Trusts & Estates – Cancelosi – Fall 2016
Introduction: Freedom of Disposition
: a set of default rules established by the CTs for when a person dies w/o a will
: document drafted by an individual which will dispose of their property in a way they see fit once they pass
Non-probate transfers: anything that doesn’t pass through probate court. Most of property passes this way
: most flexible, most property falls into trusts, give property/money to someone else during your life + then it passes upon your death or at some point in time determined by the creator
: passing on of property upon death. In modern law, refers to those who die without will
: process of proving a will as valid or invalid, appoint rep who will distribute assets in the estate
Hypo: Bob is very wealthy. Married twice, first wife died. First marriage -2 kids, one severely disabled. Second wife: 3 kids from prior marriage. Bob dies. Will leaves entire estate, including significant inheritance from first wife, to his second wife. What happens?
Assuming will is valid, second wife gets everything.
What rights do his children have? Can contest in probate court. Standing to challenge will if would have taken an intestacy but for the will.
If you disinherit your children, there is going to be a lawsuit!
What could first wife had done to prevent this result?
Create trust, give to Bob, remainder to children.
What if Bob, instead of disinheriting children, disinherited second wife?
Can’t completely disinherit spouse in some states. Community v. separate property
What if Bob leaves everything to wife and charity?
Separate property state: charity gets everything except for forced share that wife elects. Children get 0
What if Bob dies intestate?
Split between current wife and children. (The actual division varies by state)
If you could change W&T law, what might you do? What do other countries do instead?
In other countries, forced succession: even if you have will, can’t completely disinherit children. Property passes to spouse, children, other dependents. Escheats to state if no dependents. NOT so in the U.S.
: Can disinherit children everywhere except in Louisiana.
Reasoning for U.S. approach:
Freedom of testation: everyone gets to choose what to do with their own money.
Problem: concern of family dynasties, wealth accumulation
Ultimately lead to Rule Against Perpetuities: prohibits wealth from remaining in family indefinitely
Also, children might not need $$, may not have good relationship with children
Effects of U.S. approach:
burden of providing for children is now placed on taxpayers.
Dead hand control allowed, but creditors’ and surviving spouse’s rights are protected.
Look at actual or probable intent of decedent
Succession: law of wills, intestacy, trusts, charitable foundations, death taxes, future interests
Freedom of Disposition and the Dead Hand: Court can’t deviate from will
Shapira v. Union National Bank – example of incentive trust (enforced unless against public policy)
Left estate to 3 children. Son Daniel to receive share if spouse is Jewish; otherwise, share to be kept by executor for 7 years. If son is unmarried within 7 years, or spouse non-Jewish, estate goes to Israel. Son is 21, unmarried. Argues condition is unconstitutional, against public policy, unreasonable.
Held: Condition is reasonable.
14A right to marry protected from restrictive state action (Loving v. Virginia). Argument that upholding provision would constitute state action prohibited by 14A under Shelley v. Kraemer fails; court not being asked to enforce any restriction on son’s right to marry, only to enforce the will’s restriction
Partial restraint conditioning inheritance on marriage with someone with certain characteristics (ex: faith) are not considered unreasonable only b/c not prohibited from marrying anyone.
Maddox v. Maddox: remainder to niece only if she marries member of Society of Friends held unreasonable restraint on marriage where only 5-6 eligible bachelors were members.
Fineman v. Central National Bank: argues condition will encourage him to marry Jewish girl, then divorce after getting estate. Rejected as too remote.
The fact that estate was to go to Israel shows deceased’s desire to preserve Jewish faith.
Variation: If restricted marriage to a Jewish girl born to Jewish parents, raised in ultra-orthodox community, 20miles away from Jerusalem → probably wouldn’t be upheld.
Variation: Estate to daughter if she gets a divorce → probably wouldn’t be upheld b/c against policy – disrupts family relations. (Anything that gets in the middle of existing family relationship isn’t upheld).
Restatement 3d of Trusts: balance freedom of disposition with social values, effects of control on others’ freedom. Invalid if unnecessarily punitive or unreasonably intrusive
Destruction of property at death: allowed to destroy property while alive, but seen wasteful upon death
Hypo: Build house, but write in will that you want the home destroyed upon death – Unenforceable as wasteful. (Could’ve torn home down during your lifetime).
The Donor’s Prerogative: inheritance is given without regard to donees’ competence or performance
Theory of the Dead Hand:
Many reject natural theory of testation (right to control property after death) b/c it accumulates wealth in a small # of people
Counter: people want to be able to gift their belongings to others, otherwise the value of the property is reduced
Freedom of testation supports social services (providing care in exchange for wealth upon death of relative)
Difficult to curtail freedom (would find other way to transfer wealth)
“Father knows best” – can best distribute own estate
Comports with political preferences (want to honor deceased’s wishes)
Freedom of disposition: passes according to will or default system that looks at probable intent of typical decedent (followed in U.S.) But creditors must be paid first.
Hodel v. Irving: Land Acts allotted land for Indians and non-Indians. Land to be held in trust by U.S. Indian Land Consolidation Act caused land to escheat to tribe if it’s unproductive in the year prior to owner’s death, or represented 2% or less of total acreage (§ 207), but Congress didn’t compensate owners once land escheated. (Couldn’t be devised or pass through intestacy). Done in order to protect the land from white settlers. Indians leased land to white settlers, land was fragmented. Since it was held in trust, it couldn’t be alienated, so it just became more and more divided.
