TRUSTS & ESTATES OUTLINE
I. OVERVIEW:
Windfalls
Income
Gifts
PROPERTY
Inter Vivos Transfer
[Non-probate transfers]
Transfers Effective upon Death
Expenses, debts, taxes, etc.
Outright Gifts
Gifts in Trust
Gifts Causa Mortis
Future Interests
Powers of Appointment
Non-probate Transfers
Probate Transfers
Intestate Succession
Transfers by will
Joint tenancies & Tenancy by entireties
Contracts
Multiple-party accounts
Life Insurance
Annuities
Retirement Plans
Joint with Survivorship Rights
P.O.D.
Trust
II. NON-PROBATE PROPERTY:
Intestacy statutes and the decedent’s will can control only property included in the decedent’s PROBATE ESTATE.
When someone dies, we look at each individual item of property and determine if there is a mechanism which passes the item to someone else.
-If there is, then the property passes in accordance with that mechanism.
If there is no established, legally recognizable method which passes item to new person, then it is PROBATE PROPERTY.
-Probate property must pass through the court process – ESTATE ADMINISTRATION, PROBATE ADMINISTRATION or just PROBATE.
3 functions of probate administration:
-Give someone authority to deal with and protect decedent’s property/ (PR)
-Gives creditors of decedent an opportunity to be paid.
-Distribute left over property to appropriate beneficiaries.
1) Creditors paid first
2) Next, costs of administration
3) then beneficiaries get what is left over.
Reasons for Non-probate Transfers:
· Provide non-estate planning benefits
· Accelerate asset distribution
· Reduce estate planning and administration expenses
· Enhance confidentiality
· Minimize taxes
· Retain flexibility
· Change with less difficulty
· Protect from creditors
· Isolate from contest
· Avoids Probate
A. Inter Vivos Transfers:
A transfer must meet 3 main requirements to qualify as an outright inter vivos gift:
(1) – Present Donative Intent
-The donor must have present intent to make a gratuitous transfer immediately.
(2) – Delivery
-The property must be delivered to the donee; donor \relinquishes dominion
and control of property.
3 forms of delivery
-Actual – If the item is capable of actual delivery, that method is usually required b/c it serves as the best evidence of donative intent.
-Constructive – use it when not possible to deliver property itself, so deliver access or control of property to the donee.
-Symbolic – Used for real property b/c real property cannot be delivered physically. Using a deed to symbolize a change of ownership. Simply recording the deed counts b/c legaly chang title
(3) – Acceptance
-The donee must accept the property. Acceptance is generally presumed as
long as the gift is beneficial to donee. Can rebut presumption also by showing
donee rejected the gift.
If gift is a check, there is no gift unless and until the check clears the donor’s bank!!!
-This is b/c the donor could always cancel the check; therefore, by giving check to donee, the donor has not made an effective delivery b/c donor has not relinquished dominion and control.
Exception: if check is given to charity then at the time the check is given it is a gift!!!
If there is an effective INTER VIVOS GIFT, then it is IRREVOCABLE!!!!
-Once you give it away, it is gone.
-Why???
-Promoting finality and certainty.
Exception = Engagement Rings
-Contingent upon the marriage, not an absolute gift.
-FL RULE – Recovery of engagement ring permitted if engagement terminated by donee or mutual consent of the parties.
If engagement is called off by girl b/c of egregious actions by man then women still keeps the ring
A gift causa mortis is a gift made in contemplation of death. [only applies to PP]
-The donor must fear that death is impending or imminent.
-Donor cannot merely have a general apprehension of an upcoming death.
Unlike outright inter vivos gifts, however, a gift causa mortis is both CONDITIONAL
and REVOCABLE.
-MAJORITY RULE – Gift is automatically revoked if the donor survives the peril that induced the donor to make the gift. (Fla. State Law)
-MINORITY RULE – Gift is revocable at the donor’s discretion if the donor survives the peril that induced the donor to make the gift.
-A gift causa mortis is also revocable by the donor at any time for any reason.
– must be proven by clear and convincing evidence
Transfers of Future Interests:
-The donor may retain a LIFE ESTATE in property and transfer only a FUTURE INTEREST.
