Trusts & Estates Outline Spring 2007
I. CHAPTER 1 – INTRODUCTION TO ESTATE PLANNING
A. Power to Transmit Property at Death: Its Justification & Limitations
1. The Right to Inherit and the Right to Convey (1-10)
a) 2 Ways to Transmit Property at Death
(1) Devise: when will is left by testator, property passes to devisees, beneficiaries, or legatees.
(2) Descent: when decedent dies without will, property passes to heirs by intestate succession; decision made by state legislatures through statutes.
b) Terms from Hodel case:
(1) Primogenitor: in CL England, land passes to the oldest male son
(2) Escheat: when property by default goes to state (or in Hodel case, it escheats to the Indian tribe)
c) Hodel v. Irving (1987): Indian Lands were being fragmented when given to heirs at death b/c could not sell land at any time since U.S. Gov’t controlled land. This ran up transaction costs for government. Federal Law passed to prohibit passing of land at death that was earning less than $100 per year or was 2% of land. Thus, instead of passing to heirs, this land would go to the state. Ps claim that this is taking.
(1) CT looks at several factors:
(a) Economic Impact of Regulations – it is small since it is basically the remainder interest in $2700 that would eventually be left to heir. (Not worth that much until the decedent dies).
(b) Investment – Backed Expectations – no investment backed expectations b/c no plan to Improve land.
(c) Average Reciprocity of Advantage – burden v. benefit analysis. There is a burden (to heirs), but there is a benefit (other members of tribe).
(2) HELD: Statute Unconstitutional = Taking
(a) The statute eliminates the stick in the bundle of controlling the property b/c it abolishes both devise and descent.
(i) NOTE: Irving Trust (3): Nothing in the federal Constitution forbids the legislature of a particular state from limiting, conditioning, or even abolishing rights of testators.
(a) So elective share statutes affect rights to leave property, but doesn’t abolish them, so ok under Hodel for states to adjust elective share.
(ii) However, here both rights to pass property at death are eliminated.
(b) Ct decides that either: there must be just compensation if keep statute in place, OR amend § 207 to allow partition or resale, OR require JTs.
(i) LATER – Congress made law allowing devise by will to only another co-owner of interest in parcel but this was unconstitutional b/c too narrow a group.
(ii) NOTE: Could also put property in revocable trust and avoid §207.
2. Policy of Passing Wealth at Death (10-20)
a) Pros for Abolishing Inheritance
(1) Rather than allowing unequal opportunities, we could equalize the economic level and offer more opportunities to more ppl.
(2) There are other ways to protect family: education, resources
(3) Basic unfairness to give ppl money because came from wealthy family
(4) Can still make inter vivos transaction
(5) Large estate tax could encourage charitable giving.
(6) Many ppl would distribute wealth during lifetime and help society.
(7) Worry of aristocracy or oligarchy developing will disappear.
b) Cons for Abolishing Inheritance
(1) This is incentive to encourage hard work, creativity, savings, education to build wealth
(2) Comforting to testator to know that family will be taken care of – encourages familial ties.
(3) No one has the same opportunities
(4) Process of transmitting wealth is basic instinct.
(5) Abolishing inheritance even failed in communism.
(6) Inheritance helps ppl establish think tanks.
c) Policy of Estate and Gift Tax
(1) For Abolishing – Tax creates an undue burden on estate planning
(a) Affects middle class and the wealthy can usually avoid these taxes.
(b) It usually just affects the elderly ppl who are not as educated about the system.
(c) Gifts to grandkids – taxed twice: estate and gift tax
(d) Creates multiple taxation:
(i) When earned
(ii) Taxed again when die.
(2) For Keeping the Estate and Gift Tax system
(a) If abolish this, then the government would lose trillion dollars over several years.
(b) Charitable donations will take huge hit.
(c) Usually comes down to 15-20% tax for sums over millions thus STILL lots of money left over.
(d) The Government will make the most of the money.
3. An Introduction to the Problem of the Dead Hand (20-30)
a) Shapira v. Union National Bank: Father conditioned his son’s inheritance on his marriage to a Jewish girl (born of 2 Jewish parents). Son contested the will as unconstitutional, against public policy, and not enough choice of spouse.
