Keeping Current—Probate offers a look at selected recent cases, literature, and legislation. The editors of Probate & Property welcome suggestions and contributions from readers.
ATTORNEYS: Executor may waive decedent’s attorney-client privilege. The children of a decedent brought an action to include certain property in the decedent’s estate. The executor, another of the decedent’s children, maintained the decedent had previously transferred the property to the executor. The trial court allowed the executor to waive the decedent’s attorney-client privilege so that the decedent’s attorney could testify that the property had indeed been transferred before death. The intermediate New York appellate court affirmed, joining two of the other three intermediate appellate courts in holding that an executor or administrator may waive the decedent’s attorney-client privilege, even if doing so benefits them personally rather than the estate. In re Estate of Thomas, 113 N.Y.S.3d 447 (App. Div. 2019).
CHOICE OF LAW: Trust term designating state law to govern construction does not apply to questions regarding administration. A beneficiary of a family trust brought an action for an accounting and damages against the trustee in Alabama. The trial court granted judgment for the beneficiary. The trustee appealed, arguing that the Alabama courts lack jurisdiction over the trust, which the settlors had executed in California. The court disagreed. Although the trust’s terms stated that the trust was to be construed under California law, the construction of the terms of the trust is not the same as administration of the trust. The court also noted that the terms of the trust made California law the governing law for discrete aspects of trust administration, such as giving notice to creditors, retaining the community property character of property transferred to the trustee, allocating receipts and expenditures between principal and income, and determining the settlors’ heirs in the absence of beneficiaries. Absent from this list is accounting by the trustee. Subject-matter jurisdiction was therefore proper under Ala. Code
§ 19-3B-202 because the principal place of administration of the trust was Alabama. The court also upheld the award of damages, interest, and attorney’s fees based on the trustee’s actions in the course of the litigation. Foster v. Foster, No. 1180648, 2020 WL 1071331 (Ala. Mar. 6, 2020).
DIVORCE: Separation agreement overrides revocation-on-divorce statute. Following his divorce, a decedent did not change the beneficiary designations of his IRA accounts, leaving his ex-wife as the beneficiary of record at his death. The separation agreement entered into before the divorce expressly stated that a mutual waiver of rights does not apply to beneficiary designations unchanged after the date of the agreement. The accounts were governed by the laws of Massachusetts, whose statutes include a comprehensive revocation-on-divorce provision, Mass. Gen. Law ch. 190B, § 2-804. The ex-wife brought an action in North Carolina, the decedent’s domicile, seeking confirmation of the beneficiary designations. The successor of the decedent’s heir opposed the action and obtained a favorable verdict. The appellate court reversed, holding it was not the province of the jury to determine the effect of the Massachusetts statute and that the question should not have been submitted to them. Because the statute expressly states it does not override the provisions of an agreement between the spouses, plaintiff’s motion for directed verdict should have been granted. Berke v. Fidelity Brokerage Services, 841 S.E.2d 592 (N.C. Ct. App. 2020).
NON-PROBATE PROPERTY: Inherited IRA is exempt from creditors. A divided Rhode Island Supreme Court held that, as a matter of statutory interpretation, the state’s exemption statute, R.I. Gen. Laws Ann. § 9-26-4(11), allows a bankruptcy debtor to claim an exemption for an inherited IRA account, including an account inherited from someone other than the debtor’s spouse. In re Kapsinow, 220 A.3d 1231 (R.I. 2019).
PRETERMITTED CHILD: Child is not pretermitted even though gift of non-probate property is ineffective. A father’s will made gifts to all three of his children. Two of the children’s gifts, however, described property held in non-probate form at the time the father executed the will and when he died. The two children objected to probate of the will and also argued that they were pretermitted heirs because the gifts in the will were ineffective. The trial court found in their favor on the question of pretermission, the intermediate appellate court affirmed, but the Supreme Court of Oklahoma reversed. Under the Oklahoma pretermitted heir statute, a child who is not provided for in the will receives the appropriate intestate share of the estate unless the omission is intentional. Okla. Stat. tit. 84, § 132. The court held that the children were not omitted from the will merely because their gifts were ineffective. The father had the choice not to arrange his property interests to make the will provisions effective. In re Estate of James, No. 115,514, 2020 WL 427829 (Okla. Jan. 28, 2020).
