#16878 - Estates And Trusts - Trusts and Estates

INTESTACY

1. The Problem of the Dead Hand

   1. Rest. 3d of Property §10.1: The controlling consideration in determining the meaning of a donative document is the donor’s intention. The donor’s intention is given effect to the maximum extent allowed by law.

      1. Unless disallowed by law, the donor’s intention not only determines the meaning but also the effect of a donative document.

   2. Shapira v. Union National Bank (1974): Father left share of residue to son conditioned on his marriage to a Jewish girl born of Jewish parents w/in 7 years. Son argued that (1) restriction is unconstitutional (but no state action); and (2) restriction violated public policy (court found this would not act as a complete restriction on marriage).

      1. RULE: A condition that the donee’s marry w/in a particular religion is enforced, unless it amounts to an unreasonable restriction on marriage.

   3. Courts will not enforce conditions that violate certain public policies:

      1. Total or unreasonable prohibition on a first marriage

      2. Undermining family relationships: divorce, break off contact with sibling, etc.

         1. A bequest to the surviving spouse conditioned on the survivor not remarrying is invalid unless the purpose is to provide support

         2. Provisions encouraging divorce are usually held invalid unless dominant motive of the testator must be to provide support in the event of separation of divorce

         3. NOTE: Restraints on marriage or divorce may be VALID if meant to enable the beneficiaries rather than to spite them. Courts look to intent:

            1. Example:

               1. My executor shall give $100k to my sister Joan on condition that she divorces that no good scoundrel husband of hers

                  1. Court would strike this down b/c it induces divorce

            2. Example:

               1. If my sister Joan divorces her husband, my executor shall pay her living expenses and education costs for 4 years or until she is able to support herself.

                  1. Court would uphold b/c this enables Joan to get back on her feet after divorce, not to induce a divorce.

      3. Waste (destruction of property)

         1. Society’s total wealth is usually maximized by permitting individuals to decide what is the best use of their property—but here, it results in waste and doesn’t benefit society as a whole.

      4. Encourage unlawful activity

      5. [Will not test on restraints on donee’s religion]

Public Policy Example: H’s will creates a trust for his wife, W, providing her with the trust income for her life BUT if she remarries, the income is to go to H’s and W’s then living kids.

• Not a coercive restraint on marriage

• This is a benign condition for a 19^th Century man b/c back then, the wife was the H’s responsibility. If W re-marries, her new husband would take care of her and this frees the first H to provide more for their kids.

  1. Courts will not enforce conditions that are void for vagueness

     1. Example:

        1. Trust contains condition that the “beneficiary maintain her piano playing skills”

           1. Does she have to give a concert every year? Who knows! Not concrete enough to enforce

        2. What if it required her to “remain Catholic?”

           1. Too vague. Both are impossible to enforce b/c there is no criteria to decide if the condition is met or not.

           2. Courts don’t want to have to decide whether the condition is met

  2. Courts will uphold a Condition Precedent (as opposed to a condition subsequent)

     1. Condition precedents are practically a gift during life. It doesn’t require Court to monitor behavior in the future.

     2. Example:

        1. A: “To Mary: if she is still married to Jim at my death, $5,000. If she is divorced from Jim, $500k.”

           1. Condition precedent is fulfilled at time of death...the condition does not survive A’s death.

        2. B: “To Mary: $100k, on condition that she divorces Jim”

           1. This condition precedent is held as a gift for life…it doesn’t expire with the death of B.

              1. This is a bad condition b/c it goes against public policy, but if it was a condition precedent, it would be upheld

2. Probate and Non-Probate Property

   1. Probate property MUST past through probate court

      1. Examples of probate property = house; furniture; cash; all other property that is NOT non-probate

   2. Non-Probate property transfers automatically or via corporations

      1. Examples: Joint tenancies; life insurance; payable on death interest in a trust; all other property that “automatically transfers at death.”

   3. Probate performs 3 core functions

      1. Provides evidence of transfer of title to the new owners (i.e. clears title and makes property marketable again);

      2. It protects creditors by providing a procedure for payment of debts; and

      3. It distributes the decedent’s property to those intended after the decedent’s creditors are paid.

   4. An estate does not need probate if:

      1. The decedent had only non-probate property and personal property (furniture, cash on hand, jewelry, etc.)

      2. AND/OR small bank accounts, wage claims, and cars state statute permits transfer of these by filling out forms

      3. After all debts are paid, the remaining estate is small enough to qualify for summary administration ($5K to $100K depending on the state). The heir can collect property on the basis of his affidavit alone.

