Trusts and Estates

3 March

• So. Limits on freedom to dispose of assets, and then tools for changing share.
• The most important limitation on freedom to dispose of assets is the protection for the surviving spouse. In community property states, this seems sort of easy (the spouse has a 50% vested interest in all marital assets). In theory, anyway. In any given marriage, we don't know how much individual (separate) property there might be.
• Dower and curtesy are unconstitutional: you can't treat men and women differently when one dies.
• But it took a while to systematize things. If you could elect 1/3 of the will, where did that come from? Was it in addition to what you were given in the will?
• Spousal elections still exist in some places.
• A picture:

  	Probate/Non-Probate	Fraction	Offset
  Traditional Common Law	Probate Only	1/3	Originally yes, election against the will
  1969 UPC	Added some non-probate property. Augmented Estate.	1/3	Yes
  1990 UPC	All property	50% phased in (3%/year over 15 years)	Reciprocal in calculation* (balances the estate between the two, not just what did the survivor get from the decedent)

  * The traditional elective share ignored disparity between spouses. The wealthy widow of a destitute decedent could still elect 1/3 of his estate, if he left her nothing. The UPC looks at the total amount of property (both community and otherwise) and allows the survivor to elect against the decedent. This is sort of edging towards community property philosophically.
• So the basic rule is that you can't disinherit your spouse. But the law used to only address probate. So people would try to work around this by using non-probate transfers, and that's what the 1969 and 1990 reforms are about: re-plugging that hole. Courts tried to work around this (lifetime transfers effected at death, etc.). This is the Newmann case, directly counter to Farkas.
• Remember-- in trust cases, there's a lot of playing around with the doctrine in order to get to the right result. So also Sullivan: the court simply declares that there are spousal rights.
• Now, also remember that ERISA pre-empts all state laws regulating employee benefits. So that becomes an issue under the 1990 UPC, where even non-probate assets are covered. So if someone tries to assert elective share rights against a life insurance policy provided by an employer, that can be resisted on the grounds that you're using state law to get at ERISA-protected assets.
• Problem 1
  • Part A: Under the 1990 UPC, the augmented estate is $200K, and under § 2-202, the elective share is 50%, which would be $100K. But we need to offset for the assets she already owns, which is $100K, so she actually ends up with $100K, but that's already exactly what she had, so she gets nothing from the estate.
  • Part B: In a community property state now. The surviving spouse owns $100K. The other $100K is community property, so the surviving spouse also has $50K of that. So the surviving spouse ends up with the $150K that they already had.
• As of 2008, the UPC stats for intestacy and elective share, etc., all got upped (beyond what's in our text and statutes).
• Suppose that there was $1M in a revocable trust paid to a 3rd party, R100K in probate property which goes to the surviving spose via intestacy, and the surviving spouse already has $100L. So the total estate is $1.2M. The election is $600K. We offset by $200K ($100K already owned, $100K coming from the estate). So the actual elective share is $400K (the "satisfaction of the elective share").
• Note the difference between a $400K election and a $400K delivery which the recipient is not required to accept. The law of inertia governs: the spouse has to find out that they have an elective right, and assert that right, etc. A lot of times that doesn't wind up happening.
• Law-in-action strategy. Before filing a suit or something, try finding out who the decision-maker in the family is, and see if you can't get them to agree with you.
• Problem 2
  • Part A: Like the last one, except who inherited and who earned is reversed. So add up the property ($200K), take the applicable percentage ($50%), and the surviving spouse has to end up with at least that much, which they already have.
  • Part B: In community property, though, one of the basic principles is how the property was acquired. So the spouse has $0 in inherited property, and $50K in community property (half of the $100K). So, a community property system doesn't necessarily offer more protection than the 1990 UPC.
• In most states, you can make an agreement to give up your rights to a marital share. This will come back to us in Chapter 11, but not all jurisdictions allow marriage agreements, and some of those that do limit them (e.g., pre-nuptial only).
• There's also the homestead right (the right to buy out the part of the house they don't already own, unless it has been explicitly left to someone else § 861.21)
• And selection of personal property. A lot of people don't even realize that this exists, and it can be a powerful tool. (note that this is just from probate property)
• And finally, family allowances. Virtually all states have some variation of this: a stipend from a probate estate. This is generally to carry a spouse or minors through the probate period. This can be a device to defeat creditors. See § 861.25. This doesn't get used much.
• So that's public policy determinations about not disinheriting your spouse (the "enforced share"). Now we shift to a different issue: what to do when it looks like someone was unintentionally omitted from the estate plan?
• This happens more often than you might think. Anna Nicole Smith: she didn't make a new will when she had her child. James Brown: married and divorced, then had a child, then had a marriage ceremony with the mother (may not have been a valid marriage because she may not have been divorced), and estate plan provided for none of this. Heath Ledger: he had a child who was unmentioned in the estate plan. None of those cases suggest an intent to disinherit the child or spouse.
• Problem 3:
  • Part A: No rights for the surviving spouse. § 853.12. Because there's no will here. Same thing applies to the personal property selection. Or an allowance.
  • Part B: Again the spouse has no rights. There is a probate estate, but the will leaves everything to the kids, and § 853.12(2)(a), rights only apply to those parts of the property not left to the issue. However, the personal property selection and the family allowance might be available.
  • Part C: So the surviving spouse here could receive her intestate share in the part not left to the kids. And nothing was left to the kids. So she gets the intestate share (NB: the estate doesn't go into intestacy, that's just the law we use to calculate her share). So look at § 842.01(1)(a)2, that's 50% of the property.

