Let’s say Chris (again) dies on January 5, 2011. He has an estate plan with a typical Bypass/QTIP trust arrangement for his second wife, Suzy, remainder to his children from his first wife, along with a pour-over will. The children get the principal of the Bypass and QTIP when Suzy dies. Needless to say Chris’ children and Suzy despise one another. Suzy also dies in 2011, and under her estate plan all her property goes to her children from a prior marriage.
Chris owned stock in IBM, and on January 1, 2011, the company declared a dividend of $30,000 payable to Chris. IBM doesn’t set a required payment date for the dividend, but the actual payment occurs on January 10, 2011, five days after Chris died. Predictably (again), litigation ensues. Chris’s children claim the $30,000 should be allocated to “principal,” which means it goes to them as remaindermen. Suzy’s children claim the receipt was “income” due to Suzy, which goes to them under her estate plan. Who wins (assuming both sides have competent lawyers familiar with the P&I statute)?
The answer is found in Probate Code §16350 and §16346(c). Suzy’s income interest began on Chris’s date of death. The dividend was declared prior to that date, and deemed payable on the date of declaration under the Probate Code. Accordingly, the dividend is allocated to principal. Chris’s children, not Suzy’s children, get the cash.
But let’s say that IBM makes the dividend declaration on January 1, 2011, with a required payment date set as January 10, 2011, five days after Chris died? The result – the opposite. Suzy’s children get the cash. §16346(c).