_{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

 

ADEMPTION: Sale of real property to support the testator resulted in ademption. The testator’s will devised rental property one-half to her children and one-half to her stepdaughter. The testator made her daughter her agent under a durable power of attorney. The testator was residing in a nursing home, and the daughter sold the testator’s assets as necessary to pay the testator’s expenses, which were not covered by income from a trust created by the testator’s late husband. After other assets were exhausted and the trustee refused to invade principal until all of the testator’s assets were sold, the daughter sold the rental property. By then, the testator was incompetent. After the testator’s death, the stepdaughter submitted a claim for one-half the sale price of the rental property. In In re Estate of Anton, No. 05-1534, 2006 WL 2706158 (Iowa Ct. App. Sept. 21, 2006), the court determined that the bequest had adeemed because the agent properly sold the property in accordance with the testator’s plan and intention.

 

BASIS: For income tax purposes, beneficiaries must use estate tax value as agreed on audit of estate tax return. The court in Janis v. Commissioner, 469 F.3d 256 (2d Cir. 2006), held that the taxpayers were bound by the duty of consistency.

 

DIVERSIFICATION: Express permission to retain assets coupled with exculpatory clause overrides duty to diversify. A bank acting as a conservator drafted a new estate plan for its ward that included the creation of two CRATs for which the bank was the trustee. Both trusts included language authorizing the trustee to retain property received and exculpated the trustee from liability for good faith retention of assets despite any resulting risk or lack of diversification. The trusts were funded entirely with the stock of a single corporation. The trustee prepared an investment plan and, within ten months of funding, the trusts were fully diversified, although the value of the original shares had greatly declined. The charitable remainder beneficiaries sued. The court in Americans for the Arts v. Ruth Lilly Charitable Remainder Annuity Trust No. 1 U/A January 18, 2002, 855 N.E.2d 592 (Ind. Ct. App. 2006), upheld the trial court’s summary judgment for the trustee, holding that the trust language overrode the duty to diversify and the exculpatory clause was valid, not being the result of overreaching.

 

ELECTIVE SHARE: Valid revocable trust may also be deemed illusory and thus subject to surviving spouse’s right of election. The court in Dreher v. Dreher, 634 S.E.2d 646 (S.C. 2006), held that the settlor of a revocable trust who retained the power to revoke received the trust income, had the power to name substitute or successor co-trustees and to revoke the requirement that he act with a co-trustee, had such extensive powers over the trust that, though valid, it was indeed illusory, and would be included in the probate estate solely for purposes of the surviving spouse’s right of election.

 

FUTURE INTERESTS: No implied condition of survival even when remainder beneficiary predeceased income beneficiary. The testators’ wills created mirror image trusts that were to pay income to their daughter and the remainder to their grandson, with payment of half the principal to him at age 28 and the other half at age 35 and, if he should die before age 35, to his issue or if none to the testator’s heirs. The grandson died at age 36, which was sixteen years before the death of the income beneficiary. In Blue Ridge Bank and Trust Co. v. McFall, 207 S.W.3d 149 (Mo. Ct. App. 2006), the court held that the trust property is payable to the grandson’s estate. The trust language clearly created no condition precedent other than attaining the stated age, and it was not permissible to alter the result merely because the property will pass out of the family through the grandson’s will.

 

HOLOGRAPHIC WILL: Handwritten name considered to be a signature on a holographic will. In Bennett v. Ditto, 204 S.W.3d 145 (Ky. Ct. App. 2006), the court held that a document wholly in the decedent’s handwriting is a holographic will, finding that the decedent’s writing of her name as part of a sentence stating that the document was written by the decedent is a “subscription” of the document and that language appointing the executor, the date of writing, and the signatures of two witnesses that appear after the handwritten name did not violate the statutory requirement that the document be signed at the end.

 

INDIVIDUAL RETIREMENT ACCOUNT: IRA beneficiary designation is not an invalid will substitute. In In re Estate of Wellshear, 142 P.3d 994 (Okla. Civ. App. 2006), the court held that an IRA beneficiary designation is not an invalid will substitute, that the IRA account is not part of the deceased owner’s estate and is therefore not subject to the surviving spouse’s right of election, and that the surviving spouse may have a claim to some part of the account on grounds other than the elective share statute, which claims could be enforced by the imposition of a constructive trust on the designated beneficiaries.

