Chapter I. Policies: Intro to Estate Planning
A. The Power to Transmit Property at Death – Its Justification and Limitations
1. Arguments for Allowing People to Transfer Property at Death
a. Encourage Familial Responsibility – We want to encourage people to take care of their own (theoretically, we don’t want the state to take care of everybody).
b. Incentive to be Productive – Lets people accumulate wealth and be able to keep it in their family or have it “work for them” after death.
c. A Right Protected by 5A
Hodel v. Irving (p.3) – The complete abolition of the rights of an owner to dispose of property rights is a taking without just compensation, violating the owner’s rights guaranteed under the Fifth Amendment.
2. Arguments Against Allowing People to Transfer Property at Death
a. Dead Hand Control Problems – We worry about allowing people to make decisions from the grave because (1) the decedent can’t change their mind (can’t be convinced their wishes were unreasonable) and (2) they don’t feel the “sting.”
Shapira v. Union Nat’l Bank (p.24) – Dr. requires son to marry a Jewish girl in order to inherit; “to my son only if he is married to a Jewish girl w/in 7 years of my death…”
1. A right to inherit case, not a right to marry case.
2. Must be only a partial restraint upon marriage, not a total restraint that would be void against public policy.
3. Restraint to induce the transferee to marry w/in a designated religious faith, or refrain from marrying a person of such faith, is valid “if, and only if, under the circumstances, the restraint does not unreasonably limit the transferee’s opportunity to marry.”
b. Avoid Concentration of Wealth – Great accumulation of wealth rails against our sense of fairness because there is a correlation between money and power.
i. Transfer Tax – To prevent concentration, the state imposes approximately a 50% tax on estates worth more than $675,000.
ii. Rule against Perpetuities also keeps us from tying up property for too long.
3. Policy Considerations
a. Constitutional concerns such as due process and equal protection.
b. Prevent the destruction of property.
c. Can’t completely prohibit marriage by unreasonably preventing marriage, and you can’t foster family discord, such as divorce or the breaking up of a family.
d. You can require a change in behavior (go to college, get clean/sober, etc.).
e. Protecting the testator’s intent.
f. Estate taxation.
B. Ethics/Lawyer Responsibility
1. Several Major Concerns
a. Not to create a conflict of interest.
b. Not to create a violation of confidences – At the outset, you need to disclose possible problems to each client regarding your concerns, and get them to consent. Also, tell them that you may have to withdraw from representing one or both of them if a big conflict arises.
i. Priestly way – Tell them that you won’t tell one what the other says (may not want to offer this as an option).
ii. Otherwise, tell them that you will tell either of them what the other says.
iii. Beware of “noisy withdrawal.”
c. Duty to Update – It is the attorney’s right and possibly even his duty to contact his clients and inform them of changes in law or fact which might defeat the intent of the will.
i. Means to Satisfy Responsibility:
1. Contact clients periodically and update as to changes in the law.
2. Advice clients initially of the possibility that a change of law could alter/defeat the purpose and intent of the will.
3. Give client written notice stating that if events change, the will might need to change. If so, consult an attorney.
d. Responsibility to Others – Privity
i. Simpson v. Calivas (p.59) – Court found no privity requirement for a duty to the intended beneficiary where obvious foreseeability of injury. Attorneys drafting wills owe a duty of reasonable care to the intended beneficiaries.
ii. Ogle v. Fuiten (p.61) – Attorney was liable to beneficiaries for negligence in drafting a will for failing to think about the forseeability of injury, that the couple could die in a common disaster within 30 days of one another.
iii. Hotz v. Minyard (p.66) – Father changed will and attorney represented dad, daughter, etc. Lawyer showed 1st will to daughter rather than second.
1. Court said the lawyer owed a fiduciary duty to daughter because she had special confidence in him and their attorney client relationship.
2. The lawyer should have told the father that he wouldn’t lie to the daughter OR told daughter to get a different lawyer.
a. Causes of Action for Malpractice – Most are brought against lawyers using claims of negligence and breach of contract.
b. Balancing Test for Privity (from Auric v. Continental Casualty Co.) – Weigh the decedent’s wishes against the rights of the beneficiaries.
i. Look to what extent the transaction intended to affect or benefit the 3rd party.
ii. Foreseeability of harm to plaintiff or 3rd party.
iii. Degree of Certainty that Plaintiff or 3rd party suffered an injury.
iv. Nexus between conduct and injury (proximate cause).
v. Public policy of preventing future harm.
c. Foreseeability – Courts look to see whether the harm to the beneficiaries was foreseeable if drafting malpractice occurred?
i. Evidence becomes an important issue
ii. Florida Rule (Simpson) – The intended beneficiaries have a cause of action, but they have to prove it from the face of the will. So if you’re sloppy, you’d never get caught!
d. Standard for Malpractice Claim
i. General Practitioner – What the average, reasonable lawyer in that community would do. BUT he has a duty to refer to a specialist. Further, if he takes on the role of specialist, he will be held to the duty of care of a specialist.
ii. Specialist – If you hold yourself out to be a specialist, implicitly or explicitly, then you’re held to a higher standard of what a reasonable specialist would do.
i. No negligence – That the attorney used reasonable diligence in drafting and executing the will.
ii. No privity – That there is no duty to beneficiaries). The modern trend, however, is to disregard privity. Plus, fraud will override the lack of privity defense.
iii. Statute of Limitations (SOL) – Begins running on the T’s death. SC has a 6 year SOL.
v. The will Is Not in Effect – Hence, Ogle doesn’t apply and c/l prevails which states only clients may sue.
