| P R O B A T E & P R O P E R T Y May/June 2007 Vol. 21 No.3 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
ADEMPTION: A devise of real property acquired from the testator’s late spouse deemed specific. The testator devised his real property, including “all right, title, and interest in and to” real property acquired by inheritance or otherwise from his predeceased wife to a single individual. The testator then sold part of the inherited realty and took back a purchase money mortgage. In Bolte v. Robertson, 941 So. 2d 920 (Ala. 2006), the court held that the devise was specific, and thus under the applicable anti-ademption statute, the devisee would receive the outstanding balance on the mortgage.
ARBITRATION: Trust arbitration clause is binding on beneficiary. The trustee delegated his investment authority to an advisor under state law. The agreement contained a provision requiring arbitration of all claims and disputes. In a voluntary accounting proceeding, the trust’s beneficiary contended that she was not bound by the arbitration clause. The court in In re Blumenkrantz, 824 N.Y.S.2d 884 (Sur. Ct. 2006), held that, if the state law requirement that a delegee submit to the jurisdiction of the state’s courts requires a judicial determination of disputes, it is preempted by the Federal Arbitration Act and that the beneficiary is bound by the arbitration agreement. If the trustee has a conflict of interest, the beneficiary may receive letters of limited trusteeship to represent the trust in the arbitration proceeding.
ATTESTATION:Line-of-sight test is not limited to immobile testators. Local law requires the witnesses to sign the will in the presence of the testator. The testimony showed that the witnesses signed the will in the dining room of the testator’s home while the testator remained in her bedroom, from which she could not see the witnesses. In McCormick v. Jeffers, 637 S.E.2d 666 (Ga. 2006), the court held that, even though the testator was mobile, could have looked into the dining room, and was aware of the witnesses’ actions, the line-of-sight test requires the testator to be able to see the witnesses and that the statute precluded adoption of the conscious presence test, so that the testator’s being aware of the witnesses’ actions was irrelevant.
ATTESTATION: Witness may attest after the testator’s death. The testator signed his will at a bank in the presence of his fiancée and a bank employee who signed the will and also affixed his notary seal to the will. After the testator’s death four-and-a-half years later, the testator’s fiancée offered the will for probate and in her petition stated that she signed the will as a witness the day of the submission. The court in In re Estate of Miller, 149 P.3d 840 (Idaho 2006), held that the applicable statute unambiguously fails to impose any requirement as to when witnesses must sign a will and that the court may not impose such a requirement.
CHARITABLE TRUST:Alumni board of charitable beneficiary lacks standing to enforce the trust. In In re Milton Hershey School, 911 A.2d 1258 (Pa. 2006), the court held that the Milton Hershey School Alumni Association lacked standing to complain about actions of the governing Board of Trustees of the Milton Hershey School, which was established as a charitable trust by the last will of Milton Hershey. Instead, the state attorney general had authority to enforce the trust. The alumni association did not obtain standing merely because it was unhappy with the attorney general’s actions.
CONDITIONAL GIFT: Cutting off a trust interest on remarriage is an invalid condition. The testator’s will placed her residence in a trust and provided that her husband could continue to live there “as if he had been devised a life estate” or until he remarried or cohabited with a woman not a blood relative. The husband remarried and the trustee petitioned the court for an order ending the husband’s interest. Local law voids conditions in restraint of marriage attached to a devise. The court in Nye v. Robertson, 859 N.E.2d 772 (Ind. Ct. App. 2007), held that the statute applied to interests in testamentary trusts, that the language created an invalid condition rather than a valid limitation, and that the husband had a life interest in the house subject to the terms of the trust.
CONDITIONAL GIFT: The testator’s reference to a specific date made codicil conditional. A mother sent a handwritten letter to her son thanking him for investing money for her, telling him that, “should anything happen to me,” he was to keep the “balance” and stating that she “[w]ill check with you after October 7th,” on which date she was to, and did, return from a cruise. In Porter v. Black Warrior Farms, L.L.C., No. 1050566, 2006 WL 3692432 (Ala. Dec. 15, 2006), the court required the son to return the invested funds to his mother’s estate, holding that the letter was neither an instrument of gift nor a codicil to her will because its effect was conditioned on her not returning from the cruise.
MARRIAGE-LIKE RELATIONSHIP DOCTRINE: Texas court refuses to recognize this doctrine. A son, as the independent administrator of his father’s estate, brought suit against his father’s partner to recover estate assets. The partner claimed that he was entitled to the assets under the marriage-like relationship doctrine. The court in Ross v. Goldstein, 203 S.W.3d 508 (Tex. App. 2006), refused to recognize this doctrine. The partner asserted that the doctrine is an equitable remedy that is not against the public policy of Texas and that it would “aid the courts in addressing the growing reality of same-sex relationships.” The appellate court explained that it was unwilling to recognize the marriage-like relationship doctrine and that “same-sex couples must address their particular desires through other legal vehicles such as contracts or testamentary transfers.” The court examined two provisions of Texas law: first, the constitution, which provides that no state or political subdivision may create or recognize any legal status identical or similar to marriage for same-sex partners, and, second, the Family Code, which states that it is contrary to Texas public policy to recognize or give effect to a same-sex marriage or civil union. Accordingly, the court held that it lacked the power to create an equitable remedy akin to marriage.
NO-CONTEST CLAUSE: Action of one beneficiary resulting in forfeiture of another beneficiary’s share does not violate public policy. The settlor created an inter vivos trust terminating on his death, at which time three of his daughters would receive $50,000 each with the remainder divided among two other children. The trust also contained a no-contest clause revoking the gifts to all three daughters should any one of them contest the validity of the trust. In Tunstall v. Wells, 50 Cal. Rptr. 3d 468 (Ct. App. 2006), the court held that the no-contest clause did not violate public policy even though it would operate to punish persons not challenging the trust.
POWER OF ATTORNEY: Transactions between the agent and the principal presumed to be the result of undue influence. Local law provides that all transactions between a trust and a trust beneficiary are presumed to be without sufficient consideration and to have been entered into while the beneficiary was under undue influence. Citing precedent holding that an attorney-in-fact is subject to the same fiduciary duties as a trustee, the court in Allard v. Johnson, 724 N.W.2d 331 (N.D. 2006), held that the statutory presumptions apply to transactions by the agent who breached the fiduciary duties owed to the principal.
REVOCATION OF WILL: The testator’s signature to a statement of revocation acted as the physical act necessary to revoke will. Local law requires that a physical act of revocation performed by someone other than the testator must be done in the testator’s presence and must be proved by at least two witnesses. In Maxwell v. Dawkins, No. 1051443, 2006 WL 3692427 (Ala. Dec. 15, 2006), the court held that the testator revoked his will when the testator’s lawyer wrote a statement of revocation on the will that the testator signed. The signature was the physical act of revocation, and having been made by the testator, two witnesses were not required.
SUPPORT TRUST: Consideration of the beneficiary’s other financial resources limited to income.Keisling v. Landrum, No. 2-06-008-CV, 2007 WL 79529 (Tex. App. Jan. 11, 2007), involved a testamentary trust, the stated primary purpose of which was support of the testator’s surviving spouse in her accustomed standard of living and which directed the trustee to make distributions of income and principal if the spouse’s “own income and other financial resources” were not sufficient. The court held that the language unambiguously created a support trust and that the words “other financial resources” refer to income and other periodic receipts and not the value of her assets. The court also indicated that the spouse must submit documentation of her expenses and standard of living so that the trustee may properly determine if distributions are required.
SUPPORT TRUST: The trustee’s discretion to provide for support and maintenance creates a support trust. The husband’s testamentary trust gave all income to his surviving spouse but allowed the trustee to withhold income if he determined that the spouse had “adequate other income” and also allowed the trustee to distribute principal to the spouse if he determined invasion necessary to provide for the spouse’s “proper support and maintenance.” In In re Appeal of Decision of Comm’r of Human Services in Appeal of Flygare for Medical Assistance, 725 N.W.2d 114 (Minn. Ct. App. 2006), the court held that this language created a support trust rather than a discretionary trust and that the trust therefore was an available resource for determining the spouse’s eligibility for assistance.
