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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- ProbateKeeping 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: Equitable adoption does not apply to testate estates. The testator divided his residuary estate among his two sons and his stepdaughter, who predeceased him. Her children claimed the protection of the anti-lapse statute, alleging that their mother had been equitably adopted and that the will should be construed to pass their mother’s legacy to them. In In re Estate of Seader, 76 P.3d 1236 (Wyo. 2003), the court held that equitable adoption does not apply to testate estates and that there was no ambiguity in the will that would allow construction.
ADVANCEMENT: An executor who received an advancement has a duty to acknowledge the advancement. The testator gave $50,000 to his son. After the testator died, his daughter sought a declaratory judgment that the gift was an advancement to her brother who was also the executor of their father’s will. In Walters v. Stewart, 588 S.E.2d 248 (Ga. Ct. App. 2003), the court held that the law in effect at the testator’s death governed and that under that law, the advancement could be proved by an acknowledgment signed by the recipient. The son as the executor had a fiduciary duty to make such an acknowledgment if his father intended the gift to be an advancement.
ELECTIVE SHARE: Finding of valid marriage precludes imposition of constructive trust. Litigation over a wife’s will leaving everything to her husband invalidated the document and developed extensive evidence of the husband’s unconscionable conduct during marriage. In an action for the husband’s elective share, the trial court determined that the marriage was valid but imposed a constructive trust on the husband in favor of the wife’s estate. On appeal, the court in Riddell v. Edwards, 76 P.3d 847 (Alaska 2003), held that the existence of a valid marriage gave the husband a right to the elective share that could not be altered by the use of a constructive trust.
INTESTACY: “Reasonably ascertainable” heirs entitled to notice of probate. In In re Estate of Carter, 4 Cal. Rptr. 3d 490 (Cal. Ct. App. 2003), the court addressed for the first time the application of the statutory requirement that an administrator give notice to every known or reasonably ascertainable heir. The court held that the petitioner for letters of administration was required to give notice to two purported heirs because the petitioner knew that the decedent cohabited with the mother of the purported heirs and that the decedent had thought of them as his children.
NO CONTEST CLAUSE: In terrorem clause applies separately to a codicil. The decedent’s will contained an in terrorem clause expressly including contests of future codicils. The beneficiary adversely affected by the codicil sought a construction of the in terrorem clause before the probate of the will. The court in In re Estate of Martin, No. 323871, Dec. No. 811, 2003 WL 22427106 (N.Y. Sur. Ct. Oct. 17, 2003), held that the beneficiary was entitled to have the clause construed to determine the effect of the in terrorem clause before the court determines the validity of the codicil.
POWER OF APPOINTMENT: Requirement that power of appointment be exercised by will requires probate of exercising will. In a dispute over a family trust, the trustee contended that the state statute recognizing nonprobate transfers meant that the exercise of a testamentary power of appointment should be given effect even though the codicil purporting to exercise the power was not admitted to probate. In In re Estate of Scott, 77 P.3d 906 (Colo. Ct. App. 2003), the court held that when the power of appointment must be exercised by will, the document exercising the power must be admitted to probate.
POWER OF ATTORNEY: Indirect benefit to the agent is constructive fraud. The decedent’s agent transferred funds from pay on death accounts to accounts in the decedent’s name, knowing that as a beneficiary of the decedent’s will he would benefit from the resulting increase in the probate estate. Because the power of attorney did not authorize self-dealing and the lack of any reason that the transfers would have been in the decedent’s interest, the court in Crosby v. Luehrs, 669 N.W.2d 635 (Neb. 2003), held that the agent committed constructive fraud by breaching his fiduciary duty.
PROFESSIONAL RESPONSIBILITY: Failure of the attorney to recommend waiver of elective share deemed proximate cause of loss. A husband and wife wished to disinherit each other so that their estates would pass to their children by previous marriages. The couple’s lawyer did not suggest that the spouses waive their elective share rights. After the wife’s death, the husband successfully asserted his right to a portion of his wife’s estate. In a malpractice action by the wife’s estate, the court in Estate of Gaspar v. Vogt, Brown & Merry, 670 N.W.2d 918 (S.D. 2003), upheld the trial court’s finding that the lawyer’s action was the proximate cause of the estate’s loss based on the court’s conclusion that the husband would have signed a waiver. The court also held that an unconditional waiver would not be contrary to public policy.
TRUSTS: Divorce prevents ex-spouse from receiving income interest as “widow.” The decedent created a lifetime trust that gave the trust income after his death to the woman he married one month after creation of the trust, describing her by name and as his “widow.” The decedent and the beneficiary divorced. In Offerman v. Rosile, 77 P.3d 504 (Kan. Ct. App. 2003), the court held that the term “widow” was unambiguous. Accordingly, the ex-spouse was not the decedent’s widow and therefore had no interest in the trust income.
TRUSTS: Requirement of court approval does not diminish a trustee’s authority. The trustee entered into a purchase agreement to sell real property, which required that the trustee obtain court approval for the sale. While the action for approval was pending, the trustee entered into a second agreement to sell the land. On appeal of the trial court’s decision that the original agreement allowed the court to determine whether that agreement was appropriate under the conditions existing at the time of the hearing, the court in Rock Springs Land and Timber, Inc. v. Lore, 75 P.3d 614 (Wyo. 2003), held that the court was limited to determining whether or not the original purchase agreement was prudent at the time it was entered.
Rulings and Regulations
BASIS: Step-up in basis allowed for real estate acquired by way of option. The testator granted a beneficiary an option to purchase real estate for a fixed price, which was less than the property’s fair market value. The option acquired a new basis at death so that, when exercised, the beneficiary had a basis in the real estate equal to the basis of the option plus the actual price paid. PLR 200340019.
