Introduction to Estate Planning in a Nutshell
Authors:
Lynn, Robert J. / McCouch, Grayson M.P.
Edition:
7th
Copyright Date:
2019
22 chapters
have results for estate planning in a nutshell
Chapter 1. The Estate and Estate Planning 1 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.
- 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.”
- 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.
- 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.
- Even an expanded view of an “estate” does not include an element that is unquestionably valuable to those benefiting from it, namely, the network of personal, professional, political, and other connections created or cultivated by an individual that can open doors and enhance opportunities for favored family members in their pursuit of a career in public or private life. Benefits of this kind do not readily lend themselves to valuation or accounting and are therefore ignored for purposes of estate planning.
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Chapter 2. The Transfer of Property at Death by Will or Intestacy 25 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...
- 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”).
- 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. . 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’s death, but dies two...
- If all of the takers are related to the decedent in the same degree of consanguinity, the intestacy laws in some states provide for a per capita distribution, to ensure that each taker receives an equal share of the estate. Under these intestacy laws, a per stirpes distribution applies only in those cases where there are living takers in more than one generation. For example, suppose that the decedent, a widow, had only two children, A and B. A predeceased the decedent and left two children who survive the decedent. B, the decedent’s surviving child, has four children who also survive the decedent. Because there are living takers in more than one generation, a per stirpes distribution gives one-fourth of the estate (one-half of one-half) to each of A’s children, and one-half of the estate to B. B’s children take nothing because their parent survived the decedent. Children do not represent their living parent.
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Chapter 13. Federal Estate and Gift Taxation 325 119 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 careful 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...
- 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.
- Gratuitous transfers of wealth, whether made during life or at death, are generally not subject to the federal income tax. Instead, such transfers are subject to one or more of the federal estate, gift, and generation-skipping transfer taxes. Taken together, these three taxes constitute a separate system of wealth transfer taxation which operates for the most part independently of the income tax. A lawyer engaged in estate planning should be familiar with the basic structure of the wealth transfer taxes and should understand how ordinary contractual and property devices for transmitting wealth are treated for tax purposes.
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Chapter 7. Social Security, Private Pension Plans, and Other Arrangements Based on Status 151 59 results (showing 5 best matches)
- 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...
- 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.
- 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...an
- 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.
- A substantial portion of all full-time nongovernmental employees in the United States are covered by private pension plans. Many persons employed by federal and state governments are covered by government pension plans (often referred to as “civil service” pension plans). The accumulated funds of pension plans are enormous. Indeed, at times there seems to be greater public concern with the behavior and impact of pension plans as “institutional investors” in the capital markets than with their ostensible purpose of providing a reliable source of income for retired employees.
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Copyright Page 6 results (showing 5 best matches)
- 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.
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- © 2004 West, a Thomson business
- © 2014 LEG, Inc. d/b/a West Academic
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Chapter 5. “Simple” Wills 87 75 results (showing 5 best matches)
- 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.
- 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.)
- In this connection, it is important that both spouses should execute wills. When one spouse dies, the surviving spouse is ordinarily the guardian of the person of any minor children of their marriage. Thus, for example, a husband’s designating a guardian of the person of a minor child in his will in the event his wife predeceases him avails nothing if she in fact survives him. Both spouses in their respective wills should anticipate possible guardianship of the person and of the estate of a minor child. (If prospective estates are more than nominal, trusteeship of the estate of a minor as an alternative to guardianship should be considered.)
- “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:
- 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 predeceases A
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Chapter 9. Future Interests—An Introduction 221 78 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).
