I. Community Property A. Texas Marital Property 1. 8 CP states: LA, TX, NM, AZ, NV, CA, WA, ID (WI, Alaska)
I wish to come around never never land.
2. community v. separate a. property acquired during marriage = CP presumption b. exceptions: 1. gifts 2. inheritance/descent 3. PI recovery for PI during M (except loss of earning capacity = income; loss of
medical bills = CP; loss of consortium = other spouse's SP)
c. rules: 1. what you bring into a marriage is always yours 2. that acquired during marriage by gift/devise/descent/most PI recovery is separate 3. everything else acquired via effort during marriage = community d. effect of CP: 1. each spouse owns an undivided 1/2 interest in CP 3. Texas K and TFC a. Texas law applies to property acquired by those domiciled in Texas, even if they were married outside Texas. see also quasi-CP b. liabilities personal liability 1. each spouse is liable for the acts of the other IF i. spouse is agent of the other or ii. spouse incurs a debt for necessaries asset liability 1. HSP & HSCP & Jt CP is subject to H's debts 2. WSCP is only subject to: i. toritious liability incurred by H before M ii. incurred during the marriage 3. WSP is not subject to the H's debts B. Consequences and Characterization 1. effect of divorce: just and right equitable division a. division that ct. deems "just and right" i. divides CP ii. divides that property acquired while domiciled in another state that would have been CP if lived in Texas [this does NOT become CP; it's
just subject to division, but not DWAP; this is "quasi-CP"]
iii. CP includes community retirement plans, IRA, stock options, insurance b. per Eggemeyer, no alimony (therefore, judge can't divide SP) i. no permanent alimony exceptions: a. we will enforce Kual alimony (PSA) b. we will enforce foreign decrees of alimony c. we will enforce temporary alimony (pending divorce decree) ii. "maintenance" is a form of alimony Texas allows if a. convicted of a family crime b. married 10 years or more & spouse can't support self iii. ct can order either spouse to support the kids
c. PSA's: couple can decide on division but it can be changed by the ct. 2. effect of death: DWAP a. SP is not affected by DWAP b. CP (all CP) is subject to DWAP c. CP is co-owned by H&W (ea. owns an undivided 1/2 interest) d. death => i. surviving spouse & heirs devisees = TICs ii. heirs/devisees only have an equitable interest iii. surviving spouse still has record legal title iv. heirs/devisees must work out partition in fact with surviving spouse C. Property Characterization 1. mere agreement rule - now it's very weak; says to comply with 15.16 of the K 2. rule of implied exclusion: if it's not in the K as SP => it's CP 3. community property presumption 1. income from SP = CP 2. must be rebutted by clear and convincing evidence 4. general rule: inception of title rule a. property acquired during marriage = CP b. earnest $ K = inception of title for real estate i. 1/3 SP, 2/3 CP => separately 1/3; community owns 2/3 ii. must look at total ¢! Consider down pymt + promissory note iii. presumption that loans look to community; must get creditor to agree to look only to your separate property iv. if community not obligated on down pymt or note, but makes some payments => claim for reimbursement (& vice-versa) c. whose name on title? a. if H pays for everything => HSP b. but if H&W's name on title, presumption that H gifted 1/2 to W c. unless H shows no donative intent to W (=> WSP) d. ex) HSP paid all ¢; deed in W's name; presumption that it was 100% gift to wife (rebuttable) e. "Significant Recitals" are enough to rebut the CP presumption; if significant recital, we estop a party to that transaction (when the sig. recital made) from denying the language in the recital i. payment = by H with CP ii. title = WSP iii. recitation = ¢ of WSP iv. Why a significant recital? b/c H was a party to the transaction => he is estopped from rebutting the presumption that it is a gift to W f. parole evidence a. we will allow parole evidence btwn H&W (or their heirs/devisees); this is b/c we have to know the cirx. of the inception of title, since that is our rule. Inception of title rule says look to the facts/cirx surrounding original transaction. b. not allowed to be used against innocent 3Ps d. payment and deed a. whoever pays = their property (HSP, CP, traceable mutation of SP, etc.)
