Keeping Current—Probate Editor: Prof. Gerry W. Beyer, Texas Tech University School of Law, Lubbock, TX 79409, gwb@ProfessorBeyer.com. Contributors include: Dave L. Cornfeld, Claire G. Hargrove, Christopher L. Harris, and Prof. 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.
CHARITABLE TRUSTS: Private party has standing. As part of the extensive litigation involving the Milton Hershey School, a sharply divided court held that the school’s alumni association has a “special interest” that gives it standing to challenge agreements between the school and the state attorney general. In re Milton Hershey School, 867 A.2d 674 ( Pa. Commw. Ct. 2005).
EXECUTORS: Executor cannot adversely possess realty against a will beneficiary. In In re Estate of Seifert, 26 Cal. Rptr. 3d 560 (Cal. Ct. App. 2005), the court reaffirmed the long-standing rule that the statute of limitations may not run for matters in which the parties are in a fiduciary relationship absent repudiation of the relationship. The court held an executor’s possession of land could not be adverse to an estate beneficiary.
FUTURE INTERESTS: Express language creates vested remainder despite statutory presumption to the contrary. A father’s will created a trust for his widow for life, remainder to his son “as an indefeasibly vested interest in fee” should the son survive the father, which he did. The son died before the life income beneficiary. Local law provides that a beneficiary’s interest is contingent on surviving until the time of possession or enjoyment of the beneficiary’s interest “unless otherwise specified by the terms of the trust.” The court in In re Will of Uchtorff, 693 N.W.2d 790 (Iowa 2005), held that the remainder was vested in interest and therefore passed through the son’s estate because the language creating the remainder overrides the statute.
GROSS ESTATE: Transfers of property to Delaware business trusts deemed to be bona fide sales for adequate and full consideration. The court in Estate of Schutt v. Commissioner, T.C. Memo. 2005–126, found that the stock the decedent transferred to revocable trusts for his children and grandchildren was not part of the decedent’s gross estate because the transfers were true sales.
INDIVIDUAL RETIREMENT ACCOUNTS: U.S. Supreme Court rules that IRAs are exempt from the claims of creditors in bankruptcy. Rousey v. Jacoway, 125 S. Ct. 1561 (2005). This case resolved a split in authority among the various circuits.
INVESTMENT DUTIES OF TRUSTEE: Settlor bound by set-tlor’s instructions regarding investments. The settlor created a revocable trust with a bank as the trustee and reserved to herself the power to direct investments. Months after she created the trust, the settlor sent the trustee a letter directing it to retain the shares of Enron the settlor had added to the trust and indemnifying the trustee for any loss, damage, or expense incurred because of such retention. After Enron greatly diminished in value, the settlor sued the trustee alleging violation of its fiduciary duties. In McGinley v. Bank of America, N.A., 109 P.3d 1146 ( Kan. 2005), the court held that the settlor was bound by the terms of the letter and had no recourse against the trustee.
MALPRACTICE: Failure to include power to create trusts in a durable power of attorney not deemed to be malpractice. Thiel v. Miller, 164
S.W.3d 76 (Mo. Ct. App. 2005).
NO CONTEST CLAUSE: Action to determine the time of death is not a contest. The decedent’s trust required a beneficiary to survive the decedent by 120 days. The trust also contained a no contest clause specifically applying to challenges to the amendments to the trust that included the survival provision. The beneficiary’s widow filed an action asserting that the beneficiary actually survived for the required period. In Estate of Davies, 26 Cal. Rptr. 3d 239 (Cal. Ct. App. 2005), the court held that the action seeking clarification of whether the beneficiary survived did not invoke the no contest clause although challenges to the amendments themselves did.
PROFESSIONAL RESPONSIBILITY: Confidentiality not waived when the consultation did not result in an executed will. Like many jurisdictions, Connecticut makes an exception to the confidentiality of attorney-client communications relating to a will executed by the client. In Gould, Larson, Bennet, Wells and McDonnell, P.C. v. Panico, 869 A.2d 653 ( Conn. 2005), the court held that this exception does not apply if the communications did not result in the execution of a will.
SATISFACTION: Gift adeemed legacy to donee. The court in Yivo Institute for Jewish Research v. Zaleski, 874 A.2d 411 (Md. 2005), held that the hearsay rule did not bar the admission of testimony about the testator’s statements concerning an inter vivos gift to a charity that supported the lower court’s conclusion that the legacy adeemed by satisfaction.
