Chapter 1. The Estate and Estate Planning 53 results (showing 5 best matches)
- “Estate planning” refers to the process of ordering one’s property holdings and dispositions, while keeping in mind the possibility of retirement and the certainty of death. Estate planning draws on several distinct substantive fields of law, including property, wills, trusts, future interests, insurance, employee benefits, health care, and taxation. “Estate planning” is sometimes used as a synonym for “tax planning” or “business planning.” Although taxation and the existence of business interests are often an important part of an estate plan, the emphasis in this book is on estate planning in the more traditional sense, with allusions to taxation, business interests and other matters to the extent that they are necessary and helpful.
- Similarly, a pension plan sponsored by an employer may allow a covered employee to designate one or more beneficiaries to receive benefits from the plan after the employee’s death. A valid beneficiary designation takes effect pursuant to the terms of the pension plan, and the benefits pass to the designated beneficiaries outside the employee’s probate estate.
- The materials in this book are prepared principally for a person who has had an introduction to property law, but who has not yet studied such subjects as trusts and future interests. It does not follow that this book purports to “cover” any subject fully. On the contrary, coverage with respect to most topics is selective, and is intended to acquaint the reader as quickly as possible with some of the key issues that arise in ascertaining a person’s existing property arrangements and in determining whether and how those arrangements might be modified to carry out the person’s intended disposition more reliably and efficiently. For example, a person might be required as a condition of employment to participate in a contributory pension plan. Although the employee cannot opt out of the forced saving that results from participation in the pension plan, he or she might nonetheless review the available choices under the plan for designating a beneficiary to receive distributions in the...
- The term “estate” can have any of several different meanings depending on the context. In traditional usage, a decedent’s estate means the “probate estate,” that is, the property owned by a decedent which passes by will or intestacy and is subject to probate administration. This is what lawyers usually have in mind when they refer to the estate in drafting a will, and it is also the sense in which the term is ordinarily used in the statutes concerning intestacy, wills, and estate administration. In a related but different sense, an estate can mean any aggregation of assets administered by a fiduciary for the benefit of creditors or beneficiaries, as in the case of a trust estate or a bankruptcy estate. In speaking of estates in land and future interests, the term estate often denotes a possessory interest classified by its potential duration, as in a “life estate,” an “estate for years,” or a “fee simple absolute.”
- In a broader sense, an estate may realistically be viewed as the aggregate resources available at any given time that allow a person to maintain a standard of living and to make provision during life or at death for family members or other beneficiaries. This is the meaning of the term as it is used in “estate planning.” In this sense, a person’s estate may include not only accumulations of personal wealth but also benefits provided by governmental programs such as Social Security and Medicare. Although benefits under these governmental programs are not “owned” in the same way as other assets, they represent an important element (sometimes the only significant element) of resources available to meet basic needs of many individuals and their dependent or surviving family members.
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Chapter 2. The Transfer of Property at Death by Will or Intestacy 55 results (showing 5 best matches)
- Estate planning is associated with death. If a person dies owning property that is subject to administration in the probate court, there is a “probate estate.” The assets constituting the probate estate are listed in an “inventory” prepared by the personal representative and filed in the probate court. The “net probate estate” consists of the assets, if any, remaining after payment of funeral expenses, administration expenses, creditors’ claims, and death taxes.
- It is sometimes said that a statute of descent and distribution creates an “estate plan by operation of law,” that is, that to the extent the net probate estate is not effectively disposed of by will, it passes according to statute. In this connection, one should note that the statutory scheme of intestate succession is extremely rigid; the heirs and their respective shares of the estate are determined based solely on status and family relationship, with little or no regard for other circumstances in a particular case. Suppose that A dies intestate at age 60, survived by his wife B and his only child C, leaving a net probate estate of $500,000. Under the Uniform Probate Code, B takes either all or part of the estate, depending on whether C is B’s child or her step-child. B’s intestate share is based on her status as A’s surviving spouse, regardless of whether B is old or young, rich or poor, or whether her marriage to A lasted for one month or several decades. C’s intestate share is...
- Generally speaking, a decedent’s heirs or beneficiaries are identified as of the time of death. But in this connection (as in so many others), a special rule may be imposed by statute. Under the Uniform Probate Code, a person who fails to survive a decedent by 120 hours is deemed to have predeceased the decedent for purposes of intestate succession and, unless otherwise provided in the governing instrument, for purposes of wills, trusts, and other governing instruments. UPC §§ 2–104 and 2–702. These “five-day statutes” prevent property from passing at death to a person who cannot enjoy it in the ordinary sense of the word because the intended beneficiary dies shortly after the decedent. (In the absence of such a statute, the same property passes through two estates, instead of just one, within a short period of time.) Suppose that A, a widow domiciled in a jurisdiction that follows the Uniform Probate Code, dies with a will leaving her entire estate to her sister B. B is living at A...
- A specific gift refers to specific, identifiable property (for example, “I give my diamond brooch to A”). A general gift is a gift of a certain amount or quantity of property, usually money (for example, “I give $10,000 to B”). A residuary gift is a gift of the remaining property in the estate after all other gifts have been satisfied (for example, “I give the rest, residue, and remainder of my estate to C”).
