HeirMail® – March’19
Court Holds That A Will Left A Partial Intestacy
by David Fowler Johnson | jdsupra.com
In Sullivan v. Hatchett, a husband executed a will giving his wife a life estate in his property. No. 07-17-00296-CV, 2019 Tex. App. LEXIS 980 (Tex. App.—Amarillo February 11, 2019, no pet. history). The will then provided:
THIRD: In the event [Juanita] should predecease me, or if we should die in or as a result of the same accident or disaster, or if she should not survive until ninety (90) days after my death . . . I hereby give, devise, grant and bequeath outright and in fee simple, fifty per cent (50%) of my said estate unto my Daughter, SHERRY LAYNE GIBSON HATCHETT . . .
ten per cent (10%) of my said estate unto THE FIRST BAPTIST CHURCH, 2201 Broadway, Lubbock, Texas . . . .</P
FOURTH: All of the rest and residue of my said estate . . . I do hereby give, devise and bequeath in trust, twenty per cent (20%) of said rest and residue unto each of the two named beneficiaries, unto SHERRY LAYNE GIBSON HATCHETT as Trustee, for the use and benefit of two (2) of our three (3) grandchildren if they are still attending a college or university full time . . . such grandchildren being CHRISTINA MICHELLE HATCHETT and LISA MARIE HATCHETT . . .
Id. After the wife passed, her nephew, who was her executor, entered into a farm and ranch contract regarding a ranch former owned by the husband and wife as community property. Before closing, Sherry Gibson asserted she owned fifty percent of the husband’s estate under the third paragraph of his will, thereby creating a cloud on the title to the property. The mother’s executor then filed a declaratory judgment action to establish the interests of the parties in the property, and Sherry counter-claimed. The trial court ruled for Sherry, and the mother’s executor appealed.
The court of appeals reversed and ruled for the mother’s executor. The court first discussed the rules of will construction:
When interpreting a will, the primary focus of the court is the determination of the testator’s intent, as reflected in the will as a whole, and the effectuation of that intent as far as is legally possible. The intent must be drawn from the will, not the will from the intent. Ascertaining intent from the four corners of a will requires careful examination of the words the testator chose and the sense in which the words were used by the testator is the ultimate criterion. Words and phrases must be construed together and in context, not in isolation. A court should focus on the meaning of the words actually used by the testator and not on what he intended to write.
Id. (internal citations omitted).
The mother’s executor alleged that he was entitled to summary judgment because the second paragraph of the father’s will created a life estate only and the remaining paragraphs of the will did not establish a remainder interest or dispose of one hundred percent of the residual estate. The court of appeals agreed:
The third paragraph of Charles’s will, the survivor paragraph, provided three contingencies to effectuate a survival clause, none of which occurred… Thus, without any of the contingencies having occurred, the third paragraph became moot—thereby effectively distributing nothing to the named contingent beneficiaries, i.e., Sherry and the First Baptist Church. As such, it does not function to establish either a remainder interest or dispose of any residual interest. Because the third paragraph does not bear on the disposition of any residual interest, it does not pass title to the beneficiaries named in the trial court’s judgment. While the fourth paragraph, the residuary paragraph, does dispose of forty percent of any residual estate (twenty percent to Christina and twenty percent to Lisa), it makes no provision for the remaining sixty percent, thereby creating a partial intestacy.
Id. The court acknowledged that there is a general reluctance to find partial intestacy, but the plain words of the will control. The court held that half of the property belonged to the wife’s estate because it was her community property, forty percent of the husband’s half community interest passed via the fourth paragraph to Christina and Lisa and the remaining sixty percent of the husband’s half passed by the rules of intestate succession.
There was a dissenting justice who would have affirmed the trial court’s judgment:
There is nothing inconsistent between the Third paragraph’s provisions naming Sherry and the church as recipients of the sixty percent under the stated contingencies and the Second paragraph’s identification of them as remaindermen after the life estate given Juanita. The two paragraphs do not provide conflicting dispositions; they provide alternative dispositions. If any of the eventualities described in the Third paragraph occurred, no life estate would be created in Juanita. Read together, the Second and Third paragraphs thus consistently provide for Sherry and the church to receive the disputed sixty percent after Charles and Juanita both were deceased, regardless of the order or timing of their deaths, subject only to Juanita’s life estate.
