Unforeseen Consequences of Post-Mortem Procreation

Nov 21, 2011 Camille Davidson

“Procreation is no longer left to the living” proclaims Professor Browne Lewis in this essay entitled Graveside Birthday Parties: The Legal Consequences of Forming Families Posthumously. (P. 1159)  She explores three legal issues that have resulted from posthumous reproduction.  Specifically she addresses the issues of parentage, procreative freedom, and probate.  Professor Lewis examines the steps that must be taken to identify the legal parents of posthumously conceived children.  She further discusses the rights of the deceased gamete providers.  Finally, she focuses on the inheritance rights of these posthumously conceived children.

In the not so distant past, a fertile man and woman needed to have sexual intercourse to create a baby.  A traditional family consisted of a husband, wife and their children.  The children were either the biological children of the husband and wife or their adopted children.  A child who was born into a marital union was considered legitimate and one born outside of the marriage was illegitimate.  Reproductive technology has altered the American family.  Intercourse is no longer necessary to create a baby.  Although reproductive technology has resulted in many medical miracles, the legal community has been slow to respond to the medical advancements.  Further, the legal community must deal with mistakes that inevitably occur.

Assisted reproductive technology was first used to assist infertile married couples in becoming pregnant.  It has also been used to assist same sex couples and single individuals to create families with children.  Methods to extract and freeze sperm and eggs have allowed deceased individuals to become parents.  A dead man’s sperm may be used to impregnate a woman long after his death.  A surrogate may use the eggs of a dead woman to conceive a child.  Professor Lewis laments that while physicians hail the benefits of the procedures, lawyers are forced to deal with unforeseen legal consequences.

Professor Lewis explains the importance of determining the legal parents of a posthumously conceived child.  Inheritance through intestacy, financial support, and government benefits require a legal parent-child relationship.  With respect to posthumously conceived children, the legal parent is sometimes difficult to identify.  For example, when a surrogate carries a baby, there may be two women who claim to be the mother of that baby.  Lewis identifies the two common types of surrogacy agreements—traditional and gestational.  Traditional surrogates use their ova and their womb to carry a baby for someone else.  Although the surrogate and the baby have a genetic connection, that may not be enough to establish a legal relationship.  A gestational surrogate is not biologically linked to the baby that she carries.  Yet, that lack of a biological relationship does not necessarily preclude a legal relationship between a gestational surrogate and the baby she carries.  Professor Lewis points out that legislatures have provided little guidance and Courts have dealt with the legal issues on a case-by-case basis.  She compares cases in New Jersey, California and Ohio that illustrate the variances among courts.

Issues of paternity are also complicated.  A majority of state legislatures have enacted legislation to designate the paternity of children conceived using artificial insemination.  According to Professor Lewis, in a majority of jurisdictions, a sperm donor is never the legal father of the child.  She suggests that courts should allocate paternity based on the best interests of the artificially conceived child.

I would love to see Part II of Professor Lewis’ essay expanded to a separate article.  In this section we see the intersection of property law and decedents’ estates.  Professor Lewis ponders “whether permitting posthumous conception interferes with the reproductive rights of the deceased gamete provider.” (P. 1169) She asks, “who has the legal right to possess the dead man’s sperm.”  (P. 1169) Currently, courts evaluate requests for such sperm on a case-by-case basis.

In the final portion of her essay, Professor Lewis ponders how posthumously conceived children affect the distribution of a man’s estate.  Very few states have even attempted to address the issue.  Of the eleven states that have legislation, six adopt the Uniform Parentage Act and five set forth independent solutions.  Therefore, for a majority of jurisdictions, courts have determined the inheritance rights of such children on a case-by-case basis.  Should posthumously conceived children have the same rights as a man’s other children?  If so, how are the posthumously conceived child’s rights balanced against a state’s desire for a timely and orderly distribution of a decedent’s estate?

The legal community has been slow to respond to the many legal issues that have developed as a result of the medical advancements that have enhanced the way children are conceived.   In this essay, Professor Lewis  begins to explore this new and exciting area of law.   I agree with her as she states that the medical community “will continue to push the envelope when it comes to reproductive technology.”  (P. 1182)  The legal community will need to respond accordingly.  I look forward to the many conversations and debates.

The Big Questions of Philanthropy Law in a Delightful Snack-Size Portion

Oct 26, 2011 Alyssa DiRusso

Alyssa DiRusso

Should charitable trusts be perpetual and should such philanthropy benefit from generous tax subsidies? Professor Ray D. Madoff of Boston College Law School addresses what are perhaps the most fundamental questions of charitable trust law in a surprisingly accessible and engaging article. The article reads less like legal scholarship and more like a good story, perhaps owing to the fact that it relies upon her book, Immortality and the Law (Yale Univ. Press 2010).

Professor Madoff opens with a character sketch of Leona Helmsly, the “queen of mean,” who harnessed the tax benefits supporting philanthropy to fund an eight-billion-dollar trust for the benefit of dogs (in addition to funding a comfortable twelve-million-dollar fund for her own aggressive terrier). She explains the role of tax expenditures in supporting such donations and invites her reader to question whether the benefits from such a system are worth its costs.

The article explains not only the current rules benefiting perpetual charitable trusts, but the evolution of those rules and the historical limitations and restrictions that were the norm until fairly recently. Professor Madoff illuminates how some degree of mistrust and desire to control or limit philanthropic trusts shadowed perpetual charitable trusts for quite some time, making the substantial liberality they enjoy today no longer something one should take for granted.

After laying this foundation (no pun intended), Professor Madoff takes on what are arguably the two biggest policy questions in the law of philanthropy: first, should charity benefit from tax subsidies, and second, should charities be perpetual? Many other scholars, of course, have debated and will debate these central queries in substantial detail. Much of this scholarship is heady analysis with a level of sophistication and complexity that it invites discussion from experts well-versed in the intricacies of the third sector and tax policy. What Professor Madoff does instead is empower the novice to join the conversation.