CHARITABLE DEDUCTION: A charitable beneficiary’s Crummey withdrawal power is insufficient to allow the gift tax charitable deduction as well as the annual exclusion. TAM 200341002.
CHARITABLE TRUSTS: IRS issues proposed regulations under Code § 664 to change ordering rules for distributions from CRTs to take into account new rate changes. RIN 1545-AW35.
IRREVOCABLE TRUSTS: IRS acquiesces to Walton v. Commissioner, 115 T.C. 89 (2000). Example 5 of Treas. Reg. § 25.2702–3(e) was deemed invalid so that a retained unitrust interest payable to a taxpayer or to the taxpayer’s estate will be treated as a qualified interest payable for a 10-year term. Notice 2003–72.
MARITAL DEDUCTION: Marital deduction allowed for bequest of nondividend paying stock to QTIP trust. The deduction was allowed because the spouse could, under the terms of the trust, require the trustee to make the asset productive or to convert it into productive assets. TAM 200339003.
VALUATION: Valuation of corporation for alternative valuation must include undistributed corporate earnings during the six-month period after the decedent’s death. TAM 200343002.
Business Trusts. Carter G. Bishop explains how to distinguish between ordinary trusts and business trusts in Trusts, Taxes and Business: Dealing with “Check-the-Box” Regulations, Bus. L. Today, Nov./Dec. 2003, at 23.
Conflict of Interest. Virginia Blackwell explains the importance of knowing when conflicts arise and defining who the attorney represents in Conflicts of Interest When an Attorney Represents an Estate, 27 J. Legal Prof. 141 (2003).
Counseling Skills. The importance of appropriate communications with older estate planning clients is explained in Maureen B. Collins’s Being Right versus Saying It Right, 91 Ill. B.J. 577 (2003).
Forced Share. In Spousal Election: Suggested Equitable Reform for the Division of Property at Death, 52 Cath. U.L. Rev. 519 (2003), Angela M. Vallario proposes a statute that provides fairness for the surviving spouse when estate assets are products of the marriage.
International Concerns. Barbara R. Hauser, Dina Kupur Sanna, and Stanley A. Barg discuss international aspects of estate planning in Cross Border Estate Planning, 37 Int’l Law. 433 (2003).
Intestate Succession. In Ghosts from the Grave—Inheriting Through the Predeceased under Ohio Law, 50 Clev. St. L. Rev. 189 (2003), Kevin Purcell provides guidance for attorneys dealing with the maze of rules applicable to intestacy, wills, trusts, and POD accounts.
Long-term Care Insurance. Robyn B. Nicoll suggests possible legislative solutions in Long-term Care Insurance and Genetic Discrimination—Get It While You’re Young and Ignorant: An Examination of Current Discriminatory Problems in Long-term Care Insurance Through the Use of Genetic Information, 13 Alb. L.J. Sci. & Tech. 751 (2003).
Perpetual Trusts. In The Rise of the Perpetual Trust, 50 UCLA L. Rev. 1303 (2003), the late Jesse Dukeminier and James E. Krier discuss possible resolutions to various problems regarding perpetual trusts and possible moves by Congress with regard to taxation issues.
Same-sex Couples. Helen W. Gunnarsson discusses estate planning concerns that arise when counseling an individual in a same-sex relationship in Counseling Gay Couples, 91 Ill. B.J. 546 (2003).
Same-sex Couples—Pennsylvania. In Where the Rainbow Ends: Trying to Find a Pot of Gold for Same-Sex Couples in Pennsylvania, 41 Duq. L. Rev. 495 (2003), Maureen B. Cohon explains extra safeguards for same-sex couples regarding estate planning and family law issues.
Same-sex Couples—Professional Responsibility. Jennifer Tulin McGrath explains the differences in individual, joint, and intermediary representation for asset, estate, and tax planning in The Ethical Responsibilities of Estate Planning Attorneys in the Representation of Non-traditional Couples, 27 Seattle U. L. Rev. 75 (2003).
Tax Planning. For a treatise providing extensive coverage of a broad range of real estate tax considerations, see Jerome Ostrov’s Tax Planning with Real Estate (3d ed. 2003).
Theoretical Constructs. Through the careful use of probate examples, Adam J. Hirsch explores how legal rules reflect their authors’ limited capacities for productive thinking in Cognitive Jurisprudence, 76 S. Cal. L. Rev. 1331 (2003).
Trust Accounting. Mark R. Gillett and Katheleen R. Guzman explain how Oklahoma handles the conflict between remainder and income beneficiaries in Managing Assets: The Oklahoma Uniform Principal and Income Act, 56 Okla. L. Rev. 1 (2003).
California modernizes law regarding trust funds for child performers. 2003 Cal. Legis. Serv. 667.
New York expands availability of jury trials. A party may now demand a jury trial in any proceeding commenced after the death of the creator of a revocable lifetime trust to contest the validity of such trust in which a controverted question of fact arises. 2003 N.Y. Laws 631.
New York protects earnings of child performers. Fifteen percent of a child performer’s earnings must be held in trust until the child reaches the age of majority. 2003 N.Y. Laws 630.
New York updates authority of the settlor of a trust to confer upon trustees the power to make discretionary distributions to themselves as beneficiaries. 2003 N.Y. Laws 633.
New York updates statute that makes it unlawful for a private foundation to invest trust funds in a manner that makes any of the funds subject to tax. 2003 N.Y. Laws 639.
Pennsylvania enhances surviving spouse’s share of an intestate estate. A surviving spouse will now receive 100% of the decedent’s award paid under the Air Transportation Safety and System Stabilization Act because of a terrorist attack. 2003 Pa. Legis. Serv. Act 2003–26.