View the original article at https://www.jdsupra.com/legalnews/court-holds-that-a-will-left-a-partial-25970/
Can Boilerplate Raise Contracts of the Dead
from the Grave?
by William A. Drennan | www.americanbar.org
Contracts of the Dead
In deciding that the “successors and assigns” language did not trigger contract survival, the court stated the boilerplate was not “of any moment.”
When death arrives, must the estate attempt to channel the decedent’s skills and complete any remaining contractual duties? The outcome does not always hinge solely on whether the remaining duties are personal services. Instead, the intent of the parties is paramount. Courts disagree whether boilerplate, such as clauses that the contract is “binding on successors or assigns,” or is “binding on heirs, executors, and administrators,” reflects the intent of the parties and causes personal service contracts to survive a party’s death.
Attorneys may confront this issue when drafting contracts, reviewing contracts in connection with estate planning, advising the personal representative, dealing with the surviving contract party, or seeking guidance from the probate court on the estate’s responsibilities. Parties have litigated an estate’s duty to complete building, farming, leasing, and many other types of contracts. If a personal representative caused an estate to complete a decedent’s contract when the estate had no obligation to do so, and carried on the decedent’s business without proper authorization, the personal representative could incur personal liability for any losses. In re Burke’s Estate, 244 P. 340, 341 (Cal. 1926); see generally Bogart’s Trusts and Trustees § 571 (regarding the continuation of a decedent’s business).
The Taboo of Death Talk and the Personal Services Contract Presumption
When a mortal contracts, death may precede performance. Death is always foreseeable. When entering into a contract, parties could negotiate death terms and include specific and individualized provisions dealing with post-death obligations. A Kansas Supreme Court soliloquy encouraged contract drafters to directly address death and spare courts the anguish of dealing with this ghostly thicket of the law. In re Estate of Sauder, 156 P.3d 1204, 1214 (Kan. 2007). A leading author on contract drafting wrote, “Drafters should anticipate and directly address any issues that could arise upon a party’s death or other life event.” Tina L. Stark, Negotiating and Drafting Contract Boilerplate 90 (2003).
Nevertheless, people hate to talk about their own death, and raising the likelihood of the other party’s death may be seen as ghoulish, threatening, or just weird. Some people believe talking about death will hasten its arrival. Gerry W. Beyer, Estate Planning 7 (4th ed. 2012). Contracts often fail to address death directly. As the Ninth Circuit observed, “It may be doubtful if the parties put their minds to the question of ‘suppose Ulmann, Sr. dies,’” and “The use of words of survivorship generally has gone out of fashion in ordinary contracts.” Ulmann v. Sunset-McKee Co., 221 F.2d 128, 133 (9th Cir. 1955).
When the contract is silent about post-death obligations, courts often rely on presumptions created in Shakespearean England. In 1597, the Queen’s Bench established the general rule that if an executory contract is silent on the subject, the estate must complete the decedent’s unfulfilled duties. Hyde v. Windsor, 78 Eng. Rep. 798, 798 (Q.B. 1597). Simultaneously, the court created the personal services contract exception, providing that if the “covenant [was] to be performed by the person of the testator . . . [and the executor] cannot perform,” the remaining contractual obligations are discharged. Id.; see U.S. v. Chain, 300 U.S. 31, 35 (1937) (employing those presumptions). The often-discussed rationale for the personal services exception is that if the skill, talent, judgment, or other attribute of the obligor was an essential part of the bargain, then the survival (and capacity) of the obligor was a condition to the duty to perform. Also, the other party should not be forced into a contract with a stranger, namely the decedent’s estate or other successor. Vogel v. Melish, 203 N.E.2d 411, 413 (Ill. 1965).
