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Probate & Property

May/June 2024

Keeping Current—Probate

Gerry W Beyer, Julia Koert, Paula Moore, William P La Piana, and Jake William Villanueva

Summary

  • In cases, Pour Over Trust: Trustee of trust receiving pour over has duty to protect estate assets.
  • In literature, Australia—Testamentary Preferences: To prepare "A Behavioral Economics Analysis of Will Making Preferences: When to Begin and Who Should Have the Most Input?" The Australian general public and estate planning professionals questions are asked.
  • In tax cases, when calculating imputed interest, disposition of stock occurs at the time of closing and not upon resolution of legal claims resolving the sale.
Keeping Current—Probate
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Keeping Current—Probate offers a look at selected recent cases, tax rulings and regulations, literature, and legislation. The editors of Probate & Property welcome suggestions and contributions from readers.

Cases

POUR OVER TRUST: Trustee of trust receiving pour over has duty to protect estate assets. The testator’s will poured over the residue to an existing trust. More than ten years after the testator’s death, the residue still had not been distributed to the trustees, who are the executor, the testator’s ex-spouse, and the testator’s surviving spouse. The testator’s ex-spouse and the testator’s children, who are beneficiaries, brought an action alleging that the surviving spouse had breached fiduciary duties by not investigating the executor’s alleged mismanagement of the residuary assets. The trial court granted the surviving spouse’s motion for summary judgment on the grounds that so long as the estate assets remained in the estate, the trustees’ fiduciary duties with regard to those assets had not begun. On appeal, the Connecticut Supreme Court reversed and remanded in Barash v. Lembo, 303 A.3d 577 (Conn. 2023). The court held that the duty to collect and protect trust property extended to the trust’s interest in the estate assets and that the plaintiffs had presented sufficient evidence to go to trial on whether the defendant knew or should have known about the executor’s alleged breach.

TRUST DISTRIBUTIONS: Trustee is to consider standard of living of the beneficiary at the time of the settlor’s death. At the time of the decedent’s death, the decedent and the decedent’s spouse were legally separated. The deceased spouse’s will, executed before the separation, created a trust that gives the trustee the discretion to distribute income and principal to the surviving spouse and the decedent’s descendants from a prior marriage for the beneficiaries’ health, education, support, and maintenance. The trust also directs the trustee to give primary consideration to the decedent’s spouse. The terms also “suggest” to the trustee that the primary purpose is to provide for the spouse’s support, having regard for the standard of living enjoyed by the spouse during the marriage. In Matter of Katherine E. Reece Trust, 541 P. 3d 37 (Colo. App. 2023), the Colorado intermediate appellate court affirmed the probate court’s determination that the relevant standard of living is what the spouse enjoyed during the time of legal separation, citing as “persuasive authority” the statement in Restatement (Third) of Trusts, § 50 cmt. d(2), that the standard of living of a beneficiary to be considered by the trustee who is directed to do so is that enjoyed at the time of the settlor’s death or the creation of an irrevocable trust.

TRUST PROPERTY: Potential wrongful death recovery may be transferred to beneficiary’s revocable trust. The decedent’s parent is a statutory beneficiary of any wrongful death recovery related to the decedent’s death. Shortly before parent’s death and while the wrongful death litigation was pending, the parent purported to transfer parent’s interest in any judgment in the litigation to the parent as trustee of the parent’s revocable trust. The wrongful death action was settled five years later, and the successor trustee filed a motion seeking a determination that the assignment was valid. The trial court made an order so holding, which was affirmed on appeal. On further appeal, the Oklahoma Supreme Court affirmed in Matter of Estate of Williams, 538 P.3d 176 (Okla. 2023): first, the parent transferred any interest in the potential recovery not the claim itself, and the transfer was made as part of the statutory beneficiary’s own estate planning; and second, the “weight of authority” is that contingent interests can be assigned to a trust.

