Apr 26, 2019 Solangel Maldonado
Last year I reviewed Adam J. Hirsch, Inheritance on the Fringes of Marriage, which explored whether donors would want their fiancé, ex-fiancé, separated spouse, or divorcing spouse to take a share of their estate. Following this theme of donor intent vis-à-vis a current or former intimate partner, I was particularly interested in Naomi Cahn’s article, Revisiting Revocation Upon Divorce, in which she challenges lawmakers’ assumptions about decedents’ relationships with their former spouses and their former spouses’ relatives after divorce or annulment. Under the 1990 Uniform Probate Code, divorce or annulment revokes any provisions in a will or nonprobate instrument concerning the former spouse. It also revokes bequests to the former spouse’s relatives, including her children from another relationship, parents, siblings, nieces and nephews—the testator’s former stepchildren and in-laws. Although the presumption of revocation may be rebutted in limited circumstances, this is both difficult and rare. Many states follow the 1990 UPC’s approach.
I must admit that the application of the doctrine of revocation upon divorce to a former spouse’s relatives has never seemed quite right to me. Maybe it is because I share close relationships with my spouse’s relatives and would continue to want them to benefit from my estate if my marriage were to end in divorce. My expectations are also based on my parents’ own experience with divorced relatives. My mother was very close to her sister’s ex-husband until his death and my father is very close to his brother’s ex-wife. Of course, my own personal experience is not evidence of what most donors would want, but Professor Cahn identifies several developments that demonstrate that the donor’s relationship with the former spouse and the former spouse’s relatives may not necessarily end when the legal relationship is terminated.
Professor Cahn observes that the divorce process has changed since the 1970s from the acrimonious battles often found in family law casebooks in which the petitioner had to prove fault to a kinder and gentler no-fault divorce. She explains that while some divorces are still acrimonious, lawyers now encourage clients to engage in mediation and other collaborative approaches that allow former spouses to co-parent and maintain amicable relationships after divorce. Of course, an amicable relationship and effective co-parenting does not mean that a donor’s testamentary preferences vis-à-vis a former spouse will remain the same after divorce. Nonetheless, I was reminded of Professor Hirsch’s study finding that more than more than 60% of divorcing spouses (those who were in the process of divorcing but do not have a final divorce decree) wished to leave part of their estate to the divorcing spouse. While a donor’s preference vis-à-vis a divorcing spouse might not be the same as her preferences vis-à-vis a former spouse, it suggests that Professor Cahn is wise to question whether revocation upon divorce actually reflects the intent of most donors.
I appreciated Professor Cahn’s policy arguments for revisiting the presumption of revocation upon divorce. She observes that revocation may have disparate effects on women, racial and ethnic minorities, and less wealthy individuals. She explains that as a result of women’s lower earnings, fewer years in the paid workforce, and longer life expectancy, surviving former spouses are likely to be older women with fewer assets for retirement when compared with divorced men. Consequently, revocation of a designation to a former spouse has a disproportionately negative impact on divorced women. She further observes that individuals who do not update their will and nonprobate beneficiary designations after divorce may be less educated and have fewer resources than wealthier individuals who have access to lawyers who will remind them to update their estate plan after divorce and do it for them. Although the effect of revocation on racial and ethnic minorities, who are more likely to divorce but less likely to have a will or assets at death, is much less clear, Professor Cahn wisely cautions that given these gender, racial, and class differences, lawmakers should examine the consequences of the presumption of revocation on different groups.
Professor Cahn’s discussion of several empirical studies involving relationships between former family members further demonstrates that revocation upon divorce may not reflect the donor’s intent, especially when there are children of the marriage. Her own study of adult children caring for a dying parent found that one-fifth of former spouses provided some level of caregiving to the former spouse. As I read this article, I thought about divorced friends and family members and how they might act in similar circumstances. It is not surprising that a mother would help her adult son care for his dying father, even if the mother and father are divorced. It would also not be surprising if the father wanted the mother to continue to benefit from his estate, especially if they maintained a cooperative, and possibly even friendly, relationship. Professor Cahn’s discussion of another study finding that one-quarter of individuals believe that a former daughter-in-law should be included in a will after a divorce similarly demonstrates that revocation upon divorce statutes do not always reflect a donor’s intent.
Despite these changes in the divorce process and post-divorce relationships, Professor Cahn acknowledges that the presumption of revocation upon divorce may serve to effectuate decedent’s intent in some, if not many, cases. The presumption benefits donors who intended to update their estate plan after divorce but never got around to it or assumed that the designation to a former spouse and her family members would automatically be revoked after divorce. Other donors, however, may have expected that the designations they made while married would remain in effect until they affirmatively changed them. Professor Cahn examines other countries’ approaches to designations benefitting a former spouse—some countries have no presumption of revocation upon divorce while others do—to demonstrate that the UPC approach is not necessarily the best approach.
