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: Children adopted as adults are included in class gift to settlor’s children. The settlor created an irrevocable trust to pay an annuity to the settlor for 20 years, remainders in equal shares to each child of the settlor then living. At the end of 20 years, the settlor had one biological child. About a year earlier, the settlor adopted two adults, children of his former partner with whom he had “a family-like relationship” for decades. The trustee asked the court to determine the remainder beneficiaries of the trust. The court included the adopted children. The trust defined the beneficiaries to include children of the settlor living at termination, whether born or adopted before or after the creation of the trust, and the adoptions could not be characterized as a “sham” to evade the trust terms because of the close relationship between the settlor and the adopted persons. Eder’s Appeal from Probate, 171 A.3d 506 (Conn. App. Ct. 2017).
CREDITORS: Mortgagee need not judicially foreclose on encumbered property to remove proceeds from estate administration. The main asset of an insolvent estate was a residence subject to mortgage debt that exceeded its fair market value. The estate claimed the expenses of administration should be paid before the mortgage debt under a probate statute governing the order of payment of debts of the estate. Wash. Rev. Code § 11.76.110. But the court held that the mortgagee of the estate’s real property is entitled to all the proceeds under a nonjudicial foreclosure in accordance with the terms of the deed of trust. Because a mortgagee may foreclose without filing a claim in the probate proceeding, Wash. Code § 11.40.135, the statutes do not create a “super priority” for administration expenses. In re Estate of Patton, 405 P.3d 205 (Wash. Ct. App. 2017).
DIGITAL ASSETS: Estate has property right in decedent’s e-mail account that is not preempted by federal law. The decedent’s personal representatives sought access to the decedent’s e-mail account with a commercial Internet service provider. The trial court granted the service provider’s motion for summary judgment on the ground that the federal Stored Communications Act, 18 U.S.C. §§ 2701–2712, prohibits disclosure of the contents of the e-mail. On appeal the court reversed, holding that the estate has a common law property interest in the account and that the personal representatives can give the “lawful consent” required by the federal statute for access to the contents of the e-mail messages. Id. § 2702(b)(3). To hold otherwise would allow the federal statute to preempt state probate law without any indication that Congress intended preemption. The court remanded for further proceedings on the question of whether the service provider’s terms of service barred access, given an unresolved question surrounding whether the decedent and the provider had reached a “meeting of the minds” in agreeing to the terms of service. Ajemian v. Yahoo!, Inc., 84 N.E.3d 766 (Mass. 2017).
ELECTIVE SHARE: Option agreement unsupported by consideration does not remove property from augmented estate. After marrying in 1982, a husband and his son by a previous marriage entered into a partnership agreement. They amended the agreement in 1987 to grant the son an option to purchase the husband’s interest in the partnership from the husband’s estate for $50,000. After the husband’s death in 2016, the son attempted to exercise the option and the surviving wife as administrator refused to convey the partnership interest, claiming that it was part of the augmented estate subject to her right of election under W. Va. Code § 42-3-1(a). The trial court determined that the option was valid, fulfilled a valid business purpose, and was not designed to defeat her elective share. The wife prevailed on appeal, with a divided court holding that the option agreement was invalid because it was not supported by consideration and therefore was a testamentary substitute included in the augmented estate subject to the elective share right. In addition, the partnership “was built entirely during the marriage with marital funds” so that freedom of contract must give way to the elective share. Young v. Young, 808 S.E.2d 631 (W. Va. 2017).
RENUNCIATION OF WILL: Renunciation filed before death of surviving spouse is valid. The surviving husband filed a renunciation of his deceased wife’s will and later assigned his interest in his wife’s estate to a trust he had earlier created. He died six weeks after filing the renunciation. In an action by the beneficiaries of the will, the trial court held that the renunciation abated with the husband’s death. The appellate court reversed based on a statute providing that a renunciation is perfected by filing a written instrument declaring the renunciation. 755 Ill. Comp. Stat. 5/2-8. The statute is clear: no construction of the statute is necessary, and no consideration of the policy underlying the renunciation provision—for example, that its purpose is to provide support during the surviving spouse’s remaining life—is possible. Once perfected by filing, the subsequent death of the surviving spouse is irrelevant. The assignment was valid because it did not assign the right of renunciation, which is personal to the surviving spouse, but instead assigned the husband’s interest in the estate. In re Estate of Scherr, 81 N.E.3d 131 (Ill. App. Ct. 2017).
