Senate Study Bill 1078 - Introduced SENATE FILE _____ BY (PROPOSED COMMITTEE ON JUDICIARY BILL BY CHAIRPERSON SODDERS) A BILL FOR An Act relating to probate and estate-related laws, including 1 the deduction of administrative expenses on the Iowa 2 fiduciary income tax return, the Iowa inheritance tax, 3 liability of beneficiaries of payable-on-death accounts or 4 transfer-on-death securities accounts, fiduciaries’ right 5 to property and information, and the surviving spouse’s 6 elective share. 7 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 8 TLSB 1061SC (11) 86 jh/rj

S.F. _____ DIVISION I 1 FIDUCIARY INCOME TAX 2 Section 1. Section 422.7, Code 2015, is amended by adding 3 the following new subsection: 4 NEW SUBSECTION . 57. On the Iowa fiduciary income tax 5 return, subtract the amount of administrative expenses that 6 were not taken or allowed as a deduction in calculating net 7 income for federal fiduciary income tax purposes. 8 DIVISION II 9 INHERITANCE TAX 10 Sec. 2. Section 450.9, Code 2015, is amended to read as 11 follows: 12 450.9 Individual exemptions. 13 In computing the tax on the net estate, the entire 14 amount of property, interest in property, and income 15 passing to the surviving spouse, and parents, grandparents, 16 great-grandparents, and other lineal ascendants, children 17 including legally adopted children and biological children 18 entitled to inherit under the laws of this state, stepchildren, 19 and grandchildren, great-grandchildren, and other lineal 20 descendants , and stepchildren and their lineal descendants are 21 exempt from tax. “Lineal descendants” includes descendants by 22 adoption. 23 DIVISION III 24 PAY-ON-DEATH ACCOUNTS AND TRANSFER-ON-DEATH SECURITIES 25 Sec. 3. Section 524.805, subsection 8, Code 2015, is amended 26 to read as follows: 27 8. A state bank may receive deposits from one or more 28 persons with the provision that upon the death of the 29 depositors the deposit account shall be the property of the 30 person or persons designated by the deceased depositors as 31 shown on the deposit account records of the state bank. 32 a. After payment by the state bank, the proceeds shall 33 remain subject to the debts of the decedent and the payment of 34 Iowa inheritance tax, if any and charges, as each are defined 35 -1- LSB 1061SC (11) 86 jh/rj 1/ 12

S.F. _____ in section 633.3, of the decedent’s estate, including statutory 1 support allowances to the surviving spouse and children . A 2 state bank paying the person or persons designated shall not be 3 liable as a result of that action for any debts of the decedent 4 or for any estate, inheritance, or succession taxes which may 5 be due this state. 6 b. A proceeding against a designee of the deceased depositor 7 to assert liability for debts and charges may be commenced 8 by the personal representative on behalf of the deceased 9 depositor’s estate, surviving spouse, child, or creditor. An 10 action to assert such liability must be commenced within one 11 year after the appointment of the personal representative of 12 the deceased depositor’s estate. In the petition to initiate 13 such proceedings, the personal representative shall state all 14 of the following: 15 (1) The funds are needed for an allowable purpose under this 16 section. 17 (2) The personal representative is not aware of any other 18 asset which could be used to pay such expenses. 19 (3) The personal representative has joined all reasonably 20 ascertainable designees of the deceased depositor who succeeded 21 to the deceased depositor’s funds as parties in the proceedings 22 initiated under this section, and has requested such designees 23 provide the funds to the personal representative in the same 24 pro rata share to which such designees received the deceased 25 depositor’s funds under this section. 26 (4) The personal representative has requested that this 27 matter be set for hearing and that the court prescribe the 28 manner of service of notice of such hearing to all reasonably 29 ascertainable designees of the deceased depositor who succeeded 30 to the deceased depositor’s funds under this section. 31 (5) The personal representative will provide an accounting 32 to all designees of the deceased depositor joined in the 33 proceedings which shows that the funds were used for allowable 34 purposes under this section. 35 -2- LSB 1061SC (11) 86 jh/rj 2/ 12

