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272 Cards in this Set
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Topic 5 revocation of a will
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in order for a will to be valid you must prove that it has not been revoked between the time of execution and the time of death
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To revoke a will a testator must:
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Have:
Capacity Intent Statutory Formalities |
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Revocation by a subsequent docuement
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Doesn't have to be a new will. Can be a : new will, codicil, or a simple delaration in writing
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Hypo:
Will 1 – “I devise all my property to A.” Will 2 – “I devise all my property to B.” Both wills were properly executed. At the time of the testator’s death, which one is the will? |
the later in time controls.
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what does it mean to be revoked with "like formalities?"
Hypo: Will 1 – “I devise all my property to A.” Will 2 – “I devise all my property to B.” Will 1 is attested, and Will 2 is holographic. Can a holographic will revoke a prior attested will? |
Yes. With like formalities” has been interpreted by courts to mean “With testamentary formalities.” Thus, a holographic will can revoke a prior attested will in TX.
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Does the prior document need to be a will or testamentary declaration?
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No. Ex.
Will 1 – “Blackacre to A.” Document 2 – “I hereby revoke Will 1.” Result: Intestacy) |
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Hypo: What if Testator has a valid 2000 will and a fire destroys desk. Is the will revoked?
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NO, the revocation did not have capacity and Intent.
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What if a subsequent document impliedly revokes a portion of a will? Is the entire will revoked?
Hypo: Will 1 – “I devise Blackacre to A, residuary to B.” Will 2 – “I devise Blackacre to C.” Both wills were properly executed. At the time of the testator’s death, which one is the will? |
This time, we will admit both wills to probate. Will 2 does not manifest an intent to totally revoke Will 1. The language isn’t totally inconsistent. To the extent of any inconsistency, Will 2 (later in time) controls. C gets Blackacre, and B gets residuary. This is also an implied revocation.
In this case, the best course of action would have been to draft a codicil (express). “I intend to amend my former will, and I revoke the section that devised Blackacre to B.” |
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Revocation by cancellation
Hypo: What if a person has written “this will is void” on a will? |
In TX, a court would say that if the words were written in the margin, no dice. The will is valid. However, if the testator cancelled the will by writing through the will or marked a big X on the will, then it would be void. She has to write on the words of the will.
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Revocation by another person
Can another person revoke a will on behalf of a testator? |
Same as someone else signing the testator's name: it has to be done in his presence.
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Revocation by physical act
hypo: What if someone asks a 3rd person to flush a will down the toilet? Does this revoke the will? |
Does it meet the definition of presence?
Line of vision test? NO Conscious Presence Test? no, even though you can hear ti b/c wasn't in the same room. didn't see what was flushed |
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Revocation by Physical act
Does the buring or tearing of a will revoke the will? |
Section 63 - a will is revoked if the testator destroys or cancels the will or causes it to be done in his presence.
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Revocation by operation of law
Hypo: O signs his will while he’s still single. The will left all property to O’s parents. 10 years later, he marries. 5 years after that, he has a child. 5 years after that, he dies. What result? |
Texas has never recognized revocation by operation of law.
Most states would say that his dramatic change in circumstances worked a revocation. TX doesn’t adopt this view. |
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partial revocation of ex in will
Hypo: what if a guy gets married, leaves blackacre to his wife and then diorces her? |
§ 69 Voidness arising from divorce
• If after making a will the testator gets divorced or a marriage is annulled, the provisions in the will that favor the testator’s ex are void. |
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failed revocation
What happens if there is a failed attempt to revoke a will |
Rule: The doctrine of strict compliance says that the will is still valid. You must have capacity, intent and destruction.
However, if the will was not destroyed because of fraud, the court may impose an equitable remedy and impose a constructive trust on the wrongdoer. but what if the wrongdoer is not the one who inherited the asset? |
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Failed revocation
Hypo: What if T asks friend to destroy will and friend pulls out copy from desk and destroys photocop in his presence? What if the friend didn't benefit from the desruction of the will? |
Doctrine of strict compliance says the will is not revoked.
Who has standing to complain? The heirs at law. iF no rememdy - court of equity. You must look to the intent of the friend did he intend to pull out a copy frmo the desk? If so, fraud and we will impose a constructive trust on the benefit the wrongdoer recieved from the will. Even if the wrongdoer did not benefit we can impose const. trust on anyonwe who was "unjustly enriched." BUt if there was an honest mistake, no fraud and no const trust! Strict compliance= will valid!! |
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Revocation by subsequent physical act
Hypo: Testator keeps his will in a desk drawer. He dies and the will is destroyed in the fire. Later proof shows that Testator started the fire (either accidentally or intentionally). |
Here, we must determine whether Testator had an intent to destroy the document (not necessarily an intent to start the fire).
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What are three examples of a clear intent to revoke a document by a physical act?
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Tearing up
-Writing “VOID” across the face -Cutting name out |
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can a friend revoke my will by physical act?
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Proxy revocation is allowed. Destruction must take place in the presence of testator!
Again, it comes down to the presence test. the line of vision test or the consciousness test. |
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Revocation by physical act
Hypo: Testator is on his deathbed. He asks his son to destroy his will. Son flushes the will down the toilet in the next room. Revocation? |
No. Destruction didn’t take place in the testator’s presence.
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Presumption of intent to revoke
Hypo: Executed original of the will was last known to be in the presence of the testator. After death, we can’t find the executed original, or it’s located but has a huge “X” across it. |
Rebuttable presumption in this situation→ Testator destroyed will with intent to revoke.
It’s the practice of many lawyers to make multiple executed originals. The above presumption applies to all of these originals. However, all copies must be accounted for (sometimes difficult). Practical knowledge: Don’t make multiple originals. Just make photocopies. |
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What should a lawyer do with a will original?
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Featherston’s personal preference: The client should be responsible for keeping up with his will. That responsibility should not fall on the lawyer. Make a note in the client’s file that the client took the original with him!!
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partial revocation by a physical act
Hypo: Testator is too lazy to hire a lawyer to revoke part of his will. In the presence of two local priests, he scratches several things out and makes changes. Add scratches on cards Blackacre → A for life, then to B Whiteacre → A and B Greenacre → C A Redacre → D |
TX courts have said: TX statute does not allow partial revocation by a subsequent physical act.
Thus, we ignore the strikeouts and admit the will to probate as it was before. |
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Proof of lost or revoked will
What if I can't find a will? is there anything I can do? |
A will that cannot be found must be proved in the same way as a written will
PLUS the cause of its non-production must be proved AND the contents of the wil must be substantially proved by the testimoiny of a credible witness who hs read, heard it or can identify a copy |
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What if a holographic will has strikeouts?
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it's valid because it is in the handwriting of the testator and the stirkeouts are also in his hand, thus the will was not partially revoked, but a new will was created.
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Re-validation of a will
Hypo: W1 – “I devise all my property to A.” W2 – “I devise all my property to B.” Both wills are properly executed. Before O dies, he destroys Will 2 with capacity and intent. Did O die testate or intestate? Is will 1 re-validated? |
We have cases going three different ways in Texas
Common law view: A will is a revocable disposition to take effect at death. In between, a will is ambulatory. Thus, we wait until O dies and see which documents are still standing. O died testate, and W1 will be submitted to probate. Ecclesiastical view: As of the date that the new document was signed, the testator’s intent was to revoke the old document. Thus, W1 was revoked as of the execution date of W2. O died intestate. Hybrid view: Did W2 expressly or impliedly revoke W1? If express, we follow the ecclesiastical view. If implied, we follow the common law view. Safe to say we follow ecclesiastical view |
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Does the revocation of a will necesarily revoke a codicil?
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if the codicil and the will are necessarily interdependent or so incointerninvolved as to be incapable of separate existence, the revocation of the will revokes the codicil, other wise not -- Best guess for texas
the revocation of a wil bi act does not revoke a codicil to the will. if the codicil deeds on the revoked will for its meaning however, the codicil may have not effect as a matter or construction. |
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Hypo: Client comes to you and says, “I made W1, and later I made W2. Now I want to bring W1 back to life. What can I do?” What is the best way to revalidate W1?
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Safe Harbor Approach
Methods of Revalidating W1: 1. Have your client execute a brand new will. Best, cleanest way to revalidate. 2. Have your client bring W1 to your office. Go through the execution ceremony again. Sloppy, but ok. 3. Republication by codicil (not accepted in all jurisdictions, but accepted in TX) Client creates a one-page codicil. In it, he incorporates by reference the original document and republishes it. He manifests his intent to make the old document a part of the new codicil and then executes the new codicil. - -trap -- if prevous will was attested to" then codicil must be attested to can't republish an attested will with a holographic will. (because incorporation is cut and paste) |
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If original will is an attested will what can we do with a holographic document?
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we can revoke an attested will with a holographic will
we can partially revoke an attested will with a holographic will BUT we cannot revive an attested will with a holographic will. |
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Dependent Relatice Revocation
A partial or complete revocation of a wil lis presumptively ineffective if the testator made the revocation: |
1. in connection with an attempt to achieve a dispositive objective that fails under applicable law OR
2. because of a false assumption of law, or becaues of a false belief about an objective fact, that is either recited in the revoking instruemnt or established by clear and convincing evidence However, the presumption may be rebutted if allowing the revocation to remain in effect would be more consitent with the testator's probable intention. |
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Final Analysis for a will execution
Was there due execution? After the will was duly executed, was the will revoked? |
1. Did the testator, at the time of execution, have the requisite capacity?
2. Does the document purporting to be the will manifest testamentary intent (4 corners)? 3. Was the document properly executed according to testamentary formalities, or is it a valid holographic will? (see requirements above) A self-proving affidavit (executed with the assistance of a notary) is prima facie evidence of due execution!! An attestation clause is only a presumption of due execution. Was it revoked in all of the ways that a will can be revoked? was it re-validated? |
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Fraud, Duress, Coercion, Undue Influence (FDCUI)
Hypo 1: H, through fraudulent means (fraud, duress, coercion, etc.), prevents T from executing a will that would leave everything to B. T had capacity and intended his property to go to B. H is the last person in the world T would want his property to go to. Did T die testate or intestate? |
We don’t have execution, so T died intestate. What should I do as B’s representative? Assert fraud, and ask the court to impose a constructive trust.
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Hypo 2: B, through fraudulent means (shotgun to the head), gets T to sign a holographic will leaving all of his property to B. T had capacity. Did T die testate or intestate?
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T didn’t have intent, so T died intestate.
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Hypo 3: Assume there is a previously executed, valid will leaving everything to B. B learns that T is about to revoke the will. B, through fraudulent means, prevents T from revoking the will. T had capacity and intent. Did T die testate or intestate?
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T died testate. He may have had the capacity and intent to revoke the will, but he didn’t destroy the will. What should I do as H’s representative? Assert fraud, and ask for a constructive trust.
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Hypo 4: Assume there was a previously executed, valid will. H, through fraudulent means, forces T to tear up the will. T had capacity.
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T didn’t have intent to revoke, so T died testate.
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Death of Legatee
What happens if legatee dies before the testator? |
We say the gift. lapsed. the gift will not pass to the beneficiaries estate, because unitl the testatory dies the legatee only had a mere expectancy. If the gift was specific, the gift lapses and the property goes to the residuary beneficiary or passes to the heirs at law if there is no beneficiary clause.
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Death of legatee
Hypo: “I devise Blackacre to A, residuary to B.” A and B die before T. |
The specific gift to A lapsed. Blackacre goes into the residuary, but the residuary gift to B lapsed too. Thus, the entire residuary goes to Heirs. This is the common law rule, stated in §68(b). But look at TX’s statutory rule in §68(a):
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Death of legatee
But what if: “I devise Blackacre to A, residuary to B.” A and B die before T. and A is a liineal decendant of T? |
Section 68 a -If a devisee who is a descendant of the testator or a descendant of a testator’s parent is deceased at the time of the execution of the will, fails to survive the testator, or is treated as if the devisee predeceased the testator by §47 (120 hour rule) or otherwise, the descendants of the devisee who survived the testator by 120 hours take the devised property in place of the devisee.
Is A a lineal descendant of either the testator or the testator’s parents? Did A have any descendants who survived A by 120 hours? Assume A has a spouse and a son. Blackacre will go to A’s son as a substitute beneficiary, according to §68(a). Same rule will apply with regard to B. Consider, also: §68: Prior Death of Legatee (e) This section applies unless the testator’s last will and testament provides otherwise. For example, a devise or bequest in the testator’s will such as “to my surviving children” or “to such of my children as shall survive me” prevents application of (a). |
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Topic 6 Probate and Contest of Wills
No will is effectual Until: |
1. death of Testator
2. Court of proper jurisdiciton admits the will to probate. |
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See outline page 168 for process of probate court
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13 step process
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Probate Steps:
1. File will and application of probate |
Best place is the county in which the testator resided at time of death. Procedure is in rem so must have in rem jurisdiciton.
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Probate Steps:
2. County Clerk assigns the estate to the proper court and notifies the sheriff |
2. County Clerk assigns the estate to the proper court and notifies the sheriff
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Sheriff issues citation by posting on courthouse door for 10 days – constructive knowledge.
Earliest possible date for hearing: first Monday after passage of 10 days after posting. Is actual notice necessary? |
No actual notice is not necessary in texas because interested parties have two years to contest a will after it has been admitted to probate
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How long do you have to probate a will?
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4 years
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Probate Process
4. who will be at the hearing? |
Most of the time the in rem hearing wil be ex parte.
