Wills, Trusts & Estates Prof Blog

Montana Supreme Court: Alleged Fraud Did Not Toll Probate Time Limitations To Challenge Will

In the June 2020 case of Estate of Swanberg, the Montana Supreme Court upheld the denial of a petition to reopen a probate estate based on alleged fraud. The Montana Supreme Court held that the allegations of fraud did not operate to toll the applicable probate time limitations and did not permit a belated will contest. 

Tristan and Taylor Swanberg are there children of Chandler Swanberg, decedent. Decedent executed a will and trust in 2006, and died in 2012. Decedent was survived by three children: Taylor and Tristan (the Swanbergs) and Jennifer Wilson. Wilson filed a petition to formally probate decedent's 2006 will, determine testacy and heirs, and to appoint a personal representative. 

The 2006 Will and trust left almost all of decedents real and personal property to Wilson, including his holdings in Swanberg Farms in north-central Montana. Wilson provided the requisite notice of the probate proceedings to the Swanbergs. The Swanbergs did not appear at any hearings or file any objections. This will was admitted to probate and Wilson was appointed as personal representative. The order setting and distributing the estate was entered in November 2016. 

Two years later, in. November 2018, the Swanbergs petitioned to reopen Decedent's estate, alleging that Decedent lacked the requisite mental capacity to execute the 2006 will and trust, and that the documents were the product of undue influence exerted by Wilson. The Swanbergs maintained that a prior will left decedent's estate to the three children in equal shares. 

The Swanberg's sought a declaratory judgment providing that the trust was invalid or void. 

 The are remedies for fraud perpetrated in connection with probate proceedings provided under section 72-11, MCA. However, the section does not apply to remedies relating to fraud practiced on a decedent during the decedent's lifetime that affects succession of the estate. 

In this case, Montana law did not provide any recourse for the Swanberg's to bring what was, in effect, a belated will contest.

See Montana Supreme Court: Alleged Fraud Did Not Toll Probate Time Limitations To Challenge Will, Probate Stars, June 23, 2020. 

How Covid-19 Has Gotten More Animal Owners To Consider Creating Pet Trusts

The rapid spread of the Coronavirus has sparked an interest in people all over the world to make sure their affairs are in order in case of sudden death or incapacitation. Many pet owners consider their pets as part of the family, so it only makes sense that they want to make sure their pets will be taken care of when they can no longer provide care. Creation of a pet trust will allow pet owners to ensure their precious loved ones are cared for even if they cannot be the ones to care for them.

A pet trust is a legal arrangement providing for the care and maintenance of a pet (or pets) in the event of the owner’s death or incapacitation. This allows pet owners to name a pet guardian and allocate funds in the estate to provide continued care for their pet. 

An owner can create a testamentary pet trust in his will by designating portions of his estate to be used for the benefit of his pet.

The testator should elect a pet guardian to care for the pet. This person can be the same as the trustee, or someone else who is familiar with the pet’s routine.

Selecting two different people to act as the trustee and as the pet guardian will help prevent misappropriation of the trust property and ensure the terms of the pet trust are being adhered to. It will be hard to ensure the pet is adequately being taken care of if only one person is both the trustee and pet guardian. 

See Nancy E. Halpern, How Covid-19 Has Gotten More Animal Owners To Consider Creating Pet Trusts, Fox Rothschild LLP, June 25, 2020.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

Inside the intentionally defective grantor trust

The art of estate planning is affected by a multitude of variables that change over time. The currently low-interest-rate environment and the imminent return of a lower estate tax exemption are among the factors shaping estate planning today. 

According to Jere Doyle, senior VP at BNY Mellon Wealth Management, a sale to an intentionally defective grantor trust is one vehicle which works well to transfer wealth in the current low-interest-rate economy. The effect of an IDGT is to freeze assets for estate tax purposes but not for income purposes. 

A typical power retained in an IDGT is the swap power, Doyle observed. "Thats the ability of the grantor to go into the trust and pull out assets, and substitute assets he owns on the outside that are of the same value. That causes income of the trust to be taxed back to the grantor. That’s one of the things that people are using now because the interest rate is so low. You’re lending money to the trust at a low interest rate. The grantor has no interest income to report, there’s no tax on the sale, and when interest income comes back there’s no income tax on that.”

