Keeping Current—Probate

Keeping Current—Probate

CASES

AFTER-ACQUIRED PROPERTY:

After-acquired property is not part of a decedent’s estate. The decedent died in 2004 and was the surviving spouse of William Keough, one of the Americans held hostage in Iran from 1979 to 1980. Keough died in 1985. In 2015, Congress enacted legislation providing monetary compensation to the hostages and their families. The surviving spouse, whose will disposed of the residuary estate to a stepchild, one of Keough’s three children, was entitled to receive a payment of $600,000. Under the legislation, if a person entitled to payment is deceased, the payment is made to the personal representative of that person’s estate (34 USC § 20144(d)(1)). The surviving spouse’s sole heir was a post-deceased sibling. The administrator of the estate of the surviving spouse’s post-deceased sibling then petitioned for a declaration that the payment passed through intestacy. The Surrogate’s Court dismissed the petition and, on appeal, the intermediate appellate court in Matter of Estate of Keough, 150 N.Y.S.3d 449 (App. Div. 2021), reversed and held that a will disposes of all property that the testator was entitled to dispose of at death. Because the decedent did not have the capacity to dispose of the payment, it, therefore, passes through intestacy to the estate of the sibling.

NON-TESTAMENTARY TRANSFER:

Provision in LLC operating agreement purporting to transfer member’s interest on death was invalid testamentary substitute. The decedent was 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. a member of an LLC whose operating agreement provided that upon death the decedent’s interest in the LLC— the right to share in profits, losses, and distributions—would pass to the decedent’s surviving spouse. Voting rights were to be assigned to other members. The surviving spouse brought a declaratory judgment action for confirmation of ownership of the decedent’s interest, and the trial court found in the spouse’s favor. On appeal by the decedent’s estate, the court reversed in Potter v. Potter, 252 A.3d 17 (Md. Ct. Spec. App. 2021), holding that the attempted disposition on death was an invalid testamentary substitute because the decedent had complete control of the property during life, and the only way to dispose of such property at death is through a valid will.

PROBATE EXCEPTION:

Probate exception did not apply to suit against bank over investment account in which plaintiff had been co-owner with the decedent. In Fisher v. PNC Bank, N.A., 2 F.4th 1352 (11th Cir. 2021), the Eleventh Circuit reversed the district court’s dismissal of a suit brought under diversity jurisdiction on the ground that hearing it would violate the probate exception. The appellate court held the exception was inapplicable because the plaintiff’s allegation that the defendant bank mishandled the decedent’s investment account before the decedent’s death did not involve any of the three situations to which the probate exception applies: a probate proceeding, questions of estate administration, or disputes involving property in the custody of a state probate court.

STANDING OF TRUST BENEFICIARIES:

Beneficiaries do not have standing to sue third party for alleged harm to trust. Remainder beneficiaries brought suit against the estate of the life beneficiary, alleging that the beneficiary fraudulently induced the trustee to exercise discretion to make principal distributions to the life beneficiary. The trial court dismissed the action for lack of standing, and on appeal, the Supreme Court of South Dakota affirmed in Matter of Estate of Calvin, 963 N.W.2d 319 (S.D. 2021). The court held that the beneficiaries would have standing to sue a third party only if they could show that the trustee would not or could not pursue the claim.

STANDING OF WILL BENEFICIARIES:

Beneficiaries of a prior will do not have standing to sue to recover property for estate. Two of the decedent’s three children sued the decedent’s surviving spouse and the decedent’s third child, the personal representative of the estate. The suit alleged that inter vivos transfers the decedent had made benefitting the spouse and the third child, which resulted in the ademption of gifts made to them under a prior will, were the result of undue influence. The trial court granted the defendants’ motion to dismiss on grounds of lack of standing, and the Supreme Court of Virginia affirmed in Platt v. Griffith, 858 S.E.2d 413 (Va. 2021). The court stated that because rescission of the inter vivos transfers would directly benefit the estate, only the personal representative had standing to assert the claim.

