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Trusts and Estates
University of Georgia School of Law
Beck, J. Randy

Trusts and Estates

Beck

Fall 2011

1. Testate/Intestate – If a decedent dies with a valid last will and testament, he died testate. Otherwise, he died intestate. Note that it is possible to be partially intestate if the will does not cover all of the decedent’s property.

2. Testator/Testatrix – A male or female that executes a valid will

3. Descent – property passes by another mean than a will. The government makes the decision on where the property goes.

4. Devise – A gift of real property under a will. Can mean both real and personal property

5. Devisee – A beneficiary receiving real property under a will

6. Bequest/Legacy – A gift of personal property under a will

7. Beneficiary/Legatee – A beneficiary receiving personal property under a will

8. Personal Representative – The person appointed by the probate court to oversee the administrative process of wrapping up the decedent’s affairs

9. Executor – What the personal representative is called when the decedent dies testate and the will names the personal representative

10. Administrator – What the personal representative is called when the decedent dies testate or intestate but names NO personal representative

11. Probate Court – The state court with special jurisdiction over determining who is entitled to receive the decedent’s probate property

12. Statute of Descent and Distribution – If a decedent dies intestate as to some or all of his or her property, the property will be distributed to those identified to receive it under the state’s statute of descent

13. Heirs – At common law, if a decedent dies intestate, his REAL property was said to descend to his heirs

14. Next-of-kin – At common law, if a decedent died intestate, his PERSONAL property was distributed to his next of kin

15. Primogeniture – The practice at common law of giving all land to the oldest male heir

16. Escheat – In certain instances, upon the passing of the decedent, his property will revert to the state

Chapter 1: Introduction to Estate Planning

I. The Power to Transmit Property at Death: Justifications and Limitations

a. The Right to Inherit & Right to Convey: Implications of this include who owns property once a person dies? Does it belong to the living or the dead?

1. Jefferson: “The portion occupied by any individual ceases to be his when he himself ceases to be, and reverts to society.”

2. Blackstone: Vesting property to ancestors is not a natural but a civil right. Law may have ripened from the principle that children/family members were at the person’s deathbed.

3. Locke: Common practice/universal practice seems to suggest the cause is natural.

4. Until 1980s, Jefferson and Blackstone view prevailed over Locke. Irving Trust Co. v. Day.

b. Two Way to Transmit Property

1. Devise: by making a will, decedent/testator makes a choice. This is a way of passing real property to devisees. The technical term of person who takes is devisee or beneficiary.

· Language: A bequest is made as to personal property, and the takers are legatees.

2. Descent: transmitted not by will but by inheritance. This is a decision made by the government through statutes. Otherwise known as intestate succession.

· Language: The person who takes under intestate succession is called an heir.

c. Hodel v. Irving: This case concerns the constitutionality of the Indian Land Consolidation Act of 1983 (federal statute). The question of devise generally is typically controlled by state law, but here federal law controls because this statute dealt with Native American relations and because the government holds land in trust (for the benefit of) for the Native Americans who were living on the land. The statute was trying to address fractionation. Fractionation=land is allotted to individuals and when those people pass, it goes/passes to children, and so forth. This costs money and makes it very hard to keep records.

1. Does this happen elsewhere?

· This isn’t really a problem in other contexts because of likelihood of sale. Usually will come together and sell the property as a whole.

· Alienation of Property: doesn’t happen here because the land is held in trust and is thus limited in who can buy it.

· Another problem is partitioning: the court will partition in kind. But this was also not the problem.

2. Congress tried to fix the problem by saying that parcels (small, fractional) 2% or less in acreage and has earned less than $100 to owner would escheat back to the state. But this provision could apply to several acres that weren’t rented. In other words, Congress said someone could not pass less than a 2% interest by devise or descent.

3. The plaintiffs here were heirs & devisees, so they did not own the property yet because they have no property interest. They have a mere expectancy. Thus, they did not yet take any property under the statute.

· However, the plaintiffs have 3rd party standing to sue in places of decedent’s right.

· The argument is that the RIGHT to devise property by will or pass by intestate was taken (this is the right the statute took). However, decedent could still pass property as inter vivos gift.

· Sticks in a bundle: one was taken, but owner could still use property, transfer property

4. In analyzing this takings claim, one factor looked at is economic impact of regulation. Plaintiffs can earn money from their property while alive and the interest was a few thousand. But this is land as a whole, and they have still lost a few rights. How do you put a price on those rights?

· Think about life insurance and analogize. The interests have some value just as one purchases a policy to be able to leave property to heirs & devisees at an interest of $2700.

5. Investment-Backed Expectations: extent to which legislation interferes. Court says it is hard to identify these because they weren’t the ones who bought the property.