This is particularly favorable for people who own a business to get appreciation out of their estate, Doyle noted. 

However, the regular GRAT, or grantor retained annuity trust, might be a better choice for someone with publicly traded stock that they anticipate will appreciate. Further, the spousal lifetime access trust (SLAT) allow the making of sizable gifts to use up part of the gift tax exemption. 

There are a few vehicles you can use to take advantage of the lower estate tax exemptions, but you should consider your options and be cautious before making a decision. 

See Roger Russel, Inside the intentionally defective grantor trust, Accounting Today, June 30, 2020. 

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

5 Ways to Mess Up Estate Planning

In order to ensure the efficient and orderly dispersion of assets after death, maintaining a valid and current estate plan. Even small mistakes can have disastrous results that can be impossible to correct. There are several key errors that can make an estate plan defective, most of which can be easily avoided by reviewing your or your client's plan periodically and keeping up to date. 

A list of these common errors include:

Failing to Update Your Beneficiaries

Marriage, divorce, birth and death can affect who will receive your assets. Whenever one of these changes occurs, make sure you update all financial, retirement and insurance accounts and policies as well as in your wills, trusts and other legal documents.

Omitting Legal Documents

Your will may be in perfect order, but it won’t exempt your assets from the probate process in most cases if the dollar value of your estate exceeds a certain amount. Also, having only trusts without a will can be just as big a mistake, as the will is the primary document used to name the guardianship of children and other dependents if something should happen to you and/or your spouse or partner. 

Poor Recordkeeping

The ultimate key to any successful estate plan is a concise letter of instruction that tells your executor or executrix where everything is located, the names and contact information of everyone they will have to deal with, such as your banker, broker, insurance agent, financial planner, attorney, landlord or tenants, etc.

Poor Communication

If your situation is complex, it would be helpful to write a simple letter of explanation that outlines your intentions or tells them why you changed your mind about something.

Failing to Create a Plan 

History contains many stories of very, very wealthy people who lost virtually all of their estates to court fees and legal costs because they failed to plan ahead in this area. Having a plan is especially important for those who may have to pay estate taxes. 

See Mark P. Cussen 5 Ways to Mess Up Estate Planning, Investopedia, September 30, 2018. 

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

California Powers of Appointment: Follow Instructions When Exercising

In California, a truster (person who creates a trust) can confer a "power of appointment" on trust beneficiaries, empowering them to designate to whom they want to give their shares of the trust. Further, the truster can require trust beneficiaries to specifically exercise and refer to the power of appointment in any will they create to designate who should get their shares of the trust. 

What would happen if a trust beneficiary creates a will that gives away his or her shares without first referring to the power of appointment as required by the trust? Can a California probate court address and fix the the defect by amending or reforming the will?

In Estate of Elmers (2020), the California Court of Appeal answered this question in the negative. The Court held that, although reforming a will is permissible if extrinsic evidence establishes a testator's intent, a will cannot be reformed if it acted as a loophole to get around the power of appointment requirements in the Probate Code. Essentially, a court cannot reform a will when the testator fails to follow directions exercising a power of appointment. 

The main take away is that a California Probate Court, generally speaking, has the power to amend or reform a will to conform with the testator's intent. However, the court will not reform a will to comply with requirements for exercising a power of appointment if, in doing so, the express provisions of the Probate Code are circumvented. 

Elmers, is a perfect example of why it is important to follow directions when it comes to exercising powers of appointment. When granted a power of appointment under a trust, the beneficiary must look at the trust and specifically follow the directions provided, including whether the power of appointment needs to be referenced or just the trust. Failing to follow directions and specifically reference the power or trust, as appropriate, will invalidate any attempt to exercise the power.

