Welcome to CPA at Law, helping individuals and small businesses plan for the future and keep what they have.

This is the personal blog of Sterling Olander, a Certified Public Accountant and Utah-licensed attorney. For over nine years, I have assisted clients with estate planning and administration, tax mitigation, tax controversies, small business planning, asset protection, and nonprofit law.

I write about any legal, tax, or technological information that I find interesting or useful in serving my clients. All ideas expressed herein are my own and don't constitute legal or tax advice.

Allocating a Decedent's Joint Debts Secured by Jointly-Owned Property

One of the tasks that needs to be completed in the process of administering a decedent's estate is to determine what debts the decedent owed and arrange for payment of those debts. Sometimes, decedents may be joint obligors on a debt with another person, in which case the estate may be liable for a portion of the debt.

Under common law, even if the decedent was jointly obligated on a debt that was secured by property owned in joint tenancy, the estate still had an obligation to pay a share of the debt even though the underlying property passed in its entirety to the surviving joint tenant. The majority rule permits contribution by the estate to the surviving joint tenant, while the minority rule does not; however, the trend does seem to be towards the minority rule. In 1998, the Supreme Court of Rhode Island in Mellor v. O'Connor, 712 A.2d 375 (R.I., 1998), settled the issue in that state by rejecting the majority rule, holding that the surviving joint tenant was not entitled to contribution from the estate of the decedent for payment of a jointly executed promissory note secured by a mortgage on the property. For a critique of this decision, see this analysis by Patrick A. Randolph, Jr., then a professor at UMKC School of Law.

Section 2-607 of the Uniform Probate Code provides that a "specific devise [under a will] passes subject to any mortgage interest existing at the date of death, without right of exoneration, regardless of a general directive in the will to pay debts." In other words, if a decedent's will leaves a property to a beneficiary, and the property is subject to a debt, the beneficiary is not entitled to contribution from the estate for payment of the debt.

In 2012, the Supreme Court of Montana in In re Estate of Afrank, 291 P.3d 576 (Mont. 2012), held that a debt encumbering property held in joint tenancy is not exonerated upon the death of one of the joint tenants, meaning that the surviving joint tenant is not entitled to contribution from the estate for a share of the encumbrance. While the property did not pass via will, the Court looked to Montana's Uniform Probate Code and applied the policy of nonexoneration to the case at hand.

This issue has not been decided in Utah, where presumably the majority rule under common law would prevail:
In a majority of jurisdictions the courts have taken the view, at least in the absence of evidence of other intention or special circumstances, that a surviving spouse is entitled to equitable contribution out of the estate of a deceased spouse, in reimbursement of the payment by the survivor of more than his equitable share of their joint obligation, even though the debt is secured by real property which was held by them as tenants by the entirety, and which, therefore, is wholly acquired by the surviving spouse as surviving tenant, leaving the estate of the deceased spouse with no interest therein. 76 A.L.R.2d 1004

Presumption of Beneficiary Designation Revocation by Divorce

When a couple gets divorced, the division of each and every asset they own must be specified in the divorce decree. Equally as important, the former spouses must update their estate plans after their divorce is finalized, including all beneficiary designations, consistent with the divorce decree. Frequently, however, this does not happen, and the family of a divorced individual who has passed away often finds a former spouse designated as beneficiary on a retirement account or life insurance policy.

In Utah, "[e]xcept as provided by the express terms of a governing instrument, a court order, or a contract [such as a prenuptial agreement], the divorce... revokes any revocable... disposition or appointment of property made by a divorced individual to the individual's former spouse in a governing instrument..." A "governing instrument" in this context includes a beneficiary designation, meaning that if an individual names their spouse as a beneficiary of a retirement account or life insurance policy, then gets divorced without updating the designation, and then passes away, the beneficiary designation is deemed to have been revoked by the divorce, barring a contrary provision in a contract or court order.

The Utah Supreme Court has interpreted this section as creating "a rebuttable presumption that a beneficiary designation... is revoked upon divorce. The presumption can be rebutted by express terms in the life insurance policy; a court order, including a decree of divorce; or a 'contract relating to the division of the marital estate made between the divorced individuals.'" Hertzske v. Snyder, 390 P.3d 307, 311 (2017).