The article explains, concisely and clearly, how the income tax charitable deduction and the estate tax charitable deduction function as tax expenditures. Using specific examples with numbers and simple math, she shows how the federal tax system works largely like a matching grant program for wealthy taxpayers. Professor Madoff next highlights how the preferences of wealthy Americans, particularly their fondness for private foundations and educational institutions, can skew governmental funding of charity from what may be mainstream priorities.

Having challenged the tax benefits charities enjoy, Professor Madoff takes on the other 800-pound gorilla of philanthropy: perpetuity. Again using simple math and straightforward examples, Professor Madoff demonstrates how perpetual private foundations doling out minimal contributions throughout time (while bleeding administrative costs) fail to address societal needs the way immediate and direct contributions would. She prompts the reader to consider how the law might be improved to provide better support for the true goals of philanthropy, rather than the hubris or whims of individual donors.

What is novel about Professor Madoff’s article is not its content, but its delivery. Its value lies in its potential to engage law students or even novices to philanthropy with the key questions of the genre. Law students in particular seem to view charitable trusts with a bit of a rosy glow, and this tasty morsel of an article may provoke them to challenge those assumptions. (I may assign it myself as required or recommended reading in my Wills class in connection with our unit on charitable trusts.) The article also has potential to inspire undergraduates or those in non-legal disciplines to engage with the major policy questions of philanthropy law. Even for a reader without significant grounding in charitable trust law, this is an article one can access, digest, and even like lots.

Father of the Iowa Trust Code

Sep 28, 2011 Jeffrey Cooper

Jeffrey Cooper

Back in 2001, Professor Martin Begleiter published an article analyzing the drafting and revision of Iowa’s comprehensive new Trust Code, of which he was a primary author.¹  A decade later, Professor Begleiter has released a follow-up work, Son of the Trust Code—The Iowa Trust Code after Ten Years. This new article chronicles the evolution of the Iowa Trust Code during its first decade of operation, discussing both legislative amendments and judicial pronouncements. Professor Begleiter’s new work, like his former one, not only offers a fascinating look into the legislative and judicial processes but provides invaluable lessons for other states which have recently adopted, or are considering adoption, of the Uniform Trust Code or other comprehensive legislation regulating trusts.

Three factors combine to give Begleiter’s article national relevance and enduring significance.  First, his subject matter is vitally important. The promulgation of the Uniform Trust Code (“UTC”) gets my vote as being the most significant trust law development of the 21^st Century.  Enacted in approximately half of the states, and under consideration in numerous others, the UTC has reinforced timeless principles of trust law while revolutionizing others — generating robust scholarly debate among its many supporters and detractors. The Iowa Code, however, is not an enactment of the UTC. Rather, while it often parallels the UTC, the Iowa Trust Code was developed through an independent drafting process.  Accordingly, studying the Iowa Trust Code offers an opportunity to compare and contrast Iowa’s approaches to crucial issues with the UTC’s approaches to those same issues.

Second, Professor Begleiter is uniquely suited to explore this vital subject. As a primary draftsman of Iowa’s Trust Code, Begleiter has an intimate knowledge of every aspect of Iowa’s evolving trust law. In his Article, he cites extensively to letters and e-mail correspondence among Iowa lawyers, legislators and academics, placing his readers at the center of ongoing debates and exposing them to various perspectives on crucial issues. Although Iowa publishes no formal legislative history, Begleiter’s work effectively fills that void by providing a definitive history of the Iowa Trust Code.

Third, the overall structure of Begleiter’s work makes it simple to navigate and adds to its utility.  At the outset of his article, Professor Begleiter discusses some preliminary matters relating to the process of amending the Iowa Trust Code and changes to court jurisdiction over trusts. In the balance of the piece, Begleiter simply tracks the Iowa Code section-by-section, analyzing problems discovered and lessons learned during the Code’s first decade of operation. This structure provides readers with a choice as to how to navigate the article—permitting the reader to either read the article in its entirety or to efficiently skip directly to those sections discussing a particular issue of interest.

Reading this article, one cannot help but admire the depth of service Professor Begleiter has provided to the citizens and bar of Iowa in connection with the Iowa Trust Code project. After spending well over a decade on this project, he claims that he has now written all he will write regarding the Iowa Trust Code and this article marks “[t]he end” of his long dedication to that project. Given the ongoing importance of the UTC project, Iowa’s independent experience with its own trust code will continue to make an invaluable contribution to the national debate.  Perhaps we shouldn’t let Professor Begleiter sail off into the trust code sunset just yet.

1. Martin D. Begleiter, In the Code We Trust—Some Trust Law for Iowa at Last, 49 Drake L. Rev. 165 (2001).

Disclaimers and Family Settlement Agreements as Possible Solutions to Election Out and Document Construction Problems

Aug 18, 2011 Michael Yu

Michael Yu

In this comprehensive article, the authors address the effects of Congress’ reinstatement, on December 17, 2010, of the estate tax and the generation skipping transfer tax. The authors first analyze how the reinstatement presents certain election out and document construction problems, and then they propose disclaimers and family settlement agreements as possible solutions.

The authors have two election out problems: First, tax-sensitive language in documents may be difficult to interpret because estate or GST taxes may not have been applicable on the date of the decedent’s death in 2010–possibly even without regard to any retroactivity. (P. 592.) Second, the personal representative of the estate of a decedent who died in 2010 must decide whether to elect out of the estate tax regime (and therefore into the carryover basis regime for income tax purposes) or to allow the default estate tax regime to apply. (P. 592.) The tax results under both scenarios must be compared, including reviewing the “calculation of the net appreciation in each asset, the character of the gain on the sale of each asset, the tax rate applicable to the gain on the sale of each asset, when each asset is likely to be sold and whether tax benefits exist that might reduce the tax on such sales, and how the modified carryover basis rules will apply to these assets” as well as related factors such as passive losses and partnership interests. (P. 595.)

