United States: Drafting In A Parallel Universe

A U.S. District Court for the Southern District of Georgia, recently engaged in an ontological thought experiment reminiscent of the "many-worlds" interpretation of quantum mechanics.The case centered on an estate's right to seek reimbursement of estate taxes from recipients of non-probate assets.1 The result was intellectually rigorous to the point of defying expectation and defiantly producing a conventionally illogical outcome.

In summary, the court concluded that if a state statute for will construction posits a world in which your ex-wife predeceased you, then your estate can't seek reimbursement from her for payment of estate taxes, even though in (your) reality she received non-probate assets whose value was included in your taxable estate—except with respect to life insurance proceeds, in which case there's a specific federal statute that puts you back on Earth-One, where your ex-wife still exists and must reimburse your estate.

The Facts in This Reality

Thomas H. Smoot, II died on Feb. 16, 2009. As a result of Thomas' death, his ex-wife, Dianne, received life insurance proceeds and retirement assets totaling about $5.4 million. Thomas' total taxable estate, which included the non-probate assets passing to Dianne, was about $7.8 million, producing a federal estate tax liability of about $1.4 million.

The court concluded that Thomas' will contained a tax allocation clause that provided that each recipient of property included in his taxable estate was to pay a pro rata share of estate taxes, based on the value of the property that he or she received. (Incidentally, by carefully reading the tax allocation clause quoted by the court, one can become convinced that the clause doesn't actually mean anything at all.) Thomas' executor paid the federal estate tax and then brought a claim against Dianne for reimbursement of her pro rata share of the estate tax liability, which was calculated to be about 69.8 percent of the total.

The court considered the issues on the executor's motion for summary judgment.

Life Insurance Proceeds

The executor sought reimbursement of estate taxes with respect to the life insurance proceeds Dianne had received. Using a fairly straightforward analysis, the court held in favor of reimbursement.

The court cited the Internal Revenue Code Section 2206, under which the executor is entitled to reimbursement for a pro rata share of estate taxes attributable to the proceeds of life insurance paid to a beneficiary other than the executor, unless the decedent directs otherwise in his will. The court held that the tax allocation clause in Thomas' will didn't contemplate a tax allocation scheme different from IRC Section 2206

Therefore, the court held that Dianne must reimburse the executor with respect to estate taxes paid on the value of the life insurance proceeds she received.

Other Non-Probate Assets

The executor also sought reimbursement of estate taxes with respect to the retirement assets Dianne had received. The amount at issue was $353,879.

Under Georgia law, "[a]ll provisions of a will made prior to a testator's final divorce . . . in which no provision is made in contemplation of such event shall take effect as if the former spouse had predeceased the testator . . ."2 Thomas had executed his will before he divorced Dianne, and apparently his will made no provision in contemplation of the divorce.

At this point, the court constructed the alternative reality in which Dianne had predeceased Thomas. The court reasoned that Georgia law required the will to be given effect as though Dianne had predeceased Thomas. Therefore, the tax allocation provision couldn't be applied to Dianne, and the executor couldn't seek reimbursement from her.

The court recognized that the outcome in this case, which produced a greater net benefit for the ex-spouse, was probably contrary to the legislative intent of the will construction statute, but the court couldn't find an ambiguity in the statute that would mitigate Dianne's non-existence for purposes of estate tax reimbursement.

Different Worlds; Different Results

So how could the court reconcile Dianne's survival regarding the life insurance with her early demise as to the other non-probate assets? Although the court never alluded to the many-worlds theory, its decision seems to be a strict application of its principles.

In 1957, mathematician Hugh Evert III published his many-worlds interpretation of quantum mechanics which, grossly simplified, states that whenever systems interact in a manner that could produce more than one result, they actually produce all potential results, each in a separate reality. These separate realities don't influence one another but instead continue to split based on their own systems interacting, ad infinitum. We only observe one result each time reality splits because an observer can only occupy one reality at a time.3 The world of science fiction quickly picked up this idea, which became popularly known as parallel universes. One early example appears in DC Comics' Justice League of America #21 (August 1963), which established that contemporary superheroes existed on Earth-One, and their counterparts from an earlier generation of comic books continued to exist on Earth-Two. A similar parallel universe or alternative universe concept was used to explain the recent reboot of Star Trek movies, in which the characters' backstories deviate from the original TV series and earlier movies.

So the Smoot court was saying that the Georgia will construction statute created an alternative reality in which Dianne pre-deceased Smoot, even for purposes of the tax allocation clause. Therefore, when the will was the only source of the executor's authority to pursue estate tax reimbursement, which was the case with respect to the non-life insurance assets, the executor's authority could only be exercised in the universe in which Dianne had predeceased Smoot (and presumably didn't receive the non-probate assets) and thus didn't exist as a defendant.

In contrast, the executor's authority to seek estate tax reimbursement with respect to life insurance proceeds was granted independently by a federal statute, which wasn't subject to the terms of Georgia's will construction statute and, therefore, that authority could be exercised in the universe in which Dianne survived Smoot (and received the life insurance proceeds) and thus could be named as a defendant.

Lesson of the Case

It's difficult to draft will provisions for the many contingencies that might occur in the reality in which we operate, but sometimes estate planners may even need to consider how their drafting may be given effect in a parallel universe.

Footnotes

  1. Smoot v. Smoot, CV 213-040 (U.S. Dist. Ct. S.D. Georgia (March 31, 2015).
  2. Ga. Code Ann. Section 53-4-49.
  3. For a much more intelligent treatment of this subject, see Peter Byrne, "The Many Worlds of Hugh Everett," Scientific American (December 2007), www.scientificamerican.com/article/hugh-everett-biography/.

Previously published on WealthManagement.com

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.