Five Juicy questions where the heck does property go upon death of decedent?

Changes in Property

1. Situation = changes in property between time testator signs will and when testator dies

   1. Inquiry= do changes critically affect disposition of estate such that you will have to make a jdmt call?

   2. NOTE: these rules only apply if instrument=silentALWAYS follow what instrument says if not silent

2. Specific Property Not in Estate

   1. Situation= T makes specific bequest in will to X but doesn’t have that prop in estate at time of death

   2. PAST CL = BFY gets nothing if property is not in estate at time of death

      1. Ademption= like revocation: gifts>adeemed if not in T’s estate at death revoked or null & void

         1. Adeemed by Satisfaction= if T gave specific property to beneficiary during T’s life (STILL TRUE!!)

         2. Adeemed by Extinction=if T sold/gave prop to someone else while alive OR gift> destroyed

   3. Modern Statutes– tend to relax/change harsh CL rule

      1. CA §§ 21133-21134– carves out certain exceptions

         1. Conservatorship: Prop sold by conservator to support conservatee– if reason prop was not in Ts estate at death was cause conservator was appointed for T AND conservator sold prop to raise money to take care of T BFY gets a pecuniary gift equal to the value of the property

1. 
   Rationale: T had no control/consent in getting rid of it
   

1. Unpaid sale proceeds (unpaid as of date of T’s death)–if T sold prop to Y but Y still owed money (e.g.installment plan), T is owed unpaid sale proceeds BFY- NOT paid sale proceeds

   1. 
      Unpaid sale proceeds = what testator has not yet received
      
      1. 
         Ex. T sells car to Y on installment plan; Y pays $500 & owes $15k  X gets $15k but not the $500 of paid proceeds
         
      2. 
         Ex. T mortgages prop for $500k to Y (gets promissory note from Y); Y cannot pay & defaults; T forecloses on Y> now owns Y’s home X gets home> proceeds of promissary note
         
   2. 
      Same for unpaid insurance proceeds, condemnation award, foreclosure & eminent domain
      

1. UT § 2-606 – effectively reverses CL rule  goes further than CA

   1. Includes same specific exceptions as CA (Conservator & unpaid sale proceeds); AND

   2. If specific prop not in estateBFY gets full value of prop UNLESS>show T intent=otherwise

1. Transformation of Specific Property

   1. Statutes – UT § 2-605; CA § 21332 – BFY gets whatever the property has evolved into

      1. Stock Splits: T owns 100 Google shares>leaves to X; after will>signed & before T dies, Google’s stock has split so that 100 shares became 500 X gets 500 shares b/c it’s really the same asset

      2. Stock Mergers: T owns 50 W. Co. shares>leaves to X; W Co. mergers w/ Y Co.> forms new Co. Z; as a result of merger, T>issued 10 shares of Z X gets if will is not amended b/c= same asset

2. Mortgage on Specific Property

   1. Scenario: T leaves $600k home w/$500k mortgage to X; X get home subject to or free frm mortgage?

   2. CL=PR must pay mortgage w/other estate funds before distributingBFY gets prop free of mortgage

   3. Stats: reverse CLBFY gets prop subject to mortgage UNLESS instrument says otherwise

1. UT § 2-607 & CA § 21131

1. Ademption of Pecuniary Gifts by Satisfaction

   1. General Rule= pecuniary gifts cannot adeem b/c money is fungible

      1. BUT can be ademption of pecuniary gifts by satisfaction by lifetime gift if T writes as intent

         1. Q = should any bequest to X be adjusted to reflect the lifetime gift? Usu. NO

   2. CL Rule = will bequests are subject to adjustments for any lifetime gifts using Hotchpot method (page 16) UNLESS you can show that the testator intended otherwise

      1. NOTE: rule is same as rule for Advancements in case of intestacy

   3. Stats – reverse CL presumption (UT § 2-609; CA § 21135) = no adjustments need to be made to will bequests to account for lifetime gifts UNLESS can show that the testator, in writing, wanted the adjustment to be made

1. DIFFERENT FROM SPECIFIC because: Pecuniary-need to show something in writing from the T to reverse the presumption; BUT Specific- ONLY need to show a change in T’s intent

