Wills Trust & Estate – Prof. Festa
CH 1: INTRO
A. THE POWER TO TRANSMIT PROPERTY AT DEATH
The Right to Inherit & the Right to Convey
What happens when to your stuff when you die?
Passes by will (“Testate”); or
Passes by statute, No will (“Intestate”).
Thomas Jefferson: “The earth belongs in usufruct to the living; the dead have neither powers nor rights over it. The portion occupied by any individual ceases to be his when he himself ceases to be, and reverts to society.”
So how did people inherit stuff?
Blackstone: The permanent right of property was no natural, but merely a civil right. The right of inheritance was allowed much earlier than the right of devising. The rule of inheritance was so strict that it made heirs disobedient and headstrong and defrauded creditors. So, the right of disposing one’s property by testament was introduced. Wills, testaments, rights of inheritance, and successions are all creatures of civil laws so are, therefore, regulated by them
Locke: When practice is universal, it is reasonable to think it is natural. This gives children a title to share in the property of their parents and a right to inherit their possessions.
Until the 1980s, the views of Jefferson & Blackstone (above) prevailed over those of Locke. Thus, the right to transmit or inherit property at death was neither a natural right nor was it constitutionally protected. In 1942, the Supreme Court held this view in Irving Trust Co. v. Day: “Rights of succession to property of a deceased… are of statutory creation. Nothing in the Constitution forbids the legislature of a state to limit, condition, or even abolish the power of testamentary disposition.”
Pre-1540: No wills allowed; forced heirs/primogeniture.
1540: Statute of Wills: freedom to direct disposition of property at death
19th-20th Century: Married Women’s Property Acts; elective share statutes.
Hodel v. Irving (SCOTUS, 1987):
Issue: Whether “escheat” provision of Indian Land Consolidation Act effects a (regulatory) taking without just compensation?
Facts: The Act prohibits devise/inheritance of small fractional shares allotted to Native Americans; instead, it provided those shares should escheat to the tribe. There was a fractionation problem because parcels were divided into extremely small shares so it made land less valuable and an administrative nightmare. There was no provision for payment to the owners of the shares escheating to the tribe. The plaintiffs in this case are the heirs who would have received the property if it did not escheat to the tribe.
The right to pass on valuable property to one’s heirs is itself a valuable right.
This is an extraordinary intrusion because one of the most essential sticks in the bundle of rights is the right to exclude others.
Bundle of rights: possess, use/enjoy, exclude, alienate
Alienation: transfers (including devise)
The total abrogation of the right to pass property interests at death is unprecedented and likely unconstitutional.
Here, both descent and devise are completely abolished (even when devise might allow for consolidation of property).
The right to transmit (not receive) property is a constitutional right.
This right is limited by legislative control of default rules.
The right to receive property by inheritance is just a “mere expectancy” and it has no constitutional protection.
Thus, this case constitutionalized wills, trusts and estates.
The government can’t unduly limit the right to convey property at death.
Shaw Family Archives v. CMG Worldwide (SDNY, 2007):
Issue: Whether, after the deceased’s death, the government can increase the property rights that pass as part of her estate?
Facts: In Marilyn Monroe’s will she gave the residuary to Lee Strasberg. She did not expressly bequeath a right of publicity. Lee died and left his wife Anna everything. Shaw was a photographer who sold the rights to a photo he took of Marilyn to Target stores in 2006. Anna argues that, as the residuary, she owns the post-mortem right of publicity and Shaw’s having done this without her permission violated some Indiana Act. The Act was not passed until the 1990s, well after Marilyn died. It creates a descendible and freely transferable right of publicity that survives for 100 years after someone’s death. It purports to apply to anything done in the state, regardless of the deceased’s domicile.
A person cannot devise by will a property right she did not own at the time of her death.
The law of the domicile of the testator at his or her death applies to all questions of a will’s construction.
Testamentary disposition is controlled by the law in effect as of the date of death.
CA Amendment (after this case): The rights recognized under the Act are deemed to have existed at the time of the death of the personality.
Note: If there was a right of publicity at the time she died, she could likely pass it on and the outcome of this case would be different. Also, Anna argued that the wording of Marilyn’s residuary clause which mentioned property acquired in the future should cover this right. However, the court said the boilerplate language used in the clause was too narrow to allow this.
HYPO: T has one child X and no spouse. If he dies intestate, X gets everything. But, he dies testate and leaves his estate to Y. After T’s death, A dies. A left something to “T or T’s estate should he precede me in death.” Who gets it? Y or X? Courts are reluctant to speculate as to what T would have done with this property so they will rely on default rules.
Festa: You can add an “after acquired property” clause to your will and courts will often enforce it.
The Policy of Passing Wealth at Death
Britain: Inheritance remains one of the purest forms of getting something for nothing.
Halbach: Pro Inheritance—Least objectionable arrangement; natural and proper as an expression of family ties which are important to society; expresses and begets affection; encourages productivity and responsibility; induces people to save rather than consume; focus on effects inheritance has on the donor.
Oliver, Shapiro, and Press: Dangers of inherited wealth becoming the basis of enduring privilege; great fortunes should not remain in the same hands (quoting De Tocqueville).
The most powerful argument against permitting transmission of wealth is that it perpetuates wide disparities in the distribution of wealth, concentrates inherited economic power in the hands of a few and denies equality of opportunity to the poor.