With the decision to elect out or not, a personal representative may face a conflict with beneficiaries because “the personal representative of an estate owes both a duty of fairness and impartiality towards all of the beneficiaries of the estate and a duty to conserve the estate, including a duty to minimize taxes.” (P. 595.) For example, the beneficiary of a specific gift (which generally bears estate taxes only if the residuary is insufficient), if the gift is of an appreciated asset, may prefer that the estate tax regime apply instead of being subject to income tax on the gain on sale of the appreciated asset. (P. 596.) A second example occurs when equitable apportionment applies such that, for example, a surviving spouse receiving substantially appreciated assets (under a distribution that does not bear any estate taxes) may object to an election out of the estate tax regime even though the estate may benefit from the election out. (PP. 596-597.) Yet another conflict may arise when the decedent’s documents address the possibility of estate and GST tax repeal. (P. 597.) If a document provides different dispositions depending upon whether the personal representative elects out of the estate tax regime, then a personal representative who is a family member of the decedent also has a duty of loyalty to the estate and must prioritize the estate’s interests before those of the personal representative (P. 597.) Also, the personal representative’s conflict of interests “may be more serious if a 2010 ‘patch’ statute has been enacted” (P. 598.) The authors suggest to personal representatives facing the foregoing conflicts that they provide detailed analyses to the beneficiaries and then seek the beneficiaries’ consent for all actions (or non-actions); if consent is not obtained, the authors propose seeking a court order approving the personal representative’s actions (or non-actions). (PP. 597-599.) Finally, as to the election out or not, the authors note that courts may require, or at least permit, a personal representative to adjust the shares of the various beneficiaries of an estate “when an election clearly works a disproportionate disadvantage” (P. 599.) The failure to make an equitable adjustment “may create income and transfer tax consequences for an estate or beneficiary.” (P. 602.)

The authors’ document construction problems include interpreting such terms as “unified credit, the applicable credit amount, the applicable exclusion amount, the exemption equivalent, the optimal marital deduction, the maximum marital deduction, or the GST exclusion” because those terms “had no meaning in 2010 until December 17.” (PP. 592-593.) These construction problems remain “despite the 2010 Tax Act” as follows:  First, “the usual rule for construing a testator’s intention applies the law in effect at the date of death,” so the authors posit that, “If the will or revocable trust of a 2010 decedent contained tax-sensitive terms but no express provisions about allocating the estate if no estate or GST taxes existed at the time of death, then the retroactive application of the 2010 Tax Act arguably should not cure property allocation construction issues because no estate or GST taxes existed at the time of death.” (P. 593.) Second, the “construction problem clearly exists for estates of 2010 decedents whose personal representatives elect out of the retroactive estate tax,” and, third, the construction problem may arise when certain documents contain “alternative dispositive provisions based on whether the estate is subject to estate or GST tax.” (P. 594.)

As to the foregoing problems, the authors propose disclaimers and family settlement agreements as possible solutions. For a decedent’s will leaving a nonmarital or bypass trust an amount equal to the decedent’s applicable exclusion amount and the residue to the surviving spouse, the authors posit that, when there is no “applicable exclusion amount” such that all property goes to the surviving spouse, a disclaimer may be appropriate to fund the nonmarital or bypass trust. (PP. 611-612.) For a will leaving to the decedent’s adult children an amount equal to the most that can pass free from federal estate taxes and the balance outright to the decedent’s surviving spouse, the authors posit that, if all property goes to the adult children, a disclaimer may be appropriate to fund the marital share. (P. 613.) The authors provide other possible disclaimers and address the attendant tax, timing, family harmony, and state law issues. (PP. 613-618.) Family settlement agreements may also address election out and construction problems because the beneficiaries agree to the settlement of an estate. (P. 618.) Any agreement, though, may have adverse tax consequences and may raise some risks under Commissioner v. Estate of Bosch. (PP. 627-634.)

This summary obscures the depth and breadth of the article. The authors’ discussion of the fiduciary duties of a personal representative in the election out decision is comprehensive, as is the analysis of possible income and transfer tax consequences for both actions and non-actions by a personal representative. The discussion of document construction problems is particularly thought-provoking, explicitly and implicitly addressing both the advantages and disadvantages of document language mirroring terms in the Internal Revenue Code. Finally, disclaimers and family settlement agreements, if the authors’ concerns about them are overcome, provide great solutions to the election out and document constructions problems impressively discussed by the authors.

The Family as an Economic Unit

Jun 16, 2011 Joanna Grossman

Joanna Grossman

No small amount of ink has been spilled on the problems created by the clash between law’s dated vision of the traditional family and the social realities of the diverse and complicated modern family.  This piece, written for a University of Minnesota symposium, Family Values: Law and the Modern American Family, is a refreshingly concise essay that makes normative claims about how law should respond to most significant change in the family form: the dramatic rise in nonmarital cohabitation among not only heterosexual couples, but also couples of the same-sex and adults who share a care, but not a romantic, bond.  Gallanis answers the question “to what extent should there be room in our law for a family outside marriage” with three claims: (1) non-marital cohabitation merits recognition and support in law; (2) given American mobility, relationship statuses should be universally portable across state lines; and (3) the law should do more to protect family units–however constituted–against third parties, as opposed to worrying only about their obligations to one another.  It is this last point that gives rise to the third dimension alluded to in the title.

