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Estates and Trusts
UMKC School of Law
Cheslik, Julie M.

ESTATES AND TRUSTS
Professor Cheslik
TR 10:00 – 11:15
 
General Question:
–          What happens when you die?
–          What happens if you die w/o a will?
–          Why is inherited wealth taxed so much higher than earned wealth?
 
Terminology:
–          Decedent →dead person
–          Devise →to transfer property by will
o        Devisee →person who got property by will
–          Descent → property passing by laws of intestacy (inheritance)
–          Intestacy →to die w/o a will
–          UPC →Uniform Probate Code
o        KS uses this
o        MO uses own MO statutes
–          Inheritance→ takes by laws of the state, not by will
–          Alienate →transfer
–          Heir → upon death, people who inherit
o        Presumptive heirs →people who statutes says will get property if you die under laws of state
–          Testator →dead guy with a will
 
A. Transmitting Property at Death
–          Right to Inherit and Right to Convey
o        Used to be that children and family got decedent’s property just b/c they were there when he died. The property right was a civil right, not a natural one. Property rights continued only for life and you couldn’t exclude heirs by will.  
o        Natural Right→ right that exists apart from any human construct; exists b/c you are a part of the world, not based on residency, wealth, etc. This is constructed w/ a right created by the state = civil right.  
–          Is there a right to transfer property at death? Is it natural or civil right? 
o        Majority view was that there was not a natural right. It had to be created by the state and was a human construct. There was a right to possess property during the lifetime but no right to transfer property upon death. This was true until the Hodel case in 1987. These are civilly created rights. 
o        John Locke believed in labor theory property, saying the right to transfer and inherit is a natural right b/c of the importance of the labor that went into getting the property. This covers right of decedent to transfer and the living person to receive decedent’s property. 
o        In US, right to transfer or inherit is civil right→Until 1987 there was no federal constitutionally protected right to transfer or inherit. In 1987, three big takings cases gave this right, in addition to Hodel:
§         Nollan → Exactions case holding before CA postal commission can make you give an easement across the beach there must be a substantial advancement of legitimate govt interest. Close to strict scrutiny test. 
§         1st English →Held there is a remedy for temporary takings
§         Keystone Coal
§         Takings clause = “Nor shall private property be taken w/o just compensation” = Just compensation clause
 
–          Hodel v. Irving: 1987(pg 3) Acts of Congress divided Indian reservations into individual allotments that were held in trust by the US. Indians began renting out land to whites. When the Indians died they transferred their land to their heirs, but since they had several heirs, the interests fractured and many parcels had multiple owners. Congress enacted § 207, which sent fractions 2% or under back to the tribe, w/o compensating the owners. Suit is brought by three relatives of Indians who died soon after the enactment of the law, whose land escheated to the tribe, even though their wills said otherwise. 
o        Procedure: DC said it was constitutional and Congress had authority to abolish the power of testamentary disposition. CA reversed, saying it was against Constitution Amendment 5 to regulate the disposition of land after death, without compensation and it was a taking. CA reversed
o        Issue: Does “escheat” provision in Indian Land Consolidation Act of 1983 constitute a “taking” of decedents’ property without compensation?
§         § 207 said that upon death the land was to escheat to the tribe, not heirs, if it was 2% or less of the tract’s total acreage and earned under $100 the proceeding year. This statute did NOT compensate the owners. 
§         Govt argues: Consolidating the land outweighs the de minimus value of the land. 
§         Indians argue: Some of the land had more than de minimus value. 
§         Hold: Even though preventing fractioning of the Indian land is important, b/c both descent and devise (inheritance and will) are abolished, this clause is unconstitutional.
v      Hold: Supreme Court said decedents’ rights to transfer property were improperly taken away w/o compensation. This is not the same as the right to inherit, wh/ was not federally created. 
Notes:
o        Hodel is Secretary of the Interior who is being sued (Δ). Plaintiffs are live people, relatives of decedents, suing to get decedents’ rights back. The right to transfer property at death.
§         It is important that it’s the right to transfer property at death, NOT the right to receive property. Supreme Court does not recognize a right to receive property upon the death of another. There is no natural or Constitutional right. States may give that right, but the Federal Constitution does not. 
o        Since this is a Federal statute, must use 5th Amendment takings clause.
§         5th Amendment only helps if you have a property right. Π’s believed their property right was for the property that was taken, that they would have inherited. 
o        Court was asked by Plaintiffs to establish the right to inherit property but were granted the right of decedent to transfer property upon death. 
o        What was this statute intended to prevent? Fractionalization → If each owner gives their land to children and has several children, over time the number of interests in the land grows but the and stays the same. Fractionalization is worse with inheritance. 
§         Govt said if you have less than 2% interest or earned less than $100/ yr., the govt was going to pay the tribe instead. Plaintiffs said this was taking of their property w/o just compensation. Court applies 3 step test: (Pen Central Test)
1.       Was there an interference w/ investment-backed expectations?
2.       Balance of burdens on property holder vs benefits of statute?
3.       Character of govt action?
§         Court says statute wins on #1 b/c dead people don’t have investment-backed expectations. People who die in US don’t have the expectation to control the disposition of their assets at the time Penn Central was decided. #2, court says is in favor of the statute b/c the land is still going back to the tribe.
§          #3, the right taken is to transfer property under 2% if it makes under $100. Indians can transfer any larger interest unimpeded. 
How does O’Conner define the right?
§         Formula → Right taken or effect of the statute / property right impeded. 
·         Right to transfer at death de minimus amounts / Right to transfer
·         O’Conner chooses a narrow definition to right to transfer at death. She cites one case that doesn’t stand for the proposition she claims (that passing on property has always been a protected right). This was probably b/c its what happened in practice in the states. 
·         O’Conner says you can’t get rid of inheritance and devise, but can get rid of one or another.
o        Conceptual Severance – note in case
o        We used to fight about property going to one person, dynasties and fee tail interests. Now we worry about it being held by so many that it’s not marketable. One owner is a problem and too many owners is a problem.
 