b. payment different than deed? presumption of gift (rebuttable with evidence of contrary intent; also rebuttable if significant recital) c. partial pd SP and partially with CP => community and separate estates are TICs, proportionately d. HSP payment, deed to W => presumption of gift to W e. CP payment, deed to W => presumption of CP but is rebutted if deed executed by H to the W (later) => WSP f. both d & e are rebuttable presumptions *NOTE* when the record doesn't match => PM resulting trust 5. traceable mutation: a. even if property acquired during marriage, if it is a traceable mutation of SP => remains SP b. will work if W sells SP Blackacre for $. Buys Whiteacre with $ as long as no commingling. c. property must be clearly and indisputably traced and indentified by clear and convincing evidence d. ex. lottery ticked bought w/ $1 SP. Winnings are CP (not traceable mutations, but income) 6. adverse possession & the inception of title rule: a. if bare trespasser: inception when SOL period complete b. if color of right (defective title): inception relates back to when you start to adversely posses the land 7. life insurance: a. who owns policy? this is what we care about before policy matures i. initial premium test (life ins. version of inception of title rule) ii. if later premiums pd with a different kind of property => rt to reimbursement iii. if policy acquired during marriage => preumption that initial premium pd with CP b. who is the beneficiary? this is what we care about after death of insured (when you would show constructive fraud) c. CP policy: i. divorce: just and rt equitable division ii. death of non-insured: dwap 1. insured is 1/2 equitable owner 2. W's heirs/devisees own other half 3. as TICs iii. death of insured: 1. proceeds belong to beneficiary as SP 2. note: if beneficiary pre-deceases insured, it is situation (ii.), above and dwap [if B is spouse] iv. Why? 1. in (ii.) the W owns 1/2 interest (since it's CP) 2. in (iii.) the W is the beneficiary (3P Kual relationship) v. death of beneficiary: 1. ownership of the policy (a Kual arrangement) reverst back to the owner (& owner gets paid, O's estate gets paid, or O names a new B) d. constructive fraud: a "fraud on the community" is a breach of legal/equitable duties which violates the fiduciary rel. btwn spouses i. elements:
debtor/creditor: pay back out of H's estate or constructive trust or pay out of fraud person's estate, if other money is gone iii. hypo: policy is CP (first premium acquired during marraige and no evidence to rebut); H dies and W finds out he left policy to his kids by first marriage; he disposed of her 1/2 interest w/o her knowledge or consent => constructive fraud 11. business organizations a. if incorporated after M => JCP b. where did money come from to purchase shares? characterize that way c. profits: i. corp = SP (incorporated before M) ii. H works very hard and makes shares worth more, increases corp. assets iii. shares and assets of corp still SP (inception of title) iv. any salary H recv'd is CP d. corporation dividends paid during M = CP (rule of implied exclusion) e. exception: stock dividends (pay by increases amt. of stock) => HSP f. partnership: rt to manage, assets of Pship are SP distributions from Pship are CP g. Key: is the business entity or property? 1. hypo: Brother starts a sole proprietorship with gift money (HSP). If he wants to show traceable mutation to retain it, he must trace assetby-asset. 2. hypo: Sister starts a corp. (or other entity) with WSP. If she wants to show traceable mutation, just show her shares are now worth more. D. Compensation and Earning Capacity 1. time, talent & labor a. regular paycheck recv'd during marriage = special CP b. sign 5 year football K for $5mil. before marriage (to be completed during marriage) = HSP b/c inception of title
note: there is no precedent, but could argue to change law that community should be compensated for work done during M
1. 2. 3. 4. ii. remedy: 1. 2.
one spouse disposes of other spouse's 1/2 interest in CP w/o other spouse's knowledge or consent
c. dividends: CP 2. employment contracts a. deferred compensation agreements: i. inception during M, $ during M = CP ii. inception of title before M, $ during M (weekly) = probably CP 3. professional goodwill: a. mercantile goodwill = assets may be divided b. professional goodwill is personal and is not property c. Texas is adamant that potential and future earning capacity is not CP (too close to alimony!) 4. enhanced earning capacity (W supports H while he's in med school => divorce) a. other jx's allow the degree to be property but not Texas! b. Tex. soln: maintenance (limited relative of alimony) 8.001 TFC
i. married 10 years ii. and spouse can't support self iii. only authorized for 3 years 5. personal injury collection a. pain and suffering, disfigurement = SP b. loss of earning capacity = CP c. medical expenses = CP d. actual lost earnings = CP e. loss of consortium = other spouse's SP 6. retirement benefits ERISA Qualified Plans employer pays for plan, employee designates B = HSCP classify as vested (usually after 1 yr employmt) or matured (to pay out) ***all of the below are subject to the apportionment test*** whatever % acquired during marriage is CP and the % acquired outside of M = SP 1. neither vested nor matured: employee has a contingent property interest (more than mere expectancy) divorce: just & rt equitable division death of employee: not vested, so you have nothing death of spouse: your interests in the plan goes to surviving/employee spouse 2. vested, not matured (i.e you're still working, but if you die you get death benefits) divorce: just & rt equitable division in the form of a QDRO served on plan administrator; spouse doesn't actually acquire benefits until matures death: a. $ goes to SS (whichever outlives other); b. if spouse dies first, her 1/2 goes back to insured, not to her heirs/devisees! c. unless the spouse & employee agree to release their rights to the QJSA (annuity) 3. vested and matured; employee retires and gets the money; he has to decide how he wants it paid: 1. default: QJSA payout; if married when plan matures, insured must give spouse a QJSA (jt. survivor annunity) & upon insured's death, the SS gets life annunity pymts. [unless spouse consents to an alternate agreement...(2-4) 2. lump sum: H gets the $ and it's still HSCP a. divorce = CP or SP? (apportionment) just & rt division of CP b. death = CP or SP? dwap CP 3. rollover into an IRA: still HSCP a. divorce: CP or SP? (apportionment) just & rt division of CP b. death: do terms of IRA control? if not, dwap CP (unlike during ERISA) what if H named Tootsie as B? fraud on community & constructive trust 4. annuity K purchased with CP, still HSCP a. divorce = CP or SP? (apportionment) just & rt division of CP
