Wills, Trusts, and Estates Outline

NEWMAN

WILLS, TRUSTS, ESTATES OUTLINE

FALL 2017

INTRODUCTION

The rules we are talking about are dependent upon the legislatures allowing the succession of property.

Does succession of property make sense? Should we allow people to control what happens to their property when they die?

We want to encourage people to be productive. We are capitalists. If people cannot control how their money is devised, then why would they work hard or improve their property?
Helps to insure that the younger generation cares for the older generation.
Are there any good reasons for not allowing people to freely succeed to property?

Can be wasteful; people don’t always use their property in a profitable way. Collective wisdom may be able to better-put property to use.
Concentrating inherited economic power in the hands of a few, and denying equality of opportunity to the poor.

LIMITATIONS

What is the most significant limitation on the wealthy to do whatever they want to do with their wealth?

Taxes: $5,250,000/person. If you are under that amount there is no estate tax.

What percentage of decedents die with an estate in excess of $5.25 million?

1 out of 600 people—and the govt. takes 40%
So most people have no worries about estate taxes

What about property passing from a decedent to a surviving spouse?

Unlimited marital deduction—no tax on transfer at death from decedent to widow/er.

What about gifts to charity?

Unlimited charitable deduction—No tax on charitable gifts.

Is there an estate tax in Ohio?—No

Can you disinherit your spouse?

Elective share—the spouse is entitled to part of the estate. Policy reasons—dead hand? Yes, but… this will be the last chapter in the course.
What about your children?

YES—in the US everywhere but Louisiana.

Creditors rights?

Cannot avoid creditor’s claims except in very narrow circumstances.
Spin thrift trusts—you can leave your property in trust to avoid your children’s creditors but not your own creditors.

RAP

Under the common law: lives in being plus 21 years looks a lot like 100 years.

Public Policy Limitations

Shapira: Decedent wanted to limit the son’s inheritance to inheriting only if he married a Jewish woman within 7 years. Son challenged the validity on constitutional grounds under the 14th Amendment. He argued he had the right to choose his own wife, and forcing him to marry a Jewish woman in 7 years violated that right. The court upheld the condition. Shapira didn’t have to leave anything to his children. This is a limitation on inheritance not on the right to marry. The son also argues that the condition violates public policy of marriage and the family unit. The court rules that this is only a partial restraint on marriage, and therefore not violative of the plaintiff’s rights.

RULE: Based on the circumstances of the particular case, the condition must be reasonably limiting. The condition is reasonable if the permitted marriage is likely to occur. (R.2, which is the majority view) The 3rd Restatement—doesn’t go so far as to say that that condition is invalid, but it is definitely supporting the idea that this is too important a choice in a person’s life to allow a deceased person to control the decision.

What if Shapira came to you before death and wanted the same conditions put in the will, what should your response be?

This could result in litigation—there could be a question of the validity of this condition.

What if the decedent includes the condition that if his widow remarries she loses the inheritance. If the motive is to prevent her from getting married entirely—it would be invalid. If the motive was to care for the widow until there is someone else to care for her—it May be permitted.
Decedent has a daughter (adult) and she was married. He couldn’t stand the son-in-law. Decedent limited the inheritance to when the son-in-law died, divorced, or when she turned 65.

Not enforceable because the condition is intended to disrupt family relationships.
BUT, you could spin it that he doesn’t have to leave the daughter a dime, and she will get the inheritance at some point. The father is providing her with the benefits of the trust in case the son was no longer available to support her.
In reality, the court upheld the case for the above reasons even though it goes against public policy regarding family relations.

PROBATE v. NONPROBATE

We cannot over emphasize the distinction. Probate property passes under a will or it passes under intestacy statute. Non-probate property passes outside of a will. You look to title to determine whether the property is probative or non-probative. Property owned in the decedents individual name with nothing in place for how that property will pass. If it is passing pursuant to some other life devisement—it is non-probate.

Types of Non-probative property:

Joint tenancy property (real and personal)
Life insurance
Contracts with payable-on-death possessions (POD)—in some states this may include property.
Interests in trust.

3 reasons for distinction

Most property transferred at death passes outside of probate through a nonprobate mode of transfer.
You have to look carefully to integrate the probative and nonprobate property when planning estates. When property is left to minors, the property is held until the child turns 18. It is put in a guardianship and the court appoints the guardian. Instead, something must be done like a trust which will get around probate.

But even with the trust, there are other considerations. The decedent set up a trust, but is insolvent at the time of death because of student loans and a car payment.

Do statutes that apply to probate statutes apply to nonprobate transfers?

There has been a tremendous increase in nonprobate property transfers. (Nonprobate Revolution in the 80s).

ADMINISTRATION OF PROBATE ESTATES

Probate technically means the proving of the will as valid or invalid. Probate should technically only be applied to property passing under a will, but many attorneys extend the word probate to include all property that passes under a will and through intestacy.

Why do we need a probate court?

To determine if there was a will, if it is valid, to interpret any ambiguous terms.
Probate is the vehicle by which we determine who takes the property when a decedent has passed.
We need a mechanism by which title can be transferred to the successor’s name so that it is marketable to the rest of the world. Probate provides a means to convey clean titles.
Creditors get first crack, and probate allows creditors to get to the money they are owed before the property is dispersed to beneficiaries.

If we are going to have a probate administration, are we going to have the court involved every step of the way? Should we have to ask the court for permission every step of the way? How much control over the estate dispersement should the court have throughout the process?

We want it all done correctly so that the interests of the beneficiaries are protected.
However, making the court involved every step of the way is time consuming and costly. An