 

PARTIAL REVOCATION BY PHYSICAL ACT: Requirement of a writing to effect partial revocation satisfied by the will itself. The testator obliterated a paragraph of her will, added the word “delete,” the date, and her signature. At the foot of the page appeared the signatures of two other individuals, the same date, and the individuals’ addresses. Both individuals testified that the testator asked them to witness the deletion of the paragraph and to sign. State law requires that a partial revocation of a will be accomplished by a writing executed with the formalities of a will. The court determined that the paragraph was revoked because the will itself acted as the required writing and the formalities were observed. In re Will of Litwack, 13 Misc. 3d 1011 (N.Y. Sur. Ct. 2006).

 

PRO SE: Estate administrator precluded from appearing in court without a licensed attorney. The independent executor discharged his attorney and proceeded pro se. In Steele v. McDonald, 202 S.W.3d 926 (Tex. App. 2006), the court determined the independent executor was precluded from doing so because he was not a licensed attorney. The court explained that only a licensed attorney may appear in court because the executor is litigating rights in a representative capacity. A well-reasoned dissent strongly disagreed, noting that, generally, an independent executor may do anything the decedent could have done if he were still alive. Accordingly, the executor should be able to appear pro se on estate matters. The judge explained: “All over Texas estates are being probated, inventories prepared and filed, and estates being closed without an attorney being involved.” If the majority’s opinion is correct, all of this conduct must cease, which would drastically reduce the effectiveness and efficiency of the independent administration system. Should this case be left to stand, October 18, 2006, may well be remembered as the day the Texas independent administration system began to die.

 

RULE AGAINST PERPETUITIES: Savings clause effective even absent designation of measuring lives. A contract for the sale of real property was made contingent on the successful completion of the subdivision of the property into residential building lots. The contract expressly expired on the last day of the time period permitted by the rule against perpetuities. In a suit by the purchasers for specific performance, the trial court granted summary judgment for the vendors, holding that the contract violated the rule against perpetuities. The court in Cattail Associates, Inc. v. Sass, 907 A.2d 828 (Md. Ct. Spec. App. 2006), held that although the contract was subject to the rule, the saving clause was effective and stated that the clause implied that the vendors were the measuring lives.

 

SCOPE OF BEQUEST: A gift of “household items” included artwork. The testator’s will gave his sister “any and all household items” that she desired to take from his residence. In In re Estate of Isenberg, 823 N.Y.S.2d 381 (App. Div. 2006), the court held that this gift included all of the testator’s artwork found in the residence, whether on display or stored in a closet.

 

TRANSFER ON DEATH DEED: A TOD deed included growing crops. The grantor made a transfer on death deed of certain farmland as authorized under state law. After the grantor’s death, the grantor’s administrator claimed the proceeds of the crops growing on the land at the time of the grantor’s death under state law, which requires that growing crops belonging to a decedent pass to the estate and not with the land. In In re Estate of Roloff, 143 P.3d 406 (Kan. Ct. App. 2006), the court held that absent a reservation of the crops in the TOD deed, the crops passed with the land as they would with any other deed.

 

TRUST EXPENSES: Investment advisory fees not subject to unlimited income tax deduction. Instead, these fees are deductible only to the extent that they exceed 2% of the trust’s adjusted gross income. William L. Rudkin Testamentary Trust v. Commissioner, 467 F.3d 149 (2d Cir. 2006).

 

WILL FORMALITIES: Document must be signed or acknowledged for harmless error rule to apply. Colorado has enacted the harmless error rule of UPC § 2-503 with an additional requirement that the offered document be signed or acknowledged by the decedent as his or her will. In In re Estate of Wiltfong, 148 P.3d 465 (Colo. Ct. App. 2006), the court held that the statute does not require that the decedent actually declare that a signed document is a will and therefore remanded the matter for a determination of whether clear and convincing evidence showed that the decedent intended the document to be his will.

 

Rulings and Regulations

 

CHARITABLE REMAINDER UNITRUST: Certain transfers will not result in recognition of built-in gains. The IRS ruled that an S corporation that contains real estate subject to the 10-year built-in gain taxability rule may contribute the property to a CRUT without immediate recognition of the built-in gain, but when the CRUT later sells the real property, the distributions taxed as capital gain will be subject to the built-in income tax. PLR 200644013.

 

INCOME IN RESPECT OF A DECEDENT: Use of IRA by estate to satisfy pecuniary bequest to charity results in immediate recognition of ordinary income to estate. CCA 200644016.