TRUSTS: Beneficiaries have no standing to challenge the amendment of a revocable trust during the settlor’s life. The settlor’s revocable trust named her brother and sister-in-law as successor trustees on her death or incapacity and also made them the primary beneficiaries on her death. The settlor then amended the trust naming her late husband’s nephew as the successor trustee and sole beneficiary. Brother and sister-in-law sued to set aside the amendment on grounds of lack of capacity and undue influence. In Linthicum v. Rudi, 148 P.3d 746 (Nev. 2006), the court held that the parties lacked standing because the interest of the beneficiaries in a revocable trust is contingent and vests only at the settlor’s death.
TRUSTS: The divorced parent of the beneficiaries was not an interested party. A father created a trust for his children with his wife, the children’s mother, as the trustee. The couple divorced and the settlement agreement stated that the parties anticipated that the father’s support obligation would be met by the mandatory distribution of trust income and the discretionary distribution of principal under a support and education standard. The mother later sued the father and the successor trustee (the father’s new spouse), asserting breach of trust, and requested the trustee’s removal and appointment of a new trustee. In Richards v. Richards, 637 S.E.2d 672 (Ga. 2006), the court held that the mother did not have a claim against the trust because the settlement agreement did not obligate the trust to support the children or to reimburse the mother for her support expenditures.
Rulings and Regulations
CHARITABLE REMAINDER UNITRUST: Modification jeopardizes qualification. The IRS indicated that a court modification of a CRUT, which was not designed to correct a scrivener’s error but rather to change the terms of the trust, would end the CRUT’s qualification. PLR 200649027.
LIFE INSURANCE: Partition of jointly owned life insurance policy will not result in taxable income. PLR 200652043.
PENSION PROTECTION ACT OF 2006: IRS provides compliance guidance in the form of questions and answers. Notice 2007-7.
Literature
Advance Directives. In Autonomy and End-of-Life Decision-Making, Trial, Dec. 2006, at 36, Ray D. Madoff discusses the basic law applicable to medical powers of attorney and directives to physicians and focuses on the issue of whether decisions made and preferences given while a person is young and/or healthy accurately predict what the person actually desires at a later time when he or she faces a serious or debilitating illness. Prof. Madoff includes the touching story of how she had to live through these issues after her own father was disabled from a massive stroke.
Broken Trust Review. In Testamentary Incorrectness: A Review Essay, 54 Buff. L. Rev. 693 (2006), Paul D. Carrington presents an in-depth analysis of the book Broken Trust: Greed, Mismanagement & Political Manipulation at America’s Largest Charitable Trust by Judge Samuel P. King and Prof. Randall W. Roth.
Distributable Net Income. Michael T. Yu criticizes the current practice of allocation of DNI and suggests an equitable solution in A Proposed Allocation of Distributable Net Income to the Separate Shares of a Trust or Estate, 3 Pitt. Tax Rev. 121 (2006).
Fiduciary Duty. Rebekah Ryan Clark posits that in the near future courts will hold mediators accountable as fiduciaries in The Writing on the Wall: The Potential Liability of Mediators as Fiduciaries, 2006 BYU L. Rev. 1033.
Illinois—Series LLCs. Randall H. Borkus and Kimberly J. Myers discuss 2005 amendments to the Illinois Limited Liability Company Act to allow the designation of a series of ownership interests in Series LLCs: Practical Pointers and Tax Implications, 95 Ill. B.J. 22 (2007). They explain that “[t]he uniqueness of the ‘series’ structure is that the members of an ISLLC can hold separate property interests in separate series that are compartmentalized for liability purposes. The profits and losses as well as the assets and liabilities of each series are legally separated from each other.”
Incentive Trusts. In Conditional Love: Incentive Trusts and the Inflexibility Problem, 41 Real Prop. Prob. & Tr. J. 445 (2006), Joshua C. Tate explains how the contemporary phenomenon of incentive trusts might lead to a problem of inflexibility when they are not drafted to take into account the possibility of changed circumstances.
