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Trusts & Estates ClowneyFall 2012
Testamentary Freedom
Restatement (Third) 10.1The controlling consideration in
determining the meaning of a donative document is the donors
intention. The
donors intention is given effect to the maximum extent allowed
by law.
DEFAULT RULEProperty owners have the nearly unrestricted right
to dispose of their property as they please RATIONALEThey know how
to best use their assets EXCEPTIONS
(1) Testator cannot use will to achieve any purpose that runs
counter to the law (ex. T cannot condition a gift on avenging their
death)
(2) Testator cannot do something that is against public policy
to not violate public policy it needs to be
Clear Reasonable Giftover - Sometimes look to see if property is
going to an alternative; shows T was thoughtful
Difficult to divine; examples contradictory; lots of power to
judges (3) Some courts limit a Ts right to destroy property in a
will because it is wasteful
Force the testator to internalize costs LOOK AT PURPOSE OF THE
GIFT! Ex. pro-jewess > anti-shikse
Shapira v. Union National Banks (1974)Father make a will; he has
3 kids. The gift to the 2 boys was conditioned upon the fact that
they
marry Jewish girls with Jewish parents. ProblemThis is not
flexible. If alive, the testator could meet the girl and change his
mind. Sons arguments(1) Violation of the 14
th Amendment (depriving him of the right to marry); court
disagreed because will did not
restrict his right to marry, he just wouldnt get the money;
also, there is not state actor (2) Violation of public policy
(people should be free to marry who they want); court disagreed and
said a reasonable restraint on marriage is not against public
policy
Public policy is very hard to nail down, but here the court said
this was PERMISSIBLE HOLDINGCourt said that restraint on marriage
is ok if it is:
(a) Clear (b) Reasonable (c) Presence of a gift overif the
condition is not fulfilled, money goes to a third party; shows T
really thought about it (only
important in some cases)
HYPOS: T leaves his son $10 million, but if he joins the
Catholic church within 7 years, he gets nothing NOT ALLOWED;
coercive, against public policy;
anti-Catholic T leaves his son $10 million, but he must remain a
good Catholic Too subjective, courts dont like T leaves son $10
million if he divorces his Catholic wife within 5 years of Ts
death. If he doesnt, the money goes to an anti-Catholic league
Look at purpose; if it is to encourage divorce, it is not ok; if
it is to take care of his son, it is ok T leaves son $10 million if
he marries a non-African American woman within 10 years of Ts death
Different than Shapira because the public
policy there was the right to get married
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Tax Issues
Estate taxWhole fortune; enforced before distributed, on the
decedent Inheritance taxTax on person who receives the money; rates
vary based on relationship of the decedent to the beneficiary
Kentucky has an inheritance tax, 3 classes: CLASS A: No tax
(parents, spouses, children, grandparents, brothers, sisters) CLASS
B: $1000 exempt, rest is taxed 4-16% (nieces, nephews, aunt,
uncles, and great grandchildren) CLASS C: $500 exempt, rest is
taxed 6-16%
Federal estate taxGenerally imposed on the net value of property
owned by the decedent plus the value of property over which the
decedent had substantial control
Only really wealthy people are subjected to this tax (less than
1% of Americans); no estate tax imposed unless you have more than
$5.12 million (45% rate after that)
Con - huge administrative costs Unpopular tax for several
reasons: (1) Double taxation (2) Optimism (Im gonna get rich) (3)
Ignorance of how few actually pay (4) Branding - death tax (5)
Gruesome Rationale
(1) Revenue raisingDoesnt do a good job with this justification
because of the very small number of people taxed and high
administrative costs (some say it is revenue negative)
(2) LevelingForm of social engineering designed to break up
large fortunes (3) Wealth Redistribution promotes faster
development
MAJOR LOOPHOLE
People with large estates can just give away their money before
death; this is the reason that there is also a gift tax; BUT not
every gift is taxed
Exceptions: (1) Annual exclusion (up to $13,000 per year) per
person (e.g. husband and wife) (2) Medical expenses (3) Tuition
payments that go directly to the school (4) Spouses (because they
are one economic unit) (5) Lifetime exemption (additional $5.12
million over the course of Ts life) per person (e.g. husband and
wife) (6) Charity
TAX FREE LIFETIME GIFTSOver the course of a persons life and
death, they can give away $5.12 million tax free Ex.) $63,000 gift
to son-- $13,000 is exempt; the other $50,000 goes towards the
$5.12 million
Donor pays taxes on taxable gifts
CALCULATING ESTATE TAX (easy) (1) Calculate everything the
decedent hasall assets owned at death (2) Determine the exemption
applicable in the year of death (3) Subtract exemption amount from
taxable estate (this year= $5.12 million) (4) Multiply balance by
35 %( 0.35)
CALCULATING ESTATE TAX (medium) (1) Calculate decedents GROSS
ESTATE (anything transferred by will, property held in joint
tenancy, revocable trusts, life
insurance, etc.) (2) From GROSS ESTATE, certain DEDUCTIONS are
authorized by the Code. Gross estate Deductions= TAXABLE ESTATE
(a) Expenses of administration (b) State death taxes (c) Charity
(d) Marital deduction (unlimited)
(3) Add back in any TAXABLE GIFTS made during life (ex. gifts
above $13,000 that didnt go to spouse, charity, medical, or
tuition); purpose is to figure out how much of the $5.12 million T
used during their lifetime
(4) RATE SCHEDULE is applied to produce a TENTATIVE ESTATE TAX
Over $5.12 million, tax is $155,800 + 35% of anything exceeding
$500,000
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(5) Subtract any CREDITS (gift taxes already paid) Tax credit
from $5.12 million exemption; Credit on $5.12 Million would be
$1,772,800
Assets - Deductions = Taxable Estate Taxable Estate + Taxable
Gifts = Tentative Estate Tax Base (Tentative Estate Tax Base -
500k)(0.35) + 155.8k - (tax credit of $1,772800) = liability
HYPOWolverine dies with $9 million in assets. In 1996, he gave
Storm a gift of $3,013,000. He also gave Professor X $10,000
every
year. Wolverine is unmarried. 2 million to the Red Cross (1)
Gross estate= $9 million (2) $9 - $2m = $7m (3) Prior taxable
gifts= $7 million (gross estate) + $3 million (gifts)= $10 million
tentative estate tax base (4) Apply rate schedule =
($10m-500k)(0.35) + $155,800 = 3,480,800 (5) $3,480,800 $1,772,800
= $1,708,000 = ESTATE TAX LIABILITY
BASIC TAX PLANNING STRATEGIES: What can you do to avoid paying
taxes? (1) Aggressive use of the annual gift tax exclusion of $13K
- wife and husband to all kids, grandkids; brother and his wife
give to your
kids in exchange for you giving gifts to their kids, etc. (2)
Use gift tax exclusion for tuition and medical expense payments (3)
Take full advantage of the marital deduction (4) Life insurance, if
configured properly, not part of decedents estate
(5) Make sure to give all of the $5.12 million lifetime giving;
both parents should use the full exclusion (ex. $10.24 million
estate= W dies; should leave H $5.12 million and kids $5.12
million)
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The Probate Process
PROBATE PROPERTYproperty that passes through probate under the
decedents will or by intestacy; (1) establishing validity of will
(2) monitoring distribution of decedents probate assets
No law says that probate is mandatory NON-PROBATE
PROPERTYproperty that passes outside of probate under an instrument
other than a will; distribution does not involve a
court proceeding Examples
Joint tenancy property (survivorship); life insurance; contracts
with payable-on-death provisions; interests in trusts; joint bank
accounts
TESTACY - dying with a will Bequeathto give away personal
property in a will (i.e. anything that isnt land)
Legateeperson who receives the personal property Deviseto give
away real property in a will
Deviseeperson who receives the real property
INTESTACY - dying without a will Personal property is
DISTRIBUTED to NEXT OF KIN Real property DESCENDS TO HEIRS **Give
is the best verb to use in drafting wills because it cannot be
attacked
Subject Noun Verb Recipient
Realty Devise To devise, to descend to heirs Devisee
Personalty Bequest To bequeath, to distrubte to next of kin
Legatee
Why is probate unpopular?
