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Estates and Trusts Outline 2011—Dawson Introduction: The Living and the Dead: Whose Money is it? FREEDOM OF TESTATOR TO DEVISE HOW SHE WISHES Shapira v. Union National Bank: devisee must marry a Jewish girl within 7 years Devisee makes 3 failing arguments: 1. Unconstitutional: right to marry protected by 14 th Amendement—state Action by enforcing the will-COURT—no state action; ct only giving power to executor to carry out will. Not enforcing son’s right to marry, just enforcing the restriction on inheritance (will is not constitutionally protected right—testator may legally disinherit his children) 2. Public Policy Challenge: against public policy to allow a total or general restraint on marriage—COURT: only a partial restraint on marriage (imposes only reasonable restrictions) Not like Maddox v. Maddox where there was noone to marry in small town 3. Did not encourage divorce bc we shouldn’t assume son would get married just to get divorced—a gift effective on condition of divorce would have been illegal The POLICY CONSIDERATIONS at work here is how much leeway we give to the testator—Shapira stands for the proposition that courts are willing to give quite a bit of leeway to testators. SLAYER’S RULE 1. A person who kills another may not inherit if killing is felonious and intentional. 2. If killer is insane, then intent is negated. If killing was accidental or caused by negligence, no intent.

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Page 1: Estates and Trusts Outline

Estates and Trusts Outline2011—Dawson

Introduction: The Living and the Dead: Whose Money is it?

FREEDOM OF TESTATOR TO DEVISE HOW SHE WISHESShapira v. Union National Bank: devisee must marry a Jewish girl within 7 years

Devisee makes 3 failing arguments:1. Unconstitutional: right to marry protected by 14th Amendement—state

Action by enforcing the will-COURT—no state action; ct only giving power to executor to carry out will. Not enforcing son’s right to marry, just enforcing the restriction on inheritance (will is not constitutionally protected right—testator may legally disinherit his children)

2. Public Policy Challenge: against public policy to allow a total or general restraint on marriage—COURT: only a partial restraint on marriage (imposes only reasonable restrictions) Not like Maddox v. Maddox where there was noone to marry in small town

3. Did not encourage divorce bc we shouldn’t assume son would get married just to get divorced—a gift effective on condition of divorce would have been illegal

The POLICY CONSIDERATIONS at work here is how much leeway we give to the testator—Shapira stands for the proposition that courts are willing to give quite a bit of leeway to testators.

SLAYER’S RULE1. A person who kills another may not inherit if killing is felonious and

intentional.2. If killer is insane, then intent is negated. If killing was accidental or caused

by negligence, no intent.3. Fla. Stat. § 732.802: even if there is an acquittal, an interested party can

petition for a determination of guilt—determined by the greater weight of the evidence

4. If killer did kill, property passes as if the killer predeceased the decedant5. If joint tenant, property interests severs6. Named beneficiary on life insurance, etc…--killer not entitled (passes as if

killer predeceased decedant—dead people can’t inherit)7. Person who purchases from killer rights before killing adjudicated not

responsible for the loss, but killer is liable.

LAWYER’S ROLE: FIDUCIARY RESPONSIBILITY1. A lawyer does not owe fid duty to intended beneficiaries of a will2. A fid relationship exists when one has a special confidence in another so that the

latter, in equity and good conscience, is bound to act in good faith.

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3. Hotz. v. Minyard—father drafted will and included daughter in the will. Then, father drafted will without the lawyer. Lawyer misrepresented to daughter that she was in second will. Lawyer also represented daughter in other business matters. Held that lawyer had fid rel with daughter.

4. Fla. Rule 4-1.6 – 4-1.8 Confidentiality of Information/Conflict of Interest

PROBATE AND NON-PROBATE TRANSFERSOne can transfer property by:

1. draft valid will or2. property pass by intestate succession3. non-probate transfers (will substitutes)

Probate and Administrative System:1. In most jurisdictions, when you use the word probate, you are talking about who

gets property donatively through will/intestate. But the second part of property is administration: property collected, distributed to creditors, taxing authorities, lawyers and then distributed according to will/intestate. (have to be just before you are generous)

2. Administration is typically slow and expensive (need personal rep/lawyer)3. In a few jurisdictions, there is a process known as informal jurisdiction; doesn't

involve probate ct unless someone chooses to go to ct—BUT NOT IN FLHow do you avoid probate?

