Wills and Trusts Outline
I. Introduction (Ch. 1)
1. Basic Overview
a. Is there a will or will substitute?
i. Yes, will only à estate goes to probate
1. Court supervises system that appoints administrator/executor, pays off debts/creditors, and then distributes remaining estate to beneficiaries
ii. Yes, will substitute only à look at specifics of will substitute
1. Revocable trusts, living trusts, life insurance…etc
iii. No, neither à estate passes by intestacy
b. What is purpose of estate planning/lawyers?
i. Make sure property ends up in the hands of the people that the original owner intended with minimum hurdles and taxes (estate, inheritance, gift, income)
c. What is the golden rule of inheritance/public policy?
i. Property owners have testamentary freedom
ii. Inheritance economically incentivizes America
d. Estate Planning Considerations
i. Estate taxes are less these days (increased estate tax exemption and reduced rates)
ii. $12K per year gift exemptions as well per donee (no gift tax on gifts less than $12K per year to each person)
iii. Trust was given to daughter which raised her taxes and could have avoided this by giving trust income to daughter and rest to granddaughters
2. Section B. The Probate System & Wealth Transmission Process
a. What is “probate”?
i. Proof of will to a court system
ii. Estate administration (how property passes from decedent to the survivors)
iii. Probate estate is property owned at death, that passes by will or intestacy and is subject to administration
b. What is a “will”?
i. Set of written instructions that are to be carried out at death and should be executed according to the statute
1. Testamentary intent, formalities are key
ii. Effective only if admitted to probate; if no valid will, estate passes by intestacy
iii. Petition for probate, notice given to interested persons, opportunity to contest
c. Why have a will?
i. Property disposition
ii. Administration (fiduciaries, process, apportionment) of estate to a reliable person
iii. Powers of appointment
iv. Funeral arrangements
d. What entails “estate administration”?
i. Functions of Administration
1. Collect assets
a. Inventory/valuations, appraisals, bond (so you won’t run off with assets), accounting
2. Pay administration fees/costs and taxes
3. Pay creditors
a. Notice given, short period of presenting claims, 1 year limitation period (automatic self-executing statute of limitations)
4. Pay statutory allowances
a. Homestead (CPC 6520), Exempt Property (CPC 6510), Family Support (CPC 6540)
5. Distribute remaining assets
a. According to testator’s donative intent
ii. Drawbacks of Administration
1. Cost, delay
2. Public record
iii. When is Administration Necessary/Desirable?
1. Discord among beneficiaries
2. Clear title (land)
3. Unknown or disputed creditors’ claims
4. Statutory allowances
iv. Alternatives to Administration
1. Survivors do nothing
2. Collection by affidavit
3. Small estate set aside
4. Family settlement
5. Will substitutes (avoids probate)
a. Joint tenancy
b. Life insurance
c. Pay on death (POD) beneficiary designation
d. Revocable trust (very common)
i. Settlor transfers property to a trustee who agrees to hold it in trust for the benefit of one or more beneficiaries
ii. Example
1. Income to the settlor for life, with remainder at the settlor’s death to other designated takers, subject to the settlor’s reserved right to revoke or amend the trust during life
e. Key Terms
i. Probate Court = administers the proceeding of the decedents’ estates
1. Must offer the will for probate, will must be properly executed or estate passes by intestacy
ii. Executor = person named in the will
1. Court supervises this personal representative
iii. Administrator = person not named in the case of intestate (person who dies without a will) estates
iv. Escheat = if no intestate successor per applicable intestacy laws then the property goes to the state
v. Testator = person who makes a will
vi. Devise = gift of real property
1. But now in encompasses personal property as well
vii. Bequest = gift of personal property
viii. Ambulatory = a will remains ambulatory during the testator’s life, meaning that it does not take effect until the testator’s death
f. Probate’s 3 Essential Functions
i. Making property owned at death marketable again (title clearing)
1. Personalty can be divided by the survivors without court decree
a. This is why most deaths don’t lead to probate b/c most people don’t own real property (homes/cars…etc in single tenancy)
b. Survivors can divided up the personalty to their liking
2. Securities are recorded so treated as real property?
3. Handles messy situations even in nonprobate situations
ii. Paying off the decedent’s debts (creditor protection)
1. Creditors don’t use probate as much (largely as deterrence) and can just go after the survivors on their own…etc and this has allowed a rise in will substitutes
iii. Implanting the decedent’s donative intent respecting the property that remains once the claims of creditors have been discharged (distribution)
3. Section C. Testamentary Freedom and Its Limitations
a. Testamentary Freedom Defined
i. The ability of some person (property owner) for choosing who will get property when he/she dies and on what terms, what means, through what vehicles and subject to what conditions
ii. Property = bundle of rights
1. Possess and enjoy
2. Exclude others
3. Transfer ownership
a. Freedom to designate successor during life or at death
b. Constraints?
