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Keeping Current—Probate

Keeping Current—Probate offers a look at selected recent cases, literature, and legislation. The editors of Probate & Property welcome suggestions and contributions from readers.

CASES

CLAIMS AGAINST ESTATE: Claim for omitted spouse’s share resting on purported common law marriage is not subject to nonclaim statute. Eleven months after a probate court granted letters testamentary, a purported common-law spouse filed a petition claiming an omitted spouse’s share of the estate pursuant to Ala. Code § 43-8-90. Alabama Code § 43-2-350 requires presentment of claims against the estate of a decedent within the later of six months after the grant of letters or five months after the first publication of notice. An Alabama trial court cited the statute to bar the omitted spouse’s claim. The court did not apply a statutory exception for claims by heirs, reasoning that until the claimant’s status as a surviving spouse is resolved, the claimant is not an heir of the decedent. The Supreme Court of Alabama reversed, holding that the nonclaim statute applies to claims involving the relationship of debtor and creditor and therefore does not apply to a claim of omitted spouse status nor to a claim by a decedent’s surviving spouse by reason of a common-law marriage. Neither claim is subject to the time limits of the nonclaim statute. The court remanded the case for determination of “the genuine issue of material fact” as to whether a common-law marriage existed. Harbin v. Estess, No. 1170209, 2018 WL 3598915 (Ala. July 27, 2018).

POWERS OF APPOINTMENT: Reference in will to power over trust established by parents is sufficient specific reference. A trust created by parents for the benefit of their son gave him a power of appointment over the trust property and required him to exercise the power “by a will specifically referring to and exercising” the power. The son died, and his will exercised “any Power of Appointment which I may have over that portion of the trust or trusts established by my parents for my benefit” in favor of his brother. The will contestants argued that the language of the will was insufficient to exercise the power under Cal. Prob. Code § 632, which requires a donee to comply with the donor’s requirement that exercise be accomplished by a specific reference to the power or to the instrument creating the power. The probate court concluded that the decedent had validly exercised the power and admitted the will to probate. The appellate court affirmed because the trust required the donee to make reference to the power of appointment, not to the instrument creating the power or to the trust. Therefore, the reference to a power of appointment over trusts created by decedent’s parents satisfied the statute. Estate of O’Connor, 237 Cal. Rptr. 3d 519 (Ct. App. 2018).

POWERS OF APPOINTMENT: Decedent’s manifest intention to exercise power prevails over literal language of purported exercise. A mother created an inter vivos trust and a testamentary trust in favor of her daughter, granting her powers of appointment to any person other than her “creditors, her estate, or the creditors of her estate.” The daughter’s will exercised both powers by separate provisions purporting to appoint the property to her executor, to be added to the residuary estate, which passed to a charitable foundation named for the daughter. The appellate court affirmed the decision of the Surrogate Court that the powers were validly exercised because they gave effect to the daughter’s “clear intent” to give the appointive property to a charitable foundation, agreeing with the Surrogate that it “makes no sense” for her to have made a disposition of the appointive property that she knew to be ineffective. In re Will of Bruce, 79 N.Y.S.3d 10 (App. Div. 2018).

PRETERMITTED CHILDREN: Pretermitted child statute does not apply to inter vivos trust. A testator’s will poured over the estate to her lifetime trust, which benefitted her son Sebastian and his descendants. Her other child, Michael, predeceased her and was a beneficiary of neither the will nor the trust. In addition, her will contained language stating that she intentionally made “no provision for the benefit of any child of mine, nor the issue of any child of mine, whether now alive, now deceased, or hereafter born or deceased,” except as expressly provided by the will. Michael’s children brought a proceeding seeking determination of their status as pretermitted heirs with respect to the trust. The court held the pretermitted child statute, N.H. Rev. Stat. § 551:10, did not apply to the trust. The court turned aside the petitioners’ argument that the subsequent enactment of N.H. Rev. Stat. § 564-B:1-112 (identical to Uniform Trust Code § 112), making the rules of construction for interpretation of and disposition of property by wills applicable to the interpretation of trusts and the disposition of trust property, requires the application of the pretermitted child statute to trusts. The court explained that the pretermitted child statute enacts a rule of law that omission of a child from a will is accidental unless there is contrary evidence and is not a rule of construction governed by § 564-B:1-112. In re Teresa E. Craig Living Trust, No. 2017-0532, 2018 WL 4266433 (N.H. Sept. 7, 2018).

