Trusts and Estates Outline

Trusts and Estates I Outline

Professor Beck-Fall 2015

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 intervivos 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 Efect 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 categoric restrictions, provisions encouraging illegal activity and rules against perpetuities and accumulations.

g. Shapira v. Union National Bank: a father wanted his children to continue to live the Jewish faith, so he placed a marital restraint in his will.

1. Issue: Whether the condition is constitutional, contrary to public policy and unenforceable because of its unreasonableness, and that he should be given his bequest free of the restriction.

2. Rule: The right to marry is protected by the 14th Amendment in Loving