Keeping Current Probate

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.

CASES

• ABATEMENT: General bequest does not abate before specific devise. In In re Estate of Tateo, 768 A.2d 243 (N.J. Super. Ct. App. Div. 2001), the court applied the doctrine of probable intent to fund general bequests to the testator’ s daughter and grandchildren that would have abated otherwise. The major asset of the estate was real estate specifically devised to the testator’ s son. Finding that the testator clearly intended to benefit the general devisees and that the real estate was income producing, the court held that the general bequests did not abate but instead were charges on the real estate.

• ADEMPTION: Devise of real estate adeems when sale closes after death. The testatrix devised residential real property to her son and daughter-in-law for life, remainder to her granddaughter. She entered into a contract to sell the property but died 10 days before the scheduled closing, which had been extended once and which fin-ally occurred after several post-mortem extensions. The granddaughter sued for the proceeds. In Kelley v. Neilson, 745 N.E.2d 952 (Mass. 2001), the court held that the devise adeemed because the testatrix agreed to the first extension; to give the granddaughter the proceeds would be unjust enrichment and by statute the buyers could specifically enforce the contract after the testatrix’s death.

• ADOPTION: Issue includes adopted issue. The settlor’s revocable trust recited that he had one child (his biological son) and gave the trust property on the settlor’s death to his issue, specifically defined to include adopted issue. On his death his two adopted sons claimed shares of the residue. In Corr v. Corr, 21 P.3d 642 (Okla. Ct. App. 2001), the court held that the trust was not ambiguous and that the definition of issue controlled, entitling the adopted sons to shares of the trust property.

• ADOPTION: Bar on inheritance from biological relatives does not deny equal protection. Paternal grandparents adopted a brother and sister under Tennessee law after the parents died in an automobile accident. After the intestate death of the maternal grandmother, the brother and sister claimed a share in her estate. In Pyles v. Russell, 36 S.W.3d 365 (Ky. 2000), the court held that full faith and credit did not require Kentucky courts to honor Tennessee law, under which the brother and sister could inherit. The law of Kentucky, the grandmother’s domicile, governed her estate and the Kentucky law denying adopted individuals the right to inherit from their biological relatives did not violate equal protection.

• ANNUAL EXCLUSION GIFTS: Gifts by checks that do not clear by the time of the donor ‘s death are included in the donor’s gross estate. Shortly before her death, a donor wrote a large number of checks for the annual exclusion amount or less. She died before most of the checks were paid. The court in Rosano v. United States, 245 F.3d 212 (2d Cir. 2001), held that the gifts were not completed and thus the funds were part of the donor’s gross estate.

• APPORTIONMENT: Broad tax allocation clause in the testatrix’s will waiving tax reimbursement is effective even though no express reference to applicable Code provision. The testatrix retained a life estate in real property she gave to her daughter-in-law. Normally, Code § 2207B provides for apportionment of the estate tax liability triggered by this property being included in the gross estate under I.R.C. § 2036. The court in Myers v. Ellerbusch, 746 N.E.2d 408 (Ind. Ct. App. 2001), held that the tax provision of the will sufficiently met the specific reference requirement of Code § 2207B to prevent apportionment, even though no mention was made of that section. The provision was adequate because it clearly stated that the tax liability of non-probate assets was to be paid by the testatrix’s estate.

• GRANTOR RETAINED ANNUITY TRUST: Spousal rights in trust ignored for valuation purposes. The surviving spouse had a successor annuity interest in a retained two-life annuity. The court in Schott v. Commissioner, T.C. Memo. 2001-110, held that this interest was not a qualified interest. The value of the interest was not fixed and ascertainable at the inception of the GRAT, and the interest was subject to revocation. Accordingly, it was not eligible for the special valuation rules under Code § 2702.

• GROSS ESTATE: Divorce settlement not includable. A husband entered into a divorce settlement agreement with his wife requiring payments to her at various future dates. She died before he made all of the payments. The court in Estate of Hoffman, T. C. Memo. 2001-109, held that the future payments were not part of the wife’s gross estate because the husband was under no obligation to make additional payments after her death.