(1) Privacy concerns - will becomes a public document (2)
Expensive (court costs, attorneys fees) (3) Time consuming
Why is probate good? (1) Dispute resolution (2) CreditorsWhen
you start probate, it starts a short statute of limitations (3)
Protects creditors (4) Clears title for real estate (very
important!) (5) Prevents waste/ theftcan prevent abuses of personal
property
When should you probate? (1) If money is in a bank account, you
might need probate to release it (2) If real estate is left (3) If
there is a question about who is an heir (4) If there are any
potential claims from creditors
HOW PROBATE WORKS (1) Death certificatetake to courthouse with
will
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(2) Need personal representative appointed (a) If named in will
EXECUTOR (b) If no will ADMINISTRATOR (appointed by court;
determined by statute)
DUTIES OF EXECUTOR/ ADMINISTRATOR
(1) Marshall the assets: Collection, Inventory, Appraisalgets
letters testamentary (like a power of attorney) which says you can
deal with decedents things
(2) Determine if formal or informal probate (3) Pay debts -
executor has no personal liability (estate in bankruptcy) (4) Pay
taxes (5) Distribute assets (6) Formal transfer of estate property
according to the will or by state laws of intestate succession (if
no will) (7) Notice: goes to all known kin; ad in the paper for
creditors
Intestacy
Intestacy is common Only 30% of people die with a will If you do
not make a will, intestacy statutes kick in Benefits of making a
will:
(1) Personal autonomy; you get what you want (can give money to
friends who wouldnt take under intestacy) (2) Less fighting (maybe)
(3) Name guardian to take care of kids (4) Name your executor (5)
It is easy
Why do people not make wills?
(1) People dont like to think about death (2) Takes time (3)
Think its unimportant/think they dont have anything (4) Expensive
(5) Privacy issues
PARTIAL INTESTACYWhen the testator does not account for all of
the things they own when they die, intestacy laws kick in for the
remainder
POLICIES BEHIND INTESTACY STATUTES
(1) Look to what they average person would want Problemmost
people are not average
(2) Family protection UPC 2-101. Intestate Estate. Any part of a
decedent's estate not effectively disposed of by will passes by
intestate succession to the decedent's heirs as prescribed in this
Code, except as modified by the decedent's will. A decedent by will
may expressly exclude or limit the right of an individual or class
to succeed to property of the decedent passing by intestate
succession. If that individual or a member of that class survives
the decedent, the share of the decedent's intestate estate to which
that individual or class would have succeeded passes as if that
individual or each member of that class had disclaimed his [or her]
intestate share. UPC 2-102. Share of Spouse.
a. Alone in the World no descendant or parent of the decedent
survives the decedent, spouse gets entire estate b. Nuclear Family
all of the decedent's surviving descendants are also descendants of
the surviving spouse and there is no
other descendant of the surviving spouse who survives the
decedent, spouse gets entire estate c. No kids but Parents the
first *$ 300,000+, plus three-fourths of any balance of the
intestate estate, if no descendant of the
decedent survives the decedent, but a parent of the decedent
survives the decedent;
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d. Shared kids and Kids of Surviving Spouse the first *$
225,000+, plus one-half of any balance of the intestate estate, if
all of the decedent's surviving descendants are also descendants of
the surviving spouse and the surviving spouse has one or more
surviving descendants who are not descendants of the decedent;
e. Decedent has Kids-Not Shared the first *$ 150,000+, plus
one-half of any balance of the intestate estate, if one or more of
the decedent's surviving descendants are not descendants of the
surviving spouse.
Shared Kids Spouses Kids Decedents Kids Parent Spouses Share
Only Spouse No Doesnt matter No No 100%
Parents Alive No No No Yes - remaining estate
$300k + remaining estate
Nuclear Family Yes No No 100%
Will Smith (if
Jada dies) Yes Yes No $225k + remaining estate
Evil Stepmother Doesnt matter Doesnt matter Yes $150k +
remaining estate
Problems with UPC
No protection for children if survivor decided not to give kids
money Spouse under the UPC is not really defined; generally gay
couples are not protected; transgender Doesnt protect
co-habitators
HYPOS H & W are married. They have no kids or surviving
parents in UPC jurisdiction. Who takes under intestacy? 2-102(1)(a)
explains
that the wife takes 100% H & W are married and have one
daughter. Who takes under intestacy? 2-102(1)(b) explains that the
wife still takes 100%. The
thought is that the child is the wifes and she will take care of
her. R & J are married and have no kids. All parents are alive.
R dies intestate. Who takes under intestacy? 2-102(2) explains that
J
gets the first $300,000 plus of anything else. Most of the time,
the wife will get all. W & J are married and have 2 kids from
their marriage and 1 from Ws prior marriage. J dies. Who takes
under intestacy? 2-
102(3) explains that W gets $225,000 plus of balance. A & D
get married. D has 3 children from a previous marriage. D dies. Who
takes under intestacy? A gets $150,000 plus of the
balance.
KENTUCKY RULESpouse gets first $15K in personal property, then
personal property; real estate KY tries to keep money and property
in the bloodline. Mitigated some by dower laws. BAD FOR SPOUSES.
KRS 391.020
When a person dies intestate and without issue owning real
estate of inheritance which is the gift of either of his parents
the parent who made the gift, if living, shall inherit the whole of
such estate.
If a person under the age of eighteen (18)... HYPOS
J has $350,000. J has 2 children with R and 2 from a previous
marriage. What is Rs share under the UPC? According to 2-102(4), R
gets $150,000 + ($200,000)= $250,000
What if R dies first? According to 2-102(3), J gets $225,000 +
($125,000)= $287,500 Under KY law? $15,000 + ($235,000)=
$182,500
2-103. Share of Heirs Other Than Surviving Spouse. Any part of
the intestate estate not passing to the decedent's surviving spouse
under
Section 2-102, or the entire intestate estate if there is no
surviving spouse, passes in the following order to the individuals
designated below who survive the decedent:
to the decedent's descendants by representation; if there is no
surviving descendant, to the decedent's parents equally if both
survive, or to the surviving parent; if there is no surviving
descendant or parent, to the descendants of the decedent's parents
or either of them by representation; if there is no surviving
descendant, parent, or descendant of a parent, but the decedent is
survived by one or more grandparents or
descendants of grandparents, half of the estate passes to the
decedent's paternal grandparents equally if both survive, or to the
surviving paternal grandparent, or to the descendants of the
decedent's paternal grandparents or either of them if both are
deceased, the descendants taking by representation; and the other
half passes to the decedent's maternal relatives in the
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same manner; but if there is no surviving grandparent or
descendant of a grandparent on either the paternal or the maternal
side, the entire estate passes to the decedent's relatives on the
other side in the same manner as the half.
ORDER: (1) Children, (2) Parents, (3) Parents descendants i.e.