TRUST MODIFICATION: Purported modification of trust deemed invalid under statute in force at time of attempted modification. The settlor’s irrevocable trust created a subtrust for each of her two children with the settlor’s husband serving as trustee. The settlor died and both trusts terminated by their terms without the trustee making terminating distributions. Next the beneficiaries executed a document purporting to extend the trust until the trustee resigned or died. Two years later, the beneficiaries filed a petition to terminate the trust. The court granted the petition because the modification was ineffective. When it was executed, statutes allowed modification of an irrevocable trust only with the written consent of the settlor and all of the beneficiaries. The modification was arguably valid under new trust statutes enacted months after the execution of the modification, which apply to all trusts created after or in existence on the effective date. The new statutes, however, do not apply to events taking place before the effective date. In addition, the purported modification was not valid as a stand-alone contract because the modification rules cannot be circumvented by an agreement, nor can the trust be modified by the beneficiaries’ ratification of the trustee’s actions under the agreement. In re D’Aquisto Irrevocable Trust, No. 2017AP145, 2017 WL 5158798 (Wis. Ct. App. Nov. 7, 2017).
TRUSTS: Trust terminates when purpose is accomplished. A protected person’s guardians made gifts of the protected person’s assets in equal shares to the person’s children for tax planning purposes. The protected person’s estate plan divided most of the estate equally among the children. One of the children could not be located, however, and the court approved the creation of a discretionary trust to hold the gift to that child with the guardians as trustees. The trust would terminate at the end of ten years should the child not be located within that time. Within a year, the missing child learned of the trust and petitioned for its termination. The trial court granted summary judgment to the trustees, and the child appealed. The Supreme Court of South Dakota reversed, holding that the trust terms were ambiguous on the question of whether the purpose of the trust was to preserve the assets until the child could be located or to manage the assets for the child’s life subject to the trustees’ control. The court concluded that trust terms and the circumstances surrounding its creation showed that the purpose was to preserve the assets until the child could be located. Thus, the trust terminated because its purpose had been accomplished. Guardianship of Novotny, 904 N.W.2d 346 (S.D. 2017).
WILL FORMALITIES: Notary may be a witness. The testator and one witness signed the will. The will also bore the signature and stamp of a notary public who was present when the testator and the witness signed the will. Under Alabama’s statute of wills, a will is valid if it is in writing, signed by the testator, and by “at least two persons each of whom witnessed either the signing or the testator’s acknowledgement of the testator’s signature.” Ala. Code § 43-8-131. The probate court denied probate on the ground of lack of due execution, and the Supreme Court of Alabama reversed. The court held that by witnessing the testator’s signing the will and then affixing her own signature, the notary fulfilled the minimum statutory requirements. This result follows the legislature’s intent to reduce the formalities of will execution to the minimum necessary and gives effect to the presumption that a testator who has a will and sought to have it notarized did not intend to die intestate. Pickens v. Estate of Fenn, No. 1160202, 2017 WL 4324717 (Ala. Sept. 29, 2017).
FREEDOM OF INFORMATION ACT: Request that IRS disclose tax information requires material interest. A son filed a Freedom of Information Act request seeking several categories of documents that related to his father’s estate and the taxes his father owed before death. Although the IRS produced thousands of pages of responsive documents, it withheld others on the basis that the son had not established a right to access. The district court held that the son was not entitled to (1) tax returns in the years preceding his father’s death as he had failed to show a material interest in the information and (2) documents that would show whether the estate’s return was being examined or subject to other investigation or processing. In contrast, the district court remanded the request concerning the fiduciary income tax returns for the trust, as the son held a future beneficial interest in the trust. Goldstein v. Internal Revenue Service, No. 14-cv-02186 (APM), 2017 WL 4358674 (D.D.C. Sept. 29, 2017).
GIFT TAX: Grantors’ contribution to trusts and trust committees’ distributions to grantors and other beneficiaries are not completed gifts. The IRS ruled that the grantors’ transfers of property to their trusts were not completed gifts for gift tax purposes because they retained a consent power over income and principal. Further, the members of the power of appointment committee were not deemed to make completed gifts when they made distributions to beneficiaries other than the grantors. These distributions were deemed completed gifts by the grantors. Moreover, the income, deductions, and credits against tax of the trusts were not included in calculating the grantors’ taxes; the grantors were not considered owners of the trusts because the committee’s administrative controls were not exercisable primarily for the benefit of the grantors. PLR 201742006.