SLAYER STATUTE: Joint account funded solely by slayer passes to estate of the killed co-tenant. A man and a woman who cohabited opened two joint bank accounts with the right of survivorship. After he murdered her, he and her estate disputed ownership of the funds. Idaho adopted its slayer statute in 1971, Idaho Code § 15-2-803, based on the Uniform Probate Code (UPC) provision then in effect. Unlike current UPC § 2-803, the older statute does not directly address the disposition of property jointly held with right of survivorship by the slayer and the decedent but rather provides that the slayer is “deemed to have predeceased the decedent as to property which would have passed . . . under any agreement made with the decedent.” The court held that the provision applies to a joint account with rights of survivorship between the slayer and the decedent created by the slayer who made all contributions to the account. Thus, the balance on the date of the decedent’s death passes to the decedent’s estate. Hodge ex rel. Welch v. Waggoner, 425 P.3d 1232 (Idaho 2018).

SURVIVING SPOUSE RIGHTS: Disqualification of surviving spouse for “willful absence” requires both physical and emotional separation. More than 30 years before a husband died, the wife moved out of their marital home and established a separate residence. The husband’s estate claimed she was not entitled to a share of the estate because she was “willfully absent from the decedent spouse” for more than one year before the deceased spouse’s death. Mich. Comp. Laws § 700.2801. The probate court held in favor of the surviving wife, and a divided Supreme Court of Michigan affirmed. It held that a finding of statutory willful absence, which triggers forfeiture of spousal rights, to require a factual inquiry based on all of the circumstances. The court must evaluate whether “complete physical and emotional absence existed, resulting in an end to the marriage for practical purposes.” Three dissenting justices would have held that the plain language of the statute requires only physical absence to deny spousal rights. In re Estate of Erwin, Nos. 153980-153981, 2018 WL 3636142 (Mich. July 31, 2018).

TRUST PURPOSES: Remainder is accelerated when trust has invalid purpose. A will created a trust to “continue and expand” a website created by the decedent devoted to the genealogy of his family. The trust was to terminate when the perpetuities period expired, with the property then to be distributed to a named non-profit genealogical library. The decedent’s surviving sibling sought a construction of the will holding the trust invalid with the result that the estate passes by intestacy. The Surrogate Court agreed that the trust was invalid because it lacked a beneficiary and was not a charitable trust under New York law, N.Y. Est. Powers & Trusts § 8-1.8, but held that the trust property should pass to the charity because of the presumption against intestacy, especially when the will, as here, expressly disinherited the decedent’s heirs, and because so doing will preserve the decedent’s “overall testamentary plan.” In re Dawe, 81 N.Y.S.3d 727 (Sur. Ct. 2018).

TAX CASES, RULINGS, AND REGULATIONS

ESTATE TAX: Executor who resigns is liable as statutory executor for unpaid estate tax. The wife and sons of a decedent litigated his estate for many years. As part of a settlement, a son who served as executor of the estate resigned. He did not complete all of the procedural steps for discharge, however, and the court did not issue an order of discharge or appoint a new executor. In an action to recover unpaid estate taxes, the district court held that an executor who resigns his position is liable as a statutory executor when he fails to complete all procedural requirements necessary to be discharged. The court also held that the surviving spouse and another son did not have personal liability as trustees for the estate tax because they did not receive property in the decedent’s gross estate immediately after the decedent’s death, but rather three and nine years later, respectively. United States v. Paulson, 204 F. Supp. 3d 1102 (S.D. Cal. 2018).

GIFT TAX: No taxable gift occurs when taxpayer will disclaim interest in trust within reasonable time of learning of trust and has not accepted any benefits. A trust created before January 1, 1977, provided for remainder interests for a group of lineal descendants, including the taxpayer. The taxpayer, however, did not learn of this specific trust or his interest for many years. His interest vested upon the death of an extended family member who exercised her power of appointment by appointing the remaining principal and undistributed income of the trust to a familial class that included the taxpayer. The IRS approved the taxpayer’s proposal to disclaim his interest based upon his representation that he would make a written, unqualified, and irrevocable disclaimer within nine months of learning of the existence of the trust. He also represented that he had not exercised any powers of the interest or received any benefit from the trust. Priv. Ltr. Rul. 201831003.

