Report of the Estate Planning, Trust and Probate Law Section

Transcription

1 Report of the Estate Planning, Trust and Probate Law Section To the Council of Delegates: The Estate Planning, Trust and Probate Law (EPTPL) Section respectfully requests your favorable consideration of five legislative proposals. Those five legislative proposals, the substance and rationale for each of which is described in further detail below, may be summarized as follows: A. To amend R.C to establish a presumption that a validly-executed living will declaration revokes all previously-executed living will declarations, to parallel the already-existing statutory presumption under R.C (C) regarding revocation of durable powers of attorney for health care by later-executed health care powers. B. To amend R.C to clarify the scope of creditors rights with respect to property subject to powers of withdrawal or distribution in favor of the settlor of a trust. C. To amend R.C and and to amend R.C (E) (now pending as part of S.B. 117), as appropriate, to enhance the usefulness of powers of appointment under Ohio trusts designed to continue for extended periods of time up to one thousand years, and to clarify when an interest in property is created for purposes of measuring the duration of any applicable perpetuities period. D. To amend R.C to expand the concurrent jurisdiction of Ohio probate courts, to enable probate courts to resolve all manner of disputes concerning gratuitous transfers of property, including transfers occurring at death by means other than a will or trust agreement. E. To amend R.C and to facilitate (and ultimately require) the prompt deposit of wills in probate court. Respectfully submitted, Kevin G. Robertson, Cleveland Chair EXHIBIT A: ESTABLISH NEW STATUTORY PRESUMPTION REGARDING REVOCATION OF OHIO LIVING WILL DECLARATIONS TO PARALLEL PRESUMPTION REGARDING REVOCATION OF OHIO DURABLE POWERS OF ATTORNEY FOR HEALTH CARE BY LATER-EXECUTED DOCUMENT Revocation of declaration. (A) A declarant may revoke a declaration at any time and in any manner. The revocation shall be effective when the declarant expresses his intention to revoke the declaration, except that, if the declarant made his attending physician aware of the declaration, the revocation shall be effective upon its communication to the attending physician of the 15

2 declarant by the declarant himself, a witness to the revocation, or other health care personnel to whom the revocation is communicated by such a witness. Absent actual knowledge to the contrary, the attending physician of a declarant and other health care personnel who are informed of the revocation of a declaration by an alleged witness may rely on the information and act in accordance with the revocation. (B) Upon the communication as described in division (A) of this section to the attending physician of a declarant of the fact that his declaration has been revoked, the attending physician or other health care personnel acting under the direction of the attending physician shall make the fact a part of the declarant s medical record. (C) Unless the instrument provides otherwise, a valid living will declaration revokes a prior, valid living will declaration. Summary of Current Ohio Law and Rationale for Proposal R.C (which governs revocation of living will declarations) does not presently establish an explicit presumption that later-signed documents revoke earlier-signed documents. Conversely, R.C (C) does provide such an explicit presumption that a later-signed durable power of attorney for health care revokes earlier-signed documents. It is recommended that Ohio s statutes governing revocation of both living will declarations and durable powers of attorney for health care establish equivalent and parallel presumptions that a later-signed document revokes an earlier-signed Ohio document of the same nature. Accordingly, it is proposed that a new division (C) be added to R.C , so that a statutory presumption is established to the effect that a later-signed living will declaration is presumed to have revoked prior living will declarations, conforming and parallel to R.C (C), which already provides such a presumption with respect to laterexecuted durable powers of attorney for health care. EXHIBIT B: CLARIFYING THE SCOPE OF CREDITORS RIGHTS WITH RESPECT TO POWERS OF WITHDRAWAL OR DISTRIBUTION EXERCISABLE IN FAVOR OF THE SETTLOR OF A TRUST Rights of settlor's creditors - power of withdrawal Creditor s or assignee s claims against settlor. (A) Whether or not the terms of a trust contain a spendthrift provision, all of the following apply: (1) During the lifetime of the settler, the property of a revocable trust is subject to claims of the settlor s creditors. (2) With respect to an irrevocable trust, a creditor or assignee of the settler may reach the maximum amount that can be distributed to or for the settlor s benefit. If a trust has more than one settler, the amount the creditor or assignee of a particular settler may reach may not exceed the settlor s interest in the portion of the trust attributable to that settlor s 16

