Top-Down versus Bottom-Up Law Reform in Trusts and Estates: Future Interests and Perpetuities

Nov 22, 2010 Robert Sitkoff

Robert Sitkoff

Trusts and estates law reform generally follows one of two patterns. In the first, which we can characterize as top-down, the American Law Institute or the Uniform Law Commission sponsors a reform through a new Restatement or Uniform Law, often but not always prepared in concert. Top-down reforms are typically designed to update the law in accord with emerging academic and elite practitioner policy consensus on necessary revision to the canon. The prudent investor rule is perhaps the quintessential example of a successful top-down reform. In the other law reform pattern, which we can characterize as bottom-up, local bankers and lawyers lobby state lawmakers for a specific reform. Bottom-up reforms are usually meant to attract trust business (think perpetual or asset protection trusts), but not always. Some are meant to fill a gap in the top-down reforms (think unitrust, an alternative to the power of adjustment under the Uniform Principal and Income Act). Either way, owing to the commercial necessity of appealing to apparent donor preferences, the bottom-up reforms tend to enhance the reach of the dead hand (even the unitrust, a gap-filling bottom-up reform, is more solicitous of the dead hand than its top-down alternative, the power of adjustment).

In a quartet of short essays, Professor Lawrence W. Waggoner (Michigan) examines a pair of top-down reforms, just approved by the ALI, which will appear in the final volume of the Restatement (Third) of Property: Wills and Other Donative Transfers, for which Waggoner is the reporter. The reforms are: (1) a simplification of the law of estates and future interests, and (2) a reworking of the Rule Against Perpetuities. The reforms prompt two questions: (1) why these reforms, and (2) will they take hold? Waggoner’s essays focus primarily on the former question, though he gives some treatment to the latter, particularly as regards the new Rule Against Perpetuities.

The American law of estates and future interests, inherited from England, is a preposterous collection of feudal relics with no contemporary policy relevance. Although abandoned in England by 1925, the feudal relics have proved durable in the American law. In 1937, Professor Lewis M. Simes predicted that the First Restatement’s collection of the “obscure and complicated” rules was so “clear and accurate” that legislation “correcting the difficulties which have been discovered” was sure to follow. We’re still waiting.

But perhaps not for much longer. As Waggoner explains in straightforward prose, the new Restatement jettisons the relics in favor of a rationalized system with intuitive nomenclature reflecting substance rather than form. With respect to present interests, the fee simple determinable, fee simple subject to a condition subsequent, and fee simple subject to an executory limitation are collapsed into the simpler and more sensible title fee simple defeasible. With respect to future interests, the executory interest is collapsed into the term remainder; the possibility of reverter and the right of entry are collapsed into the term reversion; and a remainder or a reversion is deemed contingent or vested based solely on whether the interest is certain to take effect in possession or enjoyment.

The American law of perpetuities, meanwhile, has become an unprincipled mess. In the years following the 1986 enactment of the Generation Skipping Transfer Tax, the states became locked in a race to repeal or otherwise defang the Rule (e.g., by making it a default subject to override by the donor!) to allow perpetual or effectively perpetual trusts. The movement to validate perpetual trusts reflects not a considered change in policy about trust duration, but rather the pressures of the jurisdictional competition for trust funds.

In Waggoner’s view, perpetual trusts are bad policy. Waggoner’s argument, which is refreshingly consequential rather than deontological, emphasizes the related problems of administration and changed circumstances. Perhaps some of the problems of administration to which he points could be ameliorated with liberal rules of trust division and termination of small trusts. But even so, there is something powerful about this arresting line: “If Samuel Hinckley, who died in Massachusetts in 1662, had created a perpetual … trust for his descendants, the … beneficiaries living in 2010 would include President Barack Obama … and former President George H.W. Bush.”

Instead of a rule against remote vesting, with the attendant morass of implementing complexity, the new Restatement provides for a direct rule of trust duration. Under the new Restatement, a trust must terminate at the death of the survivor of the donor and all beneficiaries who are no more than two generations younger than the donor. The new rule of trust duration is meant is to honor the purpose the ancient rule against remote vesting as a prophylactic against the problem of changed circumstances, but in a form that is simpler and yet still self-explanatory of the rule’s underlying policy. In the final essay of the quartet, Waggoner urges Congress to follow the Restatement’s two-generation template in limiting the duration of the GST tax exemption. If Congress were to do so, the new Restatement would then provide the obvious model for rationalizing state perpetuities law.

This last point brings into view considerations of political economy. The currency of the top-down reforms is prestige. The imprimatur of the ALI or the ULC gives the top-down reforms presumptive policy credibility. But the Restatements and Uniform Laws are not self-executing. The success of top-down law reform depends in significant part on the cooperation of the local bar and bankers associations. Their opposition to a Uniform Law or their lobbying for a legislative override of a judicial adoption of a Restatement provision is almost always the death knell of the contested top-down reform.

Which is to say, the currency of the bottom-up reforms is politics. The support of the local bar or bankers associations provides political viability. At the same time, coordination of bottom-up reforms with national top-down initiatives allows those bottom-up reforms to borrow some of the presumptive legitimacy of the top-down reforms.

So the relationship between the top-down and the bottom-up reforms is uneasy. In cases of direct conflict (the mandatory duty to give information under the Uniform Trust Code is a recent example), the bottom-up view tends to win because the bottom-up reformers are more closely allied with state lawmakers. Waggoner is therefore right to focus on the connection between state perpetuities law and the GST tax. So long as the GST tax exemption is of unlimited duration, there seems little hope for restoration of any constraining state law rule of trust duration. The bottom-up perpetual trust movement is too powerful.