TRUST MODIFICATION: Beneficiaries may modify trust to allow removal of trustee. The beneficiaries of a family trust brought an action to modify the trust to remove the two individual trustees and replace them with a corporate trustee. The trial court granted the beneficiaries’ request, and the appellate court affirmed. Georgia Code § 53-12-61 gives a court authority to modify an irrevocable trust after the settlor’s death if all of the beneficiaries consent and the court determines that the modification “is not inconsistent with any material purpose” of the trust. The court agreed that the purpose of the trust was to provide financial support for the beneficiaries and to benefit certain charities. Neither of those purposes is inconsistent with a modification allowing the beneficiaries to remove the trustees, nor does such a modification conflict with the statute governing trustee removal. Glass v. Faircloth, 840 S.E.2d 724 (Ga. Ct. App. 2020).
TRUSTS: No-contest clause does not apply to action to construe trust provision. A parent’s revocable trust included a no-contest clause under which any beneficiary who “contested” any trust provision of the trust forfeited the beneficiary’s interest. After the parent’s death, her son brought an action seeking an interpretation of another trust provision, which waived the trustee’s duty to inform and report to beneficiaries under what is now Va. Code § 64.2-775. But first, the son requested a judgment that the action did not violate the no-contest clause. The circuit court ruled against the son and declared he forfeited his interest. The Supreme Court of Virginia reversed, expressly approving a two-step process: first, requesting a ruling on the effect of the no-contest clause, and second, only if that ruling is favorable, proceeding to the substantive issue. The court held that the son’s request for an interpretation of the waiver of the duty to inform and report does not violate a no-contest clause directed at a “contest” of trust terms. Hunter v. Hunter, Trustee, 838 S.E.2d 721 (Va. 2020).
TAX CASES, RULINGS, AND REGULATIONS
ELECTING SMALL BUSINESS TRUST (ESBT): Inadvertent termination of S-corporation status can be corrected. The failure of a trust to file an ESBT election caused an inadvertent termination of the corporation’s S-corporation election, but the corporation will be treated as a continuing S-corporation, if the trust files an ESBT election within 120 days. P.L.R. 116913-19.
GIFT TAX: Discount in valuation of noncontrolling interest is appropriate unless IRS shows convincing evidence of buyer’s ability to obtain controlling interest. A donor transferred nonvoting units of two LLCs to a grantor-retained annuity trust. The IRS issued a notice of deficiency, stating that the LLC units had a higher value. At trial, the parties provided conflicting expert reports regarding valuation. The donor’s expert used a combination of the market approach and the income approach, discounting because the shares were not marketable and were noncontrolling. The IRS expert relied on a net asset value approach and assumed that a willing buyer would seek to acquire the controlling interest of the companies. The Tax Court rejected the IRS valuation, stating that the facts did not show that it was reasonably probable that a buyer of the noncontrolling unit would be able to acquire the controlling interest. The Tax Court accepted the donor’s valuation in his gift tax return because its methodology was similar to his expert’s valuation at trial. The discounts in the donor’s report were within the range of previously accepted discounts, and there was no convincing evidence to accept a different valuation. Grieve v. Comm’r, T.C. Memo. 2020-28 (2020).
TAX LIEN: Tax lien is enforceable against decedent’s trust. A district court granted a default judgment to enforce a tax lien against an estate. The individual who served as the estate’s executor and trustee appealed. The Eight Circuit affirmed because the individual did not have a personal interest in the property. To the extent that the appeal asserted rights of the estate or trust, the circuit court dismissed because the appeal because the individual, a non-lawyer, cannot represent these entities in federal court. United States v. Mengedoht, 125 A.F.T.R.2d 2020-649 (8th Cir. 2020).
TRUST INCOME: Settlement officer does not abuse discretion by including trust income in calculation of taxpayers’ ability to pay in a partial payment installment agreement. The wife was trustee of a trust under which she was a beneficiary. She was allowed to expend trust resources for her health, maintenance, support, and education, even if the expenditures exhausted the trust’s corpus. The settlement officer determined that the wife was responsible for 68 percent of the couple’s expenses, as the husband did not have the income to pay a larger portion. The Fifth Circuit determined that the settlement officer did not abuse his discretion by accounting for trust income as part of the couple’s ability to pay, given the terms of the trust, or by declining to extend the deadline again after three previous extensions. Additionally, the government’s levy of the taxpayers’ bank accounts led to their check for a more recent tax year being dishonored for insufficient funds. The court noted that, by using a check, the taxpayers ran the risk that it would not be honored as they had received a notice of intent to levy on their accounts. Melasky v. Comm’r, 803 Fed. App’x 732 (5th Cir. 2020).
