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Unformatted text preview: Decedents’ Estates and Trusts
© Stephen Hunt, Jr. Spring 2002 I. Introduction A. Ways to transfer property 1. Inter Vivos Transfers a. Expenses, debts, recreation, taxes, etc. b. Outright gifts c. Gifts in Trust d. Gifts Causa Mortis e. Future Interests f. Powers of Appointment 2. Transfers Effective Upon Death a. Probate Transfers i. Intestate Succession ii. Transfers by Will b. Non-Probate Transfers i. Joint Tenancies and Tenancies by the Entirety ii. Life Insurance iii. Annuities iv. Retirement Plans v. Joint interests with Survivorship Rights vi. P.O.D. & D.O.D. accounts (for securities). vii. Inter Vivos Trusts B. Why Avoid Probate? 1. Expensive 2. Slow 3. Public 4. Complex * Simple in a way b/c you just go to court, but then you have to deal with the Court and all its related problems. C. Gifts Causa Mortis – “Deathbed Gifts” 1. If you end up living, it’s considered like a conditional gift. The condition was you dying, so because the condition was not fulfilled (you lived), the gift is revocable. 2. Normally, gifts are not revocable. D. Valid Present Gift of a Future Interest vs. Invalid Testamentary Gift (Gruen) 1. Some transfers may be seen either way (if you give something away during life to avoid inheritance taxes, but you don’t actually give up possession). 2. Present gift of a future interest a. If a valid, it would be OK because it cannot be revoked b. Requirements i. Intent to make a present transfer ii. Delivery (actual or constructive) iii. Acceptance by donee
1 3. Testamentary transfer – would make the transfer invalid (b/c did not meet the will requirements). Also could be revoked. E. Joint Bank Accounts 1. Traditionally, you may have a claim against a spouse for taking “your” money out of the account. 2. Possible Purposes a. To let it go to the spouse after death, while still avoiding probate and giving spouse no rights to it during life. b. To give the joint holder unlimited shared rights during lifetime (sounds the most like an invalid will). c. To empower someone to do your banking for you if you are incapacitated. 3. Approaches to validity a. Stage 2 – Invalid will b. Stage 3 (trend) – You can pass a law saying they can pick either way to have a joint bank account. II. INTESTATE SUCCESSION A. When do Intestacy Statutes become relevant? 1. If people do not write a will, or if will is invalid or only disposes of part of property. 2. Will says “heirs” (that just means people who take by intestate succession, so it doesn’t help. 3. To determine who has standing to contest a will (only people who would benefit under a will have standing to contest the will). B. Policies Behind Intestacy 1. Stage 1 – To protect the Upper class. 2. Stage 2 & 3 a. To try to approximate the wishes of the decedent. b. Social interest in providing for the decedent’s family c. Maintaining conventional family morality (support your family) d. Might want to stop large concentrations of wealth from passing to other generations, because having a few families control everything can be bad. C. Fundamentals of Intestate Succession 1. The Share of the Surviving Spouse (status elevates over time) a. Stage 1 i. Surviving Spouse not an heir of real property; only personal property. ii. System tried to protect the upper class (wealth = land; oldest son takes everything). iii. Illegitimate children took nothing. iv. Widow got Dower Interest -- 1/3 of all real property of which her husband was seized during his lifetime. -- Not what he dies owning, but what he ever
2 owned, unless the wife released her claim to it. -- Only a life estate. v. Husband got Curtesy Interest -- Life interest in all wife’s real property (not just 1/3, but only if a child is born alive to the marriage. b. Stage 2 (p. 67) i. Kindred and no issue – depends on how large estate is. ii. Issue – spouse takes half of both personal and real. iii. No kindred and no issue – spouse takes all. c. Stage 3 (UPC, p. 69) i. Spouse takes all if no descendant or parent survives, or if all children are biological or adopted. ii. Diminishing shares after that iii. Different if step-children are involved. d. Miscellaneous i. Ex-spouses do not take through intestacy ii. But if you’re in the middle of the divorce process, and the divorce is not final, the soon-to-be ex-spouse will take through intestacy. 2. Descendants take to the exclusion of Collaterals a. Descendants = children, grandchildren, great-grandchildren b. Collaterals = brothers, sisters, nieces, nephews 3. Parents take to the exclusion of other relatives, if there are no issue. 4. Only blood relatives, spouses, and adopted children take through intestacy – not stepchildren, or in-laws. D. Determining Degrees of Kinship 1. Table of Consanguinity, p. 66 2. Civil Law Method (Most Common) a. Count up to the common ancestor, then count down, and add the two numbers together. 3. Canon Law System a. Count number of steps from the intestate to the common ancestor. b. Then count the # of steps from the common ancestor to the potential heir. c. But don’t add the #’s together; degree = larger. Heirs with smallest #’s will inherit. 4. See Examples: Beyer, p. 32-33. E. Lineal Descendants (Schemes of Representation) 1. Per Stirpes (Beyer, p. 22) a. People in the same degree of relationship come out differently. b. But each family group comes out equally c. Younger generation descendants divide the share the older generation descendant would have received if that older generation descendant survived the intestate. 2. Per Capita with Representation (“Modern Per Stirpes”)
