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Who Should Terminate or Modify Irrevocable Trusts?

Professor Bradley E.S. Fogel persuasively argues that “courts and legislatures should abandon trust termination by consent of the beneficiaries.” (P. 378.) He proposes that they should instead apply the doctrine of equitable deviation, in which irrevocable trusts (hereinafter “trusts”) are modified or terminated only in the case of “relevant circumstances not anticipated by the settlor” and when the court determines that “such modification furthers the settlor’s intent.” (P. 378.) Professor Fogel notes that several commentators “have encouraged facilitating trust termination by the beneficiaries to assure that the trust meets the beneficiaries’ needs and to allow for more efficient use of trust assets.” (P. 342.) However, courts and legislatures, he argues, “need to respect the primacy of the settlor’s intent”; conversely, giving preference to “the living beneficiaries before the court . . . fails to properly respect freedom of disposition and the settlor’s right, under American law, to place whatever conditions she likes on the gift she made.” (P. 343.)

Professor Fogel first summarizes the common law of trust termination by consent of the beneficiaries. He notes that many early U.S. cases followed the English law that “a vested beneficiary could terminate a trust and receive the assets outright regardless of the settlor’s intent or the terms of the trust.” (P. 344.) Over time, courts rejected easy trust termination, and the case Claflin v. Claflin, 20 N.E. 454 (Mass. 1889), “evolved into the common law rule that a trust cannot be terminated by the consent of the beneficiaries if ‘continuance of the trust is necessary to carry out a material purpose of the trust.’” (P. 347.) The most common “material purposes” found for trusts were spendthrift provisions, discretionary distribution provisions, and provisions delaying a beneficiary’s enjoyment of the property (such as to a certain age). (Pp. 347-48.)

Courts, in determining whether a trust has an unfulfilled material purpose, have sometimes faced situations in which the settlor has joined the beneficiaries in seeking trust termination. (P. 348.) Professor Fogel asks, because the goal of the material purpose doctrine is “to assure that the settlor’s intent in creating the trust is carried out,” then, if the settlor is seeking to terminate a trust that the settlor created, “what should be the role of the material purpose inquiry?” (P. 348.) Professor Fogel notes that, on the one hand, the settlor (unless also a trustee or a beneficiary) has no interest in the trust the settlor created, and it is the settlor’s intent when the trust was created that governs trust administration. (Pp. 348-49.) Accordingly, the fact that a settlor “changes her mind and wishes to revoke the trust should be irrelevant.” (P. 349.) On the other hand, “if the settlor and all of the beneficiaries want the trust to be terminated, it is unclear why the court should prevent such termination.” (P. 349.)

Per Professor Fogel, there are, therefore, “dueling policies regarding trust termination by consent of the beneficiaries: freedom of disposition versus the professed interests of the beneficiaries. If the settlor is one of the parties urging trust termination, both of these policies arguably militate toward termination.” (P. 349.) Professor Fogel notes that “this reasoning has carried the day” such that, if the settlor consents to the termination of the trust created by the settlor, “then all of the beneficiaries acting together may terminate the trust regardless of any unfulfilled material purpose.” (Citing the Restatement (Second) of Trusts, P. 349.)

I return to Professor Fogel’s question that, if the settlor is seeking to terminate a trust that the settlor created, “what should be the role of the material purpose inquiry?” (P. 348.) Although Professor Fogel writes later in his article that application of the equitable deviation doctrine makes the “frequently haphazard search for the trust’s ‘material purpose’ unnecessary,” (P. 379) I wonder if there is an implicit application of the equitable deviation doctrine in a “material purpose” inquiry that militates towards termination, as follows. If there is no material purpose of the trust left unfulfilled, then the “early” fulfillment of all material purposes of the trust was a circumstance unanticipated by the settlor when the settlor created the trust. Alternatively, if there is a material purpose of the trust left to be fulfilled, then there are, currently, other circumstances unanticipated by the settlor when the settlor created the trust. In sum, to me, the trust termination allowed to beneficiaries when they are joined by the settlor who created the trust (regardless of any unfulfilled material purpose) is an implied recognition and application of the equitable deviation doctrine.

Professor Fogel next discusses the difficulty of obtaining the consent of all beneficiaries of a trust, including addressing situations in which the beneficiary is a minor or unborn and unascertained. (P. 351.) Summarizing Professor Fogel’s thorough analysis is beyond the scope of this jot, but it is worthwhile to note that Professor Fogel considers one of the advantages of applying the equitable deviation doctrine to be “the elimination of the outsized importance sometimes given to non-consenting beneficiaries with remote interests.” (P. 379.)

Professor Fogel argues that, “[p]artially in response to the difficulty of terminating trusts by consent of the beneficiaries under common law, states enacted statutes that facilitated trust termination by the beneficiaries.” (P. 360.) Although the statutes generally accomplish their goals of making trust termination by consent of the beneficiaries easier, Professor Fogel submits that “they do not properly respect the settlor’s intent.” (P. 360.) Professor Fogel thoroughly analyzes the statutes from several states and the Uniform Trust Code; I highlight the few UTC provisions relevant to this jot.

The UTC, following the common law, “requires the consent of all beneficiaries for trust termination, regardless of whether the settlor also consents”; the “beneficiaries” include “vested and contingent, as well as unborn and unascertained beneficiaries.” (P. 361.) The UTC, however, allows consent by a guardian ad litem for a beneficiary. (P. 361.) The UTC differs from the common law in allowing trust termination even if not all beneficiaries consent as long as the non-consenting beneficiary’s interests are “adequately protected” through payment of cash or an annuity. (Pp. 361-62.) Professor Fogel aptly notes that “the UTC allows beneficiaries of a trust to force an objecting beneficiary to surrender her interest in the trust,” which termination “conflicts with the settlor’s intent” because “the settlor gave that interest [in the trust] to the objecting beneficiary.” (P. 362.)

Professor Fogel’s focus on the settlor’s intent grounds his support for the equitable deviation doctrine replacing beneficiary-originated modification or termination of a trust. As he concisely notes, “The settlor’s intent—not the beneficiaries’ desires—is paramount.” (P. 369.) Trust termination occurring by consent of the beneficiaries allows the beneficiaries: (1) to deviate from the trust document, (2) to alter the settlor’s plan in the trust document, and (3) to escape conditions set by the settlor. (Pp. 369-70.) Trust modification or termination under the equitable deviation doctrine, on the other hand, “respects the settlor’s intent.” (P. 371.)

Per Professor Fogel, most states and the UTC allow under the equitable deviation doctrine “for modifications to dispositive provisions and even trust termination,” if it will “further the purposes of the trust.” (Pp. 370-71.) The court assesses “the settlor’s probable intention, if possible, in light of the unanticipated circumstances”; then, the court allows modification of the trust that the settlor would have done under the circumstances, thereby better effecting the settlor’s intent (Pp. 371-72)—which intent, but for the modification, is thwarted by circumstances unanticipated by the settlor when the settlor created the trust. Instead of focusing on the beneficiaries of the trust, the goal of the equitable deviation doctrine is “to effect, rather than thwart, the settlor’s intent.” (P. 372.)

