Transcript The Power to Transmit Property at Death

Themes for today’s class
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The problem of the “dead hand”
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While there are some limits on donor freedom,
trusts and estates law generally is designed to
promote the intent of the donor
As in other areas of the law, public policies may
trump individual autonomy (e.g., protection of
spouses and creditors)
Considerations of professional responsibility
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Legal duties to intended beneficiaries
Conflicts of interest when writing wills or trusts
for both partners in a couple
1
The dead hand
(p. 27)
The organizing principle of the American law of donative
transfers is freedom of disposition. Property owners have the
nearly unrestricted right to dispose of their property as they
please.
American law does not grant courts any general authority to
question the wisdom, fairness, or reasonableness of the
donor’s decisions … . The main function of the law in this field is
to facilitate rather than regulate. The law serves this function by
establishing rules under which sufficiently reliable
determinations can be made regarding the content of the
donor’s intention.
Restatement (Third) of Property: Wills and Other Donative Transfers §10.1 cmt. c
(2003)
2
The problem of the dead hand
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Which purposes of a testator are prohibited or
restricted?
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Leaving spouses without a share of the estate
Leaving creditors unpaid
Restraints on marriage or provisions promoting separation
or divorce (IN case, p.35)
Restraints on the alienation of property received from the
estate
Racially-based or other invidious restrictions
Provisions encouraging illegal activity
Maintenance of control far into the future (e.g., rule
against perpetuities)
3
Shapirav.
v. Union
Union National
Shapira
NationalBank,
Bank
315 N.E.2d 825 (Ohio Ct. Common Pleas 1974)
David
Ruth
Daniel
Mark
4
What were the facts in Shapira?
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David Shapira wrote a will dividing his estate in
three equal shares for his three children
The daughter, who already was married, would
receive her one-third share automatically, but Daniel
would receive his share only if he married a Jewish
woman within seven years of Dr. Shapira’s death
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A spouse would count as Jewish only if both of her
parents were Jewish (even though Judaism always views
a child as Jewish if the mother was Jewish, some
branches of Judaism view children as Jewish if either
parent is Jewish, and Judaism recognizes conversion)
Another son, Mark, faced substantially similar conditions
5
Did the marriage stipulation
violate the sons’ constitutional
right to marry?
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Recall Loving v. Virginia—states may not
forbid blacks and whites from choosing to
marry each other
Would a court enforcing Dr. Shapira’s will be
denying Daniel his constitutional freedom to
choose his preferred spouse?
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No—upholding the will would not prevent Daniel
from marrying a non-Jewish woman; it would
only affect his ability to receive his one-third
share
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But there is a penalty on the exercise of his right
6
Constitutional right to inherit?
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At the bottom of p. 29, the court observed
that “the right to receive property by will is a
creature of law, and is not a . . . right . . .
protected by . . . the United States
constitution.” What about Hodel v. Irving,
decided 13 years later by the U.S. Supreme
Court?
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That case recognized a right to distribute one’s
property, not a right to receive the property of
another person
7
Did the marriage stipulation
violate the public policy against
restraints of marriage?
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No—”A partial restraint of marriage which imposes
only reasonable restrictions is valid, and not contrary
to public policy” (page 30)
When are restrictions not reasonable?
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A “restraint unreasonably limits the transferee’s
opportunity to marry if a marriage permitted by the
restraint is not likely to occur. The likelihood of marriage is
a factual question, to be answered from the circumstances
of the particular case.”
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Restatement (Second) of Property: Donative Transfers §6.2, cmt.
a
Note the court’s distinction between a restraint on
the religion of the beneficiary’s spouse and a
restraint on the religious practice of the beneficiary
8
Which changes in the terms of
the stipulation would make it an
unreasonable restraint
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What if the sons had to marry within three years?
What if Daniel attended Brigham Young University
in Provo, Utah?
What if Dr. Shapira had made the gift contingent on
his sons marrying only a white woman?
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The court cited Dr. Shapira’s reason for the stipulation
(pages 32-33) and pointed out that he was trying to use
his wealth to preserve the Jewish community, either
through his children or through the State of Israel
Promoting marriage within one’s religious or ethnic group
(e.g., marry a person of Greek descent) probably still
okay
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Restatement says no to clauses requiring marriage within a
religion, but courts so far have tended to say yes
9
What about the way Joe
Lieberman handled his uncle’s
marriage stipulation?