• INTESTACY: Severance of parental relationship ends inheritance rights. A mother surrendered her infant child for adoption and the court issued an order terminating the mother’s parental rights. The child died 49 years later, never having been adopted. The mother and the child’s half-brother, born after termination of parental rights, claimed the estate which would otherwise escheat. In In re Estate of Fleming, 21 P.3d 281 (Wash. 2001), the court held that the termination of parental rights ended the mother’s inheritance rights and that the half-brother and the child did not share a common ancestor for inheritance purposes. The absence of an adoption was irrelevant.

• MALPRACTICE: Failure to properly advise the testator raises issue for trial. The testator told his lawyer that he wanted a will leaving all his property to his daughter. The lawyer drafted the will, which the testator executed. His largest asset, an IRA, passed to a former companion under the IRA beneficiary designation. The daughter sued the lawyer, alleging negligence by the failure to advise the testator that he had to change the beneficiary designation. The lower court granted the lawyer a summary judgment, holding that the daughter could not prove causation. The court in Powers v. Hayes, No. 2000-033, 2001 WL 474226 (Vt.), reversed, holding that the evidence of the testator’s intent to leave everything to his daughter coupled with his attempt to do so by executing a will naming her as the sole legatee was sufficient to avoid summary judgment.

• TRUST CONSTRUCTION: Issue excludes holder of power of appointment. A mother created an irrevocable trust for her son that granted him a power of appointment to “my issue,” possibly creating a general power in the son. In Hillman v. Hillman, 744 N.E.2d 1078 (Mass. 2001), the court held that—given the context, the mother’s specific references to her son, the description of the other objects of the power and the restraints on the son’s access to principal—“my issue” must be construed as referring to the mother’s issue other than the son holding the power of appointment.

• VALUATION: Improper to attribute a premium to minority voting stock. The Tax Court determined that the value of certain stock should be enhanced, even though the stock represented a minority interest. In Estate of Simplot v. Commissioner, 249 F. 3d 1191 (9th Cir. 2001), the court held that the Tax Court erroneously attributed a premium to the minority shares.

• WILLS: Photocopy is not a duplicate original. A decedent’s original will could not be found and his granddaughter offered a photocopy for probate. In In re Estate of Goodwin, 18 P.3d 373 (Okla. Ct. App. 2000), the court held that the photocopy was not a duplicate original and therefore could not be admitted to probate. Although the photocopy could serve to prove the contents of a lost will, the granddaughter did not overcome the presumption that the decedent had revoked the original will that was last known to be in his possession.

Rulings and Regulations

• DISCLAIMER: Surviving spouse does not make a gift when making a disclaimer of an interest in a QTIP trust. PLR 200116006.

• GIFT TAX: Equitable recoupment was not available to the IRS in calculating gift taxes payable for estate tax purposes, even if this amount is greater than the gift taxes actually paid, because the gift tax statute of limitations had expired. FSA 200018002.

• GROSS ESTATE: Fiduciary’s discretionary power, under the terms of a grantor trust, to pay the grantor’s income tax resulting from the income of the trust that is not paid to the grantor will not cause the trust to be included in the grantor’s estate under Code § 2036. PLR 200120021.

• INNOCENT SPOUSE ELECTION: The executor of a deceased spouse’s estate may not make the innocent spouse election on behalf of the deceased spouse although the executor may continue an election that the innocent spouse had already made. FSA 200117005.

LITERATURE

• Art collections. Laurence C. Zale & Philip T. Temple advise collectors to properly plan for the disposition of their art collection in Donations of Art: They Are Not Just Appropriate for Museums, Tr. & Est. 41 (Apr. 2001).

• Asset protection trusts. Susanna C. Brennan explores Changes in Climate: The Movement of Asset Protection Trusts from International to Domestic Shores and its Effect on Creditors’ Rights, 79 Or. L. Rev. 753 (2000).

• Attorney’s fees. Jaime LaMere discusses The Effects of Undue Influence on the Awarding of Attorneys’ Fees, 15 Quinnipiac Prob. L.J. 173 (2000).

