In January, the Oklahoma Supreme Court decided what appears to be a novel issue in the continuing development of the law surrounding portability of deceased spousal unused exclusion (DSUE) amounts. In In re Estate of Vose, the court affirmed a lower court order requiring an estate administrator, decedent’s son, to make a portability election in favor of his stepfather. However, in reaching that conclusion, the court made a number of statements suggesting that Oklahoma (perhaps unintentionally) imposes on executors a fiduciary duty to make the portability election, or at least to the extent that the decedent has not explicitly provided for it.
In Vose¸ the decedent and her second husband signed a prenuptial agreement just prior to their marriage. The agreement predated the existence of portability and, therefore, did not address whether either spouse was entitled to receive the benefits of the portability election. The agreement contained a mutual waiver of the right to be appointed administrator of the other’s estate as well as a waiver of all rights in the other’s separate estate, including elective share rights. Upon decedent’s death intestate, the probate court appointed the decedent’s son from her first marriage as administrator of the estate. The surviving spouse sought an order requiring election of portability of the decedent’s DSUE amount, which the probate court granted over the son’s objections that his stepfather’s waiver of his rights in the estate meant that he could not be treated as an heir with any interest in the estate under state law and that ordering the election was contrary to the prenuptial agreement.
In rejecting these objections, the Oklahoma Supreme Court pieced together several statements implying the existence of a fiduciary duty, though the opinion does not expressly claim to establish a general fiduciary duty to make a portability election in all cases. First, the court stated that §2010 (the portability provision of the Internal Revenue Code) grants the surviving spouse a potential interest in the decedent’s estate. Further, that right is “independent of [the spouse’s] ability to take as an heir.” So far so good – presumably the court recognized that the Code provides the estate (and not the surviving spouse) the option for portability, hence the reference to a “potential interest.”
However, after dispensing with the roadblock presented by the stepfather’s waiver of his rights via the prenuptial agreement (a subject for another blog post perhaps as the court diverged from what has been a general resistance to allowing surviving spouses to claim statutory rights created after execution), the court went on to provide very little room for the “potential” aspect of the interest. The court stated that the administrator has a duty “to preserve the [assets of the estate] from damage, waste, and injury.” Further, the administrator is a fiduciary “toward all parties having an interest in the estate” (which now potentially includes the surviving spouse). The son argued that as the DSUE amount is an asset of the estate and §2010 gives the executor sole discretion to make the election, he should be permitted to bargain with his stepfather for consideration in exchange for making the election. But, and here’s where the court may have gone further than intended, the court stated that the spouse was “the only person with an interest in and ability to use the DSUE” amount. If the election is not made, the asset is lost entirely.
Although the opinion suggests that there may be an “out” for an executor to show that the drawbacks of electing portability (e.g., the extension of the audit window on the decedent’s estate) outweigh the benefit of the DSUE amount to the spouse, it is hard not to think that the Vose decision will be treated as a general requirement that executors elect portability. It will certainly be the first stop for any Oklahoma surviving spouse caught in a dispute with an uncooperative executor. The Vose opinion leaves some open questions however. First, will the probate courts in Oklahoma interpret the opinion as broadly as I suggest above, and even if they do, how will they balance the benefits and burdens of the election (will they defer to a well-reasoned justification by the executor or take on a “rebalancing” of their own de novo)?
Second, given the court’s lack of an explicit finding that there is a fiduciary duty to make the portability election, how does this duty apply (if at all) in cases where a decedent makes explicit provision regarding the DSUE amount – either by will or otherwise – that an election should not be made or should be made only under certain conditions or circumstances? It is reasonable to argue that such an instruction would strip the surviving spouse of the “potential interest” in the DSUE amount. It is also possible that the executor’s duty to implement the will and wishes of the decedent trumps the duty to administer the estate in the best interests of the beneficiary.
Whatever the answer to these questions, the Oklahoma Supreme Court certainly provided us an interesting set of new issues surrounding portability (assuming the estate tax itself survives) to watch in the near future.
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