TRUSTS & DECEDENTS’ ESTATES
I. Introduction to Estate Planning (Pgs 1-58)
Donative intent = what the deceased intended to happen to his estate. For every question, consider:
What is DI in this case? Is it being furthered or frustrated in this case?
Your opinion of DI within the present case.
Is it always good to elevate DI?
Are we REALLY driven by DI or is it just “lip service” in many cases?
Heir = inherits intestate. NOBODY HAS ‘HEIRS’ UNTIL THEY DIE.
Devises = inherits via a will
Beneficiary = receives from a trust
HODEL V IRVING (P3)
Re: Testamentary disposition of Indian Property. Not about the rights of people to inherit, but about the rights of people to dispose of property after death.
This case marks a significant change in SCOTUS perception of the right to transfer property after death. It’s now considered a valuable right that cannot be abolished. It can be regulated, but the legislature cannot abolish it.
Transfer of wealth issues
Pros: preserves individual right to pass on property, providing for future generations, encourages savings, encourages people to take care of you in old age for hope of getting in the will, relieves the state of the burden of taking care of your family
Cons: high concentration of wealth in a few individuals, power imbalance, Paris Hilton issues
Dead Hand = the testator trying to control people with his/her money even after death.
SHAPIRA V UNION BANK
Re: “Marry a Jewish girl or your share of my estate is going to Israel.” Son challenged the will, court upheld it.
Takeaway: the testator’s conditions on inheriting are only restricted when his provisions are “truly unreasonable”
Restrictions on fundamental rights are unreasonable, but the court has to find that it’s actually restricted (court found son’s fundamental right to marry wasn’t restricted)
Restrictions on non-fundamental rights are more or less reasonable.
Unreasonable examples are usually based in public policy): you can never get married, you have to use the money to fund terrorists, Maddox example (you must marry a “Society of Friends” member even though there aren’t any living in your state and you can’t travel), you have to divorce your spouse, you can’t talk to your siblings.
Destruction of property: Should T’s request to destroy his estate be honored? (E.g. Justice Holmes’ notes, Mother Theresa’s letters)
Yes: Should honor donative intent
No: Doing so creates economic and historical waste.
Note: Most courts will not enforce provisions calling for the destruction of property
Creditors get their debts repaid from the estate before the will beneficiaries/devises get their share
T’s assets = probate property and nonprobate property
Probate = property that passes through T’s will or intestacy if T didn’t have a will
Nonprobate = property that passes outside of a will or intestacy
Most property that passes after death is nonprobate. Most nonprobate assets cannot be passed through wills (trusts have their own rules).
Joint tenancies (real estate, bank accounts, stock accounts)
Life insurance/Contracts with POD provisions
Retirement plans (401Ks, pensions). Remainder to named Bs or family members.
Interests in trusts
Even with a will, it may not be necessary to go through probate
Cars (and even some bank accounts) will transfer title with ID, death certificate, and an affidavit saying you’re the sole or appointed heir.
Many states have “small estate” provisions that transfer possession. If the total value of the estate is less than X dollars, you can just file it with the state. It doesn’t transfer title (which frequently isn’t necessary), but it does transfer possession.
Main functions of probate:
Inventory and collect the decedent’s assets
Pay off the decedent’s creditors
Clear title to other property (real estate, vehicles, etc…)
Manage assets during administration
Distribute the remaining assets to those entitled to them (devises or heirs)
Common perception of probate: expensive, time consuming, eats up all the estate
Reality: Having a will doesn’t mean that you have to go through probate, but not having one means you lose all control of your estate.
Hypo about bus accident: If you die in a bus accident but don’t have a will with an executor. Your estate can’t sue the bus company to provide for your heirs. You can with a will.
The bigger the estate, the more likely that probate is required.
Trusts help avoid probate, but trusts are only as good as what you put into them. Wills are good for “sweeping up” what you forgot or didn’t have a chance to put into a trust.
GOING THROUGH PROBATE
Where do you file for probate?
If decedent only lived in one state, file for probate in the state where the decedent was domiciled.
What about snow birds? (Domiciled in MI, half the year in FL)
Domiciled MI = primary jurisdiction.
Then you get to hire new lawyers to file for probate in the ancillary jurisdiction (FL)
Letters of execution with a will
Letters of administration without a will
Appoint a personal representation. Job = Collect and inventory decedent’s assets, pay creditors, manage estate, distribute assets
If T had a will, the personal representative is called the executor
If T died intestate, the personal rep is called the administrator.
Hierarchy of appointment: spouse, children, parents, siblings. If there are NO family members to be found, then it goes to a creditor. This hardly ever happens. Court will pick ANY relative over a creditor.
Statute of limitations (If you miss the SOL, you’re SOL)
SOL for contesting a will (usually 3 years from the date of death)
Intestate or can’t find the will = 3 years. Even if you find the will after 3 years, you can’t contest it.
