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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.
DISCLAIMER: Disclaimed IRA passes as non-probate property even though beneficiary designated by will. A husband designated beneficiaries for his IRA but also gave the IRA to his wife in his will. After the husband’s death, the beneficiaries and contingent beneficiaries disclaimed their interests in the IRA and the wife claimed the IRA as the beneficiary of the specific bequest in the will. The wife asserted she was entitled to the IRA as well as 30% of the estate’s cash remaining after the payment of debts under another provision of the will. The court in McInnis v. McInnis, 560 S.E.2d 632 (S.C. Ct. App. 2002), held that the disclaimer was effective as of the creation of the IRA and the designation of the wife in the will as the recipient of the IRA was actually a pay on death designation. Accordingly, the wife was entitled to the IRA proceeds as well as to the bequest of cash.
ESTATE TAX: Stock held in various ways aggregated for valuation purposes. The decedent died holding rights in stock in two ways: outright and subject to a general power of appointment. The court in Estate of Fontana v. Commissioner, 118 T.C. No. 16 (2002), held that the shares must be combined when valuing the stock for estate tax purposes. The court refused to extend the doctrine of Estate of Mellinger v. Commissioner, 112 T.C. No. 26 (1999), which did not aggregate the ownership of outright holdings with those held in a QTIP trust.
GIFT TAX: Gifts of ownership units in a limited liability company not eligible for the annual exclusion if the donees do not receive a present economic benefit. Two donors transferred interests in a limited liability company to their children. Under the terms of the agreement governing the operation of the company, the donees were not going to receive any income for a significant period. Accordingly, the court in Hackl v. Commissioner, 118 T.C. No. 14 (2002), held that the annual exclusion was not available because the donees did not receive a present interest that had a present economic benefit.
INTESTACY: Surviving wife who was born as a male is not entitled to inherit from deceased husband. A husband died intestate survived by his wife and child. The court in In re Estate of Gardiner, 42 P.3d 120 (Kan. 2002), held that the wife was not entitled to inherit under state intestacy laws because she had not been born as a female. Instead, the wife had been born as a male and had sex reassignment surgery years before her marriage. The court determined that sex is determined at birth and may not be surgically changed. Accordingly, the marriage was invalid because local law forbids same sex marriages, preventing the wife from inheriting as a surviving spouse.
MALPRACTICE: Statute of limitations begins to run when the settlor of a revocable trust dies. An Illinois statute provides that an action for malpractice against an attorney must be brought within two years of discovery of the injury and in no event more than six years after the act or omission occurred, except that when the injury does not occur until the death of the client, an action may be commenced within two years of death. In Petersen v. Wallach, 764 N.E.2d 19 (Ill. 2002), the court held that the two years after death rule applies irrespective of the form in which the decedent’s assets pass, whether by will, inter vivos trust, or otherwise.
POWER OF ATTORNEY: Power to create trust does not include power to change beneficiaries . A decedent executed a power of attorney naming his daughter as his agent. The power of attorney granted the daughter the power to make, create, revoke, and modify trusts but not the power to change the beneficiary designations. The daughter transferred the decedent’s house to a trust under which she received a life estate in the house with the remainder to pass to the decedent’s grandchildren. Under the decedent’s will, the house was to be equally divided among his four children. In Schubert v. Reynolds, 115 Cal. Rptr. 2d 285 (Cal. Ct. App. 2002), the court held that the grant of the power to create a trust without the power to change beneficiaries invalidated the trust.
PROFESSIONAL RESPONSIBILITY: Personal representative’s attorney is not liable to successor . The successor personal representative sought to bring a malpractice action on behalf of the estate against the predecessor personal representative’s attorneys. The court in Borissoff v. Taylor & Faust, 117 Cal. Rptr. 2d 138 (Cal. Ct. App. 2002), held that the successor personal representative lacked standing. A personal representative’s attorney does not represent the beneficiaries and cannot be liable to the estate. Instead, the attorney’s potential liability is only to the personal representative.
