The Creeping Federalization of Wealth-Transfer Law

This Article surveys areas of federalization of wealth-transfer law. Federal authorities have little experience in making law that governs wealth transfers, because that function is traditionally within the province of state law. Although state wealth-transfer law has undergone significant modernization over the last few decades, all three branches of the federal government-legislative, judicial, and executive-have increasingly gone their own way. Lack of experience and, in many cases, lack of knowledge on the part of federal authorities have not dissuaded them from undermining well-considered state law.The Article covers these topics: federal preemption of several areas of state law, the development of federal common law as a sometime substitute for preempted state law, the federal tax exemption for perpetual trusts, and the right of posthumously conceived children of assisted reproduction to Social Security survivor benefits.I. INTRODUCTIONFederal law1 increasingly departs from state law when governing wealth transfers.2 The Uniform Law Commission ("ULC") has taken notice of the phenomenon by issuing a position paper on the development.3 The ULC urges Congress and federal agencies to take the following actions (among others) when considering laws and regulations that potentially conflict with state law4:* "Carefully evaluate the way in which state law addresses the issue under consideration."* "Determine the extent to which states face differing needs, circumstances, and requirements in responding to the issue under consideration."* "Exercise restraint when legislating in areas in which the states have historically played a primary role ... by taking action which preempts state law only when necessary to achieve objectives that cannot be reasonably achieved through alternative policies."* "When preempting state law other than to prevent direct and irreconcilable conflict with federal law, specify as expressly as possible the extent to which state law is superseded or preserved."Among the ULC's list of factors that favor states retaining autonomy is that "[s]tate law historically has primarily occupied the field."5 Historically, state law has occupied the field of wealth-transfer law. Yet, as we shall see, federal law sometimes disrespects state law that has been promulgated only after having undergone the thoughtful deliberative processes of the ULC and then having been enacted by a state legislature, typically after extensive review and support by the relevant section of the state bar.Although my purpose is to collect in one place various areas in which federal law, not state law, governs wealth transfers, I make no claim that the list is comprehensive.6 Because this is a survey article, each topic merits deeper investigation than I present here.Parts II through V discuss federal law that preempts state law concerning the validity of beneficiary designations under federally authorized or regulated nonprobate transfers, i.e., state law concerning divorce revocation, elective share, mental incapacity, undue influence, and defective execution. These Parts also discuss the application of federal common law as a possible substitute for preempted state law.Parts VI, VII, and VIII explore discrete topics. Part VI takes up federally authorized military wills, whose execution overrides state will-execution law. Part VII points to Congress' enactment of a tax statute that unwittingly promoted perpetual trusts, which led states to repeal or modify their perpetuity laws to allow such trusts. Part VIII addresses the rights of posthumously conceived children of assisted reproduction to Social Security survivor benefits. In this one case, Congress has embraced, not preempted, state law. Years ago, Congress incorporated the deceased wage earner's state intestacy rules as its standard for awarding benefits. Because posthumous conception is such a new phenomenon, however, many states have not yet addressed intestacy rights for such children, and the states that have done so have adopted diverse rules. …