American Law of Inheritance And Disinheritance
This article on, ‘American Law of Inheritance And Disinheritance‘ by Pishati Pranava focuses on succession through freedom of disposition and the limits on the freedom of disposition. The principle of freedom of disposition is implemented in American succession laws through intestacy, wills, trusts, and non-probate transfers. Succession that limits the freedom of disposition are spouse inheritance, rule against… Read More »
This article on, ‘American Law of Inheritance And Disinheritance‘ by Pishati Pranava focuses on succession through freedom of disposition and the limits on the freedom of disposition. The principle of freedom of disposition is implemented in American succession laws through intestacy, wills, trusts, and non-probate transfers. Succession that limits the freedom of disposition are spouse inheritance, rule against perpetuity, and tax. In the United States, inheritance laws are...
This article on, ‘American Law of Inheritance And Disinheritance‘ by Pishati Pranava focuses on succession through freedom of disposition and the limits on the freedom of disposition.
The principle of freedom of disposition is implemented in American succession laws through intestacy, wills, trusts, and non-probate transfers. Succession that limits the freedom of disposition are spouse inheritance, rule against perpetuity, and tax.
In the United States, inheritance laws are built around the concept of free disposition. Freedom of Disposition is a trust and the estates law principle states that the law should allow an individual to dispose of their property in any way they deem fit. Even within the liberalized American tradition, freedom of disposition is often not absolute.
The law protects a donor’s spouse and creditors, allows transfer taxes to be imposed, and imposes the Rule Against Perpetuity. However, for the most part, American succession law encourages rather than restricts the decedent’s intent[1].
Most of the succession law is concerned with allowing retrospective enforcement of the decedent’s actual intent or, failing that, giving effect to the decedent’s probable intent.
American Law of Inheritance through Freedom of Disposition
Intestacy
When a person dies without a will, he or she is said to have died intestate. For intestate decedents, the law of intestacy provides an estate plan by default.
Intestacy also has an impact on testamentary dispositions, both by expressing a legislative judgment about what is typical or normal and by providing default meanings for terms like “children” and “descendants.”
The law of intestacy often involves substantial guesswork, as the disparate preferences of persons and can’t exactly be claimed as descendant’s intent. Furthermore, to determine who would inherit if a decedent died intestate, law of intestacy requires to determine who has standing to contest the decedent’s presumed will.
Will
A testator, or person who makes a will, is said to die testate. A testate decedent’s probate property is distributed in accordance with the decedent’s will. A testator can ensure that his or her property is distributed in compliance with his or her actual intent rather than the presumed intent of intestacy by complying with the Wills Act[2].
In this way, the Wills Act puts the principle of freedom of disposition into practice. A will, however, does not take effect until the testator dies. As a result, Probate courts follow what is known as a “worst evidence” rule of procedure.
By the time the court considers such issues, the witness best able to authenticate the will, verify that it was made voluntarily, and clarify the meaning of its terms has died.
Trust
A trust is a legally binding agreement established by a settlor in which a trustee serves as a fiduciary for one or more beneficiaries. The trustee obtains legal title to the trust property, allowing the trustee to deal with third parties as the owner of the property.
Because the beneficiaries have equitable title to the trust property, they can hold the trustee liable for breaches of fiduciary duties. Beneficiaries are typically entitled to periodic distributions of trust income and, in some cases, trust principal.
Testamentary trusts are created by will and arise during the probate process. They can also be inter vivos, created during the settlor’s life through a declaration of trust or a deed of trust, and are frequently used to avoid probate as a will substitute.
“The purposes for which we can create trusts are as limitless as our imagination,” according to the leading treatise[3].
These applications range from providing financial assistance to a surviving spouse and children based on their needs to structuring commercial enterprises like mutual funds and asset securitization. The trust’s adaptability as a tool for property conveyance and management is due to the fact that it “separates the benefits of owner from the burdens of ownership.”
Non-Probate Transfer
A transfer of property at death from one person to another that does not require a probate proceeding. The probate estate includes any portion of a decedent’s estate that passes to heirs of the estate through the formal court process known as probate. A non-probate asset is any asset in a decedent’s estate that passes to beneficiaries outside of probate.
Such transfers can be made using a variety of instruments, such as Trusts for the living; Agreements concerning marital property; Marital property inherited by a survivor; Beneficiary designations on retirement plans, annuities, and life insurance policies; Joint ownership with right of survivorship; Payable on death accounts.
American Law of Inheritance through Limitations on Freedom of Disposition
Freedom of disposition is not always absolute; it is subject to certain constraints. In most cases, it is against the law in the United States to leave a spouse out of a will entirely. The spouse has the right to inherit from the deceased spouse; hence, the freedom of disposition is not absolute in this case.
Even if the spouse is unwilling to dispose of his or her property to their other half, they must do so because they do not have the option of disinheriting the spouse.
Spouse Inheritance
A surviving spouse is entitled to an elective or forced share of the decedent spouse’s estate, typically one-third. The marital property is regulated by one of two approaches: the ‘community property approach’ or the ‘common law approach.’ Each spouse owns all earnings during the marriage in equal, undivided shares in community property states.