Siblings/Nieces/Nephews, (4) grandparents and grandparents
descendants, (5) Spouses family?
Simultaneous Death If W dies before H Ws money goes to H and
when H dies it all goes to his parents ONLY Order of death can have
profound impact on who gets what; but the COMMON LAW was totally
unprepared to deal with the problem of
simultaneous death USDA (Uniform Simultaneous Death Act)If no
sufficient evidence to show who died first, treat as if A survived
and as if B survived Janus v. Tarasewicz (1985)H and W return from
their honeymoon to go to the funeral of Ws brother. Both take
Tylenol laced with cyanide
and both die. Life insurance policy of H: If W survives, goes to
W. If W dies first, goes to mother. HOLDINGFound sufficient
evidence that W outlived H. The judge in this case read sufficient
to mean some) REMEDYAdd in your own clause to will that says if H/W
survives you by 30/60/90 days STANDARDSufficient evidence; PROBLEM
is that sufficient evidence isnt high enough to avoid fights; CLEAR
AND CONVINCING
might be better (but still face some policy reason) UPCUse 120
Hour Rule: An heir or devisee who fails to survive the decedent by
120 hour (5 days) is deemed to have predeceased the
decedent; CLEAR AND CONVINCING EVIDENCE is the standard that
they survived 120 hours Best practice is to extend to 60 or 90 days
(let them enjoy it, live a little)
Shares of Descendants In ALL jurisdictions, after money goes to
the spouse, it all goes to the kids (children take remainder of the
property) When one of several children has died before the
decedent, leaving descendants, all states provide that the childs
descendants shall
REPRESENT the dead child and divide the childs share among
themselves RATIONALEKids will get from parents; Administrative
costs Complications raise when a child predeceases their parents
THEORIES:
(1) English Per Stirpes Ask: How many living branches of the
family? Each living branch gets the same amount GOODTreats all
branches equally BADNot all grandchildren get the same amount;
seems to reward families with less kids KENTUCKY RULE About 1/3 of
the states follow this system
(2) Modern Per Stirpes (also called per capita with
representation) Ask: Where is the first living generation? Like the
per stirpes method but makes the initial division at the first
generation where we have someone alive Only get a difference with
per stirpes when all of the first generation is gone About of the
state follow this system
(3) Per Capita at Each Generation UPC Method: 2-106(b) Everyone
is a like generation and gets a like amount Initial division of
shares is made at the level where one or more descendants are alive
(like modern per stirpes), but the shares
of the deceased persons on that level are treated as one pot and
are dropped down and divided equally among the representatives on
the next generational level
RATIONALEEqually near, equally dear About 12 states follow this
system 6/24
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If 4 is the only sibling alive, he gets and...
English and Modern Per Stirpes PCEG
a, b and c 1/12 3/28
d and e 3/28
f and g 3/28
h, i and j Nothing Nothing
If all siblings are dead...
English Per Stirpes PCEG and Modern Per Stirpes
a, b and c 1/12 1/10
d and e 1/10
f and g 1/10
h, i and j 1/12 1/10
There are no living descendants if only a son or daughter-in-
law is left. For example, if Granny has 3 kids (1,2 & 3) and 3
is married to
A, if 3 dies before Granny and 1 & 2 survive Granny, 1 &
2 each take and A gets none. PREFERRED ORDER EVERYWHERE:
(1) Spouse (2) Kids (3) Parents (4) Siblings (5) Nieces/
Nephews
Shares of Ancestors & Collaterals Collateral KindredAll
persons who are related by blood to the decedent but who are not
descendants or ancestors are called collateral
kindred First Line CollateralsDescendants of the decedents
parents, other than the decedent and the decedents descendants
Second Line CollateralsDescendants of the decedents grandparents,
other than the decedents parents and their descendants If there are
no first line collaterals, the states differ on who is next in the
line of succession. 3 main systems are used:
(1) PARENTELIC SYSTEM Under this system, the intestate estate
passes to grandparents and their descendants, and if none to
great-grandparents and
their descendants, and if none to great-great-grandparents and
their descendants, and so on down each line (parentella) descended
from an ancestor until an heir is found
1st
parentellaIf you have linear heirs (parents and children), look
to see if anyone descended from your parents is still alive
(siblings, nieces, nephews)
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2nd
parentellaIf no one is living from that group, ask: are your
grandparents for anyone descended from your grandparents alive
(uncles, cousins)
3rd
parentellaIf no one is alive in the 2nd
, move to the 3rd
people who descended from your great-grandparents
(2) DEGREE OF RELATIONSHIP SYSTEM - Consanguinity The intestate
estate passes to the closes of kin, counting degrees of kinship. To
ascertain the degree of relationship of the decedent to the
claimant, you count the steps (counting one for each
generation)
up from the decedent to the nearest common ancestor of the
decedent and the claimant, and then you cont the steps down to the
claimant from the common ancestor. The total number of steps is the
degree of the relationship
Use Table of Consanguinity
(3) UPC METHOD (2-103) This method solves the problem of
laughing heirs by drawing the line at grandparents and their
descendants LAUGHING HEIRSpersons so distantly related to the
decedent to suffer no sense of bereavement, laughing all the way to
the
bank Look at the 1
st parentella; If nothing, look at the 2
nd parentella; If nothing there, it escheats to the state
Adopted Children Adoptions are purely statutory law because it
was not recognized in the English common law (because they were
concerned with
primogeniture) Halll v. Vallandingham (1988)
ISSUEWhether MDs law regarding natural inheritance by adopted
persons should be construed as to deny the appellants the right to
inherit through their natural paternal uncle when they were adopted
as minors by their stepfather after the death of their natural
father
HOLDINGCourt said no; since an adopted child cannot inherit from
their natural parent, they cannot inherit THROUGH the natural
parent by way of representation
LAWThe old law was that when you were adopted, you lost the
right to inherit through your natural parent. The new law did not
explicitly say that an adoptee had no rights to inherit from the
natural parent
REASONINGThe court said that the new law wasnt meant to change
the content; they didnt want to allow DUAL INHERITANCE; concerned
about giving adoptees more rights than others
UPC METHODKey determination is whether there is a parent-child
relationship.
2-116: If such a relationship exists, the parent is a parent of
the child and the child is a child of the parent for the purpose of
intestate succession by, from, or through the parent of the
child
2-118(a): Regarding adoption, a parent-child relationship exists
between an adopted child and the adoptive parent, but not between
an adopted child and the childs genetic parents, with several
EXCEPTIONS:
EXCEPTIONS: 1. If adopted by a spouse of a genetic parent, you
can inherit through both 2. If adopted by relative of genetic
parent you can still inherit through both 3. If adopted after death
of genetic parent
STRANGER TO THE ADOPTION RULE (old rule)an adopted child is
presumptively barred from inheriting except where donor is the
adoptive parent As adoption became more common and more socially
acceptable, courts began to carve out exceptions to the stranger to
the adoption
rule EXCEPTION: An adopted child might be permitted to take if
adopted before, but not after, the testators death In most states
today, a minor adopted by A is presumptively included in a gift by
T to the children, issue, descendants, or heirs
of A. This presumption yields to a contrary expression of intent
by the donor
ADULT ADOPTION Minary v. Citizens Fidelity Bank (1967)A sets up
a trust for H and her 3 sons. When the last of these 4 dies, she
wanted to give some
to heirs and then to the church. Alfred knows he is the last one
left and when he dies, the money will go to Ts kids and the church
so to fix this he adopts his wife.