- If a person dies owning property that is subject to administration in the probate court, he or she might die “testate” (leaving a will) or “intestate” (without a will). A person who makes a will is called the “testator,” regardless of gender. (“Testatrix,” the gender-specific term for a female testator, is no longer widely used.) A person who dies without a will is called “the intestate.” Because a will might not purport to dispose of all of the testator’s net probate estate, or might not effectively dispose of the entire net probate estate (although it purports to do so), a decedent might die testate with respect to part of the net probate estate and intestate with respect to the balance.
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Chapter 13. Federal Estate and Gift Taxation 121 results (showing 5 best matches)
- The wealth transfer taxes have no direct effect on the vast majority of the population—less than one percent of decedents each year leave taxable estates large enough to incur an estate tax liability. For those who do incur tax liability, however, the impact can be significant, both in terms of reporting and paying the taxes actually owed and in terms of planning to avoid or minimize those taxes.
- Overall, the rules concerning gift completion give the donor considerable flexibility. If the donor wishes to transfer property without incurring an immediate gift tax liability, the donor can retain a power of revocation (or some other power that prevents the transfer from being complete), though of course the property will eventually be subject to gift or estate tax when the retained power expires. Alternatively, the donor may prefer to pay a gift tax at the outset in order to avoid a subsequent gift or estate tax liability. This can be accomplished if the donor is careful to tailor any retained powers in a way that will not attract an estate tax at death. It is possible for the same transfer to give rise to both gift and estate taxes, but such an overlap is almost always undesirable and can usually be avoided through competent planning.
- Using the unlimited marital deduction, a married couple can easily avoid incurring any estate tax at the death of the first spouse simply by arranging for all of the decedent’s property to pass to the surviving spouse, but careful planning may be necessary to avoid wasting the decedent’s unified credit. In general, if both spouses are to make full use of their respective unified credits, it makes sense to ensure that each spouse will leave a taxable estate at least equal to the exemption amount. To achieve the desired result, two conditions must be met. First, each spouse should own property at least equal to the exemption amount. If one spouse is very wealthy and the other has negligible assets, the couple may rearrange their affairs, using inter vivos gifts (sheltered from gift tax by the marital deduction) to bring the poorer spouse’s estate up to the exemption amount. Even if both spouses have large estates, however, there is a second condition which must be met, namely, each...
- Under I.R.C. § 2039, a decedent’s gross estate includes survivor benefits payable to beneficiaries under a “contract or agreement,” if the decedent was entitled under the same contract or agreement to receive an “annuity or other payment” for life. The survivor benefits are includible to the extent attributable to contributions made by the decedent (or on the decedent’s behalf by his or her employer) toward the purchase price. This provision is aimed primarily at survivor benefits under employment-related retirement plans, but it also applies to commercial survivor annuities and other contractual arrangements. Suppose that A uses her own funds to purchase an annuity payable to herself for life and then to her husband B for his life if he survives her. Upon A’s death survived by B, the value of the survivor annuity payable to B is includible in A’s gross estate under § 2039. Likewise, if under A’s contract of employment she is entitled to a pension upon retirement, with a survivor...
- Transfers made by one spouse to the other, during life or at death, are generally sheltered from gift and estate tax by a marital deduction. The marital deduction was originally intended to allow married couples in separate property states to enjoy the benefits of gift and estate “splitting” on roughly the same basis as couples in community property states. The amount of the marital deduction was originally limited to one half of the value of separate property transferred by one spouse to the other. In 1981, however, this limitation was removed, and today spouses can make unlimited transfers of property to each other during life or at death without incurring any gift or estate tax liability. Effective use of the marital deduction is of central importance in modern estate planning for married couples.
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Chapter 7. Social Security, Private Pension Plans, and Other Arrangements Based on Status 61 results (showing 5 best matches)
- To ensure that qualified plans fulfill their intended purpose of providing retirement benefits, the statute imposes restrictions (backed up by a 10% penalty tax) on distributions made to an employee before age 59½. Moreover, to prevent a defined contribution plan from serving as an open-ended tax shelter, the employee is generally required to receive at least a specified amount (the “minimum distribution”) from the plan each year upon reaching age 70½. (In some cases, the required minimum distributions may be deferred until the employee actually retires.) Any balance remaining in the employee’s account at death must be distributed to the employee’s designated beneficiary or to the employee’s estate within a limited period of time. I.R.C. § 401(a)(9). The minimum distribution rules do not prohibit larger or earlier distributions, if permitted by the terms of the plan; their purpose is merely to ensure that the employee’s entire interest in the plan will be distributed during the...
- Although Workers’ Compensation benefits can mitigate the financial effects of a disabling injury upon a worker’s eventual estate at death, or perhaps even result in an increase in the value of the estate in the case of death from a covered accident, Workers’ Compensation laws are of little use in planning the affairs of one not yet injured. Unlike Social Security, which provides somewhat predictable disability and death benefits to and on behalf of fully insured workers, the amount of benefits, if any, receivable under Workers’ Compensation depends primarily on the jurisdiction in which the accident occurs, and may be determined by the nature of the accident, the type and extent of injury, the type of employment, the number of employees employed, and numerous other variables which may affect the amount of benefits and the period of time over which they are payable. In short, for estate planning purposes, receipt of any Workers’ Compensation benefits can only be classed as a...
