Trusts and Estates: Cancelosi Fall 2016
The Power to Transmit Property at Death
Trusts & Estates: wealth transfer that is NOT in exchange for services rendered
Donative freedom: historically we believe that people can do what they want with their money in life and death
Positives: encourages old, sick people to freely transfer their money
Negatives: too focused on money
Rights of Succession of Property
Right created by law could be abolished or created
Rights are of statutory creation- the dead hand rules succession only by sufferance
Hodel v. Irving (1987)
Indian land was held in trust and became splintered into multiple undivided interests with dozens of owners. Each estate was worth $2,000 (not considered de minimus).
§207 Indian Land Consolidation Act: eliminated the ability to transfer property by intestacy; upon death of the holder, land escheats to the state
District Court: Statute is Constitutional
1) People who lost property didn’t have vested interest prior to decedent’s deaths- you don’t actually own property that is willed to you until T dies
2) Old view: Congress has the power to abolish testamentary disposition and alter rules of intestate succession (Irving Trust v. Day)
Holding: The “escheat” provision of §207 constituted an unconstitutional taking of decedent’s property without just compensation.
Rule: The government may NOT completely abrogate the right to transfer property at death under the 5th Amendment, although rules restricting transfer of property are fine.
Dead Hand Rule
: it is your property, so you should be able to do what you want with it
: doesn’t consider present circumstances; need a way to deal with unexpected circumstances
Generally, the dead hand controls
Courts don’t tend to question decisions of the deceased, they are just there to facilitate the transfer
Shaw Family Archives v. CMG Worldwide (2007)
Target sold a T-shirt in Indiana that had a picture of Monroe on it. Administrator of Monroe’s estate argues that commercial use of Monroe’s image violates IN’s 1994 Right of Publicity Act.Monroe’s 1962 will devised her residuary estate to three people, including her acting coach.
Historical Rule: Any right of publicity that a celebrity had at time of death died with him or her- it was NOT inheritable/divisible.
1994 Rule: There should be a descendible and freely transmissible right of publicity that survives for 100 years after a person’s death
If this right existed in 1962, had Monroe been alive she would be able to leave the publicity rights to her coach
Rule: A will can devise only property owned by T at time of death.
Law of domicile controls at date of T’s death controls.
Policy: timely administration of estates
Holding: Any publicity rights created after Monroe’s death were not devised as part of her will. Acting coach does NOT get the publicity rights.
The CA and IN statutes that Monroe’s estate invoked do not permit the will of a deceased celebrity to devise a newly created right.
UPC §2-602: property acquired by the estate after the T’s death can be transferred
Newly created right to publicity for 100 years after person’s death.
If UPC had been adopted in this caseà different result
Restatement (3rd) of Property
Property owners have nearly unrestricted right to dispose of property as they please.
Shapira v. Union National Bank (1974)
Father’s testamentary gifts to his sons required each to be married within 7 years of the father’s death to a Jewish girl with Jewish parents, otherwise the estate would go to the State of Israel.
1) Condition violates the Constitution by restricting a fundamental right to marry, and
2) Violates public policy generally because it would encourage marriage to get the inheritance and immediate divorce
Held: Enforcing the condition wasn’t unconstitutional. Court allowed dead hand to rule.
Rule: Gifts conditioned on a beneficiary marrying within a particular class or religion are only a partial restraint on marriage, which is reasonable and valid.
Father has a right to disinherit his son if he wishes (except in LA)
Gifts that are usually held INVALID are those that:
1) prohibit the beneficiary from marrying at all
2) interfere with an existing family relationship, such as: “Child only gets money if they divorce their current spouse” or “child only gets money if they never talk to their mother (donor’s ex-wife)”
3) that restrict a beneficiary from freedom of practicing religion
Destruction of Property Upon Death
Policy: court’s don’t usually enforce requests to destroy property after T’s death- don’t want to encourage economic waste
But, the person can do what they want during their life- assumes they are behaving as a rational economic actor
Transfer of Decedent’s Estate
: passes through probate under the decedent’s will or by intestacy
Types: furniture (won’t pass through probate, though, because worth little), separate mutual funds with no POD provision
Functions of probate:
1) Clears title: provides evidence of transfer of title to new owners
For cars- usually don’t need to go to court because you can just sign affidavit saying you are new legal owner
For real property- may be able to get title insurance without going through probate, but best advice is go through probate and get a clear chain of title so it avoids hassle in selling home
2) Protects creditors
Executor collects and pays debts
Protects taxing authorities- do final tax return for person
3) Court supervises distribution of decedent’s property
1) Property that passes by contract
Life insurance, pensions
Payable on death accounts (mutual funds jointly held)
2) Property held in trust- trustee holds legal title
When decedent moves property into trust, they relinquish legal ownership of that property
3) Joint tenancy
When you have joint ownership during life- property that passes by right of survivorship
Appointment of a personal representative (fiduciary)
Executor: personal representative of probate estate if decedent dies testate
Clear title, distribute assets, deal with creditors
T can waive requirement of bond for the executor to make it easier for them
Administrator: personal representative named by the court based on statutory preference (surviving spouse, child, parents, siblings, creditors)
Will is first probated in state court in which decedent was domiciled at time of death
If real property is located in another jurisdiction, ancillary jurisdiction applies (probate opens in multiple states)
What does probate give you?