LAWFor purposes of succession, adopted children shall be
considered natural and legitimate child HOLDINGAdoption of an adult
for the purpose of bringing that person under provision of a
preexisting testamentary
instrument when he clearly was not intended to be so covered and
should not be permitted The court saw this as an act of subterfuge
and a violation of As intent (however, Clowney says we have no clue
of As intent)
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UPC - no one adopted after age 18 counts as a class gift (to
heirs) UNADOPTION
It is very hard to undo an adoption Risk of an adult adoption
and bringing them into an inheritance scheme
EQUITABLE ADOPTION
Court proceedingall interested parties Very technical, formal
area of family law Person who was raised from infancy by another
doesnt become the latters child for purposes of intestacy if not
formal proceeding However, some may be treated as if they had been
formally adopted under equitable adoption LEGAL REQUIREMENTS: If no
formal proceeding, what do you need?
ONeal v. Wilkes (1) Agreement between natural and adoptive
parents (2) Performance by giving up of child (3) Performance by
child in living in adoptive parents home (4) Parents take child in
and treat it as their own
Why scholars dont like the focus on contract law that permeates
equitable adoption: (1) The child doesnt have the capacity to
contract (2) Partial performance by the child (3) Child is often
hurt by not recognizing equitable adoption (4) Entire point of
equity is to get around formalities
NON-MARITAL CHILDREN
Historically, a child born out of wedlock was filius nulliusa
child of no oneand could inherit from neither his father nor mother
Trimble v. Gordon (1977)SCOTUS said it was illegal to completely
cut off inheritance rights of non-marital children because the
child
is innocent and shouldnt be punished However, state statutes
still LIMIT inheritance K.R.S. 391.105An illegitimate child can
only inherit through the father if a) parents participate in a
marriage ceremony before or
after the birth of the child (even if the marriage is void); OR
b) if adjudication of paternity before death of the father or if
after, by clear and convincing evidence (basically need DNA)
POSTHUMOUS CHILDREN (Conceived while father alive)
RULE(KRS) Under law, a child is in being at conception as long
as it is born alive. As long as a wife has a child within 10 months
of a husbands death, it is presumed to be his
A typical posthumous child case involves a child who is
conceived before, but born after, a fathers death. REBUTTABLE
PRESUMPTIONThe normal period of gestation is 280 days (10 lunar
months). If the child claims that conception dated
more than 280 days before birth, the burden of proof is usually
upon the child. UPA 204establishes a rebuttable presumption that a
child born to a woman within 300 days after the death of her
husband is a
child of that husband
ASSISTED REPRODUCTION Posthumously CONCEIVED childrenthe general
rule is that a posthumously conceived child is, by definition, a
non-marital child even
though the childs parents might have been married prior to a
childs conception Woodward v. Commissioner of Social Security
(2002)H had leukemia. He found out that the treatment would leave
him sterile and he
made a donation at a sperm bank so that his wife could get
pregnant. After Hs death, W used the sperm and had twin girls.
Resulted in a fight with Social Security over survivor benefits
WIFES ARGUMENTSShe said that since there is a genetic relation,
they should always be allowed to inherit; Social security argued
that since the girls were not in being before his death, there was
no inheritance
TESTNeed to show CONSENT to both HAVE the kids after death and
CONSENT to SUPPORT them REASONING
(1) Best interests of the childjudge says it is always going to
be in the best interests of the children (although could argue it
is hurting the interests of pre-conceived kids) (2) States interest
in orderly administration of estates (3) Reproductive autonomy of
the deceased (not sure of his intention even though he wanted kids
while alive)
OTHER APPROACHES:
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1. RESTATEMENT (THIRD) OF PROPERTY 2.5To inherit from the
decedent, a child produced from genetic material of the decedent by
assisted reproductive technology must be born within a reasonable
time after the decedents death in circumstances indicated that the
decedent would have approved of the childs right to inherit.
a. Problem the reasonable time language is kind of mushy 2.
UNIFORM PARENTAGE ACTDecedent must consent to posthumous
reproduction in a record 3. CALIFORNIA RULEA child of the decedent
conceived after the death of the decedent shall be deemed to have
been born in the
lifetime of the decedent if: a. Clear and convincing evidence
that decedent consented in writing b. Notice to decedents estate
within 4 months of his death that posthumous reproduction is a
possibility c. Child is in utero within 2 years of death d. **Seems
to be the most attractive rule**
SURROGACY
Still a very up in the air area of the law Options:
(1) Genetic parents (2) Surrogate/ husband (3) Third
partycontractor
ENGLISH RULEChilds mother is the person who gives birth; the
woman of the commissioning couple is NOT the mother even if her
eggs were used. Where the surrogate is married, her husband is the
father unless he can prove that he did not consent
CALIFORNIA RULEParents are determined not by genetic material
nor who gave birth, but solely by the intent of the parties as
shown by surrogacy contract
UPC 2-121In the absence of a court order to the contrary, the
surrogate does not have a parent-child relationship with the child
unless the surrogate is the childs genetic mother and no one else
has a parent-child relationship with the child
Other courts uphold the genetic relationship
Advancements (Prepayment) COMMON LAWPresumed that ANY gift given
to a child was an advancement, or prepayment of their share of the
estate
REASONINGWhen a parent dies, presumed intent is equal
distribution of assets. The only way to get this is to consider
gifts a parent made during their lifetime
HOW TO DO THIS: (1) Add up all gifts given to a child during the
parents lifetime (use value when gift given) (2) Add back into
HOTCHPOT (the decedents estate) (3) Divide this amount into even
shares among the heirs (4) Amount the child received previously
should be charged against shares of the heirs
UPC 2-109The UPC hates advancements and reverses the common law
rule: A lifetime gift is presumed NOT to be an advancement UNLESS
it is shown to have been intended as such
REASONINGDont want heirs to fight REQUIREMENTMust be stated IN
WRITING that it is an advancement by decedent or acknowledged in
writing by heir
KY LAWGifts from parents and grandparents are considered
advancements. However, for gifts for the maintaining or educating
or the giving of money, to a child or grandchild, without any view
to a portion or settlement in life, shall not be deemed an
advancement
NOT A GOOD LAW Ideas for a better law: (1) Make a distinction
between real and personal property; (2) Presumption of no
advancement but compelling
evidence can overcome that presumption; (3) Presume all large
gifts are advancements Advancements only apply when there is no
will, but a good trust and estates lawyer will ask about gift given
during life
HYPOS S dies without a will, leaving 3 nephews H, D & L.
Before S died, he gave H $100,000. S leaves behind $50,000. How is
it divided?
D= $25,000; L=$25,000 You DO NOT have to pay back advancements
because it is obvious that Ss intent was for H to have at least
$100,000
Before S died, he gave H a house worth $100,000. S leaves behind
$500,000. At the time S dies, the house is worth $300,000. You use
the amount of the gift at the TIME IT IS GIVEN (here $100,000). UPC
says it is whenever he takes possession or when S dies, whichever
is first Hotchpot= $600,000; D=$200,000; L= $200,000; H= $100,000
plus house he was previously given
When Children Inherit: Guardianship and Conservatorship of
Minors
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A minor has neither the legal capacity to manage property nor
the legal power to make most choices about how and where to live.
