What We Leave Behind: Legacies and The Law of Wills - Part 3: Public Policy
The following is a rough transcript of this podcast episode together with sources imbedded as links:
My name is Nathan Green, and I am a practicing lawyer.
This is the third part in a multi-part series on the law of wills. The first part of this series was on this history of wills broadly, the second part on a specific rule key to social justice, the rule against perpetuities. This third installment is going to be about social policy in wills.
You might want to go back and listen to the first two podcasts in this series if you have not done so already as they contain information important to understand this topic, however I obviously can’t force you to.
Before we get started on the social policy of will law I want to talk about my theory in doing this podcast series. Obviously laws vary from country to country. Even the names of rules are different from one country to another. If you sat the world’s best lawyers from Australia, the United States, England, France, and Russia down in a room and asked them to write an explanation of the law of wills that they could all agree on it would probably be ten thousand pages long and the only way they could actually get it done would be to agree that each country get its own section and never shall they cross paths. My thinking is that if instead of talking about rules and cases I instead talk about the problems the legal system faced we could get around this. We are all people and regardless of what country you live in, the legal system faces the exact same challenges and problems and, generally, it comes up with similar solutions. Whether those solutions differ slightly in their details, have a different name, or embrace different values, that is another matter. It also probably wouldn’t be that interesting unless you really care about the minutia of the law.
Every country of every legal tradition has some kind of authoritative case where a husband tried to leave his wife nothing, even though he had plenty to leave.
In the previous podcast we raised the topic of the Married Woman’s Act. In 1800’s English law when a woman got married she legally became her husband. Imagine the husband was a river, and the wife was a stream that feeds into the river. Before they join, marry, the water in the stream is its own, but once they mix… the water is still there but you only call it the river’s name. Anything she owned became her husband’s, her legal personhood was extinguished. And another interesting English custom of this period was the dowry, a huge payment from the wife’s family to the husband ostensibly based on the idea that wives are financial burdens and the dowry is meant to provide for the wife’s upkeep.
But when her husband died he wasn’t obliged to give the dowry, or the other money she had before she merged with him legally, back. He could give it to a son from a previous marriage who hated the new wife and even though it was “her” money as we would conceive it, she would lose everything and become destitute. Actually not really, England had a pretty complex system dealing with how the wife was to be taken care of but from the perspective of a woman at the time who might have been just as interested in power, title, status, as any man… she could lose “everything” in terms of her fortune and power and be left with some kind of right to live in a house until she died and a monthly allowance or some small percentage of the estate.
Now England was the only country to pass the Married Woman’s Act of 1870, but just because France, the United States, Canada, Australia, etc. etc. dealt with this problem in a different way, does not at all detract from the fact that this was a problem across the western world at that time. Some countries may have had rules requiring more, or less, of the estate went to a wife, some might have required a right for the wife to continue to live in her home for the rest of her life, but that isn’t the point. Women were second class citizens and prejudiced by this fact.
So what did the Married Woman’s Act do? It attempted to fix this problem, but I want to talk about what happened prior to the legislature acting. I want to talk about a time when there was an obvious injustice in the system and judges were in a very tough position trying to dispense justice, because what judges did then informs what judges would do today. It also goes to what people will do. Because while times change, people are people. Even women living in the 1840’s had sense enough to not want to be owned by their husbands like a cow or house. Even judges in the 1840’s didn’t want to be seen as willing to simply make the law whatever they wanted it to be.
And, people being people, where there was a problem, there was also a solution.
Please though, do remember that while we might be talking about legal cases, while we might be imagining how this influences things today, regardless of anything else, this is not legal advice.
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Disclaimer
This is not legal advice
The information here in any form is for entertainment purposes only.
You should not rely on or take or fail to take any action based upon this information.
Never disregard professional legal advice or delay in seeking legal advice because of something you heard here.
This is not legal advice.
This is not legal advice.
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Before 1870 in England when a rich woman married she lost her fortune to her new husband. But there were rich women who didn’t want to give up everything to a man to get married, because they had a lot.
I have an uncle who says most magic tricks are accomplished by what you would think of if you were told that you had two hours to pull off the trick yourself. So what would you do? You are going to get married and when you do, all your money goes to your new spouse but you don’t want them to have it because you don’t think they would give it back if they died or you broke up (less of a problem for a woman in the 1800’s), or that they might miss-manage it and lose it. “I love him, but he is an idiot with money.”
