P R O B A T E & P R O P E R T Y
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P R O B A T E & P R O P E R T Y
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Keeping Current - Probate
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.
AMBIGUITY: Naming children removes ambiguity . In Article II of his will, the decedent gave his personal property to his children and further stated that he currently had two children. In fact, the named individuals were the children only of his second marriage; he omitted his two children by his first marriage. In Article III he left the residue of his estate to his children. The children by his first marriage contended that the will contained a latent ambiguity and that they should be included in the Article III gift. The court in In re Estate of Hurst, 769 N.E. 2d 55 (Ill. App. Ct. 2002), held that no ambiguity existed. “Children” is not a term of art and the naming of beneficiaries is sufficient to show the decedent’s intent to disinherit all otherpersons.
CONSTRUCTIVE TRUST: Proof that remainder beneficiary killed life tenant insufficient to justify imposition of constructive trust. The father devised a life estate in a house to his wife with the remainder passing to their two sons. One of the sons killed his mother and was convicted of causing serious bodily injury to an elderly person. The other son rented the house. The killer sued to recover one-half of the rental income based on his status as a tenant in common. The trial court granted a take-nothing summary judgment in favor of the other son. The court in Medford v. Medford, 68 S.W.3d 242 (Tex. App. 2002), reversed, citing state law that provides that a conviction does not cause a corruption of the blood or forfeiture of property. Thus, the only way the innocent son could prevent the killer from receiving a share of the rental income was to demonstrate that a constructive trust should be imposed on the killer’s share of the house because he caused the death of the life tenant. The appellate court held that the criminal conviction alone was not sufficient to support the trial court’s imposition of a constructive trust. The other son failed to present evidence regarding why he should be the beneficiary of the constructive trust and exactly what property over which the constructive trust should be imposed.
FEDERAL TAX LIEN: Husband’s interests in property held as tenants by the entireties with his wife constitutes property or rights to property to which a federal tax lien may attach. The U.S. Supreme Court rejected arguments that 26 U.S.C. § 6321 did not apply to entireties property and determined that it was irrelevant that local law would handle creditors in a different manner. United States v. Craft, 122 S. Ct. 1414 (2002).
INTER VIVOS TRUST: Failure of settlor to formally transfer stock certificates does not invalidate trust. The settlor executed a declaration of trust naming himself as the trustee, specifying beneficiaries, and listing trust property, including shares of stock in various corporations. Settlor never transferred the shares to himself as trustee, but he did place them in a safe deposit box to which he and one of the beneficiaries had a key. Nonetheless, the court in Hatch v. Lallo, C.A. No. 20642, 2002 WL 462862 (Ohio Ct. App. Mar. 27, 2002), held that the trust was valid and that the shares were trust property because the settlor’s actions were sufficient to divest himself of an equitable interest in the stock.
LIFE ESTATES: Traceable proceeds belong to remainder beneficiaries. The decedent’s will gave his widow a life estate coupled with an absolute power of disposition. The life tenant harvested timber from the land and placed the proceeds in jointly held certificates of deposit with rights of survivorship and later died. In Williams v. Burgett, No. 1001999, 2002 WL 442718 (Ala. Mar. 22, 2002), the court held that the remainder beneficiaries, not the surviving joint tenants, were entitled to the certificates of deposit because they were directly traceable to the property subject to the life estate.
PENSION PLANS: Proper qualified domestic relations order can serve as renunciation. A decedent’s pension plan listed his ex-wife and current wife as equal beneficiaries. At the ex-wife’s insistence, the decedent entered into a QDRO assigning to ex-wife as her sole property a new annuity created from a lump-sum transfer of 45% of the decedent’s pension accumulations. All parties waived all other interests in each others’ estates, but the decedent never changed the beneficiary designation on file with the plan. The court in Silber v. Silber, 739 N.Y.S.2d 116 (N.Y. App. Div. 2002), held that federal common law determines whether the QDRO acted as a renunciation of the ex-wife’s rights to the pension plan. Because the waiver was explicit, voluntary, and made in good faith, it was deemed effective.
