Trusts & Estates _Cancelosi_Fall 2013
INTRODUCTION TO ESTATE PLANNING
DD = Decedent DS = Descendant SS = Surviving Spouse S = Settlor T = Testator B = Beneficiary
[Power to Transmit Property at Death]
The Right to Inherit and the Right to Convey
Should the transfer of wealth be completely unfettered?
o “Yes Argument” – We have a fundamental belief in being able to do whatever with our wealth without the government interfering; provides economic incentives for people to continue to work and produce; encourages individuals to take care of family (elders and children)
“No Argument” – Perpetuates economic disparity and discrimination; constitutes an unearned windfall to those who have wealthy relatives; creates undeserved powers and privileges.
· Power to Transfer a Right or Privilege?
Old View: Succession rights are statutorily created and can be taken away by will of legislature; you can control your property after death only b/c (and only to the extent) the state decided to let you. Irving Trust v. Day
New View: The gov cannot completely eliminate the right to transfer property at death. Hodel v. Irving
· Shaw Family Archives v. CMG Worldwide (2007)  – Did Monroe’s residuary clause transfer postmortem publicity rights to D even though those rights were not recognized by statute until after Monroe’s death?
Rule: State law where T is domiciled at the time of his or her death will apply to all questions of a will’s construction. The law in effect at the time of death controls testamentary disposition (Otherwise, estates could be re-opened any time the law changed!).
Holding: You can’t devise what you don’t own at death. Looking at all possible states involved (NY, CA, IN) this right didn’t exist at the time of her death.
UPC § 2-602 states that a will may pass property acquired by the estate after the T’s death .
The Problem of the Dead Hand: ability of deceased to control assets after death. A decedent conditions a gift to a beneficiary upon a beneficiary behaving in a certain way.
To what extent should we allow the dead person’s wishes to control?
o Supporting Arguments – It is your property and you should be able to do what you want with it.
§ Because a decedent can completely disinherit a beneficiary they should also be able to condition or restrict a beneficiary’s inheritance
o Opposing Arguments – Not a good thing for prior generations to constantly control future generations.
§ Donor is dead and cannot change their mind; no flexibility to account for changing circumstances.
o Approach in the US – The Law doesn’t have the power to question the fairness of the way assets are distributed upon death; Courts do not question, they simply facilitate the transfer.
o R, 3rd, § 10.1: “donor’s intention is given effect to the maximum extent allowed by law.”
§ This freedom is curtailed only to the extent that donor attempts to make a disposition that is prohibited by an overriding rule of law (spousal rights, unreasonable restraints on alienation or marriage; provisions promoting separation/divorce; impermissible racial restrictions)
· Shapira v. Union National Bank (1974) 
o Issue: Father places restriction that son must marry a Jewish girl of Jewish parents w/in 7 yrs of father’s death
o Rule/Holding: It is the duty of the court to honor T’s intention w/in limits of law and public policy.
§ Public Policy – will restrain Ts intent ONLY IF the condition is truly unreasonable (VERY HIGH bar). The provision here is valid; a partial restraint on marriage, which imposes reasonable restrictions.
· Note – if pool of Jewish girls was so small he had to go abroad to find a wife that would be an invalid restraint on religious faith
Can’t require them to remain faithful to a certain religion.
A TOTAL restraint on marriage is NOT reasonable
§ Constitutionality – The right to inherit is not a constitutionally protected or a natural right.
· There is a distinction between a state saying you can’t marry someone v. the state enforcing the will, which says if you do something I don’t like I won’t give you my money.
Incentive Trust: Ensures Beneficiary does not adopt a slothful or wasteful existence.
3 conditions enforced as long as not contrary to public policy:
(1) Conditions that encourage B to pursue education
(2) Conditions that encourages B purse moral incentives – a particular moral path (religion, charitable, avoid drugs)
(3) Conditions that encourage B to have a productive career.
Destruction of Property at Death: Should a T be allowed to destruct their property at death?
o Courts will refuse to allow destruction bc this encourages economic waste (burning a house not upheld)
After death the economic cost is NOT internalized by T but by heirs and society
During life T internalizes cost, we assume people are behaving as rational economic actors.