DIGITAL ASSETS. Shelly Kreiczer-Levy and Ronit Donyets-Kedar call for reevaluation of current legislation in their article, Better Left Forgotten: An Argument Against Treating Some Social Media and Digital Assets as Inheritance in an Era of Platform Power, 84 Brook. L. Rev. 703 (2019). They emphasize the need to protect users from platform power, motivated and fueled by economic interests, and they assert that structural conditions distort and manipulate personhood and memory.
ELECTRONIC WILLS. In her article, [When] Will RI Adopt Electronic Wills?, 68-FEB R.I. B.J. 9 (2020), Zona Douthit explores how e-wills, which exist only in the cybersphere, may be witnessed via a video hookup and are signed and notarized electronically.
FLORIDA—POST-ADOPTION INHERITANCE. Cynthia G. Hawkins and Brien V. Squires recommend that Florida adopt an intestacy statute that does not sever an adopted child’s ability to inherit from her birth parents in Throwing the Baby Out with the Bath: Florida’s Flawed Approach to Post-Adoption Inheritance, 18 Conn. Pub. Int. L.J. 187 (2019).
ILLINOIS—BENEFICIARY RESTRICTION CLAUSES. Julian Valdes proposes an alternative approach to the Illinois courts’ current reasonableness analysis in his Comment, From the “Jewish Clause” to the “Homosexual Clause”: An Analysis of Beneficiary Restriction Clauses Which Restrict Same-Sex Marriage in Illinois, 43 S. Ill. U. L.J. 771 (2019). He recommends a complete ban on beneficiary restriction clauses designed to restrict same-sex marriage because this ban would further the values of preserving marriage, promoting testamentary freedom, and restricting dead hand control.
MASSACHUSETTS—SLAYER STATUTE. Paul Mourad challenges the constitutionality of the Massachusetts slayer statute because it removes any property interest an individual already possessed prior to committing a crime. He argues that it is unconstitutional to deprive an individual of a preexisting property interest already possessed without due process of law. State of Slayer’s Estate, 24 Suffolk J. Trial & App. Advoc. 244 (2018–2019).
TESTAMENTARY SCHEMES. Richard F. Storrow’s article, The Secret Life of Testamentary Schemes, 68 Drake L. Rev. 85 (2020), reveals that testamentary schemes enable a probate court to declare a will’s language plain even when the will suffers from significant omissions in its dispositive provisions. As a device that promotes a degree of elasticity in the interpretation of wills, testamentary schemes have enabled wills to retain their vitality when the passage of time has rendered their provisions obscure or obsolete.
TRANSFER ON DEATH DEEDS. In their article, Tearing Down the Wall: How Transfer-On-Death Real-Estate Deeds Challenge the Inter Vivos/Testamentary Divide, 78 Md. L. Rev. 511 (2019), Danaya C. Wright and Stephanie L. Emrick argue that the time has finally come to reject the division between inter vivos and testamentary transfers and seek a rational and holistic set of tools and formalities to gain the benefits of probate avoidance that will substitutes provide with the ease of control and full revocability of wills.
KENTUCKY doubles the exemption for a surviving spouse for assets in an estate from $15,000 to $30,000. 2020 Ky. Laws Ch. 24.
KENTUCKY enacts comprehensive legislation to govern powers of appointment. 2020 Ky. Laws Ch. 41.
KENTUCKY modernizes its provisions regarding community property trusts. 2020 Ky. Laws Ch. 25.
MAINE updates the notice requirements for informal probate. 2020 Me. Legis. Serv. Ch. 598.
NEW JERSEY enacts Lindsay’s Law to provide incentives for organ and bone marrow donation. 2019 N.J. Sess. Law. Serv. Ch. 444.
NEW JERSEY enacts the Safeguarding Against Financial Exploitation Act to protect vulnerable adults. 2019 N.J. Sess. Law Serv. Ch. 340.
SOUTH DAKOTA adopts the Uniform Power of Attorney Act. 2020 S.D. Laws S.B. 148.
SOUTH DAKOTA enhances enforcement of purpose trusts. 2020 S.D. Laws S.B. 65.
SOUTH DAKOTA permits guardians and agents to video monitor residents in assisted living centers and nursing facilities. Audio monitoring is not allowed. 2020 S.D. Laws H.B. 1056.
WEST VIRGINIA enacts the Protection of Eligible Adults from Financial Exploitation Act. 2020 W. Va. Laws H.B. 4377.
WEST VIRGINIA enhances the ability of a person to control the disposition of his or her remains. 2020 W. Va. Laws H.B. 4777.
WYOMING enacts comprehensive provisions modifying the methods of perfecting a security interest in virtual currency and digital securities. 2020 Wyo. Laws Ch. 103.