Title: Taliaferro v. Taliaferro

State: kansas

Issuer: Kansas Supreme Court

Document:

252 Kan. 192 (1992)
843 P.2d 240
BETTY TALIAFERRO, Appellant/Cross-Appellee,
v.
ADORIA M. TALIAFERRO, individually and as trustee of the Declaration of Trust for the Taliaferro & Browne Trust U.T.A. March 29, 1990, Appellee/Cross-Appellant, and MICHAEL SCOTT TALIAFERRO, TALIAFERRO & BROWNE, INC., ALYCE TALIAFERRO RAWLINS, LINDA M. BUCKNER, ARTHUR P. TALIAFERRO, ANTONIO R. TALIAFERRO, JOSLYN TALIAFERRO BAZIN, SHERRI LYNN (TALIAFERRO) ALEXANDER, VEDA KAYE (TALIAFERRO) DREW, MARK RAWLINS, WAYNE RAWLINS, and SHILOW NEW SITE CHURCH OF FREDERICKSBURG, VIRGINIA, Defendants.
No. 67,419

Supreme Court of Kansas.
Opinion filed December 11, 1992.
Joseph S. Davis, Jr., of Watson, Ess, Marshall & Enggas, of Olathe, argued the cause, and Steven B. Moore, of the same firm, and Benjamin F. Farney, of Olathe, were with him on the briefs for appellant/cross-appellee.
Curtis L. Tideman, of Lathrop & Norquist, of Overland Park, argued the cause, and John L. Vratil, of the same firm, was with him on the briefs for appellee/cross-appellant.
*193 The opinion of the court was delivered by
McFARLAND, J.:
This is an action by a widow seeking to invalidate two revocable inter vivos trusts created by her husband, now deceased, and have the trust assets transferred to the testate probate estate wherein she is the residuary legatee. The district court ordered the corporate stock held by one trust transferred to the estate. The widow appeals from the district court's refusal to (1) invalidate the trust and (2) order certain life insurance proceeds transferred to the probate estate. The trustee cross-appeals from the district court's judgment ordering the transfer of all of the corporate stock to the probate estate.
In entering the summary judgment the district court made the following findings of uncontroverted facts:
These findings of uncontroverted facts are not challenged on appeal. The district court then held: (1) the T&B trust was valid; (2) the life insurance proceeds were the lawful assets of the trust; and (3) the corporate stock should be transferred to the probate estate. Summary judgment was entered accordingly. The judgment was certified pursuant to K.S.A. 1991 Supp. 60-254(b) to be subject to immediate appeal.
The parties concede that it is established Kansas law that the surviving spouse may reach assets in a revocable inter vivos trust set up by the deceased spouse but to which the surviving spouse did not consent when necessary to obtain for the survivor his or her lawful distributive share of the decedent's estate. They disagree as to what trust assets should be transferred to the decedent's probate estate.
The district court's decision and the parties' respective positions rest upon a trilogy of Kansas appellate court decisions. These are Newman v. George, 243 Kan. 183, 755 P.2d 18 (1988); Ackers v. First National Bank of Topeka, 192 Kan. 319, 387 P.2d 840 (1963); and McCarty v. State Bank of Fredonia, 14 Kan. App.2d 552, 795 P.2d 940 (1990). A careful analysis of each of these three cases is essential to our determination of the issues herein.
In Ackers v. First National Bank of Topeka, 192 Kan. 319, the deceased husband, Frank, died intestate. Frank had a child from his first marriage. Frank's second wife, Bessie, had never been a resident of Kansas. At the time of Frank's death, an action for separate maintenance/divorce was pending. Frank created a revocable inter vivos trust and transferred the bulk of his assets thereto. Bessie brought the action to bring the trust assets into Frank's probate estate.
The district court found:
First, the Ackers court construed G.S. 1949, 33-101 (now K.S.A. 33-101), which provides:
The court held that since there were no creditors, the trust was valid.
Next, the Ackers court considered Bessie's rights under G.S. 1949, 59-505 (now K.S.A. 59-505), which provides:
Bessie's nonresidency was held to bar her claims under this statute.
The Ackers court then considered whether Bessie acquired any rights under G.S. 1949, 59-504 (now K.S.A. 59-504), which provides in pertinent part:
or G.S. 1949, 59-602(2) (now K.S.A. 59-602[2]), which provides:
*196 Note: K.S.A. 59-602 was significantly amended in 1992. Said amendments will be discussed later in this opinion. The quoted form of the statute is the form applicable herein.
The Ackers court then noted that neither statute makes any distinction between resident and nonresident spouses. The court then stated:
The Ackers court noted that the states which had decided the issue of the effect of a revocable inter vivos trust on the surviving spouse's right to inherit were about equally divided in their conclusions. The Ackers court then concluded:
The trustee was then ordered to deliver one-half of the trust assets (plus increments and less applicable expenses) to the administrator of Frank's estate.
We shall next consider Newman v. George, 243 Kan. 183. Albert Newman died intestate survived by his widow, Loretta. Albert had no children. At the time of his death, the bulk of Albert's assets were in a revocable inter vivos trust. No real estate was transferred to the trust. Loretta had never consented to the trust and was, in fact, disabled and incapable of consenting thereto. After Albert's death, Loretta was to receive, during her lifetime, all income from the trust.