TRANSFEREE LIABILITY: Estate and two trusts are liable as transferees for income tax of corporation. An estate owned four-fifths of a corporation that operated two bowling alleys. The executor decided to sell the business because of family discord. Based on recommendations from her advisors, the executor first sold the corporation’s assets and then sold the corporate shares to a different person, who immediately resold the shares to a different entity. The estate distributed the money it received from the sales to two marital trusts. The original corporation owed approximately $1 million in income taxes, which the purchasers did not pay. The Tax Court held that the estate and trusts were liable as transferees under IRC § 6901 for the corporation’s unpaid income tax, penalty, and interest. The state law liability requirement for transferee liability was satisfied because the “loan” scheme used by the purchasing entities was a scam and disguised the true nature of the transaction, which was a liquidating transaction. Further, the transferees should have known the corporation would be insolvent after the transaction because it had no assets and was in the process of winding up its affairs. Hawk v. Commissioner, T.C. Memo 2017-217 (2017).
TRUSTS: Government may foreclose on condominium held in trust because taxpayer is beneficial owner. The court allowed the government to foreclose a tax lien on a condominium held in trust. Based on a six-factor test, the court concluded that the trust was merely the taxpayer’s nominee. The taxpayer argued that, but for his attorney, he never would have taken title to the condominium and then transferred it to the trust. Even if this were true, the court stated, the taxpayer still was the beneficial owner and the trust his nominee. United States v. Nassar, 699 Fed. Appx. 46 (2d Cir. 2017).
Donative Trusts. In The Demand for Fiduciary Services: Evidence from the Market in Private Donative Trusts, 68 Hastings L.J. 931 (2017), Adam Hofri-Winogradow presents and analyzes the results of the first-ever global survey of professional service providers to private donative trusts.
Family Business Planning. Scott E. Friedman, Andrea H. HusVar, and Eliza P. Friedman introduce a new paradigm for family business planning based on the application of insights from social neuroscience and positive psychology in Advising Family Businesses in the Twenty-First Century: An Introduction to Stage 4 Planning™ Strategies, 65 Buff. L. Rev. 425 (2017).
Illinois—Acknowledgments. David Madden explains how “a document acknowledged by a notary when it’s executed can overcome a challenge to its authenticity at trial and ensure it will be admissible into evidence” in Acknowledged Estate Planning Documents Are Self-Authenticating Evidence, Ill. B.J., Nov. 2017, at 44.
Mississippi—Posthumously Conceived Children. In “It’s Not My Fault!”: Inequality Among Posthumously Conceived Children and Why Limiting the Degree of Benefits to Innocent Babies Is a “No-No!,” 36 Miss. C. L. Rev. 194 (2017), Katie Christian argues that the current standard for determining the rightful recipient of benefits for posthumously conceived children ignores the intentions of the deceased gestational parent and recent developments in reproductive technology.
Nevada—Posthumously Conceived Children. In her Note, Inheritance Rights of Posthumously Conceived Children: A Plan for Nevada, 17 Nev. L.J. 773 (2017), Cassandra M. Ramey strongly recommends that Nevada enact a statute to address the inheritance rights of posthumously conceived children.
Texas—Wills & Trusts. Gerry W. Beyer discusses judicial developments relating to the Texas law of intestacy, wills, estate administration, trusts, and other estate planning matters during the period from December 1, 2015, through November 30, 2016, in Wills & Trusts, 3 SMU Ann. Tex. Surv. 465 (2017).
Trust Decanting. Stewart E. Sterk’s article, Trust Decanting: A Critical Perspective, 38 Cardozo L. Rev. 1993 (2017), claims that the extraordinary breadth of decanting statutes risks frustrating the intent of settlors and enables trustees to impose external costs without generating commensurate social benefits.
Wyoming—Small Estate Distribution. Jennie Boulerice argues that the Wyoming Supreme Court correctly interpreted a recently amended state statute to authorize a district court to order summary distribution of real property located in other Wyoming counties in Estate Law—Summary Distribution of Small Estates: In re Estate of Coborn, 17 Wyo. L. Rev. 59 (2017).
CALIFORNIA authorizes financial institutions that suspect financial abuse of an elder or dependent adult to not honor a power of attorney under specified circumstances. 2017 Cal. Legis. Serv. Ch. 408.
CALIFORNIA enacts Lesbian, Gay, Bisexual, and Transgender Long-Term Care Facility Residents’ Bill of Rights. 2017 Cal. Legis. Serv. Ch. 483.
CALIFORNIA regulates hydrolysis facilities. 2017 Cal. Legis. Serv. Ch. 846.
CALIFORNIA revises directions for a trustee’s allocation of money to beneficiaries of an estate or trust as either principal or income. 2017 Cal. Legis. Serv. Ch. 577.
PENNSYLVANIA provides that a testamentary power that denies the right to appoint to the donee’s creditors is construed also to deny the power to appoint to the creditors of the donee’s estate, in the absence of a specific contrary intent in the instrument. 2017 Pa. Legis. Serv. Act 2017-41.