Exception: de minimus destruction (i.e. burn a diary probably ok)
Non-Probate: property that passes outside of probate under an instrument other than a will (will substitute)
· The will cannot change how non-probate assets pass
· Types of Non-Probate Property
o (1) Property in an inter vivos trust (a trust created during the decedent’s life) passes in accordance with the decedent’s trust and avoids probate
§ Note: property held in a testamentary trust (a trust created under a decedent’s will) DOES go through probate)
Strategy: If you can put everything into a trust, you can completely avoid probate. You can also have a will to cover what is not under the trust – benefit from both.
Cons: The trust is only useful for the items remembered to be put in the trust
o (2) Rights of Survivorship Assets – automatic passing on death (joint tenancy); decedent’s interest vanishes at death; survivor perfects title by filing death cert.
§ under the theory of joint tenancy, the decedent’s interest vanishes at death
· the survivor owns the whole property free of the decedent’s participation
· no interest passes to the survivor at the decedent’s death
§ Examples: Bank accounts, Mutual funds, Real estate.
· To perfect title to real estate, all the survivor need do is file a death certificate with the local registrar of deeds
· To perfect title over a joint bank or brokerage account, all the survivor need do is file a death certificate with the account custodian
§ Certain items of personal property cannot be titled with joint tenancy with right to survivorship (i.e. for de minimus items, possession alone is evidence of title – ie clothing, etc.)
o (3) Property that Passes by Contract – where there is a K and a named beneficiary
Life insurance; 401K benefits; pension plan assets, POD accounts; and any K that says upon death another person is entitled to property.
Life Insurance: The proceeds of a life insurance policy on the decedent’s life are paid by the insurance company to the beneficiary named in the insurance contract.
The company pays upon receipt of a death certificate of the insured
Life insurance is thus a pay on death contract that operates independently of probate administration
Pay-on-Death (POD) and Transfer-on-Death (TOD) Contracts: bank, brokerage, pension, and retirement accounts commonly allow for a POD or TOD beneficiary designation under which the account custodian distributes the property at the decedent’s death to the named beneficiary.
To collect property held under a POD or TOD arrangement, all the beneficiary need to do is file a death certificate with the custodian
Probate Property: property that passes through probate under the decedent’s will or by intestacy
Purpose of probate – 3 core functions
o (1) Provides evidence of transfer of title to the new owners, making the property marketable again
o (2) Protects creditors by providing a procedure for payment of the decedent’ debts
o (3) Distributes the decedent’s property to those intended after the decedent’s creditors are paid
· Personal Representative: Fiduciary who inventories and collects the property of decedent; manages and protects the property during administration of estate; processes claims of creditors and tax collectors; distributes property to those entitled. Personal representative must give a bond, which insures against mismanagement or misappropriation, but the bond can be waived by will.
o Executor: personal representative who is named by T in the will.
Administrator: If will names no executor, named executor is unwilling/unable or decedent dies intestate court will select from a statutory list in order — Surviving spouse, Children, Parents, Siblings, Creditors
Probate Court: Administers estate; determines construction/validity of will. (Appeals go to court of general jurisdiction)
Opening Probate – Always Ask Is there a will?
Yes: Letters testamentary issued to executor (testate) authorized to act on behalf of estate
Person dying testate devises real property to devisees or bequeaths personal property to legatees.
“I give” effectively transfers anything
No: Letters of administration, issued to the administrator (intestate)
When a person dies intestate:
Real property descends to heirs
Personal property is distributed to next-of-kin
BUT, today, “heirs” is used to mean both.
Will is probated in jurisdiction where DD was domiciled at time of death (primary/domiciliary jx)
If real property is located in another jx, ancillary administration in that jx is required
The main purpose of ancillary probate administration is to prove title to real property in the situs state’s recording system and to protect local creditors.
May be costly because the state may require that a resident be appointed personal representative and local counsel will probably be needed.
To avoid the costs and delay of an ancillary probate proceeding, lawyers commonly advise clients with real estate in another jurisdiction to put the property in an inter vivos trust.
Because the trustee holds title to the trust property, there is no need to change title by probate administration upon the death of the settlor.
In common form (ex-parte) or in solemn form (notice to interested parties)
Formal v. Informal Probate – Person asking for letters can choose form.