- Some of the language that has become a part of the standard working vocabulary with respect to pension plans should be noted. In a traditional “defined benefit” plan, the level of pension benefits payable to a retired employee is determined under a formula. For example, under a typical formula, an employee might be entitled upon retirement to receive monthly pension benefits equal to a fixed percentage of his or her average salary multiplied by the number of years of service. An important feature of a defined benefit plan is that the promised pension benefits represent an obligation of the employer. If the amounts contributed to the plan, with any net investment gains, are insufficient to pay the promised pension benefits, the employer is liable to make up the difference. In contrast, a “defined contribution” plan does not specify any level of promised pension benefits. Instead, the plan maintains an individual account for each employee, and amounts contributed by the employer are...
- Under ERISA, a qualified pension plan must prohibit employees from assigning or alienating their benefits under the plan. I.R.C. § 401(a)(13). Accordingly, subject to limited exceptions, an employee’s interest in a qualified plan is protected from the claims of creditors in much the same way as the interest of a beneficiary of a traditional “spendthrift” trust.
- Suppose that a decedent owned so little property at death that there is no net probate estate. The decedent never had occasion to create survivorship arrangements or other will substitutes intended to avoid probate. The decedent had no coverage under Social Security or under a private pension plan, and carried no conventional life insurance.
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Chapter 9. Future Interests—An Introduction 80 results (showing 5 best matches)
- Although the creation of powers is customarily justified on the ground that powers permit flexibility in the disposition of property, powers sometimes serve other purposes as well. A special power may be framed so broadly that the holder can use the appointive property for virtually any purpose other than his or her own pecuniary benefit (“a power in B to appoint the property to any one or more persons other than B, B’s estate, B’s creditors, or the creditors of B’s estate”), yet the appointive property cannot be reached by the power holder’s creditors to satisfy their claims. This is true even if the special power is held by the same person who created it. Moreover, in the absence of statute, even a general power of appointment, if unexercised, does not subject the appointive property to claims of the holder’s creditors, unless the general power is held by the same person who created it. (However, if the holder of a general power exercises the power while insolvent, the holder’s...
- Today if A, the owner of land in fee simple absolute, conveys “to B for life,” A retains a reversion in fee simple in the land. (One might also say that A has a “fee simple subject to a life estate in B,” but that is not the conventional way of characterizing the matter.) B’s life estate is a present, possessory interest. A’s reversion is a future interest.
- It is conventional to classify powers as “general” or “special.” Following the usage in the Internal Revenue Code, a general power is defined as one which may be exercised in favor of the holder, the holder’s estate, the holder’s creditors, or creditors of the holder’s estate. In other words, a general power is one that the holder can exercise for his or her own personal benefit, either during life or at death. Any other power is classified as a special (or “limited” or “non-general”) power. Thus, if A creates a trust to pay income to B for life, and gives B a power of appointment which can be exercised in favor of anyone in the world—other than B, B’s estate, or creditors of B or B’s estate—B holds a special power. (If B, B’s estate, or the creditors of B or B’s estate were included as objects, B would have a general power.)
- If a life estate in land is conveyed or devised to [B], and by the same conveyance or devise, a remainder in the same land is limited, mediately or immediately, to the heirs of [B], … and the life estate and remainder are of the same quality, then [B] has a remainder in fee simple…. Simes, Handbook of the Law of Future Interests 45 (2d ed. 1966).
- It bears emphasis, then, that in creating as well as in exercising powers of appointment, a lawyer should use the same care as in drafting a devise or bequest in a will. Any formal requirements imposed by the creator of the power concerning the manner of exercise should be scrupulously adhered to. For example, the power may by its terms be exercisable only by an instrument that makes “express” or “specific” reference to the power, in order to prevent an inadvertent exercise by a general reference to appointive property (for example, a gift by the power holder of “all property owned by me or subject to a power of appointment exercisable by me”). In exercising such a power, the holder should clearly identify the power: “All property over which I have a testamentary power of appointment under the will of A, dated …, I hereby appoint in its entirety to ….” More generally, to avoid confusion, exercise or non-exercise of the power, as the case may be, should be explicit: “And with respect to
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Copyright Page 4 results
- Nutshell Series, In a Nutshell
- The publisher is not engaged in rendering legal or other professional advice, and this publication is not a substitute for the advice of an attorney. If you require legal or other expert advice, you should seek the services of a competent attorney or other professional.