b. death: if special Kual terms of annuity? if not => dwap CP E. Management and Control of Separate Property 1. Texas Family Code a. "sole management control & disposition" means you can sell, encumber, gift the property w/o joinder by spouse b. exception: homestead 2. Mule/Crop dichotomy: what mutations of SP remain SP? a. stays SP: traceable mutations i. increase in value of land: inception of title rule says its SP ii. fixtures on land take on the character of the land ex build house on land with CP and increases value of SP land 10fold = still SP (CP has rt to reimbursement) iii. pine trees = mutation b/c fixture on the land (cut down trees & profit is SP) iv. stock splits & liquidating dividends b. becomes CP: income i. income from SP is CP ii. rents, dividends, interest iii. offspring from livestock = income (CP) iv. annually renewing or cultivated crops = CP v. stock dividends (only cash dividends; if corp. decides to give bonus shares so H retains same % of corp => SP) c. oil lease pays i. bonus = SP ii. rental = CP iii. royalties = SP (traceable mutation) & oil doesn't annually renew 3. Tracing and Commingling a. when there is SP and CP put together, there is commingling and it all becomes CP b. unless we create a contemporaneous bsns record c. tracing (no clear rules, so advocate!) i. if CP and SP deposited into one acct, presumed CP is withdrawn first ii. therefore, if the funds that remain in an acct never drop below the acct balance, the amt. remaining stays SP d. recap: i. CP presumption ii. try to trace iii. can't trace? commingling = CP 4. Reimbursement: a. generally: if SP is used to benefit CP => SP claim for reimbursement; once asserted, the claim matures into a right b. amt. of reimbursement...conversion? i. $ expended: increase in value; using and enjoying during M does not offset amt (i.e. if built a house) ii. time/talent/labor expended: reimburse for amt. of uncompensated time/talent/labor 1. expends rzbl amt. of TTL on SP = no claim for reimb. 2. expend unrzbl amt. of TTL on SP = claim for reimb. offset by compensation
ex. H owns TC stock before marriage (HSP); he works a lot for TC
during marriage for low salary (salary that would have gone to community); reimbursement = amt. of uncompensated TTL
3. expend unzbl amt of TTL on SP and covert it into a new and more valuable state = converts to CP
[note: oil drilled is considered a "new state"]
7. Property Damage a. if H burns down mobile home you have 1/2 interest in (as TIC) you can collect on 1/2 policy b. if H burns down CP mobile home, too bad; no collection c. damage to income-producing property: 1. damage to crops in the ground = CP (income) 2. damage to land (permanent damage) = SP 8. Trust Distributions a. distributions of principal = SP b. distributions of income = CP c. discretionary distribution of income = SP b/c it's completion of a gift F. Management & Control of Community Property ("Special CP") 1. joint management and control (JCP) a. any transaction that affects JCP requires joinder of both spoues b. can H assign his undivded 1/2 interest in JCP alone? no; if he does its void ab initio (can't be a GFPFV b/c its in deed records) 2. sole management and control (special CP) a. H has the power to manage, but not always the right b/c 1/2 = W's b. H (managing spouse) has duty not to commit fraud on community c. what can H do? he can almost always sell for G&V ¢ i. H sells BA to a 3P for good/valuable ¢. W didn't want H to sell it. Too bad. ii. H makes stupid investment with the ¢ money. H still hasn't violated duty to community d. what can't H do? problems arise in gifting the special CP i. H can gift away his 1/2 ii. unfair gift will be set aside = constructive fraud: size of gift compared to total estate (how much more than 1/2) remaining estate adequate to support W" relationship of donor to donee timing of the gift (done long ago or week before divorce filing) iii. life insurance: change B to Tootsie 1. divorce = just & rt division (Tootsie only has expectancy) 2. death of W = dwap (1 & 2) above are during lifetime of insured so only consider ownership, not beneficiary!!! 3. death of H = plead and prove fraud * remedies a. SP = claim for reimbursement on premiums b. CP = (prefer 1 over 2) 1. debtor/creditor: satisfy out of H's estate 2. constructive trust imposed on amts. wrongfully gifted
4. death of beneficiary before insured: reverts to O iv. multi-party bank accounts: 1. divorce = just & rt equitable division b/c mere expectancy 2. death = wrongful gift rules v. intervivos trusts!!! 1. revocable iv trust: a. can't show actual/constructive fraud b/c impossible to show intent to defraud when it was still revocable b. illusory transfer to trust (of W's 1/2 interest) A) half of trust fails and goes back to W B) other half prob. fails and goes to heir/dev. 2. irrevocable iv trust: (not so hard to show fraud) a. actual fraud b. constructive fraud
[Note: testamentary trusts (once T dies): not so hard to show fraud, but remember, if you attack the will, you don't get to take under the will, but only get your CP half.]
3. alter ego: if H makes a bsns to shield his SP income from becoming CP 4. incapacity: spouse retaining capacity gets sole management & control over all CP G. Transactions Between Spouses 1. agreements between spouses (during M) you can make whatever ag. you want a. transmutation agreements = everything converted to CP (still special) b. everything converted to SP (income from SP remains SP) c. can agree to proprty to-be-acquired in the future 2. premarital agreements: you can agree what you will do upon divorce/death or decide everything will be SP (1) can agree to disposition on separation, divorce, death (2) you can agree that everything will remain SP (even income from CP) becomes effective upon M you can't make everything CP as a pre-marital agreement * agreements must be in writing and signed by both parties * retroactive (ag. made when not valid becomes valid) Divorce Review:
1. characterize assets: each spouse files an inventory of assets and identifies what he can as SP; burden on spouse trying to claim it's SP 1. SP: can't touch (unless special cirx) 2. CP: subj. to just & rt equitable division but we don't care if JCP, HSCP, WSCP. All same. claims for reimbursement: if one happens, it's a debtor/creditor relationship; if its a community claim for reimbursemnt, the ct then makes a just and rt equitable division of the claim (may be all rewarded to you or spouse) liabilities: ct allocates the debts among the H&W (H is responsible for these debts, W is responsible for these debts; this does not affect the rights of the creditors; the creditors can still go after either spouse for things they were liable for; creditors can go after any assets they could have gone to before the divorce, regardless of which spouse ended up with that asset) support: child support; limited form of maintenance (or Kual, foreign alimony or temporary alimony) wrongful transfers: during marriage, did either spouse make a fraudulent (actual or constructive) or illusory transfer? Wrongful transfer may affect the just & rt equitable division. If we can't make the wronged spouse whole, we can award a $ judgment against bad spouse. If we still can't make the wronged spouse whole, we can impose a constructive trust on the receiver. We bring back all of blackacre and it's all subject to a just & right equitable division. Waste If the H has wasted a lot of comm. assets, that will affect the just and rt equitable division. So, if H wasted everything, W is just out of luck. Waste is not a fraud. spousal torts: suing your spouse for an actual tort that H committed on W. If goes to judgment, these can clearly be satisfief out of spouse's SP. IIMA used often in divorce context.
