Keeping Current—Probate

Keeping Current—Probate Editor: Prof. Gerry W. Beyer, Texas Tech University School of Law, Lubbock, TX 79409, gwb@ ProfessorBeyer.com. Contributors: Claire G. Hargrove, Paula Moore, Kerri G. Nipp, Prof. William P. LaPiana, and Jake W. Villanueva.

Keeping Current—Probate

CASES

ADEMPTION:

Specific gift adeems but reformation is possible. Spouses created a trust ending on the death of both, at which time the trustee is to distribute “all” of the stock in a private bank and all stock in a publicly traded corporation to the children of one spouse. The remainder of the trust property would go to the children of the other spouse. Before termination of the trust, the bank redeemed its stock and the trust received cash. In Connery v. Shea, 259 A.3d 118 (Me. 2021), the Maine high court affirmed a motion for summary judgment based on ademption of the gift of the bank stock. The court held that because the constructional rules applicable to wills also apply to trusts, the word “all” made the gift equivalent to a specific bequest in a will and remanded to consider reforming the trust to reflect the settlor’s intent.

ADOPTION:

Adopted-out descendant is included in an ancestor’s class gift made before the adoption. The settlor’s great-grandchild was adopted by a stepsibling after the parent lost custody of the great-grandchild. In Murphy v, Shehan, 633 S.W.3d 350 (Ky. Ct. App. 2021), the Kentucky intermediate appellate court affirmed the lower court holding that the adopted person was still a descendant of the settlor and therefore remained as a beneficiary of the trust. This is because the adoption did not end the biological relationship to the family before the adoption.

offers a look at selected recent cases, tax rulings and regulations, literature, and legislation. The editors of Probate & Property welcome suggestions and contributions from readers.

ADOPTION:

Blanket prohibition on appointment to adopted persons vio- lates public policy. An inter vivos trust created a testamentary general power of appointment in the life income beneficiary. Many years after the beneficiary adopted the beneficiary’s stepchildren, the settlor amended the trust to prohibit the exercise of the power of appointment for the benefit of anyone adopted by another person or such person’s issue or ancestors. In Todd v. Hilliard Lyons Tr. Co., LLC as Tr. Under Will of Todd, 633 S.W.3d 342 (Ky. Ct. App. 2021), the Kentucky intermediate appellate court reversed the trial court’s grant of summary judgment for the trustee enforcing the restriction. The court held that it violated the public policy embodied in the statutory requirement in Ky. Rev. Stat. Ann. § 199.520(2) that adopted children be treated the same as “biological children” of the adoptive parent.

FAMILY ALLOWANCE:

The surviving spouse is entitled to a family allowance although the decedent was not survived by minor children. In In re Est. of Dowdy, 2021 COA 136, 2021 WL 5114690, the Colorado intermediate appellate court held that the family allowance under Colo. Rev. Stat. § 15-11-404 (identical to UPC § 2-404) for the surviving spouse and minor children, whom the decedent was obligated to support, must be paid to a surviving spouse even though the decedent was not survived by minor children.

HOLOGRAPHIC WILLS:

A holographic will is invalid because it was not signed at the end. The decedent’s validly executed will was without effect because it devised the entire estate to decedent’s spouse, who predeceased. Three documents in the decedent’s handwriting were found after the decedent’s death; the decedent signed all three at the tops of the pages. In Willett v. Estate of Vesselle, 629 S.W.3d 20 (Ky. Ct. App. 2021), the Kentucky intermediate appellate court reversed the trial court’s finding that the will and the handwritten documents were a valid will and codicils. The court held that the will was without effect because the spouse had predeceased and that the documents were not valid testamentary instruments because they were not “subscribed at the end or close of the writing” as required by Ky. Rev. Stat. Ann. § 446.060.

OPERATING AGREEMENT:

Provision in limited liability company’s operating agreement purporting to transfer a member’s interest on death was invalid as testamentary substitute. In Potter v. Potter, 252 A.3d 17 (Md. Ct. Spec. App. 2018), the court held that a provision in an LLC operating agreement providing that, on the owner’s death, the owner’s interest would pass to the owner’s surviving spouse created an invalid testamentary substitute. The Maryland Court of Appeals recently granted certiorari. Potter v. Potter, 476 Md. 238 (2021).

