WILLS AND TRUSTS OUTLINE
CHAPTER 1: INTRODUCTION TO ESTATE PLANNING
SECTION A: Power to transmit property at death; its justification and limitations
– Hodel v.Irving
– Shriner’s Hosp v. Zrillic
– Shapira v. Union Nat’l Bank
– Someone must die for an estate to come into being
– Dying persons are one of the following:
Testate / Probate (with a will)
Intestate (without a will)
– Wills are defined under state law. Every state has some way to draft and execute a will the terminology may be different.
– If a will is validly executed and the person moves, the will should probably be given due respect, although it is recommended that you execute a new will.
– Person dies without a will
– The person’s property is devised according to the intestacy statute of the state of the person’s residency.
COMBO TESTATE AND INTESTATE
– Individuals can die both testate and intestate (little bit of each).
– They may write a home-cooked will for only a portion of their estate.
– “I give my home to my child” is the testate part, all else goes intestate.
– In non-community property states, a lot of property is held with ROS
– It is impt to ask for a deed of property, you must see this to determine a will and to determine how title to the estate is held.
– You might need to cleanse title to the property, you must have marketable title
– May need counsel in the other JD where the property is held with ROS
– With ROS, when the survivor who owns it in fee simple dies, where does it go? – This is where you must know your statutes to determine the appropriate language to put in your will.
RIGHT TO INHERIT
– This right can be limited by the particular state in which a person lives
– Ex >>> In LA, there are Forced Heirs by statute. If a person has forced heirs, he cannot transfer the property to someone else because of these forced heirs. La law has restricted the testator’s transmission rights because his kids are forced, any one else taking may be restricted by the statute. Husband/testator cannot say “I give all my property to my wife”.
– Children cannot be disinherited. There is a forced succession within the family that converts private property in to family property.
– In Hodel, the govt attempted to make the tribe a forced heir, however this was not constitutional. How come, when the forced succession by family members is?
– In La this is called a Civil Right, not a natural or constitutional right. This is the right to inherit and the right to bequeath ones own property.
– Blackstone commentary says that wills, testaments and other rights of inheritance are all creatures of civil or municipal laws. The permanent right of property vested in the ancestor, it was not a natural right, but merely a civil right (long custom).
– A state could probably not strip all rights to transmit and inherit, but there are limitations placed on both, especially in La.
– Until the 1980s it was generally accepted that the right to pass property at death was not a constitutionally protected right, Hodel changed some of this.
¨ Hodel v. Irving >>> Indian Lands Act provided each Sioux Indian with an allotment held in trust be the US govt. Eventually, the lands were splintered into multiple undivided interests, with some parcels having 100’s of fractional owners. 1983 congress passed the Indian Land Consolidation Act providing that certain fractional interests could not be transferred by intestacy or devise but would escheat back to the tribe. No provision was made for compensation to the owners of the escheated interests.
v ISSUE: Is the complete abolition of the rights of an owner to dispose of property rights, a taking without just compensation violating the 5th Amendment right against taking without just compensation?
v HOLDING: YES – dealing with a person’s right to pass property and govt taking without just compensation.
v REASONING: this amounted to a total abrogation of the owner’s rights to devise the property. There is no set formula for determining when “fairness” requires that economic injuries caused by public axn be compensated, the courts have examined the “taking” question by factual inquiries having several factors: Aetna v. US:
1. Economic impact of the regulation. >>> among the bundle of rights is fair market value in the right to transmit. The court felt there would be a substantial impact on the fair market value right. The court did not think that the govt could pick arbtrairly the amount sufficient for the right to transmit. For example, what it there were oil and gas on the property, the fair market value would be much higher than that given by the govt.
