Keeping Current—Probate Editor: Prof. Gerry W. Beyer, Texas Tech University School of Law, Lubbock, TX 79409, gwb@ProfessorBeyer.com. Contributors include Dave L. Cornfeld, Claire G. Hargrove, Christopher L. Harris, and Prof. William P. LaPiana.

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

 

CHARITABLE DEDUCTION: A charitable deduction was allowed for a distribution from a trust that did not meet all of the requirements of Code § 2055(e). The court in Estate of Jackson v. United States, 408 F. Supp. 2d 209 (N.D. W. Va. 2005), found no intent to circumvent the statute and thus allowed the charitable deduction for the amount paid to a charity on the settlement termination of a nonqualifying split-interest trust.

 

DIVORCE: Gift to an ex-spouse in a pre-marital will deemed revoked by divorce. The decedent and his ex-spouse dated for many years before marrying. The decedent died five years after their divorce, never having changed his will executed before marriage that created a hierarchy of contingent dispositions, starting with a gift to a surviving wife, then issue, then parents, and finally to his then friend, now ex-spouse, who was identified by name. There was no specific residuary clause. The ex-spouse was the only beneficiary who survived the decedent. State law provides that provisions for a spouse are revoked on divorce unless the will specifically provides otherwise. In Gibboney v. Wachovia Bank, 622 S.E.2d 162 (N.C. Ct. App. 2005), the court held that the gift to the ex-spouse was revoked by the statute and that the decedent therefore died intestate.

 

DOMESTIC PARTNERS: Washington’s meretricious relationship doctrine applies when a partner dies. In Olver v. Fowler, 126 P.3d 69 (Wash. Ct. App. 2006), the court held that Washington’s meretricious relationship doctrine, which divides property owned by unmarried partners in an intimate relationship on community property principles, applies to a division occasioned by the death of the partners, including their simultaneous deaths in an accident.

 

MULTIPLE-PARTY ACCOUNTS: Recovery against brokerage firm that lost survivorship agreement allowed. A father and one of his daughters established a joint account with rights of survivorship. For tax reasons, the account was converted into a single party account in the father’s name. Later, the father told his broker over the telephone that he wanted the daughter’s name added back to the account. The broker prepared documents reflecting the change and delivered them to the daughter, who then gave them to her father who signed them. She left the documents with the broker’s receptionist. Later, the broker could not locate the new joint account agreement despite a diligent search. Before the father could sign a replacement agreement, he lapsed into a coma and died. A dispute arose over whether the balance of the funds in the account, over $1 million, belonged to the daughter or passed to the father’s six children by intestacy. Daughter settled the dispute with her siblings by agreeing to share the account equally with them. Daughter then sued the brokerage firm for the difference between the balance in the account and the one-sixth share she received. The court in A.G. Edwards & Sons, Inc. v. Beyer, 170 S.W.3d 684 (Tex. App. 2005), allowed her to recover even though under firmly established state law, extrinsic evidence is inadmissible to prove rights of survivorship against the depositor’s estate. The daughter was not seeking a recovery from the father’s estate or against a party to the joint account. Instead, she was attempting to recover from the brokerage firm for losing the survivorship agreement, thereby breaching its contract to create a joint account with rights of survivorship.

 

TAX APPORTIONMENT: Recipient of adjusted taxable gift must contribute. The Mississippi estate tax apportionment statute apportions taxes against “all persons interested in the estate,” which includes donees of inter vivos gifts “included in the decedent’s taxable estate.” The decedent’s will apportioned taxes against each bequest and directed that adjusted taxable gifts be treated as bequests for apportionment purposes. The donee of large inter vivos taxable gifts not included in the taxable estate resisted payment of the tax. The court in In re Estate of Necaise, 915 So. 2d 449 (Miss. 2005), held that the donee was a person interested in the estate and that the will’s apportionment provision must be enforced.

 

TAX APPORTIONMENT: State apportionment statute applies to state estate taxes on QTIP trust. The decedent’s will created a QTIP trust and the surviving spouse’s will contained no provision for estate tax apportionment. In Ex parte Forrester, 914 So. 2d 855 (Ala. 2005), the court affirmed its holding in Cleveland v. Compass Bank, 652 So. 2d 1134 (Ala. 1994), that the apportionment of state estate taxes is governed by state law so that, while under Code § 2207A the lack of any apportionment provision means that the executor of the surviving spouse’s estate can recover the tax on the QTIP from the trust property, for state purposes the Alabama statutory default apportionment to the residue applies, and the state estate taxes must be paid from the residue of the surviving spouse’s estate.