TRANSFER ON DEATH DEEDS:

Limitations on lifetime transfer of homestead do not apply to transfer on death deeds (TODD). Shortly before death, a spouse executed a TODD for the benefit of a child. The surviving spouse brought an action to set aside the deed on the grounds that the property that was the subject of the deed was the homestead of a married person. Under Nebraska law, such property cannot be conveyed unless the instrument doing so is executed and acknowledged by both spouses under Neb. Rev. Stat. § 40-104. The district court agreed with the surviving spouse, and, on appeal by the beneficiary, the Nebraska Supreme Court reversed in Chambers v. Bringenberg, 963 N.W.2d 37 (Neb. 2021). The court held that because the TODD was not a lifetime conveyance, the spousal consent requirement did not apply.

TRUSTEES:

Previous trustees’ knowledge of fraud not imputed to successor. A successor trustee sued the lawyers for predecessor trustees who defrauded the trusts of large sums, alleging that the lawyers were complicit in the former trustees’ fraud. The lawyers moved to dismiss on statute of limitations grounds. The trial court found that it was a question for the jury whether the statute had been tolled because of the relationship between the alleged actions by the lawyers and the former trustees’ alleged crimes. On appeal in Antley v. Small, 859 S.E.2d 881 (Ga. Ct. App. 2021), the intermediate Georgia appellate court generally found that questions of fact related to beneficiaries’ exercise of due diligence in discovering fraud prevent granting of summary judgment. The court rejected the lawyers’ argument that the former trustees’ knowledge of the alleged fraud should be imputed to the successor trustee, and even if the principles of agency law imputing the knowledge of the principal to the agent were applicable, the parties claiming the benefit of imputed notice are themselves alleged wrongdoers.

WILL FORMALITIES:

Louisiana Supreme Court applies substantial compliance to statutory formalities. The statutory provisions governing Louisiana’s notarial will require that the attestation clause recite, among other things, that the testator signed the will at the end and on each individual page. In Succession of Liner, 320 So. 3d 1133 (La. 2021), the supreme court affirmed the admission to probate of a will signed at the end and on each page by the testator but whose attestation clause stated only that it was signed by the testator. The court overruled precedent (Successions of Toney, 226 So. 3d 397 (La. 2017) and Succession of Hanna, 283 So. 3d 493 (La. 2019)) holding that “slight deviations” from the statutory requirements that do not increase the likelihood that the testator was the victim of fraud do not invalidate the will. Accordingly, the will was executed in substantial compliance with the statute.

TAX CASES, RULINGS, AND REGULATIONS

ESTATE TAX:

An estate’s reasonable collection potential includes the amount it can potentially collect based on fiduciary liability and trans- feree liability. An estate with an estate tax debt submitted an offer-in-compromise based upon the total amount of its sole asset: a checking account. The settlement officer denied that offer-incompromise, citing a higher reasonable collection potential calculation. The court in Estate of Lee v. Commissioner, T.C. Memo 2021-092 (2021), held the settlement officer did not abuse the officer’s discretion when the officer included potential claims by the estate for transferee liability and fiduciary liability in the reasonable collection potential. The period of limitations to collect distributed amounts using those theories was still open. The Internal Revenue Manual also required the settlement officer to include these amounts in the reasonable collection potential formula.

ESTATE TAX:

Non-resident QTIP trust included in estate of resident decedent. The Oregon Supreme Court held in Estate of Evans v. Dep’t. of Rev., 492 P.3d 47 (Or. 2021), that the taxable estate of an Oregon resident decedent includes, for purposes of the Oregon estate tax, a QTIP trust. The decedent was the life beneficiary of a QTIP trust, which was created under the will of the decedent’s spouse who was not an Oregon resident. The court found there was no violation of the guarantee of due process under the Fourteenth Amendment because the decedent’s status as the sole income beneficiary and a possible recipient of principal created a sufficient connection to Oregon.

FOREIGN TRUSTS:

Sole owner and beneficiary of a foreign trust held liable for a 35 percent penalty for failing timely to report distributions. The Second Circuit in Wilson v. United States, 6 F.4th 432 (2d Cir. 2021), vacated the district court’s decision, which sided with the executrix’s argument that the taxpayer’s penalty should be limited to 5 percent. The court held that the taxpayer was required to timely report distributions from the foreign trust and determined no exception existed for a beneficiary who was also the owner of a foreign trust.