2. Interference with reasonable investment backed expectations. >>> doesn’t really matter so
3. Character of the governmental action. >>> there was a total abrogation of the right to transmit property. The court felt that this went too far. Unfair taking and an unfair compensation. There abrogation of the right to pass property. There was an acknowledgement that the US govt did still have this authority to take and distribute. You will rarely see something like this unconstitutional.
v WHAT IS PERMISSIBLE FOR THE GOVT TO DO?: >>> O’Connor really steps out of bounds here. She says that it might have been permissible for the govt to prevent such owners from further subdividing the interests among future heirs on the pain of escheat. Or forcing owners to designate an heir to prevent escheat to the tribe.
v THE RIGHT TO TRANSMIT IS ONLY 1 STICK IN THE BUNDLE: >>> it is a fraction of the entire amount of a fee simple. BN says that if the state only affects this right, it may not really have a big impact. Maybe this taking should have been allowed. Don’t forget that the govt still has the ability to do this taking provided that they justly compensate.
v WHAT THE INDIANS COULD HAVE DONE: >>> to get around 207, the Indians could have set up intervivos gifts, revocable trusts, or documents with POD provisions. This would get rid of probate, more property is transmitted this way these days. (IRA, JT with ROS, TbyE with ROS).
v Congress ultimately amended 207 to not prohibit the devise to any other owner of such an undivided interest in the same parcel as the deceased.
– Property passing by will or intestacy “goes through probate”, whereas property subject to these other arrangements does not (JT, gift of remainder interest, reserving a LE, revocable trust, designating a death benef on a K, pension plan, 401K)
– Many want to avoid probate because it is costly, public and time consuming
– More property today is transmitted outside the probate process than inside it.
– The Hodel court suggests that the possibility of a revocable trust is not an adequate substitute for the right taken. But, in fact, it can be an adequate substitute. The donor would hold the property in trust (but it is already held in trust by the US) still there would be not probate at death of the donor unless the donor revokes the trust.
ESTATE TAX COMPUTATION
– Now at 625k$ all estates are charged an estate tax.
– Estate tax rates start at 37.5% and go to 55%.
– So if you have a large estate, you must know when taxes are due.
– Mortmain statutes that restrict charitable gifts are unconstitutional.
– Mortmain statutes allowed descendants to contest the will and have it voided thereby defeating the intent of the testator. The theory was that govt wanted to protect families from disinheritance. They felt that there may be undue pressure put on the testator by the charity.
– Georgia, Idaho, and Mississippi still have Mortmain statutes.
– The only way lineal descendants can complain is if they were named in the will. The testator must totally cut the lineal descendants out to get around the statute and not have to worry about the mortmain deal. In this case the kids would not have standing to bring a suit.
– Example >>> if a testator dies leaving lineal descendants and her will devises all or part of her estate to a charitable institution, the devise shall be avoided in its entirety if one or more lineal descendants who would receive interest files written notice within 4 months after the letters are issued, unless the will was duly executed at least 6 months before the testator’s death.
¨ Shriner’s Hosp. v. Zrillic >>> decedent was survived by P (daughter). Decedent’s will provided antique dishes to P with the bulk of the estate devised to the Hospital (D). decedent explained that she had already provided enough for P during her lifetime. The Florida statute in question said that P could avoid such a devise to D entirely if she did the paperwork within 4 months after the papers were issued.
v ISSUE: Is a statute that allows descendants to avoid charitable devises reasonably necessary to limit the property rights guaranteed by Article I, section 2 of the Fla const? >>>NOISSUE: does a statute that allows descendants to avoid charitable devises violate the equal protection guarantees of the Fla const and the 14th Amendment of the Us const? >>>YESREASONING: the type of analysis is the Reasonable Relation Test. The general purpose of these statutes is the opposite today, these charitable devises are encouraged today.
– although it may be reasonable for the legislature to protect family members who are dependent or in financial need, it is unreasonable to assume that all lineal descendants are dependent, in need or otherwise not provided for.
– The Fla statute fails to protect against windfalls for lineal descendants who have had no contact with the decedent, but may benefit from the avoidance of a charitable devise.
– The Fla statute also fails to protect against windfalls for lineal descendants whose legacy has been specifically limited by the ded.
– The classification is Under Inclusive in that it does not protect against others who may be unscrupulous beside the charitable organizations. There is no reason to believe that testators need more protection against charities than against unscrupulous and greedy relatives, friends or acquaintances.
– The classification is also Over Inclusive because it voids many intentional bequests by testators who are not impermissibly influenced or who do not immediate family members in need of protection.
