Wills Trusts Estate Education
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Transcript of Wills Trusts Estate Education
1
Wills, Trusts, & Estates – Fall 2007 – Mendoza
TRANSFER OF DECEDENT’S ESTATE
Probate – property that passes by will or intestacy
Nonprobate – property passing under an instrument other than a will
o Joint Tenancy
o Life Insurance
o Ks w/ P.O.D. provisions (pensions, investments)
o Trusts
Person Dies, probate necessary – personal rep
o Duties:
Inventory assets
Pay creditors & Tax collectors
Clear Titles
Distribute remaining assets
o Will names personal rep = executor
o Will doesn’t = administrator
Must give bond unless waived
Dies Testate
o Devise = real property to devisees
o Bequeath = personal property to legatees
Dies Intestate
o Real Property = descends to heirs
o Personal Property = distributed to next-of-kin
Probate Procedure
o Opening probate
Probate
Provides evidence of transfer of title
Protects creditors
Distributes decedent’s property after creditors are paid
Must be sought in jx where decedent was domiciled at time of
death (Primary or Domicilliary)
Real Property in another jx, ancillary jx
Authorize to act on behalf of estate
Letters testamentary – executor
Letters of admin. – administrator
Ex parte probate & notice probate
Informal & Formal
UPC (Uniform Probate Code)
Any interested party can demand formal probate
Time for contest
o Depends on Jx
Barring Creditors
Nonclaim statutes – time limits
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o Bar claims not filed w/in specified period of time
after probate proceedings are begun; or
o Whether or not probate started, bar claims not filed
w/in longer period after decedent’s death
o Supervising the Representative
Usually by courts
Some states let em do their thing
Interested party can demand supervision
o Closing the Estate
Pay everyone off
Court grants discharge of admin.
You can avoid probate
o Universal succession (Louisiana & Europe)
Heir steps into shoes of decedent & pays everyone
o CA – passes to spouse w/ no administrator
Trusts
o Legal Instruments
o Application in many areas of law
o Great flexibility in Estate Planning
o O X, Trustee A
A has equitable Interest
X holds legal title
A holds beneficial title
X administrator
X has highest obligation in the law (fiduciary duty)
o Trust Bifurcates title
o Can also bifurcate use & enjoyment of property for a time
O A for life, then to B
o Rule Against Perpetuities
Easy to avoid
On bar exam
INTESTACY: AN ESTATE PLAN BY DEFAULT
Basic Scheme
Basic Scheme
o Intestacy is what estate planning lawyers plain around
o 50% dies intestate – Why?
Afraid of death
Costs involved
o Will devises part of probate estate – partial intestacy
o State domiciled at death – personal property
o State decedent’s real property located – real property
o No living person has heirs – they have heirs apparent (expectancy)
Share of Surviving Spouse
o Primary policy of intestacy statute is to carry out the probate intent of the
average intestate decedent
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o Must decide:
What do they want?
Look at probated wills
Ask them
o Spouses share too small?
Surviving spouse gets ½ under intestacy law
UPC – spouse gets all if same descendants
No descendants – half states make spouse share w/decedent’s
parents. No parent, spouse might share with bros and sisses
Simultaneous Death (USDA)
o No ―sufficient evidence‖ as to the order, beneficiary deemed predeceased
the donor. What is ―sufficient evidence‖?
Janus v. Tarasewicz Ill. 1985
H & W died from poisoned Tylenol. H’s life insurance named W as beneficiary
and H’s mother as contingent beneficiary. H’s mother wanted life insurance. Insurance
co. paid to W’s estate. Trial court found W survived H, even though they both were
vegetables at relatively the same time. Affirmed.
Wills
o Wills are code driven
o A will is testamentary
o So is a will substitute
o Will lets you designate guardianship
Court will choose otherwise
Intestacy Statute
o If property is not disposed of in the will – Intestacy Statute
You can only pass property that you own
A=B/A, A dies without will
If A married to B, A doesn’t own all of B/A
A can convey undivided ½ interest in B/A (In common property state)
UPC: Uniform Probate Code
o 2-201(a) – any part not d.o.b. will, passes by intestate succession to heirs
Heirs are prescribed in Code
o 2-102 – Spouse takes first
o 2-103 – others (children and deceased children)
o 2-105 – No takers – then state
o 2-103(1) – Children and deceased children by representation (Child’s
descendants divide share among themselves)
A (widow)
B C D
E F G H I
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C’s children take C’s share by representation
A’s heirs are B(1/3); F(1/6); G(1/6); and D(1/3)
C’s spouse takes nothing it would go to the state b4 it would go to a son-in-law
A
B C
D E F
How is A’s estate distributed? There are 3 systems:
English Per Stirpes: Treats line of descendants equally: D(1/2); E(1/4); F(1/4)
Modern Per Stirpes: Divided into shares at generational level: D(1/3); E(1/3);
F(1/3)
Per capita at each generation: See Below:
A
B C D
E F G
D(1/3); E,F,G(2/9)
Negative Disinheritance – express statement in will disinheriting a child
o Property has to be given to someone else, or it will fall into intestacy
Shares of Ancestors and Collaterals
o All persons related by blood to decedent but who are not descendants or
ancestors are Collateral Kindred
o Descendants of decedent’s parents are First-Line Collaterals
o Descendants of decedent’s grandparents other than decedent’s parents are
Second-line Collaterals
o Not survived by spouse, descendants, or parent –Bros and Sis.
Descendants of decedent’s Bros and Sis take by representation
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o No first-line collaterals, who’s next?
Parantelic System: passes to grandparents and their descendants,
if none, then to great-grandparents and descendants and so on until
an heir is found (UPC says beyond great-grandparents don’t take)
Degree-of-relationship system: passes to the closest of kin,
counting degrees of kinship. Court steps up to nearest common
ancestor and steps down to claimant.
CA allows mothers and fathers-in-law and brothers and sisters-in-
law, but never sons or daughters-in-law
Laughing Heirs: laughing all the way to the bank
Page 79 Table of Consanguinity
Transfers to Children
Meaning of Children
o Adopted Children
Hall v. Vallandingham MD App 1988
Children of deceased brother were adopted by mother’s new husband. Decedent
only had brothers and sisters as heirs. Lower court said kids weren’t entitled because
they were adopted by other guy. 1958 code said adopted kids retained inheritance rights
of natural parents and relatives. Removed in 1963 and now says kids are rebirthed into
adopting families. Kids get nothing.
UPC would let the kids get it – 2-114(b)
Minary v. Citizens Fidelity Bank & Trust KY App 1967
Wife died leaving trust to H and 3 sons. H died, then 1 son, then next son with 2
children, last son adopted and trust terminated when he died. Did Alfred’s adoption of
his wife Myra make her eligible to inherit? The trust said ―then heirs under law‖ so the
adopted Myra is an heir, but also wife! Even though law lets you do it, it is cheating.
Wills are not flexible, so you bring in trusts to gain some flexibility but trusts still
aren’t that flexible
O’Neal v. Wilkes GA 1994
Jury found O’Neal had been adopted by decedent Cook. Judge gave JNOV to
Wilkes, Cook’s administrator on the ground that paternal Aunt did not have legal
authority to contract w/Cook. Affirmed. Relatives of O’Neal had no legal authority to K
for adoption.
Hall = minor
Minary = adult
O’Neal = Equitable
All = Statutory Adoptions
Equitable Adoptions: “Equity regards done that which ought to be done”
Agreement between adoptive and natural parents
Natural parents must fully perform (hand over kid)
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Child must fully perform (moving in)
Fail to complete legally
Adoptive must raise as their own
Adoptive must die intestate
Then equitable adoption kicks in
o Posthumous Children
Conceived before but born after father’s death. Kid in the womb at
the time of parent’s death will be treated as if he is alive.
Rebuttable presumption of 10 months. Kid has burnden if longer.
Uniform Parentage Act says 20 days longer.
Advancements
o Common law: Any gift to a child was advancement of kid’s inheritance.
Kid had burden to show. If advancement, goes into hotchpot.
o UPC 2-109 says only advancement if:
1) decedent declared in contemporaneous writing or heir
acknowledged in writing it is an advancement OR
2) same thing only don’t say ―advancement‖
o Valued at time advanced.