The Newman court relied on Ackers in holding: (1) K.S.A. 59-505 did not apply because no real estate was transferred to the *197 trust; and (2) neither K.S.A. 59-602 nor K.S.A. 59-603 applied as those statutes were applicable only to testate estates (the latter statute concerns a surviving spouse's election to take under or against a will). The Newman court further held that Loretta's rights were fixed by K.S.A. 59-504. As the surviving spouse of Albert, who died intestate without issue, Loretta was thus entitled to all of Albert's estate.
The Newman court then concluded:
We shall next consider McCarty v. State Bank of Fredonia, 14 Kan. App.2d 552. Ralph McCarty died testate survived by his widow, Mary. Apparently, Ralph had no children, although the opinion does not specifically so state. Ralph's probate estate consisted of $10,000 in real and personal property which was left to his parents. Ralph also had a $25,000 individual retirement account (IRA) in which his brother Clarence was the named beneficiary. Mary did not consent to either the will or the IRA.
The Court of Appeals held that the IRA (1) should be considered and construed as a revocable inter vivos trust and (2) was not subject to the provisions of K.S.A. 9-1215. 14 Kan. App.2d at 557. Building upon Ackers and Newman, the Court of Appeals in McCarty reasoned:
Thus, pursuant to K.S.A. 59-602(2), Mary received one-half of Ralph's assets. Because the IRA was held to be void, IRA proceeds not transferred to Mary went to Ralph's parents under the terms of the will.
This trilogy of cases is discussed in an article appearing in the December 1992 Journal of the Kansas Bar Association: Kuether and Thompson, The Capricious Operation of the Kansas Elective Share: Feast or Famine for the Surviving Spouse, 61 J.K.B.A. 32 (Dec. 1992).
With this background, we turn to the issues before us.
The first issue in the appeal is whether the district court erred in holding the trust to be valid.
*199 The appellant, in reliance upon Newman and McCarty, contends that the trust should have been held to be invalid.
The district court herein upheld the validity of the trust based upon the trust validly receiving the life insurance proceeds. The district court stated that under Ackers the widow herein would be entitled to whatever share of the corporate stock was necessary to give her one-half of the estate under K.S.A. 59-602(2), and that should be the result herein. However, the district court concluded that Newman and McCarty required that all corporate stock be transferred to the estate for distribution to the widow as the residuary legatee. The district court was obviously dissatisfied with this result.
It is interesting that Newman held the trust therein was invalid based upon Ackers and that McCarty invalidated the trust therein based upon Ackers and Newman when the Ackers court expressly held the trust therein to be valid and left half of the trust assets intact and in the hands of the trustee. The language in Ackers relied on by both subsequent opinions for invalidating the trusts is as follows:
Clearly, under Ackers, only the transfer of the assets depriving the surviving spouse of her distributive share was to be "considered as fraud on the rights of the widow." The categorization of the transfer as fraudulent was the legal justification for undoing the transfer of the assets to which the widow was entitled and removing them from the valid trust.
As previously noted, the district court avoided invalidating the trust under Newman and McCarty by holding the trust was the valid recipient of the life insurance proceeds to which the widow had no right. With or without the insurance proceeds factor, we *200 hold the trust to be valid and disapprove any language in Newman and McCarty invalidating the trust in Newman and the IRA in McCarty (considered as a trust in the opinion). We reaffirm Ackers' handling of this issue.
The other issue in the appeal is whether or not the district court erred in holding the life insurance proceeds were lawful trust assets not subject to the widow's claims herein.
Appellant's claim to the insurance proceeds is predicated upon the trust being held to be an invalid entity. The argument is that if the trust is held to be invalid, then it was not a lawful entity to receive the insurance proceeds. The trust would then have been in the same category as a situation where the named beneficiary of a life insurance policy preceded the insured in death. In such case, the proceeds would be distributed in accordance with K.S.A. 40-415, which provides:
The widow (appellant herein) would then take the proceeds under the residuary clause of the will.
Our resolution of the first issue determines this issue. The trust is valid and there is no legal impediment to its being the beneficiary under the policy.
This brings us to the issue raised in the cross-appeal. The issue is whether the district court erred in ordering all of the corporate stock transferred to the executor of the estate as opposed to as much thereof as necessary to make one-half of the total assets of the estate available to the widow.