- © 2004 West, a Thomson business © 2014 LEG, Inc. d/b/a West Academic
- Printed in the United States of America
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Chapter 6. Insurance 57 results (showing 5 best matches)
- The federal estate tax treatment of insurance proceeds on a decedent’s life is governed by § 2042 of the Internal Revenue Code. That provision applies the “incidents of ownership” test to determine whether life insurance proceeds payable to a beneficiary (other than the estate) are includible in the decedent’s “gross estate”—that is, the estate for federal estate tax purposes. (The gross estate may include, and commonly does include, property in addition to that included in the decedent’s probate estate.) The term “incidents of ownership” generally refers to the economic benefits of the policy, including the right to change the beneficiary of the policy, the right to surrender or cancel the policy, the right to assign the policy, the right to pledge the policy as security for a loan, and the right to obtain a loan from the insurer against the cash surrender value of the policy. If a decedent held any one or more incidents of ownership at death, the proceeds of the policy on his or...in
- Although an absolute assignment of all rights in a life insurance policy may result from a sale to another, it is more likely to arise as a result of a gift. Here it is well to remember that a completed gift is not subject to revocation. Suppose that A, a widow, owns a policy of insurance on her own life. Wishing to exclude the proceeds of the policy from her gross estate for federal estate tax purposes, she gratuitously assigns all of her rights in the policy to her daughter B. B is married to C, and they have no children. B dies survived by A and by C. B’s will leaves her entire estate to her husband C. B’s estate includes the insurance policy on A’s life, and it is irrelevant that in assigning all rights in the policy A intended to benefit only B, not C.
- “Term” life insurance is sometimes referred to as pure insurance—it has no savings feature. If the insured dies while the contract is in force, that is, during the term of the policy—commonly one year or five years—a stated sum is payable to the designated beneficiary. Because term insurance has no savings feature, it has no cash surrender value. And once the current term expires, the insurance policy is no longer in force unless it is renewed. Nonetheless, term insurance often plays an important role in estate planning. The lack of a savings feature means that a term policy can be purchased for considerably less than a whole life policy with a comparable face amount. Term insurance is often sold as “mortgage” insurance, for the purpose of providing a guaranteed source of payment for a mortgage on the family home in the event that the insured dies while the mortgage is still outstanding. The term insurance contract might by its terms give the policyholder an option to renew... ...an...
- Because the life insurance industry is well established and influential, a policy of life insurance or its proceeds may be eligible for preferential treatment compared to other types of property under state law. If a decedent leaves assets at death that are subject to administration as part of the probate estate, any debts of the decedent that are allowed as claims against the estate (as well as expenses incurred in administering the estate) are payable from estate assets. (As a consequence, the probate assets may be exhausted, leaving none for distribution to the decedent’s testate or intestate successors.) By way of contrast, suppose a decedent dies owning an insurance policy on his own life, payable to his surviving spouse. Because the proceeds are payable directly to the beneficiary under the terms of the insurance policy, they are not subject to administration as part of the probate estate. By statute in most states, life insurance proceeds payable to or for the benefit of a...
- For a prospective decedent, insurance on his or her own life is important because it augments or creates an estate, using the word “estate” in the largest sense. Because the proceeds of a life insurance contract (the “policy”) are commonly payable under the policy directly to the surviving spouse of the insured decedent (the “life insured” or the “insured”), or to some other designated beneficiary (as differentiated from the estate of the insured), the proceeds ordinarily are not subject to administration as part of the decedent’s probate estate.
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Chapter 4. Community Property 28 results (showing 5 best matches)
- In a common law state, if A, married to B, by her earnings amasses property valued at $20 million and dies survived by B, all of the property is a part of A’s gross estate for federal estate tax purposes. In a community property state, if A, married to B, by her earnings amasses property valued at $20 million and dies survived by B, only one half of the property, being community property, is included in A’s gross estate for federal estate tax purposes. The other half of the community property already belonged to B from the time of acquisition during the marriage, and it does not “pass” from A to B at A’s death.
- Nonetheless, a married couple in a community property state may also make use of the marital deduction. For example, suppose that A, married to B in a community property state, by her earnings amasses property valued at $20 million. A has no separate property. A dies survived by B. A’s gross estate of $10 million consists solely of A’s one-half share of the community property. In her will, A leaves all of her property to B. The community property qualifies for the marital deduction, to the extent it is included in the decedent’s gross estate and passes to the surviving spouse absolutely (or by another qualifying form of disposition). Because there is no limit on the amount of the marital deduction, all of the property passing from A to B escapes estate tax at A’s death.
- Furthermore, community property is eligible for one significant federal tax advantage that is not available for separate property. For federal income tax purposes, property acquired from a decedent generally takes a “fresh start” basis in the recipient’s hands equal to the value of the property at the decedent’s death. I.R.C. § 1014(a). For this purpose, property is generally treated as acquired from the decedent if it is includible in the decedent’s gross estate for estate tax purposes. I.R.C. § 1014(b). For example, suppose that A and her husband B, domiciled in a common law state, hold Blackacre as tenants in common, each spouse having contributed $500,000 toward the purchase price many years ago. A dies survived by B, when Blackacre is worth $2 million. In her will, A devises her one-half interest in Blackacre (worth $1 million) to B. B retains his original cost basis of $500,000 in his half of the property, but he receives a fresh start basis of $1 million in the one-half share...
- Because of this and other disparities in the federal tax treatment of married persons in common law and community property states, Congress in 1948 made the marital deduction a part of the federal gift and estate taxes, “gift splitting” a part of the federal gift tax, and “income splitting” a part of the federal income tax. These devices were intended to put married couples in common law states on a rough parity with those in community property states for federal tax purposes. Therefore, they are primarily of interest to taxpayers in common law states.