3 contribution. (3) With respect to a trust described in 42 U.S.C. section 1396p(d)(4)(A) or (C), the court may limit the award of a settlor s creditor under division (A)(1) or (2) of this section to the relief that is appropriate under the circumstances, considering among any other factors determined appropriate by the court, the supplemental needs of the beneficiary. (B) For purposes of this section, all of the following apply: (1) The holder of a power of withdrawal is treated in the same manner as the settler of a revocable trust to the extent of the property subject to the power during the period the power may be exercised. (2) Upon the lapse, release, or waiver of the power of withdrawal, the holder is treated as the settler of the trust only to the extent the value of the property affected by the lapse, release, or waiver exceeds the greatest of the following amounts: (a) The amount specified in section 2041(b)(2) or 2514(e) of the Internal Revenue Code; (b) If the donor of the property subject to the holder s power of withdrawal is not married at the time of the transfer of the property to the trust, the amount specified in section 2503(b) of the Internal Revenue Code; (c) If the donor of the property subject to the holder s power of withdrawal is married at the time of the transfer of the property to the trust, twice the amount specified in section 2503(b) of the Internal Revenue Code. (3) Trust property that could be distributed to the settlor or for the settlor s benefit only as a result of the exercise of a power of appointment held, in a non-fiduciary capacity, by a person other than the settlor shall not be considered an amount that can be distributed to or for the settlor s benefit until the power is exercised in favor of the settlor or for the settlor s benefit. (4) Trust property that, pursuant to the exercise of a discretionary power by a person other than the settlor, could be paid to a taxing authority or to reimburse the settlor for any income tax on trust income or principal paid or to be paid and which is payable by the settlor under the law imposing the tax shall not be considered an amount that can be distributed to or for the settlor s benefit. (5) The power of the trustee to make, or another in a fiduciary capacity to direct, distributions to or for the benefit of the settlor of a trust shall not be considered an amount that can be distributed to or for the settlor s benefit if, and to the extent that, the distributions could be made from trust property the value of which was included in the gross estate of the settlor s spouse for federal estate tax purposes under section 2041 or 2044 of the Internal Revenue Code or which was treated as a transfer by the settlor s spouse under section 2514 or 2519 of the Internal Revenue Code

4 Summary of Current Ohio Law and Rationale for Proposal Ohio s version of the Uniform Trust Code (R.C through ) was enacted effective January 1, Part of Ohio s Trust Code, R.C , describes the scope of creditors rights against trust property to satisfy debts of the settlor of the trust. The first sentence of R.C (A)(2) sets forth the general rule as follows: With respect to an irrevocable trust, a creditor or assignee of the settlor may reach the maximum amount that can be distributed to or for the settlor s benefit. Thus, R.C (A)(2) embodies a longstanding general principle of Ohio trust law: a settlor generally cannot shield from creditors property that such settlor placed in trust for his or her own personal benefit. In general, if a settlor intends to make a gift in trust, the settlor limits his or her rights to gain access to the trust property because retained rights of a settlor can result in estate taxation at the settlor s death. Further, federal estate tax rules generally provide that if a settlor s creditors can reach trust property, then such property is includible in the settlor s estate. Thus, it is important to make it clear, in situations where the settlor intends not to have trust property become subject to federal estate taxation (i.e., in situations where the settlor intends to part with all, or substantially all, economic interests in trust property), that the application of R.C (A)(2) be limited appropriately. Division (B) of R.C already contains several rules of construction that apply in limited circumstances. The EPTPL Section Council believes that three additional rules of construction should be added to (B) to clarify the intended scope of creditors rights to trust property with respect to three discrete situations. First, in a non-trust context, it always is possible for an outright donee of property to, at some future point, give that property (or other property) back to the original donor. However, the donee has no legal obligation to make such a gift back. Further, no one would argue (until and unless the donee actually gave property back to the donor) that the donor s creditors would have the power to reach the gifted property (in the absence of any fraud on creditors in connection with the gift itself). Similarly, for example, if a settlor of a trust grants to a beneficiary a power to appoint trust property to anyone in the world, except for the beneficiary, the beneficiary s creditors, the beneficiary s estate or the creditors of the beneficiary s estate, the beneficiary could use that power to appoint some or all of the trust property back to the settlor. However, until and unless such a power is, in fact, so exercised, the settlor would have no legal right to such trust property, so the settlor s creditors should have no ability to reach such trust property. A new paragraph (3) to R.C (B) is proposed to confirm such result. Second, under IRC 671 et seq. (the so-called grantor trust rules), a settlor may be liable for federal income taxes with respect to the income on trust property, even though the settlor has parted with all economic interests in such property. Such a trust arrangement (where the settlor has retained income tax liability but no economic benefits) is sometimes referred to as a defective grantor trust arrangement. Such 18

5 defective grantor trust arrangements are designed such that the trust property is intended not to be included in the settlor s estate for estate tax purposes. In Revenue Ruling , the Internal Revenue Service has ruled that the discretion of a trustee to reimburse the grantor for income tax liabilities associated with grantor trust property will not result in estate inclusion so long as, under the terms of the trust and local law, (i) the power to reimburse the settlor for such tax liabilities is discretionary (as opposed to mandatory); and (ii) the power to reimburse the settlor for such tax liabilities would not cause the trust property to be subject to the claims of settlor s creditors. To assure that an income tax reimbursement provision (discretionary with the trustee) will not result in the unintended estate inclusion of all trust property in the settlor s estate, it is proposed that a new paragraph (4) be added to R.C (B) to confirm that settlor s creditors cannot reach trust property merely because of such a discretionary income-taxreimbursement provision. Third, a married settlor may establish so-called lifetime qualified terminal interest property (QTIP) trust for the benefit of the settlor s spouse. Historically, a primary intention for establishing such a QTIP Trust (which provides for lifetime income benefits to the donee spouse) was to cause the value of the QTIP Trust property to be includible in the donee spouse s estate for federal estate tax purposes, thereby facilitating use of the donee spouse s federal estate tax unified credit or exemption equivalent. That taxplanning objective (having the QTIP trust property included in the donee spouse s estate) would be frustrated if R.C could be interpreted to allow settlor s creditors to reach QTIP trust property, because then the QTIP trust might be includible in settlor s gross estate for federal estate tax purposes. To assure that no unintentional reinclusion of QTIP trust property occurs in the settlor s estate due to the effect of R.C , it is proposed that a new paragraph (5) be added to R.C (B) to confirm that settlor s creditors cannot reach such QTIP trust property. EXHIBIT C: TO PERMIT INTERESTS ESTABLISHED BY NON-GENERAL POWERS OF APPOINTMENT TO VEST AT A TIME NO LATER THAN ONE THOUSAND YEARS AFTER THE CREATION OF THE ORIGINAL PROPERTY INTEREST, AND TO MAKE CONFORMING CHANGES, AS APPROPRIATE, IN R.C (E) Proposed Amendments of R.C , and (E) Rule against perpetuities. (A) Subject to sections , , and of the Revised Code, no interest in real or personal property shall be good unless it must vest, if at all, not later than twenty-one years after a life or lives in being at the creation of the interest. All estates given in tail, by deed or will, in lands or tenements lying within this state shall be and remain an absolute estate in fee simple to the issue of the first donee in tail. It is the intention by the adoption of this section to make effective in this state what is generally known as the common law rule against perpetuities, except as set forth in divisions (B) and (C) of this section. 19