GUARDIAN OF THE PERSONperson who has responsibility for a minor
childs custody and care
If no person is designated by parents, the court will appoint a
person, usually from among the nearest relatives The guardian has
no authority to deal with the childs property
PROPERTY MANAGEMENT OPTIONS (1) GUARDIAN OF THE PROPERTY Default
option
Court appointed Not favored and want to avoid PROBLEMSGuardian
is tasked only with PRESERVATION, not trying to grow the property,
just make sure it doesnt decrease;
have to get courts permission for everything; expensive;
difficult to dip into principal for needed expenses (2)
CONSERVATORSHIP Better option
Court appointed Person gets title to property Better than
guardian because only requires 1 trip to court per year; more
flexible; can invest more aggressively
(3) CUSTODIAN Made through will Uniform Transfers to Minors Act
(UTMA)
Only used in estate planning Better because flexible, limited
court supervision (only if minor contests); can dip into principal
if it is beneficial to the minor
(4) TRUSTEE Best option Most flexible, least court supervised,
tailored to specific family characteristics Needs the most
planning
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Will Execution
Will Formalities
Requirements 1. Intent (no real test but best approach: Did the
Testator really intend this document to pass his stuff at death?)
2. Testamentary Capacity a. Age of Majority b. Sound Mind 3.
Formalities a. Signed b. 2 Witnesses c. Written Weird Formalities
d. Publish - declare before witnesses that its your will e.
Subscription - must sign at end of will
Formalities 1. Protective: makes it more difficult to bring
fraudulent claims and by protecting testators intent 2.
Evidentiary: ensures that documents offered for probate truly
reflect testators intent 3. Ritualistic Function: makes testator
appreciate the gravity of will making 4. Channeling Function:
standardization makes everything easier English Rule - Compliance
with Wills Act Required testator to sign or acknowledge will in
presence of two witnesses at the same time Justified by slippery
slope argument that fraud and forgery will run rampant Groffman
need to have signature made in presence of witnesses C/L of Strict
Compliance to will formalities Tests for Presence of Witnesses
1. Line of Sight/Presence Test (RULE) a. Witness needs to have
been in position to see the signing if they were looking at the
paper
2. General Consciousness a. be in general area of signing;
hear/see it, generally aware of it
Problems with Video Wills (majority rule is that videotapes do
not equal writing)
1. no ritual function 2. funnel people to lawyers 3. tampering
4. difficulty in finality
Signature Issues
1. Shows finality 2. Any mark can work as a signature e.g., an
X
a. testator must intend it to authorize the will 3. DONT hold
someones hand as they sign 4. Subscription - Signature typically
needs to be at the bottom 5. KY Rule: can sign for someone with
their authorization
Issues with Witnesses Witnesses may not remember signing a
will
1. Attestation Clause: boilerplate language states that the
formalities of the will has been satisfied, in the will
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2. Self proving Affadavit: separate paper generally attached to
back of will; get it notarized, affirming that requirements of will
have been satisfied
a. Substitute for witness testimony in court
Interested Witnesses 1. Common law - Invalidate the will 2. Void
interested witnesss gift 3. Purging Statute - many states only void
gift to extent it exceeds what beneficiary would get in intestacy
What to do with leftover part: a. Residue Clause b. If son was
residue taker, intestacy to someone else 4. UPC doesnt purge and
says the will is valid
Estate of Morea 2 of three witnesses were also beneficiaries Son
was allowed to serve as witness even though he was beneficiary b/c
he did not benefit from will, took less than he would have in
intestacy Supernumerary Witness - when an interested witness is
extra he takes full bequest
How to do Ceremony
1. Focus on state law, will needs to be in state of testators
residence 2. Pages numbered staples (once) and bound well
a. If will contest appears inevitable, find old friend whi is
not a beneficiary; can testify to mental state of friend 3. Use
good witnesses (secretaries are the best) 4. Get everyone in the
same room (not beneficiaries) 5. Ask: Do you recognize this
document? What is it? Have you read it? Do you understand how it
disposes your property? 6. Testator signs, make sure everyone can
see 7. Witness reads attestation clause 8. Witnesses sign
self-proving affidavit in front of notary 9. Get notary to stamp
that shit, HARD 10. Who keeps it? some states dont allow attorney
to keep will, UPC does
a. Safety deposit box is the best 11. Tell them not to write on
it 12. Make a copy
Notarized Wills UPC 2-502(a) provides for notarization as an
alternative to attestation Why does a notary equal 2 witnesses: 1.
Serves PERC functions as well as attestation 2. Lay people believe
that notaries have legal effect
Tyranny of Formalities
1. Strict Compliance a. Poorly executed formality is treated as
something like fraud
2. Substantial Compliance a. testamentary intent is needed b.
sufficiently approximated the statutory formality and enables act
to conclude that it serves the purpose of the will act
3. Dispensing power c. Dispensing of formalities if you show by
clear and convincing evidence they intended it as a will a.
Codified in UPC 2-503
Holographic Wills Requirements:
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1. Entire will MUST be in Testators handwriting 2. Signed 3.
Doesnt need a witness Rationale: extra genuine, cheaper, more
private (Clowney Loves Them), good option in emergencies Issues:
deception, intent issues, lack of knowledge How much must be
written? 1. Everything (Ky. Rule)--must be (a) written (2) signed
and (3) dated (traditional approach) 2. Material Provisions (1969
UPC)-- all material provisions must be written but some aspects may
be typed (date) a. Test: Can you eliminate the typed provisions and
still have a will? 3. Material Portions (1990 UPC)-- extrinsic
evidence allowed and only material portions required (date and
introductory section may be typed) Conditional Wills: courts may
ignore the condition if it does not happen (but see Shapiro)
Revocation Wills are ambulatory-can be modified at anytime
during the lifetime of the testator Requirements to Revoke
1. mental capacity 2. intent to revoke 3. Affirmative
act/substantial step
Presumption- if will is missing there is a presumption that the
testator destroyed it, but this is a rebuttable presumption
Note: if you can rebut the presumption, then you can use
extrinsic evidence to establish by clear and convincing evidence of
the contents of the will
May be able to use substantial compliance or the dispensing
power to prove a revocation Thompson v Royall mutilation needs to
be on the face of the will, not on the back Mutilation
Approaches:
In some states, physical act needs to touch the words of the
will (Royall) UPC 2-507: would allow revocation by physical act
regardless of the act touching the words of the will
Revocation of a copy:
Not good enough, revocation needs to be to the original will
Partial Revocation
Traditionally partial revoked sections were ignored unless
unreadable, then whole will may be struck down UPC 2-507: allow
partial revocation by physical act
Subsequent Wills
If two wills are mutually exclusive, the second one prevails
Codicil - second document does not distribute all property
Revoking codicil does not affect will Revoking original will
revokes codicil too
Divorce
Statutes in almost all states provide that divorce automatically
revokes portion of will to ex-spouse Most states do not extend the
divorce revocation to spouses family UPC goes farther and revokes
gifts to divorced spouses relatives
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Revocation by Subsequent Writing Prior will may be expressly
revoked by writing that complies with the formalities
Dependant Relative Revocation (DRR)
If testator purports to revoke a will based on a mistaken
assumption of law or fact, the revocation is ineffective if the
testator would not have acted if he or she knew the truth
Classic DRR example: Testator makes earlier will, she revokes
earlier will to make later will. Something wrong with later will
(often formalities). Rather than distributing testators assets
through intestacy, law treats earlier will as never revoked.
However, it may be shown that intestacy may be a better choice
then the previous will--what is closer to Ts intent Can use DRR for
mistake of fact
Must be in text of will Ex: I leave to Marge b/c Duff beer is
out of business (but Duff actually is not out of business)
DRR is not necessary if state has adopted substantial compliance
or dispensing power Revival/Salvage doctrine
Purposely destroying later will with intention of bringing back
earlier one brings it back Need clear and convincing evidence of
intent to bring back the first will
*DRR vs. Revival--Under DRR, the court determines something
closer to want you want but not really want you wanted. Under
Revival, you actually get what you want when you bring back the
previous will.
