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Trusts and Estates
Rutgers University, Newark School of Law
di Bonaventura, Allegra

TRUSTS AND ESTATES

I. The Power to Transmit Property at Death: Its Justification and Limitations

3 ways to transmit property at death: (1) Will, (2) Will substitute, (3) Intestate Succession (the default position) (when you don’t leave a will or some document which disposes of your property at death; What Legislature thinks you WOULD have done)

Who takes depends first on whether the property is nonprobate or probate (default) property. Nonprobate property passes pursuant to the terms of the nonprobate instrument, be it joint tenancy, life insurance/payment on death contracts, legal life estate and remainders, or inter vivos trusts. Probate property passes pursuant to deceden’s will, otherwise through intestacy.

Right to receive property at death – Family rights
Rights you have when you own property

Right to exclude
Right to convey
Right to transmit by WILL or INTESTANCY (Hodel)

Note: To the extent that constitutional protections apply to property transfers at death, the protections arguably apply only to decedent’s power to dispose of this property at death, not necessarily to an heir’s or B’s right to receive property from D.

The Right to Inherit and the Right to Convey

Irving Trust v. Day (1942) – It was generally presumed that the power to pass one’s property at death was not a constitutionally protected right. (but see Hodel, where crt reverses itself) Nothing in the Federal Constitution forbids the legislature of a state to limit, condition, or even abolish the power of testamentary disposition over property w/in its jurisdiction.” It would be constitutional for Commonwealth of MA to enact a 90% state tax (when you die 90% goes to commonwealth)
Hodel v. Irving (1980) – D won *Fractionation of Indian Land IS TAKING* Escheat provision constituted taking.

i. Establishes constitutional right to transmit property at death w/out government taking by means of will and intestacy.
ii. Facts: Congress enacted provision: “certain fractional interests owned by tribe members could not be transferred by intestacy or devise but would escheat to the tribe.” It abolished descent and devise. Cannot pass it to anybody. When Indian dies, it goes to the tribe.
iii. Rule: the law cannot abrogate your right to pass the property by will or by intestacy. It’s taking w/out just compensation, despite Congress having a good purpose.
iv. Reasoning: Provision amounted to abrogation of the right to pass a certain type of property. It may be appropriate to ameliorate fractionation by means of regulating the descent and devise of Indian lands. It’s not the least restrictive alternative.
v. Notes:
1. A confiscatory tax (95%) – NOT ok under Hodel
2. Tax around 20% – OK
3. Babbitt. Youppee – You have to leave open the ability to transmit to those who would normally be your descendents. Devise cannot be permitted ONLY for a limited group.

The Policy of Passing Wealth at Death

Ascher – believed that inheritance to healthy adult children who were lucky to be raised and educated by wealth parents should NOT be allowed.
Irving– Discourage the inheritance of large fortunes. One cannot take more than 1 mill and must distribute it. Focuses on the right to RECEIVE property, NOT the right to transmit.
Inheritance in the Soviet Union – abolished but 4 yrs later reinstated b/c it was a method of providing for dependents, relieving the state of this burden, and of furthering family unity and stability.
Walter Blum – there is an economic inheritance and cultural inheritance which affect the children and produces the opportunities.

i. Cultural Inheritance – what gets passed on its terms of social status, and background culture.

An Introduction to the Problem of the Dead Hand –Decedent may condition a beneficiary’s gift on B behaving in a certain manner, as long as the condition does not violate public policy, i.e., complete restraint on marriage, requirement to practice certain religion, encourages divorce or family strife, or directs destruction of property

Sec 10.1 – Donor’s intention determines the meaning of a donative doc and is given effect to the maximum extent allowed by law. Restatement 3rd Property

i. Donative transfer = Freedom of disposition (it’s curtailed ONLY if donor’s purpose is prohibited by law)
ii. Cts function is to facilitate, NOT regulate.

