In 2002, Professor Spitko published An Accrual/Multi-Factor Approach to Intestate Inheritance Rights for Unmarried Committed Partners in the Oregon Law Review. Since then, in 2006, Scotland statutorily began to provide intestate inheritance rights to unmarried cohabitants. Three years later, the Scottish Law Commission recommended reforming and replacing the 2006 law with rights for unmarried cohabitants that would apply to intestate and testate estates. Several years later, in March of 2016, the Justice Committee of the Scottish Parliament published Post-Legislative Scrutiny of the Family Law (Scotland) Act 2006. Professor Spitko analyzed these developments in Scotland and used them as a basis for reexamining his 2002 proposal.
I must admit that I am a huge fan of looking to other countries’ experiences for insight into our own legal system. I also think our intestacy laws need to be updated to reflect societal changes that have happened in recent years. As a result, I found Professor Spitko’s article to be fascinating.
Part I of the article starts by noting that no state in the U.S. grants inheritance rights to unmarried, unregistered cohabitants. It then explains why it makes sense to look at the Scottish experience. Significantly, it notes that the norms of Scottish and U.S. succession law are very similar in that they both prefer limited judicial discretion and fixed entitlements and they both value certainty. Given that the 2006 Scottish law has been extensively critiqued by practitioners, academics, and courts, it’s worth examining it. Part I then notes that its examination focuses on three “issues of principle” and two “issues of execution.” The issues of principle are (1) does the law fulfill its purpose?; (2) what is the impact of the law on certainty and administrative convenience?; and (3) what are the implications of the law on marriage? The issues of execution are (1) what is the impact of the duration of the cohabitation?; and (2) what is the impact of will substitutes?
In Part II of his article, Professor Spitko analyzes the 2006 Scottish law and focuses on the three issues of principle mentioned above. The law defines a “cohabitant” as “a man and a woman who are (or were) living together as if they were husband and wife; or…to persons of the same sex who are (or were) living together as if they were civil partners.” The law says that a court must consider three factors in determining whether somebody is a cohabitant: (1) length of time living together, (2) nature of their relationship, and (3) extent and nature of financial arrangements during their time living together. The law does not provide a fixed intestate share to the surviving cohabitant. Instead, it gives the court near unlimited discretion to determine if people qualify as cohabitants and to decide the share, with one key limitation: the intestate share cannot exceed the amount the person would have received had he or she been a spouse or civil partner of the deceased. In determining the size of the intestate share, the court is to consider will substitutes.
The article then focuses on the three issues of principle. First, with respect to the purpose of the law, critics of Scotland’s 2006 law have focused on the law’s lack of clarity with respect to its purpose. The article notes that the law does not seek to convey marriage-like rights on unmarried, unregistered cohabitants, but there is little clarity regarding what exactly it is attempting to convey. Second, with respect to certainty and administrative convenience, the discretion of the court is so unfettered that there is virtually no certainty regarding the outcome. Interestingly, the lack of a specific time period for people to live together to qualify as cohabitants has not really created any significant administrative issues. Finally, with respect to implications for marriage, the law’s drafters focused on protecting the special status of marriage by differentiating the rights of cohabitants from those of spouses, by capping the amount that a cohabitant can receive at a spousal or civil partner’s share, and by subordinating the rights of a surviving cohabitant to those of a spouse or civil partner of the deceased cohabitant.
The article then discusses the Scottish Law Commission’s (SLC) 2009 reform proposal. The SLC urged parliament to repeal the law and replace it with rights for surviving cohabitants that would apply to both testate and intestate estates. The reform proposal would focus on the contributions of the surviving cohabitant to the partnership. It does not take into account will substitutes. The SLC proposal defines a cohabitant as somebody who was “living with the deceased in a relationship which had the characteristics of the relationship between spouses or civil partners.” The proposal urges the court to focus on five factors: (1) whether they were members of the same household, (2) stability of the relationship, (3) whether the relationship was sexual, (4) whether they had (or accepted) children together, and (5) whether they appeared to others as if they were married, in civil partnership, or cohabitants with each other. The proposal lets the court determine the appropriate percentage of the estate to be received, considering the length of the cohabitation, the interdependence of the parties, and what the survivor contributed to their life together. A surviving cohabitant can assert a claim even if there is a surviving spouse.
In Part III of his article, Professor Spitko uses the Scottish experience to analyze how a U.S. state might best craft an intestacy statute that provides for cohabitants. Here, Professor Spitko refers to his own 2002 article, which proposed an accrual/multi-factor approach to cohabitants, and uses the Scottish experience to update and improve his proposal. He appropriately notes that we cannot just do exactly what Scotland has done. We need to consider where U.S. values are different from Scottish values and adjust accordingly.
First, Professor Spitko notes that it is critically important for the statute to clearly state the purposes and values behind the law. Also, in a country that values certainty and predictability, the law cannot give the court unfettered discretion to apply the law. Finally, any law in the U.S. must be mindful of the political reality that it will be difficult to garnish sufficient support for any law that is perceived as undermining the institution of marriage.
Second, Professor Spitko revisits his 2002 accrual/multi-factor approach proposal. He notes that the 2002 proposal’s stated purpose is (1) to promote the decedent’s unexpressed donative intent, (2) to recognize the survivor’s contributions, and (3) to protect the survivor’s reliance interest. I should be revised to note that any of those three is a qualifying purpose. More specifically, the revised proposal would qualify a couple as cohabitating if (1) they lived together in a physically and emotionally intimate partnership and (2) there is evidence that either (a) the decedent intended to benefit the survivor, (b) the survivor contributed to the decedent’s well-being, or (c) the survivor relied on the relationship.
As to administrative convenience and certainty, the original proposal was clear and simple in that it provided an inheritance schedule that gave the survivor a percentage of the intestate estate based on years of living together but it required a minimum three-year period before any inheritance would happen. The revised proposal would keep the same basic schedule, but it would allow short-term cohabitants (i.e., living together less than three years) to inherit, if circumstances warrant it, up to the amount that somebody might inherit after living together three years. For longer periods together, the schedule would not be as rigid as in the 2002 proposal. Instead, there would be limited flexibility by giving the court limited discretion to deviate from a fixed percentage, up or down within a range.
As to implications for marriage, the revised proposal would do two things that were not done in the 2002 proposal so as to not discourage marriage. First, it would limit the amount that a surviving cohabitant may receive to the amount that that person would have received had the cohabitants been married. Second, it would prohibit a surviving cohabitant from making a claim on the intestate estate if there actually is a surviving spouse of the decedent.
Professor Spitko has written an excellent, thought-provoking piece. Our society is changing, and a greater number of couples are choosing to cohabitate. Because intestacy laws, in theory, reflect the presumed intentions of the decedent, intestacy laws need to change to reflect this reality. By looking at the Scottish experience, Professor Spitko is moving the conversation forward and helping states that might want to update their intestacy laws to conform with modern realities.
Can an estate or trust with charitable and non-charitable beneficiaries (1) receive income in respect of a decedent (IRD) proceeds, (2) distribute (or set aside) for a charitable purpose the IRD proceeds, and (3) perhaps not be allowed an Internal Revenue (IRC) code section 642(c) income tax charitable deduction? You may know that the answer is “yes.” In their article, Professor F. Ladson Boyle and Jonathan G. Blattmachr not only explain when and why such income tax charitable deduction is available, but also suggest planning techniques to ensure that the deduction is, indeed, available.