i. Intestacy
1. No valid will
a. Will didn’t follow will formalities
b. Will that violates law
ii. Escheat
1. No valid will and no heirs capable of taking under intestacy statutes so property goes to state with some rules
iii. Family Protection/Spousal Rights
1. Can’t leave wife penniless
a. Elective shares in SP states, CP shares…etc
iv. Estate Tax
1. Estates over $3.5M+ only though so relevance is low
v. Constitutional Limitations
1. Due process; no taking without compensation
2. Ability to transmit property at death is a creative of positive law and not an inalienable natural right
a. USSC stated that nothing in the Constitution forbids the legislature of a state to limit, condition or even abolish the power of testamentary disposition over property within its jurisdiction
b. Wisconsin SC states that right of inheritance cannot be wholly taken away or substantially impaired by the legislature but inheritance taxes are OK (they stated the USSC dictum that testamentary disposition can be done away with is flawed)
3. Hodel v. Irving (USSC)
a. Congress forced escheat back to tribe on small interests in land and some heirs wanted to transfer those freely
b. USSC said that this was curtailing testamentary rights and NOT allowed once Congress gave the rights to the property (can’t take them away)
c. Can make law constitutional by compensating property owner for fractional interest
c. Dead Hand Control
i. Durational Limitation
1. Rule Against Perpetuities
a. Permits a testator to tie up property for up to 21 years after the death of persons living at the time of his or her death (can be a 100 year period)
b. Policy is that wealth should be controlled by the living and not the dead
c. Many states recently have curtailed the rule
ii. Testamentary Conditions
1. Will à allows you to impose conditions on deathtime transfer
2. Trust à allows you to project control AFTER death (well into the future)
a. Control property without giving up outright ownership during your life as well
b. Can set up trust with continuing conditions for your children to meet to garner benefits out of the trust
3. Typical Conditions
a. Marriage, religion, education, career
b. Marriage Condition Can’t be UNREASONABLE
i. Generally upheld unless unreasonably restricts beneficiary’s opportunity to marry
ii. How to determine unreasonableness?
1. Objective effect (beneficiary’s behavior) à how many eligible choices for marriage?
2. Subjective purpose (testator’s motive)
c. Rewards are OK (child has to go to medical school…etc)
d. Courts are NOT required to enforce a condition that violates some rule of law or public policy
e. Example
i. Testator can leave a bequest to a child with the condition that the child attend college and get a degree or get married or refrain from drinking/smoking
4. Remedy for Invalid Condition
a. Strike down primary gift (enforce gift over to alternative beneficiary) à testator’s intent upheld
b. Delete condition (enforce gift to primary beneficiary as if condition never existed) à beneficiary wants this one
c. Modify condition to carry out transferor’s intent as nearly as possible without violating public policy à balance
5. Home for Incurables (USSC)
a. Trust to construct rehab center for “white patients” with gift over to state university if terms not acceptable
b. This trust was created in 1963 and Civil Rights Act was in 1964 so he knew what was coming when writing the trust
c. Hospital used the $30M for a new building but trustee says the money goes to Maryland but USSC struck down the condition
6. US National Bank of Portland v. Snodgrass
a. P leaves property in trust, payable to C at 32 provided C does not become a Catholic or marry one
b. 1st Amendment claim?
i. No, no state action so individuals can do w/e they want regarding religion
c. Extreme limitation on marriage? NO
i. Public policy against negating opportunity to marry (extreme bigotry situations)
1. Opportunity to marry was present here (wait until 32 and marry
tion B. Intestacy Statutes
a. Overview
i. Typically, a share is set aside for the decedent’s surviving spouse, if any, and the balance of the estate is then allocated to the decedent’s issue or other blood relatives in a specified order of priority
ii. Both real and personal property are treated identically for intestate succession usually
iii. UPC 2-101
1. If no valid will, property passes by intestate succession to decedent’s heirs per this code
iv. UPC 2-102 – Share of Spouse
1. Entire estate if
a. No descendant or parent survives OR
b. All of decedent’s surviving descendants are also descendants of the surviving spouse
2. 1st $200K plus 3/4ths of balance if
a. No descendant but there is a parent
3. 1st $150K plus ½ of balance if
a. All descendants are also descendants of the surviving spouse who as surviving descendants who aren’t descendants of decedent
4. 1st $100K plus ½ of balance if
a. One or more of decedent’s surviving descendants are not descendants of the surviving spouse
v. UPC 2-103 – Share of Heirs other than Surviving Spouse
1. Order
a. Decedent’s descendants by representation
b. If no descendants, decedent’s parents
c. Descendants of decedent’s parents
d. Grandparents (complex rules)
vi. UPC 2-104 – Requirement that Heir Survive Decedent for 120 Hours
1. If not, heir has predeceased the decedent
vii. UPC 2-105 – No Taker
1. Escheat to the state
viii. UPC 2-106 – Representation
1. Complex guidelines for how representation works
b. Part 1 – Surviving Spouse
i. Who is a spouse?
1. Married at death
2. Common law marriage (no longer exists)
3. Putative spouses
4. Same-sex couples in MA…etc
5. Registered domestic partnership?
a. In CA, no same-sex marriages but domestic partnerships in CA are on par with spouses
b. As a matter of federal law, they are not recognized
ii. Community Property CPC 6401(a)
1. Split evenly between two spouses
2. Includes property that is acquired during the marriage
3. When death of one spouse occurs?
a. “the one-half of the community property that belongs to the decedent under Section 100” goes to SS
b. This happens by operation of law
c. Surviving spouse gets ½ of the CP and the decedent gets ½ so net result is that the surviving spouse gets 100% b/c decedent’s ½ also goes to surviving spouse per 6401(a)
4. Same for QP per 6401(b)
a. Quasi-community property
i. Property that would have been CP if the decedent had been domiciled within the state when the property was acquired
iii. Separate Property CPC 6401(c)
1. SS’s share of intestate estate depends on other surviving heirs
a. SS gets entire estate IF
i. Decedent didn’t leave surviving issue, parent, sibling, niece/nephew…etc (no close relatives)
ii. Doesn’t have to compete with grandparents
iii. Spouse shares equally with parent
b. SS gets ½ estate IF
i. Decedent leaves 1 child OR issue of 1 deceased child OR
ii. Decedent leaves no issue but leaves at least 1 parent or a deceased parent’s issue (brothers/sisters…etc)
c. SS gets 1/3 estate IF
i. Decedent leaves more than 1 child
ii. Decedent leaves 1 child AND issue of 1 or more deceased children OR
iii. Decedent leaves issue of 2 or more deceased children
iv. NOTE
1. This is two live lines of descendants essentially
