Keeping Current—Probate offers a look at selected recent cases, literature, and legislation. The editors of Probate & Property welcome suggestions and contributions from readers.
ADVANCEMENTS: Lifetime transfers are not advancements. A will divided the estate equally among the testator’s four children. One child brought a proceeding to remove the executor, another child, on the grounds of mismanagement and misappropriation. Before the testator’s death, the executor transferred assets to himself and the other two children pursuant to his authority under the testator’s power of attorney. The trial court dismissed the removal action but ordered the remaining probate assets distributed to the child who brought the proceeding and who had not received any of the lifetime transfers. The appellate court reversed, finding that, because the will is unambiguous, the trial court improperly relied on extrinsic evidence to decide that the testator intended to divide all his property equally among the children, in effect treating the lifetime transfers as advancements. Because the will says nothing about advancements, under Pennsylvania law the will extinguishes all advancements. The terms of the will must be carried out as they stand. In re Estate of Tscherneff, 203 A.3d 1020 (Pa. Super. Ct. 2019).
DECANTING TRUSTS: Decanting is not allowed when trust terms require unanimous action by trustees. A husband and wife served as co-trustees of a charitable trust. After their divorce a dispute arose, which the trial court resolved by ordering the decanting under Nev. Rev. Stat. § 163.556 of one-half of the trust property to a new trust with terms identical to those of the original trust and administered solely by the ex-wife. On appeal by the ex-husband, the Supreme Court of Nevada reversed. The terms of the trust state that “trustees” may manage the trust property in “their discretion” and therefore require unanimous consent to distribute trust property. Because the application of the decanting statute requires a distribution by the trustees, a proper decanting of the trust requires the consent of all trustees, which was not given. In re Fund for Encouragement of Self Reliance, 440 P.3d 30 (Nev. 2019).
INTESTACY: Equitable adoption is recognized. A woman died intestate with no biological or adopted children, but she raised a boy in her home who as an adult believed he was her adopted son. The trial court held he was not an heir, but the appellate court reversed, recognizing the doctrine of equitable adoption. To establish that one is the child and heir of an intestate decedent as a matter of equity, the person seeking that status must show by clear and convincing evidence that “the decedent objectively and subjectively stood in the shoes of” that person’s parent. In making this decision, the court should consider the “particular facts” of the relationship between the decedent and the putative child. In re Estate of North Ford, 200 A.3d 1207 (D.C. 2019).
NO-CONTEST CLAUSE: Anti-strategic lawsuit against public participation (anti-SLAPP) statute applies to enforcement of no-contest clause. Parents created a family trust for the benefit of their three daughters, with one daughter serving as trustee. Another daughter petitioned to invalidate a purported trust amendment alleging that the trustee exerted undue influence on the mother after the father’s death. The probate court granted the petition, and the petitioner then filed a second petition to enforce the trust’s no-contest clause against the trustee. The trustee responded with a motion to strike under the California anti-SLAPP statute. Cal. Code Civ. Pro. § 425.16. The probate court ruled that the action to enforce the no-contest clause arose from the trustee’s “protected litigation conduct” and granted the trustee’s motion. The appellate court reversed. Although it agreed that the anti-SLAPP statute applies to an action to enforce a no-contest clause, in the case the petitioner demonstrated sufficient likelihood of success. The statute therefore requires denying the motion. The court also held that the no-contest clause was enforceable against the trustee. The trustee’s defense of the invalid amendment as trustee and as a beneficiary sought to impair or invalidate the original trust provisions and therefore qualifies as a “direct contest” to which a no-contest clause properly applies. Cal. Prob. Code §§ 21310, 21311. Key v. Tyler, 246 Cal. Rptr. 3d 224 (Ct. App. 2019).