6. Average Reciprocity of Advantage: Court is less likely to find a taking when people burdened also benefit. Here, this is the case because most are members of tribes.

7. The Court determines that YES this is a taking and requires just compensation because government took away an important right. Important rights are completely eliminated, as in Kaiser.

8. Hypo: Pertaining to elective shares, a spouse gets a forced share of an estate. What if a statute was changed to say that instead of a 1/3 elective share it is now going to be 1/2. Is this a taking under the Hodel analysis?

· No. There is still half of the land left for decedent. State has broad authority to adjust.

· The opinion says Congress can still regulate by saying that someone cannot subdivide property and cannot pass property by intestate succession.

9. What if Congress passed a statute that held land as JT instead of TICs? This would help because it would consolidate ownership.

10. Congress tried to amend the statute & changed restrictions so that they abolished descent but gave option to devise only to other owners of the parcel.

· Court again said this was too limited (because only to members of other parcels) in Babbitt v. Youpee.

11. Congress then adopts a new attempt. Now they say 5% or less cannot be divided by people but has to go to oldest child. Sounds like primogeniture.

d. Shaw v. CMG: Case involving pictures of Marilyn Monroe that were supposed to be held in a residuary clause of her will. However, Shaw began trying to sell her image on t-shirts and also began selling licenses to use photos of Monroe.

1. The IP rights asserted here are the right to publicity against people trying to license photos of her. MMLC says they own this right because they were granted that right through the residuary clause. “If I own anything else, it goes to…”

2. The Court rules against MMLC. First issue is where Monroe was domiciled (either NY or CA). However, if does not matter because both laws say you cannot will things you do not own and these rights did not exist when she died.

3. R: The law of the domicile of the testator at his or her death applies to all questions of a will’s construction.

4. R: A disposition by the testator of all his property passes all of the property he was entitled to disposed of at the time of his death.

5. UPC 2-602: states that a will may pass property acquired by the estate after the testator’s death, but this was NOT adopted in either state.

· NOTE: CA has since changed its law to say now retroactively the right of publicity exists even after death.

e. The Policy of Passing Wealth at Death

1. Resolved: That the right to transmit property at death by devise and descent should be significantly curtailed.

· Pro: It would change the status quo, dominating families would stop domination (and its bad to have dynastic families), could only pass on property used for productive purposes, would cut down on the idle rich.

· Con: The system we have now is the least objectionable arrangement for dealing with property on owner’s death, inheritance is natural and proper, providing for a family does society a service, saving money is also a huge part of our system and people might just blow money if they know they can’t devise how they would like, government should not tell you how to spend, it provides a social service of taking care of testator, can reap what you have sown

2. Congress passed in 2001 an Estate & Gift Tax. It was a gradual repeal of the estate tax, which will disappear in 2009. Then, it will kick back in 2011 (unless Congress does something). Republicans have asked for a complete repeal. Some think it will come back but only for very large amounts of wealth.

3. Washington Post article: our country has deficits and shows how much we are. Basically we are going to be borrowing huge amounts of money in the coming years. So, how do we make up that money loss with the least amount of pain? Why should we burden the next generation?

4. What are possibilities of passing property at death?

· Destroying It

· Burying it with someone

· Treating it was unowned and allow a free-for-all for others to grab

· Having the government confiscate it

· Honoring Diana’s wishes

5. Ascher’s Proposed 6 exceptions to when property should NOT end at death:

· Marital exemption

· Dependent lineal descendants

· Disabled lineal descendants

· Inheritance by lineal ascendants

· A universal exemption (passing a moderate amount)

· Passing to charity a fraction (with this the gift tax would increase to circumvent lifetime gift giving)

· He leaves estates of 250,000 or less untouched

6. Kristol: make it a policy that no individual could inherit in a lifetime, more than one million dollars, and any possessor of a large fortune must distribute it, prior to death or by testament, to his children, his relatives, his friends, or anyone. Kristol says this does not discourage incentive to invest and make money. Could also have the plenary power associated with distributing wealth.

· Also discusses the hidden agenda of liberals-wanting money to go into a public treasury where they can say how it will be spent rather than simple redistribution among individuals.

7. Soviet Union example: inheritance was re-established after it was outlawed for four years. Failed experiment. Inheritance was viewed as a method of providing for dependents, relieving the state of that burden.

8. Blum & Kalven: says the gravest source of inequality is not economic but rather what is called cultural inheritance for lack of a better term. Instead of wealth, incomes need to be brought closer together.