4. Abatement – what to do when there is not enough money in estate to pay all of the pecuniary gifts?

   1. Specific Gifts – get distributed FIRST before pecuniary gifts

      1. If specific gift> no longer in estate (ademption by extinction) & BFY entitled to something under stat (UT § 2-606 (BROADER); CA §§ 21133-21134) liquidated amount to which BFY is entitled is treated as a general pecuniary gift for purposes of abatement

   2. Pecuniary Gifts– abate pro rata if there is not enough assets to pay them all

      1. T leaves $200K to A, $100K to B; after payment of debts/taxes/admin expenses> only $100K to distribute reduce each bequest on a proportional basis

         1. A gets 2/3 ($66K) and B gets 1/3 ($33K)

   3. Demonstrative Gifts – treated as a specific gift (so paid 1st/off the top) to the extent that money exists in the specified account; if money doesn’t exist in specified account, treated as a pecuniary gift subject to abatement

      1. $$ in specific account treated like a specific gift  goes to BFY right off the top

      2. If there’s less than gift amt in the account  BFY gets entire amount in account as if it were a specific gift AND BFY entitled to remaining amount of gift from other estate assets as a pecuniary gift

         1. If> not enough assets in estate to pay ALL pecuniary gifts  all pecuniary gifts abate pro rata

   4. Residuary Gifts – like an accordion that expands/contracts depending on size of estate

      1. If there is nothing left due to abatement of pecuniary gifts  no residuary to distribute

5. Death of a Beneficiary (or Disclaimer by BFY) – Anti-Lapse Statutes

   1. Situation = T leaves $100K to A in will but A dies before T and will doesn’t contain contingency

   2. CL = gift would lapse and go to residuary beneficiaries (default rule) (gift revoked OR just falls)

      1. Individual: gift Lapses “as if hadn’t been made”  goes to residuary

      2. Class Gift: (“to siblings”) Lapses  other class members (goes to 4 remaining siblings if 2 died)

      3. Residue: Lapses;  other living residuary BFYs; if no living residue BFY’s  intestacy

   3. Anti-Lapse Statutes – new default to replace CL = gifts to predeceased BFYs will not lapse but rather go to issue of predeceased BFY if predeceased BFY was a relative of testator

      1. Effect: Gift that would have gone to BFY now goes to BFY’s issue

      2. Rationale: T is leaving money to person on account of family rlshp  reasonable to assume that if BFY dies before T, then T would want money/gift to go to that person’s children

      3. Apply equally to (go through analysis for) UT & CA

         1. Wills

         2. Revocable trusts

         3. Irrevocable trusts: for when named BFY does not survive for the creation of that trust

         4. Power of Appointment: use A-L analysis>see whether prop goes to BFYs issue or takers-in-default

            1. NOTE: “Relative” or “Kindred” can be either related to Settlor or Power of Appointer

            2. A exercises PofA in favor of B (“upon my death prop shall go to B”) but B dies before A

            3. “PREMATURE Appointment” – make appointment but appointee dies before PofAppointer

1. Four Unique Scenarios

• 
  NOTE: law assumes that typical testator/settlor would want these results if these events happen and instrument does not anticipate them (which most won’t)
  

1. Omitted Spouse- Marriage after Will is Signed

   1. Omitted Spouse (aka “pretermitted spouse”)= new spouse (after instrument signed) who’s not a BFY

   2. Statutory Rules

      1. CA §21610-21612–omitted spouse entitled to her intestate share of estate BUT no more than ½ SP

         1. Intestate share= all CP + SP he/she is entitled to (1/3, ½, or all SP depending on what other relatives decedent has living)  BUT stat says surviving spouse CANNOT get more than ½ SP

