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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, Claire G. Hargrove, William P. LaPiana, and Christopher L. Harris.
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 adoptees are not issue. The settlor established a trust to pay income to his daughter for life with the remainder to her then living lawful issue. The trust stated it was to be governed by California law. At her death, the daughter was survived by two biological children and two children adopted as adults under the law of Colorado, where the daughter had resided. In Ehrenclou v. MacDonald, 12 Cal. Rptr. 3d 411 (Cal. Ct. App. 2004), the court held that the status of the adopted individuals was determined by Colorado law, which allows the adoption of an adult only as an “heir at law,” not as a child. Consequently, the adopted individuals were not the daughter’s lawful issue for purposes of the trust.
APPORTIONMENT: Estate tax refund must be apportioned in the same way as the tax. A beneficiary obtained an estate tax refund by pursuing a claim against the IRS for revaluation of his legacy without the cooperation of the personal representative. The beneficiary demanded immediate distribution of the entire refund to himself. The court in In re Siebrasse, 678 N.W.2d 822 (S.D. 2004), held that (1) the refund must be apportioned among all the beneficiaries in the same manner as the tax, (2) the personal representative need not distribute the refund until the tax is finally determined, (3) the beneficiary may be able to recover attorney’s fees from the estate, and (4) the beneficiary is not entitled to prejudgment interest on the refund.
ATTESTATION: Signatures of witnesses on the self-proving affidavit compensated for lack of their signatures on the will. The decedent signed her will, but the signatures of the witnesses appear only on the self-proving affidavit attached to the will. In In re Estate of Fordonski, 678 N.W.2d 413 (Iowa 2004), the court held that the requirement of the state law that the witnesses sign the will was satisfied by the appearance of the signatures “on a document attached to the dispository provisions of the will.”
DEVIATION: Changed circumstances warranted modification of the trust. In In re Estate of Somers, 89 P.3d 898 (Kan. 2004), the court affirmed the lower court’s decision refusing to terminate a spendthrift charitable trust on the request of the two annuitants and the charitable remainder beneficiary but affirmed the decision to direct an immediate payment to the remainder beneficiary. The annuitants offered no evidence to rebut the presumption that the spendthrift provision was a material provision of the trust, but the dramatic growth of the trust corpus and the small size of the annuities justified a modification of the trust. The court also approved an award of attorney’s fees to be paid equally by the annuitants and the charity.
ESTATE ADMINISTRATION: The duty to pay interest was not suspended by a will contest. The decedent’s will gave his farmland to one son and directed him to make payments with interest to his siblings over fifteen years beginning one year after the decedent’s death. The will was admitted to probate four years after the decedent’s death because of a contest. In In re Estate of Holan, 680 N.W.2d 331 (S.D. 2004), the court held that payment of interest must begin one year after the decedent’s death, the delay caused by the litigation notwithstanding.
FIDUCIARY RESPONSIBILITY: Trustee liable for failure to correct faulty drafting. A bank advised its client to make present interest exclusion gifts to an irrevocable trust to reduce estate taxes. The trust was drafted by an attorney selected by the client but it did not include a Crummey power. Three years after creation of the trust, a trust officer told the drafter of the deficiency, but nothing was done. The bank continued to advise its client to contribute to the trust. After the client died, the personal representative sued the bank for recovery of the estate taxes caused by the resulting taxable gifts. In Hatleberg v. Norwest Bank Wisconsin, 678 N.W.2d 302 (Wis. Ct. App. 2004), the court held that the bank was liable because it had assumed the duty of reviewing the trust document.
GRAMM-LEACH-BLILEY ACT: The decision by the Federal Trade Commission that attorneys engaged in the practice of law are covered by the Gramm-Leach-Bliley Act and its disclosure requirements held to be an arbitrary and capricious agency action. New York State Bar Ass’n v. FTC, 2004–1 Trade Cas. (CCH) ¶ 74,383 (D.D.C. 2004).
GROSS ESTATE: Section 2036 does not apply to a family limited partnership. The Fifth Circuit overturned the district court’s decision in Kimball v. United States, 244 F. Supp. 2d 700 (N.D. Tex. 2003), which included property transferred to a family limited partnership in the decedent’s estate under Code § 2036. The court held that the transaction was made for full and adequate consideration because the partnership was properly structured to reflect the partners’ contributions. The transfer to the partnership was a bona fide sale because there were business reasons for the formation of the partnership. Accordingly, the value of the decedent’s interest, not the value of the transferred assets, is includible in the gross estate. The court remanded the case for a determination of whether the decedent’s interest was an assignee interest or a partnership interest. Kimball v. United States, 371 F.3d 257 (5th Cir. 2004).
IRA: Settlement agreement is a valid waiver. The decedent and his wife executed a property settlement agreement under their divorce in which they specifically waived all rights that might arise as a result of being designated as a beneficiary of an IRA. The decedent never changed the designation of his now ex-wife as the beneficiary of his IRA. After his death, she refused to execute a disclaimer of her interest. In Steiner v. Bank One Indiana, N.A., 805 N.E.2d 421 (Ind. Ct. App. 2004), the court held that the language in the settlement agreement was a binding waiver of the wife’s expectancy in the IRA and that she was required to execute a disclaimer.
SPENDTHRIFT TRUST: Spendthrift clause does not prevent payment of child support. The trustee of discretionary spendthrift trust refused to satisfy a child support judgment against the beneficiary, maintaining that the order could not override the trustee’s discretion. The court in Ventura County Dep’t of Social Services v. Brown, 11 Cal. Rptr. 3d 489 (Cal. Ct. App. 2004), held that the trustee must satisfy the judgment because under state law a trustee may not in bad faith or with an improper motive refuse to exercise discretion to satisfy a support judgment.
TRUST AMENDMENT: A letter written by the settlor, who was serving as the trustee, validly amended the trust. The settlor reserved the right to amend his revocable trust, of which he was the trustee, by a writing delivered to the trustee. The only trust property was a commercial annuity. The settlor wrote to the insurance company directing it to increase the monthly payment to the beneficiary. In In re Wendland-Reiner Trust, 677 N.W.2d 117 (Neb. 2004), the court held that the trust had been amended. The letter to the insurance company showed the settlor’s intent to amend the trust because it was inconsistent with the trust’s original terms and because, as trustee, the settlor could waive the superfluous formality of giving himself notice of the amendment.
TRUST AMENDMENT: Trust validly amended when trustees know of the settlor’s action. The settlor’s revocable trust required that amendments be “deposited” with the trustees. In rejecting a challenge to an amendment, the court in Kirschbaum v. Wennett, 806 N.E.2d 440 (Mass. App. Ct. 2004), held that the amendment was “deposited” even though the trustees never touched the document because the trustees had been present when it was executed and, along with the settlor, agreed with the settlor’s attorney’s suggestion that the amendment be placed in the attorney’s vault with other estate planning documents of the settlor.
UNDUE INFLUENCE: Presumption of undue influence arising when the testator and beneficiary are in a confidential relationship is rebutted by proof of good faith and voluntary action. The Supreme Court of Iowa established the criteria for rebutting the presumption of undue influence that arises from the existence of a confidential relationship in Jackson v. Schrader, 676 N.W.2d 599 (Iowa 2004). The presumption may be rebutted by clear and convincing evidence that the grantee acted in good faith and that the grantor acted “freely, intelligently, and voluntarily.”
WILL CONTEST: An heir has standing to challenge the last in a series of wills. The decedent allegedly executed four wills. His daughter challenged the admission to probate of the final will, and her action was dismissed for lack of standing on the ground that she had no interest under the three prior wills and thus would gain nothing by invalidating the will offered for probate. The court in In re Estate of Schlenker, 808 N.E.2d 995. (Ill. 2004), held that the daughter had standing to contest the will because she was an heir even though a successful action may not result in her receiving property.
RULES AND REGULATIONS
CHARITABLE DEDUCTION: Deduc-tion available under agreement between taxpayers and two charitable entities under which art collection bequeathed to one charity would be accepted by that charity or, if not, by the other charity. PLR 200418002.
GENERATION-SKIPPING TRANSFER TAX: IRS approves judicial modification of trust converting it from an income trust to a 3% unitrust as permitted by state law without adversely affecting GST tax exemption. PLR 200417014.
PRIVATE FOUNDATIONS: IRS intends to propose regulations providing that net investment income of private foundations will not include distributions from trusts and estates. Notice 2004–35.
Charitable Gifts. James Edward Harris discusses different methods of estate planning that may be used to maximize a charitable contribution and ensure its efficient use in Level Five Philanthropy: Designing a Plan for Strategic, Effective, Efficient Giving, 26 U. Ark. Little Rock L. Rev. 19 (2003).
