GRATUITOUS TRANSFERS IN PERSPECTIVE
I. SCOPE AND HISTORY OF GRATUITOUS TRANSFERS
The law of gratuitous transfers of assets or property concerns: succession of property at death, including intestacy, testacy and will substitutes; trust creation, purpose and administration; future interests and perpetuities; and, administration of decedents’ estates. Planning for retirement and incapacity is also involved.
II. ADMINISTRATION OF ESTATES AND TRUSTS
A. The Judicial Involvement in Property Transmission
When persons die owning assets at death some form of an administrative process is necessary to resolve the rights of decedent’s creditors and successors. The word probate not only refers to the formal process of proving and deciding a will’s validity but also to all matters appropriately before the probate courts.
The primary reasons for having an administration of a decedent’s estate are to establish title to property, facilitate the collection of assets and claims, and resolve tax and creditor claims, if any. The process of administration is divisible into five parts: opening; inventory and appraisement; creditor settlement; property management and sale; and, distribution and closing.
A person may employ other techniques, called will substitutes, for disposing of property. These techniques pass an interest at the owner’s death directly to the designated beneficiary. The transfers can be completed without a will or intestacy law and without probate administration. Will substitutes include survivorship interests, trust interests, contractual arrangements, life insurance proceeds, retirement programs, and nondescendable future interests.
B. Court versus Noncourt Transactions
Whereas decedent’s probate estate requires that assets pass through a court procedure regardless of the desires of the interested persons, decedent’s will substitutes are handled privately without court involvement unless litigation between the interested parties arises over the interest. Although probate may be less efficient and slow at times, nonprobate procedure may lack procedural protection for adversely affected interested persons and may offer less predictability when litigation develops.
C. Jurisdictional Issues
Probate courts must have jurisdiction over the persons or property involved in the proceeding, and the subject matter. The jurisdictional facts for the probate court usually involve domicile of decedent, location of property, and other relevant contacts with the locale. Under the federal Constitution, proper jurisdiction over the persons and property depends on minimum contacts with the state, adequate notice, and an opportunity to be heard. Under some circumstances, the traditional notice by publication in probate matters must be supplemented with additional notice techniques. Subject matter jurisdiction varies by state but is commonly broadly defined.
III. Judicial Procedure and Evidence
A. Parties and Pleadings
The parties and pleadings for probate matters are usually specified by state probate code. Parties and pleadings in will substitute litigation must conform to the civil procedural rules set for the court of proper jurisdiction.
B. Burdens of Proof and Presumptions
As with all litigation, the burdens of proof and presumptions are very important to the outcome of the case.
C. Introduction to Interpretation
Interpretation refers to the process of searching for the donor’s actual intention by looking to the text of the document and extrinsic evidence. Construction refers to the process of attributing intention from constructional preferences and rules of construction. Interpretation and construction are part of a single process. Actual intention, when sufficiently established, always overcomes attributed intention.
D. Substantive Evidence Rules: Restrictions on Admissibility
The evidence rules for litigation concerning lifetime gratuitous transfer are controlled by the normal evidence and procedurals rules for civil litigation. The evidence rules for litigation concerning wills follows a unique and more restrictive approach regarding admissibility. The inherent fact that the testator is dead and the so called sanctity of the statute of wills has been used to justify the distinction.
With few exceptions, provisions mistakenly omitted from a will are not provable. On the other hand, courts have provided some kind of remedy when words are mistakenly included in a will.
A mistake in the inducement is remedied only if (1) testator was laboring under a mistake as to the facts; (2) knowing the truth, testator would have made a different disposition; and (3) these facts should appear in the will itself.
If testator mistakenly executes the wrong document, courts have split on whether to deny probate because testamentary intent is entirely lacking or to permit reformation of the will to conform to testator’s intent.
A group of authorities now take the position that any ambiguity should be resolved by construing the text of any donative document, will or trust, in accordance with the donor’s intention to the extent that the donor’s intention is established by a preponderance of the evidence. Thus a donor’s intention should control the meaning of a donative document to the extent that it is sufficiently established by the evidence.
IV. Professional Responsibility
A. General Application of Ethical Standards
The practice of the law of gratuitous transfers covers the entire scope of the rules of professional ethics. Generally, the estate planning attorney must exercise for the client the professional duties of competence, diligence, communication, confidentiality, and loyalty. Pervasive ethical issues arising for estate practitioners include competence, beneficiary liability, undue influence, conflicts of interest and client identification.