            1. 
               If omitted SS entitled to all SP  omitted SS only gets ½ SP
               

      2. UT §2-301–OS entitled to his intestate share of prop that doesn’t pass to T’s kids by prior marriage

         1. Double Hit – omitted spouse gets little if anything if testator has kids by prior marriage

            1. 
               Intestate share reduced first by any prop going to kids by prior marriage
               
            2. 
               OS then gets her reduced share ($75K + ½ balance of what’s left) b/c T’s kids by prior marr.
               

1. OS only gets intestate share of property not left to D’s issue

1. Exceptions (UT § 2-301; CA §§ 21610-21612) – omitted spouse statutes DO NOT apply if:

   1. It appears the omission was intentional (e.g., T makes new will day before getting married)

1. NOTE: remember republication of will by codicil

   1. 
      If D signs a new will after getting married  OS is no longer an omitted spouse
      
   2. 
      If D signs codicil after marriageentire will>republished>OS is no longer omitted
      

1. Omitted spouse is otherwise provided for by T (e.g.T puts together IrrT for benefit of omitted spouse)

1. Prop paid From:

   1. Property that originally was designated to the OS (Ex if dating when made will & included g/f in will)

   2. Then from Intestacy

   3. Then from Residue

   4. Then from pecuniary gifts

   5. Then from specific gifts

1. Omitted Child- Birth after Will is Signed

   1. Omitted child (aka “pretermitted child”) = new child who is not a BFY under the instrument

   2. Statutory Rules

      1. CA §§ 21620-21623 – omitted child gets his/her intestate share

      2. UT § 2-302 – more complicated than CA:

         1. Did D have children at time will was signed?

            1. 
               NO  omitted child gets his/her intestate share
               
            2. 
               YES  figure out what those children receive under instrument then divide that pot equally to determine omitted child’s share & abate the rest of the children’s shares pro rata
               
               1. 
                  E.g. T left child A $100K and child B $50K and then had omitted child C
                  
                  1. 
                     A+B = $150K  C gets 1/3 of this = $50K and remainder abates pro rata
                     

• 
  A gets $66K and B gets $33K
  

1. Exceptions (UT § 2-302; CA §§ 21620-21623) – omitted child statutes DO NOT apply if:

   1. It appears that the omission was intentional

   2. OC was otherwise provided for by T (e.g. T puts together Irr. trust for benefit of omitted child)

   3. Substantially all of the estate went to the other parent of the omitted child

1. Paid from: Same as CA’s omitted spouse (above)

1. Divorce after Will is Signed

   1. Statutory Rule (UT § 2-804; CA §§ 6122, 6122.1) – quite expansive – effectively revokes any revocable gifts to former spouse AND fiduciary nominations of the former spouse

      1. NOTE: stats revoke only REVOCABLE gifts (e.g., gifts under will, revocable trust, beneficiary designations, life insurance policy, nomination of fiduciary in favor of surviving spouse, etc.)

1. NOTE: Divorcee can still serve as trustee of irrevocable trust cause trust is irrevocable

1. NOTE: CA § 6122.1–revokes all same revocable gifts if registered domestic partnership is terminated

1. Revocation of Gifts to Relatives of Former Spouse

   1. UT – these gifts are also revoked

   2. CA – these gifts are NOT revoked

2. Revoking Gifts

   1. Stat do not use term “revoke”–they either treat former spouse as predeceasing D or disclaiming prop

      1. Disclaiming property = same effect as predeceasing decedent

      2. CA – property treated as though former spouse has predeceased decedent

      3. UT – property treated as though former spouse has disclaimed the property

   2. Example – H and W each have one child from different marriage and then divorce

      1. UT – W’s child does not get property

         1. 
            Statute revokes any gift to relative of divorced spouse (would include W’s child)
            
         2. 
            A-L statute would not apply (W’s child is no longer a step child)
            

      2. CA – W’s child does not get property

         1. 
            A-L statute would not apply – only applies to kindred – a former spouse is not kindred
            

1. Beneficiary Kills Testator

   1. Stat Rule (UT § 2-803; CA § 250)– revokes all revocable gifts to slayer AND revokes fiduciary nominations of the slayer  slayers cannot inherit something under decedent’s estate plan

      1. CA – slayer is treated as though he has predeceased decedent

         1. statute strongly suggests you would need a conviction

         2. statute specifically says that A-L statute (§ 21111) DOES NOT apply

      2. UT – slayer is treated as though he has disclaimed what he has received

         1. Conviction NOT required; needs PREPONDERANCE of the evidence

         2. stat doesn’t specifically say A-L stat doesn’t applyA-L stat arguably could apply

            1. 
               If T leaves prop to bro & bro kills Targuable>bros kids should get what bro should’ve got
               

1. NOTE: no difference between being deemed predeceased and disclaimed

7. Special Protections

   1. Protection of Surviving Spouse

      1. Ancient CL = dower/curtesy (does not exist anymore) = gives surviving spouse an inalienable protection regardless of whether deceased spouse left property to someone else