Gallanis begins by traversing some familiar ground on the treatment of non-marital cohabitants and same-sex couples. Although courts began in the 1970s to recognize contractual economic claims by one cohabitant against the other, those “Marvin rights” have turned out to provide very anemic protection to the weaker or more dependent party.  Slightly later, some states moved to create quasi-marital, status-based rights for cohabitants, a shift endorsed by the American Law Institute’s Principles of the Law of Family Dissolution.  And later still, same-sex couples got in on the action, earning status-based rights in various American and foreign jurisdictions, with great variation by jurisdiction in the particular status available and the rights and obligations accompanying it.

After laying out the landscape, Gallanis argues that the best normative approach is a “menu of multiple options,” which would allow partners to “tailor the level of recognition and protection to their particular needs and wishes.”  He allows that “[m]arriage could still be the highest and strongest relationship,” but it need not occupy the entire spectrum of legitimate adult relationships. He invokes statutes in several European countries for comparison, some of which not only allow same-sex couples equal access to all forms of family recognition, but also allow opposite-sex couples to choose from a menu that includes marriage as well as other less demanding statuses.  Gallanis argues that non-romantic duos should be able to seek legal recognition as well.  Two elderly sisters who cohabit and care for each other should be able to seek something like the Medieval French “affrairement,” which treated them as a cognizable family unit.

In the second part of the article, Gallanis briefly makes the claim that family structures “should be portable across state lines for parties who change their state of domicile.” He cites the high mobility rates of Americans to justify greater interstate recognition of same-sex relationship statuses–a privilege that most heterosexual families, regardless of form, already enjoy. As he correctly notes, arrangements like civil unions, domestic partnerships, and same-sex marriages are “either not portable at all beyond the relevant state’s borders or portable only to a limited number of destinations,” which “creates substantial difficulties for couples changing their domicile.”  All this is true, of course, and the many layers of complication for couples with a status that is not portable–either across state lines or into the federal law realm–are just beginning to reveal themselves.  Because marital status is the basis for so many legal determinations–everything from eligibility for Medicaid to hospital visitation rights to estate tax exemptions–a system in which large numbers of people become married or unmarried simply by traveling, moving, or having a legal issue governed by federal law is bound to crumble eventually.

Gallanis’s final claim relates to the rights of a family unit as against outsiders.  Marriage, he explains, “offers a range of such three-dimensional legal protections for the spouses and their property.”  These protections include the right to hold property as tenants by the entirety, which provides “impenetrable asset protection”; estate tax benefits provided by the unlimited marital deduction, along with varied other state and federal tax benefits; and provisions designed to protect the spouse of a Medicaid recipient.  The federal Defense of Marriage Act prevents the extension of any federal rights to same-sex married couples, and many state laws and constitutional provisions prevent it on the state level.  Thus, unmarried cohabitants and same-sex couples, even those in formally recognized relationships, generally lack this third dimension–the right to be treated as an entity vis-à-vis third parties.

This section highlights an important point that can get lost in controversies over the modern family form: the family is, in addition to whatever else it might be, an economic unit. Although we no longer invoke Blackstone’s notion of husband and wife as one flesh, we cling in many respects to the notion of a married couple as an economic entity, inviolable by outsiders.  Yet, despite the notable victories of the same-sex marriage movement (full marriage equality in five states plus the District of Columbia and marriage-equivalent statuses in at least seven others), the right to economic unity remains elusive due in large part to DOMA, which prevents equal treatment in the realm of tax, pensions, and many forms of governmental financial assistance.

The conception of the family as an economic, as well as a social unit, comes not only from family law, but even more so from the law of inheritance and tax.  Families prosper or fail in large part based on whether the family, as a unit, has earned money or successfully held onto money that is inherited or received as a gift.  Parents support their children; grown children sometimes support their aging and disabled parents.  Lifetime transfers between adult partners or spouses and between parents and children can be the key to opportunity and success; the lack thereof can squelch opportunity.  Transfers at death generally go to family members, especially spouses.  The government props up families through programs like Medicaid, Social Security, and welfare; it provides economic support as well through various provisions of the tax code.   Thus, although it is fashionable to treat family law and the laws of inheritance and tax as completely unrelated subjects, Gallanis’s piece is a reminder of how interconnected they are.  For the “flexible family” to thrive, it must be recognized in these diverse legal frameworks, as well as from state to state and by the federal government.

Fiduciary Obligations: Why and When?

May 23, 2011 Thomas Gallanis

Thomas Gallanis

Observers with a transatlantic lens will readily notice that law professors in England take legal doctrine seriously.  At the elite law faculties in Cambridge, Oxford, and London, the sophisticated study of doctrine thrives and is highly respected.  The contrast with the modern legal academy in the United States is striking.  For example, how many U.S. law professors write or teach in the field of restitution?  The American Law Institute has just completed a remarkable Restatement (Third) of the Law of Restitution and Unjust Enrichment, yet the subject is largely, though not entirely, absent from our classrooms and student-edited law reviews.  And restitution is not the only example.  Consider the trenchant observations of Professor John Langbein:

Legal doctrinal writing [in the United States has]… declined precipitously.  A good way to see what has happened is simply to compare the law reviews for then and now.  I recently had occasion to check something in the 1967-1968 Yale Law Journal, where I noticed a three-part article on federal tax liens.  I think you’d probably have to establish your own law review today in order to publish a three-part article on tax liens.  The current diet in the leading journals is mostly high falutin’ constitutional law and theory, gender and racial issues, and law-and-economics.  Doctrinal analysis is disfavored, and a good rule of thumb is that the ‘better’ the journal the less doctrinal scholarship it will publish. ((John H. Langbein, Scholarly and Professional Objectives in Legal Education: American Trends and English Comparisons, in P.B.H. Birks ed., Pressing Problems in the Law, Volume 2: What Are Law Schools For? 5-6 (Oxford: Oxford University Press 1996).))