1. administration/probate only operates on property you own at time of death—if you don't have property in estate at death, then don't have to go through probate. (give it all away; see Gruen v. Gruen)

2. gift is simplest way to avoid probate (intent/delivery/acceptance)3. WILL SUBSTITUTES

a. Giftsb. gifts causus mortis (gifts made in contemplation of death/donor must fear

that death is impending and immenentc. Joint tenancies with right of survivorship/tenancies by the entirety Fla.

Stat. 689.15 (have to express right of survivorship)d. Joint bank accounts Fla. Stat. 655.79e. Convenience accounts Fla. Stat. 755.80f. POD accounts Fla. Stat. 655.82 (“trust” accounts 655.825)g. Life insurance (term or whole) Fla. Stat. 222.13

i. Operates very differently from other will substitutes: in most cases decedent has a property interest in the policy. For the most part, the insured gets no wealth benefit from it. Insurance is contract based whereas joint bank accounts and gifts are property based. Insurance is a quick payout vehicle—usually get the money within 30 days

ii. Whole Life: the premium the person pays is leveled—when you are younger it is relatively higher; when you are older it is relatively lower. Functions as an investment vehicle—build cash value—forced savings vehicle—can borrow against cash value (lock in cost of premium)

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iii. Term Life Insurance: pure insurance, has no investment/cash build up—costs you pay is based on probability that you will die during the term. Often people are insured in the workplace—that insurance is always term

iv. Why don’t we worry about formalities?1. Property that passes through insurance is really not

property—isn't property that decedent is passing on2. Insurance companies have a lot of power in state

legislatures3. Beneficiary has a vested interest subject ot defeasance

(Dawson thinks that;s wrong)4. Beneficiary has the right to receive the proceeds

v. In good estate planning, ins proceeds for minor children should be payable to trustee (create trust) rather than to a guardian be guardian is a cumbersome legal device and is legally controlled

Elective share takes into account wealth that was in will substitute form

INTESTATE SUCCESSION (STATUTES)When does intestate succession apply?

1. 732.101(1) when any part of the estate is not effectively disposed of by will, it passes to the heirs in the following ways:

a. decedent dies never having executed a willb. decedent dies and will is invalidc. will is effective but fails to dispose of all d’s property (note: need

residuary clause in well-drafted will)d. In FLORIDA, it is a waste of ink to say “I hereby direct that none of my

heirs in intestate succession take any of my property” disinheritance by fiat is utterly ineffective in Florida.

e. ONLY way you can avoid intestate succession is to give it all away in will to someone else.

2. Why have intestate succession? Heaven forbid property should go to the state! It is an extension of testamentary freedom. If property owner forgot to make will, IS allows state to disperse it how decedent would have wanted it to be dispersed (in theory) state exercises your freedom for you.

3. 732.102 is there a surviving spouse: Why do we give surviving spouse off the top? Assumption: if all lineal descendants are same line H-W, then assumed they will be taken care of by surviving spouse (care argument is a social engineering argument) Florida statute does not give everything to spouse (UPC does) this can create some problems:

a. If child is minor, child gets money, spouse most likely becomes guardian of that money, but has legal restricts on how can be used (can't use for other child, even if other child has health problems)

b. If child is an adult, then most likely spouse is older and may need money more to support him/herself

4. 732.103 Priority Scheme: If there is anything in (1) then people in (2),(3),…are excluded from inheriting

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5. 732.104 Per Stirpes (strict per stirpes)a. split A,B,C,D (even if dead)



120k estate: divided strict per stirpes1. split A,B.C,D 120/4 = 30k2. A’s line: E =10k, F=10k, N=5k, O=5k3. B’s line: H=30k4. C’s line: I=10k, J=10k, K=10k5. D’s line: Q=15k, U=15k

Property passes to descendants of decdent (NOT in-laws)Dead people can’t inherit

6. 732.107 Escheat (viewed as a bad solution by all legislatures/last resort) If everyone in family is dead when X dies, then estate goes to the state. BUT, in Florida 732.103(5) last deceased spouse answer to escheat!

