Main Question: Who Gets Your Property When You Die?

Trusts & Wills November 19, 2011

TRUSTS & WILLS OUTLINE

INTRODUCTION

·  Main question: who gets your property when you die?

·  Our constitutional system: the right to transmit property is not constitutionally protected.

·  Locke: children have a natural right to inherit from their parents. However, he doesn’t talk about the right to transmit property at your death.

·  Hodel v. Irvine:

o  Federal government made a law to transmit property to native Americans

o  Issue of fractionalizingàto the point that it becomes worthless

o  So the government decided that it would go back to the tribe.

o  Issue: whether the government’s decision is a taking.

o  Reasoning: bundle of rights: one of them is the right to dispose or transmit the property at your death.

·  Policy:

o  For letting people transmit the property: incentive to work hard and invest

o  Against it: it is an accidental benefit; locking the benefit in; undeserved privileges and wealth.

o  Hardship factor: if you take it away, you are taking away property and at the same time, the breadwinner died. So it creates somewhat of an unnecessary hardship.

·  Now it is more about lifetime transmission of benefit. The distinction is one of human capital (planning education; vacations; summer camps).

o  Now that changed the estate planning field.

·  Compromise: permitting transmission but subjecting it to tax.

·  Federal estate and gift tax: meant to discourage transmission at death.

Wills:

·  Will: to make your intent known of who gets your stuff when you die: who, what, and when.

·  When: it becomes effective at your death. It is ambulatory.

·  Who: you decide with certain limits like marital property (limits on minors, incompetent, alcoholics, and people that die before you).

·  What:

o  Your separate property

o  50% of community property

o  Joint tenancy: on the death of the joint tenant, the right is extinguished. Whatever interest they had, they don’t have anything to give anymore.

o  Tenancy in common: undivided owners, there is no right of survivorship.

·  Can the will operate on property that is no longer there?—then it doesn’t operate on the property.

·  There is a potential conflict of interest. So professional responsibility arises.

o  Avoiding representation of conflicting interest

o  Obligation to disclose things that are potentially detrimental to the clients.

·  General rule: the property goes tot whoever you intended the property to go to:

o  Provided you expressed that intent

o  You can’t violate certain rules

o  It depends on what kind of property: probate vs. non-probate property

o  Your will can only operate with respect to probate properties.

Probate:

·  It is a judicial process

·  Hypo: you die w/ a will. The will must be lodged w/ the probate court. It is a process of administration. Once the will is submitted, it must be accepted by the court. Someone will be in charge of taking care of your stuff until it should be given to the people you determined would get it.

·  If you died w/o a will, your assets might be subject to probate.

·  Testate vs. Intestate:

o  Testate:

§  there is a willàexecutor is appointed

§  you have a will; your intent expressed in a will

§  Testamentary trusts: trusts created out of your will—don’t come into existence until your death. That passes through probate.

o  Intestate:

§  There is no willàadministrator is appointed.

§  Your intent is lacking

§  Intent should be respected. However, the fear of fraud is a problem to letting unwritten wishes to be respected.

·  Probate Process:

o  Person who is in charge has to find the assets, inventory, and tell the world that you died.

o  The creditors can then file a claim and the court looks at whether the claims are founded. Then the rest goes to the ones expressed in the will

o  If there is no will, then they will presume the intent.

·  Administrator and executors are fiduciaries

·  The key is closure: no one can come in and claim an interest in the assets after the case is close.

·  Probate vs. non Probate:

o  Non probate (exceptions to probate): joint tenancy, life insurance, life estate and future interests, inter-vivos trusts (created while you are alive—by identifying the trustee and giving them property & money that they need to be in the trust).

§  Not subject to probate because you expressed your intent in them already in a different way.

·  Examples:

o  O owns blackacre: A for life and then remainder to B.

§  B owned the remained the whole time.

o  O owns fee simple absolute: O for life and then to B for the remainder interest.

