Revision to General Power of Appointment
There has been a revision to a Section 72-7-502 of the Montana Code Annotated. This section is part of the Montana Uniform Powers of Appointment Act. The revision makes it clear that a property subject to a general or non-general power of appointment, created by a person other than the powerholder, is exempt from a claim by a creditor of the powerholder.
Updated Montana Probate Code – Senate Bill No. 225 – 2019 Legislative Session
What is Probate? Probate is the process of administering an individual’s estate after they die. The process serves as a means to conclude a deceased individual’s legal and financial matters.
If an individual has a Last Will and Testament, the individual has died testate, and the probate will be a testate probate. The Original Will is filed with the Court and the estate is administered according to the Will and Montana’s probate laws.
If an individual dies without a Will, then the individual is intestate, and Montana’s Probate Code determines the beneficiaries of the deceased intestate individual’s estate.
The Montana Probate Code has two ways an estate (testate or intestate) can be administered: formal probate proceeding or informal probate proceeding.
A formal probate proceeding involves a higher level of judicial supervision and requires a hearing in front of a judge to open and close the estate. The formal probate process is more expensive and time consuming, but can be necessary when there are major conflicts among the beneficiaries/heirs.
An informal probate proceeding is an administrative process without direct judicial involvement and no court hearings. The informal probate process is used to administer most estates. An informal probate is appropriate when there are no major conflicts or contests among the beneficiaries/heirs. The informal probate process is the most cost effective and easiest way to administer an estate.
Montana’s Uniform Probate Code provides the legal framework for administering an estate, whether formally or informally, testate or intestate.
Montana’s Uniform Probate Code received a comprehensive revision in this 2019 legislative session. The last comprehensive update to Montana’s Probate Code was in 1993.
Parents’ Ability to Inherit from Child is Modified in Certain Circumstances
Currently, Montana Code Ann. 72-2-124 deals with when a parent will not inherit from a child. The current statute is vague and lacks specificity, essentially stating that a parent cannot inherit if they fail to meet the legal obligations of a parent.
Section 2-114 of the Uniform Probate Code adds more specificity as to when a parent may not inherit from their deceased child. It provides that a parent will not inherit if parental rights have been terminated or could have been terminated under law. This statute also specifically incorporates seven specific grounds for termination of parental rights found in Montana Code Ann. 42-2-607.
Spousal Elective Share now includes Retirement Plans
Under Montana Code Ann 72-2-222(3)(c), retirement plans were not included in the augmented estate. This has been changed so that now, retirement accounts will be included in the augmented estate.
Before creditors are paid in an estate, there are three allowances to which eligible family members are entitled. These allowances have the highest priority. This means if there are millions of dollars in debt and limited assets, the allowances are paid before any creditor. The allowances are as follows:
The Family Allowance has been increased from $18,000 to $27,000. The Family Allowance is available to the decedents’ surviving spouse and minor children whom the decedent was obligated to support. This allowance is for maintenance of the family during the period of administration.
The Homestead Allowance has been increased from $20,000 to $22,500. The surviving spouse is entitled to the Homestead Allowance. If there is no surviving spouse, each minor child and each dependent child of the decedent is entitled to the Homestead Allowance.
Exempt Property Allowance
The Exempt Property Allowance has been increased from $10,000 to $15,000. The surviving spouse is entitled to an amount not to exceed $15,000 of equity in household furniture, automobiles, furnishings appliances, and personal effects. The surviving spouse can elect to take cash.
The Montana Uniform Premarital Agreement Act allows spouses to modify certain rights to property in the event of divorce. The Montana Probate Code handles the ability for a premarital agreement to waive spousal rights upon the death of a spouse. The spousal rights that can be waived are the rights to the elective share, the homestead allowance, exempt property allowance, and family allowance.
The old Montana Probate Code did not parallel the Uniform Premarital Agreement due to its age. Thus, there were some ambiguities. Now, the new Montana Probate Code will parallel our Uniform Premarital Agreement Act. The major changes in the Montana Probate Code concerning premarital agreements are the definitions for “independent legal representation,” and “adequate financial disclosures.” Finally, the new Montana Probate Code allows a court the flexibly to choose not to enforce a certain term in an agreement, as opposed to voiding the entire agreement based on one clause.