Guardianship and Conservatorship of Minors
o Guardian of the Person
Kid’s parents dies – no will providing for a guardian – court
appoints from nearest relatives
G of the P has no right to deal with child’s property
o Property Management Options
Guardianship of the property
Used to have full control
Then had to approve everything with the court and got a
management fee
Conservatorship
Replaced guardian with conservator
Given ―title as trustee‖
Still go to court every year
Custodianship
Custodian given property to hold for minor
Guided by UTMA or UGMA
Devisee or gift made to X as ―custodian for [minor] under
[state] UTMA.‖
Not supervised by the court, and can manage
Trusts
Tailor specifically to family circumstances and testator’s
particular desires
When get money? 18 or 21 or when donor thinks kid is
competent
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Bars to Succession – Involuntary conduct of heirs
Voluntary conduct (disclaimer)
Homicide
o Killing – involuntary?
o Must have intent to kill which leads to profit. Unintentional killing may
not be a bar to succession
o Conviction = killing = res judicata
o Acquittal – might not BARD (civil POTE)
Open civil proceeding to see if person is liable. Then they would
be barred. (so you could get an acquittal but still be barred if by
POTE you’re liable in civil proceeding)
In Re Estate of Mahoney VT 1996
Mahoney died intestate. Wife was tried for murder of Mahoney. Got 12-15.
Court gave estate to mother and father. Wife who kills husband inherit from his estate?
States have followed 3 different decisions: 1) slayer gets it; 2) Slayer doesn’t because
shouldn’t profit from crime; 3) Slayer gets it but equity holds him to be constructive
trustee. Court goes with #3 as probate court had no jx to give to parents. Reversed.
Disclaimer
o When heir refuses to take property
o Common law –couldn’t do this
o Now it passes to heir and then to next heir
o However, must accept
o Almost all states have disclaimer statutes
o Use to avoid creditors, however, don’t fuck with the government
Drye v. US 1999
Creditor is IRS. Disclaimer is beneficiary of 233,000. Allows it to pass to his
daughter. SC said he held the property long enough to subject it to tax lien. If he had
been disinherited by will – then no IRS interest
Troy v. Hart MD 1997
Lettich was in oldies home, on Medicaid. Troy was his lawyer. L’s sis died and
left him $300,000. L disclaimed b/c sis lawyer convinced him to. They were trying to
rescind when L died. Court said valid disclaimer BUT had to deduct Medicaid expenses
for the time he held the money before disclaiming. Court suggested constructing trust –
intended to prevent unjust enrichment.
WILLS: CAPACITY AND CONTESTS
Mental Capacity
The test of Mental Capacity – test is capability
o Testator:
Must be capable of knowing and understanding in a general way
The natural objects of his or her bounty
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The disposition that he or she is making of that property, and must
be capable of
Relating these elements to one another and forming an orderly
desire regarding the disposition of the property
o It’s unethical for lawyer to draft will knowing mentally incapacitated
o Mental Capacity scale:
Contracts (inter vivos) Highest
Testamentary |
Marriage Lowest
In Re Estate of Wright CA 1936
Wright’s will denied probate on the ground of testamentary incapacity – appeals.
W died and left friend his house, daughter another house, granddaughter Utah house.
Gave 1 dollar to each of a lot of people. People testified he was quirky and soaked a fish
in kerosene and sprayed kids with a hose. Court said testamentary capacity can’t be
destroyed by showing few isolated acts, foibles, idiosyncrasies, moral or mental
irregularities. No evidence offered to rebut W’s ability to transact or conduct his
business or care for himself. Will stands.
Why require mental capacity?
o Represents testator’s true desires
o Mentally incompetent man or woman is not defined as a person
o Protects decedent’s family
o Succession to property must be reasoned and responsible act
o Assures a sane person that their desires will be carried out if they later
become insane.
o Protects society at large from irrational acts
o Protects senile person from being taken advantage of
Insane Delusions – part or all of will may be invalid
o Legal concept
o False conception of reality that they hold against all evidence to the
contrary
o MJ: delusion is insane even if factual basis if rational person in position
could not have drawn the conclusion reached
o Mistake is different
Courts don’t invalidate b/c of mistake
In Re Strittmater NJ 1947
D died leaving everything to Women’s party. Probably had split-personality.
Took feminism to the extreme. Enough evidence to prove paranoid – schizophrenia –
probate set aside.
In Re Honigman NY 1960
H died survived by W. Cut off W with will and left her with statutory share for
life with remainder to surviving brothers and sisters per stirpes. Wife objected. Jury said
H wasn’t of sound mind. Suspected wife of cheating and was pretty paranoid about it.
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Issue wasn’t if wife was unfaithful, did he have reason to believe she was unfaithful.
Yes. Reversed.
Living Probate
o While testator is still alive
o Americans don’t have to pay attorney’s fees when losing contested
proceedings
Undue Influence
Generally
o Must have a confidential relationship and something else (varies from
state to state)
o Four prong test:
Testator was susceptible to undue influence
The influencer had the disposition or motive to exercise undue
influence
The influencer had the opportunity to exercise undue influence
The disposition is the result of the influence
Estate of Lakatosh PA 1994
Roger Jacobs befriended Rose Lakatosh. Got power of attorney and drove her
around. Rose was estranged from the family. Roger siphoned money to his friends.
Rose living in filth. Dead cats everywhere. Executed will leaving almost everything to
Roger. Three elements easily met: confidential relationship; roger received bulk of
estate; Rose’s intellect was weakened. SC affirmed order of trial court revoking the
probate of Rose’s will and imposing a constructive trust on Roger for 128k.
Burdens of Proof
o First – proponent of the will to show that it was duly executed
o Then – shifts to one challenging the will (those alleging undue influence)
They must establish confidential relationship + something
o Shifts back tot eh influencer
Act with clean hands
Grantor acted willingly
Restatement §8.3(b) – overcame donor’s free will
o Comment – confidential relationship is not enough
Lipper v. Weslow TX 1963
Sophie has 3 kids by 2 marriages. 1 kid dies. Sophie dies leaving everything to
the other 2 kids. Kids of deceased kid contest. Sophie’s will has clause explaining why
disinheriting grandkids. Will prepared by living son. Undue influence? Might raise
suspicion, but does not supply proof of vital elements of undue influence. Will stands.
Undue Influence – Duress – Fraud = all related
Fraud
o Testator is led to do something that he or she would not otherwise do.
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Cases mainly focus on remedies in case of fraud or duress
Constructive Trust
o Fraud in the Inducement – focuses on when a person misrepresents facts,
thereby causing the testator to execute a will
Is it caused by a fraud?
Puckett v. Krida TN App 1994
Nurses hired to care for Nancy Hooper. Convinced Hooper that her relatives were
wasting her money and wanted to put her in a nursing home. = Fraud. Court set aside
will.
Undue Influence and fraud, related, but separate causes of action. Courts might
fuse
Undue influence – influencer has to replace the will of testator
Fraud – misrepresent fact on testator with the sole purpose to get new will in
favor
Latham v. Father Divine NY 1949
Mary died testate and left her property to father divine. Burden of Proof is on
proponents – Father D. Then to challengers alleging duress. Challengers were first
cousins of Mary. Testified that M wanted to change will but was prevented by Ds dudes
and they killed her through an operation. Case was settled giving Father D small fraction
after appeal’s court reversed.
Constructive Trust – ―fraud rectifying‖ equitable remedy that employes the
language of trusteeship. Not itself a trust in which property is managed by a
trustee for a beneficiary subject to a fiduciary obligation.
WILLS: FORMALITIES AND FORMS
Execution of Wills
Attested Wills
o Formalities – strict compliance with statutes
Why require formalities?
Formalities serve the ritual function
Evidentiary function
Protective function
Channeling function
These are hijacked by strict compliance
o To have a will:
Mental Capacity
Testamentary Intent
Writing
TOR – Sign
Witnesses Sign
o Formalities relate to the elements of a will
Execution
o Mechanical Process
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Line of sight rule – must be able to see the witnesses sign
Conscious Presence – sight, hearing, or general consequences of
events let Testator know
Attestation Clause – Recites facts supporting due execution
Self-Proving Affidavit – swearing the attestation clause
****Know the general rules—not what other states hold****
o Qualitative Analysis (of witnesses)
Witness must be competent (credible, disinterested)
Depends on statute
Stakes are high here
Stevens v. Casdorph WV 1998
Miller went to bank with Casdorphs. Asked employee to witness execution of his
will. After employee signed, took to two more employees to sign. Other employee
didn’t see Miller sign will. Stevens (neice) would have taken intestate. Miller left
everything to Casdorphs. Stevens want will set aside. Trial court gave SJ for Casdorphs.
Stevens say all evidence says will not properly executed. App said not validly executed.
Will set aside.
