Court Opinion

ID: 4226580
Source: CourtListenerOpinion
Date Created: 2017-12-07 16:07:45.63882+00
Date Added: 2024-06-11T14:42:45.543385
License: Public Domain

FILED
                                                                       Dec 07 2017, 6:14 am

                                                                             CLERK
                                                                       Indiana Supreme Court
                                                                          Court of Appeals
                                                                            and Tax Court

ATTORNEYS FOR APPELLANT                                   ATTORNEYS FOR APPELLEES
D. Andrew Nestrick                                        David L. Jones
Raymond P. Dudlo                                          David E. Gray
Stoll Keenon Ogden PLLC                                   Jones Wallace, LLC
Evansville, Indiana                                       Evansville, Indiana

                                           IN THE
    COURT OF APPEALS OF INDIANA

In re The Estate of                                       December 7, 2017
Mason R. Foertsch,                                        Court of Appeals Case No.
Deceased,                                                 74A05-1702-ES-375
                                                          Appeal from the Spencer Circuit
Debra S. Foertsch,                                        Court
Appellant,                                                The Honorable Jonathon A. Dartt,
                                                          Judge
        v.                                                Trial Court Cause No.
                                                          74C01-1506-ES-21
Marcus Foertsch,
David Foertsch, and
Brian Foertsch,
Appellees.

Robb, Judge.

Court of Appeals of Indiana | Opinion 74A05-1702-ES-375 | December 7, 2017                     Page 1 of 15
                                 Case Summary and Issue
[1]   After Mason Foertsch (“Decedent”) died in June 2015, the personal

      representative of his estate sought a judicial determination of whether a certain

      specific bequest in Decedent’s will had been adeemed. The bequest in question

      is described in the Second Codicil to Decedent’s will as funds held at Merrill

      Lynch. The Merrill Lynch account no longer existed at the time of Decedent’s

      death, as he had transferred his investment account at Merrill Lynch to a new

      brokerage firm several years prior to his death. The trial court determined the

      bequest had not been adeemed and directed distribution of Decedent’s estate

      accordingly. Debra Foertsch, Decedent’s surviving spouse, appeals, raising one

      issue for our review: whether the trial court erred in determining the bequest of

      the Merrill Lynch account had not been adeemed. Concluding the trial court

      did not err because the specific bequest at issue changed only in form, we

      affirm.

                            Facts and Procedural History
[2]   On November 22, 2005, Decedent executed a will. Item Three, subsection (g)

      of the will stated:

              Any and all funds held in Legg-Mason, Oakmark, Advest and
              Spencer County Bank shall be distributed to Richard A.
              Wetherill as Trustee and the funds distributed to Debra Pund
              pursuant to the provision set out in Item Five herein.

      Court of Appeals of Indiana | Opinion 74A05-1702-ES-375 | December 7, 2017   Page 2 of 15
      Appellant’s Appendix, Volume 2 at 29. Item Five of the will describes the

      administration of a Qualified Terminal Interest Property Trust (“Q-Tip Trust”).

      Item Five provides, in part, that Debra Pund would receive annually the greater

      of the net income generated by the Q-Tip Trust or $84,000. No other

      distributions were to be made from the Q-Tip Trust during Debra’s lifetime, and

      at her death, the remainder was to be distributed to Decedent’s grandsons,

      David, Brian, and Marcus Foertsch (collectively, “Grandsons”) according to

      Item Seven of the will. At the time Decedent signed the will, his broker of

      record was Fraser Schaufele, a broker at Advest.

[3]   On February 14, 2006, Decedent executed a First Codicil to the will that

      acknowledged he and Debra had married and provided that any references to

      “Debra Pund” in the will were changed to “Debra Foertsch.” Id. at 37. The

      First Codicil otherwise ratified the provisions of the will.

[4]   In 2006, Merrill Lynch acquired Advest, absorbing Advest’s accounts and

      employees, including Mr. Schaufele. On July 26, 2007, Decedent executed a

      Second Codicil to the will that changed Item Three, subsection (g) to the

      following:

              Any and all funds held in Legg-Mason, Oakmark and Merrill
              Lynch shall be distributed to Richard A. Wetherill as Trustee and
              the funds distributed to Debra Foertsch pursuant to the provision
              set out in Item Five of my Last Will and Testament dated
              November 22, 2005. Upon depletion of the Old National Bank
              account in paying taxes, then, and upon that event, I direct said
              Trustee to use the above accounts to pay said taxes.