Under the personal services exception, contractual duties that die with the decedent include writing a book, performing on stage, starring in a movie, playing a musical instrument, painting a picture, advising a country music band, and performing services as an architect, attorney, salesman, or physician. In contrast, when considering subject-matter alone, the courts have considered the following contractual duties impersonal, and therefore they survived the obligor’s death and had to be performed by the decedent’s estate or other successor: delivering, purchasing, or selling property, leasing property as a tenant, renting property as an owner, executing supplemental documents, and transporting milk between cities. For summaries of cases see James P. Nehf, 14 Corbin on Contracts § 75.1 (2001); Richard A. Lord, 30 Williston on Contracts §§ 74:29 (4th ed. 2004) (illustrations of personal and impersonal duties generally), 77:70, 77.75; 17A Am. Jur. 2d Contracts § 656; 17B C.J.S. Contracts § 683 (death or disability of a person); Larry A. Dimatteo, Depersonalization of Personal Service Contracts: The Search for a Modern Approach to Assignability, 27 Akron L. Rev. 407 (1994) (considers assignability of contracts in general).
“[I]t must be admitted that the line of demarcation between the two kinds of contracts is not very clearly marked.” Carlock v. La Salle Extension Univ., 185 F.2d 594, 595 (7th Cir. 1950). The characterization of contracts as either personal or impersonal has been difficult in areas such as building, construction, farming, logging, and excavating. When the decedent was the only member of the family practicing that trade or business, “forcing the estate to complete the contract may impose a real burden.” Ames v. Sayler, 642 N.E.2d 1340, 1344 (Ill. App. 1994). Nevertheless, a leading treatise states, “Promises to erect or renovate buildings are enforced after the promisor’s death, so long as no one contemplated the decedent’s personal work.” Williston on Contracts § 77.75, at 496. Accordingly, the court in Stormer’s Estate, 123 A.2d 627 (Pa. 1956), required the decedent’s family to complete the construction of a sewer system when the decedent died after completing only 60 percent of the job. Courts go both ways on whether the services of a farmer are personal services. Compare In re Estate of Sauder, 156 F.3d 1204, 1215 (sharecropping and employment arrangements usually terminate at death), with Wilson v. Fieldgrove, 787 N.W.2d 707 (Neb. 2010) (cash lease surviving death); California Packing Corp. v. Lopez, 279 P. 664 (Cal. 1929) (sharecropping contract survived death).
The Supremacy of Intent
Although a few courts have suggested that whether a contract is a personal services contract is outcome-determinative, see, e.g., McDaniel v. Rose, 153 S.W.2d 828, 830 (Mo. Ct. App. 1941), many courts will carry out the intent of the parties regardless of the subject matter. For example, Warnecke v. Rabenau’s Estate, 367 S.W.2d 15, 18 (Mo. Ct. App. 1963), stated that generally the rental of real estate is not a personal services contract and therefore, ordinarily, the tenant’s estate must pay the rent for the balance of the term. Nevertheless, the court in Warnecke concluded a rental agreement terminated upon the tenant’s death because of the parties’ intent. “The cardinal rule of construction of contracts . . . of course [is] that the intention of the parties must be ascertained and given effect.” Id. Crucial evidence of intent included language in the lease that the space would be used as an office for a CPA and that the tenant’s surviving spouse was not a CPA. See generally Williston, supra, § 32.2 (regarding “the overriding principle that courts must effectuate the intentions of the parties”).
The description of the contractual duties in the contract may reveal the intent of the parties. In Buccini v. Paterno Const. Co., 170 N.E. 910, 911 (N.Y. App. 1930) (Cardozo, C.J.), a construction company hired Albert Buccini to decorate certain parts of a dwelling named “Paterno’s Castle.” The contract specifically stated, “All the decorative figured work shall be done by [Albert] Buccini personally and . . . only the plain work may be delegated to mechanics.” Upon Albert Buccini’s death, based on the intent of the parties gleaned from the contract language, the court concluded that the obligation to perform the decorative work terminated and the remaining obligations survived. Generally, in these cases, it would be difficult to prove intent through evidence of oral statements because of the dead man’s statute and the adage that testimony about oral statements of a decedent will be given little weight.
On a few occasions, courts have “ascribed” an intent to the parties. In these cases, the courts decided what reasonable persons in the positions of the parties would have intended and then treated that as the intent of the parties. For example, in Unit Vending v. Lacas, 190 A.2d 298 (Pa. 1963), the owner of a Philadelphia diner hired a cigarette vending machine company to install their machines at the diner. The owner of the diner died six months into the five-year contract. After the estate sold the diner, the buyer refused to honor the vending machine contract, and the vending machine company sued the estate for lost profits. The court stated this was not a personal services contract, so, under the presumption, the contract should have survived the original owner’s death. Nevertheless, the court concluded the contract terminated with the original owner’s death, stating, “[T]he court will adopt the interpretation which . . . ascribes the most reasonable, probable, and rational conduct of the parties.”