      2. Community Property States = protection of spouse exists by virtue of nature of community prop

         1. CP belongs equally to each spouse ½ CP belongs to surviving Sp. regardless of how it’s titled

            1. Deceased spouse can dispose of his ½ CP but CANNOT dispose of other half of CP

      3. Common Law States (most or all of prop is tied up in 1 spouse who leaves to someone other than SS)

         1. Do NOT have CP protection  deceased spouse can dispose of any property titled in his name

         2. Protection = Elective Share = surviving spouse has ability to elect against the will (deceased spouse’s estate)  can elect between what she gets under will and elective share

            1. Elective Share = 1/3 of augmented estate (in UT)

               1. 
                  Augmented Estate= marital prop + marital prop given away within 2 years of death
                  
                  1. 
                     Marital Prop: roughly same def. as CP=prop earned by either spouse during marriage
                     

   2. Family Protections

      1. Purpose = ensure family is not left completely destitute if they are otherwise disinherited

         1. NOTE: applies only to small estates b/ if it were larger estate, then elective share would be bigger

1. Applies only if spouse does not take elective share

1. Protections (comes off top before specific gifts and creditors) SS or minor children (if no SS) get:

   1. Homestead Exemption = money to buy home/apartment/dwelling

      1. UT = $22,500

      2. CA = discretionary

   2. Family Exemption = to buy furniture in house (amenities for living)

      1. UT = $15,000

      2. CA = discretionary

   3. Family Allowance = living expenses during probate administration

      1. UT- For period during which probate is open = $27,000

      2. CA- For period of probate administration = discretionary

1. Intentional Disclaimers

   1. Three circumstances

      1. Taxes

         1. E.g., grandparent leaves property to child (C) (subject to 50% estate tax)  C leaves property to grandchild (GC) (subject to 50% estate tax)  GC only gets 25 cents on the dollar

            1. C might disclaim if C has plenty of money and does not want money going to taxes  doubled GC’s inheritance by disclaiming

      2. Avoid environmental liability

      3. Avoid creditors – if you know that any property would just go to creditors

         1. Caution – this does not always work

   2. Validity – disclaimers MUST be made within 9 months of death to be valid

      1. NOTE: you CANNOT benefit from the property in the interim and then disclaim

   3. Effect of Disclaiming Property

      1. You cannot direct where property goes

      2. Beneficiary treated as though he/she has predeceased decedent

15. Timelines

120 hrs post-death (moved ahead)

To D’s Heirs/Children To Heir’s Estate To Heir or Beneficiary

9. Beneficiary Death

   1. Beneficiary predeceases decedent

      1. Intestacy – apply rules of intestacy as though that person is already deceased (use diagrams)

      2. Will or Revocable Trust

         1. If instrument contains a contingency  ALWAYS follow instrument

         2. If instrument is silent  look to Anti-Lapse Statutes

   2. Beneficiary survives decedent but DOES NOT survive until date of distribution

      1. Intestacy – property gets distributed to heir’s estate b/c heir has a vested interest in that property even though probate is still open and property has not yet been distributed

         1. Prop gets distributed acc. to heir’s estate plan (if had one) OR acc to rules of intestacy

      2. Will or Revocable Trust – property gets distributed to the beneficiary’s estate b/c beneficiary has a vested interest in that property even though probate is still open and property has not yet been distributed

         1. Prop gets distributed acc. to BFY’s estate plan (if had one) OR according to rules of intestacy

   3. Beneficiary survives decedent AND survives until property is distributed

      1. Intestacy – heir gets prop & can do w/it whatever he wants prop becomes subject to heir’s estate plan

      2. Will or Revocable Trust – beneficiary gets the property and can do with it whatever he wants

10. Simultaneous Death – MUST survive by 5 days (120 hours)

    1. Stat Default (UT § 2-104; CA § 6403) – if 2 people (any intestate heir) die within 5 days (120 hours) of each other, each of them is deemed to have predeceased the other for purposes of intestate distribution