Estate of Parsons Cal App 1980
Subscribing witness to will named in will as beneficiary ―disinterested‖ within
Probate Code by filing disclaimer. PC §51 says gift to subscribing witness void unless
two other and disinterested witnesses. Court holds subsequent disclaimer ineffective to
render witness disinterested, will set aside.
In Re Pavlinko’s Estate PA 1959
H died ’57, W died ’51. Ws will ’49, signed by husband, offered for probate by
W’s brother, denied. W and H signed each other’s wills. Law says must be signed by
testator. Will set aside. Affirmed.
Malpractice of Lawyers (sign wrong will) remedies:
o Constructive Trust
o Unjust Enrichment
o Malpractice Insurance
In Re Snide NY 1981
Snide, decedent, and W intended to execute wills at the same time, signed each
other’s. Lower court admitted, appellate reversed, High Court said will valid, wills are
identical, no evidence of fraud. Will stands.
Mutual wills – one dies, the other will becomes a contract – can’t rescind
Holographic Wills
o Not recognized in majority of states
o Those that do require precise compliance with specified formalities
o Elements:
Mental Capacity
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Testamentary Intent
Testator’s Signature
Writing
Witness
o How can you distinguish dispositive intent from testamentary intent?
Channeling and Protective function—very poor in holographic will
Kimmel’s Estate PA 1924
Dad sends letter stating who money goes to to his 2 kids and dies. Two questions:
1) Is the paper testamentary in character? 2) Is the signature to it a sufficient compliance
with PA wills act? (signed it ―father‖) Yes Yes. Clear intent to execute. Holographic
will stands.
o Conditional Wills: Condition doesn’t happen? = will retains its validity
o Most problems arise with writing requirement. Writing sufficient to be a
holographic will, how much must be in Testator’s handwriting?
1st Generation: ―entirely written, signed, and dated‖
2nd
Generation: ―Material Provisions‖ (1969 UPC)
3rd
Generation: ―Material portions‖ and extrinsic evidence
allowed (1990 UPC)
Estate of Mulkins AZ 1972
1st Generation holograph. Had some printed text, but handwritten portion was
testamentary portion. Will upheld
Estate of Johnson AZ 1981
Testator filled in blanks, but didn’t get the witnesses. 1969 UPC adopted
―material provisions‖ in testator’s handwriting? No. Will Denied
Estate of Muder AZ 1988
Will handwritten on a printed will form, but signed by only one witness. ―I give
to‖ filled in name and possessions. Will upheld. Court held testator who uses preprinted
form, and in his own handwriting fills in the blanks by designating beneficiaries and
apportioning his estate and signing it has created a valid holographic will.
In Re Estate of Kuralt MT 2000
Kuralt wrote holographic will to Shannon, then executed formal will. Was going
to transfer title to all of MT cabin, but got ill. Wrote letter to Shannon saying inherit the
MT place. Died. Shannon attempts to probate letter as a valid holographic codicil. DC
said letter expressed intent to transfer posthumous. Affirmed.
Wong
Testamentary Capacity but no Testamentary Intent arrows are not writings they
are symbols (she was also cheating on him) –extrinsic evidence.
Smith
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Attorney error – no probate of holographic will…Clear and convincing
evidence—would be admitted, but court focused on attorney error.
Revocation Of Wills
Revocation by Writing or Physical Act
o Can Revoke by:
Subsequent writing executed with testamentary formalities
By physical act – destroying the will
No Oral (revocation)
o Subsequent will
Presumed revoked if disposes of entire estate
May be codicil if not full disposition
o Intent to revoke + physical act = revocation
o Will not revokes – goes into probate
o Most of the time – wills say ―I revoke all previous wills‖
*****Each state has its own revocation statute*****
Harrison v. Bird AL 1993
Daisy executed will devising Crapps everything. Told attorney to revoke.
Attorney sent pieces. Lower court held no revocation—attorney didn’t tear in her
presence; no ratification; but arose a presumption that Daisy revoked b/c pieces couldn’t
be found. Copy couldn’t be found. Burden shifts to Crapps—not enough evidence—will
denied.
Lost Will—can be proved (contents)—may be admitted with clear and convincing
evidence
Thompson v. Royall
Kroll signed a will. Then signed codicil. Then wanted to revoke, but judge wrote
null and void – keep as memo. Dies – will admitted to probate by jury. Attempted
revocation ineffectual – written words to revoke must affect the written portion of will.
Will Stands.
Dependent Relative Revocation and Revival
o Testator revokes under mistake of law or fact and wouldn’t have if he had
known the truth – ineffective revocation.
LaCroix v. Senecal CT 1953
Dupre wrote codicil revoking language but including same language, just adding
nickname and real name. Would she have done it if she knew Senecal got nothing b/c her
husband witnessed codicil? Doctrine of dependent relative revocation – original will
stands.
P. 262 #1
o DRR saves nephews bequest
o May revoke bequest entirely
o May bequest 1,000
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o Depends on holographic requirement
Must all be in T’s writing = $0
Provisions = $1500
o Partial revocation – only applies to crossing out 1,000 – gets 0
o Testamentary validity
o Only keep 1500 if you can show the writing by the T constitutes a valid
holographic will
Dependent Relative Revocation applies only:
o There is an alternative plan of disposition that fails
o The mistake is recited in the terms of the revoking instrument or is
established by clear and convincing evidence.
Revocation by Operation of Law: Change in Family Circumstances
o D = revocation of provisions for spouse
o Will and then Marry – some states allow for intestate share unless omitted
or provided for otherwise
o May take forced share
o Some states – kids = no premarital will
Components of a Will Integration of Wills
o Doctrine of integration – all papers at time of execution, intended to be
part of will – are integrated into the will
o What constitutes testating instrument
o All papers present at time of execution and intended to be part of will are
integrated into will
o How is a will published?
When it is signed and witnesses sign (executed)
Republication by Codicil
o Will is treated as re-executed as of the date of codicil
First will revoked by second – codicil can re-execute (republish) 1st
and thereby revoke second.
o Affirms previous will
Clark v. Greenhalge 1991
Valid will 1971 – codicil 1980. Doctrin of republication by codicil essentially
brings the 1971 will to 1980. (As if it was published in 1980).
o Doctrine of republication only applies if you have a valid will (prior).
o Incorporation by reference – any writing in existence when will is executed
Johnson v. Johnson OK 1954
Looked at typewritten part and announced it to be a valid will. Then said
holographic codicil to validated will. It saved the will through doctrine of republication
by codicil. Typed will, no witnesses. Added handwriting at bottom that gave 10 bucks to
brother and signed. Complete or holographic codicil to writing? Former not valid (no
witnesses). Codicil would make the whole thing valid. Intention to add codicil is
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controlling. Republishes even if document incomplete. Valid holographic codicil
incorporated prior will be reference and republished and validated prior will as of date
of codicil.
NONPROBATE TRANSFERS AND PLANNING FOR INCAPACITY
An Introduction to Will Substitutes
Will Substitutes
o Non probate wills
o Four main will subs:
Life Insurance
Beneficiary can be changed until death
Pension Accounts
Bank, Brokerage, and mutual fund accounts
Revocable inter vivos trust
o Imperfect Will Substitutes:
Joint Tenancy
o Differences
Most are asset specific
Avoids probate—significant advantage
No formal requirements
Life Insurance, Pension Accounts, Bank Accounts, And Other P.O.D. Arrangements
Life Insurance
o Death Insurance
o Financial risk of dying young
o Whole
Ordinary or Straight
Life Insurance and Savings plan
Forced savings feature
Universal or Variable
More investment options
o Term
No savings
Term expires – no dice
May provide for renewal or conversion with no regard for
insured’s health
o Settlement Options
Lump-sum payment
Annuity (ben. Life)
Interest for years followed by payment of principal
Periodic payments of interest and principal
Wilhoit v. Peoples Life Ins. Co. 7th
App 1955
Dude died and W had ins. Settlement kept in revocable trust with Insurance Co.
Named beneficiary was stepson. Stepson died. W died and will named Robert Wilhoit
as beneficiary of trust. Insurance co. refused to pay Wilhoit. DC gave SJ to Wilhoit.
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Insurance Co. says K governed by insurance law not law of wills and irrevocably named
stepson so beneficiary is stepson’s heirs. App says agreement between W and Insurance
Co. not insurance K. Like bank account. Affirmed. Wilhoit gets it.
Estate of Hillowitz NY 1968
H partner in investment club. Club paid W $2800 on H’s death. Ex say invalid
testamentary disposition and should be subject to will. W says valid K. 3rd
party
beneficiary K, performed on death not invalid. W gets it.
