I. Probate vs. Non-Probate Transfers
1) Future of the Practice of Trusts & Estates:
a) Future is fairly bright – baby boom generation is moving into retirement age and beginning to think about T&E services. The cross-current that existed until recently was whether the estate tax was going to be repealed – it will not likely be repealed and the exemption level will not likely be increased.
b) Currently, the exemption level is $2 million and in 2009 it may be increased to $3.5 million, at which point it should halt movement. Republicans want to repeal the tax or raise the exemption level; both of these ambitions have failed. At an exemption level of $3.5 million, many people will be affected.
c) A $3.5 million tax base does not include the majority of the middle class, but it may impact many in the upper-middle class.
2) Demographic & Other Social Trends:
a) Multiple Marriages: People are now moving through life married, divorced, and remarried. If the post-divorce occurs fairly early in life, good possibility of multiple children = impacts distribution (see 10-4). Factors to consider include the upbringing of the children (i.e., adopted or not) and widows.
b) Same-Sex Couples: As we move toward more and more recognition of the status of the unmarried same-sex couples we may see further legal developments. Civil unions and domestic partnerships (CA) are growing. An important consideration = status of non-marital children (fairly settled law) and adopted children – what is the status of the adopting parents and the adopting-out parents?
c) Children of Assisted Reproduction: This issue is related somewhat to increased longevity – as longevity increases, the life cycle tends to increase. Younger individuals tend to get married later, have children later. This elongated delay in child-rearing appears to correlate with difficulties in getting pregnant. The greatest difficulty regards posthumous conception (individual leaves sperm at a bank and dies). If the widow decides to get pregnant, is the child the child of the deceased? (Courts have been hostile).
d) Generational Families: Longevity not only prolongs the life cycle but also increases the number of 3 and 4 generation families. This increases the chances that a younger generation may pre-decease the older. It is usually assumed that children bury their parents and not vice-versa – the law is now adapting.
e) Nursing Home Attendance: The number of two-person elderly joining each other in nursing homes has resulted in much greater expenditure in nursing home fees. The prospect that the baby-boom generation will maintain its stockpile of savings may be mitigated by the costs of assisted living later in life.
f) Pension Systems:
(1) Defined Benefit System = the older pension model. General Motors has problems b/c their prior workers are living much longer. GM and related companies are going bankrupt. Under these systems, the pension does not effectively end until the pension-beneficiary dies.
(2) Defined Contribution System = the individual worker is responsible for investing and arrives at retirement with what they have accumulated in their 401k or 401b plans. Defined contribution systems often give the individual worker great freedom; we are now a nation of stockholders and our individual futures depend upon the health and state of the stock market.
(a) An annuity is bought from an insurance co. and pays a certain sum of money for the rest of the purchaser’s life, ending when he dies. As he draws down and lives to his expectancy, he is paid a small sum. If he outlives expectancy, the co. loses. Annuities do not pay much.
3) Probate vs. Non-Probate (p. 1-13):
a) Probate Property Defined: Probate property is property owned by the decedent at death; non-probate property is property that shifts upon your death due to arrangements that you have made during your life – e.g., joint-checking account, life insurance, 401K, joint-tenancy, etc. Devolution of probate property is controlled by state law and not by formal documents/contracts (as in non-probate property).
b) Non-Probate Property Defined: Non-probat
————- Death; During G’s lifetime G makes a will. What happens when you make a will? Nothing. A will only transfers ownership upon death and not during life. A will is inherently revocable – you are not legally bound to continue that will until you die. You may revoke the will and the designated beneficiaries have no right to demand that you make changes.
b) The person who receives title to the property upon decedent’s death must be alive (see Chapter 2-5). The law requires that the beneficiaries of the will must survive the deceased. The law thus requires that to take probate property, the taker must be alive.
c) G ————- (drafts will & will substitutes) —————- Death; Suppose G establishes a revocable intervivos trust when he drafts his will. The intervivos trust is not probate property because it is treated as making a present transfer of the remainder interest in the property, whereas the will does not make such a transfer. At the instant of death, G with his intervivos trust owns nothing and has lost his power to revoke the trust. Thus, at death, the intestate cannot be said to own the trust property.
d) If the remainder beneficiary receives ownership of the remainder interest, there is no reason why the remainder beneficiary must survive G. The remainder beneficiary may thus pre-decease G. In drafting this intervivos trust you put in the document a rule of survival – the lawyer can make the remainder contingent upon the survival of G. This is a valid action b/c if the remainder did pre-decease G, then the property will be left floating through various estates – it would have to be traced to the owners.