SPOUSAL ALLOWANCE:

The statutory spousal allowance must be satisfied first from the probate estate passing to spouse. The surviving spouse claimed the statutory allowances. The decedent’s probate estate included only personal property devised by the will to the surviving spouse. The decedent was also the settlor of a revocable lifetime trust, 50 percent of which became irrevocable on the death of the decedent’s first spouse. Confirming summary judgment for the executor, the Supreme Court of Montana in Matter of Estate of Dower, 495 P.3d 1083 (Mont. 2021), held that a reference to “trust” in the definition of “estate” in Mont. Code Ann. § 72-1103(15) (similar to UPC § 1-201(15)), does not include a trust that is non-probate property. Such a trust is subject to the payment of debt and allowances, if at all, only if the probate estate is insufficient. The gifts in the will must abate to pay the allowances.

TRUST ACCOUNTING:

Value of the beneficiary’s interest does not affect standing to object to alleged breach of trust. The beneficiary of a $2,400 life annuity, payable from a trust corpus worth more than $72 million, objected to a trustee’s account and alleged various breaches of trust. The beneficiary also objected to a proposed new fee arrangement and a request to divide the trust. The question of the annuitant’s standing was appealed to the Pennsylvania Supreme Court. In Tr. Under Will of Augustus T. Ashton, Deceased Dated January 20, 1950, 260 A.3d 81 (Pa. 2021), the court unanimously reversed the intermediate appellate court and held that equitable relief is available to a beneficiary for a breach of trust even if the beneficiary cannot demonstrate that the beneficiary has suffered or will suffer a monetary loss.

TRUST JURISDICTION:

Statute cannot give jurisdiction over the trustee of a foreign trust absent minimal con- tacts. Nevada law directs the district court to assume in rem jurisdiction over trust property when the beneficiary of a foreign trust resides in Nevada. In addition, once jurisdiction is assumed, the court has personal jurisdiction over any trustee “confirmed” by a court under Nev. Rev. Stat. § 164.010. The Nevada Supreme Court in Matter of Burgauer Revocable Living Trust, 495 P.3d 531 (Nev. 2021), held that the statute does not supplant the state’s longarm statute, Nev. Rev. Stat. § 14.065, that personal jurisdiction may not be asserted over a foreign trustee absent minimum contacts with Nevada.

UNIFORM TRANSFER TO MINORS ACT CUSTODIANS:

The burden of proof is on the party seeking removal of a custodian. The Connecticut intermediate appellate court in In re Probate Appeal of McIntyre, 207 Conn. App. 433 (2021), held that, just as in actions to remove other fiduciaries under Connecticut law, the burden of proof in an action to remove the custodian of an UTMA account is on the party seeking removal.

TAX CASES, RULINGS, AND REGULATIONS

ESTATE TAX:

Trust provision prevented estate from using charitable deduction for proceeds transferred to a charitable trust. The decedent’s revocable living trust originally held an interest in a family limited partnership but transferred the interest to an irrevocable trust before the decedent’s death. Before the decedent’s death, the family limited partnership sold its interest in a farm to a third party. After the decedent’s death, the partnership transferred the proceeds from the sale of the farm to the irrevocable trust and then to the living trust and the charitable trust. The estate claimed charitable deductions for the funds transferred to the charitable trust. In Est. of Moore v. Comm’r of Internal Revenue, No. 20-73013, 2021 WL 5176461 (9th Cir. Nov. 8, 2021), the Ninth Circuit affirmed the Commissioner’s denial of the deductions. The partnership documents unambiguously stated that no limited partner had any interest in any of the assets of the partnership. Thus, even though the trust owned a 98 percent interest in the partnership that held the farm sale proceeds, it was not considered a trust asset. The trustee had no obligation to transfer the farm’s proceeds to the living trust and eventually to the charitable trust at the time of decedent’s death. At the decedent’s death, the trust proceeds were considered to be an asset of the partnership and not of any decedent’s trusts.