    Now, who receives the remainder? Remember, the estate was not put into intestacy (that would have given the remainder to the children). So the sister gets the other half. And the kids get zip.

  • Part D: § 852.01(1)(a)1, spouse gets it all.
• Can a lawyer talk to the family about his dead client's wishes? Call the ethics hotline. Even on the exam, it may be important to say "I need to get help." Know the boundaries on your knowledge. Intestacy, you should be able to handle. But ethics, well, that may be another thing. So spot the issue, but if you don't have the tools to resolve it, just say so.
• Problem 4:
  The relevant statute is § 853.25, but none of the subsections really applies. The kids were already born, there was no mistake. Children don't have any rights to command an inheritance. Maybe if they're minors, the court might impose an allowance, but there's no property right for kids, and you can disinherit your kids. At least in WI.
• Be aware that there used to be something called mortmain statutes that limited bequests to charities, in order to prevent charities from preying on vulnerable older people (if you give us your estate, we'll get you into heaven, etc.). But these are gone now.
• Void against public policy: if you give your estate to al Quaeda, the court will find a way not to let that happen.
• And now, chapter 7: making after-death adjustments in the estate. This comes up for various reasons: anti-slayer statutes, for example. If you kill someone for an inheritance, we don't really want to reward that. What if you assist with your terminally ill relative's suicide?
• Disclaimer is a very important post-death strategy. It's totally voluntary, but it's a way to make things come out better for the family. Usually, it's motivated by tax reasons. If you're not concerned about taxes, just take whatever share and then give it on. But with disclaimer, you can avoid gift tax (because the federal gift tax statute says so). Be careful with disclaimer-- you can't take it back. Be sure you know where the thing you disclaimed is going to go. You can disclaim a fraction, or a specific item.
• But once in a while, there are non-tax reasons: someone leaves you property with toxic waste on it, e.g.
• Problem 1
  As stated, this is probably not a valid disclaimer: he doesn't say "I disclaim." But if it's a gift, this will trigger the tax. Or he could get the car valued a little differently.

5 March

• Notes from Beth:

  	UPC does not allow reformation of a will. 
  
