Trusts & Estates – Prof. Lilly – Spring ’15
INTRO:
· When the owner/controller of the property passes on – what CAN happen next??
o State can confiscate it (we only have indirect confiscation through taxes)
· BUT we recognize freedom of testation – ability to pass property to ppl you choose (based on institution of private property) – the point of the process is to id the intent underlying the person’s actions/inactions and to implement that intent
o Expressed intent: will – written down formally, if valid then the exercise becomes interpreting the will to ascertain the testator’s intent
o Presumed intent: we provide a disposition scheme based on what we think pl would want – INTESTACY (underlying premise that person can dispose of their property to private persons, state decides to try to get at intent and how ppl would want it done
· Courts will even recognize non-extreme conditions (like marriage to Roman-Catholic) – but they CAN say that something is too restrictive and disallow it
· And you aren’t OBLIGED to leave anyone anything
· Purpose of PROBATE:
o Provide an orderly process for wrapping up of decedent’s affairs and distributing his assets and arranging for clear title
· Another way to get out of intestacy – DISPOSE OF EVERYTHING DURING LIFE
o Irrevocable gifts or
o Non-probate Transfers (most wealth distributed this way now)
§ Life insurance, pension plans, joint property ownership, other bank/financial arrangements (like POD accounts), revocable trust
§ This way you can control it while you live – change benes, etc. and then your property passes to whoever is designated under those K arrangements
· Could also create testamentary trust in your will – achieving the same result as making a trust in a lifetime situation
· Trusts (lifetime revoc and irrevoc and testamentary/irrevoc) are useful/flexible:
o Single fund with multiple benes, trustee has discretion to pay out as needed
o Can achieve multiple ends (charitable, pet, etc.)
o Separating beneficial ownership from legal ownership and management
· Used to try to limit by RAP – 21 years plus life in gestation/90 years total – losing its bite, now FEDERAL TRANSFER TAX – starts at 45% and can be significant
Inheritance and Public Policy
· Arguments that this isn’t good for society – keeps wealth in one family, creativity goes down, laziness goes up/economic inequality argument
· BUT good for families, encourages saving to be able to pass money on, etc.
The Probate System and the Wealth Transmission Process
· Main purposes are title-clearing, creditor protection and implementing donative intent
Testamentary Freedom and its Limitations
Constitutional Limitations
· Hodel v. Irving
Public Policy and the Dead Hand
· Duration
· Conditions
o US Natl Bank of Portland v. Snodgrass
Protection of the Family
Taxation
INTESTATE SUCCESSION:
Intro: Cultural determination here that family is more important
Intestacy Statutes
· Who takes? Nobody below the closest rank gets anything except by the way of representation
· Eligible are spouse and kin of all degrees – first to spouse
· Will apply to any property not in the will – UPC 2-201
· You can change the intestacy statute in your will – like using a will for the sole purpose of disinheriting someone – UPC 1-201
o CA DOES NOT ALLOW THIS Section 88 doesn’t have this language
o UPC says this bc you can write a will that accomplishes the same thing anyways
· Has to go to survivors – ***predeceased child cannot take
· ***CAPC 6402.5 ancestral property statute – ltd circs this will have interesting effect – if decedent leaves no spouse/issue and they received property from a preD spouse, if they received it w/in 15 years for real estate/5 years for personalty – the property bounces back to preD spouse’s side
Surviving Spouse
· 2-102 – spouse is number one, if no parents/descendants who survived – spouse gets 100% (also if it is just surviving spouse and minor children) (BUT only if all descendants are joint descendants)
o If spouse plus parent survives: $200K plus ¾ of any balance to spouse (if under $200K they get the whole estate) – want to provide for spouse with fixed amnt but if other kin want to share if a big estate
o If spouse plus some joint descendants, and surviving spouse has one or more non-joint descendant: $150K plus ½ of any balance – w/separate descendants of spouse we will recognize potential conflicts of interest
o If spouse plus one or more of decedent’s surviving descendants are not descendants of surviving spouse: $100K plus ½
· We want to be giving spouse some portion for their support – but then they want to achieve an equitable distribution of the existing estate
· In CA we have complication of CP (6401): half of CP is survivors property – never goes to the estate (they will also split QCP this way too)
o 100% of the leftover CP (the decedent’s half) goes to spouse
o CA takes it out further to who else might take the separate property though – to issue/parent/sibling/issue of siblings – if none of those, spouse takes it all
§ One half if one child/issue of deceased child OR no issue but parents/pa
erence
Ancestors and Collaterals
· Descendants (issue) – kids and on down, they take it all if there are any – HAS TO HAVE UNBROKEN PARENT-CHILD LINKS
o If none are surviving then the parents get it
o If parents are dead, then to descendants of decedent’s parents
o Then to grandparents
· UPC is PARENTELIC rather than CONSANGUINEOUS – so is CAPC – use Section 13 to determine your degree of closeness
o This means it goes to descendant of the closest ancestor
o Vs. going to the relative of the CLOSEST degree
· In the UPC beyond g-parents it goes to the state – trying to avoid laughing heirs this way
o They are making a determination about presumed intent here – and other policy concerns – farther out the harder it is to figure it out
· CA (64) has a different policy – they go up to g-parents then on…
o PreD spouse who died while married, who left non-joint issue
o Then they go beyond gparent and descendants to try to find continuous parent-child chain of relationships linked with decedent
o If none there, back to preD spouse – were they survived by parents or issue of those parents
o If more than one preD spouse – court will have to sort this out
· Different treatment of grandparents as well:
o CAPC 6402-5: treats all the gparents as one class – if 2 of them they each get half, if 3 they each get a third – preference to give it to any living gparent v. any living descendant of a deceased gparent
o UPC 2-103: ½ to each gparent side (and their descendants) – if one side has no takers then you bounce it to the other side
· In re Wendel’s Will
o Dealing with $40 million, 2,000 plus claimants – potential will gave most of it to charity
o Try those claiming to be in the nearest degree first, because once the person of the nearest degree is established, only those within that degree will take
o NOTES:
o Usually the way this works out is that a substantial sum will be paid to the nearest relatives as a settlement
o Blood connection (even half blood) creates the legal entitlement, closeness of personal relationship doesn’t matter
