Formalizing gratuitous and contractual transfers: a situational theory.

Author:Hirsch, Adam J.
Position::III. Anticipatory Transfers B. Gifts through Conclusion, with footnotes, p. 831-866
  1. Gifts

    A donor might also frame an anticipatory transfer as a gift, that is, a gift scheduled to come into the donee's possession in futuro. Wherein lies the difference? Wills take effect only at death, not at other predetermined times, and wills are also ambulatory--they remain revocable by the testator, whereas gifts once made become final. The donor cannot rescind a gift. (165)

    We may note, preliminarily, that not all anticipatory gifts are allowed as a matter of substantive law. What is worse, the characteristics distinguishing valid gifts from invalid ones are subtle, not to say confused. On the one hand, a gift of a specific, existing tangible or intangible asset with delivery delayed until some future time (viz., a future interest) is permissible and enforceable if, and only if, the donor intends to convey a present and irrevocable right to future enjoyment. (166) Likewise, a donor can give away ex ante property that he or she does not yet possess, but which the donor is due to receive by virtue of a vested or contingent future interest created by a third party. (167)

    On the other hand, a pledge to make a gift of a specified asset, or of a general sum, at a future time fails as a (mere) donative promise, ordinarily unenforceable at common law. (168) For the same reason, the present "gift" of forgiveness of a debt owed in the future, known technically as a release, also fails at common law. (169) Likewise, an anticipatory gift of an expectancy--that is, of property in which the testator owns no existing future interest, but which he or she might acquire later from some identified source--is ineffective, even if the donor wishes to convey irrevocably his or her rights that may later materialize. (170) Hence, for example, the present gift of any bequest the donor might receive under a living person's will is invalid. (171) But at the same time, and with no apparent appreciation of the inconsistency, the common law (overruled by statutory law in some states) gives effect to anticipatory disclaimers of an inheritance from a living person's will. (172) In such a case, the disclaimant does not choose the alternative taker of the expectancy, as a donor would, but the disclaimant nonetheless, by consulting the will, can determine who the alternative taker would be. (173) Hence, a disclaimer represents a form of gratuitous transfer, here treated differently as a matter of substantive law.

    Meanwhile, contract law draws none of the nice distinctions that have evolved within the law of gratuitous transfers. Contracts for the sale of future interests, for the release of debts, for the transfer of expectancies, and for the execution of anticipatory disclaimers are all either effective at common law or (alternatively) enforceable in equity, sometimes with an added stipulation that they are valid if made for a fair consideration. (174)

    No announced policy explains these distinctions. Volumes of the Restatement set out the rules but fail to articulate a rationale for any of them. (175) Professor Allan Farnsworth suggests that the doctrines derive, implicitly and unsystematically, from lawmakers' paternalistic instincts: "It is an appealing notion that we are more competent in ordering our present actions than our future ones," Farnsworth posits; "[i]f ... we are less able to protect ourselves against the possibility of 'second thoughts' in cases of promises to make gifts than in cases of present gifts, paternalism may seem more justifiable in cases of promises." (176)

    Of course, the problem of paternalism in law--here, hard paternalism, not merely the soft variety reflected in Fuller's cautionary function of formalities (177)--and the extent to which civil government can legitimately protect persons from their own misjudgments is a large subject. (178) What makes Farnsworth's analysis noteworthy is his projection of the problem from the transactional realm into the world of gratuity--from buyer's remorse to donor's remorse. It is a natural extension. Either variant of regret can stem from the tendency of persons to trade present for future utility, a phenomenon which the psychologists call myopia, and the economists (who sometimes venture the same ideas but speak a different language) usually style as hyperbolic discounting. We often indulge our present selves by overspending or overborrowing for current consumption. By the same token, when we care about others and have interdependent utilities with them (translating once more into the economists' obscure dialect), we might similarly incline toward overgenerosity, either with what we have now or will (or might) acquire later on, again at the cost of our own future welfare. (179)