This jot does not address the breadth of issues discussed in Professor Fogel’s article. He thoroughly analyzes the history and disadvantages of modification and termination of trusts by consent of the beneficiaries and forcefully argues in favor of the equitable deviation doctrine. He also applies the equitable deviation doctrine to cases, conceding that it is “possible that a beneficiary’s interest might be reduced or eliminated without his consent in an equitable deviation proceeding” because such reduction results from “the court’s attempt to effect the settlor’s intent.” (P. 376.) In sum, I enjoyed reading how the equitable deviation doctrine should replace modification and termination of trusts by consent of the beneficiaries because, as Professor Fogel elegantly summarizes, the “point of a trust is not to give the beneficiaries the interest they want”, but, rather, the “point of a trust is to give the beneficiaries what the settlor intended.” (P. 377.)

Cite as: Michael Yu, Who Should Terminate or Modify Irrevocable Trusts?, JOTWELL (September 19, 2017) (reviewing Bradley E.S. Fogel, Terminating or Modifying Irrevocable Trusts by Consent of the Beneficiaries—A Proposal to Respect the Primacy of the Settlor’s Intent, 50 Real Prop., Tr. & Est. L.J. 337 (2016)),

Unfinished Business: Reforming the Elective Share

Angela Vallario, The Elective Share Has No Friends: Creditors Trump Spouse in the Battle Over the Revocable Trust, 45 Capital U. L. Rev. (forthcoming, 2017), available at SSRN.

Some of our inheritance laws still seem closer to those existing in 1217 instead of 2017. For example, the elective share statutes in a number of states still echo the old common law doctrine of dower. In her new article, The Elective Share Has No Friends: Creditors Trump Spouse in the Battle Over the Revocable Trust, Angela Vallario makes a persuasive case for statutory reform, especially in light of recent trust reform in many of those same states effectively putting creditors in a more favorable position than a surviving spouse.

Professor Vallario begins by describing the current state of the elective share in the United States. She notes that twenty-five of the nation’s separate property states have reformed their elective share statutes to more clearly reflect a joint partnership theory of marriage. However, sixteen states have failed to do so and retain what Vallario calls the “traditional” elective share. Vallario reminds readers that the traditional elective share was built on the remnants of dower. Surviving spouses who are disinherited can claim either a one-half or one-third share of the decedent’s estate. But the term “estate” under traditional statutes has included only probate assets, not non-probate assets like life insurance, joint tenancy property with third parties and trust property.

Over the years, courts developed equitable doctrines to recapture some of the assets that a decedent may have transferred to third parties through vehicles like joint tenancy or revocable or irrevocable trusts. These common law doctrines, often labeled as “fraud on the spouse,” were a cumbersome way to remedy the impact of a transfer intended to end-run the elective share statute. The drafters of the Uniform Probate Code (UPC) developed a model elective share statute that uses what the UPC calls an “augmented estate” framework. In other words, the disinherited spouse may take a share of a larger “augmented” estate that includes certain inter vivos transfers by the decedent and the surviving spouse’s own assets. Based a sliding scale tied to length of marriage, the surviving spouse may receive up to fifty-percent of the augmented estate. While a number of states eschewed this approach due to its perceived complexity (even some that adopted the UPC), a large number did reform their elective share statutes to embrace this more modern reflection of what a decedent’s wealth consisted of at death. With the advent of an increasing amount of wealth being transferred through non-probate devices, these reform states essentially increased the size of the “pot” against which the surviving spouse’s share would be applied.

However, as Vallario points out, sixteen “holdout” states have not brought their statutes into the modern age in this regard. Seven of the holdouts have enacted trust reform which has created the anomalous situation of creditors having more rights against a revocable trust than a surviving spouse. Vallario includes hypotheticals to illustrate what many would think is an odd and inequitable result as a policy matter.

After laying out a useful history of the structure and policy of traditional elective share statutes generally, Vallario delves into the common law exceptions that courts have developed over the years to avoid harsh results by application of the traditional elective share. Her analysis of the Maryland Court of Appeals case, Karsenty v. Schoukroun, 959 A.2d 1147 (Md. 2008), reveals some of the flaws in relying on judicial discretion rather than statutory reform to remedy these results. Such discretion minimizes predictability, yields inconsistent results and deters surviving spouses from exercising their right to elect against the will. These costs, Vallario argues, push toward statutory rather than judicial solutions. In fact, in the Karsenty case, the Maryland court noted that other states had adopted an augmented estate model but resisted creating such reform by what it called “judicial fiat.”

Vallario is on the same page as the Karsenty court. She notes that, “State legislatures who are able to hold hearings, gather information, and draft bills, are in the best position to protect the interest of the surviving spouse.” (P. 13.) She urges the sixteen “holdout” states to reform their statutes but acknowledges the variety of interests that converge to thwart such reform. In addition to Vallario’s insight about the anomaly of creditors being in a better position than surviving spouses vis a vis a revocable trust, this last section of Vallario’s article is a unique and pragmatic addition to the literature on the elective share. Her assessment of the various constituencies, including the various sections of the organized bar, probate judges and creditors, and whether and why they might oppose reform is spot-on. Vallario concludes that surviving spouses are an unlikely constituency to pool their resources to lobby for reform. The organized estate planning bar is in the best position to remedy the inequities inherent in the traditional elective share.

Vallario has written before about elective share reform in Spousal Election: Suggested Equitable Reform for the Division of Property at Death, 52 Cath. U. L. Rev. 519 (2003). That article, cited by the Maryland Court of Appeals in the Karsenty case, is also well worth reading. As more states consider reform, I look forward to future scholarship from Professor Vallario on this important statutory protection within marriage.

Cite as: Paula Monopoli, Unfinished Business: Reforming the Elective Share, JOTWELL (August 3, 2017) (reviewing Angela Vallario, The Elective Share Has No Friends: Creditors Trump Spouse in the Battle Over the Revocable Trust, 45 Capital U. L. Rev. (forthcoming, 2017), available at SSRN),

Can You Really Have Your Cake and Eat it Too?

Self-settled domestic asset protection trusts (DAPTs) are trusts that permit a settlor to use a spendthrift provision in a trust where he is also a beneficiary to protect his assets from creditor claims. DAPTs evolved from offshore asset protection trusts which historically allowed self-settled asset protection trusts. Today, a majority of states within the US do not permit a settlor to create such a trust. DAPTs defy logic in that a person should not be able to place their assets in trusts, benefit from the trust, and then not have those funds available to pay to their debts. Yet, these trusts continue to gain popularity in the United States. A number of jurisdictions have enacted laws that permit self-settled DAPTs. Alaska was the first state in the U.S. to adopt DAPT law, and fifteen states, including South Dakota, the subject of this article, followed.

