the Problem in the Context of Living Trusts, 50 Cath. U.L. Rev. 467 (2001).
• Powers of Attorney—Illinois. James F. Dunneback evaluates the POA Act Amendments: The Revised Statutory Short Form, 89 Ill. B.J. 367 (2001).
• Spendthrift Trusts. Jeffrey T. Getty discusses the effectiveness of self-settled spendthrift trusts in Federal Estate and Gift Tax Issues with Domestic Protection Trusts, Tr. & Est. 45 (June 2001).
• Testamentary Capacity. Lawrence A. Frolik explores The Strange Interplay of Testamentary Capacity and the Doctrine of Undue Influence—Are We Protecting Older Testators or Overriding Individual Preferences?, 24 Int’l J.L. & Psychiatry 253 (2001).
• Trusts. Pressures to make profits and the ethical duties of fiduciaries collide in Dominic J. Campisi’s Competence and the Duty of Impartiality, Tr. & Est. 45 (May 2001).
• Colorado enhances notice requirements for persons holding title to property in a representative capacity, including trustees. 2001 Colo. Legis. Serv. ch. 134.
• Colorado revises will formalities and expands court’s dispensing power over noncomplying wills. 2001 Colo. Legis. Serv. ch. 249.
• Connecticut authorizes virtual representation of trust beneficiaries. 2001 Conn. Legis. Serv. P.A. 01-69.
• Delaware creates procedure for trustees to convert income trusts into total return unitrusts. 2001 Del. Laws ch. 48.
• Kansas updates standards for investments by fiduciaries. In addition, a trustee of a revocable trust has no liability for following the directions of the settlor or someone to whom the settlor has delegated the power to direct the trustee. 2001 Kan. Sess. Laws ch. 75.
• Louisiana modernizes trust law. For example, a settlor may delegate the power to revoke the trust; the court may remove a corporate trustee from office if it determines it is in the best interests of the beneficiaries even if there is no breach of trust; a trustee may adjust between principal and income; and a settlor may no longer create class trusts for unlimited generations. 2001 La. Sess. Law. Serv. Acts 520 & 594.
• Nevada authorizes electronic wills and trusts. In groundbreaking legislation, Nevada permits testators and settlors to create wills and trusts that are written, created, and stored purely in electronic format. 2001 Nev. Stat. ch. 458.
• North Dakota exonerates trustees of life insurance trusts from liability for retaining policies and not diversifying. 2001 N.D. Laws ch. 272.
• Oregon creates procedure for claims against inter vivos trusts. 2001 Or. Laws ch. 593.
• Texas authorizes minor’s guardian to seek court approval of arts and entertainment, advertisement, and sports contracts that will bind minor past age of majority. 2001 Tex. Sess. Law Serv. ch. 799.
• Texas codifies duty of agent under a durable power of attorney to account. 2001 Tex. Sess. Law Serv. ch. 1056.
• Texas enacts Uniform Parentage Act. 2001 Tex. Sess. Law Serv. ch. 821.
• Texas expands categories of individuals to whom an attorney may leave a client’s property without having the gift automatically voided. 2001 Tex. Sess. Law Serv. ch. 527.
• Texas revamps computation of claim of benefited spouse’s marital estate for economic contribution from the contributing spouse’s marital estate, which arises upon death. 2001 Tex. Sess. Law Serv. ch. 838.
• Washington extends Rule Against Perpetuities period to 150 years from the effective date of the trust. 2001 Wash. Legis. Serv. ch. 60.