-The most common type of future interest a donee may receive is the REMAINDER.
-VESTED REMAINDER – gives the donee the right to obtain possession of the property as soon as the preceding estate terminates.
-CONTINGENT REMAINDER – permits the donee to obtain possession of the property only if a condition precedent is satisfied.
But you must trust person you give remainder to if using it as a probate avoidance device b/c if you ever want to sell land to generate cash, you will need person holding remainder to sign JOINDER, b/c your life estate in land will not generate much cash if conveyed w/o remainder.
Gifts to Minors:
Minors have limited rights to own and convey property.
Ways to get property to minors:
Ø GUARDIANSHIP – [chpt. 744]
-Anybody under 18 is presumed to be incompetent to hold property. A guardianship is a strict judicial supervision of property and persists until the child turns 18. Guardian has very limited powers and must get judicial approval for almost every action. This makes this type of relationship costly, burdensome and slow
Ø TRUST – [chpt 737] – Trustor conveys the property to a trustee who holds the property for the benefit of the minor. This form can be customized to meet anybody’s needs, but it costs a lot of money. The only limitation on the age of distribution is the Rule Against Perpetuities.
Ø CUSTODIAL ACCOUNT – [FUTMA – chpt. 710] – This is a cross between a guardianship and a trust. An adult, normally a member of minor’s family, holds the property in the custodial account for the benefit of the minor
FL § 710.105 – normal opening of a custodial account.
FL § 710.106 – can specify it will be given to custodial for benefit of minor under FUTMA.
FL § 710.123 – custodial account terminates at age 21.
FL § 710.107, 108 – someone has property they need to distribute to a minor but no direction is provided on how to do so (much more informal than Guardianship method). In certain instances, when property does not exceed $10k, person holding property can go out and set up custodial account. These statutes are designed to direct unspecified funds into custodial accounts HOWEVER, account will terminate at age 18.
-$10k not enough to support structure of guardianship.
B. Co-Ownership of Property:
O A
v At COMMON LAW, A gets a LIFE ESTATE b/c you needed to expressly specify that a FSA is being conveyed.
v In FL § 689.10 – A gets a FSA b/c the statute states that if no interest is specified, then the conveyance is presumed to be in FSA. Overrules common law.
O A & B
v At COMMON LAW, A & B were presumed to receive a joint tenancy with right of survivorship.
v In FL § 689.15 – A & B are presumed to have received a tenancy in common when nothing is specified. In FL, to create a joint tenancy with right of survivorship, it must be expressly provided for.
However, if A & B are married, then the presumption is a tenancy by entirety. So the common law presumption of survivorship still applies when nothing is specified in a conveyance to husband and wife.
(i) Tenancy in Common:
A tenancy in common is the default type of concurrent ownership in most jurisdictions.
To create a TENANCY IN COMMON, the UNITY OF POSSESSION is all that is required!!!
-Upon the death of a tenant in common, the deceased tenant’s share passes through the tenant’s estate to the appropriate heirs or will beneficiaries.
-The deceased tenant’s share does not belong to the surviving co-owners unless they are the heirs or beneficiaries.
-Hence, a tenancy in common is not a will substitute b/c it has to go through the probate process.
In a tenancy in common, one parties creditor can attach the debtor party’s interest b/c is it a separate and distinct interest from the other co-tenants.
(ii) Joint Tenancy:
To create a JOINT TENANCY, four unities are required:
(1) – Unity of Time – All joint tenants had to take their interests at the same time.
-May need to use a straw person b/c conveying to yourself will not always meet this element.
(2) – Unity of Title – All joint tenants were required to obtain their interests from the same instrument, that is, through one deed or under the same will.
(3) – Unity of Interest – Each joint tenant must have a share in the property.
-It does not have to be an equivalent share – [it could be 99%, and 1%].
(4) – Unity of Possession – Each joint tenant must have the right to occupy the entire property. Likewise, each joint tenant has a duty not to interfere with the rights of other joint tenants to occupy the property.