Disclaimers. Adam J. Hirsch and Richard R. Gans provide their opinions regarding the possible technical glitches, policy misjudgments, and constitutional uncertainties of the Uniform Disclaimer of Property Interests Act in Perfecting Disclaimer Reform: Suggestions for a Revised Uniform Act, 31 Est. Plan. 185 (2004).
Future Interests. After recognizing the continuing vitality of future interests in modern American law, T.P. Gallanis in The Future of Future Interests, 60 Wash. & Lee L. Rev. 513 (2003), recommends five fundamental reforms, provides sample language for a Uniform Future Interests Act, and recommends that it be promulgated by the Uniform Law Commission and adopted by the states.
Guardianship—New York. Jody Saltzman discusses ways to amend New York law to improve its efficiency and preserve the resources of the mentally impaired in Proposing an Amendment to Article 81 to Allow Invalidation of Wills as Part of, or Subsequent to, a Proceeding for Appointment of a Guardian, 10 Cardozo Women’s L.J. 202 (2003).
Intestate Succession. Functional Families and Dysfunctional Laws: Committed Partners and Intestate Succession, 74 U. Colo. L. Rev. 211 (2004), by Jennifer Seidman, discusses how both same-sex and unmarried opposite-sex couples are harshly affected by current intestate succession laws.
Malpractice. In The Gambler Breaks Even: Legal Malpractice in Complicated Estate Planning Cases, 20 Ga. St. U. L. Rev. 277 (2003), Martin D. Begleiter forcefully argues that a beneficiary should be required to present written evidence, such as letters, unexecuted wills, or notes from the testator’s attorney, to prove that the will did not accomplish the testator’s objectives.
Nonmarital Children. Martha F. Davis explores the unequal treatment, by both the law and the courts, that occurs when mothers of nonmarital children obtain superior rights than the fathers of those same children in Male Coverture: Law and the Illegitimate Family, 56 Rutgers L. Rev. 73 (2003).
POD Accounts—Nebraska. In his casenote, Newman v. Thomas: The Nebraska Supreme Court Requires Signed Writings for the Alteration of Payable on Death Accounts, 37 Creighton L. Rev. 247 (2003), Damien A. Gang sets forth a detailed analysis in support of the Newman decision.
Reproductive Technology. Several recent articles discuss the ramifications of advances in reproductive technology that make it possible for children to be conceived and born years after the death of the biological father. In Fathering a Child from the Grave: What Are the Inheritance Rights of Children Born Through New Technology After the Death of a Parent?, 52 Drake L. Rev. 331 (2004), Kayla VanCannon provides an overview of various types of artificial reproduction and how different states address the issue of the inheritance rights of children born as a result of their use. Kristine S. Knaplund has a more narrow focus, discussing what happens when a man dies with a will and frozen sperm in Postmortem Conception and a Father’s Last Will, 46 Ariz. L. Rev. 91 (2004). Yet another inevitable conflict is discussed in Birth After Death: Perpetuities and New Reproductive Technologies, 38 Ga. L. Rev. 575 (2004), in which Sharona Hoffman and Andrew P. Morriss anticipate the problems that courts will shortly face when reproductive technology comes into direct conflict with the rule against perpetuities.
Uniform Trust Code—Nebraska. In Constitutional and Other Issues in the Application of the Nebraska Uniform Trust Code to Preexisting Trusts, 82 Neb. L. Rev. 312 (2003), John M. Gradwohl and William H. Lyons analyze the effect of the implementation of the Nebraska UTC on preexisting trusts.
Arizona creates a health care directives registry. 2004 Ariz. Legis. Serv. 219.
Kansas makes extensive revisions to its prior enactment of the Uniform Trust Code. 2004 Kan. Sess. Laws 158.
Kentucky adopts the Uniform Principal and Income Act effective January 1, 2005. 2004 Ky. Acts 15.
Maine adopts the Uniform Trust Code effective July 1, 2005. 2004 Me. Laws 618.
Maine grants a registered domestic partner the same intestate share as a surviving spouse. 2004 Me. Laws 672.
Maryland allows a corporate trustee to terminate a trust without a court order if the fair market value of the corpus is less than $100,000. The amount under prior law was $50,000. 2004 Md. Laws 254.
Tennessee adopts the Uniform Trust Code effective July 1, 2004. 2004 Tenn. Pub. Acts 537.
Vermont enhances the ability of the beneficiaries and co-trustees to petition the court for the removal of a trustee. 2004 Vt. Acts & Resolves 106.
Virginia codifies the law governing legal malpractice actions concerning irrevocable trusts. 2004 Va. Acts ch. 368.