To start, here are the authors’ suggested solutions for ensuring that the section 642(c) income tax charitable deduction is available to the estate or trust. First, if possible, designate the charity as the direct beneficiary of the individual retirement account (IRA) or other IRD; do not have the IRD proceeds pass through the decedent’s probate estate or revocable trust. (P. 413.) Second, if the charity cannot be the direct beneficiary of the IRD and if the governing testamentary instrument can be drafted or amended, then ensure that the IRD is “specifically devised to charity as a pre-residuary devise.” (P. 413.) Third, if an estate is in administration, then the personal representative “might distribute the IRD in kind to the charity as a part of the residuary devise due to the charity” (but not to satisfy a specific pecuniary amount). (P. 414.)
Fourth, if none of the foregoing options are viable and the estate will receive the IRD proceeds, then the personal representative “might fully distribute the portion of the estate that is due non-charitable beneficiaries in a tax year before collection of the IRD.” (P. 414.) Effectively, the charity becomes the sole beneficiary of the estate, and the IRD proceeds received will be fully offset by the charitable deduction (P. 414) (because, in the tax year when the IRD proceeds are received and distributed, there effectively are no non-charitable beneficiaries). Fifth, if the decedent had a revocable trust, the personal representative and the trustee of the revocable trust “should consider making a joint election under section 645 to treat the revocable trust as a part of the estate so that the section 642(c) charitable set aside deduction is available, if that is needed or desirable.” (P. 414.)
Those are the authors’ suggested solutions to the problem of a possibly unavailable income tax charitable deduction for distributing IRD to a charitable beneficiary. So, why and when is such income tax charitable deduction available? In order to answer that question, the authors must initially cover several topics, which are briefly summarized here. First, the authors note that, if both estate and income taxes must be paid, then the distribution of IRD to a non-charitable beneficiary may, ultimately, be very small. (Pp. 373-374.) Accordingly, the authors suggest that IRD be paid directly to an individual or charity; the authors note that, however, if an IRA is ultimately payable to an estate, the Service has allowed (in private letter rulings) estates to “assign IRAs and other retirement benefits to charities” (Pp. 374-375.) I wonder if seeking a private letter ruling might be a sixth suggested solution? The authors also conclude, after an extensive discussion, that “a charity’s residuary interest in an estate or trust is not a separate share within the meaning of section 663(c).” (P. 397.)
The authors then narrow the income tax charitable deduction issue to “whether a direction in a decedent’s will that a charity’s interest in the residue of an estate or trust should be satisfied out of any IRD will be given a tax effect under the Code and Regulations.” (P. 397.) The answer lies in determining whether the direction to allocate IRD assets (or their proceeds) to charity has “economic effect independent of income tax consequences,” which is from Treas. Reg. section 1.642(c)-3(b)(2). (Pp. 397-398.) Determining whether a direction has such “economic effect” is, however, no simple task.
The authors first summarize the charitable ordering rules (P. 399) and then the general rules for allocating deductions against different classes of income (Pp. 400-401); both sets of rules apply because the allocation of the charitable deduction “occurs before the allocation of other allowable deductions.” (P. 400.) An example in the Regulations shows one governing instrument’s provision that has “economic effect independent of income tax consequences” because, under the facts of that example, “the amount to be paid to the charitable organization each year is dependent upon the amount of ordinary income the trust earns within that taxable year.” (P. 402, citing the Treasury Regulation example.)
The facts in that Treasury Regulation example are: “A trust instrument provides that 100 percent of the trust’s ordinary income must be distributed currently to an organization described in section 170(c) and that all remaining items of income must be distributed currently to B, a noncharitable beneficiary.” (P. 403.) The authors note that “the amount of cash (or other property) that is distributed to the charity is directly related to the principal that is producing the income” and that a “change in the composition of principal affects the amount the charity is to receive” (P. 404.) Accordingly, the direction in this trust to direct 100 percent of the trust’s ordinary income to a charitable organization has “economic effect independent of income tax consequences.”
But wait!—IRD is usually treated as accounting principal, not accounting income. Consequently, the authors re-examine the charitable ordering rules and the general rules for allocating deductions against different classes of income, this time focusing on accounting principal like IRD. The authors conclude that, to have economic effect, a direction to allocate payment to a charity must have “an impact on the underlying assets that produce the income, and therefore on the entitlement to the income the property generates.” (P. 407.)
But don’t forget!—at issue is the allocating of IRD to a charity, not to a non-charitable beneficiary. The authors draw and analogize from what they have already discussed (among other things, separate share regulations, and distributions of income and of principal) to conclude that “an allocation of IRD to a tax-exempt charity seems to be valid as well under the 2012 charitable ordering Regulations.” (P. 408.) The authors note, however, that their conclusion is “not free of doubt, but is a reasoned analysis of the applicable Regulations.” (P. 412.) They posit that the “economic effect” test may, perhaps, only be determined as an objective question of fact on a case-by-case basis. (P. 412.) Finally, the authors conclude that a personal representative having, under the governing instrument or local law, the discretion to allocate IRD to a charity likely “will be ineffective” (P. 415) for lacking “economic effect.”
The authors have discussed the many legal topics invoked in answering when can an estate or trust distribute IRD to a charity and receive an income tax charitable deduction: the income taxation of trusts and estates, the income taxation of IRD, the separate shares of an estate or trust, a specific gift to a charity vs. a fractional residuary gift to a charity, the “economic effect” test of the Treasury Regulations, the charitable ordering rules, the general rules for allocating deductions against different classes of income, distributions of accounting income vs. accounting principal, distributions to charitable beneficiaries vs. non-charitable beneficiaries, and distributions pursuant to the governing instrument vs. under the personal representative’s discretion—all leading to the final topic of distributions by an estate or trust of accounting principal (as part of a residuary gift) to a charitable beneficiary. The authors concluded that the availability of an income tax charitable deduction for such a distribution is not always certain. When, at the end of the article, the authors proposed their alternative actions to take in order to avoid such a distribution (and tests and rules associated thereto), I was all ears.
Susan Gary, Restricted Charitable Gifts: Public Benefit, Public Voice
, 81 Alb. L. Rev
101 (2018), available at SSRN.
Susan Gary’s Restricted Charitable Gifts: Public Benefit, Public Voice makes the case for legal reforms that reflect the public’s interest in loosening donor control of charitable gifts. Gary writes that her article is aimed at advocating for the adoption of reforms that increase “the consideration of the public benefit standard in charities law,” so I know that she didn’t set out to change the way I teach my Estates course. But that’s exactly what she did, and it’s why I like her article.
In classes on charitable trusts, my big picture questions are about the relationship between donors and charities: when should the law defer to the dead hand and when should it permit charities to modify donor-restricted gifts? Gary’s article has convinced me that the public interest—not donors or charities—should instead assume center stage. Restricted Charitable Gifts: Public Benefit, Public Voice is one of those rare articles that prompts me to re-conceptualize material I’ve taught for many years, particularly the enforcement role of the attorney general.
