The Mississippi House of Representatives is currently considering a pair of bills that could have a major impact on trust and estates in Mississippi. The bills, H.B. 1375 and H.B. 1425, are the product of a study committee formed by the Secretary of State and touch on a broad range of subjects, including non-probate transfers, transfer on death deeds, abatement, fiduciary transfer of negotiable paper, estate tax apportionment, disclaimers, revocation of probate and non-probate transfers upon divorce, creditor’s rights with respect to revocable and irrevocable trusts, and procedures for the ancillary administration of the estates. Both bills were approved by House Committee Judiciary A on January 31, and now move to the House floor consideration. Although it is still early in the legislative process, the bills have the support of several key constituencies and stand a reasonable chance to pass. This article summarizes the provisions of H.B. 1375 and H.B. 1425 and explains how the legislation would change current law.
Changes Proposed Under H.B. 1375
Repeal of Archaic Requirements
The current statutes establishing the process for probating an estate in Mississippi contemplate the appointment of three disinterested appraisers who will inventory and appraise the decedent’s estate and return a written report to the court within 30 days of appointment. In addition, current law contemplates that appraisers will set apart the exempt property for the decedent’s surviving spouse and/or descendants. The statute allows the court to dispense with the requirement of inventory and appraisal by appraisers for good cause shown, and in practice courts routinely dispense with the appointment of appraisers and often dispense with the requirement of inventory if it is waived in the will, although the authority for dispensing with the requirement of inventory is not clear under current law. When appraisers are not appointed – which is frankly every case – the duties of the appraisers are performed by the administrator or executor.
H.B. 1375 would repeal Miss. Code Ann. §§ 91- 7-111, 91-7-113, 91-7-115, 91-7-137, 91-7-139, and 91-7-279, and amend 91-7-93, 91-7-95, 91-7-109, 91-7-117, 91-7-135, 91-7-141, 91-7-277, 91-7-291, and 91-7-297 in in order to eliminate many of the archaic requirements contemplated by current law, including the appointment of appraisers, and conform the law to current practice in probate proceedings throughout the state. The bill would also provide much needed clarity regarding the chancellor’s authority to waive or require inventories and accounting.
Eliminating Restrictions on Fiduciary Powers
Section 91-7-255 of the Mississippi Code restricts a fiduciary from assigning, selling, or transferring a note, bill of exchange, bond, stock certificate, or other negotiable paper belonging to the estate without court approval. This requirement is not only archaic but could be detrimental for the estate by preventing the fiduciary from disposing of investments in a declining market. H.B. 1375 amends the Miss. Code Ann. § 91-7-255 by removing the requirement to obtain court approval prior to selling note, bill of exchange, bond, stock certificate, or other negotiable paper.
Small Estate Affidavits and Muniment of Title
Section 91-7-322 of the Mississippi Code establishes a procedure that can be used to transfer of tangible personal property, an instrument evidencing a debt, obligation, or stock, or chose in action to the “successor of the decedent” without the necessity of opening an estate. Under the current statutory language, the procedure is available only if the “value of the entire estate of the decedent, wherever located, excluding all liens and encumbrances thereon, does not exceed Fifty Thousand Dollars ($50,000.00).”
Section 91-5-135 of the Mississippi Code provides a similar procedure that allows a will to be probated as a muniment of title if “the value of the decedent’s personal estate in the State of Mississippi at the time of his or her death, exclusive of any interest in real property, did not exceed the sum of Ten Thousand Dollars ($10,000.00), exclusive of exempt property,” and “[a]ll known debts of the decedent and his estate have been paid, including estate and income taxes, if any.” 1 To probate the will as a muniment of title, the statute currently provides that a petition must be signed and sworn to by all beneficiaries named in the will, and the spouse of such deceased person if such spouse is not named as a beneficiary in the will. 2
H.B. 1375 would amend Miss. Code Ann. § 91-7-322 to clarify the definition of “successor” and to increase the limitation on the value of property that can be included in the decedent’s probate estate before the statute does not apply from $50,000 to $100,000. In addition, the bill would clarify that the estate referred to in Miss. Code Ann. § 91-7-322(1) is the probate estate.
H.B. 1375 makes similar amendments to Miss. Code Ann. § 91-5-35. The bill increases the limitation in section 91-5-35(1) from $10,000 to $100,000 by referencing section 91-7-322. At the same time, however, the bill changes how the limitation is applied by referencing the “probate estate,” rather than the “personal estate.” The bill also changes who can initiate proceedings under section 91-5-35.
Abatement
The rules for abatement determine how property is distributed when the value of the property in the probate estate is insufficient to pay all debts and satisfy all legacies, devises and bequests. Under current law, legacies, devises and bequests abate in the following order:
(1) Intent of the testator as determined by the court;
(2) Intestate property, whether real or personal;
(3) Residuary legacies;
(4) General legacies;
(5) Demonstrative and specific legacies;
(6) Residuary real estate;
(7) General devises; and
(8) Demonstrative and specific devises.
