Trusts and Estates – Spring 2009
I. Wealth and Wealth Transmission
a. Wealth in America
i. Historically, land and family wealth was very important when America was still and agrarian society and even into the post-industrial age. Transfer of wealth and property (as well as skills) was the way in which family legacies were built
ii. Modern American families not only transfer the majority of their wealth inter-vivos (through paying for college tuition, etc.), but the rapidly increasing life expectancy of most Americans is leading to more wealth being placed in pensions, annuities and other forms of investments for older generations to live on after retirement.
1. Advantages of Tax-Qualified Pensions
a. Most contributions are tax-deferred
b. Earnings on qualified investments accrue and compound on a tax-deferred basis
c. Distributions are usually taxed at a lower rate since most retirees have lower post-retirement income levels.
2. Most pensions are designed for lifelong exhaustion of funds —> no carry-over inheritance to future generations.
b. Laws Regulating Wealth Transmission
1. American inheritance law is primarily shaped by English law, which found its roots in the feudal system and the dual system of church (chattels) and lay (land) courts.
ii. Uniform Probate Code (UPC)
1. Contains over 30 uniform acts dealing with wealth transmission upon death.
iii. Uniform Trust Code (UTC)
c. Public Policy and Wealth Transmission
1. Continuation of the regime of private property as dominant in the social order
2. Effectuation of the wishes of the individual
3. Provisions for the well-being of the family
4. Provisions for the well being of society
ii. Freedom of Testation
1. The right of an individual to determine the disposition of wealth owned at death by executing a will.
2. Few exceptions to this rule: the ones there are tend to be few, far between and not very severe.
a. Surviving Spouse Protections
b. Pretermitted Heir Statutes
c. Restrictions of testation to charities, etc.
3. Restrictions on the freedom tend to be only on those that discourage economic and social development
4. Courts will consider public policy implications when a will calls for a rather unusual disposition of an estate.
a. “Against Public Policy” – that which conflicts with the morals of the time and contravenes any established interest of society.
b. EYERMAN v. MERCANTILE TRUST CO. – Woman wills that her house be demolished after her death and the land to be sold. Court says the provision was void as against public policy. Not ALL courts have reached this same conclusion. “A well ordered society cannot tolerate the waste and destruction of resources when such acts directly affect important interests of other members of that society.”
iii. Dead Hand Restraints of Beneficiary Conduct
1. Normally a person may condition a devise on behavior o
ii. At the time of the gift the donor must be in apprehension of death from an existing disease or other peril
iii. Donor must die from the feared peril before revoking the gift
iv. No real time frame (reasonable?)
IV. Will Substitutes
a. Rise of Will Substitutes
i. Mostly due to the public finding the substitutes an inexpensive alternative to lawyers, wills and probate.
ii. There are four MAIN Substitutes:
1. Life Insurance
a. Governed by contract law
2. Pension Accounts
a. All pensions contain a provisions with a beneficiary should the primary die before exhaustion of the account.
3. Bank, Brokerage and Mutual Fund Accounts
a. Most are POD accounts.
b. Joint accounts are often considered gifts.
4. Revocable Inter Vivos Trust
a. Totten Trust – “poor man’s will” – devisee places money in an account, the language of which establishes a trust over which the devisee is the trustee for the named beneficiaries, but has the power to revoke.
b. Interest is both revocable and ambulatory.
iii. Imperfect Will Substitutes
1. Joint Tenancy – property is transferred upon death to the surviving joint tenant automatically.