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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 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, Erik C. Greiner, William P. LaPiana, and Meribeth Novak.
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: Adult adoptee takes as trust beneficiary. A settlor created trusts for his adopted son (his wife’s brother) and his two sons (thesettlor’s grandsons by adoption) with the remainder to their issue. The settlor did not, however, make any provision for his adopted son’s daughter, stating that he anticipated that his adopted son would provide for her. Later, one of the grandsons adopted an adult child of the excluded daughter. The court found that this adult adoptee could take as a remainder beneficiary and that the trustee could not inquire into the circumstances of the adoption. In re Trust Created Under Agreement with Lane, 660 N.W.2d 421 (Minn. Ct. App. 2003).
DELIVERY OF DEED: Transfer of deed to sole owner of corporation to be filed after donor’s death deemed sufficient delivery. The settlor declared a trust that included the settlor’s residence. In 1977, the settlor in both his individual and representative capacities signed a deed conveying the residence to a corporation wholly owned by his wife. Thesettlor gave the deed to his wife but told her not to record it until he died. Twenty years later, the wife’s child by a prior marriage heard rumors that the settlor wanted his wife to return the deed. The child found the deed and gave it to an attorney for safekeeping. The settlor filed a copy of the deed and an affidavit explaining that he had not delivered the deed and that the deed was void. After the settlor’s death, the original deed was properly filed. The court in Rothrock v. Rothrock, 104 S.W.3d 135 (Tex. App. 2003), held that the delivery was adequate and that the beneficiaries could not recover the property for the trust. There was no evidence that the settlor reserved the right to recall the deed. The evidence conclusively established that thesettlor intended to convey to the grantee corporation a future interest in the residence contingent on the settlor predeceasing his wife. Delivery of the deed, albeit to a third party, was effective as a matter of law. The settlor could not undo the transaction.
INHERITANCE TAX: Inheritance tax constitutional despite different rates based on relationship of heir or beneficiary to the decedent. Estate of Robitaille v. New Hampshire Dep’t of Rev. Admin., 827 A.2d 981 (N.H. 2003).
NONPROBATE PROPERTY: Capacity to change beneficiaries is the same as for entering into original contract. In deciding Estate of Marquis, 822 A.2d 1153 (Me. 2003), the court held that the level of capacity necessary to change the beneficiary of an annuity contract is the same as that needed to validly enter into the initial contract.
PENSION PLANS: Waiver of rights deemed valid under federal common law. A husband and wife divorced. In an agreement incorporated in the divorce decree, the wife waived any interest in the husband’s pension plans. The husband died thirteen years later, having remarried but not having changed the beneficiary of the plan from his former wife. In Keen v. Weaver, No. 01–0447, 2003 WL 21467100 (Tex. June 19, 2003), the court held that state law revoking beneficiary designations of a spouse on divorce was preempted by ERISA but that the former wife’s waiver was enforceable under federal common law.
POWER OF ATTORNEY: Agent ’ s failure to use authority does not prevent fiduciary relationship. The principal named his fiancée as his agent in a durable power of attorney. The agent was aware of this appointment but she never acted under the power. After the principal’s death, his family challenged the validity of several transfers of property made by the principal to his agent. The court in Vogt v. Warnock, 107 S.W.3d 778 (Tex. App. 2003), held that the transfers were not the product of undue influence even though a fiduciary relationship arose between the principal and the agent as a matter of law upon the execution of the durable power.
PROFESSIONAL RESPONSIBILITY: Drafting attorney has no duty to the beneficiary to ascertain the testamentary capacity of the testator. Two days before his death, the client executed amendments to his inter vivos trust that radically changed his estate plan. The disappointed beneficiaries sued alleging lack of capacity and eventually settled for the portion of the property they would have received under the original plan. They then sued the attorney who drafted the amendments alleging that he should have investigated and documented the client’s capacity. In Moore v. Anderson Zeigler Disharoon Gallagher & Gray, 135 Cal. Rptr. 2d 888 (Cal. Ct. App. 2003), the court held that the attorney owes no duty to a beneficiary to investigate and document a client’s testamentary capacity.