    If that were their focus of concern, though, lawmakers have at their disposal a less invasive solution to the problem. Lawmakers could accommodate the remorseful donor by rendering anticipatory gifts voidable until they become possessory, rather than wholly void. By making anticipatory gifts (be they future interests, expectancies, or promises) mandatorily revocable, lawmakers could avoid regret and also give effect to gifts of future assets by those who never experience regret, but who die before the assets change hands. (180) Lawmakers have employed similar expedients within the other primary categories of transfer. In the realm of contracts, mandatory cooling-off periods sometimes operate to protect parties from failures of judgment. (181) By even closer analogy, wills making future transfers also function in this way. Bequests under wills are revocable and cannot be made irrevocable, which is why the cautionary function of formality applies just indirectly to wills. (182) Only if they are not revoked during the testator's lifetime do wills become effective. Anticipatory gifts could be treated in like manner. Oddly, though, under current law the opposite is true: all valid anticipatory gifts are irrevocable and cannot be made revocable. (183)

    In point of fact, litigation over anticipatory gifts has arisen almost invariably in instances where death arrives before possession, and where there is no evidence that the donors ever wished to retract their gifts. (184) Paternalistic considerations fail to figure into such cases.

    But there remains another element to consider here. If a hiatus separates the time when a gift is created and the time when it becomes possessory, then the risk arises that the donor will not live long enough to substantiate his or her intent to make a gift at all. The longer the delay, the greater the risk; and if a gift is timed to take effect only upon the donor's death, then the risk grows to a certainty. Here, witnesses (to ensure authenticity) and a writing (to protect against lapses of memory) would both serve evidentiary needs presented by the circumstances. Notice in this regard that if lawmakers were to change the law of gifts to make anticipatory gifts revocable, then an anticipatory gift programmed to take effect upon the donor's death would become indistinguishable from a will, which of course requires full execution under the statute of wills. (185) Yet, the feature of revocability--or irrevocability--has no impact whatsoever upon a fact finder's ability to recover evidence of a given gratuitous transfer.

    Under current law, anticipatory gifts are formalized like any other gift: all they require is delivery. Because manual delivery of an abstract future right is impossible, a donor must instead deliver a written description of the gift to the donee. (186) Given the donor's possible (or certain) unavailability to testify, a writing provides a fact finder with valuable evidence--it is better than nothing. (187) Nonetheless, the writing in question need not be witnessed, nor even signed by the donor. (188) We cannot dismiss the danger of fraud in such cases.

    In short, evidentiary concerns bulk as large if not larger than paternalistic ones in connection with anticipatory gifts. But, once again, we can answer those concerns with small difficulty. Lawmakers could validate anticipatory gifts of all sorts (including ones now held ineffective) but require donors to formalize them exactly like wills.

    Such an approach would hardly appear revolutionary. We need not dip too far back into the past to encounter historical precedents. At least one early court ruled that a charitable subscription--a form of gift promise that is enforceable in some states (189)--if postponed until death must be executed in conformity with the statute of wills, because "the gift ... is testamentary in its character." (190) In former times, a donor could make other gift promises, or a gift of an expectancy--transfers that today are ineffective--valid and enforceable by recourse to the seal. A promise under seal involved a writing, delivery, and in lieu of witnesses a waxen image of the donor's signet ring, which was difficult to counterfeit. (191) These formalities bore some resemblance to those demanded by the statute of wills. By the dawn of the twentieth century, though, the seal had deteriorated into a standard wafer or form, more susceptible to fraud, and it was applied pro forma by parties, losing its ritual significance. (192)

    Legislation abolishing the seal soon spread among the states to the point where the seal today has virtually disappeared as a legal formality. (193) With its demise has gone the opportunity to make anticipatory gifts that are more rigorously formalized than ordinary gifts. Hence, in structural terms, the demise of the seal also sealed the end of a situational exception from the formalizing rules for gifts in favor of categorical homogeneity.

  2. Contracts

    Although most contracts have short life spans, that is not invariably true. Some "relational" contracts continue to bind parties over longer terms. Others call for delayed performance, or performance at death--often taking the form of "contracts to make wills." These may require payment under the will for some service performed...

To continue reading