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Trusts & Estates Fall 2015 - University of Virginia School of Law?
General Policy: o Rights to Inheritance vs. Freedom of Disposition vs. Escheat vs. Free alienation o Formality vs. Reflection of Testamentary Intent vs. Default Rule Formation vs. Fraud o Dead Hand Control o Restrictions on freedom of disposition: when can you not decide how to dispose of your property?
o Efficient transfer of property o Trusts as Economic Activity vs. Wealth Transfer (investor vs. caretaker trustee) o Role of Lawyer Mistake/Malpractice o When do property rights vest?
? To whom do you owe a duty---where do they come from and what rights/remedies do they create?
? Present Beneficiary vs. Future Beneficiary o Historical evolution o (Differences in jurisdictions/UPC&UTC) Ch. 1. Freedom of Disposition o Possible Outcomes at Death (5):
? (1) Escheat: property goes to the state
? Rule of construction against this
? See e.g. Marilyn Monroe (right to publicity) case; rights that don't exist at time of will generally escheat
? This is constitutionally permissible: if govt can take some it can take all
? Estate tax: tax on the property of the dead
? Inheritance tax: tax on recipient after they receive the property
? POLICY: Less desirable in our culture
? E.g. USSR tried it, had to get rid of it later because (1) inefficient/high enforcement costs (2) people feel entitled
? (2) No Choice: goes to children/family/etc. by legal scheme
? Mostly just in the past, but this is the case in intestacy
? (3) Will: Pick the owner
? Default in western world
? But see limitations on disinheriting your spouse (except GA)
? (4) Free to choose: can pick the owner and attach restrictions on property
? Case law is murky
? Can't violate public policy
? See Shapira (marry a Jewish girl)
? (5) Free for All: people just take things
? Most common in other countries o Freedom of Disposition
? RULE: generally have freedom of disposition, including reasonable restraints, except where against public policy. Inheritance is not a constitutional right, although you cannot restrict both disposition and devise of property.
? Shapira v. Union National Bank (Ohio 1974): "reasonable restriction"
1 FACTS: equal shares to three children, one daughter moved to israel, and two sons would only get if marry jewish girls with 2 jewish parents w/in 7 years, otherwise would go to Israel (Israel sent lawyers)
? HOLDING: Nothing in this will is against public policy (like a requirement to divorce might be) so it is valid, even if the number of weddable jews is small in the locality.
? HOLDING: no right, constitutional or otherwise, to inheritance. The state may modify and eliminate inheritance procedures and can go as far as to require Escheat.
? POLICY: may be a problem if gay today, or "cannot marry jews," or must get divorced
? Throw out condition and leave provision? Throw out provision too and let pass by partial intestacy?
? POLICY: problem with dead-hand control control is that you can't change your mind after you're dead Maddox v. Maddox (VA 1854) Unreasonable restraint
? FACTS: inheritance conditioned on remaining member of "Society of Friends," by time marriageable age only 5-6 members in her neighborhood, married someone else and lost membership
? RULE: Unreasonable restraint on marriage voids condition because it is against public policy.
? DISTINCTION (Shapira vs. Maddox Rules): no longer "horse and buggy days", larger number of Jewish women in this area, so restraint is reasonable Eyerman v. Mercantile Trust Co. (Mo. 1975): Destruction of Property/Waste
? RULE: requiring destruction of property when no more family members to live there is contrary to public policy Kentucky Red Combs Example (~1990):
? FACTS: condition requiring that med school fire an employee before receiving devise went unchallenged
? PROFESSOR: sort of like divorce, but might not be quite as against public policy Hodel v. Irving (SCOTUS 1987) Cannot Restrict Both Dispose and Devise
? FACTS: Indians granted land with right to rent but not to dispose or to devise---automatically descends to children upon death. Land kept splitting until parcels were unusably small. Congress passes law reverting land to tribe once it dropped below a certain acreage.
? RULE: Statute struck down. State may not restrict ability to both dispose and devise---must allow some method by which to alienate property (must either let dispose of during life, or devise upon death)
? AFTERMATH: people overinterpreted---you cannot completely abolish alienation rights, but you may require to, for example, remain in family
? Pennsylvania Coal Co. v. Mahon (1922) (J. Holmes): takings case, cannot "go too far" Shaw Family Archives Ltd. v. CMG Worldwide, Inc. (SDNY 2007) (Marilyn Monroe) - Posthumously Acquired Property Rights
? FACTS: will said nothing about publicity rights because they didn't exist at the time, left residual (most) to acting coach???