7. 732.105 Halfblood only inherit half as much as those of whole blood; but if all are half-blood, they should have whole parts.

X-----------------------------------------------H------------------------------------------WD A B C

F G EB dies w 100k732.103: B’s descendants = E732.105 Halfbloods (half as much)D=1C=21+2=3100/3=33.3F and G get 16 k each (33.3/2)E gets (66k)

8. 732.108 Adoption (look at statute—very complex)9. Equitable Adoption: Bean v. Ford: When a caretaker takes a child inter her home,

she impliedly agrees wit the child’s natural parents that she will adopt the child. If the parties rely on the agreement, the child is entitled to benefits as the caretaker’s child. The parties to the contract have to have the authority to contract. Should the child also be entitled to inherit from the natural parent’s family members?

a. Florida recognizes equitable adoption—usually comes up when person dies and equitable adoptee arrives and says I am entitled to inherit. The doctrine is used to adjust equities between putative parent and person who was supposed to be adopted. (only applies to parent not gparents, siblings)

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10. Reproductive Technology: Woodward conception occurred two years after death of father—can child inherit? At some pt estate should be closed and we ought to move on. In Florida, 732.106, says that if conceived before death, but born after then inherit, but statute written in 1974 before the issue really came up.

11. 732.601 Simultaneous Death: this statute will rarely be applied bc with technology, we can almost always figure out who died first. If you can’t figure it out, treat each person as if that person survived.(invites litigation, so and so lived a nanosecond longer)—sub issue: if N and R die at same time and N inherits from R, R’s money has been administered, if it then passes to N, then same admin fees, so there is essentially double taxation before it gets to heirs.

12. 739.203 Disclaimer (In Florida, person can disclaim will or intestate) disclaimer can be a planning device/avoid taxes.

13. 739.401 Baird case—statute in Q in this case did not provide for disclaimer before decedent had died (but this wouldn't work in Florida bc disclaimer can be made at any time)

14. 733.806 Advancement: If person dies intestate, property that the decedent gave during lifetime to an heir is treated as an advancement if declared in a contemporaneous writing by the decedent or acknowledged in writing by heir.Ex: G dies with 190k. survived by H(spouse) and A,B,C (kids). Before death, gives A 50k and B 10k. Make hotchpotch: 190+50+10=250Two countervailing advancement policies:

a. use hotchpotch to equalize share of children (not spouse)i. 190+60=250

ii. H gets ½=125, then divide rest by 3, get ~42, but not enough left in estate, so B and C split except B gets 10k less because already got 10k before G dies.

b. what hotchpotch is doing is taking account of gifts that have depleted the money that the heirs should have gotten—including the amount spouse gets intestate. Not just theory of equalization, but impact of gifts in probate estate (effectively giving property away to punish spouse)

i. H gets ½= 125ii. Then divide remainder by # of children 125/3=42. Since there is

not enough money in the estate now (only 190-125=65), drop A50k out. 190+10=200 H=100, B=40, C=50

Not sure how we do it in Florida, CL way(a.) or THIS was, the statute is unclear

ELECTIVE SHARESullivan v. Burkin: couple ha been separated for years, but never divorced, so wife was entitled to elective share, but hub had created an inter vivos trust. W argued that the trust wasn’t a transfer out of the estate, so it was hub’s when he died. Ct responds that inter vivos trust is a valid transfer. Then W said I should be able to assert elective share over trust and court says no not this time, but the next case we get, the trust will be part of elective share (notice)

FLORIDA increases the value of the base for elective share purposes.

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732.2035 is the base—primarily non-probate transfers—essentially a bookkeeping/paper exercise732.2045 are the exclusions. (elective share estate is almost always larger than the probate estate).732.2065 Elective Share = 30% of the ELECTIVE estate732.2075 where to get $ for elective share (priority statute)

FAMILY PROTECTION732.4015 Homestead732.402 Exempt Property732.403 Family Allowance

WILLS-FORMALITIESWhat steps do you follow to make a will?