TRUSTS—BENEFICIARY STANDING: Trust can be an accommodation party, but beneficiaries lack standing to seek reimbursement. The settlor and trustee of a revocable trust and the settlor’s spouse borrowed from a bank and signed a note evidencing the loan. Individually and as trustee, the settlor pledged certain securities held in the trust as collateral for the note. The proceeds were used to improve and maintain the settlor’s home, which was not trust property and is now owned by the settlor’s spouse. After the settlor’s death, the note went into default and the successor trustee, a bank, liquidated the securities to satisfy the debt. The remainder beneficiaries sued seeking reimbursement from the spouse to the trust, arguing that the trust was an “accommodation party” under Fla. Stat. §§ 673.4191(1,5). The trial court granted the surviving spouse’s motion to dismiss. The intermediate appellate court in Roller v. Collins, 373 So.3d 35 (Fla. Dist. Ct. App. 2023), affirmed. Although the trust as an accommodation party was entitled to reimbursement from the surviving spouse, the beneficiaries did not have standing because the trustee is the real party in interest.

TRUSTS—NECESSARY PARTY: Revocable trust created by spouses not necessary party to divorce proceeding. In Lopez v. Lopez, 541 P.3d 117 (Nev. Ct. App. 2023), the Nevada intermediate appellate court held that where divorcing spouses are the co-trustees, co-settlors, and beneficiaries of a revocable trust, the trust need not be made a party to the divorce proceeding for the trial court to have jurisdiction to distribute community property held in the trust.

WILLS—CONTEST GROUNDS: Fraud and undue influence are not the same. The testator’s son challenged the testator’s will on grounds of undue influence and fraud by the testator’s daughter. The trial court granted daughter’s demurrers. The son’s appeal on the fraud claim eventually reached the Oklahoma Supreme Court in Matter of Estate of Rivenburg, 539 P.3d 1262 (Okla. 2023). The court reversed and remanded, holding that although the evidence cited by the intermediate appellate supported dismissal of the undue influence claim—the daughter was not present at the execution of the will and claimed not to know of its contents—it did not show that the son did not meet his burden of proof on the issue of fraud which involves whether the testator was deceived. The opinion includes a detailed discussion of the differences between the two doctrines.

WILLS—MISSPELLED NAMES: Misspelled names of beneficiaries is not a suspicious circumstance. The Chancery Court granted summary judgment to the will’s proponent, the testator’s surviving spouse, in a contest brought by the testator’s children who alleged undue influence. On appeal, the Mississippi Supreme Court affirmed in Estate of Biddle v. Biddle, 369 So.3d 525 (Miss. 2023). The court held that the misspelling of the middle names of two of the will beneficiaries is not a suspicious circumstance that can raise the presumption of undue influence and is not sufficient to raise a genuine factual dispute to overcome summary judgment.

WILLS—SURVIVORSHIP: Devise to beneficiaries in “joint ownership” does not create survivorship. The decedent’s holographic will devised real property to the decedent’s two children. The next sentence stated, “[t]his includes joint ownership of all contents, the house, property, etc.” One of the children died a year after the decedent, and the administrator of child’s estate filed a declaratory judgment action alleging that the one-half of the devised property belonged to the deceased child’s estate because the will created a tenancy in common. The trial court granted summary judgment for the administrator and the Georgia intermediate appellate court affirmed in Davis v. Estate of McClain, 895 S.E.2d 508 (Ga. Ct. App. 2023), holding that the language of the will did not meet the statutory requirement that it be “essentially the same” as language required by the statute to create a joint tenancy with right of survivorship, Ga. Code Ann. § 44-6-190(a)(2), which requires the words “joint tenants” or some mention of the survivorship feature.

WILLS—UNDUE INFLUENCE: Testator’s debilitated condition insufficient to raise presumption of undue influence. In its opinion in In re Estate of Coffman, No. 128867, 2023 WL 8266285 (Ill. Nov. 30, 2023), the Illinois Supreme Court reaffirmed its holding in Belfield v. Coop, 134 N.E.2d 249 (Ill. 1956), that without the existence of a confidential relationship between the testator and the person alleged to have exercised undue influence, the testator’s weakened and debilitated condition is not sufficient to raise a presumption of undue influence.

Tax Cases, Rulings, and Regulations

INTEREST: When calculating imputed interest, disposition of stock occurs at the time of closing and not upon resolution of legal claims resolving the sale. The founder of a pharmaceutical company formed trusts for his children. One of those trusts sold its shares during a short-form merger designed to squeeze out a son who worked outside the company. The trust challenged the merger in court and received a settlement three years later. The trust paid capital gains on the settlement, which was a difference of over five million dollars between what was paid and the imputed interest owed. The Tax Court in Charles G. Berwind Trust for David M. Berwind. v. Comm’r, T.C. Memo 2023-146, held that the actual sale occurred at the time of the merger and imputed interest for the three years legal proceedings were pending.