The instant, obvious answer is to give your money to someone else who you trust. Your father, brother, best friend, family confidant. You would give it to this trusted person with the understanding that they would give the money back if you ever asked for it and that really it is your money even though it is in their bank account.
This type of arrangement is known, legally, as a trust.
There are many different kinds of trusts and the law of trusts is one of the most interesting and hypocritical areas of law. For example
In any event these rich women getting married could afford to hire a lawyer and set up a legal instrument known as a trust. And what that rich woman would do is give all her assets to this trust, which would hold them to use for the benefit of the woman. That way, when married, her assets would not pass to her husband and she would be protected if he died.
Let’s talk about social policy for a moment. The rule in England was “if you marry your husband gets all your property”. But for everyone who actually had some property all you had to do was lawyer up and *pop* the rule doesn’t apply to you. But what about for poor women? What about for women who, what little they have, really, really matters. There is a reason dickenzian means brutal, stark, and harsh, that was life for these women. Are they out of luck? Is there one rule for the smart and wealthy and another for everyone else?
It is easy, especially today when the legal system is one of the most effective and functioning branches of government, to have a romanticized view of it. But what, exactly, is it supposed to deliver? Justice? Strict adherence to a set of pre-determined rules? The will of the legislature?
Imagine the justice system as a black box. If on one side you have the public who are experiencing injustice, and then you feed them into this box filled with lawyers and judges, add money, and out the other side comes what?
Certainly in the 1800’s rich women went to the justice system, inserted money, and at the other end found that the transfer of their property to a new husband was avoided.
But didn’t the people of 1869 think that justice was a woman’s property going into her husband’s name, and when they changed their minds in 1870 their legislators wrote and passed a law?
Today for example someone might go to see a lawyer and say “I pay too much money in taxes. What can be done about this?” They then add some money, and pop, lower tax burden. We probably are not very pleased with that today, yet a great deal of money spent on lawyers is spent to reduce tax payments.
I hate to break the flow of conversation but on this point I do think that strictly speaking it is true that lawyers and accountants can generally reduce people’s tax burdens and that from a public policy perspective this is questionable. However I am presenting it much more cynically than is fair to the tax system and lawyers and accountants. Trying to explain the systemic problems with our tax systems is itself worthy of an entire multi-part series but I very much do not want you to come away from this podcast thinking that I have said lowering your taxes is a simple matter of hiring a lawyer and accountant and paying them enough money. It isn’t that simple.
Anyways, back to this black box of the “justice system”. For you this might seem like an esoteric problem as you are outside the justice system. What the system does or doesn’t actually do is important to you, but what moves the system, why it does these things, is not as directly important. But for a judge, faced with one of these cases, it very much does matter because the judge has to decide what to make of these trusts popping up. Is he trying to grasp the opportunity to fix the law, defy the will of the people, and let the married woman keep her property? Is he trying to enforce the law and thus see through the trust even though the outcome is the wife losing her property to her husband, possibly to become destitute?
There is something else to consider when we talk about judicial history. Today we have a fairly dynamic political process. When people talk about judicial activism they are usually talking about issues which politicians are talking about and elections are being held on. In some cases judges are ruling on the legality of the results of a referendum where a specific question has been asked of the public, and they have voted.
In the past women couldn’t vote, politicians of the day were concerned with issues of the rich or of national importance. The plight of poor rural women could well have been a non-issue politically. For a great number of issues it is likely that it was only judges who were government decision makers turning their minds to the issues facing the people before them.
Today a lot of people are talking about judicial activism. That phrase really has a huge amount of content in it. At the United States Supreme Court that phrase talks about how the constitution is to be read. Is such a key document, hundreds of years old, a living tree that can grow inside of its natural limits? Or is “dead, dead, dead” and that the law, as written is unchanging until the legislature acts. For example gay marriage, the words don’t appear in the constitution so is the constitution silent on the topic? Or do we read into the language to create a right because it is the right thing to do? That’s the debate at the supreme court anyways. In the trenches of lower courts we still have debates about judicial activism though they are often much less publicized. Recently the media debate on this topic has been about sentencing guidelines. Just how much discretion do or should judges have to say that one person might deserve ten years in jail for a crime, and someone else might deserve six months.
But in the context of this conversation I mean how much does emotion influence a judge’s decision.