A fascinating English study of doctrine recently crossed my desk: James Edelman’s article on “When Do Fiduciary Duties Arise?”  It appeared in the prestigious and peer-edited Law Quarterly Review.  The author teaches at Oxford, where he is Professor of the Law of Obligations.  (If only donors to U.S. law schools would endow such chairs!)

The article begins by explaining that “[t]he classic English exposition of the fiduciary concept has relied upon the ‘status’ of the defendant” (p. 304).  Over time, however, as the categories of fiduciaries expanded beyond the prototypical example of a trustee to encompass the recognition of fiduciary obligations “despite the absence of any custody of property” (p. 304) — for example between lawyer and client, doctor and patient, and parent and child — the status-based understanding of a fiduciary lost “any real explanatory power” (p. 304).

Professor Edelman proposes a different understanding of the basis of fiduciary duty.  In his formulation, fiduciary duties are simply particular terms which are expressed or implied in voluntary (contractual or non-contractual) undertakings (see pp. 302, 306).  The duties are not imposed externally by law, nor do they arise by virtue of the fiduciary’s status or relationship.  Professor Edelman quotes approvingly Professor Paul Finn (now Justice Finn of the Federal Court of Australia): “a person ‘is not subject to fiduciary obligations because he is a fiduciary; it is because he is subject to them that he is a fiduciary’” (p. 316, quoting P.D. Finn, Fiduciary Obligations 2 (Sydney: Law Book Co. 1977)).

The body of the article expands on Professor Edelman’s argument by exploring the basis of fiduciary obligation in voluntary undertakings, and the terms that are expressed or implied in such undertakings.  Here Professor Edelman locates the four core duties of a fiduciary: (1) to avoid actual or potential conflict with the duties owed to the principal (p. 318), (2) to avoid profiting from the relationship without the principal’s consent (p. 319), (3) to act in the beneficiary’s best interests (p. 321), and (4) to perform duties in good faith (p. 323).  As Professor Edelman emphasizes, however, the scope of the fiduciary obligation will depend on the particular circumstances of the undertaking.  Indeed, this is why he argues that his theory of fiduciary duty is superior.  In his words, “if we persist in seeing fiduciary obligations as imposed by law, and dependent upon conceptions of status, the quest to understand and explain why different fiduciaries owe different duties will remain an impossible task” (p. 326).

The article is stimulating and thought-provoking.  Moreover, this short summary of the article does not fully capture the significant extent to which Professor Edelman’s analysis is rooted in the English case-law and the scholarly literature produced by English academics on the nature of the fiduciary obligation.  It is a subject that English judges and professors take seriously.

This American reader does have a few quibbles.  One is a concern that in seeking a general theory of fiduciary duty, Professor Edelman may be giving insufficient recognition to the nature of the fiduciary obligation in the particular context of the trust, where the property-based (rather than undertaking-based) theory of fiduciary duty predominates in English law.  ((See, e.g., D. Hayton et al., Underhill and Hayton: Law Relating to Trusts and Trustees (18th ed. 2010) §1.23 (at p. 19), referring to “the proprietary nature of the trust.”))  The property-based theory of the trust is also gaining more recognition in American law.  On this, see my forthcoming article on The New Direction of American Trust Law, in 97 Iowa L. Rev. (2011) (based on my Shirley A. Webster Lecture in Wealth Transfer Law). Another quibble is that I would have welcomed some discussion of the constructive trust, wherein obligations arise by operation of law rather than by virtue of an undertaking.

But these are minor quibbles.  Professor Edelman’s article is well worth reading and I recommend it highly.

The Impact of Race and Inherited Wealth on Social Mobility

Apr 22, 2011 Paula Monopoli

Paula Monopoli

In her recent article, Inheriting Inequality: Wealth, Race and the Laws of Succession, Palma Joy Strand unpacks the connection between social mobility and inherited wealth.  She situates this discussion within the broader picture of the increasing gap between rich and poor in the United States.  Strand isolates the role of race in that trend and she argues that the transmission of inherited wealth, as much if not more than income levels, is a dominant predictor of whether a family will move between classes in American society.  Her goal is to develop a theory of the relationship between inheritance and the reproduction of our economic structure.  It is an ambitious goal and Strand makes substantial steps toward it in this article.

Strand first presents the data on the increasing inequality of overall wealth accumulation in this country, noting the distinction between “income” and “wealth.” She defines the former as the inflow of resources over time offset by outflows to cover expenses and the latter as accumulated assets most often accrued within the family.  Strand cites sociologist Seymour Spilerman for the proposition that “even modest levels of wealth have the ability to “cushion” families, particularly low-income families from economic shocks such as illness or job loss” and that wealth levels are correlated with educational achievement and well-being.  With this data, Strand lays the foundation for her argument that we must reform inheritance laws because they have a disparately negative impact on the accumulation of wealth in certain kinds of families.

After noting that wealth inequality in the United States is substantially greater than in most developed countries (as is income inequality), Strand then cites research that establishes the skewed distribution of wealth is most stark when looked at through a racial lens. While income inequality is striking as between blacks and whites, the differences in accumulated wealth are even more skewed. For example, 65.6% of white compared to 41.6% of black households had home equity and of those households, the median value of the asset was $45,000 for whites and $31,000 for blacks.  Institutional discrimination in housing, including more limited access to credit, higher interest rates on mortgages and lower rates of appreciation for housing in black neighborhoods, explains much of this disparity.

Strand then identifies the role of inheritance in wealth inequality.  She notes that if one fails to make a will, intestate succession passes property through the probate process to close family members.  In addition, much wealth is transmitted through nonprobate vehicles like joint tenancy, life insurance, payable on death accounts – all of which require that the decedent take action to use these vehicles.  These facially neutral rules appear to operate without regard to race or class.  But Strand makes the argument that they have a disparate impact on those who are working or lower-middle class and particularly those who are black within those categories.  Strand again provides empirical research to support her argument, citing statistics on inheritance that she argues demonstrate a strong racial skew.

