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

TRUSTS AND ESTATES

BARTOW

FALL 2014

I. WEALTH TRANSFER UPON DEATH: THE FUNDAMENTALS

A. The Basic Policies.

1. Introduction- American law embraces freedom of disposition, subject only to wealth transfer tax and a few policy limitations. Donee only has a future interest, defeasible at the whim of the donor. Under Restatement of Property (third), says courts do not have a general authority to question the reasonableness, fairness or wisdom, just of facilitate wishes. Only limits are to protect the rights of creditors, spouses, and unreasonable restraints on alienation or marriage, promoting divorce, illegal activities and RAP.

2. Shapira v. Union National Bank- Will said only could inherit if he married Jewish girl. Court upheld as not against PP, not against equal protection as not a state and not against PP (restraint on marriage) as US allows gifts conditioned on religion.

a. Incentives trusts- 1) encourage beneficiaries to pursue an education, 2) moral incentives that reflect the settlors moral or religious outlook, 3) Encourage productive careers.

b. Restraints on Marriage- prevailing rule, in Shapira, is that a restraint that unreasonably limits the transferee’s opportunity to marry if a marriage permitted by the restraint is not likely to occur.

c. RST- if a provision is unnecessarily punitive or unreasonably intrusive into personal decisions or interests it may be invalid, includes provision that terminates a gift based on marriage to someone not of a particular religion.

d. Destruction of Prop at Death- Eyerman v. Mercantile- Law cannot allow waste, no destruction.

B. Probate and Nonprobate Property

1. Probate Property- passes through probate under the will or by intestacy.

2. Non-probate – property that passes by way of will substitute.

a. Intervivos Trust- passes in accordance with terms of trust, avoids probate, trustee holds it for the benefit of the beneficiary.

b. Life Ins

c. POD or TOD- by banks, brokerages, pensions, retirement funds, distributes prop at death.

d. JT- interest transfers at death

3. If no arrangement for affairs, or disputes, probate system steps in to fill the gaps. Admin selected by court in order: spouse, children, parent, sibling, creditor.

II. PROVIDING FOR THE FAMILY

A. Limits on Freedom of Disposition: Overview

1. In all but one separate property state, a surviving spouse is entire to an elective or forced share usually 1/3 of the estate.

2. No elective share in community property states because they already own half of the others property.

3. Pretermitted spouse protected from accidental inheritance

4. Children have no right to a mandatory share

B. Rights of a Spouse.

1. Marital property systems.

a. Separate property- spouses own separate all earnings and acquisitions from earnings during the marriage unless they agree otherwise. Stresses individual autonomy over earnings. To protect from disinheritance, can choose to take the elective share or share given under the will.

b. Community property- everything owned before marriage is separate, everything made during marriage they own in equal undivided shares. On death, the deceased has testamentary power over their half. Views marriage as economic partnership.

1. In some states, income from separate property is community property; in others it remains separate. Separate prop includes stuff before marriage, and gifts and inheritances during marriage.

2. If prop comingled, use tracing to determine what amount is community; if hard to determine, presumption of community property. To avoid this couples can make an agreement that will control the character of the property.

3. ALK and TN Community Prop Trusts- allow married couples to transfer personal prop into a community property trust and provide in the trust agreement that the property is community prop. No need to be resident, so allows people not in community prop states to take advantage of community prop rules.

4. Community Prop with right of Survivorship – decedent cannot dispose of their share of the estate, passes to survivor like JT.

2.The spousal elective share.

a. Allowed in 40 of 41 separate property states, generally can take 1/3 of probative property and certain non-probative transfers. Can be waived.

a. Rationales

1. Partnership Theory- surviving spouse contributed to the acquisition of wealth, points toward giving one half of property during marriage like community property.