But what of reform of estates and future interests law? Perhaps the state courts will adopt the new Restatement piecemeal. But against this are three sources of friction: the need for a suitable case, the aversion of generalist judges to embrace specialized or technical reform, and the tension between the interconnected nature of the reforms and the case-focused common law method. Alternatively, perhaps the Uniform Law Commission will promulgate a Uniform Law on future interests. In that case the trick will be crafting a law for which the bottom-up reformers will be in sympathy, so that they will urge the law upon the state legislatures.

The Effect of State and Federal Regulation on Charitable Giving: A Historical Analysis

Nov 8, 2010 Alyssa DiRusso

Alyssa DiRusso

How sturdy is the charitable impulse in the face of federal and state regulation, and would the removal of an estate tax benefit for charitable bequests smother it?  Professor Kristine S. Knaplund of Pepperdine explores this conundrum from a creative and unique perspective in her new article.

The article is a story of American legal history and the persistent charitable drive.  Professor Knaplund points out that charitable bequests have taken their legal knocks before, and still emerged strong.  Her article guides us through a variety of legislative acts, both state and federal, that altered restrictions or incentives to make charitable gifts.  Throughout the article, Professor Knaplund skillfully juxtaposes the federal regimes (largely tax acts) with contemporaneous state law developments.

On the federal side, she leads us through critical tax acts in America’s early history, including the Stamp Act of 1797, the Tax Act of 1862, and the 1898 War Revenue Act (and the first federal exemption for charitable bequests).  Meanwhile, she explains the development of state mortmain statutes and the early state law confusion relating to whether charitable trusts were authorized by law.  She also tackles the development of state law doctrine throughout the nineteenth century, including limitations on amounts testators could leave to charity, restrictions on property holdings by churches or other nonprofits, and state inheritance taxes.

Before turning to modern law, Professor Knaplund explores the history of state and federal laws relating to charitable bequests in the twentieth century.  She first discusses the Revenue Act of 1916, which established the federal estate tax – initially with no deduction for bequests to charity (the deduction was added in 1918).  Meanwhile, state law began the century with restrictive attitudes and legislation (limiting amounts testators could leave to charity and taxing transfers to them).  By century’s end, the state law outlook for charitable givers was substantially more positive, with the legitimacy of charitable trusts well-established and mortmain statutes quickly crumbling.

With the historical background now illuminating our perspective, Professor Knaplund examines the current debate on whether the removal of the estate tax incentive for charitable giving would indeed deliver a death blow to nonprofits.  While federal law has frequently been less than supportive of charitable transfers, modern state law is on a fairly consistent trajectory toward facilitating charitable gifts.  To make an accurate prediction as to how charities will fare, we must acknowledge the dualist system of regulation, and take into account both federal and state law influences on charitable giving.  Professor Knaplund concludes that our charitable sector will emerge largely unscathed from a lapse in the federal estate tax incentive to make charitable gifts.

What is refreshing about Professor Knaplund’s publication is the historical context in which she puts the dilemma of how much federal tax support charitable givers need.  Empiricism may be trendy in legal scholarship, but this article serves as a reminder of how much historical analysis can offer trusts and estates doctrine.

Mirror, Mirror on the Wall, Is China’s Trust the Fairest of All?

Oct 25, 2010 Randall Roth

Randall Roth

The People’s Republic of China officially adopted the Western notion of a trust on April 28, 2001, and scholars are now pondering the likely long-term impact on individuals, institutions, and cultural norms in that ancestor-venerating, socialist, civil-law system.  Most of the scholarship is coming from inside China, of course, and the common theme is the need to “nativize” the transplanted trust in order for it to thrive, or at least do no harm, in its new environment.  One Chinese scholar has described the process as “absorbing what is useful and discarding what is not.”

In American Trust Law in a Chinese Mirror, Professor Frances Foster combines impressive trust-law credentials with fluency in Chinese language to unveil and explain a robust and intelligent critique of the so-called American trust.  What makes this article particularly fascinating is Professor Foster’s focus on the implications of this critique to the evolution of trust law in the United States.  As she explains, “legal transplants can provide a mirror for donor countries to see flaws in their own systems and new directions for reform.”

According to Foster, the Chinese trust law literature paints “a disturbing picture of an American trust system out of balance.”  Settlors are marginalized, beneficiaries left to fend for themselves, and trustees blindly trusted because of senseless secrecy laws.

Chinese scholars evidently see settlors in the United States as “weak and ultimately irrelevant.”  Unless a settlor knows how to retain rights when establishing the trust, for example, that settlor immediately gets relegated to nothing more than “an interested bystander,” with no ability to monitor the trustee, protect beneficiaries, or enforce the trust’s terms.  These critics argue that settlors in China should always have ready access to trust information, the legal ability to hold trustees accountable, and an on-going power to modify administrative provisions without court involvement.  Furthermore, the settlor’s powerful role should survive the settlor’s death, by passing automatically to the settlor’s heirs.

Chinese literature is equally critical of trust law’s treatment of beneficiaries, contending that “the young, the sick, the nameless, even the unborn” get left behind.  It’s viewed as ironic that trusts are supposed to serve the most vulnerable, yet American trust law ultimately requires beneficiaries to “fend for themselves.”  Chinese scholars suggest an improvement borrowed from the civil law tradition: a trust supervisor system: “This system empowers third parties designated by the settlor or appointed by the court to monitor whether the trustee is administering the trust in the best interests of the beneficiary and to represent the beneficiary in litigation and other trust matters.”