Shapira v. Union National Bank – D won

i. Facts: Father conditions inheritance to his son on him marrying a Jewish girl. Otherwise, the money goes to the State of Israel.
ii. Rule: T may validly impose a restraint on the religion of the spouse of a beneficiary as a condition to inheriting under the will.
iii. Reasoning: ct is not being asked to enforce any restriction upon P’s constitutional right to marry. This ct is being asked to enforce T’s restriction upon his son’s inheritance. Condition constitutes a partial restraint upon marriage. A condition that P not marry anyone would be against public policy and void. A partial restraint of marriage which imposes only reasonable restrictions is VALID and NOT contrary to public policy.
iv. Is the clause “in terrorem” – (is this just dad pushing son around even after his death OR is there an overall purpose to the estate plan that is served) State of Israel provision shows that the father is trying to promote Jewish culture rather than just controlling the son.
v. Restatement – A restraint to induce a person to marry w/in a religious faith is VALID IF under the circumstances, the restraint does NOT unreasonably limit the transferee’s opportunity to marry. This happens IF a marriage permitted by the restraint is not likely to occur.
1. Maddox v. Maddox – where the restriction based on religion unreasonably limits the beneficiary’s right to marriage, it will be deemed VOID. (only 4-5 unmarried members of the sect)
vi. Notes:
1. Dead hand – a hand that does not have a live mind controlling it and making a continuously informed judgment as circumstances change, that can no longer be affected by the opinions of mankind, and that does not suffer the consequences.
a. The terms of the testamentary trust are LOCKED IN. Even though, times change and some restrictions may no longer make economic sense, it’s very hard to modify a trust.
2. Restatement – A will or trust provision is ordinarily invalid if it is intended to encourage disruption of a family relationship. Thus, provisions encouraging separation or divorce have usually been held invalid, unless the dominant motive of the testator is to provide support in the event of separation or divorce.[Girard Trust v. Schmitz – ct held invalid a condition that the testator’s bros and sis must not communicate with a child disliked by testator. Ct refused to help the testator use the power of his wealth to disrupt the family.]

Exam tip: If you see a conditional gift, remember the general rule: CONDITIONAL GIFTS ARE VALID UNLESS THEY FALL WITHIN ONE OF THE EXCEPTIONS. If the conditional gift doesn’t fall within one of the exceptions, argue by analogy to the closest exception. Focus on the nature B’s affected right and the degree of unreasonableness cause by the requirements of the condition.

II. Transfer of the Decedent’s Estate

Descedent’s assets at death are divided into: Probate and Nonprobate Property

Probate property – passes under the decedent’s will or by intestacy. Distribution of probate assets under a will or to intestate successors may require a ct proceeding involving probate of a will or a finding of intestacy followed by appointment of a personal representative to settle the probate estate.
Nonprobate property – passes under an instrument other than a will. Distribution of nonprobate assets does not involve a ct proceeding, but is made in accordance with the terms of a K or trust or deed à (1) Joint tenancy property, both real and personal – decedent’s interest vanishes at death; (2) Life insurance; (3) Contracts with payable on death provisions; (4) Interests in trusts.

Administration of Probate Estates

A Summary of Probate Procedure

i. Probate Functions: provides evidence of transfer of title to the new owners by a probated will or decree of intestate succession; protects creditors by requiring payment of debts; and it distributes the decedent’s property to those intended after the creditors are paid.
ii. 1 – the will should be probated or letters of administration should be sought, in the jurisdiction where the decedent was domiciled at the time of death (primary or domiciliary jurisdiction)

What the executor needs to do:

i. First, must divide the property into probate and non probate property.
1. Furniture – tangible personal property à probate.
2. Savings account in the name of Maryà probate (there is no survivor named on the bank account of joint tenant or anyone else)
3. Checking accountà NON probate; Martha has part of the joint account. It goes by contract with the bank.
4. Pension Plan à NON probate.
5. Government bonds àNON probate.
6. Life insurance à NON probate; it’s a K with an insurance Co naming a survivor.
ii. Must figure out what will be the subject of probate and all the rules and regulations that come with it.
iii. When a person dies and probate is necessary: MUST appoint a personal representative (executor or administrator) to oversee the winding up of the decedent’s affairs. His duties – (1) to inventory and collect the assets of the decedent; (2) to manage the assets during administration; (3) to receive and pay the claims of creditors and tax collectors; (4) to clear any titles to cars, real estate, or other assets; and (5) to distribute the remaining assets to those entitled.
1. Executor – if the decedent dies testate and in the will names the person who is to EXECUTE the will and administer the probate estate.
2. Administrator – when the person in charge of administering the estate is NOT named in the will
3. If a person dies intestate, the administrator is selected from a statutory list of surviving spouse, children, parents, siblings, creditors.
iv. A big function of probate is clearing title: If real property is owned by a decedent, when that person dies with sole title, how do we get the chain of title fixed? Go to the registry of deeds with a death certificate.
v. Distribution has to be made and approved by probate court.