There is a certain irony that judges, people who are ordinarily immune from any kind of criticism, are also very intent to avoid it. So, I am going to rapidly go through several cases where there was a very emotionally charged situation, that are also the leading cases for several technicalities in wills, formalities. So far as I know there is no leading will decision where the judge ever said “The rule is X but I just think that is totally wrong, so instead we are doing Y.” That would be too easy to criticize, to cry judicial activism about.
I would argue that instead of doing this, they created or used a technical rule in a novel way to achieve the result they wanted, but I’ll let you be the judge of that:
In the Estate of Balla there was a significant mistake made by the lawyer from a tax perspective. The deceased wanted to set up a tax free trust for his wife, but the lawyer had put in provisions in the trust that violated the income tax act’s exemptions and so the trust would not be tax free. The judge said, essentially, the intent of the deceased was that this be a tax free trust, thus we will amend the will to insert the necessary provisions to make it tax free.
In Re Cudec the will left the “proceeds of a term deposit” to M, but before he died the testator cashed out the term deposit, spent some of it, and put the rest into a safe deposit box with a handwritten note saying that M was to get the money in the box. The court said that his intention was clear and the money could pass even though the asset being gifted had been changed in form and amount, and the note giving it didn’t meet the formalities of a will.
In Laden v. McGuier the will said that an aunt was to get ½ and 25% to each of two first cousins. The aunt died. The court said that since the deceased did not consider anyone else to be family then “sitting in her arm chair” she wanted the cousins to get all the money.
Think about these cases. In the first case the testator didn’t know the tax rules, he was just following his lawyer’s advice and wanted a specific outcome, and so the court allowed that outcome – though notice how the court prefers the beneficiaries of the estate as opposed to society more broadly and the tax revenue that could be generated? Cudec goes a step further where the mistake was made by the testator himself and there is both a clear violation of the formal rules, but also a clear intent for how this money is to flow. But then Laden takes things a step further that seems to be nothing more than the court arbitrarily deciding who should inherit.
In fairness there are hundreds if not thousands of cases, the vast majority in fact, where the court did follow the strict rules. And it is also true that in basically every area of law there are going to be outlier cases. If the trial level always got it right there would be no need for courts of appeal. And it is true that every area of law has developed and evolved through the common law with a fierce debate among academics with different theories of why courts rule the way they do. So when I say that judicial creativity is more common in this area of law than others, you don’t really have a way of evaluating that claim. However, whether or not you think this kind of thing is more prevelant in will law, keep in mind it can happen and when it does happen it is based on extending well established principles such as “the testator’s intent”.
Now, I was talking about social policy and access to justice. These rules, they got the right result in the cases in question, but what else have they done?
Let’s say you go into a lawyer’s office today and ask him or her about a will. The first question you ask is “Why do I need a lawyer? Why can’t I just use a $50.00 legal will kit from the internet?”
In my practice I keep a running tally of the make your own will kits I see come through the door. The majority of them, I would say about 60-70% are invalid because of issues with formalities that have their roots in trying to invalidate some rich guy’s will for the benefit of his wife and children.
For every rule we put in place to help and protect people – people who are generally fairly well off in order to afford to litigate a case, get a judgment, and then enforce it – for every rule that follows one of those, we put a small administrative expense on everyone, rich and poor alike, and when the poor try and avoid that expense, we a) invalidate their wills and b) put their modest estate through a very expensive piece of estate litigation.
Now my hope is that none of the above was even on your mental radar of topics I would discuss in this podcast. Generally speaking, when someone talks about social justice and wills, what they mean are the death taxes. That seems to be the hot topic of the day as a lot of politicians are talking about it. And I would like to talk about that because, ironically, it is about the second question people ask me when they call to inquire about a will “How much will it cost?”
My stock answer to the cost question is “Wills are a bit like car insurance. If you are driving a ford focus you need a cheap insurance plan. If you are driving an 18 wheeled truck, you need a very expensive insurance plan.”
The rule of thumb is the more assets you have, the more complex your will is going to be. In part that’s because a will is about distributing your assets and the more assets you have the more work your will has to do. For example the CEO of a company could have frequent flier miles worth 75 thousand dollars. Their will needs to deal with those, and their lawyer needs to have thought of crazy things like that. For people who own their own business the will needs to consider how the business will be sold. If they die there might be nothing left of the business, or the business might hold onto all its value for a week, a month, two months, and so long as a sale happens quickly everything will be ok. In other cases there is a business partner who, if forced to through peripheral agreements, will buy the business. All of that costs money, and is a legitimate reason to drive up the cost of a will.