The Chinese are particularly troubled by the level of secrecy permitted—protected even—by American trust law:  “If the American settlor takes the secret to the grave, the trustee alone may know that the property she enjoys is not her own.  Because no record exists of an invisible trust’s purpose, property, parties, or fiduciary rights and duties, beneficiaries lack the information they need to monitor a trustee and hold that trustee accountable for any misconduct.”  They attribute the secrecy primarily to laws in the United States that permit oral trusts and do not require the registration of every trust.  Chinese scholars see this last items as particularly odd:  “Even in the birthplace of trusts—England—all trust must be registered.”

Professor Foster summarizes China’s criticism of American trust law as being “too trusting of trustees,” and as needing “better balance.”  Readers are left with the impression that China is quite likely soon to modify the American trust in ways that will achieve or at least move in the direction of the balance sought by the critics.

Professor Foster considers it both ironic and disappointing that the American trusts and estates field is not evolving in ways that would reflect China’s critique.  In fact, the U.S. “appears to be heading in precisely the opposite direction,” according to Professor Foster.  She attributes this to the influence of law and economics theory, which is “rapidly dismantling the traditional legal and moral constraints on trustees.”  She adds,

Trusts are becoming mere “contracts” …, trust law nothing more than “default rules” …, “efficiency” is triumphing over morality.  In the law and economics universe of foresighted settlors, loyal trustees, informed beneficiaries, and sophisticated family and commercial creditors, trusting trustees may make sense.  In the real world, however, it does not.  A trust system that exalts trustee autonomy over accountability can and increasingly does impose significant human costs on all affected by trusts.

This article is a must-read for academics and policy makers in the U.S., precisely because the perspective is so alien.  Whether readers like the image in this mirror hardly matters.  What does matter is the clever way it forces even expert readers—particularly the experts—to view a trusty old friend with fresh eyes, uninhibited by personal values and cultural biases.

Perhaps because Professor Foster focuses exclusively in this article on China’s critique of American trust law, readers might get a wrong impression or two about trusts in the United States.  For example, settlors here have the legal ability to retain all the powers that the Chinese literature describes as missing.  It’s true that many such powers are often not retained, but that is usually because of tax, creditor-protection, or other good reasons.  Also, settlors who choose not to trust the trustee completely and want added protection for beneficiaries can always appoint trust advisers and/or protectors, and in most jurisdictions there are ways to make the trust a matter of public record.

Professor Foster ends the article noting, “In a Chinese mirror, we can see that trusting trustees is the problem, not the solution.”  I loved this article, but I prefer the Russian proverb, “Trust, but verify.”

Estate Taxation of Reversions

Oct 11, 2010 Michael Yu

Michael Yu

Professor F. Philip Manns, Jr.’s article, “New Reasons to Remember the Estate Tax of Reversions,” might have been cheekily (but not inappropriately) titled, “Everything You Really Need to Know about the Estate Tax of Reversions.” A reversion, per Professor Manns, “exists whenever a transferor transfers less than all she owns.” (footnote 12 at P. 327.) In its first main part, the article focuses on how a reversion can arise not only from the transferor’s intent but also from inartful drafting and even by statute or common law decision; in its second main part, the article addresses the gift and estate tax treatment of reversions (however they are created).

Among the many strengths of the article, perhaps its most significant contribution to the existing literature is Professor Manns’ detailed explanation of how to calculate, for purposes of Internal Revenue Code sections 2033 and 2037, the value of a transferor’s reversion. Professor Manns indicates that “no case law, administrative pronouncement, or commentary instructs people how to make such calculations.” (P. 354.) Many sources address the calculations by referring the reader to Revenue Ruling 76-178, 1976-1 CB 273. But that Revenue Ruling merely gives answers without any explanation. In his article, Professor Manns explains the required “probability theory and life contingency actuarial mathematics” (P. 354.) and then impressively provides sample calculations showing all of his work.

But the article is not just a series of calculations. As noted above, the first main part of the article describes how a reversion can arise. Professor Manns first discusses a transfer of title to certain property from O to A for life, remainder to B (or, in a trust context, a transfer of title to certain property from O to the trustee of an irrevocable trust under which the trustee holds a portion (or all) of the trust property with income to A for life, remainder of the portion (or all) of the trust property to B). Because those transfers do not indicate whether B (or B’s successors) must survive A in order to take the remainder, Professor Manns indicates that the common law “developed a rule that B’s survival is not implied” (P. 325), the no-implied-condition-of-survivorship rule or the “NICS rule.”

Under the NICS rule, B has from O an indefeasibly vested remainder, which B can transfer during B’s life or upon B’s death. Under certain circumstances, B’s remainder (because it is indefeasibly vested) is included upon B’s death in B’s gross estate. To preclude this inclusion, there were attempts to reverse the NICS rule. Certain reforms (applying the foregoing facts) made B’s remainder from O contingent upon B surviving A; other reforms added the provision that, if B does not survive A, there is a substitute gift of the remainder to B’s descendants who survive A. In these reforms (or under poor drafting), however, there is no specified alternate taker to B (or to B and B’s descendants), thereby creating a reversion to the transferor O. In this way, a reversion can arise not from the transferor’s intent but rather from inartful drafting or by a statute or common law decision attempting to reverse the NICS rule.