      Court of Appeals of Indiana | Opinion 74A05-1702-ES-375 | December 7, 2017   Page 3 of 15
      Id. at 39. In October 2008, Mr. Schaufele left his employment at Merrill Lynch

      and went to work at Raymond James and Associates. Also in October 2008,

      Decedent directed Merrill Lynch to transfer the assets in his account to a newly

      opened Raymond James account “in kind.” Id. at 91. Decedent signed a Third

      Codicil to his will on August 31, 2009. The Third Codicil made a number of

      changes to the will, but did not change the provisions of Item Three, subsection

      (g) or Item Five, with the exception of naming an alternate trustee.

[5]   Mr. Schaufele served as Decedent’s broker of record and investment advisor

      from the early 2000s until Decedent’s death in 2015. Decedent regularly

      received the net income generated from the Advest/Merrill Lynch/Raymond

      James account and occasionally deposited additional money, but he never drew

      on the corpus of the account. Decedent also sold investments from time to time

      and reinvested the proceeds, but he did not distribute proceeds from those

      transactions to himself or others.

[6]   Decedent died on June 2, 2015. His will and the three codicils to the will were

      admitted to probate on June 25, 2015. In July 2016, the personal representative

      of Decedent’s estate filed a petition for clarification of account distribution

      seeking a ruling on whether the specific bequest of any and all funds at Merrill

      Lynch had been adeemed by extinction. Debra and the Grandsons filed

      responses to the personal representative’s petition1 and the trial court held a

      1
       These responses are not included in the record. Presumably, as on appeal, Debra was in favor of ademption
      because if the trial court so found, the money in the Raymond James account (approximately $750,000

      Court of Appeals of Indiana | Opinion 74A05-1702-ES-375 | December 7, 2017                    Page 4 of 15
hearing on the matter. Following the hearing, the trial court issued findings of

fact and conclusions thereon, concluding the specific bequest of funds held in

the Merrill Lynch account was not adeemed:

        1. The issue before the Court is whether the specific bequest of
        any funds remaining in one of three investment accounts
        specifically bequeathed to the Q-Tip Trust by the Decedent was
        adeemed by extinction because that account was transferred from
        Merrill Lynch, in kind and asset for asset, into an investment
        account at Raymond James after the Second Codicil was signed.

        ***

        3. Ademption is the act “by which a specific legacy has become
        inoperative because of the withdrawal or disappearance of its
        subject matter from the testator’s estate in his lifetime.”

        ***

        8. Under [Indiana’s approach], the first step is to establish the
        identity of the specific bequest. Here, the specific bequest at issue
        is “any and all funds in the Merrill Lynch account” as referenced
        in Item Three (g) of the Second Codicil.

according to a November 2015 inventory of estate assets) would go into the general corpus of the estate and
be paid to Debra. If the account was not adeemed, the funds would go into the Q-Tip Trust from which
Debra would get only the income during her lifetime and the remainder would go to the Grandsons on
Debra’s death.

Court of Appeals of Indiana | Opinion 74A05-1702-ES-375 | December 7, 2017                       Page 5 of 15
        9. The second step is the application of the form vs. substance
        test. Under that test, the question is whether the change is a
        mere change in form or one of substance.

        ***

        11. The bequest at issue is clear and unambiguous. Decedent
        bequeathed three investment accounts to the Trustee of the [Q-
        Tip] Trust he established for the benefit of his spouse during her
        lifetime and his grandchildren thereafter.

        ***

        14. The transfer of all of the assets in one investment account to
        an account maintained with a different brokerage house or, in
        effect, custodian was a change of form, not of substance because
        the investment account continued to exist and operate just as it
        had when the Decedent created the bequest by signing his Will.
        Furthermore, Decedent never removed the funds from the
        Merrill Lynch account from his Last Will and Testament. At his
        death, the funds in that account (which are now in the Raymond
        James) account [sic] were still to go in the [Q-Tip] Trust for the
        benefit of his spouse and his grandchildren.

        15. The Court finds the specific subject matter of the bequest,
        funds from the Merrill Lynch account were still in existence at
        Decedent’s death under the name of a different brokerage firm,
        Raymond James. The change of the name of the investment
        account to a different one under another brokerage firm but still
        containing the same assets and under the care of the broker is a
        mere change in form and not of substance. This interpretation is
        also consistent with assuring the terms of Decedent’s Last Will
        and Testament and resulting trusts make sense and allow
        Decedent to accomplish his estate plan as set forth in his Will.