2. Support obligation- smaller percent of all property (before and during marriage)

b. Calculating the elective share

1. 1969 UPC 2-202- entitled to 1/3 of augmented estate- Probate estate and following non-probated and inter vivos transfers made during marriage:

a. transfer where decedent retained right of possession or income.

b. transfer where decedent can revoke principal of benefit.

c. JT with someone other than spouse

d. transfer made in 2 years of death exceeding 3k per done per year

e. property given to spouse during life, ex. Life estate, prop received at death like life insurance or pension

Purpose of (a)-(d) was to makes sure the owner of wealth did not transfer property by other means to avoid rights of survivor and (e) was to make sure that spouse well provided for during life did not take advantage of elective share. PREMARTIAL TRANSFERS NOT INCLUDED.

a. Under UPC 2-207 (1969)- property in augmented estate passed to spouse applied first in satisfaction of elective share, if not enough remaining prop of the augmented estate applied pro rata among the other recipients.

b. 1990 UPC 2-202- Equal to 50% of the value of the martial property portion of the augmented estate. Augmented estate under 2-203(a) is the sum of the net probate estates plus non-probate transfers to others, to the surviving spouse, and the surviving spouses property, the surviving spouses non-probate transfers to others. Martial portion of augmented estate computed by multiplying percent by augmented estate on chart on Page 535.

a. Purpose was to achieve the same result of the community property system, citing partnership theory of marriage. Central idea was to add up all property and allocate it based on percent depending on length of marriage. ADDS PREMARTIAL transfers if decedent retained control. Avoids problem of classifying prop as community or separate, especially if comingled.

3. Waiver; prenuptial agreements.

a. Elective share can be waived in advance by premarital agreement. All separate property states enforce waiver by prenup, most all for postnups too. Concern for postnups that not really arms-length, evenly bargained for agreement.

b. UPAA- overrides presumption of fraud that some courts put on the prenup when the agreement makes an inadequate provision. To make provision invali

n, devises made to the surviving spouse are applied first, and other devises other than to a child of the testator born before the testator married the surviving spouse and who is not a child of the surviving spouse or a devise or substitute gift under 603 or 604 to a descendant of such a child abate as provided under 3-902.

E. Rights of Descendants.

1. The intestate share of a surviving descendant.

a. 1990 UPC 2-103-

a. Any part not passing to the decedents surviving spouse, or the entire estate if no surviving spouse, passes in the following order:

1) to the decedents descendants by representation:

2) if there is no surviving descendant, to the decedent’s parents equally if both survive, or to the surviving parent if only one

3) if no surviving descendant or parent, to the descendants of decedents parents or either of them by representation.

4) if no surviving descendants but the decedent is survived by grandparents on both sides, one half to each.

5) if only survived by paternal or maternal grandparent, not both, all to that side

USE CHART ON PAGE 69

b. 1990 UPC 2-105- if no taker, goes to state.

2. Taking by representation: per stirpes distribution.

a. English per Stirpes- followed by 1/3 of states; treats each line of descent equally, divided into as many shares as lines as living children of deceased and deceased children who have descendants living. Ensures vertical equality at expense of horizontal.

b. Modern per Stirpes- 1969 UPC 2-206- followed by less than half of states, divided at the first generation to have living takers. Vertical equality with horizontal equality at closest living generation.

c. Per Capita at Each Generation- 1990 UPC 2-206- divide first where first living descendant, remaining is then accumulated and dolled out equally in next generation. Achieves horizontal equity at expense of vertical equity. Most clients want this kind of representation.

d. Some courts read per stirpes to call for same representation as their states system; others interpret it as English Per Stirpes.

3. Rights of issue omitted from a will.

a. 1969 UPC 2-302-

a. if fail to provide for child born after execution of their will, the child receives a share equal in value to that which they would have received if intestate unless

1. it was intentional under will

2. when he will was executed, had one or more kid and left substantially all of estate to the other parent of the child

3. testator provided for child by transfer outside of will and there was intent that it was in lieu of testamentary provisions.

b. if he believed child to be dead, child gets what they would get if intestate.

c. Devises made by the will will abate.