WILLS, TRUSTS and ESTATES
FRANKLIN PIERCE LAW CENTER
October, 2007
Community Property (“CP”) Regime:
Premised on Economic Partnership Theory and Sharing
Principle Borrowed From “Civil” Law of Continental
Europe (Spain, France)
• CP exists in 8 states (Arizona, California, Idaho,
Louisiana, Nevada, New Mexico, Texas and
Washington). A “Marital Property” system (essentially
community property) is used in Wisconsin, based on the
1983 Uniform Marital Property Act.
Requires “classification” between:
Separate Property “SP”
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CP
Consists of (i) assets brought to marriage by
each party, and (ii) assets acquired by either
party during marriage by gift or inheritance.
Each party has complete testamentary
freedom over his/her SP: unfettered ability of
either spouse to gift SP during life or make
testamentary or non-testamentary disposition
to persons other than his or her spouse.
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Irrespective of titling ( i.e., one spouse’s name
alone) each spouse has an undivided one-half
interest in all earnings of either spouse during
marriage, and any assets acquired during marriage
from earnings of either spouse.
Complete testamentary freedom over each spouse’s
one-half share of CP (i.e., ability by will or nonprobate transfer to give to persons other than
surviving spouse), but cannot defeat surviving
spouse’s rights to his/ her undivided one-half
share of CP.
Intended to recognize each spouse’s contributions
to a collaborative marital enterprise regardless of
whether the contribution is remunerated (i.e., wages
and other earnings) or not (i.e., domestic services,
child rearing), and conclusively presumes that both
spouses’ contributions have equal value.
CP’s eligible for federal income tax cost “basis”
step-up in value at first spouse’s death, enabling
surviving spouse to sell CP after deceased spouse’s
death at little or no capital gain tax cost.
“Tracing” and commingling problems, particularly upon sales of SP and CP
assets and reinvestment proceeds
Common Law Regime – originated in England
(Primogeniture/feudal concept),
premised on title theory: (41 states).
• As regards marital property rights, title to property rules, testamentary
freedom reigns supreme, subject to surviving spouse’s
dower/homestead/family allowance/elective share (“ES”) rights,
which vary from jurisdiction-to-jurisdiction. Trend: ES laws across
the country are gradually evolving in the direction of providing more
disinheritance protection for non-propertied surviving spouses, but
this is very uneven, and many states’ ES laws afford little (or no)
protection, particularly those which have not been substantially
amended or liberally construed by activist judges over the last 10
years.
• Note: ES is a concept unique to the common law states; no ES is
necessary in the CP states because the CP laws protect the non-wage
earner spouse by automatically giving him or her an undivided interest
in all of the wage earner carrier spouse’s earnings during the marriage.
Consequences Upon Termination of Marriage by Death or Divorce
Under Two Marital Property Systems
CP Regime:
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Economic partnership: means that
each spouse is awarded his/her 50%
share of CP upon divorce, and keeps
his/her SP.
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On death: community dissolves, and
deceased spouse can by will give
his/her SP, and his/her one-half share
of CP, to anyone, even to the exclusion
of surviving spouse; surviving spouse
keeps his/her SP and one-half share of
CP.
Common Law (“Title”) Property Regime:
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Upon divorce: property settlement which will govern the division of
“marital estate”. Modern property settlement statutes attempt to
implement marital partnership theory through “equitable distribution”
systems, under which court has broad discretion to award each party an
equitable share of the marital estate which typically includes all property
and interests in property (tangible and intangible) owned by either or
both spouses. Rule of thumb: for the longer term marriages (i.e., 15
years or more), particularly where children are born, division is often a
50-50 split: a result which is often more generous to the non-propertied
spouse than that which he/she would receive if the divorce occurred in a
CP state.
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Marriage terminated by death: generally, deceased spouse can
disinherit surviving spouse, subject to surviving spouse’s ability to take
an ES (also called a “statutory” or “forced” share) of deceased spouse’s
“elective share estate” (sometimes the probate estate only but often
“augmented” by other assets) in lieu of any provision made for surviving
spouse in the deceased spouse’s will. Tremendous variation among
statutes and court decisions in various common law states in elective
share percentages (usually 1/3), statutory definitions of elective shares
estate and common law gloss, and other nuances.
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Property settlement and elective share rights can be waived in every
common law state through a premarital agreement, but requirements for
enforceability (conscionability, disclosure of assets and liabilities,
separate representation by independent counsel, etc.) vary from
jurisdiction-to-jurisdiction. Post-nuptial agreements enforced in some
jurisdictions, but often with more judicial scrutiny for evidence of
overreaching and fraud.
Continuum Illustrating Differences in Statutory and Common Law Approaches to a
Surviving Spouse’s Elective Share Rights in Common Law States
One Extreme: Laws which attempt to mimic community property and/or implement
partnership theory by providing grater disinheritance protection for non-propertied
surviving spouse
100%
UPC ’90 “approximation”/”accrual” system (8 states) – could provide surviving spouse with much
more than similarly situated CP spouse, because no segregation what would be SP under CP
system. Prof. Waggoner suggests extension of 50% phase-in from 15 to 25 years
States which allow personal representative of deceased spouse to make election but set limitations
on elective share amount
States which define a 50% elective share percentage, and provide expanded definition of elective
share estate
Statutory approaches in New York and Delaware: generally, one-third federal estate tax “gross
estate” (“Del.”), or “net estate” (“NY”) can provide substantially more or less protection than
similarly –situated CP spouse, depending on various factors in any given case (length of
marriage, amount of property that would have otherwise been considered to be deceased
spouse’s SP, etc
States which by common law allow elective share percentage to apply to non-probate transfers:
– Sullivan v. Burkin (MA. SJC 1984) – revocable trusts created and funded during marriage
– Illusory Transfer Doctrine – states that follow Newman v. Dore, a “control” test
– Fraud on the “widow’s share” states:
• Common law present transfer test
• Objective Fraud (“badges” of fraud) -– easier proof
• Subjective Fraud—difficult proof
Continuum Illustrating Differences in Statutory and Common Law Approaches
to a Surviving Spouse’s Elective Share Rights in Common Law States (Cont’d)
50%
Pre-Sullivan Massachusetts: one-third share applicable to probate estate by common law do not
allow consideration of non-probate transfers (Massachusetts pre-1984 – Kerwin standard)
States which limit surviving spouse’s guardian’s right to elect statutory share of incapacitated
surviving spouse (e.g. UPC ’69) – as necessary for support, and ’90 UPC (custodial trust))
States which allow value of property subject to life estate as a “credit” against statutory share
(’69 UPC, and ’90 UPC before ’93 amendments)
States which disallow election by personal representative of surviving spouse who dies before
election date (both UPCs)
States which allow elective share to be satisfied completely with life estate: Connecticut – 1/3 if
probate estate; Rhode Island - life estate in all real estate
Georgia – a real outlier, having no elective share statute (but the Supreme Court’s activism in
divorce property settlement area gives hope)
Other Extreme: Laws which implement the support theory and/or provide little or no
disinheritance protection for non-propertied surviving spouses (i.e., strictly follow English
title regime). (These laws are most deferential to preserving deceased spouse/testator’s estate
plan and protecting the interests of deceased spouse’s beneficiaries).
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