A Trusts and Wills Outline
To be used in conjunction with:
Professor Gingiss’s Trusts and Wills Course
Prof. Randal Gingiss – a.k.a. GINGISS KAHN
Testament – written or oral instructions properly witnessed and authenticated, which style his will.
Intestate – no will. When this happens, property goes to spouse/decedents. If no Decedent, guess where property goes (where decedent has most property) or to state if the only relatives are so distant that they don’t know the decedent
Escheat – the reversion of land ownership back to the lord when the immediate tenant dies without heirs.
· A spouse is entitled to an elected share/percentage of the estate. In South Dakota, that percentage depends on the length of the marriage, while in other states there is a flat percentage.
o Can’t disinherit your spouse – some states do have different limits in amt the spouse will get
o Can also have public policy void certain clauses but with careful wording can get around them (She’s mine mine mine versus you want money to protect her if she has no husband – want to protect her)
o GA doesn’t have this
o Louisiana can disinherit children, even minor children – many states don’t have protections for children!
Probate
· The process by which we transfer title of assets that were in deceased names.
· Determines validity of creditor claims
· Non-probate transfers are independent of the will
o Certain revokeable trusts, life insurance
Trust:
· Title holding device
· All parents should leave assets in trust for the trustee – particularly if in occupation where you might get sued
Fiduciary Obligations:
· Duty of loyalty – trustee owes loyalty to his beneficiaries, both current and future
· Personal representative has replaced executor terminology
Requirements for Will:
· Under CL, very strict requirements for will
· Slightest of error would have made the entire will void – today the requirements are relaxed
o Not total relaxation, but some
· Extrinsic evidence was only allowed to cure certain ambiguities at CL – but there has been a slow trend to allow more extrinsic evidence to prove the will is valid
· Any will that is properly written and not properly revoked is resolved in probate
o Presumption that if the testator who found the deceased was disinherited and the will is no where to be found that the testator destroyed the will
SD: Uniform Probate Code (ND, MT, NE, MN have it, IA does not)
Hodel v. Irving, pg. 3
Facts: Upon death, the land owned by the individual Indians would escheat back to the tribe. This was the consolidation act, which was passed to solve the problem of the most fractionalized tract of land on earth. Appellees filed suit in the U.S. District Court for the district of SD, claiming that §207 resulted in a taking of property without just compensation in violation of the 5th Amendment. Indian land was being divided under an allotment policy and fractional ownership developed. People were owning 1/100th of a parcel of land and rental income bookkeeping was expensive. So congress said anyone who’d inherit less than 2% or income and less than $100 a year lost his inheritance and it escheated to the tribe. Irving sued because it was taking his property right to give it to his descendants.
Holding: §207 has deprived appellees of the fractional interests they otherwise would have inherited, and this is indeed a taking, and unconstitutional under the 5th amendment. While congress could theoretically abolish inheritance, there is policy in favor of allowing inheritance, and a general right to transmit property or not with what is your own. Here rights to property disposal at death would be totally eliminated even if you could make a complex trust do the same thing.
Rule: Decedents have a right to control disposition of their property at death, and the original provision of the “escheat” provision of the Indian Consolidation Act of 1983 effected an unconstitutional “taking” of their property without just compensation.
The right being discussed here is the right to transmit by will, not receive.
The right to will away (transmit) your land is a separate property right, protected by the constitution.
Shapira v. Union National Bank, pg. 24
Facts: Dr. Shapiro wanted to leave his sons an inheritance so long as they married a Jewish woman within 7 years. If he did not, then the money would go to the State of Israel. Daniel Shapiro challenges this will as against the 14th amendment (no state action that discriminates on racial grounds) and public policy.
Rationale:
In this case there was no state action; the state is not enjoining marriage, but rather inheritance. A testator may restrict a child’s inheritance, and this does not offend the Ohio or U.S. Constitution.
Under the U.S. constitution, religion is specially protected, while race is not.
The great weight of authority in the U.S. is that gifts conditioned upon the beneficiary’s marrying within a particular religious class or faith are reasonable, and not against public policy. Mr. Shapira obviously wanted his possessions to be held by Jewish people (propagate the Jewish faith), either by his son and a Jewish wife, or the State of Israel.
Public policy is against any will that would seek to disrupt the family; i.e. a will taking away a trust if the son should ever get married would be against public policy.
Rule: Restrictions upon marriage as a condition of inheritance are constitutional, valid, and enforceable.
Note:
Daniel should have brought up the point of uncertainty (what if the parents were half Jewish, etc.?). If the Jews can’t figure out who is Jewish, how should the courts? Vagueness could have discredited this clause b/c what did “Jewish” mean to Dr. Shapira when he died and can the courts conclusively determine this?
What if Daniel had already been married to a Christian? Would this will then be encouraging divorce, and therefore against public policy?
Restricting marrying a race is going to be unconstitutional almost all the time; restricting between religions is different and can be constitutional. Religion has a special place in our constitution b/c our ancestors came here seeking religious freedom!
Other Ways To Remove Inheritance from Society:
Destroy property after death
If you want to destroy your property, you have to do so while alive, as “a well-ordered society cannot tolerate” waste.
Can’t have others destroy if b/c it can negatively affect them. Destroying property when you are alive puts the burden directly on the decedent.
Could be better if you wanted something else built on property besides your home. Pure destruction is generally NOT allowed.
Section B. Transfer of the Decedent’s Estate
Probate – the process by which assets are transferred when somebody dies when they don’t have a gizmo to transfer them on their own.
