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Keeping Current Probate
Keeping Current—Probate Editor: Prof. 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, Christopher L. Harris, and William P. LaPiana.
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.
ADEMPTION: Action of the trustee does not cause ademption. The decedent’s will left his shares in a closely held business and any debt owed him by the business to a testamentary trust for the benefit of his widow. The debt was repaid, the proceeds added to the trust’s investment account, and the business was then liquidated. The trust terminated at the widow’s death, at which time the stock in the closely held business and any debt owed to the decedent by the business was to be distributed to his son. In Bollman v. Pehlman, 817 N.E.2d 584 (Ill. App. Ct. 2004), the court held that the trustee’s conduct cannot cause an ademption of the son’s remainder gift because the potentially adeeming acts were not performed by the decedent. Noting that Illinois does not adhere to the identity theory of ademption, the court awarded all trust property traceable to the debt to the son.
ADEMPTION: Enforceable contract for sale of specifically devised realty causes ademption. The testator’s agent entered into a valid contract to sell the testator’s real property. The testator’s will contained a specific devise of this same property. The testator died before the closing. The court in In re Estate of Pickett, 879 So. 2d 467 (Miss. Ct. App. 2004), held that the contract survived the testator’s death and that specific performance was appropriate. Accordingly, the doctrine of equitable conversion transformed the testator’s title to the real property into personal property (the right to receive the sale proceeds) and thus the specific devise adeemed.
ESTATE TAX: Failure to pay estate tax timely may lead to penalty even if the estate does not have liquid assets. The court in Estate of Hartsell v. Commissioner, 88 T.C.M. (CCH) 267 (2004), held that an estate tax penalty was appropriate when the executor did not pay the estate tax timely. The court was unimpressed with the executor’s claim that 70% of the estate was in nonliquid assets such as real estate. The court explained that the sale of property at the current market price is not ordinarily an “undue hardship” that would justify a waiver of the penalty.
GIFTS: Assignment of reversion is valid although tax motivation for the gift is now obsolete. A donor created an irrevocable trust in 1942 to which she made an additional contribution in 1945. Under the terms of the trust, she retained a reversion. After the U.S. Supreme Court’s decision in Spiegel’s Estate v. Commissioner, 335 U.S. 701 (1949), which made the retention of a reversion no matter how unlikely to become possessory a “string” causing inclusion of the entire trust in the donor’s taxable estate, the donor executed a “recital” assigning the reversion to a charity. When the trust terminated, none of the potential remainder beneficiaries survived. The donor’s sole surviving heir claimed the trust property, arguing in part that the recital should be ignored because the holding in Speigel had been overruled. The court ordered that the trust property be paid to the charity because the change in the tax law had no effect on the validity of the recital. In re Trust Under Deed of Gift of Clark, 856 A.2d 1201 (Pa. Super. Ct. 2004).
HOLOGRAPHIC WILLS: Handwriting on pre-printed will form was sufficient to create a holographic will. In Estate of Gonzalez, 855 A.2d 1146 (Me. 2004), the court held that the statute requiring that the material provisions of a holographic will be in the testator’s handwriting was satisfied by the testator’s filling in a pre-printed will form even though the handwriting did not clearly express “testamentary intent.” The handwriting was read in the context of the pre-printed words, which can be used to show testamentary intent.
PAY-ON-DEATH ACCOUNT: POD designation prevails over attempted assignment of the account to an inter vivos trust. The depositor created a revocable trust and signed a schedule assigning a POD account to the trust along with other property. After her death, the beneficiary of the POD account claimed the account proceeds that the successor trustee claimed for the trust. In In re Estate of Moore, 97 P.3d 103 (Ariz. Ct. App. 2004), the court held that the statute requiring that the account terms be changed by written notice to the financial institution took precedence over the declaration of trust and thus the POD beneficiary was entitled to the funds in the account.
POWERS OF APPOINTMENT: Designation of potential objects using word “and” prevented exercise in favor of one individual. The decedent was given a special power of appointment over trust property to appoint to “her brother or sisters or her nieces and nephews.” The decedent exercised the power in her will to appoint the property to a niece. In Hargrove v. Rich, 604 S.E.2d 475 (Ga. 2004), the court determined that the appointment was invalid. The use of the word “and” in the description of the permissible objects indicated that the decedent did not have the power to appoint to only one niece but instead had to appoint to all nieces and nephews.