Literature

AUSTRALIA—TESTAMENTARY PREFERENCES: To prepare A Behavioral Economics Analysis of Will Making Preferences: When to Begin and Who Should Have the Most Input? 32 Minn. J. Int’l L. 1 (2023), Tina Cockburn, Kelly Purser, Ho Fai Chan, Bridget Crawford, Stephen Whyte, and Uwe Dulleck asked the Australian general public and estate planning professionals three main questions: “(1) when people should begin to plan their estates in anticipation of death; (2) the relative role that the lawyer should play in the estate planning process; and (3) whether remote witnessing rules for wills have any impact on individuals’ expressed preferences towards will making.” This behavioral economics study provides a novel way to analyze will-making. It presents relevant evidence that can assist policymakers in crafting practical and effective reforms that align with the actual decision-making behaviors of individuals.

DEATH PLANNING: In A Good Death: Personal Autonomy and Medical Decision Making in Louisiana, 83 La. L. Rev. 1295 (2023), Elizabeth Carter ponders the subjective question of what is a “good death” and highlights the importance of personal preference on end-of-life care. Carter explores Louisiana’s legal framework surrounding personal autonomy in advance-planning documents and hopes this article will guide attorneys and legislators in facilitating greater autonomy to effectuate a patient’s wishes on end-of-life care.

DEBTOR STATUS: In Status Check: Should the Federal Tax Status of a Disregarded Debtor Be Property of the Estate?, 39 Emory Bankr. Dev. J. 629 (2023), J. Benjamin Ward examines whether the tax status of a debtor is “property” within the debtor’s estate under 11 U.S.C §541(a). Although the courts are split, Ward agrees with the Third Circuit’s position that it is not property because “the ultimate control of the debtor’s tax status is contingent on the will of the parent-owner of the debtor.”

ETHICS: Kristin Yokomoto explores the ethical considerations estate planning lawyers face in Navigating the Endless Ethical Issues for Estate Planners When Preparing Trusts, 65-DEC Orange Cnty. Law. 53 (2023). Yokomoto discusses the importance of defining the client and scope of services, maintaining competence in tax laws, addressing conflicts of interest in joint representation, ensuring confidentiality, and navigating issues related to client capacity and malpractice claims.

FAMILY FARMS: In Thy Will Be Done: Issues in Family Farm Transitions Between the Farmers, Their Family, and New Agrarians, 27 Drake J. Agric. L. 129 (2022), Alexander Sandeen explores the importance of American family-operated farms, which account for 89 percent of all domestic food production. Farmers have historically relied on intergenerational succession for stability. With an aging population of agrarians and the decline in wills as an estate planning tool, the importance of a farmer’s operational transition plan is of utmost importance. Sandeen recommends increasing educational opportunities on estate planning options for farmers to ensure a smooth transition from one generation to the next.

FEDERAL WEALTH TRANSFER TAXATION: In Preparing for the Sunset, 87 Tex. B.J. 32 (2024), Liz Nielsen explains what every lawyer needs to know about the potential sunset of the Tax Cuts and Jobs Act at the end of 2025. She outlines the current exemption amounts and the potential impact of the sunset on estate planning for individuals with varying levels of wealth. Lastly, she offers guidance on gifting strategies before the sunset occurs.

GEORGIA—NO-CONTEST TRUST PROVISIONS: In his article, “I’ll Give You My Trust Assets When You Pry Them from My Cold, Dead Hands”: The Supreme Court of Georgia Clarifies That a Mere Challenge to a Trust’s Formation Will Not Trigger an In Terrorem Clause, 74 Mercer L. Rev. 1649 (2023), Kiana Johnson explains the recent ruling in Slosberg v. Giller, 876 S.E.3d 228 (Ga. 2022), in which the Supreme Court of Georgia acknowledged that an in terrorem clause does not prevent an interested beneficiary from challenging the valid formation of a trust. In Georgia, the current rule is that if a trust is proven to have been obtained through undue influence, the entire trust, including any in terrorem clause, will be considered void.

GRANTOR TRUSTS: In Resolving Unfairness in a Fair Way: How the Grantor Trust Rules Should Be Reformed, 48 BYU L. Rev. 2311 (2023), Aaron Anderson explains how many wealthy taxpayers use grantor trusts to take advantage of a difference in rules between income and estate tax systems to minimize the amount of property subject to estate taxes. He recommends updating grantor trust rules by harmonizing estate and income tax systems and incorporating grandfather provisions to ensure taxpayers who have relied on the current rules are not treated unfairly.