Court of Appeals of Indiana | Opinion 74A05-1702-ES-375 | December 7, 2017   Page 6 of 15
               ***

               17. The bequest of the investment account at Merrill Lynch was
               not adeemed simply because the assets were transferred to
               another brokerage house.

                                                     Judgment

               Wherefore, this Court now finds that the Decedent’s Investment
               Account at Raymond James . . . should and does pass to the
               Trustee of the Q-Tip Trust pursuant to the provisions of [Item
               Three] Subsection (g) of the Will and Second Codicil. The
               Executor of the Decedent’s Estate is hereby instructed and
               directed to make all distributions from this Estate on that basis.

      Id. at 23-27. Debra now appeals.

                                  Discussion and Decision
                                       I. Standard of Review
[7]   At the request of the parties, the trial court entered findings of fact and

      conclusions thereon pursuant to Trial Rule 52(A).2 In such a case, we review

      for clear error, first considering whether the evidence supports the findings and

      2
        It is unclear whether the parties made a written request for findings prior to the hearing or only an oral
      request at the outset of the hearing. The difference is important because we have held only written requests
      invoke Trial Rule 52(A) review. Estate of Henry v. Woods, 77 N.E.3d 1200, 1204 (Ind. Ct. App. 2017).
      However, Debra, as appellant, has stated the standard of review applicable to this case as that applicable to
      Trial Rule 52(A) findings and conclusions, see Brief of Appellant at 8-9, and the Grandsons have agreed this
      is the applicable standard of review, see Brief of Appellees at 9. Because we have limited information and the
      parties agree Trial Rule 52(A) governs, we will apply that standard of review.

      Court of Appeals of Indiana | Opinion 74A05-1702-ES-375 | December 7, 2017                        Page 7 of 15
      then whether the findings support the judgment. Hemingway v. Scott, 66 N.E.3d

      998, 1000 (Ind. Ct. App. 2016). We will reverse only if the trial court’s findings

      are unsupported by the evidence or if the judgment is unsupported by the

      findings and conclusions. Ind. Trial Rule 52(A) (“[T]he court on appeal shall

      not set aside the findings or judgment unless clearly erroneous . . . .”). We

      defer to the trial court’s findings of fact, but apply a de novo standard to the

      trial court’s conclusions. Hemingway, 66 N.E.3d at 1000.

                                              II. Ademption
[8]   Ademption by extinction is “defined as an act which causes a legacy to become

      inoperative because the subject matter of the legacy has been withdrawn or

      disappeared during the testator’s lifetime.” In re Estate of Young, 988 N.E.2d

      1245, 1248 (Ind. Ct. App. 2013). The doctrine applies only to specific bequests

      and “occurs only when the subject matter of the legacy is so altered or

      extinguished that the legacy was completely voided.” Id. In Indiana, we apply

      the “Modern Rule” of ademption, by which we first establish the identity of the

      specific bequest at issue and then apply the form and substance test. Id. The

      form and substance test states that if there has been only a formal change in the

      bequest since the execution of the will, there is no ademption, but if the specific

      bequest has changed in substance, the bequest is adeemed. Id. In other words,

      the court is not required to search for intention to adeem, 3 but only needs to

      3
       Until 1973, Indiana adhered to the “Ancient Rule,” by which the intention of the testator to adeem was
      analyzed as determined by the terms of the will and all relevant facts and circumstances occurring between

      Court of Appeals of Indiana | Opinion 74A05-1702-ES-375 | December 7, 2017                      Page 8 of 15
      determine whether the specific subject of the bequest is still in existence. In re

      Estate of Warman, 682 N.E.2d 557, 560 (Ind. Ct. App. 1997), trans. denied. The

      testator’s intent is relevant only to determining the identity of the bequest from

      the four corners of the instrument. Id. Slight changes in form do not cause

      ademption. Id. at 561. When a bequest is adeemed, the proceeds pass through

      the residuary clause of the will. In re Estate of Young, 988 N.E.2d at 1248.

