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, 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

 

 

AMBIGUITY: Lack of a residuary disposition is not a latent ambiguity. The decedent’s will disposed of the residue to one of his sons if his wife predeceased him (in which case the decedent expressly disinherited his other son) or if they died simultaneously or in a common accident, but not if she survived, which she did. In Hammer v. Hammer, 633 S.E.2d 878 (N.C. Ct. App. 2006), the court affirmed a summary judgment against the son named in the will, holding that there was no latent ambiguity. Accordingly, extrinsic evidence was inadmissible and the presumption against partial intestacy was overcome.

 

DEFINED VALUE CLAUSES: Determination of gift tax consequences to be made on date of the gift. In Succession of McCord v. Commissioner, 461 F.3d 614 (5th Cir. 2006), the court held that the gift tax consequences of a gift of a specific dollar amount of partnership interests should be determined on the date of the gift, rather than the date two months later when the donees decided how to apportion the gift among themselves. The court also determined that the transfer was calculated as a net gift with respect to the donees’ agreement to be liable for the estate taxes that would be imposed if the donors died within three years of the date of the gift.

 

DISQUALIFICATION: Close friends can be “care custodians” and disqualified from taking under will. Subject to certain exceptions, California law disqualifies a “care custodian” of a dependent adult from taking under a donative instrument under which the dependent adult is the transferor. In Bernard v. Foley, 139 P.3d 1196 (Cal. 2006), a divided California Supreme Court held as a matter of statutory interpretation and public policy that the statutory disqualification extends to preexisting personal friends of the transferor who provide services similar to those provided by licensed practical nurses, resolving a division among the courts of appeal.

 

LOST WILL: Is a photocopy a “written will” for purposes of probate statute?  Tex. Probate Code § 85 requires that the contents of a written will that cannot be produced in court must be “substantially proved by the testimony of a credible witness who has read it or heard it read.” Two recent intermediate appellate court cases have taken different approaches on the effect of bringing a photocopy of the will to court. In Garton v. Rockett, 190 S.W.3d 139 (Tex. App. 2005), no petition h., the executor put on the testimony of a witness and the notary, but they admitted that they either did not read the original will or could not recall its contents. Accordingly, the court held that the will was not proved because reading a copy of the will is not a substitute for reading the original will. In In re Estate of Jones, 197 S.W.3d 894 (Tex. App. 2006), petition filed, however, the court held that the statutory requirement does not apply when the court is presented with an exact photocopy of the original will because the copy is a written will produced in court.

 

NO-CONTEST CLAUSE: Forfeiture proper because evidence of the testator’s physical and mental condition showed no probable cause to challenge the will or trust. The decedent’s will and trust contained no contest clauses revoking gifts to a beneficiary challenging the will or trust. Although state law does not enforce a no-contest clause when there is probable cause to challenge the will or trust, the court in Russell v. Wachovia Bank, N.A., 633 S.E.2d 722 (S.C. 2006), reversed the trial court’s refusal to enforce the clauses finding that affidavits from the decedent’s attorney, colleagues, physician, and friend attesting to his competency up until his death and the decedent’s estate planning documents going back 50 years all indicated that contestants did not have probable cause to challenge either instrument.

 

POWER OF APPOINTMENT: Appointment to the donee’s trust is valid. A wife’s will created a bypass trust and directed the trustee at her husband’s death to pay over the trust property to such persons, except the husband’s estate, “free of trust,” as her husband shall designate in his will. The wife also created takers in default. The husband’s will exercised the power by appointing the property to a trust he created after his wife’s death. The court in In re Chervitz Trust, 198 S.W.3d 658 (Mo. Ct. App. 2006), affirmed the trial court’s finding that the power was validly exercised, holding that the phrase “free of trust” referred to the wife’s testamentary trust.