An estate planning attorney must exercise for the client the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation. Generally, malpractice liability springs from the attorney-client relationship and includes fraud, breach of fiduciary duty, and negligence. Courts have held that an attorney is liable to persons outside the attorney-client relationship who are injured by negligent representation.
The attorney must maintain a client’s confidences. Confidentiality applies not merely to matters communicated in confidence by the client but also to all information relating to the representation, whatever its source. An attorney may disclose such information only if authorized or required by the Rules of Professional Conduct or other law. Confidentiality begins at first interview, lasts beyond employment, and even beyond death.
Generally, an attorney can not represent a client if the representation of that client will be directly adverse to another client or if the representation of that client may be materially limited by the attorney’s responsibilities to another client or to a third person, or by the attorney’s own interests. Clients may consent to the representation despite the conflict if they consent after full disclosure of any conflict or potential conflict. Full disclosure requires revelation of all of the facts and implications of the representation to all affected clients.
Conflicts may be of the nature that require that the attorney decline the representation. If an actual and nonconsentable conflict of interest arises after the representation has begun, the attorney should withdraw from further representation of all clients in the transaction.
E. Estate Planning
Neither an attorney nor the attorney’s associates in the same firm should draft a will for a legal stranger in which the attorney takes a devise. When drafting a will for a relative, the attorney should not receive a disproportionate share in relation to the familial relationship.
Although joint representation of clients in estate planning matters is common and beneficial, the attorney should be sensitive to potential conflicts of loyalty and confidentiality that may develop during the joint representation.
Attorneys who represent fiduciaries of trusts and estates also may see conflicts develop between the fiduciary and the beneficiaries. Issues such as confidentiality and privilege may arise in litigation between the parties. The question is whether the attorney represents the fiduciary who engaged the attorney, the beneficiaries of the fiduciary entity, or the entity itself. Three views on the matter have been advocated: (1) the
the decedent cannot inherit if their ancestor, who is related in a closer degree to the decedent, can take.; and (2) descendants of more remote degree from the decedent can inherit if their ancestor, who is related in a closer degree, cannot take even though there are other descendants of closer degree.
Various representation systems define the root generation in different ways. The four primary methods of applying representation are as follows:
Per stirpes: the initial division of the estate is made at the generation nearest to the decedent, regardless of whether there are any members of that generation who are alive. The number of primary shares is the number of living persons in that nearest generation, plus the number of deceased persons in that generation who have descendants who survive. The latter are permitted to represent their ancestor. The same approach is taken in dividing the estate of each deceased member’s share among these descendants.
Per capita with per capita representation: the initial division of the estate is made at the first generation with a living member. Representation is recognized for living descendants of that generation. The number of primary shares is the number of living persons in the first generation with a surviving member, plus the number of deceased persons in that generation who have descendants who survive. The same approach is taken in dividing the estate of each deceased member’s share among these descendants.
Per capita at each generation: the estate is divided into primary shares at the first generation with one or more living members. Representation is recognized for living descendants of this generation. The number of primary shares is the number of living persons in the first generation with a living member plus the number of deceased members with living descendants. After the living members are allocated their shares, the remaining estate as a whole is combined and divided in the same way among the living descendants of the deceased descendants of the previous generation, and so on.
Per capita with per stirpes representation: the initial division of the estate is made at the first generation with a living member. If all persons in that first generation survive the decedent, each in that generation take per capita. If one or more in that generation did not survive the decedent but left descendants who did, a pure per stirpes approach is then taken, using the first generation as the root generation.
When the specific allocations of the intestacy statutes are not applicable to an intestate, some statutes distribute the estate per capita. Under this system the closest relation is determined by degree of relationship and all persons of equal degree share equally. No representation is allowed for the descendants of persons in the applicable generation.
D. Ancestors and Collaterals
Counting degrees of relationship of one to a decedent is the process of determining next of kin in intestacy. The predominant method for counting degrees is the civil law system. Under this system the degree of kinship is the total of (1) the number of the steps counting one for each generation, from the decedent up to the nearest common ancestor of the decedent and the claimant, and (2) the number of steps from the common ancestor down to the claimant. Claimants having the lowest degree count are entitled to the property. All of equal degree share per capita.