Wills and Trusts – Professor Carl SherretsUniversity of Dayton School of Law – Spring 2009Keyed to: Estates and Trusts (3rd Ed.) by Dobris, Sterk, Leslie
New movement to avoid probate; Means to make assets non-probate so that the procedure of probate can be avoided.
Non-probate assets: take precedence over whatever will says
life insurance w/named beneficiary
Transfer on death deed — TOD
Specifically for real estate, mutual fund accounts, car, etc.
Interpreted to only allow for one beneficiary designation
Statutory exception in OH that up to 2 vehicles can pass to spouse w/out probate as long as combined value of autos does not exceed $40k.
Beneficiary can be named on a deed for real property
Creates a future interest so can be modified at any time.
Retirement accounts with named beneficiary
Ex: Older married couple in 70’s. No children. Want to be sure survivor receives all the other has @ death.
· Assets: real estate — joint survivorship
§ Mutual fund, checking account — joint survivorship
· What if wife is successful attorney, but husband stays @ home w/no job. Same result?
§ To protect personal assets from creditors, rather than using joint survivorship deed, these spouses would have deed for real estate in name of the non-professional & possibly have a TOD designation.
Single parent, 45 yrs old w/ one adult child.
· Assets: real estate — could look @ joint survivorship, but it could cause liability problems. What about TOD deed? Very common in this situation b/c it creates a future, rather than present interest. Trust option, however, might be the best option especially if child isn’t all that great w/money.
Single parent w/ 5 adult children.
· Problems arise if children disagree on what to do with asset or they don’t get along. Requires agreement b/w the kids and their spouses (dower interest) to make it smooth.
Single parent w/3 small, minor children.
· Need to be very careful about creating a present interest in a minor b/c it can create problems (in real estate, if property transfers to minor & needs to be sold, minor can’t contract, etc).
· HANDOUT – John & Jane Smith’s estate
Will- (OHC 2107.03) legal declaration of a person’s intention that he/she wills to have occur after his/her death.
Under OH law, to make a will, you must
Be of sound mind
Attorney has to make determination of this at the time of creation of will.
If not, attorney has to refuse to do it.
And under no restraint
Ex: adult child w/siblings comes in claiming mother whose there wants to do a will naming them sole beneficiary of EVERYTHING.
Person wanting will has to be doing so freely & independently.
Form must be handwritten or typed
Will must be reduced to writing.
Video or taped recordings would not work.
Testator must sign the document at the end
Testator must sign document in the presence of 2 witnesses.
Signature must be witnessed by 2 individuals IN the testator’s presence.
Consider including a guardianship clause in the will where there are minor children. Eliminates competing application should both natural guardians die without a guardian being named for the minor.
Name an alternate executor in case first person named cannot serve. If not named, person would have to post a bond to be named that upon application.
Attorneys occasionally keep original in fire proof safe in office. If client takes it, make sure you note where it is.
If original will cannot be produced, considered intestate.
Pour Over Will- They say “upon my death all of these assets go into a trust.”
Cannot promote illegal activities, or breaking up a marriage.
Invalid Will- How is property distributed if a will is deemed to be wholly invalid or a will that disposes of only part of decedent’s property? How is the remainder of decedent’s property to be distributed? Be intestate succession.
Heirs-On many occasions, a will makes reference to the “heirs” of a particular person—either the heirs of the testator himself, or the heirs of some other person.
Who are a person’s heirs? The people who would succeed to that person’s estate by intestate succession.
Example- See p. 65 for example on how it may avoid a will and be passed to heirs.
Power of Attorney
Financial power of attorney = allows for another to make financial decisions if other person unable/unwilling to make financial decisions on his/her own.
This can be kept “in escrow” until a time when person asks it to be released or is unable to release it (person hospitalized & unable to order it)…doctor makes determination at that point.
Person who names a POA, has to notify that person so they know it’s them.
OH has adopted a statutory form of POA to become more uniform w/other states to increase likelihood of it being recognized in other jurisdictions.
Document where you are giving your doctor a declaration that you do not wish to be kept alive by artificial means if you are
Terminal- an irreversible, incurable, untreatable condition caused by disease, illness or injury. OR
Permanently unconscious- an irreversible condition in which I’m permanently unaware of myself & surroundings; have to be determined by your doctor & one other; unable to feel pain.
OH living will requires that you have to make a specific election not to have feeding tube/hydration if you are permanently unconscious. Must check this or doctor’s will provide that for you in that circumstance.
Recently, OH’s living will documents deal with organ donation now as well. Organ Donor registry in OH; client fills out form & elects what they are willing to donate. Or, client can elect to donate any useable organ & for what purpose.
Durable POA for health care
ORC 1337; deals w/health care only.
As long as you can make your own decisions, you can even if you’ve named someone in this document.
As opposed to financial POA where client doesn’t have to be incapacitated for it to be in effect.
Here, if person is unable to make healthcare decision, health care provider will look to document.
May name up to 3 specific people
Designee & 2 alternates
Very broad document
This document is very broad; much broader instrument than the living will.
Could cover health care decisions even if condition is only temporary
Allows client to avoid appointment of guardianship through the court.
Guardianship appointment can be costly
Guardian must post a bond
Saves time & money if POA in place
Chapter 1, Section II: Role of the Lawyer & the Lawyer-Client Relationship p. 29
2 important roles lawyers play: 1) sometimes litigators representing clients w/claims to decedent’s estates and
2) sometimes policymakers devising & evaluating rules for transmission of wealth from one generation to the next.
Most important role is the role of planner.
o Must help client achieve her objectives.
o Must educate client so client better understands her objectives & alternatives.