- Difficult questions concerning the classification of property frequently arise when a married couple moves from a common law state to a community property state, or vice versa. In either a common law state or a community property state, purchasers, creditors, tax collectors, or the spouses themselves may be vitally interested in how property is treated for a particular purpose. For example, suppose that A, married to B in a common law state, by his earnings amasses personal property valued at $10 million. If A were to die survived by B, an “elective share” statute in the common law state would afford B some protection against a testamentary attempt by A to disinherit B. A and B move to a community property state, A taking his personal property with him. A dies in the community property state, still owning that personal property, survived by B. A’s will leaves his entire net probate estate to C, A’s child by a prior marriage, who also survives A. The community property state has no...
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Chapter 5. “Simple” Wills 86 results (showing 5 best matches)
- Be hesitant to create a legal life estate, or a legal life estate with a power to consume. Frequently the probate estate is so small that a legal life estate is altogether inadequate to achieve its intended purpose, quite aside from its other disagreeable characteristics. A power to consume provokes litigation. A testator with wealth sufficient to justify the creation of a life estate might consider creating a trust. (Nevertheless, if the testator insists on express provision in the will for successive enjoyment of an heirloom, the legal life estate with remainder may be appropriate.)
- Viewed solely from the standpoint of the devolution of the probate estate, the intestacy laws may in a particular case direct distribution in accordance with the preferences of the decedent. But a statutory distribution that is satisfactory to the prospective decedent at a particular time may become unsatisfactory a moment later if a beneficiary dies unexpectedly. For example, suppose that A, married to B, has no living parents or descendants. A has no will. If A were to die survived by B, all of A’s estate would pass to B under the applicable intestacy laws. But if A were to survive B and then die intestate, all of A’s estate (including property received from B) might pass to distant cousins for whom A cares nothing. Although it is possible that A might execute a will after B’s death for the purpose of leaving the estate to beneficiaries other than the cousins, it is better for A immediately to execute a will setting out an alternative disposition of the estate in case B...
- For many people the will is an important dispositive document. For a person of modest or moderate means the will may well be the most important dispositive document in the estate plan. It certainly should not be assumed that if a person has little property, it is of little consequence whether or not he or she executes a will.
- “Pretermitted heir” statutes are common. Under such a statute a child omitted from the will of his or her deceased parent may nonetheless in some cases be eligible to share in the parent’s estate. A testator desiring to leave all of his or her estate to a surviving spouse should anticipate the possible application of a pretermitted heir statute and avoid it by appropriate language:
- Because the testator may die survived by one or more minor children (irrespective of whether the children’s other parent survives the testator or dies first), the testator should consider the possible need for guardianship of the person and the estate of minor children. The law of guardianship, like the law of intestacy, wills, and administration of decedents’ estates, varies from one state to another. But generally speaking, a court may be reluctant to appoint a non-resident of the state as guardian of the estate of a minor. On the other hand, a court may be quite willing to appoint as guardian of the person of a minor a non-resident nominated by the testator, especially if the nominee is a relative. The “guardian of the person” of a minor is responsible for the care of the minor. The “guardian of the estate” of a minor is responsible for managing the minor’s property. Although the same person may (and on occasion should) act as guardian in both capacities, it is often preferable
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Chapter 11. The Rule Against Perpetuities and Related Doctrines 55 results (showing 5 best matches)
- (4) Because the Rule applies only to a narrow category of cases, do not create an interest that raises perpetuities questions of the more difficult kind where that serves no purpose. Suppose that A has an adult child B who is married to C. The lawyer learns that A wishes to create a life estate in B, followed by a life estate in C and a remainder at the death of the survivor of B and C to B’s issue then living. The lawyer could write “to B for life, then to B’s spouse for life, with remainder to B’s issue who survive B and B’s spouse.” A then dies survived by B, by C, and by their several children. Although the facts at the execution of the will may be such that the future interests can be confined as a matter of construction to a life estate in C and a remainder in B’s issue who survive B and C, the open-ended phrase “B’s spouse” invites treating the ultimate remainder as a gift to a class that might remain “open” (and subject to a condition precedent of survival) beyond the...
- involved a gift to a class of sub-classes, and under the “rule” of Cattlin v. Brown, a gift to a particular sub-class may be valid under the Rule Against Perpetuities in orthodox form even though the gift to another sub-class is void. For example, suppose that A creates a testamentary trust to pay the net income “to B for life, then in equal shares to the children of B for their lives, and on the death of each child, to pay that child’s proportionate share of principal to his or her issue then living, by right of representation.” A dies survived by B and by several of B’s children. “Children” is construed to mean “children of B whenever born.” Under the rule of Cattlin v. Brown, the remainder in the issue of each child is treated as a separate gift to a sub-class. Gifts that are bad under the Rule are separated from those that are good, and the latter are permitted to stand. Accordingly, the gifts to the issue of each child of B living at A’s death are valid (each child of B living...