TESTAMENTARY TRUSTS: Reformation for tax reasons allowed. The court in In re Harris Testamentary Trust, 69 P.3d 1109 (Kan. 2003), applied the local version of the Uniform Trust Code to reform a testamentary trust created in 1969 to(1) create an ascertainable standard for a power to invade principal held by a trustee/beneficiary, (2) change the word “shall” to “may” in the criteria for exercising the power, and(3) allow the division of the trust into subtrusts for which a QSST election may be made. The court analyzed the testator’s intent regarding taxes along with the testimony of the drafter of the trust to support these tax reduction steps. Everyone holding interests in the trust supported the reformation.
TRUST BANK ACCOUNTS: Separation agreement is not a waiver. A husband maintained five trust accounts with his wife as the beneficiary. After their divorce, the husband did not change the beneficiary designations on the accounts. At the time of the divorce, the spouses had waived all rights to all bank accounts not divided by the agreements along with making general waivers. After the husband died, the wife claimed the accounts. The court held (1) that the state statute only applied to revocations by the donor; (2) that a beneficiary could waive his or her rights without reference to the statute so long as the waiver is explicit, voluntary, and made in good faith; and(3) that the waiver the wife made as part of the divorce was not sufficiently explicit regarding the trust accounts. Accordingly, the wife may be entitled to the proceeds of the accounts. Eredics v. Chase Manhattan Bank, NA, 790 N.E.2d 1166 (N.Y. 2003).
WILLS: Condition enforced. The testator imposed a condition on all gifts in his will and testamentary trust that “the share of any beneficiary who attempts to place his wife into a nursing home before all estate assets are exhausted” would be forfeited and distributed to the remaining beneficiaries. After the testator died, one of the beneficiaries placed the wife into a nursing home even though there were sufficient funds in the testator’s estate to continue home care. The court in Marion v. Davis, 106 S.W.3d 860 (Tex. App. 2003), held that the condition was valid. The court rejected various assertions by the beneficiary. First, the court held that the condition was not against public policy. Second, the court did not think it was relevant that the beneficiary used his authority as the wife’s court-appointed guardian to place her in the nursing home. Third, the court refused to find that the wife, out of necessity, had to be placed in a nursing home merely because a doctor advised the beneficiary to do so. Fourth, the court held that it would be irrelevant even if the beneficiary could prove he acted in good faith when he placed the wife in the nursing home.
RULINGS AND REGULATIONS
CHARITABLE DEDUCTION: IRS issues final regulations on the charitable deduction. The regulations now conform to Estate of Boeshore v. Commissioner, 78 T.C. 523 (1982), to allow a charitable deduction for charitable annuity and unitrust interests that are preceded by a noncharitable unitrust or annuity. T.D. 9068.
CLT: A settlor’ s retention of the power to change charitable beneficiaries in a charitable lead trust causes estate tax inclusion. PLR 200328030.
CRUT: No constructive sale by donor when CRUT sells stocks subject to right of first refusal if there is no legal obligation to sell. PLR 200321010.
GIFT TAX: IRS issues final regulations treating gifts subject to recovery of gift tax under Code § 2207A as net gifts. T.D. 9077.
QSST: IRS issues final regulations relating to a qualified subchapter S trust election for testamentary trusts under Code § 1361. T.D. 9078.
QTIP ELECTION: Correction of valuation of QTIP assets on supplemental return allowed resulting in zero tax. PLR 200323010.
Accounting. Robert Whitman discusses Fiduciary Accounting After Arthur Andersen and Enron, 16 Q uinnipiac P rob. L.J. 289 (2003), along with the importance of uniform principles.
Child Support Obligations. Christina Donato Saler recommends that child support payments continue to be paid after the parent’s death from the parent’s estate in Pennsylvania Law Should No Longer Allow a Parent’ s Right to Testamentary Freedom to Outweigh the Dependent Child’ s “ Absolute Right to Child Support,” 34 R utgers L.J. 235 (2002).
Durable Power of Attorney. Helen W. Gunnarsson suggests techniques to entice a bank to honor a duly executed power of attorney in Honor Thy POA, 91 Ill. B.J. 330 (2003).
Fiduciary Appointment. In Court-Appointed Fiduciaries: New York’ s Efforts to Reform a Widely-Criticized Process, 77 St. John’ s L. Rev. 29 (2003), Lawrence K. Marks explains New York’s changes in the process of appointing fiduciaries.
