In re The Estate of Mason R. Foertsch, Debra S. Foertsch v. Marcus Foertsch, David Foertsch, and Brian Foertsch ( 2017 )

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.
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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.
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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.
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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
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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.
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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.
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***
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.
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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
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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.
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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
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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
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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
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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.
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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.
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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..
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