Professor Manns shows how the Uniform Probate Code (which “reverses the NICS rule with respect to trusts, but not legal life estates” (P. 333)) successfully negates a reversion to O. The Uniform Probate Code provides that, if B and none of B’s descendants survive A, there are two additional alternatives: First, “if the trust was created in a nonresiduary devise in the transferor’s will or in a codicil to the transferor’s will, the property passes under the residuary clause in the transferor’s will,” and second, if there still is no taker, then “the property passes to the transferor’s heirs”. (P. 333.) There is no reversion to transferor O because, if applicable, the property is transferred under the residuary clause in the transferor’s will, or, if that is not applicable, to O’s heirs, including the final possible taker as an escheat to the state.

In other words, in instances when the Uniform Probate Code does not apply, a reversion can arise from the transferor’s intent, from inartful drafting, or by a statute or common law decision that attempts to reverse the NICS rule but fails to negate the transferor’s reversion. Any reversion must be analyzed for possible gift tax and estate tax consequences (especially for purposes of IRC sections 2033 and 2037). In sum, Professor Manns’ article analyzes how and when a reversion can arise and then impressively explains the actuarial mathematics required to calculate the gift tax and estate tax consequences of transfers involving reversions–that is, everything you really need to know about the estate tax of reversions.

Duty to Diversify: Default v. Mandatory Law

Sep 13, 2010 Mitchell Gans

Mitchell Gans

As state legislatures contemplate adopting the Uniform Trust Code (UTC), they should consider how it will interface with the Uniform Prudent Investor Act (UPIA).  Consistent with the principles of modern portfolio theory, the UPIA imposes a duty on trustees to diversify investments in the absence of “special circumstances.”  However, the UPIA is a default statute and therefore appears to contemplate that the settlor may negate this duty.  While the UTC is also, as a general rule, a default statute, it does contain fourteen mandatory rules that cannot be altered by the settlor.  Among these rules is the requirement that the trust be maintained for the benefit of the beneficiaries.  Depending on how one reads these uniform statutes, there is a potential conflict: Should a settlor’s direction against diversification be respected on the rationale that the UPIA is a default statute, or should it instead only be respected where it does not result in a violation of the UTC’s benefit-the-beneficiaries rule?

In a 2004 article, Professor John Langbein examined the UTC’s mandatory rules.  He argued that the duty to diversify investments cannot be entirely waived by the settlor.  Rather, just as a settlor cannot create a trust for capricious purposes, so, too, a settlor should not be permitted to waive the duty if it would violate the benefit-of-the-beneficiaries rule.  In other words, the settlor’s investment-related restrictions should not be respected if it would impair the value of the portfolio and thereby inure to the detriment of the beneficiaries.  In his example involving IBM stock, Professor Langbein posited a case where the trust instrument directed the trustee not to diversify.  He explained that modern portfolio theory has shown that such non-diversification creates a risk for which the investor is not compensated and that the settlor should not be permitted to impose foolishly this harm on the beneficiaries.  He also posited a case involving a direction to invest solely in the stock of the bankrupt ENRON corporation, where the trust fund was modest in size and the beneficiaries were the otherwise destitute widow and orphans of the settlor.  He concluded that no court would uphold such a restriction given the risk and reward profiles of the beneficiaries.  Professor Langbein maintained that the benefit-the-beneficiaries rule is designed to articulate the policies underlying the capricious-purpose cases and should serve as an outer limit on the scope of investment-related restrictions that the settlor may impose.

In a 2008 article, Professor Jeffrey Cooper considered the validity of investment-related restrictions in light of the benefit-the-beneficiaries rule, suggesting that courts called upon to interpret the UTC should reject Professor Langbein’s reading and inviting legislatures to rework the UTC language in order to foreclose this reading.¹  In Professor Cooper’s view, the UPIA makes the duty to diversify a default rule.   As such, he argues, a settlor should be permitted to fully negate the duty in the instrument.  In support of his argument, he posits several hypotheticals.  Two estate-planning-driven transactions will first be considered.  First, he posits a life insurance trust, where as a practical matter the insurance policy is often the only trust asset.  Second, he focuses on a GRAT, a type of trust where tax advantages are more easily secured if each trust holds a single investment.  In both cases, a non-diversified portfolio is an essential part of the plan.  He argues that, if Professor Langbein’s version of the benefit-the-beneficiaries rule were applied, the trustee would be required to diversify and thereby undermine the planning advantages sought by the settlor.   He also posits transactions that are not estate-planning driven.  In one, an investor creates a trust at a time when the markets and the economy have recently collapsed; the investor is concerned about preservation of capital and is therefore unwilling to allow the trustee to invest in equities.  Professor Cooper questions whether, in such circumstances, a direction that the trustee invest only in fixed income would run afoul of Professor Langbein’s version of the benefit-the-beneficiaries rule.  As for Professor Langbein’s IBM hypothetical, he concedes that requiring the trustee to hold only IBM stock might be foolish, but argues that the settlor should be permitted such foolishness.

In a 2010 reply article, Professor Langbein argued that the UPIA must be read in the context of fundamental trust-law principles.²  That is, it must yield to the mandatory benefit-the-beneficiaries rule in the UTC.  In his view, Professor Cooper’s argument is a textualist one that fails to consider the overriding nature of the benefit-the-beneficiaries rule.  He reiterated his IBM example, maintaining once again that the settlor should not be permitted to foolishly impose such harm on the beneficiaries.  As for the life-insurance trust and the GRAT, Professor Langbein indicates that, in any given case, there may be offsetting advantages that make non-diversification appropriate.  As the UPIA indicates, diversification is not required if special circumstances justify a departure from this norm.