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probate process
5. What are the burdens at the hearing? |
The propoent of the will has the burden to prove:
The testator is dead (no death certificate necessary, just witness testimony); -The testator had real/personal property ($10K+) within jurisdiction of the court; -The court has proper venue (county where testator resided at the time of death); -Due execution (self-proving affidavit or evidence); and -Non-revocation |
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Probate Process
6. The court must then decide how to procede. What are the court's options? |
The court has two choices:
Appoint a PR of Order a muniment of title (Unique to Texas). |
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Probate Process
6a. What happens if the court appoints a PR? |
if a PR is appointed:
If a PR is designated in the will, he becomes the executor. If a PR is not designated in the will (or if the designated person is unwilling or unable to act), the court will appoint an administrator. In this case, we must prove that there is a real necessity for administration. |
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Proabte process
6b. what is a muniment of title? |
Order muniment of title (unique to TX)
To accomplish this, we must convince the court that there is no need for formal administration. We do this by proving that there are no outstanding debts (other than debts secured by liens on real estate). If the court orders a muniment of title, administration is over. So what happens? a notice is enered that the person named in the will now owns the property and 3rd parties have to deal with 3rd parties - probate process is over Note: Muniment of title can be ordered even if the will designates a PR. Just provide proof. |
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Probate Processs
7. The court must decide wether the PR will be independant or dependant |
An independent PR handles probate in much the same way as a trustee handles a trust – very freely. (unique to texas)
less time costraints - doesn't have to be running back and forth to court to ask to do shit A court supervised dependent PR has many more constraints – He must ask the court’s permission for most actions related to probate. This choice must be noted in the court’s order! |
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Probate process
7a. if the t names administrator he is an executor if t does not he is an administrator What's the difference? |
Administrators hace only powers reserved int he probate code.
Executors have probate code powers and any other that T give him - ex. in sample will executor was given trust code powers as well |
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probate process:
8,9,10 - PR must qualify for office what must he do? |
1. he must file an oath of office ; and
2. provide a fiduciary bond and have that bond approved by the court. (unless waived) bond is like malfeasance insurance. Notice in sample will bond is waived. |
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probate process:
11, 12, 13 |
11. The county clerk issues letters certifying that this guy is the duly appoint and qualified PR.
If administrator: letter of administration. If executor: letters testamentary. 12.At this point, formal administration begins. 13.Once administration ends, the estate closes. |
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what are the types of will contests in Texas?
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1.Pre-probate contests:
Heirs enter objections before the court issues its order admitting the will to probate. 2.Post-probate contests: §93 lawsuit to set aside a will that has already been admitted to probate. Heirs have two years after probate to initiate this type of lawsuit. **The two-year period can be extended if there is fraud or forgery to two years after discovery of the fraud or forgery. **Incapacitated persons and minors have two years after the removal of their disability to file suit. |
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What issues are brought up in a probate contest?
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The sam issues that are brought up when the will is admitted to probate the only difference is now the contestant has the burden of proof.
Same issues as in probate: -Whether testator is dead; -Whether testator had real/personal property within jurisdiction of the court; -Whether the court has proper venue; -Whether there was due execution; and -Whether the will was revoked Pre-probate → Burden of proof is on the proponent Post-probate → Burden of proof is on the heir |
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Hypo: I represent an heir. I’m aware that the proponents have filed the will for probate. Should I contest the will pre-probate or post-probate?
Is there any procedural benefit to waiting and filing a §93 lawsuit? |
It would seem logical to contest the will pre-probate. Why? Because the burden of proof is on the proponent.
You would bear the burden of proof, so you would get to talk to the jury first and last! Also – The burden of proof shifts only on the essential elements above. If you’re dealing with fraud/duress/undue influence (affirmative defenses), the burden of proof will be on the contestant no matter what. Keep this in mind! so if you are going to pre-probate contest and assert an affirmative defense the burden is on contestant anyway. |
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What is an in terrorem clause?
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If you represent the heir, determine whether the will has an in terrorem clause (“to strike terror”):
“If any beneficiary contests this will, either pre-probate or post-probate, either directly or indirectly, all provisions, all devises, and all fiduciary appointments in this will in favor of that person are null and void. The property to which they would have been entitled will pass as if that party and all of his descendants predeceased the testator |
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Hypo: Heir initiates a contest with probable cause and good faitn and loses. Is the in terrorem clause triggered?
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NO! Section 64 is new - says forfeiture clause is unenforceabl if there is PC and good faith.
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Pretermition
What is a pretermitted child? |
Pretermitted child” means a child of a testator who, during the lifetime of the testator, or after his death, is born or adopted AFTER!! the execution of the will of the testator.
Understand: A testator does not have to leave his children anything. There’s no forced heirship in TX, and the obligation to take care of your child is extinguished at death. allowance for pretermitted child is not a revocation statute. However, you must be intentional in your attempt to disinherit your child! Otherwise, it might be viewed as an accidental omission. |
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What happens if the pretermitted child is left out of the will?
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Not a revocatino of a will, but by statute if the pretermitted child is left out of a will, then he is entitled to:
1. T has one or more living children when he executed the will: a. and no provisions are made for any of them = they all take as if t died intestate owning only assets that the estate did not give to pretermitted child'a parent b. if there is a provision for the other kids the limit is the amount given to other kids and as if he had made same share. 2. if t had no living children when he exeuted the will: he inherits the portion of the estate not devised to other of pretermitted's parent as if T had died w/o a surviving spouse. |
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Temporary Administrator
what? who? |
in a pre-probate contest it is more likely than not that the court will appoint a temporary administrator pending the outcome of the contest. They hae limited powers - less than exec or admin. ONLY RIGHTS specifically expersed in the court order.
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Doctrine of tortious inteference with an inheritance
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an evolving concept - a tort action for intefering with an inheritance.
a person who by undue influence, duress, fraud, or other tortious conduct causes a decedetn to divert property to another who would have otherwise recieved it may be liabel in tort. a tort action for wrongful interference will lie only if the claim for wrongful conduct could not have been asserted as part of the proceedings to admit a will to probate or in a will contest. -- Anna nicole smith- will was too good. |
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what other remedies are available for wrongful conduct
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the court may impose a constructive trust
If a wrongful act prevents a testator form making a wil or a particular devise, couts have held that constructive trust relief is available a claim for constructice relief can be asserted against beneficiearies other than the wrongdoer. |
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Family agreements
can a family decide not to probate a will? |
Yes. not unusual for all heirs and devisees and interested parties to agree that they will not probate the will and take as if T had died intestate or according to some other agreement - no one cares as long as creditors are taken care of.
How can this be defeated? name a devisee who you know will fight - charity (maybe will fight) if consideration is given for the agreement, it is a binding enforceable contract. The executor has no say to probate will unless he is a devisee. so most people who die intestate have estate divied up b/c no one to force estate to be divied up by laws of intestacy |
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How do 3rd parties know who successors in interest are when there has been no administration? (family agreement not to probate will or intestate succession and agreement)
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1. Do nothing unde 37 and hope to claim
section 48 proceeding - Proceeding to declare heirship - howard hughes style applicant may request that the court determine whether or not the necessity for administration exists - the intestacy equivalent of muniment of title. Section 52 is middle gournd - affidavit of heirship - to become prima facie evidenc of heirship, mut be on record for 5 years ** but if we have intestacy and there is a need for formal administration, the court will appoint a PR and it wil be his responsibility to initiate a judicial determination of heirship. |
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TOPIC 7 - Post Execution Events
How do we interpret a will? What are the three key types of devisees? |
We look to the four corners of the doc to ascertain intent and only look outside if a meaning is ambiguos. (like contracts) so then we deem intent based on statutory rules of construction.
1. Specific Devise 2. General Devise 3. Demonstrative Gift** some would not consider a devise 4. Residury Devise |
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Specific Devise
If I devise in my will my dodge ram truck to bob, does that mean the executor can give bob anything that is equivalent to the price of a dodge ram truck? |
A specific devise is a testamentary disposition of a specificaly identified asset.
a specific devise of person property does not include any contents of the property unless the will says so. (ex. desk adn stuff in it. house with stuff in it). However a statement of actual intent always defeats the statute. Under common law, as of the DOD the specifically deised asset belongs to the devisee (relates back) |
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What is a general devise?
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A general devise is a testamentary disposition, usually of a specified amount of money or quantity of property that is payable from the general assets of the estate.
ex. I give to niece $10K. Niece has a 10K note against the estate. Not devising a specific 1OK bills. |
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Hypo: a will devises $10,000 to my niece, tootsie. Does the executor have to pay tootsie cash?
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C/L says she has a right to cash, but it is not uncommon for a will to give flexibility to an executor by using a phrase liek "cash or in kind". If this language is in the will, then the executor may devise, for example, 10k in exxon stock
HOWEVER absent that authority in the will he owes her cash. Executor must sell the stock and give her cash. must be worth 10K on the date of delivery. |
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hypo: I devise to Bob 100 acres of land. T owns 1,000 acres of land.
Is this a general devise? |
Yes. It is a general devise and it is up to the executor to partition the land that T owns to give BOb 100 acres.
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Hypo: I give to Bob 10,000 shares of ATT stock. T owns 100,000 shares of ATT stock at time of execution. At death, T has no shares of ATT stock. Is this a general devise? What msust Executor do?
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Yes. it is a general devise because it does not say which specific shares.
If T has no stock in ATT at time of death, then he must go and purchase 10,000 shares to give to Bob. The general devise must be satisfied out of the estate. |
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What is a residuary Devise?
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a residuary defise is a testamentary disposiiotn of property of the testator's net probate estate not disposed by a speific, general, or demonstrativ devise.
**net probate means also after we have paid the debts off. Referred to as RRR - rest, residuary and remainder. |
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hypo: I devise blackacre to my friend bob and whiteacre to my boss larry. I also own greenacre but make no mention of it in my will. What happens to greenacre?
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I the absence of a Residuary provision, the rest of the estate is distributed using intestate succession.
A well drafted will will have a residuary clause (thus usually giveing it 3 types of deveises). |
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Hypo: I devise my dodge ram truck to my brother arnold. What if at the date of death i no longer have a dodge ram truck?
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ADDEMPTION BY EXTINCTION is a rule of construction that applies ONLY to devises of real or personal property.
This theory is based on the concept that a specific devise can only be satisfied by the delivery of the described item. |
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So, in texas, what happens when the truck is no longer around for me to give?
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Texas has long followed the identity theory.
The identity theory states that the a specific devise is ineffective if the testator no longer owne the specifically devised property at the time of death and the court will not inquire into the reason why the specifically deised property is not found in the estate. no one cares why it is extinct or who made it extinct. |
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hypo: I devise my '99 ram truck to john. before death, T trades the '99 in for a 2005. Does john get the 2005 truck?
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No. the '99 truck was gone at the date of death. Strict identity test says theere is no longer a specific gift. Executor does not have to go out and by a dodge truck for john. it was a specific devise that is no longer within the estate. Ademption by extinction.
** could have said"the truck i own at death" to get around. Extrinsic eveidence would be used to figure out which truck he owned. |
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Hypo: T devises 100 shares of 3rd National Bank to his friend Bob. Third national bank consoliddates with another bank and T receives 100 shares of stock in the consolidated bank. Is this a ademption by extinction?
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No. This is a CHANGE IN FORM only. The stock changed in name only.
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Hypo: T devises 100 shares of Exxon stock. At death, Exxon is now ExxonMobil. Has there been ademptoin by extinction?
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Strict identity test says that this is more than a change in form because it is a merger. More than was there before. However, Leg adresseed this section 70A - Increase in securities by stock splits, stock dividends an new issues, PLUS mergers, consolidation and reorganization. (Accession)
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Assessions and Accretions
Hypo: T's will says I leave to my brother Arnold my 100 shares of Exxon stock. T dies and by the time the will is admitted to probate, the stock has a 10 for 1 split. does Arnold get the now 1000 shares of Exxon? |
Yes. if the devise is a specific devise (meaning he only had 100 shares of Exxon) then Arnold is entitled to the assensions and accetions. Accesion is an adding (like a merger) and accretion is natural growth (like stock splits or stock dividends).
also a right to the dvidends from. but a devise does not include a cash distribution accruing before death even if paid after death. But general gifts do not follow this. THey are not entitled to interest. |
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Hypo: T gives his friend a 10k speciic devise. "the 10K in my savings account" . The will is not admitted to probate until two years later. Is she entitled to the interest on that 1OK?
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Yes. She is entitled to the interest if it takes more than a year to probate.
For geneal devises all interest, dividends, etc go to the residuary. |
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Assets vest subject to O's Creditors. What if the will is silent as to how the debts will be paid?
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322B- Bequests abate in the following order -
1.property not disposed of by will but pasing by intestacy 2. Personal property of the residuary estate 3.real property of the residuary estate 4.general bequests of personal property 5. general devises of real property 6. specific bequests of personal property 7. specific devises of real property |
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Hypo: I devise blackacre to A and Rest residue and remainder to B. At death FMV of Blackacre 100K and srocks and bonds 200K. However, black acre is security for a 50K note. Do we use the RRR to pay of all the debts (in line with 322) or does blackacre pass with debt?
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71A - a specific devise passes subject to debt and there is no right to exoneration from from the estate for payment of the debt.
But (b) says that if T says in the wil that the property passes without being subject to the debt. BUTTTT - New statute -this only applies to will executed after 9/1/2005. If will was executed before 2005, apply the common law - blackacre would pass free from debt (executor would sell 50k of stock to free blackacre). |
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What if the will passes property subjec to an estate tax (to children - not wife?)
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First, remember that exzemptions cover most peope. you had to inherit over 3.5 million to get taxed. '10 no estate tax.
322 big A - just be aware that it exits. Unless a will provides otherwise, each recepient of an estate (probate or non probate) are to pay their own share of the estate tax. Residuary beneficiaries also pay their pro rata share of estate tax. |
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Hypo: A leaves his wife B an estate worth 10 million dollars. Does she have to pay an estate tax?
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No. There are two exceptions to the estate tax:
1. surviving spouses (there is an unlimmited marital deduction). -but it must pass in a qualified manner = outright gift ok but gift in trust may not 2. Qualified charities |
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Hypo: T makes an intervivos gift to his son of blackacre. In his will he writes that the gift of blackacre is to be deducted from what he was left in a will.