SELF-PROVING AFFIDAVIT: Nonstandard affidavit that substantially complied with statutory form deemed effective. A testator executed a will naming two of his nieces and nephews as the primary beneficiaries. The testator’s seven other nieces and nephews contested the will on several grounds including failure to comply with the formalities of a valid will. In Estate of Graham, 69 S.W.3d 598 (Tex. App. 2001), the court held that although the self-proving affidavit was not in the statutorily prescribed form, it was subscribed and acknowledged by the testator and subscribed and sworn to by the witnesses and thus it was in substantial compliance. The will was deemed valid because the self-proving affidavit acted as prima facie evidence of the will’s proper execution and the contestants presented no evidence to rebut the affidavit.
STOCK GIFTS: Circumstances rebutted presumption that a gift of a stated number of shares of stock is a general bequest. Under the will of her predeceased husband, a widow had received 400 shares of Standard Oil stock. The gift was accompanied by precatory language asking her to give the 400 shares to his daughter when she died if she did not need them during her life. The widow’s will gave 400 shares of the capital stock of Standard Oil to her stepdaughter. By the time the widow died, the company had renamed itself Exxon and stock splits had greatly increased the number of shares. In Polson v. Craig, No. 3474, 2002 WL 519490 (S.C. Ct. App. Apr. 8, 2002), the court held that the circumstances under which the decedent received the shares overcame the presumption in favor of a general bequest. Thus, the gift of stock was deemed specific and the stepdaughter was entitled to all the shares received through the stock splits.
TESTAMENTARY SUBSTITUTES: Direction to take at death ineffective. The decedent directed his daughter to redeem savings bonds in his name, deposit the proceeds in a joint account in both their names, use the proceeds to care for him during life, and then retain any funds remaining at his death. In In re Estate of Clouse, 739 N.Y.S.2d 470 (N.Y. App. Div. 2002), the court held that the funds remaining in the account at the decedent’s death were property of his estate. The daughter did not sustain her burden of proving that the decedent made an irrevocable present transfer of his ownership of the funds.
TRUST ACCOUNTS: State statute provides only method of revocation . A decedent created several trust accounts for his wife. The separation agreement that preceded their divorce stated that all bank accounts had been distributed equitably. The decedent never changed the beneficiary of the trust accounts. The court in Eredics v. Chase Manhattan Bank, N.A., 739 N.Y.S.2d 175 (N.Y. App. Div. 2002), held that the applicable state statute, which requires that a revocation of a trust account must name the beneficiary and the financial institution, was the only revocation method. Accordingly, the separation agreement was not an effective revocation and the ex-wife was entitled to the funds.
VALUATION: Stock held in different capacities aggregated for estate tax valuation purposes. A taxpayer owned stock in a particular corporation outright. Stock in the same corporation was also subject to a testamentary general power of appointment held by taxpayer. The court in Estate of Fontana v. Commissioner, 118 T.C. 318 (2002), held that the shares must be aggregated for federal estate tax valuation purposes.
RULINGS AND REGULATIONS
CHARITABLE REMAINDER UNITRUSTS: CRUT may pay unitrust amounts to separate trust for benefit of a financially disabled individual. Rev. Rul. 2002-20.
FAMILY LIMITED PARTNERSHIPS: No discount for gift tax valuation purposes when marketable municipal bonds transferred to FLP. TAM 200212006.
GENERATION-SKIPPING TRANSFER TAX: Contingent right of nonskip person to receive property from a trust if all skip persons die first is a future right and not an interest. Accordingly, all trust interests were held by skip persons and the transfers from the decedent’s revocable trust that were includable in her gross estate and subject to estate tax were also subject to GST tax. TAM 200215001.
GENERATION-SKIPPING TRANSFER TAX: Splitting of grandfathered GST trusts to provide for higher payout to higher generation beneficiaries did not trigger GST tax. PLRs 200217036 & 200217037.
GIFT SPLITTING: Split gift technique allowed despite one spouse ’ s interest in trust (donee). PLR 200218001.