 

PRE-MARITAL WILL: Amendment to a pour-over trust does not prevent revocation of will as to the omitted spouse. State law provides that a pre-marital will is revoked as to a surviving spouse unless the spouse is provided for in a marriage contract or the will or the spouse is mentioned in a way to show that the omission was intentional. The decedent created a trust and a pour-over will, and then married a few weeks after amending the trust to give his future wife a life estate in his condominium beginning on his death. After the decedent’s death, his widow sought her one-half intestate share in the probate estate, alleging that the will was revoked as to her under the statute. The court in In re Estate of Prestie, 138 P.3d 520 (Nev. 2006), held that the widow was entitled to her intestate share because the amendment of the trust was not a provision in the will for the surviving spouse.

 

PROFESSIONAL RESPONSIBILITY: Undue influence presumed when attorney benefits from will. In the course of imposing sanctions on an attorney who along with his family benefited financially from the estate plan he created for two clients, the court in Lawyer Disciplinary Board v. Ball, 633 S.E.2d 241 (W. Va. 2006), held that a rebuttable presumption of undue influence arises when there is an attorney-client relationship at the time a will is prepared, the attorney actively participates in the preparation of the will, and the attorney or the attorney’s parent, child, sibling, or spouse who is unrelated to the testator is a beneficiary of the will.

 

TAX APPORTIONMENT: Failure to specify the source of tax payment if residue is insufficient results in equitable apportionment. The decedent’s will directed that all taxes and expenses be paid from the residue “without apportionment or reimbursement.” The taxable estate included a marital deduction trust created by the decedent’s husband. The residue of the estate was insufficient to pay the taxes, and the beneficiaries of the pre-residuary bequests sought reimbursement from the trust for the taxes caused by inclusion of the trust in the taxable estate. Finding that the failure of the will to address payment of estate taxes, if the residue is insufficient made the provision ambiguous, the court in In re Estate of Williams, 853 N.E.2d 79 (Ill. App. Ct. 2006), held that equitable apportionment should apply and the trust should bear its proportionate share of taxes and expenses.

 

TRUST INTERPRETATION: Language in a revocable trust explaining intent also applies to the settlor’s irrevocable trust. The settlor created a revocable trust in Illinois and then created an irrevocable trust in Arizona, the purpose of which was stated to be meeting the settlor’s needs. The trustee of the latter trust (who was also the primary remainder beneficiary) was given discretion in making payments to the settlor. The settlor then amended the Illinois trust, adding language directing that expenses for her care beyond “ordinary expenses” of living in her home be paid equally by the two trusts. The trustee of the Arizona trust refused to pay such expenses and the trustee of the Illinois trust sued. The court determined that the Arizona trust was liable for one-half of the settlor’s expenses finding that the amendment to the Illinois trust merely clarified what the Arizona trust already provided. Peck v. Froehlich, 853 N.E.2d 927 (Ill. App. Ct. 2006).

 

TRUST INTERPRETATION: Rules for abatement and reformation used to interpret wills also apply to an inter vivos trust intended as will substitute. In Handelsman v. Handelsman, 852 N.E.2d 862 (Ill. App. Ct. 2006), the court, following Restatement (Third) Property (Wills and Donative Transfers) § 7.2, held that the statutory rules governing abatement and cases holding that the courts cannot reform wills also apply to a funded inter vivos pour-over trust intended to be a will substitute.

 

UNDUE INFLUENCE: Power of attorney gives rise to a confidential relationship. In the course of upholding a jury verdict finding that a will was the product of undue influence, the court in In re Estate of Duebendorfer, 721 N.W.2d 438 (S.D. 2006), held that the fiduciary relationship between the principal and the agent is a confidential relationship for the purpose of determining whether a will is invalid because of undue influence. Consequently, the will beneficiaries have the burden of showing that they did not unduly influence the testator in the preparation and execution of the will.

 

RULINGS AND REGULATIONS

 

 

ANNUITIES: Annuities held by nongrantor trust treated as owned by the beneficiaries individually for income tax purposes under Code § 72(u)(1). PLR 200626034.