The other reason though has to do with taxation. Imagine if you died there would be a flat 5% tax on your assets. But if you hire a lawyer you can structure how your assets are held to avoid the taxes. Sometimes it is exactly that simple. In Ontario certain probate fees are easy to avoid. If you have a business worth more than a half a million bucks it generally makes economic sense to spend a few thousand dollars trying to avoid those fees.
Sometimes it is more complicated.
I generally think it is a bit silly for governments to try and tax much outside of economic activity. If you are going to make a million dollars by doing something and there is a 15% tax on that, well you are still 850K ahead. Sure there are ways to try and evade the tax. For example I frequently see people ask “why can’t I sell something for X on paper but have the person give me Y. Besides the fact it is illegal there is also a significant risk of fraud. If you sell your business for a half million on paper and expect to get a suitcase with another half million later, what happens if that just isn’t delivered? You have done up all the legal documents saying that what you got was what had been agreed to. So long as the tax is small it is always better to do things on the up and up just from a cold, rational, perspective.
But when you start to talk about estates suddenly it is different. You are trying to tax a transfer, and there are thousands of ways to transfer something from one person to another. You could just have a safe filled with gold bars and your will could be the combination. You could buy a house in some country that doesn’t charge tax on death. You and your relative could move to a different country before you die, and then once the transfer is over your relative moves back – or not. Imagine I offered to pay you thirty million dollars for spending five years living in Switzerland or the Bahamas. Who would pass up that deal?
Now some strategies are legal, some are illegal. Some strategies work, some strategies don’t. But even for the illegal strategies the risk is limited to getting caught by the government, you don’t really have a concern about your dying relative defrauding you.
In any event. I have a job because I think about things like this, I talk with colleagues who think about things like this. I attend legal seminars to stay on top of these strategies and plans. So that when a client comes to see me I might actually be able to pay for myself and save them money.
And really I worry that what we have accomplished both legislatively through taxes, and through common law formality rules. We have very effectively trained the wealthy that they simply have to go to a lawyer. If I am doing my job right when I send a client a ten thousand dollar bill it is because I have just made them a hundred thousand dollars in tax savings, and the only ones who get caught are the ones who didn’t learn the lesson to see a lawyer.
What about the poor though? Well the upshot is that really the smaller your estate the less tax you are going to pay. No one is going to spend ten thousand dollars to save seven hundred.
So really what are we taxing? Not having planned for your death? Being poor?
Obviously I don’t think that was anyone’s intent. And I can also see that while we can minimize taxes we can’t always eliminate them, and we do collect tax revenue this way. But I do think lawmakers should consider people’s ability to avoid a tax, and the lengths they will go to avoid a tax they consider to be unfair, when they are considering whether to impose one or not. I don’t like the idea that there should be an industry of lawyers who only eat because the government insists on having the table set.
Public Policy
I would suggest that another reason the system might exist like this because it is just one obstacle of many against the accumulation of wealth. We might not hit many people, but we will hit some, and there are enough obstacles to retaining wealth that eventually it will be dissipated to society.
If there is any kind of unifying theme to all of this, it is that will law attempts to restrict people’s long term economic power and divide estates into as many slices as possible. Because a will is a uniquely powerful thing: the single opportunity to exert power without consequence. Of course the oldest, most influential rule in wills is to give effect to the deceased’s intent. But what we actually mean is that the deceased can choose between a handful of obvious beneficiaries and within the bounds of that we will respect the decision. Any time you want to actually do something interesting with your estate the law is going to step in to create obstacles. Support obligations, deeming you not to have been of sound mind, changing the interpretation of the words used. I have talked about subtle ways of doing this such as the rule against perpetuities, judicial interpretations, and I have talked about taxes as a back-door to doing this.
But the law does actually deal with this directly in extreme cases. My personal favorite area of law: void for reasons of public policy.
In the next and final podcast in this series on the law of wills I am going to talk about rules that invalidate wills for reasons of public policy. These are rules designed for malicious, miserable, SOBs. I am also going to talk about some hypothetical will provisions meant to get around these rules. So I hope you are eager to be horribly uncivilized with me and that you remember that this is all in good fun and more than anything else, This is not legal advice.