The Lawletter Vol 44 No 4

Matthew McDavitt—Senior Attorney, National Legal Research Group

            The phrase "personal effects" is a descriptor that commonly leads to litigation regarding its usual or intended scope. Unqualified, the word "effects" in a testamentary context generally denotes personal property of any description. Adler v. First-Citizens Bank & Trust Co., 4 N.C. App. 600, 603, 167 S.E.2d 441, 443 (1969). However, pairing the adjective "personal" with the noun "effects" expressly modifies and limits its scope:

The adjective "personal" would be unnecessary and useless if it did not restrict the meaning of "effects," which standing alone would have covered all personalty. . . . [T]he words "personal effects" . . . [usually] cover only those articles of tangible personal property that in their use or intended use had some intimate connection with the person of the testatrix.

Gaston v. Gaston, 320 Mass. 627, 628, 70 N.E.2d 527, 528 (1947).  Thus, "[t]he term 'personal effects' ordinarily does not include cash and property held for investment." Beasley v. Wells, 55 So. 3d 1179, 1185 (Ala. 2010); In re Estate of Stengel, 557 S.W.2d 255 (Mo. Ct. App. 1977) (the term "personal effects" meant tangible property worn or carried about the person or tangible property having some intimate relation to the person of the testatrix; the term did not include the bonds, stocks, savings and loan accounts, cash, coins, or currency).

The Lawletter Vol 44 No 4

            The Uniform Power of Attorney Act ("UPAA") provides that

(b) Unless the power of attorney otherwise provides, language in a power of attorney granting general authority with respect to gifts authorizes the agent only to:

(1) make outright to, or for the benefit of, a person, a gift of any of the principal's property, including by the exercise of a presently exercisable general power of appointment held by the principal, in an amount per donee not to exceed the annual dollar limits of the federal gift tax exclusion under Internal Revenue Code Section 2503(b) . . . and

(2) consent, pursuant to Internal Revenue Code Section 2513, 26 U.S.C. Section 2513, [as amended,] to the splitting of a gift made by the principal's spouse in an amount per donee not to exceed the aggregate annual gift tax exclusions for both spouses.

Unif. Power of Attorney Act § 217(b), U.LA. (Westlaw current through 2017 Annual Meeting of the National Conference of Commissioners on Uniform State Laws).

Jim Witt—Senior Attorney, National Legal Research Group

            In Kimberley Rice Kaestner 1992 Family Trust v. North Carolina Department of Revenue, ___ N.C. App. ___, 789 S.E.2d 645, aff'd, ___ N.C. ___, 814 S.E.2d 43 (2018), cert. granted sub nom. North Carolina Department of Revenue v. Kimberley Rice Kaestner 1992 Family Trust, No. 18-457, 2019 WL 166876 (U.S. Jan. 11, 2019) the court addressed the issue of whether North Carolina's taxation under North Carolina General Statutes § 105-160.2 of the income accumulated by the trust in question met the minimum contacts requirement of the Due Process Clause of the Fourteenth Amendment to the U.S. Constitution, where the trust's only connection with North Carolina was the residence and domicile of the beneficiary.

            The Trust, the Kaestner 1992 Family Trust, was established by Joseph Lee Rice III, with William B. Matteson as trustee. The situs of the trust was New York. The primary beneficiaries of the trust were the settlor's descendants (none of whom lived in North Carolina at the time of the trust's creation). In 2002, the original trust was divided into three separate trusts: one for each of the settlor's children, with each trust named for a child. At that time, one of the children, Kimberley Rice Kaestner, the beneficiary of the plaintiff Kimberley Rice Kaestner 1992 Family Trust, was a resident and domiciliary of North Carolina. Neither the original trustee nor his successor was a resident of North Carolina.

Brad Pettit—Senior Attorney, National Legal Research Group

            The Internal Revenue Code provides generally that "[n]o gain or loss shall be recognized on the exchange of real property held for productive use in a trade or business or for investment if such real property is exchanged solely for real property of like kind which is to be held either for productive use in a trade or business or for investment," as long as the transaction does not involve an "exchange of real property held primarily for sale." 26 U.S.C. § 1031(a) (also includes Pub. L. Nos. 115-233 to 115-253, 115-255 to 115-269; Title 26 current through Pub. L No. 115-270). "As used in section 1031(a), the words 'like kind' have reference to the nature or character of the property and not to its grade or quality." 26 C.F.R. § 1.1031(a)-1(b). Thus, "[o]ne kind or class of property may not, under that section, be exchanged for property of a different kind or class." Id. For example, "[t]he fact that any real estate involved is improved or unimproved is not material, for that fact relates only to the grade or quality of the property and not to its kind or class." Id.

Brad Pettit—Senior Attorney, National Legal Research Group

         "Rather than disposing of stock in a closely held business (by sale or corporate reorganization) at retirement the retiree may decide to transfer all or a portion of the stock by gifts to various family members." Streng & Davis, Tax Planning for Retirement ¶ 7.05[1] (Thomson Reuters Tax & Acct’g 2018).  Three important objectives can be achieved by making gifts of closely held business stock to family members:

It eliminates the stock's dividend income from the gross income and the estate of the retiree/donor

It removes the value of the stock from the retiree/donor's estate for federal estate tax purposes upon the retiree's death

It solidifies the interests of the family members receiving the stock as officers of the closely held corporation, enabling them access to corporate executive compensation arrangements and other benefits.