6 (B) For the purposes of this section and subject to sections , , and of the Revised Code, the time of the creation of an interest in real or personal property subject to a power reserved by the grantor to revoke or terminate the interest shall be the time at which the reserved power expires by reason of the death of the grantor, by release of the power, or otherwise. (C) Any interest in real or personal property that would violate the rule against perpetuities, under division (A) of this section, shall be reformed, within the limits of the rule, to approximate most closely the intention of the creator of the interest. In determining whether an interest would violate the rule and in reforming an interest, the period of perpetuities shall be measured by actual rather than possible events. (D) For the purposes of this section and subject to sections , , and of the Revised Code, the time of the creation of an interest in real or personal property resulting from the exercise of a general power of appointment exercisable, in a non-fiduciary capacity, by deed, whether or not also exercisable by will, shall be the time at which that power of appointment is irrevocably exercised; and the time of the creation of an interest in real or personal property resulting from the termination, without exercise, of a general power of appointment exercisable, in a non-fiduciary capacity, by deed, whether or not also exercisable by will, shall be the time at which that power of appointment terminates by reason of the death of the power holder, by release of the power, or otherwise. (E) (D) Divisions (B) and (C) of this section shall be effective with respect to interests in real or personal property created by wills of decedents dying after December 31, 1967, with respect to interests in real or personal property created by inter vivos instruments executed after December 31, 1967, and with respect to interests in real or personal property created by inter vivos instruments executed on or before December 31, 1967, that by reason of division (B) of this section will be treated as interests created after December 31, Divisions (B) and (C) of this section shall be effective with respect to interests in real or personal property created by the exercise of a power of appointment if divisions (B) and (C) of this section apply to the instrument that exercises the power, whether or not divisions (B) and (C) of this section apply to the instrument that creates the power. Division (D) of this section is intended to be a statement of the common law of this state and shall be effective with respect to interests in real or personal property whenever created Exemption of certain trusts. (A) A trust of real or personal property created by an employer as part of a stock bonus plan, pension plan, disability or death benefit plan, or profit-sharing plan, for the benefit of some or all of the employees, to which contributions are made by the employer or employees, or both, for the purpose of distributing to the employees or their beneficiaries the earnings or the principal, or both earnings and principal, of the fund so held in trust is not invalid as violating the rule against perpetuities, any other existing law against perpetuities, or any law restricting or limiting the duration of trusts; but the trust may 20

7 continue for the time that is necessary to accomplish the purposes for which it was created. The income arising from any trust within the classifications mentioned in this division may be accumulated in accordance with the terms of the trust for as long a time as is necessary to accomplish the purposes for which the trust was created, notwithstanding any law limiting the period during which trust income may be accumulated. No rule of law against perpetuities or the suspension of the power of alienation of the title to property invalidates any trust within the classifications mentioned in this division unless the trust is terminated by decree of a court in a suit instituted within two years after June 25, (B)(1) No rule of law against perpetuities or suspension of the power of alienation of the title to property, any other existing law against perpetuities, or any law restricting or limiting the duration of trusts shall apply with respect to any interest in real or personal property held in trust if (a) the instrument creating the trust specifically states that the rule against perpetuities or the provisions of division (BA) of section of the Revised Code shall not apply to the trust and if either(b) the trustee of the trust has unlimited power to sell all trust assets, or if one or more persons, one of whom may be have unlimited power to direct the trustee, has the unlimited power or to approve the trustee s decision, either (i) to sell all trust assets or (ii) to terminate the entire trust. (2) Division (B)(1) of this section shall apply to the interpretation of a testamentary or inter vivos trust instrument that creates an interest in real or personal property in relation to which one or more of the following conditions applies: (a) The instrument creating the testamentary or inter vivos trust is executed in this state. (b) The sole trustee or one of the trustees is domiciled in this state. (c) The testamentary or inter vivos trust is administered in this state or the situs of a substantial portion of the assets subject to the testamentary portion of the testamentary or inter vivos trust is in this state, even though some part or all of those assets are physically deposited for safekeeping in a state other than this state. (d) The instrument creating the testamentary or inter vivos trust states that the law of this state is to apply. (3) Division (B) Subject to the provisions of division (C) of this section, this division (B) shall be effective with respect to all of the following: (a) An interest in real or personal property in trust created by wills of decedents under the terms of a will of a decedent dying on or after the effective date of this amendment March 22, 1999; 21