Cook v. Equitable Life Ass. Ind App 1981
H purchased whole life insurance policy, naming W beneficiary. H and W
divorced. H married Margaret and had a son. H made holographic leaving all worldly
possessions to M and son 11 years later. Died 3 years later. Change beneficiary by will?
No. Repercussions overrule equity.
Most states, statute that revokes will provision for divorced spouse does not apply to
insurance policy or P.O.D. naming spouse as beneficiary.
Superwill – only if trust provides
Pension Accounts
o Enhancement of Life Expectancy
Made pensions more reasonable
Surviving way beyond years of productivity
o Pension wealth
People are expected to foresee need for retirement income
Fed has intervened – irresistible tax benefits
Contributions are tax-deferred
Earnings accrue and compound on tax-deferred basis.
o Retirement—pays tax on sums distributed
Distributions from pension accounts usually taxed on lower
marginal fees (than income)
o Become less significant (tax has abated)
Annuitization Eliminates Succession
Only negligible fraction of pension savings =
intergenerational transfer
Annuitization insures against living too long
Requires assets that can be liquidated predictably
Accoutns disappear at death of annuitants
Those who dies young pay for those who die old (opposite
of life insurance
Egelhoff v. Egelhoff US 2001
WA statute says beneficiary of nonprobate revoked automatically on divorce.
ERISA pre-empts statute? Yes. H employed by Boeing, W beneficiary of life insurance
and pension plan (both governed by ERISA). Divorce, and H died 2 months later
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(intestate). Life insurance paid to W. Kids from previous marriage want life insurance
proceeds. SC said statute directly conflicts with ERISA’s requirements that plans be
administered, and benefits paid in accordance with plan documents. If will sub falls
under ERISA – you look to ERISA, not State statute.
Multiple Party Bank Account
o Three types
JT with right of survivorship
Survivor takes balance
Will Substitute
P.O.D. designation
No right to withdraw, but survivor takes
W/S
Agency/Convenience
Both have right to draw
Survivor does not take
Not W/S
Balance distributed through will (or intestacy)
Franklin v. Anna National Bank Ill App 1986
F put sister in law on account in JT with right of survivorship. Trial court said sis
gets it. App reversed saying it’s the estate’s. 9 months after adding sis to account, F tried
to remove her name (wrote letters to the bank). The attempt to change shows his
consistent view of the account as his own. Money would have been found to be the
property of the estate.
JT in realty
o Take property in JT or T by the E. Will doesn’t devise interest in JT.
CONSTRUCTION OF WILLS
Mistaken or Ambiguous Language In Wills
Traditional approach – no extrinsic evidence, no reformation
o Plain meaning or not extrinsic evidence
Only admit extrinsic evidence to resolve some ambiguities
Words can’t be disturbed
o No Reformation Rule
Words actually used, not words T purportedly intended to use
Mahoney v. Grainger MA 1933
Helen gave heirs at law ―…to share and share alike.‖ Problem: deceased had
several cousins who thought they were included. Evidence that she told attorney she
wanted the 25 cousins to be included. Court did not allow this conversation—gave it all
to the aunt (the only heir at law). Said clause not ambiguous so no extrinsic evidence.
Note p. 368 #2 – PerryManor, Inc. – even though they sold the nursing home
―PerryManor‖ they still get the money
18
Patent Ambiguities
o Ambiguity that appears on the face of the will
o Extrinsic evidence not used
Latent Ambiguities
o Dies not appear on face of will but manifests itself when the terms of the
will are applied to T’s property or beneficiaries.
o Extrinsic evidence has been used
Two types of latent
Equivocation – description fits 2 or more people
Description does not exactly fit any person or thing – more
common
Slouching toward reformation: Correcting Mistakes Without the Power To
Reform Wills
o Relief Granted
Undue Influence, Duress
Fraud
Lack of capacity, wisdom
o No relief
Mistake
Arnheiter v. Arnheiter NJ 1956
Gurtel will said 304 Harrison sell and establish trust for each niece. Wrong
address. Deed was 317 not 304. Court couldn’t allow extrinsic evidence, so the deleted
the number 304 and let the paragraph say ―my property on Harrison‖ sot he nieces got it.
Estate of Gibbs WI 1961
Robert J beneficiary, but name is Robert W. Will said Robert J living at
xxx…Robert W lived there. Court allowed extrinsic evidence and dropped middle initial.
App affirmed b/c middle initials susceptible to mistake.
Death Of Beneficiary Before Death Of Testator
Review of Intestacy
o Who takes?
Heirs
o How determine?
At time of death – refer to table of consanguinity
o Person hasn’t died
Heir apparent
o Heir apparent predeceases
Goes to issue or takes through representation through table of
consanguinity
English per stirpes
Modern Per stirpes
Per Capita at each generation
Will
o Specific/General
19
o Residuary – usually takes more
Residuary Dies before T
o All goes – intestacy
o Same applies if 2 residuaries die
o 1 survives 1 dies – 2 rules:
General Rule – other takes all
Minority Rule – No residue of a residue 1 takes half and the other
half falls into intestacy
Estate of Russel CA 1968
Thelma left holographic will – all to Chester and Roxy – gold and diamonds to
Georgia. Roxy is a dog and predeceases Thelma. TC gave all to Chester. P argues no
ambiguity so no parol evidence (that Roxy is a dog) (P is niece). P would get under
intestacy. SC held extrinsic evidence allowed but Chester does not take all. ½ to C and
½ to dog, but gift to dog is void. So passes to heirs at law. Niece gets half.
Antilapse Statutes
o Substitute other beneficiaries for dead beneficiaries
o Usually an issue of deceased beneficiaries
o Applies only if devisee bears the particular relationship to testator
specified in the statute
Some only descendants, some broader
Allen v. Talley TX App 1997
Decedent’s will contains words of survivorship which preclude application of
antilaps statute? TC said it did. App affirmed. Mary bequeathed unto living brothers
and sisters. At time executed, had 3 bros and 2 sis. At death, 1 bro and 1 sis, and lots of
nieces and nephews. Primary concern is testator’s intent. Court looks at actual words of
will, not what T should have written, or meant to write, when unambiguous. 2 living
siblings split.
***Make sure you always provide for what happens if devisee predeceases***
Nonprobate transfers
o P.O.D.: 3rd
party beneficiary may pass to heirs
UPC requires POD bank accounts and transfer on death brokerage
account beneficiaries to survive (Most K’s say ―to A if she is
living‖)
Antilapse applies to bank accounts in POD form, Ks with POD
beneficiary, ins., etc.
o Revocable trusts:
Law of future interests applies
Trad., no requirement of survivorship
o JT
Vanishes
Jackson v. Schultz DE 1959
20
Dude dies leaving everything to wife and her heirs. W predeceases. Do stepkids
get it? ―And‖ substituted for ―or‖? Yes.
Class Gifts
o Treated differently from gift to individuals
o Class member predeceases—class members divide the whole
o ―group Minded‖
o Group label – not individual names only
Dawson v. Yucus IL 1968
W devised her 1/5 interest in family farm ½ to one nephew, ½ to other. One
nephew predeceased. Class gift? TC held class gift not intended. Affirmed. Did not
label class ―nephews,‖ lapsed and residue went into remaining estate.
o Class gifts and antilapse statutes
Almost all states apply
Average Testator prefer deceased beneficiary heirs take
Changes in Property After Execution of Will
Ademption by Extinction
o Adeemed—taken away
o Applies only to specific devises
o Traditional Identity Theory
Gift extinguished (if not in estate)
o Intent Theory
Cash value (if shown Testator’s intent)
Wasserman v. Cohen MA 1993
F created revocable inter vivos trust. On death, trustee was to distribute to E. F
sold prior to death. Never assigned interest to trust. Will left to trust. Court said
adeemed.