Since these trusts are relatively new, there are still questions regarding when or whether assets are protected from creditor claims and which transfer taxes are applicable. The answers to these question are found in the statutory provisions. In analyzing the DAPT, determining the level of control the settlor has retained in the trust is the key. In their article, Mark Krogstad and Matthew Van Heuvelen explore the estate and gift tax implication of South Dakota’s DAPT laws.  This interesting article provides practical information for practitioners, scholars and professors who, draft, study and/or teach DAPT laws from any state.

Although they acknowledge that the primary motivation for DAPTs is to protect assets from judgements and creditor claims, their article focuses on the estate and gift tax implications. The authors point out how creditor access to a DAPT affects whether the transfer to the trust was a completed gift for transfer tax purposes. For instance, a purely discretionary trust does not give beneficiaries an enforceable right to compel trustee to make a distribution. Since a creditor does not have more rights than a beneficiary, it follows that a creditor will also not have the power to compel a distribution.

The original version of South Dakota’s DAPT laws provided exceptions for payments of alimony, child support and tort claims against the settlor. According to the authors, this could have been significant in that it risked creating liability for estate  taxes because the trust was subject to creditor claims and thus treated as property of the settlor . Subsequently, however, South Dakota changed its laws to provide even more protections for settlors. In 2011, South Dakota eliminated the exception for tort claims and in 2013, it eliminated the exception for child support and alimony obligations that arose after a property transfer to a DAPT. These changes eliminated virtually all creditor claims against the trust and makes the transfer more like a completed gift than ever before.

While Krogstad and Van Heuvelen acknowledge that keeping the property out of the reach of creditors is a primary concern, they also acknowledge the settlor’s competing interest—settlor must actually give up dominion and control, which could trigger a gift tax. They further explain that settlors tend to retain a certain level of control over the property based on the concern that they may need access to the property in the future. To balance these interests, settlors often retain an inter vivos or testamentary non-general power of appointment. Even with balancing the issue of retaining power, but not too much power, there is the added effect of the settlor as a beneficiary of his/her own trust. Krogstad and Van Heuvelen indicate this issue is often eliminated by choosing an independent trustee and making the trust a purely discretionary trust. In the case of a purely discretionary trust, the settlor does not have the right to compel a distribution and therefore lacks the kind of control that would be tantamount to ownership.

Krogstad and Van Heuvelen explain that if the transfer to the DAPT is not a completed gift, then the property will likely be included in the gross estate under I.R.C. §§ 2036 and/or 2038 because of the retained beneficial interest, direct (power of appointment) or indirect control (implied agreement). Even so, their focus, in determining whether the property was included in the gross estate, is whether creditors have a right to use the property to satisfy the settlor’s debt under the South Dakota DAPT laws.

Guidance, the authors say, is found in the IRS’s Private Letter Rulings (PLR) 98-37-007 and 2009-44-002. PLR 98-37-007 was requested to determine whether a proposed transfer to an Alaska Trust was subject to an estate or gift tax. The trust was a discretionary irrevocable trust with settlor/beneficiary as a permissible distributee with no express or implied agreement with the trustee. Further, the settlor had no known prior or future debt and was not under an obligation for an order child support. The PLR indicated the proposed transfer would be subject to the gift tax but made no definitive ruling as to whether the estate tax was applicable. PLR 2009-44-002 was also requested to determine the estate and gift tax implication of a transfer to an Alaska Trust. The trust was established as an irrevocable spendthrift trust in which settlor/beneficiary was also a permissible distributee. This trust specifically prohibited settlor, his estate, his creditors and the creditors of his estate from receiving income or principal at termination. This PLR also concluded that a gift tax was triggered and took a step further to indicate the trustee’s discretionary authority to distribute income or principal to settlor was not, by itself, enough to implicate IRC § 2036.

While both PLRs were based on Alaska trusts and the IRS did not conclusively indicate the estate tax implications of these transfers, Krogstad and Van Heuvelen argue because creditors cannot reach the assets, the property should be excluded from the gross estate. In applying this logic to the revised South Dakota DAPT laws, which strengthened the protections against creditors, they conclude the new DAPTs laws are less susceptible to creditors and more likely to avoid estate taxes. They specifically suggest the South Dakota DAPT is an option for those settlors who are leery of traditional irrevocable trusts because they may need some access to the funds. As a result, these settlors would have the benefit of their property without exposing the property to creditor claims, in essence, they can have their cake and it too.

Cite as: Phyllis C. Taite, Can You Really Have Your Cake and Eat it Too?, JOTWELL (July 7, 2017) (reviewing Mark Krogstad and Matthew Van Heuvelen, Domestic Asset Protection Trusts: Examining the Effectiveness of South Dakota Asset Protection Trust Statutes for Removing Assets from a Settlor’s Gross Estate, 61 S.D. L. Rev. 378 (2016)),

Parentage by Presumed Consent

Paula A. Monopoli, Inheritance Law and the Marital Presumption After Obergefell, 8 Estate Planning & Community Prop. L.J. 437 (2016).

The marital presumption always elicits a lively discussion in a Family Law or Estates & Trusts course. But marriage equality for same-sex couples raises a new question: If a child born to a married woman is presumed to be her husband’s child, must the law also presume that a child born to a woman in a same-sex marriage is her wife’s child? Professor Paula A. Monopoli answers this question in the affirmative in her article Inheritance Law and the Marital Presumption After Obergefell and specifically addresses the role of the presumption in the context of inheritance law.

Courts confronted with the claim that marriage equality requires the extension of the marital presumption to same-sex couples have reached different conclusions. Professor Monopoli first analyses the cases that have refused to extend the marital presumption to a female spouse who is not the genetic or birth mother of a child birthed by her wife during the marriage. She explains that these courts have focused on only one goal of the presumption—establishing a biological connection between a birth mother’s child and her husband. Consequently, these courts have concluded that the marital presumption only applies where there is a possibility that the birth mother’s spouse could be the child’s biological parent.

Professor Monopoli then analyses the cases that have extended the marital presumption to a female same-sex spouse. These courts have noted that same-sex spouses are entitled to the same rights and benefits of marriage as different-sex spouses and that a child born during a marriage is presumed to be the child of both spouses.  Professor Monopoli agrees with these courts and focuses on the reasons for the marital presumption—to legitimize children, to ensure that children have two parents for legal purposes, and to protect the intact marital family from intrusion by third parties. She proposes that the law move away from the marital presumption’s origins as a proxy for a biological connection between a husband and his wife’s biological child and ground the presumption in presumed consent to be a parent of a child born during the marriage.  If the marital presumption is based on presumed consent, then the reasons for the presumption apply regardless of the possibility (or impossibility) of a biological relationship between the birth parent’s spouse and the child.

