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: Specific gift of real estate in trust adeems when sold in like-kind exchange. An inter vivos trust created by a married couple terminated on the death of the second to die. Under the trust terms, specified parcels of real property were to be distributed to each of their two children and the remainder of the trust property distributed to them equally. One of the children was the beneficiary of a parcel that the trustees sold in a like-kind tax exchange. After the death of the settlor, a declaratory judgment action addressed the question of whether the exchange of the real estate resulted in ademption of the gift. The lower courts held that the gift adeemed and the Iowa Supreme Court affirmed, holding that ademption was the proper result under Iowa’s version of the identity theory. In re Steinberg Family Living Trust, 894 N.W.2d 463 (Iowa 2017).
POWER OF APPOINTMENT: Purported exercise of nongeneral power of appointment in favor of the donee’s revocable trust is invalid. A spouse’s revocable trust gave the other spouse a testamentary nongeneral power of appointment. The objects of the power were the couple’s issue, the spouses of the issue, and charity. The surviving spouse’s will purported to exercise the power in favor of the surviving spouse’s own revocable trust, the ultimate beneficiaries of which were one of the couple’s two daughters and that daughter’s descendants. In default of exercise of the power, the property would have remained in the original trust for the benefit of both of the couple’s children. The Nebraska Supreme Court affirmed the lower court determination that the power was not properly exercised because adding the appointive property to the donee’s revocable trust was equivalent to an appointment to the donee, the donee’s creditors, the donee’s estate, or the creditors of the donee’s estate. In re Robert L. McDowell Revocable Trust, 894 N.W.2d 810 (2017).
SIGNING AUTHORITY: Amanuensis doctrine validates signing of decedent’s name. A son was his father’s agent under a properly executed power of attorney that did not authorize self-dealing. The father visited a bank where he had an account and stated to a bank officer his desire to make the account a joint account with his son. The father then called his son and asked him to come to the bank. After he arrived, the bank officer left the father and son alone in her office while she made a deposit. When she returned, the appropriate form appeared to have been signed by both the father and son. After the father’s death, his two other children brought claims against the son for breach of fiduciary duty and conversion. The parties eventually stipulated that the son had signed his father’s name to the form. The son testified that his father suffered from gout and on the day the form was signed, he could not hold a pen without difficulty. The trial court ruled that the son was the owner of the account and the Supreme Court of South Dakota affirmed, concluding that the evidence, although circumstantial, showed that the son acted not as agent under the power of attorney but as an amanuensis, signing the father’s name in his presence and at his direction. Estate of Bronson, 892 N.W.2d 604 (S.D. 2017).
SPENDTHRIFT TRUSTS: Creditor can reach principal distributions from spendthrift trust. Answering a question certified by the Ninth Circuit Court of Appeals, the California Supreme Court held that a trustee in bankruptcy has standing as a hypothetical judgment creditor and can reach the full amount of distributions of principal currently due and payable to a beneficiary as well as 25% of any anticipated payments despite the existence of a spendthrift provision. Carmack v. Reynolds, 391 P.3d 625 (Cal. 2017).
SPOUSAL ALLOWANCE: IRA is not subject to spousal allowance because it is not a security account. The surviving spouse applied for the spousal allowance under Iowa Code § 633.374. The decedent’s probate estate was inadequate to pay the allowance and the surviving spouse maintained that the decedent’s IRA accounts, although they are nonprobate property, were liable to pay the allowance because they were subject to the Transfer on Death Security Registration Act, Iowa Code § 633D.8(1), which provides that securities in TOD form are subject to payment of statutory allowances to the decedent’s family. The Supreme Court of Iowa affirmed the lower court decision, finding that the IRAs were not subject to paying the allowance because they were not securities accounts. In re Estate of Gantner, 893 N.W.2d 896 (Iowa 2017).
SURVIVING SPOUSE: Israeli law does not give survivor rights of spouse under Florida law. Under Israeli law, marriage is solely a matter of religious law, and civil marriage does not exist. Israeli law does recognize, however, a relationship that makes the two persons involved “reputed spouses.” After the man died, the trial court awarded his surviving companion a share of his intestate estate under Florida law. In an exhaustive opinion accompanied by an equally detailed dissent, the appellate court reversed, holding that a surviving “reputed spouse” is not a surviving spouse and therefore not an heir of the decedent. Cohen v. Shushan, 212 So. 3d 1113 (Fla. Dist. Ct. App. 2017).