PROFESSIONAL RESPONSIBILITY: Principal is not necessarily a client of the attorney hired by the agent. In response to a question certified by a U.S. district court, the court in Estate of Keatinge v. Biddle, 789 A.2d 1271 (Me. 2002), held that mere retention of a lawyer by an agent does not create an attorney-client relationship between the lawyer and the principal.
TRUSTS: Trustee has no obligation to account to remainder beneficiaries . In In re Malasky, 736 N.Y.S.2d 151 (N.Y. App. Div. 2002), the court held that the remainder beneficiaries of a revocable inter vivos trust had no standing to object to the account of the trustees for the period during which the trust was revocable because they had no pecuniary interest in the trust during that period.
WILLS: Date placed by notary on holographic will did not destroy will’s holographic character . Louisiana law requires that a holographic will be entirely handwritten as well as being signed and dated by the testator. In In re Succession of Aycock, 809 So. 2d 1185 (La. Ct. App. 2002), the court upheld the validity of a notarized holographic will that was dated by the notary in the testatrix’s presence, citing the strong evidence of her desire to make the document her will.
WILLS: Gift of property “received” includes only property the testator received before death. A testator gave the children of his child by his first wife all the property he “received” from his wife’s estate. As of the time of his death, the testator had given away all the property he had received from his wife’s estate. His estate received a further distribution after his death. In In re Estate of Clark, 2002 WL 253893 (Ohio Ct. App. 2002), the court held that the word “received” is unambiguous. Accordingly, extrinsic evidence could not be admitted, and the property that was distributed to the testator’s estate after his death would pass as part of his residue.
RULINGS AND REGULATIONS
DISCLAIMER: Renunciation of income interest in pre-1982 trust pursuant to agreement that remainder beneficiaries will pay all gift and income taxes that result causes realization of income. PLR 200210018.
GIFT TAX: Fraud on husband’s part not attributable to wife with regard to split gifts. A husband and wife made gifts of closely held stock and filed split gift tax returns. The IRS strongly suspected that the husband fraudulently undervalued the stock. In C.C.A. 2002-05-027, the chief counsel determined that there was no fraud on the wife’s part and that the normal three-year limitations period would apply to an action against her. The case of spouses who sign joint income tax returns was distinguished because with joint income tax returns there is only one tax liability and one tax return, so a different period of limitations cannot apply to each spouse. With split gifts, however, there are two taxpayers, each of whom reports a separately computed gift tax liability on a separate return, and a different limitations period may apply to each spouse.
GIFT TAX: Spousal joint revocable trust causes gift on death of first spouse to die. A husband and wife created an inter vivos revocable trust that under its terms would become irrevocable when the first spouse dies. When the first spouse dies, the survivor will be treated as making a completed gift of the survivor’s interest. Nevertheless, Code § 1014(e) will apply to prevent step up of the basis of assets provided by the surviving spouse. PLR 200210051.
INCOME TAX: Personal use of frequent flier miles earned from business travel will not trigger income tax. I.R.S. Announcement 2002-18.
Asset Protection Trusts. For a look at how a creditor’s rights are affected by self-settled asset protection trusts, read Robert T. Danforth’s article Rethinking the Law of Creditor’s Rights in Trusts, 53 Hastings L.J. 287 (2002).
Charitable Foundations. Wendy A. Lee discusses how making better use of cy pres when the donor’s intent is frustrated can make for a more efficient use of the donor’s gift in Charitable Foundations and the Argument for Efficiency: Balancing Donor Intent with Practicable Solutions Through the Expanded Use of Cy Pres, 34 Suffolk U. L. Rev. 173 (2000).
Charitable Remainder Trusts. Learn some lessons from a defeated charitable remainder trust that could not be reformed in Conrad Teitell’s If It’s Broke Sometimes You Can’t Fix It, Tr. & Est. 44 (Mar. 2002).