1. develop a questionnaire to send to client before interview2. in interview ask what she wants to accomplish (tax, etc..) and ask hard questions:

children out of wedlock (explain potential conflict of interest)3. send prelim draft to client4. meet to execute the will—statute kicks in (formalities are an issue)

a. 2 disinterested witnesses to attest [w/ self-proving affidavit](3 witnesses to be safe if in another state they require 3 signatures, then this would cover you if decedent moves before she dies)—have to worry about requirements in other jurisdictions and extras don’t hurt

b. Choose secretaries, paralegals as witnesses, not family members bc that can raise questions of undue influence NO ONE who takes a gift under the will

c. Attorney shouldn’t witness because rules of professional conduct 4-3.7: can’t represent client if you have to testify and wills are cheap, what you want to be is the lawyer for the estate, but can't if you have to testify about the validity of the will

d. 732.504 any competent person can witnesse. 732.502 Execute will:

i. testator must sign OR (do not have to be in presence of witnesses when signing—just need acknowledgement of signature)

ii. s.o. else writes testator’s name at endiii. testator must see the witnesses sign and witnesses must see each

other sign (sight test for presence)iv. if testator is blind—exception to sight test rulev. In older statutes, testator had to say “this is my will”. IN florida all

witness is doing is witnessing the signature, but still better for witnesses to know that it is a will.

vi. Testator must ask witnesses to sign in some statesf. 732.503 Self-proof of willg. Attestation clause: can use “of sound mind” to deal with mental issues.

Can use “no undue influence”

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i. Boilerplate language stating that all formalities were abided by in execution; creates a presumption of valid execution, but can be used to impeach

ii. 90.608 who may impeachiii. Nothing in Florida statute says you have to have attestation clause

and it can be used to impeach

WHAT CONSTITUTES THE WILL1. Integration doctrine: a paper is integrated into the will if it was present at the

time the will was executed and the testator intended to include it in the will.a. If page was left out accidentally, then not integratedb. If page inadvertently left in, then no intent so not integrated

i. So, make sure you put on each page 1/10, 2/10, 3/10, etc…ii. Initial each page before signing (testator and witnesses) just to

show pages were there at execution)iii. Staple pages togetheriv. Internally connect will (clause 5 refers to clause 1)

2. 732.5105 Republication of wills by codicila. Codicils are documents that are executed with the formalities of the will

that change provisions in the will—codicil incorporates the underlying will by reference

b. Elements: physical existence of a will; intent to validate or revive; identification—sufficient description of the will

c. Effect: restoration of the underlying will plus all prior valid codicils that are not inconsistent with the reviving codicil and all invalid or inconsistent codicils that are specifically identified by the reviving codicil.

3. 732.515 Separate writing indentifying devises of tangible property4. 732.512 Incorporation be reference

a. “a writing”b. “in existence when will is executed”c. “intent to incorporate”d. doc must be sufficiently indentified in the will

5. 732.512(2) Facts of Independent Legal Significancea. permits a court to give effect to events which would change the disposition

of testator’s estate after execution—so long as those events have independent significance.

b. Devise to “all employees of co. X would qualify. Devise to all my children alive at my time of death would qualify.

c. All the cash in my kitchen drawer would not qualify if cash was put there just to give to Charles.

d. All of stocks in safety deposit box to people whose names are on the envelope would not qualify bc not independent of testamentary intent.

6. 732.508 revival by revocation7. 732.509 Revocation of a codicil8. 732.511 Republication of wills by reexecution: can reexecute using formalities9. 732.513 devise to trustee:

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CHANGES OF PEOPLE AND PROPERTY AFTER EXECUTION1. Abatement: determines the priority order among various devisees when the value

of the estate is insufficient to satisfy all of the devisees in the willa. 733.805:

i. property passing by intestacyii. Four categories of will gifts

1. residual gift2. general gift3. specifically devised property (gift of only that property; no

substitute or proceeds from) AND demonstrative gift (payment of $ from a specific source—30k from Ford Explorer)

a. to entent not enough $ out of proceeds of demonstrative gift, then rest due becomes a general gift.