Given that we can easily establish a biological connection between an adult and a child through DNA evidence, the marital presumption’s biological origins are outdated. In contrast, a marital presumption based on presumed consent to be a parent would protect children of same-sex married couples in the same way that it traditionally protected the children of different-sex spouses. Although scholars have proposed abolishing the marital presumption altogether and relying on a functional parentage test, Professor Monopoli argues that given the limited resources of the probate court, it needs bright line rules to enable it to distribute assets to beneficiaries as efficiently as possible. However, she makes a distinction between family law cases—those involving determination of parentage in a custody or child support dispute—and inheritance law cases where the birth parent’s same-sex spouse is deceased. She argues that in the family law context where a finding of parentage will likely create significant duties (and rights) to the child, a spouse who is not a genetic or biological parent should be allowed to rebut the marital presumption by showing that she never consented to be a parent of her spouse’s biological child. In contrast, she argues that in inheritance cases, the presumption should be conclusive (irrebuttable) because the goal is to determine the decedent’s eligible heirs and transfer the assets to them efficiently. In other words, the spouse’s estate would not be allowed to rebut the marital presumption by showing that the decedent never consented to be a parent of her spouse’s biological child.

I spent a lot of time thinking about this distinction.  If a decedent never consented to be a parent of her spouse’s biological child, shouldn’t her estate be able to rebut the marital presumption? Although children of same-sex marriages should have the same rights to inherit from (or through) two parents as children of different sex-marriages, the law requires the children of different-sex marriages to show consent in certain cases. For example, the law has required a posthumously conceived child seeking to inherit from a deceased parent to show that the deceased parent consented to becoming a parent. As the Massachusetts Supreme Court has held “[a]fter the donor-parent’s death, the burden rests on the surviving parent, or the posthumously-conceived child’s other legal representative, to prove the deceased genetic parent’s affirmative consent to both … posthumous reproduction and the support of any resulting child.” Woodward v. Commissioner of Social Security, 760 N.E.2d 257 (Mass. 2002); see also UPC 2-120 (2008) (recognizing inheritance rights for a posthumously conceived child only if the parent consented to posthumous conception in a signed writing or consent is otherwise proven by clear and evidence).  If the law requires consent in posthumous conception cases, should evidence of lack of consent to be a parent to a same-sex spouse’s child be sufficient to rebut the marital presumption?

I don’t have an answer to this question or other fascinating questions raised by this article. For example, the cases that have addressed the marital presumption in the context of same-sex marriages have involved female couples. Does the marital presumption also apply to a married man’s same-sex spouse?  In other words, does marriage equality require that the law presume that a married man’s biological child born during the marriage is his husband’s child? Courts have refused to extend the marital presumption to a married man’s wife, at least in the family law context. Specifically, courts have rejected the argument that when a woman consents to her husband’s insemination of another woman with his sperm, with the understanding that the child will be a child of the marriage, the wife is the child’s parent. See Baby M., 109 N.J. 396 (1988);In re T.J.S., 212 N.J. 334 (2012). These courts have focused on the biological differences between a sperm donor and a surrogate mother. Do these differences mean that post-Obergefell courts must extend the marital presumption to same-sex female spouses but not same-sex male spouses?

The best articles push us to ponder challenging questions for days or weeks.  This article does just that.

Cite as: Solangel Maldonado, Parentage by Presumed Consent, JOTWELL (June 7, 2017) (reviewing Paula A. Monopoli, Inheritance Law and the Marital Presumption After Obergefell, 8 Estate Planning & Community Prop. L.J. 437 (2016)),

America’s Next Top Probate Model

Katherine M. Arango, Trial and Heirs: Antemortem Probate for the Changing American Family, 81 Brook. L. Rev. 779 (2016).

The idea of the “traditional family unit” is changing at a rapid pace that requires the law to adapt to effectuate a testator’s intent when administering a will. With 16.3 million unmarried Americans cohabiting and one in five children born into such households, the need for a valid will to avoid intestacy is at an all-time high. Specifically, more families are living with stepchildren or same-sex partners. This makes traditional intestacy statutes, which are designed to protect a more traditional family unit, potentially dangerous for a testator with a nontraditional family. Some states, however, permit ante-mortem probate which allows a testator to probate his or her own will prior to death thus ensuring that the testator’s at-death property distribution plans are upheld. States with ante-mortem probate statutes allow interested parties, such as will beneficiaries and heirs, to contest the will like they would in a post-mortem probate for issues such as undue influence, mental incapacity, or fraud. Unlike post-mortem probate, where the testator is deceased and the court must determine the testator’s capacity and intent without the testator’s input, ante-mortem probate allows the testator to avoid an unwarranted will contest, and the risk of intestacy if the contest is successful, by testifying at the probate hearing. Major concerns with ante-mortem probate statutes, however, are that will contents become public knowledge and that the litigation may strain familial relationships.

Katherine Arango’s article details the shift in American families and how an ante-mortem probate statute would protect nontraditional families. The article explains how adverse attitudes of courts and juries toward nontraditional families could lead to an intestacy distribution, which would be contrary to the testator’s intent. Ms. Arango highlights how ante-mortem probate provides nontraditional families security whereas traditional post-mortem probate cannot. By recounting the history of ante-mortem probate, the article delineates the slow awareness and affirmation of the importance of the doctrine in modern society. The article analyzes the different models of ante-mortem probate statutes and how those models protect the intent of the testator while also explaining possible complications. Then, the article evaluates currently enacted ante-mortem probate statutes. Finally, the article offers a new, comprehensive statute that could be inserted into the Uniform Probate Code as well as adopted by any state looking to implement this probate method.

The article’s in-depth discussion of the changing family dynamic further strengthens the suggestion that ante-mortem probate is essential to protecting a client’s estate planning desires in the modern age. By describing how intestacy laws were designed to protect bloodlines and create a fair and simple distribution scheme, the article focuses the reader’s attention on how intestacy disregards the testator’s intent should a court determine the will to be invalid. Instead, a better option for nontraditional families is a will that is further protected by an ante-mortem probate.

The article examines the history of ante-mortem probate and how issues of notice and finality of judgment originally cast doubt on the doctrine. The Supreme Court alleviated some of those issues by describing an appropriate standard for declaratory judgment in 1937. See Aetna Life Ins. Co. v. Haworth, 300 U.S. 277 (1937). Issues of ripeness, notice, and finality of judgment remained and, although the Supreme Court held that a declaratory judgment could be granted, some states choose to avoid ante-mortem probate because of the lack of controversy surrounding a will because the testator is still alive. The article also describes how legal scholars attempted to establish a method for ante-mortem probate. Starting in 1977, five states enacted ante-mortem probate statutes.

