December 16, 2017

Spousal Elections And Testamentary Trusts; Sarkar v. Naugle

Category: Indiana Law Review | Author: | Share:

We don’t often deal with probate law when discussing recent cases, but there are always exceptions to the rule. And this case is one of those exceptions, as it discusses some interesting legal and procedural issues surrounding trusts and the disinheritance of a spouse.

Anil and Dipa Sarkar were married for 56 years until Anil’s death in February 2015. The Sarkars were both doctors and operated a private pathology practice. They had one daughter from their marriage, Rumu, and Anil had two children from a previous marriage, Mili and Ashoke.

Anil created a trust in 1993, which was restated in 1997, for the express purpose of providing “a simplified means of accomplishing both lifetime and death transfers.” The trust was amended several times, with the last amendment taking place in March 2014. The Trust originally was not to give any assets to Dipa, because she “has more assets than I have.” But at the time of his death, the Trust was to give her $50,000, and Mili was named as successor trustee, who took the remainder of the trust, after certain distributions were made.

Anil funded the trust using a combination of stocks, bonds, his social security payments, and an IRA. The Trust was designated the sole beneficiary of the IRA in 2003.

In January 2014, Anil executed a will that gave all of his assets (except clothes and tangible personal property) to the Trust, with Dipa receiving the exceptions. Rumu was named personal representative under the Will.

Rumu filed a petition to probate the Will on March 10, 2015. That same day, Dipa docketed the Trust, arguing that the IRA should be removed from the Trust because she signed the spousal consent under duress and that the social security benefits had been improperly diverted to the Trust.

On June 16, 2015, Dipa filed her election to take against the Will. Three months later, Mili moved for summary judgment on the issue of whether Dipa’s consent was necessary to designate the Trust as the IRA beneficiary. The motion did not address Dipa’s election to take against the Will.

In December 2015, Dipa moved to amend her petition to docket the Trust to note her previous election to take against the Will. Mili objected to the amendment, arguing that Dipa’s election was untimely. The trial court denied Dipa’s motion to amend and granted Mili’s motion for summary judgment. Dipa appealed.

The first issue on appeal was whether Dipa’s election to take against the Will was timely. The relevant statute requires that the election must be made within three months after a will is admitted to probate. Dipa’s election missed this deadline by a few days. But the statute contains a savings clause if “litigation is pending … to determine any other matter of law or fact which would affect the amount of the share to be received by the surviving spouse.” And the Court held that there was “no question” that the pending litigation met this standard.

Specifically, … the parties were still embroiled in litigation disputing the Trust’s obligations to pay Anil’s funeral expenses as well as Dipa’s $25,000 surviving spouse’s allowance under the Will. Questions remained as to whether Anil’s tangible personal property that was left to Dipa as part of the probate estate, and the value of which was unclear, would be used to satisfy the estate’s expenses in the event it was determined that the Trust was not so obligated. Indeed, not only did the parties dispute the Trust’s obligations to the estate, but Mili also challenged the estate’s responsibility in the first place to pay some of the expenses based upon an alleged breach of fiduciary duty by Rumu as personal representative. … These disputes undeniably could and would affect the value of the net probate estate and the amount of the elective share to be received by Dipa.

Given these actively litigated disputes, Dipa’s election was timely, and the trial court erred by ignoring this election when it conducted its analysis.

The next question was whether the trial court abused its discretion when denying Dipa’s motion to amend her petition to docket the Trust. Mili argued that she would be unduly prejudiced if Dipa was allowed to make the amendment to include the election against the Will. But the Court found that this misunderstood the nature of the election.

Dipa was not required to assert her right of election in a pleading or in an amendment thereto. Dipa had no obligation to include her election in her initial petition to docket the Trust or to amend her petition to include the election, as her election was independent of these pleadings. Once her election was timely filed in the form required by statute, as we conclude it was, her election was self-effectuating. … As the impact of Dipa’s valid statutory election was an issue between the parties that needed to be addressed moving forward, the trial court should have granted the motion to amend to bring all matters at issue before it.

Finally, the Court found that there were genuine issues of material fact regarding the validity of the Trust because Anil may have established the “trust in contemplation of death and with the intent of defeating his surviving spouse’s statutory share.” The parties acknowledged that additional discovery was needed to answer this question, so the case was remanded for further proceedings.

Lessons:

  1. A surviving spouse’s election against a will need not be in a pleading if it is made in the proper form.
  2. Courts will likely broadly interpret the time limitations for making an election against the will if there is pending litigation which may affect the amount of the estate.
  3. A trust which is made in contemplation of death and with the intent of defeating the surviving spouse election may be subject to an election against the will.