Gary begins with the familiar observation that while the donor and charity are the immediate parties in any charitable gift, the public is also part of the transaction. For example, whenever a charitable donor receives a tax benefit from a gift, the public has subsidized the donor’s charitable giving. Trust law is also generous with charitable donors, exempting them from the Rule Against Perpetuities and other requirements for private gifts. When a gift is large enough, the public confers prestige on the donor, which can lead to improved social standing, business gains, and a generally enhanced reputation.
Gary uses well-known examples to illustrate why the public has an interest in whether and how long donors can place restrictions on charitable gifts. I won’t belabor these examples here, but in each, the public has an obvious interest in the charitable gift: the Barnes Foundation (arguably the greatest private American art collection), the Buck Trust (hundreds of millions of dollars earmarked for “the needy” in affluent Marin County, California), and the Leona M. and Harry B. Helmsley Trust (donor desired multi-billion dollar trust to be used “for the provision of care for dogs”). As Gary explains, in order for any of these gifts to be “charitable” under trust law, they must confer a “public benefit.” (P. 593-94.) The requirement of a public benefit raises questions about whether “the public should have a voice in how charitable assets are used” or if “some limit should be imposed on the donor’s directions, even if the directions comply with a general understanding of charitable purposes.” (P. 594.)
Enter the state attorney general. Donors usually cannot sue to enforce the terms of their charitable gifts. Instead, the attorney general oversees the use of charitable assets. As an elected official, the attorney general is likely to consider the preferences of the electorate when deciding whether to pursue an enforcement action. The examples in the preceding paragraph illustrate that sometimes donor-imposed restrictions conflict with the public interest. This conflict is frequently cited as a reason to give donors standing to enforce the terms of their charitable gifts.
Gary argues persuasively, however, that attention to the electorate may be one of the attorney general’s greatest strengths since “the Attorney General is elected to protect the interests of the public.” (P. 598.) In other words, oversight by the attorney general ensures that the public has a seat at the table. Using the attorney general’s political status as a justification for shifting more enforcement power to donors ignores that every donation has three parties: the donor, the charity, and the public that subsidizes and supports the charitable gift.
Gary recognizes the financial constraints and other structural limitations on the attorney general’s ability to monitor “every charity and every restricted gift.” (P. 598.) This is another oft-cited rationale for proposals that would broader donor standing. My Estates class has fallen into this trap for years: if not the attorney general, then the donor. But reforms that give donors increased enforcement power do little to advance the public’s interest in the charitable gift. Gary surveys proposals that re-allocate control over the terms of charitable gifts, including rules that would relax donor restrictions after a set number of years and expand the application of cy pres. The cumulative effect of Gary’s survey, and her article overall, is to emphasize that legal reforms in charities law must make the public’s voice as loud as that of donors and charities.
James J. White, Fraudulent Conveyances Masquerading as Asset Protection Trusts
, 47 UCC L.J.
367 (2017), available at SSRN
Property rights are contingent. While property owners enjoy exclusive access to property owned, laws governing creditors’ rights moderate owners’ rights under certain conditions. Failure to satisfy a debt can trigger legal processes that may even lead to a complete stripping of ownership rights in favor of the creditor. Viewed this way, the sorting of rights to property is a zero-sum game where a creditor’s gain offsets an owner’s loss.
Trusts can reduce the vulnerability of an owner’s property rights by adding additional complexity to the ownership arrangement. The spendthrift trust is the obvious example. In such an arrangement an owner transfers the ownership bundle in manner that is said to “split” new ownership rights between a trustee and one or more beneficiaries. Afterwards, the beneficiaries enjoy the benefits of ownership, but neither a beneficiary nor most third parties are capable of diminishing beneficial ownership rights in the spendthrift trust arrangement.
Spendthrift trusts are typically explained as devices. Reference is to the law governing trusts. In these explanations informed by trust law, the fact that creditors’ property rights, including those of involuntary creditors, are diminished by spendthrift trusts is incidental to the main event—the legal operation of the trust device itself. Policy justification focuses on the freedom of the original owner to “dispose” of property as he or she pleases. And while beneficiaries gain a beneficial interest that diminishes baseline property rights of creditors, we phrase our explanations in terms of what is missing from the beneficial owner’s bundle of rights. So we point out that, in a spendthrift trust, a beneficiary has no right to grant creditors an up-front inchoate right to beneficially-owned property. And despite that involuntary creditors lose baseline rights to the beneficial owner’s property, we focus on the beneficial owner’s loss of the “involuntary” right to transfer property rights to a creditor. But in fact, spendthrift trusts are no exception to the zero-sum sorting of property rights between owners and creditors. Rights gained by beneficiaries are lost by creditors.
Crucial to creation of a spendthrift trust is a benefactor who transfers property rights to the trust arrangement. But a newer legal invention, the so-called “self-settled domestic asset protection trust” (DAPT), dispenses with the necessity of the gratuitous third-party transfer. In these devices, the settlor becomes the beneficiary; the trust is “self-settled.” The DAPT is necessarily statutorily enabled, as the common law justification for spendthrift trusts, the freedom of disposition of the original owner, is absent from the facts. The original owner retains, rather than disposes of, his or her beneficial ownership rights. Yet the nomenclature reveals the bias in favor of the trust beneficiary. Trust properties are “assets” and assets are “protected.” Of course, to “protect” an asset is to increase an owner’s rights, and to diminish the rights of creditors. Here, however, it may not be so easy to de-emphasize the zero-sum nature of property rights. A scholar viewing these devices from the creditor’s standpoint may in fact cry “foul.” Professor James J. White, in a provocatively entitled essay appearing in the Uniform Commercial Code Law Journal, concludes that these devices “are fraudulent conveyances plain and simple.” Although White considers his view both “dispassionate” and “slightly skeptical,” he seems particularly concerned about involuntary creditors; his primary examples being “ex-wives and malpractice plaintiffs.”
Professor White first briefly reviews the history of the DAPT, pointing out that while prior to 1997 the device was not available in any U.S. jurisdiction, now seventeen states enable some version of the DAPT. Before enactment of DAPT statutes, Americans wishing to curb creditors’ rights to property they owned by placing that property in trust had to do so through the laws of certain foreign jurisdictions such as the Cook Islands. In 1997, however, the states of Delaware and Alaska enacted statutes enabling domestic self-settled trusts that curbed creditors’ rights to the settlor/beneficiary’s property. Since that time, another fifteen states enacted similar statutes. According to Professor White, while the sponsors of the Delaware and Alaska legislation were entrepreneurs, lawyers, and trust companies who saw a market for these trusts, later “unsuspecting and uninformed” legislators were simply swayed by the argument that their jurisdictions needed similar statutes in order to keep assets and trust business from flowing to other states. White attempts to assure us that with these reasons for the legislation, legislators did not actually face the “reprehensible” reversal of longstanding public policy that self-settled trusts could not foil the rights of creditors and “stiff ex-wives and deprive successful malpractice plaintiffs from satisfaction out of a settlor/defendant’s trust assets.” Perhaps Professor White assumes too much naiveté on behalf of legislators here. It seems at least as likely that many of these legislators were sympathetic to the favored causes of certain constituents and campaign donors.