The article describes the three traditional models of ante-mortem probate—the contest model, the conservatorship model, and the administrative model—and presents the arguments for and against each model. By analyzing how the five states with ante-mortem probate—North Dakota, Ohio, Arkansas, Alaska, and New Hampshire—use the doctrine, Ms. Arango demonstrates that the implementation of the doctrine has met with varying degrees of success. A successful ante-mortem probate makes the will incontestable after the testator’s death. However, the procedure, as currently implemented, publishes the will contents that could lead to family strife and expensive litigation. This author takes the history, models, and the current state statutes into account when she drafted a new framework for an ante-mortem probate statute.

The proposed statute would be a no-reveal statute, meaning the contents of the will would not be public knowledge. Ms. Arango suggests the testator petition the court to determine the validity of the will with the court reviewing the will in camera. The public would have notice as to of the petition’s filing, modification, or revocation but not the contents of the will. This allows the will to remain confidential and lessens potential family tensions. The testator would have the burden to prove elements such as proper execution, requisite capacity, and rebut claims of undue influence under normal evidentiary rules. The testator would lose the benefits of the ante-mortem probate if the testator modifies or revokes the will unless the ante-mortem procedure was again used.

I highly recommend the statute proposed in this article as a model for state legislatures and the drafters of the Uniform Probate Code when considering ante-mortem probate because it fixes the issues with current ante-mortem probate statutes. As an advocate for ante-mortem probate for many decades, I can confidently say this article offers a cohesive alternative for current ante-mortem probate statutes in an age where intestacy laws are ill-equipped to handle the nontraditional family.

[Special thanks to the outstanding assistance of Bailey McGowan, J.D. Candidate May 2018, Texas Tech University School of Law, for her assistance in preparing this review.]

Cite as: Gerry W. Beyer, America’s Next Top Probate Model, JOTWELL (May 5, 2017) (reviewing Katherine M. Arango, Trial and Heirs: Antemortem Probate for the Changing American Family, 81 Brook. L. Rev. 779 (2016)),

The Lucrative Business of Lending Against an Expected Inheritance

David Horton and Andrea Cann Chandrasekher, Probate Lending, 126 Yale L.J. 102 (2016).

Recently, private companies have begun advancing funds to estate beneficiaries in exchange for the beneficiaries’ anticipated inheritances from those estates. These “probate loans,” which have never even been mentioned in another law review article, are explored in detail by Professors David Horton and Andrea Cann Chandrasekher in Probate Lending.

In their excellent article, Professors Horton and Chandrasekher analyze 594 probate administrations that occurred in Alameda County, California, during 2007. Through this analysis, they learned that probate lending is more prevalent than one might expect. In fact, they discovered 77 probate lending deals in the 594 administrations. They also discovered that the lending companies paid beneficiaries about $800,000 in exchange for nearly $1.4 million in inheritances, producing an average markup of 69 percent per year.

Part I of the article surveys the rules governing the sale of rights. It begins with a discussion of litigation lending, that is, the practice of lending money to a plaintiff against her anticipated winnings. At common law, this practice was effectively prohibited because of the champerty doctrine, which prohibited the payment of financial support in return for a share of the ultimate recovery, and because courts refused to enforce attempted assignments of “choses in action.” The main concerns with allowing the alienation of legal grievances were that buyers commonly paid far less than the value of the claims, claim sales were thought to encourage litigation, and lawsuits were viewed as intrinsically personal and not capable of changing hands. Over time, however, these limitations receded, and entrepreneurs began to make litigation loans, which were not technically loans because repayment was contingent on recovery.

Probate lending is effectively an expansion of the litigation lending concept. Traditionally, it was not permissible to convey an interest in the estate of someone who was still alive. This mere “expectancy” was not even a form of property. Over time, some states began to allow this anticipatory assignment of inheritances. Furthermore, even in states that didn’t allow the assignment of an expected inheritance from a living person, it became permissible to assign an inheritance once a probate case had begun. Once that happened, the probate lending business began to thrive.

In Part II of their article, Professors Horton and Chandrasekher explain how they gathered their data and give an overview of the probate lending industry. They note that their data came exclusively from culling all 594 probate administrations that occurred in Alameda County in 2007. They note that only about five percent of the estates featured loans, but some estates had multiple loans. Importantly, they note that there is no significant correlation between the size of the estate or the duration of the estate administration and the existence of a probate loan.

In Part III, Professors Horton and Chandrasekher discuss the policy implications of their findings. First, they consider whether probate loans are usurious. As a general matter, usury law only applies to loans that are “absolutely repayable.” Probate loans generally have been exempt from these laws because, as loans against an anticipated inheritance, they have been held to not be absolutely repayable. Professors Horton and Chandrasekher challenge this conclusion by noting that repayment of the loans is nearly certain, unlike litigation lending. In the case of probate lending, the lender recouped the principal 96 percent of the time. Because of this, the argue that courts should weigh this fact and allow usury law to potentially apply to probate loans.

Second, they consider the potential applicability of the Truth in Lending Act (TILA) to probate lending. As a general matter TILA imposes strict liability upon creditors who fail to follow its strict disclosure mandates. In the one TILA case dealing with probate lending, a federal court held that TILA does not apply to probate lending because TILA does not cover “non-recourse advances” such a probate loans. According to Professors Horton and Chandrasekher’s data, however, probate loans are not truly non-recourse, and they would urge courts to consider the potential applicability of TILA to probate loans.

Third, they analyze whether probate loans violate the champerty doctrine. Specifically, they focused on whether probate lending increased the likelihood of conflict in the estate, which is one of the key rationales behind the champerty doctrine. Here, they learned that the presence of a probate loan increased the odds of a will contest far more than any other variable, including holographic wills, disinheritance, and intestacies. Despite that, they also found that litigation filed by lenders was sometimes in the best interest of the estate. Because of this, they do not recommend that courts use the champerty doctrine to police probate loans. Instead, testators should consider using anti-assignment clauses in wills.

Professors Horton and Chandrasekher have written an excellent piece. While they acknowledge that it is limited in scope by virtue of the fact that they only analyzed data from one California county, their results lead to the inevitable conclusion that probate lending may be a widespread and growing phenomenon. As with a growing national concern about the adverse implications of payday lending, it seems that further studies and commentaries regarding the prevalence and implications of probate lending are warranted.

Cite as: Sergio Pareja, The Lucrative Business of Lending Against an Expected Inheritance, JOTWELL (April 13, 2017) (reviewing David Horton and Andrea Cann Chandrasekher, Probate Lending, 126 Yale L.J. 102 (2016)),

Ending the Cycle of “Ever-Changing” Wills

Alex M. Johnson, Jr., Is It Time For Irrevocable Wills?, 53 U. Louisville L. Rev. 393 (2016).

