WILLS, TRUSTS & ESTATES – OUTLINE
PROFESSOR JENKINS, SPRING 2014
Introduction to Estate Planning
I. Power to Convey Property at Death: Justifications and Limits
A. Theories of the right to inherit/convey
1. Jefferson – Property is ours only when we’re alive, reverts to society
2. Blackstone – Familial practices of inheritance developed into a general law
3. Locke – God planted in men desire for self-preservation, which then formulated into protecting one’s offspring; property inheritance is part of this natural law
4. Locke lost out to Jefferson/Blackstone and it became generally accepted that there is no natural right or constitutionally protected power to pass property at death
5. Hodel v. Irving (U.S. 1987) [1 CB 3]: Indian land held in trust by US was allowed to be devised at Indians’ death; result was many land parcels subdivided into hundreds of owners with lack of large, contiguous tracts. Congress passed law that prohibited devise of certain mini-tracts of land and escheated to the tribe. Rule: Law here amounts to a virtual abrogation of the right to devise real property, long been protected in American legal system, and constitutes a taking. The U.S. may, however, limit authority to devise property without implicating the Constitution.
i. Stands for proposition that there is constitutional baseline for right to devise which can’t be taken away altogether, even though can be limited constitutionally
ii. Outcome is same even though Congress had very good reason for statute
B. Justifications for the right to convey
1. Encourages people to save for distribution at death rather than waste assets during life
2. Creates incentives for potential transferees to maintain relations with transferors
3. Death is inevitable so right allows people a means for putting their affairs in order
4. Provides a mean for controlling state taxation of estates (though estate tax not that onerous and not a “double” tax b/c of generous exemptions and fact that tax touches on much property with unrealized gain which has never been taxed before)
C. The problem of the dead hand
1. R(3d) Wills § 10.1 – With limited exceptions relating to creditors rights, spousal and children’s rights, and public policy, American law’s goal is to effectuate donor’s intent regardless of the soundness or reasonableness of that intent in eyes of court
2. Shapira v. Union Nat’l Bank (Ohio Ct. Comm. Pleas 1974) [2 CB 21]: Father left will with bequest to son on condition that son was married to a good Jewish girl at time of father’s death. Son, who did not qualify, sought to hold enforcement of will unconstitutional or against public policy. Rule: Provision is valid and enforceable so long as it does not unreasonably interfere with son’s right to marry.
i. No constitutional right to inherit property and testators are free to disinherit their children under most American, so the Constitution provides no guidance here
ii. Not impinge on son’s right to marry b/c he can still marry whomever he wants – although it’s an example of dead hand control b/c son must comply with dead father’s wishes if he wants to inherit under the will
iii. No public policy problem b/c conditioning receipt of inheritance eon beneficiary’s marriage or another act is enforceable so long as it is reasonable (it’s reasonable here b/c the pool of people that son could marry is large, not restrict the son)
3. Dead hand control is pretty well respected in a will so long as it’s tightly drafted (e.g., if there are alternative clauses in case certain gifts fail)
i. Problem with dead hand control – can generate litigation and be costly for estate
ii. Certain dead hand restraints are going to be dead on arrival – e.g., condition requiring that wife smoke five packs of cigarettes a day will be invalidated
II. Probate Versus Non-Probate Assets
A. Introduction to will substitutes
1. Probate, the system for transferring wealth at death, is declining as means of transferring property as we rely more on nonprobate means of transfer at death, mainly: life insurance, pension accounts, joint accounts, and revocable trusts
i. Property held as joint tenants is quintessential nonprobate asset – it never enters the probate estate and passes by operation of law to the surviving owners
ii. Property subject to power of appoint also escapes probate – a 3d party is designated by the owner to determine who will take at some time in the future
a. General power of appointment – donee takes possession and does as he wishes
b. Special power of appointment – donee takes possession and can distribute to a particular group of persons (X to Y for distribution to my lineal descendants)
c. Most powers of appointments have a gift in default so that if the donee fails to transfer property correctly, a default party will receive it
2. Nonprobate assets pass to their beneficiaries without having to go through probate and generally w/o regard to the instructions of wills/intestacy statutes
i. Some contractual terms escape probate b/c purpose of probate is to effectuate decedent intent and these contractual terms are sufficient evidence of this
ii. Question of who is to take is answered by the arrangement, so no need to look elsewhere
3. Gross estate under the IRC – includes the entire estate, probate and nonprobate and thus is larger than the probate estate
4. Title controls in a common law state and much property that is untitled (furnishings, misc. personalty etc.), is easily dealt outside probate by treating them as jointly owned or as a gift from the deceased to the survivor
B. Life insurance, pension accounts, and bank accounts
1. Effective nonprobate transfers can’t be defeated by a will because the transfer occurs prior to and outside of the will (nonprobate assets are outside touch of the will)
2. Wilhoit v. Peoples Life Ins. Co. (7th Cir. 1955) [7 CB 325]: Insured died, leaving death benefit to his wife. Insurer distributed money to wife, who 23 days later, deposited the funds back with the insurer with a death beneficiary of her brother. Her brother died without bequeathing the funds, and she then died leaving it to her stepson’s son. Rule: The deposit of the funds with the insurer was not a part of the original insurance contract, which had ended when the insurer paid out the benefit, and accordingly, the death designation was not an effective will substitute.
i. Court treat’s the deposit and death designation as an ineffective POD in a deposit account b/c it fails to comply with the formalities required by the statute
ii. Applies the minority rule still in force in some states that POD designations in anything but a life insurance contracts are invalid
3. Estate of Hillowitz (N.Y. 1968) [8 CB 328]: Decedent, partner in a partnership died. Partnership agreement provided that upon death, partner’s share passed to his surviving spouse. Executor sues to bring share into probate estate. Rule: The provision is valid and not defeated by labeling it a testamentary disposition.