2 RULE: rights do not go to the residuary devisees because you cannot devise (or have a default rule of devise) a right when it does not exist at time of death. Publicity rights escheat into the public domain.
? ANECDOTE: first case recognizing publicity rights was Haelan Laboratories (2d Cir. 1953) where players signed exclusive rights to two competing baseball card companies. Court established privacy right that can be sold, so one company could sue the other (as opposed to the player).
? POLICY: California amended statute for public rights to overrule holding (indiana too now for James Dean) o Probate Executor: person appointed by court or chosen by testator to oversee probate of a will Administrator: person appointed by court to oversee intestacy process Probate Administrative Procedure
? Someone must file paperwork with courthouse
? Probate avoidance:
? If no creditor or other type of dispute then probate is often skipped
? Can avoid probate if estate is if below a certain limit (e.g. 30k), but probate is the ONLY way to testamentarily transfer deed/title to real property (can't get a loan, etc. without chain of title)
? Some states (including VA) allow you to skip probate if the entire estate goes to the surviving spouse
? Set up inter vivos trusts or other will substitute with everything in it
? Will Substitutes Ch. 7 (joint tenant, trusts, life insurance (contract outside of probate), inter vivos gifts, etc.)
? In Probate, property goes to estate first, and is then transferred to devisees
? Creditors get paid first
? SOL for creditors is often the timing restriction until probate assets are transferred
? Administrator/executor has fiduciary duty to creditor; personally liable if creditor doesn't have notice to collect their share (may have to pay!)
? Parallel to trustee's duties
? Normal time period: 1 year SOL
? In re Estate of Pope (Oklahoma 1990) 6 month minimum
? FACTS: OK closed probate after only 90 days. Hospital where testator died, a creditor, claimed this was too short.
? RULE: 90 days is unconstitutionally short (due process). Suggestion that 6 months is the shortest probate can be.
? Current Trend: more ok with shorter probate POLICY: Is Probate Necessary???3
Necessary: For real estate: cannot have clean title for sale or mortgage Unnecessary: Most of the world doesn't have probate Good:
? Evidence of lawful transfer
? Protection for creditors, keep it available and ensure healthy lending market
? Protection of property from others taking it without going through probate
? Prevents heirs from inheriting debt
? Costly (executors get 2-5% not including expenses, also have to hire lawyers/accountants)
? Length (delays inheritance)
? See notice
? If business in estate, may need to figure out how to run it o Professional Responsibility
#4 source of malpractice claims because high emotions/fighting Privity Defence:
? Old Rule: had to be in privity with someone (e.g. drafting lawyer) to sue them for malpractice
? New Rule: privity defense abolished in 41/50 states and DC Conflict of interest
? Ch. 8. Limits on Freedom of Disposition o RULE: limits to freedom of disposition include protections for surviving spouse's (elective share vs. community property), children (LA only), unintentionally omitted pretermitted spouses and children o Elective Share of a Separate Property Surviving Spouse (Spousal Share) Modern Elective Share
? Men and women have the same rights to a share
? Most states require property to transfer in fee simple to spouse, some (NY) allow the elective share to be a life estate
? Procedure: three questions
? (1) What is included in the estate to be split?
? UPC Augmented Estate (Marital Estate) (UPC SS2202, p. 532, plus 13 states):
? NY Augmented estate (Probate estate + all property given away in excess of the gift tax threshold within the 2 years before death) + joint tenancy + the surviving spouse's assets + life insurance + recent gifts + revocable trusts set up deceased + all trusts set up by deceased for spouse.
? Trusts of surviving spouse can come in as an asset (revocable? Vested?) or a recent gift???4
NOTE: this doesn't include any trusts settled by the testator, although some revocable trusts are included in the marital estate in some states like MA (see Sullivan below)
? Traditional Rule: only the probate estate (2) What percent does the surviving spouse get?
