Freedom of Disposition II
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This 12 page Class Notes was uploaded by John Gattuso on Wednesday September 9, 2015. The Class Notes belongs to Law 715 at a university taught by Turnipseed in Fall 2015. Since its upload, it has received 95 views.
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Date Created: 09/09/15
Freedom of Disposition Tuesday August 25 2015 846 PM Chapter 1 Introduction Freedom of Disposition A The Power to Transmit Property at Death Friedman Dead Hands A Social History of Wills Trusts and Inheritance Law Succession the transfer of goods at death Will simplest way succession is executed through which you have the right to specify who gets what when you die lntestate Succession default estate plan that determines who gets what when you die if you do not have a will in place 1 Freedom of Disposition and the Dead Hand Freedom of disposition at death is subject only to wealth transfer taxation and a handful of policy limitations Restatement Third of Property Property owners have the nearly unrestricted right to dispose of their property as they please The main function of the law in this field is to facilitate rather than regulate Rules of law that prohibit or restrict freedom of disposition include those relating to Spousal rights Creditor s rights Unreasonable restraints on alienation or marriage Provision promoting separation or divorce lmpermissible racial or other categorical restrictions Provision encouraging illegal activity Rule against perpetuities and accumulations Shapira V Union National Bank OH 1974 Facts Will provision stating son gets property if at time of death he is married to a Jewish woman with Jewish parents if not married at TOD than estate goes to Executor for 7 years who shall transfer property over to son if he marries accordingly in those 7 years if not estate goes to Israel I39I condition unconstitutional contrary to public opinion and unenforceable I39I right to marry protected by the 14th from restrictive legislative action which extends to enforcement by state judicial proceedings of private provisions restricting marriage bc such enforcement state action Crt the court is not being asked to enforce restriction on 11 s right to marry but on testators restriction upon inheritance Rule From a constitutional standpoint a testator may restrict a child s inheritance Rule gifts conditioned on marriage win faith are reasonable amp therefore are not against public policy I39I condition is against OH policy according to precedent Crt Precedent deals with covenant in divorce K forcing woman to raise child within the Catholic faith this is only a partial restraint upon marriage Rule there is a difference between testamentary gifts conditioned upon the religious faith of the beneficiary and those conditioned upon marriage to persons of a particular religious faith a condition may not affect the faith of the beneficiary but may affect the choice of a wife based on her faith because it is too remote to be regarded as a coercive of religious faith Reasoning testators plan was to use property to further Jewish faith amp if not through his son than through the state of Israel lncentive Trusts conditional gifts 3 categories 1 Encourage the beneficiaries to pursue an education 2 Moral incentives promote a particular way of living 3 Encourage beneficiaries to have a productive career Rule Restraint unreasonably limits the transferee s opportunity to marry if a marriage permitted by the restraint is not likely to occur Conditions that are contrary to public policy include Those that disrupt or discourage familial relationships Require or encourage one to commit a crime Restatement Third of Trusts In determining what is contrary to public policy courts should balance the donor s freedom of disposition against other social values and the effects of deadhand control on the subsequent conduct or personal freedoms of others If a provision is unnecessarily punitive or unreasonably intrusive into significant personal decisions or interests the provision may be invalid 2 J ustifying Freedom of Disposition a The Donor s Prerogative Halbach Intro to Death Taxes and Family Property Economic reasons for allowing inheritance are viewed in terms of proper rewards and socially valuable incentives to the donor Hirsch amp Wang Theory of the Deadhand Freedom of testation creates an incentive to industry and saving Another argument for freedom of testation also premised upon the goal of wealth enhancement is that it supports a market for the provision of social services testator s power to bequeath encourages beneficiaries to provide her with care and comfort Right of testation would be difficult to curtail testators would fin less efficient ways to direct distribution of their wealth if laws were repealed Permits more intelligent estate planning by allowing testators to take account of the differing needs of family members Possibilities for orderly succession Forced succession decedents property could pass by simple rule of mandatory or forced succession Freedom of Disposition decedents property could pass in accordance with the decedent s declared wishes if preserved if not than in accordance with default system of succession that tracks the probable intent of a typical decedent Confiscation by the State decedent s property confiscated by the state on the theory that his property rights terminate at death b Concentrations of Wealth Argument against freedom of disposition Perpetuates inequalities in the distribution of wealth Concentrates economic power in the hands of a few Distorting politics and markets Denies equal opportunity to the poor c Human and Cultural Capital Blum amp Kalven The Uneasy Case for Progressive Taxation The important inequalities of