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Did he do the right thing?
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It helped that he could rely on an unsigned draft
of a new will
Note the importance of where the money
would go if the gift failed
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If it would go to the other children, they might
sue to enforce the stipulation
But a charity probably would not
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Would the State of Israel have sued if the sons had not
satisfied Dr. Shapira’s stipulation, but the executor of
the will let the sons receive their shares?
10
The problem of the dead hand
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We saw earlier purposes of a testator that are
prohibited or restricted. Other purposes are allowed
(and conditional gifts usually are made through
trusts rather than wills)
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Education incentives—conditioning distributions on
graduation from high school or college or the attainment
of a minimum GPA
Moral incentives—conditioning distributions on the
satisfaction of drug testing, the making of contributions to
a charitable cause or the having of children
Professional incentives—conditioning distributions on the
earning of income, the entering of a particular profession
or joining the family business
11
Simpson v.
Simpson
v.Calivas,
Calivas
650 A.2d 318 (N.H. 1994), p.58
First
Wife
Robert Sr.
Roberta
Robert Jr.
12
Duties to intended beneficiaries:
What were the facts in Simpson?
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Robert Simpson, Sr., hired Christopher Calivas to draft
his will.
The will left all of the real estate to Robert Simpson,
Jr., except a life estate in “our homestead,” which was
left to Robert, Jr.’s stepmother.
Did “homestead” include just the house and some
surrounding land, or did it also include the full 100
acres of surrounding land, with buildings used in the
family business?
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Despite lawyer Calivas’ notes indicating that Robert, Sr.,
only intended to leave a life estate in the house, the
probate court awarded a life estate in the full property
It cost Robert, Jr., $400,000 to buy out the life estate 13
Simpson v.
Simpson
v.Calivas,
Calivas
650 A.2d 318 (N.H. 1994)
First
Wife
Roberta
Robert Sr.
“homestead”
Robert Jr.
14
Could Robert, Jr., sue Calivas?
Why was there a problem with a
lawsuit in the trial court’s view?
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To bring a malpractice suit, you have to show that the
defendant owed a duty of care.
Ordinarily, lawyers owe a duty of care to their clients,
and Calivas’ client was Robert, Sr., not Robert, Jr.
Could Robert, Jr., overcome the lack of privity of
contract between himself and Calivas?
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The court invoked the exception to the privity requirement in
cases of reasonably foreseeable harm to intended
beneficiaries of a contract
Because harm to intended beneficiaries is reasonably
foreseeable from a negligently drafted will, it is appropriate
to give intended beneficiaries a cause of action
15
Duty to intended beneficiaries:
The fall of the privity defense
Testator
Robert
Simpson Sr.
Lawyer
Devise by
Will
Christopher
Calivas
Intended
Beneficiary
Robert
Simpson Jr.
16
But didn’t the probate court
conclude that Robert, Sr.,
intended to leave the entire
homestead to the stepmother?
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The probate court was not able to consider the same
range of evidence about Robert, Sr.’s intent as was
the trial court in the malpractice suit.
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“Direct declarations of a testator’s intent, however, are
generally inadmissible in all probate proceedings” (p. 61)
Moreover, the probate court asked a different
question than the trial court—what was the intent of
Robert, Sr., as expressed in the language of the will
(emphasis added)
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Note that there is a trend in trusts and estates law in favor
of allowing probate courts more freedom to consider
17
evidence extrinsic to the language of the will
Do lawsuits by intended
beneficiaries serve the purposes
of tort law?
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Yes—the harm is suffered by the intended
beneficiary, not the testator, and tort law is designed
to compensate for injury
From a deterrence perspective as well, it makes
sense to give intended beneficiaries a cause of action.
If the estate sued, what would its damages be?
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Liability to intended beneficiaries represents the majority
rule, with about ten states rejecting liability (you may want
to practice in Ohio or Texas)
Some states limit liability to cases in which the
testamentary intent, as expressed in the will, is frustrated
18
What’s wrong with this picture?
Is this the right way to resolve
misdrafting of wills by lawyers?
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No—the unintended beneficiary receives a windfall
If the court wants to remedy the mistake, why not
correct the will and carry out the testator’s intent?
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As the notes indicate, trusts and estates law is being
reformed to allow for correction of the will in some
circumstances (pp.62-63), which we’ll discuss in future
classes
But what problems does that approach leave? If
we fix the mistake, what haven’t we addressed?