[9]   Indiana courts have decided relatively few ademption cases, and none are

      precisely on point with the facts here. In Pepka v. Branch, the first Indiana case

      to apply the Modern Rule, we found no ademption. There, the testator

      executed a will leaving his sole proprietorship in unequal parts to his son, wife,

      and sister. The residuary of his estate was left to his wife. A few weeks after

      executing the will, the testator converted the sole proprietorship into a

      corporation. After incorporation, there was no change in the business, its

      location, or its employees, and the testator continued to operate the business at

      the time of his death. The testator died approximately two years after

      incorporating the business. His wife filed a petition for construction of the will,

      alleging the specific bequest of the company was adeemed and the company

      passed to her alone as the residuary beneficiary. The trial court disagreed, as

      did this court on appeal. After adopting and applying the Modern Rule for

      determining whether ademption has occurred, we held as to the testator’s

      the execution of the will and the testator’s death. Pepka v. Branch, 155 Ind. App. 637, 654, 294 N.E.2d 141,
      150-51 (1973). Pepka adopted the Modern Rule, as most other states had done, and removed the
      consideration of extrinsic evidence from the analysis. Id. at 657, 294 N.E.2d at 153.

      Court of Appeals of Indiana | Opinion 74A05-1702-ES-375 | December 7, 2017                        Page 9 of 15
       business that “[i]n the transition, the essential thing was only altered in form.”

       155 Ind. App. at 664, 294 N.E.2d at 157.

[10]   The cases that followed Pepka found an ademption had occurred after applying

       the form and substance test. In Weaver v. Schultz, 177 Ind. App. 563, 380

       N.E.2d 601 (1978), the testator made a specific bequest to his daughter of the

       proceeds from a certain life insurance policy. At the time of making his will,

       the testator had a life insurance policy that named his daughter as beneficiary.

       Approximately one year later, the testator changed the beneficiary of the policy

       to his wife. The testator later borrowed funds from the policy to purchase a

       business property and was ultimately paid the remaining cash surrender value

       of the policy. We held the specific bequest of life insurance proceeds to the

       daughter was adeemed by extinction because, despite the testator’s clear

       intention at the time of making his will that his daughter receive the insurance

       policy proceeds as her share of his estate, the subsequent change from insurance

       proceeds to property and cash was “not merely an alteration in form, but rather,

       was one of substance; in fact, the bequest of proceeds clearly did not exist at the

       death of the testator.” Id. at 567, 380 N.E.2d at 603.

[11]   In the case of In re Estate of Young, 988 N.E.2d 1245 (Ind. Ct. App. 2013), the

       testator executed a will in 1976 making a specific bequest to her son of a

       residence at a certain address in Bloomington. The residue of her estate was to

       go to her second husband. The son predeceased the testator but she never

       changed her will. On May 2, 2012, the testator sold the Bloomington property

       to the State of Indiana but the proceeds of $263,550 had not been paid at the

       Court of Appeals of Indiana | Opinion 74A05-1702-ES-375 | December 7, 2017   Page 10 of 15
       time of her death. On June 6, 2012, the testator purchased property for

       $288,257. The testator died on June 26, 2012. Her husband filed a petition for

       probate listing himself as the only beneficiary. The testator’s grandchildren

       contested, claiming they should have been listed as beneficiaries as well since

       they would stand in the shoes of their deceased father and be entitled to the

       proceeds of the Bloomington property. The trial court found that since the

       property was no longer owned by the testator at her death, it was adeemed by

       extinction and the proceeds from the sale should go to the testator’s husband

       through the residuary clause. This court agreed, holding the bequest of the

       specific property had changed in substance, from a piece of real estate to

       proceeds from the sale. Id. at 1248.

[12]   And finally, in the case of In re Estate of Warman, 682 N.E.2d 557 (Ind. Ct. App.

       1997), trans. denied, the testator executed his will in 1992 containing a specific

       bequest that any recovery or settlement he received following a railroad injury

       would be divided equally between his wife and his son. Approximately a year

       later, the testator received a settlement of $650,000 for the injury. The testator

       used the funds to purchase real property, several cars, computers, and a gun

       collection. He also made gifts of money to his friends and family. He then

       deposited the remaining $2,000 in a bank account. After the testator died, his

       wife and son disputed how the estate should be distributed. The trial court

       found the testator had “invested [the settlement] in other assets” and the

       specific bequest was not adeemed. Id. at 560. This court disagreed, noting that

       had the testator initially purchased investments such as certificates of deposit or

       Court of Appeals of Indiana | Opinion 74A05-1702-ES-375 | December 7, 2017   Page 11 of 15
       mutual funds with the settlement money, and such investments remained at the

       time of his death, “we might be inclined to find that only the form of the

       settlement had changed because the money was initially invested as soon as

       [testator] received it.” Id. at 562. However, because testator spent the

       settlement money on a variety of items “vastly different than investing part or

       all of the funds with the intention of keeping the money largely intact[,]” he

       failed to preserve the integrity of the settlement and both the form and the

       substance of the specific bequest had changed. Id. at 563. The bequest was

       therefore adeemed, and the son was not entitled to trace the settlement to any

       item purchased with the money to satisfy the bequest. Id.

