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Keeping Current - Probate
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.
ABATEMENT: Gift of proceeds of sale of business is a specific bequest. The testator’s will devised a life estate in his residence to a friend and gave the proceeds owing at death from the sale of the testator’s interest in a business to his children. The rest of the estate passed through the residue, which was insufficient to pay the testator’s debts and expenses. The devisee of the residence argued that the other bequest was general and therefore would abate before the bequest of the residence. The court in In re Estate of Morgan, No. 02CA106, 2003 WL 22838734 (Ohio Ct. App. Nov. 24, 2003), held that the bequest of the proceeds of the sale of a specific business interest that does not specify any amount of proceeds or value of the interest is a specific gift that must abate proportionately with other specific gifts.
ADEMPTION: Transfer of funds from one CD to two CDs did not cause bequest to adeem. The testatrix’s will made a specific bequest of a certificate of deposit identified by account number and bank name. Shortly before her death, she reinvested the funds from the matured CD in two CDs for a longer term and at a higher interest rate at the same bank. In Parker v. Bozian, 859 So. 2d 427 (Ala. 2003), the court held that the gift did not adeem, noting particularly that the funds in the two CDs were traceable to the matured instrument, that the new CDs bore new account numbers solely for the convenience of the bank, and that extrinsic evidence showed that the testatrix did not change her intent to benefit the recipient of the bequest.
ADOPTED INDIVIDUALS: “Issue” does not include adopted individuals in a will that refers to adopted children. The testator’s will created a trust for his sister’s adopted son, with the remainder passing to the son’s “then living issue.” Later in the will, the testator referred to “children, including adopted children.” In Wessinger v. Simpson, 861 So. 2d 984 (Miss. 2003), the court held that the specific reference to adopted children precluded their inclusion in the general term “issue.”
DURABLE POWERS OF ATTORNEY: Incapacity at time of transfer does not vitiate prior consent. The agent transferred some of the principal’s real property to herself. On the agent’s appeal of the trial court’s order to return the property to the principal’s estate, the court in In re Estate of Cummin, 671 N.W.2d 165 (Mich. Ct. App. 2003), held that a principal can consent to self-dealing under the common law fiduciary principles applicable to the case and that the incapacity of the principal after the giving of consent does not invalidate the transaction. The court remanded for a determination of whether the principal’s consent was freely given.
INVESTMENTS: Trustee had no duty to consider estate tax consequences of investments. A foreign national created a revocable trust with a U.S. bank as the trustee. The trust funds were invested in certificates of deposit, and after maturity the trustee was unable to contact the settlor to ascertain investment objectives. The funds were invested in a tax-free money market fund, although the trust officer in charge had prepared a memorandum of his discussions with the settlor indicating investment objectives. After the settlor’s death, his family sued the bank, charging breach of duty by not considering the estate tax consequences of investment decisions. In Wachovia Bank of Georgia v. Namik, 593 S.E.2d 35 (Ga. Ct. App. 2003), the court held that the trustee had no obligation to engage in estate tax planning for the settlor because the trust was an “investment vehicle” without “testamentary provisions.”
PROFESSIONAL RESPONSIBILITY: Representation continues until the estate is closed. The lawyer representing the widow/executor in both her individual and representative capacities negotiated a sale of real estate to the decedent’s brother with whom the decedent had carried on a business under an oral partnership. The lawyer had represented both brothers for some time. The executor then brought a malpractice complaint against the lawyer alleging a conflict of interest. The trial court dismissed the complaint finding that the representation of the executor had ceased when the real estate sale was completed and that the statute of limitations had therefore run. In Williams v. Maulis, 672 N.W.2d 702 (S.D. 2003), the court held that the lawyer’s representation of the widow as the executor continued until the estate was closed even though the widow had consulted another attorney about her personal estate planning. Accordingly, the court affirmed the dismissal of the widow’s personal claims but reversed on her claim as the executor.
SURVIVAL: Survival requirement in trust refers to death of the settlor. The settlor’s revocable trust terminated on her death and provided that “for all gifts” the beneficiary must survive for 60 days. The settlor’s daughter was a beneficiary of the trust but she predeceased her mother. The daughter’s children argued that the survival requirement referred to the creation of the trust and that therefore the state anti-lapse statute applied. In Burkett v. Capovilla, 5 Cal. Rptr. 3d 817 (Cal. Ct. App. 2003), the court held that the survival requirement referred to the death of the settlor, citing “ordinary usage” and the testamentary nature of the trust, which means that the beneficiaries have no interest before the settlor’s death.
TAX APPORTIONMENT: Direction not to apportion taxes includes state estate taxes on qualified terminable interest property. The settlor’s revocable trust provided for the payment of all taxes without apportionment. The court in In re Estate of Klarner, No. 02CA2077, 2003 WL 22723228 (Colo. Ct. App. Nov. 20, 2003), held that the trust provision prevented apportionment of state estate taxes to the QTIP trust of which the decedent was a beneficiary. In addition, the trustees of the QTIP trust were also trustees of the revocable trust and beneficiaries of the decedent’s estate and therefore had a conflict of interest. The case was remanded for the appointment of independent trustees of the QTIP trust and a consideration of the reduction of the compensation of the original trustees.
WILLS: Witness requirement is the “signature requirement” included in the self-proving affidavit. The trial court denied probate to a self-proved will holding that the evidence showed that the will was not signed in the presence of the testator and that the testator’s signature was not acknowledged to the witnesses as required by state law. In In re Estate of Zeno, 672 N.W.2d 574 (Minn. Ct. App. 2003), the court held that the witnessing requirements are “signature requirements” and therefore are conclusively presumed to have been complied with absent proof of fraud or forgery, which did not exist in this case, and therefore the will was entitled to probate.
