Trusts and Estates
Donigan
Fall 2011
I. Introduction
a. The Power to Transmit Property at Death: Justifications and Limitations
i. The Right to Inherit and the Right to Convey
1. Jefferson, Jefferson’s Works
2. Blackstone, Commentaries
3. Locke, Two Treaties of Government
4. Hodel v. Irving
a. The right to will one’s property to one's heirs is one of the most important “sticks in the bundle” under Anglo-American common law, and that the total abrogation of this right constitutes a taking.
ii. The Policy of Passing Wealth at Death
1. Brittain, Inheritance and the Inequality of Material Wealth
2. Halbach, An Introduction to Death, Taxes and Family Property
3. Bentham, The Theory of Legislation
4. Oliver, Shapiro, and Press , “Them That’s Got Shall Get”: Inheritance and the Achievement in Wealth Accumulation
5. Ascher, Curtailing Inherited Wealth
6. Kristol, Taxes, Poverty, and Equality
7. Note: Inheritance in the Erstwhile Soviet Union
8. Blum and Kalven, The Uneasy Case for Progressive Taxation
9. Langbein, The Twentieth-Century Revolution in Family Wealth Transmission
iii. The Problem of the Dead Hand
1. Restatement Third of Property: Wills and Other Donative Transfers §10.1
a. §10.1 – Donor’s Intention Determines the Meaning of A Donative Document and Is Given Effect to the Maximum Extent Allowable by Law
i. 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 allowable by law.
b. Rationale
i. Freedom of disposition.
c. Effect of a donative document.
i. Unless disallowed by law, donor’s intention determines the meaning and effect of the donative document.
ii. Main function of this area of the law is to facilitate not regulate (no general authority to question the donor’s decisions.
iii. American law curtails freedom of disposition only to the extent that the donor attempts to make a disposition or achieve a purpose that is prohibited by an overriding rule of law.
2. Shapira v. Union National Bank
a. Facts:
i. Shapira died leaving a valid will and three children (Daniel, Mark, Ruth). The will conditioned the sons receipt of their bequest in whether they would marry a Jewish girl, both of whose parents were Jewish within 7 years and if they didn’t the bequest went to the state of Israel absolutely. Daniel sues arguing the condition on his inheritance is unconstitutional, contrary to public policy and unenforceable and that he should be given his bequest clear of the restriction.
b. The conditions contained in the will are reasonable restrictions upon marriage, and valid.
c. Note:
i. Full restraint on marriage – invalidates wills.
ii. Provision that disrupts family relationships (induces divorce) – invalidate will provision.
iii. Provision that provides money (support) for life up until the widow/widower remarried valid if the argument that when they remarry the support is no longer required.
3. Note: Incentive Trusts and the Dead Hand
a. In modern practice conditional gifts such as in Shapira tend to be made in trust, know as an incentive trust.
b. Three broad categories:
i. Education;
ii. Moral or religious;
iii. Career encouragement.
c. Provided incentives don’t violate public policy, courts generally enforce them.
4. Note: Destruction of Property at Death
a. Should a testator be permitted to order the destruction of property at death? See pg 37.
b. Transfer of the Decedent’s Estate
i. Probate and Nonprobate Property
1. Probate property:
a. Property that passes through probate under the decedent’s will or by intestacy.
2. Nonprobate property:
a. Property that passes outside of probate under an instrument other than a will.
b. Most property transferred at death passes outside of probate through a nonprobate mode of transfer.
3. Common modes of nonprobate transfer:
a. Joint tenancy property, both real and personal
b. Life insurance;
c. Contracts with payable on death (POD) provisions;
d. Interests in trust;
i. Testamentary trust
1. Property in a testamentary trust created under the decedent’s will does pass through probate.
ii. Inter vivos trust
1. Property put in an inter vivos trust during the testator’s life does not pass through probate. Distribution of nonprobate property does not involve a court proceeding, but is made in accordance with the terms of the controlling contract or trust or deed.
ii. Administration of Probate Estates
1. The Functions of Probate
a. Three core functions:
i. It provides evidence of transfer of title to the new owners (i.e. it clears title and makes property marketable again).
ii. It protects creditors by providing a procedure for payment of debts;
iii. It distributes the decedent’s property to those intended after the decedent’s creditors are paid.
2. Probate Terminology and History
a. When a person dies and probate is necessary:
i. Step 1 – Appointment of a personal representative to oversee the winding up of the estate of decedent’s affairs.
b. Rep is a fiduciary;
c. Manages the property during the administration of the estate;
d. Processes claims;
e. Distributes property;
f. Court that supervises the administration of the probate estate is referred to as the probate court.
g. Executor vs. Administrator
i. If decedent dies testate and the will names the person who is to execute the will and administer the probate estate, they are called executor.
ii. If the will does not name an executor (of if they are unable/unwilling to serve, or decedent dies intestate, the court will name a representative generally called an administrator.
h. A person dying testate devises real property (devisees) and bequeaths per personal property (to legatees)
3. A Summary of Probate Procedure
a. Opening probate
i. The will should first be probate, or letters of administration sought, in the jurisdiction where the decedent was domiciled at death. (issuance of letters)
ii. Letters testamentary
1. To an executor authorizing them to act on behalf of the estate;
iii. Letters of administration
1. To an administrator authorizing them to act on behalf of the estate.
b. Formal versus informal probate
i. Uniform Probate Code is representative of statutes regulating probate procedures. The person asking for letters can choose formal or informal.
ii. Formal Probate
1. Formal probate under the UPC is a litigated judicial determination after notice to interested parties.
2. Formal proceeding may be used to:
a. Probate a will;
b. Block a informal proceeding
c. Secure a declaratory judgment of intestacy.