Under the new Montana Probate Code, a spouse will have had access to independent legal representation if:
- Before signing an agreement, the surviving spouse had reasonable time to:
- Decide whether to retain a lawyer to provide independent legal representation; and
- Locate a lawyer to provide independent legal representation, obtain the lawyer’s advice, and consider the advice provided; and
- The other spouse was represented by a lawyer and the surviving spouse had the financial ability to retain a lawyer or the other spouse agreed to pay the reasonable fees and expenses of independent legal representation.
Under the new Montana Probate Code, a surviving spouse will have had adequate financial disclosure under this section if the surviving spouse:
- received a reasonably accurate description and good-faith estimate of the value of the property, liabilities, and income of the spouse;
- expressly waived, in a separate, signed record, the right to financial disclosures beyond the disclosure provided; or
- had adequate knowledge or a reasonable basis for having adequate knowledge of the information described in subsection (5)(a).
Ademption of Specific Devises
Subsection (f) of 72-2-616, as amended, changes the default assumption concerning ademption of specific devises.
Prior to the 2019 update, the default rule was abeneficiary would receive the cash value of a specific devise that was not in the testator’s estate The update to the Montana Uniform Probate Code changed this presumption and now it is presumed that the beneficiary gets nothing if the property is no longer part of the estate. Obviously, this presumption may be rebutted with evidence that the ademption would be inconsistent with the testator’s plan.
New Section: Reformation to Correct Mistakes
With the 2019 update, a new section is added to the Montana Probate Code, which would allow for courts to reform the terms of a governing instrument – even if unambiguous – to conform to the terms of the transferors’ intention, if proved by clear and convincing evidence of the transferor’s intention and terms of the governing instrument were affected by a mistake of fact or law, whether in expression or inducement.
Governing Instrument means a deed; will; trust; insurance or annuity policy; account with POD designation; security registered in beneficiary form (TOD); pension, profit-sharing, retirement or similar benefit plan; instrument creating or exercising a power of appointment or a power of attorney; or dispositive, appointive, or nominative instrument of any similar type.
Clear and Convincing evidence is a medium level of burden of proof. It is more rigorous than the “preponderance of the evidence standard,” but less rigorous then the “beyond a reasonable doubt” standard. In order to meet the “clear and convincing” burden of proof, the alleging party must prove that their contention is substantially more likely than not true.
Compensation of Personal Representative
Section 72-3-631 of the Montana Code Annotated is amended. The new Section 72-3-631 acknowledges that a personal representative is entitled to reasonable compensation, but it removes the fee based formula that existed pre-2019 update. There is no percentage cap on reasonable fees.
Compensation of Attorney
The statute limiting compensation of an attorney without court approval to essentially 3% of the estate has been removed. Now, attorneys will be limited to just a reasonableness standard.
Just because the statutory caps have been removed does not mean that there is no oversight. Any interested person (i.e. beneficiary or creditor) can petition the court concerning the propriety of the personal representative’s fee or the fee of any person employed by the estate, including attorneys, investment advisors, and accountants.
Montana Business Corporation Act
The Model Business Corporation Act is a model set of law prepared by the Committee on Corporate Laws. The first Model Business Corporation Act was created in 1950. Each state has the ability to adopt the Model Business Corporation Act in part, in full, or with modification.
Montana adopted the Model Business Corporation Act in 1968 (Act). Montana adopted a revised version of the Act in 1991. While a few isolated amendments were made to the Act, the bill signed by the Governor on May 2, 2019 was the first major overhaul to the Act in 28 years.
Note: this Act applies only to corporations and not to limited liability companies.
Ratification of Defective Corporate Actions
The 2019 revised Act provides a process for ratifying defective corporate actions, where prior Montana law had no statutory process.
