Down , Not Sideways

Even people whose families have a traditional structure are occasionally surprised with an inheritance decision that goes against their plans. So, no one can afford to be thoughtless about their estate planning. In most states, probate law assumes a much more limited notion of what “family” means than people who get their legal training from television shows might guess. The August 2000 Oklahoma Appeals Courts decision in Estate of Dale J. Smith dealt one person a familial shock.
Dale Smith and Joe Smith were brothers. Jim C. Smith was Dale’s only child. Dale and Joe owned a total of approximately two-thirds of the shares of stock of Wood Oil Company, an Oklahoma corporation. Together, they had controling interest in the company separately, neither owned enough shares to control.

The brothers had signed a shareholder’s agreement essentially a contract between them that stated certain terms under which they had purchased and would keep or sell their shares. Joe claimed that these terms included an option for him to buy Dale’s Wood Oil shares in the event of Dale’s death.

When Dale died in 1999, his son Jim was named personal representative (Oklahoma’s version of an administrator) of the estate. So far, that was fine.

The trouble started when Jim told his uncle that he wasn’t going to sell his father’s shares in Wood Oil. Joe filed a lawsuit contesting Dale’s will. Jim asked the court to dismiss his uncle’s contest on the ground that Joe was not a “person interested” in the estate, as required by law. On the other hand, Joe’s theory was that, because his brother’s will granted Jim the power to sell his stock, Joe’s rights under the shareholder’s agreement were violated. This made Joe a “person interested.” The probate court noted that, although “[a]ny person interested in a will may file objections... determined by the court,” not every person is a “person interested.” That was for the court to determine. The court which was limited in its scope to considering the issues related directly to Dale’s estate couldn’t find anything in the estate documents that
suggested his brother had an option to buy his Wood Oil shares. In fact, it didn’t find anything that gave Uncle Joe any legal standing in the estate. Oklahoma law granted status instantly to spouses and children but didn’t give any special legal position to siblings of people who’ve died. It agreed with Jim and denied Joe’s contest. Joe appealed, arguing that the shareholder’s agreement he and Dale had signed should be included in the estate. This argument failed to convince the appeals court. It concluded that Joe would have to sue Dale’s estate separately: Whether Joe or [Dale’s son] is successful in the independent action relating to the va

lidity of the stockholder’s agreement is not material to this appeal. Dale’s stock in the oil company is a part of the property of the estate. That stock is subject to the restrictions contained in the stockholders agreement, if it is valid. Otherwise, those restrictions will not be enforceable. This is somewhat similar to the rights of a creditor whose
claims are disputed. So, Dale’s will would stand. As far as the probate court was concerned, the Wood Oil shares were property like any other property and Jim was in charge of what would happen with them. To support its ruling, the appeals court referred to the 1933 Oklahoma case McVoy v. Lewis, in which a surviving sister, nieces and nephews contested a dead woman’s will. The will granted all of the decedent’s property to her grandchildren, because she had outlived her own children. When the case reached the Supreme Court of Oklahoma, the court made the following points:

1) the only persons who may contest the probate of a will are persons having an interest in the estate of the deceased;
2) in its legal sense...“issue” means descendants, lineal descendants, offspring; and
3) in [Oklahoma] statutes, grandchildren, being lineal descendants, inherit to the exclusion of a sister, nieces and nephews of the deceased.

This is why many lawyers wearily chant “inheritance flows down, not sideways” when extended family members want to raise legal complaints. Unless

they are specifically named in a will, trust or other legal document, siblings, cousins, in-laws and the like are not considered “family.”

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