opportunity are inequalities of environment in its broadest sense for the children The gravest source of inequality of opportunity is not economic but rather cultural inhertiance Lanbein 20th Century Revolution in Family Wealth Transmission The business of educating children has become the main occasion for intergenerational wealth transfer education the new human capital that advantages a child Is Freedom of Disposition a Constitutional Imperative Until the 198039s the views of Blackstone prevailed over Locke The right to transmit property at death was generally thought not to be a natural right and certainly not one that was constitutionally protected then cam Hodel v Irving 4 Posthumously Acquired Property Rights Shaw Family Archives Ltd V CMG Worldwide Inc SDNY 2007 Facts Marilyn Monroe dies amp A39s use copyright to sell shirt in ID with her picture on them and maintain website licensing copyright out to members ID passes law 2 years after MM39s death that automatically transfers right to publicity for 100 years postmortem H it is the successor in interest to post mortem right to publicity and A39s usage violates ID Right of Publicity Act regardless of MM39s lack of connection or domicile to ID A H can39t establish ownership because only property actually owned may be devised by will and publicity transfer wasn t recognized until 2 years after MM died Crt agrees MM had no publicity right at TOD thus such right terminated at TOD H MM intended to bequeath publicity right Crt doesn t matter because she had no right to bequeath A disposition by the testator of all his property passes all of the property he was entitled to dispose of at the time of his death NY Law A will passes all property the testator owns at death including property acquired after execution of the will CA Law Testamentary disposition is controlled by the law in effect as of the date of death therefore no retroactive effect of newly established laws Braman Approach T dies with X as the intestate heir and Y as the residual devisee T39s estate acquires land that goes to X bc T can39t control disposition of property acquired after death UPC Approach all property owned at death as well as all property acquired by the estate after the testator39s death may pass under the testator39s will Post Shaw CA recognized posthumous right of publicity that is devisable at death even by a general residuary clause in a will made before the statute was first enacted Shaw tried to bring another suit arguing that MM was domiciled in CA and therefore statute applies but the court determined her domicile to be in NY where there was no such statute The law of the state where the decedent was domiciled at death governs the disposition of personal property and the law of the state where the decedent39s real property is located governs the disposition of real property B The Mechanics of Succession 1 Probate and Nonprobate Property Probate Property property that passes through probate under the decedents will or by intestacy Will Testamentary trust Anything in your sole name Realestate Nonprobate Property property that passes outside of probate by way of will substitute Inter Vivos Trust when property is put in trust the trustee holds it for the benefit of one or more named beneficiaries The trustee distributes the property to beneficiaries in accordance with the terms of the trust Property held in a testamentary trust created under the decedent39s will passes through probate but property put in an inter vivos trust during the decedent39s life passes in accordance with the terms of the trust avoiding probate administration irrevocable revocable as long as it doesn t dump into estate once it does than it can remain probate Life Insurance The proceeds of life insurance policy on decedent39s life are paid by the insurance company to the beneficiaries named in the insurance K Life insurance form of payondeath K that operates independently of probate administration PayonDeath POD and TransferonDeath TOD K 39s Bank brokerage pension and retirement accounts commonly allow for a POD bank account or TOD brokerage beneficiary designation under which the account custodian distributes the property at the decedents death to the named beneficiary Beneficiary need only file death certificate Some states have started a TOD real estate Joint Tenancy The decedents interest vanishes at death and the survivor owns the whole property Survivor need only file death certificate with local registrar of deeds If a decedent did not arrange his affairs during life so that all his property passes by nonprobate transfer and his family cant divide up property in private then probate fills the gap 2 Probate Terminology Personal representative When a person dies and probate is necessary the first step is to appoint a personal representative to oversee the winding up of the decedent39s affairs They are a fiduciary who Collects and inventories the property of the decedent Manages and protects the property during the administration of the estate Processes the claims of creditors and files federal and state taX returns Distributes the property to those entitled Executor If a decedent dies testate and in her will names the person who is to execute the will and administer the probate estate they are called an executor Administrator If there is no executor or the decedent dies intestate the court will name a personal representative called an administrator usually selected from a statutory list of persons given preference Surviving spouse Children Parents Siblings Creditors Probate Courts One court in each county has jurisdiction over administration of decedents estates A person dying testate was said to devise real property to devisees and to bequeath personal property to legatees For an intestate decedent real property was