i. Court provides examples of types of contracts that can effect after-death transfers w/o satisfying formalities: insurance, inter vivos trust, contract to make will
4. UPC § 6-101 – Provision for nonprobate transfer in particular instruments is nontestamentary, effective, and enforceable
5. Pension accounts – most retirement assets are held in tax-qualified pension accounts
i. Most defined benefits plan pay out in form of annuity for life of participant, or as joint and survivor annuity for life of participant and surviving spouse, leaving nothing to be disposed at the time of death
ii. Most defined contribution plans pay out as lump sums, with the very real possibility that there will be pension assets to convey at the time of death
iii. Egelhoff v. Egelhoff (U.S. 2001) [CB 336]: Participant designated his spouse as death beneficiary of his ERISA account; participant divorced without revoking designation. WA law revoked any pre-divorce death designations of the ex-spouse. Rule: ERISA preempts WA law under policy of national uniformity of plan administration; rule imposes mandate on plan to follow WA law rather than the beneficiary designation made under the plan.
6. Multi-party bank and brokerage accounts
i. Joint and survivor account – A typical bank account between A and B; be careful b/c a joint tenancy account may not be intended and may not be effected (e.g., A and B open up savings account, but B only has death benefit and no right to access account – although opened jointly, this is actually a POD account)
ii. POD account – Account with death beneficiary designation (POD accounts remain invalid in a handful of states for failure to comply with formalities)
a. Most states have some minimal formality requirement for POD accounts so that courts have some indicia of reliability and will allow it
iii. Agency account – Account where agent has lifetime rights to access the account as depositor’s agent, but not entitled to the balance at the primary owner’s death
iv. Totten trusts – A nontestamentary arrangement (O, as trustee for A) where O has access during his lifetime and A is merely a POD beneficiary of whatever’s in the account at the time of O’s death
v. UPC treatment
a. Recognizes all of these except Totten trust (treated as a POD account) and extrinsic evidence is admissible to show that account open solely for the convenience of the depositor (and thus not truly a joint tenancy)
b. Survivorship required for POD bank accounts (§ 6-212), but antilaps
t these
2. Complete vs. partial intestacy – Complete if no will at all, and partial if part of the will fails or some probate property is not otherwise disposed of through the will
B. UPC intestacy provisions (preference for the spouse)
1. UPC § 2-101(a) – Any part of decedent’s estate not devised by will passes by intestate succession
2. UPC § 2-101(b) – Negative disinheritance – By will, testator may exclude or limit particular persons or classes of persons to inherit by intestacy; effect is same as if person had disclaimed
3. UPC § 2-102 – If decedent has surviving spouse:
(1) If (a) decedent has no surviving parents or descendants; or (2) any surviving descendants are also descendants of the surviving spouse, the surviving spouse gets the entire intestate estate
(2) If no descendants survive but a parent of the decedent survives, the surviving spouse gets [$200,000] of the intestate estate plus 3/4 of the remainder
(3) If (a) all the decedent’s descendants are also descendants of the surviving spouse; and (b) the surviving spouse has descendants that are not descendants of the decedent, the surviving spouse gets [$150,000] plus 1/2 of the remainder
(4) If any of the decedent’s surviving descendants are not descendants of the surviving spouse, the surviving spouse gets [$100,000] plus 1/2 of the remainder
4. UPC § 2-103 – Any part of the intestate estate not passing to surviving spouse passes:
(1) Decedent’s descendants by representation
(2) If no surviving descendants, to decedent’s parents equally or to the survivor
(3) If no surviving descendants or parents, to the descendants of the decedent’s parents by representation
(4) If none of the above, one half to each set of grandparents (or the survivor of them) or their descendants, but if one side is entirely empty, the entire estate passes to the side that has grandparent(s) or descendants thereof
5. UPC § 2-105 – Intestacy escheat provision; default is to escheat to the state
6. Surviving spouse means the spouse legally recognized by law that survives decedent
C. The requirement of survival
1. Taker under rules of intestacy must survive the decedent, and this can create big problems if order of death is confused or unknown
i. Purpose of requirement is idea that if parties die simultaneously or close thereto, decedent would rather benefit his own line rather than heirs of the beneficiary
ii. Problems arise outside of intestacy, but it’s not as common as most well-drafted wills or other documents explicitly have a survival requirement of 30 or 60 days
2. Uniform Simultaneous Death Act – If no sufficient evidence of the order of deaths, beneficiary is presumed to predecease the donor and neither inherits from the other
3. Janus v. Tarasewicz (Ill. App. Ct. 1985) [11 CB 68]: Husband and wife ingested cyanide-laced Tylenol. Husband died at the home, but wife survived on life support for about two more days. Husband’s life insurer determined wife survived him and paid proceeds out to wife’s estate. Rule: Under IL statute, survivorship has to be proven by the party whose claim depends on survivorship by a preponderance of the evidence; the trial court’s finding that wife survived husband because she was not brain dead for two days after husband’s death is not manifestly wrong.
i. Under IL statute, beneficiary needed only to survive decedent by a moment
ii. This case led to UPC’s amendment to require 120 hours of survival, but as this case shows, medical survival depended on outside assistance, which could go much longer than 120 hours and raises questions of whether 120 hours are enough
4. UPC § 2-104 – For purposes of intestate succession, clear and convincing evidence must show that any taker survives the decedent by 120 hours, but this provision not apply if result is escheat under UPC § 2-105