A third-party payor, such as a life insurance company, "is liable for a payment made or other action taken after the payor... received written notice of a claimed forfeiture or revocation..." Such notice must be "mailed to the payor's or other third party's main office or home by registered or certified mail, return receipt requested, or served upon the payor." While these provisions may be overruled by federal law or a benefits plan, they are designed to ensure that a divorced spouse's probable intent in removing their ex-spouse from a beneficiary designation after a divorce is enforced even if the beneficiary designation was not actually changed. 

Establishing an Unregistered Birth or Death

In Utah, an individual, an immediate family member, or a legal representative "may petition for a court order establishing the fact, time, and place of a birth or death that is not registered or for which a certified copy of the registered birth or death certificate is not obtainable." Utah Code 26-2-15(1). Such a proceeding must be brought where the birth or death occurred, where the individual currently resides, or where the individual resided upon death.

The petition must provide information regarding the date, time, and place of the birth or death and state that the vital record is unregistered or unobtainable. If all of the requirements of the statute are satisfied, the court will issue an order establishing the facts of a birth or death after a hearing.

Often, this statute is used by parents who adopt a child from a foreign country "not recognized by department rule as having an established vital records registration system." Obtaining a court order establishing the facts as to the child's birth is a prerequisite to the Department of Health issuing a birth certificate for the adopted child.

However, another situation where this statute can be very useful is for individuals trying to obtain dual citizenship in another country based on their ancestry. Proving ancestry based on official government documentation typically requires producing birth and/or death certificates. However, in Utah, a birth certificate can only be issued to a living person, and in the 1800s, it was not uncommon for births or deaths to occur without an accompanying vital record. In these cases, a court order pursuant to Utah Code 26-2-15(1) can satify the evidenciary requirement for ancestry even without an actual birth or death certificate.

Utah Recognizes the Tort of Intentional Interference with Inheritance

On July 1, 2021, the Utah Supreme Court held that the tort of intentional interference with inheritance is a valid cause of action in Utah. See generally, Matter of Est. of Osguthorpe, 2021 UT 23, 491 P.3d 894. The case involved a dispute between the children of Dr. D.A. Osguthorpe and David R. Rudd and the law firm of Ballard Spahr, LLP, with the children arguing that Rudd had "improperly influenced Dr. Osguthorpe to amend his will and trust in a manner that shifted a portion of the Children's expected inheritance" to Dr. Osguthorpe's second wife and his alma mater. The Supreme Court agreed with the children that the district court erred by declining to recognize intentional interference with inheritance as a tort and by dismissing their claim "on the alternative ground that, even if the tort were a valid cause of action in Utah, the probate proceeding would resolve all of their complaints."

While the Uniform Probate Code is intended to address and provide remedies for many kinds of trust and estate disputes, the Court concluded that "there are claims that seek to remedy other types of harms and thus are not displaced" by the Probate Code. For example, the Probate Code may not have an adequate remedy for a claim that "'the decedent intended to create a different will' which would have added a gift to the plaintiff, yet the decedent 'was prevented from doing so by the defendant.'" Similarly, in a claim that a "'defendant's tortious conduct had caused the testator to make an inter vivos conveyance... of assets that would otherwise have been part of the estate, setting aside the will" under the Uniform Probate Code would not provide an adquate remedy.

The elements for a claim of intentional interference with an inheritance in Utah come from the Third Restatement of Torts and are as follows:

   (a) the plaintiff had a reasonable expectation of receiving an inheritance or gift;
   (b) the defendant committed an intentional and independent legal wrong;
   (c) the defendant's purpose was to interfere with the plaintiff's expectancy;
   (d) the defendant's conduct caused the expectancy to fail; and
   (e) the plaintiff suffered economic loss as a result.