    2. NOTE:lots governing instruments> impose much longer period of survival (e.g. 30/60/90 day survival period)

2. Anatomy of Wills and Revocable Trusts

3. Estate and Gift Tax System

   1. Estate Tax System

      1. Gross Estate (Taxable Estate)

         1. Included – anything D owns at time of death is subject to estate tax

            1. Anything you own in your own name

            2. Anything you hold in your revocable trust

            3. Anything held in joint tenancy if D contributed to that property

            4. Any property held under beneficiary designation

            5. Any property held in irrevocable trust where beneficiary has general power of appointment (general = can appoint to herself, her creditors, her estate, or creditor’s estate)

            6. Any prop held in IrrT where trustee = BFY WITHOUT ascertainable standard for discretionary distributions (e.g., health, education, maintenance, and support)

            7. Life insurance policies owned by decedent or where BFY is D’s estate

         2. NOT included

            1. Lifetime gifts (including any gifts to an inter vivos irrevocable trust)

            2. Trust assets merely b/c you are Settlor of irrevocable trust – you don’t own those assets anymore

            3. Trust assets merely b/c you are Trustee of an irrevocable trust – trust assets NOT taxed in Trustee’s estate when Trustee dies b/c legal title only in fiduciary capacity

            4. Trust assets merely b/c you are BFY of an Irr.T with limited power of appointment – trust assets NOT taxes as part of beneficiary’s estate UNLESS you have a general power of appointment

            5. Any prop held in irrevocable trust where trustee = BFY WITH ascertainable standard for discretionary distributions (e.g., health, education, maintenance, and support)

            6. Life insurance policy where decedent is NOT the owner or BFY

      2. Exclusions

         1. Marital Deduction – anything you leave to spouse NOT subject to estate tax

         2. Charitable Deduction – anything you leave to tax-exempt charity NOT subject to estate tax

         3. $5MM>$1M Exemption – anything you leave up to $5MM to others NOT subject to estate tax

   2. Gift Tax System

      1. Non-Taxable Gifts

         1. $13K to as many people you want every year (for Irr T you can give $13K per BFY in trust per year)

            1. No gift tax consequences AND no estate tax consequences

            2. Benefit= reduces amount in estate that will be subject to estate tax AND income appreciation of that prop (time value of money) is also transferred out of estate

         2. Unlimited medical expenses – MUST be paid directly to medical service provider

         3. Unlimited educational expenses – MUST be paid directly to educational service provider

         4. Charitable Gifts

      2. Taxable Gifts = everything else beyond the non-taxable amounts

         1. Effect= any taxable gift reduces the remaining estate tax exemption dollar for dollar

            1. You don’t pay gift tax when make taxable gift–just keep track & reduce estate tax exemp. at death

            2. Once estate tax exemption exhausted gift tax is due and payable by the donor (not recipient)

   3. Lessons Learned

      1. READ the DEFINITIONS section of code/trust/K> treasure trove of embarrassing or brilliant opportunities

      2. ASK 2 Questions: Who has the legal authority? What authority do they have?

      3. Make as many non-taxable gifts as possible w/o jeopardize client’s standard of living  gets assets + appreciation of those assets out of estate for free

      4. Make tax gifts up to estate tax exemption amtstill get assets & appreciation of those assets out of estate

      5. Seriously consider having client make large gifts (e.g., $5MM gifts) especially this year (since exemption will drop to $1MM) b/c of possibility of having $4MM gift treated as free gift

      6. Make taxable gifts and pay gift tax (assuming you have used up your exemption)  you can get more to BFYs doing this than if you held onto money until you died

      7. Consider Fractional Interest Discounts  by fractionalizing what you still own at death, you have reduced the value of what is included in your estate  reduces payable estate tax

         1. E.g.you give X 1% interest in a $10MM building = $100K but no one would buy this from you at that pricegift may only>worth $70K-discountedfor gift tax purposes, not made $100K gift only $70K

   4. Time Value of Money

      1. Central Principle of Estate Plan = get $ out of client’s estate>into BFYs: take advantage of time value of $

         1. Gets assets and appreciation of those assets out of client’s estate where it can grow in hands of BFYs  this money will not be taxed in client’s estate

         2. Compound Interest – at 7%, investment doubles every 10 years

   5. Estate Planning

      1. Types of Trusts

         1. Credit Shelter Trust = Irr. trust funded from D’s share of assets in the amount of Ds remaining estate tax exemption (whatever that is of the $5million>$1million) where surviving spouse=BFY & probably trustee