GIFT TAX:

Donor’s purported transfer of member interests in an LLC failed to transfer the interests to his wife. A donor purported to transfer about 41 percent of his interests in an LLC to his wife, who then purported to transfer them to a dynasty trust the next day. The donor also directly transferred 8 percent of the membership interests in the LLC to the dynasty trust. The donor’s gift tax return reported only the 8 percent transfer as a taxable gift, claiming that the transfer to the wife was exempted from gift tax as a transfer to his spouse. The Tax Court held in Smaldino v. Comm’r, T.C. Memo 2021-127 (2021), that the transfer was ineffective because of restrictions in the LLC operating agreement. It maintained the donor’s execution of a certificate of assignment to his wife did not constitute a transfer because the LLC operating agreement distinguished between an assignment and a transfer of a membership interest. The operating agreement specifically stated terms that would allow the assignee of a membership interest to become a substituted member, but those terms were not met. Thus, the court determined the entire 49 percent interest was gifted to the dynasty trust and should have been reported on the gift tax return.

GIFT TAX:

Gifts are valued separately at the time of transfer, even when two gifts originated from the same parcel of timberland. The donor purchased large quantities of timberland and gifted interests in the tracts to his two sons. Each son received a 48 percent interest in each tract, and the donor valued the gifts using a fractional interest discount. In Buck v. United States, No. 3-18-cv-1253, 2021 WL 4391091 (D. Conn. Sept. 24, 2021), the district court held that the fractional interest discount was not prohibited, even though the taxpayer did not hold the interest in fractional form before the gift. The value of each gift is determined separately at the time it passes from the donor to the donee, not right before it passes to the donee.

LITERATURE

ELDER ABUSE:

In their article, Inheritance Crimes, 96 Wash. L. Rev. 561 (2021), David Horton and Reid Kress Weisbord evaluate the benefits and costs of laws related to exploitation and abuse of elders. Although they acknowledge that these new sanctions deter elder abuse, such laws may be unconstitutional in some situations. This article argues that states should abolish criminal undue influence, harmonize civil and criminal rules, and create exceptions to abuser laws.

ELDER LAW:

In A Primer on Neuropsychological Testing for Elder Law Attorneys, 28 Elder L.J. 221 (2021), Colin A. Brietzke endeavors to familiarize legal practitioners with the objective, validated, peer-reviewed, and consistently administered nature of neuropsychological evaluations. The article is aimed to help attorneys better present or discredit this highly probative type of evidence and bring greater clarity to the beautifully complex but often murky subject of how the human brain works.

ELECTRONIC WILLS:

In his Note, A Testament to the Future of Testaments: Electronic Wills Are the Future, 17 Ave Maria L. Rev. 35 (2019), Kyle C. Bacchus focuses on the most pressing issues in the realm of online testamentary documents: implementation in a way that is secure, maximizes the discouragement of fraud, and, above all else, can convey clear and convincing evidence of the testamentary intent of the deceased.

ESTATE LITIGATION:

In Going, Going, What do You Mean My Estate is Gone?, 34 Quinnipiac Prob. L.J. 345 (2021), Angela Tylock discusses the duty imposed upon the probate court and the executor of an estate to follow the testator’s intent, which is incorporated in a will. She argues that when an individual leaves the person’s estate to be distributed in particular ways and to particular individuals, persistent and endless litigation undermines the importance of the testator’s intent for the estate. It may even result in a direct contradiction of the testator’s wishes for the property.

GRAVE OWNERSHIP:

Anne K. Hansen analyzes the effectiveness of state and local laws and rules in resolving the issue of grave plot ownership claims. She also provides alternative approaches and adjustments to strengthen the cemetery authorities’ ability to resolve ownership claims and minimize the number of possible future claims in Who Is in My Grave? A Comparison of State and Local Laws in Illinois and Utah That Guide Resolution of Grave Plot Ownership Claims, 45 S. Ill. U. L.J. 139 (2020).

ILLINOIS—PROBATE ALTERNATIVE:

In Selling Land Owned with No Survivorship, Ill. B.J., Sept. 2021, at 10, Ellen Beth Gill explains how “[b]ond in lieu of probate can be a quick and easy alternative to transferring titles.”

ILLINOIS—STATUTE OF REPOSE:

In Repose in Peace, Ill. B.J., Oct. 2021, at 10, David C. Thies, Daniel R. Thies, and Mia O. Hernandez explain that a new Illinois statute “makes the six-year statute of repose for legal malpractice claims applicable to estate planning.”