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The negligent lawyer escapes liability
19
Conflicts of interest:
What were the facts in A. v. B? (p.64)
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Husband and wife retained Hill Wallack’s estate
planning department to write their wills
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The couple waived Hill Wallack’s conflicts of interest from
the representation
The couple was warned that information each provided
could become known by the partner, but they did not
expressly waive confidentiality
The firm misspelled the couple’s last name in its
filing system, so conflicts checks didn’t pick up their
representation
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This became a problem when the husband fathered a child
out of wedlock, and the mother retained Hill Wallack’s
family law department in a paternity suit
20
A. v. B.,
v.(N.J.
B. 1999)
726 A.2dA.
924
Paternity
Plaintiff
(A.)
Husband
(B.)
Child
Wife
Marital Issue
21
Conflicts of interest:
What were the facts in A. v. B?
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When the Hill Wallack family law attorney notified the
husband about the paternity suit, he neglected to advise the
attorney of the conflict. He then retained another law firm
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Meanwhile, the husband and wife executed their wills, leaving their
respective residuary estates to each other
Ultimately, part of the wife’s estate might pass from her husband to
the child out of wedlock
The conflict became apparent when the Hill Wallack family
law department sought disclosure of the husband’s assets,
and the other law firm informed Hill Wallack that its estate
planning department already had the information.
Having discovered the conflict, Hill Wallack’s family law
department withdrew from its representation
22
May Hill Wallack disclose to the
wife that the husband fathered a
child with another woman?
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On one hand, Hill Wallack had a Model Rule 1.4 duty to
inform the wife of material facts relating to its
representation of her
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But wasn’t she a former client?
On the other hand, the firm had a Model Rule 1.6 duty
to protect the confidentiality of the husband (as
incorporated by Model Rule 1.9 (c)(2))
How do we resolve the conflict?
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Model Rule 1.6 includes exceptions to confidentiality
Under NJ Rule 1.6(c)(1)[now 1.6(d)(1)], lawyers may disclose
information to “rectify the consequences of a client’s . . .
fraudulent act in furtherance of which the lawyer’s services
have been used”
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So maybe Model Rule 1.4 doesn’t really matter
23
Could Hill Wallack have disclosed to
the wife under Model Rule 1.6 or
Indiana Rule 1.6?
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Model Rule and Indiana Rule 1.6 allow a lawyer to
reveal confidential information:
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“to . . . rectify substantial injury to the financial interests or
property of another that is reasonably certain to result . . .
from the client's commission of a . . . fraud in furtherance
of which the client has used the lawyer's services;”
According to the court (top p.66), the possibility that the
husband will pass to the out-of-wedlock child part of the
estate he inherits from his wife does not satisfy the
requirement that the lawyer reasonably believe that the
husband’s fraud “is likely to result in . . . substantial injury
to the financial interest or property of” the wife
24
What about the court’s point that
the husband had a lessened
expectation of confidentiality
because the firm did not learn of
the child from him (page 67)?
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The court seems to have confused
confidentiality with attorney-client privilege
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Model Rule 1.6 treats as confidential “all
information relating to the representation,
whatever its source” (Comment [3])
The attorney-client privilege protects
communications between client and attorney
that are made in confidence
25
What should Hill Wallack have
done to avoid the problems that
arose in this case?
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When writing wills for both partners in a couple,
lawyers should include a “disclosure agreement” in
their engagement letter that explains how
confidentiality will be treated between the two
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ACTEC model letter
Of course, lawyers need not share all confidential
information—it may not be material to the
partner’s interests
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Restatement (Third) of the Law Governing Lawyers §
60
Further ACTEC guidance when lawyer learns of
confidential information from one partner
26
What should Hill Wallack have
done to avoid the problems that
arose in this case?
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Law firms need safeguards to ensure they recognize
all conflicts of interest
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To pick up misspellings of clients, someone can double
check the work of the person entering client names into the
computer, and lawyers can audit the system by running a
conflicts check on current clients when they work on cases
Conflicts can be missed if important information is not
entered at all—Barnes & Thornburg got into trouble when it
merged with another firm.
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The other firm failed to list an adverse party in its files for a client,
and the adverse party was already a client of Barnes & Thornburg.
Because of the omitted listing, Barnes & Thornburg took on the
other firm’s client, creating a conflict of interest between concurrent
27
clients
(p. 62)
28