N O T IC E
Th is ord er w as file d u nd er S up re m e
Co urt R u l e 2 3 and may not be cited as
precedent by any party except in the
limited circum sta nc es allow ed und er R ule
23(e )(1).
NO. 4-10-0621
Order Filed 3/18/11
IN THE APPELLATE COURT
OF ILLINOIS
FOURTH DISTRICT
JOHN SUNDERLAND and REBECCA MUELLER,
)
Appeal from
Co-Personal Representatives of the
)
Circuit Court of
Estate of MARY E. SUNDERLAND,
)
Jersey County
Deceased,
)
No. 09L31
Plaintiffs-Appellants,
)
v.
)
Honorable
ANITA COOPER and COOPER & McDONALD,
)
Eric S. Pistorius,
LLP,
)
Judge Presiding.
Defendants-Appellees.
_________________________________________________________________
JUSTICE TURNER delivered the judgment of the court.
Justices Appleton and Pope concurred in the judgment.
ORDER
Held: (1) Where the decedent held a testamentary power
of appointment over a one-half interest in real
estate held in her husband's trust, the decedent's
transfer of that one-half interest into her trust,
which resulted in her owning 100% of the property,
did not cause her to lose a fractional discount
for estate-tax-valuation purposes.
(2) Where the attorney's alleged malpractice resulted in an increase in valuation of property for
estate-tax purposes, the date of any injury occurred on the date of the decedent's death, and
thus section 13-214.3(d) of the Limitations Act
applied.
In October 2009, plaintiffs, John Sunderland and
Rebecca Mueller, as co-personal representatives of the estate of
Mary E. Sunderland, deceased, filed a legal-malpractice complaint
against defendants, Anita Cooper and her law firm Cooper &
McDonald, LLP.
In January 2010, defendants filed a motion for
summary judgment, asserting plaintiffs' complaint was time barred
under section 13-214.3(d) of the Limitations Act (735 ILCS 5/13214.3(d) (West 1994)).
In July 2010, the Jersey County circuit
court granted defendants' motion.
Plaintiffs appeal, asserting
the court erred by granting the summary-judgment motion because
the date of injury is a disputed issue of material fact.
We
affirm.
I. BACKGROUND
Mary, the decedent, was married to Lloyd Sunderland,
and they had five children.
dren.
Plaintiffs are two of their chil-
In 1993, Mary and Lloyd owned 8.9 acres of improved land
(Property).
At that time, Mary and Lloyd retained Cooper to
prepare revocable living trusts for each of them.
Cooper did so,
and Lloyd and Mary executed the trusts on September 30, 1993.
Mary and Lloyd then transferred an undivided one-half interest in
the Property to each of their revocable living trusts.
Lloyd passed away on September 16, 2002.
According to
Cooper's affidavit, Lloyd's living trust provided that, upon his
death, a marital trust would be set up and include his one-half
interest in the Property.
(Plaintiffs agreed with that fact in
their February 25, 2010, memorandum.)
Cooper's affidavit further
stated that, under the terms of the marital trust, Mary had a
general power of appointment over all of the property and income
in the marital trust.
A copy of Lloyd's living trust is not
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included in the record on appeal.
In May 2003, Mary executed an amended and restated
revocable living trust that was prepared by Cooper.
In the
restated trust, Mary was cotrustee of the trust with plaintiffs.
On June 18, 2004, Mary exercised her power of appointment in
Lloyd's trust (plaintiffs' complaint states the power was in
Lloyd's living trust, and Cooper's affidavit states it was in the
marital trust) and conveyed the one-half interest in the Property
held by Lloyd's trust to herself, as trustee of her own living
trust.
Cooper prepared and recorded the deed.
After the trans-
fer, Mary's living trust owned all of the Property.
Mary died on January 9, 2007.
firm represented Mary's estate.
Neither Cooper nor her
In October 2007, Mary's estate
filed a federal estate-tax return, which listed the Property's
appraised value as $1,523,000.
The return then took a 50%
discount for Mary's one-half interest and a 20% fractionalinterest discount for a value of $609,200.
The return listed the
other one-half interest in the Property as being owned through
Lloyd's marital trust and also having a $609,200 value.
