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Trusts and Estates
University of Iowa School of Law
Gallanis, Thomas P.

Gallanis

Trusts and Estates I

Fall 2013

Chapter 1—Introduction

A. Introductory Material

Latin word “probare” means to prove

· Probate and administration are very similar

· Court supervises the transfer of assets

· Also used to oversee a related process, which is the administration of a decedent’s estate

· Transfer is ultimately order by the court through a will or through state law (intestacy) through an administrator or executor

Probate serves three functions:

1. Making property owned at death marketable again

2. Paying of decedent’s debts

3. Implementing decedent’s donative intent respecting the property that remains once the claims of creditors have been discharged

Will substitute—also known as “nonprobate transfer” is “an arrangement respecting property or contract rights that is established during the donor’s life, under which:

1. The right to possession or enjoyment of the property or to a contractual payment shifts outside of probate to the donee at the donor’s death; and

2. Substantial lifetime rights of dominion, control, possession, or enjoyment are retained by the donor

· A will substitute happens at death without probate

B. The Probate/Nonprobate Distinction

Examples of (pure) will substitutes:

· Life insurance—revocable and ambulatory

· Pension accounts

· Joint accounts

· Revocable trusts

Joint Tenancy

· If you own property and don’t set up a mechanism to let it pass, it must go through probate at death (intestacy)

· Probate clears the titles of cars and property

· Without a mechanism or going through probate, there won’t be a clear title to pass to someone

Under either the trust or the will, the interest of the beneficiaries is both revocable and ambulatory

· There are also imperfect will substitutes, such as joint tenancy

· It’s imperfect because it ordinarily affects lifetime transfers

· When a joint tenant is created, that joint tenant has title to the property and its interest is not revocable and ambulatory

The relationship between probate and nonprobate transfers is important:

· Nonprobate transfers are relatively modern

· How are we going to treat nonprobate transfers?

Will substitutes have a different level of formality than a regular will

· To what extent should the law be unified between regular wills and will substitutes?

C. Donative Freedom

Donative freedom has a strong tradition in Anglo-American law

1. How much donative freedom do we have? How much should we have?

Irving v. Trust, p. 11

Fourteenth Amendment does not prohibit a state from granting the decedent’s surviving spouse an elective share in the decedent’s estate

· Deference to statutory creation based on state needs and prerogatives

· No Constitutional protection if state wanted to eliminate property transfer

· Expectations or hopes of succession, whether testate or intestate, do not vest until the death of testator

Hodel v. Irving, p. 12

· §207 Indian Land Consolidation Act—If you have a very small interest in property, we’re not going to let two percent or less of the total acreage pass and descend by intestacy if it earned less than $100 for its owner the previous year

· Supreme Court said that amounted to taking without just compensation

Babbitt v. Youpee, p. 12

· Congress amends §207 three ways:

· Land must be shown to be incapable of earning 4100 in any one of the five years following the death of the decedent

· Permitted the decedent to devise the land to any other owner of land subject to §207, to consolidate the fractions

· Escheat provisions could be overridden by a tribal solution for preventing further descent or fractionation of the escheatable interests if approved by the Secretary of Interior

· SC said that amended sections of §207 still didn’t cure unconstitutional nature of the section

o Still severely restricts the right of an individual to direct the descent of their property

Alternate Regimes:

· Confiscation—Redistribution

· Primogeniture (or other fixed taker)

· Destruction of property (will all be gotten rid of at death)

· Whoever values the property most, will go to highest bidder to be put to good use

o Power of state to restrict is is powerful, however, policy reasons and practical considerations (people will move away, spend money elsewhere, etc.)

Arguments Against Donative Freedom:

· Inequality

· Misallocation

· Stifles motivation/innovation

· No natural right—It’s all created by states

Arguments for Donative Freedom:

· Promotes charity, philanthropy

· Rewards hard work and effort

· Transferors can choose how best to transfer wealth

What restrictions should stay?

· Protection of surviving family (spouse’s ability to statutorily get half of an estate)

· Debts before devises

· Time limits on transferability—can’t drag it out for years at a time

· Some kind of limit on how much can be transferred

Shapira v. Union National Bank, p. 14

· Son objects to language in will saying he has to marry a Jewish girl

· Says it’s unenforceable because it’s unreasonable

· Court upholds because public policy should not, and does not, preclude fulfillment of Dr. Shapira’s purpose (conditions are held reasonable restrictions and are valid)

Chapter 2—Intestate Succession

A. Introduction

UPC 2-104 Requirement of Survival by 120 Hours

Why People Don’t Have Wills

· Limited estate

· Other priorities

· Young

· No spouse or children to provide for

· Cost

· Intestacy good enough

· Will substitutes (life insurance, pension, transfer on death beneficiary)

· Mortality

· Choices

Goals for Intestacy Laws

· Mirror testamentary intent

· Plain English

· Protect surviving family

· Efficient distribution

Nemo est haeres viventis—wait until death to decide the heirs

B. General Patterns of Intestate Succession

Rules of Intestacy are default rules, not mandatory rules

to give entire estate to surviving spouse, even when decedent has surviving children or parents

Current UPC §2-102

Continues to favor surviving spouse, but also adjusts the share to take into account children and step children

2. Descendants

§2-103 Share of Heirs other than Surviving Spouse

§ 2-106 Representation

§ 2-708 Class Gifts to Descendants, Issue, or Heirs of the Body; Form of Distribution if None Specified

Three groups

· Descendants (or issue)

· Ancestors

· Collaterals

Canons of Descent—Only persons related by blood could be heirs

· Canons provided that 1) a male descendant should be preferred to a female, and 2) Among male descendants, the oldest should take the entire estate (primogeniture)

State of Distribution didn’t follow any of these rules, but codified well-established customary laws

· Divided personal property equally among decedent’s children with a portion for the surviving wife

· If an intestate died without leaving living descendants land, passed to collateral heirs; ancestors were completely excluded from inheriting land

· Exclusion of ancestors was not followed by either Statute of Distribution or in any US jurisdiction

a. Descendants Share

· Absence of a surviving spouse, all states—UPC and non-UPC states alike—give entire estate to the decedent’s descendants (to the decedent’s children and descendants of deceased children)

· Descendants inherit to the exclusion of collateral relatives, such as brothers and sisters

b. Representation Among Descendants

· Any share that goes to the decedents descendants is divided among them by representation

· Descendants indicates a multiple-generation class

o Includes not only children, but also grandchildren, great-grandchildren, and so on

Four Systems of Representation

· Classic per stirpes (strict)

· Modified per stirpes

· Pre-1990 UPC

· UPC

Strict Per Stirpes System

Three Steps:

1. Divide estate into primary shares at the generation nearest to the decedent (at the children generation); Number of primary shares is equal to the number of children alive at decedent’s death plus number of children who predeceased the decedent leaving descendants who survived the decedent; Any deceased children who have no living descendants are disregarded in determining the number of primary shares; Primary shares are determined at the children generation even if no children survive decedent