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Trusts and Estates
Temple University School of Law
Bartow, Robert J.

Bartow, Trusts & Estates, Fall 2012
 
I. WEALTH TRANSFER UPON DEATH: THE FUNDAMENTALS
            A. Introduction
1. testament=written or oral instructions properly witnessed and authenticated according to the pleasure of the deceased in his will
2. trusts & estates=primarily transfer of wealth upon death
3. *with some restrictions, ppl can do whatever they want with their stuff when they’re alive and dead as long as they do it in the right way*
4. started with feudal system with hierarchy where ppl only received land if they were performing services to ppl who were above you in hierarchy
5. Pros (of allowing ppl to do what they want with their stuff)
            a. security for family
            b. incentive to work hard
6. Cons
            a. continued stratification of society b/c wealth stays w/in your family
7. system does not have to be the way that it is b/c pros and cons on both sides (estate taxes ameliorate the situation and dampen effect of stratification)       
 
B. The Basic Policies
1. Restatement (Third) of Property: Wills and Other Donative Transfers;
§10.1: Donor’s Intention Determines the Meaning of a Donative Document and Is Given Effect to the Maximum Extent Allowed by Law
a. controlling consideration in determining the meaning of a donative document is the donor’s intention
                        b. donor’s intention given effect to the maximum extent allowed by law
c. organizing principle of American law of donative transfer is freedom of disposition
d. unless disallowed by law, donor’s intention not only determines meaning but also the effect of a donative document
                        e. main function of the law in this field is to facilitate rather than regulate
                        2. Shapira v. Union National Bank
a. Facts: Father wanted sons to marry Jewish women from Jewish parents, otherwise money goes to Israel
b. Holding: Upholding and enforcement of the provision of Dr. Shapira’s will conditioning the bequests to his sons upon them marrying Jewish girls does not offend the Constitution; Public policy should not, and does not preclude the fulfillment of Dr. Shapira’s purpose and the conditions contained in his will are reasonable restrictions on marriage and valid
c. inheritance is not a right (not true in all societies, some societies give children something)
d. allowing ppl to do what they want w/ their stuff allows them to control the behavior of others after their death
e. as lawyer, if father comes to you ad wants to condition inheritance, tell him he can do it legally but also explain that it might strain family relationships so he should understand the consequences of his actions
f. son argues that the state was limiting his ability to marry (ct says it’s restricting his choices not limiting his ability) and not allowed to do this under Shelley v. Kraemer
g. principle that you can do whatever you want with your stuff comes from law which comes from state so it is state action
h. ct says not restricting right to marry b/c he can find a Jewish woman and it’s not impossible
i. against public policy to encourage divorce but it’s OK to restrict the person he can marry based on religion (ct decides public policy)
j. partial restraint of marriage which imposes only reasonable restrictions is valid and not contrary to public policy, gifts conditioned upon the beneficiary’s marrying within a particular religious class or faith are reasonable
k. What if person builds expensive house and instructs in his will for it to be destroyed upon his death? OK (sometimes restrictions like historic landmark)—not hard and fast rule
l. What if only give son if he’s an observant Jew?
i. would force ct to define “observant Jew” and would force judge to make religious decisions
ii. could have rabbi make determination: “if rabbi at the time says he’s observant Jew, it’s OK” (eliminates state action)
3. Will provisions/restraints
a. will or trust provision ordinarily invalid if it is intended or tends to encourage disruption of a family relationship
b. provisions encouraging divorce or separation are usually held invalid unless the dominant motive of the testator is to provide support in the event of separation or divorce
 