8 (b) An interest in real or personal property created by under the terms of an inter vivos or testamentary trust instrument executed on or after the effective date of this amendment March 22, 1999; (c) An interest in real or personal property in trust created by the exercise of a general power of appointment on or after the effective date of this amendment. March 22, 1999; and (4) Division (B) of this section shall not apply to the exercise of a power of appointment other than a general power of appointment. (d) An interest in real or personal property in trust created by the exercise of a nongeneral power of appointment over any portion of a trust that meets the requirements of division (B) of this section, but only if the date of creation of that non-general power of appointment was on or after the effective date of this division (B)(3)(d). (C) The exercise of a non-general power of appointment granted over any portion of a trust to which the rule against perpetuities does not apply because the terms of the trust meet the requirements of division (B) of this section shall nevertheless be subject to the provisions of section of the Revised Code, except that interests created pursuant to the exercise of that power shall be required to vest not later than 1,000 years after the date of creation of that power. (D)(C) For purposes of this section, " and section of the Revised Code, the following definitions apply: (1) The term general power of appointment means a power that is exercisable in favor of the individual possessing the power, the person's individual s estate, the person's individual s creditors, or the creditors of the person's individual s estate., other than (a) a power that is limited by an ascertainable standard, as that term is defined in Revised Code section (B) or (b) a power of withdrawal held by an individual, but only to the extent it does not exceed the amount specified in section 2041(b)(2) or section 2514(c) of the Internal Revenue Code. (2) The term non-general power of appointment means any power of appointment that is not a general power of appointment. (3) The term exercisable by deed in reference to a power of appointment means a power that can be exercised during the power holder s lifetime by an instrument that takes effect immediately. (4) The date of creation of a non-general power of appointment created by the exercise of one or more powers of appointment, except by the exercise of a general power of appointment exercisable by deed, shall be the date of creation of the first of such powers of appointment to be exercised. (E) For the purposes of this section, the instrument creating a trust subject to a power reserved by the grantor to amend, revoke or terminate the trust shall include the original 22

9 instrument establishing the trust and all amendments to the instrument made prior to the time at which the reserved power expires by reason of the death of the grantor, by release of the power, or otherwise. (F) The amendments to division (B)(1) of this section, the amendments to and renumbering of former division (C) as division (D)(1), the addition of new divisions (D)(2) through (D)(4) and the provisions of division (E) of this section are intended to clarify the provisions of division (B) of this section as originally enacted and shall be effective as of March 22, The amendments to this section adding a new division (B)(3)(d), deleting division (B)(4) as originally enacted and adding a new division (C), shall be effective on and after the date of their enactment Distributions in further trust. (E) The power to distribute trust income or principal to the trustee of a second trust under division (A) or (B) of this section shall not be exercised in a manner contrary to any provision of section of the Revised Code, to the extent applicable to the first trust, and after applying the provisions of division (B) of section of the Revised Code to the extent applicable to the first trust. Solely for purposes of applying under this division (E) the provisions of section and division (B) of section of the Revised Code, the exercise of the power to distribute trust income or principal to the trustee of a second trust under division (A) or (B) of this section is considered the exercise of a power of appointment other than a non-general power of appointment within the meaning of, as defined in division (B)(4D) of section of the Revised Code. Summary of Current Ohio Law and Rationale for Proposal The EPTPL Section Council has recommended certain technical and substantive changes to Ohio s rule against perpetuities (RAP) codified in R.C and in R.C As amended in 1999, Ohio s RAP provisions permit a trust settlor to opt-out of the RAP under certain circumstances. At least one drafting error, a technical ambiguity and a couple of provisions deemed overly restrictive have been identified by the Council. These issues are: 1. An erroneous cross-reference in R.C (B)(1) to (B) as the statutory statement of the RAP, instead of to (A). 2. A statutory ambiguity regarding the effectiveness of language opting out of the RAP if it is contained in an amendment or restatement, made after March 22, 1999 (the effective date of (B) and related provisions of that section), of a trust instrument established prior to March 22, The limitation that the trustee of the trust have the unlimited power to sell all trust assets, one of the two alternative prerequisites for a trust to be eligible for the opt-out, is overly restrictive. 23