Will Components: What Writings Count as Part of the Will? Four
Doctrines
1. Integration a. all papers present at the time of execution b.
intended to be a part of the will
2. Republication by Codicil a. Primary will document is treated
as re-executed at the date of the codicil (that mentions it) b.
true even of wills you revoke c. only a prior properly executed
will can be republished d. (Examples: will is invalid b/c of
divorce; can re-execute previous will revoked by subsequent
writing)
3. Incorporation by Reference a. Manifests will to incorporate
b. Memo MUST exist at the time of will execution (does not have to
satisfy formalities of wills act) c. Memo is identified in the will
d. Must be a writing
i. UPC 2-513 1. allows incorporation by reference but drops
requirements 2. needs signature on the document 3. only allowed for
tangible personal property
4. Acts of Independent Significance a. Outside events by the
testator or that impact the testamentary gift done for a reason
other than to change the
testamentary scheme may be kept valid i. Ambiguity of
Beneficiary
1. Testators will makes reference to facts or events to
determine the beneficiaries of the will (gift to oldest surviving
sister)
ii. Ambiguity of Gift 1. Will makes reference to facts or events
to determine property that an ascertained beneficiary will
receive
(I leave my automobile I own at death to my brother)
Contracts to Make a Will Contract to Make a Will: Ok
Classic situation: caregiver contracts with testator but the
problem often arises b/c the deal was not written down Contract Not
to Revoke a Will: Terrible Idea
Problem: relationships constantly change, financial conditions
change UPC Mini Statue of Frauds:
(1) Will states terms of contract; or
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(2) Will references the contract; or (3) The existence of a
signed contract
Mutual and Joint Wills (are they Ks not to revoke?):
Mutual Will- separate wills with reciprocal or mirror image
provisions Joint Will- two people has the same document UPC 2-514:
Mutual or Joint Wills do not create the presumption of the
existence of a contract
Capacity
Planning for Incapacity Mental Capacity Types of Capacity:
1. Legal 2. Mental: Requires
a. Nature & Extent of property b. Know natural objects of
his bounty/affection~ (Know who is important to you) c. Understand
disposition of property d. Know how the first three prongs work
together
**Knowledge Requirement: Does Not require Actual knowledge, just
the capability of knowing ** Timing: you only need a moment of
clarity to execute a will Rationale:
1. Gives effect to testators true desires 2. Legitimacy of the
system 3. Protecting family
Litigation 1. The US allows complete disinheritance of children
2. Questions of capacity go to a jury
a. Estate planning: domicile your client/testator in a state
without jury trials Burden of Proof:
Majority approach: burden is on the person contesting the will
to show a lack of capacity by preponderance Minority approach:
burden is on showing capacity after the contesting party rebuts the
presumption of sanity
A. Insane Delusion False conception of Reality, holding belief
that goes against reason or proof, not an entire worldview, just a
few issues Test:
(1) Must show an insane delusion; AND Majority Test: Could a
rational person have drawn the same conclusion Minority Test: If
there is any factual basis for the conclusion than it is not an
insane delusion
(2) Causation: the delusion materially affected the disposition
of the will (look for unnatural distribution) Only portion of the
will caused by insane delusion fails
Way to protect from ID
Anti Mortem Probate/Living Probate: testator can declare a will
valid while still alive, shows capacity and freedom from undue
influence
Problems: 1. If you show up and say they dont have capacity, it
could ruin relationship, he could have moment of
clarity and write you out 2. Taxing for older people
B. Undue Influence Mental or Moral exertion that removes
testators agency Really about control and coercion
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Two Types: 1. free will directly overcome by wrongdoer, no real
choice 2. Subtle manipulation~ friend or advisor
Burden of Proof:
1. Confidential Relationship a. Fiduciary Duties; or b.
Reliance- confidence (e.g. doctor); or c. Dominant/subservient~
caretaker/infirmed
2. Suspicious Circumstances a. weakened state b. unnatural
disposition c. wrongdoer drafted will
3. How to Rebut?: a. must show testator acted freely and
voluntarily b. Can show that the undue influence did not affect the
disposition, look for another reason; like she already hated
them
Gay People: has been used to invalidate wills of gay dewds
Courts dont like lawyer taking gifts under will and usually
presume undue influence
Exception: can draft will for close family even if beneficiary,
but make sure everyone gets along AND everyone gets natural
share
Also, serving as executor and witness is bad - conflict
No Contest Clause: if people challenge the will (and lose) then
they get nothing, Most states only enforce no contest clauses if
there is no probable cause for challenging - dont want to
discourage
meretricious lawsuits Issues: public document so it could spark
a lawsuit, if you leave a person nothing they have nothing to
lose
Recitals - if will contest foreseen, may be beneficial for
testator to explain why he is favoring some beneficiaries over
others
Never put in wills! Wills are public documents, people will sue
for libel Could provoke a will contest May attract attention of
probate clerk (only some jurisdictions)
Red Flags: Unnatural distributions Cutting family out Sudden
changes in distributions Age of testator Blended families
Ways to Fix 1. Doctor examine testator 2. Get the big
beneficiary out of the room and people who have known the testator
for a long time in th 3. Recital 4. Family meeting to explain will
- be respectful and say I love you 5. No contest clause with good
carrot 6. Cut a check to the kids: if they cash it, then it will be
hard to argue that they thought the testator was crazy that day 7.
Domicile in areas that dont use jury trial
C. Fraud Two Types
1. Fraud in the Inducement--deceived by misrepresentation by/of
circumstances that causes the testator to re-execute their will 2.
Fraud in the Execution--fraud in the pages that are signed (fake
will/the ole switcheroo)
Requirements:
1. Misrepresentation, needs to be knowing 2. Intent to deceive,
not exactly intend to change the will, needs to be a foreseeable
consequence (real hurdle to prove) 3. Result (will has to change)
4. Causation (real hurdle to prove)
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Failure to disclose: not fraud unless you had a duty to
disclose
D. Duress When undue influence becomes overtly coercive Very
rare because wills are ambulatory Definition: wrongdoer threatens
or does an illegal act that coerces an estate to change will
E. Tortious Interference with Expectancy Not a challenge to the
will, tort against a third party Requirements:
1. Reasonable expectation of inheritance 2. Defendants
intentional and tortious behavior prevented you from getting
inheritance 3. Many courts limit action to persons contesting will
who cannot be made whole through normal will contest
a. Exs: deed in joint tenancy, hiding death of the testator Big
strategic advantage: because not a will contest no contest clause
has no effect and you can get punitives
Interpreting Wills
Language Problems Ambiguity
words have more than one meaning Analysis always starts by
looking at the plain meaning of the words Two Types
Patent~ on the face of the will (e.g. giving three people half)
Majority approach: No extrinsic evidence is allowed, needs to be in
4 corners of document General trend toward allowing extrinsic
evidence Forces fight to be about whether ambiguity is patent or
latent
Latent~ will describes two things that can fit the description
or nothing fully fits the description (maybe only partially) 1. Two
or more things Fit (equivocation) 2. Two or more things partly fit
and nothing exactly does
Majority approach: extrinsic evidence allowed Favored evidence
is actions taken by the testator or written documents vs. oral
testimony which is highly
disfavored by the courts Mistake
Definition: Language is clear but not the testators intent Old
Rule: use the plain meaning of the language present (strict
approach) Modern Rule: clarifies errors of identification or
eliminates language to create an ambiguity, disregard mere details
of
identification Minority: openly will fix mistake if, (1) Clear
and convincing evidence (2) only allow extrinsic evidence in case
of scriveners error
Dead Beneficiaries (Before Death of Testator) Types of
Devises:
a. General: Monetary gift to a specific person satisfied by the
general assets of the estate b. Specific: personal property/real
estate (not cash) c. Demonstrative: a particular amount drawn from
a specific fund (e.g. $10K from the sale of stock) d. Class Gift: a
devise to two or more persons to share e. Residuary Clause:
catch-all provision
Lapsed gifts a. A gift made to a person in a will that dies
before will is probated
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b. Gift falls to the residuary Void Gift
a. Applies to beneficiaries that die before will is made; or b.
