Estate issues Flashcards
What is NY’s Negative Bequest Rule?
EVEN IF a Will does not make a COMPLETE distribution of the estate, resulting in partial intestacy→words of disinheritance are given FULL EFFECT
We treat any NEGATIVE bequests as if the “beneficiary” has PREDECEASED the testator
How are lifetime gifts from testators (post-Will execution)to beneficiaries treated?
Satisfaction of legacies →a lifetime gift (made after a Will’s execution) to a beneficiary named in the testator’s Will was PRESUMPTIVELY made in partial or total satisfaction of the legacy (to be taken into account when distributing the testator’s property in death) ~ Advancement (intestacy)
NY has REJECTED “Satisfaction of legacies” doctrine There is NO satisfaction of legacy UNLESS proved by… 1) a CONTEMPORANEOUS WRITING made at the time of the gift; AND
2) signed by the DONOR or DONEE
Is it possible to incorporate into a Will by reference to an extrinsic document?
NO!
NY does NOT recognize incorporation by reference Incorp by reference = “I devise all things listed on the piece of paper in my desk”
EVERYTHING has to be formally executed (i.e. 7 pt test)
What are “nontestamentary acts” AND are they valid?
“Nontestamentary acts”:lifetime acts that have their own purpose or motive independent of any testamentary purpose that occur after a will is executed should be given FULL effect in the distributions made.
E.g. “car I own at my death”; “contents of chest”; “furnishings in my living room”
EXCEPTION: this is NOT VALID for title documents (e.g. deeds, stock certificates, bank passbooks); THESE can only be transferred as mandated by law
CLASSIFICATIONS OF TESTAMENTARY GIFTS
What are the 5 types of testamentary gifts that can be included in a Will?
- Devise — gift of REAL property
Recipient of a devise is a devisee. - Bequest — gift of PERSONAL property
2a) Specific Bequest — distinguishable from rest of testator’s estate at time of will execution - only that asset can satisfy the gift (“I leave my Sony computer Model..." → Appreciation and depreciation of specifically gifted property between will execution and death is normally irrelevant. 2b) Specific Bequest of a General Nature — not distinguishable from rest of testator’s estate until testator dies
3) Legacy — gift of personal property not sufficiently described to be specific
Recipient is called a legatee.
The MOST COMMON legacy is a gift of MONEY
3a) General legacy - Gift of a general dollar
amount --- "I lave the sum of $56MM to Jim"
3b) Demonstrative legacy - A general amount from
a specific source--- "I bequeth $1MM to Jim to be
paid from proceeds of sale of my house"
4) Residuary Gift — remainder of the estate
Some testators use the residuary for the “forgotten” items which were not dealt with earlier in the will.
“I give all the rest, residue and remainder of my estate to my brother Jim.”
On the other hand, some testators use the residuary gift as the main disposition of their property.
CLASSIFICATION OF GIFT BASED ON TYPE OF BENEFICIARY
a. Private Gift — non-charitable beneficiaries
b. Charitable Gift
ABATEMENT
What is an “abatement of legacies” to satisfy creditors’ claims?
When there are MORE claims against an estate than there are assets gifts will fail b/c estate property is inadequate to satisfy all the testamentary gifts…
THE ORDER OF ABATEMENT of testators’s property to pay debts and claims (absent provision in the will):
DEBTS and CLAIMS WILL BE PAID FROM Gifts (so they will fail) in the following order….
1) Intestate property abates; THEN
2) Residuary property abates; THEN
3) General gifts abate pro-rata (proportionally); THEN 3) Demonstrative legacies abate pro-rata; THEN
4) Specific legacies abate; THEN AND ONLY THEN… 5) Items that qualify for the estate tax marital deduction
ADEMPTION
What is theademption doctrine?