Regardless of the reasons for enactment in the various states, Professor White is certainly correct when he notes that the promoters of these trusts, post-adoption by the legislature, focus on the DAPT’s ability to protect assets from claims of creditors. Some promoters are very specific, listing divorce and tort actions as occasions where these trusts offer protection. As White sums it up, “the multiple pages of internet listings, some subtle, some strident, and some with false denials make plain that keeping assets out of the hands of creditors, particularly tort plaintiffs and former wives, is a principal purpose of these trusts.” But the value of White’s insights for the trusts and estates bar lies in his discussion of the changes that the statutes made to fraudulent conveyance law, and his consideration of whether those changes mean that property transfers to these trusts fall outside the rather complicated determination of a fraudulent conveyance. DAPT statutes reduce the statute of limitations for filing claims based on a fraudulent conveyance and require the claimant to prove actual intent on the part of the property owner to “hinder, delay or defraud” a creditor.
White admits that since the case law is scarce or nonexistent, the effect of these legislative changes in actual cases is unknown. However, he suggests that current law as to determining actual intent “will be relatively easy to meet in view of the skepticism that many courts will have and because the advertising and sales information reveal a pervasive intent to hamper creditors.” On the other hand, he concedes that shortening the statutes of limitations for bringing such claims could be a “powerful restriction” on them. White takes the reader through an analysis of the steps for proving actual intent to hinder, delay or defraud future creditors, including involuntary creditors, which likely make up the bulk of those potential creditors with which the typical DAPT settlor/beneficiary is concerned. Although White reviews some case law helpful in this analysis, given the general paucity of cases much of White’s musings here are speculative. In an interesting observation on this subject, White notes that commentators do not even agree on the definition of “future creditor,” with some asserting that courts “are unwilling to void transfers whose purpose and effect is to shelter assets from creditors that were unknown at the time of the transfer” while others do not so conclude.
White also explores the question of which jurisdiction’s laws will apply in these cases. In federal bankruptcy cases, he points out that a ten-year statute of limitations may apply to fraudulent transfers regardless of state law. Further, since only seventeen states enacted DAPT legislation, many out-of-state settlor/beneficiaries must rely on a choice of law term in the trust instrument in order to take advantage of a DAPT. In such cases the public policy exception in the state where the settlor/beneficiary resides may negate the choice of law provision. White cites a federal bankruptcy case from a court sitting in Washington in observing that “it was no surprise that the court inferred a public policy against self-settled trusts from a Washington statute that prohibits self-settled trusts.” White also very briefly confronts the arguments that the DAPT is no different from a limited liability company (LLC), a homestead exemption, and other statutory diminishments of creditors’ rights. A more thorough comparison with these devices would give additional context.
In his concise essay, Professor White’s creditors’ rights perspective alerts us to potential legal and public policy uncertainties created by the DAPT. Regardless of whether the reader agrees with White that the DAPT is a form of fraudulent conveyance, his essay is a reminder of what I describe above as the zero-sum aspect of property rights. Strengthening the property rights of beneficial owners decreases the rights of creditors. Whether a particular increase and decrease is desirable invokes important questions of law and policy. In considering the DAPT from the standpoint of fraudulent conveyance law, Professor James J. White offers trusts and estates specialists a fresh perspective.
Susan N. Gary, Best Interests in the Long Term: Fiduciary Duties and ESG Integration
, 90 U. of Colo. L. Rev.
__ (forthcoming 2018), available at SSRN
What is the time frame of fiduciary duties? In other words, what time horizon should fiduciaries have in mind as they execute their responsibilities? This is an underexamined aspect of fiduciary law, and Professor Susan Gary’s piece, Best Interests in the Long-Term: Fiduciary Duties and ESG Integration, provides a thought-provoking entry point using the lens of socially responsible investing (SRI). Gary argues that if prudent investing evolves to encompass a longer-term understanding of value creation, then consideration of environmental, social, and governance (ESG) factors may become not only possible, but legally required. If this occurs, we may witness a tectonic shift in investor behavior similar to that produced by enshrining modern portfolio theory (MPT) in fiduciary law.
Gary starts by reviewing the different terminologies and strategies of SRI. The goal is to differentiate ESG integration—Gary’s primary object of analysis—from other types of SRI. ESG integration is a holistic investment strategy that considers traditional financial factors alongside material ESG factors, with materiality defined as the likelihood that the ESG factor has some relationship with financial outcomes. Environmental factors might include a company’s energy efficiency policies, while social factors can run the gamut from human rights to labor conditions to community relations. Governance factors, in turn, involve such issues as board diversity, executive compensation, and transparency policies. Gary contrasts ESG integration with early forms of SRI that employed negative screening mechanisms to exclude certain socially undesirable companies or classes of assets from an investment portfolio. She also distinguishes it from a more modern form of SRI called impact investing, which typically involves a sacrifice of economic return in exchange for a measurable social impact.
With those definitions in place, Gary turns to investment theory. MPT currently dominates this space, with its focus on maximizing returns by diversifying the portfolio to manage risk. Early theoretical work examining the relationship between MPT and SRI concluded that SRI was undesirable for two reasons. First, it hinders attempts at diversification by removing certain classes of assets from portfolios for non-financial reasons. Second, the screening required by SRI theoretically increases administrative costs as compared to non-SRI alternatives. Gary contends that the first objection conflates SRI with negative screens, when certain types of SRI like ESG integration do not employ such screens. As for the second objection, she believes that it carries less weight today as SRI information has become more readily available. She devotes one section of the paper to detailing the numerous governmental and non-governmental entities that now require or collect ESG information.
As SRI has matured, researchers have produced more data to help resolve this debate. Unfortunately, the empirical studies on the costs of SRI are not entirely conclusive. However, Gary highlights several studies finding that SRI has no effect or a positive effect on returns. She uses these findings to explore the financial case for ESG integration, which is tied to a critique of short-termism in current financial thinking. Specifically, some theorists posit that MPT has led to a focus on short-term risk and return as opposed to longer-term systemic risk because the former is theoretically manageable by investors while the latter is not. Thus, financial markets have become too focused on quarterly evaluations of companies as well as maximization of short-term profit. In contrast, ESG factors are by their nature more systemic and long-term. They hedge against longer-term concerns such as access to fresh water or the stability and credibility of financial markets. This helps explain why studies showing positive results from ESG integration tend to have longer time horizons.
This is all a prelude to the legal analysis in the article, which concerns how SRI interfaces with fiduciary duties. The fiduciary duty of care requires that fiduciaries manage assets with reasonable care, skill, and caution. Gary observes that this standard is malleable and has in the recent past been subject to reinterpretation with the legal adoption of the principles of MPT. She argues that a similar evolution is underway as we learn more about ESG integration, which appears to pose no threat to financial returns and may in fact enhance them. An even more radical change in mindset may be in the offing as well, with a shift from a short-term to a long-term understanding of value creation. This potential temporal shift is the most intriguing element of the piece, and it surfaces more explicitly in Gary’s consideration of the fiduciary duty of impartiality. This duty requires fiduciaries to consider adequately the interests of differently-situated beneficiaries, and it is heavily implicated when fiduciaries manage assets for beneficiaries across generations. In this case, it may be necessary to contemplate ESG factors in order to respect the interests of future sets of beneficiaries. In other words, reflexive short-termism might be prohibited. This fiduciary duty seems to the most fertile ground for Gary’s arguments.