TRUSTS: Revocation by writing includes revocation by will. The set-tlor created a revocable trust with herself as trustee that provided for revocation by a writing signed by the set-tlor and delivered to the trustee. The settlor deeded real property to the trustee. The settlor then executed a will revoking all prior wills and stating her intention to dispose of all her property by the will. The court in Gardenhire v. Superior Court, 26 Cal. Rptr. 3d 143 (Cal. Ct. App. 2005), held that the subsequent will complied with the trust provision for revocation by a writing delivered to the trustee.
TRUSTS: Trust created by an agent cannot exculpate the trustees. The decedent’s son held her power of attorney and used his authority to create a trust of her property with himself and his attorney as trustees. The principal never read the trust agreement. The trust document exculpated the trustees from liability except in cases of bad faith, intentional misconduct, or reckless indifference to the beneficiaries’ interests. In upholding objections to the trustees’ accounting and the imposition of surcharges, the court held that the exculpatory provision was ineffective because the nominal settlor never knew the terms of the trust agreement. In re Dentler Family Trust, 873 A.2d 738 ( Pa. Super. Ct. 2005).
WILLS: A photocopy is not a “duplicate original.” Under local law, if a will was last in the testator’s possession and cannot be found after death, the testator is presumed to have destroyed the will with the intent to revoke it. The statute makes reference to the inability to find the will or a “duplicate original” of the will. In Lauermann v. Superior Court, 26 Cal. Rptr. 3d 258 (Cal. Ct. App. 2005), the court held that the term “duplicate original” does not include a photocopy that is not personally signed by the testator.
WILLS: Witness may sign after the testator’s death. Under local law, based on UPC § 2–502, the witnesses must sign the will “within a reasonable time” of having witnessed the testator’s signing or acknowledgment of the will. In In re Estate of Jung, 109 P.3d 97 (Ariz. Ct. App. 2005), the court held that the statute allows a witness to sign a will after the testator’s death so long as the signature occurs within the prescribed reasonable time.
RULES AND REGULATIONS
ANNUITIES: Amounts received by a beneficiary in excess of the decedent’s investment are considered income of the decedent if the owner of a deferred annuity dies before the starting date. Accordingly, these amounts are includable in the beneficiary’s gross income. Rev. Rul. 2005–30.
PROCEDURE: IRS issued guidance on the exhaustion of administrative remedies as a prerequisite to filing in Tax Court for Code § 6166 elections filed on or after May 20, 2005. Rev. Proc. 2005–33.
Advance Directives. Morgan Morrison provides a client-friendly discussion of medical powers of attorney and living wills in Ensuring Your End-of-Life Wishes Are Known and Followed, 68 Tex. B.J. 460 (2005). The article focuses on Texas law and provides a useful checklist.
Advance Directives. In Till Death Us Do Part?, 93 Ill. B.J. 226 (2005), Helen W. Gunnarsson explores how the Schiavo case would have been resolved if she had been an Illinois resident. Ms. Gunnarsson also discusses the workings of Illinois law in The Health Care Surrogate Act: A Physician’s Finding Must [Be] in Writing, 93 Ill. B.J. 229 (2005).
Family Limited Partnerships. The use of FLPs as an indiscriminate panacea in estate planning was brought to a halt by the Strangi and Stone cases. In the wake of these far-reaching decisions, Bradford Updike offers an organized explanation of important legal developments in FLP law in his article, Making Sense of Family Limited Partnership Law after Strangi and Stone: A Better Approach to Planning and Litigation Through the Bona Fide Transaction Exception, 50 S.D. L. Rev. 1 (2005). A further discussion of recent cases on FLPs is found in Wendy Gerzog’s column How Do D’Ambrosio and Wheeler Fit into the FLP Debate?, 107 Tax Notes 387 (2005).
Fiduciary Duties. In his article, Resolving Conflicts of Duty in Fiduciary Relationships, 54 Am. U. L. Rev. 75 (2004), Arthur B. Laby contends that conflict of duty cases, regardless of the type of fiduciary involved, are coherent at their core by tracing the differences between the duty of loyalty and the duty of care and comparing them to Immanuel Kant’s discussion of perfect and imperfect duties. Alyssa A. DiRusso and Kathleen M. Sablone discuss various legislative acts and why they are important in the context of current investment practices and laws as well as suggest a broadening of the application of these laws in their article, Statutory Techniques for Balancing the Financial Interests of Trust Beneficiaries, 39 U.S.F. L. Rev. 261 (2005). In Questioning the Trust Law Duty of Loyalty: Sole Interest or Best Interest?, 114 Yale L.J. 929 (2005), John H. Langbein argues that a transaction prudently undertaken to advance the best interest of the beneficiaries best serves the purpose of the duty of loyalty, even if the trustee also does or might derive some benefit.