- A lawyer engaged in trusts and estates work should know enough about the Rule Against Perpetuities to avoid violations of the Rule in drafting instruments, and to recognize violations of the Rule when examining instruments drawn by others. In both connections, the lawyer should be informed about relevant changes in the Rule brought about by legislatures or judges in recent years, but he or she should not assume that modification of the Rule in orthodox form appreciably affects the matter of drafting. Regardless of modification, the prudent lawyer drafts to comply with the requirements of the Rule in orthodox form. A limitation that is bad under the Rule in orthodox form may be saved under a “wait and see” or “cy pres” version of the Rule, but compliance with the Rule in orthodox form makes it unnecessary to test the validity of a disposition under a relaxed form of the Rule and may avoid the expense of litigation.
- (6) When testing the validity of an appointment made by the exercise of a special power or a general testamentary power, the appointment must be “read back” or interpolated into the instrument creating the power, and the perpetuities period is measured from the time the power was created. (The appointee takes from the donor, not the holder of the power). In exercising a special power or a general testamentary power, the lawyer should reconstruct the instrument creating the power so that it contains the contemplated appointment, for only in this way can the effectiveness of the appointment be determined. If A by will created a life estate in B, with a general testamentary power of appointment in B, and the draft of B’s will purporting to exercise the power reads in part “I appoint to my children for their lives, remainder to my grandchildren,” the contemplated appointment might in part be bad under the Rule. Interpolated into A’s will, the appointment takes this form: “to B for life,...
- If a future interest is not vested at the end of the 90-year period, § 3 of the Uniform Statutory Rule authorizes a court to reform the disposition “in the manner that most closely approximates the transferor’s manifested plan of distribution” and is within the 90-year wait and see period.
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Chapter 8. Trusts—An Introduction 70 results (showing 5 best matches)
- A private express trust is a device whereby a trustee (who may be a natural person or a corporation authorized by law to act as trustee) holds legal title to property and manages the property for the benefit of one or more beneficiaries. The trustee usually has extensive management powers over the trust property, including powers of sale and investment. The trustee also has a fundamental fiduciary duty to administer the trust exclusively for the benefit of the beneficiaries, in accordance with the terms of the trust. In estate planning, the private express trust has long been used to conserve and manage property, and to transfer wealth from one generation to the next within a family. (By way of contrast, the charitable trust is used to provide funds to carry out charitable or public purposes, rather than for the benefit of private beneficiaries.)
- Suppose that A, while married to B, transfers property irrevocably in trust to pay the net income to A for life, and on A’s death to distribute the trust corpus to C. A dies survived by B and C, and leaves a will that makes no provision for B. The corpus of the irrevocable trust is not a part of A’s estate for probate purposes, nor in many states is it viewed as a part of A’s estate for purposes of determining B’s elective share if B elects under statute to take against A’s will. (The corpus is includible in A’s “gross estate” for federal estate tax purposes, however, under § 2036 of the Internal Revenue Code.)
- In many states a decedent’s surviving spouse is entitled by law to an elective share of the decedent’s estate, and the surviving spouse cannot be deprived of his or her elective share by the decedent’s will. A surviving spouse who is dissatisfied with the provision, if any, made for him or her in the decedent’s will might elect under statute to “take against the will” of the decedent and thereby acquire an elective share in the estate.
- Suppose that A, instead of creating an irrevocable trust as described in the preceding paragraph, creates a revocable trust with beneficial interests identical to those just described. A dies survived by B and C, and leaves a will that makes no provision for B. The corpus of the revocable trust is not a part of A’s estate for probate purposes. (The corpus is includible in A’s gross estate for federal estate tax purposes, however, under §§ 2036 and 2038 of the Internal Revenue Code.) Whether the trust corpus is viewed as a part of A’s estate, if B elects to take against A’s will, turns on state law. In most states, by statute or judicial decision, the revocable trust is likely to be viewed as a will substitute for purposes of determining B’s elective share, with the result that B may be able to reach all or a portion of the trust property to satisfy her elective share. (This is also the result under § 2–205 of the Uniform Probate Code.) In a few states, however, the revocable trust...
- The revocable trust is frequently used as a will substitute, not because it affords any tax advantage (for federal estate tax purposes, the transfer is treated as testamentary), but because using it reduces some expenses incident to administration of probate assets, and permits distributions to beneficiaries during the period when probate assets are being administered. (Assets transferred to the revocable trust during the settlor’s life are not part of the probate estate.) Perhaps more importantly, the revocable trust affords the settlor, while living, an opportunity to observe the results of making property arrangements that frequently remain in effect at his or her death, and that may endure during and after the administration of the probate estate. For example, A, the sole owner of securities, transfers them by a written deed of trust to her son C to manage, and to pay the net income first to A for life, then to B (A’s spouse) for life, then to D (the daughter of A and B) for...