            C. Probate and Nonprobate Property
1. Probate=passed through the will (law of wills governs things not governed by other areas of law)
2. Nonprobate=passed through other documents (life insurance governed by contracts law, pension governed by contracts law/ERISA, trusts governed by law of trust, joint tenancy governed by property law)—distribution does not involve a court proceeding but is made in accordance with the terms of the controlling contract or trust or deed
         a. joint tenancy property, real & personal
i. under joint tenancy, decedent’s interest vanishes at death, survivor has whole property relieved of the decedent’s participation (only has to file death certificate)
         b. life insurance
i. paid by the insurance company to the beneficiary named in the insurance contract (only has to show death certificate)
         c. contracts with payable-on-death provisions
i. distribute property at the decedent’s death to a named beneficiary (e.g. pension plans, IRAs, 401(k)s) (file death certificate with custodian holding property)
         d. interests in trust
i. trust property distributed to the beneficiaries by the trustee in accordance with the terms of the trust instrument
ii. property held in a testamentary trust created under the decedent’s will passes through probate but property put in an inter vivos trust during the decedent’s life does not
 
II. PROVIDING FOR THE FAMILY
            A. Rights of the Surviving Spouse
                        1. Marital Property Systems
            a. 2 concepts of spousal property:
i. Separate Property (England)—traditional common law: husband & wife own separately all property each acquires (except those items one spouse has agreed to put into joint ownership with the other)
                                    (a) Divorce
(1) traditional common law: H & W are married, H has job, deposits $ in bank acct, buys stock in his name, buys house in his name, W doesn’t work outside home, get divorced in 1930; W might be entitled to alimony (separate property with support component)
(2) modern common law: equitable distribution (ct decides under circumstances what is equitable—what ct determines is just—does not mean “equal”)—blurs line, some ownership of assets, not separate with support
                                    (b) Death
(1) traditional common law: H dies, W gets dower—life estate (i.e. get it while you’re living) in 1/3 of real property he owned during marriage and H can do what he wants with the rest of his stuff—not very effective; curtesy (husband gets life estate in all property owned by wife)
(2) modern common law: elective share (survivor’s POV)/forced share (decedents POV)—surviving spouse has right to choose to take under will or take portion of decedent’s estate , i.e. take against the will, take under statute instead of what will grants (can only make election while living, heirs can’t elect later); if unable to make decision, ct appoints someone to make decisions on her behalf—take against the will = taking under the statute instead of what the will grants (some states still have dower so that is the third option)
ii. Community Property (France and Spain): husband & wife own all acquisitions from earnings after marriage in equal, undivided shares
                                    (a) Divorce
(1) 50% of what marriage brings in (become economic unit when marry)—everything before marriage is separate property—upon divorce, each takes half
(b) Death
(1) deceased can dispose of 50% however he/she chooses (property acquired by gift or before marriage not considered community property)—could put property in joint tenancy instead of keeping as community property
b. Difference between community property & 1969 UPC
·         Comm. prop. only involves what was acquired during marriage & not augmented estate
·         50% under community prop, 1/3 under 1969 UPC (which is better depends upon amount of community prop v. augmented estate)
·         Under 1969 UPC, if she does before he does, she gets nothing & even if she survives but dies before election, gets nothing
 
2. Rights of Surviving Spouse to Support
              a. Social Security
i. taxes paid into the Social Security system used to pay current benefits to people who have already retired or are disabled, to survivors of predeceased workers, and to dependents of Social Security beneficiaries
ii. amount of Social Security benefits computed by a formula that takes into account the amount of earnings taxed, age of retirement, number of quarters worked
iii. if worker dies, generally surviving spouse will receive worker’s full monthly benefits
iv. workers have no power to transfer their rights to benefits to any other person
v. divorced former spouse of the worker has right to benefits if the marriage lasted 10 years or longer
              b. Employee Pension Plans
i. ERISA requires that the spouse of an employee have survivorship rights if the employee predeceases the spouse
ii. if plan pays its primary benefits as an annuity rather than a lump sum, in most cases is must be paid as a joint and survivor annuity to the employee & his spouse unless the nonemployee spouse consents to some other form of payment of the retirement benefit, such as a lump sum
iii. if employee dies before retirement, surviving spouse may be entitled to a preretirement survivor annuity
iv. spouse may waive her rights to benefits under employee’s pension plan but ERISA discourages waivers with strict rules regarding their validity
              c. Homestead
i. most states have homestead law designed to secure family home to surviving spouse & minor children free of the claims of the decedent’s creditors (probate homestead)
ii. surviving spouse often has right to occupy family home for lifetime
iii. in some states, homestead must be established by decedent during life, usually by filing a declaration of homestead in some public office; in other states, probate court has power to set aside real property as a homestead
iv. right to occupy homestead usually given in addition to any other rights surviving spouse has in decedent’s estate
              d. Personal Property Set-Aside
i. surviving spouse has right to receive tangible personal property of decedent up to a certain value
ii. items ar