2. Ademption: doctrine for what happens when specifically devised property is no longer in estate.

a. General Rule: Where property is specifically devised and not in estate, devisee takes nothing

b. Intent doesn’t matter if property is not there, BUT FLORIDA doesn’t follow that rule. In Florida INTENT does matter—specific gift is adeemed only if testator had intent to adeem when she disposed of property during her lifetime. (think about devising car and then car crash)

c. 732.606 Nonademption of specific devises in certain casesd. 732.609 Ademption by satisfaction (parallel to doctrine of advancement

733.806)3. Lapse: When a devisee named in the will dies before the testator’s death, then

devise generally lapses unless the jurisdiction’s anti-lapse statute preserves the devise.

a. 732.603 Anti-Lapse Statuteb. 732.604 Failure of a Testamentary Provision

CONSTRUCTION OF WILLS1. 732.6005 Rules of Construction and intention: there is no bright line rule here

a. plain meaning rule (whose plain meaning?)i. words should be given their ordinary, plain meaning

ii. ex: to my children. Children should be interpreted in the normal sense unless language from the will itself indicates otherwise.

b. Ambiguity: if the terms of the will are ambiguous, then extrinsic evidence may be used to clarify those terms

i. patent: ambiguity obvious on the face of the provision: 1. courts less willing to admit extrinsic evidence2. When a will provision creates an ambiguity obvious on the

face of the provision (patent), the court will look to the rest of the will to resolve the ambiguity. Ex. To my daughters

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Jane and Jane. T has 3 daughters: Jane, June and Mary. Later in will T leaves residuary to Jane and June and states nothing shall be left for Mary. Ct interprets Jane and Jane to mean Jane and June.

ii. latent: not in will but when you look outside will, it is obvious that there is an ambiguity. Two things exactly measuring up to terms of will OR no person exactly matching

1. courts more willing to admit extrinsic evidenceiii. Evidence in the form of declarations of intent are not allowed

c. mistake: wrong name used, misdescription: the mistake must appear on the face of the will, and it must also be clear what the will would have said but for the mistake. Evidence can be used for interpreting the will but may not add something new to the will

REVOCATION1. People who have executed wills are entitled to get rid of them—wills are donative

docs, like donative promises, they can be revoked. Will becomes operation at testator’s death.

2. Three types of revocationa. 732.507 Operation of law (Effect of subsequent marriage, birth, adoption

or dissolution of marriage) i. None of these things revoke the will but the child/spouse shall

inherit under pretermission (732.301/732.302)ii. Any provision of the will executed by a married person that affects

the spouse of the person shall become void upon divorce/dissolution (comparable provision in trust code 732.1105)

b. 732. 506 Revocation by Physical Act: can't partially revoke by physical act (but can with codicil 732.505)

c. 732.505 Revocation by Writing: Subsequent Instrument (including codicils)

3. 732.508 Revival by revocation: If I have revoked a first will by a second will and I revoke the 2nd will, is the 1st will operation again? (no)

a. 732.508(1) strict no revival of old will if newer will is revokedb. 732.508(2) revocation of codicil does not revoke will and provisions that

codicil amended/revoked are revived.c. Id we have a codicil with an express revocation clause, what happens? It

would probably be interpreted as a will, but Dawson not sure.4. DRR: Dependant Relevant Revocation or Didn’t Really Revoke

a. If it is clear that the cancellation and the making of the new will were parts of one scheme, and the revocation of the old will was so related to the making of the new as to be dependent on it, then if the new will be not made, or if made is invalid, then the old will, though cancelled, should be given effect.

b. Ex: T has will #1 and will # 2. Revokes will # 2 thinking that will # 1 has been revived/is in force. Will #1 is not in force, so DRR asks, would T have revoked will #2 if he would have realized that will #1 was not

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valid/revived? If yes, then T dies intestate. If no, then the revocation of will #2 was conditioned upon the validity of will #1. Since will #1 invalid, will #2 not revoked.