Does Boilerplate Express the Intent of the Parties?
Personal services contracts seldom address death directly, but they often include “binding upon” boilerplate clauses arguably indicating that the contract survives a party’s death. “Binding upon” boilerplate states that the contract binds the parties, their successors and assigns, or their legal representatives, or their heirs, executors, and administrators.
Successors and Assigns Language. The term “successors” is “difficult to define precisely,” and there “can be no single definition of ‘successor’ which is applicable in every legal context.” Safer v. Perper, 569 F.2d 87, 95 (D.C. Cir. 1977). Nevertheless, “successor” is “an apt and appropriate term to designate one to whom property descends.” Dille v. Plainview Coal, Co., 250 N.W. 607, 613 (Iowa 1934). In general, “successor” means one who succeeds to a throne, title, or estate. In contrast, the term “assign” or “assignee” often refers to the recipient of a voluntary transfer, rather than one who takes from a transfer at law. When used in tandem with “successors,” the term “assigns” does not include a decedent’s estate receiving property under a will or in intestacy. See, e.g., Cal. Packing Corp. v. Lopez, 279 P. 664 (Cal. 1929); Stark, supra, § 4.04[C], at 88.
In Smith v. Zuckman, two individuals contracted in the names of themselves and their “successors and assigns.” Smith, a sole proprietor, agreed to use his best efforts to arrange for advertising at Zuckman’s movie theater for compensation, but Smith died during the term of the contract. His executor and heirs wished to continue providing services under the contract for compensation. The contract was a personal services contract, so under the presumption it should have terminated at Smith’s death. In deciding that the “successors and assigns” language did not trigger contract survival, the court stated the boilerplate was not “of any moment.” Smith v. Zuckman, 282 N.W. 269, 271 (Minn. 1938) (relying on the Marvel case discussed below).
Heirs, Executors, and Administrators Language. The word “heirs” is flexible. It may describe only intestate takers, or those who take property either under a will or from intestacy. Black’s Law Dictionary 791 (9th ed. 2009). In its general sense, “heirs” can mean issue, children, or descendants. Cook v. Underwood, 228 N.W. 629, 631 (Iowa 1930). An “executor” carries out a decedent’s will, and an “administrator” handles an intestate estate. Thus, when a contract includes the very popular boilerplate that it binds the parties and their “heirs, executors, and administrators,” a plain reading suggests the contract survives a party’s death. Nevertheless, courts typically reach the opposite result.
In Browne v. Fairhall, Browne signed a contract to buy securities worth over $1.5 million from Fairhall, and each party promised to deliver the consideration within 90 days to an escrow agent. Browne v. Fairhall, 100 N.E. 556 (Mass. 1913). Browne was to deliver $1,375,000 in cash and a $200,000 promissory note bearing six percent interest to the escrow agent. Browne had discretion to designate when the $200,000 under the promissory note would be due, but Browne had to designate a due date within three years of the closing. Browne died 40 days after signing the contract without delivering anything to the escrow agent. Browne’s executor failed to deliver the cash or the promissory note within the following 50 days, and Fairhall sued, pointing out that the written contract said it should be “binding upon and inure to the benefit of [their] respective heirs, executors, and administrators.” Because Browne had discretion to designate when the $200,000 promissory note would be payable within the three-year period, the court said the contract was a personal services contract and terminated upon Browne’s death. Regarding the boilerplate that the contract was binding on heirs, executors, and administrators, the court concluded, “[N]o further effect need be given [to this language] for it is settled by our decision in Marvel v. Phillips.” See also Vogel v. Melish, 203 N.E.2d 411, 414 (Ill. 1964) (following Browne).