3 a. Statutory language, p. 68. Examples, p. 23 Beyer. b. If all descendants are of the same degree of kindred, they share equally. c. If they’re not all in the same degree, they take by representation (like per stirpes). d. More likely to be in harmony with the deceased’s wishes, so used in a majority of states. 3. Per Capita at Each Generation (U.P.C. approach) a. Statutory language, p. 81. Examples, p. 25 Beyer. b. People of the same generation share equally. c. Whatever is left to divide, divide it equally among the last generation. d. Begins like Per Capita with Representation, but once the division into shares is done at the first generation with survivors, the shares created on behalf of the deceased members of that generation are combined and then distributed per capita among the younger generation heirs. F. Escheatment (Property goes to the state) 1. Stage 2 – If no kindred, widow, or husband, it escheats to the state. 2. Stage 3 – You have to be related at least through the grandparents of the decedent, or you do not take by intestate succession. 3. “Laughing Heir Statutes” may cut off intestacy to some more distant relatives. G. Halfbloods 1. UPC – Halfbloods and whole bloods take equally (modern trend). 2. Mississippi – Whole-blood relatives take to the exclusion of halfbloods, if they are of the same degree of relationship. But it was interpreted to favor a whole-blood neice/ nephew to the exclusion of halfblood sibling, based on the theory that the neice/nephew took through the whole-blood sibling. 3. Florida – If half- and whole-bloods are in the same degree, the halfbloods get half as much as the whole-blood. 4. Ancestral Property Rule – If the decedent received the property by devise, gift, etc., from a relative, then half-bloods are excluded from taking that particular property. (some states) H. Adoption 1. Adopted persons are generally treated just like people born to the family for inheritance purposes. 2. So how are you treated as to your biological family line? a. Stage 2 – Adoption completely cuts off the biological line. b. U.P.C. – Generally, adoption cuts off the biological line, but if you are adopted by a step-parent, then you can still inherit through your biological parent. i. It only runs one way – the biological parents may not inherit from the child who has been adopted. ii. Includes inheriting from biological grandparents too.
4 3. In any case, if you don’t treat the child as a child, or if you refuse to support the child, you may not inherit from or through them. (U.P.C. Rule) 4. Older child adoptions (foster families) are treated just like infant adoptions. 5. If stepparent does not adopt (b/c natural parent will not consent), but wants to and treats the child like his own, can the child inherit from the stepparent through intestacy? a. Usually not. b. California rule (minority) – they can inherit, if i. Relationship began during the child’s minority and continued through life. ii. Stepparent would have adopted but for legal barrier (lack of consent) 6. If the adopted child predeceases, the grandchildren may take from the adopted father through intestacy. 7. Equitable Adoption a. Relevant for foster care or for children cared for by relatives. b. Based on the legal fiction that there is an implied contract between the parent and the caregiver that the caregiver will adopt the child. Smolin says that’s silly, contrary to most people’s intent. c. Some states have a law that says you can’t take through a parent by equitable adoption, just from them. 8. Adult Adoption a. Often done just to allow someone to inherit. b. Should not be used for homosexual couples. I. Non-Marital Children 1. Stage 1 – considered the “children of no one”; not allowed to inherit. 2. Stage 2 – can inherit from mom, but not dad. 3. Stage 3 –Generally, the child may inherit if paternity is established a. Cases (Supreme Court!) i. Trimble v. Gordon – invalidated a law that allowed a non-marital child to inherit from her father only where the parents had legitimated the child by marrying each other and the father had acknowledged the child during lifetime. -- The law excluded some categories of non-marital children from inheriting even though their inheritance rights could have been recognized without jeopardizing the orderly settlement of estates. ii. Lalli v. Lalli – Court upheld a law which allowed a nonmarital child to inherit only where there had been a declaration of paternity prior to the father’s death. -- Concerned with the orderly distribution of estates. iii. The standard for dealing with illegitimacy is intermediate scrutiny b/c illegitimacy is a quasi-suspect class under EP. Test = whether the classification is