Because the surviving spouse already owns half of the couple’s community property, there is no elective share. Because exemption of these marital property rules is allowed, premarital and marital agreements are as much a part of trusts and estates practice as they are of marital practice.
In common law states, the surviving spouse is protected from being disinherited from the will. A spouse does not have an automatic right to one-half ownership of all property acquired during the marriage. Instead, property and assets will be determined by the name on the title of the property or by determining which spouse’s income purchased it be distributed.
While each state has its own set of rules, the surviving spouse usually has the right to one-half or one-third of the deceased spouse’s property. If the deceased leaves less to the surviving spouse in the absence of a will, the surviving spouse can contest this in court to inherit the amount that the specific state law outlines they are entitled to.
Right to Disinherit Children under American Law of Inheritance
In comparison to the surviving spouse, a surviving child has no legal right to a mandatory share in the United States. The owner of the land has the right to disinherit his or her blood relatives, including children.
This rule satisfies the freedom of disposition, but it differs from other common law countries in that courts can override a testator’s will for a child or other dependent of the testator. Children do not have a legally protected right to inherit property in most US states, but they will be protected if they are unintentionally left out of a will.
For example, US law presumes that if a parent includes all their children in a will except one, who was born after the will was written, the omission was unintentional, and the child will be awarded an equal share with their siblings. Where omissions are deliberate, they must be expressly stated in the terms of a will.
Both separate property and community property states protect a premarital will that the decedent spouse failed to update after the marriage from accidental disinheritance. American law also protects a child who is inadvertently left out of a will, such as a child born after the execution of a will that excludes subsequent children.
However, these statutes include default rules that can be overridden by express language in the will. The pretermitted heir statutes are thus not intended to limit freedom of disposition, but rather to implement it. They are better described as will doctrines, implementing the typical testator’s probable intent in dealing with changes in circumstances in the time between the execution of a will and the testator’s death[4].
It was once possible under English law to disinherit a child. England, Australia, New Zealand, and several Canadian provinces now limit a testator’s ability to disinherit a child. Moreover, in forty-nine states and some Canadian provinces, a parent may disinherit a child, even if the child is minor and needs support.
This policy has even been extended to quasi families in many states in the United States; according to the current majority rule, a child support obligation ends upon the obligor’s death, regardless of the obligor’s wealth or the child’s age or economic circumstance[5].
Despite this ongoing criticism of current American policies, no state legislature in the twentieth century adopted a proposal to protect the inheritance rights of American children in married parents.
Child support obligations in many states today end upon the death of the obligor, even if the obligor has substantial assets and the minor child still requires support. In some states, child support payments may continue after the obligor’s death; in others, courts may order an obligor to name a child as the beneficiary of a life insurance.
The inheritance rules in the United States may be seen as a reflection of a continuing belief in equality and the desire for each person to “make it on his own” and moreover giving parents discretion over their children’s inheritance rights could be viewed as a middle ground between no inheritance and a forced succession regime.
If, in comparison to other cultures, ancestral land is less common or unimportant in America, if not Americans may have had less reason to prohibit disinheritance.
The Rule Against Perpetuity and Tax under American Law of Inheritance
The rule against perpetuity and transfer taxation restricts the freedom of disposition. The perpetuities period was determined to be any reasonable number of lives in being plus 21 years in total plus any actual gestation periods. Property cannot be subjected to a contingency for a period that exceeds the perpetuities period. The Rule imposes a temporal limit on the reach of the deceased in this way, keeping the property marketable[6].
In the case of an equitable interest, if the trustee has the authority to sell the trust property and continue to invest the proceeds, as is typical, there is no restriction on the property’s market potential. This is true even if there are many beneficiaries with alluring contingent interests that may not vest or fail for a long time.
If a legal interest violates the Rule, it is null and void from the start. If a trust interest violates the Rule, the trust is void from the start. Inheritance tax is a state tax levied on a percentage of the value of a deceased person’s estate that is paid by the estate’s inheritor. There is no federal inheritance tax.
Some believe that while taxes do not typically generate much revenue, they nevertheless add progressive taxation to the overall tax system, encourage charitable giving, and compensate for gaps in the taxation of the very wealthy, while others hold opposing views. The debate continues as the American state law of succession keeps considering the concept of freedom of disposition.
Reference
[1] Rules for intestate succession are common across legal systems. See COMPARATIVE SUCCESSION LAW II:
INTESTATE SUCCESSION (Kenneth G.C. Reid, Marius J. de Waal & Reinhard Zimmermann eds., 2015)
[2] Sitkoff, R., 2021. freedom of disposition. [online] law of Harvard, Available Here
[3] Scalise, Ronald J. “New Developments in United States Succession Law.” The American Journal of Comparative Law 54 (2006): 103-24, Available Here
[4] Karin Scholz, Returning to Nest: Successfully Coping When Adult Children Move Back Home, Cleveland Plain Dealer, August 22, 1998, at F-l, col. 2.
[5] OLDHAM, J. (1999). What Does the U.S. System Regarding Inheritance Rights of Children Reveal about American Families? Family Law Quarterly, 33(1), 265-275, Available Here
[6] Sitkoff, R., 2021. freedom of disposition. [online] law of Harvard, Available Here