TAX RETURNS:

A missing or unknown federal gift tax return could be reasonable cause for the late filing of an estate tax return. When the decedent died, the executor contacted and communicated with the decedent’s tax preparer, a family office service, and an attorney. The attorney advised that no estate tax return needed to be filed because the gross estate was below the exclusion amount for the year of death. About two years after the decedent’s death, a son mentioned that some gifts had been made approximately five years before the decedent’s death. After looking into this new information, the executor discovered a federal gift tax return that pushed the gross estate over the threshold for the year of death. When the executor filed in the Court of Federal Claims to recover a penalty collected by the IRS for failure timely to file an estate tax return and failure timely to pay the tax due, the government moved to dismiss the claim. In Leighton v. United States, 155 Fed. Cl. 543 (2021), the court denied the motion and held that missing information could constitute reasonable cause for delay. However, based on the complaint alone, the court could not decide whether the executor exercised due diligence in this particular case.

LITERATURE

CONNECTICUT—DIRECTED TRUSTS:

In their article, New Direction: The Connecticut Uniform Directed Trust Act, 33 Quinnipiac Prob. L.J. 274 (2020), Alexis S. Gettier, Christiana N. Gianopulos, and Margaret St. John Meehan summarize both current Connecticut law and the Uniform Directed Trust Act, discuss the new planning opportunities the act offers, and set forth considerations for practitioners in advising and implementing planning techniques under the new law.

CRYPTOCURRENCY TAXATION:

Charlotte A. Erdmann’s article, The Taxation of Cryptocurrencies, 95-AUG Fla. B.J. 58 (2021), focuses on how virtual currency is taxed and the wider implications of virtual currency under federal tax law.

DECEASED TAXPAYERS:

Hale E. Sheppard presents a detailed review of post-mortem FBAR enforcement actions and lifetime repatriation actions in Neither Death nor Distance Erases the Issues: IRS Actions Against Deceased or Absconding Taxpayers, 32 J. Int’l Tax’n 37 (2021). He explains the international obligations that can trigger significant liabilities and examines recent cases where the government pursued liabilities from surviving spouses, executors of estates, trustees, distributees, and fiduciaries. The article also identifies the main tools available to the IRS, DOJ, and district courts in international tax collection cases and analyzes the use of repatriation orders over time.

ESTATE PLANNING:

Gary R. Gehlbach provides sage advice and insights into estate planning and administration in Thoughts at 5 a.m., Ill. B.J., Feb. 2021, at 24.

ISRAEL—ELDER CARE AND INHERITANCE:

Shiri Regev-Messalem offers a qualitative examination of how Israeli legal actors reflect and construct cultural understandings of the relationship between inheritance and elder care in cases in which the deceased has bequeathed property to a caregiver. The author also reveals how inheritance law supports and enhances class reproduction through the institution of the family in How the Law “Keeps the Money in the Family”: Lessons at the Intersection of Elder Care and Inheritance Disputes in Israel, 45 Law & Soc. Inquiry 81 (2020).

LOUISIANA—FIDUCIARY LITIGA- TION:

Louisiana, like many states, has taken important steps to help protect vulnerable populations. Yet many gaps remain. Moreover, Louisiana lacks comprehensive guidance for practitioners and courts who deal with cases of fiduciary misconduct. Elizabeth R. Carter’s article, Fiduciary Litigation in Louisiana: Mandataries, Succession Representatives, and Trustees, 80 La. L. Rev. 661 (2020), attempts to fill a small part of that gap concerning three fiduciaries in the estate-planning setting.

LOUISIANA—WILL FORMALITIES:

In his article, Will Formalities in Louisiana: Yesterday, Today, and Tomorrow, 80 La. L. Rev. 1331 (2020), Ronald J. Scalise, Jr. dissects each of the individual requirements necessary for the making of a will in Louisiana with a goal not only of descriptive assessment but also of ascertaining whether each requirement is still necessary.

NEW YORK—UPDATE:

Steven Cunningham in Trusts and Estates, 70 Syracuse L. Rev. 591 (2020), covers notable federal and New York State regulatory, statutory, and case law developments related to trusts and estates from July 1, 2018, to June 30, 2019.