The
return reported a total taxable estate of $3,584,680 with an
estate tax of $713,106.
The Internal Revenue Service (IRS) audited Mary's
estate-tax return and issued a report in August 2009.
In the
IRS's report of estate-tax-examination changes, it added "Lloyd'- 3 -
s" one-half interest in the Property and took away the fractional
discounts, which resulted in a $913,800 increase in the value of
the taxable estate.
The IRS report noted Mary had a general
power of appointment during her lifetime and a testamentary
general power of appointment exercisable at her death over the
Property interest contained in Lloyd's marital trust.
The report
also noted Mary's transfer of Lloyd's one-half interest in the
Property to her trust.
The report further stated the two one-
half interests had to be aggregated for estate-tax-valuation
purposes, and thus a fractional discount did not apply.
The IRS
referred to an opinion by the United States Tax Court, which
held, that for estate-tax-valuation purposes, the stock of a
company owned by a decedent outright had to be aggregated with
the company stock in a trust over which the decedent had a
general testamentary power of appointment.
See Estate of Fontana
v. Commissioner of Internal Revenue, 118 T.C. 318, 322 (2002).
The IRS made other changes to Mary's estate-tax return, and the
overall increase in the value of the taxable estate was $674,908,
which resulted in additional $178,411 in estate taxes.
On October 7, 2009, plaintiffs filed their complaint
against Cooper and her law firm, alleging legal malpractice based
on defendants' failure to advise Mary about (1) the use of the
general power of appointment to convey the undivided one-half
interest to her living trust and (2) the fractional interest
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discount that her estate would be entitled to if she did not
convey the one-half interest in Lloyd's trust.
Plaintiffs also
alleged defendants failed to disclose and concealed from them the
aforementioned breaches and negligent acts.
In November 2009,
defendants filed their answer and affirmative defenses.
The next
month, defendants filed an amended answer, specifically alleging
the complaint was time barred by section 13-214.3(d) of the
Limitations Act.
In January 2010, defendants filed a motion for summary
judgment based on section 13-214.3(d), asserting the injury
occurred on the date of Mary's death.
In support of their
motion, they filed a memorandum and Cooper's affidavit.
While
defendants' memorandum stated the docket sheets for Mary's
probate case (In re Estate of Sunderland, No. 07-P-29 (Jersey Co.
Cir. Ct.)) were also attached to it, the record on appeal does
not contain any docket sheets for the probate case.
In response
to the summary-judgment motion, plaintiffs filed a memorandum,
asserting the injury occurred at the time of the conveyance and
the discovery rule applies.
Plaintiffs attached (1) the June
2004 warranty deed in trust, (2) Mary's estate-tax return, and
(3) the IRS's report that noted the changes made after its audit
and examination.
Defendants filed a reply and attached Mary's
amended and restated living trust.
On March 1, 2010, the trial court commenced a hearing
- 5 -
on the summary-judgment motion.
After hearing the parties'
arguments, the court asked the parties to brief the issue of
whether a transfer after the June 2004 transfer but before Mary's
death would have been effective.
memoranda and replies.
The parties filed supplemental
In June 2010, the court heard further
arguments on the summary-judgment motion.
On July 13, 2010, the
court filed its written order, granting defendants summary
judgment.
The court found the date of injury was Mary's death
because Mary could have transferred Lloyd's share up to her death
and thus corrected the problem.
On August 10, 2010, plaintiffs
filed their notice of appeal in compliance with Illinois Supreme
Court Rule 303 (eff. May 30, 2008), and thus this court has
jurisdiction under Illinois Supreme Court Rule 301 (eff. Feb. 1,
1994).
II. ANALYSIS
A. Standard of Review
A grant of summary judgment is only appropriate when
the pleadings, depositions, admissions, and affidavits demonstrate no genuine issue of material fact exists and the movant is
entitled to judgment as a matter of law.
735 ILCS 5/2-1005(c)
(West 2008); Williams v. Manchester, 228 Ill. 2d 404, 417, 888
N.E.2d 1, 8-9 (2008).
With regard to analyzing summary-judgment
motions, our supreme court has stated the following:
"In determining whether a genuine issue
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as to any material fact exists, a court must
construe the pleadings, depositions, admissions, and affidavits strictly against the
movant and liberally in favor of the opponent.
