T & E, Professor Minot, Spring 2009
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
(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 who gets money upon passing.
2. Administration of Probate Estates (31-39)
a) History & Terminology
(1) When a person dies and probate is necessary, the first step is to appoint a personal representative.
(a) 2 Types:
(i) If the decedent dies testate and in the will names the person – executor
(a) The executor also has to give bond unless it is waived.
(ii) If the person dies intestate or not named in will – administrator.
(a) If person is appointed, he must give bond.
(i) Inventory, collect assets, manage, receive and pay taxes, pay creditors, distrib remaining assets to those entitled after that by will or intestate succession
(2) IF Will –
(a) Devise is passing of real property (person who takes is devisee).
(b) Bequest is passing of personal property (person who takes is legatee).
(c) Or call all beneficiaries.
(3) IF No Will –
(a) Heir: refers to person who receives real property
(b) Next of kin: refers to person who receives personal property
(c) Most modern statutes join these two.
b) Summary of Probate Procedure
(1) Opening Probate
(a) Governed by a collection of statutes and court rules giving meticulous instructions for each step in the process.
(b) Probate proceeding does things for creditors and those who receive the property.
(c) For creditors the proceedings are s
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?
(1) This provides that all debts are paid by the estate. Even if this wasn’t there, the debts would get paid anyway so technically you don’t need it.
(2) Cts have interpreted the just debts clause in a variety of ways so it is unclear whether you have to pay the mortgage. Also, it is questionable whether it is desirable. If Howard doesn’t have enough money to pay off the mortgage you would have to sell some assets. This may be hard b/c then you are selling someone else’s stuff. There are laws that tell you where you get the funds to pay off debts but the general rule is that you take it out of the residue of the estate. If the person who is a residuary devisee is the same as the executor then we let them decide whether to pay the mortgage from the estate
b) Would the “just debts” clause apply to the payment of taxes? It is unclear. Again, if you are the person getting the residue you would not want the taxes being paid from the estate.
(1) One place you could look to get the estate taxes paid is life insurance but if you have just debts clause that says all taxes get paid out of the estate it means that the taxes are on one beneficiary
c) Has a suitable provision been made for appointment of executor in case Howard’s wife dies? Look at articles 2 and 5
(1) No and this is a good thing to anticipate. If Howard’s wife dies first, then the probate ct appoints someone and Howard may not have wanted that.
(2) Howard does give his wife the powers to sell and convert his property into cash without a ct order – it is good to have an executor that you trust
d) Is Howard’s dispositive plan in article 4 a sound one? He gives everything to his wife and then if she dies first to his children
(1) What would happen if there was accident and she only survived him by a few hours? If she does have a will, is it a problem that his stuff will be going to her through her will? You want to avoid double probate. Plan that your spouse might survive you only by a couple of hours.
(2) Also if leave everything to spouse and spouse re-marries & has new kids, then his estate might ed up going to ppl he does not even know.
(3) Which assets are governed by the will and which will be unaffected by the will (non probate)?
(a) Life insurances passes outside of probate unless you name the estate as the beneficiary
(b) May need more info to determine whether the rest of it will go through probate or not
e) Is a guardianship administrator desirable if both Howard and his wife die – see article 6?
Not good to have executor to post bond
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.