9. Langbein: he says intergenerational wealth transmission occurs not primarily at death but throughout the child’s lifetime (for example, college, buying a house, investing in things).

f. The Problem of the Dead Hand

1. Hobhouse: the living should judge their own concerns; the dead cannot foresee upcoming events and thus should not be able to influence conduct after death.

2. RST § 10.1 Donor’s Intention Determines the Meaning of a Donative Document and is Given Effect to the Maximum Extent Allowed by Law

· The controlling consideration in determining the meaning of a donative document is the donor’s intention.

· Rationale: freedom of disposition: property owners have nearly unrestricted right to dispose of property as they please

· Effect of a donative document: intent determines meaning and affect

a. The law facilitates rather than regulates; American law curtails intent only if contrary to a rule of law. Examples might be spousal rights, creditors rights, unreasonable restraints on alienation or marriage, provisions promoting separation or divorce, impermissible racial or other categorical restrictions, provis

sets are distributed directly by trustee to beneficiaries named in will and don’t go through probate.

a. Property held in testamentary trust created under a will passes through probate, but property in an inter vivos trust during decedent’s life does not.

3. Distribution of nonprobate assets does not involve court proceeding but is made in accordance with terms of a K, trust or deed. Distribution of probate assets under will or to intestate successors, however, may require court proceeding involving probate of will or finding of intestacy followed by appointment of personal representative to settle the probate estate.

b. Functions of Probate

1. There are 3 core functions:

· Provides evidence of transfer of title to new owners

· It protects creditors by providing a procedure for payment of debts; and

· It distributes the decedent’s property to those intended after the decedent’s creditors are paid.

c. Administration & Terminology

1. When probate is necessary, 1st step is appointment of a personal representative (executor or administrator) to oversee the winding up of decedent’s affairs. Principal duties include:

· Inventory and collect decedent’s assets

· Manage assets during administration

· Receive & pay claims of creditors & tax collectors

· Clear any titles to cars, real estate or other assets &

· Distribute remaining assets to those entitled.

2. If decedent dies testate & names a person who is to execute the will & administer probate estate, such personal representative is called an executor. When person is in charge of administering the estate is not named in a will, personally representative is called an administrator.

3. Personal representatives are appointed by, under control of, and accountable to probate court.

4. One advantage of writing a will is that T can designate administers of an estate (although some states prohibit nonresident individuals from serving as administrator). If a person dies intestate or fails to name qualifying executor in a will, administrator selected from statutory list of persons, usually, in order: surviving spouse, children, parents, siblings, creditors.

5. A person appointment administrator must usually give bond. In most states, if will names the individual rather than a corporate fiduciary as executor, executor must also give bond unless will waives bond requirement which is routinely waived in most wills. Another reason for writing a will, therefore, is that the expense of a fiduciary bond can be eliminated if that appears desirable if that appears desirable.

6. Two Legal Vocabs-One Applying to Real Property, One to Personal

· A person dying testate devises real property to devisees and bequeaths personal property to legatees. However, Restatement applies devise to both real & personal property.

a. Also can just use the phrase “I give” regardless of type of property.

· A person dying intestate has real property that descends to heirs while personal property is distributed to next-of-kin.

a. At CL, heirs & next-of-kin are not necessarily the same. For instance, when primogeniture was in effect, real property descended to the eldest son (the heir) and personal property was distributed equally among all the children (the next-of-kin).

i. At CL, heirs & next-of-kin are not necessarily the same. For instance, when primogeniture was in effect, real property descended to the eldest son (the heir) and personal property was distributed equally among all the children (the next-of-kin).

b. Today in almost all states a single statute of descent and distribution governs intestacy. Same persons are named as intestate successors to both real & personal property. Thus, today the word heirs usually means those persons designated by statute to take a decedent’s intestate property, both real & personal. Next of kin means the same thing.

c. At CL, spouse was not an heir, but had only curtesy or dower rights. Today in all states, statutes of descent & distribution name the spouse as a possible intestate successor, depending upon who else survives, and a spouse thus may be an heir.

d. Summary of Probate Procedure

1. Opening Probate: varies by state.

· Wills should first be probated, or letters of administration should first be sought, in the jdx where the decedent was domiciled at death (known as primary or domiciliary jdx).

· If real property is located in another jdx, ancillary administration in the jdx is required. Must prove title to real property in the situs state’s recording system and to subject those assets to probate for the protection of local creditors.

· Each state has a detailed statutory procedure for issuance of letters testamentary to an executor or letters of administration to an administrator authorizing the person to act on behalf of the estate.

· SOL=3 years from the date of death (3-108) after that, presumption of intestacy conclusive. CL said at any time.

a. States mainly east of Miss. Follow English procedure of contentious v. noncontenious proceedings. Executor has a choice between common and solemn form.