Boxx – Transmission of Wealth – Fall 2013 Dukeminier 9th
Chapter 1: Freedom of Disposition
Monday, September 23, 2013
2:09 PM
Gratuitous transfer is the law dealing with the transferring of ones belongings upon death. This passage is known as succession. The American law of succession is organized around the principle of freedom of disposition. The law of succession encourages freedom of disposition and the use of dead hand control to an extent that is unique among modern legal systems. Much of property law is organized around eliminating this type of control after one as died. Dead hand control is so encouraged that an individual while alive can put certain stipulations on ownership of his belongings and who should receive them, some of these stipulations could be ongoing conditions.
· But there are some limits to this freedom, the law protects a decedent's creditors and surviving spouse, and other policy limitations, and the rule against perpetuities. But for the most part it facilitates rather than regulates the carrying out of the decedent's probable intent.
· The power to transmit property at death
· When you die you cannot take anything with you so modern law does open the door to a certain amount of post-mortem control of an individuals belongings. The simplest way to create this dead hand control is through a will. Will allows you to choose who gets what when you die. If there is no will a body of law called intestate succession gives you by default an estate plan that is carried out to your probable intent.
· Freedom of disposition and the dead hand
· American law of succession strongly embraces the principle of freedom of disposition and the ability of an owner of property to control the disposition of his property at death.
· In America freedom of disposition is subject only to wealth transfer taxation and a handful of policy limitations.
· The idea is organized around the donor's freedom of disposition and what he wants to do with his assets. The donee's interest in a future inheritance is defeasible at the whim of the donor.
· The main function is to facilitate and not regulate, it does not grant courts to question the wisdom, fairness, or reasonableness of the donor's decision about how to allocate his assets.
· Among the law that do regulate are those relating to spousal rights, creditors rights, unreasonable restraints on alienation or marriage, provisions promoting separation or divorce, impermissible racial or other categorical restrictions, provisions encouraging illegal activity, and rules against perpetuities and accumulations.
· Shapira v. Union National Bank (1974)
§ Fathers testamentary gift to his sons required each to be married with seven years of the fathers death to a jewish girl. Son said it was a constitutional violation.
§ The court rules that (1) enforcing the condition said not constitute sufficient state action to offend the constitution, and (2) gifts conditioned on a beneficiary marrying within a particular class or religion constitute only a partial restraint on marriage, which is reasonable and valid and not against public policy.
· Justifying freedom of disposition
· The Donor's Prerogative
§ Inheritance and the passing of property creates a sense of saving and industry. If you could not pass on your assets you might be more willing in life to not work as hard and consume all that you collect, there would be no incentive to save for your kids or grandkids. Because of this existing wealth would shrink.
§ There is also the idea that an individual would take gratification in taking care of someone when they are gone, and also the idea that the testator will be willing to repay the beneficiary for value received during their life, this encourages beneficiaries to provide the testator with care and comfort.
§ Alternatives:
· Forced succession: pass by simple rule of mandatory forced succession. Honoring the decedents wishes have forced succession is satisfied.
· Freedom of disposition: pass in accordance with decedents declared wishes, or if not available, through a default system.
· State confiscation: based on the idea that private property rights end at death.
· Concentrations of Wealth
§ One big argument against freedom of disposition is that it perpetuates inequalities in the distribution of wealth, and that in concentrates economic power in the hands of a few.
§ The widening inequality in come stems mainly form growing disparities in labor income rather than in capital income.
· Human and cultural capital
§ Human capital represents the investment of education for children.
§ Today with longer lifespans children and more financially stable when there parents get older and there is less of a need to leave them farm property or other types of property. Therefore these older parents are less likely to abstain from consumption.
§ Encouraging in human capital by excluding gift tax on money given to children, grand children or anyone else for education. Irving Trust Co. v. Day (1942), the SCOTUS held that intestacy was of statutory creation. But in 1980s this changed with the SCOTUS case Hodel v. Irving (1987). This case highlighted the takings clause of the 5th Amendment.
§ Hodel v. Irving (1987)
· The 5th amendment curtailed the power of the government to limit the right to pass property at death. Justice O'Connor.
· Is freedom of disposition a constitutional imperative?
· Under Blackstone the right to transmit property at death was considered to be a creature of civil and municipal laws, it was not a natural right. In Hodel O'connor said that the ability to leave property to ones heirs is one of the most important bundle of stick in anglo american common law.
· Hodel v. Irving (1987)
· Posthumously Acquired Property Rights
· Hodel held that the 5th amendment curtailed the power of the government to limit the right to pass property at death. But what if the government increases the property rights of the decedent in a posthumous award of additional proper
§ First: the will should be probated in the jurisdiction where the decedent was domiciled at death, this is known as primary or domiciliary jurisdiction. If the probate estate includes real property that is located in another jurisdiction, ancillary probate in that jurisdiction is required.
· To help solve the problem of ancillary probate, which can be expensive, many lawyers advise a client to put out of jurisdiction property in an inter vivos trust which bypasses probate.
§ Second: each state has different statutory requirements on how to notify, the executor (letters of testamentary) or the administrator (letters of administration).
· An administrator must give bond to insure against mismanagement.
· An executor must also give bond unless it is waived in the will.
· Bond is usually obtained from an insurance company by giving a premium, which will ultimately be paid by the estate. Most executors are trusted family member so the bond is usually waived.
· Common Form and Solemn Form Probate
· Formal and informal probate
· Supervised and Unsupervised Administration
· Barring Creditors
· Closing the Estate
· Is probate Necessary?
· Professional Responsibility
o Trusts and estate law ranked 4th in frequency of ethics complaints. While they owe a duty to the creator of the trust or estate they sometimes feel a duty to the beneficiaries. Lawyers in this practice area represent member of the same family, such as a husband and wife,
· Duties to Intended Beneficiaries
· Simpson v. Calivas (1994)
§ Defendant (drafting attorney) owed a duty to the plaintiff (beneficiary) even though there is no privity between the two parties.
§ Washington rejects the privity defense, attorney owes a duty to beneficiaries.
· Conflicts of Interest
· A v. B (1999)
§ Husband and wife hire law firm to prepare will. Mother of fathers illegitimate child hired the same firm to file a paternity suit against father. Firm eventually found out and ceased representation of the mother and told father to tell wife about child because it had an impact on the will/estate planning. Father did not want to. Father signed statement saying that information from one spouse available to the other.
§ The firm may tell the wife about the child but not about the mother of the child or the child himself. Can only tell her that there is a child out there somewhere.