Chapter II. Intestacy
§ 21-3-20, §§ 2-101 thru 2-109 (SUPP p.92-94)
A. The Basic Scheme
Intestacy statutes tell you how to dispose of property of someone who dies without a will or for someone who dies and has a will that doesn’t completely dispose of all the property. The Legislature puts itself in the position of all citizens who die intestate and determine who is most worthy to take. Factors considered include:
1. Closeness of Relation (usually like to give property to relative who’s most closely related to decedent). Ways people are related:
a. Parentela/collateral: Kids, grandkids, etc are issues of decedent (lineal decedents). Parents, grandparents, and great grandparents are lineal ancestors. Other blood relatives are not lineal (parent’s issue, such as your brothers/sisters, nieces, and nephews)
b. Degree of Kinship – Focus is closest common ancestor, count the number of generations to common ancestor and figure out the number of step down to the heir. E.g. First cousins are four steps removed (the common generation is the grandparent, two steps up, and then two steps down to first cousin).
2. Marketable Title if heirs too far removed allowed to take, alienability might be restrained.
3. Prevent the laughing heir (so remotely related that they don’t even know the decedent)
B. Property Controlled by the Intestacy Statute [§2-101]
1. Probate Property is property that passes under will or under intestacy statute.
a. Title totally in decedent’s name.
b. Doesn’t include property that effectively transfers at someone’s death by some other means of law (e.g. joint tenancy with right of survivorship which is passed by r/e law or life insurance policies where there are third party beneficiaries).
2. Choice of Law Question – The personal property of the decedent is considered to be located where he’s domiciled (residing). As to real property, the state where it’s located controls disposition (apply that state’s intestacy statute).
C. South Carolina Intestacy Statutes [§§ 62-2-101 thru 109]
1. Share of Surviving Spouse
a. If no issue, surviving spouse gets entire estate. [§ 2-102] b. If issue, the spouse gets ½ the estate (includes issue from decedent’s previous marriages). [§ 2-103] 2. Whatever’s not given to spouse, we give to blood relatives as follows
a. First group to take is issue (take by a system known as representation)
i. under modern per stirpes, we divide at each generation there’s a survivor (so if all of decedent’s children are dead, we divide at the generational level where there’s a taker, such as the grandchild level – if three grandkids, two from one child and one from another, each take 1/3)
ii. We divide according to the law that’s in effect on the date of death (July 1, 1987 was when the probate code adopted the modern per stirpes rule; before that we used strict per stirpes)
iii. No share is carved out for predeceased heir with no issue.
iv. Representation question can come up even when there’s a will b/c a common “substitute disposition” in will is to say, “if all the people listed are dead, then use the state’s intestacy law.” An argument can be made that if the will was executed pre-Probate Code, the intent of the decedent was to use the old per stirpes. When counseling a client who has executed pre-Probate, be sure to counsel regarding the difference between modern and strict.
b. If no surviving spouse or issue, the next level of takers is both parents equally. If only one parent, he or she gets it all.
c. if no parent, the issue of parents take by representation
i. Half blood gets whole blood treatment. SC treats whole and half blood the same if the death occurred after June 5, 1990. ½ bloods share one parent. §2-107.
ii. Death prior to June 5,1990 preference is for the whole blood. The survival of a whole blood sibling acted as a trigger in favor over half blood sibling and ½ blood took nothing.
iii. If no whole blood sibling then there is no trigger of preference.
iv. If one of the siblings of the intestate predeceases the intestate, their issues take by representation.
d. if no issue of parents, then we go to the grandparent level
i. maternal and paternal grandparents divide estate in half (half goes to each side)
ii. if on maternal side, there’s no surviving issue, then the half defaults to the paternal grandparents side
e. if no issue of grandparents, then go to the great grandparents using the same ½ and ½ method
f. if no issue of great grandparents, then go to step-children of the intestate
i. step-child = child of spouse, but is not your blood relative
ii. question becomes, which spouse? Usually we have equity decide this.
g. if none of the above, the estate escheats to the state under § 2-105
3. Survivorship Requirement [§ 2-104]
If you have to survive the decedent by 120 hours or else you are treated as predeceased (must outlive by 5 days)
a. Does not apply if it would cause an escheat
b. In your will, you can require survivor to live six months longer to take
c. Remember, this section only applies to intestate succession
d. Survivorship requirements have nothing to do with the USDA [§1-502].
i. For purposes of USDA, the law presumes that the person who’s estate is in question, survives when there is no other evidence of whether either of the spouses survived even for a second; evidence must show they died simultaneously. This avoid allowing the estate of one of the spouses from being unfairly advantaged.
ii. The decedent is presumed to have survived the beneficiary.