S.F. _____ (6) The personal representative will return any funds which 1 were not used for allowable purposes under this section in pro 2 rata amounts to the parties who provide funds to the personal 3 representative pursuant to proceedings initiated under this 4 section. 5 c. A designee of the deceased depositor against whom a 6 proceeding is brought under this section may elect to transfer 7 the funds received from the deceased depositor’s account to the 8 personal representative. The transfer fully discharges the 9 designee of the deceased depositor from all liability under 10 this section. 11 d. A designee of the deceased depositor against whom a 12 proceeding for an accounting is brought may join as a party to 13 the proceeding a designee of any other payable-on-death account 14 of the deceased depositor under this section or a beneficiary 15 of any transfer-on-death security account of the deceased 16 depositor under section 633D.8. 17 e. Amounts recovered by the personal representative 18 pursuant to proceedings initiated under this section shall be 19 administered as a part of the deceased depositor’s estate. 20 f. In actions brought under this section, where the deceased 21 depositor was domiciled in Iowa, the laws of Iowa shall apply. 22 Sec. 4. Section 633D.8, Code 2015, is amended to read as 23 follows: 24 633D.8 Claims against a beneficiary of a transfer on death 25 security registration. 26 1. If other assets of the estate of a deceased owner are 27 insufficient to pay debts and charges , taxes, and expenses of 28 administration as each are defined in section 633.3 , including 29 statutory support allowances to the surviving spouse and 30 children, a transfer at death of a security registered in 31 beneficiary form is not effective against the estate of the 32 deceased sole owner, or if multiple owners, against the estate 33 of the last owner to die, to the extent needed to pay debts , 34 taxes, and expenses of administration and charges , including 35 -3- LSB 1061SC (11) 86 jh/rj 3/ 12

S.F. _____ statutory support allowances to the surviving spouse and 1 children. 2 2. A beneficiary of a transfer on death transfer-on-death 3 security registration under this chapter is liable to account 4 to the personal representative of the deceased owner for the 5 value of the security as of the time of the deceased owner’s 6 death to the extent necessary to discharge debts , taxes, and 7 expenses of administration and charges , including statutory 8 support allowances to the surviving spouse and children. A 9 proceeding against a beneficiary to assert liability shall 10 not may be commenced unless by the personal representative 11 has received a written demand by the on behalf of the estate, 12 surviving spouse, a creditor, a child, or a person acting for a 13 minor child creditor of the deceased owner. In the petition to 14 initiate such proceedings, the personal representative shall 15 state all of the following: 16 a. The funds are needed for an allowable purpose under this 17 section. 18 b. The personal representative is not aware of any other 19 asset which could be used to pay such expenses. 20 c. The personal representative has joined all reasonably 21 ascertainable beneficiaries who succeeded to the deceased 22 owner’s funds as parties in the proceedings initiated under 23 this section, and has requested the beneficiaries provide the 24 funds to the personal representative in the same pro rata share 25 to which the beneficiaries received the deceased owner’s funds 26 under this chapter. 27 d. The personal representative has requested that this 28 matter be set for hearing and that the court prescribe the 29 manner of service of notice of such hearing to all reasonably 30 ascertainable beneficiaries who succeeded to the deceased 31 owner’s funds under this chapter. 32 e. The personal representative will provide an accounting to 33 all beneficiaries joined in the proceedings which shows that 34 the funds were used for allowable purposes under this section. 35 -4- LSB 1061SC (11) 86 jh/rj 4/ 12

S.F. _____ f. The personal representative will return any funds which 1 were not used for allowable purposes under this section in pro 2 rata amounts to the parties who provide funds to the personal 3 representative pursuant to proceedings initiated under this 4 section. 5 3. An action for an accounting under this section must be 6 commenced within two years one year after the death of the 7 owner date of appointment of the personal representative of the 8 deceased owner’s estate . 9 4. A beneficiary against whom a proceeding is brought may 10 elect to transfer to the personal representative the security 11 registered in the name of the beneficiary if the beneficiary 12 still owns the security, or the net proceeds received by 13 the beneficiary upon disposition of the security by the 14 beneficiary. Such transfer fully discharges the beneficiary 15 from all liability under this section . 16 5. A beneficiary against whom a proceeding for an accounting 17 is brought may join as a party to the proceeding a beneficiary 18 of any other security registered in beneficiary form by the 19 deceased owner or a designee of any depository account in a 20 state bank held in payable-on-death ownership by the deceased 21 owner under section 524.805, subsection 8 . 22 6. Amounts recovered by the personal representative with 23 respect to a security shall be administered as part of the 24 deceased owner’s estate. 25 7. A district court in this state shall have subject matter 26 jurisdiction over a claim proceeding against a designated 27 beneficiary brought by the decedent’s deceased owner’s 28 personal representative or by a claimant to an interest in a 29 security registered under this chapter . Any provision in a 30 security registration form restricting jurisdiction over a 31 claim proceeding , or restricting a choice of forum, to a forum 32 outside this state is void. 33 8. In an action for an accounting brought under this 34 section , where the deceased owner was domiciled in this state, 35 -5- LSB 1061SC (11) 86 jh/rj 5/ 12