Appellees sue for property, arguing that it was a taking; all died intestate and owned 41 land subject to Act. Though income gained from the land by each owner was very small, Gov’t placed value on the escheatable interest of the estates. Appellees can’t show specific investment-based expectations
Issue: Whether gov’t can make it impossible for people to devise property?
Held: Complete abolition of descent of property IS a taking. Right to give away land is an independent right (out of bundle), that can’t be taken away by gov’t. Can place various limitations, but can’t abolish power of testation. Could’ve required that tribe members write a will, otherwise their land would escheat to tribe.
Mechanics of Succession: Probate and Nonprobate Property:
: Transfer of property through watchful eye of probate court. Two paths: intestacy and through will.
Why go through probate? Make sure heirs get what they’re supposed to, creditors get paid, clear title.
Hypo: Aunt dies suddenly. Not married, no kids. You are closest living relative, and get a phone call. What do you do?
Find out if she had a will.
Look through her things to try to locate an attorney she might have contacted.
Look at what her property is, where it is.
Figure out whether you even need to go through probate.
Classify probate v. non-probate property.
Probate: intestacy or will
Non-probate: everything else.
If you determine that you must go through probate, then:
Determine who executor is. (Easy if it’s in the will. Otherwise, the person is an administrator (If intestate) — Identical job, different title.
Figure out jurisdiction. (Primary administration always takes place in court where person domiciled at time of death.)
But say the person also has a condo in FL. → Ancillary administration b/c you have to deal with the property in accordance with FL probate laws of real property.
Personal representative has to collect, inventory everything. (Look through every single paper, coat pocket).
You have fiduciary liability if anything happens to these items on your watch.
Must manage these assets during time of administration is pending.
Can just put it in money market account. Must apply rules of investing to ensure you have managed $$ well. Can be liable if you haven’t appropriately done so.
Pay creditors, clear title.
Distribute estate according to will or intestacy.
ture ($20k), mutual fund ($10k), joint checking ($3k), life insurance policy naming wife as beneficiary ($50k). No real property.
Debts: Utilities ($80), Visa ($600), Dept. store card ($250), Funeral costs ($8k), cemetery lot ($600).
: go to Secretary of State to transfer title and registration. Take death certificate and fill out affidavit. (Cars are the only piece of titled property that you can transfer very easily, non-probate! Caveat: if car worth more than $60k, must go through probate to clear title)
: Typically no probate. Exception: antiques, real jewelry, old books (1st ed). Think about garage sale — no one will ask for title for your $10 cookie jar.
Note: Most states have some small estate provision that will let it pass without court involvement. MI: transfer by affidavit allows small estate – must wait 28 days after death to file.
Mutual fund: Depends on how it’s titled. If POD provision. Sometimes married couples have joint tenancy with right of survivorship.
Joint checking: Most common! Likely joint tenancy with right of survivorship; survivor owns it free and clear.
Life insurance policy: Non-probate. Passes to specified beneficiary. Life insurance policy will always pay it to the beneficiary that is listed!! Even if their will states otherwise. Must follow directions in changing the beneficiary
Pension plan: See if there is a POD specified beneficiary. NOTE: Any pension plan will override state law! Must change beneficiary on employers, especially former employers. If you’re an ex-spouse, don’t think you can just take your ex’s money and be able to keep it; court will always overturn it – bright line!!
What should she do with will? Must it be offered for probate? Must there be administration of husband’s estate?
What caution do you need to give spouse? non-claim statutes.
If Green was a small business owner, liabilities may attach to estate. You risk spouse not knowing anything about her H’s business.
What if Green died intestate, and the statute provides that if survived by spouse and children, spouse gets ½, and children get ½.
(Most times, if not a lot of $$ and adult children, kids won’t push for division of remaining estate, but not always). .
Universal succession: (Europe and Louisiana) heirs step into decedent’s shoes – take title, assume all liabilities (creditors, taxes)
If O has 3 heirs, they take O’s property as tenants in common
NOTE: UPC allows universal succession as alternative to probate. Heirs can petition for it, and are given power of ownership to deal with estate assets. Become personally liable to creditors, etc.
Duties to intended beneficiaries:
Simpson v. Calivas p. 52: Foreseeability of injury to intended beneficiary is an exception to privity of K.
Facts: Simpson Sr.’s will left all real estate to son except for a life estate to his second wife in their “homestead located at X Road, Dover, New Hampshire.” After death, son and wife filed joint petition seeking determination of whether homestead referred to all property on X Road (house, 100 acres of land, buildings) OR just real property (house). Probate court didn’t consider attorney’s notes taken during consultation which insinuated that homestead only referred to house, and gave the wife a life estate in all property. Lawyer probably didn’t stop to think that homestead has broader meaning, was using legally even though ‘House” would’ve been enough).
Issue: Does atty owe duty of reasonable care to intended beneficiaries? Does finding of probate court on testator intent collaterally estop party from bringing malpractice action?
Held: Yes – but there was malpractice in this case.