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Ademption by saisfction.
property given to a peson by a testator during T's lifetime is considered a whole or a part satisfaction of a devise in a will if: 1. the will provides for the deduction of the lifetime gift 2. the testator declares in a contempraneaous writing that the lifetime gif tis to be deducted 3. the devisee acknowledges that the gift is to bededucted in writing. Propert given in partial satisfaction shall be calued as of hte earlier of the date of possession or enjoymeny of prop or the date on which T dies. |
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Lapse and Anti-Lapse
Representation is not an inherent part of wills - will always trumps. 47(c) only applies when the will is silent |
If will does not provide otherwise, devisees must survive T by 120 hours.
Also no representation |
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Hypo: T's will gives BA to Friend. Friend's will says all to my spouse. F and spouse have two kids. baylor is the residuary beneficiary in the will. F dies after execution but before t.
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F could not pass BA to his heirs or devisees because he did not take. Dead guys can't inherit. Gift lapsed.
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Hypo: T's will gives WA to C, his child. C has a spouse and two kids. C's will says all to my spouse. baylor is residuary beneficiary. C dies after execution of the will but before T.
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C/L would say dead guys cant inherit BUT, Seciton 68. Anti lapse statute
If a devisee is a decendant ot T or a descendant of T's parent and they predecease T then their decendants take in place if they survive T by 120 hours. _ not representationit a substantial failure rule. so in this hypo C's two kids would take over baylor. (e) BUT if will says "if he survives me" then WA goes to residuary (baylor). Most will negate 68 A |
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hypo: What if B and C die within 120 hours of T and the will is silent as to the requirement of survivorship?
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because will is silent 47 controls and they are deemed to have predeceased T. In example 1 BA goes to baylor. in example 2 WA goes ot C1 and C2
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Hypo: what if F and C die a month after T and the will is silent?
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They have not predeceased T so no lapse. BA goes to F's wife. WA geos to C's wife.
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hypo:T's will gives BA to C. Friend's will says all to my spouse. F and spouse have two kids. baylor is the residuary beneficiary in the will. C files a valid disclaimer of BA.
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we say that C predeceased T. C's heirs may take under the anti lapse statute and the substitute taker rule could come into play. IF HE DISCLAIMS< IT IS THE SAME AS IF C PREDECEASED T.
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MARITAL PROPERTY
When a cuple gets married, what is community property and wha is seperate? |
seperate property is
1.property owned by a spouse before marriage 2. property acquired after marriage through GIFT, DEVISE, DECENT. 3. (recovery from personal injuries during marriage (except recovery for loss of earning capacity and medical expenses) EVERYTHING ELSE is community property = implied esclusion rule. |
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In CP states what are the three characterizations of marital property?
What are the possible characterizations of marital property in Texas? |
Common to all community property states are three types of community property - his seperate, her seperate, and community.
In Texas there are five characterizations: his seperate, his special community property, Joint community property, her special community property, and her seperate property |
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Hypo: Husband and wife own a house and want to get a divorce. What is the characterization of the property?
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Community presumption:
All property owned by the marital estae at the marriage's end is presumed to be Community Poperty. To show that the property is in fact seperate property, the burden of proof is on the spouse claiming the property as seperate. |
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A husband and a wife own a house acquired during marriage. What rights do they have in the property?
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If an asset is community property, regardless of whose name the property is in. Both spouses own an undivided 1/2 interest in the property SIMILAR TO tenants in common BUT NOT. (note this does not include a right of survivorship).
There are three types of concurrent ownership JT (JTWROS), TIC, CP. Spouses can own BA as TIC and WA as Comm Prop (if BA is CP and they ask for a partition, they will then be TIC). |
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Are all commnity property states the same?
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No. There are 8 community property states.
They differ in several ways: 1. in most cp states, income from seperate property is sp but not in Texas. income from sp is cp. There are also different burderns with some states holding clear and convincing and some a preponderance. WHAT HAPPENS at divorce varies dramatically from state to state: some call for an equal division, some call for an equitable division, etc. In texas, we require a just and right division. also, what happens upon death varies. In texas, DWAP. also managerial and liabillity rules vary from state to state. |
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What are the two ways you can end a marriage in Texas and what happens?
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1. Divorce - Divorce Court
2. Death - Probate Court In both cases we presume that the assets on hand at termination are cp. Same characterization rules apply in both situations and the burden of broof is on whichever party asserts seperate property (even if it is in one spouse's name). |
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What happens when a married person dies?
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Death Works A Partition. The deceased spouse's estate vests immediatley in his heirs and devisees. What is meant by "all of his estate?" in 37? =
HIS SEP PROP AND HIS 1/2 INTEREST of CP. |
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Hypo: Husband is walking down the beach and stubs his toe. He looks down and finds a diamond ring. He does everything he can to find the true owner but is unsuccessful.
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Under the rule of implied exclusion, this would be community property. Why? Because it wasn’t acquired before marriage or by gift/devise/descent.
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Hypo: Same, but husband finds the ring using a metal detector.
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Under both Texas and Mexican/Spanish law, this would be community property.
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back to DWAP
At the instant of death, property is no longer community property. What property does dwap apply to? |
DWAP only applies to probate assets and community property regardless of whose name it is in.
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Hypo: H and W bought BA while they were married. Husband dies. Who owns BA?
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the surviving spouse RETAINS her one half interest in BA and the deceased spouses undivided 1/2 interest vests immediately in heirs at law at death, subject to a will.
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When DWAP occurs are there any conditions?
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When a person dies, the general rule is that his property vests in his heirs at law. There are several conditions to this vesting:
Conditions: 1.Heir must survive decedent by 120 hours. 2. Heir’s vesting is subject to complete divestment if a will is admitted to probate. 3. Heir’s vesting is subject to the rights of the decedent’s creditors. 4. Heir’s vesting is subject to possession by a court appointed PR. |
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So what happend to BA at the instant of spouse's death?
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We now have a tenancy in common between the surviving spouse and the heris at law of the dead spouse.
***Equitable title is partitioned. Legal title might still be in one spouse's name.*** DWAP severs legal and equitable title. |
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Hypo: a husband marries, has two kids and then dies. what happens to his seperate property when he dies?
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Section 38 (b) - ONLY APPLIES TO SP
if that person dies intestate, leaving behind a husband or wife, the surviving spuse takes 1/3 of personal property and the balance goes to his children and their decendants. The surviving spouse is also is also entitel to an estate for life in one third of the land of the intestate, with remainder to the child or children. |
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Hypo: husband dies intestate leaving wife but no kids. What happens to his seperate property?
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38(b)(2) - The surviving spouse gets all of the personal property and 1/2 of the real property with half of the real property going to ancestors or collateral decendants. IF NONE, wife gets all of the real property too.
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Hypo: Husband and wife buy a house during their marriage. What happens to the husband's half of the community property upon the death of the husband without a will?
What hapens if they have kids? What happens if he had kids from a previous wife? |
Section 45
1. If no child or decendant of the deceased spouse survives him. 2. If children or decendents do survive, but they are also the surviving spouses kids or decendants, she keeps his half of CP. BUT -- if there are any non marital or kids from a previous marriage of the deceased, then the surviving spouse retains her 1/2 interest and the deceased spouse's 1/2 interest passes to his children or decendants according to representation . |
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Hypo: A man and wife are married and the husband dies, leaving a will. What happens to his estate?
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At the time of death, the deceased estate immediatly vests in his heirs at law, HOWEVER under the law of wills, the will has the effect of divesting the hiers once it has been admitted to probate. The interest of the devisees relates back to the time of death.
So a spouse has testamentary power over all of his estate, which is ONLY his seperate property and 1/2 community property. |
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Who can be married in Texas and do they have to be legally married?
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In texas marriage is still between a man and a wife.
Texas recognizes lnformal marriages - if the man and woman agree to be married and live together as ha nd w and represent that they are H and W. |
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Where does the right of seperate property come from?
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It is gauranteed in the texas constitutiona and codifed in the family code. Seperate property is:
(1) the property owned or claimed by the spouse before marriage; (2) the property acquired by the spouse during marriage by gift, devise, or descent; and (3) the recovery for personal injuries sustained by the spouse during marriage, except any recovery for loss of earning capacity during marriage. |
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Hypo: a husband buys a condo before marriage. Upon marriage his wife decides to sell the property. Can she do this?
what if the condo was bought during marriage but was in the husband's name? |
The wife will not be able to sell the condo becasuse it is his seperate property. During marriage a spouse has sole management and control over his seperate property.
IF the condo is bought during marriage, she still could not sell it because it is his HSCP because it is in his name. TFC 3.102 - During a marriage, each spuse has the sole management, control, and disposition of the community property that the spouse would have owned if single including: 1. personal earnings 2. revenue from seperate property 3. revoveries for personal injurid and 4. the increase and mutations from all HSCP. |
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Hypo: a H and Wife deposit their paychecks into a single bank account. Who has the right to the sole management control and disposition of the money in the checking account?
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They both do. It becomes Joint Community Property
3.102(b) - if community property subject to SMCD of one spouse is mixed or combined CP subject to SMCD of the other spouse, it becomes JCP subject to Joint MCD. |
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What are the five types of marital property in Texas and what are the presumptions?
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In texas we have:
WS, WSCP, JCO, HSCP, HSP In litigation, we assume that property possessed during marriage is community property and if it is in one spouse's name, we presume it is that spouse's special community property. However, these are both just presumptions that can be rebutted. |
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Hypo: H has a condo in his name and rents it out to a stripper without his wife's knowledge. Wife gets pissed. Is the rental agreement between H and the stripper good?
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Yes. A third party is entited to rely against the other spouse or anyone claiming from that spouse, on H's authority to deal with the property if:
1. the property is presumed to be under the SMCD of the spouse and 2. The person is not a party to a fraud on the other spouse or another person and does not have actual or constructive notice of the spouse's lack of authority but if the condo is in both the wife and the husband's name this serves as constructive notice of the necessit of joinder and the transaction is void. |
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Hypo: Husband's name is on a condo acquired during marriage. He gives it away. Does the wife have standing to challenge the gift?
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Yes. The condo was HSCP. Because his name was on the deed, he had legal title, but the wife had 1/2 equitable title. He breachd his FIDUCIARY duty to her when he gave her half of the HSCP away. She has a claim of fraud on the community.
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Does H have a futy to W in the management of HSCP?
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Yes. H has a fiduciary duty not to commit fraud on the community. It is a legal duty to the spouse.
This duty can be breached in two ways: 1. Actual fraud - to prove the W must show that H intended to deprive her form having the use and enjotment of the assets comprising the gifts. 2. Constructive Fraud - 3 factors will be considered in determinig constructive fraud: 1.size of the gift in relation to Comm estate 2. adequacy of remaining estate to support W 3. The relationship of donor to donee 4. (t feath) Timing of the gift. |
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In general what rights does a spouse have with regard to their special community property?
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in general, a spouse has a right to sell, gift, devise, and manage prop. HOWEVER, the spouse can be challenged at divorce or death with a claim of fraud on the community. Wife will have to prove actual or constructive fraud.
(before '69 H had SMC over all Cp) |
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Hypo: A husband and a wife deposit their paychecks in a bank account. They also buy a house in both of their names. H enters into a contract to sell the house. Can he do this?
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No. the money in the bank account is JCP because the SCP of both spouses was mingled. The house is also JCP because it is in both of their names.
ANY TRANSACTION AFFECTING A JCP ASSET requires JOINDER of both spouses. Trasactions are void if no joinder. A spouse cannot act unilaterally. |
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Hypo: Someone sells purple acres to H while he is married. Wife dies. She had kids from a previous marriage but no kids with H. Husband decides to sell PA to X. What result?
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Because PA was not given to H by gift devise or decent, it is CP. However, becasue it is in his name it is HSCP. At W's death DWAP occured and H retained his half interest and W's kids from a previous marriage vested in her 1/2 interest.They become TIC. However, even though H and Kids were TIC, H still had legal titel in PA. X was a gfp and the sale will stand because PA was in husband's name and he had no notice. It is H's duty as a fiduciary to turn 1/2 of proceeds over to kids. if he doesn't, kids may have claim for fraud on the community?
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Spousal liability - there is no such thing as community debt.
What do you need to know to determine the liability ? |
you have to ask four questions:
1. Whose debt is it? (H, W, Both?) 2. When was the debt incurred? 3. what type of debt is it? 4. was the spouse acting as an agent or was a debt incurred for necesaries? |
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Hypo: H takes out a loan for 10k before marriage. He is also found liable for IIED and a recieves a judgment against him for 50K. Then he marries W. How much of the marital property estate will the creditors be able to reach?
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Who's debt? H
What kind? Tort and K When? Before marriage a debt incurred by a spouse before marriage subjects all of the spouses SP, SCP, and the JCP to the debt regardless of whether the debt is based on tort or contract. |
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Hypo:
H enters into a contract to buy 10K worth of baseball cards during marriage. He breachesa and leaves the seller in the cold. What property can the seller reach in a BOK suit? |
Who's debt? H
When? during marriage What Kind? K Necessaries or Agency? No During a marriage if one spouse enters into a K and is found liable for a breach of that contract, the party owed may reach the spouses SP, SCP, and the JCP. The other spouse's SCP and SP will not be used to satisfy a judgement. |
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What if W commits assault during the marriage and is found civilly liable? What marital property can the creditor reach?
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Who's debt? W
When? Durring Kind? Tort Necessaries or agency? No during a marriage, if a spouse commits a tort and is found civilly liable, a judgment creditor may reach all of the tortfeasor's seperate property as well as ALL of the community property (including the other spouse's SCP). |
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Hypo: during a marriage, both the husband and the wife sign a K to plan a party for X. they fail. What property can X reach if a BOK judgment is levied against them?