LIMITS ON THE POWER TO REVOKEJoint Wills and Will Contracts

1. Garrett v. Reed: couple comes to lawyer to make a will—agreement is that they will leave a clock to the daughter and all the rest to the surviving spouse. If one spouse predeceases, then when the other dies, divide into 7ths for each child/issue. Hub dies W inherits, she comes back to the same lawyer and says she wants to change the will.

a. RULE: A contract that purports to prevent revocation of a will does not work. Wills law allows revocation. Wife may revoke the will, but if she does, it will be a breach of contract and devisees that don’t take under wife’s will have a contract claim as creditors under first will.

b. BUT 732.701: this will would not have been held to be a contract in Florida because there is no presumption of contract in joint wills and must be signed in front of two witnesses (but witnesses need not be in presence of each other)

2. Lesson: when you enter into a contract with a (now) deceased spouse, you don’t give the spouse any leeway. There is an implicit assumption that the survivor will use as little as possible to give $ to children.

3. Shimp v. Huff: L and C got married and executed a joint will which stated that the will could not be altered by either party except by the party’s consent. Property was to go to surviving spouse and then after survivor died, it was to be distributed. C died, L remarried. After L died, second wife claimed elective share and court held for 2nd wife over devisees but took into consideration:

a. Whether the 2nd spouse had notice of the contract when they marriedb. Length of the marriagec. Whether the 2nd spouse would be deprived of the entirety of the estate by

enforcement of the contractd. Public policy concerning the marriage relationship and the rights of the

surviving spouse.

CONTESTING THE WILL/MENTAL STATE ISSUES1. Sound Mind/Capacity Doctrine/Testamentary Capacity

a. 732.501 “A person who is of sound mind”b. Lack of capacity voids the entire willc. Elements:

i. The testator must understand the nature of the business in which he is engaged and

ii. When making a will has a recollection of the property of which he means to dispose and

iii. How he wishes to dispose of the propertyiv. The mind may be debilitated, the memory enfeebled, the

understanding weak, the character may be peculiar and eccentric,

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and he may want capacity to transact many of the business affairs of life

d. Introducing evidence of unsound mindi. Before a lay witness will be permitted to give his opinion that the

testator is of unsound mind, he must first detail the facts upon which he bases his opinion, but if he expresses an opinion that the person is of sound mind, he is not required to detail all the facts on which he bases his opinion.

2. Insane delusiona. If gift is product of insane delusion, then gift is not admissible to probateb. Insane delusion may go to a portion of the will and not the entire willc. Delusion is insanity where one persistently believes supposed facts, which

have no real existence except in his perverted imagination and against all evidence and probability, and conducts himself, however logically, upon the assumption of their existence.

d. The question in insane delusion is whether there is ANY rational basis, however slight, for the belief.

3. Undue Influence (wrongdoing doctrine): focus on person doing the wrong—just as concerned with punishing the wrongdoer as getting to testator’s intent

a. Entire will or part may be voidb. Elements:

i. There is a confidential relationship between the testator and the beneficiary

1. Trust is reposed by reason of testator’s weakness or parties had relationship in which the reliance was natural

ii. Presence of suspicious circumstances which will shift the burden of proof to the proponent

iii. Overcome presumption of undue influence by a preponderance of the evidence

1. Where the atty draws the will and is the beneficiary = overcome by substantial trustworthy evidence

2. Where the atty represents both the testator and the beneficiary overcome by clear and convincing evidence

iv. Unnatural resultc. Independent advice of counsel will correct for the effects of undue

influence.4. Fraud: Testator acted on fraudulent information—cts concerned with person who

perpetrated the fraud.a. Fraud in the inducement

i. Fraudulent statements or conduct relates to statements made around the will

ii. T changes will in responseb. Fraud in the execution

i. T is misled as to the nature of the instrument he is signing (child tells parent it is a power of atty when it is really a will)

ii. Elements:

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1. Statement made is false2. Person making the statement knows it is false3. Made with the intent of effecting a will4. T is deceived5. Person accused of fraud benefits

iii. Remedies: constructive trustc. 732.517 Penalty Clause for Contest (no contest clauses)

i. A provision in the will purporting to penalize any interested person for contesting the will or instituting other proceedings to the estate is unenforceable.