Probate and Nonprobate Property: Probate property is property that passes under the decedent’s will or by intestacy; Nonprobate property is property passing under an instrument other than a will which became effective before death. Nonprobate includes the following: (gizmos)
Joint tenancy property – the decedent’s interest vanishes at death; to perfect title, the survivor only need file a death certificate. A problem may come up with unintended joint tenancies. Joint tenancy is the form of ownership that provides the least amount of liability for the bank; what you really want is agency.
i. Can be a tax horror or a saving grace
ii. As of Jan 2009, federal estate tax can leave $3.5 tax free (2010 unlimited)
iii. Rich spouse $7 million; poor spouse $0 = $3.5 million tax free amount NOW; $3.5 million go to spouse deferred to be taxed. $3.5 million tax free gift DOES NOT exist if a joint tenancy is present!
1. When that spouse dies, presumably without remarrying, if a joint tenancy is present you will have to pay taxes on $3.5 million (costing you almost $1.5 million!)
Life Insurance – proceeds from the policy are paid by the insurance company to the beneficiary.
i. Actually death insurance
ii. Person designated in K gets the money and probate has nothing to do with it unless the policy designates the proceeds payable to the probate estate…
Contracts with payable-on-death provisions – to collect property held in this manner, all the beneficiary need do is file a death certificate with the custodian holding the property.
i. Go to bank, get someone to issue you a POD
ii. Does not pass through probate estate!!!
iii. Brokerage account – transfer on death designation have special provisions in probate code to make them available to creditors
iv. Savings bonds – governed by federal law – not state law – this can really make a difference in a community property state
v. Pension plan – Employee Retirement Income Security Act of 1974 (ERISA) governs the law of pensions
1. Demands certain spousal benefits at retirement and at death (spouse must get ½ the balance of the plan at death unless the spouse waives it and the spouse is over the age of 35)
Interests in trust – the property is distributed to the beneficiaries by the trustee in accordance with the terms of the trust instrument. If created by the decedent, the trust may be revocable or irrevocable. Not a probate asset; if the beneficiary dies, the trustee still has title.
i. Good to not give a two yr old money directly…you hold assets in the benefit of another
ill. She does not need the court’s assistance in getting the title to furniture, or anything owned in joint tenancy, or the pension plan naming her as beneficiary. She will need probate for the savings account (and car). There is a small estate affidavit, that allows for transfer as long as the estate is less than 25,000. Can also transfer autos with affidavit with DMV. For this particular case, no probate is needed at all, due to the small size of the estate that is not covered.
2. In SD, Martha gets all, no probate needed.
3. Need the title clearing aspect of probate now, to get a clear deed. Real estate is not something you want any doubt in.
4. Everyone should have a will. Need to name a guardian for their children, and for personal unique items of property to go to specific people (heirlooms etc.).
Section C. An Estate Planning Problem
The Client’s Letter and Its Enclosures
The Browns’ Problem, pg. 49
A little “floweriness” is OK, it is expected in a will. You should include where you live in the will.
You should have a separate clause dealing with taxes, and from what part of the estate they should be paid. UPC says paying of debts does not include the mortgage. “Enforceable and currently due” should be used instead of “just” in regard to debts to be paid.
There is no provision as to what would happen should the wife die as well; there is no successor appointed.
4. There are no provisions for what would happen if the children
die as well.
5. Include “in addition to the powers granted by the state” provision. The powers of the executor should be very broad.
6. Two types of guardian:
a. Guardian of Person – responsible for bringing up of children
b. Guardian of Estate – holds assets for children
There is no successor in case the guardian dies; this is common, as spouses may not agree on one. It is better to narrow the choice to two.
Really should leave property to someone in Trust, just in case there has been brain damage or something else and you need someone to administer the trust, leaving a right of withdrawal.
Out of wedlock children – want to see if you consider the child to be yours (same as step children).
Professional Responsibility
Simpson v. Calivas, pg. 59
Intended beneficiary can enforce the terms of the contact between the attorney and the decedent as a 3rd party beneficiary. The attorney owes a duty to the beneficiary.
Although there is no privity between a drafting attorney and an intended beneficiary, the obvious foreseeability of injury to the beneficiary demands an exception to the privity rule.
Collateral Estoppel: The primary question is whether the issues before the probate and superior courts were identical. Collateral estoppel is only applicable if the finding in the first proceeding was essential to the judgment of that court. Court will be determining intent from the four corners of the will.
Rule: (1) A duty of reasonable care runs from a drafting attorney to an intended beneficiary, and (2) even an explicit finding of actual intent by a probate court cannot be the basis for collateral estoppel.
An attorney who contracts to draft a will does indeed have a duty of reasonable care to an intended beneficiary, and he will be held to answer for negligence and malpractice which occurs in the performance of his duties.
Hotz v. Minyard, pg. 67
The attorney to Mr. Minyard deceived Minyard’s daughter about the existence of a second will which gave her less ownership of a car dealership. Judy sues the lawyer for misrepresentation, and wins.
Professional responsibility requires that a lawyer not represent clients whose interests are directly adverse.
There is no requirement in the law that the beneficiaries know what they are entitled to inherit.
Issue2: What duties do you owe to a non-client?
– Can you draft a will for someone who is not your client but who your client wants you to? NO
Rule: A fiduciary relationship exists when one has a special confidence in another so that the latter, in equity and good conscience, is bound to act in good faith.
