| P R O B A T E & P R O P E R T Y July/Auguest 2007 Vol. 21 No.4 Other articles from this issue |
| Articles from other issues of Probate and Property |
Keeping Current
Probate
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, Sean Yan, 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
ESTATE DISTRIBUTION: A distribution in-kind was not required. New Jersey law requires an in-kind distribution of assets in the probate estate if there is no objection and it is “practicable” to do so. In In re Estate of Hope, 916 A.2d 469 (N.J. Super. App. Div. 2007), the court held as a matter of first impression that the statute did not require the in-kind distribution of real property: two of the four residuary beneficiaries objected to the in-kind distribution, the beneficiaries requesting the in-kind distribution did not submit a plan for subdividing the property, and the consultant the executor retained reported that dividing the property would reduce its development potential.
ESTATE TAX:Remittance to IRS found to be refundable deposit. In Huskins v. United States, 75 Fed. Cl. 659 (2007), the court held that a remittance made to stop penalties and interest was a deposit and not a payment. Accordingly, the statute of limitations to obtain a refund did not prevent recovery of the remittance.
NO-CONTEST CLAUSE: An action against the trustees would violate a no-contest clause. Several descendants of William Randolph Hearst brought an action under Cal. Prob. Code § 21320 to determine if their proposed action against the trustees of the Hearst testamentary trust alleging that the trustees had violated their fiduciary duties would violate the no-contest clause in Hearst’s will. In Hearst v. Ganzi, 52 Cal. Rptr. 3d 473 (Ct. App. 2006), the court held that the proposed contest based solely on the duty to treat beneficiaries impartially conflicted with trust provisions giving the trustees discretion to treat income and remainder beneficiaries differently.
POWER OF APPOINTMENT: A judge cannot exercise a power of appointment. The testatrix’s will gave to those who cared for her at the end of her life a “fair contribution” of cash assets remaining in her estate as determined by the judge having jurisdiction of the administration of the estate. The lower court struck the provision for uncertainty. In In re McSwain, 946 So. 2d 417 (Miss. Ct. App. 2006), the court reversed, holding that the provision created a special power of appointment. The court, however, also held that a judge could not exercise the power because it required an “arbitrary” decision and remanded for a finding of whether the testatrix reposed a special confidence in the judicial office in the absence of which the power could be delegated to a person able to exercise it.
POWER OF ATTORNEY: Agents did not breach their fiduciary duty by selling specifically devised land. The testatrix’s will devised the house and surrounding real estate that she had received under her second husband’s will to his son and the remainder of her estate to her children by a prior marriage. Acting under a durable power of attorney, her children sold the undeveloped portion of the real estate to one of their children’s friends at less than the appraised value, deposited the proceeds in a joint account with themselves and the testatrix, and paid for her nursing home care from the account. After her death, the stepson sued. In Stewart v. Sewell, 215 S.W.3d 815 ( Tenn. 2007), the court held that the devise adeemed by extinction under the law in effect when the testatrix died and that the agents acted properly.
POWER OF ATTORNEY: Credit union was negligent in allowing an agent to pledge account funds. A principal and his agent under a power of attorney granting extensive authority over banking transactions opened a joint account at a credit union. The principal was the sole source of the funds in the account. Later, the agent pledged the accounts as security for personal loans to the agent on which he eventually defaulted and the credit union took ownership of the funds. In Bryant v. Community Choice Credit Union, No. 05CA0910, 2007 WL 177671 (Colo. Ct. App. Jan. 25, 2007), the court held that because the credit union noted the power of attorney in its records, it knew that the agent was a fiduciary for the principal and therefore breached its duty of care in allowing the agent to use the accounts for himself and that an action for conversion would also be available.
PROFESSIONAL RESPONSIBILITY: A law firm was not liable for results of advice. A law firm represented a husband and his wife in the creation of a complex estate plan. After obtaining consent from all parties, the firm continued to represent the executor of the husband’s estate, the wife as a beneficiary and as an estate planning client, and a charitable foundation that was a beneficiary. On the law firm’s advice, the wife disclaimed her gift of the husband’s separate property in his will so it passed principally to the foundation. Six years later, her son, acting under a power of attorney from the mother, sued the law firm and the father’s corporate executor claiming negligence, breach of fiduciary duty, and legal malpractice, which resulted in the wife’s decision to disclaim. The son obtained a jury verdict for the value of the disclaimed property to be placed in an “equitable trust” for the wife funded by the law firm and the executor. The court in Baker Botts, L.L.P. v. Cailloux, No. 04-05-00446-CV, 2007 WL 460643 (Tex. App. Feb. 14, 2007), overturned the verdict, finding that there was no showing that the defendants’ actions caused the wife to disclaim. In addition, the lower court abused its discretion in ordering the defendants to fund the trust.