POWERS OF APPOINTMENT: Donee’s conditional exercise of power in a revocable trust is valid. A mother gave her daughter a special power of appointment over the mother’s trust that could be exercised by will or during life. The daughter exercised the power in her own revocable trust but made the exercise conditional on her own daughter not contesting her estate plan. No contest occurred. In Edwards v. Urice, 99 P.3d 256 (Okla. Civ. App. 2004), the court determined that the daughter properly exercised the power, even though the exercise was effective only on satisfaction of a condition that could not occur until after the daughter’s death.
POWER OF ATTORNEY: Principal’s oral authorization for agent to make a gift is not valid. Under applicable state law, an agent has the power to make gifts to himself or herself only if the power expressly authorizes the attorney-in-fact to make such gifts. In Estate of Herbert v. Herbert, 152 S.W.3d 340 (Mo. Ct. App. 2004), the court held that the statutory provision was exclusive and that oral permission from the principal to the agent was ineffective to authorize a gift of the principal’s property to the agent.
TRUSTS: Discretionary trust with support standard deemed an available resource for Medicaid. A father created a testamentary trust for his daughter and gave the trustees the “sole discretion” to distribute income and principal as the trustees deemed proper for the beneficiary’s “health, support in reasonable comfort, best interest and welfare.” In Corcoran v. Department of Soc. Servs., 859 A.2d 533 (Conn. 2004), the court determined that the trust is a “general support trust” and is consequently a countable resource for the purpose of determining the daughter’s Medicaid eligibility.
VALUATION: Retirement accounts in the decedent’s estate were not eligible for a valuation discount to reflect the federal income tax that would be triggered when account distributions are made from the accounts. Smith ex rel. Estate of Smith v. United States, 391 F. 3d 621 (5th Cir. 2004).
WILL FORMALITIES: A witness may sign the will after the testator’s death. The testator had his will notarized. After his death, the notary, who had witnessed the testator’s signature on the will, executed a proof of subscribing witness. No other witness signed the will before the testator’s death, but the notary’s husband made a sworn statement asserting that he was present when the testator signed the will, his wife notarized it, he saw the testator sign the will, and he was ready to sign the will as a witness. The court held that state law did not prohibit a qualifying witness from signing the will after the testator’s death. Because there was a complete absence of any evidence of fraud, the will proponent was entitled to a hearing on the petition to admit the will to probate. In re Estate of Sauressig, 19 Cal. Rptr. 3d 262 (Cal. Ct. App. 2004).
WILL REVOCATION: Gifts to children of ex-spouse automatically revoked on divorce. The testator’s will gave his estate to his wife and, if she did not survive him, to her daughters, whom he referred to as “my stepdaughters” as well as by name. The testator and his wife divorced. The testator died without changing his will. The former wife survived the testator but was deemed to predecease him under local law. A stepdaughter then claimed her share of the estate. In In re Estate of Jones, 18 Cal. Rptr. 3d 637 (Cal. Ct. App. 2004), the court held that the bequest to the stepdaughter failed absent any evidence that the testator intended the gift to the stepdaughter to be effective even after the divorce.
WILLS: Effect of divorce governed by law in effect at time of death. The testator was divorced, and under the statute then in effect his will was completely revoked by the divorce. The testator did not write a new will, and, at the time of testator’s death, the statute provided that the will would take effect as if the ex-spouse had predeceased the testator. The court in Colella v. Coutu, 603 S.E.2d 296 (Ga. 2004), turned aside the argument that the will had been revoked by operation of law at the time of the divorce, so that there was no will at death, and held instead that the law in effect at the time of death governed the effect of the divorce on the will.
RULINGS AND REGULATIONS
DISCLAIMERS: Disclaimers made under waterfall plan deemed qualified disclaimers. The testator’s will provided for property to pass into Trust 1 for the benefit of testator’s wife. Any disclaimed property would pass into Trust 2. The wife could then disclaim property from this trust, which would pass into Trust 3 and so forth up to Trust 5. The wife wanted to disclaim all of her interest in Trust 1 and specified dollar amounts in Trusts 2, 3, and 4. The IRS in PLR 200442027 indicated that each of these disclaimers met the requirements of a qualified disclaimer.
ESTATE TAX DEDUCTION: Estate tax deduction under Code § 2053 not available for income tax paid on IRA distribution made because the estate needed funds to pay estate tax on the IRA. PLR 200444021.
MARITAL TRUSTS: Split of QTIP into two trusts approved. In PLR 200438028, the IRS permitted the QTIP to be divided into two separate trusts. One trust is to hold only marketable securities and the other will hold the balance of the property followed by an assignment of the spouse’s interest in the securities trust to the remainder beneficiary, a charity. Code § 2519 will not apply to the second trust, so there will be no tax on the assigned trust because of the charitable deduction.
