In Re Estate of Magnus
444 N.W.2d 295, 1989 WL 98680, 1989 Minn. App. LEXIS 942 (1989)
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Rule of Law:
Under Minnesota's Uniform Probate Code, a specific devise of securities does not adeem when a corporate action, such as a reverse stock split, converts the shares into a right to cash payment. The unredeemed stock certificates representing this right are considered 'securities of the same entity' and the beneficiary is entitled to the resulting proceeds.
Facts:
- Dorothy B. Magnus' will created a trust for Donald and Gerald Sweeney, funded by 'all of the shares of the capital stock of Heileman Brewing Company owned by me at the time of my death.'
- In late 1987, Amber Acquisition Corp. acquired control of Heileman Brewing Company.
- In February 1988, Heileman shareholders approved a reverse stock split, which forced all remaining shareholders to accept a cash payment of $40.75 for each share held.
- Before her death, Magnus tendered 17,549 of her shares and received $715,121.75 in cash.
- Magnus died on August 17, 1988.
- After Magnus's death, the personal representative of her estate found stock certificates for an additional 6,749 Heileman shares in a safe deposit box.
- The personal representative surrendered these newly found certificates and received $275,021.75 in cash proceeds.
Procedural Posture:
- The personal representative for the estate of Dorothy B. Magnus filed a petition in the probate court.
- The petition asked the court to determine whether the bequest of Heileman stock had been adeemed.
- Donald and Gerald Sweeney (appellants), the beneficiaries, did not appear at the hearing in the probate court.
- Joseph Fleischman, a residuary legatee, argued at the hearing that ademption had occurred.
- The probate court issued an order finding that the bequest of Heileman stock was fully adeemed.
- The Sweeneys appealed the probate court's order to the Minnesota Court of Appeals.
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Issue:
Does a reverse stock split that converts a testator's specifically devised shares of stock into a right to cash payment cause the devise to adeem as to shares for which certificates were found and redeemed for cash after the testator's death?
Opinions:
Majority - Forsberg, J.
No, the devise does not adeem. Under Minnesota's non-ademption statute, a specific devisee is entitled to securities of the same entity owned by the testator resulting from an action initiated by that entity. The court reasoned that the unredeemed stock certificates, although representing a right to cash, qualify as 'securities' under the broad Uniform Probate Code (UPC) definition because they are an 'evidence of indebtedness' from the testator's perspective until they are redeemed. Furthermore, they are securities 'of the same entity' because the right to cash payment was a direct result of a reverse stock split, which was an 'action initiated by the entity' (Heileman). Therefore, the statute prevents ademption, and the proceeds from the certificates found after death pass to the trust for the Sweeneys.
Analysis:
This decision illustrates the modern judicial and statutory shift away from the rigid common law 'identity' theory of ademption, where a gift fails if the specific item is not in the estate, toward the more flexible 'intent' theory embodied in the Uniform Probate Code. The court's broad interpretation of 'security' and 'action initiated by the entity' serves to protect a testator's presumed intent against being defeated by corporate reorganizations that are beyond the testator's control. This precedent clarifies that a change in the form of a security, such as from stock to a right to cash proceeds, does not cause ademption under the UPC's anti-ademption provisions, ensuring beneficiaries receive the value of the intended gift.