INCAPACITATED SETTLOR: In The Incapacitated Grantor and the Revocable Trust: Unnecessary Tax Complexity and a Reform Proposal, 76 Tax Law. 487 (2023), Sergio Pareja discusses the common use of revocable trusts as an alternative to wills to manage a person’s assets upon mental incapacity. This article highlights that, when a grantor is afflicted with mental incapacity, the trust may lose its beneficial tax status and potentially result in numerous adverse tax consequences. Pareja proposes a solution to maintain the grantor’s trust status until the grantor’s death as a default rule.

IRAS: In Designated Beneficiaries of Individual Retirement Arrangements, 87 Tex. B.J. 35 (2024), Jim Norman explores the intricacies of IRAs and the effect of beneficiary designations on estate planning. The article focuses on the rules governing distributions to designated beneficiaries, highlighting exceptions such as the flexibility granted to surviving spouses.

MEDICAID PLANNING: In her article, The Legal & Ethical Considerations of Medicaid Planning: Strategies & Solutions, 29 ILSA J. Int’l & Comp. L. 271 (2023), Anna Lieberman examines Medicaid planning for the elderly seeking long-term healthcare, comparing the approaches of the United States and the United Kingdom. Further, she details various Medicaid planning techniques along with ethical and legal implications for attorneys assisting individuals in this process.

OREGON—FOREST TRUSTS: In The Oregon Forest Trust: An Ecological Endowment for Posterity, 101 Or. L. Rev. 515 (2023), Mary Wood discusses the historical exploitation and destruction of Oregon’s forests and emphasizes the need for a fundamental change in the approach to forest management. She advocates for the public trust principle and holds the government accountable for the protection of Oregon’s invaluable forests. In this view, the government is the trustee of natural resources with a strict fiduciary responsibility to protect them for all citizens.

REVIVAL: In Reviving Revival in the Law of Wills, 55 Tex. Tech L. Rev. 501 (2023), Richard Storrow explores the idea of “revival” that comes into play when a testator dies after making several wills. He explores the confusion and inconsistency in how revival is applied in different jurisdictions and suggests instead that revival should be the standard rule with an option for nonrevival through a testator’s express election. Finally, he emphasizes the importance of understanding the theory of ambulation or the importance of understanding how testators expect to be able to change their estate plan over time and how these expectations clash with certain legal rules.

RULE AGAINST PERPETUITIES: In RAP TRAPS, 68 S.D. L. Rev. 374 (2023), Thomas Simmons explores how South Dakota’s trust industry has flourished following the state’s 1983 repeal of the Rule Against Perpetuities. This article is one of a two-part series; in this first article, Simmons highlights the complexity and counterproductive nature of common law RAP, setting the scene for the second article, which will delve into South Dakota’s unique experience with RAP.

SURVIVING SPOUSE: In Navigating the Minefield of Estate Administration with a Surviving Spouse: A Look at Some of the Hotspots in the Process, 87 Tex. B.J. 30 (2024), Elizabeth Brenner explores the surviving spouse’s potential challenges in estate administration, such as property division, accurate inventory preparation, exemptions for the surviving spouse, handling debts, and protecting the surviving spouse’s community property interest. Brenner highlights the importance of consulting both the Texas Family Code and the Texas Estates Code to navigate the estate administration of a surviving spouse, especially when multiple heirs or beneficiaries are involved.

Legislation

MICHIGAN adopts the Uniform Power of Attorney Act. 2023 Mich. Legis. Serv. P.A. 187.

NEW YORK grants a deceased tenant’s personal representative the option to terminate the lease agreement upon notice to the landlord notwithstanding any contrary lease provision. The estate will remain liable for rents and debts accrued prior to the notice. 2023 Sess. Law News of N.Y. Ch. 632.

PENNSYLVANIA modernizes guardianship proceedings procedures regarding (1) the appointment of counsel, (2) the required certifications by a court where an individual is seeking to serve as a guardian for three or more individuals, (3) the consideration of less restrictive alternatives to guardianships, and (4) the procedures for the review of guardianships. 2023 Pa. Legis. Serv. Act 2023-61.

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