Professor Langbein also points out that, in the case of the GRAT, there is offsetting compensation for the risk of holding a single asset in the trust.  Presumably, the compensation he contemplates is the tax advantage.  Although Professor Langbein is not explicit about this, he may be read as suggesting that non-diversification undertaken in order to achieve a tax advantage is per se not inimical to the interests of the beneficiaries.  The same reasoning could perhaps be extended to other kinds of irrevocable trusts, which are typically created to achieve a transfer-tax advantage. He also makes the point that, in determining whether a portfolio is sufficiently diversified, it is appropriate to consider all of the resources otherwise available to the beneficiary – but presumably not the settlor’s other resources which might eventually be bequeathed to the beneficiary.

Conclusion

Where a state that has already enacted the UPIA is contemplating the adoption of the UTC, consideration should be given to the interface between these two statutes.  The enacting legislation should contain explicit language indicating whether the UTC’s benefit-the-beneficiaries rule is intended to trump the default aspect of the UPIA.  If the UTC is made paramount, an important question lurking in the background is whether a trustee acting under a non-diversification direction would have a duty to seek judicial relief – and whether any such duty could be negated in the instrument.³  In the absence of a duty, a trustee could follow the direction without concern about liability.   But if a duty is imposed, the trustee could not comfortably ignore the direction.  In the final analysis, the duty issue has the potential to affect significantly trustee behavior where the settlor directs against diversification.

1. Jeffrey A. Cooper, Empty Promises: Settlor’s Intent, The Uniform Trust Code, and the Future of Trust Investment Law, 88 B.U. L. Rev. 1165 (2008).
2. John H. Langbein, Burn The Rembrandt? Trust Law’s Limits on the Settlors Power to Direct Investments, 90 B.U. L. Rev. 375 (2010).
3. The UTC contemplates no such duty. See the commentary under § 412; but see Restatement of Trusts (Third), § 66.

A Critical Race Theory Analysis of the Influence of Race in 19th Century will contests

Aug 5, 2010 María Pabón López

María Pabón López

This work of recent scholarship in the field of wills law and legal history is an excellent and thought provoking piece and anyone interested in a critical analysis of race in its historical context should read it. This article is quite special and well worth reading for its detailed archival research and its innovative analytical approach. It is a welcome addition to the legal scholarship that studies the influence of race in the United States legal system, particularly in the area of Trusts and Estates.

In this beautifully written and thoroughly researched article, Kevin Noble Maillard, an Assistant Professor at Syracuse University College of Law and the Director, Angela Cooney Colloquium for Law and Humanities brings to bear his knowledge of Critical Race Theory, and Critical Legal Studies into the realm of the law of wills.
Professor Maillard initially observes how wills in which the main devisees are nontraditional close family members of the testator pose tremendous challenges to courts that have to decide the posthumous wishes of the testator. This is even more the case when these wills have excluded collateral heirs. He then points out that the collateral heirs who object to will provisions where the bequests to the nontraditional family members seem to expand the definition of the testator’s family stand to benefit from the tension between testamentary freedom and the social deviance of the family. In such instances, courts may privilege the interests of collateral heirs to the detriment of the nontraditional close family member. These nontraditional close family members are usually the unmarried cohabitant and nonmarital children of the testator, often of a different race than the testator.  In Professor Maillard’s view, wills with nontraditional family devisees act as evidence of moral or social transgressions, such as interracial sex and extramarital reproduction. This may be a reason why such wills are often subject to will contests by collateral heirs, who aim to use their white privilege and legitimacy status to overcome the clear intent of the testator.

The article then examines antebellum and postwar will contests between disinherited white heirs and black or mixed-race devisees. Following this examination, the article interrogates how the courts defined the family in these cases and how they typically upheld the expectancy of the collaterals by using the privilege of the white heirs and their status as legitimate under the law. This detailed analysis of the archival evidence in these historical will contest cases is one of the strengths of this article. It is true that other scholars have previously examined testamentary freedom and the legitimacy of diverse families, yet they have paid little attention to what Professor Maillard terms “the color of inheritance.” Professor Maillard thoughtfully draws upon Critical Race theorist Cheryl Harris’s seminal work on whiteness as property and racial expectation interests, to show the primacy of whiteness as a justification of the voiding testamentary transfers. This is the innovative analytical approach of this article- the use of Critical Race Theory in the area of Trusts and Estates law.  Professor Maillard further analyzes the judicial legal resistance to nontraditional families in these will contests and concludes that it undermines donative freedom — a bedrock principle of the law of wills. Thus, this article is a much needed a critical initial inquiry of the influence of race in testamentary transfers. It is hoped that future scholarship can further expand the scope of this critical inquiry into contemporary times.

Dual Parenthood and Inheritance Problems

Jul 19, 2010 Joanna Grossman

Joanna Grossman

The increasing complexity of family formation poses many challenges for law. When as many as five adults could be involved in the production of a single child – egg donor, sperm donor, gestational mother, intended mother and intended father, to take just the example of a complex surrogacy – we have to at least consider the possibility that some of our traditional rules are outdated.  Melanie Jacobs has written several pieces in which she considers whether the “two parent” rule is one of those outdated rules.  In this piece, she considers the financial implications of “multiple parentage,” including the implications for inheritance.  Why limit a child to two parents when additional ones may bring important financial as well as emotional resources to the table?