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H. Effect of Death of a Spouse (the effect of dwap) i. Characterization & inventory: dead spouse: executor brings an inventory and classifies SS can challenge
what happens to the types of assets? CP: it matters if JCP, HSCP, WSCP it also matters if the assets are probate or non-probate (which is irrelevant in divorce court)
hypo: HSP:
H dies first. W survives. a. non-probate assets go to 3PB at moment of death b. probate: goes to heirs/devisees (subj. to possible probate admin). c. claims for reimbursement by W against H are satisfied (as though she's a creditor) out of HSP
HSCP: a. non-probate: ex. POD acct.
hypo: 3PB is Tootsie. At moment of death, 3P now owns it. The only thing the W can do is plead &
prove fraud on the community. If successful, she gets her 1/2 interest back, only. [Same remedies as divorce (try to get from HSP before constructive trust).]
b. probate => DWAP at moment of death. W retains her 1/2 interest subject to probate administration. Heirs/devisees get other 1/2 subj. to probate administration. After administration, we partition in fact the asset (dwap @ death, but record legal title still in H's name until we go through admin & partition in fact). JCP: a. non-probate: may, again, have a contract with a 3PB. hypo: H&W enter jt. acct. with ROS. Whomever dies first, 3PB is the other spouse. First argue no joinder b/c w/o spousal joinder, its void. (can argue fraud on the community alternatively) b. probate: DWAP, subject to administration [same as hscp]
NOTE: an asset may be non-probate if H dies first, but be a probate asset if W dies first, or vice-versa.
WSCP: to "W" a. non-probate: there may be a K that says what happens to the H's 1/2 interest upon his death (if he pre-deceases wife). ex. this almost exclusively occurs for W's retirement plan. Form says upon death of H, the H's interest goes to the W (and not to H's heirs/devisees). In this situation, the 3PB is almost always W.
[hypo: W POD to H. If W died first => H. Here, H dies first. This is a probate asset b/c there's not a K that says what happens when H dies! This gets DWAP'd.] If H had an asset, POD to W that goes nonprobate to W.
b. probate: H's heirs and devisees inherit H's 1/2 equitable interest; pending aministration, when it will be partitioned in fact. W gets other 1/2 WSP: H's death does not affect this at all. But there may be a claim for reimbursement on her estate. If community funds used to improve WSP.
II. Death: wills, probate and laws of intestacy A. creditors: 1. H dies: a. HSP, HSCP, JCP controlled by administrator/executor b. WSCP controlled by her (SS) c. what is subject to H's debts? 1. HSP 2. HSCP 3. JCP 4. WSCP if debts enforeable against H prior to his death (e.g. the half that goes to H's heirs/devisees) 2. disposition on H's death a. HSP => H's heirs/devisees b. HSCP => 1/2 to W, 1/2 to heirs/devisees c. JCP => 1/2 to W, 1/2 to heirs/devisees d. WSCP => 1/2 to W, 1/2 to heirs/devisees e. WSP => stays with wife 3. partitions in fact:
a. administration process 1. pay debts 2. assign W (or heris/devisees) their 1/2 interest 3. now they are TICs & they can partition when they want to b. then partition in fact B. protecting the family 1. common law states: elective share (SS elects fixed % or what was in will); if you were in an elective share state and you move to Tx you lose it 2. Texas' widow's election: a. equitable election: you accept everything in the will (even detriments) b. hypos: testamentary i. outright gift to Gig (in will): void b/c W is now dead & no longer has the power to do this (not "during the marriage" anymore) ii. testamentary trust for Gig (in will): also void but how does this affect the H? iii. I leave BA to Gig and res to Baylor. BA is CP. The 1/2 that is H's CP is VOID. W didn't have power to will H's 1/2 interest to Gig so upon W's death it immediately reverts back to H. iv. I leave BA to H and res of my estate to Gig. Fine b/c "res" will be interpreted to be what W owns. v. I leave BA to Gig and res to H. Here, H has to make an election. He can accept all of the will or take nothing under will and get his DWAP'd 1/2. inter vivos (WSCP) vi. iv outright gift to Gig fraud on community vii. iv revocable trust to Gig illusory transfer doctrine viii. iv irrevocable trust to Gig fraud on community 3. Homestead election: a. doesn't matter if HS was HSP, CP => SS always has rt to occupy home b. SS has the "right of occupancy" until death or abandonment c. heirs/devisees can't require partition in fact until rt. is over d. inerds of the house are personal property, so heirs/devs can clear it out e. a minor can assert a HS right