Gifts to nonpersons
Residue Rules a. UPC 2-604 (majority) - if a residuary
predeceases the testator, his share of residue is allocated to the
other residuaries b. No residue of the residue rule (minority) - if
a residuary predeceases the testator, that residuarys share passes
by intestacy
rather than to the other residuaries Anti-lapse Statutes
a. Prevents certain lapsed gifts from falling into residue (or
intestacy) by giving to intended takers issue b. Generally ONLY
applies to blood relatives (policy being that you would the stuff
to go to their/your family)
Contracting around Anti-Lapse Statute a. Boilerplate language:
if he survives me is not enough b. A substitute gift can get around
anti-lapse (A or B)
and just means fee simple, not a substitute gift or is a
substitute gift, so will get around anti-lapse
Class Gifts a. Gift with a class label, provides its own anti
lapse b. Anti lapse statutes can effect class gifts if the class is
to close blood relatives c. Big issue of what is a class gift
Test: look for a class label, intent of testator is class minded
Many courts require group labels
Property Change Ademption
a. specifically devised property not in estate at testators
death Identity theory (C/L)- if a specific devise is not in estate
at death they get nothing (only applies to specific devises)
Court get around identity theory by: (1) classifying gifts as
either demonstrative or general and (2) giving unpaid insurance
proceeds
Involuntary Transfer Rule- if assets leaves estate w/o testators
consent, then beneficiary can be compensated out of funds
Intent theory - if property is not in estate then you can get
the cash value if you can show that is what the testator would have
wanted
UPC 2-606 Adopts Involuntary Dispositions: automatically allows
cash value if conversion outside control Can take purchased
replacement of gift (broader than Acts of Ind. Significance) Pure
intent theory (burden is on beneficiary)
Abatement a. not enough money to cover all gifts made (generally
creditors have dibs)
order that gifts are given: specific devises (money from selling
item in demonstrative devise treated as specific) general devises
(rest of demonstrative devise treated as general devise) [pro rata
if not enough] residuaries
b. UPC 3-902: allows courts to ignore rules of abatement if it
would frustrate the testators intent Fights the problem in the
abatement order that often testator intends the residuary to be the
most important gift
Restrictions on Disposition
Bars To Succession Moral worthiness is not a disqualification
Slayer Statutes
Bars killer from getting property from the victim Specific
issues:
Where is the line for for purposes of intent (murder vs.
manslaughter)? Most states do not require a criminal conviction as
a civil decision will be enough?
Is the family cut out as well? What about non-probate
property?
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Ky Adultery Statute--another unfair statute for women but
applies to spouse cohabiting with another person while married
Disclaimer
you can reject/decline property passed to you through will or
intestacy Reasons:
tax purposes avoid creditors
Exception: does not apply to the federal government SCOTUS:
power to disclaim is a form of control over property, so fed govt
is entitled to it Note that Medicaid is means tested and is one
area where people would attempt to disclaim
Spousal Rights Social Security- if married for more than 10
years, she can elect to take spouses payout after he is dead (not
both checks, only one) Pension Plans--ERISA Homestead exception
Personal Property--certain states allow set-aside Dower - interest
in husbands qualifying land (KY)
Marital Property Systems:
Community Property States: spouses have interest in all property
Spouse gets half of what is acquired during the marriage so that
prevents someone from getting half after being
married for 30 seconds Separate Property States: spouses keep
what they earn
Two Theories underlying marital property systems Support- male
breadwinner, wife at economic disadvantage Partnership- spouses
contribute in different ways (UPC like this)
Elective Share [only applies separate property states]
cannot completely disinherit a spouse, typically gets Issue: no
time requirement (married for a day and get a )
UPC: sliding scale for time married and percentage in elective
share Four Questions
How Much? typically 1/3 Who can claim it? the spouse To what
property does it apply?
a boring nightmare, just need to know the concern that a sneaky
spouse may try to disinherit the other spouse through nonprobate
transfers
Can you K around it? YES. prenup! Prenup: requirements:
1. Disclosure - fact dependent inquiry [no brightline rule] 2.
Voluntary - avoid duress/undue influence allegations 3. Not
unconscionable 4. Both parties w/ independent council
Why allowed? Romance avoid future conlficts protect children
from earlier marriages
Inadvertent Disinheritance
Where an individual executes a valid will, thereafter marries,
and thereafter dies without revoking or revising the will, a
presumption arises that the testator did not intend to disinherit
his or her new spouse.
Approaches i. A few states do nothing - let disinherited wife
take elective share (will stands) ii. Traditional: statutes in some
states automatically revoke premarital wills (wife takes intestate
share) iii. Modern Trend: Most states give surviving spouse
intestate share and additionally allow evidence to show that
the
omission was not a mistake iv. UPC: will remains effective with
respect to prior children other children get intestate
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Planning for Incapacity:
No planning: civil commitment or the court will have a
conservator or a guardian appointed Very difficult for an adult b/c
it requires clear & convincing evidence to get conservator
appointed
Power of Attorney - written permission for someone to act on
your behalf; agency relationship Problem is that it terminates upon
incapacity
Durable Power of Attorney Does not terminate upon incapacity,
only on death
Scope of Power of Attorney Generally, courts construe narrowly,
drafters must be specific about what power agent has. Modern trend
is for courts to look at document to discover drafters intent
Fraud Concern Attorney-in-fact (person given power of attorney)
is a fiduciary, so have to be honest and loyal
Health care Rules No planning:
Default decision makers: 1. Spouse 2. Children 3. Parents 4.
Siblings 5. Grandchildren [called surrogates] Substituted Judgment-
what the person would have wanted States can demand C+C evidence of
what the testators substituted judgment Can also make a health care
PoA exclusively for healthcare decisions
Planning options: Living Wills or Medical Directives- spells out
generally or hypothetically what a person wants in end of life
state
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Trusts
--A legal device that separates the burdens of ownership from
the benefits of the property Requirements for a trust:
1. Parties (cannot be sole beneficiary and sole trustee) a.
Settlor-
i. person who creates the trust, if not the trustee you need to
deliver it to the trustee b. Trustee
i. Doesnt need to be named, trust will not fail for want of a
trustee (court will appoint trustee) ii. Takes it, invests it,
distributes it iii. Duties kick in when the trust is created iv.
Trustees are jointly and severally liable v. Resignation
1. Old Rule: you couldnt resign without court approval 2. Now
you must give 30 days notice
c. Beneficiaries i. Can monitor the trustee and bring them into
to court
2. Intent 3. Property
a. Needs to be in existence and ascertainable 4. Capacity 5.
Legal Purpose
Sometimes these are additional concerns: 1. Statute of Frauds 2.
