“Into the blue again, after the money’s gone
Once in a lifetime, water flowing underground . . .
Same as it ever was, same as it ever was.”
— Talking Heads, “Once in a Lifetime” (1981)

 

Continuing the trend of recent years, 2024 provided interesting trusts and estates (T&E) developments and taught T&E lawyers things not to do or to argue.

Federal Gift and Estate Taxes

IRS Revenue Procedure 2024-40 announced that the federal estate tax base applicable exclusion amount (portable between spouses) and generation-skipping transfer tax exemption (not portable between spouses) is increased from $13,610,000 in 2024 to $13,990,000 in 2025.¹ The exemption is adjusted annually for inflation but scheduled to be cut in half on Jan. 1, 2026. The results of the 2024 federal elections perhaps decrease the likelihood that the halving will happen, but we’ll have to wait and see.

Time of Day Irrelevant for Statute of Limitations

In re Estate of Estes involved the statute of limitations for a will contest:²

[T]he statute of limitations for a will contest in Tennessee is two years. See Tenn. Code Ann. § 32-4-108. Respondent pointed out that the order admitting decedent’s will to probate was entered at 10 a.m. on March 3, 2021, and petitioner’s will contest was filed at 11:45 a.m. on March 3, 2023. According to respondent, the statute of limitations expired at 10:01 a.m. on March 3, 2023, and Petitioner’s will contest was untimely filed.³

The Court of Appeals found that because petitioner’s will contest was filed two years from the date that decedent’s will was admitted to probate, it was timely filed. “The hour and minute of the day did not matter [].”⁴

Copy of Lost Holographic Will Admitted to Probate

Payne v. Estate of Groves involved an attempt to probate a copy of a purported holographic will, raising issues of whether the document was a will and whether a copy could be probated instead of the original.⁵

The proponent alleged that the original will had not been found but that it was believed that the original will was located at the decedent’s residence, to which the proponent had been denied access. The contestant testified that she changed the house locks two weeks after the funeral because other people were entering the property.

The Court of Appeals noted that the writing, if it qualified as a will, must be a holographic will. Tenn. Code Ann. § 32-1-105 provides: “No witness to a holographic will is necessary, but the signature and all its material provisions must be in the handwriting of the testator and the testator’s handwriting must be proved by two (2) witnesses.” The trial court found by clear and convincing evidence that the proponent had established that the document was in the decedent’s handwriting and that the statutory requirements for a holographic will had been met. Two disinterested witnesses testified that the handwriting and signature on the writing were the decedent’s. The trial court further found that testamentary intent was present because the decedent “intended the document to be her will until she could have a more formal will prepared by [her attorney].”⁶ The trial court found that the testator had shown two close friends the subject writing and told those two witnesses that the subject document was her will.

With respect to the lost original, the trial court concluded by “clear, cogent and convincing evidence” that these facts rebutted the presumption that the decedent had destroyed or revoked the will. The Court of Appeals agreed with the trial court that “since decedent did not destroy the copy of the document, this tends to demonstrate she did not intentionally destroy or revoke the original of the same document.” ⁷

It seems unlikely to the court that decedent in the absence of some change in her relationship with her granddaughter or other intestate heirs ... would choose to revoke the holographic will, such that her estranged granddaughter and other intestate heirs would receive any of her property.⁸

The Court of Appeals affirmed the trial court’s determination that there was clear, cogent and convincing proof to rebut the presumption of revocation.

Tennessee Embraces Directed Trusts and Protects Excluded Fiduciaries

Williams v. Hardison, et al. is a must-read for all trust attorneys, as it analyzes the concepts of directed trust, excluded fiduciary, investment advisor and indemnity of the directed trustee.⁹ There is too much in the opinion to be able to summarize it adequately here, but the opinion includes the following takeaways, many of which are simply judicial embrace of statutory directives:

1. The trustee and “qualified beneficiaries” may enter into a nonjuducial settlement agreement (NJSA) pursuant to Tenn. Code Ann. § 35-15-411, so long as the NJSA does not violate a “material purpose” of the trust;
2. Material purposes, contrasted with less important “specific intentions,” “are not readily to be inferred;”¹⁰
3. An NJSA may resolve, among other things, “[l]iability of a trustee for an action relating to the trust” and “approval of an investment decision, delegation, policy, plan or program;”¹¹
4. The Tennessee Uniform Trust Code (the “Act”) “authorizes the appointment of ‘trust advisors,’ who shall be solely responsible for investment decisions, and the exculpation of a trustee, known as an excluded fiduciary, for the acts and omissions of the trust advisor’s financial decisions;”
5. The Act “authorizes delineation of responsibilities among the trust advisor and [] trustees;”
6. In addition to exculpatory language in an indemnity agreement, Tenn. Code Ann. § 35-15-1204 “releases ‘excluded fiduciaries,’ such as Cumberland, from liability for duties and functions assigned to trust advisors of directed trusts”; and
7. Tenn. Code Ann. § 35-15-1204 provides that an excluded fiduciary “is not liable . . . for “[a]ny loss resulting from compliance with a direction of a . . . trust advisor.”