I was curious to what degree Gary predicates her case for ESG integration on long-term financial thinking, given that longer-term studies provide her strongest evidence. To the extent that she does, it may be necessary to lay out a normative case for long-termism, which raises its own set of thorny questions. Why should we evaluate financial returns on a quarterly, yearly, or longer basis? Are there not scenarios in which a shorter time horizon might make sense? Some beneficiaries may have short-term needs, and others might not live long enough to see a longer time horizon. If different temporal scopes for fiduciary duty are desirable based on the circumstances, how should we set the default rule for the prudent investor? However one thinks fiduciary duties should be structured, Gary has made a forceful case that ESG factors can no longer be ignored. Her piece compels us to reckon with fundamental questions about the temporal scope of fiduciary duty and the relevant time frame for investor behavior. These are not small questions, and Gary provides a valuable analysis that will jumpstart a dialogue on these important issues.
Discussions about wealth accumulation and economic equality invariably lead to discussions about income and wealth inequalities. Professor Erez Aloni‘s article, The Marital Wealth Gap, takes the discourse to a new level by adding the connection between marriage and wealth inequality. Specifically, Professor Aloni indicates how the family structure impacts wealth by comparing the accumulation of wealth among married households in the top ten percent to all households in the bottom ninety percent. He coins this differential “the marital wealth gap.” Further, the article exposes various policies that reinforce wealth inequalities that serve as the foundation for the marital wealth gap. Finally he discusses the cause and harms caused by the gap and possible solutions for narrowing the gap.
In his analysis, Professor Aloni explores whether the success of married couples is the cause of the wealth advantage and he analyzes the various legal mechanisms that reinforce the wealth privilege that married households enjoy. In other words, he posits that law and policy facilitate measures to maximize wealth holdings for married households. Professor Aloni proposes the state should decouple wealth benefits from marriage by dismantling the architecture that supports preferences based on marriage.
Wealth accumulation and preservation is an important indicator of economic health because wealth includes assets, in addition to income, and is transferable. Income is not as good an indicator because tax rates have the power to manipulate economic resources. For instance, capital gains income is not taxable until there is a realization event and because of preferential rates, this property is taxed at a lower rate than wages. Professor Aloni points out that the intersection of wealth and family law also impacts the gender wealth gap because divorce negatively impacts women who tend to be the primary caretakers in the marital household. Overall, he argues marital status and family structure are highly correlated to wealth ownership.
In this article, Professor Aloni shows how data support his theory that married families own the most wealth and that married individuals never own the least. Interestingly, he also provides data indicating that married couples own significantly more wealth than their cohabiting counterparts. Further, the research shows the top ten percent of the wealthiest households are married in greater proportions than any other group and they are most likely to be homeowners.
In focusing on causes of the marital wealth gap, Professor Aloni explores different possibilities. For example, married couples typically practice labor specialization and cut expenditures, therefore the marital framework tends to encourage fiscally responsible behavior. Further, married families tend to get support from extended family while divorce divides the economic structure whereby the same resources used for one household are divided between two households. Still, he concedes that marriage may be only one factor rather than the single cause of the wealth gap.
Next, Professor Aloni discusses how law and policy impact and contribute to the wealth gap through tax preferences and incentives. The tax code provides specific benefits to married couples, unavailable to other couples, as long as they are married and file a joint income tax return. For example, the capital gains tax exclusion for sale of a principal residence permits a married couple to exclude up to $500,000 as long as one of them has ownership and they both occupy the home for the requisite time period. A cohabiting couple does not enjoy this preferential treatment. Similarly, unemployed spouses may contribute to an Individual Retirement Account even though they have no earned income. Again, cohabitants do not qualify for this benefit.
Other tax benefits available to married couples, through the transfer tax system, are the unlimited marital deduction, double exclusion amounts, and portability provisions. Working in concert, these laws allow an unlimited amount of wealth to be transferred to a spouse, a double exclusion by using the surviving spouse’s exclusion amount, or portability of any remaining exclusion from the decedent spouse. Either way, marital status provides a path to estate and gift tax double exclusion amounts and transfers of enormous amounts of wealth.
Finally, Professor Aloni discusses the fact that wealthy individuals tend to congregate and socialize with potential mates from similar educational and socioeconomic backgrounds. He refers to this arrangement as positive assortative mating based on parental wealth. One of the most interesting aspects of this article is the connection demonstrated between cultural policies and societal norms that affect meeting pools and impact mate selection. For instance, he argues that factors such as school segregation, exclusionary neighborhoods, and the rising cost of higher education restrict access to physical spaces making it difficult for people from different socioeconomic backgrounds to meet. As a result, wealthy families consolidate wealth by marriage and further contribute to wealth concentration through intergenerational transfers thereby exacerbating wealth inequality.
In order to effect structural change, Professor Aloni explores options such as limiting income and transfer tax preferences and exclusions to married couples who are economically interdependent, or eliminating the marital deduction and switching to an individual-based tax system. For example, he suggests, couples with prenuptial agreements should be restricted from income splitting. Additionally, unmarried couples who are economically interdependent should have the benefit of portability and estate tax exclusions. Furthermore, elimination of the marital deduction and switching to an individual-based filing system would treat all relationships equally.
Overall, Professor Aloni argues for marriage neutrality, that marital status should not be the determining factor in receiving tax and wealth-based preferences. This approach advances a recognition of transformative family definitions and promotes nontraditional marriage by not favoring marital status in laws and policies. This is an interesting article based in intersections between estates, trusts, tax, and family law. I particularly like the correlation between marital status and the contribution to wealth inequality as well as the analysis of the wealth concentration via marriage of two socioeconomically privileged families. I recommend this article to all scholars and professors who teach tax policy and social justice-based courses.
Parentage is central to our status-based system of inheritance. Over the past twenty years, we’ve seen tremendous changes in how courts and legislatures approach the question of just who is a parent. We generally use the same legal definition of parentage for both family law and inheritance law, a definition derived in many states from the Uniform Parentage Act (UPA). Thus, Professor Courtney Joslin’s new article, Nurturing Parenthood Through the UPA (2017), is particularly salient for trusts and estates scholars.
In Obergefell v. Hodges, the United States Supreme Court held that states must allow same-sex couples to marry. But that decision didn’t address the myriad corollary questions that arose from marriage equality. These included questions like whether the marital presumption of parentage granted to “husbands” also applied to female spouses who were not the genetic parent of a child. Or whether such a nongenetic female spouse had the right to have her name automatically listed on a birth certificate. Those issues were largely put to rest in a relatively unheralded case, Pavan v. Smith, which was decided after Obergefell. Professor Joslin notes that, “In June 2017, the Supreme Court held in Pavan that Arkansas’s refusal to list a woman on the birth certificate of a child born to her same-sex spouse was inconsistent with its prior declaration in Obergefell.” And in McLaughlin v. Jones ex rel. Cty. of Pima, “the Arizona Supreme Court explained, under Arizona’s marital presumption, husbands were recognized as parents even if they were not biological parents. After Obergefell and Pavan, the court continued, that rule could not ‘be restricted only to opposite-sex couples.’”