Rule Against Perpetuities
Types of trusts: Inter vivos Trusts: comes into effect during
settlors lifetime Testamentary Trusts: trust created by will
Revocable and Irrevocable Trusts Mandatory Trust, ex: make
quarterly distributions
Certain amount at certain time, Issue: Very little discretion
for trustee, cant take into account change of circumstances
Maintenance Trust ex: Maintenance and support of beneficiary
Maintenance is broad term Keep beneficiary in same standard of
living they are used to Default Position: do not take into account
other income received by beneficiary (note: many trust documents
provide for
accounting for other sources of income brought in by
beneficiary) Duty to inquire into their life circumstances
Discretionary Trusts: Limits:
Sole and unchallenged discretion: still requires some good faith
Types:
Spray: has to distribute all income but to whomever Sprinkle:
does not have to distribute all income Support: (see above)
Duties: 1. Duty of Loyalty: For whom do I exercise the
powers?
a. Serve interests of beneficiaries b. Follow terms of the trust
c. No Self-Dealing
i. No further inquiry rule: court does not care if terms are
fair or not, absolutely no self-dealing 1. Rationale:
a. Easy to administer rule against self-dealing b. Dont want
beneficiaries having to prove whether it hurt estate
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c. Temptation ii. Statutory exceptions to rule of no
self-dealing:
1. Institutions - may invest trust money in mutual funds 2.
Advance Approval doctrine: Authorize explicitly in trust that
self-dealing is ok
a. Courts construe narrowly 3. Settlor if alive can implicitly
authorize self-dealing (ex. CEO of company trust owns) 4. Get all
beneficiaries to consent in writing 5. Petition a court for
approval (advisory opinion)
d. (Vs. Self-Interested Transaction)~ Most courts say they
follow the NFI approach but most look at the facts to see if their
was any harm to the beneficiary or trust
e. Relying on Attorneys can show care but not a complete safe
harbor f. Co-trustees: if you see a violation then there is a duty
to bring a court case to make it stop g. Damages:
i. Joint and severally liable ii. Exculpatory Clauses: we allow
exculpatory clauses but not to shield for bad faith or reckless
indifference iii. Look to see who wrote the exculpatory clause iv.
One case held that the duty was on the beneficiary to show validity
of exculpatory clause (Clowney thinks this is
wrong) 2. Duty of Prudence: How do I use powers?
a. Control and Manage assets b. Account for property c. Keep
trust property separate d. Balance interests of different
beneficiaries: duty of impartiality
3. Duty of Prudence Approaches a. Traditional
i. Safe List: Judge puts out list that says what investments are
safe and if you choose investments of the list then you a
prudent
ii. Prudent Man Rule: no list but held to the standard of what a
prudent man would invest his property--the key is that primary goal
is the preservation of the principle and only secondary is
generating income
b. MODERN RULE: Reasonably Prudent Investor Rule i. No
isolation-look at all investment in comparison to others, ii. No
uncompensated risk- look at risk and reward, iii. Diversification
is key
1. Types of Risks: Firm, Industry, and Market (diversification
minimizes industry risk and firm risk but not market risk)
2. Exceptions a. Mandate: big bold letters etc b. Tax purposes
c. Non fungible plus something else (emotional attachment could
help) d. Trust not diversified but scheme of larger trust group is
diversified
3. Note: some states hold that there is an absolute duty to
diversify even if trust doc says that the assets must stay in
certain in stock
iv. Delegation: You can and probably should delegate to a more
skilled investor 4. Duty of Impartiality
a. High dividend stock benefits beneficiary while high growth
stock benefits remaindermen b. impartiality doesnt mean equality
because a trust can have its own priorities c. You can prefer
different parties in a trust d. Typically keeps the beneficiary
comfortable or what they are accustomed to e. Uniform Principal and
Income Act - allows trustee to invest in assets historically
considered unproductive (no dividend) and
then allocate to income beneficiaries a portion of the trusts
capital Beneficiaries: Trust w/o Beneficiaries:
Resulting Trust: If court determines there are no specific
beneficiaries, purported trustee holds in resulting trust for
benefit of settlor and settlors estate
Honorary Trust: Legal instrument where a settlor creates a trust
for a specific, non-capricious purpose but there is no beneficiary
to enforce the trust;
Trustee is on their honor to carry out terms, but no imposition
of fiduciary duties Trustee can still be sued, but only to return
money to settlor
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Most common honorary trusts: Trusts for care of pets Maintenance
of cemetery plot
Needs to be specific: my relative ~ ok vs. my friends~ not ok
(Indefinite beneficiary - dont know who can sue trustee) Intent No
magic words to create a trust~ key is making sure the burdens and
the benefits are separated
Precatory language-- words that express a request or desire
(hope or wish) but no duty A trustee needs to have a duty imposed
on them If no duty, then it may just become a gift to the donee
Evidentiary standards allow the courts to look at the potential
trustee to determine whether a trust was formed (i.e. giving
money to a lawyer or bank is probably not a gift but a trust)
Necessity of Trust Property Can be just about anything, must
be:
1. In existence a. Expectation or hope cannot be put into trust
b. Look for K, certainty of existence, oral vs written (Brainard no
trust vs Pascal Trust)
2. Ascertainable a. Property must be clearly defined with
sufficient certainty; danger of putting property in trust that the
settlor intended to
use for other purposes Secret Trust: Secret and Semisecret
Secret: Purports to make absolute gift, but by secret agreement,
the beneficiary is actually a trustee Courts allow extrinsic
evidence to establish the terms and prevent unjust enrichment Ex. I
leave to X
Semi-secret Trust - trust mentioned in will but doesnt name
beneficiaries In most states it fails and goes to residue/intestacy
I leave to X to carry out my plan
Necessity of a Written Instrument In most states, you can create
an oral inter vivos trust
Existence of oral trust must be proved by clear and convincing
evidence No good lawyer would create an oral trust!
Land: written instrument necessary due to the statute of frauds
Testamentary Trusts must be written since the will must be
written
Creditors: Garnishment Creditor can garnish trust income Steps
into shoes of beneficiary, i.e. if beneficiary has right to
distribution creditor does and vice versa Mandatory vs.
Discretionary Trusts
Mandatory Trusts: the creditor will get absolute right to
receive; creditor need to attach to the trust itself instead of
suing the beneficiary
Discretionary Trust: creditor cannot compel a trust allocation
b/c the beneficiary has no power to compel a distribution BUT: when
a distribution is made, the creditor gets it
Education and Support Trust: certain creditors can get to this
E.g. University can get to trust b/c the trust is meant for
education; beneficiary could have gotten money from the
trust to pay for education so creditor has right to do so
Gambling debts: may depend on whether you are a professional
gambler or not but probably not part of
maintenance and support Spendthrift Trust: the interest of the
trust beneficiary shall not be capable of assignment or seizure by
any legal process.
This prevents beneficiary from selling interest AND it prevents
creditors from getting to it by attaching to the trust
This does not prevent the creditor from suing the beneficiary
directly Why do we prevent liability?
Settlors intent: doesnt want creditor to get anything Creditor
can protect themselves~ you dont have to lend money to those people
BUT this doesnt
really work in Tort actions General note: the interest in trusts
are alienable (i.e. your disbursements can be sold) Carveouts:
Deadbeat Dad: public policy exception-- there was nothing the
mom or kids did Clowney think there needs to be more judicial
activism here
Self-Settled Asset Protection Trusts: Traditionally not allowed
to do this b/c we didnt want people to hide assets
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Offshore Banks: certain islands started to allow Americans to do
this and then other states started to allow this