 

CHARITABLE DEDUCTION: Gift tax deduction allowed when unitrust interest in a charitable remainder unitrust renounced in favor of charitable beneficiaries. PLR 200630006.

ESTATE TAX: As long as an assessment remains unpaid, IRS may demand security for unpaid installments under Code § 6166. CCA 200627023.

 

GRANTOR TRUST: Retention of a limited power of appointment by the grantor prevents funding of a trust and thus no completed gift. Consequently, the grantor will not be taxable as the owner of the trust. PLR 200637025.

 

GRANTOR TRUST: Sale of life insurance policy by the insured to his grantor trust deemed not a transfer for value. PLR 200636086.

 

INVESTOR INITIATED LIFE INSURANCE: Policies may be void. A couple of states have recently issued rulings that investor-initiated life insurance (also called stranger-owned life insurance or speculator-initiated life insurance) may violate local laws regarding insurable interests, wager policies, and the like. See La. Ins. Bull. No. 06-05; Utah Ins. Comm’n Bull. 2006-3.

 

 

LITERATURE

 

Asset Protection Trusts. John K. Eason explores the potential effects of recent developments on the future course of trust asset protection in Policy, Logic, and Persuasion in the Evolving Realm of Trust Asset Protection, 27 Cardozo L. Rev. 2621 (2006).

 

Conservation Easements. Susan F. French outlines five legal doctrines in Perpetual Trusts, Conservation Servitudes, and the Problem of the Future, 27 Cardozo L. Rev. 2523 (2006).

 

Estate Tax. In Estate Planning with the Increasing Exclusion Amount, 94 Ill. B.J. 440 (2006), David A. Berek discusses the possible legislative solutions that Congress may take on the estate tax. He laments that “the moving target makes it hard to plan for estates that hover around the exclusion amount.”

Fiduciary Relationships. The dynamics of the relationship between a professional trustee and a beneficiary are often quite different than that of a trustee who is a friend or family member. This dichotomy is explored by Karen E. Boxx in her article Distinguishing Trustees and Protecting Beneficiaries: A Response to Professor Leslie, 27 Cardozo L. Rev. 2753 (2006). Professor Leslie’s article was noted in the July 2006 column.

 

Forced Share. In his article Why Shouldn’t I Be Allowed to Leave My Property to Whomever I Choose at My Death? (Or How I Learned to Stop Worrying and Start Loving the French), 44 Brandeis L.J. 737 (2006), Terry L. Turnipseed analyzes whether the ancient common law concepts of dower and curtesy, and their modern day statutory equivalents, the elective share laws, should be substantially modified or eliminated.

 

GRATs. In Heresy or Prophecy: The Case for Limiting Estate Tax Inclusion of GRATs to the Annuity Payment Right, 41 Real Prop. Prob. & Tr. J. 381 (2006), Michael D. Whitty discusses the extent of estate tax inclusion when the grantor dies during the primary term of the trust.

 

Illinois—Medicaid Planning. In the case of Hines v. Department of Public Aid, 850 N.E.2d 148 (Ill. 2006), the Illinois Supreme Court decided that the state government could not seek reimbursement for payments made to a deceased recipient from the surviving spouse’s estate. Helen W. Gunnarson discusses this case in State Can’t Dun Surviving Spouse’s Estate for Nursing Home Bill, 94 Ill. B.J. 398 (2006), and concludes that this decision makes “the revocable living trust an even more attractive estate-planning tool.”

 

Illinois—Power of Attorney. Helen W. Gunnarson discusses the Illinois Supreme Court case of In re Winthrop, 848 N.E.2d 961 (Ill. 2006), in POA Perils, 94 Ill. B.J. 403 (2006), and explains how the case is “valuable reading for attorneys who sometimes find themselves preparing a power of attorney for Party A at the behest of Party B.”

 

New York. In Estates and Trusts, 56 Syracuse L. Rev. 793 (2006), Elizabeth A. Hartnett surveys recent judicial decisions and legislative changes in New York.