A triable issue precluding summary
judgment exists where the material facts are
disputed or where, the material facts being
undisputed, reasonable persons might draw
different inferences from the undisputed
facts.
Although summary judgment can aid in
the expeditious disposition of a lawsuit, it
remains a drastic means of disposing of litigation and, therefore, should be allowed only
where the right of the moving party is clear
and free from doubt."
Williams, 228 Ill. 2d
at 417, 888 N.E.2d at 9.
Additionally, a reviewing court "may affirm a grant of summary
judgment on any basis appearing in the record, regardless of
whether the lower court relied upon that basis."
Salerno v.
Innovative Surveillance Technology, Inc., 402 Ill. App. 3d 490,
496, 932 N.E.2d 101, 108 (2010).
We review de novo the trial
court's grant of a motion for summary judgment.
228 Ill. 2d at 417, 888 N.E.2d at 9.
B. Date of Injury
- 7 -
See Williams,
The provisions of section 13-214.3 of the Limitations
Act (735 ILCS 5/13-214.3 (West 1994)) at issue here provide the
following:
"(b) An action for damages based on
tort, contract, or otherwise (i) against an
attorney arising out of an act or omission in
the performance of professional services ***
must be commenced within 2 years from the
time the person bringing the action knew or
reasonably should have known of the injury
for which damages are sought.
(c) Except as provided in subsection
(d), an action described in subsection (b)
may not be commenced in any event more than 6
years after the date on which the act or
omission occurred.
(d) When the injury caused by the act or
omission does not occur until the death of
the person for whom the professional services
were rendered, the action may be commenced
within 2 years after the date of the person's
death unless letters of office are issued or
the person's will is admitted to probate
within that 2 year period, in which case the
- 8 -
action must be commenced within the time for
filing claims against the estate or a petition contesting the validity of the will of
the deceased person, whichever is later, as
provided in the Probate Act of 1975."
See Petersen v. Wallach, 198 Ill. 2d 439, 443 n.1, 764 N.E.2d 19,
21 n.1 (2002) (explaining why the 1994 version of the statute is
the applicable one).
Plaintiffs argue the injury occurred when Mary transferred Lloyd's one-half interest in the Property to her living
trust in June 2004, which they did not discover until the IRS
denied the fractional discount in August 2009.
Thus, their
October 2009 complaint was timely under both sections 13-214.3(b)
and 13-214.3(c) of the Limitations Act.
Defendants contend the
injury occurred at Mary's death, and thus under section 13214.3(d) of the Limitations Act, plaintiffs' complaint is untimely as it had to be filed at the latest by January 9, 2009.
We note the parties appear to agree Mary's probate case did not
extend the time for filing the action beyond two years.
Plaintiffs' argument is premised on the fact Mary's
estate was entitled to fractional discounts on the two separate
one-half interests in the Property without the June 2004 warranty
deed.
However, in 2002, the United States Tax Court held that,
when a decedent holds a testamentary general power of appoint- 9 -
ment, the share of property subject to the testamentary general
power of appointment must be aggregated with the share of property the decedent owned outright.
Fontana, 118 T.C. at 322.
While the record on appeal lacks a copy of Lloyd's living trust,
the IRS's explanation of its changes stated Mary held a testamentary general power of appointment over Lloyd's one-half interest
in the Property.
In their reply brief, plaintiffs state Lloyd's
trust gave Mary a general power of appointment exercisable at her
death.
Thus, even if the one-half interests had remained sepa-
rate at Mary's death, Mary would not have been entitled to take
fractional discounts on the separate one-half interests because,
under Fontana, they had to be aggregated, making Mary a 100%
owner of the Property.
Accordingly, based on the relevant
undisputed facts, Mary's estate was not injured by the 2004
warranty deed as the deed did not alter the valuation of the
Property for estate-tax purposes.
Assuming arguendo Mary's estate was injured by the 2004
warranty deed or some other act or omission by Cooper that failed
to provide the fractional discounts, defendants argue any claim
would be time barred under section 13-214.3(d) of the Limitations
Act.