Intestate Succession: Ronald J. Scalise Jr. explains, “American intestacy law frequently forces children to honor financially their father and mother, but little evidence suggests they want to, at least after their own deaths.” Prof. Scalise concludes that “intestacy law must change to reflect societal preferences and desires” in Honor Thy Father and Mother?: How Intestacy Law Goes Too Far in Protecting Parents, 37 Seton Hall L. Rev. 171 (2006).
Life Insurance Trusts. In Giving Birth to, Caring for, and Feeding the Irrevocable Life Insurance Trusts, 41 Real Prop. Prob. & Tr. J. 571 (2006), Donald O. Jansen describes the advantages and disadvantages of the irrevocable life insurance trust and provides possible solutions to the gift, estate, and generation-skipping transfer problems that may arise.
Pension Protection Act of 2006. In New Pension Protection Act a Boon to Charitable Giving, 94 Ill. B.J. 628 (2006), David A. Berek explains how “[t]he new law allows wealthy taxpayers over age 70 1/ 2 to give up to $100,000 from their IRAs directly to public charities.”
Settlor Intent. Eric G. Pearson makes three proposals to ensure that future settlors may continue to rely on the judiciary to uphold their intent for many years into the future in Reforming the Reform of the Cy Pres Doctrine: A Proposal to Protect Testator Intent, 90 Marq. L. Rev. 127 (2006).
Taxation of Trusts. An interpretation of Code § 67(e) to produce optimal equity among trust beneficiaries as well as between trust beneficiaries and outright owners is proposed by Pamela Champine in Taxing Middle Class Trust(s), 7 Fla. Tax Rev. 505 (2006).
Transfer-on-Death Deeds. Susan N. Gary explains the basic statutory structure that exists in the states that already recognize TOD deeds, examines their advantages and disadvantages, and provides several typical estate planning scenarios that highlight when a TOD deed may be appropriate in Transfer-on-Death Deeds: The Nonprobate Revolution Continues, 41 Real Prop. Prob. & Tr. J. 529 (2006).
Trust Scams. Scams involving living trusts are, unfortunately, very common. In Living-Trust Scams: All Too Alive and Well in Illinois, 94 Ill. B.J. 644 (2006), Helen W. Gunnarsson discusses some of the tactics used by trust mills to scam people into creating trusts. Gunnarsson also discusses the recent Indiana case of Indiana State Bar Ass’n v. Northouse, 848 N.E.2d 668 (Ind. 2006), in which the court held that “[d]rafting and preparing testamentary and trust documents is clearly the practice of law.”
Trusts. Frances H. Foster argues that trust privacy has impeded two of the most significant modern reform efforts to achieve uniformity in the trusts and estates field in Privacy and the Elusive Quest for Uniformity in the Law of Trusts, 38 Ariz. St. L.J. 713 (2006).
Virginia. Recent legislative and judicial developments in Virginia are explored by J. Rodney Johnson in Wills, Trusts, and Estates, 41 U. Rich. L. Rev. 321 (2006).
Legislation
District of Columbia enacts presumption of competency. An individual is presumed competent to make legal, health care, and all other decisions unless certified otherwise or deemed incapacitated or incompetent by a court. Incapacity is not inferred from the fact that an individual is voluntarily or involuntarily hospitalized for mental illness or has mental retardation. 2006 D.C. Laws Act 16-566.
Michigan modernizes laws governing corporate trustees. 2006 Mich. Legis. Serv. 581.
New York requires pretermitted children to be in gestation when the testator dies. 2006 N.Y. Sess. Laws 249.
Ohio regulates third-party distributions. The probate court, on application by an affected beneficiary, must determine the fairness of an agreement requiring a fiduciary or beneficiary to pay a percentage of an inheritance or a dollar amount to any person other than the beneficiary. 2006 Ohio Laws File 150.
Pennsylvania allows redevelopment authorities to receive letters of administration. 2006 Pa. Legis. Serv. 171.