§  On o’s death, ,he owns nothing

§  So it bypasses probate basically.

§  You do this by deed instead of using trust.

·  Trusts:

o  One person transfers property to a second person for the benefit of a third.

o  The second person is known as the trustee

o  The third party is the beneficiary

o  The person creating the trust is the trustor or settlor

o  It can potentially last for decades; it is more open-ended (different from gift b/c gifts are done in a instant).

·  Gifts:

o  Intent

o  Delivery

o  They are no revocable

o  No conditions.

·  Identify non-probate assets first and then get rid of that then go to the probate stuff.

INTESTACY: AN ESTATE PLAN BY DEFAULT

·  Beneficiaries:

o  Ascendants: related to decedents in an ascendant line (parents, grandparents, etc.)

o  Descendents: kids

o  Collaterals: your brothers, nieces, and nephews.

·  Most probate codes have preferences:

o  Spouses and children

o  Then other blood relatives

·  Terms:

o  Beneficiary: someone receiving property

o  Bequest: gift of personal property

o  Devise: gift of real property

o  Legacy: gift of money

·  CPC §6400: Property Subject to Intestacy Provisions: Any part of the estate of a decedent not effectively disposed of by will passes to the decedent’s heirs as prescribed in this part.

o  It has to be written in a will; anything said doesn’t matter if it is not written.

·  CPC §6401: Surviving spouse (or domestic partner) intestate share; community or quasi-community property; separate property:

o  ½ of the community property that belongs to the decedent

o  ½ of the quasi-community property that belongs to the decedent

o  Separate property of the decedent:

§  100% if no surviving issue, parent, brother, sister, or issue of a deceased brother or sister

§  50% if:

·  Decedent leave on child or the issue of once deceased child

·  Decedent leave no issue but leave a parent or parents of their issue or the issue of either of them

§  33% if:

·  Decedent leaves more than one child

·  Decedent leaved one child and the issue of one or more deceased children

·  Decedent leaves issue of two or more deceased children

o  This includes domestic partners.

o  Quasi-community property: buying a house in another state and moving to CA. Intestate treats assets that would have been community had they been acquired in CA. Intestacy treats quasi community assets the same as community property.

·  Common law (different from CA): it is separate property if it is in a separate bank account. However, you can’t disinherit your spouse or in divorce it is the same thing.

·  CPC §6402: Intestate estate not passing to surviving spouse or surviving domestic partner:

o  Issue takes equally first

o  If no issue, then parents equally

o  If no parents, to issue of parents or either of them equally

o  If no issue of parents, then to grandparents or issue of grandparents equally.

o  If not, then issue of predeceased spouse (step children)

o  If not, then next of kid to decedent

o  If not, then parents/issue of parents of predeceased spouse

o  If not, then escheat to state.

·  Difference b/w Joint Tenancy and Community Property:

o  Joint tenancy is more automatic

o  Community property is technically yours, and you can dispose of it as you see fit. It is portioned upon the death. So there is a technical partition.

·  Exception to the Rule: CPC §6402.5: Predeceased Spouse; portion of the decedent’s estate attributable to decedent’s predeceased spouse:

o  On the death of the surviving spouse w/o issue, it would normally go to parents. However, this section tries to give back some to the predeceased spouse’s parents.

o  Requirements:

§  Second spouse dies intestate

§  Second spouse does not leave surviving spouse

§  There are no issue

§  Second spouse to die must have acquired some property from the first spouse to die in order to trigger this rule.

·  Property attributable to the predeceased spouse.

§  If the second to die has a will, got life insurance, etc. it doesn’t apply.

o  (a) you got real property from spouse w/n 15 years before you died;

§  You give it back to the family of the predeceased spouse

§  We don’t care how the first spouse died or whether they left a will.

o  (b) you got personal property from spouse w/n 5 years before you died

§  Personal property: not only tangible

§  However, you have to be able to prove title

§  Greater than or equal to $10,000

o  Order of Giving:

§  Predeceased spouse’s issue

§  If not, to their parents

§  If not, then to their siblings

§  If not, then to next of kin of deceased spouse

§  If not, then next of kin of predeceased spouse.