A will speaks at death. Therefore, the testator is free to change his or her will until the day he or she dies.   Giving a person the opportunity to change his or her will makes sense because testamentary dispositions are influenced by lifetime events. For example, after a will is executed, a beneficiary may die or the testator may lose ownership of some of the property mentioned in the will. Currently, persons are permitted to create irrevocable trusts. Although there is no prohibition against irrevocable wills, modern statutes do not provide for the use of such devises. Therefore, a method does not exist for a testator to make an irrevocable will. Nevertheless, in his timely and thought-provoking article, Is It Time For Irrevocable Wills?, Professor Alex M. Johnson, Jr. makes the case that the legal recognition of irrevocable wills would not negatively impact testamentary freedom. The availability of irrevocable wills may protect the testator who becomes incompetent after executing his or her will.

In attempt to support his assertion that irrevocable wills have a place in the testamentary process, Professor Johnson begins his article by briefly discussing the historical evolution of wills. During the Middle Ages, the law expressly deemed wills to be irrevocable. At that time, the property owner was permitted to use, a post obit transfer, an inter vivos conveyance, to make an irrevocable testamentary transfer of his property. The post-obit gift consisted of a contractual promise that the donor’s property would be delivered to the beneficiary after the donor died. Usually, the instrument creating the post-obit gift included a provision stating that the gift was irrevocable if the donor did not retain the right to revoke it. Once the Statute of Wills was enacted in 1540, wills were treated as if they were irrevocable. Professor Johnson asserts that no justification was given for making wills revocable instruments. He opines that lawmakers never intended to prohibit irrevocable wills. According to Professor Johnson, the issue of the irrevocability of wills was never fully discussed.   Consequently, there is no historical reason for not legally recognizing irrevocable wills.

Professor Johnson points out that a will is nothing more than a donative transfer. Thus, it should be irrevocable like other devices that are used to make donative transfers. Most other mechanisms used to transfer property may be irrevocable or revocable. On the one hand, an inter vivos gift becomes irrevocable once the property is delivered by the donor with the necessary intent and accepted by the donee. On the other hand, a gift causa mortis is revocable because it does not take effect unless the donor dies in the manner contemplated when the gift is given. Professor Johnson spends a significant amount of time discussing trusts as they relate to wills. The settlor has the discretion to make a trust irrevocable or revocable. By permitting donors and settlors to make irrevocable and revocable transfers, the law gives those persons the maximum amount of freedom to create instruments that carry out their wishes. That same freedom should be given to the testator when he or she executes a will.

Professor Johnson contends that the benefits of permitting irrevocable wills outweigh the costs. For example, Professor Johnson claims that the use of an irrevocable will may protect a testator who becomes incompetent. The existence of the irrevocable will permits the person’s competent self to commit his or her incompetent self to distribute the property in accordance with the wishes of the competent self. Moreover, legal recognition of an irrevocable will may help reduce the chances of improper revocations. For example, a testator who becomes incompetent may destroy his or her will based upon an erroneous or delusional belief. If this occurs in a jurisdiction that recognizes revocation by physical act, the person may end up dying intestate. If a person creates an irrevocable will, he or she would have to take specific steps to revoke or alter it. Thus, an incompetent person would not have the ability to revoke or alter his or her will. Hence, the testator’s property would be distributed based upon the wishes he or she expressed while competent.

The system created under the Statute of Wills has not kept up with changing times. Professor Johnson puts forth some compelling reasons why the law should reconsider the irrevocability of wills. The historical information contained in the article indicates that the decision to treat wills as revocable was made without much discussion or exploration. People are living longer and suffering from conditions that may render them incompetent. Therefore, people who revoke or alter their wills late in life run the risk of dying intestate if their new wills are deemed to be invalid. Irrevocable wills may provide one solution to this growing problem. As a result, it is time to have a thorough discussion about the irrevocability of will. Breaking the cycle of the ever-changing will may protect the testator and the probate system.

Cite as: Browne Lewis, Ending the Cycle of “Ever-Changing” Wills, JOTWELL (March 14, 2017) (reviewing Alex M. Johnson, Jr., Is It Time For Irrevocable Wills?, 53 U. Louisville L. Rev. 393 (2016). ),

Apples and Oranges, Or Trusts and Wills.

Deborah Gordon, Forfeiting Trust, 57 William & Mary L. Rev. 455 (2015).

Wills and many trusts have the same fundamental purpose: to transfer property at death. This raises perennial questions about the extent to which the law should treat these estate planning vehicles as functionally equivalent. I liked Deborah Gordon’s Forfeiting Trust because it reminds readers that consequences flow from the simple but fundamental distinction between wills and trusts. Trusts have trustees, beneficiaries, and the accompanying rules of fiduciary duty. Wills do not. Therefore not all rules that work well for wills can be applied to trusts.

No contest clauses—also known as forfeiture clauses—are Gordon’s subject. In wills, testators have long used these clauses to deter litigation. The testator leaves property to individuals who may be inclined to challenge the will on the ground that it was executed without capacity or compliance with statutory requirements, or that it was the product of undue influence, or that it is otherwise invalid. Then the testator inserts a clause providing that anyone who challenges the will forfeits her bequest. A beneficiary can still challenge the will, but only at considerable risk. If the court enforces the will, it also enforces the no contest clause.

Gordon explains that forfeiture clauses are beginning to show up in trusts. But, unlike in wills, settlors are not seeking to disinherit beneficiaries who challenge the validity of the trust instrument. Rather, settlors and the forfeiture clauses they write “purport to disinherit beneficiaries who challenge trustee decision-making.” (Pp. 459-60.) This strikes right at the heart of traditional trust law, because the threat of a beneficiary’s suit is the law’s primary means of incentivizing trustees to comply with fiduciary duty.

When a no contest clause appears in a will, the law is settled. In a minority of states, courts strictly enforce the clause and the challenger takes nothing if the will is deemed valid. A majority of states use a probable cause standard, whereby a challenger gets to keep her bequest even if the will is ultimately deemed valid, provided that a reasonable person would have concluded that the challenge was substantially likely to be successful. Both approaches respect the testator’s desire to deter spurious litigation, with probable-cause jurisdictions hedging against the risk that forfeiture clauses may deter beneficiaries from raising well-grounded claims about a will’s validity. But what if the forfeiture clause appears in a trust instead of a will, and the beneficiary is alleging that the trustee invested imprudently, or failed to account, or did not treat the beneficiary impartially, or violated other fiduciary obligations?

As Gordon documents, the law about forfeiture clauses in trusts is anything but settled. The Uniform Trust Code says nothing about these clauses. The Restatement (Third) of Trusts has a provision in draft form that absolutely prohibits no contest clauses aimed at beneficiaries who challenge trustee decision-making, but the comments state that courts may choose to enforce clauses in “extreme circumstances” where “certain disappointed or difficult beneficiaries might pursue unwarranted and unreasonable litigation against a trustee.” (P. 504, quoting Restatement (Third) of Trust § 96 cmt. ) Recently a growing number of appellate courts have confronted trust forfeiture clauses, with results that have been “increasingly inconsistent and haphazard.” (P. 460.) Several jurisdictions have deemed forfeiture clauses in trusts contrary to public policy because they “immunize fiduciaries from [state] law governing the actions of such fiduciaries.” (P. 485, quoting Callaway v. Willard, 739 S.E.2d 533, 539 (Ga. Ct. App. 2013)). In contrast, other jurisdictions “have either divested litigious beneficiaries of the right to inherit trust property or acknowledged that the law may allow for such a disinheritance.” (P. 492.)