– The time limits placed on the statute are stupid because there is no rational distinction if testator survives the bequest by 4 mos. or 6 mos.
– There is no rational distinction drawn in the Fla statute, nor is it reasonably related to a legitimate govtal purpose.
THE POWER OF THE DEAD HAND AND ITS LIMITATIONS
– Shapira v. Union National Bank >>> ded’s will said that P, his son, could only inherit if he was married to a Jewish girl whose parents were both Jewish at the
ey distribute to the benef. Pension plans, tax deferred investment plans. All you have to do is file a death certificate with the corporation. IRAs, Keoughs. (lot of these are exempt from creditor seizures)
– ERISA is the federal statute that governs IRA, Keoughs, 401Ks, etc. ERISA says to pass without probate you have to name a benef (supersedes the statutes)
– A SS must sign off on a pension plan, etc., that names someone other than them as a benef. There are restrictions on who can be named as benefs.
Interests in Trust >>> property distributed to the benef by a trustee in accordance with the terms of the trust agreement/instrument. If the trust is created by the ded, it must be revocable or irrevocable. If the ded has testamentary power of appointment over assets in the trust, the ded’s will must be admitted to probate, but trust assets are distributed directly and do not go through probate.
– Revocable Trust >>> a tried and true way to transfer assets in a non-probate manner; husbands and wives set up trusts making themselves as trustees and principal benefs and naming their children as successor benefs so that when they die (e.g., common disaster) nothing goes into probate, BUT:
a. There is no income, gift or estate tax savings at all by using a revocable trust (because these assets are still part of the estate).
b. Revocable trusts are extremely common in some states but very rare in others. Why? >> no modern trust codes
c. RTs are used for a # of reasons. Lot of the time people will set up a RT for mgmt of funds when parents get old and unable to manage their affairs, so someone else runs the RT for the benefit of mom and dad.
d. A trustee is subject to the highest fiduciary standard
ADMINISTRATION OF PROBATE ESTATES
– When a person dies and probate is necessary:
§ A personal representative is appointed to oversee the winding up ded’s affairs. His principle duties are:
1. Inventory and collect assets
2. Manage assets during the administration
3. Receive and pay claims of creditors and tax collectors
4. Distribute remaining assets to those entitled
– A personal representative usually hires an atty so he normally doesn’t do his allotted tasks.
§ When a PR is named in a will he is called an Executor, when an executor is not named in the will or when the ded dies intestate, he is called an Administrator (nasty sometimes there is a race to the courthouse). Personal Representatives are appointed by, under the control of, and accountable to the court, generally a probate court. The Executor/Administrator has a fiduciary duty not only to the estate but also to the heirs.
– Reasons to write a will
– The advantages of a will in naming an executor, is that if no one is named, an administrator is selected from a statutory list (spouse, kids, parents, siblings, creditors, etc….)
– Appointed administrators must give a fiduciary bond, unless that bond is waived by the will.
– Bond = posting something of value so as to make sure the executor does not steal stuff from the estate.
– If a left field heir wants to contest the bond, he does what is called “test the surety”.
– You can avoid this by naming an executor and waiving the bond.
§ A person dying testate devises real property to devisees, and bequeaths personal property to legatees. However, the restatement applies devise to both real and personal property
§ If ded dies testate he leaves legatees, if ded dies intestate he leaves heirs.
§ The language dosen’t matter so much today. “I give” is ok, anything that sets forth the intent of the testator
§ In intestacy what happens to real and personal property? Real property descends to heirs, and personal property is distributed to next of kin. However, today heir and NOK mean the same thing.
§ Important to understand that pigs survive and hogs get slaughtered. When a client dies and names the SS as executor, those SS/executors can use whoever they want as an atty, they can kick you out. There is no guarantee that you’ll be the atty to handle the matter. They can name anyone they want, so keep on good terms with these named executors.
Attys may name themselves as executor, then appoint their firm as atty for themselves. Be careful, because an atty acting as an executor is not covered by malpractice insurance because he is not acting as an atty, he is acting as an executor. Also it leads to double billing.
The atty needs to be separate from the executor.