HIGHLY TESTED MATERIAL
Ademption = If a testator makes a SPECIFIC GIFT of property, and the property CANNOT be found or is no longer OWNED by the testator at the time of her death→ the gift adeems and it FAILS (he loses)
THERE WILL BE NO TRACING INTO PROCEEDS – EVEN IF THE PROCEEDS ARE CLEARLY IDENTIFIABLE
Ademption DOES NOT apply to Demonstrative gifts:If there is no cash available in the specified source from which the gift payment was supposed to come from, the gift will turn into a GENERAL LEGACY (i.e. other assets will be sold to satisfy a demonstrative legacy)
EXCLUSIONS:
1) Beneficiaries of a specific gift CAN COLLECT INSURANCE PROCEEDS for lost, damaged or destroyed (specific) gifts paid AFTER death — BUT IF paid BEFORE death, then gift would ADEEM and beneficiary gets nothing
2) Beneficiaries of a specific gift CAN COLLECT PROCEEDS from an EXECUTORY K (e.g. the sale of a house)to extent paid AFTER death – BUT IF K was completed by time of death, the gift adeems and beneficiary gets nothing
3) Beneficiaries of a specific gift CAN COLLECT PROCEEDS from the sale of the property when the sale is made by a GUARDIAN or CONSERVATOR
EXONERATION OF DEBTS OWED ON SPECIFIC GIFTS
Are specific gifts of encumbered property (w/ liens) “exonerated” at time of distribution?
NO!
Liens on specifically devised property are NOT exonerated UNLESS the will specifically directs exoneration (i.e. using proceeds from residuary estate)
NOTE: a general provisions for payments of debt in a Will do NOT exonerate specific liens – the WILL must specifically direct the exoneration
If not exonerated, the property passes subject to the lien → Accordingly, the beneficiary receives only the testator’s EQUITY in the specifically given property
Gifts of Securities
How are bequests of shares of stock (and other securities) treated?
1) PUBLICLY TRADED SHARES: Stock in publicly traded company→ does NOT adeem
EXCEPTION:Stock in publicly traded company ARE specific giftsif the testator bequeathes “my XYZ stock”→ YES it adeems
2) Stock in closely held corporation→ YES it adeems if sold (i.e. it’s specific)
3) Stock Splits→ treated as a specific bequest no matter what so beneficiary will get ALL the shares AFTER THE SPLIT INSTEAD of the original amt → does NOT adeem
NOTE: it’s IRRELEVANT when dealing W/STICK SPLITS whether the testator used “my” language, and/or whether the stock was publicly-traded or closely-held
4) Corp merges & stock is converted → → does NOT adeem b/c change in form, not substance (i.e. this wasn’t a sale)
NON-PROBATE ASSETS
What are non-probate assets?
NON-PROBATE ASSETS = Interests in property that are NOT subject to disposition under the Will or via intestacy (i.e. a Will instruction CAN’T override existing instructions)
CATEGORIES:
1) Property passing by right of survivorship:
(i) Joint bank account;
(ii) Joint stock accounts
(ii) payable on death securities
2) Property passing by K Contractual Pmts payable to a person OTHER than decedent or decedent's estate from sources such as: (i) Life insurance policies; (ii) Retirement benefits (iii) Annuities
Note that if these contracts are made payable to the decedent’s estate instead of a named beneficiary, then they become probate assets
3) Property held in trust (i.e. the terms of the trust will govern the disposition of the trust assets)
4) Property over which the decedent held a “pwr of appointment”
Example: Toby has a $500,000 John Hancock life insurance policy that names his wife Jane as the beneficiary. Toby (still married to Jane) dies leaving a will that provides: “I direct that the proceeds of my John Hancock life insurance policy be paid to my brother Boris.”
Who takes the $500,000 policy proceeds?
JANE, a will is ineffective with regard to non-probate property.
ELECTIVE SHARE
What is the purpose of the elective share statute?
HIGHLY TESTED MATERIAL
Purpose of Elective Share = To protect the SURVIVING spouse against disinheritance by giving him/her a MINIMUM share of the testator’s probate or intestate estate
CALCULATING ELECTIVE SHARE AMOUNT
How do you calculate the elective share amt (AND net elective share amt)?