5. 732.5165 Effect of fraud, duress, mistake and undue influencea. A will is void if the execution is procured by fraud, duress, mistake, or

undue influence. Any part is void if so procured, but the remainder of the will not so procured shall be valid if it is not invalid for other reasons.

6. 733.107 Burden of proof in contests; presumption of undue influencea. burden on proponent to establish prima facie validity (usually by self-

proving affidavit), the burden shifts to contestant to establish grounds on which the probate of the will is opposed or revocation is sought

b. BUT, the presumption of undue influence shifts the burden to the proponent to prove no undue influence.

CREATION OF TRUSTSTrust law was historically CL until 2006 when ET Code went into effect.

1. 736.0106: CL of trusts is still in effect as long as not modified by this Code2. 736.0401: Methods of Creating Trusts

a. Inter Vivos trust: transfer of property to another person as trustee during the settlor’s lifetime

b. Testamentary Trust: transfer property by will or other disposition taking effect on settlor’s death

c. Inter vivos self-declared trust: Declaration by the owner of property that the owner holds identifiable property as trustee

d. Exercise a power of appointment in favor of a trustee3. 736.0402 Requirements for Creation

a. Series of requirements:i. Have to have a trustee (3rd party or owner of property, usually

institutional) usually this is not an issue1. What happens when a trustee refuses/can no longer serve

“A trust will not fail for want of a trustee” ct has inherent power to appoint trustee, unless the trustee must perform duties of a personal nature (give $ in trust to who you see fit)

2. Merger: if legal and equitable title is merged, there is no longer a trust

ii. Have to have beneficiaries1. Definite beneficiaries: definite and identifiable before rule

of perpetuities

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2. 736.0408 trust for care of animal3. 736.0409 noncharitable trust without ascertainable

beneficiaryiii. have to have property

1. 733.808: Death benefits; disposition of proceeds: can set up a full-blown trust that will be funded when you die by life insurance policy (right to receive life insurance proceeds is an expectancy, not a property interest, so this is weird)

2. problem with inter vivos trusts: ex: I create a trust the corpus of which is the $ I will receive from my mom’s estate” No trust bc no property—have to get legal title to trustee.

iv. Have to have capacity to create a trust1. If testamentary trust, then capacity=capacity to make a will2. 736.0601 Capacity of settlor of revocable trust=

a. Revocable: essentially treated like a will bc it’s a will substitute

b. Irrevocable: not viewed as a will substitute—present and irrevocable (like gift—does the settlor have capacity to make a gift?)

v. Have to have intent1. Settlor must express an intent to impose an enforceable

duty on the trustee—precatory language in these contexts leaves doubt as to intent

vi. Problems1. Secret trusts: arise when a devise that appears on its face to

be outright to one person is made subject to a separate, usually oral agreement that the recipient will hold the property for the benefit of another

a. Are ENFORCED by way of a constructive trust for the intended beneficiary

2. Semi-secret trust: it is clear from the devise that the taker it to receive it in trust, but the beneficiaries of the trust/other terms are not stated.

a. Semi-secret trust/gift fails3. Precatory language:

a. If language does not binds, the transferee gets the property outright

b. If language does bind, then trust created.c. Precatory language is prima facie construed to

create a trust when they are directed to the executird. No trust is created by precatory language directed to

a legatee unless there is a testamentary intent to impose a legal obligation upon him to make a particular disposition of property

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REVOCABLE TRUSTS1. Inter vivos Trusts

a. A settlor may create an inter vivos trust by declaring that she holds the trust property, as trustee, in trust for the named beneficiarys, or by transferring the property to someone else as the trustee for the benefit of the named beneficiaries.

i. When settlor transfers the property in trust to someone else as trustee, the settlor must deliver the property to the named trustee.

b. 732.513 : Devises to trustee: devise won’t be invalid because i. trust is amendable or revocable

ii. has been amended/revoked in part iii. because the only res of the trust is a possible expectancy of

receiving life insurance…c. 689.075: inter vivos trusts; powers retained by settlor

i. all declaration and creations of trust must be manifested and proved by some writing, signed by the party authorized by law to declare such a trust.