until he's 18 (ct. can grant; discretionary; the spousal HS rt is mandatory) 4. Family Allowance: a. ct. can set aside allowance for SS to live off of for 1 year following death out of HSP b. minor child can have this right, too C. laws of intestacy (TPC 41d, 42, 43, 44, 45, 46, 47) 1. choice of law: a. US has said this is a matter of state law b. real property: law of situs c. personal property: where domiciled (domicile = Tx => Tx law controls) 2. Texas Probate Rules (see TPC § 37) a. upon death, O's property vests immediately in heirs at law b. upon probate, O's heirs divseted; devisees vested + relation back to moment of death 3. Intestate Succession: (DS = deceased spouse; SS = surviving spouse) a. BFU (basic family unit): spouse, parents, siblings, neices & nephews b. spouse, no children:
i. CP: all to SS ii. SP: 1/2 to SS all personal property to SS 1/2 real property to SS 1/2 real property to BFU (if none => SS) c. spouse & children: i. CP: all to SS (1/2 already owned by SS, DS's 1/2 to SS) if kids only of DS => DS's 1/2 CP to DS's kids ii. SP: A) SS takes 1/3 personal property B) SS takes l.e. in 1/3 real property C) kids take 2/3 personal property D) kids take 2/3 real property + remainder in other 1/3 d. no spouse i. to children ii. split equally between both parents iii. 1/2 to parent, 1/2 to siblings iv. all to siblings v. all to siblings decedents e. no BFU (no spouse, parents, children, siblings, neices/nephews) i. split into two moieties (1/2 paternal, 1/2 maternal - if none alive on one side, all to other side) ii. representation: divide at level of first living decdent iii. ex. A (a1 a2 a3), B (b1), C (c1, c2) iv. ABC all dead => split into 6ths v. B alive but AC dead; B gets 1/3, a1a2a3 get 1/3, c1c2 get 1/3 f. no heirs? escheats to state g. general rules of intestacy i. consanguinity: only 'blood relatives' inherit (i.e. sis-in-law &/or her kids by prior marriage don't inherit) ii. if heir dies 120 hours before decedent => deemed pre-deceased (even applies to wills, uoa) iii. if H&W die w/in 120 hours of each other, 1/2 CP distributed as tho. W survived, and 1/2 CP as tho. H survived iv. SP ins. policy: if died w/in 120 before => pay policy as tho. survived h. taking: i. representation ("per stirpes w/ rep."): living descendant on any level of family tree cuts off the lower people [don't forget not to count dead lines!] ii. per stirpes (strict): count at first descendant line (kids of deceased) iii. per capita: count up all taking descendants and split equally D. special situations 1. who is a child? i. adopted child ii. stepchild only if adopted iii. adoption by estoppel: (only estops person who made the misrep.; you don't 'equitably
adopt' a sister, etc.)
iv. representation they will adopt the child v. detrimental reliance 2. adopted-child inheritance rules:
a. child: inherits from natural and parents b. adoptive-parents: inherits from their adopted child 3. illegitimate children (always get from mommy; but to get from father, must prove:) a. court decree b. adoption c. statement of paternity d. child proves by clear and convincing evidence (high standard) 4. half-bloods a. "duh!" note: only happens w/ collaterals (can't have a 1/2 son) b. 1/2 blood? then gets 1/2 inheritance c. 'math' count 2 for each whole and 1 for each half => do fraction Pre-Death Transactions: 5. trasnferring/assigning interests a. heir A assigns his interest at moment of O's death to Cr; A dies w/in 120 hours; A is divested, so is Cr b. heir B's interest is attached by Cr; Cr keeps subject to...! i. B dying w/in 120 hours ii. O's creditors taking some of intestate estate iii. possession by PR of O's estate iv. probate (divesting heirs and vesting devisees) c. A can't assign an expectancy interest, really, but equity will allow Cr to enforce the assignment as long as Cr paid good and valuable ¢ i. if A predeceases O => Cr is out of luck (that's why if you're a smart Cr, you won't accept an assignment of a mere expctc'y); here little a's take directly from O ii. A feels bad & tells O; O writes will leaving everything to A's kids; Cr cannot enforce the interest against little a's or O, but may be able to sue A on boK or tort concept of liability 6. indebtedness a. heir C borrows money from O before O dies; doesn't pay back => O dies; that amt. is subtracted from C's share b. but there is a 4 year SOL on debts!!! If ex. above over 4 years, C gets a major windfall; not only does O's estate not get the $100k debt back, but it is not subtracted from C's share; ex. $400k - $100k to C (debt). 5 years pass
=> O dies. Estate = $300k (and no rt to get $100k loan back). Split 3 ways => $100k each, but C really got $200k.
