Trusts & Estates
CHAPTER 1: INTRODUCTION TO WILLS, TRUSTS, AND ESTATES:
(1) THE POWER TO TRANSFER PROPERTY AT DEATH.
i. Pre-1540: Succession based on primogeniture.
ii. 1540 Statute of Wills: Established the ability to pass property via will.
iii. Key Thought: There is no inherent right to pass property onto your heirs.
1. This is a matter of civil law rather than a natural right.
b. American Common Law:
i. An individual has the right to dispose of their property at death. There is a general assumption (in the population as a whole) that it is one stick in the bundle of rights.
ii. States’ have broad authority to regulate this right – but they cannot abrogate the right.
1. Constitutional protections arguably apply only to the decedent’s power to dispose of his property at death, not necessarily to a particular heir’s or beneficiary’s right to receive property from a decedent.
a. Right to transfer, not the right to receive (this is privilege, not a right)
iii. Example: Hodel v. Irving (created federal protection for testamentary rights).
1. S: Federal law required land to escheat to the tribe.
2. H: Congress has the power to limit freedom of disposition (as it is a civil property right) but they can’t completely abrogate it. (Quasi-constitutional right to give away your property.)
iv. Hypo: Could the state say property over one million dollars may not pass by devise and descent but must be given to charity or government?
1. Possibly, early cases would say yes…but we don’t know the scope of Hodel v. Irving. Politicians won’t raise this idea because it would be very unpopular.
c. Modern Trends:
i. The modern trend is to increase opportunities to transfer wealth and/or provide forced shares for children and spouses.
ii. Compromise between inheritance arguments: permit, but tax
iii. Estate (Death Tax):
1. Congress has recently been reducing the tax.
2. Current plan -Ten year phasing out 2000-2010. At that point it goes back to old levels. Current tax operates at 34-47% used to be 85%.
(2) THEORY ON INHERITANCE:
a. Arguments in Favor of Inheritance:
i. The power to transfer wealth at death is natural and good in that it encourages and rewards a life of hard work, encourages one to save, promotes family values, and encourages family members to protect their elders
ii. Consistent with a system of private property
iii. Owner sovereignty and testamentary freedom (people ought not be restricted by gov’t)
b. Arguments Against Inheritance:
i. The power to transfer wealth at death perpetuates economic disparity and discrimination, and unfairly rewards those lucky enough to have been born to rich parents.
1. Rebuttal: inter vivos investments in “human capital” account for more disparity than inherited wealth
ii. Encourages people to exercise too much control over people after they are gone.
c. Hypo (massive changes in inheritance):
i. Congress has a $500,000 exemption policy and above that a 100% estate tax. It is fairly well settled that this sort of policy ‘would’ work constitutionally.
1. Arguments in favor:
a. Raise revenue (decrease the national debt)
b. Inequality (the gap between wealthy – less wealthy – and the very poor)
2. Arguments against:
a. Decreases incentive to be entrepreneurs
b. Still may not solve the underlying problem
c. Discourages financial responsibility
d. Discourages savings and investment
(3) DEAD HAND CONTROL:
a. “Dead Hand” Control Defined:
go if the condition or restriction is not satisfied
1. Gift-over clause: property distributed to the alternative beneficiary under the express gift-over clause
2. No gift-over clause: beneficiary subject to condition takes property free and clear of any conditions
(4) THE PROBATE PROCESS
a. Probate vs. nonprobate property
i. Probate: property that passes under a will or intestacy
ii. Nonprobate: property that passes under an instrument other than a will
1. Joint tenancy, life insurance, legal life estates and remainders, inter vivos trusts, P.O.D. contracts
i. Probate is the default. The decedent must take affirmative steps (execute a valid non probate instrument) to avoid having the property pass through probate.
c. Terms and Notes:
i. Real Property: You Devise to Devisees
ii. Personal Property: You Bequeath to Legatees.
iii. Under a will: Executor / Executrix
iv. Not named / intestate: Administrator / Administratix
d. Probate administration:
i. Opening of the estate
ii. Give notice to all people who might have an interest in the estate
iii. Probate court appoints a personal representative to oversee the wind-up of the decedent’s affairs