 

Literature

 

Bankruptcy. Anthony Michael Sabino explores the violent interaction between the federal bankruptcy law and state laws governing domestic relations, divorce, and, now, even decedents’ estates in his article Violence of Action: The Bankruptcy Code, Domestic Relations Law, and the New War with State Probate Law, 19 Quinnipiac Prob. L.J. 264 (2006).

 

Connecticut. In his note A Recommendation to the Connecticut General Assembly for the Enactment of a Unitrust Statute, 19 Quinnipiac Prob. L.J. 303 (2006), Christopher J. Novak compares and contrasts the state unitrust statutes of New York, Illinois, and Maryland, highlighting the positive and negative aspects of each state’s statutes.

 

Guardianship. Anthony E. Rothert discusses the problem of When Wards Leave the State, Will Their Guardians’ Authority Be Recognized?, 94 Ill. B.J. 554 (2006). His article “explores how this and related questions are addressed by some states and what lawyers can do on behalf of clients faced with this far-from-uncommon situation.”

 

Illinois—Lost Wills. In Can You Probate a Copy of a Lost Original Will?, 94 Ill. B.J. 522 (2006), Helen W. Gunnarsson explains how to handle the problems that arise when the original will is not available for probate.

 

Native Americans. In The American Indian Probate Reform Act of 2004: The Death of Fractionation or Individual Native American Property Interests and Tribal Customs?, 30 Am. Indian L. Rev. 401 (2005/2006), Kristina L. McCulley presents a comprehensive analysis and proposes precautions that tribes and individual Indians may take to retain control of the disposition of their property at death.

 

New York—Posthumous Paternity Determination. In Posthumous Paternity Testing: A Proposal to Amend EPTL 4-1.2(a)(2)(D), 69 Alb. L. Rev. 947 (2006), Ilene Sherwyn Cooper argues that the ill effects of the statute on the rights of nonmarital children have been dramatic, depriving some of inheritance rights even under circumstances in which scientific testing has established paternity within the range of 99.19% to 99.89%.

 

New York—Trusts. A comprehensive analysis of the history, evolution, implications, and solutions are offered by Victoria Hasseler in her comment Trustee-Beneficiaries, Creditors, and New York’s EPTL: The Surprises That Result and How the UTC Solves Them, 69 Alb. L. Rev. 1169 (2006).

 

Oklahoma. Julia E. Swenton demonstrates that without an intent inquiry, Title 84, § 103, runs contrary to its very purpose in The Missing Piece: The Forgotten Role of Testator Intent in the Application of the Doctrine of Dependent Relative Revocation in Oklahoma, 59 Okla. L. Rev. 205 (2006).

 

Tanzania. Tamr Ezer argues in Inheritance Law in Tanzania: The Impoverishment of Widows and Daughters, 7 Geo. J. Gender & L. 599 (2006), that Tanzania’s inheritance laws are in urgent need of reform.

 

Texas. In Wills and Trusts, 59 SMU L. Rev. 1603 (2006), Gerry W. Beyer discusses recent legislative and judicial developments relating to the Texas law of intestacy, wills, estate administration, trusts, and other estate planning matters.

 

Uganda. Inheritance Law in Uganda: The Plight of Widows and Children, 7 Geo.
J. Gender & L. 451 (2006), contains a summary prepared by Valerie Bennett and other students along with a proposed statute developed as a collaboration between human rights groups and Georgetown University Law Center.

 

Unitrust Conversion and Equitable Adjustment. In her comment Promoting Trustee Adherence to the Fiduciary Duty of Impartiality: A Case for Enacting Unitrust Conversion Statutes in Conjunction with Equitable Adjustment Statutes, 28 U. Haw. L. Rev. 105 (2005), Kristi Arakaki explores the challenges a trustee faces fulfilling the duty of impartiality and ways to mitigate those problems.

 

Will Custodian. In Should You Store Your Client’s Will?, 94 Ill. B.J. 532 (2006), Helen W. Gunnarsson explains how this issue is handled in Illinois and suggests that a statutorily created central will repository may be the answer.

 

Legislation

 

District of Columbia passes Estate and Inheritance Tax Clarification Emergency Act of 2006. This legislation clarifies that the estate tax filing threshold of $1 million applies to decedents whose death occurs on or after January 1, 2003. 2006 D.C. Laws Act 16-510.

 

Pennsylvania enacts Advance Directive for Health Care Act. 2006 Pa. Laws 169.