c. hotchpot: use c/L equitable principles to accumulate all assets/debts so you split the $400k three ways and then subtract C's debt; you can't legally use the hotchpot to enforce, but can use it equitably when divying up the estate d. a loan to an heir doesn't affect the heir's decedent's share (little c) 7. advancements & the "common law release" a. A is broke. O says he'll give A money now to release his interest in O's estate. b. any distribution to A bars A from later vesting under will as long as it was for good & valuable ¢ c. the common law release does not cut off A's descendants (a) d. the c/L release does not cut off A's descendants even if A pre-deceases O (unless writing specifies otherwise) e. advancement only if there is a contemporaneous writing that says so (i.e. presumption is it was an outright gift) Post-Death Transactions
8. post-death interests may also be assigned, but still subject to being cut off by: a. 120 death b. O's creditors c. possession by PR during administration d. probate 9. renunciation/disclaimer (synonymous) a. general rule: you may renounce devise or descent b. effect: A renounces; it passes as if A pre-deceased O (to little a) c. A can do this to keep $ away from A's Cr's. It is not fraud. Whereas a post death assignment would have been fraud on the Cr. [exception: Cr is the IRS] d. A makes post-death assignment to 3P => gift taxes, perhaps. But renouncing => skips tax. e. procedure: i. notice to PR of disclaimer ii. filed before devisee/heir accepts possession or benefits of the property iii. done within 9 mos. of decedent's death 10. killer heirs: a. murdering heir still inherits (unless crazy?) b. unless life ins. or other Kual basis prohibits c. remedies: constructive trust; torts 11. altering terms of the will - if all the devisees agree to split property another way, we let them w/o going through paper transactions and then gifting to ea. other E. execution of wills 1. choice of law a. real property: law of situs b. personal property: domicle 2. wills, generally a. controls the disposition of decedent's probate estate b. revocable disposition to take control at death (& upon probate admin!) c. SOL: proponent of will must probate will in 4 years from dod (extensions allowed if GF efforts or B of will is minor) d. in the meantime the heirs at law are vested, but relation back; ex. if heir sold property, he's accountable for income to the devisee e. BOP: by a preponderance of the evidence on proponent of will (4 yr sol) f. muniment of title: if no debts => ct can do this; it's like informal probate; after muniment of title, devisees treated as owners's of property as to 3P's g. don't meet BOP => will is void! 3. requirements of a valid will (BOP is on will's proponent by a preponderance!) a. testamentary intent (ascertained from 4 corners; intent to take effect upon death) b. capacity i. mental ability; "sound mind" ii. over 18 or miltary or married c. formalities i. in writing ii. signed by testator in person or by proxy at t's request & in t's presence iii. 1. holographic: wholly in handwriting & signed
2. attested to: a. witnesses (two, over 14) b. sign in presence of T c. T says its his document d. not revoked 4. the details: a. signature: i. anything the testator intends to be his signature ii. "I, John Doe, leave ...." is valid iii. if you intended to write John Doe but died before 'Doe' => just John isn't enough b. attestation: this is a requirement that the witnesses do before they sign i. testator acknowledges that it's his document ii. there must be attestation! iii. attestation clause good for this 1. says the cirx. of the attestation 2. if you have, you don't have to prove attested to (pf evidence) iv. self-proving affidavit also works c. "presence" of witnesses and signatories-by-proxy i. conscious presence test: testator can use other senses besides visual presence ii. if witnesses leave the room => invalid b/c you don't know the witnesses were the ones who signed it d. 4-corners rule: 1. ex. document w/ formalities says "I leave everything as per my bedside memo" is invalid b/c memo doesn't have formalities and violates 4 corners rule 2. why can't we integrate? 3. not physically present when made will 4. it's a separate document 5. in the will you cna't incorporate by reference another doc that was not executed with testatmentary formalities iii. when can we integrate? 1. if will is on more than one page, if all pages present at time of execution and intended to be will => okay 2. prove by physcial connection (staples) or 3. "internal coherence" --> this sentence continues on next page e. prohibted witnesses: i. only need one credible and disinterested witnesses or party to corroborate what interested witness says ii. legatees or devisees as sole witnesses => you cann't est. the will, but if one witnesses was not an heir/devisee => okay iii. but if devisees were witnesses and will made void => devisees can still take their shares if they are also heirs iv. executor is treated as a devisee if he is entitled to more than his statutory grant of compensation 5. self-proving affidavits (don't mix up with attestation clauses!!!) a. a self-proving affidavit (TPC on p. 61) makes a will a "self-proved will" b. effect: a self-proved will can be admitted to probate w/o testimony of any witnesses c. the self-proving affidavit is Prima Facie evidence of due execution...including:
1. testamentary capacity 2. testamentary intent and 3. testamentary formalities 6. holographic wills "solely in handwriting" requirement a. there are two tests; Texas hasn't adopted one, so pick the one you want: b. intent test: if you intend that anything pre-printed be part of your will => will is void c. surplus test: if will is valid when ignoring pre-printed stuff, then just ignore the pre-printed stuff F. revocation of wills 1. testamentary act: (1) must have testamentary capacity to revoke, just like he needs for execution (2) manifestation of testamentary intent to revoke (3) comply with the formalities: (4) like formalities or (5) testator destroying or canceling first will or having it done in his presence 2. statutory revocation: a. pre-termitted children 1. not provided for in will or mentioned, the child succeeds to an "intestate" portion of the estate under certain cirx. 2. who is a pretermitted child: 3. child born or adopted after execution of the will 4. and not mentioned or provided