Wills and Trusts Outline

Wills and Trusts Outline

Introduction

I. General/Misc.
a. Will Substitutes
i. Laws of Intestacy (legislative estate plan)
ii. Joint Tenancy with Right of Survivorship
iii. POD Accounts
iv. Life Insurance
v. Trusts
1. Irrevocable, revocable, testamentary, inter vivos, etc.
b. Role of the Court
i. When something passes through a will (testacy) or intestacy laws, the court supervises.
ii. Unsupervised Transfers (Court Not Involved):
1. Joint Tenancy
2. POD accounts
3. Life Insurance
4. Irrevocable Inter Vivos Trusts
c. Basic Premise
i. Individual has the right to determine the succession of his or her property. However, there are some limits:
1. taxes
2. restraints on disinheriting certain people (spouses)
3. rule against perpetuities
d. Problem with Suing Lawyers for Bad Drafting or Mistakes
i. Lawyer may be judgment proof or dead
ii. Property bequeathed may be unique and therefore not compensable adequately with money
iii. By changing lawyer’s mistakes into torts, we add cost of any remedy and neglect the unjust enrichment inherit in mistake cases
1. The gift goes to someone without any claim of entitlement, and tat person is unjustly enriched
iv. If the lawyer is liable, it is his insurer who pays, and the insurer passes the cost on to the public.
II. Probate v. Nonprobate Property
a. Probate Property
i. Probate property is property that passes under the decedent’s will or by intestacy.
1. However, note that just because something is in a will, does not mean that it must be probated (but note that often wise to advise person to make a will because assets might change).
a. (See Green question, pg 39: wife of decedent could get personal property and car (file death cert with DMV) without probating will; savings account trickier)
2. Also note that in every state there is a statute that authorizes informal settlement of small estates, so could avoid probate (can qualify in MN if estate’s entire value is less than $20k).
a. If close, perhaps can fudge numbers, re-value.
ii. Terminology for Real v. Personal Property
1. A person dying testate devises real property to devisees and bequeaths personal property to legatees.
2. When intestacy occurs, we say real property descends to heirs and personal property is distributed to next of kin.
iii. Administration of Probate Estates
1. When a person dies and probate is necessary, the first step is the appointment of a personal representative to oversee the winding up of the decedent’s affairs (executor if named in will; administrator if not named in will). Personal representatives are accountable to the court. The principal duties of the personal representative are:
a. (1) to inventory and collect the assets of the decedent;
b. (2) to manage the assets during administration;
c. (3) to receive and pay the claims of creditors and tax collectors.
d. (4) to clear any titles to cars, real estate, or other assets; and
e. (5) to distribute the remaining assets to those entitled.
2. The person appointed as administrator must give bond. In most states, if the will names an individual rather than a corporate fiduciary as executor, the executor also must give bond unless the will waive the bond requirement, which is routinely waived in most wills.
iv. Probate Procedure
1. Probate performs three functions:
a. (1) it provides evidence of transfer of title to the new owners by a probated will or decree of intestate succession;
b. (2) it protects creditors by requiring payment of debts; and
c. (3) it distributes the decedent’s property to those intended after the creditors are paid.
2. Primary or Domiciliary Jurisdiction
a. The will should be first probated, or letters of administration first be sought, in the jdn where the decedent was domiciled at the time of death.
3. Ancillary Administration
a. If real property is located in another jurisdiction, ancillary administration in the jurisdiction is required.
4. Formal v. Informal Probate
a. In some states, there is a common form/solemn form system.
i. Common form is an ex parte proceeding in which notice or process was issued to any person; due execution by oath; will admitted to probate at once; if no objections, that is enough. However, within a period of years thereafter an interested party could file a caveat, compelling probate of the will in solemn form. Under solemn form, notice given to interested parties; administration involves greater court administration.
b. A majority of states do not permit ex parte proceedings but require prior notice to interested parties before the appointment of a personal representation or probate of the will.
i. In these states, petition for letters accompanied by affidavit stating that the statutory notice requirements have been met. At hearing, will must be proved by testimony of witnesses.
