Fiduciary Duty to Elect Portability
by Matthew Skotak
The Oklahoma Supreme Court recently upheld a ruling that has required the Personal Representative of an Estate to take the necessary steps to transfer the deceased spousal unused election (DSUE) to the surviving spouse. The case stems from the rights created by the federal gift and estate tax laws regarding portability. More specifically, beginning in 2010 one spouse was allowed to transfer, at death, his or her unused gift and estate tax exemption to the surviving spouse. Prior to 2010, each spouse had his or her own gift and estate tax exemption, but any portion of that exemption which remained unused by the spouse at death could not be transferred to the surviving spouse.
In In re Estate of Vose, 390 P.3d 238 (Okla. 2017), the Personal Representative of the Estate, one of the children of the decedent by a prior marriage, had refused to make the required election for transfer even though the surviving spouse agreed to pay the cost required to prepare the necessary Federal Estate tax return to do so.
The court rejected the personal representative’s argument regarding the surviving spouse’s standing, stating that effectively the right to portability of the DSUE was a beneficial interest in the estate for the surviving spouse, independent of the surviving spouse’s rights as an heir. This right to portability was an interest sufficient to give the surviving spouse standing to bring the claim.
The estate next argued that the parties’ premarital agreement constituted a waiver by the surviving spouse of any rights to the estate making a portability election. The court found that the right to portability only arose under the law in 2010, well after the premarital agreement had been made by the parties in 2006. Even though the court found that the parties intended a comprehensive waiver of their marital rights under law as it existed at the time of the premarital agreement, the court concluded that the agreement simply did not address portability because it was not part of the tax law at that time.
Ultimately, the court upheld the lower court’s determination that the fiduciary obligations of the personal representative to preserve the assets of estate applied, and required him to preserve and transfer the decedent’s unused federal estate tax exemption to the surviving spouse.
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. Thus, for those with an existing Premarital or Postmarital Agreement, especially those executed before 2010, the failure to address the transfer of unused gift and estate tax exemption between spouses at death could result in paying a purchase price or initiating litigation to obtain the deceased spouse’s unused estate tax exemption, like the surviving spouse in this case.