Gordon recognizes that sensible treatment of trust forfeiture clauses must take into account what the settlor is trying to accomplish and what a normal, well-functioning trust requires. She explains that no contest clauses “reflect the respective trust creator’s desire to confer a legacy of sustained, functioning, and non-litigious interactions among the parties to the trust relationship.” (P. 512.) But, Gordon writes, “the differences between how trusts and wills operate mean that trust forfeiture clauses are fundamentally different than their narrower testamentary counterparts.” (P. 505.) Thus, she argues, the treatment of no contest clauses in wills is not the only relevant legal reference. Courts also should look to the law governing exculpatory clauses, which protect trustees from liability stemming from poor decision-making. (P. 507.) These clauses—like no contest clauses—“are intended to make a fiduciary’s job smoother (and more desirable) and both impact trustee accountability.” (P. 508.)

Taking her cue from the law on exculpatory clauses, Gordon suggests that courts take a burden shifting approach to forfeiture clauses in trusts. Under Gordon’s framework, forfeiture clauses are presumed invalid. Trustees, however, can rebut that presumption by proving that “(a) the settlor included the clause to address a particular concern, rather than simply as boilerplate and (b) the purpose for which the clause was included is, in fact, occurring.” (P. 509.) If the trustee makes this showing (and here Gordon returns to the law of wills), the burden would shift to the beneficiary to prove that the trustee actually violated fiduciary duties or that the beneficiary at least had probable cause to challenge the trustee’s actions.

Gordon’s burden-shifting approach is complex, but it balances the interests of the settlor against the realities of the trustee-beneficiary relationship. Settlors include forfeiture clauses to decrease the risk of meritless litigation and all its attendant costs—risks that can be very real. At the same time, however, the beneficiary’s ability to bring suit against a trustee is the legal mechanism for ensuring that trustees fulfill their fiduciary obligation. Because Gordon considers the fundamental distinction between wills and trusts as well as what settlors seek to accomplish with forfeiture clauses, she offers a sensible approach to an estate planning device whose use is on the rise.

Cite as: Sarah Waldeck, Apples and Oranges, Or Trusts and Wills., JOTWELL (February 14, 2017) (reviewing Deborah Gordon, Forfeiting Trust, 57 William & Mary L. Rev. 455 (2015)),

We Are Family, Aren’t We? Modern Families and Outdated Probate Laws

In her article, Inheritance Equity: Reforming the Inheritance Penalties Facing Children in Nontraditional Families, Professor Danaya C. Wright examines the negative effect that outdated intestate succession statutes have on today’s modern families. Even though a majority of children today do not live in a 1950s type nuclear family, the intestate succession statutes in each of the fifty states still only protect those children. Families have evolved; state probate codes have not. Step-children, children born out of wedlock, children raised by lesbian or gay couples, and children raised by relatives are just some of the children who are disadvantaged by out of date inheritance laws. If laws of inheritance are to effectuate the desires of decedents, then they are failing. Professor Wright advocates for change and provides us with a model statute.

Professor Wright’s article begins a much-needed discussion about how probate codes and family law codes are not aligned. She states, and I agree, that an article such as this one could be written for each state. While family law has expanded the definition of family, probate codes remain rigid. Family law recognizes functional parents; probate law does not. Therefore, there are instances where a person may be responsible for child support while alive, but at his death the supported child is not entitled to an inheritance from him.

Professor Wright identifies two egregious situations where “the interplay of adoption and inheritance law” results in disadvantages to “millions of American children”. In situations where a functional parent does not formally adopt a child, such child most likely will not inherit from the functional parent. In situations where a co-parent adopts a child, the child is typically disinherited from a biological parent, even if the parent continues to function as a parent. She also articulates why a will does not always solve the issues of inheritance.

Suppose a father has a child with a first wife. After the death of the first wife, father remarries. His new spouse raises his daughter as her own, but does not adopt her.The father and his new wife have wills where each leaves his or her estate to the other. Therefore, at the death of the father, his estate goes to his surviving spouse, the new wife. If the wife’s will does not provide for contingent beneficiaries, at the wife’s death, her collateral relatives would be her legal heirs rather than her step-daughter. Also, if other family members devise gifts to the wife, the step-daughter would not inherit through her deceased step-mother, even though such step-mother was her functional parent. Other family members would need to execute wills to include the step-daughter as a beneficiary. Alternatively, let’s assume that the new wife adopts her step-daughter and her step-daughter’s maternal grandmother (her deceased mother’s mother) dies with a will devising her estate to her children, per stirpes. As a result of the step-parent adoption, that child is no longer her biological grandmother’s grandchild. She would not inherit by representation her mother’s share under her grandmother’s will. In each of these examples, the intent of the decedent does not prevail. Antilapse statutes and class gifts are also affected by the current presumptions.

I agree with Professor Wright that the presumption should be in favor of inheritance in such relationships. She argues for a number of legal changes including judicial discretion to use equitable principles and technical revisions to state probate codes. She provides s model statute that includes a functional child provision and the evidence needed to show that an individual was functioning as a parent. The model statute proposes that the intent to disinherit such child should be in writing.

Efficient administration of an estate is necessary in probate law. Courts should be concerned about children (or adults) wrongfully claiming to be heirs because a decedent acted as a parent. However, Wright suggests that this is a rare issue in practice. Trusts and Estates scholars should accept Professor Wright’s challenge and continue writing and discussing these issues. “When laws stop protecting the very population they seek to benefit, it is past the time for change.”

Cite as: Camille Davidson, We Are Family, Aren’t We? Modern Families and Outdated Probate Laws, JOTWELL (January 20, 2017) (reviewing Danaya C. Wright, Inheritance Equity: Reforming the Inheritance Penalties Facing Children in Nontraditional Families, 25 Cornell J.L. & Pub. Pol’y 1 (2015)),

Decluttering the Estate Tax

Wendy C. Gerzog, Toward a Reality-Based Estate Tax,  57 B.C. L. Rev. 1037 (2016).

Where Marie Kondo taught us how to declutter our homes in The Life-Changing Magic of Tidying Up, Professor Wendy Gerzog provides in her article six proposals to declutter the estate tax. Author Kondo suggested that we examine each household item, ask whether it sparks joy, and then keep it only if we answer yes. Professor Gerzog writes that the estate tax should be more “reality-based,” meaning that the estate tax “should encompass testamentary property transfers at their real values, and the marital and charitable deductions should reflect actual marital and charitable transfers.” (P. 1037.) In her wide-ranging and thought-provoking article, Professor Gerzog examines certain “devices and distortions that have crept into the estate tax” (P. 1037.), discusses how each frustrates the goal of the estate tax, and then provides proposals to clear them from the estate tax.