After the executor/administrator completes the duties (Collect, pay debts, distribute), s/he must file an accounting with the court. If the court is satisfied with your job, they will discharge you. You are not relieved of your fiduciary duty to the estate until the court releases you.
Liability to will beneficiaries.
Simpson v Calivas (P49)
T’s attorney (Calivas) drafted a will for O. O has a son and a second wife.
O’s intent was to Leave a life estate in the house to the wife and leave the land around the house to the son.
The lawyer just wrote: A life estate to the wife for the “homestead.” Probate found the language ambiguous; it eventually decided that “homestead” meant the house AND the land. Son had to buy land from Wife instead of getting it through the will
Son successfully sued T’s attorney for negligence in writing the will and breach of contract for failing his fiduciary duty to the will beneficiary.
Majority view (including MI): Estate lawyers have a fiduciary duty to the intended beneficiaries of a will.
Minority view (including TX): They don’t.
Conflict of interest
Hotz v Minyard (P54)
Complicated fact pattern, but basically Attorney wrote two wills for Dad, but also provided legal advice for Daughter for many years. Daughter considered the attorney her financial advisor
Attorney, per Dad’s instructions, showed Daughter an invalidated copy of Dad’s will to mislead her (the valid will partially disinherited her). Daughter sues lawyer for breach of fiduciary duty when she finds out.
Court found that because of Attorney and daughter’s long professional relationship, he at least owed her a duty of good faith and honesty. Remanded to see whether an actual breach occurred.
Model Rule 1.7 (Conflict of interest) =
You can’t represent a client if his interests are directly adverse to the other client, and you also can’t represent A if your representation will be limited by your representation of B.
There are exceptions to the above rules, but you must get informed consent from both A and B (usually in writing)
Issue because many elderly clients come to see lawyers with family members. Sometimes it’s necessary to get the family member’s help, but it’s critical to know exactly who your client is for purposes of fiduciary duty, confidentiality, and conflict of inte
Distribution: If B were alive, A, B, and C would each take 1/3 of T’s estate. Because B predeceased T, E and F will divide B’s share. Final breakdown: A takes 1/3, C takes 1/3, E takes 1/6, F takes 1/6, D and G take nothing.
More complicated scenario:
Three basic systems used to determine how T’s estate is distributed to C, D, and E:
English Per Stirpes (Used by 14 states)
Method: First divide the estate at the level of T’s children: Half goes to A and Half to B. Then divide A and B’s shares among their children.
Result: C gets ½ because he was A’s only child, D and E each get ¼ because they split B’s share.
Modern Per Stirpes (used by nearly half of the US)
Method: First see if any of T’s children survived. If they did, use English Per Stirpes distribution. If not, the estate is divided equally at the first generation where there are living takers. Each line beginning at the closest living generation is treated equally; further generations are divided.
Result: C, D, and E each get 1/3 of T’s estate.
Same chart except A survived T: A gets ½, D and E each get ¼, C gets nothing.
Same chart except E died, leaving behind F and G: C gets 1/3, D gets 1/3, F and G each get 1/6 (dividing E’s share)
Per Capita at each Generation (Used in 12 states, including Michigan)
First divide T’s estate at the first level that someone’s alive. Here, divide it into thirds, so C gets 1/3
Take the remaining estate and divide it equally amongst the next generation. Here: D, E, and F, equally divide the remaining 2/3 of the estate.
Final result: C gets 1/3; D, E, and F each get 2/9
Same chart except E died before T and left behind G and HèC gets 1/3, D and F each get 2/9, and G and H each get 1/9. (1/3 + 2/9 + 2/9+ 1/9 + 1/9 = 1. Meh.)
Basic distribution hierarchy:
Spouse (Or spouse and kids) first
If no spouse, to kids
In half the US (including MI) and the UPC, if no spouse or kids, to T’s parent(s)
No spouse, kids, or parentsèTable of Consanguinity (P 79)
First go down the line. If you can’t find heirs going down, move over one.
Repeat until you find an heir. If you don’t find an heir, estate escheats to the state.
How far down the Consanguinity chart should we look for heirs?
“Laughing Heirs”: people so distantly related to T that they don’t feel sad about his death, so they laugh all the way to the bank when they inherit.
UPC and MI: if you don’t find any heirs in the grandparents’ line, you stop looking.
Two basic schemes if there are no “first line” collaterals (P80)
Degree of relationship system = go to the closest of “kin.” Counting degrees of kinship.
Definition: look at the table, look at the numbers on the left hand sign.
Usually, once you get past the parents line, instead of just going down the grandparents line, you count degrees.
E.g., under this system your first cousins once removed are NOT as close to you as your great aunts.
Parentelic System = go down your grandparents line until you find an heir, then great grandparents, then great great…
HALF-BLOODS VS WHOLE BLOODS
Historically, only “whole-bloods” could inherit in intestacy
Today, most states (including MI) and the UPC say that Half Blood Rights = Whole Blood Rights.