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if a husband and a wife are jointly and severally liable, then all of the marital property is reachable.
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Hypo: a couple is foud liable for a contract that they both signed while married. What is the order that a judge will force the execution and sale of the property?
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TFC Section 3.203 - a judge may dertemine the order of the sale and execution of property by looking at the facts surrounding the case and determinnig what is JUST AND EQUITABLE.
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Hypo: Wife doctor is sued for malpractice. Patient wants to attach property to satisfy judgment.
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The patient can attach all property possessed by either spouse during marriage, according to the above presumption. It’s the husband’s burden to come forward and prove by clear and convincing evidence that certain property is his SP. Otherwise, it’s presumed to be CP.
Was different before 1970? |
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Hypo: When husband gets his paycheck, he always deposits it in a joint bank account. Husband is the sole breadwinner, and he is the only one who deposits money in the account. Wife breaches a K. Husband has no personal liability on the K (not a debt for necessaries). Can the creditor attach the joint account?
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This is account is solely HSCP. There was no mixing. The fact that it’s a joint account simply means that the wife can write checks on it. In order to prove this fact, the husband must rebut the §3.104 presumption – that the account is subject to both of their management and control because it has both of their names on it – and his burden is only preponderance of the evidence.
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Which debt rules have similarities?
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In both debts incurred before marriage and contract debt incurred during marriage by one spouse, the seperate property and special community property of the other spouse is unreaachabe.
for debt based on tort of one spouse, all community property is reachable but the seperate property of the spouse who did not commit the tort is unreachable. All property is reachable for torts in which the H and W are J and S liable including contracts they both signed. |
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Hypo: a man assents to the opening of the dress shop to his wife. Is the husband's SCP subject to the liabilities incurred by the dress shop?
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The wife was not (1) acting as his agent or (2) contracting for necessaries, so her contracts should not have bound the CP.
What about his assent to the loans? Section 3.201(b) added after Cochoran - community property is not subject to a liability that arises from an act of a spouse. Dissent got cochran right. 3.201b gets rid of the totality of the circumstances test. |
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Hypo: a doctor husband is liable for a tort. A judgement is levied against him and is not paid. The couple divorces. What property is reachable after the divorce?
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Simple rule. Property that was subject to liability before a divorce is still subject to a liability after a divorce. So in this case, all of the marital property except the wife's SP will be subject to the liability.
a divorce court will usually assign debts to H or W bit hat doesn't change a creditors ability to reach the property. If the other spouse fails to pay debt and property is sold to meet it, spouse may have a COA against the ex-spouse but not against the creditor. |
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In a divorce, what two things generally happen?
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1. The court will resolve any issues o characterization. There will be an assumption of community propety.
2. Court will also resolve liability issues and assigns debts. 3. THE court wil order the division of the estate of the paarties in a manner that the court deems just and right. |
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What is meant by "estate of the parties"?
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Estate of the parties means all Community property.
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Hypo: a husband and wife are married. They live in Massachusetts. During their marriage, the husband buys savings bonds. THey move to Texas and live there for 20 years before they get a divorce. Upon dicorce, what happens to thesavings bonds bought in the CL state?
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Quasi community property
Assets acquired during marriage in CL states that are deemed seperate property by the CL state will be treated as CP upon divorce in texas, provided the property would have been community proerty if acquired in Texas. (was not acquired by one spouse by gift, devise or decent). |
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Hypo: Husband and Wife live in Illinois. Husband works and Wife stays home to take care of kids. They decide to retire in South Padre. He liquidates his assets. If they divorce, what result?
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If they divorce, the property is quasi-community and will be divided as if it were community property.
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A husband and wife get a divorce. Can the court award her financial payments from the wife after the divorce?
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Alimony is contrary to pubic policy in Texas. has nothing to do with being a CP state.
However a court may award TEMPORARY support to a spouse There ar also exceptions: 1. Temporary alimony pending divorce (but ends after final decree is entered). 2. "Contractual alimony" as part of a pre-nup or as part of the property division. 3. Alimony awards given in another state. 4. Maintenance - TEXAS MAINTENANCE is alimited form of alimony. - an award for periodic payments from the future income of one spouse for the support of another. - limits court cannot order the spouse to pay more than the lessor of 2500 a month or 20% of monthly gross income. |
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Hypo: Jughead makes a will while he is married to his first wife Veronica, he later divorces and marries Betty. Jughead dies and forgets to remove his ex wife from his will in which he had left her blackacre. Upon his death, who gets blackacre?
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Upon JUgheads death, section 69 will prevail - In the case of divorce or annulment, all provisions of a will that include the former spouse shall be read as if the former spouse and her relatives pre-deceased the testator unless the will expressly provides otherwise. DOES NOT MAKE THE ENTIRE WILL VOID, JUST THE PART THAT PERTAINS THE OTHER SPOUSE.
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Hypo: Jughead lists his wife Veronica as the beneficiary of his life insurance policy. They divorce. Jughead later dies, without changing Veronica as the beneficiary. What happens to the LI policy?
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TFC 9.301
A provision naming an ex spouse as a beneficiary under an insurance policy is void unless 1. the divorce decree specifically designates the ex as a benefirciary 2. THe husband redesifgnates the ex as a beneficiary 3. the ex is designated to receive the payment on behalf of the child or dependent of the deceased. When the designation is renderred void, the payment will go to the second named beneficiary or to the estate. |
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Hypo: Jughead lists his wife Veronica as the beneficiary of his life retirement plan. They divorce. Jughead later dies, without changing Veronica as the beneficiary. What happens to the money from the retirement plan?
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TFC 9.302
A provision naming an ex spouse as a beneficiary under a retirement plan is void unless 1.the divorce decree specifically designates the ex as a benefirciary 2. THe husband redesifgnates the ex as a beneficiary 3.the ex is designated to receive the payment on behalf of the child or dependent of the deceased. When the designation is renderred void, the payment will go to the second named beneficiary or to the designating former spouse. |
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Hypo: Jughead designates his wife Veronica as beneficiary under his POD account or joint bank account. THey divorce and then he dies. What happens to the money in these accounts?
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The legislature has not passed any similar provisions with regard to joint bank accounts and POD accounts, therefore, Contract law will rule and the ex will be able to collect the money in the account upon the death of the spouse.
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Hypo: barney is in an industrial accident on the job. What happens to his HSCP and SP?
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Section 883
When a spouse is determined to be legally incapacitated by a "decree of incapacity," the other spouse becomes the administratory of all of the community property, including his SPC. If the spouse owns seperate property, the court may appoint the spouse as administrator of CP and as Guardian of the estate of the incpacitated spouse. SHe will wear two hats. --the court can also assign a seperate person as guardian of incpacitated's seperate property. If it is not in the incapacitated spouse's best interest fot he other spouse to be the administrator of the community property and the guardian of his estate, then teh Court will order the non incapacitated spouse to deliver to the guardian of incapacitated spouse 1/2 JCP, Sp, and SCP. |
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Hypo: Jughead abandones his wife Veronica
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3.301-if a spouse goes missing, abandons or seperates his spouse, the other spouse can fiel a petiton to request MCD of the SCP of the other spouse.
3.302 -Same is true if the spouse is a missing prisoner of war or is missing on the pubilc service of the United States. 5.101 - also these "unusual circumstances" would allow the spouse to file a petion explaining why it would be desireable to allow the spouse to sell, convey, or encumber the homestead without joinder of the other spouse. (5.101 - if h stead is prop of spouse filing; 5.102-if h stead is prop of community). |
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Hypo: Jughead acquires 1 mil in bonds in illinois. Then, he and his wife veronica move to Texas and live there for 30 years until his death. In his will, he devised the mil in bonds to his gf tootsie. Are the bonds purchased in Illinois seperate or community property? Does veronica have a claim to the bonds?
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THe question is, does the rule in cameron apply to probate as well or is quasi community property just a feature of divorce?
Quasi comm prop only applies in divorce. Veronica would not have a claim for the million dollars. However if they had stayed in CL state of illinois, Veronica would have a claim b/c in common law states, the surviving spouse has a right to a percentage of the deceased spouse's estate. makes a difference where you reside at the time of the spouse's death. |
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In 1902, Betty and Barney get married. They agree to a contract in which Betty's property will now become community property. What result?
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No. the character of the property comes from teh constitution and H and W cannot make a "merre agreeement" to just change the character of the property.
There are ways that they can change the character, for example, by H "giving" (by gift) his interest in CP to his wife, the prop would then be WSP. But you cannot just agree to change it. The change has to be on the facts that operate to change the character by the rule of law. You can't do it by contract. Must be an acceptable transaction. |
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In act if 1917 and 1921, the legislature said that the rents and revenues derived from the wife's separate property shall be seperate property. Is this legal?
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No! The legislature cannot change the characterization of marital property without ammending the consittution.
The TC constitution directs the legislature to DEFINE laws to direct the characterization of property so 1. The legislature cannot characterize property; but 2. They can direct the management and control of the property. Arnold v leonard defines the power of the legislature. ex. 2000 change in const. changed the result in Kellet v Trice but it was done as a const. ammendment, not as an act.- Spouses are limited by the constitution |
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Hypo: Barney and Betty are sitting in a car with their car lights out. A truck runs into them causing injuries to Betty. When Betty recovers for personal injuries, is that money seperate or community property?
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Seperate because the injury and the right to sue was not property "acquired" by the community. Recvoery for personal injuries of the wife is seperate property (unless lost earning capacity).
This runs contrarty to the leonard holding becasue leaonard says anything acwuired other than by gift, devise, decent is CP. This is an exception by the SC. Lgislatiion codified this in TFC 3.001(3) definition of seperate property. Kellet put limits on parties Arnold put limits on leg Graham made SC exception |
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1. What is the rule of implied exclusion?
2. What is the mere agreement rule? 3. What is the income rule? |
1. That which is acquired by a spouse during a marriage other than by gift, devise, or decent is community property.
---SC exception - Graham - personal injury-- codified in FC. 2. The character of property is given by the constitution and neither the parties or the leg can change the character o the property. The character can be changed by operation of law through acceptible transactions but not through mere agreements. 3. income from seperate property in TX and a minority of CP states is CP. |
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Property Characterization
Hypo: H and W get a divorce. H owns 100k in comic books. What is the property characterization upon divorce? |
Property possessed by either spouse during the dissolution of marriage is PRESUMED TO BE Community property.
The burden is on the spouse asserting seperate property and the degree necessary to rebutt the presumption of community property is clear and convincing evidence. |
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Homesteading
Husband and Wife 1 settle on property. Wife dies. Husband and Wife 2 perfect title to land. Do wife 1's heirs have a claim to her half of the CP or does half the CP belong to wife 2? |
We start with the presumption that this land is the community property of Husband and Wife 2. Why? Because the deed was signed during their marriage. Understand: The fact that the deed is in the husband’s name does nothing to change this presumption.
However, the court holds that the land is the community property of Husband and Wife 1. Why? Inception of title rule: The character of title to property as separate or community depends upon the existence/nonexistence of the marriage at the time of the incipiency of the right in virtue of which the title is finally extended. That title, when extended, relates back to that time. In this case, the inception – settling on the land – occurred during marriage 1. Result: DWAP. So Husband retains his undivided ½ interest, and Wife 1’s heirs inherit her undivided ½ interest. Thus, Husband and Wife 1’s heirs are now tenants in common. Wife 2 gets nothing. |
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Hypo: Husband and Wife 1 are trespassers on the land. She dies before the limitations period has run. Husband marries Wife 2, and later, the limitations period runs, such that they gain record title.
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The inception of this right is not when Husband and Wife 1 started trespassing. Trespassers don’t have a right to the land!
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Hypo: barney purchases property under a K for deed prior to his marriage to Betty. During the marriage, the consideration for the land is paid out of community funds. What is the character of the land?
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The character of the land is determined by the inception of title ruel and not by the date of the final acquisition of title, therefore the presumption of community property is rebutted and the property is seen as SP.
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Hypo: Husband signs earnest money K before marriage. Closing takes place after marriage. At the closing, Husband signs a promissory note. To secure payment of the note, he signs a deed of trust. Over the next 30 years, the husband uses his salary (community property) to pay the mortgage – over $200,000
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This property is separate. Why? Inception of title rule.
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Hypo:
Man signs earnest money K, gets married, then both he and wife sign note/deed of trust/deed. Who owns the property? |
When a spouse uses separate property consideration to pay for land acquired during the marriage, and takes title to the land in the name of both husband and wife, it is presumed that the spouse intended the interest place in the other to be a GIFT If this were to happen, husband and wife would each own an undivided ½ separate property interest in the land. However, this presumption is rebuttable.
If the husband can rebutt his intention for the property to be a gift, then the property remains his seperate property. Carter v Carter |
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Hypo: Husband and Wife both sign the earnest money K before marriage. After marriage, they sign all the closing documents. What result?
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Community property can only exist during marriage. So it would seem that when the husband and wife signed the earnest money K before marriage, they each gained an undivided ½ separate property interest in the land. HOWEVER, the Duke case held that the land was community. This is an isolated caveat that can be used if you want property in a similar situation to be classified as community.
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Hypo: During marriage, Wife’s father conveys Blackacre to Husband and Wife. Deed recites that Husband and Wife paid $1,000 in consideration to the father. Husband and Wife decide to get a divorce, and Wife says, “Despite what the deed says, we didn’t pay my father any consideration.” The trier of fact believes her.
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The wife’s evidence rebuts the community presumption. Thus, Husband and Wife each own an undivided ½ separate property interest in Blackacre because it was a gift.
Can we admit evidence that Wife’s father hated Husband? That he didn’t intend to make a gift to Husband? Yes. We’ve already gone beyond the parol evidence rule by admitting extrinsic evidence, so admission of more extrinsic evidence won’t hurt. |
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Cooke v. Bremond: Different result than the hypo above with respect to the parol evidence rule.
