Trusts and Estates

Week of 4-6-09

7 April

Problem 6: non-problematic from a marital property point of view. From a divorce perspective, it's partly non-divisible, but the unilateral statement part is divisible. So we've got $10 + 4 - 4 = $10.
Note: comingling unilateral statement property and inherited property is fine from a marital property standpoint, but not at divorce time (because the interest might be in play at divorce, and might contaminate the entire account).
And for part B, you'd have the same kind of problem, but the comingling would be not between lines 1 and 3 on our purple chart from Thursday, but between lines 2 and 3. But also, from a law-in-action perspective, you might be able to negotiate somewhat.
Problem 7
- A: So agreements don't have to be long and complex. This one looks pretty simple. Is it marital propery? No, because the marital property agreement says so. Is it subject to division? Marital property agreements are enforceable at divorce (except not the statutory ones).
  There are three statutory agreements (i.e., forms that are in the statutes). These are best left alone. One of them is obsolete, and the other two have problems that make it unlikely they'll ever be appropriate (the text discusses the flaws they have). This is a good example of why statutes are so hard to work with: the fact that the statutory form isn't binding at divorce doesn't mean that all marital property agreements are invalid at divorce.
  But: § 766.61 says there are rules about marital property agreements and divorce. So § 766.61(3)(L) lists factors to take into account when dividing property: agreements are binding, and there's a presumption that it's equitable.
  Now this agreement says it's individual property (and that's a classification under marital property law), and it says that it's binding at divorce. But a marital property classification isn't necessarily of interest at divorce. Plus, there are forms of individual property that are divisible at divorce (see the the purple handout again). On the other hand, that's sort of counter-intuitive: any non-lawyer reading the agreement would think it was binding at divorce.
  So we have a conflict between a legal analysis (divisible) and a law-in-action analysis (not divisible). The document is ambiguous: we need to interpret it. Probably it will be kept separate at divorce, but this is not a slam dunk.
Problem 8
- A: Individual, and not subject to division.
- B: So this is poorly drafted agreement, but this happens all the time. It's marital property during the marriage. At divorce, though, this is ambiguous. A better agreement would have just specified whose the property should be even at divorce. Plus, a judge might say: hey, you shared-- you can't un-share later. Probably this agreement would work, since the intent is obvious, but there's risk.
- C: Marital and divisible. You could still trace it, of course, but the change in title means each spouse has a vested 1/2 interest. It's either a tenancy in common or marital property, so it's subject to division. Again, it would be better to make an agreement that really spells out what people want to have happen at divorce. Of course, on the other hand, at divorce, not everyone might agree about whether that agreement was proper...
- D: The fact that the account is "active" (meaning, has lots of flow in and out), means it's not traceable any more: there's an agreement that some property is individual, but if you can't say where that property is, you can't enforce the agreement. So it's divisible. It doesn't do you any good to isolate a piece of property in an agreement and then not keep track of that property.
Note that with marital property agreements, general contract rules apply, except for consideration.