Professor Joslin serves as the Reporter for the UPA (2017). Promulgated in 1973, the UPA has undergone a series of revisions over the years, the last rounds in 2000 and 2002 evoking significant controversy. Much of the controversy revolved around the unequal treatment of nonmarital children under the UPA. After the 2002 amendments, the UPA included a presumption of parentage for nonmarital children as well as marital children. Professor Joslin notes that the UPA has had a significant impact on state parentage statutes, with laws in over half the states having their origins in the UPA. The UPA (2017) is the Uniform Law Commission’s effort to revise the Act to conform to the new constitutional mandates set forth in cases like Obergefell and Pavan, recognize non-biological parentage, and eliminate gender-based distinctions. Professor Joslin notes that many of the changes in UPA (2017) reflect the work of Professor Douglas NeJaime’s extensive scholarship on this issue.
Professor Joslin explains that “a core goal of UPA (2017) is to further a principle that has animated the UPA since its inception—recognizing and protecting actual parent-child bonds” regardless of biology. The premise is that failure to protect such bonds is harmful to the child. The salient changes for those involved in inheritance law include the gender-neutralizing of the holding-out provision, section 204(a)(2), so that either a man or a woman can be presumed to be a parent if they lived in the same household for the first two years and held the child out as his or hers. By including the possibility that the adult holding out the child is a woman who is not connected by biology to the child, Professor Joslin notes that the new UPA makes clear that court decisions which allow the presumption to be rebutted by evidence of a lack of a biological connection are wrongly decided.
The UPA (2017) also includes what Professor Joslin calls “an entirely new method of establishing parentage – the de facto parent provision” noting that “most states today extend some sort of protection to functional, nonbiological parents” under either statutory holding-out provisions or through equitable doctrines. Under section 609, de facto parents who are not biologically related to the child can be given legal parentage status on a par with biological parents. Like the revisions of the holding-out provision, this provision has been drafted in gender-neutral terms allowing either a man or a woman who develops a relationship with a child after the initial two-year period after birth to achieve legal parentage status.
In addition to these new holding-out and de facto parentage provisions, UPA (2017) expands the category of people who can use Voluntary Acknowledgements of Parentage beyond alleged genetic fathers, to include “intended” and “presumed” parents under the Act. The Acknowledgement of Parentage process facilitates the recognition of such parents’ status by other states without having to go through a costly court process.
Finally, the new revisions give courts clear guidance when exercising their discretion in evaluating competing parentage claims. Professor Joslin notes that this guidance includes such factors as: “the length of time during which each individual assumed the role of parent of the child, the nature of the relationship between the child and each individual, and the harm to the child if the relationship between the child and each individual is not recognized,” with the court having discretion to choose social bonds over biology in making its determination.
These revisions and the gender-neutralizing of many of the other provisions, including the marital presumption, have given us a uniform law that hews much more closely to recent constitutional mandates. It will also have a significant impact on inheritance statutes that incorporate the UPA as the measure of parentage. As the Reporter for the Act, Professor Joslin has given those of us who are inheritance law scholars a very valuable primer on both the revisions and the policy rationales that underlie those revisions. This article is required reading for those teaching and writing in the area of trusts and estates and should inform our law reform work as well.
Imagine that you are engaged to be married but die shortly before the wedding. You do not have a will. Should your fiancé be entitled to a share of your estate?
Imagine instead that shortly after your engagement, you execute a will giving your fiancé half of your estate. You end the relationship before walking down the aisle but never change your will. You are later killed in an accident. Should your ex-fiancé take under the will?
Imagine that you married your fiancé but later filed for divorce. You die while the divorce is still pending, and you do not have a will. Should your divorcing spouse be entitled to a share of your estate? What if you executed a will after you married, and it gives your entire estate to your spouse? If you did not update the will after filing for divorce, should your divorcing spouse take under the will?
What if you and your spouse permanently separated but never filed for divorce, and then you are killed in an accident? Should your permanently separated spouse be entitled to a share of your estate?
The legal answers to these questions hinge on marriage. A fiancé is not an intestate heir and the doctrine of implied revocation of bequests upon divorce does not apply to broken engagements or spouses who never divorced. In the majority of states, a divorcing or permanently separated spouse has the same rights as a spouse who has not filed for divorce and is not separated from her spouse. Should the law, however, draw a line between the almost married and those who are married and between the almost divorced (or de facto divorced) and those who are legally divorced? Does the law adequately reflect the donative intent of individuals on their way to marriage and on their way from it?
Professor Adam J. Hirsch raises these scenarios in his article, Inheritance on the Fringes of Marriage, in which he surveys the testamentary preferences of engaged individuals, divorcing spouses, and permanently separated spouses. While I do not agree with all of his policy proposals, his findings are fascinating and challenge us to think about how the law could be reformed to reflect the predominant preferences of individuals on the fringes of marriage.
First, the overwhelming majority (79.5%) of the 334 engaged individuals he surveyed reported that if they died before their wedding day, they would want their fiancé to receive at least half of their estate. Many (36.2%) wanted their fiancé to take it all. While the results varied, depending on whether the respondent had children or not, the difference was modest. Eighty-two percent of engaged individuals with descendants as compared to 77.8% of those without descendants preferred to give at least half of their estate to their fiancé. This modest difference (less than five percentage points) might seem counterintuitive until one considers, as Professor Hirsch acknowledges, that some of the respondents with descendants may have had children in common with their fiancé — a factor that the study did not control for. As such, these respondents likely expected that their fiancé would take care of their children.
Although the differences between engaged individuals with children and those without may not be as significant as one might expect, the gender differences were substantial. Professor Hirsch’s findings suggest that men are either more generous or more in love with their fiancés than are women. Almost 91% of male respondents as compared to 75% of female respondents reported that they would want their fiancé to receive at least half of their estate if they die before the wedding. Although the majority of respondents prefer that their fiancé take at least half of their estate, the study suggests that wealth, as measured by whether one has a will or not, affects one’s preferences. Slightly fewer intestate respondents (77.3%), whom studies have shown tend to be less affluent than individuals with a will, expressed such a preference as compared to 79.3% of respondents with a will. Respondents with living trusts, who tend to be even more affluent, were most likely (81.5%) to want their fiancé to take at least half of their estate.
This data suggests that the law’s failure to recognize a fiancé as an intestate heir is at odds with the donative intent of the majority of engaged individuals. Professor Hirsch proposes—and I agree—that lawmakers should create a share for the surviving fiancé of an intestate decedent and a similar share for the pretermitted fiancé of a testator or settlor who executed a will or living trust before the engagement. Admittedly, while the existence of a marriage is often easy to verify as there is usually an official document to prove it, the same is not true of engagements. Due to the evidentiary challenges of proving an engagement that the decedent’s family and friends were not aware of and courts’ reluctance to investigate the decedent’s relationship “status” with the claimant, Professor Hirsch wisely proposes limiting the surviving fiancé’s share to cases in which the couple had announced their engagement.