Why? Because an innocent third party (potential BFP) was involved. |
A third party could make a gift to the community. But under the rule of implied exclusion (Arnold v. Leonard), such a gift has to be separate property. Thus, a gift to husband and wife as a married couple results in an undivided ½ separate property interest for both.
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Hypo: During marriage, Husband acquires Blackacre by way of a gift from his father. Afterward, Husband sells Blackacre for cash. Husband then takes that cash and purchases Whiteacre. Is Whiteacre community property or separate property?
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it is the husband's seperate property because of the Traceable mutation rule.
If we were to apply the rule of implied exclusion, it would be community property. Why? Because it wasn’t acquired by gift/devise/descent. However……THIS IS A TRACEABLE MUTATION Traceable mutation rule: To maintain the separate character of separate property, it is not necessary that the property of either husband or wife should be preserved in specie, or in kind. It may undergo mutations and changes, and still remain separate property; and so long as it can be clearly and indisputably traced and identified, its distinctive character will remain. |
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What if
Husband uses his separate property to purchase Blackacre and has title placed in Wife’s name. |
1st question: can we voercome the community presumption?
Yes, The community presumption is overcome in this case because we can prove that the husband used his separate property. Question 2: can we also overcome the presumption that the husband intended a gift to his wife? If the husband can prove that he had no donative intent, it will remain his separate property. |
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Hypo: Assume $1,000 dollars was conveyed from Husband/Wife to Wife’s father to obtain land. Both Husband and Wife’s names are on the deed.
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Community presumption because not gift/devise/descent. What if Husband could prove that the $1,000 was his separate property? Because Wife’s name was on the deed, we presume that ½ of the land was a gift from Husband to Wife. Thus, each owns a 50% separate property interest in the land.
Lesson: It’s critical that we dig into the source of the consideration. Otherwise, the community presumption stands. |
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Hypo: Same, but there’s no evidence as to the source of the consideration. But further evidence reveals that at the time of the transaction, Blackacre’s FMV was $1,000.
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Community property because not gift/devise/descent.
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Hypo: Same, but this time, evidence reveals that at the time of the transaction, Blackacre’s FMV was $10,000. Now – at the time of divorce – the FMV is $100,000.
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The reality is that the original transaction was part gift/part sale. Thus, 1/10 of the purchase price was a sale, and 9/10 of the purchase price was a gift. At the time of divorce, the same proportion stands: 9/10 of the property is a gift, and 1/10 of the property is a sale. Thus, 45% goes to the separate property of each spouse, and 10% goes to the community.
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Hypo: What if $500 of the $1,000 purchase price came from the husband’s separate property, and the source of the other $500 is unknown?
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Husband – 50% separate, Wife – 45% separate, Community – 5%.
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Husband used community property to purchase Blackacre and has title placed in Wife’s name.
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In this case, we don’t presume that the husband was giving a gift to his wife because he used community property as consideration. However, the wife can now come in and prove that the husband had donative intent. If she can do this, it will become her separate property.
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Husband conveys community property to Wife in a deed which recites the Wife having paid $100 of consideration.
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Deed from husband to wife = presumption of gift. However, husband can rebut this presumption with evidence that he didn’t intend to give a gift.
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Blackacre was conveyed to the wife in a deed reciting that consideration was paid out of her separate property.
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This is a significant recital. The deed didn’t just say that that consideration was paid by the wife, it said that it was “paid out of her separate property.” Thus, we will assume that it is her separate property. The husband can come back and rebut this presumption by showing that the purchase money funds were community.
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Blackacre was conveyed to wife in a deed reciting that consideration was paid by wife.
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This was not a significant recital. It doesn’t say that the land was transferred to the wife as her separate property, or that the wife paid with her separate property. Rather, it simply says that the wife paid for it. That isn’t enough to trigger the presumption that this is the wife’s separate property. However, the wife can come in and present evidence that she did, in fact, use her separate property.
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Husband and wife enter into contract to have land conveyed to wife as wife’s separate property. Deed contains similar recital.
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This is a significant recital. Thus, the presumption is triggered that this is the wife’s separate property. However, in this case – unlike Smith – the husband is a party to the transaction. Thus, the husband is estopped from presenting contrary evidence.
Result: The triggered presumption is irrebuttable. |
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Land is conveyed to wife in deed reciting that property was conveyed to her as her separate property but extrinsic evidence establishes that consideration was community.
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This was a significant recital. Thus, the presumption is triggered that this is the wife’s separate property. However, in this case – unlike Smith – the husband is a party to the transaction (even though his name isn’t mentioned in the deed). Thus, the husband is estopped from presenting contrary evidence. Result: The triggered presumption is irrebuttable.
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Hypo: Wife buys lottery ticket and hits the big one – $10 million. Assume the wife has evidence that the consideration paid for the lottery ticket ($1) was a gift from her mother.
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Presumption – community property. Wife will argue that this is a traceable mutation of her separate property. Court said no – LOTTERY WINNINGS ARE DIFFERENT We’ll reimburse wife the $1 she paid, but this is community property, not separate property.
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Property acquired on credit
Hypo: Husband needs a new car, but he doesn’t have cash. Great end of the year deals are running, and they advertise, “No money down.” He buys a car on a whim, and his wife knows nothing about it. |
This is community property, presumptively. The consideration for this car was, “I, husband, promise
to pay Ford $20,000 with interest.” Does that make it his separate property? Texas courts have been clear: PROPERTY ACQUIRED ON CREDIT AS A GENERAL RULE WILL BE COMMUNITY PROPERTY |
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Hypo: Same, but husband goes to a bank instead.
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Same result, unless it can be proven that the bank agreed to look only to husband for payment of debt
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Hypo: Same, but bank asks for collateral. The only collateral he has are some stocks that his grandfather gave him. Would this make it separate property?
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No. Still community property.
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EFFECT OF HOMESTEAD
Whether an asset is in his name, her name, or both, |
If property is homestead property, a spouse cannot sell it without the other spouse's consent regardless of whose property it is.
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-The land in controversy was state school land.
- McClintic proposed to Mrs. Skeen that, if she would file on the land for the benefit of herself and her children, he would furnish her with the money to cover all expenses and pay it out. -Mr. and Mrs. Skeen had an understanding between them that, if purchased, the land should belong to her individually and to her children. -Thereafter, Mrs. Skeen purchased the land from the state. Mr. Skeen joined Mrs. Skeen in executing the obligation to the state. -The only money paid was $126.76. Every cent was Mrs. Skeen’s separate property by gift from McClintic, pursuant to their agreement. Issue: Was it the community property of the Skeens, or was it separate property of Mrs. Skeen? |
This case is slightly different from the Heidenheimer case above. In this case, husband and wife agreed that the property would be her separate property. Thus, it’s separate.
Exception to Presumed Community PropertyStatus of Property obtained on credit: presumption that property acquired on credit is community property can be overcome by evidence theat H inteded the property to be W's seperate property or that H gifted the property to W as seperate. |
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Hypo: H buys 10K worth of real estate during marriage. He pays 3K down payment and signs vendor's lien for the 7K balance. What is the character of the property upon divorce?
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Q: Whati is the character of the property when it is purchased during marriage partly with seperate funds of the husband and partly on the credit of the community?
Two fold question: if it is an acquisition during marriage you must look to see how the property was purchased 1. First, you must ask about the source of the cash down payment 2. then you must look to see how much was purchased on the credit of the community. Here, 30% was purchased with seperate property, so the H owns 30% of the land as his SP. Because 70% of the land was bought with a promise to pay by the community, then 70% is community property. Therefore, the wife has a 1/2 interest in 70% of the land. or 35% interest in the land. |
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Hypo: Husband purchases property during marriage for 10K, he puts 2k of his seperate property down and promises to pay 8K. However, the creditor executes a promise to only go after the property of the Husband if the debt is not paid back.
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THIS AN EXCEPTION TO THE GENERAL RULE --
The land will be considered the Husbands seperate property if he can prove that there was an agreement that the lender would have only looked to the seperate property of the husband to repay the loan. ITHe presumption that a loan taken out by a spouse during marriage is an obligation of the community can be overcome by clear and convincing evidence that the creditor agreed to look solely to the separate estate of the contracting spouse for satisfaction It boils down to the facts. Can we prove that at the inception of title that there was an agreement between the creditor and the borrower that the creditor would only look to the spouse's seperate property? |
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Hypo: H used 15,000 of his seperate property as a down payment of the couples 62,000 home. The home is now worth 85500 and has a mortgage of 46500. TC ordered a split in the property 60% W, 40% H. What is the character of the property?
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Husband is entitled to 15/62 of the property as his seperate property and the community estae is entitled to the balance. A TIC was created for the property.
Inception of Title Rule: 15/62 is his separate property 47/62 is community Community funds were used to pay off the note and interest, but this doesn’t matter because of the inception of title rule. The community does not have a right to a reimbursement. Why? Because the community property is being expended in order to pay for the community interest. |
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Hypo: Same as 16/52s, but Husband pays earnest money before marriage.
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According to the inception of title rule, the property is Husband’s separate property. The community will have a right to reimbursement (for payments made toward debt) when the marriage terminates.
Understand: This is the key difference between Bell (this case) and Carter (case before where husband pays earnest money before marriage)! |
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Hypo: Husband is about to buy a $10,000 car. Ford will require that the husband put $1,000 down. He does and borrows $9,000 from Ford. There are no special agreements as to who Ford will look to for payment.
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This transaction is part payment and part promise to pay. All of this is community property. The $1,000 is presumed to be community property because there’s no evidence of its source. In addition, we apply the general rule that property acquired by credit is presumptively community property.
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Hypo: Car is 1/10 his separate property (gift from Aunt Sally), and 9/10 community property (husband’s promise to pay). Aunt Sally finds out what husband has done and wants him to have the car free and clear as his separate property. She gives him the other 9/10 to pay off the note
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This doesn’t change the character of the 9/10 interest as community. Why? Inception of title. However: When the marriage terminates, the husband’s separate estate will have a right of reimbursement as to the 9/10 interest.
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Anaysis recap --
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1. Assume that the property in question is community propety
2. Is there clear and convincing evidence that the property is seperate? --inception of title rule --gift presumption --traceable mutation rule 3. Consider whether reimbursement is an issue. |
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Community presumption
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always start with the presumption that all assets on hand during the marriage and upon the termination of the marriage are community property.
THe party claiming that it is seperate property has the burden of showing seperate property by clear and convincing evidence. Record title indicates a management presumption on which thir parties can rely. |
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Inception of title
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the characterrization of an asset as separate or community property is determined when a "right" to a property first arises. If a spouse had a right to the property before marriage, then it is separate and vice versa. A "right" to a property can arise before legal title, evidenceof legal titl, or even possession has been obtained, Hoewever, evidence of othe facts may rebut the community presumption.
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Form of title
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THe form of the property's title does not determine the character of the property. Even though record legal title to property acquired during marriage is in both spouses' names, the property may stil be one spouse's SP based on inception of title. On the other hand, it may show that the spouses own the prop as tenants in common.
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GIft presumption
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If one spouse buys an asset with separate property and has title placed in boeh names, there is a rebuttable presumption that the buying spouse intended to gift one half of the property to the other spous, resulting in two 1/2 interests in SP. TIC.
If grantor places the property bought with his SP in the other spouses' name then there is a rebttable presutmption that the property is the SP of the other spouse. HOWEVER THIS CAN BE RUBUTTED BY A PREPONDERANCE OF THE EVIDENCE. IT IS NOT POSSIBEL TO GIFT PROPERTY TO "THE COMMUNITY" it becomes the sp of both spouses. |
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Characterization v. Reimbursement.
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reimbursement may be appropriate. For example, suppose a spouse brought into the
marriage separate property subject to an indebtedness and community property was used to pay off the loan. At the termination of the marriage through death or divorce, there exists a community claim for reimbursement. Although the property retained its character as separate property and the other spouse has no ownership interest in it, that spouse has a “claim for reimbursement” because community assets were used to benefit the other spouse’s separate property. A claim for reimbursement, if successful, creates a debtor/creditor relationship between the parties. For further study, see Unit 6. |
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Traceable Mutation:
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Traceable mutation is a concept that can be used to rebut the community presumption and
is an exception to the rule of implied exclusion. An asset purchased during a marriage will be separate or community property depending on the source of the consideration exchanged for the property. As long as separate property can be traced from form to form, the property will retain its separate character. The property must be indisputably traced and identified to retain its separate character. Thus, if there is clear and convincing evidence that the consideration rendered to acquire a new asset during the marriage was separate property, then the new asset is also separate property. If the consideration was part separate and part community, the property is both separate and community in proportion to the consideration exchanged. If the property is later sold, the sales proceeds are proportionately separate and community to the extent the separate proceeds are traceable. |
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Effect of Recitals.
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If upon acquiring property during marriage the deed contains a recital that it is one
spouse’s separate property (or the spouse paid for it with separate property) and the other spouse participated in the transaction, it is presumptively separate property (perhaps an irrebutable presumption), and the other spouse may be estopped from offering evidence to the contrary. Absent such a recital or other evidence of separate character, the community presumption controls. |
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Property Acquired on Credit.
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Many major purchases involve a credit acquisition. The general rule is that property acquired wholly on credit during a marriage is community property because that property was not acquired by gift, devise, or descent (i.e., the rule of implied exclusion).
If not wholly a credit transaction, the traceable mutation rule requires an examination of the sources of the total consideration exchanged for the property (i.e., the amount of the “cash down payment” plus the “promise to pay”). If a portion of the “cash down payment” is proven to be separate, the property is part separate and part community in proportion to the consideration exchanged. |
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Exceptions to Property acquired Credit
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If a party can show that a lender agreed to look solely to the acquiring spouse’s separate
property to satisfy a loan obtained to acquire an asset, then the portion of property covered by the extension of credit is considered to be the acquiring spouse’s separate property. Another exception to the above general discussion of property acquired on credit during the marriage being presumptively community property is the unusual situation where the other spouse is a party to the credit transaction of the acquiring spouse that contains a recital that the property is to be separate property. See Note 5, above. |
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Analysis Recap.