So now we're going to look in more depth at custom-crafted marital property agreements. WI is at the cutting edge, with respect to marital property agreements (other jurisrictions say "marriage agreements" or "marital agreements"). WI allows you to make a binding pre-nuptial or post-nuptial agreement. This is a big deal, for some reason: other jurisdictions may not have these capabilities. No post-maritals in MA, for instance. Note that it is not considered coercion to threaten to withold getting married if the spouse-to-be will not sign your agreement (he/she is free not to get married). But anyway, WI has fewer formalities than others: needs to be in writing, and signed by both spouses. That's it.
The lack of formality means that WI couples may not get proper caution around this. Plus, if there are tax implications, or allegations of fraus/forgery, it would be nice to have it notarized and dated. Or if it has to be valid outside the state: witnesses and notary might be nice again.
But pretty much anything that doesn't violate public policy can go into a marital property agreement. And courts won't really enforce agreements calling for specific performance, but it does carry some moral weight in negotiations (especially since you're often marshalling other members of the family to influence things).
Problem 1: § 766.58(3)(a) - it can be only one spouse's individual property. We call it a "marital property agreement," but that's just a name: it can deal with individual property or with divorce.
Problem 2: § 866.58(3)(a) again. Whenever and wherever located. So note that you can make an agreement about property to be acquired in the future, even. Now, of course, there's a conflict of law issue here: the other state might not have marital property, or might have different views on agreements. And real estate, for example, is governed by the law of the situs (and may look to the law of the domicile), and that might have an influence on the outcome. And if the other jurisdiction says that these agreements are against public policy, is that a taking of one spouse's interests? But again, it's property that's already owned out-of-state. Anyway, there are risks here. So, for example, what's the title on Hilary's house, and does CO care about marital property? So maybe if you want to adjust control over property in another state, a marital property agreement might not be the best approach. Why do we say whenever and wherever? As a sign to other jurisdictions, so that should they look to WI law, the intent is clear.
Problem 3: Meaning, can the document itself be the instrument of non-probate transfer? § 766.58(3)(f) says yes. And again, if the property is outside of WI, it doesn't matter under the statute. Now remember, you can only have a non-probate transfer if there's authorization for it. And that authorization might not be granted in another state-- so there might be no procedure for doing that transfer. See § 867.046: it shows the form you file to effectuate the transfer... that may not exist elsewhere. And we're big on chain of titles with real estate, so we need the proper procedure.
And is transferring property by marital property agreement a good idea anyway? Opinions are divided. Erlanger feels that marital property agreements should be thought of as irrevocable (because they can't be unilaterally altered). And there are good reasons not to make an irrevocable estate plan. For example, does this supersede other non-probate transfers? This could essentially be like a superwill (or blockbuster will). Some people think that's just fine, but Erlanger feels its a mistake because you'll have competing documents, and no certainty about whether there is some unknown superdocument that will surface later after, say, insurance has paid out. We want to structure things to be clear and simple, not fraught with risk. There's no notice with marital property agreements, for example. Oh, and you can't use a state law (which this is) to override ERISA, so would that invalidate the whole thing, or just a part? You'll drive yourself crazy with this stuff, so just don't do it.
Problem 4. § 766.58(4): you can only revoke/amend by a later agreement. Of course, if the thing is destroyed, and gone, it's maybe sort of revoked for practical purposes. Now suppose you you make a new agreement that says "the prior agreement is null and void," does that mean it's null and void as of now, or did the prior agreement never exist at all? This could have implications for who owns interest/appreciation. So best to make a nice explicit new agreement.
Problem 5. Not necessarily... § 766.56(6): there must be appropriate disclosure under the circumstances. So minor things wouldn't require much disclosure, but a big sweeping agreement that reclassifies all kinds of things might require more disclosure, and maybe financial statements would be appropriate. Financial statements are a good idea if there are divorce provisions, because you'll need that at divorce time. Also, the standard for marital property agreements is that they're ok unless they're unconscionable (which probably means unconscionable at the time it was made), but at divorce the standard is that something can't be inequitable (at the time of enforcement, even). So you might want to be extra cautious, even though you don't have to for the sake of the agreement itself-- you want it to stand up to whatever more rigorous tests it might be put to.