   
  
  Careful drafting is important, must consider audience and how those reading 
  documents may interpret.  Reminder the heirs is a term of art and should be 
  used carefully; preferably avoided completely. 
  
   
  
  Survivorship is required to take over a will!  However under traditional 
  trust law survivorship is not required. 
  
   
  
  CHAPTER 8 -- PROBLEMS OF INTERPRETATION
  
   
  
  Problem 1.
  This should be distributed to the nieces and nephews in Law and Action.  
  It is a drafting error, not an ambiguity.  However, in really case this 
  went to intestacy and then nieces and nephews sued and received the estate. 
  Can use Gibbs here too if you interpret more loosely (i.e. things subject to 
  mistake (addresses) verses dying in a short time (same accident).  Compelling 
  and obvious is the standard from this case, however it can be distinguished.     
  
  Problem 2.
  Donald O. Cram better story and more believable.  Robert J. Krause just has 
  the taxi story.
   
  
  Problem 3 (a).
  Because the will does not have a survivorship clause to trump the statute then 
  someone is required to live 120 hours.  854.03(1) Wills or Governing Documents 
  and 854.03(4) Life Insurance.  So it would go to their respective parents, 
  because each is considered to have predeceased each other.
   
  
  Problem 3 (b).
  Yes, then A\u2019s share would go to B and everything would then go to Bs 
  parents.
   
  
  Problem 3 (c).
  It could change because of ERISA.  So even if they don't say then it 
  is who ever survived (even if only for a minute) literally.
  
  Note: When the triggering of ERISA (retirement plans and insurance are TnE 
  issues) occurs then all and any state law is pre-empted for any employee 
  benefits regulated by ERISA.  This is called \u201cField Pre-emption.\u201d  
  This is distinguished from \u201cConflict\u201d or \u201cIssue\u201d 
  pre-emption which is when the feds make a rule that conflicts with the 
  state then that rule applies because they say it does, but it is only that 
  rule. 
  
   
  
  Problem 4 (a).
  First have to determine who the covered beneficiaries are \u2013 what is 
  closely related.  Wisconsin covers the grandparents and decedents (includes 
  step-children if elected).  854.06(2)
  
  854.06(3) then says it goes to the issue. So, the watch will go to the 
  grandchildren.  Who of the three receives it is to be decide by the personal 
  representative.  If go to court then the option is to sell it and divide the 
  proceeds. 
  
   
  
  Problem 4 (b).
  It would go to the grandchildren too, since step-children are covered.  Same 
  statutes as above.  
  
   
  
  Problem 4 (c).
  Same rules apply, because in Wisconsin statute is for any governing documents.
  Note most states only have anti-lapse statutes for wills.
  
   
  
  Problem 5 (a).
  854.15(3) would revoke the will and it all would go to the daughter.  
  
   
  
  Problem 5 (b).
  854.15(3) would revoke the will for the daughter and husband.  The estate 
  would then go into intestacy.
   
  
  Problem 6 (a).
  This is a specific bequest, so if it is gone then it is not required to be 
  repaid under 854.08  (redemption portion of the statue).  Common law says if 
  it is gone, then you must not have wanted to give them it.  The statute says 
  that it only requires this if sold in 1 year then proceeds go to beneficiary, 
  two years on an installment plan then proceeds from last year and future. 
   
  
  Problem 6 (b).
  General bequest, so can be filled by other items of this value or by selling 
  futures.  854.28(1)(a).
  
   
  
  Problem 6 (c).
  Statue does not apply, so it is the car at death.  Some may argue that is 
  satisfaction 854.09, however to prove this would have to have good 
  documentation.  
  
  
  Problem 6 (d).
  Statue says debts are not exonerated by the statue, so receive the asset and 
  debts associated with it.  854.23
  
   
  
  Problem 7.
  So this statute does not apply, because can prove contrary intent under 
  statute for defining the family relationships.  Note need to read statutes 
  in context.