TAX APPORTIONMENT: A direction to pay taxes from the estate negates apportionment. The testator’s will directed that all taxes be paid from “my estate.” The estate paid federal and state estate taxes on a taxable estate in which the value of nonprobate property exceeded the value of probate property. Under local law, taxes are equitably apportioned unless the testator directs payment. In Estate of Malik v. Lashkariya, 861 N.E.2d 272 (Ill. App. Ct. 2006), the court held that the word “estate” meant probate estate and therefore equitable apportionment was precluded.
TRUSTS: A discretionary trust was not subject to a restitution judgment. The beneficiary of a discretionary trust under which the trustee could make distributions for the beneficiary’s health, support, maintenance, and education was convicted of attempted murder of his brother and imprisoned. The brother obtained a restitution judgment and petitioned for an order allowing him to collect from the trust. California law allows a court to order satisfaction of a restitution judgment from payments from a discretionary trust that the trustee determines to make to or for the benefit of the beneficiary debtor. The court in Young v. McCoy, 54 Cal. Rptr. 3d 847 (Ct. App. 2007), affirmed the trial court’s denial of the petition. The statute does not allow the court to ignore the trustee’s good faith exercise of discretion not to make a distribution and here the decision not to exercise discretion was not abusive because the beneficiary’s support needs are met by the state while he is incarcerated.
UNAUTHORIZED PRACTICE OF LAW: Creating wills and powers of attorney is the unauthorized practice of law. The testatrix asked her friend, an insurance agent, to help draft her will. The friend filled in the blanks in a computer-generated generic will that the testatrix executed. The friend was named as the executor. In Franklin v. Chavis, 640 S.E.2d 873 (S.C. 2007), the court found that the testatrix was not involved in drafting the document and did not review it. The court held that the friend had acted as more than a scrivener and had engaged in the unauthorized practice of law. The friend also drafted a power of attorney for the testatrix that did not involve filling in blanks in a form and this, too, was the unauthorized practice of law. The court also determined that the friend could not receive compensation for acting as the executor.
WILLS: Acceptance of legacy does not prevent contest. The testator’s will gave his son $10,000 and the son challenged the will alleging undue influence by his sister, who was the principal beneficiary. The trial judge dismissed the suit when the son failed to appear at a pre-trial conference. The son then accepted the $10,000 bequest and appealed the dismissal. The court in In re Estate of Davis, 915 A.2d 955 (D.C. 2007), ordered the suit reinstated, holding that a single failure to appear at a pre-trial conference did not justify dismissal. The court also held that the son’s acceptance of the bequest did not prevent him from maintaining his suit.
RULINGS AND REGULATIONS
GENERATION-SKIPPING TRANSFER TAX:Judicial reformation of a trust did not trigger loss of exempt status. The IRS indicated that a modification of a grandfathered GST tax trust to provide potentially greater payments to the current beneficiary would not cause the trust to forfeit its exempt status for GST tax purposes. PLR 200705025.
GIFT TAX:Settlement will not cause taxable gift. The IRS stated that a settlement entered into by a beneficiary of an IRA that reformed the account’s beneficiary designation would not have gift tax consequences. PLR 200707158.
LIFE INSURANCE:Situations under which transfer for value rule applies clarified. The IRS has confirmed that a sale of a life insurance policy to a trust of which the insured is the grantor will not violate the transfer for value rule. Rev. Rul. 2007-13.
QUALIFIED TERMINABLE INTEREST TRUST:Under certain circumstances, an unneeded or incorrect election may be ignored. The IRS indicated that it would disregard unneeded and incorrect marital deductions that were taken when the surviving spouse died. PLR 200702018.
LITERATURE
Asset Protection Trusts. In Domestic Asset Protection Trusts: What’s the Big Deal?, 8 Transactions 133 (2006), Darsi Newman Sirknen examines the domestic APT and offers the conclusion that the APT is worth far less attention than it has been given recently.
California . Lawrence M. Friedman, Christopher J. Walker, and Ben Hernandez-Stern provide a brief historical background on San Bernardino County and the state of probate law in California in the 1960s in The Inheritance Process in San Bernadino County, California, 1964: A Research Note, 43 Hous. L. Rev. 1445 (2007).