Child Support. Elizabeth Zarek Jorgenson comments on the effects of Pennsylvania’s forcing heirs to use inheritances to pay child support in Forcing the Heir to Share: The Effect of Cash Inheritance on Child Support Obligations, 105 Dick. L. Rev. 289 (2001).
Family Representation. Richard W. Painter discusses important professional responsibility issues in Contracting Around Conflicts in a Family Representation: Louis Brandeis and the Warren Trust, 8 U. Chi. L. Sch. Roundtable 353 (2001).
Fiduciary Representation . Representing a disabled client can raise ethical issues when the guardian is involved, as Patrick Emery Longan explains in Middle-Class Lawyering in the Age of Alzheimer’s: The Lawyer’s Duties in Representing a Fiduciary, 70 Fordham L. Rev. 901 (2001).
Florida. Eloisa C. Rodriguez-Dod explains recent changes to Florida’s Probate Code and how they affect spousal elective share and trust administration in The 2001 Survey of Florida Law: Estates and Trusts, 26 Nova L. Rev. 37 (2001).
Ghana. Jeanmarie Fenrich and Tracy E. Higgins discuss the findings of a year-long study on how women take property by inheritance in Ghana in Promise Unfulfilled: Law, Culture, and Women’s Inheritance Rights in Ghana, 25 Fordham Int’l L.J. 259 (2001).
Life Insurance Trusts. For a detailed description of the pitfalls of life insurance trusts, read Lawrence J. Rybka’s Insurance Policy Selection for Irrevocable Life Insurance Trusts: New Challenges for Trustees and Advisors, Tr. & Est. 44 (Feb. 2002).
Mediation. Mary F. Radford explains the pros and cons of mediation in Advantages and Disadvantages of Mediation in Probate, Trust, and Guardianship Matters, 1 Pepp. Disp. Resol. L.J. 241 (2001).
Mediation—Will Contests. Requiring mediation of will contests can prevent waste of assets and promote harmony among beneficiaries as Lela Porter Love explains in Mediation of Probate Matters: Leaving a Valuable Legacy, 1 Pepp. Disp. Resol. L.J. 255 (2001).
Posthumously Conceived Heirs. A recently decided case in Massachusetts allows posthumously conceived children to be heirs, as Christopher Weems explains in Posthumously Conceived Children Can Be Heirs, Tr. & Est. 56 (Feb. 2002).
Alabama enacts Preneed Funeral and Cemetery Act. 2002 Ala. Acts 4.
Idaho revises Anatomical Gift Act. 2002 Idaho Sess. Laws 171.
Indiana enacts Uniform Principal and Income Act. 2002 Ind. Legis. Serv. P.L. 84-2002.
Maine enacts Uniform Principal and Income Act. 2002 Me. Legis. Serv. 544.
Ohio enacts Uniform Simultaneous Death Act. 2002 Ohio Laws File 90.
South Carolina relaxes requirements relating to the execution by a personal representative of a deed of distribution from a decedent’s estate. 2002 S.C. Acts 174.
South Dakota amends provisions relating to court actions involving trusts. 2002 S.D. Laws 206.
South Dakota revises certain terms used in its version of the Uniform Probate Code. 2002 S.D. Laws 173.
Virginia updates rules applicable to the incorporation by reference of documents into a will, power of attorney, or trust. 2002 Va. Acts ch. 119.
Washington enhances ability of citizens to obtain federal estate tax benefits for donations of conservation easements. 2002 Wash. Legis. Serv. 66.
West Virginia revised law relating to the administration of estates, especially with regard to the duties of the county clerk and providing notices. 2002 W. Va. Acts 321.
Keeping Current—Probate Editor: Professor Gerry W. Beyer, St. Mary’s University School of Law, One Camino Santa Maria, San Antonio, TX 78228-8603, gwb@ProfessorBeyer.com. Contributors include Mark A. Cevallos, Dave L. Cornfeld, William P. LaPiana, and Linda T. Ngo.