o Escape routes to avoid ademption
Classify devise as general or demonstrative
Classify inter vivos as change in form, not substance
Construe meaning of will as of time of death rather than time of
execution
Create exceptions
UPC exceptions
Remaining balance on property sold
Unpaid amount on property
Unpaid fire or casualty insurance proceeds after property
destroyed
Property obtained by Testator by foreclosure
Sale price of specific devised property sold by conservator
Stock Splits
21
o Testator executes will to A of 100 shares. Shares split 3 for 1. A gets 100
or 300? Many Modern courts discarded old approach – find A gets 300
o Dividends
Treated differently by some courts
UPC and Restatement – treated same as splits
Doctrine of Satisfaction
o AKA ademption by satisfaction
o Applies when T makes transfer to devisee after executing will
o Rebuttable presumption gift is in satisfaction of gift made by will
o Like advancements under intestacy
o Some states require intent in writing
Exoneration of Liens
o Land devised subject to mortgage
o Some states – free of mortgage (debt paid by residuary)
o Most states and UPC say you get mortgage too
Abatement
o Turns on classification of devise as specific, general, or residuary
o Arises when debts and devises > assets
o Operates like bankruptcy
o Order:
Residuary devises reduced
General devises reduced
Specific and demonstrative devises reduced last and pro rata
o UPC 3-902 takes intent of T into deciding abatement
RESTRICTIONS ON THE POWER OF DISTRIBUTION
Rights of Surviving Spouse in Community Property
Putting survivor to an election
o Widow’s election
Will by H devising all C.P. in trust to pay income to W for life
with remainder to others on W’s death
Requires W to elect b/t surrendering her half of C.P. and taking
under husbands will
Migrating Couples and Multistate Property Holdings
o Conflict of law rules:
Law of situs controls problems relating to land
Law of marital domicile at time that personal property is acquired
controls characterization of the property (separate or community)
Law of marital domicile at death of one spouse controls survivor’s
marital rights
Moving from a Separate Property State to a Community Property State
o Ownership of moveable property determined by laws of State where
couple is domiciled when property acquired.
o Separate Property to Community Property and H dies – W may get
nothing
o Quasi-Community Property rectifies this
22
D/N/A to stuff outside state as law of situs applies and W gets
forced share
Analogous to elective share
Moving from Community Property State to Separate Property State
o Generally, change in domicile from CP to SP – no change pre-existing
property rights
o Uniform Disposition of Community Property Rights at Death Act, enacted
in 14 SP states, provides that CP brought into the state (an all property –
including land in the state – traceable to CP) remains CP for purposes of
testamentary disposition, unless the spouses have agreed to convert it into
SP.
o Tax benefits
H & W CP 100k. H dies when worth 300k. Estate tax is on ½
(150k) unless devised to W, then no tax. Income tax: W sells, for
325k, taxed on only 25k. (increase from 300k)
H & W move to SP and change title to JT (at 100k). H dies
property worth 300k. Estate tax same. Income tax: Ws new basis
is 50k (1/2) plus 150k, or 200k. W sells property for 325k, taxed
on 125k.
o CP by right of survivorship
H can’t devise his ½ - option when taking in CP – offered in 5
states.
CA says no administration unless surviving spouse elects
administration.
Estate of Shannon Cal App 1990
R makes will in ’74 intentionally omitting everybody but daughter. ’86 marries
L. ’88 R dies. L filed petition for family allowance and determination of entitlement as
an omitted surviving spouse. Court denied L petition to determine heirship. L dies and
estate appeals. App reversed, saying issue is whether will shows specific intent to
exclude L. Other side failed to prove intent to disinherit L and rebut presumption of
revocation.
Rights of Issues Omitted From the Will
Protection from Intentional Omission
o Domestic Approach
All states but LA, kid is SOL if disinherited
However, courts may use doctrines flexibly to provide for
disinherited children (lack of capacity, undue influence, etc.)
Protection from Unintentional Omission
Azcunce v. Estate of Azcunce FL 1991
Child born after execution of father’s will and before execution of codicil takes
under statute (will and codicil fail to provide for child). Held that where the codicil
expressly republishes will, kid is not permitted child under statute. Kid is SOL.
23
Pretermitted child statutes – enacted in almost all states – follow one of two
patters:
o Protect only children born (or adopted) after execution of the will
o Operate in favor of children alive when the will was executed as well as
afterborns
Failure to name all of the testator’s living children in the will
invites a challenge under the pretermitted child statute
TRUSTS: CREATION AND CHARACTERISTICS
Introduction
Background
o A trust is a device whereby a trustee manages property as a fiduciary for
one or more beneficiaries. The trustee holds legal title to the property, can
sell property, and can replace with property thought more desirable.
Beneficiaries hold equitable title and are entitled to payments from trust
income and sometimes trust corpus too.
o Many uses for trust
Estate plans
Commercial Use
o A trust provides managerial intermediation
o Estate Planning
Revocable trust
Testamentary marital trust
Trust for incompetent person
Trust for minor
Parties to a Trust
o Settlor, Trustee, beneficiary(ies)
o Settlor:
Creates trust
Aka trustor
During life (inter vivos trust) – declaration or deed
Upon death (testamentary trust)
o Trustee:
May be one or several
May be settlor or beneficiary
Court will appoint if not named or named refuses or dies
3 distinct functions:
Investment
Administration
Distribution
o Beneficiary(ies)
Hold equitable interests
Have a personal claim against trustee for breach of trust
Most have successive beneficial interests
Most life estates and future interests are trusts
Trust compared with a Legal Life Estate
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o Legal life tenant has possession and control of property
o Trustee has legal title to trust property
o Legal life tenant – no right to sell
o LLT – can’t mortgage it
o LLT – general power of appointment
o LLT – creditor can reach
Commercial uses of the trust
o Before corporations – big trusts
Why we call it antitrust law
Allowed for pooling passive investment with big managers
Creation of a Trust
Intent to Create a trust
o Sole question is whether the grantor manifested an intention to create a
trust guardianship
o ―for the use and benefit of‖
Jimenez v. Lee OR 1976
P brought suit against father alleging he was trustee for her. Lower court
dismissed. 2 gifts: Grandma purchased $1000 bond; $500 gift from client in account.
Bond = D and/or P and/or mom. Account = D & P & 2 siblings. D cashed bond –
invested in stock ―custodian for P.‖ Part of account also invested ―Custodian.‖ TC held
D didn’t hold trust in either. SC says ―it is enough if the transfer of property is made with
the intent to vest the beneficial ownership in a 3rd
person.‖ Doesn’t matter that D
purchased stock as ―custodian‖ b/c trust was already created. Rev’d.
Precatory Language
o Moral obligation unenforceable in court
o ―precatory trusts‖
o ―recommendation‖ ―wish‖ ―hope‖
o Do not put recitals in testamentary instruments
o Be specific ―not legally require‖
Equitable charge
o Devise property to a person subject to a payment to a certain person
o Creates a security interest in the property
o More of relationship of debtor and secured creditor
Gift
o Donor must deliver property to donee, and donee must accept
o May be constructive or symbolic
o Fail to perfect = trust law
Can failed gift be saved by recharactirizing it as a declaration of
trust?
Declaration of Trust
o Does not require delivery
o Can be made orally (SoF)
o Must have intention
25
The Hebrew University v. Nye CT 1961
Nice library of Prof and Wife. Prof died and then Wife died. Executor is D and
Hebrew institutions are P. Controversy is between 1 charitable trust and other Hebrew
organization. Wife said she was giving to organization in Israel. Spent the rest of her life
packing and cataloguing books for shipment. TC held trust was created by declaration of
trust made by wife (for organization in Israel). SC says orally made herself trustee at
luncheon in Israel. But, problem with intent. Declaration of trust can’t be made for sole
reason that gift failed. No Trust. Remanded.
The Hebrew University v. Nye CT 1966
P now claims gift inter vivos by constructive or symbolic delivery. Court finds
delivery of memorandum coupled with decedent’s acts and declarations sufficient to
complete gift. Constructive Delivery. Held for P. Magic words???
Necessity of Trust property
o Trust: three elements
Trustee
Beneficiary
Trust Property
o Trust cannot exist without trust property (res)
o Trust res may be 1 dollar or 1 cent or any interest in property that can be
transferred.
Unthank v. Rippstein TX 1964
Dude wrote letter to Rippstein 3 days before his death. Wanted to give her 200
bucks a month for 5 years. Crossed out ―if I live that long‖ and wrote in margin that he
wanted to bind his estate to it. R unsuccessfully tried to probate as codicil. Tried again
and denied by TC. App rev’d, holding voluntary trust. Margin note created declaration
of trust? Court says no. Not sufficient certainty in language. Most of what he did was
express an intention to make monthly gifts followed by ineffectual attempt to bind his
estate in futuro.
Trusts v. Debts
o Decide whether recipient of funds is entitled to use them as his own and
commingle them with his own monies
Resulting Trusts
o Equitable reversionary interest
o Arises in 2 situations
Express trust fails or makes an incomplete disposition
1 person pays purchase price for property and causes title to the
property to be taken in the name of another person who is not a
natural object of the bounty of the purchaser.