nsurance included in elective share
(g) §2-202: Elective Share
-surviving spouse of decedent has right to elective share equal to 50% of value of marital-property portion of augmented estate
(h) §2-203: Composition of the Augmented Estate; Marital-Property Portion (p.499 of casebook)
(i) §2-209
·         in funding elective share amount, UPC credits surviving spouse w/ nonprobate transfers to surviving spouse & marital assets that are already owned by surviving spouse
(j) UPC elective share v. community property
·         UPC includes all property of both spouses & not only property acquired from earnings
·         community property owned equally by spouses includes only earnings & acquisitions from earnings—does not apply to property brought to marriage or acquired by gift or inheritance which is separate property of acquiring spouse; decedent spouse can dispose of his separate property any way he likes & surviving spouse has no claim to it
·         by including all property of spouses in elective share, UPC makes it impossible for 1 spouse to keep his property acquired before marriage or by inheritance free from elective share of other spouse w/o consent of other spouse
iii. 1969 UPC v. 1990 UPC
            (a) 1990 UPC says 50% of X% (X based on years of marriage
·         if married 15 years or more, X=100% so 50% (which looks like community property
(b) includes both spouses’ probate estates (1969 UPC only included decedent’s probate estate)—looks more like community property but under community property includes only what was acquired during the marriage whereas 1990 UPC includes everything
(c) 1969 specifies “during the marriage” so if created trust before marriage that’s OK—purpose of 1969 was to prevent decedent from making arrangements to deliberately defeat the right of surviving spouse to a share
(d) 1990 didn’t just adopt community property model b/c hard to administer
(e) 1990 augments estate w/ everything, not just what was acquired during marriage
(f) 1969 excludes life insurance, 1990 includes it
 
                                    c. The Estate Tax Marital Deduction and the Dependency of Women
i. current marital deduction requires only that donor spouse create trust giving his surviving spouse support for life to avoid transfer taxation
 
                                    d. Same-Sex Marriage and Domestic Partners
i. in states that recognize same sex marriage, surviving spouse is entitled to an elective share of the decedent spouse’s estate
 
                                    e. An incompetent surviving spouse
i. under support theory, if incompetent surviving spouse does not need property for her support, representative should be barred from taking forced share on behalf of surviving spouse
ii. under partnership theory, representative should be entitled to take forced share b/c forced share represents surviving spouse’s portion of the marital partnership property which ultimately should pass to the surviving spouse’s heirs or devisees
iii. In re Estate of Cross
(a) Facts: surviving spouse in nursing home paid by Medicaid, husband’s will left everything to son, representative and trial ct determined that she should elect to take against the will
(b) Holding: Election to take against the will was necessary b/c if elected to take under the will, would receive no income & would be deemed ineligible for Medicaid benefits for failing to avail herself of potential income
(c) where surviving spouse is under a legal disability, probate ct has authority to appoint suitable person to ascertain surviving spouse’s adequate support needs & compare value of rights under will w/ value of rights under statute of descent & distribution
(d) ct may elect for surviving spouse to take against the will if it finds, after taking into consideration the other available resources & the age, probable life expectancy, physical & mental condition, & present & reasonably anticipated future needs of surviving spouse, that election necessary to provide adequate support for surviving spouse during life expectancy
(e) probate ct must ascertain what surviving spouse would have done for her financial benefit had she been competent to make decision herself