The Court of Appeals noted “the General Assembly’s clear intention broadly to relieve excluded fiduciaries from liability for actions assigned to trust advisors of directed trusts.”¹²

The Court of Appeals held that the plaintiff and qualified beneficiaries “agreed to indemnify Cumberland from any liability regarding the investment advisor’s management and investment of trust assets” and Cumberland “would have no liability concerning such matters.”¹³

Simply Signing Papers Might Not Have Tax Effect

The U.S. Tax Court case Estate of Fields v. Commissioner is less important as precedent and more as an illustration of how (and when) not to plan.¹⁴ Anne Milner Fields built and owned a valuable oil business but had Alzheimer’s for several years before her death. Using a power of attorney, her great-nephew Bryan Milner implemented an “estate plan” about one month before Fields’ death. The agent formed a limited liability company (LLC), of which he was the sole member and manager, and a limited partnership (LP), of which the LLC was the general partner. He used the power of attorney to transfer to the LP approximately $17 million of Fields’ personal assets (constituting most of her wealth) and caused the LLC to contribute $1,000. In exchange for the contributions, Fields received a 99.9941% limited partner interest in the LP and the LLC received a 0.0059% general partner interest in the LP.

After Fields died, Milner obtained an appraisal of Fields’ limited partner interest in the LP. The appraiser valued the interest at about $10.8 million, reflecting the approximately $17 million in contributed assets, less a 15% discount for lack of control and a 25% discount for lack of marketability. Milner, as executor of Fields’ estate, reported this discounted value on the federal estate tax (FET) return.

The IRS audited the return and found the attempted plan ineffective. The Tax Court agreed, holding that Fields effectively retained the right to control and enjoy the assets transferred to the LP; there was no significant business reason for the transfers, which were intended only to reduce estate tax; the entire value of the transferred assets as of Fields’ death was includible in her gross estate for FET purposes; and the estate was liable for a 20% accuracy-related penalty.

The lesson here is that signing documents, without corresponding economic effect and a pattern of conduct consistent with the documents, is often not worth the paper it’s written on. To have any chance of working, the “plan” should have been undertaken several years prior with a subsequent pattern of dealing that reflected what was on paper.

Conclusion

A colleague once saw a University of Tennessee College of Law student with a t-shirt that said on the front, “I want to be a trial lawyer,” and on the back, “Because they don’t make movies about estate planners.” With the interesting family dynamics estate planning attorneys encounter and the rapidly developing law in this field, maybe they should.¹⁵ |||

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EDDY SMITH practices with Kennerly Montgomery in Knoxville. He focuses on planning, administration and litigation related to trusts, estates, businesses and nonprofits. Smith is a fellow of The American College of Trust and Estate Counsel and served as chair of the TBA Estate Planning and Probate Section.

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NOTES
1. Internal Revenue Service. “Part III: Administrative, Procedural and Miscellaneous.” www.irs.gov/pub/irs-drop/rp-24-40.pdf. The annual gift tax exclusion is increased from $18,000 in 2024 to $19,000 in 2025. IRS Notice 2024-80 increased the annual limit on qualified charitable distributions from IRAs from $105,000 in 2024 to $108,000 in 2025. www.irs.gov/pub/irs-drop/n-24-80.pdf.
2. No. M2023-01742-COA-R3-CV (Oct. 4, 2024).
3. Id. at 2.
4. Id. at 4.
5. No. M2023-01205-COA-R3-CV (Sept. 6, 2024).
6. Id. at 4.
7. Id. at 11. The copy was in the decedent's possession.
8.  Id. at 12.
9. No. M2022-01596-COA-R3-CV (Aug. 6, 2024). Although not named in the caption, Cumberland Trust and Investment Company was the corporate trustee defendant in the appeal. Cumberland does not manage investments. www.cumberlandtrust.com/personal-trust-administration.
10. Id. at 11 (quoting Restatement (Third) of Trusts § 65).
11. Id. at 13 (quoting Tenn. Code Ann. § 35-15-111).
12. Id. at 17.
13. Id. at 19.
14. Estate of Fields v. Commissioner, T.C. Memo 2024-90 (September 2024).
15. Among many artistic pieces about estate planning, John Grisham wrote The Testament and Sycamore Row (both novels involving holographic wills and large estates), Samuel P. King and Randall W. Roth wrote Broken Trust (about the Bishop Estate charitable trust, which at one time was Hawaii’s largest private landowner), and George Clooney starred in The Descendants (also about a Hawaiian land trust and the “rule against perpetuities”).