CHARITABLE DEDUCTION: Extension to take charitable deduction allowed. Trustee sought an extension to make an election under IRC § 642(c). Trustee made charitable contributions in Year 2 and intended to have the contributions considered to be paid in Year 1 as permitted under the section. The election was not timely filed because of inadvertence. The IRS determined that the taxpayer provided sufficient evidence for an extension because the taxpayer acted reasonably and in good faith. PLR 201721003.
ESTATE TAX VALUATION: Valuation of company should consider accepted redemption offers. On the date of the decedent’s death, his revocable trust held approximately a 47% voting and 52% nonvoting interest in a limited liability company. The decedent’s children owned most of the remaining shares and had accepted a redemption offer before his death that became final shortly thereafter. The trust’s voting interest then increased to 70%. The court held that the redemption agreements should be considered in determining the value of the decedent’s interest. Ultimately, the trust’s interest was valued at the amount the trust would receive in a pro rata distribution of the majority of the company’s assets. In addition, the court disallowed an interest expense deduction on a loan to pay the estate tax liability. The expense was not a reasonable and necessary expense because the trust could have ordered a pro rata distribution from the company’s mostly liquid assets to pay the estate tax. Estate of Koons v. Commissioner, 119 A.F.T.R.2d 2017-1609 (11th Cir. 2017).
FRAUDULENT TRANSFER: Transfer of mineral interests to trust is fraudulent when purpose was to shield assets from IRS tax liens. After receiving notice of federal tax liens, the settlor created a trust to shield his mineral interests from the IRS. The mineral interests were heavily disputed and subject to multiple actions to quiet title. The district court found that the settlor made the transfer with the “actual intent to hinder, delay or defraud” the creditor, the United States. 28 U.S.C. § 3304(b)(1)(A). On appeal, the settlor and trustee argued that the district court should not have considered the fraudulent transfer issue because the United States had omitted it in the pretrial order. The Tenth Circuit affirmed, holding that pretrial orders are construed liberally and that fraudulent transfer is one approach by which the government could establish its claim to a superior lien priority. No surprise resulted because the settlor and trustee had more than two years’ notice of the fraudulent transfer theory and had responded to it on several occasions. Leathers v. Leathers, 856 F.3d 729 (10th Cir. 2017).
TAX PROTESTOR: Individual’s homemade tax returns and deductions for management of fictitious trust supported fraud penalty. An individual believed that the Social Security Administration created a trust in his name when it assigned him a Social Security number and that the trust is a legal entity in its own right. Before 2005, he filed his taxes using Form 1040, but then for two years he filed his tax return using Form 1041 (the form for estates and trusts) in the name of his alleged trust. After IRS agents explained that Form 1041 was not appropriate, he began filing a homemade return, reporting his wages as trust income but claiming fiduciary fees and income distributions that left the trust with a tax liability of zero. After the individual was convicted of making false claims for tax refunds, the court upheld fraud-based penalties, noting that (1) the individual was not ignorant of the law based on his previous use of the Form 1040 and IRS requests to use the correct form; (2) he was literate and articulate; and (3) he ignored decades of authority that disagreed with his personal tax theories. Crummey v. Commissioner, 119 A.F.T.R.2d 2017-1387 (5th Cir. 2017).
Bankruptcy. In her Note, “How Fair Art Thou?”—Managing the Intersections of Charitable Trust Law and Municipal Bankruptcy, 93 U. Det. Mercy L. Rev. 691 (2016), Elizabeth K. Butler attempts to answer the question, “How should a federal bankruptcy court treat a municipality’s charitable trust assets, protected under state charitable trust law, in Chapter 9 bankruptcy?”
Class Actions. In his article, The Class Action as Trust, 91 Wash. L. Rev. 1461 (2016), Sergio J. Campos argues that trust law is more useful than corporate law as a model for class actions because, unlike the shareholders of a corporation, the beneficiaries of a trust typically cannot exercise control over the trustee.
Digital Assets. Natalie M. Banta argues that property law protects an individual’s rights to digital assets that cannot be contracted away in Property Interests in Digital Assets: The Rise of Digital Feudalism, 38 Cardozo L. Rev. 1099 (2017).
