WILLS, TRUSTS and ESTATES FRANKLIN PIERCE LAW CENTER

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WILLS, TRUSTS and ESTATESFRANKLIN PIERCE LAW
CENTER 

• October, 2007

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Community Property (CP) Regime Premised on
Economic Partnership Theory and Sharing Principle
Borrowed From Civil Law of Continental Europe
(Spain, France)

• CP exists in 8 states (Arizona, California,
  Idaho, Louisiana, Nevada, New Mexico, Texas and
  Washington). A Marital Property system
  (essentially community property) is used in
  Wisconsin, based on the 1983 Uniform Marital
  Property Act.

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Requires classification between 

• Separate Property SP
• Consists of (i) assets brought to marriage by
  each party, and (ii) assets acquired by either
  party during marriage by gift or inheritance.
• Each party has complete testamentary freedom over
  his/her SP unfettered ability of either spouse
  to gift SP during life or make testamentary or
  non-testamentary disposition to persons other
  than his or her spouse.

• CP
• Irrespective of titling ( i.e., one spouses name
  alone) each spouse has an undivided one-half
  interest in all earnings of either spouse during
  marriage, and any assets acquired during marriage
  from earnings of either spouse.
• Complete testamentary freedom over each spouses
  one-half share of CP (i.e., ability by will or
  non-probate transfer to give to persons other
  than surviving spouse), but cannot defeat
  surviving spouses rights to his/ her undivided
  one-half share of CP.
• Intended to recognize each spouses contributions
  to a collaborative marital enterprise regardless
  of whether the contribution is remunerated (i.e.,
  wages and other earnings) or not (i.e., domestic
  services, child rearing), and conclusively
  presumes that both spouses contributions have
  equal value.
• CPs eligible for federal income tax cost basis
  step-up in value at first spouses death,
  enabling surviving spouse to sell CP after
  deceased spouses death at little or no capital
  gain tax cost.

Tracing and commingling problems, particularly
upon sales of SP and CP assets and reinvestment
proceeds
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 Common Law Regime originated in England
(Primogeniture/feudal concept), premised on
title theory (41 states).

• As regards marital property rights, title to
  property rules, testamentary freedom reigns
  supreme, subject to surviving spouses
  dower/homestead/family allowance/elective share
  (ES) rights, which vary from jurisdiction-to-jur
  isdiction. Trend ES laws across the country
  are gradually evolving in the direction of
  providing more disinheritance protection for
  non-propertied surviving spouses, but this is
  very uneven, and many states ES laws afford
  little (or no) protection, particularly those
  which have not been substantially amended or
  liberally construed by activist judges over the
  last 10 years.
• Note ES is a concept unique to the common law
  states no ES is necessary in the CP states
  because the CP laws protect the non-wage earner
  spouse by automatically giving him or her an
  undivided interest in all of the wage earner
  carrier spouses earnings during the marriage.

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Consequences Upon Termination of Marriage by
Death or Divorce Under Two Marital Property
Systems

• Common Law (Title) Property Regime
• Upon divorce property settlement which will
  govern the division of marital estate. Modern
  property settlement statutes attempt to implement
  marital partnership theory through equitable
  distribution systems, under which court has
  broad discretion to award each party an equitable
  share of the marital estate which typically
  includes all property and interests in property
  (tangible and intangible) owned by either or both
  spouses. Rule of thumb for the longer term
  marriages (i.e., 15 years or more), particularly
  where children are born, division is often a
  50-50 split a result which is often more
  generous to the non-propertied spouse than that
  which he/she would receive if the divorce
  occurred in a CP state.
• Marriage terminated by death generally,
  deceased spouse can disinherit surviving spouse,
  subject to surviving spouses ability to take an
  ES (also called a statutory or forced share)
  of deceased spouses elective share estate
  (sometimes the probate estate only but often
  augmented by other assets) in lieu of any
  provision made for surviving spouse in the
  deceased spouses will. Tremendous variation
  among statutes and court decisions in various
  common law states in elective share percentages
  (usually 1/3), statutory definitions of elective
  shares estate and common law gloss, and other
  nuances.
• Property settlement and elective share rights can
  be waived in every common law state through a
  premarital agreement, but requirements for
  enforceability (conscionability, disclosure of
  assets and liabilities, separate representation
  by independent counsel, etc.) vary from
  jurisdiction-to-jurisdiction. Post-nuptial
  agreements enforced in some jurisdictions, but
  often with more judicial scrutiny for evidence of
  overreaching and fraud.

• CP Regime
• Economic partnership means that each spouse is
  awarded his/her 50 share of CP upon divorce, and
  keeps his/her SP.
• On death community dissolves, and deceased
  spouse can by will give his/her SP, and his/her
  one-half share of CP, to anyone, even to the
  exclusion of surviving spouse surviving spouse
  keeps his/her SP and one-half share of CP.

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Continuum Illustrating Differences in Statutory
and Common Law Approaches to a Surviving Spouses
Elective Share Rights in Common Law States

• One Extreme Laws which attempt to mimic
  community property and/or implement
• partnership theory by providing grater
  disinheritance protection for non-propertied
• surviving spouse
• UPC 90 approximation/accrual system (8
  states) could provide surviving spouse with
  much more than similarly situated CP spouse,
  because no segregation what would be SP under CP
  system. Prof. Waggoner suggests extension of 50
  phase-in from 15 to 25 years
• States which allow personal representative of
  deceased spouse to make election but set
  limitations on elective share amount
• States which define a 50 elective share
  percentage, and provide expanded definition of
  elective share estate
• Statutory approaches in New York and Delaware
  generally, one-third federal estate tax gross
  estate (Del.), or net estate (NY) can
  provide substantially more or less protection
  than similarly situated CP spouse, depending on
  various factors in any given case (length of
  marriage, amount of property that would have
  otherwise been considered to be deceased spouses
  SP, etc
• States which by common law allow elective share
  percentage to apply to non-probate transfers
• Sullivan v. Burkin (MA. SJC 1984) revocable
  trusts created and funded during marriage
• Illusory Transfer Doctrine states that follow
  Newman v. Dore, a control test
• Fraud on the widows share states
• Common law present transfer test
• Objective Fraud (badges of fraud) - easier
  proof
• Subjective Frauddifficult proof

• 100

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Continuum Illustrating Differences in Statutory
and Common Law Approaches to a Surviving Spouses
Elective Share Rights in Common Law States
(Contd)

• 50

• Pre-Sullivan Massachusetts one-third share
  applicable to probate estate by common law do not
  allow consideration of non-probate transfers
  (Massachusetts pre-1984 Kerwin standard)
• States which limit surviving spouses guardians
  right to elect statutory share of incapacitated
  surviving spouse (e.g. UPC 69) as necessary
  for support, and 90 UPC (custodial trust))
• States which allow value of property subject to
  life estate as a credit against statutory share
  (69 UPC, and 90 UPC before 93 amendments)
• States which disallow election by personal
  representative of surviving spouse who dies
  before election date (both UPCs)
• States which allow elective share to be satisfied
  completely with life estate Connecticut 1/3
  if probate estate Rhode Island - life estate in
  all real estate
• Georgia a real outlier, having no elective
  share statute (but the Supreme Courts activism
  in divorce property settlement area gives hope)
• Other Extreme Laws which implement the support
  theory and/or provide little or no
• disinheritance protection for non-propertied
  surviving spouses (i.e., strictly follow English
• title regime). (These laws are most deferential
  to preserving deceased spouse/testators estate
• plan and protecting the interests of deceased
  spouses beneficiaries).

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