· Must identify problems and issues that never occurred to the client.
§ Lawyer must accumulate information about
· The client
· Client’s family
· Client’s assets
· Client’s wishes
§ Lawyer must be a careful listener
o Lawyer must thoroughly understand substantive law. W/out this, cannot effectively plan.
· Statutes and case law provide background and lessons for drafting/planning purposes.
o Remember to ask yourself: Who is the client? In estate planning, ongoing issues arise (confidentiality; conflict of interest; etc.)
HOTZ v. MINYARD;(1991) p. 30
Facts: Brother & sister w/car dealership dad who becomes mentally incompetent after a stroke & made will in front of family then returned later that day to execute second will which disinherited DD. DD alleges attorney breached his fiduciary duty to her by misrepresenting her dad’s will to her.
ISSUE: Does Dobson owe a fiduciary duty to Judy & if so, was it breached?
HOLDING: We conclude summary judgment was improperly granted to Dobson on this cause of action. We find evidence to present a jury issue whether Law Firm should be held vicariously liable for Dobson’s conduct since Dobson was acting in his capacity as a lawyer when he met w/Judy to discuss the will in January 1985. Judgment of circuit court reversed in part.
RATIONALE: A fiduciary relationship exists when one has a special confidence in another so that the latter, in equity and good conscience, is bound to act in good faith.
Confidentiality and Information: “Rule 1.6” – Defined on p. 33
Conflict of Interest: “Rule 1.7”- Defined on p. 34.
a. A lawyer should routinely refuse to represent H & W when both seek estate planning advice. Many represent both, but require H & W to sign engagement letters which deal explicitly w/problem of potential conflict. Generally, interests of H & W coincide.
b. These letters are common & vary from lawyer to lawyer in specifics, but the general provisions are the same. These are to offer a layer of protection to attorney when representing both W and H in the hopes of avoiding common conflicts. This express agreement backs up the implicit agreement that would exist when H & W seek counsel as a unit.
c. Some legal scholars contend that the family unit often is, and should be, the lawyer’s client even when there are conflicts b/w family members.
BARCELO v. ELLIOTT;(1996) p. 36
In May 2006, Supreme Court of Texas joined majority and decided to go with a strict privity rule. In the case, an estate lost $1.5m b/c of attorney’s improper planning. (AL, AK, ME, NE, N
Acceptance- Valid inter vivos gift requires acceptance
Presumption: when gift is of value to donee, law presumes acceptance.
Gift Tax and Income Tax & how related to GRUEN
Federal Gift Tax
Free to make a gift to someone of $12k/year/person without incurring gift tax.
This is the annual exclusion allowed.
Anything over & above must be reported on Form 709
This will be subtracted from $1m lifetime exclusion.
$1 million/lifetime exemption may be gifted without having to pay a tax
Unlimited gifts to a spouse unless spouse is a non-citizen spouse
Transferor incurs liability as well as the responsibility to report to government
Tax rates vary. Maximum rate of 45%.
Charitable gifts may be made w/out having to pay the gift tax.
In GRUEN, painting bought for $8k. Tax would be assessed by FMV of gift @ time of evaluation. May not be full $2.5 m value. In GRUEN, would have to value remainder interest b/c this wasn’t a simple gift made @ time.
implication of gift made during lifetime = tax basis
Here, $8k. = carryover basis
Significance is if son sold painting, he’d have to pay tax on the difference between carryover basis to the value of the selling.
Capital gains only comes into effect when it’s realized (when painting sold)
If father had bequeathed painting to Michael in will, Michael would have gotten the painting with a tax basis of $2.5m. If Michael sells then for $2.5, he would NOT pay capital gains tax on them. That’s why a lot of times, attorneys will advise client to hold onto property until death so the one receiving property will receive tax basis.
In some cases, however, estate tax issue overrides income tax issues. For instance, if this painting were to be passed from one generation to the next, then what happens when it’s sold wouldn’t be at issue.
Gifts causa mortis- Is an exception to the rule that gift made cannot be revoked. If you make a gift on your death bed but unexpectedly recover this is considered a gift causa mortis and you may revoke it. p. 53
Ordinarily, gifts are irrevocable–even if made on someone’s death bed.
Gifts causa mortis are of no importance as an estate planning device. Yet, the doctrine is occasionally useful as a litigator’s tool.
Gifts made when someone is very ill, but then doesn’t die…does possession of item revert to original owner. Many courts say “Yes.”
If decedent recovers from illness that sparked gift, but dies a year later from another illness, estate may argue gift made during first illness was a gift causa mortis & reverted to donor when he recovered from illness.
Joint Interests with Right of Survivorship- p. 52
1. Lifetime gifts are the most obvious sort of non-probate transfer.
a. B/c D gives property away b/4 he dies, there is no property left to pass through D’s estate.
b. Lifetime gifts not nearly as important in the wealth transmission process as transfer by terms of an instrument creating a joint tenancy w/right of survivorship.
2. JTWROS- If two parties hold property as joint tenants with right of survivorship, (or, in the case of married couples, as tenants by the entirety), when the first of the two dies, the decedent’s share passes automatically to the survivor.
a. It is a Non-probate transfer.
i. Surviving joint tenant takes property not as an “heir” or by the terms of D’s will, but by terms of instrument that created the joint tenancy.
ii. Property held in joint tenancy never passes through probate estate of first to die.
b. When 1st of 2 dies, D’s share passes automatically to survivor.
c. If more than 2 parties share joint tenancy w/right of survivorship, @ death of 1st, D’s share divided equally among surviving joint tenants.
d. Many people hold property in joint tenancies.
e. Married couples only may hold property in tenancies by the entirety.