Firearm Transfers. In Basics of Firearm Transfers for Estate and Probate Lawyers, 51 Real Prop. Tr. & Est. L.J. 505 (2017), Benjamin Dean discusses “the law of firearm transfers, how it interacts with both estate planning and probate work, as well as practical issues and pitfalls that attorneys should be prepared to advise their clients about.”
Foreign Trusts. In Foreign Trusts and U.S. Tax Implications, 61 S.D. L. Rev. 420 (2016), Alice Rokahr and Maggie Cockburn focus on the exposure of non-U.S. persons to the U.S. transfer and income tax systems, as well as the U.S. tax treatment of the bequests and trusts that non-U.S. citizens leave for their beneficiaries.
Funeral Representatives. James P. Spica canvasses the peculiarly fiduciary aspects of a designated funeral representative’s power to make funerary decisions, focusing on the breadth of the funeral representative’s discretion and the identity of the holders of rights correlative to the funeral representative’s fiduciary duties in Rights and Rites: Understanding the Fiduciary Obligations of Designated Funeral Representatives, 62 Wayne L. Rev. 185 (2017)
Hart-Scott-Rodino Antitrust Improvements Act. Jay D. Waxenberg and Jason A. Lederman discuss how HSR affects estate planning transactions and the steps estate planners may take to resolve the issues triggered by HSR, including those raised when a settlor retains the ability to replace trustees of an irrevocable trust, in The Intersection of Trusts and Anti-Trust: Why You, an Estate Planner, Should Care About Hart-Scott-Rodino, 51 Real Prop. Tr. & Est. L.J. 431 (2017).
Incentive Trusts. Victoria Haneman explores the idea of incorporating learning outcomes into the drafting of incentive trusts when the incentive provision requires that the beneficiary develop a skill set as opposed to completing a binary task in Incorporation of Outcome-Based Learning Approaches into the Design of (Incentive) Trusts, 61 S.D. L. Rev. 404 (2016).
North Carolina—Ante-Mortem Probate. In his Comment, Better to Play Dead? Examining North Carolina’s Living Probate Law and Its Potential Effect on Testamentary Disposition, 39 Campbell L. Rev. 187 (2017), Kyle Frizzelle argues that allowing a postmortem will contest even after a successfully living probate destroys the desirability of living probate as an estate planning tool.
Powers of Appointment. In Using Equity to Aid the Exercise of a Power of Appointment That Fails to Specifically Refer to the Power, 51 Real Prop. Tr. & Est. L.J. 457 (2017), Kenneth W. Kingma “examines the common law equitable rule that aids an attempted exercise of a power of appointment by not requiring rigid compliance with a specific reference requirement.”
Retirement Benefits. In Divorce, Death, and Retirement Benefits, 105 Ill. B.J. 32 (June 2017), Dorothy A. Voigt “looks at a variety of death-after-divorce benefit division scenarios, but one message comes through loud and clear: file a QDRO [qualified domestic relations order] for the ex-spouse as soon in the process as possible.”
South Dakota—DAPT Statutes. In their article, Domestic Asset Protection Trusts: Examining the Effectiveness of South Dakota Asset Protection Trust Statutes for Removing Assets from a Settlor’s Gross Estate, 61 S.D. L. Rev. 378 (2016), Mark A. Krogstad and Matthew W. Van Heuvelen discuss why recent changes to South Dakota’s DAPT statutes likely provide settlors the option of reducing their gross estates by making completed gifts to self-settled trusts sitused in South Dakota.
South Dakota—Decanting. In her article, Decanting: A Practical Roadmap for Modernizing Trusts in South Dakota, 61 S.D. L. Rev. 413 (2016), Mary Akkerman provides an overview of what is involved in reforming or decanting an irrevocable trust.
South Dakota—Spousal Property Trusts. In South Dakota Special Spousal Property Trusts: South Dakota “Steps-Up” to the Plate and Hits a Home Run for Surviving Spouses, 61 S.D. L. Rev. 431 (2016), Terry Prendergast discusses 2016 legislation that enables a surviving spouse whose property passes through a trust to receive a 100% step-up in basis on the property for federal income tax purposes, thus creating a benefit similar to that of surviving spouses in community property states.