H.B. 1375 would add new section 91-7-90 to the Mississippi Code to codify the order of for abatement of legacies, devises and bequests in the event the property of the estate is insufficient to pay all debts and satisfy all legacies, devises and bequests. The bill would also modify the rules by eliminating current distinctions between real and personal property and make conforming amendments to several other provisions of the Mississippi Code.
If enacted, new section 91-7-90(1) would provide that “shares of distributees abate, without any preference or priority as between real and personal property, in the following order: (a) property not disposed of by the will; (b) residuary bequests and devises; (c) general bequests and devises; (d) specific bequests and devises.” For purposes of applying these rules, section 91-7-90(1) would provide that “a general bequest or devise charged on any specific property or fund is a specific bequest or devise to the extent of the value of the property on which it is charged, and upon the failure or insufficiency of the property on which it is charged, a general bequest or devise to the extent of the failure or insufficiency.” Section 91-7-90(1) would also provide for “abatement within each classification [ ] in proportion to the amounts of property each of the beneficiaries would have received, if full distribution of the property had been made in accordance with the terms of the will.” As under current law, the bill makes clear that the rules of section 91-7-90(1) yield to contrary provisions of the testator’s will.
Changes Proposed Under H.B. 1425
Ancillary Administration
Mississippi does not have process for ancillary administration of nonresident estates. H.B. 1425 would change this by establishing a procedure for the ancillary administration of decedent’s estates. The bill specifies the circumstances under which a person indebted to a nonresident decedent’s estate or having possession of a nonresident decedent’s personal property can pay the debt or deliver the personal property to a “domiciliary foreign personal representative,” which the bill defines as a personal representative appointed by another jurisdiction who has obtained all powers of a local personal representative.” The bill also contains provisions resolving what happens in the event a local administration is commenced in Mississippi, along with provisions addressing jurisdiction over the foreign personal representative, service of process, notice, and the extent to which and adjudication rendered against the foreign personal representative is binding on the local personal representative. Along with the enactment of the provisions establishing the ancillary administration procedure, H.B. 1425 would repeal Miss. Code Ann. §§ 91-7-257 and 91-7-259 to provide a clear process for foreign personal representatives and ancillary administration. This amendment will bring Mississippi current with every other State in the nation.
Estate Tax Apportionment
Closely related to the issue of abatement is apportionment of estate taxes. Prior to the enactment of current law, estate taxes were treated just like any other debt of the estate and paid by the administrator out of the assets of the estate. In 1994, the legislature enacted the “Uniform Estate Tax Apportionment Act” (“UETAA”) Miss. Code Ann. §§ 27-10-1 through 27-10-25, which provided for apportionment of federal and state estate taxes among all persons interested in the estate in proportion to the value of the interest of each person bears to the value of the interests of all persons interested in the estate, unless otherwise provided in the decedent’s will. UETAA was based on uniform legislation originally drafted by the Uniform Law Commission in the 1960s, prior to the widespread use of revocable trusts and other will substitutes and prior to major reforms to the federal estate tax that occurred in 1976 and 1981. Consequently, UETAA does not adequately address apportionment of estate taxes attributable to assets included in the gross estate for federal estate tax purposes, but not included in the decedent’s probate estate.
H.B. 1425 would repeal UETAA 1994 and replace it with the “Mississippi Uniform Estate Tax Apportionment Act” (“MUETAA”). MUETAA is based on the Uniform Estate Tax Apportionment Act of 2003, which is a revised an updated version of UETAA 1994. MUETAA modernizes the law by providing a mechanism for apportioning the estate tax burden among all recipients of property included in a decedent’s gross estate for federal estate tax purposes, regardless of whether the property they received was included in the decedent’s probate estate. In addition, MUETAA would provide procedures for collecting and paying the tax. If a fiduciary is unable to collect from a person the estate tax properly apportioned to that person, the fiduciary is authorized to collect the deficiency from any person interested in the apportionable estate whose interest is not exonerated. To the extent the amount collected from such persons is insufficient to pay the tax due, the fiduciary would be authorized to collect the tax due from any person interested in the apportionable estate, even if their interest is exonerated. MUETAA would give anyone who pays more than his or her ratable share of the estate tax due a right of reimbursement against those who did not contribute their shared.