Strand pointedly reminds the reader of what she calls “the genesis of race.”  She cites historian Theodore Allen for the proposition that race was a socially constructed category and the means to an end. “The creation of two classes of people with significantly different statuses based on their personal or ancestral origin – “race” – broke up burgeoning class solidarity that threatened to unite Euro- and African-American bond laborers against the ownership class in the late 1600s and early 1700s by attaching “Whites” of that class to the economic elite (all of whom were Euro-American) on the basis of common ancestry and carefully selected shared privileges.”  And members of the oppressed class that remained – African-Americans – were deprived of political and civil rights and denied access to literacy. Family rights and authority were displaced and– most importantly for purposes of Strand’s article – members of that oppressed class were not allowed to accumulate positive wealth.

Strand proffers two race-neutral paths to reverse the economic and social consequences of race in current inheritance patterns.  She acknowledges that solutions that included racial preferences would not likely pass constitutional muster.  The first approach addresses inheritance as windfall wealth and Strand characterizes this as approach as “addressing advantage.”  This proposal would tax inheritances as income in the hands of those who inherit the decedent’s assets.  The second proposal “addresses disadvantage” as Strand says and the goal is to preserve wealth among those who are at the low end of the income spectrum by acknowledging that a high proportion of such decedents die intestate and leave only a family home.  Strand embraces the reform proposals put forward by Heather Way in Way’s article Informed Homeownership in the United States and the Law, 29 St. Louis U. Pub. L. Rev. 113 (2009) and suggests that American inheritance law include the authority to preserve the family home for the actual occupant rather than heirs who may have little, if any, connection to the home. Refusing to allow fractional interests to pass by intestacy preserves the home as both shelter and as an asset that might be used to finance education or protect the health of family members who actually occupy the home, often younger generations.

These proposals are provocative.  The reader may disagree with them substantively or because they seem politically unrealistic in the current environment. But Strand has made a significant contribution to the literature by identifying and providing empirical support for the disparate impact of what appear to be race and class neutral policies embedded in our inheritance laws.   This is not a topic that has been widely discussed in the literature. As social mobility stagnates in this country, a clear-eyed assessment of the nexus between such mobility and inheritance is an important step in thinking broadly about whether our current inheritance paradigm is consistent with our values as a nation.

Deep Irony — The Law of the Gift

Mar 14, 2011 Iris Goodwin

Iris Goodwin

A cursory perusal of Richard Hyland’s Gifts: A Study in Comparative Law (2009) ((This article is abridged from a much lengthier review published by the author in 44 Real Prop. Prob. & Tr. J. 823 (2010).)) reveals a massive work of such erudition that the twenty years Hyland admits he devoted to it seems neither surprising nor, indeed, unreasonable. Gifts not only manages to do yeoman’s work for the practicing attorney—providing six chapters that survey the essential aspects of the substantive law of gifts in three common law and five civil law jurisdictions—but this work is likely to change the terms of future discussion about the gift among comparativists and other scholars in the humanities and social sciences.  Demanding though this work is, however, the material remains thoroughly ac­cessible.  Written in prose that is a model of concise lucidity, the work will engage someone who picks it up and reads a section or two.  But the book is ultimately a page-turner and anyone who absorbs one section is likely to succumb to its richness and turn to the beginning, reading the book as it ultimately de­mands to be read—from cover to cover.

The bulk of the work consists of six chapters that survey the law in the common law jurisdictions of England, the United States, and India, as well as the civil law jurisdictions of Germany, Italy, Spain, France, and Belgium. In addition, Hyland frequently gilds the lily with Roman, medieval, and early modern antecedents, especially where the law encompasses exception layered upon exception, only explicable—Hyland argues—as the excrescence of centuries of legislative tweaking.

Notwithstanding the richness of these chapters on the sub­stantive law, however, it is Hyland’s first chapter—“The Context of Gift Law”—that lends intellectual force to the substantive material and ultimately makes the work compelling.  Whether in the common law or the various civil law regimes examined in this ambitious work, the law of gifts, Hyland points out, is little more than a litany of case-specific judgments that “boil down” to a maze of rules and exceptions.  The incoherence, indeed the iro­ny, that permeates the substantive law invites application of a sophisticated comparativist methodology to render the law intelligible.  Rising to the challenge, Hyland takes up the mantel of Marchel Mauss.  The ground-breaking 1924 monograph, Essai sur le don (translated as The Gift (1954)), maintained that the gift is parasitic upon numerous social institutions.  Embracing Mauss, Hyland assembles massive research to argue that gift giving is above all a social practice that, like language, emanates from the social bedrock fully formed.  Born independently of the law and flourishing outside of it, gift giving is not easily subsumed within any legal rubric.

But Hyland goes further.  By his reckoning, not only does the practice of gift giving have little need of the law, but the law that is ultimately brought to bear on it—the private law—is ill-suited to the subject.  The private law is devised to facilitate market-related activities with the prototypical transaction being an explicit, rationally self-interested quid pro quo, cognized in a contract. Unsurprisingly, then, the private law subsumes the gift as an afterthought, defined maladroitly, usually by reference to the contract—often as that social interaction that fails to qualify as a contract (for example, under the common law, where a gift is a transfer that lacks consideration).

Western gift law can then be understood only as a critique of gift giving. The law can offer only the perspective of individual self-interest on activities embedded in the web of social custom.  For anyone interested in the law of gifts, all that can be said is that, for any Western legal regime, the gift serves as a Rorschach test with respect to certain fundamental values: “The way each system chooses to order gift giving, and especially the ex­tent to which it favors or restricts the process, speaks to that system’s under­standing of gratuitous action and its vision of social relationship.”