NO-CONTEST CLAUSE: Offering codicil for probate violates no-contest clause, but no penalty because done in good faith. A will as modified by a codicil distributed the estate among all the testator’s children and grandchildren. A son nominated as executor offered the will and codicil for probate. A daughter offered for probate the will and codicil and a second alleged codicil benefitting her. After trial, the jury rejected the second codicil, and the executor then sought to enforce the will’s no-contest clause against the daughter. The trial court held the clause unenforceable, and the appellate court affirmed. The court held that the language of the clause making it applicable to any beneficiary who brought a proceeding to “prevent any provision” of the will “from being carried out in accordance with its terms” applied to the daughter who offered the second codicil because the purported codicil drastically changed the distribution of the estate. The clause was unenforceable, however, because she offered it for probate in good faith. Estate of Roosa v. Roosa, No. 2017-CA-01707-COA, 2019 WL 1771915 (Miss. Ct. App. Apr. 23, 2019).
TRUST TERMINATION: Trust terminated because doing so furthers purpose of trust. Parents created a testamentary trust that owned two vacation cottages on Martha’s Vineyard for the benefit of their two daughters and grandchildren. After the father died, his widow created a nominee trust that owned six vacant lots located between the cottages, also for the benefit of the daughters and grandchildren. After the widow died, one daughter bought the other daughter’s interest in both cottages. The parents had acquired the lots, which produced no income, to create a “vacation compound.” All the beneficiaries paid the real estate taxes on the lots. The daughter who sold her interest petitioned to terminate the nominee trust, and the trial court granted the petition. The appellate court affirmed, holding that the termination was proper under Mass. Gen. Laws ch. 203E, § 412(a) (identical to UTC § 412(a)), because termination would further the purpose of the trust, which was to give both children’s families equal use and enjoyment of the trust property. Because one set of beneficiaries no longer had an interest in the cottages, their enjoyment of the trust property would be furthered by terminating the trust and distributing three lots to each group of beneficiaries (the three lots nearest the cottages going to their owners). Each group of beneficiaries could then make use of the lots allocated to them in any way they desired, including selling them. In re MacMackin Nominee Realty Trust, 122 N.E.3d 1 (Mass. App. Ct. 2019).
TAX CASES, RULINGS, AND REGULATIONS
ESTATE TAX: Miscellaneous deduction not allowed on federal estate tax return for estate tax attributable to father-in-law. A woman received distributions from her father-in-law’s annuity and IRAs, which she inherited. These accounts passed from her father-in-law to her husband and then to her when her husband died. She claimed a miscellaneous deduction for federal estate tax on income in respect of a decedent – her father-in-law. But the father-in-law’s estate tax return did not include the distributions she received. The husband’s estate tax return also did not include income for these accounts. The Tax Court denied the deduction and noted that the taxpayer provided no evidence that the accounts were part of her husband’s estate or that estate tax was paid. Schermer v. Commissioner, T.C. Memo. 2019-28.
GENERATION-SKIPPING TRANSFER TAX: Inaccurate labeling of transfers does not affect automatic allocation of GSTT exemption. A husband and wife created three identical trusts for the benefit of their grandchildren and transferred an interest in a partnership to each trust. The only differences among the trusts were the names of the beneficiaries. The trustee of each trust had the discretion to make distributions of net income from the trust, with the beneficiary to receive the principal of the trust upon reaching thirty years old. The husband and wife filed a Form 709 but incorrectly reported the transfers as indirect skips. Each return attached a statement that the automatic allocation rules would not apply to transfers to the trusts. Later the wife died. The IRS determined that every transfer was a direct skip, and husband and wife opted out of the automatic allocation for indirect skips, not direct skips. Thus the wife’s unused GSTT exemption was automatically allocated to the transfers to the trusts. PLR201921012.
PORTABILITY ELECTION: Extension granted. A decedent’s estate was not required to and did not file an estate tax return. Because no return was filed, the estate did not make the election to allow the surviving spouse to consider the decedent’s deceased spousal unused exclusion amount. The IRS granted an extension to make the portability election and determined that the estate acted reasonably and in good faith under the circumstances. PLR 201921008.