? State by state, most use 1/3 or 1/4.???UPC 2-202 sliding scale calculates based on length of marriage: see page 535Add everything togetherUse p. 535 to determine what percentage (3% to 100%) of that is the marital estate. Spouse is entitled to half this marital estateElective share is the difference between the spouse's assets and 50% of the marital estate
? See (4) supplemental $75k (3) Should they get devise or spousal share?
? (1) If there is a will, analyze it to see if spouse gets at least the elective share. If not, spouse has a choice to take elective share instead of their devise.
? Election of share is never automatic and must be elected within period set by statute
? (2) If they take it, they become a creditor (first in line after actual creditors). After spousal share is taken, the named devisees and heirs split the rest.
? State rules of abatement determine whose shares are cannibalized to form the elective share (4) $75,000 supplemental elective share: if spouse's net worth will be less than 75k after taking the spousal share, increase their share until they are worth 75k
? Community Property states don't have elective share (see below)
? Spouse Under Guardianship: guardian can elect the share, but can only take what is needed to support the spouse during their life. Rest goes to the estate.
? Abandoned Spouse: Spouse who abandoned the deceased before their death is not eligible Avoiding the Spousal Share:
? Give everything away before death (but see 2 year rule UPC)
5 ??Revocable Trust: in most states, this allows you to avoid the spousal share
? But see Sullivan v. Burkin (MA 1984): Revocable Trust
? RULE: spousal share applies to revocable trusts if:
? (1) Intend to Defraud: this was done just to avoid the spousal share
? (2) Illusory Transfer: this was not a true transfer because they maintained all the benefits of ownership Georgia: spousal share is just a default, you can entirely disinherit spouse in the will Waiver by Premarital or Postnuptial Agreement
? Modern Rule: spouse's waiver of their share through a prenup or postnup is presumed to be valid
? Historical: militantly antagonistic view to prenup/postnup waiver of spousal share
? POLICY: women were not competent to make decisions like this
? Why this changed: more remarriages (gets split at every split), women more capable of supporting selves, less expectation men will provide
? Prenuptials and Postnuptials:
? Standard for death: (1) "reasonable effort" to disclose assets and (2) there was a "reasonable opportunity" to seek counsel (must not be coerced)
? Courts are less suspicious of
? (1) Prenups/postnups upon death than for divorce
? (2) Mutual Waiver of Rights: less suspicious because it's mutual
? In re Marriage of Bonds (CA 2000) - No Coercion
? FACTS: agreed to marry after she would sign prenup and fly to Vegas. Wife's second language was english.
? RULE: Valid prenup, no evidence of coercion
? RESPONSE: Cali legislature revised statute to make specific obligations that need to be met to be valid, e.g., translation if ESL o Couples in Community Property States w/ Property from CL States: Quasi-community property: Elective share equivalent for community property states. Property acquired in common law state that would have been treated as community property, and
that has not been commingled, is quasi-community property, and a spouse can elect a share of this. (e.g., inheritance/gift from grandma)
? Only important when a couple with a lot of assets moves to a community property state, and then the working spouse dies. Note: the 9 community property states where elective share does not apply use this. (see below)
? Policy: Economic Partnership or Support Obligation?
o Original Justification was for care of spouse (couldn't take care of herself without a man due to societal structure) o Today, it is easier to find work (because men and women have the same rights), so is it based on fairness? (i.e. each spouse plays an equal role in the marriage as an economic unit) o UPC Article 2, Part 2 general comment
? History: o Backdrop: Patriarchal - how do we take care of widows and orphans?
Common Law Principle of Coverture: women cannot own property during marriage Communities used to pay families that took in orphans or widows o Mechanisms: Principle of Dower: life interest in 1/3 of deceased husband's real property (idea is profits from land can be used to support the widow) Statute of Cumulations: surviving widow is entitled to 1/3 of the husband's estate
? Cohabitating Partners/Same Sex Marriage o Issue: Jurors would be biased against same-sex couples and deem will invalid See Kaufman for historical problems of undue influence o Solution: one adopts the other (can't question the law that they are an adoptive child, and giving money to adoptive children makes more sense than to obscure friends) Community Property (9 states)
? Each spouse brings their own property to the marriage which stays separate so long as it is properly earmarked o Majority (slight): interests/rents from these properties are also separate o Minority: interests/rents from these properties are part of the marital estate
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