§ 1    Serving the Living  [1-2]

 

Trusts and Estates is the study of ways to help living people solve family problems. Recognizing that lawyer conduct affects the living, some courts have broken down traditional defenses and held lawyers responsible to will beneficiaries who were not their clients.

        

         A. Traditional Defenses

               1.   Privity 

 

Traditionally, will beneficiaries who lost their share because of the lawyer’s negligence were out of luck. Because the lawyer had rendered service to the now-dead client — rather than to the will beneficiaries — the beneficiaries had no “privity” with the lawyer and could not recover.

               2.   Statute of Limitations 

 

Traditional rules said the statute of limitations for any negligence began to run when the will was drafted, often many years before the error was discovered after the client died.  The delay barred many claims.

         B.  A Trend

 

Starting with Lucas v. Hamm, 364 P.2d 685 (Cal. 1961), courts have been abolishing the privity defense and reading the statute of limitations as beginning to run at the testator’s death.  The trend is not universal.  See, e.g., Miller v. Mooney, 725 N.E.2d 545 (Mass. 2000) (rejecting tort liability, but leaving open the question of third party beneficiary liability).

§ 2    An Overview of Intergenerational Wealth Transfer  [2-11]

 

A.  Probate

1.  The Process
 

Probate systems collect the assets of decedents, satisfy creditors, resolve conflicts among beneficiaries, and distribute what is left to the appropriate persons or institutions.

 

a.   Subject to Probate.

 

Property that the decedent held alone or as a tenant in common is subject to the system.  Joint tenancy (or tenancy by the entirety) property, life insurance proceeds on the decedent’s life, and property in lifetime trusts are all outside of probate.  Depending upon local rules, the decedent’s half of community property may or may not pass through probate.

 

b.   Personal Representative.

 

When a person dies and a decision is made to probate his estate, someone—usually a family member—will petition a court in the decedent’s state of domicile to appoint a “personal representative” to handle the work.  Executors (if there is a will) and administrators (if there is no will) are the most common types of personal representatives.

 

c.   Small Estates.

 

Many states allow small estates to pass without court administration, or with minimal court involvement. See, UPC §§ 3-1201 to 3-1204.

 

d.   Supervised Estates.

 

Though local practice will vary, administration of a court-supervised estate generally looks like this: 

 

Upon appointment of the personal representative, the court issues appropriately titled “letters” to evidence the individual’s authority. The personal representative then contacts banks, stock transfer agents, and the like, to collect the decedent’s assets.  An inventory is filed and creditors are notified.  If known or reasonably ascertainable creditors are given actual notice, their claims may be cut off if the creditors don’t file promptly.  See Tulsa Professional Collection Services, Inc. v. Pope, 485 U.S. 478 (1988).

 

Next, estate administration enters a holding period. Appraisals are made; tax forms are filed; sometimes property is sold to pay creditors or because no one wants it. There may be a will contest or litigation about the will’s meaning.  When all questions are resolved, the personal representative closes the estate by distributing the remaining property to those entitled to it.

               2.  Is Probate Necessary?

 

Probate is not always necessary.  All, or virtually all, of the property may pass free of probate.  There may be no creditors, or they may have been found and paid.  Everyone may agree on who’s to get the property. 

 

         B. Lifetime Transfers

 

               1.   Trusts

Harvard Professor Austin W. Scott said, “[t]he purposes for which trusts can be created are as unlimited as the imagination of lawyers.” 1 Austin W. Scott & William F. Fratcher, The Law of Trusts 4 (4th ed. 1987-1991).

 

                     a.   Basic Requirements:

        

·        Intention

·        Property

·        Trustee

·        Beneficiary

                     b.   Living v. Testamentary

 

A trust created during the life of the settlor is called a “living” (or “lifetime” or “inter vivos”) trust. A trust is created by will is called a “testamentary” trust. Questions involving living trusts can be resolved in courts of general jurisdiction, but there is no ongoing judicial supervision. Testamentary trusts are typically subject to the continuing jurisdiction and supervision of the probate court.

        

               2.   Other Lifetime Transfers

 

Surviving joint tenants own the entire property when one joint tenant dies. Because the survivor no longer shares ownership with the one who has died, the decedent effectively has transferred wealth at death without the need of probate  Funds paid by a third party (like a life insurance company) at the death of someone are often treated as contract rights of the beneficiary, rather than property of the one who died.  “Payable-on-death” and “transfer-on-death” bank and brokerage accounts reach the same result.

 

         C.  The Uniform Codes and the Restatements

The Uniform Probate Code (UPC) and the Uniform Trust Code (UTC) offer statutory language and commentary to state legislatures considering reform (and indirectly influence court decisions). The Restatements of Property and of Trusts provide guidance to courts (and indirectly influence legislatures).