5 substantially related to an important government interest. b. Must decide what kind of proof of paternity is required, and when the proof must be offered. c. Influenced by modern science/ DNA testing. d. Also lessening societal disapproval of single-family households, and a rise in their numbers. People feel like the children should not be punished for the actions that brought them into the world, which were beyond their control. e. Idea that “the dead should rest,” when determining paternity after death (i.e., digging up people to do DNA testing). May be bad for reputations, and for people still living, and dead guy has no chance to respond. J. Simultaneous Death 1. Issue: To inherit from the decedent, you must “survive” him/ her. 2. Stage 1 – You had to survive, but only by an instant. Problems: a. Hard to determine who died first, particularly if they both died in the same accident, etc. b. Determining who died first can be determinative of which spouse’s heirs take (if they have no issue) i. If W dies first, H’s parents, siblings, etc. will take all (because in-laws do not inherit through intestacy). ii. If H dies first, H’s will take all. 3. Stage 2 (Uniform Simultaneous Death Act, First Version) a. Rebuttable presumption that each spouse survived the other, absent sufficient evidence of the order of death. i. When looking at W’s property, assume H died first and let W’s stuff go to her relatives. ii. When looking at H’s property, assume W died first, so H’s family takes. b. Still causes litigation over who died first. 4. Stage 3 – Revised Uniform Simultaneous Death Act (U.P.C.) a. Heir must survive the decedent by 120 hours (5 days) in order to inherit, unless escheat would result. So you may have a situation in which neither one survives the other. b. Issue of life support – keeping someone alive to be a “survivor.” c. Seems to be better rule. d. Wills should state their own rules as to survival requirements for persons to take, and may wish to state a longer time period (like 30 days). K. Disclaimer 1. Why would you disclaim an inheritance? a. To keep your creditors from getting it. If you disclaim it, it will go to another family member. b. Burden/ undesirable property/ gift (ex: toxic dump) c. To avoid estate taxes
6 d. Spendthrift provisions. 2. Common Law – You could disclaim an interest gained by will, but not an interest gained through intestacy. 3. Now, you can disclaim property gotten both by will and by intestacy, subject to procedural requirements and certain limitations. 4. Federal disclaimer statute governs federal tax implications. 5. U.P.C. requirements include: a. Timing – must be filed within 9 months of death. b. Formalities – must be filed in the county where the estate is. c. You must give notice to those responsible for the estate. 6. Courts may rule that the equities favor particular kinds of creditors when considering whether to grant a disclaimer (ex: guy wanted to disclaim an inheritance so the girl he beat up couldn’t get $ from the judgment) 7. Courts may say that you cannot disclaim a “mere expectancy.” 8. A disclaimer “relates back” – you’re treated as if you never had it. 9. Bankruptcy a. 2 courts have said that a disclaimer executed before a petition for bankruptcy is filed is effective to cut off rights of the bankruptcy trustee. b. It’s less clear when you execute the disclaimer after filing for bankruptcy. 10. Public Assistance – Usually, disclaimed assets do not count toward your eligibility threshold for public assistance. L. Advancements 1. Issue: If the decedent gives it away before she dies, does that count against the heirs’ intestate share? 2. Common Law a. A substantial gift to a child created a rebuttable presumption that it was an advance of the child’s intestate share (takes it out of the inheritance). b. Burden is on the heir to show that it’s not an advancement. 3. U.P.C. a. Presumption that it is not an advancement. b. Requires a writing to show that it is an advancement. III. PROTECTION OF THE FAMILY * Basic Idea: To what extent can you disinherit your spouse or children? In general, there is some protection for the surviving spouse, but less for children. A. Surviving Spouse 1. Stage 1 – Dower and Curtesy 2. Stage 2 – “Elective Share” Ideas a. Based on state law, so some variance, but basically, a surviving