9 April

There will be significany lecture on tax, but be extra-diligent about the assignments, because it's complex. That will allow you to make sense of the lecture.
And note that we're looking at Appendix A once again.
Problem 1
- A: § 766.51(1)(am) says A has management and control. The exceptions in the statutes are somewhat irrelevant, but there are a couple restrictions on what A can do. § 755.53 limits on making gifts (can't be over $1K (or larger if reasonable). Also § 766.15: the good faith duty (other spouse can't waive it). And § 766.51(5)(m): B has management and control for the purpose of obtaining credit (and this is one of the main motivators for the marital property act; creditor can't discriminate against a spouse on the basis of the source of the collateral).
- B: Either A or B, and they can act alone, apparently. § 766.51(1)(b). Of course as a buyer, you might want both spouses to sign the deed. Just because the statute says only one needs to sign doesn't mean that a buyer will be satisfied with that.
- C: Both, acting together. § 765.51(2)
Problem 2: Technically, it's not titled (the word in the statute is "held," and "held" means "titled"). Legally, either has management and control. § 766.51(1)(am). But in practical terms, of course, she has it, regardless of what the statute says. The law of the marriage may be stricter than the law of the state...
Problem 3: So the house is individual property. A can manage and control: § 755.51(1)(a). But, § 766.75(8), which references §706.02(1)(f): a spouse can't alienate (sell, give away, or mortgage) the homestead without the joinder of the other spouse. Note that this is a real estate rule, and it's a management and control rule, not an ownership rule. You need both spouses to alienate the homestead.
Problem 4: § 766.53 -- to make a gift over $1000/year of marital property, both spouses must consent. But if he just got a raise that would cover tuition at MI, their economic situation might be such that this is reasonable; we just don't know for sure. And what is "the economic situation of the spouses?" No caselaw on that. Also, what if A were the parent and not the step-parent? That might make it more "reasonable." It seems that way, but we don't know what "reasonable" is.
Problem 5: § 766.70(6)(b)(1) the spouse has a remedy (a gift complete at death is like a life insurance beneficiary) to recover the marital property share.
Credit: a creditor can only go after the kind of stuff you had when the credit was granted. So you can put your individual property on the table, and also the marital property. This is why creditors love marital property. See § 766.565(5) on the topic of notice.
Deferred marital property is property that would have been marital. It's about unclassified property. So, there's property that either would be individual or would be marital, if they were under a marital property regime. So, basically, they're married, but they don't have a determination date. Usually this means people who live in the midwest and retire to the southwest: you sell your business and move to AZ with a big pile of money-- is that money individual or marital? It wasn't acquired under AZ law. This also gets called "quasi-community" property. And different states are divided on what they do about it. Anyway, it kind of replaces the elective share rule (which doesn't apply in community property states, since community property is supposed to take care of the surviving spouse's interests.
It's kind of how you'd expect. § 861.018(2) : deferred individual property. It's stuff that would have been individual, had it been acquired under § 766. And deferred marital property is in § 851.055. It's annoying that the definitions are in different places.
So first, go and find the deferred marital property. Say how much there is, regardless of whose name is on it. Maybe the surviving spouse already has have of that; if not, bring them up to it (using whatever kind of property; it's a value-based analysis, not an item-by-item basis). So you get the value of all deferred marital property, cut it in half to find one spouse's share, and then allocate that value to the surviving spouse.

The big problem; deferred marital property, and a major review. Let's lay out who owns what.

Asset

Marital
(the spouses' shares will always be the same)

Deferred Individual
or
Individual

Deferred Marital

Transfer from A to B
(note that actual transfer doesn't take place on a row-by-row basis; this is just so we can total it up)

Cabin ($40K + $10K Active Appreciation)

A	B
0	0

A	B
$40K	0

A	B
$10K This is A's, but it would have been marital property.	0

Life Insurance is A's name ($50K)

A	B
0	0

A	B
0	0

A	B
$50K § 766.61(3)(a)(1)	0

$50K (B is beneficiary)

Microsoft Stock ($200K)

A	B
0	0

A	B
0	0

A	B
$200	0

(this is probate property, which the will leaves to the law school)

House titled A and B ($100K)

A	B
$50	$50

A	B
0	0

A	B
0	0

$50K
§ 766.605: this is survivorship marital property; it's a homestead purchased after the determination date, titled in both names, with no indication about survivorship. If it weren't titled in both names, it would be marital property, but not survivorship. So this is a $50K transfer because B gets the whols $100K house, but already owned $50K of it.

Life insurance on B from employer ($100K)

A	B
0	0

A	B
0	0

A	B
0	$0 This is B's, but it's term insurance and B is still alive, so there's no value here. Still the classification of property takes place regardless of the value. If B died, this asset would be worth $100K. Then note also that ERISA might pertain (if it's a private employer), and that would take it out of this scheme entirely.

Bank account in B's name ($20K)

A	B
$10	$10

A	B
0	0

A	B
0	0

Bank account in B's name ($5K)

A	B
0	0

A	B
0	$5K

A	B
0	0

Bank account in A's name ($1K)

A	B
0	0

A	B
$1K	0

A	B
0	0

$1K

Cabin JTWROS ($20K)

A	B
0	0

A	B
0	0

A	B
$10	$10

$10

Car in name of both ($20K)

A	B
$10	$10

A	B
0	0

A	B
0	0

TOTALS:

$280 ($270 of A's, $10 of B's)

So there's $280 in deferred marital property.
Half of that is $140
$10K
$130K
-$111K
$19K