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When determining the character of property, always begin the analysis with the
presumption that the asset is community property. The community presumption may then be rebutted by clear and convincing evidence of facts that establish that all or a portion of an asset is separate property using, for example, the inception of title rule (e.g., acquired prior to marriage), the gift presumption (e.g., gift from one spouse to the other) or the traceable mutation rule (e.g., separate consideration). Consider all the facts and circumstances surrounding the acquisition of any asset during the marriage. Finally, one must consider whether reimbursement is an issue, whether the asset was acquired before or during the marriage. |
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Hypo: Mom enters in to a contract with son to work land in exchange for property. Son agrees, gets married and begins to work the land. He then deeds the land back to his mother. Was the property deeded back to his mom CP? Did he commit FOC?
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Williams case --
Generally, all forms of compensation earned through time talent and labor during the marriage are community property. However, the early case of Bishop v Williams ruled that the inception of title rule gave the son a right to the property before marriage and therefore it was SP. THIS HAS NEVER BEEN OVERTURNED B/C MOST CASES HAVE PRE-NUPS. THIS IS NOT WHAT commentator would say is the general rule. |
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Hypo: Tony Romo signs a million dollar contract before marriage. He then gets married. Are his paychecks SP or CP?
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Romo would point to inception of title and the Williams precedent, but commentators have said that the character of the property should be based on when the contract was signed but on when the paychecks were earned.
Earned before marriage = SP Earned during marriage= CP Part before and part after = PRO RATA APPROACH- What is earned before is SP, after is CP. |
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Hypo: a husband has a deferred retirement plan. He does not retire until after he gets divorced. Is the income from the retirement plan CP or SP?
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The modern approach would say that it is CP because it was earned during the marriage.
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Professional athlete gets paid a signing bonus. Part is paid before marriage, and part is paid after marriage.
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In this case, he gets the money whether he plays or not. Because his receipt of the money is not contingent upon him playing, it is entirely his separate property (due to the inception of title rule).
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Hypo: A doctor has a good reputation in a community. Upon divorce can the wife value his good reputation as part of his future earning capacity and claim it as CP?
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No. Profesional goodwill refers to an individual's ability to make a living and is an intangible concept inherent to the paerson.
IT IS NOT PROPERTY that n can be characterized as SP or Cp |
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Hypo: a man and wife get married. She drops out of school to support them while he finishes his degree. Upon divorce, can she claim his degree as CP? Is his enhanced earning capacity property?
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No. The ablity to earn a living belongs uniquely to the individual . In Texas, it has been held not to be a property right. However, other jurisdivionts have recognized that degrees are property that if acquired during marriage may be subject to division.
HOWEVER - TFC MAINTENANCE - a limited form of alimony available to partly deal with this situation. He may be forced to support her so she can get her education. |
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Hypo: H and wife are married. She is a nuero surgeon. She is injured when she is hit by a bus. She sues and collects damages for personal injuries. loss of earning capacity, and medical expenses. What part of the revovery is community property and what part is separate property?
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Diminished earning capacity
The recovery for Personal injuries is the W's SP. The recovery for loss of earnings is CP (although earning capacity is not by itself property, here the recovery is) Recovery for medical expenses is CP (because presumably paid out of cp). What if there is a divorce? E and J division -court would probably award W the $ for her lose earning capacity. BUT no E and J on probate, so if he left his part of CP to tootsie, she would get half of wife's lost earning capacity. A recovery is presumptively all community property so i would be wise to dilenitate the diferent recoveries in a settlement |
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Hypo: Wife gets run over by Greyhound bus and is injured. She settles with Greyhound for a lump sum of $10 million. What is the character of this $10 million dollars?
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We start with the community presumption. Is there anything else that she would have to prove in order to make it her separate property? We would have to break it down…
Her recovery for personal injury is separate property: Her recovery for lost earning capacity, medical expenses, etc. is her special community property: |
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Hypo: Same, but Wife was a neurosurgeon. She recovers $10 million – $6 million for her bodily injury and $4 million for decreased earning capacity. Husband then runs off with someone else. Husband then dies and leaves all of his property to his girlfriend, Tootsie, in his will. What does Tootsie get?
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Tootsie will not get any of the $6 million because it is the wife’s separate property. However, she will get $2 million of the $4 million since it is community property, and community property gets DWAPed.
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Hypo: Same, but the wife cannot prove how much of the $10 million is separate and how much is community.
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Tootsie would get a ½ interest in the entire $10 million because the wife could not meet her burden of proof to show which part is separate and which part is community. This is why it is very important for an attorney to break down personal injury lawsuits into the particular areas of recovery.
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Hypo: $4 million is for the wife’s loss of earning capacity. Is this inconsistent with Nail and Frausto? Why is an increase in earning capacity separate, but a recovery for loss of earning capacity is community?
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Those cases said that earning capacity was unique to the spouse. When the wife gets a lump sum for loss of earning capacity, shouldn’t it belong to the wife as her separate property? The closest thing that we have here is the Graham v. Franco rule….
If you represent the injured person--- you should argue that the §3.001 is unconstitutional. ??? |
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Seperate Property Issues
Separate Property Issues Hypo: Wife owns land as separate property. She uses her SP slaves to cultivate the crop and the crop yeilds cotton. Is the cotton cp or sp? |
The cotton was CP because, even thout the spouse did not expend labor, time talent and labor of the community was used. Inome from SP is CP. Whichever is acquired by joint efforts of the husband and wife shall be community property.
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Hypo: During a marriage, W inherits BA. the value of BA goes up. is the increase in value CP?
The couple also fixes up the land with a porch, fences, ets. Are they seperate property? If she sells BA are the proceeds SP? |
The inception of title rule shows that that BA is SP, regadless of its increase in value.
The fixtures on BA become part of the land and are SP (although Community may have a claim for reimbursement). When she sells BA, traceable mutation says it his her SP. |
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Hypo: BA, SP of wife, is also used for farming. is the crop yield SP or CP?
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TX courts have held that the crops are CP because they were income from SP even if neither spouse expended TTL on them.
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Hypo: Wife inherits a herd of cattle with BA. During the marriage, she uses CP to feed cows and husband cares for them. They mature and become more valuable. SP or CP?
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The cows remains SP (maybe claim for reimbursment). HOWEVER, New calves are akin to inocome form SP and would be characterized as CP. WIfe would have burden to prove which cows were SP.
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Assume BA is a huge farm.
Are the following SP or CP? 1.Corn Crop? 2. Pecan from Pecan trees? 3. Pecan Trees? 4.Trees for lumber? 5. Gravel from pit? 6. Cattle? 7. Rents? 8. Oil Well? |
1. Corn - CP - regardless of TTL, income from SOP
2. Pecans- CP- doesn't have to be a cultivated crop 3. Pecan Trees-SP (fixtures that are part of the land). 4. Trees for lumber - SP - traceabel mutation - to preserve prop as sep, you don't have to keep it in kind. - IMP exception - income is SP only if proved by clear and convincing evidence. 5.Icome fromGravel - SP- traceable mutation 6.Cattle - OG herd is sp, calves CP, eventually all CP 7. Rents- CP - income from SP 8. Oil Well - delayed rental- CP b/c rent from SP Royalty payments - SP traceable mutation; Bonus - SP becasue a down payment on Oil. |
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Hypo: Husband owns an incorporated business. He owns 90% shares in the biz. He marries. During the marriage, the stock increases and decreases in value. Is the increase in value SP or CP?
What about the income recieved from cash dividends? Stock Dividends? |
SP - The price of stock may go up and down but it does not change the character of the stock.
In a closely held corp., Even if TTL was used to increase, the value of the stock, the character of the stockl has not changed, therefore it remains SP. (However, there may be a claim for reimbursement if the TTL expended on increasing stock value was not compensated for by salary (was growth at the expense of the community?)- remember, salary is CP - Comm goe reimbyursed already) THIS IS A JENSEN CLAIM FOR REIMBURSEMENT BASED ON TTL; WOULD HAVE BEEN HELPFUL IN MULE CASE. You can spend a reasonable time to maintain SP, but if unreasonable, spouse may have a jensen claim. Cash dividens are income earned from SP and will be CP Stock dividends/split are not CP because the ownership share has not increased, it stays the same. |
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Son’s Café v. Daughter’s Café, Inc
• F dies and has two kids; S and D (each married) • F leaves $20,000 to S and D → S has $10k; D has $10k • F was in the restaurant business → each S and D open a new restaurant • S takes $10k and starts Son’s Café (signs lease to rent building; buys tables, equipment, supplies; buys food and hires employees; hangs his shingle and starts it as a sole proprietor) • D takes $10k and exchanges it for all shares of stock in Daughter’s Café, Inc → as D is Pres; she takes the corporate $10k and leases the building; buys supplies, etc; buys food; and opens her restaurant as D’s Café, Inc 20 YEARS PASS → both successful, both ready to retire • S sells S’s Café to T for $1M • D sells her business to T, but she sells the shares of stock for $1M; D has $1M • Now both spouses of S and D want a divorce → only major asset is the $1M check they each received |
At S’s divorce: S has BOP to establish the $1M is separate property by clear and convincing evidence
• unlikely S can establish that any of the original items purchased with the $10,000 remain • thus, S sold restaurant in current condition and sold the going concern of the business • the entire $1M is going to be community property, operating as a proprietorship is not a business entity, there is almost no way to prove a traceable mutation At D’s divorce: D also has clear and convincing BOP to establish $1M is separate • when D incorporated, she purchased shares of stock; and can almost definitely show a traceable mutation from the original $10,000 to the current $1M • D’s time, talent, and labor went into the enhancement of her separate property → this does not change the character of the asset; so long as we can prove the initial infusion of cash used to purchase the shares of stock came from a separate source; we can show traceable mutation and establish separate property |
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HYPO
during marriage, W inherits BA (FMV = $10,000) in 2000: BA is worth $100,000 2001: W sells BA for $100,000; that’s a $90,000 gain and the community pays income tax liability 2001: W uses $100,000 to purchase CD from the Bank 2002: Bank pays her $110,000 from the CD - $10,000 is community (income rule); $100,000 (separate) 2002: W opens checking account with $110,000 ($10k-separate; $100k – community) 2003: W writes 2 checks – (1) $10k to stock broker to invest in SS, Inc; (2) $100,000 to Bank to buy 2nd CD 2008: Stock is worth $1M; CD is worth $140,000 H dies and leaves all he has to Tootsie → What effect? |
Tootsie gets $500,000 of $1M stock → its not really a commingling problem; its W’s failure to meet her clear and convincing evidence standard that stops her from getting around the community presumption
Tootsie also gets half of $40,000 increase in CD (because this is interest from the CD – income earned) |
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Same but at the end the stock in SS is worthless.
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H dies, but now the SS, Inc stock is worth $0
now there is no reimbursement for Tootsie the point is – you need to be able to defeat the community presumption IT BOILS DOWN TO SUCCESSFUL ADVOCACY – WHAT WE HOPE IS THAT THE W COMES TO AN ATTY PRIOR TO COMMINGLING |
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Tracing and Commingling
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Once separate and community property are mixed, it may become difficult to trace the source of the assets.
“Commingling” means that separate property can no longer be traced, and the mixed assets are characterized as entirely community property. If the owner cannot rebut the community presumption and commingling occurs, the spouse who “lost” the separate property may have a separate claim for reimbursement. See paragraph 5, infra. Maintaining contemporaneous business records with significant recitals for deposits and withdrawals is perhaps the best way to prove intent and the source of funds. Other approaches exist, such as the “COMMUNITY OUT FIRST theory, which means that if an account has both separate and community property in it, it is presumed that the community property is withdrawn first. Another theory is the “PRO RATA” method, which means that if there is a bank account with separate and community property in it, it is presumed that the property was withdrawn proportionally. If we have seperate and community funds and we cant' trace them, it is "commingling" a term of art. Commingled funds are CP. |
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Claims for Reimbursement.
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Historically, a claim for reimbursement existed when funds from one marital estate were
used to benefit another marital estate. There could be both separate and community claims. Today, reimbursement for the expenditure of uncompensated time, talent and labor to improve separate property is also recognized |
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Insurance Payments and Reimbursment
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Insurance proceeds may be payable when property is damaged. According to Texas
Family Code § 3.008, insurance proceeds arising from a casualty loss to property during marriage are characterized in the same manner as the property to which the claim is attributable. This method of characterization is akin to traceable mutation. But what if the premiums were paid with community property and the damage was done to separate property? |
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Hypo: Husband has SP land and uses CP to put buildings on the land, are the buildings CP or SP/
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They buildings are attachements to the land and are SP. Attachments take on the character of the land. The community will have a claim for reimbursement.
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Reimbursement:
1. What is a Jensen Claim? 2.What is a Harlock Claim? 3. What is a Dakan Claim? |
1. A claim for reimbursement when TTL of the community has been used to increase the valuse of seperate property
2. A claim for reimbursement where SP is used to establish a larger CP estate. If you can trace the Initial SP, you have a claim for reimbursment. 3. A claim for reimbursment when CP funds are used to improve SP land or build attachemnts to SP. Also a claim for reimbursement may arise when CP funds are used to pay back a Spouse's debt entered into before marriage. |
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Conversion of Separate Property into Community Property.
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A separate asset can become community property if there is a “severance” and the
severed asset is converted into a new and more valuable state by an expenditure of significant time, talent and labor of a spouse. |
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Alter ego.
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Alter ego is a theory used to disregard a business entity by arguing that the entity and the
individual are one and the same and, therefore, they should not be treated differently. In the context of marital property, the entity is then ignored, and the assets of the entity are characterized individually starting with the community presumption. |
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Property Damage.
