LOVE    DEATH     MONEY   TAXES

1. People die.

Every culture has (complex) Social Rules for Deciding who gets what

"Private" property: ability to control disposition. Alternatives:

• fixed division
• primogeniture: like royal succession
• intestacy, dower and curtsey
• entailed estates/ life interests
• general forfeit / "lifetime leases"
 

2. Historical background:

"a page of history is worth a volume of logic"

Transfer patterns change very slowly

Have to go back in history: continuous development

Wills back to Roman Republic times
Early estate taxes under Augustus and Tiberius

Feudal England: property "held of" a superior

"Property" was land and cattle ("chattle")
because of feudal system generally, plus Norman conquest
 
William I divided country up among his henchmen
holding had to be renewed on death
is one source of concept of taxing estates

 Society w/ limited literacy

 ritual and formalities for property transfer
a will might be the only document someone ever signed
is now a key source for historical research

 rise of post-feudal, capitalistic society @1400-1600

Rise of urban society:

City of London
Introduction of printing and mass literacy
Shakespeare and the Globe theatre
        Shakespeare's Will: the secondbest bed to wife Anne Hathaway

Wars of the Roses

Shattering of Plantagenet aristocracy:
Need for strong hands to preserve family wealth
Development of Legal devices for Wealth transfer

 Duality of Court system: law and equity

Origin of duality

limited remedies of law courts, narrowly precedent bound.
Growth of alternate system of royal justice

 Was multiple, not unitary concept of law

eg. merchant courts, ecclesiastical courts
What is "legal" vs what is "fair"
Tho chancery became as procedure snarled as the law courts

 The "trust" and the "use"

estate tax avoidance @ 1500

Estate tax in sense of having to re-buy one's "feudal" position
Idea that property "legally" owned by T, but in equity for B
predecessor of generation-skipping transfers

The entailed estate and other long-term tie-ups

Rule against perpetuities to counter

Structure of interests over time

To A for life, remainder to B
To A for the life of B, remainder to C
To A for life, reminder to B's heirs

These devices, generally, imported to US by English settlers 1640-1720

 Embedded in the "common law" states
And, to large extent, in the community property states
 

Estate taxes a later development

Response to the emergence of great US fortunes 1872-1900

Parallel developments in UK
Concern that large, hereditary fortunes were undemocratic

Introduced to pay for WWI

Obvious reponse was lifetime gifts
Gift tax started @ 1924; got impetus during the New Deal

Periodic major changes: 1976, 1981 etc

less than income tax: people don't like will rewriting
Residuals of history: transfer tax wraps around these:
 

3. What is a Will?

FAQ about Wills: Nolo Press

Wills and the attendant formalities

Probate Code Sec. 6100: it disposes of property

Individual over 18, of sound mind

Formalities of signing and witnessing

PC 6110: Writing, signed, 2 witnesses
Holographic will: signature and material provisions handwritten
If interested witness, presumption of duress/ undue influence

What is "Probate"? article by Mark Welch, Esq.

Probate as the residue of the role of equity courts re wills
In 20th century, merger of law and equity functions, generally
Still- no jury trial in equity matters
enforcement in equity: fairness of the fiduciary

Assignment One: Please visit probate court and report your observations

4. What are alternative transfer devices

Intestacy Marian Ford, "Estate Planning Terms"

PC Sec. 6400 ff.
Community property to surviving spouse

Separate property:

• if 2+ children, 1/3 to spouse
• if 1 child, or parents or parents issue:1/2
• otherwise, all to spouse

Other property

to issue, then parents, then parents issue, then g'parent's issue: then next of kin then to State of California: escheat

Joint tenancy and its variants

Civil Code Sec. 683
effect of joint tenancy : ripening interest of survivor
so not "probatable"
decedent's interest cut off at death
ability of either JT to sever by inconsistent act

for bank accounts, "Pay on death" accounts
or multiple signature accounts
"Totten trusts"

Living trusts

legal fiction

that title not in D, but trustee
trusteeship is an office , not an individual
so successor trustee can manage and convey
note on ownership by possession, vs. documents of title

Gifts

Civil Code Sec. 1146, 1147
voluntary transfer of personalty w/o consideration
verbal gift not valid w/o delivery (real or symbolic)
grant of Realty takes effect on delivery

5. Estate administration

D dies. Now what?

before authorization, only pay for funeral and protect estate

Obtain letters of administration

done by "Petition for probate", file will with court
"executor", "administrator", public administrator

notices to potential heirs and by publication

actual and publication to creditors
largely a game of forms and waiting
court supervision, but approval routine if no objection
Independent Administration usually a good idea
so is a waiver of bond

Inventory and appraise the estate

Cal has probate referees (a leftover form Cal inheritance taxes)
File info on real estate with court / assessor
Pay routine expenses to protect the estate
family allowances and preliminary distributions

Settle the estate

review and approve creditor claims
file the 706 if needed (personal liability problem)
Sell property if appropriate ($ needed, or heirs not want)
probate sale: public overbidding

prepare and file a plan of distribution

accounting for interim estate transactions
at this time, fees awarded: statutory and extraordinary

6. Fiduciary Financial Accounting

What is a fiduciary?

"faithful one": manages trust, estate (ptr to other ptrs, etc.)

 Variety of legal "duties"

keep the manager honest and diligent

duty to administer trust in accord with terms PC Sec. 16000
duty to make trust property productive: PC 16007

duty of loyalty

PC Sec. 16002: solely in interest of B's
issues of self-dealing: PC 16004

fiduciary standard of care: PC 16040

"prudent person familiar with such matters"
duty to report: 16062: annual accounting to B's
Contents: Sec. 16063

How Does Fiduciary Accounting Work?

like fund accounting only simpler
prime concern is to prevent the fiduciary from stealing
technically: verify compliance with duties

Charged with opening assets and income

cash method, generally
for books, Principal and Income control accounts

eg. Dr FMV of property at inception, CR Principal
eg. Dr Cash for interest received, Cr Income

Credited with closing assets and expenses

the Corpus-income distinction

reason is the use of fiduciaries to structure interests over time

 Revised Uniform Principal and Income Act

PC Sec. 16300: for other funds, Civ Code Sec. 731
Due regard for current and future beneficiaries
follow trust doc; if not, law, if not due care

Income and principal defined: Sec. 16303

differ from income tax

eg. cap gains and losses to principal
corp liquidation to principal
depreciation allowance belongs to principal

Charges against principal and income

PC Sec. 16312 (b)(1), (b)(5); (d)(1)