iii. USDA can be avoided upon a showing of contrary intent by the testator.
iv. 120 hour rule still applies to intestate decedents.
v. Also applies to non-probate transfers
Ex.: Insurance contract naming wife as beneficiary, children secondary beneficiary; H&W die in accident. USDA treats W as predeceasing H. Property goes directly to the children.
a. The system by which one who is further down a line of descent is allowed to “step into the shoes” of an ancestor who should have been an heir had he/she survived the intestate decedent. Someone in the younger generation stands in the shoes of the predeceased ancestor, and takes the share the predeceased would have taken.
i. Note, the predeceased cannot be an heir, b/c to b
child’s entire share.
iv. Generally enforced in equity, not law.
v. If after release, the parent writes a will and leaves property or money to the child, it is a later writing and should be effective.
Intestate decedent, while alive, makes a lifetime gift to heir with the intention that the gift will offset the inheritance.
i. Under the probate code, we must prove this intention by [§ 62-2-210]:
1. A writing from the giver of the gift.
2. Writing by the receiver admitting the gift.
ii. NOTE – For a testate or partially testate decedent, there is a term called “Satisfaction” which is analogous to an advancement given by someone who dies intestate
iii. HOTCHPOT – Take value of lifetime advancement and add it to the lifetime estate. Then equalize what all kids take.
1. Mom gives A $30K during life as an advancement. Mom dies and has a $120K estate. Kids A, B, and C are the only heirs. 120+30 = $150K estate. 50 goes to B, 50 goes to C and remaining 20 goes to A.
2. If B and C know about advancement and don’t require A to put it in the hotchpot, they’ve waived their right.
3. A doesn’t’ have to participate in probate estate (so if it would require him to give up money, then he doesn’t have to). B and C cannot force A to participate.
d. Disclaimers [§ 2-801] i. § 2-801 in General:
1. Allows disclaimers of intestate shares.
2. Allows disclaimers of shares received under a will.
3. Allows disclaimers of trust transfers in spite of any spendthrift provision.
4. The right to disclaim is barred if disclaimant previously signed a written waiver of the right.
5. If disclaimer is effective, the disclaimant is treated as having predeceased the decedent i.e., he never received property not even for an instant.
6. Partial disclaimers are valid.
7. Unlike a release, a disclaimer cannot be given for any consideration.
iii. §2-106 – If an interest is created by intestate succession is disclaimed; then the beneficiary is not treated as having predeceased the decedent for purposes of determining the generation at which to divide per sterpial representation.
iv. Tax Purposes for Disclaimers – Both death and lifetime gifts are taxed. There are two main deductions: (1) you can leave as much to your spouse as you want or (2) you can gift up to $675K to anyone else. So, if you leave sister $1 million, the first $675K is fine, and $325K is taxed (about ½ goes to tax).
1. If mom has $1 million estate and gives $675K during life, then everything in her estate is taxed. If you take your half, and then give it to your sister, then you’ll get taxed, and she’ll get taxed. But, if you disclaim, then it goes straight to your sister and you are only taxed once.
2. No tax on gifts up to $10K once a year.
v. Non-Tax reasons for disclaiming – All money would go to your creditors, so you want sister to get it. Problem when you do this to avoid a tax lien (probably won’t work)
1. Pate v. Ford (Supp p.52) – D has a trust for both sons, S1 and S2. S2 has 6 kids. Trust rules state that upon the death of both sons, the trust is to be divided among the grandchildren. S2 can disclaim and allow his 50% to go to his children. By accelerating the remainder, he insures all of his trust goes to his grandchildren. S2’s children get more money than S1’s b/c if S1 has children, they can only take from his trust.
(i.) §2-106 prevents the disclaimant from receiving a greater portion of the estate by virtue of his disclaimer. The disclaimant is treated as being alive so as to prevent unfair taking.
C1 C2 (dead) divide at this level for §2-106.
You would think C1 could disclaim so that the property would be divided per stirpes causing all of the grandchildren to take 1/3. Under §2-106, this can’t happen b/c for per stirpes purposes, you treat the disclaimer as if he were alive. ½ by law would go to C1 and C2, causing GC1 and GC2 to get ¼ a piece.
D. Uniform Simultaneous Death Act [§ 1-502]
1. APPLICABILITY – Only applies when there’s a simultaneous death (i.e. both die in plane crash).
a. If testate decedent, then if one survives the other by 5 hours, then this doesn’t apply.
b. If intestate decedent, however, you have to survive by 120 hours.
2. RULE – If simultaneous death, then for purposes of decedent’s estate, the decedent is presumed to have survived the beneficiary
Chapter IV: Testacy: Capacity and Contests [§ 2-501] Requires sound mind and status other than that of a minor.
A. Mental Capacity
It takes less capacity to make a will than it does to make a lifetime contract; it takes less capacity to marry than it does to make a will. So from most capacity needed to least, it goes: lifetime K…will…marriage. Measured at the time the will is made. You must be married or 18 years old.
1. Test for Mental Capacity
What we have to show to prove that testator is in the right mind:
a. T knows the nature and extent of his property (ability to know what you have).
T knows the persons who are the natu