• Elder abuse. Kymberleigh N. Korpus introduces behavior-based philosophies of inheritance to reduce elder abuse in Extinguishing Inheritance Rights: California Breaks New Ground in the Fight Against Elder Abuse but Fails to Build an Effective Foundation, 52 Hastings L.J. 537 (2001).

• Employee benefits. Bruce J. McNeil probes the effect of establishing a minimum distribution requirement for employee benefits in Required Minimum Distributions: A Summary of the Rule, 27 J. Pension Plan. & Compliance 58 (2001).

• Estate tax repeal. Richard J. Kovach discusses the pros and cons of the repeal of wealth transfer taxes in Family Development Deductions: An Alternative to Repealing the Estate Tax, 35 Univ. Rich. L. Rev. 27 (2001). Kyle Krull and Jennifer Campbell write about Trust and Estates Attorneys Cautiously Optimistic About Future in Shadow of Estate Tax Repeal, Tr. & Est. 45 (Apr. 2001).

• Inter vivos trusts. Richard Gould debunks the arguments that living trusts are preferable to probate in most cases in The Living Trust: Fact v. Fiction, 15 Quinnipiac Prob. L.J. 133 (2000).

• Iowa trust legislation. For an explanation and analysis of the provisions of the recently enacted Iowa Trust Code, read Martin D. Begleiter, In the Code We Trust—Some Trust Law for Iowa at Last, 49 Drake L. Rev. 165 (2001).

• Organ donation. Curtis E. Harris and Stephen P. Alcorn delve into the legislative approach to increase the supply of organs by offering economic incentives to donors in To Solve a Deadly Shortage: Economic Incentives for Human Organ Donation, 16 Issues in Law & Med. 213 (2001).

• Special needs trusts. Daryl L. Gordon elucidates on the methods of drafting trusts that do not alter beneficiaries eligibility for public assistance in Special Needs Trusts, 15 Quinnipiac Prob. L.J. 121 (2000).

• Trusts. Peter Melcher, et al. discuss GRATS vs. IDGTs: Comparing the Economic Benefits, Taxes 50 (Apr. 2001).

• Will construction. Jay N. Hershman discusses a recent Connecticut Supreme Court decision that changed existing rules on the effect of drafting errors in Erickson v. Erickson: Extrinsic Evidence in Probate Cases, 15 Quinnipiac Prob. L.J. 143 (2000).

LEGISLATION

• Arizona requires certain noncorporate fiduciaries to register with the Supreme Court of Arizona. Fiduciaries covered by the new requirement include paid court-appointed guardians (unless related to the ward) and court-appointed executors who receive compensation (unless related to the testator, named in the will or a beneficiary). 2001 Ariz. Legis. Serv. Ch. 224.

• Colorado creates formal method for trustee to establish authority to deal with property in the name of the trust. 2001 Colo. Legis. Serv. Ch. 134.

• Idaho enhances legislation detailing who has the right to control the disposition of a deceased person’s remains. 2001 Idaho Laws Ch. 263.

• Idaho increases amounts for homestead protection, exempt property and the family allowance. 2001 Idaho Laws Ch. 294.

• Nebraska passes the Viatical Settlements Act. 2001 Neb. Laws L.B. 52.

• North Carolina revises anti-lapse statutes application to class gifts. 2001 N.C. Sess. Laws 83.

• North Dakota enacts the Uniform Disclaimer of Property Interests Act. 2001 N.D. Laws 2075.

• Oklahoma expands jurisdiction of district courts to resolve issues relating to trusts and guardianships. 2001 Okla. Sess. Law Serv. Ch. 58.

• Utah permits appointment of a conservator even if a valid power of attorney exists and binds agents to the same standards as trustees. 2001 Utah Laws Ch. 375.

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Keeping Current—Probate Editor: Prof. Gerry W. Beyer, St. Mary’s University School of Law, One Camino Santa Maria, San Antonio, TX 78228-8603, gwb@professorbeyer.com. Contributors include: Mark A. Cevallos, Dave L. Cornfeld, William P. LaPiana, Linda T. Ngo and Theresa York.