10 The provision in (B)(4) that the opt-out of the RAP shall not apply to the exercise of a non-general power of appointment is overly restrictive. In the process of preparing amendments to address these issues, particularly item 4 above, the EPTPL Section Council determined that a codification of certain principles of common law relating to the RAP was desirable to clarify the statutes as amended. In addition, the amendments to R.C and , if enacted, will require corrections to cross-references to those sections that are included in new R.C , expected to be enacted as a part of S.B. 117 now pending in the 129 th Ohio General Assembly. The issue described in item 1 above is self-explanatory. The issue described in item 2 above is straightforward. Some trust and estate lawyers were concerned that the current statutory language that requires the instrument creating the trust to include specific language to opt out of the RAP may mean that it is necessary to revoke trust agreements created before the effective date and establish an entirely new trust on or after the effective date. This was not the intended result, so the proposed change will clarify that the instrument creating the trust includes all amendments to the instrument by the settlor. The issue described in item 3 above arises because it is common practice to grant a power to direct certain actions of the trustee, including without limitation the sale of some or all of the trust property, to one or more other persons who are not a trustee but whom nevertheless are acting in a fiduciary capacity. A person granted such powers is sometimes referred to as a trust advisor, trust protector, or business advisor. The apparent purpose of this requirement or, in the alternative, the requirement that someone has the power to terminate the trust, is to insure the free alienability of property. A requirement that the trustee alone have the unlimited power to sell all trust assets serves no purpose as long as someone or some combination of persons has the power to direct the trustee to sell all of the trust assets. Moreover, R.C (B) currently provides in the alternative that one or more persons has the power to terminate the trust, and it is not clear why in one case the statute requires the trustee to hold the power and in the other case there is no requirement that the trustee hold the power. The most significant proposed change to R.C and , described in item 4 above, relates to the current limitation in (B)(4) that negates the opt out of the RAP as to any interests created by the exercise of a non-general power of appointment. This provision severely limits the utility of the ability to opt out of the RAP and create a trust designed to last for multiple generations because it is important to make the provisions of those trusts flexible to be able to respond to circumstances that arise generations after the settlor of the trust is deceased. Powers of appointment are a critical way of incorporating flexibility into a trust by granting the settlor s descendants the power to change the terms of the trust for the benefit of their respective children and descendants, while preserving the ability to maintain the tax benefits of a multigeneration trust and the protection offered by a multi-generation trust against, for example, creditors of a spendthrift beneficiary or dissipation of the assets by a beneficiary with substance abuse issues. The limitation was included in current section R.C , most likely, due to a concern that placing no limitation on the exercises of non- 24