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Chapter 3. Survivorship Interests 27 results (showing 5 best matches)
- A disaffected spouse may use a joint tenancy with right of survivorship or some other kind of will substitute in an effort to disinherit his or her spouse. Whether the effort is successful is a matter of state law. In most separate property states, the surviving spouse’s elective share extends not only to the decedent’s net probate estate but also to property disposed of by various will substitutes, including joint tenancy with right of survivorship. For example, the Uniform Probate Code allows the surviving spouse to claim an elective share of an “augmented estate” which includes the decedent’s net probate estate and the decedent’s “nonprobate transfers” as well as certain property owned or transferred by the surviving spouse. UPC §§ 2–204 to 2–207. For this purpose, the decedent’s nonprobate transfers include, inter alia, the decedent’s fractional interest in property held in joint tenancy with right of survivorship, the decedent’s ownership interest in joint accounts and pay-on-...a
- Putting property in survivorship form does not necessarily result in a tax advantage, and it may result in an unnecessary tax liability. For example, suppose that A purchases a residence with her own funds and takes title in the names of herself and her child B as joint tenants with right of survivorship. A dies survived by B. Under I.R.C. § 2040(a), the entire value of the residence at A’s death is includible in her gross estate. Any gift tax paid by A in connection with the creation of the joint tenancy is allowable as an offset against the estate tax imposed at her death, but the joint-and-survivor arrangement produces no tax saving compared to an outright devise of the residence under A’s will. (In contrast, if B unexpectedly died before A, none of the value of the residence would be includible in B’s estate, since B contributed none of the purchase price. But A would merely end up owning the same property that she originally purchased, having incurred an unnecessary gift tax...
- Just as one must consult applicable state or federal law with respect to the creation of joint ownership with the incident of survivorship, so too one should be aware of the gift and estate tax consequences of joint-and-survivor arrangements. The Internal Revenue Code includes both gift and estate taxes. A few states impose a gift tax on lifetime transfers, and a much larger number of states impose an estate tax or an inheritance tax on transfers at death. (Estate and inheritance taxes are commonly called “death taxes.”) In determining whether either a gift tax or a death tax applies to a transaction involving the incident of survivorship, one should pay particular attention to the kind of property to which the incident attaches. Interests in bank accounts may be treated differently from interests in land or other property. Thus, for example, if A using her own funds opens a joint-and-survivor bank account in the names of herself and her child B, there is no completed gift for gift...A
- When one has little property, joint ownership with the incident of survivorship is justifiable both as a matter of convenience and as a means of avoiding probate. But as a couple accumulates considerable amounts of property, use of joint-and-survivor arrangements should be confined to kinds of property and amounts of property which make sense both as part of an overall property disposition and from the standpoint of tax planning. The tax advantage of joint ownership with the incident of survivorship is often illusory, and unscrambling interests held in survivorship form can be troublesome, especially in the event of a disagreement between the parties or an unexpected early death. Generally speaking, viewed from the tax standpoint, couples of some means should seek to equalize their respective individual holdings of property. Joint-and-survivor arrangements serve limited purposes. They do not defeat the tax collector. They might not defeat a surviving spouse seeking an elective share...
- By way of contrast, suppose that A and B are siblings who own property as joint tenants with right of survivorship. A’s will leaves his entire estate to C. B’s will leaves her entire estate to D. A and B die simultaneously, and the simultaneous death statute applies. C takes one-half of the property under A’s will, and D takes one-half of the property under B’s will. But if A and B die under such circumstances that the statute does not apply, the survivor takes all of the property by virtue of the right of survivorship, and the property then passes to the beneficiary named in the survivor’s will.
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Chapter 12. Some Aspects of Fiduciary Administration 58 results (showing 5 best matches)
- The functions of a personal representative differ in several respects from those of a trustee. A personal representative finds and collects the decedent’s assets, preserves them during the time needed to determine and pay creditors’ claims and death taxes (if any), and ultimately distributes the net probate estate to the beneficiaries under the decedent’s will (or to the heirs in the case of an intestate estate). Administration of a decedent’s estate is ordinarily concluded within one or two years after the decedent’s death.
- The personal representative (executor or administrator) of a decedent’s estate, like the trustee of an inter vivos trust or a testamentary trust, is a fiduciary who holds and administers property that belongs to others. A lawyer aware of the substantive law on (say) trusteeship, is prepared in a general way to cope with problems arising out of administration of an estate. Moreover, a lawyer who never serves as a trustee or as the personal representative of a decedent’s estate may nonetheless advise or represent a trustee or a personal representative.
- The duty of loyalty crops up in many different situations. For example, the executor in Hall v. Schoenwetter, 686 A.2d 980 (Conn. 1996), discovered a stolen Stradivarius violin among the decedent’s possessions. The executor negotiated the return of the violin to Lloyd’s of London (which had acquired legal title from the original owner upon payment of the instrument’s insured value following the theft), in exchange for a substantial finder’s fee. The court held that the executor was required to account for the finder’s fee as an asset of the estate. As a fiduciary, she could not appropriate for herself an asset that properly belonged to the estate. “No matter how the [violin] was obtained, it was a possession of the decedent’s estate, and once the [executor] chose to negotiate with Lloyd’s for the finder’s fee her fiduciary duty required that she negotiate on behalf of the estate, not herself.”
- To retain any property, real or personal, that my executor receives as a part of my estate, even though such property by reason of its kind, amount, or proportion to the total amount of my estate, would otherwise be considered inappropriate. To sell, exchange, lease, partition, give options upon, or otherwise dispose of any property, real or personal, in my estate, at public or private sale or otherwise, for cash or credit, upon such terms and conditions, and at such prices as my executor deems fit.