said to descend to heirs and personal property was said to be distributed to next ofkin Today a single statute of descent and distribution governs intestacy in almost all states making the same persons intestate successors to both real and personal property Therefore modern usage of heirs persons designated by the applicable statute to take a decedents intestate property real and personal and nextofkin means the same thing 3 Probate Administration 3 core functions of probate 1 provides evidence of transfer of title to the new owners making the property marketable again 2 protects creditors by providing a procedure for the payment of decedents debts 3 distributes decedents property to those intended after creditors are paid a Opening Probate and Choice of Law Primary or Domiciliary Jurisdiction The law of the state where the decedent was domiciled at death governs disposition of personal property amp Ancillary Probate the law of the state where the decedent39s real property is located governs the disposition of real property amp ancillary probate is then required The will should be first probated or letters of administration should first be sought in the jurisdiction where the decedent was domiciled at death Letters testamentary to an executor or letters of administration authorize a person to act on behalf of an estate and have detailed statutory procedures for issuance in each state Bond A person appointed must give bond insuring against mismanagement or misappropriation unless the will waives the bond Usually obtained from insurance company by paying a premium ultimately paid out by estate b Common Form and Solemn Form Probate Common form probate was an ex parte proceeding in which no notice or process was issued to any person due execution of the will was proved by the oath of the executor the will was admitted to probate at once letters testamentary were granted and the executor began administration of the estate if no one raised any objections the procedure sufficed however within a period of years thereafter an interested party could file a caveat compelling probate of the will in solemn form Solemn form notice to interested parties was given by citation due execution of the will was proved by the testimony of the attesting witnesses and administration of the estate involved greater court participation c Formal and Informal Probate Informal Probate Common Form UPC 3301 without giving notice to anyone the representative petitions for appointment the petition must contain pertinent information about the decedent and the names and addresses of the spouse children or other heirs amp devisees if the petition is for probate of a will the original will must accompany the petition the executor swears the will was validly executed proof by the witnesses is not required a will that appears to have required signatures and an attestation clause showing the requirements of execution have been met is probated by registrar with no further proof UPC 3303 within 30 days the personal representative must mail notice to every interested party including heirs apparently disinherited by the will UPC 3705 any such party may file a petition for formal probate under UPC 3402 Formal Probate Solemn is a litigated judicial determination after notice to interested parties UPC 3 401 UPC 3108 no proceeding formal or informal may be initiated more than three years rom the date of death If no will is probated within three years the presumption of intestacy is conclusive d Supervised and Unsupervised Administration Supervised Administration the personal representative is subject to the continuing authority of the probate court in administering the estate UPC 3501 the personal representative is empowered to act without interim court approvals but she cannot make a distribution to the beneficiaries without approval from the court UPC 3504 Unsupervised Administration personal representative administers the estate without going back into court the representative has the broad powers of a trustee in dealing with the estate property and may collect assets clear titles sell property invest in other assets pay creditors continue any business of he decedent and distribute the estate all without court approval UPC 3 715 UPC 3502 an interested party can petition for supervised administration at any time e Barring Creditors Every state has a nonclaim statute such as UPC 3803 which requires creditors to file claims within a specified period of time Two basic forms of nonclaim statutes 1 they bar claims not filed within a relatively short period after probate proceedings have commenced generally 2 6 months Creditors are usually notified of the requirement to file claims only by publication in a newspaper after probate proceedings are opened 2 they bar claims not filed within a longer period after the decedent39s death generally one to five years Under selfexecuting statutes protection is provided to creditors after the time period has run whether or not probate proceedings are ever commenced The Supreme Court has held that the Due Process Clause requires that known or reasonably ascertainable creditors receive actual notice before they are barred by a statute running from the commencement of probate proceedings f Closing the Estate 4 Is Probate Necessary Can probate be avoided yes provided the client during life arranges to transfer all property by way of nonprobate modes of transfer in such circumstances probate serves as a backup function catching overlooked property or property acquired after inter vivos arrangements have been made UPC 31201 31204 permit the decedents successor to avoid probate if the amount of property involved is small often requiring nothing more than an affidavit of the successor in a summary administration ranges from 25000 to 100000 