            1. Purpose = “shelter” decedent’s “credit” (estate tax exemption>so doesn’t get wasted) saves estate tax

            2. MAKE SURE distributions made to surviving spouse are limited by ascertainable standard (4 magic words: health, education, maintenance, and support) keeps trust assets out of SS’s taxable estate when she dies

            3. If also granting SS a Power of Appointment, DO NOT let SS (as BFY) have a general PofA  keeps trust assets out of SS’s taxable estate when she dies

            4. Another benefit = asset protection  BFY’s creditors cannot get to those assets

         2. QTIP Marital Trust= Irr. T used to protect balance of D’s money to make sure it gets where D wants it to go (i.e. make sure after SS dies and is finished using it, it goes to D’s kids NOT SS’s kids by another marriage)

            1. Requirements – for QTIP to qualify for the marital deduction

               1. All income from trust MUST be paid to SS as long as SS is alive

               2. No principal can be paid to anyone other than SS as long as SS is alive

            2. Usually SS is trustee

            3. NOTE: helps prevent any estate tax at D’s death but DOES NOT save estate tax  will be subject to estate tax when SS dies

            4. Another benefit = asset protection  BFY’s creditors cannot get to those assets

      2. Basic Estate Plan #1

         1. Revocable Trust (or will) disposes of property to

            1. Credit Shelter Trust – in the amount of decedent spouse’s remaining estate tax exemption

            2. Balance to surviving spouse

         2. Example: married couple has $16MM: H = $8MM and W = $8MM  H dies

            1. If H leaves everything to W  W = $16MM but H’s $5MM exemption will be wasted  $11MM subject to estate tax when W dies

            2. With credit shelter trust

               1. Trust funded with $5MM (assume no lifetime taxable gifts)

               2. SS receives balance = $3MM  now has $11MM and has her own $5MM exemption  $6MM subject to estate tax when W dies

      3. Basic Estate Plan #2 – goal = zero estate tax at first death; minimize estate tax when SS dies

         1. Revocable Trust (or will) disposes of property to

            1. Credit Shelter Trust – funded with decedent’s remaining estate tax exemption

            2. QTIP Marital Trust – funded with remainder of decedent’s property

            3. SS Trust – funded with SS’s share  will be SS’s own revocable trust

         2. Example: married couple has $16MM: H = $8MM and W = $8MM  H dies

            1. Credit Shelter Trust funded with $5MM

            2. QTIP Marital Trust funded with balance = $3MM  no estate tax for first spouse b/c of marital exemption

            3. SS Trust – funded with SS’s share = $8MM  will be SS’s own revocable trust

      4. GST Tax (Generation Skipping Transfer Tax) – completely different than estate tax

         1. GST Tax= if you leave $$ to someone that skips a generation (actual relatives or to someone 37.5 yrs younger) 50% estate tax still applies AND a 50% GST tax on that same transfer is also imposed

            1. Designed to create same result you would have had you passed property through each generation

            2. If prop is used to fund trust:

               1. 50% estate tax when G1 dies AND 50% GST tax imposed on distributions out to G3

            3. Examples

               1. G1 leaves $ to G250% estate tax AND G2 leaves $ to G350% estate tax=G3 gets 25 cents on the $

                  1. 
                     W/o GST tax could leave prop directly frm G1 to G3  G3 gets 50 cents on $ avoids estate tax
                     

               2. G1 puts $ in trust for future generations distributions can be made to G2 & G3 while they’re alive 50% estate tax when G1 dies but all subsequent generations avoid estate tax w/o GST

         2. GST Tax Exemption

            1. Every person has GST Tax Exemption – always the same as estate tax exemption (now $5MM)

1. Don’t overlap (don’t get 10 million- just $5mil total)

2. If G1 leaves $ to G3  transfer would be GST exempt after applying GST tax exemption

3. If G1 puts $$ in trust, you can allocate GST tax exemption to the trust to make it an exempt trust

   1. GST Exempt Trust becomes exempt such that distributions are NOT subject to GST tax

      1. 
         Whatever trust goes to is still exempt from GST tax
         

4. Could make Credit Shelter Trust a GST exempt trust e.g., fund Credit Shelter Trust with $5MM AND allocate GST tax exemption to trust so>whole $5MM could grow w/o GST consequences.