(1) Ct found that this was condition was: (1) constitutional b/c not being forced to marry Jewish (can decide whether to take money or not); (2) not against public policy b/c partial restraint on right, not complete restraint, does not disrupt family relationship, and does not force faithfulness to Judaism; and (3) son can travel to other cities with great Jewish population to find bride unlike in Maddox case where there were only 5-6 eligible (Society of Friends) bachelors.
b) RST 2nd of Property: Donative Transfers § 6.2 provides that a restraint to induce a person to marry within a religious faith is valid “if, and only if, under the circumstances, the restraint does not unreasonably limit the transferee’s opportunity to marry.”
c) RULE: Request that would cause decisions against public policy.
(1) Ex. inheritance conditioned on keeping family name, divorce, separation, not speaking to other siblings, etc.
(2) RST 3rd of Trusts §29(c) (2003) invalidates trusts that are “contrary to public policy.”
(a) Ex. forcing wife to smoke 5 cigarettes a day to receive inheritance.
d) RULE: Request to remain in “good standing” with Church is Ok.
(1) As long as do not request that someone remain a “deep” follower of a religion, but instead just condition on membership in church, it is ok.
(2) Ex. PA Court would not enforce provision requiring remaining “faithful” to Catholic faith but did enforce provision to keep “in good standing” with religion.
(a) B/c Ct does not want to decide doctrinal decisions.
(b) Membership is easy to determine.
e) The PROBLEMS with conditions in wills
(1) Cannot renegotiate. Once will is made that’s it. So better to put in trust or discuss issue when alive.
f) Destruction of Property at Death.
(1) House – Eyerman case says cannot order destruction of house at death because then this would be a waste since this will be the heirs or beneficiary’s economic costs at stake.
(2) Personal Notes – SCOTUS Justice’s notes of meetings likely will not be destroyed although he requested this b/c they are of great value. However, this could damage the integrity of the court and the meetings will no longer be private.
(3) NOTE: Generally RST 3rd frowns on restraints on beneficiary behavior.
B. Transfer of the Decedent’s Estate
1. Probate and Nonprobate Property (30-31)
a) Probate – property that passes through will or intestacy
b) Nonprobate – property passing through another instrument
(a) trust
(b) joint tenancy property (real & personal): decedent interest vanishes at death
(c) life insurance: distribution governed by K law b/t insured & insurance co. and no need to probate
(d) Ks with payable on death provisions: i.e. pensions – tells w
creditors, A had some debt but wife should be able to deal with it. She doesn’t need probate to handle the debts b/c she knows all of them
(iii) Taxes shouldn’t be a problem either, so no need for probate
(iv) She may need to get proof of title in her name for the car. But most jurisdictions will let her deal with it w/o probate
(b) 2 – Same as (1) but now he died intestate and the state statute says that ½ property goes to spouse and the other ½ kids
(i) If there is a dispute, may need probate. But otherwise not necessary
(ii) If the kids were minors, she may want to go through probate, but given the size of the estate here, it isn’t necessary. There is a risk that the kids will challenge it later, but she can probably safely take it
(c) 3 – If there was real property and it was only in his name, wife may want to go to probate to ensure everything is taken care of and title was clear.
(d) 4 – Should A decide to have a will at all
(i) Things to think about when not having a will
(a) Under state statute, your kids may get some property and you may want it to all go to your spouse
(b) Want to provide for guardianship for kids
(c) Want to account for things like spouse dying before you, kids having kids, etc
(ii) Will can also provide for things like back-up executors, relieve executor from posting bond, transfers to minors, etc. that intestate succession doesn’t automatically cover
(iii) Will can provide for changes in family structure
(iv) Will pulls in assets acquired later
(v) If his wife died first, his JTWROS property will go through probate.
d) Universal Succession
(1) Means that heirs or the residuary devisees succeed to the title of all the decedent’s property; there is no personal representative appointed by the Ct.
(2) Happens in LA and Europe.
(3) The residuary devisees simply step in the shoes of the decedent at his death.
C. An Estate Planning Problem
1.
Just debts clause is an instruction in someone’s will to pay his or her just debts out of the estate. The clause is probably unnecessary b/c the law deals with payment of creditors. Problem with just debt clause could be that the ct would require payment of mortgage out of residue of estate where the law would otherwise provide for property to pass subject to mortgage
Asset w/ mortgage or lien – some states require debt to be paid from estate, other states provide for asset to pass subject to the lien.
Client’s letter and its enclosures
a) Howard Brown writes a letter about revising his will. He lists his assets (pg 41)
b) He and his wife have 2 children and his wife has a son from another marriage
2. Preliminary questions about example client letter
a) Does the “just debts” clause in article 1 require the executor to pay off mortgage on the Brown’s home?