Brainard v. Commissioner 7th
Cir. 1937
26
Dude said he would create trust on next year’s stock profits. Did so and reported
it on taxes. Trust arise before profits? No. Trust arose after profits. So first statement of
declaration is out because no res. (has to renew his intent when he gets the res)
Speelman v. Pascal NY 1961
Pascal wrote to secretary saying he was going to give her his shares of profits of
musical and movie not yet produced. Died after. Did this constitute valid, complete, and
present gift by way of assignment? Yes.
Clark v. Campbell NH 1926
Had no beneficiaries – main problem. Dude said ―friends‖ that the trustee should
select. Trustees argued this was a power for them to appoint. Also argued Dude intended
trustees to get property outright. Court said no. Position of trustee made by clear
wording – can never get property outright. (Ambiguous wording might have worked for
trustees.)
In Re Searight’s Estate OH 1950
George made testamentary disposition to dog Trixie to Florence with 1,000 in
bank of 75 cents a day to take care of dog. But dog has no legal right (can’t sue) so can’t
be beneficiary in a trust. General rule – no ben, no trust. But court said it is an honorary
trust – trustee has burden of caring for dog – no legal trust – court said when you have a
trustee willing to accept duty of care – trust does not fade. Probably would not survive
rule against perpetuities (covered later)
Necessity of a written instrument
o Writing required if you have inter vivos gift of land
o Also required if you have a testamentary trust (trust only valid if will is
valid)
o O X (to pay income for life to A) then to B
Not writing but oral declaration
Statute of Frauds prevents—what happens
Courts are split
o X takes = some
o X takes but with constructive trust to prevent unjust
enrichment
Heible v. Heible CN 1972
P transferred title from herself to herself and son and daughter in JT. Later
daughter conveys back, son does not. Mom sues son (they had agreed to convey it back).
Court found constructive trust on son based on oral agreement and confidential
relationship of parties.
Pappas v. Pappas CN 1973
Dude 67 marries 23 year old. Dude conveys property to son (knows divorce is
coming). Dude orally says son has to reconvey after divorce. Dad sues. Court allows
son to reneg. Gotta have clean hands to get a constructive trust!
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Oral Trusts For Disposition at Death
Olliffe v. Wells MA 1881
Ellen assigned her estate to Wells to distribute to what he thinks is best. Wells
says she wanted it to be used for charitable purposes. St. Stevens Mission – also Well’s
Mission. If trust setup unlawful, goes to heirs. Court said should go to heirs b/c it is a
failed trust.
o Secret trusts – conveyance to trustee with no language of trust.
Constructive Trusts
o Semi-Secret Trusts – language that creates intent to create trust. But
beneficiaries not stated
No constructive Trusts
o Many courts still continue to apply distinction between ST and SST
Rights of the Beneficiaries to Distributions From the Trust
Trusts – Mandatory and Discretionary
o Mandatory: Trustee must distribute all income
o Discretionary: Trustee has discretion over payment of either income or
principle or both
o May be limited to an ascertainable support standard (support trust)
o Discretionary Support Trust
Marsman v. Nasca MA app 1991
Trustee of discretionary support trust have a duty to inquire into financial
resources? If so, remedy for failure? S died ’71, survived by 2nd
H and daughter.
Lawyer trustee. Give H reasonable care and maintenance in lawyer’s discretion.
Remainder to daughter and family. H remarried, drew up will leaving everything to
Marge. H needed funds, Lawyer wanted request and reason in writing. H into nursing
home, can’t pay bills, daughter takes over and gets house at Hs death. What about
Marge? Daughter dies. Daughter’s husband kicks out Marge. App says he keeps house.
But H should have gotten help from trust and he didn’t. Exculpatory clause is effective,
so Lawyer not personally liable, but payments that would have allowed H to keep house
and pay bills will be paid from trust to Hs estate
Duty to inquire – ―deem advisable for his comfortable support and maintenance‖
Limitations on Trustee?
o Absolute – reasonable test
o UTC – Good faith
o Restatement (3rd
) – ―absolute‖ not interpreted literally, must act honestly
Rights of Beneficiary’s Creditors
Discretionary Trust
o Trad – Creditors can’t reach trust
o Some – Creditors can get paid before beneficiary
o Pure Discretionary – beneficiary rights?
28
Trustee no give money, remedy? Court will compel if it finds
abuse of discretion (breach of fiduciary duty)
o Exculpatory trust purporting to insulate trustee from judicial review
altogether is unenforceable
Spendthrift Trusts
o Settlor controls what beneficiary can do with beneficiary’s interest
o Normally beneficiary’s interest is freely transferable
ST prevents assigning or selling
o Spendthrift – beneficiary can’t voluntarily alienate interest
o Not ST unless settlor expressly inserts spendthrift clause
o Settlor – transferring trust res to X as trustee for benefit of A
Who owns res?
US – settlor – STT allowed
UK – beneficiary – STT not allowed
o NY – all are ST unless expressly otherwise
o CREDITORS CAN’T REACH!
Can reach after receiving income
Dude files for Ch 7 bankruptcy, then gets 30 M from ST – free and
clear
Scheffel v. Krueger NH 2001
Dude beneficiary to spendthrift trust. Gets a judgment against him for molesting.
P wanted to attack trust to satisfy judgment. Trial Court held spendthrift provision
enforceable and dismissed. SC affirmed, saying law says creditors can’t reach, and no
public policy exception exists.
o Focus: determine rights of creditors of beneficiaries when STT provision
o Great value given to settlor’s wishes
Shelley v. Shelley OR 1960
Beneficiary of ST trust married 2x divorced 2x, 2 children by each marriage.
Both D’s had child support and 1 had alimony. Beneficiary disappeared. ST provision
given effect to bar claims of beneficiary’s childred? Court said it could decide on
exceptions to general rule, and Public Policy clearly demands the support payments.
Beneficiary’s duty to support former W and children should override ST provision. Not
on corpus, however, but children could invade as beneficiaries and in ―emergency.‖
Judgment for child or spousal support can be enforced against the debtor’s interest
in spendthrift trusts in the majority of states
o Min – can’t
o Some – granted this power by statute.
Discretionary Trust – ben asks for money, T says no
o Can ben sue?
Yes, abuse of discretion
o Can creditor of ben sue for abuse of discretion?
No – ben has legal interest, creditor does not (generally)
UTC – codifies – unless type of creditor (like Shelly) §504(c)
29
ERISA – pension plans may not be assigned or alienated
Modification & Termination of Trusts
Introduction
o If the settlor and all beneficiaries consent, an irrevocable trust may be
modified or terminated
o What if settlor is dead?
US – no, even if all beneficiaries consent, if it would be contrary to
a material purpose of the settlor
Claflin Doctrine – settlor owns property – settlor must agree to termination or
modification. Even if beneficiaries agree – can’t be against material purpose of
settlor.
o What is a settlor material purpose?
Must control the dead man’s hand
Modification
In Re Trust of Stuchell OR App 1990
Life beneficiaries to trust want to modify b/c retarded kid will get it on their
deaths and won’t qualify for public assistance. Rule: can modify, unless sole reason is
would be more advantageous to beneficiaries. Affirmed – no modification. Retard SOL.
Courts apply dead hand control practically.
o Some states have statutes that allow mod for impecunious beneficiaries
(Court’s discretion)
o Restatement 3rd
creates liberalizing trend (UTC as well) – moving in the
direction of UK law (ben control)
o Admin. Directions – easier to get changed for changed circs
o Should changes in circs justify modification of terms?
Cal Probate Code: Yes (circumstances not known or anticipated by
settlor) and would impair or defeat purposes of trust
UTC: same
Admin: impractical or wasteful
Upon term – distribute in a manner consistent with
purposes of trust
o Reformation: equitable remedy that conforms an instrument to what it was
intended to say
o Modification: under equitable deviation principles changes the terms of
the instrument to reflect not what the settlor meant to say, but what the
court believes the settlor would have said had the settlor anticipated the
changed circumstances
o Trust Protector: has the ability to alter trust and hire or fire trustees
(usually bank institutions.) Can increase or decrease payouts, etc
Codified in handful of states
Ratified by UTC
Termination
o Generally, can’t be terminated if:
30
ST trust
Beneficiary not to receive the principal until attaining a specific
age
Discretionary trust
Trust for the support of beneficiary
o These provisions usually deemed to state a material purpose of the settlor
In Re Estate of Brown VT 1987
Dude died, created trust for educations of nephew’s kids. When education
complete, pay income to nephew and wife for life, remainder to then living kids.
Educations complete, paying income to nephew and wife –N and W petitioned for term,
arguing sole purpose of trust completed. Kids agreed. LC agreed. SC rev’d, saying
there was a second purpose: to insure life-long income for N and W at discretion of
trustee. Settlor’s intention would be defeated if trust were allowed. NO
TERMINATION
o Most states – trust irrevocable unless express or implied provision that
settlor reserves power to revoke
o Handful – opposite (CA, TX, OK)
UTC as well
o Revoked by will? – Trad: no; UTC: yes
Trustee Removal
o Remedy for breach of trust, not mod.
o Must set threshold high as to allow trustee to carry out settlor’s wishes, but
not too high as to allow mismanagement.
TRAD: Courts remove for serious breach, but not disagreement or
simple breach
UTC: serious breach, lack or cooperation impairs administration of
trust, unfit, unwilling trustee, and substantial change of
circumstances.
TRUST ADMINISTRATION: THE FIDUCIARY OBLIGATION
Introduction
Trustee: fiduciary obligations trustee owes to trust
o Investment
o Admin
o Distribution
Not only by trustee
o Executor burdened w/ financial obligation as well
o Directors to shareholders
o Etc.
Financial Obligation
o Duty of loyalty
o Duty of prudence
o Duty to subsidiary rules that apply to 1 and 2
Relate to trust administration
31
o Loyalty – imposes on T obligation to refrain from self dealing and conflict
of interest transactions
o Prudence – reasonable person
o Subs – invest, enforce and defend, diversify investments – minimize costs,
etc.
Compliance with rules of loyalty and prudence adduced after the fact!
Source of trustee power
o Trust instrument
o Statutes – state law
Hartman v. Hartle NJ 1923
Dorothea died ’21 testate. Named 2 sons in law executors. Sell and divide
equally (5 children). Sold farm to a son (3000) who bought for sister (wife of one of the
executors). She sold to Mike (D) for 5000. Got sued for improper and fraudulent sale.
Can’t sell to self or W of trustee. Daughter gets 1/5 of profits.
Duty of Loyalty
Estate of Collins Cal App 1977
Ps beneficiaries under testamentary trust of deceased. Ds were deceased biz
partner and lawyer – trustees. Ts filed for termination. Ps objected – improper investing
– wanted surcharge. TC found for Ds. App says evidence d/n support finding that Ds
properly invested – rev’d.
Purchaser – obligation to trust?
o Y wants to buy BA from trust
o Prob #1 p 778
X sells BA to B, who has notice of trust (no notice, no obligation)
B believes sale is necessary for support of A (ben) but it isn’t
Can B purchase w/ no problem?
CL standard very strict – not then no
UTC – B reasonably believes – okay
Y loses – may be required to re-convey
Can’t self deal regardless of value! Even if you bid more – absolute duty of loyalty
Hartman
Executor had to disgorge profits
In Re Gleeson’s Will Ill App 1955
Trustee was tenant. Near end of lease term LL dies and names tenant trustee.
Can’t be both – should choose one or the other. Profits made on crop had to be paid to
children.
Beneficiary consent?
32
o Can after full disclosure, Trustee acted in good faith, transaction must be
objectively fair and reasonable
Seek advance judicial approval? Yes
Settlor Consent? Always
o Bank allowed to deposit in own institution when trustee
Duty of Prudence
Imposes objective standard of care
Particularly hard on trustee when it comes to investments
o Basic relationship b/t Risk v. Reward(return)
o What balance does trustee have to strike?
Courts have given lists that are conclusively prudent (strong bias
towards corpus protection)
Prudent Man Rule – intended to have trustees strike a balance (risk
v. reward) ―observe how men of prudence manage their own
affairs‖
Codified in UPIA
o Widely adopted
o 3 core concepts
Increased sensitivity b/t risk and reward
Diversification imperative
Experts allowed
o Applies to total portfolio, not 1 specific asset
o Takes bens income into account
Collins
80,000 trustees received. High risk not smart – widow and children. Invest 50 of
80 into second mortgage. Lawyer represented dev who received 2nd
mortgage – violates
loyalty—self dealing. Violated PMR and UPIA.
ERISA
o Prudent Investor Rule is standard. Duty of Loyalty = exclusive benefit
rule
Diversification
Uniform Prudent Investor Act (1994)
o §3 Diversification
Trustee shall diversify unless reasonably determines purposes of
trust better served w/out diversifying
Trustees owe duty (fiduciary) (UPIA)
o Loyalty – sensitivity to Risk/Return
o Prudence - diversification
o Subsidiary – delegation
3 different risks
o Market
o Industry
33
o Firm
Last two are subject to diversification
In Re Estate of Janes NY 1997
Janes dies ’73, survived by W. Janes’ 3.5M estate – 2.5M stock – 71% Kodak –
1.7M. Janes’ ’63 will and ’69 codicil made 3 trusts: 1)Marital deduction trust of 50%
Estate’s assets to W for life – gave W invasion of principal and testamentary power over
remaining principal. 2)Charitable trust – 25% of Estate – annual distributions to selected
charities. 3) Rest paid to W for life then went into Charitable trust. By ’78, shares had
fallen from 135 to around 40. W sued to surcharge petitioner for losses due to imprudent
retention of high concentration of Kodak stock. Court found for W’s estate (W died ’86)
and imposed 6M surcharge on Petitioner. Cour adopted ―lost profits‖ or ―market index‖
measure – what proceeds would have yielded had they been diversified in ’73. Appellate
Division modified damages, but upheld LC finding that petitioner liable for negligent
failure to diversify…Proper measure was value of the capital that was lost – difference b/t
value of stock at time should have been sold and value when ultimately sold = 4M.
Highest court affirms
What if Settlor says don’t sell and ben wants to sell?
o Retention Authorized
Older cases
By express language in the trust instrument – settlor can relieve the
trustee of the duty to diversify so that the trustee may retain the
trust’s inception assets
If authorization to retain is discretionary or permissive, may be
abuse if trustee retains
Courts give narrow interp to these provisos
o Retention Required
Trustee must retain
Undiversification almost always bad for ben
Changed circs usually allow you to get around – have to petition
the court
Delegation
Traditional Nondelegation Rule: ―Trustee under a duty to ben not to delegate‖
Can’t delegate fiduciary obligation to an expert
Shriners Hospitals v. Gardiner AZ 1987
G made trust pay income to daughter, Mary Jane and 2 grandchildren, Charles
and Robert, remainder to Shriners. MJ trustee, Charles 1st alt, Robert 2
nd alt. MJ let
Charles do investing. Charles embezzled. Shriners sued MJ for surcharge – improper
delegation. Court said she could delegate, but question of causation.
Impartiality and the Pricipal and Income Problem
Duty of Impartiality
o Balance
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Trustee must strike a balance b/t beneficiaries and their respective
interests
Dennis v. Rhode Island Hospital Trust Co. 1st Cir. 1984
Great-grandchildren of Alice Sullivan claimed the Bank trustee breached
fiduciary obligations owed to them as bens of trust created in 1920. Trust will cease to
exist in ’91. (21 years after death of last child). After that distributes all income for
benefit of living issue, principal to issue surviving in ’91. 2 GG kids are entitled to
income until ’91, and then principal. DC ordered surcharge of 365,000, b/c it found that
trustee should have sold the buildings (principal asset of trust) in 1950 – this apparently
restored trust to it’s 1950 level. App affirms w/ one exception –
BUILDING FLEXIBILITY INTO TRUSTS: POWERS OF APPOINTMENT
Introduction
Types of Powers
o Powers of appointment in bens
Powers that give bens ability to choose who next will take the
beneficial interest in the property subject to the power
Allow settlor to postpone and delegate
o Terminology
Donor – person who creates power of appointment
Donee – person who holds power
Objects of the Power – persons in whose favor power may be
exercised
Appointee – person in whose favor power has been exercised
Takers in default of appointment – if donee fails to exercise power
General Power – power which is exercisable in favor of the
decedent, his estate, his creditors, or the creditors of his estate.
Special Power – power not exercisable in favor of the donee, his
estate, etc.
Does the appointive property belong to donor or donee?
o CL – viewed as donor’s – donee merely does an act for donor.
Relation back doctrine.
o Some situations – Donee of general power treated as owner – Fed Tax
laws
Irwin union Bank v. Long IN 1974
V got judgment from P of 15k from divorce decree. This action = V trying to get
paid from P’s trust. P allowed to w/draw 4% of trust corpus per year. TC gave this 4%
to V. P contends general power, and that if power not exercised, creditors can’t reach (P
never has W/drawn). V argues P has absolute control and use of 4% corpus. App
reversed, saying P has no control until it is exercised, therefore creditors can’t reach.