Universal Succession the heirs or residuary devisees step into the shoes of the decedent at the decedents death taking the decedent39s title and assuming all his responsibilities and the obligation of paying legacies according to his will UPC 3312 heirs or the residuary devisees may petition the court for universal succession C Professional Responsibility Although the client39s freedom of disposition is paramount the lawyer may also owe a duty of competence to the clients intended beneficiary 1 Duties to Intended Beneficiaries Simpson V Calivas NH 1994 H appeals direct verdict of summary judgment against claims against lawyer who drafted will H negligence and breach of contract A failed to make a will that incorporated Dad39s intent to leave H all land in fee simple LC attorney drafting will doesn t owe intended beneficiaries a duty MC reverses and remands Dad executed will that left all land to H except second homestead to second wife stepmother H amp stepmom went to probate court to determine if quothomesteadquot meant whole property or just house PC excludes extrinsic evidence attorney notes that exhibit decedents intent to leave only the house to the wife and the rest of the property to the son Excluded because there only function is to interpret the will and if the language of the will is clear than they will not allow any extrinsic evidence in to change their interpretation PC includes whole property H later buys life estate in property for 400K amp brought this mal practice action Issues 1 Whether the trial court erred in ruling that under NH law a drafting attorney owes no duty to an intended beneficiary 2 Whether the LC erred in ruling that the findings of the probate court on testators intent collaterally estopped the H from bringing a malpractice action The concept of duty arises out of a relation between the parties and the protection against reasonably foreseeable harm the existence of a K between parties may constitute a relation sufficient to impose a duty to exercise reasonable care but in general the scope of such a duty is limited to those in privity of K with each other the privity rule is not ironclad amp the court has been willing to recognize situations particularly where as here the risk to persons not in privity is apparent Crt duty owed because injury is foreseeable When an attorney undertakes to fulfill a testamentary instructions of his client he assumes a relationship with the client and hisher intended beneficiaries although there is no privity between drafting attorney and intended beneficiary the obvious foreseeability of injury to the beneficiary demands an exception to the privity rule A exception should be limited to cases where testators intent as expressed in his will not shown by extrinsic evidence was frustrated by attorney error MC This would produce inconsistent results H LC erred in not recognizing action in K MC agrees A LC correct in sum judgment on collateral estoppel grounds MC no issues before probate and superior courts weren39t identical Note 1 The Privity Defense Only 9 states still follow the old rule that lack of privity between the drafter and an intended beneficiary bars a malpractice action by the beneficiary Alabama Arkansas Maine Maryland Nebraska New York Ohio Texas and Virginia Note 2 Malpractice and Law Reform Today courts and legislatures are increasingly willing to discard old rules that forbid courts to excuse errors in will execution to correct mistakes by lawyers in drafting instruments to carry out clients intent to cure or avoid perpetuities violations or reform wills and trusts after the decedent39s death to obtain tax advantages Note 3 Probate Court Jurisdiction Most courts reject the claim that conclusions reached by the probate court about testator39s intent in a construction suit are determinative in a malpractice suit 2 Conflicts of Interest A v B NJ 1999 lssue Whether Firm can disclose confidential information of one coclient to another Firm wants to disclose husbands illegitimate kid to wife father requested restraint which was denied by the LC and reversed and remanded by the MC HC reverse and remands MC H amp W hire firm amp sign conflict of interest waiver clerk misspelled surname in C01 form database Mom of Kid brought paternity action against H but firm couldn t find COI waiver cause of spelling H hires different firm to rep in paternity claim W leaves property to H or child legit or illegitimate but W didn t know about illegitimate child once firm discovers it reps both H amp Mom it withdrew rep of Mom Firm then wished to disclose info to W in light of residuary clause in her will and possibility of devising a portion of her estate to Kid competing obligations of confidentiality and to inform client of material facts A lawyer shall not reveal information relating to representation 0 a client unless the clients consent after consultation except for disclosures that are impliedly unauthorized in order to carry out representation A lawyer shall eXplain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation in limited situations an attorney is permitted to disclose confidential information such disclosure is required when the attorney reasonably believes that it is necessary to prevent a client from committing a criminal illegal or fraudulent act that the lawyer reasonably believes is likely to result in death or substantial bodily harm or injury to the financial interest or property of another or in furtherance of which the lawyers services have been used Crt Fraud H wholding kid from wife thus disclosure is permitted ln absence of an agreement to share confidential information with coclients the restatement reposes the resolution of the lawyer39s competing duties within the lawyers discretion
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