STATUTE OF LIMITATIONS: State statute of limitations does not bar federal government from collecting estate taxes. A decedent’s trust contained shares in a closely held corporation, which owned a hotel and a gaming license. The decedent’s estate did not pay estate taxes in full when it filed the return; instead it made a valid IRC § 6166 election deferring the payment of the estate taxes in full. After the estate tax return was filed, the trustees distributed shares in the hotel to the trust beneficiaries. Nevada restrictions on a trust’s ownership of a casino motivated the distribution. At the time of the distribution, the beneficiaries signed an agreement stating they would be liable for the remaining estate taxes. The taxes went unpaid. The government eventually filed in state court to collect the unpaid taxes as a third party beneficiary of the distribution agreement. The Tenth Circuit held that the state’s statute of limitations regarding contract claims did not bar the federal government from the lawsuit to collect unpaid estate taxes. It reasoned the government acts in its sovereign capacity when collecting taxes. Thus, the federal ten-year statute of limitations for collecting unpaid taxes applied to the third-party beneficiary claim, even in state court. United States v. Johnson, 920 F.3d 639 (10th Cir. 2019).
TRANSFEREE LIABILITY FOR INCOME TAX: Exchanging cash for cash is fraudulent transaction. A family corporation owned and operated two bowling alleys. After the husband died, the corporation sold most of its assets, leaving the estate with a significant amount of cash, a large income tax debt, and a horse farm. The decedent’s family then sold their shares in the corporation in exchange for the farm. After the exchange only cash, net operating losses, and tax debt remained in the corporation. The decedent’s widow essentially sold the cash in the business for a lesser amount of cash that took into consideration the corporation’s considerable tax debt. The company purchasing the business never paid the outstanding taxes as promised. The Sixth Circuit determined that the transaction was a fraudulent transfer under the Uniform Fraudulent Transfer Act. The court held that the decedent’s estate, widow, and two marital trusts were liable as transferees for income taxes owed by the decedent’s business. Billy F. Hawk, Jr., GST Non-Exempt Marital Trust v. Commissioner, 924 F.3d 821 (6th Cir. 2019).
TRUST MODIFICATION: Change to trust provisions eliminates incidents of ownership. A settlor created a life insurance trust for the benefit of his child and his child’s descendants. He appointed the child as trustee. A court modified the trust to appoint another person as an insurance trustee and to eliminate the child’s ability to acquire and otherwise act as an owner of a life insurance policy on himself. The IRS ruled that the proceeds of the life insurance policy would not be included in the child’s estate when he died because the insurance trustee acquired the policy for the trust on the child’s life, and the modification ensured the child did not have any incidents of ownership. PLR 201919002.
TRUST: ERISA trust is considered a trust under IRC § 267. The taxpayers were the majority shareholders in an S Corporation, a pass through entity. A trust serving as the employee stock ownership plan (ESOP) owned the remaining interest in the corporation. The Tenth Circuit held that the corporation could not deduct the employees’ accrued wages and vacation time until the employees included those in their income. These wages and vacation time were earned at the end of one year but paid at the beginning of the following year. The court applied IRC § 267 to defer the deductions until the employees included the payments in their income. The employees were related to the corporation through the trust. As trust beneficiaries, the employees constructively owned stock in the corporation. The court stated that it did not matter that the ESOP was an ERISA trust rather than a common-law trust. It was also irrelevant that the plan called the employees participants instead of beneficiaries. Petersen v. Commissioner, 924 F.3d 1111(10th Cir. 2019).
ADVANCE DIRECTIVES. In The Enigma of End-of-Life Decisions in Advance Directives, 53 Real Prop., Tr. & Est. L.J. 401 (2018-19), Gregory S.C. Huffman “discusses advance health-care directives and the subjective, personal choices one must make for a future unknown situation.”
CAPACITY. In What to Do When a Client Loses Capacity, Experience 8 (Jan./Feb. 2019), Valerie Sherman explains how to identify when a client can no longer make legal decisions and what steps then should be taken.