 

TRUST ACCOUNTING: A beneficiary with a vested remainder in an unfunded trust has sufficient interest to demand an accounting. At the decedent’s death, his irrevocable trust made a distribution and the remaining property was distributed to a second trust of which the surviving spouse was the sole beneficiary of both income and principal. On her death, any remaining property was to be distributed to another trust, which was then to be distributed in equal shares to the decedent’s three children. Should a child not be living at the time of this distribution, the share was to be distributed to the child’s descendants. One of the children demanded that the surviving spouse account as the trustee of her trust. In Lewis v. Clifton, 837 N.E.2d 1016 (Ind. Ct. App. 2005), the court held that the child held a vested remainder subject to divestment, which made her a beneficiary and entitled to demand an accounting of the trust that would eventually fund the trust for her benefit.

 

TRUST INTERPRETATION: Ambiguous language allows introduction of extrinsic evidence of the settlor’s intent. The settlor’s trust provided that it terminated at her death with the property to be distributed “per stirpes” to her “then living” siblings and also stated that, if “any of said foregoing persons” fail to survive the settlor, their descendants take their ancestor’s share. In litigation between the settlor’s two surviving siblings and the descendants of her predeceased siblings, the court held that the trust language taken as a whole was ambiguous even though individual words and phrases were unambiguous. Accordingly, extrinsic evidence was admissible and uncontradicted affidavits by the scrivener and a sister-in-law of the settlor established her intent to benefit only her surviving siblings. In re Lock Revocable Living Trust, 123 P.3d 1241 (Haw. 2005).

 

TRUST REVOCATION: Joint power to revoke may be exercised by the survivor. A husband and wife created a revocable trust reserving to themselves the power to revoke and providing that the sale or disposition of trust property constituted a revocation. In addition, the survivor was to continue as the sole trustee. The court in Scalfaro v. Rudloff, 884 A.2d 904 (Pa. Super. Ct. 2005), held that the surviving spouse could exercise the power to revoke by conveying real property out of the trust.

 

WILL EXECUTION: Witnesses who signed in a room separate from the location of the testatrix were deemed not to be in the testatrix’s presence, thereby invalidating the will. The testatrix was bedridden but was able to sign her will and to state that she had read her will, that it expressed her wishes, and that she asked the witnesses to sign as witnesses. The witnesses, however, signed the will in a room other than the room in which the testatrix lay in bed. The court in In re Estate of Fischer, 886 A.2d 996 (N.H. 2005), determined that absent any indication in the record of the relationship between the room in which the testatrix remained and the room where the witnesses attested, the attestation could not be held to have been in the conscious presence of the testatrix and consequently the will was invalid for lack of proper execution.

Rulings and Regulations

EDUCATION EXPENSE EXCLUSION: Prepayment of tuition to school qualified for the educational expense exclusion under Code § 2503(c). In PLR 200602002, the IRS emphasized that the advance tuition payments were not refundable, even if the pupil did not enroll.

 

LIFE INSURANCE POLICY OWNERSHIP: Change of ownership of a life insurance policy allowed to have retroactive effect. By doing so, PLR 200603002 permitted the policy to be considered as owned by an irrevocable life insurance trust for more than three years so that if one of the insureds dies, the policy proceeds would not be includable in his or her estate. The IRS allowed the reformation because doing so was merely to carry out the original intent of the parties, which had mistakenly not been effectuated.

 

POWER TO SUBSTITUTE TRUST ASSETS: The settlor’s retention of the power to substitute trust assets did not trigger inclusion of the trust assets in the grantor’s gross estate. PLR 200603040.

 

QTIP ELECTION: Unnecessary QTIP election for credit shelter trust deemed void and did not trigger inclusion in the surviving spouse’s estate. PLR 200603004.

 

VALUATION: Gifts of life estates by a terminally ill life tenant to the remainder beneficiaries are not to be valued under normal mortality tables. Instead, the IRS used an actuarial factor of 0.03325. PLR 200551013.