The primary consequence of forming a joint tenancy is the right of SURVIVORSHIP.
-A joint tenant’s rights end at death in favor of the surviving joint tenants. Thus, when a joint tenant dies, the deceased tenant’s share is divided equally among the surviving joint tenants.
-The rights of these surviving joint tenants are superior to the deceased tenant’s heirs or other beneficiaries.
-A joint tenancy is an effective probate avoidance technique.
-But be careful who you create joint tenancy with, b/c if you later want to sell and they refuse to convey their interest as well, your interest will be unlikely to yield much money.
If there is a joint tenancy between A and B, and A owed a debt to C and A dies, then C cannot attach A’s interest after death b/c A’s interest is gone.
Under modern law, a mere recital of “joint tenants” is often insufficient to imbue the property with the sur
A convenience account is a deposit account, other than a CD, in the name of one individual, in which 1 or more other individuals have been designated as agents with the right to make deposits to and to withdraw funds from or draw checks on such account. [. . . . ] Except as otherwise provided in this section, the agency relationship created under this account is not affected by the subsequent death or incompetence of the principal.
(2) All rights, interests, and claims in, to, and in respect of, such deposits and convenience account and the additions thereto SHALL be those of the principal ONLY.
(iii) Payable on Death Account: – FL § 655.82
A, P.O.D. B – this type of account is governed by K law.
[payable on death]
I.T.F. – creature of trust law – Totten trust.
-FL now deals with these under statute as P.O.D.accounts.
A POD account is simply a will substitute.
A payable on death account becomes payable to designated persons, the POD payees, only after the death of all original depositors.
The funds in the account belong to the original depositors during their lifetime in proportion to each depositor’s net contribution. The original depositors have the unrestricted right to withdraw any or all funds at any time and for any reason. The POD payees are not entitled to notice of withdrawals and their consent or approval is not required.
D. Contracts:
(i) Life Insurance:
A LIFE INSURANCE policy is a contract between the owner of the policy and an INSURER. IN exchange for the owner’s payment of PREMIUMS, the insurer promises to pay a stated amount, the PROCEEDS or FACE VALUE, to the BENEFICIARY when a designated person, the INSURED dies.
Insured’s premium payments
Insured Dies
$$$$
Beneficiary
To obtain life insurance on a person’s life, you must have an INSURABLE INTEREST in that person’s life.
-You must have a strong reason to keep the insured alive other than the fear of criminal or spiritual penalties for murder.
-You have an insurable interest in your own life as well as the life of your close family members.
-In a business setting, a company may have an insurable interest in the life of a KEY EMPLOYEE.
Once the person with an insurable interest obtains the policy, this person may transfer ownership to anyone the person desires, even if the new owner lacks an insurable interest in the insured.
The beneficiary must survive the insured to receive the money under the policy.
What if the beneficiary does not survive the insured?
(1) – Look at the contract. Alternate or contingent beneficiaries may be named in the contract.
(2) – If no one else named, then look at the standard instructions for what happens if all named beneficiaries are dead.
-Usually starts with immediate family and pays out from the insured.
-The taker of last resort in policy is the estate of the insured; and the proceeds would have to go through probate.
What if you don’t change beneficiary [ex-wife] in insurance K after divorce?
-Majority – The ex-wife gets the money.
-FL- has no statute voiding out ex-wife as a beneficiary, but a few states do.
(ii) Annuities:
An ANNUITY is a contract between the purchaser of the contract and an annuity provider. In exchange for a lump sum payment, the annuity provider promises to make periodic payments for the life of the annuitant or some other specified period of time.
$$$ $$$$ – While alive
Transfer on Death – T.O.D. – Chpt.711
A, T.O.D. B
-Permits securities and brokerage accounts to be titled this way.
-While A is alive, securities in account are A’s.
-Upon A’s death, TOD takes over and now it belongs to B.
-Very popular with general brokerage accounts and individual securities.
-Informal type of estate planning.
-good as long as you stay on top of it b/c you are bound by K until you change it pursuant to its terms. Divorce does not automatically change it.
III. INTESTATE SUCCESSION: – Chpt. 732