CONNECTICUT—PROBATE. Jeffrey A. Cooper contends that Connecticut’s probate courts have become far more desirable than their detractors would acknowledge and far more efficient and effective than their reputation would suggest in Rethinking Connecticut Probate, 32 Quinnipiac Prob. L.J. 10 (2018). He explores lingering challenges facing Connecticut’s probate courts and offers solutions that a thoughtful legislature and the courts themselves should embrace.
CONSERVATION EASEMENTS. RPTE formed a task force in 2015 regarding conservation easements. The task force’s findings are set forth in ABA RPTE Conservation Easement Task Force Report: Recommendations Regarding Conservation Easements and Federal Tax Law, 53 Real Prop., Tr. & Est. L.J. 245 (2018-19).
DECANTING. In Two Cheers for Decanting: A Partial Defense of Decanting Statutes as a Tool for Implementing Freedom of Disposition, 32 Quinnipiac Prob. L.J. 23 (2018), Stephanie Vara walks through how the different decanting statutes treat the major substantive changes that decanting can achieve to assess the extent to which these decanting statutes protect or frustrate freedom of disposition.
ELDER CARE FROM A FEMINIST PERSPECTIVE. Employing various types of feminist thought, Nancy E. Shurtz establishes elder care as an integral component of feminist concern and examines current policy approaches that incorporate tax-based and non-tax-based reforms to stimulate improvements to the elder care industry, raise life quality outcomes, expand elder care choices, and encourage higher participation in caregiving labors in Long-Term Care and the Tax Code: A Feminist Perspective on Elder Care, 20 Geo. J. Gender & L. 107 (2018).
ELECTRONIC MONITORING OF ELDERS. In her Comment, Retiring the One-Party Consent Statute for Long-Term Care Residents’ Rooms, 50 Ariz. St. L.J. 1347 (2018), Lynsie Zona advocates for balanced, thoughtful legislation that permits long-term care residents to use an electronic monitoring device (EMD) without interference but allows a facility to adopt custom EMD procedures.
FIDUCIARY DUTIES. In finance, an “alpha” investment promises to yield a return that outperforms the relevant market. Ian Ayres and Edward Fox recommend that fiduciaries prudently weigh alpha tradeoffs when investing and then explain them to their clients before recommending (or executing) investments that deviate from the low-cost, well-diversified, age-appropriate exposure standard, arguing that, through new technology, this kind of information can be given to retirement savers and others at low cost in Alpha Duties: The Search for Excess Returns and Appropriate Fiduciary Duties, 97 Tex. L. Rev. 445 (2019).
HEALTH ADVOCATE. R. Ruth Linden explains How You Could Benefit from Having a Health Advocate on Speed Dial, Experience 18 (Apr./May 2019).
MICHIGAN—UNIFORM DIRECTED TRUST ACT. James P. Spica analyzes how enactment of the Michigan Uniform Directed Trust Act would affect the treatment of powers to direct trustees under the Michigan Trust Code in Used Not Only as Directed: Michigan’s Adaptation of the Uniform Directed Trust Act, 64 Wayne L. Rev. 339 (2019).
NEW HAMPSHIRE—CHARITABLE TRUSTS. In her Note, No Good Deed Goes Unpunished: How the New Hampshire Probate Court has Strengthened the Power of Attorney General in Charitable Trust Suits, 17 U.N.H. L. Rev. 379 (2019), Angelina M. Spilios analyzes a recent case as an example of how the New Hampshire Probate Court affirmed the power of the state attorney general in a charitable trust setting and concludes that the court correctly applied existing law.
PERPETUITIES. Eric Kades identifies devastating consequences that more than justify rules restricting perpetuities and proposes innovative normative solutions carefully calibrated to ameliorate those harms in Of Piketty and Perpetuities: Dynastic Wealth in the Twenty-First Century (and Beyond), 60 B.C. L. Rev. 145 (2019).
