Gratuitous Transfers Outline (Trusts & Estates)
Fall 2008
Chapter 1. Wealth Transmission and Its Limits
1. Ideas of Wealth and Wealth Transmission
The Twentieth-Century Revolution in Family Wealth Transmission (article by John Langbein)
Ø Fundamental change in the character of wealth in America. Thesis: “I believe…the business of educating children has become the main occasion for intergenerational wealth transfer.” Langbein recognizes that wealth exists in two forms: traditional financial assets and human capital. (page 2-10)
Ø An Old vs. New paradigm exists for wealth transmission. Laws were written for families like the Waltons, who were farmers and did not own stocks and bonds or have pension plans. For the Waltons, property stayed titled in the oldest generation until the generation dies out. It then passed by will, and land was the exclusive asset.
Ø The Old vs. New pits the following against each other:
o real estate is dominate form of wealth (old) vs. intangible personal property as dominate form of wealth (new)
o people died younger (old) vs. people die older and more money is required (new)
o no such thing as pensions, life insurance, etc (old) vs. pensions, life insurance, other employment benefits, all governed by contract (new)
2. Public Policy as a Limitation on Wealth Transmission
Eyerman vs. Mercantile Trust Co. and Colonial Trust stand for the idea that freedom of testation bows to public policy. Outright ownership means something different after death (it means less) than during life. The question becomes how much less.
Ø If you want to stand a better shot of having your wishes respected, state your reasons for your wishes in your will. Because public policy is in constant flux, however, there is no guarantee that your wishes will be respected.
Ø If you want to invalidate the provision of a will, link its execution to something that is bad for society and call it “against public policy” (i.e. neighboring homes will be devalued if Mrs. Johnston’s wish to raze her home is respected). The phrase means “that which conflicts with the morals of the time and contravenes any established interest of society.” Eyerman
Ø If you want to ensure your wishes, think of some way to achieve them without leaving it to a provision in your will. In Eyerman, Mrs. Johnston could have moved out of her house and had it destroyed while she was alive. If her concern was the preserving the architectural spirit of the house or nothing at all, she could have had the house donate to a historic society that would have preserved the house as she wanted it to be remembered. Try to make your wish a religious restriction because courts have refused to invalidate religious restrictions when they do invalidate other non-religious restrictions that seem ridiculous.
Chapter 2. The Client Family
The Client family is a fictional family, not unlike many that need to make estate plans. A major question of this chapter is what is a probate asset and what is a non-probate asset?
1. Important Stuff to Know
Probate Property: property requiring some legal process to transfer clear title to a successor upon death.
Non-probate Property: property that passes automatically to a successor owner at death so that no probate is necessary.
Concurrent Interests: There are exactly five ways to own property in common
Tenancy in common (T/C)
Joint Tenancy (J/T)
Tenancy by Entireties (T/E)
These are collectively known as co-ownership/co-tenancy.
T/C=each tenant has an undivided (full possessory rights), fractional share of the property. It’s not like one person owns the left 20 acres and the other owns the right 20 acres. They both possess all 40 acres. Known as unity of possession
Unity of Possession—cup of coffee mixed with milk. The coffee is everywhere and the milk is everywhere, but the cup is still only half coffee and half milk.
Each tenant has separate interests that can be:
Ø Transferred inter vivos (sale, gift)
Ø Devised, inherited separately.
Importantly, there are no survivorship rights between the parties. If one wants to give the property to someone else besides cotenant, they can.
Hypo:
ABCD own;
A sales to E; (EBCD own)
B dies leaving everything in a will to F; (EFCD)
C conveys to D; (EFD-50%)
D dies intestate; (EFD’s heirs own 50%)
If tenants cannot agree on what to do with the property, you can partition in kind (split the property) and in sale (sale and divide profit).
J/T=each person has an undivided interest in the whole. So if A and B are J/T, each own all of the property, so when one person dies, the other still owns all of the property (survivorship rights). The important characteristic of J/T is that there are survivorship rights. This is great for spouses and J/T started as a substitute for wills.
To create a J/T you have to:
Have intent (people don’t accidently create surviorship right just like they don’t accidently write a will. So if you’re drafting a J/T say so and specify that you want survivorship rights.)
Have the four unities
Time—everyone has to get their joint interests att he same time
Title—everyone gets interest in the same title
Interest—everyone gets the same fraction of interest in the property (revised in some states)
Possession—everyone has possession of the whole
Hypo:
A owns; A marries B; if A says I give half my land to B, this doesn’t work because no unity of time or title; if A says I deed from me to us as joint tenants, this might work depending on whether your state allows. If state doesn’t allow just deed it to your lawyer and then have the lawyer deed it to ya’ll in J/T.
Important Point: A and B are joint tenants. If one wants to end the J/T while they’re both still alive, it can be done, and the joint tenants become tenants in common. Either party has the unilateral right to severe their own survivorship rights and thus, the J/T.
XYZ are J/T
X sales to A: (A is a T/C, while Y&Z are still joint tenants with respect to their 2/3rds)
Y dies: (A is a 1/3 T/C; Z has a 2/3 T/C)
Creditors can acquire one tenant in common’s interest and requ
will.
The elements of a gift causa mortis are:
a gift is made in apprehension of approaching death from some existing sickness or peril
the donor dies from such sickness or peril without having revoked the gift
there is actual, constructive or symbolic delivery of the gift to the donee or to someone for him
Delivery by the donor, and possession by the donee, need only be as complete and perfect as the nature of the property and the circumstances and conditions permit. Therefore, the circumstances surrounding the gift and delivery are relevant.
the evidence reveals the donor’s present intent to pass title to the gift.
McCarton v. Estate of Watson
The possibility of deathbed fraud is THE major problem with gift causa mortis. You can’t get the person back to ask them whether they intended the gift, so all that remains is the word of the person or persons who might have colluded as to the donor’s intent. This problem is a policy problem. Watson
Note that the second restatement says the gift stands if you were going to die from one cause but you die from another. It doesn’t really matter in the grand scheme how you die, you were going to die anyway. The problem with this rule comes into play is what to do when the donor recovers but for some reason doesn’t ask for it back. The third restatement addresses this problem by saying that the donor must ask for it back within a reasonable amount of time. In a state that follows the third restatement, the gift statement would end by saying, “I reserve the right to revoke this gift with a reasonable amount of time after my recovery.”
Hess says not to advise people to make gift causa mortis because a will works better and it’s impossible to prove the intent of the donor of a gift causa mortis.
3. Challenges to Capacity to Make a Gift
To have intent to make a gift, you must have the capacity to form intent. The mental capacity to give a gift is higher than that necessary to make a contract but lower than that necessary to write a will. There is a class of gifts that can be invalidated because the donor lacked the capacity to form intent because of undue influence, which is influence that overcomes the free will of the donor
Standard for Presumption of Undue Influence
A presumption of undue influence arises when:
The contestant proves that the donee dominated the will of the donee, or
When a confidential relationship exists between the donor and donee.
