Welcome to Trusts & Estates

Overview Freedom of Disposition Mechanics of Succession Intestate Succession Choice of Law

You can’t take it with you As Benjamin Franklin once famously said: “[I]n this world nothing can be said to be certain, except death and taxes.”

Possibilities for Orderly Succession Forced Succession Confiscation by the State Freedom of Disposition Some European Countries Failed Soviet Experiment U.S. Law Forced succession? Decedent’s property passes by mandatory or forced succession E.g., primogeniture or to spouse, children, or other descendants Confiscation by state? Decedent’s property passes to state – theory that decedent’s property rights terminate on death Freedom of disposition? Decedent’s property passes in accordance with decedent’s wishes (if reliably preserved) Otherwise, in accordance with a “default” system that approximates the probable interest of a “typical” decedent U.S. law generally follows this system

A New vocabulary Beneficiary Codicil Decedent Descendant Devise Estate Fiduciary Heirs Issue Inter vivos trust Intestacy Probate Testacy Testator Trustee

ESTATE terminology A person who dies with a will is said to die testate A person who dies without a will is said to die intestate If a will disposes of only part of the probate estate, the result is a partial intestacy The probate property not disposed of by the will passes by intestacy

Freedom of Disposition

Big Picture: Inter-generational Wealth Transfer Probate Property Non-Probate Property In Decedent’s Name By Intestacy or by Will Life Insurance Joint Tenancy Property Pay-on-death Accounts Inter vivos Trust

History of Testamentary Freedom Trusts and estates have a long, complicated, and rich history 1540 English Statute of Wills: permitted wills in land Married Women’s Property Acts: allowed married women to devise land without their husband’s permission Today: power to make a will, or rely on default rules of statutory descent

The Law: Uniform Codes & the Restatements Law reform has significantly affected the law of trusts and estates The Uniform Probate Code (UPC) and the Uniform Trust Code (UTC) offer statutory language and commentary to state legislatures considering reform These uniform codes also indirectly influence court decisions

The Law: Uniform Codes & the Restatements UPC & UTC are as close to majority rules as there are UPC: http://www.uniformlaws.org/shared/docs/probate%20code/upc%202010.pdf UTC: http://www.uniformlaws.org/shared/docs/trust_code/utc_final_rev2010.pdf UPC UTC

Feinberg v. Feinberg Property went in trust to Erla and on her death to grandchildren who met certain conditions. Only one grandchild, Jon, met the conditions. The share to those not meeting restriction would revert to their parents, Michael and Leila, who were children of Max and Erla. Max died in 1986 Erla died in 2003 Trust – trustees are Michael & Leila, who are the children of Max & Erla Grandchildren of Max & Erla (& children of Michael and Leila) Max’s Will left property in trust

Feinberg v. Feinberg Issue: whether the court should enforce a provision in a testamentary instrument (a trust created by Max’s will) that treats any grandchildren of the testator who marry outside the Jewish faith and whose spouse does not convert to Judaism within one year as predeceased for purposes of the testamentary instrument The Jewish Clause 3.5(e) A descendant of mine other than a child of mine who marries outside the Jewish faith (unless the spouse of such descendant has converted or converts within one year of the marriage to the Jewish faith) and his or her descendants shall be deemed to be deceased for all purposes of this instrument as of the date of such marriage.

Issues Before the Court The court wrestled with competing public policy questions. Which ones? Which trumps? Court says it does not make public policy, as such policy must be discerned from the “constitution, statutes, and long-standing case law.” (p. 15)

Hypo 1: Dispositive Freedom If a decedent left her son $60,000 upon the condition that the son adopt his mother’s pet parrot, would this be a condition that the courts would uphold? Why or why not? Answer: Yes, this condition is not against public policy

Dead hand control Reasons why a state may want to uphold dead hand control Reasons why a state may want to eliminate dead hand control Private property regime – those who have property get to control it Related to controlling private property, encouraging the accumulation of property during lifetime and discouraging waste of property (i.e., if I can’t give it away, I will use it up) Peace of mind for those who are dying because they know their wishes will be carried out To make property productive after some period of time For policy reasons if the person exercising control is doing it for prejudicial or malicious reasons (e.g., no distributions if you marry a Catholic) More money for the state if property escheats to it Encourage entrepreneurship at each generation and prevent privilege (via money) from being inherited

Hypo 2: dispositive Freedom There is no legal right to receive property from one’s parents through a will or by any other means Of course, while parents are alive, they are obligated to support their children Thus, if it is permissible to leave nothing to one’s children, then should it be permissible to leave property to children with strings attached, such as those in Feinberg v. Feinberg? Answer: Yes So long as the strings do not violate public policy