- If A, the owner of land in fee simple absolute, conveys “to B for life, remainder to C and his heirs,” A retains no interest in the land. C’s future interest is an indefeasibly vested remainder in fee simple. C’s remainder serves the same purpose as A’s reversion in the preceding example, and both A’s reversion and C’s remainder are alienable (transferable inter vivos), descendible (transferable under the intestacy laws), and devisable (transferable by will). If A by her deed were to create an indefeasibly vested future interest in C but retain the life estate herself rather than create it in B, she would be creating in C by her inter vivos transfer the functional equivalent of a fee simple passing to C by testamentary transfer at A’s death. (Indeed, for federal estate tax purposes, the transfer is treated as testamentary and the value of the property at A’s death is includible in her gross estate under
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Chapter 3. Survivorship Interests 53 27 results (showing 5 best matches)
- 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 more substantial 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, from a tax planning perspective, couples of considerable means may find it desirable 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...
- 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
- 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
- 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. 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-death accounts, and property over...
- 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 4. Community Property 71 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.
- 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.
- 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.
- 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.
- Although it is conventional for purposes of considering marital property to classify states as “community property” or “separate property” states, even the community property states generally recognize common law forms of property ownership between spouses insofar as the common law forms are consistent with the community property system. For example, A, married to B in a community property state, might hold real estate as community property with B, and at the same time maintain separate property in A’s own name or in a tenancy in common or a joint tenancy with B. In community property states, as in common law states, it is essential to be familiar with the details of property law and practice in a particular jurisdiction in order to determine ownership and avoid or resolve disputes over property.
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Chapter 6. Insurance 121 59 results (showing 5 best matches)
- The federal estate tax treatment of insurance proceeds on a decedent’s life is governed by . 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 her life are includible in the gross
- 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...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.
- 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...
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Chapter 8. Trusts—An Introduction 179 71 results (showing 5 best matches)
- 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, 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
- 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.)
- 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...
- 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 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 .) In a few states, however, the revocable trust is not viewed as a will substitute for purposes...
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Chapter 11. The Rule Against Perpetuities and Related Doctrines 271 55 results (showing 5 best matches)
- 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... ...in...
- 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.
- 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.
- involved a gift to a class of sub-classes, and under the “rule” of , 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 , 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 at A’s death validates ...in...
- 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,...
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Chapter 12. Some Aspects of Fiduciary Administration 301 55 results (showing 5 best matches)
- 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 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 duty of loyalty crops up in many different situations. For example, the executor in
- 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.
- Although a trust or a decedent’s estate may be treated as an “entity” for purposes of federal income taxation, the traditional view was, and largely still is, that neither the trust nor the estate of a decedent is an artificial person. Traditionally, a person who contracted with a trustee dealt with the trustee as an individual, not as a representative of the beneficiaries. If a trustee committed a tort during the administration of the trust, the trustee was personally liable to the injured person. Of course if a trustee properly entered into a contract for the benefit of the trust, and was held individually liable on the contract, the trustee could lawfully shift the burden of liability to the trust (and ultimately to the beneficiaries) through the right of “indemnity.” Similarly, if a trustee was held liable for a tort committed during administration of the trust, the trustee in some circumstances could shift the burden of liability to the trust.
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Index 393 33 results (showing 5 best matches)
Outline 14 results (showing 5 best matches)
Chapter 10. Charitable Trusts 263 13 results (showing 5 best matches)
- Occasionally a donor attempts to achieve a charitable purpose with inadequate resources. 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.
- The trust intended by the testator in
- 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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Preface iii 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.
- A special word of acknowledgment is due to Professor Robert 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 remembered with affection and gratitude by colleagues, friends, and former students.
- 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.
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Table of Cases xiii 4 results
Table of Statutes xv 24 results (showing 5 best matches)
- Publication Date: March 11th, 2019
- ISBN: 9781642425987
- Subject: Estate Planning
- Series: Nutshells
- Type: Overviews
- Description: This Nutshell presents an introduction to basic concepts and techniques of estate planning. Subjects covered include transfers of property at death by will or intestacy; inter vivos gifts; survivor interests; revocable and irrevocable trusts; community property; life insurance; retirement, disability and death benefits; charitable trusts; future interests; fiduciary administration; and federal estate and gift taxes.