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Trusts and Estates
Temple University School of Law
Anderson, Mark F.

I. THE FUNDAMENTALS

A. Introduction

1. Legal Requirements [Constitutional and Otherwise] pp. 1-16 [What does the Constitution have to say about our right to pass on wealth? What type of property are we talking about?]

The Right to Inherit and Convey Property

There are several ways we could deal with property on death

What kind of systems could we adopt

Confiscation

Compulsory Succession – Primogeniture

Regulation – Similar to what we have now, some limits

No limits – Do whatever you want

Until the 1980’s the right of children to receive property from their parents was not thought of as a natural right or a constitutionally protected right. (As reflected by the Jeffersonian and Blackstone views)

The right to devise was generally viewed as a discretionary property transfer that the states might have the ability to limit

This was thought to suggest (Irving Trust Co. v. Day, SCOTUS) that at any time, if the federal government or a state so chooses, they could eliminate or limit the ability to devise property via testamentary succession or by intestacy.

Certainly if any state did so, they might have trouble maintaining a tax base.

What happened in 1980 that changed this?

Hodel v. Iriving, SCOTUS, 1987

Issue: Whether the escheat provision of some Indian Land Consolidation Act, constituted a “taking” of the descendant’s land without just compensation.

Set up a series of regulations telling native Americans what they could do with their land.

Facts

Indian reservation land was becoming increasingly fractionalized with each round of disposition so Congress enacted an act that would cause portions that were small enough to escheat to the Tribe.

Appellee’s alleged that this robbed them of their property rights and resulted in a taking without just compensation.

Rules

The right to pass on a certain type or property—small undivided interests—is an important stick in the bundle of property rights and this right was essentially abrogated by the act

The States and the Federal Government still has broad authority, where appropriate, to adjust the rules governing the descent and devise of property without implicating the Guarantees of the Just Compensation Clause (JCC says no taking without just compensation)

However, this case is different because:

Both descent and devise are completely abolished, event in the circumstances that the government action sought to promote (consolidation of property)

So, you can still regulate the ability to pass the property to a certain degree but you can’t totally abrogate the ability to pass property.

This focused on the 5th Amendment’s Taking Clause

Was not enough that the Indians might have been able to control the disposition of the property through inter vivos transactions including revocable trusts.

Summary holding

Held: “complete abolition of both descent and devise of a particular class of property may be a taking”

Reaffirm ability to alter the rules.

SCOTUS held that the fifth amendment curtailed the power to the government to limit the right to convey property at death.

Dicta

Suggests that the government may be able to take other regulatory action like forcing people to devise their land rather than allow to pass through intestacy

If intestacy then escheat.

Shaw Family Archives v. CMG Worldwide

Marilyn Monroe case, she died in 1962 and there was a residuary clause in the will that said “the rest goes to so and so . . .”

She left it to Lee Stasberg

He died and left it to his wife

Dispute arose over a T-Shirt that was sold in Target

The picture was taken by Shaw a famous photographer

Shaw family had the copyright

The dispute arose over the right of publicity, which did not exist at the time of MM’s death.

MMLLC sued Shaw Family because they said that Monroe had a right to publicity and when she died that right of publicity passed to the residuary

Holding

The court concluded that MM could not devise property which she did not have at here death.

At the time of her death in 1962, a celebrity had no descendible postmortem publicity rights under the law of either New York or California and thus, she lacked testamentary capacity to devise such rights, despite claim that her will should have been construed as devising postmortem publicity rights that were later conferred on her by an Indiana or California statute; only property she actually owned at the time of her death could be devised by will

Disposition of property occurs at “time of death” so it must include property that Testator owns at time of death.

Testamentary disposition is controlled at the time of death.

CA put in a retroactive thing that made it ok to get the right to publicity

They were trying to give more rights to Monroe after she died

Is it right that after someone dies we should allow them to control the use of their image.

2. Policy Issues pp.16-26 [Should we be entitled to pass on the wealth we have

accumulated during our lives? Of human nature, aristocracy and the estate

(“death?”) tax]

The Policy of Passing Wealth at Death

Estate tax generally

Applies at a certain wealth threshold to tax significantly the value of the estate

In somewhat of a limbo right now.

Highly concentrated wealth in the US

One percent =38%

10% = 71% of wealth

Pro Estate Tax

Discourages Class Differences

Don’t want to have an aristocracy in America

Jealousy, envy, etc.

Unjust enrichment.

Encourages giving

To a point because it encourages lifetime giving (sooner)

If you give a gift now that counts against your ultimate exemption.

The kids don’t deserve it

Parent may deserve being able to give it to kids, but kids don’t deserve it

It may mess your kids up

Encourages charity

Concept of the dead hand

Prevents the control of wealth long after death.

Decreases incentives for heirs to be productive

Anti Estate Tax

Perhaps the strongest argument for is that people want to transfer wealth.

Government doesn’t spend the money as appropriately as the people themselves would

Currently there is no stepped up basis

Discourages Charity

Provides comfort to people who know that they’re kids will get the wealth

Right to take care of you

e Against Perpetuities

§ Means that the dead hand can only control things for so long

§ RAP has been taken away in some states

C. The Probate Process pp. 38-49 [What is probate? What kinds of property go through probate? Can it be avoided?][Do problems on pages 47-48.]

· Probate

o Generally

§ Can make the analogy of probate to bankruptcy

§ Similar in the sense that someone is appointed to administer your property

o Terminology

§ Person administering is the executor – they are either appointed by the will, or appointed by the court (in the event the executor won’t serve or is not named)

· If appointed by the court, they will be termed “administrator”

o Admin selected from a statutorily defined group of people.

§ The executor steps into your shoes and tries to get the money where it should go

§ Courts – Probate court are generally special courts that hear the things (Surrogate, orphans, probate)

§ Testate

· A dying person devises real property to devisees and bequeaths personal to legatees.

o Distinctions disappearing.

o In the will, just say “I give”

§ Intestacy

· Real property descends to heir

· Personal distributed to next-of-kin

· Now heirs generally means real and personal prop.

o Traditionally

§ There was a lot of court involvement in the probate process

§ Now the court will often just approve you as the administrator and they you just go and do your thing.

o Functions of Probate

§ 1) Evidence of transfer of title to the new owners

§ 2) Protects creditors by providing a procedure for payment of debts

§ 3) Distributes property to proper parties after the decedent’s creditors are paid

o Virtues of probate

§ Certainty

§ Disposing of Creditors

§ Small businesses

· Organized dealing with creditors

§ Go there if there is a potential conflict

· If there is property that can’t pass title automatically.

o Disadvantages of probate

§ Expense – 5-10k to take it through probate

· Payments to

o Executor/Administrator

o Attorney

o Response (see stuff on informal v. formal – pg 43)

§ Alt way to transfer through non-probate procedure

§ This means they do it through instruments other than wills

§ Most assets pass through the non-probate process

o Probate and Non- Probate Property

§ Probate

· Two types

o Testate – through a will

o Intestacy – what happens when you have no will

§ Many people die without a will and the state decides how the property is to be distributed

§ Non-probate Property

· Life insurance

· Joint tenancy property

o Real property

o Joint bank accounts

o When they die their interest automatically disappears

§ By law it transfers, no need for a will.

· Irrevocable intervivos trust

o You transfer the title to a trustee while alive

o You have already gotten rid of it while you are alive. When you die it automatically goes to someone else.

· Contracts with POD provisions