REVERSE MORTGAGES. Eric Rittmeyer provides an informative discussion of the history of reverse mortgages, the people for whom reverse mortgages are helpful, and how a person decides on the correct plan and lender in Sorting Through the Confusion Surrounding Reverse Mortgages, Experience 14 (Apr./May 2019).
SECOND MARRIAGES. In Estate Planning for Second Marriages, Ill. B.J. 24 (Mar. 2019), Richard W. Kuhn provides“[p]ractice advice for estate planning attorneys encountering this emerging client demographic.”
SUPPLEMENTAL NEEDS TRUSTS. Elizabeth A. Weikel recommends amending the Social Security Administration’s current interpretation of the established “for the benefit” requirement for first-party supplemental needs trust disbursements from the “sole benefit” rule to a less stringent “predominant purpose” test in Disabling the Funds of the Disabled: How the “Sole Benefit” Rule Frustrates the Administration and Purpose of Supplemental Needs Trusts, 32 Quinnipiac Prob. L.J. 60 (2018).
TRANSGENDER ELDERS. Sarah Steadman suggests that, before the courts become involved, transgender individuals can take steps to protect themselves from an unsuitable surrogate but also points out that, if a court becomes involved, there are actions it can take to ensure that transgender persons are served by surrogates who will protect their health, welfare, and identity in It’s Still Me: Safeguarding Vulnerable Transgender Elders, 30 Yale J.L. & Feminism 371 (2018).
WYOMING—NONMARITAL HEIRS. In Illegitimate Succession: Vestigial Discrimination in Wyoming’s Rules of Intestate Descent, 19 Wyo. L. Rev. 119 (2019), Allison Strube challenges the propriety of Wyo. Stat. § 2-4-102 in light of equal protection concerns and current social models. She argues that the statute should be repealed because it continues to label nonmarital children as “illegitimate,” both in title and in substance.
ARIZONA prohibits insurance companies from unfairly discriminating against living organ donors. 2019 Ariz. Legis. Serv. Ch. 196.
ARIZONA tweaks its electronic will legislation. 2019 Ariz. Legis. Serv. Ch. 46.
ARKANSAS adopts the Uniform Directed Trust Act. 2019 Ark. Laws Act 1021.
ARKANSAS authorizes qualified spousal trusts. 2019 Ark. Laws Act 1047.
ARKANSAS includes the dwelling of a beneficiary of an irrevocable trust within the definition of “homestead” for property tax purposes. 2019 Ark. Laws Act 831.
COLORADO creates a statewide system for advance health care directives. 2019 Colo. Legis. Serv. Ch. 186.
COLORADO enacts the Revised Uniform Unclaimed Property Act. 2019 Colo. Legis. Serv. Ch. 110.
COLORADO revises its version of the Uniform Directed Trust Act. 2019 Colo. Legis. Serv. Ch. 51.
FLORIDA authorizes electronic wills effective January 1, 2020. 2019 Fla. H.B. 409.
INDIANA passes the Uniform Directed Trust Act. 2019 Ind. Legis. Serv. P.L. 221-2019.
LOUISIANA prohibits a person suspected of being responsible for the death of a decedent from controlling the disposition of the decedent’s remains. 2019 La. Sess. Law Serv. Act 4.
MARYLAND revised the computation of the elective share of a surviving spouse. 2019 Md. Laws Ch. 435.
MISSISSIPPI enacts the Mississippi Guardianship and Conservatorship Act. 2019 Miss. Laws S.B. 2828.
NEVADA increases the homestead exemption from $550,000 to $605,000. 2019 Nev. Laws Ch. 59.
TENNESSEE enacts the Tennessee Disclaimer of Property Interests Act. 2019 Tenn. Laws Pub. Ch. 340.
UTAH becomes first state to enact the Uniform Fiduciary Income and Principal Act. 2019 Utah Laws Ch. 495.
UTAH enacts the Uniform Directed Trust Act. 2019 Utah Laws Ch. 153.
VERMONT passes legislation to deal with international wills. 2019 Vt. Laws No. 11.