INCOME TAX: Participation in welfare benefit plan involves compensatory split-dollar life insurance arrangement. A husband was a medical doctor and sole shareholder of an S Corporation, which employed him as a physician, his wife as office manager, and four other individuals. The S corporation made contributions to an employee welfare benefit plan, which purchased a life insurance policy on the couple’s lives. The couple claimed that their plan benefits were tax exempt, but the Tax Court agreed with the IRS, holding that their benefits constituted a split dollar life insurance arrangement. First, the arrangement was entered into in connection with the performance of services and was not part of a group life insurance plan. Second, the S corporation made contributions, which were used to pay the premiums on the policy through a trust and the trust was the beneficiary under the policy. Third, upon the death of the second of the couple, the trust was to pay the benefit to the beneficiaries designated by the couple. The other employees received only nominal death benefits and an accidental death and dismemberment policy. Therefore, the court held that the couple must include the economic benefits of the policy in their gross income. The economic benefit was not limited to the cost of life insurance protection but also included the cash value of the policy available to the couple each year. Santos v. Commissioner, T.C. Memo 2018-155 (2018).

TRUST MODIFICATION: Trustee allowed to partition trust without tax consequences for the beneficiaries. A settlor established an irrevocable trust before September 25, 1985, for the benefit of a granddaughter and her descendants. The trustee proposed to partition the trust upon the death of the granddaughter, funding each new trust with a pro rata share of the original trust. The IRS ruled that the partition would not lead to a transfer of property because the beneficiaries’ rights, interests, and expectancies would be substantially the same both before and after partition of the trust. Additionally, the separate trusts would not be subject to the generation-skipping transfer tax because the partition would not shift any beneficial interest to a beneficiary of a lower generation. Finally, the partition would not constitute a taxable disposition of the trust assets for purposes of IRC § 1001 because the assets would be distributed on a pro rata basis among the resulting trusts, resulting in no material legal difference in the positions of the beneficiaries. Priv. Ltr. Rul. 201833015.

LITERATURE

ARBITRATION CONTRACTS. Charles E. Rounds Jr. considers whether arbitration clauses in contracts between trustees and their investment managers are binding on the trust beneficiaries in his article Arbitration Contracts Between Trustees and Their Investment Agents: A Warning Label, 93 N.D. L. Rev. 263 (2018).

CHARITABLE GIFTS. In her article, Restricted Charitable Gifts: Public Benefit, Public Voice, 81 Alb. L. Rev. 565 (2017-2018), Susan N. Gary examines proposals developed by scholars over many years for reforming the way the law treats restricted gifts, revealing ideas that could increase the public voice through expanded application of cy pres.

CHOICE OF LAW. In his essay, The Use and Abuse of Governing-Law Clauses in Trusts: What Should the New Restatement Say?, 103 Iowa L. Rev. 1711 (2018), Thomas P. Gallanis proposes that a governing-law clause in a trust instrument should be effective unless contrary to the mandatory law of the jurisdiction with the most significant relationship to the matter at issue, urging the adoption of this approach by the Restatement (Third) of the Conflict of Laws, which is currently being drafted.

CONNECTICUT—PET TRUSTS. The purpose of Andrew B. F. Carnabuci’s article, Avoiding the Fate of Argos: The Duty of Pet Trust Protectors in Connecticut, 31 Quinnipiac Prob. L.J. 281 (2018), is to examine testamentary gifts to pets in their historical context and to recommend an optimal standard of care to govern pet trust protectors.

CONNECTICUT—SAME-SEX MARRIAGE. In her note, The Other Mother: Protecting Non-Biological Mothers in Same-Sex Marriages, 31 Quinnipiac Prob. L.J. 387 (2018), Nicole M. Riel argues that married lesbian couples in Connecticut still face challenges with respect to parentage not encountered by married opposite-sex couples.