11 general powers of appointments would result in an unintentional triggering of provisions of the Internal Revenue Code (sections 2041(a)(3) and 2514(d), commonly referred to as the Delaware tax trap ) that include in the gross estate, or treat as a gift, property that passes by reason of the exercise of a non-general power of appointment in further trust in a manner that postpones the vesting of interests for a period that is ascertainable without regard to the date of creation of the original non-general power of appointment. It was unnecessary to completely exclude non-general powers of appointment from the opt out of the RAP in order to prevent inadvertent triggering of these estate and gift tax provisions. The solution, adopted by several states that have eliminated the RAP, is to create a term certain, that is measured from the date of creation of the original nongeneral power of appointment, within which all interests created by the exercise of a nongeneral power of appointment must vest. The proposed revision to R.C would adopt a term of one thousand years, the term currently employed in Alaska s statutes that abolish the RAP. It should be noted that an Ohio trust that includes a provision opting out of the RAP can continue essentially forever under its original terms but, under current law, the exercise of any non-general power of appointment must provide for any interests created by that exercise to vest within lives in being plus twenty-one years from the date of creation of the non-general power of appointment. All other proposed changes to R.C and are to codify existing principles of common law or to clarify terms used in the two sections. In addition, a modification to (E) (not yet in effect but soon expected to be) would be required to correct cross references to and , as revised. EXHIBIT D: TO EXPAND THE CONCURRENT JURISDICTION OF THE PROBATE COURT TO ALLOW CONTROVERSIES CONCERNING VARIOUS METHODS OF TRANSMITTING PROPERTY INTERESTS AT DEATH OR BY GIFT TO BE HEARD IN A SINGLE PROCEEDING Jurisdiction of probate court. *** (B) (1) The probate court has concurrent jurisdiction with, and the same powers at law and in equity as, the general division of the court of common pleas to issue writs and orders, and to hear and determine actions as follows: (a) If jurisdiction relative to a particular subject matter is stated to be concurrent in a section of the Revised Code or has been construed by judicial decision to be concurrent, any action that involves that subject matter; (b) Any action that involves an inter vivos trust; a trust created pursuant to section of the Revised Code; a charitable trust or foundation; subject to divisions (A)(1)(u) and (z) of this section, a power of attorney, including, but not limited to, a durable power of attorney; the medical treatment of a competent adult; or a writ of habeas corpus.; (c) Any action that involves: (1) a designation or removal of a beneficiary of a life 25

12 insurance policy, annuity contract, retirement plan, brokerage account, security, bank account, real property, or tangible personal property; (2) a designation or removal of a payable on death or transfer on death beneficiary; (3) a change in the title to any asset involving a joint and survivorship interest; (4) an alleged gift; or (5) the passing of assets otherwise than by will, intestate succession, or trust upon the death of an individual. *** Summary of Current Ohio Law and Rationale for Proposal Historically, most assets were transferred at death by will, and disputes concerning the terms or validity of a will were adjudicated in proceedings before a probate court. In recent years, the desire to avoid probate has lead to the increasing use of so-called will substitutes to transfer wealth at death. The most common disputes concerning will substitutes involve the designation (or removal) of a beneficiary of annuity contracts, insurance contracts, retirement plans, brokerage accounts, bank accounts, etc. Many of these disputes involve payable on death, transfer on death or joint and survivorship designations. When a dispute arises over these will substitutes, as is often the case in will contest proceedings, the usual claim is that the change resulted from undue influence, incompetency, fraud or duress. The EPTPL Section Council believes that probate courts are uniquely qualified to adjudicate claims involving undue influence, incompetency, fraud and duress in connection with all manner of gratuitous transfers of property. These will substitutes occur regularly where there is a probate dispute. For example, the person exercising undue influence does not stop by becoming the trust or will beneficiary, but also becomes the beneficiary of insurance policies, annuities, bank accounts, security accounts, etc. The probate courts always have had jurisdiction over the transfer of wealth by will, and current law also confers concurrent jurisdiction on the probate courts to adjudicate trust disputes. Under current law, the probate court may have jurisdiction over some, but not all, transfer at death transactions; as a consequence, part of a dispute may be heard in the probate court while the other issues must be heard in the general division, thus requiring two trials instead of one, even though both trials involve the same parties, the same witnesses, the same exhibits and the same theme e.g. undue influence. Two trials result in an enormous waste of time and money, and even may produce inconsistent results, none of which is desirable. In addition to expanding the concurrent jurisdiction of the probate courts to allow disputes over the full range of will substitutes to be heard, the Council recommends that probate courts have concurrent jurisdiction over disputed gifts. Claimed gifts often occur in conjunction with the other will substitute transactions described above. For example, the same person who becomes a beneficiary of a payable on death bank account also may obtain money or property from the account owner during lifetime and 26

