Trusts & Estates
Sunday, October 25, 2009
3:37 PM
1.INTRODUCTION
A.   The Power to Transmit Property at Death: Justifications/Limitations
1.      Right to Inherit and Right to Convey
2.      The Policy of Passing Wealth at Death: we place some importance on this and try to protect the intent of the decedent as best we can
3.      The Dead Hand Problem: we don’t want to give the deceased too much control over what’s happening in the present through perpetuating property rights
B.   Transfer of the Decedent’s Estate
1.      Probate & Nonprobate Property
a.     Probate: property passing by will or intestacy
b.     Nonprobate: property passing under instrument other than a will, such as joint tenancy property (real and personal), life insurance, contracts w/ payable on death provisions, interest in trust, pension account
2.      Administration of Probate Estates
a.     Intestacy: anything that doesn’t transfer by will
C.    Federal Estate Tax
1.      Exempt from estate tax if you make less than certain amount
a.     Started at 600k, now its $3.5 mil, next year no estate tax, then goes back to $1 mil
2.      Unlimited charitable deductions
3.      Unlimited marital deductions
a.     Could leave outright
b.     Could leave life estate or income interest trust w/ general power of appointment–not taxable until wife dies
c.      Classic trust case is 2nd marriage where you want spouse to have income for life then have the principal go to kids. Came up with Qualified terminable interest (QTIP) trust
                                                                                  i.           Spouse receives 100% of income
                                                                                ii.           Spouse has power to make property productive
                                                                              iii.           This gets unlimited marital deduction
4.      Step up in Separate Property: H Dies with $100 GE, 20 basis, step up basis to 100, W with 100, 20 basis, those stay the same.
§ Only what DC leaves gets stepped up.
        Step up in Community Property: H Dies with $100 GE, 20 basis, W has $100 GE, 20 basis, all step up to $200. Better for tax purposes. Alaska has even let ppl from out of state set up accounts to elect community property.
§ Everything that DC and DS owned together gets stepped up.
        IRS will tax probate and non-probate assets. They focus on how much control the decedent had, so if it’s an account he could withdraw from, it’ll be part of the taxable estate. So bank accounts, pension accounts, revocable life estates will be taxed. Only time it gets complicated is when more than one person contributed to the account in joint accounts.
§ No difference btw cash or real estate.
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                    INTESTACY
  The Basic Scheme
        Introduction
a.     UPC § 2-101 – Any part of estate not passed through will passes by intestate.
b.     Partial intestacy – will is drafted so poorly not all property is caught by probate.
c.      Location Determines the Law: Law of the state where decedent was domiciled at death governs the disposition of personal property; law of state where real property was located governs real property.
d.     General Intestacy Map (2-103)
                                                                                  i.           Spouse
                                                                                ii.           Remainder to descendants by representation
                                                                              iii.           If no kids, then to parents equally
                                                                               iv.           If no parents, then to parent’s DSs (bro/sis, half-bro/sis) by representation;
                                                                                 v.           If none of the above, to the grandparents or their DSs.
                                                                               vi.           If none of the above, to dead spouse’s descendants
                                                                             vii.           If none to the state. (2-105)
e.      Uniform Simultaneous Death Act (2-104) – if there is no sufficient evidence of the order of deaths, the beneficiary is presumed to have died before the donor.
                                                                                  i.           Exception: In the case of joint tenancy, property is divided between tenants.
                                                                                ii.           Proof: UPC 2-104 and USDA require “clear and convincing evidence that the BF survived the donor by 120 hours (5 days).
1.      If born before DC’s death, must survive them by 120 hours
2.      If born after DC’s death (ie. in gestation), must survive for 120 hours after birth
3.      EXCEPTION: if property would escheat to state, there is no 120 hours req.
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B.     Share of Surviving Spouse
1.      UPC § 2-102 — Spouse Gets:
a.  Entire Estate if:
                                                                                                    i.           No DSs or parent of DC survive DC; or
                                                                                                  ii.           All of DC’s surviving DSs are also DSs of the surviving spouse and there is no other DS of the surviving spouse who survives the DC.
b.  First 300k + ¾ of any balance of the intestate estate if:
                                                                                                    i.           no DS of the DC survives the DC, but a parent of the DC survives the DC
·        I.e., no kids, but a parent survives.
                    First 225K + ½ of any balance of the estate if:
  All of DC’s surviving DS are also DS of the surviving spouse BUT the surviving spouse has one or more surviving DS who are not DS of the DC.
·        When spouse has kids from someone else (other marriage, etc), keeps it in family.
                    First 150K + ½ of balance of estate if:
  The DC has kids by someone else.
                    In community property, spouse takes half of community property estate.
              Unmarried Couples: not counted as spouses. Must be married for UPC protections
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        Shares of Descendants
              Generally: Children get what is left. If a child of the DC has died, leaving children of his own, they represent the dead child’s share.
                    Sons in law and daughters in law are excluded in all states.
              Taking by representation:
                    English Per Stirpes – Divide estate by number of children (alive or dead but leaving issue) and then give one share to each living child. If a child died leaving issue, split his share among his children (DC’s grandchildren).
  Dead children leaving no issue aren’t counted
  Spouses don’t count as children
                    Modern Per Stirpes (aka per capita with representation) – If there are living children of DC then it is ex
pt a child
2.      The natural parents must fully perform (turn over child) to adoptive parents
3.      The child fully performs by moving in with the adoptive parents
4.      Adoptive parents hold child out as their own
5.      Adoptive parents care for child
                                                                                ii.           If the adoptive parents die intestate, child can claim normal share as his own.
                                                                              iii.           O’Neal v. Wilkes — Aunt seems to transfer custody of Child to couple, who raise it, but never formally adopt; Court held that since the aunt did not have legal custody, no parent could transfer custody so she was not adopted (narrow)
                                                                               iv.           Tafel
e.      Posthumous Children: Child who is conceived before but born after death of father treated like any other child.
f.       Nonmarital Children: UPC 2-117: no distinction based on marital status. In all States, child can inherit from the mother. Majority of states permit inheritance of father where there is:  Â
                                                                                  i.           Evidence of a subsequent marriage
                                                                                ii.           Acceptance by the father
                                                                              iii.           By adjudication during the life of the father or
                                                                               iv.           By clear and convincing evidence after death.
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B.     Advancements
1.      Generally: Transfer to a child reduces child’s share of the DC’s estate, but UPC requires a writing expressing this intent.
2.      UPC § 2-109 – Transfers to children during the DC life are advancements only if:
a.  the DC declares in a contemporaneous writing or the heir acknowledges in writing; or
b.  a writing indicates that the gift should be taken into account in computing the division and distribution of the DC interest.
c.   Applies to any heir, not just children
d.  Property is valued as of the time the heir came into possession of it, or at decedent’s death, whichever comes first
3.      Common Law – any gift is an advancement
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C.     Guardianship and Conservatorship of Minors
1.      If minor’s parents die and do not appoint a guardian in the will, the court will appoint one for them.
2.      Guardianship terminates when the child becomes of age; dies; or is adopted.
3.      If designated by will, courts look with deep suspicion. Must have sufficient recording requirements.
4.      Property Management Options
a.  Guardianship of Property – wards until child is of age; no investment powers