   5. Basic Steps:

      1. Get “letters of administration” from the court

      2. Using letters and death certificate, “collect” assets from banks, stock companies, etc. Sell property that no one wants or if needed to pay creditors.

      3. Notify creditors (actual notice to known or reasonably ascertainable creditors) & pay debts

         1. One advantage of probate is it tolls the SOL for creditors.

      4. Distribute remaining property to beneficiaries

      5. Pay estate income tax

      6. File sworn statement that everything has been done properly and send copy to beneficiaries.

   6. Simpson v. Calivas (1994)]: Testator told lawyer to leave “the house to wife, land to son.” Lawyer drafted will to read “real estate to son, except for homestead, which goes to wife.”

      1. New/Majority Rule = Lawyer has a duty to intended beneficiaries (Professional Responsibility)

      2. Old/Minority Rule= Lawyer’s duty runs only to testator

   7. Changes in will interpretation

      1. How will the new rule, allowing the attorney to be sued by disappointed beneficiaries put pressure on these traditional rules?

         1. The probate court will not correct for mistakes in execution (I.e. one of the witnesses was out of the room when testator signed)

         2. The probate court will not correct for drafting mistakes.

3. Intestacy Generally

   1. Intestacy Statute: Functions

      1. Estate plan for people without a will

      2. Backup plan for if the will fails or is not comprehensive (partial intestacy)

         1. No remainder

      3. Default rules of construction for terms not defined on the will

      4. Determine who has standing to contest a will – only people with standing are those who would benefit if the will failed.

4. Intestacy: Spouse

   1. Intestate Share of Surviving Spouse

      1. Decedent leaves no surviving descendants or parents Surviving Spouse gets 100%

      2. Decedent does leave descendants or parents:

         1. Older statutes spouse gets

         2. New Rule/UPC/NJ 3B: 5-3

            1. All children belong to the marriage Spouse gets 100%

            2. Either party has a child with another person spouse gets a lump sum plus a percentage of the rest

   2. NJ 3B: 5-3 – Intestate Share of Decedent’s Surviving Spouse or Domestic Partner:

      1. Surviving Spouse or Domestic Partner gets the entire estate if:

         1. The descendent is not survived by any parents or children etc.; OR

         2. All of the decedent’s descendants also are surviving spouse’s descendants

      2. If Decedent is survived by parent but not children:

         1. The first 25% of the intestate estate goes to the spouse (not less than $50K or more than $200K) plus of the balance if survived by parent but no children etc.

      3. If either the Decedent or Surviving Spouse have other children:

         1. The first 25% of the intestate estate (but not less than $50K or more than $200K) plus of the balance if either the decedent or the survivor has children etc. from outside the marriage.

EXAMPLE: NJ 3B: 5-3

• Linda dies survived by spouse Thomas and their 2 kids and Linda’s song from another relationship, Paul. Linda leaves $800k.

  • What is Thomas’ share under old rule?

    • $400k (surviving spouse gets )

  • What is Thomas’ share under NJ rule?

    • $500k

      • Thomas, surviving spouse, has children so:

        • He gets 25% of intestate share of $800k = $200k (remember: no less than $50k or more than $200k)

        • He then gets of the $600k remainder ($800k - $200k) = $300k

  • What would Thomas’ share be if Linda had no other children, but Thomas had another son, Anthony?

    • $500k…same as above.

• What if Linda leaves $100k?

  • What does Thomas get in NJ?

    • Take 25% of intestate estate (.25 x 100k) = $50k (at the floor here, b/c no less than $50k)

    • Then take the remainder (100k – 50k)/2 = $25k

    • Thomas gets $75k

  • In an older state?

    • $50k … intestate share

  1. Simultaneous Death

     1. Old Rule = If there is no evidence that a party survived the decedent, he or she is deemed to have predeceased the decedent.

     2. New Rule/UPC/120 Hour Rule = Unless there is clear and convincing evidence that a party survived the decedent by 120-hours, he or she is deemed to have predeceased the decedent.

        1. Applies to probate property/trusts. Unclear whether it applies to other non-probate property

        2. Decedent and testator do not have to be related or die in a common disaster

           1. I.e. When drafting a trust or will, one might prefer to specify a month or three months

           2. Some states make it 30, 60, or 90 days.

EXAMPLE:

• Thomas and Linda are “deemed to have predeceased” each other. What does that mean?

  • Thomas has a house

  • Linda has an insurance policy naming Thomas as primary beneficiary, her parents as contingent beneficiaries

• Thomas’ house goes...