Ascher: Proposes that the general rule should be that property rights end at death, subject to some exceptions. This would increase equality of opportunity and raise revenue. All property should be sold at death and proceeds should go to the government. Six exceptions: marital exemption; dependent lineal descendants; disable lineal descendants; lineal ascendants; moderate amount to do what deceased pleases; charity. To prevent circumvention of these rules, increase the gift tax. This proposal strikes directly at inheritance by healthy, adult children. Inheritance should be permitted only where policy clearly justifies it.
Kristol: Discourage the inheritance of large fortunes to prevent oligarchy and aristocracy; set a limit on what one individual can inherit in his lifetime; possessors of large fortunes should distribute prior to death or by testament to individuals, none of which receives more than the limit; this inheritance is tax-free. But, if the deceased failed to do so, 100% goes to the government.
Blum & Kalven: It is really the inequalities of opportunity we “inherit” as children that matters. A progressive income tax would fix this form of unequal inheritance; it is income, not wealth that really matters. However, the greatest source of inequality is not economic but, rather, cultural.
Langbein: The main transmission from parent to child now is the investment in skills; the business of educating kids is the main occasion for intergenerational wealth to transfer. Therefore, children with wealthy parents are less likely to expect an inheritance because they do not depend upon their parents since they’ve been educated and usually reach peak earning potential for themselves.
Estate Tax: From 2001-2009 the estate tax has been going through changes. In 2001, the exclusion amount was low and the tax rate was high. In 2009, the exclusion amount was high and the tax rate was low. In 2010, however, the whole thing was repealed and estates passed without taxation!!!
How can we reconcile an estate tax with the Hodel case, which forbids the right to transmit property? The Hodel case only stands for the proposition that the total deprivation of the right to transmit is a taking.
The Problem of the Dead Hand
Restatement Section 10.1—Donor’s Intention Determines the Meaning of a Donative Document & Is Given Effect to the Maximum Extent Allowed by Law: The controlling consideration in determining the meaning of a donative document is the donor’s intention. The donor’s intention is given effect to the maximum extent allowed by law.
Courts do not have any authority to question the wisdom, fairness, or reasonableness of the donor’s decisions. The main function of the law is to facilitate rather than regulate.
Examples of Restrictions: spousal rights; creditors’ rights; unreasonable restraints on alienation or marriage; provisions promoting separation or divorce; impermissible racial or other categoric restrictions; provisions encouraging illegal activity; and the RAP.
Noteà There will be many times when the donor’s intent may not be given effect because court only give effect to intent as it’s expressed in the will.
Shapira v. Union National Bank (Ohio 1974)
Facts: Dad died and in his will he divided his estate among his 3 kids. But, he said his youngest son could only get his share if he
Law of JX where real property located controls disposition of that real property
Consider community property—where did you acquire the property?
Statute of Limitations: No proceeding may be initiated more than 3 years from the date of death (UPC).
TCP 73: 4 year time period
Formal versus Informal Probate
The main question here is how much freedom from supervision does the representative have vs. court supervision?
Festa: Give your executor broad power and write your will so that it is very clear that is what your intent is.
Formal Probate: Judicial proceeding—everything is supervised by the court.
Informal Probate: Independent administration—don’t have to keep going back to court for guidance. TPC 145
Rationale: The typical representative is a close family member and so is the typical beneficiary. Thus, the added costs of court supervision are usually needless and without benefit to the estate.
General Rule: If the will is contested or minor children are involved, the court will supervise
Barring Creditors of the Deceased
Need to pay the estate’s creditors
TPC 298: Claim may be presented anytime before estate is closed (unless otherwise barred by the applicable SOL).
TPC 294: Notice regarding executing the estate through probate.
Must notice government in the newspaper
Must notice secured creditors
May notice unsecured creditors (& they must present claim within 4 mos. of notice).
Closing the Estate
Dealing with debts, distributions, titles, taxes, sales, etc. can take a very long time!
But the representative is expected to do it “as promptly as possible.”
When all finished, the court will discharge the administrator from fiduciary responsibility.
The Costs of Probate
Court fees, attorney’s fees
Funeral & burial
Personal representative’s commission
Reasonable rate or fixed percentage (expressed in will); or
TPC 241: 5% of all sums received & paid out
Many times family members serving as representatives will not take a commission.
Transaction Costs: appraisers, realtors, real estate transactions, estate sales
Festa: This shows us that the true advantage of avoiding probate is efficiency.
Is Probate Necessary?
No, not if you get rid of your stuff before you die. But you should still have a will just in case you forgot something or acquire something later.
Inter vivos trust
Still need a will
For items of personal property, probate is not usually necessary anyway.
Summary administration: a procedure allowed for very small estates. Requires an affidavit of the deceased’s successor.
TPC 137: Total value, not including homestead and exempt property, does not exceed $50K. The only real property that can be transferred this way is the homestead.
Aaron Green Problem
Will: To my wife, if she survives me, otherwise to my children in equal shares
Martha = Executor
Property = Furniture, Savings Account (Aaron), Joint checking Account, Pension Plan, Government Bonds (Aaron or Martha), Life Insurance Policy (Martha), Ford Car
Probate: Furniture, Savings unless POD provision, Ford Car
1.) No real property; debts: bills, charge accounts, funeral expenses; Must she probate the will
Informal Settlement probably ok