3. Court supervises the actions of the personal representative in administering the estate. (can be costly/time consuming – court approval of various things – pg. 43)
iii. Informal Probate (pg 44)
1. After appointment, the personal representative administers the estate without going back into court.
2. Representative has broad powers of a trustee in dealing with estate property and may:
a. Collect assets,
b. Clear titles;
c. Sell property;
d. Invest;
e. Pay creditors.
3. Estate may be closed by the personal representative by filing sworn statement that he published notice to creditors, administered the estate, paid all claims, and sent a statement and accounting to all known distributes.
4. An interested party may file a petition for formal probate at any time during the administration of the estate.
c. Barring creditors of the decedent
i. Non Claim statutes require creditors to file claims within a specified period of time, claims are thereafter barred. Two basic forms:
1. Bar claims not filed within a short time after probate proceedings have begun (two to six months)
2. Whether or not probate proceedings have commenced, the bar claims not filed within a longer period after the decedent’s death (one to five years)
ii. (SC held) Due process requires that known or reasonably ascertainable creditors receive actual notice before they are barred by short term statutes running from the commencement of probate proceedings.
d. Closing the estate
i. Person representative of an estate is expected to complete the administration and distribute the assets as promptly as possible.
1. Creditors must be paid;
2. Titles must be cleared;
3. Taxes must be paid, returns audited and accepted by tax authorities;
4. Real e
n another state.
3. Simultaneous Death
a. A person succeeds to the property of a decedent only if the person survives the decedent for an instant of time.
b. Uniform Simultaneous Death Act provides that if “there is no sufficient evidence” of the order of deaths, the beneficiary is deemed to have predeceased the donor (neither inherits from the other).
i. Joint tenants/tenancy by the entirety/community property (A and B die simultaneously)
1. One half of the property is distributed as if A survived. One half is distributed as if B survived.
ii. Problem of simultaneous death arises not only in intestacy, but also under wills, trusts, and other instruments transferring property at death.
1. Arises more often in intestacy because well drafted instruments typically require a beneficiary to survive the donor by a stated period of time (often 30 or 60 days).
2. Typical simultaneous death case involves spouses because they often travel together and are each others primary beneficiary.
iii. What constitutes “sufficient evidence” of the order of deaths? See Janus.
4. Janus v. Tarasewicz
a. Facts:
i. Stanley and Theresa both died after eating cyanide laced Tylenol. The life insurance policy named Theresa as the beneficiary and Stanley’s mother as the contingent beneficiary Stanley died almost immediately. Theresa hung on for two days on life support before dying. Neither could breath on their own. Stan never pulse or signs of respiration and was pronounced dead. Theresa was in a deep coma with unstable vital signs. A minimal reaction to light was detected in the left pupil. Her brain function was tested. She was not responsive to external stimuli and was diagnosed with total brain death and taken off life support. The court found that Theresa survived Stanley.
b. Some cases have provided that legal death occurs at “brain death.”
c. “Survivorship is a fact which must be proven by a preponderance of evidence by the party whose claim depends on the survivorship.”
d. The Uniform Probate Code establishes that in order to inherit, there must be clear and convincing evidence that you survived that decedent by at least 120 hours.
e. The Uniform Simultaneous Death Act has a similar 120 hour requirement, but allows for an exception if there is clear and convincing evidence that the inheritor survived the decedent, even if it was less than 120 hours.
iii. Shares of Descendants (See page 87)
1. General:
a. Basic rule, subject to the the right of the surviving spouse
b. Representation – stepping into the shoes of the person
c. In all jurisdictions, after the spouses share (if any) is set aside, children and descendants of deceased children take the remainder of the decedent’s property to the exclusion of everyone else.
d. In all states, when one of several children, leaving descendants, has dies before the decedent, the child’s descendants shall represent the dead child and divide the child’s share among themselves. See page 87.
2. English per stirpes aka strict per stirpes. (about 1/3 of states)
a. Distribution per stirpes (“by the stocks”)
b. The property is divided into as many shares as these are living children of the designated person and deceased children who have descendents living.
c. The children of the deceased descendent represent their deceased parent and are moved into their parent’s position beginning at the first generation below the designated person.
d. This is Florida
3. Modern per stirpes aka per capita with representation. (nearly half of states)
a. This approach first looks to see whether any children survived the decedent. If so, the distribution is exactly the same as the “English per stirpes” approach. If not, the estate is divided equally (per-capita) at the first generation in which there are living takers (which is usually the generation of the decedents grandchildren).
b. Only starts at level where one survives
c. Under modern per stirpes the decedent’s estate is divided into shares at the generational level nearest to the decedent in which one or more descendants of the decedent are alive. Any deceased descendant on that level is represented by her descendents using English per stirpes distribution.
d. This system treats equally each line beginning at the closest living generation.
e. See page 88.