Example of Limits on Freedom of Disposition Community property Homestead Nine states are community property states Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin In community property states, most property acquired during the marriage is owned jointly by the spouses Community property laws, like the elective share, significantly restrict the transfer freedom of married persons Homestead protections are available in most states A testator is excluded from devising either the real property or cash that is set aside by homestead laws to permit the family to remain in the family home

Mechanics of succession

What is Probate? “Probate” is the legal process in which an instrument is judicially determined to be the duly executed last will of the decedent (or, if there is no will, the proceeding in which the decedent’s heirs are judicially determined) The process varies from state to state http://www.americanbar.org/groups/real_property_trust_estate/r esources/estate_planning/the_probate_process.html http://www.nolo.com/legal-encyclopedia/how-probate-process- works-information-32438.html

Probate Terminology Testate / Intestate Executor / Administrator / Personal Representative Testate succession: Devise (real property) to devisees Bequeath (personal property) to legatees Give or devise – modern Intestate succession: Real property descends to heirs Personal property is distributed to next-of-kin

Probate Process Generally it is the responsibility of the personal representative to: Give notice to devisees, heirs, and creditors against the estate Discover and collect the decedent’s assets and file an inventory Manage the assets of the estate during administration Pay expenses of administration, claims against the estate, and taxes Distribute the property to the appropriate beneficiaries

INTESTATE SUCCESSION The living have no heirs

Heir v. Heir apparent In spite of the popular use of the term heirs to refer to both the probable and actual takers of a decedent’s estate (whether by intestacy or will), the word heir has a precise legal meaning: It is those people who are identified as takers under the applicable intestacy statute at the time of the decedent’s death The important corollary is that an heir apparent (and a named beneficiary of a will) has no legal interest, but rather a mere expectancy that can be destroyed by the a change in whim by the donor

Intestacy Statutes Why do so many people die intestate? Because they shy away from confronting death Because wills are unfamiliar, often requiring lawyers and complicated formalities What is the purpose of intestacy statutes? In accord with the principle of freedom of disposition, the purpose of intestacy is primarily to carry out the probable intent of the typical decedent

General Rules: INTESTATE SUCCESSION Common Across States Variations Among States Across the states, after the spouse’s share, descendants take to the exclusion of ancestors and collaterals Heirs are limited to spouses and blood relations This often includes adopted persons and, in a few states, cohabitating partners and stepchildren The size of the surviving spouse’s share varies significantly across the states Under the UPC the spouse takes all unless there are stepchildren In some states, the surviving spouse takes the entire estate, in others the spouse shares with descendants

Showing degrees of relationship TABLE OF CONSANGUINITY Showing degrees of relationship Ancestors Second-Line Collaterals First-Line Collaterals Deceased Person Descendants

When does Property Pass by INTESTATE SUCCESSION? Property may pass by intestate succession where: 1. The decedent dies without having made a will 2. The decedent’s will is denied probate Examples: improper execution or successful will contest 3. The decedent’s will does not dispose of all of his property, either because a gift has failed or because the will contains no residuary clause Resulting in “partial intestacy”

Choice of law What happens when a decedent had ties to more than one state?

Traditional: Choice of law Real Property Situs: The law of the state where the decedent’s real property is located governs the disposition of real property Personal Property Domicile: The law of the state where a decedent was domiciled at the time of her death governs the disposition of the decedent’s personal property (also called “movables”)

UPC: Choice of Law People can often own property in more than one jurisdiction, but they can only have one “domicile” at a time. Referring to the law of the domicile has the advantage of treating the owner’s property as a unit. It is unlikely that a testator would have intended the words in a will to have different meaning when applied to land as distinguished from personal property. UPC uses domicile to determine the elective share of a surviving spouse as to all the decedent’s property, including real property UPC §2-202(d) A will is admissible to probate if it has been executed in accordance with: The law of that jurisdiction The law of the jurisdiction where the will was executed The law of the testator’s domicile at the time the will was executed or The law of the testator’s domicile at death UPC §2-506

Let’s review The Basic Scheme

What are the core functions of probate administration? Review Questions What are the core functions of probate administration? Provide evidence of transfer of title to the new owners; Protect creditors by providing a procedure for payment of debts; and Distribute the decedent’s property to those intended after the decedent’s creditors are paid

Review Questions Any property subject to probate, which is not effectively disposed of by will, passes by _________________. intestate succession

Review Questions The traditional rules for choice of law: True or False? Under the traditional rules, the law of the state where a decedent was domiciled at death governs the disposition of the decedent’s personal property and real property The traditional rules for choice of law: Real Property = Where property is located Personal Property = Where decedent is domiciled at death

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