Id.

Jim Witt—Senior Attorney, National Legal Research Group

            In 1971, Charles Manson (“Manson”), the leader of the Manson Family cult, was convicted of first-degree murder and conspiracy to commit murder for the deaths of nine people in July and August 1969. He was originally sentenced to death, but his sentence was commuted to life with the possibility of parole after the suspension of the death penalty under both California and federal law (California's adoption in 1978 of a death penalty that qualified under federal guidelines and the sentence of life imprisonment with no possibility of parole could not be applied retroactively to Manson). After 46 years of incarceration, Manson died on November 19, 2017 of acute cardiac arrest, respiratory failure, and colon cancer. What has ensued, however, is an estate proceeding that has been complicated by a number of factors:

Brad Pettit, Senior Attorney, National Legal Research Group

            On January 12, 2018, in South Dakota v. Wayfair, Inc., 138 S. Ct. 735 (2018) (Mem.), the United States Supreme Court granted a petition for writ of certiorari with respect to the decision by the Supreme Court of South Dakota in State v. Wayfair Inc., 2017 SD 56, 901 N.W.2d 754, holding that a state statute that requires Internet sellers with no physical presence in the state to collect and remit sales tax violated the dormant Commerce Clause of the U.S. Constitution.

            In reaching this decision, the Supreme Court of South Dakota had relied on the prior rulings from the United States Supreme Court in National Bellas Hess, Inc. v. Department of Revenue, 386 U.S. 753 (1967), and Quill Corp. v. North Dakota, 504 U.S. 298 (1992), holding that the Commerce Clause of the federal Constitution prohibits a state from requiring an out-of-state seller to collect and remit sales or use tax with respect to mail-order and similar sales and shipments of merchandise to in-state purchasers unless the former has a "physical presence" in the taxing state.

     The general rule is that a probate or surrogate's court may revoke letters of administration that were granted to an executor or personal representative if there is demonstrated friction, hostility or antagonism between the appointed fiduciary and beneficiaries of a decedent's estate, but only if the enmity between the fiduciary and the beneficiaries threatens to interfere with the administration of the estate.  In re Estate of Brown, 2016 N.Y. Slip Op. 02691, 138 A.D.3d 1191, 29 N.Y.S.3d 630 (3d Dep't 2016).  In other words, neither a conflict of interest nor hostility between an executor or trustee and the beneficiaries of an estate or trust provide the basis for removing a trustee or personal representative unless the administration of the trust or estate has been adversely affected.  In re Gerald L. Pollack Trust, 309 Mich. App. 125, 867 N.W.2d 884 (2015); In re Estate of Robb, 21 Neb. App. 429, 839 N.W.2d 368 (2013) (when executor of estate has a personal interest in administration of estate and in disposition of estate property and circumstances reveal that those conflicting interests are preventing executor from performing fiduciary duties in impartial manner, then executor should be removed).

     The mere fact that the personal representative of a decedent's estate is also a beneficiary thereof does not necessarily create a conflict of interest that would justify the removal of the personal representative as the fiduciary for the estate.  Gardiner v. Taufer, 2014 UT 56, 342 P.3d 269.  In order to justify removal of a personal representative who is also a beneficiary of an estate, the evidence must show that the personal representative committed some negligent act or mismanagement of the estate before a court can find a sufficient conflict of interest that is serious enough to justify removal of the estate fiduciary.  Id. ¶ 31, 342 P.3d at 279.

Jim Witt, Senior Attorney, National Legal Research Group 

            It is not often, if ever, that the U.S. Tax Court quotes a show business celebrity in its opinions, but it did so in a summary opinion filed on August 16, 2017, in the case of Omoloh v. Commissioner, T.C. Summ. Op. 2017-64, 2017 WL 3530853. The case turned on whether the taxpayer, Wilfred Omoloh, was age 59½ at the time that he took a distribution from his individual retirement account ("IRA"). I.R.C. § 72(t) ("10-percent additional tax on early distributions from qualified retirement plans") provides in subsection that (1) if the taxpayer receives a distribution from a qualified retirement plan such as an IRA, the taxpayer's income tax liability for the year will be increased by an amount equal to 10% of the portion of the distribution includible in gross income. However, under subsection (2), the 10% penalty of subsection (1) shall not apply if the distribution is made on or after the date on which the taxpayer attains age 59½.

Matthew McDavitt, Senior Attorney, National Legal Research Group

            In the execution of wills, many testators utilize the optional execution of self-proving affidavits, where statutorily authorized, wherein the will execution witnesses sign a statement before an officer authorized to administer oaths affirming their observation of the testator's mental capacity and testamentary intent, as well as the signing of the will. A properly executed self-proving affidavit raises a legal presumption of due execution and eliminates the normal requirement mandating that witnesses to a will testify in court as to the authenticity of the will.

            In practice, self-proving affidavits are normally created contemporaneously with the execution of the will, and some states' statutes mandate such simultaneous affidavit execution. However, some state statutes expressly allow self-proving affidavits to be executed at any time after the observed will execution. Thus, for example, we see both simultaneous and postexecution self-proving affidavit execution mentioned in Michigan's statutory provision on the subject: