1 of 33 WILLS & ESTATES OUTLINE Prof. Steven Goode – Summer 1997 This outline is e-mailware! While there is no cost for using the outline, you must drop me a line at dfalgoust@mail.utexas.edu to tell me what you think, if it helped you, etc; it’d also be nice if you dropped by my web page at http://www.geocities.com/NapaValley/3578/and signed my guest book. Feel free to redistribute this outline unmodified to anyone who may find it useful. This outline is provided “as is” and I make no promises as to its accuracy (it worked for me, your mileage may vary). Good Luck on exams! Damien Falgoust University of Texas School of Law I. Introductory Material A. Theoretical Issues 1. Is the right to pass property at death a good thing? a) Halbach argues that it is because it makes the donor happy, reinforces family ties, and (most importantly) provides an incentive to work and earn beyond what just one person can consume b) Bentham argues it is because it encourages the young to care for the old c) Ascher argues that it is not; that if the government took all property at death, it could wipe out the deficit (but he would provide for exceptions, notably surviving spouses and minor children d) Blum argues that inheritances don’t make much of a difference in inequality among economic classes; rather, it is day-to-day income and cultural experience that causes the wealth gap e) Langbein says inheritances today aren’t as important as they were in the day of the family farm; more important today are things like educational expenses for children and other inter vivos transfers; thus, parents today save less and consume more 2. Does the ability to pass property at death encourage saving by the testator, or discourage work by the donees? 3. Today, the law is in flux because: a) Types of property are changing – unlike the past, when land was the most important family asset, today personal property accounts for most wealth b) Marriage is changing (½ end in divorce; 83% and 78% of women remarry) c) The family is changing (kids born out of wedlock, people live together instead of marrying, same-sex marriages are under consideration) 2 of 33 d) The financial relationship between spouses has changed e) People are living longer f) Today there are many will substitutes – ways to dispose of property without a will (1) Thus, there is a “dual system,” but there is a movement to integrate the two (e.g., the Uniform Probate Code [UPC]) B. What limitations on bequests are permissible? 1. There is very little a testator can’t do – the general attitude is it’s the testator’s property and he can do what he wishes a) The basis behind this rationale is that the testator could place conditions on devises while alive, so why not at death? However, this ignores the fact that you can change your mind while alive 2. Thus, in Shapira, a bequest requiring a son to marry a Jewish girl by a certain age is perfectly acceptable as a condition on the will a) Contrast with wills that are a total restraint on marriage – a will with a marriage requirement is only valid if it does not “unreasonably limit the ability to marry, where reasonableness is equal to “likelihood of occurrence” b) Thus, the marriage requirement in Shapira is OK (there were lots of Jewish girls around) while one placed on a woman in the Circle of Friends religious order isn’t c) Restraints on remarriage are virtually always permissible 3. State action can sometimes limit what a testator can do, but the cases are all over the board on what state action means a) For example, Shelley v. Kraemer said a racially restrictive covenant was void because it required state action (e.g., the court) to enforce it b) Similarly, in Evans land devised for a white-only park is invalid because park maintenance was a government function (e.g., state action); also, Penn dealt with an endowment for a white orphanage/college – court says board was an “agent of the state” and thus there was state action c) Generally, though, we allow testators to do with their wills what we wouldn’t let the government do. C. Malpractice 1. The key to success in estate planning is to avoid the pitfalls (and there are many!) A wills practice is probably the easiest type to practice in and get sued for malpractice 2. Privity 3 of 33 a) This is the key to determining if a will beneficiary can sue (1) Most states have removed the privity barrier for beneficiaries to sue (e.g., Lucas v. Hamm in California and Ogle v. Fuiten in Illinois) (a) Problems with this approach: are damages just equal to the bequest, or can consequential damages be had? Also, potential conflict if lawyer has to worry about beneficiaries suing (2) 5 states have not removed this barrier (including New York and Texas) (a) In these states, only the client (e.g., the decedent) can sue – thus, a wills practice is much safer in Texas 3. The law of wills is becoming less rigid, largely because malpractice has become such a problem D. Basic Estate Planning 1. Probate and Nonprobate Property a) Probate property is anything passed via a will or intestacy b) Nonprobate property is anything passed by an instrument that isn’t a will which became effective upon death. Ex.: (1) Joint Tenancies (2) Life Insurance (3) Contracts with “payable on death” provisions (e.g., IRA’s) (4) Property passing via power of appointment c) Thus, it is important to know not just what property is held, but how that property is held 2. Estate Administration (Duties of executor/administrator) a) Inventory and collect decedent’s estate b) Manage assets during administration c) Receive and pay claims of creditors and tax collectors (1) Some states assume that if you pass burdened property, that the estate pays any liens and the property passes unburdened (but other states don’t) (2) If the statute of limitations has run on the debt on a piece of property, the executor may not pay the debt 4 of 33 (3) Although many wills contain “just debts” clauses, they aren’t necessary since state law requires such debts to be paid (but the clause is useful if it directs how those debts should be paid) d) Distribute remaining assets to those so entitled 3. Terminology a) Administration (1) If a will, the person administering the estate is the executor (2) If intestate, the person is a court-appointed administrator b) Types of Property (not important) (1) Real property is devised to devisees (2) Personal property is bequeathed to legatees (3) Also, intestate real property descends to heirs, while personal property is distributed to next-of-kin c) Abbreviations in this outline: UPC -Uniform Probate Code; TPC -Texas Probate Code; SS -Surviving Spouse; T -Testator 4. Children and Guardians a) Need a guardian for two purposes: custody and care, and management of assets (can be the same person or two people) b) Ways to handle kids receiving property via will (1) Guardianship – worst alternative; guardian doesn’t have title, must safeguard the property until kid reaches majority, and can’t touch the principal without court permission. Heavy court oversight makes this a unwieldy alternative (2) Custodianship – Uniform Transfers to Minors Act (UTMA) allows custodian to spend for minor’s benefit; must give property to minor upon his/her reaching 21 (or to minor’s estate upon death) (3) Trust – generally best, most flexible alternative; trustee owns title, trust can be tailored for specific circumstances II. Intestacy A. Common Law and Community Property 1. General Notes a) Eight states (AZ, CA, ID, LA, NV, NM, TX, and WA) are community property states; it applies to married couples b) Basically, community property means each spouse owns an undivided ½ share in all earnings during the marriage; one spouse can only devise ½ of the property 5 of 33 (1) Contrast with separate property states, which hold all property belongs to the spouse that earned it (but almost all have provisions mandating a surviving spouse get a forced share of the estate) c) Community property is presumed; most states require proof that property is separate by “clear and convincing evidence (1) Separate property includes all property held before the marriage, property acquired by gift or inheritance (including purchases made with gift funds) (2) Capital gains on sale of separate property is still separate property (3) Dividends or interest on separate property depends on the state (LA, TX, ID, and WA make it community; all others make it separate) d) The person who earned the community property has management rights over the property, including the right to make reasonable gifts 2. UPC Intestacy Scheme (§§ 2-101 -2-104) a) Surviving Spouses’ share (SS) (1) If no other heirs, or only kids are both SS and decedent’s, the spouse gets whole estate (2) If only other heirs are the parents of the decedent (e.g., no descendants), then SS gets the first $200k + ¾ of the balance (3) If all decedent’s kids are also SS’s, AND there is a kid who is SS’s but not decedent’s, then first $150k + ½ of the balance (4) If any kids who are only the decedent’s (and not SS’s), then SS gets first $100k + ½ of the balance b) Other heirs’ share – they get remaining portion after SS (above), in the following order: (1) Decedent’s descendants by representation (2) Descendant’s parents (if no SS) (3) Descendant’s parent’s descendants (e.g., decedent’s brothers and sisters) (4) Decedent’s grandparents (½ to each set if both survive; each individual grandparent splits with their spouse) (5) Nearest Relative (6) The state, if no other takers c) The UPC and community property (1) Same scheme as above for separate property 6 of 33 (2) All community property passes to SS regardless of if there are heirs or parents 3. TPC Intestacy Scheme (§§ 38-39; 45) a) If there is no SS (1) Decedent’s kids (2) His parents (but if only one parent is alive, then ½ to siblings; if no siblings, then all to surviving parent) (3) Siblings (4) Grandparents (equally to maternal and paternal) b) If there is a SS (1) SS gets 1/3 of personal property, balance to kids of decedent; life estate in land to SS (remainder to kids) (2) If no kids, SS gets all personal, ½ of land; remaining portion goes according to above scheme c) Community Property (1) All goes to spouse if no kids survive decedent, or all kids of decedent are also kids of SS (2) If the decedent had a kid that wasn’t the SS’s, then SS gets ½ of community estate, and kids get the other ½ (a) Note that only the decedents kids count for this section (§45) (3) Debts stay with the estate B. Exempt Property 1. Homesteads a) Generally, the SS and minor children have the right to occupy a family home (or farm) for life (1) Note this is not ownership – it is the right to occupy wholly independent of who actually owns the property, and actually trumps ownership. b) Texas Homestead Provisions (TPC §272(d)) (1) Definition is found in Texas Constitution, Art. 16, §§50-52 (a) Is a rural home up to 200 acres or an urban one up to one acre (b) Must actually occupy as your principal residence (thus, you can have urban or rural, but not both) (c) In many cases (e.g., if decedent is survived by SS, minor kids, or unmarried kids) it passes free of creditor’s claims 7 of 33 (i) Except for purchase money mortgages (e.g., 1st mortgage), property/federal taxes, home improvement loans (ii) In Texas, creditor protection remains even if SS or kids don’t actually live in the home (d) Homestead exemption attaches when land is “designated” as a homestead (no formalities required; governed by intent) (2) Homestead passes to SS; if no SS, then to minor kids’ guardian and any unmarried kids living with the family (3) Note Texas has the most generous homestead provisions of any state 2. Personal Property Set-Aside a) Basically allows SS to set aside property up to a certain value; there is usually various conditions and limitations, but subject to those the decedent cannot deprive the SS of these items b) Personal Property Set-Aside in Texas (TPC §§271, 272; Tex. Prop. Code §§ 42.001-003) (1) Property is the same property exempt from garnishment under the Property Code (2) Includes up to $60k of personal property (FMV, must have an equity interest; only the equity interest counts against the $60k) (a) List includes home furnishings, farm equipment, up to $15k in jewelry, 2 firearms, motor vehicle, etc. (b) However, if the debt is secured by the property, then it may be seized (3) Basic justification: protect debtor in life, and protect his family upon his death 3. Family Allowance a) Every state allows a probate court to award a family allowance for support of SS and dependents during probate b) This isn’t that important in practice – usually, if there are liquid probate assets, there are also liquid nonprobate assets as well 4. Social Security a) Social Security benefits are paid to SS; the worker cannot shift these benefits away from the SS. It takes 40 quarters (10 years) to fully vest 5. Private Pension Plans 8 of 33 a) ERISA (Employment Retirement Income Security Act of 1974) requires that SS’s have survivorship rights in pension plans; this preempts state law 6. Dower a) At common law, entitled a widow to 1/3 of all land for life; abolished in most states today C. Hilley and it’s aftermath 1. Hilley was a 1961 Texas case that a couple could not convert community property into a joint tenancy 2. The legislature passed some statutes to deal with this, but didn’t directly address the problem. Long story short: for a couple to convert property, a two-step approach was required: a) Partitioning the property (to characterize the joint tenancy as a future transaction), and then b) Make the joint tenancy 3. Even this, however, led to problems – in divorce actions, a court can only divide community (e.g., not separate) property 4. Finally, in 1987, the Texas Constitution was amended – now spouses can agree in writing that all or part of the community property becomes property of the SS upon death a) Note this is a “new genre” of property – it is not a joint tenancy, but rather “community property with a right of survivorship” (1) Thus, this creates another will substitute b) Note the agreement must be in writing, and use one of the listed phrases (it actually allows other wordings, but why experiment?) (TPC §452) c) What if parties change their minds? (TPC §455) (1) If the parties agree at creation how to revoke, then that procedure may be used (2) Otherwise, must agree to revoke in writing and signed by both parties (3) If only one spouse wishes to revoke, they may do so in writing and delivered to the other spouse D. Multi-Generational Problems 1. In all states, if the kids of the decedent are dead, but they have living kids of their own (e.g., grandkids), then the grandkids take 9 of 33 a) This is called taking by representation (the grandkids “represent” the deceased kids) b) Be Careful! An in-law does not take by representation c) When drafting, it is best to clearly define which method you wish used – don’t assume the terms are universal 2. How to handle distribution if all of the decedent’s kids are dead, but have offspring? a) Classic or Strict Per Stirpes – each child splits his or her parent’s share equally (there are as many shares as there are decedent’s children) (1) Thus, in Figure 1 (see below), D takes ½; F takes ¼, G and H take 1/8 each b) Per Capita with Representation or Modern Per Stirpes – Shares are divided at the nearest generational level with a living member (1) Thus, in Figure 1 (see below), D and F each take 1/3, G and H take 1/6 each (2) Texas follows this rule (TPC §43) c) Per Capita by Generation – “equally near, equally dear” – there are as many shares as people in nearest generation to decedent who are either alive or have heirs of their own; all living persons in the same generation get one share; remaining shares are combined and redistributed to next generation as though the previous takers had predeceased the decedent. (1) Thus, in Figure 1 (see below), the result is the same as modern per stirpes (a) However, if D had offspring I, then G, H, and I would each take a 1/9 share (1/3 remaining share after D and F take x 1/3) (2) Remember when computing shares that for a person to count, they must either 1) be alive, or 2) have living offspring (3) This is the UPC approach (§2-106) E. Ancestors and Collaterals 1. If there are no kids or parents, the property goes to the decedent’s other relations 2. A collateral kindred is a relative that is neither an ancestor nor a descendant a) Thus, a 1st line collateral is a descendant of the decedent’s parents other than the decedent or his kids (e.g., it is the decedent’s brothers and sisters) 3. If there are no 1st line collaterals, there are two schemes to determine who takes 10 of 33 a) Parentelic – grandparents (and their descendants) great grandparents (and descendants) great-great grandparents, etc. b) Degree of Relationship – passes to closest of kin, counting degrees of kinship (count steps -table p. 86 of Dukeminier, Johanson) (this is the Massachusetts approach) c) NOTE: there is no “equally near, equally dear” for collaterals – distribution is pretty much strict per stirpes 4. UPC Approach (§2-103) a) The UPC follows a parentelic approach b) However, it does not allow heirs beyond the grandparent’s descendants to take (it escheats to the state instead) (1) This is to prevent “laughing heirs” 5. TX Approach (TPC §38) a) Texas is also parentelic. The following scheme is used: (1) Kids (2) All to parents if both alive (3) One parent alive – ½ to parent, ½ to others (4) Brothers and Sisters (5) Grandparents and their descendants (½ each to maternal and paternal sides) (6) “and so on without end” (if you can only find one person on one side, they get it all – the ½ does not escheat to the state) 6. A note on half-bloods a) Most states and the UPC treat half-bloods the same as whole-bloods b) TX, however, only allows half-bloods to take half a share (TPC §41(b)) F. Meaning of “Child” 1. Late-born Children a) Most states presume a newborn child is a descendant if he is born within 280 days (300 for Uniform Parentage Act) of decedent’s death; after that time, the child (via his representative) must prove he is a descendant b) TPC §41(a) – No inheritance accrues to a person not in being at time of death unless they are kids or other lineal descendants of the deceased (1) Compare to UPC, which permits inheritance if kid survives deceased by 5 days 11 of 33 (2) Also note this only applies to intestacy – a child in gestation is considered “alive” for a will 2. Adopted Children a) Hall (MD) – Court ruled an adopted child loses his right to inherit from his natural parents (1) UPC takes different approach – adoptions by new spouse of a natural parent does not terminate right to inherit (but natural parent can’t inherit from child) (2) Texas is also different – an adopted child can always inherit from natural parents (but they can’t inherit from him), regardless of if the adoptive parents are a new spouse or not. (TPC §40) b) O’Neal (GA) – “Informal adoption” does not permit kid to inherit from adoptive parents (some other state permit this, though) 3. Illegitimate Children a) All states permit inheritance from the mother b) Rules for establishing paternity vary state to state – most permit it to be established by: (1) Subsequent marriage to the mother (2) The father holds the kid out as his own (3) There is an adjudication of the question during the father’s life (4) Clear and convincing evidence of paternity G. Simultaneous Death 1. Most states (including Texas) and the UPC have a 120 hour survival rule – deaths are considered simultaneous unless one person lives beyond 5 days of the other. (TPC §47) a) Joint Tenancies – if no one survives for 120 hours, the property is split evenly b) Community Property – Husband’s ½ is treated as if he survived, Wife’s ½ as though she survived. c) Note the 120 hour rule is trumped by a will – if it just says “X must survive me” then X only has to survive T by a fraction of a second. H. Advancements 1. It used to be that a child’s share was reduced by any lifetime gifts made to him by the decedent; the gifts were considered advancements against his share 12 of 33 a) Thus, an advancement would be “added” to the estate, the shares computed from that figure, and the gift amount then removed from the child’s share 2. This presumption has now been reversed by most states (including Texas) and the UPC. Now a gift is presumed to not be an advancement. (TPC §44) III. Probate Administration A. Technically, probate only means getting the will admitted; after that, you administer the estate (but “probate” is used for both in common parlance) B. Steps 1. File will for probate a) Generally, this must be done within 4 years of death b) Also must file other appropriate documents (proof of death, etc.) c) Get Letters Testamentary from the court 2. Handle the estate a) Inventory and preserve property b) Pay debts owed by the estate (1) Pope – must give best notice possible c) Pay taxes (the executor is personally liable) (1) Must pay both estate and income taxes d) Pay funeral expenses e) Distribute property (finally!) C. TPC and estate’s debts 1. Priority of Claims (§322) (all claims in the same class are given equal priority) a) Funeral Expenses up to $5,000 (family allowance) b) Administrative Expenses c) Secured Claims d) Various other claims 2. Notice to Creditors (§§ 294, 295, 298) a) You must give notice by publication for all creditors b) You must give actual notice to secured creditors c) You may give actual notice to unsecured creditors 13 of 33 (1) If no actual notice, then no statute of limitations (except whatever it when decedent was alive) (2) If actual notice, then 4 months after notice is given D. Independent Administration in Texas 1. This option means Texas is cheaper to probate in than other states (no court oversight of executor if he is independent) 2. You must have a will with the language in §145(b) (if intestate, all heirs must agree in writing and petition for independent administration) 3. The problems with independent administration is a bad executor can do what he pleases with little recourse for the heirs a) After 15 months, they can demand an accounting; after 3 years (or 1 year after taxes are paid, whichever is later) they can demand distribution; they can petition to have the executor removed (but it is very difficult) E. Avoiding Probate 1. Probate can be avoided by holding property in JT, in a irrevocable trust, or (in some states) by executing a payable-on-death contract 2. All states permit small estates to be collected without probate (in Texas, estates smaller than $50,000 are considered small estates) a) However, if real property (except homesteads) is involved, the small estate rule doesn’t apply b) But you can get muniment of title for such property (which makes the will – affidavit if intestate – part of the title record). This permits the small-estate rule to apply. IV. Will Preparation A. Formalities 1. Why Formal Requirements? a) Ritual Function – solemn “rite” makes it less likely testator is executing his will on a whim b) Evidentiary Function – proof is more reliable c) Protective Function – helps protect testator from undue influence d) It also increases the odds that people will consult lawyers, which is beneficial since a lawyer can avoid many landmines the layman wouldn’t know about 2. Note the “ritual” on page 224 of Dukeminier, Johanson insures a will’s validity in all states 3. Basic Requirements (UPC §2-502). Will must be… 14 of 33 a) In writing b) Signed by Testator (or someone under testator’s direction in his presence) c) Signed by two witnesses to testator’s signature (1) Most states require all signatures to be at the bottom; some also require that witnesses sign after T 4. Problems with witnessing a) Groffman (England) – a will is invalidated because the witnesses did not see the will’s signing, and did not themselves sign at the same time b) In Texas – must have two witnesses, but they don’t have to be in each other’s presence (just the testator’s) c) UPC just says a witness must sign within a reasonable time of either T’s signature, T’s acknowledgment of his signature, or T’s acknowledgment that the paper is his will. d) Other states use the line of sight or conscious presence tests (1) Line of sight – could the witnesses have seen each other? (2) Conscious presence – were the witnesses aware of each other’s presence? e) Self-Proving Affidavits (1) This is an separate page at the end of the will (e.g., it is not the attestation clause that the witness signs on the will itself). It eliminates the need for a witness to testify as to the will’s validity (2) It is not a formal requirement of a will, it just eliminates the need to “prove up” the will. 5. Curative Doctrines a) Many states have no curative doctrines; a minor error will invalidate a will (Texas is such a state) b) Some states use the doctrine of substantial compliance; this means the court asks “how close is the will to the technical requirements?” c) The UPC, Montana, and certain countries use the dispensing power; it asks “did T intend this document to be a will?”; it must be shown by clear and convincing evidence d) Choice of Law – it’s best to be very precise in the “ritual” because you never know where a client will move! The following applies: (1) Personal Property – state of domicile’s choice-of-law rules apply (2) Real Property – state where property is located (situs state) choiceooflaw rules apply 15 of 33 6. Purging Statutes & Interested Witnesses a) Generally, a purging statute voids a gift to a witness (1) Exception: if witness could take under prior will, she can only take up to the smaller of the two bequests b) UPC approach is different – a bequest to a witness is permissible; it relies on undue influence to handle any problems c) Texas only requires one disinterested witness, or someone who can corroborate the testimony of the interested witness; otherwise, same general rule above applies. 7. Disclaimers a) Almost all states treat a disclaiming party as “predeceasing” T (this can yield estate tax savings) b) The key difference between state and federal rules on disclaimers of future interests is timing: states permit disclaimer until 9 months after it indefeasibly vests, while feds require disclaimer within 9 months of creation B. Holographic Wills 1. Holographic wills are permitted in about ½ of the states, mostly in the south and west (but still is minority rule); it permits a will entirely in T’s handwriting and signed by him to be valid – no witnesses are required a) In Texas, if you are over 18 or married, you can make a holographic will b) Note that in a jurisdiction that doesn’t formally recognize holographic wills but does recognize either substantial compliance or the dispensing power there is an informal recognition of holographic wills 2. Cases are very inconsistent on if how much pre-printed material is permissible – is hotel stationary OK? How about a “form will”? a) Many states have approved statutory “fill-in-the-blank” forms, but these still must be attested to – they don’t count as holographic wills. Courts vary on their treatment of these forms (e.g., Johnson compared to Muder) 3. There is also the problems of figuring out if a writing has testamentary intent – that is, did the author intend it to be a will a) For example, in Kimmel’s Estate, the court construed “if enny thing happens” [sic] to show testamentary intent. Does it? Maybe, maybe not 4. Noncupative will – oral will on deathbed, later reduced to writing. Texas requires three witnesses. 16 of 33 C. Mental Capacity 1. Why require sanity? a) Will should only be valid if it reflects T’s true desires b) Insane person may not be a legal “person” at all c) To protect T’s family d) Legal institutions must be legitimate, and they can’t be legitimate if decisions aren’t reasoned e) Enables the sane to insure his property will be properly distributed even if he later becomes insane f) Protection of society from irrational acts g) Protect the senile and incompetent from exploitation 2. Usual requirements of mental capacity include knowledge of: a) Nature and extent of property b) Persons who are the object of the will c) The disposition being made d) How these elements relate e) Some add “the significance of the act” 3. How delusional do you have to be? a) Some states say any basis in fact for T’s belief is enough; others apply a ‘rational person’ standard b) Note that a mistake ≠ an insane delusion – a mistaken belief that your wife is fooling around will permit you to cut her out (as in Honigman) D. Undue Influence 1. This is a difficult, hard-to-define concept; it is frequently described as “influence approaching coercion” 2. Elements typically include: (note they all beg the question: what influence is “undue”?) a) T was susceptible to influence, and b) Influencer had the opportunity to use influence, and c) The will is the result of that influence 3. No-Contest Clauses a) Basically say anyone challenging the will takes nothing (1) Many courts enforce unless there is probable cause for the contest (this is the UPC approach) 17 of 33 (2) Minority approach enforces unless there is a forgery, a subsequent will is alleged, or benefit to drafter is challenged b) Note that for a no-contest clause to be effective, the person considering a challenge must be given something under the will (otherwise, he has nothing to lose) 4. A bequest to a drafting attorney is presumptively undue influence unless the attorney is related (it’s also a violation of professional responsibility) E. Components of a Will 1. Integration of a Will a) Basically, all papers present at time of execution that are meant to be part of the will are integrated into the will b) Bottom line: fasten all the pages to the will, number them, and have the client initial each page 2. Republication by Codicil a) A codicil is an “amendment” to an existing will; the will is treated as having been re-executed on the codicil date (1) Thus, if a 1st will is revoked by a 2nd, and a codicil is executed on the 1st, the 1st will controls because it has been “republished” (thus revoking the 2nd) (2) Note the court in Johnson erred in saying the will was republished by codicil – the will must be valid for the codicil to re-publish it; a codicil cannot magically make an invalid will valid (it can, however, breathe life into a once-valid will) b) Why must the will already be in existence for a codicil to republish it? To prevent an end run around the requirements for a valid will 3. Incorporation by Reference (not allowed in NY, CT, or LA) (UPC §2-510) a) A writing in existence at the time of will’s execution may be incorporated by reference in the will (1) The language of the will must demonstrate intent to incorporate, and the writing must be described in sufficient detail to identify it (2) Thus, in Clark a notebook is incorporated by reference (despite T’s use of the term “memorandum”); it is not in existence at time of will, but is saved by the existence of later codicils (which republished the will) 4. Separate Writing Disposing of Specific Property (UPC §2-513) a) You can use a separate writing to dispose of specific property, whether or not it exists prior to will’s execution. The writing must be signed b) This is not a traditional doctrine, and it is not available in Texas 18 of 33 (1) Of course, in a dispensing power state this could be considered a “codicil” (2) It might not be a bad idea to advise a client to make “holographic codicils” for such dispositions if they want to change the list frequently (3) Of course, if you really trust your executor, you can just leave him instructions for the dispositions 5. Acts of Independent Significance (UPC §2-512) a) A devise can be made dependent on events that have their motive independent of the testamentary act (1) Ex.: Will says son gets car. T trades Toyota for a Cadillac shortly before death; this is OK because it is likely the reason for the change is T wanted a new car, and not for a reason related to the will (2) Ex.: “I give $100 to everyone I send a Christmas card to on the Christmas before my death.” This is OK, too. b) The problem with “contents” (1) “Contents” is a highly-litigated term (2) TPC §58 (c) & (d) – don’t get contents unless will says so specifically; also defines “contents” F. Revocation 1. Revoking a will can be done in two ways: by physical act, or by writing 2. Revocation by Writing a) Usually, a writing revoking a will must be “executed” just like a will b) A subsequent will revokes a prior will if it: (1) Shows T’s intent to have it replace the prior will, or (2) It makes a complete dispensation of all of T’s assets (note a residuary clause can make this fuzzy) c) Thompson – T wrote “null and void” on back of will (1) This is not sufficient as a writing to revoke – the writing must be as valid as will’s execution (2) If she had written across the text, it may have been a valid revocation by physical act (in fact, some states would permit margin notes to count as a physical act; others [like RI] would not) 3. Revocation by Physical Act 19 of 33 a) A revocation by physical act is usually the physical destruction of the will; some states and the UPC permit partial revocation by physical act (but not TX) b) Problems with physical act: (1) Different jurisdictions have different interpretations of what physical acts are appropriate (2) How to show that T did the physical act? (3) Problem with partial revocations (if allowed, fraud is a possibility) c) Doctrine of dependent relative revocation (1) If T destroys will A because he has will B, but upon T’s death it turns out B is invalid, the court will allow A to be probated d) Revocation of copy of will is not a valid revocation G. Powers of Attorney/Living Wills/Disposition of the Body 1. Powers of Attorney a) An ordinary power of attorney terminates when person is incapacitated; durable power continues until death; powers are determined by the law of agency (1) Specific language is required to create a durable power; the principal can terminate the durable power at any time (2) Durable power agent is like a trustee, except: (a) Durable power ceases at death (b) If agent dies, durable power ceases (c) Agent doesn’t own the property b) Options in anticipation of incapacity: set up guardian (but this is unwieldy); set up a durable power; set up bank account where adult kids have access (access ≠ ownership) 2. Living Wills a) About ¾ of the states permit living wills; they allow someone to keep themselves off of life support. Living wills are not valid if the person is pregnant b) Texas Health & Safety Code §672.003 (Texas Natural Death Act) (1) Act only applies if death is imminent; clients physician must know about the document; there is a high degree of formality (two witnesses, and certain people cannot be witnesses) 3. Disposition of the Body 20 of 33 a) Texas Health & Safety Code § 711.002 – SS, then kids, then parents control disposition of the body; T can override by putting instructions in the will or some other document (you don’t have to wait for probate if it is in the will) V. Protecting Spouses and Children A. Rights of Surviving Spouses 1. Many states provide that a pretermitted spouse (that is, a spouse who married T after the will’s execution) gets a share even if they are not mentioned in the will (usually an intestate share) a) UPC §2-301 – omitted pretermitted spouse gets intestate share, unless: (1) It appears will was made in contemplation of marriage, or (2) Will expresses intent that it is to be effective even if there is a later marriage, or (3) T made a transfer to spouse outside of the will and it is evident that this gift is intended to be her “share” b) Even if there is a small bequest to a pretermitted spouse, many courts assume everything changes when you marry (e.g., spouse was a mere friend when will was written) (1) To get around this, you have to expressly say “I omit anyone I subsequently marry” (2) In some states, a SS can take an elective intestate share even if they are expressly disinherited 2. Texas has no pretermitted spouse statute B. Protecting Children 1. In all states except LA, an existing omitted child has no protection against disinheritance a) Note, though, as a practical matter disinheriting a child is to invite a will contest 2. Pretermitted Children a) Most states have statutes protecting pretermitted children (children born after the will’s execution) b) These statutes only apply if there is no intent to disinherit. There are two flavors: (1) “MO” style means intent must be gleaned from the will alone (this is the UPC approach) (2) “MA” style means intent may be gathered from extrinsic evidence c) UPC Pretermitted Children Scheme (§2-302) 21 of 33 (1) If no other child takes under the will, the omitted child gets an intestate share (unless the will gives all to the surviving parent) (2) If the other kids get a share, then: (a) The omitted child’s share is limited to the other children’s share (b) Subject to this “cap,” the omitted child gets a share in an amount as though he was included in the will (3) None of the above applies if the omission is shown to be intentional, or T provided for the child outside of the will d) TPC Pretermitted Child Scheme (§61) (1) If no provision for other children (or there are no other children), then the pretermitted child gets an intestate share of the estate not given to the child’s other parent (a) In computing, assume T died without a SS (regardless of reality) (2) If there are other children mentioned in the will, then follow the UPC method for this situation (3) Again, none of the above applies if the omission is shown to be intentional, or T provided for the child outside of the will VI. Changes After Execution A. Divorce 1. Most states (including Texas and the UPC) say that divorce revokes any provision for the former spouse a) Note this only applies to divorce – provisions for stepchildren, etc., remain b) If the will expressly says otherwise (e.g., it says the former spouse should take despite the divorce), then a bequest to a former spouse remains 2. Texas Family Code §9.301-302 a) A divorce nullifies former spouse as beneficiary for life insurance, pensions, and financial plans (except if court decrees otherwise, the insured redesignates former spouse, or the proceeds are to go in trust for a child’s benefit) B. Death of Beneficiary 1. If a devisee does not survive T, the devise fails (e.g., lapses); however nearly all states have antilapse statutes 2. Common Law Rules on Lapsed Devises: 22 of 33 a) Specific or General Devises – if it lapses, it falls into the residuary estate (specific means named property, e.g., a gold watch, while general indicates a value amount, e.g., $10,000) b) Residuary Devise – if lapses, T’s heirs take residuary by intestacy (1) Multiple takers of residuary: most states split lapse among remaining residuary takers c) Class Gift – if lapses, surviving class members divide gift equally d) Void Devise – if devisee is dead at execution, the devise is void; the same rules apply for void devises as for lapsed ones 3. Antilapse Statutes a) Most provide that if the devisee has a given relationship to T and is survived by issue, his issue takes the gift (1) Texas approach (TPC §68) – only lineal descendants of T’s parents (and parents themselves) are saved by the antilapse statute (2) UPC approach – (UPC §2-603, old version) – only lineal descendants of T’s grandparents (and grandparents themselves) are saved by the antilapse statue (a) There is a newer version of the UPC statute, but it is unnecessarily complex and no states have adopted it; thus, the old version is used (3) Remember, the antilapse statutes only apply to blood relations of T (e.g., blood relatives of T’s spouse don’t count) b) All antilapse statutes only apply if there is no contrary intent shown by T (1) Question: when does “if he survives me” mean contrary intent? (a) Most states (including Texas) say this language shows contrary intent (b) The UPC says it does not show contrary intent c) It is far better to handle this kind of thing explicitly in the will rather than relying on the antilapse statute deal with it 4. Class Gifts a) As mentioned before, a class gift that lapses is split among the other living class members (1) Antilapse statutes can, however, save a lapsed class gift just as they can other devises; that is, antilapse trumps the class gift rule (UPC and Texas with exception below) 23 of 33 (2) In Texas, the above holds true unless the devisee died before execution – then, class gift rule trumps the antilapse rule b) When is a gift to a class? (1) The common test is if T is “group minded” – that is, class gift rules are designed to ascertain, not frustrate, T’s intent (2) Traditionally, if individuals are named, it is not considered a class gift. Problems arise in “mixed” devises, as below: (3) Ex.: gift “to A and B’s kids” – is this a class? Moss says yes. (a) Am. Law Prop. §22.13 says the part to A is a individual gift, and if it lapses it passes into residuary (B’s kids are a class, and any lapse is split among the class members) (b) Rest. Prop. §284 takes the opposite view – it says that A is part of the class C. Changes In Property 1. Doctrine of ademption – if T wills property he does not own, the devise is void a) Thus, if T wills Blackacre to A and residuary to B, and later sells Blackacre for Whiteacre, A has no claim to Blackacre and takes nothing under the will b) Ademption applies only to specific devises; it does not apply to general ones (e.g., a dollar amount); it also does not apply to a demonstrative legacy – that is, a general gift to be paid from a specific source c) Ademption can often frustrate T’s intent (1) Policy justification for ademption – a rare dose of judicial humility; courts say, in essence, ‘we can’t sort out the good cases from the bad, and ademption works most of the time.’ d) UPC makes a mild presumption against ademption (unlike most states); if there is no proof of ademption, the party gets sale proceeds, etc. (1) This creates a litigation mess, so states have been reluctant to adopt this provision 2. Getting around ademption a) The best way is to classify a specific devise as a general one, e.g., “my 100 shares of IBM” (a specific devise) becomes “100 shares of IBM” (a general devise) (1) Note this creates a problem with closely held corporations – a general devise of closely-held stock can result in one of the other 24 of 33 stockholders “shaking down” the executor (who must purchase shares to fulfill the devise) (2) This also creates a problem with stock splits – the only way the donee gets the benefit of them is if it is a specific devise (a) TPC §70A avoids this – it makes a devise of securities automatically include stock splits, stock dividends, etc. b) Classify as a mere change in form, e.g., X merges into Y (as in money moved from one bank account to another) c) Construe the will to mean time of death instead of time of execution (e.g., “car I own now” means car owned at death instead of car owned at time of execution) 3. Abatement a) If T devises more than he has (usually, by devising more than the value of the estate after debts have been paid), the bequests are fulfilled by cutting (“abating”) devises in the following order (first to last): (1) Residuary estate (2) General devises (3) Specific devises b) Thus, a devise of “Blackacre to A, $20k to B, rest to C” when Blackacre is worth $80k, rest of estate is worth $120k, and debts of estate equal $110k, the following results: (1) C gets nothing (her $100k residuary [$120k -$20k devise to B] is eaten up by the debts) (2) B gets $10k (after using up C’s share, there are still $10k of debts to pay; this comes out of B’s $20k share) (3) A gets Blackacre (all debts have been paid off, so the specific devise to A is paid in full) VII. Family Trusts A. Most future interests are found in trusts B. Trusts are typically used in place of a will, if property must be managed, or if young children are involved C. Creating a trust 1. No magic words – the key issue is did the person intend to create a trust? 2. It must be in writing if there is land involved to satisfy the Statute of Frauds 3. Three “hats” are needed for a trust (but one person can wear multiple hats) a) Settlor (a.k.a. Trustor) – the person creating the trust (e.g., T) 25 of 33 b) Trustee – person managing the trust (can be settlor, beneficiary, or a 3rd party) c) Beneficiary – person(s) for whom the trust is managed 4. The trustee manages the trust for the benefit of the beneficiaries; the trustee owns a legal interest, and the beneficiaries own a equitable interest (trustee holds actual title to all trust assets) 5. Trusts can be revocable or irrevocable; revocable trusts are often used to create nonprobate assets D. Funded vs. Unfunded Trusts 1. Funded – means that parents put in assets to fund life insurance premiums 2. Unfunded – means that the only asset of the trust is the future life insurance proceeds E. What information needs to go into a trust? 1. How long will trust run? 2. How to handle contingencies (trustee death, child’s death, etc.) 3. What assets to put in trust 4. How much to spend per child? How much discretion does trustee have to alter that level as the child’s needs change? 5. Can the trustee touch the principal in an emergency (e.g. a medical crisis)? 6. When does the trust terminate? Problems can arise with kids of different ages. What if the kids are minors when it terminates? Court will have to appoint a guardian (which a trust is designed to avoid) VIII.Future Interests A. Basics 1. Types of Future Interests a) Interest in the Transferor/Grantor (T) (1) Reversion – the estate transferred when grantor passes less than his whole estate (2) Possibility of Reverter – The grantor’s interest in a FSD; title reverts back to grantor upon condition’s happening (3) Right of Entry – The grantor’s interest in a FSCS; grantor has right to reclaim property upon condition’s happening b) Interest in Transferee (1) Vested Remainder – A remainder interest where: (a) Grantee is an ascertained person, and 26 of 33 (b) The grantee’s interest is not subject to a condition precedent (i) “Follow the commas” – “To A for life, then to B, but if B [condition] = a vested remainder subject to divestment (either by grantor or executory interest); “To A for life, then to B if [condition] = a contingent remainder (c) Note that a class gift where some class members are ascertained, but others aren’t is vested (and subject to open) (2) Contingent Remainder – a remainder interest where one of the above conditions isn’t met (3) Executory Interest – an interest that divests the prior estate before it’s natural termination c) Additional Notes (1) Note that all of the transferor’s interests can be transferred, and it does not lose its character when it is transferred (e.g., a reversion transferred to another party is still a reversion) (2) You cannot create a future interest in consumables (e.g., a case of wine) (3) An heir (when not used as a word of limitation, as in “to A and his heirs” creating a FSA) is whoever would take under intestacy (a) Thus, “To the heirs of B” passes property to B’s lineal descendants, even if B has willed all her property to someone else (b) Terminology note – “words of limitation” describe the type of estate, while “words of purchase” describe who gets the estate (4) Tax Note – to avoid taxation, don’t create transmissible contingent remainders (?) B. Construction Problems: Survival 1. Trusts – a revocable trust vests interests at time of trusts’ creation; it is subject to divestment until settlor dies, but all interests are vested at creation and not at settlor’s death (Anthony) a) In a trust that creates a life estate in A, and then to class, and A happens to be a member of that class, is A’s estate divested of that interest? (1) No – Security Trust, most states – the court won’t “read in” a divesting position (2) Yes – Rest. 2nd §22.3, Lawson – takes opposite approach 2. The Rule in Clobberie’s Case (England 1677) (330 years old and still good law!) a) Survivorship required 27 of 33 (1) A bequest “at age X” = survivorship is required (states split on this one; this is the majority rule) (2) A bequest “if he reaches age X” = survivorship is required (3) A bequest “when age X” = survivorship is required b) No Survivorship (1) A bequest “at age X plus interest income” = no survivorship required (if the interest vests, the principal vests, too) (2) A bequest “to be paid when donee reaches age X” = no survivorship is required (3) A gift “to be paid at age X” = no survivorship is required C. Construction Problems: Children, Issue, and Heirs 1. Terminology a) Children = immediate offspring; no survival requirement unless expressly stated b) Heirs or Issue = lineal descendants; heirs/issue must survive to take (1) Also note that some states don’t ascertain “heirs” until termination of prior estate; in the states, you can get tax savings because the interest is not transmissible until it is ascertained (2) Most states, however, ascertain heirs at time of interest’s creation (T’s death in the case of a will) (a) Exception: contingent substitutional gifts – in a gift “to A for life, then to my heirs” where at T’s death, A is his only heir, the normal rule would give A a FSA (clearly not T’s intent); thus, in this situation, A’s death would be used to ascertain “heirs” 2. How to issue/heirs take? a) Most states (and Rest. 1st) say the terms “per stirpes” or by representation mean whatever the state intestacy statute defines them as meaning b) UPC says that for a will (this differs from the UPC intestacy scheme), a gift “to issue” or “to issue by representation” means refer to the intestacy law; a gift to “issue per stirpes” means classic per stirpes c) Rest. 2nd says not to refer to intestacy at all; a gift to “issue” means modern per stirpes, and a gift to “issue per stirpes” means classic per stirpes d) Note therefore that it is best to explicitly define these terms in a will to avoid confusion (and litigation) 28 of 33 D. Class Closing Rules 1. General rule: a class closes when any member of the class is entitled to possession and enjoyment of his or her share a) The class closing just means that no new members can be added; current members of the class can still drop out b) The rule only applies for principal; a class gift of income closes periodically as income is accrued c) This is only a rule of construction, not one of law (but it may as well be, as you’ve got to show tons of contrary intent to overcome it) d) Also note that this is the rule of convenience; a class can also close physiologically, as when the class “A’s children” closes upon A’s death (because it is physiologically impossible for A to have more children) 2. Exceptions a) If there are no class members at time of interest’s creation, you must wait and see if any show up (1) Lux – gift to grandchildren “when youngest reaches 21” does not close until there is a grandchild who is 21 who has no siblings younger than himself; it then closes without having to wait to see if another grandchild will be born subsequently (a) Court takes middle ground, don’t have to wait for parent’s death (b) This may not be the right result – wouldn’t closing the class at T’s death better conform to his intent? (2) Exception: A gift of a specific sum (e.g., $500 to B’s kids) closes at T’s death; if B has no kids at T’s death, no one takes IX. The (Dreaded) Rule Against Perpetuities (RAP) A. Introduction 1. The rule: “No interest is good unless it must vest, if at all, not later than 21 years after some life in being at the creation of the interest a) Note the rule is only concerned with vesting b) The basic policy underlying the rule that vested interests are OK, but contingent ones aren’t; the idea is to limit dead-hand control of property c) The rule isn’t concerned with what actually happens – it is only concerned with what might happen 2. The trick is figuring out the validating life. Only people mentioned in the gift that affect vesting count 29 of 33 a) Note they must be alive when the perpetuities period begins running; for a will, that means T’s death; for a deed or irrevocable trust, the time the gift takes effect; for a revocable trust, the time the trust becomes irrevocable (usually T’s death) 3. The charity exception – a gift to a charity is valid even if it violates the rule; however, this only applies to charity-to-charity gifts (not person-to-charity gifts) 4. Working around the rule a) Since grantor’s interest is always vested, in many cases a two-step process can avoid the rule; namely, by first creating a reversionary interest, then giving the reversion away 5. Effects of the RAP a) Normally, it voids only the portion of the bequest which violates it b) However, the doctrine of infectious invalidity permits a court to also invalidate other interests if voiding only the offending interest would frustrate T’s intent B. Unusual Perpetuities Problems 1. The Fertile Octogenarian a) Ex: to A (aged 80) for life, then to A’s kids, remainder to A’s grandchildren b) Gift to grandchildren is void, because A could still have another child after the interest’s creation, and that child could have a child more than 21 years after A’s death (A is the validating life, since A’s children are not ascertained – because A could still have them) 2. The Unborn Widow a) Ex: to A for life, then to his widow for life, upon the death of them to their children b) Gift to children is void, because “widow” is unascertained – A could divorce and remarry many years later a woman not born at the interest’s creation; A could then have a child by his new wife and then die; the new wife (an unascertained person) could live for 60 years before dying, violating the rule (> 21 years after A’s death) 3. The Slothful Executor a) Ex: To my issue (not children) living upon distribution of my estate b) Void, because estate could theoretically take >21 years to be distributed after interest’s creation (issue are unascertained people – they could all die before distribution is complete) 4. The Magic Orchard 30 of 33 a) Ex.: To A so long as my land is used as an orchard, then to B b) Void gift to B; the land could be cease to be used as an orchard >21 years after both A and B’s death 5. The Never-Ending War a) Ex: To my brothers that survive WWII b) Void – what if war went on for a century? 6. The Birthday “Surprise” a) Ex.: to A for life, then to A’s kids on their 21st birthday b) Void – at common law, a person turns 21 on the day before their birthday (since you exist on the day of your birth, the day before represents a new year). This violates the rule by one day. C. Class Gifts 1. Class gift rule and RAP – if a class gift is void to any one class member, it is void to all class members – “all or nothing” a) The class must close, and b) All conditions precedent for every class member must be satisfied within the RAP period (vested subject to open ≠ vested for RAP purposes) 2. Steps to handling class gifts and the RAP (ask these in order): a) When is the class going to close (is it within the RAP period)? b) When class closes, who are the class members going to be? c) Are their interests vested or contingent? d) If the interests are not vested, when must they either vest or fail? D. Perpetuities Reform 1. Cy Pres Doctrine a) This basically permits a court to conservatively re-write a bequest so that it conforms with RAP (1) For example, age contingencies are reduced to 21, “widow” is construed to mean “current spouse,” presuming that a woman over age 55 cannot bear children, etc. b) This is the Texas approach (Texas Prop. Code § 5.043); also NY and IL 2. “Wait and See” a) This permits a court to wait and see if a perpetuities violation actually occurs b) There are two flavors: 31 of 33 (1) Wait and See for Common Law RAP Period (a) This waits out the normal RAP period (life in being + 21 years) to see if a violation occurs (2) Uniform Statutory RAP (USRAP) (a) This gives an “alternate” RAP period of 90 years; an interest must vest or fail within either the normal period or within 90 years (b) Scholars don’t like this because it increases dead-hand control; however, practitioners do like it because it’s simple 3. Saving Clauses a) The product of good drafting (and not a new law), a lawyer who drafts a trust should insert a clause that terminates the trust (notwithstanding any other trust clause) within the perpetuities period X. Estate & Gift Tax A. Overview 1. General Information a) Note the distinction between an estate and inheritance tax – the former taxes the donor, while the latter taxes the donee b) Note the $192,800 cumulative credit has the effect of permitting you to give away up to $600,000 of property (1) Why not just give a $600k deduction? Because marginal rates would make this more valuable for large estates than for small estates c) Note that in computing the estate tax (below), you “re-tax” lifetime gifts, but you also “re-apply” the credit so they cancel each other out; this is done because of the progressive rate structure d) Note that generally gifts are better than wills, because: (1) You get the $10,000/year/donee exclusion (2) A gift of growth stock is taxed at its value when the gift is made (3) It’s cheaper because gift is taxed at gift’s value, while estate is taxed at value of whole estate. Thus, assuming a 50% tax rate, it costs $1.5M to give $1M away, while it takes an estate worth $2M to pass the same amount via will 2. Steps in Computing the Estate Tax (also see formula, p. 1019-20) a) Compute value of gross estate (see also below) b) Take deductions, if any, to get taxable estate 32 of 33 (1) This includes funeral expenses, lawyer’s fees, debts, etc. c) Add adjusted taxable gifts, if any, to get tentative estate tax base (1) This is all taxable gifts made after 1976 not otherwise includible in the gross estate; this is to prevent double-counting d) Apply tax rate to get tentative estate tax e) Take credits (including $192,800 unified credit against the estate tax) B. The Gross Estate (IRC §2033) 1. Includes all probate assets, payable-on-death contracts, and certain nonprobate assets (see below); life estates are not included (these are also handled elsewhere 2. Nonprobate assets included a) Joint tenancies (§2040) (1) Treated differently under estate and gift tax systems – gift tax treats it same as TIC, while estate tax taxes it according to the percentage T contributed to the total cost of the JT b) Employee Death Benefits (§2039) c) Life Insurance (§2042) (1) Only included if (a) T had any incidents of ownership (e.g., right to change beneficiary, right to assign policy, right to borrow against the policy, right to terminate policy etc.), or (b) The policy is payable to the estate (2) Be careful – If W leaves “all her property” to H, and then predeceases H, H gets the life insurance owned by W (insurance which covers him) and it is included in his gross estate d) Certain Lifetime Transfers (§2036) (1) Ex.: Transfers where T retains a LE, transfers where T retains right to control enjoyment e) Revocable Transfers (§2038) (1) Included if T can revoke or otherwise control enjoyment of property f) (Lifetime) Transfers with a Reversionary Interest (§2037) (1) Included if 1) surviving T is necessary for possession or enjoyment, and 2) T retains reversionary interest with a value > 5% of the property’s value g) Transfers within 3 years of death (§2035) 33 of 33 C. Gift Tax 1. There is a $10,000 per year exclusion on gifts per donee ($20k if married, since spouses’ exemption counts, too) 2. You may exclude tuition payments and medical expenses if they are paid directly to the institution 3. There is an unlimited marital exclusion (so long as transfer is taxable when spouse transfers property to a 3rd party) 4. Remember, the tax rates are cumulative – each year’s gifts start at the marginal rate amount of the previous year A B C D E F G H Figure 1