See N. Aaron Johnson, California Powers of Appointment: Follow Instructions When Exercising, Trust on Trial, June 8, 2020.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

Hawaii Supreme Court: Terms of Trust Do Not Override The Law

In June 2020, the Hawaii Supreme Court ruled on the case of In Re Elaine Emma Short Revocable Living Trust Agreement, which had a complicated fact pattern. There were a couple of clear takeaways from the case: make sure there are findings of fact in any order entered in a contested probate proceeding, and the terms of a trust will not supersede Hawaii statutory law. 

The facts of the case are as follows:

Elaine created the Elaine Emma Short Trust Agreement. The Trust had been amended several times, and upon her death provided that the trustee could only distribute income, and not principal, from her sons' (David and William's) respective subtrusts as necessary to meet their needs for "health, education, support, and maintenance," as determined by the trustee in its sole discretion. 

In August 2015, First Hawaiian Bank (FHB), the trustee of the trust, filed a petition for instructions regarding distribution and termination and for modification of the Trust in Hawaii probate court. Specifically, FHB asked the Hawaii probate court to modify the terms of the trust to permit discretionary distributions of principal to David. The Cooks (Elaine's brother's children) were identified as contingent beneficiaries in FHB's petition. 

The Cooks opposed the proposed modification arguing that the language of Elaine's trust was not ambiguous and that FHB's attempt to change the language should be rejected as improper. The Cooks then requested information regarding the accounts of the trust. FHB objected, arguing that the Cooks were not yet in a position to receive income and were contingent remainder beneficiaries not entitled to the requested information pursuant to the terms of the trust. 

The Hawaii Probate Court granted FHB's petition, modifying Elaine's trust. The probate court's order contained no findings of fact as to whether Elaine's Trust contained ambiguity regarding distribution of principal. The court also concluded that FHB did not have to provide records to the Cooks. 

The Hawaii Supreme Court stated that the Probate Court should include findings of fact in orders in contested trust cases to avoid abuse of discretion and to further assist appellate review. Further, the Court held that the terms of a trust that are inconsistent with a rule of law do not prevail over the law. 

See, Hawaii Supreme Court: Terms of Trust Do Not Override The Law, Probate Stars, June 26, 2020. 

Provident 1031 Offers Accredited Investors Delaware Statutory Trust Properties For 1031 Exchange

Land and commercial property sellers across the US know how to defer tax when selling property using a 1031 Exchange and today investors have more options than ever. One of these options is the Delaware State Trust (DST). 

A DST is a unique investment opportunity that allows an investor to invest in partial ownership in large institutional grade commercial properties and earn monthly tax favored cash flow without the headaches of managing property. Also, investors reap the benefits of differing taxes by using a 1031 Exchange and can preserve the widely favored step up in basis at death. 

DST's now qualify as "like kind" properties according to third party qualified Intermediaries (QI's) who act as escrow agents and facilitators for test exchanges. These opportunities can offer life changing benefits to owners of real estate who are aging and no longer want to or are able to manage/own properties. 

Provident 1031's website helps commercial property sellers of multifamily, hotels, retail spaces, raw land, rental homes, or industrial complexes to identify DST properties and the accompanied use of the 1031 Exchange.

This also allows sellers of property to save/defer taxes, protect their step up in basis, generate monthly income, and gain freedom from tenants, loans, personal liability, cash calls and most of the generated headaches and risks that go along with investment properties. 

See, Provident 1031 Offers Accredited Investors Delaware Statutory Trust Properties For 1031 Exchange, Digital Journal, June 19, 2020.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

XXXTentacion's Mom Sued for $11M by Half Bro, Claims She Stole from Trust

It has been two years since XXXTentacion's (XXX) passing, but the drama storm continues to brew, as his half-brother is suing XXX's mother, claiming she stole from his Trust. Jodi Kavney, the mother of XXX's half-brother, Corey Pack, claims that Cleopatra Bernard, created a plan to siphon off millions of dollars from her own son's trust—money that the rapper set aside for Corey. 

Jodi, who's suing on behalf of Corey, says in docs, XXX left behind assets in excess of $50 million ... including a trust that lists Corey as 1 of 3 beneficiaries. In the lawsuit, Jodi claims Cleopatra cut a deal with XXX's baby mama which helped her cut Corey out of his portion of the estate. Jodi's now seeking to recover assets she claims were "improperly and surreptitiously transferred" by Cleopatra to herself.