 

Literature

 

Arkansas—Testamentary Intent. J.M. Robinette explores the controversy created by the ruling of the Arkansas Supreme Court in Edmundson v. Estate of Fountain, in Wills—Holographic Wills and Testamentary Intent—Extrinsic Evidence Is Inadmissible to Prove Testamentary Intent for Holographic Wills Lacking Words of Disposition, 27 U. Ark. Little Rock L. Rev. 545 (2005).

 

Fiduciary Duties. Melanie B. Leslie argues against the views espoused by a prominent professor in her article, In Defense of the No Further Inquiry Rule: A Response to Professor John Langbein, 47 Wm. & Mary L. Rev. 541 (2005).

 

Georgia—Update. Mary F. Radford discusses the implications of recent Georgia case law and legislation relating to decedents and fiduciaries in Wills, Trusts, Guardianships, and Fiduciary Administration, 57 Mercer L. Rev. 403 (2005).

 

Intestate Distribution. Richard Lewis Brown explores the legal intersection between intestate succession statutes and the termination of parental rights statutes in Undeserving Heirs?—The Case of the “Terminated” Parent, 40 U. Rich. L. Rev. 547 (2005).

 

Malpractice. Author Orintha E. Karns explores the implications of a recent Wyoming Supreme Court decision that effectively creates an exception to the “strict privity” rule in Two’s Company, Three’s a Crowd? The Implications of Attorney Liability to NonClient Beneficiaries, Connely v. McColloch, 5 Wyo. L. Rev. 525 (2005).

 

North Carolina—Power of Attorney. In Gifts with Powers of Attorney—Are We Giving the Public What It Wants?, N.C. St. B.J., Winter 2005, at 24, Kate Mewhinney explains current problems and suggests that (1) the North Carolina statutory power of attorney be amended to broaden the boilerplate powers and (2) practitioners be educated so they appreciate the importance of gifting for government benefit programs.

 

Rule Against Perpetuities. Authors Robert H. Sitkoff and Max M. Schanzenbach explore the loophole in the federal estate tax, which many states have used to abolish the rule against perpetuities, in Jurisdictional Competition for Trust Funds: An Empirical Analysis of Perpetuities and Taxes, 115 Yale L.J. 356 (2005).

 

South Carolina—Trust Code. In The Impact of Significant Substantive Provisions of the South Carolina Trust Code, 57 S.C. L. Rev. 137 (2005), S. Alan Medlin analyzes the extensive changes wrought by this new legislation.

 

Surrogacy. H. Joseph Gitlin explains in Illinois: An International Magnet for Surrogacy?, 94 Ill. B.J. 48 (2006), how “[b]y removing the legal cloud over surrogacy in Illinois, the Gestational Surrogacy Act promises to make the procedure more popular with would-be parents.” The Act, which took effect on January 1, 2005, “imposes no residency requirements on the intended parents, allows a birth certificate to be issued without a court proceeding, and permits the parent-child relationship to be legally established before birth and a fee to be paid to the surrogate for her services.”

 

Taxes. In Passive Activity Losses, Trusts, and Estates: The Regulations (If I Were King), 58 Tax L. Rev. 191 (2005), author Leo L. Schmolka lobbies for concrete guidance from the government on certain sections of the Tax Reform Act of 1986.

 

Virginia—Trust Code. The goal of authors John E. Donaldson and Robert T. Danforth is to inform interested parties about the implications of the new legislation in their article, The Virginia Uniform Trust Code, 40 U. Rich. L. Rev. 325 (2005).

Virginia—Update. In his article, Wills, Trusts, and Estates, 40 U. Rich. L. Rev. 381 (2005), J. Rodney Johnson reports on legislative changes and judicial developments in Virginia.

 

 

Legislation

 

New Jersey includes domestic partners as heirs, grants domestic partners the right to an elective share, and grants them priority to be appointed as the deceased partner’s personal representative and to make funeral arrangements. 2005 N.J. Laws 331.

 

New Jersey updates guardianship statutes. Included in the changes is the granting of priority to a domestic partner to be appointed as the guardian for an incapacitated partner. 2005 N.J. Laws 304.

 

Ohio modernizes durable power of attorney statutes. The legislature created a statutory form for the creation of a power of attorney, set forth the general powers of an agent under a power of attorney, and provided for the construction of the powers of an agent under a power of attorney created by use of the statutory form. 2005 Ohio Laws 53.