POSTHUMOUS SPERM RETRIEVAL:

In her article, In re Zhu: Implied Consent to Posthumous Sperm Retrieval, 23 SMU Sci. & Tech. L. Rev. 89 (2020), Mary Kathryn Sapp posits that this case represents a departure from existing precedent on the subject of PSR because it rests on a much weaker evidentiary basis and the court based its decision on the decedent’s “presumed intent.” This case also shows the need for clear state legislation regulating PSR so that grieving families may take advantage of this advancement in reproductive science in a predictable manner.

SAME-SEX COMMUNITY PROPERTY:

In his Comment, Separation Equality: Retroactive Community Property Regimes for Long-Term Same-Sex Couples, 30 Tul. J. L. & Sexuality 153 (2021), Andrew M. Albritton addresses the specific and unique effects that the retroactive application of marriage rights could have on community property regimes through an analysis of hypothetical couples.

TEXAS—JUDICIAL UPDATE:

In Wills & Trusts, 7 SMU Ann. Tex. Surv. 337 (2021), Gerry W. Beyer discusses relevant developments in the law of wills and trusts from December 1, 2019, through November 30, 2020.

TRUST PURPOSES:

Almost 20 years after the promulgation of the Uniform Trust Code, the Uniform Directed Trust Act touched on a latent ambiguity in the UTC’s specification of a trustee’s “fundamental obligation.” The resolution of that ambiguity is doctrinally knotty; the UDTA cuts the knot by means of a “Legislative Note.” In his article, Settlor-Authorized Fiduciary Indifference to Trust Purposes and the Interests of Beneficiaries under the Uniform Trust Code, 55 Real Prop. Tr. & Est. L.J. 123 (2020), James P. Spica suggests how the knot might be untied rather than cut.

TRUST TERMINATION:

F. Ladson Boyle, Howard M. Zaritsky, and D. Ryan Wallace discuss options when the life beneficiary of a trust does not like the restrictions and limitations of the trust and wants to escape them either by terminating the trust early through commutation of the various interests or disposing of interest in the trust in The Uniform Basis Rules and Terminating Interests in Trusts Early, 55 Real Prop. Tr. & Est. L.J. 1 (2020).

WILL EFFECT:

Although maxims such as “no will speaks” and “expectancies are not property” are common, Katheleen Guzman suggests in Wills Speak, 85 Brook. L. Rev. 647 (2020), that “nascent” wills actually do have much to say, and rightly so.

LEGISLATION

CALIFORNIA enacts the Supervision of Trustees and Fundraisers for Charitable Purposes Act, which imposes registration, reporting, and other requirements upon legal entities holding or soliciting property for charitable purposes. 2021 Cal. Legis. Serv. Ch. 616.

CALIFORNIA enhances regulation of pre-need funeral trusts. 2021 Cal. Legis. Serv. Ch. 514.

CALIFORNIA imposes additional requirements on a trustee of a revocable trust if, during the time that a trust is revocable, no person holding the power to revoke the trust is competent. 2021 Cal. Legis. Serv. Ch. 749.

CALIFORNIA requires professional fiduciaries to disclose a schedule of the range of fees that they charge. 2021 Cal. Legis. Serv. Ch. 417.

CALIFORNIA revises the probate court’s guardianship process, including changes to initiating investigations and providing potential guardians with understanding of their rights, duties, and obligations. 2021 Cal. Legis. Serv. Ch. 578.

CALIFORNIA updates law applicable to transfer on death deeds. 2021 Cal. Legis. Serv. Ch. 215.

DELAWARE modernizes law relating to powers of attorney and electronic signatures for motor vehicle matters. 2021 Del. Laws Ch. 149.

NEW YORK authorizes murderers, rapists, and other felons to serve as personal representatives unless the crime related to embezzlement, misappropriation of money, or breach of fiduciary duty. 2021 Sess. Law News N.Y. Ch. 486.

OHIO allows people applying for or renewing a motor vehicle registration to certify their willingness to be an organ donor. 2021 Ohio Laws File 50. n

Published in Probate & Property, Volume 36, No 2 © 2022 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.