d. 736.0403 Formalities for revocable trustse. 689.05 how declarations of trust proved: revocable trust prior to

dissolution of marriage2. Pour over trusts

a. Legal history: 2 objectives for people who started trying to do this:i. Revocable inter vivos trust

ii. Combine trust assets and estate assets1. These people could have created a testamentary trust, but

there were downsides:a. Hard to combine inter vivos and testamentaryb. Testamentary trust still subject to probatec. More expensive to have testamentary trustd. Terms of the trust were in the will, so information

became publiciii. So, instead of creating testamentary trust, get the property into a

trust that is already created, “pour over trust”1. Revocable2. Combine assets from estate and trust3. If pour over effective, trust was not testamentary bc set up

as inter vivos—at death irrevocableiv. But there were problems:

1. If inter vivos trust was revocable, it was also amendable—so what does this do to will? Invalid testamentary transfer?

a. Trust could be incorporated by reference, but then cound’t be amended

b. Trust could have independent legal significance, but doubtful if not funded before death.

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v. So, a new doctrine was created 732.513: statutorily, a devise under a inter vivos trustis valid as long as trust in existence at time will was created and

1. It won’t be invalid just bc it is amendable/revocable2. It won’t be invalid bc only thing trust holds is expectance

interestb. Who creates pour over trusts?

i. Older rich people who have assets in hand and want to put assets into trust so that money doesn’t go through probate, also worried about the leftovers that are not in trust

ii. Young couple with minor child concerned about $ for child if both die-0create an inter vivos trust that is not funded except with proceeds from life insurance policy

1. Could also use a testamentary trust, which is cheaper to create, but more expensive to maintain bc stays under ct control

3. Revocationa. 736.0602: Revocation or amendment of revocable trust

i. strong presumption that trust is revocable (must expressly provide otherwise)

4. 736.0603: Settlor’s powers; powers of withdrawal5. 736.0604 Limitation on action contesting the validity of revocable trusts

DISCRETIONARY AND SUPPORT TRUSTS1. The real beauty of trusts is their flexibility

a. Standards Trust or Support Trusti. 736.0103(3) articulates most of the standards (health, education,

support, maintenance)ii. If settlor uses standards, what are the beneficiary’s rights?

iii. Imposes mandatory duty on the trustee to ascertain what the beneficiary needs for support and supply that support—typical standard is reasonableness—did the trustee act reasonably in dispersing the funds

iv. There can also be a hybrid trust—where beneficiary gets income but settlor gives trustee discretion to invade principle for certain reasons.

v. When words “necessary for support” are used in a support trust, the terms are construed to support the beneficiary regardless of the beneficiary’s own assets.

vi. When words are “support and maintenance” trustee has a duty to inquire about the financial resources of the beneficiary and recognize the need.

vii. Bad faith or with reckless indifference is standard applied to trustee who is accused of not giving enough support to beneficiary

b. Discretionary trust

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i. Settlor imposes no mandatory obligation on the trustee and gives trustee discretion to pay the income for the benefit for one or more described beneficiaries “So much of the income and principle to A as trustee shall determine, in trustee’s discretion”

ii. T may not act dishonestly, arbitrarily, or refuse to exercise judgment because he wants money for himself

1. Bad faith or improper motiveiii. CREDITORS: trustee is not forced to make payment to creditors,

but if the trustee has notice that the beneficiary owes money and chooses to give money to the beneficiary, then the trustee is held liable. i.e., once the trustee has notice of the debt and chooses to make a payment on behalf of the beneficiary, the payment must be made to the creditor unless it is a spendthrift trust.

c. Spray trust: the trustee has discretion to pay money to one or more beneficiaries.

d. Creditors’ Rights 736.0501 Unless trust subject to spendthrift provisions, court can award the INCOME from trust to creditor

e. Spendthrift Clause/trust 736.0502i. Clause: the interests of my beneficiary shall not be capable of

assignment, anticipation or seizure by legal process”ii. Designed to prevent voluntary assignment and garnishment by

creditors.iii. Settlor may not create a spendthrift trust for his own benefit