The first device examined is the irrevocable life insurance trust (ILIT), the life insurance proceeds of which are excluded from the decedent’s gross estate. Professor Gerzog has two proposed changes as to ILITs, the first being to amend § 2035 to “include in decedent’s estate the full date of death proceeds of life insurance on the decedent’s life to the extent to which the decedent has paid, directly or indirectly, insurance premiums within three years of his death” (this proposal is intended to include “any transfers by decedent to a trust within three years of death that in fact can be traced to the payment of life insurance premiums on decedent’s life”). (P. 1042.) Professor Gerzog’s second proposal is to amend § 2042 such that, except when surviving partners in a business partnership use insurance proceeds to buy a deceased partner’s interest in the partnership, the decedent’s gross estate includes life insurance proceeds paid on decedent’s life to the extent to which the decedent at any time, directly or indirectly, paid the premiums on or irrevocably designated the beneficiary or beneficiaries of the policy. (P. 1043.)

Professor Gerzog persuasively argues that there are many fictions supporting ILIT proceeds being excluded from the decedent’s gross estate, such as (1) the decedent never owning any of the incidents of ownership of the policy and (2) neither the decedent nor the decedent’s estate receiving the life insurance proceeds. (P. 1039.) I find it elegant that Professor Gerzog seems, to me, to be applying a substance over form analysis to equate the estate tax’s treatment of life insurance proceeds whether inside or outside an ILIT—either way, the taxpayer designates the beneficiaries (either of the policy or of the trust) and pays the insurance premiums (often using Crummey powers). Even though, in an ILIT, the taxpayer does not “own” the policy and does not receive the proceeds, the taxpayer does direct the life insurance proceeds to those individuals the taxpayer selects as beneficiaries. I appreciate Professor Gerzog’s conclusion that “the ILIT is clearly a testamentary device and the value of the proceeds should be included in the decedent’s estate.” (P. 1043.) As a side note, I began to wonder whether there were any “costs” or “disadvantages” in the specific act of creating an irrevocable trust that would, perhaps, justify excluding ILIT life insurance proceeds. The oft-cited advantages to creating an ILIT seem, to me, to increase the taxpayer’s control over the life insurance proceeds (i.e., providing asset protection to beneficiaries’ creditors, increasing flexibility as to beneficiaries’ governmental benefits, allowing for flexible trust distribution terms, and enabling GST planning). This increased control over the life insurance proceeds created and directed by the taxpayer through an ILIT, in my view, supports gross estate inclusion.

The second device addressed is the lifetime transfer with grantor-retained (1) lifetime income interest, (2) lifetime enjoyment over non-income producing property, or (3) power over lifetime income or enjoyment. Professor Gerzog’s proposal is: “When a transferor splits a property interest and retains an income interest under § 2036, except where the transferee pays full and adequate consideration in money or money’s worth equal to the value of the underlying fee interest in the property, the date-of-death value of the underlying property is included in the decedent’s estate.” (Pp. 1048-1049.)

After analyzing the intent behind § 2036 and several cases interpreting it, Professor Gerzog insightfully concludes, “Someone who transfers a future interest in property to her child but retains the current enjoyment creates the split interest only to obscure the fact that she actually enjoys her property until her death when her child takes possession.” (P. 1046.) She persuasively notes (1) actuarial taxable can be inaccurate because they assume a constant interest rate and ignore capital appreciation, (2) a taxpayer only splits a property interest when the probabilities favor (because of the taxpayer’s personal situation) the use of the actuarial tables, and (3) transactions among unrelated third parties do not usually involve voluntarily splitting property interests. (Pp. 1047-48.) I admire Professor Gerzog’s proposal, and I assume that her reference to the transferor who “retains an income interest under § 2036” includes transferors retaining, under § 2036, lifetime enjoyment over non-income producing property or power over lifetime income or enjoyment.

The third distortion examined is the usage of actuarial tables by such devices as the charitable lead annuity trust (CLAT) and grantor-retained annuity trust (GRAT).   Professor Gerzog proposes: “When a transferor directly or indirectly divides a fee interest into temporal interests, the value of any future interest shall be determined and taxed at distribution to the beneficiary at the highest transfer tax rate.” Similar to the foregoing second device, the donor-decedent-created partial interest is a strategy that transferors use “when the probabilities are skewed in their favor,” making the actuarial tables “a non-neutral valuation tool.” (P. 1050.) I can only admire Professor Gerzog’s concise explanation for her proposal: “By timing the valuation to the date of possession, the real value of the property is known; by requiring the trustee to pay the transfer tax prior to distribution of the property, compliance rates should be high. By taxing the property at the highest transfer tax rate, there will be certainty, ease of calculation, and a further abuse deterrent.” (P. 1052.)

The fourth distortion addressed is the taxpayer’s intentional devaluation of property for transfer tax valuation purposes through such devices as the family limited partnership or family limited liability company. Professor Gerzog proposes: “Except in the case of an operating business, no discounts are allowed as to transfers of entity interests to family members with respect to any liquid assets transferred to that family entity.” A transfer exempt from her proposal must be made in the ordinary course of business, meaning that the transfer must be bona fide, at arm’s length, and without any donative intent. (P. 1053.).

The fifth and sixth distortions are the QTIP (qualified terminable interest property) provisions under the marital deduction and the CLAT provisions under the charitable deduction. Professor Gerzog proposes to repeal the QTIP statute (replacing it with a power of appointment trust), and, as to a CLAT when the property is distributed to the non-charitable donee, she proposes that the trustee shall pay a transfer tax, at the highest transfer tax rate, from trust assets at distribution. (Pp. 1058, 59) Professor Gerzog notes that the QTIP provisions allow for a marital deduction “without ceding control or ownership of the transferred property to the surviving spouse” and that the marital deduction “was intended to cover actual transfers of a fee property interest between spouses and was not intended for transfers of limited income interests to a spouse.” (Pp.. 1056, 57-58) As to a CLAT, Professor Gerzog argues that the charitable deduction should be allowed “only where the deduction primarily benefits a charity and not where a split-interest transfer to a charity is designed to benefit mainly the non-charitable beneficiary.” (P. 1058.)

This short review does not do justice to the breadth of issues discussed in Professor Gerzog’s article. Each of her six proposals impressively builds upon the many articles she has written on these wide-ranging topics. I learned much from this and Professor Gerzog’s other articles, all of which are things I like lots.

Cite as: Michael Yu, Decluttering the Estate Tax, JOTWELL (November 30, 2016) (reviewing Wendy C. Gerzog, Toward a Reality-Based Estate Tax,  57 B.C. L. Rev. 1037 (2016)),