Category Archives: Trusts & Estates
Nov 9, 2017 Kent D. SchenkelTrusts & Estates
Data show that the very rich hold an ever-increasing share of global wealth while that held by the rest diminishes proportionately. And the United States stands out among developed nations for its particularly wide wealth disparities between the rich and the poor. Compared with many nations the rich in the U.S. are generally richer while many of the rest struggle to get by. This severe wealth inequality harms productivity and the broader economy and even threatens democracy and social stability.
Solutions focused on donative transfers of wealth by concerned legal academics often prescribe a tax and transfer system in the form of a robust gift and estate tax regime. But political realities continue to intervene, weakening the federal transfer taxes. Given the way current political winds blow, outright repeal of these taxes seems more likely than their rejuvenation. Continue reading "Trusts and Estates Law and the Redistribution of Wealth"
Oct 20, 2017 Alexander Boni-SaenzTrusts & Estates
Evan J. Criddle,
Liberty in Loyalty: A Republican Theory of Fiduciary Law, 95
Tex. L. Rev. 993 (2017), available at
SSRN.
Fiduciary law crosses many domains, but it is of particular import to the field of trusts and estates, where it lays down rules of conduct for key actors within that legal system. In Liberty in Loyalty, Professor Criddle presents an appealing and detailed case for why republicanism is the theoretical basis for fiduciary law. This feat is impressive because he is very much swimming against the tide; scholars and judges alike have often seen classical liberal theory as fiduciary law’s guiding light. But the Article’s contribution is not merely theoretical. Important questions of doctrine turn on fiduciary law’s theoretical foundation, as Criddle skillfully shows. This article’s discussion is essential reading for scholars in numerous areas, most notably agency law, corporate law, and trust law, but it is also a valuable read for anyone interested in how the law manages relationships between those with unequal power.
Criddle starts by giving primers on the two main contestants for the soul of fiduciary law: republicanism and classical liberalism. Criddle acknowledges that republican theory is a big tent, but boils it down to two propositions. First, the state derives its authority from the people for the express purpose of promoting individual liberty. Second, the state accomplishes this task by protecting individuals from domination. Domination, in turn, is understood as being in a state of subjection—to either arbitrary power or alien control. Even if this power is not exercised, an individual will still be dominated if there is a chance that it will be exercised. While this understanding was developed with respect to public law, Criddle believes it applies equally well to private law, where the risk of domination is still present. Thus, the governing value of republicanism is liberty, which manifests as a non-domination principle. Classical liberals also value liberty but conceptualize it a bit differently. For them, actual interference or the likelihood of actual interference in an individual’s choices is the evil to be prevented. Thus, classical liberalism prizes a non-interference principle instead. Continue reading "The Non-Domination Principle in Fiduciary Law"
Sep 19, 2017 Michael YuTrusts & Estates
Professor Bradley E.S. Fogel persuasively argues that “courts and legislatures should abandon trust termination by consent of the beneficiaries.” (P. 378.) He proposes that they should instead apply the doctrine of equitable deviation, in which irrevocable trusts (hereinafter “trusts”) are modified or terminated only in the case of “relevant circumstances not anticipated by the settlor” and when the court determines that “such modification furthers the settlor’s intent.” (P. 378.) Professor Fogel notes that several commentators “have encouraged facilitating trust termination by the beneficiaries to assure that the trust meets the beneficiaries’ needs and to allow for more efficient use of trust assets.” (P. 342.) However, courts and legislatures, he argues, “need to respect the primacy of the settlor’s intent”; conversely, giving preference to “the living beneficiaries before the court . . . fails to properly respect freedom of disposition and the settlor’s right, under American law, to place whatever conditions she likes on the gift she made.” (P. 343.)
Professor Fogel first summarizes the common law of trust termination by consent of the beneficiaries. He notes that many early U.S. cases followed the English law that “a vested beneficiary could terminate a trust and receive the assets outright regardless of the settlor’s intent or the terms of the trust.” (P. 344.) Over time, courts rejected easy trust termination, and the case Claflin v. Claflin, 20 N.E. 454 (Mass. 1889), “evolved into the common law rule that a trust cannot be terminated by the consent of the beneficiaries if ‘continuance of the trust is necessary to carry out a material purpose of the trust.’” (P. 347.) The most common “material purposes” found for trusts were spendthrift provisions, discretionary distribution provisions, and provisions delaying a beneficiary’s enjoyment of the property (such as to a certain age). (Pp. 347-48.) Continue reading "Who Should Terminate or Modify Irrevocable Trusts?"
Aug 3, 2017 Paula MonopoliTrusts & Estates
Angela Vallario,
The Elective Share Has No Friends: Creditors Trump Spouse in the Battle Over the Revocable Trust, 45
Capital U. L. Rev. (forthcoming, 2017), available at
SSRN.