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Insurance proceeds may be payable when property is damaged. According to Texas
Family Code § 3.008, insurance proceeds arising from a casualty loss to property during marriage are characterized in the same manner as the property to which the claim is attributable. This method of characterization is akin to traceable mutation. But what if the premiums were paid with community property and the damage was done to separate property? |
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Hypo: h has automobile as SP. He pays insurance out of CP. He gets in wreck and insurance pays him 10K. SP or CP?
What if he takes the 10k and invests it in Supersoy and it makes 1 mil. |
SP. payments from caualty insurance are are characterized in teh sam manner as the property.
Wife has a claim for reimbursment on the amount of money paid for the insurance premiums but the 10k was a traceable mutation of the car which was SP. Therefore, the 10K is SP and the 1 mil is also a traceable mutation of the 10K. |
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Husband and Wife put money into a checking account. He uses the checking account to give a gift to his child from a previous marriage.
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The Checking account is JCP becasue of commingling, even if it is in his name and, unless he has power of atty over the wife, he needs JOINDER to dispose of the funds under the checking account. SO she does not have to prove a fraud on the community. The transaction is void.
It must be determined whose CP it was? If it is actually JCP then, any transaction affecting the JCP that does not have joinder is VIOD as to the wife. H cannot even assign his 1/2 interest w.o joinder. YOU HAVE TO FIND OUT IF THE PROPERTY IS JCP. MAY BE JCP even if it is in his name. Record legal title doesn't matter. #3.104 does not protct the kid. he is not a gfp becasue 3.104 only protects gfp's. 3.104 only protects a commercial entity. |
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Hypo: H puts his paycheck into a checking account. What is the nature of the funds in the account and what duties does he owe to W?
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Any money earned during a marriage is CP. Becuase it is in H's name and under 3.102 it is H's HSCP subject to his sole management and control. He has a fiduciary duty to his wife.
The husband has legal title in the property but he shares a 1/2 equitable interest in the property with the wife. What is the nature of the duty? Not to commmit a fraud on the community. For a spouse to win a claim for FOC she must prove: 1. Actual Fraud - an intenttion to deceive the community out of property; or 2. Constructive Fraud - under the fairness test - the factors that will be considerred in the fairness test are: 1.the sive of the gift in relation to the size of the estate 2.the adequacy of the remaining estate to support the spouse 3. the relationship of the donot to the donee and 4. the timeing of the gift. Most fraud cases involve gifts of community assets on 3rd parties or waste. |
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Hypo: Hi invested in emus and sold the 10k business to his father for 1k. shortly afterward he divorces. Can the trial court award punitive damages?
Can the court force the dad to give back the property? are there limits to the amount of property that can be reached? |
A claim of FOC is a means to an end and is not a separate cause of action. It is meant to recover a specific property wrongfully conveyed or to obtain a greater share of the community estate upon divorce, in order to compensate the wronged spouse for his of her lost interest in the community estate.
To the extent that we can trace gifts or fraud to a thrid party and show unjust enrichment the court can impose a constructive trust that forces the 3rd party to convey the property back and whatever prop the court can find they can make a just and right division. In a divorce court, the court can go after 100% of the property to make a just and righ division and make the W whole. In probate court the damages are limited to 1/2 the property interest at most. |
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H commits a fraud on the community but he has no SP that the court can reach to make the wife whole. What can the court do?
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the court can impose a constructive trust on a non-bfp because he was unjustly enriched.
can go after as much if the gift as necessary to make the wronged spouse whole. |
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Hypo: Husband takes his paycheck and deposits it into joint account with his daughter from a previous marriage.
1. At this point Is there FOC? 2. What if the daughter has the right to take money out of the checking account and she does so? 3. What must W do to assert FOC at this point? 3. What if husband dies and there is no ROS on account? 4. What if H dies and there is a ROS on account and daughter gets teh $$. |
1. Just depositing His check into an account has not done anything to HSCP. At this point there is no FOC.
2. If the daugter takes money out of the account and uses it, then a gift has occurred and the wife may have a claim for FOC (const or actual) 3. However, in order to assert this claim she must do it in a divorce court. She must divorce the husband. 4. If husband dies and there is no ROS to daughter, W is entitled to her 1/2 interest and the other 1/2 passes to H's heirs and deisees. Daughter is not entitled to the account because joint accounts belong proportionatley to those that deposited into those accounts. Her right to draw would end. 5. If there is a ROS, then the w would have a claim for FOC in probate court. But because of DWAP, she would only have a right to half of the money in the account. |
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Multi party accounts: a whole assload of questions to ask: see sheet.
JA (WROS) vs JTWROS |
1.Under a joint account with rights of survivorship, assuming the managing spouse is the “sole” depositor, the managing spouse “gives” the third party only a contractual right to make withdrawals and claim ownership of the account upon the
managing spouse’s death. 2.Under a joint tenancy with a right of survivorship, the managing spouse gives the third party an undivided one-half interest in the property; they become coowners. The gift includes the other spouse’s one-half of that special community asset, so the other spouse would have a claim for fraud on the community in a divorce or probate proceeding |
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Life insurance
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The contract has three important parties: (1) the insured; (2) the
owner; and (3) the beneficiary. The death of the insured triggers the payment of the policy, and the insured must have consented to the original purchase of the policy. For example, if the insured is not the initial owner of the policy, the insured must give consent and the owner must have an insurable interest in the insured’s life (e.g., typically family members). |
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Life insurance policies and incidents of ownership
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The initial owner is usually the party who purchases the policy.
The owner’s “incidents of ownership” include: (1) the right to designate and change the beneficiary; (2) the right to select how the funds are distributed (i.e., in a lump sum or an annuity); (3) the right to cancel the policy at any time; and (4) the ability to borrow against the policy (if it is a whole life policy). Ownership of the policy can be assigned during the insured’s lifetime to someone with an INSURABLE INTEREST in the life of the insured. |
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LI policy beneficiaries
hypo: H takes out a life insurance policy on himslef and names his wife as the beneficiary. She passes before him. who gets the proceeds from the policy? |
Finally, the beneficiary of the policy is designated by the owner and can be changed by the owner prior to the insured’s death.
The beneficiary has an “expectancy” (not a property interest) during the life of the insured. A change of beneficiary does not affect the ownership of the policy. If the beneficiary survives the insured, the proceeds pass nonprobate to the designated beneficiary pursuant to the terms of the contract. If the beneficiary dies before the insured and no other contingent beneficiary survives the insured, the proceeds are distributed to the owner. If the insured was the owner, the proceeds become part of the insured’s probate estate. |
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Characterization of life insurance policies
Hypo: H buys an insurance policy on himself before marriage and names his sister as the beneficiary. He marries and pays he premiums out of CP. At his death who has a right to the proceeds? |
Life insurance policies are generally characterized as separate or community property using the inception of title rule.
If ownership was acquired before marriage, the policy is separate property. If ownership was acquired during marriage, its character depends upon what funds were used to pay the “initial premium.” If separate funds were used for the INITIAL PREMIUM, the policy is separate property, and a claim for reimbursement may exist if community property was used to pay subsequent premiums. If community presumption is not rebutted, the policy is community property. There is a possible exception to the application of the inception of title rule; if the policy is a pure term policy (e.g., a one-year policy that is renewable annually), the policy’s character may depend upon the source of the last premium. There are no Texas cases on this concept, and there are not many policies like this today. |
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Hypo: A husband takes out a life insurance policy on himself. He transfers ownership of the property to his son from a previous marriage.
Is the transfer FOC? Is the patment of premiums foc? |
During the insured’s lifetime, if the insured owner of the policy transfers the ownership of the policy to a third party, the transfer of the policy may be a fraud on the community if the
policy was the insured’s SCP. If it was separate property, the other spouse may have a claim for reimbursement if any community funds had been used to pay any premiums while the insured owned the policy. The payment of any premiums with community funds after the transfer may be a fraud on the community. |
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What happens to a Life insurance policy upon divorce?
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A life insurance policy is an asset. It can be either separate or community property if the owner of the policy is married. At divorce, the court has the power to divide a policy characterized as community property during its just and right equitable division like any other
community property asset. Typically the policy is awarded to the insured spouse, but the court may award the policy to the other spouse if needed to make the just and right division. If the policy is separate property, the divorce court has no authority to divide it. The policy will remain that spouse’s separate property; however, if during the marriage policy premiums were paid with community funds, the other spouse may have a claim fr reimbursement. |
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What if the insurance policy is SP but during the marriage, the husband made the wife the beneficiary and then forgot to change the beneficiary?
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Whether the policy was separate or community, if the insured spouse retains ownership of the policy by reason of divorce, Texas Family Code § 9.301 revokes any pre-divorce designation of the other spouse as beneficiary, unless the decree designates the former spouse as the beneficiary, the insured re-designates the former spouse as the beneficiary or the former spouse is the trustee of the proceeds for the children of either spouse.
An exception to this rule is found in the Egelhoff v. Egelhoff case which held that a state statute cannot void the policy’s designation of a beneficiary in a group life insurance policy that is regulated by federal ERISA law. |
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Hypo: H takes out an insurance policy. The initial premium is paid out of CP and the premium payments are also paid out of CP, thereofre, it is CP. What happens when the insured's spouse passes?
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The death of the insured’s spouse may or may not affect the ownership of the policy. If the policy is proven to be the insured’s separate property, it remains the insured’s property. The other spouse’s “estate” may have a claim for reimbursement if any premiums were paid during the marriage with community funds. If the policy is community property, DWAP occurs.
If the policy was the separate property of the insured’s spouse, the policy passes probate to that spouse’s heirs/devisee per Texas Probate Code § 37. Would the insured have a claim for reimbursement if community funds were used to pay any premiums on a policy owned by the other spouse as separate property? |
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What happens upon the death of the Insured Spouse?
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The insured’s death terminates the marriage and triggers the payment of the policy proceeds. community property can only exist during the marriage. Thus, the proceeds cannot be community property upon the death of the insured owner of the policy! So, who owns the proceeds? It is not the insured owner, since the
insured is dead. If there is a valid “third party beneficiary designation,” the proceeds pass nonprobate to the designated beneficiary. If the designated beneficiary is the insured’s spouse, the proceeds belong to the spouse whether the policy was community property or separate property of the insured or of the insured’s spouse. Would the insured’s “estate” have a claim for reimbursement for any premiums paid with community funds? Perhaps, but only if the policy was the other spouse’s separate property. |
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What happens if the designated 3rd party beneficiary is not the surviving spouse (kids, paramour, blind mom)?
What happens if the designated beneficiary does note survive the spouse? |
the proceeds pass nonprobate to the third party beneficiary. If the policy
was the insured’s SCP, the other spouse has a fraud on the community claim. If the policy was the insured’s separate property, the other spouse may have a claim for reimbursement if community funds were used to pay any of the premiums. |
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Retirement Plans
Wha is a retirement plan? |
Most retirement plans are a form of deferred compensation offered by employers for employees.
Te purpose of such benefits is to provide the emplouees compensation in a way that deferes income taxation to the employer. if the employee si married at Retirement, a federal ERISA law requires for may retirement plans that the benefits be paid out in a QJSA between the employee and spouse Thus, the employee would receive the annuity payment and the spouse would recieve it upon his death. A the employee and spouse may agree to opt out of the QJSA by taking: (1) a lump sum (subject to income tax); (2) a lump sum and roll it into an IRA (there will be no income tax on the amount until withdrawals are made, which must begin, if not earlier, beginning when the employee is 70 ½); or (3) some other type of annuity and receive annuity payments (which are taxable as received). |
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Which law governs most retirement plans?
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A retirement plan that has been provided by an employer is likely to be governed by ERISA. ERISA stands for Employee Retirement Income Security Act.
ERISA was enacted to benefit employees and their spouses. It also applies to group life insurance policies and is a combination of labor law and tax law. These employee benefits are not created by the federal government but are governed by federal law. On some occasions, ERISA yields to state law, but sometimes ERISA preempts state law. Generally, whether an employee’s interest in a retirement plan is community property or separate property is irrelevant under ERISA (i.e., marital property character is determined using state law). |
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What is the characterization of retirement plan?
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A married employee’s interest in an employer-provided defined contribution plan may be community property, separate property or both under Texas law.
Texas courts have been consistent in applying an AS EARNED RULE . --If all of the employer’s contributions to the plan were earned during the employee’s marriage, the employee’s interest in the plan is the employee’s special community property. --If all of the contributions were earned prior to marriage, the employee’s interest may be the employee’s separate property. -- If the employer makes contributions prior to and during marriage, the employee’s interest may be both separate and community. Of course, the employee’s interest is presumed to be community property and Texas Family Code § 3.007(c) allows the employee to trace any separate portion. Defined benefit plans are generally “apportioned” using a time spent prior to marriage and time spent during marriage comparison. |
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What happens to an employee's retirement plan during divorce?
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In the event of divorce, the employee’s community interest in the retirement plan is subject to a just and right division by the divorce court.
However, if any portion of the employee’s interest in an ERISA plan is awarded to the other spouse, ERISA requires a QDRO (Qualified Domestic Relations Order) in order for the decree to be enforced against the plan’s administrator. In any event, the spouse cannot access the employer’s plan until the employee retires or dies, or otherwise separates from employment. Further, post-divorce contributions cannot accrue to the ex-spouse’s benefit |
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RETIREMENT PLANS -Employees status at death
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Three stages in a retirement plan's history:
1. Neither vested or matured 2. Vested but not yet matured 3. Both vested and matured |
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R PLANS - stage I
hypo: H has a retirement plan at work, however he has only worked for 6 weeks and the retirement plan only vests after 6 months. Before the plan vests his wife dies. What happens to the wife's interest in the retirement plan? |
if the employee is neither vested nor matured, the employee has a contingent interest in the plan. If the employee quits/is fired/dies at this stage, the employee’s interest
reverts to the employer. Under Texas law, if the employee’s spouse dies, the deceased spouse’s one-half interest in the employee’s community portion of the plan would normally pass to that spouse’s heir/devisees. However, federal law trumps state law in ERISA plans and prohibits any transfer of the spouse’s interest in such plans. The employee’s contingent interest in the plan remains the employee’s. |
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Hypo: h has worked at the plant for the six months required for his retirement plan to kick in. What happens if on the day after, he dies?