S.F. _____ the laws of this state shall apply. 1 DIVISION IV 2 FIDUCIARY WRITTEN REQUESTS 3 Sec. 5. Section 633.78, Code 2015, is amended by striking 4 the section and inserting in lieu thereof the following: 5 633.78 Fiduciary written request and third-party protection. 6 1. A fiduciary under this chapter may present a written 7 request to any person for the purpose of obtaining property 8 owned by a decedent or by a ward of a conservatorship for 9 which the fiduciary has been appointed, or property to which 10 a decedent or ward is entitled, or for information about such 11 property needed to perform the fiduciary’s duties. The request 12 must contain statements confirming all of the following: 13 a. The fiduciary’s authority has not been revoked, modified, 14 or amended in any manner which would cause the representations 15 in the request to be incorrect. 16 b. The request has been signed by all fiduciaries acting on 17 behalf of the decedent or ward. 18 c. The request has been sworn and subscribed to under 19 penalty of perjury before a notary public as provided in 20 chapter 9B. 21 d. A photocopy of the fiduciary’s letters of appointment is 22 being provided with the request. 23 2. A person to whom a request is presented under this 24 section may require that the fiduciary presenting the request 25 provide proof of the fiduciary’s identity. 26 3. A person who in good faith provides the property or 27 information a fiduciary requests under this section, after 28 taking reasonable steps to verify the identity of the fiduciary 29 and who has no knowledge that the representations contained in 30 the request are incorrect, shall not be liable to any person 31 for so acting and may assume without inquiry the existence of 32 the facts contained in the request. The period of time to 33 verify the fiduciary’s authority shall not exceed ten business 34 days from the date the person received the request. Any right 35 -6- LSB 1061SC (11) 86 jh/rj 6/ 12

S.F. _____ or title acquired from the fiduciary in consideration of the 1 provision of property or information under this section is not 2 invalid in consequence of a misapplication by the fiduciary. A 3 transaction, and a lien created by a transaction, entered into 4 by the fiduciary and a person acting in reliance upon a request 5 under this section is enforceable against the assets for which 6 the fiduciary has responsibility. 7 4. If a person refuses to provide the requested property 8 or information within ten business days after receiving a 9 request under this section, the fiduciary may bring an action 10 to recover the property or information or compel its delivery 11 against the person to whom the fiduciary presented the written 12 request. An action brought under this section must be brought 13 within one year after the date of the act or failure to act. 14 If the court finds that the person acted unreasonably in 15 failing to deliver the property or information as requested 16 in the written request, the court may award any or all of the 17 following to the fiduciary: 18 a. Damages sustained by the decedent’s or ward’s estate. 19 b. Costs of the action. 20 c. A penalty in an amount determined by the court, but 21 not less than five hundred dollars or more than ten thousand 22 dollars. 23 d. Reasonable attorney fees, as determined by the court, 24 based on the value of the time reasonably expended by the 25 attorney and not by the amount of the recovery on behalf of the 26 fiduciary. 27 5. This section does not limit or change the right of 28 beneficiaries, heirs, or creditors to estate property to which 29 they are otherwise entitled. 30 DIVISION V 31 ELECTIVE SHARE OF SURVIVING SPOUSE 32 Sec. 6. Section 633.238, Code 2015, is amended to read as 33 follows: 34 633.238 Elective share of surviving spouse. 35 -7- LSB 1061SC (11) 86 jh/rj 7/ 12