Supervising the representative’s actions: in some states, actions of personal representatives in administering the estate are supervised by the ct and in others w/out ct order. UPC – authorizes unsupervised and supervised administration.
System for notifying creditors

i. Every state has a statute requiring creditors to file claims w/in a specified time period. Claims filed thereafter are barred. These claims either bar claims not filed w/in a relatively short period after probate proceedings are begun (UPC-4 months) or whether or not probate proceedings are commenced, they bar claims not filed w/in a longer period after the decedent’s death (UPC-1 yr)
ii. Known or reasonably ascertainable creditors must receive ACTUAL NOTICE before they are barred by a short term statute running form th

a. TAKE FIRST
b. Must carry out the probable intent of the average intestate decedent
c. Surviving spouse usually receives at least a one half share of the decedent’s estate.
d. UPC – more generous than state laws.
e. If there is no descendant, half of the states provide that spouse share with the decedent’s parents. If no parents, then spouse takes all to the exclusion of collateral kin (UPC) or with brothers and sisters and their descendants (states)
f. Note: Rules of spousal intestate share also apply to domestic partners.
g. Simultaneous death – person succeeds to the property of a decedent only if the person survives the decedent for an instant of time.
i. USDA (Uniform Simultaneous Death Act) – if there’s no sufficient evidence of the order of deaths, the beneficiary is deemed to have predeceased the donor. Neither inherits from the other. If two joint Ts die simultaneously, ½ of the property is distributed as if one survived, and ½ is distributed as if another survived.
h. Janus v. Tarasewicz – D won *W died AFTER H*
i. Facts: Ds (couple) died from poisoned Tylenol. H died before W.
ii. Rule: The determination of legal death must be made in accordance with the usual and customary standards of medical practice.
iii. Reasoning: H died right away while Drs were still trying to preserve W’s life.
iv. Hold: treating physicians’ diagnoses of death with respect to D were made in accordance with the usual and customary standards of medical practice.
i. Amended UPC and USDA – claimant must establish survivorship by 120 hrs by clear and convincing evidence. An heir or life insurance beneficiary who fails to survive by 120 hrs is deemed to have predeceased the decedent.
C. Shares of Descendants
a. DESCENDANTS TAKE AFTER SPOUSES
b. In all jurisdictions in this country, after the spouse’s share is set aside, children and issue of deceased children take the remainder of the property to the exclusion of everyone else.
c. When one of several children has died BEFORE the decedent, leaving descendants, all states provide that the child’s descendants shall represent the dead child and divide the child’s share among themselves.

A
B C (leaves husband) D

E F G H I

Q: A, a widow, has 3 kids; Her kid C dies before A, survived by a husband and two kids, F and G. The decedent is survived by two kids, B and D, and by five grandkids.

Modern: A’s heirs are B(1/3), D(1/3), F(1/6), and G(1/6). E, H, and I, take nothing b/c their parents are living. C’s husband, the decedent’s son in law, takes nothing.

A
B C

D E F

– Q: A has two kids, B and C. B predeceases A, leaving D. C predeceases A, leaving E and F. A dies intestate leaving no surviving spouse and survived by D, E, F.
– English per stirpes – B and C (1/2ea); D(1/2); E, F (1/4 ea) – In England, A’s property is divided into two shares at the level of A’s children, and D takes B’s ½ by representation and E and F split C’s ½ by representation.
– Modern per stirpes – D, E, F (1/3 ea) – D, E, F are all grandchildren of equal degree of kinship to A, and A’s estate is divided equally among them in thirds. If F had predeceased A, leaving descendants, F’s descendants would represent F and take F’s 1/3.

d. English per stirpes – is to divide the property into as many shares as there are living children of the designated person and deceased children who have descendants living. The children of each descendant represent their deceased parent and are moved into their parent’s position beginning at the first generation below the designated person. Aka strict per stirpes. This system treats each line of descendants EQUALLY.
Modern per stirpes – half of the American states follow this. One looks first to see whether any children survived the decedent (if so, distribution is identical to English per stirpes). When NO children survive the decedent, then the estate is divided equally at the first generation in which there are living takers, which is usually the generation of the decedent’s grandchildren. The decedent’s estate is divided into shares at the generational level nearest to the