Courts and legislatures have, when given the opportunity, virtually all reaffirmed the rule that a child can have no more than two legal parents.  Thus, the Supreme Court ruled in Michael H. v. Gerald D. against granting legal parent status to the biological father of a child conceived in adultery.  The mother’s husband was conclusively presumed to be the child’s father under California law, and due process did not require that the biological father be given a formal role in his daughter’s life, even though he had acted as a parent for a significant period of time.  In a telling sentence, which Jacobs quotes, Justice Scalia writes that “law, like nature itself, makes no provision for dual fatherhood.”  And in numerous other cases, a third party with significant ties to a child – and, often, a significant role in planning for the child’s conception and birth – is ruled the odd man out.  Sometimes the excluded party is a lesbian partner who co-parented a child who has a legal father (and thus a second parent); sometimes it is a biological father, as in Michael H., whose rank in the parental hierarchy is trumped by another man’s claim to legal or presumed fatherhood; sometimes it is a former stepparent who engaged in substantial childrearing while married to the child’s mother or father; and sometimes it is one or more parties to a surrogacy, which, like the one described above, may entail the participation of as many as five different adults.

Although the tendency is to limit the number of parents to two, Jacobs discusses three instances in which children have been permitted to have more than two legal parents.  First, under Louisiana law, the possibility of dual paternity exists.  The state code imposes the usual presumption that a husband is the legal father of children born to his wife, but it simultaneously allows a biological father (or mother or child) to bring an action for paternity.  If paternity is proven, both the husband and the biological father can be recognized as “legal fathers” and both are obliged to support the child.  Second, a trial court in Pennsylvania ruled that a biological mother, her former same-sex partner, and their known sperm donor all had parental rights and obligations to the two children the trio produced.  Finally, Jacobs discusses the American Law Institute’s Principles of the Law of Family Dissolution, which recognize different categories of “parent” and specifically contemplate that a child could have more than two.

Who suffers for the legal limit on the number of parents a child can have?  The focus, generally, is on the loss experienced by the adults who are deprived the opportunity to parent a child they have been raising.  But, as Jacobs emphasizes in this piece, children suffer as well – they are deprived of a relationship they may have had with a particular adult, but they are also deprived of that person’s financial support.  For the most part, adults who do not qualify for legal parent status are not burdened with an obligation of child support.  Yet someone other than a child’s two primary parents may be best suited to provide such necessary support.

At the inheritance stage, children suffer as well under the two-parent regime.  Under the rules of intestate succession, children generally cannot inherit from more than two parents.  Thus, a child who has been adopted will inherit only from adoptive parents except in cases of a stepparent adoption.  But the current version of the Uniform Probate Code broadens the conception of parent-child relationships and seems to contemplate inheritance in some cases from or through more than two parents.  Jacobs advocates for greater inheritance rights for children with more than two functional parents.  Such a child, she argues “should also be able to inherit through that parent and potentially inherit from other relatives.  Any relative who wishes to foreclose such inheritance has an easy mechanism by which to opt out—a will.”  Greater recognition of multiple parentage would also open up other important sources of support like social security survivor benefits and wrongful death damages, both of which turn on state parentage law.

In the end, Jacobs argues for a framework that would potentially recognize additional parents and impose financial obligations that are “closely related to the particular nature of the custodial and/or visitation relationship.”  This, she argues, will “best protect the best interests of the child and the parents.”  She makes a strong case that the complications of recognizing multiple parents are outweighed by the benefits to children.

Inheritance and Presumptions

Jul 1, 2010 Joshua C. Tate

Joshua C. Tate

The problem of simultaneous death has troubled inheritance law for many centuries.  If a common accident kills both Mother and Son, and Mother’s will names Son as her primary devisee, does Mother’s property pass through Son’s estate to his heirs?  Or does it pass instead to the person next in line under Mother’s will?

American teachers of trusts and estates know where to look for the answer to this question:  a statute.  Since the mid-twentieth century, widely adopted uniform acts have attempted to solve the puzzle of simultaneous death by establishing a presumption of survivorship.  Yet this was not always the case.  In his new article, “Death by Disaster: Anglo-American Presumptions, 1766-2006,” Thomas Gallanis explores the history of the Anglo-American law of simultaneous death from the eighteenth century to the present day.  A modern lawyer may be surprised to learn that, for much of its history, the common law made no effort to establish legal presumptions to deal with the problem of simultaneous death.  In addition, the statutory presumptions that were eventually adopted in England are quite different from their contemporary American counterparts.

Gallanis begins his article by examining the history of the English common law of inheritance.  Under the common law, the problem of simultaneous death was treated as a question of fact that would be decided on a case-by-case basis.  By contrast, civil-law systems such as France adopted specific statutory presumptions that varied according to the age and sex of the decedents.  The civil-law system was eventually adopted in the state of Louisiana, which closely followed the French Code Civil.

In the twentieth century, Gallanis explains, both England and America adopted statutory presumptions.  In England, the change was effected by Parliament in 1922 in response to a suggestion by the Cardiff Law Society.  The Law of Property Act 1922, possibly inspired by the civil law, established a presumption that a younger decedent was presumed to have survived the elder.  Parliament subsequently modified the rule in 1952 for spouses, who were thereafter presumed to have survived each other for the purpose of distributing each spouse’s inheritance.