 

Perpetual Trusts. Mary Louise Fellows posits that a variety of factors including the GST tax have led to an increased interest in perpetual trusts in Why the Generation-Skipping Transfer Tax Sparked Perpetual Trusts, 27 Cardozo L. Rev. 2511 (2006).

 

Power of Attorney. In POA Amendments Help Protect Incapacitated Principals, 94 Ill. B.J. 462 (2006), Helen W. Gunnarson explains that a recent amendment to the Illinois Power of Attorney Act “empowers the Department of Aging and its provider agencies to go to court to require agents to produce their records, which will help authorities identify and stop abuse.”

 

Prudent Investor Rule. The general provisions of the UPIA and the current legal environment concerning a fiduciary’s use of derivatives under the new acts are reviewed by Robert J. Aalberts and Percy S. Poon in Derivatives and the Modern Prudent Investor Rule: Too Risky or Too Necessary?, 67 Ohio St. L.J. 525 (2006).

 

Spendthrift Trusts. (1) In Article Five of the UTC and the Future of Creditors’ Rights in Trusts, 27 Cardozo L. Rev. 2551 (2006), Robert T. Danforth discusses the development of the UTC and explores the controversy surrounding Article Five. (2) Jeffrey A. Schoenblum contends that Article Five is a missed opportunity to legislate a coherent theory of creditor rights and spendthrift protections in his article, In Search of a Unifying Principle for Article V of the Uniform Trust Code: A Response to Professor Danforth, 27 Cardozo L. Rev. 2609 (2006).

 

Texas. Kara Blanco addresses the relationship between the Texas Trust Code and the Uniform Trust Code in her comment, The Best of Both Worlds: Incorporating Provisions of the Uniform Trust Code into Texas Law, 38 Tex. Tech L. Rev. 1105 (2006).

 

Trust Protectors. (1) In Trust Protectors, Agency Costs, and Fiduciary Duty, 27 Cardozo L. Rev. 2761 (2006), Stewart E. Sterk argues that a trust protector can mitigate problems with dead-hand control and monitor the trustee’s performance. (2) Gregory S. Alexander worries that the creation of a trust protector position will create its own set of agency cost problems rather than reduce costs in Trust Protectors: Who Will Watch the Watchmen?, 27 Cardozo L. Rev. 2807 (2006). (3) Jeffrey Evans Stake explores the social welfare costs and benefits of adding trust protectors to the tool kit available to settlors and testators in A Brief Comment on Trust Protectors, 27 Cardozo L. Rev. 2813 (2006).

 

Wellman Memorial. Paul Kurtz opened a memorial symposium by sharing memories of his friend and colleague Prof. Richard Vance Wellman. Tributes by Mary Louise Fellows, Gregory S. Alexander, Thomas L. Jones, John H. Langbein, Eugene F. Scoles, and Lawrence W. Waggoner are included. 40 Ga. L. Rev. 1041 (2006).

 

 

LEGISLATION

 

California authorizes a will to refer to a writing that directs the disposition of tangible personal property not otherwise specifically disposed of by the will, except for property used primarily in a trade or business. 2006 Cal. Legis. Serv. 280.

 

California provides that a specific gift distributable under a trust will carry with it the same benefits and burdens as a specific gift under a will. 2006 Cal. Legis. Serv. 569.

 

California provides that an electronic advance health care directive or a power of attorney for health care is legally sufficient if the existing requirements for directives are satisfied, the directive is acknowledged before a notary public, and any digital signatures used meet specified requirements. 2006 Cal. Legis. Serv. 579.

 

California requires Law Revision Commission to study the operation and effectiveness of provisions restricting donative transfers to certain classes of individuals and to recommend revisions and improvements to those provisions. 2006 Cal. Legis. Serv. 215.

 

California revises and recasts its legislation concerning conservatorships to permit a guardian or conservator to select the least restrictive appropriate residence of a conservatee or ward. 2006 Cal. Legis. Serv. 490.