[13]   As previously noted, none of these cases are exactly on point. However, the

       facts of this case are closer to those of Pepka than those of Weaver, Young, or

       Warman. In Weaver, the specific bequest changed from life insurance proceeds

       to property and cash. In Young, the specific bequest changed from real estate to

       cash. And in Warman, the specific bequest changed from settlement proceeds

       to real and personal property. These were all changes of substance, as the

       subject of the specific bequest no longer existed as it had at the time the will was

       executed. However, in Pepka, the specific bequest was a business that, despite

       changing from a sole proprietorship to a corporation, remained a business at the

       time of the testator’s death operating as it had previously; much as here, the

       specific bequest was an investment account that, despite changing brokerage

       firms, remained an investment account managed by the same broker and in the

       same manner from the time Decedent executed his will until his death

       Court of Appeals of Indiana | Opinion 74A05-1702-ES-375 | December 7, 2017   Page 12 of 15
       regardless of where the account was held. Decedent’s intent at the time of

       executing his will and the Second Codicil was to provide from his investment

       account for his wife during her lifetime and for his grandsons after her death.

       The place where the investment account was located was not the critical factor –

       the investment funds were. Decedent did not alter or dispose of the subject of

       the specific bequest by moving the funds in total to a different brokerage firm to

       follow the broker with whom he had a lengthy relationship. Cf. In re Estate of

       Geary, 275 S.W.3d 835, 843 (Tenn. Ct. App. 2008) (holding specific bequest of

       an investment account identified by account number and brokerage firm was

       not adeemed when testator moved the entire account to a new brokerage firm

       under a different account number; the subject of the bequest was substantially

       preserved and the changes were “formal and nominal”), appeal denied.

[14]   Debra argues the “substance of the funds” in the investment account “changed

       dramatically” from 2008, when the funds in the Merrill Lynch account were

       moved to Raymond James, to 2015, when Decedent died. Br. of Appellant at

       8. Debra notes the trial court correctly found Decedent deposited $92,909.95

       into the account, made $449,138.17 in purchases and $317,042.34 in sales and

       redemptions, and withdrew $195,047.95 from 2008 to 2014. The “hundreds of

       thousands of dollars of deposits, withdrawals, purchases, and sales” and

       “nearly . . . 60% increase in account value” cited by Debra as proof of

       ademption do not represent a change in the substance of the specific bequest.

       Court of Appeals of Indiana | Opinion 74A05-1702-ES-375 | December 7, 2017   Page 13 of 15
       Id. at 12-13.4 Rather, they represent the very nature of an investment account.

       Purchases and sales are made within an investment account in the hope the

       account will increase in value. Decedent’s broker testified that Decedent was

       an astute businessman who was active in communicating with his broker and

       curating his investments, presumably for the benefit of himself and his heirs

       pursuant to the terms of his will.

[15]   Accordingly, we hold the specific bequest of “any and all funds at Merrill

       Lynch” changed only in form and not in substance when Decedent moved his

       Merrill Lynch investment account, in total and in kind, to a new brokerage firm

       where he continued to administer the account as he had before. Therefore, the

       trial court did not clearly err in finding the bequest was not adeemed and

       ordering the personal representative to proceed with making distributions from

       Decedent’s estate on this basis.

                                                  Conclusion
[16]   The trial court did not err in finding Decedent’s specific bequest of the funds

       once existing in a Merrill Lynch investment account were not adeemed by

       4
         By Debra’s logic, if all of these transactions had taken place but the account had remained at Merrill Lynch
       until Decedent’s death, the specific bequest would still have been adeemed because the exact same funds
       were not in the account at the time of Decedent’s death as at the time Merrill Lynch took over Advest. Such
       a construction of the form and substance test is too rigid.

       Court of Appeals of Indiana | Opinion 74A05-1702-ES-375 | December 7, 2017                       Page 14 of 15
       extinction when Decedent moved the funds to a new brokerage firm. The

       judgment of the trial court is affirmed.

[17]   Affirmed.

       Riley, J., and Pyle, J., concur..

       Court of Appeals of Indiana | Opinion 74A05-1702-ES-375 | December 7, 2017   Page 15 of 15