c. The UPC is representative of statutes regulating probate procedures. It provides for both ex parte (informal probate) and notice probate (formal probate). The person asking for letters can choose informal or formal. The theory is that one may be more useful in a particular estate than another.
i. The requirements of informal probate: without giving notice to anyone, the representative petitions for appointment; if petition is for probate of a will, the original will must accompany the petition; the executor swears that the will was validly executed; proof by witnesses is not required (will with attestation clause admitted without further proof). Within 30 days of appointment, the personal rep has the duty of mailing notice to every interested person, including disinherited heirs apparent.
ii. Formal probate is a judicial determination after notice to interested parties. Any interest party can demand formal probate. A formal proceeding may be used to probate a will, to block an informal proceeding, or to secure a declaratory judgment of intestacy.
5. Nonclaims Statutes
a. Every state has a statute requiring creditors to file claims within a specified time period; claims filed thereafter are barred. These are known as nonclaims statutes. They come in two basic forms: either (1) they bar claims not filed within a relatively short period after probate proceedings are begun (generally 2 to 6 months); or (2) whether or not probate proceedings are commenced, they bar claims not filed within a longer period after the decedent’s death (Generally 1 to 5 years)
6. Closing the Estate
a. The personal representative of an estate is expected to complete the administration and distribute the assets as promptly as possible. Creditors paid, titles cleared, taxes paid, tax returns audited, real estate sold, etc.
b. Judicial approval of the personal representative’s action is required to relive the representative from liability, unless some statute of limitations runs upon a cause of action against the representative. The representative is not discharged form fiduciary duties until the court grants discharge.
v. Is Probate Necessary?
1. No, provided the property owner during life transfers all his or her property into a joint tenancy or revocable or irrevocable trust, or executes a contract providing for distribution of contract assets to named beneficiaries on the owner’s death.
a. However, some property not suitable for such devises. And, wills serve as a back-up function to catch overlooked property.
1. As a practical matter, establishment of the transferee’s title is not necessary for many items of personal property, such as furniture or personal effect because a purchaser will assume that the possessor has title. However, if the items of personal property for which ownership is evidenced by a document such as an automobile certificate of title, the transferee needs some official recognition of his right in order to transfer those rights.
b. Nonprobate Property
i. Property that passes under an instrument other than a will (most property passes outside of probate) – things that would not pass under a will (if there was will) and would not pass under intestacy (if there was no will). Distribution of nonprobate assets does not involve a court proceeding, but is made in accordance with the terms of a contract or trust or deed.
ii. Types of Non-Probate Property
1. (1) Joint Tenancy Property (Real and Personal)
a. Under the theory of joint tenancy, the decedent’s interest vanishes at death. The survivor has the whole property relieved of the decedent’s participation. No interest passes to the survivor at the decedent’s death. In order for the survivor to perfect title to real estate, all he need do is file a death certificate of the decedent.
b. Ex: Bank accounts, brokerage and mutual fund accounts, and real estate, particularly between married couples.
2. (2) Life Insurance
a. Life insurance proceeds of a policy on the decedent’s life are paid by the insurance company to the beneficiary name din the insurance contract. The company will pay upon the receipt of a death certificate.
3. (3) Contracts with POD Provisions
b. A decedent may have a contract with a bank, employer or some other person or corporation to distribute the property held under the contract at the decedent’s death to a named beneficiary. To collect property held under a POD contract, all the beneficiary need to is file a death certificate with the custodian holding the property.
c. Ex: pension plans, IRAs, brokerage accounts, etc
4. (4) Interests in Trust
a. When property is transferred in trust, the trustee holds the property for the benefit of the named beneficiaries, who may have life estates or remainders or other types of interests. The property is distributed to the beneficiaries by the trustee in accordance with the terms of the trust instrument.
c. Estate Planning Problem
i. Problem
1. Howard writes letter to attorney asking questions about will and whether necessary. Howard and Wendy Brown want to