Hyland leaves the reader hanging in one significant respect, however — that is, in whether gift giving ultimately serves the common good.  In the final analysis, Hyland’s interest in the gift is in its role—both as a challenge and an opportunity— vis-à-vis the private law.  His hope is that insight into the law of gifts will propel the private law forward, into an era in which it will transcend its role as the primary vehicle by which the normative foundations of the market are secured.  What is missing in a work that is otherwise a masterpiece of comparative law scholarship, however, is a clear articulation of the role of the gift, beyond serving as a midwife in the freeing of the private law.  Indeed, this book contains more than an undercurrent of an idea that the gift must always confound the law.  What Hyland does not address is whether a practice that gives voice to personal predilections, validates the idiosyncratic, and lends legitimacy to private orderings must always push back against all but the most libertarian legal order.

In the face of this extraordinary scholarly and erudite book, however, such concerns are mere afterthoughts emanating from the penumbra of the work. What Hyland makes very clear is that neither the true value of the gift nor the essential attributes of different types of gifts can be discerned until we disencumber the gift from the shackles of quid-pro-quo jurisprudence. At this stage in the development of what Hyland terms “the collective fabric of justification,” however, we only can congratulate him on twenty years well spent and thank him for the judicious application of his time and talent.

Wills, Slavery, and Wealth

Jan 10, 2011 Solangel Maldonado

Solangel Maldonado

In her 1996 article, The Myth of Testamentary Freedom, Melanie Leslie argues that “many courts do not exalt testamentary freedom above all other principles” and “are as committed to ensuring that testators devise their estates in accordance with prevailing normative views as they are to effectuating testamentary intent.”   I have always agreed with this statement, but Bernie D. Jones’s new book, Fathers of Conscience:  Mixed Race Inheritance in the Antebellum South (Univ. of Georgia Press 2009), challenges this assertion.  In her analysis of appellate cases from the antebellum era, Jones tells the story of white male slaveholders who used trusts and estates law to grant freedom and/or property to their enslaved mixed-race children and their mothers, thereby circumventing the law of slavery.  These testators were counting on judges to exalt testamentary freedom above the law, especially in states where slaveholders’ ability to manumit during their lifetime was quite limited.

Although miscegenation was prohibited in the antebellum South, many white men had sexual relations (sometimes consensual, sometimes not) with female slaves and lived openly with Black women and the children they bore.  Despite strong disapproval, there was little that society could do to punish privileged white men who breached social norms.  However, these men did more than breach social norms when they sought to grant freedom, property, and the legal rights that follow, to mixed-race children and their mothers; their behavior threatened the institution of slavery itself.

Jones’ findings demonstrate that it is quite difficult to predict when judges will uphold testamentary freedom and when they will allow social norms to trump an “unnatural” bequest.  Her analysis demonstrates that many judges who supported slavery, some slaveholders themselves, upheld testators’ right to dispose of their property as they wished, despite society’s (and their own) “disgust” at miscegenation.  As such, these judges were compelled to grant the enslaved beneficiaries their legacies, including freedom and property.  Other judges, however, focused on their communities’ interest in the continued enslavement of Blacks and rejected bequests to slaves as “void as against public policy.”  These judges transferred the property the testator intended for his mixed-race children and their mothers to the testator’s white heirs.  In these cases, social norms and community interests trumped the individual’s rights to dispose of his property as he wished.

These cases are all the more interesting because the slaveholders were unmarried or widowed men, and most had no “legitimate” children.  (Nonmarital children had no legal right to inherit until the 20^th century).  Thus, their heirs at law were not dependent wives or children, but rather collateral (and sometimes distant) relatives who arguably had no moral claim to the testator’s property.  In contrast, the beneficiaries of the wills were the testators’ children and women who shared intimate and sometimes marriage-like relationships with the testators.  Thus, these men had a moral duty to care for their partners and children after they were gone, even if they had no legal obligation to do so.  Jones’ analysis demonstrates that despite societal opposition to miscegenation, some judges believed that the men had a moral duty to care for their partners and children after death and even admired testators’ attempts to satisfy this duty.

The testators’ white relatives in all of these cases knew that the beneficiaries of the will were the children or intimate partners of the decedent, but that did not stop them from contesting the wills.  While some contestants argued that slaves were property and thus, they could not take under the will, others avoided the language of slavery.  They claimed to respect testamentary freedom and relied on traditional doctrines such as lack of capacity, undue influence, and duress that purportedly protect that freedom.  As Jones illustrates, they portrayed the testators as “vulnerable, old men” coerced by powerful jezebels into bequeathing their property to them and their children.

While I was fascinated by the arguments of the white collateral relatives, I wish Jones had explored the perspective of the creditors which, although I hate to admit it, are somewhat complex.  Creditors provided goods and services to slave owners on credit because they had significant estates, including slaves.   (Slaves were legally considered property that could be sold to pay the slaveholders’ debts.)  When testators bequeathed property and freedom to their enslaved children and their mothers, the remaining assets in the estate were sometimes insufficient to pay the creditors.  It is hard to feel any sympathy for creditors who did not get paid since they were arguably complicit in the institution of slavery, but as Jones argues, the enslaved beneficiaries who demanded their legacies were themselves trying to benefit from slavery.  Ironically, when the funds in the estate were insufficient to pay the mixed-race children their legacies, other slaves could be sold so that these former slaves could receive their legacies.  I wonder whether some creditors were opposed to slavery just like the testators’ mixed-race children and partners, but were simply trying to support their families in a system that they may or may not have had a role in creating.

Researchers have noted that light-skinned African-Americans tend to have higher levels of education and greater wealth than their dark-skinned counterparts.  Although this might be the result of ongoing discrimination against darker-skinned persons, Jones’ analysis of these cases suggests that it might be the direct result, at least in part, of the freedom and wealth secured by their mixed-race ancestors in those courts that exalted testamentary freedom.  If we trace the descendants of the mixed-race children and compare them to other descendants of slaves who were freed later and did not receive any legacies upon their masters’ death, we might find that the effects of testamentary freedom in the antebellum period continue to reverberate generations later.