Testamentary Freedom. Jeffrey Evans Stake discusses some biological reasons to worry about the behavior of benefactors, concluding that testamentary freedom should be demoted from the organizing principle to an important consideration in the design of the law of succession in Biologically Biased Beneficence, 48 Ariz. St. L.J. 1101 (2016).
Virginia—Charitable Trusts. In his Note, A Journey Through the Briar Patch: The Legal Implications of the Supreme Court of Virginia’s Holding in Com. ex rel. Bowyer v. Sweet Briar Institute, 11 Liberty U. L. Rev. 111 (2016), T. Joel Francis advances four arguments that the court did in fact rule on the legal status of Sweet Briar College, despite the court’s comment to the contrary.
Washington—Malpractice. Kaitlyn C. Kelly’s Comment, Put Privity in the Past: A Modern Approach for Determining When Washington Attorneys Are Liable to Nonclients for Estate Planning Malpractice, 91 Wash. L. Rev. 1851 (2016), traces trends in Washington estate planning malpractice law and recommends that courts require nonclient, intended beneficiaries to exhaust Washington’s will and trust reformation statute before bringing a claim against an estate planning attorney.
ALABAMA adopts the Revised Uniform Fiduciary Access to Digital Assets Act. 2017 Ala. Acts 2016-316.
ALABAMA enacts the Elder Abuse Protection Order and Enforcement Act. 2017 Ala. Acts 2017-284.
ARKANSAS enacts the Revised Uniform Fiduciary Access to Digital Assets Act. 2017 Ark. Acts 886.
ARKANSAS passes the Dynasty Trust Act to permit the creation of perpetual trusts. 2017 Ark. Acts 945.
GEORGIA adopts the Uniform Power of Attorney Act. 2017 Ga. Laws 186.
IOWA passes the Revised Uniform Fiduciary Access to Digital Assets Act. 2017 Iowa Legis. Serv. S.F. 333.
KANSAS enacts the Uniform Fiduciary Access to Digital Assets Act. 2017 Kan. Laws Ch. 19.
MAINE prohibits discrimination against live organ donation in life insurance, disability insurance, and long-term care insurance. 2017 Me. Legis. Serv. Ch. 20.
MICHIGAN enacts the Michigan Community Foundation Act. 2017 Mich. Legis. Serv. P.A. 38.
MISSISSIPPI approves the Revised Uniform Fiduciary Access to Digital Assets Act. 2017 Miss. Laws H.B. 849.
MONTANA adopts the Revised Uniform Fiduciary Access to Digital Assets Act. 2017 Mont. Laws Ch. 286.
MONTANA passes an act allowing for the appointment of proxy decision makers for certain hospitalized patients. 2017 Mont. Laws Ch. 285.
NEBRASKA passes the Burial Pre-Need Sale Act. 2017 Neb. Laws L.B. 239.
NEVADA enacts the Revised Uniform Fiduciary Access to Digital Assets Act. 2017 Nev. Laws Ch. 38.
NEW MEXICO adopts the Revised Uniform Fiduciary Access to Digital Assets Act. 2017 N.M. Laws Ch. 72.
NEW MEXICO adopts the Uniform Partition of Heirs Property Act. 2017 N.M. Laws Ch. 41.
NEW MEXICO passes the Protecting Vulnerable Adults from Financial Exploitation Act. 2017 N.M. Laws Ch. 106.
TENNESSEE enacts the Elderly and Vulnerable Adult Financial Exploitation Prevention Act. 2017 Tenn. Pub. Acts Ch. 264.
UTAH approves the Revised Uniform Unclaimed Property Act. 2017 Utah Laws Ch. 371.
UTAH passes the Uniform Powers of Appointment Act. 2017 Utah Laws Ch. 125.
VERMONT adopts the Revised Uniform Fiduciary Access to Digital Assets Act. 2017 Vt. Laws No. 13.
VIRGINIA approves the Uniform Trust Decanting Act. 2017 Va. Acts Ch. 592.
WASHINGTON authorizes trust decanting. 2017 Wash. Legis. Serv. Ch. 29.
WEST VIRGINIA enhances its slayer statute to cover more offenses and types of property. 2017 W.Va. Laws H.B. 2404. n