In America, change came in the form of uniform acts.  The first of these, the 1940 Uniform Simultaneous Death Act, took the position in all cases that Parliament would subsequently apply only to spouses:  each person would be deemed to have survived the other.  The wording of the 1940 Act, however, referred to cases where “there is no sufficient evidence” of survival.  This led to gruesome and undesirable results in cases like  Janus v. Tarasewicz, an estate dispute arising from the Tylenol murders in the early 1980s in which one spouse survived the other by only 2 days.  Because there was “sufficient evidence” of survival, the rule did not apply, even though that meant the property of the first spouse to die would pass through the other’s estate.  In the early 1990s, the Uniform Law Commission promulgated and amended a revised uniform act, which adopted a 120-hour rule in place of the “no sufficient evidence” standard.

Gallanis concludes his article by asking why it took Anglo-American law so long to develop a law of presumptions with regard to simultaneous death.  He suggests two plausible reasons.  First, advances in transportation increased the frequency of accidents, such as train, automobile, and plane wrecks, that would lead to simultaneous death.  Second, the common law’s tendency to delegate factual decisions to lay juries faded away as the lay jury itself declined in importance for civil disputes.  Gallanis views recent legislation in England and the United States as a positive development, by which “the presumption of survivorship was adapted for our modern age, where almost every day brings a newspaper account of another common disaster—and the consequent question whether A survived B.” (P. 200).

Gallanis’s article focuses on the history of simultaneous death in the common law, not the contemporary policies that might make some presumptions better than others.  It is worth noting, however, that advances in medical technology have allowed life to be prolonged artificially following an accident in ways that were not possible in earlier historical periods.  In light of such technology, does a rule that makes the outcome depend on survival by 120 hours adequately take into account the perverse incentives that some heirs and devisees may have?  This is a question that would seem to benefit from further consideration.  While Gallanis is almost certainly correct that the current statutory presumptions are preferable to the blurry law of the past,  that does not mean that the new presumptions are perfect.  Codification does not, and should not, mean ossification.  Inspired by first-rate scholarship like Gallanis’s article, future generations of law reformers will no doubt continue to refine the law’s solutions for the ancient problem of simultaneous death.

Testation, Empiricism and Gender Equality

Jun 4, 2010 Paula Monopoli

Paula Monopoli

There is a distinct lack of empirical research in the area of inheritance law.  Domestically, inheritance law is the province of fifty different states.  Thus, conducting an empirical study of testamentary patterns is a painstaking process that requires fieldwork in multiple probate courts, often consisting of a tedious review of individual probate court case files or records.  And among the studies that have been done over the years, few have focused on the role of gender in our field.  That gap is the focus on Daphna Hacker’s new article, The Gendered Dimensions of Inheritance: Empirical Food for Legal Thought, in the Journal of Empirical Legal Studies, a peer-edited, peer-refereed, interdisciplinary journal.  Hacker is an Assistant Professor at the Buchman Faculty of Law, Tel Aviv University where she is also a faculty member in the NCJW Women and Gender Studies Program.

In her article, Hacker identifies four historical trends which have created the conditions under which women may exercise broader freedom to bequeath property at death.  These include laws which allowed women to own property in their own right, the abolition of rules that prevented women from inheriting property, the enactment of laws allowing women to be full participants in the labor force and the trend toward recognition of marital property rights in both spouses.  After identifying these trends, Hacker poses the following questions which empirical research could help us answer if it were more widely conducted: Do women take full advantage of this power to bequeath property?  Do they use this power to bequeath wealth as they wish?  Are there gendered dimensions to intestate succession?  And are there differences between the structure and content of men and women’s wills?

Hacker reviews twenty-three studies that offer some answers to those questions because they include gender as a focus, including her own empirical study.  (Hacker conducted a qualitative and quantitative study of the inheritance procedures of the Jewish population in the central region of Israel in which she examined 743 inheritance files and conducted in depth interviews with litigants and lawyers involved in probate disputes.) The premise of her article is that gender matters in inheritance but that we know surprisingly little about its impact since it has received scant attention as an area of empirical research.

In her review, Hacker draws conclusions from the findings in the twenty-three studies including the observation that wills are more likely to be challenged when daughters rather than sons are beneficiaries.  She offers normative suggestions about reform that take into consideration the tension between equality and some of the cultural differences in inheritance law, including the preference for sons as heirs.  Empirical work can have a powerful effect on policy.  A prominent illustration of this observation in recent years is Rob Sitkoff and Max Schanzenbach’s study, Jurisdictional Competition for Trust Funds: An Empirical Analysis of Perpetuities and Taxes, investigating whether capital moves from one state to another as a result of abolition of the rule against perpetuities. The migration of capital that they documented offers support for those who argue that a state’s economy benefits from such legislative change.  I would agree with Hacker that the existence of empirical work is crucial for those interested in achieving gender equality through policy reform at both the domestic and international levels.

In addition to providing an important review of empirical studies available in our field, Hacker also provides a comparative view of inheritance law globally which also suffers from a lack of attention in the existing literature.  Finally, she notes the importance of the expressive dimension of inheritance law in terms of telling us much about spousal, inter-generational and other family and community relationships.  In each of these ways, she persuades the reader of the importance of conducting more empirical work in the area.