- The decedent may have been engaged in controversy at death, or controversy with respect to the estate may arise after death. Claims both by and against the estate may exist or arise. It is ordinarily desirable to give the executor power to exercise judgment with respect to such matters, and to compromise rather than litigate:
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Chapter 10. Charitable Trusts 13 results (showing 5 best matches)
- Occasionally a donor attempts to achieve a charitable purpose with inadequate resources. The testator in Lippincott Estate, 17 Pa.D. & C.2d 80 (Orphans’ Ct. 1959), left her residuary estate in trust to use the annual income “for the purpose of paying entrance fees into homes and institutions for the blind or other homes in … Pennsylvania, of persons qualified as hereinafter provided ….” The trustees were authorized by the will to advertise periodically for applicants and were directed to notify “all organizations within … Pennsylvania interested in … relief of the blind as to the function of the Fund ….” Income not expended in paying entrance fees was to be used to start the blind in business. As an incident to an accounting proceeding, a trustee of the Lippincott trust petitioned for discharge, appointment of a substitute trustee, and modification of the terms of the trust. In disposing of the petition, the court said:
- The trust intended by the testator in
- Listing generally accepted charitable purposes such as “supporting religion” or “promoting health” fails to reveal the wide range of purposes that judges have found to be “charitable.” It is true that a valid charitable trust could be established by a simple testamentary statement: “I leave all of my estate in trust for charity.” But only an extensive (and not very rewarding) examination of cases gives one an appreciation of what is “charitable” for legal purposes. Although there is much general agreement on the matter, it is hardly surprising that once outside the core area of general agreement, one finds that an activity deemed charitable in one state is viewed differently in another, or that what is charitable for purposes of applying “cy pres” is not necessarily charitable for purposes of tax exemption.
- Although as a matter of the traditional substantive law on charitable trusts, a great variety of activities have been deemed charitable under state law, there is currently a factor at work that unquestionably affects both the language by which gifts to charity are created, and the characteristics attached by donors to such gifts. Under the federal income, gift, and estate taxes, deductions are available to donors with respect to qualified charitable gifts. The income of charitable trusts and foundations may be wholly or partially exempt from income tax. Under state law, charities may be eligible for property tax exemptions. Donors are aware that just as the general law of trusts (and nonprofit corporations) favors gifts to charity, the tax laws encourage such gifts as well. Preferential tax treatment may induce donors to make larger or more frequent charitable gifts than they would otherwise have done, and the requirements of tax law may have an important bearing on the terms, size,...
- But there are some differences in doctrine. The beneficiaries of a private express trust are one or more individuals, whereas the beneficial interest of a charitable trust is in the public. Individual beneficiaries enforce private trusts. The Attorney General, or a similar state official, enforces charitable trusts (and as a consequence, enforcement tends to be uneven). A trust created exclusively for charitable purposes, unlike a private express trust, is exempt from the Rule Against Perpetuities; such a trust may endure indefinitely. With the passage of time and changes of circumstances, however, the original specific purposes of a charitable trust may become impracticable or impossible to achieve. A prudent lawyer should anticipate failure of the original purpose and provide a secondary gift for another charitable purpose (“for charitable purpose A, but if that purpose fails for any reason, then for charitable purpose B”). Even in the absence of a specific direction, judicial...
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Outline 28 results (showing 5 best matches)
Index 40 results (showing 5 best matches)
Preface 4 results
- This book is a revised edition of a work which first appeared in 1975. It is intended for law students, lawyers, and non-lawyers who are interested in the areas of wills, trusts, future interests, fiduciary administration, insurance, pensions, and federal estate and gift taxation.
- Citations are few. In a short volume of this sort, it is not feasible to give sufficient citations to satisfy a specialist without distracting and discouraging the non-specialist. Fortunately, there are several excellent treatises directed to the former, and we have therefore chosen to try to assist the latter.
- Because each chapter stands as much as possible as a separate unit, we have included no internal cross-references, and occasionally a particular topic is discussed more than once. Successive chapters do, however, tend to build on preceding chapters. Therefore, before reading (say) Chapter 8 on trusts, it is helpful to have a working knowledge of the material presented in Chapters 1 through 5.
- We are deeply saddened by the loss of Professor Lynn, the original author of this book, who passed away in 2008. During a long and distinguished career, he was universally admired and respected for his scholarly erudition and practical wisdom. In addition, he was a beloved teacher renowned for his gentle wit and patient, courteous nature. He is
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- Publication Date: January 13th, 2014
- ISBN: 9780314289162
- Subject: Estate Planning
- Series: Nutshells
- Type: Overviews
- Description: This Nutshell presents an introduction to estate planning. Subjects covered include the transfer of property at death at will under the intestate law, survivor interests, community property, and "simple" wills. Addresses insurance, estates arising from status, Social Security, pensions, workers' compensation, and veterans benefits. Discusses charitable trusts, the rule in Shelley's case, the Doctrine of Worthier Title, the Rule Against Perpetuities, and the Rule Against Accumulations. Also addresses fiduciary administration and federal estate and gift taxes.