Cases involving testamentary bequests to a fiancé followed by a broken engagement present difficult questions and unclear answers. Given the small numbers of individuals who have made bequests to a fiancé and then broken up before the wedding day, Professor Hirsch did not empirically study the preferences of testators or settlors in these situations, but he argues that the law that applies in these cases is troubling. If a testator or settlor dies without revoking a bequest to an ex-fiancé, the ex is entitled to take the bequest. Professor Hirsch argues that broken engagements are traumatic or, at minimum, distracting experiences, and testators or settlors may forget to update their estate plan after the break-up. He suggests that lawmakers consider extending the doctrine of implied revocation of bequests upon divorce to broken engagements. I, however, am not sure I agree. In the absence of empirical evidence of the preferences of testators and settlors in these situations, I find it difficult to support extension of a doctrine that may be problematic even when applied to divorcing individuals (as shown below). As Professor Hirsch acknowledges, some testators or settlors may not want to revoke a bequest to a fiancé even after they breakup and their wishes will likely depend on the reasons for the breakup, the level of acrimony, if any, and their relationship after the breakup.
Professor Hirsch’s empirical study of divorcing spouses—those who have filed for divorce but do not yet have a divorce decree—is particularly illuminating. He polled 333 individuals in the middle of a divorce and found that 40.8% wished to leave at least half of their estate to their divorcing spouse if they died while the divorce was pending. Another 21.3% wished to leave something (but less than half of their estate) to their divorcing spouse, but only 37.9% wished to disinherit their divorcing spouse completely. Respondents’ preferences, however, differed significantly based on whether they were intestate or had a will. Only 35.2% of intestate respondents wished to leave at least half of their estate to their divorcing spouse, while 46% of those with a will preferred to do the same (including some who wished to leave their entire estate) to their divorcing spouse. The gender divide was also significant. Divorcing men were much more likely than divorcing women, 50% v. 35%, to want to leave at least half of their estate to their divorcing spouse. The presence of children, however, had little effect on the preferences of divorcing spouses—41.2% of divorcing respondents with children wished to leave at least half of their assets to their spouse as compared to 37.8% of those without children.
Professor Hirsch and I disagree on the reforms that this data supports. He concludes that “the data suggest that dialing back divorce to the time of the petition would accord with majority preferences both as concerns rules governing intestate inheritance and implied revocation of bequests.” (P. 260.) I am less willing to divest divorcing spouses of their rights given that only 37.9% of divorcing spouses wish to disinherit their spouse completely and respondents with a will were even less likely to want to do so. Professor Hirsch acknowledges that the “data offer less than overwhelming support for shifting these lines, and the gender divide gives added caution.” (P. 260.) Thus, he recommends that lawmakers allow extrinsic evidence to rebut proposed presumption of implied revocation of bequests upon filing for divorce. I agree that extrinsic evidence would allow courts to better assess the decedent’s wishes but, in my view, a presumption that filing for divorce revokes a spouse’s rights places an unjustifiably high burden on a surviving spouse for several reasons. First, the data suggests that most respondents want their divorcing spouse to take some share of their estate, and a significant minority, 40.8%, want their divorcing spouse to take at least half. Second, while we do not know how many respondents want their divorcing spouse to take at least one-third of their estate (the forced share in the majority of common law states), there are strong public policy reasons not to deprive divorcing spouses of their current rights. Although the wishes of a decedent are paramount vis-à-vis most individuals, they matter less vis-à-vis a spouse. As Professor Hirsch acknowledges, the legal justifications for granting a surviving spouse a forced share are based on a theory of partnership or contribution and the state’s interest in allocating the costs of dependency. The law should require more compelling reasons than the data provides before requiring divorcing spouses to battle a presumption of implied revocation.
Professor Hirsch’s survey of permanently separated spouses yields similarly enlightening results. He polled 333 permanently separated individuals and found that 42.2% would want their permanently separated spouse to have at least half of their estate. Another 17.2% wished to leave something (but less than half of their estate) to their permanently separated spouse. Thus, almost 60% of permanently separated respondents wish to leave something to their permanently separated spouse. However, as with engaged individuals and divorcing spouses, respondents’ preferences differ significantly by gender and whether they have a will, but are virtually unaffected by the presence of children. The greatest difference was between intestate individuals and those with a living trust. While 72.4% of intestate respondents prefer that their permanently separated spouse take less than half of their estate (including those who want their spouse to take nothing), the majority of respondents with a living trust have opposite preferences. The majority of settlors, 53.3%, want their permanently separated spouse to have at least half of their estate.
Lawmakers should carefully read Professor Hirsch’s article as it illustrates the importance of empirical research on the preferences of individuals in a legal twilight zone. Researchers should explore why individuals may want a divorcing or permanently separated spouse to take half or more of their estate. We should also explore whether individuals’ preferences vary by race. Gender and wealth seemed to affect respondents’ preferences. It is possible that race might too. The answers to these questions surely are as varied as the individuals in these relationships, but they make us question our assumptions about the point at which marriage begins and ends and alert us that the points at which the law draws these lines may be far removed from those that matter to the individuals it seeks to serve.
Mark Glover, Freedom of Inheritance,
2017 Utah L. Rev.
283 (2017), available at SSRN
Policymakers have long focused on the freedom of disposition, the ability of donors to decide how their property should be distributed. These decisions are almost at the complete discretion of the donor. The donee, on the other hand, has a much smaller role in the process. The donee’s only real decision is deciding whether to accept or reject the donor’s gift. This choice is termed the freedom of inheritance. While the freedom of disposition is well understood, the freedom of inheritance has not been explored to the same extent.
Prof. Mark Glover’s article, Freedom of Inheritance, justifies the need to recognize the freedom of inheritance and how policymakers need to facilitate the freedom of inheritance for donees. Prof. Glover explains the importance, mechanics, and rationales behind the freedom of disposition. He then conducts parallel explanations for the freedom of inheritance. The article also analyzes how the freedom of inheritance aids the utility for both the donee and the donor. Prof. Glover delineates how the donee may be better prepared to handle the disposition of the donor’s property post-mortem with specific examples. Finally, the article emphasizes how to best facilitate the freedom of inheritance in contrast with the freedom of disposition.
The article articulates how the freedom of inheritance must be based off the freedom of disposition. By explaining the method for creating a disposition and the rationales behind those methods, Prof. Glover furthers demonstrates how the freedom of disposition is a long-standing and important process in modern society. He also points to the utility to both the donor and the donee as substantial reasons behind the current schemes of testate disposition. Finally, he explains that the donees are motivated to act in the donor’s best interest because of the incentive of receiving property upon the donor’s death.
When discussing the freedom of inheritance, the parallelism between the choices of the donee and donor make it apparent that the freedom of inheritance has just as important of a role in society as does the freedom of disposition. The donor has the overarching right to decide how his or her property is distributed should the donor take the proper steps under the law. Once the donee disclaims the property, the donee is treated as if the donee predeceased the donor and the alternate donee receives the property. This may be viewed as a severe limit on the right of the donee, as the donee cannot direct the new recipient of the property.