S.F. _____ 1. The elective share of the surviving spouse shall be 1 limited to all of the following: 2 a. One-third in value of all the legal or equitable estates 3 in real property possessed by the decedent at any time during 4 the marriage which have not been sold on execution or other 5 judicial sale, and to which the surviving spouse has made no 6 express written relinquishment of right , including but not 7 limited to any relinquishments of rights described in paragraph 8 “d” . 9 b. All personal property that, at the time of death, was in 10 the hands of the decedent as the head of a family, exempt from 11 execution. 12 c. One-third of all personal property of the decedent that 13 is not necessary for the payment of debts and charges. 14 d. (1) One-third in value of the property held in trust 15 not necessary for the payment of debts and charges over which 16 the decedent was a grantor settlor and retained at the time of 17 death the power to alter, amend, or revoke the trust, or over 18 which the decedent waived or rescinded any such power within 19 one year of the date of death, and to which the surviving 20 spouse has not made any express written relinquishment in 21 compliance with subparagraph (2) . 22 (2) The elective share of the surviving spouse shall not 23 include the value of the property held in a trust described in 24 subparagraph (1), if both of the following are true: 25 (a) The decedent created the trust after the date of 26 decedent’s marriage to the surviving spouse. 27 (b) Every transfer of property into the trust, except 28 for tangible personal property, included a written statement 29 which complied with this subparagraph division. The written 30 statement shall be in boldface type of a minimum size of ten 31 points, signed and dated by the surviving spouse with a valid 32 notarial acknowledgment, and in substantially the following 33 form: 34 By signing below, I acknowledge that I am giving up all 35 -8- LSB 1061SC (11) 86 jh/rj 8/ 12

S.F. _____ rights to enjoyment of the property described above, regardless 1 of whether or not I survive my spouse and regardless of any 2 rights Iowa law otherwise gives to me with respect to such 3 property. I am specifically waiving my elective share in the 4 property described in this waiver. 5 This waiver shall apply regardless of any changes made to the 6 trust in the future, including any change to the beneficiaries 7 of the trust. 8 2. When a settlor of a revocable trust transfers real 9 property to the trustee of the revocable trust and the 10 settlor’s spouse signs a conveyance of the real property to 11 such trustee which includes a general waiver of rights of 12 dower, homestead, and distributive share, the spouse is only 13 relinquishing the right to that real property and its value 14 under subsection 1, paragraph “a” , for the purpose of conveying 15 marketable title to a subsequent purchaser from the trustee 16 and is not relinquishing the right to the value of the real 17 estate under subsection 1, paragraph “d” , unless the spouse 18 specifically states in writing an intent to relinquish the 19 right to the value of the real estate under subsection 1, 20 paragraph “d” . The relinquishment of right under subsection 21 1, paragraph “a” shall not prevent the surviving spouse from 22 electing one-third in value of such real property under 23 subsection 1, paragraph “d” . 24 2. 3. The elective share described in this section shall 25 be in lieu of any property the spouse would otherwise receive 26 under the last will and testament of the decedent, through 27 intestacy, or under the terms of a revocable trust. 28 EXPLANATION 29 The inclusion of this explanation does not constitute agreement with 30 the explanation’s substance by the members of the general assembly. 31 This bill relates to probate and estate-related laws and the 32 deductibility of administrative expenses on the Iowa fiduciary 33 income tax return, the individual exemptions from the Iowa 34 inheritance tax, liability of beneficiaries of payable-on-death 35 -9- LSB 1061SC (11) 86 jh/rj 9/ 12

S.F. _____ accounts or transfer-on-death security accounts, rights of 1 fiduciaries of decedents and wards under the probate code to 2 information and property, and the surviving spouse’s elective 3 share. 4 DIVISION I —— FIDUCIARY INCOME TAX. This division amends 5 the definition of net income for an Iowa fiduciary income tax 6 return to allow administrative expenses not taken or allowed 7 as a deduction in calculating net income for federal fiduciary 8 income tax purposes to be subtracted from adjusted gross income 9 when calculating net income. 10 DIVISION II —— INHERITANCE TAX. This division amends the 11 individual exemptions from the Iowa inheritance tax to include 12 a decedent’s stepchildren and their lineal descendants. Lineal 13 descendants include descendants by adoption. 14 DIVISION III —— PAY-ON-DEATH AND TRANSFER-ON-DEATH 15 SECURITIES ACCOUNTS. Under current Code section 524.805, 16 the proceeds of a pay-on-death account remain subject to the 17 deceased depositor’s debts and payment of Iowa inheritance 18 tax. This division amends Code section 524.805 so that the 19 proceeds remain subject to the deceased depositor’s estate’s 20 debts and charges, including statutory support allowances to 21 the surviving spouse and children. This division permits the 22 personal representative of the deceased depositor to assert 23 liability against the designee on behalf of the deceased 24 depositor’s estate, surviving spouse, child, or creditor. The 25 personal representative must commence such an action within one 26 year after the personal representative’s appointment. This 27 division specifies certain representations that the personal 28 representative must make in the petition to initiate the 29 proceeding. A designee against whom a proceeding is brought 30 may elect to transfer the funds received from the deceased 31 owner’s account to the personal representative, which fully 32 discharges the designee from all liability under the section. 33 This division also permits a designee against whom a proceeding 34 is brought to join a designee of any other payable-on-death 35 -10- LSB 1061SC (11) 86 jh/rj 10/ 12