When determining whether section 13-214.3(d) is applicable,
a court's sole inquiry is whether the injury caused by the
malpractice occurred upon the client's death.
Fitch v. McDermot-
t, Will & Emery, LLP, 401 Ill. App. 3d 1006, 1022, 929 N.E.2d
- 10 -
1167, 1182 (2010).
In Wackrow v. Niemi, 231 Ill. 2d 418, 425, 899 N.E.2d
273, 278 (2008), the supreme court found section 13-214.3(d)
applied to a legal-malpractice claim based on the drafting of an
amendment to the decedent's trust document.
The plaintiff
claimed she did not receive the decedent's residence under the
trust document because the defendant-attorney failed to perform a
title search, which would have shown the residence was owned by
another trust and not the decedent.
420-21, 899 N.E.2d at 275-76.
Wackrow, 231 Ill. 2d at
The supreme court found it was
clear the injury did not occur until the decedent's death because
the decedent could have revoked the amendment or changed the
beneficiary prior to his death.
Wackrow, 231 Ill. 2d at 425, 899
N.E.2d at 278.
Plaintiffs assert this case is distinguishable from
Wackrow because Mary could not have undone the June 2004 conveyance and thus any tax benefits were lost.
However, Wackrow does
not require the ability to remedy the error for the injury to
have occurred at the decedent's death.
In fact, the Wackrow
court pointed out the actions the decedent could have taken that
would have resulted in the plaintiff not receiving his residence
and not the decedent's ability to correct the defendant-attorney's error that would have allowed the plaintiff to receive the
residence as intended.
Wackrow, 231 Ill. 2d at 425, 899 N.E.2d
- 11 -
at 278.
As the Wackrow court highlights, remedying an error is
not the only way in which a potential injury does not become an
actual injury until the decedent's death.
We recognize our interpretation of Wackrow is contrary
to the Second District's statement the animating principle in
Wackrow is that, "as long as the client who had intended to
convey an interest to the plaintiff was still alive, the attorney's error could be remedied at any time, by the drafting of a
deed or other conveyance that effectuated his intent."
Snyder v.
Heidelberger, 403 Ill. App. 3d 974, 978, 933 N.E.2d 1235, 1238
(2010).
However, only the author in Snyder agreed with the
aforementioned statement.
See Snyder, 403 Ill. App. 3d at 983,
933 N.E.2d at 1242 (O'Malley, J., dissenting) (commenting on his
agreement with Justice Jorgensen's special concurrence on a
different interpretation of why the injury did not occur until
the decedent's death).
In this case, the alleged error resulted in an increase
in the valuation of the Property for estate-tax purposes.
Under
the Internal Revenue Code, the value of a decedent's gross estate
is determined by the value of all property in the estate at the
time of the decedent's death.
26 U.S.C. §2031(a) (2006).
An
alternative valuation date is available (26 U.S.C. §2032 (2006)),
but plaintiffs did not elect that in this case.
Thus, the
critical moment for estate-tax-valuation purposes is the moment
- 12 -
of death.
Fontana, 118 T.C. at 322.
Accordingly, an injury, if
any, was sustained at Mary's death since that was the date used
for determining the value of the Property for estate-tax purposes.
Only a potential for injury existed before her death.
We
point out the law and IRS policy on fractional discounts applicable to Mary's estate could have changed until her death, the
valuation date.
The following example also illustrates how any
injury could not have occurred until Mary's death.
Under article
VIII of her restated living trust, Mary had the ability to sell
the entire Property to anyone for full consideration before her
death without raising any tax-avoidance issues with the IRS.
If
she would have done so, then the value of the Property at her
death would not have been an issue and no injury would have
occurred.
Thus, as in Wackrow, the date of injury, if an injury
occurred, was at Mary's death.
We note plaintiffs' contentions
regarding death-bed transfers and whether Mary did have a general
power of appointment to convey Lloyd's interest are irrelevant
and do not create an issue of material fact as to when any injury
occurred.
Accordingly, the trial court properly found section 13214.3(d) of the Limitations Act applies, and plaintiffs' complaint was untimely.
III. CONCLUSION
- 13 -
For the reasons stated, we affirm the Jersey County
circuit court's judgment.
Affirmed.
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