Asset Protection Trusts. Henry J. Lischer Jr. explains that although five states have authorized APTs, attorneys who assist clients in establishing trusts with the purpose of avoiding creditors may be in violation of their ethical duties as lawyers in Professional Responsibility Issues Associated with Asset Protection Trusts, 39 Real Prop. Prob. & Tr. J. 561 (2004).
Family Limited Partnerships. The favorable ruling in Kimbell v. United States, 371 F.3d 257 (5th Cir. 2004), and how it enhances the ability of farmers and business owners to reduce estate tax is explained in Helen W. Gunnarsson’s Family Limited Partnerships Get the Green Light, 92 Ill. B.J. 454 (2004).
Gift Tax. In Okerlund and Polack: How Probative Are Postgift Facts?, 105 Tax Notes 196 (2004), Wendy C. Gerzog explores how courts have considered the relevance or determinative nature of actual postvaluation date facts to value gifts of stock in closely held companies.
Holistic Estate Planning. David Gage, John Gromala, and Edward Kopf explain the importance of including family members in the estate planning process to facilitate the transfer of assets from one generation to the next in Holistic Estate Planning and Integrating Mediation in the Planning Process, 39 Real Prop. Prob. & Tr. J. 509 (2004).
Illinois Small-Estate Affidavits. In A New, Higher Limit for Small-Estate Affidavits, 92 Ill. B.J. 508 (2004), Helen W. Gunnarsson explains that the ceiling for small estate affidavits in Illinois has increased to $100,000 from $50,000 but warns that it may make the well-meaning individuals who serve as affiants more attractive lawsuit targets.
Mentally Impaired Clients. Helen W. Gunnarsson provides a thoughtful analysis of both the old and new versions of Model Rule of Professional Conduct 1.14 in The Challenge of Representing Mentally Impaired Clients, 92 Ill. B.J. 518 (2004).
Pet Animals. In his comment, The Need for an Enforceable Pet Trust Statute in Missouri, 72 UMKC L. Rev. 1053 (2004), Joseph D. Growney compares the current Missouri honorary pet trust statute with the enforceable pet trusts authorized by Kansas law.
Posthumous Conception. In her comment, A Matter of Life and Death: Posthumous Conception, 64 La. L. Rev. 613 (2004), Brianne M. Star argues that to promote consistency in cases involving posthumous conception, legislators must enact laws giving these children legal status.
Rule Against Perpetuities. Peter A. Appel points out The Embarrassing Rule Against Perpetuities, 54 J. Legal Educ. 264 (2004), while outlining an innovative approach to the Rule that allows individuals who teach it to mix theory in with the difficult problems that the Rule creates.
Trust Investments. In Speculations on the Idea of “Speculation” in Trust Investing: An Essay, 39 Real Prop. Prob. & Tr. J. 439 (2004), Joel C. Dobris explains the history of speculation, how the concept is being marginalized by prudent investment theory, the “evils” that have replaced speculation, and the conduct that could now lead to trustee liability akin to that under prior law for speculating.
Undue Influence. Sean Laughlin analyzes the ramifications of In re Succession of Lounsberry, 824 So. 2d 409 (La. Ct. App. 2002), regarding increased litigation and the most basic familial relationships in his casenote Succession of Lounsberry : Undue Expansion of the Undue Influence Doctrine, 50 Loy. L. Rev. 499 (2004).
Unmarried Partners. In Estate Planning Considerations for Unmarried Same or Opposite Sex Cohabitants, 23 Quinnipiac L. Rev. 361 (2004), Frank S. Berall traces the worldwide development of legal rights between unmarried and same-sex couples. The next logical step in the development of domestic partner rights is the right of intestate distribution according to Paul J. Buser in his article Domestic Partner and Non-Marital Claims Against Probate Estates: Marvin Theories Put to a Different Use, 38 Fam. L.Q. 315 (2004). The Impact of Medicaid Estate Recovery on Nontraditional Families, 15 U. Fla. J. L. & Pub. Pol’y 525 (2004), by Diane Lourdes Dick, explores the potentially devastating effect of Medicaid recovery on unmarried and same-sex families, who are denied the benefits and protections afforded to traditional spouses.
Virginia. J. Rodney Johnson analyzes recent amendments to the Virginia Code and makes suggestions for further changes in his article Wills, Trusts, and Estates, 39 U. Rich. L. Rev. 447 (2004).
New York amends statute governing disclosure requirements concerning commissions to an attorney-executor. If a testator does not execute a separate notice acknowledging the disclosure, the attorney who serves as an executor will receive only one-half of the usual commissions. 2004 N.Y. Laws 709.