S.F. _____ account or beneficiary of any transfer-on-death security 1 account of the deceased depositor. 2 Under current Code section 633D.8, a beneficiary of a 3 transfer-on-death security is liable to account to the personal 4 representative of the deceased owner for the value of the 5 security to the extent necessary to discharge the deceased 6 owner’s debts, taxes, and expenses of administration. Under 7 current law, a proceeding to assert liability against the 8 beneficiary cannot be commenced unless the deceased owner’s 9 surviving spouse, child, or creditor presents a written 10 demand to the deceased owner’s personal representative. This 11 division amends Code section 633D.8 to allow the deceased 12 owner’s personal representative to initiate a proceeding 13 against a beneficiary on behalf of the deceased owner’s estate, 14 surviving spouse, child or creditor without first having 15 received a written demand. This division specifies certain 16 representations that the personal representative must make in 17 the petition to initiate the proceeding. This division also 18 shortens the statute of limitations to commence a proceeding 19 from within two years of the date of the death of the owner 20 to one year after the date of the appointment of the personal 21 representative. This division also permits the beneficiary who 22 is subject to a proceeding under Code section 633D.8 to join 23 designees of payable-on-death accounts which the deceased owner 24 also held. 25 DIVISION IV —— FIDUCIARY WRITTEN REQUESTS. Under current 26 law, a person who in good faith pays or transfers money 27 or other property to a fiduciary, which the fiduciary is 28 authorized to receive, is not responsible for the proper 29 application by the fiduciary. This division amends current 30 law to permit fiduciaries of decedents or wards to present 31 a written request to any person to obtain property to which 32 the decedent or ward is entitled or for information needed 33 to perform the fiduciaries’ duties. The division specifies 34 the representations required to be in the request. If the 35 -11- LSB 1061SC (11) 86 jh/rj 11/ 12

S.F. _____ person receiving the request takes reasonable steps to verify 1 the identity of the fiduciary and has no knowledge that the 2 representations in the request are incorrect, the person who 3 provides the property or information requested shall not be 4 liable to any person for so acting. The person who received 5 the request has 10 business days to provide the information or 6 property. After 10 days, the fiduciary may bring an action to 7 recover the property or information or compel its delivery. If 8 the fiduciary prevails in the court action, the court may also 9 award damages sustained by the decedent’s or ward’s estate, 10 costs of the action, a penalty determined by the court of 11 not less than $500 and not more than $10,000, and reasonable 12 attorney fees. 13 DIVISION V —— ELECTIVE SHARE OF THE SURVIVING SPOUSE. This 14 division relates to a surviving spouse’s elective share with 15 regard to the value of property held in the deceased spouse’s 16 revocable trust. Under current law, the surviving spouse may 17 waive the surviving spouse’s right to include the value of 18 property held in the deceased spouse’s revocable trust with 19 an express written relinquishment. This division specifies 20 the form of the express written relinquishment and adds new 21 requirements that the deceased owner’s revocable trust be 22 created after the date of the marriage between the deceased 23 owner and the surviving spouse and that every transfer of 24 property must include an express written relinquishment. This 25 division also states when a settlor of a revocable trust 26 transfers real property to the trustee of the revocable trust 27 and the settlor’s spouse executes a conveyance which includes a 28 waiver of rights of dower, homestead, and distributive share, 29 the spouse does not waive the right to include the value of 30 the real property in the elective share unless the spouse also 31 specifically states an intent to do so in writing. 32 -12- LSB 1061SC (11) 86 jh/rj 12/ 12