PARTNERSHIPS:

Jack Spencer discusses An Alternate Approach to Situs Determination for Partnership Interests, 46 ACTEC L.J. 381 (2021).

POSTMORTEM CONCEPTION:

In Reimagining Postmortem Conception, 37 Ga. St. Univ. L. Rev. 905 (2021), Kristine S. Knaplund examines the laws of all 50 states “to provide a comprehensive look at whether a postmortem child inherits and determine how wildly disparate the legal standards are from pubic sentiment.”

SLAYER RULE:

In Unworthy Heirs: The Slayer Rule and Beyond, 109 Ky. L.J. 787 (2020-2021), Mary Elizabeth Morey fully analyzes the slayer rules in the United States. She then discusses the potential addition of abandonment in the unworthy heir doctrine, the element of abuse in the unworthy heir context, and the unworthy heir doctrine on an international level. She compares the United States’ doctrines to those of the behavior-based model used in China, arguing for an expansion of the unworthy heir doctrine in the United States.

TRUSTEE DUTIES:

Jeffrey Shoenblum “identifies and details the emergence in an increasing number of states of a new trust law the rejects the fundamental tenants of trust law” by “liberat[ing] the trustee from any meaningful accountability to the beneficiary” in The Nonfiduciary “Trust,” 46 ACTEC L.J. 357 (2021).

TRUSTS:

Michael D. Mulligan asserts that A Sale to a BIDIT [beneficiary intentionally defective irrevocable trust] Should Work as Well as a Sale to an IDIT [intentionally defective irrevocable trust], 46 ACTEC L.J. 307 (2021).

TRUTH:

Duncan E. Osborne provides a glimpse into his “deep dive into the right of privacy and into the consequences of available information and transparency in the world” in Truth, Transparency, and The Right of Privacy, 46 ACTEC L.J. 339 (2021), in which he emphasizes that “[l]awyers are the ultimate guardians of truth.”

WEALTH TRANSFER TAXATION:

In Wealth Transfer Tax Planning After the Tax Cuts and Jobs Act, 46 B.Y.U. L. Rev. 1411 (2021), John A. Miller and Jeffrey A. Maine bring the reader into the wealth transfer tax planning picture while providing references to more detailed treatments of particular topics within this broad field.

LEGISLATION

CALIFORNIA adopts the Uniform Partition of Heirs Property Act. 2021 Cal. Legis. Serv. ch. 119.

CALIFORNIA authorizes death certificates to reflect how the deceased individual identified the individual’s gender as female, male, or nonbinary. 2021 Cal. Legis. Serv. ch. 53.

COLORADO requires all individual and group health benefit plans issued or renewed on and after January 1, 2022, to provide coverage for health care services related to living organ donation for a covered person who is a living organ donor. 2021 Colo. Legis. Serv. ch. 447.

CONNECTICUT prohibits insurers from discriminating against living organ donors in the issuance of disability, long-term care, or life insurance policies. 2021 Conn. Legis. Serv. P.A. 21-156.

ILLINOIS enacts comprehensive provisions governing electronic notarizations. 2021 Ill. Legis. Serv. P.A. 102-160.

ILLINOIS enacts the Electronic Wills and Remote Witness Act. 2021 Ill. Legis. Serv. P.A. 102-167. ILLINOIS revises its provisions on transfer on death deeds to permit their use for all types of real property, not just residential property. 2021 Ill. Legis. Serv. P.A. 102-68.

NEW HAMPSHIRE modernizes its statutes regarding advance health care directives. 2021 N.H. Laws ch. 176.

NEW JERSEY authorizes electronic notarization. 2021 N.J. Sess. Law Serv. ch. 179.

NEW JERSEY updates statutes governing standby guardianships. 2021 N.J. Sess. Law Serv. ch. 192.

NORTH CAROLINA prohibits organ transplant discrimination based on disability. 2021 N.C. Laws S.L. 2021-64. n

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, Prof. William P. LaPiana, and Jake W. Villanueva.

Published in Probate & Property, Volume 36, No 1 © 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.