The rationale for ignoring boilerplate in Marvel v. Phillips was that, under a personal services contract, the obligations of the decedent are “discharged by . . . death,” and there is nothing to assign, succeed to, or be bound by once the obligor dies. Marvel v. Phillips, 38 N.E. 1117, 1118 (Mass. 1894). Also, the court asserted that if it held otherwise “the estate of Phillips [could] be tied up and exposed to hazard for an indefinite time, [and Marvel’s] interests might be sacrificed [if] Phillips appointed an [incompetent] executor.” Id. at 1118. Nevertheless, in dictum, the Marvel court acknowledged that parties could explicitly agree that a personal services contract continues after death. Perhaps the Restatement is consistent with Marvel when it states that in the case of a personal services contract, the contract language will preserve the contractual duties after death only if it “clearly” manifests the parties’ intent for contract survival. See Restatement (Second) of Contracts § 262 cmt. a (Am. Law Inst. 1981). Thus, Marvel and Browne may indicate that boilerplate, such as a clause that the contract will be “binding upon the parties’ heirs, executors, and administrators” does not “clearly” manifest the parties’ intent. See Vogel v. Melsih, 203 N.E.2d at 414 (referring to boilerplate as “vague and general”).
Although Browne and Marvel decided that “binding upon” boilerplate failed to preserve those contracts after the obligor’s death, two more recent cases express the opposite view. David Sauder was a sharecropper who entered into a written contract providing that it “shall . . . be binding upon the heirs, successors, executors, and administrators of the parties.” In re Estate of Sauder, 156 P.3d 1204, 1215 (Kan. 2007). The court asserted, “[W]hen an employment or ‘cropper’ relationship exists, the contract is usually deemed to be a personal services contract.” Nevertheless, in a lengthy opinion relying upon multiple rules, the court concluded in part that the “binding upon” boilerplate “express[ed] an intent that the contract is not a personal services contract,” and that “because of this provision in the contract. . . the contract did not terminate at David’s death.” In re Sauder appears to reject the approach in Restatement (Second) Contracts § 262 cmt. a because the Kansas court wrote, “[T]he contract provides ‘no . . . clear expression’ of intent,” and yet the court relied upon the plain meaning of the “binding upon” boilerplate to preserve the contract.
Ames v. Sayler also involved a farmer who died mid-contract. In the absence of boilerplate, the agreement was a personal services contract and died with the farmer. Ames v. Sayler, 642 N.E.2d 1340, 1344 (Ill. App. 1994). In dictum, the court indicated that if the parties had included “binding upon” boilerplate, the contract would have survived notwithstanding any potential burdens on the decedent’s family.
Other Boilerplate and Non-Death Language. In Marvel v. Phillips (discussed above in connection with Browne v. Fairhall), the court concluded that boilerplate stating Phillips agreed to bind himself and his “legal representatives with and to Marvel,” was ineffective to cause the personal services contract to survive Phillips’ death. Marvel v. Phillips, 38 N.E. 1117, 1118 (Mass. 1894). In Frankel v. Bernstein, a tenant signed a two-year lease extension for an apartment which provided in part that the lease “would apply to any person to whom the tenant’s interest passed by operation of law.” Frankel v. Bernstein, 334 So.2d 37, 38 (Fla. App. 1976). Nevertheless, upon her death, her estate refused to pay the rent. The court agreed with the estate, emphasizing language in the lease that the premises were to be used “only as [Rose Weiner’s] residence.”
In Farnon v. Cole, Brian Farnon agreed to work as musical director for legendary singer Nat King Cole for one year for a “guaranteed” salary of $25,000. When Nat King Cole died mid-year after paying Farnon $11,900, King’s estate refused to pay Farnon the $13,100 balance. Despite the word “guaranteed,” the court concluded that the contract terminated at Cole’s death. Farnon was not entitled to the $13,100 balance because overall the “wording of the contract explicitly conveys an intent of the parties that the contract be conditioned upon Cole’s continued existence and personal participation.” Farnon v. Cole, 259 Cal. App. 2d 855, 859 (1968).
What Else Could the Boilerplate Mean?
If the “binding upon” and other boilerplate have no effect on a personal services contract’s survival at death, what relevance do those words have? After all, a principle of contract law is that words in a contract should not be interpreted to be meaningless or redundant. Parties can have many reasons for inserting the “binding upon” boilerplate in a contract beyond survival upon death, including to bind an assignee or other lifetime successor to perform the assignor’s obligations, to bind the non-assigning party to perform for the benefit of the assignee or other lifetime successor, and to indicate whether rights or obligations can be assigned, delegated, or transferred during life. Stark, supra, § 4.03, at 84–86.