Charity Begins With The Gift Agreement: Keeping Intent Fluid

Dec 6, 2010 Browne Lewis

Browne Lewis

Charities have a legal duty to comply with the restrictions donors place on gifts. Most charities act in good faith and honor the conditions the donors place on the donations. Problems usually occur when internal or external events make it necessary for the charity to change the manner in which it is carrying out the donor’s intent. Persons objecting to those changes may go to court to prevent the charity from taking certain actions. The litigation does not benefit the charities or the donors. Professor Gary addresses this problem with a comprehensive and thought-provoking article. She starts with an explanation of charitable trust law and identifies the legal issues that can arise because donor intent is difficult to determine and to enforce.

Professor Gary starts the article discussing recent high profile cases involving disputes over donor restrictions on charitable gifts. The five cases Professor Gary highlights contain facts that are interesting enough to get the reader’s attention. By starting with illustrations of recent cases Professor Gary shows that the issues she examines in her article are timely and in need of resolution.

In order to resolve the cases Professor Gary mentions, the courts had to determine the intent of the donors with regards to the gifts. That task was made more difficult by the fact that the donors were dead. As a result, the courts were forced to rely upon testimony from persons representing the donors’ descendants and the charities to ascertain the donors’ original intent. In addition, the courts had to decide how to carry out the donor’s intent in light of changed circumstances. Professor Gray uses the cases to highlight the difficulty of identifying and giving effect to donor intent. According to Professor Gray, attorneys representing charities and attorneys representing persons making charitable donations should take steps to ensure that the donor’s intent is clear enough to avoid costly litigation.

When the donor, donor’s descendants, or state attorney general sues to enforce the charitable trust, the critical issue the court must resolve is usually whether or not the charity is distributing the funds in a manner that is consistent with the donor’s intent. Professor Gary states that resolution of the issue is complicated by the fact that it is difficult to determine the donor’s intent. The charity may be administering the trust in accordance with its interpretation of the donor’s intent. The problem is that words in a gift agreement or solicitation may be unclear and open to several different interpretations. Professor Gray analyzes several common problems that make it hard for courts to determine donor intent. Changed circumstances can make it difficult to identify the donor’s intent. At the time the gift is made, the donor may clearly express his or her intent with regards to the purpose of the gift. Nonetheless, it may be challenging for the court to predict what the donor would have wanted had he or she been able to anticipate the changed circumstances. The court has to decide if the donor’s intent would have changed based upon the new circumstances. The court’s interpretation of the donor’s intent may be further complicated by the fact that the interpretation of words changes over time. For example, the legal definition of “family” is always evolving.

Professor Gray takes a balanced approach when she addresses the issue of donor intent. She analyzes the importance of donor intent from the perspective of the charity, the donor and the public. The charity has ethical, economic and legal reasons for carrying out the donor’s intent. In order to adhere to the Standards of Professional Practice established by the National Society of Fund Raising Executives, a charity must take steps to honor the donor’s intent. Moreover, if a charity wants to be able to raise money, it must take steps to maintain the trust of potential donors. A charity with the reputation of ignoring donor intent is unlikely to get donors to make contributions. Furthermore, from a legal perspective, the state attorney general may investigate and file an action against a charity that disregards the donor’s intent. Consequently, the attorney general may take control of the gift away from the charity. This could also lead to more government scrutiny of the other funds that the charity administers. When the donor chooses one charity over another, the donor is putting his or her trust in that charity. The donor wants the charity to perform a task that the donor will not be able to undertake. Thus, the donor benefits when the charity carries out his or her intent. In addition, the sector of the public that benefits from the donor’s vision is protected when the charity carries out the donor’s intent. Since members of the public do not have standing to enforce the terms of a charitable trust, they must rely on the charity to use the funds in the manner indicated by the donor.

Professor Gray ends her article with a discussion of things lawyers representing donors and charities can do in order to avoid unnecessary litigation about donor intent. Professor Gray suggests that the parties draft a gift agreement that serves a two-fold purpose. The agreement should give a sufficient description of the donor’s intent. It should also be flexible enough to permit the charity to use discretion when carrying out the donor’s intent. In addition, Professor Gray urges donors to place fewer restrictions on contributions made to charities in order to allow those organizations to fund operational expenses, to implement new programs, to manage its assets, and to avoid unnecessary costs. Professor Gray also recommends that lawyers drafting gift agreements include provisions giving the donor, the donor’s estate, or the donor’s descendants standing to enforce the trust. This type of provision would be strengthened if the agreement contains a provision stating that the charity will not challenge the standing of those persons. In order to protect the intent of a dead donor, Professor Gray proposes that the gift agreement names another charity as a contingent beneficiary. Thus, if the primary charity fails to carry out the donor’s intent, the contingent charity would take the gift. Professor Gray acknowledges that costly litigation over donor intent hurts the charity and the persons acting on behalf of the donor. To avoid that consequence, Professor Gray opines that lawyers should include mediation clauses in their gift agreement. The parties would agree to go through mediation or arbitration to resolve disputes over donor intent. Professor Gray stresses that “the donation of a charitable gift should not be an adversarial process.” To that end, she encourages attorneys representing charities and donors to work together to draft a gift agreement that reflects the donor’s intent and gives the charity the flexibility to interpret that intent in light of changing times.

In light of the tough economic times, charitable donations are on the decline. Those charities fortunate enough to receive gifts must take appropriate actions to respect the donor’s intent and to avoid expensive litigation. The practical suggestions Professor Gray includes in her article will assist charities in accomplishing those goals.