The only flaw in the structure of the article is its wide scope.  Hacker could have easily split the piece into two separate articles.  Her own empirical study of gendered patterns of inheritance generated through a review of Israeli family court records gets a bit lost in the overall review of the twenty-three studies.  Her study is timely and interesting and I would have liked to have seen it be the focus of its own article.  Apart from that minor criticism, Hacker has done an very useful service for inheritance law scholars in pulling together all of these studies into one place and demonstrating how much work we still have to do.  At a time when legal scholarship is focused increasingly on empirical work and methods and on comparative approaches in a global framework, inheritance law scholarship would do well to move further in these directions.

As Hacker says, “the scant empirical investigation of the possible gendered aspects of inheritance is . . . surprising, although typical of the general sociological neglect of inheritance.”  In her very interesting new article, Daphna Hacker takes a significant step toward remedying that neglect.  She has indeed given us much food for thought about gender differences in inheritance patterns, comparative approaches to inheritance law and the many rich empirical questions in our field that remain to be studied in the years to come.

The End of Probate

May 12, 2010 Stewart Sterk

Stewart Sterk

In the nearly 50 years since Norman Dacey’s How to Avoid Probate first hit the best seller list, law reformers have responded by making probate easier, faster, and less expensive – especially for families with modest means and modest needs.   These legal reforms, however, have barely made a dent in the use, and growth of probate avoidance devices.  In a recent article, Reconfiguring Estate Settlement, 94 Minn. L. Rev. 42 (2009), John Martin suggests replacing the probate system with a non-judicial registration system.  Although his proposal builds on the UPC and other reform statutes, Professor Martin contributes some new insights – not the least of which is that any reform effort may be doomed if it retains the “probate” label.

Professor Martin describes the UPC’s flexible system for administration of estates, which allows interested parties to calibrate their contact with the judicial system to match their need for judicial protection, and also catalogs the small estate procedures enacted in states that have not adopted the UPC.  Despite the availability of these modern probate systems, lawyers and their clients continue to seek out non-probate alternatives.  Why is this a problem?  Because, as Professor Martin points out, probate avoidance generates unnecessary expenditures on bypass devices and encourages unscrupulous peddling by “trust mills” that prey on fear of the probate process.  In addition, the proliferation of probate avoidance devices requires co-ordination, and creates unexpected difficulties when the co-ordination is less than perfect.

To combat these difficulties, Professor Martin suggests replacing the probate system with a registration system.  When a decedent dies, an interested party could file either a will or, if there appears to be no will, an affidavit of heirship, with a registrar in a newly created Office of Estate Registration.  The registrar’s duties would be similar to those of a clerk charged with recording real property deeds:  the registrar would check to make sure the document, on its face, complies with the necessary formalities, and would then accept the document for registration.  If, as is usually the case, there is no dispute over distribution of the estate and no need for administration, there would be no further governmental involvement; the beneficiaries would simply take the assets to which they were entitled.  If administration were needed, the personal representative named in the will (or, if there is no will, the representative appointed according to statutory priority) would receive the equivalent of letters testamentary, and would perform the usual functions of collecting assets and dealing with liabilities.   In the ordinary case, neither judicial oversight nor any sort of accounting would be necessary.  There will never be any formal closing of the estate.  Of course, there will be a small minority of cases in which judicial intervention might be necessary, but Professor Martin suggests that intervention should come only at the initiation of an interested party, not as a matter of routine.

Professor Martin’s registration system resembles in many respects the UPC’s informal probate provisions.  There are, however, two significant differences.  The first is the name:  Professor Martin would banish the word probate from the system, in large measure so that lawyers can inform their clients that they can avoid probate without using revocable trusts or other probate-avoidance devices.  In light of the fear and loathing “probate” engenders in the population at large, this suggestion is an ingenious one, worthy of incorporation into any reform system.

The second significant difference involves confidentiality.  In Professor Martin’s system, the content of wills would not be a matter of public record; instead, content would be available only on a “need to know” basis.   In this respect, Professor Martin would bring the law of wills closer to the law of inter vivos trusts, in part to eliminate one reason parties might opt for revocable trusts rather than wills.  For two reasons, I’m not persuaded of the wisdom of this approach.  First, especially with respect to real property, the contents of a will may be important to prospective purchasers (and their title searchers) for a long time.  Suppose, for instance, a will leaves real property to one of decedent’s children.  The children themselves – the only parties interested in decedent’s estate – simply register the will and divide up the property in accordance with decedent’s instructions.  When, a decade later, the child who inherited the real property seeks to sell it (or dies), how is a prospective purchaser to know whether the child’s title is good?  So long as the will is a matter of public record, the purchaser can be confident about the state of title; if the will is confidential, doctrine will have to develop some other mechanism for title assurance.  That, in turn, leads to my second objection to confidentiality:  so long as the will is confidential for some purposes and not for others, litigation will arise about who is entitled to see the will – engendering costs that have the potential to exceed any tangible benefits.

Debate about the wisdom of confidentiality, however, should not obscure Professor Martin’s more important objective:  bridging the gap between inter vivos and testamentary transfers.   With a registration system in place, there would be little reason for a person to create a trust merely to avoid the probate system; instead, a person would create a trust only when there was a significant reason to divide legal from beneficial title.  Professor Martin believes – perhaps correctly – that removing the sharp distinctions between probate and nonprobate transfers would provide legislators with an impetus to harmonize the substantive law of gratuitous transfers, removing some of the anomalies present in current doctrine.

Estates lawyers as a group are a conservative lot.  Whether they can banish “probate” from their vocabulary is an open question.  Professor Martin’s article suggests that there is good reason to try.