for in/outside of will (totally ignored) ["whether or not I have kids in future" trumps the pertermission] b. divorce & gifts in favor of ex-spouse 3. totally revoking a will: a. express revocation b. implied revocation (subsequent document must be made with "like formalities") i. inconsistent => last in time controls ii. if they can be reconciled => both control c. revocation by subsequent act: "destroying, cancelling, or causing the same to be done in his presence" i. intended to destroy ii. capacity to destroy d. revocation by proxy i. capacity ii. intent to revoke iii. instructed agent to revoke iv. agent revoked in testator's physical presence (conscious presence is enough in Tx) 4. partial revocation: a. can have partial revocation by subsequent document executed w/ testamentary formalities ("like formalities"); this mostly happens when codicil or later will doesn't irreconcilabley conflict w/ earlier will b. revocation by physical act i. can't be done for attested will ii. is okay with holographic will 5. reinstatement: three approaches and Tx has used all three
a. c/L approach: wait until testator dies and see if there's revocation; wills are 'ambulatory' b/c they are naturally revocable and don't take effect until testator dies b. ecclesiastical view: once revoked, always revoked c. hybrid approach: 1. implied revocation => reinstate earlier b/c no longer impliedly revoked 2. express revocation => stays revoked (once revoked always revoked) 6. salvaging: a. execute a new will b. republication by codicil: write a codicil revitalizing the 1970 will by "incorporating the 1970 document by reference" & manifest intent that the 1970 doc. is republished b/c its incorporated by reference into the current document [conservative jx's don't like b/c contrary to 4 corners] if the doc. we incorporate is in existence at the time of incorporation and the testator manifests intent to incorporate we admit the 2000 codicil to probate; to interpret the 2000 codicil, we look to the earlier 1970 doc. potential trap: if the first doc is attested and the 2d is holographic => doesn't work b/c not physical incorporation by reference the older doc. isn't in his handwriting so codicil is not entirely holographic; same applies if you incorporate by refernce the TTC of TPC c. resign: redate and re-witness if holographic, you don't even have to re-sign; just readopt somehow (manifest intent) 7. Dependent Relative Revocation if a will is revoked by testator at a time when the testator is mistaken as to some material fact or as to the effectiveness of some new disposition => the courts will make that an implied condition to revocation. 8. examples of execution of revocation T (testator) H (heir at law if T is intestate) B (beneficiary under will if valid) 1) B, through fraudulent means & undue influence & duress induces T to sign a holo will in favor of B. T dies; facts come out. Will is invalid b/c duress means he didn't intent to sign will. 2) H via duress prevents T from signing the will in favor of B. T wanted to sign the Will, but H wouldn't let him. intestate. Too bad - no formalities, no will. B's remedy? constructive trust on H's inheritance. 3) H via fraudulent means/undue influence gets T to revoke an already existing will in favor of B. Revocation is not effective b/c no intent to revoke. B gets the stuff if he can prove. 4) B keeps T from revoking his will via duress. Dies testate; but H has a coa for fraud/duress, etc and remedy is a constructive trust. No formalities to revoke. G. probate and contesting wills review: 1. *dead people can't inherit* 2. TPC says must survive by at least 120 hours 3. issue = children grandchildren, great grands, etc. 4. "per stirpes" = representation; the children cut off th inheritance of the grandchildren but if there is one child who is dead the grandchild steps into the place of his parent.
5. sole independent executor: this is a Texas jx. thing; effect: independent executors marshall the assets, pays debts etc independent of the probate ct.; means the executor doesn't have to get as much persmission from the cts to do things - its cheaper and quicker. III. transfer Tax Gross estate - Gross deductions taxable estate + post '76 taxable gifts = tenative tax base! Gross estate: valuation: at fmv at time of death (not what you paid for the asset, but what its worth now)
the executor can elect "alternate valuation date" - can elect 6 mos. after date of death
fmv: willing buyer/willing seller test, what cash price would be negotiated? what if decedent was married? federal law recognizes Texas CP laws what goes into gross estate is dependent on Texas CP laws if the asset is HSP => 100% is gross estate if the asset was CP => only 1/2 interest is included in gross estate a) probate (the entire probate estate; anything that passes by laws of intestacy or will - whatever
he has the right to transfer! homestead right of occupancy laws do not affect that it is included, but may affect value!)
1. real property (ex. even if he left House to wife, 1/2 of the CP house is still included in gross estate) 2. stocks & bonds 3. mortgages, notes and cash 4. miscellaenous property (interest in un-incorporate bsns's) b) non-probate 1. insurance i) ex. O has life ins. on his life; worth $1mil. to 3Pbeneficiary; now that O is dead, if it was SP and owned by O prior to death, fmv to gross estate = $1mil. ii) fmv = face amount IF immediately prior to death, the insured owned the policy [possessed any incidents of ownership - he could change beneficiary or take back policy and get cash surrender value]! iii) ex. If it's a CP million dollar property => only 1/2 a million is included in his gross estate b/c under TX law even though he is O/Insured and it's HSCP, he only has a right to dispose of 1/2 (else fraud)) iv) ex. if O transferred ownership (gift) of the policy to the kids more than 3 years before death, then it's not part of his gross estate 2. JTs w/ ROSs i) ex. O is single. O and A inherited blackacre when their parents died. O and A are TICs. O died. 1/2 of blackacre is included in his gross estate as a probate asset! ii) ex. but if prior to O and A's death and they decide to have a JT with ROS => passes to A, non-probate asset in gross estate. 3. multiple party accounts i) ex. Jt acct with ROS or POD acct, trust acct: upon depositors death, according to terms of K with bank, $ passes to beneficiary or surviving jt