RULINGS AND REGULATIONS
ALTERNATE VALUATION DATE: Proposed regulations would change the requirements with which an estate must comply to elect the alternate valuation date. RIN 1545-BB12 [REG-139845-02], 68 Fed. Reg. 74,534 (Dec. 24, 2003).
CONSERVATION EASEMENTS: Charitable deduction not allowed for qualified conservation contribution by a trust. The basis for the ruling is that the contribution was from the trust corpus rather than from the trust’s gross income, and thus a charitable deduction would not be available. Rev. Rul. 2003–123.
PARTNERSHIP: A charitable deduction is available for a trust’s distributive share of a partnership’s charitable contribution even though the trust instrument did not expressly permit the trustee to make a charitable donation. Rev. Rul. 2004–5.
TRUST INCOME: IRS issued final regulations affecting the definition of income for trusts. For example, the new rules regarding capital gains permit unitrust payouts to be treated as income if permitted under state law. In addition, a pooled income fund will not qualify for a charitable deduction for long-term capital gains set aside for charity if income is defined using a unitrust formula. Thus, a judicial action to reform a PIF must be commenced by October 1, 2004, if the fund currently allows a unitrust formula to define income for amounts set aside for charity. T.D. 9102.
Capacity. In Preserve and Protect, A.B.A.J., Dec. 2003, at 34, Kathleen Maher discusses the revision to Rule 1.14 of the ABA Model Rules of Professional Conduct, which greatly expands the protective actions an attorney may take when the attorney reasonably believes a client has diminished capacity.
Charitable Trusts. John W. Vinson provides an extensive discussion and then recommends expansive interpretation and implementation of The Charity Oversight Authority of the Texas Attorney General, 35 St. Mary's L.J. 243 (2004).
Client Education. An informed client makes the estate planning process easier and enhances the ability of the attorney to prepare a plan that effectuates the client's intent. Roger W. Andersen's new book, Plan While You Can: Legal Solutions for Facing Disability (1stBooks.com 2003), provides a clientfriendly discussion of wills, trusts, powers of attorneys, and related issues.
Estate Tax-Illinois. The effect of recent Illinois legislation decoupling the state estate tax from the federal estate tax credit is carefully analyzed by Susan T. Bart in This Is Me Leaving You: Illinois Departs from the Federal Estate Tax Scheme, 92 Ill. B.J. 20 (2004). Hour Provision of the Tennessee Uniform Simultaneous Death Act, 33 U. Mem. L. Rev. 681 (2003).
Inheritance Rights. Helen W. Gunnarsson discusses the fascinating Illinois case of In re Estate of Poole, 799 N.E.2d 250 (Ill. 2003), which allowed a father of a nonmarital stillborn child to establish his status as a parent in Can a Parent Inherit from a Stillborn Child?, 91 Ill. B.J. 597 (2003).
Jennifer R. Boone Hargis recommends fairness in Solving Injustice in Inheritance Laws Through Judicial Discretion: Common Sense Solutions from Common Law Tradition, 2 Wash. U. Global Stud. L. Rev. 447 (2003).
Andrew L. Noble suggests inclusion of stepchildren in intestacy schemes in Intestate Succession for Stepchildren in Pennsylvania: A Proposal for Reform, 64 U. Pitt. L. Rev. 835 (2003).
Legal History. Mark A. Senn provides a fascinating look at English Life and Law in the Time of the Black Death, 38 Real Prop. Prob. & Tr. J. 507 (2003).
Long-Term Care. Jacqueline Queener clarifies options available for Arizona seniors in Finding the Gold to Finance the "Golden Years": Options for Financing Long-Term Care in Arizona, 45 Ariz. L. Rev. 857 (2003).
Medicaid Planning: In An Assessment of Medicaid Planning, 3 Hous. J. Health L. & Pol'y 265 (2003), Alison Barnes discusses the complexity in the application of long-term care policies.
Nontraditional Families. In Estate Planning for Twenty-First Century Families, 91 Ill. B.J. 631 (2003), Janet L. Grove provides suggestions for handling clients whose family situations may include stepchildren, divorce, adoption, nonmarital children, posthumous children, and pets.
Survivorship Rights. Eric Butler discusses Ellis v. Ellis, 71 S.W.3d 705 (Tenn. 2002), in Estates and Probate-Ellis v. Ellis: Survivorship Properties in Tennessee Remain Unaffected by the 120
Virginia. In Wills, Trusts, and Estates,38 U. Rich. L. Rev. 287 (2003), J. Rodney Johnson reports legislative and judicial developments affecting estate planners in Virginia.
Arizona delays the effective date of the Uniform Trust Code by two years.
Arizona postpones the effectiveness of the UTC from December 31, 2003, until December 31, 2005. 2003 Ariz. Legis.
New Jersey enacts Domestic Partner Act.
This Act permits same-sex couples as well as couples composed of opposite-sex individuals who are at least 62 years old to obtain rights similar to those of opposite-sex individuals who are married. 2003 N.J. Sess. Law Serv. 246.
New York allows the settlor of a trust to allow the trustees to make discretionary distributions to themselves as beneficiaries.
2003 N.Y. Laws 633.
New York amends its surrogate court procedure act.
The Act now allows a parent or guardian with a debilitating illness to petition the court for a standby guardian when illness renders the parent or guardian legally incapacitated or to designate the standby guardian in a written instrument. 2003 N.Y. Laws 632.
New York now allows a nominated co-fiduciary to have standing to commence a removal proceeding. 2003 N.Y. Laws 612.
Utah permits the creation of a spendthrift trust in which the settlor is also a beneficiary.
Utah requires that the trust be created after December 31, 2003, and that the trust be created and administered within the state of Utah. 2003 Utah Laws 3. _