The rationale behind allowing the donee to disclaim property is that it allows the donee to determine the utility to the donee and the social welfare of the property itself. By not forcing the donee to take unwanted property, the donee can act in the best way for the donee’s selfish interest. While the donor may believe he or she is acting in the best interest of all involved, the fact remains that by the time certain facts come to light about the estate plan, it is far too late for the donor to react accordingly.
To further explain how the donor may not have planned properly, Prof. Glover uses two specific examples. If the donee were insolvent, then disclaiming the gift would have a greater social utility for the alternative donee and would allow the original donee to respect the wishes of the donor. In another example, the donor may not be able to plan correctly for the tax consequences that come with transferring property. By allowing for disclaimer, the donee can reduce the tax burden of the gift.
To facilitate effective disclaimers, there needs to be a formalized process similar to, but not as strict as, that of executing a will. This allows for finality in the process while still allowing the donee to have greater freedom. Additionally, clear timelines in disclaimer statutes empower the donee to act efficiently. Prof. Glover explains how the donee may be at risk of losing other freedoms or benefits by accepting property, like Medicaid, and disclaiming allows the donee to consider the donee’s interests first.
Overall, I highly recommend this article as a clear explanation of the importance of disclaimers for both the donor and the donee. Taking a view from the donee’s perspective is an innovative feature of Prof. Glover’s article. As an advocate for effective estate planning, I believe this article helps further demonstrate how estate planning involves legal and ethical considerations from both the donor’s and donee’s perspectives.
[Special thanks to the outstanding assistance of Bailey McGowan, J.D. Candidate May 2018, Texas Tech University School of Law, in preparing this review.]
Danaya C. Wright & Beth Sterner, Honoring Probable Intent in Intestacy: An Empirical Assessment of the Default Rules and the Modern Family, 43 ACTEC L.J. 341 (2017).
The principal goal of any intestacy statute is to determine the probable intent of individuals who die without a will. Presumably, that means determining what most people who die without a will would want their wills to say if they were to have executed a will before dying. This is a particularly challenging endeavor, given that intent changes over time and may not be consistently the same throughout a large, multicultural country.
In their excellent article, Professor Wright and Ms. Sterner analyze 493 wills that were probated in Escambia and Alachua Counties, Florida, in 2013. They do this, the authors say, “[i]n light of the fact that marriage is a waning institution and a majority of children are currently being raised in nontraditional families—defined as blended, single-parent, or same-sex.”
Part I of the article reviews the history of empirical studies regarding testamentary intent. It notes that the two primary methods of doing this kind of empirical study are (1) phone surveys of living people and (2) an analysis of probate records in certain areas of the country. The article rightly notes that both of these methods have advantages and disadvantage. For example, because most people do not prepare wills until they are older, probate records may not give us an accurate picture of testamentary intent with respect to younger decedents. The article also identifies key empirical studies in this field, beginning with Richard Powell and Charles Looker’s 1930 study and ending with David Horton’s 2015 study.
In Part II of their article, Professor Wright and Ms. Sterner turn to their empirical study, which analyzed all wills that were recorded in the official records of two counties in Florida during the 2013 calendar year. In their study, they looked at such things as multiple marriages, the presence of stepchildren, and the use of pourover wills. They also noted the time between the execution of the will and their study to see if it made a difference if wills were executed closer to the time of death. 2013 was selected because it was recent but also ensured that the probate process was likely to be complete by the time of their study.
The two counties selected for the study were meant to be culturally, economically, and demographically diverse. Alachua County is the county that includes Gainseville, home to the University of Florida. It is a county that is predominantly Democrat. Escambia County is home to Pensacola, one of the largest military training sites in the Navy. It is predominantly Republican. Both counties are roughly two-thirds White (non-Latino), one-fifth African American, and about five percent Latino. Other races and ethnicities account for a very small portion of the population of both counties.
For each estate, the authors gathered data from at least three documents: (1) the Petition for Administration, (2) the Death Certificate, and (3) the Will (including any codicils). From those documents, they were able to gather data regarding date of death, gender, race, marital status, date of will execution, children, size of probate estate, courts costs, relationship between the decedent and the personal representative, testamentary dispositions, whether a trust existed, and the relationship between the trustee and the decedent. Most of this data is provided in table form in the article.
Testamentary dispositions were broken into specific and residuary dispositions and broken down further if second or third spouses or stepchildren were involved. The most common testamentary disposition was to leave everything equally to the decedent’s children (35 percent of the cases). Second most common was everything to a spouse if alive and then to the children if the spouse failed to survive the decedent (29 percent of the cases). While wills for single marriage families tended to align with the state’s intestacy statute, wills of people in more than one marriage with children from a prior marriage did not conform as closely with the intestacy statute.
Some interesting trends were identified in the study. First, in the case of multiple marriages, men were far more likely to leave something to their wives than women were likely to leave something to their husbands. Second, women were more likely to devise property to children, nieces, nephews, and grandchildren than men, who were more likely to devise property just to their children. Third, White decedents were far more likely to die testate and have their estates probated than decedents of color. While the White population of the two counties was about 65 percent, 91 percent of the testate estates involved White decedents. Fourth, where stepchildren were clearly identified, the decedent overwhelmingly (82 percent) left something to the stepchildren. It also is worth mentioning that 100 percent of the estates involving stepchildren were estate of White decedents. That may tell us that intestacy statutes are not adequately addressing the needs of communities of color
In Part III, Professor Wright and Ms. Sterner compare their findings with common intestacy laws. That includes the Uniform Probate Code (UPC), which has been adopted by seventeen states. The authors note that more complex estate plans, including the use of trusts, typically occur when the family situation is complicated. They note that this would tend to benefit White and wealthy populations who have greater access to attorneys. They are particularly critical of intestate schemes, such as the UPC, that preferences collateral blood relatives, including aunts, uncles, cousins, and even children of cousins, over stepchildren, who tend to fall last, if at all, before the property escheats to the state.
The authors propose some concrete changes to intestate schemes. For example, they suggest that the marital status of a child’s parents should not determine a child’s inheritance rights. They also argue that a state probate code’s definition of parent and child should match the family code definition as long as it uses the “best interests of the living child” standard. Another possible change would be for the intestacy statute to give a surviving spouse who remarries only a life estate in property received from the first spouse, with the property ultimately passing to the first spouse’s children.
Some of the conclusions raised by Professor Wright and Ms. Sterner have potential issues and need to be examined further. For example, it may be problematic to make inferences about intestacy statutes from examining wills. People who have wills may have different goals than people who do not have the time or money to draft wills. Furthermore, wills do not contain any information about non-testamentary dispositions such as joint tenancies. In addition, while fascinating, more research would need to be done with respect to stepchildren, given that there are potential problems with looking at wills to determine if a decent had stepchildren.
Professor Wright and Ms. Sterner have written an excellent, thought-provoking piece. While their study is limited to only one year in two Florida counties, they need to start somewhere. More studies like this are needed throughout the United States to better understand probable testamentary intent. These studies could be used as a basis for state legislatures to begin updating their intestacy statutes to more accurately reflect the reality of probable intent. New statutes, if properly considered, should pay attention to gender, race, and class differences that surfaced in the authors’ study.