CONNECTICUT—TESTAMENTARY APPOINTMENT OF GUARDIAN. Rosanna Tamam argues that the Connecticut legislature should adopt a provision similar to that of the Uniform Probate Code, which provides a guardianship hearing as an avenue for courts to honor the testamentary appointment of a guardian by a deceased custodial parent in Formalism vs. Function: Why the Testamentary Appointment of a Guardian Other than the Natural Surviving Parent Should Sometimes Be Honored, 31 Quinnipiac Prob. L.J. 407 (2018).

TEXAS—CONSTRUCTIVE TRUSTS. In his article, The Texas Constructive Trust and Its Peculiar Requirements, 50 Tex. Tech L. Rev. 447 (2018), David Dittfurth argues for the modification of the Texas constructive trust rule to better perform its function of protecting property rights.

CROWDFUNDING. In his Comment, Save That Money: Ensuring Donations Received Through Crowdfunding are Properly Protected, 10 Est. Plan. & Comm. Prop. L.J. 395 (2018), Blake Scott brings “awareness to the major property and estate planning issues embedded in crowdfunding.”

CY PRES. Allison Anna Tait believes the time has come to articulate a clear and usable cy pres standard. Her article, Keeping Promises and Meeting Needs: Public Charities at a Crossroads, 102 Minn. L. Rev. 1789 (2018), draws on both contract and property theories to enable a better understanding of trust law and to propose a standard for impracticability.

DONATIVE INTENT. In his article, Distributive Justice and Donative Intent, 65 UCLA L. Rev. 324 (2018), Alexander A. Boni-Saenz reorients inheritance law scholarship to the needs of the middle class and crystallizes distributive arguments for reformers of the probate system.

ELDER ABUSE THROUGH SOCIAL MEDIA. Breanne Hitchen argues that current federal and state statutes and regulations do not adequately address social media abuse of elderly long-term care facility residents and proposes that states should adopt criminal statutes to punish the act of capturing and disseminating inappropriate images of elderly residents on social media. Social Media Abuse in Long-Term Care Facilities: Why the Law Is Failing to Protect Elderly Residents and How States Should Address It, 49 U. Tol. L. Rev. 141 (2017).

ELDER LAW. In Elder Abuse: The Criminal Aspects of Estates & Guardianships, and Mental Commitments, 10 Est. Plan. & Comm. Prop. L.J. 225 (2018), Judge Claudia Laird and Darlene Payne Smith discuss “the treatment that the elderly, minors, incapacitated persons, and the mentally ill face in the criminal justice system, as a victim or defendant.”

GERIATRIC RELEASE. The aim of Anthony Gunst’s Note, What Is Life?: Geriatric Release and the Conflicting Definitions of “Meaningful Opportunity for Release,” 24 Wash. & Lee J. C.R. & Soc. Just. 611 (2018), is to assess whether geriatric parole should constitute a meaningful opportunity for release under Graham v. Florida, 560 U.S. 48 (2019).

MEDICAID. In Leap of Faith: Managed Care and the Privatization of Medicaid Long-Term Care Services, 30 Loy. Consumer L. Rev. 438 (2018), Brendan W. Williams tracks the explosion in managed long-term services and the steps states are implementing to deal with a rapidly aging population.

MEDICARE. Heidi Thomas recommends that states enact notice statutes allowing Medicare beneficiaries to shop freely for private health insurance but also provide them with immediate safeguards, in her Comment: Nana’s Need: How to Protect the Baby Boomer Generation Now Eligible for Medicare, 61 How. L.J. 369 (2018).

MICHIGAN—FUNERAL REPRESENTATION LAW. Susan M. Strunk’s Note, One Last Request: Understanding Michigan’s Funeral Representative Law, 63 Wayne L. Rev. 729 (2018), applauds Michigan’s new law as a step in the right direction and identifies issues that remain unresolved, offers solutions, and calls for reform.

MISSISSIPPI—SLAYER STATUTE. Zachary B. Roberson’s Comment, Oh the Insanity: After 124 Years, It’s Time to Amend Mississippi’s Slayer Statute to Account for the Insane Slayer, 87 Miss. L.J. 441 (2018), explores whether it is good policy to allow an insane slayer to inherit from the victim, specifically focusing on Mississippi. He argues that insane slayers should not inherit from their victims and recommends language to amend Mississippi’s slayer statute.