CONSTRUCTION OF TRUSTS: FUTURE INTERESTS
Introduction
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You must be able to identify, so that you can avoid, intent-defeating technical
rules of future interests law still with us, as well as commonly encountered
examples of ambiguous language
Classification of Future Interests
Determined by arbitrary rules of CL not by certainty of possession
Interest in the Transferor
o Reversion
o Possibility of reverter
o Right of entry (power of termination)
Interests in a transferee
o Vested remainder
o Contingent remainder
o Executory interest
Rule Against Perpetuities (RAP)
o No interest in real or personal property is good unless it must vest if at all
not later than 21 years after some life
Reversion
o Interest remaining in the grantor, or in the successor in interest of a
testator, who transfers a vested estate of a lesser quantum than that of the
vested estate which he has
o Never created; retained interest that arises by operation of law when the
transferor has conveyed away a lesser estate than the transferor had.
o Would not violate RAP b/c it is a retained interest
Possibility of Reverter; Right of Entry
o Possibility of reverter is the future interest that remains in the grantor who
conveys a fee simple determinable.
O conveys ―to School Board so long as used for a school‖ The
School Board has a fee simple determinable; O has a possibility of
reverter, which becomes possessory automatically upon expiration
of the determinable fee.
o Right of entry for condition broken is the future interest that is retained by
the grantor who conveys a fee simple subject to a condition subsequent.
O conveys ―to School Board, but if the land ceases to be used for
school purposes, O has a right to reenter.‖ School Board has a fee
simple subject to a condition subsequent; O has a right of entry,
which O has the option to exercise or not.
o These are usually not found in Trusts
Remainders
o Future interest in a transferee that will become possessory, if at all, upon
the expiration of all prior interests simultaneously created.
o Must only be possible, not certain
o Take value of property and subtract value of life estate = value of
remainder
o Either vested or contingent
Vested if
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1) it is given to a presently ascertained person and
2) is not subject to a condition precedent (other than the
termination of the preceding estates)
Contingent if
1) it is not given to a presently ascertained person or
2) it is subject to a condition precedent
Executory Interests
o Differs from remainder in that it is a divesting interest
o Springing and Shifting
Shifting – an executory interest that may divest another transferee
if a specified event happens (shifts the property from one
transferee to another)
Springing – an executory interest that may divest the transferor in
the future if a specified event happens
Don’t see springing today (to my daughter when she gets
married)
Problems
o O conveys a fund in trust ―for A for life, then to A’s children, but if at A’s
death A is not survived by any children, then to B.‖ At the time the trust
is created, A has not children. What interests are created?
A = Life Estate; A children Contingent Remainder; B Alternative
Contingent Remainder
o Same as above, but 2 years later, two children, C and D, are born to A. C
dies, devising his property to his wife, W. A dies. To whom should the
trust assets be distributed?
C and D = Vested Remainder Subject to Open; B has shifting
Executory Interest.
W takes half, D takes half
o O conveys a fund in trust ―for A for life, then to such of A’s children as
survive A, but if none of A’s children survive A, then to B.‖ At the time
the trust is created, A has two children, C and D. Then C dies, devising
his property to his wife, W. A dies. To whom should the trust assets be
distributed?
A = Life Estate; children condition precedent = Contingent
Remainder; B = Alternate Contingent Remainder
D gets all (difference is ―any children‖ v. ―such as survive‖)
Construction of Trust Instruments
Court construes an instrument in order to construct an estate plan
Preference for vested instruments
o CL had strong preference – ambiguous instruments as creating vested
rather than contingent remainders
o Consequences:
Vested remainder was not subject to the doctrine of destructibility
of contingent remainders that defeated the grantor’s intent
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Vested remainder accelerated into possession upon termination of
the life estate, solving vexing problems of possession and
undisposed income
Vested remainder was transferable inter vivos, making land more
alienable
Vested remainder was not subject to the RAP, rule that defeats
grantor’s intent
Acceleration into possession
o CL – vested remainder accelerated into possession whenever and however
preceding estate ends. CR d/n accelerate b/c remaindermen are not
entitled until ascertained and condition precedent has occurred.
In Re Estate of Gilbert NY 1992
Dude dies leaving 40B estate. W and 4 children. Trust for W and 4 for kids. W
dies and her Trust added to 4 kids’ trusts. Lester – religious nut – disclaims. Executor
argues trust not created yet – wholly discretionary – if allowed to disclaim, then no trust
can ever be created and protect someone who might need it in the future. Court held
renunciation valid and Lester treated as if he had died without issues.
Transferability
o At common law, Vested Remainders, including defeasibly vested ones,
were transferable inter vivos
o Contingent Remainders and executory interests were not
o Today – only 9 states
o Future interest contingent upon surviving to the time of possession not
transferable at death.
Requiring survival to time of possession
o General rule: no requirement remaindermen live to time of possession
o If vested remainder subject to divestment, courts read divestment language
strictly
TRUST DURATION AND THE RULE AGAINST PERPETUITIES
Introduction
Development of the Rule Against Perpetuities
o People wanted to control their land forever
o Courts were like, no way, dawg
Summary of the Rule
o Restriction on the remote vesting of interests, but does not apply to
charitable trusts.
o Vested interests are not objectionable, but contingent interests are.
If O conveys a fund in trust ―for A for life, then to B‖ B has a
vested remainder, but
If O conveys a fund in trust ―for A for life, then to B if B survives
A,‖ then B has a contingent remainder
o Limits the time during which property can be made subject to contingent
interests to ―lives in being plus 21 years‖
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o Two basic purpose:
Keep property marketable and available for productive
development in accordance with market demands
Limit ―dead hand‖ control over the property, which prevents the
current owners from using the property to respond to present needs
o All legal and equitable contingent future interests created in transferees are
subject to the Rule Against Perpetuities.
Why lives in being?
o Allows the settlor to deduce who is capable of controlling the land now—
persons he knows and sees.
o Draws the line b/t those people and people he cannot know and see
It is a rule of proof
o Contingent future interest is void from the outset, if it is not certain that
the interest will either vest or fail—that one or the other must happen—
within 21 years after the death of ―some life in being at the creation of the
interest.‖
o O ―to pay the income to A for life, then to A’s children for their lives, then
to pay the principal to B.‖ A has no children. A’s life estate is vested in
possession upon creation. The remainder to A’s children for their
lives will vest in possession or, if there are no children, fail upon A’s
death. B’s remainder is vested in interest upon creation. Thus, all
interests created by the transfer are valid.
Example
2005 – interest created – AB&C are alive – they are lives in being
2006 – AB&C die
+ 21 years
2027 – ends RAP
Under what conditions can interest vest remotely?
o Condition precedent occurs after
o CP is linked to after-born person
After-born person does not extend (lives in being +21)
After born can arise in:
o Fertile octogenarian
o Unborn widow
P. 677 2b
o To A for life, then to B if any person goes to the planet Saturn
2027 RAP ends – Saturn in 2030
Interest vests, but void as an issue from the beginning
Look out for CP that can occur outside the RAP period
After-born person (see example)
o 2006 – D is born
o 2007 – AB&C die
o + 21
o 2028 RAP runs
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o ―then living‖ – 2030 vests in D, but entire conveyance is void
Dickerson v. Union National Bank of Little Rock AR 1980
Unborn Widow Case
Real problem is ambiguous language
o N—Cecil and Martin
o Cecil—A,B
o Martin—C,D,E,F,G
o Martin marries X later
Failure to ID Martin’s Widow
Bodily heirs – means issue
Using issue=multi-generational class (p640 n 3)
Relevant lives = ABCDEFG – 2005
2006 – X is born
2026 – martin marries X
2027 – Cecil, Martin, ABCDEFG all die
+21
2048 end RAP
2068 – X dies
Bodily heirs of M & C interest’s vest
Void at issue
Court didn’t talk about unborn child turning 25 past the perpetuities period
P. 684 #2
o To my son = valid
o Widow if any = valid b/c it is for life—it will either vest or fail at death of
son
o Principal to son’s children = vested (b/c no condition precedent) subject to
total divestment
o Red Cross = shifting executory interest. It can divest children of their
interest.
Does conveyance to red cross violate RAP?
YES
Why?
B/c of unborn widow – interest could occur beyond perpetuities
period. Conveyance to Red Cross = invalid (void at issue)
Ambiguous Language = bad!!!
Just understand these exercises; you’ll be fine on the final
Application of the Rule to Class Gifts
In order for class gift to be valid
o CP must be met
o All or nothing rule
All class members must satisfy CP (p. 686)
Class must Close
All CP for every member must be satisfied before
perpetuities period ends