Trusts & Estates Outline
I. INTRODUCTION TO ESTATE PLANNING
A. Structure of Trusts & Estates System
Three Methods to Transmit Property After Death
1. Will (testamentary transfer) GO THRU PROBATE SYSTEM
2. Intestacy (no will) GO THRU PROBATE SYSTEM
3. Will Substitutes (non-probate transfers)— happens during the lifetime, so they don’t have to go thru the probate mechanism b/c title has already been arranged
a. Joint tenancy w/right of survivorship—this means that when both tenants are alive, they have joint title of the property, but on the death of one, the remaining spouse has full title w/no need to go to a court to have the document changed
b. Life insurance policies—when for example a parent purchases a policy for a child, after the parent dies, title has already been arranged
B. Transfer of the Decedent’s Estate
1. PROBATE property is property that passes under the decedent’s will or by intestacy
2. NON-PROBATE property is property passing under an instrument other than a will which became effective b/f death; this includes joint tenancy property, live insurance, contracts w/payable-on-death provisions and interests in trust
1. Administration of Probate Estates
When probate is necessary:
1. Must appoint a personal representative to (1) inventory and collect assets of the decedent, (2) manage the assets during administration, (3) receive and pay the claims of creditors and tax collectors, and (4) distribute the remaining assets to those entitled.
a. EXECUTOR: If decedent dies testate and names this person in the will, then they are called the executor. In most states, if individual (not corp), must give bond unless waived by will.
b. ADMINISTRATOR: If the decedent dies intestate, then the rep is called administrator. Must give bond.
c. This person would get paid (unless they waive the fee), and their payment is usually tied to a fixed portion of the total estate.
d. TESTATOR: The person who signed the will (decedent) is the testator.
e. BENEFICIARIES: The beneficiaries have gifts that are bequeathed to them.
2. Jurisdiction is found in the “probate courts” and to “go thru probate” means to have an estate administered in one of these courts
Small estate administration—DOESN’T HAVE TO BE FORMALLY PROBATED IF ESTATE IS SMALLER THAN THE LIMIT. UPC considers a small estate one of $5,000 (§ 3-1201)…NY calls a small estate a $20,000 estate, but only for personal property; NJ has a different scale depending on who is coming forward to administer the estate—for a surviving spouse, there is a $10,000 value, but if it is the kids (no surviving spouse), then it is $5,000
Different terminology for personal property and real property:
TESTATE: A person dying testate devises real property to devisees and bequeaths personal property to legatees.
INTESTATE: Real property descends to heirs; and personal property is distributed to next-of-kin.
***In modern times, “heirs” and “next-of-kin” are usually the same.
2. Functions of Probate
1. It provides evidence of transfer of title to the new owners by a probated will or decree of intestate succession;
2. It protects creditors by requiring payment of debts; and
3. It distributes the decedent’s property to those intended after the creditors are paid.
3. STATUTORY FORMALITIES
executor’s commission is not entitled to an atty’s fee as well b/c of the prohibition against self-dealing by a fiduciary.
· However, it is hard to have all assets in will substitutes during life and still have liquidity of assets. Therefore, it would be necessary to have probate for the remaining assets.
BENEFITS OF PROBATE:
· Protects the estate from the claims of creditors—must give notice to creditors in order for them to make a claim, but once they are given that notice (publication is often enough) they are then given a short timeframe w/in which to file a claim. If no claim filed during the time, then the estate can be distributed to the beneficiaries.
· Time frame limit—UPC (see pg. 41 CB) § 3-803 provides for a 1-year SOL from the DEATH of the decedent (assuming appropriate notification did occur)
More Arguments For Transfer of Property:
Why Transfer to Named Beneficiaries is Good
John Langbein, page 20—two themes: more investment in human capital and skills; demographic transformation (people living longer), the pension fund
· Mainly about the way in which the buildup for retirement completely diminishes the ability to provide after death
Transfer Should Go to Government
Mark L. Ascher, page 16—his proposal would have everything go to govt at death, except for 6 exceptions:
1. Unlimited amts to surviving spouse