Estates and Trusts Outline

Estates and Trusts
Tritt
Fall 2013
 
Chapter 1: Freedom of Disposition
A. The Power to Transmit Property at Death
 
●     Succession – a short hand way of summing up social processes and institution and their legal echoes, which govern the way property moves from generation to generation and to the living from the dead.
●     Will – specifies who gets what when you die.
o   If there is no will, the law of intestate succession gives you a default estate plan.
●     American law of succession is organized around the donor’s freedom of disposition. The donee’s interest in a future inheritance is a mere expectancy, one that is derivative of the donor’s right to dispose of his property as he pleases, and that is defeasible at the whim of the donor.
●     The main function of the law is to facilitate, not regulate.
●     However, wills cannot contradict the rules of law that restrict: spousal rights, creditors rights, unreasonable restraints on alienation or marriage, provisions promoting separation or divorce, impermissible racial or other categorical restrictions, provisions encouraging illegal activity, and rules against perpetuities and accumulations
●     Shapira v. Union National Bank:
o   F: Father wrote in his will that his sons both must marry a Jewish girl whose parents are both Jewish within seven years after his passing to be able to get inheritance.
o   H: This restriction on marriage was neither unconstitutional or against public policy. State may not restrict marriage, but enforcing this provision would not constitute state action. His right to marry whoever he wants is not infringed, he just won’t get the inheritance. So not unconstitutional. Majority of weight of case law in America found restrictions on marriage within a particular religious class was not unreasonable. Marriage is good – this is public policy. The provision was deemed to be a partial restraint upon marriage and not a covenant to restrain the freedom of religious practice. But the restraint was not too unreasonable.
o   R:  “Restraint unreasonably limits the transferee’s opportunity to marry if a marriage permitted by the restraint is not likely to occur. The likelihood of marriage is a factual question, to be answered from the circumstance of the particular case.”
 
●     VOID AS CONTRARY TO PUBLIC POLICY:
o   Total restraints on marriages (first marriages);
▪      Partial restraints on marriages are okay so long as they are reasonable. Reasonableness based on dating pool
o   Remain faithful to a particular religion;
o   Conditions that encourage divorce or separation;
o   Promotion of family strife; and
o   Destruction of property
▪      Huge economic loss
▪      Don’t believe in committing waste
▪      Dead don’t have to suffer the consequences of the waste
o   Money alone should not necessarily drive the rules for property succession
 
o   Notes:
▪      To implicate the 14th Amendment there must be some sort of state action. Shapira is a private action.
▪      Probate is not state involvement. It’s hard to get a constitutional claim in trust and estates. The Court’s involvement doesn’t constitute state action because it is administrative.
▪      There is a right to give, there is not a right to receive.
▪      “A partial restraint on marriage which imposes only ‘reasonable’ restrictions is not void as violative of public policy.”
●     Judges try to look at whether things are inclusive or exclusive. (ex.: “I want him to marry in the Jewish faith” versus “I don’t want him to marry a Protestant”). It’s very easy to take an exclusionary clause and make it an inclusionary clause.
▪      Complete restraint would violate public policy
▪      Public policy is judicial activism, the court is creating law of the state.
●     Incentive Trust can be divided into three categories:
o   First – Conditions that encourage the beneficiaries to pursue an education
o   Second – Conditions that provide moral incentive such as incentives that reflect the settlor’s moral or religious outlook
o   Third – Incentives that try to encourage the beneficiaries to have a successful career
●     Contrary to public policy:
o   Conditions that disrupt or discourage familial relations.
o   Conditions that promote a crime or tortious act
o   Conditions that require a survivor to not remarry
o   Conditions that encourage separation or divorce
●     Restatement 3d of Trusts takes the position that courts should balance the donor’s freedom of disposition against “other social values and the effects of dead hand control on the subsequent conduct or personal freedoms of others.”
●     Testators have a natural right to bequeath.
o   The testator’s right to bequeath encourages her beneficiaries to provide her with care and comfort
●     Testator’s right to testamentary freedom
o   Takings argument: Government can’t take your property away without just compensation
●     Three different possible types of transfer from dead to living:
1.      Forced Succession – the decedent’s property could pass by simple rule of mandatory or forced succession, such as primogeniture or the spouse’s children, or other dependents, or if the decedent has no dependents, then the property would escheat to the state
2.      Freedom of Disposition – The decedent’s property could pass in accordance with the decedent’s declared wishes if they are reliably preserved, or if not, then in accordance with a default system of succession that tracks the probable intent of a typical decedent (intestate)
3.      Confiscation by the State – The decedent’s property could be confiscated by the state on the theory that the decedent’s property rights terminate on death.
●     U.S. follows #2 – Freedom of Disposition but most modern countries follow an option closer to #1. U.S. allows most freedom to choose how to dispose of one’s property after death and most dead hand control.
 
●   Donative Freedom: Just as one should have the right to control the transfer of property during life, one should have the right to control the transfer of property at death.
○     The right to pass your property at death;
○     The right to choose who gets, and who doesn’t get, the property;
○     The right to choose the form in which they get it; and
○     The right to give another person the right to make these choices.
●     The Dead Hand : “American law does not grant courts any general authority to questions the wisdom, fairness, or reasonableness of the donor’s decisions about how to allocate his or her property.” Yet 10.1 Rest 3d of Property continues, “American law curtails freedom of disposition only to the extent that the donor attempts to make a disposition or achieve a purpose that is prohibited or restricted by an overriding rule of law.”
●     Freedom of Disposition and its Alternatives
 
Forced Succession
Freedom of Disposition
Confiscation by State
Most Countries
American Law
Failed Soviet Experiment
 
●     Intergenerational transfers are becoming more common with families investing more in their children’s education and leaving less property for them at death (no more transferring the family business, etc.)
●     Irving Trust Co. v. Day, 314 U.S. 556 (1942): “Rights of succession to the property of a deceased, whether by will or by intestacy, are of statutory creation, and the dead hand rules succession only by sufferance. Nothing in the Federal Constitution forbids the legislature of a state to limit, condition, or even abolish the power of testamentary disposition over property within its jurisdiction.”
●     Hodel v. Irving:
○     F: Provision § 207 of Indian Land Consolidation Act of 1983 stated that testator’s could not pass on land that made up 2% of less of the total acreage or land that brought in less than $100 per year. This was because land was being subdivided too often and land that is consolidated is more appealing.
○     I: Whether this constituted a taking without just compensation.
○     H: Yes. Considered a taking because regulation essentially abolishes both descent and devise of these property interests even when the passing of the property to the heir might result in consolidation of property. Rests on the assumption that the right to transfer property at death is a separate, identifiable stick in the bundle of sticks called