Estates and Trusts
Course Outline: Fall 2007
“Death is not the end.
There remains the litigation of the estate.”
–Ambrose Bierce
I. Introduction to Estates and Trusts
a. What’s the Difference Between an Estate and a Trust?
i. Estate
ii. Trust
b. Probate/Non-Probate Dichotomy
i. Probate court determines if will is valid
1. Probate provides inventory, collection/mgmt of assets; satisfies creditors/provides clear title;
2. Satisfy creditors and clear titles;
3. Resolve conflicts among beneficiaries; and
4. Distribute what is left to the appropriate persons or institutions
ii. Probate and non-probate property are different
1. Probate Property is property that passes under the decedent’s will or by intestacy.
a. May require court proceeding to probate will or finding of intestacy followed by appointment of personal representative to settle estate
2. Nonprobate Property is property passing under an instrument other than a will and no court proceeding.
iii. UPC authorizes universal succession as an alternative to probate administration §§3-312-3-322
c. Ethical Consideration
i. Model Rules 1.6 and 1.7 w/ Commentary
ii. 2 Concerns: Malpractice and Conflicts of interest
iii. Simpson v. Calivas (p. 49)
1. Facts: Ambiguous will drafing causes stepmom to get fee simple rather than LE.
2. Rule: privity of contract must exist to claim malpractice against attorney.
a. Estate has privity in this case but didn’t suffer loss
3. Duty of care/other duties exist when attorney enters into client relationship both to beneficiaries and to Decedent
iv. Must disclose conflicts to all parties concurently
v. Summary of privity against malpractice
1. Privity if stake in will and will is invalid
2. States differ on what privity (if any) is necessary
3. No privity for beneficiaries (NY), privity (FLA), if omitted sue, if included sue.
II. The Federal Transfer Tax System—In Brief
a. Policy
i. Raise revenues
ii. Promote economic policies (stimulation of economy), Estate tax probably does not stimulate economy because it is imposed on too few taxpayers and it is impossible to predict how many affected taxpayers will die in any particular year.
iii. Promote social policies
iv. Principals to evaluate a tax system
1. Equity
a. Horizontal Equity—similarly situated individuals treated similarly (not all treated equal due to sophistication)
b. Vertical Equity—individuals should be taxed according on ability to pay. Estate tax does promote vertical equity until flat tax in 2006. But viewed across spectrum of taxation, transfer taxation only effects wealthiest, so improves vertical equity.
i. Systematic Estate Tax has vertical equity but not at individual level.
2. Economic neutrality
cable Credit Amount
i. 2 MM credit for estates and 780,800 for gifts
ii. Must take advantage of Credit as it is a one time shot
1. Deduction isn’t a freebee it is a deferment
e. Unlimited Marital and Charity Deductions
f. S
i. As a policy maker, why get rid of estate taxes?
1. Not simple, not equitable, difficult administratively, progressive sometimes, shapes economic decisions, like situated people not always treated the same.
ii. Reasons for repeal of transfer tax
1. Estate tax does not raise significant revenues when the cost of enforcement is balanced against the taxes collected (spousal deductions unified credit, annual exclusions, etc. (Less than 2%))
2. Estate tax distorts investment decisions, discourages savings and investment sin new and risky enterprises and therefore depresses economy. Encourages spending
3. Evasion is easy
4. Compliance can be costly
5. Doesn’t redistribute or diminishes concentrations of wealth or does not contribute to equality of wealth or opportunity
6. Does not allow individuals to use their money as they want
7. Significant costs, both public and private, of compliance and enforcement
8. Unpopular with individuals who pay and those who don’t pay