Given the lack of empirical evidence on divorced donors’ intent and the low probability that lawmakers will abolish the presumption of revocation upon divorce any time soon, Professor Cahn proposes practical solutions that would increase the likelihood of effectuating decedent’s intent without unduly burdening the courts. Her stated “goals in exploring these reforms are, first, to develop a more functional approach that would acknowledge caregiving and functional familial relationships, and second, to respect donative intent.” (P. 1907.) I was particularly persuaded by her recommendation that lawmakers retain the presumption of revocation but place a time limit on its application. This proposal, modeled on South Africa’s approach, would provide a divorced donor with some time to change the beneficiary designations but if they are not changed within that time period, the law would presume that the divorced donor intended to keep the designations made before the divorce.
Professor Cahn also proposes amending revocation upon divorce statutes to allow rebuttal of the presumption by extrinsic (but clear and convincing) evidence of donor’s intent. Such evidence might include the relationship between the donor and the former spouse (or the former spouse’s relatives if they are designated beneficiaries) after the divorce, the length of time between the divorce and donor’s death, and any oral statements that indicate intent.
My favorite solutions were those that courts and lawyers could adopt rather easily. Professor Cahn proposes that family courts include advice on divorce filing forms explaining the revocation upon divorce rule (or whatever default rule the state has adopted) and allowing divorcing spouses to make an alternative designation on the form itself. She also reminds family law practitioners to advise their divorcing clients to update their beneficiary designations to reflect their intent, and trust and estate lawyers to draft documents that clarify the status of a designation to a spouse and the spouse’s relatives in the event of divorce. She observes that trusts and estates lawyers routinely draft provisions designating who should take a bequest if “my spouse does not survive me” and can easily add language designating who should take if “my spouse and I divorce.”
Professor Cahn’s article is a must read for anyone interested in recognizing the post-divorce collaborative and caregiving relationships that family law encourages and respecting divorced donors’ intent vis-à-vis a former spouse and the former spouse’s relatives.
Note About the Title: The term “renegotiated families” is taken from Robert E. Emery, Renegotiating Family Relationships: Divorce, Child Custody, and Mediation (1994).
Mar 27, 2019 Gerry W. Beyer
For decades, state and federal governments have increased their watch on fringe lending practices such as payday loans, title loans, tax refund anticipation loans, and pension loans. The main reason for this increased regulation is that these loans often have astronomical interest rates which may force borrowers to come back for renewal loans. Probate loans are a lesser known form of fringe lending that have managed to slip below the radar of nearly all regulatory bodies in the United States.
Professor David Horton identifies the issues and discusses the alarming consequences of probate loans in his article entitled Borrowing in the Shadow of Death: Another Look at Probate Lending. His article examines three common methods of fringe finance, tax refund anticipation loans (RALs), payday loans, and pension loans, and then focuses on probate loans by drawing comparisons between the methods and identifying similarities.
Professor Horton explains the background for short-term lending practices and the current regulatory scheme for each method. In 1968, Congress passed the Truth in Lending Act (TILA) mandating the disclosure of information by lenders to prospective borrowers in an effort to protect consumers. This Act prevents lenders from keeping borrowers in the dark about the terms of the loans into which they enter. Many state legislatures have enacted their own laws to further protect consumer by regulating loans. A key development occurred in 2010 when the IRS announced it would no longer provide RAL issuers with the “debt indicator” used to estimate a prospective borrower’s anticipated tax return. Following this announcement, the Federal Deposit Insurance Commission warned all RAL lenders of the riskiness of RALs, resulting in a reduction of total RAL sales per year.
Probate loans are similar to other methods of fringe lending in many respects, but starkly different is the circumstance in which probate loans arise and the average loan amount. Professor Horton explains that probate loans are different as the practice tends to target people who are in the process of grieving. This makes probate loans especially predatory especially when there are few if any laws in place to regulate them. The average probate loan is more than $10,000; a sum much larger than the average payday loan. Most alarming is the reality that probate loans tend to have interest rates over 50%.
Professor Horton explains his groundbreaking empirical study of probate loans, starting with the identification of each estate administration involved in probate lending over a period of time in Alameda County, California. He devised a formula to calculate annual parentage rate of interest on the loans. Professor Horton determines that over a period of a few years in Alameda County, lending companies made nearly $5,000,000 on a total investment of just over $3,000,000. Most borrowers repaid within a year or two after the assignment of the loan. This results in an average APR on probate loans of around 50%.
Probate loans raise special concerns as California is the only state with a specialized probate lending statute on the books. Professor Horton explains that the current handling of these loans by using traditional legal theories such as usury and unconscionable is inadequate. An heir or beneficiary can assign an entire inheritance for instant cash, only to end up owing anywhere from 150% to more than 900% of the total loan amount upon conclusion of the estate administration.
Professor Horton is to be highly commended for addressing an issue that continues to fly below the radar of nearly every state and federal regulatory body. His extensive research to analyze the prevalence of probate lending and to calculate the expected cost of the loan uncovered an alarming trend that calls for rapid change in the legal system to protect consumers who elect to cash in early on their inheritances. I echo Professor Horton’s plea that legislatures and courts take prompt action so that consumers who elect to seek a probate loan can do so in “a transparent and fair fashion.”
[Special thanks for the outstanding assistance of Katherine Peters, J.D. Candidate May 2019, Texas Tech University School of Law, in preparing this review.]
Feb 21, 2019 Sergio Pareja
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.