Jodi's suing for $11 million in damages and may try to triple that amount ... if she can prove this was intentionally done. She also claims Corey's entitled to ownership rights to XXX's record label, Bad Vibe Entities.

In a recent update in the case, Bernard's attorney, Michael Simon, told TMZ that the lawsuit that was filed was completely without merit as a court has already determined that Corey Pack is entitled to nothing from XXX's estate or trust. 

Cleopatra has not only paid Corey’s living expenses and purchased him a car, but she has gifted to him and his mother, Jodi Kavney, a mortgage free home and paid the current year’s real estate taxes.

See XXXTentacion's Mom Sued for $11M by Half Bro, Claims She Stole from Trust, TMZ, June 19, 2020. 

Special thanks to Laura Galvan (Attorney, San Antonio, Texas) for bringing this article to my attention.  

Probate: 10 Things You Need to Know

Below is a summary of a UK article that offers a few tips on sorting out financial affairs during the global pandemic. 

Unfortunately, the pandemic means that many people that have agreed to be named as executor on a friend or family member's will years ago, will have to step up and do their duty and apply for probate. 

Financial Times asked their readers to tell them about their experiences navigating the Probate system and from that put a list of 10 things that should be considered when going through probate.

Here are the 10 things you should know about Probate:

1.  Don’t leave your executors in the dark

If you are named as an executor on a family member or friends will, speak with them about their financial situation while they are still alive.

2. Record every detail

Keep a detailed record of everything you know about the financial situation to ensure a smooth transition.

3. Be prepared for delays

Be ready for any hiccups that may occur throughout the process so that you are not caught by surprise and put in a bind.

4. Get lots of death certificates

You're going to need these, as almost everyone you have to go through (banks, etc.) will likely ask for one.

5. Lasting Power of Attorney

Be aware that a Lasting Power of Attorney (LPA) only remains valid during the person’s lifetime.

6. The seven-year glitch

Several readers found they needed at least seven years of bank statements to check for gifts made before death.

7. Inheritance tax deadlines

The deadline for any payment of inheritance tax due is six months from the end of the month of death

8. Negotiate legal costs

Many readers stressed that deals can be done and that relatives should not be afraid of negotiating with solicitors or estate agents.

9. Valuing assets can be costly

It is also worth challenging the cost of asset valuations.

10. Protecting the estate after death

Any valuable assets need to be removed and the property needs to be maintained so that it is not obvious that it is empty.

See Lindsay Cook, Probate: 10 Things You Need to Know , Financial Times, June 19, 2020.

Special thanks to Joel C. Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.

Article on Inheritance of Full Sister/s with Consanguine Brother/s in Pakistan: A Critical Analysis of Saadullah v Gulbanda

Shahbaz Ahmad Cheema recently published an Article entitled, Inheritance of Full Sister/s with Consanguine Brother/s in Pakistan: A Critical Analysis of Saadullah v Gulbanda, Wills, Trusts, & Estates Law eJournal (2020). Provided below is the abstract to the Article:

In Pakistan, Hanafi version of Islamic law of inheritance is followed by the courts in view of overwhelming number of Sunni Hanafi Muslims unless proved otherwise. Despite accurate appraisal of Islamic law of inheritance by the superior courts in general, one specific issue has been causing problem for last many years. In Saadullah v Gulbanda (2014 SCMR 1205), the Supreme Court excluded consanguine brother from inheritance in presence of full sisters that stirred debate about entitlement of those residuaries who are remotely related to deceased than full sister/s. This judgment is based on the faulty appraisal of Islamic law of inheritance by misreading the chart of residuaries prepared by D. F. Mulla’s Principles of Muhammadan Law. Case law analysis in the article reveals that, prior to the above mentioned case, the courts appreciated the analogous matters more accurately. The article presents correct perspective of Islamic law of inheritance on the subject with an expectation that the Supreme Court would revisit its erroneous approach for the protection of inheritance rights of eligible legal heirs.