Estates and Trusts Outline

McDowell T&E Spring 2011 Outline

Introduction/ Public policy

1. The power to transmit property at death: justifications and limitations

a. Jefferson’s view: “The Dead Hand” à dead have no power or rights over earth; ceases to be his at death, reverts to society

b. USSC àNo natural or constitutional right to distribute property via will

i. Rights of succession to property of deceased, by will or intestacy are of § creation.

2. PURPOSE OF TRUTS & ESTATES LAWS:

a. Freedom of / furthering of donor’s autonomy

i. Donor has freedom of disposition à nearly unrestricted right to dispose property as they please

1. Cannot disinherit spouse but can disinherit child

2. Courts job is to facilitate donor’s wishes, not regulate

3. US law only limits freedom of disposition to the extent that donor attempts to make disposition or achieve a purpose that is prohibited or restricted by overriding law

b. Express donor’s intent/wishes

i. Donor’s intent determines meaning of testamentary document and is given effect to max extent allowable by law

3. Courts will not enforce conditions that violate certain public policies:

a. Total or unreasonable prohibition on a first marriage

i. Maddox(Quaker case) à Total restraint on marriage, therefore violates PP;

1. Shapria à reasonable, partial restraint

b. Undermining family relationships: divorce, break off contact with siblings, etc.

i. However, restraints on marriage or divorce may be valid if meant to enable the beneficiaries rather than to spite them.

1. If malicious, encourages or incentivizes divorce = invalid b/c it’s counter public policy

2. If intent is to provide for someone’s wellbeing after divorce, encourages freedom of donee, probably valid

3. Partial reasonable restraint on marriage that allows for sufficient chance/opportunity to marry = valid, not counter PP

4. Shapira v. Union National Bank (Ohio 1974)

a. Daniel would only inherit his share if he married a Jewish girl whose parents were both Jewish.

b. If he did not married an eligible Jewish girl within 7 years his portion of the estate would go to the State of Israel.

1. Drafting lessons from Shapira:

a. Always spell out what happens if there is a failure to meet the condition

i. To my son XYZ, if not $ to Israel

1. If no “to Israel” court would be free to determine what Donor’s intent was

c. Estate stays open until all conditions are met;

5. The Court ruled a partial restraint of marriage, which imposes only reasonable restriction, is valid and not contrary to public policy.

c. Waste (destruction of property)

d. Encourage unlawful activity

i. Anything is allowed so long as it is not against the law or counter to public policy

1. Ex: can’t give $ to Al Queda

e. [I will not test on restraints on donee’s religion]

f. A condition may be void for vagueness

i. ex: condition that “the beneficiary maintain her piano playing skills.”

1. Void for vagueness à b/c Court must determine if B has “maintained her skills” ß not the court’s job to monitor people’s lives

g. Condition Precedent – ALWAYS UPHELD

i. Condition may/will be fulfilled during testator’s life

1. D can always change his mind

ii. Considered a lifetime gift from Donor

1. Ex: To W: if still married to H at my death, $5K; if she’s divorced from H, $500K

4. Probate and Non-Probate Property

a. Probate property – property that passes through probate under Decedent’s will or by intestacy

i. Need to go to Probate Court to get change in title for PP

1. House, furniture, cash

ii. Probate Court only has authority over PP, no power over NPP

1. Not all PP must be probated in PC

a. If estate is small or no need to clear up titled

2. Can avoid Probate by placing things in a Trust

b. Non-probate property – property that passes outside of probate under an instrument other than a will

i. I.e. property that “automatically” transfers at death

ii. Joint tenancies, Life Insurance, PODs, Interest in a trust

c. An estate need not go through probate if

i. The decedent had only non-probate property and personal property (furniture, cash on hand, jewelry etc.)

ii. AND/OR small bank accounts, wage claims, & cars and state statute permits transfer of these by filling out forms

iii. After all debts are paid, the remaining estate is small enough to qualify for summary administration ($5K to $100K, depending on the state).

5. Professional responsibility

a. New/ Majority rule: Lawyer’s duty of reasonable care extends to all intended beneficiaries

i. son can sue lawyer

1. duty based on the foreseeability of injury to the intended beneficiary.

b. Simpson v. Calivas à Testator told lawyer to leave house to wife, land to son.

i. Lawyer drafted will to read, “real estate to son, except for homestead, which goes to wife.”

ii. P sued lawyer for incorrectly writing the will.

1. Lawyer said I don’t owe son any duty; only owe duty to testator

2. Old/ Minority rule: Lawyer’s duty runs only to the testator

Intestacy

1. Intro –

a. Die Intestate à If you die without a will

b. Distribution of an intestate estate is governed by Law of Intestacy (“default rules”)

b. Primary policy in intestacy § is carry out the probable intent of the average intestate decedent

i. Intestacy § à tries to “guess” what most people want to do with their property

c. 2ndary policy of intestacy laws is family protection

i. preserve the economic health of the family after D’s death

ii. § is heavy towards spouse, b/c views marriage as economic partnership

d. Only Probate property is governed by local intestacy laws

i. Law of the state where the decedent lived at death governs the disposition of PERSONAL property

i. Law of the state where the decedent’s REAL property is located, governs the disposition of real property.

c. Intestacy Statute: Functions

i. Estate plan for people without a will

1. If you have no will, § provides laws for disposition of property

ii. Backup plan for if the will fails or is not comprehensive (partial intestacy)

iii. Default rules of construction for terms not defined in the will

1. Who = “descendant” or “spouse”

a. Last 2 functions à “mop-up” gaps left by a will

iv. Intestacy § also provide who has standing to challenge a will

1. “intestate heirs” à people who have $ interest ß can challenge

a. cousin can’t come and challenge father’s will

2. Or people named in 1st will but not 2nd will can challenge

2. Intestate share of surviving spouse

a. Old Law: wife ≠ heir, she only gets life estate in 1/3 estate

i. Doweràonly in 5 states

b. If decedent leaves no surviving descendants or parents, spouse gets entire intestate estate

i. Decedent leaves no surviving descendants or parents

1. Surviving spouse gets 100%

2. Excludes Non-Probated Property

e. Decedent does leave descendents or parents

i. Older statutes à Spouse gets at least 50%

ii. Modern: See NJ 3B:5-3 (applies also to domestic partner)

1. If decedent leaves no parent OR all of decedent’s descendant’s are also surviving spouse’s descendants, then all to spouse.

a. The entire intestate estate to Wife if:

i. If no kids (and husband has no surviving parents); OR

ii. All children are from H&W AND wife has no other children from a prior marriage

2. If decedent is survived by parent but no children, first 25% of intestate estate to spouse (not less than 50K or more than 200K) plus ¾ of balance

a. 25% of the intestate estate: Not less than $50 K or more than $200 K plus 3/4 of the balance (remainder), (parents get the other ¼)

i. If survived by parent but no children etc:

ii. Initial lump sum to wife = 25% of intestate estate [that amount cannot be less than $50K but not more than $200K] + ¾ of balance

3. If either the decedent or surviving spouse have other children, then 1st 25% of intestate estate (not less than 50K or more than 200k) plus ½ balance

a. 25% of the intestate estate (but not less than $50 K or more than $200 K) plus 1/2 of the balance, other ½ to kids

i. If