Applies to BOTH PROBATE and INTESTATE estates
Elective share = the GREATER of…
1) $50k; OR
2) 1/3d of the augmented estate
(augmented estate = net probate estate + testamentary substitutes)
Net probate estate = the value of the estate AFTER pmt of debts, BUT before pmt of estate taxes
Testamentary substitutes = certaintransferred non-probate assets to other persons
---------------
Net elective share =
1) Elective share amt (calculated above)
MINUS
2) SPOUSES Intestate Share
MINUS
3) Any gifts to SPOUSE from Will
MINUS
4) Any joint tenany property b/t SPOUSE & SURVIVING SPOUSE ("1/2 IN, 1/2 OUT")
NOTE:
IF negative, elective share is SATISFIED (no right of election)
IF positive, electiveis NOT satisfied by the gifts, others contribute pro rata
What are 7 key testamentary substitutes (T-Subs) categories?
HIGHLY TESTED MATERIAL
Testamentary Substitutes need a LEG UP
(T) Totten Trusts
(S) Survivorship Estates (caution: pre/post-marriage issue)
(L) Lifetime Transfers w/Strings Attached
(E) Employee Benefits (1/2 if “qualified plan”)
(G) Gifts Made Within 1 Year (>$14k; or “causa mortis”)
(U) U.S. gov’t bonds (and other “pay on death” cert.)
(P) Pwrs of appointment
————————————————————————–
1) Totten trusts (bank accounts in testator’s name in trust for another)
2) Survivorship estates (joint tenancies; tenancies by the entirety; joint bank accounts; survivor bank accounts) NOTE: watch out for pre- and post- marriage scenarios
3) Lifetime transfers w/ strings attached (revocable trusts; or trusts where testator retained a life estate AFTER 1992)
4) Employee pension, profit-sharing and deferred comp plans (1/2 ONLY if Qualified Plan)
* ***NOTE: if the plan is a “qualified plan”→ only 1/2 is a T-Sub
5) Gifts made w/in 1 yr of death
MUST BE:
(i) >$14k; or
(ii) “Gifts causa mortis”, regardless of amt
6) U.S. gov’t bonds (and other “pay on death” arrangements)
7) Pwrs of appointment (property over which the testator held a PRESENTLY exercisable general pwr of appt)
RULE OF THUMB = If testator has an interest in it and can manipulate it, then it’s a T-Sub
(i.e. almost all non-probate transfers)
What are 6 non-testamentary substitutes?
HIGHLY TESTED MATERIAL
LOGPIT
(L) Life insurance proceeds
(O) One-half (1/2) of “qualified” pension & profit-sharing
(G) Gifts 1 year before death
(T) Transfers (irrevocable) w/retained life estate made
BEFORE 9/1/92 & during the marriage
1) **Life insurance proceeds(whether payable to surviving spouse or third party; counter-intuitive)
2) One-half (1/2) of “qualified” pension & profit-sharing benefits
3) Gifts less than $14,000 even made w/in 1 yr. of death.
4) Pre-marriage irrevocable transfers(i.e. gift to a friend before marriage)
5) Irrevocable transfers made more than one year before death (transfers in which grantor did NOT retain power to revoke, invade, consume or dispose of principal)
6) Transfers (irrevocable) with retained life estate made BEFORE 9/1/92 & during the marriage
AUGMENTED ESTATE CALCULATION (a.k.a. ELECTIVE SHARE ESTATE)
How do you calculate the augmented estate (a/k/a elective share estate)?
HIGHLY TESTED MATERIAL
1) Net Probate Estate
+
2) All T- Subs (Don’t include Survivorship estates so it is T-LEG-UP)
+
3) Survivorship estates b/t TESTATOR and SURVIVING SPOUSE
Only contribute 1/2 of this T-Sub. NO MATTER WHAT.
+
4) Survivorship estates b/t TESTATOR and 3d PARTY (made DURING marriage)
Consideration Furnished Test = Surviving spouse has the burden of proof as to the decedant’s contributions to the assets, acquisitions (RP) or the deposits in a joint bank account/tenancy held by the deceased spouse & third party; only “consideration furnished” goes into elective share pot
+
5) Surivorship estates b/t TESTATOR and 3d PARTY (made BEFORE marriage)
Consideration Furnished Test, BUT only contribute 1/2 of the amt as T-Sub. NO MATTER WHAT.
=
AUGMENTED ESTATE CALCULATION (a.k.a. ELECTIVE SHARE ESTATE)
