With the proliferation of will substitutes (vehicles such as revocable trusts, IRAs, and pensions, used to pass assets to beneficiaries at the owner's death but outside the will), a problem can arise with possible duplication between the will substitute and the will. Such a problem was litigated in the Court of Appeals of South Carolina case, Estate of Gill ex rel. Grant v. Clemson University Foundation, 725 S.E.2d 516 (S.C. Ct. App. 2012).
In Estate of Gill, the testatrix bequeathed $100,000 to Clemson University to establish the "Scholarship." The income earned by the fund (but none of the principal) was to be used to provide scholarships for "academically deserving football players." Almost one year after executing the will, the testatrix established an IRA with Morgan Stanley. She specifically designated the Scholarship as the beneficiary of $100,000 in the IRA. The Estate contended that her intent had been to provide a funding mechanism for the Scholarship under the will, not for Clemson to receive two separate $100,000 gifts. Clemson contended that it was entitled to both the $100,000 from the IRA and the $100,000 bequest under the will.
The Estate brought suit for a declaratory judgment, and a special referee found that because the will was unambiguous as to the $100,000 bequest to establish the Scholarship, the bequest was not ambiguous and extrinsic evidence could not be considered. The referee therefore ruled that Clemson was entitled to both the $100,000 Scholarship bequest and $100,000 from the IRA as a nontestamentary asset passing outside the will.
On appeal, the Estate alleged that the referee had erred in failing both to consider extrinsic evidence regarding the testatrix's intent as to the funding of the Scholarship, because the will was ambiguous in that respect, as well as to admit the extrinsic evidence, because such evidence was relevant and satisfied the "state of mind" exception to the hearsay rule.
The Estate further argued that the referee had erred in failing to recognize that a latent ambiguity arose under the will because of the circumstance that the IRA was not in existence when the will was executed, thereby requiring that the terms of the bequest for the Scholarship and the beneficiary designation under the IRA had to be construed together as part of an overall plan. The extrinsic evidence consisted of the IRA agreement and the testimony of witnesses to the effect that (1) the testatrix had designated Clemson as a beneficiary under the IRA in order to obtain the charitable deduction on her income tax for that year; and (2) according to Linda Fraser, a financial advisor at Morgan Stanley, the testatrix was not familiar with the terms of the will at the time she established the IRA and nothing in the will stated that the IRA account was to satisfy the bequest to Clemson. The court of appeals ruled that the referee's failure to consider extrinsic evidence could not be the basis for the Estate's appeal, because the Estate had failed to preserve the issue on appeal.
The court of appeals also rejected the Estate's hearsay exception argument because the proferred testimony did not satisfy the requirement of Rule 803(3) of the South Carolina Rules of Evidence. To be admissible under Rule 803(3), a statement as to the declarant's state of mind, emotion, sensation, or physical condition must relate to his or her state of mind at the time of the statement but cannot include "[a] statement of memory or belief to prove the fact remembered or believed unless it relates to the execution, revocation, identification, or terms of declarant's will." Id. at 521.
As the court of appeals found, the testimony of the financial planner related to a statement made by the testatrix almost a year after she had executed her will. Additionally, the court rejected the argument that the IRA qualified as a "contemporaneous writing" under section 62-2-610 of the South Carolina Code, manifesting the testatrix's intent that Clemson's status as a beneficiary under the IRA serve as satisfaction of the $100,000 bequest. The court found no evidence of such intent in that neither the will nor the IRA instrument mentioned the possibility of satisfaction of the bequest prior to the testatrix's death.
The court thus affirmed the referee's conclusion that Clemson was entitled to both the $100,000 bequest and the $100,000 under the IRA. The obvious lesson here is that where a lifetime transfer, such as the establishment of an IRA, is intended to satisfy a testamentary gift, the manifestation of that intent should be made clear in either the will or the instrument embodying the lifetime transfer, or in both.