Meaning of Survival:

·  Survive: breath and heartbeat; brain activity

·  Legal survival

·  Janus v. Tarasewicz (1985):

o  Case about the couple who died b/c of cyanide. Stanley was not responsive but Theresa was still responding. There is a life insurance policy on Stanley’s life. So the life insurance was paid to Theresa’s father.

o  Theresa was the beneficiary. so her father got the life insurance.

o  Issue: was there sufficient evidence that Theresa survived Stanley?

o  Holding: there was sufficient evidence to prove that Theresa survived Stanley.

·  CPC §6403: Failure to survive decedent by 120 hours; deemed predeceased; application of section:

o  A person who fails to survive the decedent by 120 hours is deemed to have predeceased the decedent for the purpose of intestate succession.

o  If it can’t be established by clear and convincing evidence that a person who would otherwise be an heir has survived the decedent by 120 hours, it is deemed that the person failed to survive for the required period.

o  Doesn’t apply if the application would result in the escheat of property to the state.

o  Effective after January 1, 1990.

·  CPC 21109: Transferees; failure to survive:

o  (a) there is no time limit:

§  Instruments would include wills, trusts, life insurance contracts.

§  It is the beginning of a modern trend in CA

§  It is in every context other than intestacy.

§  It is a continuation of the millisecond rule.

o  (b) The standard went from preponderance of the evidence to clear and convincing evidence. It is limited to survivor requirements.

·  First, you have to figure out if you actually survived. If yes, then you figure out if you legally survived.

·  If there is no surviving spouse:

o  Joint tenancy is terminated and becomes tenancy in common (each gets 50%)

o  The separate property goes to each person’s parents’ separately

o  The community is dividend into half.

o  Assume that each predeceased the other

o  So neither has a surviving spouse and no issue.

o  So it will go to the parents or to the parents’ issue

o  There is nor recapture in this case.

·  If there is a surviving spouse:

o  Then there is the recapture rule

·  Survived by Issue:

o  Divided S.P. 50% to the husband and S.P. 50% to the children

o  Father gets nothing b/c there is issue.

·  In CA: if you didn’t get married, then you are not a spouse

o  They can’t inherit anything

o  Joint tenancy though doesn’t care about marital status

o  Exception: Putative Spouses: in good faith you got married.

o  Registered domestic partners:

§  Same sex couples

§  You can substitute for spouse

§  Inheritance rights

§  They have to be registered w/ the secretary of the state

§  If you are over the age of 62, then you can register even if you are different sexes.

·  Separation and divorce:

o  For purposes of inheritance: if you are still married at the time of your death, you still have a surviving spouse.

o  Solution: write a will.

·  Community property:

o  Community property stops when you move out or separate from the community. It is the intent issue but the clearer you are about it, the better.

·  However, for purposes of inheritance, it is only effective once you get the divorce judgment.

Issue: Transfers to Children

·  H+W = A + B + C + D

o  If wife died, husband gets all the community property

o  If then husband dies, each child gets 25%

·  If A has R, B has S and T, C has no children, and D has X, Y, and Z. A, C, and D die:

o  On H’s death, we treat issue equally.

·  3-prong standard: what does “equally” mean?

o  Where is the starting point?

o  How do we determine who is included and who isn’t? How many shares are we going to divide it into?

§  One share for each life taker; and one share for deceased taker leaving issue behind.

o  What do we do with the shares that bypass a child and go to the grandchildren?

§  Shares dropping to the next generation through bloodline is to pass exactly to the generation after; OR,

§  Put all the remaining shares, in one pool and then divide equally.

·  3 approaches:

o  English per Stirpes:

§  First division is ALWAYS at the children

§  1 for each living; 1 for each deceased/ surviving issue