GROSS ESTATE: Life insurance on life of general partner payable to the partnership is not includable in general partner ’ s gross estate as insurance. PLR 200214028.
QTIP ELECTION: No extension of time to change QTIP election. On the death of the first spouse, the executor made a 100% QTIP election for the marital trust although not fully needed to eliminate estate tax. The IRS refused to allow a partial election after the surviving spouse died. PLR 200219003.
QUALIFIED RETIREMENT PLANS: Amendments necessary in 2003 to comply with new minimum distribution rules. Most plans will need to be amended by the last day of the first plan year beginning on or after January 1, 2003. The IRS supplied model plan amendments for defined contribution plans and defined benefit plans to simplify the amendment process. Rev. Proc. 2002-29.
CERCLA. In State Environmental Legislation and the Innocent Landowner Defense: When Should CERCLA Preempt Nonclaim Statutes?, 10 Penn St. Envtl. L. Rev. 55 (2001), Todd S. McGarvey details and comments upon CERCLA.
Intentional Interference with Expectation of Inheritance. Diane J. Klein explores the up-and-coming tort of intentional interference with expectation of inheritance as a viable alternative to a will contest in Revenge of the Disappointed Heir: Tortious Interference with Expectation of Inheritance—A Survey with Analysis of State Approaches in the Fourth Circuit, 104 W. Va. L. Rev. 259 (2002).
Pending Divorce. In Recent Development: Death and the Partnership Principle: Interpreting Recent Abatement Amendments to North Carolina’s Equitable Distribution Act, 80 N.C. L. Rev. 1089 (2002), Elizabeth P. Miller discusses recent amendments to the Equitable Distribution Act and how they affect couples when one party dies before distribution.
Principal and Income. Ronald R. Volkmer discusses recently enacted principal and income legislation and how it compares to previous Nebraska law in Nebraska’s Updated Principal and Income Act: Apportioning, Allocating, and Adjusting in the New Trust World, 35 Creighton L. Rev. 295 (2002).
Tenancy by the Entirety. Recent Illinois legislation is discussed in Law Pulse: A New Law Makes Tenancy by the Entirety Easier, 90 Ill. B.J. 170 (2002).
Valuation. Wendy C. Gerzog argues in Ithaca Trust and Section 2053: Smith, McMorris , and O’Neal, 95 Tax Notes 570 (Apr. 22, 2002), that the U.S. Supreme Court case of Ithaca Trust Co. v. United States, 279 U.S. 151 (1929), should be interpreted as holding that the facts subsequent to the decedent’s death are irrelevant to determining valuation only when Congress has required that the date of death valuation be made by reference to actuarial tables.
Will Reformation. Pamela R. Champine examines some modernizations of estate planning and the impact on will reformation in My Will Be Done: Accommodating the Erring and the Atypical Testator, 80 Neb. L. Rev. 387 (2001).
Arizona modernizes rules regarding taxation of estates and trusts. 2002 Ariz. Legis. Serv. ch. 130.
Colorado increases the amount of the cash value from life insurance that is exempt from attachment by creditors to $50,000. 2002 Colo. Legis. Serv. ch. 186.
Connecticut adjusts principal and income rules. 2001 Conn. Legis. Serv. P.A. 01-68.
Connecticut authorizes virtual representation in certain trust situations . 2001 Conn. Legis. Serv. P.A. 01-69.
Kansas is first state to enact Uniform Trust Code. 2002 Kan. Sess. Laws 145.
Maine enacts Uniform Principal and Income Act . 2002 Me. Legis. Serv. ch. 544.
Pennsylvania enacts Uniform Principal and Income Act. 2002 Pa. Legis. Serv. Act 2002-50.
Washington amends legislation regarding federal estate tax benefits for conservation easements. 2002 Wash. Legis. Serv. ch. 66.
Washington enacts Uniform Principal and Income Act . 2002 Wash. Legis. Serv. ch. 345.
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: Dave L. Cornfeld, Christian J. Hack, William P. LaPiana, and Alicia Pierce.