Transfer on Death Deeds
Mississippi law has long allowed for the non-probate transfer of bank accounts and securities to a beneficiary at the death of an owner through pay-on-death (“POD”) and transfer-on death (“TOD”) death designations. Currently, however, no comparable form of ownership exists with respect to real property. H.B. 1425 would change this by enacting the Uniform Real Property Transfer on Death Act (“URPTODA”). If adopted, the URTODA would allow an individual to transfer ownership of real property to a beneficiary at the owner’s death without the necessity of probate by executing and recording a transfer-on-death (“TOD”) deed. Prior to death, the TOD deed would remain inoperative and has no effect on the transferor’s rights with respect to the property, including the right to mortgage or sell the property. Until the transferor’s death, the beneficiary designation remains revocable and the beneficiary would not acquire any rights with respect to the property.
A TOD deed would be required to contain with all of the elements of any other deed, but it would not need to comply with the more stringent formalities required to execute a will. To be effective, the legislation would require the TOD deed to be signed by the transferor and recorded during the transferor’s lifetime in the office of the chancery court clerk for the county where the property is located. A TOD deed could be revoked by recording an instrument of revocation or by recording a subsequent TOD deed naming a different beneficiary. Upon the death of the transferor, title to the property would be transferred automatically by operation of law to the beneficiary of the TOD deed, subject to any conveyances, encumbrances, assignments, liens, or other interests in the property. To assist practitioners, the URTODA includes optional forms for TOD deeds and revocation of TOD deeds.
Creditor Rights with Respect to Beneficial Interests in Trusts
In 2012, Mississippi adopted the Mississippi Uniform Trust Code (“MUTC”), Miss. Code Ann. §§ 91-8-101 through 91-8-1206. Although the MUTC was based on the Uniform Trust Code (“UTC”), Mississippi did not adopt all of the provisions of the uniform act. Mississippi omitted Article 5 of the UTC, which addressed creditor’s rights with respect to revocable and irrevocable trusts. The omission was due, in part, to the fact many of the issues addressed by Article 5 had previously been addressed by Mississippi when it enacted the Family Trust Preservation Act of 1998, Miss Code Ann. §§ 91-9-501 through 91-9-511. The omission left a gap in the law. While the MUTC and the Family Trust Preservation Act of 1998 collectively addressed the substantive rights of creditors to revocable and irrevocable trusts, they did not address the procedural aspect of creditor’s claims against such trusts. At the same time, the statutes used different terminology, which presented interpretive issues regarding how they interacted.
H.B. 1425 would repeal the Family Trust Preservation Act of 1998 and enact a modified version of Article 5 of the UTC. In addition to addressing the substantive rights of a beneficiary’s creditor or assignee, the effect of spendthrift provisions, and rights with respect to mandatory and discretionary interests, the bill would establish a procedure for creditors to assert claims against the settlor of a revocable and irrevocable trust, both during life and after death. The bill would also the address the circumstances under which the holder of a power of withdrawal could be considered the settlor of an irrevocable trust, and it would protect property from the claims of creditors in the event the beneficiary of an inter vivos QTIP trust created by the beneficiary’s spouse predeceases his or her spouse and the trust and property passes back to the original settlor.
Uniform Disclaimer of Property Interest Act
Mississippi adopted the Uniform Disclaimer of Property Interest Act (“UDPIA”), Miss. Code Ann. §§ 89-21-1 through 89-21-17, effective July 1, 1994. The current version of UDPIA allows an individual who has inherited acquired and interest in property to disclaim that interest, in whole or in part, by filing a disclaimer to that effect with the chancery clerk and delivering a copy to the personal representative of the estate within 9 months of the decedent’s death or the effective date of an inter vivos transfer.
H.B. 1425 would repeal UDPIA and replace it with the latest version of the uniform act, which was promulgated in 2010. The new version of UDPIA would improve on the current version of the law by addressing disclaimers of various forms of property, as well as disclaimers of powers over property and disclaimers of powers held in a fiduciary capacity. The new version of the UDPIA would also address different types of interests in property, including future interests held outright or in trust and concurrent present interests, and provide greater detail on the form of the disclaimer, delivery of the disclaimer, and the effect of the disclaimer.
Revocation by Divorce
Although a growing number of states have adopted statutes expressly providing for revocation of the provisions of a will in favor of a former spouse upon divorce, Mississippi has not. Under current Mississippi, divorce does not revoke the provisions of a pre-divorce will or trust made in favor of a former spouse. H.B. 1425 would change that by providing for automatic revocation of the provisions of a pre-divorce will or revocable trust, including fiduciary appointments, made in favor of a former spouse or a relative of a former spouse who is not a relative of the testator, unless the will or trust expressly provides otherwise. In addition to wills and trust the bill would also apply to beneficiary designations and certain power of appointment granted to a former spouse or relative of a former spouse who is not a relative of the deceased spouse prior to divorce. When a disposition is revoked, the bill provides that the property will pass as if the former spouse and each relative of the former spouse who is not a relative of the deceased spouse disclaimed the property or died immediately prior to the dissolution of the marriage.