13 claim it was a gift. The probate courts are courts of limited jurisdiction, having only those powers conferred by statute or the constitution. Thus, if probate courts have concurrent jurisdiction over disputes regarding gifts and the full range of will substitutes, such jurisdiction must be conferred explicitly. Because this proposal only involves jurisdiction, and because that jurisdiction is concurrent with the general division, we do not believe the proposed addition would have any adverse impact on other practice areas. EXHIBIT E: TO AMEND OHIO LAW TO FACILITATE (AND ULTIMATELY REQUIRE) THE PROMPT DEPOSIT OF WILLS IN PROBATE COURT Proposed Amendments of R.C and Deposit of will. A will may be deposited by the maker, or by some person for the maker, in the office of the judge of the probate court in the county in which the testator lives, before or after the death of the testator, and if after the death of the testator, with or without applying for its probate. Such will shall be safely kept until delivered or disposed of as provided by section of the Revised Code. The judge, on being paid the fee of one dollar, shall receive, keep, and give a certificate of deposit for such will. Every will which is to be deposited shall be enclosed in a sealed wrapper, which shall be indorsed with the name of the testator. The judge shall indorse thereon the date of delivery and the person by whom such will was delivered. The wrapper may be indorsed with the name of a person to whom it is to be delivered after the death of the testator. Such will shall not be opened or read until delivered to a person entitled to receive it, until the maker petitions the probate court for a declaratory judgment of the validity of the will pursuant to section of the Revised Code, or until otherwise disposed of as provided in section of the Revised Code. Such will shall not be available for public view, except for good cause shown Effect of withholding will; will previously declared valid in another county; knowledge of beneficiary. (A) No property or right, testate or intestate, shall pass to a beneficiary named in a will who knows of the existence of the will for three years one year after the death of the testator and has the power to control it, and, without reasonable cause, intentionally conceals or withholds it or neglects or refuses within the three years that one year to cause it to be offered for or admitted to probate. The estate property devised or bequeathed to such devisee that beneficiary shall descend to the heirs of the testator, not including any heir who has concealed or withheld the will pass as if such beneficiary had predeceased the testator. (B) No property or right, testate or intestate, passes to a beneficiary named in a will when the will was declared valid and filed with a probate court judge pursuant to Section of the Revised Code, the declaration and filing took place in a county different 27

14 from the county in which the will of the testator would be probated under Section of the Revised Code, and the named beneficiary knew of the declaration and filing and of the death of the testator and did not notify the probate judge with whom the will was filed. This division does not preclude a named beneficiary from acquiring property or rights from the estate of the testator for failing to notify a probate judge if it is his reasonable belief that the judge has previously been notified of the testator s death. Summary of Current Ohio Law and Rationale for Proposal Revised Code Section currently provides for the deposit of a will in the office of the judge of the probate court in the county where the testator lives. To encourage such deposits for safekeeping, either before or after a testator s death, it is proposed that language be added to explicitly to allow for such deposits of wills before or after death. Further, recognizing that not all filings are for the purpose of probating the will, additional new language would specify that the mere deposit of a will does not require an application to probate the will. Many testators now use a revocable living trust agreement, for privacy and for avoidance of probate purposes, and in some instances surviving family members are not immediately aware of any probate assets. Encouraging the deposit of a decedent s will with the probate court without the necessity of probating the will (e.g., where there seem to be no assets requiring probate administration) would help to minimize problems if stray probate property is later discovered. If decedent s will is filed on deposit for safekeeping, an application to probate the will (or release the estate from administration) readily could be filed if probate assets later were discovered. Such deposits of wills would avoid problems that otherwise sometimes occur if the surviving family members discard decedent s will because they erroneously believe that all of decedent s assets are passing outside of the probate estate. To assure that a will filed for deposit only generally would not be a public record, an especially important consideration for wills filed for deposit prior to the testator s death, since a testator might well sign later wills (revoking a prior will on deposit ). Accordingly, new language is proposed at the end of the second paragraph of R.C to ensure the privacy of wills filed on deposit only with a probate court until and unless a will is filed for probate, at which time it becomes public record. Revised Code Section now provides sanctions (in the form of disinheritance) if a beneficiary under a will intentionally conceals its existence and fails to file the will for probate within three years after testator s death. The EPTPL Section Council believes that more prompt delivery of a decedent s will should be required, so it is proposed to reduce the time period for offering the will for probate from three years down to one year. It also is proposed that some redundant language in the statute may be deleted in the process. 28