Deficit Reduction Act of 2005 and Illinois Law. In Impending Regs Affect Planning for Clients Facing Long-Term Care, 95 Ill. B.J. 66 (2007), Helen W. Gunnarsson explains how Illinois “is on track to issue new regulations that will make it harder for clients who are headed for nursing-home care to hang on to assets.” Her article details how “[e]lder law and estate-planning practitioners need to be prepared with new strategies for the new rules.”
Elder Law.Adult Adoption and the Elder Population, 8 Marq. Elder’s Advisor 109 (2006), by Angela Chaput Foy, explores this timely issue.
Georgia . Recent significant Georgia cases and legislation are described by Mary F. Radford in Wills, Trusts, Guardianships, and Fiduciary Administration, 58 Mercer L. Rev. 423 (2006).
Native Americans. Douglas R. Nash and Cecilia E. Burke shed light on an underrepresented minority in The Changing Landscape of Indian Estate Planning and Probate: The American Indian Probate Reform Act, 5 Seattle J. Soc. Just. 121 (2006).
Nebraska . In Nebraska’s “Total Return Trust” Statute: Unitrust Conversion and the Challenges of Managing a Trust and Drafting a Trust, 40 Creighton L. Rev. 135 (2006), Ronald R. Volkmer reviews the historical developments that provide the backdrop and context for an examination of the new statute.
Public Trusts. Alexandra B. Klass creates a new theoretical framework for a modern public trust doctrine grounded in state common law that can be used for environmental protection purposes and is responsive to the various criticisms of the doctrine in Modern Public Trust Principles: Recognizing Rights and Integrating Standards, 82 Notre Dame L. Rev. 699 (2006).
Special Needs Trusts. Kerry R. Peck and D. Rebecca Mitchell have recently published their article entitled Helping Parents Plan for Children with Special Needs, 95 Ill. B.J. 82 (2007),in which they “offer drafting suggestions and other tips to help parents plan, financially and otherwise, for their special needs child.”
Trust Investments. Justin Whitney explores liability for failed trust investments and discusses the enforcement of waivers executed by parties to a fiduciary relationship in Taking the Trust Out of Trustee: The Kansas Supreme Court’s Standard for Reasonable Reliance Means Investors Should Proceed Cautiously When Altering the Prudent Investor Rule (McGinley v. Bank of Am., 109 P.3d 1146, Kan. 2005), 46 Washburn L.J. 245 (2006).
Will Contests. Judith McMullen explores the dynamics of a family unit after the testator’s death in Keeping Peace in the Family While You Are Resting in Peace: Making Sense of and Preventing Will Contests, 8 Marq. Elder’s Advisor 61 (2006).
LEGISLATION
Arkansas adopts the Uniform Estate Tax Apportionment Act. 2007 Ark. Acts 276.
Arkansas adopts the Uniform Statutory Rule Against Perpetuities. 2007 Ark. Acts 240.
Idaho adopts the Revised Uniform Anatomical Gifts Act. 2007 Idaho Sess. Laws 30.
Kansas amends the Kansas Uniform Trust Code to allow property titled in the name of the trustee to be conveyed. 2007 Kan. Sess. Laws 58.
North Dakota enacts Uniform Trust Code. The effective date is August 1, 2007. 2007 N.D. Laws H.B. 1034.
South Dakota adopts the Revised Uniform Anatomical Gifts Act. 2007 S.D. Sess. Laws 197.
South Dakota revises law governing living wills including the statutory form. 2007 S.D. Sess. Laws 75.
Utah adopts the Revised Uniform Anatomical Gifts Act. 2007 Utah Laws 60.
Utah enacts the Advance Health Care Directive Act. 2007 Utah Laws 31.
Utah increases the total amount of an estate that can be settled by an affidavit from $25,000 to $100,000. 2007 Utah Laws 316.
Virginia adopts Revised Uniform Anatomical Gifts Act. 2007 Va. Legis. Serv. 92 (West).
Virginia clarifies the trustee’s duty to inform and report to the beneficiaries. 2007 Va. Legis. Serv. 254 (West).
Wyoming enacts the Wyoming Unitrust Act, which authorizes the creation or the conversion of an income trust to a unitrust. 2007 Wyo. Sess. Laws 154.
Wyoming revises law governing spendthrift trusts. 2007 Wyo. Sess. Laws 155.