7 spouse can elect a statutory share (usually 1/3) of all of the property, real and personal, within decedent’s probate estate. b. If they die intestate, you get the intestate share. If they die with a will, and the will leaves you with less than the elective share, you can elect the statutory share. If the will gives you more than the statutory share, you will take under the will. c. Only comes from the probate estate; therefore, the decedent can try to avoid the elective share by reducing the probate estate during life (by non-probate transfers like living trusts or gifts). d. Fraudulent Conveyance Statutes protect against completely disinheriting the spouse i. Tennessee—Conveyances made “fraudulently” with “intent” to avoid elective share, are void. ii. Missouri – Testate or intestate gifts made “in fraud of marital rights” can be elected to be applied to payment of the spouse’s share. Conveyances made without spouse’s assent are presumed to be “in fraud.” iii. These statutes provide little guidance – vague and uncertain intent requirements. e. Some states have objectified, making property subject to the elective share where the settlor of the trust retained a general power of appointment – i.e., the ability to enjoy the principal. 3. Stage 3 – Augmented Estate – Very Complex – Started in New York a. Very large reach – includes probate estate and probate avoidance devices, making it difficult to remove assets from the augmented estate by inter vivos transactions. b. The share varies depending on how long you’ve been married (1 year = 3%; 15 years = 50%) c. The augmented estate includes the assets of both spouses, so if SS has the bulk of the assets, SS can be disinherited without having a right to elect. 4. Waiver of elective share a. Like a pre-nuptial agreement b. You can waive the rights, but only if you meet certain requirements i. Majority: Disclosure and Conscionability ii. U.P.C.: Disclosure, conscionability, and voluntary. iii. Minority: Unconscionability alone will void. 5. Other Protections a. Homestead Allowance i. Decedent’s homestead is exempt from creditors. ii. SS and children enjoy the protection too. b. Exempt property i. Certain property (furniture, automobiles, furnishings, appliances, personal effects) may not be touched by creditors.
8 ii. Up to $10,000 in the U.P.C. c. Family Allowance i. SS and dependent children may receive a payment out of the estate for their maintenance during the period of administration. ii. Will not be applied against their share of the estate. 6. Community Property vs. Common Law Systems a. Common Law (AL) -- Your property is your own in marriage. b. Community Property (AZ, CA, ID, LA, NV, NM, TX, WA, WI)– What you earn during marriage belongs to the “community” (both of you). i. “Separate Property” is an exception: -- Owned prior to marriage -- Did not commingle it into community property -- Inherited it during marriage ii. Management issues in Community Property states: -- Both of you may need to sign off -- For certain kinds of property, one or the other may approve. -- The one who earned it controls it (but that’s difficult to determine) c. Moving between different systems i. Can create a double interest if you move from community property to common law. (community share plus elective share). ii. SS may lose out if you move from common law to community property (SS has no community property, and has lost common law protection). * So many states call it “quasi-community property”, treating it as community property, or create an elective share statute just for this circumstance. B. Children 1. Except for in Louisiana, you may intentionally disinherit your children. 2. Pretermitted Heir Statutes protect children from accidental disinheritance. 2 kinds: a. Protect all children who are left out, unless it is clear that it was intentional. i. Some states allow extrinsic evidence of intent; some do not. b. Protect only omitted children who were born or adopted after execution of the will (after-born children), unless: i. It appears from the will that the disinheritance was intentional, or ii. Decedent provided for the child outside the will. 3. A good will makes it clear what to do about omitted children, or
9 afterborn children. If the will is good, pretermitted heir statutes are irrelevant. 4. Will contests can be an unofficial means of trying to check disinheritance, due to juries’ sympathetic attitude toward disinherited children and fuzzy legal standards. IV. WILLS A. To have a valid will, you must meet all of the complex formalities: 1. Reasons for the formalities: a. Protect against fraud, mistake, or undue influence b. Ritualistic – underscores importance/ seriousness c. Evidentiary – strong evid of Testator’s intent d. Channelling – sends it through the legal system (lawyers know more). 2. Traditional requirements (Texas statute, p. 193) a. In writing b. Signed by Testator (T), or by proxy c. In the writing of T, or attested d. At least 2 W’s e. W’s are credible f. W’s are over 14. g. W’s must sign in their own handwriting h. W’s sign in the presence of T. 3. U.P.C. requirements (p. 193) – more relaxed. a. In writing b. Signed by T or in T’s name by another individual in T’s presence and by T’s direction. c. Signed by at least 2 individuals, w/in a reasonable time after witnessing T’s signing or T’s acknowledgement o...
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