Policy of Passing Wealth at Death
–          What can happen to someone’s property upon death?
o        Gets destroyed
o        Treated as unowned and call a free-for-all
o        Govt confiscates
o        Honoring decedent’s wishes
–          Justifying private transmission of wealth through generations:
o        Pros: May be the least objectionable arrangement; reinforces family ties; provides for family and dependants, relieving state of this burden; encourages saving and incentivizing hard work. 
o        Cons: Concentrates wealth to a few people rather than spreading over society; Abolishing inheritance would raise revenue through taxes. 
–          Why do we tax inherited property so much higher than earned income?
o        Good source of revenue
o        Not “earned income”
o        Technically no right to inherit money so govt could have taken it all
o        Possible it was not taxed when earned
–          Why does law of intestate succession give money to kids before parents, even adult kids?
o        Children more likely to spend it rather than save it. For example spending money on student loans makes the country better and grows your wealth. 
o        Anti-dynasty approach; Spread the wealth
 
Problem of the “Dead Hand”
–          Shapira v. Union National Bank: 1974 (pg 21) Father’s will said his son, Daniel Sharipa, could only have his portion if he was married to a Jewish woman at the time of father’s death, or w/i 7 yrs after death. 
Constitutionality:
o        ΠA: Condition is unconstitutional b/c marriage is protected by 14th Amendment, and its unconstitutional for the state to enforce this clause. Π claims that if the court upholds the will’s clause, it is upholding an unconsti

waive this b/c it costs money.  
o        Terminology:
§         Testate (will):
·         Devise → A person dying testate devises real property to devisees
·         Bequeath →A person dying testate bequeaths personal property to legatees.
·         Easier to use “I give” b/c covers devise and bequeath.  
§         Intestate (no will):
·         Descends to heirs →real property
·         Distributed to next-of-kin →personal property
·         Today heirs and next-of-kin really mean the same thing. 
o        Procedure:
§         Opening Probate:
·         Probate functions:
o        Provides evidence of transfer of title to new owners
o        Protects creditors by requiring payment of debts
o        Distributed decedent’s property after creditors are paid. 
·         Letters of administration: Sought in primary or domiciliary jurisdiction, then in ancillary jurisdiction. The latter may be costly if a resident must be appointed. Each state had procedure for issuing the letters of administration or testamentary wh/ gives authority. 
·         Formal or informal probate:
o        Informal → Representative petitions for appointment w/o notice to anyone and supplies info about heirs and any will or devisees. 
o        Formal → Any interested party can demand a formal probate.
o        all proceedings must be initiated w/i 3 yrs of death!! If no will is probated w/i 3 yrs, presumption of intestacy applies.
·         Barring creditor claims: State statute requires creditors to file claims in specified time or barred from recovery. These are called nonclaim statutes. 
o        Either bar w/i short period after probate has begun, or bar claims not filed w/i longer period after decedent’s death. 
o        Creditors usually notified by obituary in newspaper. 
§         Supervising the Representative → Many states supervise by the court.  
§         Closing the estate → Creditors must be paid, titles cleared, taxes paid and returns audited, and real estate or sole proprietorships sold before estate can be closed. 
·         Court must grant discharge before representative is cleared of fiduciary duties. 
o        Is Probate Necessary?
§         Estate taxes begin on estates of $3.5M in 2009 and unlimited in 2010. 
§         Often 37-47% of total estate. 
§         Can avoid by transferring all assets to joint tenancy or revocable or irrevocable trust during the life of the owner. For some items possession is enough for ownership and no need for probate. But for car titles, stocks, etc., transferee must have some official recognition to transfer title. 
o        Universal Succession→ heirs and devisees succeed to title of all decedent’s property; no personal representative. 
§          Ex: O dies intestate and leaves H as O’s heir. H succeeds to own O’s property and must pay all O’s debts. If O has three heirs, they hold as tenants in common. 
 
 
D. Professional Responsibility: (pg 48)
–          Duties to Intended Beneficiaries:
o        Simpson v. Calivas: (pg 49) Π, Robert Simpson, claims the attorney who drafted his father’s will did not draft the actual intent to leave Robert all decedent’s land in fee simple and was therefore negligent and breached duty. The will left the “homestead” to Roberta Simpson. Robert claims homestead included only the house and not the land and business property also located in Dover, NH. Probate court did not admit into evidence the notes Robert, Jr. took during the estate meeting saying “house to wife and remainder to son”. Π now brings malpractice action. 
§         Procedure: Tax Court granted directed verdict b/c Π failed to give evidence of breach of duty.
Duty to Intended Beneficiaries: