I. Introductory Material

Wills & Trusts

Fall 2000 – Prof Guzman

OUTLINE

I. Introductory Material

A. What is property? Bundle of rights. Relational.

1. Series of rights w/ respect to property: Right to possess; Right to enjoyment; Right to distribute; Right to transfer; Right to exclude others; Right to destroy or consume; Right to use.

2. Right of distribution or transfer

a. Transfer during life:

(1) voluntary transactions – sell, partition, gift;

(2) involuntary transactions – condemnation, judgment lien, taxes, adverse possession, theft.

b. Transfer at death:

(1) voluntary – will;

(2) involuntary – intestacy

c. Difference b/w life & death transfers – psychological & sociological ramifications.

(1) Intervivos Gift (gift during life)

(a) Three elements:

(i) present donative intent – intend to give away property at that point in time;

(ii) delivery (actual or constructive);

(iii) acceptance

(b) Is a completed gift revocable? Not revocable at point of transfer of title – when last element occurs. Legal, not only moral, obligation.

(2) Will

(a) Requirements:

(i) Future intent (not to transfer property at present but in future);

(ii) Writing;

(iii) Witnesses (caveat – don’t always need witness).

(b) Transfers at death at the earliest – but probably later at administration of will.

(c) Is will revocable? Yes, generally, but becomes irrevocable at death. Technically, not proper to say that one has revoked a gift when one has changed a will b/c no gift was completed initially.

II. Intestate Succession

A. Testamentary Freedom – Donative freedom – the right to pass property during life or at death; right to choose who gets it; right to choose form in which they get it; & right to give anther person right to make those choices.

1. How many limits/conditions/ impediments on this freedom? Can put in will, transfer to wife on condition that she quit smoking? Different theoretical perspectives on limits of freedom to transfer.

2. Hodell v. Irving (Sup Ct) – transfer thru will is not a constitutional right but state & federal gov restrictions on property owner’s right to transfer property at death amounts to taking w/o just compensation.

B. Initial Information

1. Intestate is scheme that applies if one dies w/o will.

2. Policy underlying Intestate Succession

a. designed to effect orderly distribution of property for decedents who lack foresight or diligence to draft wills;

b. purpose is to provide distribution that approximates what decedents would have done under will;

c. spouses & kids enjoy favored position under laws of intestate succession b/c they are natural objects of most people’s bounty.

3. Every state has statute of intestacy that tells where property goes & in what percentage. This class will talk about three things in relation to these statutes:

a. schemes – where property goes – Rule

b. status – show spouse is actually spouse, etc. Nonmarital or adopted children, etc – policy

c. alterations – know scheme & status, can alter that?

C. Schemes

1. Scheme for Spouse

a. Generally – Spouse must survive decedent. Except for spouse, heirs are always related by blood & not marriage. When decedent leaves surviving spouse, he or she will always take at least some of intestate estate no matter what intestacy scheme applies.

b. Jip – joint industry property – property acquired during marriage by joint efforts of husband & wife. Property brought to marriage not included nor is property acquired through gift. Income from separate property also not joint.

(1) All decedent’s property at death presumed to be jip & up to someone else to challenge to take out of jip status. High degree of proof.

c. Relevant Statute for OK – Title 84 § 213 – do not look at § 213(a). § 213(b) – applies today.

d. Handout #2:[1]

(1) Spouse only survives

(a) UPC – spouse takes all.

(b) OK – spouse takes all.

(2) Spouse & joint issue survive

(a) UPC – spouse takes all

(b) OK – spouse takes HALF

(i) Conduit theory – technically, disinheriting kids under UPC, but kids will be taken care of thru distribution to surviving spouse who will spend money on their care.

(ii) If kids are adults, they do not necessarily need inheritance. Also, may be more important for money to go to surviving spouse for support during old age.

(iii) Efficiency – if kids are minors, requires inheritance to go to trust .

(3) Spouse + any issue of decedent only (surviving spouse’s stepchild)

(a) UPC – Spouse takes first $100,000 plus half of balance

(b) OK – half of jip + equal part of non-jip w/ decedent’s decendants.

(c) Policy – UPC gives spouse more than OK. Policy for having special rule regarding stepchild – conduit theory breaks down – stepparent may not transfer anything (or very little) to stepchild.

(4) Spouse, joint issue, & spouse’s own kid

(a) UPC – Spouse takes first $150,000 plus half of balance

(b) OK – Spouse takes 50% w/ remainder going to joint issue

(c) Policy – OK has no confusing or special rule regarding decedent’s step kids. Policy of giving to joint issue & not to surviving spouse’s sole kid – when inherit from surviving spouse, will inherit equally – conceptually not fair for stepkid to receive equally w/ joint issue.

(5) Spouse & parent

(a) UPC – Spouse takes $200,000 plus ¾ balance

(b) OK – all jip & 1/3 non-jip to spouse

(c) Policy – For practicality, spouse will get all most of the time. Why not, then, just have rule for spouse to get all? Rule applies only if no children. Probably younger at death, not married for long, money probably not jip but brought into marriage. T/f spouse should not receive all. Also, perhaps wealth came from ins policy or wrongful death settlement or litigation damages.

(6) Spouse & two siblings survive

(a) UPC – no rule – would rather money go to spouse than to siblings.

(b) OK – Siblings get 1/3 of non-jip property. Statute presumes decedent would rather money go to lineal relatives (parents) rather than collateral relatives (siblings). Where parents & siblings survive, parents receive all & not siblings. But when no parents survive, siblings inherit. In theory, if parents don’t use all money, will be distributed to siblings at parents’ death.

2. Scheme for Descendants

a. Generally – In absence of surviving spouse, law of all states gives entire estate to descendants.

b. Representation – any share that goes to decedent’s descendants is divided among them by representation.

(1) Property divided among living persons who are nearest to decedent in each descending line.

(2) Descendant who has living ancestor who is also descendant of decedent is not eligible taker.

c. Roots & Degrees

(1) example:

A B

Two roots – A & B

Two degrees – A/B & 1

(2) example:

A B

1, 2, 3, 4, 5 6

If all survive, A & B inherit

If A & B predecease, two ways to distribute:

Pure per sterpies – split 50-50 into the two stock (roots) & then 1-5 split their half equally (1/10th each) & 6 would take its half.

Modified per sterpies – all six grandkids get 1/6 share each.

d. Three Approaches:

(1) Pure Per Sterpies

(a) Step One – go to child generation & count number of live roots. (Root still alive even if kids dead if grandkids. Root alive as long as can continue to grow).

(b) Step Two – allocate share to each root & divide down

(2) Modified Per Sterpies

(a) Step One – go to first generation w/ at least one living member & count roots

(b) Step Two – allocate shares & divide down

(d) OK § 213(2)(a) – not facially clea, but judicial interpretation follows modified per stirpes.

(3) 1990 UPC

(a) Step One – go to first generation w/ at least one living member & count number of live roots

(b) Step Two – allocate share to each living member of that generation

e. Hypo:

A B C

1 2 3 4 5 6

7 8 9

All living

- Pure – 1/3 to A, B, C each

- Modified – 1/3 to A, B, C each

- 1990 UPC – 1/3 to A, B, C each

A, B, C predecease

- Pure – 1, 2 = 1/6th each; 3=1/3rd; 4, 5, 6 = 1/9th each

- Modified – 1-6 get 1/6th share each

- 1990 UPC – 1-6 get 1/6th share each

A, B, C, 3, 6 predecease

- Pure – 1, 2 = 1/6th each; 7 = 1/3rd; 4, 5 = 1/9th; 8, 9 = 1/18th

- Modified – 1, 2 = 1/6th; 7 = 1/6th; 4, 5 = 1/6th; 8, 9 = 1/12th

- 1990 UPC – 1, 2 = 1/6th; 4, 5 = 1/6th 7, 8, 9 = 1/9th (each gets 1/3rd of the 1/3rd remainder)

f. For more examples & hypos, refer to notes from September 7

3. Scheme for Ancestors & Collaterals – irrelevant when have even one descendant.

a. 3 rules:

(1) Parentellic – (parentella – person & their roots). Expands up – Parentella #2 includes Mom & Dad’s parentella & so on. Parentella #3 includes grandparents, aunts, uncles, cousins.

(a) Find parentella closest to decedent w/ at least one living member & distribute all. Heads of parentella trump all.

(b) Examples:

(i) Mom & dad are only survivors. Second parentella – distribute 50-50 b/w parents.

(ii) Mom predeceases – dad only survivor – Dad gets 100%

(iii) Mom, Dad, Sibling survive – three people in second parentella – sibling gets nothing b/c heads of parentella trump. If Mom & Dad both predecease, sibling takes all.

(iv) Survived by one nephew & one sibling – Representational – Nephew gets ½ & sibling gets 1/2

(c) OK Provision – 84 OS § 213(b) – parentellic plus approach. OK goes to third parentella, then to next of kin to equal degree – civil law after third parentella.

(d) UPC – parentellic approach – diff from OK, stop at 3rd parrentella – property goes to state.

(2) Civil Law – splits property b/w all related to decedent in same degree. Count up to common ancestor & then down to that person. Distribute equally to those w/ lowest degree. Look at chart pg 56.

(a) To determine degree of people, count up to common ancestor & down to that person:

(i) Siblings: 2

(ii) Nephew: 3

(iii) Aunts: 3

(b) Lowest number wins. Split up b/w all of same degree.

(3) Modified Civil Law – if more than one person are related in same degree, figure out who is in closest parentella.

D. Altering Intestate Schemes

1. Donees/Recipients can modify intestate succession by:

a. Settlement or agreement. If decedent’s heirs are not satisfied w/ distribution under intestacy statute, they can normally divide up the assets among themselves by agreement b/w competent adults. Agreement must be judicially supervised.

b. Disclaimer – altering intestate succession that avoids gift tax. Potential donee refuses to accept gift.

(1) Policy – why would disclaim?

(a) Tax credit reasons are primary reason for disclaiming. Example - Estate of $1 Million. Husband dies, wife gets $1 Million. Marital exemption to estate taxes. No tax consequences. When wife dies, all transfers to A, the child, who pays taxes. Internal Revenue Code allows for $675,000 inheritance exemption from taxes. T/f child who inherits $1 Million pays taxes on $325,000. Wife could disclaim all, $1 Million goes to A, with estate consequences. Wife could disclaim $675,000 – goes to A w/o tax consequence.

(b) Avoid creditors. Creditor’s rights – beneficiary can disclaim interest to prevent creditors from reaching property – cannot make fraudulent conveyance.

(c) Others may need inheritance more. Manipulate shares. Example – X dies, leaving two kids A, B, and three grandkids, X, Y (A’s kids) & Z (B’s kid). A wants more for family. Could disclaim & manipulate shares for the following result:

(i) A treated as if predeceased disclaimant so X, Y, & B would get 1/3. A just gave his family 2/3.

(ii) Distribute A’s ½ to X & Y – each getting ¼ - does not give his family more.

(iii) Redistribute A’s ½ to three in living generation. Giving 1/6 to X, Y, & Z. Z would also get his ½ which gives him 2/3.

(iv) Need to make sure know what statue says. In result (i), “entire estate distributed as if A predeceased X.” In (ii) & (iii), “disclaimed interest distributed as if disclaimant had predeceased X. OK Statute – 84 OS 26 – not yet interpreted but TX has same statute & interpreted as situation (ii).

(2) Any heir can disclaim in intestacy – or a consevator or guardian can disclaim on behalf of minor.

(3) How disclaim? Proper steps to follow: “Qualified disclaimer” 84 OS §§ 22-31:

(a) written, signed, witnessed, acknowledged;

(b) can disclaim in whole or part but disclaimant must not accept any benefit from disclaimed interest

(d) Filed in dis ct where estate is to be administered. If real estate, filed in office of county clerk where real property located.

(e) Copy of disclaimer to personal representative – executor, etc.

(4) Treat disclaimant as though had predeceased.

(5) Disclaimer not treated as gift b/c cts view it as refusal to accept title. Not treated as taxable transfer.

(6) Handout 3 – disclaiming does not preclude IRS lien against inheritance. If disclaim inheritance, IRS can get money to pay back taxes.

(7) Uniform Fraudulent Conveyance Act & Uniform Fraudulent Transfers Act – presuppose transfer. Technically, disclaimer not a transfer & so provides argument for getting around liability under these two acts.

(8) Look at disclaimer statutes for results of disclaimer – whether whole “estate” passes as if predeceased or whether “disclaimed interest” redistributed. OK disclaimer statutes – 84 OS §§ 22-31.

2. Decedents can alter intestate succession by:

a. write will to take everything out of intestacy;

b. advance – lifetime gift made to a person charged against intestate share. Must be a “qualified” advance.

(1) In OK, §§ 223-227:

(a) advance must be expressed or written in gift; written by donor or acknowledged in writing by donee stating intent to be advanced;

(b) advancee can be any lineal descendant;

(d) value is expressed value or fair market value when given.

(2) UPC is different from OK:

(a) only charges advancee & not advancee’s heirs;

(b) writing by donor must be contemporaneous; writing by donee can be written at any time;