tenant of acct. No longer probate, but still included as non-probate asset of gross estate ii) ex. O POD to B. O is depositor and B hasn't contrib'd anything. Who owns? O. B only has a mere expectancy that doesn't mature into a prop interest until O dies. If O dies and B survives, it's a non-probate transfer; all goes into gross estate b/c O owned before he died. iii) ex above but B dies first. Does this affect B's tax base. No effect b/c mere expectancy. 4. annunities i) ex. insurance company promises to pay me $5k/mo for rest of my life. Five years into term of annuity, I die. Nothing included in gross estate b/c I don't own anything anymore. ii) ex. I get and J&S annunity for my and Husband. Wife dies. At W's death, annuity still pd to husband. fmv of continuing obligation to pay $x/mo is computed actuarily (how much did I pay for annuity and how many years already pd out). iii) ex. If the $100k I purchased w/ was my SP => all to gross estate; if it was CP then 1/2 to my gross estate. iv) Qualified retirement benefits: employee dies (vested but not matured); death benefit = fmv. Even if death benefit pd. out in annuity, cash, etc, still all included b/c he has the rt to transfer the fmv. v) if was CP retirememtn plan, then 1/2 (dwap) vi) I have a $2mil retirement plan. I die before I had retired. At my death, the plan administrator pays J&S annunity to my spouse (uoa by wife) b/c of federal law mandate! But if it was CP, only my 1/2 is included in my gross estate. If part CP and SP => 1/2 of CP to gross estate and all SP to gross estate. vii) ex. $2mil retirement plan (vested). I die and leave to wife in lump sum (she's consented to lump sum rather than J&S annunity). What is in my gross estate? If was CP policy => 1/2. But W receives all $2mil. She also has to pay income tax on all $2mil. c) general powers of appointment: 1. include as assets anything decedent has a general power of apptmt over 2. where donor of a power (usually settlor of a trust) to appoint the property to herself, her estate or her creditors. 3. ex. H dies w/ testamentary trust giving W an equitable l.e. and kids the equitable remainder. 4. Wife dies (the life tenant on blackacre). How much of BA is considered for W's gross estate? none b/c she's not transferring anything to anyone. She has no interest to transfer. The transfers took place when the H died. 5. Unless! H has granted to W a general power of apptmt. Holder of a general power is deemed owner for tax purposes (almost like an owner with a power of revocation). 6. But if it was a limited power of apptmt (can only be appointed to self for education or can only be appt'd to grandkids) => she's not an owner for tax purposes! d) special lifetime transfers Assets that O has already relayed, but b/c of special rules, they are brought back into the tax base as if O still owned them. 1. 3 year rule a) O owns a $1 mil life ins. policy. Kids are beneficiaries. 1. He dies as owner. Kids get the $1mil non-probate, but that $mil is included in gross estate and lots of death tax.
2. Trying to avoid: have O give the policy away at least 3 years before to avoid death and income tax free. b) gift can't be less than 3 years before death! 2. retained life estate a) ex. O gives A a l.e. with remainder to B. (doesn't matter if in trust or not) A dies. Blackacre has fmv of $1mil. Nothing included in A's gross estate b/c his interest ends when he dies (unless general power of apptmt.) b) ex. O gives remainder to B (son) but retains the life estate! He's made a gift of the remainder. When O dies, his life estate terminates and B's remainder interest becomes possessory. But b/c it was a transfer of a retained life estate, it is considered as O's gross estate (the full fmv of blackacre!). 3. effective at death (similar to 2) a) ex. O transfer to kids a springing executory interest to become possessory when O dies. When O dies there is no property interest left in O b/c he doesn't own it anymore. b) but for tax purposes, a transfer above to become effective at death is included in O's gross estate (fmv at death). 4. revocable a) O transfers $10mil into a revocable trust. Effect: removed from probate (but not from creditors or Fed tax). If I make a transfer during my life that is revocable I have not done anything from a tax perspective! b) As long as you hold a power of revocation, you are treated as O for tax purposes. c) Any asset that had a power of revocation immediately prior to my death is brought back into my estate. e) Q-Tip property 1. property subject to a life estate (different than plan l.e. and retained l.e.) 2. only exists in a martial situation 3. one spouse gifts a life estate to his/her spouse. hypo: H --> W for life, remainder to C (children). a) H dies: full fmv of blackacre is in H's gross estate. Then W dies: nothing in her gross estate (b/c she only had a l.e. and it's terminated). b) Q-tip election: When H died, his executor files H's estate tax return listing BA's fmv at date of death. IF executor elects to treat BA as "Q-tip" property. Effect: H still pays taxes on it & when the W dies, she pays the fmv taxes in her gross estate. It's valued at W's date of death. Why? marital deduction (see 3b1). Deductions: a) ordinary: 1. funeral expenses 2. administration (of the estate) expenses 3. debts & mortgages careful to pay following CP laws! torts, K's, promisorry notes, etc. b) special 1. marital deduction (we're really just deferring tax until death of the SS) must pass to SS in a qualified manner: 1. give SS a fee simple title (will or intestacy)
2. gifts in trust do not qualify for the marital deduction unless it's a special marital deduction trust under the IRC 3. ex. "Q-tip trust." H dies, gives l.e. to wife, remainder to kids by first marriage. The executor must make the q-tip election (or else BA won't be included in W's gross estate on her death!). 4. can be a trust - giving W and equitable life estate in trust and name kids beneficiaries. 2. charitable deductions Post '76 Taxable Gifts (not on exam) Tenative Tax Base find on tax table subtract credits: 780,800 - 202,050 = "unified credit" "state death tax credit" (amt. pd to state - still taken out eventually) "applicable exclusion amt." = if tenative tax base amt. is less than this, you don't owe any! EXAM: need to know yes/no if there are taxes owing. need to be able to determine tax base and then see if above appli. excl. or below