Guardianships—Adults. Eleanor M. Crosby and Rose Nathan analyze Georgia guardianship reformmeasures in Adult Guardianship in Georgia: Are the Rights of Proposed Wards Being Protected? Can We Tell?, 16 Q uinnipiac P rob. L.J. 249 (2003).
Guardianships—Elder Individuals. In The Liberty and Property of Elders: Guardianship and Will Contests as the Same Claim, 11 E lder L.J. 1 (2003), Alison Barnes explains that the individual desires of elderly persons are often ignored in favor of the goals of family members.
Mediation. Ray D. Madoff’s article Lurking in the Shadow: The Unseen Hand of Doctrine in Dispute Resolution, 76 S. Cal. L. Rev. 161 (2002), contains a section explaining why mediation has not gained significant popularity in resolving will disputes.
Medicaid. Janel C. Frank discusses the obligation of estates to repay Medicaid in How Far Is Too Far? Tracing Assets in Medicaid Estate Recovery, 79 N.D. L. R ev. 111 (2003).
Offshore Rabbi Trusts. Beckett G. Cantley discusses The New Congressional Attack on Offshore Rabbi Trusts, 5 Or. Rev. Int’ l L. 5 (2003).
Retirement Income. Daniel Halperin recommends tougher standards and government subsidies to help low- and moderate-income workers in Employer-Based Retirement Income— The Ideal, the Possible, and the Reality, 11 E lder L.J. 37 (2003).
Rule Against Perpetuities. Dynasty Trusts and the Rule Against Perpetuities, 116 H arv. L. R ev. 2588 (2003), are reviewed from both practical and academic perspectives.
Slayer Statutes. Callie Kramer discusses whether the heirs of a killer should also be precluded from inheriting as a consequence of the killer’s wrongful act in Guilty by Association: Inadequacies in the Uniform Probate Code Slayer Statute, 19 N.Y. L. S ch. J. H um. R ts. 697 (2003).
Sport Franchises. John R. Dorocak explains the effect of the estate tax on sports club owners in Tax Advantages of Sports Franchises: Part II— Estate Planning, 13 Seton Hall J. Sport L. 1 (2003).
State Death Taxes. Mark J. Schnitzler explains how the Connecticut probate courts are planning for revenue reduction because of the repeal of the succession tax in Will Money Kill the Court with a Heart?, 16 Quinnipiac Prob. L.J. 316 (2003).
Alaska enacts trust protector legislation and revises the rights of the settlor ’ s creditors to set aside trust transfers. 2003 Alaska Sess. Laws 138.
Alaska adopts the Revised Uniform Principal and Income Act. 2003 Alaska Sess. Laws 145.
California prohibits a spouse from obtaining life insurance in excess of $50,000 on the other spouse unless the insured spouse either (1) signs the policy or (2) is given appropriate notice. 2003 Cal. Legis. Serv. 115.
Delaware reaffirms that it has abolished the Rule Against Accumulations as well as the Rule Against Perpetuities. 2003 Del. Laws. 102.
Maine creates procedure for family members of the donor of an anatomical gift to override the donor ’ s express intent. 2003 Me. Legis. Serv. 394.
Nevada allows a grantor to convey real property by a deed to become effective at the grantor ’ s death. 2003 Nev. Stat. 409.
Nevada enacts the Uniform Prudent Investor Act and the Revised Uniform Principal and Income Act. 2003 Nev. Stat. 355.
New Hampshire abolishes the Rule Against Perpetuities if the instrument contains safeguards relative to the continued alienability of the property. 2003 N.H. Laws 143.
North Carolina adopts the Revised Uniform Principal and Income Act. 2003 N.C. Sess. Laws 232.
Oregon adopts the Revised Uniform Principal and Income Act. 2003 Or. Laws 279.
Oregon enhances estate statutes. 2003 Or. Laws. 395.
Texas adopts the Revised Uniform Principal and Income Act. 2003 Tex. Sess. Law Serv. 659.
Texas adopts the Uniform Prudent Investor Act. 2003 Tex. Sess. Law Serv. 1103.
Texas permits a contractual will to be established by a nontestamentary written agreement that is binding and enforceable. 2003 Tex. Sess. Law Serv. 1060.
Texas specifies methods that may be used to prove satisfaction of a testamentary gift. 2003 Tex. Sess. Law Serv. 1060.