We must again look to the trilogy of cases relied on herein. Ackers involved an intestate estate. As the deceased had a child, the widow's claim was for one-half of decedent's assets pursuant to K.S.A. 59-504, which provides:
*201 The widow's share would have remained at one-half even if K.S.A. 59-505 had been available to a nonresident spouse or if K.S.A. 59-602(2) concerning limitation on testamentary power had been applicable.
Newman, again, involved an intestate estate. This time, however, decedent had died childless. K.S.A. 59-505 did not apply as no real estate was involved. K.S.A. 59-602 was held not to apply as there was no will. Thus, the widow took all of the trust assets.
McCarty is the only case in the trilogy to involve a testate estate. K.S.A. 59-602(2) was applied, which (in the form in effect at the time) provided:
The trust (IRA) was held to be invalid by virtue of containing property which was included in the widow's one-half distributive share. The balance of the IRA went to the deceased's parents as legatees under the will. We have previously herein disapproved this holding.
The McCarty opinion makes no reference to whether or not the widow filed an election pursuant to K.S.A. 59-603 to take against the will. K.S.A. 59-603 in the form in effect in McCarty (and before us) provided:
The cross-appellants assert that a check of the district court files in McCarty shows that an election to take against the will was filed. This is not disputed by the cross-appellees. Such fact is consistent with the McCarty opinion's application of K.S.A. 59-602(2), which limits the widow to one-half of the property when she takes against the will.
*202 No election to take against the will has been filed herein. The cross-appellant contends that unless such election is filed the widow has no claim against the trust assets. The reason for not filing the election herein is obvious. If the widow were to be successful in invalidating the trust, she would receive all the trust assets, including the insurance proceeds, as the will's residuary legatee plus all bequests to her under the will. She would not be taking against the will, only expanding the estate's assets. If, on the other hand, she files an election to take against the will she is limited to one-half of the assets pursuant to K.S.A. 59-602(2).
At this point, it is appropriate to point out the 1992 amendments to K.S.A. 59-602(2) and K.S.A. 59-603 contained in H.B. No. 2756. The legislative history of the amendments reflects they first arose in 1988 from concern over the result reached in Newman. The matter of possible amendment was referred to the Kansas Judicial Council, which recommended the amendments ultimately appearing in H.B. No. 2756.
Under the 1992 amendments, K.S.A. 59-602(2), (3) now provide:
See L. 1992, ch. 79 § 1.
K.S.A. 59-603 as amended in 1992 now provides:
See L. 1992, ch. 79 § 2.
The result reached in Newman is now legislatively modified. Surviving spouses whose deceased spouses have attempted to deprive them of their one-half share under K.S.A. 59-603 by creation of another disposition such as inter vivos trusts are treated equally regardless of whether or not the deceased died testate or intestate, and whether or not the deceased was childless.
The time for filing an election herein to take against the will has been extended pending resolution of this appeal.
We conclude that the judgment of the district court not requiring the widow to file an election must be reversed as well as that portion of the judgment ordering the trustee to transfer all corporate stock to the executor. On remand, the widow shall be required to file an election. If she elects to take under the will, the trust and its assets are not available to her. If she elects to take against the will, then she is entitled, pursuant to K.S.A. 59-602(2), to take one-half of the assets over which decedent had control at the time of his death (the assets in the estate plus the corporate stock). The district court should determine how much of the corporate stock is subject to transfer to afford the widow her one-half distributive share, less any applicable expenses, and order such transfer.
*204 This result, we believe, is consistent with the provisions of K.S.A. 59-602(2) and K.S.A. 59-603 even prior to the 1992 amendments. K.S.A. 59-602(2), prior to amendment, limited the power of a married person dying testate to dispose of his or her property. Not more than one-half could go to other than the surviving spouse unless he or she consented thereto if the survivor elected to take against the will. The effect of the district court decision herein was to expand the limitation. Newman permitted the widow to take all, but involved an intestate estate where K.S.A. 59-602(2) was held to be inapplicable.
McCarty did not directly expand the limitations as to the widow as she took the statutory one-half. However, by improperly invalidating the IRA, the McCarty opinion expanded the effect of K.S.A. 59-602(2) by nullifying the decedent's disposition as to all IRA funds and causing what should have been the IRA beneficiary's remaining share to be transferred to the estate and distributed in accordance with the terms of the will.
The judgment is affirmed in part, reversed in part, and remanded for further proceedings consistent with this opinion.