Foertsch v. Foertsch (In re Estate of Foertsch)

• Decision Date: 07 December 2017
• Docket Number: Court of Appeals Case No. 74A05–1702–ES–375
• Parties: IN RE the ESTATE OF Mason R. FOERTSCH, Deceased, Debra S. Foertsch, Appellant, v. Marcus Foertsch, David Foertsch, and Brian Foertsch, Appellees.
• Court: Indiana Appellate Court

88 N.E.3d 785

IN RE the ESTATE OF Mason R. FOERTSCH, Deceased,

Debra S. Foertsch, Appellant,

v.Marcus Foertsch, David Foertsch, and Brian Foertsch, Appellees.

Court of Appeals Case No. 74A05–1702–ES–375

Court of Appeals of Indiana.

Filed December 7, 2017

Attorneys for Appellant : D. Andrew Nestrick, Raymond P. Dudlo, Stoll Keenon Ogden PLLC, Evansville, Indiana

Attorneys for Appellees : David L. Jones, David E. Gray, Jones Wallace, LLC, Evansville, Indiana

Robb, Judge.

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.

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.

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 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.

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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."

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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.

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.

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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.

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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 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 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. 1...