PENNSYLVANIA—PRUDENT INVESTOR RULE. In Prudence Redefined: Finding the Happy Medium between Prudence and Risk for the Uniform Prudent Investor Act, 27 Widener Commw. L. Rev. 249 (2018), Mark Kovalcin argues that the Pennsylvania prudent investor rule is an imperfect vessel, which can be improved through slight, yet purposeful, amendments. If the current standard of the rule is altered, Pennsylvania could lessen future litigation in this field by providing clearer directions to trustees and beneficiaries alike.

PROBATE LENDING. David Horton, in Borrowing in the Shadow of Death: Another Look at Probate Lending, 59 Wm. & Mary L. Rev. 2447 (2018), supplements his earlier article by reporting the results of a study of additional probate records, which provides hard evidence about the multimillion dollar inheritance-buying industry. He compares probate lending to other species of fringe lending before outlining how courts and lawmakers should regulate the practice.

SLAYER STATUTES. In her Comment, Exonerated but Still Confined: Slayer Rules Present Extra Obstacles to Criminally Exonerated Individuals, 10 Est. Plan. & Comm. Prop. L.J. 351 (2018), Paige Foster addresses “the hypothetical legal consequences exonerees face after release from prison but having lost their inheritances through civil suits.”

SOUTH DAKOTA—HOMESTEAD EXEMPTION. Thomas E. Simmons completes a historical assessment of South Dakota’s homestead exemption, focusing on the state constitutional developments of the homestead right after 1889 in published decisions of the South Dakota Supreme Court. Homestead: A (New) Hope, 63 S.D. L. Rev. 75 (2018).

TAX PLANNING. Alexander Evelson discusses how a person can take steps to minimize taxes before an imminent death in Time Is Ticking for Deathbed Tax Planning: An Analysis of Its Effectiveness, 10 Est. Plan. & Comm. Prop. L.J. 207 (2018).

TESTAMENTARY FREEDOM. Shelly Kreiczer-Levy argues for limits to testamentary freedom to protect the needs of certain potential recipients for roots in Property’s Immortality, 23 Cardozo J.L. & Gender 107 (2016–2017). She calls for empowering courts to invalidate wills that disinherit a child who maintained a close relationship with her parents, wills that disinherits daughters simply because they are women, and wills that require gay children to marry persons of the opposite sex.

TEXAS—CHARITABLE TRUSTS. In his Comment, Disregarding Donors and Tinkering with Texas Trusts: Judicial Modification of Restricted Charitable Gifts, 10 Est. Plan. & Comm. Prop. L.J. 375 (2018), Matthew Roland “explores the balance charitable trust law attempts to strike between honoring donor intent and encouraging the efficient application of property.”

TEXAS—PROBATE ERRORS. R. Kevin Spencer focuses on how to correct mistakes in probate proceedings in Standing and Error Correction in Probate, 10 Est. Plan. & Comm. Prop. L.J. 299 (2018).

LEGISLATION

CALIFORNIA enacts the Uniform Trust Decanting Act. 2018 Cal. Legis. Serv. Ch. 407.

CALIFORNIA updates the statutory Power of Attorney for Health Care form to address anatomical gifts. 2018 Cal. Legis. Serv. Ch. 287.

DELAWARE passes legislation to protect elderly and vulnerable adults from financial exploitation. 2018 Del. Laws Ch. 387.

ILLINOIS adopts the Uniform Powers of Appointment Act. 2018 Ill. Legis. Serv. P.A. 100-1044.

ILLINOIS passes the Frail Elderly Individual Family Visitation Protection Act. 2018 Ill. Legis. Serv. P.A. 100-850.

ILLINOIS provides guidance on the payment of life insurance proceeds after the insured and the beneficiary are divorced. 2018 Ill. Legis. Serv. P.A. 100-871.

RHODE ISLAND requires life insurance companies to disclose alternatives to lapse or surrender. 2018 R.I. Laws Ch. 18-126. n

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