Financial Planning. Grayson McCouch and Bill Turnier have authored an innovative law
school text entitled Family Wealth Management (Thomson West 2005) that is “intended for teachers who wish to offer a basic course in financial investing and planning for law students. The materials range well beyond the conventional estate planning syllabus and cover topics such as housing, higher education, life and disability insurance, and retirement planning.”
Flowcharts. Roger W. Andersen and Douglas Oliver offer a detailed proposal for using flowcharts as an effective method for explaining property distribution in their article, Communicating Clearly: Showing Dispository Preferences with Flowcharts, 29 Okla. City U. L. Rev. 559 (2004).
Inheritance Rights. R. Brent Drake provides a thorough analysis of the history and current status of nontraditional inheritance rights in Georgia, as well as a suggestion for future legislation, in his note, Status or Contract? A Comparative Analysis of Inheritance Rights Under Equitable Adoption and Domestic Partnership Doctrines, 39 Ga. L. Rev. 675 (2005).
Limited Liability Companies. David Berek explores the benefits and disadvantages of LLCs in Is the Family LLC Still a Good Asset Protection Device?, 93 Ill. B.J. 256 (2005).
Persona Rights. With advances in technology, facsimiles of celebrities are now being used to tout products even after their deaths. In his article, Wills, Trusts, Schadenfreude, and the Wild, Wacky Right of Publicity: Exploring the Enforceability of Dead-Hand Restrictions, 58 Ark. L. Rev. 43 (2005), William A. Drennan examines the balancing test applied in determining the enforceability of dead-hand restrictions that a celebrity might seek to impose on the use of her persona posthumously.
S Corporations. Steven Gorin discusses various estate and tax planning challenges related to S corporations in his article Transferring Ownership of Stock in an S Corporation, 61 J. Mo. B. 92 (2005).
Surrogacy Contracts. Nancy Ford provides a comprehensive analysis of The New Illinois Gestational Surrogacy Act, 93 Ill. B.J. 240 (2005).
Trust Investment. The effect that the Uniform Prudent Investor Act, as adopted in Oklahoma, has had on the duty of trustees is explored in detail by Mark R. Gillett in Investing Trust Assets: Prudence Redefined, 29 Okla. City U. L. Rev. 505 (2004).
Web-based Resources. Tom Mighell provides an overview of web-based estate planning resources, with emphasis on those for Texas practitioners, in Estate Planning on the Web, 68 Tex. B.J. 384 (2005).
Will Defects. In her comment, Equitable Remedies for Nonconforming Wills: New Choices for Probate Courts in the United States, 79 Tul. L. Rev. 723 (2005), Leigh A. Shipp outlines the current remedies for defective wills and recommends that courts be allowed to use discretion on a case-by-case basis to determine whether the testator intended the document to be a will.
Arizona adopts Uniform Disclaimer of Property Interests Act. 2005 Ariz. Legis. Serv. 195.
Georgia declares the first week of April each year as “Living Will Week.” 2005 Ga. Laws Act 307.
Indiana overhauls probate and trust law. Examples of the features of this comprehensive legislation include creation of a procedure for a testator, or anyone else in possession of an original will, to deposit the will with the clerk of the court for safekeeping; enactment of a savings provision for determining the validity of inter vivos trusts executed out-of-state; differentiation between the capacity a settlor must possess to execute a revocable as contrasted with an irrevocable trust; authorization of pet trusts and trusts for specific noncharitable purposes; protection of people who rely on the agent’s authority under a power of attorney under specified circumstances; and codification of the court’s ability to deviate from the terms of a trust. 2005 Ind. Legis. Serv. P.L. 238–2005.
Iowa expands automatic voiding of gifts on divorce to include relatives of the testator’s ex-spouse and codifies the order of abatement. 2005 Iowa Legis. Serv. S.F. 379.
Minnesota modernizes pretermitted heir provisions. 2005 Minn. Sess. Law Serv. 26.
New Mexico enacts total return trust enhancements to Uniform Principal and Income Act. 2005 N.M. Laws 329.
New Mexico enacts Uniform Estate Tax Apportionment Act. 2005 N.M. Laws 143.
South Carolina enacts Uniform Trust Code effective January 1, 2006. 2005 S.C. Laws 66.
Virginia enacts Uniform Trust Code effective July 1, 2006. 2005 Va. Laws 935. n