Courts concluding that “binding upon” and other boilerplate do not trigger survival at death have described ways in which the boilerplate could be relevant. In Smith v. Zuckman, the “binding upon” boilerplate would have allowed the other contracting party to recover from the heirs, executors, and administrators if the decedent had breached the agreement before death and likewise would have allowed the heirs, executors, and administrators to recover for any breach by the other party. Smith v. Zuckman, 282 N.W. 269, 272 (Minn. 1938). In Browne v. Fairhall, the court observed that the contract would have ceased being a personal services contract once certain tasks were completed and, at that point, the “binding upon” boilerplate would have been effective. Browne v. Fairhall, 100 N.E. 556, 558 (Mass. 1913). Also, in Vogel v. Melish, the court said the “binding upon” boilerplate would have applied if the parties had contracted for the sale of the shares during lifetime. Vogel v. Melish, 203 N.E.2d 411, 414 (Ill. 1964).
Despite recent cases indicating the contrary, the decisions holding that boilerplate alone fails to conclusively establish the intent of the parties about contract survival at death may be appropriate for at least two reasons. First, the parties may have included the boilerplate to deal with issues other than survival at death. Second, generally people loathe discussing death, so it seems unlikely that the boilerplate summarizes serious negotiations about death. In any event, although death is certain, the effect of boilerplate on the survival of personal services contracts remains uncertain.
View the original article at https://www.americanbar.org/groups/real_property_trust_estate/publications/probate-property-magazine/2019/january-february/can-boilerplate-raise-contracts-the-dead-the-grave/
Estate Planning With Bitcoin Explained
by Robert D. Kaplow, Esq. | wealthmanagement.com
So your client bought some type of cryptocurrency (bitcoin, Ethereum, Ripple, etc.). He hopes that the value will skyrocket and represent a sizable portion of his estate. If that dream comes to pass, how do you handle those bitcoins for estate planning purposes? (For purposes of this article, all cryptocurrencies will be referred to as bitcoin.)
One of the major selling points for purchasing bitcoins is its anonymity. There is no paper trail, and there are no physical assets to touch. However, this becomes a major problem when your client dies. How does his family access the bitcoins? Do they even know that he owns bitcoins?
Transparency and disclosure are key! Your client needs to inform his advisors and his family that he owns bitcoins so they can act appropriately. More important, he needs to make sure that his bitcoins can be accessed in the event of his disability or death.
Bitcoins are accessed through the use of a “private key”—effectively a password. Bitcoin users store the private keys in “wallets.” Wallets are generally stored online. Once someone has access to the wallet, the bitcoins can be purchased, sold or transferred. Thus, it is important that your client’s personal representative (executor), trustee or trusted family member has access to the private key. Don’t lose track of the private key or the hard drive that contains it. There are numerous stories (probably some of them apocryphal) of people losing millions of dollars by selling their computers only to later remember that the hard drives had their private keys. (This also happened to Leonard in an episode of The Big Bang Theory.)
It is our suggestion that you encourage clients to prepare a detailed letter—to be kept in a safe deposit box or other secure location—indicating any private keys and bitcoin transactions. This letter needs to be updated periodically. The letter should also provide detailed instructions on how to access the bitcoins, including any passwords or codes needed to take custody of the bitcoins.
It is also our suggestion that your client’s bitcoin holdings be transferred to a revocable living trust. This will avoid the necessity for having to go to probate court to transfer the bitcoins on his death.
While we generally refer to bitcoins as “currency,” the Internal Revenue Service held in Notice 2014-21 that bitcoins are property, not currency. The tax implications of this ruling are that you have gain or loss on the sale or transfer of bitcoins and must maintain records to show your tax basis in bitcoins. For example, if your client used $2,000 of bitcoins to purchase a television and the bitcoins cost you $500, you have a gain of $1,500 that needs to be reported on your income tax return.
While bitcoins may be the currency of the future, it is imperative that your clients take the necessary steps today to ensure their families can access the bitcoins on the clients’ death.
View the original article at https://www.wealthmanagement.com/estate-planning/estate-planning-bitcoin-explained
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