Formal (notice probate)- UPC 3-401: Court supervises actions of personal rep in administering estate; must approve payment of debts, family allowance, atty fees, mortgaging property, etc.
Informal (ex parte) – UPC 3-301: Personal rep distributes estate w/o going back to court; no court approval required for distribution decisions. (interested party can file petition for formal
D)? Are all of them dead?
Yes to both à spouse takes entire estate (1)(B)
If not entire estate, how much does the spouse take?
No descendant, but parent of DD is still alive
First $300K + 75% of balance of estate (2)
All DD’s surviving descendants are also descendants of SS and SS has one or more surviving descendants
First $225K + 50% of balance of estate (3)
One or more of DD’s surviving descendants are not descendants of surviving spouse
· First $150K + 50% of balance of estate (4)
o UPC § 2-102 HYPOS: Barbie & Ken are married. Ken dies – $500K estate
§ EX: No children and no parents — Barbie gets it all. §2-102(1)(A)
§ EX: Barbie and Ken had 5 children and Ken has no other children—Barbie gets it all. §2-102(1)(B)
§ Ex: Barbie and Ken divorce after 5 years of marriage and 5 kids. Barbie remarries Joe. Joe has no kids from previous marriage. Barbie and Joe have 2 kids. Joe dies.
· Barbie gets first 225,000 then half of 275,000 and remainder split amongst his surviving children. §2-102(3). Want Joe’s money to support Joe’s children not Ken’s children.
§ Ex: Now Joe also has a kid from a previous marriage. Barbie gets $150,000 plus ½ of remaining estate because assumed that Barbie would leave Joe’s kid from previous marriage out to dry. §2-102(4)
· When there are children by a previous marriage SS may get lower percentage.
UPC § 2-103 Share of Heirs other than surviving spouse (68)
(a) Calculate share to spouse from UPC 2-102, then look to others in the following order
(1) DD’s descendants by representation
(2) No descendants of DD then to DD’s parents – equally if both survive, or to surviving parent
(3) No surviving descendants or parent then to descendants of the DD’s parents (siblings of parents)
(4) none of the foregoing, then:
50% to paternal grandparents or their descendants
50% to maternal grandparents or their descendants
(5) If only grandparents on maternal side or vice versa then follow (4)
o (b) If there is no taker under subsection (a), but the decedent has:
§ (1) one deceased spouse who has one or more descendants who survive the decedent, the estate or part thereof passes to that spouse’s descendants by representation; or
§ (2) more than one deceased spouse who has one or more descendants who survive the decedent, an equal share of the estate or part thereof passes to each set of descendants by representation.
o HYPO: Barbie & Ken married no kids Ken dies. Ken’s brother bill is still alive but their parents are both deceased—what will Barbie get under UPC? — Barbie will get ALL of the estate
Share of Surviving Spouse
Under MOST intestacy laws, the SS receives at least ½ share of DD’s estate
MOST states: if no kids, then SS shares w/ DD parents. If no parents & no kids, then SS takes all.
Minority – Under UPC, SS receives entire estate to exclusion of all DD’s kids, if all DD’s kids are also kids of the SS AND SS has no other kids.
Same Sex Marriage, Domestic Partners and Intestate Succession: In states the recognize same-sex unions, intestacy succession rights are the same. Domestic partners must make use of a state registry for that purpose.
Per DOMA, no state is required to give effect to same-sex marriage created in another state
In most jurisdiction you are married until divorced is final for intestacy law purposes (jx split)
Ex #1: Barbie and ken had common law marriage. Barbie gets it all because in states that have common law marriage (indistinguishable from formal marriage)
Common law marriage is recognized by full faith and credit, but domestic partnerships are not recognized.
o Ex #2: Barbie does not divorce Ken and goes out and marries Joe so Bigamist marriage. Courts don’t recognize bigamist marriages, so Joe’s marriage is non-existent.
o Ex #3: Barbie and Ken married, no final decree of divorce, but have not seen each other for 30+ years. Barbie gets everything. You are married until divorced for intestacy purposes.
o Ex #4: Bob and Ken instead of Barbie and Ken. Matters what state you are in.
· Bob and Ken got married in New Hampshire (allows gay marriage) and then moved to Texas (obviously does not). Marriage not recognized because gay marriage not protected by full faith and credit.