A defective corporate action is an action purportedly taken, that at the time it was purportedly taken, would have been within the power of the corporation, but the action is voidable due to a failure of authorization.
An example of a defective corporate act is a corporation’s failure to observe the proper procedures in election of a director which could result in the invalidation of such election. In the event of such a defective election, actions taken by or with the approval of the improperly elected director may be void or voidable. This could result in the corporation being in breach of any number of contracts entered by the board with the improperly elected director.
To correct a defective corporate action, the following is a general overview of what must occur:
- the defective corporate action must be described, including the date the action occurred and the nature of the failure; then,
- if the defective corporate action requires shareholder or board approval, it must be submitted to the board or shareholders; and
- when ratifying the act, the same voting requirements are applicable as if the action was properly approved at the time it was taken; and
- all Shareholders, irrespective of voting rights, must be notified; and
- the corporation, if desired, may seek judicial ratification in district court.
Non-Cumulative Voting is now the Default
With the revision to the Act in 2019, default shareholder voting was changed from cumulative to non-cumulative.
Cumulative voting means that each shareholder is entitled to one vote per share, multiplied by the number of directors to be elected. The voting shareholder is allowed to give all its cumulative votes to one candidate or a varying number of candidates. This type of voting is said to benefit minority shareholders because they have the option to focus all their cumulative votes on a single director, thus, often providing them the ability to elect at least one director.
Non-cumulative voting means each shareholder only gets one vote per-share for each candidate. The result is that the majority shareholder will elect the entire board.
New Part for Domestication and Conversion of Eligible Entities
There is an entirely new part in the Act which creates procedures for changing the state of incorporation from Montana for domestic corporation or to Montana for foreign corporations. It also provides a procedure for converting unincorporated entities into corporation and corporations into unincorporated entities.
This new procedure looks at the laws of the state the corporation currently exists in and the laws of the state to which the corporation is moving. If the laws of the other state allow the move to or move from Montana, then there is a statutory process for accomplishing change location.
This new part of the code will allow for a corporation to convert to a limited liability company and provides a process for doing so.
A conversion to a corporation from a limited liability company might be desired if the entity is looking to raise money through seeking investors.
A conversion from a limited liability company to a corporation might be desired if the entity wants to avoid the corporate formalities.
Remember: using Montana’s new conversion laws does not guarantee a tax-free reorganization. Just because we can change from a corporation to a limited liability company under Montana’s laws does not mean we can change from an S or C corporate taxation to partnership taxation.
Mergers and Share Exchanges
Prior to the 2019 revision to the Act, the default rule required a merger or share exchange to be approved by two-thirds of the shareholders entitled to vote on the merger or share exchange (an absolute two-thirds vote). The Articles of Incorporation could alter the default rule, but to no less than a majority of the shareholders entitled to vote.
Under the 2019 revision to the Act, the default shareholder approval for mergers and share exchanges is reduced from two-thirds to a majority. The proposed legislation allows the default rule to be changed in the Articles of Incorporation, but to no less than a majority of a quorum of shareholders.
Disposition of Assets
Sale of assets outside the ordinary course of business – i.e. a sale such that the corporation post sale would no longer have a significant continuing business activity – requires shareholder approval. The default vote to approve has been reduced from a two-thirds vote to a majority, unless the Articles of Incorporation require a greater vote.
Dissolution of a corporation requires shareholder approval. The default vote to approve dissolution has been reduced from a two-thirds vote to a majority, unless the Articles of Incorporation require a greater vote.
Montana departs from the Model Business Corporation Act by allowing, in lieu of publication in a newspaper, the dissolving corporation to elect to publish notice of dissolution on its website for 30 consecutive days. Proper notice results in unknown claims against the entity be barred after 3 years from the date of first publication. Note: known creditors must be provided with direct notice.
Beneficiary Designation for Vehicles – Tabled and Likely Dead
A new statute was proposed that would allow the owner or joint owner of a vehicle to arrange for the transfer of the vehicle’s title at the time of death of the owner or last surviving joint owner by executing and notarizing a beneficiary designation form that will be prescribed by the department.