Some of our inheritance laws still seem closer to those existing in 1217 instead of 2017. For example, the elective share statutes in a number of states still echo the old common law doctrine of dower. In her new article, The Elective Share Has No Friends: Creditors Trump Spouse in the Battle Over the Revocable Trust, Angela Vallario makes a persuasive case for statutory reform, especially in light of recent trust reform in many of those same states effectively putting creditors in a more favorable position than a surviving spouse.
Professor Vallario begins by describing the current state of the elective share in the United States. She notes that twenty-five of the nation’s separate property states have reformed their elective share statutes to more clearly reflect a joint partnership theory of marriage. However, sixteen states have failed to do so and retain what Vallario calls the “traditional” elective share. Vallario reminds readers that the traditional elective share was built on the remnants of dower. Surviving spouses who are disinherited can claim either a one-half or one-third share of the decedent’s estate. But the term “estate” under traditional statutes has included only probate assets, not non-probate assets like life insurance, joint tenancy property with third parties and trust property. Continue reading "Unfinished Business: Reforming the Elective Share"
Jul 7, 2017 Phyllis C. TaiteTrusts & Estates
Self-settled domestic asset protection trusts (DAPTs) are trusts that permit a settlor to use a spendthrift provision in a trust where he is also a beneficiary to protect his assets from creditor claims. DAPTs evolved from offshore asset protection trusts which historically allowed self-settled asset protection trusts. Today, a majority of states within the US do not permit a settlor to create such a trust. DAPTs defy logic in that a person should not be able to place their assets in trusts, benefit from the trust, and then not have those funds available to pay to their debts. Yet, these trusts continue to gain popularity in the United States. A number of jurisdictions have enacted laws that permit self-settled DAPTs. Alaska was the first state in the U.S. to adopt DAPT law, and fifteen states, including South Dakota, the subject of this article, followed.
Since these trusts are relatively new, there are still questions regarding when or whether assets are protected from creditor claims and which transfer taxes are applicable. The answers to these question are found in the statutory provisions. In analyzing the DAPT, determining the level of control the settlor has retained in the trust is the key. In their article, Mark Krogstad and Matthew Van Heuvelen explore the estate and gift tax implication of South Dakota’s DAPT laws. This interesting article provides practical information for practitioners, scholars and professors who, draft, study and/or teach DAPT laws from any state. Continue reading "Can You Really Have Your Cake and Eat it Too?"
Jun 7, 2017 Solangel MaldonadoTrusts & Estates
The marital presumption always elicits a lively discussion in a Family Law or Estates & Trusts course. But marriage equality for same-sex couples raises a new question: If a child born to a married woman is presumed to be her husband’s child, must the law also presume that a child born to a woman in a same-sex marriage is her wife’s child? Professor Paula A. Monopoli answers this question in the affirmative in her article Inheritance Law and the Marital Presumption After Obergefell and specifically addresses the role of the presumption in the context of inheritance law.
Courts confronted with the claim that marriage equality requires the extension of the marital presumption to same-sex couples have reached different conclusions. Professor Monopoli first analyses the cases that have refused to extend the marital presumption to a female spouse who is not the genetic or birth mother of a child birthed by her wife during the marriage. She explains that these courts have focused on only one goal of the presumption—establishing a biological connection between a birth mother’s child and her husband. Consequently, these courts have concluded that the marital presumption only applies where there is a possibility that the birth mother’s spouse could be the child’s biological parent. Continue reading "Parentage by Presumed Consent"
May 5, 2017 Gerry W. BeyerTrusts & Estates
The idea of the “traditional family unit” is changing at a rapid pace that requires the law to adapt to effectuate a testator’s intent when administering a will. With 16.3 million unmarried Americans cohabiting and one in five children born into such households, the need for a valid will to avoid intestacy is at an all-time high. Specifically, more families are living with stepchildren or same-sex partners. This makes traditional intestacy statutes, which are designed to protect a more traditional family unit, potentially dangerous for a testator with a nontraditional family. Some states, however, permit ante-mortem probate which allows a testator to probate his or her own will prior to death thus ensuring that the testator’s at-death property distribution plans are upheld. States with ante-mortem probate statutes allow interested parties, such as will beneficiaries and heirs, to contest the will like they would in a post-mortem probate for issues such as undue influence, mental incapacity, or fraud. Unlike post-mortem probate, where the testator is deceased and the court must determine the testator’s capacity and intent without the testator’s input, ante-mortem probate allows the testator to avoid an unwarranted will contest, and the risk of intestacy if the contest is successful, by testifying at the probate hearing. Major concerns with ante-mortem probate statutes, however, are that will contents become public knowledge and that the litigation may strain familial relationships.