However, the claim of intentional interference with inheritance cannot be brought under any circumstance. Specifically, it "'is not available to a plaintiff who had the right to seek a remedy for the same claim' under Utah's Probate Code." For example, traditional claims of fraud, duress, or undue influence would need to be brought within the framework of the Probate Code. Nevertheless, Utah's recognition of the tort of intentional interference with inheritance will help fill in some gaps where a wrongdoing may otherwise elude a straight-forward remedy.

What is an Advancement?

In the estate planning and administration context, an advancement is a gift made to an heir prior to death that is treated as an advance on the heir's ultimate share of the estate. For example, if dad made a $50 advancement to son during his lifetime, died intestate with $100 to his name, and had three children and no spouse, the two children that had not received lifetime gifts would split the $100 equally. The $50 is treated as an advance on the son's ultimate inheritance; otherwise, the remaining $100 would be split three ways, with the son receiving in total a disproportionate share.

Under the Uniform Probate Code, a gift made prior to death is only treated as an advancement if accompanied by contemporaneous written documentation that the gift is to be treated as such. While the concept of an advancement can only technically apply where a decedent dies intestate and left documentation of intent to treat a gift as an advancement, my will and trust form language includes a provision confirming that any prior gifts are not advancements. It is important for clients to consider the impact that providing additional support and resources to one heir during life can have on all heirs upon death.

The comments to the Uniform Probate Code provide a good example of how advancements work, which I simplify here: G died intestate, survived by his three children, A, B, and C. G’s probate estate is valued at $60, but during his lifetime, G had advanced A $50 and B $10 and memorialized in writing that such gifts be advancements. Upon G's death, the first step in calculating the children's respective shares in G's estate is to add back the advancements, resulting in a theoretical "hotchpot" estate of $120 (60 + 50 + 10), of which the three children would be entitled to equal shares.

Because A has received an advancement greater than the share to which he is entitled, A can retain the $50 advancement but is not entitled to any additional amount. This leaves $70 (60 + 10) remaining in the hotchpot estate, of which B and C are each entitled to half. B receives $25 (having already received $10) and C receives the remaining $35. Had A and B's gifts not been treated as advancements, A would have received $70, B would have received $30, and C would have received $20 from G's estate (aggregating pre-death gifts with an equal share of the remaining estate). This example illustrates why it is important to consult with an estate planning attorney prior to making substantial, disproportionate gifts to heirs.

Review of Estate Planning Documents

Reducing Estate Taxes with Annual Exclusion Gifting

Subject to new legislation passed under the Biden administration, United States taxpayers pay an estate tax on death to the extent that the value of their estate exceeds $11,700,000 in 2021; the estate tax is a tax on the right to transfer property upon death. It cannot be avoided by making lifetime gifts to heirs because most such gifts reduce this estate tax lifetime exclusion amount. If the lifetime exclusion amount is exhausted, a gift tax applies in lieu of the estate tax.

In general, any gift is taxable, meaning that the gift will either reduce the lifetime exclusion or require the payment of a gift tax by the donor if the donor's lifetime exclusion has been exhausted. However, there are a number of important exceptions to the rule that any gift is taxable. One such exception is the annual exclusion.

"If a taxpayer makes a gift to another person, the gift tax usually does not apply until the value of the gift exceeds the annual exclusion amount for the year." The annual exclusion is indexed for inflation and is $15,000 in 2021. Under current law, every taxpayer can gift up to $15,000 per year to an unlimited number of donees. Married couples can each make an annual exclusion gift from their own property, essentially doubling the annual exclusion amount. To qualify for the annual exclusion, the gift must be of a "present interest" in property, meaning a gift that the donee can access and use immediately.

An annual exclusion gifting plan can remove significant wealth from a taxpayer's estate over time, thus reducing future gift and estate taxes. For example, a couple with three children and nine grandchildren can potentially gift $360,000 ($15,000 x 2 spouses x 12 heirs) to their family every year without even the need to file a gift tax return. However, there is no requirement that the donee be a family member, meaning that the class of potential donees is only limited by the pool of beneficiaries who the donor wishes to benefit. Annual exclusion gifting should be coordinated with other gifting and tax-mitigation planning but is an important estate and gift tax mitigation tool.