Letters of testamentary to an executor (if you have a will)
Letters of administration (if you don’t have a will)
Formal (solemn form probate): notice probate; become final judgments if not appealed; supervised by the court
Informal (common form probate): ex parte probate where no notice or process was issued; personal rep. supervises the estate without going back into court
This is norm under UPC
Barring Creditors of the Decedent
Non-claim statutes (every state has one)
Short-term: bar claims not filed within a relatively short period after probate
Due Process: requires that creditors receive actual notice before they are barred by a short-term statute
Long-term: bar claims not filed within a longer period after decedent’s death
No notice requirement
Closing the Estate
Creditors paid, titles cleared, taxes paid, tax returns audited, real estate sold
Can’t be closed until personal rep has done all that is required of them
Not relieved of fiduciary duty until the estate is closed
Probate court fees, commission of personal representative, attorney’s fee, appraiser’s fee, guardian ad litem fee
“Person dying testate devises real property to devisees, and bequeaths personal property to legatees”.
Traditional rule: will only refers to real property, and a testament refers to personal property (interchangeable today)
Real property “descends to heirs”
Personal Property is “distributed to next-of-kin”
Intestacy governed by statute of descent and distribution
HYPO: Your aunt dies, what should you do?
Contact her family members and probate court to see if she had a will
See if she has a safety deposit box with a will
If there is NO will:
Find out her assets and liabilities- how much property does she own? Where is this property?
Are there any creditors? What are her debts?
Does she co-own property with anyone else that you must notify?
Ask her employer: does she have life insurance? Death benefits (if pension plan)? 401(k) Plan (must notify beneficiaries)?
Ask funeral home directors about immediate process
Look to intestacy statute- if there is no will, where does the money go?
If there IS a will:
Does the will need to go through probate?
If all the assets are in trust, and there is a will, don’t need to go through probate.
Is there probate property or not?
Simpson v. Calivas (1994)
Lawyer drafted will left the “homestead” to son, but he probably meant to write “house”. It is unclear whether this referred to all the father’s real property, or just the house.
randparents, to relatives of grandparents who survive
Minority/UPC: If there are children, the children and their descendants take to the exclusion of everyone else
In some jurisdictions, a portion of the estate might to go to sibling
But, most people want their spouse and children to get everything
Children of a prior marriage might also inherit from their deceased parent
But, MI law does NOT follow the UPC- different percentages, where estate is split between surviving spouse and children
Sons-in-law and daughters-in-law are excluded from taking from decedent’s estate
As more and more claims are added, surviving spouse’s share is reduced
Problem because most people have intangible assets- without a will, this becomes co-owned property by surviving spouse and perhaps children of prior marriage
Recognizing Marriage for Intestacy
Common Law Marriage: holding out to be married
Most states will recognize CL marriage for intestacy purposes, if it was recognized in the state of their marriage
DOMA: If same-sex couple was married in a state where it was recognized, they will not be recognized as legally married for intestacy purposes in a state that does not recognized same-sex marriage.
Legal Separation: depends on jurisdiction
In most states, you are considered married until you are legally divorced
Uniform Simultaneous Death Act
Traditional Rule: If no evidence on order of deaths, beneficiary is deemed to have predeceased the donor. Neither inherits from the other.
Modern Rule/ UPC’s 120-Hour Rule
An heir/devisee/beneficiary who fails to survive by 5 days is deemed to have predeceased the decedent.
Include provisions in will for if one spouse survives for certain time period after the other (usually put 30, 60, or 90 days because person’s family will leave them on life support for 120 hours)
Janus v. Tarasewicz (1985)
Couple died after ingesting cyanide-laced Tylenol.H was pronounced brain-dead on September 29, while W was placed on life support and pronounced dead on October 1.H’s mother filed suit, alleging that there was no sufficient evidence that W survived H.
If H had survived longerà H’s mother would have gotten his life insurance because she was secondary (contingent) beneficiary
If W had survived longerà W’s father would have gotten her husband’s life insurance because father is administrator of W’s estate
Holding: Under the Uniform Simultaneous Death Act, there was sufficient evidence that W survived H, so the proceeds of H’s life insurance policy should be paid to the administrator of W’s estate.
Rule: Survivorship is a fact that must be proven by a preponderance of the evidence by the party whose claim depends on survivorship.
Shares of Descendants: Strict Per Stirpes, Modern Per Stirpes, Per Capita
After spouse’s share is set aside, children and descendants of deceased children take the remainder, excluding everyone else (all jurisdictions).
The surviving issue of the predeceased child take “by representation”
Three models of representation:
1) English per stripes (strict per stirpes): ALWAYS make first division of decedent’s property at first generation of descendants, whether there are live takers or not
If D has 4 children, but one is dead, and the dead child has children (D’s grandchildren):
Divide at first level, living or dead, so each child gets ¼ of estate and dead child’s children share their parent’s ¼ share
2) Modern per stripes (per capita with representation): if no children survived decedent, estate is divided equally at the first generation in which there are living takers, and the dropping shares then drop by bloodline
A dies, leaving children B & C. B & C are dead. B has 1 kid, C has 2 kids.
Each grandkid gets 1/3.