Katherine Arango’s article details the shift in American families and how an ante-mortem probate statute would protect nontraditional families. The article explains how adverse attitudes of courts and juries toward nontraditional families could lead to an intestacy distribution, which would be contrary to the testator’s intent. Ms. Arango highlights how ante-mortem probate provides nontraditional families security whereas traditional post-mortem probate cannot. By recounting the history of ante-mortem probate, the article delineates the slow awareness and affirmation of the importance of the doctrine in modern society. The article analyzes the different models of ante-mortem probate statutes and how those models protect the intent of the testator while also explaining possible complications. Then, the article evaluates currently enacted ante-mortem probate statutes. Finally, the article offers a new, comprehensive statute that could be inserted into the Uniform Probate Code as well as adopted by any state looking to implement this probate method. Continue reading "America’s Next Top Probate Model"
Apr 13, 2017 Sergio ParejaTrusts & Estates
David Horton and Andrea Cann Chandrasekher,
Probate Lending, 126
Yale L.J. 102 (2016).
Recently, private companies have begun advancing funds to estate beneficiaries in exchange for the beneficiaries’ anticipated inheritances from those estates. These “probate loans,” which have never even been mentioned in another law review article, are explored in detail by Professors David Horton and Andrea Cann Chandrasekher in Probate Lending.
In their excellent article, Professors Horton and Chandrasekher analyze 594 probate administrations that occurred in Alameda County, California, during 2007. Through this analysis, they learned that probate lending is more prevalent than one might expect. In fact, they discovered 77 probate lending deals in the 594 administrations. They also discovered that the lending companies paid beneficiaries about $800,000 in exchange for nearly $1.4 million in inheritances, producing an average markup of 69 percent per year. Continue reading "The Lucrative Business of Lending Against an Expected Inheritance"
Mar 14, 2017 Browne LewisTrusts & Estates
A will speaks at death. Therefore, the testator is free to change his or her will until the day he or she dies. Giving a person the opportunity to change his or her will makes sense because testamentary dispositions are influenced by lifetime events. For example, after a will is executed, a beneficiary may die or the testator may lose ownership of some of the property mentioned in the will. Currently, persons are permitted to create irrevocable trusts. Although there is no prohibition against irrevocable wills, modern statutes do not provide for the use of such devises. Therefore, a method does not exist for a testator to make an irrevocable will. Nevertheless, in his timely and thought-provoking article, Is It Time For Irrevocable Wills?, Professor Alex M. Johnson, Jr. makes the case that the legal recognition of irrevocable wills would not negatively impact testamentary freedom. The availability of irrevocable wills may protect the testator who becomes incompetent after executing his or her will.
In attempt to support his assertion that irrevocable wills have a place in the testamentary process, Professor Johnson begins his article by briefly discussing the historical evolution of wills. During the Middle Ages, the law expressly deemed wills to be irrevocable. At that time, the property owner was permitted to use, a post obit transfer, an inter vivos conveyance, to make an irrevocable testamentary transfer of his property. The post-obit gift consisted of a contractual promise that the donor’s property would be delivered to the beneficiary after the donor died. Usually, the instrument creating the post-obit gift included a provision stating that the gift was irrevocable if the donor did not retain the right to revoke it. Once the Statute of Wills was enacted in 1540, wills were treated as if they were irrevocable. Professor Johnson asserts that no justification was given for making wills revocable instruments. He opines that lawmakers never intended to prohibit irrevocable wills. According to Professor Johnson, the issue of the irrevocability of wills was never fully discussed. Consequently, there is no historical reason for not legally recognizing irrevocable wills. Continue reading "Ending the Cycle of “Ever-Changing” Wills"
Feb 14, 2017 Sarah WaldeckTrusts & Estates
Wills and many trusts have the same fundamental purpose: to transfer property at death. This raises perennial questions about the extent to which the law should treat these estate planning vehicles as functionally equivalent. I liked Deborah Gordon’s Forfeiting Trust because it reminds readers that consequences flow from the simple but fundamental distinction between wills and trusts. Trusts have trustees, beneficiaries, and the accompanying rules of fiduciary duty. Wills do not. Therefore not all rules that work well for wills can be applied to trusts.
No contest clauses—also known as forfeiture clauses—are Gordon’s subject. In wills, testators have long used these clauses to deter litigation. The testator leaves property to individuals who may be inclined to challenge the will on the ground that it was executed without capacity or compliance with statutory requirements, or that it was the product of undue influence, or that it is otherwise invalid. Then the testator inserts a clause providing that anyone who challenges the will forfeits her bequest. A beneficiary can still challenge the will, but only at considerable risk. If the court enforces the will, it also enforces the no contest clause. Continue reading "Apples and Oranges, Or Trusts and Wills."
