Trusts and Estates Outline

ESTATES AND TRUSTS
Fall 2009

I. Introduction
a. Policy
i. Shapira
1. T places restriction in will saying son had to either be married to a Jewish girl at T’s death, or marry a Jewish girl within 7 years, or estate goes to Israel
a. Testator: individual drafting the will (the one who dies)
2. T’s intent governs, so long as not violating public policy. Test for public policy is reasonableness
a. Here, a full restraint on marriage (heir cannot marry anyone) would violate public policy. But here heir was merely restricted to Jewish girls, thus only a partial restraint.
i. Must look to facts (here, number of Jewish girls to marry) to determine reasonableness. If six such girls in county, unreasonable (Maddox).
ii. If 540, reasonable: i.e. Here, the restraint was reasonable
3. Right to inherit is not a natural right, but a statutory one
a. Could have inherited son altogether which would have been a greater harm (restriction on marriage is lesser harm)
4. When probate occurs, court enforces a will
a. Court is not enforcing restrictions (here, a right not to marry non-Jewish girls). Thus, no state action
b. It would be problematic if every court probate was considered state marriage (i.e. leaving money to religious organization would infringe on church/state)
5. N.N.: wills can be made invalid if they tend to cause family disruption
ii. Dead Hand Control (DHC)– Major Policy and dominant view (rationales behind giving dead people power)
1. Desires of decedent control and testator’s intent governs
a. Components
i. Shapira – why do we allow dead to make specific property distributions?
ii. Larger component – why can people pass along property at all?
b. Problems with DHC
i. Dead are unable to change their mind if circumstances change
ii. Despite testator’s intent, it is still hard to effectuate
iii. Concentration of wealth
1. Undermines democracy of assets
2. Impedes economic growth
3. Leads to underinvestment
2. Larger component
a. Must do something with property. Thus, since society is organized around private property, inheritance is least objectionable disposition (consistent with notion of private property)
b. Productivity: Incentive for hard work, creativity, productivity
c. People may be more wasteful during life if they cannot control their money after death (encourages saving)
d. Reinforces family relationships
e. Person who owned/earned the property is uniquely suited to dispose of it
f. Net Happiness Theory: Gives comfort to dying who provided for loved ones
g. Exchange Theory (Bentham) (Conduit Theory)
i. Children care for parents in exchange for eventual inheritance
ii. If you have parents take property the property ends up benefitting the children because the child eventually inherits the property or the parent uses the property to support children
iii. Note: Found in the UPC where the drafters give SS everything in intestacy (where all the children are of the marriage)
3. Minority proposals – Ascher and Kristol
a. Want to tax large estates at 100%. Argue against DHC, which perpetuates social inequality by concentrating wealth. This leads to oligarchy and aristocracy.
i. i.e. DHC is “anti-American”
b. Inheritance is “getting something for nothing” and encourages laziness
b. Probate
i. Three meanings
1. Process of taking will to court and proving its validity
a. i.e. that is signed, witnessed, capacity, meets other statutory requirements
2. COMMON MEANING: Administration of estate (executor collects assets, pays creditors, and distributes remainder) (refers to entire administrative process)
3. Property that passes under the will
ii. Probate Property = property that passes under a will because no other other document directs what to do with the property
1. i.e. Insurance contract directs proceeds to an identified beneficiary (note however that insurance policy can become PP if it mistakenly fails to name a beneficiary)
iii. Non-probate property = property that has an instrument that controls what happens upon death (automatically) (passes outside the will and probate system)
1. Examples:
a. Furniture and household items = probate
b. Savings account = w/ payable on death clause = non-probate
i. w/out POD = probate
c. Joint checking account = non-probate
i. Just reverts to other name on the joint account
d. Pension plan = non-probate
e. Govt bonds payable to others = non-probate
f. Life insurance = non-probate
g. Car = probate
iv. Note: Some states provide for collection of assets upon production of a death certificate, others require a court order
1. Some property classified as PP can be collected outside the probate process
2. i.e. Going to the DMC with a death certificate if state has applicable statute
v. Note: Might not need to go through the probate process if the estate is modest (i.e. there is no real property because you need to go through court process to get marketable title), the assets are already collected, there are not many debts, and it is not difficult to distribute the assets
vi. How is probate done
1. Step 1******
a. Separate probate property from non-probate property (Be sure to do this, this is the most important step) (EXAM TIP: ALWAYS FIRST STEP)
i. Wills only impact probate property
vii. Benefits of probate
1. protects against creditors who do not act w/in SoL – (non-claim protection)
2. If estate is small and already in heirs possession, then probate process is generally not needed
a. Conduit Theory
i. Assumption that spouse acts as conduit to children (whatever spouse does not consume in lifetime will go to children, her natural bounty)
3. But if real property is involved, probate is requires
a. Probate clear title
viii. Jurisdiction
1. For personal property = generally where decedent was domiciled at death
2. Real property = situs of property
II. Intestacy
a. Intro
i. Intestacy are the default rules that dictate what happens to probate property if one does not have a will
1. Creature of state law (each state has different rules)
a. Which is why we study the UPC
ii. Major policy– Intestacy rules attempt to reflect what decedents would have wanted if they had a will
1. Not asking what is best for living, but what decedent would have wanted (DHC)
2. Rules formulated by legislatures getting into heads of intestate decedents
a. Reflect popular preferences –what most people would have wanted if they had bothered to make a will.
iii. Why do some people not have wills? (advantageous to execute a will)
1. Roughly 1 half of the population dies intestate
2. AGE(number one reason; most important) (less than 42 most likely don’t have will)
a. Note: NOT the existence of kids. Because the choice of guardian is so difficult, many parents struggle to make a will
3. Income level (modest estates must likely will not have wills)
4. Unpleasantness of confronting mortality –procrastination
5. Organized affairs in a way that probate is not necessary
6. Some people feel that it is too costly and time consuming.
b. Partial Intestacy
i. Intestacy is not all or nothing.
ii. Person has will but it does not adequately dispose of all of the assets of the estate
1. i.e. If will only says: I leave my jewelry to X (this only disposes of some of the probate property, we need the intestacy statute to dispose of the rest of the probate property)
c. Treatment of Spouses in Intestacy
i. All approaches