What happens if his wife dies? |
Next, if the employee is vested but not matured, the employee is still employed and now has a vested interest in the plan.
If the employee quits/is fired/dies at this stage, the employee’s vested interest does not revert to the employer. Generally, community property is partitioned at the death of a spouse, but retirement plan death benefits usually pass nonprobate upon the employee’s death. Federal law requires for many ERISA retirement plans that any death benefits go to the employee’s spouse in a Qualified Survivors Annuity (QSA, also known as QPSA), unless the employee and the employee’s spouse agreed to opt out in favor of a lump sum distribution, a rollover into a “spousal IRA” or other annuity payment. Benefits under a QSA end at the death of the surviving spouse. If the spouse predeceased the employee, federal law trumps state law and prohibits any transfer of the spouse’s community interest in ERISA plans. Thus, the ERISA plan remains intact for the employee. |
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Hypo: what happens if H retires from the plant and then dies?
What if W dies first? What about a divorce? |
if the employee is vested and matured, the employee has retired and taken his vested interest out of the plan. Under Texas law, the plan is the employee’s special property and the employee would be able to decide how to take the interest out of the plan (i.e., lump sum,lump sum-rollover into an IRA, or some type of annuity).
However, ERISA generally requires for many retirement plans that the married employee take the benefits out of the plan as a QJSA (Qualified Joint and Survivor Annuity) unless they agree to opt out and elect another choice (i.e., lump sum, lump sum-rollover into an IRA, or some type of annuity). When the employee later dies, the result depends on what happened at retirement. -If the plan benefits went into a QJSA, the surviving spouse receives the benefits under the terms of the QJSA. -If the couple opted out and took the benefits as another annuity, the terms of the annuity control. -If the couple took a lump sum, the after-tax investments are partitioned at the employee’s death. -If the couple took a lump sum and rolled it over into an IRA, the terms of the IRA control. Usually the IRA terms say the IRA passes nonprobate to the surviving spouse. If the rollover IRA does not include terms that control, the IRA is partitioned at the employee’s death. If the other spouse is the first spouse to die after retirement, the result again depends on what happened at retirement. If the couple later divorces, under Texas law, the community property benefits are subject to a just and right division by the divorce court no matter the form of the distribution at retirement. |
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What aabout a federally created plan and not just a federally regulated plan?
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The federal government has created different types of retirement plans. Such plans are not ERISA regulated plans but are governed by the federal legislation that created or modified the plans.
Federal law dictates the extent to which they are divisible by state divorce courts or probate courts. Examples of benefits that can be divided at divorce include military benefits, military disability, federal worker’s compensation, civil service retirement pay and civil service retirement disability payments. Examples of benefits that are not divisible at divorce include fleet reserve pay, military readjustment benefits, railroad workers’ retirement plans, Social Security benefits and Veteran’s Administration benefits. |
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What about state retirement plans?
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Finally, Texas has created a public retirement system, which includes, among others, public school teachers as participants.
According to Texas Government Code § 804.101, upon the death of the spouse of a participant in the public retirement system, the spouse’s community interest in the plan CEASES TO EXIST. That is, a participant’s spouse has only a “terminable interest.” Consequently, the participant’s interest in the plan belongs entirely to the participant. There have been questions as to whether this statute is constitutional. |
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BACK TO LIFE INSURANCE
What are the two types of insurance policies and what are the dirfferences? |
A term policy is like an automobile insurance policy where the owber pays premiums for each year.
A whole life policy is a policy in which there is also an investment element. Over the years, the longer the insurance survives, the larger the investment grows in value. The value of a term policy is very low when comparred to a whole life policy. |
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Bank Account Hypos
HYPO 1: H deposits $25,000 into a joint account with rights of survivorship for H and Tootsie Is this FOC? |
This does not amount to a gift, because there was no transfer to Tootsie; where does that leave us?
this account is HSCP and the divorce court will make a just and right division Tootsie does not have any property interest, so has no standing in divorce court CHAP 11 – TX PROBATE CODE: MULTI-PARTY BANK ACCOUNT RULES •multi-party bank account rules: the mere deposit of funds into a joint account, in and to itself, does not give the other party an interest b/c bank accounts are owned in proportion to the net contributions of the parties to the account. (in Hypo, H owns 100% of the account) •Tootsie does not acquire an ownership interest in the account until (1) H dies and (2) Tootsie survives him |
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HYPO 2 – if we’re in probate court and then W finds out about the bank account;
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W has a claim for fraud on the community – either actual or constructive and will be brought against the estate of the deceased H → if H is insolvent, then we go after Tootsie and impose a constructive trust for the $12500 maximum amount that W can go after is 1/2 or $12500
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HYPO 3 – W dies first, H still has joint account with Tootsie
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the opening of the account IS NOT A FRAUD – b/c no transfer to the third party yet
Now, W’s heirs and H are TIC and anyone of them can seek a partition in kind by court • general rule: just opening the joint account with a third party does not amount to a fraud and does not necessarily create a true JT with right to survivorship •all you are giving the other party is a contractual right to claim the other account after the depositor’s death |
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HYPO 4 – if the joint bank account agreement shows that the H intended to create a § 46 JT with ROS, what do we do?
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noone dead yet: H and T own bank account as JTs with ROS
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HYPO 5 – H has account POD to Tootsie, does the creation of the account (deposit of $50,000) amount to fraud?
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no, b/c POD beneficiary only has a contract right to claim the account when H dies and T is still alive
at H’s death; ownership transfers to Tootsie; leaving W with right for claim of fraud on the community W dies first, plain vanilla DWAP – b/c this is HSCP and T has no interest yet |
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HYPO 6 – H creates account in trust for T
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H dies first, W has claim of fraud on the community
W dies first, DWAP |
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HYPO 7 – H creates a joint account with T; T makes a $10,000 withdrawal to buy jewelry
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this is now a gift by H; and this may amount to a claim for fraud on the community in the future
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HYPO 8:
O → A for life, remainder to B. A dies; O → remainder to B |
A’s interest terminates (this is kinda a will substitute – at A’s death, no interest subject to probate)
B’s remainder interest simply becomes possessory O retains a life estate in his own property – this is a property arrangement that allows O to convey a future interest in property at O’s death: O’s remainder interest ceases to exist and B’s remainder interest becomes possessory |
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LIFE INSURANCE
WHY IS LIFE INSURANCE AN ATTRACTIVE INVESTMENT? |
•Life insurance is a unique asset; it is an exempt asset that creditors cannot go after
•upon the I’s death, the millions that go to the B, under TX law, the proceeds are exempt from the I’s debts at death • it is a favored asset • at a federal level, upon the I’s death, the B receives millions or whatever amount of dollars in cash and transfers to B free from income tax (u do not need to report this “income” on taxes) • proceeds are includable in the I’s taxable estate for estate tax purposes in 2situations o proceeds are payable to the I’s estate (no designated B) o immediately prior to the I’s death, the I’s possessed any one or more of those “incidents of ownership” • it may be income tax free, but it is not exempt from estate taxes HOW DO YOU TACKLE THIS FROM AN ESTATE PLANNING PURPOSE? • before I dies; I should give the policy to his kids; assign the ownership to the kids and then dies • immediately prior to his death, he did not have any “incidents of ownership”, at I’s death, kids get the proceeds of the policy income and estate tax free. • catch: 3-YEAR RULE: if the decedent I dies within 3 years of assigning the kids the policy, then the proceeds are not estate tax free |
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Can anyone take out an insurance on someon else's law?
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The law says that only a person with an insurable interest on the Insured's interest can taked out a policy, even with the insured's consent. FOR A THIRD PARTY TO TAKE OUT A POLICY ON I'S LIFE, HE NEEDS BOTH CAONSENT AND AN INSURABLE INTEREST
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Reversionary Interests
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Future Interests in the transferer
1. Reversion - follws LE's 2. Possibility of Reverter -(temporal - as long as, until) 3. Right of Entry-( conditional - but if, unless, on the condition that) |
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frugal
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economical, thrifty
(adjective) |
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RAP
Which interests does the Rule againsr perpetutities apply? |
Appliels to future interests in property, whether legal or equitable, but only if they are non-vested (contingent).
ONLY TO CONTINGENT interests? Specifically, contingent remainders and executory interests. Also class gifts are subjesct to RAP |
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BACK TO ASK ABOUT LIFE INSURANCE POLICY
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1. Who owns the policy?
2. Who is the insured under the policy? 3. Is there a designated 3rd party beneficiary? If so, who? |
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What is a term policy?
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When you pay the premiums, you’re only paying for the insurance company’s assumption of the risk of insuring you.
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what is a whole life policy?
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If the owner surrenders the policy, the owner gets something significant back from the insurance company.
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Hypo: Husband takes out LI policy during marriage and designates kids as beneficiary. In the divorce proceeding, the court gives the policy to Ex-Wife. Did this infringe upon the kids’ rights?
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No. As beneficiaries of the policy, the kids don’t own anything. They have a mere expectancy. After divorce, does the wife have the right to change the designated beneficiary to herself? Yes! She has incidence of ownership now.
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What happens at divorce?
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In a decree of divorce or annulment, the court shall specifically divide or award the rights of each spouse in an insurance policy (assuming the policy is community property).
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Hypo: Husband takes out a LI policy during marriage and designates Wife as beneficiary. Divorce court awards the policy to Husband. Husband dies without ever changing the beneficiary. What result?
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Under K law, the Ex-Wife still gets proceeds. The legislature made an exception to this:
§9.301: Pre-Decree Designation of Ex-Spouse as Beneficiary of Life Insurance (a) If a decree of divorce or annulment is rendered after an insured has designated the insured’s spouse as a beneficiary under a LI policy in force at the time of rendition, a provision in the policy in favor of the insured’s former spouse is not effective unless: (1) the decree designates the insured’s former spouse as the beneficiary; (2) the insured redesignates the former spouse as the beneficiary after rendition of the decree; or (3) the former spouse is designated to receive the proceeds in trust for, on behalf of, or for the benefit of a child or a dependent of either former spou Egelhoff case: Washington had a statutory provision similar to this. The LI policy was a group life policy through the husband’s job. U.S. Supreme Court held that the statute could not void the beneficiary in an ERISA-regulated policy. Keep this in mind. |
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Hypo: Husband takes out a LI policy and designates Wife as beneficiary. Wife dies first. Assume the policy was community property prior to the wife’s death.
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This is a DWAP situation. When she died, the husband retained his ½ interest in the policy and her ½ interest went to her heirs or devisees (TIC). If the heirs want their share, they can ask the court for a partition.
What ordinarily happens: Husband buys out heirs for their ½ interest. But note, if ther heirs do nothing, and then the Insured dies, then the LI company must pay out the B. They have lost their chance to contest. |
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Hypo: During marriage, husband takes out LI policy. He pays the initial premium and following premiums during marriage.
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What is important in this situation? The nature of the cash used to pay the premiums.
We start with the presumption that the cash was community property. However, the husband can prove (via the traceable mutation rule) that the cash was separate. |
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Hypo: What if the husband paid the initial premium with a gift from his mom, and the others with community property (his paycheck)?
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The policy will be deemed his separate property because the initial premium was paid with separate property (inception of title rule/initial premium test). However, the community has a right to reimbursement from the husband’s separate estate.
One possible exception to this rule: Some have argued – If the policy in question is a pure term policy, a last premium test should be used. Why? Because in a pure term policy, a new policy is created each time you pay a premium. However, the reality is that most policies aren’t pure term |
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Hypo: Husband owns policy on his life before he marries his wife. When he bought the policy, he designated mom as beneficiary. After marriage, he pays premiums out of his salary.
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It’s the husband’s separate property because he acquired it before marriage. If she dies, we won’t DWAP it. But her estate will have a right to reimbursement.
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Hypo: Wife purchases a policy on her life, designating her husband as beneficiary. Her will says, “I leave all my property to my kids by my former marriage.” Do the kids have a right to the LI proceeds?
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No. Since the husband was beneficiary, it’s like the wife was making a gift to him at her death. As a gift, it’s his separate property. Thus, he doesn’t have to account to the kids.
Another way to look at it: When the wife dies, her ownership of the policy extinguishes. Thus, the kids aren’t entitled to anything. |
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Hypo: Husband purchases a policy on his life during marriage, designating his sister as beneficiary. Under his will, he gives all property to his kids by a prior marriage.
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Where the surviving spouse establishes fraud on the community, that spouse may recover the ½ of the proceeds which represents that spouse’s ½ interest in the community property. The other half of the proceeds, representing the disposing spouse’s community interest, is a gift to the designated beneficiary and is unaffected by constructive fraud.
Understand: When the insurance company writes the check to sister, the wife must actively establish fraud on the community. She doesn’t automatically own something. Once she does, the court will impose a constructive trust. What about the kids? Do they have an interest in the proceeds? No! The policy was “gifted” to the sister by the husband. |
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Hypo: Husband is aware of the Jackson case, and he really wants the proceeds to go to his sister. He changes the beneficiary in the policy to “his estate.” The then puts in his will, “I devise the proceeds of my LI policy to my sister, and all other assets to my kids.”
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By doing this, the husband subjected the proceeds to probate. DWAP will occur when he dies – the wife will get ½ of the policy, and the sister will get ½ of the policy. Understand: There is no way that the husband can give the whole policy to his sister (unless he established the policy before marriage).
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